Russia 21 January 1998 Arbitration proceeding 99/1997 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/980121r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 99/1997
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Poland (claimant)
BUYER'S COUNTRY: Russian Federation (respondent)
GOODS INVOLVED: Bus
"A Polish seller imported a bus into Russia for use at an international exhibition that was taking place. The bus was registered by Russian customs in accordance with their 'temporary import' regime. According to this regime, the goods had to be removed from Russia by the end of the exhibition or registered in accordance with another regime. If a party importing the goods under the said regime fails to perform these obligations, it can be subject to liability established by the Customs legislation.
"In the present case, the seller had an obligation to remove the bus from Russia by 18 June 1996. However, on May 21, 1996, the seller concluded a contract of sale of the bus to a Russian buyer on DDU terms (INCOTERMS 1990). The bus was delivered, but was subsequently seized by customs and placed in a customs warehouse until the necessary customs payments were made.
"The Tribunal held that since the buyer did not know that the goods were subject to the temporary import at the time of the conclusion of the contract, the seller was in breach of its obligation to deliver the goods free from claims of third parties. In the Tribunal's opinion, the seller ought to have carried out proper customs legalisation of the goods by removing them from the 'temporary import' regime, and then delivered the goods to the point provided for by the DDU terms of the contract." Djakhongir Saidov, 7 Vindobona Journal of International Commercial Law and Arbitration (1/2003) 1-62 at 27-28 (citations omitted).Go to Case Table of Contents
APPLICATION OF CISG: Yes [Article 1(1)(a)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
30A [Seller's obligations: delivery of goods and handing over of documents, etc.]; 41A [Seller's obligation to deliver goods free from any third-party right or claim]
30A [Seller's obligations: delivery of goods and handing over of documents, etc.];
41A [Seller's obligation to deliver goods free from any third-party right or claim]
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CITATIONS TO OTHER ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
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 (1998) No. 1 [27-31]
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Case text (English translation) [second draft]
Queen Mary Case Translation Programme
Translation [*] by Mykhaylo Danylko [**]
1. SUMMARY OF RULING/P>
1.1 The Vienna Convention 1980 (CISG) was applied to the contract concluded on 21 May 1996 between Claimant [Seller], a Polish company, and a Respondent [Buyer], a Russian company, considering that the relations under the contract in dispute arose on 4 July 1996 (the CISG has been in force for Poland since 1 July 1996). The Polish law, as a law of the country of the seller, was applied as the subsidiary law.
1.2 The interpretation of the delivery term (DDU particular city in Russia) was made in accordance with INCOTERMS 1990.
1.3 Since the subject of the dispute is an issue that has to do with customs clearance of goods delivered into the territory of Russia in the status of temporary storage, and as to which the parties were obliged to change this status, the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Trade (hereinafter Tribunal) decided to apply to this issue the provisions of the Russian Federation Customs Code.
1.4 The Tribunal determined that the [Seller] sold and transferred to the [Buyer] goods that were not cleared from claims of third parties and did not notify [Buyer] of this, thus, by this breached provisions of CISG Art. 41, and came to the conclusion that solution of the issue of customs payments and clearance of the goods is an obligation of the [Seller] who continued to possess the goods. Therefore, the [Seller]'s claim to recover from Buyer the cost of goods was dismissed.
2. FACTS AND PLEADINGS
The dispute arose from a contract concluded between a Polish company [Seller] and a Russian company [Buyer] on 21 May 1996 on sale of a bus owned by [Seller] and located in Russia in connection with an international exhibition at that time. The bus was transferred by [Seller] to the representative of [Buyer] and formalized by a transfer certificate, but the [Buyer] failed to pay for it as stipulated in the contract. The [Buyer] objected to the [Seller]'s claims, referring to the fact that the bus was confiscated by the customs authorities since it was in the territory of Russia in the status of a temporary import and was sold to [Buyer] without due formalization of its status and without notification of [Buyer] about this. Besides this, the [Buyer] referred to the fact that the bus was transferred by [Seller] to a person who did not have authority to receive it on behalf of [Buyer].
