Source: http://cisgw3.law.pace.edu/cases/040609r1.html
Timestamp: 2019-04-19 14:37:24+00:00

Document:
1.1 The legal capacity of a legal entity is determined on the basis of the personal law (lex personalis) of the legal entity and not by the governing law of the contract.
1.2 The arguments of the [Buyer] about the lack of Tribunal's competence to adjudicate the present dispute are regarded as groundless. First, the agreement canceling the arbitration clause and altering the location of the dispute settlement was signed on behalf of the [Seller] by a person who lacked authority, by virtue of which, the original arbitration clause remains in force. Second, the [Buyer] has not proved that the subsequent agreement on the adjudication of disputes in another arbitration court covered the subject of the present dispute. Third, a request to a State Court for provisional relief does not entail rejection of the arbitration clause and acceptance of the State Court to adjudicate the dispute on the merits.
1.4 While passing on the judgment, it was taken into account that, by virtue of the Rules of the Tribunal, the parties shall prove the grounds which they invoke as proof of their claims or objections. The [Buyer] has not proved his allegation that [Seller] had not fulfilled his obligations in respect to the delivery of the goods while, at the same time, the [Seller] has presented evidence of the fulfillment of the obligations the contract imposed upon him.
1.5 Since by virtue of the Russian Civil Code (art. 410) in order for the similar demands to be set-off, it suffices for one party to make a claim where the claim was made by the enterprise director and was confirmed by the ex-external manager of the [Seller]'s company, the objections of the [Seller] to the execution of the set-off were rejected.
1.6 On the basis of the contract, the Tribunal has concluded (contrary to the statement of the [Seller]) that the contract foresees not the penalty fine (which allows claiming the reimbursement of losses above the amount of the penalty), but the alternative, payment of interest, requested by [Seller]. With due account of this conclusion, the [Seller]'s claim for the recovery of the interest per annum is satisfied only to that extent.
1.7 The rate of the interest per annum is determined as of the date of the action on the basis of information of the Bank of Russia at the average rate of short-term credits in Russia published in the "Bank of Russia Bulletin".
The action was brought by the Russian Company [Seller] against a Cyprian firm [Buyer] for the payment for the goods delivered under an international sales contract concluded by the parties on 3 November 1999. The [Seller]'s demanded: payment of the sum in arrears, payment of the penalty for the payment delay, and payment of interest per annum for the use of monetary funds of another.
The [Buyer] contested the competence of the Tribunal to consider present the dispute on the basis that on 27 December 1999 the parties concluded an "Arbitration Agreement" envisaging the settlement of disputes (including those arising from the present contract) in accordance with the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce.
The [Seller] stated that he is not aware of the conclusion of the indicated document and challenged its validity and the authority of the persons who had signed the document. Upon the [Seller]'s request, the document was sent for analysis and legal expertise.
With due account of the expertise results and arguments presented by the parties, the Tribunal on 11 June 2002 affirmed the competence of the Tribunal to adjudicate the dispute, appointed the date of the adjudication on the merits, and obliged the [Buyer] to present his statement of defense with respect to the merits of the case. This decree of the Tribunal was contested by the [Buyer] in the Arbitration Court of the City of Moscow which, by its resolution of 5 February 2003, has left [Buyer]'s application without satisfaction. The Arbitration Tribunal, acting on the basis of the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce, by its interim decision of 29 January 2003, has declared the "Arbitration Agreement" invoked by the [Buyer] void with regard to, in particular, the present dispute considered by the Tribunal.
Having not presented a statement of defense to the merits of the claims lodged on 5 November 2002, the [Buyer] again raised the question of lack of the Tribunal's competence to adjudicate the present dispute based on the applicability of both the "Arbitration Agreement" and the agreement in the lawsuit concluded by the parties on 25 September 2000 in St. Petersburg, which envisaged settlement of the dispute in the arbitration in Stockholm pursuant to the Rules of the Stockholm Chamber of Commerce. The [Buyer] also stated that he is not the debtor in respect to the [Seller], since a number of the deliveries with regard to which the present action is brought were re-addressed to other recipients or were subject of a set-off accomplished by the [Seller].
The [Seller] presented objections to the arguments of the [Buyer] developed in his statement of 5 November 2002 at the same time specifying the amount of his claims.
By the Tribunal's resolution of 21 January 2003, the [Buyer] was requested to present by 6 February 2003 the results of his consideration of [Seller]'s claims in respect to the consignment of the goods indicating such reasoned objections as [Buyer] may have. The [Seller] was requested to present the original of the documents relating to the claims in respect of which the [Buyer] had specific objections.
On 10 February 2003, the [Buyer] expressed general negative views with regard to the arguments presented by the [Seller] and declared that the burden of proof of the fulfillment of the deliveries rests with the [Seller]. According to the [Buyer], the St. Petersburg amicable agreement has terminated relations of the parties under the contract on the basis of which the present action is brought.
The [Seller] having specified the amount of his claims, once again has contested all the statements of the [Buyer].
In connection with differences in the opinions of the parties in respect to the legal nature of the St. Petersburg amicable agreement, the Tribunal requested the [Buyer] to present proper arguments confirming which specific consignment of the goods with regard to which the [Seller] has lodged claims were the subject of the St. Petersburg amicable agreement. Without having executed the request put by the Tribunal, the [Buyer] objected in general terms to the reasoning of the [Seller].
In his explanations, the [Seller] has indicated that only thirty-three out of 130 consignments of the goods were delivered to St. Petersburg and presented arguments to prove that these thirty-three consignments of the goods are not covered by the St. Petersburg amicable agreement.
In [Buyer]'s opinion expressed in the document presented on 19 August 2003, the St. Petersburg amicable agreement has terminated all the obligations of the parties arising from the contract on the basis of which the [Seller] has brought the present action. The [Buyer] continued to contend the lack of the Tribunal's competence to adjudicate the present dispute. Additionally, the [Buyer] stated that according to the Cyprian legislation, [Seller]'s motion to the Cyprian court with a request to take provisional measures under the contract on the basis of which the present claim is lodged implies [Seller]'s consent to subject the present dispute to the competence of the Cyprian court and entitles the [Buyer] to counter action in the Cyprian court.
