31 March 2024

Litigation Related to the Application of Incoterms in Russia

March 31, 2024

BRACE Law Firm ©

A significant portion of disputes in international economic transactions is based on executed foreign trade contracts. In most cases, these contracts are drafted using the international rules "Incoterms" ("International Commercial Terms") (the "Incoterms").

Basic terms represent key elements of the agreement and reflect the essential conditions for the delivery of goods from the seller to the buyer. In addition to the Incoterms rules, the contract text includes other conditions that may affect the performance of the foreign trade contract. However, despite the thoroughness in drafting the text of a foreign trade contract, not all transactions are conducted without claims arising between the participants of the international contract, and dispute resolution is referred to judicial bodies.

If the parties have agreed that disputes between them regarding a specific legal relationship, regardless of whether it is contractual in nature, shall be referred to arbitration under the UNCITRAL Arbitration Rules and resolved in accordance with the designated regulatory document with such amendments as the parties may agree upon.

At the same time, in accordance with Law of the Russian Federation No. 5338-1 dated July 7, 1993, On International Commercial Arbitration (the "Law on International Arbitration"), disputes arising from civil law relationships in the course of foreign trade and other types of international economic relations may be referred to international commercial arbitration by agreement of the parties:

If the commercial enterprise of at least one party is located abroad;
If any place where a significant part of the obligations arising from the relations of the parties is to be performed, or the place with which the subject matter of the dispute is most closely connected, is located abroad;
Also, disputes arising in connection with the implementation of foreign investments in the territory of Russia or Russian investments abroad.

The review of disputes and the procedure for their resolution are carried out on the basis of the following regulatory documents:

European Convention on International Commercial Arbitration;
Agreement of the CIS Countries dated March 20, 1992, On the Procedure for Settling Disputes Related to Economic Activity (the "CIS Agreement on Dispute Resolution");
Civil Procedure Code of the Russian Federation No. 138-FZ dated November 14, 2002;
Arbitration Procedure Code of the Russian Federation No. 95-FZ dated July 24, 2002;
Law of the Russian Federation No. 5338-1 dated July 7, 1993, On International Commercial Arbitration.

For example, the following may be referred to an international commercial arbitration court:

Disputes arising from contractual and other civil law relationships arising in the course of foreign trade and other types of international economic relations, and other disputes subject to referral to international commercial arbitration;
In accordance with arbitration agreements concluded before September 1, 2016, any disputes that could have been considered under the procedure of international commercial arbitration in effect at the time of their conclusion.

According to the CIS Agreement on Dispute Resolution, a competent court of a CIS member state has the right to consider disputes if, in the territory of said CIS member state:

The defendant had a permanent residence or location on the day the claim was filed; if several defendants located in the territories of different CIS member states are involved in the case, the dispute is considered at the location of any defendant at the plaintiff's choice;
Trade, industrial, or other economic activity of the defendant's enterprise (branch) is carried out;
An obligation under the contract, which is the subject of the dispute, was performed or was to be fully or partially performed;
An action or other circumstance serving as the basis for a claim for damages took place;
The plaintiff in a claim for the protection of business reputation has a permanent residence or location;
A counterparty-supplier, contractor, or service provider is located, and the dispute concerns the conclusion, amendment, and termination of contracts.

Partners under a foreign trade contract typically include a section in the agreement determining the applicable law and jurisdiction. At the same time, in accordance with the civil legislation of the Russian Federation, in the absence of an agreement between the parties on the applicable law, the law of the country where, at the time of the conclusion of the contract, the party performing the obligation of decisive importance for the content of the contract has its residence or principal place of business applies.

In international trade practice, to facilitate interaction between participants in foreign trade activities, the international Incoterms rules were developed. These rules reflect the basic conditions for the delivery of goods and the rights and obligations of the seller and the buyer. The parties to an international transaction reflect the remaining conditions of interaction in the text of the foreign trade contract, including determining jurisdiction and applicable law. For example, it is important to note that contracting parties wishing to apply to the Arbitration of the International Chamber of Commerce (ICC) in the event of a dispute with a partner under a sales contract must clearly and explicitly agree on the Arbitration of the International Chamber of Commerce in the sales contract or, in the absence of a single contractual document, in the exchange of correspondence constituting the contract between them. The fact of including one or more Incoterms definitions in the contract or relevant correspondence does not in itself constitute an agreement on ICC Arbitration.

