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MEMORIAL FOR RESPONDENT
M2050-R
SIXTH ANNUAL
2011
LAWASIA INTERNATIONAL MOOT COMPETITION
KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION
On Behalf Of:
ROLGA FARMER’S EXCHANGE
RESPONDENT
Against:
ASTORIA PRODUCE COMPANY
CLAIMANT
1
TABLE OF CONTENTS
TABLE OF ABBREVIATIONS ......................................................................................4
INDEX OF AUTHORITIES ............................................................................................7
STATEMENT OF JURISDICTION ............................................................................. 12
QUESTIONS PRESENTED .......................................................................................... 13
STATEMENT OF FACTS ............................................................................................ 14
SUMMARY OF PLEADINGS ...................................................................................... 17
PLEADINGS .................................................................................................................. 19
I. THE KLRCA HAS NO AUTHORITY TO HEAR THE CASE BECAUSE
THERE WAS NO VALID ARBITRATION AGREEMENT BETWEEN THE TWO
PARTIES ........................................................................................................................ 19
II. THE TRIBUNAL WAS NOT PROPERLY CONSTITUTED ............................ 21
A. The arbitration appointment did not follow the procedure under KLRCA Rules and
UNCITRAL Arbitration .............................................................................................. 21
1. The arbitration appointment did not follow the procedure under the governing
rules...................................................................................................................... 21
2. The arbitration award, if any, shall be set aside on the ground of proper
composition of the arbitral tribunal under New York Convention.......................... 22
2
B. Alternately, if this tribunal holds that the appointment of the third arbitrator does
not stop it from hearing this case, RFE should be entitled to select its party-appointed
arbitrator...................................................................................................................... 23
III. THE TRIBUNAL HAS NO AUTHORITY TO IMPOSE SANCTIONS IN
THE FORM OF A FINE ON RFE FOR FAILING TO APPEAR AT THE INITIAL
HEARING AND/OR FOR NOT PROVIDING ADEQUATE NOTICE THAT IT
WOULD NOT APPEAR ................................................................................................ 24
A. Because of the absence of bad faith conduct, the KLRCA has no authority to
impose any sanctions against RFE ............................................................................... 24
B. There is neither an agreement between the two parties, nor any other authority,
allowing the KLRCA to impose sanctions against RFE................................................ 27
IV. UNIDROIT PRINCIPLES SHOULD BE CHOSEN AS THE MOST
APPROPRIATE LAW TO APPLY TO THE DISPUTE ............................................. 28
A. The arbitral tribunal must choose the most appropriate law to apply to the dispute 28
B. UNIDROIT Principles should be applied as the most appropriate law to resolve the
dispute ......................................................................................................................... 29
1. UNIDROIT Principles is the most appropriate law under the conflict of laws
approach ............................................................................................................... 29
2. UNIDROIT Principles should be the applicable law under the direct method .......
............................................................................................................................. 33
3
V. RFE DID NOT BREACH ITS OBLIGATION TO DELIVER the GOODS IN
QUALITY AS REQUIRED IN THE CONTRACT ...................................................... 35
A. RFE has fulfilled its obligation by loading the goods onto the PINAFORE in the
appropriate condition ................................................................................................... 35
B. The PINAFORE must be liable for the non–conformity of the goods cause by
improper storage .......................................................................................................... 36
C. Risk of loss of or damage according to FOB has been passed to AP after the
bananas were loaded onto the PINAFORE ................................................................... 38
VI. AP HAD OBLIGATION TO PRESERVE AND ATTEMPT TO SELL THE
BANANAS – OR A PORTION OF THEM – SOON AFTER THE PINAFORE
DOCKED AT THE PORT OF ASTORIA .................................................................... 39
A. AP did not have the right to reject the goods ......................................................... 39
B. AP had an obligation to act in good faith to mitigate the harm resulting from the
non-conforming bananas.............................................................................................. 40
1. AP had obligation to preserve the goods soon after the PINAFORE docked at the
port of Astoria. ..................................................................................................... 41
2. AP had the duty to mitigate the harm by selling them to the third party ............. 43
PRAYER FOR RELIEF .............................................................................................. 45
4
TABLE OF ABBREVIATIONS
§ Paragraph
AP Astoria Produce Company
UNCITRAL Arbitration Rules UNCITRAL Arbitration Rules 2010
CIF Cost, Insurance and Freight
CISG United Nations Convention on Contracts for the
International Sale of Goods, Vienna, 11 April
1980
European Community Regulation European Community Regulation No 593/ 2008
FOB Free On Board
The Hague Convention Convention on the Law Applicable to
International Sale of Goods, The Hague 1955
Hamburg Convention United Nations Convention on the Carriage of
Goods by Sea, Hamburg, 1978
ICC International Chamber of Commerce
5
INCOTERMS International Commercial terms, 2010
KLRCA The Kuala Lumpur Regional Centre for
Arbitration
KLRCA Rules Rules for Arbitration of The Kuala Lumpur
Regional Centre for Arbitration , 2010
Malaysian Arbitration Act Malaysian Arbitration Act, 2005
Model Law on Arbitration UNCITRAL Model Law on International
Commercial Arbitration, 1985
New York Convention United Nations Convention on the Recognition
and Enforcement of Foreign Arbitral Awards,
New York, 1958
PECL The Principles of European Contract Law
PINAFORE M/S PINAFORE
RFE Rolga Farmer‘s Exchange
The KLRCA Director The Director of the Kuala Lumpur Regional
Centre for Arbitration
UCP The Uniform Customs and Practice for
Documentary Credits
6
UNCTAD United Nations Conference on Trade and
Development
UNIDROIT Principles UNIDROIT Principles of International
Commercial Contracts, Rome, 2004
Uniform Commercial Practice Uniform Commercial Practice 500
7
INDEX OF AUTHORITIES
INTERNATIONAL LAW AND DOCUMENTS
Convention on the Law Applicable to International Sale of Goods, 1955 ................................... 45
ICC Incoterms (2010) ............................................................................................................... 41
Regulation (EC) No 593/2008 of The European Parliament and of the Council on the law
applicable to contractual obligations (Rome I), 2008 ................................................................ 30
UNCITRAL Arbitration Rules, 2010 .............................................................................. 20, 25, 28
UNCITRAL Model Law on International Commercial Arbitration, 1985 ............................. 18, 19
UNIDROIT Principles (2004)............................................................................................. passim
United Nations Convention on Contracts for the International Sale of Goods Apr. 11, 1980, 1489
U.N.T.S. 3 ..................................................................................................................... 18, 42, 45
United Nations Convention on the Carriage of Goods by Sea, Nov. 27, 1978, 1695 U.N.T.S. 3
........................................................................................................................................... 38, 39
United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
Jul. 6, 1958, 330 U.N.T.S. 38 .................................................................................................... 21
NATIONAL LAWS
Restatement (Second) of Contracts (1981) ........................................................................... 24, 30
CASES
Ad hoc arbitration (San José, Costa Rica), Unilex (Aug. 18, 2011),
http://www.unilex.info/case.cfm?pid=2&do=case&id=1100&step=FullText ............................. 36
Banco de Seguros del Estado v. Mut. Marine Office, 344 F.3d 255, (2d Cir. 2003) .................... 24
Bundy v. Commercial Credit Co., 202 N.C. 604, 607 (1932) ..................................................... 24
8
Case No. 10346 of 2000 (ICC Int‘l Ct. Arb.) ............................................................................. 46
China 6 June 1991 CIETAC-Shenzhen Arbitration (Cysteine Monohydrate case), Electronic
Library on International Commercial law and the CISG (Aug. 18, 2011),
http://cisgw3.law.pace.edu/cases/910606c1.html ....................................................................... 45
