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CISG CASE PRESENTATION

Ukraine 9 July 1999 Arbitration proceeding (Metal production goods case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990709u5.html]

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

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Case identification

DATE OF DECISION: 19990709 (9 July 1999)

JURISDICTION: Arbitration ; Ukraine

TRIBUNAL: Tribunal of International Commercial Arbitration at the Ukraine Chamber of Commerce and Trade

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: Unavailable

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (Claimant)

BUYER'S COUNTRY: Ukraine (respondent)

GOODS INVOLVED: Metal production goods


UNCITRAL case abstract

UKRAINE: Chamber of Commerce and Trade Arbitration proceeding (Metal production goods case) 9 July 1999

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/103],
CLOUT abstract no. 1024

Reproduced with permission of UNCITRAL

Abstract prepared by Andrey A. Panov

In 1998 a Ukrainian seller and a Russian buyer concluded a contract for the sale of metal production goods. The goods were delivered to the buyer in two instalments on 15 and 20 May 1998. The buyer received the goods, but did not pay for them. After some negotiations the buyer partially fulfilled the agreed schedule for extinguishment of the debt; however, the most part of the price still remained unpaid. Finally, the seller on 1 February 1999 demanded the buyer to repay the debt, consisting of the price payable under the contract, interest on it and damages (which amounted to a fine, charged by the Bureau of the Budget of Ukraine, for non-repayment of the currency proceeds to the State). This demand was not fulfilled and in March 1999 the seller commenced arbitration proceedings.

The Tribunal granted the recovery of the contract price (under the Civil Code of the USSR) and the interest on it. As for the damages, the Tribunal found Article 77 of the CISG applicable. The Tribunal's view was that, if the seller had not delayed issuing the proceedings until the expiration of 90 days from the date of the customs clearance of the goods, the fine would not have been levied and the seller would not have incurred this loss. Hence, as the seller's failure to issue the proceedings at an early stage amounted to failure to mitigate the loss according to Article 77 CISG, the Tribunal dismissed the claim for damages.

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Classification of issues present

APPLICATION OF CISG: Confusing. Tribunal appears to have applied Art. 224 of the Civil Code of the USSR to the damages claims and Art. 77 of the CISG to the mitigation of damages issue present.

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 77

Classification of issues using UNCITRAL classification code numbers:

77A [Obligation to take reasonable measures to mitigate damages]

Descriptors: Mitigation of damages

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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): Praktika ofzhdunarodnogo kommercheskogo arbitrazhnogo suda pri TPP Ukraine. Vneshneekonomicheskie spory [Practice of the International Commercial Arbitration Tribunal at the Ukraine Chamber of Commerce and Industry, Foreign Economic Disputes], Kyiv, published by Praksis (____), Case No. 70 [__-__]

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

Tribunal of International Commercial Arbitration of the Ukrainian Chamber of Commerce and Trade

Award of 9 July 1999

Translation [*] by Gayane Nuridzhanyan [**]

-    Particulars of the case
-    Opinion of the Tribunal
-    Award

PARTICULARS OF THE CASE

The International Commercial Arbitral Tribunal at the Ukrainian Chamber of Commerce and Trade (hereinafter Tribunal) having considered the action brought by Claimant [Seller], a Ukrainian LLC, against Respondent [Buyer], a Russian LLC, for the recovery of US $37,647.21, consisting of a claim for:

   -    the cost of the goods in the sum of US $20,701.05;
   -    US $3,105.16 as a penalty for the delay in payments and
   -    US $13,841 of the [Seller]'s damages in form of payment to the Bureau of the Budget the fine for non-repayment of the currency earnings to Ukraine,

has decided the following:

      The legal basis for the adjudication of the dispute by the Tribunal is Section 11 of Contract # 15 of 12 May 1998 according to which any dispute arising as a result of or in connection with this Contract shall be submitted for the hearings and a final award to the Commercial Arbitral Tribunal at the Ukrainian Chamber of Commerce and Trade, city of Kyiv, consisting of an individual arbitrator, applying the Rules of the Tribunal and the substantive law of the Ukraine.

