- Arbitral Award
- ICC International Court of Arbitration, Paris 8331
MEMORANDUM OF UNDERSTANDING - BETWEEN PARTIES OF UNKNOWN NATIONALITY
ARBITRAL TRIBUNAL REQUESTED BY PARTIES TO APPLY THE UNIDROIT PRINCIPLES TO THE EXTENT THAT THE ARBITRAL TRIBUNAL CONSIDERS IT NECESSARY AND APPROPRIATE
ALL CONTRACTUAL TERMS TO BE GIVEN EFFECT (ART. 4.5 UNIDROIT PRINCIPLES)
DUTY OF BEST EFFORTS (ART. 5.4(2) [ART. 5.1.4(2) OF THE 2004 EDITION] UNIDROIT PRINCIPLES) - AGREEMENT TO NEGOTIATE WITH A VIEW TO DEFINE AT A LATER STAGE MISSING TERMS
The case concerned a Memorandum of Understanding whereby the parties committed themselves to conclude a contract for the sale of trucks and of spare parts and, in addition, indicated in general terms their intention to come to an agreement for the setting up of an assembly plant for the production of the same type of trucks in the buyer's country. While the sales contract was actually concluded, the seller refused to enter into negotiations for the setting up of the envisaged assembly plant arguing that the buyer lacked the necessary business organisation for such a project.
The Terms of Reference provided that the arbitral tribunal should base its decision on the agreement between the parties and, to the extent it considered it necessary and appropriate, the UNIDROIT Principles.
In its decision the Arbitral Tribunal applied in particular two provisions of the UNIDROIT Principles: Article 4.5 in order to conclude that the Memorandum of Understanding was to be given effect in its entirety and not only as concerned the part relating to the conclusion of the sales contract, and Article 5.4(2) [Art. 5.1.4(2) of the 2004 edition] in order to conclude that the parties' declared intention to enter into negotiations with a view reaching an agreement for the setting up of an assembly plant entailed a duty to make best efforts to achieve that result. According to the Arbitral Tribunal the seller, by refusing to start negotiations, breached this duty, and its argument that the buyer lacked the necessary business organisation did not constitute a valid excuse.
The parties have agreed that the Arbitral Tribunal shall apply the relevant agreements between the parties and, to the extent that the Arbitral Tribunal finds it necessary and appropriate, the Unidroit Principles of International Commercial Contracts of May 1994 shall be applied by the Arbitral Tribunal.
The MOU is not a binding Contract but has the character of a letter of intent in which the parties agree to consider to carry out some projects. [...] Claimant does not deny that the parties have concluded an agreement, called MOU, that the parties are bound to negotiate in order to try to come to a final agreement on the different projects of the MOU, but asserts definitely that the MOU does not bind the parties to execute the same projects
Respondent considers the MOU to be its basic agreement with Claimant regarding a vast project for the assembly and the manufacturing of Claimant trucks.
Article 2.13 of Unidroit general provisions confirms that the MOU was a binding agreement between the parties and what has been left are secondary little matters to be clarified by the parties in further discussions. The binding character of the MOU should be found in the two parties' common intention (Art. 4.1 of Unidroit). Such intention was clearly expressed in the various parts of the MOU. As an example, the confidentiality provided for in paragraph 6 of the MOU was binding on them and according to Article 5.1 of Unidroit Claimant's contractual obligations need not be expressly mentioned.
The implied obligations of Claimant in the MOU according to Article 5.2 of Unidroit derive from the nature of the Agreement, the good faith and fair dealing and reasonableness.
In that respect, Claimant has not respected the principle of good faith in dealing with its obligations.
Whereas the Arbitral Tribunal, in order to set forth the rules according to which it will examine the contentions of the parties regarding the various items of the MOU and their effects on the relations between the parties has examined the text of the MOU in light of Article 4.5 of Unidroit " Principles of International Commercial Contracts" together with the comments thereon published by the International Institute for the Unification of Private Law, " Unidroit-Rome ".
Whereas the MOU contains two kinds of provisions, the first of which defines specific conditions and terms that are the result of the parties' agreement and consequently are to be considered as final obligations between them unless they are amended by subsequent contracts approved by the parties ; the second one being a general description of the parties' intention to enter into certain agreements.
Whereas the Arbitral Tribunal considers that when the parties agree upon general issues to be implemented by them at a later stage they cannot be released from their obligations to use their best efforts to ensure that such general issues become specific terms of contracts to be executed by the parties.
The Arbitral Tribunal, having considered paragraph 2 of Article 5.4 of Unidroit " Principles of International Commercial Contracts ", rules that the general description of the parties' intentions to reach agreements on certain issues contained in the MOU obligates the parties to exert their best efforts in order to have such intentions become defined terms of Contracts legally binding for each of them.
Whereas the Claimant has been in breach of its obligations to exert its best efforts in respect of forming [...] and establishing with the Respondent the assembly of Claimant vehicles in Iran. Whereas the damages suffered by the Respondent in that respect may not be accurately determined due to the fact that they relate to assumptions on what would have been the benefit for the Respondent [...] The Arbitral Tribunal, after due consideration of Articles 7.4.3 and 7.4.9 of Unidroit Principles of International Commercial Contracts, rules that the Claimant should compensate the Respondent for the loss of the chance to enjoy the probable benefits of the two aborted projects mentioned above by bearing an amount of [...] US Dollars to be deducted from the Performance Guarantee amount of [..] US Dollars already cashed by the Respondent. The balance to be reimbursed by the Respondent to the Claimant, in Sweden, amounts to [...] US Dollars together with accrued simple interest at a rate which due to the absence of any prime rate in dollars in Sweden shall be the prime rate in dollars prevailing in the United States on [date of payment of Performance Guarantee] and as subsequently modified from time to time until the effective date of payment.
Original in English (excerpt):
- Journal de droit international 1998, 1041, with note by Y. DERAINS
- ICC International Court of Arbitration Bulletin, Vol. 10, No. 2, Fall 1999, 65-68}}