Source: http://cisgw3.law.pace.edu/cases/050124r2.html
Timestamp: 2019-04-21 04:55:46+00:00

Document:
1.1 Notwithstanding [Seller]'s objections, the MKAC Arbitral Tribunal (hereinafter: Tribunal) ruled that it is competent to consider the dispute between the [Buyer], a Japanese organization, and the [Seller], a Russian organization, on the basis of the arbitration clause in the contract which provides for settlement of disputes in accordance with the Commercial Arbitration Agreement concluded between Russia and Japan.
1.2 On the basis of the explanations given by the Secretariat of the Tribunal in respect to the [Buyer]'s application for provisional measures, the [Buyer] decided to submit this question to the competent state court by virtue of the rules of the Code of Arbitration Procedure of the Russian Federation.
1.3 The Tribunal qualified the contract concluded by the parties on the basis of Russian law. Having acknowledged that the parties concluded a contract for the international sale of goods, the Tribunal determined that Russian law is applicable as the law of the [Seller]'s country. The Tribunal took into account the fact that Russia is Contracting State to the Vienna Convention 1980 [UN Convention on Contracts for the International Sale of Goods (1980), hereinafter CISG], and held that the CISG is applicable to the relations of the parties and that the provisions of Russian legislation are applicable as the subsidiary statute for issues not regulated by the CISG or which cannot be settled in conformity with the general principles on which the CISG is based.
1.4 Expiration of the period of the limitations does not release the parties from the liability for the breaches of the contractual obligations.
1.5 Since the [Seller] did not submit claims for set-off, they cannot be considered within the proceedings based on the original action.
1.6 [Buyer]'s claim for recovery of expenses for legal representation is not to be granted since the amount of the expenses was not specified and evidence confirming the expenses was not presented by the [Buyer].
The action was brought by [Buyer], a Japanese organization, against [Seller], a Russian organization, in connection with non-fulfillment of the obligations which were prepaid under the contract concluded by the parties on 20 May 2001.
- Recovery of the arbitration fee and expenses on the services rendered by legal representatives.
The [Buyer] also submitted an application for provisional measures.
2.2 The Secretariat of the Tribunal confirmed the receipt of the statement of action and enclosed documents. As to the application for the provisional measures, the Tribunal explained that, according to section 30 of the Rules of the Tribunal, this application would be considered by the Tribunal after its formation. At the same time, the Secretariat noted that, if an order on provisional measures is issued by the Tribunal and is not voluntarily carried out by the respective party, it could be executed compulsorily only if the interested party goes to the competent state court. Therefore, the Tribunal's Executive Secretary drew [Buyer]'s attention to the fact that Law of the Russian Federation "On International Commercial Arbitration" (art. 9) and the Rules of the Tribunal (section 1(6)) permit a direct recourse by the interested party to the competent state court of the Russian Federation with a petition for the interim measures which should be adopted in respect to an action brought to an international commercial arbitration. Moreover, the Code of Arbitration Procedure of the Russian Federation in force since 1 September 2002 contains provisions which determine the procedure for such recourse. Hence, if the [Buyer] prefers to address directly the competent state court with a petition for provisional measures, the Tribunal will prepare and send to the [Buyer] the documents needed for such reference in accordance with art. 92(5) of the Russian Federation Code of Arbitration Procedure.
2.3 The [Buyer] notified the Tribunal that it planned to address the competent state court of the Russian Federation with a petition for provisional measures and thereupon requested the Tribunal to prepare and send the documents needed for such reference in accordance with art. 92(5) of the Russian Federation Code of Arbitration Procedure. In compliance with this petition, the Tribunal's Secretariat sent to the [Buyer]'s address certified copies of the statement of action and the contract.
Bringing the action, the [Buyer] invoked the contractual arbitration clause which provided that disputes were to be settled by arbitration in accordance with the Agreement on Commercial Arbitration concluded between Russia and Japan.
