Data
- Date:
- 00-00-0000
- Country:
- Arbitral Award
- Number:
- 18795
- Court:
- ICC International Court of Arbitration 18795
- Parties:
- --
Keywords
JOINT VENTURE AGREEMENT - BETWEEN PARTIES OF DIFFERENT NATIONALITIES - PARTIES´ CHOICE OF UNIDROIT PRINCIPLES AS LAW GOVERNING AGREEMENT - SUPPLEMENTED IF NECESSARY BY PARTICULAR DOMESTIC LAW
WAIVER OF RIGHT - REQUEST OF APPOINTMENT OF A NEW COMPANY CHAIRMAN BY ONE OF THE PARTIES - REQUEST REFUSED BY THE OTHER PARTY BECAUSE IN CONTRAST WITH USAGE AND MUTUAL UNDERSTANDING ESTABLISHED BETWEEN THE PARTIES - REFERENCE TO ART. 1.9 UNIDROIT PRINCIPLES - ACCORDING TO ARBITRAL TRIBUNAL PARTY'S TOLERANCE IN THE STRICT APPLICATION OF THE CONTRACT CANNOT AMOUNT TO WAIVER OF RIGHT
REFUSAL TO RENEW THE COMPANY CHAIRMAN POSITION BY ONE OF THE PARTIES - AMOUNTS TO A BREACH OF GOOD FAITH OBLIGATION PURSUANT TO ART. 1.7 UNIDROIT PRINCIPLES
DEADLOCK PROVISION - INTERPRETATION OF CONTRACTUAL CLAUSES - IF THE COMMON INTENTION OF THE PARTIES CANNOT BE ESTABLISHED REFERENCE SHOULD BE MADE TO THE UNDERSTANDING OF A REASONABLE PERSON - ARBITRAL TRIBUNAL APPLIED ART. 4.1 UNIDROIT PRINCIPLES
BREACH OF DEADLOCK PROVISION - ONE OF THE PARTIES CLAIMING SPECIFIC PERFORMANCE UNDER ART. 7.2.2 UNIDROIT PRINCIPLES - REQUEST OF TRANSFER OF SHARES DENIED
BREACH OF CONTRACT - RIGHT TO DAMAGES - PARTY ENTITLED TO COMPENSATION FOR LOSS SUFFERED ONLY IF THERE IS A CAUSAL LINK BETWEEN THE BREACH AND THE ALLEGED HARM - REFERENCE TO ART. 7.4.2 UNIDROIT PRINCIPLES
LIMITATION PERIOD - PARTY'S CLAIM TIME BARRED ACCORDING TO ART. 10.2 (1) UNIDROIT PRINCIPLES - AGGRIEVED PARTY AFFIRMING THAT THIS PROVISION IS CONTRARY TO NATIONAL MANDATORY RULES PROVIDING FOR A TEN-YEAR STATUTE OF LIMITATIONS - ARGUMENT REJECTED BY THE ARBITRAL TRIBUNAL SINCE THE PARTY DID NOT DEMONSTRATED THAT DOMESTIC RULES ON TIME LIMITATION WERE MANDATORY
LIMITATION PERIOD - ARBITRAL TRIBUNAL CONFIRMING THE THREE-YEAR STATUTE OF LIMITATIONS SINCE THE AGGRIEVED PARTY WAS AWARE OF THE BREACH OF THE OTHER PARTY MORE THAN THREE YEARS BEFORE THE CONTROVERSY STARTED
Abstract
"Company A, of country X and company B, of country Y, entered into a joint venture agreement (JVA), by which both parties created companies C and D for the production and commercialisation of certain products in country X. The parties agreed that the JVA would be subject to the UNIDROIT Principles, supplemented if necessary by the laws of Country X. One of the obligations provided under the JVA, was that the parties would be able to allow the rotation of the chairman of company C.
In the first years of operation of the JVA, company B did not require the rotation of the chairman, entrusting company A to continue holding such position. However, after company A restricted company B with access to certain information pertaining to the JVA, company B required company A to appoint a new chairman.
Company A did not attend the meeting where the new chairman was to be appointed arguing a deadlock prevented the chairman rotation. The JVA foresaw that if both parties failed to pass a resolution in two shareholders or board of directors meetings, of companies C or D, with no less than 15 days between each other, a ‘deadlock’ provision would be triggered and which would eventually lead to the JVA dissolution.
Furthermore, company A argued that company B’s behaviour was to be interpreted as a waiver of its right to require chairman rotation, given that the parties were bound by the usage and mutual understanding they had established between themselves pursuant to Article 1.9 of the UNIDROIT Principles.
The arbitral tribunal ruled that the fact that company B did not request the strict application of the JVA could not be interpreted as a waiver of its right.
