Russia 14 February 2006 Arbitration proceeding 7/2005 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060214r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 7/2005
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Russian Federation
BUYER'S COUNTRY: Netherlands
GOODS INVOLVED: [-]
APPLICATION OF CISG: Yes
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
1A [Internationality: Parties' places of business in different States]; 7(2) [Gap-filling]; 9 [International Usages; Practices established by the parties]; 53 [Summary of buyer's obligations]; 71 [Suspension of performance]; 78 [Interest]
1A [Internationality: Parties' places of business in different States];
9 [International Usages; Practices established by the parties];
53 [Summary of buyer's obligations];
71 [Suspension of performance];
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
CITATIONS TO TEXT OF DECISION
Original language (Russian): M.G. Rozenberg, Praktika of Mejdunarodnogo Kommercheskogo Arbitrazhnogo Suda pri TPP Za 2006 g. [Arbitration decisions rendered by the International Commercial Tribunal at the Russian Federation Chamber of Commerce and Industry in 2006], published by "Statut" (2008) No. 7 [74-78]
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 Andriy Kril [**]
1. SUMMARY OF RULING
1.1 Respondent failed to provide evidence substantiating its allegations that relations between the parties in the dispute arose out of an agency agreement concluded by the respondent with the third party that does not contain an arbitration agreement, as opposed to a contract between the parties to the dispute that contained an arbitration agreement to adjudicate disputes in the MKAC. Consequently, the Tribunal ruled that it is competent to adjudicate this case.
1.2 Since the parties of the international sales contract are situated in States parties to the Vienna Convention of 1980 (the Russian Federation and the Netherlands), this Convention was recognized as the main statute applicable to relationships between the parties. Subsidiary statute was determined on the basis of provisions of the CISG (Article 7(2)) and the Civil Code of the Russian Federation (Article 1211).
1.3 Plaintiff's execution of its obligation under the contract was recognized as established on the basis of the documents provided by the plaintiff and defendant's notice about the partial non-conformity of goods delivered by the plaintiff with the contractual requirements. Meanwhile, the defendant only partially paid for goods.
2. FACTS AND PLEADINGS
The claim was lodged by the Russian organization (the [Seller]), against the [Buyer], a Dutch firm, in connection with the underpayment for the goods delivered under the contract concluded by the parties on 11 October 2004.
The [Seller] sought:
|-||Payment of the debt;|
|-||Interest payment for the use of another's monetary funds; and|
|-||Recovery of the expenses for the arbitration fees.|
The [Buyer] objected to the Tribunal's competence to adjudicate this dispute. It argued that the parties' contract and General Delivery Conditions that contain the arbitration clause are not legally binding and cannot be treated as legally meaningful documents. The [Buyer] contended that the contract is a fictitious agreement concluded by the parties in order to formalize an agreement to pay for the goods to be delivered to the third parties. In fact, the [Buyer] alleged that the [Seller] acted as an agent on the basis of the agency agreement concluded by it with the joint Soviet-American enterprise. The [Buyer] presented the text of this contract and submitted a motion before the Dutch court asking it to terminate the agreement.
In connection with this the [Buyer] filed a motion in MKAC asking the latter to adjourn the proceedings until the respective decision will be delivered by the Dutch state court. The [Buyer] argued that part of the goods delivered were in conformity with contractual requirements. The [Buyer] also submitted that because of the [Seller]'s refusal to perform its obligations arising out of termination of the agency agreement, and by turning to the Dutch state court, it executed its right foreseen by Art. 71 of the CISG to suspend the payment until the [Seller] will pay under the agency agreement in full. The [Buyer] determined [Seller]'s demands for the payment of interest for the use of another's monetary funds as a penalty and therefore noted that neither the contract nor General Delivery Conditions foresee payment of the penalties. Obligation to pay penalties is not foreseen by the agency agreement as well.
The [Seller] insisted that its relations with the [Buyer] arose out of the contract that was the basis for the claim in this case. Agency agreement mentioned by the [Buyer] was concluded by the [Seller] with the third party, but not with the [Buyer]. Representative of the [Seller] agreed to the reduction of the main debt's amount as was solicited by the [Buyer] because of the revealed non-conformity of the part of the goods.
The [Seller] presented documents confirming delivery of goods and proofs of the interest rate.
3. TRIBUNAL'S REASONING
The award of the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry [MKAC] contained the following basic points.
3.1 The competence of the Tribunal
The Tribunal established the following concerning competence of the MKAC to adjudicate this case. Article 9 of General Delivery Conditions (GDC/2004) signed by both parties of this dispute on 21 January 2004 provides the following:
"In case there will be any disagreements on quality, quantity or change of the goods, on interpretation or execution of this contract or other disagreements that could not be settled by means of negotiations, such disputes shall be turned for adjudication to the Arbitration Court at the Russian Federation Chamber of Commerce and Industry in Moscow or to its legal successor in accordance with the law of the Russian Federation. Decision of the Arbitration Court shall be final and obligatory for execution for both parties".
According to the Decision of the Supreme Council of the RF dated 7 June 1993, the Arbitration Court at the Russian Federation Chamber of Commerce and Industry was renamed into the International Commercial Arbitration Court at the Russian Federation Chamber of Commerce and Industry. Therefore, the [Seller] lodged its claim to the right institution (to the MKAC at the RF CCI).
The Tribunal noted that dispute between the parties arose out of international business relations, entity of the [Buyer] is situated abroad, and therefore this dispute is covered by the competence of the MKAC according to the RF Law "On International Commercial Arbitration" and the Rules and Procedures of the MKAC.
