TWENTY FOURTH ANNUAL WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT
MEMORANDUM FOR RESPONDENT
On behalf of:
SantosD KG
77 Avenida O Rei
Cafucopa, Mediterraneo
RESPONDENT
Against:
Wright Ltd
14 Capital Boulevard
Oceanside, Equatoriana
CLAIMANT
EKATERINA NUZHDOVA • POLINA SIZIKOVA • MARIIA ZINOVEVA • EVGENII PUCHKOV
ELZA DAULETSHINA • KSENIIA SOLOVEVA • ALEXANDER ZHDANOVICH • KONSTANTIN
VASCHENKO
Higher School of Economics • Moscow
Higher School of Economics
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TABLE OF CONTENTS
TABLE OF ABBREVIATIONS ............................................................................................................. V
INDEX OF LEGAL AUTHORITIES .................................................................................................. X
INDEX OF CASES .............................................................................................................................. XIV
INDEX OF ARBITRAL AWARDS .................................................................................................. XIX
LEGAL SOURCES AND MATERIAL ............................................................................................ XXI
INTRODUCTION ..................................................................................................................................... 1
STATEMENT OF FACTS ........................................................................................................................ 2
I. CLAIMANT’S CLAIMS ARE INADMISSIBLE AND SHOULD BE REJECTED BY
THE CURRENT TRIBUNAL ............................................................................................4
A. Current arbitration should be regarded as being commenced on 7 June 2016 only after a
valid Request for Arbitration was accepted by CAM-CCBC, which is beyond contractual
limitation period ...................................................................................................................................... 4
1. CLAIMANT failed to properly initiate arbitral proceedings within agreed time limits .......... 4
2. The Arbitration Agreement became inoperative as CLAIMANT missed the time
limits ............................................................................................................................................... 6
3. The defects contained in Request for Arbitration could not be dealt between
CLAIMANT and the CAM-CCBC due to expiration of limitation period .................................. 7
B. CLAIMANT’s initial Request for Arbitration does not comply with CAM-CCBC Rules
8
1. CLAIMANT’s failure to fully pay the Registration Fee made impossible valid
commencement of arbitral proceedings ......................................................................................... 8
2. The Request for Arbitration of 31 May 2016 was submitted without proper authority
and cannot be sufficient for commencement of current arbitration ......................................... 9
C. Conclusion .................................................................................................................................. 10
II. THE TRIBUNAL SHOULD GRANT RESPONDENT SECURITY FOR ITS
COSTS ................................................................................................................................. 10
A. The Tribunal has the power and should order security for RESPONDENT’s costs. ......... 11
1. The Agreement between the Parties does not limit the power of the Tribunal to
order security for costs. .................................................................................................................. 11
2. CAM-CCBC rules and lex arbitri confer the Tribunal with the power to order
security for costs .............................................................................................................................. 11
3. Security for costs is accepted both in common and civil jurisdictions. ..................... 12
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B. RESPONDENT satisfied all the requirements provided by lex arbitri and arbitration
practice .................................................................................................................................................... 13
1. RESPONDENT’s harm overweighs the harm that CLAIMANT would incur if security
for costs is granted. ......................................................................................................................... 13
2. RESPONDENT established the possibility to succeed on the merits of the claim ..... 14
C. RESPONDENT fulfilled the conditions established by arbitral practice. ............................. 14
1. CLAIMANT is in poor financial conditions and lacks funds ......................................... 14
2. After the conclusion of the Arbitration Agreement the situation changed
fundamentally and unexpectedly. .................................................................................................. 15
D. Conclusion .................................................................................................................................. 16
III. CLAIMANT IS NOT ENTITLED TO THE ADDITIONAL PAYMENT FROM
RESPONDENT FOR FAN BLADES ............................................................................... 16
A. The fixed exchange rate introduced by the Addendum applies to the entire DSA ......... 16
1. CLAIMANT was aware or should have been aware about the intent of RESPONDENT
17
2. Reasonable person test applies in favor of RESPONDENT .......................................... 19
B. The exchange rate under the DSA is USD 1 = 2.01 EQD ................................................. 20
1. Under the rule of supplying an omitted term the exchange rate is USD 1 = 2.01
EQD ............................................................................................................................................ 21
2. The past practice of the parties is binding for the present dispute ............................ 22
(i). The Parties are bound by their previous practice of applying the exchange rate of
the time of production .............................................................................................................. 22
(ii). The Parties are bound by their intention expressed in the negotiation to apply the
exchange rate around USD 1 = 2 EQD ................................................................................. 23
3. CLAIMANT bears the risk of fluctuation of EQD ......................................................... 24
C. Conclusion .................................................................................................................................. 24
IV. CLAIMANT IS NOT ENTITLED TO ADDITIONAL PAYMENT OF
USD 102,192.80 FOR THE FEES DEDUCTED BY THE CENTRAL BANK OF
EQUATORIANA ............................................................................................................... 25
A. RESPONDENT performed all of its obligations related to payment when it was effected
to CLAIMANT ......................................................................................................................................... 25
1. The contractual obligations have been fulfilled by RESPONDENT ............................. 26
2. The Levy is not a bank charge, but a public charge, and therefore is exempted from
the DSA’s allocation of responsibility for bank charges ............................................................ 27
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3. Art. 54 CISG does not encompass public regulations unrelated to the payment .... 28
4. Payment of the levy is not an “usage” implied in the DSA ........................................ 30
B. CLAIMANT should have notified RESPONDENT about the existence of the levy ............. 31
C. RESPONDENT should be granted exemption under Article 79 CISG ................................ 33
D. Conclusion .................................................................................................................................. 34
PRAYER FOR RELIEF .......................................................................................................................... 35
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TABLE OF ABBREVIATIONS
ACICA Australian center of International Commercial Arbitration
AML Anti Money Laundering
Answer to Request
for Arbitration
Answer to Request for Arbitration from 24 June 2016
Arbitration
Agreement
Sec. 21 of DSA
ASA Swiss Arbitration Association (Association Suisse de l’Arbitrage)
Article Art.
AUT Austria
CAM-CCBC Center for Arbitration and Mediation of the Chamber of Commerce
Brazil-Canada
CAM-CCBC Rules Center for Arbitration and Mediation of the Chamber of Commerce
Brazil-Canada Arbitration Rules 2011
CE CLAIMANT’s Exhibit
CEPANI Belgian Centre for Arbitration and Mediation
CIETAC China International Economic & Trade Arbitration Commission
(Beijing, China)
CISG United Nations Convention on Contracts for the International Sale
of Goods of 11 April 1980
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CISG-AC Advisory Council of the Vienna Convention on Contracts
for the International Sale of Goods
CHN China
DSA Development and Sales Agreement of 1 August 2010
e.g. exemplum gratii (for example)
ed. Edition
ECB Equatoriana Central Bank
ENB Equatoriana National Bank
EQD Equatorianian Denars
et.al. et alii/et aliae/et alia (and others)
et.seq./et.seqq. et sequens/et sequentes (and the following one/s)
EWHC High Court of Justice of England and Wales
Fasttrack Horace Fasttrack, representative of CLAIMANT, to the CAM-CCBC
FIN Finland
FIU Financial Investigation Unit
FRA France
GER Germany
GmbH Limited Liability Company in Germany (Gesellschaft mit be-
schränkter Haftung)
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HKIAC Hong Kong International Arbitration Center (Hong Kong, SAR of
the People's Republic of China)
i.e. id est (that is)
ibid. ibidem (the same)
ICC International Chamber of Commerce (Paris, France)
ICSID International Centre for Settlement of Investment Disputes
Inc. Incorporated
infra. see below
inter alia among other things
LCIA London Court of International Arbitration
CLAIMANT Memorandum for CLAIMANT
ML/2010C ML/2010C Regulation, entered into force on 1 January 2010
NAI Netherlands Arbitration Institute
No. Number
Notice of
commencement
Notice of Commencement of Arbitration Proceedings from 8 June
2016
Order of the
President
Order of the President of the CAM-CCBC from 1 June 2016
p./pp. page/pages
para./paras. paragraph/paragraphs
PLC Public Limited Company
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PO Procedural Order
PoA Power of Attorney
PY Paraguay
RE RESPONDENT's exhibit
Registration Fee CAM-CCBC administrative fee paid by CLAIMANT at the time of
presentation the notice for commencement of arbitration
Request for
Arbitration
Request for Arbitration of 31 May 2016
Request for Security
for Costs
RESPONDENT’s Request for Security for Costs dated 6 September
2016
RUS Russian Federation
SA Limited Company in Spain (Sociedad Anónima)
SCAI Swiss Chambers’ arbitration institution
SCC Stockholm Chamber of Commerce
Sec. Section
SIAC Singapore International Arbitration Centre
SUI Switzerland
supra. see above
UN United Nations
UNCAC United Nations Convention against Corruption
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UNCITRAL United Nations Commission On International Trade Law
UNIDROIT International Institute for the Unification of Private Law
USA United States of America
USD United States Dollar
v. versus (against)
WIPO World Intellectual Property Organization (Geneva, Switzerland)
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INDEX OF LEGAL AUTHORITIES
BERGER BERNHARD/
Arbitration Practice: Security for Costs: Trends and Developments in
Swiss Arbitral Case Law
cited as: Berger
in para. 39
BORN GARY B. International Commercial Arbitration: Law and Practice, Kluwer Law
International, Alphen aan den Rijn 2012
cited as: Born
in paras. 4, 27, 33, 35, 35-38
ERAUW JOHAN Cisg Articles 66-70: The Risk Of Loss And Passing It, Journal Of Law
And Commerce [Vol. 25:203 2005-06], pp. 204 – 217
cited as: Erauw
in para. 73
FARNSWORTH E.
ALLAN
in Bianca-Bonell Commentary on the International Sales Law, Giuffrè:
Milan (1987) 95-102
cited as: Farnthworh
in para. 54
FOUCHARD PHILIPPE/
GAILLARD
EMMANUEL/
GOLDMAN
BERTHOLD
International Commercial Arbitration, Kluwer Law International, The
Hague 1999
cited as: Fouchard/Gaillard/Goldman
in paras. 17, 64, 87
GOODHART A. E.
CHARLES
The Evolution Of Central Banks. MIT Press Books, Boston 1988.
cited as: Goodhart
in para. 87
HO JEAN Getting the Shoe to Fit – Obtaining Security for Costs under the Rules
of Arbitration of the International Chamber of Commerce, 9
Vindobona J. of Int’l Comm’l Law & Arb. 329, 332 (2005)
cited as: Ho
in para. 39
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HONNOLD JOHN O.
Uniform Law for International Sales under the 1980 United Nations
Convention, 3rd edition, Kluwer Law International, 1999
cited as: Honnold
in para. 65
HUBER PETER Some introductory remarks on CISG, in: Internationales Handelsrecht,
Volume 6 (2006), Issue 6, pp. 228 – 238
cited as: Huber
in para. 47
KEE CHRISTOPHER International Arbitration And Security For Costs-A Brief Report On
Two Developments
Am. Rev. Int'l Arb. 17, 273-615
cited as: Kee
in para. 30
LEW JULIAN D.M./
MISTELIS LOUKAS A./
KRÖLL STEFAN
Comparative International Commercial Arbitration, Kluwer Law
International, The Netherlands 2003
cited as: Lew, Mistelis, Kröll
in paras. 8, 12, 14
MAGNUS ULRICH
CISG vs. Regional Sales Law Unification, With a focus on the New
Common European Sales Law, Walter de Gruyter 2007
cited as: Magnus
in para. 46
MASKOW DIETRICH Article 54 of the United Nations Convention on Contracts for the
International Sale of Goods, in: Bianca-Bonell Commentary on the
International Sales Law: The 1980 Vienna Sales Convention, Giuffrè,
Milano 1987
cited as: Maskow
in para. 81
PAMBOUKIS
CHARALAMBOS
The Concept and Function of Usages in the United Nations
Convention on the International Sale of Goods, 25th Journal of Law
and Commerce (2005-06), pp. 107-131
cited as: Pamboukis
in para. 65
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REDFERN ALAN/
HUNTER MARTIN
Redfern and Hunter on International Arbitration, Redfern
Alan/Hunter Martin et al. (editors), 7th edition, Oxford University
Press, New York 2015
cited as: Redfern and Hunter
in paras. 35, 39
RUBINS NOAH In God We Trust, All Others Pay Cash: Security for Costs in
International Commercial Arbitration, 11 Am. Rev. Int'l Arb. 307
Cited as: Rubins
in para. 26
SCHLECHTRIEM
PETER
Uniform Sales Law - The UN-Convention on Contracts for the
International Sale of Goods, Manz, Vienna 1986
cited as: Schlechtriem
in paras. 47, 54, 94, 100
SCHWENZER
INGEBORG/
FOUNTOULAKIS
CHRISTIANA/
DIMSEY MARIEL
International Sales Law: A Guide to the CISG, 2nd edition, Hart
Publishing, Oxford and Portland, Oregon 2012
cited as: Schwenzer
in paras. 46
SEGESSER GEORG
VON /BOOG
CHRISTOPHER
in International Arbitration in Switzerland: A Handbook for
Practitioners - 2nd Edition, Kluwer Law International 2013
cited as: Segesser , Boog
in para. 32
STRAUBE FREDERICO
JOSÉ/
FINKELSTEIN
CLAUDIO/
FILHO NAPOLEÃO
CASADO
The CAM-CCBC Arbitration Rules 2012: a commentary, Eleven
International Publishing, The Hague 2016
cited as: Straube, Finkelstein, Filho
in paras. 9, 16
TWEEDDALE
ANDREW
Delay in Commencing an Arbitration
Available at: http://dev.corbett.co.uk/wp-
content/uploads/Arbitration-article-Delay-in-Commencement.pdf
cited as: Tweeddale
in paras. 8, 12
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WAINCYMER JEFF Procedure and Evidence in International Arbitration, Kluwer Law
International, Alphen aan den Rijn 2012
cited as: Waincymer
in paras. 8, 11
YANG FAN Foreign-Related Arbitration in China: Commentary and Cases,
Cambridge University Press, 2016
Cited as: Yang
in para. 36
YESILIRMAK ALI Provisional Measures in International Commercial Arbitration, Kluwer
Law International, the Hague 2005
cited as: Yesilirmak
in para. 28
ZUBERBÜHLER
TOBIAS
MULLER KLAUS
HABEGGER PHILIPP A.
