Ugrás a tartalomra

1/4/2024. Arbitral award

I. The Claimant and the Respondent agreed that “the dispute shall be considered by International Commercial Arbitration Court at Chamber of Commerce and Industry the respondent’s country” (Section 9.1 of the Agreement). The Tribunal, while acknowledging the linguistic imprecision of this clause, determined that the Parties meant to designate the permanent arbitration court attached to the Chamber of Commerce and Industry of the country in which the respondent (whichever party this may turn out to be) has its registered seat. [AA Art. 31 (1) Arbitration Rules Article 30(1)] II. The Parties did not agree on the language of the proceedings. The Claimant nonetheless submitted that it should be English, on the basis of the language of the Agreement and that of the communication between the Parties. Indeed, from both the English-language correspondence of the Parties as well as the bi-lingual (English and Ukrainian) nature of their Agreement, it was reasonable to deduce that neither the Respondent could have had any reasonable objections against English being the language of these proceedings. The Tribunal therefore determined that the language of the proceedings must be English [AA Art. 33 (1) Arbitration Rules Article 4(1)] III. According to Section 9.3 of the Agreement of the Parties, “The present Contract shall be governed and construed solely in compliance with Hungary and Ukrainian laws”. Due to the manifestly contradictory nature of this designation, the Tribunal determined, that the Parties failed to appropriately designate the rules of law applicable to the merits of the case. The Tribunal therefore applied the law as per its determination of the conflicts of laws rules that it deemed applicable. In this context, the Tribunal considered Article 1(1)(a) of the CISG as the appropriate conflicts of laws rule to be applied, and which clearly provides the CISG to be applied to contracts of sale of goods between parties whose places of business are in different States, when those States are “Contracting States” within the meaning of the Convention. Both Hungary as well as the Ukraine are signatories to the CISG and both countries had deposited their instrument of ratification on 16 June 1983 and 3 January 1990, respectively. Therefore, the Tribunal determined that the present dispute must be decided on the basis of the CISG. [AA Art. 41 (2), Arbitration Rules Article 32(2)] IV. Unless otherwise agreed by the parties, if the Respondent fails to submit a Statement of Defence as provided for in Article 34(1) without adequate reason, the arbitral tribunal shall continue the proceedings without considering the failure as an admission of the Claimant's assertions. If a party fails to appear or to produce evidence at the arbitration hearing without good cause, the tribunal may continue the proceedings and render a decision on the basis of the evidence before it. [AA Art. 34(1), 38 paraghraph b), c) Arbitration Rules Article 39(1) (2)] V. The Tribunal was conscious of the fact that the total amount of the penalty far outweighs the amount of the principal amount (ie. the purchase price). It therefore considered the possibility that this amount, the lack of a cap, or, indeed, the daily rate of the penalty may be excessive. However, the Respondent failed to challenge the rate of the late payment penalty, the Tribunal was not in a position to challenge its validity ex officio or determine the invalidity of this clause based on it being contra bonos mores. [Kúria Pfv.VI.22.335/2011. and Pfv.21.131/2021/9.]

Case Summary

 

 

  1. The Claimant as seller and the Respondent as buyer concluded a sale and purchase agreement on 1 November 2021 (hereinafter the “Agreement”). The designation, the price, the quantity of the goods to be sold, as well as the terms for delivery were all specified with reference to the commercial invoices to be drawn up.
  2. Payment was to be made in advance (Section 4.1) and in USD. The Agreement included a penalty (Section 6.1), whereby, if the seller were to fail to meet the terms of delivery, it had to pay the buyer a penalty of 0.5% of the value of any undelivered goods for each day of delay beginning from the first working day of the week following the week in which the delivery was to be made. However, the total amount of such penalty was not to exceed 10% of the value of the undelivered goods.
  3. On the other hand (Section 6.2), if the buyer were to be delayed with the payment for the goods, it would need to pay a penalty at the same daily rate (0.5%) of the goods’ value for each day of delay; albeit without any cap being designated for such penalty.
  4. The Tribunal notes that notwithstanding the payment terms as stipulated in the Agreement, the e-mail correspondence put forward in Exhibit 4 clearly indicates that the Parties deviated from these terms. That is, instead of advance payment of the goods, the Parties agreed on 26 July 2022 that the Claimant would send the goods notwithstanding the fact that no payment had yet been made.
  5. As regards disputes settlement, Section 9 of the Agreement stipulated that, failing a settlement by negotiations, “the dispute shall be considered by International Commercial Arbitration Court at Chamber of Commerce and Industry the respondent’s country”. The language of the arbitration was not designated by the parties.
  6. As regards the applicable law, the Agreement “shall be governed and construed solely in compliance with Hungary and Ukrainian laws”.
  7. The term of the Agreement was set at 36 months (Section 10.1).
  8. The Agreement is bilingual – Ukrainian and English, both texts being equally authentic (Section 10.6).
  9. The Claimant issued invoice no. 2022-07-21/01 on 21 July 2022 concerning the sale of 60.000 pieces of “FUDAN FM11RF08 CHIP FOR SMART CARDS MIFARE 1K IN INALYS 210x297x0.45mm 10 chip”. The price per unit was set at USD 0.140 on the invoice, so that the total price of these goods was USD 8,400. Additionally, shipping cost was charged at USD 750, resulting in the total price of USD 9,150. The terms of delivery were designed as (Incoterms) “CPT [Carriage Paid To] Budapest, Hungary”.