According to art. 2 of the Law of Ukraine "On International Commercial Arbitration", the full title of the Tribunal is the International Commercial Arbitral Tribunal at the Ukrainian Chamber of Commerce and Trade.

In accordance with Contract # 15 of 12 May 1998, the [Seller] undertook to provide the [Buyer] with metal production, according to Specification # 1 and further Supplements for the total sum of US $129,150, under the terms DAF - the border between Ukraine and Russia. The [Buyer] undertook to receive the goods and to pay 100 % of its cost in Russian rubles [RUS] at the rate of the Central Bank of the Russian Federation against the invoice not later then three bank days after the goods cross the Ukraine-Russian border. In case of a delay in payment, the [Buyer] is obligated to pay to the [Seller] the fine of 0.2 % of the cost of unpaid goods for every day of delay, but not more then 15 % of the cost of the goods.

In the performance of the obligations under the Contract and [Buyer]'s letter # 77/5 of 14 May 1998 which contained a request to deliver two wagons of the armature provided for by Specification # 1 of the Contract, the [Seller] delivered these goods to the [Buyer] in two consignments on 15 and 20 May 1998 in total sum of US $26,515.

The [Buyer] received the goods, but did not pay for them in the term provided for by the Contract.

In its letter of 22 May 1998, the [Buyer] notified the [Seller] that it considered Contract # 15 of 12 May 1998 cancelled referring to a force majeure circumstance in the territory of Russia and para. 12.2 of the Contract. [Buyer] alleged that, in accordance with the Contract, it can be cancelled unilaterally if one of the Parties to the Contract cannot fulfil the obligations under the Contract and provides written notification to the other Party. However, the [Buyer] stated that it guaranties to pay for the goods already delivered to by the [Seller].

In its letter of 26 May 1998 (w/o) the [Buyer] notified the [Seller] of the schedule of extinguishment of debts under Contract # 15 of 12 May 1998 in the sum of 161,040 [RUS] from 29 May to 10 June 1998.

The [Buyer] only partially fulfilled the obligation of extinguishment of debt and with delay. The [Buyer] transferred to the [Seller] 40,000 [RUS] on 19 August 1998, which was equal to US $5,813.95 on the day of the payment.

In view of the [Buyer]'s delinquency, the [Seller], in its letter of 5 October 1998, proposed to have the delivered goods returned. The [Buyer] accepted this proposition in its letter of 29 October 1998 (w/o), undertaking to load the metal-roll in November 1998. However, this obligation was not fulfilled by the [Buyer].

In its letter of 11 January 1999, the [Seller] demanded from the [Buyer] either to discharge the indebtedness immediately or to return the metal-roll.

In the result of non-fulfilment of that demand, the [Seller] in its claim of 1 February 1999 demanded the repayment by the [Buyer] of US $34,426.86, which composes the indebtedness for the goods in sum of US $20,694.05, $3,104.11 as penalty for the delay in payments and $10,628.70 of damages of the [Seller] in form of payment to the Bureau of the Budget the fine for non-repayment of the currency earnings to Ukraine.

In view of non-fulfilment of those demands by the [Buyer], the [Seller] presented its claim to the Tribunal in March 1999. By virtue of the Resolution of the President of the Tribunal dated 19 March 1999, the Tribunal initiated proceedings in the case.

Having received the claim papers, the [Buyer] sent to the Tribunal its statement of defense in which [Buyer] objected to the [Seller]'s statement of claim. The [Buyer] pleaded that the goods delivered by the [Seller] did not correspond in quality to the terms of the Contract, which was allegedly proved with an expert examination, and that the [Seller] was notified of this in [Buyer]'s complaint of 6 July 1998, which the [Seller] left without response.

