'Summary of Background

1. The Claimant is a government company within the meaning of Section 617 of the (Indian) Companies Act of 1956, incorporated in India and having its registered office [in India].

2. The Respondent is a private limited company incorporated in Singapore and having its registered office [in Singapore]

3. On December 1, 1993 the Claimant invited quotations for the purchase of 30 (thirty) [products] for the Claimant's [factory in] India. The offers were invited to be submitted [in India].

4. The Respondent authorized [an Indian company] to provide quotation on the Respondent's behalf in response to the aforesaid enquiry. . . .

5. A price negotiation meeting between the Claimant and the aforesaid Indian representative of the Respondent for the supply of the [products] was held in India . . .

6. After reaching agreement the Claimant placed a purchase order with the Respondent . . . for the purchase of the [products] at the price of . . . According to the Claimant, the Purchase Order contains a Guarantee Clause providing that ". . . these [products] stand guarantee for an average rolling life of . . ., in case your [products] fail prematurely, the same shall be replaced/repaired by you free of cost. In the event of non-compliance of the above life guarantee, pro-rata deduction shall be made from your account."

7. By its letter dated October 25, 1994 the Respondent accepted the Purchase Order and submitted a Pro-forma Invoice.

8. The Claimant alleged that there were certain discrepancies and 25 of the [products] were defective and failed prematurely. The Claimant informed the Respondent of the defects and requested the Respondent replace the defective and failed [products] pursuant to the Guarantee Clause specified in the Purchase Order. The Claimant alleges that despite its reminder, Respondent failed to replace the defective and failed [products] and to comply with the Guarantee Clause and as a result the Claimant suffered a huge loss.

9. Respondent denied the alleged existence of any discrepancies or defects and that there was any agreement between the parties for the replacement of any of the [products].

10. The Claimant claims:

(1) An amount of . . . towards pro-rata landed cost of 25 failed [products];

(2) Interest at 18% per annum from 15 September 1998

(3) Interest pendent lite and future;

(4) Cost and expenses; and

(5) Any other amount as the Sole Arbitrator and/or ICC International Court of Arbitration deem fit and proper.

11. The terms and conditions of the Contract are silent about the applicable substantive law. The Arbitration Clause found in Annexure-II to the Purchase Order merely states that "All disputes arising in connection with present contract shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more Arbitrators appointed in accordance with the said Rules." The Claimant submitted that Indian law shall be the governing law of contract. However, the Respondent submitted that the Singapore law should be the applicable substantive law.

Issue

12. According to the Terms of Reference signed by the parties on 30th November 2002 and the Provisional Timetable attached thereto, the parties agree that the issue of applicable substantive law is of prime importance. Therefore, the parties agree that the issue of applicable substantive law ought to be decided as preliminary issue and the decision of the preliminary issue will be incorporated into the Final Award.

. . . . . . . . .

The Parties' Respective Submissions on Applicable Substantive Law

25. According to the Claimant's Written Submissions on the Applicable Substantive Law to the Present Arbitration dated 15/1/03 (treated as "Claimant's Reply Submissions"), the Claimant submitted that the applicable substantive law should be the laws of India. The Claimant relied on the following reasons:

(1) The Contract between the Claimant and the Respondent is a contact for international sale of goods ([products]) as the Claimant and the Respondent belong to two different nations and the contract is one for the supply and delivery of goods from one nation to another. The irrevocable Letter of Credit dated 10.2.1995 opened in favour of the Respondent itself referred to the sale of goods being covered by the Indian EXIM (Export-Import) Policy of 1992-1997 (which is a categorical affirmation of the Indian Law and policy being applicable to the contract in question). The Claimant contends that reference to the Indian EXIM Policy of 1992-1997 as being applicable to the goods sold under the contract in question is indicative of the choice of substantive law on the part of the parties and hence there should be no ambiguity as to the applicable law of the contract.

(2) In the event that the Arbitrator were not [to] find that there is no express choice of law made by the parties, the Claimant would rely on the following submissions in support of its contention regarding Indian law being the applicable substantive law of the contract:

A. General Principle of International Law;

B. Principle of Lex Mercatoria;

C. Recognized International Treaties and Conventions; and

D. Rules of Conflict of Law

(3) The Claimant, relying on the aforesaid indicia collectively, contends that:

A. The proper law of contract is to be determined with reference to the law with which the transaction has the "closest and the most real connection";

B. International Conventions and Treaties have played an important role in guiding the arbitrators/courts in reaching their decisions as to the applicable substantive law governing the contract. In many ICC decisions recourse pas been made to the principles of Lex Mercatoria in cases where no express or implied choice of law been made by the contracting parties;

C. The Claimant also relied upon Article 8 in Section 1 of Chapter II of the Convention on the Law Applicable to Contracts for the International Sales of Goods (the Hague Convention 1986) which provides that:

(1) To the extent that the law applicable to a contract of sale has not been chosen by the parties in accordance with Article 7, the contract is governed by the law of the State where the seller has his place of business at the time of conclusion of the contract.

(2) However, the contract is governed by the law of the State where the buyer has his place of business at the time of conclusion of the contract, if:

(a) negotiations were conducted, and the contract concluded by and in the presence of the parties, in that State; or

(b) the contract provides expressly that the seller must perform his obligation to deliver the goods in that State; or

(c) the contract was concluded on terms determined mainly by the buyer and in response to an invitation directed by the buyer to persons invited to bid (a call for tenders).

(4) The Claimant submitted that the transaction in the present case has the "closest and most real connection" with India, as the purchase enquiry i.e. call for tender ("invitation to offer") was issued in India. Subsequently, the quotation for supply (i.e. offer) of [the products] was received in India, submitted by the Respondent's Indian Representative . . . having their place of business in . . . India. Price negotiations took place in India . . ., the purchase order (i.e. acceptance of the Respondent's quotation) for the supply of [the products] was placed in India, received by the Respondent's Indian Representative. Further, the contract for the supply of [the products] was on CIF basis wherein the port of discharge of the [the products] was to be made in India. Also, the destination and final place of delivery was India. The Claimant also submitted that as per contract the [products] stood guaranteed for an average rolling life of . . . The [products] were to perform as per the aforesaid guarantee in India, in the Claimant's plant. Thereafter the defect in [the products] (failure of [the products]) was discovered in India. In these circumstances the cause of action arose in India. Further, the evidence of defects (failures) in goods was given to the engineers of the Respondent in India. The Claimant cited the case of National Thermal Power Corporation vs Singer Company & Ors decided on 7.5.1992 (reported in 1992 3 SCC 551) in support of the principle of "closest and most real connection". Relying on the aforesaid premises the Claimant concludes that the applicable substantive law to the contract should be Indian law.

(5) The Claimant also submitted that the Claimant is covered by the established principles recognized in the Hague Convention 1986 (under Clause (2) Sub-clause (b) of Article 8) as the contract provides expressly that the seller must perform his obligation to deliver goods in . . . India. Further, the Claimant is also covered under sub-clause (c) of Cause 2 of Article 8 as the contract was concluded on terms determined mainly by the buyer and in response to an invitation directed by the buyer to persons invited to bid (i.e. a call for tenders). Hence, the Indian law should be the applicable substantive law to the contract.

26. The Respondent submitted as follows:

(1) The Contract is a contract for international sale of goods as both the Claimant and the Respondent are parties from two different nation states and the Contract is for the sale and delivery of goods from one nation to another;

(2) The Contract is silent as to the applicable substantive law to the Contract. The reference to paragraph 22 of Chapter V "imports" of the EXIM Policy found at Special Instructions/Conditions B to the Irrevocable Letter of Credit . . . does not amount to any affirmation whatsoever by either the Claimant or the Respondent that Indian law and policy is applicable to the Contract. It is neither indicative of the choice of substantive law on the part of the parties.

