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CISG CASE PRESENTATION

ICC Arbitration Case No. 10274 of 1999 (Poultry feed case) [English text]
[Cite as: http://cisgw3.law.pace.edu/cases/990274i1.html]

Primary source(s) of information for case presentation: Yearbook Comm. Arb. (2004)

Case Table of Contents


Case identification

DATE OF DECISION: 19990000 (1999)

JURISDICTION: Arbitration ; ICC

TRIBUNAL: Court of Arbitration of the International Chamber of Commerce

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 10274 of 1999

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Denmark (claimant)

BUYER'S COUNTRY: Egypt (respondent)

GOODS INVOLVED: Poultry feed products


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 64 ; 73 ; 74 ; 75 ; 78 ; 81 ; 92

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach: substantial deprivation of expectation, etc.];

73A1 ; 73B12 [Fundamental breach with respect to installment: declaration of avoidance with respect to defective installment; Refusal of future installments: when breach in one installment gives grounds to expect fundamental breach with respect to future installments];

74A ; 74A1 [General rules for measuring damages: loss suffered as consequence of breach; Includes loss of profit];

75A1 [Damages established by substitute transaction after avoidance: resale by aggrieved seller];

78B [Rate of interest];

81A [Obligations of parties after avoidance];

92A [Declaration not to be bound by Part II (Formation of Contracts)]

Descriptors: Fundamental breach ; Avoidance ; Installment contracts ; Damages ; Profits, loss of ; Cover transactions ; Interest ; Declaration, Art. 92

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (English): Text presented below; see also 29 Yearbook Commercial Arbitration (2004) 89-107

Translation: Unavailable

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text

ICC Arbitration Case 10274 of 1999

Yearbook Comm. Arb'n XXIX, Albert Jan van den Berg, ed. (Kluwer 2004) 89-107. Copyright owner: The International Council of Commercial Arbitration (ICCA). Reprinted with the permission of ICCA.

DATA ON THE AWARD

Parties:

   -    Claimant: Dairy and agricultural company D (Denmark)
   -    Respondent: Poultry producer B (Egypt)

Place of arbitration: Copenhagen, Denmark

Published in: Unpublished

Subject matter:

   -    applicable law to substance
   -    1955 Hague Convention on the Law Applicable to International Sales of Goods
   -    Kompetenz-Kompetenz
   -    formation of contract
   -    1980 UN Sales Convention (CISG)
   -    installment contract
   -    breach of contract
   -    calculation of damages
   -    applicable law to interest

FACTS

A dairy and agricultural product dealer, D, regularly sold feed products to a poultry company, B. Their usual practice was that D would telefax the complete contract to B which would stamp and sign the last page and telefax that page to D. D would then forward pro forma invoices to B and B would open corresponding letters of credit. In the case at issue, D allegedly concluded two contracts with B, one for the supply of 400 metric tons (mts) of feed product A and the other for 2,000 mts of feed product B. In each case, the delivery was to be made in four installments. The parties subsequently disagreed as to whether the contracts were actually signed and accepted. D sent pro forma invoices to B for the first installments, one set, dated 2 December, referred to feed product A; the other set of invoices dated 7 January of the following year, referred to feed product B. B opened letters of credit covering the shipment of 100 metric tons (mts) of feed product A and 500 mts of feed product B. D accepted the letters of credit.

On 14 January, D concluded two contracts with a feed producer, one for 400 mts of feed product A and the other for 2,000 mts of feed product B. Both contracts named B as the designated importer, indicated four different dates for various shipments and referred to the letters of credit that been opened by B. On 26 January, D telefaxed B informing B that due to problems with its supplier, the shipment of 100 mts of feed product A and 500 mts of feed product B would be shipped on 28 February, and that the following shipment would be ready on 2 April. The invoices for the February shipment were sent on 16 and 28 February respectively.

After arrival of the goods, B telefaxed D on 13 April, complaining that the shipment of feed product B comprised 499 instead of 500 mts. Furthermore, there had been problems related to the delayed transmittal of a veterinary certificate and the carrier had discharged the goods at the wrong location in the port. D responded on the same day that it would issue a credit note for the value of the missing amount, but would not compensate B for the other alleged losses which it did not consider to be its responsibility. D also informed B that the April shipment had been rebooked for 24 April and asked B to confirm the opening of letters of credit for that shipment by 14 April. Otherwise, D would consider the contracts to be "null and void". On 14 April, B telefaxed D that it was astonished by D's reluctance to reimburse them for the other losses. This was followed by a second telefax reading:

"Due to the problem and losses we bear in every deal we work together and due to the shipment has not been released due to your delay in sending the certificate and your insist (sic) not to pay your fault, we are obliged to inform you that any further shipment will not (sic) before July."

D responded the same day writing that the contract at issue was cancelled and that it would not continue to do business with B. However, on 30 April, D telefaxed B a settlement offer, stating that if the offer was not accepted, it would sell the goods elsewhere. No settlement was reached and D agreed with its supplier K that it would only take delivery of 1,500 mts of feed product B and that 300 mts of feed product A would be kept by K at no charge to D. On 29 July, D concluded a contract with trade company O for the delivery of 1,500 mts of feed product B at a lower price than the price it would have received from B.

