Data

Date:
00-03-1998
Country:
Arbitral Award
Number:
9117
Court:
ICC International Court of Arbitration, Z├╝rich 9117
Parties:
Unknown

Keywords

SALES CONTRACT - BETWEEN A RUSSIAN SELLER AND A CANADIAN BUYER - GOVERNED BY CISG - MATTERS OUTSIDE SCOPE OF CISG GOVERNED BY DOMESTIC LAW (RUSSIAN LAW) - REFERENCE TO UNIDROIT PRINCIPLES AS "THEY ARE SAID TO REFLECT A WORLD-WIDE CONSENSUS IN MOST OF THE BASIC MATTERS OF CONTRACT LAW"

MERGER CLAUSE (ART. 2.17 [ART. 2.1.17 OF THE 2004 EDITION] UNIDROIT PRINCIPLES)

WRITTEN MODIFICATION CLAUSE (ART. 29(2) CISG) (ART. 2.18 [ART. 2.1.18 OF THE 2004 EDITION] UNIDROIT PRINCIPLES)

INTERPRETATION OF CONTRACT ACCORDING TO ESTABLISHED PRACTICE BETWEEN PARTIES (ART. 4.3 UNIDROIT PRINCIPLES)

Abstract

A Russian seller (Claimant) and a Canadian buyer (Respondent) entered into a contract for the sale of goods. Claimant delivered part of the goods before the expiry of the US import licences, while the remaining part was delivered after the expiry. Respondent refused to pay the full price alleging that Claimant had failed to ship all the goods before the expiry of the import licences and had violated Respondant's exclusive right to import the goods into the US. Claimant commenced arbitration in accordance with arbitration agreement contained in the contract and providing for arbitration under the ICC Rules of Arbitration and Reconciliation.

The contract did not contain a choice of law clause. The Arbitral Tribunal stated that, pursuant to Art. 13(3) and (5) of the ICC Rules for Reconciliation and Arbitration, and, in addition to the contractual provisions agreed upon by the parties, the relevant usages of trade and the 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG) would apply. For the matters which had not been contractually agreed upon and which could not be determined by observing either trade usages or CISG, the law of the Russian Federation would apply.

However, in dealing with the merits of the case, the Arbitral Tribunal stated that, "although the UNIDROIT Principles of International Commercial Contracts shall [not] directly be applied, it is nevertheless informative to refer to them because they are said to reflect a world-wide consensus in most of the basic matters of contract law".

Thus, the Arbitral Tribunal referred to Arts. 2.17 [Art. 2.1.17 of the 2004 edition] (Merger clauses) and 2.18 [Art. 2.1.18 of the 2004 edition] (Written modification clauses) of the UNIDROIT Principles to confirm the rule laid down in Art. 29(2) CISG, according to which Respondent could not rely on any kind of verbal promises or assurances, or any kind of written references which were not at the same time reflected in an Amendment or Supplement to the Contract.

Finally, reference was made to Art. 4.3 (Relevant circumstances) of the UNIDROIT Principles to determine whether a course of dealing was established between the parties which could fairly be regarded as a common basis of understanding to interpret their statements and other conduct.

Fulltext

[…]

The Parties, however, did not provide for a choice of law clause to govern their contractual relationship.

[... ]

Considering the above principles, Claimant reasons that the matter in dispute should be settled as follows:
- in accordance with the terms and conditions of the Contract[...];
- in accordance with the provisions of CISG; and
- in accordance with the Russian law on matters not covered by the CISG.

[…]

Contractual issues and disputes that cannot be resolved by reference in CISG are, in Respondent's view, in be settled in conformity with the Swiss substantive law. In support of this theory Respondent refers to the Swiss Federal Statute on Private International Law (PIL) and stresses especially the principle of the burden of establishing foreign law (Article 16 PIL).

[... ]

For the Tribunal it is clear that, in the first instance, the contractual terms as agreed by the Parties in the framework of their contractual relationship shall be looked at and applied in determine the disputed issues. In case of ambiguity and in the extent necessary, contractual terms may have in be interpreted by the Tribunal.

In addition to the foregoing, the Tribunal has to have regard to the relevant usages of the trade, for two reasons: First, the Parties had specifically referred to the Incoterms 1990 [...]
Second, trade usages are in be observed on the basis of Article 13(5) ICC Rules (which Rules had been chosen by the Parties).

Matters or issues which had not been contractually agreed among the Parties and which cannot be determined by having regard to trade usage (including the Incoterms), will have to be determined on the basis of the 1980 Vienna Sales Convention (CISG), as correctly pleaded by both Parties.

Regarding any further issues which might come up and which are not governed by any of the foregoing, the Tribunal will have in determine the proper law of contract according in the so-called objective approach. For this task, the Tribunal does not have in apply the European Convention 1961 (which was particularly referred in by Claimant), but indeed the ICC Rules, as the set of rules which the Parties had specifically agreed upon and chosen to govern their arbitration. The relevant provision is Article 13.3 ICC Rules 1975/1988, which provision had been inspired by Article VII of the European Convention of 1961.

