In connection with a construction contract ('Main Contract') entered into by Respondent and X, Respondent subcontracted to Claimant the supply, installation and maintenance of electrical works (by virtue of an 'Agreement'). Claimant argues that Respondent wrongfully withheld sums due and refused to release performance bonds which had been issued, despite completion of the works and the fact that Respondent had itself received payment under the Main Contract. Claimant seeks damages and release of the performance bonds. Respondent argues that Claimant's arbitration request is inadmissible and that its claims are time-barred or estopped, and makes a counterclaim for damages. In an initial interim Award, the Arbitral Tribunal determines the law applicable to the merits of the dispute, rejects Respondent's defence regarding inadmissibility and partly approves/partly rejects its defence of time-bar and estoppel. In a second interim Award, the Arbitral Tribunal rejects Respondent's application for interim protection orders. In a third interim Award, the Arbitral Tribunal rejects certain of Claimant's claims, considers others to be without object and accepts others in principle, leaving the amount to be determined later. Respondent's counterclaim is admitted, due to Claimant's liability, the amount of the damages being left to be determined in the final Award.

In the majority final Award, the Arbitral Tribunal examines the various claims submitted by each party. In so doing, it applies Kuwaiti civil law, which it compares with the <b>UNIDROIT Principles</b> (Art. 7.1.6 (to determine whether conduct may be deemed to be 'gross mistake'), Art. 7.4.7 (reduction of damages according to parties' conduct), Art. 7.4.3 (3) (assessment of damages by court)). It awards Claimant payment for extra works and compensation for damage to electrical works. It grants Respondent compensation for office and site overheads, additional labour costs and for a certain proportion of its financial charges. The awards made to each party are set off against each other, leaving a balance in Respondent's favour. Arbitration costs are split between Claimant and Respondent in accordance with the success of their respective claims (90% borne by Claimant, 10% by Respondent).

<i>Arbitration clause:</i>

'Should any dispute occur that requires arbitration proceedings this will be referred to the International Chamber of Commerce in Paris and will be carried out in accordance with their regulations for such disputes. All meetings connected with any arbitration proceedings will be held in Italy and will be under the auspices of Swiss law. The conclusion of the above arbitration proceedings will be final and binding on both parties and under no circumstances will any dispute be taken to a legal court.'

<i>Rules applicable to proceedings:</i>

'Pursuant to Sect. 6.1 of the Terms of Reference, the proceedings were governed, subject to the mandatory provisions of the law at the place of arbitration, i.e. of Italian law, by the ICC Rules of Arbitration 1975 (ICC Rules) and, as to what is not covered by the ICC Rules, by the Swiss Intercantonal Concordat on Arbitration, dated March 27/August 27, 1969 ("Concordat"), and where both those rules are silent, by such further rules as the Arbitral Tribunal may determine from time to time. Some further rules were adopted within the Terms of Reference.

On January 1, 1989, the Swiss Federal Act on Private International Law (PIL Act) which contains a chapter (Arts. 176-194) on international arbitration, became effective. This new law became immediately applicable, starting January 1, 1989, [to] international arbitration proceedings pending on that date, even in cases where the underlying arbitration agreement referred explicitly to the Swiss Concordat (which remains applicable to domestic arbitration) ([cf.] Art. 176 PIL Act and Swiss Federal Court in BGE 115 II 97, 102, 288 and 390). The Arbitral Tribunal ruled (Sect. 5.2 of the Third Interim Award) that the Parties' reference to Swiss law encompasses the provisions regarding the timely application of amendments to the law and that consequently the Parties' reference to the Swiss Concordat has to be construed, as from January 1, 1989, as a reference to chapter 12 of the PIL Act.'

With respect to Respondent's counterclaim for damages to cover harm resulting from delayed completion of the works:

'Claimant pointed out . . . that the damages to be awarded to Respondent for Claimant's delay have already been assessed (in the sense of Article 300 Sect. 1 of the Kuwaiti Civil Law no. 67) by the Parties in Clause 34, Part II of the Subcontract which provides that: "In case the Second Party [Claimant] fails to execute and complete the Agreed Works during the agreed period, he undertakes to pay to the First Party [Respondent] a penalty equal to . . ." In Claimant's submission, Respondent should not be awarded damages in excess of said amount for the reason that Claimant did not commit "fraud or grave mistake". In this context, Claimant refers to Article 304 of the Civil Law no. 67 which provides that: "Where the damage exceeds the amount of the agreed upon damages, the creditor shall not be entitled to claim more than that amount unless he proves that the debtor had committed fraud or grave mistake." . . .

Even if Art. 304 of the Civil Law were applicable, Respondent's claim for damages would not be confined to . . . since - contrary to Claimant's submission - Respondent alleged and established that Claimant's delay is the result of Claimant's gross mistakes . . .

