ROLGA FARMER’S EXCHANGE Respondent - …lawasiamoot.org/pdf/competition2011/M3080-R.pdf · SAN BEDA COLLEGE OF LAW Philippines Quinto, ... ROLGA FARMER’S EXCHANGE Respondent

M3080 – R

IN THE KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION

6TH LAWASIA INTERNATIONAL MOOT

ASTORIA PRODUCE COMPANY

Claimant

v.

ROLGA FARMER’S EXCHANGE

Respondent

MEMORIAL FOR THE RESPONDENT

SAN BEDA COLLEGE OF LAW

Philippines

Quinto, Ramiila L.

Parreñas, Princess

Cero, Iris Fatima V.

Atty. Pablito Perez

Coach

October 8 – 12, 2011 Seoul, Korea

M3080 – C

IN THE KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION

6TH LAWASIA INTERNATIONAL MOOT

ASTORIA PRODUCE COMPANY Claimant

v.

ROLGA FARMER’S EXCHANGE

Respondent

MEMORIAL FOR THE RESPONDENT

MEMORIAL FOR THE RESPONDENT (ROLGA FARMER’S EXCHANGE) -Preliminaries-

-i-

TABLE OF CONTENTS

TABLE OF CONTENTS i

INDEX OF AUTHORITIES iv

STATEMENT OF JURISDICTION Vii

QUESTIONS PRESENTED viii

STATEMENT OF FACTS ix

SUMMARY OF PLEADINGS xi

PLEADINGS AND AUTHORITIES 1

I. KLRCA has no authority to resolve the dispute between Astoria Produce

Company and Rolga Farmer’s Exchange.

1

A. The tribunal lacks jurisdiction because there was no arbitration agreement 1

A.1 There is no implied consent 3

B. The doctrine of separability does not apply 4

B.1 Even if this Tribunal Separates the Arbitration Clause from the Contract

of Sale, it Should Decline Jurisdiction Because the Parties Never Entered into

an Agreement to Arbitrate under KLRCA rules

5

C. Jurisdiction rules according to principles of private international law 6

D. Respondent’s participation in this arbitration is not an agreement to arbitrate

under the KLCA rules

8

II. The three arbitrators were improperly appointed. RFE was denied the

opportunity to select its party appointed arbitrator and the presiding arbitrator

or chairman improperly appointed

9


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A. Respondent made a timely and appropriate challenge to this Tribunal’s

Jurisdiction

9

A.1 Commencement must not be construed against RFE 10

B. The improper appointment of arbitrators 11

C. The Chairman was improperly appointed 13

D. The limited power of appointment 14

III. The arbitration panel does not have the authority to impose sanctions in the

form of a fine on RFE for failing to appear at the initial hearing and/or for not

providing adequate notice that it would not appear at the initial hearing

16

A. The grant of interim measures does not include the authority to impose fine 16

B. The imposition of fines is not contemplated under the KLRA Rules 17

IV. The general principles of international law, i.e. UNIDROIT should govern the

dispute

19

A. Rolga is not a contracting party to CISG. 19

B. The absence of agreement as to the governing law 21

V. Rolga farmers exchange did not breach its obligation under the contract even

if the shipment of bananas arrive at its destination in an unsatisfactory condition

22

A. The terms of the contract 22

A.1 The terms of the contract are binding 23

B. RFE complied with all the necessary and reasonable obligations under the

contract

24

B.1. RFE has no liability for the lack of conformity of the bananas under the 25


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contract in Art. 36 of the CISG.

VI. RFE has no legal obligation attempt to sell the bananas after the pinafore docked

at the port of Astoria

27

A. RFE has no obligations under its domestic laws 27

B. AP has the legal obligation to sell the bananas or a portion of them under its

domestic laws.

