MEMORANDUM FOR CLAIMANT - Institute of International ...INTERNATIONAL COMMERCIAL ARBITRATION MOOT Vienna, Austria 22 – 28 March 2013 MEMORANDUM FOR CLAIMANT UNIVERSITY OF SYDNEY

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TWENTIETH ANNUAL

WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT

Vienna, Austria

22 – 28 March 2013

MEMORANDUM FOR CLAIMANT

UNIVERSITY OF SYDNEY LAW SCHOOL

On Behalf Of: CLAIMANT Mediterraneo Exquisite Supply, Co. 45 Commerce Road Capital City, Mediterraneo Tel. (0) 485 62 11 Telefax (0) 485 62 11 [email protected]

Against: RESPONDENT Equatoriania Clothing Manufacturing, Ltd. 286 Third Avenue Oceanside, Equatoriania Tel. (0) 238 86 00 Telefax (0) 238 86 01 [email protected]

NICHOLAS BOYCE | KATIA CONTOS | SOPHIE MALTABAROW | ROISIN McCARTHY

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MEMORANDUM FOR CLAIMANT 2

TABLE OF CONTENTS

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INDEX OF AUTHORITIES !&Abbreviation Full citation Cited in STATUTES and TREATIES CISG United Nations Convention on Contracts for the

International Sale of Goods, Vienna 1980 1; 4- 18; 20; 22 - 24; 27;; 33; 49 - 50; 52; 55 - 56; 63 - 66; 68; 71 - 72; 75 - 76; 80; 82 - 84; 87; 89; 92 - 94; 96 - 97; 99 - 102; 0; 107

ILO 1998 Declaration

ILO Declaration on Fundamental Principles and Rights at Work, International Labour Conference, 86th Session Geneva, June 1998

69; 79

ILO 1999 Worst Forms of Child Labour Convention

International Labour Organization Convention on the Worst Forms of Child Labour Convention, 1999 (No. 182)

79; 80; 81

ILO 1973 Minimum Age Convention

ILO Minimum Age Convention, 1973 (No. 138) 69; 80

NY Convention Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 1958

28

OECD Guidelines OECD Guidelines for Multinational Enterprises http://www.oecd.org/daf/internationalinvestment/guidelinesformultinationalenterprises/48004323.pdf

69

UCL Contract Law of the People’s Republic of China, Second Session of the Ninth National People’s Congress, 1999

17

UNICITRAL Model Law

1985 UNCITRAL Model Law on International Commercial Arbitration, with amendments as adopted in 2006

38

UNIDROIT Principles

1985 UNCITRAL Model Law on International Commercial Arbitration, with amendments as adopted in 2006

24; 55; 71

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Abbreviation Full citation Cited in UN Global Compact

UNIDROIT Principles of International Commercial Contracts, 2010

67

UNCESCR UN Global Compact http://www.unglobalcompact.org/aboutthegc/thetenprinciples/index.html

69

CEAC Rules UN Convention on the Economic, Social and Cultural Rights 1976 http://treaties.un.org/doc/Treaties/1976/01/19760103%2009-57%20PM/Ch_IV_03.pdf

17; 19; 35 - 36; 44

IBA Rules UNIDROIT Principles of International Commercial Contracts, 2010

35 - 40; 42; 43; 46; 105

SCHOLARLY WORKS AND ARTICLES

Alston Alston, Gary “Core Labour Standards” and the Transformation of the International Labour Rights Regime in V.A. Leary and D. Warner (eds.) Social Issues, Globalisation and International Institutions Kininklijke Brill NV, Netherlands, 2006, pp. 1-88.

79

Author in Bianca-Bonnell Commentary

Will in Bianca, Cesare Massimo and Bonell, Michael Joachim (eds.) Commentary on the International Sales of Law, the 1980 Vienna Sales Convention Giuffre, Milan, 1987

91

Bockstiegel Bockstiegel, Karl-Hanz, The Role of the Arbitrators in Investment Treaty Arbitration in van den Berg, Albert (ed.) International Commercial Arbitration: Important Contemporary Questions ICCA Congress Series, No. 11 Kluwer Law International, The Hague, 2003

41

Born 2011 Born, Gary International Commercial Arbitration: Commentary and Materials Kluwer Law International, New York, 2010

28

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Abbreviation Full citation Cited in Born/Kent Born, Gary; Kent, Rachael

The “Internationalisation” of International Commercial Arbitration 2005 Chambers Client Report 22

37

CISG Advisory Council Opinion No. 6

Gotanda, John Y., Rapporteur: Professor John Y Gotanda, Villanova University School of Law, Villanova, Pennsylvania, USA. CISG-AG Opinion No. 6 Calculation of Damages under CISG Article 74, 2006

99; 100

Commentary 2010 IBA Rules

Commentary on the revised text of the 2010 IBA Rules on the Taking of Evidence in International Arbitration, 1999 IBA Working Party & 2010 IBA Rules of Evidence Review Subcommittee

38

Dimolitsa Dimolitsa, Antonias Giving Evidence: Some reflections on oral evidence vs documentary evidence and on the obligations and rights of the witnesses in Arbitration and Oral Evidence ICC Institute of World Business Law 2004

38

Di Matteo et al. Di Matteo, Larry; Dhooge, Lucien; Greene, Stephanie; Maurer, Virginia; Pagnattaro, Marisa International Sales Law: A Critical Analysis of CISG Jurisprudence Cambridge University Press, New York, 2005

37

Enderlein & Maskow

Enderlein, Fritz and Maskow, Dietrich International sales law : United Nations Convention on Contracts for the International Sale of Goods Oceana Publishing, New York, 1992

78

Ferrari Ferrari, Franco Fundamental Breach of Contract under the UN Sales Convention – 25 Years Article 25 CISG International Business Law Journal 389, 2005

87; 90

Flechner 1998 Flechner, Harry The Several Texts of the CISG in a Decentralized System: Observations on Translations, Reservations and other Challenges to the Uniformity Principle in Article 7(1) 17 Journal of Law and Commerce 187, 1998

23

Fortier Fortier, Yves, International Arbitration and National Courts: Who Has The Last Word? in International Arbitration and National Courts: The Never Ending Story ICCA Congress Series No. 10, ed. Albert Jan van den

44

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Abbreviation Full citation Cited in Berg Kluwer Law International, The Hague, 2001

Fouchard/Gaillard/Goldman

Gaillard, Emmanuel; Savage, John (eds.) Fouchard Gaillard Goldman on International Commercial Arbitration Kluwer Law International, The Netherlands, 1999

25

Gélinas Gélinas, Paul Evidence Through Witnesses in Arbitration and Oral Evidence ICC Institute of World Business Law, 2004

38; 45

Graffi Graffi, Leonardo Case Law on the Concept of “Fundamental Breach” in the Vienna Sales Convention 3 International Business Law Journal 338, 2003

87

Hanotiau

Hanotiau, Bernard Document Production in International Arbitration: A Tentative Definition of “Best Practices” in ICC International Court of Arbitration Bulletin 2006 Special Supplement: Document Production in International Arbitration ICC Publishing, Paris, 2006

36

Henschel 2004 Henschel, René Conformity of Goods in International Sales Governed by CISG Article 35: Caveat Venditor, Caveat Emptor and Contract Law as Background Law and as a Competing Set of Rules Nordic Journal of Commercial Law, 2004/1 http://www.cisg.law.pace.edu/cisg/biblio/henschel2.html#ii

82

Henschel 2005 Henschel, René Conformity of goods in international sales Forlage Thomson, Copenhagen, 2005

75

Honnold 1989 Honnold, John Documentary History of the Uniform Law for International Sales: The Studies, deliberations and decisions that led to the 1980 United Nations Convention with introductions and explanations Kluwer Law and Taxation Publishers, 1989

11; 12

Honnold 2009 Honnold, John Uniform Law for International Sales under the 1980 United Nations Convention (4th ed.)

12; 21

!


Abbreviation Full citation Cited in Kluwer Law International, Deventer, The Netherlands, 2004

Huber/Mullis Huber, Peter and Mullis, Alastair CISG : A New Textbook for Students and Practitioners Sellier, Munich, 2007

12; 65; 82

Lew/Mistelis/Kröll Lew, Julian; Mistelis, Loukas, A and Kröll, Stefan Comparative International Commercial Arbitration Kluwer Law International, The Netherlands, 2003

19

Lorenz Lorenz, Alexander Fundamental Breach under the CISG 1998 http://www.cisg.law.pace.edu/cisg/biblio/lorenz.html.

87; 90

Mehren/Salomon Mehren, George and Salomon, Claudia Evidence in an International Arbitration: The Common Lawyer's Guide 20(3) Journal of International Arbitration 285, 2003

36

Moens/Sharma Moens, Gabriël and Sharma, Rajesh The CEAC Hamburg Arbitration Rules: A European-Chinese Trade-Related Adaptation of the Revised UNCITRAL Arbitration Rules 2010 http://cisgw3.law.pace.edu/cisg/moot/CEAC_Rules_Moens_Sharma.pdf

17

Park Park, William Arbitration’s Protean Nature: The Value of Rules and the Risks of Discretion 16 Mealey’s Intl. Arb. Rep. 37, 2001

45

Redfern/Hunter Blackaby, Nigel; Partasides, Constantine, et al Redfern and Hunter on International Arbitration Oxford University Press, New York, 2009

32

Schlechtriem 2001 Schlechtriem, Peter (Todd J. Fox (trans.)) Uniform Sales Law in the Decisions of the Bundesgerichtshof in 50 Years of the Bundesgerichtshof [Federal Supreme Court of Germany]: A Celebration Anthology from the Academic Community (2001) http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem3.html#iv

76

Schlechtriem 2007 Schlechtriem, Peter Non-material Damages – Recovery Under the CISG? 19 Pace International Review 89, 2007

65

Author in Schlechtriem, Peter and Schwenzer, Ingebor (ed. 10; 55; 57;

!


