- Arbitral Award
- International Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation
SALES CONTRACT - BETWEEN A RUSSIAN BUYER AND AN ITALIAN SELLER - GOVERNED BY ITALIAN LAW (INCLUDING CISG) - UNIDROIT PRINCIPLES AS A MEANS OF INTERPRETING CISG
TERMINATION OF CONTRACT - PARTIAL TERMINATION - REFERENCE TO ARTICLE 7.3.6(2) (NOW ART 7.3.7) OF THE UNIDROIT PRINCIPLES.
TERMINATION OF CONTRACT - CLAIM FOR PENALTY FOR DELAY IN RETURNING THE PAYMENT MADE - REFERENCE TO 7.3.5 OF THE UNIDROIT PRINCIPLES
Claimant, a Russian company, as a buyer, and Respondent, an Italian company, as a seller, entered into a contract for the sale of technical equipment (hereinafter the "Agreement"). Respondent subsequently refused to supply part of the goods, arguing that Claimant did not pay for the goods in full. Claimant argued that the payment was made in full and commenced arbitral proceedings seeking recovery of the debt for the undelivered goods.
The applicable law was Italian law including the CISG, but the Tribunal declared that it would refer also to the UNIDROIT Principles of International Commercial Contracts 1994 ed. (hereinafter the "UNIDROIT Principles") and to INCOTERMS 2000 ed. to interpret and supplement the applicable law.
As to the merits, the Tribunal found that Claimant had paid the price of the equipment as fixed in the Agreement, while Respondent had not delivered part of the equipment and the attached technical documentation so far.
With respect to Respondent's argument that its refusal was due to Claimant's failure to make the final payment installment the Tribunal found that Respondent neither had stated the precise amount allegedly owed by Claimant nor had it provided any evidence of the existence of Claimant's obligation to pay an additional sum due to the alleged increase in the cost of materials.
According to the Tribunal Respondent had no legal grounds for unilateral suspension of the performance of the Agreement and therefore held that Claimant was entitled to terminate the Agreement with respect to Respondent's unfulfilled obligations, in view of the fact that the Agreement was a divisible so that fulfilled parts could be separated from unfulfilled.
In reaching this conclusion, the Tribunal relied on CISG which according to the Tribunal provides that whenever the subject of the contract is divisible and the seller delivers only part of the goods, the buyer's right to avoid the contract according to Article 49 applies to the undelivered part. In this respect the Tribunal also relied on the UNIDROIT Principles to interpret and supplement the CISG, in particular to Article 7.3.6(2) (now Art. 7.3.7(1) of 2016 edition) which provides that if the performance of the contract is of a continuing nature and is divisible, restitution can only be demanded for the period after termination has taken effect. The Tribunal also noted that Italian law as well contains similar provisions. Consequently, the Tribunal decided that Claimant was entitled to recover from Respondent the part of the price corresponding to the undelivered goods.
However, the Tribunal rejected Claimant's claim for the payment of the penalty provided for by the Agreement. According to the Tribunal such claim was not compatible with Claimant's other claim for partial termination of the Agreement. In support of its finding the Tribunal referred to Article 81 of the CISG, as well as to Article 7.3.5 (3) of the UNIDROIT Principles, both providing that termination does not affect any provision in the contract for the settlement of disputes or any other term of the contract which is to operate even after termination. And since Claimant sought recovery of the penalty for delay in returning the advance and not reimbursement for the losses due to partial termination of the Agreement or payment of interest on amount of the advance, such claim had to be rejected.