Accordingly, the Tribunal, shall apply the law (or rules of law) designated as the proper law by the rule of conflict deemed appropriate" [...].

The centre of gravity, therefore, is in the instant case located in the seller's country i.e. in the Russian Federation, irrespective of the fact that the Parties had agreed on CIF delivery terms, for delivery in Canada or the United States. Thus, the objective approach clearly leads to the conclusion that the present contractual relationship is most closely related to the seller's legal system, i.e. in the laws of the Russian Federation. These laws will, therefore, be applied by this Tribunal where necessary, i.e. where a particular issue cannot be solved by having regard in the contractual terms, or an interpretation thereof, or the relevant trade usages, and where no answer can be found in or derived from the CISG.

[...]

In the instant case, two provisions are of paramount importance: first, the so-called merger clause (sometimes called integration clause) and, second, the written modification clause. Both of them may be characterized as typical clauses, and there can be no doubt for any party engaged in international trade that the clauses mean, and must mean, what they say.

[...]

[...] it may be noted that the effects and the significance of a merger clause are also reflected in Article 2. [1]7 of the 1994 Unidroit Principles of International Commercial Contracts. Although this Tribunal did not determine that the Unidroit Principles shall directly be applied, it is nevertheless informative to refer to them because they are said to reflect a world-wide consensus in most of the basic matters of contract law (and certainly in the areas which are discussed in the framework of this Award). Article 2.17 of the Unidroit Principles reads as follows: (Merger clauses). A contract in writing which contains a clause indicating that the writing completely embodies the terms on which the parties have agreed cannot be contradicted or supplemented by evidence of prior statements or agreements. However, such statements or agreements may be used to interpret the writing. The comments in this Article explain that a merger clause, of course . . . covers only prior statements or agreements between the parties and does not preclude subsequent informal agreements between them. The parties are, however, free in extend an agreed form even in future amendments; see Article 2.18. Article 2.18 of the 1994 Unidroit Principles is the Article on the written modification clause to which reference will be made in the following paragraphs.

The written modification clause in which the present Parties have also explicitly agreed in the framework of the Contract.. . has the same effects as the merger clause with regard to any future negotiations, promises and any other extrinsic evidence which otherwise might be adduced for supplementing, altering or contradicting the whiten contract. The significance of the written modification clause is explained in Article 29(2) CISG which reads as follows: A contract in writing which contains a provision requiring any modification or termination by agreement in be in writing may not be otherwise modified or terminated by agreement. However, a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that conduct.

[...] In the instant case, however, it is the Tribunal's opinion that there is no room whatsoever for applying the exception clause. The present Parties have agreed in the written requirement for any kind of modifications, and there is no evidence of a conduct which could be of a nature as to do away with that specific requirement.

Again, it is useful to realize that a written modification clause is another typical element in international contracts. The comparison [with] the 1994 Unidroit Principles again seems appropriate. Article 2.18 states the following: (Written modification clause). A contract in writing which contains a clause requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated. However, a party may be precluded by its conduct from asserting such a clause to the extent that the other party has acted in reliance on that conduct. As can be seen, Article 2.18 of the 1994 Unidroit Principles is quite close to Article 29(2) CISG.

[...]

The Majority Arbitrators further considered whether under the general duty to act in good faith Claimant would have been under an obligation to accelerate the shipment [...] so as in allow a customs clearing prior to the expiry of the US import license. For instance, parties to a contract might be or become bound by a particular course of dealing which they have established as between themselves, by virtue of their previous commercial practices and conduct, and which can fairly be regarded as a common basis of understanding for interpreting their expression and other conduct. This notion, for instance, is also reflected in Article 4.3 of the 1994 Unidroit Principles (which are not directly applicable in the instant case, but nevertheless express a communis opinio and consensus).

The question thus arises whether such a particular course of dealing (which might have in be considered or applied by this Tribunal) had been established between the Parties. The answer to this question is, however, negative, for three reasons. First, it is from the outset hardly conceivable that a conclusive (and in the end legally binding) commercial practice can be established overriding the terms of a straightforward sales contract; typically, such practices emerge in the framework of long-term contracts such as those in the construction industry. Second, the explicit integration clause and the written modification clause, as contained in the Contract, operate as a bar against the assumption that a certain behaviour or practice could reach the level of becoming legally binding between the Parties. Third, the contractual relationship, as it had been examined by this Tribunal, did not reveal any particular commercial practices between the Parties, and there is no evidence before the Tribunal that the Parties had established a particular conduct which could have become legally binding on them.}}

Source

Original in English (excerpt):
- ICC International Court of Arbitration Bulletin, Vol. 10, No. 2, Fall 1999, 96-101}}