KCAB case no.10. Facts

Transcription

1 the correction of a party. Article 260(1) of the Korean Civil Procedure Act expressly provides that [w]here it is obvious that a plaintiff has mistakenly designated a defendant, the court of first instance may, upon request of the plaintiff, permit by its ruling the plaintiff to rectify the defendant, by the close of the pleadings. However, the Korean Civil Procedure Act does not expressly stipulate the correction of a party. But the Korean Supreme Court has held that the court should, at the request of one of the parties, mandate the correction of the incorrect description of a party, provided that it retains the identity of the proper party identified by the court (see Supreme Court Decision No. 2010Da99040 dated Mar. 10, 2011; Supreme Court Decision No. 2005Ma425 dated July 4, 2006; Supreme Court Decision No. 96Da3852 dated Oct. 11, 1996). Article 20(1) of the Korean Arbitration Act provides that [s]ubject to the mandatory provisions of this Act, the parties are free to agree on the arbitral proceedings. Paragraph (2) provides that [f]ailing such agreement referred to in paragraph (1), the arbitral tribunal may, subject to the provisions of this Act, conduct the arbitration in such manner, as it considers appropriate. The parties chose the Arbitration Rules of KCAB. The parties adoption of procedural rules does not amount to a derogation from the lex arbitri. The parties autonomy in determining the rules of procedure is subject to the mandatory provisions in the Korean Arbitration Act. This strikes the balance between the parties autonomy and the overriding requirements of the lex arbitri. Therefore, the procedure of the arbitration is generally regulated by the Rules chosen by the parties. The Korean Arbitration Act, the lex arbitri, to the extent that it contains mandatory provisions, is binding the parties. 31) It is natural that the Arbitral Tribunal should look into the Korean Arbitration Act, the lex arbitri. In this case the Arbitral Tribunal further refers to Korean procedural law. However, it is ambiguous whether it indicates the Korean Civil Procedure Act. The Arbitral Tribunal could have ascertained whether and why the Korean Civil Procedure Act extends to the arbitral proceedings. It remains to be seen whether the Korean Civil Procedure Act is encompassed into the lex arbitri and thus extends to the arbitral proceedings in respect of correcting a party. 31) United Nations Commission on International Trade Law, supra note 4, at ; Blackaby et al., supra note 3, at KCAB case no.10 Parties Place of Arbitration Language Subject matters Facts The Respondent contracted to purchase from the Claimant four patrol airplanes, in two installments, installed with search radar made by Company C and forward looking infrared system made by Company L. The engineers of Company C established in Country I were scheduled to visit the Claimant in Country B to conduct lab integration test between the two components to be mounted on the airplanes. Meanwhile, several civilians were killed by a military raid by Country I s naval commandos on the MV Mavi Marmara carrying humanitarian aid in international waters. Because of Country B s refusal of the engineers entry triggered by the raid, the test was not conducted as planned. Later the engineers managed to enter Country B and to conduct integration test with help of Company L. As a result, the Claimant failed to deliver the airplanes in accordance with the contractual schedule. In response, the Respondent paid the remaining amount deducting the liquidated damages from the purchase price. Claimant: Aircraft Manufacturing Company (Indonesia) Respondent: The Republic of Korea (Korea) Seoul, Republic of Korea Original in Korean - applicable law - late delivery of goods - force majeure - exemption of liability - liquidated damages - statutory interest rate

2 The Claimant initiated arbitration relying on the arbitration clause contained in the contract which provided for KCAB arbitration. The contract provided that the law applicable to the dispute was Korean law. Even though the United Nations Convention on Contracts for the International Sale of Goods (CISG) did not apply, the Arbitral Tribunal decided to take it into account. Arguing that the delay in delivery was due to a force majeure, the Claimant sought the payment of the amount equivalent to the liquidated damages deducted from the purchase price and interest. In response, the Respondent objected that Claimant was not exempted because it failed to satisfy the requirements for exemption due to a force majeure. Having found that the delay in delivery was due to a force majeure, the Arbitral Tribunal examined the duration of the force majeure and the amount of the liquidated damages. The Claimant was awarded the remainder exceeding the part granted by the Arbitral Tribunal at the daily rate for, and subject to a maximum of ten percent of, the purchase price of the delayed part out of the amount suspended by the Respondent as the alleged liquidated damages. Further, the Arbitral Tribunal denied in part the Claimant s claim for interest. Excerpt