- Arbitral Award
- AA 286
- Permanent Court of Arbitration
- Granuco S.A.L. v.The Food and Agricultural Organization of the United Nations
SUPPLY CONTRACT - BETWEEN A LEBANESE COMPANY AND THE FOOD AND AGRICULTURAL ORGANIZATION OF THE UNITED NATIONS (FAO) – CONTRACT REFERRING TO THE “GENERAL PRINCIPLES OF LAW TO THE EXCLUSION OF ANY NATIONAL LEGAL SYSTEM” AS LAW GOVERNING THE CONTRACT AND APPLICABLE TO SUBSTANCE OF POSSIBLE DISPUTES – APPLICATION BY ARBITRAL TRIBUNAL OF UNIDROIT PRINCIPLES 2004
FORCE MAJEURE – EU DECISION PROHIBITING EXPORT OF CERTAIN GOODS FROM THE EU TO THIRD COUNTRIES NOT AMOUNTING TO FORCE MAJEURE IF PARTY COULD HAVE OVERCOME ITS EFFECTS BY TRANSFERRING ITS PLANT OUTSIDE THE EU – REFERENCE TO UNIDROIT PRINCIPLES 2004
ASSIGNMENT OF CONTRACT – EFFECTIVE VIS-À-VIS PARTY ASSIGNED ONLY IF THAT PARTY HAS GIVEN ITS CONSENT - REFERENCE TO UNIDROIT PRINCIPLES 2004
Claimant, a Lebanese company with a plant in Spain, concluded a contract (“the Contract”) with Defendant, the Food and Agricultural Organization of the United Nations (FAO), for the delivery of animal feed with particular specifications indicated in the contract. When Claimant did not comply with the delivery terms despite reiterated requests by Defendant to perform, Defendant terminated the Contract. Claimant objected to the termination, arguing, among others, that its non-performance was due to the circumstance that after the conclusion of the Contract a EU decision came into force which prohibited the export of the types of feed ordered by Defendant from European Union Member States to third countries – in the case at hand to Iraq. Contemporaneously with the conclusion of the Contract with Claimant, Defendant concluded two similar contracts (“the Contracts”) with X, another Lebanese company, and also these contracts were ultimately terminated by Defendant on account of considerable delays in the delivery of the goods, without however raising any objection on the part of X.
More than one year after receiving notice of termination of the Contract by Defendant, Claimant sent a notice of arbitration against Defendant in accordance with the Contract, but for more than three years did not pursue the claim. When Claimant finally resumed proceedings the Arbitral Tribunal in a First Procedural Meeting declared that, in accordance with an express provision contained in the Contract, it would decide the dispute on the basis of “general principles of law to the exclusion of any national legal system” and, although it did not expressly announce it on that occasion, subsequently applied the UNIDROIT Principles (2004 edition) as invoked by the parties in their pleadings.
In its statement of claim Claimant objected, first of all, to the termination of the Contract on the ground that the delayed deliveries were due to force majeure: indeed the above-mentioned supervening EU Decision had forced it to move its factory from Spain to Brazil, creating significant administrative hurdles in order to get there the business organized. Moreover, Claimant argued that also the termination of the Contracts with X was unlawful for two reasons: first, because the Contracts were previously assigned by X to Claimant so that Defendant should have given notice of their termination to Claimant instead of X; second, because Claimant had at least in part properly performed the Contracts vis-à-vis Defendant. With respect to the first objection Defendant denied that the EU Decision represented an impediment that prevented Claimant from performing its obligations under the Contract; with respect to the second objection, it pointed out that the agreement between Claimant and X was merely a “commercial dealing between a trader and one of its suppliers” and not an assignment of the Contracts which would have required Defendant´s approval that it never gave.
The Arbitral Tribunal decided in favour of Defendant. As to Claimant´s argument that the EU Decision amounted to a case of force majeure which excused its non-performance, the Tribunal held that the EU Decision did not represent an absolute impediment to perform as demonstrated by the fact that Claimant was able to transfer its plant from Spain to Brazil and could have performed the Contract from that new location. As to the alleged assignment of the Contracts from X to Claimant, the Tribunal pointed out that to be effective vis-à-vis the assigned party must have given its consent and that in the case at hand such consent was never given by Defendant who was informed by Claimant of the alleged assignment only after Defendant had given notice of termination of the Contracts to X. In both cases the Tribunal invoked in support of its decision the UNIDROIT Principles, though without referring expressly to the relevant provisions thereof, i.e. Article 7.1.7 and Article 9.3.3 of the UNIDROIT Principles 2004.