Source: http://www.cisg.law.pace.edu/cisg/wais/db/cases2/041105r1.html
Timestamp: 2019-04-23 08:07:55+00:00

Document:
APPLICATION OF CISG: Yes and No. The parties agreed that their contract is governed by Russian substantive laws. Thus, the Tribunal concluded that the CISG would apply. At the same time, the contract provided that other terms of the contract should be determined based on the GAFTA Contract. The parties agreed that this meant the GAFTA Contract 78. Article 25 of the GAFTA Contract 78 excludes the application of the CISG. Thus pursuant to Article 6 CISG, the Tribunal found that the CISG did not apply.
1.1 The contract for international sale of goods stipulates that Russian substantive law is applicable to relationships between the parties. The rest of the terms and conditions of the contract are determined by the provisions of a pro forma contract, which contains a provision concerning exclusion of the application of the Vienna Convention 1980 [UN Convention on Contracts for the International Sale of Goods (1980), hereinafter CISG]. Therefore, it is concluded that the parties used the right given by the CISG to agree to exclude the application of the CISG from their relationships.
1.2 Subject to art. 401(3) of the Russian Civil Code, a force majeure (and not absence of guilt) serves as a basis for exemption from liability for non-performance of contractual obligations in entrepreneurial activity and the burden of proof of circumstances exempting from liability rests on the party referring to such circumstances.
1.3 The Tribunal finds that the clause of the contract providing that one of the circumstances exempting from liability for non-performance of contractual obligations may be impossibility to perform due to decisions by agencies of State administration is inapplicable to the present case taking into account concrete circumstances, which did not exclude performance of the contract within the contractual terms even in such circumstances.
1.4 In their contract, the parties stipulated a basis of delivery with reference to Incoterms 2000. However, the contractually stipulated basis of delivery differs from the corresponding basis of delivery in Incoterms 2000 (extending [Seller]'s obligations). This leads to a conclusion that the parties agreed to use the basis of delivery stipulated in the contract and not the corresponding provisions of Incoterms 2000.
1.5 Several instances of non-compliance with terms of delivery by the [Seller] amount to a fundamental breach giving the [Buyer] the right to declare the contract avoided.
1.6 Since the contract stipulated an option in the quantity of goods, the amount of non-delivered goods is reduced by the amount corresponding to the contractually stipulated option.
1.7 Taking into account the similarity between [Seller]'s claims and [Buyer]'s counterclaims, the Tribunal decided that they are subject to an offset in accordance with art. 410 of the Russian Civil Code.
1.8 To determine the damages, the Tribunal took into account provisions of the Russian Civil Code (art. 520 and 524) referring to a substitute contract concluded instead of the non-performed contract. Further, it is noted, that payment of the difference in the price of the principal contract and the price of the substitute contract made instead [of the principal contract] does not exempt the [Seller] from recovery of the damages incurred by the [Buyer] in accordance with art. 15 of the Russian Civil Code.
1.9 While considering specific claims for recovery of the damages, the Tribunal took into account evidence submitted by the parties concerning the amounts and causation of the damages caused by the breach of the contract.
The action was brought by [Seller], a Belizean organization, against [Buyer], an Austrian organization, in connection with an incomplete payment for the goods delivered on the basis of CPT Ilyichevsk export elevator (Incoterms 2000) under a contract for international sale of goods of 26 December 2002. The [Seller] claimed recovery of the debt and payment of the contractual penalty.
2.1 The [Buyer], who avoided the contract due to repeated breaches of contractual terms of delivery committed by the [Seller], did not acknowledge the action and submitted a counter-action in the amount exceeding the amount of claims of the original action. During the arbitral proceedings, the [Buyer] reduced the amount of the counter-action in accordance with Tribunal's ruling, since it was established, based on [Seller]'s submission, that it includes [Buyer]'s claim out of another contract, which has no relevance to the debt indicated in the original action.
2.2 The [Seller] admitted that avoidance of the contract by the [Buyer] was based on breaches of contractual terms of delivery. At the same time, the [Seller] alleged that the reason for these breaches was the impossibility of performance due to the prohibitions of transporting the goods to the contractually agreed point of destination issued by competent railroad authorities. Therefore, the [Seller] stated, it cannot be held liable for late and incomplete delivery of the goods.
