'7. Article 11 of the Contract (Contract Price) stated:

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11.6. Price Revision

1. If at any time either Party shows that circumstances on the energy market, beyond the control of the Parties, have changed as compared to what Parties reasonably expected when entering into this Contract and/or if the Price resulting from the price formulae hereof does not reflect the development of the said marginal market, then such Party may request other Party, in writing, substantiating the grounds for the Price revision.

2. The said notice shall include time, place of the meeting and the basis of the proposed formulae as well as a new price structure for Price revision.

3. Either of the Parties hereto, after two years from the Commencement Date, may request a revision on pricing and related formulae. The party wishing such revision shall serve a notice on the other requesting a round of negotiations for this purpose within three months from the date thereof by giving reasons for Price revision.

4. The Parties shall make their best endeavour to reach a reasonable revision in pricing formulae with due regard to the location of Gas reserves, reservoir productivity, average Gas daily delivery and Gas quality as well as terms and conditions thereof. Likewise, gathering, compressing, transportation and all elements affecting pricing formulae including but not limited to being and acting as an efficient and prudent operator on the part of Seller shall be considered.

5. Moreover, such elements shall include relevant conditions at Buyer's market, the costs of distribution and transmission as well as all relevant factors and circumstances being pertinent to the said market and the Gas industry as a whole.

6. In case the Parties are unable to agree on an equitable revision from the date of serving the said notice within a period of six months the dispute shall be referred to arbitration under Article 22 hereof.

7. It is agreed by the parties that: (a) no Price revision could take place within two years as from the Commencement Date and (b) each Price revision shall be effective for a period of three years and (c) either Party shall not exercise the right of requesting a Price revision on more than four occasions throughout the duration of this Contract.

8. It is, further, clearly understood that until an agreement is reached on Price revision and or until an arbitral award has been issued the provisions so far applicable shall remain in force.

9. In any case, the Contract Price Provisions shall allow Natural Gas supplied hereunder to be sold in the competition with marginal substitutable forms of energy in the Buyer's market.

8. Article 3.10 of the Contract also provided for [Claimant] to obtain a reduction in price should the gas delivered be deficient in quality. It stated:

3.10. Deficient Quality

In the event that Seller delivers Natural Gas which fails to confirm with the provisions of this Article 3 then the following shall apply:

3.10.1. If chemical composition, hydrogen sulphide, mercaptan sulphur and/or total sulphur content(s), Delivery Pressure, Water Dew Point, Hydrocarbon Dew Point and Wobbe number do not confirm [sic] with the provisions of this Article 3 Buyer may either

a) accept delivery of all or any part of such Natural Gas in which event the price of such delivered Gas shall be reduced by one per cent (1.0%), for each specification, of the applicable Contract Price, if at most three of the above mentioned specifications are not complied with or by three per cent (3.0%), if more than three of the specifications are not complied with provided that the deviation from the quality specified in this Article 3 is five per cent (5%) or less or

b) refuse to accept delivery of all or any part of such Natural Gas if the deviation from the guaranteed quality specified in this Article 3 is more than five per cent (5%);

c) if Buyer accept delivery of all or any part of such Natural Gas in respect of which the deviation from quality specified in Article 3 is more than five per cent (5%), then the applicable Contract Price of such delivered Gas shall be reduced by one and half per cent (1.5%), for each specification, if at most three of the above-mentioned specifications are not complied with and four and half per cent (4.5%) if more than three specifications are not complied with.

3.10.2. If Buyer refuses to accept delivery of all or any part of Natural Gas according to this Article 3.10.1.b), the amount refused shall be deemed to be the Deficient Quantity mentioned in Article 3 and Article 6 and such Quantity shall be subtracted from the Minimum Annual Quantity for the applicable Delivery Year.

3.10.3. If the Gross Calorific Value of the Gas exceeds the upper limit of Gross Calorific Value given in Article 3.1 the Gas shall be deemed to have the Gross Calorific Value of the upper limit of Gross Calorific Value set forth in Article 3.1.

If the actual Gross Calorific Value of Natural Gas delivered hereunder turns out to be constantly, and not only negligibly, different from the GCV set forth in Article 3.1.3 Seller shall inform Buyer a year before and both Parties shall agree another Gross Calorific Value.

9. Article 3 of the Contract also provided for [Claimant] to obtain reductions in price should the gas delivered be deficient in quantity and contained other provisions relevant to this Award. They were:

3.11. Deficient Quantity

Should Seller, for reasons other than Force Majeure or agreed repairs and maintenance, fail to make available any quantities of Gas including quantities that Buyer rejects in accordance with the provisions of Article 3, (Deficient Quantities) the following shall apply: The quantity of Natural Gas first delivered (at the maximum level of Daily Contract Quantity) after the Quarter in which the deficiency occurred, which quantity shall equal the Deficient Quantities from the preceding Quarter (or Quarters) if necessary it shall be reduced by a discount of:

a) six per cent (6%) if the deficiency occurred during the months of October through March, or

b) three per cent (3%) if the deficiency occurred during the months of April through September.