Swiss Rules of International Arbitration: Commentary
Kluwer Law International 2005
cited as: Zuberbühler, Muller, et al.
in para. 16
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INDEX OF CASES
Australia
CLOUT case 631 (AUS, 2000) Downs Investments Pty Ltd.v. Perwaja Steel SDN BHD
Supreme Court of Queensland
17 November 2000
Case No 10680 of 1996
cited as: CLOUT case 631 (AUS, 2000)
in para. 94
Austria
CLOUT Case No. 176 (AUT, 1996) Propane case
Oberster Gerichtshof [Supreme Court]
6 February 1996
CISG-online Case No 10 Ob 518/95
cited as: CLOUT Case No. 176 (AUT, 1996)
in para. 70
China
CLOUT case No. 986 (CHN, 2002) International Economic and Trade Arbitration
Commission
04 February 2002
Cited as: CLOUT case No. 986 (CHN, 2002)
in para. 94
CLOUT case No. 717 (CHN, 1999) China International Economic & Trade Arbitration
Commission
6 January 1999
Cited as: CLOUT case No. 717 (CHN, 1999)
in para. 94
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Finland
CISG-online Case No. S 01/269 (FIN,
2004)
Crudex Chemicals Oy v. Landmark Chemicals S.A.
Appellate Court of Helsinki
May 31, 2004
CISG-online Case No. S 01/269
cited as: CISG-online Case No. S 01/269 (FIN, 2004)
in para. 46
Italy
Rocco Giuseppe e Figli snc V Armadora
San Francisco SA, X YBCA 446
(1985)
Rocco Giuseppe e Figli snc V Armadora San Francisco SA
Corte di Cassazione X YBCA 446 (1985)
cited as: Rocco Giuseppe e Figli snc V Armadora San Francisco SA (1985)
In para. 8
Switzerland
CISG-online Case No.
4C.296/2000/rnd (SUI, 2000);
Roland Schmidt GmbH v. Textil-Werke Blumenegg AG
Swiss Federal Supreme Court Bundesgericht
22 December 2000
CISG-online Case No. 4C.296/2000/rnd
cited as: CISG-online Case No. 4C.296/2000/rnd (SUI, 2000);
in para. 46
CLOUT Case No. 217 (SUI, 1997) Cutlery case
Commercial Court Aargau
26 September 1997
CLOUT Case No. 217
cited as: CLOUT Case No. 217 (SUI, 1997)
in para. 67
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“Vekoma” B.V. v. Maran Coal Corp
(1995)
Transport en Handelsmaatschappij “Vekoma” B.V. (Netherlands) v. Maran Coal Corp (U.S.A.)
Swiss Federal Supreme Court Bundesgericht 1995
cited as: Vekoma v. Maran Coal
in para. 8
Sport Club A. v. B. ( SUI, 2015) Sport Club A. v. B.
Swiss Federal Supreme Court, 4A_70/2015
ASA Bull. 1/2016, p. 147.
29 April 2015
in para. 20
United Kingdom of Great Britain and Northern Ireland
Nanjing Tianshun Shipbuilding Co Ltd
V Orchard Tankers Pte Ltd
Nanjing Tianshun Shipbuilding Co Ltd V Orchard Tankers Pte Ltd [2011] EWHC 164 (Comm),
Queen's Bench Division, Commercial Court, Mr Justice David Steel,
11 February 2011
cited as: Nanjing Tianshun Shipbuilding (2011)
in para. 8
Expofruit SA and Others v Melville
Services Inc and Lavina Corporation
Expofruit SA and Others v Melville Services Inc and Lavina Corporation [2015] EWHC 1950 (Comm)
High Court of Justice in England
cited as: Expofruit SA (2015)
in paras. 8, 12
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Harbour & General Works Ltd v
Environment Agency (2000)
Harbour & General Works Ltd v Environment Agency (2000) 1 Lloyd's Rep. 65
Court Of Appeal Adj.L.R. 02/19
Before Lord Justice Wallerand Lord Justice Tuckey
cited as: Harbour & General Works Ltd v Environment Agency (2000)
in para. 12
SOS Corporacion Alimentaria SA and
Mataluni Spa v Inerco Trade SA (2010)
SOS Corporacion Alimentaria SA and Mataluni Spa v Inerco Trade SA [2010] EWHC 162 (Comm)
High Court of Justice in England
cited as: Ukrainian Sunflowers case (2011)
in para. 12
Tenax Steamship Co v Owners of the
Motor Vessel Brimnes (1974)
Tenax Steamship Co v Owners of the Motor Vessel Brimnes [1974] EWCA Civ 15
Royal Courts of Justice
23rd May 1974
cited as: The Brimnes
in para. 82
USA
Delbrueck & Co. v. Manufacturers
Hanover Trust Co
Delbrueck & Co. v. Manufacturers Hanover Trust Co
United States Court of Appeals, Second Circuit.
1979.
in para. 82
Delbrueck & Co. v. Mfrs. Hanover Trust
Co., 464 F. Supp. 989 (S.D.N.Y.
1979)
Delbrueck & Co. v. Mfrs. Hanover Trust Co.
U.S. District Court for the Southern District of New York - 464 F. Supp. 989 (S.D.N.Y. 1979)
January 11, 1979
cited as: Delbrueck & Co. v. Mfrs. Hanover Trust Co.
in para. 82
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InterGen NV v. Grina (2003) Intergen N.V. V. Eric F. Grina, Alstom (Switzerland) Limited, And Alstom Power NV
United States Court of Appeals, First Circuit.
Case No. 03-1056. September 22, 2003
cited as: InterGen NV v. Grina
in para. 21
Thyssen, Inc. v. Calypso Shipping Corp.,
S.A., (USA, 2002)
Thyssen, Inc., V. Calypso Shipping Corp., S.A.
United States Court of Appeals, Second Circuit.
Docket No. 01-9044. Official Number 9897
September 26, 2002
cited as: Thyssen, Inc. v. Calypso Shipping Corp., S.A.
in para. 12
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INDEX OF ARBITRAL AWARDS
CIETAC
CLOUT case 717 CLOUT case 717
6 January 1999
cited as: CLOUT case 717
in para. 94
CLOUT case 986 CLOUT case 986
04 February 2002
CISG/2002/03
cited as: CLOUT case 986
in para. 94
ICC Court
ICC Case No. 10032 (1999) Procedural Order of Case No. 10032
(London, UK)
9 November 1999
Cited in Karrer & Desax, Liber Amicorum
Böckstiegel pp. 339, 348
cited as: ICC Case 10032
in para. 41
ICC Case No. 14020 (2006) Award in ICC Case No. 14020 in 2006
in: ICC International Court of Arbitration Bulletin,
Volume 24 (Supplement 2014)
pp. 67 – 70
cited as: ICC Case 14020 (2006)
in para. 38
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ICC Case No. 14433(2008) Procedural Order of Case No. 14433
October 2008 (Paris, France)
Available at: ICC Bulletin, pp. 19 - 20
cited as: ICC Case 14433
in para. 38
ICC Case No. 14355 (2007) Award in ICC Case No. 14355 in 2007
in: ICC International Court of Arbitration Bulletin,
Volume 24 (Supplement 2014)
pp. 16 - 18
cited as: ICC Case 14355
in para. 38
ICC Case 14661(2008)
Case No. 14661
October 2008
Available at: ICC Bulletin, pp. 20 - 21
cited as: ICC Case 14661
in para. 38
ICC Case 15951/FM (2010) Procedural Order No. 2, Case No. 15951/FM
(Switzerland)
29 May 2009
Available at: 28 ASA Bulletin (2010)
cited as: ICC Case 15951/FM
in para. 41
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LEGAL SOURCES AND MATERIAL
ASA Bulletin 2001 ASA Bulletin, Vol. 19, No. 4, 2001.
in para. 38
Working Group II Report
A/CN.9/WG.II/WP.147 – Report of the Working Group II on
47th session Settlement of commercial disputes, Vienna, 10-14
September 2007
Cited as: UN Doc A/CN.9/WG.II/WP.147
in para. 6
A/CN.9/508 - Report of the Working Group II on Arbitration
of 36th session 4-8 March 2002, New York
Cited as: UN Doc A/CN.9/508
in para. 31
A/CN.9/589 -Report of the Working Group II on Arbitration
and Conciliation on the work of its 43 session 3-7 October
2005, Vienna
Cited as: UN Doc A/CN.9/589
in para. 31
Baker and McKenzie
Yearbook
The Baker and McKenzie International Arbitration Yearbook
2015-2016
in para. 32
Bank of America Personal
Schedule of Fees
Bank Of America Personal Schedule of Fees
Effective November 4, 2016
Available at:
https://www.bankofamerica.com/deposits/resources/personal-
schedule-fees.go
in para. 90
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Black’s Law Dictionary,
Definition: “Central Bank”,
Central Bank Definition in Black’s Law Dictionary (2nd ed.)
Available at:
http://thelawdictionary.org/central-bank/
in para. 87
BNP Paribas Banking Services
& Tariff
BNP Paribas Banking Services & Tariff for Businesses, Associations and Non-Profit-Making Organizations
January 2012
Available at: http://entreprises.bnpparibas.fr/file/22004_DOC.pdf
in para. 90
Cambridge English Dictionary,
Definition: “bank charge”
Bank Charge Definition in Cambridge English Dictionary
Available at:
https://dictionary.cambridge.org/dictionary/english/bank-
charge
in para. 87
Cambridge English Dictionary,
Definition: “Central Bank”
Central Bank Definition in Cambridge English Dictionary
Available at:
https://dictionary.cambridge.org/dictionary/english/central-
bank
in para. 87
CEPANI Rules Arbitration Rules of Belgian Centre for Arbitration and
Mediation 2013
in para. 32
CIETAC Rules Rules of Arbitration of the China International Economic &
Trade Arbitration Commission (CIETAC), Beijing January 1,
2015
in para. 17
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Conference on contracts A/CONF.97/19 – Documents of the United Nations
Conference on Contracts for the International Sale of Goods
and Summary Records of the Plenary Meetings and of the
Meetings of the Main Committees of the, Vienna, March 10 –
April 11, 1980
in para. 46
Deutsche Bank List of Prices
and Services
Deutsche Bank AG; List of Prices and Services; Valid as of 1
January 2017; (Translation to English)
Available at: https://www.deutsche-
bank.de/pfb/data/docs/List-of-Prices-and-Services-Deutsche-
Bank-Privat-und-Geschaeftskunden-01042016.pdf
in para. 90
Egmont Group Members Complete list of Membership in Egmont Group of Financial
Intelligence Units
Available at: http://www.egmontgroup.org./
in para. 97
English Oxford Dictionary,
Definition: “bank charge”
Bank Charge Definition in Oxford English Dictionary
Available at:
https://en.oxforddictionaries.com/definition/bank_charge
in para. 86
FIU: An Overview Financial intelligence units : an overview. International
Monetary Fund, World Bank, 2004.
Available at:
https://www.imf.org/external/pubs/ft/FIU/fiu.pdf
in para. 97
Investopedia, Definition: “Central
Bank”,
Central Bank Definition in Investopedia
Available at:
http://www.investopedia.com/terms/c/centralbank.asp
in para. 87
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SIAC Rules Arbitration Rules of Singapore International Arbitration Centre
2017
in para. 32
Swiss Private International
Law Act
PILA entered into force on 1 January 1989, Switzerland
in para. 32
UNCITRAL Digest of case
law
A/CN.9/SER.C/DIGEST/CISG/54 – UNCITRAL Digest of
case law on the United Nations Convention on the
International Sale of Goods, 2012 ed.,Vienna,
in paras. 67, 93
UNCITRAL Model Law UNCITRAL Model Law on International Commercial
Arbitration (1985), with amendments as adopted in 2006
in paras. 4, 29-35
UNCITRAL Yearbook 1985 UNCITRAL Yearbook 1985, Volume XVI
in para. 4
UNIDROIT Principles UNIDROIT Principles of International Commercial Contracts
2010
UNIDROIT Principles
Commentary
Official Commentary to UNIDROIT Principles
WIPO Publication No. 741(E) World Intellectual Property Organization Conference on Rules
for Institutional Arbitration and Mediation, WIPO publication
No. 741(E), Geneva 1995
in para. 16
Higher School of Economics
1
INTRODUCTION
On 31 May 2016 CLAIMANT filed the initial Request for current Arbitration that did not comply
with the requirements of CAM-CCBC Rules. CLAIMANT failed to supplement this request with a
proper PoA and to pay sufficient amount of the CAM-CCBC Registration Fee. That is why
CLAIMANT’s initial Request for Arbitration was not enough to properly commence arbitral
proceedings. All the requirements were satisfied only with CLAIMANT’s amended request, which
was, however, outside the contractual limitation period. For these reasons, the Tribunal is kindly
requested to find that CLAIMANT's claims are inadmissible and to dismiss CLAIMANT's case (I).
