Date: Final Award, 2011

Origin of the parties: Asia and North America

Applicable substantive law: English law and the UNIDROIT Principles of

International Commercial Contracts 2004 (the "UNIDROIT Principles")

Respondent's Position

(A) Claimant's Obligations under the Agreement

189. The Agreement expressly sets out a number of obligations which Claimant undertook to perform. In addition, Claimant was under a number of implied obligations, that arose either from the express terms of the Agreement, or were implied by law.

(a) Express obligations under the Agreement

…..

(b) Implied obligations arising out of the Agreement

…..

(c) Obligations implied by law

200. Certain obligations are likely to arise under the UNIDROIT Principles.

(i) Obligation of Reasonable Care and Skill

201. Such a duty is likely to arise under Article 5.1.2 of the UNIDROIT Principles, which provides:

implied obligations stem from: (a) the nature and purpose of the contract; (b) practices established between the Parties and usages; (c) good faith and fair dealing; (d) reasonableness.

[I]n a contract for the supply of services (such as the Agreement), it is the nature and purpose of that contract which implies an obligation that the services will be carried out with reasonable care and skill. The requirements of good faith and reasonableness are also likely to imply such an obligation into the Agreement.

202. Accordingly, Claimant bad an obligation under the Agreement to provide its services, including in choosing and appointing subcontractors, with reasonable care and skill and, further, to ensure that any subcontractors appointed also carried out their services with such reasonable care and skill.

203. It is Respondent's further submission that Claimant cannot seek to avoid its liability for breach of this obligation by effectively delegating it to [its subcontractor] and attributing the fault to his poor performance. Claimant asserts, however, that it is able to delegate this obligation in the situation where Claimant was "wholly reliant on [its subcontractor] [ part of the project] and did not exercise independent input on this part of the project". The doctrine of privity of contract requires that a party to a contract (Party A) must be able to claim against the other party (Party B) for a breach of any of the contractual obligations, even if Party B had sub-contracted such obligation to a third party (Party C), as Party A has no contractual relationship with Party C to pursue him separately. Party B cannot escape liability and leave Party A with no remedy simply by sub-contracting his obligation.

(ii) Obligation to Supply Goods of Satisfactory Quality

205. As with the obligation of reasonable care and skill, it is likely that Article 5.1.2 of the UNIDROIT Principles would also imply an obligation to provide goods of satisfactory quality into a contract for the transfer of goods. Again, it is the nature and purpose of that contract which would give rise to such an obligation, coupled with the requirements of good faith and reasonableness.

206. Claimant disputes that the relevant test for satisfactory quality is "the standard a reasonable person would regard as satisfactory for a [product] to be used in the [industry]", claiming that this is not consistent with the express terms of the Agreement. However, at no point does Claimant suggest what the relevant test should be.

207. ln any event, whatever the standard may be, it is Respondent's submission that a [product] which has consistent [defaults] such that it … is … cannot on any standard be considered to be satisfactory. Safety is one of the key aspects which will determine the quality of goods.

(iii) Obligation to Supply Goods Fit for Particular Purpose

208. The requirement of good faith and fair dealing is likely also to imply an obligation to supply goods fit for the intended purpose into the Agreement under Article 5.1.2 of the UNIDROIT Principles, as where it was known to Claimant that the [products] were to be used for a particular purpose, it would be contrary to good faith to produce [products] which could not satisfy that purpose.

209. lt is quite clear that Claimant knew not only that the [products] were to be used for … but that the particular purpose for which Respondent wished to acquire the [products] was to [meet performance targets]. Accordingly, Claimant was under an obligation to provide [products] which were reasonably fit for achieving that purpose of [meeting performance targets].

210. Respondent maintains its submission that Claimant knew that the particular purpose for which Respondent sought to acquire the [products] was to [meet performance targets] and that Claimant terminated its subcontract with … precisely on these grounds …

211. In the alternative, even if Claimant was not under an obligation to provide a [product] fit for the purpose of [meeting performance targets] it was clearly under an obligation to provide a [product] which was reasonably fit for the purpose of achieving the [expected] performance targets, which Claimant itself accepts were expressly agreed in the Agreement.