Given that foreign trade contracts possess common features, several areas of disputes arising in connection with the application of international Incoterms rules can be identified:

Recovery of debt under the contract;
Recovery of advance payments;
Validity of the Incoterms clause;
Recovery of penalties for late delivery of goods;
Formulations of delivery terms under Incoterms;
Obligation to carry out customs clearance;
Cargo insurance;

Let us examine some of these in more detail using court decisions as examples.

Disputes Regarding the Use of the Incoterms Clause

Incoterms rules represent customs of business turnover recognized at the international level and form part of the system of regulatory documents for certain countries. The Civil Code of the Russian Federation provides that if trade terms accepted in international turnover are used in a contract, in the absence of other indications in the contract, it is considered that the parties have agreed to the application of customs denoted by the corresponding trade terms. Furthermore, if the parties used trade terms contained in the Rules for the Use of Domestic and International Trade Terms — Incoterms (Incoterms) in the contract but did not reference Incoterms, in the absence of evidence of a different intention of the parties, it is considered that the parties agreed to the application of Incoterms to their relations in the edition effective on the date of the conclusion of the contract. In this case, the provisions of Incoterms have priority over the dispositive norms of the applicable statute.

In the Resolution of the Arbitration Court of the East Siberian District dated November 2, 2022, No. F02-4784/2022 in Case No. A19-17003/2021 regarding the recovery of preliminary payment and penalties under a supply contract, the arguments of the cassation appeal applicant regarding the lack of proof of the fact of product delivery were rejected by the court because the parties agreed on delivery conditions in the contract — Franko-vagon (Free on Rail/Wagon). In legal relations under supply contracts, there are generally accepted delivery conditions (franking conditions), for example, Franko-vagon, Franko-station of departure, Franko-station of destination, etc. The term "Franko" is borrowed from the International Rules for the Interpretation of Trade Terms "Incoterms," which are used worldwide in international and domestic contracts for the sale of goods.

According to the clarifications provided in the Information Letter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated December 25, 1996, No. 10 "Review of Practice in Resolving Disputes Involving Foreign Persons," the "International Rules for the Interpretation of Trade Terms 'Incoterms'" developed by the International Chamber of Commerce cover a wide range of issues, including the difference in delivery conditions, for example, with the Franko-vagon clause. When concluding a contract, the parties may extend the effect of these rules and the interpretation provided therein to their relations. According to Incoterms, the Franko-vagon clause in combination with the designation of the point of departure of goods means that the supplier delivers the goods to the departure station specified in the contract at its own expense, carries out loading into the wagon of the railway train, and the buyer bears the expenses related to the unloading of the goods and their transportation to its warehouse. Thus, the plaintiff and the defendant provided for delivery conditions in the contract under which the supplier delivers the goods to the departure station specified in the contract at its own expense. The claim was denied satisfaction because it was proven that the supplier fulfilled its obligations to supply the products, while the buyer, despite notification, evaded accepting the products.

In addition, in the absence of an agreement on applicable law when concluding a foreign trade contract, the application of the delivery basis may be used as a "contractual condition of the parties." Thus, in the Decision of the ICAC at the CCI of the Russian Federation dated May 7, 2013, in Case No. 202/2012 regarding the question of which rules of law the parties chose as applicable to the substance of the dispute ("applicable law"), the Arbitration established that according to the contract, "In everything not stipulated in this Contract, the Parties shall be guided by the current legislation of the Russian Federation." Furthermore, in the supplementary agreement "Specification for the Batch of Goods" (Appendix No. 1 to the Contract), it is indicated that the basis of delivery is the condition "FSA [sic] Incoterms 2010, station located in the territory of the Russian Federation." Since the Claimant's representative did not present evidence regarding the recognition of Incoterms 2010 ("Rules for the Interpretation of Trade Terms" of the International Chamber of Commerce) in the Russian Federation for their application as a source of law in civil law relations complicated by a foreign element, as follows from Article 1186 of the Civil Code of the Russian Federation, and declared the application of the specified delivery basis as a "contractual condition of the parties," the arbitration considered it possible to apply them in the dispute as a condition of the contract.