28

PRAYER FOR RELIEF


-iv-

INDEX OF AUTHORITIES

Laws, Treaties, Conventions

European Community Regulation 593/2008 20,24,28

ICC International Court of Arbitration 24

INCOTERMS: ICC Official Rules for the Interpretation of Trade Names 22

Kuala Lumpur Regional Centre for Arbitration Rules 7

New York Convention 3,5,6

UNCITRAL Arbitration Rules 6,11,13,18

UNCITRAL Model Law on International Commercial Arbitration 2,16,17

UNIDROIT Principles of International Commercial Contracts 23

Uniform Commercial Code 28

United Nations Convention on International Sale of Goods 19

Books, Articles

Alvarez, Guillermo Aguilar Article II(2) of the New York Convention and the Courts, in

ICCA CONGRESS SERIES NO. 9 Paris (1999)

6

Born, Gary B. INTERNATIONAL COMMERCIAL ARBITRATION Transnational

Publishers, Inc., 2d ed. (2001)

9

Garnett, Richard, et. al. A PRACTICAL GUIDE TO INTERNATIONAL

COMMERCIAL ARBITRATION Oceana Publications (2000)

4

Kaplan, Neil Is the Need for Writing as Expressed in the New York Convention

and the Model Law Out of Step with Commercial Practice?, 12 Arbitration International,

3


-v-

No.1 (1996)

Mayer, Pierre The Limits of Severability of the Arbitration Clause, ICCA CONGRESS

SERIES, NO. 9 (Paris 1999)

5

Poudret, Jean-Francois, Besson, Sebastien COMPARATIVE LAW OF

INTERNATIONAL ARBITRATION Sweet & Maxwell 2d ed. (2007)

3

Redfern, Alan / Hunter, Martin Law and Practice of International Commercial

Arbitration, 4th ed. London 2004

3

Sanders, Pieter L’autonomie de la clause compromissoire, in HOMMAGE A FREDERIC

EISEMANN, Liber Amicorum, Paris 1978

5

Schwebel, Stephen M. INTERNATIONAL ARBITRATION, THREE SALIENT

PROBLEMS, Cambridge, Grotius Publications (1987)

4

Van den Berg, Jan THE NEW YORK ARBITRATION CONVENTION OF 1958 Kluwer

Law 1981

6

National Cases

Sojuznefteexport (SNE) (USSR) v. Joc Oil, Ltd. (Bermuda), Court of Appeals of

Bermuda, 15 Yearbook of Commercial Arbitration 384

9

National Material Trading v. Tang Industries Inc. et al., USA District Court, D.

South Carolina, 1998 A.M.C. 201

3

Republic of Nicaragua v. Standard Fruit Co., 937 F. 2d 469 (9th Cir. 1991) 9

Jiangxi Export Corp. v. Sulanser Co. (H.K.) 9

JSC Zertafoni v. Rouly Holding, 2 Lloyd’s Rep. 335 (2004) 3

Germany 02 December 1982, Bundesgerichtshof [Supreme Court] 2, 4 IPRax - 2


-vi-

Praxis des Internationalen Privat - und Verfahrensrechts 1984) pp. 148-150

Germany 15 November 1994, Oberlandesgericht [Court of Appeal], Hamm, 41

Recht der internationalen Wirtschaft (1995) pp. 681-683

2


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STATEMENT OF JURISDICTION

At the request of the Astoria Produce Company, a written claim was submitted before the

Kuala Lumpur Regional Centre for Arbitration. The respondent, Rolga Farmer’s Exchange

questions the authority of the KLRCA. Hence this Tribunal is called upon to rule on its

jurisdiction.


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QUESTIONS PRESENTED

1. Does the KLRCA have the authority to resolve the dispute between the parties, specifically,

was there an agreement between the parties to submit this dispute to it?

2. Were the three arbitrators properly appointed, specifically, was RFE improperly denied the

opportunity to select its “party appointed arbitrator and was the Presiding Arbitrator or Chairman

improperly appointed?

3. Does the arbitration panel have the authority to impose sanctions in the form of a fine on RFE

for failing to appear at the initial hearing and/or for not providing adequate notice that it would

not appear and, assuming it does, what sanction would be appropriate under the circumstances?

4. What law or legal principles apply to this dispute? {The parties advised the Tribunal that it is

REF’s position that general principles of international law, i.e., UNIDROIT, should govern this

dispute while AP asserts that the United Nations Convention of the International Sale of Goods

should apply.}

5. Did the shipment of bananas arrive at its destination in an unsatisfactory condition due to

improper storage during the voyage from Rolga to Astoria and, if so, does this constitute a

breach of the seller’s obligation under the contract between the parties?