Abbreviation Full citation Cited in Schlechtriem/ Schwenzer 2010

Schwenzer) Commentary on the UN Convention on the International Sale of Goods (CISG) (3rd ed.) Oxford University Press, Oxford, 2010

58; 68; 81; 82; 90; 9397; 99

Schwenzer/ Leisinger

Schwenzer, Ingeborg and Leisinger, Klaus Ethical Values and International Sales Contracts in Cranston/Ramberg/Ziegel (eds) Commercial Law Challenges in the 21st Century – Jan Hellner in memoriam Uppsala, Stockholm, Stockholm Centre for Commercial Law, 2007, 249-76 http://cisgw3.law.pace.edu/cisg/biblio/schwenzer-leisinger.html

65; 66; 80; 92

Schroeter Schroeter, Ulrich Backbone or Backyard of the Convention? The CISG’s Final Provisions http://www.cisg.law.pace.edu/cisg/biblio/schroeter5.html

21

UNIDRIOT Official Comment

International Institute for the Unification of Private Law Official Commentary, UNIDROIT Principles Of International Commercial Contracts (UNIDRIOT), Rome, 2010

24

Veeder Veeder, V in Introduction to Arbitration and Oral Evidence ICC Institute of World Business Law 2004

45

Waincymer Waincymer, Jeffrey Procedure and Evidence in International Arbitration Kluwer Law International, 2012

37; 38

Wang/Andersen Wang, Xiaolin and Andersen, Camilla, Baasch The Chinese Declaration against Oral Contracts under the CISG 8 Vindobona Journal of International Commercial Law & Arbitration, 145, 2004

17; 23

Winship Winship, Peter Harmonizing Formal Requirements for Cross-Border Sales Contracts International Review of Law, 2012 http://dx.doi.org/10.5339/irl.2012.6

21; 22

!


Abbreviation Full citation Cited in Wolff Wolff, Lutz-Christian

Hong Kong's Conflict of Laws: Quo Vadis 6(2) Journal of Private International Law 465, 2010

32

WTO Labour Standards

WTO Labour standards: consensus, coherence and controversy http://www.wto.org/english/thewto_e/whatis_e/tif_e/bey5_e.htm

34

Zeller Zeller, Bruce Damages under the Convention on Contracts for the International Sale of Goods, 2nd ed. Oxford University Press, USA, 2009

99; 101

ARBITRAL AWARDS

China International Economic and Trade Arbitration Commission

Engines case CIETAC Arbitration Proceeding China, 6 September 1996 http://cisgw3.law.pace.edu/cases/960906c1.html !

21

Lindane case CIETAC Arbitration Proceeding China, 31 December 1997 http://cisgw3.law.pace.edu/cases/9719LXc1.html

21

Tinplate case CIETAC Arbitration Proceeding China, 16 October 1996 http://www.cisg.law.pace.edu/cisg/wais/d=[4)7'79[FBXMX\4X8&/3(!!

21

Court of Arbitration of the International Chamber of Commerce ICC Case 4132/1999

ICC Award Case No. 4132 110 Journal du Droit International (Clunet), 1983

33

JUDICIAL DECISIONS

Austria

!


Abbreviation Full citation Cited in Scaffolding Hooks case

Austrian Supreme Court (Oberster Gerichtshof)

19 April 2007

http://cisgw3.law.pace.edu/cases/070419a3.html

76

Belgium

N. V. Maes v N. V. Kapa Reynolds

N. V. Maes v N. V. Kapa Reynolds

Appellant Court Gent

10 May 2004, Case No. 2003/AR/2026

http://cisgw3.law.pace.edu/cases/990210s1.html

100

Canada

Chateau Des Charmes Wines

Chateau Des Charmes Wines Ltd v Sabaté USA, Inc

Ontario Super Ct

28 October 2005, CISG-online 1139, http://cisgw3.law.pace.edu/cases/051028c4.html

54

Germany

Glass Bottles case

BGH

27 November 2007, CISG-online 1617, http://cisgw3.law.pace.edu/cases/071127g1.html

52

Judgment of 12 July 1990

GBH

1990 NJW 3210

28

Organic Barley case

OLG München

13 November 2002, CISG-online 786

http://www.cisg-online.ch/cisg/urteile/786.pdf

65

NZ Mussels case BGH

8 Mar 1995, CISG-online 144 = NJW 1995, 2099

http://www.cisg3.law.pace.edu/cases/950308g3.html

76; 77; 79

Spanish Paprika case

LG Elwangen 1 KfH O 32/95 http://cisgw3.law.pace.edu/cases/950821g2.html

76; 77

Hong Kong

!


Abbreviation Full citation Cited in Hebei Import Hebei Import & Export Corporation v. Polytek

Engineering Company Limited (1999) 2 HKC 205 29

Pacific China Holdings

Pacific China Holdings Ltd v Grand Pacific Holdings Ltd CACV 136/2011

41; 45

New Zealand

NZ Truck case RJ & AM Smallmon and Transport Sales Limited v Grant Alan Miller

New Zealand Court of Appeal

[2011] NZCA 340, 22 July 2011

http://cisgw3.law.pace.edu/cases/100730n6.html

76

Russia

Judgment of 25 March 1997

Electrim (Poland) v. Firma Kosmos High Arbitration Court of the Russian Federation Ruling No. 6, Resolution No. 4670/96 http://cisgw3.law.pace.edu/cases/970325r1.html

21

Switzerland

Art books case Art books case

Commercial Court Zurich , 10 February 1999, Case No. HG 970238.1


100

Sports clothing case Tribunal Cantonal du Valais

29 June 1998


83

USA

MCC-Marble MCC-Marble Ceramic Center Inc v Ceramica Nuova D’Agostino

US Federal Court of Appeals

144 F.3d 1384 (11th Cir. 1998)

http://www.cisg.law.pace.edu/cases/980629u1.html

15

Medical Marketing International

Medical Marketing International, Inc v Internazionale Medico Scientifico SRL

76; 77

!


Abbreviation Full citation Cited in US District Court (ED Louisiana)

17 May 1999, CISG-online 387

http://cisgw3.law.pace.edu/cases/990517u1.html

!


TABLE OF ABBREVIATIONS &Art./Arts. Article/Articles CEAC Chinese European Arbitration Centre CEAC Rules CEAC Hamburg Arbitration Rules 2012 CISG United Nations Convention on Contracts for the International

Sale of Goods, Vienna, 11 April 1980

Cl. Ex Claimant’s Exhibit e.g. Exempli gratia (for example) IBA Rules International Bar Association Rules on Taking of Evidence in

International Arbitration, 2010

Model Law on Arbitration

UNICITRAL Model Law on International Commercial Arbitration, 1985

No. Number p./pp. Page/Pages para. Paragraph Proc. Ord. Procedural Order Resp. Ex. Respondent’s Exhibit

St. of Cl. Statement of Claim

St. of Def. Statement of Defence

UCL Contract Law of the People’s Republic of China, Second Session of the Ninth National People’s Congress, 1999

&

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ACTORS Claimant

Mediterraneo Exquisite Supply, Co (“CLAIMANT ”). Clothing supplier based in Mediteranneo. Subsidiary of Oceania Plus.

Respondent

Equatoriana Clothing Manufacturing, Ltd (“RESPONDENT”). Clothing manufacturer based in Equatoriana.

Oceania Plus

Oceania Plus Enterprises (“Oceania Plus”). Joint owner of CLAIMANT. Owner of Doma Cirun and several other retail clothing chains.

Doma Cirun

Retail clothing chain located primarily in Oceania with some markets in Equatoriana. Owned by Oceania Plus.

STATEMENT OF FACTS

2011 2 January

Doma Cirun contacts CLAIMANT to search for a new manufacturer to complete an order of polo shirts on a rush basis.

2 – 4 January

CLAIMANT identifies RESPONDENT as capable of fulfilling the order. CLAIMANT last contracted with RESPONDENT in April 2008. During an audit of RESPONDENT prior to contracting, CLAIMANT discussed Oceania Plus’s ethical policy and suspicions that RESPONDENT used child labour.

5 January

CLAIMANT and RESPONDENT enter into a contract for the delivery of 100 000 polo shirts (“parties’ contract”). Delivery is required by 19 February 2011. The polo shirts must be distributed to Doma Cirun’s Oceania stores in time for the launch of the summer selling season on 15 March 2011. Article 12 of the contract requires that RESPONDENT ‘conform to the highest ethical standards in the conduct of [its] business’. Article 12 is incorporated into the contracts between all Oceania Plus subsidiaries and their suppliers.

7 January

CLAIMANT concludes a supply contract with Doma Cirun.

9 February

RESPONDENT’S Contracting Officer, Mr Short, advises CLAIMANT’S Procurement Specialist, Mr Long, by telephone that RESPONDENT cannot make the shipping date of 19 February 2011. Mr Short states the shirts could be ready by 24 February 2011. Mr Long stresses the importance of the 19 February delivery date, but amends the letter of credit and arranges shipping for 24 February 2011.

10 February

Mr Long informs Doma Cirun of the delay. Doma Cirun advises CLAIMANT that it will be held responsible.

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2011 cont. 24 February

The polo shirts are delivered to Oceanside, Equatoriana.

11 March

The polo shirts are delivered to Doma Cirun warehouse.

5 April Channel 12 television broadcasts a ‘shocking documentary’ showing child labour allegedly at one of RESPONDENT’S production facilities and condemning Oceania Plus and Doma Cirun.

After 5 April

Demonstrations occur at Doma Cirun stores throughout Oceania.

6 April

Sales in Doma Cirun stores are 30% below those of the previous year and continue to drop progressively to almost nothing.

8 April

Oceania Times publish an investigative article concerning the use of child labour in the supply chains of leading firms. The article also describes Oceania’s leading efforts in combatting child labour.

Late afternoon, 8 April

Doma Cirun initially notifies CLAIMANT by telephone of its intention to avoid the contract and that CLAIMANT should arrange to dispose of the remaining polo shirts. CLAIMANT notifies RESPONDENT by telephone that contract is avoided and demands RESPONDENT arrange to dispose of the unsold stock.

10 April

RESPONDENT receives written notice of avoidance of contract with CLAIMANT. RESPONDENT writes to CLAIMANT denying breach of contract and refusing to deal with the unsold stock.

20 April

CLAIMANT sells remaining polo shirts to Pacifica Trading Co. CLAIMANT contracts with Gold Service Clothing for 90, 000 polo shirts for on a rush basis, at Doma Cirun’s request.

15 September 2012

Doma Cirun bring arbitration proceedings against CLAIMANT.

14 January The arbitration between CLAIMANT and Doma Cirun is settled. CLAIMANT settles lawsuits made by the Children Protection Fund of Oceania and the other investors.

15 February

Oceania Plus brings suit against CLAIMANT in Oceania claiming reimbursement of the settlement sum paid by Oceania Plus to the investors.

25 June

CLAIMANT agrees to pay the full amount claimed by Oceania Plus.

1 July

CLAIMANT submits a request for arbitration to the CEAC Arbitration Institute (“CEAC”).

