2. BACKGROUND

8. After the delivery and installation of the machinery by the Claimant and the payment of some installments of the purchase price by the Respondent, a dispute arose between the parties concerning the compliance of the equipment with the terms of the Order. As a result, the Respondent refused to pay any further installments of the purchase price.

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5. FACTS

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a) On the signature of the Contract and the obligations of the Parties

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49. The Parties are also in agreement that the contract does not provide any specific terms for delivery, for installation or for the start-up date. The only references to any specific times are those referred to for payment purposes or in relation to the workmanship.

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79. According to [Claimant’s witness], the tests were so successful that the Respondent therefore agreed to sign the take-over certificate. Because it was very late, the Respondent informed that it would sign it the next day. [Claimant’s administrator] further recalls handing to [Respondent’s representative], the user’s manual for all the machines in a bundle of four parts. On the other hand, [Claimant’s administrator] recalls that [Respondent’s representative] firmly requested the Claimant to pay all the sub-contractors. [Claimant’s administrator] was a bit surprised by such a request since he had never received any complaint from the sub-contractors in this regard but that he would do it. [Claimant’s witness] as also claimed that safety regulations were not in force even on the day of the final tests. [Claimant’s witnesses] have confirmed before the Sole Arbitrator [Claimant’s administrator]’s version.

… a technician from the sub-contractor … has declared that: "[the plant] has been tested and that during the production’s test, the production’s temperatures were regularly kept"… [the legal representative of a related company] has declared "the plant was definitely and successfully tested" (written testimonies produced by Claimant…). According to the Claimant, the machine worked and there were big compliments from the Respondent to the Claimant on all fronts.

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102. During the relevant period, the Claimant had effectively failed to comply with its turnkey obligations in the following aspects. The Claimant had a turnkey obligation to design, manufacture, erect on site and start-up a production line. Whether a turnkey contractor has complied with his turnkey obligation undertaken for the construction of industrial works, as is the case of the Respondent’s production line manufactured by the Claimant, is demonstrated in the course of the taking-over or start-up tests, which are conducted after the works have been completed. Such requirements were definitely not met during the start-up tests, which were carried out in … July [year X]. This was due to the fact that the most vital component of the production line, i.e., the oven, failed – and still fails today – to [operate] in a uniform way. As a result, up to 10% of the production is constantly wasted even today. At the time of the start-up tests, the situation of the oven was even worse, which rendered the line completely inoperable. This deficiency is claimed to be due to the defective design and bad manufacturing of the oven … for which the Respondent was obliged to undertake expensive repairs by its own means and at its own cost in order for the line to operate in an acceptable, albeit not satisfactory, way. With regard to the oven in particular, the Respondent submits that the statement dated December 15 [year X+1], signed by one of the Claimants key sub-contractors … describes the unprofessional way in which the Claimant performed this transaction at the backstage (Exh. …).

Consequently, the Claimant "unfairly" called the advance payment guarantee, thereby depriving its counterparty of any protection whatsoever.

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7. DECISION

112. In light of the above-mentioned considerations, the key issue for the Sole Arbitrator to determine is whether the Claimant is entitled to full payment in view of the fact that it had correctly and completely fulfilled all of its obligations under the Contract or whether on the contrary, the Respondent was entitled to leave a part of the price unpaid and, in that case, if that portion of the price is the correct one to have been left unpaid.

