- Arbitral Award
- Ad hoc Arbitration, Helsinki
SHARE PURCHASE AGREEMENT - PARTIES' CHOICE OF DOMESTIC LAW (LAW OF A NORDIC COUNTRY) - ARBITRAL TRIBUNAL REFERENCE WITHOUT FURTHER EXPLANATION TO THE UNIDROIT PRINCIPLES
NON-PERFORMANCE - PENALTY CLAUSE CONTAINED IN THE CONTRACT - AMOUNT EXCESSIVELY HIGH - REDUCTION BY ARBITRAL TRIBUNAL (ART. 36 NORDIC CONTRACT LAW) (ART. 7.4.13(2) UNIDROIT PRINCIPLES)
The shareholders of company X and company Y entered into an agreement between, whereby the former granted the latter the right to purchase at a fixed price within a specified period of time 51% of company X's shares. The contract, which was governed by the law of a Nordic country, provided for the payment of an amount corresponding to the purchase price in case of breach of the contract by the grantors of the option. A dispute arose between the parties regarding an alleged breach by the grantors of the option of some of their obligations arising out of the contract. Company Y asked for payment of the penalty.
The Court, though it held that the grantors of the option were liable for the alleged breaches, found that the amount of the penalty was excessively high for breaches different from that of the main obligation to sell the shares, and awarded company Y only part of it. In justifying the reduction of the agreed amount of the penalty the Court based its decision on Art. 36 of the Nordic Contract Law, according to which any contract term which is unreasonable or the application of which leads to unreasonableness may be mitigated or set aside. In order to further corroborate its finding, it also referred to Art. 7.4.13(2) of the UNIDROIT Principles, which expressly provide that "[...]the specified sum may be reduced to a reasonable amount where it is grossly excessive in relation to the harm resulting from the non-performance and to the other circumstances".
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