Taking this into account, regarding the "applicable law," the Arbitration based its decision on the provisions of Clauses 1 and 3 of Article 28 of the Law of the Russian Federation dated July 7, 1993, and Clause 1 § 26 of the Rules of the ICAC at the CCI of the Russian Federation, according to which the ICAC at the CCI of the Russian Federation resolves the dispute in accordance with such rules of law as the parties have chosen as applicable to the substance of the dispute. In this regard, any reference to the law or system of law of any state must be interpreted as directly referring to the substantive law of that state, and not to its conflict of laws rules; in all cases, the ICAC makes a decision in accordance with the terms of the contract and taking into account trade customs applicable to the transaction.

Litigation Regarding the Recovery of Debt Under the Contract

When concluding a foreign trade contract, the parties determine the essential terms that define the goods, their characteristics, cost, payment terms, delivery terms, etc. Despite the consolidation of all essential terms in the text of the contract and the consent of the parties to their performance, when conducting foreign trade activities, cases are inevitable where one party has to collect debt under the contract through judicial proceedings.

Recovery of debt for payment of goods under a foreign economic contract is quite frequently considered by judicial bodies. For example, the decision of the panel of arbitrators of the ICAC at the CCI of the Russian Federation dated December 15, 2022, in Case No. M-134/2021, according to which a statement of claim was received by the ICAC at the CCI of the Russian Federation from a limited liability company located in Russia against a company located in the USA regarding the recovery of funds.

Under the terms of the contract, the parties determined that the ownership right to the goods passes to the buyer at the moment of the transfer of risks in accordance with the delivery terms (Incoterms 2010), that is, after the goods are loaded on board the vessel. The goods were loaded on board the vessel and sent by the seller to the buyer's address; however, an examination established that the cause of spoilage of the goods imported in containers was a violation of transportation conditions.

Also, as an example, one can cite the Decision of the Sole Arbitrator of the ICAC at the CCI of the Russian Federation dated November 1, 2022, in Case No. M-11/2022, where debt under a contract was recovered. The dispute arose in connection with specifications to the contract signed by the parties, according to which the delivery of goods is carried out on FCA terms (Incoterms 2010). For the purpose of ensuring the delivery of goods from the claimant's warehouse, the defendant engaged a first carrier and a forwarder at its own expense. Obligations to transfer the goods to the defendant are considered fulfilled by the claimant from the date of transfer of the goods by the claimant to the first carrier specified in the waybill. The parties provided that all risks of loss, damage, loss (spoilage) of goods passed from the claimant to the defendant from the date of transfer of the goods to the first carrier appointed by the defendant.

Due to the fact that the funds were not paid by the defendant, the claimant asked to recover the debt under the contract from the defendant, as well as expenses for the payment of the registration fee and payment for legal representation services in connection with the proceedings. The ICAC at the CCI of the Russian Federation satisfied the claim for the recovery of debt under the goods supply contract due to the provision of evidence regarding the transfer of goods to the first carrier specified in the waybill. At the same time, evidence of payment for the goods by the defendant was not presented to the court.

Disputes Related to the Wording of the Delivery Term or Incoterms Edition

The use of Incoterms delivery bases allows counterparties from different countries to interpret the conditions of a particular delivery uniformly, which significantly simplified the process of drafting a foreign trade contract. However, despite the existence of Incoterms terms in the international community and their use in foreign trade activities, disputed points regarding concluded foreign trade contracts and formulations of delivery bases arise between participants in concluded international trade agreements.

Thus, for example, by the Decision of the Arbitration Court of Moscow dated January 20, 2023, in Case No. A40-15812/2022-83-81, the satisfaction of the claimant's demand for debt recovery was refused. In support of the claim, the claimant referred to the fact that based on the defendant's orders, the claimant carried out the delivery of goods for which the defendant did not make payment, as a result of which the defendant incurred an overdue debt to the claimant. The claimant referred to the fact that the supply contracts were concluded on the corresponding dates of shipment of goods and the EXW delivery basis in the Incoterms 2020 edition is applicable to all deliveries. The defendant, objecting to the claimant's demands, referred to the fact that the goods were purchased not from the claimant but from a third party; meanwhile, the claimant did not confirm the emergence of contractual legal relations between the claimant and the defendant regarding the supply of the disputed goods. The documents presented by the claimant (invoices, order confirmations, waybills) indicate the shipment of goods to the address of another person (not the defendant), based on a contract to which the defendant is not a party. At the same time, the fact of the conclusion of a contract between the disputing parties with a reference to Incoterms 2020 is not confirmed by the case materials; accordingly, the claimant's reference to the EXW delivery basis is not relevant. The court considered the defendant's argument well-founded that the shipment of goods to a third party with a reference to a contract to which the defendant is not a party cannot be considered an acceptance of the offer. In the cited case, a lack of agreement between the parties on the essential terms of the transaction and a misunderstanding of the conditions for its execution are evident.

Also, according to the Decision of the Arbitration Court of the Sakhalin Region dated July 18, 2022, in Case No. A59-6599/2021, the claimant filed a lawsuit to impose an obligation to accept goods and to recover debt. The delivery of goods was to be performed under the DDP Incoterms model — by delivery to the buyer's facility, and not its selection (pick-up), and the goods were subject to payment after acceptance in proportion to the delivered volume. However, after partial delivery, further delivery was not carried out, which served as the basis for the termination of the contract. Having analyzed the electronic correspondence and the relationship of the parties within the framework of the disputed delivery, having examined and evaluated the evidence available in the case (supply contract, specification, invoices for payment, waybills, correspondence of the parties, both in emails and in subsequent notifications) in their aggregate and interrelation, the court came to the conclusion that in the process of executing the contract, the parties effectively changed its condition regarding the procedure for the delivery of goods by their actions: from the condition of handing over the goods at their location to delivery to the buyer's location or one indicated by the buyer (condition DDP agreed in the application). The abbreviation DDP contained in the application means the agreement by the parties on the method of delivery of goods by the claimant to the defendant, namely by delivery of goods to the buyer's facility: a project for the construction of a booster compressor station. Thus, by confirming the application, the party effectively agreed to change the delivery conditions — the deliveries that took place were made at the buyer's location, which is confirmed, among other things, by the supplier's notification of the intention to make deliveries in the remaining volume at the buyer's location.

When drafting a foreign trade contract, for a clear understanding of the rights and obligations of the parties, it is important to choose not only the Incoterms delivery basis but also the edition of the international rules. By virtue of Clause 38 of the Resolution of the Plenum of the Supreme Court of the Russian Federation No. 24 dated July 9, 2019, "On the Application of Norms of International Private Law by Courts of the Russian Federation" (the "Resolution of the Plenum No. 24"), if the parties used trade terms contained in the Rules for the Use of Domestic and International Trade Terms — Incoterms (Incoterms) in the contract but did not make a reference to Incoterms, in the absence of evidence of a different intention of the parties, it is considered that the parties agreed to the application of Incoterms to their relations in the edition effective on the date of the conclusion of the contract. In this case, the provisions of Incoterms have priority over the dispositive norms of the contractual statute.

When issuing the Decision of the Arbitration Court of the Sakhalin Region dated July 18, 2022, in Case No. A59-6599/2021, it was established that the claimant applied to the Arbitration Court of the Sakhalin Region against a business entity with a lawsuit to impose an obligation to accept goods and recover debt. By a message sent from the claimant's email address, an application to the defendant for the supply of goods under the DDP (Delivered Duty Paid) Incoterms model was confirmed — by delivery of goods to the buyer, with payment under the Payment Against Delivery on Pro rata basis model — after acceptance of goods based on the waybill. Considering that when sending the message to the defendant, the claimant did not indicate the Incoterms edition, when considering the dispute, the court, relying on Resolution of the Plenum No. 24, established that as of the moment the contract was concluded between the disputing parties, the Incoterms 2020 rules were in effect and considered the case based on the established provision.

Litigation Regarding the Recovery of Advance Payments

The supply of goods under foreign economic contracts is often carried out when the buyer makes a preliminary payment for the goods being supplied. Based on the norms of Russian civil legislation, in cases where the sale and purchase contract provides for the buyer's obligation to pay for the goods fully or partially before the transfer of the goods by the seller (preliminary payment), the buyer must make the payment within the term provided by the contract, or if such a term is not provided by the contract, within a defined term.

Disputes regarding the recovery of an advance paid to the seller are not uncommon in the practice of international courts; the main reason for the recovery of the advance is the absence of delivery of goods defined by the terms of the foreign economic contract. As an example of such a case, one can cite the decision of the panel of arbitrators of the ICAC at the CCI of the Russian Federation dated June 4, 2021, in Case No. M-143/2020, according to which a statement of claim was received by the ICAC at the CCI of the Russian Federation from a business entity located in Russia against a company located in Slovakia regarding the recovery of funds under a contract for the supply of technical and technological equipment.

According to the contract, the supply of equipment is carried out according to Incoterms 2010. Considering this case, the Arbitration Tribunal concluded that the defendant was obliged to carry out the supply of equipment within the established term but did not fulfill this obligation and evaded the return of the received advance payments. Article 78 of the UN Convention on Contracts for the International Sale of Goods (the "Vienna Convention") provides that if a party fails to pay the price or any other sum, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under Article 74 of the Vienna Convention.

The Arbitration Tribunal concluded that the Claimant's demand to recover a penalty from the Defendant for the delay in the supply of equipment is lawful and justified and is subject to satisfaction in the amount established by the court.

A similar decision was made by the Sole Arbitrator of the ICAC at the CCI of the Russian Federation dated February 4, 2021, in Case No. M-203/2019, when he stated that the claimant paid the defendant an advance for substandard goods, and also that the advance was not returned by the defendant. Taking into account the defendant's violation of the requirements for the quality of goods, the sole arbitrator considered that the claimant rightfully refused to perform the sale and purchase contract and demanded the return of the sum of money paid for the goods. In addition, having studied the submitted documents, the sole arbitrator concluded that the claimant proved the existence of the following losses: customs payment under one of the customs declarations, expenses for the services of declarants in connection with the declaration of the disputed goods under the customs declaration. At the same time, all invoices, proformas, acts, and payment orders were executed in rubles. Grounds for recovering the disputed amount in dollar currency were not presented. Thus, based on the contract, Articles 309, 469, 475 of the Civil Code of the Russian Federation, the sole arbitrator recognized the Claimant's demand for the recovery of the advance amount from the Defendant as subject to satisfaction.

Litigation Regarding the Recovery of Penalties for Late Delivery of Goods

In accordance with civil legislation, a penalty (fine, forfeit) is recognized as a sum of money determined by law or contract, which the debtor is obliged to pay to the creditor in the event of non-performance or improper performance of an obligation, in particular in the case of a delay in performance. Regarding a demand for the payment of a penalty, the creditor is not obliged to prove that losses were caused to it.

Given that under the Civil Code of the Russian Federation, an agreement on a penalty must be made in writing regardless of the form of the main obligation, and also that non-compliance with the written form entails the invalidity of the penalty agreement, the parties to foreign economic contracts determine the conditions on the payment of a penalty for non-performance of obligations to the other party in the text of the agreement. For example, when the ICAC at the CCI of the Russian Federation satisfied a claim for the recovery of a penalty for the late delivery of goods under a contract, one can cite the decision of the sole arbitrator of the ICAC at the CCI of the Russian Federation dated October 7, 2019, in Case No. M-76/2019, according to which the ICAC received a statement of claim from a business entity located in Russia against a company located in China regarding the recovery of funds in foreign currency.

A contract for the supply of goods was concluded between the parties, according to which the defendant undertook to supply goods to the claimant on FOB terms, Incoterms 2010, within a certain period from the moment the claimant made the prepayment. The claimant made the prepayment for the goods, which was received by the defendant, but the goods were delivered with a delay. Subsequently, the claimant paid for the goods in full. Agreements regarding new delivery terms were not concluded by the parties. The claimant refused to sign a supplementary agreement to the contract on extending the delivery term in connection with the suspension of the supplier's plant activity.

According to the submitted copy of the bill of lading, the goods were delivered with a delay in accordance with the agreed FOB basis. From the correspondence of the parties presented by the claimant, it follows that the defendant notified the claimant in a letter that production at its plant was suspended by order of the environmental safety department, which resulted in the impossibility of supplying goods within the term agreed by the contract, and was regarded by the defendant as a force majeure circumstance. The defendant asked the claimant to change the delivery term of the goods and sent the claimant a supplementary agreement to the contract signed on its part, providing for the extension of the delivery term. However, as follows from the claimant's explanations, it did not consider it possible to agree to such a condition due to the necessity of timely delivery of goods for carrying out major repairs of equipment at the claimant's enterprise and the planned stoppage of production in connection with this. The defendant was notified of the claimant's refusal to extend the delivery term. However, the defendant believed that the claimant agreed to the extension of the delivery term and therefore considered the accrual of the penalty by the claimant to be unfounded.

According to the Contract, in the event of a delay in delivery due to the Supplier's fault, the Supplier informs the Buyer of the fact of the delay, indicating its reason and probable duration. Force majeure circumstances, that is, any unforeseen circumstances arising suddenly and beyond the control of both parties, include "industrial actions." The contract provides for the possibility of extending the terms for the performance of obligations under the Contract in connection with force majeure circumstances, provided that this is immediately reported to the other party and their existence and duration are confirmed by a certificate from the chamber of commerce of the corresponding party's country.

Considering that there is no evidence in the case materials of an agreement between the parties to change the delivery term, the arbitration tribunal concluded that there was a delay in delivery on the part of the defendant and that there were no grounds to exempt the defendant from liability for the specified delay. For the violation of delivery terms, the Contract provides for the accrual of a penalty in the amount of the established limit.

Having reviewed the case materials, the arbitration tribunal of the ICAC at the Chamber of Commerce and Industry of the Russian Federation decided to recover funds in foreign currency, as well as expenses for the payment of registration and arbitration fees, from the Company located in China in favor of the Limited Liability Company located in Russia.

A similar decision was made by the ICAC at the CCI of the Russian Federation dated June 30, 2022, in Case No. M-5/2022, during the consideration of which the court established the following:

The parties concluded a Contract, according to which the Defendant undertook to supply, and the Claimant undertook to accept and pay for goods free from rights and claims of third parties, in the procedure and on DDP Ishwardi terms, Incoterms 2010 rules. During the execution of the contract, the Claimant sent the Defendant an application for the supply of goods, after receiving which the Claimant received a letter from the Defendant notifying that, according to the calculations received by it, the delivery of goods from the moment of shipment would take longer than the time provided by the Contract. The Claimant offered the Defendant to pay the accrued penalty for the delay in the supply of goods, which the Defendant asked to cancel.

The delivery conditions agreed by the parties in the contract mean that the seller performs the delivery when the goods, cleared of customs duties necessary for import, are placed at the buyer's disposal on the arriving means of transport ready for unloading at the specified place of destination. The seller bears all costs and risks associated with the delivery of goods to the place of destination and is obliged to comply with customs formalities necessary not only for export but also for import, and to pay any fees levied upon export and import. The seller is obliged to supply the goods by placing them at the Buyer's disposal on the arriving means of transport ready for unloading at the agreed point, if any, at the specified place of destination on the agreed date or period.

