| Parties: |
Claimant: Buyer (Switzerland)
Respondent: Seller (Kosovo) |
Place of
arbitration: |
Zurich, Switzerland
|
| Published in: |
Unpublished |
| Subject matters: |
- limited participation in arbitration proceedings
- jurisdiction of the Special Chamber of the Supreme Court of Kosovo
- admissibility of amicus curiae brief in ICC arbitration
- capacity of signatory
- applicable law to arbitrability
- arbitrability and insolvency proceedings
- United Nations Convention on Contracts for the International Sale of Goods (CISG), Vienna 1980
- avoidance of contract
- hardship
- fall in the commodity's price
- adaptation of contract
- loss of profit
- rate of interest |
[...]
[112] "Even in cases where the change in circumstances is gradual the final result of those gradual changes may constitute hardship.
[113] "The documentation provided by the Claimant in response to the Tribunal's request (in particular the annual price tables for the commodity) as well as the Tribunal's own research make it clear beyond doubt that, subsequent to the conclusion of the Contract, the equilibrium was fundamentally altered in that the value of the performance the Respondent was to receive under the terms of the contract drastically diminished. This conclusion is evident if one looks at the dates of the Contract, the development of the relevant market during the relevant period of time and the Parties' communications.
[...]
[ 119] "At this point the question arises as to whether the risk of the market breakdown was not assumed by the Respondent (Art. 6.2.2(d)). Indeed, where parties to a contract of sale for delivery over a period of time agree on the market price at any point in time the seller may well be deemed to have assumed even the risk of not receiving any consideration in return for the goods sold. Exchange rates may collapse without that collapse qualifying as hardship. Yet the case at hand is different. The price formula agreed in Clause 6 with certain fixed parameters and a number of variables, including increases and decreases of the treatment charge in function of above·average and below-average settlement prices in the Tribunal's view reflects the Parties' understanding that market shocks were not to be assumed by either one of them but rather constituted a shared risk.[...]
5. Loss of Profit
a. In general
[127] "The Claimant demands compensation for the profit lost when the Claimant, due to non-performance on the part of the Respondent, became unable to perform its own obligation owed to its buyer, the Second Buyer, under the onward sales contract. This claim is, in principle, well founded.[...]
[129] "Non-performance loss is generally recognized as a category of recoverable loss, and loss of profit is specifically mentioned in Art. 74 CISG.[130] "More specifically [a company engaged in the supplying and trading of the commodity at hand] clearly foresees that its buyer will enter into onward sale contracts. And it will in normal circumstances do so at higher sales prices than the price it purchased the commodity for. In this connection, it is noteworthy that commentators generally hold that market changes that are unfavourable to the party breaching the contract, as happened in the case at hand, are, as a matter of principle, deemed to be foreseeable.
[131] "While this is the principle, its application is subject to the hardship test and specific remedies in extreme situations."[...]
c. Duty to mitigate damage
[135] "The Respondent raises the defence that the Claimant's claim must fail because the Claimant should have made a cover purchase. In other words in the Respondent's view the Claimant did not comply with its duty to mitigate the loss.
[136] "Indeed, Art. 77 CISG provides that the party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss of profit, resulting from the breach. However, it follows from the wording of the provision that it would have been for the Respondent to substantiate its (implied) assertion and, ultimately, the burden of proof was on the Respondent.
[137] "The Tribunal does not have any positive knowledge about the 'circumstances' of the transactions, not least the onward sale, sourcing alternatives, etc., so as to be in a position to assess the criterion of 'reasonableness'. Without any substantiation of its implied assertions the Respondent's defence must therefore fail."
[...]
202[...] [107]"In commercial practice parties to contracts frequently insert so-called 'hardship clauses' in their agreements. Under the CISG they are free to do so (Art. 6 CISG). However, these clauses, if properly drafted, address an unforeseen shift in the economic equilibrium, not unforeseen (factual, legal, etc.) impediments. While there were proposals during the negotiations of the CSIG to also make provision for the [latter], they were not taken up at the time.[108] "Commercial practice, in particular in cases where sophisticated legal advice is not available or has not been retained, does not always neatly distinguish between the fundamentally different concepts.[109] "The distinction between the two and the emergence of a modern doctrine of clausula rebus sic stantibus, previously well established in the legal systems of Austria, Germany, Greece, Switzerland, Italy, Spain, the Netherlands and others, eventually was introduced to transnational commercial law by another text, the UNIDROIT Principles of International Commercial Contracts – UPICC (1994, 2004). The UPICC have been recommended by UNCITRAL, the Organization within which the CISG was drafted 'for their intended' purposes.203[110] "The Commission made that recommendation, inter alia, in view of a number of lacunae, compromises and ambiguities, which had been inevitable in 1980 (such as the one at issue here), but which had been overcome, accepted or clarified by 1994 in the context of UPICC. The purposes contemplated by the draftsmen of the Principles are spelled out in the Preamble. According to their Preamble, fifth recital: 'They may be used to interpret or supplement international uniform law instruments. '[111] "Hardship is adressed in Arts. 6.2.1 to 6.2.3 UPICC. The provision defining the concept reads:
'Art. 6.2.2. There is hardship where the occurence of events fundamentally alters the equilibrium of the contract either because the cost of a party's performance has increased or because the value of the performance a party receives has diminished, and
