- Arbitral Award
- ICC International Court of Arbitration 19627
- ACME Holding et al. v. Distributor
LONG-TERM CONTRACTS - EXCLUSIVE DISTRIBUTION AGREEMENT - INTERNATIONAL COMMERCIAL ARBITRATION – AWARD TO BE RENDERED IN ACCORDANCE WITH CONTRACTUAL PROVISIONS AND, IF NECESSARY, EX AEQUO ET BONO
WRONGFUL TERMINATION OF CONTRACT - MANUFACTURER NOT ENTITLED TO VALIDLY TERMINATE THE CONTRACT IF IT HAD PREVIOUSLY AND REPEATEDLY AGREED TO WAIVE ITS RIGHT OF TERMINATION - REFERENCE TO ART. 1.8 UNIDROIT PRINCIPLES
DELAYED PAYMENT - SUBSEQUENT SETTLEMENT AGREEMENT BETWEEN THE PARTIES - NO PARTICULAR FORM REQUIRED (ART. 1.2 UNIDROIT PRINCIPLES)
RIGHT TO FULL COMPENSATION FOR WRONGFUL TERMINATION - INNOCENT PARTY ENTITLED TO DAMNUM EMERGENS AS WELL AS TO LUCRUM CESSANS (ARTICLE 7.4.1, 7.4.2 AND 7.4.3 UNIDROIT PRINCIPLES)
IMPUTATION OF PAYMENTS - APPLICATION OF A GENERALLY ACCEPTED AND PRACTICED RULE IN ACCOUNTANCY ACCORDING TO WHICH PAYMENT IS IMPUTED TO THE OLDEST DEBT (ART. 6.1.12 UNIDROIT PRINCIPLES)
A Manufacturer and a Distributor, after many years of cooperation, formalized their relationship by entering into an exclusive distribution agreement under which Distributor was appointed the exclusive distributor of the Manufacturer's products in Spain for a period of ten years. The contract contained a clause referring disputes to arbitration in Paris according with the ICC rules and providing that the award was to be rendered in accordance with the contractual provisions and, if necessary, ax aequo et bono.
Few years later Distributor encountered financial difficulties and became unable to pay new orders 90 days after invoice date, as provided for in the contract. However, the Manufacturer was supportive and agreed with Distributor an original settlement mechanism, by which for each new order of goods the Distributor had to pay immediately 120% before being delivered by the Manufacturer. Since also this solution was economically unsustainable for the Distributor, the parties met again to seek an agreement. Thereafter, the Manufacturer issued a formal notice to Distributor to pay the outstanding receivables within two weeks of receipt, or face termination of the exclusive distribution agreement. Since the Distributor did not reply to this notice, the Manufacture commenced ICC arbitration, seeking a declaration that the termination had been fair and appropriate, and payment of the outstanding receivables.
Parties have repeatedly referred to the UNIDROIT Principles in their pleadings (in particular, Arts. 1.3, 22.214.171.124, 7.3.1, 7.3.5, 7.4.1 and 7.4.2)
The Sole Arbitrator concluded that Distributor had to pay the outstanding receivables to Manufacturer, but the latter had to indemnify the former for wrongful termination of the agreement, since the Distributor's debt was not yet due at that time. Indeed, the original terms of payment had been superseded by the later agreement entered into between the parties and the Manufacturer had forfeited its right of claiming full and immediate repayment of the existing debt, granting Distributor extensions of time and facilitations for the repayment of the amount due. According to the Sole Arbitrator, Manufacturer's termination of the agreement was not only in violation of the new deadline agreed between the parties, but also "inconsistent" within the meaning of Art. 1.8 UNIDROIT Principles.
In affirming the validity of the subsequent agreement, the Sole Arbitrator referred to Art. 1.2 UNIDROIT Principles, according to which a contract does not need to be evidenced by a particular form.
As regards the amount of compensation due to the Distributor for the unlawful termination of the contract, the Sole Arbitrator affirmed that it is a generally accepted principle that in the case of wrongful termination of the a contract, damages could be requested to fully compensate the loss arising from such termination, and in this respect she quoted Art. 7.4.1, 7.4.2 and 7.4.3 UNIDROIT Principles. Hence, Distributor could seek indemnification of its actual losses (damnum emergens) and the gain which it had been deprived (lucrum cessans), provided that both could be established with certainty.
Moreover, the Sole Arbitrator quoted Art. 6.1.12 UNIDROIT Principles in order to affirm that payments which were planned and agreed between the Parties, shall be accounted between the total debt of the Distributor, and not a part thereof limitatively.