2.3 Neither did the parties agree on whether the [Buyer]'s claim for recovery of the damages and their calculation are well-grounded.
"Differences, contradictions or claims which may arise in connection with performance, violation or termination of the contract shall be referred to the jurisdiction of the International Commercial Arbitration Court at the Russian Federation Chamber of Commerce and Industry [hereinafter Tribunal], Moscow. The language of arbitration is Russian"
The Tribunal stated that in the section entitled "Arbitration" in Supplement No. 1 of 26 August 2003 to the contract between the parties of 26 December 2002, the parties agreed that the Russian substantive law is the law applicable to their contract.
By virtue of art. 15 of the Russian Constitution and art. 7 of the Russian Civil Code, international treaties of the Russian Federation are a component part of its legal system. The Russian Federation is a State party to the CISG. At the same time, the Tribunal found that the section entitled "Other terms and conditions" of the contract of 26 December 2002 contains a provision that: "all other terms and conditions under the present contract shall be determined on the basis of relevant Contract GAFTA [the Grain and Feed Trade Association], provided it does not contradict the provisions [of this contract], which the parties are aware of and agree to."
Keeping in mind that there is no disagreement between parties that Contract GAFTA 78 "Contract for delivery of goods to be shipped by railroad in bulk" (pro forma contract of the Grain and Feed Trade Association) shall be considered as the relevant Contract GAFTA, the Tribunal finds that to the relations of the parties not expressly settled by the contract of 26 December 2002 shall be applied provisions of Contract GAFTA 78, provided they do not contradict the provisions of the contract of 26 December 2002.
Art. 25 of Contract GAFTA 78 provides, among other things, that: "the provisions of the CISG shall not be applied to this contract." In accordance with art. 6 CISG, parties to a contract may exclude the application of this convention. Hence, by virtue of the parties' agreement, the Russian Civil Code shall be applied to the contract of 26 December 2002, and the application of the CISG shall be excluded.
3.3 It was established that, according to provisions of the contract of 26 December 2002 (hereinafter the Contract), the [Seller] undertook an obligation to deliver a specific amount of goods with an option in the quantity of 5 per cent at a price per metric ton indicated in the contract on the basis of CPT (Incoterms 2000) Ilyichevsk export elevator by 5 February 2003 (inclusively) with 100% payment for the delivery of a consignment of goods (each consignment being no less than 500 metric tons) within three bank days against the contractually agreed documents, and in particular documents confirming that the goods arrived at the Ilyichevsk export elevator. Subsequently, in etters of 31 January and 26 February 2003 the [Buyer] agreed to extend the terms of delivery under the contracts up to 19 February and 7 March correspondingly.
The facts of [Seller]'s deliveries of the amounts of goods indicated in the statement of action and non-payment for these amounts by the [Buyer] are confirmed by the materials of the case and are not contested by the [Buyer]. Yet, the [Buyer] explains its refusal to pay by [Seller]'s non-delivery of the outstanding amount of the goods (6,530 metric tons), whereby the [Buyer] incurred damages in an amount exceeding the amount of non-payment. The [Buyer] considers that the [Seller] must be held responsible for these damages. Demanding recovery of the debt, the [Seller] denies its liability for partial non-performance of the contract and objects to the offset and granting of [Buyer]'s counterclaims.
"Neither of the parties to the present contract shall be held liable for non-performance or late performance of the contract, if it was caused by a force majeure, such as: a strike, a lockout, fires, insurrections, wars, civil wars, railway accident, decisions by State bodies, etc."
Therefore, in accordance with both the law and the contract between the parties, it was the [Seller], who did not perform its obligation to deliver the goods, on whom rested the burden of proof that non-performance of contractual obligation was caused not merely by the absence of its fault but also by the existence of a force majeure.
