Respondent, a US company, owned a company (A) engaged in outdoor advertising in a European State (X). It wished to acquire a competing company (B) owned by a European company (C) which was in turn wholly owned by Claimant, a Caribbean company. After the completion of a due diligence procedure, the parties signed a share purchase agreement for the transfer of Claimant's entire shareholding in Company C to Respondent. The agreement was governed by Swiss law, chosen by the parties. Three months after the closing and payment of the purchase price, Respondent requested a price reduction on account of alleged breaches of warranties, material error and wilful deception. Claimant meanwhile claimed an increase in the purchase price, which was foreseen in the parties' agreement in the event that the capital city of State X confirmed the continuation of its cooperation agreement with the target company. Respondent rejected this claim and sought to have the share purchase agreement cancelled for material error and wilful deception.

La défenderesse, une société américaine, détenait une société (A) travaillant dans l'affichage publicitaire extérieur dans un État européen (X). Elle souhaitait acquérir une société concurrente (B) détenue par une société européenne (C) elle-même détenue à 100 % par la demanderesse, une société caribéenne. Après une procédure d'audit, les parties ont signé une convention prévoyant la cession à la défenderesse de la totalité des actions de la société C détenues par la demanderesse. La convention était régie par la loi suisse, choisie par les parties. Trois mois après la réalisation de la transaction et le paiement du prix d'achat, la défenderesse a demandé que celui-ci soit réduit, arguant de l'existence de violations des garanties, d'erreur matérielle et de dol. La demanderesse, de son côté, réclamait une augmentation du prix d'achat, telle que prévue par la convention des parties au cas où la capitale de l'État X confirmerait la poursuite de son accord de coopération avec la société cible. La défenderesse récusait cette prétention et demandait l'annulation de la convention de cession d'actions pour erreur matérielle et dol.

El demandado, una empresa estadounidense, era dueño de una empresa (A) dedicada a la publicidad en exteriores en un Estado europeo (X). Este deseaba adquirir una empresa competidora (B) perteneciente a una empresa europea (C) que, a su vez, era propiedad exclusiva del demandante, una empresa caribeña. Una vez finalizado el procedimiento de diligencia debida, las partes firmaron un acuerdo de adquisición de acciones para la transferencia de la totalidad de la participación del demandante en la empresa C al demandado. El acuerdo estaba regido por la ley suiza, que había sido elegida por las partes. Tres meses después del cierre y del pago del precio de venta, el demandado solicitó una reducción de precio debido a presuntos infracciones de las garantías, error material y engaño deliberado. El demandante reclamó entretanto un aumento del precio de venta, que estaba previsto en el acuerdo entre las partes en caso de que la ciudad capital del Estado X confirmara la continuación de su acuerdo de cooperación con la empresa objetivo. El demandado rechazó esta demanda e intentó obtener una anulación del acuerdo de adquisición de acciones en virtud del error material y del engaño deliberado.

'C. Annulment of the Agreement due to material error

1. Preliminary remark regarding the claim

73. Respondent did not contest the validity and binding effect of the declaration of the [capital city of State X]. Therefore, if Respondent's Counterclaim for annulment of the Agreement fails, Respondent, in principle, must fulfil Claimant's request to pay the Purchase Price Increases I and II plus interest.

2. Limitation of liability

74. First of all, it must be clarified if, and if so, to what extent the limitation of liability as agreed on in Article 6 of the Agreement has an impact on Respondent's right to rescind the Agreement based on Art. 23 et seq. and Art. 28 CO.

a) Rules pursuant to the Agreement

75. Article 6.4.1 of the Agreement reads as follows:

... Such guarantee[1] shall serve to cover all claims Purchaser may have against Seller under this Agreement. ...

76. Article 6.5 reads as follows:

Save in case of fraud the Seller shall have no personal liability for any breach of warranties and representations set forth in Art. 4 of this Agreement and the Purchaser may take recourse for breaches of such warranties and representations only against the two guarantors under the guarantees delivered by Seller to Purchaser pursuant to Art. 6.4.1 of this Agreement.

77. Putting the above Article 6.5 of the Agreement in other words, the parties to the Agreement agreed on the following: Respondent may take recourse against the two guarantors in case of a breach of contract by Claimant. If Respondent wants to claim an amount exceeding the bank guarantees, Respondent can hold Claimant personally liable if it is able to prove that the latter fraudulently breached the warranties and representations of the Agreement.

b) Legal basis

78. An agreement entered into in advance, according to which liability for unlawful intent or gross negligence would be excluded, is null and void (Art. 100 para. 1 CO). The relevant provision regarding the purchase contract, i.e. Art. 199 CO, states that an agreement to exclude or to limit the obligation to warrant is invalid if the seller has fraudulently concealed the defects. In legal theory, there is a dispute about the question of whether Art. 100 CO is also applicable with respect to a purchase agreement or whether Art. 199 CO excludes Art. 100 CO.2 It can be stated that liability for action with wilful intent cannot be excluded; however, according to an important segment of legal theory, liability for gross negligence can be excluded.

