- Arbitral Award
- ICC International Court of Arbitration 16369
COMMODITY SALES CONTRACT - BETWEEN A KOSOVAR SELLER AND A SWISS BUYER - CHOICE OF LAW IN FAVOUR OF SWISS LAW – CISG APPLICABLE AS PART OF SWISS LAW – UNIDROIT PRINCIPLES USED TO INTERPRET AND SUPPLEMENT THE CISG ACCORDING TO UNCITRAL ENDORSEMENT
HARDSHIP - COLLAPSE OF THE PRICE OF COMMODITY – DOES NOT EXCUSE NON-PERFORMANCE IF THE PARTIES AGREED TO SHARE THE RISK OF HEAVY MARKET FLUCTUATIONS (ART. 6.2.2 LIT. D UNIDROIT PRINCIPLES)
HARDSHIP - ADAPTATION OF THE CONTRACT - TO BE PREFERRED TO TERMINATION (ART. 6.2.3 (4B) UNIDROIT PRINCIPLES)
DAMAGES – AGGRIEVED PARTY ENTITLED ONLY TO LOSS OF PROFITS - ONWARD SALE OF COMMODITY TO A THIRD PARTY
INTEREST - RIGHT TO INTEREST - STATUTORY RATE PROVIDED FOR IN SWISS LAW - APPLIED AS REQUESTED BY THE AGGRIEVED PARTY - ARBITRAL TRIBUNAL STATING IN AN ASIDE TO PREFER UNIFORM LAW APPROACH - REFERENCE TO ART. 7.4.9 UNIDROIT PRINCIPLES TO SUPPLEMENT ART. 79 CISG
Seller, a Kosovar socially-owned enterprise put under the administration of a UN agency, entered into a contract for the supply of a commodity with a Swiss buyer. The contract provided for several deliveries and a purchase price based on a price formula with fixed parameters and variables. It was governed by "the substantive law of Switzerland" and CISG applied as part of Swiss law.
A few days after the conclusion of the sales contract, Buyer concluded another contract with a third party for the onward sale of the commodity.
When Buyer communicated the date on which the first shipment was to be loaded, the price of the commodity collapsed. Since the price collapse continued over a period of time, the formula agreed in the contract led to a minimal purchase price, even negative in respect of certain deliveries.
Since Seller failed to deliver any of the agreed quantities and Buyer could not perform the onward sale contract, the latter commenced an ICC arbitration claiming loss of profits, damage to its reputation, reimbursement of contractual penalties paid to third party, as well as expenses incurred in attempting to remedy the situation following Seller's non-performance.
The Sole Arbitrator held that the Seller was in breach of the contract under the CISG; however, he awarded Buyer only damages for loss of profit, with interest, dismissing as unproven all other claims.
The Sole Arbitrator also rejected Seller's contentions that no damages were owed under the CISG because the non-performance was excused on grounds of hardship. He affirmed that although there was hardship, since the value of the performance Seller was to receive (the purchase price) was drastically diminished, it appeared from the price formula contained in the contract that the parties agreed to share the risk of heavy market fluctuations. In so doing the Arbitrator referred to Art. 6.2.2(d) UNIDROIT Principles, which may be used, according to the UNCITRAL endorsement, to interpret or supplement international uniform law instruments.
The Sole Arbitrator also affirmed that, failing an agreement between the parties, adaptation of the purchase price, rather than termination, was the reasonable and fair remedy. In this respect he referred to Official Comment 4b to Art. 6.2.3 UNIDROIT Principles.
Based on the adapted purchase price, the Sole Arbitrator determined the quantum of loss of profit suffered by the Buyer. He also applied interest at the statutory rate provided for in Swiss law, as requested by Buyer, starting from the time when the loss occurred. Nevertheless, the Arbitral Tribunal mentioned in an aside that it saw much merit in the uniform law approach taken by some arbitral tribunals which have applied, in light of CISG’s silence on the issue of the rates of interest, the rate provided for in Article 7.4.9 of the UNIDROIT Principles.