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SUMMARY OF ARGUMENT

1. Requirements of writing apply to the contract between CLAIMANT and RESPONDENT.

The reservation by Mediterraneo under Art. 96 CISG applies to the parties’ contract. This

means that that the freedom of form provisions in the CISG do not apply. The parties’

purported exclusion of Mediterraneo’s Art. 96 reservation should not be enforced by the

Tribunal due to the mandatory nature of Art. 12 CISG. It was not the parties’ intention to

exclude Mediterraneo’s reservation and even if it was, public policy requires the Tribunal

to give effect to the reservation. The Tribunal must apply the law Mediterraneo to the

form of the contract. Accordingly, the contract cannot be orally amended.

2. The witness statement of Mr Short should not be considered by the Tribunal in his

absence. The Tribunal cannot consider Mr Short’s written testimony if he cannot be

present for an oral hearing. The IBA Rules and general principles of procedural fairness

require the Tribunal to disregard the statement. The veracity of Mr Short's statement can

only be ascertained through cross-examination. Failure to afford CLAIMANT this right

when requested would be procedurally unfair and would carry serious public policy

implications.

3. RESPONDENT’S late delivery breached the contract. RESPONDENT’s failure to deliver

the goods on the date stipulated in the contract amounted to a breach of contract.

RESPONDENT’s allegation that the delivery date was amended should be rejected by the

Tribunal because the parties did not agree to expressly or impliedly modify the contract.

CLAIMANT is entitled to recover the fixed sum for late delivery as specified under the

contract, and other damages that resulted from RESPONDENT's breach.

4. RESPONDENT breached the contract for non-conformity of goods. RESPONDENT used

child labour in one of its factories. Article 12 of the parties’ contract created an express

condition of quality which encompassed compliance with ethical standards.

Accordingly, RESPONDENT breached the express contractual quality under Art. 35(1)

CISG. Additionally, RESPONDENT breached Art. 35(2) CISG because the polo shirts

were not fit for the particular purpose expressly or impliedly made known to

RESPONDENT.

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5. RESPONDENT’S breach for non-conformity was a fundamental breach entitling

CLAIMANT to avoid the contract. CLAIMANT had grounds to avoid the contract by

virtue of RESPONDENT’S breach under Art. 35(1) CISG. CLAIMANT was entitled to

expect that the goods would comply with the parties’ contract so that CLAIMANT could

fulfil its subsequent contract with Doma Cirun. RESPONDENT’S failure to deliver polo

shirts of the quality required by the contract substantially deprived CLAIMANT of this

expectation. CLAIMANT was therefore entitled to declare the contract avoided.

6. CLAIMANT is entitled to damages for RESPONDENT’S breach of conformity.

CLAIMANT wholly performed their obligations under the contract and therefore may

claim restitution of the full purchase price. In accordance with the principle of full

compensation under Art. 74 CISG, CLAIMANT is entitled to damages for consequential

loss resulting from settlements with third parties. CLAIMANT took reasonable measures

to mitigate their loss resulting from RESPONDENT’S breach.

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ARGUMENT ON PROCEDURE

I. REQUIREMENTS OF WRITING APPLY TO THE CONTRACT BETWEEN

CLAIMANT AND RESPONDENT

7. CLAIMANT submits that in order to be effective, any modification to the contract between

CLAIMANT and RESPONDENT must be made in writing. CLAIMANT’S place of business is

in Mediterraneo [St. of Cl., para. 5]. Mediterranean national law requires that contracts

be concluded and amended in writing [Proc. Ord. No. 1, para. 34]. Mediterraneo has

made a reservation under Art. 96 CISG [St. of Cl., para. 32], which, per Art. 12, CISG

precludes the applicability of Arts. 11 & 29 CISG (“the freedom of form provisions”).

Article 11 provides that contracts may be concluded in any form; Art. 29 permits

contracts to be modified by mere agreement. The effect of an Art. 96 reservation is that

where one party has its place of business in a reserving state, contracts must be amended

in writing.

8. Despite the non-derogable nature of Art. 12, RESPONDENT contends that amendments

need not be made in writing on the basis that Art. 20 of the parties’ contract provides

that the CISG apply ‘without regard to national reservations’ [St. of Cl., para. 31].

Effectively, RESPONDENT is contending that even though CLAIMANT has its place of

business in a reserving state, the parties can amend the CISG to apply freedom of form

provisions to the contract.

9. The Tribunal should reject RESPONDENT’S contention because it requires an

impermissible derogation from Art. 12 CISG (A). Further, the parties did not intend that

an exclusion of national reservations in Art. 20 of their contract would include

Mediterraneo’s Art. 96 reservation (B). The Tribunal should apply the law of

Mediterraneo to the contract in respect of form requirements (C).

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A. THE TRIBUNAL SHOULD FIND THAT ART. 12 CISG PREVENTS THE PARTIES FROM

EXCLUDING MEDITERRANEO’S ART. 96 RESERVATION AS TO THE REQUIREMENT OF

WRITING

10. The Tribunal should strictly construe Art. 12 CISG. Both CLAIMANT and RESPONDENT

have their place of business in Contracting States [St. of Cl., paras. 3; 5]. The CISG

therefore applies to the contract under Art. 1(1)(a). In such circumstances, it has been

confirmed that Art. 12 cannot be circumvented [Schlechriem/Schmidt-Kessel in

Schlechtriem/Schwenzer, Art. 12, para. 4].

11. Contrary to RESPONDENT’s submission that the parties can amend the CISG to apply

freedom of form provisions to the contract, the mandatory character of Art. 12 demands

strict compliance. Article 12 contains an express statement that ‘parties may not

derogate from or vary its effect’. The Secretariat Commentary on the 1978 Draft of the

CISG, considered the ‘most authoritative’ source on the Official Text of the CISG, states

that ‘party autonomy is not applicable to this article’ [Honnold, 1989, p. 410]. While

Art. 6 permits parties to expressly or impliedly derogate from any other provision in the

CISG, Art. 12 is expressly excepted [Art. 6 CISG].

12. The drafting history of the CISG supports a strict construction of Art. 12. Article 12 was

included in the CISG as a compromise to accommodate states who consider

requirements of writing to be fundamental for effective engagement in international

commerce [Huber & Mullis, p. 60; Honnold, 1989, p. 410]. Reserving states depend

upon the preservation of their formal requirements in order to protect established

mechanisms for concluding foreign contracts and to ensure certainty throughout their

international contractual obligations [Honnold, 2009, p. 129].

13. Given the significance afforded to the preservation of reserving states’ form

requirements in the CISG, the Tribunal cannot permit the parties to disregard

Mediterraneo’s Art. 96 reservation.

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B. CLAIMANT AND RESPONDENT DID NOT INTEND TO EXCLUDE MEDITERRANEO’S ART. 96

RESERVATION FROM THEIR CONTRACT

14. Even if the Tribunal finds that the phrase ‘without regard to any national reservation’ in

Art. 20 of the parties’ contract can include Mediterraneo’s Art. 96 reservation, it was not

the intention of CLAIMANT and RESPONDENT for it to be excluded from the applicable

law.

15. The parties’ conduct evinces an intention that requirements of writing apply to the

contract. Article 8(3) CISG permits the Tribunal to consider, inter alia, the subsequent

conduct of the parties [Art. 8(3) CISG]. This is possible notwithstanding the existence of

a written agreement between CLAIMANT and RESPONDENT. In the MCC-Marble case the

court found that a subsequent agreement between buyer and seller not to be bound by

certain provisions on the seller’s standard order form was a sufficient indication of the

parties’ intention to modify their written agreement [MCC-Marble Ceramic Center Inc v

Cermanica Nuova D’Agostino, p. 1387].

16. In this case, the significance of writing in the termination of the parties’ contract is a

strong indication that the parties intended writing requirements to govern their contract.

Despite a telephone conversation between Mr Long for CLAIMANT and Mr Short for

RESPONDENT on 8 April 2011 in which a discussion of the alleged breach took place,

[Resp. Ex. No. 1], CLAIMANT sent a notice of avoidance in writing to RESPONDENT [Cl.

Ex. No. 6]. While RESPONDENT knew what the letter was to contain, RESPONDENT waited

until receipt of CLAIMANT ’s written avoidance on 10 April 2011 before issuing a written

reply to CLAIMANT ’S avoidance [Cl. Ex. No. 7]. Given the urgency of the situation, it is

unlikely that RESPONDENT would have delayed its response for two days if the parties

had intended the freedom of form provisions to apply. Moreover, Mr Short’s inability to

authoritatively accept the shirts or arrange for their disposal over the telephone [Resp.

Ex. No. 1] suggests that it was the intention of the parties writing requirements to apply

to all aspects of the contract.

17. The parties’ choice of law clause was based on a model clause in the CEAC Rules which

was only intended to apply in very specific circumstances. Article 20 of the parties’

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contract is identical to model clause (b) in Art. 35(1) CEAC Rules. This clause was

introduced by CEAC to overcome an apparent conflict in Chinese law and to avoid

confusion concerning requirements of form where contracts are concluded with parties

located in China [Moens/Sharma, p. 26] China made a reservation under Art. 96 upon

adopting the CISG on 30 September 1981. At that time, China’s domestic law prescribed

strict requirements of writing for all contracts [Wang/Andersen, p. 152]. In 1999 China

adopted a new Uniform Contract Law, applicable to international contracts, which

provides that contracts may be made ‘made in writing … as well as in any other form’

[Art. 10 UCL]. This introduction of freedom of form provisions into Chinese domestic law

through the UCL has therefore deprived China’s Art. 96 reservation of its effect

[Wang/Andersen, p. 157].

18. The present situation is wholly different. Mediterraneo is not a state that has made a

reservation and subsequently introduced freedom of form provisions into its domestic

law. Rather, Mediterranean law imposes a strict requirement of writing upon the

conclusion of contracts and their amendment. Given that the precise wording of Art. 20

of the parties contract was not negotiated, the tribunal should rule that the parties never

intended to exclude Mediterraneo’s Art. 96 reservation

C. THE TRIBUNAL SHOULD APPLY THE LAW OF MEDITERRANEO TO THE CONTRACT IN

RESPECT OF FORM REQUIREMENTS

19. CLAIMANT submits that the Tribunal should apply the law of Mediterraneo to the

contract. Under Art. 35 CEAC Rules, the Tribunal should apply the law that it

determines to be appropriate. When applying a national law to the substance of a

contract, the hierarchy of rules that exist in that nation’s domestic tradition are all

applicable [Lew/Mistelis/Kroll, p. 444]. Mediterranean law requires that contracts be

concluded in writing. The Supreme Court of Mediterraneo has ruled that contracts must

also be evidenced in writing [St. of Cl., para, 32]. As Mediterraneo is a common law

country [Proc. Ord. No. 2, para. 36], the decisions of its courts, as well as to the

provisions of its legislation represent binding national law. Thus, the decisions of its

Supreme Court form part of the applicable national law of Mediterraneo that apply to the

contract.

