Source: http://cisgw3.law.pace.edu/cases/951213r1.html
Timestamp: 2017-07-22 20:41:04
Document Index: 388018425

Matched Legal Cases: ['art. 223', 'art.79', 'art. 7', 'art. 566', 'art. 223', 'art. 53', 'art. 78', 'art. 226', 'art. 66', 'art. 66', 'art. 395']

Russia 13 December 1995 Arbitration proceeding 364/1994 [translation available] Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography CISG CASE PRESENTATION Russia 13 December 1995 Arbitration proceeding 364/1994 [translation available] [Cite as: http://cisgw3.law.pace.edu/cases/951213r1.html] Primary source(s) of information for case presentation: Case text Case Table of Contents Case identification Classification of issues present Editorial remarks Citations to case abstracts, texts, and commentaries Case text (English translation)
Guide to links contained in case presentations Case identification DATE OF DECISIONS: 19951213 (13 December 1995) JURISDICTION: Arbitration; Russian Federation TRIBUNAL: Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry JUDGE(S): Unavailable CASE NUMBER/DOCKET NUMBER: 364/1994 CASE NAME: Unavailable CASE HISTORY: Unavailable SELLER'S COUNTRY:Russian Federation (claimant) BUYER'S COUNTRY: Czech Republic (respondent) GOODS INVOLVED: Unavailable Classification of issues present APPLICATION OF CISG: Yes APPLICABLE CISG PROVISIONS AND ISSUES Key CISG provisions at issues: Articles 53 ; 78 ; 79 [Also cited: Articles 7 ; 62 ] Classification of issues using UNCITRAL classification code numbers: 53A [Buyer's obligation to pay price of goods];
78A [Interest on delay in receiving price or any other sum in arrears];79B [Impediments excusing party from liability for damages] Descriptors: Price ; Letters of credit ; Interest ; Exemptions or impediments Go to Case Table of Contents Editorial remarks Unavailable Go to Case Table of Contents Citations to case abstracts, texts, and commentaries CITATIONS TO ABSTRACTS OF DECISION (a) UNCITRAL abstract: Unavailable (b) Other abstracts Unavailable CITATIONS TO TEXT OF DECISION Original language (Russian): Rozenberg, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy [Practice of the International Commercial Arbitration Court: Scientific - Practical Comments] Moscow (1997) No. 66 [183-187] Translation (English): Text presented below CITATIONS TO COMMENTS ON DECISION Unavailable Go to Case Table of Contents Case text (English translation) [second draft]
Translation [*] by Alexander Morari [**] 1. SUMMARY OF RULING 1.1 As applied to contractual obligations between the [Seller] and the [Buyer], the Bank, in which the [Buyer] opened
a letter of credit in favor of the [Seller], shall be considered a third party acting on behalf of the [Buyer]. Therefore, in
accordance with art. 223 of the Civil Code of the Russian Federation, 1964, the [Buyer] is to be held liable for non-performance or inappropriate performance by the Bank of its obligations in connection with the letter of credit.
1.2 Opening of the letter of credit per se does not satisfy a pecuniary obligation to pay for the delivered goods, since
payment was not made under the letter of credit.
2.1 The contract between the [Seller] of the Czech Republic and the [Buyer] of the Russian Federation was concluded
on 24 September 1991 in Moscow, Russia. According to the contract, payment of the price of the delivered goods had to be made by way of opening of an
irrevocable letter of credit at a bank in [Seller]'s country within a month after the contract was signed by the parties.
Duration of the letter of credit was to be 60 days. According to the contract, the [Seller] had an obligation to deliver the
goods within two months after opening of the letter of credit. 2.2 On 22 October 1991 the [Buyer] opened an irrevocable confirmed letter of credit. The term of delivery was settled
at two months. The [Seller] delivered the goods in December 1991.
