I- Introduction to the Orgalime Conditions

Orgalime, originally known as ‘Organisme de Liaison des Industries Métalliques Européennes’ is now referred to as the ‘European Engineering Industries Association’. Orgalime was formed in 1954 and is ‘the European federation representing the interests at the level of the EU institutions of the European mechanical, electrical, electronic and metal articles industries as a whole’.¹ Orgalime is therefore the voice of the European engineering industry.

An author has summarised the organisation’s main objectives as follows:

[T]o collect information about the activities of the European Union and international bodies of direct relevance to Orgalime, to establish coordinated opinions of the engineering industries, and, using these opinions, to influence policy-making in the European Union institutions and certain international bodies, and to promote relations between member federations/associations.²

Orgalime members produce both capital goods and consumer durables, and play a fundamental role as suppliers to other industries and the wider economy. The authors have further been informed by Orgalime that it principally represents small and medium-sized enterprises (over 90% of membership), which employed over 11 million people and generated a turnover of almost 2,000 billion euros in 2017.

One of Orgalime’s goals is also to ensure that companies working in the engineering sector have the legal tools that they need to transact business with their clients. Accordingly, Orgalime provides the engineering sector with legal publications, which are prepared by the Orgalime ‘Legal Affairs’ working group, composed of lawyers from the Orgalime-member associations. The first Orgalime legal publication was issued in the 1950s and Orgalime currently offers 25 titles. More specifically, three main categories of publications have been issued by Orgalime: general conditions of contract, model forms and guides.³

The general conditions of contract include:

• The ‘General Conditions for the Supply of Mechanical, Electrical and Electronic Products’ that were first published in 1992 (‘S 1992’), updated in 2000 (‘S 2000’) and in 2012 (‘S 2012’). A ‘Guide on their Use and Interpretation’ (the ‘Orgalime Guide’), a very useful tool to interpret the Orgalime Conditions, indicates that the current S 2012 are primarily intended for use in the international trade of engineering industry products.⁴
• The ‘General Conditions for the Supply and Erection’ that cover the installation of these often sophisticated industrial products was first issued in 1994 (‘SE 1994’) and revised in 2001 (‘SE 01’) and 2014 (General Conditions for ‘Supply and Installation’ or ‘SI 14’). SI 14 have a common framework with S 2012 and deviate from them only where necessary in order to cover certain specific contractual and technical aspects.
• Other sets of Orgalime Conditions which govern specific aspects of international contracts in the engineering industry such as computer software (‘SW 14’), repair of machinery and equipment (‘R 17’), manufacture and supply of specially designed components (‘SC 06’), series processing (‘SP 99’) or general conditions for maintenance (‘M 17’).

Orgalime Conditions can be used for many industrial products, such as process plants or industrial production units. It has even been suggested that they could constitute an alternative to FIDIC’s Silver Book.⁵

This article will mostly refer to S 2012 as the latest version of the general conditions applicable to supply. However, it will also refer to (i) previous versions of the general conditions applicable to supply and (ii) the general conditions governing both supply and erection or their prior versions, when applicable in the ICC awards reviewed by the authors.

Application of the Orgalime Conditions

With regard to the incorporation of the Orgalime Conditions into the parties’ contractual arrangements, the Orgalime Guide indicates as follows:

An explicit agreement in writing on the applicability of the general conditions, included in the contract or in the correspondence, will normally be sufficient … A supplier intending to use S 2012 should enclose with his bid a copy of the conditions, followed by the following clause (or a similar one).

"All contracts for the performance of sales and deliveries of products by us are subject to the ORGALIME General Conditions for the supply of mechanical, electrical and electronic products (S 2012), attached hereto."

To make sure that S 2012 have become part of the contract, the supplier is recommended to ask for a written confirmation of the purchaser’s acceptance…⁶

In some cases, however, the Orgalime Conditions may be found to apply even when parties were less rigorous than recommended by the Orgalime Guide. In an ICC unpublished case, for instance, the sole arbitrator confirmed the application of S 2000 invoked by the claimant (supplier) although the latter only submitted witness statements in support of its position that the order confirmations in dispute included a reference to the Orgalime Conditions. The supplier raised that each of its invoices mentioned the ‘General conditions according to Orgalime S 2000’ and that the price lists referred to ‘Orgalime S’. For its part, the respondent (the purchaser) did not contest the application of the Orgalime Conditions in the course of the parties’ commercial relationship. For these reasons, the sole arbitrator found that the Orgalime Conditions applied ‘with respect to sales of goods in dispute between the Parties pursuant to the information provided to the Sole Arbitrator’.

In Case 15042 (applying S 1992), the sole arbitrator held that one party cannot argue in the arbitral proceedings that the Orgalime Conditions were not applicable after it had invoked their application in order to escape the jurisdiction of a commercial court.

Given that several Orgalime Conditions were drawn up to cover distinct transactions, disputes may also occur when determining the applicable set of Orgalime Conditions. It is therefore material for parties to keep in mind the aim and scope of the different sets of Orgalime Conditions when negotiating their contract and considering how to articulate the general conditions for the ‘supply’ (S 1992, S 2000 and currently S 2012) with those for the ‘supply and erection’ (SE 1994, SE 01 and currently SI 14).

With respect to scope, a sole arbitrator found in Case 19272 that a purchaser could not infer from the Orgalime Guide that the commissioning and testing for which the seller was responsible pursuant to the contract were not governed by S 2000. The purchaser relied on the Orgalime Guide’s statement that S 2000 are ‘not appropriate for contracts under which the seller is also in charge of the erection of the equipment sold’.⁷ A reference to S 2000 was however found in the contractual offer, which was accepted by the purchaser. According to the sole arbitrator, S 2000 (drafted for ‘the Supply’ of mechanical, electrical and electronic Products) were agreed upon by the parties in their contract and applied to the ‘complete order’, including commissioning and testing. The sole arbitrator further noted that commissioning and testing were ‘something distinctly different’ from the erection or installation of the product.