On 6 September 2016 RESPONDENT requested the Tribunal to provide security for its costs in
the present arbitration proceeding. RESPONDENT respectfully asks the Tribunal to order security
for costs. First, the Tribunal has the power to order security for costs as Arbitration Agreement,
CAM-CCBC Rules and the UNCITRAL Model Law confer the Tribunal with such power.
Second, all conditions to order security for costs have been met since RESPONDENT satisfied all
the requirements provided by lex arbitri (balance of convenience test and a high possibility to
succeed on the merits of the claim) and by arbitration practice as CLAIMANT is in a bad financial
situation and there was a substantial change of circumstances since the Arbitration Agreement
conclusion (II).
RESPONDENT is not under obligation to pay the additional amount of money under the DSA as
CLAIMANT alleged. The price stated in invoice and paid by RESPONDENT calculated on the basis
of the exchange rate of the time of contract conclusion equals to the price due to the DSA. The
fixed exchange rate embodied in Addendum epand to the entire DSA, i.e. to the purchase of
clamps and fan blades. Moreover, under the main DSA the applicable exchange rate is equal to
the fixed exchange rate and to the exchange rate at the time of contract conclusion (III).
RESPONDENT is not liable for the payment of USD 102,192.80 to CLAIMANT for the fees
deduced by the Central Bank of Equatoriana. RESPONDENT had already fulfilled all of his
obligations in regards to payment under the DSA and the CISG, and other provisions of DSA
and CISG are not applicable to the levy subtracted. Therefore, it is not possible to place the
burden of its payment on RESPONDENT. Moreover, by not notifying RESPONDENT about the
existence of the levy while being aware of it, CLAIMANT had not acted in good faith and therefore
should bear the costs of its payment. In case if the Tribunal finds RESPONDENT liable for the
payment, RESPONDENT requests the Tribunal to grant him an exemption from this duty under
art. 79 CISG (IV).
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STATEMENT OF FACTS
The parties to this arbitration are Wright Ltd. (“CLAIMANT”) and SantosD KG
(“RESPONDENT” jointly with CLAIMANT “the Parties”).
CLAIMANT is a manufacturer of fan blades for jet engines, incorporated in Equatoriana.
CLAIMANT is a subsidiary of Wright Holding PLC (“Wright Holding”) that owes 88% of
CLAIMANT’s shares. Other 12% of CLAIMANT’s shares are held by institutional investors.
RESPONDENT is a medium sized manufacturer of jet engines, incorporated in Mediterraneo, and
a subsidiary of SpeedRun which is a Private Equity Fund.
Before 2010 CLAIMANT and RESPONDENT were subsidiaries of the Engineering International SA.
Spring 2010 RESPONDENT contacted CLAIMANT to discuss the joint development of a
new fan blade.
1 May 2010 First meeting of CLAIMANT and RESPONDENT at the higher management
level, where the Parties agreed on basic principles for cooperation.
27 July 2010 The date when the Development and Sales Agreement (“DSA”) about
joint development of a new fan blade TRF 192-I was supposed to be
signed. The Parties had to alter the date of signing the DSA as CLAIMANT
signed the Share and Purchase Agreement on its sale from Engineering SA
on 27 July 2010. Only when the date was changed RESPONDENT learnt
about the sale of CLAIMANT.
1 August 2010 CLAIMANT and RESPONDENT concluded the DSA. Under the Section 4 of
the DSA the price was due in USD. Section 21 of the DSA provided that
all disputes should be settled by amicable. If parties reach no agreement,
they should initiate arbitral proceedings in 60 days since the failure of
negotiations.
3 August 2010 Engineering International SA sold RESPONDENT to SpeedRun.
26 October 2010 CLAIMANT and RESPONDENT concluded Addendum to the DSA
(“Addendum”) considering the purchase by RESPONDENT of 2000 clamps
and adding the terms on the exchange rate to the DSA.
3 March 2014 The exchange rate of EQD in relation to the USD increased gradually up
to USD 1 = 1.79 EQD.
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1 May 2014 CLAIMANT began the production of the fan blades.
14 January 2015 RESPONDENT received the fan blades and the clamps and attached invoices
for both goods from CLAIMANT. The price was calculated on the
applicable exchange rate to the DSA which was USD 1 = 2.01 USD.
15 January 2015 RESPONDENT transferred the amount stated in the invoice to CLAIMANT’s
account in the Equatoriana National Bank. On the same day CLAIMANT
sent the email demanding outstanding payment alleging that the invoice
contained the mistake in regard to the calculation of the price.
29 January 2015 Payment made by RESPONDENT was credited to CLAIMANT’s account at
the Equatoriana National Bank.
9 February 2015 CLAIMANT demanded more outstanding payment including the amount the
0.5% bank levy that was charges by the Central Bank of CLAIMANT’s place
of business.
10 February 2015 RESPONDENT stated that it acted in full conformity with the DSA and that
it was not aware of the 0.5% levy.
31 March 2016 CLAIMANT and RESPONDENT had a meeting that revealed that no amicable
solution to the dispute on the proper amount of payment can be found.
1 April 2016 CLAIMANT stated a failure to negotiate in the email sent to RESPONDENT.
31 May 2016 CLAIMANT sent the defective Request for Arbitration to the Center for
Arbitration and Mediation of Chamber of Commerce Brazil-Canada (
“CAM-CCBC”).
7 June 2016 The CAM-CCBC accepted CLAIMANT’s Request for Arbitration. However,
the acceptance occurred beyond the contractual time limit agreed by the
Parties in the DSA.
22 August 2016 The Parties have agreed on the Terms of Reference.
6 September 2016 RESPONDENT filed with the Arbitral Tribunal the Request for Security for
Costs
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I. CLAIMANT’S CLAIMS ARE INADMISSIBLE AND SHOULD BE REJECTED
BY THE CURRENT TRIBUNAL
1. According to Sec. 21 of the DSA, if no amicable settlement of disputes arising out of or in
connection with the DSA can be reached, the dispute shall be decided in arbitration [Sec. 21
of the DSA, pp. 10-11]. By including this multi-tier Arbitration Agreement in the DSA the
Parties agreed to arbitrate under CAM-CCBC Rules and established a 60 days’ limitation
period after fail of amicable negotiations to initiate arbitration proceedings [the DSA, p. 11].
On 1 April 2016 CLAIMANT declared the failure of negotiations by sending a letter to
RESPONDENT and explicitly voiced its intention to take the necessary steps for initiating
arbitration proceedings [RE 3, p. 29].
2. On the last day of the contractual limitation period CLAIMAINT’s lawyer filed the initial
Request for Arbitration to the CAM-CCBC [Fasttrack to the CAM-CCBC of 31 May 2016, p.
2]. This Request for Arbitration was filed with violation of several requirements provided by
Art. 4 CAM-CCBC Rules and was prescribed by the President of CAM-CCBC to be
amended [Order of the President, p. 19]. Only on 7 June 2016, when the limitation period had
already expired, CLAIMANT managed to provide the amended Request for Arbitration that
complied with all the requirements of CAM-CCBC Rules [Fasttrack to the CAM-CCBC of 7
June 2016, p. 20]. Hence, CLAIMANT’s claims are inadmissible as it failed to commence
arbitration within agreed time limits (A), and because Request for Arbitration of 31 May
2016 does not comply with CAM-CCBC Rules requirements for commencement of
arbitration (B).
A. Current arbitration should be regarded as being commenced on 7 June 2016 only
after a valid Request for Arbitration was accepted by CAM-CCBC, which is
beyond contractual limitation period
1. CLAIMANT failed to properly initiate arbitral proceedings within agreed time limits
3. Proper commencement of current arbitration requires full conformity with CAM-CCBC
Rules, which CLAIMANT failed to provide while filing Request for Arbitration on 31 May
2016.
4. The commencement of arbitration shall comply with applicable rules of chosen arbitration
institution as well as laws of seat of arbitration and may include specified information in
order to be valid [Born, pp. 2213-2214]. Thus, request for arbitration shall not only show
party’s intention to initiate legal proceedings but also fall within the requirements established
by parties and applicable law. CLAIMANT’s reference to law of the seat of arbitration
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[Claimant, para. 89] with the example of French law requirements is irrelevant to the current
case. The seat of the present arbitration is Vindobona, Danubia [Terms of References, para. 6.2,
p. 42]. Danubia has adopted UNCITRAL Model Law with 2006 amendments [PO 2, para. 37,
p. 60], thus the lex loci arbitri is UNCITRAL Model Law. The travaux préparatoires of the
UNCITRAL Model Law shows that arbitral institutions may create their own rules the
regarding commencement date and such rules would override the provisions of the
UNCITRAL Model Law [UNCITRAL Yearbook 1985, Volume XVI, pp. 182-187]. By
choosing the CAM-CCBC Rules as law applicable to current arbitration proceedings the
Parties agreed that all provisions of CAM-CCBC Rules shall be completed to validly initiate
arbitration proceedings [Sec. 21 of the DSA, p. 11].
5. The wording of the Arbitration Agreement indicates that in case of no amicable settlement
“each party has the right to initiate arbitration proceedings” under CAM-CCBC Rules and in line with
international arbitration practice [Sec. 21 of the DSA, p. 11]. Initiating arbitration proceedings
under CAM-CCBC Rules requires full conformity with the list of documents prescribed [Art.
4.1 - 4.2 CAM-CCBC Rules]. Contrary to this, on 31 May 2016 Request for Arbitration did
not contain a PoA complying adequate representation requirement and Registration Fee was
not fully paid. That is why the Request for Arbitration cannot be considered as properly filed
as well as, arbitration cannot be regarded commenced. Moreover, this approach is also
confirmed by the fact that CAM-CCBC highlighted that original request for arbitration did
not comply with the requirements of Art.4 CAM-CCBC Rules and had to be supplemented
[Notice of Commencement, p. 22].
6. It is commonly recognized that in a case when amendments are required the arbitral
institution may delay the date of commencement of the arbitration until such defects are
remedied [Art. 5.6 of ACICA Rules; UN Doc A/CN.9/WG.II/WP.147, para. 24]. Thus, only
after required amendments were made on 7 June 2016, Request for Arbitration was
considered as valid to commence the arbitral proceedings. Hence, the arbitral proceedings
shall be regarded commenced only when all requirements of the CAM-CCBC Rules are met,
which is on 7 June 2016. As this date is out limitation period established by parties,
CLAIMANT’s claims cannot be resolved in current arbitration.
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2. The Arbitration Agreement became inoperative as CLAIMANT missed the time
limits
7. CLAIMANT did not commence the arbitral proceedings within the time limit established in the
Arbitration Agreement, which leads to barring the arbitration as a way to deal with
CLAIMANT’s claims.
8. The most important legal consequence of the commencement of arbitration proceedings is
the effect it has on the expiry of time limits [Lew, Mistelis, Kröll paras. 20 - 29; Waincymer, p. 222].
Therefore the timely initiation of arbitral proceedings is crucial for the enforcement of any
claim or right [Rocco Giuseppe e Figli snc v Armadora San Francisco (1985)]. It is up to parties’
consent to limit the effect of arbitration clause excluding the right to arbitrate after particular
period has expired. Therefore, claimant who serves a defective notice of commencement may
find that the notice has no effect and, if the limitation period has subsequently expired, has no
remedy [Tweeddale, pp. 238-239]. For example, Switzerland’s highest court annulled an award in
which the arbitrators had declared themselves competent to hear a claim arguably brought
after the contractually stipulated time limits [Vekoma v. Maran Coal]. Moreover, recent
arbitration and court practice rules in favor that failure to meet contractual time limits to
commence arbitration is a time bar to claim itself [Nanjing Tianshun Shipbuilding (2011); Expofrut
SA (2015)]
9. Contractual limitation period of 60 days after failure of negotiations was established by parties
to provide legal certainty and timely dispute resolution [Sec. 21 of the DSA, p. 11]. CLAIMANT
declared amicable solution impossible in its letter of 1 April 2016, then limitation period
started to run [RE 3, p. 29]. CLAIMANT also informed RESPONDENT that necessary steps to
initiate arbitral proceedings had been already taken by CLAIMANT’s lawyer [ibid.]. Nevertheless,
CLAIMANT sent a deficient notice requesting commencement of arbitration on 31 May 2016 -
the very last day before claim is barred by contractual limitation period. However, only a valid
timely filed request for arbitration is capable of setting aside time limits issues [Straube,
Finkelstein, Filho, p.66]. If arbitration is commenced by the request submitted with lack of
documents required by Art. 4 CAM-CCBC Rules, then an award made in such arbitration may
be barred even if missing documents were provided on later stages [ibid.]. That means that
Arbitration Agreement between parties terminated as no valid commencement happened
within contractual time limits.
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3. The defects contained in Request for Arbitration could not be dealt between
CLAIMANT and the CAM-CCBC due to expiration of limitation period
10. CLAIMANT’s allegation that defects of Request for Arbitration should be dealt in its bilateral
relations with the CAM-CCBC is irrelevant [Claimant, para. 99].
