ICC Rules: 1988

Claimant: Manufacturer (Turkey)

Defendant: Retailer (Germany)

The dispute arose in connection with Defendant's cancellation of orders for ready-made clothes from Claimant. Claimant argued that the orders were cancelled shortly prior to delivery of the goods, despite its having submitted samples found to be acceptable. It claimed damages for unusable materials, loss of profit and costs. Defendant invoked late performance by Claimant, arguing that it had been forced to terminate the contract on account of Claimant's failure to respect delivery dates and its refusal to grant a price reduction for such failure. Defendant in its turn claimed damages for loss of profit and various costs, and contested those requested by Claimant. In the arbitration proceedings before a sole arbitrator, Defendant asked for an interim award on security. The Arbitral Tribunal rejected this request.

Applicable rules of procedure:

'Both parties have agreed to the applicability of the following procedural rules . . .:

- the rules set forth in article 8 of the Terms of Reference;

- the ICC rules of arbitration;

- the provisions of chapter 12 of the Swiss Private International Law Act ("PILA").'

Defendant's claim for security:

'[T]he Defendant and Counter-claimant has filed a brief, seeking the following relief:

"Relief for interim award on security

1. The Claimant must provide adequate security for the counterclaim by establishing a[n] irrevocable bank guarantee that will be unconditionally released to the Defendant upon presentation of the final award in the present arbitration in the amount awarded to the Defendant."

Defendant argues in essence that security measures would be necessary because of "Claimant's failure to co-operate" in the present arbitration proceedings . . . The Defendant believes "that should the award in the instant case be in its favour the Claimant will not voluntarily comply such an award".

In its brief . . ., the Defendant quotes decision 96/627 of February 1, 1996, rendered by the 15th Legal Department of the Turkish Court of Appeals . . . Also a case study by Dr Felix R. Ehrat of February 2, 1996, about "Practical Enforcement Experience in Turkey" . . . is quoted. Quoting the decision and the case study, the Defendant intends to show that "the chances of a foreign party to obtain recognition of an arbitral award in Turkey are less than slim" . . .'

Claimant's reply to Defendant's claim for security:

'In its brief . . ., the Claimant and Counter-defendant does not agree with the Defendant's request for security measures. The Claimant asks for more respect for the Turkish Courts and maintains that the Defendant's request is unacceptable because "[t]he Defendant's Attorney is acting like he has won this trial already and by doing this the Arbitration is becoming more complex".'

Discussion of the issues involved:

'The decision 96/627 quoted by the Defendant and Counter-claimant . . . ratifies decision 95/140, rendered by the 4th Commercial Court of Ankara on March 1, 1995. Decision 96/627 must be distinguished from the situation in the present arbitration as follows:

(i) The Turkish Court of Appeals . . . found that the Arbitral Tribunal had violated the arbitration agreement between the parties, because the Arbitral Tribunal [came] to the conclusion that the wording "Turkish laws in force" was to be understood as a choice of Turkish substantive law only. The Turkish Court concluded that the parties had also agreed on the choice of Turkish procedural law. Therefore, it held that the reservation of Art. V (i) (d) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, June 10, 1958 ("NY-Convention") was applicable . . .

In the present arbitration, however, there exists a clear agreement concerning the applicable substantive and procedural law . . . between Defendant and Claimant. Thus, decision 96/627 must be distinguished from the present arbitration with respect to the procedural and substantive law applicable to the dispute: In the present matter, none of the parties has ever maintained so far that Turkish substantive and/or procedural law should be applicable to the dispute.

(ii) Because the Commercial Court of Ankara found that Turkish substantive and procedural law was applicable, it held that the arbitral award did not qualify as a "foreign" award within the meaning of Art. I of the NY-Convention . . .

In the present matter, however, none of the parties has maintained so far that an award should not qualify as a "foreign" award in the sense of Art. I NY-Convention. Thus, decision 96/627 must be distinguished from the present matter with respect to the quality of the award as a "foreign" award in the sense of Art. I NY-Convention.

Based on the above considerations the Arbitral Tribunal concludes that Defendant has failed to show that, as a direct consequence of decision 96/627, an award rendered in its favour would not be enforceable. Rather, Defendant has shown that in decision 96/627 the Turkish Court of Appeals . . . refused to recognize and enforce an award which must be distinguished from the present matter both in terms of the applicable law and the quality of the award as "foreign" award under Art. I NY-Convention. Defendant, therefore, has further failed to show on a prima facie basis that its chances to obtain recognition of an award in the present matter in Turkey "are less than slim".

. . .

The Terms of Reference as well as the ICC Rules of Arbitration do not contain any specific rules concerning security measures (cf., however, para. . . . below regarding Art. 8 para. 5 ICC Rules of Arbitration).

