Source: http://cisgw3.law.pace.edu/cases/050919u5.html
Timestamp: 2019-04-19 14:57:14+00:00

Document:
The International Commercial Arbitral Tribunal at the Ukrainian Chamber of Commerce and Trade (hereinafter Tribunal) having considered the action brought by [Seller], a Ukrainian firm, against [Buyer], a Swiss firm, for the recovery of US $4,315,472.83 including US $4,274,970 of the main sum in arrears for delivered goods and US $40,502.83 as a penalty and having considered the counterclaim of the [Buyer] against [Seller] for the recovery of US $7,754,093.82 as a penalty for delay in delivery of the goods, has decided the following.
"Any dispute arising out of the present contract or in connection with its performance shall be submitted to the ICA Tribunal at the Ukrainian Chamber of Commerce and Trade for the adjudication and passing of final judgment. The substantive and procedural law of Ukraine shall be applied to the dispute. The place of the arbitration shall be Ukraine, Kyiv. The language of the arbitration proceedings shall be Russian. The Tribunal shall be composed of three arbiters. The Tribunal's award shall be final and binding upon the parties."
The claims are based on Contract # 014 of 9 December 2004 according to which [Seller] undertook to deliver agglomerative iron ore (hereinafter, goods) and the [Buyer] undertook to accept and pay for the goods within 30 bank days from the delivery date against an invoice sent via fax and, in case of payment delay, within seven days from the [Seller]'s payment request.
- As of 1 January 2005, during the period from 9 December 2004 till 1 January 2005, [Seller] has sent to the [Buyer] goods in the amount of US $1,939,665 and the [Buyer] has paid the cost of the goods in the amount of US $800,000 with a difference in the amount of US $1,139,665 in favor of the [Seller].
- As of 1 February 2005, during the period from 9 December 2004 till 1 February 2005, the [Seller] has delivered to the [Buyer] goods in the sum of US $11,577,790 (in particular, in December in the amount of US $1,939,655 and in January in the amount of US $9,638,125) and the [Buyer] has paid to the [Seller] in December US $800,000 and in January US $5,672,410, in total US $6,472,410 with a difference in the amount of US $5,105,380 in favor of the [Seller].
According to the Cargo Customs Declarations, during the period from February to March 2005, the [Seller] has delivered to the [Buyer] goods in the amount of US $8,178,345 and the [Buyer] has paid the [Seller] US $9,008,755 in February which is confirmed by the bank papers.
Thus, in total under Contract # 014, as of March 2005, the [Seller] has delivered to the [Buyer] goods in the sum of US $19,756,135 and the [Buyer] has paid for these goods US $15,481,165. [Buyer]'s debts to the [Seller] therefore amounted to US $4,274,970.
- According to the post stamp in the high-value correspondence delivery registry and insured letter registry on 8 April 2005, the [Seller] sent to the [Buyer] request notification of 8 April 2005 #5302/560 on acquittance of the debt in the amount of US $1,413,719 by 15 April 2005 advising the [Buyer] about liability and informing [Buyer] that all the documents needed for the satisfaction of the demand are available.
- According to the post stamp in the insured letter registry of 20 April 2005, the [Seller] sent to the [Buyer] request notification #2 of 19 April 2005 #5302/634 on acquittance of the debts in the amount of US $1,040,445 within seven days term notifying in advance about [Buyer]'s liability in case of payment delay and stating that [Buyer] has all the necessary documents.
- According to the post stamp in the insured letter registry of 20 April 2005, the [Seller] sent to the [Buyer] request #3 of 20 April 2005 #5302/637 on acquittance of the debts in the amount of US $917,385 within seven days term notifying in advance about [Buyer]'s liability in case of payment delay and stating that [Buyer] has all the necessary documents.
- According to the post stamp in the insured letter registry of 26 April 2005, the [Seller] sent to the [Buyer] request #4 of 25 April 2005 #53-02/659 on acquittance of the debts in the amount of US $903,350 within seven days term notifying in advance about [Buyer]'s liability in case of payment delay and stating that [Buyer] has all the necessary documents.
In total, requests for acquittance of the debts were presented in the sum of US $4,274,970.
Responding by fax letter #1671 of 19 April 2005, the [Buyer] notified the [Seller] that the [Seller] had made a mistake in its letter #5302/560 of 8 April 2005 since Bill #61/266 of 18 April 2005 was paid for by the [Buyer] in full in the amount of US $132,545. Bill #61/239 of 14 February and Bill #23/12 of 6 January 2005 (in part) are unpaid. [Buyer] stated that it did not refuse to pay for the goods received under Contracts #015 and # 014 signed on 9 December 2004 and would pay the bills as soon as they are confirmed.