Commercial Union Ins. Co. v. Liberty Mut. Ins. Co., 357 NW 2d 861, 866 (Mich. Ct. App. 1984)
........................................................................................................................................... 24, 25
Cour d‘appel [CA] [regional court of appeal] Colmar, Jun. 12, 2001 (Fr.),
http://cisgw3.law.pace.edu/cases/010612f1.html ....................................................................... 30
Encyclopaedia Universalis S.A. v. Encyclopaedia Britannica, Inc., 403 F.3d 85, (2d. Cir. 2005)
................................................................................................................................................. 21
First Options of Chicago, Inc. v. Kaplan, 514 US 938 (1995) .................................................... 27
Fond du Lac v. Fond du Lac, 158 Wis. 2d 729, 729 (Wis. Ct. App.1990) .................................. 25
Hassan Shenavai vs Klaus Kreischer, European Court reports 1987, p. 239, EUR-Lex (Aug. 18,
2011), http://eur-
lex.europa.eu/smartapi/cgi/sga_doc?smartapi!celexplus!prod!CELEXnumdoc&lg=en&numdoc=
61985J0266 ............................................................................................................................... 31
ICC Arbitration Case No. 5713 of 1989, Electronic Library on International Commercial Law
and the CISG (Aug. 18, 2011), http://www.cisg.law.pace.edu/cases/895713i1.html ................... 30
ICC Award No. 7375 of 5 June 1996, Trans-Lex (Aug. 18, 2011), http://www.trans-
lex.org/content_print.php?what=14 ........................................................................................... 34
In re Huckfeldft, 39 F.3d 829 (1994) ......................................................................................... 24
In re Utility Oil Corporation, 10 F. Supp. 678 (S.D.N.Y 1934) ........................................... 22, 23
Interchem Asia 2000 v. Oceana Petrochemicals, 373 F.Supp.2d 340, 358 (S.D.N.Y. 2005) . 17, 27
9
International Court of Arbitration Bulletin, Vol. 10, No. 2, Fall 1999, 72-74 ............................. 34
Lobo & Co. v. Plymouth Navigation Co. of Monrovia, 187 F. Supp. 859, 861 (S.D.N.Y. 1960) . 22
Marshall & Co., Inc. v. Duke, 114 F. 3d 188 (11th Cir. 1997) ................................................... 25
ReliaStar Life Insurance v. EMC National Life Company, 546 F.3d 81 (2d Cir. 2009) ............... 24
Spiegel v. Beacon Participations, Inc., 297 Mass. 398, 416 (Mass. 1937) .................................. 24
Synergy Gas Co. v. Sasso, 853 F.2d 59, 63-64 (2d Cir. 1988) .................................................... 27
Todd Shipyards Corp. v. Cunard Line, Ltd., 943 F. 2d 1056, 1064 (9th Cir. 1991) .................... 25
TREATISES AND OTHER BOOKS
A.G. Guest et al., Benjamin’s Sale of Goods (6th ed. 2002) ........................................................ 36
Black's Law Dictionary (9th ed. 2009) .......................................................................... 29, 32, 33
Gary B. Born, International Commercial Arbitration Vol.1 197 (2009) ............................... 16, 17
Margaret L. Moses, The Principle and Practice of International Commercial Arbitration (2008)
............................................................................................................................................. 18
Richard Schaffer & Filiberto Agusti & Beverley Earle, International Business Law and Its
Environment (6th ed. 2008) ................................................................................................... 32
Simon Baughen, Shipping Law (4th ed. 2009) ........................................................................... 32
JOURNAL ARTICLES AND ESSAYS
O'Neill & Phillip D., The power of arbitrators to award monetary sanctions for discovery abuse,
60 Dis Res Jnl 60 (2005 -2006) ............................................................................................. 24
MISCELLANEOUS MATERIALS
Betsy Rosenblatt, Michael Silverman, Conflicts of Law, Berkman Center for Internet and Society
(Aug. 18, 2011), http://cyber.law.harvard.edu/property00/jurisdiction/conflicts.html ................. 33
10
Herbert Kronke, The UN Sales Convention, The UNIDROIT Contract Principles and the Way
Beyond, p.456, UNCITRAL (Aug. 18, 2011),
http://www.uncitral.org/pdf/english/CISG25/Kronke.pdf .......................................................... 36
Jean-Michel Jacquet, Law Governing on the Merits of the Dispute, UNCTAD, 17 (Aug. 18,
2011), www.unctad.org/en/docs/edmmisc232add40_en.pdf ................................... 29, 30, 31, 32
Lando, Ole, The law applicable to the merits of the dispute, p. 143, Trans-Lex (Aug. 18, 2011),
http://trans-lex.org/114900 ........................................................................................................ 30
Michael Joachim Bonell, The UNIDROIT Principles and Transnational Law, p.204, UNIDROIT
(Aug. 18, 2011), www.unidroit.org/english/publications/review/articles/2000-2-bonell-e.pdf .... 34
Pace Law School Institute of International Commercial Law Guide To Article 7, Comparison
With UNIDROIT Principles Of International Commercial Contracts, Official Comments On
Articles Of The UNIDROIT Principles Cited, Comments Reprinted With Permission From
UNIDROIT, Article 1.7, I, Electronic Library on International Commercial law and the CISG
(Aug. 18, 2011), http://www.cisg.law.pace.edu/cisg/principles/uni7.html .................................. 43
Rechtsanwalt Dr. Götz-Sebastian Hök, UNIDROIT principles and its practical use, p. 3,
Eurojuris (Aug. 18, 2011),
http://www.eurojuris.net/assets/unidroit%20principles%20and%20its%20practical%20use.doc 35
The State Bar Committee on Mandatory Fee Arbitration, Imposition of sanctions by Arbitrators
in conducting fee arbitration matters, The State Bar of California (Aug. 18, 2011),
http://www.calbar.ca.gov/LinkClick.aspx?fileticket=QT9YvNWpfsE%3d&tabid=1142............ 25
UNIDROIT Principles of International Commercial Contracts with Official Commentary 1994
art.7.4.8,The Faculty of Law - University of Oslo, (Aug. 18, 2011),
11
http://www.jus.uio.no/lm/unidroit.international.commercial.contracts.principles.1994.commente
d/7.4.8.html ............................................................................................................................... 44
W. Tetley, Sale of Goods - The Passing of Title and Risk - A Resume (Aug 18 2011),
http://www.internationalprivatelaw.com/files/Property_and_Risk.pdf ....................................... 41
12
STATEMENT OF JURISDICTION
Rolga Farmer‘s Exchange and Astoria Produce Company have not agreed to submit the
present dispute before the Kuala Lumpur Regional Centre for Arbitration, Malaysia. Even if this
Tribunal finds that a valid arbitration clause exists, the Tribunal must pursuant to the
UNCITRAL Model Law on International Commercial Arbitration, Rules For Arbitration Of
The Kuala Lumpur Regional Centre For Arbitration and UNCITRAL Arbitration Rules
for resolution.
The Arbitral Tribunal is requested to give solutions on the basis of the rules and
principles of conventions to which RFE is a Party.
The Arbitral Tribunal is requested to decide on the issues submitted and or make
recommendation which shall not include the amount of the compensation.
13
QUESTIONS PRESENTED
(i) Whether the KLRCA had the authority to resolve the dispute between the parties,
specifically, whether there was an agreement between the parties to submit this dispute to it.
(ii) Whether the three arbitrators were properly appointed, specifically whether RFE
improperly denied the opportunity to select its ―party appointed arbitrator and whether the
Presiding Arbitrator or Chairman was improperly appointed.
(iii) Whether the arbitration has the authority to impose sanctions in the form of a fine
on RFE for failing to appear at the initial hearing and/or for not providing adequate notice that it
would not appear and, if it does, which sanction would be appropriate under the circumstances.
(iv) What law or legal principles are applicable to this dispute.
(v) Whether the shipment of bananas arrived at its destination in an unsatisfactory
condition due to improper storage during the voyage from Rolga to Astoria and, if so, whether
this constituted a breach of the seller‘s obligation under the contract between the parties.
(vi) Whether either party has a legal obligation to attempt to sell the bananas – or a
portion of them – soon after the Pinafore docked at the Port of Astoria.
14
STATEMENT OF FACTS
This case involves a legal dispute between Astoria Produce Company (―AP‖), which is a
major distributor of produce to retail grocery stores throughout Astoria, and The Rolga Farmer‘s
Exchange (―RFE‖), which is an agricultural cooperative in Rolga, over a contract made between
the parties in 2010.
On July 15, 2010, Mr. Michael Vogel, AP‘s Chief Purchasing Agent, called Ms. Lenore
Rocco, RFE‘s General Sales Manager, by phone to order a large number of bananas for RFE.
Later, Ms. Rocco sent a confirming Bill of Sale to Mr. Vogel via email indicating that the
shipment would be made ―FOB Rolga City.‖ It also contained the following forum selection
clause:
Any dispute, controversy or claim arising out of this contract shall be settled by
arbitration in accordance with the Rules of the Western Pacific Regional Centre for Arbitration.
The number of arbitrators shall be one. The place of arbitration shall be Rolga City.
