Hong Kong International Commercial Arbitration Moot

7/30/2019 Hong Kong International Commercial Arbitration Moot

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SECONDANNUALWILLEMC.VIS(EAST)20042005

HONGKONGINTERNATIONALCOMMERCIALARBITRATIONMOOTPACEUNIVERSITY INSTITUTEOFINTL

SCHOOLOFLAW COMMERCIALLAW CITYUNIVERSITY

SCHOOLOFLAW

MEMORANDUMforCLAIMANT

OnBehalfOf:

MediterraneoConfectionaryAssociates,Inc.

121SweetStreet

CapitolCity

Mediterraneo

TheCLAIMANT

Against:

EquatorianaCommodityExporters,S.A.

325CommoditiesAvenue

PortCity

Equatoriana

TheRESPONDENT

UNIVERSITYofHOUSTONLaw Cen t e r

LACY JOHNSON ELAHE PARSA JAMESROGERS BRETT THORSTAD


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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON

TABLEOFCONTENTS

TABLEOFCONTENTS .................................................................................................................................. iLISTOFABBREVIATIONS .........................................................................................................................iiiINDEXOFAUTHORITIES ............................................................................................................................vSTATEMENTOFFACTS............................................................................................................................... 1STATEMENTOFPURPOSE.......................................................................................................................... 3ARGUMENTS................................................................................................................................................. 4PARTONE:RESPONDENTFUNDAMENTALLYBREACHEDTHECONTRACTBYFAILINGTO

SUBSTANTIALLYPERFORMITSOBLIGATIONS;THEREFORE,CLAIMANTWASENTITLEDTOAVOID

THECONTRACTANDRECOVERDAMAGES............................................................................................. 4I. RESPONDENTFundamentallyBreacheditsContractualObligations............................. 5II. RESPONDENTwasnotExcusedfromPerformingitsObligation..................................... 5

a. Article79oftheCISG...............................................................................................................6b. HardshipprovisionoftheUNIDROITPrinciples .................................................................. 7

III. CLAIMANTwasEntitledtoAvoidtheContract ................................................................. 10IV. CLAIMANTValidlyAvoidedtheContract .......................................................................... 11

a. Implicitnoticeofavoidanceon15August2002.................................................................... 11b. Expressnoticeofavoidanceon25October2002 ................................................................... 13c. CLAIMANTsletterof15November2002 ............................................................................... 13

PARTTWO:CLAIMANTISENTITLEDTORECOVERDAMAGESUNDERTHETERMSOFTHECISG. 14I. CLAIMANTisEntitledtoUSD289,353.00inDamagesPursuanttoArticle75............ 14

a. CLAIMANTpurchasedsubstitutecocoainareasonablemanner ............................................14b. CLAIMANTpurchasedsubstitutecocoawithinareasonabletimeafteravoidance ................15

i


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II. IfCLAIMANTisnotEntitledtoDamagesUnderArticle75,itShouldbeEntitledtoUSD289,353.00inDamagesUnderArticle76 ............................................................................ 16

a. Timeofavoidance ....................................................................................................................17b. Placeofdelivery ....................................................................................................................... 18

III. IfthisTribunalfindsNeitherArticle75norArticle76Acceptable,itShouldAwardCLAIMANTUSD289,353.00inDamagesPursuanttoArticle74 ..............................................18

PARTTHREE:THISTRIBUNALLACKSJURISDICTIONTOHEARRESPONDENTSCOUNTERCLAIM. 19I. NeithertheCocoaContractnorSwissRulesArticle21(5)ProvidesJurisdictionforthisTribunaltoHearRESPONDENTsCounterclaim .................................................................. 21II. TheSpecializedArbitrationClauseInTheSugarContractPreemptsAnyJurisdictiontoHearRESPONDENTsCounterclaim ..................................................................... 22III. IfthisTribunalwastoHearRESPONDENTsCounterclaim,theAwardmayRuntheRiskofnotBeingEnforced .............................................................................................................23

PARTFOUR:IFTHISTRIBUNALHASJURISDICTIONTOCONSIDERTHECOUNTERCLAIM,THE

RECOVERYSHOULDBELIMITEDTOSETOFFTHEAMOUNTRECOVEREDBYCLAIMANT................24I. TheIntentoftheDrafterswastoMaketheSetoffDefenceDistinctfromthatofCounterclaim ...................................................................................................................................... 24II. LegalJurisprudenceDistinguishesSetofffromthatofCounterclaimandHoldsthatSetoffMaynotbeUsedtoObtainaPositiveRecovery..................................................25

a. Setoffisdistinctfromcounterclaim....................................................................................... 25b. Setoffmaynotexceedtheamountoftheoriginalclaim .......................................................26c. Modellawprescribesthelimitingnatureofsetoff................................................................ 27

III. FairnessConsiderationsDemandthatSetoffDefencesbeTreatedDifferentlythanCounterclaims .................................................................................................................................... 28

REQUESTFORRELIEF ............................................................................................................................... 29

ii


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LISTOFABBREVIATIONS

/ Section/Sections

/ Paragraph/Paragraphs

Am.Jur. AmericanJurisprudence

Arb. Arbitration

Art. Article

BEL Belgium

C.J.S. CorpusJurisSecundum

CCIG ChamberofCommerceandIndustryofGeneva

cf.

conferatur

(compare)

Cir. Circuit

CISG UnitedNationsConventiononContractsforthe

InternationalSaleofGoods

Co. Company

Comm. Commentary

Corp. Corporation

e.g. Example

ECJ EuropeanCourtofJustice

ed. Editor

ENG England

EST Estonia

etal. etalii(andothers)

F. Federal

FRA France

GER Germany

id. idem(sameasabove)

i.e. idest(thatis)

iii


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ICC InternationalChamberofCommerce

Inc. Incorporated

Intl International

ITA

Italy

J. Journal

L. Law

Ltd. Limited

No. Number

p. Page

Q.B. QueensBench

Rev. Review

Sec. Secretariat

SWI Switzerland

U.C.C. UniformCommercialCode

UNCITRAL UnitedNationsCommissiononInternationalCommercial

Arbitration

UNIDROIT

InternationalInstitute

for

the

Unification

of

Private

Law

USA UnitedStatesofAmerica

USD UnitedStatesDollars

v. Versus

iv


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INDEXOFAUTHORITIES

ARTICLES&TREATISES

20Am.

Jur.

2d.

American

Jurisprudence

Second

20AM.JUR.2DCounterclaim,Recoupment,Setoff6(2004)

Berger KlausPeterBergerSetOffinInternationalEconomicArbitration,15Arb.Int l53(1999)

Bonell MichaelJ.BonellUNIDROITPrinciples2004TheNewEditionofthePrinciplesof

InternationalCommercialContractsadoptedbytheInternational

InstitutefortheUnificationofPrivateLaw,9UniformLawReview5

(UNIDROIT2004)

Burger LaurenceBurgerTheNewSwissRulesofInternationalArbitration:AComparative

Analysis,196MealeysInt.Arb.Rep.13,inLEXIS(2004)

Bus.Trans.Ger. BusinessTransactionsinGermany110BusinessTransactionsinGermany,inLEXIS(2004)

C.J.S. CorpusJurisSecundum80C.J.S.SetOffandCounterclaim110(2004)

Carlsen AnjaCarlsenCantheHardshipProvisionsintheUNIDROITPrinciplesBeApplied

WhentheCISGistheGoverningLaw?PaceEssaySubmission,(June

1998)

Coe JackCoeInternational Commercial Arbitration: American Principles and

PracticeinaGlobalContext(1997)

Craig/Park/Paulsson LaurenceW.Craig,WilliamW.Park&JanPaulssonInternationalChamberofCommerce3rded.,OceanaPublicationsInc.

(2000)

Flambouras DionysiosFlambourasTheDoctrinesofImpossibilityofPerformanceandClausulaRebusSic

Stantibusinthe1980ConventiononContractsfortheInternational

SaleofGoodsandthePrinciplesofEuropeanContractLawA

ComparativeAnalysis,13PaceIntlL.Rev.261(2001)

v


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FlambourasII DionysiosFlambourasComparativeRemarksonCISGArticle79&PECLArticles6:111,

8:108,availableat

Folsom/Gordon/

Spanogle

RalphFolsometal.

InternationalBusinessTransactions(2ded.2001)

Honnold JohnHonnoldUniformLawforInternationalSalesUnderthe1980UnitedNations

Convention(2ded.1991)

Jenkins SarahHowardJenkinsExemptionforNonperformance:UCC,CISG,UNIDROITPrinciples

AComparativeAssessment,72Tul.L.Rev.2015(1998)

Johnson/Hazen PhilipMcBrideJohnson&ThomasLeeHazenCommodities,Regulation 2.05[8](3ded.1998)

Lorenz AlexanderLorenzFundamentalBreachundertheCISG,availableat

Matasar RichardA.MatasarRediscoveringOneConstitutionalCase:ProceduralRulesandthe

Rejection

of

theGibbs

Test

for

Supplemental

Jurisdiction,

71

Calif.

L.

Rev.1401(1983)

ODonnell/Ratnikov NeilF.ODonnell&KirillY.RatnikovDisputeResolutionintheCommercialLawTribunalsoftheRussian

Federation:LawandPractice,22N.C.J.Int lL.&Com.Reg.795(1997)

Park WilliamParkNationalLamandCommercialJustice:SafeguardingProcedural

IntegrityinInternationalArbitration,63Tul.L.Rev.647(1989)

Pellonp/Caron

Matti

Pellonp

&

David

D.