In this connection, the [Seller] refers to the fact that the competent authorities imposed restrictions on transporting the goods to Ilyichevsk port in accordance with art. 3 of the Agreement of International Goods Transport by Railway [hereinafter AIGTR], which did not allow the [Seller] to deliver the goods. Particularly, a telegram by the Russian Ministry of Transport and Communications of 14 January 2003 stated that due to a notification from the indicated railway authorities starting from 15 January it was prohibited to transport the goods under the present contract with Ilyichevsk station as the point of destination and, more specifically, to the address of a concrete terminal because of "an increasing number of wagons expecting to be unloaded." This prohibition was cancelled on 25 January 2003. Another prohibition [�] was introduced by a telegram of the Russian Ministry of Transport and Communications of 27 February 2003 starting from 1 March to its cancellation "because of the unfavorable loading/unloading conditions and absence of the fleet." In [Seller]'s opinion, this should be regarded as "decisions by state bodies", i.e., as force majeure circumstances excluding [Seller]'s liability.
The [Buyer], in its turn, states that the said documents cannot be regarded as force majeure circumstances because the issue of such documents from time to time could have been foreseen by the supplier making agreements with the railroad; the supplier could have delivered the goods by another means of transportation or else could have purchased them in Ukraine, and not in Russia, etc.
Yet, the Tribunal finds it possible not to discuss the question of whether said telegrams are to be qualified as force majeure in the sense of art. 401 of the Russian Civil Code, since in any case they did not make it impossible for the [Seller] to perform its contractual obligations to the [Buyer]. Taking into account the terms of delivery fixed in the contract, the [Seller] had an opportunity to deliver the goods in the period starting from the moment of conclusion of the contract, i.e., 26 December 2002, up to 15 January 2003, and in the period starting from 26 January up to 1 March 2003, even keeping in mind the relevant rules the [Seller] refers to, according to which the [Seller] had to make an application for railway wagons 15 days prior to loading and transportation of the goods.
3.5 As an additional argument, the [Seller] refers to the fact that the delay in delivery was because the [Buyer] failed to provide to the [Seller] confirmations by the Ilyichevsk sea port of its readiness to accept the goods. Without such confirmations, the railroad refused to accept the goods for transportation.
In the light of the provisions of the contract and circumstances of the case as established in the materials of the case, such an argument is considered groundless.
Although the price of the contract is determined "on the basis of CPT Ilyichevsk export elevator (Incoterms 2000)", [Seller]'s obligations were extended de facto, turning the contract from a contract of shipment into a contract of delivery. According to Incoterms , on the basis of CPT, [Seller]'s obligations are reduced to conclusion of a contract of carriage to a specified place and handing over the goods to the carrier. However, in accordance with the contract "the date of delivery shall be the date of acceptance of the goods by the Ilyichevsk export elevator", and the payment for the goods is effected against "an official report concerning arrival and acceptance of the goods" by the elevator and so on.
In such circumstances, the [Seller] was obliged not only to obtain permissions and fulfill other formalities necessary for the export of goods (as provided for in Incoterms 2000); but also to undertake any other measures in order to deliver the goods to the Ilyichevsk export elevator. Such necessary measures the [Seller] had to undertake itself or through its partners in order to secure the delivery of the goods to the elevator up to the deadline stipulated in the contract. The [Seller] failed to submit the evidence of the fact that starting from the moment of conclusion of the contract onwards it informed the [Buyer] that it was not able to undertake the necessary measures either itself or through its partners. The materials of the case testify to the fact that the [Buyer] duly responded when addressed by the [Seller].
There is nothing in the materials of the case to support [Seller]'s statement that the absence of the confirmation that the Ilyichevsk seaport was ready to accept the goods from the stations of departure constituted a valid reason for non-delivery of the goods. After the [Buyer] received on 17 February 2003 a fax from the [Seller] in which it was stated that the [Seller] received a refusal from the Ukrainian railroad to transport the goods in February 2003 "due to the refusal of Ilyichevsk seaport to accept the goods in the amount of 5,242 metric tons (77 wagons) from a specific station of departure", the [Buyer] immediately contacted the port's administration, and a permissive telegram was sent on the same day ([Buyer]'s fax of 17 February 2003 and a telegram by the port of the same date). As soon as the [Seller] sent a message of 28 February 2003 that it lacked such a permissive telegram for another station of departure, such a telegram was sent to the [Seller] on the same day (port's telegram of 28 February 2003).