D claimed damages from B for loss of profit. When B did not respond, D initiated ICC arbitration. The arbitration clause in the contracts provided for arbitration in Copenhagen, to be conducted in English. A sole arbitrator was appointed. At the oral hearing, the claim against a second respondent, Dr. W, was withdrawn by D.

The sole arbitrator first determined the applicable substantive law to be applied. Each party argued, respectively, for the application of its national law. Relying on Art. 17 of the ICC Rules which, absent a choice of law by the parties, allows the arbitral tribunal to apply the rules of law which it deems appropriate, the sole arbitrator looked to Art. 4(1) of the Rome Convention and Art. 3 of the 1955 Hague Convention on the Law Applicable to International Sales of Goods, both of which led to the domestic law of the country of the seller, i.e. , Danish law. Denmark was a party to the 1980 United Nations Conventicon on Contracts for the International Sale of Goods (CISG), but had made a reservation with regard to Part II of the CISG. Thus the obligations under the contracts and the contractual remedies were governed by the CISG but Danish law (without the incorporation of the CISG) applied to the formation of the alleged contracts.

The respondent challenged the jurisdiction of the arbitral tribunal, alleging that the contracts containing the arbitration clauses had never been concluded. The sole arbitrator, relying on the doctrine of Kompetenz-Kompetenz, examined if the contracts had actually been concluded in order to determine if the parties had agreed to arbitration. After examining the documentary materials submitted by the parties, and the conduct of the parties, the sole arbitrator concluded that the parties had concluded the contracts, including the arbitration clauses although "one could have imagined a more professional way to document the conclusion of the delivery contract on the part of the claimant as supplier".

D claimed damages for lost profits with respect to the contract for feed product A and the difference in the sale price for feed product B which had been sold later at a lower price. The sole arbitrator, applying Art. 25 CISG, found that the contracts had been breached when B failed to open the required letter of credit for the second installment and refused to accept any further shipment before July. According to Art. 73 CISG, D was entitled to avoid the contracts. Applying Arts. 74 and 75 CISG, the sole arbitrator awarded damages to D for lost profit with respect to feed product A contract and for the price differential arising from the later sale of feed product B. Interest was calculated under the law of the forum state, the Danish Rentelover, at the rate of 5% per annum over the applicable discount rate of the Danish Bank, from the date of the request for arbitration.

Excerpt

I. APPLICABLE LAW

[1] "The parties are of conflicting opinions as to which substantive law should be applied by the tribunal in general and namely with regard to the issue of formation of contracts. Claimant is of the opinion that contracts of sale should be governed by the law of the seller's country. In the case at hand this would be Danish law since claimant is a Danish party. Respondent refers to Art. 4 of the EC Convention on the Law Applicable to Contractual Obligations (Rome Convention). While this Convention is not directly applicable in the case at hand, as respondent concedes, respondent nevertheless sees the Rome Convention as a statement of generally applicable conflict rules.

[2] "Art. 4(1) Rome Convention states that to the extent that the law applicable to the contract has not been explicitly chosen, the contract shall be governed by the law of the country with which it is most closely connected. Furthermore, it shall be presumed that the contract is most closely connected with the country where the party effecting the performance characteristic of the contract has, at the time of conclusion of the contract, its central administration. Respondent argues that these factors point to Egypt and thus, Egyptian substantive law should apply.

[3] "The ICC Rules of Arbitration (ICC Rules) provide in Art. 17(1) with respect to the substantive law to be applied by the arbitrators that the parties shall be free to agree upon the rules of law to be applied by the arbitral tribunal to the merits of the dispute. In the absence of any such agreement, the arbitral tribunal shall apply the rules of law which it determines to be appropriate. In the case at hand the parties have not agreed upon the rules of law to be applied by the tribunal. Even if the alleged contracts including the arbitration clauses were concluded by the parties, they do not contain a choice of law provision.

[4] "Thus, the tribunal must determine which rules of law are appropriate for the settlement of the dispute in the case at hand. Art. 17(1) ICC Rules, which states that the tribunal shall apply the rules of law which it determines to be appropriate, gives the tribunal broad discretion for its decision. The provision of Art. 17(1) ICC Rules does not provide for specific rules for the choice of law that the tribunal should apply. However, the freedom of the tribunal in the choice of law process does not liberate it from applying some system of law to govern the substance of the contract.[l]

[5] "The tribunal hereby confirms the opinion expressed in its Procedural Order No. 2 relating to the applicable law. Thus, the CISG contains the generally applicable law. However, with respect to the contract formation, Danish law applies.

[6] "Generally, the United Nations Convention on Contracts for the International Sale of Goods (CISG) is applicable since both Denmark and Egypt are parties to the Convention and have thus, both incorporated the CISG in their domestic law.[2] Denmark, however, has made a reservation with regard to Part II (Formation of the Contract) of the Convention.[3] Thus, with respect to the issue of the formation of the contracts here in dispute (and only with respect to this issue), the CISG (as part of Egyptian domestic law) is only applicable if Egyptian law applies. The CISG would not be applicable if Danish law applies since Denmark has, as stated above, made a reservation excluding the application of the CISG for issues relating to the formation of contracts.