During the Start-up period, 50% of the price reductions under clauses 3.10.1.a), 3.10.1.c) and 3.11 hereinabove shall apply.

3.12. The total amount of price reductions which Buyer may claim in one Delivery Year from Seller in respect of any deficiency described in Articles 3.10 and

3.11 hereof shall be limited:

9% (MAQ [Minimal Annual Quantities]) X Arithmetic Average of the twelve monthly Contract Prices applicable in the Delivery Year concerned.

3.13. In the event that Deficient Quantities exceed 25% of the ACQ [Annual Contract Quantities], Buyer may claim additional damages as provided for in this Article 3.

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24. At the outset the Arbitral Tribunal records that it was not necessary to decide issue 2 of the Terms of Reference [the proper law of the contract, relevant trade usage(s), general principles of law]. [Claimant] in its Post-Hearing Submissions accepted that there was no need to determine the proper law of the Contract and that it was only necessary to take account of relevant trade usages and general principles of law. [Respondent] in its Post-Hearing Submissions did not object to this approach (although it did object to the conclusions that [Claimant] invited the Arbitral Tribunal to arrive at using that approach). As will appear the claims of the parties were resolved by interpreting and applying the provisions of the Contract (which were in the main sufficiently clear in themselves) in the normal way, i.e. by looking at the Contract from the point of the view of the parties and by giving the words used by them a plain and ordinary meaning so as to arrive at their presumed intentions. It was not therefore necessary to reach any decision on any key issue relating to either of [Claimant's] claims on the basis of any trade usage or general principle of law that either party contended was relevant. For example, [Claimant] cited the UNIDROIT Principles and said that a contract should be interpreted according to the common intention of the parties; that where such common intention cannot be established, the contract shall be interpreted according to the meaning that reasonable persons would apply in the same circumstances; in determining intention, regard should be had to all relevant circumstances, and terms and expressions shall be interpreted in light of the whole contract; unclear contract terms should be interpreted so as to give effect to all the terms rather than to deprive some of them of effect. [Respondent] in its Post-Hearing Submissions agreed with the Claimant as to the need to apply such rules of interpretation but they are basic rules of contractual interpretation applied in commercial arbitrations and it is not necessary to justify their mundane use by reference to the UNIDROIT Principles. Parts of the Contract had to be read sensibly, as it was not always written in precise English (as is frequently the case, even where the contract has been written by those whose first or only language is English). The parties also made numerous helpful references to cases, commentaries and other works but it has only been found necessary to refer to a few of them. The citations are not otherwise recorded.

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A. The price revision claim

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46. Before considering the merits of the [Claimant's] claim, it is first necessary to deal with some points that arose on the meaning of Article 11.6 as they may determine if [Claimant] is entitled to any revised price or what any revised price may be. Such points were called "trigger criteria" or "trigger provisions". Essentially they raise threshold questions as to whether the request was admissible, i.e. that it was validly made in accordance with the Contract.

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The conjunctions "and/or" and the "trigger criteria"

52. First, paragraph 1 of Article 11.6 contains an "and/or":

If at any time either Party shows that circumstances on the energy market, beyond the control of the Parties, have changed as compared to what Parties reasonably expected when entering into this Contract

and/or [emphasis supplied]

if the Price resulting from the price formulae hereof does not reflect the development of the said marginal market, then such Party may request other Party, in writing, substantiating the grounds for the Price revision.

[Claimant] submitted that the connecting words "and/or" indicate that the two "trigger" criteria may be used either jointly or alternatively. The first part or limb focussed on the origin or the cause of the change; the other part or limb focussed on its effect. The Contract left the choice of either or both parts to the party seeking price revision. It provided relatively easy access to price revision. That was consistent with the economic and commercial context of the Contract. [Claimant] also submitted that the differences between the parties did not appear to have any material effect.

53. [Respondent], however, said that the parties could not have realistically considered satisfaction of the first limb alone to be sufficient to trigger a price revision request. Rather, it said that the key second limb must have been satisfied, whether individually or collectively, with the first limb. [Respondent] submitted that [Claimant's] interpretation defied logic as it made no sense for a price revision to be opened unless the Price has ceased to be competitive in the relevant market pursuant to the second limb. ...

54. The argument that a price revision request should only be triggered in the event that the Price is no longer competitive under limb 2 was supported by paragraph 9 of Article 11.6. That provided an overall test for the price provisions as a whole by requiring that Price should remain competitive at the top of the market. It cannot therefore have been the intention of the parties to permit a valid price revision request to be made unless the criteria of the second limb had first been satisfied. [Respondent's] view was supported by its experts ...