3.6 As for the [Buyer], it did give consent to [Seller]'s requests to extend the terms of delivery of the goods, though, in its correspondence with the [Seller], the [Buyer] indicated that because of the delay in delivery it suffers significant losses, including expenses of hiring a ship. The [Buyer] informed the [Seller], among other things, of property claims by its Korean buyer, who was the ultimate recipient of the goods. Also, the [Buyer] informed the [Seller] that it retains the right to claim recovery of its losses, which the [Seller] did not contest.
"If, because of the debtor's delay, the performance [of the contract] has lost all interest for the creditor, it shall have the right to refuse to accept the performance and to claim the compensation of the involved losses."
According to art. 520 of the Russian Civil Code, if the seller repeatedly violates the terms of delivery under the contract of delivery (which is the case in the present dispute), these violations shall amount to a fundamental breach of the contract entitling the buyer avoid the contract. [Translator's note: Violations of the "buyer" are referred to in the text of the opinion; however, this appears to have been a typographical error, with violations of the "seller" intended.] The [Seller] did not contest [Buyer]'s right to avoid the contract.
3.7 In such circumstances, the Tribunal concludes that the [Seller] is liable for non-performance of its contractual obligations, that is, for non-delivery of 6,030 metric tons. However, the Tribunal finds that the [Seller] is right when it says that, in accordance with the contract, its option as to the quantity of the goods to be delivered was fixed at 5 per cent and that while calculating the amount of non-delivered goods, the Tribunal shall regard 9,500 metric tons as the amount of goods which the [Seller] had to deliver to the [Buyer], and that, therefore, the quantity of non-delivered goods amounted to 6,030 metric tons.
- Pursuant to art. 15 and art. 393 of the Russian Civil Code, a seller's non-performance of its contractual obligations entitles a buyer to demand recovery of losses inflicted upon it by the non-performance in question.
- [Buyer]'s counterclaims for recovery of losses inflicted upon it by [Seller]'s violation of its contractual obligation are of pecuniary nature, as well as [Seller]'s claim for payment of the goods delivered to the [Buyer] under the contract. The parties' claims and counterclaims are of the similar pecuniary nature and, therefore, are subject to an offset by virtue of art. 410 of the Russian Civil Code.
3.9.1 The materials of the case, and in particular the contract with a Hungarian organization of 4 March 2004, an invoice of the said organization and a corresponding bank certificate of 2 April 2004, which confirms the payment [of the invoice], prove the fact of [Buyer]'s purchase of the goods on the basis of FOB Constana, Romania, in the amount of 8,000 metric tons at a price higher than that of the contract between the [Seller] and the [Buyer]. With all the circumstances duly taken account of, including the terms of performance of this transaction, its object and the amount, the Tribunal found that this substitute contract was concluded instead of the contract partially non-performed by the [Seller] in the sense of art. 520(1) and art. 524(1) of the Russian Civil Code.
Consequently, the Tribunal finds it just and fair that the [Buyer] is entitled to recover from the [Seller] the losses inflicted upon it by the difference between the price of the non-delivered goods and the price of the goods delivered to it under the substitute transaction with the Hungarian organization. Also, the Tribunal regards as well-founded [Buyer]'s calculation of the amount of claim including transshipment expenses at Ilyichevsk port, fumigation and inspection of the goods, which would have been added to the price of the contract if the goods had been delivered from Ilyichevsk on the same terms of delivery FOB, on which the goods were delivered from Constana. Thus, the sum of the claim calculated by the [Buyer] is subject to an offset of [Buyer]'s obligation to pay for the goods.
It follows from art. 524 of the Russian Civil Code that, if the seller satisfies buyer's claim to recover the losses inflicted upon the buyer by the difference between the price of the original contract and the price of an agreement concluded instead of the original contract, it does not mean that the seller is released from the recovery of other losses inflicted upon the buyer, in accordance with art. 15 of the Russian Civil Code. Therefore, the [Buyer] is entitled to claim from the [Seller] the recovery of other losses.