[7] "Both parties refer to principles that are well known in the choice of law discussion. Claimant's position is contained in the Convention on the Law Applicable to International Sales of Goods, agreed at The Hague, on 15 June 1955. Art. 3 of this Convention provides that in default of a law which was declared applicable by the parties a sale shall be governed by the domestic law of the country in which the vendor has his habitual residence at the time when he receives the order. As mentioned above, respondent's position is contained in the Rome Convention.

[8] "It can be left open, however, which principle applies in the case at hand since both principles agree that Danish law applies with respect to the issue of formation of contracts. This is the clear result if the tribunal would follow claimant's position, because claimant as the seller is a Danish party. Should the tribunal follow respondent's position, the result would also be the application of Danish law, because (contrary to respondent's contention) Denmark (and not Egypt) is the country most closely connected with the contracts here in question.

[9] "The goods to be sold are produced in Denmark, claimant as the seller is a Danish party and respondent has to fulfill its main obligation (which is payment of the purchase price) in Denmark. Even though the Rome Convention is not applicable in the case at hand, it underlines the tribunal's result because Art. 4(2) of the Rome Convention refers to the country where the party who is to effect the performance characteristic of the contract has its central administration. Since the contract at hand is a sales contract, the characteristic performance is effected by the claimant as the seller who, is residing in Denmark. Thus,

   -    the obligations under the alleged contracts and the contractual remedies are generally governed by the CISG.
   -    However, with regard to the issue of the formation of the alleged contracts (and only with regard to this issue), Danish law (without incorporation of the CISG) applies."

II. JURISDICTION AND FORMATION OF CONTRACTS

[10] "Even though respondent challenges the jurisdiction of the tribunal by alleging that the arbitration clauses here in dispute have never been concluded, the tribunal has jurisdiction to decide about the issue of jurisdiction based on the Kompetenz-Kompetenz doctrine. There is substantial agreement that in international commercial arbitration the arbitrator should, in ordinary circumstances, have the power to determine his or her own jurisdiction without prior recourse to the courts.[4] The Kompetenz-Kompetenz doctrine holds that arbitrators are competent, at least as an initial matter, to rule on their own competence to hear the dispute.[5]

[11] "The tribunal has jurisdiction if the parties concluded an agreement to arbitrate, which gives the tribunal the power to settle the dispute here in question. Since the arbitration clause invoked by claimant is contained in the same document as that on which claimant relies as proof for the conclusion of the delivery contracts, the issue of jurisdiction is identical to the issue of whether or not the parties have concluded such alleged contracts. Thus, the issues of the conclusion of an agreement to arbitrate and the conclusion of the contracts here in question, will be dealt with together.

[12] "Claimant alleges that it entered into two delivery contracts relating to feed product A and feed product B on 2 and 22 December with respondent, and such contracts at the same time contained the alleged arbitration clause. According to the claimant, the contracts were concluded in the way that the contractual document was sent via telefax to respondent, who sent it back via telefax stamped and signed to document its acceptance.

[13] "Respondent alleges that it did not sign the contractual documents and that, as a result, the arbitration clause contained in such documents does not confer jurisdiction. Respondent furthermore alleges that the Exhibits provided by the claimant relating to the contracts are forgeries since respondent neither had them in hand nor stamped or signed them. In the event that the tribunal assumes the alleged contracts to have been concluded amongst the parties, respondent argues that the content of the contracts was subsequently changed, because claimant accepted letters of credit that were not conforming with the alleged contracts.

[14] "Under Danish law the pertinent rules with regard to the conclusion of contracts are contained in Sects. 1 to 9 of the Law of Agreements and Other Legal Transactions in the Field of Property Law (Aftaleloven). According to these provisions, contracts are concluded by offer and acceptance. The burden of proof for the conclusion of a contract is on the party claiming rights out of the contract. Since the arbitration clause is also a contract, the same rules are applicable for the arbitration clause. Thus, in the case at hand the claimant must establish the conclusion of the alleged contracts and of an arbitration clause for each alleged contract.

[15] "As proof for the conclusion of the alleged contracts, including arbitration clauses, claimant offered copies of the pages that it alleges to have sent to respondent and the original telefax receipt pages of signature pages (allegedly resent by respondent). These documentary materials, together with the conduct of the parties, are sufficient for the tribunal to find that the parties concluded the contracts at hand, including arbitration clauses conferring jurisdiction on the tribunal. The tribunal comes to this conclusion even though one could have imagined a more professional way to document the conclusion of delivery contracts on the part of the claimant as supplier. With such an improved practice the current dispute might even have been avoided. Nevertheless, the tribunal finds that claimant has met its burden of proof.

[16] "Claimant was ordered by the tribunal to deliver original documents regarding the conclusion of the contracts."