Decisions on "and/or" and the construction of the trigger criteria

58. First, the Arbitral Tribunal is grateful for the opinions of experts on the meaning of the Contract since they can reveal matters which might need to be borne in mind when reaching a decision as to its meaning. For example, a particular approach might in practice be unworkable or unrealistic. However, ultimately, matters of interpretation are legal questions for the Arbitral Tribunal to decide in the manner set out in paragraph 24 above and are not to be decided on the basis of preferring the view of one expert over the view of the other expert. In this instance the experts expressed differing opinions or approached the text in different ways which demonstrated that the submissions of both [Claimant] and [Respondent] were not unworkable or unrealistic. …

59. Second, in the view of the Arbitral Tribunal, there is in any event no reason not to give effect to what the parties wrote in Article 11.6. It concludes that either party may invoke the price revision procedure set out in Article 11.6 by demonstrating that it complies with either or both of the criteria in the parts or limbs of paragraph 1 of that Article.

60. Third, the Arbitral Tribunal rejects the submission that it would not be possible to invoke the criterion of the first limb alone. There is a clear rational basis for "and/or" being disjunctive. The first criterion refers to circumstances on the energy market, beyond the control of the parties, which had changed compared to what the parties reasonably expected when entering into the Contract. A revision of the price formulae may be then sought by either party if it can be related to such changes. The criterion allows regard for matters which go beyond mere pricing, but which must be connected to conditions affecting the energy market and which the parties reasonably expected when entering into the Contract. The Arbitral Tribunal considers that the contrast with the second limb is significant. That criterion refers to the price resulting from the price formulae not reflecting the development of "the said marginal market". The phrase "the said marginal market" is considered later. However, it is clear that the second of the trigger criteria is referable specifically to price formulae being out of step, in contrast to the somewhat broader matters which may be encompassed in the first criteria. Neither criterion permits a price revision to be sought unless there have been either significant changes in circumstances on the energy market, as described in the first criterion, or significant disparity or disparities between the price established under the price formulae and the development of "the said marginal market". Satisfying the latter criterion may also mean that the former will also have been met but it does not follow that the reverse is not possible.

61. Fourth, although paragraph 9 of Article 11.6 may also have to be considered later, it is clear that it cannot affect the meaning of the first paragraph so as to render a request under the first paragraph inadmissible. It is remote from that paragraph and not linked to it in any way. It is framed as an overall proviso, with the apparent objective of controlling what might otherwise have been the result of a revision.

62. Accordingly, construing the phrase "and/or" to allow a party to invoke price revision under the contract, by showing that either or both criteria have been met gives effect to both the word "and" and the word "or", which, according to the general principles on which the parties have agreed, is the right meaning of this paragraph of Article 11.6. ….

The first limb or criterion of Article 11.6, paragraph 1

63. [Respondent] in its post-hearing submissions agreed with [Claimant] that the meaning of the first limb or criterion of paragraph 1 of Article 11.6 depended on the interpretation of three main elements: "change of circumstances on the energy market"; "reasonable expectations of the Parties"; "change beyond the control of the Parties". The latter has already been discussed. As previously explained, the Arbitral Tribunal considers that a change in circumstance brought about by an act of either Government is to be regarded as beyond the control of a party. The first two elements are now discussed.

"Change of circumstances on the energy market"

64. The first question is what is meant by "the energy market". [Claimant] submitted in its post-hearing submissions ... that the wording allowed any change in circumstances on the energy market "without limitation or restriction to certain sources of energy". Thus it would allow consideration of circumstances affecting alternatives, such as coal, and the regulations affecting the market. It submitted that [Respondent] would be wrong to adopt the views of its experts insofar as they had wished to limit the term since "energy market" was too broad and suggested that the relevant market is the [Buyer's] gas market. ...

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Decisions on first limb

69. First, notwithstanding the apparent agreement between the parties about the ambit of the first limb of paragraph 1 of Article 11.6, the Arbitral Tribunal considers that it can only be utilized if there has been a change in circumstances that affect the actual or notional energy market in [the Buyer's country]. That is not to say that "'the whole energy sector' including the international energy market" may not be relevant as changes in it may lead to changes in the circumstances affecting the [Buyer's] market. Given the global nature of energy pricing that cannot be ruled out. However, seen from the point of view of [Claimant], a wider interpretation might allow [Respondent] to seek an upward revision without establishing regional effect. Second, if the wording was intended to refer to an external energy market and, in particular, an international energy market, it would not have been necessary to add the later qualifying phrase "beyond the control of the parties". That phrase indicates that the relevant circumstances are those which would have a significant impact on the energy market for [the Buyer's country].

70. Next, the wording "circumstances" is a very broad way of referring to a variety of matters which might affect the energy market on which [Respondent]'s gas may be competing. The fact the price formula uses gas oil and heavy fuel oil prices does not mean that the parties intended that only those sources would be considered under this limb, the wording of which is very wide. In addition it obviously cannot be confined to pricing considerations, as they are the subject of the second criterion, but could include macroeconomic events and governmental and regulatory actions which may have had the effect of altering circumstances on the energy market. It would therefore clearly also include coal.

