- Arbitral Award
- ICC International Court of Arbitration 11375
LONG-TERM CONTRACTS - CONSORTIUM AGREEMENT - BETWEEN WESTERN EUROPEAN COMPANIES AND EAST ASIAN COMPANIES - TO BID FOR A BOT CONCESSION IN AN EAST ASIAN COUNTRY - IMPLICIT OBLIGATION FOR CONSORTIUM MEMBERS TO ACT IN GOOD FAITH AMONG THEMSELVES - REFERENCE TO APPLICABLE DOMESTIC LAW AND TO THE UNIDROIT PRINCIPLES
Several companies of Western Europe and East Asia entered into a consortium agreement to bid for a BOT concession in an East Asian country. A dispute arose when some of the parties to the consortium agreement accused others of breach of the agreement on account of their refusal to contract with them after having been awarded the concession. One of the questions to be decided was whether under the consortium agreement Defendants were entitled to contract with companies other than Claimants.
In deciding the question in the negative the Arbitral Tribunal pointed out that the legal relationship created by the consortium agreement was not an adversarial one but even in the absence of an express provision to this effect the parties were bound by an implicit obligation to act in good faith towards one another. The existence of such implicit obligation was not only expressly stated in the Civil Code of Country X whose law governed the agreement, but was also highlighted by an expert witness heard according to whom "in the UNIDROIT Principles which may have some relevance to an international case there is an implied obligation of good faith even if the parties don't agree on it".
With respect to the relationship between the members of the ... Consortium, [Respondent] and [Claimant], there are three fundamental norms which arise logically and necessarily from the common interests that gave rise to and sustained the legal relationship of these parties and which are confirmed, indeed sometimes reiterated, in the various instruments. Without these normative elements, the legal relationship into which the diverse profit-maximizing entities were entering would have made little sense; any interpretation of the agreements and legal instruments with such a result would be untenable. The three fundamental and necessary norms are:
1. The preferred and priority bidder status of [Claimant];
2. The power of [Respondent] to refuse to contract with [Claimant] if [Claimant]'s proposal was in material non-compliance that would have frustrated the common interest of the Consortium members by allowing, if not requiring, the Government of [Country X] to reject the proposal of the Consortium;
3. A requirement of good faith and loyalty to the other members of the Consortium, which would, for example, have obliged [Respondent], as the negotiating agent, to try to dissuade the Government from changing a requirement that would have precluded the participation of another Consortium member.
These normative elements are the architectural struts of the legal relationship and each must be considered in more detail.
It is perfectly clear that, in this complex legal relationship, good faith and “fair play”, as the official of the Government of [Country X] put it ..., were as indispensable as the previous normative elements. The expectation that this was a necessary part of the regime was expressed in the Consortium Agreement and in the communication from the Government of [Country X] and it was implicit in the essential nature of the legal parties' relation. It is, moreover, required by [Country X] law. Article 219 of Book Il of The Civil Code provides that
Every person is bound to execute his obligations and to exercise his rights in accordance with the rules of honesty and good faith.
Respondent's witness, Professor [A], testified "in the UNIDROIT principles, which may have some relevance to an international case, there is an implied obligation of good faith even if the parties don't agree on it".
The ... Opinion, mentioned above, appeared to rely on a dictum in Walford v. Miles in which Lord Ackner said "the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations". With all respect to that distinguished jurist and to the possible position in English law on this matter (which is, in any event, not the parties' choice of law in the case before us), the legal relations that were created by the agreements and instruments in the instant case meant that the parties to them did not find themselves in strict adversary relations, but were indeed bound by obligations of good faith as required by [Country X] law.
In the course of the Hearing, [Respondent]'s position changed. Counsel for [Respondent] stated that "there was an obligation to negotiate in good faith, not derived from a contract provision, Article 5.3, which is now defunct, but arising from the fact that we undertook negotiations with [Claimant] to begin with". In addition, Professor [A], [Respondent]'s witness, confirmed his statement in his second witness statement, to the effect that he understood that [Respondent] did not dispute that there was an obligation to negotiate in good faith.}}
Excerpt in ICC International Court of Aribtration Bulletin, 2005 Special Supplement, pp. 90-91.}}