- Arbitral Award
- ICC International Court of Arbitration (Second Partial Award) 7110
STATE CONTRACTS - SUPPLY CONTRACT - BETWEEN AN ENGLISH COMPANY AND AN IRANIAN GOVERNMENT AGENCY
LIMITATION PERIODS - MATTER NOT DEALT WITH BY UNIDROIT PRINCIPLES [1994 EDITION] - RECOURSE TO OTHER INTERNATIONALLY RECOGNIZED PRINCIPLES OF LAW - HELD THAT THERE IS NO SUCH GENERAL PRINCIPLE PRESCRIBING A FIXED LIMITATION PERIOD WITHIN WHICH CLAIMS HAVE TO BE PURSUED
LIMITATION PERIOD - CLAIMS MAY BE TIME-BARRED IF PURSUED "WITH UNREASONABLE DELAY" (ART. 1.7 UNIDROIT PRINCIPLES)
RIGHT TO WITHOLD PERFORMANCE - GENERAL PRINCIPLE OF LAW (SEE ART. 7.1.3 UNIDROIT PRINCIPLES)- SELLER'S RIGHT TO WITHOLD DELIVERY OF GOODS IF BUYER FAILS TO PAY THE PRICE
MITIGATION OF HARM - GENERAL PRINCIPLE OF LAW (SEE ART. 7.4.8 UNIDROIT PRINCIPLES) - SELLER ENTITLED TO DISPOSE OF THE GOODS AFTER THEIR STORAGE FOR A LENGTHY PERIOD
CONTRACT WITH TERMS DELIBERATELY LEFT OPEN - AGREEMENT NOT PREVENTED FROM COMING INTO EXISTENCE (ART. 2.14 [ART. 2.1.14 OF THE 2004 EDITION] UNIDROIT PRINCIPLES)
An English company and a government agency of a Middle Eastern country entered into nine related contracts for the supply of equipment concluded between. None of the contracts contained an express choice of law provision in favour of a given domestic law but some of them contained provisions referring to settlement according to "natural justice", "laws of natural justice" or "rules of natural justice".
Four years after a first partial award (ICC International Court of Arbitration Partial Award no. 7110 of June 1995) in which the Arbitral Tribunal decided to apply the UNIDROIT Principles, the Arbitral Tribunal rendered a second partial award in which it addressed a number of questions concerning the merits of the case.
A first question concerned the defence raised by Respondent according to which Claimant's claim was time-barred by virtue of the expiry of the limitation period. After having noticed that the UNIDROIT Principles [1994 edition] do not address the issue [but see now Chapter 10 of the 2004 edition of the UNIDROIT Principles] and excluded that the 1974 New York Convention on Limitation Periods in the context of international sales contracts contained widely recognised principles applicable in the case at hand and, the Arbitral Tribunal concluded that there were no internationally accepted principles prescribing a fixed limitation period within which a claim has to be pursued. However, the Arbitral Tribunal implied that there might be a general principle of law according to which a claim is time-barred if it is pursued with unreasonable delay, and to this effect referred to Article 1.7 of the UNIDROIT Principles stating the parties' duty to act in accordance with good faith and fair dealings. In the case at hand, however, the Arbitral Tribunal found that even eleven years did not constitute an unreasonable delay.
Another question was whether an unpaid seller could refuse to deliver the goods until it had received payment. The Arbitral Tribunal decided that the seller was entitled to do so and in this respect referred to Article 7.1.3 of the UNIDROIT Principles laying down the principle of the right to withhold performance.
Moreover, as to question whether, failing payment by the buyer, the seller was entitled to terminate the contract and sell the goods to a third party, a majority of the Arbitral Tribunal affirmed the seller's right to dispose of the goods on the basis of the general principle of mitigation of harm laid down in Article 7.4.8 of the UNIDROIT Principles.
Lastly, the Arbitral Tribunal affirmed the validity of an agreement between the parties even if they have left some terms to be agreed upon in further negotiations and in this respect referred to Article 2.14 [Art. 2.1.14 of the 2004 edition] of the UNIDROIT Principles dealing with contract with terms deliberately left open.
Claimant first argued that Respondent is estopped from raising a limitation defense by its own conduct […].
The argument is based, inter alia, on the principle venire contra factum non concedit and on Articles 1.7 (principle of good faith), 2.18 (no-oral modification clause) and 2.4 (reliance theory) of the Unidroit Principles.
The Tribunal considers that Respondent is not estopped from raising a time-bar defense […]. The defense based on limitation/unreasonable delay is therefore admissible.
It is Respondent's position that the question of limitation ought to be resolved by application of the lex causae. Claimant concurs with this position.
Respondent argued that the Unidroit Principles are the lex causae, that these Principles are silent as to any applicable period of limitation and that, therefore, there was a need for the Tribunal to fill a gap in the Principles.
According to Respondent, the gap should be filled by resorting to the domestic laws that are most relevant in this arbitration, i.e. English law and [the law of State X], possible Dutch law and French law or, alternatively, to domestic laws in general.
Respondent invoked the 1974 New York Convention on the International Sale of Goods (Article 8) under which the limitation period is four years, Article 23 providing that the overall limitation for bringing legal proceedings is ten years.
Respondent submitted a comparative analysis of the limitation period under 119 domestic laws with respect to contractual disputes under international commercial sales contracts, contending that such analysis demonstrates that the great majority of the legal systems reviewed had limitation periods between three and ten years. Ten years would be, Respondent argued, an appropriate limitation period in the present case under the circumstances.