As for the penalty for the payment delays, the [Buyer] stated that it will consider these demands after fulfillment of the [Seller]'s contract obligations in respect to further delivery of the goods. The [Buyer] drew [Seller]'s attention to the intention of the [Buyer] to pay for the delivered goods by 1 May 2005.
Since an indebtedness amounting to US $4,274,970 was not paid by the [Buyer] by 1 May 2005, on 6 May 2005 the [Seller] filed with the Tribunal an action for the recovery from the [Buyer] of the main sum in arrears in the amount of US $4,274,970 and a penalty for delay in payment in the amount of US $40,502.83. And, by resolution of 6 May 2005 by the President of the Tribunal, the Tribunal initiated proceedings in the case.
On 12 July 2005, the Tribunal received a statement of defense in which [Buyer] objected to [Seller]'s claims stating that [Seller] had not provided the [Buyer] with the complete package of documents necessary for the payment of the goods which caused the payment delay. Moreover, the parties had not agreed on the amount on the basis of which the penalty shall be charged. Furthermore, [Buyer] alleged that the [Seller] calculated the amount of the penalty groundlessly from 5 April 2005 as the first request was received by the [Buyer] on 13 April 2005.
In addition to its statement of defense, the [Buyer] lodged a counterclaim for the recovery from the [Seller] of a penalty for 54 days delay of delivery of the goods in February-April 2005 in the sum of US $7,754,093.82.
On 25 July 2005, the Tribunal received a letter in which [Seller] specified the main sum in arrears claimed from the [Buyer]. [Seller] claimed the same total amount stated in its action, and also demanded to recover from the [Buyer] US $724,657.65 as a penalty and US $518,786.79 in losses.
After the Tribunal was composed, proceedings were appointed on 19 September 2005.
On 12 September 2005, the Tribunal received [Seller]'s statement of defense in respect to the [Buyer]'s counterclaim. In its statement of defense, [Seller] objected to [Buyer]'s counterclaim, stating that according to art. 692(5) of the Civil Code of Ukraine, in connection with the [Buyer]'s indebtedness as of April 2005 in the amount of US $4,274,970 for the goods delivered earlier, the [Seller] lawfully ceased delivery of the goods. In connection with non-satisfaction of the demand to pay the debts by 5 May 2005 on the basis of art. 695(2) [Seller] unilaterally repudiated the contract.
1. The parties have subjected their relations to the substantive law of Ukraine (para. 8 of Contract # 014 of 9 December 2004).
- For the period February-March 2005 in the amount of 233 667 metric tons priced at US $8,178,345 and the [Buyer] paid in February 2005 US $9,008,755.
Thus, in all the [Buyer] has received goods in the sum of US $19,756,135. The [Buyer] has paid as of 31 March 2005 US $15,481,165 and has not paid US $4,274,970.
3. [Seller] has addressed the [Buyer] many times with request notifications on acquittance of the debts within a seven-day term, in particular on 8 April 2005 #5302/560 in the amount of US $1,413,790; on 19 April 2005 #5302/634 in the amount of US $1,040,445; on 20 April 2005 #5302/637 in the amount of US $917,385; on 25 April 2005 #5302/659 in the amount of US $903,350.
4. In its letter of 19 May 2005 #1671, the [Buyer] has admitted the indebtedness with regard to the payment of the cost of the delivered goods, and under Contract # 014 of 9 December 2004 as well. [Buyer] promised to pay the sum by 1 May 2005.
5. Since [Buyer] had not paid the cost of the goods in the amount of US $4,274,970 in spite of the numerous demands of the [Buyer], on 6 May 2005 [Seller] lodged an action with the Tribunal for the recovery of the debt amounting to US $4,274,970 and claimed a penalty for the payment delay amounting to US $40,502.83. The penalty was calculated on the basis of para. 6.3 of the Contract in the amount of 0.5% for each late day during the period from 5 April till 5 May 2005; however, it is not to exceed double the bank rate of the National Bank of Ukraine as of the date of calculation (18% per annum).
6. At the same time, in its action [Seller] claimed avoidance of Contract # 014 of 9 December 2004.
- The seller may declare the contract avoided: (a) if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or (b) if the buyer does not, within the additional period of time fixed by the seller perform his obligation to pay the price or take delivery of the goods, or if he declares that he will not do so within the period so fixed (art. 64(1)(a) and (b)).
According to para. 5.2 of Contract # 014, [Buyer] is obliged to pay for delivered consignments of the goods within 30 days from the delivery date of each carload of goods against an invoice sent by the [Seller] by fascimile.
The [Seller] fixed for the [Buyer] a term of seven additional days for the fulfillment of its obligations. A seven-day term in the sense of art. 63 of the UN Convention on Contracts of International Sale of Goods is reasonable since, according to art. 530 of the Civil Code of Ukraine, where the term for the fulfilment of the obligations of the debtor is not determined or is determined by the time of the request for payment, a seven days term is foreseen from the time when the request was presented.