 

  1. The goods, accompanied by CMR no. 260722, were sent by the Claimant from Kyiv, Ukraine on 27 July 2022 to the Respondent in Budapest, Hungary. While the date of delivery is not indicated on Exhibit No. 3, the fact of delivery is clearly evidenced by the stamp and signature on behalf of the Respondent. Further, it is clear that the delivery of the goods could not have occurred earlier than 1 August 2022, being the date of the stamp of the Hungarian customs authorities. Moreover, at 16:48:13 on 1 August 2022 the representative of the Respondent indicated that “we packing in now” which the Tribunal took to mean that the goods had arrived to the Respondent. The Tribunal therefore accepted the statement of the Claimant that the goods were delivered to the Respondent on 1 August 2022.
  2. The Respondent failed to pay the consideration for the goods in question. This is clearly evidenced by the repeated exchanges of the Parties and promises made by the Respondent (Exhibit 4). Nothing to the contrary was indicated either by the Respondent or would appear from the available evidence.
  3. As a result, the Claimant filed its Request for Arbitration and the Statement of Claim on 24 July 2023.

 

Procedural History

 

  1. In its Statement of Claim (as amended by its submission dated 29 November 2023) the Claimant asserted that despite proven delivery of the ordered goods on 1 August 2022 without any objections, it never received any payment from the Respondent. The Claimant also requested a penalty payment at the daily rate of 0.5% based on Section 6.2 of the Agreement, translating to the daily amount of USD 45.75 (ie. USD 9,150 x 0.005 = USD 45.75). The Claimant also requested the costs of arbitration to be reimbursed to it.
  2. As for the legal basis of its claim, the amended Statement of Claim invoked the Agreement, as well as Articles 53, 54, 58 and 59 of the Vienna Convention on the International Sale of Goods (hereinafter the “CISG”).
  3. The Tribunal has established, on the basis of the postal returns, that all documents of the proceedings were duly served on the Respondent. The Statement of Claim and the Notice to File a Statement of Defence and Request for the Nomination of an Arbitrator were all received by the Respondent. Further, the representative of the Respondent did, once, send a Hungarian language e-mail to the Tribunal. However, no Statement of Defence was ever put forward by the Respondent. In fact, the Respondent did not participate at all in the present arbitration and did not make any statements in accordance with the Rules. It can therefore be concluded that the Respondent chose not to participate in the present proceedings, despite having been aware of them.
  4. In its Procedural Order No. 1 and in accordance with Article 36(4)c) of the Rules, the Tribunal informed the Parties that it may decide the case without a case management conference and/or a hearing. The Parties were requested to inform the Tribunal if they wished a case management conference and/or a hearing to be held.
  5. In its submission of 29 November 2023, the Claimant chose not to request a hearing. The Respondent failed to respond.
  6. Therefore, in accordance with the Rules as cited above, and considering the specifics of the case, the Tribunal decided that it would proceed without a case management conference or a hearing.

 

Jurisdiction of the Arbitral Tribunal and Applicable Law

 

 

  1. The Claimant and the Respondent agreed that “the dispute shall be considered by International Commercial Arbitration Court at Chamber of Commerce and Industry the respondent’s country” (Section 9.1 of the Agreement).
  2. The Tribunal, while acknowledging the linguistic imprecision of this clause, determined that the Parties meant to designate the permanent arbitration court attached to the Chamber of Commerce and Industry of the country in which the respondent (whichever party this may turn out to be) has its registered seat.
  3. In the present case, the Respondent turned out to be G., Hungary. Therefore, the Tribunal determined that in the present case, the arbitration clause must be understood to refer to the Permanent Arbitration Court attached to the Hungarian Chamber of Commerce and Industry.
  4. The Tribunal further notes that none of the Parties submitted any objections to the jurisdiction of the Court.
  5. With a view to the above, the Tribunal determined, in accordance with Article 30(1) of the Rules that it considers the arbitration clause valid and that it has jurisdiction to decide the dispute of the Parties.
  6. The Parties did not agree on the language of the proceedings. The Claimant nonetheless submitted that it should be English, on the basis of the language of the Agreement and that of the communication between the Parties.
  7. Indeed, from both the English-language correspondence of the Parties as well as the bi-lingual (English and Ukrainian) nature of their Agreement, it was reasonable to deduce that neither the Respondent could have had any reasonable objections against English being the language of these proceedings.
  8. The Tribunal therefore determined that the language of the proceedings must be English.
  9. According to Section 9.3 of the Agreement, “The present Contract shall be governed and construed solely in compliance with Hungary and Ukrainian laws”.
  10. Due to the manifestly contradictory nature of this designation, the Tribunal determined, in accordance with 32(2) of the Rules, that the Parties failed to appropriately designate the rules of law applicable to the merits of the case. The Tribunal therefore applied the law as per its determination of the conflicts of laws rules that it deemed applicable.
  11. In this context, the Tribunal considered Article 1(1)(a) of the CISG as the appropriate conflicts of laws rule to be applied, and which clearly provides the CISG to be applied to contracts of sale of goods between parties whose places of business are in different States, when those States are “Contracting States” within the meaning of the Convention. Both Hungary as well as the Ukraine are signatories to the CISG and both countries had deposited their instrument of ratification on 16 June 1983 and 3 January 1990, respectively. Therefore, the Tribunal determined that the present dispute must be decided on the basis of the CISG.