11. CLAIMANT filed the deficient Request for Arbitration on the very last day of 60 days limitation
period, established in the DSA [Fasttrack to the CAM-CCBC of 31 May 2016, p. 2; Sec.21 of the
DSA, paras. 10-11]. CLAIMANT’s reference to international arbitration practice of giving an
additional time to amend initial request for arbitration is not applicable in present case as time
limits issues has been risen [Claimant, para. 103]. Such issues are particularly important where a
limitation period expires after the original Request for Arbitration was served and before any
correction was made as it is in present case. [Waincymer, p. 224].
12. The arbitral institution does not have the power to extend contractual time limits as neither
express agreement of the parties nor the applicable arbitration rules grant it with such power
[Lew, Mistellis, Kröll, paras. 19 - 20]. It is the state court, who exercises the power to extend time
limits for a failure to comply with contractual limitation periods, not arbitral tribunal
[Tweeddale, p. 238]. Even though, courts refuse to extend time for the commencement of
arbitration, holding that it’s CLAIMANT’s duty to commence proceedings correctly [Thyssen Inc
v. Calypso Shipping Corp S.A.]. Such power is exercised only in extraordinary cases, where timely
submission of claim to arbitration was not possible due to external factors, not dependent to
cLAIMANT’s conduct [Harbour & General Works v. Environment Agency (2000); Expofrut SA
(2015); Ukrainian sunflowers case (2011)]
13. In case at hand, Order of the President is also silent on the acceptance of CLAIMANT’s initial
Request for Arbitration of 31 May 2016, as it only confirmed its receipt and CLAIMANT’s
failures to comply with requirements of CAM-CCBC Rules [Order of the President, p. 19]. The
prescribed amendments and establishing a time period for CLAIMANT to provide them,
constitute the extension of contractual time limits. The defects of Request for Arbitration of
31 May 2016 are not a subject to bilateral relations between CLAIMANT and CAM-CCBC, as
CAM-CCBC lacks authority to extend contractual limitation period. That is why,
notwithstanding with the fact that President of CAM-CCBC issued an Order for the
amendments, current arbitration was commenced on 7 June 2016, when Request for
Arbitration complied with CAM-CCBC Rules. As this date is out of contractual limitation
period, CLAIMANT’s claims cannot be admitted.
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B. CLAIMANT’s initial Request for Arbitration does not comply with CAM-CCBC
Rules
14. Generally, claimant should be careful to ensure that the notice of arbitration or request for
arbitration is properly drafted and served in accordance with the requirements of the relevant
rules or law [Lew, Mistelis, Kröll, paras. 20-30]. In the current case CLAIMANT failed to satisfy all
requirements to request for arbitration and, consequently, validly commence arbitral
proceedings under CAM-CCBC Rules on 31 May 2016. In particular, Registration Fee,
required by CAM-CCBC Rules, was not paid in sufficient amount (1). Moreover, CLAIMANT’s
representative lacked authority and did not provide the evidence of adequate representation
(2). The Request of Arbitration with these deficiencies cannot be considered as valid for the
purposes of commencement of arbitration.
1. CLAIMANT’s failure to fully pay the Registration Fee made impossible valid
commencement of arbitral proceedings
15. Full payment of Registration fee is a vital requirement for commencement of arbitration and
beginning of administrating of the dispute by institution.
16. The function of the Registration Fee is to cover expenses of arbitral institution on
administering the case before the Tribunal is appointed [Straube, Finkelstein, Filho, p. 67].
Arbitral institutions provide private services of case management that expectedly comes at a
price [ibid., p.67]. Case management work usually does not begin before the full amount of
their fees is deposited. [Zuberbühler, Muller, et al. pp. 26-27; WIPO Publication No. 741(E), p. 92].
17. According to Art.12.5 CAM-CCBC Rules Registration Fee is a form of administrative fee that
must be paid by CLAIMANT at the time of presentation of the notice for commencement of
arbitration, which means that its payment is a pre-condition to commencement of arbitration.
The amount of Registration Fee is stated in Table of Expenses, which cannot be set off or
reimbursed [Art. 12.5 CAM-CCBC Rules]. Moreover, fulfillment of the provisions contained in
the Table of Expenses is mandatory for the parties. [Art. 12.4 CAM-CCBC Rules]. Hence,
CAM-CCBC Rules explicitly established that attachment of proof of payment of the
Registration Fee to request for arbitration is a mandatory requirement for the valid submission
of statements of claim [Art. 4.2 CAM-CCBC Rules]. It is common practice for arbitral
institutions to treat registration fee as a vital requirement to commence arbitration [Art. 4.4(b)
ICC Rules; Art. 12.3 CIETAC Rules; Art.1.4 LCIA Rules]. For example, LCIA treats the request
as not having been received and the arbitration as not having been commenced, until both the
request and the fee have been received [FAQ to LCIA Rules].
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18. While submitting Request for Arbitration CLAIMANT has underpaid Registration Fee. Thus,
President of the CAM-CCBC issued an order requiring completion of full payment before
starting any case management and before sending a notice to the opposing party [The CAM-
CCBC’s letter to Claimant, p. 19]. The payment of registration fee after the initial time limit has
elapsed is not sufficient for the further treatment of the claim [Schwarz, Konrad, paras. 33-012].
Even though, CLAIMANT supplemented the payment to the full amount, it does not overlap
the fact that the arbitration proceeding was commenced only when proof of payment was
provided to the CAM-CCBC on 7 June 2016, when limitation period had already expired.
CLAIMANT’s insufficient payment of the Registration Fee constitutes incompliance with
CAM-CCBC Rules. Thus, the Tribunal shall dismiss CLAIMANT’s arguments that the
arbitration was commenced on 31 May 2016 [Claimant, para. 109] and find that arbitration was
initiated outside of contractual limitation period.
2. The Request for Arbitration of 31 May 2016 was submitted without proper authority
and cannot be sufficient for commencement of current arbitration
19. The power of attorney of 2 April 2016 in favor of Horace Fasttrack did not provide
adequate representation to validly commence the current arbitration proceedings [PoA from
Wright Holding Plc., p. 18].
20. The CAM-CCBC Rules state that CLAIMANT shall enclose a PoA for any lawyers providing
for adequate representation to the request for arbitration [Art. 4.1(b) CAM-CCBC Rules].
According to the UNIDROIT Principles, established in the DSA as a supplementary source
of applicable law [Sec. 20 of the DSA, p. 10], the principal's grant of authority to an agent may
be express or implied [Art. 2.2.2. (1) UNIDROIT Principles 2010]. The most common case of
express authority is a power of attorney [UNIDROIT Principles Commentary, p. 77]. Law of
both Danubia and Equatoriana governs in favor of express authority and established that
powers of attorneys have to be in writing and must be submitted for the initiation of court
proceedings unless the parties agree otherwise [PO 2, para. 24, p. 58]. During legal
proceedings, whether court or arbitral, PoA is the main source of confirming lawyer’s ability
to present case in favor of their client, e.g. CAS arbitral tribunal ordered lawyer to leave,
when he was unable to produce a relevant PoA. [Sport Club A. v. B. ( SUI, 2015)]
21. CLAIMANT’s consideration that the “Power of Attorney presented in the name of the holding
(CLAIMANT’s parent company) was not irregular” does not constitute an adequate representation
[Claimant, para. 107]. First of all, Wright Holding Plc. lacks standing (locus standi) and cannot
bring claims against RESPONDENT on its own. The PoA of 2 April 2016 was issued by
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CLAIMANT’s parent company Wright Holding PLC., which is not a party either to the DSA or
to the Arbitration Agreement. PoA of 2 April 2016 was not granted for current arbitration
proceedings as it explicitly referred to non-existent dispute between “Wright Holding Plc. versus
SantosD” [PoA by Wright Holding PLC, p. 18], which definitely gives Fasttrack no authority to
act on behalf of CLAIMANT and to initiate current proceedings. While it is common to decline
to extend arbitration clauses to non-signatories as sophisticated commercial actors, when
contract is concluded between their subsidiaries [InterGen NV v. Grina], PoA from Wright
Holding Plc. had no impact on CLAIMANT representative’s authority in current dispute.
Moreover, Fasttrack had never represented CLAIMANT in the negotiations preceding the
arbitration or any previous proceedings which RESPONDENT knew about [PO 2, para. 25, p.
58].
22. The PoA of 2 April 2016 was neither issued by a signatory to the DSA nor provided adequate
reference to current dispute. That is why it was correctly regarded by President of the CAM-
CCBC as non-compliant with the requirements of CAM-CCBC Rules for the commencement
of arbitration.
C. Conclusion
23. For the reasons stated above, CLAIMANT failed to initiate present arbitral proceedings in full
conformity with the DSA and CAM-CCBC Rules. CLAIMANT’s Request for Arbitration filed
on 31 May 2016 is not admissible under CAM-CCBC Rules. Thus, CLAIMANT did not comply
with contractual time limits; hence, its claims are inadmissible and should be rejected by the
Tribunal.
II. THE TRIBUNAL SHOULD GRANT RESPONDENT SECURITY FOR ITS
COSTS
24. On 6 September 2016, pursuant to Art. 8 CAM-CCBC Rules, RESPONDENT requested the
Tribunal to provide security for its costs in order to secure the expenses that CLAIMANT will
likely fail to pay if the proceeding goes in favor of RESPONDENT. RESPONDENT estimated the
approximate expenses and requested to provide security in the amount to a minimum of
USD 200,000 [Request for Security for Costs, pp. 45 - 46].
25. RESPONDENT respectfully requests the Tribunal to order security for costs for the following
reasons. First, the Tribunal has the power to order such interim measure (A). Second, all
conditions to order security for costs established either by lex arbitri or arbitration practice
have been met (B).
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A. The Tribunal has the power and should order security for RESPONDENT’s costs.
26. The Tribunal’s power to order security for costs should be granted by an arbitration
agreement concluded by the parties (1), arbitral rules or the law of the arbitral seat (lex arbitri)
(2) [Rubins, pp. 314-315]. Security for costs exists in both common law and continental law
jurisdictions (3).
1. The Agreement between the Parties does not limit the power of the Tribunal to
order security for costs.
27. Not mentioning security for costs in the arbitration agreement does not preclude the Tribunal
from ordering security for costs. CLAIMANT alleges that the absence of a provision explicitly
granting the Tribunal the power to order security for costs means that the Tribunal lacks such
power [Claimant, paras. 20 - 21]. However, it is accepted that the lack of an express provision
granting the Tribunal the power to order interim measures should not be treated as an
exclusion of such power [Born, para. 17.02 [C], p. 2456]. The only type of agreement that can
exclude the power to order provisional relief is a written provision that expressly denies such
power [ibid.]. Therefore and in contrast to CLAIMANT’s allegations, the mere absence of an
explicit provision granting the Tribunal the power to order security for costs is not enough to
establish that the Tribunal lacks such power.
2. CAM-CCBC rules and lex arbitri confer the Tribunal with the power to order
security for costs
28. First, the Tribunal can exercise its power to order security for costs under Art. 8 CAM-CCBC
Rules. Art. 8 CAM-CCBC Rules establishes that the Tribunal can grant provisional measures,
both injunctive and anticipatory unless the parties otherwise agreed [emphasis added]. The
Arbitration Agreement does not explicitly exclude the Tribunal’s power to order any interim
measures [Sec. 21of the DSA, pp. 10 - 11]. As the Parties have not excluded the Tribunal with
the power to order interim measures, Art. 8 CAM-CCBC Rules provides that the Tribunal
may grant all types of interim measures (injunctive and anticipatory). The term “provisional
measure” (or interim measure) includes security for costs [Yesilirmak, paras. 5 - 84]. Thus, the
arbitration rules confer the Tribunal with the power to order security for costs.
29. Second, the lex arbitri, UNCITRAL Model Law with 2006 amendments, confers the power to
order security for costs to the Tribunal.[supra. para. 27]
30. Security for costs can be considered as an interim measure under lex arbitri. According to Art.
17 (d) UNCITRAL Model Law, an interim measure is any temporary measure, whether in the
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form of an award or in another form, by which, at any time prior to the issuance of the
award, the arbitral tribunal orders a party to provide a means of preserving assets out of
which a subsequent award may be satisfied. Security for costs falls within the meaning of
interim measure provided by UNCITRAL Model Law [Kee, note 37, p. 275]. Therefore,
UNCITRAL Model Law empowers the Tribunal to order security for costs.
31. Arguments provided by CLAIMANT that UNCITRAL Model law does not grant the power to
the Tribunal to order security for costs are not applicable or sufficient in the present case
[Claimant, paras. 32, 33]. CLAIMANT supports its arguments only with the following court
practice: Lindow v. Barton (2002) and Yieldworth Engers v. Arnhold (1991) [ibid.]. However,
the mentioned cases do not deal with the current 2006 version of UNCITRAL Model Law.
In 2006, the Model Law was amended in order to “free” it from the “subject-matter of a
dispute” limitation [UN Doc A/CN.9/508, paras. 52–53, p. 237; UN Doc A/CN.9/589, para.