79. In case an error regards features of a contract for which liability in the sense of Art. 197 et seq. CO has been excluded, the error may not be deemed material.3 The Federal Court stated in an old decision that material error cannot exist if the erroneous idea relates to characteristics of the object of the purchase agreement that could have been part of a warranty, which was excluded by seller, and purchaser concluded the agreement nevertheless. In such cases, it conflicts with the principle of good faith to allege material error and, therefore, it is not permissible to ask for rescission of an agreement.4

80. This decision of the Federal Court has been confirmed by its following statement: If, with respect to certain characteristics of the object of purchase, liability is excluded or the issue of representations and warranties is denied, purchaser-who concluded a contract without these liabilities-bears the risk that these characteristics are missing. According to the principle of good faith, he is not allowed to view said characteristics as an essential basis of the Agreement. An error about one of those characteristics cannot be considered material in the sense of Art. 24 para. 1 no. 4 CO. Provisions of a contract that do not exclude warranty in a general manner or do not exclude warranty regarding specific characteristics, but limit liability in a temporal way or regarding the contents (with respect to purchaser's claims), allow purchaser to view the existence of certain characteristics as a material basis of the contract. In this case, purchaser is allowed to declare annulment of the contract based on material error within the time limit of one year, as set forth in Art. 31 CO, if he was wrong with his assumption that said characteristics existed. Such contract provisions become invalid together with the rest of the contract.5

c) The case at hand

81. In the above cited Articles 6.4.1 and 6.5 of the Agreement, Claimant's liability for claims exceeding the amount of the bank guarantee, i.e. USD 4.5 million, is excluded. For claims in excess of this sum, Respondent would have to prove Claimant's wilful intent. This is, in view of the legal theory and practice outlined above, admissible.6

82. Articles 6.4.1 and 6.5 of the Agreement exclude Claimant's liability for negligently committed breaches of warranty for a sum of more than USD 4.5 million in a general manner. In view of the above referenced Federal High Court decisions, a-not fraudulently caused-error regarding facts that exceed the sum of USD 4.5 million cannot be viewed as material and therefore cannot be admitted.

d) Interim conclusion

83. Rescission of the Agreement must be permitted if Claimant's failures as alleged by Respondent up to a maximum amount of USD 4.5 million are all together sufficient to conclude that Respondent did commit a material error as defined in Art. 23 CO. If the latter is not the case, Respondent will have to prove wilful intent regarding damages in excess of USD 4.5 million.

3. Legal requirements for a material error

84. An error is deemed to be material if, among others, the error related to certain facts which the party in error, in accordance with the rules of good faith in the course of business, considered to be a necessary basis of the contract.7 The person in error must consider the facts erroneously assumed and differing from reality as an indispensable condition for concluding the contract with the contents as agreed upon (subjective materiality). Furthermore, in an objective consideration, it must be justified to view the assumed facts as an indispensable basis of contract (objective materiality). The unilaterally non-binding character of the contract pursuant to Art. 23 CO has to be, in accordance with the perception of loyal business, the suitable consequence of the error.8 A party is not permitted to avail himself of the error if this is contrary to good faith (Art. 25 para. 1 CO). Negligence of the person in error does not exclude the rescission of a contract on the basis of material error; it is however possible to claim damages from the person in error.9

85. It is only possible to rely on material error if a person unconsciously did not know of certain facts. One who knows that he does not know is not mistaken. One who has doubts about the correctness of his perception may not rely on material error.10 As the issuer of a blank form does not have a perception of the contents set under his signature at all, he cannot rely on error if the blank form is filled out contrary to the contract.11 In an older decision, the Federal Court held that the error of a guarantor cannot be deemed material if he had to be aware that rights of retention of third parties could arise in the future. By knowing of the danger that such claims might arise, he accepted it.12 Material error is excluded when uncertainties are accepted.13

86. Based on an error as to future facts, rescission of a contract can only be claimed if the party availing material error wrongly assumed, when concluding the contract, that a future event would occur with certainty. Mere hopes, exaggerated expectations or speculation are not sufficient. The other party must have been able to recognise, according to the principle of good faith in business connections, that the certainty of the future facts was considered as an indispensable basis of contract.14

. . . . . . . . .