1. The First Contract (Feed Product A)

[17] "In the Oral Hearing in Copenhagen, claimant provided for the sale of 400 mts of feed product A an original telefax page (Exhibit 2a). This page contains the stamp of respondent together with a signature, as well as the telefax address of respondent on the top of the page. Claimant has further provided a copy of a contractual document (Exhibit 1) and a copy of the last page of a contractual document (Exhibit 2, which appears to be a copy of the original telefax page later submitted as Exhibit 2a). The last page of Exhibit 1 bears the stamp of the claimant together with a signature. Exhibit 2 and 2a show the stamp of respondent together with a signature. Contents and format of the last page of Exhibit 1 appear to be identical with Exhibit 2 respectively Exhibit 2a.

[18] "After reviewing the provided evidence, the tribunal comes to the conclusion that there are two possible courses of events with regard to the alleged contract for the sale of 400 mts of feed product A. The first possibility is that claimant sent via telefax a signed version of the contractual document to respondent (Exhibit 1). Respondent received the document but lost it somehow or, telefax transmission problems occurred so that it was necessary for claimant to send respondent another unsigned copy on which respondent could express its consent. Respondent stamped and signed the last page of such copy and sent it back to claimant (Exhibit 2 and original in Exhibit 2a). The signed version of the contract sent to respondent by the claimant would under such assumption qualify as an offer. This offer was accepted by respondent by signing and stamping the copy of the last page of the document.

[19] "The second possibility is that claimant sent an unsigned copy (unsigned by claimant) of the contractual document to respondent who, after stamping and signing it, sent the last page back to claimant (Exhibits 2 and 2a). Claimant, after having received the stamped and signed page from respondent, stamped and signed another copy of the last page of the contractual document. In this case the sending of the unsigned copy of the contractual document qualifies as an invitation to make an offer. Respondent made this offer by sending back the stamped and signed last page of the contractual document (Exhibits 2 and 2a). Claimant accepted this offer by stamping and signing another copy of the contractual document (Exhibit 1).

[20] "Thus, even if the facts are allowing two possibilities as to how a contract regarding the sale of 400 mts was concluded between the parties, the tribunal finds that the respective contract was concluded between the parties since both possibilities lead to the conclusion of the formation of the contract."

2. The Second Contract (Feed Product B)

[21] "With regard to the 2,000 mts of feed product B contract the situation is more complicated. Claimant also provided a copy of a contract document with a signature page showing its stamp and signature (Exhibit 3 last page), a copy of the last page of the contractual document showing stamps and signatures of both claimant and respondent (Exhibit 4), and finally an original telefax page showing the telefax address of respondent at the top and stamps and signatures of respondent and claimant on the bottom (Exhibit 4a). The content and format of Exhibit 4a (and Exhibit 4) are identical with Exhibit 2a. Respondent's telefax address appears on the top of Exhibits 4 and 4a as well as the receiving time which shows that Exhibit 4a was received two minutes after Exhibit 2a. Both Exhibit 4a and Exhibit 2a are stamped and signed by respondent. The position of the appearing signature shows, however, that Exhibits 4a and 4 are not copies of Exhibit 2a. The signature on Exhibits 4a and 4 is situated inside the stamp of respondent. On Exhibit 2a it is situated at the upper part of the stamp. Consequently, the representative of respondent stamped and signed Exhibit 2a as well as Exhibit 4a, and thus two different signature pages.

[22] "Exhibit 3 last page shows two different dates under the provided signature lines for buyer and seller. ... Exhibit 3 last page, however, is not identical with Exhibits 4 and 4a in that claimant's stamp on the copy is in another position than on the telefax page. Furthermore, the content is different. Under the heading 'Force major' the Exhibits 4 and 4a (unlike the last page of Exhibit 3) have the additional provision that 'the shipper shall not be responsible for any changing matters in connection with this contract'.

[23] "Again, there appear to be, in the tribunal's finding, also in the case of the second contract two possible courses of events. The first possibility is that claimant sent via telefax a signed version of the contractual document. Respondent lost this copy somehow, or, other reasons caused claimant to send another copy to respondent. This time, claimant, for whatever reason, did not send the last page of the original contractual document but sent another copy of the last page of a contract form used by claimant in other cases such as for the sale of 400 mts of feed product A. Respondent stamped and signed this copy and sent it back via telefax to claimant. Claimant, even though it had already signed the first copy of the contractual document, which was sent to respondent, (again) stamped and signed the received page from respondent.

[24] "Here, the stamped and signed copy of the contractual document, which was sent via telefax from claimant to respondent, qualifies as an offer (Exhibit 3). Respondent accepted this offer by stamping and signing the second copy of the contractual document (Exhibits 4 and 4a). The fact that the second transmitted copy was a last page of another contract form (for instance the sale of 400 mts of feed product A) is not detrimental for the contract formation as long as the signature of this page had to be viewed from the vantage point of the claimant as recipient as the acceptance of the second contract (2,000 mts of feed product B).

[25] "In this context it is important that on 22 December two contracts were under consideration for both of which claimant had submitted to respondent either an offer or an invitation to make an offer. Respondent clearly returned two different signature pages. The location of the signature in the stamp suggests that the pages were individually signed. Consequently, the claimant as recipient was urged to assume that respondent as sender of the two different pages wanted to accept two different contracts (and not send twice the acceptance of only one contract). Thus, the tribunal concludes that a contract regarding the sale of 2,000 mts of feed product B was concluded between claimant and respondent.