Furthermore, the arbitral tribunal found that even though the deadlock could lead to the dissolution of the JVA, until the dissolution takes place, the parties were obliged to comply with the JVA in good faith. Consequently, the arbitral tribunal held that company A breached its obligation to renew the chairman position of companies C and D under the JVA and thus breached its good faith obligation, pursuant to Article 1.7 of the UNIDROIT Principles.
[...]
The JVA foresaw that if both parties failed to pass a resolution in two shareholders or board of directors meetings of companies C or D, with no less than 15 days between each other, a deadlock provision would be triggered. Whenever a deadlock situation was triggered, according to the JVA, each party was entitled to start a process for the transfer of shares, where the other party was obliged to participate in good faith. In case any party failed to do so, legal arbitration proceedings would be available.
Company A claimed that there was a deadlock because there had been two board of directors meetings where the board had been unable to reach an agreement and pass resolutions on different topics. Company B argued that the deadlock provision was not triggered. It claimed that failure to pass resolutions at two board of directors meetings needed to be on exactly the same topic for the deadlock provision to be triggered.
The arbitral tribunal found that there was indeed a deadlock. The arbitral tribunal determined that under Article 4.1 of the UNIDROIT Principles, in case the intention of the parties is not established, ‘the contract shall be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances’. Thus, the arbitral tribunal held that a reasonable person would be more concerned by the impossibility to decide two different unrelated issues at two consecutive meetings than the repeated impossibility to decide the same issue. According to the arbitral tribunal, such hypothesis may reflect a symptom of the inability of the partners to work together, whatever the matter at stake, while the other hypothesis may only reflect the difficulty to deal with a specific issue.
On the issue of the transfer of shares process, the arbitral tribunal held that the parties had not activated the process to transfer companies C and D’s shares.
Company A claimed specific performance under Article 7.2.2 of the UNIDROIT Principles seeking the transfer of companies C and D’s shares. On the other hand, company B contended that the arbitral tribunal did not have the power to order the transfer of shares. The arbitral tribunal found that there had been no breach to the deadlock provisions for the transfer of shares because the process for the transfer of shares had never been activated by any of the parties.
The arbitral tribunal held that it could not order company B to transfer any shares. Moreover, it ruled that the parties were entitled to activate the process for the transfer of shares provided for under the JVA, with both parties being obliged to participate therein in good faith, in light of Article 1.7 of the UNIDROIT Principles.
[...]
Company B claimed that company A incurred in several breaches, which caused two types of damages as a result of the compound effect of the breaches: (1) yearly losses of earnings before interest, taxes, depreciation, and amortization (EBITDA) (profitability) in the joint venture; and (2) deterioration in the value of the joint venture as an ongoing business. Hence, company B filed a global claim against company A.
The arbitral tribunal held that a global claim does not necessarily fail for lack of causal link between the breaches and the alleged harm. Under the tribunal’s award, ‘the existence of the necessary causal link requires the evidence that the overall effect of the established breach has caused the harm for which compensation is sought. Otherwise, the harm cannot be found to be the result of the non-performance as required by article 7.4.2 of the UNIDROIT Principles’. Furthermore, the tribunal held that even if company A only breached certain obligations, if those specific breaches were found to be dominant course of damages, the global claim could prevail.
The tribunal held that company A did incur in certain breaches. However, it said breaches did not play a dominant role in causing the damages argued by company B, and therefore were not the dominant cause of company B’s alleged damages.
[...]
Company B responded arguing that said claims were time-barred under the general limitation period of three years of Article 10.2.1 of the UNIDROIT Principles.
Company A further contested the time limitation provided under Article 10.2.1 of the UNIDROIT Principles, arguing that even though the UNIDROIT Principles were the governing law of the JVA, they were not relevant to this case, since country X’s mandatory rules, providing for a ten-year statute of limitations, were applicable.
Furthermore, company A argued that if the UNIDROIT Principles were applicable, the time limitation would be of ten years as provided by Article 10.2.2, which provides that the limitation starts to run when the right can be exercised, regardless of the obligee’s actual or constructive knowledge as in Article 10.2.1.
The arbitral tribunal held that the parties submitted their contract to the UNIDROIT Principles and its statute of limitations should apply. Furthermore, the tribunal ruled that company A did not demonstrate that country X’s rules on time limitation were mandatory rules and that company A did not offer a justification nor evidence providing that the parties cannot depart from such rules. On the other hand, the tribunal held that the alleged non-performance by company B was fully identifiable and identified by company A more than three years before the controversy started. Hence, the tribunal confirmed the three-year statute of limitations."
(cf. D. Sierra in "Perspectives in Practice of the UNIDROIT Principles 2016", IBA Publication 2019, p. 164, 175-176, 194-195, 266-267, 279, 314)
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