3. TRIBUNAL'S REASONING
The ruling of the Tribunal contained the following main points.
3.1 [Jurisdiction and competence of the Tribunal]
The contract provided for solution of disputes by "the Tribunal of Arbitration at the Russian Federation Chamber of Trade".
Since at the time of conclusion of the contract and arbitration of the dispute arisen from it there was no other Arbitration Tribunal at the Russian Federation Chamber of Trade except this Tribunal, the Tribunal came to conclusion that the parties who concluded the contract meant this Tribunal.
The Tribunal also stated that the dispute between parties is about the contractual relations under an international sale contract arisen from international commercial relations; the company of [Seller] is located abroad; thus, the present dispute is a type of dispute that can be arbitrated by the Tribunal according to the Russian Federation Law on the Tribunal of International Commercial Arbitration and the Rules of Tribunal.
Taking into account that there were no objections to the Tribunal's competence either from the [Seller]'s side, or from the [Buyer]'s and that the representatives of the parties appeared before the Tribunal and exchanged case documents, the Tribunal found that the parties, acting according to Art. 7 of the Russian Federation Law on the Tribunal of International Commercial Arbitration, agreed to the arbitration clause and observed the agreement on solution of disputes stipulated in it.
From the abovesaid, based on Art. 16 of the Russian Federation Law on the Tribunal of International Commercial Arbitration, the Tribunal found itself competent to hear the present dispute.
3.2 [Applicable law]
As to the law applicable to issues not covered or not fully covered by the contract concluded between the parties, the Tribunal found that the contract from which the dispute arose was concluded on 21 May 1996, that there was no provision on applicable law in it, and that the parties did not make any further agreement on applicable law. According to clause 3 of the contract, the bus, which is the subject of the contract, should be paid for within two-weeks after signing of the transfer certificate, i.e., not later than 4 July 1996. Therefore, the dispute between the parties arose on that date - 4 July 1996.
Considering that the contract was concluded between a seller from Poland and a buyer from Russia and is about an international sale of goods, also considering that the CISG entered into effect for Poland on 1 June 1996, the Tribunal believes that its provisions are applicable to the relations between the parties (Art. 1(1)(a) CISG). As to issues not covered by the CISG, by virtue of Art. 28 of the Russian Federation Law on the Tribunal of International Commercial Arbitration and para. 13 of the Rules of Tribunal, the Tribunal applied the rule of conflict of laws stated in Art. 166(1) of the Fundamentals of Civil Law 1991, which provides for application of the law of the country of the seller to an international sale contract. From this rule, the Tribunal found that the Polish law is applicable to the present dispute, i.e., the Polish Civil Code 1964 with further amendments and addendums.
3.3 [The merits of the case]
Having heard the [Seller]'s claims, the Tribunal found that the bus was sold by [Seller] to [Buyer] on a "DDU particular Russian city" term; interpretation of this term was made in accordance with INCOTERMS 1990.
As follows from the case materials, at the time of conclusion of the contract, the goods were in the status of temporary import, registered at the place of international exhibition in Russia. Export of the bus from Russian territory had to be made prior to 18 June 1996.
The [Buyer] concluded with [Seller] a contract to deliver a bus on "DDU particular Russian city" term on 21 May 1996. The contract did not stipulate that the bus was in the status of temporary import in the territory of Russia. According to the rules of interpretation of this DDU term, the seller's obligations include formalization of all customs requirements necessary for export of the goods and also payment of all customs fees, taxes, duties and other official payments which are collected when exporting goods, as well as other customs payments, taxes, duties collected after export of goods, and, if necessary, during the transit of goods through third countries till the moment of transfer of goods according to para A4. The buyer's obligations, according to para. B2 of this term, include receiving of import license or other permission necessary for import of goods, and performance of other customs formalities necessary to import the goods. By virtue of para. E, the buyer is responsible for payment of duties, taxes and other official payments and customs duties, necessary for import of goods. [ Jan Ramberg, "Commentary on INCOTERMS 1990. M.: A/O "Konsaltbankir (1995) 176-178.]
