Source: http://cisgw3.law.pace.edu/cases/998547i1.html
Timestamp: 2019-04-22 18:06:41+00:00

Document:
Yearbook Comm. Arb'n XXVIII, Albert Jan van den Berg, ed. (Kluwer 2003) 27-38. Copyright owner: The International Council of Commercial Arbitration (ICCA). Reprinted with the permission of ICCA.
The goods under this Contract shall be supplied under the FIXED price of US $ ... per tonn ... This price to be valid for the deliveries which will take place latest 30.03.1992. After that the price to be renegotiate [sic] for each next quarter or fixed between the Buyer and the Seller till the end of 1992.
Inspection at loading place to be performed by the producer, which is mutually accepted to both Buyer and Seller, whose finding to quality to be final and binding for both parties concerned.
Claims with regard to quantity and quality, if any, to be communicated promptly within 15 days after the date of arrival and to be considered only against presentation of supporting claim documents issued by neutral surveyor presented within 30 days from the date of arrival.
The present Contract shall be governed by, constructed and interpreted in accordance with the Uniform Law for the international sale of corporal movables (Hague convention 1/7/64).
Any dispute arising in connection with the present Contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce -- Paris, by three arbitrators appointed according to the said Rules. The decision of the arbitrators shall be final and binding for the parties hereto. The place for arbitration shall be Paris. The language to be used in the arbitral proceedings shall be the English language.
Free of charge time to be three (3) working days instead of 48 hours for discharging and customs clearance.
Price to be valid for the entire 1992 deliveries.
The goods should be covered by the seller by insurance up to the delivery to the end user. ..."
The transactions between the parties went smoothly until May 1992 when the defendant alleged that bad quality goods had been delivered. Defendant informed claimant immediately and claimant sent Mrs. M, the Managing Specialist of the Quality Control Division of the supplier, to inspect the goods. Although the specialist admitted that the goods were of bad quality, no action was undertaken by claimant to remedy the lack of conformity. Defendant suspended payment for later deliveries in August 1992. In response, claimant suspended the further delivery of goods.
In February 1995, claimant initiated arbitration with the International Chamber of Commerce claiming payment for the goods. Claimant, defendant and a representative of the supplier attended a meeting in B, Bulgaria in May 1995. Defendant alleged in the arbitration that it was agreed at that meeting that damages it had paid to its purchaser of the goods were to be deducted from the amount it owed and that the remainder of its debt would be settled by delivery to supplier of goods of an equal value. Defendant claimed that it fulfilled its obligations as agreed in May 1995, but claimant continued to demand payment.
The arbitral tribunal first upheld its jurisdiction, reasoning that the exchange of telexes constituted a valid arbitration agreement which satisfied the requirements of Art. II(2) of the 1958 New York Convention. Applying the principle of separability, the arbitral tribunal stated that that validity of the arbitration agreement did not depend on the validity of the contract. Moreover, the arbitration agreement was not among the terms objected to in the second telex.
The applicable law to the contract was that stipulated in the contract, the Uniform Law on the International Sale of Goods (ULIS) and the Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF) which in the view of the arbitral tribunal, were to be supplemented by the UNIDROIT Principles. Applying these instruments, the arbitral tribunal held that the contract was not concluded by the exchange of telexes because the answering telex contained material alterations. However, it was concluded by subsequent performance. The arbitral tribunal established that the goods had been delivered and that claimant was aware of the bad quality. On examining the evidence, the arbitral tribunal also determined that a meeting had taken place in May 1995 at which the claimant, its supplier and defendant reached an agreement reducing the remaining price to be paid by the defendant by the amount the defendant had lost on reselling the bad-quality goods. The remainder of the debt was settled by deliveries by the defendant to the supplier. Although claimant had refused to acknowledge that the debt had been settled in full, subsequent admissions and the evidence showed that its claim was unjustified.
 "An agreement to arbitrate was validly reached between the parties. The arbitration agreement was included in claimant's telex of 3 December 1991. Defendant never objected to this provision of the contract. The defense of the defendant, which states that the arbitral tribunal does not have jurisdiction because no such agreement was put forward, is without success. Therefore the arbitral tribunal upholds the validity of the arbitration agreement.
 "According to Art. 4(3)(d) ICC Rules, a party must include the arbitration agreement when submitted its Request for Arbitration. In its Response to the Statement of Defense claimant included the answering telex to its telex of 3 December 1991 sent by defendant on 4 December 1991. In this telex defendant agrees to the terms of the contract with several exceptions. Provision No. 21 concerning the arbitration agreement is not named in the exceptions. Therefore defendant agreed to the arbitration provision.
