FACTS
A russian Consulting Firm "Pro" provides legal and audit services in many countries. Sirius Telecommunication Company (STC) from Kyrgyzstan was a client of Pro. They did not choose law of any particular country. STC made most of the payments for the services, which it received from Pro in Kazakhstan and Kyrgyzstan, but refused to compensate for some of the Pro charges. Pro is going to take an action to the Kyrgyz court.
ISSUE
Under which law the dispute between the foreign and local legal entity under the contract of provision of services shall be decided as to the claim of indemnification.
RULES
Civil Procedural Code of Kyrgyz Republic
Article 370. The competence of the courts of Kyrgyz Republic on the civil cases with participation of foreign element.
1. The courts of Kyrgyz Republic tries civil cases with participation of foreign persons, if the foreign person-defendant is domiciled on the territory of Kyrgyz Republic, or the foreign legal entity-defendant is located in Kyrgyz Republic.
2. The courts of Kyrgyz Republic has a right to try civil cases with participation of foreign elements when:
5) the case is about indemnification, to the property, action or any other condition, that led to occurrence of the claim of indemnification, that took place in Kyrgyz Republic;
6) the suit is under the contract, under which full or partial execution shall take place or had taken place on the territory of Kyrgyz Republic.
Civil Code of Kyrgyz Republic
Article 1199. Law Applicable to Contract in Absence of Agreement of Parties
3. To the contracts not enlisted in points 1-2 of this Article [1199] with no agreement between the parties about the law subject to application, the law of the country of foundation, whereabout or place of major activity of the party which performs execution of crucial meaning for such contract shall be applied.
ANALYSIS
First of all we have to define which law governs the relations between the parties. As one of the parties is the foreign legal entity, Civil Code, and section VII of Civil Code in particular, as other laws and international treaties of KR should apply while deciding the present issue according to article 1167.1 of Civil Code of KR.
In accordance with article 1199.3 of Civil Code of KR the law to govern the relations of the Consulting Firm “Pro” and Sirius Telecommunication Company shall be “the law of the country of foundation, whereabout or place of major activity of the party which performs execution of crucial meaning for such contract shall be applied”.
The “execution of crucial meaning” under the aforesaid agreement has been performed by the executor – CF Pro.
It is impossible to define for us now the “place of major activity” of CF Pro. We will, however take into account the place of its incorporation – Russian Federation.
The Consulting Firm is a company incorporated in Russia.
The aforesaid leads to a conclusion that relations between the parties are to be governed by the law of Russian Federation.
At the same time, obligation to implement the law of Russian Federation, does not deprive the court of Kyrgyz Republic to try the case.
According to Article 370 of CPC KR “The courts of Kyrgyz Republic tries a civil cases with participation of foreign persons, if the foreign legal entity-defendant is located in Kyrgyz Republic” and/or “the case is about indemnification, to the property, action or any other condition, that led to occurrence of the claim of indemnification, that took place in Kyrgyz Republic”, and/or “the suit is under the contract, under which full or partial execution shall take place or had taken place on the territory of Kyrgyz Republic”.
The STC, defendant under this case is located in KR; the claim of the plaintiff is claim of indemnification under the contract between the parties that took place in Kyrgyz Republic; the execution of the contract took place in Kyrgyz Republic.
Thus, the suit can be filed in the courts of Kyrgyz Republic.
Under Article 1 of CPC KR “the form of legal procedure is defined under … this Code..”. So the procedural rights and obligations of the parties are to be defined under the Civil Procedural Code of Kyrgyz Republic.
The second sentence of Article 1199.3 of Civil Code of KR provides that “in the event if it is impossible to determine the execution of crucial meaning for the contract the law of the country with which the contract is tied most closely shall be administered”.
The application of the “center of gravity” doctrine is not necessary in the present case as we had an opportunity to define the applicable law according to the first sentence of Article 1199.3 of Civil Code of KR.
Probably the country with which the contract is “tied most closely” would have been the Kyrgyz Republic as the defendant is the legal entity of KR, and the contract was implemented in KR.
Under this provisions the applicable substantive law would have been the law of KR.
If the precedent law would have been applicable to the present case several cases could have been used.
The first cases would have been Auten v. Auten (Court of Appeals of New York, 1954. 308 N.Y. 155, 124 N.E. 2d 99) and Babcock v. Jackson (Court of Appeals of New York, 1963. 12 N.Y. 2d 743, 191 N.E. 2d 279) where the Court of Appeals provides for the “grouping of contacts” theory or “center of gravity” theory that states that “the courts, instead of regarding as conclusive the parties’ intention or the place of making or performance, lay emphasis rather upon the law of the place” which is “having the most interest in the problem”.
Under the aforesaid cases, the party “having the most interest in the problem” would probably be the Kyrgyz Republic as the defendant is the legal entity of KR, and the contract was implemented in KR.
CONCLUSION
The aforesaid dispute shall be decided under the substantive law of Russian Federation and procedural law of Kyrgyz Republic if filed in the court of Kyrgyz Republic.
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