memorandum for claimant - lawasiamoot.orglawasiamoot.org/pdf/competition2011/m2020-c.pdf ·...
TRANSCRIPT
LAWASIA International Moot 2011 M2020-C
At Kuala Lumpur Regional Centre for Arbitration
MEMORANDUM
For
CLAIMANT
Claimant Respondent
ASTORIA PRODUCE
COMPANY
ROLGA FARMER’S
EXCHANGE
LAWASIA International Moot 2011 M2020-C
i
Contents
INDEX OF AUTHORITIES........................................................................................................... v
STATEMENT OF JURISDICTION............................................................................................ xiii
QUESTIONS PRESENTED ........................................................................................................ xiv
STATEMENT OF FACTS ........................................................................................................... xv
SUMMARY OF PLEADINGS.................................................................................................... xix
PLEADINGS .................................................................................................................................. 1
ISSUE 1: THE KLRCA HAS THE AUTHORITY TO RESOLVE THE DISPUTE BETWEEN
THE PARTIES, SPECIFICALLY, THERE WAS AN AGREEMENT BETWEEN THE
PARTIES TO SUBMIT THIS DISPUTE TO IT. .......................................................................... 1
I. THIS ARBITRAL TRIBUNAL HAS THE AUTHORITY TO RULE ON ITS OWN
JURISDICTION. ............................................................................................................................ 1
II. THERE IS AN AGREEMENT BETWEEN THE PARTIES TO SUBMIT THIS
DISPUTE TO THE ARBITRATION CENTRE. ........................................................................... 2
A. The second forum selection clause is a valid agreement between the parties. ................... 2
B. The scope of second forum selection clause encompassed the disputes between the parties.
............................................................................................................................................. 5
III. IN ANY EVENT, THE FIRST CLAUSE IS NOT ENFORCEABLE AS IT WAS
DEFECTIVE. .................................................................................................................................. 6
ISSUE 2: THE THREE ARBITRATORS WERE PROPERLY APPOINTED, SPECIFICALLY,
THE RESPONDENT IMPROPERLY DENIED THE OPPORTUNITY TO SELECT ITS
„PARTY APPOINTED ARBITRATOR‟ AND THE PRESIDING ARBITRATOR OR
CHAIRMAN WAS PROPERLY APPOINTED. ........................................................................... 8
I. THE SECOND FORUM SELECTION CLAUSE CONFERRED KLRCA TO
ADMINISTER THE ARBITRATION. ACCORDINGLY, THE PARTIES SHOULD EACH
APPOINT ITS PARTY APPOINTED ARBITRATOR. ................................................................ 8
LAWASIA International Moot 2011 M2020-C
ii
II. THE FIRST ARBITRATOR, OR THE CLAIMANT‟S PARTY APPOINTED
ARBITRATOR, WAS PROPERLY APPOINTED BY THE CLAIMANT. ................................. 9
III. THE RESPONDENT IMPROPERLY DENIED THE OPPORTUNITY TO SELECT
THE SECOND ARBITRATOR, OR ITS „PARTY APPOINTED ARBITRATOR‟.
SUBSEQUENTLY, THE SECOND ARBITRATOR WAS PROPERLY APPOINTED BY THE
DIRECTOR OF KLRCA AS THE APPOINTING AUTHORITY IN CASE OF DEFAULT. ... 10
IV. THE PRESIDING ARBITRATOR OR CHAIRMAN WAS PROPERLY APPOINTED
BY THE DIRECTOR OF KLRCA. ............................................................................................. 13
V. IN ANY EVENT, THE RESPONDENT HAD NO VALID GROUND TO
CHALLENGE THE APPOINTMENT OF ARBITRATORS. ..................................................... 14
ISSUE 3: THE ARBITRATION PANEL HAS THE AUTHORITY TO IMPOSE SANCTIONS
IN FORM OF A FINE ON RFE FOR FAILING TO APPEAR AT THE INITIAL HEA THE
RING AND/OR FOR NOT PROVIDING ADEQUATE NOTICE THAT IT WOULD NOT
APPEAR. ...................................................................................................................................... 15
I. THIS ARBITRAL TRIBUNAL HAS THE AUTHORITY TO IMPOSE SANCTIONS
UPON THE RESPONDENT IN THE FORM OF A FINE AS THERE WAS A BREACH OF
THE ARBITRATION AGREEMENT. ........................................................................................ 15
A. The Respondent‟s failure to comply with the arbitration rules was a breach of the
arbitration agreement................................................................................................................. 15
B. The Arbitral Tribunal has the authority to impose sanctions in form of a fine ................ 16
C. The Arbitral Tribunal has the authority to impose sanction by way of a fine. ................. 19
ISSUE 4: IT IS THE CLAIMANT‟S POSITION THAT THE UNITED NATIONS
CONVENTION OF THE INTERNATIONAL SALE OF GOODS SHOULD APPLY TO THIS
DISPUTE. ..................................................................................................................................... 20
I. THE ARBITRAL TRIBUNAL SHALL DECIDE ON THE APPLICABLE RULES OF
LAW AS THERE IS NO CHOICE OF LAW CLAUSE IN THE CONTRACT. ........................ 20
II. IT IS THE PARTIES‟ INTENTION THAT THIS DISPUTE SHOULD BE THE
GOVERNED BY INTERNATIONAL LAW SUCH AS THE CISG. ......................................... 21
LAWASIA International Moot 2011 M2020-C
iii
III. CISG IS THE APPROPRIATE LAW TO GOVERN THIS DISPUTE UNDER THE
APPLICATION OF THE RESTATEMENT (SECOND) OF CONFLICT OF LAWS. .............. 23
IV. THE UNIDROIT PRINCIPLES ARE NOT THE APPROPRIATE LAW TO APPLY AS
THEY ARE RESTATEMENT OF GENERAL CONTRACT LAW BUT NOT
INTERNATIONAL UNIFORM SALES LAW OR TRADE USAGES. ..................................... 24
ISSUE 5: THE SHIPMENT OF BANANAS ARRIVED AT ITS DESTINATION IN AN
UNSATISFACTORY CONDITION DUE TO IMPROPER STORAGE DURING THE
VOYAGE FROM ROLGA TO ASTORIA. THIS CONSTITUTED A BREACH OF THE
SELLER‟S OBLIGATION UNDER THE CONTRACT BETWEEN THE PARTIES. ............. 26
I. THE IMPROPER STORAGE CAUSING UNSATISFACTORY CONDITION OF THE
BANANAS IS A BREACH OF THE SELLER‟S OBLIGATION. ............................................. 26
A. The parties intended the contract to be a FOBS contract.................................................. 26
B. The passing of risk only occurs when the Respondent fulfilled all his obligations to make
sure proper storage under the FOBS contract. .......................................................................... 27
C. The bananas arrived at Astoria in an unsatisfactory condition and this is a breach the
seller‟s duty under the contract to deliver green bananas. ........................................................ 29
D. The non-conformity of the ripened bananas is a fundamental breach of the contract in
accordance with Article 25 of CISG. ........................................................................................ 30
E. Accordingly, the Claimant has rightfully avoided the contract under Article 49(1)(a) of
CISG. ......................................................................................................................................... 31
ISSUE 6: THE CLAIMANT NO LONGER HAS AN OBLIGATION TO TAKE
REASONABLE MEASURES TO PROTECT THE BANANAS FROM FURTHER SPOILAGE
AND TO ATTEMPT TO SELL THEM. ...................................................................................... 33
I. THE CLAIMANT HAS DISCHARGED HIS OBLIGATION TO TAKE
REASONABLE MEASURES TO PROTECT THE BANANAS. .............................................. 33
A. The duty to protect and preserve goods ceased when the Respondent refuses to take back
the goods. .................................................................................................................................. 33
LAWASIA International Moot 2011 M2020-C
iv
B. In any event, the Claimant discharged the duty to protect the bananas by storing them in
the warehouse. ........................................................................................................................... 34
II. THE CLAIMANT HAS NO DUTY TO ATTEMPT TO SELL THE BANANAS AS
THE BANANAS WERE NO LONGER SUITABLE FOR SALE. ............................................. 35
III. THE CLAMIANT HAS FULFILLED ITS DUTY TO MITIGATE LOSS AND SHALL
BE ENTITLED TO THE FULL REFUND OF THE PURCHASE PRICE. ................................ 36
PRAYER FOR RELIEF ............................................................................................................... 38
LAWASIA International Moot 2011 M2020-C
v
INDEX OF AUTHORITIES
Books
Author Book Name Page No.
Andrew Tweeddale,
Keren Tweeddale
Arbitration of Commercial Disputes: International and
English Law and Practice (Oxford University Press,
2007)
21, 22
Bianca, C. Massimo., Commentary on the international sales law : the 1980
Vienna sales convention / by C.M. Bianca, M.J.
Bonell ; together with J. Barrera Graf ... [et al.] ;
coordinated by M.J. Bonell. Milan : Giuffre, 1987.
3, 28, 35
Caron, Caplan and
Pellonpaa
The UNCITRAL Arbitration Rules, Oxford, OUP 2006, 11, 20
Emmanuel Gillard, John
Savage
Fouchard, Gaillard & Goldman, International
Commercial Arbitration (Kluwer Law International,
1999)
23
Fawcett, Harris and Bridge International Sale of Goods in the Conflict of Laws,
OUP, 2005, 755.
