LONG-TERM CONTRACTS - INTERNATIONAL GAS SUPPLY CONTRACT - SILENT AS TO THE APPLICABLE
SUPPLIER’S RIGHT TO WITHHOLD PERFORMANCE IN CASE OF BUYER’S NON-PERFORMANCE - APPLICATION BY THE ARBITRAL TRIBUNAL OF ARTICLE 7.1.3 UNIDROIT PRINCIPLES - ARBITRAL AWARD CONFIRMED BY THE SWISS FEDERAL COURT ALSO IN RELATION TO THE APPLICATION OF THE UNIDROIT PRINCIPLES
Two companies with their seats in different States concluded a contract for the supply of natural gas for a period of twenty-five years from the first delivery. The sanctions imposed on Iran between 2007 and March 2008 had an impact on the ability of the Buyer to pay in the agreed currency, namely in United States dollars (USD), the amounts due for the various deliveries of natural gas. Subsequently the parties agreed, by amendment of March 2008, to change the currency of payment into euros. In October 2012, the United States of America and the European Union imposed new sanctions on Iran, thereby hampering Buyer's access to the international banking system and preventing him from making bank transfers in euros. Therefore, Supplier authorized Buyer to pay the price of successive deliveries of gas, by supplying goods, precious metals, services or by carrying out certain works. This amendment was to remain in force until Buyer was able to pay the price of gas delivered using the usual method of payment. On September 2013, the parties entered into an addendum under the terms of which Buyer acknowledged owing to Supplier an amount of around 855,000,000 euros for the gas delivered up to that date. On this occasion, they decided to transform the said debt into a trade loan at an interest rate of 5% per annum. The amendment was to be in effect until the parties agreed to another payment mechanism or until Buyer was able to make timely payments under the terms of the original contract. During the contractual relations, Buyer complained, on various occasions, to Supplier about the quality and quantity of gas supplied, and demanded certain price reductions. In January 2016, the economic sanctions against Iran were lifted and between October and December 2016, Buyer succeeded in transferring to Supplier a sum of around 208 million euros. As of January 2017, Supplier decided to no longer deliver gas to Buyer, while the latter decided, at the end of February 2017, to no longer pay Supplier.
The Supplier then filed a request for arbitration under the rules of the International Court of Arbitration of the International Chamber of Commerce (ICC) and based in Geneva, as provided in the contract. In essence, it asked the Arbitral Tribunal to find that the Buyer had violated its contractual obligations, by not settling the amounts due for the gas delivered when the international sanctions were lifted in January 2016, by not paying the price subsequent gas deliveries and by not paying the interest due. It further requested that Buyer be ordered to pay an amount of around EUR 1.66 billion.
On its turn, Buyer claimed compensation for the damage suffered due to the insufficient quality and quantity of gas delivered and the Supplier's choice to no longer supply gas from 1 January 2017. In addition, it asked the Arbitral Tribunal to order the Supplier to immediately resume gas deliveries until the end of the contract.
On June 2020, the Arbitral Tribunal rendered its final award, stating that, while Buyer breached its obligation under the contract by failing to pay for delivered natural gas and accrued interest after 31 December 2016, Supplier breached its obligations under the contract by failing to apply price reductions for quantity and quality deficiencies in respect of gas deliveries from 1. November 2015 to 31 December 2016 and failing to deliver gas to Buyer from 1 January 2017. Therefore, Buyer was ordered to pay Supplier EUR 1,540,443,613.01 towards the amount of the "trade loan" plus interest until the date of full payment.
On August 2020 the Buyer challenged the arbitral award before the Swiss Federal Court in order to obtain its annulment. In particular, Buyer contested that the Arbitral Tribunal, after having established that the decision taken by Supplier to no longer supply gas was excessive and unreasonable, applied price reductions, as penalties, only for a limited period of time (1 January 2017 - 18 March 2017). In the Tribunal's opinion, on the last date the Buyer expressly refused to respect its contractual obligation to pay the price, thus authorizing the Supplier to suspend the performance of its own service, in accordance with Art. 7.1.3 of the UNIDROIT Principles.
The Federal Court rejected the appeal and confirmed the arbitral award, including the application by the Arbitral Tribunal of Art. 7.1.3 UNIDROIT Principles in order to justify Supplier's decision to suspend the gas supply.
Fulltext in French available at the Bundesgericht website https://www.bger.ch}}