I. APPLICABLE LAW [1] The formation, validity and the performance of this Contract shall be governed by the laws of the Republic of Korea. Nothing in this Contract shall be interpreted against the Act on Contract to which the State is a Party. [2] Article 2(f) of the United Nations Convention on Contracts for the International Sale of Goods (CISG) provides that it does not apply to sales of aircraft. If the subject matter of this contract were goods to which CISG applies, CISG would apply to this contract by Article 1(1) (b) of CISG because the parties chose Korean law as the applicable law to the contract. Furthermore, CISG is an international standard to be relied on for international trade in general as well as for international sales. Therefore, the arbitral tribunal takes CISG into account in examining the claimant s prerequisites of exemption from paying the liquidated damages resulting from the delay in delivery. [3] Article 79 of CISG provides: (1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences. (2) If the party's failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if: (a) he is exempt under the preceding paragraph; and (b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him. (3) The exemption provided by this article has effect for the period during which the impediment exists.. (4) The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non-receipt. [4] Article 29 of the General Terms of this contract provides: All disputes, controversies, or differences which may arise between the Seller and the Buyer in relation to this Contract shall be finally settled by arbitration in Seoul, the Republic of Korea, in accordance with the Commercial Arbitration Rules of the. II. EXEMPTION DUE TO A FORCE MAJEURE [5] Article 21 of the General Terms of this contract provides: a. The Seller shall not be responsible for any delay or failure of Delivery of Commodity which may arise from acts of God, fires, explosions, strikes, lockouts, riots, civil commotions, mobilizations, threat or existence of war,

3 blockades, embargoes, requisition of vessels, epidemics, changes in the relevant laws and regulations made after this Contract became effective, or other causes beyond the Seller s reasonable control (the Force Majeure Event ). b. Upon occurrence of the Force Majeure Event, the Seller shall notify the Buyer by teletransmission and subsequent airmail within ten (10) days from such occurrence of the Force Majeure Event. The notification shall be attached by a written certificate issued by the authorized governmental organization of the applicable country. The certificate shall indicate: (i) that the Seller could not reasonably foresee occurrence of the Force Majeure Event at the time of execution of the Contract, and (ii) that the Seller could not control the failure of or the delay in Delivery of Commodity due to such Force Majeure Event. [6] In accordance with the above provision of the contract, the claimant is entitled to be exempted from liability if it can prove cumulatively the following: (i) that the delay in delivery was due to a force majeure beyond its control; (ii) that the force majeure was not foreseeable at the time of the conclusion of the contract; and (iii) that it gave notice to the respondent of the force majeure. 1. Did the Alleged Unlawful Attachment Constitute a Force Majeure? [7] The claimant argues that the delay in delivery of the patrol airplanes was due to a force majeure under Article 21 of the General Terms of this contract because it was unable to purchase major parts on time as a result of the unlawful attachments by Company E on the contract price. [8] While Company E had been an agent for the claimant s business in Korea, the claimant terminated the agency agreement on. In response, Company E obtained the attachments order on the claim for the purchase price which the claimant held against the respondent. Furthermore, the arbitrator rendered an arbitral award ordering the claimant to pay US $ to Company E. It would be difficult to consider the attachments to be unlawful. Even if the attachments were groundless, they would not constitute a force majeure beyond the claimant s control because they resulted from the dispute between the claimant and its agent Company E. Therefore, the arbitral tribunal rejects the claimant s argument. 2. Was the Delay in Delivery due to the Delay in Payment of the Purchase Price? [9] The claimant argues that even upon the delivery of the first and second airplanes the respondent paid the remaining amount deducting the amount subject to the attachment orders from the purchase price for the two airplanes in two installments three months later and five months and ten days later respectively. The claimant therefore asserts that it is not responsible for the delay in delivery of the third and fourth airplanes. [10] The arbitral tribunal is of the opinion that the seller to supply the goods to be manufactured or produced is responsible to procure parts necessary for the manufacture of the goods, and that the buyer s failure to pay in part does not relieve the seller of the obligation to deliver the goods or the liability for the delay in delivery thereof. It appears that the delay in payment in part for the first installment was resulted from remedying the documents stipulated in the letter of credit or the dispute with respect to the payment of the liquidated damages to be borne by the claimant. Therefore, the respondent is not liable for the delay in payment in part for the first installment. The arbitral tribunal rejects the claimant s argument because the claimant is not entitled to rely, based on the respondent s delay, on the exemption of liability for the delay in delivery of the third and fourth airplanes. 