ICC Rules: 1988

Claimants: (1) Irish company, successor to (2) Italian company

Defendant: Central American company

Claimant 2 entered into relations with Defendant with a view to setting up airline services between Europe and a Central American State, using aircraft supplied to Claimant by a French carrier. The supply of aircraft ceased following the latter's bankruptcy and Claimant 1, to which rights had been assigned by Claimant 2, made arrangements with an alternative carrier to continue operations. Under the new arrangements, failure or delay by Defendant in the payment of invoices would result in the suspension of operations. Payment problems led to such suspension and the souring of relations between Claimant and Defendant, which entered into direct relations with the carrier. As a conservatory measure, Claimant 1 applied to the Milan court for an attachment order to cover unpaid invoices, which it was granted. Thereafter, Claimants filed a Request for Arbitration, in which they sought the payment of outstanding invoices and damages for breach or wrongful termination of contract. Defendant entered a counterclaim, in which it asked for the refund of its deposit, payment of services and compensation for damage it had suffered. It also sought damages and interest in connection with the attachment ordered by the Milan court. Later in the proceedings, Defendant requested the Arbitral Tribunal to order, as a conservatory measure, that a sum equivalent to the deposit it had paid, plus interest, be placed in escrow and that the attachment order made against it by the Milan court be lifted. The Arbitral Tribunal responded by issuing an order on interim measures. In its final Award, after summarizing the procedure, the Arbitral Tribunal decided by a majority that the agreements had been wrongfully terminated by Defendant and awarded Claimant 1 damages for breach of contract and wrongful termination, and ordered Defendant to pay Claimant 1 outstanding sums. Arbitration costs were split equally between Claimants and Defendant.

With respect to payment of damages for the Milan attachment:

Defendant's position:

'Defendant in its Counterclaim . . . alleges that Claimant has obtained arbitrarily an attachment order for an amount of . . . as the balance of invoices . . . for the flights performed by [carrier's aircraft] without the intervention of Claimant 1. Defendant considered that it has suffered damage from the fact that this amount was attached for around 3 or 4 years. Defendant requests that Claimant 1 be condemned to pay damages amounted to 10% per year on the sum attached.

In its Presentation of the case . . . Defendant purports that only the Arbitral Tribunal has jurisdiction to decide on the merits whether Claimant 1 is entitled to the payment of the invoices for which Claimants have obtained an attachment order. Defendant considers that the Arbitral Tribunal has to also decide on the damage borne by Defendant as a result of an attachment order which was obtained for an amount not due. Defendant requests that Claimant 1 be condemned to pay damages amounting to 10% of the attached amount as from . . . the date of the attachment until the attachment be lifted.'

Claimants' position:

'Claimants see no reason why they can be condemned to damages, where they successfully obtained a legal remedy provided by Italian laws in strict compliance with such laws. Claimants point out that, according to Italian case-law, a person who enforces an attachment order may be held responsible for damages only if (i) non-existence of the right, on which the attachment order is based, is finally ascertained and declared (art. 683 of the Italian Code of Civil Procedure - CPC) and (ii) it is also finally declared that the plaintiff has acted without normal circumspection (art. 982.2 CPC). Claimants consider that they are not in such a situation.

In the presentation of their case . . . Claimants deny Defendant's request for payment of damages for the Milan attachment. Claimants explain that the seizure has been granted on the ground of a sufficient degree of appearance of Claimant's right to payment and evidence of the difficult economic and financial situation that Defendant may face during, and at the end of the proceedings on the merits. According to Italian civil procedure rules, the decision on the merits of the matter object of this attachment is the exclusive competence of the arbitrators. The attachment order has been successfully enforced on Defendant's Italian bank accounts.'

