Tribunal of International Commercial Arbitration of the Ukrainian Chamber Commerce and Trade - Particulars of the case - Position of the Parties - Opinion of the Tribunal - Award PARTICULARS OF THE CASE Award of 27 October 2004 Translation [*] by Gayane Nuridzhanyan [**] The International Commercial Arbitral Tribunal at the Ukrainian Chamber of Commerce and Trade (hereinafter Tribunal) having considered the action brought by Claimant [Seller], a Ukrainian factory, against Respondents -- [Buyer], a Hungarian business firm, and [Payer], a Hungarian firm -- for the recovery of US $5,760.37 including US $3,524.58 (the cost of the delivered but unpaid goods) and US $2,235.79 (losses related to the payment of a fine levied by the Ukrainian tax authorities for the untimely return of the currency from abroad), has decided the following. On 28 March 2003, the [Seller] and the [Buyer] concluded Contract # 23 according to which the [Seller] undertook to sell and to deliver to the [Buyer] goods (lavatory paper) by railway on the terms DAF - Ukrainian border and by car transport on FCA terms (INCOTERMS 2000). The description of the goods, quantity of the consignment to be delivered, delivery requisites, size, price in US dollars or EUROs were determined by the parties in the specifications attached to Contract # 23 which constituted an integral part of the Contract. The [Buyer] undertook to pay 100% of the cost of the goods in advance. On 2 September 2003, the [Seller] pursuant to its obligations under Contract # 23 of 28 March 2003 delivered to the [Buyer] goods in the total sum of US $3,524.58 by car transport on FCA terms. The [Buyer] accepted the goods delivered in the total sum of US $3,524.58. However, the [Buyer] did not pay for the goods. In its letter of 2 December 2003, the [Seller] asked the [Buyer] to pay the US $3,524.58 for the goods delivered. At the same time, the [Seller] notified the [Buyer] that, starting from 3 December 2003, [Seller] would have to pay a fine for failure to return currency from abroad in time. The request of the [Seller] for payment was not satisfied by the [Buyer]. On 28 January 2004, the [Seller], [Buyer] and [Payer], a Hungarian firm, concluded Supplement # 3 to Contract # 23 according to which the [Payer] undertook to pay to the [Seller] the cost of the goods delivered to the [Buyer] under Contract # 23 in the amount of US $3,524.58 and to pay the fine for the payment delay in the amount of US $645. However, the obligations undertaken by the [Payer] were not fulfilled. Since neither [Buyer] nor [Payer] (taking into consideration Supplement # 3 of 28 January 2004 to Contract # 23) have paid off the debts under Contract # 23 of 28 March 2003, the [Seller] in its complaint requested the Respondents to pay off at the earliest possible date the
main sum in arrears of US $3,524.58 as well as to compensate the losses [Seller] suffered which, as of 15 March 2004, constituted US $1,100. At the same time, the [Seller] notified the [Buyer] that in case of [Buyer]'s failure to transfer money to [Seller]'s account, the latter would have to lodge a claim with the Tribunal. Since [Seller]'s complaint was left unanswered, on 6 July 2004 the [Seller] lodged its claim with the Tribunal against the [Buyer] and [Payer] for the recovery of US $5,760.37 including US $3,524.58 (the cost of the delivered but unpaid goods) and US $2,235.79 (the loss related to the payment of the fine levied by the Ukrainian tax authorities for the untimely return of currency from abroad). The proceedings in the case were commenced by virtue of the Resolution of the Tribunal's President of 6 July 2004. On 25 August 2004. the Tribunal received the statement of defense of the [Buyer] in which the latter stated that, in its opinion, the claims lodged by the [Seller] are unfounded since: - The [Buyer] has conceded to the [Payer] the right to claim the debt in the amount of US $25,000 plus interest at the bank rate according to the award of Rovno Arbitration Court of 21 June 1999; - Upon receipt of the official notification from Rovno Arbitration Court on assignment of the creditor's rights, [Payer] shall pay the sum of US $4,169.58 to the [Seller] and shall receive the right to further implementation of the Contract; - [Payer] has notified the [Seller] of its capability to pay the [Buyer]'s debts related to the