3. Did the Failure for the Engineers to Access the Goods Constitute a Force Majeure? a. Prerequisites of Exemption [11] The claimant argues that the delay in delivery of the patrol airplanes was due to Country B s refusal of the engineers entry with the computer equipment triggered by the MV Mavi Marmara incident, which constitutes a force majeure. As reviewed above, the claimant is entitled to be exempted from liability if it can

4 prove cumulatively the following: (i) that the delay in delivery was due to a force majeure beyond its control; (ii) that the force majeure was not foreseeable at the time of the conclusion of the contract; and (iii) that it gave notice to the respondent of the force majeure. Therefore, the arbitral tribunal examines the requirements. b. Whether the Delay in Delivery was due to a Force Majeure beyond Control [12] The arbitral tribunal finds that the integration between search radar and forward looking infrared system manufactured by different producers is essential. The integration test consists of lab integration test, ground integration test and flight integration test in the three phases. The lab integration test may be conducted with bench integration test tool which is a computer equipped with necessary software. The lab integration test conducted before the ground integration test may be skipped. If, however, the lab integration test identified any problem in integration, the claimant could resolve the problem in the course of manufacturing the airplanes and deliver them on time. [13] The arbitral tribunal finds that the engineers of Company C were unable to enter Country B and to conduct the lab integration test as scheduled, and that they later conducted the unsuccessful ground integration test. The claimant s remedying the failure resulted in the delay in delivery of the airplanes. Because of Country B s refusal to issue visas triggered by the MV Mavi Marmara incident, the engineers were unable to enter Country B. State s refusal to issue visas constitutes a force majeure beyond the claimant s control. [14] On the following grounds the respondent objected that the failure to conduct the lab integration test resulting from the delayed entry of the engineers did not have a causal link to the delay in delivery of the airplanes: (i) that the cause of the failure of integration test was the incorrect version of the software installed in forward looking infrared system made by Company L; (ii) that three flight tests had already been conducted by the day when the engineers entered Country B; (iii) that the integration between search radar and forward looking infrared system was scheduled in the 19th and 20th flight tests; (iv) that the technical data necessary for the installation of search radar was procured barely on ; (v) that the independent navigation system provided by U.S. Company K had not been procured by the time of the pre-inspection of the Korea Coast Guard; and (vi) that even if the engineers had entered Country B in June, they could not have conducted the integration test because the bench integration test tool sent by Company C arrived on December 22, [15] However, the respondent s above arguments are groundless on the following grounds: (i) that the incorrect version of the software, which was alleged as the cause of the failure of integration test, could result in the delay in delivery; (ii) that the flight test is separate from the integration test; (iii) that as reviewed above the lab integration test was scheduled to be followed by the flight integration test; (iv) that the technical data necessary for the installation of search radar is not necessary in the phase of the lab integration test; (v) that as reviewed above the lab integration test requires only the bench integration test tool and forward looking infrared system, not all of search radar, forward looking infrared system, independent navigation system, etc.; and (vi) that the delay of the lab integration test is not attributable to the delay of arrival of the bench integration test tool because the engineers were, in entering Country B, supposed to take the tool