 "Art. II(2) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards -- New York Convention -- states that the arbitral agreement must be in writing, but that an exchange of letters is sufficient.[l] The New York Convention is applicable to the present case, as both Bulgaria and Greece are parties to the Convention.
 "In this case the parties simply exchanged unsigned telexes. Especially in international relations parties hardly meet to conclude a contract, but choose the speedy method of telexes to conduct their business relations. This must be taken into account when interpreting the New York Convention. The exchange of telexes to conclude an arbitration agreement is enough to validate an arbitral clause between the parties.
 "This holds true regardless of whether or not the rest of the contract is deemed to be valid. The defendant itself refers to the generally recognized principle of separability of the arbitration clause. This principle is reflected in Art. 6(4) ICC Rules."
 "The applicable law on the substance of the case is The Hague Convention of 1 July 1964 as the law chosen by the parties and the UNIDROIT Principles as supplementary rules which the arbitral tribunal deems appropriate to apply where necessary in accordance with Art. 17(1) ICC Rules.
 "As stated in provision, No. 20 of claimant's telex of 3 December 1991, the contract shall be governed by 'the Uniform Law for the international sale of corporal movables (Hague convention 1/7/64)'. This clause has evidently been accepted by defendant. Its telex of 4 December 1991 shows no objection concerning the applicable law proposed by claimant. The arbitral tribunal is therefore of the opinion that the relationship of the parties is governed by the substantive law chosen in No. 20 of claimant's telex. This includes the Convention relating to a Uniform Law on the International Sale of Goods (ULIS) and the Convention relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF).
 "According to Art. 4 ULIS, the Conventions shall apply where they have been chosen as the law of the contract by the parties, regardless of whether or not the States of their places of business are parties to the Convention. This is in accordance with the principle of party autonomy, which states that parties are free to choose the law to govern their contract.
 "In so far as the Conventions ULIS and ULF did not cover all questions and refering to Art. 17 of the ICC Arbitration Rules, the arbitral tribunal felt it appropriate to turn to the UNIDROIT Principles which provide [a] useful complement to fill the lacuna and allow to find proper solutions."
 "The contract was not concluded by exchange of telexes, because the defendant proposed certain new conditions in its answering telex of 4 December 1991, which materially altered the terms of the contract according to Art. 7 ULF. Defendant asked for different conditions concerning the free of charge time regarding delivery, the guaranteed price for all of 1992, and insurance of the goods by seller up to delivery to the end user. The different terms requested by defendant concern mainly, the price of the goods and the insurance risk of the seller.
 "Such demands for changes in the contract by the other parties are considered by jurisprudence to be material alterations which must be specifically accepted by the party having made the initial proposal. To cite just one example, the German Court of Appeal Hamm  deemed a demand for payment in advance to be a material alteration. Because the price of the goods is an essentiale negotii, anything concerning the price must be considered as a material alteration. The insurance and delivery risk of the seller or buyer are also important terms of the contract, as each party must be able to calculate its possible costs beforehand.
 "Therefore the telex sent by defendant on 4 December 1991 constitutes a counter-offer and should have been answered by claimant -- either containing a confirmation of the different terms or a new offer. Silence itself cannot have the effect of acceptance, see Art. 2(2) ULF.
 "However, the contract was formed by claimant commencing with performance of the contract. The provisions of the contract as proposed in claimant's telex of 3 December 1991 and not disputed between the parties at any time are valid. The rest of the provisions were renegotiated with each delivery.
 "Claimant began to deliver goods on 6 December 1991 and continued to do so until August 1992. Defendant accepted delivery of the goods. The contract was formed between the parties the latest with the first delivery by claimant. According to Art. 6(2) ULF 'acceptance may also consist of the dispatch of the goods'.
 "The contract was not -- as suggested by defendant -- renegotiated wholly for each delivery. It continued to exist as the legal framework of the parties to which specific alterations or amendments may have been made from time to time. Those alterations or amendments have no bearing on the present dispute.
 "Neither claimant nor defendant ever objected to the terms of performance of the contract during the time period of delivery of the goods. According to the theory of punctation this is to be interpreted as agreement on the undisputed terms of the contract as presented in the telex of 3 December 1991, unless the parties specifically agreed on other terms during its performance. Therefore, the provisions of the contract are primarily applicable, supplemented by the rules of ULF and ULIS.
 "When taking into consideration the internationality of the relations between the parties, the UNIDROIT Principles become relevant. Art. 4.5 UNIDROIT Principles states that contract terms should be interpreted as to give effect to as many of them as possible. Therefore, if the parties at one point agreed on certain provisions, this needs to be taken into account when trying to resolve a dispute.