Possibility to derogate from the Orgalime Conditions: Is cherry-picking available or advisable?

Pursuant to Clause 1 of S 2012 – replicated in other Orgalime Conditions –‘[a]ny modifications or deviations from them must be agreed In Writing’. Therefore, as noted in the Orgalime Guide, ‘the parties are free to regulate their contractual relation as they wish’.⁸ This is not surprising, as the Orgalime Conditions are of a purely contractual nature. Accordingly, subject to any public policy or imperative provision of the substantive law applicable to the contract (sometimes referred to as the ‘background law’ in the Orgalime Guide), the law of the place of arbitration or that of the relevant place of enforcement, the parties are free to cherry pick or alter any provision of the Orgalime Conditions they deem relevant for their contract.

While such freedom is possible in principle, one must caution against modifying a thoughtfully built system that encompasses industry standards, in particular with respect to industrial guarantees. Tinkering with such a system is not advisable so that parties wishing to derogate from any provisions of the Orgalime Conditions should tread very carefully.

II - Dispute resolution under the Orgalime Conditions

The Orgalime Conditions provide for ICC Arbitration as the means to resolve contractual disputes. In that respect, Clause 46 of S 2012 – replicated in the other Orgalime Conditions –contains the language of the standard ICC Arbitration Clause and reads as follows:

All disputes arising out of or in connection with the Contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said rules.

The reference to ICC Arbitration avoids disputes as to the selection of the appropriate conflict resolution forum in cases where the supplier and the purchaser are often domiciled in different countries (which was systematic in the sample of cases reviewed by the authors). ICC Arbitration is a wise option for users of Orgalime Conditions for at least two additional reasons.

First, Orgalime disputes very often involve technical issues and sophisticated pieces of industrial equipment, such as machine tools. Having an arbitral tribunal that enjoys both the time and the specialised expertise required to deal with these disputes can therefore be most helpful, especially if the state courts that would otherwise exercise jurisdiction over the dispute are overloaded or do not have the requisite specific skills.

Secondly, as the Orgalime Conditions by default provide for the application of the law of the supplier’s country, resorting to ICC Arbitration ensures that disputes will be settled by decision makers who are knowledgeable in the relevant legal system without prejudicing neutrality. The choice of ICC Arbitration avoids entrusting the resolution of disputes to (i) state courts of one of the parties’ country (that might be perceived as not neutral by the other party) or (ii) state courts that would be neutral but with no experience in the relevant legal system. ICC is indeed renowned for its expertise in arbitrator selection. Without prejudicing the parties’ right to participate in the constitution of the arbitral tribunal, ICC’s ability to rely on an expansive network of national committees to propose candidates with both neutral nationalities and the appropriate skills (be they legal, technical or linguistic) is of the utmost importance (Article 13 of the ICC Rules of Arbitration).

Some of the awards reviewed by the authors involved relatively small amounts in dispute. In that respect, it is worth noting that, since 1 March 2017, the expedited procedure of Article 30 of the ICC Rules of Arbitration and Appendix VI of the Rules permits to deal with disputes involving amounts in dispute that do not exceed 2 million USD (or a larger amount if the parties so agree) under shorter deadlines and a reduced fee scale. For these smaller cases, the expedited procedure automatically applies, unless (i) the ICC Arbitration agreement was concluded before 1 March 2017, (ii) the parties have agreed to opt out of the expedited procedure provisions or (iii) the ICC Court, upon the request of a party before the constitution of the arbitral tribunal or on its own motion, determines that it is inappropriate in the circumstances to apply these provisions (Article 30(3) of the ICC Rules of Arbitration).

As is the case under the standard ICC Arbitration Clause, Clause 46 of S 2012 leaves open the place of arbitration, the number of arbitrators and the language of arbitration. The parties are indeed free to complete these three terms when negotiating their contract or to simply rely on the default provisions of the ICC Rules of Arbitration once a dispute arises. In the authors’ view, it is in general advisable to leave the number of arbitrators unspecified in contracts under the Orgalime Conditions, as parties will most often not be able to anticipate whether a potential dispute will involve a small or large amount in dispute, or simple or complex issues relating to the design, installation or operation of the product sold.

III – The governing law in Orgalime disputes

With respect to governing law, Clause 47 of S 2012 – replicated in the other Orgalime Conditions – provides as follows:

The Contract shall be governed by the substantive law of the Supplier’s country.

As a dispute under the Orgalime Conditions will most often involve the international sale of industrial machinery or equipment, disputes between the supplier and the purchaser may be subject to the CISG (ratified by 89 countries as of July 2018).⁹ As a result of the nationalities of the suppliers in this sector, the application of the CISG is in fact very frequent.

In that respect, although the CISG is not directly referred to in the Orgalime Conditions, the German Appendix attached to S 2012, which may apply where the contract is governed by German law, indicates as follows in its preamble:

The "Convention on Contracts for the International Sale of Goods" - usually named as Vienna Convention of April 11th 1980 - might be applied to the contract. If this is not the intention of the Parties, a stipulation to the contrary will have to be expressly mentioned and agreed upon.¹⁰

Thus, in the event the supplier is a national of a country that has ratified the CISG and the transaction falls within the sphere of application of the CISG,¹¹ the latter will be the applicable substantive law unless (i) the parties have agreed to exclude the application of the CISG (as allowed by its Article 6) or to derogate from or vary the effect of any of the provisions of the CISG (subject to its Article 12); or (ii) the CISG does not deal with a particular issue that is also not covered by the Orgalime Conditions.