Art. 183 PILA contains rules regarding "Vorsorgliche und sichernde Massnahmen" (provisional and protective measures). One possible measure is to order the deposit of a security (cf. Berti, Kommentar zum schweizerischen Privatrecht, Internationales Privatrecht, Basle and Frankfurt a. M. 1996, "Basler Kommentar", Art. 183, N 10; Bucher/Tschanz, International Arbitration in Switzerland, Basle 1988, N 168; Craig/Park/Paulsson, International Chamber of Commerce Arbitration, 2nd ed. New York/London/Rome/Paris 1990, p. 417 s.; Lalive/Poudret/Reymond, Le droit de l'arbitrage interne et international en Suisse, Lausanne 1989, Art. 183, N 6; Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit, Tübingen 1989, N 410; Vischer, IPRG-Kommentar, Zurich 1993, Art. 183, N 6). Vischer (loc. cit.) mentions especially the following protective measures: "Zur Sicherstellung einer Geldforderung können etwa die Hinterlegung einer Geldsumme bei einem Dritten oder die Erbringung von Garantien oder Bürgschaften dienen" (The deposit of a sum with a third party, a guarantee or surety may serve as security for a monetary claim).

As a consequence, a security measure as requested by the Defendant is basically possible. Thus, it has to be examined, whether such a measure would be justified in the present matter.

It is undisputed that to "preserve the legitimate rights of the requesting party, the measures must be 'necessary'. This requirement is satisfied only if the delay in the adjudication of the main claim caused by the arbitral proceedings would lead to a 'substantial' (but not necessarily 'irreparable' as known in common law doctrine) prejudice for the requesting party" (Berger, International Economic Arbitration, Deventer/Boston 1993, p. 336). The dominant view of Swiss doctrine is expressed by Walter/Bosch/Brönnimann (Internationale Schiedsgerichtsbarkeit in der Schweiz, Berne, 1991, p. 140) as follows: "Das Schiedsgericht kann eine vorsorgliche Massnahme nur anordnen, wenn (...) ein drohender, nicht leicht wiedergutzumachender Nachteil, vom Gesuchsteller glaubhaft gemacht worden [ist]" (The Arbitral Tribunal may only order provisional measures, if the requesting party has substantiated the threat of a not easily reparable prejudice). Furthermore, it is required that "the facts supporting the request for interim measures have to be substantiated by prima facie evidence" (cf. Berger, loc. cit.).

The Defendant has failed to produce prima facie evidence for its allegation that an arbitral Award rendered in its favour would not be enforceable in Turkey . . . Thus, the Defendant has failed to sufficiently substantiate the existence of a not easily reparable prejudice.

A further precondition for an interim award on security is that provisional and protective measures have to be urgently needed (cf. Berger, p. 335 ss.; Berti, Art. 183 N 7; Walter/Bosch/Brönnimann, p. 141). The Defendant did not allege nor show that provisional and protective measures in the present arbitration are urgently needed.

The Arbitral Tribunal therefore concludes that Defendant has failed to show that the prerequisites under Art. 183 PILA for the relief sought are fulfilled in the present matter.

Finally, the Arbitral Tribunal wishes to emphasize that the Defendant is "at liberty to apply to any competent judicial authority for interim or conservatory measures, and [he] shall not by so doing be held to infringe the agreement to arbitrate or to affect the relevant powers reserved to the arbitrator" (Art. 8 para. 5 ICC-Rules of Arbitration). Once the file is transmitted to the arbitrator, Art. 8 para. 5 ICC-Rules of Arbitration provides for "exceptional circumstances" as precondition to order such measures. Whether exceptional circumstances are given in the present matter would have to be decided by the competent authorities in accordance with their local law (Craig/Park/Paulsson, p. 423). Thus the Defendant is free to try to seek "interim or conservatory measures" directly from the competent authorities in Turkey or in any other competent jurisdiction.

In summary, the Arbitral Tribunal therefore concludes:

(i) Defendant has failed to show on a prima facie basis that an award rendered in its favour would not be enforceable in Turkey as a consequence of decision 96/627.

(ii) Defendant has failed to sufficiently substantiate with prima facie evidence that any delay in the adjudication of the main claim would lead to a not easily reparable prejudice and that provisional protective measures in the present arbitration are therefore urgently needed.

(iii) The Defendant is at liberty to try to request interim or conservatory measures from the competent judicial authority in Turkey or in any other competent jurisdiction.

Interim award

The Arbitral Tribunal directs and awards as follows:

1. Defendant and Counter-claimant's request for an interim award on security . . . is hereby dismissed.

2. A decision regarding the costs of this interim award will be rendered in the final award.'