21
Gary B. Born
International Commercial Arbitration, Volume I
(Wolters Kluwer Law & Business, 2009)
1,2,22,
29
LAWASIA International Moot 2011 M2020-C
vi
Author Book Name Page No.
Herbert Kronke
Recognition and Enforcement of Foreign Arbitral
Awards, A Global Commentary on The New York
Convention (Wolters Kluwer Law & Business, 2010)
4
I.C.C. Incoterms 2010 : ICC rules for the use of domestic and
international trade terms : entry into force 1 January
2011, Paris : ICC Publications, 2010.
27
Ingeborg Schwenzer Schlechtriem & Schwenzer Commentary on the UN
Convention on The International Sale of Goods
(CISG), third edition, (Oxford University Press,2010)
25,28,29
30,33,
35,36,37
Julian Roche The international banana trade, Woodhead
Publishing, 1970
30
Michael Joachim Bonell
The UNIDROIT Principles in Practice, Transnational
Publisher Inc (Ardsley, New York, 2002)
24,25
Müncherner Kommentar Zum Handelsgesetzbuch, edited by
Schmidt, K, vol 6, revised by Basedow, 2nd
edn
35, 37
LAWASIA International Moot 2011 M2020-C
vii
Author
Nigel Blackaby and
Constantine Partaside
Book Name
Redfern and Hunter on International Arbitration, fifth
edition, student version (Oxford University Press,
2009)
Page No.
1, 4, 17,
20
Peter Huber,
Alastair Mullis
The CISG: a new textbook for students and
practitioners, Sellier European Law Publishers,
Munich 2007
30.
RH Hickling, Wu Min Aun Conflict of Laws in Malaysia, Butterworths Asia, 1995 21
Simon Greenberg,
Christopher Kee,
J. Romesh Weeramantry
International Commercial Arbitration, An Asia-Pacific
Perspective (Cambridge University Press, 2011)
12
Sundra Rajoo The Arbitration Act 2005, Thomson, Sweet & Maxwell
Asia, 2007
6, 12, 20
Thomas Webster Handbook of UNCITRAL Arbitration, Sweet &
Maxwell, 2010
9, 12, 21
LAWASIA International Moot 2011 M2020-C
viii
Journals
Author Name of Journal Page No.
A. Peters “International Dispute Settlement: A Network of
Cooperational Duties,” (2003) 14(1) EFIL 1
15
Abba Kolo “Witness intimidation, tampering and other related abuses of
process in investment arbitration: possible remedies
available to the arbitral tribunal,” Arbitration International,
Vol. 2, No.1, LCIA 2010
15, 16
B. Reynolds “„Stowing, trimming and their effects on delivery, risk and
property in sakes “f.o.b.s.”, “f.o.b.t.” and “f.o.b.s.t.”‟ [1994]
Lloyd‟s MCLQ 119
26, 28
Dr. Sam Luttrell “An Introduction of Conflict of Laws in International
Arbitration”
7, 23
Jan Paulsson &
Georgios
Petrochilos
“A Report on the Revision of the UNCITRAL Arbitration
Rules 2010”
17
V. Veeder “The lawyer‟s duty to arbitrate in good faith,” in (2002)
18(4) Arb Int‟l 431 at 439
15, 16.
LAWASIA International Moot 2011 M2020-C
ix
Cases
Case Name Page No
Comptoir d’achat et de vente du Boerenbond Belge s/a v. Luis de Ridde Limitada
(The Julia) [1948] A.C. 293.
27
Delchi Carrier SpA v. Rotorex Corp., 71 F.3d 1024, 1028 (2nd Cir. 1995)
30
Houston Contracting Co. v. National Iranian Oil Company, Iran-US Claims
Tribunal, 22 July 1988
18
Libananco Holdings Co. Limited v. Republic of Turkey ICSID Case No. ARB/06/8,
2006
18
Libananco v Turkey, Decision on Preliminary issues of 23 June 2008,
www.investmentclaims.com
15
Lucky-Goldstar International (H.K.) Limited v Ng Moo Kee Engineering Limited
[1993] 2 HKLR 73
7
Pyrene Co. Ld v. Scindia Navigation Co. Ld. [1954] 2 QB 402
27
LAWASIA International Moot 2011 M2020-C
x
Case Name
ReliaStar Life Insurance Company of New York v. EMC National Life Company.
Docket No. 07-0828-cv, 2009 WL 941173 (2d Cir. April 9, 2009)
Techno-Impex v. Gebr. Van Weelde Scheepvaartkantoor B v [1981] QB 648
Page No.
18
18
Rio Grande Irrigation and Land Co. Ltd (Great Britain v. United States), decision
of 15 December 1923, VI RIAA 160
18
Sedco, Inc. v. National Iranian Oil Company, Iran-US Claims Tribunal 2 July 1987
18
State of Israel v National Iranian Oil Company (NIOC) 1 February 2005, case no.
01-13742, French Supreme Court
7
Arbitration Awards
Name of Award Page No.
(2005) XXX Ybk Comm Arb, 1136-1143
13
[AUSTRIA Oberster Gerichtshof 6 February 1996 (Propane case)]
36
[GERMANY Bundesgerichtshof 8 March 1995 (New Zealand mussels case)].
29
[GERMANY Landgericht Paderborn 25 June 1996 (Granulated plastic case)]; 29
LAWASIA International Moot 2011 M2020-C
xi
Name of Award Page No.
[GERMANY Oberlandesgericht Düsseldorf 24 April 1997 (Shoes case)]
30
[MEXICO Compromex Arbitration 29 April 1996 (Canned fruit case)]; Bianca
Article 36 p286
28
[NETHERLANDS Netherlands Arbitration Institute, Award 2319 of 15 October
2002 (Condensate crude oil mix case)]
30
Victor Pey v Chile, ICSID Award of 22 April 2008
18
Award of 31 March 1986, 2 ICSID Rep. 343
18
Bulgarian Foreign Trade Bank v Al trade Finance Inc (2000) Case No. T 1881-99
(ICCA Yearbook XXVI (2001)
5
CLOUT case No.166 [Arbitration – Schiedsgericht der Handelskammer, Hamburg,
21 March, 21 June 1996].
Ethyl Corp. v Canada Award on Jurisdiction (UNCITRAL), 24 June 1998
36
18
ICC Award Case no.7645.
27
ICC Award No. 15089 of 15.09.2008, ICC International Court of Arbitration,
http://www.unilex.info/case.cfm?id=1440
21
LAWASIA International Moot 2011 M2020-C
xii
Name of Award Page No.
ICC Award No. 229/1996 of 05.06.1997, ICC International Court of Arbitration –
the Russian Federation, http://www.unilex.info/case.cfm?id=669
25
ICC Award No. 8502 of 00.11.1996, ICC Court of Arbitration – Paris,
http://www.unilex.info/case.cfm?id=395
22
ICC Award No. 8817 of 00.12.1997, ICC International Court of Arbitration – Paris,
http://www.unilex.info/case.cfm?id=659
24
ICC Award No.10021 of 2000, ICC International Court of Arbitration,
http://www.unilex.info/case.cfm?id=832
25
ICC Awards No. 11256 of 2003, ICC International Court of Arbitration,
http://www.unilex.info/case.cfm?id=1423
24, 25
Islamic Republic of Iran v Westinghouse Electric Corp, ICC Award No. 7375 of 5
June 1996 (1996) 11 Mealey‟s International Arbitration Report, A-1 et seq
21
Ronald E. Chamness v. The Government of the Islamic Republic of Iran, Iran-US
Claims Tribunal, 9 August 1990, Chamber Three Award No. 488-380-3 in Case No.
380, ¶16
13
LAWASIA International Moot 2011 M2020-C
xiii
STATEMENT OF JURISDICTION
Astoria Produce Company (“AP”) as Claimant has submitted the present dispute against Rolga
Farmer‟s Exchange (“RFE”) as Respondent, to the Kuala Lumpur Regional Centre for
Arbitration (“KLRCA”) concerning rights and obligations arising from the contract of sale
between the parties, pursuant to the second forum selection clause on page 2 of the Moot
problem and in accordance with Rule 1(1) of the KLRCA Rules. The parties shall accept the
award of this Tribunal as final and binding, and shall execute it in good faith and in entirety.
LAWASIA International Moot 2011 M2020-C
xiv
QUESTIONS PRESENTED
I. Whether there is a valid agreement to submit the present dispute to the KLRCA;
II. Whether the arbitrators were properly appointed;
III. Whether the Arbitral Tribunal has the authority to impose sanctions on the Respondent;
IV. Whether the United Nations Convention on Contracts for the International Sale of
Goods (“CISG”) apply to the merits;
V. Whether the Respondent has breached its seller‟s duty by improperly storing the bananas
which caused the spoilage of the bananas before and during the voyage to Astoria; and
VI. Whether the Claimant has a legal obligation to protect the bananas and to attempt to sell the
bananas after the bananas arrived at Astoria.
LAWASIA International Moot 2011 M2020-C
xv
STATEMENT OF FACTS
1. Astoria Produce Company (“AP”), the Claimant, is a major distributor of produce to retail
grocery stores in Astoria. Rolga Farmer‟s Exchange (“RFE”), the Respondent, is an
agricultural cooperative based in Rolga. The dispute is concerned with an agreement dated 4
August 2010 between the parties whereby the Claimant ordered a large quantity of bananas
from the Respondent for distributing to retailing stores in Astoria.