Due to the circumstances at hand, the [Seller] asked to have the duration of the letter of credit extended.. With consent
of the [the Bank for Foreign Economic Affairs of the USSR (hereinafter the Vnesheconombank)], the terms of the letter
of credit were changed, and its duration was extended to 31 January 1992. Yet, notwithstanding the fact that the documents necessary for the letter of credit were handed over to the bank in
[Seller]'s country, the payment under the letter of credit was not made. The reason why the letter of credit could not be
used, according to [Seller]'s statement, was that the funds were "frozen" by the Vnesheconombank. At the arbitration proceedings, the parties reached an agreement that under favorable circumstances the payment could
have been made by 10 January 1992. 2.3 In its statement of defense, the [Buyer] submits that, in accordance with the concluded contract, it opened an
irrevocable letter of credit. As soon as the letter of credit was opened, a certain sum was written off the [Buyer]'s
account, equal to the sum for which the letter of credit was opened. In its Regulation of 13 January 1992 No. 2172-1, the Presidium of the Supreme Council of the Russian Federation
suspended use of currency funds. As a result, this led to the appearance of commercial debt of the Vnesheconombank
in connection with payment for the goods under the said contract. The [Buyer] informed the [Seller] that the
Vnesheconombank wrote off his account the sum of the letter of credit for subsequent payment for services provided
and that all further transactions related to payments under the contract would be effected by the Vnesheconombank.
The [Buyer] sent to the Vnesheconombank an official message regarding [Seller]'s claim concerning non-payment of the
invoice for the delivered equipment. Also, the [Buyer] makes a reference to the Declaration of the Russian Federation
Government "On re-structuring of commercial debt of the ex-USSR to foreign creditors" of 27 September 1994, which
provides that the Russian government is ready to accept legal responsibility of legal persons which appeared in the
period starting from 28 October 1991 up to 31 March 1993, and which, unconditionally, is subject to satisfaction,
including the debts arising out of revocable and irrevocable letters of credit (clause 6.4.4 of the Declaration). Taking into
account the above mentioned circumstance as well as art.79 of the Vienna Convention 1980 [UN Convention on
Contracts for the International Sale of Goods (1980), hereinafter CISG], the [Buyer] submits that all claims out of the
present action should be brought against the Vnesheconombank. 3. TRIBUNAL'S REASONING The Tribunal ruled that [Seller]'s claims are to be granted. The ruling of the Tribunal was based on the following
reasoning. 3.1 [Jurisdiction of the Tribunal] The contract concluded between the parties in Moscow on 24 September 1991 contains an [arbitration] clause
providing that all disputes between the parties shall be referred to the jurisdiction of the Arbitration Court at the USSR
Chamber of Commerce and Industry. According to section 4 of Tribunal's Regulations, the Tribunal is the successor of
the Arbitration Court at the Russian Federation Chamber of Commerce and Industry and is entitled, in particular, to
arbitrate disputes out of parties' agreement to refer their disputes to the jurisdiction of the Arbitration Court at the USSR
The Tribunal's jurisdiction to arbitrate the present dispute is also provided for in art. II(1) of the Moscow Convention,
1972. Based on the above, bringing the action before the Tribunal as a competent body for arbitration is legally justified. 3.2 [Applicable law]
Taking into account that the Russian Federation and the Czech Republic are State parties to the CISG, the Tribunal
concluded that CISG is applicable to the relations between the parties. In accordance with art. 7 CISG, all questions concerning matters governed by the CISG, which are not expressly settled
in it are to be settled in conformity with the general principles on which it is based, and when such principles are absent,
Subject to art. 566 of the Civil Code of the Russian Soviet Federative Socialistic Republic, 1964 [hereinafter, Russian Civil
Code, 1964], Russian substantive law is applied as subsidiary law to the relations under the present contract since Russia
is the place of conclusion of the contract of 24 September 1991. 3.3 [Ruling on the merits of the case]
The parties do not have any dispute as to whether the [Seller] duly performed its contractual obligation to deliver
the goods, as well as to the price of the goods to be paid. At the same time, the [Buyer] refers to non-performance of the
obligation to pay for the goods committed by the Vnesheconombank and submits that this circumstance is a valid
ground for the [Buyer] to be released from the obligation to pay the price of the contract. The burden of proof of
existence of such circumstances, exempting from any liability under the concluded contract, rests on the [Buyer]. In the Tribunal's opinion, the [Buyer] failed to prove the existence of the circumstances provided for in the contract
(more specifically: in the force-majeure clause of the contract). From the point of view of contractual obligations between
the parties, the Vnesheconombank is a third party. In accordance with art. 223 of the Russian Civil Code, 1964, when the debtor imposes upon a third party the obligation
to perform its contractual obligation, the debtor is liable for non-performance or inappropriate performance of its
obligations by the third party. Opening of the letter of credit per se does not lead to termination of a pecuniary obligation
to pay for the delivered goods, as payment was not made under the letter of credit.