6. Did either party have a legal obligation to attempt to sell the bananas – or a portion of them –

soon after the Pinafore docked at the Port of Astoria?


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STATEMENT OF FACTS

The Claimant, Astoria Produce Company

Astoria Produce Company [AP] is a major distributor of produce to retail grocery stores

throughout Astoria. Michael Vogel is AP’s Chief Purchasing Agent and Dr. Basilio Bartolo,

PhD, is its Director of Food Safety.

The Respondent, Rolga Farmer’s Exchange

The Rolga Farmer’s Exchange [RFE] is an agricultural cooperative organized under the

laws of Rolga, a large tropical island in the Western Pacific. One of its major export crops is

bananas. Lenore Rocco is RFE’s General Sales Manager.

The Negotiations and the Bill of Sale

AP ordered a large quantity of bananas from RFE. Ms. Rocco sent a confirming Bill of

Sale to Mr. Vogel which indicated that the shipment would be made “FOB Rolga City”. It also

contained that any claim arising out of the contract shall be settled by one arbitrator in

accordance with the Rules of Western Pacific Regional Centre for Arbitration. The place shall be

Rolga City.


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Mr. Vogel signed the Bill of Sale; he modified the forum selection clause and indicated

that any dispute shall be settled by three arbitrators in accordance with the Kuala Lumpur

Regional Centre for Arbitration. The place shall be Kuala Lumpur. He then after returned the bill

of Sale to Ms. Rocco.

The Shipment of Bananas

RFE prepared a clean bill of lading and arranged for shipment on the M/S PINAFORE.

Captain Renas Vermelho signed the bill of lading which contains a special instructions that the

cargo of bananas must be stored in a cool, dry location with circulation to prevent spoilage.

M/S PINAFORE sailed on October 1, 2010 and arrived at Astoria City on the night of

November 24, 2010. Before unloading, the bananas were inspected and it was found out that

30% of the bananas ripened during the ocean voyage.

The Arbitration

While the AP and RFE were arguing on who should be held responsible, the bananas

became rotten and had to be destroyed.

AP and RFE agreed to arbitrate all the disputes arising from their contract, but they have

failed to agree on the place of arbitration and the arbitration rules to apply.


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SUMMARY OF PLEADINGS

I. KLRCA does not have the authority to resolve the dispute because of lack of arbitration

agreement between the parties. The forum selection clause was not sufficient to determine the

agreement of the parties. Absent such agreement, KLRCA under its own rules, failed to acquire

jurisdiction. The doctrine of separability, likewise, does not apply. The existence of the forum

selection clause itself is being questioned and therefore, there is no separate arbitration clause to

speak about. RFE’s act of participation shall not be construed as consent since respondent has

been openly challenging the jurisdiction of KLRCA.

II. RFE was denied the opportunity to appoint its party appointed arbitrator. The appointment of

RFE, 45 days after, was due to the fact that its initial response was to challenge the jurisdiction

of KLRCA. Moreover, there was no agreement as to the number of arbitrators and therefore the

rules under Art 7(1) of the UNCITRAL Arbitration Rules should be followed. AP failed to give

notice of appointment to RFE and failed to give a request to the appointing authority. The

appointing authority, therefore, does not have the right to appoint the second arbitrator in behalf

of RFE. The Presiding Arbitrator was likewise appointed improperly as the rules for appointing

the presiding chairman under Article 8 of the UNCITRAL Arbitration rules were not followed.

III. The arbitration panel does not have the authority to impose a fine on RFE for failing to

appear on the first hearing and/or for not giving notice. The power of the arbitral panel to grant

interim measure is subject to the request of one party. AP failed to give such request and thus,

the arbitration panel does not acquire the right to grant an interim measure. Moreover, an interim

measure has for its object, maintenance, prevention and res toration. A fine is a form of penalty

and do not partake the nature of an interim measure. Furthermore, assuming that KLRCA has


-xii-

jurisdiction over the dispute, the KLRCA does not provide for an imposition neither of an

interim measure nor of a fine.

