Source: http://cisgw3.law.pace.edu/cases/040216r1.html
Timestamp: 2019-04-19 14:26:52+00:00

Document:
1.1 Since the contract does not contain an obligation for the [Seller] to send to the [Buyer] an experimental consignment of the goods to be tested at an independent laboratory in the [Buyer]'s country prior to the shipment of the contract goods and since the evidence of the existence of this as a generally accepted and commonly known business usage in relation to this kind of goods was not presented, it is acknowledged that the [Seller] did not have such an obligation.
It is noted that an oral agreement on such an obligation of the [Seller] (as contended by the [Seller]) would not have legal force, even had it existed (which fact was denied by the [Buyer]), because by virtue of articles 12 and 96 of the Vienna Convention 1980 [UN Convention on Contracts for the International Sale of Goods (1980), hereinafter CISG] and art. 162(3) of the Russian Civil Code, an agreement (of external economic nature), to which a Russian organization is a party, must be in writing. At the same time, it is noted that the contract itself expressly provides that its modifications can only be introduced in writing.
1.2 A determination in the contract of the basis of delivery as "FOB port of shipment of the [Seller]'s country" with reference to Incoterms 1990 where the contract contains a provision different from the wording in Incoterms, entails priority of the contractual condition over the corresponding wording in Incoterms, considering the legal nature of Incoterms which is regarded as a trade usage in Russia and at the time of the conclusion of the contract regarded as a recommended document worked out by the International Chamber of Commerce.
1.3 The Tribunal established that the [Seller] acted in accordance with provisions of art. 77 CISG when it addressed the [Buyer] asking for a permission to sell the goods, which were marked with [Buyer]'s trademark, to a third party and when it delayed shipment of goods (sold on conditions "FOB Russian port") to the port of shipment.
1.4 [Seller]'s claim for damages caused by [Buyer]'s non-acceptance of the goods prepared by the [Seller] for shipment was rejected since the [Seller] failed to prove the amounts of the damages as well as the very fact that it suffered any loss. At the same time, it is noted that the sum of one of the claims, being in its nature a claim for recovery of interest for making use of another company's funds in accordance with art. 78 CISG and art. 395 of the Russian Civil Code, is calculated in relation to the refinancing interest rate of the Central Bank of the Russian Federation, which cannot be applied to calculations in US dollars.
The action was brought by the [Seller], a Russian organization, against the [Buyer], a USA organization, in connection with non-acceptance of and non-payment for the goods which were produced and prepared for shipment by the [Seller] in accordance with an international sales contract concluded on 21 June 2000.
- Recovery of the arbitration fee and expenses incurred by the legal representation.
2.2 The [Buyer] did not acknowledge the action. The [Buyer] alleged that the goods were not prepared for shipment and did not undergo customs clearance. Moreover, [the [Buyer] alleges that] the [Seller] did not act in compliance with an agreement reached between the parties to follow the common business usage of sending an experimental consignment of goods to the [Buyer] for testing. At the hearing held by the International Commercial Arbitration Court at the Russian Federation Chamber of Commerce and Industry [hereinafter Tribunal] the representatives of the [Buyer] stated that the [Buyer] was ready to accept the goods on the terms provided in the contract and asked the Tribunal to dismiss the [Seller]'s claim for payment of the price for the goods. The proof of the [Seller]'s claims for damages was also contested by [Buyer]'s representatives.
"... all disputes and differences are subject to settlement in International Commercial Arbitration Tribunal in Moscow at the Chamber of Commerce and Industry of the Russian Federation [that is the Tribunal]"
and is admitted by both parties.
Guided by section 1(5) of the Rules of Tribunal, the Tribunal considers itself competent to arbitrate the present dispute.
The parties to the contract did not make an agreement on the applicable law. Taking account of art. 28 of the Law of the Russian Federation "On International Commercial Arbitration" and section 13 of the Rules of Tribunal, the 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 [Seller]'s country, where performance of the contract (production and shipment of the goods) takes place, this performance being of crucial significance for the content of the disputed contract.