Caron

TheUNCITRALArbitrationRulesasInterpretedandApplied(1994)

Perillo JosephM.PerilloForceMajeureandHardshipUndertheUNIDROITPrinciplesof

InternationalCommercialContracts,5Tul.J.Intl&Comp.L.5(1997)

vi


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Povrzenic NivesPovrzenicInterpretationandGapfillingUndertheUnitedNationsConvention

onContractsfortheInternationalSaleofGoods(1998),availableat

Rimke

JoernRimke

Forcemajeureandhardship:Applicationininternationaltrade

practicewithspecificregardtotheCISGandtheUNIDROIT

PrinciplesofInternationalCommercialContracts(2001),availableat

Redfern/Hunter AlanRedfernandMartinHunterLawandPracticeofInternationalCommercialArbitration,3rded.,

Sweet&Maxwell,London(1999)

RubinoSammartano RubinoSammartano

InternationalArbitrationLawandPractice,2rded.KluwerLaw(2001)

Schlechtriem PeterSchlechtriemUniformSalesLaw:theUNConventiononContractsforthe

InternationalSaleofGoods(1968),availableat

Slater ScottD.SlaterOvercomebyHardship:TheInapplicabilityoftheUnidroitPrinciples

HardshipProvisionstotheCISG,12Fla.J.IntlL.231(1998)

VanHof JacomijnJ.VanHofCommentaryontheUNCITRALArbitrationRules:The

ApplicationbytheIranU.S.ClaimsTribunal,KluwerLaw&

TaxationPublishers(1992)

VanHoutte HansVanHoutteTheUNIDROITPrinciplesofInternationalCommercialContracts,

ArbitrationInternational,Vol.11No.4(1995)

Ziegel JacobS.ZiegelTheUNIDROITContractPrinciples,CISGandNationalLaw,

PresentationataseminarontheUNIDROITPrinciplesatValencia,

Venezuela(69November1996),availableat

vii
http://cisg.law.pace.edu/cisg/biblio/schlectriem.htmlhttp://cisg.law.pace.edu/cisg/biblio/schlectriem.html


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CASES

CaseNo.1U143/95and

410O21/95(GER)

CaseNo.1U143/95and410O21/95

OberlandesgerichtHamburg,Germany(1997),availableat

CaseNo.5U164/90(GER) CaseNo.5U164/90OberlandesgerichtFrankfurtamMain,Germany(1991),availableat

CaseNo.3U246/97(GER) CaseNo.3U246/97OberlandesgerichtsRechtsprechungsreport,Celle(1999),availableat

DanvaernProd.v.

Schuhfabriken(ECJ)

DanvaernProd.A/SvSchuhfabrikenOtterbeckGmbH&Co.

1995ECJCELEXLEXIS9180,CaseC341/93(1995)

FCFv.Adriafil

Commercial(SWI)

FCFS.A.v.AdriafilCommercialS.r.l.

4C.105/2000,SupremeCourtofSwitzerland(2000),availableat

Foliopackv.Daniplast

(ITA)

FoliopackA.G.v.DaniplastS.p.A.

PreturadiParmaFidenza,Italy(1989),availableat

Greenv.Farmer(ENG) Greenv.Farmer98Eng.Rep.154(1768)

InreJohnson(USA) InreJohnson552F.2d1072(4thCir.1977)

Italdecorv.YiusIndus.

(ITA)

ItaldecorS.a.s.v.YiusIndustries(H.K.)Ltd.

CortediAppellodiMilano,Italy(1998),availableat

Mackv.HuggerBros.

Const.Co.(USA)

Mackv.HuggerBrothersConstructionCompany

283S.W.448(Tenn.1925)

NoviaHandelsgesellschaft

v.ASMaseko(EST)

NoviaHandelsgesellschaftv.ASMaseko

22/111/2004(TallinCir.Ct.,2004),availableat

NuovaFucinativ.

FondmetalIntl(ITA)

NuovaFucinatiS.p.A.v.FondmetalInternationalA.B

TribunaleCiviledeMonza,Italy(1993),availableat

viii
http://www.cisg-online.ch/cisg/urteile/826.pdfhttp://www.cisg-online.ch/cisg/urteile/826.pdfhttp://www.cisg-online.ch/cisg/urteile/826.pdfhttp://www.cisg-online.ch/cisg/urteile/826.pdf


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RogueRiverMgmt.Co.v.

Shaw(USA)

RogueRiverManagementCompanyv.Shaw

411P.2d440(Or.1966)

Schenckv.Coordinated

CoverageCorp.(USA)

Schenckv.CoordinatedCoverageCorporation

376N.Y.S.2d131(N.Y.1975)

Schiedsgerichtder

Handelskammer(GER)

SchiedsgerichtderHandelskammer

Hamburg,Germany(1996),availableat

Seibertv.Dunn(USA) Seibertv.Dunn110N.E.447(N.Y.1915)

Stookev.Taylor(ENG) Stookev.Taylor

Divisional

Court,

5

Q

B

D

569

(1880)

(Cockburn,

C.J.)

UnknownParties(FRA) UnknownPartiesCourdAppeldeColmar,France(2001),availableat

VitalBerryv.Rechtbank

(BEL)

VitalBerryMktgNVv.DiraFrostNVRechtbankvanKoophandel

Hasselt,Belgium(1995),availableat

ARBITRALDECISIONSANDAWARDS

Am.BellIntlv.Iran AmericanBellInternational,Inc.v.IranAwardNoITL41483,6IranU.S.C.T.R.(1979)

CaseNo.11/1996(BUL) CaseNo.11/1996BulgarianChamberofCommerceandIndustry,Bulgaria(1998),

availableat

CaseNo.229/1996(RUS) CaseNo.229/1996

InternationalArbitrationCourtoftheChamberofCommerceand

IndustryoftheRussianFederation,Russia(1997),availableat

HamburgArbitration

Proceeding(GER)

HamburgArbitrationProceeding(F.R.G.v.CzechRep.)

ArbitralTribunal(F.R.G.)(1998),availableat

ix


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ICC3540 CaseNo.3540ICCInternationalCourtofArbitration

YearbookCommercialArbitration,Kluwer(1982)

ICC7531

Case

No.

7531/1994

ICCInternationalCourtofArbitrationParis(1994),availableat

ICC8128 CaseNo.8128ICCCourtofArbitrationBasel(1995),availableat

ICC8817 CaseNo.8817ICCCourtofArbitrationParis(1997),availableat

ICC8873 CaseNo.8873ICCInternationalCourtofArbitrationParis(1997),availableat

ICC9029 CaseNo.9029ICCInternationalCourtofArbitrationRome(1998),availableat

ICC9117 CaseNo.9117ICCInternationalCourtofArbitrationZurich(1998),availableat

ICC9978 CaseNo.9978ICCInternationalCourtofArbitration(1999),availableat

SchiedsgerichtHamburger

Freundschaftliche

Arbitrage

UnknownParties

SchiedsgerichtHamburgerFreundschaftlicheArbitrage(1998),

availableat

Westinghousev.Iran WestinghouseElectricCorp.vIranAirForceICCAYB,AWARDS:[IrUS]CaseNo.389:AwardNo.5793892of26

March1997

x


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LEGALTEXTS,RULES&MODELLAWS

ArbitrationRules UNCITRALArbitrationRules(1976),availableat

BlacksLawDictionary BlacksLawDictionary(8thed.2004)

CCIGRules RulesofArbitrationoftheChamberofCommerceandIndustryofGenevaSwitzerland

CISG UnitedNationsConventiononContractsfortheInternationalSaleofGoods(1980),availableat

FrenchCivilCode FrenchCivilCode(1804)

ICSD InternationalCentralSecuritiesDepositoryRules

NewYorkConvention UnitedNationsConventionontheRecognitionandEnforcementofForeignArbitralAwards(NewYork,10June1958)

U.C.C. UniformCommercialCode(2004)

UNIDROIT1994 UNIDROITPrinciplesofInternationalCommercialContracts(1994),availableat

Sec.Comm. SecretariatCommentaryUNCITRALCommentaryontheDraftConventiononContractsfor

theInternationalSaleofGoods,UNDoc.No.A/CONF.97/5

SwissRules SwissRulesofInternationalArbitration(2004),availableat

ZurichRules InternationalArbitrationRulesofZurichChamberofCommerce(1989),availableat

xi


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STATEMENTOFFACTS

ORIGINALCLAIM(COCOA)

19

November

2001

EquatorianaCommodity

Exporters,

S.A.

(hereinafter

RESPONDENT) telephones Mediterraneo Confectionary

Associates,Inc.(hereinafterCLAIMANT)withanoffertosell

cocoa.An agreement is reachedwhereupon RESPONDENT

will sell400metric tonsof cocoa toCLAIMANT fora total

contract price is USD 496,299.55 (market price). Date of

deliveryistobebetweenMarchandMay2002,andistobe

fixed by RESPONDENT sometime between January and

February2002.

14February2002 SeverestormhitsthecocoaproducingareaofEquatoriana

resultinginextensivedamagetothecocoacrops.

22February2002 Equatoriana Government Cocoa Marketing Organization

(EGCMO)ordersabanonallcocoaexports.

24February2002 RESPONDENTinformsCLAIMANTofthestormandofthefact

thattheEGCMOhassuspendedexportofcocoathroughat

leastMarch2002.

5March2002 CLAIMANT reaffirms the obligation of RESPONDENT,while

informing RESPONDENT that itwillbe under pressure to

receivethecocoalaterintheyear.

20March2002 EGCMOextendsthecurrentbanofcocoaexports.

10April2002 CLAIMANT informsRESPONDENT that itexpectsdeliveryof

thecocoa

by

the

end

of

May

2002.

7May2002 RESPONDENT informsCLAIMANTthat100tonsofcocoawill

bedeliveredlaterinthemonth.

28May2002 RESPONDENT ships 100 tonsof cocoa forwhichCLAIMANT

paysUSD124,075.

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JuneJuly2002 CLAIMANTmakesnumerous inquiriesas to the remaining

cocoa.

15August2002CLAIMANT

informs

RESPONDENT

that

it

will

soon

require

the

remaining300tonsofcocoaandmayhavetopurchasethe

cocoaelsewhere.CLAIMANTreiteratesthatRESPONDENTwill

be liableforanyextraexpenses thatmaybe incurredasa

result.

24October2002 CLAIMANT purchases 300 tons of cocoa from Oceania

ProduceLtd.atthecurrentmarketpriceofUSD661,578.

25October2002 CLAIMANT informsRESPONDENT that ithas purchased the

remainingcocoaelsewhereandwillbeseekingrecoveryof

theextraexpensesincurred.

11November2002 CLAIMANT informsRESPONDENTby letter that itdemands

paymentofUSD289,353representing theamountpaid in

excessofthecontractprice.

12November2002 EGMCOremovestheexportbanoncocoa.

13November2002 RESPONDENT informs CLAIMANT that itwould havebeen

prepared to deliver the remaining 300 tons of cocoa.

