Arbitral Award
ICC International Court of Arbitration 10114





Claimant, a Chinese company, entered into an agreement with Defendant, an Eastern European car manufacturer, for the provision and organisation of after sales service for vehicles delivered by Defendant. Subsequently the parties accused each other of having failed to comply with their obligations under the contract. Claimant initiated arbitration proceedings against Defendant for breach of contract and requested both compensatory and punitive damages.

Both parties agreed that Chinese law was the law governing the merits of the dispute, but at the same time requested the Arbitral Tribunal to apply also the UNIDROIT Principles as an expression of international practices. As a consequence the Arbitral Tribunal declared that it would base its decision on Chinese law and on “international practices, including UNIDROIT Principles”.

As to the merits of the case the Arbitral Tribunal rejected Claimant’s request for punitive damages and in so doing it pointed out that the concept of punitive damages was not known in Chinese contract law nor had it found any international trade principle authorising the award of punitive damages.


Applicable law

The parties’ positions
‘Claimant holds Chinese law applicable as substantive law governing the contractual relations of the Parties, but is of the opinion that “international practices” have to be applied extensively. Claimant refers specifically to the Unidroit Principles of 1994. Claimant is of the opinion that the Convention on the International Sale of Goods (“CISG”) is only applicable as to the contractual obligations referring to the sale of goods.’
‘Respondent holds Chinese substantive law as applicable to the extent CISG, Unidroit or general principles of international trade law do not prevail over or complete the Chinese law.’

The Arbitral Tribunal’s decision

‘The Agreement No. 245 does not contain a choice-of-law clause. But both Parties presume that Chinese law is applicable. This joint presumption has to be regarded as an agreement on the application of Chinese law as governing the merits of the dispute. This choice of law — even if only made during the arbitration (see Redfern/Hunter, Law and Practice of International Commercial Arbitration, 3rd ed., 1999,2-26) — is valid according to article 17(1)1CC Rules.
CISG is a part of Chinese law. This convention is therefore applicable as part of Chinese law in a dispute between a Chinese entity and one from another country that, like China, has acceded to the CISG. However, the Arbitral Tribunal need not go further into this issue as the claims raised by the Parties do not concern issues that fall within the scope of CISG, as CISG regulates only claims resulting from non-performance, late performance or bad performance of a sales contract and none of these claims have been raised.
The Parties are jointly of the opinion that international practices, especially the Unidroit Principles, shall also apply. The Unidroit Principles (see Blessing, Regulation in Arbitration Rules on Choice of Law, 1996, p. 391; Derains/Schwartz, A Guide to the New ICC Rules of Arbitration, 1998, p. 218 ss.) are rules of law in the sense of article 17(1)1CC Rules.
The Arbitral Tribunal therefore decides, that the Chinese law and international practices including Unidroit Principles are applicable to the merits of the dispute.’
With respect to punitive damages, requested by Claimant.
‘The concept of punitive damages is not known in Chinese contract law Chinese law knows only specific performance, liquidated damages and compensatory damages as remedies for breach of contract, see Zhao, in: Wang/Mo, Chinese Law, 1999, p. 244 Ss.
The FECL [1985 Chinese law on foreign economic contracts] defines compensatory damages as the actual loss resulting from the breach, which may include the expectation interests from the performance of the contract. However, such damages must not exceed the loss that was foreseeable by the breaching party at the time the contract was made.
Claimant has not given any proof that Chinese law grants damages that go beyond compensatory damages. The Arbitral Tribunal has not found any international trade principle authorizing the award of punitive damages. Punitive damages are in some jurisdictions even regarded as contrary to public policy i.e. in German law (see Federal Supreme Court, Judgment of June 4, 1992, BGHZ 118, p. 312 ss.) and Switzerland (see Dorig, Anerkennung und Vollstreckung US-amerikanischer Entscheidungen in der Scbweiz, 1998, p. 356 ss.).
In a situation where some of the important trading nations regard punitive damages as contrary to public policy, it is obvious that there is no international trade practice favouring punitive damages.
The Arbitral Tribunal therefore dismisses the claim for punitive damages.’}}


Excerpts of the award published in
ICC International Court of Arbitration Bulletin, Vol. 12, No. 2 (Fall 2001), 82-84.}}