At the same time, the Tribunal takes into account that the states of the disputing parties, Russia and the USA, are States parties to the CISG and that, by virtue of art. 1(1)(a) CISG, it is applicable to the present dispute.
Taking into account the aforesaid as well as the supremacy of the provisions of the CISG, being an international treaty, over the provisions of the domestic law (Art. 15 of the Constitution of the Russian Federation), the Tribunal found that the CISG is applicable to the relations of the parties to the contract and the provisions of the Russian law are applicable to issues not governed expressly by the CISG.
The Tribunal takes into account that the level of readiness of the [Seller] to ship the goods to the [Buyer] is to be determined considering that in the process of the execution of the contract the parties twice prolonged the term of completion of delivery agreed earlier: initially, up to 28 February 2001 (Supplement No. 1 to the contract); afterwards, up to 29 May 2001 (Supplement No. 2 to the contract).
b) The goods were prepared for shipment in due time, and that the [Seller] could perform its obligations under the contract.
- In spite of repeated requests by the [Seller], did not give its consent to sell the goods to a third party.
The Tribunal reached the above conclusions having considered the following circumstances.
3.4.1 At the hearings, the representatives of the [Buyer] alleged that the [Seller] committed a number of fundamental breaches of the contract. One of the fundamental breaches was that the [Seller] failed to send to the [Buyer] an experimental consignment of goods in the amount of 1,000 items for testing by an independent laboratory prior to production and shipment of the contractually agreed quantity of goods. In the opinion of the [Buyer], this would have made it possible to avoid the situation that happened in 1999 with analogous goods produced by another Russian plant and rejected as defective by an American customer, of which the [Seller] was informed twice in the letters of 31 July and 28 August 2000. However, the [Seller] did not fulfill this demand. The representatives of the [Buyer] alleged that conducting a test of the goods by an independent laboratory to establish their conformity with safety standards adopted in the USA was provided for by the oral agreement of the parties as well as by the generally accepted and commonly known business usage.
The [Buyer] had not changed its position concerning sending the samples of goods for testing up to the date of consideration of the dispute by the Tribunal. This is confirmed by [Buyer]'s letter of 6 January 2004, in which it demands that the [Seller], prior to the shipment of a large consignment of goods, sends to the [Buyer] a small amount of goods to be forwarded to an independent laboratory in the USA to determine whether the goods comply with the standard features, whether the goods can be properly used for their intended purpose in the United States, and whether they are of any danger for users.
However, the Tribunal holds that the contract does not provide for any condition about preliminary (prior to the production and delivery of the goods) sending to the [Buyer] of an experimental consignment of samples of the goods in the amount of 1,000 items for testing in an independent laboratory for the purpose of determining compliance of the goods with the standard requirements in effect in the United States. If, after concluding the contract, the [Buyer] found that such testing was necessary, it was entitled under art. 29 CISG and par. 15.0 of the contract to reach an agreement with the [Seller] to introduce the necessary modifications to the contract, which was not done by the [Buyer].
As for the statement of [Buyer]'s representatives at the hearings that this was a condition of the contract agreed upon by the parties orally, it cannot be admitted because, beyond everything else, the [Seller] denies the existence of such an oral agreement between the parties. Moreover, even if such agreement existed, it would not have legal force on the following grounds.
Since [Buyer]'s representatives did not specify whether this condition was agreed upon at the time of conclusion of the contract or later on, the Tribunal keeps in mind that if it was orally agreed upon at the time of conclusion of the contract, then, in accordance with the reservation made by the Russian Federation (art. 12 and 96 CISG), it is inadmissible and in accordance with art. 162(3) of the Russian Civil Code it is invalid, of which the [Buyer] could not have been unaware.
On the other hand, if the parties made an oral agreement on that issue after conclusion of the contract, it could not take place not only by virtue of art. 29(2) CISG but also by virtue of clause 15.0 of the contract which provides that any modifications of the contract are to be introduced only in writing and must be signed by both parties.