 

The arbitral award

 

  1. Pursuant to Article 38 paragraph b) of the Arbitration Act, unless otherwise agreed by the parties, if the Respondent fails to submit a Statement of Defence as provided for in Article 34(1) without adequate reason, the arbitral tribunal shall continue the proceedings without considering the failure as an admission of the Claimant's assertions. Article 38 paragraph c) of the Arbitration Act states that if a party fails to appear or to produce evidence at the arbitration hearing without good cause, the tribunal may continue the proceedings and render a decision based on the evidence before it.

 

  1. Thus, the Tribunal did not deliver its award based on the fact of Respondent not producing any materials; but decided on the merits of the Claimant's claim based on and following the careful consideration of the evidence available to it. Nonetheless, after having done so, the Tribunal essentially accepted the facts and legal arguments of the Claimant as these were supported by the available evidence to a reasonable degree.
  2. The Tribunal thus determined that the goods were delivered to the Respondent on 1 August 2022 (see paragraph 12 of this Award). Section 2.4 of the Agreement stipulated that the prices of the goods are indicated in a commercial invoice “which is the integral part of present contract”. Thus, the Tribunal examined INVOICE #2022-07-21/01 dated 21 July 2022 (Exhibit 2) from which it was clear that the total amount to be paid by the Respondent was USD 9,150.
  3. The Claimant therefore had a legitimate claim for the payment of the purchase price in accordance with Article 53 of the CISG which provides that “[t]he buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention.”
  4. As the parties deviated from the terms of payment as included in the Agreement (see paragraph 6 above), and failed to set clear rules in this respect, the Tribunal determined that payment would have had to be made in accordance with Article 58(1) of the CISG. Accordingly, “[i]f the buyer is not bound to pay the price at any other specific time, he must pay it when the seller places either the goods or documents controlling their disposition at the buyer's disposal in accordance with the contract and this Convention.” With a view to the CPT Budapest parity of the handover of the goods, payment should have been made on 1 August 2022. As payment has not been made since, it was appropriate to order the Respondent to pay the full amount of the purchase price.
  5. The Agreement also stipulated that in the case of late payment, 0.5% of the purchase price must be paid as penalty for each day of non-payment (see paragraph 5 above). As payment has not been made since the due date of 1 August 2022, it was appropriate to order the Respondent to pay the full amount of this penalty.
  6. The Tribunal was conscious of the fact that the total amount of the penalty far outweighs the amount of the principal amount (ie. the purchase price). It therefore considered the possibility that this amount, the lack of a cap, or, indeed, the daily rate of the penalty may be excessive – even to the extent that this would be contra bonos mores and thus violate the public order of Hungary within the meaning of Article 47(2) paragraph bb) of the Arbitration Act.
  7. Having studied the prevailing case-law of the Kúria of Hungary, however, the Tribunal determined that this was not the case. In particular, in cases Pfv.VI.22.335/2011. and Pfv.21.131/2021/9. the Kúria has held that where the party fails to exercise its right to challenge the rate of the late payment interest by asking the court to reduce the same, the court may not, on its own accord, determine the invalidity of this clause based on it being contra bonos mores. Therefore, as, in the present case, the Respondent failed to challenge the rate of the late payment penalty, the Tribunal was not in a position to challenge its validity ex officio.
  8. The Claimant has been successful in the dispute. The legal costs have been accepted as HUF 375,282 of arbitration fees advanced by the Claimant (less HUF 9,675 that are to be repaid to the Claimant due to the personal tax position of one of the arbitrators) and EUR 3,300 as legal fees for the Claimant’s counsel, in accordance with Article 11(1) and (2) of the Rules and based on the amount included in the “Legal Defense and Assistance Agreement No1-2023/07/12” as submitted to the Court.

 

Vb/23041

Széchenyi 2020