1988 ICC Rules of Arbitration

CISG Arts. 1, 2, 4, 7, 8, 9, 34, 45, 47, 49, 58, 74-77, 81, 92, 95

Claimant undertook to sell and Defendant to purchase a quantity of crude metal. The parties agreed upon a time for shipment and upon the provision of a performance bond, which would become payable if shipment were delayed more than 15 days after the latest time allowed under the contract. Payment was to be by letter of credit ('L/C'), which specified 30 September 1991 as the latest date of shipment and 20 October 1991 as its expiry date. A request was made by Claimant's agent for the shipping and expiry dates to be postponed to 15 and 31 October respectively. A first amendment was issued on 30 October 1991 setting a new expiry date of 15 November but no new shipping date, followed by a second amendment on 12 November 1991 setting a latest shipping date of 15 October 1991. Uncertainty surrounded the actual date of shipment and discrepancies emerged between the documents negotiated by Claimant's bank under the L/C and the conditions of the L/C. It later became clear that the cargo was put on board ship on 20 October 1991, after which the vessel was involved in a collision, necessitating repair which lasted into January 1992, when the vessel was grounded. Due to the delay in delivery, Defendant cancelled the contract in January 1992, and the shipping documents were returned to Claimant's bank due to their inconsistency with the L/C. Objecting to the cancellation of the contract and seeking payment of the purchase price, Claimant initiated arbitration proceedings.

Applicable law

'The contract provided . . . that it was to be governed by Austrian law.

This choice of law made by the parties was not disputed by either of them. In view of the autonomy of the parties in selecting the law governing their relationship the clause is to be regarded as valid and binding upon them.

In the initial phase of the proceedings the parties advanced conflicting opinions though as to whether this reference to Austrian law would lead to the applicability of the United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980, signed in Vienna (hereafter referred to as the "Vienna Convention" or "Convention"), or not. In the later phase of the proceedings the parties concurred that the Vienna Convention was indeed applicable to the extent provided in the Convention itself.

Austria is amongst the countries having signed and ratified the Vienna Convention. No restricting declarations were made by Austria when ratifying the Convention, neither according to art. 95 of the Convention, that it will not be bound by art. 1 subpar. 1) b) of the Convention, nor according to art. 92 that it will not be bound by part II of the Convention or that it will not be bound by part III of the Convention. In and for Austria the Vienna Convention is, therefore, applicable in its integrality.

According to art. 1 subpar. 1) b) the Convention applies to contracts of sale of goods between parties whose places of business are in different states when the rules of private international law lead to the application of the law of a contracting state. This rule, which seems to have been controversial when the Convention was negotiated, which was the reason why the Convention provided for the possibility of the contracting states, in art. 95, to declare the non-applicability of the clause, has been accepted by Austria and has, thereby, become applicable under Austrian law.

As it already has been seen, the choice of Austrian law by the parties as governing law of the contract is to be regarded as being valid and binding on them. By this reference to Austrian law the Vienna Convention became, based on the just discussed clause, applicable to the contractual relationship between the parties.

The Convention is applicable to contracts of sale of goods in general, with certain exceptions according to art. 2 of the Convention. None of these exceptions do apply in the present case, so that the Vienna Convention is applicable also in view of the nature of the goods covered by the contract.

According to art. 4 of the Convention, it governs only the formation of the contract and the rights and obligations of the seller and the buyer arising from such contract. The Convention is not concerned with the validity of the contract or of any of its provisions or of any usage. In the present case, the valid conclusion of the contract was not disputed. The issues relate to the interpretation of the contract, the obligations under the contract and the remedies available to the parties in case of breach of contract, all being topics covered by the Convention, especially in its part III, and also in its part I.

Depending on the doctrine followed in the relevant country relating to the nature and effect of public international law the provisions of an international treaty either are regarded as superior to the national law or are regarded as being integrated into national law. Irrespectively of the basic approach relating to this question it seems clear that the provisions of the Vienna Convention prevail over the provisions of the otherwise applicable national law. Art. 7 of the Convention expressly provides that questions concerning matters governed by the Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. Therefore, the issues in these proceedings have to be answered first based on express provisions of the Convention, second based on the general principles which may be deduced from the Convention, third by the provisions of Austrian law and only last and fourth based on general customs and usages of the trade.

