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CISG CASE PRESENTATION

Russia 10 June 1999 Arbitration proceeding 55/1998 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases990610r1.html]

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

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Case identification

DATE OF DECISION: 19990610 (10 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: 55/1998

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (claimant)

BUYER'S COUNTRY: Cyprus (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 4 ; 7(2) ; 9 ; 12 ; 13 ; 78 ; 80 ; 96

Classification of issues using UNCITRAL classification code numbers:

4B1 [Scope of Convention (issues excluded): validity under domestic law];

7A3 ; 7C [Principles of interpretation: observance of good faith; Gap-filling];

9C [Practices established by the parties];

12A [Effect of reservation under article 96 rejecting article 11].

13B [Electronic communication similar to telegram or telex];

78A [Interest on delay in receiving price or any other sum in arrears];

80A [Failure of performance caused by other party (party causing non-performance): loss of rights].

Descriptors: Scope of Convention ; Validity ; Writing, definition of ; Formal requirements ; Declaration, Art. 96 ; Usages and practices ; Failure of performance, other party ; Good faith ; Gap-filling ; General principles

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Editorial remarks

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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 (1999-2000) No. 21 [111-116]

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 55/1998 of 10 June 1999

Translation [*] by Mykhaylo Danylko [**]

1. SUMMARY OF RULING

      1.1 Although the arbitration clause in the contract is imprecise, the parties' intention to refer their disputes to the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry (hereinafter Tribunal) is based on the fact that the [seller] has brought a claim at the Tribunal and the [buyer] while pleading as to the merits of that claim has agreed that the Tribunal had jurisdiction to hear this dispute.

      1.2 It is acknowledged that under the circumstances, as the contract contained no agreement between the parties on the applicable law, under Article 166(1) of the Fundamentals of Civil Law of USSR 1991, the law applicable to this case is the law of the Russian Federation as the law of the country of seller. Therefore, according to the Russian Federation Constitution (Article 15(4)) and Civil Code (Article 7), the Tribunal must apply the provisions of the Vienna Convention 1980 (Article 1(1)(b)) [U.N. Convention on Contracts for the International sale of Goods (1980), hereinafter CISG]. The domestic law of the Russian Federation should be applied as subsidiary law.

      1.3 The Tribunal rejected as unconvincing the [buyer]'s argument that, pursuant to the CISG, any modifications to the contract are ineffective if sent by fax. According to Article 4 CISG, the validity of the contract or of any of its provisions is not governed by the CISG; rather, the determination of validity of the contract or of any of its provisions is governed by the applicable domestic law. The Russian Federation Civil Code (Article 434) provides that a contract may be concluded through the exchange of documents by using the means of electronic communication, including exchange of messages by fax.

      1.4 Although it is an ordinary course of dealing between parties that the seller provides to the buyer's agent the set of bills of lading, considering the contract's provisions that provide for the seller to mail the set of bills of lading to the buyer, it is to be said that due to the seller's negligence the buyer has delayed with the necessary payment. Nonetheless, the negligence of the seller does not excuse the buyer from payment for the goods already shipped by the seller upon request from the buyer. Moreover, the buyer has not taken any action to pay for the goods after it had received a set of bills of lading along with the documents of claim from the seller. Accordingly, the debt is recovered from the buyer.

2. FACTS AND PLEADINGS

This action was brought by the [seller], a Russian company, against the [buyer], a Cypriot company, in connection with default in payment for shipped goods according to the international contract for sale of goods concluded between the parties in 1996.

     2.1 [Buyer's position]

The [buyer]'s position was that [buyer] was not responsible to pay for the goods, which [buyer] allegedly did not receive, arguing that the seller in breach of the contractual provisions had not mailed the set of bills of lading to the buyer.

     2.2 [Seller's position]

The [seller] contended that [buyer]'s fax messages allegedly altered the contract in respect of the terms of delivery.

     2.3 [Buyer's response]

[Buyer] contended that the fax messages were ineffective because they were not in writing in breach of Article 13 CISG.

3. TRIBUNAL'S REASONING

The ruling of the Tribunal contains the following main points.

     3.1 [Jurisdiction of the Tribunal]

The parties have included a provision in the contract that the applicable forum is the Russian Federation Chamber of Commerce and Industry in Moscow, Russia. Further, the contract stipulates that the decision of this tribunal will be final and binding on both parties.

