Contract for the design programme of a company's corporate identity / Delivery of the programme / Non acceptance by Defendant / Obligation of both parties to collaborate in good faith / Failure of defendant in his duty to give reasons for a refusal to approve the design programme and to discuss further modifications or alterations / Liability of defendant, yes / Damages awarded to claimant, yes / Arbitral tribunal prohibits defendant to make use of the created symbols without consent of claimant

Defendant (an Indian Company) contacted Claimant (a Belgian Company), asking for services he could render, especially for the packaging of consumer products and charges. After an exchange of correspondence, information given by each party and discussions, a 'Business Agreement' was concluded between them in New Delhi, on October 3, 1985, according to which Claimant would implement for Defendant the full corporate identity design programme he was to establish and on which parties had to agree by the end of October 1985. The whole dispute centres on the nature and validity of said Agreement.

After considering several factors for the determination of the law applicable to the merits the arbitrator decided to apply the general principles of law on the substance of the dispute, insofar as the application of a concrete national rule has not been proved indispensable. These general principles are in the present case understood as being the common rules of interpretation of contracts and contractual obligations. All assertions of Defendant based on Indian law will nevertheless be taken into consideration.

'The design programme was delivered to the Chairman of the defendant company on October 30, together with the October invoice. He took with him to New Delhi both such documents, in order to submit them for choice and approval to the Board of Administrators of the Defendant Company. By telex of October 31, Defendant informed Claimant that he found the programme absolutely contrary to his briefing and that he could not approve it. At the same time he refused to bear the expenses incurred by Claimant, and proposed that they should have a thorough discussion at a convenient later date. Claimant reacted to the above declaration of Defendant and, being himself convinced that the briefing had been thoroughly conducted and complied with, sought explanations from Defendant. Defendant referred again to the necessity of having a discussion with Claimant, in order to explain his requirements. Claimant placed himself at the disposal of Defendant for a meeting in Brussels. Defendant declared that he could not go any further in the matter, and that he was cancelling their Agreement of October 3.

Claims lodged

Claimant considers that Defendant has openly violated the Agreement by declaring its termination and asks for full compensation for the damage sustained, which he estimates as follows:

- material damage of B.F. ... (the October invoice mentioned above), to be increased by default interest, and B.F. ... as loss of profit.

- consequential damage of B.F. ...

Claimant further asks that Defendant be forbidden to make any use of the logos, symbols and acronyms designed by Claimant for him.

Defendant asks for the claim as a whole to be rejected and the Claimant be ordered to pay the costs of arbitration.

(…)

The parties' main obligations deriving explicitly from the wording of the "Business Agreement" are the following: as far as the Claimant is concerned, it is to do his best and to use his experience in the best way for the implementation of the design programme, which he had categorically to establish by the end of October 1985. As far as the Defendant is concerned, the obligation, in counterpart, is to pay for the services rendered by Claimant, i.e. to pay the monthly invoices documented by all job sheets of Claimant.

The contract as structured is a contract of procurement of services by Claimant to Defendant, who had chosen the former from among other designers, in full knowledge of his professional achievements as evidenced from the negotiations. These design services had to cover an agreed period of one year, the contract being elsewhere subject to conditions of termination and renewal. Nevertheless, the success of such services - to be understood during their first stage as the finalisation of the design programme and the definite retention of some design projects to be developed in finished artwork for reproduction - was dependant not only on the experience of Claimant but also on the collaboration of the parties. In the arbitrator's view, the general obligation hanging implicitly over both parties in a contract, to collaborate in good faith, acquires here, because of the Agreement's objective, a stronger meaning and could be described as an obligation for both Claimant and Defendant to discuss the design programme and the design proposals in order to attain the most satisfactory result.

(…)

It is an uncontested fact that the design programme was delivered by Claimant to the Chairman of the defendant company on the October 30, 1985 in Brussels. What is contested by Defendant is its conformity with the instructions he gave. He maintains that it was absolutely contrary to his briefing and priorities which he had made available to Claimant, together with samples of products for which the design programme was sought.

At the meeting of October 30 with the Chairman of Defendant Company, Claimant also handed to him twelve logo projects and two projects for exhibit stands for the Frankfurt International Fair of January 1986.

(…)

Claimant produced a fifteen-page design programme which contains, after three introductory chapters (objective, Defendant's personality and personality/ list of adjectives), seven chapters with stages of work, estimated cost and timing for each one (company identity, exhibit in Frankfurt, company brochure, packaging, corporate communication, product design and calendar summary, plus estimated cost). The arbitrator is convinced of the compliance of the programme with the above requirement of the contract, as well as of the experience and accuracy of the work implied therein, which does not mean of course that Defendant had to agree with it.

(…)

The design programme as well as the design proposals, having not been proved contrary to the provisions of the contract as above, the arbitrator's opinion is that Defendant - although absolutely free in his right to disagree with, to dislike or to criticize them - had nevertheless the duty to give the reasons for a refusal to approve them and to discuss further with Claimant the modifications and/or alterations he wished to see brought about.

By his telex of 31.10.85, Defendant rejected the design programme as a whole and categorically refused to pay the invoice of October 30, 1985 or consider the design proposals; he merely mentioned the necessity "to have a thorough discussion at a convenient later date". Finally, he declared he was cancelling the Agreement of October 3, 1985, with no comment on the Claimant's invitation to organize a meeting in Brussels.