The [Buyer]'s representatives further alleged that a condition requiring delivery by the [Seller] to the [Buyer] of a consignment of goods to be tested by an independent laboratory as to their compliance with requirements in force in the United States, in particular with respect to their safety, is a generally accepted and commonly known business usage and, therefore, could have been fulfilled by the [Seller] without even including it into the contract. This position was rejected by the Tribunal as not being in accordance with art. 9(2) CISG.
Taking info account the exclusively specific characteristics of the subject of delivery, particularity its production, transportation and application, this [testing-before-delivery] condition cannot be regarded as a generally accepted and commonly known usage as is contended by the representatives of the [Buyer]. For the same reasons it cannot be even regarded as a local usage on the market for such products, as well as because such specific conditions as the one alleged by the representatives of the [Buyer] (1,000 items of goods) can be determined only by the agreement between the parties fixed in the contract and not otherwise.
3.4.2 The Tribunal notes that the parties, having determined in clause 3.2 of the contract the basis of delivery "FOB port of Vladivostok" (Incoterms 1990), established [Seller]'s obligation to ship the goods to the ports of destination according to the instructions by the [Buyer] and to issue the marine bill of lading (clauses 5.3 and 5.5 of the contract). It was only on 11 November 2003 that the [Buyer] suggested that the goods that the [Seller] had prepared for delivery in 2001 be dispatched to the [Seller] in containers by sea transport to the port of Long Beach or the port of Los Angeles.
3.4.3 In violation of the conditions of the contract providing the fixed price in US dollars for 1,000 items (Supplement No.1 to the contract), the [Buyer] refused to accept the goods at the agreed price. Already in the letter of 19 March 2001 the [Buyer], referring to the American market conditions, suggested that the [Seller] decrease the price by 20%, with the price reduction being motivated by the entrance in the American market of other Russian producers of similar goods. Later, in its letter of 18 April 2001, the [Buyer] expressed the refusal to buy the goods at the contract price; whereas in its letter of 26 August 2001, which confirmed its refusal, the [Buyer] agreed to a compromise (payment for the goods at a price 10% lower than the contract price). The [Buyer] maintained that position up to November 2003, when, in its letter of 11 November 2003, the [Buyer] gave its consent to a delivery of the goods at the contract price.
3.4.4 The [Seller], deprived of the possibility of independent selling the goods produced for the [Buyer] (since according to the conditions of the contract the goods were marked with [Buyer]'s trademark and could not be sold by the [Seller] to a third party without a written consent of the [Buyer] as provided for in clauses 3.1 and 3.4 of the Supplement No.2 to the contract), repeatedly asked the [Buyer] to give this consent (letters of 19 and 21 March, 19 July, 30 August, 12 November 2001), yet obtained no consent of the kind.
The Tribunal finds that [Seller]'s request to the [Buyer] to give its consent to sell the goods to a third party, was in accordance with the provisions contained in art. 77 CISG, for the purpose of avoiding a greater loss connected with further storing of the goods produced for the [Buyer].
3.4.5 At the hearings, the allegation that the goods to be shipped by the [Seller] underwent customs clearance was not duly confirmed, which fact was pointed out by the representatives of the [Buyer], who believed that since the goods did not undergo customs clearance it meant that the goods were not ready for shipment at all.
The Tribunal finds that, indeed, according to the basis for delivery FOB (section A-2 "License, Authorisations and Formalities" Incoterms 1990), it is the [Seller] who is responsible for all customs formalities, including issuing of the cargo customs declaration. Taking account of the materials of the case, in particular, considering that the goods are at the warehouse of the producer and the [Seller] did not present at the hearings of the Tribunal any documents about customs clearance of the goods, the Tribunal found that [Seller]'s allegation contained in the letter of 8 December 2000 that the customs inspection took place was not confirmed.
However, this circumstance is not a ground to conclude that the [Seller] did not fulfill all required conditions relating to the shipment of the goods.
As indicated above, it was found that the [Seller] had produced the goods in due time and had done everything dependent on him to prepare the goods for shipment up to the stage of the customs clearance of the delivery (sections 3.4.1-3.4.4 of the present award).