IV. The general principles of international law i.e. UNIDROIT should be applied in the case

because ROLGA is not a contracting party to the United Nations Convention on International

Sale of Goods and the rules of private international law leads to the applicatio n of the European

Community regulation, adopted by RFE as its domestic law. Art. 4(2) states that in the absence

of the choice of law between the parties, the law of the country where the seller has his habitual

residence should be applied, Moreover, should the applicable cannot be determined, the contract

shall be governed by the law of the country mostly connected to it. The contract is mostly

connected to the party who is to effect performance, and that is the seller. Therefore, the laws of

Rolga, being the seller, should be applied.

V. There is no breach of the obligation on the part of RFE even if the bananas arrived in an

unsatisfactory condition. The usage of the term FOB is binding upon the parties. In an FOB term,

the seller delivers when the goods passed the ship’s rail and the buyer has to bear the cost and

risk from that point. RFE is not liable under Art. 36 of the CISG since it conformed to all its

obligations the moment the risk was to pass to the buyer. The goods were properly packed and

stored in boxes specially designed for transportation of bananas.

VI. RFE has no obligation to sell the bananas. Under Art 2-603 of the Uniform Commercial

Code, the buyer has the obligation to sell the goods when the seller has no agent or no place of

business at the market of rejection, in this case, Astoria. Even without the instruction from the

seller, AP is bound to sell the goods due to its perishable nature Moreover, the instruction of

RFE was not unreasonable. An instruction is unreasonable if on demand, indemnity for expenses


-xiii-

is not forthcoming. There was no demand for indemnity yet, AP’s demand consists only of that

of the purchase price.

MEMORIAL FOR THE RESPONDENT (ROLGA FARMER’S EXCHANGE) -Pleadings & Authorities-

-1-

PLEADINGS AND AUTHORITIES

ISSUE 1 KLRCA HAVE NO AUTHORITY TO RESOLVE THE DISPUTE BETWEEN

ASTORIA PRODUCE COMPANY AND ROLGA FARMER’S EXCHANGE.

The Respondent makes three primary submissions on the jurisdictional issue: (A) there

was no arbitration agreement clause; (B) the doctrine of separability does not apply; (C) the

jurisdiction rules according to private international law do not warrant the authority of KLRCA.

A. The tribunal lacks jurisdiction because there was no arbitration agreement

The Respondent contests the submission of the dispute to the Kuala Lumpur Regional

Centre for Arbitration (KLRCA). Respondents concur that a contract of sale was entered into by

the claimant and respondents. The contract was signed by Mr. Vogel, AP’s chief Purchasing

Agent. However, because of the alteration made by Mr. Vogel with respect to the forum clause,

there was no arbitration agreement. As a result, the tribunal should decline jurisdiction because it

cannot render an enforceable award.

An “arbitration agreement” according the UNCITRAL Model Law on Commercial

Arbitration is an agreement by the parties to submit to arbitration all or certain disputes which

have arisen or which may arise between them in respect of a defined legal relationship, whether

contractual or not. An arbitration agreement may be in the form of an arbitration clause in a


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contract or in the form of a separate agreement.1 An arbitration agreement must be in writing.2

The jurisdiction of an arbitral tribunal emanates from the choice or agreement by the parties.

Absent such consent from one of the parties, the arbitral tribunal shall not incur jurisdiction.

The confirming Bill of Sale sent by RFE on July 15, 2010 as an email attachment

includes a revised forum selection clause.3 RFE and AP failed to touch on the subject of

arbitration on the subsequent exchange of emails. Therefore, RFE did not give its assent to the

arbitration clause revision made by AP on their acceptance email.

There are a number of cases where arbitration clauses were not upheld because there was

no clear reference to a particular arbitration institution. In a 1994 German decision the Court did

not uphold an arbitration clause which provided for “the arbitration tribunal of the International

Chamber of Commerce in Paris, seat in Zurich”4 The court found that the competent arbitral

institution was neither “unambiguously determined nor unambiguously determinable.” A 1982

decision of the German Supreme Court refused to uphold a clause for “Hamburg Friendly

Arbitration according to the Rules of the Commodity Trade Association of the Hamburg.”5 The

court here said that the clause could be given meaning, but refused to do so as this interpretation

would not be obvious to foreign parties to a contract.