Moreover, the proceedings in the Tribunal are to be suspended since Swedish national courts are considering the issue of the validity of the "Arbitration Agreement" of 27 December 1999. The [Buyer] has as well declared the possibility of the refusal from the St. Petersburg amicable agreement provided the Tribunal agrees to settle the dispute in Cyprus. The [Seller] has not accepted any of the arguments presented by the [Buyer].
On the basis of the provisions of the Law of the Russian Federation "On International Commercial Tribunal", the objections to the competence of the Tribunal and the application for suspension of the proceedings were rejected. The application of the [Buyer] on the submission of the expert opinion on the Cyprian legislation, on the realization of audit of the fulfillment of the St. Petersburg amicable agreement, and on the summons of witnesses for the explanations in respect of the accomplished set-offs were rejected as well.
The parties also argued about whose actions caused delay of the proceedings. The [Buyer] was dissatisfied by the order of judicial proceedings in connection with quick rejection of his petitions and establishment of a hearings schedule unacceptable to the [Buyer].
On 13 October 2003, the [Buyer] once again presented to the Tribunal a petition to reject the action, invoking lack of the Tribunal's competence to adjudicate the dispute and [Seller]'s failure to present reliable proofs of the existence of the [Buyer]'s indebtedness.
At the hearings of 20 October 2003, the representative of the [Buyer]. following the line which was declared earlier, considered that English law is applicable to the relations of the parties (as is provided in the "Arbitration Agreement") and thereupon contested the applicability of Russian law and the Vienna Convention of 1980 (CISG). He also contended that the provision of the Law of Cyprus "On International Commercial Arbitration" concerning address to the court for provisional remedies is not applicable to arbitration proceedings taking place outside Cyprus.
Additional documents were presented by the [Seller] confirming in his opinion the fact of the delivery of the goods that was contested by the [Buyer]. The latter applied for the realization of an expertise for these documents. The Tribunal denied this application taking into account that an earlier expertise failed to determine the time when dates, signatures and stamps were put on the documents.
The [Buyer] has repeatedly stated the following, at the same time failing to present a statement of defense in respect to the specific claims: The calculations of the [Seller] contain arithmetic and other errors; the [Seller] has included in his claims consignments of the goods delivered to the other recipients; part of the Cargo Customs Declarations presented by the [Seller] was cancelled.
On 14 November 2003, the [Buyer], not changing his viewpoint, addressed the Tribunal with a petition to oblige the [Seller] to present all of the documents related to all of the consignments of the goods carried out in 2000 along with corresponding contracts and to carry out an independent audit of the [Seller]'s deliveries in 2000.
- Whether the [Seller]'s claims in respect to three consignments of the goods mistakenly included into the judicial off-set list under the other contact and which were delivered under this contract and thereupon excluded from the list of the paid deliveries at the consideration of other suit between the parties are subject to satisfaction.
The Tribunal as well takes into account that well-founded objections expressed by the [Buyer] in respect to a number of specific consignments of the goods were considered by the [Seller] and that the [Seller] has reduced the amount of his claims accordingly. The parties have as well submitted a number of petitions of a procedural nature which were considered in the course of the proceedings and the results were presented at the respective hearings.
First and foremost, the Tribunal considered the issue of its competence to adjudicate the dispute of the parties arising out of Contract # 843-99 concluded on 3 November 1999.
"Any disputes or disagreements arising from/or in connection with present contract which cannot be settled by amicable means of negotiations are to be settled in the International Commercial Arbitral Tribunal at the Chamber of Commerce and Industry of the Russian Federation pursuant to its rules. Award of the abovementioned Tribunal is final and binding upon both Parties."
Therefore, this suit was taken into consideration with absolute compliance with the Law of the Russian Federation "On International Commercial Arbitration" (art. 1(2)), Regulation on the ICA Tribunal.
3.1.1 The issue of the competence of the Tribunal was considered by the Tribunal on the basis of the Law of the Russian Federation "On International Commercial Arbitration" (art. 16) according to which the Tribunal is entitled to pass on its competence including all objections with respect to the existence or validity of the arbitration agreement (in the present case - arbitration clause). This authority of the Tribunal is set forth in the Rules of the Tribunal as well (para. 1(5)).
Based on art. 19 of the indicated Law, the Tribunal determined the procedure for consideration of the present dispute. Since the arbitration clause contained reference to the Rules of the Tribunal, the arbitration proceedings were carried out in compliance with the Rules of the Tribunal and the Law of the Russian Federation "On International Commercial Arbitration", taking due account of the authority of the Tribunal, which includes the authority to establish permissibility, relevance, importance and meaning of any argument, rendering according to art. 18 of the mentioned Law each of the parties all the opportunities to present their positions under the condition of equal treatment of each party. Hence, the Tribunal has conducted fourteen hearings on that issue.
The [Seller] challenged the authority of the person who had signed the Arbitration Agreement which changed the arbitration clause of the contract. Considering this issue. the Tribunal based its ruling on the provisions of Russian legislation, the law of the organization and of the [Seller] and managing company whose director signed the Arbitration Agreement on behalf of the [Seller]. The Tribunal proceeds from the following.
The legal capacity of a legal entity is determined by the personal law (lex personalis), i.e., the law of the State of its establishment. This follows from art. 161 of the "Foundations of Civil Legislation of the USSR and Republics" of 1991 (FCL) which was in force at the time the contract containing the arbitration clause was signed, when the parties signed the Arbitration Agreement (which the [Buyer] alleges has changed the arbitration clause), and at the time when the suit was brought and objections with respect to the competence of the Tribunal were presented by the [Buyer]. The Law (FCL of 1991, art. 166) admits choice of the applicable law by the parties with regard to the obligations under foreign-economic contracts (i.e., choice of the law governing the obligations), however, not the law applicable to the determination of the legal capacity of a legal entity. This concept is generally recognized in doctrine and judicial and arbitration practice (see e.g., Lunts L.A. Course of Private International Law. General part. M. Yurid. lit., 1973. P. 220; Boguslavski M.M. Private International Law: Textbook. 3rd edn. M. Yurist, 1998.P. 125). The Tribunal has always taken this approach while adjudicating a dispute (see e.g., Practice of the International Commercial Arbitral Tribunal. Scientific and practical comments. M., 1997. C. 9-12; Arbitration practice in 1996-1997 M., 1998. C. 162-163, 169-171, 234-239; Decisions of International Commercial Arbitral Tribunal at Chamber of Commerce and Industry of Russian Federation in 1999-2000 M., 2002. C. 67-72, 141-147). This concept corresponding to the doctrine and judicial and arbitration practice is reflected in the Third part of the Russian Civil Code (art. 102) which came into force on 1 March 2002.
