CISG CASE PRESENTATION

Russia 11 September 1998 Arbitration proceeding 407/1996 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/980911r1.html]

Case Table of Contents

• Case identification
• UNCITRAL abstract
• 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 DECISION: 19980911 (11 September 1998)

JURISDICTION: Arbitration ; Russian Federation

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

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 407/1996

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (respondent/claimant)

BUYER'S COUNTRY: Hungary (claimant/respondent)

GOODS INVOLVED: Goods

RUSSIAN FEDERATION: Award in Case No. 407/1996 of 11 September 1998 of the
Arbitration Tribunal of Russian Federation Chamber of Commerce and Industry

Case law on UNCITRAL texts (CLOUT) abstract no. 467

Reproduced with permission of UNCITRAL

A Hungarian company, the seller, sued a Russian company, the buyer, which had received goods under barter contracts but had not delivered in exchange the goods agreed under the contract. The buyer asserted that these contracts were invalid, since they were subject to compulsory State registration in Russia and the export from Russia of the goods covered by the contracts was permitted only to a special category of exporters, to which the buyer did not belong. The buyer also stated that the non-performance of its obligations was a consequence of the failure of the seller to pay the rail tariff, without which the goods could not be delivered. The seller disagreed and characterized its claim as a claim for compensation for losses incurred in connection with the buyer’s non-performance of its obligations under the contract.

The tribunal ruled that the failure to obtain an export permit or to register as a special exporter did not constitute grounds for invalidating the contracts and should not have detrimental consequences for the seller, since the performance of the relevant actions was entirely the buyer’s responsibility. The tribunal dismissed the buyer’s argument regarding the seller’s failure to pay the rail tariff, since the buyer had not proved that it had informed the seller in a timely and appropriate fashion of the requirement to pay such a tariff.

At the same time, the tribunal took into consideration that, in a letter of 27 October 1995, the seller had arranged to transfer part of the goods to a third party with which the seller had direct contractual relations, so that the seller retained the right to claim the property from the party that was holding it.

Taking into account the above and the provisions of articles 45 and 74 CISG, the tribunal concluded that the seller was entitled to damages in connection with the buyer’s breach of its contractual obligations.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 80 [Also cited: Articles 45(1)(b) ; 74 ]

Classification of issues using UNCITRAL classification code numbers:

80A [Failure of performance caused by other party (party causing non-performance): loss of rights]

Descriptors: Failure of performance, other party

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Editorial remarks

• Unavailable

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

Unavailable

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. 46 [157-159]

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Djakhongir Saidov, 7 Vindobona Journal of International Commercial Law and Arbitration (1/2003) 1-62 at nn.29, 56, 255

Case text (English translation)

Queen Mary Case Translation Programme

1. SUMMARY OF RULING

    1.1 The barter contract between the parties, whose commercial companies are located in Contracting States to the Vienna Convention 1980 [U.N. Convention on Contracts for the International Sale of Goods (1980); hereinafter CISG], is considered as two contracts of sale of goods that are governed by the CISG.

Since according to the agreement of the parties the law of the State, which was the territory of Russia, where the contracts were concluded, should be applicable to the disputes, [lex loci contractus], Russian law is recognized as subsidiary statute.

The Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry (hereinafter Tribunal) has recognized that the conclusion of the contracts in 1995 in lieu of the contracts in 1994 (with substitution of one of the parties to the contracts) represented not a novation of the obligations but an agreement on transfer of the debt. The Tribunal has reached a conclusion that all obligations which have arisen from the contracts in 1994, remained enforceable for the parties to the contract in 1995, and, accordingly, the parties' relations are governed not by the rules of Part I of the Civil Code of the Russian Federation but by the rules of the Civil Code of the RSFSR [Russian Soviet Federative Socialist Republic] of 1964.

    1.2 Non-receipt by the [seller] of the license for export and non-registration of him as a special exporter do not provide a basis for the declaration of the contracts as void and can not cause unfavorable consequences for the [buyer], because the obligation to take all appropriate actions was imposed completely upon the [seller].

    1.3 The [seller]'s argument that the default in his obligations has occurred due to the fault of the [buyer], cannot be taken into account because the [seller] has not proved that [seller] notified the [buyer] properly and timely of the necessity for payment of a railroad fare.

    1.4 Taking into account that the [seller], upon instructions from [buyer], has transferred a part of the goods to the third party, with which the [buyer] has direct contractual relations, the claims against this third party should be made solely by the [buyer].

2. FACTS AND PLEADINGS

The action was brought by [buyer], a Hungarian company, against [seller], a Russian company, which has received the goods under the barter contracts, and has not shipped the goods specified in the contract in exchange for [received] goods.