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"Reasonable expectations of the parties"

73. There was another difference between the parties on the meaning of this phrase, albeit slight. [Claimant] said in its Post-Hearing Submissions that what is relevant is the expectations of the parties themselves when entering into the contract. [Respondent], on the other hand, contended that it is not just what the parties themselves may have subjectively expected when entering into the contract, but it must be what the parties reasonably expected. …

Decision

74. The Arbitral Tribunal agrees with [Respondent] in its emphasis on the adverb "reasonably". Consequently, in testing whether the changed circumstances on the energy market, on which [Claimant] relies to invoke this trigger, were not only beyond its control but different from what [Claimant] and [Respondent] would have expected when entering into the Contract, those initial expectations are to be tested as to whether they were reasonable. However, that does not mean that the test becomes an objective one, as suggested by [Respondent]. ... Paragraph 4 of Article 11.6 envisages that the price revision request should be the subject of negotiations and agreement. It is inevitable in such discussions each party will hark back to what was expected by it. Agreement might be impossible if one party insisted on its own subjective expectations. Hence "reasonably" provides a controlling mechanism: the expectation must not only have been held but it must also be a reasonable one, but not necessarily one which an independent person would have expected.

Contract price does not reflect market developments

75. The difference between the parties on the interpretation of the second limb of paragraph 1 of Article 11.6 centred on the meaning of the words "the said marginal market". In other words, price revision may be requested if there is a divergence between the development of the gas price under the Contract and the development of "the said marginal market". [Claimant] said that, since no "marginal market" had been mentioned or defined in the first limb, the words were confusing and perhaps superfluous. … Thus [Claimant] suggested that although "marginal" appeared to be redundant, it had to be given some meaning. It submitted that it referred to "energy market" in the first limb of paragraph 1 since if the "energy market" is considered as part of the overall market, it can be defined as "marginal" vis-à-vis such overall market. This interpretation might not be ideal for economists but it was justifiable. It had appealed to at least one member of the Arbitral Tribunal …

76. [Respondent] said that it wholly rejected the [Claimant] interpretation. It submitted that the words meant "at any given time, the particular market sector in [the Buyer's country] in which the last unit of [Respondent] gas was sold, hence the lowest value market to the Buyer" and that the second limb was concerned with the development of this market. The question was then what was meant by the statement that the Price did not "reflect the development" of this market? [Respondent] submitted that the issue was whether or not the Price reflects development of the specific fuels which define price in the said marginal market. As the most expensive fuel in any market sector sets price because it was what customers were willing to pay for energy. Thus by tying the price of [Respondent] gas to the price of such "price-setting" fuels in the said marginal market, both [Respondent] and [Claimant] were protected by the terms of Article 11.6. [Respondent] was protected because it was guaranteed premium value for its gas which is kept at the top of the market; [Claimant] was also protected as it was guaranteed to be able to sell [Respondent] gas on, even in its least profitable market (i.e. the marginal market) - because such gas remains priced at a discount to the most-expensive alternative fuels.

Decision

77. Plainly something went wrong in the drafting of the second limb of paragraph 1 of Article 11.6. "Said" should take the reader to something which is recognizably a "marginal market" but it does not do so. "Marginal market" is also puzzling since the Contract assumes that "the Price resulting from the formulae" is out of step with the development of some market, especially since the formulae are not related to any ... market [in the Buyer's country or the Seller's country]. The Arbitral Tribunal has however to infer the parties' intention from the language that they used. Normally the phrase "the said" would have to be treated as referring to something which has already been mentioned. To this extent, at least, there is strong support for the argument of [Claimant] that "the said marginal market" refers to "the energy market" which is found in first limb. Indeed the Arbitral Tribunal would, if necessary, so construe Article 11.6 by equating "marginal market" with the "energy market" as that is the only "said market" to which such a reference can have been made. That makes the best sense of a badly drawn provision and, for reasons given below, achieves the basic objectives of Article 11.6 in the interests of both parties.

78. However it would be preferable if this part of Article 11.6 could be sensibly interpreted by giving some valid meaning to the word "marginal". Contrary to [Claimant's] case ... the Arbitral Tribunal considers that no assistance is obtained from paragraph 9 of Article 11.6 (which refers to "marginal substitutable forms of energy in the Buyer's market") since, as already stated, that paragraph is in the nature of a general proviso that comes into operation once there is a price revision. As it says, it is concerned with the "Contract Pricing Provisions", i.e. the provisions which control how the amount of any revised Price is to be arrived at (principally paragraphs 4 and 5 of Article 11.6), not the provisions which determine if a party is entitled to request those provisions to be brought into operation. It also says that it applies "in any case" so it would also apply if only the first limb had been invoked. The proviso makes good sense if the revision is at the request of the Seller. [An expert] made this valid comment ...:

Moving on to the last paragraph of 11.6, which is paragraph 9 although it is not numbered, this one is something that you very often see at the tail-end of price revision clauses, and it is meant to ensure that after you have taken all the measures you want to revise the contract price, you haven't ended up with something that means the gas buyer actually can't sell the gas economically in any of his markets. So that's a sort of safety net for the buyer.

In addition the term "Buyer's market" cannot mean a market in which [Claimant] was the buyer since at the date of Contract [Claimant] was a monopsonist; it must have the same meaning in paragraph 5, seemingly synonymous with trading conditions in [the Buyer's country]. Moreover, it became very clear from the parties' cases that potentially insurmountable problems arise if there was a link between paragraph 1 and paragraph 9, for example the gas which is the subject of the Contract cannot be a "substitutable form of energy", but the price of alternative sources of gas is highly relevant under paragraph 1.