2. The Respondent prepared and sent a Bill of Sale to the Claimant. The Bill of Sale contained
the form of shipment and a forum selection clause. The first forum selection clause proposed
by the Respondent, was subsequently been replaced by the Claimant on 4 August 2010 at the
time when the contract was signed and concluded.
3. According to the second forum selection clause, any dispute relating to the contract,
including breach, termination or invalidity thereof, shall be settled by arbitration in
accordance with the Rules of the Kuala Lumpur Regional Centre for Arbitration (“KLRCA”)
at the Kuala Lumpur seated with three arbitrators. Although the Respondent did not give any
response in respect of the replacement, they continued to arrange the shipment for the
bananas.
4. Concerning the shipment arrangement, the Claimant emphasized and reiterated concerns over
the proper handling and storage of the bananas on the ship. The Respondent ensured the
LAWASIA International Moot 2011 M2020-C
xvi
Claimant that it would make the Captain well aware of the special care of the bananas.
Therefore the Bill of Lading prepared by the Respondent had incorporated Special
Instructions specifying storage to be in a cool, dry location with good circulation to prevent
spoilage. A clean Bill of Lading was signed by Captain Vermelho of the M/S Pinafore. The
Respondent was paid in full by a letter of credit.
5. The bananas were loaded on board on 20 September 2010 and the ship did not depart from
the Rolga until 30 September 2010. The cargoes of bananas were stored on board for another
extra 10 days before departure. M/S Pinafore arrived Astoria City on 24 November 2010.
Upon inspection, John Sparrow, an independent professional Maritime Surveyor inspected
the cargo and reported that 30% of the bananas were ripe or ripening, as no slots or wooden
separators were used to facilitate the flow of air between the cartons. The ripening exceeded
the normal range of 3% to 5%. The Bananas in #2 hold were substantially worse than those
in #1 hold. Taking into account of Mr. Sparrow‟s report and Dr. Bartolo‟s observation, the
Claimant rejected the entire shipment of bananas.
6. The Claimant informed the Respondent the rejection of shipment and requested for a full
refund of purchase price. The Respondent admitted that the bananas did not arrive in the
pristine condition but refused to pay any damages. The Claimant told the Respondent to
advise the Captain how to dispose of the bananas. The Captain unloaded the bananas and
LAWASIA International Moot 2011 M2020-C
xvii
stored them in a nearby warehouse. After inspection by Astoria Department of Agriculture on
the following day, 54% of the bananas were found over-ripen and the remainder ripe or
ripening. The Respondent did not take any action to tackle the problem. The process of
sorting and repacking of the bananas were eventually being categorized as economically
unfeasible. Two days later the Department of Agriculture supervised the dumping of the
entire shipment as waste.
7. On 1 June 2011, the Claimant initiated arbitration proceedings at the KLRCA. The Centre‟s
director (“Director”) notified the Respondent on 15 June 2011 and requested the Respondent
to appoint an arbitrator. The Respondent admitted it received notice but it did not give any
response to either the Claimant or the KLRCA. On 30 July 2011, after the lapse of 45 days,
the Director appointed Riska Benti as the Respondent‟s party appointed arbitrator. On 15
August 2011, less than an hour before the hearing, the Respondent informed the Director it
would not appear at the hearing as it intended to challenge the authority of the tribunal.
8. The Director acknowledged the Respondent‟s challenge of jurisdiction albeit the delay in
raising such challenge. However, upon the request of the Respondent to substitute Benti with
an attorney representative as its party appointed arbitrator, the Director was of the opinion
that it was too late to do so.
9. At a later stage, both parties were informed that the owners of M/S Pinafore had became
LAWASIA International Moot 2011 M2020-C
xviii
insolvent as a result of substantial losses caused by fire. Subsequently, both Parties agreed
that it would be impossible to seek any damages from M/S Pinafore.
LAWASIA International Moot 2011 M2020-C
xix
SUMMARY OF PLEADINGS
I
The KLRCA has the authority to resolve this dispute as there was an agreement between the
parties to submit this dispute to it. The second forum selection clause is a valid agreement
between the parties. The Respondent has agreed to the second forum selection clause by
performing the contract. In any event, the first forum selection clause shall not be enforceable as
it was defective. The KLRCA has the authority to administer the arbitral proceedings and resolve
the dispute between the parties.
II
The three arbitrators were properly appointed, specifically, the Respondent improperly denied
the opportunity to select its party appointed arbitrator and the Presiding arbitrator was properly
appointed. The second forum selection clause conferred the KLRCA to administer the arbitration.
Accordingly, the parties shall each appoint its party appointed arbitrator. The second Arbitrator
was properly appointed by the Director of KLRCA as the appointing authority in case of default.
Therefore, the Presiding Arbitrator was properly appointed.
LAWASIA International Moot 2011 M2020-C
xx
III
The Arbitral Tribunal has the authority to impose sanctions in the form of a fine for procedural
misconduct. Such power to impose sanction is derived from the lex arbitri through the Malaysian
Arbitration Act 2005, the parties through the UNCITRAL Arbitration Rules 2010 and the
doctrine of inherent power.
IV
The Tribunal has the power to decide on the applicable law in the absence of a choice-of-law
clause. The CISG is the applicable law to the substance of this dispute. Not only is it the most
appropriate law to be applied according to the direct choice approach, it is also the applicable
law under the Astorian conflict-of-laws rules. Additionally, the CISG constituted the usages of
trade in which the parties have prior consented to its application through the implementation of
the ICC INCOTERMS in their contract.
V
The unsatisfactory condition of the bananas due to improper storage was a breach of the seller‟s
obligation because first, the parties intended the contract to be an Free on Board + Stowage
contract. Second, the passing of risk only occurs when the seller fulfill all his obligations to make
sure proper storage and where the risks have passed, the Respondent will still be liable for any
LAWASIA International Moot 2011 M2020-C
xxi
non-conformity if it was due to his original breach of seller‟s obligation. Third, the bananas
arrived in an unsatisfactory condition was due to improper storage and thus breaching Article 35
of CISG. Lastly, such non-conformity is a fundamental breach and the Claimant is thus entitled
to duly avoid the contract.
VI
The Claimant may have the obligation to protect the bananas but that obligation ceased when the
Respondent refused to take back the bananas and the purpose of preserving them extinguished.
The Claimant has also discharged the duty by storing them in the warehouse. The Claimant has
no obligation to attempt to sell the bananas because they are no longer suitable for sale.
Therefore, the Claimant has mitigated his loss and is entitled to full refund.
LAWASIA International Moot 2011 M2020-C
1
PLEADINGS
ISSUE 1: THE KLRCA HAS THE AUTHORITY TO RESOLVE THE DISPUTE
BETWEEN THE PARTIES, SPECIFICALLY, THERE WAS AN AGREEMENT
BETWEEN THE PARTIES TO SUBMIT THIS DISPUTE TO IT.
I. THIS ARBITRAL TRIBUNAL HAS THE AUTHORITY TO RULE ON ITS
OWN JURISDICTION.
The Arbitral Tribunal has authority to preside over and to rule on disputes concerning its own
jurisdiction pursuant to the doctrine of Competence-Competence.1
1 Article 23(1) of the UNCITRAL Arbitration Rules; Article 16(1) of the UNCITRAL Model Law; Gary Born, vol.1,
page. 853; Redfern/Hunter, page.344, ¶¶5.98 & 5.99.; Gary Born, International Commercial Arbitration, Volume I,
Wolters Kluwer Law & Business, 2009, 857.
LAWASIA International Moot 2011 M2020-C
2
II. THERE IS AN AGREEMENT BETWEEN THE PARTIES TO SUBMIT THIS
DISPUTE TO THE ARBITRATION CENTRE.
A. The second forum selection clause is a valid agreement between the parties.
1. The second forum selection clause prevailed as last shot. The Respondent had made
de facto acknowledgement of the counteroffer and concluded the arbitration
agreement by conduct.
The Respondent made an offer in the Bill of Sale on 15 July 2010. The Claimant did not accept
the offer to arbitrate contained in the Bill of Sale, and instead, made a counteroffer on 4 August
2010 by replacing the First Forum Selection Clause (“First Clause”) with a new arbitration
agreement. The Second Forum Selection Clause (“Second Clause”) contained in the Bill of Sale
returned by the Claimant, reads, “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.”
Since forum selection clauses, or arbitration agreements, are creatures of contract,2 and that the
interpretation of international arbitration agreements by national courts and arbitral tribunals
2 Gary Born, 1058
LAWASIA International Moot 2011 M2020-C
3
generally relies on general principles of contract law,3 reference can be drawn from the last shot
doctrine. According to the principle of last shot,4 the contractual condition last referred to
terminate the opposing conditions and creates a counteroffer instead.5
By replacing the First Clause offered by the Respondent with the Second Clause that is
substantially different, the Claimant had rejected the Respondent‟s offer on arbitration. In the
absence of entire agreement clause in the contract,6 the Claimant‟s signature in the returned Bill
of Sale acknowledged only the terms concerning the sale of bananas but not the First Clause. The
act of replacing the First Clause offered by the Respondent with the Second Clause was solid
proof of the Claimant‟s intention to reject the clause as offered. A counteroffer on arbitration was
made by the Claimant returned the Bill of Sale to the Respondent with a revised forum selection
clause. The counteroffer did not reject arbitration. Hence there was clear intention for both
parties to submit any disputes between them to arbitrate. By silence upon receiving of the
counteroffer and delivery of goods as a conduct of performing the contract, the Respondent had
made de facto acknowledgment to the second forum selection clause. Hence, the second forum
3 ibid, 1062.
