ICC Rules: 1988

Claimant: Constructor (Italy)

Defendant: Owner (France)

The parties entered into two contracts, subsequently merged into a single contract, for the construction by Claimant of various facilities on Defendant's site. Repeated failure by Claimant to abide by dates set for completion of the various stages of the work led Defendant to terminate the contract, announcing that it would complete the work at Claimant's expense. Claimant initiated arbitration proceedings. Pending the Arbitral Tribunal's final award on the merits, Claimant sought a 'decision' ordering Defendant to make an interim payment representing 'monies incontrovertibly due and owing by Defendant to Claimant in payment for work carried out'. The amount of such interim payment was subsequently reduced to represent materials supplied and services performed by Claimant over a two-and-a-half-month period. Defendant asserted that Claimant's application should be dismissed as (i) no such interim award could be made until Defendant's counterclaims had been settled, (ii) the ICC Rules precluded such application, and (iii) Defendant questioned the fact that it would owe Claimant any money after set-off between the claims and counterclaims. The Arbitral Tribunal responded to the application by way of an interim award made by a majority of its members.

'It is common ground that the Tribunal has jurisdiction to adjudicate on the claims asserted by Claimant in the Application and on the claims asserted by Defendant in its Brief in reply to the Application . . .

The contract under which the dispute referred to arbitration has arisen (the "Contract") is governed by French law . . .

. . . the Terms of Reference provide as follows . . .: "Procedural aspects not provided for by the ICC Rules (including its Annexes and the practices and procedures of the ICC International Court of Arbitration and its Secretariat) or these Terms of Reference shall be decided upon by the Arbitral Tribunal. The Chairman of the Arbitral Tribunal may issue Procedural Orders for the conduct of the case".

Claimant contends that the subject matter of its Application constitutes a procedural matter; said contention has not been disputed by Defendant.

The Tribunal does not have to rule on whether the Application falls within the ambit of "procedural matters" or not;

The Tribunal notes that Claimant has applied for a decision "provisionnelle" regulating the positions of the Parties pending the issue of a final award on the merits of the respective claims/counterclaims submitted to the Tribunal.

Defendant raised a defence to the Application, whereby the reference to the ICC Rules (the "Rules") contained in [the General Conditions of the Contract] "dictates that the standard for reviewing the Interim Application be drawn from the ICC Rules". Defendant goes on to state: "Under the ICC Rules, no interim relief is permitted except in 'exceptional circumstances['], once the matter has been transmitted to the arbitrators (ICC Rules, Article 8, Section V)".

The Arbitral Tribunal does not accept that position. Article 8.5 of the Rules does not prevent a party from applying to the arbitrators for an interim payment on account. Notwithstanding the uncertainty which prevailed in this respect under the previous Rules (prior to the 1975 revision), it is now usually held that, when reading Article 8.5 of the Rules in conjunction with Article 11, the ICC arbitrators have the power to issue provisional (or "conservatory") measures "failing a mandatory provision of national procedural law or an express stipulation of the parties to the contrary" (see Eric A. Schwartz, "Conservatory and provisional measures in ICC arbitration", October 1992, pp. 33-34).

Several arbitral interim awards or orders have held that ICC arbitrators do have jurisdiction to order provisional measures (see i.a. ICC no. 3540, JDI, 1981, p. 914; no. 4126, JDI, 1984, p. 934 and note Jarvin).

Applying the test mentioned in Mr Schwartz's article, the Tribunal notes that there is no mandatory provision of municipal law which would prevent the Tribunal from ruling on the Application.

As will be stated below, when reviewing the defence based on [Article x of the General Conditions of the Contract], there is no express stipulation by the parties prohibiting the issuing of a decision regarding an interim payment.

Based on the foregoing, the Arbitral Tribunal rules that it has the power to entertain the Application.

In its Application, Claimant refers to provisions of French procedural law, particularly to Articles 809 and 873 of the New Civil Procedure Code ("NCPC"), which deal with issues similar to the issues raised by the Application.

Though the Tribunal takes the view that French procedural law is not applicable in this arbitration, the Tribunal considers that French procedural law is helpful as a pointer to and an example of the general principles to be exercised in dealing with such applications.

Claimant invites the Arbitral Tribunal to apply standards (or tests) derived from Article 809, par. 2 NCPC, which reads as follows (translation): "Where the existence of the obligation cannot seriously be denied, it may order an Interim Payment on Account to the creditor or order specific performance".

Defendant seems to consider that, to refer to French procedural law and to apply the "ad hoc" standards as proposed by Claimant, is "subject to serious question", but has not elaborated on the subject.

The Tribunal is satisfied that its determination can be made by reference to these tests, interpreted as explained below.

In claiming that a certain amount of money is certainly due to it by Defendant, Claimant has followed what has been called the "minimalist approach". This approach led Claimant to make an initial application for . . . which amount was subsequently reduced to . . .

According to Claimant, a balance is owed to it by Defendant on the "Contract Price" . . . Said amount, according to Claimant, is most certainly due; accordingly, it ought to be paid, plus interest thereon, as a "provision".