In an ICC unpublished case (applying S 2000), the sole arbitrator determined as follows:

Considering that the Parties have their places of business in contracting states to the United Convention on Contracts for the International Sale of Goods (the "CISG"), the CISG governs the rights and obligations of the Parties, cf. article 1(1)(a) of the CISG. Under article 6 of the CISG, the Parties may exclude the application of the CISG or, subject to article 12, derogate from or vary the effect of any of its provisions. The CISG has not been invoked by either of the Parties and is not relevant to the outcome of Parties’ dispute since the legal issues in dispute are dealt with in the Contract and Orgalime.

In this case, the sole arbitrator suggested that the Orgalime Conditions could be self-sufficient, which may lead to not applying the CISG whenever this is consistent with the parties’ intent and provided that the CISG is not determinative of the outcome.

Reference to the CISG to complement the Orgalime Conditions

The sample of awards reviewed by the authors has revealed that it was often necessary to refer to the CISG, or indeed some other governing law, to complement the Orgalime Conditions on various issues.

One should for instance bear in mind that issues relating to contract formation and interpretation are not covered by the Orgalime Conditions and therefore pertain to the governing law.¹² In that respect, parties often rely on the principles of interpretation set forth in Article 8 of the CISG.

The sample of awards reviewed also provides an illustration of the CISG gap-filling role such as in the following (non-exhaustive) situations.

a) Defect of the goods and supplier’s obligation to remedy defects

Clause 23 of S 2012 (the supplier’s obligation to remedy defects) may be supplemented by Article 35 of the CISG that sets out various definitions of non-conformity of the goods.

As noted in the Orgalime Guide, ‘Clause 23 does not specify or define the nature or extent of a defect, except to equate defect and non-conformity… Nor is such a definition or description found in the rest of S 2012’.¹³

In Case 10377 (applying S 2000),¹⁴ the sole arbitrator noted that the terms of ‘defect’ or ‘non-conformity’ were not defined in the Orgalime Conditions. The sole arbitrator then held that the existence of a defect had to be determined according to the CISG in the absence of ‘detailed contract specifications’. Accordingly, the sole arbitrator found that the machine was defective because it was ‘not fit for the purposes for which machines of the same description would ordinarily be used’ under the standard of Article 35(2)(a) of the CISG.

Depending on their respective interests and the circumstances of the case, the parties may try to rely on Article 35(1) of the CISG to establish that a defect occurs when the delivered goods are not ‘of the quantity, quality and description required by the contract’. They may also try to demonstrate that the goods are non-conforming under (i) Article 35(2)(b) if they are not ‘fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract’ or (ii) any other provisions of Article 35(2) of the CISG, including Article 35(2)(c) if the goods do not ‘possess the qualities of goods which the seller has held out to the buyer as a sample or model’.

b) Termination of the contract

Clause 37(b) of S 2012 (purchaser’s right to terminate the contract) may be supplemented by Articles 82 to 84 of the CISG governing the buyer’s impossibility to make restitution of the goods in the condition they were received.

In Case 10377, the sole arbitrator examined Clause 33(b) of previous S 2000,¹⁵ regarding the purchaser’s right to terminate the contract where the product supplied has a defect ‘so substantial as to significantly deprive the Purchaser of the benefit of the contract’. The sole arbitrator found that the Orgalime Conditions were incomplete, as they only contemplated situations where the purchaser is able to return the product to the supplier. The sole arbitrator concluded that termination could lead to ‘unjust results’ for the supplier where the purchaser cannot return the product in the condition in which it has received it, and that the Orgalime Conditions should therefore be supplemented by Articles 82 to 84 of the CISG, which deal with this type of situation. As a consequence, even though the sole arbitrator held that the machine was defective, he excluded termination, as otherwise the full purchase price would be refunded to the purchaser despite the impossibility for the latter to return the machine to the seller substantially in the condition in which it was delivered.

c) Mitigation of loss

The Orgalime Conditions do not provide for a duty to mitigate losses, except in the case of a defect or non-conformity in the product.¹⁶ Referring to a party’s duty to mitigate its losses under Article 77 of the CISG may be apposite in some situations.

On the one hand, Clause 45 of S 2012 excludes liability for consequential losses – i.e. loss of profit, loss of production, loss of use, loss of contracts – except in the case of gross negligence or wilful misconduct of the breaching party,¹⁷ thereby considerably limiting the relevance of a reference to Article 77 of the CISG.

On the other hand, some exceptions in the Orgalime Conditions may justify awarding consequential losses, for instance in the case of gross negligence, wilful misconduct, or if a purchaser terminates the contract pursuant to Clause 15 of S 2012 (i.e. termination further to the supplier’s lack of delivery after a final time limit for delivery has been fixed). In such circumstances, consequential damages may be claimed and the duty to mitigate losses under Article 77 of the CISG may come into play – keeping in mind that, according to Clause 15 of the Orgalime Conditions, liquidated damages for failure to deliver cannot exceed 15 percent of the purchase price.

Likewise, under Clause 45 of S 2012 as modified by the German Appendix, Article 77 of the CISG may play a role in three situations where Clause 45 is applicable: (i) intent or gross negligence, (ii) if the supplier negligently causes damage to life, body or health, or (iii) negligent breach of a fundamental condition of the contract. The German Appendix further provides that in case (iii) the contractor ‘shall be liable only for reasonably foreseeable damage which is intrinsic to the contract’.

d) Anticipated non-performance

Even in cases where the provisions of the Orgalime Conditions are very close to those of the CISG, reference to the latter may still be relevant.

