Claim for delay in payment /Applicable law by reference to the choice of law rules of the law of the forum (French law) / Application of Libyan law / Interest under Articles 224 and 229 of the Libyan Civil Code.

'The Arbitral Tribunal holds, in accordance with its conclusions in regard to the laws applicable to the merits of the dispute, that Libyan law shall apply to this claim, at the same time taking into consideration the terms of the Contract and the trade usages.

The relevant provisions of Libyan law are LCC Articles 224 and 229 (set out in full).

[In the English translation supplied to the Arbitral tribunal, Article 224 reads as follows:

Article 224 Assessment of Damages.

1. The Judge will fix the amount of the damages, if it has not been fixed on the contract or by law. The amount of damages includes losses suffered by the creditor and profits of which he has been deprived, provided that they are the normal result of the failure to perform the obligation or of delay in such performance. These losses shall be considered to be abnormal result if the creditor is not able to avoid them by making a reasonable effort.

2. When, however, the obligation arises from contract, a debtor who has not been guilty of fraud or gross negligence will not be held liable for damages greater than those which could have normally been foreseen at the time of entering into the contract.

Article 229 Damage for delay.

When the object of an obligation is the payment of a sum of money of which the amount is known at the time when the claim is made, the debtor shall be bound, in case of delay in payment, to pay to the creditor, as damages for the delay, interest at the rate of four per cent in civil matters and five per cent in commercial matters. Such interest shall run from the date of the claim in Court, unless the contract or commercial usage fixes another date. This article shall apply, unless otherwise provided in law.]

In arriving at this conclusion the Tribunal has adopted the following reasoning.

This claim relates to a period of delay in payment beginning at the date when each invoice was due up to the time of the Award and therefore includes a period after the date when the arbitration was commenced.

Compensation for delay in payment after the commencement of proceedings in court or arbitration is treated by some jurisdictions as a matter of substance and by others as a matter of procedure.

In order to identify the body of law by which this question falls to be determined, the starting point is the Law of the Forum, namely French law.

The next relevant question is whether French law characterizes a claim for compensation for delay in payment of a principal sum due when such delay arises after the date of commencement of proceedings in France as a matter of substance or procedure.

French law is believed to characterize the claim as a matter of substance and consequently to require that the proper law of the contract between the Claimant and the Defendant should govern the matter in question.

The proper law of the contract being the law of Libya subject to taking into consideration the terms of the Contract and the trade usages it follows that the applicable provisions of Libyan law are LCC Articles 224 and 229.

The Arbitral Tribunal unanimously holds that:

(1) if the Claimant [proves] the facts necessary to establish a claim for damages under Article 224, that is to say [proves] that the Claimant had suffered losses which were the normal result of nonpayment or late payment of the sums due to it, it [can] recover damages under LCC Article 224 to the extent that the amount of such damages was not otherwise fixed by Libyan Law;

(2) LCC Article 229 does fix the extent of damages for delay in payment by providing that the debtor must pay to the creditor as damages for delay in payment of a debt interest at the rate of 5 per cent per annum in commercial matters and that such interest shall run from the date of the claim in Court unless the contract or commercial usage fixes another date. The Arbitral Tribunal further finds, on the basis of trade usage, that such interest runs until payment of the creditor's claim. This article does not on its proper construction fix the extent of damages for delay in payment except in respect of the period of delay to which it specifically refers, namely the period commencing at the date of the claim in court or other relevant date;

(3) the application of both these Articles leads to the conclusion that:

a) a Claimant cannot in relation to a particular debt recover both damages under LCC Article 224 and interest under LCC Article 229 in respect of the same period of delay; but

b) there is nothing to stop him from proving his loss and recovering damages under LCC Article 224 for a period of delay before the date of the claim in court or other relevant date under LCC Article 229 and recovering interest under LCC for the period of delay in payment after that date;

(4) in the context of an International Chamber of Commerce Arbitration, the effect of LCC Article 229 in relation to a claim for damages for delay in respect of a debt outstanding at the time of commencement of the arbitration is that if the Claimant proves such a debt to be due, interest under LCC Article 229 is computed, by analogy with court proceedings, from the time when the arbitration is commenced, that is, more specifically, from the time when the ICC receives the Request for Arbitration from the Claimant;

(5) for the purposes of the application of LCC Article 229 it is not necessary for a Claimant to prove more than that the debt was due and unpaid at the commencement of the proceedings; he does not have to prove that he has suffered any damage by reason of the non-payment or late payment of the debt.

