ICC Awards

I. Decision on Claimant's Claim

1. Claimant is entitled to damages

…

b) Claimant was entitled to avoid the Contract under Article 72 CISG

79. The Sole Arbitrator holds that Claimant was entitled to suspend the performance of its contractual obligations [aa)] and then, after Respondent had failed to provide adequate assurance of its performance and invoked the shortcomings of Machine at the pre-acceptance test, to avoid the Contract in accordance with Article 72 CISG [bb)].

aa) Claimant was entitled to suspend the performance of its contractual obligations

80. Having considered all circumstances of the case, the Sole Arbitrator finds that Claimant was entitled to suspend the performance of its obligations under the Contract in accordance with Section 70 ORGALIME Conditions and Article 71 (1) CISG, respectively.

81. Pursuant to Section 70 ORGALIME Conditions:

[E]ach party shall be entitled to suspend the performance of his obligations under the Contract, where it is clear from the circumstances that the other party will not be able to perform his obligations. A party suspending his performance of the Contract shall forthwith notify the other party thereof In Writing.

82. Article 71 CISG provides:

(1) A party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that other party will not perform a substantial part of his obligations as a result of:

(a) a serious deficiency in his ability to perform or in his creditworthiness;∙ or

(b) his conduct in preparing to perform or in performing the contract.

[…]

(3) A party suspending performance, whether before or after dispatch of the goods, must immediately give notice of the suspension of the other party and must continue with performance if the other party provides adequate assurance of his performance.

83. The Sole Arbitrator notes that both Section 70 ORGALIME Conditions and Article 71(1) CISG not only apply in cases where the parties have agreed on concurrent performance, but also where the debtor must perform in advance.¹ The Sole Arbitrator further notes that Section 70 ORGALIME Conditions, by its wording, refers to the debtor’s deficiency in the ability to perform as a ground for suspension, while according to Article 71(1)(b) CISG, also the debtor’s conduct in preparing to perform or in performing the contract can evidence an anticipated failure to perform. In this regard, the Sole Arbitrator notes that none of the Parties argued that the scope of Section 70 ORGALIME Conditions is more limited than that of Article 71(1) CISG. Hence, all sorts of disturbance that affect a party’s ability or unwillingness to perform may be taken into account when deciding on a party’s right of suspension.² On the other hand, the Sole Arbitrator notes that the standard of being "clear" in Section 70 ORGALIME Conditions appears to be narrower than the standard of "becoming apparent" in Article 71(1) CISG, and thus, requires at least a high degree of probability that the debtor will not perform his obligations. Hence, mere rumors that the debtor might not perform its contractual obligations are no sufficient ground for endangerment within the meaning of Section 70 ORGALIME Conditions.

84. The Sole Arbitrator, in interpreting the chronology of events in the first half of [year X], and in particular Respondent’s letter to Claimant dated 29 June [year X], holds that there was a high probability for a future breach of contract by Respondent. Specifically, the Sole Arbitrator finds that Respondent, by the content of its above referenced letter, eventually confirmed the already existing uncertainty of whether Respondent was able to fulfill its obligation to pay the second and third instalment of the purchase price. As evidenced by the credible witnesses’ testimony of [Claimant’s directors], Respondent, after having introduced the leasing option in January [year X], including the possible Contract assignment, by which Respondent would have been released from its obligation to pay the open purchase price, has neither cooperated nor communicated in a clear way with Claimant over months. In particular, Respondent has not replied to Claimant’s clarification requests of whether Respondent was willing to provide adequate assurance of its payment obligations or whether the Contract was eventually assigned to the Leasing Company.

85. In particular, the Sole Arbitrator holds that, in accordance with the understanding that a reasonable person of the same kind as Claimant would have had in the same circumstances (Article 8(2) CISG), (i) Respondent’s explicit reference to the financial and economic crisis ("[i]n this moment of International financial and Economic Crisis situation") and the difficulty to obtain the financing of its payment obligations ("[t]he Banks and the Leasing houses close the doors for credits"), (ii) Respondent’s offer to modify the terms of the Contract in accordance with its "Plan of Payments" attached to its letter of 29 June [year X], as well as (iii) the fact that Respondent subsequently accepted Claimant’s help in finding alternative financing options, justified Claimant in suspending its obligations, namely to deliver the Machine and to conduct the final acceptance test.³

86. The fact that Respondent, in its above-referenced letter, referred to "actual expired obligations" and stated that "it is impossible to pay all together", as well as the fact that the letter, as evidenced by [the testimony of Respondent’s witness], was not only sent to Claimant but to many of Respondent’s business partners does not change the Sole Arbitrator’s finding. Firstly, a right of suspension does not require an actual but only an impending breach of obligation.⁴ Secondly, it is Respondent who bears the risk for any ambiguity of its statement that "it is impossible to pay all together",⁵ especially since Respondent’s letter did not contain any information of the willingness of one of Respondent’s business partners to agree to a moratorium and/or a modified payment plan.

