The dispute arose out of a contract for distribution by a Belgian company (respondent) in Benelux countries of products produced by a Dutch company (claimant).

'Issue 2: Applicable Substantive Law

(i) The Parties' Positions

94. [Respondent] argues that, in the event that the Sole Arbitrator determines that jurisdiction exists over all or part of the dispute, it should be decided that the [contract] is governed by Belgian law. [Respondent] first notes that [Claimant] has never previously suggested that the [contract] is governed by some other law, and that during the various proceedings in the Belgian courts it did not contest the application of Belgian law ([Respondent]'s Submission, pp. 14-17).

95. [Respondent] further contends that under the principles of the Rome Convention of 1980,1 Belgian law applies. According to [Respondent], Belgium is the country most closely connected to the [contract] within the meaning of the Rome Convention. [Respondent] argues that the characteristic performance under the [contract], which it identifies as the sale of [Claimant's] products by [Respondent], took place in Belgium. [Respondent] also alleges that additional connections to Belgium include the following factual circumstances: (i) the [contract] and earlier agreements between the parties were made in Belgium; (ii) [Respondent] is a Belgian company; (iii) important employees of [Claimant] have their domicile in Belgium; (iv) most of the revenue from [Respondent]'s sales of [Claimant] products comes from Belgium; (v) [Claimant] products were delivered to [Respondent]'s warehouse in . . . Belgium; and (vi) most of the infringements [Respondent] alleges [Claimant] to have committed occurred in Belgium ([Respondent]'s Submission, pp. 15-17).

96. [Claimant] agrees with [Respondent] that the Rome Convention should be looked to in fixing the applicable law but argues that the characteristic performance of the [contract] was the supply of goods by [Claimant]. [Claimant] contends that the Sole Arbitrator should apply the law of the principal place of business of the supplier of the goods, [Claimant], which is the Netherlands. [Claimant] acknowledges that the [contract] is more than simply a supply contract but argues that it still has a closer connection to the Netherlands than to Belgium, and further that [Respondent] has not demonstrated that the Agreement is more closely connected to Belgium ([Claimant]'s Submission, pp. 21-23).

97. In its Reply, [Respondent] emphasizes that [Claimant] first raised the possibility that Belgian law might not apply to the [contract] at the 17 May 2002 Preparatory Conference in this arbitration. [Respondent] also alleges that [Claimant] relied on Belgian law when setting out its position before the Brussels Commercial Court. It reiterates that the [contract] - including in particular the sale of [Claimant] products by [Respondent], which [Respondent] identifies as the characteristic performance of the contract - has its closest connection to Belgium ([Respondent]'s Reply, pp. 27-31).

98. At the Hearing, [Claimant] argued that the Arbitral Tribunal should look to the Agreement itself to determine the applicable law; in this regard, it pointed out that the contract is in effect a sales agreement, that it refers to Dutch guilders as the currency of payment, and that it lists the Netherlands first among the three countries in which [Respondent] is authorized to sell. [Claimant] also argued that the [contract] does not impose substantial affirmative obligations on [Respondent], but rather simply directs [Respondent] to refrain from certain conduct. [Claimant] contends that refraining from doing something cannot constitute the characteristic performance under a contract. [Respondent] disputed these contentions in its presentation at the Hearing and argued that the provisions of the Agreement pointed to by [Claimant] do not have any relevance to the choice of law calculus.

(ii) The Arbitrator's Finding

99. Article 17(1) of the ICC Rules of Arbitration provides as follows:

The parties shall be free to agree upon the rules of law to be applied by the Arbitral Tribunal to the merits of the dispute. In the absence of any such agreement, the Arbitral Tribunal shall apply the rules of law which it determines to be appropriate.

100. The parties agree that the [contract] does not contain a valid choice of law clause,2 such that the parties have not agreed on the applicable rules of law. It therefore falls to the Sole Arbitrator to determine the governing substantive law. The Sole Arbitrator determines Belgian law to be the applicable law in this case.

101. Consistent with the position taken by both parties, the Sole Arbitrator looks to the Rome Convention in ascertaining the appropriate governing law. The Rome Convention supports the conclusion that Belgian law applies here.

102. The Rome Convention states that, in the absence of a choice by the parties, "the contract shall be governed by the law of the country with which it is most closely connected" (Rome Convention, Article 4(1)). The Convention goes on to create a presumption that:

the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of the conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration. (Rome Convention, Article 4(2))

However, this presumption "shall not apply if the characteristic performance cannot be determined [or] if it appears from the circumstances as a whole that the contract is more closely connected with another country" (id., Article 4(5)).