2.4 The [Seller] contested Tribunal's competence to consider the present dispute. In support of its position, the [Seller] referred to the text of the contract which did not mention the Tribunal as an organ authorized by the parties to consider the dispute, whereas the term "Arbitration" that is used implies a manner of dispute settlement and not the body for the dispute settlement. Thus, in [Seller]'s opinion, the arbitration clause is invalid since the contract does not mention the body which would settle the dispute. As to the Agreement on Commercial Arbitration concluded between Russia and Japan mentioned in the contract, the [Seller] stated that, since that Agreement was concluded between the Chambers of Commerce and Industry of Russia and Japan which are not public authorities, the rules concerning international agreements in the light of art. 3 of the Tribunal�s Regulations cannot be applicable to the Agreement.
2.5 Based on these arguments, the [Seller] alleged that the present dispute was to be settled by the Arbitration tribunal at [Seller]'s place of business and asked the Tribunal to discontinue the proceedings due to the lack of an agreement of the parties on the reference of the dispute to the Tribunal. The [Seller] asked the Tribunal to consider the issue of the Tribunal's lack of competence in the present dispute in the absence of its representatives and to rule on that issue before ruling on the merits of the case in accordance with the Rules of the Tribunal. [Seller]�s representatives failed to appear at the hearings of the Tribunal.
The Tribunal holds that since the arbitration takes place on the territory of the Russian Federation and since it follows from [Buyer]�s incorporation documents that it is a foreign organization, whose place of business is located in Japan, the Law of the Russian Federation "On International Commercial Arbitration" should be applied when considering the issue of the Tribunal's competence to consider the present dispute.
"1. All disputes, conflicts and disagreements which may arise between the parties under the present contract and/or in connection with it, if possible, shall be settled amicably by negotiations between the parties.
2. In case the parties do not reach agreement, all disputes, conflicts and disagreements which may arise between the parties under the present contract and/or in connection with it shall be settled by arbitration in accordance with the Agreement on Commercial Arbitration concluded between Russia and Japan.
The award shall be final and binding upon both parties."
"In case the parties do not reach agreement, all disputes, conflicts and disagreements which may arise between the parties under the present contract and/or in connection with it shall be subject to final settlement by arbitration in accordance with the Agreement on Commercial Arbitration concluded between Russia and Japan. The award shall be final and binding upon both parties."
"The place of arbitration shall be the country of the place of business of the respondent, if not agreed otherwise by the parties.
In case this place of business is the Russian Federation, the arbitration shall take place at the Chamber of Commerce and Industry of the Russian Federation in accordance with its Rules of Tribunal.
In case this place of business is Japan, the arbitration shall take place at the Japanese Commercial Arbitration Association in accordance with the Rules of the Commercial Arbitration Tribunal of the mentioned Association."
"The present Agreement shall be referred to as the Agreement on Commercial Arbitration concluded between Russia and Japan."
The Agreement between the CCI RF and JCAA and, correspondingly, the arbitration clause recommended by it was brought to the notice of interested parties, i.e., business circles of Japan and Russia, inter alia, by publication of its text in an issue of the Information Materials of CCI RF "Law and Arbitration Practice", Issue 1 (Moscow, 1997). The reference to the mentioned title of the Agreement in specific contracts without reproducing its full text in a contract is sufficient for the application of this arbitration clause.
Thus, having provided for settlement of disputes in accordance with "the Agreement on Commercial Arbitration concluded between Russia and Japan," the [Buyer] and the [Seller] agreed that settlement of disputes that arise will take place in a specific arbitration institution of the Respondent's country. Since, in the present case, the Respondent [Seller] is a Russian organization, the settlement of the dispute shall take place at the "International Commercial Arbitration Tribunal at the Chamber of Commerce and Industry of the Russian Federation."
In view of the abovementioned and taking into account that art. 7(2) of the Law of the Russian Federation "On International Commercial Arbitration" provides that "a reference to the agreement containing the arbitration clause" is considered an arbitration agreement "provided that agreement is concluded in writing and this reference implies that the mentioned clause is a part of the agreement", the Tribunal ruled that it is competent to consider the present dispute in accordance with the agreement of the parties by virtue of art. 7 of the Law of the Russian Federation "On International Commercial Arbitration" and section 1(3) of the Rules of the Tribunal.