5. Respondent's particular allegations to constitute its material error

a) Burden of proof

95. In order to establish the legitimacy of Respondent's claim of material error as of the Closing date, the most fundamental-and also the most disputed-question appears to be the extent to which financial information about [Company B] was made available to Respondent in the year 2000. In this context, it has to be remembered that-according to the principle negativa non sunt probanda-the burden of proof lies upon Claimant; otherwise, Respondent would have to prove that it did not know of some facts. This only applies if the law itself imposes the burden of proof of a negativum.15

. . . . . . . . .

D. Wilful deception

1. Legal requirements

128. If a party has been induced to enter into a contract by the wilful deception of the other party, the contract shall not bind the deceived party even if the error so induced was not material (Art. 28 para. 1 CO). The deceived party concludes the contract based on an error in its motives caused by the deception. Without the error, it would not have agreed with the contract, or not with the contract as concluded. The deception can be committed by a pretension of non-existing facts, by suppression of existing facts, or by remaining silent (not informing the other party about its error even though the error is recognised and the duty to inform about the error is given). The rules of good faith require a party to give information to another party if it recognises, before conclusion of the agreement, that the other party's error is based on the behaviour of the party giving the information.16 The so committed deception must be deliberate and must have caused the deceived party to enter into the contract.17 The deceiving party is obliged to pay indemnification to the deceived party if the requirements of Art. 41 et seq. CO or of the principles of culpa in contrahendo are met. Apart from all indemnification resulting from the rescission for wilful deception,18 further damage also has to be compensated (analogous application of Art. 26 para. 2 CO).19

2. The case at hand

129. Respondent neither alleged that Claimant pretended that facts existed that in truth did not exist, nor did it allege that Claimant suppressed existing facts. Respondent basically asserts that Claimant breached its obligation to clarify Respondent's noticeable errors based on the rules of good faith and the obligation pursuant to Article 4.2.18 of the Agreement. At the time of signing of the Agreement, there was no relevant decrease in sales and an increase in funded debt and working capital is not asserted by Respondent. As of Closing, it is established that [Company A] had access to all relevant information and that it knew of [Company B]'s difficult financial situation. Therefore, Claimant did not breach its disclosure obligation. There might have been an error regarding the obligation of [Company B] to pay the rental costs for the city [L] and the contract with [Company U] for [the city B]. Respondent would have had to prove that Claimant recognised such errors and still did not inform Respondent accordingly. In view of the reduced financial relevance of these contracts (compared to the Purchase Price), it cannot be assumed that Claimant recognised a respective error of Respondent and therefore deliberately breached its obligation to inform Respondent. Further it cannot be assumed that, as a consequence of the breach, the latter entered into the Agreement. Rescission of the contract due to wilful deception as well as the sum in excess of USD 80,000 requested by Respondent as indemnification for damages caused by the alleged wilful deception must therefore be denied.

. . . . . . . . .

F. Compensation for breaches of warranties and partial invalidity

1. Preliminary question: Can Respondent rely on material error and wilful deception as well as on the rules of warranty at the same time?

132. First of all, it will have to be determined whether Respondent renounced its right to claim compensation for breach of warranties by declaring rescission of the Agreement due to material error and wilful deception . . .

a) Doctrine and court practice

133. According to constant court practice, in cases of factual insufficient performance by seller, it is purchaser's choice whether he wants to claim indemnification according to Art. 197 et seq. CO or whether he wants to declare rescission of the agreement due to material error or wilful deception pursuant to Art. 23 et seq. CO.20 Once made, purchaser must stay with the chosen claim. By declaring rescission of the agreement, purchaser executes a formative right.21 Within one year, the destiny of a contract has to be definitely clear. Therefore, the declaration basically cannot be recalled or made under a condition. Claims for performance of a contract and claims for annulment exclude each other. A claimant can only stick to a contract if it argues that it does so in case the judge should deem the contract to be valid (i.e. in eventu).22 The rescission of a contract in eventu is not to be deemed as conditional since the true legal status is already fixed, in an objective sense, but is not known to the parties until the final decision of the court.23

b) The case at hand

134. By letter of . . ., Respondent addressed the breaches of the contractual warranties according to Article 4.2.5 and 4.2.18 of the Agreement and claimed indemnification for the suffered breaches of contract as well as, additionally, a respective reduction of the Purchase Price on grounds of fraud and material error. It expressly reserved all further claims and actions . . . Thereby, Respondent did not make a decision regarding the fate of the Agreement, it just notified Claimant of the allegedly suffered breaches of contract. Respondent had to proceed accordingly in order to comply with its duty to notify seller of defects pursuant to Art. 201 CO and not to renounce its right of rescission of the Agreement due to material error and/or wilful deception.