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20. Mediterranean law applies automatically to the contract by virtue of the Art. 96

reservation (i). The requirement of writing is a mandatory rule under Mediterranean law

and must be applied by the Tribunal (ii). In the alternative, a conflict of laws analysis

leads to the application of Mediterranean law (iii).

(i) The law of Mediterraneo automatically applies to the contract

21. The form requirements of the reserving state apply automatically to a contract between a

party who has their place of business in a reserving state and a party located in a non-

reserving state [Honnold 1999, para. 129; Winship, p.11]. This view has been adopted

by both national courts and arbitral tribunals who have held that the domestic form

requirements of a reserving state always apply [e.g. Lindane case; Tinplate case;

Engines case; High Arbitration Court of the Russian Federation, Ruling No. 6,

Resolution No. 4670/96]. Given the international recognition accorded to this approach,

it is appropriate that it be followed by the Tribunal [Schroeter, p.442].

22. In addition, the automatic application of the domestic law of Mediterraneo is consistent

with public policy in both Mediterraneo and Equitoriana. Where Mediterraneo’s

reservation is evidence of the importance Mediterraneo places on the requirement of

writing [supra para. 12], Equitoriana’s adoption of the CISG without a reservation

reflects the subordination of ‘its interest in freedom-of-form provisions to the greater

good of having wider participation in the Convention’ [Winship, p. 8]. To give effect to

the intentions of states when acceding to the CISG, the writing requirements of the

reserving state should always prevail.

23. While RESPONDENT may assert that the Tribunal should undertake a conflict of laws

analysis to determine the applicable law, this approach has been labelled ‘overly

formalistic’ and ‘arbitrary’ in situations like the present, where only one party is located

in a reserving state [Wang/Andersen, p. 161]. This is because a conflict of laws analysis

based exclusively on ‘closest connection’ ignores the intentions of states in becoming

signatories to the CISG. The Tribunal should not apply the CISG in a manner

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inconsistent with Mediterraneo and Respondent’s intentions in acceding to the CISG

regime [Flechner, 1998, p. 195].

(ii) The requirement of writing is a national mandatory rule and must be applied by

the Tribunal

24. Mediterranean requirements of writing must be applied to the contract because they

constitute a national mandatory rule. As mandatory rules are not governed by the CISG,

the Tribunal is required to apply the UNIDROIT Principles in accordance with the

parties’ contract [St. of Cl., para. 31]. Where the rules of private international law lead to

the application of a mandatory rule, a contract concluded in accordance with the

UNIDROIT Principles cannot prevail over a national, international or supranational

mandatory rule [Art. 1.4 UNIDROIT Principles; UNIDROIT Official Comment].

25. Private international law dictates that a mandatory rule must be applied where there is a

sufficiently close connection ‘between the rule and the situation in dispute’ and where

failure to apply the rule would lead to an outcome contrary to transnational or truly

international public policy [Fouchard/Galliard/Goldman, p. 847].

26. First, the form of the parties’ contract is sufficiently connected to Mediterraneo [infra

para. 35]. It originated in Mediterraneo, the domicile of CLAIMANT, and was based on

CLAIMANT’s standard form [Proc. Ord. No. 2, para. 7.]. The written form of the parties

contract directly pertains to the applicable mandatory rule, thereby establishing the

requisite connection.

27. Second, failure to apply the writing requirement to the contract would be contrary to

international or transnational public policy. Failure to recognise Mediterraneo’s writing

requirements violates the international endorsement given to the preservation of form

requirements for reserving states. The legislative purpose and history of Art. 12 CISG,

together with the large number of signatories to the CISG, demonstrates that this rule has

attained transnational status [supra para. 12]. Contracting states to the CISG, whether

reserving states to Art. 96 or not, have all accepted the existence of circumstances where

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form requirements must be upheld [see supra para. 22]. The international character of

the CISG demands the uniform interpretation of its provisions [Henschel, p. 34].

28. Additionally, failure to apply Mediterraneo’s mandatory rule of writing puts at risk the

enforcement and recognition of any award issued by this Tribunal in a court of

Mediterraneo on the grounds of a violation of public policy [Art. V (2)(b) NY

Convention]. The exception to the general obligation to recognise arbitral awards in Art.

V (2)(b) has been held to include circumstances where a rule regulating the commercial

sphere is violated [Born 2011, p. 1196; GBH 1990 NJW 3210, 3211]. Given the

importance of the form of contracts for regulating commercial transactions and

relationships, CLAIMANT submits that a failure to apply this mandatory rule would

amount to a violation of Mediterranean public policy.

29. Claimant submits that the public policy of Mediterranean, and its interest in the

enforcement of its mandatory rule, is also a matter of transnational public policy [Hebei

Import]. It would be manifestly unjust, and would offend the CISG regime to ignore a

governing principle of national law, the preservation of which has international

recognition [supra para 27].

(iii) Alternatively, a conflict of laws analysis leads to the application of

Mediterranean law

30. Automatic application of Mediterraneo law is the correct approach for the Tribunal to

take [see supra para. 21]. However, if the Tribunal conducts a conflict of laws analysis

to determine the law as to form, Mediterranean law still applies. A conflict of laws

analysis requires the Tribunal to settle the applicable national law by determining which

country has the closest connection to the contract, as this is the lex fori [Proc. Ord. No.

2, para. 33].

31. The Tribunal should give most weight to the fact that the parties' contract was based on

CLAIMANT’S model [Proc. Ord. No. 2, para. 7]. This establishes a closer connection to

Mediterraneo than any other state. The model contract was written in a country with

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strict form requirements and the Tribunal should acknowledge the importance of this

legal context.

32. The Tribunal must look beyond the place of conclusion of the contract and the place

where the party making the characteristic performance has its place of business [Proc.

Ord. No. 2, para. 33] because these factors are not exhaustive [Wolff], and not relevant

to the particular facts of this case. The place of conclusion is a less relevant factor given

the technological ease with which international contracts can be concluded [Redfern and

Hunter]. The increasing interconnectedness of global markets and supply chains also

demonstrates that the place of performance, the manufacture of the polo shirts, is no

longer an important consideration.

33. Conclusion: The parties’ contract must modified in writing. Their contract cannot be

used to override the non-derogable nature of Art. 12. Accordingly, the Art. 96

reservation of Mediterraneo is applicable to the contract and the Tribunal must apply

Mediterranean law as to form for reasons of public policy. The ultimate duty of any

Tribunal is to render an enforceable award. Any failure to apply a domestic law which

has the status of a mandatory rule would jeopardise this goal.

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II. THE WITNESS STATEMENT OF MR SHORT SHOULD NOT BE CONSIDERED

BY THE TRIBUNAL IN HIS ABSENCE

34. The Tribunal should disregard Mr Short’s witness statement in his absence. The

evidence of Mr Short goes to whether the contract was orally amended. CLAIMANT has

requested Mr Short appear to give oral testimony [Proc. Ord. No. 1, para. 4]. Mr Short

is unlikely to voluntarily appear [Proc. Ord. No. 2, para 26]. CLAIMANT submits that

without Mr Short’s presence the Tribunal has insufficient evidence to resolve the nature

of the discussion between Mr Long and Mr Short concerning the purported amendment

of the parties’ contract. His appearance before the Tribunal is necessary to determine the

veracity of his statement.

35. The CEAC Rules give the Tribunal the discretion to determine how evidence should be

taken, regarding admissibility and relevance, including the hearing of witness testimony

[CEAC Rules Art. 27; 28]. CLAIMANT submits that the IBA Rules apply to the taking of

evidence (A). Under the Rules, Mr Short’s witness statement should be disregarded (B).

Alternatively, procedural fairness demands that Mr Short’s witness statement should not

be admitted (C).

A. THE TRIBUNAL SHOULD APPLY THE IBA RULES ON EVIDENCE IN INTERNATIONAL

ARBITRATION

36. The Tribunal should apply the IBA Rules. The Rules are much more extensive than the

CEAC Rules and reflect the expertise of the leading practitioners who developed them

[Hanotiau, p. 114]. There are no discretionary factors in the CEAC Rules that outline

what the Tribunal can consider or how the evidence can be evaluated. Institutional rules

are generally lacking in their guidance on evidence and often require tribunals to look

elsewhere [Mehren and Salomon, p. 294]. For this reason the Tribunal should adopt the

well-recognised practice of supplementing the CEAC Rules with guideliens that cater

specifically to evidence.

37. The IBA Rules reflect customary practice in international arbitration. They are a set of

rules that allow for the fair and efficient resolution of a dispute [Born & Kent, p. 23;

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Waincymer, p.760]. The Presiding Arbitrator wished that the arbitration be conducted in

line with international practice [Proc. Ord. No. 2, para. 24] and applying the IBA Rules

would satisfy this intention.

38. The IBA Rules are appropriate because they are a confluence of both common law and

civil law traditions [Dimolitsa, p. 11; Gélina, p. 44; Commentary 2010 IBA Rules, p. 7].

The obligation to treat parties equally in the interest of procedural fairness is a

mandatory norm [Waincymer, p. 81] and this extends to the taking of evidence [see infra

39; cf Art. 18 UNCITRAL Model Law]. Given that CLAIMANT comes from a common

law country and RESPONDENT comes from a civil law country [Proc. Ord. No 2, para.

36], the IBA Rules are apposite to the attainment of procedural fairness.

B. THE IBA RULES WOULD NOT ALLOW THE ADMISSION OF MR SHORT’S WITNESS

STATEMENT IN HIS ABSENCE

39. Applying the IBA Rules, Mr Short’s witness statement would not be admitted. Mr

Short’s statement does not meet the requirements of written testimony under the IBA

Rules (i) and Mr Short’s failure to appear at the request of CLAIMANT would require the

Tribunal to disregard his witness statement (ii).

(i) Mr Short's witness statement does not meet the requirements of written

testimony under the rules

40. The IBA Rules specify certain requirements for any written testimony that is submitted

to the Tribunal as evidence. Mr Short’s witness statement would not be admissible

because it lacks the required affirmation of truth [IBA Rules Art. 4.5(d)]. If Mr Short

does not appear in front of the tribunal for testimony there is no way to ascertain the

truth of Mr Short’s statement.

41. The structural integrity of the arbitral proceedings would be compromised by admitting

an unverified witness statement when the witness is unavailable. One of the commercial

advantages of bringing proceedings to arbitration is the degree of flexibility afforded to

the Tribunal. However, this must be balanced against the Tribunal’s responsibility to

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guarantee a fair and equitable outcome for the parties. Parties must be given a full

opportunity to present their case [Bockstiegel, 371; Pacific China Holdings Ltd].

CLAIMANT cannot fully present their case without the opportunity to test and verify Mr

Short’s version of events before the Tribunal.

(ii) Failure to appear at the request of CLAIMANT would deem Mr Short's witness

statement inadmissible.

42. The Tribunal should follow Art. 4.7 IBA Rules and disregard Mr Short’s statement. The

IBA Rules require that any witnesses that are requested by a party to appear before the

Tribunal in person must give testimony at an evidentiary hearing [IBA Rules Art. 8.1].

This allows for cross-examination and assists the Tribunal in determining fact. Failure of

a witness to appear if they have been requested results in their written statement not

being considered [IBA Rules Art. 4.7].

43. The IBA Rules permit written witness statements to be considered without the presence

of a requested witness only in exceptional circumstances [IBA Rules Art. 4.7]. For

circumstances to be exceptional they would have to be extremely unusual or very

unlikely to occur. Mr Short's ‘tight timetable’ and the fact that his employer does not

want him to appear do not satisfy this requirement [Proc. Ord. No. 2, para. 25]. The

reluctance of Mr Short's employer to permit him to appear may be inconvenient but it is

certainly not an extremely unusual or unlikely situation. These are commonplace

circumstances in the sphere of international arbitration. Thus, Mr Short is not exempt

from appearing for oral testimony.

C. ALTERNATIVELY, EVEN IF THE IBA RULES DO NOT APPLY, MR SHORT'S WITNESS

STATEMENT SHOULD NOT BE CONSIDERED FOR REASONS OF PROCEDURAL FAIRNESS

44. To ensure procedural fairness the Tribunal should not consider Mr Short’s witness

statement in his absence. The Tribunal has the power to deem the statement inadmissible

if Mr Short is not present [CEAC Rules 27.4]. The Tribunal has a responsibility to ensure

that the arbitral process is not only efficient, but also fair [Fortier, p. 69]. The Tribunal

has been presented with two contrary interpretations of events and the only way to

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properly determine the facts in this situation is through cross-examination to enable the

Tribunal to determine the credibility of the witness. As such, the Tribunal ought not

consider Mr Short's witness statement without the opportunity to have that evidence

tested in an oral hearing as it would be manifestly unfair.

45. The written statement alone is insufficient because it may not reflect Mr Short's

independent recollection of the facts. It is likely the result of drafting, editing and the

possible influence of an advocate [Veeder, p. 7]. The great advantage to the Tribunal of

having a witness appear in person is that they can assess the veracity of what the witness

is saying by their attitude and their demeanour [Gélinas, p.32]. Without the chance for

cross-examination, it would be unfair for the Tribunal to make any determinations from

unchallenged and unsubstantiated testimony. It is for these good reasons that the right to

cross-examination at the request of a party has achieved international consensus [Park,

p. 37] and this best practice should be adhered to by the Tribunal. Because the

opportunity to challenge Mr Short’s statement is a fundamental right, his non-

appearance would be a serious and egregious breach of procedural fairness, sufficient to

jeopardise the enforcement of any award issued by the Tribunal [Pacific China

Holdings].

46. Conclusion: The witness statement should be disregarded. The IBA Rules would not

permit the consideration of the statement without Mr Short’s presence. The Tribunal

cannot sufficiently determine the veracity of the statement in the absence of oral

testimony and it would be procedurally unfair to deny Claimant their right to cross-

examination and rely solely on an unverified statement.

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ARGUMENT ON THE MERITS

III. RESPONDENT'S LATE DELIVERY BREACHED THE CONTRACT

47. RESPONDENT’S late delivery breached the contract. The delivery date in the contract was

not amended by the parties (A). RESPONDENT failed to deliver the polo shirts by the date

stipulated and CLAIMANT is accordingly entitled to damages (B).

A. THE DELIVERY DATE IN THE CONTRACT WAS NOT AMENDED BY THE PARTIES

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48. The contract specified that the delivery date for the goods was 19 February 2011 [Cl. Ex.

1, Art. 3]. There was no modification of this date in writing (i). In the alternative, there

was no effective oral modification of this date (ii).

(i) There was no written modification of the contractual delivery date

49. Mediterraneo’s reservation under Art. 96 and Tribunal’s application of Mediterranean

law precludes the parties from amending the contract in any manner other than writing

[CISG Art. 12; Supra 19]. Accordingly, the contract was not amended as there is no

written evidence of any modification.

(ii) Alternatively, Mr Long's conduct did not constitute modification

50. Even if the Tribunal finds that the writing requirement is not applicable to the parties'

contract, the parties did not agree to modify the contract [CISG Art. 29].

51. The parties did not expressly agree to amend the contract. Mr Short, Contracting Officer

for RESPONDENT, telephoned Mr Long, Procurement Specialist for CLAIMANT, to advise

that the goods would not be delivered on time [St. of Cl., para 13]. CLAIMANT and

RESPONDENT are in agreement that Mr Long never specifically agreed to amend the

contract during the telephone conversation with Mr Short [Proc. Ord. No. 2, 27].

52. Further, the parties did not impliedly agree to amend the contract. In order to determine

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whether there was an implied agreement under Art. 29 CISG, the Tribunal must look to

the parties' intention, which includes their subsequent conduct and all relevant

circumstances of the case [Glass Bottles case; Art. 8(3) CISG]. The correspondence

between Doma Cirun and CLAIMANT on 10 February in relation to RESPONDENT’S late

delivery demonstrates that Mr Long had no intention of modifying the delivery date [Cl.

Ex. No. 3]. Ms Stippel was writing to Mr Long to confirm the telephone conversation of

the same day. She stated that she was ‘glad to hear that (he) did not waive the delivery

date in the contract.’ This comment supports a conclusion that Mr Long did not intend to

modify the contract.

53. Further, a reasonable person in Mr Short’s position would not infer from the

recollections of Mr Short and Mr Long’s telephone conversation that the delivery date in

the contract was to be amended. The words of Mr Long were to the effect that he would

‘make sure that all the paper work reflected the new delivery date’ [Proc. Ord. No. 2,

No. 27]. CLAIMANT submits that these words only evince an intention to alter the letter

of credit, not to amend the terms of the parties’ contract. Mr Long was only doing what

was practicable in order to mitigate RESPONDENT'S breach.

54. It would be unreasonable for the Tribunal to find that CLAIMANT impliedly modified the

contract to their disadvantage [Chateau Des Charmes Wines Ltd v Sabaté USA].

RESPONDENT knew that the parties' contract was a ‘rush job’ and that CLAIMANT had to

deliver the goods to Oceania in time for the opening of the summer selling season [Resp.

Ex. No. 1]. Mr Long stressed the importance of the delivery date to Mr Short and Mr

Short appreciated the urgency of the delivery [Cl. Ex. No. 2]. On the basis of the

undisputed facts of the conversation, a reasonable person in Mr Short’s position would

not infer that the contract had been amended. It would be against CLAIMANT’s interests

to agree to waive their rights to damages or possible compensation by amending the

contract without receiving consideration.

B. RESPONDENT BREACHED THE CONTRACT BY FAILING TO DELIVER THE GOODS ON TIME

AND CLAIMANT IS ENTITLED TO DAMAGES

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55. RESPONDENT contracted to deliver the polo shirts on 19 February 2011 [Cl. Ex. No 1,

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Art. 3], however delivery did not occur until 24 February [St. of Cl., para. 17]. The date

for delivery was fixed pursuant to Art. 33(a) CISG. Accordingly, RESPONDENT’s failure

to deliver on time constitutes a breach of contract.

(i) RESPONDENT is not exempt from liability for supplier’s failure to deliver

materials on time

!56. RESPONDENT may assert pursuant to Art. 79 CISG that they are exempt from liability for

their supplier's failure to deliver the required goods to them on time [St. Cl., para. 14].

CLAIMANT contends that the supplier’s failure to deliver the required goods in time does

not exempt RESPONDENT from liability.

57. RESPONDENT alleges that they could not perform the contract on time due to a strike

from their supplier [Proc. Ord. No. 2, para. 12]. Strikes are a recognised commercial

risk when supplying goods and do not exempt RESPONDENT of liability [Schwenzer in

Schlechtriem/Schwenzer, Art. 79, para. 23-24]. RESPONDENT therefore assumed the risk

that performance could be delayed by their supplier’s failure to deliver the required

material on time [Schwenzer in Schlechtriem/Schwenzer, Art. 79, para. 13].

58. Furthermore, RESPONDENT could have reasonably avoided or overcome this impediment.

RESPONDENT found other suppliers but chose not to engage them due to their higher

price [Proc. Ord. No. 2, para. 13]. RESPONDENT is expected to overcome this

impediment to deliver the goods on time even when this results in RESPONDENT

incurring increased costs [Schwenzer in Schlechtriem/Schwenzer, Art. 79, para.14].

Therefore, RESPONDENT should have taken all possible steps to acquire replacement

materials from other companies irrespective of price.

59. RESPONDENT'S failure to perform their obligation in respect of delivery gives rise to a

right to damages as provided by the liquidated damages sum in Art. 10(b) of the parties’

contract. RESPONDENT agreed to pay CLAIMANT a fixed sum of money in the event that

delivery of the goods was late [Cl. Ex. No. 1, para. 10]. The breach for late delivery

entitled CLAIMANT to recover damages as stipulated in the contract and accordingly

RESPONDENT is liable to pay USD 27,500 as agreed. The Tribunal should therefore apply

Art. 7.4.13 UNIDROIT Principles, as CISG is silent as to liquidated damages, which

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entitles CLAIMANT to recover the fixed sum payable under Art. 10(b) of the parties’

contract [Cl. Ex. No. 1].

60. In accordance with the principle of full compensation [infra para 97] The CISG allows

for parties to recover for all the loss that they suffer from the other party's breach [CISG

Art. 74]. Consequently, if the fixed sum payable under the contract does not fully

compensate CLAIMANT for any consequential loss that may arise; they are not precluded

from claiming further damages as a result of the breach for late delivery.

61. Conclusion: The parties' contract was never amended and accordingly, any delivery

after the date specified under the contract constituted breach. Due to RESPONDENT’S

breach for late delivery, RESPONDENT is liable to CLAIMANT for the fixed damages

agreed by the parties’ under the contract. No circumstances existed to exempt

RESPONDENT from liability.