(3) Regarding the Claimant's assertion that both the Claimant and the Respondent have expressly or tacitly agreed to Indian law and policy as the applicable substantive law by reference to paragraph 22 of Chapter V "Imports" of EXIM Policy, the Respondent submitted that, according to the arbitrator's decision in the ICC Case No. 1512, 1971, such an expression or tacit choice by the parties had to be "an expressed, clear and unambiguous choice, and no sufficient reason has been put forward to refuse effects to such choice" [The Respondent cited Award made in Case No. 1512, 1971 page 3 at page 5, Paragraph B of Collection of 1CC Arbitral Awards 1974-1985 Recueil des sentences arbitrales de la CCI Sigvard Jarvin and Yves Derains, ICC Publishing S.A. Paris - New York. . . .]. The Respondent submits that reference to Paragraph 22 of Chapter V "Imports" of the EXIM Policy does not amount to an express, clear or unambiguous choice by both the Claimant and the Respondent to have the Contract governed by Indian law. This is because there is no indication whatsoever in Paragraph 22 of Chapter V "Imports" of the EXIM Policy that Indian Law and/or policy should apply to the Contract from a reading of Paragraph 22, and the phrase ". . . may be imported without any restriction . . ." clearly indicates that Paragraph 22 is directed at the importer of the [products], that is, the Claimant, not the Respondent.

(4) The Respondent submitted that the Arbitrator should take the following approach in determining the applicable substantive law:

A. To ascertain and to apply existing international conventions which regulate conflict of laws concerning international sale of goods; and

B. In the event that such international conventions do not apply to the instant case, to ascertain the applicable substantive law on the basis of certain general rules of connection of international private law.

(5) In applying existing international conventions which regulate conflict of laws concerning international sales of goods, the Respondent submitted that the Convention on the Law Applicable to International Sale of Goods, The Hague 1955 ("the Hague Convention 1955") is prima facie relevant to the instant case. Because the Hague Convention 1986 has still not yet entered into force, the Arbitrator should not apply the Hague Convention 1986. The Respondent submits that according to Article 3 of the Hague Convention 1955 the domestic law of the country in which the vendor, that is, the Respondent, has its habitual residence at the time when the Respondent received the Purchase Order is Singapore law. Hence, Singapore law should be the applicable substantive law. However, the Hague Convention 1955 has not been ratified by either Singapore or India.

(6) The Respondent submitted that in the event that such international convention does not apply the Arbitrator should apply certain general rules of connection of international private law. In applying this approach, the Respondent submitted that Singapore law should be the applicable substantive law because although the nationality of the buyer is Indian and the destination of the [products] is India, the nationality of the vendor, the place of contracting, the place of performance of Contract, and the place of payment of the price of the [products] are all in Singapore.

(7) The Respondent objected [to] the Claimant's contention in applying the following rules of conflict i.e. (i) Indian private international law; (ii) Lex Mercatoria; and (iii) Article 8 of the Hague Convention 1986 to ascertain applicable substantive law to the Contract because the Claimant's proposed rules of conflict are flawed, unsustainable or not applicable to the facts of the instant case.

The Arbitrator's Order

27. As being accepted by both parties that the Contract between the parties contains an Arbitration Clause (Clause 16 in Annexure II to the Purchase Order dated 30.9.1994) providing that "All disputes arising in connection with present contract shall be .finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more Arbitrators appointed in accordance with the said Rules." According to the record of the file, the Claimant filed the Request for Arbitration on 10 September 2001. Therefore the arbitration in this case is to be conducted and governed by the 1998 Rules of Arbitration of the International Chamber of Commerce (hereinafter referred to as the "Rules").

28. The provision that is most relevant to the preliminary issue to be decided by the Arbitrator is Article 17 of the Rules. Article 17 of the Rules provides as follows:

1. The Parties shall be free to agree upon the rules of law to be applied by the Arbitral Tribunal to the merits of the dispute. In the absence of any such agreement, the Arbitral Tribunal shall apply the rules of law which it determines to be appropriate.