5 [16] The respondent further argues that the delivery of the airplanes was delayed not because the engineers were unable to enter Country B but because the supply of parts necessary for the manufacture of the airplanes was delayed by upstream suppliers, for which the claimant is responsible. However, the arbitral tribunal finds that the delay in supply of parts necessary for the manufacture of the airplanes resulted in the delay production rate of 3% to 14%, and that the extended working hours pushed up the process completion rate of the first airplane to 99.63% and that of the second to 98.62% in January,. Therefore, the arbitral tribunal rejects the respondent s argument that the delay in delivery of all the airplanes resulted from the delay of the supply of parts. c. Whether the Claimant Could not Reasonably Foresee the Cause of the Delay in Delivery [17] A reasonable person is not expected foresee that Country I would raid a foreign ship, that crew members would be killed by the raid, and that people of Country B would be among them. The claimant could not reasonably have foreseen at the time of the conclusion of the contract that the MV Mavi Marmara incident would arise and as a result the engineers would be unable to enter Country B. Therefore, the second pre-requisite of exemption is satisfied for the claimant. [18] The respondent further argues that the claimant could have avoided or overcome the force majeure by a reasonable effort of trying reentry of the engineers and conducting the integration test in a third country. The claimant would not be liable if it could not reasonably foresee the force majeure and also avoid or overcome it or its consequences. approval under the US Arms Export Control Act which takes a considerable time. Thus, the claimant attempted to conduct the integration test at the US parent company of Company L, but it was unable to conduct the integration test because the system retained by Company L was sent for the Farnborough Air Show in the U.K. [20] The respondent argues that under the US International Traffic in Arms Regulations the relocation of a defense article without transfer of ownership is not subject to the approval by the US government. However, reselling, transferring, reexporting, retransferring, transshipping, or disposing provided in the Regulations is not necessarily interpreted to mean the cases in which the ownership is transferred. A temporary export is also subject to the Regulations. The arms trading control is not limited to the cases in which the ownership is transferred in light of the purpose to regulate exports to a third country. In light of the foregoing, the arbitral tribunal is of the opinion that the relocation to a third country is subject to the approval by the US government. [21] As such, the claimant did a reasonable effort to avoid or overcome the force majeure, i.e., the failure of the engineers to enter Country B and to conduct the integration test, or its consequences by trying to let the engineers enter Country B and to conduct the lab integration test in a third country Country S or at the US parent company of Company L. Therefore, the arbitral tribunal rejects the respondent s argument that the claimant could have avoided the delay in the integration test. d. Whether the Claimant Gave Notice to the Respondent of the Cause of the Delay in Delivery [19] The arbitral tribunal finds that the claimant made an effort to contact the government authorities of Country B for the entry of the engineers and as a result the engineers were, with unofficial visas issued by Country B s consulate office in Singapore, able to enter Country B on December 20,. [22] The claimant argues that because since July, the respondent was aware that the delivery of the airplanes would be delayed the claimant did not have to give notice to the respondent of the delay. However, there is no evidence to prove the argument. The arbitral tribunal therefore rejects this argument. The arbitral tribunal also finds that the claimant considered the option to conduct the lab integration test in a third country Country S, not in Country B, and that it turned out to be infeasible because handing over of the forward looking infrared system of Company L to a third country was subject to the [23] The arbitral tribunal finds that in the midterm checkup meeting held in Country B October 12 15,, the claimant gave notice to the respondent of the possible delay in delivery due to the failure of the engineers to enter Country B and to conduct the integration test

6 ( ) Therefore, the arbitral tribunal finds that the claimant gave notice to the respondent of the cause of the delay in delivery by October 15, when the meeting was closed. [24] In response, the respondent objects that the claimant failed to give notice to the respondent pursuant to Article 21(b) of the General Terms. The Article provides that [u]pon occurrence of the Force Majeure Event, the Seller shall notify the Buyer by teletransmission and subsequent airmail within ten (10) days from such occurrence of the Force Majeure Event. The notification shall be attached by a written certificate issued by the authorized governmental organization of the applicable country. The respondent therefore argues that the claimant was not entitled to rely on the force majeure. [25] The arbitral tribunal finds that the claimant failed to give notice in accordance with Article 21 of the General Terms. However, the arbitral tribunal is of the opinion that the notice is a procedural requirement