'a) Did Respondent commit a breach of the contract?

137. As Claimant argues that Respondent failed to perform its obligation to deliver the Goods the Sole Arbitrator shall examine the performance of this particular obligation.

138. Pursuant to Article 4 of the Contract Respondent had to deliver the Goods in (7+2) 9 working days after receipt of the payment, in [the buyer's city].

139. Since the obligation of Respondent to deliver Goods is conditional on performance by Claimant of its payment obligation, the Sole Arbitrator has examined how Claimant fulfilled its obligations under the Contract.

140. The payment obligation was defined in Article 3 of the Contract. Claimant had to pay 20% of the Purchase Price at contract signing by bank transfer. For the remaining part of the agreed Purchase Price … Claimant was under obligation to open irrevocable and confirmed letter of credit.

141. The Sole Arbitrator accepts Claimant position that it duly performed the first part of the payment obligation by transferring the amount of … on 27 January 2012 to the bank account of Respondent. This is supported by the evidences furnished by Claimant and in particular Exhibits C-13 and C-14. The payment of the part of the Purchase Price is not disputable.

142. The Contract is silent on the term in which the letter of credit was to be opened and on the term for which it had to be effective. Since the expiration date has not been agreed by the parties, the Sole Arbitrator shall apply the relevant provisions from the CISG.

143. The date for opening of the letter of credit was not agreed by the parties.

144. Article 59 of the CISG provides as follows:

Article 59

The buyer must pay the price on the date fixed by or determinable from the contract and this Convention without the need for any request or compliance with any formality on the part of the seller.

145. Since the date is not fixed in the contract, the term shall be determined by reference to the Contract and CISG as Article 59 of the CISG directs.

146. In the case at hand, according to Article 4 from the Contract, Respondent had to deliver goods in 9 working days after receipt of the payment. This provision interpreted in accordance with the rule of construction contained in Article 8 of the CISG leads the Sole Arbitrator to the conclusion that the intent of the parties was to subject the delivery of the Goods to the issuance of the letter of credit as agreed in Article 3 from the Contract.

147. In this regard it is important to note that the obligation to open a letter of credit being an emanation of the buyer's obligation to take all requisite steps to enable payment under Article 54 of the CISG is no different an obligation than the buyer's obligation to pay the price.1 This conclusion is based on the fact that the CISG subjects the payment obligation under Article 53 and the buyer's obligation to take all requisite steps to enable payment under Article 54 of the CISG to exactly the same set of remedies available to the seller in case of breach of contract by the buyer.

148. In addition, Article 3 from the Contract provides that, the letter of credit had to be irrevocable. As such the letter of credit was meant to be an irrevocable commitment by a bank to pay to the seller the purchase price against documents evidencing that the goods have been shipped. It follows that the Parties agreed that the issuances of the letter of credit was the contractual means of payment for one of the instalments.

149. Therefore, the Sole Arbitrator finds that the letter of credit had to be issued prior to and valid as of the shipment of the Goods.

150. When an expiration date has not been agreed by the parties, a letter of credit needs to be valid for a reasonable period of time which should be determined in consideration of circumstances of the given case, particularly the risk that the credit is meant to cover.

151. This conclusion is supported by the following arguments.

152. The letter of credit as instrument is intended to cover both the risk of non-payment by the buyer and the risk of non-delivery of the goods by the seller. This view is supported by the wording of Article 58 (1) and (2) of the CISG which stipulate:

Article 58

(1) If the buyer is not bound to pay the price at any other specific time, he must pay it when the seller places either the goods or documents controlling their disposition at the buyer's disposal in accordance with the contract and this Convention. The seller may make such payment a condition for handing over the goods or documents

(2) If the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price.

153. Based on the above, absent any explicit agreement, the Sole Arbitrator finds that the letter of credit needed to be valid for a period of time covering the agreed time of shipment.

154. Having reviewed the evidences and in particular Exhibits C-3 and C-15 the Sole Arbitrator is satisfied that Claimant acted in accordance with the terms of the Contract. On 31 January 2012, Claimant procured opening of an irrevocable letter of credit which specified 8 February 2012 as a last date for shipment and 29 February 2012 as its expiry date and specified 21 days after issuance of transport documents as a term for tendering documents under the credit. These terms were in concurrence with the timing provided by the Contract.