135. In its letter [five months later], Respondent declared annulment of the Agreement due to material error and wilful deception . . . In the therein mentioned and thereto attached (draft) Request for Arbitration, Respondent undertakes that in case the Arbitral Tribunal "should come to the conclusion that, ..., the parties would not have refrained from entering the Agreement had they been aware of the true facts, Claimant has to compensate Respondent for the described breach of warranties" . . . Respondent did not explicitly mention its alleged contractual claims in its declaration of invalidity, but referred to its Request for Arbitration from which the in eventu-claim for breach of warranty emanated. To claim such indemnification in eventu does not mean that Respondent does not stick to its primary choice . . .

136. On the Counterclaim, in its Prayer for Relief 1.3.1, Respondent primarily claims payment of [amount] without naming the legal grounds for such payment. According to Article 5(5) ICC Rules,24 the Counterclaim shall provide a description of the nature and circumstances of the dispute giving rise to the Counterclaim and a statement of the relief sought, including to the extent possible, an indication of any amount counterclaimed. Therefore, a prayer for relief requesting the payment of an amount of money not specifying the alleged legal grounds of such payment is admissible, provided that the other requirements are met. Respondent, in its Counterclaim, makes it clear that it primarily requests rescission of the Agreement and only in eventu compensation for breaches of contract. The Counterclaim therefore complies with the procedural requirements of Article 5(5) ICC Rules.

137. In Respondent's [subsequent] Comprehensive Statement . . ., it modified its Prayers for Relief in the sense that on the Counterclaim, it primarily requests annulment of the Agreement and indemnification for breaches of warranties only in eventu. This modification of the wording of Respondent's Prayer for Relief does not result in a new claim in the sense of Article 19 of the ICC Rules; it rather clarifies Respondent's requests. As a result, Respondent's Counterclaim in eventu must be admitted.

2. Capacity of Claimant to be made a defendant regarding the claim for breaches of warranty

138. Claimant purports that Respondent cannot seek relief directly from Claimant, as according to Article 6.5 of the Agreement, Respondent's only recourse is to claim the bank guarantees . . . Pursuant to Article 6.4.1 of the Agreement, the guarantee is delivered from Seller (Claimant) to Purchaser (Respondent) and can be enforced by Purchaser only upon joint instructions of Purchaser and Seller or upon delivery of an arbitration award by Purchaser to the bank. In view of the fact that Seller (Claimant) and Purchaser (Respondent) are parties to the present arbitration and that the delivery of an arbitration award to the bank by Respondent is sufficient to enforce the guarantee, Respondent may and should seek relief from Claimant in the manner chosen.

3. Reduction of purchase price and compensation for breaches of warranty (Art. 197 et seq. and 97 et seq. CO)

a) Legal requirements

139. The sale and purchase of shares is to be assessed according to the rules of the purchase of personal property of Art. 187 et seq. CO, independent of the fact that the shares are in the form of negotiable instruments. The seller is liable to the buyer for both express representations and that the object of the purchase has no physical or legal defects which eliminate or substantially reduce its value or its fitness for the intended use. The seller is liable even if he did not know of the defects (Art. 197 CO). This statutory warranty does not refer to a company's assets; also in case of the sale of all shares, it only covers the existence and the amount of the sold rights. The Seller is only liable for the commercial value of the shares in the sense of Art. 197 CO if specific representations and warranties were made and the requirements of Art. 201 CO are met.25 The turnover and the financial statements of an enterprise may also be the subject of a representation and/or a warranty. The object of purchase is defective and therefore enables the purchaser to claim a reduction of the purchase price when it does not comply with the contractual representations and warranties.26 Art. 205 para. 1 CO allows the purchaser in case of warranty for defects in the object of the purchase, to sue for reduction of the purchase price in order to be compensated for the reduction in value of the purchase. The reduction of the purchase price is equal to the difference between the value of the object of the purchase without the defects and with the defects.27 The seller is not liable for defects of which the buyer had knowledge at the time of the purchase. For defects which the buyer, applying normal attention, should have known, the seller is only liable if he has assured the buyer of their non-existence (Art. 200 CO). Pursuant to Art. 201 para. 1 CO, the buyer shall examine the object of the purchase received as soon as it is customary in accordance with usual business practice and shall immediately notify the seller in the event that defects exist for which the seller must warrant.