Hence, [Seller] has applied all the possible means of legal protection of the payment of the debts by the [Buyer]; however. they were not effective. Therefore, on the basis of art. 64 of the UN Convention on Contracts of International Sale of Goods [Seller], declared the Contract avoided. By virtue of the mentioned legal norm, the [Seller] would have lost its right to declare the contract avoided if the [Buyer] had paid the debt before that declaration.
[Buyer] was notified of [Seller]'s declaration of avoidance of Contract # 014 on 14 June 2005. This is confirmed by the notification of delivery to [Buyer] of the registered letter with signature of the [Buyer] and post official and stamp of the Swiss post. (Registered letter included with the action papers).
7. After the unilateral avoidance of the contract by the [Seller], the [Buyer] initiated step-by-step payment of the indebtedness transferring, on 15 June 2005 US $1,259,936; on 23 June 2005 US $772,863; on 20 July 2005 US $1,242,171; on 25 July 2005 US $1,000,000.
Thus, [Buyer] has paid the debts for the goods received under Contract # 014 of 9 December 2004 and therefore the case with regard to the main sum in arrears in the amount of US $4,274,970 shall be discontinued. Expenses on the payment of the arbitration fee are to be imposed on the [Buyer] in connection with satisfaction of the [Seller]'s well-founded claims after the action was brought.
8. [Buyer]'s reference to the conditions of the Contract (para.2.7) according to which "none of the reasons including payment of the losses, penalty or fine to the [Buyer] shall entitle the [Seller] to refuse from the delivery of the guaranteed quantity of goods" cannot be taken into consideration. [Seller] has properly fulfilled its obligations in respect to the delivery of the goods and there were no reasons for payment of the losses, penalty or fine by the [Seller] to the [Buyer]. Suspension of delivery of the regular goods consignment by the [Seller] was lawful since, by virtue of art. 692(5) of the Civil Code of Ukraine, [Seller] is entitled to suspend delivery of the regular consignment of the goods until receipt of full payment for the goods delivered earlier.
In accordance with art. 611 of the Civil Code of Ukraine, the legal consequence of the breach of an obligation is termination of the obligation due to the unilateral refusal from the obligation if provided by the agreement or by law.
The law (art. 695(2) of Civil Code of Ukraine) establishes that if the [Buyer] has not fulfilled payment for the sold and delivered goods within the terms fixed by the contract, seller is entitled to unilaterally refuse to fulfill the contract.
Furthermore, art. 9(2) of the Civil Code of Ukraine foresees that laws can provide the particulars of the regulation of property relations in the economic sphere. According to art. 220(2) of the Economic Code of Ukraine, where due to delay of the debtor in fulfilling the debtor's payment obligation, the contract is no longer of interest to the creditor, the creditor is entitled to repudiate the contract and claim reimbursement of losses.
The legal norms contained in art. 695(2) of the Civil Code of Ukraine and art. 220(2) of the Economic Code of Ukraine are of a peremptory nature and do not subordinate seller's right to the conditions of the contract.
9. [Buyer]'s arguments that it did not have the complete package of documents indicated in paras 5.2 and 5.5 of the Contract cannot be taken into account. In its letter of 19 April 2005 #1671 addressed to [Seller], [Buyer] did not refer to that and the mistake in Bill #61/266 of 18 February 2005 has not changed the sum of the main arrears amounting to US $4,274,970 which was in fact paid by the [Buyer] after the [Seller]'s action was lodged and after it came to [Buyer]'s knowledge that [Seller] has unilaterally refused further performance of the contract.
[Buyer] has made payments in December 2004, in January and February 2005 and it did not present any evidence of the non-receipt of the full package of documents from the [Seller] or evidence that [Buyer] had demanded such documents from the [Seller].
10. According to the Law of Ukraine of 23 September 2004 "On Payment Procedure in Foreign Currency", earnings of a resident for goods sold shall be entered in the resident's bank account not later than within 90 days from the date of the customs clearing of the exported goods. In case of delay [Seller], is obliged to pay to the state a penalty in the amount of 0.3% of the lost profit for each late day or, in this case, US $12,825 daily.
[Buyer]'s interpretation of para. 2.7 of the Contract contradicts to the Ukrainian legislation and international trade custom since, according to [Buyer]'s interpretation, [Buyer] would receive goods from the [Seller] termlessly and without payment.
11. In fact [Buyer] used [Seller]'s funds in the amount of US $1,259,936 till 15 June 2005, in the amount of US $772,863 till 23 June 2005, in the amount of US $1,242,171 till 20 July 2005 and in the amount of US $1,000,000 till 25 July 2005 although [Seller] claims to recover the penalty till 5 May 2005, i.e., till the moment of the unilateral avoidance of the contract.