As for [Buyer]'s reference to the Declaration of Russian Government "On re-structuring of commercial debt of the ex-USSR to foreign creditors" approved by a Government Regulation of 24 September 1994 No.1107, the Tribunal states that
this declaration provides that the Russian Government is ready to accept legal responsibility for commercial debts out
of obligations of the USSR provided foreign creditors fulfill a number of conditions and only after the Russian
Government approves all technicalities and financial conditions of re-structuring of commercial debts of the ex-USSR.
In the Tribunal's opinion, the this Regulation of the Russian government entitles the [Seller], under certain
circumstances, to address the Russian government directly in respect of liquidation of the debt. Yet, this fact does not
amount to an automatic exemption of the [Buyer] from its obligation to liquidate the debt out of the contract. Taking into account the above and based on provisions of the contract, as well as on art. 53 and 62 CISG, the Tribunal
ruled that the [Buyer] must pay the [Seller] the claimed sum as payment of the debt out of the contract. 3.4 [Interest on the debt]
Turning to [Seller]'s claim for recovery of the interest on the overdue debt, the Tribunal states that the [Seller] is
entitled to this claim by virtue of art. 78 CISG. However, the CISG does not provide for the interest rate to be applied to
the debt in question. Therefore, the Tribunal applied the relevant provisions of the Russian substantive law, which is
the subsidiary law applicable to the present dispute. According to art. 226 of the Russian Civil Code, 1964, a debtor who failed to perform a pecuniary obligation on time shall
pay the interest on the overdue sum at the rate of 3%. On the other hand, art. 66 of the Fundamentals of the Russian Civil
Legislation of 1991 [hereinafter, Fundamentals 1991], which came into force on 3 August 1992, provides for an interest
rate of 5% for overdue payment.
Further, art. 66(3) of the Fundamentals 1991, provides a possibility of payment of the interest for making use of the
monetary funds of another when a pecuniary obligation out of entrepreneurial activity is overdue as well as other
pecuniary obligations of legal persons. The burden of proof of the amount of interest for making use of another
company's funds rests on the [Seller]. During the arbitral proceedings, the [Seller] submitted no such proof. Part I of the Russian Civil Code, which came into force on 1 January 1995, does not provide for recovery of a fixed rate
of interest provided by law. In accordance with art. 395 of Part I of the Russian Civil Code, for the use of the another company's money as a result
of its illegal retention the interest on the total amount of these funds shall be due. The interest rate is to be determined
by the discount rate of the bank interest existing at creditor's place of business. The burden of proof of the amount of
the discount rate rests on the creditor. As was indicated above, the [Seller] failed to submit such proof. The parties agree on the fact that the payment for the delivered goods had to be received by the [Seller] no later than
10 January 1992. Therefore, the [Buyer] must pay to the [Seller] the interest at the rate of 3% for the period starting from
11 January 1992 to 2 August 1992; and at the rate of 5% from 3 August 1992 to 31 December 1994. FOOTNOTES * All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the Czech Republic is referred to as [Seller]; Respondent of Russian Federation is referred to as [Buyer]. ** Alexander Morari, born in the Republic of Moldova; has taken part in a number of international moot courts as a member of Moldovan Team and as the coach of a Russian Team. Go to Case Table of Contents Pace Law School Institute of International Commercial Law - Last updated November 9, 2006 Comments/Contributions Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography