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Stockholm Arbitration Report (SAR)

Preview Page SAR 1999- 2

FINAL ARBITRAL AWARD RENDERED IN 1998 IN CASE 16/1998

Observations by John Kadelburger

Subject-matters:

(1) Trading in Russian securities; failure by trader to comply with client’s instructions; client’s identity and validity of instructions questioned.

(2) Does deposit of securities with a public notary constitute discharge under Article 327 of the Russian Civil Code?

(3) Applicable law: Russian or Swedish?

(4) Does a penalty clause relating to late payment apply in lieu of or in addition to default interest provisions under Swedish law?

Findings:

(1) Where a bank acted as intermediary between the investor and the broker, representatives of the bank had apparent authority to represent the broker.

(2) Respondent is obligated to pay to Claimant a principal amount of USD 317 000, as evidenced by a statement of account; this obligation cannot be affected by Respondent’s deposit of any securities with the Moscow notary, unless and until Claimant has accepted such manner of performance by collecting the securities.

(3) Where the contract provided for the application of both Russian and Swedish law, Russian law was not, considering the context and the wording of the clause, intended as a general provision on applicable law. Swedish law applies to the calculation of interest.

(4) In view of the modest level of the contractual penalty and of the contents of the Agreement, the Tribunal finds that the penalty must have been intended to be payable in addition to default interest rather than in lieu thereof.