87. The Sole Arbitrator further notes that Claimant, already at the [final acceptance test] on 19 and 20 February [year X] and later by e-mails of [Claimant’s director], at least impliedly gave notice of the suspension of its contractual obligations in accordance with Section 70 sentence 2 ORGALIME Conditions and Article 71(3) CISG. In this regard, the Sole Arbitrator notes that a notice of suspension does not need to observe any specific form requirement.⁶ The Sole Arbitrator further notes that the purpose of such notice is to enable Respondent to provide adequate assurance of its performance and thereby to eliminate the suspicion of a future breach of contract.⁷

88. In light of the above, the Sole Arbitrator finds that Claimant’s repeated reference to Respondent’s alleged contractual obligation to provide a letter of credit does not make Claimant’s implied notice of suspension invalid. This applies even more in light of Claimant’s efforts to help Respondent in financing the open purchase price. In any case, the Sole Arbitrator adheres to the view pursuant to which the breach of the duty to give notice does not bar the right of suspension but only gives rise to a damages claim of the other party.⁸

89. In light of the foregoing, Claimant was entitled to suspend the performance of its obligations under the Contract.

bb) Respondent declared its refusal to perform its contractual obligation

90. The Sole Arbitrator further finds that Respondent declared its refusal to perform its contractual obligation in terms of Article 72(3) CISG.

91. In this regard, the Sole Arbitrator adheres to the now prevailing view pursuant to which the debtor’s failure to provide adequate assurance - by which the creditor’s right of suspension would have ceased to exist - automatically amounts to a refusal to perform within the meaning of Article 72(3) CISG.⁹ In passing, the Sole Arbitrator notes that otherwise the creditor would be ‘paralyzed’ under Section 70 ORGALIME Conditions and Article 71 CISG, as long as the breach of contract on behalf of the debtor is impending and no adequate assurance has been provided. Such solution appears not to be flexible and tailored to international trade and in particular to the creditor’s much needed flexibility to call off the contract at one point of time and to arrange itself otherwise.¹⁰

92. But even if one follows the view that the failure to provide assurance does not in and of itself constitute a refusal to perform but only serves as an indication thereof,¹¹ the Sole Arbitrator holds that Respondent, by suddenly claiming non-conformity of the Machine in October [year X], i.e. eight months after the pre-acceptance test at Claimant’s premises, confirmed its refusal to perform the Contract in terms of Article 72(3) CISG. In this regard, the Sole Arbitrator notes, that, contrary to Respondent’s allegation, the pre-acceptance test at Claimant’s premises, as provided by Section 8 of the Contract as well as Section 8 ORGALIME Conditions ("tests before shipment"), does not indicate any non-conformity of the Machine, since the question of whether the Machine actually conforms with the Contract would have become relevant only after delivery of the Machine (cf. Article 35(1) CISG). Thus, the initial take-over note only serves as a documentation of the actual status of the Machine. If the actual status of the Machine did not fulfil the agreed pre-acceptance conditions, it would have been up to Claimant, after delivery of the Machine, to proof that the Machine is in conformity with the Contract.¹²

93. In light of the foregoing, the Sole Arbitrator finds that Respondent’s refusal to perform entitled Claimant to avoid the contract, even without prior notice. Consequently, Claimant did not only rightfully declare the Contract avoided (Article 26 CISG) by its letter to Respondent dated 11 December [year X], but is also entitled to claim damages in accordance with Articles 74 to 77 CISG.

2. Claimant’s claim for damages …

94. The Sole Arbitrator finds that Claimant is entitled to damages in the [amount Y].

95. Article 74 CISG provides:

Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of the contract.

96. The Sole Arbitrator, with reference to his Procedural Order No. …notes that Claimant’s re-calculations of its damages claim did not constitute a ‘new claim’ in terms of Article 19 ICC Rules. However, the Sole Arbitrator finds that Claimant, under Article 74 CISG, cannot require Respondent to pay the remaining purchase price … by way of a claim for specific performance. According to the principle of full compensation contained in Article 74 sentence 1 CISG, the aggrieved party has the right to be compensated for all disadvantages suffered as a result of the breach of contract.¹³

97. The purpose of Article 74 CISG is to place the aggrieved party in the same pecuniary position it would have been in had the breach not occurred and the contract been properly performed.¹⁴ The aggrieved party is thus entitled to compensation of its non-performance loss. In passing, the Sole Arbitrator notes that non-performance loss is generally foreseeable in terms of Article 74 sentence 2 CISG.¹⁵

98. At the same time, damages must not place the aggrieved party in a better position than it would have enjoyed if the contract had been properly performed. Thus, in calculating the amount of damages owed to the aggrieved party, the loss to the aggrieved party resulting from the breach is to be offset, in principle, against any gains to the aggrieved party, including saved expenses, resulting from the non-performance of the contract.¹⁶

99. In light of the foregoing, the Sole Arbitrator calculates Claimant’s damages claim as follows:

(1) Had Respondent not committed an anticipatory breach of contract and had the Contract been properly performed, Claimant would not only have received the first instalment … but received all three instalments of the purchase price. Hence, the starting point for the calculation of Claimant’s damages claim is the [amount X].

(2) At the same time, Claimant would have delivered the bespoke Machine to Respondent’s subsidiary … and incurred costs for the delivery of 10 sets of … blades for the Machine as well as expenses for "[f]reight and site installation", "[f]ixed start-up and commissioning", including a four days "[t]raining for operators and maintenance people …" … Therefore, the Sole Arbitrator finds that the present day value of the Machine (a) which is still in the possession of Claimant as well as the expenses that Claimant would otherwise have incurred (b) have to be deducted from [amount X].

(a) With regard to the present day value of the Machine, the Sole Arbitrator follows the Expert’s findings in his Expert Report ... In this Expert Report, the Expert held that

- it is not possible to put a realistic figure to a sale price for the complete Machine given the considerable uncertainties in the present advanced machine tool global market and the many similar new and used standard [machines] presently available;

- the need to pursue a scrap value for the complete Machine is not a serious option compared to the total value of re-selling or re-using the Machine’s component parts;

- the most appropriate method for the monetary evaluation should be where the Claimant would seek to re-use the Machine’s component parts on future production machines; that

- the total value of re-usable component parts …; and that

- the total scrap value of the remaining, i.e. not re-usable component parts …

By taking into account the total value of the re-usable component parts as well as the total scrap value of the remaining parts, the present day value of the Machine to be deducted thus adds up to [amount A].

(b) With regard to the expenses that Claimant would otherwise have incurred, the Sole Arbitrator notes that the Machine had already been manufactured by Claimant when Respondent breached the Contract. The fact that Claimant had already incurred expenses by performing the Contract had therefore not been subject to any discussion between the Parties. Thus, the Sole Arbitrator finds that these expenses do not have to be deducted when calculating Claimant’s damages claim. The Sole Arbitrator further notes that the Parties granted the Sole Arbitrator full discretion to decide whether and, if so, in what amount Claimant saved any further expenses as a consequence of the non-delivery to the Machine …(cf. Procedural Order No.…summarizing the conference call between the Sole Arbitrator and the Parties’ counsel …). In exercising this full discretion and by taking into account an hourly rate of …, calculated on the basis of Claimant’s Quotation… Claimant’s estimated freight costs as well as Claimant’s calculation of the time to be spent at [Respondent’s subsidiary]’s premises ([hundreds of] man hours, cf. Claimant’s post-hearing submission …), the Sole Arbitrator estimates the expenses saved by Claimant as follows:

- freight costs…

- costs for site installation, start-up and commissioning of the Machine as well as a four days training …

- 10 sets of … blades…

Thus, the amount of saved expenses to be deducted from the amount of EUR [X] adds up to [amount B] Consequently, the total amount to be deducted from [X] adds up to [amount A+ amount B].

100. Since Respondent has not substantiated its allegation that Claimant failed to comply with its duty to mitigate loss under Article 77 CISG, the Sole Arbitrator thus concludes that Claimant is entitled to damages in the [amount Y] ….

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