b) The case at hand

aa) Observation of the time limit of Art. 201 CO

140. In Article 6.1 para. 2 of the Agreement, the parties waive the statutory examination and notice requirements relating to the filing of a claim for breach of representations or warranties. Purchaser is, however, required to notify Seller in writing of any breach of the representations and warranties under Article 4 within, and no later than, 90 days after the date on which the Purchaser has become aware of such breach. Failure to give notice within 90 days shall not affect Purchaser's remedies hereunder except to the extent that such failure to notify has caused a prejudice to Seller. This provision is admissible as the obligation of Art. 201 para. 1 CO is not mandatory.28

141. According to Respondent's allegation that it learned of information regarding the business year 2000 only after Closing on August 3, 2000, its notice reprimanding certain breaches of contract of November 3, 2000 was submitted within the contractual time limit.

bb) Significant decline in sales contrary to Article 4.2.5 of the Agreement

142. Claimant represented and warranted in Article 4.2.5 of the Agreement, among others, that [Company B], between December 31, 1999 and the Closing date, had not suffered and would not suffer any material adverse changes in its financial position or assets or business and that it had conducted and would continue to conduct its business in the ordinary course.

143. Respondent alleges that had it known on Closing of the decrease in sales figures between March and August 2000 at an average of 40%, it would have estimated, under the methodology applied, the enterprise value as USD 6 million instead of 15 million. It asserts that, according to Swiss law, the seller in a purchase agreement, which is not totally annulled for material error or wilful deception, owes purchaser the difference between the paid purchase price and the price the parties would have agreed upon as reasonable contract partners under the circumstances if they had known the defect/breach of contract . . . In other words, Respondent purports that the decrease in [Company B]'s sales represents a breach of the representations and warranties of the Agreement and that the object of the purchase is therefore defective, which enables it to claim a reduction of the Purchase Price in the sense of Art. 205 para. 1 CO.

144. Article 4.2.5 of the Agreement only refers to the time period from January 1, 2000 to Closing on August 3, 2000. As stated above, it must be assumed that [Company B]'s sales decreased in this period by 28% . . . The question arises whether such decrease in sales must be considered as a breach of the representation and warranty to have conducted and to-also in the future-conduct its business in the ordinary course according to Article 4.2.5 of the Agreement.

145. A breach of Article 4.2.5 of the Agreement can only be assumed if the decrease in sales originated from the failure of Claimant and [Company B] to undertake the necessary sales efforts and from the de-motivation of [Company B]'s sales staff, as alleged by Respondent . . . In case the decrease in sales would have to be deemed as a consequence of [Company A]'s taking clients away from [Company B] as alleged by Claimant . . ., there would be no breach of Article 4.2.5 of the Agreement by Claimant and such invocation by Respondent would be in violation of the principle of good faith.

146. As Claimant assured that it would conduct [Company B]'s business in the ordinary course, Claimant would be liable for the decrease in sales, in the case of a breach of Article 4.2.5 of the Agreement by Claimant, even if Respondent-or [Company A]-should have known about it, with the application of normal attention (Art. 200 para. 2 CO).

147. In order to demonstrate the effect of the alleged decrease in sales on the enterprise value, Respondent did not provide the Arbitral Tribunal with the necessary parameters used when calculating the enterprise value which was, as alleged by Respondent, based on its assumption that [Company B]'s turnover would stay in the same range as in the previous year. Respondent's statements regarding the method applied to calculate [Company B]'s value (projected future cash flow method) are not confirmed by Respondent's letter . . . to [Company B's general manager] stating that its financial model to value [Company B] is supposed to capture the synergies between [Company A] and [Company B] and should also incorporate significant investment in advertising structures as well as various new business developments . . . As already shown above, EBITDA was only used as reference number . . . Nevertheless, and contrary to its earlier allegations, in its Post Hearing brief . . . Respondent referred to the statement of [Company B's general manager]. [Company B's general manager] stated that the Purchase Price paid by Respondent was based on EBITDA, multiplied by a factor of 16 . . .

148. First of all, it must be stated that the substantiation in Respondent's brief of September 13, 2002 is late. It should-and could-have taken place in Respondent's brief due on April 19, 2002.

149. In its Post Hearing Brief of September 13, 2002, Respondent assumed a Purchase Price of . . . This calculation is not comprehensible.