3.9.2 Further, the Tribunal finds that the [Buyer] is entitled to the recovery of the expenses for the hire of vessel in connection with the necessity for the vessel to enter the port of Constana to load the goods under the substitute contract made instead [of the original contract], including payment of hire for the period of time needed for entering the port, other hire-related expenses (bunkerage, and representation expenses), the cost of hirer's liability insurance, as well as port duties and other expenses at the port of Constana suffered by the [Buyer] within a corresponding period of time.
The Tribunal's reasoning is based on the fact that the ship, sailing under Turkish flag of, [which was intended to be] used for the delivery of the goods purchased from the [Seller], was chartered on the basis of an agreement of time-charter of 21 February 2003, and that clause 4 of the said charter agreement fixes freight charges. In accordance with clauses 2 and 10 of the said time-charter, the charterer had to provide and pay for the fuel (excluding engine oil), port charges, pilotage, towage, agent' charges, commissions, consular fees (excluding those related to individual crew-members and the flag of the vessel) and all other usual expenses not covered by the owner of the vessel as stipulated in clause 1 of the time-charter agreement, as well as monthly representation expenses in the amount stipulated in the time-charter agreement.
The Tribunal found that, according to the captain's report and the Standard Statement of Facts of 15 March 2003 signed in Constana by the captain of the vessel and by the agent, the vessel exited the port of Ilyichevsk on 11 March 2003 at 1:00 pm and left the port of Constana on 15 March 2003 at 8:05 pm, spending on entering the port of Constana to accept the cargo under the contract with the Hungarian company 103 hours 5 min.(103.08 hrs) and not 103 hours 45 min.(103.75 hrs) as the [Buyer] alleged. Thus, to calculate [Buyer]'s expenses in connection with the necessity for the vessel to enter the port of Constana, the Tribunal will use this amount of time.
[Seller]'s argument that the entering of the vessel into the port of Constana was connected with other contracts of the [Buyer] and was planned well in advance cannot be taken into account since the Tribunal considers it unfounded. In the mentioned Standard Statement of Facts of 15 2003 it is indicated that, in accordance with the bill of lading data, goods in the amount of 8,000 metric tons were loaded onto the vessel. The materials of the case (payment documents and bank statements presented by the [Buyer]) confirm the fact that the [Buyer] paid an indicated sum for the charter in full compliance with terms and conditions of the time-charter and for other expenses related to the charter of the vessel (bunkerage, representation expenses) for the period of time starting from 28 February 2003 to 15 March 2003 .
The said sum for the period of entering of the vessel into the port of Constana shall cover the freight charges determined by the Tribunal.
Having considered [Buyer]'s calculation of the cost of the bunker during the period of entering of the vessel into the port of Constana, the Tribunal found it correct and corresponding to the materials of the case.
As for the representation expenses, the Tribunal determined the sum corresponding to the period mentioned above in accordance with clause 10 of the time-charter.
Further, the Tribunal states that the [Buyer] submitted evidence of its payment of port charges, pilotage, towage, agent's charges and other expenses related to the vessel at the port of Constana. Such evidence are, in particular, the disbursement invoice of the agents at the port of Constana of 24 March 2003, as well as corresponding payment orders and bank statements confirming the payment.
Besides, the Tribunal regards as well-founded [Buyer]'s claim for recovery of the cost of the insurance of charter's liability for the corresponding period of time. The materials of the case confirm the fact of payment by the [Buyer] of the insurance premium to the insurance company in the specified amount for the period starting from 28 February to 13 April 2003.
Therefore, the Tribunal finds that the total sum of expenses suffered by the [Buyer] for hire of the vessel "FATMA ANA" in connection with the necessity for the vessel to enter the port of Constana amounts to the sum determined by the Tribunal.
The Tribunal regards the mentioned counterclaims by the [Buyer] as well-grounded and rules that they are granted, though the sum is adjusted (9,500 - 3,470 = 6,030) since the [Seller], as was indicated above, had the option to deliver 9,500 metric tons (that is, 5 per cent less than the initial amount of 10,000 metric tons).