Subsequently, Mr. Vogel accepted and returned the Bill of Sale after editing the forum
selection clause as indicated:
Any dispute, controversy or claim arising out of or relating to this contract, or the
breach, termination or invalidity thereof shall be settled by arbitration in accordance with the
Rules of the Kuala Lumpur Regional Centre for Arbitration. The number of arbitrators shall be
three. The place of arbitration shall be Kuala Lumpur.
On September, 2010, in order to arrange for shipment on the M/S PINAFORE, RFE
prepared a bill of lading which was then signed by Renas Vermelho, the captain of the
PINAFORE. The Bill of Lading contained the Special Instructions, which follows the AP‘s
15
requirement in Exhibit #1 e‐mail that the bananas ―to be stored in a cool location on the ship
where the temperature will not exceed 12 or 13°C,‖ stated: ―This cargo of bananas must be
stored in a cool, dry location with good circulation to prevent spoilage‖
On September 30, 2010, after having presented the required documents, RFE was paid in
full for the bananas.
The PINAFORE departed on October 1, 2010 and arrived at Astoria City on November
24, 2010.
Before unloading, the shipment was inspected by the Astorian Department of Agriculture
and some percentages of the bananas were found to be ripe or ripening, especially in the number
#2 hold, due to the high temperatures at which they had been transported.
On the basis of this report, AP rejected the entire shipment and requested a full refund of
the purchase price. RFE refused to pay for the damage to the bananas because its responsibility
had ended when the bananas were loaded onto the PINAFORE. As the PINAFORE had other
ports of call, it unloaded and stored the bananas in a nearby warehouse. Mr. Vogel was notified
of this, but he refused to dispose of the bananas.
After a short period of time, the entire shipment was dumped as waste.
On June 1, 2011, AP commenced the arbitration process by filing a request for arbitration
to seek for its damages with the Kuala Lumpur Regional Centre for Arbitration (KLRCA or ―The
Center‖) and designated Bernard Bodd as its party appointed arbitrator.
The Center‘s Director notified RFE of the Request for Arbitration and requested that RFE
appoint an arbitrator within 30 days.
After 45 days had elapsed without RFE making an appointment, the Director appointed
Riska Benti as the second arbitrator and Judge John Chong as the presiding arbitrator.
16
An initial hearing was scheduled on 15 August 2011. However, shortly before the hearing
was to begin, the Director received an email from Ms. Rocco stating that RFE would not appear
because of its intention to challenge the authority of the tribunal to hear this dispute.
After the Director advised that the Tribunal would entertain challenges to its jurisdiction
at another hearing on 10 October 2011, a representative of RFE notified that it would be
represented by an attorney at the October hearing who should be appointed as its ―party
appointed arbitrator.‖ The Director responded that it was too late to substitute RFE‘s attorney as
a member of the arbitration panel.
Subsequently, both parties learned that a fire had destroyed the PINAFORE and its
owners are now insolvent. Therefore, they agree not to seek any damages from the owners of the
PINAFORE and/or from the vessel itself for mishandling the cargo of bananas.
17
SUMMARY OF PLEADINGS
(i) RFE did not accept the counter-offer made by AP, therefore, the arbitration
agreement between the parties did not exist at all. Although RFE did not officially reject the
counter-offer by any means, its silence cannot be considered as a form of acceptance.
Furthermore, the conduct of the parties was merely an acceptance of the main contract for the
sales of goods but not an acceptance of the arbitration clause as it is an independent part of the
contract.
(ii) The Tribunal was improperly constituted, specifically, the appointment of
Presiding Arbitrator or Chairman was inappropriate. The Director of KLRCA had no right to
appoint the Presiding Arbitrator until 30 days elapsing without the nomination made by the first
and second arbitrators. Moreover, since such a delay in the arbitration appointment was just an
immaterial failure, the appointment of RFE‘s party appointed arbitrator should not be nullified
for the reason that it was made lately.
(iii) The Tribunal has no authority to impose sanctions in the form of a fine on RFE
for failing to appear at the initial hearing and/or for not providing adequate notice that it would
not appear. In this case, there is no evidence to show that two involved party intended to grant
the arbitrators such authority. Even if the Tribunal finds that KLRCA has jurisdiction to resolve
this dispute, RFE‘s failure to appear at the initial hearing did not cause any serious problems or
unreasonably delay the arbitration proceeding.
(iv) UNIDROIT Principles is the most appropriate law to the current dispute under
two different approaches of choosing applicable law. Since the arbitral tribunal consequently has
the authority to choose the law which it considers as the most appropriate to govern, the two
18
different approaches it may favour together point to the same result that UNIDROIT Principles
should be chosen to govern the dispute.
(v) RFE did not breach its obligation to deliver the goods in quality as required in the
contract. RFE has fulfilled all duties to provide qualified goods until the PINAFORE took over
the bananas as proved by the Clean Bill of Lading and Letter of Credit. In addition, it was
PINAFORE who did not follow the instruction provided by RFE and caused the damage of the
goods. Under regulations of FOB Rolga City INCOTERMS, AP had to bear the risk of loss or
damage at the time the goods were loaded on board. Therefore, the shipment of bananas arrived
at its destination in an unsatisfactory condition was due to improper storage made by
PINAFORE. For those reasons, it does not constitute a breach of the RFE‘s obligation under the
contract between the parties.
(vi) Under UNIDROIT Principles, AP‘s obligation to mitigate the harm can be
referred to the obligation to preserve the goods and to resell the bananas– or a portion of them –
soon after the Pinafore docked at the port of Astoria. It was also not in any inconvenient
conditions to be excused from performing these duties.
19
PLEADINGS
I. THE KLRCA HAS NO AUTHORITY TO HEAR THE CASE BECAUSE THERE
WAS NO VALID ARBITRATION AGREEMENT BETWEEN THE TWO PARTIES
The tribunal must primarily decide whether a binding arbitration agreement was entered
into by the two parties.
An arbitration agreement is necessary to the arbitral process because it reflects the fully
informed consent of the contracting parties. It is a basic understanding that ―arbitration is a
consensual arrangement meant to reflect a mutual agreement to resolve disputes outside of the
courtroom.‖1 Absent a valid agreement to arbitrate, there are no legal grounds for requiring a
party to arbitrate a dispute or for enforcing an arbitral award against a party. 2
In order to decide whether the arbitration agreement exists, it must be decided whether
RFE accepted the offer made by AP.
Under contracts law, particularly CISG and UNIDROIT Principles, an offer is defined as
a sufficiently definite proposal that indicates the intention of the offeror to be bound by the
contract in case of acceptance.3 A counter-offer is a reply to an offer, which purports to be an
acceptance but contains material modifications such as the price, payment, or the settlement of
disputes to the original offer.4 Acceptance is a statement or conduct of the offeree indicating
1 Interchem Asia 2000 v. Oceana Petrochemicals, 373 F.Supp.2d 340, 358 (S.D.N.Y. 2005). 2 Gary B. Born, International Commercial Arbitration Vol.1 197 ( 2009). 3 United Nations Convention on Contracts for the International Sale of Goods art. 14, Apr. 11, 1980, 1489 U.N.T.S.
3; UNIDROIT Principles (2004). 4 Id., United Nations Convention on Contracts for the International Sale of Goods art. 19; Id., UNIDROIT Principles
art. 2.1.11.
20
assent the offer. Silence or inactivity does not in itself amount to acceptance unless the parties
themselves agree or the offeror states unilaterally in its offer that silence means acceptance.5
In this present case, RFE sent a confirming Bill of Sale to AP, which contained an offer
of the arbitration clause. AP then made a counter-offer by altering the dispute settlement terms
materially.6 RFE did not accept this arbitration counter-offer. In fact, it did not indicate any
assent of the new terms made by AP in any written form and remained silent throughout the
trade. Although RFE did not officially reject the counter-offer by any means, its silence cannot
be considered as a form of acceptance in the rules mentioned above.
AP may argue that the conduct between both parties indicated assent to the last
arbitration offer.7 It is true that RFE did perform several acts such as loading bananas onto the
PINAFORE and presenting required documents in order to get paid.8 Pursuant to the
UNCITRAL Arbitration Model Law, however, an arbitration clause will be treated as an
independent part of the contract for the arbitral tribunal to rule on its own jurisdiction, including
objections of the existence and validity of the arbitration clause.9 Accordingly, the conduct of the
parties was merely an acceptance of the rest of the contract for the sales of goods but not an
acceptance of the arbitration clause as it is an independent part of the contract.