4 Gabriel, Bus. Law. Vol. 49 (1994), pp.1058 and 1061; Loewe, Art. 19 of CISG, 44; Nicholas, L.Q.R. Vol. 105
(1989), 217.
5 Bianca, C. Massimo., Commentary on the international sales law : the 1980 Vienna sales convention by C.M.
Bianca, M.J. Bonell ; together with J. Barrera Graf ... [et al.] ; coordinated by M.J. Bonell. Milan : Giuffre, 1987.,
Art.19 note 2.5.
6 Correction and Clarification, 2.
LAWASIA International Moot 2011 M2020-C
4
selection clause prevailed as the last shot, and by conduct the Respondent accepted the
counteroffer and concluded the arbitration agreement between the parties.7
2. Signature is not required to give validity to the arbitration agreement.
Rule 1(a) of the Rules of KLRCA (“KL Rules”) and Article II(1) of New York Convention 1958
provides that an arbitration agreement shall be in writing.8 Article II(2) further provides “the
term „agreement in writing‟ shall include an arbitral clause in a contract or an arbitration
agreement, signed by the parties or contained in an exchange of letter or telegrams.” This means,
an arbitration agreement in writing shall be either signed by the parties (presumably when the
parties meet) or contained in an exchange of letter or telegrams which happens when the parties
to the contract negotiate through some means of communication without physical presence, i.e.
through telephone and/or email, as in the present case. Hence it is not the case where the Second
Clause had to be signed by the Respondent in order to obtain its validity.
Article 7(1) of the New York Convention provides that when there is the existence of a more
favourable law, the parties may rely on such other instrument as an alternative means for
enforcement of an arbitral award.9As aforementioned, given the choice of forum implies the
7 n.4, 1058-1062.
8 Article II (1) of New York Convention of 1958, Kronke, 49; Redfern & Hunter, 344.
9 Herbert Kronke, Patricia Nacimento, Dirk Otto and Nicola Christine Port, Recognition and Enforcement of
LAWASIA International Moot 2011 M2020-C
5
choice of law, the lex arbitri shall be the Malaysia Arbitration Act 2005 (“Arbitration Act”).10
Section 9(3) of Arbitration Act provides that an arbitration agreement shall be in writing. Section
9(4)(b) further elaborates that, an arbitration agreement is in writing where it is contained in an
exchange of letters, telex, facsimile or other means of communication which provide a record of
the agreement. This means, as long as the intention to arbitrate can be evident and communicated
in written form, there can be a valid arbitration agreement. Therefore the Second Clause is the
valid arbitration agreement on this dispute.
B. The scope of second forum selection clause encompassed the disputes between the
parties.
1. The Second Clause came from the KLRCA Model Clause.
The Second Clause reads, “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 …”,
whereas the First Clause simply referred to “Any dispute, controversy or claim arising out of this
contract shall be settled by arbitration …”. The Second Clause adopted the KLRCA Model
Foreign Arbitral Awards, A Global Commentary on The New York Convention, Wolters Kluwer Law & Business,
2010 p. 449
10 n.4, p.166; Bulgarian Foreign Trade Bank v Al trade Finance Inc (2000) Case No. T 1881-99 (ICCA Yearbook
XXVI (2001), 291.
LAWASIA International Moot 2011 M2020-C
6
Clause, which is originated from the internationally recognizable and enforceable UNCITRAL
Model Arbitration Clause.
2. The scope of the forum selection clause was expanded to encompass the disputes
between the parties.
It is necessary to examine whether the dispute or claim has sufficient connection with the
contract to be covered by the arbitration agreement.11
The wordings in the clause must be
adequate to fulfill the parties‟ intentions and to draft in a broad and inclusionary terms.12
The
wording of the second clause is wide enough to cover the present dispute, which could not have
been handled through the First Clause.
III. IN ANY EVENT, THE FIRST CLAUSE IS NOT ENFORCEABLE AS IT WAS
DEFECTIVE.
The First Clause was defeated by the counteroffer made by the Claimant. It could never been
enforceable as it had never been concluded between the parties. Even if the Tribunal finds that
there is a concluded forum selection clause under the offer by the Respondent, there can be no
arbitration conducted under the Western Pacific Regional Centre for Arbitration as it is a non-
11
n.4, 107.
12 Ibid, 108. Sundra Rajoo, The Arbitration Act 2005, Thomson, Sweet & Maxwell Asia, 2007, 41.
LAWASIA International Moot 2011 M2020-C
7
existent organization.13
If the Arbitral Tribunal rules an inoperative forum selection clause to be
valid, there will be a denial of justice as mutual consent to submit the dispute to arbitration could
be found but the arbitration could not properly be carried out.14
Since the Second Clause is valid, it shall confer the KLRCA the authority to administer these
arbitral proceedings.15
13
Lucky-Goldstar Internatoinal (H.K.) Limited v Ng Moo Kee Engineering Limited [1993] 2 HKLR 73.
14 State of Israel v National Iranian Oil Company (NIOC) 1 February 2005, case no. 01-13742, French Supreme
Court.
15 S. Luttrell, An introduction to Conflict of Laws in International Arbitration, Allens Arthur Robinson, 4.3.2010, 1.
LAWASIA International Moot 2011 M2020-C
8
ISSUE 2: THE THREE ARBITRATORS WERE PROPERLY APPOINTED,
SPECIFICALLY, THE RESPONDENT IMPROPERLY DENIED THE OPPORTUNITY
TO SELECT ITS ‘PARTY APPOINTED ARBITRATOR’ AND THE PRESIDING
ARBITRATOR OR CHAIRMAN WAS PROPERLY APPOINTED.
I. THE SECOND FORUM SELECTION CLAUSE CONFERRED KLRCA TO
ADMINISTER THE ARBITRATION. ACCORDINGLY, THE PARTIES
SHOULD EACH APPOINT ITS PARTY APPOINTED ARBITRATOR.
The Second Clause reads, “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 KL Rules. The number of arbitrators shall be three. The place of arbitration
shall be Kuala Lumpur.” Accordingly, the appointment of arbitrators shall follow the KL Rules,
which is the UNCITRAL Arbitration Rules 2010 (“UNCITRAL Rules”) modified in accordance
with the Rules. As such, under Rule 1(b) of KL Rules, the forum selection clause had
empowered KLRCA to administer the arbitration in accordance with the Rules.
Article 9(1) of UNCITRAL Rules provides, “if three arbitrators are to be appointed, each party
shall appoint one arbitrator. The two arbitrators thus appointed by the parties shall then choose
the third arbitrator who will act as the presiding arbitrator of the arbitral tribunal.” In the present
LAWASIA International Moot 2011 M2020-C
9
case, the forum selection clause requires three arbitrators to be appointed and therefore Article
9(1) applies.16
Hence the parties should exercise their rights under the Second Clause and in
pursuant to Article 9(1) of UNCITRAL Rules to each appoint an arbitrator.
II. THE FIRST ARBITRATOR, OR THE CLAIMANT’S PARTY APPOINTED
ARBITRATOR, WAS PROPERLY APPOINTED BY THE CLAIMANT.
As mentioned above, the parties can each appoint their own party appointed arbitrator. The
Claimant, together with the filing of a request for arbitration with KLRCA pursuant to Article 3
of UNCITRAL Rules, appointed Bernard Bodd as its party appointed arbitrator. It should not be
contested that the Claimant has exercised its rights under the Second Clause and Article 9(1) of
UNCITRAL Rules to appoint its party appointed arbitrator. The first arbitrator Bernard Bodd
was properly appointed by the Claimant.
16
Webster, Handbook of UNCITRAL Arbitration, Sweet & Maxwell, 2010, 136.
LAWASIA International Moot 2011 M2020-C
10
III. THE RESPONDENT IMPROPERLY DENIED THE OPPORTUNITY TO
SELECT THE SECOND ARBITRATOR, OR ITS ‘PARTY APPOINTED
ARBITRATOR’. SUBSEQUENTLY, THE SECOND ARBITRATOR WAS
PROPERLY APPOINTED BY THE DIRECTOR OF KLRCA AS THE
APPOINTING AUTHORITY IN CASE OF DEFAULT.
Rule 3(1)(a) of KL Rules provides, unless the parties have agreed otherwise, KLRCA shall be
the appointing authority, if within 40 days from the date the notice of arbitration is received by
the respondent, no appointing authority (i) is designed, whether pursuant to a proposal under
Article 6 of UNCITRAL Rules or otherwise; or (ii) has been agreed upon by the parties. Given
that the notice of arbitration shall be deemed to have been received by the Respondent on the
delivery day, which was 15 June 2011 pursuant Article 2(5) of UNCITRAL Rules, in the
absence of parties‟ agreement or pursuant to a proposal under Article 6 of UNCITRAL Rules,
KLRCA shall become the appointing authority after 40 days from the following day the
Respondent received the notice of arbitration. In the present case, the forum selection clause did
not provide for the designation of any appointing authority. The parties had never agreed on
selecting an appointing authority. Hence, the KLRCA became the appointing authority on 25
July 2011 and the Director of KLRCA was the proper authority to appoint in case of default.
