MEMORANDUM For CLAIMANT - lawasiamoot.orglawasiamoot.org/pdf/competition2011/M2020-C.pdf · Constantine Partaside Book Name Redfern and Hunter on International Arbitration, ... [MEXICO

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


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


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


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


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


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


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


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

http://www.google.com/search?hl=zh-TW&tbo=p&tbm=bks&q=inauthor:%22Peter+Huber%22

http://www.google.com/search?hl=zh-TW&tbo=p&tbm=bks&q=inauthor:%22Alastair+Mullis%22


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.


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


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


xi


[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


xii


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,


22

ICC Award No. 8817 of 00.12.1997, ICC International Court of Arbitration – Paris,


24

ICC Award No.10021 of 2000, ICC International Court of Arbitration,


25

ICC Awards No. 11256 of 2003, ICC International Court of Arbitration,


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


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.


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.


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


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


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


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.


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.


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


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.


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.


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


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.


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


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.


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.


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.


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


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.


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.


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.


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.


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.


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.


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


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


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.


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.


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.


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.


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.


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.


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.


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.


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.


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).


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.


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.


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)].


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.

http://www.google.com/search?hl=zh-TW&tbo=p&tbm=bks&q=inauthor:%22Peter+Huber%22

http://www.google.com/search?hl=zh-TW&tbo=p&tbm=bks&q=inauthor:%22Alastair+Mullis%22


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.


32

Claimant duly notified the non-conformity and can rely on the lack of conformity to seek

remedies from the Respondent.


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.


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.


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.


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..


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.


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.

Documents

MEMORANDUM For CLAIMANT - lawasiamoot.orglawasiamoot.org/pdf/competition2011/M2020-C.pdf · Constantine Partaside Book Name Redfern and Hunter on International Arbitration, ... [MEXICO