1 Art. 7 (1), Chapter 2, UNCITRAL Model Law on Commercial Agreement

2 Art. 7 (2), Chapter 2, UNCITRAL Model Law on Commercial Agreement

3 Compromis, page 2

4 Germany 15 November 1994, Oberlandesgericht [Court of Appeal], Hamm, 41 Recht der internationalen

Wirtschaft (1995) pp. 681-68 5 Germany 02 December 1982, Bundesgerichtshof [Supreme Court] 2, 4 IPRax - Praxis des Internationalen Privat -

und Verfahrensrechts 1984) pp. 148-150


-3-

Similar to the 1994 German decision, the court held that the clause was neither clearly

determined, nor clearly able to be determined. Finally, in a 1997 decision, an American court

did not uphold a clause for arbitration at “the Court of Arbitration at the Chamber of Commerce

and Industry of Switzerland.”6 The court held that the clause was not sufficiently definite and

that the court had “no authority to rewrite the contract by choosing which of those courts was

intended by the arbitration agreement.”

Without a valid arbitration agreement, there is no basis for the Tribunal to exercise

jurisdiction.

A.1 There is no implied consent

The type of “implied consent” contemplated by KLRCA rules occurs when one party

alleges arbitration and the other party does not object to the arbitration but rather takes part in the

proceedings.7 The instant dispute is easily distinguishable from an implied consent scenario.

While Claimant has submitted a Statement of Claim calling for arbitration, Respondent has

denied that it gave its consent to the jurisdiction of this tribunal.

The instant arbitration clause fails to meet the form requirement under both the New

York Convention and KLRCA. Accordingly, the parties never formed an arbitration agreement

and this Tribunal has no foundation from which to derive its jurisdiction.

6 National Material Trading v. Tang Industries Inc. et al., USA District Court, D. South Caro lina, 1998 A.M.C. 201

7Redfern, Alan / Hunter, Martin Law and Practice of International Commercial Arbitrat ion, 4th ed. London 2004;

Poudret, Jean-Francois, Besson, Sebastien Comparative Law Of International Arbitration Sweet & Maxwell 2d ed.

(2007); Kaplan, Neil Is the Need for Writing as Expressed in the New York Convention and the Model Law Out of

Step with Commercial Practice?, 12 Arb itration International, No.1 (1996);JSC Zertafoni v. Rouly Holding (U.K.)


-4-

B. The doctrine of separability does not apply

Contrary to claimant’s assertion, the arbitration clause cannot be separated from and be

treated as an autonomous provision. Generally, the doctrine of separability allows an arbitral

tribunal to consider an arbitration clause independent of its underlying contract. 8 Although this

doctrine applies to many arbitration disputes, there is one circumstance in which application is

inappropriate: where the very existence of the underlying contract has been challenged. 9

Here, RFE challenges the very existence of the forum selection clause and therefore there

is no separate arbitration clause so to speak.10 In this instance, RFE never agreed to submit the

dispute before the KLRCA.

The doctrine of separability is a “convenient and pragmatic fiction.”11 This fiction is

however premised on the conclusion of a valid forum selection clause and a valid main

contract.12 When the contract of sale was concluded, it is understood that the parties entered into

an agreement to ship the bananas. However, the forum selection clause cannot be presumed to

exist. The claimant’s counter-offer to arbitrate according to the KLRCA rules required an

independent revocation or objection from the respondent, and thus can never be implied. There is

8 Redfern/Hunter 3-63

9 Redfern/Hunter; Poudret/Besson

10Poudret/Besson 167; Garnett, Richard, et. al. A PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL

ARBITRATION Oceana Publications (2000) 11

Redfern/Hunter 12

Schwebel, Stephen M. International Arbitration, Three Salient Problems Cambridge, Grotius Publications (1987);

Poudret/Besson 164


-5-

no rational basis for the fiction of separability. 13 To find otherwise would impose a fiction on a

fiction, an irrational result which would undoubtedly push the limits of arbitral legitimacy.

