- Arbitral Award
- International Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation
LONG-TERM CONTRACTS - GAS SUPPLY CONTRACT - BETWEEN A RUSSIAN COMPANY AND A MOLDAVIAN COMPANY - SILENT AS TO APPLICABLE LAW - CONTRACT PROVIDED FOR DELIVERY OF PART OF THE GAS TO A THIRD PARTY
THIRD PARTY'S FAILURE TO PAY THE PRICE FOR THE GAS DELIVERED - SUPPLIER REQUESTS PAYMENT FROM BUYER THAT REFUSES TO PAY BECAUSE CONTRACT PROVIDED FOR DIRECT DELIVERY OF GAS TO AND PAYMENT OF PRICE BY THIRD PARTY
GOOD FAITH ONE OF BASIC PRINCIPLES OF INTERNATIONAL TRADE - REFERENCE TO ARTICLES 1.7 UNIDROIT PRINCIPLES AND 7 AND 8 CISG AS WELL AS TO ARTICLE 5.1.2 UNIDROIT PRINCIPLES AND COMMENTS 1 TO 3 TO ARTICLE 1.7 UNIDROIT PRINCIPLES
Claimant, a Russian company, entered into a contract with Respondent, a Moldavian company, for the supply of natural gas (“the Contract”). According to the Contract the gas was to be delivered in part to the Respondent itself and in part to a third party (“the Recipient”). Although the Recipient was formally not a party to the Contract, the Contract provided that the Recipient should pay for the gas directly to Claimant. Nevertheless, when the Recipient failed to pay the price for the gas received, Claimant requested payment of the price not from the Recipient but from Respondent. When Respondent refused to pay on behalf of the Recipient, Claimant filed a claim against Respondent before the International Court of Arbitration of the Chamber of Industry and Commerce of the Russian Federation.
The Arbitral Tribunal rejected the claim for the following reasons. First, because Claimant, notwithstanding the fact that Respondent had repeatedly informed Claimant about its unsuccessful attempts to have a formal commitment from the Recipient to pay the price for the gas it would receive from Claimant, accepted to deliver the gas directly to the Recipient thereby deliberately assuming the risk of not being paid for it by the Recipient. Second and more importantly, because Claimant did not comply with the requirement of a pre-arbitration dispute settlement procedure as provided for in the Contract: indeed, while it entered into negotiations with Respondent for this purpose, it did not invite the Recipient to join them in these negotiations. According to the Arbitral Tribunal Claimant in both respects failed to act in accordance with one of the basic principles of international trade, i.e. the principle of good faith as laid down in general terms in Article 1.7 of the UNIDROIT Principles and Articles 7 and 8 of the CISG and which, according to Article 5.1.2 of the UNIDROIT Principles, is an implied obligation which as stated in Comments 1 to 3 to Article 1.7 of the UNIDROIT Principles the parties have to observe throughout the life of the contract.
“[…] In the opinion of the arbitral tribunal the conclusion on non-compliance by the Claimant with the Contract requirement on pre-arbitration disputes settlement is in accordance with the basic principles of international trade, primarily in the first place with the principle of good faith and fair dealing (Articles 7 and 8 of the Vienna Convention; Article 1.7 of the Principles of International Commercial Contracts — the UNIDROIT Principles). International practice considers good faith and fair dealing as implied obligations (Article 5.1.2 of the UNIDROIT Principles). On this basis the arbitral tribunal believes that since the Parties specified in the Contract the terms on the purposeful delivery of goods to the Recipient, fixing its share, and on the terms of payment for that goods, thus it is implied that all persons involved in fulfillment of obligation under the Contract (both the disputing Parties and the Recipient) were obliged to participate in the mutual settlement of disagreements that had arisen between them on the basis of good faith and fair dealing.
In other words, the arbitral tribunal is persuaded that the principle of good faith and fair dealing being interpreted in international economic relations as a fundamental principle of mandatory nature (items 1?3 of the Comment on Article 1.7 of the UNIDROIT Principles) is to be extended to cover the parties’ conduct all the way through development of contract relations, starting from the holding of negotiations on making a contract and ending with steps on settlement of disagreements that arose in fulfillment of the contract, i.e. at the pre-arbitral stage.
It complies with the established practice of the international commercial arbitrations which, despite all its ambiguity in the national law systems, positively responds to the question whether the due execution of the pre-arbitral stage is a necessary condition for the party to pass to actions within arbitration itself […]”.}}