Action claims with regard to the recovery of the payment of a penalty for delay are lodged according to the calculation presented by [Seller] on the basis of para. 6.3 of the Contract in the amount of US $40,502.83.
[Buyer]'s objections with regard to the period for which penalty is calculated from 5 April 2005 in respect to five positions while [Buyer] has received request notification on 18 April 2005 is taken into consideration partially since, according to para. 6.3 of the Contract, the penalty is calculated from the day when the claim was lodged and not from the day of its receipt.
The request was delivered to the post office on 8 April 2005, therefore the penalty is to be calculated not from 5 April but from 8 April 2005 which is US $611.28 less than is mentioned in the [Seller]'s calculations (as for first position, US $180.30 less; as for the second position, US $124.86 less; as for the third position, US $122.44 less, as for the fifth position US $120.58 less; and as for the ninth, position US $63.10 less).
Towards the total sum of the [Seller]'s payment claims, US $4,315,472.83, a penalty in the amount of US $40,502.83 constitutes 0.9385%. The arbitration fee paid in the amount of US $36,177.36 in relation to claims for penalty recovery constitutes 0.9385% or US $339.52. The satisfied amount of claimed penalty is US $39,891.55 or 98.49%.
Under this decision in respect to the penalty claims, payment of the arbitration fee is imposed on the [Buyer] in the amount of US $334.39 and on the [Seller] in the amount of US $5.13 (25.93 UAH).
12. [Buyer]'s counterclaims for the recovery of the penalty from [Seller] in the amount of US $7,754,093.82 for delivery delay of goods to the sum of US $28,718,865 for 54 days from 7 May 2005 are not admitted by the [Seller].
As mentioned above, [Buyer] owed a debt to the [Seller] for the goods delivered earlier in the amount of US $4,274,970 which was by stages extinguished on 15 June 2005 in the amount of US $1,259,936, on 23 June 2005 in the amount of US $772,863, on 20 July 2005 in the amount of US $1,242,171, and on 25 July 2005 in the amount of US $1,000,000.
Hence, [Buyer] has liquidated the debts finally on 15 July 2005 paying US $1,000,000.
Thus, as of the days when [Buyer] claimed recovery of the penalty from the [Seller] for the delay in delivery of the goods, [Buyer] owed a debt to [Seller]. According to art. 692(5) of the Civil Code of Ukraine, [Seller], is entitled to suspend delivery of these goods until the full payment for the goods delivered earlier. Therefore, there are no reasons to satisfy the [Buyer]'s counterclaims for the recovery of the penalty from the [Seller] in the amount of US $7,754,093.82.
13. Since [Seller]'s avoidance of the contract was lawful, the issue is not to be submitted to the Tribunal's consideration.
14. According to para.1, Section V of the Regulations on Arbitration Fees and Expenses, the arbitration fee is imposed on the adverse party.
15. [Seller]'s application of 12 September 2005 #53-02/1373 on adding to the action claims and recovery from the [Buyer] a penalty in the amount of US $724,657.65 and losses in the amount of US $518,786.79 are not taken into consideration since the arbitration fee for these claims was not paid.
[Seller] as well has not adduced evidence of the losses incurred stating that this claim is based on the Law of Ukraine "On Payment Procedure in Foreign Currency" although losses have not yet been incurred. Moreover, while increasing the amount of the penalty, [Seller] has not taken into account that on 6 May 2005 it repudiated the contract under which the penalty is a contract liability.
- Reimbursement of the arbitration expenses in the amount of US $36,172.23.
In total, the amount of the satisfied claims is US $76,063.78.
An arbitration fee in the amount of 25.93 UAH (US $ 5.13) is imposed on the [Seller].
Proceedings with regard to the main sum in arrears in the amount of US $4,274,970 are discontinued as this claim was satisfied after the action was lodged.
[Seller]'s application of 12 September 2005 #53-02/1373 on alteration of the action claims and recovery from the [Buyer] of a penalty in the amount of US $724,657.65 and losses in the amount of US $518,786.79 shall not be taken into consideration since the arbitration fee for these claims was not paid.
[Buyer]'s counterclaim on recovery of a penalty in the amount of US $7,754,093.82 against [Seller] is rejected as unsound. Expenses on the arbitration fee related to the counterclaim in the amount of US $47,862.28 shall be imposed on the [Buyer].
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Ukraine is referred to as [Seller] and Respondent of the Switzerland is referred to as [Buyer].

References: art. 692
 art. 695
 art. 63
 art. 530
 art. 64
 art. 692
 art. 611
 art. 9
 art. 220
 art. 695
 art. 220
 art. 692