1.10 The Dispute

125. … [Respondent's Director] sent a letter to [Claimant’s director] claiming that the Production Line was still not operating adequately, the production results as represented in the Sales Contract had not been met and, as a result, [Claimant] was not entitled to payment under the Sales Contract. [Respondent] further stated that it intended to ask for "the available remedies due to the [Claimant’s] clear breach of contract” …

126. The Parties met again … to discuss the way forward … [Claimant] immediately thereafter issued a new plan entitled… which was intended to resolve all outstanding issues with the Production Line…The plan called for further performance testing, but this testing was delayed for several months pending delivery… that [Respondent] had ordered from a third-party supplier for the Production line...

127. … the Parties met again to discuss how to achieve closure on the Production Line. Following lengthy discussions, the Parties were unable to reach an agreement, as [Claimant] insisted on a payment plan for its outstanding invoices and [Respondent] insisted that [Claimant] resolve all outstanding issues with the Production line before making any further payment.

128. [Respondent] thereafter requested that [Claimant]'s personnel return to the plant … to continue performance testing, but [Claimant] informed [Respondent] … that it would not do so until [Respondent] paid various outstanding invoices …

129. … [Claimant] sent a demand letter to [Respondent] claiming that [Respondent] was in breach of the Sales Contract, and requesting payment of the [total amount] by … failing which it would initiate arbitration pursuant to Section 14.0 of the Sales Contract…

130. [Respondent] replied by letter … ln that letter, [Respondent] claimed that [Claimant] had breached the Sales Contract, acted with willful misconduct and gross negligence, and engaged in fraud and deceit in the design and construction of the Production line. [Respondent] thus requested [Claimant] to fulfill all of its contractual obligations by [date], failing which it would initiate arbitration and claim for costs and damages …

131. … [Claimant] commenced this arbitration by filing a Request for Arbitration with the Secretariat of the ICC Court pursuant to the arbitration agreement contained in Section 14.0 of the Sales Contract and the ICC Rules.

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6.4.2. [Respondent]’s Alternative Damage Claims

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b) [Respondent]'s Claim for "Mitigation Costs" pursuant to CISG Article 77

572. [Respondent] further claims that it is entitled to recover all six sub-categories of its "Mitigation Costs" pursuant to CISG Article 77, even if the Sales Contract is not avoided or rescinded …

573. CISG Article 77 sets forth the following requirements regarding the mitigation of damages for breach of contract:

A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated.

i) [Respondent]'s Position

574. According to [Respondent], reasonable costs incurred by a party to mitigate its losses are recoverable as damages … [Respondent] further asserts that but for the incurrence of the "Mitigation Costs", it would have lost substantial sales or continued to incur significant costs, which would have made its damages even higher….

575. [Respondent] divides its "Mitigation Costs" into six sub-categories, as summarized below…

a) Incremental Production Costs …: [Respondent] claims … for "[a]dditional production costs incurred to make products" with the Production Line attributable to the "inability of the line to perform as promised and represented', including with respect to "labor, energy, wastage and wastage disposal' costs...

b) Caver Costs …: [Respondent] claims … for '[a]dditional production costs incurred to make products on another production fine and at a higher cast" to fulfill orders that the Production Line could not fulfill … [Respondent] claims that in purchasing the [Claimant] Production Line, it intended to use its existing [x] line solely for the production of aluminium products, before relocating that line to a new production facility in [a country in Europe]. As a result of the performance problems with the Production Line, the [x] line was used to caver significant portions of the orders that were supposed to have been produced on the [Claimant] Production Line, resulting in increased labour, energy, waste and waste disposal costs …

c) Repair Costs: [Respondent] claims … for "[e]xpenses incurred in installing, modifying and repairing the line in an attempt to bring its performance into compliance" with [Claimant]'s representations. This amount includes the cast of outside personnel who rendered support to [Claimant] personnel during their visits to [Respondent]'s plant, and materials acquired from outside suppliers for the repair and adaptation of the Production Line.

d) [Claimant] Personnel Costs: [Respondent] claims … for "[c]osts [Respondent] paid to caver travel and meal expenses incurred by [Claimant] personnel in an attempt to bring the performance into compliance" with [Claimant]'s representations …

e) Subsidiary Costs: [Respondent] claims … for "[e]xtraordinary expenses incurred by [Respondent's subsidiary]" to mitigate [Respondent]'s losses once it became apparent that the Production Line was unable to perform as represented by [Claimant]. According to [Respondent] and its experts … the alleged poor performance of the Production Line, … "resulted in continuous delays and/or product quality issues … which ultimately resulted in a loss of confidence in [Respondent], a gradual loss of market share, and the decision to shut this subsidiary down to avoid further losses."

f) Freight Costs: [Respondent] claims … for freight costs … for products manufactured at [Respondent]'s plant and shipped to customers in [a country in Europe] … [Respondent] claims that it incurred these costs since it was unable to relocate its [x] line to [a country in Europe] according to the originally planned timetable, since this line had to be used in [Claimant’s country] to caver production shortfalls of the [Claimant] Production Line.

576. [Respondent] further argues that its claims for "Mitigation Costs" are not precluded by the limitation of liability set forth in Section 17.0 of the Sales Contract and contends that this provision is inapplicable and/or cannot be invoked by [Claimant] …

ii) [Claimant]’s Position

577. [Claimant] takes the position that [Respondent]'s damage claims are excluded by the limitation of liability contained in Section 17.0 of the Sales Contract, which precludes [Respondent] from recovering a variety of different types of damages, as well as "any special, incidental or consequential damages" ... Indeed, [Claimant] characterizes [Respondent]'s "Mitigation Costs" as

nothing more than a reformulation of lost profits or lost revenue claims, bath of which are either explicitly precluded by the Limitation of Liability Clause or fall squarely within the definition of "consequential damages", which are explicitly precluded.

578. Even if the contractual limitation of liability is not effective, [Claimant] asserts that [Respondent]'s damages analysis is flawed, and that what [Respondent] and [Respondent’s expert] present as "Mitigation Costs"

do not, in fact, arise from legitimate efforts by [Respondent] to "mitigate" or reduce its damages, but are instead traditional damage claims based on extra costs that [Respondent] claims to have incurred as a result of the under-performance of the Line" …

579. [Claimant]'s accounting experts … opine that the economic loss analysis advanced by [Respondent] and [Respondent’s expert] is flawed, and that this is actually a case of "buyer's remorse" as a result of [Respondent]'s ill-timed expansion strategy …:

[Respondent]'s problems stem not from the new fine being unable to produce additional output at a faster rate, but rather from the tact that the market turned dawn and the demand for greater output was not there. Thus, if seems from our perspective, that we have a case of "buyer's remorse," where [Respondent] regretted ifs mistimed expansion strategy, which caused if to acquire additional capacity if did not need

580. Further, [Claimant] makes the following additional arguments with respect to each of [Respondent]'s six sub­ categories of "Mitigation Costs":

a) Incremental Production Costs …: The extra labour, energy and waste costs sought by [Respondent] do not represent true mitigation costs, but are instead "increased expense of operations" that are expressly excluded by the limitation of liability in Section 17.0 of the Sales Contract …. [Claimant] also highlights the "absence of any real corroboration of the alleged costs" ….

b) Caver Costs …: [Claimant] notes that despite having to deal with overflow from the Production Line, the [x] line was operating at just 60% capacity in [year 1] [Claimant] also asserts that [Respondent] has not provided sufficient evidence as to why it used the [x] line in [year 1] instead of running the [Claimant] Production Line for longer periods, or why [Respondent] no longer used the [x] line after [year 1] to manufacture products made on the Production Line … ln any case, most of the damages for this category relate to the actual production time of the [x] line as compared to the projected production speeds for the [Claimant] Production Line as listed in the Sales Contract, which speeds, [Claimant] contends, are ideal and not guaranteed …

c) Repair Costs: [Claimant] asserts that the expenses for non-[Respondent] personnel to support [Claimant] personnel during their visits to [Respondent] are incidental damages clearly excluded by the limitation of liability in Section 17.0 of the Sales Contract. In addition, [Claimant] critiques the lack of specificity in [Respondent] 's pleadings and the [Respondent’s expert]’s Report which generically describe the repair work performed as "Off Loading and Installation" … As for the materials component of the repair costs, [Claimant] asserts that the schedule of expenses appended to the [Respondent’s damages expert]’s Report includes many items purchased … before the Production Line was even installed and therefore cannot relate to repair of the Production Line…

d) [Claimant] Personnel Costs: [Claimant] criticizes the inclusion of expenses linked to [Claimant] personnel having meals at the [Respondent] cafeteria …

e) Subsidiary Costs: [Claimant] contends that this category of expenses consist of consequential damages that are precluded by the limitation of liability in Section 17.0 of the Sales Contract … Moreover, according to [Claimant], such costs are not recoverable because [Respondent] failed to present any evidence that they were incurred because of the performance of the Production Line, or that they were foreseeable to [Claimant] when it entered the Sales Contract, a condition for the awarding of damages under CISG Article 74 ...

f) Freight Costs: [Claimant] asserts that [Respondent] has failed to prove a causal link between the performance of the Production Line, and alleged increased freight costs due to the decision to delay moving the [x] line to [a country in Europe]. [Respondent] acknowledges that, in [years 2 and 3], the [x] line was not used to make any products made by the [Claimant] Production Line. According to [Claimant] and its experts … it is therefore clear that [Respondent] 's decision not to move the [x] line was due to the collapse of housing and construction markets in [a country in Europe] rather than any underperformance of the Production Line …

iii) Analysis

581. After considering the evidence on record and the submissions of the Parties, the Sole Arbitrator finds that [Respondent] is not entitled to recover any of the six categories of "Mitigation Costs" due to the limitation of liability set forth in Section 17.0 of the Sales Contract, the failure to establish a causal connection and/or the failure to establish foreseeability of the damages claimed.