[26] "The second possibility is, again, that claimant sent an unsigned copy of the contractual document to respondent. For reasons that are unknown to the tribunal, it was necessary to send respondent via telefax another copy of the last page of the contractual document for which claimant used the last page of another contract form (for instance for the sale of 400 mts of feed product A). If the events happened like this, the sending of the unsigned copy of the contractual document qualifies as an invitation to make an offer to conclude a contract for the sale of 2,000 mts of feed product B addressed to respondent. Respondent made this offer, even though it signed a page that was originally a last page of another contract form. Claimant accepted this offer by stamping and signing Exhibit 4a. Both possibilities lead to the conclusion that a contract for the sale of 2,000 mts of feed product B was concluded between the parties. Thus, the tribunal finds that a contract for the sale of 2,000 mts of feed product B was concluded between the parties in addition to the contract for the sale of 400 mts of feed product A.

[27] "The defenses made by respondent do not convince the tribunal.

[28] "(i) As far as respondent alleges never to have seen the contracts in question, respondent could not provide a reasonable explanation why the Exhibits 2a and 4a bear the telefax address of respondent. The usual way telefax machines are working is that they print the address of the sender on the received telefax sheets. Thus, the telefax address on the Exhibits 2a and 4a are a strong sign for the fact that they were dispatched from a telefax machine controlled by respondent.

[29] "Thus, the tribunal assumes (absent any explanation by respondent to the contrary) that respondent has seen the contracts at hand and sent two individually signed signature pages at two different times (02.34 p.m. and 02.36 p.m.), however, on the same day from its telefax machine to claimant.

[30] "(ii) As far as respondent alleges that the parties usually concluded contracts in a way that claimant sent pro forma invoices and respondent opened letters of credit if it wanted to contract with the claimant, the allegations by respondent are contradictory. In its Post Hearing Submission, respondent explains the fact that its telefax address appears on Exhibits 2a and 4a by alleging that these Exhibits relate to other contracts that were already executed. Thus, there must have been contracts between the parties that were concluded in the same way as the contracts here in dispute.

[31] "(iii) Furthermore, respondent alleges that the stamped contract pages are mere forgeries and are not signed by respondent. The tribunal could not determine that the Exhibits 2a and 4a are forgeries. Besides the allegation that the documents in question are forgeries, respondent provided in addition to the mere denial of the document's authenticity, no evidence that could lead to the conclusion that the documents are forged.

[32] "Respondent could have provided a copy of its original stamp so that the tribunal could have compared the original stamp with the stamp appearing on the Exhibits 2a and 4a. Furthermore, both Exhibits show a signature (however in different places) in the stamp of respondent. Regarding this signature, respondent also provided no original signatures of its representatives for the purpose of comparison. Thus, the provided information and evidence by respondent is not sufficient to establish that the Exhibits 2a and 4a are forgeries. It is the tribunal's finding that they are authentic telefax receipts, evidencing respondent's acceptance of the two contracts here in question (first possibility) or offers for the conclusion of the contracts here in question (second possibility).

[33] "(iv) Moreover, the allegations by respondent that it has not seen the contracts and the signed contract pages to be forgeries, are not consistent with the conduct of respondent. During the discussion between the parties prior to the arbitration respondent received several times documents by the claimant that refer to the shipment of 400 mts of feed product A and 2,000 mts of feed product B. The list of such documents starts with the pro forma invoices for the shipment of the installments (Exhibits 7 to 16). Even though the pro forma invoices do not refer to the concluded contracts, they refer exactly to the goods for which the contracts were concluded. In addition, the majority of the provided pro forma invoices (Exhibits 8-11, 13, 15, 16) clearly order opening the respective letter of credit 'in full for al1 4 consignments' (emphasis added).

[34] "In Exhibit 23, claimant refers to a lot that 'was due for you on shipment on 14 April ...'. In his telefax dated 14 April claimant expressly refers to 'Contract 2,000 mt danish mbm 55% as well as 400 mt danish feed product A'.

[35] "In all his responses, respondent did not object once in a way that only the shipment of 100 mts of feed product A and 500 mts of feed product B was agreed. Respondent did not only fail to object, it refers to future shipments in his telefax dated 14 April (Exhibit 25). Even though respondent had no legal duty to object in order to protect its rights, the conduct of respondent nevertheless shows in the tribunal's evaluation that it knew of the contracts and assumed them to be valid. Consequently, the conduct of respondent confirms the tribunal's finding that respondent entered into the contracts here in dispute with claimant.

[36] "(v) The fact that the last page of Exhibit 3 shows two different dates under the provided signature lines for buyer and seller ... has no legal consequences. It appears to the tribunal that this discrepancy is based on a simple typing error. According to the content of Exhibit 3 all four installments had to be delivered by July. Thus, it appears that the correct date is 2 December of the previous year and as for as the year appearing on the buyer's side it should be the [previous] year.

