- Arbitral Award
- Tribunal of International Commercial Arbitration at the Russian Federation
BUYER'S OBLIGATION - PAYMENT OF PRICE (ART. 53 CISG)
SELLER'S RIGHT TO AVOID (TERMINATE) CONTRACT (ART. 64(1)(A) CISG)
AVOIDANCE OF CONTRACT (ART. 81(1) CISG) – DOES NOT AFFECT PROVISION OF THE CONTRACT FOR THE SETTLEMENT OF DISPUTES
AVOIDANCE OF CONTRACT (ART. 81(1) CISG) – DOES NOT AFFECT DAMAGES
A Russian seller and a German buyer entered into a contract. A dispute arose between the parties concerning the payment of the purchase price. Since the buyer, alleging non-conformity of the goods (the lack of quality), denied payment, the seller commenced an action against the buyer claiming avoidance of the contract, payment of the price and damages.
The Tribunal of International Commercial Arbitration at the Chamber of Commerce & Industry of the Russian Federation affirming its competence, held that the contract was governed by CISG, since the parties had their places of business in contracting States (Art. 1(1)(a) CISG). Furthermore, the Tribunal stated that, as provided by Art. 81(1), avoidance of the contract could not affect any of its provisions for the settlement of disputes. As to the questions not expressly settled by CISG, the Tribunal referred to Russian law as the otherwise applicable law (Art. 7(2) CISG).
As to the merits, the Tribunal held that since the seller had proved the exact performance of its obligations as to the shipment of the goods and as the buyer had failed to provide evidence of the alleged lack of conformity, the seller was entitled to recover the purchase price pursuant to Art. 53 CISG. Moreover, as provided by Art. 81(1) CISG, since avoidance of the contract does not affect any of its provisions governing the rights and obligations of the parties consequent upon the avoidance of the contract, the Tribunal awarded the seller damages.
1. SUMMARY OF RULING
1.1 If the contract contains an arbitration clause that provides the alternative right to bring an action before one of two arbitral tribunals, the Claimant [seller] at its own discretion has the right to bring the action before either tribunal.
1.2 According to the Vienna Convention 1980 (Article 81(1)) [UN Convention on Contracts for the International Sale of Goods (1980), hereinafter CISG], which is applicable to this dispute, avoidance of the contract does not affect any of its provisions for the procedure of settlement of disputes. Accordingly, the Tribunal of International Commercial Arbitration at the Chamber of Commerce & Industry of the Russian Federation (hereinafter Tribunal) possesses the competence to arbitrate the case presented.
1.3 By virtue of the Rules of Tribunal (§ 9(2)) the documents (except for the evidence in writing, which should be provided in original or in copies from the original certified by the party (§ 34(2)) should be provided in the language of the contract or in the language that the parties had used to hold correspondence between them, or in the Russian language. Whereas the Respondent [buyer] gave consent to arbitrate this dispute by the Tribunal according to the Rules of Arbitration of this Tribunal of Arbitration, the [buyer] must have acknowledged itself with the Rules of Tribunal.
1.4 Avoidance of the contract does not affect any of its provisions for the rights and obligations of the parties consequent upon its avoidance, in particular for the right to claim damages.
1.5 Whereas the [seller] proved with evidence that it had performed its obligations as to the shipment of goods and the [buyer] did not prove its assertion as to the defectiveness of the goods delivered, the Tribunal ruled in favor of the [seller]'s recovery from the [buyer] the amount of unpaid price of the goods and the penalty for the delay in payment as stipulated in the contract.
2. FACTS AND PLEADINGS
This action was brought by the [seller], a Russian company, against the [buyer], a German company, in connection with default in payment for the goods shipped upon the buyer's order according to the framework contract of 24 April 1998.
2.1 [Seller's position]
The [seller]'s claims included:
to recover the debt;
to recover the penalties for the delay in payment for goods as provided in the contract; and
to recover arbitration expenses and fees.
The buyer proved the fact of shipment of the goods with the copies of the international truck delivery bills of lading bearing the [buyer]'s acknowledgement of receipt of the goods. The correspondence provided by the [seller] evidenced that the [buyer] did not deny the receipt of goods, and did not bring the claims to the [seller] while claiming the defectiveness of the goods.