RESPONDENT asserts that CLAIMANT has breached the

contractbyelectingcover.

15November2002 CLAIMANT provides RESPONDENT written notice formally

avoidingthecontract.

COUNTERCLAIM(SUGAR)

20November2003 RESPONDENT sells 2,500metric tonsof sugar toCLAIMANT

foratotalcontractpriceofUSD385,805.

4December2003 RESPONDENTdeliverssugarthecarrier.

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8December2003 Sugarisloadedontothevessel(passestheshipsrails).

19December2003 CLAIMANT informs RESPONDENT that the sugar arrived

soaked and contaminated as is unfit for humanconsumption.

NOTICEOFARBITRATION

5July2004 CLAIMANT filesNoticeofArbitrationwith theChamberof

CommerceandIndustryofGeneva(CCIG).

6July2004 CCIGacknowledgesreceiptoftheNoticeofArbitrationand

informsCLAIMANTthatasof1January2004theCCIGhas

adoptedthenewSwissRulesofInternationalArbitration.

10August2004 RESPONDENT acknowledges receipt of the Notice of

Arbitrationandfilesaresponsealongwiththecounterclaim

pursuanttoSwissRulesArticle21(5).

STATEMENTOFPURPOSE

InlightoftheaforementionedfactsandincompliancewiththeArbitralTribunalsProcedural

OrderNo.1,Counsel for theCLAIMANThasprepared thisMemorandumand sets forth the

followingsubmissions:

RESPONDENTfundamentallybreachedthecocoacontract; RESPONDENTwasnotexcusedfromperformingitsobligation; CLAIMANTavoidedthecocoacontractandisentitledtorecoverdamages; damagesshouldbeUSD289,253.00pursuanttoCISGArticles74,75,and76; theTribunallacksjurisdictiontohereRESPONDENTscounterclaim; and,iftheTribunalhearsthecounterclaim,itshouldbelimitedtothesetoff

amount.

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ARGUMENTS

PART ONE: RESPONDENT FUNDAMENTALLY BREACHED THE CONTRACT BY FAILING TO

SUBSTANTIALLYPERFORMITSOBLIGATIONS;THEREFORE,CLAIMANTWASENTITLEDTOAVOIDTHE

CONTRACTANDRECOVERDAMAGES

1. According to Article 25 of the CISG, RESPONDENT fundamentally breached the cocoaagreementbysubstantiallydeprivingCLAIMANTofwhat itwasentitled toexpectunderthe

contract [CISG, art. 25]. TheCISGmakes it absolutely clear that a sellermustdeliver the

contractedgoodseitherwithintheperiodoftimefixedbythecontractorwithinareasonable

timeaftertheconclusionofthecontract[CISG,arts.

33].Bydeliveringonlyonequarterofthe

contracted amount of cocoa [Claimants ExhibitNo. 6],CLAIMANTwas unfairly deprived of

threequartersofitsexpectation.AlthoughRESPONDENTmaysuggestthatitshouldbeexcused

fromperformance,RESPONDENT fails to show that it satisfies thenecessary requirements for

excuse.AsaresultCLAIMANTchosetoemployitsexpressrightofavoidanceandassuch,the

CISGprovidesthatitmaynowrecoverdamages[CISG,arts.7476].

2. A substantial breach of performance from a contemplated agreement should not gouncompensated.CLAIMANTshouldnotbeaskedtobeartheexpenseofRESPONDENTsfailureto

perform.SucharesultwouldconstituteawindfalltotheRESPONDENTandwouldflyintheface

ofcontractpolicythatbeingtheenforcementofcontractualexpectations.TheCISGstrivesto

promote thedevelopmentof international tradeandfriendly relationsamongStatesby

providing a set of uniform rules that will be upheld by our enforcement bodies [CISG,

Preamble].CLAIMANTsuggeststhatthisTribunalrecognizethecalamityofRESPONDENTsbreach

and, inpromoting theobservanceofgood faith in international trade,honor theremedies

contemplatedbytheCISG[CISG,art.7(1)].

4


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I. RESPONDENTFundamentallyBreacheditsContractualObligations3. TheCISGdefinesfundamentalbreachas

abreachofcontractbyoneof theparties isfundamental if itresults in

suchdetrimental to the otherparty as substantially todeprivehimof

what he is entitled to expect under the contract, unless the party in

breachdidnotforeseeandareasonablepersonofthesamekindinthe

samecircumstanceswouldnothaveforeseensucharesult[CISG,art.25].

As per the cocoa contract concluded inNovember of 2001, RESPONDENTwas obligated to

deliver400metrictonsofcocoatoCLAIMANTduringthemonthsofMarch,AprilorMayof2002

[ClaimantsExhibitNo.2].RESPONDENTsonlydeliveryof cocoa toCLAIMANTwas100metric

tonsshippedinMayof2002[ClaimantsExhibitNo.6].DespiterepeatedrequestsbyCLAIMANT,

RESPONDENT failed todeliver theremaining300metric tonsby24October2002nearly five

andonehalfmonthsafterRESPONDENTwasrequiredtodeliverall400tonsofcocoa[Claimants

ExhibitNo.8].RESPONDENTora reasonableperson in itspositionknew,orought tohave

known, that CLAIMANT requires large quantities of cocoa for producing its confectionaries

[ClaimantsRequestforArbitration,1,3]. Accordingly,RESPONDENTshouldhaveforeseenthat

failuretodeliverwouldpotentiallydisruptCLAIMANTsoperations,andCLAIMANTwouldhave

topurchase

cocoa

elsewhere.

4. By failing todeliver the remaining 300metric tons of cocoawithin the contracted timeframe,RESPONDENTfundamentallybreachedthecontract[Foliopackv.Daniplast(ITA);Lorenz,

II].Article33expresslyprovidesthatasellermustdeliverthegoods:(1)onadatefixedbythe

contract;(2)withinaperiodoftimefixedbythecontract;or(3)withinareasonabletimeafter

theconclusionofthecontract[CISG,art.33].NotonlydidRESPONDENTfailtodeliverthecocoa

withinthetimeperiodfixedbythecontract,itwouldnothavebeenabletodeliverthegoodsan

entireyearaftertheconclusionofthecontract[ClaimantsExhibit

No.

10].RESPONDENTwould

need topurportavery colorfulargument to suggest thatoneyear isa reasonable time for

delivery.Therefore,once ithadbecomeclear thatRESPONDENTwasnotgoing todeliver the

cocoa, CLAIMANTwas forced tobuy replacement cocoa and avoid the contract [Claimants

ExhibitNo.8].

5


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II. RESPONDENTwasnotExcusedfromPerformingitsObligationa. Article79oftheCISG

5. RESPONDENTclaimsthatitshouldbeexcusedfromdeliveringthe300metrictonsofcocoaunderArticle79(1)oftheCISG[RespondentsAnswer,18].Article79(1)provides:

Apartyisnot liableforafailuretoperformanyofhisobligationsifhe

provesthatthefailurewasduetoanimpedimentbeyondhiscontroland

thathecouldnotreasonablybeexpectedtohavetakentheimpediment

into account at the time of the conclusion of the contract or to have

avoidedorovercomeitoritsconsequences[CISG,art.79].

Thus,inordertoclaimexcuseunderArticle79(1),RESPONDENTmustprove:(1)theimpediment

wasbeyonditscontrol;(2)itcouldnotreasonablybeexpectedtohavetakentheimpediment

intoaccountatthetimeoftheconclusionofthecontract;and,(3)itcouldnothaveavoidedor

overcome itsconsequences [Id.;CISGSec.Comm.,art.793].RESPONDENTcannotmeet this

burden.

6. WhileCLAIMANT concedes that the stormand subsequentgovernmentbanon exportofcocoawerebeyond thecontrolofRESPONDENTthus fulfilling the firstrequirementofCISG

Article79

(1),

CLAIMANT

suggests

that

RESPONDENT

cannot

meet

the

second

requirement

of

Article79(1)becauseRESPONDENTcouldhavereasonablybeenexpectedtohavetakenthestorm

intoaccountat theconclusionof thecontract.Stormsregularlyoccur inEquatoriana,and in

1980 a severe storm damaged Equatorianas cocoa trees [ProceduralOrderNo. 2, 8]. It is

reasonable to expectRESPONDENTabusiness entity that has operated since 1961tohave

taken the possibility of a similar severe storm into accountwhen it entered into the sales

contract [CISG Sec.Comm., art. 79 5]. Furthermore,because the EquatorianaGovernment

CocoaMarketingOrganization(EGCMO)controlsalldistributionsofcocoainEquatoriana,itis

reasonableforRESPONDENTtohavetakenintoaccountthepossibilitythatEGCMOcouldban

exports. [ProceduralOrderNo.2,11]CLAIMANT suggests thatRESPONDENT cannotmeet the

secondrequirementofArticle79(1)andthuscannotclaimexcusefromperformance.

6


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7. RESPONDENTalsocannotmeet the thirdrequirementofArticle79(1)becauseRESPONDENTcould have foreseen the storm and export ban, it could and should have overcome the

consequencesofthestormandexportban.ThecontractbetweenRESPONDENTandCLAIMANT

wasfor

cocoa;

nowhere

does

the

contract

state

that

RESPONDENT

must

deliver

Equatorianan

cocoa[ClaimantsExhibitNo.2].AlthoughthestormandexportbanresultedinnoEquatorianan

cocoabeingavailable, thestormdidnotaffectanyothercocoagrowingcountries[Procedural

OrderNo.2,9].RESPONDENTcouldandshouldhaveboughtcocoafromanothersourceand

deliveredittoCLAIMANTinordertofulfillitscontractualobligations.Itchosenottodoso.

8. RESPONDENTsclaimthatitdidnotbuycocoafromanothersourcebecause itwouldhavecostmore iswithoutmerit. [RespondentsAnswer, 48]. It is awellsettled principle that

additionalcostsofperformancearenotenoughtoinvoketheprotectionofCISGArticle79(1)

[SchiedsgerichtderHandelskammer (GER);CaseNo.1U143/95and410O21/95 (GER);CaseNo.