The Arbitral Tribunal's decision:

'A deposit covering two weeks activity had been paid by Defendant and was guaranteeing the payment of the flights. On . . ., facing Defendant's lack of payment, Claimant 1 wrote [to] Defendant as follows: "Therefore as precautionary measures we suspend performance of our contract obligations and retain the deposit in our hands as anticipated damages under reserve of any further direct or indirect damages". At that time, Defendant had failed to pay the balance of invoices . . . as well as invoices . . . Therefore at this date were due to Claimant 1 [three] weeks of activity and the balance of invoices . . . Although Defendant informed Claimant 1 . . . that it had decided to deal directly with [carrier] and pay them the flights, Claimant 1 was not informed as to the flights which have been paid by Defendant. Claimant 1 was still liable of the payments of the flights towards [carrier]. On . . . [carrier] wrote [to] Claimant 1 as follows: "5. Nous avons reçu à ce jour un seul virement de [Defendant] sans facture ni contrat de notre part, il semble que ce versement ait été destiné à garantir la continuité des opérations si celles-ci devaient s'interrompre". Defendant submits as exhibit to its reply to the Request for Arbitration a letter from [carrier] whereby the latter states that it has been paid by Defendant 3 invoices for flights during the time period between . . . to . . . It does not appear from the file that Claimant 1 was aware of these payments . . . when it filed its request for attachment sequestro conservativo . . . As the amount of the unpaid invoices was higher than the amount of the deposit, the Arbitral Tribunal decides that Claimant 1 was justified in taking conservatory measures. Therefore, the Arbitral Tribunal decides that Defendant is not entitled to receive damages for the Milan attachment. Defendant's claim is dismissed.

In its post hearing brief . . . Defendant asks the Arbitral Tribunal to decide that the Milan Attachment . . . has no raison d'être because Defendant has not to pay invoices . . . It is a fact that the Arbitral Tribunal has decided that out of the total of these invoices, only an amount of . . . was due by Defendant to Claimant 1. However, the Arbitral Tribunal has no jurisdiction to draw the consequences of that situation on the maintenance of the Attachment, a power which lies within the jurisdiction of the Italian courts. Thus, Defendant's claim in this respect is dismissed.'

With respect to the refund of the deposit:

Defendant's position:

'In its Counterclaim . . ., Defendant requests for the restitution of the deposit. Defendant explained that Claimant 2 had requested Defendant to give a guarantee for the payment of the Airbus lease. Since it was not possible for Defendant to give a bank guarantee, it made a deposit to Claimant 2 . . . This deposit was made by two payments . . . The parties agreed that interests would be paid on these amounts. Since any relationship between Claimant 2 and Defendant [has] stopped . . ., Defendant alleges that Claimant 2 should have reimbursed it the deposit as well as annual interests of at least 10% . . .'

Claimants' position:

'In their reply to the counterclaim, Claimants allege that the deposit has been made for any possible breach of contract by Defendant. Therefore, it has been retained by Claimants as anticipated damages. [A]ccording to Claimants, Defendant has never asked for restitution of the deposit before these proceedings. Claimant has no difficulty in demanding extension of the Request for Arbitration to the sum constituting the aforesaid deposit, while claiming its right to withhold it due to Defendant's breach of contract. Claimant alleges that interests on the first tranche of the deposit . . . have been regularly paid to Defendant. However, Claimant mentions that interests on the second tranche of the deposit . . . have been temporarily retained.'

The Arbitral Tribunal's decision:

'At the hearing on . . . Defendant submitted to the Arbitral Tribunal as well as to Claimants its request for precautionary measures dated . . . as well as a note on the same subject.

Defendant requested the Arbitral Tribunal to grant urgent measures among which:

1 - An injunction against both [Claimant companies] to deposit on an account in favour of the Arbitrators the amount of . . .; such an amount having been paid by Defendant in favour of Claimant 2 as a deposit to guarantee payment of flights . . .;

2 - An injunction against the same companies to deposit, on the same account, the owing interests at the agreed rate of 10% (ten per cent) per annum.

On . . ., the Arbitral Tribunal issued an order on interim measures whereby it ordered:

"- Claimants to pay on an escrow account controlled by the Arbitral Tribunal the amount of . . . increased by the accrued interests at the 10% rate per annum as from the date of the deposit or as from the date of the payment of interests already made provided that Claimants prove the payment already made or,

- as an alternative to the payment on an escrow account that Claimants deliver a first demand bank guarantee issued by a first class bank to the benefit of Defendant for the amounts of . . ., increased by the interests as calculated as in the previous paragraph, expiring six weeks after notification to the parties of the award on the merits. Such guarantee shall be delivered to the Chairman of the Arbitral Tribunal who shall keep it in trust for the party which will be entitled to the payment of the relevant account according to the award on the merits;

- Defendant to bear the costs of the escrow account or of the bank guarantee;

- that the administrative details concerning the operation and destination of the escrow act or of the bank guarantee shall be discussed at the meeting to be held in Paris on . . . then the Arbitral Tribunal will make a decision in this respect unless the parties could agree among themselves;

- that Defendant's request for precautionary measure as to the attachment order of the Tribunal of Milan is dismissed."