25, p. 394]. Danubia, the place of arbitration, adopted Model law with 2006 amendments [PO
2, para. 37, p. 60]. Previous provision of Art. 17 of Model law 1985 limited the power of the
Tribunal to order interim measures to the subject-matter of the dispute [UNCITRAL Model
Law 1985]. Therefore, there is no surprise that courts had found that under UNCITRAL
Model Law of 1985 arbitral tribunals lacked the power to order security for costs as such an
interim measure is not related to the subject matter of the dispute. Therefore, CLAIMANT
failed to provide sufficient arguments to establish that the Tribunal lacks the power to order
security for costs.
3. Security for costs is accepted both in common and civil jurisdictions.
32. Contrary to what was argued by CLAIMANT [Claimant, paras. 39-40] security for costs is
commonly accepted in both common law and civil law countries. For example, Art. 49 of
Japanese Arbitration Law permits a tribunal to order any party to provide security for costs
where the party requested the tribunal to order interim measure. Another example is Mexico
where the power to order interim measures includes the power of tribunals to order security
for costs [Baker and McKenzie Yearbook, p. 217]. Furthermore, even Swiss doctrine that was
usually very hostile to security for costs, established that such measure can be granted by
arbitral tribunals under Article 183(1) Swiss Private International Law Act [Segesser, Boog, pp.
107, 115]. Moreover, there are many arbitration rules adopted by arbitration institutions
placed in civil countries that explicitly grant the power to the tribunal to order security for
costs [Art. 27 CEPANI Rules; Art. 27 SIAC Rules]. Therefore, security for costs is recognized
in many countries and such recognition does not depend on the legal system. In such case the
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tribunal should not be barred from ordering security for costs on such incentive and
CLAIMANT’s argument that security for costs is only a commonwealth concept should be
disregarded by this tribunal.
B. RESPONDENT satisfied all the requirements provided by lex arbitri and
arbitration practice
33. In order to grant security for costs, the Tribunal should apply appropriate test provided in the
arbitral rules or in lex arbitri [Born, p. 2163, para. 17.02 [G] [2]]. As far as applicable CAM-
CCBC Rules do not contain relevant tests for granting interim measures or security for costs,
the rules of UNCITRAL Model Law, which are lex arbitri in the current case, shall apply.
34. Under UNCITRAL Model Law, the following conditions should be met: harm not adequately
reparable by an award of damages is likely to result if the measure is not ordered and such
harm substantially outweighs the harm that is likely to result to the party against whom the
measure is directed if the measure is granted (1); and there is a reasonable possibility that the
requesting party will succeed on the merits of the claim (2). In contrast to CLAIMANT’s
allegations [Claimant, paras. 61 - 72], RESPONDENT showed that its Request for Security for
Costs conform to these requirements.
1. RESPONDENT’s harm overweighs the harm that CLAIMANT would incur if security
for costs is granted.
35. Under UNCITRAL Model Law, the “substantial” and “irreparable” harm that party seeking
the security would get, should “substantially outweigh” the likely harm that another party
would get after imposition of requested interim measures [Redfern and Hunter, para. 5.32]. The
issue is not so much whether serious harm will occur but whether the risks of harm are
sufficiently substantial to justify any burden that provisional measures would impose on
RESPONDENT [Born, p. 2473]. RESPONDENT filed the Request for security for costs in order
to protect its legitimate right to be paid the amount awarded to it. RESPONDENT was involved
into the arbitration initiated by CLAIMANT without any basis and had to invest its assets to
bear the fees of the attorney and possible technical assistance during the course of the
proceedings [Terms of Reference, para. 12.4, p. 43]. Moreover, there is no doubt that
RESPONDENT would comply with the final award, including the award on costs, if the
proceeding will not go in its favor. However, there is a serious doubt that CLAIMANT would
comply with the award, as there had been a case when CLAIMANT did not comply with the
award [RE 6, p. 47]. Furthermore, it was trying to receive third-party funding [ibid.]. Thus, the
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harm that RESPONDENT would get if security for costs is not granted is sufficient and such
harm would overweight the harm CLAIMANT would get if security for costs is granted.
2. RESPONDENT established the possibility to succeed on the merits of the claim
36. When requesting interim measures, party seeking an interim measure must demonstrate a
prima facie case on the merits of the claim [Born, para. 17.02 [G], [iv], p. 2478]. Even though the
Tribunal cannot prejudge the merits, it needs to be satisfied that the applicant for interim
measures has established a prima facie case [Merkin and Flannery, p. 153]. It means that
RESPONDENT has a burden to prove that it has reasonable possibility to succeed on the
merits [Yang, para. 5.58]. CLAIMANT’s claims lack any factual and legal basis since
RESPONDENT complied with the DSA by paying agreed price [infra, para. 43, et. seqq.] and
CLAIMANT should bear the bank charge [infra, para. 76, et seqq.].
37. CLAIMANT’ allegation that the present case cannot be analyzed prima facie due to its complexity
is groundless [Claimant, para. 75]. Examining the case prima facie does not prejudge the merits
of the case; it is a pure provisional assessment based upon incomplete submission and
evidence, without preclusive effect [Born, para. 17.02 [G][iv], p. 2479]. As consideration of the
merits of the case does not have a preclusive effect, the Tribunal may examine it regardless its
difficulty and complexity.
C. RESPONDENT fulfilled the conditions established by arbitral practice.
38. The arbitral practice is applicable when there is no specific guidance or test on ordering
security for costs [Born, para. 17.02 [G] [2], p. 2163]. The most frequent issues which are taken
into consideration by the tribunals when granting security for costs, include the financial
situation of CLAIMANT (1), and whether there was a substantial change of circumstances after
the conclusion of the arbitration agreement (2) [ICC Case 14020; ICC Case 14355; ASA
Bulletin 2001, pp. 745 – 750]. Both these criteria are met in current case.
1. CLAIMANT is in poor financial conditions and lacks funds
39. In order for the Tribunal to grant security for costs RESPONDENT should prove that
CLAIMANT’s financial situation is in such condition that it will not be able to pay the costs at
the end of the proceeding [Redfern and Hunter, para. 5.32, pp. 307, 310]. CLAIMANT is in a bad
financial situation as it could not afford the current arbitration proceeding. It was trying to
receive third-party funding in vain [PO 2, p. 59]. At the end, CLAIMANT used a loan in the
amount of USD 3,000,000, that was provided to it by the parent company in order to finance
the final stages of production of the TRF-305 fan, to finance the current arbitration
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proceeding [PO 2, p. 59]. This shows that CLAIMANT’s lack of liquidity is compensated by its
parent company. Unfortunately, RESPONDENT cannot foresee whether the parent company
would sponsor CLAIMANT if the proceeding would not go to its favor as parent company will
not be bound to cover any costs or damages awarded by the tribunal [Ho, p. 338]. Case
practice supports the idea of allocation of risks to third parties by establishing that if a party
relies on funds from other parties than its own (parent company in the present case), “the
right to have access to arbitral justice can only be granted under the condition that those third
parties are also ready and willing to secure the other party's reasonable costs to be incurred”
[Berger, p. 10]. Therefore, as CLAIMANT indirectly used funding provided by parent company
to finance the present proceeding, it should provide security for RESPONDENT’s costs.
40. The fact that CLAIMANT did not comply with previous award in the amount of USD
2,500,000, also raises the question of its financial situation [RE 6, p. 47]. Therefore,
CLAIMANT is in a poor financial condition and the Tribunal should secure the costs.
2. After the conclusion of the Arbitration Agreement the situation changed
fundamentally and unexpectedly.
41. For the security for costs to be granted, RESPONDENT should prove the substantial change in
circumstances that occurred after the conclusion of the Arbitration Agreement. The
unforeseeable change of circumstances since the conclusion of the arbitration agreement is an
essential ground to order security for costs [ICC Case 15951/FM; ICC Case No. 10032; ICC
Case No. 14433; ICC Case No. 14661]. The Arbitration Agreement between the Parties was
included in the DSA [Sec. 21 of the DSA, p. 11]. Hence, the date of the conclusion of
Arbitration Agreement is the same as for the DSA i.e. 1 August 2010 [ibid.]. That is why the
change in the circumstances ought to have taken place after this date. It shall be noted that
public information may be examined for the period of 2009 as only this information was
available for the RESPONDENT at the time of the contract conclusion (no information from
2010). In 2009, CLAIMANT was a profitable company with a high profit for the year [PO 2, p.
59]. In contrast, things have changed dramatically in 2010 when its profit had become
negative [ibid.]. Moreover, it failed to comply with the arbitral award in the amount of USD
2,500,000 and received fewer award in its favor than expected [RE 6, p. 47]. Up to today
CLAIMANT’s financial situation is not stable [PO 2, para. 11] and its liquidity is financed by its
parent company [PO 2, p. 59]. Thus, the fundamental and unexpected change of
circumstances had occurred after concluding the Arbitration Agreement.
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D. Conclusion
42. To sum up, the Tribunal should grant RESPONDENT security of its costs as the Tribunal has
such power under CAM-CCBC Rules and arbitral practice. All conditions to order such
measures have been met since RESPONDENT established prima facie of the case and balance
of convenience test. Moreover, CLAIMANT lacks funds to comply with the awards on costs at
the end of the proceeding and there had been the unforeseeable change of circumstances
after the Arbitration Agreement conclusion.
III. CLAIMANT IS NOT ENTITLED TO THE ADDITIONAL PAYMENT FROM
RESPONDENT FOR FAN BLADES
43. The DSA contains the special price structure under which price is determined on the cost-plus
basis [Sec. 4 of the DSA, p. 10]. CLAIMANT’s costs for the production of fan blades were equal
to 19,586 EQD [CE 7, p. 16]. Under the DSA RESPONDENT should have paid the purchase
price for fan blades in USD [Sec.4 of the DSA, p. 10]. Therefore, in order to determine the
purchase price CLAIMANT’s costs should be converted from EQD to USD.
44. During the time when contract was in force the exchange rate of USD to EQD dramatically
decreased [PO 2, para. 12, p. 56]. Until 2014, when a totally unexpected shift in Equatorianian
Government policy occurred, the exchange rate was stable around USD 1 = 2.01 EQD [ibid.].
In 2014 the exchange rate reached the point of USD 1 = 1.79 EQD and merely fluctuated
since [ibid.]. Therefore, the abrupt instability of the exchange rate raised the issue of the
applicable exchange rate determination. CLAIMANT alleged that the exchange rate for the
purchase of fan blades should have been the average exchange rate of the production time
which was USD 1 = 1.79 EQD [Request for Arbitration, para. 12, p. 5]. However, later
CLAIMANT raised an ungrounded claim that the exchange rate of the day of payment should
have been applied [Claimant, para. 152]. RESPONDENT submits that both these allegations
contradict the Parties agreement to apply the exchange rate equal to USD 1 = 2.01 EQD.
RESPONDENT invoke the relevant means of interpretation revealing that fixed exchange rate
contained in the Addendum applies to the entire DSA (A). RESPONDENT also argues that
under the main DSA the exchange rate USD 1 = 2.01 EQD is applicable (B).
A. The fixed exchange rate introduced by the Addendum applies to the entire DSA
45. The Parties agreed on fixed exchange rate in the Addendum to the DSA [Addendum, p. 11].
CLAIMANT argued that fixed exchange rate applied only to the Addendum meaning only to
the purchase of clamps [Claimant, para. 119 et seqq.]. RESPONDENT submits that the
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interpretation of the Addendum shows that fixed exchange rate applies to the entire DSA,
which is to the purchase of both fan blades and clamps.
46. The applicable law for the DSA is the CISG and UNIDROIT Principles as the
complementary source [Sec. 2 of the DSA, p. 10]. Therefore, the Tribunal should apply the
means of interpretation under the CISG first and then the means of interpretation under
UNIDROIT Principles. According to Art. 8 CISG the tribunal should subsequently apply two
basic methods of interpretation: subjective and objective [Conference on contracts, p. 18; CISG-
online Case No. 4C.296/2000/rnd (SUI, 2000); CISG-online Case No. S 01/269 (FIN, 2004)]. If
the Tribunal finds that Art. 8(1) CISG imposing subjective criterion is inapplicable then the
interpretation under Art. 8(2) imposing the objective criterion applies. Tribunals should apply
these rules of interpretation to the statements and other conduct of the parties as well as to
the provisions of a contact [Magnus, p. 110; Schwenzer, p. 60]. RESPONDENT submits that
CLAIMANT agreed to the proposal of RESPONDENT knowing the intent of the latter (1). The
interpretation under Art. 8(2) also applies in favor of RESPONDENT (2).
1. CLAIMANT was aware or should have been aware about the intent of RESPONDENT
47. Under the subjective criterion the tribunal should reveal the intention of the parties where the
other party knew or could not have been unaware of what that intent was [Huber, p. 236]. For
the interpretation under Art. 8(1) CISG the intent of one party should be recognizable to
another party [Schlechtriem, p. 39]. In order to understand whether the intent was perceptible
the regard should be paid to all relevant circumstances, especially listed in the Art. 8(3) CISG
[ibid., p. 39].
48. CLAIMANT alleges that it was not aware about the intent of RESPONDENT to extend the
application of fixed exchange rate to the entire DSA [Claimant, p. 19 et seqq.]. These allegations
are irrelevant in the present proceedings. CLAIMANT stated that it was under the risk of not
covering its cost as the DSA had the risk structure price and was the long-term contract
[Claimant, para. 129 et seqq.]. Therefore, CLAIMANT could not presume that RESPONDENT
would try to increase CLAIMANT’s risks by proposing the provision on fixed exchange rate
[Claimant, para. 132]. However, the silence of the DSA about the applicable exchange rate
could have made CLAIMANT’s losses even more sufficient. The parties normally agree on the
value of the exchange rate or the relevant date for its determination in cost-plus contracts [PO
2, para. 13, p. 56]. The agreed means of the exchange rate determination prevents one party
from unexpected losses and adds the stability in long-term contractual relationships.
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Consequently, the proposal of RESPONDENT to apply fixed exchange rate for the purchase of
fan blades decreased the risks of unexpected losses from the DSA for both Parties.
49. CLAIMANT tries to argue that wording of the Addendum also proves that CLAIMANT neither
was aware nor could have been aware of the intent of RESPONDENT [Claimant, paras. 133 –
139]. CLAIMANT submits that RESPONDENT referred to the DSA only as “Agreement” from
capital letter [Claimant, para. 136]. However, the wording of the Addendum does not reveal
the fact that CLAIMANT did not understood the intent of RESPONDENT. The Addendum was
handwritten [CE 3, p. 11] which could have led to a mistake of people who were responsible
for writing it. Furthermore, RESPONDENT referred to the DSA as to the “agreement” not
“Agreement” when it proposed the terms of the Addendum “I would suggest the following terms to
be added by hand to the agreement” [RE 2, p. 28, emphasis added]. RESPONDENT applied the word
“agreement” for the DSA irrespective of whether the word “agreement” was written with a
capital letter [RE 2, p. 28].Moreover, RESPONDENT used a special word for the contract on
purchase of clamps which is “Addendum” [RE 2, p. 28, emphasis added]. Therefore,
CLAIMANT either was aware or could have been aware about RESPONDENT’s intent.
50. CLAIMANT also argues all risks have already been determined in the DSA [Claimant, paras. 140
– 146]. However, RESPONDENT already revealed that silence of the DSA on the exchange
rate determination was the risk that DSA did not cover [supra, p. 48].
51. CLAIMANT also should have known about the intent of RESPONDENT because of the de-
risking policy. CLAIMANT was aware about the de-risking policy imposed by Engineering SA
which is the parent company of the Parties [RE 1, p. 27]. According to the de-risking policy,
the Parties were ought to hedge the currency risks for RESPONDENT [ibid.]. CLAIMANT’s CEO
was aware of the de-risking policy [PO 2, para. 18, p. 57]. CLAIMANT alleges that this policy
was irrelevant for the case at hand as RESPONDENT had been sold to its present parent
company at the time when the DSA was concluded [Claimant, para. 146]. However, this
contradicts the facts of the present case as the DSA was concluded on 1 August 2010 and
RESPONDENT was sold on 3 August 2010 [PO 2, para. 1, p. 54]. Therefore, with the regard to
the de-risking policy, CLAIMANT was aware or could have been aware about the intent of
RESPONDENT.
52. Furthermore, the changes in the exchange rate were not predictable at the time when the
Parties concluded the Addendum. Before the conclusion of the DSA the exchange rate was
very stable [PO 2, para. 12, p. 56]. Later, before the signing the Addendum protectionist Prime
Minister was appointed in Equatoriana [PO 2, para. 12, p. 56]. There were no grounds to
consider that the exchange rate would alter as before this assignation the exchange rate was
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stable during the ruling of the protectionist wing in Equatoriana [PO 2, para. 12, p. 56]. Thus,
no reasons existed to consider the application of fixed exchange rate to the entire DSA as one
more risk to CLAIMANT. Therefore, CLAIMANT could not expect that the application of the
fixed exchange rate would increase its risks.
53. According to all abovementioned facts, CLAIMANT knew about the intent of RESPONDENT to
apply fixed exchange rate to the entire DSA or could have known about such intent.
CLAIMANT did not raise any objections to the proposal of RESPONDENT containing such
intent [RE 4, p. 30]. Moreover, CLAIMANT explicitly stated that it “agree to the fixed exchange rate”
[ibid.]. Therefore, CLAIMANT knowing the intent of RESPONDENT agreed on the
RESPONDENT’s proposal. Consequently, according to the interpretation of the Addendum
under Art. 8(1) CISG, fixed exchange rate applies to the purchase of fan blades.
2. Reasonable person test applies in favor of RESPONDENT
54. If the Tribunal finds that the Parties did not share the same understanding of the provision on
the exchange rate in the Addendum, then pursuant to Art. 8(2) CISG the Tribunal should
interpret the provision under reasonable person principle. Test of Art. 8(2) CISG is not of a
reasonable person in abstract but of a reasonable person in a position of the other party
[Farnsworth, p. 99]. The understanding of a reasonable person for the purpose of Art. 8(2)
CISG depends on all facts and circumstances, namely negotiations, established practice
between the parties, usages and any subsequent conduct of the parties [Schlechtriem, pp. 39 –
40]. Therefore, the reasonable person should be of the same kind as CLAIMANT and act in the
same circumstances as of the case at hand. RESPONDENT submits that with the regard to all
relevant circumstances reasonable person in the position of CLAIMANT would have
understood the provision on fixed exchange rate as applicable to the entire DSA.
55. Normally in the contracts in aircraft industry the parties explicitly agree on the exchange rate
or the relevant date for the exchange rate determination [PO 2, para. 13, p. 56]. However, in
the previous contracts between the Parties there was no provision on the exchange rate
determination [PO2, para. 5, p. 54]. Their parent company determined the applicable exchange
rate and no disputes raised between the Parties [ibid.]. The DSA contains no provision on the
exchange rate as RESPONDENT learnt about the sale of CLAIMANT only when the signing date
was changes [PO 2, para. 1, p. 54]. When RESPONDENT understood that problems with the
exchange rate could have occurred it suggested the provision on the exchange rate. For the
purpose of pure convenience RESPONDENT included this provision in the Addendum which
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the Parties intended to sign [PO 2, para. 16, p. 57]. CLAIMANT raised no objections to the
suggestion of RESPONDENT [RE 4, p. 30]. RESPONDENT behaved in the way trying to decrease
the risks of the Parties that a reasonable person could expect from RESPONDENT.
56. Furthermore, RESPONDENT asks the Tribunal to look into negotiations of the Parties. The
Parties agreed during the negotiations on the DSA that the exchange rate should have been
stable and around USD 1 = 2 EQD [CE 1, p. 8]. Therefore, the Parties intended to fulfill the
contract when the exchange rate was around USD 1 = 2 EQD. Based on this common
intention RESPONDENT later proposed to include the exchange rate provision in the
Addendum for decreasing the risks of the Parties from the DSA. Therefore, the process of
negotiations reveals that a reasonable person would understand the suggestion of
RESPONDENT as applicable to the DSA.
57. Moreover, RESPONDENT acted in full conformity with the previous practice of the Parties. In
previous contracts the exchange rate of the time of conclusion of the contract was used [PO 2,
para. 5, pp. 54 – 55]. For the DSA RESPONDENT suggested the exchange rate of the date when
the DSA was supposed to be signed [PO 2, para. 12, p. 56]. Therefore, RESPONDENT acted
pursuant to the past practice of the Parties that a reasonable person knowing about previous
relationship between the Parties would have understood.
58. Consequently, with the regard to all relevant circumstances the reasonable person in the
position of CLAIMANT would understand the provision on the exchange rate in the
Addendum as suggested to regulate the entire DSA.
B. The exchange rate under the DSA is USD 1 = 2.01 EQD
59. If the Tribunal finds that the provision on the exchange rate in the Addendum does not
expand to the entire DSA, nevertheless, under the DSA the exchange rate for the purchase of
fan blades is USD 1 = 2.01 EQD. CLAIMANT argued that under the applicable law the
payment should be made based on the exchange rate on the date of payment [Claimant, para.
157]. CLAIMANT based its assumption on the Art. 6.1.9 UNIDROIT Principles [ibid.].
However, Art. 6.1.9. UNIDROIT Principles refers to the payment in the currency of the
place of payment. In the present case the payment is due in the USD which is not the
currency of Equatoriana [Sec. 4 of the DSA, p. 10]. Therefore, Art. 6.1.9 UNIDROIT
Principles is inapplicable for the case at hand. RESPONDENT submits that the Tribunal should
supply the gap in the DSA paying regard to the applicable rules and all relevant
circumstances. The omitted term should be supplied in accordance with the UNIDROIT
Principles which leads to the exchange rate USD 1 = 2.01 EQD under the DSA (1). The
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Parties have established practice between themselves under which the exchange rate of the
time of conclusion applied (2). The Seller which is CLAIMANT in the case at hand should bear
economic risks for the transaction including the risk of fluctuation of its country currency
(3).
1. Under the rule of supplying an omitted term the exchange rate is USD 1 = 2.01
EQD
60. RESPONDENT asks the Tribunal to fill in the gap in the DSA in accordance with the rule of
supplying an omitted term contained in the UNIDROIT Principles. Pursuant to the DSA the
UNIDROIT Principles is complementary substantive law for the case at hand [Sec. 20 of the
DSA, p. 10]. The CISG does not cover the issue of supplying missing terms in the parties’
agreement. However, the UNIDROIT Principles provide guidance for such situations by
applying the rule of supplying an omitted term [Art. 4.8 UNIDROIT Principles]. The
UNIDROIT Principles name a set of criteria for supplying an omitted term which are the
intention of the parties, the nature and the purpose of the contract, good faith, fair dealing and
reasonableness [ibid.].
61. First, the Tribunal should reveal whether the parties have common intention on the meaning
of the missing term [UNIDROIT Principles Commentary, p. 147]. Before the conclusion of the
DSA the Parties agreed on the implied exchange rate for the DSA [CE 1, p. 8]. Thus, at the
time of conclusion of the DSA the Parties shared the same understanding on the applicable
exchange rate. Therefore, at the time of conclusion the Parties intended to apply the exchange
rate equal to USD 1= 2.01 EQD.
62. However, if the Tribunal finds that common intention cannot be ascertained, the term to be
supplied may be determined in accordance with other criteria [UNIDROIT Principles
Commentary, p. 147]. RESPONDENT submits that all these criteria reveal that the exchange rate
of USD 1 = 2.01 EQD should be used for calculating a price under the DSA. The DSA in its
nature is the agreement on the joint development and subsequent purchase of fan blades
[DSA, p. 9]. The Parties did not agree on exact time of fan blades production to start.
Therefore, CLAIMANT alone decided when to start the production of fan blades.
Consequently, RESPONDENT would be under the major risk unless the exchange rate of the
time of conclusion applies to the DSA. Otherwise, it would create many uncertainties for
RESPONDENT's business. This also applies to good faith and fair dealing. If the exchange rate
of the time of production is applicable then CLAIMANT would be able to manipulate the final
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price of the DSA. Thus, to stabilize the relationship between the Parties the exchange rate of
the time of conclusion should be used.
63. Consequently, the exchange rate under the rule of supplying an omitted term should be equal
to the exchange rate when the DSA was supposed to be signed.
2. The past practice of the parties is binding for the present dispute
64. The Tribunal should take into account all relevant circumstances including the previous
practice of the Parties. RESPONDENT submits that previous contracts between the Parties
constitute a binding practice in the sense of Art. 9(1) CISG for the case at hand. Previous
contracts of the Parties constituted the binding practice for the Parties (i). Moreover, the
Parties are bound of their intention to apply the exchange rate around USD 1 = 2 EQD
expressed in the negotiations (ii).
(i). The Parties are bound by their previous practice of applying the exchange rate of
the time of production
65. RESPONDENT submits that two previous contracts between the Parties are binding for them.
Practices are established by a course of conduct that creates an expectation that this conduct
will be continued [Pamboukis, p. 113]. Under Article 9(1) a course of conduct by one party in
past transactions may create an expectation by another party that will bind the first party in a
future contract [Honnold, p. 126]. A tribunal should decide whether the binding practice exists
having as criterion the legitimate expectation of the parties that they can in fact rely on legal
certainty [Pamboukis, p. 114]. RESPONDENT had the legitimate expectation that the exchange
rate under the DSA would be determined in the manner as in previous contracts.
66. In both two previous contracts no discussion on the exchange rate took place [PO 2, para. 5, p.
54]. In both contracts the exchange rate of the contract formation time was applied [ibid.]
CLAIMANT did not indicate that it did not want to use the past practice between the Parties
[CE 1, p. 8]. No provision on the exchange rate was included in the DSA. When the DSA was
negotiated RESPONDENT had no knowledge about the sale of CLAIMANT [PO 2, para. 1, p. 55].
Therefore, RESPONDENT was not aware of the need to include a provision on the exchange
rate in the DSA. Consequently, RESPONDENT had a reasonable expectation that the exchange
rate under the DSA would be determined pursuant to the practice between the Parties i.e.
application of the exchange rate on the moment of the conclusion of the DSA.
67. The practice can be binding when the relationships between the parties occur with certain
frequency [UNCITRAL Digest 2012, p. 66]. Two contracts are sufficient for the constitution
of the binding practice between the parties [CLOUT Case No. 217 (SUI,1997)]. Two previous
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contracts between the Parties in the case at hand were concluded in 2003 and 2005 [PO 2,
para. 5, p. 54]. Both these contracts were long-lasting because of the specifity of the
development and sales contracts in the aircraft industry. Development and sales contracts in
the aircraft industry cannot be oftentimes concluded. Therefore, RESPONDENT asks the
Tribunal with the regard to the special features of the development and sales contracts in the
aircraft industry find two previous contracts are enough for the binding practice in the sense
of Art. 9(1) CISG.
68. As the relationships between the Parties were long-lasting and RESPONDENT had a reasonable
expectation that the exchange rate of the time of contract formation would be used, the
Parties are bound by their previous practice.
(ii). The Parties are bound by their intention expressed in the negotiation to apply
the exchange rate around USD 1 = 2 EQD
69. RESPONDENT asks to pay the special attention to the process of negotiation between the
Parties. However, CLAIMANT tries to diminish the importance of the statements made during
the negotiation arguing that under the DSA the exchange rate is determined as the value at
the date of payment [Claimant, para. 152 et seqq.]. RESPONDENT submits that contrary to
CLAIMANT’s allegations the intention of the Parties to apply the exchange rate around USD 1
= 2 EQD is binding for the Parties.
70. Parties can be bound by the intention expressed in the process of negotiation [CLOUT Case
No. 176 (AUT, 1996)]. This requires that other party realizes that its contracting party is only
willing to enter into a contract under certain conditions or in a certain form [ibid.]
RESPONDENT wanted to enter in the DSA only under such condition which CLAIMANT
should have known about. RESPONDENT was intended to sell the fan blades to another
company Earhart SP [Answer to Request for Arbitration, para. 5, p. 24]. Earhart SP insisted on the
signing the contract between Earhart SP and RESPONDENT with fixed price [ibid, para. 7, p.
24]. Therefore, RESPONDENT needed to be sure what price would be due to the DSA.
CLAIMANT knew about the transaction between Earhart SP and RESPONDENT and the need
of RESPONDENT to be sure about the price under the DSA [Request for Arbitration, para. 4, p.
4]. The Parties agreed that the exchange rate should have been stable and around USD 1 = 2
EQD [CE 1, p. 8]. In their previous contracts no discussion on the exchange rate at the
process of negotiating was made [PO 2, para. 5, p. 54]. This reveals that RESPONDENT
attached the significant importance on the intention of the exchange rate and wanted to enter
into the DSA only on the condition when the exchange rate was to be determined on the
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moment of the conclusion of the DSA. Therefore, with the regard to negotiation process
RESPONDENT showed that it wanted to conclude the DSA only when the exchange rate of
the time of production would be used which CLAIMANT was aware about. Therefore, with the
regard to significance of this provision RESPONDENT asks the Tribunal to find the expressed
intention of the Parties to apply the exchange rate equal to USD 1 = 2 EQD binding for the
Parties.
71. Therefore, two previous contracts between the Parties constitute the practice which is binding
for the Parties. Under this practice the exchange rate of the moment when the DSA was
supposed to be signed should be used. Moreover, the Parties are bound by their intent to
apply the exchange rate around USD 1 = 2 EQD expressed in the negotiations.
3. CLAIMANT bears the risk of fluctuation of EQD
72. The Parties did not include explicit provision on the exchange rate in the DSA. Therefore, the
Parties were under the risk of currency fluctuation. RESPONDENT submits that in the case at
hand CLAIMANT bears the risk of EQD fluctuation.
73. The CISG do not directly govern which party bears economic risks. However, economic risks
including the risk of currency fluctuation are not the risks passing to the buyer [Erauw, p.
206]. Therefore, CLAIMANT as a Seller bears the risks of currency fluctuation in the present
case.
74. Moreover, the currency of the payment under the DSA is USD [Sec. 4 of the DSA, p. 10]. The
currency of payment was not affected by the fluctuation of EQD. Indeed, the exchange rate
gradually changed while the currency of CLAIMANT’s place of business has increased in
relation to the USD [PO 2, para. 13, p. 56]. These changes were due to the changes in the
government structure of Equatoriana and subsequent changes in the economic policy of
Equatoriana [ibid.]. RESPONDENT has no relation to the changes of EQD value. Therefore,
CLAIMANT bears the risk of fluctuation of the currency of its place of business.
C. Conclusion
75. Therefore, under the applicable rules of interpretation fixed exchange rate contained in the
Addendum should be applied to the purchase of fan blades. However, if the Tribunal finds
that provisions of the Addendum do not expand to the entire DSA, under the DSA the
applicable exchange rate is equal to the fixed exchange rate suggested by RESPONDENT which
is USD 1 = 2.01 EQD.
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IV. CLAIMANT IS NOT ENTITLED TO ADDITIONAL PAYMENT OF
USD 102,192.80 FOR THE FEES DEDUCTED BY THE CENTRAL BANK OF
EQUATORIANA
76. On 15 January 2015, RESPONDENT effected the payment for goods in amount of
USD 20,438,560 in accordance with the fixed exchange rate as stipulated in DSA [CE 3,
p. 12]. However, the sum credited to the account of CLAIMANT was lower, due to the levy
subtracted from CLAIMANT’s account by Central Bank of Equatoriana in accordance with
Equatoriana anti-money laundering regulations, namely Section 12 Regulation ML/2010C.
Under CLAIMANT’s submission, RESPONDENT is the one who should compensate the said fee
and, therefore, it should reimburse to CLAIMANT its amount which is USD 102,192.80
[Request for Arbitration, para. 23; Claimant, paras. 181 - 187]
77. Contrary to CLAIMANT’s allegations RESPONDENT argues that it is not liable for this payment
based on several reasons: RESPONDENT performed all its contractual obligations when the
payment was effected to CLAIMANT (A) and CLAIMANT should have notified RESPONDENT
about the existence of the levy (B). However, even if the Tribunal finds that RESPONDENT
bears the duty to pay said amount, RESPONDENT argues that it should be granted with an
exemption from this obligation under Article 79 CISG (C).
A. RESPONDENT performed all of its obligations related to payment when it was
effected to CLAIMANT
78. CLAIMANT argues that by not reimbursing the subtracted levy, RESPONDENT fail to exercise
its contractual obligations under the DSA and the CISG, namely the obligation to pay the
price in full [Art. 57 CISG; Sec. 4 of the DSA, p. 10], obligation to comply with all the public
regulations for payment to be made [Art. 54 CISG] and obligation to bear the bank charges
associated with the transfer of the amount underprovide by aforementioned article of the
DSA [the DSA, ibid.]. Contrary to CLAIMANT’s submissions RESPONDENT argues that all
obligations regarding payment have been fulfilled. The contractual obligations have been
fulfilled by the RESPONENT (1). The levy subtracted from CLAIMANT’s account by Central
Bank of Equatoriana is not a bank charge, but a public charge, and therefore is exempted
from the DSA’s allocation of responsibility for bank charges (2). Moreover, Art. 54 CISG
does not encompass public regulations, such as the one under the levy was subtracted (3).
Also, the payment of the levy is not an “usage” implied in the DSA (4).
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1. The contractual obligations have been fulfilled by RESPONDENT
79. CLAIMANT argues that RESPONDENT has not fully performed its contractual obligations by
not effecting the payment in order to reimburse for the levy in question [Claimant, para. 159].
However, this allegation is ungrounded. In RESPONDENT’s view, it had performed his
contractual obligations by effecting the payment to the account in ENB.
80. Per Art. 57 CISG, the buyer (RESPONDENT) must effect payment at seller’s (CLAIMANT’s)
place of business. The place of business of CLAIMANT is in Equatoriana, and therefore, the
obligation to pay the price will be fulfilled when the transfer reaches Equatoriana. The same
holds true under UNIDROIT principles, which state that monetary obligation must be
performed at the obligee's place of business [Art. 6.1.6 UNIDROIT Principles].
81. The DSA stipulates that the payment was to be deposited in full into the CLAIMANT’s
account at the ENB [Sec. 4 of the DSA, para. 3, p. 10]. From this obligation, two relevant
consequences arise – the buyer must comply with the laws and regulations of all the countries
which are effecting the payment – the country of origin, the country of destination and all the
countries through which the payment is transferred, should it be the case. Second, buyer pays
the costs of the transmission to the seller’s place of business [Maskow, p. 415]. Therefore,
under Art. 57 CISG, RESPONDENT is liable for all deductions and fees occurring before the
payment is effected to CLAIMANT’s account in ENB.
82. Moreover, the way how international wire transfers work suggest that liability of
RESPONDENT finishes even before that moment. The wire transfer is considered finalized
when transmitting bank informs the receiving bank that it had effected the payment, not
when the payment is effectively credited on the account [Delbrueck & Co. v. Manufacturers
Hanover Trust Co]. The payment deemed effectively complete from the side of RESPONDENT
and RESPONDENT’s bank when the bank makes an internal decision to credit the account of
payee and starts the electronic procedure of crediting funds [The Brimnes], in present case,
through SWIFT network.
83. In present case, no charges have been subtracted from the payment neither by the Central
Bank of Meditterraneo, nor by the bank of RESPONDENT, nor by any other intermediaries
before the payment arrived into Equatoriana. According to the written notice from
Equatoriana National Bank, the payment in full (USD 20,438,560) was effected by the
RESPONDENT to the CLAIMANT’s account, and only after this the Equatoriana Central Bank
Financial Investigation Unit subtracted the said fee due to the fact that the sum of deposited
payment exceeded USD 2 million [CE 3, p. 12].
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84. Therefore, it is RESPONDENT’s contention that its contractual obligations under the DSA and
CISG have been fulfilled, due to the fact that the full amount of payment reached
CLAIMANT’s country, and only after the sum was deducted by the Financial Investigation
Unit. Therefore, the costs of payment for the said levy are to be borne by CLAIMANT.
2. The Levy is not a bank charge, but a public charge, and therefore is exempted
from the DSA’s allocation of responsibility for bank charges
85. CLAIMANT argues that the subtracted fee can be seen as bank charge, since it is being
subtracted by the ECB from the payment, and, therefore, it should have been borne by the
RESPONDENT according to the DSA Sec. 4 Art. 3 – “The bank charges for the transfer of the
amount are to be borne by the BUYER” [Claimant, paras. 182 - 184, the DSA, p. 10]. However,
the nature of the said fee cannot allow for it to be interpreted as a bank charge, but
constitutes a public charge, which exempts it from the risk-allocation provisions of the DSA.
86. A bank charge is a fee or commission debited by a bank from a current account for
transactions and services carried out [English Oxford Dictionary, Definition: “bank charge”,
Cambridge English Dictionary, Definition: “bank charge”]. To be covered by the abovementioned
DSA provision, the levy imposed should be complacent with this or similar definition.
Therefore, the question arises – whether ECB can be qualified as a bank?
87. Central Bank is, normally, a “monetary authority” or, in other words, a “banker’s bank”,
which “provides services to a national government” [Investopedia, Definition: “Central Bank”,
Black’s Law Dictionary, Definition: “Central Bank”, Cambridge English Dictionary, Definition: “Central
Bank”]. Central Banks and other monetary authorities have an undeniable link to the
government and do not work as commercial bank does – they do not serve the companies or
persons, they serve banks themselves and their national governments, while managing the
financial system [Goodhart, p. 20]. Same holds true for the ECB – it is a government entity
with its own budget which transfers its annual profits to the Minister of Finance [PO 2, para.
7, p. 55]. Therefore, ECB, as it is, does not qualify as a traditional commercial bank, which is
reaffirmed by the fact that, under ML/2010 after the clearance for the transfer is given will
the amounted be credited to respective commercial bank in Equatoriana [PO 2, para. 10, p.
56, emphasis added].
88. Moreover, the payment was subtracted by Financial Investigation Unit, a special task force
under the auspices of the Central Bank, dealing with financial investigation to prevent the
financing of terrorism and money laundering [PO 2, para. 7, p. 55]. FIU, while being a part of
ECB cannot qualify as a “bank” either.
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89. Another question is whether the levy is a “payment for transaction or service carried out”.
The fees generated by the inspections are supposed to partially constitute the budget of the
FIU [PO 2, para. 7, p. 55]. Therefore, while the levy in question could be interpreted as
payment for service carried out, it is not a service requested by the parties of the contract,
which was an international wire transfer. The AML investigation was nor expected by
RESPONDENT, nor sought for. However, due to the public nature of the payment, it is
impossible to “opt out” of this service and not pay the fee, even if you wanted to. Therefore,
the levy is not a bank charge because it is not a payment for service, but a public payment.
90. Origin of the levy’s existence also points to its public nature. Commercial banks normally
define the number of services, for which the fees will be charged and its amount, themselves
in internal documents and regulations of the bank [Bank of America Personal Schedule of Fees,
Deutsche Bank List of Prices and Services, BNP Paribas Banking Services & Tariff]. This is not the
case with ECB and the levy in question. Levy was introduced by Regulation ML/2010 [PO 2,
para. 7, p. 55], which constitutes a public instrument, enacted by a different authority than the
Central Bank itself.
91. Therefore, the facts that ECB or the FIU are not “banks”, the obligatory AML investigation
is not a “service”, and the levy was not constituted by the ECB, state that the levy in question
cannot be seen as bank charge, but as a charge of public nature. Therefore, the payment of
the levy is not covered by the bank charges responsibility allocation in the DSA and
RESPONDENT is not obliged for its payment or reimbursement of it to CLAIMANT.
3. Art. 54 CISG does not encompass public regulations unrelated to the payment
92. CLAIMANT’s argument about the side which is obliged for the payment of the levy under
CISG takes note of the notion that, under Article 54 CISG, RESPONDENT’s “duty to pay the
purchase price encompasses all arrangements stipulated in the contract” [Claimant, para. 186],
and therefore, makes RESPONDENT liable for the levy. It is the RESPONDENT’s contention
that the nature of the levy in present dispute exempts it from being encompassed under the
Art. 54 CISG due to the fact that Art. 54 implies only public laws and regulations concerning
the enabling steps for the payment, which is not true for the levy under Regulation
ML/2010C.