Having considered the issues of the absence of the [Seller]'s representatives at the hearings, the Tribunal found that the [Seller] received in time the action materials as well as the summons to the scheduled hearings sent by the Secretariat of the Tribunal. This is confirmed by the notifications of messenger service contained in the materials of the case and is not contested by the [Seller]. In its letter received by the Tribunal, the [Seller] asked the Tribunal to consider the issue of the Tribunal's lack of competence in the present dispute in the absence of its representatives and to rule on that issue before ruling on the merits of the case.
The [Buyer], in its turn, submitted an application to consider the case on the merits regardless of the [Seller]'s failure to appear.
Following arts. 16 and 25 of the Law of the Russian Federation "On International Commercial Arbitration" as well as sections 28(2) and (3) of the Rules of the Tribunal, the latter found it possible to consider the merits of the dispute in the absence of the [Seller]'s representatives having ruled, as stated above, that the Tribunal is competent to consider the dispute by virtue of the arbitration agreement of the parties. The [Seller] was aware that, in accordance with the mentioned provisions of the Law and Rules, the Tribunal was entitled to proceed to the consideration of the case on the merits, postponing the ruling on the jurisdictional objections of the [Seller] until the time of delivering the final award, i.e., without delivery of the ruling on that issue and postponement of the hearings. [Seller]'s unwillingness to send its representatives to these hearings cannot impede the consideration of the case [by the Tribunal].
The Tribunal states that, in their contract, the parties did not determine the law of which country shall be applicable to disputes arising out of the contract or in connection with it.
The contract has certain peculiarities providing, in particular, that the [Seller] shall transfer to the [Buyer] the "exclusive right to sell the goods" (para. 1.2) and that "for selling the [Seller]'s goods, the [Buyer] shall receive a commission fee in the amount of 4% of the total price of the sold goods" (para. 4).
Nevertheless, finding that it would be proper to qualify the contract under the Russian law, the Tribunal concludes that in its essence this contract is a sales contract, in particular, for the delivery of goods, and cannot be considered as any other type of contract (for instance, a commission contract). In accordance with the principal provisions of the contract, the [Seller] shall deliver and the [Buyer] shall accept under the conditions CFR Otaru the goods specified in the contract (para. 1). For its part, the [Buyer] is to carry out a "prepayment for the delivered goods" (para. 3.1) and payments for each delivered installment (para. 3.4).
Taking into consideration that the contract at issue is a sales contract concluded by the parties on 20 May 2001, the Tribunal, following art. 28 of the Law of the Russian Federation "On International Commercial Arbitration" and section 13(1) of the Rules of Tribunal, in compliance with the conflict-of-law rules of private international law (art. 166(1) of the Fundamentals of the Russian Civil Legislation of 1991 [�in force at the time of the conclusion of the contract] considers the law of the Russian Federation applicable to the present dispute as the law of the State where the [Seller] is registered and has its principal place of business.
At the same time, the Tribunal takes into consideration that the Russian Federation as the successor of the USSR is a Contracting State to the CISG which, by virtue of art. 15 of the Constitution of the Russian Federation, is an integral part of the Russian law.
According to available information, Japan has not become a party to the CISG. Nonetheless, according to the rules on the sphere of application of the CISG, it is applicable not only when the places of business of the seller and buyer are located in the territory of two Contracting States but also "when the rules of private international law lead to the application of the law of a Contracting State" (art.1(1)(b) CISG). Thus, since in the present case the Russian substantive law is applicable as the law of the Contracting State, the provisions of the CISG shall be applied. In accordance with art. 6 CISG, the parties may exclude the application of this Convention. However, this was not done by the parties. Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based and, as a subsidiary statute, by the norms of the applicable gap-filling law, i.e., Russian law in the present case (art. 7).