[37] "(vi) Finally, the argumentation of respondent with respect to the content of the contracts is not convincing to the tribunal. It cannot be concluded that the content of the contracts remained open from the fact that respondent only signed and returned the last page of the contracts. For an acceptance, it is required that the accepting party expresses its consent in an unequivocal form. However, in the case at hand it was not necessary that respondent expressed its consent by sending all pages of the contract signed and stamped to claimant. Sending the last page of each contract was sufficient to express the consent and thereby to accept the contracts. This is also in accordance with accepted practices and customs in international trade.

[38] "(vii) Lastly, the content of the contracts was, in the evaluation of the tribunal, not changed by the claimant accepting two letters of credit that cover only one installment of each contract. Respondent issued two letters of credit that were not conforming to the contracts because they did not cover the full amount of the contracts, but rather only one installment of each contract. However, by accepting a performance that is non-conforming, the accepting party does not necessarily express its consent to change the whole contract. In the absence of further statements to this effect, a party who accepts a lesser security for a delivery contract than was originally contracted does not express its intention to reduce the volume of the contract to the amount of the security. Consequently, the tribunal finds that claimant did not express his consent to change the contracts into sales contracts for 100 mts of feed product A and 500 mts of feed product B by accepting the non-conforming letters of credit.

[39] "(viii) Thus, the tribunal holds that claimant and respondent entered into two contracts one for the sale of 400 mts of feed product A and the other for the sale of 2,000 mts of feed product B. Both contracts contain an arbitration clause conferring jurisdiction to the tribunal for the dispute at hand."

III. AVOIDANCE AND DAMAGES

[40] "With regard to the issues of avoidance and damages as well as the quantum of claimant's claim, the two contracts must be taken individually in account, since the claimed damages follow different rules."

1. Feed Product A

[41] "It is uncontested that claimant reached an agreement with the producer K according to which K would keep the remaining 300 mts of feed product A at no cost to claimant. Thus, claimant demands payment of lost profits under the contract. Respondent is of the opinion that its conduct with regards to the remaining 300 mts of feed product A does not constitute a fundamental breach under Art. 25 CISG.

[42] "With regard to damages, the applicable law is the CISG (see above [l]-[9].). Since the parties in the case at hand concluded an installment contract, the legal consequences for the installment announced for April and the installments following this shipment must be separately distinguished."

a. Installment announced for April

[43] "The provision of Art. 73(1) CISG states that in the case of a contract for delivery of goods by installments, if the failure of one party to perform any of its obligation with respect to any installment constitutes a fundamental breach of contract with respect to that installment, the other party may declare the contract avoided with respect to that installment.[6]

[44] "According to Art. 25 CISG, a breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as to substantially deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.[7]

[45] "After the shipment of the first installment, claimant announced the shipment of the next installment in his telefax dated 26 January and requested respondent to open the necessary letter of credit. Respondent did not open the required letter of credit causing claimant to rebook the shipment. By telefax dated 13 April, claimant again demanded the letter of credit. According to the contract, respondent was obligated to deliver the letter of credit and to accept the installment.

[46] "Respondent refused to deliver the letter of credit. In addition, respondent declared in its telefax dated 14 April that it will not accept any further shipment before July [of that year]. The conduct of respondent constitutes a fundamental breach according to Art. 25 CISG in two ways. First, respondent delayed and finally refused the delivery of the required letter of credit, thus causing claimant to rebook the shipment which resulted in more costs for the claimant. This conduct alone constitutes a fundamental breach because it deprived the claimant of what it could expect under the sales contract.

[47] "Second, respondent refused to accept any installment before July. According to the contract concluded between the parties, the last installment was to be shipped in July/August. Thus, the statement of respondent in its telefax dated 14 April can be seen as a final refusal to perform because the installment following the April installment was already due for May/June. Consequently, respondent declared that it will not accept the April installment. A final refusal of performance constitutes a fundamental breach in the sense of Art. 25 CISG.[8]

[48] "Under the contract, claimant was entitled to expect that respondent accepts the shipment of the different installments. By his final refusal to accept the April installment, respondent deprived claimant of what claimant was entitled to expect under the contract. Furthermore, respondent did foresee this result as well as any reasonable person of the same kind would have foreseen this result. Thus, the tribunal finds that the conduct of respondent with respect to the April installment of 100 mts of feed product A constitutes a fundamental breach according to Art. 25 CISG. Under Art. 73(1) CISG [9] claimant was entitled to declare the contract avoided with respect to the April installment of feed product A. Claimant declared the avoidance in his telefax dated 14 April.

[49] "The avoidance of the April installment results in the applicability of Art. 81 CISG which states that the avoidance of the contract releases both parties from their obligations under it, subject to any damage which may be due."

b. Installments due for May/June and July/August

[50] "With regard to the last two installments under the contract Art. 73(2) CISG is the applicable provision. Under Art. 73(2) CISG one party may declare the installment contract avoided for the future if the other party's failure to perform any of its obligations in respect of any installment gives good grounds to conclude that a fundamental breach of contract will occur with respect to future installments.[10]

[51] "The pertinent conduct of respondent is the telefax dated 14 April. Respondent declared that it will not accept any further installment before July, although respondent must have known that it was obligated under the contract to accept at least the March/April installment and May/June installment. In this context respondent also refused to deliver letters of credit for the March/April installment.

