- Arbitral Award
- ICC International Court of Arbitration 12111
SALES CONTRACT - BETWEEN A RUMANIAN COMPANY AND AN ENGLISH COMPANY - REFERRING TO "INTERNATIONAL LAW" AS THE LAW GOVERNING THE CONTRACT - TO BE UNDERSTOOD AS REFERENCE TO THE GENERAL PRINCIPLES OF LAW AND THE LEX MERCATORIA - APPLICATION OF THE UNIDROIT PRINCIPLES (PARAGRAPH 3 OF THE PREAMBLE OF THE UNIDROIT PRINCIPLES)
PRINCIPLES OF EUROPEAN CONTRACT LAW - ACADEMIC EXERCISE PRELIMINARY TO A EUROPEAN CIVIL CODE - AS SUCH NOT YET APPLICABLE TO INTERNATIONAL COMMERCIAL CONTRACTS
A sales contract between a Romanian seller and a English buyer contained the following choice of law clause and arbitration agreement: "This contract is governed by international law; any dispute arising in connection with this contract shall be settled amicably, and failing that, by arbitration under the ICC International Court of Arbitration."
When a dispute arose which the parties were unable to settle amicably, the Romanian seller requested arbitration. The parties disagreed as to what the law applicable to the substance of the dispute was. Claimant argued that by referring to “international law” the parties had in mind the general principles of law and the lex mercatoria, and in accordance with Article 1.101 (3) of the Principles of European Contract Law and paragraph 3 of the Preamble of the UNIDROIT Principles concluded that the dispute should be governed by the Principles of European Contract Law, applicable in Romania, to be interpreted in the light of the UNIDROIT Principles. Respondent objected by invoking the application of English law.
The arbitral tribunal held that by referring to “international law” the parties had made it clear that they did not want the application of any domestic law; the term “international law” was to be understood as reference to the lex mercatoria and general principles of law applicable to international contracts, and since such general principles are reflected in the UNIDROIT Principles it concluded that the dispute should be governed by the UNIDROIT Principles. As to the Principles of European Contract Law, the arbitral tribunal stated that “they constitute an academic research, at this stage not largely well-known to the international business community and are a preliminary step to the drafting of a future European Code of Contracts, not enacted yet” and therefore excluded their application in the case at hand.
The purpose of this preliminary award is to decide on the issue of the applicable rules of law to the merits of the dispute.
On […] May 2001 X and Y entered into a contract entitled "Purchase/Sale Contract n° […]2001" (hereinafter the "Contract") supplemented by an addendum n°01 (hereafter the "Addendum") undated, whereby X sold to Y quantities of "bleached kraft paper without optical agents" to be produced in Romania, under the technical characteristics defined in a technical sheet No. 1/2001 (incorporated into the Contract), for prices in USD/MT Ex works X Constanta determined in relation with lots stipulated in the Addendum.
Article 14 "Disputes" of the Contract provided:
"the present contract is governed by international law; any dispute arising in connection with this contract will be settled in an amiable way and, should this fail, by authority of the International Chamber of Commerce of Paris."
2.1. Terms of Reference
The Terms of Reference were executed on […] September 2002 by Claimant’s lawyers, by Respondent’s lawyer and by the Sole Arbitrator. These Terms of Reference were transmitted to the International Court of Arbitration of the ICC on […] October 2002.
2.2. Provisional Timetable
By fax dated […] September 2002 the Sole Arbitrator suggested to the parties to prepare a provisional procedural timetable in accordance with Article 18-4 of the ICC Rules for Arbitration limited to the issue of the applicable law and forwarded a draft provisional procedural timetable for comments to the parties. On […] September 2002, Claimant agreed to the draft. Respondent did not make any comment.
On […] September 2002, the following timetable was issued:
"1. The parties are to submit simultaneously their brief on the issue of the applicable law to the Purchase / Sale Contract dated […] May 2001 by […] October 2002, at the latest.
2. The parties are to submit simultaneously their reply brief by […] October 2002, at the latest.
3. If one of the parties so request, in accordance with Article 20.6 of the ICC Rules, a date for a hearing on applicable law is reserved in Paris on […] October 2002. The party(ies) requesting that a hearing be held should so inform the Tribunal by […] October 2002 at the latest.
4. Following notification of the decision on the applicable law, the Arbitral Tribunal shall issue a new Provisional Timetable.
5. All dates in the present Provisional Timetable are dates of receipt. "
On […] October 2002, Claimant filed its "Comments regarding Applicable Law" and Respondent informed the Sole Arbitrator that its position on the applicable law remained as stated in its letter of […] September 2002.
Respondent further requested a postponement to […] October 2002 of the deadline set forth under paragraph 2 of the Procedural timetable.
On […] October 2002, the Sole Arbitrator granted such request and amended accordingly the Procedural Timetable. The date reserved for the hearing was moved to […] November 2002 and the deadline to request such a hearing was postponed to […] November 2002.
On […] October 2002, Claimant informed the Sole Arbitrator that it maintained its position as presented in its "Comments regarding Applicable Law" dated […] October and Respondent indicated by telecopy dated […] October 2002 that it did not have any further comments.
