CISG CASE PRESENTATION

Russia 3 March 1997 Arbitration proceeding 82/1996 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970303r1.html]

Case Table of Contents

• Case identification
• Classification of issues present
• Editorial remarks
• Citations to case abstracts, texts, and commentaries
• Case text (English translation)
• Guide to links contained in case presentations

Case identification

DATE OF DECISIONS: 19970303 (3 March 1997)

JURISDICTION: Russian Federation

TRIBUNAL: Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 82/1996

CASE NAME: Unavailable

CASE HISTORY: There were two contracts: one for goods (food mixtures and spices for production of chips); and one for packing material for the goods. A previous arbitration award (272/1995) held non-conformity of the goods. This proceeding involves a contract for the packing material.

SELLER'S COUNTRY: United States (respondent)

BUYER'S COUNTRY: Russia (complainant)

GOODS INVOLVED: Rolls of chips packing for food mixtures and spices for production of chips

Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 6 ; 81

Classification of issues using UNCITRAL classification code numbers:

6A [Convention yields to contract: modification of Convention by contract];

81C [Effect of avoidance on obligations: restitution of benefits received]

Descriptors: Autonomy of parties ; Avoidance ; Restitution

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Editorial remarks

• Unavailable

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=378&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (Russian): Unavailable

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

Case text (English translation) [second draft]

Queen Mary Case Translation Programme

FACTS

On 19 March 1996 the limited liability partnership of Bashkortostan, Russia filed a claim with the Tribunal. The claim was brought against a limited liability company of New York, USA to recover US $42,088.00.

As stated in the claim, on 15 November 1994 the Claimant [Buyer] and the Respondent [Seller] made two contracts:

Since the spices delivered under Contract No. 005 could not be used for that particular purpose -- as reflected in the Tribunal's award in case No. 272/1995 -- the [Buyer] did not need the packaging for chips that was to be delivered under Contract No. 589.

Clause 2.1 of Contract No. 589 set forth that delivery of the goods was to be made within 90 days upon receipt of an advance payment and upon the Buyer's approval of design. As evidenced by the bank statement No. 7 of 10 November 1994, the Buyer transferred 100% of the cost of the packaging to the seller's account. As the [Buyer] asserts, he also paid an additional US $200.00 for the design of the packaging. There are no documents evidencing such payment in the materials of the case. (The computation of the amount of the claim under the contract No. 589 contains a reference to the payment statement No. 242 of 6 April 1995 for the total sum of Russian Rubles [RuR] 1,000,000.00). The [Buyer] asserts that the packaging was never delivered to him.

In such circumstances, the [Buyer] suggested to the [Seller] that Contract No. 589 be terminated. The materials of the case contain no documents evidencing that such suggestion indeed took place. However, the translation of the [Seller]'s fax message mentions the [Buyer]'s letter of 7 June 1995. As stated in the claim, on 15 November 1995 the [Seller] refunded part of the funds received from the [Buyer] as an advance payment under Contract No. 589, namely, US $54,750.00. The computation of this sum was stated in the [Seller]'s fax message of 18 June 1995. (The [Seller] deducted his expenses in connection with his performance under the contract from the amount transferred by the [Buyer]).

The [Buyer] asked the Tribunal to declare Contract No. 589 of 15 November 1994 avoided and to hold that the [Seller] should refund US $42,088.00 to the [Buyer] (i.e., US $96,638.00 - US $54,750.00) as well as pay the arbitration fees in the amount of US $3,197.00 and attorney's fees in the amount of RuR 1,500,000.00.

The parties chose the main and substitute arbitrators. They later appointed the Chairman of the Panel and the Deputy Chairman of the Panel.

The first hearing took place on 14 January 1997. The [Buyer] stated that he partially changed the legal basis for his claims. The claim to recover damages in the amount of US $42,088.00 was replaced with the claim to recover an advance payment. The total sum of the claim stayed the same.

In the hearing held on 14 January 1997, the [Seller] made a statement that he partially rejected the claim. According to the statement, the [Seller] denied the existence of any connection between Contract No. 005 to deliver spices for the production of chips and Contract No. 589 to deliver the packaging. The [Seller] pointed out that the [Buyer]'s actions -- in particular, delays with approval of the design of the packaging -- evidenced that the [Buyer] did not expect to use the packaging ordered from the [Seller] to complete the contracts to deliver chips that he had at that time. Besides, the production of chips continued during the time of the dispute. The [Buyer] refused to purchase the packaging and in his letter of 15 May 1995 he demanded that the contract be declared avoided and the sum of the advance payment transferred be refunded to him in full (i.e., US $96,638.00). The [Seller] refunded US $54,750.00 to the account given by the [Buyer]. The [Seller] retained US $41,888.00 as compensation for his expenses.

