Russia 16 June 2003 Arbitration proceeding 135/2002 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/030616r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 135/2002
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Russian Federation (respondent)
BUYER'S COUNTRY: United States (claimant)
GOODS INVOLVED: [-]
APPLICATION OF CISG: Yes
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
79B [Impediments excusing party]; 81C [Effect of avoidance on obligations: restitution by each party of benefits received] 84A [Seller bound to refund price must pay interest: rate of interest]
79B [Impediments excusing party];
81C [Effect of avoidance on obligations: restitution by each party of benefits received]
84A [Seller bound to refund price must pay interest: rate of interest]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
CITATIONS TO TEXT OF DECISION
Original language (Russian): M.G. Rozenberg, Praktika Mezhdunarodnogo kommercheskogo arbitrazhnogo suda pri TPP RF za 2003 g./Sost. [Arbitration decisions rendered by the International Commercial Tribunal at the Russian Federation Chamber of Commerce and Industry in 2003], published by "Statut" (2004), Case No. 21 [123-127]
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Queen Mary Case Translation Programme
Translation [*] by Yelena Kalika [**]
1. SUMMARY OF RULING
1.1 Although the contract for the international sale of goods provided that the Russian Federation law governed the relationships of the parties, the Tribunal took into account that at the time when the contract was made both parties stated that they did not intend to exclude the application of the CISG. Thus, the dispute was resolved based on the CISG. Russian civil law was applied as subsidiary law.
1.2 A fundamental breach of contract on the part of the Respondent [Seller] led to the Claimant [Buyer] declaring the contract avoided.
1.3 Based on the provisions of the CISG (Article 81), the sum of the advance payment for the undelivered portion of goods and interest on it calculated from the date of payment were recovered from the [Seller].
1.4 Since the circumstances on which the [Seller] relied as the ground for releasing him from liability took place when the [Seller] had already been in delay, the Tribunal was unable to take them into account. Besides, the Tribunal did not find any causal connection between such circumstances and the [Seller]'s failure to perform his obligations to the [Buyer].
1.5 The Tribunal rejected the [Seller]'s request to reduce the amount of annual interest recovered [from him] based on Article 333 of the Russian Federation Civil Code since the said Article gave the Tribunal discretion to do so only in connection with damages.
2. FACTS AND PLEADINGS
A U.K. firm brought a claim against a joint stock company with foreign investment carrying out [its business activities] in Russia. The claim was brought in connection with a short delivery of goods under a contract for the international sale of goods which was made by the parties on 28 December 2000. Since, in accordance with the contract, the [Buyer] had made an advance payment, his claims included the recovery of the advance payment made for the goods not delivered, annual interest [on the sum of the advance payment], arbitration expenses and attorneys' fees.
The [Seller] did not contest the [Buyer]'s claims in connection with the advance payment. [However, he] objected to [the claim] of annual interest from the date of the advance payment. In his opinion, as [annual interest] was a measure of liability, it could be imposed only after the end of the period of time within which the delivery was to be made under the contract. The [Seller] also referred to the circumstances, which forced him to suspend his business activities for 87 days. [He argued that they] should serve a ground for the reduction of the amount of annual interest sought. The [Seller] also raised a question of the application of Article 333 of the Russian Federation Civil Code in connection with the annual interest. The [Seller] questioned the reasonableness of the [Buyer]'s hiring a prestigious law firm in the absence of a dispute between the parties concerning the principal claim since attorneys' fees would be significant. The [Buyer] submitted his explanations in connection with the objections made by the [Seller].
During the hearing, the representatives of both the [Buyer] and [Seller] confirmed that, in their opinion, the contract was terminated as a fundamental breach of [its terms] occurred. They also stated that at the time of making the contract they did not intend to exclude the application of the CISG.
3. TRIBUNAL'S REASONING
The Tribunal's award contained the following main points.
3.1 As to the Tribunal's competence to arbitrate the present dispute, the Tribunal found that in Clause 10 of the contract the parties stated that "all disputes, which may arise in the future out of the present contract or in connection with it, shall be arbitrated by the Tribunal in Moscow in accordance with the Rules of the said Tribunal and the Russian Federation Law "On International Commercial Arbitration."
The Tribunal found that the dispute arose out of the civil legal relationships between the parties in connection with international commercial transactions. The commercial enterprise of one of the parties (Claimant [Buyer]) is located abroad. The said circumstances meet the requirements of Article 1 of the Russian Federation Law "On International Commercial Arbitration" and Article 1 of the Rules of the Tribunal concerning the types of disputes that can be submitted with the Tribunal for arbitration.
On the above grounds the Tribunal found that it had competence to arbitrate the present dispute.
3.2 Pursuant to Article 28(1) of the Russian Federation Law "On International Commercial Arbitration" and Article 13 of the Rules of the Tribunal, the Tribunal shall resolve the dispute in accordance with such rules of law which the parties chose to be applicable to the merits of the dispute.