In its art. 9, the Convention specifically provides that the parties are bound by any usage to which they have agreed. In fact, if the parties refer specifically to any usage, the relevant rules become part of their contract by reference (or integration).

In the Contract, the parties have, in clause IV, under the heading "price" referred to "CNF FO [port, country] (Incoterms 1990)".

The "Incoterms" 1990 edition published by the International Chamber of Commerce in Paris, which became effective as of 1 July 1990, do not provide for a clause "CNF". The parties however concurred that the clause to which they intended to refer was the clause "CFR" - "Cost and Freight (..named port of destination)".

It would, indeed, seem that the parties, although referring to the Incoterms 1990, had still in mind the designation used for such clause in the prior Incoterms, namely "C+F" or "C and F", in extended terms "cost and freight". The middle letter "N" used in the clause in the Contract would seem to have stood for the word "and". The Arbitral Tribunal, in conformity with the opinions expressed by the parties, holds that the reference in the contract was indeed a reference to the clause "cost and freight" - CFR - of the Incoterms 1990.

The letters "FO" which were mentioned beside the letters CNF stood, in the opinion of the arbitral tribunal, for the words "free out" which are used to qualify the term "freight" under C.I.F. and C.F.R. contracts, and which mean that the expenses connected with discharging the goods from the vessel are included in the "freight".

Although in the Contract the reference to the Cost and Freight clauses is contained in the clause dealing with the price both parties in their briefs clearly assumed that the reference to the Incoterms clauses was not meant to define the price only but was to be understood as a general reference to the CFR terms applying also to the Contract in general . . . In concurrence with the opinion of the parties the Arbitral Tribunal holds that the reference to Incoterm clauses in one clause of the Contract with no specification or restriction as to its bearing could be understood in good faith by both parties and had in fact to be understood to be a general reference, thus integrating the CFR clauses as a whole into the Contract. The wording of the Contract has therefore to be seen in conjunction with the provisions of the CFR clauses of the Incoterms 1990, which are held to have been integrated in their entirety into the Contract.'

The Arbitral Tribunal's discussion of the issues

- the contract

'As already seen . . . above, the parties have entered into a specific sale and purchasing contract by exchange of fax messages establishing the elements of their agreement by detailed wording.

According to art. 8 of the Vienna Convention statements made by a party are to be interpreted according to its intent where the other party knew or could not have been unaware what the intent was. This rule is basically equivalent to the general principle of law on contracts to the effect that manifestations of a party of its contractual intent have to be understood and interpreted as a counterparty in good faith had to understand them.

When parties have concluded a contract established by an extended wording, the agreement of the parties has to be analysed in first instance by interpreting the wording of the contract itself. According to art. 8 par. 3 of the Convention usages of the trade constitute guidelines only to establish what a reasonable person had to understand in view of the wording of the contract.

As also seen already . . . above, the contract made specific reference, in its clause IV, to the Incoterms 1990, whereby the reference is to be understood to refer to the clauses "CFR" (cost and freight ….. named port of destination), and whereby further the reference was to be understood as a general reference to such clauses and not as a reference for defining the price only . . . According to art. 9 par. 1 of the Convention the parties are bound by any usage to which they have agreed. The contractual agreement between the parties has therefore to be understood as it results from their written contract in conjunction with the CFR clauses of the Incoterms 1990.

Where the provisions of the contract and of the Incoterm clauses do not provide specific answers, the rules of the Convention and, in a subordinated way, rules of its underlying principles and, even in a more subordinated way, the rules of Austrian law are determining for defining the mutual obligations of the parties based on their contract.

According to Incoterms clause CFR A 4 the seller must deliver the goods on board the vessel at the port of shipment on the date or within the period stipulated, and according to Incoterms clauses CFR A 8 the seller has, unless otherwise agreed, to provide the buyer without delay with the usual transport document for the agreed port of destination. The Incoterms CFR clauses (as the CIF clauses) do actually provide for a dual obligation of the seller, first, the seller has to actually furnish the goods and arrange for their transport (which is to lead to the actual physical delivery of the goods to the purchaser or his successor), and, second, the seller has to deliver to the purchaser the relevant transport documents which enable the purchaser to actually dispose of the goods even while being transported.