Simultaneously, the [Buyer] claimed that Contract # 15 of 12 May 1998 had not come into force, and that [Buyer] agreed to return the received goods upon the condition that the [Seller] would compensate in advance the expenses of the [Buyer] for realization of the expert examination, for storing the goods at the locations rented by the [Buyer], would pay for transportation to return the goods to the [Seller], and would pay the [Buyer] the sum that was paid earlier in the amount of US $5,813.95.

The [Buyer] added to that statement of defense:

   -    The report of the expert examination of 9 June 1998, carried out by an independent Russian firm, calling attention to the lack of correspondence of the metal production to the technical characteristics of Contract # 77/Y of 27 April 1998 between the Ukrainian LLC and Russian LLC;
 
   -    The complaint of the [Buyer] to the [Seller] of 16 June 1998, which informs that, according to the expert examination, the [Seller] violated the conditions of Contract # 77/Y of 27 April 1998 (the lack of correspondence of the goods to the Specification), in light of which the goods are being held for safekeeping;
 
   -    The complaint of the [Buyer] to the [Seller] of 6 July 1998 to reduce the price of the goods delivered by the [Seller] under Contract # 77/Y of 27 April 1998 in view of the lack of correspondence of the goods to the technical characteristics of Specification # 1 of 27 April 1998.

After the preparations of the case for the hearings of the Tribunal, the hearings were appointed for 5 July 1999.

During the proceedings of the Tribunal, the representative of the [Seller] confirmed its statement of claim, submitted its request for examination of the case on the merits in absence of the [Buyer] and for responsibility for execution of the decision. Moreover, the [Seller] explained that:

   -    In its statement of claim, the cost of the goods delivered by the [Seller], US $26,515, had been indicated incorrectly' the actual cost of the delivered goods was US $26,508;
 
   -    The [Seller] agreed with the proposition of the [Buyer] to cancel Contract # 15 of 12 May 1998 contained in the letter of 22 May 1998 upon the condition of carrying out the complete payment for the delivered goods in the sum of US $26,508 according to para. 12.3 of the abovementioned Contract;
 
   -    The claim of the [Buyer] as to delivery by the [Seller] of low quality goods under Contract # 15 of 12 May 1998 does not correspond to the reality, since the documents presented by the [Buyer] in support of its claim concern another contract, Contract # 77/Y of 27 April 1998, which does not relate to the object of the present case.

Since the letter of authority of the [Seller]'s representative does not contain the power to dispose of the statement of claim, in particular to submit the request for examination of the case on the merits taking on the responsibility for execution of the Tribunal's decision, the Tribunal considered it necessary to get the confirmation of the abovementioned request from the legal representative of the [Seller]. For this purpose, the hearing was adjourned until 9 July 1999.

On 8 July 1999, the Tribunal received a fax of 7 July 1999 with a signature of the Director-General of the Ukrainian LLC, which contained the request for examination of the case on the merits taking on the responsibility to execute the Tribunal's decision.

The further proceedings on 9 July 1999 were held in the absence of the Parties' representatives.

OPINION OF THE ARBITRAL TRIBUNAL

1. Since in Contract # 15 of 12 May 1998, the price of the goods in Specification # 1 of this Contract and the cost of the delivered goods drawn up to the [Buyer] in the accounts are defined in US dollars, partial payment for the metal production in sum of 40,000 [RUS] is calculated by the Parties (by the [Seller] in its statement of claim and by the [Buyer] in its statement of defense) in US dollars, which is US $5,813.9, the Tribunal considers the demand for relief in US dollars lawful.

2. The [Seller], in the performance of its obligations under Contract # 15 of 12 May 1998 according to the order of the [Buyer] contained in its letter # 77/5 of 14 May 1998 and Specification # 1 of this Contract, delivered the metal production in the total sum of US $26,508 on the terms of DAF - the border between Ukraine and Russia, which is proved with the railroad waybills, cargo customs declarations and the invoices filed in the case.

3. The [Buyer] received the goods in complete amount, however, only paid for them partially, transferring 40,000 [RUS] to the [Seller] on 18 August 1998, which is proved with the memorial slip of 19 August 1998 with a bank's note on the conducted operation. The abovementioned payment was carried out in US dollars in the sum of US $5,813.95.

