Case text (English translation)
Queen Mary Case Translation Programme
Russian Federation arbitration proceeding 62/1998 of 30 December 1998
Translation [*] by Antonida Alibekova [**]
Translation edited by Mykhaylo Danylko [***]
1. SUMMARY OF RULING
1.1 Although the arbitration clause is insufficiently clear, the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry [hereinafter Tribunal] has come to the conclusion that the parties intended to resolve their disputes in this arbitral tribunal and, accordingly, the Tribunal's competence includes settlement of the given dispute.
1.2 In order to resolve the dispute, [buyer] offered and [seller] accepted the application of Russian substantive law and the Vienna Convention 1980 [hereinafter CISG], which by virtue of the Russian Federation Constitution is a component of [the Russian] legal system.
1.3 The [United Nations] Convention on the Limitation Period in the International Sale of Goods (New York, 1974) [hereinafter Limitations Convention 1974] is inapplicable to the settlement of the given dispute, as neither India nor Russia are Contracting States to it. Accordingly, it cannot be applied either as an international treaty between these States, or as an international treaty of Russia, of whose legal system [the Limitations Convention] would be a component.
1.4 Generally, the three-year period of limitation provided in Russian civil law, rather than the four-year period of limitation stipulated by the [Limitations] Convention 1974, is applicable to disputes arising from contracts for international sale of goods.
1.5 Defining the initial moment of the limitation period, it is necessary to ascertain the exact date of occurrence of the right to bring an action, with allowance for the date when the claimant has learned or should have learned of the violation of her right.
1.6 The party must prove those circumstances to which it refers as the basis of its claims.
1.7 While the contract did not contain any instructions as to the basic terms of delivery of goods by [seller] to [buyer], the Tribunal defined [the terms of delivery] by comparative analysis of the terms of contract and the conduct of the parties during performance of the contract pursuant to Art. 8 CISG and taking into account different approaches acknowledged in the practice of international trade (in particular, Incoterms 1990).
1.8 By not taking advantage of the right to bring claims against the carrier and insurer, a buyer who has not proved that the loss of goods was caused by seller's acts or omissions does not acquire the right to bring a claim against seller.
2. FACTS AND PLEADINGS
The action was brought by an Indian company [buyer] against a Russian company [seller] in connection with non-receipt of two consignments of goods that were to be delivered under the contract concluded between the parties in July 1994.
Payments between the parties were made by a letter of credit. Indicated consignments were paid by letters of credit on the basis of bills of lading presented by [seller] to an Indian bank. In [buyer]'s opinion, these documents were forged by [seller] which led to the inclusion of overestimated price for the goods in the [payment] account.
[Buyer] presented proof of non-receipt of appropriate consignments from the territory of Russia. [Buyer] offered in writing to apply Russian civil law to resolve the given dispute. [Seller] agreed to the proposal.
[Seller] challenged the Tribunal's competence to arbitrate the given dispute by referring to the vagueness of the arbitration clause in the contract. [Buyer] objected to this argument by declaring that such contracts between Russian and Indian companies in practice have never stipulated any arbitration other than the Tribunal. [Buyer] referred to the Agreement between the Chambers of Commerce of Russia and India, which recommended the arbitration of disputable commercial questions in Russia only by this arbitral tribunal.
During consideration of the merits of the dispute, [seller] referred to the expiration of the limitation period established by Russian civil law. [Buyer] challenged this statement of defense, arguing that the four-year limitation period established by the [Limitations] Convention 1974, incorporated in the legal system of Russia by virtue of Art. 15(4) of the Russian Federation Constitution, should be applied to resolve the dispute.
The parties repeatedly interpreted terms of the contract and rights and obligations following from [these terms]. [Buyer] referring to the loss of bills of lading, on the basis of which the payment was made by the bank, did not present [these documents] to the Tribunal. The bank confirmation that these documents were turned over to the representatives of [buyer] was presented to the Tribunal. [Seller] challenged the grounds of [buyer]'s claims.
3. TRIBUNAL'S REASONING
The ruling of the Tribunal contained the following main points.
3.1 [Jurisdiction competence of the Tribunal]
Though the arbitration clause contained in the contract concluded between the parties on 18 July 1994 is insufficiently clear, the Tribunal came to the conclusion that the parties intended the resolution of disputes by this Tribunal.
Being guided by Arts. 7 and 16 of the Russian Federation Law On International Commercial Arbitration and § 1 of the Rules of Tribunal, the Tribunal recognized its competence to arbitrate the given dispute.
3.2 [Applicable law]
There were no provisions about applicable law in the contract. In the hearing session of the Tribunal held on 3 December 1998, the representatives of [seller] expressed their consent to [buyer]'s offer, annexed to the statement of action, about application of substantive rules of Russian law to resolve the dispute, directed to the Tribunal on 29 May 1998. The parties confirmed that they reached an agreement on application of Russian substantive law to resolve the dispute, which was reflected in the record of the hearing session of the Tribunal.