In an English case (Kwei Tek Chao v. British Traders and Shippers Ld., 1954, 2 Q.B. 459 at p. 480, as reported in Sasson's C.I.F. and F.O.B. Contracts, 3d ed. 1984, p. 28) the nature of the C.I.F. contract was summarized as follows:

"A c.i.f. contract puts a number of obligations upon the seller, some of which are in relation to the goods and some of which are in relation to the documents. So far as the goods are concerned, he must put on board at the port of shipment goods in conformity with the contract description, but he must also send forward documents, and those documents must comply with the contract. If he commits a breach the breaches may in one sense overlap, in that they flow from the same act. If there is a late shipment …. the seller has not put on board goods which conform to the contract description …. He has also made it impossible to send forward a bill of lading which … conforms …. Thus the same act can cause two breaches of two independent obligations."

Even though in the present case the contract was not a C.I.F. but rather a C.F.R. contract, and although the applicable law is not the English law but rather the Vienna Convention respectively Austrian law, the opinion in the mentioned English case may be taken as an expression of an internationally recognized understanding of the C.I.F. clause. The C.I.F. and the C.F.R. clauses being of the same nature under the aspect here under review, what has been said relating to the C.I.F. clause is valid also with regard to the C.F.R. clause.'

- the question of time

'The contract dealt with the time frame, within which the shipment had to take place. The relevant provisions were set forth in clauses V and VII of the contract. These clauses specified the time requirements with regard to the shipment only and did not deal specifically with time requirements for delivering the documents. The contractual clauses use the terms "loading" and "shipment". It was explained by the parties and not contested that according to the usage of the trade the expression "loading" stands for the activity of placing the goods in the harbour on the pier in a way suitable and ready for being carried on the ship by appropriate means, while the term "shipping" and "shipment" stands for the actual stowing of the goods in the appropriate manner on and in the vessel. The time limit agreed for the "shipment" therefore refers to the time when the stowing of the goods on and in the vessel has been completed in an appropriate manner for sailing. The periods defined in clause V of the contract therefore referred to the time when the sold goods had actually to be stowed on respectively in the vessel in the sailing port. This has not been challenged by the Claimant.

Art. 34 of the Vienna Convention provides that in cases in which the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract. If the seller has handed over the documents before that time, he may, up to that time, cure any lack of conformity in the documents, if the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense.

Incoterms clauses CFR A 8 specify that the transport document has to be provided "without delay". Since the contract did not specifically determine a time limit for delivering the documents, the contract has to be understood in the manner that the documents had to be handed over respectively delivered without delay, or within reasonable time after the time limit determined for the shipment. An indication of what might have to be understood as reasonable time in the trade could be seen in art. 47 of the old Uniform Customs and Practise for Documentary credits ("UCP") (1983 revision in force as from 1 October 1984, which were those still applicable at the time of the conclusion of the contract). This article provides that banks should refuse documents presented to them later than 21 days after the date of issuance of the transport document.

It is left open for the time being what legal implications the determining of the expiry date of the L/C in the L/C itself might have had with regard to the contractual time limit available for the seller to deliver the documents. It should be remembered that the expiry date of the original L/C (before its amendment) was the 20 October 1991, which was the twentieth day after the latest date allowed for shipment.

The contract provided that shipment had to take place . . . during September 1991. The latest date allowed for shipment therefore was 30 September 1991. Clause VII of the contract, however, contained provisions relating to a performance bond which was to become payable in the event that the shipment was to be delayed more than 15 days after the latest shipment time allowed in the contract.