LAWASIA International Moot 2011 M2020-C
11
Rule 3(1)(c) of KL Rules, which states KLRCA shall be the appointing authority if KLRCA has
been agreed by the parties or designated under the Rules, therefore does not apply here. The
situation where a proposal under Article 6 of UNCITRAL Rules is made would also not apply,
as Rule 3 of KL Rules prevails over Article 6 of UNCITRAL Rules.17
Article 9(2) of UNCITRAL Rules reads, if within 30 days after the receipt of a party‟s
notification of the appointment of an arbitrator the other party has not notified the first party of
the arbitrator it has appointed, the first party may request the appointing authority to appoint the
second arbitrator. It means that, in the present situation, the Respondent had 30 days to make its
appointment. After receiving both the notice of arbitration and the request to the Respondent for
appointing its party appointed arbitrator on 15 June 2011, the Respondent was asked by the
Director of KLRCA to make an appointment within 30 days, ie. until 14 July 2011, in
accordance to the requirement under Article 9(2). It failed to do so after 45 days had elapsed.
The Respondent did not request for the exercise of its appointment right to substitute Riska Benti
with its attorney in the October hearing until after the initial hearing on 15 August 2011. Such
request was not entertained by the Director of KLRCA as the 30 days deadline had passed and
the Arbitral Tribunal had already been properly constituted. The failure of the Respondent to
appoint its party appointed arbitration created a default situation within the scope of Article
17
Caron, Caplan and Pellonpaa, The UNCITRAL Arbitration Rules, Oxford, OUP 2006, 180.
LAWASIA International Moot 2011 M2020-C
12
9(2).18
The Respondent therefore improperly denied the opportunity to exercise its right to select
its party appointed arbitration in accordance to the Second Clause and Article 9(1) of
UNCITRAL Rules. By appointing the second arbitration in lieu of the second arbitrator 45 days
after the Respondent‟s receipt of the notice of the Arbitration on 15th
August 2011, KLRCA had
complied with the 40 and 30 days requirement simultaneously.
Given that there was a default situation, pursuant to its duty to administer the arbitration under
Rule 1 of KL Rules, KLRCA as the appointing authority had a duty to exercise its power to
appoint the second arbitrator pursuant to Article 9(2) of UNCITRAL Rules, in order to prevent
the frustration of the process in constituting the arbitral tribunal.19
Indeed, the 30 days
requirement under Article 9(2) was no longer applicable in the present case as it was not an ad
hoc arbitration, but an institutional arbitration administered by KLRCA. KLRCA had notice of
the commencement of the arbitration by the filing of request for arbitration from the Claimant on
1 June 2011. KLRCA‟s duty to appoint the second arbitrator did not require a prior application
from the Claimant. Hence, empowered by Rule 3(2) of KL Rules, KLRCA was to appoint a
second arbitrator in accordance with the Rules and in doing so may exercise all the powers and
discretions specified in the Rules. Therefore the Director of KLRCA in the present case of
18
Greenberg, Kee and Weeramantry, International Commercial Arbitration, An Asia-Pacific Perspective, (CUP,
2011), 250; Webster, 424.
19 Ibid. Rajoo, 65.
LAWASIA International Moot 2011 M2020-C
13
default by the Respondent‟s improper denial of appointment opportunity had properly exercised
its power as the appointing authority to appoint Riska Benti as the second arbitrator within its
power and discretion under the Rules.
IV. THE PRESIDING ARBITRATOR OR CHAIRMAN WAS PROPERLY
APPOINTED BY THE DIRECTOR OF KLRCA.
The Director of KLRCA may exercise the right of appointing authority under Rule 3(1)(a) of KL
Rules to appoint the Presiding Arbitrator in accordance to Rule 3(2) of KL Rules. Article 8(4) of
ICC Rules of Arbitration 1998 and Rule 4 of ICSID Arbitration Rules 2006 confer similar power
to the appointing authority to appoint both the co-arbitrator and the Presiding Arbitrator. It is not
unusual for the appointing authority to select both the co-arbitrator and the Presiding Arbitrator
in case of default. The case of Encyclopaedia Universalis SA (Luxembourg) v Encyclopaedia
Britannica Inc (US)20
is distinguished in the present context as the parties had no contractual
agreement on appointment procedures.21
Thus the Presiding Arbitrator Judge John Chong was
properly appointed by the Director of KLRCA.
20
(2005) XXX Ybk Comm Arb, 1136-1143.
21 n.4, 649.
LAWASIA International Moot 2011 M2020-C
14
V. IN ANY EVENT, THE RESPONDENT HAD NO VALID GROUND TO
CHALLENGE THE APPOINTMENT OF ARBITRATORS.
Article 12 of UNCITRAL Rules states, any arbitrator may be challenged if circumstances exist
that give rise to justifiable doubts as to the arbitrator‟s impartiality or independence. Neither
party questions the competence or integrity of all three arbitrators. Hence there is no ground
under Article 12 to challenge the second or the Presiding Arbitrator.
Furthermore, even if the Respondent was allowed to exercise its right to appoint its party-
appointed arbitrator for the October hearing, such appointment shall be unethical and subject to
challenge pursuant to Article 12 of UNCITRAL Rules. The Respondent notified the Director of
KLRCA its intention to be represented by an attorney at the October hearing who would act as
its party- appointed arbitrator. Such representation may only be allowed under Article 5 of
UNCITRAL Rules to represent or assist the party. It is impossible for a party-appointed
arbitrator, who shall act impartially and be independent, to at the same time represent a party
during the arbitration proceedings. There would be a conflict of interest between the two roles of
a party‟s representative and a party-appointed arbitrator. Hence, such appointment by the
Respondent shall in any event be defective. It may be subject to challenge under Article 12 and
replacement under Article 14 of UNCITRAL Rules.
LAWASIA International Moot 2011 M2020-C
15
ISSUE 3: THE ARBITRATION PANEL HAS THE AUTHORITY TO IMPOSE
SANCTIONS IN FORM OF A FINE ON RFE FOR FAILING TO APPEAR AT THE
INITIAL HEA THE RING AND/OR FOR NOT PROVIDING ADEQUATE NOTICE
THAT IT WOULD NOT APPEAR.
I. THIS ARBITRAL TRIBUNAL HAS THE AUTHORITY TO IMPOSE
SANCTIONS UPON THE RESPONDENT IN THE FORM OF A FINE AS
THERE WAS A BREACH OF THE ARBITRATION AGREEMENT.
A. The Respondent’s failure to comply with the arbitration rules was a breach of the
arbitration agreement.
Given that the parties have concluded a valid and enforceable arbitration agreement under the
Second Clause, by filing the request for arbitration on 15 June 2011 in accordance to the
arbitration agreement as well as the KL Rules, the parties were under the general duty of
cooperation and good faith to settle the dispute22
.
22
Libananco v Turkey, Decision on Preliminary issues of 23 June 2008, ¶78 ; Abba Kolo, Witness intimidation,
tampering and other related abuses of process in investment arbitration: possible remedies available to the arbitral
tribunal, Arbitration International, Vol. 2, No.1, LCIA 2010, 53; A. Peters, International Dispute Settlement: A
Network of Cooperational Duties, in (2003) 14(1) EFIL 1, p.1,2 & 9; V. Veeder, The lawyer’s duty to arbitrate in
LAWASIA International Moot 2011 M2020-C
16
The failure to show up at the initial hearing and only informing the Director of KLRCA one hour
before the hearing violated the principle of good faith23
and fair hearing in arbitration.24
The
parties received timely notice of the initial hearing scheduled on 15 August 2011. The
Respondent had sufficient time and opportunity to inform both the Claimant and the KLRCA of
its intent to challenge the Arbitral Tribunal‟s jurisdiction and its decision of not appearing at the
initial hearing. Furthermore, it could have appeared at the initial hearing and challenge the
jurisdiction before the tribunal proceeds to the merits of the case. Such behaviour of the
Respondent amounts to an unscrupulous tactic to frustrate the arbitral proceedings by refusing to
participate in the hearing to gain advantage in terms of time over the Claimant‟s case.25
B. The Arbitral Tribunal has the authority to impose sanctions in form of a fine.
The Arbitral Tribunal is empowered by the lex arbitri to impose sanctions for procedural
misconduct. Pursuant to Article 21(2) of Arbitration Act, “the arbitral tribunal may, subject to
the provision of this Act, conduct the arbitration in such manner as it considers appropriate.”
Article 21(3)(i) further provides that such powers conferred upon the Arbitral Tribunal include
the power to “make such other orders as the tribunal considers appropriate.” The lex arbitri thus,
good faith, in (2002) 18(4) Arb Int‟l 431 at 439.
23 V. Veeder, “The lawyer‟s duty to arbitrate in good faith”, in (2002) 18(4) Arb Int’l 431, 439.
24 Abba Kolo, “Witness intimidation, tampering and other related abuses of process in investment arbitration:
possible remedies available to the arbitral tribunal,” Arbitration International, Vol. 2, No.1, LCIA 2010, 44.
