Data

Date:: 11-02-2000
Country:: Arbitral Award
Number:: 226/1999
Court:: Tribunal of International Commercial Arbitration at the Russian Federation
Parties:

Keywords

NON CONFORMITY OF GOODS (ART. 35 CISG) – NON–CONFORMITY WITH THE CONTRACT’S REQUIREMENTS OF THE DOCUMENTATION PRESENTED BY THE SELLER

NOTICE OF NON-CONFORMITY (ART. 39 CISG)– A WEEK LATER THE NON-CONFORMITY’S DISCOVERY IS A REASONABLE TIME

DAMAGES - CONTRACTUAL PENALTY FOR LATE PAYMENT (ART. 74 CISG)

INTEREST (ART. 78 CISG) – RIGHT TO INTEREST NOT GRANTED ON ACCOUNT OF BUYER’S LACK OF CAPITALIZATION OF THE AMOUNT OF ANNUAL INTEREST

Abstract

An Italian seller and a Russian buyer entered into a contract concerning the delivery of a certain equipment which had to be shipped to the latter. The buyer had to carry out an advance payment within a fixed time upon signing of the contract, whereas the performance of a subsequent payment had been made conditional to the presentation, by the seller, within 180 days from the date of the first payment, of a SGS certificate of readiness of the goods for shipment, issued by a neutral controlling authority.The seller, within the 180 days’ deadline, notified the buyer of the readiness of the equipment for shipment and urged the buyer to come to Italy in order to take delivery of the goods. Once in Italy, the buyer refused to sign the acceptance certificate on account of the seller's failure to provide the agreed documents. Yet even after receiving the SGS certificate from the seller,the buyer refused to perform the second payment, because its representative had not been allowed to examine the goods.

Alleging that the seller had breached the contract, the buyer claimed restitution of the advance payment made, with payment of the annual interest allegedly due for using the money of the buyer, as well as recovery of the penalties provided by the contract on account of seller’s delay to deliver the equipment. The seller objected that it had performed its obligations under the contract and that the buyer, refusing to take delivery of the goods, had breached the contract and was thus deprived of the right to recover the advance payment.

The parties agreed on the applicability of CISG.

The Tribunal found that the seller had not complied with its obligation to provide the buyer, within the contractual’s deadline, with the SGS certificate, and that even the documentation presented by the seller afterwards did not conform with the contracts’ requirements, since it had not been issued upon examination of the equipment (being thus unable to constitute evidence of the equipment’s readiness for shipment and of the conformity of the goods with the quality’s requirements of the contract), but on the basis of the expertise of technical documentation confirming the documentation’s conformity with the requirements of GOST [All-Union State Standard] on safety and sanitary requirements (the standard provided by the contract). According to the Tribunal, the buyer,by giving the seller notice of the lack of conformity after a week after discovering it, did so within a reasonable time as required by Art. 39 CISG and was thus entitled to refuse to take delivey of the goods and - under clause 3.5 of the contract - to receive back the full amount of the advance payment, along with the payment of the penalties as provided for by the contract for each day of delay.
The Tribunal however rejected the buyer’s claim to recover the annual interest for the use of its money by the seller, holding that the buyer had not capitalized the amount of annual interest and had not paid arbitration fees for that part of its claim.

Fulltext

1. SUMMARY OF RULING

1.1 Where the international sales contract provides that the seller shall present a certificate of readiness of goods for shipment issued by a neutral controlling authority, the absence of such certificate provides a basis for the buyer to refuse to take delivery of the goods.

1.2 The certificate of readiness of goods for shipment issued by a neutral authority without examination of the goods and only on the basis of the expertise of technical documentation confirming the documentation's conformity with the requirements of the standard provided by the contract, should not be considered as evidence of readiness of goods for shipment and conformity of the goods with the quality requirements of the contract.

1.3 Failure by the seller to perform its obligation to provide the buyer with pre-shipment documentation within the time established by the contract and absence of the evidence of readiness of goods for shipment constitute seller's failure to perform its obligations to deliver goods in time and, in accordance with the conditions of the contract, are admitted as reasonable claims for the recovery of the amount of advance payment made by buyer and the penalty based on that payment.

1.4 The Tribunal of International Commercial Arbitration at the Chamber of Commerce & Industry of the Russian Federation (hereinafter Tribunal) left unconsidered the claim of buyer to recover the amount of annual interest charged for seller's use of buyer's money, noting that the buyer did not capitalize the amount of interest and did not pay arbitration fees for that part of its claims.

2. FACTS AND PLEADINGS

This action was brought by Claimant [buyer], a Russian company, against Respondent [seller], an Italian company, in connection with [seller's] failure to perform its obligations as to delivery of equipment under the contract of international sale concluded between the parties on 10 August 1998.