155. The Sole Arbitrator finds that the credit was opened prior to delivery of the Goods and covered the agreed time of shipment.

156. … the letter of credit was sent by the issuing bank to the [bank in Respondent's country], which was the bank nominated in the Contract and shown in the letter of credit as paying bank, with request for confirmation.

157. The confirmation was refused and [the paying bank] motivated the refusal with "internal security reasons".

158. There is no evidence in the file whether the bank which was requested to confirm the credit advised the credit to Respondent.

159. Evident from the text of the letter of credit the confirming bank was not requested to advise the credit to a beneficiary and therefore the confirming bank was not under obligation to inform the issuing bank for its refusal to advise the credit.

160. However, it is evident from Respondent's email of 14 February 2012 (see Exhibit C-17) that it was informed of the issuance of the letter of credit. … Respondent informed Claimant that the draft letter of credit was rejected. Respondent argued that since there was no direct flight [between their respective cities] Respondent should transport the Goods to another country. Respondent accused Claimant of inserting "too many unreasonable conditions" into the draft letter of credit without expressly specifying which terms exactly Respondent found unreasonable. Finally, Respondent demanded 100% advanced payment.

161. Having analysed the terms of the letter of credit in comparison with the terms of the Contract, the Sole Arbitrator does not accept the opinion of Respondent that the terms of the credit were inconsistent with the Contract.

162. In the first place, the Contract provided in Article 2 in setting out delivery terms that the Purchase Price included shipment by air to [the buyer's city]. The agreed delivery terms were CPT.

163. Clause A-3 of the CPT INCOTERMS 2010 reads as follows:

A3 Contracts of carriage and insurance

Contract of carriage

The seller must contract or procure a contract for the carriage of the goods from the agreed point of delivery, if any, at the place of delivery to the named place of destination or, if agreed, any point at that place. The contract of carriage must be made on usual terms at the seller's expense and provide for carriage by the usual route and in a customary manner. If a specific point is not agreed or is not determined by practice, the seller may select the point of delivery and the point at the named place of destination that best suit its purpose.

164. Under Clause A-3 of the CPT INCOTERMS 2010, the seller must contract or procure a contract for the carriage of goods from the agreed point of delivery (which is the place where the goods shall be handed over to the carrier) to the named place of destination or, if agreed, any point at that place.

165. Clause A-3 CPT construed in conjunction of Article 2 of the Contract leads to the conclusion that Respondent had to conclude a contract for carriage of the Goods by air to the airport in [the buyer's city].

166. This is supported by Respondent's email dated 2 February 2012 (see Exhibit 4) where Respondent stated: "In terms of CPT [buyer's city] please kindly noted that the price of Final offer just including the cost of products and shipment by air to [the buyer's city] without Insurance."

167. The submission contained in the Respondent's email that there was no direct flight between [the seller's city and the buyer's city] remained unproved by the Respondent in these arbitration proceedings. Since this was a fact from which Respondent attempted to derive beneficial legal consequence Respondent had the burden to prove it.

168. Even if this fact was proven, the Sole Arbitrator considers that it would not be relevant to the case for the following reasons. The language of the Contract does suggest that Respondent was under obligation to deliver the Goods by providing for contract of carriage with regular carrier operating the route between [the seller's city and the buyer's city]. The contractual clause is supplemented by Clause A-3 CPT INCOTREMS 2010, which provides that the contract of carriage must be made on usual terms and provide for carriage by the usual route and in customary manner. Even if it is assumed that there was no direct flight operating between [the seller's city and the buyer's city] it is not clear why Respondent failed to deliver the Goods to Claimant by not using special cargo transportation delivering goods from the point of loading to the point of destination. Whether such kind of transportation was economically viable does not have a bearing on the content of the Respondent's delivery obligation. To the extent that the party autonomy is the primary source of rights and obligations under the CISG, as the language of Article 6 of the CISG confirms, and provided that the parties expressly agreed on delivery by air, Respondent was under obligation to deliver by air irrespective of whether there was direct flight between [the seller's city and the buyer's city].

169. For the reasons stated above the Respondent's submission that the letter of credit was not in compliance with the Contract shall fail.

170. Based on the foregoing the Sole Arbitrator concludes that terms of the letter of credit were completely in line with the terms of the Contract as interpreted above.