25 Ibid, 47
LAWASIA International Moot 2011 M2020-C
17
warrants a very large power for the tribunal to impose sanctions without restriction. Since the
power to impose sanctions is expressly granted to the Arbitral Tribunal, the imposing of fines
will not give rise to a ground for setting aside or refusal of enforcement of such award.26
The Arbitral Tribunal is empowered by the parties to impose sanctions for procedural
misconduct. Such powers were conferred to the Arbitral Tribunal by agreement of the parties
under the UNCITRAL Rules. Article 17(1) of UNCITRAL Rules has revised the former text of
Article 15(1) of UNCITRAL Rules and has been specifically drafted to “assist in ensuring the
efficacy of the arbitral process”.27
Article 17(1) of UNCITRAL Rules now states that “The
Arbitral Tribunal shall take all action and issue all necessary directions to the parties in order to
avoid unnecessary delay and expense and to provide a fair and efficient process for resolving the
parties‟ dispute…failure to do so may be taken into account by the Arbitral Tribunal in allocating
the costs of the arbitration pursuant to article 40.” The words “shall” and “all necessary
directions” show the clear intent of the Rules to strengthen and widen tribunals‟ powers to
impose sanctions: the tribunal is expected to sanction the party that has caused unnecessary delay
and expense so as to provide a fair and efficient process for resolving the dispute before it.28
26
Arbitration Act 2005, Section 39(1)(iv); New York Convention Article V(1)(c).
27 A Report by Jan Paulsson & Georgios Petrochilos on “the Revision of the UNCITRAL Arbitration Rules 2010,”
¶118.
28 Redfern & Hunter, 316.
LAWASIA International Moot 2011 M2020-C
18
The Arbitral Tribunal also has inherent powers to impose sanctions. In LETCO v Liberia, the
Arbitral Tribunal awarded the Claimant the full costs of carrying out the arbitration, including its
own legal representation, based on Liberia‟s procedural bad faith.29
Similarly, in Victor Pey v
Chile, the Arbitral Tribunal ordered Chile to pay three-quarters of the arbitration costs and
US$2million of the Claimant‟s legal fees because it failed to cooperate in the arbitration.30
In
ReliaStar Life, the Arbitral Tribunal expressly relied on its inherent authority by awarding fees
against a party that acted in bad faith during the arbitration and arbitration expenses.31
There has also been precedent of which the power to impose sanctions was exercised by the
Tribunal to punish parties for procedural misconduct,32
such power is “inherent, inseparable and
indispensible to the proper conduct of business … [and] required to preserve the integrity of its
own process”33
29
Awards of 31 March 1986, 2 ICSID Rep. 343, 378.
30 Award of 22 April 2008, ICSID, ¶¶726-730.
31 ReliaStar Life Insurance Company of New York v. EMC National Life Company. Docket No. 07-0828-cv, 2009
WL 941173 (2d Cir. April 9, 2009), Techno-Impex v. Gebr. Van Weelde Scheepvaartkantoor B v [1981] QB 648.
32 Libananco Holdings Co. Limited v. Republic of Turkey ICSID Case No. ARB/06/8, 2006; Ronald E. Chamness v.
The Government of the Islamic Republic of Iran, Iran-US Claims Tribunal, 9 August 1990, Chamber Three Award
No. 488-380-3 in Case No. 380, ¶16; Houston Contracting Co. v. National Iranian Oil Company, Iran-US Claims
Tribunal, 22 July 1988, ¶478; Sedco, Inc. v. National Iranian Oil Company, Iran-US Claims Tribunal 2 July 1987,
¶586; Ethyl Corp. v Canada Award on Jurisdiction (UNCITRAL), 24 June 1998, ¶ 88.
33 Rio Grande Irrigation and Land Co. Ltd (Great Britain v. United States), decision of 15 December 1923, VI
RIAA 160, 135-136.
LAWASIA International Moot 2011 M2020-C
19
C. The Arbitral Tribunal has the authority to impose sanction by way of a fine.
Pursuant to Article 17(1) of UNCITRAL Rules and in light of the Respondent‟s breach of the
arbitration agreement, interim measures such as bonds as security for costs, can be ordered by
the Tribunal in advance to prevent the Respondent from causing further disruption to the
proceedings. Subsequently, when determining the fees of the arbitration, the tribunal may deduct
from the bond, taking into account of the Respondent‟s misconduct.
Fines can be imposed by the Arbitral Tribunal through its power to determine and to direct the
costs to the Respondent, as long as such cost is reasonably incurred by the KLRCA in connection
with the arbitration, pursuant Article 7(1) of KL Rules and Article 40(2)(e) of UNCITRAL Rules
in light of Article 17(1) of UNCITRAL Rules.
The determination of the type of sanctions to be imposed will be examined in a subsequent
submission after the tribunal has reached a conclusion on whether it is empowered with the
authority to issue such sanctions.34
34
Further Corrections and Clarifications, ¶1.
LAWASIA International Moot 2011 M2020-C
20
ISSUE 4: IT IS THE CLAIMANT’S POSITION THAT THE UNITED NATIONS
CONVENTION OF THE INTERNATIONAL SALE OF GOODS SHOULD APPLY TO
THIS DISPUTE.
I. THE ARBITRAL TRIBUNAL SHALL DECIDE ON THE APPLICABLE
RULES OF LAW AS THERE IS NO CHOICE OF LAW CLAUSE IN THE
CONTRACT.
According to the KL Rules, reference on choice of law can be drawn from Article 35 of
UNCITRAL Rules. Article 35(1) reads the arbitral tribunal shall apply the rules of law designed
by the parties as applicable to the substance of the dispute; failing such designation, by the
parties, the arbitral tribunal shall apply the law which it determines to be appropriate. Article
35(3) further provides, in all cases, the arbitral tribunal shall decide in accordance with the terms
of the contract, if any, and shall take into account any usage of trade applicable to the
transaction.35
In the present case, there was no applicable law clause contained in the Bill of Sale, nor was
there any agreement made between the parties in the exchange of emails on substantive law
governing the contract. In the absence of choice-of-law clause, the law must be chosen by the
35
Redfern & Hunter, 195, Rajoo, 135; Caron, 124.
LAWASIA International Moot 2011 M2020-C
21
Arbitral Tribunal as it deems appropriate.36
This Arbitral Tribunal shall examine the contract
concluded between the parties to decide upon the applicable law appropriate in this context,
taken into account the parties‟ intent and relationship under the concluded contract.37
II. IT IS THE PARTIES’ INTENTION THAT THIS DISPUTE SHOULD BE THE
GOVERNED BY INTERNATIONAL LAW SUCH AS THE CISG.
In Islamic Republic of Iran v Westinghouse Electric Corp,38
the Arbitral Tribunal concluded that
the absence of a choice-of-law clause showed that the parties reject each other‟s domestic law.
Such negative choice-of-law infers that the parties prefer their contract to be governed by
international law instead of domestic ones.39
In the present case, it is the Claimant‟s position that
CISG should apply to this dispute, and the Respondent asserts that the UNIDROIT Principles
should govern this dispute. Together with the absence of choice-of-law clause in the contract,
inference can be drawn that both parties reject the application of national or domestic laws in
36
Tweeddale and Tweeddale, Arbitration of Commercial Disputes: International and English Law and Practice,
Oxford University Press, 2007, 181; Article 35(1) of UNCITRAL Arbitration Rules; Webster, 512.
37 Islamic Republic of Iran v Westinghouse Electric Corp, ICC Award No. 7375 of 5 June 1996 (1996) 11 Mealey‟s
International Arbitration Report, A-1 et seq; Fawcett, Harris and Bridge, International Sale of Goods in the Conflict
of Laws, OUP, 2005, 755. RH Hickling, Wu Min Aun, Conflict of Laws in Malaysia, Butterworths Asia, 1995, 169.
38 Ibid.
39 ICC Award No. 15089 of 15.09.2008, ICC International Court of Arbitration.
LAWASIA International Moot 2011 M2020-C
22
governing this dispute. The doctrine of tronc commun should not be applicable in this context as
both parties have not asserted their own national law to govern this dispute.40
Furthermore, in another ICC case, the Arbitral Tribunal was of the opinion that in the absence of
express choice-of-law clause, no implied choice-of-law can be inferred from the parties‟
relationship. The contractual references to INCOTERMS 1990 and UCP 500 showed the parties‟
willingness to govern their contract by international trade usages and customs, or lex mercatoria.
When considering the effect of the failure by one party to fulfill its obligations under the contract,
the Arbitral Tribunal considered it should be examined in the light of generally admitted
principles of international trade as contained in international treaties that can reflect widely
accepted trade usages and commercial rules, i.e. the CISG.41
Similar to the above case, there was no express choice-of-law but only reference to the usage of
INCOTERMS in the FOB contract between the parties. As shall be discussed in item 5 & 6 on
the agenda of this hearing the effect of the breach contractual obligations by one party under this
international contract, the CISG shall reflect the universally accepted trade usages that can
40
Tweeddale, 184, §6.15. Born, Vol. 2, 2130.
41 ICC Award No. 8502 of 00.11.1996, ICC Court of Arbitration – Paris.
LAWASIA International Moot 2011 M2020-C
23
determine the duties of the parties under the contract. Hence, this Arbitral Tribunal should apply
CISG to this dispute pursuant to Article 35(1) & 35(3) of UNCITRAL Rules.42
III. CISG IS THE APPROPRIATE LAW TO GOVERN THIS DISPUTE UNDER
THE APPLICATION OF THE RESTATEMENT (SECOND) OF CONFLICT
OF LAWS.
Under the doctrine of direct choice (voie directe), which is widely accepted by nearly all
international arbitration conventions and rules,43
and implemented through Article 35(1) of
UNCITRAL Rules, the Arbitral Tribunal is free to determine any conflicts of laws rules to be
applied in deciding the substantive law.
Article 6(2) of the Restatement (Second) of Conflict of Laws provides, when there is no such
directive (as suggested in subsection 1), there are seven factors relevant to the choice of the
applicable rule of law.