The foundation of arbitration is the agreement. 14 If no agreement ever existed in the first

place, then “the arbitral tribunal can have no valid existence, authority or jurisdiction.” 15

B.1 Even if this Tribunal Separates the Arbitration Clause from the Contract of Sale, it

Should Decline Jurisdiction Because the Parties Never Entered into an Agreement to

Arbitrate under KLRCA rules

If this Tribunal applies separability to inquire into the existence of the parties’

alleged agreement to arbitrate, the Tribunal should find that no agreement was ever

formed. The instant arbitration clause does not meet the form requirement of the New

York Convention As a result, no arbitration agreement exists and this Tribunal must

decline jurisdiction.

The New York Convention is the guiding force for analyzing whether an

arbitration agreement was properly formed.16 Astoria and Rolga are all parties to the New

13

Poudret/Besson ¶ 167; Mayer, Pierre The Limits o f Severability of the Arbitration Clause, ICCA CONGRESS

SERIES, NO. 9 (Paris 1999); Sanders, Pieter L’autonomie de la clause compromissoire, in HOMMAGE A

FREDERIC EISEMANN, Liber Amicorum, Paris 1978 14

Redfern/Hunter ¶ 1-08. 15

Redfern/Hunter ¶ 5-43. 16

Redfern/Hunter ¶ 3-05.


-6-

York Convention.17 Accordingly, the New York Convention governs this Tribunal’s

determination of whether a valid arbitration agreement exists.

New York Convention Article II sets forth a uniform minimum requirement for

the form of the arbitration agreement, and a tribunal or court should accept nothing less.18

Article II(1) requires that the arbitration agreement be in writing. Article II(2)

further explains that the writing requirement is satisfied if it conforms to one of two

alternatives: the writing must be “signed by the parties” or it must be “contained in an

exchange of letters or telegrams.” Although the clause in the instant dispute in is writing,

it does not conform to the requirements of signature and acceptance.

Accordingly, the parties never formed an arbitration agreement and this Tribunal

has no foundation from which to derive its jurisdiction.

C. Jurisdiction rules according to principles of private international law

According to commonly accepted principles of private international law, in the absence

of any arbitration clause or agreement, the jurisdictional reach of arbitral tribunal is determined

by:19

17

Compromis, page 9 18

Van den Berg, Jan THE NEW YORK ARBITRATION CONVENTION OF 1958 Kluwer Law 1981; Alvarez,

Guillermo Aguilar Article II(2) of the New York Convention and the Courts, in ICCA CONGRESS SERIES NO. 9

Paris (1999) 19

Article 22, UNCITRAL Model Law on Arbitration Rules


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1. the principal place of business of the defendant or, in the absence thereof, the habitual

residence of the defendant;

2. the place where the contract was made, provided that the defendant has there a place of

business, branch or agency, through which the contract was made;

3. the port of loading or the port of discharge

Kuala Lumpur is neither the principal place of business RFE, the place where the contract

was made, neither the port of loading or discharge of the place shipment.

According to the KLRCA rules, the KLRCA shall conduct and administer the arbitration

proceeding when the parties agreed in writing to arbitrate their disputes.20 Before the KLRCA

could conduct and administer a proceeding, thereby acquiring jurisdiction, agreement in writing

between the parties to subject their dispute to arbitration before the KLRCA is a condition

precedent. An agreement is a coming together of parties in opinion or determination or the union

of two or more minds in a thing done or to be done or a mutual assent to do a thing 21.

20

Ru le 1, KLRCA ru les 21

Black’s Law Dictionary


-8-

D. Respondent’s participation in this arbitration is not an agreement to arbitrate under the

KLCA rules

The claimant suggests that the respondent consented to the Tribunal’s jurisdiction by

commencing the arbitration, nominating an arbitrator and preparing submissions in relation to

the merits of the dispute. The Tribunal should not draw any inferences from the respondent’s

participation as the respondent has challenged the jurisdiction of the Tribunal at every available

opportunity. Further, the Presiding Arbitrator specifically assured counsel for the respondent that

the Tribunal would consider whether it had jurisdiction to consider the merits of the dispute. The

respondent’s submission on the merits of the dispute cannot negatively impact its jurisdictional

claim, as the parties mutually agreed on having only one hearing on both jurisdiction and merit

in the interests of efficiency and cost. 22

In conclusion, a finding that this tribunal lacks jurisdiction would preserve the equality of

the parties.