For instance, Clause 44 of S 2012 (anticipated non-performance) could be supplemented by Article 71(1) of the CISG,¹⁸ which provides that a party ‘may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of … his conduct in preparing to perform or in performing the contract’.

In Case 16912, the sole arbitrator referred to Clause 70 of SE 01, which provides:

Notwithstanding other provisions in these General Conditions regarding suspension, each party shall be entitled to suspend the performance of his obligations under the Contract, where it is clear from the circumstances that the other party will not be able to perform his obligations.

The sole arbitrator noted that the scope of the Orgalime Conditions was more limited than that of the CISG with regard to anticipated non-performance for two reasons (at para. 83):

• SE 01 refers to the debtor’s deficiency in the ability to perform as a ground for suspension, while Article 71(1)(b) CISG also provides that ‘the debtor’s conduct in preparing to perform or in performing the contract can evidence an anticipated failure to perform’.
• The standard of ‘clear’ non-performance in Section 70 of the Orgalime Conditions is narrower than the standard of ‘becoming apparent’ in Article 71(1) CISG and thus requires a ‘higher degree of probability that the debtor will not perform his obligations’. In that respect, it may be inferred from the sole arbitrator’s finding that the burden of proof that rests upon the suspending party is higher under the Orgalime Conditions than under the CISG.

S 2012 modified the Orgalime clause dealing with anticipated non-performance. Clause 44 of S 2012, as well as Clause 76 of SI 14 (which replaced SE 01), now reads:

[E]ach party shall be entitled to suspend the performance of his obligations under the Contract, where it is clear from the circumstances that the other party is not going to perform his obligations. [Emphasis added]

Thus, the revised Orgalime Conditions now refer to the anticipated failure to perform, and not only to the ‘deficiency in the ability to perform’ quoted by the sole arbitrator in Case 16912 (applying SE 01), which was more restrictive. However, even if the revised Orgalime Conditions had been applicable to Case 16912, this would not have necessarily led to a different finding for at least two reasons:

• A party unable to perform (see Clause 70 of SE 01 or Clause 42 of S 2000), by definition, is not going to perform (see Clause 44 of S 2012 or Clause 76 of SI 14).
• The current Orgalime Conditions as well as their prior versions only refer to an anticipated failure to perform without any further specification. Therefore, it would still have been useful for the sole arbitrator to refer to ‘the debtor’s conduct in preparing to perform or in performing’ under Article 71(1)(b) of the CISG.

The topicality of the reference to Article 71(1) of the CISG notwithstanding the revision of the Orgalime Conditions with respect to anticipated non-performance does not only stem from the reference to the debtor’s conduct under the CISG. The CISG also remains apposite as concerns the ‘clear’ non-performance standard. If one considers that the ‘clear’ non-performance standard is a higher standard than that of ‘becoming apparent’ (Article 71(1) of the CISG), as the sole arbitrator found in Case 16912, reference to cases which applied the ‘becoming apparent’ standard under the CISG may still be useful to determine the higher standard. Alternatively, if one were to consider, unlike the sole arbitrator in Case 16912, that both standards are identical, reference to cases interpreting the CISG on that issue would remain all the more relevant.

Reference to the supplier’s domestic law

Where the CISG is not available because its application was excluded by the parties or because of its lacunae, domestic law may regain its imperium as the law of the supplier’s country. In that respect, Case 14152 illustrates that the unavailability of the CISG can be overcome, where necessary, by simply applying the supplier’s domestic law. This case involved the SE 01 provisions on preparatory work before erection and the purchaser’s default in fulfilling this work.¹⁹ The parties had expressly excluded the application of the CISG and the arbitral tribunal noted that the provisions of SE 01 only dealt with termination if the purchaser is in default in fulfilling preparatory work and in case of late payment, which were not at issue. Accordingly, the arbitral tribunal applied the Civil Code of the supplier’s country (providing for a broad right of termination) to complement the Orgalime Conditions with respect to the supplier’s right to ‘dissolve’ the contract (see Final Award 14152, para. 62).

Other relationships between the governing law and the Orgalime Conditions

While, as we have just seen, the CISG sometimes plays a gap-filling role when the Orgalime Conditions do not deal with a particular issue, it is worth noting that there are also instances in which the Orgalime Conditions fill the gaps of the CISG, e.g. in relation to interest for which the CISG provides no interest rate or dies a quo.

One remaining situation as to the articulation of the governing law with the Orgalime Conditions is where, on the same issue, respective provisions are different, inconsistent or conflicting.

As mentioned, public policy or imperative provisions of the governing law would trump the application of the Orgalime Conditions.²⁰ Furthermore, the Orgalime Conditions themselves sometimes refer to the prevalence of the governing law, such as Clause 22 of S 2012 on the supplier’s right to retention of title, which provides that such right can only apply to the extent it ‘is valid under the relevant law’ (as some background laws limit the use of the retention of title to a large extent).²¹

Conversely, to the extent allowable, the Orgalime Conditions may also aim at excluding the provisions of the background law. For example, Clause 16 of S 2012 makes it clear that the remedies provided for late delivery in Clauses 14 and 15 are the only remedies available to the purchaser, thereby excluding any claims based on the background law, except in the case of gross negligence on the part of the supplier.