2.1 [Buyer's position]

The [buyer]'s claims included:

recovery of the amount of advance payment paid to the [seller] and the annual interest charged for using the money of the [buyer];
recovery of the penalties provided by the contract; and
recovery of arbitration fees and expenses.
2.2 [Seller's position]

The [seller] objected to the claims of the [buyer] asserting that [seller] had performed its obligations under the contract. The [buyer] unreasonably refused to take delivery of the goods and is deprived of the right to recover the advance payment by virtue of the respective clause of the contract.

3. TRIBUNAL'S REASONING

The ruling of the Tribunal contained the following main points:

3.1 [Jurisdiction competence of the Tribunal]

The competence of the Tribunal to arbitrate the dispute follows directly from the arbitration clause of the contract between the parties. Guided by Articles 7 and 16 of the Russian Federation Law on the Tribunal of International Commercial Arbitration and §1(3) and §1(5) of the Rules of Tribunal, the Tribunal recognized its own competence to arbitrate the presented dispute.

3.2 [Applicable law]

The Tribunal takes into account that the parties directly stipulated in the contract the applicability of the Vienna Convention 1980 [UN Convention on Contracts for the International Sale of Goods (1980), hereinafter CISG] and also confirmed that during the hearings. Guided by § 13(1) of the Rules of Tribunal, the Tribunal ruled that provisions of this Convention should be applied to arbitration of the dispute between the [buyer] and the [seller] herein.

3.3 [The merits of the case]

3.3.1 [Seller's failure to perform its obligations]

While hearing the [buyer]'s claim as to recovery from the [seller] of the amount of principal debt, the Tribunal stated the following:

The [buyer] has paid to the [seller] the mentioned amount in U.S. dollars, pursuant to the performance of [buyer]'s obligation as provided in clause 3.1 of the contract, in a given time - on 29 September 1998 (within 45 days upon signing of the contract on 10 August 1998; that is documented and confirmed by the [buyer] and not disputed by the [seller]).

On 27 January 1999, the [seller] notified the [buyer] of the readiness of the equipment for shipment and proposed that [buyer] go to Italy to take delivery. With this the [seller] issued an invoice for the provided amount according to contract clause 3.3.

While being in Italy on 10 February 1999, the [buyer] did not sign the acceptance certificate, asserting in its letter to the [seller] on 16 February 1999 that the equipment and the documentation presented did not conform with the requirements of the contract.

The Tribunal states that [buyer] in its letter of 16 February 1999 did not refuse to take delivery of the equipment but asserted that, according to clause 8 of the contract, the presence of the SGS certificate on the readiness of equipment for shipment is conditio sine qua non for the next payment.

Absence of the SGS certificate on the date of notification of the readiness of equipment for shipment (27 January 1999) and on the date of presenting the acceptance certificate (10 February 1999) has not been disputed during the hearings by the [seller] and is confirmed by the fact that the SGS certificate provided by the [seller] on 17 March 1999 bore the date of 1 March 1999.

The Tribunal considers as unreasonable the [seller]'s assertion that the [buyer] lost its right to rely on a lack of conformity of the goods because [buyer] failed to notify the [seller] of the lack of conformity in reasonable time after [buyer] had discovered it, as it is provided in Article 39 CISG. The Tribunal found that notification of a lack of conformity discovered by the [buyer] on 10 February 1999, was made in [buyer]'s letter of 16 February 1999 and did not exceed a reasonable time.

The Tribunal did not find convincing the assertion of the [seller] that arrival of the [buyer] a week later than the date proposed by the [seller] made it impossible to sign the acceptance certificate as the equipment had already been dismantled. The Tribunal found that as confirmation of the readiness of equipment could have been made by the presence of the SGS certificate, which [seller] did not have either on the date of notification of readiness of equipment for shipment or on the date proposed to the buyer to visit [Italy], deferring [buyer]'s arrival by a week to a later date could not be considered as a circumstance which made it impossible for the [seller] to confirm the readiness of equipment for shipment.
Therefore, the [seller] failed to fulfill its contractual obligations within the stated term - 120 days following the date the advance payment was made - that was conditio sine qua non for the [buyer]'s next payment according to clause 3.3 of the contract.

3.3.2 [Recovery of advance payment by buyer]

The Tribunal found that on 17 March 1999 the [seller] provided to the [buyer] the pre-shipment documentation and requested the next payment. In order to fall within the terms of payment of the next installment - 7 days after the date of notification of readiness for shipment as provided in clause 3.3 of the contract - the [buyer] on 22 March 1999 notified the [seller] about its arrival to Italy on 24 March 1999 in order to take delivery of the equipment that was in accordance with clause 16 of the contract.

[Buyer] asserts and [seller] does not dispute that on 24 March 1999 the [seller] denied the [buyer]'s representative the opportunity to examine and take delivery of the equipment issued with SGS certificate.

The Tribunal did not find convincing the [seller]'s argument that the fact of readiness of equipment for shipment had been confirmed with a set of documents and therefore there was no need to examine the goods.