On these grounds, the view of the [Buyer] that this issue is to be regulated by English substantive law provided by the Arbitration Agreement cannot be admitted as well-founded.
3.1.2 The expertise carried out by the RFCLE (Russian Federal Center of Legal Expertise) has confirmed the authenticity of the signature of the person who had signed the Arbitration Agreement on behalf of the [Seller]. The Tribunal does not have any basis to doubt that the Arbitration Agreement was signed by the director of the [Buyer]'s company on behalf of the [Buyer]. Therefore, the Tribunal finds that the fact of the signing of the Arbitration Agreement took place.
As for the date of the signing of the Agreement, which has important legal meaning (with due account of the fact that agreement # 270-97 of 21 June 1996 between the [Seller] and managing company became invalid on 17 February 2000; the director of the managing company signed the Arbitration Agreement on behalf of the [Seller]), it was impossible to determine this date, since, in the experts' opinion, there do not exist necessary methods and technical means.
The Tribunal notes that the text of the Arbitration Agreement does not indicate the date of the document. The date (27 December 1999) is put only bellow the signature of the director of the [Buyer]'s company which cannot testify that the Arbitration Agreement was signed at the same time on behalf of the [Seller].
Testimonies of the person who has signed the Arbitration Agreement on behalf of the [Seller] in respect to this issue which are contained in affidavit presented by the [Buyer] cannot be taken into account by the Tribunal because of the following reasons.
Therefore the [Seller] has not proved that the Arbitration Agreement was signed on behalf of the [Seller] on a date after the managing organization had lost the power to act on behalf of the [Seller]'s company. Yet, the [Buyer] has not proved that it was signed before such powers were lost.
[Seller]'s application for the conduct of an additional expertise was not approved by the Tribunal since the [Seller] has not presented convincing arguments of the existence of technical means and the ability of any other organization of experts to determine the date of the signing of the document. The Tribunal does not have any reasons to disbelieve the opinion of the competent Russian organization of experts. At that, the Tribunal does not consider as argument the opinion of the commission of experts prepared at the request of the [Buyer].
The Tribunal considered whether the Arbitration Agreement was registered in the Agreement Register of the [Seller]'s company and whether the [Seller] was informed about its conclusion before the text of the Agreement was presented by the [Buyer] to the Tribunal.
From the excerpt of the Agreement Register of the [Seller]'s company on agreements signed during the period from 1 January 1999 till 1 February 2000 which was signed and certified by the person acting as chief executive of the [Seller]'s company, it follows that the [Seller] was not notified in time. However, numeration blanks in the excerpt allow one to conclude that the Arbitration Agreement could be indicated in the Register. Taking the above into account, the Tribunal cannot regard the excerpt of the Register presented by the [Seller] as reliable evidence of the fact that Arbitration Agreement was not included in the Register.
3.1.3 Considering the issue whether Arbitration Agreement was concluded in the interests of the [Seller], the content of the Arbitration Agreement was examined with due account to the consequences which it may have for the [Seller] in case it is realized.
The result of this analysis showed that conclusion of the present Arbitration Agreement was not in the interests of the [Seller] although the agreement between the [Seller] and managing organization of 21 June 1996 directly envisaged pursuant to the Federal Law "On Stock Companies" (art. 71) that the managing organization carries out administration of the managed company in the interest of the latter in good faith and reasonably according to the norms of the effective law of the Russian Federation and constituent documents of the managing and managed companies.
It is necessary to point out that in para. 1 of the agreement between the [Seller] and managing organization, which was not altered in the subsequent supplements to the agreement, it is directly indicated that the managing organization carries out administration exclusively in the interests of the managed company.
First, the conclusion of one Arbitration Agreement with regard to the contracts under which the [Seller] has claims against the [Buyer] and with regard to the contract under which the [Buyer] has claims against the [Seller], the possibility of set-offs is admitted. At the same time, by virtue of the Federal Law "On insolvency (bankruptcy)", a moratorium is introduced from the moment of the establishment of the external administration (art. 70) on the satisfaction of the creditors' demands that cover pecuniary obligations, time of execution of which began before the establishment of the external administration. Thus, causation of the damages to the other creditors of the [Seller] is not excluded.
Second, subsidiary application of the English law stipulated in the Arbitration Agreement would result in the impossibility to realize the claim of the [Seller] to recover the penalty for the payment delay (fine) provided by the contract. At the same time, at the consideration of the dispute in the Tribunal by virtue of conflict of laws norm of Russian law (art. 166 of the FCL of 1991) there exists the basis to state that Russian law would be the applicable as law of the seller's country, which allows recovery of the contract penalty.
Third, conducting the proceedings in Stockholm instead of Moscow would cause additional expenses for the [Seller].
Meanwhile, violation of the [Seller]'s interests committed by the managing organization in itself does not entail invalidation of the Arbitration Agreement between the [Seller] and the [Buyer].
According to the additional agreement of 22 January 1997 to the Agreement on operation (para. 3.2.2), such violations entitle the [Seller] to demand reimbursement of the incurred losses from the managing organization.
3.1.4 Although in the Tribunal's opinion, the [Seller] had reasons to imply affiliation of the person who has signed the Arbitration Agreement with the [Buyer], nevertheless, materials presented by the [Seller] lack sufficient convincing proof of the fact that the person who had signed the Arbitration Agreement on behalf of the [Seller] and the managing organization headed by that person had relations with the [Buyer], which allows the conclusion that this person and his organization had an interest in conclusion of the Arbitration Agreement in terms of art. 83 of the Federal Law "On Stock Companies".
3.1.5 Considering the issue whether the person who had signed the Arbitration Agreement on behalf of the [Seller] was authorized to sign the document with the [Buyer], the Tribunal took into account provisions of the Federal Law "On the Stock Companies", the agreement between the [Seller] and managing organization and constituent acts of the [Seller]'s company and the managing organization.
The Federal Law "On the Stock Companies" (s. 3, art. 69(1)) provides the possibility to delegate the authorities of the executive body of the managed organization to the managing organization.
According to the Federal Law "On the Stock Companies" (art. 66 (2)), a person who carries out functions of the individual executive body cannot be at the same time the head of the committee of directors. However, the head of the committee of directors is entitled to sign an agreement with the managing organization on behalf of the stock company (s.2, art. 69(3) of the Federal Law "On the Stock Companies").
By virtue of the statute of the managing organization, the person who has signed the Arbitration Agreement on behalf of the [Seller], being its Director General would become the individual executive body of the managing organization and at the same time act as head of the committee of directors of the managed organization. This would contradict art. 66(2) of the Federal Law "On the Stock Companies": that person has signed the agreement with the managing organization on behalf of the managed organization as its head of the committee of directors, on behalf of the managing organization the agreement was signed by its vice-president.
Agreement of the [Seller]'s company with the managing organization of 21 June 1996 (s. 2.2.1) as well as the Additional agreement to it of 22 January 1997 (section with the same number) envisages as mentioned above that functions concerning management of financial and economic activity of the [Seller]'s company are carried out according to the norms of the effective legislation of Russian Federation and constituent acts of the [Seller]'s company and managing organization.
Section 2.2.4 of the Agreement on operation (which was not altered in the Additional agreement to the Agreement) obliges the managing organization "to appoint its representative for the realization of the functions of executive body of the "Company", including functions of the director general of the managed organization, granting mentioned persons authority to validate powers of attorney".
According to s. 2.4.1 of the Additional agreement of 22 January 1997, the managing organization was entitled to "conclude (sign) any contracts, agreements and any other deals of any nature on behalf of the "Company" within the limits set by the Statute of the [Seller]'s organization and Agreement on operation".
The Statute of the [Seller]'s organization (s.2, art. 10(10.2)) foresees that the "executive body of the company" - the managing organization in the person of its appointed and duly authorized representative who carries out functions of the director general of the "Company " without powers of attorney -- acts on behalf of the "Company", presents its interests, arranges deals on behalf of the "Company", approves staff members, issues orders and gives instructions fulfillment of which is binding upon all the workers of the "Company".
Based on the abovementioned provisions of the Agreement, the Additional agreement as well as the statute of the [Seller]'s company the Tribunal concludes that while concluding the Agreement, its parties took into account the binding provisions of art. 66 of the Federal Law "On Stock Companies" which does not permit combination of obligations of the individual executive body of the "Company" and head of the committee of directors of the "Company".
Accordingly, it was agreed that functions of the executive body of the "Company" will be carried out by authorized persons who have received corresponding powers of attorney from the managing organization and not by the individual executive body of the managing organization.
With due account of the above by virtue of the Federal Law "On the Stock Companies", considering the Agreement between the [Seller]'s company and managing organization and Statute of the [Seller]'s organization. the director of the managing organization by himself could not have signed on behalf of the [Seller] the Arbitration Agreement which introduced alterations into the contracts concluded by the [Seller] and the [Buyer]. Therefore, the conditions of Contract # 843-99 of 3 November 1999 concerning arbitration and substantive law applicable to the relations of the parties under the Contract were not changed and remain in force.
The arguments of the [Buyer] that the St. Petersburg amicable agreement has fully settled the relations between the parties cannot be taken into account since the [Buyer] has not presented proof of the above.
[Buyer]'s reasoning related to the amount of the [Seller]'s claims and settlement in the St. Petersburg amicable agreement cannot provide a basis for a conclusion that this amicable agreement as an agreement which was concluded later was a general settlement of all disputable questions under the present contract and, therefore, disagreements arising out of the contract fall within the scope of the arbitration clause of the St. Petersburg amicable agreement and not of the present contract.
In spite of the Tribunal's request to [Buyer] to confirm [Buyer]'s objections by written arguments and repeated postponement of hearings in this connection, the [Buyer] has not presented any proof that [Seller]'s claims related to the present case fall under the St. Petersburg amicable agreement, the subject of which, as it is pointed out in the very agreement, is recognition of the right of property in the Goods, procedure of the disposal of the Goods by the owners and settlement and discontinuance of disputes related to the Goods (s. 1.1). According to the mentioned agreement, Goods are consignment of the goods of certain brands produced by the [Seller] in specific quantity, delivered by the [Seller] to St. Petersburg, located in specific warehouses in St. Petersburg during the period from January till 20 June 2000 and located at the two specific ships in St. Petersburg at the time of the conclusion of the Agreement, in the storage facilities of the specific company in the territory of Russian Federation and in Rotterdam, in the territory of Kingdom of The Netherlands.
Therefore, the subject of the St. Petersburg amicable agreement is goods which were to be shipped. At the same time, the greater part of the goods, with regard of non-payment for which [Seller] brought this action, as is confirmed by the evidence of the case materials, was delivered by railway to Slovakia and thus it cannot constitute the consignments of the goods which are the subject of the St. Petersburg amicable agreement.
The [Seller], as proof of delivery of the disputable consignment of the goods, has presented to the Tribunal documents which testify to the dispatch of the goods under Contract # 843-99 by railway to Slovakia (station Chiyerna nad Tysoy). As for the consignments of the goods which were indeed delivered by seaway and in respect to which present suit is brought, these goods could not be the subject of the St. Petersburg amicable agreement. Thirty-three groups of the goods with regard to which the claims were lodged and which were delivered to St. Petersburg were shipped to the [Buyer] by two specific ships which is confirmed by the goods acceptance-conveyance acts # 84001 of 22 January 2000 and # 84002 of 11 February 2000 signed by the representatives of the [Buyer]. Therefore, in the Tribunal's opinion, these consignments of the goods do not fall under the notion "Goods", which is the subject of the St. Petersburg amicable agreement and cannot be considered as consignments which are covered by this agreement.
[Buyer] alleges the lodging of two suits in the Circuit Court of Nicosia (Cyprus) with a demand to take provisional measures under Contract # 843-99 by means of arresting the accounts of the [Buyer] implied [Seller]'s consent to submit the consideration of the dispute arising out of this contract to the jurisdiction of Cyprus. These allegations are groundless. On the basis of art. 1 of the Law of the Russian Federation "On International Commercial Arbitration", the Tribunal, with due account of the fact that location of the arbitration is in the territory of Russia, finds that in the consideration of this issue, art. 9 of the Law of Russian Federation "On International Commercial Arbitration" is applicable.