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IV. RESPONDENT BREACHED CONTRACT FOR NON-CONFORMITY OF

GOODS

62. At the request of Oceania retailer Doma Cirun, CLAIMANT Contracted with RESPONDENT

for the manufacture of 100, 000 polo shirts. Article 12 of the contract expressly required

RESPONDENT to adhere to the ‘highest ethical standards in the conduct of [its] business’

[Cl. Ex. 1, para. 12]. Oceania’s mainstream media exposed RESPONDENT’S use of child

labour on 5 and 8 April 2011 [St. of Cl., paras. 18-19]. As a result of ensuing public

outrage, Yes Casual polo shirt sales dropped to almost nothing and Doma Cirun avoided

its contract with CLAIMANT [St. Cl., paras. 20; 22].

63. RESPONDENT’S use of child labour was unethical and in breach of the CISG’s express

and implied conformity requirements of goods. The polo shirts were not of the quality

required by the contract pursuant to Art. 35(1) CISG (A). The polo shirts were also not

fit for the particular purpose of resale in Oceania by the retailer Doma Cirun. This was

the particular purpose expressly or impliedly made known to RESPONDENT at the time of

contracting and is a breach of Art. 35(2)(b) CISG (B).

A. THE POLO SHIRTS WERE NOT OF THE QUALITY REQUIRED BY THE CONTRACT (ART.

35(1) CISG)

64. RESPONDENT failed to deliver goods of the quality required by the contract in breach of

Art. 35(1) CISG. The term ‘quality’ under Art. 12 of the parties’ contract required

compliance with the ‘highest ethical standards’ in the conduct of RESPONDENT’S

business (i). The use of child labour in one of RESPONDENT’S factories breached the

required ethical standards (ii). The ethical standards requirement extended beyond the

particular factory in which the polo shirts were manufactured (iii).

(i) The term ‘quality’ under the contract required RESPONDENT to comply with the

‘highest ethical standards’ when manufacturing

65. Article 12 of the parties’ contract required RESPONDENT to conform with the ‘highest

ethical standards’ in the conduct its business, including the manufacturing of goods.

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Schlechtriem states that parties may stipulate production standards based on ethical

values as a contractual quality requirement [Schlechtriem 2007]. An express term is the

simplest way to ensure ethical values are incorporated into contracts for international

sales [Schwenzer/Leisinger]. The Tribunal must interpret the terms of the parties’

contract so as to give effect to all the terms rather than to deprive Art. 12 of effect [Art.

4.5 UNIDROIT Principles]. The reference to ‘quality’ under Art. 35(1) CISG

encompasses non-physical conditions [Huber/Mullis, p. 132; Schwenzer/Leisinger]. The

quality under Art. 35(1) of the CISG has been considered to encompass methods of

production. Failure to adhere to the required production standard, such as organic

manufacture, has accordingly resulted in a breach for non-conformity of goods [Organic

Barley case]. In light of the broad definition of quality, the Tribunal should construe the

ethical standards of manufacturing prescribed by Art. 12 as a quality requirement under

Art. 35(1) CISG.

66. Article 12 of the contract creates an express condition as to quality of the polo shirts. To

satisfy this condition, RESPONDENT is required to conform to the Oceania Plus Group’s

ethical standards. CLAIMANT is a subsidiary of Oceania Plus [St. Cl., para. 5]. When

interpreting the nature and extent of this condition Art. 8(3) CISG permits recourse to

the ‘factual and legal circumstances concerning the relationship of the goods to their

surroundings’. This includes the parties’ conduct [Schwenzer/Leisinger].

67. The factual circumstances demonstrate Art. 12’s importance to the business of the

Oceania Plus group. CLAIMANT’S policy included ethical standards and was extensively

discussed with RESPONDENT during an audit of RESPONDENT’S practices in 2007/2008

[Proc. Ord. No. 2, para. 4]. The Oceania Plus group is known for its high ethical

standards and they feature prominently on its website and corporate communications [St.

of Cl., para. 7]. To enforce general principles concerning the ethical conduct of the

group’s suppliers, Oceania Plus places one manager from Oceania Plus’s board of

directors on the board of its subsidiaries, including CLAIMANT [Proc. Ord. No. 2., para.

1]. Further, as a matter of Oceania Plus policy all members of the group contracting with

third party manufacturers are required to audit the manufacturing firms to ensure that

they conform to Oceania Plus policies in regard to ethical and other matters [St. of Cl.,

para. 6]. Finally, Oceania Plus participates in the United Nations Global Compact,

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which asks companies to support and enact ‘a set of core values in the areas of human

rights, labour standards, the environment and anti-corruption’ [St. of Cl., para. 8; UN

Global Compact, emphasis added]. These factual circumstances indicate that an ethical

means of production was material to the quality of the goods purchased by CLAIMANT

generally. Therefore, Art. 12 is an express agreement as to the required quality of the

goods.

(ii) The use of child labour breached ethical manufacturing standards

68. The use of child labour breached the ethical standards stipulated in Art. 12 of the

contract. RESPONDENT was aware that the use of child labour contravened these

standards. When determining the parties’ intention as to ethical standards, Art. 8(3)

CISG permits reference to all relevant circumstances, including negotiations, established

practices and usages between the parties [Schwenzer in Schlechtriem/Schwenzer, Art.

35(6), para. 7]. CLAIMANT raised suspicions of RESPONDENT’S use of child labour

during their 2007/2008 audit of RESPONDENT’S manufacturing practices. CLAIMANT’S

policies under audit ‘covered labour matters and especially the use of child labour’ [St.

of Cl., para. 9] and the one page Oceania Plus policy referred to in Art. 12 of the

contract was ‘extensively discussed between the parties’ [Proc. Ord. 2, para. 4]. These

prior dealings had the effect of communicating to RESPONDENT that child labour was in

contravention of Oceania Plus’ ethical standards.

69. Even if ethical standards under the contract are not sufficiently defined by the parties’

conduct, a reasonable person in RESPONDENT’S circumstances would understand that the

use of child labour was a breach of Art. 12 of the parties’ contract [Art. 8(2) CISG].

International labour law and public international law widely condemn child labour [see,

eg, Art. 10(3), 1976 UNCESCR; WTO Labour Standards; Principle 5, UN Global

Compact; Art. V(1)(c), OECD 2011 Guidelines for Multinational Enterprises]. Article 1

of the 1973 ILO Minimum Age Convention (No. 138), ratified by 163 countries, provides

that ‘[e]ach Member for which this Convention is in force undertakes to pursue a

national policy designed to ensure the effective abolition of child labour’. The more

recent ILO 1998 Declaration names ‘the effective abolition of child labour’ as one of

four core labour standards [1998 ILO Declaration Art. 2(c)]. The strength of

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international consensus condemning child labour demonstrates that it is an objectively

unethical labour practice. Therefore, the use of child labour cannot be consistent with the

‘highest ethical standards’ required by the contract.

70. A reasonable person in the circumstances would consider child labour a breach of the

contractual ethical standards. In interpreting Art. 12, it is relevant to consider Doma

Cirun’s reaction to RESPONDENT’S use of child labour. The policy referred to in Art. 12

also applies to Doma Circum’s contracts with suppliers, and Doma Cirun’s considered

Respondent’s use of child labour a major violation of its policy that all suppliers will

adhere to the principles on ethical standards in the conduct of their business’ [Cl. Ex. 5].

(iii) The ethical standards requirement extended beyond the manufacture of the polo

shirts

71. RESPONDENT may allege that because no child was involved in the manufacture of the

polo shirts themselves, they did not breach any of their obligations under CISG Art. 35

[St. Def. 15]. In response, CLAIMANT submits that Art. 12 of the contract extends the

ethical manufacturing requirement to all of RESPONDENT’S business that may reasonably

affect the contract between CLAIMANT and RESPONDENT. Art. 12 provides that all

suppliers to Oceania Plus enterprises or subsidiaries will conform to the ‘highest ethical

standards in the conduct of their business’ [Cl. Ex. 1. para. 12; emphasis added]. This

final phrase should not be read down to limit its application to the manufacturing of the

polo shirts specified in Art. 1 of the contract. Such an interpretation would deprive Art.

12 of its meaning, because it would leave Oceania Plus and its subsidiaries at risk of

reputational damage and with no means of enforcing ethical business practices amongst

its suppliers [UNIDROIT Art. 4.5]. The dramatic public reaction in Oceania to the

exposé of RESPONDENT’S general use of child labour proves that Oceania Plus and its

subsidiaries’ reputation will be tarnished by association with any business that behaves

in a demonstrably unethical way [St. of Cl., para. 20-21].

B. THE POLO SHIRTS WERE NOT FIT FOR THE PARTICULAR PURPOSE EXPRESSLY OR

IMPLIEDLY MADE KNOWN TO RESPONDENT (ART. 35(2)(B) CISG)

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72. The polo shirts were non-conforming goods pursuant to Art. 35(2)(b) CISG because they

were not fit for the particular purpose expressly or impliedly made known to

RESPONDENT. The particular purpose of the contract with RESPONDENT was resale of the

polo shirts to the retailers Doma Cirun in Oceania (i). Ethical labour standards in

Oceania should be taken into consideration because they were expressly or impliedly

made known to RESPONDENT (ii). Child labour breached Oceania’s ethical standards and

so rendered the polo shirts unfit for the particular purpose under the contract (iii).

CLAIMANT reasonably relied on RESPONDENT’S skill and judgment as required in Art.

35(2)(b) CISG (iv). Finally, RESPONDENT cannot rely on Art. 35(3) CISG to exclude

liability (v).

(i) The particular purpose of the contract was resale in Oceania to the retailer Doma

Cirun

73. The particular purpose of the contract for Yes Casual polo shirts was resale in Oceania

to the retailer Doma Cirun, which required adherence to ethical standards. RESPONDENT

denies this claim [St. of Def., para. 13]. The Tribunal should find that reasonable parties

would have agreed upon this particular purpose because goods associated with unethical

manufacturers cannot be sold in the Oceania market [infra para 81 Schwenser in

Schlechtriem/Schwenzer, Art. 35, para. 12].