By sending a letter dated 3 December 2004, the [Seller] complied with the procedure of dispute settlement.
[Buyer]'s submissions that this dispute between the parties arose not out of the contract dated 11 October 2004 and GDC/2004 dated 21 January 2004, but out of the agency agreement dated 5 April 1993 that does not contain an arbitration clause, were recognized as ungrounded since this agency agreement was concluded by the [Buyer]'s firm and the third party.
[Seller]'s lodging of the claim to MKAC at the RF CCI and sending by the [Buyer] of its statement of defense, as well as participation of the parties' representatives in the hearings dated 12 December 2005 and 16 January 2006 evidenced that the parties had an intention to resolve their potential disputes at this arbitration center at the RF CCI in Moscow.
In view of the aforesaid, pursuant to Art. 16 of the RF Law "On International Commercial Arbitration" the Tribunal ruled that it is competent to adjudicate this case.
Composition of the Tribunal was formed in accordance with the Rules and Procedures of the Tribunal.
Neither the [Seller] nor the [Buyer] presented remarks concerning composition of the Tribunal.
3.2 Applicable law
Having considered the question of the applicable law, the Tribunal established that in the contract dated 14 October 2004 the parties did not agree on the law applicable to their relations. The dispute arose out of the contract concluded by the parties commercial entities of which are situated in the Russian Federation and the Netherlands. Since this states at the moment of the contract's conclusion were parties to the Vienna Convention of 1980, the Tribunal decided that this Convention on the basis of Art. 1(a) shall be applied to determine rights and obligations of the parties of this dispute. Following Art. 7(2) of the CISG, Art. 7 and 1211 of the Civil Code of the RF, and Art. 13(1) of the Rules and Procedures of the MKAC the Tribunal ruled that law of the Russian Federation shall be applied as a subsidiary statute.
3.3 Payment of the main debt
While considering merits of the case, the Tribunal established that according to the contract dated 11 October 2004 the [Seller] delivered the complete amount of the goods, indicated in specifications that were Annex No. 1 to the contract. Fact of the goods' delivery under the contract was confirmed by 53 copies of bills of lading presented by the [Seller] in the hearing.
The Tribunal also noted that the [Buyer] partially paid for goods, though with a delay (on 24 December 2004), which is confirmed by the excerpt and notification of the banking institution (Sberbank of the RF) dated 24 December 2004.
The Tribunal did not recognize as grounded [Buyer]'s arguments that the contract dated 11 October 2004 cannot be treated as a legally meaningful document, since this document, according to the [Buyer], was concluded on [Seller]'s request in order to comply with the formalities during the process of payment for goods to be made through the [Buyer]'s accounts. The [Buyer] did not present sufficient evidences of conclusion of an agency agreement by the disputing parties, as well as evidences of bargains settled during its performance of the agency. The [Buyer]'s representative confirmed that partial payment for the goods was made under the contract dated 11 October 2004.
The following facts allowed the Tribunal to establish that the [Seller] executed its obligations under the contract dated 11 October 2004 in full:
|1)||The fact of the goods' delivery directly to the [Buyer], confirmed by the copies of the bills of lading;|
|2)||Partial payment under the contract, made by the [Buyer];|
|3)||Indication by the [Buyer] in its final statement of defense dated 28 October 2005 that part of the goods delivered appeared to be non-conforming.|
Being given the above-mentioned, the Tribunal concluded that the [Buyer] only partially performed its obligations under this contract.
The Tribunal took into account [Seller]'s revised claim submitted on 16 January 2006 in which the [Seller] partially agreed with [Buyer]'s statements and reduced the amount of the main debt.
Having considered the aforesaid, following Art. 53 of the CISG, the Tribunal ruled that [Seller]'s claim to recover the main debt from the [Buyer] shall be sustained.
3.4 Interest payment for the use of another's monetary funds
Having considered the question of recovery from the [Buyer] of the interest for the use of another's monetary funds in respect of amendments according to the [Seller]'s statement dated 16 January 2006, the Tribunal noted that according to Art. 78 of the CISG the [Seller] is entitled to interest on the sum not paid by the [Buyer]. The Tribunal found that calculations of the annual interest, presented by the [Seller], correspond with requirements established by Art. 395(1) of the Civil Code of the RF (the Tribunal recognized that this provisions apply as a subsidiary statute during the calculation of the interest rate).
Being given this and following Art. 78 of the CISG and Art. 395 of the Civil Code of the RF, the Tribunal ruled that [Seller]'s claims for the annual interest payment for the use of another's monetary funds shall be sustained in the amount requested.
3.5 Payment of the arbitration fees and expenses
Since [Buyer]'s failure to perform its contractual obligations forced the [Seller] to turn to the MKAC at the RF CCI to protect its violated right, and because according to Art. 6(1) of the Regulations on Arbitration Fees and Expenses which is an annex to the Rules and Procedures of the Tribunal arbitration and registration fees are laid on the party against which the decision was made, the Tribunal recognized as grounded [Seller]'s claim to oblige the [Buyer] to pay arbitration and registration fees and ruled to sustain it in full.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the Russian Federation is referred to as [Seller] and Respondent of the Netherlands is referred to as [Buyer].
** Andriy Kril is a graduate of the Kyiv-Mohyla University (Kyiv, Ukraine), currently working towards his LL.M. degree at the University of Pittsburgh (Pittsburgh, USA).Go to Case Table of Contents