While the civil law systems seems more permissive to the implication of a duty to cooperate in the contract under the overarching principle of good faith and fair dealing, which is generally followed by the international restatements of contract principles, the common law systems traditionally limit the extent of the duty to cooperate to the terms implied in fact in order not to disturb the contractual equilibrium. On the other hand, despite the influence of the common law systems, the contracting practices relating to the transactions governed through legal uncertainty demonstrate the importance of cooperation and the variety of clauses that impose duties of cooperation on both parties. Such practices can be construed as reflecting the change from the classical paradigm of self-interested dealing to a model of cooperative dealing. In civil law systems, due to the variety of situations, in which the contractual cooperation may be imposed on the parties through the principle of good faith on the basis of cooperative dealing, the legal sources of duties of cooperation are generally derived from the legal doctrine and case law, while the legislative acts being limited to providing general principles and placed in secondary position. However, even in the national legal systems admitting the principle of good faith and the international restatements, the decision maker is generally required to give effect to the risk allocation agreed by the parties in the contract and to evaluate the impact of implication of the various duties of cooperation into the contract, given the serious consequences of such implication, on the basis of the discretionary power of the decision maker, in terms of contractual liability and availability of remedies to the parties.
a. Basis of Cooperation
The basic principle of good faith and fair dealing has generally been considered as the basis of various duties of cooperation between the parties at the stage of negotiations as well as throughout the life of the contract. These duties are based on similar premises and are defined by the same considerations.1664 In particular, they are based on loyalty, and considered as allowing the solution of any difficulties connected with the fulfillment of the contract and in carrying out its purpose.1665 It is argued that the principle that each party to a contract owes a
“ A commercial agent shall be entitled to demand that he be provided with all the information, and in particular an extract from the books, which is available to his principal and which he needs in order to check the amount of the commission due to him.” Matray, Didier, Commentary to Article 16, in Bortolotti, Fabio, (ed.), The ICC Agency Model Contract, A Commentary, ICC Publication No. 512, Paris, 1993, at 68
1663 Ferrier, Didier, Commentary to Article 13, in Bortolotti, Fabio, (ed.), The ICC Agency Model Contract, A Commentary, ICC Publication No. 512, Paris, 1993, at 53-54
1664 Nassar, Nagla, Sanctity of Contracts Revisited : a Study in the Theory and Practice of Long-Term International Commercial Transactions, M. Nijhoff, 1995, at 156
1665 Robin, Guy, The Principle of Good Faith in International Contracts, International Business Law Journal, (2005), at 717
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duty not to cause prejudice but rather to cooperate with its partner in order to solve the complex problems which arise in long-term contractual relationships has been repeatedly affirmed by international arbitral tribunals.1666 In ICC Case No 2443, the arbitral tribunal stated that the parties must be aware that only a loyal, complete and continuing cooperation between them may assist in resolving, beyond the difficulties inherent to the performance of each contract, the many problems arising from the extreme complexity and entanglement of the litigious obligations, and this obligation to cooperate, which the modern doctrine rightly found on the good faith that has to govern the performance of any obligation, must be complied with.1667
In ICC Case No 9797, the sole arbitrator held that one of two business units consisting of member firms of a global consulting firm that were linked to each other through a number of Member Firm Interfirm Agreements had acted contrary to the member firms’ implicit obligation to cooperate and to pursue their professional practice in accordance with the principle of good faith and fair dealing. The arbitrator found the member firms of one of the business units were responsible for breaches of such obligations as hiring away the personnel of the member firms of other business unit, and misleading their clients in order to sell their own services and trading on their credentials and expertise. Although the agreements did not contain any express provisions prohibiting such conducts, the arbitrator held that the contractual agreements among the parties forbid the member firms to engage in uncooperative acts to benefit themselves at the expense of other member forms and such acts were “contrary to the member firms’ implicit obligation … to pursue their professional practice in accordance with the principle of good faith and fair dealing inherent to international contracts” and referred to Article 1.7 of the UNIDROIT Principles. 1668
