'III. The Counterclaim

53. By its Counterclaim dated 6 December 1999 [Respondent] alleges that [Claimant] was in breach of Art. 6.2 […] in unreasonably failing to give approval to the sale of a third party's competitive machine, and also of Art. 13.5 […] in failing to replace the invalid provisions of Art. 6.2. [Respondent] claims the costs arising from the consequent proceedings and damages for the loss of a number of sales of complete lines consisting of [Respondent] machines together with third parties' machines. It stated that it is preparing a document setting out the costs and damages "which will be submitted during the course of the procedure".

54. In the Terms of Reference signed on 10 March 2000 [Respondent] repeats the above.

55. By the Order made with the consent of the parties on 13 March 2000 [Respondent] was required to submit its calculation of damage in support of its Counterclaim by 10 April 2000.

56. On 10 April 2000 [Respondent] submitted that [Claimant] infringed Art. 1 of the agreement which stated that "the parties will co-operate in principle in the field of marketing complete lines for [process], as follows: [Respondent] will buy from [Claimant] and sell the [Claimant] machine and [Claimant] will buy from [Respondent] and sell the [Respondent] equipment in complete . . . lines . . .". [Respondent] alleges that [Claimant] infringed this Article by malperformance.

57. [Respondent] set out the costs resulting from the alleged malperformance in the sum of . . . in respect of the [A I] contract; . . . in respect of the [B I] contract; cost of development of a new [machine] in the sum of . . ., loss of profits under various heads, amounting to total damages of . . . No mention was made of the quantification of the costs and damage alleged in the original Counterclaim.

58. On 10 May 2000 [Claimant] replied that it had not infringed Art. 6.2 because it had never been asked to approve a third party's machine, and it had not infringed Art. 13.5 because it had never been asked to agree a variation of Art. 6.2, merely to terminate the entire agreement. It pointed out that [Respondent] had not complied with the Order of 13 March 2000 and its own stated intention in that it had not set out the damages alleged to arise from these infringements.

59. [Claimant] further replied that the second Counterclaim of 10 April 2000 under Art. 1 of the agreement should be dismissed under Rule 19 of the ICC Rules, which provides that no new counterclaims which fall outside the Terms of Reference shall be made unless authorised. It further submitted that in any event the new counterclaim was barred by the French law on limitation of actions. Further, it denied malperformance by [Claimant].

60. On 10 May 2000 [Claimant] slightly expanded on its second Counterclaim, stating that [Claimant] had committed default by failing to manufacture a proper functioning machine, which prevented [Respondent] from achieving the objective of the agreement. It exhibited a large number of documents relating to the [A] and [B] contracts. It also exhibited a report from [Company X], dated 10 May 2000, stating that [Respondent] had incurred losses on the two [A] contracts and on the [B] contract, which it quantified, having regard in some cases to management estimates. It produced a witness statement from Mr [H], Project Manager for the [A I] and [B] contracts, stating that damage and extra costs arose due to the shortcomings in the performance by [Claimant].

61. On 31 May 2000 [Claimant] replied denying malperformance. Further, it claimed that there was a long negotiation between 21 December 1988 and 11 July 1991 about the balance of money to which [Claimant] was entitled. It exhibited various documents relating to the [A I] contract, culminating in an amicable settlement in July 1991.

62. On 31 May 2000 [Respondent] claimed that the new Counterclaim fell within the Terms of Reference, that its Counterclaim was not barred by the French law on limitation of actions, and that settlement discussions continued after July 1991.

63. By letter dated 19 June 2000 the parties were informed that the Arbitrator proposed to deal with the question of the admissibility of the second Counterclaim as a preliminary point at the oral hearing . . .

64. At the oral hearing [Respondent] submitted that the second Counterclaim fell within the Terms of Reference because Clause 4 thereof stated that an issue to be determined included "(4) Whether damages flowed from an infringement of Art. 1" and "(6) The amount of damages, if any, for infringements of Art. 1 . . ."

65. However, these referred to the claim by [Claimant] under Art. 1, as set out in Clause 3. [Respondent] had made no claim under Art. 1. Its summary of claim set out in Clause 3 referred only to Arts. 6.2 and 13.5.

66. The Arbitrator ruled that the second counterclaim, under Art. 1, fell within Rule 19 and therefore required authorisation.

67. Rule 19 requires the Arbitrator to "consider the nature of such new claims or counterclaims, the stage of the arbitration, and other relevant circumstances". Having regard to the desirability of dealing with all disputes between the parties in a single arbitration, the most important consideration was whether [Claimant] was in a position adequately to contest the allegations made against it. [Claimant] had already demonstrated an ability to do so in its submissions of 10 and 31 May together with its documentary exhibits, but the Counterclaim was lacking in detail so that it could not be foreseen whether [Claimant] could adequately meet the allegations to be made. The Arbitrator stated that the question of admissibility of the new counterclaim would be postponed until all the "relevant circumstances" were ascertained, and meanwhile the evidence and submissions relating to it would be admitted de bene esse.

68. It is now ruled that in all the relevant circumstances the second counterclaim is admissible.'