The Arbitrazh Court of the Moscow Circuit, in a case concerning the supply of a high‑precision measuring device, effectively turned a well‑known Russian saying into a legal principle: in the reasoning part of its ruling the court expressly stated that “the first word beats the second”. The trigger was a situation where, in pre‑trial correspondence, the supplier acknowledged the problem and was willing to discuss repair and compensation, but in court abruptly changed its position and argued that the goods were of proper quality and that any defects resulted from improper operation.

Brief background: supply contract and a sharp U‑turn in the supplier’s position

The buyer demanded that the supplier return the amount paid under the supply contract and also sought contractual penalties, damages and interest. The claims were based on defects in the measuring device identified by the end user upon acceptance, which led the end user to refuse to accept the goods.

The supplier argued that the device had passed calibration at a specialised organisation and that no defects had been identified at the time of calibration. Therefore, in the supplier’s view, the buyer had failed to prove that the defects had arisen before the transfer of the goods or were caused by circumstances existing at that time.

How the courts dealt with the case

At first instance, the Arbitrazh Court of the City of Moscow dismissed the claim. Its reasoning was conventional: the buyer had not proved the supplier’s liability for the defects in the goods, no expert examination had been conducted within the proceedings, and the calibration report confirmed proper quality at a particular point in time.

The Ninth Commercial Court of Appeal endorsed this approach and upheld the first‑instance judgment, referring to the failure to prove that the defects had arisen before the transfer of the goods.

The Arbitrazh Court of the Moscow Circuit set aside both lower‑court acts and remitted the case for a new trial. The court of cassation explicitly pointed out that the lower courts had ignored the arguments about the supplier’s inconsistent conduct and had failed to assess its initial willingness to remedy the defects and pay compensation. Hence the now‑quoted formula “the first word beats the second” in the context of assessing the parties’ correspondence.

Upon remand, the Arbitrazh Court of the City of Moscow ordered a forensic expert examination, asking the expert to address the existence of defects, their causes, materiality, removability and impact on the functionality of the device, and stayed the proceedings pending the expert report.

Comment by litigation lawyer Andrey Safonov:

“The cassation court’s key criticism of the lower courts is that, in this context, it is no longer sufficient simply to refer to the buyer’s failure to prove the supplier’s fault under Article 476 of the Civil Code of the Russian Federation. Where the supplier initially effectively acknowledges the problem by discussing options for repair and compensation, and then radically changes its position, the court is obliged to answer directly how such a change correlates with the principle of good faith and the prohibition on deriving benefit from one’s own inconsistent conduct.

Furthermore, the buyer did not merely seek rectification of defects or a proportionate reduction of the purchase price but specifically declared refusal to perform the contract and demanded a refund of the purchase price. This automatically makes it crucial to determine whether the defects are material within the meaning of Article 475 of the Civil Code.

Without an expert examination of a complex technical device, any conclusion that the defects are immaterial is, in essence, a judicial assumption rather than the result of an assessment based on specialised knowledge, and this is precisely what the cassation instance found unacceptable.”

Practical takeaways

1. Pre‑trial correspondence = your future position in court
   For businesses and their legal counsel, pre‑trial correspondence concerning product quality must be handled as carefully as procedural documents submitted in the course of litigation. Any promise to repair, replace or compensate for defective goods/equipment may later be interpreted as an acknowledgment of liability that will be very difficult to walk back from.
2. Record procedures in the supply contract
   In supply contracts and acceptance procedures it is advisable to describe in detail the process for identifying defects, giving notices and involving the supplier in inspections, so that the parties can rely less on emotional correspondence and more on a pre‑agreed course of action.
3. Do not fear expert examinations – be the first to request them
   In technically complex disputes it is often better for a party to proactively request an expert examination already at first instance, clearly formulating questions about the existence of defects, their causes and their impact on the functionality of the goods. This not only strengthens the position on the merits, but also reduces the risk that the case will be remitted for a new trial due to incomplete examination of the evidence.
4. Good faith is no longer “just theory”
   Finally, this case clearly illustrates that the courts are increasingly transforming the principle of good faith and the prohibition of inconsistent conduct from a theoretical construct into a practical tool capable of influencing the outcome of a dispute, especially where the wording of the contract leaves room for manoeuvre.

Source: Commercial Case File Database (kad.arbitr.ru)