Under the circumstances, the Tribunal finds that the [Seller], having abstained from delivery of the goods from the plant to the port of shipment prior to the settlement with the [Buyer] of all necessary conditions of shipping of the goods by sea transport, acted in accordance with art. 77 CISG in a most reasonable way with the purpose of avoiding greater loss in respect to the storing of the cargo in the port of Vladivostok and the downtime of the ship waiting for shipment.
the Tribunal concludes that the [Buyer], having without any ground refused to accept the delivery and to pay for the goods in violation of art. 53 and 60 CISG, is obliged to pay the price of the goods according to art. 62 CISG.
- The [Buyer] is obliged to dispose of the said goods.
the Tribunal does not consider this claim subject to satisfaction on the following grounds.
The [Seller] worded this claim as specifically a claim for recovery of the damages. However, the [submitted] calculation of the amount of the loss, which in fact is the charge of interest on the main sum in arrears (what is more, at the refinancing interest rate of the Central Bank of the Russian Federation applicable only to payments in rubles), for the period of the delay of the payment is, in its essence, a claim for recovery of the interest for use of another's monetary funds according to art. 78 CISG and art. 395 of the Russian Civil Code. However, the [Seller] has set it forth as a claim to recover the loss. If this is the case, the [Seller] was obliged, according to art. 74 CISG, to indicate exactly what expenses were actually suffered by the [Seller] considering there was real loss or to indicate the amount of the un-gained profit considering there was loss of profit and to submit relevant evidence.
None of that was done by the [Seller]. Although the Tribunal asked the [Seller] to clarify and to specify the substance of the claim, the representative of the [Seller] was not able to present the necessary explanations.
The expenses pertaining to the safekeeping of the goods, the acceptance of which the [Buyer] refused without any ground, are per se expenses that constitute the loss provided for in art. 74 CISG, entitling the [Seller] to claim recovery of the said loss.
However, the calculation of the amount of the loss is done by the [Seller] in such a way that it is impossible to establish an actual amount of expenses related to the safekeeping of the goods. The [Seller] stored a specific consignment of goods composed of no more than 45 pallets (transport packs) and occupying only a part of the warehouse while the calculation of the expenses related to the safekeeping of the goods was done for the whole area of the warehouse with application of the tariffs the amount of which is determined in an unknown way.
Considering the indicated circumstances, the amount of the claim is not proved.
Since only the price of the goods is recoverable in favor of the [Seller] and, therefore, the goods are not subject to utilization, satisfaction of the claim for recovery of the expenses related to utilization is excluded.
3.7.4 Claim for recovery of the loss caused by payment of the tax.
By their nature, the expenses related to payment by the [Seller] of property tax which was in force at the time of having the goods in its safekeeping (the taxable property being the produced goods which were not accepted by the [Buyer] in violation of the contract) fall within the scope of the expenses provided for in art. 74 CISG and which can be recovered if the [Seller] proves these expenses. However, the calculation submitted by the [Seller] is not confirmed by any relevant documents from the tax authorities. Therefore, it is impossible to ascertain with assurance whether or not the corresponding tax was paid by the [Seller] and in what amount.
Since [Seller]'s claims are granted in part and pursuant to section 6(2) of the Rules of Arbitration Expenses and Fees (Supplement to the Rules of Tribunal), the Tribunal imposes on the [Buyer] an obligation to reimburse to the [Seller] the amount of arbitration fee in proportion to the granted claims.
In accordance with section 9 of the Rules of Arbitration Expenses and Fees, the [Buyer] must reimbusrse to the [Seller] the expenses related to legal representation in the amount admitted by the Tribunal as reasonable.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the Russian Federation is referred to as [Seller] and Respondent of the United States is referred to as [Buyer].

References: art. 162
 art. 77
 art. 78
 art. 395
 art. 28
 art. 1
 art. 29
 art. 162
 art. 29
 art. 9
 art. 77
 art. 77
 art. 53
 art. 62
 art. 78
 art. 395
 art. 74
 art. 74
 art. 74