150. Even if it were comprehensible, the above descriptions of the alleged calculation of the Purchase Price would contradict each other. Claimant contested several times that Respondent actually did undertake an evaluation of [Company B]. On the occasion of the questioning of the witnesses, Respondent could note that several witnesses were interrogated in this regard by the Arbitral Tribunal. Thereby, the obscurities regarding the method of calculation of the purchase price were revealed to the Respondent. The calculation demonstrated in Respondent's brief of September 13, 2002 shows that Respondent became aware of this fact, but the calculation method presented therein does not constitute a clarification. Even assuming that the decrease in sales represents a breach of Article 4.2.5 of the Agreement, Respondent's claim for a reduction of the Purchase Price by USD 9 million regarding the decrease in sales figures must be dismissed in the amount of USD 4.5 million; due to a lack of substantiation of the method and parameters used to calculate [Company B]'s value assuming that [Company B]'s turnover would stay in the same range as in the previous year. Regarding the amount exceeding USD 4.5 million, which is the amount of the bank guarantee according to Articles 6.4.1 in connection with 6.5 of the Agreement, Respondent would have to prove Claimant's wilful intent, which it failed to do (above, C./2./c. and D./2.).

151. Based on the fact that Respondent was neither able to make consistent allegations as to its method of calculating the Purchase Price nor to produce convincing evidence in this regard, the conclusion can be drawn that [Company B]'s turnover did not play an important role for Respondent when assessing the Purchase Price. It seems that other factors were material for the fixation of the Purchase Price, including but not limited to the following: the synergies that could be captured between [Company A] and [Company B] . . ., the correct positioning of [Company A] in the advertising market . . ., the comparison with prices paid for other companies . . . and the contract with the [capital city of State X] . . .

152. The following factors also support the above conclusion: Even though Article 6.4.1 of the Agreement appears in the manner of a blanket clause, the Representations and Warranties for [Company B] in the provisions under Article 4.2 do not mention [Company B]'s sales performance, turnover or anything alike. As stated before, Article 4.2.5 only mentions material adverse changes in business and the conduct of business in the ordinary course. If [Company B]'s turnover would have been decisive for the determination of the Purchase Price, specific representations and warranties would necessarily have been set up in this respect. Also, Respondent's and [Company A]'s behaviour after the physical merger of the parties' subsidiaries at the end of June 2000 as described above . . . i.e. the fact that they never asked for [Company B]'s sale performance, indicates that [Company B]'s sales were not of a particular significance to Respondent when determining the purchase price for [Company B].

153. As Respondent failed to sufficiently substantiate the alleged price reduction of USD 9 million and as the Arbitral Tribunal came to the conclusion that turnover was not an essential factor in the calculation of the purchase price, it is not necessary for the Arbitral Tribunal to decide whether Claimant actually breached Article 4.2.5 of the Agreement by not conducting its business in the ordinary course or whether the decrease in sales was-at least partly-a consequence of [Company A]'s allegedly unfair behaviour.

cc) Increase of funded debt and working capital contrary to Article 4.2.5 of the Agreement

154. In article 4.2.5 of the Agreement, Claimant also warranted that between January 1, 2000 and Closing, [Company B] has not suffered and will not suffer any material adverse change in its financial position. As already stated above, [Company B]'s working capital and funded debt increased in the relevant time period . . . As [a large portion] of [Company B]'s debts were investments that were approved by [Company A] . . ., it conflicts with the principle of good faith to claim reduction of the Purchase Price in the respective amount. With respect to the remainder of the increase in funded debt in the amount of . . ., it must be stated that this increase represents a material adverse change in [Company B]'s financial position. The fact that Respondent "caused" the triplication of trade debtors due to its refusal to execute a guarantee for [Company B] . . . does not change that; Respondent had no obligation whatsoever to execute such guarantee.

155. Claimant did not prove that Respondent, when concluding the Agreement . . ., knew of [Company B]'s increased funded debt and working capital. . . . Therefore, a reduction of the Purchase Price is not excluded pursuant to Art. 200 CO and Respondent's claim for a reduction of the Purchase Price is partially . . . approved.

dd) Failure to conduct its business in the ordinary course contrary to Article 4.2.5 of the Agreement

156. Respondent does not designate which creditors were not paid on time after signing the Agreement; what suppliers allegedly terminated their contracts with [Company B] and/or did not renew their respective contracts; what damages in what amount resulted from that behaviour; and what interest payments [Company B] was charged for as a consequence of that behaviour. Due to a lack of substantiation, Respondent's claim for reduction of the Purchase Price must be dismissed.

ee) Accounts are not in accordance with [State X] GAAP and do not show a true and fair view contrary to Article 4.2.4 of the Agreement