It is argued in the doctrine that “The needs of international trade give rise . . . to the creation of a-national rules which, taking account of the hazards and costs of international commercial operations, impose co-operation in good faith upon the parties whose scope exceeds that normally required by national law in internal operations”1669 In ICC Case No 5030, the arbitral tribunal underlined a general obligation to behave with loyalty in the contractual relationship, which, in its view, constitutes naturally an essential principle in international economic relations.1670 However, the implication of a duty to cooperate may have serious consequences, such as obstructing the exercise of the contractual rights as agreed by the parties or leading to significant changes in the available remedies. In ICC Case No 10346, the arbitral tribunal, referring to Article 1175 of the Italian Civil Code, the legislation which the applicable Colombian law took as its model for the subject of obligations and contracts, and
1666 Bernardini, Piero. Is the Duty to Cooperate in Long-Term Contracts a Substantive Transnational Rule in International Commercial Arbitration?, in Emmanuel Gaillard (ed.), Transnational Rules in International Commercial Arbitration, ICC Publication No. 480/4, Paris 1993, at 139
1667 ICC Award in Case No. 2443, 1975, cited in the French original in the commentary to ICC Award No. 2291, Collection of ICC Arbitral Awards, Vol. I (1974-1985), at 276
1668 ICC Award in Case No. 9797, July 28, 2000, Andersen Consulting Business Unit Member Firms vs. Arthur Andersen Business Unit Member Firms and Andersen Worldwide Societe Cooperative, World Trade and Arbitration Materials, 12-5 (2000), at 162
1669 Loquin, E., L’application de regles anationales dans l’arbitrage commercial international, in L’apport de Law Jurisprudence Arbitrale, Les Dossiers de L’Institut du Droit et des Pratiques des Affaires Internationales, (1986), at 98-99, cited in Observations on ICC Award in Case No. 5832, Collection of ICC Arbitral Awards, Vol. II (1986-1990), at 536
1670 ICC Award in Case No. 5030, Journal du Droit International (1993), at 1011
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Article 1.7 of the UNIDROIT Principles, stated that “the party, specifically the creditor, who has not acted with the diligence, measures and foresight which are required of him, as the case may be, is not only disqualified from alleging a breach of contract and seeking compensation for damages which, in the event that they have been suffered, would be due to his own fault, but, on a preventative and more direct basis, assumes the consequences of his dishonesty or turpitude and the attendant liability towards the other party…”1671 Thus, in supplementing the contract with the duties of cooperation, the decision maker applying lex mercatoria should refrain from relying entirely on the concept of good faith and fair dealing without further justification and provide sufficient insight into the abstract reasoning that forms the basis of his specialized consolidations.
The ICSID case, between Klöckner v. Cameroon, where the obligation to keep other party fully informed, as expressed in the award as “the duty of full disclosure”, was applied in the context of a long-term contract, demonstrates the problems arising from such a wide consideration of the duty of cooperation in an arbitral award. The dispute arose out of a number of agreements, under which Klöckner undertook to supply and erect a fertilizer factory in Cameroon, supported by feasibility and profitability studies prepared by Klöckner.
Klöckner would be responsible for technical and commercial management of the factory for at least five years, and become a 51% shareholder in the joint venture operating company (“SOCAME”). The Cameroonian Government undertook to furnish a developed site for the factory as well as to guarantee payment of a loan, arranged by Klöckner, covering the price of the factory. After 18 months of unprofitable and sub-capacity operation, the factory was shut down in 1978. After a failure to attempt by Cameroon to start up the factory in 1980, the Government ultimately decided to close the factory in 1981. Klöckner filed a request for ICSID arbitration claiming the balance of the price for supplying the factory, namely 80 per cent of the price. 1672 The award declared the debt of the Cameroonian Republic cancelled by reason of Klöckner's failure to perform its contractual obligations.