According to this provision, legal recourse of a party to a state court before or during arbitration proceedings with a request to take provisional measures and a decision of the court to take such measures are not incompatible with the arbitration agreement. The same follows from the UNCITRAL Model law "On International Commercial Arbitration" (art. 9) on the basis of which the Law "On International Commercial Arbitration" in Russia was written. According to the UN (UNCITRAL Document A/CN 9/537 of 26 June 2003), legislation based on the UNCITRAL Model law has been adopted in more than thirty states.
The Tribunal has as well pointed out that the European Convention on Foreign Trade Arbitration of 1961, Contracting party to which Russia is a party, provides that a request of the one party to take temporary or provisional measures in a state court is not to be regarded either as incompatible with an arbitration agreement or as submission of the case to the state court for adjudication on the merits (art. IV (4)). Therefore, the fact of the recourse of the [Seller] to the Cyprian state court with a request to take provisional measures was not admitted as an obstacle for further consideration of the case before the Tribunal on the basis of the arbitration clause in the contract, which is recognized as valid by the Tribunal's resolution of 11 June 2002.
Taking the above into account, the Tribunal, in its decision of 19 September 2003, has rejected [Buyer]'s petition for the discontinuance of the proceedings. Moreover, the Tribunal finds it necessary to point out that art. 9 of the Law of the Republic of Cyprus of 1987 # 101 "On International Commercial Arbitration" foresees that it is not incompatible with an arbitration clause if a party addresses the court before or in the course of arbitration proceedings with a request to take provisional measures and the court grants such measures. At that, according to art. 3.1.1 of the same Law, its provisions except for arts 8,9,35 and 36 are applicable only in case the location of the arbitration is the territory of the Republic of Cyprus. Consequently, contrary to the allegations of the [Buyer], the provisions of art. 9 of the Law of Republic of Cyprus "On International Commercial Arbitration", which coincide with analogous provisions of the UNCITRAL Model law "On International Commercial Arbitration" and the Law of the Russian Federation "On International Commercial Arbitration" are to be applied in the event the location of the arbitration is the territory of a state other than the Republic of Cyprus.
[Buyer]'s petition for the discontinuance of the proceedings was rejected on the grounds that according to the Law of the Russian Federation "On International Commercial Arbitration" (art. 16) consideration of the competence issue in the state courts does not impede continuation of the proceedings in the arbitration court and passing of the arbitral award. Consequently, the fact that Stockholm courts consider the issue of the validity of the Arbitration Agreement which is invoked by the [Buyer] and the fact that Cyprian court (at the [Seller]'s request) considers the issue of taking provisional measures in the present case cannot be a reason for discontinuance of the proceedings in the Tribunal.
Taking the above into account, the Tribunal has concluded that adjudication of the dispute arising from Contract # 843-99 falls under the competence of the Tribunal and all the objections of the [Buyer] in respect to this issue are groundless.
Contract # 843-99 concluded between the parties on 3 November 1999 does not contain any conditions regarding the law applicable to the relations of the parties. At the hearings of the Tribunal on 20 October 2003, the [Buyer]'s representative, supposing that relations of the parties were settled by the St. Petersburg amicable agreement, insisted on application of English law as foreseen by that agreement, and non-application of the Vienna Convention of 1980 and Russian law, which was objected by the [Seller].
Finding that the St. Petersburg amicable agreement cannot be used for the settlement of the present dispute which has arisen from Contract # 843-99 for the reasons mentioned above and based on the provisions of the Law of the Russian Federation "On International Commercial Arbitration" (art. 28 (2)), the Tribunal has determined the applicable law using the conflict of laws norm which it considered applicable. This norm is art. 166 of the FCL of 1991 which was in force at the time when the Contract was concluded. According to the mentioned article, in the absence of agreement of the parties on the applicable law, in a sales agreement the applicable law is the law of the country where the seller has his domicile or principal place of business. In the present case, this is Russian law. Since, according to art. 15(4) of the Constitution of the Russian Federation, international agreements of the RF are constituent part of the Russian legal system, the Tribunal considers that the provisions of the Vienna Convention of 1980 (which as well complies with its norms, i.e., art. 1(1)(b)) and, subsidiary, norms of Russian civil legislation are applicable to the relations of the parties.
3.3 Additionally, the Tribunal considers it necessary to point out that consideration of the dispute between the parties under Contract # 843-99 was delayed because of different reasons.
Primarily it was caused by the actions of the [Seller], on the petition of which the RFCLE carried out handwriting and legal and technical expertise of the original text of the Arbitration Agreement. However, according to the circumstances beyond the control of the Tribunal and expert organization (taking out of the document by the law-enforcement organs) this expertise was carried out only in seven months after the corresponding decision of the Tribunal was passed and as a result did not answer the questions posed because of the absence of methods of the determination of the "age" strokes made with electrographic means and strokes made with ink.
Later, the hearings of the case were postponed a number of times because of the petitions of the [Buyer]'s representatives. They have applied for the rejection of the arbiter; for review or suspension of the proceedings in connection with the Tribunal's decision about existence of the competence to adjudicate the dispute arising from Contract # 843-99; for adjournment of the proceedings owing to recent joining of the case and absence of the possibility of the new representative of the [Buyer] to study the case fully; for the postponement of the case due to the impossibility of the presence at the hearings of the Cyprian lawyer of the [Buyer] on account of different reasons; for carrying out audit of the fulfillment of the disputed contract and summons of different witnesses, etc.
The majority of the [Buyer]'s petitions concerning the necessity to examine received materials and taking into account the interests of the Cyprian representative were considered and satisfied.
Reasoned rejections of the satisfaction of procedural petitions of the [Seller] and [Buyer] were announced at the respective hearings of the Tribunal, which is recorded in the Tribunal's journal and corresponding resolutions.
Therefore, the Tribunal, based on equal treatment of the parties, has granted each of them the opportunity and time to respond to each other's statements.
Nevertheless, the [Buyer] who was repeatedly asked to present his considerations on the merits of the claims, including in respect of the results of the consideration of the [Seller]'s claims with regard to the disputed consignments of the goods, did not go beyond general statements, gave only oral explanations and asked the Tribunal to satisfy a number of petitions deliberately aimed at procrastination of the proceedings.