The Arbitral Tribunal further unanimously finds and, having regard to the preceding paragraph, holds that:

(1) the Claimant's Request for Arbitration in this case was received by the International Chamber of Commerce on ... February 1987;

(2) in relation to the Claimant's claims for amounts, whether invoice amounts or the amounts of the bond and guarantee previously called by the Defendant, LCC Article 229 applies to all periods of delay in payment occurring from ... February 1987 onwards and up to the date of the Award.

Having held that the provisions of LCC Article 229 apply to all periods of delay from ... February 1987 in payment of invoice amounts due, the Arbitral Tribunal has considered whether and, if so, to what extent, in relation to periods of delay in payment of such amounts occurring before ... February 1987 the Claimant has proved facts necessary to establish a claim for damages under Article 224.

The Arbitral Tribunal unanimously finds that the Claimant has failed to prove that it has suffered any loss during the period after ... January 1987.

The Arbitral Tribunal by a majority finds that in respect of the period before ... January 1987 the Claimant has proved the facts which are necessary to establish a claim for damages for delay in payment under LCC Article 224. The reasons of the majority are as follows:

The Claimant did not submit documentary evidence of borrowings or borrowing expenses relating specifically to the outstanding payments due from the Defendant. However, the majority is satisfied on the evidence that Claimant, as part of the XXX group, had borrowings in excess of the outstanding invoice amounts (as well as the amounts of the bonds throughout the period from ... July 1981 up to ... December 1986). The majority also accepts the documentation of the XXX group's costs of borrowings as evidence of the Claimant's actual costs of borrowing throughout said period. The fact of the Claimant's being a company within a group of companies with an arrangement of joint financing and financial reporting cannot deprive the Claimant of an otherwise valid claim for damages caused by the Defendant's failure to pay its debts. It is to be inferred from the above evidence and the majority's findings of fact that if the invoice had been paid on their due dates the Claimant would have reduced its borrowings by the amount of such payments and would have incurred correspondingly lower costs of borrowing. Accordingly, the borrowings by the Claimant were caused, to the extent of the total amount of the outstanding invoices (...), by the failure of the Defendant to pay such invoices when due. It follows that the cost of such borrowings to the Claimant was caused by the Defendant's failure to pay the invoices. Such loss is recoverable under LCC Article 224.

For the calculation of its losses up to ... November 1986 the Claimant has employed a method corresponding to a simple interest calculation in respect of each invoice which was paid after the alleged due date or which remained unpaid. For the period after ... November 1986, the Claimant has employed a calculation method corresponding to a compounded interest calculation inasmuch as the calculated losses up to ... November 1986 have been added to the amount of the unpaid invoices and approximately each year thereafter.

The Claimant provided no evidence that its losses as from ... December 1986 in fact were incurred on such compounded basis. Although one may assume that the borrowing needs did extend to borrowings to cover the borrowing expenses as they occurred, no evidence or particulars were offered in respect of this. The Defendant upon question by the Arbitral Tribunal had no objections to the method of calculation used by the Claimant (except for the general objection considered above, that the XXX group borrowing cost is not acceptable evidence of the Claimant's individual losses). Accordingly the Arbitral Tribunal accepts in principle the calculation method employed by the Claimant in its assessment of damages for the period after ... November 1986. However, since the Arbitral Tribunal rejects the Claimant's claim for damages after ... January 1987 the computation method becomes insignificant.'