[Of the US $41,888.00]:

The [Buyer] requested that the proceeding be postponed since he needed to review the [Seller]'s reply. The Tribunal rescheduled the proceeding to 3 March 1997. The Tribunal also recommended that the [Seller] clarify the legal grounds for the expenses listed in his reply to the claim in the meaning of paragraph 33 of the Tribunal's Rules.

During the hearing of 3 March 1997, the [Buyer] asserted that he partially modified his claims. He eliminated his request that the Tribunal declare the contract of 13 March 1994 avoided and changed the legal grounds for his claims. He now did not claim damages but requested a refund of the portion of the cost of goods paid as 100% of an advance payment (US $42,088.00). The claim of attorney's fees in the amount of RuR 1,500,000.00 was replaced with a claim of US $1,500.00. In his motion and the subsequent oral explanations, the [Buyer] analyzed the [Seller]'s expenses in great detail. The [Buyer] asserted that the connection between the contract to deliver spices and the contract to deliver the packaging for chips was obvious.

The [Seller] submitted a reply to the [Buyer]'s argument on 13 January 1997. In his reply, while denying the connection between the two contracts, the [Seller] described the nature of his expenses in detail. He pointed out his expenses in the amount of US $33,817.00 in connection with the termination of his contract with the manufacturer of the packaging. He also presented the computation of profits lost due to the termination of his contract with the [Buyer]. In the [Seller]'s opinion, the lost profits amounted to US $16,291.00. The [Seller], acting in good faith, took all the steps to fulfill the order within the period of time set forth in the contract. He demanded that the [Buyer]'s claims be denied.

The [Buyer] explained that the [Seller] had no right to unilaterally withhold his expenses from the cost of the goods. In the [Buyer]'s opinion, the [Seller] was to refund 100% of the advance payment received and only at that time could he ask the [Buyer] to reimburse him for the expenses incurred. The [Buyer] further explained that, in his opinion, the expenses included the cost of placement of an order (and lost profit). He stated that, in his opinion, the consequences of a mutual termination of the contract should be governed by Article 81 CISG. According to Article 81 CISG, avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due.

In the [Seller]'s opinion, the dispute concerned only the amount of damages and not whether or not he had a right to withhold his expenses from the sum of the advance payment. The [Seller] pointed out that the [Buyer] failed to submit the design of packaging within the period of time set forth in the contract which would allow the [Seller] to fulfill his obligations under the contract on time (namely, according to the [Seller], within 90 days, while the standard period of time for such performance constitutes 120 days). For the same reason, the [Seller], while trying to reasonably fulfill his obligations under the contract, ordered the packaging based on the main technical parameters which the parties agreed upon in the contract. The [Seller] spent US $33,817.00 to manufacture of the cylinders required for the production of the packaging and to make a 30% non-refundable down payment to the manufacturer for the work required. The [Seller] emphasized that the down payment paid was not included into the cost of the packaging and that the right to property in the packaging never passed to him. The [Seller] returned the packaging manufactured to the manufacturer. The [Seller] pointed out that had he bought the packaging, he would have handed it over to the [Buyer].

The [Buyer] confirmed that he did not approve the design of the packaging within a reasonable time. However, he absolutely denied the reasonableness of the [Seller]'s actions which entailed the expenses in connection with the completion of the order. He rejected the evidence presented. Finally, the [Buyer] submitted a certificate issued by Socinvestbank of the city of Ufa stating the rate of annual interest in connection with loans made in hard currency. He claimed from the [Seller] 25% annual interest for the use of another's funds.

REASONING

The Tribunal finds it has competence to arbitrate the present dispute. This directly follows from the provisions of clause 14 of the contract No. 589 in accordance to which disputes between the parties shall be arbitrated by the Tribunal.

When deciding on the law applicable to the relationships of the parties, the Tribunal takes into consideration the following. Since, in accordance with Article 7 of the Russian Federation Civil Code 1995, international treaties of the Russian Federation, including the CISG, are a component part of Russia laws, the provisions of the CISG prevail over the domestic rules of law. Taking into consideration that Contract No. 589 was made by parties whose commercial enterprises are located in Russia and the USA, i.e., CISG Contracting States, pursuant to Article 1(1) CISG the provisions of this Convention shall govern the relationships of the parties.