Hence, for instance, instead of presenting arguments in witness of his affirmation that in fact consignment of the goods, payment for which is requested by the [Seller], were not delivered to him, the [Buyer] applied for the audit of the whole process of the fulfillment of Contract # 843-99 for the proof of his affirmation. The nature of the petition about summon of the witnesses for the proof of [Buyer]'s statement that the subject of St. Petersburg amicable agreement is to be interpreted more broadly than is foreseen in the agreement itself is similar.
In that connection, the Tribunal calls attention to the fact that, if one of the parties to an agreement is a Russian company, according to art. 12 of the Vienna Convention of 1980, alterations of the conditions of the agreement -- and the understanding proposed by the [Buyer] assumes alteration of the content of the St. Petersburg amicable agreement -- is admissible only in written form and cannot be proved solely by the testimony of witnesses. This provision of the Vienna Convention of 1980 takes into consideration peremptory norms of Russian civil legislation (art. 162 of Russian Civil Code), according to which non-observance of simple written form of an external economic agreement entails its nullity.
The Tribunal notes that changes and additions to the claim demands and the statement of defense made by the parties were considered and evaluated by the Tribunal according to provisions of para. 32 of the Rules of the Tribunal.
At the hearings of the Tribunal on 9 June 2004, the [Seller] has indicated the final sum of his demands on the [Buyer] under Contract # 843-99 including the main sum in arrears, penalty and interest per annum and expenses on the payment of the arbitration fee as well. At that, in the context of the general set-off of mutual claims of the parties confirmed by the state arbitration court in the place of the [Seller]'s location on 9 June 2000, the [Seller] has recognized as a set-off under Contract # 843-99 only the amount indicated by him and confirmed by the letter of 18 February 2000 from the acting chief executive of the [Seller]'s company to the [Buyer]. At the same time, in the [Seller]'s opinion, the set-off of the cost of the raw materials delivered by the [Buyer] under the Tolling Contract of 23 September 1999 and of the payment, which is confirmed by the letter of the [Seller]'s factory director (letter of 3 April 2000) but was not approved by the legal procedure, cannot be taken into account when determining the amount of the [Buyer]'s debts.
- Under the conditions of Contract # 843-99 concluded on 3 November 1999, delivery of the goods to the [Buyer] was executed through Russian port (FOB), and the right of property to the goods was passed from the [Seller] to the [Buyer] after and on the basis of the signing of the originals of the integrated products acceptance-conveyance acts which were drawn up and presented according to the form agreed by the parties, and through the land frontiers (Slovakia, Hungary, Poland, Baltic countries) DAF on the same conditions of the property right passing (s. 4.1. of the Contract).
- An acceptance-conveyance act was supposed to be composed for each delivered consignment of the goods; the acceptance-conveyance act in respect of the goods delivered through the sea ports in the carriages dispatched on each specific ship with the same bill of lading date was composed by the [Buyer] and was signed by the competent representatives of both parties; at the delivery of the goods through the land frontiers (except for frontiers of Russian with Baltic countries) all the carriages were dispatched during the calendar months (s. 4.3-4.4 of the Contract).
Therefore, in the Tribunal's opinion, the parties have reached an agreement that the moment (date) of the goods delivery is determined by the moment (date) when the acceptance-conveyance act was signed.
The materials of the case contain integrated products acceptance-conveyance acts N84001 of 22 January 2000, N84002 of 11 February 2000, P84001 of 21 January 2000, S84001 of 21 January 2000, S84003 of 15 January 2000 signed according to Contract # 843-99 by both parties and therefore confirming delivery of the goods to the [Buyer].
As for the goods in acceptance-conveyance act S84002 of 7 February 2000, it was signed only by the representative of the [Buyer]. At the hearings of the Tribunal, the [Buyer]'s representative denied delivery of the goods according to the above-mentioned act.
According to para. 34 of the Rules of the Tribunal, the parties are obliged to prove the facts which they invoke as basis of the claims and objections. Taking into consideration that parties have concluded the supply agreement, the burden of proof of the fulfillment of the obligations, i.e., delivery of the goods remains with the [Seller] who is the supplier of the goods under the present contract.
The [Seller]'s writ contained goods acceptance-conveyance acts signed by the representatives of both parties and consequently confirming delivery of thirty-three consignments of the goods by seaways (acceptance-conveyance act N84001 of 22 January 2000 and N84002 of 11 February 2000) and forty-nine consignments of the goods (acceptance-conveyance acts P84001 of 21 January 2000, S84001 of 21 January 2000) by the railway. The fact of the delivery of forty-seven consignments of the goods dispatched by the railway is confirmed by the act S84002 of 7 February 2000 signed by the [Buyer]'s representative with the [Buyer]'s seal affixed thereto. In all, acceptance-conveyance acts of 129 consignments of the goods were signed.
Materials of the writ as well contain copies of railroad bill of ladings and receipts about acceptance of the goods confirming dispatch of the goods under Contract # 843-99 including with regard to forty-seven consignments of the goods provided by the acceptance-conveyance act S84002 of 7 February 2000 signed by the [Buyer]'s representative. According to the conditions of the Contract (s. 9.2) originals of the railroad bills of lading were sent by the [Seller] with the goods. At that, taking into account the provisions of art. 7(1) of the Agreement on International Goods Transport by Railroad envisaging that the original of the railroad bill of lading accompanies the goods to the destination station, the Tribunal believes that [Buyer]'s statement about an additional obligation of the [Seller] to present the original of the transport documents in witness of the fact of the goods delivery is unfounded.
Submission of the additional documents by the [Seller] which are contested by the [Buyer] for different reasons (including the allegation of falsification and inaccuracies) with due account of the contract terms does not have any legal meaning for the settlement of the issue of the fulfillment of the contract obligations by the [Seller].
The Tribunal as well notes that at the hearings on 9 June 2003, the [Buyer]'s representative has stated that the latter had not addressed the consignee in Slovakia to clarify the fact of non-receipt of the goods dispatched by the [Seller].
Considering the above, the Tribunal concludes that the [Seller] has proved the fact of the delivery of the goods pursuant to the contract terms and the [Buyer] has not proved the fact of their non-delivery.
As for goods acceptance-conveyance act S84003, the claims arising from this act are not contained in the writ and therefore are not included in the [Seller]'s claims and thus cannot constitute the subject of the consideration within the frameworks of these proceedings.
