- Arbitral Award
- Arbitration Centre of the Costa Rican Chamber of Commerce
LONG-TERM CONTRACTS - LEASE CONTRACT - BETWEEN TWO COSTA RICAN COMPANIES - GOVERNED BY COSTA RICAN LAW - REFERENCE BY ARBITRAL TRIBUNAL TO THE UNIDROIT PRINCIPLES AS A MEANS OF SUPPLEMENTING DOMESTIC LAW
BREACH OF CONTRACT - DUTY TO MITIGATE HARM CAUSED BY BREACH (ART. 7.4.8 UNIDROIT PRINCIPLES)
Two Costa Rican companies entered into an agreement whereby one undertook to provide the other with a commercial stand (bar) for use in major festivals in Costa Rica, consisting in a mountable two-storey structure that could accommodate several hundred people in a club-like ambience. The providing company, owner of the mountable structure, failed to take proper care of the steel components which consequently deteriorated seriously, thereby preventing the other company from using the mountable structure as per the contract. The user company brought an action against the providing company claiming damages for lost profits.
The Arbitral Tribunal decided in favour of the user company on the ground that the providing company had breached its fundamental duty of care and conservation of its own property it had provided for use in a joint project and, in this respect, it referred, among others, to Article 7.4.8 on mitigation of harm of the UNIDROIT Principles.
“The defendant has not complied with its fundamental duties of care and conservation nor with its contractual duty of safekeeping and maintaining, as a depositary, the thing that, despite being its own, was linked and affected to the joint project, named the “Barmóvil”. All of these duties existed and were instrumental, and therefore necessary to the success of the project (“Nebenleistungspflichten” or instrumental duties in German doctrine – see Revista Judicial, Costa Rica, Nº3 p. 54).
The deterioration of the steel structure and the failure to replace it with a new one, implied grave disrespect to the purpose of the contract (“Rücksichtspflichten”, or duty to respect the ends of the contract in German doctrine – see Revista Judicial, Costa Rica, Nº3 p. 53).
At the same time, the defendant transgressed several fundamental duties derived from the general principle of good faith. Amongst them, it is relevant to recall the duties of care and conservation (which, in any case, had been contractually assumed) of the metal structure that, despite being their property, was essential for the performance of the joint project. As agreed by the parties, the defendant had a duty to avoid any damage (”Schadenverhütungspflichten”, or duty to avoid damage in German doctrine – Revista Judicial, Costa Rica, Nº3 p. 54). Additionally, regardless of the fact that it may derive from a main obligation to give a certain thing or to perform a certain act, the obligation to safeguard a determined thing requires the obliged party to take care of such thing as a “bonus pater familiae” would (Article 698 of the Costa Rican Civil Code).
The defendant argues that it was the owner of the damaged structure; nevertheless, the structure was destined for a specific project which demanded proper maintenance. … Defendant’s conduct was contrary to its duty to minimize any possible loss in accordance with the principle of “mitigation of harm” contained in Article 7.4.8 of the UNIDROIT Principles, which states: (1) 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. (2) The aggrieved party is entitled to recover any expenses reasonably incurred in attempting to reduce the harm (I.C.C. International Court of Arbitration, Case 7110 of 1995, 98-99).”
V. Pérez Vargas - D. Pérez Umana, The UNIDROIT Principles of International Commercial Contracts in Costa Rican Arbitral Practice, Uniform Law Review, 2006, p. 185.}}