113. Based on the general analysis of the facts, the Sole Arbitrator notes the following points of disagreement between the Parties.

a) The release of the bank guarantee

114. The Respondent contends that the "release of the bank guarantee" was effected in an unfair manner. The Claimant disagrees. In the Sole Arbitrator’s view, it is a factual point that the Respondent never objected to the Claimant’s release of the guarantee nor did the Respondent negotiate other terms until the present arbitration. The terms of the guarantee included express wording to the effect that the making of the demand in an appropriate form overrode the need to establish the accuracy or justification of any facts or alleged facts, (e.g. failure of due performance). The Sole Arbitrator considers that the Respondent, as an experienced businessman should have foreseen that the Claimant was providing an advance demand payment guarantee with such an effect on its cash flow or banking facilities as would prompt the Claimant to release the advance payment guarantee as soon as the plant was ready to be inspected.

b) The pre-delivery tests

115. The Sole Arbitrator notes that in their last submissions, the Parties have accepted that the pre-delivery test did in fact take place in December [year X-1] and in January [year X]. The Sole Arbitrator notes that the tests were conducted in accordance with the general practice of the branch of industry. As a result, remedies to enhance the line were provided for by the Claimant and accepted by the Respondent as a variation to the Contract. The Parties also agreed on the delivery date of the Plant, and on the specific delivery date for the new [part] which was to be made and sent at a later date. The Parties have further accepted before the Sole Arbitrator that the shipment of all the parts of the Plant, including the [new machine] took place, albeit Respondent contends that the shipment and installation up to delivery was late.

c) The delivery time

116. Therefore, the only question for the Sole Arbitrator to decide is whether the plant was delivered on time. The Sole Arbitrator notes that the requirement to complete by a certain date is not specified in the contract. It has been suggested that, where there is no express provision as to progress, business efficacy requires the implication of a term that the contractor will proceed with reasonable diligence and maintain reasonable progress. In view of the surrounding circumstances, the Sole Arbitrator finds that it cannot be said that this progress did not exist, and, in any case, the Respondent should have stated at the time if it believed that there was a failure of progress. By its letter dated June 14 [year X], the Respondent fixed a final time in writing for completion of the Claimant’s obligations. Take-over tests took place in the following days and the Respondent did not request termination of the contract or lodge any claim in this respect. The Claimant was therefore not guilty of delay, which according to article 40 of the Orgalime Rules would have entitled the Respondent to liquidated damages.

d) The take-over tests

117. This being established, the next step is to consider whether the "take-over tests" took place. The Parties are not in agreement on whether the take-over tests took place and if they did, whether they have been satisfactorily completed.

118. The Parties however do agree that the provisions set forth under Article 33 et seq. of the Orgalime Rules for the taking-over tests were not formally followed by the Parties. As a consequence of the Orgalime Rules not being formally followed, it is for the Sole Arbitrator to determine whether or not the "take-over tests" occurred, and it is therefore for the Parties to justify their submissions regarding these "take-over tests".

119. The Claimant understands that it has satisfactorily completed the taking-over of the Plant. In support of this, the Claimant makes three points. First, it stresses that the Respondent had agreed in writing to the completion of the plant and to the payment of the remaining amount. Second, whilst agreeing to pay on July 19 [year X], the Respondent failed to show any delay or request an opportunity to cure the possible defaults or to challenge the validity of the tests effected. Third, the Respondent bas started production.

120. On Respondent’s account, a) the take-over tests were not carried out or at least "proper" take-over tests were not carried out, b) no conclusive certificate issued under the contract has ever been issued and c) the Claimant has failed to produce a complete Plant.

121. The Sole Arbitrator finds that the facts confirm the Claimant’s position. As regards the Respondent’s argument that the take-over tests were not carried out, the Sole Arbitrator considers from the facts presented to her that the Parties were in agreement to proceed to carry out the taking-over tests in the early days of July [year X].. The Sole Arbitrator finds that the Respondent deliberately failed to sign the report presented to him whilst not requesting to remedy any deficiencies or requesting that new tests be carried out. In its above-mentioned letter of July 19, the Respondent did not challenge the tests, neither did it request that any defects be cured, nor did it show visible defects, nor raise any objection on the grounds of late performance or gross negligence.

The Sole Arbitrator finds that there is no evidence that the Respondent has ever requested a final certificate as it was entitled to do according to Clause 35 of the Orgalime Rules.