Respondent made the relevant allegations both explicitly and implicitly:

a) Respondent explicitly alleged that Claimant's delays were due to its "flagrant disregard to his obligation" . . ., "gross error", "fundamental misunderstanding of their contractual obligations", "extensive delays", "potential disaster", "over 600 delayed electrical activities", "duty was breached grossly and continuously" . . .

b) Moreover, Respondent's allegation that Claimant delayed the completion of the Agreed Works by 44 months (as compared to the contractual period of 24 months) and that Claimant's delay is attributable to Claimant's mistakes, represents the implied allegation that Claimant's mistakes were gross mistakes.

The Tribunal holds that Respondent's allegations as to Claimant's gross mistakes are supported by the evidence:

a) A contractor's performance amounts to "gross mistake" if his conduct grossly violates a fundamental rule of the art or if he repeatedly or continuously fails to perform in a timely manner important parts of his obligations. The intent to harm the contractual party does not constitute a prerequisite of a culpa grave claim for contractual negligence. A party's conduct is grossly negligent if it shows an elementary failure of attention for the consequences of one's action and if it leads to a performance substantially different from what the other party reasonably expected (cf. Final Award in ICC case no. 6320 of 1992, ICCA Yearbook XX-1995, pp. 62ss, p. 87; UNIDROIT Principles, Article 7.1.6). "Gross mistake" under Kuwaiti law is not different from this generally accepted definition. If it were, Claimant would have submitted relevant authority in response to Respondent's allegations . . . Had a narrower definition of "gross mistake" been established under Kuwaiti law, the Tribunal would have had to follow "principles generally applicable in international commerce" (Interim Award I), i.e. the definition recorded hereinabove.

b) It results from the Third Interim Award . . . that Claimant's failures were extremely numerous and related to such important activities as the preparation of shop drawings and as-built drawings, the site supervision and co-ordination of the works and the dealing with the earthing problem.

c) The Neutral Expert . . . expressed his surprise at the fact that the delay reached the extremely disproportionate period of 44 months . . .

d) Subject to differentiations which shall have to be made when examining the various items of Respondent's Counterclaim, in a global approach dealing with Claimant's preliminary defence, the Arbitral Tribunal concludes that Claimant's failures in the timely performance of the Agreement amounts to "grave mistake" in the sense of Article 304 of the Civil Law no. 67.

Accordingly, Claimant's defence relating to the penalty clause must be rejected.'

<i>With respect to the attribution of responsibility for delay:</i>

'In its Third Interim Award, the Arbitral Tribunal had decided that Claimant is responsible for the delay of the Project and shall be liable, in principle, for the damages suffered by Respondent. The Arbitral Tribunal reserved the determination of the extent of Claimant's liability and the amount of damages resulting therefrom to the present Final Award.

In this context . . . the Expert was asked, inter alia, to determine the extent of the delay for which Claimant is responsible, taking into account all relevant circumstances, in particular Claimant's failures referred to in the Third Interim Award as well as other subcontractors' delays and Respondent's own conduct. The Expert's Terms of Reference specified on the one hand that the findings of the Arbitral Tribunal as expressed in its Third Interim Award were binding on the Expert and on the other hand that he shall draw his own conclusions within the limits of such findings.

The Expert proceeded to determine the allocation of the responsibility for delay on the basis of two different global approaches . . . His choice to follow global approaches is motivated by the lack of adequate evidence supporting a detailed allocation of delay to one or the other Party . . .

In a first global approach, the Expert listed the main causes of the delay (those suggested by the Parties, and those found by the Expert) and allocated certain percentages of weight to them in a kind of "critical path" . . .

In a second global approach, the Expert based his assessment of the development of the works mainly on the monthly payment certificates. He found that twelve months of the total 44 months was Respondent's own responsibility whereas Claimant bears the responsibility for a total of 32 months (72%) . . .

The wording of Article 300 Sect. 1 of the Kuwaiti Civil Law no. 67 ("Compensation shall be estimated by the court . . .") indicates that apart from the debtor's failure other factors which may have contributed to the extent of the damages, will have to be taken into consideration when the quantity of damage claims is to be assessed. This is particularly true with respect to the creditor's conduct as a contributing factor. This generally accepted principle may be summarized as follows: "Where the harm is due in part to an act or omission of the aggrieved party or to another event as to which that party bears the risk, the amount of damages shall be reduced to the extent that these factors have contributed to the harm, having regard to the conduct of each of the parties" (UNIDROIT Principles of International Commercial Contracts, Rome 1994, Article 7.4.7). Applying these principles to the instant case and considering the conduct of each of the Parties as described in the Tribunal's Interim Award III and in the Expert's Report, the Tribunal concludes that the amount of damages to be awarded to Respondent shall normally be reduced by one quarter.'