Considering that the parties to the contract did not expressly specify the name of the tribunal at the Chamber of Commerce and Industry to which they wanted to bring the disputes to be resolved, the Tribunal, while deciding the question of its competence in the present case, based its opinion on the fact that at the moment of the formation of the contract between parties, according to the Russian Federation Law on the Tribunal of International Commercial Arbitration and the Rules of this Tribunal, the Tribunal was a competent tribunal for disputes arising between parties in international commercial transactions where at least one of the parties is based overseas. Therefore, there is a basis for considering that the parties, at the time of concluding the contract, contemplated that their future disputes are to be resolved by the competent tribunal to resolve such disputes, and that such tribunal is specifically the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry.

The competence of this Tribunal to hear the present case is also sustained by the facts that the [seller] has brought a claim to the Tribunal, whereupon the [buyer], in [buyer]'s statement of defense against the [seller]'s claim, has confirmed the competence of this Tribunal to hear the present case.

According to the aforesaid and based on Articles 7 and 16 of the Russian Federation Law on the Tribunal of International Commercial Arbitration and Section 1(5) of the Rules of the Tribunal, the Tribunal recognized itself as a competent tribunal to hear the present dispute between the parties.

     3.2 [Seller's motion for hearing durante absentia]

Taking into consideration Section 28(3) of the Rules of the Tribunal, the Tribunal has granted the motion of the [seller] to hear the dispute durante absentia, whereas the [seller] had submitted documents requested by the Tribunal, necessary for the arbitration of the present case.

The [buyer] has not objected to that motion.

     3.3 [Applicable law]

Since the parties have not agreed on the applicable law, the Tribunal basing its ruling on Article 28(2) of the Russian Federation Law on the Tribunal of International Commercial Arbitration, decided to apply Russian conflict rules of the Fundamentals of Civil Law of USSR 1991, which were in force at the time when the parties concluded the contract and established their relations. According to paragraph 1 of Article 166 of the Fundamentals of Civil Law of USSR 1991, the rights and obligations of parties to international commercial contracts should be determined according to the law of country where the seller has been incorporated and has its principal place of business. As the seller in the present case is a Russian legal entity, the applicable law to resolve the dispute between the parties should be Russian substantive law.

Taking into consideration that at the moment of concluding the contract, the Russian Federation was a Contracting State to the CISG, the Tribunal came to the conclusion that under Article 1(1)(b) CISG, the application of the provisions of the CISG to the parties' relations should be relevant as far as the CISG is an international convention and it constitutes part of the Russian Federation's domestic legal system according to Article 15(4) of the Constitution of the Russian Federation and Article 7(1) of the Civil Code of the Russian Federation. Other questions that are not mentioned in the contract and which are not expressly settled by the CISG and cannot be settled in conformity with the general principles on which the CISG is based, according to Article 7(2) CISG should be settled in conformity with the law applicable by virtue of the rules of private international law (thus, the subsidiary application of Russian law).

     3.4 [Buyer's motion to examine the signature of its agent]

The Tribunal has ruled to deny the [buyer]'s motion to examine the [buyer] agent's signature on the Annex to the contract whereas the fact of change of the terms of delivery (DAF Russian-Estonian border) by the [buyer] is confirmed by other documents (fax message which had been received by the [buyer] on 22 January 1996; certificate attached to the contract and signed by the parties through the exchange of fax messages between themselves; correspondence between the [buyer]'s agent and the shipping agent). These documents also bear the same [buyer] agent's signature, which has not been disputed by the [buyer].

     3.5 [The merits of the case]

The Tribunal, while considering the case on the merits, has determined that under the terms of the contract the [seller] had shipped for the [buyer] a quantity of goods for the amount in dispute on the terms DAF Russian-Estonian border. The validity of the contract and the authority of signatories to the contract are admitted by the parties and are undoubted by the Tribunal.

The fact of shipment is evidenced by the invoice of 30 April 1996, the cargo customs declarations of the same date and seven railroad waybills. As evidence that [buyer] had sent to [seller] the instructions to ship the goods on the terms DAF Russian-Estonian border, the [seller] has submitted:

[Buyer]'s argument for the invalidity of the above-mentioned fax messages, which altered the contract's provisions, because the messages had not been executed in writing, is not convincing.

According to Article 4 CISG, the CISG is not concerned with the validity of the contract or any of its provisions. Nor does the CISG contain general principles that could found the basis for resolving the question of validity of the contract. As it is mentioned in the Commentary to the CISG, if the national law of a Contracting State requires the contract to be concluded in writing, the requirements of writing for the purpose of contract should be determined according to the national law (instead of applying the provisions of the CISG) (see Vienna Convention On International Sales of Goods of 1980. Comment, M., 1994. p. 43). Indeed, due to the requirements of Soviet (Russian) law as to the form of international commercial contracts, the USSR has made a declaration on this issue under Article 96 CISG.

