Case text (English translation)
Queen Mary Case Translation Programme
Russian Federation arbitration proceeding 47/1997 of 14 April 1998
Translation [*] by Aleksandra Gorak [**]
Translation edited by Mykhaylo Danylko [***]
1. SUMMARY OF RULING
1.1 Despite the inexactness of the arbitration clause of the contract between the parties, the Tribunal of International Commercial Arbitration at the Chamber of Commerce and Industry of the Russian Federation (hereinafter Tribunal) found itself competent to arbitrate the dispute, taking into account that [seller] brought the action to the Tribunal and that the [buyer] presented objections to the merits, not challenging the competence of the Tribunal.
Hearing the issue of divergence between the arbitration clause of the contract and provisions of the General Terms of Delivery USSR - People's Republic of China [hereinafter GTD], the Tribunal stated that the arbitration clause included in the contract complied with the recommendation of the Russian Federation Chamber of Commerce and Industry and Chinese Chamber of International Commerce of 15 July 1996.
1.2 Having found the GTD and the Vienna Convention 1980 [UN Convention on Contracts for the International Sale of Goods (1980), hereinafter CISG] applicable to the contract, the Tribunal stated that provisions of GTD regarding procedure of payments are not applicable because of the termination of financial activity of the USSR Vneshekonombank.
1.3 Although the contract was signed by a Russian company which did not have capacity to do so, the Tribunal found the agreement valid considering its further approval by factual conduct of the company on behalf of which the contract was made.
1.4 The Tribunal identified that proper claimant was the company to which the right of action under the contract was yielded and which concluded the commission agreement with the Russian company on behalf of which the contract was made.
2. FACTS AND PLEADINGS
The action was brought by [seller], a Russian company, against [buyer], a Chinese company, in connection with non-payment for the goods delivered under the contract concluded in May 1996. The right of action was assigned to the Russian company, which brought the action, [Claimant], by another Russian company, which had concluded the contact. The contract itself, which provided that liability for its performance rested on the consignor of the goods [i.e., the Claimant], was signed without relevant capacity of the consignor.
The [buyer], admitting the debt before the [seller], referred to the difficulties in the re-sale of the goods caused by fall in demand for these goods.
3. TRIBUNAL'S REASONING
The ruling of the Tribunal contained the following main points:
3.1 [Jurisdiction competence of the Tribunal]
The Tribunal's competence to arbitrate this dispute follows from the section entitled "Arbitration" of the contract, according to which all disputes arising in connection with this contract should be settled by arbitration procedure. The arbitration should be held at the Chamber of Commerce and Industry in Moscow.
[Seller]'s filling of the action at the Tribunal and explanations, given by him during the hearing, that in section "Arbitration" the parties meant this Tribunal, and also the fact that [buyer] presented explanations to the action, where she did not argue the competence of this Tribunal to arbitrate the dispute, provide the Tribunal with the right to hold itself competent to arbitrate the present dispute pursuant to Article 7(2) of the Russian Federation Law on Tribunal of International Commercial Arbitration.
Making such a ruling, the Tribunal invoked Article 1 of the Covenant between the Russian Federation Chamber of Commerce and Industry and the Chinese Chamber of International Trade/Chinese Committee for Promotion of International Trade On Cooperation in Commercial Arbitration of 15 July 1996, according to which, comparing to GTD, parties to bilateral Russian-Chinese trade relations are recommended to employ arbitration clause for arbitration at this Tribunal if claimant is a Russian legal or private entity (like in this case).
3.2 [Applicable law]
The Tribunal stated that there was no agreement on applicable law between the parties.
The Tribunal found that GTD apply to all contracts of sale between companies of the USSR, entitled to enter into such international contracts of sale, and trade companies of the People's Republic of China. However, the Ministry of External Economic Relations of the USSR and respective authority of the People's Republic of China signed the GTD in 1990. After conclusion of this Treaty, the CISG became effective in Russia as well as in the People's Republic of China.