Therefore, the counter-offer made by AP was not accepted, hence there is no arbitration
agreement between the parties.
Even if this tribunal finds that a valid arbitration clause exists, there is still a multitude of
reasons why this case should be dismissed in favor of RFE.
5 Supra note 3, art. 2.1.6. 6 Moot Problem, p.2. 7 Supra note 3, art. 18.
8 Moot Problem, p.3. 9 UNCITRAL Model Law on International Commercial Arbitration art. 16(1), 1985; Supra note 2.
21
II. THE TRIBUNAL WAS NOT PROPERLY CONSTITUTED
A. The arbitration appointment did not follow the procedure under KLRCA Rules and
UNCITRAL Arbitration
1. The arbitration appointment did not follow the procedure under the governing
rules
The appointment of the third arbitrator was not in accordance with the procedural rules,
which would lead any holding this tribunal makes to be vacated.
As provided in the UNCITRAL Arbitration Rules, when the number of arbitrators agreed
upon is three, each party shall select one arbitrator. Then, the two appointed arbitrators shall
choose the third one as the presiding arbitrator of the tribunal.10
If within 30 days after the
appointment of the second arbitrator that the two arbitrators have not agreed on their choice, the
presiding arbitrator shall be selected by the appointing authority.11
Since ―choosing the chair of
the tribunal is far too important to delegate to anyone,‖12
thirty days is given for the two
decision-makers to carefully calculate in making the appointment.
In this instant case, RFE received the notice of arbitration on June 11, 2011.13
After 40
days passing without RFE‘s appointment, the KLRCA Director appointed Riska Benti as the
second arbitrator and Judge John Chong as the presiding arbitrator.14
The Director‘s action was
inconsistent with the procedure of the tribunal composition under UNCITRAL Arbitration
Rules.15
He had no authority to appoint the presiding arbitrator until 30 days had elapsed without
the first and second arbitrators making the nomination. The chair of the tribunal should be
10 UNCITRAL Arbitration Rules art. 9.1, 2010. 11 Supra note 10. 12 Margaret L. Moses, The Principle and Practice of International Commercial Arbitration, 125 (2008). 13
Moot Problem, p.4. 14 Moot Problem, p.4. 15 Supra note 10.
22
selected with all necessary prudence. The designation of the presiding arbitrator at the same time
as the second arbitrator by the KLRCA Director is considered to be negligent conduct, which
made RFE lose confidence on the efficiency of the arbitral process. Such a failure is an
impediment for resolving the disputes thoroughly.
In short, the appointment of the presiding arbitrator made by KLRCA Director was
inappropriate. Therefore, the presiding arbitrator is not entitled to participate in the tribunal
settling the controversy between AP and RFE. Any holding this tribunal makes will therefore be
vacated.
2. The arbitration award, if any, shall be set aside on the ground of improper
composition of the arbitral tribunal under New York Convention
Any award made by the Tribunal cannot be recognized and enforced because the panel
was improperly established. According to New York Convention to which both Astoria and
Rolga are contracting states, the recognition and enforcement may be refused if the composition
of the arbitral authority was not in accordance with the governing law. 16
In Encyclopaedia
Universalis S.A. v. Encyclopaedia Britannica, Inc., the appellate panel was refused to confirm
the arbitral award ―on the grounds that the appointment of a third arbitrator was premature.‖17
The facts in Encyclopaedia Universalis S.A. v. Encyclopaedia Britannica, Inc. are quite
similar to those in this present case. The third arbitrators in both cases were appointed earlier
than the regulated time. Consequently, the court‘s decision in that case should be taken into
account. The Director‘s appointment of the presiding arbitrator was premature since it was made
16 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards art. V.1.d, Jul. 6, 1958, 330 U.N.T.S. 38. 17 Encyclopaedia Universalis S.A. v. Encyclopaedia Britannica, Inc., 403 F.3d 85, (2d. Cir. 2005) (―[W]e thus
conclude that the District Court properly refused to confirm Plaintiff's arbitral award on the grounds that the
appointment of a third arbitrator was premature, and, therefore, the composition of the arbitral authority was not in
accordance with the parties' agreement.‖).
23
at the same time the second arbitrator was selected. It is not in accordance with the binding rules.
Therefore, the reachable award which can be made by the constituted tribunal shall be vacated
under Article V.1.d of New York Convention.
B. Alternately, if this tribunal holds that the appointment of the third arbitrator does not stop
it from hearing this case, RFE should be entitled to select its party-appointed arbitrator
Despite of the fact that RFE failed to appoint the second arbitrator in the required time, it
was justifiable for RFE to make a choice of its party appointed arbitrator.
In In re Utility Oil Corporation,18
when ―the parties were acting in good faith‖19
and ―the
delay was not due to caprice or perverseness,‖20
―delay in his performance will generally not
operate as a forfeit.‖21
In that case, it was concluded that ―the time of appointment was not
regarded as of the essence under the arbitration clause‖22
and the late appointment of arbitrator
was still effective.
RFE‘s refusal to represent at the hearing scheduled on August 15, 201123
―was not due to
caprice, perverseness, or desire for delay.‖24
RFE‘s failure was solely owning to ―a belief,
mistaken but far from unreasonable‖25
that an appearance would be considered as its waiver of
the right to challenge the tribunal‘s authority. The fact that RFE reselected its party appointed
arbitrator shortly after receiving the notification of another hearing on October 10, 201126
clearly
shows its ―entire good faith in resisting arbitration‖27
. Since such a delay in the arbitration
18 In re Utility Oil Corporation, 10 F. Supp. 678 (S.D.N.Y 1934). 19 Lobo & Co. v. Plymouth Navigation Co. of Monrovia, 187 F. Supp. 859, 861 (S.D.N.Y. 1960). 20 Supra note 19. 21 Supra note 18. 22 Id. 23 Moot Problem, p.4. 24 Supra note 18. 25
Id. 26 Moot Problem, p.5. 27 Supra note 18.
24
appointment was just an immaterial failure, the appointment of RFE‘s party appointed arbitrator
should not be nullified for the reason that it was made untimely.
RFE has not been empowered to take part in, directly or indirectly, the tribunal
composition at any stage. Procedural matters, including the irregularity in the arbitration
appointment, have hindered RFE from seeking justifiable interests in practicing, at the highest
possibility, its power in the penal establishment. RFE, in order to protect its justified interest,
should be entitled to make the choice of its party appointed arbitrator.
III. THE TRIBUNAL HAS NO AUTHORITY TO IMPOSE SANCTIONS IN THE FORM
OF A FINE ON RFE FOR FAILING TO APPEAR AT THE INITIAL HEARING
AND/OR FOR NOT PROVIDING ADEQUATE NOTICE THAT IT WOULD NOT
APPEAR
A. Because of the absence of bad faith conduct, the KLRCA has no authority to impose any
sanctions against RFE
Although RFE failed to appear at the initial hearing, it acted in good faith and therefore,
the KLRCA does not have authority to impose sanctions against it. Where an arbitration clause is
broad, arbitrators have the discretion to order remedies they determine appropriate, so long as
they do not exceed the power granted to them by the contract itself.28
A broad arbitration clause
[…] confers inherent authority on arbitrators to sanction a party that participates in the arbitration
in bad faith and that such a sanction may include an award of attorney‘s or arbitrator‘s fees.29
28Banco de Seguros del Estado v. Mut. Marine Office, 344 F.3d 255, (2d Cir. 2003) (―[W]here an arbitration clause
is broad, as here, arbitrators have the discretion to order remedies they determine appropriate, so long as they do not exceed the power granted to them by the contract itself.‖). 29ReliaStar Life Insurance v. EMC National Life Company, 546 F.3d 81 (2d Cir. 2009) (―[C]onsistent with this
principle, we here clarify that a broad arbitration clause, such as the one in this case, see Coinsurance Agreements §
10.1, confers inherent authority on arbitrators to sanction a party that participates in the arbitration in bad faith and
that such a sanction may include an award of attorney‘s or arbitrator‘s fees.‖).