From the contractual provisions in clause 8, it follows that only the SGS certificate confirming the readiness of equipment for shipment may be considered as proof of readiness of equipment for shipment. However, the Tribunal found that as asserted by [buyer] and not disputed by [seller] and as follows from the language of the SGS certificate of 1 March 1999 provided by the [seller] in the set of documents, the SGS certificate was issued on the basis of the expertise of technical documentation and not upon examination of the equipment.

Thus, the SGS certificate of 1 March 1999 certifies conformity of the technical documentation with the requirements of GOST [All-Union State Standard] on safety and sanitary requirements, but cannot be considered as evidence of the readiness of equipment for shipment and its conformity with contractual requirements of quality.

The Tribunal pays attention to the fact that [seller] has not denied [buyer]'s assertion in its letter of 1 April 1999 that the copy of the certificate received on the surrender of goods to the carrier bears neither the signature of acceptance nor the seal of the carrier.

The Tribunal also finds that [seller] has not provided any convincing arguments against [buyer]'s submission that [buyer] had received information (letter of 12 April 1999) from the manufacturer of the equipment under the contract herein of the actual time of manufacturing of the equipment in late April 1999 and of the fact that the equipment would be shipped to the [seller] only upon making the payment.

The Tribunal considers that [seller]'s refusal of [buyer]'s request based on clause 16 of the contract regarding acceptance of the equipment with presence of SGS certificate on 27 January 1999 may also be considered as proof that the [seller] did not have the equipment ready for shipment on that mentioned date.

Considering all of the aforesaid, the Tribunal finds that [seller] failed to perform its contractual obligations - as stipulated in clause 8 of the contract - to provide the full set of pre-shipment documents, whereas upon notification from [buyer] on 27 January 1999 and re-notification on 17 March 1999 the [seller] failed to present the SGS certificate confirming the readiness of equipment for shipment that was conditio sine qua non for the [buyer] to make next payment.

The Tribunal finds that the absence from the [seller]'s possession of the SGS certificate, which could be issued on the basis of examination of the equipment but not on the basis of technical documentation, together with the refusal of the [buyer] to accept the goods on the basis of the SGS certificate of 24 March 1999 and the [seller]'s failure to provide any arguments against the [buyer]'s information received from the equipment manufacturer on the readiness of the equipment by the end of April 1999, evidence the fact that the [seller] did not possess the equipment ready for shipment.

Resulting from the aforesaid, the Tribunal states that [seller] cannot withhold the payments received from the [buyer] by resorting to clause 4 of the contract, which allows such withholding in the event of [buyer]'s refusal to take delivery of the equipment under the contract.

The Tribunal holds that [buyer], by paying on time the relevant advance payment in full and by all its actions and proposals to the [seller], proved [buyer]'s readiness for further performance of the contract depending upon the [seller] duly performing its obligations under the contract.

The Tribunal takes into account that under clause 3.5 of the contract, in the event of failure to deliver the goods within 180 days from the date first payment has been made, the [seller] is obliged to pay back to the [buyer]'s account the full amount of received payment under the contract.

Considering the aforesaid and guided by clause 3.3 of the contract, the Tribunal holds that [buyer]'s claim as to recovery from the [seller] of the amount of advance payment has to be granted.

3.3.3 [Recovery of penalties]

After hearing the [buyer]'s claim to recover penalties from the [seller] the Tribunal found the following:

According to clause 6.2 of the contract, in the event of [seller]'s delay to deliver the equipment, the [buyer] is entitled to charge a penalty in the amount of 0.1% of the sum already paid to the [seller] for each day of the delay.

It follows from the case materials that the [seller] did not ship the equipment specified in the contract on the date of bringing the legal action (21 June).

According to Annexes 1 and 2 to the contract, the time periods of delivery expire after 120 days from the making of the first installment of the advance payment. Thus, the sum of the penalty on 21 June amounted to 12% of the amount of advance payment that is the actual amount of the claim of the [buyer].
Considering the aforesaid and guided by clause 6.2 of the contract, the Tribunal holds that this claim of [buyer] has to be granted.

3.3.4 [Recovery of interest]
Concerning the [buyer]'s claim to recover annual interest for the use of its money [by the seller], the Tribunal holds that as the [buyer] did not capitalize the amount of annual interest and did not pay arbitration fees for this part of its claim, this claim should be left unconsidered according to § 18(2) of the Rules of Tribunal.

3.4 [Arbitration fees and expenses]

According to § 6(1) of the Rules of the Tribunal on Arbitration Expenses and Fees, the Tribunal holds that the [buyer]'s claim against the [seller] for the recovery of arbitration fees paid by the [buyer] has to be granted.}}

Source

Original language (Russian)
Rozenberg, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy [Practice of the International Commercial Arbitration Court: Scientific - Practical Comments] Moscow (1999-2000) No. 46 [228-232]}}