4. Therefore, the [Buyer] owes the [Seller] US $20,694.05 according to Contract # 15 of 12 May 1998. The demand of the [Seller] for recovery of this amount from the [Buyer] is well-founded, is proved by the files of the case and is subject to satisfaction.

5. The objections of the [Buyer] against recovery by [Seller] of the cost of the goods on the grounds of violations of the technical characteristics of the delivered metal production provided by Contract # 15 of 12 May 1998 with the agreement of the [Buyer] to return the delivered metal production upon the condition that the [Seller] would compensate in advance the expenses of the [Buyer] connected with receiving and returning of the goods, cannot be taken into consideration by the Tribunal in view of the [Buyer]'s failure to prove these objections. The documents presented by the [Buyer] as proof of its position, namely, the act of expert examination of 9 June 1998, the [Buyer]'s letter to the [Seller] of 16 June 1998, and the [Buyer]'s complaint of 6 July 1998 - refer to the obligations of the Parties under Contract # 77/Y of 27 April 1998 and do not have any connection with the object of the present case.

6. The allegation of the [Buyer] that Contract #15 of 12 May 1998 has not entered into force is groundless and contradicts the facts of the case. The [Buyer] claims that Contract # 15 of 12 May has not entered into force on the grounds that, according to para. 12.8 of the abovementioned Contract, it has not entered into force since the moment of its signature, which is 12 March 1998. However:

   -    The Parties started its performance: the [Buyer] asked the [Seller] in its letter # 77/5 of 14 May 1998, referring to the Contract concluded by the Parties, to deliver two wagons of metal roll corresponding to the assortment under Specification # 1 of the Contract and with a guarantee of payment under para. 6.2 of the Contract;
 
   -    The [Seller] loaded the goods ordered by the [Buyer] on 15 and 20 May 1998 and the [Buyer] partially paid for the delivered goods later (18 August 1998) in a sum equivalent to US $5,813.95; and
 
   -    The [Buyer] sent a message about the cancellation of Contract # 15 of 12 May 1998 on 22 May 1998, which is after the loading of the goods.

Therefore, the Tribunal concludes that the [Seller] delivered to the [Buyer] the goods under in force Contract # 15 of 12 May 1998 and the [Buyer] should pay to the [Seller] the cost of the delivered goods under art. 224 of the Civil Code of the USSR.

7. Under the terms of the Contract, the [Buyer] was obliged to pay for the goods not later then three days after the goods cross the Ukraine-Russian border. According to para. 10.3 of Contract # 15 of 12 May 1998, the [Buyer] was obliged to pay to the [Seller] a fine of 0.2 % of the cost of the unpaid goods for every day of delay in payment, but not more then 15 % of its cost. Consequently, the legal significance involves a 75 days delay in payment.

8. The Convention on the Limitation Period in the International Sale of Goods of 1974, adopted in New York and ratified by Ukraine and the Russian Federation, establishes a four-year limitation period for relations of this type without any limitation during this period as to demand of the recovery of a penalty (fine). In this view, the [Seller] has a right to demand the recovery of the penalty for the initial period of delay in payment not more then 75 days long, which is after the expiration of the term defined for the payment for the goods, and for the final period of delay in payment not more then 75 days long, which is at the moment of submitting the statement of claim or the proceedings in the case.

9. The Tribunal does not possess the data as to the date on which the goods crossed the Ukrainian-Russian border. However, the Tribunal considers it possible to define the terms of the payment for the goods using the data on the goods' arrival at the station of destination, which is the station Solnechnaya of the Moscow railway. According to the Certificates (w/o) of 8 July 1998 of the Ukrainian enterprise officer carrying out the supervision of the Ukrainian LLC's wagons, wagon # 67916908, indicated in the railroad waybill of 15 May 1998, arrived at the station Solnechnaya on 19 May 1998, and wagon # 67859934, indicated in the railroad waybill of 20 May 1998, arrived at the station on 25 May 1998. This was proved with the Act of work completion of 8 July 1999 on the service provided for a dispatch supervision and search of wagons of the Ukrainian LLC in sum of 60 Hryvnas.

