|
||||||||||||||||||
| Abstract | ||||||||||||||||||
| ||||||||||||||||||
| A Pakistan seller and a Russian buyer entered into a contract providing for delivery of certain goods to be shipped to the latter on the term ‘C.I.F. Russian port’. Notwithstanding that a significant quantity of the goods in the first lot was defective, the buyer did not exercise its contractual right to suspend performance and confirmed instead its intention to take delivery of the second lot of goods by notifying the seller that the amount of the letter of credit would be automatically increased upon shipment of each successive lot of goods. The buyer nevertheless refused to take delivery of, and make payment for, the second lot of goods which the seller had already prepared for shipment. Instead of shipping the goods, the seller left them stored in its warehouse.
The seller claimed payment of the price for the second lot of goods (plus interest), recovery of the expenses incurred for warehouse storage of the second lot and recovery of the cost of the raw materials it had purchased in order to manufacture the second lot. The buyer explained that it had not increased the amount in the letter of credit because it was unaware that the goods were ready for shipment and had not received the agreed samples of goods. The parties had referred to the law of the Russian Federation as the law applicable to their contract, but the Arbitral Tribunal affirmed the applicability of CISG by virtue of Art. 15 of the Russian Federation’s Constitution which considers CISG part of the Russian Federation’s legal system. The Tribunal held that reference to Russian law could be made only for issues not governed by CISG. The Tribunal found that the buyer was aware that the second lot of goods was ready for shipment (as it had either been informed thereof directly or by its representative) and had received the samples of the goods; the buyer’s representative, moreover, had been able to carry out a pre-shipment examination of the goods at the manufacturer’s factory. Notwithstanding that more than 10% of the goods it received were defective, the buyer had not formally availed itself of its contractual right to refuse any subsequent delivery. The Tribunal held therefore that the buyer, by virtue of Art. 60 in combination with Art. 54 CISG, had to take delivery and pay the price of the goods. The seller did not submit evidence that it had taken reasonable measures to mitigate the loss, as required by Art. 77 CISG, in particular to sell the goods as they were subject to rapid deterioration (Art. 88 CISG). A significant part of the goods in storage spoiled and the rest was given free of charge to charity oganizations. The Tribunal found that insofar as the seller had breached the contract it was entitled to recover only 25% of the price (after deducting expenses for insurance and transportation costs). The Tribunal rejected the seller’s claim for recovery the price of raw materials for manfacturing the goods, holding that the contract provided for the delivery of final products and that the seller, however, in accordance with the aforementioned Art. 88 (2) CISG, should have taken reasonable measures to sell raw materials in order to avoid deterioration. The seller had submitted no evidence as to its inability to sell the raw materials, nor had it proved that it had not used them to manufacture goods for other buyers. The Tribunal finally granted recovery of interest on the sum in arrears, calculated – in the absence of any specific provision in CISG (Art. 78) and by virtue of Art. 395 (1) of the Civil Code of the Russian Federation – on the basis of the current credit rate of interest offered by banking institutions in the seller’s country. |