(a) the events occur or become known to the disadvantaged party after the conclusion of the contract;
(b) the events could not reasonably have been taken into account by the disadvantaged party at the time of the conclusion of the contract;
(c) the events are beyond the control of the disadvantagd party; and
(d) the risk of the events was not assumed by the disadvantaged party. '
[112] "Even in cases where the change in circumstances is gradual the final result of those gradual changes may constitute hardship.[113] "The documentation provided by the Claimant in response to the Tribunal's request (in particular the annual price tables for the commodity) as well as the Tribunal's own research make it clear beyond doubt that, subsequent to the conclusion of the Contract, the equilibrium was fundamentally altered in that the value of the performance the Respondent was to receive under the terms of the contract drastically diminished. This conclusion is evident if one looks at the dates of the Contract, the development of the relevant market during the relevant period of time and the Parties' communications.[114] "The agreed purchase price according to Clause 6 of the Contract was determined by reference to the [Exchange]. Of the basis price certain deductions (Treatment Charge and Penalties) were to be made.... On the basis of the agreed204formula (price parameters minus dedctions) the average contract price to be paid by the Claimant would have been.... During the month preceding the Contract (when the Parties presumably negotiated and the Contract was drafted), specialized trade media reported (i) that stored reserves were decreasing; (ii) that numerous sources of supply were no longer available; (iii) that the outlook for the following years targeted [a higher sum]. And indeed the average price for the month before the Contract was higher than the August price.[115] "When the Contract was signed this was the general outlook. The price was comparatively low, yet applying the contractual purchase price formula the contractual quantity would still have yielded [a certain amount].[116] "From that moment on, the market almost collapsed. And when the Claimant three weeks after the conclusion of the Contract instructed the Respondent to prepare for the loading of the first shipment this was against the background of a historic low in the commodity's price. Applying the contracutal purchase price formula, the result was negative. To say that the performance the respondent was to receive had dimished would be putting it exceedingly mildly.[117] "Moreover, the short-term outlook continued to be bleak: based on the Claimant's submissions, the price continued to be negative in the following two months and would have been again negative four months later.[118] "The remaining requirements of Art. 6.2.2 are also met. The market breakdown occured after the conclusion of the contract ((a)). It could, in view of the situation and the expectations as described supra, not reasonably have been taken into account by the Respondent ((b)). It was beyond the control of the Respondent ((c)).[119] "At this point the question arises as to wheter the risk of the market breakdown was not assumed by the Respondent (Art. 6.2.2(d)). Indeed, where parties to a contract of sale for delivery over a period of time agree on the market price at any point in time the seller may well be deemed to have assumed even the risk of not receiving any consideration in return for the goods sold. Exchange rates may collapse without that collapse qualifying as hardship. Yet the case at hand is different. The price formula agreed in Clause 6 with certain fixed parameters and a number of variables, including increases and decreases of the treatment charge in function of above-average and below-average settlement prices in the Tribunal's view reflects the Parties' understanding that market shocks were not to be assumed by either one of them but rather constitued a shared risk.[120] "The effects of hardship are addressed in Art. 6.2.3 of the UPICC, which reads:205
'Art. 6.2.3 (Effects of hardship)
(1) In case of hardship the disadvantaged party is entitled to request renegotiations. The request shall be made without undue delay and shall indicate the grounds on which it is based.
(2) The request for renegotiation does not in itseld entitle the disadvantaged party to withhold performance.
(3) Upon failure tor reach agreement within a reasonable time either party may resort to the court.
(4) If the court finds hardship it may, if reasonable,
(a) terminate the contract at a date and on terms to be fixed, or
(b) adapt the contract with a view to restoring its equilibrium. '
[121] "When the Claimant on..., the day the market had bottomed out, requested that documentation for the first shipment be issued, the Respondent replied immediately that it felt unable to do so due to the market breakdown.[122] "Two weeks later the Respondent confirmed its analysis, in particular the fact that the deductions resulted in excessive processing costs which in turn equalled a negative price and requested renegotiations. [123] "The Respondent has continued to argue in those terms as long as it did make submissions in the arbitration. Its failure to express itself technically correctly and to call 'force majeure' what is (in Swiss terminology) a case of 'clausa rebus sic stantibus' or (in the innovative transnational language of the UPICC) 'hardship' does not change the position. The requirements of Art. 6.2.3(1) are met.[124] "As regards Sub-sect. (2), the words in itself are of critical importance. As a most authoritative commentatorputs it:
'The entitlement of the disadvantaged party to withhold performance does not follow from the request for renegotiations, but may follow from the impact of the events which have created the hardship. Where the consequences of the event are sufficiently extraordinary the disadvantaged party may be entitled to withhold performance.'
As one has to add: provided it takes the matter to a court or tribunal and the court or tribunal is seised of that party's prayer for either relief under Sub-sect. (4).206[125] "The Parties failed to reach agreement, and it is therefore now upon the Arbitral Tribunal (Art. 6.2.3(3)) to take the type of measure open to us pursuant to Sub-sect. (4). The Tribunal, which enjoys substantial discretion in this regard,finds that adaptation (rather then termination) is both 'reasonable' and 'fair'.