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CISG CASE PRESENTATION

Russia 8 July 1999 Arbitration proceeding 318/1997 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990708r1.html]

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

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Case identification

DATE OF DECISION: 19990709 (8 July 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: 318/1997

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (claimant)

BUYER'S COUNTRY: Netherlands (respondent)

GOODS INVOLVED: Goods


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 50 ; 74

Classification of issues using UNCITRAL classification code numbers:

50A [Buyer's right to reduce price for non-conforming goods];

74A [General rules for measuring damages: loss suffered as consequence of breach]

Descriptors: Reduction of price, remedy of ; Damages

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Editorial remarks

"According to the facts, the buyer claimed reduction of the price from the seller due to the fact that the goods were contaminated by a foreign matter. The Tribunal, however, denied the claim. It ruled that since the buyer had not incurred any expenses or costs as a result of contamination of the goods, and the goods had been resold under the prices even higher than the prices for the conforming goods which the buyer had received from the seller under the same contract and subsequently resold, the claim could not be granted.

"It is submitted that [in a case] governed by the Convention, such a ruling [is] incorrect. The buyer's right to reduce the price depends neither on whether any loss was suffered by the buyer, nor on any benefits that the buyer may have gained from the use of non-conforming goods." Djakhongir Saidov, 7 Vindobona Journal of International Commercial Law and Arbitration (1/2003) 1-62 at pp. 33-34 (citations omitted)

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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. 24 [126-131]

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 318/1997 of 8 July 1999

Translation [*] by Mykhaylo Danylko [**]

1. SUMMARY OF RULING

     1.1 In accordance with Art. 1(1)(a) CISG, this Convention should be applied to the relations of the parties since the Russian Federation and the Netherlands are Contracting States to it. Russian civil law was selected as a subsidiary law during negotiations of the parties at the Tribunal's hearing.

     1.2 Since the Buyer did not prove that he suffered expenses or costs in connection with delivery of the contaminated goods (except for the expenses to clean the tanks), the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Trade (hereinafter Tribunal) did not find as reasonable his claims to Seller to give him a discount on prices on the basis of Art. 50 CISG. Accordingly, the Tribunal granted the Seller's claim to recover full payment for the delivered goods.

     1.3 The Tribunal granted the Buyer's claim to recover the proved expenses to clean the tanks contaminated with a foreign substance that was in the goods delivered by the Seller.

     1.4 The Tribunal found that the language in the contract concerning delivery of the goods [in amount] "up to" ("up to 50,000 tons") does not mean that the Seller took an obligation to deliver exactly 50,000 tons of goods. Accordingly, the Tribunal concluded that, having delivered 32,500 tons of goods, the Seller did not breach his obligations as to the quantity of the goods to be delivered. With this, the Tribunal considered that in cases in which parties negotiate the delivery of certain quantity of goods under their contract during certain periods, they directly fix this in the annexes to their contract. On this ground, the Tribunal dismissed the claim of Buyer to recover the lost profit from a short quantity delivered by the Seller.

     1.5 The Tribunal granted the Buyer's claim to recover from Seller the expenses for arbitration in the amount found reasonable by the Tribunal. At the same time, the Tribunal left without consideration the reciprocal claim of Seller since the Seller's representatives neither upheld nor concretized it during the hearings.

2. FACTS AND PLEADINGS

The action was brought by a Russian company (Seller) against a Dutch company (Buyer) in connection with partial payment for goods delivered under an international sales contract concluded between the parties on 14 February 1996. The [Seller]'s claims included recovery of the debt and compensation of the arbitration fees.

In his statement of action, the Seller confirmed his consent to give a discount off the price in connection with increased composition of two indicators in the goods, as well as because of detection of a foreign substance [in the goods] (the last - under condition that the Buyer provide a contract on reprocessing and a financial report).

The Buyer presented objections to the action and filed a counterclaim in which he claimed recovery of losses incurred because of delivery of non-qualitative goods, recovery of lost profit because of non-delivery of the necessary quantity of the goods according to the contract, and recovery of arbitration fees. Buyer alleged that, because of delivery of non-qualitative goods, the sum due to the Seller should be decreased on the basis of Art. 50 CISG on the amount of discount due to the Buyer.

3. TRIBUNAL'S REASONING

The ruling of the Tribunal contained the following main points.