22

Compromis, page 4


-9-

ISSUE 2: THE THREE ARBITRATORS WERE IMPROPERLY APPOINTED. RFE

WAS DENIED THE OPPORTUNITY TO SELECT ITS PARTY APPOINTED

ARBITRATOR AND THE PRESIDING ARBITRATOR OR CHAIRMAN

IMPROPERLY APPOINTED

A. Respondent made a timely and appropriate challenge to this Tribunal’s Jurisdiction

The jurisdiction of an arbitration panel, like the jurisdiction of a court, is not immune

from challenge. Indeed, the jurisdiction of an arbitration panel to decide a dispute is one of the

content of the respondent.23 The respondent does not recognize the jurisdiction of KLRCA. If a

party does not recognize the jurisdiction of a panel, it may avail itself of three appropriate

responses: boycott the proceeding, contest the jurisdiction of the panel at the outset, or protest

the eventual award of the basis of a jurisdictional defect. 24

Here, Respondent made a timely and appropriate cha llenge to this Tribunal’s jurisdiction

in its notice before the initial hearing.25

23

Sojuznefteexport (SNE) (USSR) v. Joc Oil, Ltd. (Bermuda) , Court of Appeals of Bermuda, 15 Yearbook of

Commercial Arb itration 384; Republic of Nicaragua v. Standard Fruit Co . (U.S. Cir. Ct.); Jiangxi Export Corp. v.

Sulanser Co. (H.K.) 24

Born, Gary B. International Commercial Arbitration Transnational Publishers, Inc., 2d Ed. (2001) 25

Compromis, page 4


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A.1 Commencement must not be construed against RFE

Article 4 UNCITRAL Arbitration Rules provides that “The constitution of the arbitral

tribunal shall not be hindered by any controversy with respect to the respondent’s failure to

communicate a response to the notice of arbitration, or an incomplete or late response to the

notice of arbitration, which shall be finally resolved by the arbitral tribunal.”

The rule on commencement must not be construed against RFE’s right in the

proceedings. The tardiness of RFE’s response is still a matter to be resolved by the tribunal.

The respondent’s right to respond is not limited to the notice’s warrant for a party

appointed administrator. Its response to challenge the authority of the court was within the

provision under Article 4 that “2. The response to the notice of arbitration may also include:

“any plea that an arbitral tribunal to be constituted under these Rules lacks jurisdiction.”

The appointment was made 45 days after RFE’s failure to appoint, but such lack of

appointment was due to the fact that its initial response was to challenge the KLRCA’s authority

on the 31st day after notice.


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B. The improper appointment of arbitrators

According to the UNCITRAL Arbitration Rules:

If the parties have not previously agreed on the number of arbitrators, and if within

30 days after the receipt by the respondent of the notice of arbitration, the parties

have not agreed that there shall be one arbitrator, three arbitrators shall be

appointed.26

The parties, in their forum selection clause, have failed to arrive at an agreement as to

how many arbitrators shall there be. Article 7 of the UNCITRAL Arbitration rules provide for

such situation. The notice of arbitration from KLRCA was received by RFE on June 15 2011.

The notice of arbitration was sent together with a request for an appointment of RFE’s party

appointed arbitrator. However, what the KLRCA failed to consider is that the parties have not

yet arrived at an agreement as to how many arbitrators will compose their tribunal. Therefore, as

according to Article 7, 30 days shall be given to the parties and after such, from then it will be

considered that 3 arbitrators will compose the tribunal.

According to Article 9 of the UNCITRAL arbitration rules:

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

26

Art. 7(1), UNCITRAL Arbitration Rules


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appointed the first party may request the appointing authority to appoint the

second arbitrator.

The appointing authority therefore may appoint the second arbitrator provided that 1) 30

days had lapsed from the receipt of notification of the appointment of arbitrator of the first party

and 2) at the request of first party.