Taking into account the indicated agreement of the parties and referring to Art. 28(1) of the Russian Federation Law On International Commercial Arbitration and § 13(1) of the Rules of Tribunal, the Tribunal recognized Russian civil law as applicable to resolve this dispute. As the Russian Federation, since 1 September 1991, is a Contracting State to the CISG, the Tribunal recognized that relations between the parties were regulated by the rules of CISG which had priority over the rules of Russian domestic civil law by virtue of Art. 15(4) of the Russian Federation Constitution. Attention was paid to the provision of Art. 1(1)(b) CISG, which makes the CISG applicable to contracts between parties whose commercial companies are in different States, when one or both of the parties are not Contracting States to the CISG but the rules of private international law lead to the application of the law of a Contracting State.
On the basis of Art. 7(2) CISG, relations between the parties are subject to subsidiary application of Russian civil law on questions that are not expressly settled by the CISG and which cannot be resolved according to the general principles of the CISG on which the CISG is based.
The Tribunal based its ruling on the directives of the appropriate decrees of the Supreme Council of Russian Federation (of 14 July 1992 and 3 March 1993) and the Introductory Law to the First Part of the Russian Federation Civil Code in order to define rules of Russian civil law which would be supplementary applicable to resolve the dispute, taking into account that at the time of the conclusion of the contract the Fundamentals of Civil Law 1991 were in force, but at the moment of arising of the questions at issue the First Part of the Russian Federation Civil Code was in force.
3.3 [Limitation period]
Considering [seller]'s statement about expiration of the limitation period in relation to both claims brought by [buyer], the Tribunal proceeded from the following:
The [Limitations] Convention 1974, providing a four-year limitation period for claims arising out of contracts for international sale of goods (Art. 8), is inapplicable to resolve the given dispute. Neither Russia nor India are signatory parties to the [Limitations] Convention 1974, therefore it cannot be applied either as an international agreement between these States (Art. 3(1)) or as the law of a Contracting State referred to by virtue of the rules of private international law (Art. 3(1)(a) of the [Limitations] Convention 1974 as amended by the Protocol of 11 April 1980 on amendment of the [Limitations] Convention 1974).
The text of the [Limitations] Convention adopted in 1974 was signed on behalf of the government of USSR on 14 June 1974. However, it is necessary to ratify or join the Convention in order for it to enter into force for each State (Art. 44 of the [Limitations] Convention 1974 and Protocol 1980), in witness whereof relevant ratification instruments should be deposited with the Secretary-General of the UN. Neither the USSR nor Russia ratified the [Limitations] Convention 1974 or the Amending Protocol 1980. Thus, the Russian Federation has not expressed its consent to be bound by this international treaty, which is a condition to recognize it as included in the legal system of Russian Federation (Art. 6 of Federal Law On International Treaties of the Russian Federation in the Code of Laws of Russian Federation 1995, No. 29, Art. 2757). Accordingly, the Tribunal cannot accept [buyer]'s reference to Art. 15(4) of the Russian Federation Constitution.
Firstly, the one-year general limitation period in the Civil Code of RSFSR of 1964 (Art. 78) was established concerning only claims of State organizations, collective farms and other cooperatives and public organizations. However, the general limitation period to bring a claim to protect violated rights of persons is established as three years. This limitation period regulated relations with foreign organizations.
Secondly, since 3 August 1992, the Fundamentals of Civil Legislation (1991) were in force in the territory of Russia pursuant to decrees of the Supreme Council of Russian Federation of 14 July 1992 and 3 March 1993. Article 42 of the Fundamentals of 1991 established a uniform general three-year limitation period for the protection of violated rights. The rules of the Civil Code of RSFSR, non-conforming to those of Fundamentals of 1991, lost their force at the date indicated above. Paragraph 4 of the decree of the Supreme Council of Russian Federation of 3 March 1993, indicated that, uniform for all citizens and legal entities, the general three-year limitation period established by Art. 42 of the Fundamentals of 1991 was applicable to the claims of legal entities if the one-year limitation period stipulated by Art. 78 of Civil Code of RSFSR had not expired on 3 August 1992.
A general three-year limitation period is established in the Civil Code of Russian Federation as well (Art.196).
Documents issued by Vneshekonombank ("External Economic Bank") and presented by [buyer] at the Tribunal evidence that the [buyer] was notified by Vneshekonombank about conditional payment of the appropriate sums from the letter of credit opened on behalf of the [buyer] in the Reserve bank of India in January - February 1995. Thus, [buyer] had learned that the payment was made to the [seller] and accordingly acquired the right to bring a claim at the time when the First Part of the Russian Federation Civil Code was in force. Taking into account this circumstance, the Tribunal recognized the rules of the First Part of the Russian Federation Civil Code as applicable to the disputable relations between the parties.
3.4 [Limitation period of buyer's claim regarding first consignment]
[Buyer] has learned of the conditional bank payment for the first consignment on 13 January 1995, and therefore a claim concerning this request presented on 20 February 1998 is brought after the expiration of the statutory three-year limitation period (Art. 196 of the Russian Federation Civil Code). On the basis of Art. 199(2) of the Russian Federation Civil Code, [buyer] is denied satisfaction of this claim. The Tribunal stresses that by virtue of Art. 205 of the Russian Federation Civil Code, even in the presence of valid reasons for the [buyer] to miss the limitation period, this claim as a claim of a legal entity could not be satisfied.