2. In all cases the Arbitral Tribunal shall take account of the provisions of the contract and the relevant trade usages.

3. The Arbitral Tribunal shall assume the powers of an amiable compositeur or decide ex aequo et bono only if the parties have agreed to give it such powers.

29. Under paragraph 1 of the aforesaid Article 17, the parties are free to choose the law to be applied to the merits of the dispute. Only in the absence of the agreement of the parties on the law to be applied to the merits of the dispute, the Arbitrator will have the power to apply the rules of law which the Arbitrator determines to be appropriate. Under Article 17 of the Rules, the Arbitrator is not required to refer to any choice of law rule in determining the appropriate applicable law [Yves Derains and Eric A. Schwartz, A Guide to the New ICC Rules of Arbitration (Kluwer International - The Hague/London/Boston 1998), at p. 221]. Nevertheless, the Arbitrator remains free to apply a rule of conflict if he considers this appropriate, whether that rule originates in a national legal system, an international convention or general principles of international private law [Yves Derains and Eric A. Schwartz, at p. 223].

30. Relying on the aforesaid Article 17 of the Rules, the first question to be determined by the Arbitrator is whether the parties have agreed upon the law to be applied to the merits of the dispute in this case (or applicable substantive law). Concerning this question the Arbitrator found that:

(1) The Claimant submitted that the irrevocable Letter of Credit . . . opened in favour of the Respondent refers to the sale of goods being covered by the Indian EXIM (Export-Import) Policy of 1992-1997 (which is a categorical affirmation of the Indian law and policy being applicable to the contract in question). The Claimant contended that reference to the Indian EX1M Policy of 1992-1997 as being applicable to the goods sold under the contract in question is indicative of the choice of substantive law on the part of the parties and hence there should be no ambiguity to the applicable law of the contract.

The Respondent contends, on the other hand, that the Contract is silent as to the applicable substantive law to the Contract. The reference to paragraph 22 of Chapter V "Imports" of the EXIM Policy found at Special Instructions/Conditions B to the Irrevocable Letter of Credit No. . . . does not amount to any affirmation whatsoever by either the Claimant or the Respondent that Indian law and policy is applicable to the Contract. It is neither indicative of the choice of substantive law on the part of the parties.

The Special Instructions/Conditions B to the Irrevocable Letter of Credit . . . provides that:

The invoice should contain the following notations:

The goods are covered by the Chapter V Para 22 of Exim Policy 1992-1997.

(3) Paragraph 22 Chapter V of the aforesaid EXIM Policy provides as follows:

Capital goods, raw materials, intermediates, components, consumables, spares, parts, accessories, instruments and other goods may be imported without any restriction except to the extent such imports are regulated by the Negative List of Imports or any other provision of this Policy or any other law for the time being in force.

31. The Arbitrator agrees with the Respondent that reference by the Irrevocable Letter of Credit . . . to Paragraph 22 of Chapter V of the EXIM Policy does not amount to an express, clear and unambiguous choice by both the Claimant and the Respondent to have the Contract governed by Indian law. Nor does the provision of Paragraph 22 of Chapter V of the EXIM Policy provide any express, clear and unambiguous indication that Indian law shall be the applicable law of the Contract. It is accepted by both parties that the contract in question is on the CIF basis. Under such term of sale it is the obligation of the buyer to obtain at his own risk and expenses any necessary licence or permits for the import of the goods. . . . Further, according to Paragraph 5 of the Request for Arbitration dated 5 September 2001 and the amended Statement of Claim/Request for Arbitration dated 1 July 2002 the Claimant already accepted that the terms and conditions of the Contract are silent about the governing law of contract. Accordingly the Claimant cannot, at this stage of the proceedings, say that the Contract contains any affirmation whatsoever by either the Claimant or the Respondent or an indicat[ion] that Indian law and policy [are] applicable to the Contract.