Defendant raises a first defence, based on [Article x of the General Conditions of the Contract]. . . Said contractual provision, the Defendant contends, precludes the award of an Interim Payment on Account, at least until such time as the costs, damages and other expenses due to Defendant will have been ascertained by the Tribunal in the final award. The costs and damages claimed by Defendant, under the four heads of counterclaim, will have to be ascertained by the Tribunal when looking at the merits of the case and, before that assessment is made, no complete reconciliation of the outstanding amounts mutually owed by the parties can be made. It is Defendant's view that, at the end of such reconciliation, a net amount will be owed by Claimant to Defendant.

[Article x of the General Conditions of the Contract] does not, in the view of the Tribunal, prohibit or preclude that a provisional measure be ordered by the Tribunal on the application of one of the parties. [Article x of the General Conditions of the Contract] is the contractual expression of a legal principle of French law (and which is recognized in many other legal systems), according to which in a bilateral agreement ("contrat synallagmatique"), a party may suspend performance of its obligation until the other party has performed its correlative obligation (principle known as the "exceptio non adimpleti contractus").

Notwithstanding such contractual clause, the Tribunal considers that it has the powers, when requested to rule on a request for a provisional measure, to exercise its discretion pending a final determination of the substantive issues put before it. Indeed, the Tribunal considers that it would be contrary to the principle of good faith in contract law for Defendant to claim that Claimant's Application ought to be barred by virtue of [Article x of the General Conditions of the Contract].

Claimant invites the Tribunal to apply the tests expressed in article 809, par. 2 NCPC, i.e. to determine whether Claimant has established prima facie that, in all probability, Claimant will be entitled to obtain from Defendant a substantial sum of money (in excess of the interim payment sought).

In support of its contention that it has a claim which cannot seriously be denied, Claimant produces evidence drawn from the report filed by the two Court-appointed experts . . .

Defendant contests "both jurisdiction and findings" of these experts.

The Arbitral Tribunal cannot accept Defendant's position with respect to the "jurisdiction" issue: it notes that the experts were duly appointed in accordance with French procedural law, with an assignment (terms of reference) consisting essentially of describing the work done as of a given date, as is usually the case in disputes between a contractor and an employer, and that they have, so far as the Tribunal is informed, carried out their assignment in accordance with French procedural rules, in a manner allowing both parties to present their points of view. . . .

It follows from the above that the findings of the expert must, for the present, be given considerable weight, without prejudice to any different findings that the Arbitral Tribunal may make after reviewing the detailed materials put before it by the parties. . . .

Although the Tribunal provisionally finds that [the sum of . . .] may be owed by Defendant to Claimant, it cannot base its ruling exclusively on the probability of that part of the claim being accepted; it also has to examine Defendant's counterclaims and to make a similar "prima facie" determination with respect to these counterclaims, in order to estimate what the net result of the set-off, if any, between the claims and counterclaim could be.

The Tribunal accepts Claimant's argument whereby a "specious" or "questionable counterclaim" cannot constitute a valid defence to the Application. Admittedly, the various heads of the counterclaim are denied by Claimant.

The Tribunal will, therefore, proceed with a prima facie evaluation of the counterclaims . . .

Claimant has also argued that Defendant is the beneficiary under two bank guarantees totalling . . . and would, therefore, be sufficiently protected if the Application (as amended) were to be granted. It has been confirmed to the Tribunal by Counsel . . . that said guarantees still be in place and remain effective until the end of the thirty-day period following the date of the final award in these proceedings.

The existence and amount of such guarantees are elements which the Tribunal has to take into account in the exercise of its discretion when ruling on an application for a provisional payment.

In support of the Application, Claimant argued that it has suffered hardship for a considerable number of months, in being "kept out of any monies at all until the final award["] . . ., that the final award on the merits is not reasonably to be expected soon and that this results in a difficult financial situation for Claimant unless the Application is granted. Although none of these arguments [is] determinant, they establish that Claimant has a legitimate interest in requesting a payment on account under the Application.

Taking all elements discussed above into account, the Arbitral Tribunal, exercising the discretion which it has in ruling on provisional measures, considers, without prejudice to its final determination on the merits, that it cannot rule out that after set-off, Claimant may be due an amount of, around, . . . Such amount seems to correspond to the value of work and services already delivered to Defendant and used by the latter since the termination of the Contract.

The Arbitral Tribunal is however faced with a delicate task of weighing up the probability as to whether, after the claims and counterclaims have been fully argued before it, the net result will be in favour of Claimant, as the latter alleges, or in favour of Defendant; having decided that it can, for the purposes of this award, attribute evidential value to the Report of the experts, it is still a fairly open question whether the counterclaims will exceed . . .; consequently, in order to cover the risk that the final decision might not be consistent with the decision reached in this award, and not to prejudice the right of set-off, the Tribunal considers that it is appropriate that the party in whose favour the decision on an interim payment is made provide a guarantee of like amount (see, i.a. Ramos Mendez, Arbitrage international et mesures conservatoires, Revue de l'Arbitrage, 1985, p. 51; ICC case no. 3540, excerpts in JDI, [1981], p. 914). Consequently, the order to Defendant to pay the amount of . . . to Claimant is made subject to Claimant providing a guarantee of like amount in the form and subject to the conditions set forth in the decision section of this award.

Ruling provisionally, on the above-mentioned grounds, the Tribunal considers that interest is not to be added to the provisional amount of . . .

The Tribunal does not consider that it is appropriate to rule, at this stage, on the costs relating to this Application; such issue will be decided together with the issue of the costs of this arbitration.'