In respect to the second set-off carried out by the [Seller], as it follows from the [Seller]'s complaints sent to the [Buyer] on 3 April 2000 under # 58-12 and from the statements of the ex-external manager of the [Seller]'s company, the sum in arrears of the [Buyer] was to be reduced by the sum of the cost of the raw materials delivered by the [Buyer] under the Tolling Contract # A199/25/859-99 of 23 September 1999 and as well the sum of the payment of 14 February 2000.
According to art. 410 of the Russian Civil Code, the obligation terminates in full or in part by means of the set-off of the similar counterclaim term of which has begun or the term of which is not indicated or is determined by the moment of demand. For the set-off to be executed the declaration of one party suffices.
Considering the [Seller]'s objections to the recognition of the fact of the executed set-off, the Tribunal based itself on following.
First, although in the present case counterclaims of the parties primarily were not of a similar nature (pecuniary claim of the payment for the delivered goods and payment about return of the delivered raw materials), however, the [Seller] has not proved that raw materials delivered by the [Buyer] and assigned for the processing remained in kind and could be returned to the [Buyer] upon his request. Under such conditions, recognition of the fact that the [Seller] was obliged to reimburse the [Buyer] the cost of the delivered raw materials, i.e., at the moment when the set-off was carried out, that the [Seller] as well had a pecuniary obligation to the [Buyer] is well-founded. The fact that the [Seller] regarded both counter obligations as pecuniary is proved by the argument that in his claim of 3 April 2000, signed by the director of the [Seller]'s factory, conducting the set-off of the pecuniary counter obligations is directly mentioned.
Second, the statement about this set-off was made by the director of the [Seller]'s factory and was confirmed by the external manager of the [Seller]'s company which is proved by the materials of the case.
Third, although execution of such a set-off would contradict the effective Russian currency law, the responsibility for the execution of such set-off is borne by the [Seller], officials of which have committed breach of the currency legislation of Russian Federation and this cannot serve as a basis for the non-recognition of the set-off.
Fourth, since by virtue of art. 410 of the Russian Civil Code, declaration of one party suffice for a set-off, the fact that [Buyer] objected to it does not have any legal significance.
Fifth, the fact that the [Buyer] has brought an action against the [Seller] for the recovery of the sum which in this case he regards as a set-off on the initiative of the [Seller] is not considered as a basis for the recognition of the invalidity of the set-off. Since the issue about recognition of the set-off is settled in these proceedings, in the course of the other legal proceedings between these parties, the decision passed by this Tribunal has to be taken into account based on the generally recognized rule "res judicata pro veritate acciptur".
The Tribunal has taken into consideration the fact that in the course of the proceedings on the present case, the [Seller]'s representatives objecting to the [Buyer], which invoked conducting of the set-off, have not expressed any doubts in fact that the present set-off was executed specifically under Contract # 843-99, although in the claim of 3 April 2000, four contracts under which the [Buyer] has indebtedness were mentioned. At that, it was taken into account that the issue of [Buyer]'s indebtedness under two contracts was settled as a consequence of the set-off executed on 18 February 2000 and by means of the readdress of a number of the consignments of the goods which were a subject of the disputes between the same parties considered by the Tribunal in cases # 126/2000 and 143/2000. The [Seller]'s representatives have not invoked the fourth contract in the course of the proceedings.
The goods acceptance-conveyance acts enclosed with the writ confirm receipt of the goods by the [Buyer] for the sum which is indicated by the [Seller].
The Tribunal has taken due regard of the adjustments of the lodged claims in connection with the specification of the calculations of the claims realized as well on the basis of the [Buyer]'s objections and Tribunal's award on case # 143/2000 between the same parties. In the mentioned award, the Tribunal found that reimbursement of the cost of three consignments of the goods under Contract # 843-99 which were mistakenly included in the set-off of similar counterclaims under the other contract was possible according to the contract under which delivery of these consignments was carried out. The final amount of the [Seller]'s claims with regard to the recovery of the main sum in arrears was reduced.
Not having presented documentary objections to the sum of the claims, the [Buyer] nevertheless objected to the inclusion in the general amount of debts under case # 125/2000 the cost of three consignments of the goods delivered under this contract, however, included in the set-off of claims under Contract # 710-99/725-99, consideration of which was the subject of case # 143/2000.
The [Buyer] considers that disputed carriages were paid for by dint of the set-off which was recognized by the Tribunal in the process of consideration of case # 143/2000. Moreover, lodging of the suit on recovery of the cost of three mentioned consignments is inadmissible on the formal basis as well due to expiration of statute of limitation from the moment of its delivery.
Having examined [Buyer]'s position in respect to this issue, the Tribunal states the following. In the course of consideration by the same Tribunal of the dispute between the same parties under Contract # 710-99/725/99 of 4 August 1999 (Case # 143/2000), the [Buyer] has presented the argument, which was accepted by the Tribunal, that, as a result of the set-off executed by the [Seller] on 18 February 2000 and confirmed by the decision of 9 June 2000 of the State Arbitration Court at the [Seller]'s location, the indebtedness of the [Buyer] to the [Seller] under that contract was liquidated in full. At that, it was stated that during the set-off, three consignments of the goods delivered under Contract # 843-99 were mistakenly indicated instead for three specific consignments of the goods delivered under the Contract in question.
Thereupon, the [Seller] was denied recovery of the cost of three consignments of the goods in fact delivered under Contract # 710-99/75-99 and its cost was recognized to be paid in the result of the set-off of 18 February 2000 instead of three consignments of the goods delivered under the Contract # 843-99 and mistakenly included into the calculation of the set-off of 18 February 2000.
Taking into account the decision of the Tribunal of 23 June 2003 in case # 143/2000, it was directly mentioned that the [Seller] is not deprived of the right to raise a question about reimbursement of the cost of three consignments of the goods mistakenly included in the set-off of the similar counterclaims under Contract # 710-99/725-99 according to the contract under which these consignments were delivered.
Materials of case # 143/2000 confirm the fact of the delivery of three consignments of the goods delivered under Contract # 843-00 on the basis of which the present suit is brought. Dispatch of the goods which were to be paid for in the indicated accounts was carried out on 20 December 1999.
Materials of the [Seller]'s suit in case # 125/2000 lodged on 14 June 2000 contained claims for recovery of the sums corresponding to the cost of the dispatched goods according to the accounts # 900625 and 900629 under Contract # 710-99/725-99, however, accepted according to the acceptance-conveyance act S84002 composed in the course of fulfillment of Contract # 843-99 and signed by the [Buyer]'s representatives.