 "In the present case, the defendant in its answering telex mainly wanted to alter the matters of price and insurance. Since these matters were put in writing for each and every delivery (as shown by the telexes), they can be said to have been renegotiated and agreed upon every time within the existing framework of the contract."
 "Delivery of the goods under the contract was never disputed between the parties, but the delivered goods were partially not in accordance with the contract. Defendant claims that goods delivered in May 1992 were of bad quality. This is contested by claimant. It is uncontested that defendant did not protest in accordance with provision No. 15 of the contract. The arbitral tribunal is convinced of the non-conformity of the goods. ... The strict adherence to the requirement of provision No. 15 now by claimant amounts to an abuse of rights. ... If claimant could rely on this provision, defendant would have lost any rights in regard to the non-conformity. It is relevant that according to defendant claimant did have the opportunity to examine the goods. Defendant states that claimant sent the Managing Specialist of the Quality Control Division of supplier, Mrs. M, to examine the goods. This witness was not brought forward by claimant -- although this was requested by the arbitral tribunal in its Order No. 1.
 "Conclusions can be drawn from the fact that claimant refused to produce the witness as asked by the arbitral tribunal. Had the witness been made available it could have been further investigated whether or not claimant had knowledge of a non-conformity. Claimant justified its refusal in its brief of 30 October 1998 by stating that the person in question has retired and furthermore is not an employee of claimant but of supplier. Therefore any statements made by such a witness could not be binding for claimant.
 "These arguments are not in the least conclulsive. It is certainly not a rule of evidence that a statement made by a witness, not an employee of the party in question, cannot be binding for that party. The best witness is an objective witness -- without relations to any of the parties. Thus the reasons brought forward by claimant cannot justify the refusal to produce the witness.
 "Claimant, therefore, cannot rely on the non-adherence to the requirement of provision No. 15 of the contract. It remains unclear as to how the claimant was informed of a non-conformity and how claimant reacted to this information. Claimant cannot refuse to produce witnesses who could clear up certain allegations of defendant regarding the non-conformity of the goods."
 "It was the defendant's right to stop payment because of the non-conformity of the goods. It is undisputed that the bills which have not been paid by defendant sum up to .... Although the degree of non-conformity of goods has not been proven, it was the defendant's right to suspend payment after raising the exceptio non adimpleti contractus.
 "The contract was to be performed step by step, i.e., payment was to follow the delivery of goods. If the goods are not of the quality agreed upon in the contract, the buyer must give notice of the non-conformity. Until an agreement is reached between the parties as to the degree of the lack of conformity and as to how to proceed in regard to the non-conformity, the buyer does not have to pay the price. The further development of the contract at that point is unclear. It would amount to a curtailment of the rights of the buyer if he had to continue payment of the goods without knowing what will happen in regard to the non-conformity.
 "This is not expressly stated in ULIS, but follows from the general principles of law referred to in Art. 17 ULIS. According to Art. 7.1.3 UNIDROIT Principles  a party may withhold its performance until performance has been affected by the other party. Thus the above reasonig is in accordance with these principles of law.
 "Once the seller knows of a possible non-conformity it is his duty to act upon this knowledge to clear up the degree of the non-conformity. Since the oral hearing ... it is undisputed that a meeting took place in V, the place of business of the end user of the purchased products, concerning the quality of the goods. This is proof of the fact that claimant knew of the possible non conformity of the goods. The degree of non-conformity is therefore irrelevant in regard to the right of the defendant to suspend payment. It is sufficient that defendant informed claimant of the non-conformity and then suspended payment until an agreement concerning the lack of conformity was reached. Defendant suspended payment after the meeting in V took place. This is not a violation of defendant's contractual duties."
 "The defendant does not owe the sum ... because all claims between the parties were taken care of during the meeting in B in May 1995 and defendant had performed its obligations resulting from the agreement between the parties and supplier reached in B.
 "The content and results of the meeting remain contested between the parties. Defendant alleges that it was agreed that the sum still owed had been reduced by DM .... This would leave a sum of DM ... still to be paid by defendant. Payment of DM ... was to be affected [sic] by deliveries free of charge from defendant to supplier. Claimant contests this allegation.
 "The burden of proof concerning the trilateral agreement lies with the defendant. Any facts that are favorable towards the position of the defendant must be proven by it. Defendant provided two witnesses, one of them -- Mr. C, as President of the defendant -- stating that he was present at the meeting in B in May 1995 and verifying the results of the meeting. Defendant's second witness, Mrs. P, stated during the hearing that she was not present during the meeting at B. Her testimony is therefore disregarded as far as the agreement reached at B is concerned.
 "In addition, defendant provides documentary evidence in the form of telexes to and from claimant and supplier .... The telexes show that goods for the value of DM ... were delivered from defendant to supplier and that both claimant and supplier acknowledge this transaction.