The Procedural Timetable provided that a hearing would take place if one of the parties so requested. By letter dated […] September 2002, Claimant had stated that it did not wish a hearing on the applicable law. Answering to the above-mentioned letter of the Sole Arbitrator dated […] October 2002, Respondent stated that it was "unable to make any financial contribution to sustain [its] case in court". Accordingly, as per Article 20.6 of the ICC Rules of Arbitration the Sole Arbitrator decided on […] October 2002 that the issue of applicable law would be decided solely on the documents submitted by the parties.
3. APPLICABLE RULES OF LAW
Article 14 "Disputes" of the Contract provided : "the present contract is governed by international law;[...]." The parties disagree as to the meaning and extent of this provision.
Article 3 "Price" of the Contract and the Addendum provided for prices "in USD/MT Ex works [X] Constanta".
3.1. Claimant's Position
In its Request for Arbitration dated […] April 2002, X requested that the dispute be settled under Romanian law (Request for Arbitration, para. 3.2).
Subsequently, in its Reply to Respondent's Answer to the Request and its "Comments regarding the Applicable Law" dated […] October 2002, Claimant modified its position and proposed that the arbitration be settled under the Principles of European Contract Law - 1998 ("PECL") which are applicable to Romania, interpreted in the light of the Principles of International Commercial Contracts - 1994 ("Unidroit Principles"). This position is based on the following assertions: the parties had in mind the general principles of law and lex mercatoria when they stipulated "international law" in the Contract : (i) The parties to the Contract have a different nationality and their acts are subject to international private law being governed by general principles of law ; (ii) the Contract being by essence an international trade contract, the absence of determination of a national law proves the parties' intention to have the Contract governed by general legal rules and principles in matter of international obligations. Claimant refers in this respect to the contractual negotiations and to arbitral awards rendered in this respect ; the Contract meets the conditions set forth under the Preamble and article 1.101, point 3 of Unidroit Principles for the application of these Principles.
3.2. Respondent's Position
In its Answer to the Request of […] June 2002 and in its letter of […] September 2002, Y requested English law to be the law applicable in this case since Y is a company registered under English law and it has "acted according to the letter and spirit of this law, including the interpretation of a 'Gentlemen's agreement'."
3.3. Tribunal's Discussion
Article 17 of the ICC Rules of Arbitration states the following
“1. The parties shall be free to agree upon the rules of law to be applied by the Arbitral Tribunal to the merits of the dispute.
In the absence of any such agreement, the Arbitral Tribunal shall apply the rules of law which it determines to be appropriate.
2. In all cases, the Arbitral Tribunal shall take account of the provisions of the contract and the relevant trade usages.”
The Sole Arbitrator shall first examine whether there is an agreement of the parties upon the rules of law applicable to the Contract.
Claimant submitted two draft contracts to the Sole Arbitrator:
- a draft in English dated […] May 2002 prepared and executed by Y, sent to X on [this same day] May 2001 stating:
"Any disputes arising in connection with this contract will be settled in London according to English law" (Claimant's Exhibit 19) ;
- a second draft in Romanian prepared by X, sent to Y on […] May 2001 introducing under Clause XIII "Litigii" the possibility of a settlement of the disputes through arbitration before the "Camera de Convert, Industrie, Navigatie si Agricultura Constanta, Romania" (Claimant's Exhibit 19). There was no mention of an applicable law.
Article 14 of the Contract states : "the present Contract is governed by international law”. It is clear that Y, by executing the Contract, agreed that English law was not applicable. The issue is therefore the interpretation of the terms "international law".
The Contract is a sale contract entered into between two entities established in two different countries. Given the fact that they renounced during the negotiations to refer to a national law, the terms "international law" cannot refer to the portion of so-called private international law of a national law. Indeed, "private international law" as applied to international contracts consists of a set of rules of conflict of laws which help the judge or the arbitrator to determine the law applicable to the contract.
The Sole Arbitrator is persuaded that the parties wished to depart from a national system. They did not want to apply the private international law of an undetermined national legal system. The Sole Arbitrator agrees with Claimant that "international law" should be understood as international rules applicable to international contracts.
This complies with the terms of Articles 17-1 and 17-2 of the ICC Rules of Arbitration which authorize the parties or the arbitrator not to apply a national law to a contract.
Furthermore, the Sole Arbitrator notes that the parties implicitly referred in the Contract to the application of trade usages (Article 17-3 of the ICC Rules for Arbitration) such as Incoterms, by stating in article 3 "Price" and in the Addendum that the Contract price was in "USD M/T Ex works [X] Constanta".
Accordingly, the Sole Arbitrator considers that the terms "international law" used by the parties refer to lex mercatoria and general principles of law applicable to international contractual obligations such as the ones arising out of the Contract. Such general principles are reflected in the Unidroit Principles of International Commercial Contracts which will be applied for the determination of the parties' respective claims in this arbitration.
As to the application of the PECL, i.e., principles established further to an initiative of the Commission of the European Union in order to harmonize private law within the State members of the European Union, the Sole Arbitrator notes that they constitute an academic research, at this stage not largely well-known to the international business community and are a preliminary step to the drafting of a future European Code of Contracts, not enacted yet. Claimant's claim for application of the PECL is therefore rejected.
Done in Paris
On […] 2003
[The Sole Arbitrator]}}