In case of conflicting provisions with the background law, one could consider that, subject to any public policy or imperative provision, the Orgalime Conditions should in principle apply as they were more specifically agreed upon by the parties. Clause 13 of S 2012, for instance, provides that the supplier is entitled to an extension of time if the delay in delivery is caused by force majeure or circumstances attributable to the purchaser, i.e. that the supplier is not in breach of the contract if the products are delivered within the extended time. Clause 13 would thus supersede other provisions of a governing law under which such delay would still constitute a breach of contract that may entitle the purchaser to terminate the contract, although these circumstances could excuse the supplier from having to pay damages (e.g. under Clause 79(5) of the CISG).²²

Case 16912 (applying SE 01) provides an example of differing, but however not conflicting, provisions between the Orgalime Conditions and the CISG. In this case, with respect to the issue of anticipated non-performance, the sole arbitrator noted that ‘none of the Parties argued that the scope of Section 70 ORGALIME Conditions is more limited than that of Article 71(1) CISG’ (see Final Award 16912, para. 83). Relying on sources interpreting Article 71(1) of the CISG, the sole arbitrator added ‘[h]ence all sorts of disturbance that affect a party’s ability or unwillingness to perform may be taken into account when deciding on a party’s right of suspension’ (see Final Award 16912, para. 83). As already noted, the sole arbitrator also found that ‘the standard of being "clear" in Section 70 ORGALIME Conditions appears to be narrower than the standard of "becoming apparent" in Article 71(1) CISG, and thus, requires at least a high degree of probability that the debtor will not perform his obligations’ (see Final Award 16912, para. 83).

Case 16912 therefore refers to identical scopes of the CISG and the Orgalime Conditions on anticipated non-performance, but differing standards of application. The sole arbitrator concluded that ‘there was a high probability for a future breach of contract by Respondent’ (see Final Award 16912, para. 84). One could perhaps consider that the sole arbitrator applied (what he considered to be) the stricter ‘clear’ standard under the Orgalime Conditions, as it reflected the more specific agreement of the parties, which, in fact, implied that the ‘apparent’ standard of the CISG (that he viewed as less demanding) was also satisfied. However, the sole arbitrator did not expressly state that he only applied the Orgalime Conditions or that he applied them because they embody the parties’ specific agreement and he referred to sources interpreting the CISG on anticipated non-performance. Thus, one may wonder what the sole arbitrator would have decided if the CISG had actually provided for a more demanding standard than the Orgalime Conditions.

In light of the above, whenever there is not strictly speaking a conflict between the Orgalime Conditions and the governing law, but simply a difference in the applicable standards or criteria, it may be advisable to examine whether (i) a cumulative or complementary application of the relevant provisions would be in order unless otherwise provided in the Orgalime Conditions or (ii) the standards or criteria in the Orgalime Conditions should be directly applied, as they embody a parties’ agreement that is more specific than the governing law.

IV- Key substantive matters covered by the Orgalime Conditions

In the authors’ view, in the context of the sale of sophisticated equipment very often preceded by the supply of substantial product documentation to the client, it is first and foremost essential that parties identify the relevant contractual statements or documentation. In this sense, Clause 3 of S 2012 is key to define the contents of the parties’ contract as it reads:

All information and data contained in general product documentation and price lists shall be binding only to the extent that they are by reference In Writing expressly included in the Contract.

On the issue of whether ‘marketing material and pre-contractual documents are part of the contract later concluded between the Purchaser and the Supplier’, the Orgalime Guide specifies:

Clause 3 denies general marketing materials any binding status. The clause contains only one exception to this general rule: all such information is binding to the extent it is expressly included in the Contract … [This clause may] be applied to both commercial information (e.g. delivery terms) and technical data … Clause 3 applies to leaflets, booklets, folders, electronic media and web sites…²³

Pursuant to Clause 3, one must distinguish between two types of ‘general product information’: (i) on the one hand, a description of the product which is merely meant to induce a sale and is not to be part of the contract and (ii) on the other hand, a description of the product which is intended to list the contractual specifications, and may be incorporated by reference into the contract.

The examples identified in the Orgalime Guide show that the ‘general product documentation’ intended to be specifically excluded from a purported contract is limited to generic materials used for marketing or advertising (such as promotional brochures), even if sent to specific potential customers. As a consequence, in the authors’ view, Clause 3 of S 2012 is not a ‘merger clause’ or an ‘entire agreement clause’ that would exclude any and all prior agreements and understandings not expressed in a formal contract. Accordingly, when exchanging correspondence before the conclusion of the contract on the specifications of a machine (e.g., emails that may ‘guarantee’ a particular output), parties should pay attention to the type of undertakings they may have expressed to avoid any ambiguity as to whether these should form part of the contract subsequently entered into.

The following sample of awards reviewed by the authors provides an overview of the application and interpretation of other key substantive provisions of the Orgalime Conditions.

Taking-over and taking-over tests

The concept of ‘taking-over’ is recurring in disputes involving the Orgalime Conditions. The taking-over tests – or ‘running tests’, ‘site acceptance tests’ – occur after the erection of a product has been completed on the purchaser’s site.

Parties may decide not to carry out taking-over tests. If such tests have not been waived, they will precede the taking-over of the goods by the purchaser, which triggers the contractor’s one-year liability period.²⁴

The close dependence between taking-over tests and erection explains why these tests are not regulated by the general S 2012, but only by SI 14, which are the Orgalime Conditions governing installation. Consequently, although not required to do so, the parties would be well advised to contemplate the application of SI 14 whenever installation is part of the delivery under their contract.

With regard to the taking-over tests, Clauses 31 and 33 of SI 14 provide:

31. When installation has been completed taking-over tests shall, unless otherwise agreed, be carried out to determine whether the Works are as required for taking-over according to the Contract.