     3.1 [Competence of the Tribunal]

The competence of the Tribunal to arbitrate the dispute follows from the contract concluded between the parties on 14 February 1996. The parties did not challenge the Tribunal's competence at the hearings.

     3.2 [Applicable law]

Considering that the Russian Federation and the Netherlands are Contracting States to the CISG, this Convention should be applied to the relations of the parties arising from their contract (Art. 1(1)(a) CISG). Russian civil law should be applied as a subsidiary law since the parties selected it during the Tribunal's hearing on 2 November 1998.

     3.3 [The initial action]

The parties did not have any dispute as to the quantity of the delivered goods and as to the sum due for payment by Buyer to Seller. The dispute between them is about the amount of discount from this sum in connection with Buyer's claims regarding the quality [and quantity] of the delivered goods.

As follows from the case materials, the increased -- compared to the contractual terms -- composition of two indicators was found in the goods delivered by Seller. In connection with this, the parties agreed to apply the discount from the price of the non-conforming goods in the amount agreed by them.

Besides this, an admixture was found in the goods. As follows from the expertise conclusions submitted by Seller and Buyer of 30 September 1998 and of 17 February 1998, the mentioned admixture is an absolutely foreign substance in the goods.

As follows from the statement of action and the calculation of a discount for the non-qualitative goods attached to it, the Seller admitted that part of the goods was contaminated by a foreign substance, was non-qualitative and gave a discount on the goods on the basis of the certificate of quality of 15 November 1996.

The Buyer referred to the fact that the existence of the foreign substance in the goods is confirmed also by other certificates. In his belief, the fact that the samples of the goods were taken only from few tanks of the train does not mean the absence of these, pointed by the controlling authority, harmful substance in other tanks. The method of control of every tank is not applicable in the international trade of like goods.

In his objections to the action, the Buyer pointed out that he refrained from filing claims in relation to the goods with increased composition of two indicators mentioned above. His claims relate only to the goods with composition of the foreign substance. In his belief, it existed in a considerable quantity of the goods for which he did not ask for the discount.

During the course of the hearing, the representative of Seller alleged that the reduction of price in connection with contamination of goods by the foreign substance could not be done at all since the all of the goods received by the Buyer, even the goods which were contaminated, were resold by Buyer, i.e., used according to purpose.

To ground his claim to reduce the price of the delivered goods, the Buyer referred to Art. 50 CISG. In accordance with this Article, if the goods not conform to the contract the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time.

From the materials presented by Buyer (letter of 15 May 1998 and annex to it, also tables of calculation of 26 May 1998, to which the Buyer refers in his objection to the action), it follows that the goods delivered by the Seller that were not contaminated with the foreign substance were resold by the Buyer at a lower price than the goods contaminated with this substance. From the materials presented, it can be seen that the resale price of contaminated goods did not decrease and the Buyer not only suffered no expenses but also received additional profit.

The Tribunal concludes that the Buyer did not present proof that he suffered costs or expenses in connection with delivery of the goods contaminated with the foreign substance, except for the expenses to clean the tanks, which is described below.

Considering the above, the Tribunal found that the Buyer's claim to reduce the price in connection with existence of the foreign substance in the goods should be dismissed.

Since the Seller did not asked to change the sum of his claim, the Tribunal found it appropriate to grant his claim in the initially claimed sum.

     3.4 [The Buyer's counterclaim]

In his counterclaim, the Buyer sought to recover losses suffered by him, arising from the necessity to clean tanks # 206 and # 208 in which the contaminated goods were kept, as well as losses (lost profit) arisen from the underdelivery of goods by the Seller.

To ground his claim in connection with cleaning of the tanks, the Buyer presented invoices paid by him for the cleaning services.

Objecting to this claim the Seller alleged that the documents presented to the Tribunal do not evidence that the cleaning of the tanks was conducted in connection with their contamination with the foreign substance. It is Seller's belief the invoices paid by the Buyer and the attached letter only prove that it was simply the normal cleaning of the reservoirs, which is usually done after dumping of one product before loading another product. Seller believes, it does not follow from the invoices and the attached letter that the tanks were contaminated with the foreign substance. He also points to the fact that the invoices are dated April-May 1997, when the Seller terminated the deliveries.