Contractual Limitation of Liability

582. The Sole Arbitrator finds that at least four, if not all six, of [Respondent]'s claims for "Mitigation Costs" are excluded by the limitation of liability contained in Section 17.0 of the Sales Contract, which provides that

"[n]otwithstanding any other provision of the Contract", [Claimant] shall not be liable for such losses as "increased expense of operation ... loss of use of capital or revenue ... or for any special, incidental or consequential loss or damage".

583. The Sole Arbitrator does not accept the various arguments that [Respondent] has raised to the effect that this contractual limitation of liability is inapplicable and/or cannot be invoked by [Claimant]:

a) [Respondent] argues that the Parties never negotiated this limitation of liability, which was drafted by [Claimant], and that its terms are ambiguous (e.g., Section 17.0 refers to [Claimant’s initials] instead of the defined term the "Seller" used elsewhere in the Sales Contract) … However, the evidence on record establishes that the Parties engaged in fairly extensive negotiations and exchange Several rounds of drafts before agreeing on the final version of the Sales Contract. In such circumstances, it cannot be credibly asserted that [Claimant] imposed the limitation of liability or any either terms on [Respondent]. [Respondent] is a sophisticated commercial party and was free to negotiate the terms of the contractual limitation of liability. Moreover, the fact that the provision refers to [Claimant’s initials] instead of "[Claimant]" or the "Seller" is not so ambiguous as to constitute a justifiable reason to preclude operation of this provision.

b) [Respondent] further contends that, upon avoidance or rescission of the Sales Contract, Section 17.0 becomes inapplicable as it would not survive such avoidance or rescission … However, as discussed above in Section 6.4.1(g), the Sole Arbitrator does not accept [Respondent]'s claim that the Sales Contract should be avoided for fundamental breach. There is also no basis for rescission of the Sales Contract on the grounds of deceptive trade practices or fraud, as will be addressed in detail below in Sections 6.4.3 and 6.4.4. It follows from these findings that the limitation of liability set forth in Section 17.0 of the Sales Contract is effective in the present case.

c) [Respondent] also claims that [Claimant] should be prohibited from invoking Section 17.0 of the Sales Contract as this provision impermissibly alters the character of the performance in such a way as to lead to an imbalance between the performance of the parties, contrary to UNIDROIT Principles Article 7.1.6. Further, [Respondent] argues that limitation of liability clauses cannot be invoked where they would deprive the promisee of all rights or remedies, as it claims would be the case here … The Sole Arbitrator does not agree that the limitation of liability is inherently unfair or leads to an evident imbalance between the performances of the Parties. This provision does not relieve [Claimant] "of any and all liability for any breach of the Sales Contract" …, but rather sets limits concerning the type of loss that is recoverable, the amount recoverable, and the time period during which damage claims must be asserted. This is a very typical contractual limitation of liability that can be found in countless international contracts and should be enforced in accordance with its terms.

584. With respect to the [Respondent]'s six sub-categories of "Mitigation Costs", the Sole Arbitrator finds that the limitation of liability set forth in Section 17.0 of the Sales Contract operates as follows:

1. Incremental Production Costs…: The incremental production costs claimed by [Respondent] in connection with the operation of the Production line and, in particular, the increased labour, energy and waste costs, clearly fall within the category of "increased expense of operation" which is expressly excluded by the first paragraph of Section 17.0.
2. Caver Costs…: These caver costs also constitute "increased expense of operation" excluded by Section 17.0 insofar as [Respondent] again claims for increased labour, energy and waste costs related to the use of the [x] line. These costs could aIso fall under the category "loss of use of capital or revenue" excluded by Section 17.0, since [Respondent] claims that it couId not relocate the [x] line to [a country in Europe] because it had to be used to make up for shortfalls with the Production line.
3. Repair Costs: While not entirely clear, these repair costs arguably fall under the category of "incidental” losses expressly excluded by the first paragraph of Section 17.0 of the Sales Contract. In any case, these repair costs are not recoverable for other reasons addressed below.
4. [Claimant] Personnel Costs: While not entirely clear, these [Claimant] personnel costs arguably fall under the category of "incidental' losses expressly excluded by the first paragraph of Section 17.0 of the Sales Contract. ln any case, these [Claimant] personnel costs are not recoverable for other reasons addressed below.
5. Subsidiary Costs: These costs relate to [Respondent]'s decision to close its French subsidiary allegedly because of the Production Line's underperformance. As such, these costs are a clear example of "consequential loss" which is expressly excluded by Section 17.0 of the Sales Contract.
6. Freight Costs: Similarly, the freight costs claimed for the shipment of product from [Respondent’s country] to [a country in Europe] allegedly due to a decision not to relocate the [x] line to [a country in Europe] are also an example of "consequential loss" which is expressly excluded by Section 17.0 of the Sales Contract.

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