The Contractor shall notify the Purchaser In Writing that the Works are ready for taking-over.

[...]

33. If, after having been notified in accordance with Clause 31, the Purchaser fails [to provide the supplier the required materials to conduct the taking-over tests] under Clause 32 or otherwise prevents the taking-over tests from being carried out, the tests shall be regarded as having been satisfactorily completed at the starting date for taking-over tests stated in the Contractor’s notice.

In Case 15323 (applying SE 01), the parties had entered into a contract for the sale of a production line of consumer goods, including supervision, installation and start-up. The contract did not provide any terms for delivery, installation and for the start-up date. The sole arbitrator had to determine whether the supplier was ‘entitled to full payment in view of the fact that it had correctly and completely fulfilled all of its obligations under the Contract or whether on the contrary, the [purchaser] was entitled to leave a part of the price unpaid’ (see Final Award, para. 112). This task included the determination of whether the taking-over tests occurred, and if so, whether they had been satisfactorily completed by the supplier.

In their submissions, the parties disagreed on whether the taking-over tests took place after the installation of the plant. The sole arbitrator concluded from the circumstances of the case that the taking-over tests had been carried out and that the purchaser had implicitly accepted them (see Final Award 15323, para. 121).

Delay

S 2012 (general conditions for supply) and SI 14 (general conditions for supply and erection) respectively regulate separate type of delays: a general delay for the delivery of the product (regulated by Clauses 11 to 18 of S 2012) and specific situations in which the contractor does not complete the ‘works’, namely the installation of the plant, by the time agreed for taking-over (regulated by Clauses 40 to 45 of SI 14).²⁵

Both sets of conditions provide for a similar framework and similar consequences in case of delay:

• Under both Clause 15 of S 2012 (late delivery) and Clause 44 of SI 14 (late completion of the works),²⁶ the purchaser is entitled to terminate the contract in two situations: (1) where the supplier/contractor fails to complete the delivery/works in due time and where the circumstances for such delay are not attributable to the purchaser, and (2) in case of ‘anticipatory breach of the contract’, where it is clear in advance that there will be a delay which justifies termination.
• Where the purchaser terminates the contract, he is entitled to compensation for the loss he suffered, it being specified that the total compensation for late completion of the works cannot exceed 15 percent of the purchase price.
• A specific requirement must be met before the contract is terminated on the ground of delay: the purchaser must request in writing the ‘completion within a final reasonable period which shall not be less than one week’ (Clause 44 para. 1 of SI 14 and Clause 15 para. 1 of S 2012).

The Orgalime Guide comments as follows on this ‘grace period’ (or final time limit in which the delay may be remedied):

Before terminating the Contract, the Purchaser must give the Supplier an additional final period within which he must deliver the Product [or complete the works under SI 14] in order to avoid termination. The notice to the Supplier must be "In Writing", as defined in Clause 2, and it must make clear that it is a final demand, i.e. that the Purchaser will be entitled to terminate the Contract if the Supplier fails to deliver [or complete the works under SI 14] within that period. The grace period shall be "reasonable". It must at the very least be practically possible for the Supplier to deliver within the time limit.²⁷

In Case 14152, the arbitral tribunal first recalled the temporal distinction between provisions of SE 01 which respectively address that a delay ‘that would entitle the purchaser to maximum liquidated damages has actually occurred’ (Clause 41 para. 2 of SE 01) and where it is clear that such delay ‘will occur’ (Clause 41 para. 4 of SE 01) (see Final Award 14152, para. 55).²⁸ In that respect, the arbitral tribunal found that the purchaser could invoke neither para. 2 nor para. 4 of Clause 41 to terminate the contract, as it had never requested the completion of the production line in writing.

Late payment

Clause 19 of S 2012 provides for a payment in three parts:

Payment shall be made within 30 days after the date of invoice.

Unless otherwise agreed, the purchase price shall be paid with one third at the formation of the Contract and one third when the Supplier notifies the Purchaser that the Product, or the essential part of it, is ready for delivery. The remaining part of the purchase price shall be paid when the entire Product is delivered.

This payment structure in three parts is frequently found in standard contracts and contract practice of the European engineering industry.²⁹

In an ICC unpublished case (applying S 2000), the supplier gave notice of termination of the contract and the purchaser continued to place orders for products during the notice period. The purchaser refused to make payment, but the sole arbitrator logically decided that the supplier was entitled to receive payment for all invoices issued during the notice period, thus implying that invoices covering sales made during the notice period should not be treated differently from those issued prior to that period. The sole arbitrator also held that payment was due thirty days after the date of invoice, as required by the Orgalime Conditions.

Interest rate

Clause 21 of S 2012 regulates the dies a quo, as it provides that interest shall accrue from the day on which ‘payment was due’.

With respect to the rate of interest, Clause 21 provides that where parties fail to agree on the applicable interest rate, a rate of ‘8 percentage points above the rate of the main refinancing facility of the European Central Bank’ shall apply. According to the Orgalime Guide, S 2012 serves as a ‘safety net’.³⁰ Such ‘safety net’ takes the form of a high guaranteed interest rate for the supplier, and limits the additional costs that may be incurred by suppliers in relation to price fluctuations of raw materials for instance.