Defendant sustains that every sale under the Incoterms clauses CFR is to be regarded as a "fixed term" contract within the meaning of the term as it is used in the legal terminology in many countries, to the effect that the time limit defined in the contract is of essence and that the non-abidance by this time limit constitutes "ipso facto" a fundamental breach of contract within the meaning of art. 49 par. 1) a) of the Vienna Convention. Defendant submits some opinions of judiciaries and learned authors in support of this theory. However, the principle can, in this generalized form, not be recognized. The Incoterms clauses CFR do not provide anything to this effect. It is true that Incoterms clauses CFR A 4 provide that the delivery of the goods on board the vessel at the port of shipment has to be made by the seller on the date or within the period stipulated. The Incoterms clauses CFR do not, however, specify that the abidance within the time limit is an obligation of especially essential importance or that the non-abidance by the time limit gives to the purchaser unconditionally the right to avoid or terminate the contract or that the contract automatically becomes void in any case where the time limit for shipment is not respected.

Even though there might exist a usage of the trade to the effect that in the absence of provisions to the contrary in the relevant contract, a CFR contract has to be understood as a fixed term contract, - which can be left open -, such usage of the trade would certainly not prevent the parties from providing to the contrary in their specific contractual agreement. When the parties have entered into an agreement in writing (within a broad sense of the word) also the question at stake here has to be determined primarily based on the wording of the agreement and the manner in which such wording had to be understood in good faith by both parties. With a view to this, the bearing of the clauses V and VII of the contract has to be analysed, and the time frame determined in clause V can certainly not be looked at without regard to the provisions of clause VII which are significant for determining the issue.

Clause VII of the contract determined an obligation of the seller to provide for a performance bond by its bank. It is easily understandable from the wording of the contract that this performance bond was to give to the purchaser the right to be paid a penalty in case of a delay of shipment by the seller. The amount of the performance bond was, however, to become payable only in the event that the shipment would be delayed more than 15 days after the latest shipment time allowed in the contract. This is a clear indication, in the opinion of the arbitral tribunal, that the last date of shipment allowed in clause V of the contract was not to be understood as a fixed term, the non-abidance by which would have constituted a fundamental breach of contract within art. 49 par. 1) sub. par. A) of the Vienna Convention. To the contrary, the provision indicates that the purchaser was prepared to tolerate a delay up to 15 delays.

Further, the provision does not say in any way that in the case the delay of shipment would have lasted more than 15 days, the contract was to become void automatically or the purchaser had the right to avoid the contract immediately. If something to such effect had been intended by the parties it is probable that they would have specified it in view of the fact that the question of a possible delay of shipment had obviously been the subject of considerations when the contract was negotiated.

This leads to the conclusion that the non-abidance by the last shipment date allowed by the contract was not to be considered as a fundamental breach of contract according to the prior mentioned provision of the Vienna Convention and that, accordingly, the purchaser would, as a consequence of a delay of shipment, not have been authorized to declare the contract avoided according to art. 49 par. 1) subpar. a) of the Convention without first fixing an additional period of time for performance. Instead, the rules of art. 47 in conjunction with art. 49 par. 1) subpar. b) of the Vienna Convention were applicable with regard to the question of delay of shipment.'

- the delay in shipment

'In view of the double or twofold obligation of the seller, on the one had to ship the goods timely, on the other had to deliver the documents without delay, a delay in performance can occur either with regard to the shipping of the goods or with regard to the delivery of the documents. As to the time of shipment, and elaborating on what has just been said, the wording of the contract and the facts around the issuance and the extension of the L/C suggests the following analysis of the situation as to the time of the shipment:

As seen, the contract provided as the last allowed date of shipment 30 September 1991. However, the purchaser had conceded right from the outset in the contact to tolerate a delay of 15 days, i.e. through 15 October 1991. This extended time limit has to be regarded as pre-agreed tolerance. Consequently, the shipment would not have been late if it had occurred latest on 15 October 1991. Based on the contract, and without regard to any extension which might have been agreed, the seller would have been in default as from 16 October 1991 as a consequence of the delay of shipment. Had the purchaser known about the delay he would have had the possibility to proceed in accordance with art. 47 of the Convention fixing an additional period of time of reasonable length to the seller for providing for the shipment.

The L/C opened by the purchaser on 12 September 1991 mentioned the 30 September 1991 as latest date of shipment and 20 October 1991 as expiry date. This was in concurrence with the first stage of timing provided by the contract. Claimant would have had to submit all the documents showing shipment date not later than 30 September 1991.