The Respondent has also failed to indicate what consequences it inferred from the fact that, in its view, the take-over tests were not satisfactorily effected. Lastly, the Respondent does not deny that in the autumn of [year X], the Plant entered into production.

As a result of the foregoing, the Sole Arbitrator finds that the Respondent has accepted the Plant and is therefore liable for payment.

e) The works were incomplete

122. This being said, it is this Sole Arbitrator’s understanding that even though the Respondent may have accepted the work (i.e. the Plant and its installation) so that a liability to pay the price of it arises, that will not (in the absence of a specific provision in the contract making the acceptance binding on him) prevent it from showing that the work is incomplete or badly done.

123. For the present purposes, it is important to point out that none of the Parties has terminated the contract at any time. In light of the presentation of facts, the Sole Arbitrator finds that in view of the non-payment, the Claimant could have opted (after due notification in writing to the Respondent), to suspend its performance or to terminate the same as pet Clause 47 of the Orgalime Rules, in case of non-payment. She considers that if the defects were so substantial as to significantly deprive the Respondent of the benefit of the contract, the Respondent would have terminated the contract. The Respondent obviously did not do so.

124. This being established, the Sole Arbitrator highlights that the Orgalime Rules provide for a period of time to remedy defects or any non-conformity of the work, (e.g. work which fails to comply with the express descriptions or requirements of the contract, including any drawings or specifications, together with any implied terms as to quality, workmanship, performance or design). The so-called Maintenance Period is also stated by formal requirements which were not followed by either of the Parties:

Clause 51 and 52 of the Orgalime Rules state that:

The Contractor shall remedy any defect or non-conformity (hereinafter termed defects) in the Works resulting from faulty design, materials or workmanship. The Contractor’s liability is limited to defects [or non-conformity] in the Works which appear within a period of one year from taking-over… The Purchaser shall without undue delay notify the Contractor in Writing of any defect [or non-conformity] which appears … On receipt of the notice … the Contractor shall remedy the defect without undue delay and at his own cost…

125. The Sole Arbitrator finds that there is substantive evidence to support the conclusion that the following works (enumerated in paras 126-128 below) were not in conformity with the requirements of the contract and were not remedied.

126. First let us consider the Respondent's submission that the [additional parts for the] machine were not provided by the Claimant. Without entering in technical discussions according to whether these two mechanisms were necessary or not (the Sole Arbitrator has heard contradictory evidence from the [parties’ respective technician witnesses]), the Sole Arbitrator finds that these two elements were requested by the Respondent while ordering the [new machine]. As a result, this request is tantamount to a variation to the contract as provided for under Orgalime Rules' clause 21 et seq. This variation was requested by the Respondent in writing to the Claimant. The Sole Arbitrator notes that Claimant has neither denied in writing such a variation nor delivered the [additional parts]. The Claimant has not conformed to the Contract in this aspect.

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128. In addition, the Respondent submits that the plant is working at approximately 90% of its capacity, having a 5% loss of production, mainly due to the defective construction of the oven. The Sole Arbitrator notes that the Claimant has not produced conclusive evidence that the oven, which constitutes an essential part of the Plant, has a standard performance and that as a consequence the Plant is able to function at a 100% of its capacity. The Sole Arbitrator’s further finds that Claimant's reaction to these queries was vague; as a result of the foregoing, the Sole Arbitrator is convinced that, as a whole, the oven is functioning at 95% of its expected capacity.

129. Being established that the aforementioned works were not in conformity with the contract and were not remedied, the Sole Arbitrator decides that the Respondent is entitled to a reduction of the contract price in proportion to the reduced value of the works. The Sole

Arbitrator refers to Clause 61 of the Orgalime Rules which reads "Where the defect [or non-conformity] has not been successfully remedied as stipulated under Clause 60: a) the purchaser is entitled to a reduction of the Contract price in proportion to the reduced value of the Works, provided that under no circumstance shall such reduction exceed 15 percent of the Contract Price" is applicable.