11/1996(BUL);UnknownParties(FRA);VitalBerryv.Rechtbank(BEL);NuovoFucinativ.Fondmetal

Intl(ITA)].Indeed,additionalcostssuchasapricechangeareacommercialriskthattheseller

acceptswhenenteringintoasalescontract[Id.].Article79(1)doesnotencompassthenotionof

economichardship,whichisdefinedexcusefromperformancebecausethecostofperformance

hasincreased

[Nuovo

Fucinati

S.p.A.

v.

Fondmetal

Intl

(ITA);

ICC

8873;

Carlsen,

IIV].CISG

Article79reflectsthetraditionalviewofcontracts:pactasuntservanda,agreementsmustbekept

though the heavens fall [Jenkins, 2019; Perillo, 112;Rimke, I].Article 79 of theCISG only

provides an excuse where performance has become impossible [Flambouras, 277]. To be

permittedtoexcuseperformanceonthebasisofeconomichardship,RESPONDENTshouldhave

includedahardshipclauseinthecontractitself[UnknownParties(FRA);Perillo,115,129;Rimke,

IV9;VanHouette,NoAssumptionofRisk].Itfailedtodoso.

b. HardshipprovisionoftheUNIDROITPrinciples9. WhenprovisionsoftheCISGandprovisionsoftheUNIDROITPrinciplesconflict,theCISG

will take precedence [Carlsen, 2A].RESPONDENTmay suggest that theTribunal use the

UNIDROITPrincipleshardshipprovisiontogapfilltheCISG.Article7(2)oftheCISGallows

7


20/41


theTribunaltosettlequestionsabouttheCISGwhicharenotexpresslysettledinit,aretobe

settledinaccordancewiththegeneralprinciplesonwhichtheCISGisbased[CISG,art.7(2)].

There are some scholars and tribunals thatbelieve theUNIDROIT Principles embody the

principlesupon

which

the

CISG

is

based

[Case

No.

229/1996

(RUS);

ICC

8817;

ICC

9117].

However,theuseoftheUNIDROITPrincipleshardshipprovisiontogapfillCISGArticle79

wouldbeinappropriateforseveralreasons[ICC887;ICC9029].

10. First,thereisnogapinArticle79thatneedstobefilled;simplybecausetheCISGdoesnotmentiontheconceptofhardshipdoesnotmeanthatthematterisnotexpresslysettledinthe

CISG [Ziegel, 4]. This Tribunal is authorized to look at the legislative history (traveaux

preparatoire)oftheCISGinmakingthisdetermination[Povrzenic,3A].Thelegislativehistory

oftheCISGrevealsthattheWorkingGroupnotonlyconsideredaddingahardshipprovision,

butspecificallyrejectedaddingahardshipprovision[Carlsen,1998;FlambourasII,3;Rimke,

B2;Ziegel,1C].TheWorkingGrouprejectedthehardshipprovisionbecauseoftheproblems

associatedwiththeConventionRelatingtoaUniformLawontheInternationalSaleofGoods

(ULIS)the predecessor of the CISGwhich allowed contracting parties to escape their

contractual obligations too easily [Flambouras II, 3; Rimke, B2]. The Working Groups

rejectionof

ahardship

provision

is

adispositive

settlement

of

the

hardship

matter:

the

CISG

doesnotallowperformancetobeexcusedformereeconomichardship[Flambouras,278].Thus,

withallduerespect,theTribunalwouldexceeditsauthorityifitweretousetheUNIDROITs

hardshipprovisionstoexcuseRESPONDENTsperformanceinthiscase.

11. Second,theUNIDROITshardshipprovisionisnotageneralprincipleonwhichtheCISGisbased [Slater, 250]. While some provisions ofUNIDROITwere includedbecause drafters

thoughttheywerethebestrulesandhopedthattheywouldbecomeinternationallyaccepted

[Id.],severalscholarsandtribunalsrecognizethattheUNIDROIThardshipprovisionisnotan

internationallyacceptedprincipleofcontractlaw[Id.;ICC8873;ICC9029].Althoughsomemay

argue thathardship isbecomingmoreaccepted, itcannotbe thoughtof,at thispoint,asa

generalprincipleuponwhichtheCISGisbased[Id.].

8


21/41


12. Furthermore, even if this tribunal decides to apply theUNIDROIT hardship provision,RESPONDENTcannotmeettherequirementsofUNIDROITArticle6.2.2,whichreads:

There ishardshipwhere theoccurrenceofevents fundamentallyalters

the equilibrium of the contract either because the cost of a partys

performancehas increasedorbecause the value of theperformance a

partyreceiveshasdiminished,and

(a)theeventsoccurorbecomeknownto thedisadvantagedpartyafter

theconclusionofthecontract;

(b)theeventscouldnotreasonablyhavebeentakenintoaccountbythe

disadvantaged party at the time of the conclusion of the contract;

(c) the events arebeyond the controlof thedisadvantagedparty; and

(d)theriskoftheeventswasnotassumedby thedisadvantagedparty

[UNIDROIT1994,art.6.2.2].

Asnotedabove [supra,4],RESPONDENTcouldhavereasonably taken intoaccountboth the

stormand theEGCMObanonexportingcocoaat the timeof theconclusionofthecontract.

RESPONDENTcannotmeettherequirementsofUNIDROITArticle6.2.2andthuscannotclaim

hardship.

13. Assuming,arguendo, that thisTribunal finds thatRESPONDENTmeets the requirementsofUNIDROITArticle6.2.2,RESPONDENTSremedywasrenegotiationofthecontract,anactionnot

takenby

RESPONDENT

[UNIDROIT

1994,

art.

6.2.3;

Perillo,

125,

129].UNIDROIT

does

not

entitle

a contracting partywho is experiencing economic hardship to simply not perform, as has

occurred in this case [UNIDROIT1994, art.6.2.3OfficialComment].AllRESPONDENTdidwas

informCLAIMANTthatitwouldnotdeliverthecocoawithinthecontractualtimeframedueto

thestormandexportban[ClaimantsExhibitNo.3&No.6].

14. Moreover,even ifRESPONDENThadrequestedrenegotiationof thecontract, itwouldnothavebeenentitledtowithholdperformancesimplybecauseoftherequest[UNIDROIT1994,

art.6.2.3

Official

Comment].BecauseUNIDROITArticle6.2.3(2)isofanexceptionalnatureandis

easilyabused,Article6.2.3(2)anditsOfficialCommentsmakeitclearthatsimplybecausethe

disadvantagedpartyhasrequestedrenegotiation, thedisadvantagedparty isnotentitled to

withholdperformance[Id.].

9


22/41


III. CLAIMANTwasEntitledtoAvoidtheContract15. Article49(1)(a)oftheCISGstates:

(1)thebuyermaydeclarethecontractavoided:

(a)ifthefailurebythesellertoperformanyofhisobligationsunderthecontractorthisConventionamountstoafundamentalbreachofcontract

[CISG,art.49(1)(a)].

As established above, RESPONDENT fundamentallybreached its contractwithCLAIMANTby

failingtodelivertheremaining300metrictonsofcocoa[supra112].Thus,CLAIMANTwas

legallyentitledtoavoidthecontract[CISG,art.49(1)(a);ICC7531;ICC 9978].

16. Nevertheless, RESPONDENT argues that CLAIMANT was not entitled to avoid the cocoacontractbecauseithadnotfixedanadditionalperiodforperformanceunderCISGArticle47

[RespondentsAnswer,1011].Article47reads:

(a)Thebuyermayfixanadditionalperiodoftimeofreasonablelength

forperformancebythesellerofhisobligations.

(b)Unlessthebuyerhasreceivednoticefromthesellerthathewillnot

perform within the period so fixed, thebuyermay not, during that

period,resorttoanyremedyforbreachofcontract.However,thebuyer

isnotdeprivedtherebyofanyrighthemayhavetoclaimdamagesfor

delayinperformance[CISG,art.47(emphasisadded)].

17. CLAIMANTnotesthatthelanguageofArticle47indicatesthatfixinganadditionalperiodforperformance is an option thebuyer haswhen the seller has fundamentallybreached the

contract,but is not amandatory undertaking [CISG Sec.Comm., art. 49 5& art. 47 6].

CLAIMANTwasentitledtoavoidbecauseRESPONDENTfundamentallybreachedthecontract,not

becauseRESPONDENTfailedtoperformwithinafixedadditionalperiodoftime.Alternatively,

CLAIMANT was not required to fix an additional time period for performance because

RESPONDENTmadeclearthatitwasunabletodeliverthecocoaduringthecontractualperiod

[ClaimantsExhibitsNo.4,5&6; SchiedsgerichtHamburgerFreundschaftlicheArbitrage;CaseNo.1

U143/95and410O21/95(GER)].

10


23/41


IV. CLAIMANTValidlyAvoidedtheContracta. Implicitnoticeofavoidanceon15August2002

18. Anaggrievedpartysdeclarationofavoidanceisnoteffectiveunlessitismadebynoticetotheotherparty[CISG,art.26]. RelyingonCLAIMANTsletterdated15November2002,inwhich

CLAIMANTstatedthatinanabundanceofcaution,Iwishnowtostateclearlythat[CLAIMANT]

considers the referenced contract to be terminated, RESPONDENT asserts that CLAIMANT

effectivelydeclareditsintentiontoavoidthecontracton15November2005 [ClaimantsEx.No.

11].However,applicablecaseauthorityholdsthattheCISGdoesnotprovideanyobligation

concerningtheformofavoidance[FCFv.AdriafilCommercial (SWI)A(a);seealso ICCBasel

8128

(statingthat

when

apartys

requests

for

performance

are

unmet,

acontract

may

be

avoidedeven in theabsenceofanexpresssubsequentdeclarationofavoidance,provided

thatareasonablepersonwouldhaveunderstoodthecontracttobeavoided)].

19. InFCFS.A.v.AdriafilCommercialS.r.l.,thebuyerandsellerenteredintoacontractforcotton[FCFv.AdriafilCommercial(SWI),A(a)].DeliverywastobemadebetweenMayandJune1994

[Id.]. InJune1994,sellerinformedbuyerthatperformancewouldnotberendered[Id.,A(c)].

Buyerresponded,vialetter,requestingthatsellerperformthecontractassoonaspossible[Id.].

