- High Commercial Court of Ukraine
SALES CONTRACT - BETWEEN A RUSSIAN BUYER AND UKRAINIAN SELLER - UKRAINIAN LAW CHOSEN AS THE LAW GOVERNING THE CONTRACT - RELEVANCE OF THE UNIDROIT PRINCIPLES AS EXPRESSION OF INTERNATIONAL TRADE CUSTOM AS LONG AS THEY DO NOT CONFLICT WITH APPLICABLE LAW
REFUSAL BY RUSSIAN AUTHORITIES TO GRANT REQUESTED IMPORT LICENCE - BUYER PREVENTED TO TAKE DELIVERY OF THE GOODS - TERMINATION OF CONTRACT DUE TO FORCE MAJEURE - REFERENCE TO ARTICLES 1.7 (1); 3.15(1); 6.1.14, 6.1.15 AND 6.1.16(1); 7.1.7(1) OF UNIDROIT PRINCIPLES (1994 EDITION).
PLEASE NOTE THAT THE 1994 EDITION OF THE PRINCIPLES OF INTERNATIONAL COMMERCIAL CONTRACTS IS OFFICIALLY CONSIDERED AS ONE OF THE DOCUMENTS THAT ENSHRINES THE TRADE CUSTOMS APPLIED IN UKRAINE.(SEE PART 2, PARA. 6, PAGE 3 OF THE EXPLANATORY NOTE OF THE HIGH COMMERCIAL COURT OF UKRAINE NO. 01-8/211 FROM 07.04.2008).
Claimant, a Ukrainian company, entered into a contract (“the Contract”) with Respondent, a Russian company, for the supply 14 000 tons of corn for industrial processing for a total of 94.5 million rubles.
Subsequently, Respondent sent Claimant a letter requesting it to stop the shipment of the goods due to the refusal of the Russian Federal Service for Veterinary and Phytosanitary Control to issue the required import quarantine permit. In a second letter Respondent proposed for the same reason to terminate the Contract. Claimant refused and brought an action against Respondent, claiming the payment of damages and of the penalties due to Respondent´s breach of the Contract.
According to the Contract, Ukrainian was the applicable law.
The Court of First Instance stated that when deciding international trade disputes international trade customs of the relevant trade sector have always to be considered, and according to the Court the UNIDROIT Principles (1994 edition) are accepted by the international community as international trade customs.
As to the merits the Court decided in favour of Respondent. Indeed, the Court held that since the Russian authorities had refused to grant Respondent the required import quarantine permit, Respondent was prevented from performing its obligations under the Contract and therefore entitled to terminate the Contract. In support of its decision the Court referred not only to the relevant provisions of Ukranian law and to the CISG, but also to the following articles of the UNIDROIT Principles: article 1.7, para. 1; "Good faith and fair dealing"; article 3.15 para. 1 "Time limits"; article 6.1.14 "Application for public permission"; article 6.1.15 "Procedure in applying for permission"; article 6.1.16 para. 1 "Permission neither granted nor refused" and article 7.1.7 para. 1 "Force majeure".
On appeal Claimant invoked among other provisions, article 1.1. of the UNIDROIT Principles ("Freedom of contract"), but the Court of Appeal confirmed the decision of the Court of First Instance, reiterating the relevance in the case at hand of the UNIDROIT Principles, together with the CISG. In deciding the merits of the case the Court referred in particular to articles 6.1.14 and 6.1.15 of the UNIDROIT Principles.
In appealing against this decision before the High Commercial Court of Ukraine, Claimant challenged, among other things, the applicability of the UNIDROIT Principles, due to the lack of prior consent of the parties. The High Court did not address this issue, but remanded the case back to the Court of First Instance because in its view the Court of Appeal had incorrectly applied relevant provisions of Ukrainian law.
The new Court of First Instance decided in favour of Claimant and found Respondent liable for breach of the Contract. Indeed, according to the Court Respondent should have known that the quantity of corn it had ordered from Claimant exceeded the limit of import amount for which it had previously been granted an import quarantine permit, and that it was very unlikely that the Russian Authority would be grant it another permit for the exceeding quantity. Moreover Respondent, by non observing the prescribed quarantine measures, had contributed by its own conduct to the refusal of a new permit by the Russian Authority. The Court confirmed the decisions of the previous courts, reiterating the relevance in the case at hand of the UNIDROIT Principles, together with the CISG. In deciding the merits of the case the Court referred in particular to articles 6.1.14 and 6.1.15 of the UNIDROIT Principles.
The new Court of Second Instance decided in favor of Claimant and confirmed the decisions of the previous courts, reiterating the relevance in the case at hand of the UNIDROIT Principles, together with the CISG. In deciding the merits of the case the Court referred in particular to articles 6.1.14 and 6.1.15 of the UNIDROIT Principles.
On appeal against this decision by Respondent the High Commercial Court of Ukraine reversed the decision and decided in favour of Respondent. The Court pointed out, first of all, that the UNIDROIT Principles which are an expression of international trade custom are applicable as long as they do not contradict the applicable law which in the case at hand was Ukrainian law. In deciding on the merits of the case the High Court relied on the following provisions of the UNIDROIT Principles: articles 1.7 para. 1; 3.15 para. 1; 6.1.14; 6.1.15; 6.1.16 para. 1 and 7.1.7 para 1.
Original in Ukrainian available at the Unified State Register of Court Decisions: http://www.reyestr.court.gov.ua/}}