In other words, Claimant would have had a period of twenty days (one day less than the longest period allowed of twenty-one days according to art. 47 of the old UCP) for presenting the documents to its bank in Czechoslovakia, as the L/C provided the expiry date with reference to Czechoslovakia.

When . . ., the agent of Claimant, requested, on 30 September 1991, Defendant to extend the terms of the L/C by providing 15 October as new latest allowed date for shipment and 31 October 1991 as new date for expiry of the L/C, this was in concurrence with the provisions of the contract. In fact, seller benefitted of a tolerance period until 15 October 1991 for shipping. By the extension of the L/C as requested by the seller, the purchaser would simply have acknowledged the fact of the existing tolerance period, and such extension would not have pre-supposed an amendment of the contract. The seller would have had the time until 31 October 1991 to present the documents to its bank in Czechoslovakia, now showing a date of shipment not subsequent to 15 October 1991. Seller would have had, in other words, two weeks as from the shipment to present the documents to its bank in Czechoslovakia.

In other words, when Claimant was requesting the extension of the last date allowed for shipping in the L/C, it did that within the frame of the contract, and no amendment to the contract was necessary, and Defendant did, by providing for the extension, not concede anything it was not obliged to anyway.

Claimant sustains that at the time when the parties were in contact relating to the extension of the relevant dates in the L/C an agreement was reached to the effect to amend the contract by shifting the last date allowed for shipping from 30 September to 15 October 1991, with the effect that the period of tolerance of 15 days provided in clause VII of the contract was also automatically extended to 31 October 1991. Defendant contests this view and sustains that at the time it was agreed to extend the relevant date in the L/C, but that this never meant to extend also the contractual tolerance period for shipping.

The factual allegations of both parties relating to their contacts at that time are rather vague.

In the documents submitted nothing can be found in support of the position of Claimant to the effect that the contractual dates would have been extended by an amendment of the contract. To the contrary, the fax messages of . . ., the agent of Claimant, to Defendant . . . clearly did not mention in any way whatsoever a change of the relevant dates by amendment of the contract. Also in view of what has been said above, that the extension of the relevant dates in the L/C was requested by Claimant within the frame of the contract, strongly supports the assumption that at that time Claimant thought of the L/C and of the L/C only, because there was no need to amend the contract. The arbitral tribunal cannot follow the theory of Claimant to the effect that there would have been, at the time, an agreement of the parties to extend not only the date in the L/C but rather the relevant dates in the contract.

Defendant admitted . . . that it extended the shipment deadline. In the same brief it further sustained . . . that by such extension it conceded, and thereby fixed, to Claimant an additional period for performance within the meaning of art. 47 par. 1) of the Convention. . . . This view cannot be followed either. When conceding the extension of the last date allowed for shipment in the L/C to 15 October 1991 Defendant only acknowledged that the contract provided for a tolerance period. Also Defendant's communications related clearly to the L/C and the L/C only, and nothing in the file supports Defendant's theory that with the extension of the date in the L/C it intended to fix an additional period within the meaning of art. 47 Convention.

When, therefore, Claimant did not ship the goods by 15 October 1991, but later only, it was actually in default. At that time, Defendant, had it known about the delay, could have fixed to the seller an additional period of time of reasonable length for providing for the shipping and for handing over to the purchaser the relevant documents within the meaning of art. 47 par. 1) of the Vienna Convention.

However, Defendant did not know about the delay of shipment until much later.

. . .

Incoterms clauses CFR A 7 provides specifically for the obligation of the seller to give the buyer sufficient notice that the goods have been delivered on board the vessel. It was, consequently, a contractual obligation of the seller to give to the purchaser notice of actual shipment, in the meaning of completion of the stowing of the goods on the vessel in a way enabling the vessel to sail. Claimant has not alleged to have ever given such notice to Defendant and Defendant was, actually, never advised on the real and actual date of shipment. Defendant has alleged that it repeatedly inquired about the situation but never received a clear and specific answer. It cannot be excluded that Claimant did, in fact, purposely not give the notice which it contractually was bound to give in the fear that the disclosure of the actual shipping date, having occurred after 15 October only, might be detrimental to its legal position.