79. Marginal, literally, is about something that is at the margin, which ordinarily implies that it is not determinative or is close to the limit, possibly, in market terms of profitability. Land is called marginal when it is considered to be difficult to cultivate or actually or virtually unprofitable, which implies, in turn, that something which is marginal is barely adequate. Yet why should the parties allow either party to request a price revision because [Claimant] found it difficult to make any profit from the last unit of gas? This would also mean that the second limb could only be invoked by [Claimant], whereas both limbs of Article 11.6 are, or should be, available to either party. That interpretation is not acceptable for that reason, and because it does not accord with the purposes of Article 11.6.

80. It is necessary to stand back and look at the purposes of Article 11.6. A price revision request may be initiated "at any time" (subject to paragraphs 3 and 7). It may be initiated by either party. As already pointed out Article 11.6 is probably more likely to be invoked by the by the seller, [Respondent]. Unless there are indications to the contrary, the interpretation of Article 11.6 should be consistent with and meet the respective interests of both [Respondent] and [Claimant]. The first and second limbs contain separate criteria. The first is about market changes beyond the control of either party which could not reasonably have been anticipated. The second is different. There are weaknesses in arguing from redundancy, but nevertheless the Arbitral Tribunal considers the following points to be material. In the second limb, the development of the market (whatever it may be) is not excluded even if it is within the control of one party or the other; that is irrelevant - a point potentially favourable to [Respondent] as [its country's] policies, reserves and resources may affect a market. Equally the fact that the development may also have been reasonably expected is not a limiting factor. The criterion appears therefore to be very objective and wider than the criterion in the first limb: has anything happened (other than a circumstance falling within the first limb) in the development of the market (again whatever it may be) which may mean that the Price formulae are not operating as intended, presumably to maintain a fair market price for the gas? Viewed in this way, the Arbitral Tribunal considers that "the said marginal market" cannot refer to the most expensive gas sold in [the Buyer's country] or most costly unit of supply to satisfy the level of demand. [Expert witnesses] clearly did not think such a conclusion made practical sense. [One of the experts] understandably and sensibly chose to use an average across the sectors ... The Arbitral Tribunal also considers that regulatory price setting for consumer prices is to be clearly distinguished (although considered relevant by [one of the experts). Although the concept of the marginal market may be necessary to the regulation of consumer prices, it cannot be the same concept as that used in Article 11.6 since regulation is about striking a balance between the interests of consumers with no commercial power and suppliers who, individually or collectively, are to be equated to having a monopoly (as economies where the consumer has a real and effective choice of supplier are rare). In this Contract it makes better sense and is consistent with a reference back to "the energy market" in the first limb if "the said marginal market" refers to a market which is at the margin of or at the boundaries of the energy market within which the Price operates and is to be set. In other words, can a party invoking the second limb of Article 11.6 reasonably believe that the Price resulting from the use of the formulae does not reflect that market? In the view of the Arbitral Tribunal, this is best done by reference to directly competing sources of energy. This would enable the second limb to be invoked by [Respondent] as well as [Claimant]. This construction of the second limb would also be consistent with the wording which speaks of the "development" of the marginal market which plainly envisages a comparison with some factor that now requires attention because it is a new development or because it is now significant when previously it was not, which might be of importance to either party. As [Respondent] submitted, [Claimant's expert] made a good point in ... its Report ... when it said:

It is also possible that the identity of the marginal market might change over the review period.

Thus there could be reference to the evolution of coal pricing as one of the developments of the "said marginal market".

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The price reduction claim

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The legal basis of the price reduction claim

177. It must first be recalled that the factual basis for the Price Reduction Claim is the assumption that [Respondent]'s performance was of a nature which was different from that regulated in the Contract by the clauses which deal with deficient quantities and quality and that there was no specific remedy provided in the Contract. In other words [Claimant's] claim was that [Respondent] was in breach of contract in that there was fundamental unreliability on its part in supplying [Claimant] with gas to the quality and quantity required under the Contract. There was also nothing in the Contract that excluded remedies available under the applicable law. That would require an express agreement and there was no such agreement.

178. [Claimant] argued that a buyer who received defective deliveries was entitled to a reduction in price. It maintained that this was a general principle of law. It cited a number of authorities, starting with the recognition of the principle in Article 50 of the United Nations Convention on the International Sale of Goods (CISG) which provides:

If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time.

[Claimant] submitted that the CISG was generally considered as a source of prevailing trade usages and general principles of law governing the international sale of goods. It referred to arbitral decisions, such as that in ICC Case No. 5713 of 1989:

The Tribunal finds that there is no better source to determine prevailing trade usages than the terms of the United Nations Convention on the International Sale of Goods of 11 April 1980, usually called "the Vienna Convention". This is so even though neither [the country of the Buyer] nor [the country of the Seller] are parties to that Convention. If they were, the Convention might be applicable to this case as a matter of law and not only as reflecting the trade usages.