The parties concluded a contract for the supply of goods according to which the [Seller] undertook to deliver the goods to the [Buyer] in the assortment specified by the contract on the terms CFR Otaru by 31 December 2001 and the [Buyer] undertook to carry out the prepayment.
The transfer of the prepayment by the [Buyer] and delivery by the [Seller] of the goods against the received prepayment for a part of the goods is confirmed by the materials of the case, in particular by payment orders No. 61-0202-141242 of 25 May 2001, No. 61-0202-141470 of 31 May 2001, No. 61-0202-142515 of 5 July 2001, and by the Statements of Account of 25 April 2002 and of 15 March 2004 signed by the parties.
Therefore, the [Buyer] performed its obligations while the [Seller] only partially performed its obligations under the contract. As a result, the [Seller]'s indebtedness to the [Buyer] constituted a sum (in Japanese yen) which was repeatedly admitted by the [Seller] in the correspondence, in particular, the letters of 15 and 28 May 2002, and in the Statement of Account signed by the parties.
According to the Statement of Account of 15 March 2004, the bank interest for the 1,025 days amounted to the sum indicated in this Statement.
According to para.1.3 of the contract, the goods were to be delivered to the port of destination by "31 December 2001", 1 January 2002 being determined as the "final term of its validity" (para. 9.4).
3.5.1 At the time of termination of delivery term and validity term of the contract, the [Seller] had not carried out the delivery of the consignment of the goods which was foreseen by the contract and prepaid by the [Buyer]. Starting from January 2002, the [Buyer] submitted written claims to the [Seller] demanding discharge of the indebtedness by repayment of the respective part of the prepayment and the bank interest, considering that the [Seller] did not fulfill its obligations under the previous year's contract. The [Seller] failed to meet the demands of the [Buyer], despite repeated promises to pay off the debts by payment or transfer of goods. As mentioned above, the Statement of Account of 15 March 2004 signed by both parties confirms the sum of the unused prepayment and the bank interest which constitutes the subject matter of the action brought by the [Buyer].
3.5.2 According to art. 33(b) CISG, the seller must deliver the goods "if a period of time is fixed by or determinable from the contract, at any time within that period". In the present case, the contract contained provisions on the delivery of the goods during the period from the conclusion of the contract to "31 December 2001", which condition was not fulfilled by the [Seller]. Moreover, the contract provided for the termination of its validity term on 1 January 2002 and, as follows from the correspondence, starting from January 2002 the parties considered that "the previous year's contract" was terminated which, nonetheless, did not exempt the [Seller] from the liability for the breach of its contractual obligations.
3.5.3 The CISG does not contain any specific provisions relating to the consequences of the termination of the contract due to the expiration of the validity term provided for in the contract (as distinct from the effects of the avoidance of the contract, Chapter V CISG). As to the Russian law, by virtue of art. 425(4) of the Russian Federation Civil Code, termination of the validity term of the contract in itself does not exempt the parties from the liability for its violation. In other words, since in the present case, the [Seller] has breached its contractual obligations by failing to deliver the part of the goods before the termination of the contract, the [Seller] shall bear pecuniary responsibility.
Art. 487 of the Russian Federation Civil Code contains a general rule concerning advanced payment for goods subject to future delivery. According to that article, in case the seller that has received the prepayment fails to fulfill its obligation to deliver the goods within the fixed term, the buyer shall be entitled to claim the transfer of goods or repayment of the advanced payment for the goods with added interest on that sum.
3.5.4 Despite the absence of specific provisions as to the effects of contract termination in the CISG, it is not disputable that the [Seller] is obliged to recover the losses caused by non-fulfillment of its contractual obligations. In the present case, the [Seller] did not deliver a part of the goods within the term provided in the contract, i.e., failed to perform its obligation under the contract and the CISG.
Therefore, the [Buyer] shall be entitled in any event by virtue of art. 45 CISG "to claim damages as provided in articles 74 to 77."
3.5.5 In accordance with art. 74 CISG, "damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach." In the present case, the [Buyer] includes in its loss the prepayment sum for which the [Seller] did not deliver the goods and the bank interest.