Claimant having completely complied with his contractual obligations as demonstrated above, the arbitrator's view is that such an attitude of Defendant constitutes a wrongful refusal to perform his corresponding obligation to pay the October invoice and an improper - because contravening his obligation to collaborate in good faith - use of his right not to approve the design programme and projects. Furthermore, it cannot but be considered as a breach of contract, since the "Business Agreement" is structured as a contract of services on a yearly commitment basis and since the possibility of its cancellation is provided for therein (Art. 4) together with its renewal, i.e., only for the period after its initial duration.

The conclusion reached above leads to the Defendant being held liable to compensate Claimant for damages the latter suffered owing to the breach of the contract by the former.

General principles of law applying to the measure of the monetary compensation could be summarized as follows: the measure of the compensation must first reflect the intention to put the aggrieved party in approximately the same economic position as he would have been in, had the defaulting party performed the contract faithfully. Such compensation must therefore cover positive damages (damnum emergens) as well as loss of profit (lucrum cessans), to the extent nevertheless that they might reasonably be envisaged by both parties at the time they made the contract. Lost profits can be awarded as damages even though they cannot be determined with absolute certainty, as long as they are not contingent, remote or conjectural. It may not be beside the point to mention that these principles coincide completely, as expected, with Section 73 of the Indian Contract Act and the precedents Defendant refers to in his submissions.

Material damage

[Order of payment of invoice and loss of profit awarded]

(...)

Consequential damage

Claimant further requests compensation for consequential damage. He firstly founds this claim on the particularly interesting commercial point of reference as well as the new outlets in India and other Asian markets he lost because of Defendant's contractual failure. He secondly founds it on the allegedly fraudulent conduct of Defendant, the real intent of the latter allegedly being to appropriate at Claimant's expense a free advantage from the symbols and logos created by Claimant, as these could easily be copied before their return to Claimant.

This claim has to be considered by the arbitration tribunal from two legal viewpoints, in accordance with the differing grounds propounded by Claimant as above. The first ground for such compensation would be a further loss of profit for him: had the contract been performed normally, Claimant would have acquired new clients in India and Asia. It was certainly normal for Claimant to expect such an indirect profit when signing the contract with Defendant; it cannot, nevertheless, be objectively considered as a profit which would have occurred with enough certainty as a normal consequence of the contract's performance, since it would also have depended on other unforeseen factors. Such a profit being therefore too remote and contingent, the relevant grounds of Claimant's claim for damages is rejected.

The second ground for this same claim consists in the moral damage Claimant suffered as a result of a fraudulent intent of appropriation by Defendant of symbols and logos which was hidden behind the breach of the contract. But, irrespective of the difficulty of adjudicating monetary compensation for moral damage resulting from a breach of contract, Claimant does not adduce proof of any use of the symbols and logos by Defendant, nor substantiates a relevant intent on the part of Defendant; his whole argumentation is based on pure hypothesis. The arbitration tribunal therefore does not have to decide on that ground in any way.

On the requested order to forbid the use of symbols

Claimant requests that the arbitration tribunal forbid Defendant to make any use of the logos, symbols and acronyms designed by him and put at the disposal of Defendant, without debating the question. Defendant on his part simply denied even the very existence and receipt of such designs.

It is beyond dispute that designers enjoy copyright over the designs they create, according to international rules (Convention of Berne, art. 2 §1) and codified customary ones as well, in this field of activities (see: in UK: Rules of the Society of Industrial Artists and Designers art. 4.6; in Switzerland: Rules of the Association Suisse des Graphistes art. 1.8.3; in France: Code des usages et conditions générales du Syndicat National des Graphistes art. 2§1 referring to the Law of March 11, 1957). The use of the design is thus protected and "limited to the items detailed in the estimate" (from the English codification, art. 4.6, equivalent to art. 1.8.4 of the Swiss one and art. 2§2 of the French).

In the present circumstances, under the "Business Agreement", the use by Defendant of the symbols he would choose would be specified during the normal performance of the contract. Since Defendant did not fulfil his contractual obligations and improperly terminated the contract, it is obvious that he never acquired a right to make any use of the designs submitted. But as proof of such a use or intent on the part of Defendant has never been brought by Claimant, who furthermore recognizes that the designs were sent back to him, the arbitration tribunal deems it somewhat excessive with regard to the purview of the present arbitration to include in its final award an "order" to forbid use as requested by the latter; instead, it deems it proper to pronounce in lieu a decision on the recognition of Claimant's relevant rights.

It has thus to be specified that in the event of there having been any use of the designs from the time of the breach of the contract until the present award, such a use would be illegal and Claimant can always seek compensation for moral damage before the competent Courts, the present award having not dealt with this question.

Moreover, from the moment Defendant pays Claimant the amount awarded in compensation of the damage suffered by the latter, the equilibrium between the parties can be considered as restored, but that does not mean that the "Business Agreement" of October 3, 1985 is reactivated in any way, giving rise to a right of use of symbols by Defendant; according to the internationally accepted rules on design activities, it is only with under a new special consent of claimant that defendant can proceed to the use of the symbols.

(…)

AWARD

In the light of the conclusions reached above, the arbitration tribunal makes the following Award:

Defendant, being in default in its contractual obligations and having improperly terminated the "Business Agreement", is ordered to pay Claimant the following sums of damages:

- the sum of B.F. ... for positive damages, plus interest at the annual rate of 10% from ... until ... and of 8% from ... until the actual date of payment.

- the sum of B.F. ... for loss of profits.

Defendant is further ordered to pay Claimant the sum of US$ ..., representing the costs of the present arbitration, which Claimant has paid in advance in full to the ICC.

No use whatsoever of the created symbols can be made by Defendant without the consent of Claimant.'