Claimant's position is that domestic laws are irrelevant for the determination of the limitation issue.
In Claimant's submission, reference has to be made to general principles of law, including Unidroit Principles, as held by the Tribunal in Partial Award No. 1 […].
According to Claimant, there is no general principle of law which sets a specific time limit for bringing an action, and, failing any such time limit, the only general principle of law applying to the issue under review is the principle that claims must be pursued without unreasonable delay.
As to the 1974 New York Convention, Claimant denied that it constitutes the expression of a widely recognized and accepted principle, pointing out that neither the United Kingdom nor [State X] has signed the Convention.
The Tribunal notes that there is no provision in any of the Contracts dealing with limitation periods [...].
The Tribunal has not found that a fixed limitation period results from trade usages in contracts for the sale and supply of goods or services.
It is common ground that the Unidroit Principles do not deal with limitation periods and, therefore, the Tribunal has to determine whether there are general legal rules enjoying a wide international consensus that contain the principle that an action is time-barred after a fixed period of time has lapsed.
The Tribunal does not consider that the 1974 New York Convention […] incorporates any such widely recognized principle.
It is the Tribunal's view that the solution to the question does not have to be derived from the domestic laws, and that a comparative approach such as the one suggested by Respondent does not reveal a generally accepted principle as to the length of an extinctive limitation period.
[…] The Tribunal rejects Respondent's defense that Claimant's claims are time-barred on the basis of any fixed limitation period.
Alternatively to the limitation defense, Respondent argued that if the lex causae includes no rules prescribing a fixed limitation period (or if the applicable limitation period exceeds 11 years and 10 months), then, as a matter of general principle, the Tribunal should still reject Claimant's claims, the initiation of which has been unreasonably delayed by Claimant.
Reference is made by Defendant to Article 1.7(1) of the Unidroit Principles, according to which: each party must act in accordance with good faith and fair dealing in international trade […].
Claimant's position is that, under the circumstances of the present case, the delay in bringing suit has not been unreasonable.
[…] [T]he Tribunal has concluded that it was not unreasonable for Claimant, in all the circumstances, not to launch arbitration proceedings so long as there seemed to be a prospect of arriving at an agreement on the terms of a settlement. Making due allowance for the fact that the internal political upheavals consequent upon [events in State X] were not conducive to speedy decision making, the Tribunal considers that the claims which Claimant pursues in this arbitration are not time-barred for unreasonable delay and that they are therefore admissible.
The Contract […] contains no provision dealing with the situation […] Consequently, the solution has to be found in generally accepted legal principles enjoying a wide recognition (Partial Award No. 1), including Unidroit Principles.
It is a principle of law widely accepted that if a buyer does not perform its obligations as to payment of the balance of the price when due, the seller may, in the absence of an express contractual provision to the contrary, suspend performance of its obligation to arrange for shipment and/or delivery. The civil law concept of exceptio non adimpleti contractus corresponds to the principle laid down in the Unidroit Principles 7.1.3 […].
The Tribunal is of the opinion that Respondent was entitled to retain […] until it received full payment therefor.'
This conduct, the Tribunal finds, is entirely consistent with the generally accepted principle of the mitigation of harm, as expressed in Article 7.4.8 of the Unidroit Principles.
I fail to understand the Majority's reasoning in invoking Article 7.4.8 of the Unidroit Principles. I see nothing in that Article which could possibly be construed to entitle one party to dispose of property of the other party without its consent […] This article does certainly entitle the aggrieved party to recover from the other party reasonable expenses incurred in its attempt to preserve the goods and reduce the harm. It does not give a right to the aggrieved party to go beyond it and sell or otherwise dispose of such goods.'
Claimant argues that 'the termination clause. . . has to be interpreted in accordance with the principles set out in Chapter 4 of the Unidroit Principles and, in the instant case, as the clause is deficient, terms have to be supplied (or implied) in the termination clause […]
The Tribunal does not find that the record supports Claimant's argument that the [documents] contained manifest errors or that they were grossly unreasonable, nor does it find Claimant's reliance on the Unidroit Principles to be of assistance, if only because in the Tribunal's judgment Claimant has adduced no evidence to establish that the [documents] are erroneous or unreasonable.
The Tribunal does not consider that [the clause] is unclear and requires interpretation.
Once goods had been accepted, Respondent had the obligation to arrange transport and shipment to [State X]. However, at the time of termination... Claimant was in default of paying monies due […]. Consequently, Respondent was entitled, under the general principle of the exceptio non adimpleti contractus, which has been adopted under Article 7.1.3 of Unidroit, to withhold performance of its obligation to dispatch the goods and, thus, to retain the Accepted Goods and the Returned Goods.'
The Tribunal finds that Respondent's conduct under the circumstances was entirely consistent with the generally accepted principle of the mitigation of harm, as expressed in Article 7.4.8 of the Unidroit Principles.'
The Tribunal finds that, in the Side Letter of […] , the Parties had agreed on the principle of a license and of a levy and on the amount of such levy, i.e. the essential terms of a license […]. The circumstance that the Parties have left certain contractual terms to be agreed upon... does not prevent the agreement from coming into existence (see Unidroit Principles, Article 2.14).}}
Excerpts of the award published in ICC International Court of Arbitration Bulletin, Vol. 10, No. 2, Fall 1999, 54-57}}