25
Bad faith is a general and somewhat indefinite term. ―It has no constricted meanings. It
cannot be defined with exactness. It means a breach of a known duty through some motive of
interest or ill will. It partakes of the nature of fraud.‖30
The ultimate meaning of the term depends
on the facts and circumstances of the underlying controversy31
, but includes: evasion of the spirit
of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance,
abuse of a power to specify terms, and interference with or failure to cooperate in the other
party's performance.‖32
Essentially, ―bad faith is a state of mind which must be determined from proof of
conduct.‖33
In regards to arbitration, bad faith is narrowly defined and limited to egregious
conduct34
, but may include conduct ―causes the arbitration to be unnecessarily extended by a
considerable number of days‖35
, making unfounded allegations against the other36
and
unreasonable behavior before the commencement of the arbitration.37
A party, however, ―does
not act in bad faith if it refuses settlement in the honest belief that it has a fair chance of
victory.‖38
An arbitrator should impose such sanctions for bad faith against a party only as a last
resort to achieve fairness in the proceedings after less onerous measures to alleviate any
unfairness have been considered. Even in that case, it would not be proper to impose any other
type of sanction or punishment against the offending party such as monetary sanctions. Non –
monetary procedural sanctions are permissible, but they should only be imposed with the utmost
30 Spiegel v. Beacon Participations, Inc., 297 Mass. 398, 416 (Mass. 1937). 31 Bundy v. Commercial Credit Co., 202 N.C. 604, 607 (1932). 32 Restatement (Second) of Contracts §205 (1981). 33 Commercial Union Ins. Co. v. Liberty Mut. Ins. Co., 357 NW 2d 861, 866 (Mich. Ct. App. 1984). 34 In re Huckfeldft, 39 F.3d 829 (1994) (―[A]t the outset, it is evident that "bad faith" is a state of mind which must be determined from proof of conduct.‖). 35 Todd Shipyards Corp. v. Cunard Line, Ltd., 943 F. 2d 1056, 1064 (9th Cir. 1991). 36
Marshall & Co., Inc. v. Duke, 114 F. 3d 188 (11th Cir. 1997). 37 Fond du Lac v. Fond du Lac, 158 Wis. 2d 729, 729 (Wis. Ct. App.1990). 38 Supra note 33.
26
discretion against a party in the face of that party‘s willful and/or repeated disregard of
procedural requirements, including an arbitrator‘s ruling.39
RFE refused to appear at the initial hearing because of its honest belief that the KLRCA
has no jurisdiction to resolve this dispute. Such refusal should not be considered as ‗bad faith‘
conduct in litigation. Even if the Tribunal finds that the KLRCA has jurisdiction to resolve this
dispute, RFE‘s failure to appear at the initial hearing did not cause any serious problems or
unreasonably delay the arbitration proceeding.
Article 30(2) of UNCITRAL Arbitration Rules provides that ―if a party, duly notified
under these Rules, fails to appear at a hearing, without showing sufficient cause for such failure,
the arbitral tribunal may proceed with the arbitration.‖ Similarly, Article 27(c) of Malaysian
Arbitration Act states that ―any party fails to appear at a hearing or to produce documentary
evidence, the arbitral tribunal may continue the proceedings and make the award on the evidence
before it.‖
Furthermore, RFE has no conducted itself in an abusive manner during the proceeding.
RFE has disclosed and submitted all the documents required by the Tribunal so far. After having
been advised by the KLRCA Director, RFE agreed to be present in the October hearing,40
which
is a demonstration of its good faith commitment to resolve this dispute.
In conclusion, the fact that RFE has not conducted itself in an intentionally abusive
manner in regards to this the proceeding is sufficient to determine that there should not be any
sanctions against it.
39 The State Bar Committee on Mandatory Fee Arbitration, Imposition of sanctions by Arbitrators in conducting fee
arbitration matters, The State Bar of California (Aug. 18, 2011),
http://www.calbar.ca.gov/LinkClick.aspx?fileticket=QT9YvNWpfsE%3d&tabid=1142. 40 Moot Problem, p. 5
27
B. There is neither an agreement between the two parties, nor any other authority, allowing
the KLRCA to impose sanctions against RFE
The parties have not conferred upon the KLRCA any authority to impose sanctions;
therefore, the Tribunal cannot sanction RFE.
Arbitration is ―simply a matter of contract between the parties; it is a way to resolve those
disputes — but only those disputes — that the parties have agreed to submit to arbitration.‖41
Therefore, ―the scope of authority of arbitrators generally depends on the intention of the parties
to the arbitration, and is determined by the agreement or submission [...]. Such an agreement or
submission serves not only to define, but to circumscribe, the authority of
arbitrators.‖42
Arbitrators do not inherently possess the full panoply of judicial powers to sanction
abusive conduct. Unless authorized by the parties in their agreement, in the applicable
institutional arbitration rules, or in the governing arbitration law, an arbitrator‘s remedial powers
are limited. The ability to shift legal fees depends on whether the parties agreed to this in their
contract, or whether it is authorized by law, or whether they both asked for legal fees in their
arbitration papers.43
―Granting the arbitrator authority beyond that granted to him by the parties
conflicts with the most basic principles underlying the arbitration process.‖ 44
Moreover, if it is
clear that the arbitrator has exceeded his authority, the award cannot stand.45
In this case, there is no evidence to show the two involved parties intended to grant the
arbitrators such authority. Institutional arbitration rules, including rules adopted by the KLRCA,
41 First Options of Chicago, Inc. v. Kaplan, 514 US 938 (1995). 42 Synergy Gas Co. v. Sasso, 853 F.2d 59, 63-64 (2d Cir. 1988) ("[T]he 'scope of authority of arbitrators generally
depends on the intention of the parties to an arbitration, and is determined by the agreement or submission.' " (quoting Ottley v.Schwartzberg, 819 F.2d 373, 376 (2 Cir.1987)). 43 O'Neill & Phillip D., The power of arbitrators to award monetary sanctions for discovery abuse, 60 Dis Res Jnl
60, (2005 -2006). 44 Supra note 1. 45 Supra note 42.
28
do not address monetary sanctioning power. Rather, they address an arbitrator‘s general
procedural and remedial powers. Moreover, AP neither requested the Tribunal to sanction RFE
nor asked for legal fees.
Therefore, since the parties in their agreement did not grant the arbitrator such authority,
nor do the rules of arbitration incorporated into the contract authorize any such action, the
KLRCA has no authority to impose any sanctions against RFE.
IV. UNIDROIT PRINCIPLES SHOULD BE CHOSEN AS THE MOST APPROPRIATE
LAW TO APPLY TO THE DISPUTE
A. The arbitral tribunal must choose the most appropriate law to apply to the dispute
The parties did not agree on any rules governing the controversy arising out or relating to
the contract, therefore, the arbitral tribunal must choose the most appropriate law to apply to the
dispute.
If the parties fail to designate a choice of law clause, it is set forth that the arbitral
tribunal shall apply the law that it determines to be appropriate to the merit of the dispute.46
Additionally, in all cases, the arbitral tribunal shall decide the choice of law in accordance with
the terms of the contract, if any, and shall take into account any usage of trade applicable to the
transaction.47
Considering this case, as there was no choice of law clause about arbitral proceeding
made by AP and RFE, the arbitral tribunal consequently has the authority to choose the law that
it considers as the most appropriate to govern. Therefore, the arbitrators shall decide the dispute
according to such rules as they deem appropriate in the absence of such a choice.
46 Supra note 10, art. 35, (2010). 47 Supra note 10, art. 35(3), (2010).
29
B. UNIDROIT Principles should be applied as the most appropriate law to resolve the
dispute
To determine the application of applicable law, the arbitrators can favor two different
approaches: first, the conflict of law approach and second, the direct method.48
1. UNIDROIT Principles is the most appropriate law under the conflict of laws
approach
i. UNIDROIT Principles is the most appropriate law under the conflict of laws rules
of both Astoria and Rolga
Examining the parties‘ jurisdictions‘ choice of law rules, UNIDROIT Principles is the
most appropriate choice of law. Astoria, the residence of AP, has adopted the Restatement
(Second) of the Conflict of Laws while Rolga, the residence of RFE, has adopted governing law
that is identical to European Community Regulation.49
The parties did not express their
agreement in the contract about the applicable law to govern the dispute. Under both
jurisdictions‘ choice of law rules, arbitrators must determine the choice of law based on the
jurisdiction with most significant links to the dispute50
Under such consideration, it is found that both the Restatement (Second) Conflicts of
Law51
and the European Community Regulation52
together provide that the most appropriate law
to resolve the dispute is that of the place with most significant links to the contract.