Nevertheless the delay of shipment alone and by itself would not have given the right, in the opinion of the Arbitral Tribunal, to Defendant to declare the contract avoided, based on the following considerations.

Had Defendant known on 16 October 1991 that shipment did not take place by 15 October 1991 Defendant could have fixed to Claimant the additional period of time for shipment, in accordance with art. 47 par. 1) of the Convention . . . Such period of time, which had to be of reasonable length, could certainly not have been less than four days. In other words, the end of the additional period could not have been before 20 October 1991, the day on which shipment actually occurred. As a result, the seller has in fact shipped the goods within the additional period which could hypothetically have been fixed to it. This excludes the possibility to declare the contract avoided, since art. 49 par. 1) subpar. b) gives the right to avoid the contract only if the performance did not take place within the additional period.'

Consideration was then given to whether or not Claimant had delivered the documents in accordance with the contract. Particular attention was paid to the absence of a date on the bill of lading - a matter not addressed as such by the Vienna Convention. The Arbitral Tribunal concluded as follows:

'Some of the documents submitted by the seller under the L/C showed as shipping date 15 October 1991. This applies to the commercial invoice, the certificate of draft survey, the certificate of quality and the certificate of origin . . . Claimant has admitted that the date shown did not correspond to the actual shipping date, and it would seem clear that some of these documents have been pre-dated purposely in order to create the appearance that shipping had taken place on 15 October 1991. Defendant sustains that with this wrong dating Claimant purposely tried to deceive the Defendant and that this circumstance constituted a fundamental breach of contract according to art. 49, par. 1 sub. par. a) of the Vienna Convention, giving the right to Defendant to declare the contract avoided. The question whether the wrong dating of the documents in fact constituted a fundamental breach of contract may, however, be left open in view of the other considerations in this award.'

- the declaration of avoidance of the contract

'As seen above . . . Defendant communicated on 9 January 1992 to Claimant that it could not take the ship, giving as reason that the cargo was loaded after shipping date and that the documents were not presented duly within the expiry date of the L/C. This communication was obviously meant by Defendant to constitute a declaration of avoidance of the contract and it had also to be understood in this way by Claimant, even though the wording used did not contain the specific legal terms avoidance of the contract. When this declaration was made by Defendant, it had become suspicious about the true shipping date, which suspicion later on proved to have been justified, and Claimant's bank had received the documents which, as seen, did not comply with the contractual requirements.

Defendant sustains that the declaration of avoidance of the contract was justified, timely and effective, while Claimant sustains that it was unjustified and without legal effect. Claimant mainly argues that Defendant could not declare the avoidance of the contract before having fixed to Claimant an additional term for performance according to art. 47 par. 1 of the Convention, that further the declaration of Defendant was contradictory with subsequent communications of Defendant and that, thirdly, the declaration of Defendant was too late and therefore ineffective according to art. 49 par. 2) of the Vienna Convention.

Defendant alleged that Claimant, by its behaviour, committed a fundamental breach of the contract. So Defendant sustains that Claimant has purposely caused the shipping documents to be marked with a wrong date, that by this and by not advising Defendant about the true shipping date it purposely intended to deceive Defendant, that by such behaviour it prevented Defendant to call timely the performance bond, that it selected and used a vessel which was older than what the contract had allowed, that the vessel selected and used was not sea worthy and in addition, that the ship was too small to carry the contractual quantity of the goods and was overloaded.

In view of the considerations which preceded and those which follow it is not necessary for the arbitral tribunal to decide on whether some of the alleged breaches actually occurred and whether the alleged failure of Claimant to respect its contractual obligations amounted, taken as a whole, to a fundamental breach of contract within the meaning of art. 49 par. 1) subpar. a) of the Convention - which would have given the right to Defendant to declare the contract avoided without having first fixed an additional period of time for performance.