Liability for defects

The supplier’s liability for defects is governed by Clauses 23 to 39 of S 2012. Clause 23 specifically places upon the supplier a general obligation to remedy defects.³¹ If the product is defective, the supplier’s obligation is in principle limited to remedying the defect. Therefore, the supplier is not obliged to compensate the purchaser provided that the defect has been remedied ‘without undue delay’ as specified in Clause 30, which at first sight may seem to favour the supplier. That said, Clauses 36 (possibility for the purchaser to remedy defects itself or to resort to a third party to do so at the supplier’s risk and expense) and 37 (possibility of a price reduction or of termination by the purchaser) of S 2012 provide additional remedies to the purchaser when the defect is not remedied within a reasonable time. Moreover, where serious defects can be discovered at or before delivery, the purchaser may refuse delivery, in which case Clauses 23 to 39 will not apply.³²

Clauses 24 to 27 of S 2012 further exclude the supplier’s liability for:

• defects arising out of materials provided by the purchaser or defects caused by a design stipulated or specified by the purchaser (Clause 24);
• defects generated by conditions of operation not provided for in the contract (Clause 25);
• defects generated by the purchaser’s improper use of the product (Clause 25);
• defects generated by circumstances that arise after the risk has passed to the purchaser (e.g., lack of maintenance) (Clause 26);
• defects that appear as of one year from delivery (Clause 27).

The Orgalime Guide adds the following:

Clauses 23-39 can be seen as a modern version of the so-called "industrial guarantee"…The core of the "industrial guarantee" is a "give and take" whereby the Supplier accepts a more comprehensive obligation to repair or replace defective parts than would have been the case under most background laws, in exchange for a limitation or exclusion of other elements of his otherwise applicable liability for defects.³³

According to Clause 37 of S 2012, if the supplier fails to comply with his remedial obligations, the purchaser may either:

• claim a ‘reduction of the purchase price’ of up to 15 percent if the purchaser can still use the product; or
• choose to terminate all or part of the contract, provided that the defect ‘is so substantial as to significantly deprive the Purchaser of the benefit of the Contract as regards the Product or a substantial part of it’. Upon a termination on this ground, the purchaser is entitled to a compensation for his loss up to a maximum of 15 percent of the purchase price.

a) Concept of defect

Although Clause 23 of S 2012 provides that the supplier’s obligation is to remedy ‘any defect or non-conformity ... resulting from faulty design, materials or workmanship’, S 2012 do not define the term ‘defect’. The Orgalime Guide notes that ‘a defect occurs when the Product deviates from what the parties have agreed to be delivered’.³⁴ This statement therefore covers a wide variety of defects, from those ‘that can be physically determined’ (e.g. an insufficient production capacity of a machine), to intangible defects (e.g. third party’s right preventing the purchaser from using the product, or an erroneous colour constituting non-conformity).³⁵

In such a context, arbitral tribunals primarily refer to the contract itself and in the absence of any contractual specifications, to the ‘background law’. Special attention will therefore be given to the drafting of the relevant contractual provisions.

Case 10377 (applying S 2000) provides some examples of a tangible defect. The sole arbitrator decided the following:

• The fact that a machine is capable of producing at least 3.4 units per minute during its operating time, whereas the supplier’s offer mentioned a production capacity ‘up to’ 4-6 units per minute without any clear stipulation as to the minimum capacity, does not constitute a defect.³⁶
• The inability of the machine to produce pillows of equal weight constitutes a defect by reference to the CISG, the governing law. The sole arbitrator ruled that ‘an average weight deviation of 15% cannot be regarded as conforming since this number has a material impact on the production costs, transportations costs, and on claims of buyers of pillows which are not equal in weight’. The sole arbitrator considered that the machine was not fit for the purposes for which machines of the same description would ordinary be used and thus did not conform with the contract.
• The machine was defective, as its ‘faulty design’ led to frequent interruptions in the production process, which required a higher degree of maintenance and cleaning.

Case 19272 (applying S 2000), for its part, offers an example of defect resulting from a ‘faulty workmanship’. In this case, the parties disagreed as to the crucial facts having caused an equipment’s ‘locking pin to withdraw, allowing the [equipment] to swing downwards’. The sole arbitrator found that the acts of an engineer, acting on behalf of the supplier, were negligent as to commissioning and testing, and declared the supplier ‘responsible for the losses caused to the other party’ (see Final Award 19272, paras. 45-46).

b) Termination of the Contract

In Case 10377 (applying S 2000), the sole arbitrator summarised the conditions precedent to the Purchaser’s right to terminate the contract in its entirety, or in part for the product that could not be used, as follows:

1. the Machine had a defect at the time of delivery,
2. [the purchaser] timely notified [the supplier] of the defect,
3. [the supplier] did not remedy the defect,
4. the defect is so substantial as to significantly deprive the purchaser of the benefit of the contract; and
5. the termination right of [the purchaser] was not excluded by any other applicable rule (such as the CISG).³⁷

In this case, the sole arbitrator found that certain defects alleged by the purchaser were not established while others had not been timely notified or were not substantial enough to be considered as depriving the purchaser of the benefit of the contract. As a consequence, the sole arbitrator ruled that the purchaser had no right to terminate the agreement.

Anticipated non-performance

Clause 44 of S 2012 reads:

Notwithstanding other provisions in these General Conditions regarding suspension, each party shall be entitled to suspend the performance of his obligations under the Contract, where it is clear from the circumstances that the other party is not going to perform his obligations. A party suspending his performance of the Contract shall forthwith notify the other party thereof In Writing.³⁸

Clause 44 implies that a suspension of performance by a party can only be justified where circumstances show that it is ‘clear’ that the other party will not perform its obligations. Mere doubts as to the other party’s ability to perform its own obligations would not be sufficient to warrant suspension.³⁹

As already noted, the right to suspend one’s own performance is also regulated by Article 71(1) of the CISG, which provides that:

A party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of:

a. a serious deficiency in his ability to perform or in his creditworthiness; or

b. his conduct in preparing to perform or in performing the contract.

