- Arbitral Award
- ICC International Court of Arbitration, Paris 8817
LONG-TERM CONTRACTS - DISTRIBUTION AGREEMENT - BETWEEN A SPANISH COMPANY AND A DUTCH COMPANY - SILENT AS TO APPLICABLE LAW - ICC RULES, ART. 13(3) - DECISION BY ARBITRAL TRIBUNAL TO APPLY "THE PROVISIONS OF [CISG] AND ITS GENERAL PRINCIPLES, NOW CONTAINED IN THE UNIDROIT PRINCIPLES"
ESTABLISHED PRACTICE BETWEEN PARTIES - BINDING CHARACTER (ART. 1.8 UNIDROIT PRINCIPLES) (ART. 9 CISG)
DAMAGES - DUTY TO MITIGATE HARM (ART. 77 CISG) (ART. 7.4.8 UNIDROIT PRINCIPLES)
A Spanish company and a Dutch company concluded an agreement for the exclusive distribution and sale of food products. A dispute arose when Respondent, faced with both a change in Claimant's management and delays in payment (Claimant had not respected the deadline fixed by Respondent for payment), terminated the agreement. Claimant brought arbitral proceedings arguing that the dismissal of its general manager was justified by the fact that the latter had set up a competing commercial relationship with Respondent.
In determining the law applicable to the merits (the contract did not contain a choice of law clause), the Arbitral Tribunal found that the elements of sale prevailed over those of exclusive distribution and, citing Article 13(3) of the ICC Rules of Conciliation and Arbitration, decided to apply the provisions of the 1980 United Nations Convention on Contracts for the International Sale of Goods and its general principles, "now contained in the UNIDROIT Principles of International Commercial Contracts, [as] perfectly suited to resolving the dispute […]".
With respect to the substance of the case, the Arbitral Tribunal awarded Claimant damages arising out of termination of contract and unfair competition by Respondent. In doing so, it referred to Article 1.8 of the UNIDROIT Principles to confirm the binding character of the parties' established practices (Art. 9(1) CISG), and to Art. 7.4.8 of the UNIDROIT Principles to confirm that a party suffering harm must take steps to mitigate the harm (Art. 77 CISG).
Bearing in mind, firstly, that the contractual relationship between Respondent and Claimant ended in September 1995, and that the task of the arbitrator is limited to judging a dispute, the arbitrator feels there is no need to determine the applicable law as the parties could have done at the start of their relationship.
Bearing in mind, secondly, the provisions of Article 13.3 of the ICC Rules of Conciliation and Arbitration, which invites the arbitrator to determine the law applicable to the merits of the dispute, the sole arbitrator believes that the starting point for determining the applicable law should be the claims and counterclaims made in the dispute.
In the presence of a contractual relationship qualified overall as one of sale, the arbitrator must, in order to resolve the dispute, determine an appropriate law, as he is invited to do by Article 13.3 of the ICC Rules of Conciliation and Arbitration. According to widespread case law in arbitration practice, one of the criteria for the appropriate nature of a rule is its presence in the legal systems of both parties. This is the case in the United Nations Convention on Contracts for the International Sale of Goods, signed in Vienna on 11 April 1980. This Convention came into force in Denmark on 1 March 1990 and in Spain on 1 August 1991, which date is after the signature of the contract but sufficiently remote for the text to have been studied and commented on especially in Spain.
Article 3.2 of said Vienna Convention calls for it to be applied in situations where, as in the present case, there is both a provision of a service and a sale, and the preponderant pan of the obligations arise from the sale. The same Convention reinforces the choice of a single law, desired by both parties, for dealing with disputes […].
Furthermore, the provisions of the Convention and its general principles, now contained in the Unidroit Principles of International Commercial Contracts, are perfectly suited to resolving the dispute […].
It should also be understood that the provisions of the contract signed in […] shall apply as the law governing the parties.'
The succession of events highlights the fact that Respondent attempted to change the practices and habits followed by the parties from at least March 1993. The change concerns the time-limit for payment and the requirement of a constant balance between deliveries and their payment.
According to Article 9.1 of the United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980, the parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. This rule was extended to all international commercial contracts by the Unidroit Principles. Principle 1.8 provides that: The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.
The arbitrator considers that such a rule is perfectly suited to resolving the dispute between Claimant and Respondent, even though the cancelled contract is a contract for exclusive distribution. Hence, in order for previous practices to be changed, the proposal made by one of the contracting parties needed to be accepted by the other party […].
The changes Respondent wished to make should have been negotiated and accepted. In the absence of agreement between the two parties, the arbitrator considers that the fact of maintaining the practices accepted previously at least tacitly by both parties does not constitute gross negligence on the part of Claimant.
The arbitrator does not consider the reason given for denouncing the contract, which refers to the lack of means of paying within the time-limit fixed by Respondent, to be properly founded.'
[…] the arbitrator considers that the sudden, unexpected interruption of deliveries to Claimant caused harm to the company. Such harm took the form of difficulties in adapting to a new situation requiring changes in manufacturing arrangements. The arbitrator notes that Claimant neither provides proof that these difficulties lasted for a year nor indicates what efforts it made and what difficulties it encountered during the stage of adapting to different conditions and products.
Respondent points out pertinently that it is a principle of international commercial law that the party suffering harm must take the necessary steps to mitigate the harm. For contracts of sale, this rule is expressed in Article 77 of the Vienna Convention in the following terms:
A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated.
In general, a similar rule is set out in Article 7.4.8. of the Unidroit Principles, which states: The non-performing party is not liable for harm suffered by the aggrieved party to the extent that the harm could have been reduced by the latter party's taking reasonable steps.
In the absence of indications as to the efforts and attempts made by Claimant during the alleged year of inactivity, the arbitrator considers that this commercial inactivity was caused in part by Claimant's inertia.
Original in Spanish:
Published in English (excerpt):
- ICC International Court of Arbitration Bulletin, Vol. 10, No. 2, Fall 1999, 75-78}}