The Vienna Convention, which has been given effect to in 17 countries, may be fairly taken to reflect the generally recognized usages regarding the matter of the non- conformity of goods in international sales.

Similar observations were made by the tribunals in ICC Cases 8502 of 1996 and 8817 of 1997. [Claimant] also referred to Watkins-Johnson Co. & Watkins-Johnson Ltd v. Islamic Republic of Iran & Bank Saderat Iran, 22 Iran-U.S. C.T.R., pp. 218, 244 (which said that the CISG constituted "recognized international law of commercial contracts"). Thus the CISG was an expression of "prevailing trade usages" and of "general principles of law". [Claimant] said that [the laws of both the Buyer's country and the Seller's country], the legal systems with which the dispute has the closest connection, provided for the same remedy of price reduction.

179. [Claimant] maintained that [Respondent] was wrong to say in its Defence that the Contract contained a system of remedies which was exclusive and which left no room for any "extra-contractual remedy["] and that the Contract was sui generis and subject to "specific trade usages". [Claimant] accepted that Articles 3.10, 3.11 and 3.12 provide remedies for "Deficient Quality" and "Deficient Quantity", and that the "total amount of price reduction which Buyer may claim in one Delivery Year from Seller" was limited. [Claimant] said that the exclusion of legal remedies required an express statement and could not be implied. Article 3.12 applies only to "any deficiency described in Articles 3.10 and 3.11", and not to deficiencies other than those covered by these two clauses. [Claimant] did not claim for a specific shortfall in quantity or quality on a particular day as that fell within Articles 3.10 and 3.11 but for the fundamental unreliability of [Respondent]'s deliveries. In any event, the remedies in Articles 3.10 and 3.11 were not exclusive since Article 3.13 provided that additional damages might be claimed if Deficient Quantities exceeded 25% of the Annual Contract Quantities. In addition Article 26 provided a right to termination, inter alia, if "within total of seventy days during each full Delivery Year for reasons other than Force Majeure and agreed maintenance, Seller fails to deliver the proposed amount of Gas under the terms and conditions hereof ...". [Claimant] claimed that in every year except 2003, the number of days on which the gas was outside specifications exceeded 70 days.

180. [Claimant] also submitted that the remedy of price reduction applied to all contracts of sale of goods or commodities so the Contract was not sui generis as to exclude a fundamental principle of the law of sales contracts. [Claimant] also submitted that [Respondent] was wrong to rely on the alleged absence of any loss. The remedy of price reduction applied by reference to the difference in value between goods in conformity with the contract and those actually delivered. There was no need to prove a loss due to deficient quality. [Respondent] was wrong to say that [Claimant] had to prove a loss. In any event [Claimant] had in fact sustained losses due to the unreliable deliveries. The unreliability of [Respondent]'s supply had created serious difficulties in management and planning, and had affected [Claimant's] relationship with its customers and its reputation in general. In anticipation of shortfalls that had to be expected in the winter of 2006-2007, [Claimant] had made arrangements for spot market purchases of LNG, if necessary, at a price well above that paid to [Respondent].

181. [Respondent] contended that that [Claimant's] claim had no legal basis. The Contract provided a comprehensive mechanism for dealing with all levels of quality or quantity deficiencies. The possibility of fundamental deficiencies was available through the right to claim for damages under Article 3.13 and the right of termination. [Claimant] was trying to avoid having to make a claim under the Contract, by resorting the CISG and an allegedly generally recognized principle that a buyer has a right to claim for a price reduction for defective goods. However pacta sunt servanda was an equally well recognized principle of law ... and was not to be ignored (public policy reasons did not arise). [Claimant] could not find a single case where the remedy claimed has been applied under the CISG or otherwise, where the Contract itself already contains appropriate provision.

182. [Respondent] said that the contractual remedies were expressed as exclusive remedies. Article 3 states that if there are quality issues or the Seller "fails to make available any quantities of Gas ... the following shall apply" ... The contractual remedies are also comprehensive, and Article 26 relating to Termination refers only to "rights and remedies [available] under this Contract". [Claimant] was misusing the CISG. Article 50 called for the reduction in "price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time". In order to justify a price reduction under Article 50 of the CISG, [Claimant] would have to establish in each case how and in which manner the deviation that has occurred has affected the value of the gas delivered. It had also to prove a loss which it had not done. The Contract itself sanctioned price reductions, and liquidated damages and therefore grants the remedy envisaged by the CISG. The Contract gave more than would be available under the CISG. In particular the Contract went further because it also gave a right to claim additional damages and to terminate the Contract, once certain thresholds are reached.

Decision

183. The Arbitral Tribunal considers that neither party's analysis is entirely right. The question is to be determined on the basic principles of contract interpretation set out in paragraph 24 above. As already indicated, the Arbitral Tribunal does not consider it necessary to resort to or to identify any trade usage or any law. It therefore does not express any view on whether Article 50 of the CISG would or would not apply.