deliveries. After this notification, Supplement # 3 to Contract # 23 of 28 March 2003 wassigned with respect to the assignment under the Contract; - As of the moment of composition of the statement of defense, the [Payer] has not received any response from the Rovno Arbitration Court; - The [Payer] is ready to consider the issue about payment of the [Buyer]'s debts from the moment of the official receipt of the notification on assignment of right with regard to the debt obligations in accordance with the award of the Rovno Arbitration Court of 21 June 1999 in favor of the [Payer]. Moreover, the [Payer] has presented to the Tribunal the act of consent of 16 November 2003 (act of mutual accounts revision with regard to the debt assignation) which was concluded between the [Payer] and the [Buyer]. After the composition of the Tribunal was set, hearings were appointed on 27 October 2004. During the hearings the [Seller]'s representative has confirmed its claims in full. OPINION OF THE ARBITRAL TRIBUNAL Taking into consideration that: 1. The subject of the present proceedings is a dispute which has arisen under Sales Contract # 23 of 28 March 2003 concluded between the [Seller] and the [Buyer]. The dispute is related to
the obligations of the [Payer], to pay the cost of the goods delivered by the [Seller] to the [Buyer] under Contract # 23 of 28 March 2003 in the amount of US $3,524.58 and the penalty for the payment delay in the amount of US $645 according to Supplement # 3 of 28 January 2004 (assignment with regard to the Contract and payment) to Contract # 23. The competence of the Tribunal to adjudicate the present dispute is based on the arbitration clause which is contained in S.7 of Contract # 23 with due regard to Supplement # 3 of 28 January 2004 to Contract # 23 and art. 7(2) of the Law of Ukraine "On International Commercial Arbitration". 2. There is no agreement of the parties on the law applicable to Contract # 23. According to art. 28(2) of the Law of Ukraine "On International Commercial Arbitration", the Arbitration Tribunal shall apply the law determined on the basis of the conflict of laws rule which it regards applicable if a different arrangement is not agreed to by the parties. In the Tribunal's opinion, it is reasonable to apply conflict of laws norms of Ukrainian legislation. According to art. 6 of the Law of Ukraine "On External Economic Activity", in the absence of the agreement of the parties on the applicable law, in a sales contract the law of the country in which the seller is located shall be applied. Since under Contract # 23 of 28 March 2003, [Seller] is a Ukrainian business, the substantive law of Ukraine shall be applicable to the legal relations in question. 3. On 2 September 2003, the [Seller] in pursuance of its obligations under Contract # 23 of 28 March 2003 delivered to the [Buyer] goods in the total amount of US $3,524.58 which is confirmed by Cargo Customs Declaration (CMR), Specification # 1 of 2 September 2003 (supplement to Contract # 23 of 28 March 2003) which is an integral part of the Contract. 4. The [Buyer] has accepted the good delivered by the [Seller] in the total amount of $3,524.58, however, the [Buyer] has not paid for the goods. 5. [Seller]'s request to pay off the debts expressed in the letter of 2 December 2003 was left without any consideration by the [Buyer]. 6. On 28 January 2004, the [Seller], the [Buyer] and [Payer] concluded Supplement # 3 to Contract # 23 of 28 March 2003 (assignment with regard to the Contract and payment) according to which the [Payer] undertook to pay the [Seller] US $4,169.58 including the price for the goods delivered to the [Buyer] in the amount of US $3,524.58 and the penalty for the payment delay in the amount of US $645. 7. The above mentioned actions of the parties comply with art. 520 of the Civil Code of Ukraine, according to which a debtor with regard to an obligation can be substituted by the other person (transfer of the debt) only by consent of the creditor. Thus, according to Supplement # 3 of 28 January 2004 to Contract # 23 of 28 March 2003 (assignment with regard to the Contract and payment) with the consent of the creditor, [Seller], the debtor, [Buyer], was substituted by the [Payer]. 8. However the [Payer] has not paid off to the [Seller] the indebtedness owed by the [Buyer] to the [Seller].
