Source: http://cisgw3.law.pace.edu/cases/040528r1.html
Timestamp: 2019-04-22 10:12:05+00:00

Document:
1.1 The Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry [hereinafter Tribunal] was found competent to arbitrate the dispute despite a number of inaccuracies in the wording of the arbitration clause in the contract.
1.2 Taking into account the arbitration clause provided in the contract, the Tribunal has the jurisdiction to consider the case despite the fact that the [Seller] brought an action before a national court in the country of its place of business.
1.3 Since the places of business of the parties to this contract for the international sale of goods are located in States parties to the Vienna Convention 1980 [UN Convention on Contracts for the International Sale of Goods (1980), hereinafter CISG], its provisions are applicable to the relations of the parties. In accordance with the conflict-of-law rules of Part III of the Russian Civil Code, for matters not expressly settled by the CISG and which cannot be settled in conformity with the general principles on which the CISG is based, the provisions of the Egyptian law are applied as the subsidiary statute since it is the law of the [Seller]'s main place of business.
1.4 Since the [Seller] did not perform its obligations to deliver the goods, for which the [Seller] received a prepayment, and for which an additional term of delivery of reasonable duration was fixed by the [Buyer], the Tribunal rules that the [Buyer] had sufficient grounds to declare the contract avoided and claim refund of the prepayment and payment of the sum of the relevant sanctions.
1.5 By virtue of art. 84(1) CISG, the [Seller] must pay interest on the sum of the prepayment starting from the date of the payment of the price. The interest rate is determined by the Egyptian law applicable to the present dispute since the CISG does not settle this matter.
1.6 Taking into account the non-delivery of the goods, the Tribunal found inapplicable the contract penalty for delay in delivery since, in the Tribunal's opinion, such a penalty implies recovery only if the [Seller] still has an obligation to deliver the goods specifically, whereas the [Buyer] demanded the refund of the price of the goods which led to the avoidance of the contract.
1.7 Based on art. 74 CISG, [Buyer]'s loss of profit in the form of the difference between the price of the goods under the contract and the average market price at the destination market is to be recovered from the [Seller]. Expenses for the payment of customs fees, VAT and other costs not incurred by the [Buyer] are not included in this amount.
The action was brought by [Buyer], a Russian company, against [Seller], an Egyptian firm, in connection with non-delivery of the goods under an international sales contract concluded by the parties on 12 March 2003 with the delivery basis of "CPT point of destination in Russia".
2.1 In compliance with the contract, the [Buyer] paid for the first installment of goods. Yet, a part of the first installment of the goods delivered by the [Seller] proved to be unusable.
The price of the defective goods was paid to the [Buyer] by an insurance company. The remaining amount of the goods paid for by the [Buyer] was not delivered by the [Seller] at all.
- Reimbursement of the arbitration fees.
2.2. The [Seller] did not submit a statement of defense and informed the Tribunal that it brought an action in an Egyptian [national] court against the [Buyer] for indemnification for moral and property damages stating that the action is to be considered in the Egyptian court since the contractual relations of the parties are to be regulated by the Egyptian law.
[Seller]'s representatives failed to appear at the hearings of the Tribunal. Representatives of the [Buyer] maintained its claims in full and objected to the position taken by the [Seller].
"If parties cannot reach an agreement amicably, such disputes or differences are to be settled at the Chamber of Commerce and Industry, Moscow, Russian Federation pursuant to its rules and procedure."
Pursuant to an established and widely known international practice, dispute settlement at chambers of commerce of different countries is carried out by arbitration bodies functioning at such chambers in accordance with procedural rules approved by these chambers. This practice is typical for Russia as well. This is confirmed by the Law of the Russian Federation of 7 July 1993 "On Chambers of Commerce and Industry in the Russian Federation" (art. 3(2)(9); art. 12(1)(M); art. 15(4)).
Thus, it follows from the substance of the contract that the parties have reached an agreement on settlement of the disputes at the Tribunal. The dispute between the [Buyer] and the [Seller] falls into the category of disputes arising out of international contractual relations in which one of the parties' place of business is abroad. This category falls within the competence of the Tribunal according to section 2 of the Tribunal's Regulations (Supplement No.1 to the Law of the Russian Federation "On International Commercial Arbitration") and section 1(2) of the Rules of Tribunal. Moreover, the Tribunal is the only arbitration body at the Chamber of Commerce and Industry authorized to consider disputes of this category.
The contract confirms the intent of the parties to refer all disputes arising from the contract to the Tribunal. This is invoked by the [Buyer] in Section 4 of the statement of action ("Grounds for the Competence of the Tribunal").