Under 6(2)(a) & (f), the Arbitral Tribunal should consider the fact that this is a case of
international arbitration and international sale of goods contract between two states. Given the
interstate nature of this dispute, a uniform international law like the CISG would be appropriate
42
English Arbitration Act 1996, s.46(1)(G); Emmanuel Gillard and John Savage, Fouchard, Gaillard & Goldman,
International Commercial Arbitration, Kluwer Law International, 1999, ¶1431.
43 Sam Luttrell, 8.
LAWASIA International Moot 2011 M2020-C
24
in this context to guarantee certainty, predictability, uniformity and fairness of the outcome. With
regards to 6(2)(d), it would be unfair to both parties to apply domestic contract law of either
country, when both have no intention to do so and their systems of law have material difference
(The Respondent state is a civil law jurisdiction and the Claimant state is a common law country).
Lastly, in the context of 6(2)(g), it should not be disputed that choice-of-law rules ought to be
simple and easy to apply. Internationally recognized and enforceable convention, i.e. CISG,
should be the appropriate choice.
IV. THE UNIDROIT PRINCIPLES ARE NOT THE APPROPRIATE LAW TO
APPLY AS THEY ARE RESTATEMENT OF GENERAL CONTRACT LAW
BUT NOT INTERNATIONAL UNIFORM SALES LAW OR TRADE USAGES.
CISG is more preferable than the UNIDROIT Principles to be applied in the present situation as
the CISG is a binding international convention whereas the UNIDROIT Principles has no
binding legislative force.44
In 2003 an ICC Award discussed the nature and applicability of
UNIDROIT, which the Arbitral Tribunal pointed out that the UNIDROIT Principles propose
reasonable solutions to meet the needs of international trade with reference to some major legal
44
ICC Award No. 8817 of 1997, ICC International Court of Arbitration – Paris, ICC Awards No. 11256 of 2003, ICC
International Court of Arbitration; Michael Joachim Bonell, The UNIDROIT Principles in Practice, Transnational
Publisher Inc, Ardsley, New York, 2002, P.341; Kilian, 10 JTLP 217, 222.
LAWASIA International Moot 2011 M2020-C
25
systems, but do not generally reflect international trade usages referred to under the ICC Rules of
Arbitration.45
The non-binding nature46
of the UNIDROIT Principles only allows it to be a gap-filling
instrument supplementing the application of the CISG whenever there are issues left excluded or
insufficiently regulated under the CISG. In an ICC Award of 1997, the Arbitral Tribunal found
that the applicable CISG was silent on a particular issue; it subsequently decided to resort to the
UNIDROIT Principles in order to fill the gaps. The Arbitral Tribunal commented that the
UNIDROIT Principles may be used to interpret and supplement international uniform law
instruments, i.e. the CISG.47
CISG shall continue to govern the contract falling within the scope of CISG as the applicable law
in the absence of express objection to such law.48
Hence the UNIDROIT Principles by their very nature should not be applied on its own to
regulate this contract between the Respondent and the Claimant which is a Contracting State of
CISG, in the absence of express mutual agreement to exclude the application of the CISG.
45
ICC Awards No. 11256 of 2003, ICC International Court of Arbitration.
46 ICC Award No.10021 of 2000, ICC International Court of Arbitration.
47 ICC Award No. 229/1996 of 05.06.1997, ICC International Court of Arbitration – the Russian Federation.
48 Bonell, 347; Ingeborg Schwenzer, Schlechtriem & Schwenzer, Commentary on the UN Convention on The
International Sale of Goods (CISG), third edition, Oxford University Press,2010, 107.
LAWASIA International Moot 2011 M2020-C
26
ISSUE 5: THE SHIPMENT OF BANANAS ARRIVED AT ITS DESTINATION IN AN
UNSATISFACTORY CONDITION DUE TO IMPROPER STORAGE DURING THE
VOYAGE FROM ROLGA TO ASTORIA. THIS CONSTITUTED A BREACH OF THE
SELLER’S OBLIGATION UNDER THE CONTRACT BETWEEN THE PARTIES.
I. THE IMPROPER STORAGE CAUSING UNSATISFACTORY CONDITION
OF THE BANANAS IS A BREACH OF THE SELLER’S OBLIGATION.
A. The parties intended the contract to be a FOBS contract.
Article 9(1) of CISG provides that the parties are bound by any usages to which they have agreed.
The true intention of the parties intended the contract to be an FOBS contract to include the
obligation of stowage by the Respondent under the FOB contract.49
In order to determine the
terms that the parties intended, all statements and conducts of the parties can be interpreted
according to its intent where the other party knew or could not have been unaware what the
intent was pursuant to Article 8(1) of CISG.50
The contractual agreement between the parties is
49
Michael Bridge, The International Sale of Goods Law and Practice, Second Edition, Oxford, New York,
OUP, 2007,69, .73; B. Reynolds, „Stowing, trimming and their effects on delivery, risk and property in sakes
“f.o.b.s.”, “f.o.b.t.” and “f.o.b.s.t.”‟ [1994] Lloyd’s MCLQ 119; Gabriel, 305.
50 Schelechtriem & Schwenzer, 145 ; CISG Article 8(1).
LAWASIA International Moot 2011 M2020-C
27
to be understood from their written contract in conjunction with the FOB clause of the
INCOTERMS 2010.51
The House of Lords in The Julia52
held that terms introduced into the contract may be in
contradiction with the trade usage used and “[t]he true effect of all its terms must be taken into
account”. The contract between the parties was concluded on 4 August 2010, the exchange of
emails on 1 & 2 August 2010 were part of the contract terms which can be used to interpret and
determine the parties‟ intention. Accordingly, the duty to stowage becomes part of the
Respondent‟s obligation.
B. The passing of risk only occurs when the Respondent fulfilled all his obligations to
make sure proper storage under the FOBS contract.
The presumptive rule of an FOB contract is that delivery would be completed and the passing of
risk would occur once the goods are on board.53
However, where the seller has addition
obligations extended from the FOB contract, the passing of risk should occur until and unless the
51
ICC Award Case no.7645.
52 Comptoir d’achat et de vente du Boerenbond Belge s/a v. Luis de Ridde Limitada (The Julia) [1948] A.C. 293.
53 Incoterms 2010: ICC rules for the use of domestic and international trade terms : entry into force 1 January
2011, Paris : ICC Publications, 2010, 87; Pyrene Co. Ld v. Scindia Navigation Co. Ld. [1954] 2 QB 402; Bridge,
339.
LAWASIA International Moot 2011 M2020-C
28
seller has fulfilled all his obligations.54
Hence, the Respondent is still liable for any defect and
non-conformity of the goods during the voyage because he has not fulfilled his seller‟s obligation
to make sure there was proper storage for the bananas in the first place.
According to Article 36(2) of CISG, the Respondent will be liable for the ripening of the bananas
caused by improper storage after the passing of risk for which the Respondent is responsible.
The seller‟s obligation includes making sure the bananas arrived in excellent condition as
required by the Claimant and ensure the bananas‟ proper handling and storage.55
The Respondent
also agreed that it is its seller‟s obligation to make sure that the Captain is well aware.56
In the
current case, the bananas in hold 2 were tightly stowed and the temperature control was not
adequate in industry standard for storage of the bananas.
Therefore, the Respondent is liable for the unsatisfactory condition of the goods even after the
passing of risk because the ripening of the bananas were due to an original breach of the seller‟s
obligation.57
54
Bridge, 366; B. Reynolds, 120. Schlechtriem & Schwenzer, 491, 597.
55 Exhibit 1, Moot Problem.
56 Exhibit 2, Moot Problem.
57 Canned Fruit case, MEXICO Compromex Arbitration 29 April 1996; Bianca Article 36 p286; Bridge, 365.
LAWASIA International Moot 2011 M2020-C
29
C. The bananas arrived at Astoria in an unsatisfactory condition and this is a breach
the seller’s duty under the contract to deliver green bananas.
1. The Respondent breached Article 35(1) of CISG by delivering bananas which have
ripened during the voyage.
Article 35(1) of CISG requires the seller to deliver goods which conform to the quality and
description required by the contract. Failure to comply with the specification of the contract will
constitute a breach of the seller‟s obligation.58
As established above, the Respondent has the duty
to ensure proper storage, failure of which has caused the ripening process to begin prior to the
arrival at Astoria. The Claimant has specifically stated in Exhibit 1 that “we must receive them in
an unripened (still green) condition”. The goods do not conform to what is required in the
contract.
2. Alternatively, the bananas do not fit for the ordinary purpose of the goods.
Article 35(2)(a) provides that goods have to fit for the purpose that the goods will ordinarily be
used. There is no precise quality expected from the goods59
but an arbitration award held that a
58
[GERMANY Landgericht Paderborn 25 June 1996 (Granulated plastic case)]; UNCITRAL Digest of Case Law
on CISG 104, Schlechtriem & Schwenzer,, 571. Gabriel, Contract for the Sale of Goods: a Comparison of U.S. and
International Law, Oxford University Press, 2009, 137.
59 [GERMANY Bundesgerichtshof 8 March 1995 (New Zealand mussels case)].
LAWASIA International Moot 2011 M2020-C
30
reasonable quality standard should apply to the goods.60
The bananas are expected to be edible
and sell in the market when the buyer receives the bananas. The bananas sent by the Respondent
exceeded the normal and expected percentage of ripe or ripening bananas upon arrival by 25%.61
Once the ripening process starts before or during shipment, the bananas will lead to only
deterioration. Hence, the bananas should arrive in the state of green62
and start the artificial
ripening process upon sending them to retail store. Failing to comply with this ordinary purpose
expected of exported bananas, the Respondent has breached Article 35(2)(a).