[52] "This conduct with respect to the March/April installment gave claimant good grounds to conclude that a fundamental breach of contract will also occur with respect to the May/June installment and the July/August installment. By declaring not to accept any further installment before July, respondent made clear that it will neither deliver letters of credit for the May/June installment nor accept this installment which would have constituted a fundamental breach according to Art. 25 CISG.

[53] "Thus, the tribunal finds that claimant was entitled to declare the contract avoided also for the future. Claimant declared the avoidance in his telefax dated April 14. The avoidance results again, as in the case of the April delivery, in the applicability of Art. 81 CISG."

c. Damages

[54] "According to Art. 81 CISG, the claimant is entitled to damages. The pertinent provisions with regard to damages are Arts. 74 [et seq.] CISG. Art. 74 CISG provides that damages for breach of contract consist of a sum equal to the loss, including loss of profit, suffered as a consequence of the breach."

[55] The sole arbitrator noted that the claimant was able to reach an agreement with the producer K that K would keep the remaining 300 mts of feed product A at no cost for claimant. Claimant had claimed the lost profit under the contract, which amounted to the difference between the price at which it had purchased feed product A and its anticipated sales price to respondent and the sole arbitrator awarded this amount.

2. Feed Product B

[56] "With respect to the remaining 1,500 mts of feed product B, claimant alleges to have resold them to O. ... [C]laimant demands the difference between the contract price and the price obtained in the cover sale.

[57] "Respondent alleges that even if claimant may have entered into a contract with O, this contract has never been performed, i.e., the contract has been concluded for the purpose of fabrication of a damage for the present arbitration. Furthermore, respondent alleges that the goods sold to O are different from the goods that should have been sold to respondent."

a. April installments

[58] "Since the contract regarding the shipment of 2,000 mts of feed product B is an installment contract, Art. 73(1) CISG is again the applicable provision. The conduct of respondent with respect to the April installment of feed product B is identical to the April installment of feed product A. Thus, respondent refused to deliver the required letter of credit and finally refused to accept the shipment by refusing any further shipment before July. Consequently, the conduct of respondent with respect to the April installment of feed product B constitutes a fundamental breach according to Art. 25 CISG.

[59] "Thus, the tribunal finds that claimant was entitled to declare the contract avoided with respect to the April installment of feed product B under Art. 73(1) CISG. Claimant declared the avoidance in his telefax dated 14 April. Thus, Art. 81 CISG is applicable."

b. May/June and June/July installments

[60] "The applicable provision is Art. 73(2) CISG. The conduct of respondent with respect to the April installment gave claimanct good grounds to conclude that a fundamental breach of contract will occur with respect to future installments, since respondent refused to deliver the required letter of credit and refused to accept any shipment before July. Thus, the tribunal finds that claimant was entitled to declare the contract avoided for the future under Art. 73(2) CISG. Claimant declared the contract avoided for the future in his telefax dated 14 April. Consequently, Art. 81 CISG is applicable."

c. Damages

[61] "With respect to the claimed damages, the situation for feed product B is different from the situation of feed product A because claimant could not reach an agreement with the producer K. The applicable provisions are again Arts. 74 et seq. CISG.

[62] "Based on the provided documents, the tribunal finds that claimant concluded a contract with O for the sale of 1,500 mts of feed product B. This finding is based on the contract dated 29 July, and the undated statement by O. The tribunal could not find signs of these documents to be forgeries. Thus, it is the tribunal's finding that the documents are authentic.

[63] "According to the contract, O purchased 1,500 mts of feed product B ... Due to the statement of O the tribunal is convinced that these 1,500 mts of feed product B are the goods ordered by the claimant to fulfill its obligation under the contract with respondent. O confirms that it bought 1,500 mts of feed product B from the claimant. The document is stamped and signed by O and even though it bears no date the tribunal sees no signs for the document to be forged in any way.

[64] "According to Art. 75 CISG, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under Art. 74 CISG if the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance the seller has resold the goods. In the case at hand, claimant as the seller declared the avoidance in April and resold the goods in July. In this context it is important to note that Art. 75 CISG, only requires that a contract has been concluded. The contract does not have to have been performed yet.[11] Thus, it was sufficient in the case at hand that plaintiff proved the conclusion of the contract with O. Furthermore, it is important to note that under Art. 75 CISG a notice to the contract partner in breach prior to the resale is not required, notwithstanding the fact that claimant gave notice to respondent in his telefax dated 30 April.

[65] "The goods are resold in a reasonable manner if the seller acted like a prudent and reasonaple seller would have acted.[12] Claimant tried to resell the goods for more than two months before selling them to O for a price which was nearly 20% per mt less than the price agreed with respondent. Thus, claimant acted like a prudent and reasonable seller when selling the goods to O because it is not unreasonable to resell goods with a discount of nearly 20% after unsuccessfully trying to resell them at a higher price.

[66] "Thus, the tribunal finds that, with regards to the 1,500 mts of feed product B, claimant is entitled to claim the difference between the price agreed with respondent and the price agreed with O. ..."