74. CLAIMANT was contacted by Doma Cirun to find a manufacturer for their house brand

polo shirts on a rush basis [St. of Cl., para. 8]. CLAIMANT contracted with RESPONDENT

to fulfil this request. RESPONDENT knew that CLAIMANT was acting as a distributor and

that the polo shirts would be delivered to Doma Cirun [Proc. Ord. 2, No. 16] to be sold

in their Oceanian stores [Proc. Ord. 2, No. 15]. The polo shirts were Doma Cirun’s

house brand for sportswear and other quality casual clothing [St. of Cl., para. 7], which

meant that they carried the reputation of Oceania Plus. The fundamental purpose of the

contract would be defeated if CLAIMANT, a distributor, was unable to resell the Yes

Casual polo shirts for retail sale in Oceania.

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(ii) Oceania’s ethical labour standards should be taken into consideration because

they were expressly or impliedly made known to RESPONDENT

75. RESPONDENT should be held liable for a breach of the ethical standards of the Oceania

Plus group because CLAIMANT expressly communicated these standards to RESPONDENT

prior to the conclusion of the contract. CLAIMANT raised the specific suspicions of

RESPONDENT’s use of child labour during their 2007/2008 audit and the Oceania Plus

policy on labour standards was discussed extensively [supra, para. 67]. In circumstances

where the particular purpose was expressly communicated to the seller, the effect may

be the same as a quality agreement under Art. 35(1) [Henschel, p. 226]. The use of child

labour breached Oceania Plus’ ethical standards and RESPONDENT was aware that the use

of child labour contravened these standards [supra, para. 68 - 69].

76. Even if CLAIMANT did not expressly communicate Oceania Plus’s ethical standards,

RESPONDENT knew how the polo shirts would be used. CISG commentary and case law

in both civil and common law countries demonstrate that when a seller knows how the

goods will be used, they are held to impliedly know of a particular purpose under Art.

35(2)(b) [NZ Mussels case (Germany), NZ Truck case (New Zealand); Medical

Marketing International (USA); Scaffold Hooks case (Austria); Spanish Paprika case

(Germany)]. Schlechtriem states that ‘[i]f the seller knows where the goods are intended

to be used, then he will usually be expected to have taken the factors that influence the

possibility of their use in that country into consideration’ [Schlechtriem 2001, p. 2].

CLAIMANT impliedly made known the high ethical standards required for Doma Cirun to

sell the polo shirts to the Oceanian domestic market.

77. The ethical standards in Oceania should also be taken into account because of

RESPONDENT’S previous trade to Oceania and with Oceania Plus subsidiaries [NZ Mussel

Case, para. 1(c)(c)(c); NZ Truck Case, para. 44; Medical Marketing International].

RESPONDENT had contracted with CLAIMANT in the past, most recently in 2008 [St. Cl.,

para. 8]. RESPONDENT had also on multiple occasions contracted with third parties for

goods destined for Oceania [Proc. Ord. 2, para. 15]. In the Spanish Paprika case, the

Court held that given the seller’s prior knowledge of German law, the Spanish seller was

bound comply with German Food Safety Laws [Spanish Paprika case; Di Matteo, p.

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115]. As RESPONDENT had prior knowledge of Oceania’s market and its ethical

standards, it was bound to comply with these standards.

78. Further, RESPONDENT’s level of knowledge was such that it should be taken to have been

aware of the particular purpose of the goods in the case [Enderlein & Maskow,

International Sales, p. 145, para. 11]. RESPONDENT had ‘extensively discussed’

CLAIMANT ’S policy that required conformity with ethical labour standards [Proc. Ord.

2, para. 2], CLAIMANT’S specific concern over child labour was brought to

RESPONDENT’s attention in 2007/2008 [St. of Cl., para. 9], and RESPONDENT had

previously exported goods to Oceania [Proc. Ord. 2., para. 15]. RESPONDENT is

therefore precluded from arguing it did not know conformity with high ethical standards

was an implied warranty of the contract.

79. Finally, RESPONDENT impliedly knew of the specific ethical standard in Oceania that

prohibited the use of child labour because this standard exists in both Oceania and

Equatoriana [Schlechtriem 2001; NZ Mussels case]. Both countries are party to the ILO

Convention on the Worst Forms of Child Labour [St. Cl. para. 31]. If Oceania and

Equatoriana are Member States of the ILO, then the1998 ILO Declaration’s principle of

‘the effective abolition of child labour’ applies whether or not they have ratified the key

conventions dealing with this matter [Alston, p. 4].

80. In any case, the Worst Forms of Child Labor Convention directly refers to the 1973 ILO

Minimum Age Convention and should be read in light of this earlier convention, which

calls for the effective abolition of child labour. Schlechtriem and Leisinger argue that

‘fundamental ethical standards – such as the prohibition of forced or child labour’ are

automatically incorporated by implication into international sales contract governed by

the CISG [Schlechtriem/Leisinger]. It would be inconsistent for a country to on the one

hand apply a labour standard directed at abolishing child labour, and on the other hand

for a business residing in that State to assert that child labour is considered to be

ethically acceptable. Therefore, the use of child labour was not ethically acceptable in

Equatoriana and they are bound to adhere to the ethical standards in Oceania.

(iii) Child labour breached Oceania’s ethical standards and so the polo shirts were

!


unfit for the particular purpose under the contract

!81. The polo shirts were not fit for sale in Oceania and not fit for sale by retailer Doma

Cirun because of RESPONDENT’S use of child labour. First, the use of child labour in

manufacturing was unacceptable in Oceania. This is evidenced by the fact Oceania

played a leading role in combatting child labour and was one of the first countries to

ratify the ILO Convention on the Worst Forms of Child Labour [St. of Cl., para. 19]. The

outrage shown by the people of Oceania upon learning of the use of child labour by

RESPONDENT and others demonstrates that the use child labour by manufacturers was

completely unacceptable for goods sold to consumers in Oceania [St. of Cl., para. 20-

21]. Second, the use of child labour was unacceptable for sale by an Oceania Plus

subsidiary (Doma Cirun). Oceania Plus emphasised its high ethical standards in business

practices [St. of Cl., para. 6]. RESPONDENT was ‘operating in a market with a special

emphasis on fair trade and the observance of ethical principles,’ [Schwenzer in

Schlechtriem/Schwenzer, Art. 35, para. 20], which meant compliance with ethical

standards was a condition of the contract’s particular purpose. Child labour was a clear

breach of these standards [supra, para. s. 68 - 69].

(iv) CLAIMANT reasonably relied on RESPONDENT’s skill and judgment as required in

Art. 35(2)(b) CISG

82. It was reasonable for CLAIMANT to rely on RESPONDENT’S skill and judgment in relation

to ethical standards because CLAIMANT had no way of monitoring all of RESPONDENT’S

conduct. Art. 35 provides an express and implied condition for the quality of goods. It is

based on the premise that ‘the characteristics of the goods are presumed to lie within the

sphere of influence of the seller’ [Henschel 2004]. RESPONDENT is a specialist in the

manufacturing of clothing [St. of Cl., para. 8] and it is reasonable to rely on their skill

and judgment [Schwenzer in Schlechtriem/Schwenzer, Art. 35, para. 24; Huber/Mullis,

p. 139]. It would not be practicable or commercial for CLAIMANT to monitor all of

RESPONDENT’S factories to ensure there was no child labour being used. It was

reasonable for CLAIMANT to rely on RESPONDENT’S skill and judgment in their

compliance with high ethical standards.

(v) RESPONDENT cannot rely on Art. 35(3) CISG to avoid liability.

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83. The earliest time at which CLAIMANT could have had actual knowledge of the use of

child labour was on 5 April 2011, when Channel 12 revealed the use of child labour in a

production facility allegedly owned by RESPONDENT [St. of Cl., para. 18]. At the time of

contracting CLAIMANT did not know, and could not have known that RESPONDENT used

child labour, so RESPONDENT cannot avoid liability for the purposes of Art. 35(2) CISG.

84. Conclusion: The polo shirts were non-conforming goods because of RESPONDENT’S

unethical use of child labour in one of its manufacturing plants. Art. 12 of the parties’

contract required high ethical standards as a condition of the polo shirts’ quality. The

polo shirts were therefore not of the quality required by the contract pursant to Art. 35(1)

CISG. The particular purpose of the contract was resale of the polo shirts to the retailer

Doma Cirun in Oceania. This particular purpose also required compliance with

Oceania’s high ethical standards. The polo shirts were also not fit for the purpose

expressly or impliedly made known to RESPONDENT pursuant to Art. 35(2)(b).

V. NON-CONFORMITY OF GOODS AMOUNTED TO A FUNDAMENTAL

BREACH ENTITLING THE CLAIMANT TO AVOID THE CONTACT

85. RESPONDENT’S failure to deliver polo shirts of the quality required by the contract

amounted to a fundamental breach (A). CLAIMANT was therefore entitled to avoid the

contract and did so validly by letter dated 8 April 2011 (C).

A. NON-CONFORMITY OF THE GOODS AMOUNTED TO A FUNDAMENTAL BREACH OF THE

CONTRACT

86. The delivery of non-conforming polo shirts amounted to a fundamental breach of

contract. RESPONDENT’s breach resulted in detriment that substantially deprived

CLAIMANT of what CLAIMANT was entitled to expect under the contract (i). CLAIMANT is

not precluded from asserting the breach was fundamental as RESPONDENT foresaw and a

reasonable person would have foreseen the detriment suffered by CLAIMANT as a result

of such a breach (ii).

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(i) RESPONDENT’S breach substantially depriving CLAIMANT of what was expected

under the contract

87. RESPONDENT’S breach of contract for non-conformity of goods resulted in such

detriment as to substantially deprive CLAIMANT of what CLAIMANT was entitled to

expect under the contract [Art. 25 CISG]. ‘Detriment’ is not confined to material loss or

damage [Lorenz; Ferrari, p. 390; Graffi, p. 339].

88. CLAIMANT was entitled to expect delivery of polo shirts that complied with Art. 12 of

the contract so that CLAIMANT could fulfil its subsequent contract with Doma Cirun.

RESPONDENT failed to supply polo shirts that conformed with Art. 12 of the contract

[supra, IV]. As a result of RESPONDENT’S breach of contract, Doma Cirun avoided their

contract with CLAIMANT [Cl. Ex. No. 5]. This detriment substantially deprived

CLAIMANT of the expectation that the polo shirts would conform with the contract so that

the goods could be resold to Doma Cirun.

(ii) The detriment suffered by CLAIMANT as a result of such a breach was foreseeable

89. RESPONDENT foresaw or ought to have foreseen that the delivery of polo shirts unfit for

sale by Doma Cirun in Oceania would result in the retailer avoiding its contract with

CLAIMANT [Art. 25 CISG]. Therefore CLAIMANT can rely on the fundamental breach

provision.