 "The acknowledgment of this transaction also forms the basis of the last brief of the claimant of 30 October 1998. In this brief claimant reduces its claim .... Thus claimant admits that an agreement was reached in regard to this sum.
 "Claimant still denies the outcome of the meeting in B in May 1995, but does not show proof of its own. Claimant had been asked by the arbitral tribunal to present as witnesses those persons defendant alleges were present at the meeting. According to defendant two representative of supplier and one representative of claimant were present. Claimant refuses to produce these witnesses again on the grounds that one has retired, one has left the company, and that statements made by persons not employed by claimant could not be binding for it.
 "In its brief of 30 October 1998 claimant claims that its representative -- Mr. Y -- named by defendant was not present at the meeting and would therefore be of no use as witness, since he could only support what had already been put forward in writing. As stated above, this reasoning is not satisfactory. A witness can be heard regardless of which 'side' the witness comes from.
 "The arbitral tribunal had asked claimant to produce these witnesses in order to clear up the issue of the meeting in B. Claimant now admits that such a meeting took place, and should therefore have offered its representative as a witness. If it was not the person named by defendant, claimant should have made the arbitral tribunal aware of this and offered its own witness, who could make a statement as to the content of the meeting. Claimant failed to do this. Instead it continues to simply deny the outcome of the meeting as stated by defendant. With these actions claimant frustrates the attempts of the arbitral tribunal to establish the facts of the case by all appropriate means, Art. 20(1) ICC Rules. This is to be held against claimant.
 "In light of all of these arguments the arbitral tribunal is satisfied that the defendant has proven its line of defense to be true. Therefore any claim that may have existed in favor of the claimant was taken care of in the meeting in B in May 1995. This agreement is binding to all participants: claimant, supplier and defendant. The claim of claimant is therefore already settled."
 "This arbitral tribunal applies the general rule, that costs should follow the event. The party losing an arbitration is therefore burdened with its costs. Since it is the defendant who is winning this arbitration because the claim of claimant was either withdrawn during the oral hearing or is dismissed by this final award, it is the claimant who is to carry its costs.
 "Part of the claim was withdrawn by the claimant at the last moment of the oral hearing. Therefore it must carry all costs of the claim withdrawn. All costs of the claim dismissed go to the claimant, including the lawyer's costs for the defendant and travel expenses for him, the President of the defendant and the witness, Mrs. P.
"The term 'agreement in writing' shall include an arbitral clause in a contract or an arbitration agreement signed by the parties or contained in an exchange of letters or telegrams."
2. "See A.J. van den Berg, The New York Arbitration Convention of 1958 (The Hague 1981) p. 204 et seq."
"Unless otherwise agreed, the Arbitral Tribunal shall not cease to have jurisdiction by reason of any claim that the contract is null and void or allegation that it is non-existent provided that the Arbitral Tribunal upholds the validity of the arbitration agreement. The Arbitral Tribunal shall continue to have jurisdiction to determine the respective rights of the parties and to adjudicate their claims and pleas even though the contract itself may be non-existent or null and void."
"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."
"1. An acceptance containing additions, limitations or other modifications shall be a rejection of the offer and shall constitute a counter-offer.
2. However, a reply to an offer which purports to be an acceptance but which contains additional or different terms which do not materially alter the terms of the offer shall constitute an acceptance unless the offeror promptly objects to the discrepancy; if he does not so object, the terms of the contract shall be the terms of the offer with the modifications contained in the acceptance."
6. "Decision of 21 March 1979 cited in; Schlechtriem/Magnus, International case law on ULIS and ULF, Baden-Baden (1987) Art. 7 [ULF] No. 4 (on 'price and payment') [140 n. 20]."
"1. The provisions of the following Articles shall apply except to the extent that it appears from the preliminary negotiations, the offer, the reply, the practices which the parties have established between themselves or usage, that other rules apply.
2. However, a term of the offer stipulating that silence shall amount to acceptance is invalid."
"Questions concerning matters governed by the present Law which are not expressly settled therein shall be settled in conformity with the general principles on which the present Law is based."
"(1) Where the parties are to perform simultaneously, either party may withhold performance until the other party tenders its performance.
(2) Where the parties are to perform consecutively, the party that is to perform later may withhold its performance until the first party has performed."
"1. The Arbitral Tribunal shall proceed within as short a time as possible to establish the facts of the case by all appropriate means."

References: Art. 4
 Art. 6
 Art. 17
 Art. 4
 Art. 17
 Art. 7
 Art. 2
 Art. 6
 Art. 4
 Art. 17
 Art. 7
 Art. 20
 Art. 7