III. INTEREST

[67] "According to Art. 78 CISG, one party to the contract is entitled to interest on the price or any other amount due, if the other party fails to pay. Thus, claimant in the case at hand is entitled to interest on the amounts claimant can demand from respondent. The applicable interest rate is not regulated by the CISG. Thus, this gap in the CISG has to be filled by the tribunal. Two approaches to this question have been suggested: first, an attempt could be made to refer to general principles of the CISG in order to determine the interest rate and so reach an international, uniform rule.[13] However, the (probably) majority view is that the interest rate should be determined by the domestic law applicable in accordance with the conflicts rules of the forum state.[14]

[68] "The tribunal is of the opinion that the first mentioned approach is too broad to lead to satisfying results. It is not clear which general principles of the CISG relate to the issue of interest. Thus, the goal of the approach, to find a common interest rate, will never be reached. Consequently, the tribunal follows the second mentioned approach and determines the interest rate in the case at hand according to the applicable national law of the forum state.

[69] "The interest rate is to be determined by the domestic law applicable in accordance with the conflicts rules of the forum state.[15] The forum state is Denmark since the place of arbitration in the case at hand is Copenhagen. In this context the tribunal follows claimant's argument that in the case of a sales contract the law of the seller's state should be applied. Denmark is a signatory to the Convention on the Law Applicable to International Sale of Goods agreed at The Hague in 1955. As mentioned above, Art. 3 of the Convention states that in default of a law declared applicable by the parties, a sale shall be governed by the domestic law of the country in which the vendor has his habitual residence at the time when he receives the order. Thus, the tribunal finds that, with regard to the issue of interest, Danish law is to apply.

[70] "The applicable Danish law is the Law of Interest (hereinafter referred to as Renteloven). According to Sects. 3 and 5(2) Renteloven the applicable interest rate in the case at hand is 5% p.a. over the applicab1e discount rate of the Danish Bank. According to Sect. 3 Renteloven, the party in default is obligated to pay interest one month after the day a reminder was sent to the obliged party which contains the statement that the default will lead to the payment of interest. Besides, in case an action was started the obliged party may, however, claim interest from the day the suit was filed. By letter of its former counsel, claimant demanded payment from respondent on 16 September. This letter does not contain a statement with regards to interest. Thus, claimant can claim interest from the day the arbitration was requested. Thus, the tribunal finds that respondent is to pay interest in the amount of 5% over the discount rate of the Danish Bank from [the date the arbitration was initiated]."

IV. COSTS

(....)

[71] "The provision of Art. 31(3) ICC Rules gives the tribunal broad discretion for the allocation of the costs. In its decision over the allocation of the costs the tribunal is guided by the win/loss proportion in the case at hand. The tribunal holds that claimant is entitled to the full amount of his request including interest. Thus, respondent lost to the full extent. For the tribunal it is therefore reasonable that generally respondent must bear the costs of the arbitration. Thus, respondent must bear the costs and expenses of the arbitrator and the ICC administrative expenses. ...

[72] "Respondent must also bear the legal costs of the claimant. However, in this context it is important to note that claimant changed counsel during the arbitration. Even though this act produced more costs since the new counsel of the claimant had to spen[d] time to get to know the case, claimant did not claim the costs for its former counsel. It is therefore reasonable for the tribunal to find that claimant can claim its submitted legal costs to the full amount. ... Respondent has to bear its own legal costs.

[73] "With respect to Dr. W, claimant withdrew the claim with consent of Dr. W and respondent. "A claimant can withdraw a claim with consent of the respondent at any stage of the procedure. The legal consequence is, however, that generally the claimant must bear the legal costs of the respondent.[16] Dr. W has not specified his legal costs. In addition, Dr. W was represented by the same counsel as respondent. Thus, at least some part (however small) of the legal costs claimed by respondent was also caused by Dr. W. The tribunal estimates that part at roughly 10% of the counsel fees claimed by respondent. Thus, it is reasonable for the tribunal to make a deduction from claimant's legal costs in order to take the withdrawal into consideration. ..."


FOOTNOTES

1. "Reisman/Craig/Park/Paulsson, International Commercial Arbitration (New York 1997) p. 708."

2. "Schlechtriem, Commentary on the UN Convention on the International Sale of Goods (CISG), 2nd ed. (Munich 1998) p. 707."

3. "Ibid."

4. "Reisman/Craig/Park/Paulsson, op. cit., p. 646."

5. "Reisman/Craig/Park/Paulsson, op. cit., p. 540."

6. "Schlechtriem, op. cit., p. 542."

7. "Ibid., p. 173."

8. "Ibid., Art. 25, note 17."

9. Art. 73(1) of the 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG) reads:

"(1) In the case of a contract for delivery of goods by instalments, if the failure of one party to perform any of his obligations in respect of any instalment constitutes a fundamental breach of contract with respect to that instalment, the other party may declare the contract avoided with respect to that instalment."

10. "Schlechtriem, op. cit" p. 542."

11. "Ibid., Art. 75, note 3."

12. "Ibid., Art. 75, note 7."

13. "Ibid., Art. 78, note 21."

14. "Ibid."

15. "Ibid."

16. "Reiner, ICC-Schiedsgerichtsbarkeit (Wien 1989) p. 240."

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Pace Law School Institute of International Commercial Law - Last updated February 15, 2007
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