Having received no response from seller, buyer purchased substitute cotton from other

suppliersatahigherpriceandrequestedcompensation fromseller ina letterdated27June

1994 [Id.]. The Supreme Court of Switzerland held that the CISG does not provide any

obligationconcerningtheformoftheavoidanceofsalecontracts....Therefore,itisaccepted

thataconclusiveconductconstitutedbyarejectionofthegoodsthatthatdonotconformtothe

contract and a refusal topaymay,dependingon the circumstances,beheld as an implicit

declarationofavoidanceofthecontract[Id.,C(3)].

20. Similarly,inICCArbitrationCaseNumber8128,thebuyerandsellerenteredintoacontractunderwhich sellerwas to providebuyerwith chemical fertilizer [ICC 8128]. Buyer then

enteredintoaforwardingcontractwithanotherparty[Id.]. Whensellerfailedtoperformpart

ofhiscontractualobligations,buyersentaletterinforminghimthatitsclientwasthreatening

11


24/41


contractualpenaltiesandadditional costsunder its forwarding contract. [Id.]Further,buyer

insisted that it must receive a definitive response from seller regarding sellers ability to

perform [Id.]. Buyer also indicated that sellers failure to respond would result in buyer

purchasingchemical

fertilizer

from

another

supplier

[Id.].

The

arbitral

panel

stated

that

[i]t

doesnotmatterthattheBuyerdidnotexpresslydeclarethecontractpartlyavoidedandthat

the guide for interpretation is the manner in which a reasonable person would have

understood[the]declaration...orconductinthesamecircumstances[Id.]. Accordingly,the

panelheld thatbuyers letter constituted effectivenoticeof avoidancebecausea reasonable

personwouldhaveknown that failure tomeetaconditionput forthby thebuyerwould

avoidthecontract[Id.].

21. CLAIMANT made a final attempt at inducing RESPONDENT to perform its contractualobligations ina letterdated15August2002 [ClaimantsEx.No.7]. In that letter,CLAIMANT

cautionedthatintheeventRESPONDENTfailedtonotifyCLAIMANTofwhentheoutstanding300

tonsofcocoawouldbeshipped,CLAIMANTwouldbeforcedtopurchasecocoaelsewhere[Id.].

CLAIMANTawaitedaresponsefromRESPONDENTforovertwomonths[ClaimantsEx.No.8].By

October2002,CLAIMANTwasrunningdangerouslylowonitssupplyofcocoaandwouldhave

hadto

cease

production

of

certain

products

if

it

did

not

receive

additional

cocoa

[Procedural

Order No. 2]. Faced with the likelihood of running out of cocoa and shutting down its

production, CLAIMANT purchased substitute cocoa in October 2002 [Claimants Ex. No. 8].

CLAIMANTS letterdated15August2002constitutedconclusiveconductbyCLAIMANT that

RESPONDENTS failure todeliverwould result in terminationof the contract.Furthermore, a

reasonable person in RESPONDENTs position would have understood that under the

circumstances, its failure to respond toCLAIMANTS letterandperform forover twomonths

amounted to an avoidance of the contract.Accordingly, this Tribunal should find that the

contractbetweenCLAIMANTandRESPONDENTwasavoidedon15August2002.

12


25/41


b. Expressnoticeofavoidanceon25October200222. Alternatively,CLAIMANTsubmits to theTribunal that itvalidlyavoided thecontract ina

letter dated 25 October 2002 [Claimants Exhibit No. 8]. In this letter, CLAIMANT informed

RESPONDENTthat

it

had

been

forced

to

buy

300

metric

tons

of

replacement

cocoa

in

order

to

avoidrunningoutofsupplies [Id.].CLAIMANTalso informedRESPONDENT thatRESPONDENTs

presidentwouldbereceivingademandletterfromCLAIMANTslegalcounselrequestingthat

RESPONDENTpayCLAIMANTthepriceofthereplacementcocoa[Id.].Thislanguageissufficient

to alert a sophisticatedbusiness entity such as RESPONDENT thatCLAIMANT considered the

contracttobeavoided.

23. A German arbitral panel reached the same conclusion in the Hamburg ArbitrationProceedingof29December1998[HamburgArbitrationProceeding(GER),V(6)(a)].Thataction

arosefromsellerspartialbreachindeliveryof300tonsofcheese[Id.,Facts].Uponlapseofthe

timefordelivery,buyerinitiatedarbitrationproceedingsagainstsellerbyservingpapersonthe

selleranddeclaring thecontractavoideddue tononperformance [Id.]. Although thebuyer

affirmativelydeclared the contract avoided, theGerman arbitralpanelnoted that a fitting

declaration . . .without requirements as to form, that isdirected to the termination of the

businessrelationship

is

sufficient

notice

[Id.,

V(6)(a)].The

panel

then

concluded

that

buyers

faxedstatementthathewouldnotdoanybusinesswiththesellerinthefutureandhisserving

oflegalpapersamountedtosufficientnoticeofavoidanceunderarticle26[Id.].Accordingly,

thisTribunalshouldfindthatCLAIMANTsletterdated25October2002constitutesanimplicit

declarationofavoidance insomuchas it isamanifestationofCLAIMANTs terminationof its

contractualrelationshipwithRESPONDENT.

c. CLAIMANTsletterof15November200224. Despite prior communications that gave RESPONDENT notice of avoidance, CLAIMANT

formallyreiterateditsavoidanceofthecontractinitsletterdated15November2002.Thatletter

clearlystatedthatCLAIMANTconsideredthecontractterminated[ClaimantsExhibitNo.11].This

language is clear enough to give notice to RESPONDENT that CLAIMANT was avoiding the

13


26/41


contract.Inothercases,wherecourtsandtribunalshadtodeterminewhatwassufficientnotice

of avoidance, they found that languages andbehaviors thatweremuchmore vague than

CLAIMANTs language in the 15November 2002 letter,was sufficient. For instance, onone

occasion,canceling

apurchase

order

is

sufficient

notice

of

avoidance

[Italdecor

v.

Yius

Indus

(ITA)].Onanotheroccasion,notificationtosellerofbuyersintenttodiscontinuerelationship

andhaveshoesproducedbyanothercompanywassufficientnoticeofavoidance[CaseNo.5U

164/90 (GER)]. Another tribunal held that buyers fax refusing to pursue its business

relationship with seller was sufficient notice of avoidance [Schiedsgericht Hamburger

Freundschaftliche Arbitrage]. CLAIMANTs statement that it considered the contract to be

terminated in the 15November 2002 lettermeets the threshold establishedby courts and

tribunalsforaneffectivenoticeofavoidance.

PARTTWO:CLAIMANTISENTITLEDTORECOVERDAMAGESUNDERTHETERMSOFTHECISG

I. CLAIMANTisEntitledtoUSD289,353.00inDamagesPursuanttoArticle7525. Article75oftheCISGprovidesameansofcalculatingdamageswhenanaggrievedparty

has avoided the contract and has purchased substitute goods [CISGSec.

Comm.,

art.

75].

BecauseCLAIMANTavoideditscontractandpurchasedsubstitutecocoa,Article75isapplicable

indeterminingCLAIMANTsdamages.Article75states,

If the contract isavoidedand if, ina reasonablemannerandwithina

reasonable time after avoidance, the buyer has bought goods in

replacement or the seller has resold the goods, the party claiming

damagesmayrecoverthedifferencebetweenthecontractpriceandthe

price in the substitute transaction as well as any further damages

recoverableunderarticle74[CISG,art.

75].

a. CLAIMANTpurchasedsubstitutecocoainareasonablemanner26. Asubstitutetransactionisconductedinareasonablemannerifitislikelytohavecauseda

coverpurchaseatthelowestpricereasonablypossible[CISGSec.Comm,art.75]. Useofcurrent

14


27/41


marketprice isrelevant indeterminingwhetherasubstitute transactionwasconducted ina

reasonablemanner[Honnold,508].

27. CLAIMANTpurchasedsubstitutecocoaon24October2002atarateofUSD100.03centsperpound

[Claimants

Ex.

No.

8,

3].

According

to

the

International

Cocoa

Organizations

table

of

MonthlyAverageCocoaPrices,thepriceofcocoaon24October2002wasUSD100.03centsper

pound [Respondents Ex. No. 3]. Since CLAIMANT purchased the substitute cocoa at current

marketpriceforOctober,thisTribunalshouldfindthatCLAIMANTsrepurchasewasconducted

inareasonablemanner.

b. CLAIMANTpurchasedsubstitutecocoawithinareasonabletimeafteravoidance28. Anaggrievedpartysdeclarationofavoidanceisnoteffectiveunlessitismadebynoticeto

the other party [CISG, art. 26]. Relying on CLAIMANTs letter dated 15 November 2002,

RESPONDENTassertsthatCLAIMANTeffectivelydeclareditsintentiontoavoidthecontracton15

November2002[ClaimantsEx.No.11,4].

29. However,applicablecaseauthorityholdsthattheCISGdoesnotprovideanyobligationconcerningtheformofavoidanceandthatacontract isavoidedeven intheabsenceofan

expresssubsequent

declaration

of

avoidance,

provided

that

areasonable

person

would

have

understoodthecontracttobeavoided[FCFv.AdriafilCommercial(SWI)A(a);ICC8128]. Thus,

a partymay effectively avoid its contract via implicit notice of avoidance [FCF v.Adriafil

Commercial(SWI)C(3)]. Accordingly, thisTribunalshouldfindthatCLAIMANTS15August

2002letterconstitutedanimplicitnoticeofavoidanceinsomuchasitconstitutedaconclusive

conduct informingRESPONDENT that its failure todeliverwouldresult in terminationof the

contract.

30. Inthatletter,CLAIMANTcautionedthatintheeventRESPONDENTdoesnotnotifyCLAIMANTofwhentheoutstanding300 tonsofcocoawouldbeshipped,CLAIMANTwouldbeforcedto

purchasecocoaelsewhere[Id.].CLAIMANTawaitedaresponsefromRESPONDENTforovertwo

months[ClaimantsEx.No.8,2].ByOctober2002,CLAIMANTwasrunningdangerouslylowon

itssupplyofcocoaandwouldhavehadtoceaseproductionofcertainproducts if itdidnot

15


28/41


receiveadditionalcocoa[ProceduralOrderNo.2,24]. Facedwiththelikelihoodofrunningout

of cocoaand shuttingdown itsproductionCLAIMANTpurchased substitute inOctober2002

[Claimants Ex. No. 8, 2]. A reasonable person in RESPONDENTs position would have

understoodthat

under

the

circumstances,

its

failure

to

respond

and

perform

for

over

two

monthswould result inCLAIMANTavoiding the contract.Accordingly, thisTribunal should

findthatthecontractbetweenCLAIMANTandRESPONDENTwasavoidedon15August2002,that

CLAIMANTpurchasedsubstitutecocoawithinareasonabletimeafteravoidanceofthecontract,

andthatCLAIMANTisentitledtoUSD289,353.00indamages.