During hearing on these issues, the Tribunal reasoned from, first, the fact that the admixture found involved a substance totally foreign to the goods delivered by the Seller; thus the cleaning of the tanks in which the goods were kept is completely reasonable and in a causal connection with the delivery of the contaminated goods. In the Tribunal's belief, the Seller's allegation that it was only a normal cleaning of the tanks does not have a reasonable ground. The fact of contamination of the tanks with the foreign substance is confirmed not by the reports of the company that cleaned the tanks, but by the letter of 15 May 1998 describing that the goods delivered by the Seller were loaded in tanks # 206 and # 208 in July-November 1996. Thus, even the part of the goods delivered by the Seller which was contaminated with the foreign substance might lead to the necessity to clean tanks # 206 and # 208. The expenses related to cleaning of these tanks are confirmed by the invoices of the company that conducted the cleaning.

The Tribunal found unreasonable the references of Seller that the cleaning of the mentioned tanks was conducted in April 1997 with essential delay, since the Seller terminated deliveries of goods in November 1996, considering that from the documents presented it is seen that the last lots of delivered goods were shipped under the bill of lading of 29 March 1997.

Considering the above, the Tribunal concluded that the claim of the Buyer to recover the losses arisen from cleaning of tanks # 206 and # 208 should be granted.

The contract concluded between the parties on 14 February 1996 provided that the Seller assumed an obligation to deliver up to 20,000 tons of goods. In Annex # 1 of 26 March 1996, the parties agreed to the delivery of 2,000 tons of goods every month. In Annex # 2 it is also specified that the parties agreed upon delivery of 500 tons of goods in April. In Annex # 3 of 28 June 1996, the parties agreed to increase the quantity of goods up to 50,000 tons. From the above, it is seen that in situations in which the Seller has assumed an obligation to deliver a certain quantity of goods, it was directly fixed in the Annex.

In all other events in the contract, in Annex # 3 the Seller took an obligation to deliver up to 20,000 tons and up to 50,000 tons. According to Art. 431 of the Russian Federation Civil Code, the Tribunal took into attention the literal meaning of the contractual words and sentences to interpret the conditions of the contract. Thus, the Tribunal believes that on the basis of the concluded contract and Annex # 3 to it, the Seller did not take an obligation to deliver exactly 50,000 tons of goods. The Seller took an obligation to deliver only up to 50,000 tons of goods. The Buyer admitted that the Seller delivered to him 32,593 tons of goods (see Buyer's objections received by the Tribunal on 27 May 1998). Therefore, the Tribunal found that the Seller fulfilled his obligations as to the quantity of delivered goods.

Considering the above, the Tribunal concluded that the Buyer's allegation that he did not receive about 17,500 tons of goods is not reasonable; therefore, his counterclaim to recover lost profit should be dismissed.

According to para. 6(1) of the Rules of Tribunal on Arbitration Fees and Expenses, the arbitration fees are to be put on the party against which the judgment is rendered. Thus, the Buyer should compensate the Seller the arbitration fees incurred for the initial action.

According to para. 6(2) of the Rules of Tribunal on Arbitration Fees and Expenses, if the claim is granted in part the arbitration fees should be split between the parties proportionally to the dismissed and granted parts of the claims. Thus, the Seller should compensate the Buyer the arbitration fees incurred for the counterclaim proportionally to the amount of granted part of the claim.

The Buyer's claim to recover attorneys' fees should be granted by virtue of para 9 of the Rules of Tribunal on Arbitration Fees and Expenses. Taking into attention the matter of the case and the result of the arbitration, the Tribunal found it reasonable to grant the mentioned claim in part, determined by the Tribunal.

The claim of Seller to compensate his legal fees was left without consideration by the Tribunal since the Seller's representatives neither uphold nor concretized it during the hearings.


FOOTNOTES

* This is a translation of data on Proceeding 318/1997, dated 8 July 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. 24 [126-131].

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] and Respondent of Netherlands is referred to as [Buyer].

** Mykhaylo Danylko is a Partner with the law firm Danylko, Kushnir, Soltys & Yakymyak, Attorneys & Counselors at Law, Kiev, Ukraine <http://www.dksylaw.com>. He holds a Masters 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 (June 2002); and has received his LL.M. in International and Comparative Law at the Pace University School of Law.

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