Based on the materials submitted by the parties as well as the parties' oral presentations, the Tribunal finds the following:

1. Contract No. 589 was terminated by the agreement of the parties. The [Buyer] initiated the termination of the contract as evidenced by the fax message No. 8 of 15 May 1995. Those facts were not contested by the parties.

2. The [Seller] agreed to terminate the contract as evidenced by his fax message of 18 June 1995 in which he described the property consequences of the termination of the contract. In his letter No. 145 of 6 July 1995, the [Buyer] asked the [Seller] to present documentary evidence of such expenses. Thus, both parties understood that upon the termination of the contract any documentary proven expenses would be reimbursed. The parties basically agreed on the reimbursement of the expenses.

3. Since the contract was terminated upon the mutual agreement of the parties, the Tribunal believes that the consequences of the termination of the contract cannot be governed by Article 81 CISG, on which the [Buyer] relied in the proceeding of 3 March, since Article 81 CISG applies only in the case of a unilateral termination of a contract. The agreement of the parties prevails over the provisions of the Convention.

4. The parties agreed to reimburse expenses incurred in connection with the failure to fulfill the contract. Therefore, no lost profit should be reimbursed.

5. The expenses incurred by the [Seller] in connection with his performance under Contract No. 589 include the cost of manufacturing of the printing cylinders (US $16,632.00) and the non-refundable down payment in the amount of 30% of the cost of the printing job paid to the subcontractor (Taiwan) at the time when the order was placed (US $17,185.50). The down payment was non-refundable in accordance with the terms stated in the pro-forma invoice/order confirmation No. 941124 of 24 November 1994 issued by Thomson Printing & Packing Corp. The amount of expenses is evidenced by the said pro-forma invoice. The fact of the payment is evidenced by the statement of Barclays Bank PLC of 24 November 1994. Thus, the total amount of the documentary proven expenses constitutes US $33,817.50.

6. Since the [Seller] failed to prove the necessity of the Director's presence in Taiwan in order to fulfill the contract, his business trip expenses and airfare in the total amount of US $7,561.00 are not documentary proven and shall not be included into the computation [of the expenses].

7. Based on the findings made in paragraphs 5 and 6 of the reasoning, the Tribunal sustains the [Buyer]'s claim that the advance payment transferred to the [Seller] and not refunded upon the termination of the contract (US $42,088.00), reduced by the amount of the documentary proven expenses of the [Seller] in connection with the fulfillment of the contract (US $33,817.50), be reimbursed by the [Seller]. The amount of reimbursement shall be US $8,270.50.

8. The [Buyer] claimed interest for the use of another's funds only at the second proceeding. The [Buyer] never gave a reason for such delay. Since such claim was not reflected in the documents submitted by the [Buyer] and since it did not affect the amount of the claim, the Tribunal finds it unreasonable to allow an amendment of claims pursuant to paragraph 32 of the Tribunal's Rules. The Tribunal took into consideration the delay and left the issue of recovery of interest for the use of another's funds without consideration.

9. Pursuant to paragraph 9 of the Schedule on Arbitration Fees and Costs, the Tribunal finds it possible to sustain the [Buyer]'s claim to recover reasonable legal fees in the amount of US $1,000.00.

10. Pursuant to paragraph 6(2) of the Schedule on Arbitration Fees and Costs, the Tribunal sustains the [Buyer]'s claim to apportion the arbitration fees in proportion to the amount of the [Buyer]'s claims sustained.

RESOLUTION

For the above stated reasons and pursuant to paragraphs 38 and 41 of the Tribunal's Rules, the Tribunal holds:

1. The Respondent [Seller] (New York, USA) must pay the Claimant [Buyer] (Bashkortostan, Russia) the following sums:
   • US $8,270.50 representing a refund of an advance payment for the packaging reduced by the documentary proven expenses of the [Seller] in connection with his performance under the contract;

   • US $1,000.00 of attorney's fees;

   • The arbitration fees in the amount US $628.23

2. The issue of recovery by the [Buyer] from the [Seller] of interest for the use of another's funds is left without consideration.

3. The remaining claims are denied.

FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation Claimant of Russia is referred to as [Buyer] and Respondent of the United States is referred to as [Seller].

** Yelena Kalika, a law student at the Pace University School of Law, has studied at the Moscow State Law Academy, interned with a Moscow law firm, and is a Research Assistant at the Pace Institute of International Commercial Law.

*** Yuliya Chernykh graduated from the National University of Kyiv-Mogyla Academy (Ukraine, 2004) and Stockholm University (LL.M. in International Commercial Law, 2005), Intern at UNCITRAL (2005).