II. IfCLAIMANT isnotEntitled toDamagesUnderArticle75, itShouldbeEntitled toUSD289,353.00inDamagesUnderArticle76

31. Incaseswhereacontractisavoided,theaggrievedpartymayresorttoArticles75and76oftheCISGfordamages[Honnold,504]. ThereisadichotomybetweentheapplicationsofArticles

75and76 inrelation tooneanother.Somecourtshave found thatwhenanaggrievedparty

performed a substitute transaction, it is automatically subjected to Article 75 [E.g. Novia

Handelsgesellschaftv.ASMaseko(EST)]. However,manyscholarsstatethatthereisnoreason

tosupposethatanaggrievedpartywhomakesanunsuccessfulattempttocomplywithArticle

75 completely looses the right to recover damages [Honnold, 512; see also Schlechtriem, 97

(statingthatwheregoodscoveredbythetransactionhaveamarketprice,theaggrievedparty

mayseekArticle76damagesabstractlyorindependentlyfromanycovertransaction)].

32. Furthermore, the SecretariatCommentary states thatArticle 76 is applicablewhere thesubstitutetransactionwasnotmadeinareasonablemannerandwithinareasonabletimeafter

avoidance,asrequiredbyarticle75[CISGSec.Comm.,art.762]. Becausethemarketpricefor

thequalityandquantityofcocoacoveredbythistransactioniseasilyascertained,thisTribunal

shouldassessCLAIMANTsdamagespursuanttoArticle76.

16


29/41


33. UnderArticle76,anaggrievedpartysdamagesmaybeassessedbasedonthecurrentpriceof the contracted goods at either the time of avoidance or at the timewhenbuyer took

possessionofthegoods[Honnold,509]. Specifically,Article76states,

(1)If

the

contract

is

avoided

and

there

is

acurrent

price

for

the

goods,

the

party claimingdamagesmay, ifhehasnotmadeapurchaseor resale

underarticle 75, recover thedifferencebetween theprice fixedby the

contractand the currentpriceat the timeofavoidanceaswellasany

further damages recoverable under article 74. If, however, the party

claimingdamageshasavoidedthecontractaftertakingoverthegoods,

thecurrentpriceatthetimeofsuchtakingovershallbeappliedinstead

ofthecurrentpriceatthetimeofavoidance.

(2)Forthepurposesoftheprecedingparagraph,thecurrentpriceisthe

priceprevailingat theplacewheredeliveryof thegoods shouldhave

beenmadeor,ifthereisnocurrentpriceatthatplace,thepriceatsuchotherplaceasservesasareasonablesubstitute,makingdueallowance

for differences in the cost of transporting the goods [CISG, art. 76

(emphasisadded)].

Therefore, when assessing the damages under Article 76, the Tribunal should

determinethecurrentpriceofcocoaatthetimeofavoidanceandplaceofdelivery.

a. Timeofavoidance34. UnderArticle76paragraphone,damagesmaybeassessedasof the time theaggrieved

partyavoidedthecontractortookpossessionofthecontractedgoods[Schlechtriem,97;Honnold,

510].BecauseCLAIMANTnever tookpossessionof theRESPONDENTsoutstanding300 tonsof

cocoa, CLAIMANT is entitled to damages as of the time it avoided its contract with

RESPONDENTnamely, 25 October 2002. RESPONDENT contends, however, that CLAIMANT

avoided itscontracton15November2002.RESPONDENTSrelianceon this letter ismisplaced.

Caseauthority

clearly

indicates

that

adeclaration

...that

is

directed

to

the

termination

of

the

businessrelationshipissufficientnoticeofavoidance[HamburgArbitrationProceeding(GER),

V(6)(a)]. Accordingly,thisTribunalshouldfindthatCLAIMANTsletterdated25October2002,

initiatingalegaldemandofcompensationforitssubstitutetransaction,constitutesanimplicit

declarationofavoidance.

17


30/41


b. Placeofdelivery35. Thecurrentpriceofgoods isassessedbasedon theofficialorunofficialmarketprice for

goodsof

the

same

kind

under

comparable

circumstances

in

the

place

where

delivery

should

havebeenmade[CISGSec.Comm.,art.766;NoviaHandelsgesellschaftv.ASMaseko(EST);Case

No.3U246/97(GER),360]. AsisindicatedbytheInternationalCocoaOrganizationstableof

MonthlyAverageCocoaPrices, the internationalmarketpriceof cocoa throughoutOctober

2002 was 100.03 US cents per pound [Respondents Ex. No. 3; Procedural Order No. 2].

Accordingly,thisTribunalshouldassessCLAIMANTsdamagespursuanttothemarketpriceof

cocoa (100.03 US cents per pound) in Equatoriana during the month of October 2002.

Specifically,thisTribunalshouldfindthatCLAIMANTisentitledtoUSD289,353.00.

III. IfthisTribunalfindsNeitherArticle75norArticle76Acceptable,itShouldAwardCLAIMANTUSD289,353.00inDamagesPursuanttoArticle74

36. Whenever and to the extent thatArticles 75 and 76 are not applicable for calculatingdamages,atribunalmayassessdamagespursuanttoArticle74[CISGSec.Comm.,art.74,2;

NoviaHandelsgesellschaft

v.

AS

Maseko

(EST) (There is a reference in CISG commentaries

allowingaclaimtobefileddirectlyonthebasisofarticle74....)]. Article74provides

Damagesforbreachofcontractbyonepartyconsistofasumequaltothe

loss,includinglossofprofit,sufferedbythepartyasaconsequenceofthe

breach.Suchdamagesmaynotexceedthelosswhichthepartyinbreach

foresaworought tohave foreseenat the timeof the conclusionof the

contract,inlightofthefactsandmattersofwhichhekneworoughtto

haveknown,asapossibleconsequenceofthebreachofcontract[CISG,

art.74].

Article74 is intended toplace theaggrievedparty inasgoodapositionas if thebreaching

partyhadperformed[Honnald,503].

37. On19November2001,CLAIMANTenteredintoacontractfor400metrictonsofcocoawithRESPONDENTatarateofUSD1,240.75permetricton(USD.5268perpound)[ClaimantsEx.No.

18


31/41


2,4].ThetotalcontractpricewasUSD496,299.55[Id.].Atthetimethecontractwasconcluded,

RESPONDENT couldhave,orought tohave, foreseen that in caseofnondelivery,CLAIMANT

wouldhavetopurchasetherequisitecocoafromanothersource. AlthoughCLAIMANTwasnot

underan

immediate

pressure

to

obtain

the

400

tons

of

cocoa

at

the

time

of

contracting,

based

on

thecompaniesyearsoftradingexperience,RESPONDENTknew,oroughttohaveknown,that

CLAIMANT requires large quantities of cocoa for producing its confectionaries [Claimants

RequestforArbitration,1,3]. Accordingly,RESPONDENTknew,oroughttohaveknown,that

failuretodeliverwouldpotentiallydisruptCLAIMANTsoperations,andCLAIMANTwouldhave

topurchasecocoaelsewhere.

38. CLAIMANTexpectedtoobtain400tonsofcocoaforUSD496,299.55.HadRESPONDENTmadetimely delivery of the cocoa, RESPONDENT would have met CLAIMANTs contractual

expectations.However,duetoRESPONDENTsbreachofcontract,CLAIMANTobtainedthesumof

400tonsofcocoaatapriceofUSD661,578.00USD289,353.00morethanwhatitexpectedto

payunder the contract.Accordingly, thisTribunalshouldawardCLAIMANTdamages in the

amountofitsloss,namelyintheamountofUSD289,353.00.

PART

THREE:

THIS

TRIBUNAL

LACKS

JURISDICTION

TO

HEAR

RESPONDENTS

COUNTERCLAIM

39. Although arbitral efficiency may sometimes warrant hearing claims together withcounterclaims and setoff defences,1 CLAIMANT contends that this arbitration is not an

appropriate instance. This Tribunal is not the correct venue to adjudicate RESPONDENTs

counterclaim as it disregards the parties original intent, specialized needs and mutual

agreementtoarbitrateunderboththecocoaandsugarcontract.Moreover,consistentwiththe

generalprincipleofKompetenzKompetenz,thisTribunalhastheabilitytodecidethescopeofits

1Asapreliminarymatter,thetermscounterclaimandsetoffshouldbedistinguished.However,forclarityof

thecurrentargument,CLAIMANTwillrefertoRESPONDENTsclaimasitscounterclaimthroughoutPart

Three,butdistinguishthetwoinPartFour[seeinfra,PartFour].

19


32/41


jurisdiction and hold that RESPONDENT cannotbring a counterclaim concerning the sugar

contractinthisarbitration.

40. Thepartiesenteredintothecocoacontractinmutualagreementthat[a]nydisputearisingwith

respect

to

or

in

connection

with

the

cocoa

contract

would

be

decided

in

accordance

with

theRulesofArbitrationof theChamberofCommerceandIndustryofGenevaSwitzerland

[Claimants Ex. No. 2]. Mutual agreement is the very genesis of the creature known as

internationalarbitration;theagreementtoarbitrateisthefoundationofatribunalsjurisdiction

andtheconsentofthepartiesremainstheessentialbasisofavoluntarysystemofinternational

commercialarbitration[Redfern/Hunter,135;Coe,55; RubinoSammartano,55].

41. It isundisputed thatwhen theparties entered into the sugar contract, they agreed that[a]ny dispute arisingwith respect to or in connectionwith [the sugar contract]be finally

decidedbythreearbitratorsinPortHope,OceaniainaccordancewiththeRulesofArbitration

of the Oceania Commodity Association [Respondents Ex. No. 4]. Therefore, the parties

intended these twocontracts to remain separate; indeed there isnocommon threadamong

themexceptthefactthattheyinvolvethesameparties.