to prove the force majeure, that the exemption remains unaffected in case of the failure to notify, and that the party who fails to notify is liable to compensate the damages which have arisen from the failure (Article 79(1), (4) of CISG). Therefore, the claimant is entitled to rely on the exemption because it gave notice to the respondent of the force majeure. However, the claimant would not be exempted from liability during the period when it failed to perform its duty to notify. The arbitral tribunal grants the respondent s argument to that extent. bidder. The reply letter by the Korea Defense Acquisition Program Administration to the Korea Coast Guard expresses its opinion that the delay in supply of the search radar by Company C was due to the disruption of the diplomatic relations between Country B and Country I, and that this constitutes a force majeure beyond the claimant s control and as a result it is entitled to the exemption of the liquidated damages. In light of the foregoing, the arbitral tribunal is of the opinion that the delay in delivery of the airplanes was due to the failure of the engineers to enter Country B and to conduct the integration test on time, that this constitutes a force majeure beyond the claimant s control which it could not reasonably be expected to foresee and to avoid or overcome, and that the claimant gave notice to the respondent thereof. Therefore, the claimant is entitled to rely on the exemption of liability based upon the force majeure. [27] The respondent objects that because the claimant is responsible for conducting the integration between the search radar and the forward looking infrared system the claimant must not be exempted from liability due to the failure of the engineers to enter Country B. If, however, the party s failure to perform its obligations is due to the failure by a third person whom it has engaged to perform a part of the contract, that party is exempted from liability by relying on the person s force majeure under certain requirements (Article 79(2)). The arbitral tribunal therefore rejects the respondent s argument. e. Conclusion on the Force Majeure f. Claimant s Other Arguments for Exemption [26] The arbitral tribunal recognizes that the respondent s decision to purchase the airplanes from the claimant was based on diplomatic and political consideration rather than business and technical consideration because the contract was in tandem with the other contract whereby Country B purchased T50 practice planes from Korea. Also due consideration is to be given to the respondent s request to replace the US search radar to be installed in the airplanes with another made by Company C in Country I while the specifications in the bidding did not require the search radar made by Company C when the claimant was chosen as the preferred [28] The claimant argues that the delivery date for the first and second airplanes was extended to April, by the respondent s consent at the meeting in January,. However, the arbitral tribunal is unpersuaded by Exhibit 4 on which the claimant relied. There is no evidence that the delivery date was extended. [29] The claimant further asserts that the respondent admitted the force majeure in delivering the first and second airplanes by paying on October 28, US $... whose payment had been suspended by it. However, Exhibits 1 and 2 show that the respondent expressed its intent not to waive the liquidated damages when paying the above suspended payment. Therefore, the arbitral tribunal rejects

7 the claimant s argument. III. LIQUIDATED DAMAGES [30] In light of the foregoing, the arbitral tribunal finds that the delay in delivery of the airplanes was due to the force majeure and thus the claimant is entitled to be exempted from liability. The arbitral tribunal examines next the extent to which the claimant is exempted from liability. 1. Whether the Liquidated Damages Are Excessive [31] The claimant argues that the liquidated damages should be reduced in accordance with Article 398 of the Korean Civil Code because they are unreasonably excessive even if it is obliged for them. Article 20 of the General Terms provides that the claimant is obligated to pay liquidated damages to the respondent at the rate of 0.15% of the contract price of the delayed part for each day of delay with the cumulative total not exceeding 10% of the total contract amount. The arbitral tribunal is of the opinion that the liquidated damages agreed upon by the parties are a kind of calculation of damages in advance to which Article 398 of the Korean Civil Code applies. [32] The arbitral tribunal recognizes that the liquidated damages at the rate of 0.15% of the contract price of the delayed part for each day of delay are ordinary in domestic and international contracts and are not excessive in amount. However, the cumulative total of the liquidated damages set at 10% of the total contract amount instead of the delayed part only is unreasonably excessive because the delay in trivial part could amount to 10% of the total contract amount. Therefore, the arbitral tribunal, pursuant to Article 398(2) of the Korean Civil Code, reduces the cumulative total of the liquidated damages to 10% of the contract price of the delayed part, not of the total contract price. 