As to the delay of shipment it has been seen that it was Claimant who did create a situation of uncertainty by submitting shipping documents with a wrong shipping date and by not advising Defendant about the true shipping date as it would have been its obligation according to Incoterms clauses CFR A 7. It has also been seen that irrespectively of these circumstances and of the delay of shipment of five days Defendant could not have declared avoided the contract based on the delay of shipment alone, because the shipment occurred within the hypothetical additional period of time for performance which Defendant would have had to fix to Claimant had Defendant immediately known about the delay.

As to the delivery of the documents, there has been not only a delay but a lack of performance on the part of Claimant. Claimant did deliver to its bank, for forwarding to Defendant's bank and forwarding to Defendant, the set of documents some time before 20 November 1991. On that date Claimant's bank sent the documents from Czechoslovakia to Defendant's bank . . . On 27 November 1991, Defendant's bank . . . advised about discrepancies between the documents negotiated by Claimant's bank under the L/C and the conditions of the L/C. . . . From . . . it can be concluded that on the same date . . . Defendant's bank advised by wire Claimant's bank of the discrepancies as well. Claimant has not challenged this fact. In other words, Claimant had been made aware of the fact that the documents did, in the opinion of the Defendant's bank, not comply with the L/C. Since the conditions of the L/C corresponded to the contractual provisions (with the adding of two additional documents) Claimant was aware at that time that Defendant would almost certainly not accept the documents as they were.

If one were of the opinion that at that time Defendant would have had to fix to Claimant an additional period of time of reasonable length within the meaning of art. 47 par. 1) of the convention for delivering a set of documents complying with the contractual specifications, such period would have had to be of ten or fourteen days and would, in other words, have ended some time around 15 December 1991. Claimant might have had legally the possibility to cure the lack of conformity in the documents in accordance with art. 34 of the Vienna Convention by recalling the set of documents submitted and by re-delivering a new set of documents with the indication of the true shipping date and complying also otherwise with the contractual conditions. But Claimant did not endeavour to replace the defective set of documents and Claimant has neither alleged to have offered to Defendant, during the contacts which occurred in that period between the parties through their agents, to replace the challenged documents by new ones

In view of the fact that Claimant had been made aware by Defendant's bank that the documents submitted were not in order and that contacts between the parties during that period took place and that the situation was obviously discussed amongst them, it would, in the opinion of the arbitral tribunal, be an overly formalistic approach to have required Defendant to formally fix an additional period for performance to Claimant at that time and to deny the possibility of Defendant to declare the contract avoided as a consequence of not having fixed the additional period of time.

As from about 15 December 1991, the hypothetical additional period of time which might have been at the disposal of Claimant to cure the lack of conformity in the documents had elapsed without Claimant having advised by that time Defendant about the true shipping date, as it contractually would have been obliged to do, nor submitted a new set of documents or offered to do so. Therefore, the arbitral tribunal holds that at least after 15 December 1991, Defendant was entitled, according to the principles underlying the rules of art. 49 of the Convention, to declare the contract avoided.

When Defendant did so on 9 January 1992, this was done timely. As to the Claimant's argument, that the declaration of avoidance by Defendant was late and is therefore to be disregarded according to art. 49 par. 2 of the Convention, it is again to be considered that the situation of uncertainty as to the shipping date and consequently the truthfulness of the documents submitted was due to the behaviour of Claimant and to a clear breach of Claimant's obligations under Incoterms clauses CFR A 7. According to the general rules on good faith the argument of the delay of the declaration of avoidance could not be heard since the delay, had it occurred, would have to a substantial extent been caused by the behaviour of Claimant itself.

. . .

The declaration of avoidance by Defendant of 9 January 1992 had as a consequence that the contract ended and Defendant automatically became entitled to damages suffered by the breach of contract by Claimant, all in accordance with art. 81 par. 1 and art. 74 ss. of the Vienna Convention.'

The Arbitral Tribunal's conclusions as to Claimant's claim

'Since the contract was validly avoided by Defendant, and the contract terminated accordingly, there is no basis for Claimant to claim the payment of the purchase price from Defendant. This is an obvious conclusion but is also clearly established by art. 81 par. 1 of the Vienna Convention stating that the avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due.