42. Thereisnoareaofarbitrationwheretheconnectionofthedisputesismoreimportantthanin

asserting

counterclaims

[Rubino

Sammartano,

596;

Bus.

Trans.

Ger.,

6.05;

van

Hof,

131].As

manylearnedscholarshavestatedandmanyawardshaveheld,tobeassertedinarbitration,a

counterclaimmustariseoutofthesamecontractas theunderlyingtransaction[vanHof,131,

ICSDart.II;Am.BellIntlv.Iran,83;Westinghousev.Iran,12;RubinoSammartano,596].Bothof

these contracts are separate entities,with separate arbitration clauses and separate arbitral

needs. As such, this arbitration is not the correct venue to adjudicate RESPONDENTs

counterclaim: holding otherwise disregards the parties original intent and the original

agreementstoarbitrate.

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I. Neither theCocoaContractnorSwissRulesArticle21(5)Provides Jurisdiction forthisTribunaltoHearRESPONDENTsCounterclaim

43. RESPONDENT attempts to raise its counterclaim under Swiss RulesArticle 21(5),whichprovidesthatthearbitraltribunalshallhavejurisdictiontohearasetoffdefenceevenwhen

the relationship out ofwhich this defence is said to arise is notwithin the scope of the

arbitration clauseor is theobjectofanotherarbitrationagreement.RESPONDENT suggests

thattheserulesallowtheTribunaljurisdictiontohearthematterdespiteanylogicalconnection.

However, RESPONDENTs reliance onArticle 21(5) ismisplaced. The RESPONDENT expressly

refers to itscounterdemandasacounterclaim rather thanasetoffdefence [Respondents

Answer,

IV].However,

these

terms

are

not

interchangeable

[infra,

Part

Four]and

thus

RESPONDENTscounterclaimmaynotbeheardunderthejurisdictionofArticle21(5).

44. Inthecocoacontract,thepartiesagreedtoarbitrationaccordingtotheCCIGRules,nottheSwiss Rules [Claimants Exhibit No. 2]. Specifically, while the CCIG Rules do provide for

contractualcounterclaims,theydonotprovideforcounterclaimsbaseduponseparatecontracts

with independent arbitration clauses and facts [CCIG,Rule 16].To consolidate these claims

wouldbemanifestlyagainstthepartiesoriginalunderstandingandintent,thusexceedingthis

Tribunalsjurisdiction.

45. WhileCLAIMANTdoesnotobjecttotheapplicationoftheSwissRulestothisproceedingingeneral, it does object toArticle 21(5) [ClaimantsAnswer, 4]. The vastmajority of other

international rulesofarbitrationrequirea firmconnectionbetweendisputesbeforeallowing

thistypeofconsolidation[RubinoSammartano,59560].Theserulesrequireeitherarelationship

governedbythearbitrationagreement,aclaimarisingoutofthesamecontractortransaction,

orattheveryleastasetofconnectedcircumstances[Id.];noneoftheseconditionsarepresentin

this instance [RubinoSammartano, 596 (listingUNCITRAL, ICC&LCIA,AAA, Stockholm,

ECA Rules as examples)]. In this instance, these matters are governedby separate and

completely independent arbitration agreements, they designate separate specialized

21


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institutions tohearunderlyingdisputes, theyariseoutof completely independent contracts

andtransactionsandtherearenoconnectingcircumstancessaveforthepartiesinvolved.

46. Lastly,somecountriesevenincorporatethegenerallyunderstoodnotionthatcounterclaimsin

the

area

of

commodities

contracts

must

arise

out

of

the

same

commodities

contract,

otherwise

thecounterclaimscannotbeheard[Johnson/Hazen,206[4][f](citing17C.F.R.180.1180.5)].

Inthisinstance,theconnectionissotenuousthatapplicationofSwissRulesArticle21(5)isall

themoreunreasonableandthisTribunalshoulddeclinejurisdiction.

II. TheSpecializedArbitrationClauseInTheSugarContractPreemptsAnyJurisdictiontoHearRESPONDENTsCounterclaim

47. RESPONDENTs attempt to raise a counterclaimbased upon the sugar contract is furtherpreemptedby the sugar contract itself. In the sugar contract, the parties agreed upon the

specialized arbitration institution of the Oceania Commodity Association: a venue both

physically, technically and intellectually closer to the sugar contract dispute. In fact,many

commodity exchanges requiremandatory arbitration clauses tobewritten in commodities

contracts[ProceduralOrderNo.2,6;Johnson/Hazen,206[4][f](citing17C.F.R.180.1180.5)].

Thesearbitrationclausesrequirethepartiestosubmittheirdisputestoaspecificbodyadeptat

handlingsuchclaimsasaconditionofusingtheexchange[Id.]. Suchisthecasehere[Procedural

OrderNo.2,6].

48. Scholarspointout that this increases the efficiencyof thedispute settlementprocedure,ensures expert handling of thematter and furtherminimizes the cost to the parties as all

membersarefluentinthelanguageofcommoditiescontractdisputes[17C.F.R.108(3)(b);Park,

700].Suchspecializationisessentialtotheproperresolutionofthesugarcontractdisputeand

thereby preempts jurisdiction in this arbitration as a counterclaim. Indeed, when it is

sufficientlyclearthatthepartieswantedtheclaimsubsequentlyraisedbywayofasetofftobe

dealtwithbytheordinarycourtsorbyanotherarbitralcourt,thesetoffshouldberejectedby

thearbitrators.Topermittheintroductionofclaimsbywayofasetoffwouldthusviolatethe

22


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agreements between the parties [Bus. Trans. Ger., 6]. Here, the parties chose a specific

institutiontohandletheirdisputetheOceaniaCommodityAssociation. Thatvenueisbetter

suited to the needs of the Sugar Contract; it is closer to the relevant facts and necessary

evidenceand

will

offer

amore

efficient

resolution

for

the

parties

[Respondents

Exhibit

No.

4].

49. CLAIMANT asserts that these important facts preempt jurisdiction to hear the mattersrelatingtothesugarcontractasacounterclaiminthisproceeding.Tohearsuchacounterclaim

isnotonlyagainstcarefullychosenarbitrationforuminthesugarcontract,butisalsoagainst

some rules of commodity trading currently in use throughout the international economic

community. Again, the prudent choice is to allow arbitration according to the Oceania

CommodityAssociation, inOceania,according to thepartiesoriginal intent,understanding

andneeds.

III. If thisTribunalwas toHearRESPONDENTsCounterclaim, theAwardmayRun theRiskofnotBeingEnforced

50. Besidesbeingmanifestly against the parties original understanding and intent, if thisTribunalweretoallowRESPONDENTtosubmititsunrelatedcounterclaimitwouldruntherisk

ofnonenforcementundertheNewYorkConvention[NewYork

Convention,

V(1)(c);

Coe,

56]. A

tribunals mandate is circumscribed by the arbitral agreement [Coe, 55]; basic tenets of

InternationalCommercialArbitrationrequireadjudicationwithinthesebounds[Id.]. Whenan

awardisinexcessofthesubmissionofthepartiesagreement,thatawardcanbeattacked[Id.,

56]. Specifically, the New York Convention, to which both parties home countries are

members,allowsan enforcing state todecline recognitionofanarbitral awardwhen[t]he

award dealswith a difference not contemplatedby or not fallingwithin the terms of the

submission to arbitration, or it contains decisions on matters beyond the scope of the

submissiontoarbitration[NewYorkConvention,V(1)(c)]. Thus,ifthisTribunalweretoapply

SwissRulesArticle21(5)andhearthiscounterclaim,itwouldruntheriskofnonenforcement

ofthatportionoftheaward,thereforemakingallthecostandeffortofarbitratingthematter

23


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senseless.Theprudentcourseofactionwouldbetohonorthepartiesoriginalunderstanding

toarbitrateanddenyapplicationofSwissRulesArticle21(5), thussavingunnecessarycosts

andburdenandgrantingthepartiestheirrightfullycontractedforexpectations.

PART FOUR: IF THIS TRIBUNAL HAS JURISDICTION TO CONSIDER THE COUNTERCLAIM, THE

RECOVERYSHOULDBELIMITEDTOSETOFFTHEAMOUNTRECOVEREDBYCLAIMANT

51. In the event that the Tribunal finds that it has jurisdiction to consider RESPONDENTscounterclaim, the amount of recovery shouldbe a setofflimited to that recoveredby

CLAIMANTinthecocoadispute.TheintentofthedraftersoftheSwissRuleswasnottoequate

the terms counterclaimand setoff.Moreover, legaljurisprudence inboth common lawand

civillawjurisdictionsdistinguishdemandsofcounterclaimfromthoseofsetoff.Furthermore,

theweightofauthoritylimitsasetoffdefencetotheamountofrecoveryhadbytheoriginal

claim.

I. The Intentof theDrafterswas toMake theSetoffDefenceDistinct from thatofCounterclaim

52. SwissRulesArticle21(5)plainlystatesthat[t]hearbitraltribunalshallhavejurisdictiontohearasetoffdefencebutexcludesfromthisstatementanequalprovisionforcounterclaims

[SwissRules,art.21(5)(emphasisadded)].StrictinterpretationoftheentireSwissRuleswould

dictatethatthedraftersintentionallyexcludedcounterclaimsfromArticle21(5).Forexample,

SwissRulesArticle3(9)states inpart,Anycounterclaimorsetoffdefenceshallinprinciplebe

raisedwith theRespondentsAnswer to theNotice ofArbitration [Id., art. 3(9) (emphasis

added)].Iftheintentofthedrafterswastoallowarespondentthefullrightsofacounterclaim

inArticle21(5),theywouldhaveexplicitlyprovidedthisasinArticle3(9).Further,iftheintent

ofthedrafterswastoequatethetermscounterclaimwithsetoffdefence,thentheywould

nothaveseparatelyidentifiedthetwotermsthroughouttheremainderoftheSwissRules.