48 Jean-Michel Jacquet, Law Governing on the Merits of the Dispute, UNCTAD, 17 (2005),
www.unctad.org/en/docs/edmmisc232add40_en.pdf. 49 Moot Problem, p.10. 50 Supra note 48. 51
Supra note 32. 52 Regulation (EC) No 593/2008 of The European Parliament and of the Council on the law applicable to
contractual obligations (Rome I) art. 4(1), 2008.
30
The European Community Regulation‘s ―most closely connected‖ rule53
is also supported
by case law54
and enhanced by a court‘s decision that: the performance which is characteristic of
the contract is supplied by the seller.55
The Restatement (Second) of the Conflict of Laws also
stipulates that the place of performance is one of the determinants to identify the state having
most significant link to the dispute.56
Moreover, ―sales of movables are presumed to be governed
by the law of the seller's place of business.‖57
Consequently, it can be said that the law of the
seller is most closely connected to the dispute. The law of the country where the seller has his
habitual residence to the sale of goods contract should be applied.58
Arbitrators may conclude from the absence of any choice of law provision that the parties
intended to exclude all domestic laws.59
The arbitrators tend to justify their choice of the
UNIDROIT Principles or other non-State rules by the absence of choice of law by the parties.60
In this case, pursuant to the European Community Regulation, the arbitrators should
apply the UNIDROIT Principles. In addition, as this contract for the sale of goods was
exchanged through emails, there were no specific places of negotiation and contracting. The
FOB also points out that the delivery started in Rolga, the application of which is compliant with
the US Restatement of the Law (Second) Conflict of Laws §188. The European Court of Justice
in Shenavai v Kreischer held that the dealing with the case should identify the principal
obligation on which the claimant‘s action is based and jurisdiction is then to be determined in
53 Id., art. 21, 2008. 54 ICC Arbitration Case No. 5713 of 1989, Electronic Library on International Commercial Law and the CISG (Aug.
18, 2011), http://www.cisg.law.pace.edu/cases/895713i1.html. 55 Cour d‘appel [CA] [regional court of appeal] Colmar, Jun. 12, 2001 (Fr.),
http://cisgw3.law.pace.edu/cases/010612f1.html. 56 Supra note 32. 57 Lando, Ole, The law applicable to the merits of the dispute, p. 143, Trans-Lex (Aug. 18, 2011), http://trans-
lex.org/114900. 58
Supra note 52, art. 4(1), 2008. 59 Supra note 48. 60 Id.
31
accordance with this.61
In this case, AP relied on RFE‘s delivery to distribute the goods to its
customers and its monetary obligation was only exercised after RFE had loaded the bananas on
the PINAFORE. Therefore, the delivery of the goods made by RFE is considered as the most
primary contractual obligations to determine the applicable law.
AP may argue that the aggrieved party‘s interests should be protected by using its local
law. In the FOB which imposed on RFE the addional obligation to make a carriage contract, RFE
acted as the shipper and caused the goods to be examined by the carrier. RFE had to calculate,
prepare and perform most of his varied and complicated obligations in Rolga. Contrarily, AP‘s
sole contractual obligation was to pay the price and examine the goods. Because RFE dealt such
multitude of obligations like this, RFE is in a vulnerable position, under the contract, as having a
claim laid against it to be sued for breach of contract. Therefore, choosing UNIDROIT Principles
to govern the dispute protects the legal interests of the most vulnerable party under this contract-
the seller.
To sum up, the circumstances as a whole show that the contract is most closely connected
to Rolga. Therefore, it can be concluded that Rolga contains the links connecting most closely to
the dispute and therefore, applying the UNIDROIT Principles is appropriate to apply to the
dispute, under the laws of both parties‘ jurisdiction
ii. UNIDROIT Principles is the most appropriate law under the general principles of
private international law
61Hassan Shenavai vs Klaus Kreischer, European Court reports 1987, p. 239, EUR-Lex (Aug. 18, 2011), http://eur-
lex.europa.eu/smartapi/cgi/sga_doc?smartapi!celexplus!prod!CELEXnumdoc&lg=en&numdoc=61985J0266.
32
Regardless of specific conflict of laws rules of the States with a connection to the case,
general principles of private international law also lead to the result that UNIDROIT Principles is
applicable to the dispute.62
Amongst the general principles of private international law, lex loci actus refers to the
law of the place where an act is done or a transaction is completed.63
Lex loci solutionis is the
term for the law of the place where a contract is to be performed.64
Moreover, lex loci contractus,
which is often the proper law to decide contractual disputes,65
recommends the law of the place
where a contract is executed or to be performed.66
Notably, the "center of gravity" approach
might be characterized as a simplified version of the "most significant relationship" test of the
Second Restatement.67
In application to the dispute, pursuant to lex loci contractus, lex loci actus and lex loci
solutionis, the place of performance was Rolga. The claim also came from the consequence of
the delivery made by RFE. For the foregoing reasons, the local law of Rolga, which is the
UNIDROIT Principles, should be applicable to the dispute. Moreover, the subject matter of this
litigation is the breach of contractual obligation to deliver the goods in agreed quality between
two parties in different States, which falls into the sphere of application of the UNIDROIT
Principles.
Hence, according to the general principles of conflict of law rules, it can be concluded
that the local law of Rolga - UNIDROIT Principles should be applied to govern the dispute.
62 Supra note 48. 63 Black's Law Dictionary, lex loci actus (9th ed. 2009). 64 Id., lex loci solutionis (9th ed. 2009). 65 Id., lex loci contractus (9th ed. 2009). 66
Id., lex loci contractus (9th ed. 2009). 67 Betsy Rosenblatt, Michael Silverman, Conflicts of Law, Berkman Center for Internet and Society (Aug. 18, 2011),
http://cyber.law.harvard.edu/property00/jurisdiction/conflicts.html.
33
2. UNIDROIT Principles should be the applicable law under the direct method
i. As the two parites intended to choose international trade usages to govern their
contract, UNIDROIT Principles should be applied as part of lex mercatoria
UNIDROIT Principles is still applicable under the direct approach. Even the contract is
silent as to the applicable law, arbitrators themselves sometimes decide, particularly in the
context of international commercial contracts, to base their decision on ―general principles of
law‖, the ―lex mercatoria‖ or the like rather than on a particular domestic law.68
As a part of the lex mercatoria, the Preamble of UNIDROIT Principles set forth "general
rules for international commercial contracts."69
Turning to actual arbitration practice, the
UNIDROIT Principles have already on several occasions been referred to as a source of ―general
principles of law‖ or the ―lex mercatoria.‖ 70
Moreover, an arbitral tribunal has concluded that, even without an express or implied
choice of law, ―by referring to both the INCOTERMS and the UCP 500, the Parties showed their
willingness to have their Contract governed by international trade usages and customs.‖71
When
the parties do not stipulate a choice of law clause, but agree to be bound by any trade usages and
practices which they have established between themselves, it can be said that the parties
generally accept the principles of international trade to govern the contract. Such an agreement
leads to the application of UNIDROIT Principles.
There is no choice of law clause governing this case which indicates that the parties
intended to exclude all domestic laws. The two parties have also chosen the rules of FOB
68 Michael Joachim Bonell, The UNIDROIT Principles and Transnational Law, p.204, UNIDROIT (Aug. 18, 2011), www.unidroit.org/english/publications/review/articles/2000-2-bonell-e.pdf. 69 Supra note 3, Preamble (2004). 70
ICC Award No. 7375 of 5 June 1996, Trans-Lex (Aug. 18, 2011), http://www.trans-
lex.org/content_print.php?what=14. 71 International Court of Arbitration Bulletin, Vol. 10, No. 2, Fall 1999, 72-74.
34
INCOTERMS to determine the contractual rights and obligation. By this action, both AP and
RFE further indicate a desire for the general rules of international commercial law to govern the
case. The contract is also for the international sale of goods which falls into the sphere of
UNIDROIT Principles‘ application.72
Therefore, UNIDROIT Principles should be applied in this case.
ii. UNIDROIT Principles should be applied to resolve the dispute due to its remarkable
advantages
The UNIDROIT Principles´ objective is to establish a balanced set of rules designed for
international use73
, which makes it particularly well-suited for this case, considering its
international aspects. This advantage of the UNIDROIT Principles is a factor that may be
considered by an arbitral tribunal to determine the proper choice of law. A tribunal also
considered the advantages of the Principles as the reasons to apply the UNIDROIT Principles of
International Commercial Contracts.74
In addition, in some provisions, UNIDROIT Principles
states the rules more clearly than those in CISG.75
Moreover, considering to its advantages, the
idea to draft a ―general part‖ not only for the conventions on international sale of goods but for
the entirety of international conventions on specific types of contract, has been at the origins of
the UNIDROIT Principles.