Thus, claims for the recovery of the cost of two consignment of the goods was lodged by the [Seller] in June 2000 and therefore the statement of the [Buyer] that it is cancelled due to the expiration of the period of limitations is unfounded.
As for the claims for recovery of the third disputed consignment which as well was dispatched to the [Buyer] on 20 December 1999 according to account # 900630, by the letter I-1S125 of 2 September 2002, the [Seller] has informed the [Buyer] that this account (as well as accounts # 900625 and 900626) was mistakenly indicated as an account under Contract # 710-99/725-99 and, consequently, the [Seller] is refused the recovery of the sums under the indicated accounts.
On 26 June 2003, the [Seller] has declared alterations of the claims and increase of the amount subject to the recovery with due account of the decision of the Tribunal on case #143/2000 between the same parties which has established the fact of the delivery of all three disputed consignments of the goods (letter I-6S125 of 26 June 2003), i.e., the [Seller] has lodged claims in respect of all three consignments of the goods, including the third consignment. This claim was corrected again on the same day since the [Seller] agreed that delivery of the three disputed consignments of the goods was carried out under Contract # 710-99/725-99 (letter I-6S125 of 26 June 2003). However, later on in the course of the proceedings, the [Seller] stated that he has lodged claims on the payment of the three indicated consignments of the goods. With respect to this, the [Buyer] has expressed objections mentioned above.
The Tribunal states that the subject of the [Seller]'s claims is payment by the [Buyer] of the cost of these three consignments of the goods. As mentioned above, the [Buyer]'s declarations about omission of the period of limitation of actions with regard to two consignments of the goods by the [Seller] cannot be recognized as well-founded. The [Seller] has lodged the claims for recovery of the cost of the mentioned consignments in June 2000; the [Seller]'s right of action arose in December 1999 and, according to art. 203 of the Russian Civil Code, duration of the period of action was interrupted by the lodging of the suit.
With due regard to the above, the Tribunal rules that the [Buyer] is obliged to pay to the [Seller] the cost of the two mentioned consignments of the goods. As for the third consignment of the goods, the statement of the [Seller] about partial alteration and supplement of the claims was made on 2 September 2002 (letter I-1S125 of 2 September 2002), i.e., within the frameworks of the period of limitations provided by art. 196 of the Russian Civil Code.
In his suit, the [Seller] has claimed recovery from the [Buyer] of the penalty in the amount of 0.8 % of the general sum of the delayed payment. The corrected and reduced amount of the penalty is indicated in the [Seller]'s document I-7S125 of 26 June 2003.
Lodging the indicated claims, the [Seller] based himself on para. 11.1.1 of the Contract according to which in case of the violation of the payment terms the [Buyer] pays to the [Seller] a penalty in the amount of 0.5 percent for each undue day however not more than 0.8 % of the general sum of the delayed payment.
Alongside this, para. 11.2.2 of the Contract # 843-99 envisages that the party at fault is obliged, within 30 days from the date of recognition of the claim, to compensate proved losses to the injured party or to pay the penalty foreseen by the contract.
In the [Seller]'s opinion, this paragraph of the Contract is not a limit of the parties' liability and is to be interpreted in aggregate with para. 11.3 ("constructed value according to para. 8.4 is used for the calculation of penalties and determination of losses") and para. 11.6 ("payment of the penalties and reimbursement of losses does not release the party from the fulfillment of the obligations under the present contract"), which provide application of the contract penalty. However, the Tribunal finds it possible to interpret para. 11.2.2 as the basis of regarding the penalty set forth in the contract as of an alternative nature.
Taking into account that the [Seller] by his letter I-&s125 of 26 June 2003 admitted the possibility of similar interpretation of para. 11.2 of the Contract by the Tribunal and asked the Tribunal to recover from the [Buyer] either the penalty or interest per annum, the Tribunal finds that it is possible to satisfy the claims of the [Seller] only in the part related to the recovery of the interest per annum.
The [Seller] has founded his claim on the payment of the interest per annum from the general sum of the delayed payment on the basis of art. 78 of the Vienna Convention of 1980, art. 395 of the Russian Civil Code and art. 15(4) of the Constitution of the Russian Federation. As a proof of the validity of the amount of the calculated interest per annum, the [Seller] has presented information from the Central Bank of Russian "Average rates of short-term credits in Russia granted by the Russian credit organizations in US dollars" published in the "Bank of Russia Bulletin" # 40-41 (618-619). According to this information as of the date of the lodging of the claim on its recovery, i.e., 7 February 2000, this rate was 11.7 % per annum.
Since art. 78 of the Vienna Convention of 1980, which entitles the seller to claim interest per annum for the payment delay, does not contain any instructions on its amount and calculation procedure, the [Seller] has soundly used provisions of Russian legislation (art. 395 of the Russian Civil Code) admitted as subsidiary statute. According to art. 395 (1) of the Russian Civil Code, the Tribunal finds it possible to use rates of the interest per annum applicable as of the date the action was brought.
The [Seller] has claimed recovery of the interest per annum from 7 February 2000 till 30 June 2003 and then till the date of the factual payment of the amount of the main sum in arrears at the same rate.
The Tribunal satisfies the claim of the [Seller] having determined the amount of the interest per annum as of the date of consideration of the dispute. Furthermore, on the basis of art. 395 (3) of the Russian Civil Code, the same rate is used for the recovery of this interest from 10 June 2004 till the date of the actual payment of the debt by the [Buyer].
According to para. 6(2) of the Regulation on arbitration expenses and fees which is a Supplement to the Rules of the Tribunal, reimbursement of the [Seller]'s expenses on the arbitration fee is imposed on the [Buyer] in proportion to the amount of the satisfied claims.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the Republic of Russia is referred to as [Seller] and Respondent of Cyprus is referred to as [Buyer].

References: art. 19
 art. 18
 art. 161
 art. 166
 art. 83
 art. 69
 art. 69
 art. 66
 art. 10
 art. 66
 art. 1
 art. 9
 art. 9
 art. 3
 art. 9
 art. 166
 art. 15
 art. 1
 art. 12
 art. 7
 art. 410
 art. 410
 art. 203
 art. 196
 art. 78
 art. 395
 art. 15
 art. 78
 art. 395
 art. 395