In Case 16912, the sole arbitrator analysed the double standard under the Orgalime Conditions (where it is ‘clear’ there will be no performance) and the CISG (where it ‘becomes apparent’ there will be no performance).⁴⁰ The arbitrator determined the degree of probability of the alleged future breach. To do so, the sole arbitrator took into account circumstantial evidence (‘faisceau d’indices’) and found that it was most uncertain that the purchaser would be able to pay the entire purchase price (see Final Award 16912, paras. 84-85).

The last sentence of Clause 44 of S 2012 requires that the suspending party (the one that anticipates the breach of the other party) notify in writing the other party of the suspension of its own performance. As indicated in the Orgalime Guide, ‘[s]uspension is usually a drastic measure. It should be brought to the attention of the other party with the appropriate speed, so that the other party is given the possibility of clearing up misunderstandings or remedying the situation’.⁴¹

The sole arbitrator considered that the notification of suspension does not need to ‘observe any specific form requirement’, its purpose being to enable the other party ‘to provide adequate assurance of its performance and thereby to eliminate the suspicion of a future breach of contract’ (see Final Award 16912, para. 87).

Force majeure

Clause 41 of S 2012 provides for a right to suspend performance in circumstances that are, by nature, beyond the control of the parties and enumerates examples of such circumstances:

Either party shall be entitled to suspend performance of his obligations under the Contract to the extent that such performance is impeded or made unreasonable onerous by Force Majeure, meaning any of the following circumstances: industrial disputes and any other circumstance beyond the control of the parties such as fire, war, extensive military mobilization, insurrection, requisition, seizure, embargo, restrictions in the use of power, currency and export restrictions, epidemics, natural disasters, extreme natural events, terrorist acts and defects or delays in deliveries by sub-contractors caused by any such circumstance referred to in this Clause.

A circumstance referred to in this Clause whether occurring prior to or after the formation of the Contract shall give a right to suspension only if its effect on the performance of the Contract could not be foreseen at the time of the formation of the Contract.⁴²

The Orgalime Guide also specifies:

It follows from Clause 41 second paragraph that a decisive condition of whether a circumstance may lead to exemption or not is whether its effect on the contractual performance could be foreseen at the time of the formation of the Contract… Hence, as a matter of principle, it is of no importance if the circumstance in question occurred before or after the formation of the Contract.⁴³

In Case 17987 (applying S 2000), the sole arbitrator dealt with a situation in which one of the parties claimed that the fact that a third-party investor withheld its funding amounted to a force majeure event as the relevant funding was supposed to occur. The sole arbitrator refused to consider this circumstance as constitutive of force majeure on the basis that the uncertainty relating to the funding by the third-party investor was already known prior to the conclusion of the contract, and was thus foreseeable. In particular, the sole arbitrator noted that ‘one cannot rely on the cooperation of a third party as long as such cooperation is not yet certain’ (see Final Award 17987, para. 67).

Consequential losses

Clause 45 of S 2012 provides for a general exclusion of liability relating to consequential losses (such as loss of production, loss of profit, loss of use, loss of contracts or any other consequential or indirect loss), ‘save as otherwise stated’ in the Orgalime Conditions.

As indicated in the Orgalime Guide:

The reason behind the long tradition, of which Clause 45 is an example, is that consequential losses are difficult to foresee and evaluate. If the parties were required to bear the liability for these kinds of loss of the other party, it would introduce an element of insecurity that would render calculation of the purchase price very difficult and would also tend to increase prices unnecessarily.⁴⁴

However, there may be very specific circumstances in which the exclusion of consequential losses might not apply. In that respect, the arbitral tribunal in Case 14152 referred to the equivalent clause in SE 01, namely Clause 71, and held that ‘there was a mutual understanding between the Parties, at the time of the conclusion of the contract, that claims for damages based on breaches not covered by the ORGALIME provisions are not subject to the limitations under ORGALIME para. 71’. To reach that conclusion, the arbitral tribunal noted in particular that the purchaser had not refuted the seller’s arguments on the Parties’ intent at the time of the conclusion of the contract (see Final Award 14152, para. 96).

V- Conclusion

The Orgalime Conditions are not as well-known to arbitration practitioners as the FIDIC Conditions, to which they may, however, constitute an interesting alternative in certain instances. The authors can only speculate as to the reasons for this relative lack of publicity. Perhaps most proponents of the Orgalime Conditions are suppliers with a very high level of technical expertise that rarely supply defective or non-conforming equipment, and/or promptly remedy such defects if/when they occur. Furthermore, if the expertise of the suppliers is difficult to replicate, customers probably have an incentive to find an amicable solution in the event of a dispute.

The Orgalime Conditions are regularly revised. One useful revision might consist in clarifying the articulation between the governing law (which will often be the CISG) and the Orgalime Conditions whenever both texts address the same issue, sometimes with a different, but still quite similar, language. In particular, while subject to the caveats mentioned in Section III the Parties’ specific agreement to apply the Orgalime Conditions should be respected, guidance will often be found in the commentaries or cases interpreting the CISG (far more numerous than those interpreting the Orgalime Conditions). Accordingly, it may be helpful to clarify certain terms that appear to be quite close, but not identical or synonymous, in the Orgalime Conditions and the CISG. Although such clarifications would be needed for a few provisions only, they could avoid disputes on the scope of the relevant provisions and the applicable standards.

Be that as it may, the Orgalime Conditions are a remarkable tool, which provide a most useful contractual framework given the features and constraints of the engineering sector, in particular with respect to the guarantees owed by suppliers.

---

---