Therefore, UNIDROIT Principles should be applied in this case because it is clear, easy
to apply, and designed for international cases.
72 Supra note 3, Preamble (2004). 73 Rechtsanwalt Dr. Götz-Sebastian Hök, UNIDROIT principles and its practical use, p. 3, Eurojuris (Aug. 18, 2011), http://www.eurojuris.net/assets/unidroit%20principles%20and%20its%20practical%20use.doc. 74 Ad hoc arbitration (San José, Costa Rica), Unilex (Aug. 18, 2011),
http://www.unilex.info/case.cfm?pid=2&do=case&id=1100&step=FullText. 75 Herbert Kronke, The UN Sales Convention, The UNIDROIT Contract Principles and the Way Beyond, p.456,
UNCITRAL (Aug. 18, 2011), http://www.uncitral.org/pdf/english/CISG25/Kronke.pdf.
35
In conclusion, the conflict of laws and the direct approach together point to the same
result that UNIDROIT Principles should be chosen to govern the dispute.
V. RFE DID NOT BREACH ITS OBLIGATION TO DELIVER the GOODS IN
QUALITY AS REQUIRED IN THE CONTRACT
A. RFE has fulfilled its obligation by loading the goods onto the PINAFORE in the
appropriate condition
RFE proved to have fulfilled its obligation to load the goods onto the ship in the
appropriate condition by providing the clean Bill of Lading and being fully paid by the Letter of
Credit.
The clean bill of lading means the carrier noted the goods in qualified condition without
any visible or obvious damage when they are loaded on board.76
It also states that the goods were
in ―apparent good order and condition when loaded.77
In addition, the Letter of Credit is known as ―an instrument under which the issuer
(usually a bank), at a customer‘s request, agrees to honor a draft or other demand for payment
made by a third party (the beneficiary), as long as the draft or demand complies with specified
conditions, and regardless of financial market to a contract of sale.‖78
In this instant case, the evidences which proved that RFE has fulfilled its obligation to
load the bananas in required condition onto the PINAFORE were the Clean Bill of Lading and
the Letter of Credit. The captain of the PINAFORE signed a Clean Bill of Lading prepared by
RFE.79
It is a strong proof to ensure the quality of the cargo of bananas when they were loaded
76 Richard Schaffer & Filiberto Agusti & Beverley Earle, International Business Law and Its Environment 174 (6th
ed. 2008). 77
Simon Baughen, Shipping Law 70 (4th ed. 2009). 78 Black's Law Dictionary, Letter of Credit (9th ed. 2009). 79 Moot Problem, p.2.
36
onto the PINAFORE. RFE was also paid by the Letter of Credit furnished by AP, which
indicated that RFE had provided fully essential documents. RFE therefore has fulfilled all duties
to provide qualified goods until the PINAFORE took over the bananas.
B. The PINAFORE must be liable for the non–conformity of the goods cause by improper
storage
The PINAFORE, not RFE, is liable for the loss or damage to the bananas after the
shipment was inspected at the port of Astoria.
The Hamburg Rules states that the responsibility of the carrier of goods lasts from the
time it has taken the goods from the seller to the time it delivers them to the buyer or its servants
or agents.80
Furthermore, the carrier must be liable for any loss or damage to the goods while the
goods are in its charge, unless the carrier can prove that it and its servants took all reasonable
steps required to prevent damage or loss.81
A seller is not liable for loss sustained by the carrier, or for damage sustained by the ship,
unless such loss or damage was caused by the fault or neglect of the seller.82
Nor is any servant
or agent of the shipper liable for such loss or damage unless the loss or damage was caused by
fault or neglect on its part.83
Negligence is defined as the omission of proper attention to a person
or thing, whether inadvertent, negligent, or willful; the act or condition of disregarding.84
Fault is
known as an error or defect of judgment or of conduct; any deviation from prudence or duty
resulting from inattention, incapacity, perversity, bad faith, or mismanagement.85
Consequently,
80 United Nations Convention on the Carriage of Goods by Sea art. 4, Nov. 27, 1978, 1695 U.N.T.S. 3. 81 Id., art. 5.1. 82 Id., art.12. 83
Id. 84 Supra note 78, 890. 85 Id., 535.
37
if the carrier does not obey the seller‘s instructions, the seller will not be liable for any loss or
damage.
UNDROIT Principles holds that the breaching party is responsible to the loss that it
foresaw or might reasonably foresee at the time of the conclusion of the contract as a
consequence which might be happened because of the incompleteness.86
In this instant case, RFE has fulfilled its obligations in providing qualified goods and
having them delivered by the PINAFORE as reasoned above. In fact, the loss or damage
happened on the way to deliver to AP. Therefore, RFE had tried its best to avoid by providing
the instruction to the PINAFORE.87
The delicate nature of bananas requires special care when transporting. The appropriate
condition to preserve them was stated in the Special Instructions RFE provided for the
PINAFORE.88
The instructions properly outlined AP‘s requirements it mentioned in the email,
such as temperature and ventilation.89
Moreover, the instructions were also broad enough for the
PINAFORE to properly pack and preserve the goods and avoid ripened conditions. According to
the report of John Sparrow, the bananas were packed in boxes or cardboard cartons which
particularly designed for and used in the transporting of bananas.90
Furthermore, these packages
were well-ventilated and the construction did not cause or contribute to the damage or loss to the
bananas.91
Therefore, RFE provided packages that were appropriate for protecting the goods.
Only the #2 hold had the problems with the ripe and ripening bananas because of its high
86 Supra note 3, art. 7.4.4. 87 Moot problem, p.2. 88 Moot problem, p.2. 89
Moot Problem, p.7. 90 Moot problem, p.3. 91 Moot problem, p.3.
38
temperature.92
Specifically, the PINAFORE stowed the cartons too tightly, which caused the lack
of ventilation.93
The main cause of harm to the cargo of bananas was therefore the PINAFORE‘s
inadvertence or negligence in transporting and preserving the goods. The PINAFORE was
obligated to preserve the goods in the right conditions but in fact, it conserved the goods
carelessly and did not follow instructions provided by RFE. Moreover, the PINAFORE could
foresee the consequences of carelessness because it had many experiences in doing business with
RFE.94
That is to say the reason for non-conforming bananas originated from the PINAFORE‘s
lack of reasonable care.
In conclusion, the PINAFORE did not follow the instructions carefully provided by RFE,
which caused the damage of the cargo. As a result, RFE should not take responsibility for loss or
damage of the bananas.
C. Risk of loss of or damage according to FOB has been passed to AP after the bananas were
loaded onto the PINAFORE
In accordance with FOB of the INCOTERMS, AP had to bear the risk of loss or damage
after the time the bananas were on board.
Under the original B5- FOB of the INCOTERMS about the obligations of the buyer, the
buyer must bear all risk of loss of or damage to the goods from the time they have been on board
vessel at the named port of shipment.95
. Another form of FOB is called ―extended FOB‖ in
which the seller acts on behalf of the buyer to sign a carriage contract with the carrier.96
Although this form of FOB imposes an extra obligation for the seller to make the contract of
92 Moot problem, p.3. 93 Moot problem, p.3. 94 Corrections and Clarifications, p.1. 95
ICC Incoterms art. B5 (2010). 96 W. Tetley, Sale of Goods - The Passing of Title and Risk - A Resume (Aug. 18, 2011),
http://www.internationalprivatelaw.com/files/Property_and_Risk.pdf .
39
carriage in its own name, the risk of loss or damage is still transferred to the buyer as from
shipment.97
In this instant case, although RFE made a carriage contract with the PINAFORE98
as
required by AP, AP had to bear the risk of loss or damage at the time the goods were loaded on
board. RFE had also fulfilled its obligations in delivering goods to the PINAFORE with the
proper quality as reasoned above. It is clear that RFE‘s obligations had been finished right after
the goods were loaded onto the board and from that point of time, AP had to bear the loss or
damage of the goods.
In conclusion, the shipment of bananas arrived at its destination in an unsatisfactory
condition due to improper storage made by the PINAFORE during the voyage from Rolga to
Astoria. This does not constitute a breach of the RFE‘s obligation under the contract between the
parties. Hence, RFE was not liable for any loss or damage when the cargo of bananas were
loaded onto the PINAFORE.