32. Because the terms and conditions of the Contract are silent or contain no indicate[on] of the applicable law of contract, the next question is what approach the Arbitrator should take in ascertaining the applicable substantive law. Concerning this question the Arbitrator is of the following opinion:

(1) As being pointed out in the preceding paragraph 29 that, under Article 17 of the Rules, in the absence of the agreement of the parties on the law to be applied to the merits of the dispute, the Arbitrator will have the power to apply the rules of law which the Arbitrator determines to be appropriate. Although Article 17 of the Rules does not require the Arbitrator to refer to any choice of law rule in determining the appropriate law to be applied to the merits of the dispute, the Arbitrator remains free to apply a rule of conflict if he considers this appropriate.

(2) According to the Claimant's Written Submissions on the Applicable Substantive Law to the Present Arbitration dated 15/1/03 (treated as "Claimant's Reply Submissions"), the Claimant proposed the following choice of law rules, i.e. the "closest and the most real connection" principle, the principles of Lex Mercatoria and Article 8 of the Hague Convention of 1986 on the Law Applicable to Contracts for International Sale of Goods.

(3) The Respondent, however, proposed that the Arbitrator should apply Article 3, paragraph 1 of the Hague Convention of 1955 on the Law Applicable to International Sale of Goods regardless of whether Singapore or India has ratified the said convention on the ground that the rules of conflict set out in the Hague Convention of 1955 "may be considered as representative of the prevailing principles in the field", or alternatively, the general rules of connection of international private law.

(4) According to the submissions of both the Claimant and the Respondent, the Arbitrator found that the parties disagree with each other on the application of different versions of the Hague Conventions (the Hague Convention 1986 and the Hague Convention 1955) and the Lex Mercatoria. As an alternative to the Hague Conventions and the Lex Mercatoria, the Claimant submitted that the principle of "closest and the most real connection" be applied and the Respondent submitted that the general rules of connection of international private law be applied. Although there might be some difference in details of their respective proposals, it seems to be that the principle of closest connection is a concurrent proposal made by both parties. Accordingly the Arbitrator deems the rule of closest connection appropriate for determining the law to be applied to the merits of the dispute in this case, regardless whether it is to be referred to as the Indian private international law or the general rule of connection of international private law.

33. Relying on the principle of the closest connection, the Arbitrator found the following indicia are relevant to [of] determination the applicable substantive law:

(1) Nationalities of the parties:

- The Claimant is Indian;

- The Respondent is Singapore.

(2) The place of contracting:

- The price negotiation meeting was held in India between the Claimant and the aforesaid Respondent's Indian representative;

- The Respondent submitted its quotation for the supply of the [products] through its representative . . . in India;

- The Purchase Order. . . . for the supply of [the products] was placed through the Respondent's Indian representative in India and accepted by the Respondent in Singapore.

(3) The place of performance of the Contract:

- The Contract is on a CIF. The Respondent placed an order with its parent company in Japan for the manufacture and shipment of the [products] to the Claimant in India, having [an Indian port] as destination port;

- The [products] were to be performed in India;

- Payment for the [products] was by irrevocable letter of credit opened from the State Bank of India in favour of the Respondent and payable in Singapore.

The place of performance is of particular significance to the dispute in this case because the dispute in this case is based on the premises that some of the [products] did not comply with the Guarantee Clause provided in the Purchase Order. It is reasonable to say that in order to ascertain whether there would be any defects or discrepancies of the [products] supplied by the Respondent or not, or whether the [products] would fail prematurely or not, or whether the [products] would comply with the Guarantee Clause or not, the [products] had to be inspected or used by the Claimant in India.

34. Taking into account all of the relevant indicia above referred to, particularly the place of performance of the [products], the Arbitrator is of the opinion that the dispute under the Contract in this case has the closest connection with India. Therefore the law of India should be the applicable substantive law.'