3.5 [Limitation period of buyer's claim regarding second consignment]
[Buyer]'s claim concerning the second consignment is brought within the statutory period of limitation. [Buyer] could not learn of the conditional bank payment to the [seller] for the cost of this consignment prior to 24 February 1995, since in its notice to the [buyer] Vneshekonombank marked just this date.
4. CONCLUSIONS
The Tribunal has come to the conclusion that [buyer] has not proved the reasonableness of its claims against the [seller] and should be denied satisfaction of the claims in essence for the following reasons:
4.1 [Evidentiary issues]
According to the Rules of the Tribunal (§ 34), parties should prove those circumstances to which they refer as the basis of their claims.
[Buyer] did not present to the Tribunal any proofs that the [seller] did not ship the goods concerning which [buyer] brought a claim. Moreover, the Tribunal was deprived of the possibility to examine the correctness of the transportation and other documents (including those confirming insurance of the goods) transmitted by [seller] to [buyer] through the bank, because the [buyer] did not present these documents, though there was a letter in the case materials from Vneshekonombank to [buyer] confirming that these documents were given to an employee of the [buyer]. At the same time, [seller] presented evidences to the Tribunal that he transferred a complete set of documents stipulated by the letter of credit to the Reserve bank of India.
4.2 [Contractual terms of delivery]
The contract does not contain direct instructions as to the basic terms of delivery of goods by [seller] to [buyer].
The Tribunal, in determining the intent of the parties, analyzed comparatively the terms of the contract and the conduct of the parties during its performance pursuant to Art. 8 CISG. As a result, the Tribunal concluded that the sale of goods was carried out pursuant to basic conditions of CIF or CIP, terms widely used in international trade. Firstly, the seller paid for the transportation of the goods to destination indicated by the buyer, and a contract of transportation of the goods was concluded between the seller and the carrier. Secondly, the seller was obliged to insure the goods. Thirdly, the date of the bill of lading, i.e., date of acceptance of the goods by carrier for delivery to the buyer, was recognized as a date of performance of the obligation. Fourthly, the [seller]'s obligation to deliver goods to buyer, concerning amount and quality of the goods, was considered carried out in accordance with the documents given in the place of origin.
According to approaches generally accepted in practice of international trade (see, in particular, Incoterms 1990), terms CIF or CIP stipulate that, when according to the terms and conditions of contract the goods are subject to carriage, the risk of damage or loss of goods passes from seller to buyer from the moment of delivery of goods by seller to the carrier for transmission to the buyer. According to Art. 67 CISG, it is the obligation of the seller to clearly identify the goods for the purposes of a given contract, in particular by means of shipping documents. As it was indicated above, this requirement was met by the seller.
4.3 [Passing of risk]
According to Art. 66 CISG, loss of or damage to goods after the risk has passed to the buyer does not discharge [buyer] from the obligation to pay the price, unless the loss or damage is due to an act or omission of the seller.
As stated above, [buyer] did not present evidences that actions or omissions of the seller caused loss of goods. [Buyer] also did not prove that the goods were returned by carrier to the seller or were re-dispatched to other persons on the instructions of the seller.
4.4 [Buyer's alternate course of action]
[Buyer], in the absence of consignment of the goods, had the right to bring a claim not against the seller but against the carrier while [buyer] possessed first copies of bills of lading.
On the basis of insurance policies, [buyer] had the right to bring a claim against the insurance company for loss of goods in transportation. However representatives of the [buyer] did not mention that they presented any demands to the carrier and/or to the insurer and that these demands were denied satisfaction by reason of responsibility of seller.
FOOTNOTES
* This is a translation of data on the award in Proceeding 62/1998, dated 30 December 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. 70 [250-256]. All translations should be verified by cross-checking against the original text. For purposes of this
translation, Claimant of India is referred to as [buyer]; Respondent of the Russian Federation is
referred to as [seller].
** Antonida S. Alibekova, teacher of Law at Mari State University (Russia), studied at the School of Law of Mari State University, School of Law of Manchester Metropolitan University (Great Britain), Legal Studies Department of the Central European University (Budapest, Hungary), School of Law of Wayne State University (Detroit, Michigan, the USA). Winner of Russia's National Round of Telders Moot Court Competition (member of the winning team) (2000), Russia's National Round of Jessup Moot Court Competition (2002). Finalist of the International W.C. Vis Moot Court Competition, Vienna, Austria (2002), semi-finalist of the Central and Eastern European Moot Court Competition, Ljubljana, Slovenia (2002). Participant in International Telders Moot Court Competition, Hague, Netherlands (2000), International F. Jessup Moot Court Competition, Washington, USA (2002). The second-iteration redaction of this translation was by Dr. John
Felemegas of Australia.
*** 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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