- Arbitral Award
- Arbitration Court of the Lausanne Chamber of Commerce and Industry
LONG-TERM CONTRACTS - CONSULTING CONTRACT - BETWEEN TWO BELGIAN INDIVIDUALS AND A SPANISH COMPANY - SILENT AS TO APPLICABLE LAW BUT CONTAINING REFERENCE TO "GENERAL PRINCIPLES OF LAW APPLICABLE TO INTERNATIONAL COMMERCIAL CONTRACTS" - AT BEGINNING OF ARBITRAL PROCEEDING PARTIES AGREE ON APPLICATION OF THE UNIDROIT PRINCIPLES
DUTY OF BEST EFFORTS AS CONTRASTED TO DUTY TO ACHIEVE A SPECIFIC RESUL (ART. 5.4 [5.1.4 OF THE 2004 EDITION] OF THE UNIDROIT PRINCIPLES)
NON-PERFORMANCE PARTLY CAUSED BY ACT OR OMISSION OF AGGRIEVED PARTY - AGGRIEVED PARTY PREVENTED FROM RELYING ON NON-PERFORMANCE - PRINCIPLE OF GOOD FAITH AND FAIR DEALING (ARTS. 7.1.2 AND 1.7 OF THE UNIDROIT PRINCIPLES)
CONTRACT INTERPRETATION - PREAMBLE OF CONTRACT NOT NECESSARILY RELEVANT (SEE COMMENT 2 TO ART. 4.4 OF THE UNIDROIT PRINCIPLES).
CONTRACT INTERPRETATION - ACCORDING TO UNDERSTANDING OF REASONABLE PERSON (ART. 4.1(2) OF THE UNIDROIT PRINCIPLES)
TERMINATION OF CONTRACT - NOTICE - INTERPRETATION OF CONTENT (ARTS. 4.2(2), 4.3 LIT. (C) AND 4.5 OF THE UNIDROIT PRINCIPLES)
COURSE OF DEALINGS - POWERS OF ATTORNEY OF ONE PARTY'S EMPLOYEE (ART. 1.8(1) OF UNIDROIT PRINCIPLES)
PACTA SUNT SERVANDA - TERMINATION OF CONTRACT LEGITIMATE ONLY WHEN ADMITTED BY CONTRACT OR SPECIFIC PROVISOINS OF UNIDROIT PRINCIPLES (ART. 1.3 OF UNIDROIT PRINCIPLES)
PUBLIC PERMISSION REQUIREMENT - PARTY UNDER DUTY TO APPLY FAILS TO DO SO - PARTY UNDER DUTY TO APPLY FAILS TO GIVE NOTICE TO OTHER PARTY (ART. 6.1.15(1) AND (2) OF UNIDROIT PRINCIPLES)
RIGHT TO PERFORMANCE OF NON-MONETARY OBLIGATION - OBLIGEE UNABLE TO GET PERFORMANCE IN NATURA - MAY CHANGE REMEDY AND ASK FOR DAMAGES (ART. 7.2.5(1) OF THE UNIDROIT PRINCIPLES)
RIGHT TO DAMAGES - DETERMINATION OF AMOUNT DUE (SEE ARTS. 7.4.1, 7.4.2, 7.4.3, 7.4.4, 7.4.7, 7.4.9(2) AND COMMENTS TO ART. 7.4.12 OF THE UNIDROIT PRINCIPLES)
Two Belgian individuals (Claimants) and a Spanish company (Defendant) entered into a contract whereby the former undertook to provide the latter with ideas and share their experience with respect to the manufacturing and marketing of new products.
The dispute arose when the Spanish company terminated the contract and claimed damages.
The arbitration clause in the contract mentioned the European Convention on Commercial Arbitration of 21 April 1961 and provided that the seat of the arbitral tribunal will be "in Switzerland". The special Committee set up under the European Convention has appointed the Chairman.
However, the contract did not contain a clear choice of law clause. Claimants argued for the application of a "neutral law", i.e. Swiss law, but recognized that the contract contained a reference to "general principles of law applicable to international commercial contracts". Therefore, Claimants accepted the application of the UNIDROIT Principles. Since also Defendant agreed on their application, the arbitral tribunal citing the Preamble (Paragraph 2) decided to apply the UNIDROIT Principles as the law governing the substance of the dispute chosen by the parties. The arbitral tribunal further noted that no mandatory rule either in Switzerland, or in Belgium and Spain forbids the application of the UNIDROIT Principles. Moreover, in view of the fact that the new products should have been marketed in a dozen or so of countries, the tribunal found it reasonable to apply the UNIDROIT Principles rather than a specific domestic law, all the more so since these Principles are applicable to contracts for services as well as to the sale of goods or to contracts for works.
In the case at hand the arbitral tribunal found that the following articles of the UNIDROIT Principles were especially relevant :
- Arts. 1.1, 1.3, 1.6, 1.7, 1.8 (general principles)
- Arts. 4.1 to 4.8 (interpretation of the contract)
- Art. 5.3 [Art. 5.1.3 of the 2004 edition] (duty to cooperate)
- Art. 5.4 [Art. 5.1.4 of the 2004 edition] (duty to achieve a result; duty of best efforts)
- Art. 6.1.4 (priority of performance by one party)
- Arts. 7.1.1 to 7.4.12 (non-performance; termination; damages).
The arbitral tribunal first relied on Art. 5.4(2) [Art. 5.1.4(2) of the 2004 edition] UNIDROIT when deciding that Claimants did not have an obligation to reach specific results; they merely owed a duty of diligence in the communication of their experiences and their marketing endeavours. The preamble to the contract is not binding, as is shown by the Comments to Art. 4.4. Art. 4.1(2) is also mentioned as guidance to interpret the contract.
Further, both parties and especially Defendant have to abide by Art. 1.7 on the mandatory character of the good faith rule. As Defendant did not act in good faith and otherwise breached the contract, the arbitral tribunal applies Art. 7.1.2 to admit that Defendant is barred from invoking some allegedly unperfect performance acts by Claimants, since Defendant caused such acts by its own behaviour. Thus, Art. 6.1.15(1) come to play, because Defendant never requested an official authorization that would have been necessary for marketing the product, and failed to inform the other party in this regard (see Art. 6.1.15(2)). Art. 7.2.5(1) is also mentioned as concerns the inaction by Defendant.
As to the rules on the powers of attorney of one employee of Defendant who signed a termination notice, the award is based on Art. 1.8(1). As to the contents of that termination notice, Art. 4.2(2) and Art. 4.3(c) are taken into account, as well as Art. 4.5 (interpretation "contra proferentem"). Art. 1.3 is mentioned to state that an unjustified termination is contrary to the sanctity of contracts. The reference at the end of Art. 1.3 is meant to be to Art. 3.13, Art. 5.8 [Art. 5.1.8 of the 2004 edition], Art. 6.1.16. Art. 6.2.3, Art. 7.1.7, Art. 7.3.1 and Art. 7.3.3. Having considered these provisions, the arbitral tribunal finds that the termination was not justified.
As to the determination of damages, Art. 7.4.1, 7.4.2, 7.4.3, 7.4.4, 7.4.7, 7.4.9(2) and 3.10(2) are taken into consideration, as well as the Comments to Art. 7.4.12.