103. The parties agree that in a normal sales contract, the characteristic performance is the sale of goods. Here, [Claimant] supplies goods to [Respondent] and [Claimant] is located in the Netherlands. Thus, if the [contract] were an ordinary sales contract, the Rome Convention would create a presumption that the law of the Netherlands would apply.

104. The [contract] is, however, more than an ordinary sales contract. Under the [contract], [Respondent] buys [Claimant] products and "adds value" to them-by, for example, supplementing the hardware or software-in order to create comprehensive . . . "solutions" for the ultimate client. Indeed, in the [contract], [Respondent] expressly agreed not to "sell, lease or license the products without adding substantial value thereto" ([contract], § C). Thus, as [Claimant] itself is at pains to emphasize in respect of some of its other arguments, the [contract] required more of [Respondent] than simply buying [Claimant]'s products and selling them on to others. Furthermore, [Respondent]'s obligations cannot be characterized as purely "negative" duties, contrary to [Claimant]'s suggestion.

105. As various commentators have noted, where a supply agreement does not simply involve the payment of money for goods but rather imposes further obligations on both parties, the characteristic performance may be difficult or impossible to determine.3 That is the case here. In light of the reciprocal obligations of the parties under the [contract], the performance that is characteristic of the contract simply cannot be determined with certainty. Thus, it is not appropriate in this case to apply the presumption in Article 4(2) of the Rome Convention (see Rome Convention, Article 4(5)).4

106. In the absence of the presumption, the governing law should be that of the country with which the [contract] is most closely connected under all the circumstances. Here, that law is Belgian law. [Respondent] is a Belgian company. It is uncontested that a large majority of [Respondent]'s sales of [Claimant] products are in the Belgian market, and [Respondent] also performs its non-sales related obligations under the [contract] (i.e. "adding value" to [Claimant] products) in Belgium. Furthermore, the parties' reciprocal claims in the arbitration mainly relate to conduct in Belgium.

107. It is true, as [Claimant] points out, that the provisions of the [contract] evince some connections to the Netherlands-for example, the fact that the Netherlands is one of the three countries in which [Respondent] is an authorized distributor, and the fact that prices are quoted in Dutch guilders. The Sole Arbitrator finds, however, that in the circumstances here those factors are outweighed by the more substantial connections of the contractual relationship to Belgium.

108. The conclusion that Belgian law applies is further supported by the parties' conduct subsequent to the conclusion of the [contract].5 Although the [contract] initially called for delivery of the [Claimant] products in . . . the Netherlands, the vast majority of the products are presently being delivered to [Respondent]'s warehouse in . . . Belgium. Similarly, although [Claimant] itself initially fulfilled [Respondent]'s orders, that function has now been largely shifted, with the mutual acquiescence of the parties, to [Claimant]'s Belgian sister company . . .

109. In addition, as [Respondent] points out, [Claimant] did not advance any claim that Dutch law should apply to the dispute in the proceedings before the Belgian Commercial Court. This omission is significant and considerably undermines the force of [Claimant]'s argument for Dutch law in these proceedings.'

1
Convention on the Law Applicable to Contractual Obligations (Rome 1980), 1980 O.J. (L266), pp. 1-19 (the "Rome Convention").

2
Although the arbitration clause could be construed as an attempt to choose a non-national system of law, neither party has advanced this argument and therefore it need not be further considered.

3
See e.g. II Dicey & Morris on the Conflict of Laws (13th ed. 2000), ¶ 32-115, at p. 1238; R. Plender & M. Wilderspin, The European Contract Convention: The Rome Convention on the Law Applicable to Contractual Obligations (2d ed. 2001), pp. 117-18. Compare Elinga B.V./British Wool Int'l Ltd, HR 29 May 1998, NJ 641 (1998) (in which the Dutch Supreme Court ruled that the characteristic performance in a distribution contract was that of the distributor).

4
In the alternative, even if the presumption were applicable, the Sole Arbitrator would find that the strong connections to Belgium are enough to rebut the presumption.

5
Compare Giuliano-Lagarde Report on the Rome Convention, 1980 O.J. (C282) 23 ("In order to determine the country with which the contract is most closely connected, it is also possible to take account of factors which supervened after the conclusion of the contract.").