The sole arbitrator, during the consideration of the case, stated that the Defendant's violation of the obligation to supply goods to the Claimant is confirmed by the case materials and indicates that the Defendant did not fulfill the obligation to supply goods. The terms of the contract provided for a penalty for the delay in the supply of goods, which the claimant calculated from the date of the alleged delivery to the date of expiration of the contract term. The sole arbitrator, having studied the claim calculation, did not agree with the claimant.

The start date for the accrual of the penalty should be determined based on the dates of delivery of batches of goods according to the claimant's application, which provides for specific delivery terms increased compared to the contract. Before the onset of the delivery terms for batches of goods under the application, the defendant cannot be considered to have delayed the performance of the obligation, in connection with which the penalty was subject to satisfaction in part.

Litigation Regarding the Obligation to Carry Out Customs Clearance of Cargo

Certain Incoterms delivery bases establish an obligation for the seller or buyer regarding customs clearance of cargo; however, this obligation is not always fulfilled, which leads to an appeal by one of the parties to the foreign trade contract to the court for dispute resolution.

When issuing the Decision of the Arbitration Court of the Nizhny Novgorod Region dated December 11, 2013, in Case No. A43-14319/2013, it was determined that the claimant asked the court to oblige the defendant to perform all actions provided for the buyer arising from INCOTERMS 2000 for EXW conditions, including performing all customs formalities for the export of goods. To fulfill the accepted obligations, the performer had to develop a project for transportation and securing the cargo on automobile and water transport, organize loading and unloading operations, provide special fasteners and devices necessary for cargo transportation, carry out customs clearance of the cargo for export, and carry out cargo insurance for the time of its transportation and storage.

In support of the claims, the claimant indicated that the defendant did not perform actions mandatory for the buyer based on the supply contract and Incoterms. According to Article B2 of the International Rules for the Interpretation of Trade Terms "Incoterms 2000," the buyer is obliged to obtain, at its own risk and expense, an export or import license or other official authorization and perform, if required, all customs formalities necessary for the export of goods. From a systemic interpretation of legal norms, the court did not see grounds for obliging the defendant to perform all customs formalities for the export of goods. As the defendant's representative explained during the court session, the goods are located in the territory of the Russian Federation, and the claimant did not dispute this circumstance. The court did not establish legal grounds for obliging the defendant to obtain an export or import license or other official authorization, as well as to perform, if required, all customs formalities necessary for the export of goods.

Also, as an example of a case related to the necessity of customs clearance of cargo, one can cite the Decision of the ICAC at the CCI of the Russian Federation dated April 11, 1997, in Case No. 220/1996. A lawsuit was filed by an English firm against a Russian organization in connection with partial payment for goods supplied under a contract concluded in November 1995. The claims included: repayment of debt, payment of interest for the use of other people's funds, reimbursement of expenses for the representative's services, and the arbitration fee. The defendant, objecting to the claimant's demands, explained that the amount underpaid to the claimant represents its expenses for the payment of customs duty and the fee for customs clearance of the cargo. The subject of the supply was goods produced in the territory of Russia. Accordingly, neither customs duty nor the fee for customs clearance of the cargo was subject to collection for it. The shipment of goods by the claimant from Finland (i.e., the implementation of a re-export operation) led to the emergence of these additional expenses. The claimant did not agree with the defendant's position. In accordance with the terms of the contract, the supply of goods was to be carried out on CPT terms — destination point in Russia (Incoterms 1990), i.e., on terms used in international trade. Since the contract did not provide for the procedure of shipping goods directly from the enterprise that is the manufacturer of the goods, and the parties referred in the contract to delivery conditions usually used in international trade practice, it should be concluded that, when concluding the contract, the parties proceeded from the fact that the shipment could be made by the claimant not only from the Russian manufacturer of the goods but also in a different order, including from the territory of another state.