2.2 [Buyer's position]
The [buyer] argued the competence of the Tribunal to arbitrate this dispute. Pleading other objections to the merits of the dispute, the [buyer] proceeded from the assumption that the avoidance of the contract by the [seller] implicated termination of the other rights provided by the contract. Besides this, in [buyer]'s opinion, the [seller] did not have any legal basis for the avoidance of the contract and, in addition to this, the [buyer] has a counterclaim against the [seller]. The [buyer] also claimed that the case documents are to be provided for the [buyer] in the German language.
3. TRIBUNAL'S REASONING
The ruling of the Tribunal contained the following main points:
3.1 [Jurisdiction competence of the Tribunal]
Whereas the buyer objected the competence of the Tribunal to arbitrate the present case as it had asserted in its fax sent to the Tribunal on 13 March 2000, the Tribunal notes the following:
According to the European Convention on the Tribunal of International Commercial Arbitration 1961 (Article V (3)), parties to which are the Russian Federation and the Federal Republic of Germany, the Russian Federation Law on the Tribunal of International Commercial Arbitration of 7 July 1993 (Article 16) and the Rules of Tribunal (§ 1(5)), the issue of competence of the Tribunal to arbitrate the case should be determined by the benchof the judges who arbitrate the dispute.
The precondition to determine that the Tribunal possesses the competence to arbitrate the present dispute according to the provisions of the abovementioned laws is a fact of the written agreement between the parties to refer the disputes that already arose or which may further arise to this Tribunal.
The matter of the claims brought by the seller is relevant to the objected competence of the Tribunal as it is provided in the Regulations of the Tribunal (paragraph 2), which is the Annex to the abovementioned Russian Federation Law of 7 July 1993, and in the Rules of Tribunal (§ 1(2)(2)).
The contract (paragraph 9), from which the dispute arose, provides that disputes that already arose or may arise from this contract between the parties, shall be settled by the Tribunal of International Commercial Arbitration at the Chamber of Commerce & Industry of the Russian Federation or by the International Tribunal in Paris according to the rules of these tribunals and that the judgments of these tribunals shall be final and binding on the parties.
This arbitration clause in the contract between the parties is in compliance with the requirements for the written agreement of parties to refer the dispute for arbitration to the Tribunal.
Existence of the clause in the contract on the alternative right to refer the dispute to either tribunal stipulated in the clause means that the Claimant [seller] is entitled to refer the dispute to either tribunal at its discretion. The seller brought the action to this Tribunal using its right as provided by the contract. Besides this, the [seller] repeatedly informed the buyer about its intention to resort to this particular Tribunal (including the letter of 20 January 1999). The buyer in its letter of 26 January 1999 mentioned that it was not against the settlement of the dispute by this Tribunal.
According to the CISG (Article 81(1)), to which the Russian Federation and the Federal Republic of Germany are Contracting States, and which is applicable to the relations of the parties (see below), avoidance of the contract does not affect any provisions of the contract for the settlement of disputes.
Considering the aforesaid and in accordance with the Rules of Tribunal (§ 1(5)), the Tribunal reached the conclusion that the present dispute falls within the competence of the Tribunal.
3.2 [Hearing absente reo]
After hearing the issue of the absence of [buyer]'s representatives' at the hearing of 13 June 2000, the Tribunal found that the summons of 17 April 2000, sent to the [buyer] by registered post, had been served on the [buyer] against receipt of 20 April 2000; that is confirmed by report of the Postal authorities. The Tribunal has not received any motion from the [buyer] concerning the remand of hearing. Therefore, based on § 28(2) of the Rules of Tribunal, the case should be heard absente reo.
3.3 [Buyer's objection to the language of the claim papers]
The Tribunal cannot recognize as reasonable the assertion of [buyer]'s counsel written in the letter of 15 January 2000, where they asserted that they were deprived of the ability to examine [seller]'s claims as far as they were not provided with claim papers in the German language.
Firstly, according to the Rules of Tribunal (§ 9(2)), the documents (except for the written evidence, which should be provided in original or in copies from the original certified by the party (§ 34(2)) should be provided in the language of the contract or in the language that the parties had used to hold correspondence between them, or in the Russian language. The contract was made in two languages (Russian and German). Thus, when [seller] provided documents in Russian, he did not violate the Rules of Tribunal with which the [buyer] should have acknowledged itself, whereas it gave consent to settle the dispute by this Tribunal in accordance with procedural rules of this Tribunal of Arbitration.
Secondly, although the German copies of the parties' correspondence had been sent to the [buyer], the [buyer] even after this, has not provided the Tribunal with the documentary-based replication.
Thirdly, it expressly follows from the parties' correspondence provided by the [seller], that the [buyer] constantly was in touch with the issues of this dispute and repeatedly expressed its intention to settle the dispute with its conditions.
