Claimant, an Italian company, and Defendant, a Turkish company, jointly submitted a tender for the supply of industrial installations in Turkey. Following acceptance of the tender, Defendant, as main contractor, commenced discussions with Claimant on the implementation of the project. Defendant sent Claimant an order described as 'final and firm', which Claimant signed and returned. Defendant subsequently put an end to their negotiations in the belief that no contract had been made between them. Claimant contends that, having prepared itself to perform the services described in the order, it is entitled under Austrian law to receive the full amount it would have received for performing such services. It furthermore contends that it has suffered substantial losses on account of Defendant's conduct. Defendant denies the existence of a contract between itself and Claimant, arguing that Claimant's reply was not an acceptance, but a counterproposal, which it did not accept.

• Applicable rules of law:

- Austrian (conflict of laws)

- Italian (law of the contract)

- Turkish (tort)

• Damages for delayed payment of sums owed

'Turning its attention . . . to the merits of the dispute, the Arbitral Tribunal first of all addressed itself to the question on the ambit of the parties' choice of Austrian law ("Austrian law will be applicable"). The document defining the terms of reference under Art. 13 of the ICC Rules of Conciliation and Arbitration had not been signed by the Defendant. This document could not therefore, in the view of the Arbitrators, be considered as giving a contractual interpretation of the contents of the arbitration clause. It consequently rested with the Arbitral Tribunal to interpret the will of the parties. It was considered by the Arbitral Tribunal to be self-evident that this choice, added to that of Vienna as place of arbitration, had made Austrian civil procedure applicable to the arbitration proceedings and - incidentally - given Austrian courts power to entertain actions relating to such arbitration. In so far however as the said choice extended beyond adjective law, two interpretations were conceivable: either that the parties had only intended to provide for the application of Austrian rules governing conflict of laws, the position of the Arbitral Tribunal being thus similar to that of an Austrian civil court; or that the parties had intended to provide for the application of Austrian substantive law to all their relations - contractual and extra-contractual - as a whole. The Arbitral Tribunal considered that the choice of Vienna - and incidentally of Austrian jurisdiction - was in all likelihood governed by considerations of subsequent enforcement of the award; it also considered that the dispute had no other connection with Austria; in view of the circumstances, there were in its opinion no reasonable grounds for supposing (cf. §863 of the Austrian Civil Code, ABGB) that the parties had wished to provide for more than the application of Austrian civil procedure and Austrian conflict rules, i.e. to go beyond the effects of a simple "prorogatio fori".

It was first necessary therefore to characterize by reference to the criteria of Austrian law, this being the "lex fori", the issues raised by the Claimant's petition (cf. Duchek-Schwind, Internationales Privatrecht, Vienna 1979, p. 11). These are of two kinds: contractual and non-contractual. In so far as a contract existed between the parties, and the question at issue being the performance or non-performance of such contract, it should be noted that the parties were bound by a contract for work ("Werkvertrag") within the meaning of §§1151 et seq. ABGB. But in so far as the Claimant claims payment of interest, and in particular interest at a rate higher than the legal rate, for delayed payment of sums due, it is seeking compensation for damage suffered in consequence of a tort, within the meaning of §§1333 et seq. of ABGB.

The Austrian law on private international law of 15th June 1978 provides in §36 that a contract for work is governed by the law of the country where the craftsman or the contractor in charge of the work has his permanent residence or place of business. The position is different of course where the parties have chosen the proper law (cf. Duchek-Schwind, op. cit., p. 87 et seq.). For the reasons already given the Arbitral Tribunal did not consider, however, that it had been the intention of the parties to make their contractual relations subject to Austrian substantive law. The law to be consulted therefore is Italian law, it being in Italy that the Claimant's permanent residence and place of business is located.

On the subject of a "contratto d'opera" - which is essentially equivalent to a "Werkvertrag" under Austrian law - the Italian Civil Code makes an important distinction, for it applies special rules to contracts providing for the performance of services of an intellectual nature. Professions classed as intellectual professions include, for example, engineers and architects, lawyers, doctors etc. (G. Cian & A. Trabucchi, Commentario breve al Codice civile, 1984, ad Art. 2229 et seq.; F. Santoro-Passarelli, V° Professioni intellettuali, in Novissimo Digesto Italiano, vol. XIV, p. 23 et seq.; G. Pescatore - C. Ruperto, Codice civile annotato, 1978, ad Art. 2229 et seq.). The same applies to engineering companies (Corte di Cassazione, 6th December 1986, Giurisprudenza commerciale, 1987, II, p. 396 et seq.). Under the terms of Art. 2237 of the same Code the client may rescind the contract at any time by reimbursing the "prestatore d'opera intellettuale" for the costs incurred by the latter and by paying him the "compenso" due to him for the work performed ("opera svolta"). The client is not, on the other hand, liable for loss of profit ("mancato guadagno") sustained by the other party to the contract. The situation is different where other kinds of performance are involved, such as in the case of goods to be manufactured or produced. In that case - as provided by Art. 2227 of the Italian Civil Code - the "prestatore d'opera" is also entitled to recover damages for loss of profit (cf. Cian -Trabucci, op. cit., ad Art. 2227 and 2237; Santoro-Passarelli, op. cit., p. 27; Pescatore - Ruperto, op. cit., ad Art. 2227 and 2237).