3.9.3 Also, the Tribunal found well-grounded and subject to an offset the claim of the [Buyer] for recovery of its expenses for payment for waste tonnage of the Ilyichevsk export elevator in January and February 2003 at the rate confirmed by the materials of the case, and namely by invoices of 8 May 2003 issued by the operators providing service to the goods arriving to the elevator for further transportation over-seas. This claim was based on the fact that the [Buyer] did not make use of the relevant services and elevator capacities which were reserved for the [Buyer] in January and February 2003. The invoices for these two months were issued for a bigger amount of grain, yet the [Buyer] calculated its claim for 10,000 metric tons. Still, the Tribunal agrees with [Seller]'s objections that the mentioned expenses suffered by the [Buyer] are subject to recovery only in proportion to the amount of goods not delivered by the [Seller]. Therefore, the Tribunal grants the said claim of the [Buyer] with the corresponding adjusting.
3.9.4 As for [Buyer]'s claim for recovery of the penalties it paid in connection with its own violation of contractual obligations to deliver the goods to its client in South Korea (the goods were intended to be purchased from the [Seller] to be later sold by the [Buyer] to a Korean company), the Tribunal finds that the [Buyer] failed to submit any convincing evidence as to the basis for and amount of the losses which are supposed by the [Buyer] to be imposed on the [Seller]. The amicable agreement between the [Buyer] and the Korean buyer referred to 49,875 metric tons of the goods and stipulated payment of a specified sum by the [Buyer]. By dividing these two amounts and multiplying the result by the amount of goods not delivered by the [Seller], the [Buyer] calculated the sum indicated in the counter-action. Bearing in mind the absence of information concerning specific circumstances, the Tribunal cannot agree to the calculation method suggested by the [Buyer].
Here, the Tribunal takes into consideration that the Offer Sheet of 21 August 2002 of the company acting as a broker in relations between the [Buyer] and its Korean partner contains no provisions as to the possibility of imposing upon the [Buyer], as the supplier, of a penalty or any other sanctions for violating the obligation to deliver. Besides, the short delivery by the [Seller] of the goods under the contract in the amount of 6,030 metric tons was, as is understood, compensated by the [Buyer] by a substitute purchase of the goods from the Hungarian company. The expenses of the said purchase were submitted in the present case by the [Buyer] as the losses to be recovered from the [Seller]. All circumstances considered, [Buyer]'s claim for recovery of these losses is to be declined.
3.10 As for [Seller]'s claims from the original action, the Tribunal takes into account that the [Buyer] in its statement of defense does not contest [Seller]'s claim in relation to the price of the goods which were not paid for. Also, the [Buyer] acknowledges the penalties, though in a lesser amount, that is only to 24 April 2003 on which date it brought a counter-action with the amount indicated therein exceeding the amount of [Seller]'s claims.
In the Tribunal's opinion, the amount of [Seller]'s claims is partially offset by [Buyer]'s counterclaims, that is, in the amount determined by the Tribunal. In other words, in accordance with their contract of 26 December 2002, the [Buyer] still has an obligation to pay to the [Seller] the difference between the sums due to the [Seller] from the [Buyer].
Apart from that, in satisfaction of [Seller]'s claims, the [Buyer] is obliged to pay to the [Seller] the contractually agreed penalty at the rate of 0.05 per cent per day on the sum of the price not paid for the delivered goods for the period starting from 25 April (one day after the corresponding application for an offset was made) to 29 September 2003 (the date until which the [Seller] calculated its penalty claim), that is, for 159 days in total.
Based on section 9 of the Rules of Arbitration Expenses and Fees and taking into account all circumstances of the present case, the Tribunal ruled that each of the parties shall bear the costs of paying the corresponding arbitration fee.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Belize is referred to as [Seller] and Respondent of Austria is referred to as [Buyer].

References: art. 401
 art. 410
 art. 15
 art. 15
 art. 7

Art. 25
 art. 6
 art. 3
 art. 401
 art. 520
 art. 15
 art. 393
 art. 410
 art. 520
 art. 524
 art. 524
 art. 15