184. First, the Contract places clear obligations on [Respondent] in relation to quality and quantity. In relation to quality, Article 3.1 says "The Natural Gas to be delivered under this Contract shall comply at the Delivery Point with the following specifications: [emphasis supplied]". Article 3.4 says "Hydrocarbon Dew point shall be not higher than -10 deg C under pressure up to 56kgf/sq cm [emphasis supplied]". Article 3 contains other provisions clearly defining [Respondent's] obligations in the same way. [Respondent's] obligations as to quantity are in Article 2 and 6. They are similarly framed as mandatory. As a matter of contract interpretation, these are [Respondent's] primary obligations. Second, if a party does not comply with a primary obligation, it becomes liable to compensate the other party by a monetary payment. Money is normally an adequate remedy. These are basic general principles of contract interpretation and of law. No citation is required. Third, the parties may however agree what is to happen if a primary obligation is broken or if compensation is in principle due. That too is a matter of basic principle: pacta sunt servanda, as [Respondent] rightly submitted. Fourth, where such an agreement might give the injured party less than it would otherwise have got, it must be clear that the party accepted the agreement as its remedy. That is a matter of basic principle and of contract interpretation: even in commercial contracts a party is not readily to be treated as having given up its rights or having accepted a limitation on its due.

185. Applying these basic propositions to the Contract, the Arbitral Tribunal reaches the following conclusions. First, because this was a Contract between State enterprises and because Article 22.8 made the governing law or principles uncertain, the Contract is to be approached on the basis that the parties intended that it should be a reasonably comprehensive statement of their respective rights and obligations so as to minimize the need to have recourse to Article 22. The Contract envisages further agreements. Second, Articles 3.10 and 3.11 are the parties' agreement as to what is to happen should [Respondent] fail to comply with its obligations as to quality or quantity to the extent there set out. Third, Articles 3.10 and 3.11 give effect to the universal principle of compensation for breach of the primary obligation by means of price reduction (as recognized by Article 50 of CISG) by codifying it in this Contract (subject also to Article 3.12). Fourth, as [Respondent] also correctly submitted, for cases that fall outside Article 3.11, [Claimant's] right to damages was recognized by the parties in Article 3.13. (This includes damages where Deficient Quantity results from Deficient Quality.)

186. Fifth, the Contract is not therefore truly comprehensive, nor do the provisions of Article 3 constitute exclusive remedies as there are other remedies to which [Claimant] might be entitled. Sixth, like some other provisions of the Contract, the wording of Article 3.13 is not as clear as it might be. However, the Article deals only with "Deficient Quantities", so, consistent with the principles of and approach to interpretation set out above, further rights to compensation in respect of Deficient Quality are therefore excluded by implication. This is not unreasonable since if the only complaint is in respect of Deficient Quality the gas will either have been taken or delivery refused - see Article 3.10.1 (b). If delivery is taken then [Claimant] accepts the risk of its use. If delivery is refused by [Claimant], then [Claimant] is entitled to treat the gas as a Deficient Quantity - see Article 3.10.2 - and thus the shortfall might ultimately come within Article 3.13. Otherwise [Claimant] has no claim under Article 3.13 or the Contract for fundamental unreliability stemming from Deficient Quality.

187. Seventh, there is however nothing which excludes the general principle which the Arbitral Tribunal (differently constituted) accepted on [Claimant's] Request for Interim Measures, that "if the action of one party causes or threatens damage to the rights of the other party of such a nature that it would not be possible fully to restore those rights or to remedy the infringements of those rights by an award on the merits then it may be appropriate to make a restorative order against the party in default". Accordingly, if there are fundamental deficiencies (as [Respondent] accepts, the Contract allows a remedy for them) the right of [Claimant] to obtain a restorative order or the like is not excluded by the Contract. Eighth, the words "additional damages" in Article 3.12 are to be read as damages additional to the compensation available under Article 3.11 since Article 3.12 concludes "as provided for in this Article 3". There is no provision "in this Article 3" for "additional damages", so the words "as provided for in this Article 3" must be read as qualifying the word "damages", and as a description of the discounts in Article 3.11 as "damages" which, in a sense, they are. Article 3.11 effectively quantifies the damages recoverable by [Claimant] for Deficient Quantity for certain periods or quarters. Article 3.13 is available for deficiencies in the Annual Contract Quantities, e.g. if the discounts obtained under Article 3.11 are still insufficient to compensate [Claimant] for its losses, when they and the deficiencies are aggregated. Again this is not unreasonable. [Claimant] has to accept the risk that quantities may be deficient and has agreed that a discount (or price reduction) is appropriate to quantify its likely losses. Equally, [Respondent] has accepted that, if there were fundamental deficiencies, Article 3.13 gave [Claimant] a right to claim damages, e.g. for fundamental unreliability, as it is described in this Award. Ninth, there is therefore no reason why such additional damages may not be quantified by way of a reduction in price or further discount to those allowed under Article 3.10 and 3.11. Indeed that would be both consistent with the parties' agreement and normal. [Claimant] need not establish that it has suffered tangible and quantifiable loss, but it would of course have to establish material detriment as a result of the breaches that it had proved. For example, [Claimant] might not be able to establish such detriment if the gas, although not in accordance with the contract, was still of equivalent calorific or other value to [Claimant], as [Respondent] has contended. Tenth, it therefore follows from these conclusions that nothing in them is to be read as precluding [Claimant] from establishing in other proceedings that it has suffered loss because of deficiency in the quantity of gas supplied by [Respondent] (including that resulting from deficiency in quality).