In the Tribunal's opinion, [Buyer]'s claims are in conformity with art. 74 CISG, its calculation is not contested by the [Seller], and it shall be subject to satisfaction.
3.5.6 Although the CISG does not determine the interest rate which may be claimed by the creditor in case of a delay in payment by the debtor, the creditor, by virtue of art. 78 CISG is entitled to the interest which is to be determined on the basis of the applicable law (Russian law in the present case). In accordance with art. 395 of the Russian Civil Code, the interest rate for use of another's monetary funds may be determined in the contract, which was done by the parties to the present dispute.
Supplement No 1 to the Contract of 20 May 2001 provides that the [Seller] shall pay the [Buyer] the interest at the rate of 6% per year from the moment of the transfer of the payment to the moment of complete repayment. Agreement No. 1 to the Contract of 27 May 2003 provides that the [Seller] shall pay the [Buyer] the interest at the rate of 6% "for the whole period up to the moment of complete repayment of the debt".
Thus, the mentioned interest rate is agreed by the [Buyer] and [Seller] and its total sum, included into the claims, is accepted by both parties in the Statement of Account signed on 15 March 2004.
However, these provisions are contained in Chapter V of the CISG which deals with the effects of the avoidance of the contract by a party due to a breach of the contract committed by the other party. The avoidance of the contract did not take place in this particular case since the contract was terminated on 1 January 2002.
Nonetheless, the mentioned provisions can be considered as justification of the calculation of the loss suffered by the [Buyer] as a result of the [Seller]�s breach of its obligation to the deliver the goods.
To justify its non-payment of debts to the [Buyer], the [Seller] referred to loss incurred by the [Buyer]'s refusal to perform its obligations on the basis of which the [Seller] participated in a quota sale auction. To pledge payment for participation in the auction, the [Seller] paid the sum in US dollars which, however, was transferred into the federal budget since the [Seller] has not paid the remainder of the purchase price and the transaction could not be finalized. Besides, the [Seller] incurred expenses on the ship re-equipment caused by the [Buyer]'s refusal to finance respective transactions in 2002. The [Seller] alleged that the mentioned sums should be deducted from its indebtedness to the [Buyer] (letter of 15 May 2002).
The Tribunal states that these claims were not made by the [Seller] as a set-off in the context of the present action and the materials of the case do not contain any documents confirming their legal grounds and validity which are contested by the [Buyer] (letters to the [Seller] of 17 May and 3 June 2002).
Taking into account the abovementioned and that [Seller]�s claims against the [Buyer], as it is, do not arise out of the contract but, as the [Seller] alleges, out of other agreements between the parties, the Tribunal cannot consider the mentioned arguments of the [Seller] while considering the present dispute, which, however, in itself does not exclude the [Seller]'s possibility to bring a separate action against the [Buyer].
Based on the above, the Tribunal finds that [Buyer]'s claim for recovery from the [Seller] of the main sum in arrears in Japanese yen and of the interest is well-founded and is subject to satisfaction.
As to the [Buyer]'s claim for the recovery of the expenses related to the protection of its interests by the legal representatives, the Tribunal states that the amount of this claim was not specified by the [Buyer] either in the action claims or in the course of the proceedings in the case -- the documents confirming the expenses are not present in the materials of the case and were not presented by the [Buyer] at the hearings.
In view of the above, the Tribunal finds that this claim is not to be satisfied since the [Buyer] failed to prove it.
Section 6(1) of the Rules of Arbitration Expenses and Fees (Supplement to the Rules of Tribunal) provides that the arbitration fee is imposed on the party against which the Tribunal made an award. Therefore, the Tribunal rules that the arbitration fee paid by the [Buyer] shall be recovered from the [Seller].
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Japan is referred to as [Buyer] and Respondent of Russia is referred to as [Seller].

References: art. 92
 art. 92
 art. 3
 art. 7
 art. 7
 art. 28
 art. 15
 art. 6
 art. 33
 art. 425

Art. 487
 art. 45
 art. 74
 art. 74
 art. 78
 art. 395