3.1.2 In its fax of 15 April 2004, the [Seller] informed the Tribunal that it had filed a claim before an Egyptian court with hearings scheduled for 30 May 2004. According to the [Seller], the subject-matter of the action brought before the Egyptian court is indemnification for moral and property damages inflicted by the non-performance of the contract by the [Buyer] and infliction of harm by dissemination of injurious information. The [Seller] requests the Tribunal to terminate the arbitration due to the filing of the claim in the Egyptian court. Moreover, the [Seller] alleged that application of the Egyptian law to the contract entails [unconditional] consideration of the case in the Egyptian court. Also, the [Seller] alleged that it is not correct to conclude that settlement of the dispute in the Tribunal is provided for by the contract.
In respect of [Seller]'s fax of 15 April 2004, [Buyer]'s representatives stated at the hearing of 11 May 2004 that the [Buyer], as of the date of the hearing, had not received any court summons or any other notifications from Egyptian judicial bodies. In the opinion of the [Buyer]'s representatives, the allegation of the [Seller] that the Egyptian court has the jurisdiction over the dispute does not correspond to the facts since the contract contains an arbitration clause according to which all disputes and differences related to the contract are to be settled at the Tribunal.
As for the [Seller]'s claim regarding the protection of its business reputation, such claims are not related to the present action and do not affect its consideration by the Tribunal. Accordingly, the representatives of the [Buyer] emphasized that there are no grounds for dismissal or suspension of the proceedings on the present case.
"Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration."
The [Seller] did not submit any evidence to the effect that the subject-matter of the present dispute cannot serve as the subject of the arbitration proceedings in accordance with applicable law.
Since the location of the Tribunal is in the territory of the Russian Federation, the procedure of the arbitration proceedings is to be regulated by the Law of the Russian Federation "On International Commercial Arbitration", which is based on the UNCITRAL Model Law of 1985. The UNCITRAL Model Law "On International Commercial Arbitration" is also taken as a basis of the Egyptian legislation on international commercial arbitration. According to art. 8(2) of the UNCITRAL Model Law, when an action is brought before a [national] court arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue [of jurisdiction] is pending before the court.
Thus, in compliance with procedural norms applicable in Russia as well as Egypt, the bringing of the action before a national court is not a basis for termination or suspension of the arbitral proceedings before the Tribunal.
Further, the possible application to the contract of the substantive law of the state in which one of the parties is located does not per se predetermine obligatory consideration of the dispute between these parties by the national courts of that country.
3.1.4 Art. 16(1) of the Law of the Russian Federation "On International Commercial Arbitration" provides that "the arbitral tribunal may rule on its own competence, including any objections with respect to the existence or validity of the arbitration agreement". Based on the wording of the arbitration clause of the parties to the contract and following section 1 of the Rules of Tribunal, the Tribunal acknowledges its own competence to consider the present dispute and does not find any grounds that may hinder further arbitration proceedings and the making of an award.
In respect to the non-appearance of the [Seller] at the hearings of the case, the Tribunal states that the [Seller] had been duly notified about the date and place of the hearings.
"default by a party duly notified of the date, time and place of the hearing does not preclude the Tribunal from continuing the arbitral proceedings and making an award unless the defaulting party submits a written application to postpone the proceedings due to a valid reason".
The Tribunal notes that [Seller]'s fax message of 15 April 2004 cannot be regarded as an application to postpone the proceedings due to a valid reason, since it does not contain an obvious request for postponement nor any reference to reasons which might be considered as valid for postponement of the proceedings. At the hearings, the [Buyer]'s representatives alleged that the Tribunal is entitled to consider the case in the absence of the [Seller]'s representatives.
Taking into account the above and in accordance with section 28(2) of the Rules of Tribunal, the Tribunal concludes that non-appearance of the [Seller] does not impede the consideration of the case and making an award.
The parties to the contract did not reach an agreement on the applicable law. The parties concluded a sales contract. Since the parties' places of business are located in States parties to the CISG, and in accordance with art. 1(1)(a) CISG, the relations of the parties are to be governed by the CISG.
"Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law."
In the opinion of [Buyer]'s representatives expressed in the course of the hearings, there did not arise any need to apply any national law as the subsidiary law, since all the questions at issue in the present case can be settled on the basis of the contract and the CISG. As indicated above, the [Seller] regards only the Egyptian law as applicable to the contract.
The Tribunal considers that issues of the case cannot be settled solely on the basis of the CISG and general principles on which it is based, as well as on the basis of the contract, without determining a national law applicable as the subsidiary statute.