90. The Tribunal should assess foreseeability at the time at the contract was concluded

[Schroeter in Schlechtriem/Schwenzer, Art. 25, para. 33; Lorenz; Ferrari, p. 392]. At this

point in time, RESPONDENT knew that the polo shirts would be resold to Doma Cirun for

retail in Oceania [supra, para. 73]. RESPONDENT also knew of Oceania’s high ethical

standards from its previous contract with CLAIMANT [supra, para. 67-68].

91. Given RESPONDENT’S knowledge, a reasonable merchant in the position of RESPONDENT

would have foreseen that the use of child labour in its manufacturing processes would

have rendered the goods unfit for sale in Oceania as a country that prides itself on being

‘ethical’ [St. of Cl., para. 20; Will in Bianca-Bonell, p. 218].

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B. CLAIMANT WAS ENTITLED TO DECLARE THE CONTRACT AVOIDED AND DID SO VALIDLY

92. As a result of RESPONDENT’S fundamental breach, CLAIMANT was entitled to declare the

contract avoided pursuant to Art. 49(1)(a) CISG [supra above]. CLAIMANT did so validly

by letter dated 8 April 2011 [Cl. Ex. 6] in compliance with the notice requirement under

Art. 26 CISG.

93. CLAIMANT fulfilled all other conditions entitling CLAIMANT to declare the contract

avoided pursuant to Art. 49(1)(a) CISG. First, CLAIMANT avoided the contract within a

reasonable time after CLAIMANT knew or ought to have known of the breach as required

by Art. 49(2)(b)(i) CISG. The time limit for reasonable avoidance of the sales contract

begins at the time when the buyer learned or ought to have learned that the defect in the

goods amounted to a fundamental breach of contract [Muller-Chen in

Schlechtriem/Schwenzer, Art. 49, para. 34]. The defect was not a physical trait of the

polo shirts, but rather a failure to adhere to high ethical standards in RESPONDENT’S

method of production. The earliest time at which the CLAIMANT could have known that

the non-conformity of the goods amounted to a fundamental breach of contract was on 8

April 2011 when Doma Cirun notified CLAIMANT that there had been almost no sales of

Yes Casual polo shirts [Cl. Ex. 5], at which time it immediately avoided the contract

with RESPONDENT on 8 April 2011 [Cl. Ex. 6.].

94. Second, CLAIMANT is not precluded from declaring the contract avoided for

impossibility of making restitution of the goods substantially in the condition in which

they were received as the part of the goods sold were done so in the normal course of

business before CLAIMANT discovered or ought to have discovered the lack of

conformity (Art. 82(2)(c) CISG).

95. Conclusion: RESPONDENT’S failure to deliver polo shirts of the quality required by the

contract substantially deprived CLAIMANT of what was expected under the contract.

CLAIMANT was therefore entitled to declare the contract avoided. CLAIMANT did so validly

by letter dated 8 April 2011.

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VI. CLAIMANT IS ENTITLED TO DAMAGES FOR RESPONDENT’S BREACH OF

CONFORMITY

96. CLAIMANT’S avoidance of the contract under Art. 49(1)(a) CISG does not deprive

CLAIMANT of the right to claim damages [Art. 45(2) CISG]. CLAIMANT is entitled to

damages caused by the breach of the contract for non-conformity of goods. CLAIMANT is

entitled to restitution of the purchase price (A). Additionally, CLAIMANT is entitled to

damages for consequential loss. The consequential loss suffered was settlement costs

with Doma Cirun and Oceania [St. of. Cl., para. 37] (B). Finally, CLAIMANT took such

measures as were reasonable in the circumstances to mitigate loss resulting from the

breach (C).

A. CLAIMANT IS ENTITLED TO RESTITUTION OF THE PURCHASE PRICE

97. As CLAIMANT has wholly performed their obligations under the contract, they may claim

restitution of the full purchase price they have paid from RESPONDENT under Art. 81(2)

CISG. This is subject to the duty in Art. 84(2) CISG that parties mutually account for all

the benefits derived from the goods [Fountoulkis in Schlechtriem/Schwenzer, Art. 84,

para. 3].

98. CLAIMANT gave RESPONDENT the opportunity to take the goods back substantially in the

condition in which they were received [Cl. Ex. No. 6]. Respondent categorically refused

to do so. Therefore the Tribunal should not take into account the benefit Claimant

derived from the onsale of the goods to Pacifica Trading.

B. CLAIMANT IS ENTITLED TO DAMAGES FOR CONSEQUENTIAL LOSS

99. Article 74 entitles CLAIMANT to full compensation, including the consequential damages

suffered [Schwenzer in Schlechtriem/Schwenzer, Art. 74, para. 3; Zeller, p. 79; CISG

Advisory Opinion No. 6]. Consequential damage encompasses liability owed to third

parties. Additionally, loss of reputation is a type of damage recoverable under Art. 74.

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100. CLAIMANT is entitled to damages for pecuniary loss resulting from settlements with

Doma Cirun and Oceania Plus as a result of RESPONDENT’S breach of contract for non-

conformity of goods [Zeller, p. 118; CISG Advisory Opinion No. 6; Video recorders case].

Children Protection Fund of Oceania sued Oceania Plus for loss of reputation, which in

turn formed part of Oceania Plus’s settlement claim with CLAIMANT [St. Cl., paras. 21, 28,

29]. CLAIMANT’S recovery of damages for loss of reputation give effect to the full

compensation principle under Art. 74 [N.V Maes v N.V. Kapa Reynolds and Art books

case; CISG Advisory Opinion No. 6; Scwhenzer & Lesinger, p. 269].

101. RESPONDENT foresaw and ought to have foreseen that damage to third parties was a

possible consequence of the non-conformity of the goods [Art. 74 CISG]. It is sufficient

if the general extent of the loss is foreseeable [Schwenzer/Schlectriem and Schwenzer,

Article 74, para. 64; Zeller, p. 91]. RESPONDENT knew the goods were to be delivered to

Doma Cirun [Proc. Ord. 2, No. 16] to be sold in Oceania [Proc. Ord. 2, No. 15]. The

contract made sufficiently clear that CLAIMANT was a subsidiary of Oceania Plus [Cl. Ex.

1, Art. 12]. RESPONDENT therefore foresaw that damage to Doma Cirun and Oceania

Plus was a possible consequence of non-conformity of the goods. Even if RESPONDENT

did not actually foresee damage to third parties, RESPONDENT’S level of knowledge

establishes that they ought to have foreseen that the use of child labour would cause loss

to Doma Cirun and Oceania Plus [Art. 74 CISG].

C. CLAIMANT TOOK SUCH MEASURES AS WERE REASONABLE IN THE CIRCUMSTANCES TO

MITIGATE LOSS RESULTING FROM THE BREACH

102. CLAIMANT took such measures as were reasonable in the circumstances to mitigate

loss resulting from breach [Art. 77 CISG]. CLAIMANT sold the remaining goods to

Pacifica trading [Cl. Ex. para. 24]. Furthermore, CLAIMANT entered into a substitute

transaction to mitigate the loss to third parties. CLAIMANT contracted with Gold Service

Clothing on a rush to provide substitute polo shirts to Doma Cirun and took measures to

deliver the substitute goods by a faster mode of carriage [Cl. Ex., para. 25].

103. Conclusion: CLAIMANT is entitled to damages for RESPONDENT’S breach of

conformity of goods. This includes restitution of the purchase price and damages for

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consequential loss. CLAIMANT took such measures as were reasonable in the

circumstances to mitigate loss resulting from the breach.

Conclusion

104. The Tribunal should apply Mediterraneo’s requirement of writing to the parties’

contract. Mediterraneo has made a reservation under Art. 96 CISG, and the non-

derogable nature of Art. 12 CISG prevents the parties’ from excluding Mediterraneo’s

reservation. Consequently, the delivery date was not amended.

105. The Tribunal should not consider the witness statement of Mr Short in his absence

because doing so would deny CLAIMANT procedural fairness. Reference to the IBA

Rules, which represent best practice on questions of evidence in international arbitration,

precludes the Tribunal from considering Mr Short’s witness statement for this reason.

Not having Mr Short’s evidence tested before the Tribunal would damage the structural

integrity of the arbitration, and jeopardise the enforceability of any award.

106. Respondent breached the delivery date in the parties’ contract because the contract

cannot be orally amended. Even if Mediterraneo’s requirement for written amendment

does not apply, the conversation between Mr Short and Mr Long did not amount to an

amendment of the contract. The parties demonstrated a practice of conveying all

fundamental information in relation to the contract in writing. CLAIMANT is therefore

entitled to liquidated damages under Art. 10 of the parties’ contract.

107. Respondent’s use of child labour in one of its plants meant that the polo shirts were

non-conforming under the CISG’s express and implied quality conditions. Art. 12 of the

parties’ contract created an express quality requirement for the goods which demanded

ethical conduct in the conduct of RESPONDENT’s business (Art. 35(1) CISG). CLAIMANT

communicated to RESPONDENT that the particular purpose of the contract was resale of

the polo shirts to the retailer Doma Cirun in Oceania, and the ethical standards in the

Oceanian market. RESPONDENT was therefore in breach of the implied quality condition

under Art. 35(2)(b). The delivery of non-conforming goods amounted to a fundamental

breach because it substantially deprived CLAIMANT of what it expected under the

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contract, namely, the secondary contract with retailer Doma Cirun. CLAIMANT was

therefore entitled to avoid the contract.

108. CLAIMANT is entitled to damages flowing from RESPONDENT’s fundamental breach,

including restitution of the purchase price and damages for consequential loss.

PRAYER FOR RELIEF

For the reasons stated above, Counsel for CLAIMANT respectfully requests the Tribunal to:

1. Apply requirements of writing to the contract;

2. Disregard the witness statement of Mr Short;

3. Find that the parties’ did not amend the delivery date and as such RESPONDENT’S late

delivery breached the contract;

4. Find that RESPONDENT breached the contract for non-conformity of goods, that such

breach was fundamental and entitled CLAIMANT to avoid the contract; and

5. Find that CLAIMANT is entitled to be awarded damages in the amount to be determined

at the second stage of arbitration.

Respectfully signed and submitted by Counsel on 6 December 2012,

Nicholas Boyce Katia Contos Sophie Maltabarow Roisin McCarthy

Documents

MEMORANDUM FOR CLAIMANT - Institute of International ...INTERNATIONAL COMMERCIAL ARBITRATION MOOT Vienna, Austria 22 – 28 March 2013 MEMORANDUM FOR CLAIMANT UNIVERSITY OF SYDNEY