Klöckner and Cameroon had not agreed on the applicable law in the agreements, but it was not contested by the parties during the proceedings that the applicable law should “naturally”
be “the civil and commercial law applicable in Cameroon”. However, the sources of this law could not be determined without difficulty because the United Republic of Cameroon had a dual judicial heritage from both France and the United Kingdom during the colonial era. Since the SOCAME factory project and finalization of relevant agreements took place in the eastern part of the country, the tribunal held that only that part of Cameroonian law that was based on French law should be applied in the dispute. On the basis of this law, the tribunal defined a
“duty of full disclosure to a partner” without referring to any precise legal texts.1673
The tribunal considered that, “[d]uring the critical period before and during the construction of the factory, Klöckner failed to meet its obligation to deal frankly with its Cameroonian partner.”1674 The tribunal stated: “This was a joint venture between Klöckner, a multinational European Corporation, and a developing country. The plant to be built was an example of
1671 ICC Award in Case No. 10346, December 2000, ICC International Court of Arbitration Bulletin, 12-2 (2001), at 112
1672 Paulsson, Jan, The ICSID Klöckner v. Cameroon Award: The Duties of Partners in North-South Economic Development Agreements, Journal of International Arbitration, (1984), at 145-146
1673 Ibid., at 157
1674 Ibid., at 154
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imported modern technology and engineering. Cameroon had no experience in manufacturing fertilizer products. The factory was to be acquired with the Government's guarantee of payment; its output being of major importance for the country's agriculture, and agriculture being in turn the very foundation of Cameroon's economic ambitions. Cameroon counted on Klöckner to supply all that was necessary to ensure the success of the project… Klöckner claimed to be capable of supplying all the knowhow, all the material, and all the management skills necessary to ensure the project's success, the Government’s only role being to supply a site and to guarantee payment of the contract price. In this operation, the Government trusted Klöckner. Klöckner … promised its partner, if not an unconditional guarantee of the factory's profitability at all times, at least very pronounced frankness and loyalty. Klöckner had a particularly strong obligation to keep Cameroon informed of any facts that might have a crucial influence upon the Government's decision to assume, and to continue assuming, the very onerous financial engagements upon which Klöckner now seeks to rely. Klöckner failed to live up to these obligations. We do not hold that this failure was due to a fraudulent intent.
But we conclude that Klöckner demonstrated less than a full measure of frankness, of candor, vis-à-vis its partner, and that what it did not disclose to its partner may have been decisive in the Government's decision whether or not to pursue the project. We thus hold that Klöckner did not respect its duty of confidence and loyalty vis-à-vis its partner in this joint venture.”1675 According to the tribunal, Klöckner failed to make adequate efforts to deal frankly with its partner, because it could have said that the conditions of financing had become tougher, and prices had changed since the initial agreement. The tribunal considered that “It is impossible to determine whether the Government would have decided to halt the project if Klöckner had revealed clearly and fully to the Government that the economic hypotheses of 1971 [at the signing of the basic agreement], with respect to the relative prices of raw materials and finished products as well as to the definitive price of the factory, were no longer valid.”1676 However, the tribunal was sure that if Klöckner had taken back its initial representations concerning the profitability of the factory to take account of the new realities of the international fertilizer market, Cameroon could have reconsidered and avoided the costly and unwise investment.1677
The tribunal stated that “We take for granted that the principle according to which a person who engages in close contractual relations, based on confidence, must deal with its partner in a frank, loyal and candid manner is a basic principle of French civil law, as is indeed the case under the other national codes which we know of. This is the criterion that applies to relations between partners in simple forms of association anywhere. The rule is particularly appropriate in more complex international ventures, such as the present one. We have not established that there is a law applicable to such contracts. We do not intend to apply new or exceptional legal principles to turn-key operations only because they concern projects affecting the economic and social development of a given country. But we are convinced that it is particularly important that universal requirements of frankness and loyalty in dealings between partners be applied in cases such as this one, where a multinational company seeks and freely undertakes the obligation to supply an overall package of feasibility, analysis, design, management, bidding, construction and marketing for an industrial plant, and obtains in return the agreement of the Government to pay for the factory, whether or not it is profitable. In the