Under Italian law no particular form is prescribed for the conclusion of a "contratto d'opera". The Arbitral Tribunal considered that such a contract had been entered into by the parties on 14th May 1985, that such contract had been supplemented, expressly or tacitly, in the course of the co-operation that had subsequently developed, and that this came about, in particular, as a result of the telex of 23rd August 1985 in which the Defendant asked the Claimant "to start engineering work". The Arbitral Tribunal deemed, on the basis of the documents in its possession, that work of this kind had unquestionably been performed, even if it had not been brought to completion. On the other hand, the Arbitral Tribunal did not consider that the letters exchanged on 1st and 19th November 1985 constituted a complete agreement, so that the Claimant was not entitled to claim for the financial arrangements referred to in those letters.

In a telex sent by the Defendant to the Claimant on 13th September 1985 the price of the work undertaken by the latter had been fixed at . . . Italian lire. This sum applied to complete performance of the work in its entirety. As it was fixed towards the end of the negotiations between the parties, it is to be assumed that it also comprised the expenses already incurred by the Claimant. At the hearing held on 3rd March 1988 the Claimant's representatives stated, in reply to a question put to them, that approximately eighty per cent of the work had been carried out. The minutes of that hearing were communicated to the two parties. They did not occasion any comments or reservations.

In its petition the Claimant claimed under item (a) . . . payment of the aforementioned sum in full. The Arbitral Tribunal considered, however, that the work in question was intellectual work and that the contract binding the parties had been rescinded "ad nutum" by the Defendant, as it was free to do under the terms of Art. 2237 of the Italian Civil Code, so that the Claimant could only claim payment of expenses incurred and the cost of work it had actually performed. The Arbitral Tribunal consequently considered that the Claimant should be allowed 80% of the sum referred to in the telex of 13th September 1985, i.e. an amount of . . . Italian lire.

The Claimant had also claimed under item (a) of its petition the payment of further sums of money, viz. . . . US dollars and . . . Italian lire. These two amounts had been calculated on the basis of Articles 3 and 5 of the document forming the subject of the exchange of letters dated 1st and 19th November 1985. For the reasons already given the Arbitral Tribunal did not consider those arrangement [sic] to be claimable. That part of the petition must consequently be dismissed.

Finally, under item (b) of its petition the Claimant claimed payment of interest for delayed payment, such interest to be added to all amounts claimed and allowed. The interest claimed is 13 per cent per annum as from 12th December 1985; this is higher than the legal rate generally applied (5 per cent per annum) in case of default under Austrian law (§352 of the Commercial Code), Italian law (Art. 1284 of the Civil Code) or Turkish law (Art. 104 of the Code of Obligations).

The Austrian law on private international law provides under §48 that extra-contractual claims for damages are governed by the law of the country where the act causing the damage was done. The Defendant had its permanent residence and place of business in Turkey. It is in that country that it should have taken due steps to settle its debt towards the Claimant. This, however, the Defendant has not done, and - as the course of the proceedings showed - its failure to pay has been quite deliberate. In such a case the "locus delicti commissi" is the place where the Defendant ought to have acted (cf. Duchek-Schwind, op. cit., p. 106). Under the terms of Art. 106 of the Turkish Code of Obligations the debtor is also liable, when damage sustained by the creditor is greater than interest at the legal rate, to compensate for such damage, unless he can prove that he has not been guilty of fault. In such a case Turkish law thus presumes fault on the part of the debtor. The Arbitral Tribunal considered that, given the Defendant's conduct, the latter was not in a position to rebut such presumption.

That the delay in paying for the Claimant's work has inflicted damage on the latter was regarded by the Arbitral Tribunal as clearly evident. Such payment, under the "lex contractus", should have been made in Rome, where the creditor's permanent residence is located. This follows from Art. 1182, paragraph 3, of the Italian Civil Code. The sum stipulated for the work in question was, furthermore, denominated in Italian currency. In assessing the degree of damage sustained by the Claimant, the Arbitral Tribunal therefore referred to the rates of interest on the Italian money market. The annual interest rate on demand deposits, taking the average for the year, was 8.85 per cent in 1986 and 7 per cent in 1987; for the first six months of 1988 it was 6.70 per cent. These figures derive from the Bank of Italy's publications (Banca d'Italia, Supplemento al Bollettino, serie viola). The sum awarded against the Defendant should thus be increased accordingly. At the same time the Arbitral Tribunal considered that such interest could only run from the date of pendency of the arbitration, i.e. as from 1st June 1986. What is involved here is default interest. The Defendant has been in arrears (mora debitoris) with the payment of the price stipulated for the work entrusted to the Claimant only from the time the arbitration proceedings were instituted.'