3.4 [Applicable law]
The contract, from which the dispute arose, is a contract, which by its scope entirely falls within the requirements of an international sales contract provided by the CISG. Whereas both the Russian Federation and the Federal Republic of Germany, in which respectively the parties' principal places of business (their companies) are located, are Contracting States to the CISG, by virtue of Article 1(1)(a) of this Convention the relations of the parties are governed by its provisions. Questions concerning matters governed by the CISG which are not expressly settled in it and cannot be settled in conformity with the general principles on which it is based, by virtue of Article 7(2) of the CISG should be settled by the subsidiary application of domestic civil law referred to by the rules of private international law (rules of conflict of law).
There is no parties' agreement on applicable law in the parties' contract. Based on Article VII (1) of the European Convention on the Tribunal of International Commercial Arbitration 1961 and Article 28(2) of the Russian Federation Law on the Tribunal of International Commercial Arbitration, the Tribunal applies the law determined in conformity with the rules of conflict of law, which the Tribunal considers to be applicable. In practice of the Tribunal, the applicable rules of conflict of law usually applied are the rules of conflict of law of the country of the Tribunal of Arbitration, i.e., Russian rules of conflict of law. By virtue of Article 166(1) of the Fundamentals of Civil Law of USSR 1991 that were effective on the date the contract herein has been concluded, the law to be applied to the relations of the parties is the law of the country where the seller to the contract has been incorporated, has its principal whereabouts or principal place of business. Whereas the seller herein is a Russian company, the subsidiary law to be applied accordingly is the Russian law.
3.5 [The merits of the case]
Case materials evidence the fact of shipment of goods by the [seller], the failure to pay for which led to this action. Not objecting the fact that the goods had been received, the [buyer] in its correspondence complained about the lack of quality of the goods; inter alia, in the letter of 15 January 2002 enclosed with the fax of 13 March 2000 the [buyer] pointed out that it had claims against the [seller] concerning the recovery of damages. However, notwithstanding that the [buyer] had received the claim papers and the resolution of the Tribunal of 12 April 2000, [buyer] has not provided the Tribunal with relevant evidence to sustain its assertions. That deprived the Tribunal's ability to consider [buyer]'s objection to the merits.
Arguments of the [buyer]'s counsel that avoidance of the contract leads to the avoidance of all further rights and consequences from this contract are contradictory to the provisions of the CISG. By virtue of Article 81(1) CISG, which was already mentioned above by this Tribunal, avoidance of the contract does not affect any of its provisions governing the rights and obligations of the parties consequent upon the avoidance of the contract. The right to recover the damages that might be compensated is not affected upon the avoidance of the contract. The question of the reasonableness of the [seller]'s actions as to avoidance of the contract should be settled on the basis of Articles 64 and 25 CISG. Whereas there is no counterclaim from the [buyer] which might have contested the reasonableness of [seller]'s actions as to the avoidance of the contract, the Tribunal is deprived the ability to give a legal evaluation of the assertion on this matter made by counsel of the [buyer]. Moreover, as it follows from the documents of the case, the notice of avoidance of the contract affected all those shipments which had already been made, but not the shipments to be made in future.
Considering the aforesaid, the Tribunal ruled to grant the [seller]'s claims on the basis of Article 53 CISG as to the amount of principal debt unpaid by the [buyer] but in the amount mitigated to the amount effective on the date of 10 March 2000. The Tribunal so ruled based on the fact that the [buyer] did not object to this amount after it had received the mitigated calculation of debt made by the [seller].
Whereas the [buyer] failed to pay for the goods in time, according to clause 5.3 of the contract it should pay to the [seller] the penalty in the amount of 0.05% for each outstanding day but not more than 5% of the amount of the invoice. In the updated calculation made by the [seller], the amount of penalties is a little bit more than the amount stipulated in the claim papers. Whereas the [seller] paid arbitration fees according to the initially claimed amount of penalties, the Tribunal reasonably ruled to grant penalties in the amount initially claimed.
3.7 [Arbitration fees and expenses]
According to Article 6(2) of the Rules of the Tribunal on Arbitration Expenses and Fees, the fees paid by the [seller] should be reimbursed by the [buyer] in the amount proportional to the amount of granted claims.}}
Original language (Russian)
Rozenberg, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy [Practice of the International Commercial Arbitration Court: Scientific - Practical Comments] Moscow (1999-2000) No. 59 [288-292]}}