171. The second question which shall be addressed in assessing the performance of Claimant's payment obligation is whether the failure of [the paying bank] to confirm the letter of credit is of such nature to render the performance of Claimant's payment obligation in breach of the Contract.

172. The relevant provision is Article 54 of the CISG which reads as follows:

Article 54

The buyer's obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made.

173. Under Article 54 of the CISG the buyer shall take such steps or comply with such formalities as might be required to enable payment to be made. The question arises whether Article 54 of the CISG merely obliges the buyer to perform the steps necessary to satisfy the preconditions for payment, but does not automatically make the buyer responsible for the result, or whether the buyer breaches its obligations if the measures implemented prove unsuccessful. In particular, the question relevant to the facts of the present case is whether when the Contract provided for opening of confirmed letter of credit and the buyer fulfilled its obligation but the bank which had to add its confirmation refused to do so the buyer had complied with its payment obligation.

174. The Sole Arbitrator considers that the buyer's obligation under Article 54 is limited to taking steps and complying with formalities. Article 54 does not require the buyer to undertake that his efforts will result in the issuance of a letter of credit, or indeed in obtaining confirmation of the letter of credit already issued. Of course, under Article 53 the buyer is obligated to see that the price is paid, an obligation the consequences of which he may be relieved in part by the exemption provision in Article 79 of the CISG.

175. The literal interpretation of Article 54 leads the Sole Arbitrator to the conclusion that the obligation to procure confirmation of the letter of credit is an obligation of means and not obligation of result. Even if one accepts that Claimant assumed a commitment to issue a letter of credit and failure to procure issuance of the credit is tantamount to a complete failure to pay the purchase price, it could not be considered that Claimant undertook to achieve the result stated in the Contract, i.e. to procure confirmation of the letter of credit.

176. Evident for Respondent's email of 14 February 2012 (see Exhibit C-17) which also refers to Respondent's email as from 5 January 2012 (not submitted as evidence) the confirming bank was entirely a choice of the Respondent. The said email states:

Dear Sir,

Pls kindly find the mail that [X] sent to you dated on 5th January, which regarding the payment term of LC, we always emphasize we can just accept IRREVOCABLE AND CONFIRMED L/C AT SIGHT BY [Bank A] OR [Bank B]

177. To accept that procurement of confirmation of the letter of credit by a bank chosen by the seller is buyer's obligation of result would mean to admit that the seller may undermine performance of the contract by asking the bank nominated by him as a confirming bank not to confirm the credit.

178. Such interpretation of the CISG would be contrary to the general principle of good faith.

179. In this respect Article 7 of the CISG provides, that

(1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.

(2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.

180. As next step the Sole Arbitrator shall establish whether in the circumstances of the case Claimant indeed took "such steps… as may be required" to procure the issuance and the confirmation of the letter of credit, as provided by Article 54 of the CISG.

181. As accepted above in accordance with its contractual undertaking Claimant not only took such steps necessary to enable the payment by instructing the bank to open a letter of credit but also achieved the result evident from the fact that the contractually stipulated letter of credit was issued for the agreed amount and the terms of the letter of credit were in compliance with the terms of the Contract (see Exhibit C-15). The question is, therefore, whether Claimant breached its obligation for procuring confirmation of the letter of credit so issued by a bank nominated by Respondent which in effect is the issue whether Claimant complied with Article 54 of the CISG.

182. In the view of the Sole Arbitrator, Claimant took on only an obligation to employ its best effort to procure a confirmation of the letter of credit without being answerable for the outcome. Claimant could not guarantee that the confirming bank, which was nominated by Respondent, would confirm the credit and therefore the standard of its obligation was to carry out the steps needed to obtain a confirmation to the letter of credit. The refusal of [the paying bank] to confirm the letter of credit for "internal control policy" reasons was not imputable to Claimant. The reason for refusal so stated is unclear but may hardly be attributed to Claimant and was clearly beyond its control.

183. There is no evidence on record that Claimant was informed for specific reasons for refusal which might be brought under the heading "internal control policy".

184. For the reasons stated above the Sole Arbitrator holds that Claimant duly fulfilled its payment obligation in compliance with Article 3 from the Contract in conjunction with Article 53 and Article 54 of the CISG.'

1
ICC case no. 11894/2003 Yearbook Comm. Arb'n XXXI, Albert Jan van den Berg, ed. (Kluwer 2007) 148-171; ICC case no. 7585/1992.