Having concluded the contract on CPT terms — destination point in Russia according to Incoterms 1990 and having not stipulated otherwise in the contract, the buyer thereby assumed the expenses related to the fulfillment of customs formalities and the payment of duties, taxes, and other official fees when importing goods into the customs territory of its country.

Litigation Related to Cargo Insurance

For certain delivery bases, Incoterms rules provide for the obligation to conclude a cargo insurance contract, regarding which appeals for receiving insurance payments in connection with damage to delivered goods occur quite often. For example, let us consider the Ruling of the Judicial Chamber for Economic Disputes of the Supreme Court of the Russian Federation dated October 6, 2023, No. 308-ES23-10334 in Case No. A32-57787/2022. According to the concluded contract, the delivery basis is defined as CIF Novorossiysk (in accordance with Incoterms 2010), which provides for cargo insurance as an obligation of the seller, who must conclude an insurance contract covering 100% of the value of the cargo plus 10% on top; the total insurance amount is 110% of the value of the chartered goods. As a general rule, if the cargo turns out to be damaged upon arrival at the port of destination, the buyer can demand compensation for damages, which the insurance will cover.

Under the terms of the contract, the seller concluded a cargo insurance contract before sending the goods to the company's address. In confirmation of the indicated, the insurer issued an insurance policy containing an indication of the application of the Institute of London Underwriters insurance rules with the condition of "All Risks" insurance (Clause A — ICC-A). After the customs clearance procedure of the cargo in the port of Novorossiysk, violations of the integrity of the goods' packaging and their spoilage were discovered during the unloading of the goods to the consignee. The claimant applied to the insurer with a demand for the payment of insurance compensation; however, the demands were left without satisfaction, which served as the basis for applying to the court with a lawsuit.

Working through all the terms of a foreign economic contract at its conclusion does not guarantee the participants of the transaction the absence of disputed points that may arise during the execution of the contract. The reasons for applying to judicial bodies may vary; however, it must be remembered that not only jurisdiction and applicable law depend on the thoroughness of drafting a foreign economic contract, but also the consideration of the case and liability to the other party of the international transaction.

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References

[1] UNCITRAL Arbitration Rules. Revised in 2010. Adopted in New York on June 25, 2010, at the 43rd session of UNCITRAL.

[2] Clause 3 Article 1 of the Law on International Arbitration.

[3] Concluded in Geneva on April 21, 1961, ratified by the Decree of the Presidium of the Supreme Soviet of the USSR dated May 14, 1962, No. 67-VI.

[4] Resolution of the Supreme Council of the Russian Federation dated October 9, 1992, No. 3620-1, On Ratification of the Agreement on the Procedure for Settling Disputes Related to Economic Activity.

[5] Clause 1 Article 1211 of the Civil Code of the Russian Federation.

[6] Clause 11 Article 1211 of the Civil Code of the Russian Federation.

[7] Clause 38 of the Resolution of the Plenum of the Supreme Court of the Russian Federation No. 24 dated July 9, 2019, "On the Application of Norms of International Private Law by Courts of the Russian Federation."

[8] Resolution of the Arbitration Court of the East Siberian District dated November 2, 2022, No. F02-4784/2022 in Case No. A19-17003/2021.

[9] Decision of the ICAC at the CCI of the Russian Federation dated May 7, 2013, in Case No. 202/2012.

[10] Decision of the Sole Arbitrator of the ICAC at the CCI of the Russian Federation dated November 1, 2022, in Case No. M-11/2022.

[11] Clause 11 Article 1211 of the Civil Code of the Russian Federation.

[12] Clause 1 Article 330 of the Civil Code of the Russian Federation.

[13] Decision of the Sole Arbitrator of the ICAC at the CCI of the Russian Federation dated October 7, 2019, in Case No. M-76/2019.

[14] Decision of the ICAC at the CCI of the Russian Federation dated June 30, 2022, in Case No. M-5/2022.

[15] Decision of the Arbitration Court of the Nizhny Novgorod Region dated December 11, 2013, in Case No. A43-14319/2013.