- Arbitral Award
- ICC International Court of Arbitration 17768
LONG-TERM CONTRACTS - CONSTRUCTION CONTRACT - BETWEEN A MALAYSIAN CONTRACTOR AND A SAUDI ARABIAN CLIENT - REFERENCE TO UNIDROIT PRINCIPLES TO INTERPRET AND SUPPLEMENT NATIONAL LAW (SAUDI LAW)
CLIENT'S FAILURE TO MAKE PAYMENT ON TIME - AMOUNTS TO BREACH OF CONTRACT - CONTRACTOR'S FAILURE TO PERFORM DUE TO CLIENT'S BEHAVIOUR - CLIENT MAY NOT RELY ON CONTRACTOR'S NON-PERFORMANCE TO EXERCISE ITS RIGHT UNDER THE CONTRACT - REFERENCE TO ARTICLES 7.1.2 AND 7.1.3 UNIDROIT PRINCIPLES
A Malaysian contractor (Claimant) entered into a construction contract with the Saudi Arabian client (Respondent) for a development project in Riyadh against payment of an agreed lump sum. The contract provided that Claimant was to receive an advance payment and monthly interim payments reflecting the work carried out, and that the interim payments were to be certified first by the project's consultant. The contract specified that no extension of time would be granted for the completion of the project and that it was governed by Saudi law.
Soon after the conclusion the contract, Claimant contested that the amounts certified by the project's consultant were not paid in accordance with the terms of the contract; the failure to make full and prompt payments, as well as several changes to the project's drawings, allegedly resulted in delays and extra costs. In turn, the Respondent counterclaimed that Claimant was not performing in accordance with the contract. The situation between the parties continued to deteriorate and eventually Respondent sent Claimant a notice of breach of contract, alleging that the latter had not met the agreed completion dates and seeking damages.
Claimant commenced ICC arbitration against Respondent, affirming that the contract was terminated as a result of Respondent's breach and seeking payment of all unpaid certified invoices, plus various additional costs incurred by Claimant as a result of the delays and disruption caused by Respondent.
Respondent argued in reply that the arbitration clause in the contract was contrary to Saudi law and therefore invalid. Respondent consequently informed the ICC that it would not participate in the proceedings.
The ICC appointed a sole arbitrator.
The sole arbitrator found that arbitration clause in the contract was valid and that he therefore had jurisdiction over the disputee.
As to the applicable law, Claimant asked the Arbitral Tribunal to take into account, in addition to the applicable Saudi law, the provisions of the contract and relevant trade usages as provided for by Art. 17(2) of the ICC Rules, and referred in this respect to the UNIDROIT Principles as an expression of trade usages.
On the merits, the sole arbitrator affirmed that, according to the principle of mutuality of obligations, which is one of the most basic principles in contract law and is applicable also under Saudi law, a contractual party (????) may not avail itself of its breach of a contractual term to claim any other contractual remedy (????). Therefore, in the present case Respondent's failure to make the payments due to the Claimant constitute a violation of the contract and may not serve as basis for justifying the exercise by Respondent of its right under the contract (i.e. right to take possession of the site when it deemed that the Contractor was in default). To confirm this principle the sole arbitrator referred Arts. 7.1.2 and 7.1.3 of the UNIDROIT Principles.
Albert Jan Van den Berg (ed), Yearbook Commercial Arbitration 2017 – Vol. XLII (Kluwer Law International 2017) pp.100-171}}