1988 ICC Rules of Arbitration

CISG Arts. 74, 78

The parties entered into two contracts, one for the manufacture of an electrical appliance and the other for the sale of the toolings necessary for the production of such device. Purchaser (Claimant) alleged various breaches of contract by seller (Defendant), including failure to comply with the technical specifications, failure to give proper advice of competing activity, and failure to ensure patent registration. Defendant objected to such allegations, claiming that it had produced and delivered a product of good merchantable quality, making the unilateral termination of the contracts by Claimant unjustified. It entered a counterclaim for damages resulting therefrom.

Applicable law

'1. Paragraph 9 of the Preliminary Agreement of October provides that "the arbitrator will interpret the contract and settle the dispute in accordance with French law".

2. Article XXIV of the Contract for Manufacture, and article 22 of the Toolings Agreement both provide that "the arbitrator will interpret the contract and settle the dispute in accordance with French law and suppletorily with the United Nations Convention on Contracts for the International Sale of Goods, concluded in Vienna on 11 April 1980".

3. This is somewhat confusing because in French law international sales made on or after January 1, 1998 [sic], are principally, not just suppletorily, governed by the Vienna Convention.

4. As the Sole Arbitrator understands the clause, the parties meant that the international sales law aspects should be governed by the Vienna Convention. Other aspects such as construction law or mandate aspects should be governed by general French law. To the extent, however, that French law is silent, the Vienna Convention would fill the gaps.'

With respect to Defendant's lost profits

'1. Defendant alleges that Claimant - without any justification on the merits - stopped purchasing the agreed quantities . . .

2. Claimant answers that Defendant's production costs . . . are not so far supported by any evidence. More importantly, the lost margin counterclaimed is equal to the anticipated profit, which is obtained after deducting all expenses associated with the operation and therefore, this counterclaim cannot logically stand alongside other counterclaims . . .

3. The Sole Arbitrator must apply Art. 74 Vienna Convention. This provision does not exclude that a party might claim both damnum emergens and lucrum cessans. There is nothing illogical about that since by receiving damnum emergens the damaged party is only put at break-even, and lucrum cessans comes on top.

4. Both elements of damages must be foreseeably caused by the fundamental breach. The amount claimed as lost profits was not challenged by Claimant with reasonable particularity. The Sole Arbitrator has no reason to doubt that for Defendant a large order . . . would have been foreseeably profitable in a way comparable to the profits expected by Claimant itself . . .

5. The Sole Arbitrator awards the lost profits as claimed . . .'

With respect to interest

'1. Claimant claims interest at the French statutory rate from . . .

2. Defendant claims interest at 10.5% . . . since . . .

3. Defendant is entitled to interest on the sums awarded pursuant to Art. 78 of the Vienna Convention. Art. 78 Vienna Convention does not specify a particular interest rate. The Sole Arbitrator considers it appropriate to apply a commercially reasonable interest rate (see Art. 7.4.9. subs. 2 Unidroit Principles). The interest rate claimed is commercially reasonable for the award currency . . .

4. On . . . the date from which Defendant claims interest, the Agreement had been terminated. The sums claimed were due in the sense of Art. 78 Vienna Convention.

5. Accordingly, interest is awarded to Defendant as claimed.'