As follows from Clause 10.2 of the contract, when signing the contract the parties chose Russian Federation law [as applicable law].
Pursuant to Article 15 of the Constitution, international treaties of the Russian Federation -- and, thus, the CISG -- are a component part of the Russian Federation legal system.
Taking into consideration that when making the contract the parties did not exclude the application of the CISG (Article 6), the Tribunal found that, pursuant to Article 1(1)(b) of the CISG, the dispute between the parties should be resolved based on the CISG. Pursuant to Article 7(2) CISG, issues not expressly settled in the CISG should be resolved based on the rules of the Russian Federation Civil Code as subsidiary law.
3.3 The Tribunal found that on 28 December 2000 the parties made a contract, according to which the [Seller] was to sell and the [Buyer] was to buy certain goods with the advance payment of the cost of the goods to be made 40 days prior to the date of shipping.
On 3 January 2001 the [Seller] sent an invoice to the [Buyer]. The [Buyer] made the payment on the same day.
As evidenced by bills of lading and certificates of quality and weight attached to the claim, on 20 February 2001 and 28 June 2001 the [Seller] partially performed his obligations by shipping some portion of the goods stated in the contract.
The correspondence submitted by the [Buyer] evidences that on numerous occasions the [Buyer] asked the [Seller] to perform his obligations. In the letters of 26 March 2001 and 26 December 2001, the [Seller] acknowledged his debt and did not refuse to perform his obligations.
On 24 May 2002, the [Buyer] through his legal representatives suggested that the [Seller] perform his obligations within ten days from the date of the letter. When [the [Seller]] failed to perform such obligations, the [Buyer] declared the contract avoided on 5 June 2002 and demanded that the [Seller] refund the relevant portion of the advance payment.
The Tribunal found that the [Buyer]'s demand meets the requirements set forth in the CISG. The [Seller], while receiving the advance payment, delivered only some portion of the goods and, [thus], committed a fundamental breach of contract. After the [Seller] failed to perform his obligations within the additional period of time fixed by the [Buyer], the [Buyer] received a right to declare the contract avoided based on Article 49(1)(b) and did so. Pursuant to Article 81(2) CISG, when terminating the contract, a party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract.
For the above stated reasons and taking into consideration that the [Seller] acknowledged the [Buyer]'s claim of restitution of the portion of the advance payment not used and did not contest its amount, the Tribunal concluded that the [Buyer]'s claim to recover such sum from the [Seller] was lawful and reasonable and should be granted.
3.4 The Tribunal reviewed the [Buyer]'s claim to recover from the [Seller] annual interest for the use of another's funds and found it lawful and reasonable based on Article 84(1) CISG, according to which "if the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid."
The Tribunal could not agree with the [Seller] who claimed that the period of time, during which the production was temporarily suspended, should be excluded from the period of time for which annual interest was calculated because by the time, when such circumstances arose, the [Seller] had been already in delay of performance of his contractual obligations. Pursuant to Article 405 of the Russian Federation Civil Code, a debtor, who delays his performance, shall not be released from his liability to the creditor for any consequences of the impossibility of performance that accidentally occurred during such delay. Besides, the Tribunal did not see any causal connection between the circumstances, on which the [Seller] relied, and his failure to perform certain obligations.
The Tribunal denied the claim of the [Seller] that the [Buyer]'s demand of annual interest for the use of another's funds should be resolved based on Article 333 of the Russian Federation Civil Code because the said Article gave a court discretion to do so only in connection with damages. The interest for the use of another's funds does not qualify as damages.
For the above reasons and taking into account that there was no dispute between the parties as to the rate of annual interest -- 3.25 % -- which was supported by the letter of the bank submitted by the [Buyer], the Tribunal granted the [Buyer]'s claim to recover from the [Seller] annual interest in the amount sought by the [Buyer].
3.5 Based on Article 6(1) of the Regulations on arbitration fees and expenses (Appendix to the Rules of the Tribunal), in the absence of the parties' agreement to the contrary, arbitration fees shall be paid by the party against whom the arbitral award is rendered. Therefore, the [Seller] should reimburse the arbitration fees paid by the [Buyer].
3.6 After reviewing the [Buyer]'s claim to recover from the [Seller] attorney' fees, the Tribunal granted this claim based on Article 9 of the Regulations on arbitration fees and expenses. [The Tribunal] granted this claim in the amount, which it found to be reasonable.
* This is a translation of data on Proceeding 135/2002, dated 16 June 2003, of the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, reported in Rozenberg ed., Arb. Praktika (2004) No. 21 [123-127].
All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the United Kingdom is referred to as [Buyer] and Respondent of the Russian Federation is referred to as [Seller].
** Yelena Kalika, JD Pace University School of Law, has studied at the Moscow State Law Academy, interned with a Moscow law firm, and is an Associate at the Pace Institute of International Commercial Law.Go to Case Table of Contents