188. However the efficacy of such provisions and the interpretation and application of Article 3.13 may depend on an ancillary point which concerns the relevance of "the weighted average". In paragraph 2.31 of its Defence [Respondent] said:

There are two other important points about gas quality issues which have to be stressed. First, off-spec gas is not to be measured in an isolated moment on a specific day - what is relevant is the weighted average over the day in question. Hence the provision for daily reports setting out daily averages under Article 10 of the Contract. Second, if gas flow is stopped and gas rejected due to off-spec gas both Parties have to cooperate in allowing resumption of gas flow under Article 3.8 - and 24-48 hours are allowed for gas to reach the contractual quality levels again.

.........

189. [Claimant] disagreed. It contended that [Respondent's] case was not in accordance with international practice. ... [Claimant] however has to establish that [Respondent's] case was contractually wrong. Article 5 of the Operation Agreement reads in part: ... [Claimant] maintains that these provisions (relied on by [Respondent]) were only for the compilation of the Daily and Monthly Acceptance Reports ... and that it had nothing to do with [Claimant's] rights under Article 3.10.1(b).

190. [Respondent] contended that the Contract provided for daily and monthly delivery reports as the basis on which all measurements are made and that only these reports had "contractual value". Article 3.9 of the Contract (and Article 5.4.8 of the Operation Agreement) allowed deviations from the Delivery Pressure for a number of "days". Since the pressure affected the value given of the hydrocarbon dew point and water dew point it followed that they too were to be measured on a daily weighted average basis. [Respondent] accepted that there was continuous reading of measurements ..., but such measurements were "like a pulse". There was no contractual basis for closing a valve if the problem was only going to last a short time. Article 3.8 of the Contract required [Claimant] to allow the resumption of delivery and to accept off-specification gas for up to 24 hours in order to allow on-specification gas to flow. [Respondent] made it clear that this provision said nothing about the measurement of off-spec. gas.

191. The Arbitral Tribunal concludes that [Claimant] is right. First, paragraph (e) of the Introduction to the Operation Agreement states:

This Operation Agreement shall in no way supersede or amend the terms and conditions of Sales and Purchase Contract dated August 8th, 1996 and in no way shall alter the terms and conditions of the said contract.

This provision is very clear. The Operation Agreement cannot therefore be used to modify the Contract. Second, there is nothing in Article 3.10.1 (b) which says that [Claimant] can only refuse to accept delivery on the basis of a daily weighted average. Third, the opening words of Article 3.10.1 are unrestricted in time:

If chemical composition, hydrogen sulphide, mercaptan sulphur and/or total sulphur content(s), Delivery Pressure, Water Dew Point, Hydrocarbon Dew Point and Wobbe number do not conform with the provisions of this Article 3 Buyer may either …

(The word used in Article 3.10.1 was "confirm" which is obviously wrong; it should be "conform".) There is no requirement for non-compliance to be established by a daily weighted average. Fourth, it is not even necessary to consider the evidence ... to realize that [Respondent's] interpretation is completely impractical. One of the main purposes of Article 3.10.1 (b) is to enable [Claimant], where necessary, to stop deleterious gas entering its pipelines and system. By the time a daily weighted average is produced any damage will have been done. It was absurd for [Respondent] to suggest that [Claimant] would have to wait until a daily weighted average was available and be obliged to take delivery of off-spec. gas, especially since ... [Respondent's] own treatment plants would not wait a day to see what the average was since they had systems to monitor constantly possible non-compliance ... and ... when gas was flowing one could know the quality of gas at any moment ... Moreover the Operation Agreement expressly provided in Article 3.7.2 for [Respondent] to notify [Claimant] immediately if off-spec. gas was in the pipeline ... so [Claimant] could decide whether or not to accept it. Fifth, and moreover, according to its evidence, such an interpretation would not create difficulties for [Respondent]. ... In other words all these explanations, if correct, are what one would expect from a prudent and efficient operator. The Contract cannot sensibly be read on any other basis. The fact that [Respondent] had no ready means of dealing with a refusal to take delivery of off-spec. gas ..., apart from sending gas back down the pipeline ..., was evidently a risk which [Respondent] had decided to take. ... Sixth, even if the Operation Agreement were read along with the Contract, it is clear that the daily weighted average is required for management purposes and to see if there might have to be a discount; it has nothing to do with Article 3.10.1(b).

192. Accordingly the Arbitral Tribunal concludes that under the Contract [Claimant] is entitled to exercise its right under Article 3.10.1(b) at any time in respect of Deficient Quality, and, on that basis, there would be no need for a right to additional damages which Article 3.13 preserves for Deficient Quantities.'