Therefore, the seller's obligations under the DDU port of destination term of INCOTERMS 1990 include transfer of goods cleared from export duties collected in the country of seller, while buyer's include clearance from import customs duties collected in the country of buyer. In other words, at the moment of transfer of goods, the goods must be in the status of free circulation. The subsequent sale of goods from exhibition or fair in the country of buyer is not covered by these rules.
To solve the issue, the Tribunal referred to the Russian Federation Customs Code 1993. Art. 68 of this Code says that temporary import of goods is a special customs status providing for temporary use of goods in the territory of Russia while the goods are partially or totally exempted from import taxes and customs duties, but the temporarily imported goods must be exported in a non-changed condition.
According to Art. 73 of the Russian Federation Customs Code, the imported non-exported goods must be declared to another customs status on the day of expiration of the term of temporary import, particularly, to the status of free circulation, or the goods must be delivered to the temporary storage of the customs authorities of the Russian Federation. As follows from the abovesaid, the person who imported the goods is responsible for either export of the goods, or to declare another customs status of the goods. Nonobservance of this requirement, particularly, regarding operations with goods and vehicles, including the sale of such items in violation of their customs status, as well as nonobservance of other limitations, requirements and conditions of customs status, is a violation of customs rules by virtue of Arts. 271 and 273 of the Russian Federation Customs Code, for which [the laws] provide special sanctions.
The status of temporary import of goods for a period of exhibition or fair is a well known status with an aim to acknowledge potential buyers with foreign goods, and provides for export of these goods outside the country after the end of the exhibition or fair, or for change of their customs status.
From the case materials, it follows that the [Seller] knew about the customs status of the bus, as well as who is responsible for formalizing all customs requirements in connection with temporary import. In other words, the [Seller] knew that the goods were not free from claims of third parties.
According to Art. 30 CISG, the seller's obligations include delivery of goods, transfer of documents relating to them and transfer of property in the goods in accordance with the requirements of the contract and this Convention. On the basis of Art. 41 CISG, the seller is obliged to deliver the goods free from any claims of third parties except when the buyer agreed to accept the goods encumbered by such claims. Since the [Buyer] at the time of conclusion of the contract was not made knowledgeable of the claims regarding the customs formalities, the Tribunal believes that the [Seller] did not duly fulfill his obligations under the contract and did not deliver to the [Buyer] the goods free from claims of third parties. If the [Seller] had duly secured the customs clearance of the goods from temporary import status, and had then transferred the goods under the DDU term at the destination place stipulated in the contract, then the [Buyer] would have the obligation to formalize necessary customs formalities in order to import the goods.
The bus, in connection with nonpayment for which the dispute arose, is located at the customs storage. At the beginning, the bus was accepted by a person who was not an employee of the [Buyer] and who was acting without power of attorney from the [Buyer], but later the bus was confiscated by the customs authorities at the place of exhibition and was put at the customs storage till the moment of settlement of customs taxes and duties. Under such circumstances, the Tribunal found that the goods were not duly transferred by [Seller] to the [Buyer] as required by the contract and the CISG, thus the Seller still possessed the bus, and that the [Seller] has the right to use this bus at own discretion after settlement of customs duties and taxes and after change of customs status into the free circulation status.
Under such circumstances, the Tribunal did not find any basis to grant the [Seller]'s claims.
* This is a translation of data on Proceeding 99/1997, dated 21 January 1998, of the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, reported in Rozenberg ed., Arb Praktika (1998) No. 1 [27-31].
All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Poland is referred to as [Seller] and Respondent of the Russian Federation 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.Go to Case Table of Contents