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37/41


53. TheUNCITRALArbitrationRulesandtheZurichRulesprovidesupportforthenotionthatasetoffdefenceistobereadassomethinginherentlydifferentthanacounterclaim.Thenew

SwissRulesweremodeledaftertheUNICTRALArbitrationRules[SwissRules, Introduction],

whichstate

in

Article

19

that

the

respondent

may

make

acounter

claim

arising

out

of

the

same

contract or rely on a claim arising out of the same contract for the purpose of a setoff

[Arbitration Rules, art. 19(3) (emphasis added)]. Likewise, the Zurich Rules emphasize this

distinctionbyproviding tribunaljurisdictionoveracounterclaim independentofjurisdiction

overasetoffdefence[ZurichRules,arts.26&27].Whenasetofarbitrationrulesbearsseparate

provisionsforacounterclaimandasetoffdefence,the intentofthedraftersmusthavebeen

thatthesetwotermswouldeffectuatedifferingresults.

II. LegalJurisprudenceDistinguishesSetofffromthatofCounterclaimandHoldsthatSetoffMaynotbeUsedtoObtainaPositiveRecovery

a. Setoffisdistinctfromcounterclaim54. Setoff,orcompensationas termed incivil lawjurisdictions,maygenerallybedefinedas

[a]defendantscounterdemandagainsttheplaintiff,arisingoutofatransactionindependent

oftheplaintiffsclaim[BlacksLaw

Dictionary,

1404].Asopposedtoasetoff,acounterclaimis

aseparateclaim,whichmuststillbedecideduponbythearbitratorswhentheoriginalclaim

iswithdrawnorsettled [Pellonp,348].Putanotherway,acounterclaimmustrelate to the

originalclaim,whereasthesetoffmerelyindicatestheexistenceofadebtthatextinguishesall

orpartoftheclaimantsclaim.[Id.,373].However,themostimportantdistinctionbetweenthe

twoisthatunlikeacounterclaim,asetoffmaynotexceedtheamountoftheoriginalclaim[Id.,

348;Berger,60(Contrarytoacounterclaim,therespondentcanrecovernothingforhimself.)].

55. Thedistinctionbetweensetoffandcounterclaimisexplicitlyrecognizedinbothcommonlawandcivillawjurisdictions.

French law distinguishes between demande reconventionelle and

moyensdedefenseaufond,Englishlawbetweencounterclaimand

setoff as a defence, German law between Widerklage and

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Prozessaufrechnung, and Italian law between domanda

riconvenzionaleandeccezionedi compensazione [DanvaernProd.v.

Schuhfabriken(ECJ),17].

56. In theUnitedStates, theOregonSupremeCourtstated thedistinctionsimply,[S]etoffandcounterclaimarenotsynonymousterms[RogueRiverMgmt.Co.v.Shaw(USA),442].The

FrenchCivilCodedefinessetoff (compensation)as theextinguishmentof twodebts [French

CivilCode,art.1289]andthecivilprocedurelawdeclaresthat[n]ocounterclaimisrequiredif

the defendantwants to set off liquidated debt against the plaintiffs claim [Pellonp, 373

(citingP.Herzog,CivilProcedureinFrance,MartinusNijhof,1967,p.277)].

b. Setoffmaynotexceedtheamountoftheoriginalclaim57. Setoffis not a device to attack but a mere defence of the respondent against the

claimantsclaim[Berger,60].WhendefenceofsetoffwasfirstenactedbyEnglishstatute in

1729[RogueRiverMgmt.Co.v.Shaw(USA),442;Greenv.Farmer(ENG),158]itprovidedthatno

affirmativejudgmentcouldberecoveredbydefendantagainsttheplaintiff[RogueRiverMgmt.

Co.v.Shaw(USA),442;seealsoBerger(providingadetailedhistoryofsetoffinRoman,Civil,

and Common law jurisdictions)]. In Germany, the law defines setoff as the mutual

redemptionofreciprocaldebtsandexplainsthat[t]heeffectofthesetoffistoextinguishthe

twoclaims to theextent theyarecongruent, i.e.,up to theamountof the lesserclaim [Bus.

Trans.Ger.,2(a)(ii)].InSwitzerland,Article124oftheSwissCodeofObligationsprovidesthata

setoffallowsforthedischargeofanoutstandingdebt[Burger,4;seealsoCraig/Park/Paulsson,

101],whileRussias InternationalCommercialArbitrationCourtprovides thatcounterclaims

maybe raisedduring theproceedingsprovided that theyoperate indirectsetoffof claims

previouslyasserted

[ODonnell,

806].

58. In theUnitedStates,adefendantwhohaspleadedsetoff isnotentitled to recover theexcessofhisclaimovertheplaintiffsdemand[CJS,110;Am.Jur.2d.,6(Althoughsetoff

may be used to offset a plaintiffs claim, it may not, however, be used to recover

affirmatively.)].U.S. courts have consistently upheld this limitation [See e.g. Schenck, 134;

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39/41


Matasar,1475(Asetoffisacounterclaimthatisuseddefensively:i.e.,adefendantmaynot

receiveany independentreliefunder theclaimandmayuse itonly toreduceanyjudgment

ultimatelyobtainedby theplaintiff.);Mack,449 (Setoff isan independentdemandof the

defendant,made

to

counterbalance

that

of

the

complainant

in

whole

or

in

part.)

(emphasis

added)].ThereasoningforthislimitationwasspelledoutbytheFourthCircuitinInreJohnson.

[S]etoffdoes not go to the foundation or justice of a plaintiffs claimand as such

constitutesadefenceonlyinthepracticalsensethatitoperatestoreducethe[plaintiffs]remedy

[InreJohnson,1078(emphasisadded)].

c. Modellawprescribesthelimitingnatureofsetoff59. Whereadisputearisesregardingthemeaningorusageofaterm,theUNIDROITPrinciples

(Principles)areintendedtobeusedasameansofinterpretingandsupplementingexisting

internationalinstruments[UNIDROIT1994,Preamble;Craig/Park/Paulsson,632].Assuch,the

Principlesmayfurtherserve to interpret theprecisemeaningofsetoffas iswritten in the

SwissRules.TheUNIDROITPrincipleswererevised in2004and includeanewchapterthat

specifically defines setoff [Bonell, 14]. The revised Principles define setoff as the situation

wheretwo

parties

owe

each

other

money

or

other

performances

of

the

same

kind

and

subsequentlyprovidethatifthetwoobligationsdifferintheiramount,setoffwilldischarge

the obligations up to the amount of the lesser obligation [Id. (emphasis added)].Under this

definition, RESPONDENTs setoff defence would be limited to the amount of the lesser

obligationthatbeingCLAIMANTsclaim.

60. TheUniformCommercialCode(U.C.C.)offersasimilarlimitingclausewhichimpliesthatsetoffdamagesshouldbelimitedtotheamountoftheoriginalclaim.U.C.C.2717provides:

Thebuyeronnotifyingthesellerofhisintentiontodosomaydeductall

oranypartofthedamagesresultingfromanybreachofthecontractfrom

anypartofthepricestilldueunderthesamecontract[Id.].

The language conveys the notion that the setoffmaybe in all or in part of the damages

resultingfromthebreach.

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40/41


61. PrecedentarbitraldecisionshavenotclarifiedthescopeofasetoffasiswrittenintheSwissRules.Althoughpriorarbitraldecisionshaveencounteredsetoff,thesedecisionshavenotbeen

facedwith a setoff in excess of the original claim [E.g. ICC 3540].Therefore, thisTribunal

shouldlook

to

precedents

and

decisions

from

other

courts.

III. FairnessConsiderationsDemand thatSetoffDefencesbeTreatedDifferentlythanCounterclaims

62. Aspreviouslyhighlighted,unlikesetoffs,counterclaimsmustrelatetoorariseoutoftheunderlyingtransaction[supra,55].Inthepresentcase,RESPONDENTssetoffdefencedoesnot

ariseout

of

the

original

cocoa

claim.

For

this

reason,

fairness

would

demand

that

the

scope

of

the setoff defence be more limited than that of the counterclaim [Seibert, 449 (The

counterclaimis broader and more comprehensive thansetoff.)]. This argument was

eloquentlystatedbyChiefJusticeCockburninStookev.Taylor[Stookev.Taylor(ENG),576].

But themost strikingdifference is that the counterclaimoperates,not

merely as a defence, as does the setoff, but in all respects as an

independentactionbythedefendantagainsttheplaintiff.Totheextentto

whichthedamagesaccruingtothedefendantonthecounterclaimmay

bein

excess

of

those

accruing

to

the

plaintiff

on

his

claim,

the

defendant

becomes entitled to judgment, with this additional advantage that,

havingbeenobliged tomeet theplaintiffon the forum chosenby the

latter,heisnotbound,astocosts,bytheconditionsonwhichtheplaintiff

dependsforobtainingthem[Id.].

63. Ifsetoffdefencescouldproduceawardsgreaterthanthatoftheoriginalclaim,respondentscouldavoidunfavorable forumsbyraisingcompletelyunrelatedclaims infavorableforums.

For example,CLAIMANT andRESPONDENT agreed to arbitratedisputes relating to the sugar

contractwith theOceaniaCommodityAssociation [RespondentsAnswer, 17] presumably

because they found this forum tobemostappropriate.However,RESPONDENTmay feel that

thisforumisunfavorabletotheirclaimandwishtosettletheclaiminamorefavorableforum,

suchastheChamberofCommerceandIndustryofGeneva.Therefore,aliberalapplicationof

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setoff, allowing awards greater than that of the original claim, may result in forum

shoppingwhereapartychoosestoraiseitsclaimsintheforummostfavorabletoit.

REQUESTFORRELIEF

Inlightoftheaboveargumentsandsubmissions,CounselforCLAIMANTrespectfullyrequests

thattheTribunalfindthat:

RESPONDENTfundamentallybreachedthecocoacontract; RESPONDENTwasnotexcusedfromperformingitsobligation; CLAIMANTavoidedthecocoacontractandisentitledtorecoverdamages; damagesshouldbeUSD289,253.00pursuanttoeitherCISGArticles74,75,or76; theTribunallacksjurisdictiontohereRESPONDENTscounterclaim; and,iftheTribunalhearsthecounterclaim,itshouldbelimitedtothesetoffamount.

Signed,

LacyJohnson ElaheParsa JamesRogers BrettThorstad

CounselforCLAIMANT.

Documents

Hong Kong International Commercial Arbitration Moot