A dispute arose over the attempt by Defendant, a US company, to cancel purchase orders for items of clothing. Claimant, a Taiwanese company, refused to accept cancellation but agreed to reduce the price. Upon delivery of the clothing, Defendant refused to accept the garments on the ground that they did not conform to the size specifications. In its request for arbitration Claimant alleges breach of contract on the part of Defendant for refusing to accept delivery of the garments and fraud on the grounds that Defendant falsely represented to Claimant that it would purchase the garments at a reduced price and that Defendant's inspectors deliberately recorded false measurements on the inspection reports. Claimant petitions for punitive damages for the alleged fraud. At the parties' request, the arbitrator made two interim awards dealing with preliminary issues before dealing with the merits of the case.

• Applicable law

• Statute of limitations

'Statute of limitations

The parties expressed different views as to which statutes of limitations were applicable to the claims for breach of contract and fraudulent representation with respect to Purchase Order No. 144303.

The Defendant argued that the breach of contract and the fraud occurred in the State of Oregon and that in consequence the two years Oregon statute of limitations for fraud was applicable and barred the Claimant's claim for fraud since the arbitration was commenced on October 14, 1988, more than two years after the alleged fraud occurred on April 21, 1986 which is the date when the contract was formed. The Defendant also claimed that article 127 of the Civil Code of the Republic of China which provides that claims of merchants and manufacturers for purchase price are extinguished if not exercised within two years was applicable. The Claimant rejected these arguments.

The arbitrator having considered these views very carefully decides that the applicable law is the law of New York since the arbitration clause specifies that the law of New York is applicable to the construction, interpretation and performance of the contract. It is a well known and universal principle of conflict of laws that a provision of a statute of limitations which extinguishes the obligation is a matter of substance governed by the proper law of the contract to which it relates and a provision which bars the remedy is governed by the lex fori.

Since the proper law of the contract is that of New York as expressly chosen by the parties and the procedural law is the same, it is not necessary to consider which provisions of New York law are procedural and which are substantive. Both are applicable. By bringing an action in the United States District Court for the District of Oregon on May 1st, 1987, the Claimant interrupted the running of the New York statute of limitations which began at the earliest on April 21st, 1986 with respect to fraud (when the parties reached an agreement on the reduction of price) and at the earliest on July 19th, 1986 for breach of contract (when delivery under Purchase Order No. 144303 was due). The N.Y. Civil Practice Law and Rules provide that an action upon a contractual obligation or liability (except as provided in article 2-275(1) of the Uniform Commercial Code: breach of contract for sale 4 years) (s. 213.2) or based on fraud (s. 213.8) must be commenced within six years.

Therefore whether one applies sections 213.2, 213.8 or article 2-275(1) of the Uniform Commercial Code, the Claimant's claims for breach of contract and for fraud are not barred or extinguished by the applicable statutes of limitations.'