Third Example [25] Plaintiff: Buyer Syria Defendant: Seller Ghana Case History:

Comments and lessons learned

There are two issues to keep in mind in this dispute:

Firstly, the judgment of the Belgian Court of Cassation has established an important foundation for the application of principles of international commercial law to situations not directly regulated by the CISG, in particular principles based on the provisions of the UNIDROIT Principles. However, this judgment is only an isolated case, how a similar case will be resolved in practice depends very much on the objective circumstances of that particular case. It is particularly noteworthy that in the common law system, the doctrine of “economic hardship” is very poorly developed. Except for the United States, which has accepted the doctrine of “impossibility of performance” and included it in the Uniform Commercial Code, although its application in practice is still very limited, the common law system does not recognize the cancellation or modification of contracts due to difficulties in performance. The parties should take into account the possibility that the domestic law of a common law country will be applied to resolve this issue.

Second, to what extent does an increase in market price constitute a disproportionate position of the parties, causing harm to the seller and creating circumstances that warrant renegotiation of the contract? An arbitration award under Italian law has held that a 14% depreciation of the pound sterling is sufficient to warrant a review of the contract. The official commentary to the UNIDROIT Principles suggests that a change of 50% or more in the cost or value of the contract may constitute a “fundamental” change that would warrant the application of the doctrine of hardship. Other circumstances permit contract adjustment when the foreseeable cost increases by less than 100%.

Therefore, the lesson to be learned is that the parties to the contract, especially the seller, should consider negotiating a clause allowing for price adjustments.

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of the contract in case of sudden, unpredictable fluctuations in the market, and clearly stipulate specific criteria and mechanisms for determining price adjustments.

2.1.1.3. Third example [25] Plaintiff: Buyer Syria Defendant: Seller Ghana Case history:

On August 15, 1979, Plaintiff entered into a contract to purchase from Defendant 5,000 m3 of plywood and 5,000 m3 of block timber under the following terms:

One, the first shipment of 3000 m3 of plywood and 1000 m3 of block timber will be delivered within two months from the date of opening the letter of credit,

Second, the second shipment of 2000 m3 of plywood and 2000 m3 of block wood will be

delivered one month after the first shipment,

Third, the third shipment of 2000 m3 of block timber will be delivered one month after the second shipment.

Four, other conditions: Payment by confirmed and irrevocable L/C; Contract performance guarantee worth 5% of the total contract value issued by the Defendant "immediately after the corresponding L/C is opened" ; Provision on penalty for late delivery; Provision on ICC international arbitration; Provision on force majeure which clearly states:

+ In case of force majeure, the seller is responsible for notifying the buyer immediately after the event occurs,

+ Currency fluctuations as well as price increases will not be considered force majeure.

After the contract was signed, the Performance Security was sent by the Defendant to the Plaintiff on November 22, 1979. Accordingly, the final shipment was to be delivered no later than March 22, 1979.

1980. On 26 November 1979, two letters of credit valid until 22 February 1980, one for plywood and one for block timber, with the Defendant as beneficiary, were confirmed. For its part, the Plaintiff also contracted insurance for the goods and appointed a survey company to inspect the quality of the delivered goods.

On 14 December 1979, the Defendant informed the Plaintiff by Telex that due to heavy rains, lack of fuel and other reasons, they could not make the scheduled delivery. On 16 December 1979 the first shipment of only 218,671 m3 of plywood and 415,904 m3 of timber left Ghana for Syria.

The Defendant then informed the Plaintiff that it would send a second shipment of 2,500 m3 of plywood and 1,500 m3 of block timber by the end of January 1980. The Plaintiff agreed to this offer. However, in practice this was not done. The Plaintiff subsequently reminded the Defendant several times, requesting to be informed of the details of the shipment on 7 March 1980, and to extend the letter of credit and to agree to extend the delivery period until 31 May 1980.

The Defendant took no action and in fact did not deliver the second shipment. On May 2, 1980, the two parties agreed to meet to discuss the performance of the contract. On May 7, 1980, the Defendant, citing losses due to the increase in oil prices, offered to increase the price by 40%. The Plaintiff did not accept this request. The Defendant wanted to cancel the contract on the grounds of force majeure and demanded payment for the first shipment.

To date, the Plaintiff has obtained an order blocking the Performance Security and two letters of credit pursuant to the decision of the Damascus Court of First Instance.

On August 25, 1981, the Plaintiff brought the matter to the Arbitration Court.

of the International Chamber of Commerce (ICC). According to the terms of reference, the case was heard in Paris and the French International Arbitration Law applied.

Plaintiff seeks compensation:

The price difference is $656,070.35.

A loss of profit of $468,301.10

Bank charges are 620,719 Syrian Pounds

Insurance costs

Import tax

The interest rate is 9% on this total amount. The defendant appeals for:

Paid the amount of $306,988.42 for the first shipment with an interest rate of 15% per annum,

Declaration that the Plaintiff is not entitled to the Performance Security and damages arising from the cancellation of the contract.

Arbitrator's decision:

Regarding the Defendant's breach of contract:

When the delivery period in the contract expired, the Plaintiff extended the letter of credit until 31 May 1980, which also extended the delivery period to that date. This was acknowledged by both parties.

Despite this, the Defendant failed to deliver within the extended period. This in itself constituted a breach of contract by the Defendant. What happened after 31 May 1980 was not taken into account as there was no further agreement between the parties to extend the delivery period.