"in the absence of any designation by the parties, the arbitral tribunal shall apply the law determined in compliance with the conflict of laws rules which it considers applicable."
Taking account of the above, the Tribunal considers the conflict of laws rule of art. 1211 of the Russian Civil Code applicable and concludes that the subsidiary law applicable to the contractual relations of the parties is the law of the country where the place of the [Seller]'s main activity is located, i.e. the law of Egypt.
The Tribunal stated that since neither of the parties presented any documents supporting the content of Egyptian substantive law in respect to the matters at issue in the present dispute, the Tribunal made use of the available information concerning the substance of applicable provisions of the Egyptian law.
3.4.1 Turning to the claims of the [Buyer] for recovery of the main sum in arrears (the sum which was transferred to the [Seller] as prepayment for the delivery of the first installment of the goods), the Tribunal holds that the [Buyer] performed the obligation provided by section 8.1 of the contract to pay in advance 50 per cent of the price of the first installment of the goods. The fact of the payment is confirmed by Payment Order No.06 of 21 March 2003, by the bank statement of [Buyer]'s account, as well as by the content of the parties' correspondence.
The burden of proof of the proper performance of the obligation to deliver the goods lay with the [Seller]. The [Seller] did not submit any evidence in this respect.
According to section 3.3 of the contract, the goods had to be delivered by the [Seller] to the point of destination in Russia within thirty-five days from the date of the prepayment, i.e. by 25 April 2003. The only container delivered by the [Seller] contained unusable goods, which is confirmed by Report No. 0411/03 of 18 June 2003 composed with participation of an independent surveyor. Since the goods were insured, the insurance company paid the price of the goods contained in that container.
The Tribunal states that the parties do not have any dispute in respect to the price of the goods contained in the container delivered by the [Seller] since the [Buyer] was paid insurance compensation in the amount of the price of the goods and this sum was excluded from the calculation of the [Buyer]'s claims for recovery of the main sum in arrears.
3.4.2 From the substance of the [Buyer]'s complaint of 23 May 2004, it follows that the [Buyer] suggested that the [Seller] either refund the whole sum of the prepayment, deducting the price of the single delivered container, or that the [Seller] deliver a specified quantity of goods which shall cover the sum of the prepayment paid by the [Buyer] within an additionally fixed term. The Tribunal finds that, in accordance with art. 47 of the CISG, the suggestion by the [Buyer] can be regarded as fixing an additional period of reasonable length for performance of the [Seller]'s obligations to deliver the goods.
In its complaints of 5 June 2003 and of 26 June 2003, the [Buyer], pointing out the fundamental nature of the breaches of contract committed by the [Seller], declared the contract avoided and claimed refund of the prepayment and payment of the sum of the relevant sanctions.
The Tribunal considers that by virtue of art. 49(1) of the CISG, the [Buyer] had reasonable grounds to declare the contract avoided in respect to the delivery of the first installment of the goods provided by Supplement to the contract No. 1 without even having to obtain [Seller]'s consent to avoidance of the contract. This conclusion is additionally confirmed by section 8.3 of the contract, which contains a provision obligating the [Seller] to refund the money transferred by the [Buyer] within ninety days from the time of prepayment if, within the fixed term, the goods are not imported within the boundaries of the customs territory of the Russian Federation.
It follows from art. 81(2) of the CISG that restitution of the price of the goods is a legal consequence of the avoidance of the contract. Taking account of the above, it should also be noted that the parties, having contractually provided for the obligation to return the prepayment, anticipated the likelihood of avoidance of the contract (at least of its corresponding part) in case of non-delivery of the goods within the fixed term.
In this connection, the Tribunal cannot agree with the opinion expressed by the representative of the [Buyer] at the arbitration hearing on 11 May 2004 that the complaints of 5 June 2003 and 26 June 2003 should be regarded merely as declarations of the intent to demand the avoidance of the contract for the only reason that [Seller]'s consent to an avoidance of the contract was not obtained. Besides, [Buyer]'s declaration of avoidance of the contract complied with art. 26 of the CISG.
"A party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract."
Based on the above and taking into account the provisions of the contract and since the facts of the prepayment transfer and of the avoidance of the contract in respect to the first installment of the goods is proved as well as the absence of any objections by the [Seller] related to the main sum in arrears claimed by the [Buyer], the Tribunal concludes that [Buyer]'s claim for recovery of the main sum in arrears from the [Seller] is well-founded and is to be granted.