1675 Ibid., at 154-155
1676 Ibid., at 155
1677 Ibid., at 157
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present case, as we have suggested, we do not feel that Klöckner has dealt frankly with Cameroon. At critical stages of the project, Klöckner hid from its partner information of vital importance. On several occasions it failed to disclose facts which, if they had been known to the Government, could have caused it to put an end to the venture and to cancel the contract before the expenditure of the funds whose payment Klockner now seeks to obtain by means of an award. When a partner in a financially complex international venture learns of certain facts which could influence the attitudes and the actions of the other partner with respect to the project; when the first partner fails to disclose this information to the other; and the second thereupon continues with the project and incurs additional costs, the first partner has not acted frankly and loyally vis-à-vis his partner, and he cannot rightly present a claim to funds whose expenditure would perhaps never have been necessary if he had been frank and candid in his dealings. In a very significant sense, the fault is his. The fact that the funds were spent becomes his responsibility and not that of his partner. In this respect, we decide that Klöckner violated its fundamental contractual obligations and may not insist upon payment of the entire price of the Turnkey Contract.”1678
The tribunal found that the government was well founded in retaining payments under the exceptio non adimpleti contractus by reaching “the conclusion that Klockner violated its duty of full disclosure,” and therefore “it is not entitled to the contract price, that it is entitled to payment for the value of what it delivered and which Klockner used, and that Cameroon has already paid enough. . . .”1679 In the application of the exceptio non adimpleti contractus, the tribunal first analyzed and discussed French case law and commentary, while also noting “in view of the parties' divergence as to applicable law… that English law and international law reach similar conclusions”.1680 The tribunal held that “In the present case, taking into account, on the one hand, the significant payments effected by Defendant, and, on the other hand, the significance of Claimant's failures to live up to contractual undertakings, it is appropriate to conclude that the amount paid corresponds equitably to the value of Klöckner's defective performance… and we have thus concluded that Klöckner is entitled to what it has already received, but to nothing more.”1681 The tribunal also denied Cameroon’s counter-claim for damages for reparation of all losses attributable to its participation in the project, lucrum cessans, and non-financial damages. The tribunal stated that “There is no justification for charging Claimant with the losses incurred by the Government in a joint venture where the two parties participated, or should have participated, with open eyes and full understanding of their actions. One could hardly accept that a State, having access to many sources of technical assistance, could be entitled to compensation for the fact that it was misled by a private company proposing a particular contract… Klöckner's responsibility for the defects in the supply of the factory and in its technical and commercial management have been sufficiently sanctioned by the rejection of its claim under the unpaid promissory notes. For the same reasons, there is no ground in this case to allocate lucrum cessans or compensation for any non-financial damages.”1682
1678 Ibid., at 157-158
1679 The decision of the Ad hoc Committee, dated May 3, 1985, ICSID Review--Foreign Investment Law Journal, (1986), at 111
1680 Paulsson, Jan, The ICSID Klöckner v. Cameroon Award: The Duties of Partners in North-South Economic Development Agreements, Journal of International Arbitration, (1984), at 159
1681 Ibid., at 166
1682 Ibid., at 168
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D. Schmidt, who was appointed by Klöckner as a member of the tribunal, criticized the award in his dissenting opinion.1683 With regard to the “duty of full disclosure to a partner”, the dissenting arbitrator noted that “it is not reasonable to claim that the Government of Cameroon was not aware of "the relative prices of raw materials and finished products", when in fact that Government was in total control of the fertilizer market through its power to deliver import licences for fertilizers, through its calls for international tenders, through its control of the whole fertilizer distribution network in Cameroon, and through the fixing by
D. Schmidt, who was appointed by Klöckner as a member of the tribunal, criticized the award in his dissenting opinion.1683 With regard to the “duty of full disclosure to a partner”, the dissenting arbitrator noted that “it is not reasonable to claim that the Government of Cameroon was not aware of "the relative prices of raw materials and finished products", when in fact that Government was in total control of the fertilizer market through its power to deliver import licences for fertilizers, through its calls for international tenders, through its control of the whole fertilizer distribution network in Cameroon, and through the fixing by