- Arbitral Award
- ICC International Court of Arbitration 18728
SALES CONTRACT - BETWEEN A STATE OWNED COMPANY (BUYER), WHOSE MAJORITY OWNER WAS LITHUANIAN COMPANY, AND A CYPRIOT COMPANY (SELLER) - GOVERNED BY CYPRIOT LAW - REFERENCE TO UNIDROIT PRINCIPLES ACCORDING TO ART. 21 ICC RULES OF ARBITRATION (TRADE USAGES) - REFERENCE TO UNIDROIT PRINCIPLES IN ORDER TO SUPPLEMENT APPLICABLE DOMESTIC LAW (CYPRIOT LAW)
BUYER FORCED BY ITS MAJORITY OWNER TO BUY THE EQUIPMENT FROM THE SELLER, FULLY CONTROLLED BY BUYER'S MAJORITY OWNER - SELLER'S PRICES HIGHLY INFLATED WITH RESPECT TO THE PRICES AT WHICH THE EQUIPMENT HAD BEEN PURCHASED FROM THE ORIGINAL MANUFACTURERS
BUYER'S REQUEST FOR COMPENSATION OF THE DIFFERENCE BETWEEN THE ORIGINAL AND THE INFLATED PRICES - A PARTY WHO HAS NOT FREELY CONSENTED TO A CONTRACT MAY REQUEST EITHER TERMINATION OF CONTRACT OR PERFORMANCE AT THE CONDITIONS THAT IT WOULD HAVE OBTAINED IF THE GROUNDS FOR VITIATED CONSENT WERE REMOVED - REFERENCE TO ARTS. 1.7 AND 3.2.7 UNIDROIT PRINCIPLES
A state-owned company, whose majority owner was a Lithuanian company (hereinafter the Buyer), entered into five contracts with a Cypriot company (hereinafter the Seller) for the sale and purchase of certain equipment. The Seller was not the original manufacturer of the equipment, which it bought from other companies.
All five contracts contained an identical choice of law clause providing that the law of Cyprus was the governing law, and an identical arbitration clause providing for the settlement of disputes, at the choice of the Seller, by a competent court of Cyprus or by ICC arbitration in Cyprus.
A dispute arose between the parties when the Buyer claimed that it had been forced by its Lithuanian majority owner to buy the equipment from the Seller, which the majority owner allegedly fully controlled, at prices that were highly inflated with respect to the prices at which the equipment had been purchased from the original manufacturers. The Buyer commenced ICC arbitration as provided for in the contracts, seeking payment from both the Seller and its majority owner of the difference between the inflated prices and the manufacturer's prices, on the ground of unjust enrichment.
In a Partial Award on Jurisdiction, the sole arbitrator appointed by the parties held that he had jurisdiction over the Lithuanian majority owner, a non-signatory of the contracts, because it had absolute control over the Seller and controlled the negotiation, conclusion and performance of the contracts.
As to the merits of the dispute, the sole arbitrator found that the Lithuanian majority owner was unjustly enriched by the excessive prices applied by the Seller, which it had forced the Buyer to accept, and ordered it to pay the difference to Buyer, together with interest at the Cypriot legal rate of 5.5 percent per annum. In the opinion of the Arbitrator, it was a case of undue influence, since the Buyer had not freely consented to the contracts under the applicable Cypriot law and the UNIDROIT Principles: the Buyer's majority owner was in a dominant position and had used that dominant position to force the Buyer to pay inflated prices.
The Sole Arbitrator justified the recourse to the UNIDROIT Principles by virtue of Art. 21(2) ICC Rules of Arbitration, according to which "‘the Sole Arbitrator shall take account of the provisions of the contract, if any, between the parties and of any relevant trade usages", and by virtue of the Preamble of the UNIDROIT Principles, according to which they may be used to interpret or supplement domestic law.
The Arbitrator affirmed that it is a general principle of Cyprus contract law that if a person has entered into a contract without free consent, it may request that the contract shall be performed, instead of the annulment of the contract and that it shall be put in the position in which it would have been, if the reasons due to which its consent was not free, had elapsed. The aforementioned principle also constitutes a general principle of the international commercial usages, as it comes from the combination of Arts. 1.7 as well as 3.2.7. of the UNIDROIT Principles.
Stephan W. Schill (ed), Yearbook Commercial Arbitration 2018 – Vol. XLIII (Kluwer Law International 2018) pp.108-152}}