Originally these contracts were concluded between the [buyer] and another Russian company in 1994, but in 1995 the contracts were re-concluded between the [buyer] and the [seller], who took over the rights and obligations of the first Russian company.

    2.1 [Seller's position]

[Seller] denied the action, considering that these contracts should be declared void calling attention to the fact that they were subject to mandatory State registration in Russia, and the exportation of goods specified in the contracts was allowed only to special exporters, which the [seller] was not.

Besides this, the [seller] argued that under these contracts, [seller] delivered other goods to the [buyer] and also that part of the goods received from the [buyer] he has transferred to the third party upon the instruction of the [buyer]. [Seller] also stated that non-performance of his obligations was caused by the faulty actions of the [buyer], who did not pay the railroad fare, without which the delivery of the goods could not be secured.

    2.2 [Buyer's claim for damages]

[Buyer] did not agree with the [seller]'s arguments and identified her claim as claim for damages suffered in connection with [seller]'s non-performance of his obligation under the contract.

3. TRIBUNAL'S REASONING

The ruling of the Tribunal contained the following main points:

    3.1 [Jurisdiction competence of the Tribunal]

The competence of the Tribunal to arbitrate the present dispute is directly stipulated in the contract between the parties.

    3.2 [Applicable law]

Whereas the contracts concluded between the parties provide for application to the disputes the law of the State where the contracts were concluded, thus the Tribunal is guided by the legislation of Russia, which was the place of the conclusion of the contracts, and, above all, by the provisions of the CISG, to which both Russia and Hungary are Contracting States.

The rules of Russian civil law should be applied to the issues not settled by the CISG. The Tribunal considers each barter contract concluded between the parties, as two contracts for the sale of goods: under one of which, the shipment of goods was made from Hungary to Russia; and under the other, the goods of equivalent price in exchange for the goods received should be delivered from Russia to Hungary.

    3.3 [The contractual relations between the parties]

Having examined the context of both the initial contracts of 1994 and the contracts entered into by the parties in 1995, the Tribunal has reached a conclusion that the contracts made by the parties in October 1995 can not be considered as a novation of the obligations following from the contracts made in 1994, because the contracts of 1995 are not the agreements of the parties on substitution of one obligation by another, but represent in essence the agreement of the parties on transfer of the debt by the [seller]/debtor to the third party. Thus, all obligations that have arisen from contracts of 1994 remained enforceable for the [seller] in this dispute.

Therefore, the Tribunal considers as incorrect the reference of the [seller] to the rules of the Part I of the Russian Federation Civil Code, which has come into force since 1 January 1995, i.e., after the conclusion of the initial contracts. Thus, the rules of the Civil Code of RSFSR of 1964 should be applied to the relations between the parties.

    3.4 [Seller's argument for avoidance of the contracts]

The arguments of the [seller], that the contracts should be declared void according to Articles 165 and 168 of the Russian Federation Civil Code, cannot be considered as convincing, because non-receipt by the [seller] of the license to export and non-registration of him as special exporter are not a basis for declaring the contracts void and cannot cause unfavorable consequences for the [buyer], because the obligation to take all appropriate actions was imposed completely upon the [seller].

    3.5 [Seller's failure to notify]

[Seller]'s argument that non-performance of his obligations was caused by the fault of the [buyer] in connection with non-payment by the [buyer] of the railroad fare, should be denied because the [seller] has not proved that he has properly and timely notified the [buyer] of the necessity to make payment of such fare.

    3.6 [Transfer of goods to third party on buyer's request]

The Tribunal has taken into account that by letter of 27 October 1995, the [buyer] instructed the [seller] to transfer a part of the goods to the third party. Having instructed to transfer part of the goods to the third party, with whom the [buyer] has direct contractual relations, the [buyer] retains the right to claim these goods from this [third] party, who retains possession of the goods.

Therefore, the sum of damages to be recovered by the [buyer] should be reduced by the price of the goods transferred to the third party.

    3.7 [Buyer's damages for seller's breach of contract]

Taking into account all the aforesaid and also the provisions of Articles 45(1)(b) and 74 CISG, the [buyer] is entitled to recover damages in connection with [seller]'s breach of his contractual obligations. The [buyer] has proved the sum of damages suffered by her due to the [seller]'s breach of the contracts.

FOOTNOTES

* This is a translation of data on Proceeding 407/1996, dated 11 September 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. 46 [157-159]. All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Hungary is referred to as [buyer]; Respondent of the Russian Federation is referred to as [seller].

** Antonida Alibekova [add bio. info.] 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.