2. Period during which Liability is Exempted [33] In general the exemption due to a force majeure has effect for the period during which the force majeure exists (Article 79(3) of CISG). Therefore, the claimant is exempted from liability for the delay in delivery from the day following the day of its notice of the force majeure until the day when the force majeure ends. As reviewed above, the claimant gave notice of the force majeure to the respondent on October 15, and the engineers of Company C entered Country B and conducted the integration test on December 22,. Therefore, the claimant could be exempted from liability for the delay in delivery during the period of 68 days. If the claimant was able to perform earlier, it would be liable from the following day. [34] As reviewed above, the process completion rate of the first and second airplanes was well over 98% in January, and on February 10,. The claimant, succeeding in the integration test, promised to deliver the first and second airplanes by April,. At the hearing held in Country B, the claimant stated that the delivery would take about 53 days upon the completion of the integration test. The witness Mr. BS testified that if the lab integration test had been conducted before December, the first and second airplanes could have been delivered by the delivery date, February 17,. In light of the foregoing, the arbitral tribunal finds that the claimant was able to deliver the first and second airplanes to the respondent at latest by mid-april,. Therefore, the claimant is liable to the respondent for the delay in delivery of the first and second airplanes after April 15,. Meanwhile, as reviewed above, the integration test for the third and fourth airplanes was conducted in December, and they were able to be delivered without difficulties by the delivery date, June 17,. Therefore, the delay in delivery of the third and fourth airplanes has no causal link to the force majeure on which the claimant relies. 3. Calculation of the Liquidated Damages a. Calculation of the Liquidated Damages for the First and Second Airplanes [35] The claimant should have delivered the first and second airplanes by April 15,. However, the first airplane was delivered on May 10, and the second was delivered on May 14, respectively. Therefore, the claimant is liable for the delay of 25 days for the first airplane and of 29 days for the second respectively. (.)

8 b. Calculation of the Liquidated Damages for the Third and Fourth Airplanes [36] The claimant should have delivered the third and fourth airplanes by June 17,. However, the third airplane was delivered on January 17, and the fourth was delivered on March 11, respectively. Therefore, the claimant is liable for the delay of 201 days for the third airplane and of 255 days for the fourth respectively. As reviewed above, the cumulative total of the liquidated damages is limited to 10% of the contract price of the delayed part. c. Calculation of Suspended Payment Exceeding the Liquidated Damages [37] The respondent paid the remaining contract price deducting the liquidated damages of US $ from the total contract price. Therefore, the respondent is obligated to pay the amount of US $, the remainder exceeding the part granted by the arbitral tribunal out of the amount suspended by the respondent as the alleged liquidated damages. IV. INTEREST [38] The respondent is obligated to pay to the claimant US $ of the unlawfully deducted part of the contract price and 20% per annum interest, as provided in the Act on Special Cases Concerning Expedition, etc. of Legal Proceedings, thereupon from the date following the date of the delivery of the arbitral award to the date of full payment. Meanwhile, the claimant seeks 5% per annum interest from the date following the date of delivery of the fourth airplane to the date of the arbitral award. However, the arbitral tribunal is of the opinion that it is reasonable for the respondent to contest the existence and extent of the obligation to pay the remaining part of the contract price. Therefore, the arbitral tribunal dismisses the claimant s claim for 5% per annum interest. (.) Implications I. APPLICABLE LAW The parties chose Korean law as the applicable law to the contract in this case. The sales of aircraft is excluded from the CISG s sphere of application. Furthermore, the parties did not opt into CISG. However, the Arbitral Tribunal takes CISG into account in examining the Claimant s exemption of liability on the ground that CISG is an international standard for international trade. II. EXEMPTION OF LIABILITY DUE TO A FORCE MAJEURE 1. Exemption from Liability for the Conduct of Third Persons Article 79(2) of CISG provides that: If the party s failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if: (a) he is exempt under the preceding paragraph; and (b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him. Article 79(2) of CISG intends to cover not the third persons under the party s organizational structure and sphere of control but those acting independently under its responsibility. An upstream supplier of the seller is not considered to be a third person the seller has engaged to perform a part of the seller s contract. The supplier may supply to the seller manufactured parts necessary for the manufacture of the goods. The failure of the supplier to provide the seller with the parts does not constitute an impediment under Article 79(2). This falls under the seller s procurement risk for the parts. The seller has the duty to procure the parts from some other source. However, the seller may be exempted with respect to the failure of the supplier if the seller successfully meets the requirements under Article 79(1). 