10. Consequently, the [Buyer] was obliged to pay for the first consignment of goods at the cost of US $13,668 on 22 May 1998. [Buyer] transferred its partial payment on 18 August 1998, which is an 87 day delay in payment. The [Seller] has a right to receive from the [Buyer] the fine of US $2,050.20 for the delay in payment for this consignment of goods.

The [Buyer] was obliged to pay for the second consignment of goods at the cost of US $12,840 until 28 May 1998; [Buyer] has not paid for any part of that. According to the terms of the Contract, the fine for the delay in payment of this consignment of goods constitutes US $1,926.

11. Hence, the [Seller] has a right to receive from the [Buyer] the fine for the delay in payment in sum of US $3,976.20. However, as long as the [Seller] has defined the fine for the delay in payment in the sum of US $3,105.16 and has covered this sum with the arbitration fee, the fine for the delay in payment to be paid by the [Buyer] to the [Seller] is the sum of the claim, which is US $3,105.16.

12. The demand for the recovery of damages in the sum of US $13,841 in form of payment to the Bureau of the Budget of Ukraine of the fine for non-repayment of the currency earnings is not subject to satisfaction in view of art. 77 of the UN Convention on Contracts for the International Sale of Goods (Vienna, 1980), ratified by Ukraine and the Russian Federation. According to that article:

"A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss … resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated."

If the [Seller] had not delayed presenting the Tribunal with the demand for the recovery from the [Buyer] of the debt for the goods until the expiration of 90 days since the date of customs clearance of the goods, [Seller] would not have incurred these damages.

13. Hence, only the cost of the goods in the sum of US $20,694.05 and the fine for the delay in payment in the sum of US $3,105.16 should be recovered by the [Buyer]. The total sum of the recovery is US $23,799.21, which constitutes 63.22 % of the amount of the claim.

14. Since the demands of the relief are to be satisfied partially, the arbitration fee is imposed on the [Buyer] proportionally to the satisfied demands of the relief according to para. 2, Chapter V of the Regulations on Arbitration Fees and Expenses.

AWARD

Following the provisions of Contract # 15 of 12 May 1998, the Convention on the Limitation Period in the International Sale of Goods (New York, 1974), art. 77 of the UN Convention on Contracts for the International Sale of Goods (Vienna, 1980), art. 224 of the Civil Code of the USSR, art. 3.1, 31 of the Law of Ukraine "On the International Commercial Arbitration", art. 8.4, 8.5, 8.7-8.9 of the Rules of the Tribunal, para. 2, Chapter II, para. 2, Chapter V of the Regulations on Arbitration Fees and Expenses the Tribunal has decided:

The [Buyer], Russian LLC, is obliged immediately after receipt of the present award to pay to the [Seller], Ukrainian LLC:

   -    US $20,694.05 [the cost of the goods],
   -    US $3,185.16 [the fine for the delay in payment] and
   -    US $999.78 [the reimbursement of the expenses on payment of the arbitration fee]

In total, the amount of the satisfied claims constitutes US $24,798.99. The remainder of the [Seller]'s claim is rejected.

The judgment is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Ukraine is referred to as [Seller] and Respondent of Russia is referred to as [Buyer]. Amounts in the former currency of the Russian Federation (Rubles) are indicated as [RUS].

** Gayane Nuridzhanyan, junior associate at the law firm Danylko, Kushnir, Solltys & Yakymyak, Attorneys & Counselors at Law, Kyiv, Ukraine <http://www.dksylaw.com/>, student at Kyiv International University with major in private international law; participant of Canada-Ukraine Parliamentary Program, member of Ukrainian team at 2005 Telders International Moot Court Competition, The Hague.

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