<i>With respect to Respondent's additional labour costs:</i>

'Respondent submits that it suffered additional labour costs . . . as a result of the disruptive effects of Claimant's delay and of the additional years of duration. . . .

Claimant contends that Respondent did not sustain any damage and that its Counterclaim is in any event inflated . . .

The Expert rejected Respondent's calculation for various reasons, among others for the reason that Claimant should not be burdened with the consequences of an over- or underestimate of the labour costs laid down in the Main Contract . . . The Expert found that the factual allegations submitted by Respondent did not allow him to satisfactorily assess the loss suffered by Respondent in its manpower productivity . . .

After the Parties and the Tribunal had discussed this "non-liquet"-result with the Expert . . . the Expert was asked to deliver an amendment to his report "in which he shall evaluate Respondent's claim for manpower disruption . . . in the Amendment, the Expert is not bound to necessarily state a precisely reasoned calculation of his assessment . . ., but may make an estimate based on his professional experience relating to normal consequences of manpower disruption causes" . . .

The Tribunal holds that a contractor's manpower disruption caused by a subcontractor's delay falls into the category of damages which may normally not be established, in a claim for damages, in an arithmetically satisfactory manner. Manpower disruption belongs to the category of damages not ascertainable by calculation, which must be determined by the Tribunal, taking into account the ordinary chain of events. This approach is in accordance with Art. 300 Sect. 1 of the Kuwaiti Civil Law no. 67 of 1980, which provides that compensation, shall be "estimated" by the Court. It is also in accordance with generally accepted principles in international commerce (cf. e.g. UNIDROIT Principles of International Commercial Contracts, Rome 1994, Article 7.4.3 Subs. 3: "Where the amount of damages cannot be established with a sufficient degree of certainty, the assessment is at the discretion of the court.").

The Tribunal holds that the importance of the delay (44 months) as compared with the contractual completion time (Interim Award III) sufficiently establishes that Respondent suffered additional labour costs as a result of such delay. As to the quantification of the additional labour costs, the Tribunal is particularly convinced by the Expert's method D . . .

Accordingly, the Tribunal decides to award Respondent damages in the amount of . . . for its manpower disruption costs.'

<i>With respect to Respondent's financial charges and interest:</i>

' . . . Respondent claims interest on payments made to its Kuwaiti site, interest on its further claims and, originally, compensation for its rate of exchange losses . . .

It is undisputed that Respondent had borrowed funds during the entire period for which it is claiming interest, that its interest rate averaged 13% per annum and that it had claimed damages and interest from Claimant as early as . . .

Claimant addressed the present issue only in its Post Hearing Brief . . . and only with respect to the restrictions applicable, under Kuwaiti law, on interest rates. It indicated that the interest rate may not exceed 7% according to Art. 110 and 111 of the Kuwaiti Commercial Code (law no. 68/1980).

Respondent replied . . . as follows: "Whether this may apply to interest due on in [sic] Kuwait, this cannot apply to interests paid in . . . under the local official banking rate (which averages 13%). In any event Claimant has provided no evidence that such a rate would exceed any rates announced by the Kuwaiti Central Bank."

The Tribunal holds that Kuwaiti law restricts the rate of interest only with respect to contractual rates and to the interest rate applicable when the payment of money the amount of which is known to the debtor, is delayed (cf. Art. 110 and 111 of the Kuwaiti Commercial Code no. 68), but not however to interest aimed at compensating the aggrieved party for the fact that the damages awarded shall only be paid some time after the damage occurred and that the creditor may have incurred financial charges in order to survive the period during which he was awaiting compensation of his damages . . . Kuwaiti law provides that the compensation shall include "the damage suffered by the creditor . . . provided that this is a natural result of non-fulfilment of the obligation or delay thereof" (Art. 300 Sect. 2 of the Civil Law no. 67/1980). The Tribunal holds that the said financial charges may qualify, according to the circumstances of the case, as a "natural result" of a debtor's delay in paying damages owed to his contractual partner. Particularly, if the basis of the debtor's liability is "grave mistake" . . . the normally applicable limits on interest rates are no longer applicable (Art. 300 Sect. 3 and Art. 304 Civil Law per analogiam).

This understanding of Kuwaiti law is in accordance with internationally accepted principles which otherwise would become applicable pursuant to the Tribunal's First Interim Award. Reference may again be made to the UNIDROIT Principles of 1994, which provide in Art. 7.4.9 (3) that the aggrieved party is entitled to additional damages if the non-payment caused it a greater harm than covered by the normally applicable interest rate.'