Taking into account that, according to Article 90 CISG, the Convention does not prevail over any international agreement which has already been or may be entered into and which contains provisions concerning matters governed by CISG, provided that the parties have their places of business in States parties to such agreement, the Tribunal referred to Part X "Procedure of payments" GTD and found that according to the context of its articles the buyer is obligated to pay the price for the delivered goods by using collection with further acceptance (immediate payment) through the Vneshekonombank of the USSR or specially authorized banks of the USSR, and, respectively, through the Bank of China in Peking and its branches (§ 29 GTD). The Tribunal stated that due to termination of financial activity of Vneshekonombank of the USSR this section of GTD could not be applied, and there are no disaccords as to buyer's obligation to pay between the CISG and GTD.
Moreover, the Tribunal also considered the fact that parties have not expressly provided in their contract for application of GTD to their relations.
Taking into attention the aforesaid, the Tribunal concluded that the CISG and the GTD should be applied to the parties' relations under the contract, and also, by virtue of the rule of conflict of Article 166 of the Fundamentals of Civil Law USSR 1991, the law of the country of seller, i.e. - Russian substantive law.
3.3 [Claimant properly identified]
As to the issue of whether the company which brought the action is the proper claimant, the Tribunal found that a Russian company which had no authority to conclude this contract, has concluded the contract in dispute.
Pursuant to Article 183 of the Civil Code of the Russian Federation, such a contract should be considered to be a contract formed by a non-authorized person if there was no further approval of the contract by the party in whose interests it was concluded.
It follows from the case materials that all shipping documents (customs declarations, railroad bills of lading) were issued in the name of the Russian company which signed the contract and de facto was a commission agent under the present contract.
Under this contract, the consignor, who was liable for performance of the obligations to ship the goods under the contract, shipped the goods and thus factually approved the contract by his actions.
Furthermore, the consignor later was interested in the performance of this contract, and, inter alia, the settlement of the dispute with the overseas buyer (the letter to the Tribunal dated 22 April 1997).
Therefore, even though a non-authorized person formed the contract, the contract was approved and should be considered as valid.
3.4 [Assignment of rights]
The Tribunal was presented with an agreement on assignment of right of action from the party to the contract to another Russian company with which the consignor has concluded the agreement of commission.
Assignment of right of action is provided for by Article 382(1) of the Civil Code of the Russian Federation, which does not require debtor's consent for such an assignment.
The Tribunal found from the case materials that both the Russian company, which signed the contract, [assignor], and the Russian company, to which the right was assigned, [assignee] were established by the same persons and have the same legal address.
Therefore, the fact of conclusion of the contract with an overseas buyer by the first Russian company instead of the second one is explained particularly by this circumstance.
Moreover, under the contract of commission, according to Article 996 of the Russian Federation Civil Code, the title to the goods and the right to the price belong, in any case, to the consignor.
However, guided by Article 382(3) of the Russian Federation Civil Code, in the event of assignment of the right of action without giving notice to the debtor, the new creditor, which is the second Russian company, bears the risk of unfavorable consequences caused by non-notification; in particular, performance [of the debtor's obligations] to the initial creditor should have been considered as due performance to the proper creditor.
In connection with the aforesaid, the Tribunal concluded that the Russian company which brought the action was proper claimant in this dispute.
Moreover, in the explanations to the action brought on behalf of second Russian company, the [buyer] did not present any arguments regarding this issue nor did [buyer] challenge the fact of conclusion of the arbitration agreement.
3.4 [The merits of the case]
Whereas the [buyer] did not dispute the delinquency and admitted the debt, thus, the claim of the [seller] should be granted according to Article 53 CISG.
3.5 [Penalty]
The Tribunal also ruled that [seller]'s claim to recover the penalty according to provisions of the contract should be granted.
FOOTNOTES
* This is a translation of the award in Proceeding 47/1997 of 14 April 1997 of the
Tribunal of International Commercial Arbitration at the Russian Federation Chamber of
Commerce and Industry, reported in: Rozenberg ed., Arb. Praktika 1998, No. 27 [97-100]. All translations should be verified by cross-checking against the original text. For purposes of this translation, Respondent of the People's Republic of China is
referred to as [buyer].
** Aleksandra Gorak (bio. info. to be added). 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.
Pace Law School
Institute of International Commercial Law - Last updated May 17, 2004
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