However, even if the avoidance declared by Defendant had been unjustified or ineffective because the declaration was late or for any other reason, the claim of Claimant could still not be upheld. The contract would then still be continuing, but Claimant would nevertheless have no justification to claim the purchase price, since it never did adequately perform under the contract. In fact, Claimant did not deliver to the purchaser, either through the bank or directly, a bill of lading and other documents being in compliance with the contract. According to a basic rule of the law on contracts, the "exceptio non ad impleti contractus", the purchaser is not bound to pay the purchase price as long as the seller has not performed or at least adequately tendered correct performance. This principle is specified by art. 58 par. 1 of the Vienna Convention. Since Claimant could today, under the criterion of timeliness, no longer fulfil its contractual obligations, it would definitely have no longer any claim under the contract even if the contract had not been validly avoided by Defendant.

The claim of claimant is, therefore, to be rejected.'

With respect to the counterclaim

'According to art. 45 of the Vienna Convention the purchaser can claim damages if the seller fails to perform any of his obligations under the contract. The damages payable are defined more in detail in art. 74 ss. of the Convention. The damage payable consists of a sum equal to the loss, including loss of profit, suffered by the party which was not in breach of contract as a consequence of the breach by the other party. These provisions are in full concurrence with the general principles applicable under most national laws.

Under general principles of law, applicable also under Austrian law, it is the procedural burden of the party claiming damages to specify and to prove, first, the existence as such of a damage, second, that the damage has been caused by the breach of contract of the other party, i.e. that there existed an adequate causal nexus between the breach of contract and the damage, and, third, the actual amount of damage suffered.

Defendant has not even alleged to have actually suffered a damage and has in no way substantiated any damage as it would have been his procedural duty had it wished to claim the compensation of damages actually suffered. Already on this ground the claim for damages, at least as far as it relates to damages actually suffered, is to be rejected.

. . .

According to art. 75 of the Vienna Convention Defendant could have claimed the recovery of the difference between the contract price and the price in the subsequent substitute transactions if, in a reasonable manner and within a reasonable time after the avoidance of the contract, it had bought goods in replacement of those not obtained from the seller. If Defendant had chosen to submit such a claim, it would have had the procedural duty to specify precisely and give evidence for the actual replacement purchases.

Defendant has submitted some purchase contracts, but without making any allegations sufficiently substantiated to support a claim based on replacement purchases. . . .

Defendant does further base its claim on the ground that the amount of the performance bond, which corresponds to the amount of the counterclaim, was agreed as a contractual penalty within the meaning of the German term "Konventionalstrafe" as it is known under Austrian law. A contractual penalty within said meaning can, in fact, be agreed validly. If validly agreed, the penalty can - depending on the specific agreement - be due by the party in breach also in cases where the diligent party has not actually suffered any damage or is unable to prove its damage. The question therefore is whether the parties have agreed such a contractual penalty for the case that the purchaser was to declare the contract avoided as a consequence of a lack of due performance by the seller.

The written agreement does not contain any specific wording to this effect.

The performance bond which was to be furnished by the seller, for a value of 3 % of the total contract value, was, as appears from clause VII of the contract, to be payable in case of a delay of shipment over and in excess of the last day of the tolerance period allowed for shipment. However, it also appears that the parties had in mind a situation in which the contract would nevertheless be upheld and the purchaser was to accept the late shipment. Nothing in the wording would lead to the conclusion that the parties' intention was to provide, with the performance bond, for a contractual penalty to be due also in case of the avoidance of the contract. If that had been the intention of the parties, they most probably would have used different and more specific language, e.g. to the effect that in case of delay the purchaser could have avoided the contract immediately and claim the relevant amount under the performance bond. It should be noted that clause VII of the contract does in no place use words such as penalty, contractual penalty, liquidated damages or similar. The arbitral tribunal therefore holds that the performance bond was meant to cover only the situation in which the contract would continue and be performed, but that clause VII of the contract did not provide for a contractual penalty within the meaning of Konventionalstrafe for the case of breach and consequent declaration of avoidance of the contract.

Consequently, the counterclaim of Defendant has also to be rejected.'