D. The non-conformity of the ripened bananas is a fundamental breach of the contract
in accordance with Article 25 of CISG.
Article 25 of CISG provides that a breach of contract would be a fundamental breach if it
substantially deprived the Claimant of what he is entitled to expect from the contract and if the
Respondent would have foreseen the consequence at the time of the conclusion of the contract.63
The Respondent by failing to make sure proper storage before the loading of the bananas
triggering the ripening of the bananas is a fundamental breach because the essence of the
60
[NETHERLANDS Netherlands Arbitration Institute, Award 2319 of 15 October 2002 (Condensate crude oil mix
case)].
61 Moot Problem, 3.
62 Julian Roche, The international banana trade, Woodhead Publishing, 1970, 114.
63 [GERMANY Oberlandesgericht Düsseldorf 24 April 1997 (Shoes case)]; Delchi Carrier SpA v. Rotorex Corp., 71
F.3d 1024, 1028 (2nd Cir. 1995); Peter Huber, Alastair Mullis, The CISG: a new textbook for students and
practitioners, Sellier European Law Publishers, Munich 2007,p214 -215; Schlechtriem & Schwenzer, 411.
LAWASIA International Moot 2011 M2020-C
31
contract is to have green bananas and by not achieving the most important purpose, it
fundamentally contradicts with the spirit of the contact. Further, the Respondent would have
foreseen the consequences of the bananas ripening if it had not make sure the Captain is fully
aware of the conditions of the bananas needed. Hence, this is a fundamental breach of contract
pursuant to Article 25 of CISG.
E. Accordingly, the Claimant has rightfully avoided the contract under Article 49(1)(a)
of CISG.
Since the breach by the Respondent is a fundamental breach of contract, the buyer may declare
the contract avoided pursuant to Article 49(1)(a). The Respondent has to make refund of the
price of the bananas together with the interest from the date on which the price was paid.64
Even
if there is no fundamental breach, the Claimant is still entitled to damages under Article 74 of
CISG.
Article 39(1) of CISG requires the Claimant to give notice to the seller specifying the nature of
the lack of conformity within a reasonable time after he has discovered the non-conformity. The
Claimant notified the Respondent about the lack of conformity of the bananas due to its
excessive ripeness 1 day after the inspection of the bananas on the Pinafore.65
Therefore, the
64
CISG Article 84.
65 Moot Problem, 3.
LAWASIA International Moot 2011 M2020-C
32
Claimant duly notified the non-conformity and can rely on the lack of conformity to seek
remedies from the Respondent.
LAWASIA International Moot 2011 M2020-C
33
ISSUE 6: THE CLAIMANT NO LONGER HAS AN OBLIGATION TO TAKE
REASONABLE MEASURES TO PROTECT THE BANANAS FROM FURTHER
SPOILAGE AND TO ATTEMPT TO SELL THEM.
I. THE CLAIMANT HAS DISCHARGED HIS OBLIGATION TO TAKE
REASONABLE MEASURES TO PROTECT THE BANANAS.
The Claimant may have a primary obligation to protect the bananas but that obligation ceased
when the Respondent refuses to take back the bananas and the purpose of preserving them
vanished. The Claimant has also discharged the duty by storing them in the warehouse.
A. The duty to protect and preserve goods ceased when the Respondent refuses to take
back the goods.
Article 86 of CISG gives rise to a duty to preserve the goods on the buyer where the buyer has
received the goods and intends to exercise its right to reject them.66
The buyer has to take
reasonable measures in the circumstances to preserve the goods. The Claimant duly complied
with Article 81(2) of CISG to make restitution of the contract immediately by sending an email
to the Respondent, requesting them to make arrangement with the Captain of the Pinafore as to
66
Schlechtriem & Schwenzer, 1161.
LAWASIA International Moot 2011 M2020-C
34
the disposal of the bananas.67
The duty to protect the bananas for the purpose of restitution
vanished when the Respondent refused to retrieve the bananas.68
B. In any event, the Claimant discharged the duty to protect the bananas by storing
them in the warehouse.
According to Article 87 of CISG, the storage of goods in a warehouse may be considered to be a
reasonable measure that the buyer could have taken.69
The storage of bananas in the warehouse
was arranged by Captain Vermelho and Mr. Vogel was notified of this arrangement by the
Captain.70
This in effect has discharged the Claimant‟s duty to preserve because the bananas
were stored in a warehouse to prevent further deterioration such as exposure from the sun and
moist. The Claimant‟s duty to protect the bananas ends when the bananas no longer have any
market value and do not fit for ordinary purpose of consumption. The Claimant accordingly has
discharged its duty to protect the bananas.
67
Moot Problem, 3.
68 Moot Problem, 4.
69 Gabriel, 257.
70 Moot Problem, 4.
LAWASIA International Moot 2011 M2020-C
35
II. THE CLAIMANT HAS NO DUTY TO ATTEMPT TO SELL THE BANANAS
AS THE BANANAS WERE NO LONGER SUITABLE FOR SALE.
Article 88(2) of CISG provides that the buyer must take reasonable measures to sell the
perishable goods. However the selling of the bananas is not a reasonable measure to mitigate
losses in this circumstance as this will incur unreasonable expenses, disproportionate to the
heavily depreciated value of the goods.71
Reasonableness is interpreted “according to the
understanding that a reasonable person of the same kind as the other party would have had in the
same circumstances”.72
The sorting and repacking of bananas has proven to be economically unfeasible.73
John Sparrow
has also estimated the net worth of the bananas after resale to be less than $250,000.74
The profit
earned from selling the remaining bananas may not cover the cost of repackaging, transportation
and labour. In addition, the deterioration speed of the bananas was rapid. It only took around
three days for 54% of the bananas to be over-ripened. Majority of the bananas were not
consumable. Furthermore, the Claimant is a company which is a major distributor of produce to
71
Schlechtriem & Schwenzer, 1043; Müncherner Kommentar Zum Handelsgesetzbuch, edited by Schmidt, K, vol 6,
revised by Basedow, 2nd
edn, Art 77 para 3; Bianca/Bonell/Knapp Art 77 note 2.3.
72 Article 8 CISG.
73 Moot Problem, 4.
74 Further Corrections and Clarifications, ¶¶16,17.
LAWASIA International Moot 2011 M2020-C
36
retail grocery stores.75
It does not equip with the relevant expertise to resell the bananas to shops
such as commercial bakeries in a short time.76
III. THE CLAMIANT HAS FULFILLED ITS DUTY TO MITIGATE LOSS AND
SHALL BE ENTITLED TO THE FULL REFUND OF THE PURCHASE
PRICE.
Article 77 of CISG requires a party who relies on a breach of contract to take reasonable
measures to mitigate loss in good faith.77
The legal consequence of not mitigating losses is that
the other party may claim for a reduction of damages. The burden of proof is on the Respondent
to establish that the Claimant has not fulfilled its duty to mitigate.78
If the Tribunal chooses to
apply the UNIDROIT Principles, the Claimant has also fulfilled the principle to mitigate harm
under Article 7.4.8 to take reasonable measures to reduce harm.
The only recourse for the Claimant was to dispose the bananas. By day 5, the bananas were
disposed as waste under the supervision of the Astoria Department of Agriculture.79
In a short
75
Moot Problem, 2.
76 CLOUT case No.166 [Arbitration – Schiedsgericht der Handelskammer Hamburg, 21 March, 21 June 1996].
77 Schlechtriem & Schwenzer, 1045; Witz/Salger/Lorenz/Witz, Art77, ¶9; [AUSTRIA Oberster Gerichtshof 6
February 1996 (Propane case)]
78 Schlechtriem & Schwenzer p1058; P. Huber/Mullis p364.
79 Moot Problem p4; Corrections and Clarifications p3..
LAWASIA International Moot 2011 M2020-C
37
period of time, the bananas were no longer suitable for consumption. It would incur unreasonable
costs if it was continued to be stored in the warehouse as they could no longer be resold.80
The Claimant has duly rejected the goods and has discharged his obligation to mitigate losses
and accordingly, Article 74 of CISG which laid down the full compensation principle applies.81
The Claimant is entitled to a full refund of the purchase price which is $750,000 with interest.82
80
Schlechtriem & Schwenzer p 1045; MünchKomm/P Huber, Art 77 para 4
81 Schlechtriem & Schwenzer p1016.
82 Article 84(1) CISG.
LAWASIA International Moot 2011 M2020-C
38
PRAYER FOR RELIEF
In light of the above submissions, the Claimant respectfully requests that the Arbitral Tribunal to declare
that
• it does have the authority to resolve the dispute;
• the three arbitrators of this Arbitral Tribunal were properly appointed;
• it does have the authority to impose sanction on the Respondent‟s procedural misconduct;
• the CISG shall be the applicable substantive law to settle the dispute;
• the Respondent breached the seller‟s obligation under the contract;
• the Claimant has discharged its duty to take reasonable measures to protect the bananas;
• the Claimant has no legal obligation to attempt to sell the bananas;
• the Respondent has the legal obligation to take reasonable care to protect the bananas;
• the Claimant has fulfilled its duty to mitigate loss and shall be entitled to the full refund of
purchase price for the bananas.