The [Buyer] also seeks recovery of interest for use of monetary funds calculated for the period from 21 March 2003 (date of the prepayment) to 27 October 2003 (date of the submission of the statement of action) at the rate of 14 per cent per annum. As alleged by the [Buyer], this was the minimal rate of the Russian banks at [Buyer]'s location as of the date on which the claim was brought. As explained by the [Buyer]'s representatives at the hearings of 11 May 2004, application of the rate fixed by Russian banks is well-founded since due to the improper performance by the [Seller] of its obligations under the contract, the [Buyer] had to take credits in Russian banks. The [Buyer] alleges that recovery of the interest for the use of monetary funds at the interest rate fixed by Russian banks will allow the [Buyer] to compensate for the indicated expenses related to getting credit resources.
"If the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid."
"If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74."
Based on these provisions of the CISG, the Tribunal considers that the claim of the [Buyer] for recovery of the interest has legal foundation and is to be granted from the date of payment of the prepayment for the first installment of the goods.
However, the CISG does not regulate the interest rate to be used. Pursuant to art. 7(2) of the CISG, this issue is to be settled on the basis of the national substantive law applicable as the subsidiary statute. As was indicated above, the Tribunal regards the Egyptian substantive law as the applicable subsidiary law. According to the information available to the Tribunal from the foreign sources on the Egyptian substantive law regarding the amount of the annual interest rate in respect to pecuniary obligations, the debtor is obliged to pay to the creditor interest at the rate of 5 per cent. Therefore, the Tribunal concludes that the interest is to be calculated for the period indicated by the [Buyer] at the rate of 5 per cent.
Based on the above and following arts. 84(2) and 78 of the CISG and provisions of Egyptian substantive law applied to the dispute as the subsidiary statute, the Tribunal finds that [Buyer]'s claim for recovery of the interest is well-founded and is to be granted in the amount determined with due account of the rules of the Egyptian law.
"In case of the violation of the delivery terms, the [Seller] shall pay to the [Buyer] a fine in the amount of 0.3% of the price of non-delivered goods for each day of delay."
The Tribunal notes that in section 10.4 of the contract, the parties agreed on the application of the sanctions in the event of delay in delivery by the [Seller]. However, in the present case in respect to the main part of the first installment of the goods (except for the quantity of the goods contained in the single container delivered by the [Seller], the price of which was excluded by the [Buyer] from the calculation of the penalty) the [Seller] committed a violation of another nature, and namely-- non-delivery of the goods. The Tribunal cannot agree with the [Buyer]'s position that the wording of section 10.4 of the contract covers the non-delivery of the goods by the [Seller] as well as late delivery. This conclusion is confirmed by the procedure of the calculation of the contract sanctions agreed by the parties (a fixed percentage of the price of non-delivered goods for each day of delay), which makes it possible to recover the sanctions exclusively in case the [Seller] still has an obligation to deliver the goods specifically.
The CISG does not expressly settle the issue of recovery of sanctions of the type provided for in section 10.4 of the contract. However, in the Tribunal's opinion, a general principle on which the CISG is based and which is applicable by virtue of art. 7(2) of the CISG is the principle of compatibility of admissible remedies to which parties resort in individual situations. This general principle is particularly established in a number of provisions of the CISG (including arts. 46-50, 62-64, 82-83).
The Tribunal holds that the claim of the [Buyer] for recovery of the sanctions for delay in delivery is not compatible with [Buyer]'s claim for refund of the price of the goods, which follows from the fact of avoidance of the contract in respect of the first installment of the goods established by the Tribunal .
Based on the above, the Tribunal rejects [Buyer]'s claim for recovery of contract sanctions for delay in delivery.
3.7.1 The [Buyer] claimed recovery of the loss of profit resulting from the difference between the purchase price of the goods under the contract and the average market price of the goods under the contract existent on the market at the place of destination in Russia in the middle of 2003. While calculating the loss of profit for one kind of goods, the applied difference is (in [Buyer]'s terms "increase in the price [or a mark-up]") USD 0.2 per 1 net kg and, for the other kind of goods, USD 0.3 per 1 net kg.
As a basis for the application of the increase of price, the [Buyer] presented findings of the Survey of 29 September 2003 on wholesale prices for such goods at the place of destination of goods in Russia composed by an independent consulting company as well as copies of contracts and accounting documents relating to the sale of such goods by the [Buyer] to its Russian customers in May-June 2003.