Part 1 of the Civil Code of the Russian Federation which contains requirement for international commercial contracts to be concluded in writing (Article 162), was in force on the date when the parties signed the contract (22 January 1996). Under Article 434(2) of the Civil Code of the Russian Federation, the contract may be concluded in writing either by composing one single instrument signed by the parties, or by exchanging documents by mail, telegraph, teletype, electronic or other means of communication, which allow credible verification that the document is sent by the party to the contract. Therefore, Russian law expressly provides that the fax communication is one of the means of electronic communication and it is an admissible manner for concluding a contract in writing.

[Buyer]'s contention that the [buyer] had not sent any fax messages to the [seller] with modifications to the contract's provisions concerning delivery of goods cannot be accepted by the Tribunal as convincing and it is dismissed as irrelevant.

The fax messages about modification of the terms of delivery of the goods provided by the [seller] have been made on the letterheads of the representative office of the [buyer] in Moscow. The fax messages have been signed by the [buyer]'s representative officer who was the same person who had signed the contract and whose authority to do so was not disputed by the parties. Also, the fax messages contain a print of the name of the shipper - the [buyer] company - in the upper left corner of the messages. Besides this, the [buyer] has not provided to the Tribunal any documentary evidence of buyer's contention. It must be noted here that it is not important which fax machine the [buyer]'s representative officer has used to transmit the messages (either in [buyer]'s office or in any other place). The present facts provide the basis for the conclusion that the above-mentioned documents are valid and have been sent by the [buyer] through the [buyer]'s representative office in Moscow.

The Tribunal also took into account that the [seller] could not have derived any benefits from shipping the goods on delivery terms others than provided by the contract without express instructions from the [buyer].

According to paragraph 4 of the contract, the [buyer] agreed to make payment during 175 days after the shipment of goods. The [buyer] has not made any payment for the goods shipped and the [buyer] does not dispute this fact. Thus, the amount in dispute is the [buyer]'s indebtedness.

Considering [buyer]'s argument that the [seller] had not mailed the set of bills of lading to the [buyer] as required by paragraph 3 of the contract and, therefore, the [seller] is not entitled to demand [buyer]'s performance as to the payment for shipped goods, the Tribunal found the following: During the pleadings, the [seller] contended that the full set of shipping documents had been handed over to the [buyer]'s agent immediately after shipment of the goods, which is the ordinary course of dealing between the parties, because the shipping documentation had been handed over in the same manner during the performance of the earlier concluded contracts for delivery of goods between the parties, which had been duly performed by both parties.

Taking into consideration this contention of [buyer], the Tribunal found in [seller]'s actions a certain degree of negligence and recognized that the [seller]'s negligence has caused [buyer]'s delay in payment for the goods. In case the [seller] would have demanded either interest on arrears for using the money or damages caused by delay in payment, then, in the Tribunal's opinion, the [buyer]'s arguments as to the application of Article 80 CISG would have been reasonable. However, the [seller] did not claim such damages. Nonetheless, in the Tribunal's opinion, such negligence of the [seller] could not be the reasonable cause for [buyer]'s failure to perform its obligation to pay for the goods because the [seller], as it follows from the documents of the case, has shipped the goods in the manner the [buyer] had instructed the [seller] while the [buyer] has not tried to find out where the goods were; moreover, the [buyer] has not even responded to the [seller]'s inquiries. Furthermore, after the [buyer] had received the claim papers including the set of bills of lading, the [buyer] did not respond. In the Tribunal's opinion, such actions of the [buyer] do not fall within the principle of good faith in commercial relations.

Thus, the Tribunal acknowledged that the delay in payment was caused as a result of incorrect actions by both the [seller] and the [buyer] in the performance of their obligations under the contract.

The Tribunal also concluded that some breaches committed by the [seller] nonetheless do not excuse [buyer]'s failure to make payment for the goods shipped on [buyer]'s instructions.

     3.6 [Arbitration fees and expenses]

According to Article 6(2) of the Annex to the Rules of the Tribunal on Arbitration Expenses and Fees, the arbitration fees are usually to be paid by the [losing party] proportionally to the amount of judgment.

At the same time, as it is said above, the Tribunal held that the [buyer]'s delay to make payment was caused by both parties' breaches of the contract. Under these circumstances the Tribunal found it fair to divide expenses as to arbitration fees equally between the parties.


FOOTNOTES

* This is a translation of data on Proceeding 55/1998, dated 10 June 1999, of the Tribunal of International Commercial Arbitration at the Russian Federation Chamber and Industry, reported in: Rozenberg ed. Arb. Praktika 1999-2000, No. 21 [111-116].

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 [seller]; Respondent of Cyprus is referred to as [buyer].

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

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