157. Article 4.2.4 of the Agreement provides that [Company B]'s balance sheet and profit and loss statements as of December 31, 1999 are in accordance with [State X] accounting principles as of December 31, 1999 and show a true and fair view of the financial condition of [State X] as of December 31, 1999. As the Arbitral Tribunal holds above . . . that [Company B]'s accounts of 1999 did show a true and fair view, there is no breach of Article 4.2.4 of the Agreement. Furthermore, Respondent's allegation that "allowing for the time value of money" it would have reduced its calculation of the enterprise value and the Purchase Price by at least [amount] had the annual rental costs to be paid to the city [L] . . . been reflected in the 1999 accounts . . ., is neither comprehensible nor sufficiently substantiated. Respondent's respective claim for reduction of the Purchase Price must be dismissed.

ff) Failure to disclose certain contracts with suppliers in excess of [amount], contracts with a term of more than six months and contracts which cannot be terminated on 3 months' notice without payment of compensation contrary to Article 4.2.9 of the Agreement

158. Article 4.2.9 of the Agreement requires that Claimant set up a list of, among other things, all leases and leasing contracts which provide for annual payments of more than [amount], agreements with suppliers or customers with a term of more than six months or a contract value of more than [amount] and other contracts or commitments in excess [amount] or which cannot be terminated on three months' notice without payment of compensation. Respondent states that [Company B]'s contract with [Company I] for [city P] was not disclosed to it and contained a rental fee of 40% above average. Therefore, according to Respondent, the annual rental cost was [amount] higher than expected. As a consequence, Respondent claims a respective reduction of the Purchase Price.

159. According to article 4.2.9, Claimant was required to set up a complete list of contracts falling under the above mentioned criteria, but it did not represent and warrant that [Company B]'s contracts contain average expenditures. Therefore, the requested price reduction may not be granted. As it must be assumed, as stated above . . ., that Respondent also had knowledge of [Company B]'s contract with [Company I] for [city P], Respondent cannot claim indemnification for breach of Claimant's disclosure obligation pursuant to Article 4.2.9 of the Agreement. As to [Company B]'s contracts with [Company S] and [Company U] that were (improperly) not contained in Schedule 4.2.9.a., Respondent does not demonstrate to what amount it suffered damages resulting from their non-disclosure.

gg) Failure to disclose that [Company B] was in default under material agreements to which it is a party contrary to Article 4.2.9 of the agreement

160. In Article 4.2.9 of the Agreement Claimant represented and warranted that [Company B] is not in default under any material agreements to which it is a party. Since Respondent did not provide any documents to the Arbitral Tribunal showing under which agreements and to what extent [Company B] was in default for payment of rental obligations, and/or that suppliers actually terminated contracts and/or that [Company B] suffered any damage resulting from such behaviour, it did not sufficiently substantiate a breach of article 4.2.9 of the Agreement. Respondent may therefore not claim reduction of the Purchase Price in this respect.

hh) Claimant's debt vis-à-vis [Company C]

161. Respondent claims a price reduction due to an additional financial obligation under a shareholder's loan agreement in the amount of . . . As stated above . . ., Claimant confirmed that its credit to [Company C] in the amount of [amount] has been completely nullified and cancelled by the Agreement . . . Therefore, Respondent cannot claim a respective reduction of the Purchase Price.

c) Interest payments

162. Respondent requested interest payments as of [the Closing date] at the US prime rate. Claimant does not comment on this issue . . . Art. 104 para. 3 CO provides that between merchants, when the usual Bank discount at the place of payment is higher than five per cent, penalty interest may be calculated at such higher rate. As both parties are merchants and the Purchase Price reduction must be paid at Respondent's seat (Art. 74 para. 2, no. 1 CO), the US prime rate, if it is higher than the annual 5% according to Art. 104 CO, is applicable. Art. 102 CO provides that if an obligation is due, the obligor will be in default upon being reminded thereof by the obligee. If a certain due date was agreed upon for performance, or if such a date arises from a stipulated and duly exercised notice of termination, the obligor will already be in default upon the expiration of such date. As the parties agreed in the Agreement to fulfil it by Closing (Article 3), the Closing date must be deemed as a certain due date in the sense of Art. 102 para. 2 CO and Claimant must be ordered to pay to Respondent interest payments on [amount] at the US prime rate from [the Closing date] until the date of full and final payment.'

1
According to Article 6.4.1 of the Agreement, Seller had to deliver to Purchaser a bank guarantee in the amount of USD 4.5 million on the Closing date.

2
Gauch/Schluep/Schmid/Rey, Schweizerisches Obligationenrecht Allgemeiner Teil, 7. Auflage, Zürich 1998, N 2809a. The Swiss Federal Court has not yet answered this question.