According to the explanations submitted by the [Buyer]'s representatives at the hearings of 11 May 2004, when calculating the loss of profit it is necessary to take as a basis the average prices specifically on this market, since "delivery address" of the goods in accordance with Supplement to the contract No.1 is the indicated location in Russia and the [Buyer] intended to resell the received goods with an increase of the price [mark-up] -- of which the [Seller] could not have been unaware. Besides, the [Buyer]'s representatives alleged that, for the purpose of calculation of the loss of profit, the minimal increase of price existent on the present market in the middle of 2003 was used.
The Tribunal holds that the [Seller] knew or ought to have known that the [Buyer], a trading company conducting its main activity in the indicated location in Russia, purchased goods under the contract for the purpose of subsequent resale in the Russian Federation with a profit to be earned in the form of the difference between the purchasing and the resale price of the goods. The [Seller] did not present any evidence to the contrary.
3.7.3 The [Buyer] did not exclude from the calculation of the loss of profit the quantity of the goods actually delivered by the [Seller] to the [Buyer]. The Tribunal finds this approach well-founded, since the evidence presented by the [Buyer] confirms that the goods delivered by the [Seller] were completely defective, and that it was not possible to use the goods for their intended purpose or to sell the goods to a third party (section 4 of the present award).
Accordingly, as a result of [Seller]'s failure to properly perform its obligation, the [Buyer] was deprived of the possibility to gain profit in respect to this quantity of goods by way of reselling these goods at a higher price. The [Seller] did not contest the statement of the [Buyer] that the delivered goods were completely unfit for the intended purposes and did not submit any evidence to the contrary.
The Tribunal considers it appropriate to note that insurance of the goods by the [Buyer] allowed [Buyer] to significantly reduce the total loss caused by improper performance of the contract by the [Seller].
- In Supplement to the contract No.1, the parties expressly agreed upon the description and quantity of the first installment of goods as well as its price.
- The Survey by the independent consulting company of 29 September 2003 on wholesale prices of the goods to be delivered under the contract to the indicated place of destination in Russia contains information on average prices for wholesale consignments for the period from January to September 2003.
- Taking due account of the exclusion from the calculation of the loss of profit the expenses that were not suffered by the [Buyer] -- namely, payment of customs charges, VAT and other expenses related to the purchased installment of the goods -- the increase of the price determined by the [Buyer] appears to be well-founded and in compliance with the criterion of the foreseeability provided in art. 74 of the CISG.
- Additionally, the reasonableness of the calculation of the loss of profit conducted by the [Buyer] is confirmed by the copies of the executed contracts and accounting documents between the [Buyer] and its customers attached to the statement of action, from which materials it follows that in the middle of 2003, the price at which the [Buyer] sold these goods considerably exceeded the market price, as indicated in the Survey by the independent consulting company of 29 September 2003.
The [Seller] did not submit any objections in respect to the [Buyer]'s calculation of amount of the loss of profit.
3.7.5 Based on the above and with due consideration of the fundamental principle of adversarial proceedings, the Tribunal concludes that [Buyer]'s claim for recovery of the loss of profit is to be granted in the amount claimed by the [Buyer].
The amounts of the main sum in arrears, annual interest and loss of profit to be recovered on the basis of this award correspond to the principle of compatibility of legal remedies resorted to, which is confirmed, in particular, by art. 45(1) and (2), art. 49(1), art. 78, art. 81 and art. 84(1) of the CISG.
"If an action is granted partially, the arbitration fee is imposed on the Respondent in proportion to the amount of granted claims and on the Claimant in proportion to the amount of the claims that are not granted."
Since the action is partially granted, the [Seller] is obliged to reimburse to the [Buyer] the expenses related to payment of the arbitration fee in proportion to the amount of the granted claims.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Russia is referred to as [Buyer] and Respondent of Egypt is referred to as [Seller].
** Gayane Nuridzhanyan, junior associate at the law firm Danylko, Kushnir, Solltys & Yakymyak, Attorneys & Counselors at Law, Kyiv, Ukraine <http://www.dksylaw.com/>, student at Kyiv International University with major in private international law; participant of Canada-Ukraine Parliamentary Program, member of Ukrainian team at 2005 Telders International Moot Court Competition, The Hague.
*** Alexander Morari, born in the Republic of Moldova, has taken part in a number of international moot courts as a member of the Moldovan team and as the coach of a Russian team.

References: art. 84
 art. 74
 art. 12
 art. 15
 art. 8
 Art. 16
 art. 1
 art. 1211
 art. 47
 art. 49
 art. 81
 art. 26
 art. 7
 art. 7
 art. 74
 art. 45
 art. 49
 art. 78
 art. 81
 art. 84