## Facts

- A buyer with business ties to Egypt and France entered into a sales contract with a Yugoslav seller; the contract was signed in Yugoslavia.
- The contract called for the sale of 80,000 metric tons of steel bars at an average price of US$190 per metric ton.
- The contract gave the buyer an option to increase the quantity to 160,000 metric tons on the same price and conditions, subject to timing and letter-of-credit requirements.
- The buyer notified the seller that it would exercise the option for an additional 80,000 metric tons and indicated it would open the letter of credit during the second half of December 1987.
- The seller sought to renegotiate the price for the option quantity and, at a meeting, demanded a higher price (reported as US$215 per metric ton) for the additional deliveries.
- The buyer insisted on the original contract price for the option quantity and warned that the seller would be held liable for resulting losses if it did not confirm performance.
- When the seller did not agree to deliver the additional quantity at the contract price, the buyer concluded a substitute purchase (a “purchase in replacement”) for the same type of steel bars from a Romanian supplier at a higher price (reported as US$216 per metric ton).
- The contract contained an ICC arbitration clause; the buyer commenced ICC arbitration in Paris seeking compensation for the difference between the contract price and the cover purchase price (and related adjustments).
- The arbitration clause did not specify the substantive law governing the dispute.
- Egypt, France, and Yugoslavia had ratified the CISG, but the CISG was not yet in force for purposes of the parties’ dispute; the tribunal nevertheless compared Yugoslav law to CISG and ULIS provisions when assessing breach, excuse, and damages.

## Issues

1. What substantive law governed the contract when the arbitration clause did not include a choice-of-law clause?
2. Did the seller breach the contract by refusing to deliver the option quantity at the contract price based on market price increases, absent a price-adjustment clause or frustration?
3. If the seller breached, was the buyer entitled to cover damages measured by the difference between the contract price and the replacement purchase price, and from what date did interest accrue under Yugoslav law?

## Decision

- The tribunal determined the applicable substantive law through conflict-of-laws analysis and concluded that Yugoslav law governed the dispute.
- The tribunal found that the seller’s refusal to deliver the additional quantity at the contract price constituted a breach of contract.
- The tribunal rejected the seller’s attempt to justify non-performance based solely on a price increase; the seller could be relieved only if the contract contained a price-adjustment mechanism or if frustration were shown.
- In calculating compensation, the tribunal accepted the buyer’s replacement purchase as the relevant benchmark and awarded damages in an amount reflecting the difference between the contract price and the price paid in the substitute transaction (with any appropriate adjustments recognized under the governing law).
- Applying Yugoslav rules on interest (including Article 277(1) of the Yugoslav Law on Obligations), the tribunal held that interest ran from the dates the seller should have delivered and failed to deliver, not from the date of the seller’s refusal, the date of the cover purchase, or the date the buyer paid the replacement supplier.

## Legal Principles

- When parties do not choose a governing law in an international sales contract, an arbitral tribunal may determine the applicable substantive law by applying relevant conflict-of-laws rules connected to the dispute and the seat.
- A seller’s demand for a higher price, standing alone, does not excuse performance of a fixed-price sales obligation absent a contractual price-adjustment clause or a legally recognized frustration-type event.
- Cover damages for non-delivery may be measured by the difference between the contract price and the price actually paid in a reasonable substitute transaction for the goods.
- Even when the CISG is not directly applicable because of its temporal scope, its provisions may be used as a comparative reference point when evaluating parallel rules in the governing domestic sales law.
- Under Yugoslav damages-interest rules cited by the tribunal, default (and thus interest on damages) begins when performance was due and not rendered, rather than at earlier negotiation, refusal, or replacement-purchase milestones.

## Conclusion

In ICC Case No. 6281, the tribunal—sitting in Paris—used conflict-of-laws analysis to select Yugoslav substantive law for a steel sales dispute where the contract lacked a choice-of-law clause, found the seller breached by refusing to supply an option quantity at the agreed price, awarded the buyer cover damages based on its replacement purchase, and held that interest accrued from the dates on which the seller should have delivered but did not.


ICC Case No. 6281, 15 Y.B. Comm. Arb. 96-101 (1990)