3
BGE 126 III 66; 91 II 279.

4
BGE 53 II 153: "Ein Grundlagenirrtum kann dann nicht angenommen werden, wenn die irrtümliche Vorstellung auf Eigenschaften der Kaufsache Bezug hat, welche Gegenstand einer Garantie hätten bilden können, die seitens des Verkäufers förmlich wegbedungen oder abgelehnt wurde, und der Käufer trotzdem den Vertrag abgeschlossen hat; die Berufung auf den Irrtum ist in solchen Fällen, weil es Treu und Glauben widersprechend ist, nach Art. 25 Abs. 1 OR unstatthaft."

5
BGE 91 II 275 ff.: "Wird mit Bezug auf bestimmte Eigenschaften der Kaufsache die Gewährleistung eindeutig und in nach Art. 199 OR zulässiger Weise wegbedungen oder die Abgabe einer Zusicherung abgelehnt, so nimmt der Käufer, der den Vertrag gleichwohl abschliesst, die Gefahr in Kauf, dass die betreffenden Eigenschaften fehlen. Er darf deshalb ihr Vorhandensein nach Treu und Glauben im Geschäftsverkehr nicht als notwendige Grundlage des Kaufvertrages betrachten, so dass ein Irrtum über diesen Punkt nach Art. 24 Abs. 1 Ziff. 4 OR nicht als wesentlich gelten kann. Vertragsbestimmungen, welche die Gewährspflicht weder allgemein noch hinsichtlich bestimmter Eigenschaften der Kaufsache aufheben, sondern sie nur zeitlich oder inhaltlich (mit Bezug auf die Ansprüche des Käufers) beschränken, verbieten dem Käufer dagegen nicht, das Vorliegen gewisser Eigenschaften als Vertragsgrundlage anzusehen und sich, wenn er mit der Annahme ihres Bestehens irrte, innert der Jahresfrist von Art. 31 OR wegen Grundlagenirrtums vom Vertrage loszusagen. Solche Vertragsbestimmungen fallen gegebenenfalls mit dem ganzen Vertrag dahin."

6
According to some opinions in legal theory, however, an exclusion of liability for gross negligence is not admissible (see above, V./C./2./b.).

7
Art. 24 para. 1 no. 4 CO.

8
Gauch/Schluep/Schmid/Rey, supra note 2, N 775 ff.

9
Art. 26 CO.

10
Gauch/ Schluep/Schmid/Rey, supra note 2, N 763; Schmidlin, Das Obligationenrecht, Mängel des Vertragsabschlusses, Art. 23-31 OR, Bern 1995, Article 23/24, note 15 et seq.

11
BGE 88 II 427 et seq.

12
BGE 56 II 104 et seq. : "Schloss er trotz dieser ihm bekannten Gefahr [dass mit Retentionsrechten versehene Ansprüche in der Zukunft noch entstehen konnten] den Vertrag ab, so kann er sich nicht nachträglich auf einen Irrtum berufen, denn durch Kenntnis der Gefahr bei Vertragsschluss nahm er sie als für sich unwesentlich in Kauf."

13
Koller, Schweizerisches Obligationenrecht, Allgemeiner Teil, Band I, Bern 1996, no. 1050 and 1113.

14
BGE 118 II 300; e.g. Schmidlin, supra note 13, Article 23/24, no. 205 et seq.

15
See, e.g., Art. 97 para. 1 CO. Also see Vogel/Spühler, Grundriss des Zivilprozessrechts und des internationalen Zivilprozessrechts der Schweiz, 10. Kapitel, no. 39 et seq.

16
Gauch/Schluep/Schmid/Rey, supra note 2, no. 856 et seq.

17
Schmidlin, supra note 13, Article 28, no. 75 et seq. ; Schwenzer, Schweizerisches Obligationenrecht: Allgemeiner Teil, 2. Auflage, Bern 2000, Article 28, no. 11 et seq.

18
"Negatives Vertragsinteresse".

19
Gauch/Schluep/Schmid/Rey, supra note 2, no. 870.

20
BGE 114 II 134; Honsell, in: Obligationenrecht I: Art. 1 - 529 OR, 2. Auflage, Basel 1996, Vorbemerkungen zu Art. 197-210, no. 12.

21
In German: "Gestaltungsrecht". See, e.g., Koller, in: Guhl, Das Schweizerische Obligationenrecht, 9. Auflage, Zürich 2000, § 2 no. 36 and § 16 no. 22.

22
BGE 108 II 104; 107 II 419.

23
BGE 41 II 373/374.

24
Editor's note: 1998 ICC Rules of Arbitration.

25
BGE 107 II 419 et seq.

26
Honsell, Schweizerisches Obligationenrecht, Besonderer Teil, 6. Auflage, Bern 2001, p. 73 and 75.

27
Id., p. 99.

28
Honsell, supra note 25, Art. 201 no. 13.