36) 36) United Nations Commission on International Trade Law, supra note 10, at ; Kröll et al., supra note 10, at , ; Schwenzer, supra note 10, at

9 Referring to Article 79(2) of CISG, the Arbitral Tribunal holds that the Claimant is entitled to be exempted from liability. The Arbitral Tribunal finds that the Claimant has engaged a third person Company C to perform a part of its contract, and that the failure of Company C to perform was due to an impediment and the seller s failure was due to the failure of Company C s failure. It is clear that Company C is a supplier of parts necessary for the manufacture of the airplanes by the Claimant. 2. Exemption from Liability for Liquidated Damages In this case the Arbitral Tribunal calculated the liquidated damages under the premise that the exemption due to an impediment extends to the contractually agreed sums, that is, the liquidated damages. Article 79(5) provides that [n]othing in this article prevents either party from exercising any right other than to claim damages under this Convention. Therefore, it is not expressly regulated in CISG whether the exemption due to an impediment extends to the contractual obligation to pay liquidated damages or penalties. The impact of an impediment on such a contractual agreement must be decided according to the purpose of the parties found by interpreting the agreement i.e., whether they have stipulated payment of liquidated damages or penalties instead of a damages claim. In case of doubt, a claim for damages under CISG should be deemed to be replaced by a contractual claim. Therefore, the exemption of liability extends to the liquidated damages by directly or at least indirectly applying Article ) The Arbitral Tribunal first could have examined whether the exemption of liability extends to the liquidated damages. 3. Temporary Force Majeure and Extent of Exemption to be exempted from paying damages caused by the late delivery. 38) The extent of exemption from paying damages in respect of late delivery should be determined by the duration of the impediment. The period during which the impediment exists and accordingly the extent of exemption in respect of late delivery would not be influenced by a notice of the impediment. Even with the failure to give notice of the impediment as provided in Article 79(4), the exemption of liability may remain unaffected. However, the other party has the right to claim damages which have arisen from the non-receipt, imprecise or untimely receipt of notice. 39) The period during which the Claimant is entitled to be exempted from liability in this case starts, irrespective of the timeliness of the notice, upon the occurrence of the impediment, not upon the notice of the impediment. The untimeliness of the notice by the Claimant may give rise to only the Respondent s right to claim damages with a causal relation with it. III. INTEREST While the Claimant seeks 5% per annum interest from the date following the date of delivery of the fourth airplane to the date of the Arbitral Award, the Arbitral Tribunal dismisses the Claimant s claim on the ground that it is reasonable for the Respondent to contest the existence and extent of the obligation to pay the remaining part of the contract price. Once, however, the Arbitral Tribunal finds that the Respondent is obligated to pay the contract price to the Claimant, the Arbitral Tribunal could have ordered the Respondent to pay the contract price and interest thereon. No legal effects could be imputed to the starting point of interest accrual by whether it is reasonable for the Respondent to contest the existence and extent of the obligation to pay. Under the premise that the exemption due to a force majeure has effect for the period during which the force majeure exists, the Arbitral Tribunal is of the opinion in this case that the Claimant is exempted from liability for the delay in delivery from the day following the day of its notice of the force majeure until the day when the force majeure ends. The extent of the exemption from paying damages due to an impediment must be determined by the effect of the impediment. In this case the impediment caused the delay in delivery. As a result, the Claimant is entitled 37) Kröll et al., supra note 10, at ; Schwenzer, supra note 10, at ) Schwenzer, supra note 10, at 1082; Kröll et al., supra note 10, at ) Kröll et al., supra note 10, at ; Schwenzer, supra note 10, at