9. In its statement of defense received by the Tribunal on 25 August 2004, the [Payer] has acknowledged that it will pay the sum of US $4,69.58 in favor of the [Seller], however, only after receipt of the official notification of the Rovno Arbitration Court on assignment of creditor's rights with regard to the debt obligations according to the award of this Court of 21 June 1999. 10. The Tribunal cannot take into consideration arguments presented by the [Payer] since the three-party Supplement # 3 of 28 January 2004 to Contract # 23 of 28 March 2003 does not contain such condition of fulfillment of [Payer]'s obligations related to payment of the debts owed to [Seller] at the time of the receipt of notification on assignment of creditor's rights from Rovno Arbitration Court. As to the act of consent of 16 November 2003 (act of mutual accounts revision with regard to the debt assignment) which was presented by the [Payer] to the Tribunal along with its statement of defense, the former is not the subject of the present dispute since it was signed only by two parties, i.e., by the [Payer] and the [Buyer]. Moreover, the act does not contain any reference to either Contract # 23 of 28 March 2003 or Supplement # 3 of 28 January 2004 to Contract # 23. 11. Thus, according to Supplement # 3 to Contract # 23, the debtor to the [Seller] is the [Payer] which is obliged to pay off the debts owed under Contract # 23 of 28 March 2003. 12. Proceedings in the case in relation to the co-respondent, the [Buyer], should be terminated in connection with the absence of the legal basis to impose this responsibility on the [Buyer]. 13. Therefore, [Seller]'s action claims for recovery of US $3,524.58 from the [Payer] are well founded, are confirmed by the case documents and are to be recovered from the [Payer]. 14. As to the [Seller]'s claims for recovery from the [Payer] of US $2,235.79 of expenses connected with the payment of the fine levied by the tax authorities of Ukraine on the basis of the Law of Ukraine "On the Procedure of the Settlement of the Accounts in Foreign Currency" in the amount of 0.3% from the sum of non-received earnings for each undue day, these claims are not subject to satisfaction. This decision of the Tribunal is based on the following: 1) According to art. 77 of the UN Convention on Contracts for the International Sale of Goods (Vienna, 1980), a party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss; 2) [Seller] would have been able to avoid the losses by addressing the Tribunal within 90 days from the day of the delivery of the goods since, according to the Law of Ukraine "On the Procedure of the Settlement of the Accounts in Foreign Currency", the calculation of the fine ceases at the moment when a claim is lodged with the arbitration tribunal; 3) [Seller] lodged its claim with the Tribunal after the 90-days term expired; 4) Moreover, the [Seller] has not confirmed documentarily the losses suffered in the amount of US $2,235.79 related to the payment of the fine levied by the Ukrainian tax authorities for the untimely return of currency from abroad.
15. According to S. V(2) of the Regulation on Arbitration Fees and Expenses, costs of the payment of arbitration fee are to be reimbursed at the expenses of the respondent in proportion to the satisfied action claims (61.19%). AWARD Following the provisions of Contract # 3 of 28 March 2003, Supplement # 3 of 28 January 2004 to Contract # 23, arts. 53, 77 of the UN Convention on Contracts for the International Sale of Goods (Vienna, 1980), art. 520 of the Civil Code of the USSR, art. 6 of the Law of Ukraine "On External Economic Activity", art. 31 of the Law of Ukraine "On the International Commercial Arbitration", art. 7.4, 8.4-8.9 of the Rules of the Tribunal, S. V(2) of the Regulations on Arbitration Fees and Expenses the Tribunal has decided: The [Payer], Hungarian firm, is obliged immediately after receipt of the present award to pay to the [Seller], Ukrainian factory: - US $3,524.58 [the cost of the goods], - US $734.28 [the reimbursement of the expenses on payment of the arbitration fee] In total, the amount of the satisfied claims constitutes US $4,258.86. The remainder of the [Seller]'s claim is rejected. The proceedings in the present case in respect to the [Buyer], Hungarian business firm, are to be ceased. The judgment is final. FOOTNOTES * 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 First Respondent of Hungary is referred to as [Buyer]. The Second Respondent of Hungary is referred to as [Payer]. ** 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.