93. Article 54 CISG states that “the buyer's obligation to pay the price includes taking such steps
and complying with such formalities as may be required under the contract or any laws and
regulations to enable payment to be made”. This obligation is widely thought to be related to
steps, which should have been taken by the buyer to enable payment to be made at all
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[Secretariat Commentary on the 1978 Draft of the CISG]. Article 54 is concerned solely with actions
preparatory to payment of the price [UNCITRAL Digest of case law 2012, Art. 54 CISG]
94. Examples of such steps are obtaining a letter of credit or compliance with relevant domestic
laws, in particular currency-exchange regulations [Schlechtriem, p. 81]. Examples of the cases,
where the courts have found article 54 as a primary breach of obligation of payment, also,
concern with preparatory, or enabling steps [CLOUT case No. 986 (CHN, 2002); CLOUT case
631 (AUS, 2000); CLOUT case No. 717 (CHN, 1999)]. In these cases, RESPONDENTs haven
not been able to effect even partial payment in time due to his negligence in conforming to
enabling steps, and therefore, was subject to the remedies under the CISG. This is not the
case in present dispute – RESPONDENT had effected the payment in full on time, which is
confirmed by RESPONDENT and ECB [CE 7, p. 16, CE 8, p. 17]. Thus, RESPONDENT
considers all the enabling steps in respect to the payment fulfilled by him and believes that his
obligations under Art. 54 CISG have been fulfilled.
95. CLAIMANT in his submission believes that the levy under ML/2010C is encompassed by Art.
54 CISG. However, ML/2010C is not a regulation, compliance with which is necessary to
effect payment.
96. Regulation ML/2010C is a part of extensive regulatory package designed to improve
Equatoriana’s anti-money laundering laws [PO 2, para. 7, p. 55]. The anti-money laundering
regulations, which came to prominence in the last decades have their main aim in establishing
a defined set of procedures and protocols in order to eradicate these practices and locate
people involved in them [IMF Anti-Money Laundering, pp. 5 - 7]. International community have
undertaken specific measures to battle money laundering and corruption in the world – more
than 120 countries are signatories to the UNCAC, which invites the parties to establish a
dedicated Financial Investigation Unit [Art. 50 UNCAC].
97. FIU’s have been already established since 1980’s in developed countries of the world. The
Egmont Group, the union of the FIU’s of the world, formed in 1995, now consists of more
than 130 members [Egmont Group Members]. Egmont Group, World Bank and International
Monetary Fund in their reports on the FIU’s organization and responsibilities, note that
FIU’s of the world generally use one of the four different mechanisms of operation, none of
which enables them to subtract charges for their operations from the transactions [FIU: An
Overview, p. 8]. Consequently, the nature of operation of the FIU in Equatoriana is almost
unique – only 6 countries of the world use the structure, where AML regulations are being
borne by private party directly [PO 2, para 7, p. 55].
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98. Therefore, RESPONDENT believes that the levy subtracted from CLAIMANT’s account by the
Central Bank cannot be seen is public regulation concerning payment to be made in full, but
constitutes a part of a very specific anti-money laundering regulation, and, therefore, it is not
encompassed by obligation under Art. 54 CISG.
4. Payment of the levy is not an “usage” implied in the DSA
99. CLAIMANT implies that even if Tribunal will decide that RESPONDENT is not liable for
payment of the levy under the DSA and Art. 54 CISG, that it is liable because the existence
of the levy is an “implied usage”, which is widely known an observed by parties to contracts
of the type involved in particular trade [Claimant, paras. 188, 190]. RESPONDENT refuses to
consider the fact that the payment of the levy and the risk-allocation could be envisioned as a
usage.
100. CLAIMANT himself references that for usage to be implied the parties have to know and
ought to have known about it and the usage has to be acknowledged and observed by that
parties to contract of the type involved in particular trade [Schlechtriem, p. 59]. Both of these
cumulative characteristics cannot be applied to the present case.
101. CLAIMANT argues that implied knowledge of the “usage” derives from the widespread
application of AML regulation around the world [Claimant, paras. 191 - 193]. RESPONDENT
finds this argument unfounded. While the AML regulation, in particular establishment of
FIUs is widespread [supra. paras. 96-97], the unique nature of Equatoriana’s FIU operation
makes it near impossible not to be aware of it, albeit by chance, but also makes it highly
improbable to expect such kind of levy to be distracted [supra. paras. 88 - 91 and 97 – 98].
Therefore, the payment of the levy cannot be reasonably seen as an “well-known usage”.
102. Also, it cannot be seen as implied in the DSA due to the fact that neither negotiator knew
about Regulation ML/2010C existence at the time of negotiation of the risk-allocation part of
the DSA.
103. Secondly, CLAIMANT argues that this “usage” is acknowledged in cross-border transactions.
However, there are only reports of six other countries where burden of paying for AML
investigations, nor that they have the exact same mechanism as in Equatoriana [PO 2, para. 7,
p. 55]. To RESPONDENT’s knowledge, it still is a unique public provision, no analogues to
which exist in the world [Answer to Request for Arbitration, para. 18, p. 26].
104. The AML regulations and usages are concerned with submitting a number of key documents
as a part of “know-your-customer” policy, not with paying for AML investigation.
105. Therefore, RESPONDENT asks the Tribunal to dismiss the request of CLAIMANT to place the
burden of payment for the levy on RESPONDENT, due to the fact that there is no such
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“usage” neither known to the parties, nor implied in the DSA, nor acknowledged in the
cross-bored sales, which obliges RESPONDENT for its payment.
106. Thus, RESPONDENT asks the Tribunal do dismiss CLAIMANT’s request to order RESPONDENT
to reimburse CLAIMANT for the fee deducted by ECB under Regulation ML/2010C, since
RESPONDENT performed all its contractual obligations by effecting the payment in full, the
levy under Regulation ML/2010CC is neither a bank charge, nor a regulation constituting an
enabling step for the payment, and therefore it is exempt from risk-allocation provisions of
both the DSA and Art. 54 CISG, and the fact that allocation of burden for the payment of
the levy cannot be seen as an implied usage.
B. CLAIMANT should have notified RESPONDENT about the existence of the levy
107. CLAIMANT argues that it was RESPONDENT’s obligation to “inform himself” about the
payment procedure in Equatoriana [Claimant, para. 180] and, therefore, had a duty to discover
the existence of the levy. This allegation is fundamentally wrong and goes against established
worldwide business practices and places substantial burden of additional due diligence on
RESPONDENT.
108. It RESPONDENT’s contention that, CLAIMANT should have notified RESPONDENT about the
existence of the said levy [Answer to the Request for Arbitration, para. 19, p. 26], since he had the
knowledge even before the DSA was signed, and well before the payment had been effected.
By not doing it, while he had the knowledge and the ability to do it, had not been acting in
good faith, and, therefore, should be liable for the payment of the levy as a valid remedy for
its negligence.
109. CLAIMANT argues that imposing on him (as the seller) obligation to inform RESPONDENT
about the existence of the levy under ML/2010C goes against the structure of the contractual
risks established by the CISG [Claimant, para. 172]. However, Art. 54 and Art. 57 CISG and
authorities quoted by CLAIMANT [Claimant, paras. 173 - 177] concern the obligation to pay the
price in the place of business and obligation to comply with laws and regulation enabling
payment to be made. Nowhere, neither in the text of the article, nor in the quoted authorities
there is a link between those obligations and imaginary “obligation to inform himself about
the existing regulations”.
110. Moreover, RESPONDENT have been obviously aware of the banking mechanism in
Equatoriana form its prior dealings with CLAIMANT in 2003 and 2005 [PO 2, para. 5, p. 54].
Additionally, there are no other big suppliers in Equatoriana with which RESPONDENT has
business relationship with.
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111. It is common business practice for contracting parties to perform due diligence in regards to
the regulations, which obviously was done during the first business transaction. If
RESPONDENT (or any other business entity) will be doing such a costly and time-consuming
process as due diligence for each of their international payments and actions, which have
been already done before, the transaction costs would have drastically increased, rendering
international business transactions inefficient and non-profitable.
112. Even if RESPONDENT did his own due diligence, is would be excessive to expect
RESPONDENT to analyze existing AML regulations, because it is impossible to investigate all
public regulations and due to the uniqueness of the AML regulations in Equatoriana when
compared to the established practices, CLAIMANT cannot expect RESPONDENT to check and
make note of specific regulations, which are in sharp contrast with worldwide practice in the
field, without notice, which CLAIMANT failed to made. Therefore, it is extremely improbable
to expect RESPONDENT to “make himself informed” of the existence of the new AML
regulation by itself.
113. On the contrary, CLAIMANT was aware of the existence of the levy. It first became known to
him in the middle of June 2010, when the levy had been deducted from the payment to
CLAIMANT [PO 2, para. 8, p. 55]. At that time, the DSA was not yet signed, however, the
provisions regarding cost and risk allocation have been already finalized and negotiators from
CLAIMANT’s side were unaware of its existence [ibid.]. In RESPONDENT’s view, this fact alone
already proves the fact that CLAIMANT was negligent about the regulatory update, and it
should have been possible for the Financial Department of CLAIMANT to inform relevant
parts of the company about the existence of the said levy. If the existence of the levy could
have been communicated to the negotiators, it would have been taken into account, and the
risk and charges provisions of the DSA would have been redrafted to respond to that issue.
114. The timeframe between the conclusion of the DSA (August 2010) and the effect of the
payment (January 2015) is roughly 4.5 years. RESPONDENT finds it extremely negligible from
CLAIMANT not being able to inform RESPONDENT about the existence of the levy in that
extensive timeframe. One might think that CLAIMANT did it on purpose in order not to pay
for the levy in question.
115. By nature of international business transactions international companies do not have the time
or resources to be up to date with all the regulatory updates of other countries. It is easier for
the company in the place of business to inform its partners about legal updates in their
country.
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116. Thus, negligent attitude between departments of CLAIMANT resulted in being unable to
inform RESPONDENT of the levy, even though they had known about its existence for at least
5 years. Therefore, RESPONDENT asks the Tribunal to find CLAIMANT liable for informing
RESPONDENT about the existence of the levy, and therefore, exempt RESPONDENT for the
reimbursement of the levy to CLAIMANT as a valid remedy for negligent conduct of
CLAIMANT.
C. RESPONDENT should be granted exemption under Article 79 CISG
117. Even if Tribunal finds RESPONDENT liable for the payment of the levy, RESPONDENT should
be granted exemption under Article 79 CISG, which provides for exemption from
performing its obligations.
118. Article 79 CISG provides that 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.
119. CLAIMANT is the only supplier from Equatoriana and no comparable levy exists in
Mediterraneo [PO 2, para. 8, p. 55]. However, CLAIMANT should have known about the
existence of the said levy – its financial department was aware about it as early as in May of
2010 [ibid.].
120. RESPONDENT finds that the existence of this unique levy is an impediment beyond its
control, as it is a result of a public regulation, of which RESPONDENT was not aware of. If it
had known about this regulation before the situation arose, it would have asked to
renegotiate the price structure or allocation of the duty of payment of the said levy, however,
since the DSA employs production cost plus CLAIMANT’s profits as a price calculation
mechanism, the payment of the said amount creates an unreasonable measure since it goes
beyond the intentions of the parties when concluding the DSA.
121. CLAIMANT may respond to this claim by submitting that RESPONDENT should have made its
own due diligence and therefore, should have made itself aware about the existence of the
levy, especially if it was made public. However, as was previously said [supra. paras. 88 - 91 and
97 – 98, 111 - 112.], it is extremely excessive to expect RESPONDENT to conduct due diligence
for each business transaction with an established trade partner, and even if due diligence
would have been conducted.
122. Therefore, RESPONDENT, in case that the Tribunal finds it liable for the levy’s payment, asks
the Tribunal to grant him an exemption from payment of the levy under Article 79 CISG
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since the existence of the levy created an unforeseeable impediment beyond his control
which cannot be avoided or overcame by RESPONDENT.
D. Conclusion
123. For the reasons stated above, RESPONDENT requests the Tribunal to reject the request of
CLAIMANT to pay the outstanding amount of USD 102,192.80 for the fees deduced by the
Central Bank of Equatoriana due to the fact that RESPONDENT already fulfilled his
contractual obligations, and the provisions of CISG and DSA do not make it possible to
place the burden of its payment on RESPONDENT. In case if the Tribunal finds RESPONDENT
liable for the payment, RESPONDENT requests the Tribunal to grant him an exemption from
this duty under Art. 79 CISG.
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PRAYER FOR RELIEF
On the basis of the foregoing submissions, RESPONDENT respectfully requests the
Tribunal:
(1) To find CLAIMANT’s claims inadmissible and dismiss them as belated;
(2) To satisfy RESPONDENT’s Request for security for costs;
(3) To reject all claims for payment raised by CLAIMANT.
Vindobona, Danubia
26 January 2016
Ekaterina Nuzhdova
Polina Sizikova
Mariia Zinoveva
Evgenii Puchkov
Kseniia Soloveva
Elza Dauletshina
Alexander Zhdanovich
Konstantin Vaschenko