At the hearing held in Paris on . . . Claimant 1 informed the Arbitral Tribunal that, in view of its financial situation, they were not in a position to comply with the order of the Arbitral Tribunal. However, Claimant indicated that it would be prepared to release the sums presently attached by the Tribunal of Milan against a bank guarantee of the same amount issued on behalf of Defendant, a proposal which was not accepted by the latter.

In view of these circumstances, the Arbitral Tribunal has considered that it was not at the time realistic to make the administrative arrangements necessary for the implementation of its Order on Interim Measures.

In its . . . Procedural Order no. 2 the Arbitral Tribunal confirmed that the Order on Interim Measures would remain in force until the issuance of the final award.

It is agreed that a deposit covering two weeks activity had been paid by Defendant to Claimant 2. This deposit has been retained by Claimant 1 as assignee of the contractual agreements with Claimant 2. This deposit was made in order to guarantee the payment of the flights and not to cover anticipated damages as contended by Claimant 1 . . . Indeed, Article . . . of the agreement entered into by and between [carrier X] and Claimant 2 . . . required Claimant to issue bank guarantees amounting to the value of one week operations. This requirement explains that Claimant 2 requested a deposit from Defendant.

Therefore, the Arbitral Tribunal decides that only the payment of the balance of invoices . . . could be deducted from the deposit. However, since the Arbitral Tribunal has now decided to condemn Defendant to pay that balance, the amount of the deposit should be reimbursed to Defendant.

Defendant has requested that this reimbursement be made by both Claimants . . . [T]his request is granted.

As to the interests on the amount of the deposit, Claimant 2, in the letters in which it has acknowledged receipt of the payment of the deposit . . . agreed Defendant's right to receive interests on the amounts paid. Claimant 2 agreed to pay "current net bank interests" on the amount of . . . from [date A] and on the amount of . . . from [date C].

In its . . . order on interim measures, the Arbitral Tribunal ordered Claimants to pay on an escrow account controlled by the Arbitral Tribunal the amount of the deposit increased by accrued interests at the 10% rate per annum as from the date of the deposit or as from the date of the payment of interests already made provided that Claimants prove the payment already made.

There is no expressed agreement of the parties of a rate of interest of 10% per annum, Claimant 2 having only agreed to pay "current net bank interests" when it received the deposit, in two instalments in 1990. On . . . Claimant paid an interest of 4.9% on the first instalment . . . However, there is no objective basis for such rate and, in the course of these proceedings, Claimant never objected to the rate of 10% invoked by Defendant for all its claims including interests.

None of the parties have referred to the application of a specific national law to the merit of that case. Moreover, as stressed in the ICC award made in Case no. 6129 in 1990:

"Dans le cadre d'un arbitrage international, cette détermination n'est pas gouvernée par des règles rigoureuses et précises. La tendance générale qui se dégage, en doctrine et dans la pratique arbitrale internationale, est de laisser à l'arbitre une grande liberté dans la fixation de ce taux. . . Celui-ci n'est pas tenu de se référer au taux légal d'un système juridique national, qu'il s'agisse de celui de la loi contractuelle ou de celui du lieu de l'arbitrage".

In the circumstance, the Arbitral Tribunal finds that the rate of 10% per annum, not objected [to] by Claimants when used by the Arbitral Tribunal in its . . . Order on Interim measures, is reasonable.

Since Defendant requested the payment of interest on the amount of . . . as from [date B] and not as from [date A], the Arbitral Tribunal decides that Claimant has to pay Defendant interests at the annual rate of 10% on the amount of . . . as from [date B] less an amount of . . . representing the interest already paid on the first part of the deposit, and on the amount of . . . as from [date C].'

1
Editorial Note: the Award is sometimes ambiguous in its reference to Claimant(s), using the proper noun common to both companies without specifying whether it refers to both or only one of them.