VI. AP HAD OBLIGATION TO PRESERVE AND ATTEMPT TO SELL THE BANANAS
– OR A PORTION OF THEM – SOON AFTER THE PINAFORE DOCKED AT THE
PORT OF ASTORIA
A. AP did not have the right to reject the goods
As the bananas were found non-conforming soon after the PINAFORE docked at the port
of Astoria,99
the question is whether AP had the right to reject the shipment due to its lack of
conformity.
97
A.G. Guest et al., Benjamin’s Sale of Goods § 20-086 ( 6th ed. 2002).
98 Moot problem, p.2. 99 Moot Problem, p.3.
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UNIDROIT Principles does not govern the right to reject the goods when they are lack of
conformity. Under CISG, the buyer only has the right to reject non - conforming goods if the
seller commits a ―fundamental breach of contract‖.100
In this instant case, because RFE did not
breach its contractual obligation to deliver the goods as proved in Submission V, AP did not
have the right to reject the goods.
B. AP had an obligation to act in good faith to mitigate the harm resulting from the non-
conforming bananas
The bananas were dumped as waste by AP, without any attempt to salvage for nearly one
week, which constituted a breach of contract by AP for failure to mitigate harm.101
According to UNIDROIT Principles, the parties‘ behavior throughout the life of the
contract, including the negotiation process must conform to good faith and fair dealing.102
UNIDROIT Principles is also related to the principle of good faith and fair dealing in its
Article 1.7, which permeates the law of contract, as well as to the obligation to mitigate harm in
the event of non-performance as specified in Article 7.4.8.103
Although the principal concern of
the provision is the duty not to hinder the other party's performance, there may also be
circumstances which call for more active co-operation.104
UNIDROIT Principles also holds that each party has the right to require performance by
the other party not only of monetary, but also of non-monetary obligations.105
There are some
100 Supra note 3, art. 25. 101 Moot Problem, p.4. 102 Pace Law School Institute of International Commercial Law Guide To Article 7, Comparison With UNIDROIT
Principles Of International Commercial Contracts, Official Comments On Articles Of The UNIDROIT Principles Cited, Comments Reprinted With Permission From UNIDROIT, Article 1.7, I, Electronic Library on International
Commercial law and the CISG (Aug. 18, 2011), http://www.cisg.law.pace.edu/cisg/principles/uni7.html. 103
Supra note 3, art.5.1.4 Comment (2004). 104 Id. 105 Id., art. 7.2.2 Comment (2004).
41
exceptions to the right to require performance, such as the impossibility of performance and
unreasonable burden, which are offset by the general principle of good faith and fair dealing
requiring performance, the request to do so is not sent within reasonable time.106
The Principles confirm that the aggrieved party has an obligation to reduce any damage
caused by the non-performing party if it is reasonable to do so.107
This provision is meant to
prevent an aggrieved party from sitting idly and waiting to be compensated for harm, which it
could have avoided or reduced.108
In this instant case, under UNIDROIT Principles, AP had the obligation to mitigate the
harm caused from the non- conforming goods. AP claimed that it was the aggrieved party, but it
still had a burden of mitigate the harm on RFE. AP should have performed this obligation as
required in the good faith and fair dealing principles. AP is also bound to the policy of
minimizing economic waste, as incorporated in Article 7.4.8.
AP‘s obligation to mitigate the harm means it had an obligation to preserve the goods and
to resell the bananas.
1. AP had obligation to preserve the goods soon after the PINAFORE docked at the
port of Astoria
AP refused to pick up the bananas although it acknowledged that the warehouse would
not be responsible for the goods if they remained longer.109
AP had the legal right to preserve the
goods.
106 Id., art.7.2.2 (2004). 107 Id., art.7.4.8 (2004). 108 UNIDROIT Principles of International Commercial Contracts with Official Commentary 1994 art.7.4.8,The
Faculty of Law - University of Oslo, (Aug. 18, 2011),
http://www.jus.uio.no/lm/unidroit.international.commercial.contracts.principles.1994.commented/7.4.8.html. 109 Moot Problem p.4.
42
International commercial rules, including CISG and The Hague Convention, provide that
the aggrieved party should preserve the goods in any event to reduce the damage.110
They also
state that a party who is bound to take steps to preserve the goods may deposit them in a
warehouse of a third person at the expense of the other party.111
It was also found that after the arrival of the goods, ―pursuant to Article 86(1) and
Article 88(2) CISG, the buyer had to take appropriate measure to preserve and mitigate the loss.‖
112
In the case at hand, the shipment arrived at Astoria City on November 24, 2010 and was
inspected there.113
AP therefore had the obligation to preserve the bananas as they were placed at
its disposal. Moreover, AP‘s intention to reject the goods through its email114
also fulfilled the
condition set forth in CISG and The Hague Convention, which together imposed on AP the duty
to preserve the goods. AP was not excluded it from the obligation to preserve the goods. In fact,
as a major distributor to many retail stores in Astoria, it is possible that AP possesses a storage
systems specialized in keeping the perishable goods like bananas. AP may also have wide
relationships with many storage owners. In contrast, it was impossible for RFE to take the goods
back immediately because it does not have authorized entities or branches in Astoria.
In short, under the international commercial rules, AP had the obligation to preserve the
goods. However, as the goods are fast–deteriorated, AP had to mitigate the harm by selling them
110 Supra note 3, art. 86(2) ; Convention on the Law Applicable to International Sale of Goods art. 92(2), 1955. 111 Supra note 3, art. 87; supra note 110, art. 93. 112 China 6 June 1991 CIETAC-Shenzhen Arbitration (Cysteine Monohydrate case), Electronic Library on
International Commercial law and the CISG (Aug. 18, 2011), http://cisgw3.law.pace.edu/cases/910606c1.html. 113 Moot Problem, p.3. 114 Id.
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2. AP had the duty to mitigate the harm by selling them to the third party
Although AP expected a full refund of the purchase price for the economic loss of non-
conforming goods,115
it had the duty to mitigate the harm by reselling the bananas.
In Aseguradora dei Valle S.A and Seguros Comerciales Bolivar S.A v. Empresas
PzThlicas de Pereira, Arbitral Tribunals referred to the Article 7.4.8 UNIDROIT Principles
comments in establishing ―the principle that the reparation for the loss, whilst it has to
compensate the aggrieved party … cannot impose exaggerated burdens on the liable party.‖116
In this instant case, the goods, as a kind of fruit, are perishable and fast-deteriorated. To
salvage green and ripening bananas, AP had the duty to sell them, or a portion of them, to a third
party under its good faith duty and corporation. In fact, according to AP, only ―approximately
30% of the bananas were ripe or ripening.‖117
There were still roughly 70% of the bananas that
were unripe, and possible to be sold to retail stores or other third parties. As regulated in Article
5.1.3 UNIDROIT Principles, AP had a duty to co-operate with RFE to salvage the bananas.
Moreover, the performance of this obligation would have caused no inconvenience to AP. AP, as
a major distributor in Astoria, also could have easily established relationships with commercial
bakers there. In addition, because of the deterioration time of the goods and the unfamiliarity
with a new market in a foreign country, it would be unreasonable for RFE to either come to
Astoria or resell the goods there. Since RFE cannot be in Astoria instantly, it acted in good faith
by suggesting AP the solution to save the ripe and ripening bananas such as selling them to
commercial bakers..
115
Id. 116 Case No. 10346 of 2000 (ICC Int‘l Ct. Arb.). 117 Moot Problem, p.3.
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To recapitulate, AP had a duty to mitigate the harm by taking such reasonable measures
as selling the goods to third parties.
In conclusion, AP was obligated to mitigate the harm by conducting reasonable
performance such as preserving and reselling the goods.
45
PRAYER FOR RELIEF
On the basis of foregoing facts and points of law, the RFE respectfully request this
Arbitral Tribunal to adjudge and declare as follows:
That the Tribunal does not have jurisdiction to decide this dispute.
That the Tribunal was improperly constituted and RFE should be entitled to select
its party appointed arbitrator.
That the Tribunal has no authority to impose sanctions in the form of a fine on
RFE for failing to appear at the initial hearing and/or for not providing adequate notice that it
would not appear.
That UNIDROIT Principles should be chosen as the most appropriate law to
apply to the dispute.
That RFE did not breach its obligation to deliver the goods in quality as required
in the contract.
That AP had obligation to preserve and attempt to sell the bananas – or a portion
of them – soon after the PINAFORE docked at the port of Astoria.