ACCORDING TO ARBITRATION - UNTIL YOU PAY YOU ARE NOT IN DISPUTE

• Litigation & arbitration

The dispute between the parties arose with Sellers’ claim for the cost of goods supplied under a contract of sale, and damages incurred by the Sellers due to Buyers’ failure to meet his contractual obligations. Contract of sale among other things determined CPT (Incoterms 2000) as the applicable terms of the goods supply. The organization and the performance of delivery of the goods from the Sellers to the Buyers were carried out with the involvement of a forwarder. As per the contract of sale any dispute between the parties in case of inability to solve them peacefully, should be referred to the FOSFA International Arbitration.  

Failing to find a peaceful settlement the Sellers were forced to file a claim to the said Arbitration.

On July 27, 2012, through their representatives, the Sellers filed a claim against the Buyers for the cost of goods delivered and reimbursement of incurred losses. In response to the claim the Buyers applied to the Arbitration for consideration of the statute of limitation issue, because they believed the limitation period expired. The Buyers had substantiated their position that under the rules of FOSFA International Arbitration (2 b ii) disputes in respect of any moneys due by one party to the other shall be submitted to arbitration not later than 60 consecutive days after the dispute has arises.

Contract, inter alia, stipulated that payment of 80% of the goods value occurs after delivery to the Buyers of copies of the shipping documents specified in the contract (held on August 20, 2011). Thus, according to the Buyers dispute has arisen on August 21, 2011. Furthermore, on March 10, 2012 the Sellers sent a claim to the Commercial Court of Ukraine to seize the goods supplied under the contract. Given that at the time the goods were under control of the forwarder, the forwarder was specified as a defendant. According to the Buyers, the fact of filing a claim in the Commercial Court of Ukraine, despite the fact that the forwarder was involved as the respondent, testified that there was a dispute between the parties to the contract, and therefore the terms of limitation expired on May 10, 2012. In their arguments to the claim, Buyers requested the Arbitration to reject the Sellers’ claim.

The Sellers, in turn, explained that at their opinion a dispute arose on June 6, 2012 only, as in March and May, 2012 the Sellers partially paid for the goods, and only on June 6, 2012 the Buyers in their letter abandoned the goods and refused to pay, which the fact determined there was a dispute between the parties. Having reviewed the parties' statements, the Arbitration concluded that the limitation period has not expired and the Sellers claim had to be considered. The Arbitration in its award noted that the claim filed with the Commercial Court of Ukraine against the forwarder who is not a party to the contract can not certify the existence of a dispute between the parties, notwithstanding the provisions of the Sellers’ claim. In addition, partial payment of the contract in March and May suggests that the dispute between the parties as of May 2012 did not exist. The only evidence of a dispute between the parties is the Buyers letter of 6 June 2012, which falls within the prescribed limitation period of 60 days from the date when the dispute arose. Thus, the Arbitration ruled out that the Buyers had to reimburse the Sellers all costs for consideration of the statute of limitation issue, including the costs for attorneys.

Interlegal for ILO magazine

Arthur Nitsevych

nitsevych@interlegal.com.ua