ICC Rules: 1988

Claimant: Italian company

Defendant: Turkish company

The dispute concerns civil engineering works to be carried out by Claimant in connection with the expansion and development of a liquid petrochemical transhipment facility in Romania. Under the agreement made between the two parties, Claimant was due to carry out all preparatory studies prior to the implementation of the project, and would be retained as consultant and supervisory engineer for the execution of the civil engineering and technical works, should Defendant decide to implement the project. At the preparatory stage, Defendant informed Claimant of changes to the original project and requested it to complete certain parts of the project and postpone others. Upon being so informed, Claimant merely completed certain work in progress and discontinued all other work. The project was suspended and controversy subsequently arose over the evaluation of the amount of work done. Claimant submitted a Request for Arbitration, whilst Defendant initiated state court proceedings in Turkey to obtain a ruling that Claimant had no valid claim against it. Amongst the preliminary issues facing the sole arbitrator were the validity of the arbitration clause (which Defendant alleged to be null and void), and the relationship between the state court and arbitral proceedings (Claimant requesting the stay of the former and Defendant the stay of the latter). A procedural order was issued during the arbitral proceedings, requesting Defendant to refrain from pursuing action in the courts of Istanbul. The arbitrator decided that Claimant was entitled to receive payment for the work performed but that this corresponded to only half of the amount stated in its claim. In light of this and Defendant's lack of collaboration with the arbitrator's efforts to receive an expert opinion on the work done and its continuation of proceedings in the Turkish courts, Defendant was ordered to indemnify Claimant and to bear 75% of the arbitration costs.

With respect to the validity of the arbitration clause:

'Defendant has challenged the validity of the arbitration clause itself, mainly by quoting Turkish doctrine and case law, according to which it is alleged that ICC arbitration, due to the specificities of ICC procedure, violates Turkish public policy.

It is true that such matters have been an issue in Turkey. Defendant's restrictive view was however in the past not shared by a majority of the Turkish doctrine.

In the present case, the wording of the arbitration clause itself is unambiguous and shows clearly the intent of both parties to arbitrate their dispute. Furthermore, Defendant does not challenge the validity of the agreement itself. As a matter of fact, even if the agreement in dispute were to be invalid or terminated, the independence of the arbitration clause itself is today widely recognized in international arbitration, and in particular under Swiss arbitration rules.

The controversy in Turkey should however now be a matter of the past, as Turkish parliament has ratified both the Geneva and New York conventions by passing its laws nos. 3730 and 3831. The Turkish Republic therefore must apply the rules of the New York Convention. It is clear that an ICC arbitral award with place of arbitration in Turkey would be recognized in Switzerland.

It is furthermore clear that the case in dispute is of [a] commercial nature.

Beyond any doubt, the arbitration clause contained in the . . . agreement between the parties satisfies the formal requirements of art. 178 § 1 of the Swiss Private International Law Statute (PIL). According to art. 178 § 2 PIL, such clause is valid as regards its substance, if it conforms either to the law chosen by the parties or to the law governing the subject matter of the dispute, in particular the law governing the main contract, or if it conforms to Swiss law. This clause conforms obviously to Swiss law.

As the parties' agreement is governed by Turkish law, and considering the fact that Turkey has now ratified the convention on the recognition and enforcement of foreign arbitral awards, New York, June 10, 1958, the arbitration clause is valid because it also satisfies the requirements of art. 2 of the New York Convention.

Defendant has furthermore alleged that the parties were not bound by an arbitration clause because the . . . agreement was superseded by a tri-partite agreement . . ., this latter agreement containing no arbitration clause at all.

Obviously, the tri-partite agreement has been executed between different parties, its subject matter does not cover the same subject matter . . . and nothing in its wording tends to show that it completely supersedes the prior agreement. [On] the contrary, the tri-partite [a]greement refers to the first [a]greement as an existing undertaking.

In addition, the correspondence between the parties shows that they have relied on the . . . agreement and at no point, prior to this arbitration, did Defendant notify Claimant that in its view the . . . agreement had been cancelled and superseded by the tri-partite agreement. [On] the contrary, Defendant specifically proposed to Claimant a draft agreement to cancel the existing undertakings. This was not accepted by Claimant.

I therefore see no reason why the present dispute should not be governed by the arbitration clause of the . . . agreement.'

With respect to concurrent arbitral and state court proceedings:

'According to general principles of Swiss law - which are also generally accepted principles in international arbitration - one has to admit a lis pendens objection if the procedure is pending with another jurisdiction and opposes the same parties over the same subject matter. The Arbitrator has to determine however, whether or not, prima facie, this other Court has jurisdiction over the said parties or subject matter. Some procedural codes also require for the foreign judgement to be enforceable in Switzerland, to be taken into account as an objection of lis pendens.

According to article 9 of the Swiss Private International Law Statute (PIL), if an action concerning the same object is already pending abroad between the same parties, the Swiss Court shall stay the proceeding if it may be expected that the foreign Court will, within reasonable time, render a decision that will be recognizable in Switzerland. The Swiss Court has to dismiss the action as soon as a foreign decision is submitted to it which can be recognized in Switzerland.

Defendant has not alleged in these proceedings that a decision by the Courts of Istanbul would be available "within a reasonable time". However, both in the case of a pending foreign procedure or the presentation of a foreign judgement, what is decisive is to determine whether such judgement would be recognized in Switzerland.

According to article 25 let. a of the Swiss Private International Law Statute, a foreign decision can only be recognized in Switzerland if the foreign Court has jurisdiction.

In view of the existence and validity of the arbitration clause, which binds both parties, there is no reason why these arbitration proceedings should be stayed pending the outcome of judicial proceedings which Defendant initiated in Istanbul. [On] the contrary, in application of art. II § 3 of the New York Convention, which has been ratified by the Republic of Turkey, the Turkish Courts would itself [sic] have the obligation to refer the matter to this tribunal.

In the course of proceedings, I had requested Defendant not to take any further action in the Turkish Courts. I also found, in the course of proceedings, that Defendant did not abide by this injunction of the tribunal, and pursued its action in the Turkish Courts. Defendant confirmed this in hearings in front of this tribunal and also provided a copy of the claim, admitting that both the parties and the subject matter were clearly identical with the present procedure.

I therefore find that the lis pendens objection is not admissible and that Defendant is in breach of its agreement to arbitrate. This breach not only raises jurisdictional issues but, as the agreement to arbitrate is a part of a binding contract between the parties, Defendant makes itself liable for damages which Claimant might suffer, provided such damages are in direct causation with the breach. Relief for such damages is specifically sought by Claimant in its request . . .

Claimant has alleged in these proceedings - without being contradicted - that, due to the breach, it had to retain counsel in Istanbul and instruct counsel in representing [it] in the Turkish proceedings. Obviously, the cost triggered by such proceedings has to be considered as damage in direct relation with the breach. It is however Claimant's burden to bring to this tribunal evidence of such damages.

Claimant has filed an estimate of the cost of its Turkish counsel for the proceedings. Such estimate has not been challenged by Defendant who, in addition, confirmed that it would pursue the Court proceedings in Istanbul.

I therefore find that the filed estimate . . . gives sufficient evidence of such damages. This amount must be paid by Defendant to Claimant. Claimant did not provide additional documents substantiating additional costs.'