Force Majeure:

After considering the Respondent's explanation of the force majeure and the Force Majeure clause in the contract, “ the Arbitral Tribunal cannot

accept the reason for non-performance of the contract given by the Defendant as force majeure ” because in fact, until 31 May 1980 (the expiry date of the letter of credit after it had been extended), the Defendant had not specifically mentioned by Telex about force majeure, this issue was only raised during the negotiations at the end of July of the same year in Damascus. This allowed the Arbitral Tribunal to conclude that the Defendant was in fact able to deliver the goods but wanted to increase the price so it did not perform its contractual delivery obligation.

Plaintiff's Rejection of Contract:

The Defendant alleged that the Plaintiff had repudiated the contract on the grounds that the Plaintiff had: made it impossible to receive payment by L/C; failed to pay the Defendant for the first shipment and had in fact cancelled the irrevocable L/C.

The arbitral tribunal determined as follows:

The Respondent said that they were not paid because the Claimant did not send them the original copy of the goods inspection certificate. In fact, the goods inspection certificates provided by the parties to the Arbitral Tribunal were also different.

The arbitration commission held that:

The Defendant has never complained to the Plaintiff in any way about the inspection certificate. Furthermore, after the Plaintiff has informed the Defendant that it has appointed an inspection company, the Defendant is obliged to request the inspection company to issue the certificate immediately after the goods have been inspected. By failing to do so, the Defendant has made it difficult for itself to receive payment by L/C.

Furthermore, due to the nature of the L/C being an irrevocable confirmation, the Plaintiff could not cancel the letter of credit. The Defendant was obliged to present the complete set of documents on time, and if they were missing, they had to find every way to obtain the missing documents on time, but in reality they failed to do so.

And even if the documents are presented in full and on time, if the bank still refuses to pay, it is an internal matter between the issuing bank and the confirming bank.

Finally, from all the documents presented by both parties, it is clear that the Respondent only made the first offer of “direct payment” at the meeting in Damascus in late July 1980. Prior to that, the Respondent remained almost completely silent until May 7, 1980, and thereafter was only interested in raising the contract price. During that time, they have not been able to prove that the Claimant had repudiated the contract.

Based on the above grounds, the Arbitration Commission rejects the Defendant's argument.

Damages:

Price difference:

The Claimant claims compensation from the Respondent for the difference of USD 656,070.35 due to the price increase. The Arbitral Tribunal considers that according to international practice, in the case of non-delivery of goods, the loss is calculated as the difference between the contract price and the market price at the time when the goods should have been delivered at the place where there is demand for the goods.

In this particular case, the delivery period was extended to May 31, 1980 so the market price will also be calculated at that time.

However, the Arbitral Tribunal rejected the Claimant's request to be paid the price difference due to:

- Plaintiff failed to demonstrate a price increase on May 31, 1980,

- The Arbitral Tribunal found that the actual price of plywood and timber as at 31 May 1980 was lower than the contract price.

(Therefore, assuming that because the Plaintiff cannot purchase the Defendant's goods, he has to purchase other goods to replace them, this will not cause any damage to the Plaintiff)

Lost profits:

The arbitral tribunal rejected the Claimant's claim for loss of profits of 10% of the total value of the USD 468,301.10 of goods not delivered. Under common commercial law, damages for non-delivery are assessed by the difference between the contract price and the market price at the time when the goods should have been delivered. This practice is based on the assumption that because the goods are not delivered, the buyer can reduce the loss by purchasing a quantity of substitute goods on the black market. If, by not purchasing the black market substitute goods, the buyer suffers additional losses (such as loss of profits, etc.), the seller will not be liable for these losses.

“In the case at hand, the Plaintiff did not purchase, or at least could not prove that it had purchased, the replacement timber on the delivery date. If it had purchased, it could have resold the timber to “Syrian domestic trading organisations” and retained its 10% profit. Therefore, the Plaintiff itself is responsible for its failure to do so.”

Furthermore, the Plaintiff, as a trader, may make a profit or suffer a loss when reselling goods, but not always at a profit. The 10% profit here is only a “drawn” profit and does not truly reflect the determination of commercial prices based on supply and demand in the market. Therefore, this claim for compensation is dismissed.

Plaintiff's bank fees, insurance, taxes:

Regarding the bank charges of 618,013.44 Syrian Pounds, the Arbitral Tribunal ruled as follows:

Bank Charges: Due to the Defendant's breach of contract, the Plaintiff is entitled to a refund of the bank charges incurred from the date of the contract until the date of the breach.

Insurance premium: Since the Defendant has no objection to the amount of insurance, the Plaintiff is entitled to a refund of this expense.

Additional Insurance: This claim of the Plaintiff was dismissed because the Plaintiff failed to provide any evidence that the cargo vessel was of a special type and that the insurer claimed such an additional premium.

Import duties: This claim of the Plaintiff is dismissed. In most countries, including the UK, there is a rule that if the goods are not imported, no duty is paid and if import duties are paid in advance, they are refunded to the person who paid them if the goods are not imported. Thus, the Defendant could not have known in advance whether the import duties were not refunded to the Plaintiff as they alleged.

Comments and lessons learned:

In fact, this incident arose due to the force majeure situation of “heavy rain” which resulted in the Defendant being unable to complete the delivery of goods to the Plaintiff. However, the dispute only really arose when, after the extension of the contract performance period, the Defendant still failed to fulfill its delivery obligation, and there was no legitimate reason. Furthermore, the Defendant requested an increase in price and claimed compensation for damages due to the unreasonable increase in gasoline prices, so the incident became impossible to resolve by negotiation. The arbitration award was mostly based on international practice, however, the arguments and decisions of the arbitration were very fair and reasonable, there was no completely right side and completely wrong side, all proposals of each party were analyzed and appropriate judgments were made.

From the above case, it can be seen that although the force majeure clause is strictly constructed, disputes can still arise during the implementation process, originating from each party. Therefore, during the implementation of the contract, the