- Arbitral Award
- ICC International Court of Arbitration, The Hague 14633
INTERNATIONAL SALES CONTRACT - CONTAINING A CHOICE OF LAW CLAUSE IN FAVOUR OF CISG AND, FOR ISSUES NOT COVERED BY CISG, IN FAVOUR OF THE UNIDROIT PRINCIPLES
TERMINATION FOR BREACH OF CONTRACT - PAYMENT TO BE "EFFECTED BY IRREVOCABLE L/C ... ACCEPTABLE TO THE SELLER, FULLY WORKABLE" - BUYER'S OBLIGATION TO AMEND THE L/C AT SELLER'S REQUEST - REFUSAL OR NON-TIMELY COMPLIANCE AMOUNTS TO BREACH OF CONTRACTS
BUYER'S REFUSAL TO ARRANGE THE AMENDMENTS REQUESTED BY SELLER - AMOUNTS TO A VIOLATION OF THE DUTY OF GOOD FAITH - REFERENCE TO ART. 1.7 UNIDROIT PRINCIPLES
The dispute arose out of the unilateral termination of a sales contract, which contained the following choice of law clause: “Any legal issue relating to this contract and each and every provision incorporated in this contract or further contracts resulting of this contract shall be governed by the United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980 (CISG) and to the extent not covered by the CISG, by reference to the UNIDROIT Principles of International Commercial Sales Contracts of 1994 and if not covered by the foregoing sets of rules or the provisions in this contract, by internationally accepted general trade practices, and in final instance by the law of the country where the Seller has his principal place of business”. The contract also required payment to be “effected by irrevocable Letter of Credit, opened by a first class bank, acceptable to the Seller, fully workable, covering 100% of the invoice value".
The Seller had submitted a rail waybill that was different from that required under the terms of the letter of credit. The Seller qualified this difference as being only a technical discrepancy, and urged the Buyer to send a message to the issuing bank that the alleged discrepancy was to be considered waived, or to agree to an amendment of the letter of credit that would have had the effect of confirming the rail waybill's compliance. However, the Buyer did not act to waive the discrepancy or amend the letter of credit. The Seller therefore terminated the sales contract and commenced arbitration proceedings against the Buyer.
The Seller contended that, in refusing or failing to implement its request for an amendment or waiver, the Buyer had breached the contract. In support of this argument, the Seller referred to Art. 1.7 of the UNIDROIT Principles, which requires the parties to transact in good faith and uphold standards of fair dealing. It also added that the UNIDROIT Principles place on each party the duty to cooperate with its contractual counterparty (Art. 5.1.3) and to use its best efforts to work towards the “common project” of the parties, represented by the contract (Art. 5.1.4). In Seller’s view, by virtue of such provisions the Buyer was obliged to be proactive and cooperative in amending the letter of credit at Seller’s request.
On its part, the Buyer argued that it fulfilled its contractual obligations by arranging the opening of the letter of credit on the terms required by the contract. According to Buyer, that was all it had to do in order to satisfy its payment obligation with respect to the goods, since Art. 54 CISG does not necessarily require a buyer to succeed in its efforts to comply with all contractual formalities.
In deciding in favour of the Seller, the Sole Arbitrator found two reasons justifying the Buyer's obligation to amend the letter of credit upon the Seller's reasonable request. First, the payment clause in the contract provided that the letter of credit had to be fully workable and acceptable to the Seller. Therefore, the Arbitrator affirmed that such a clause required the Buyer to comply with the Seller's requests to amend the letter of credit where it would have the effect of making this method of payment functional. Second, it was stated that even if the contractual language had been less explicit, the Buyer would have been required to comply with the Seller's request by virtue of principles of good faith and fair dealing, as enshrined in the UNIDROIT Principles (Art. 1.7). The Arbitrator concluded that the Buyer's refusal to amend the letter of credit amounted to both a breach of contract and a violation of its duty of good faith, which allowed the Seller to terminate the contract of sale.
Published in English (excerpt):
- in ICC International Court of Arbitration Bulletin 2015, Issue No. 2, pp. 142-146}}