AP appointed Bernard Bodd as its party appointed arbitrator. But notice of such

appointment was not sent to RFE, therefore the 30 day period mentioned above has not yet

commenced since no notice has been received by RFE.

Assuming that the notice of the appointment of arbitrator has been sent together with the

notice of arbitration, which is June 15, 2011, the parties at that time has not yet agreed that there

will be three arbitrators. Therefore, the notice of appointment of arbitrator shall be considered as

received 30 days from the June 15, 2011, when the parties failed to agree on the number of

arbitrators and the law mandated that the arbitral tribunal shall be composed of three arbitrators.

RFE appointed Riska Benti, August 15, 2011 and still within the 30 day period from the date of

notice of granted to it before the first party may request the appointing authority to appoint the

second arbitrator.

In addition to that, the first party, in this case, Astoria Produce Company, needs to

request the appointing authority to appoint the second arbitrator before it can do so.


-13-

Claimant failed to do such and therefore, the appointing authority did not acquire the

right to appoint the arbitrator who shall represent Rolga Farmer’s Produce.

C. The Chairman was improperly appointed

According to Article 9 of the UNCITRAL Arbitration Rules:

If three arbitrators are to be appointed, each party shall appoint one arbitrator. The

two arbitrators thus appointed shall choose the third arbitrator who will act as the

presiding arbitrator of the arbitral tribunal.

If within 30 days after the appointment of the second arbitrator the two arbitrators

have not agreed on the choice of the presiding arbitrator, the presiding arbitrator

shall be appointed by the appointing authority in the same way as a sole arbitrator

would be appointed under article 8.

The first and second arbitrators shall choose the third arbitrator who shall be the

Presiding arbitrator or the chairman.27 The Appointing Authority shall have the right to appoint

the third arbitrator, 30 days after, if the first and second arbitrator failed to agree on the person of

the third arbitrator.28

27

Art. 9 (1) UNCITRAL Arbitration Rules 28

Art. 9 (3) UNCITRAL Arbitration Rules


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In the case presented, the Director appointed Riska Benti as the second arbitrator and

Judge John Chong as the third and presiding arbitrator simultaneously. 29 No time was given for

the first and second arbitrators to deliberate or to agree on whom to appoint as the presiding

arbitrator. Assuming that Riska Benti was properly appointed, still the Presiding Arbitrator shall

be chosen by the first and second arbitrator and after the lapse of 30 days from the appointment

of the second arbitrator, then the appointing authority may appoint the third and presiding

arbitrator. Therefore, following these rules, Judge John Chong was improperly appointed by the

director of the KLRCA.

D. The limited power of appointment

The power to appoint is limited by the rule on Article 8 that

(a) The appointing authority shall communicate to each of the parties an identical list

containing at least three names;

(b) Within 15 days after the receipt of this list, each party may return the list to the

appointing authority after having deleted the name or names to which it objects and

numbered the remaining names on the list in the order of its preference;

(c) After the expiration of the above period of time the appointing authority shall appoint

the sole arbitrator from among the names approved on the lists returned to it and in

accordance with the order of preference indicated by the parties;

29

Compromis, page 4


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(d) If for any reason the appointment cannot be made according to this procedure, the

appointing authority may exercise its discretion in appointing the sole arbitrator

.

Regardless of the competence of the choice made, it failed to make a list and present it to

respondent. The claimant must recognize its dissent and heed its call for its own appointment of

“party appointed administrator” and harness its approval for the presiding Arbitrator or

Chairman.

In conclusion, the claimant never gained power to appoint, as the respondent has never

agreed to any of its designations nor appointments. Thus, the appointment of the three arbitrators

is not within the grounds permissible by the rules.


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ISSUE 3 THE ARBITRATION PANEL DOES NOT HAVE THE AUTHORITY TO

IMPOSE SANCTIONS IN THE FORM OF A FINE ON RFE FOR FAILING TO

APPEAR AT THE INITIAL HEARING AND/OR FOR NOT PROVIDING ADEQUATE

NOTICE THAT IT WOULD NOT APPEAR AT THE INITIAL HEARING

A. The grant of interim measures does not include the authority to impose fines

The UNCITRAL Model Law on International Commercial Arbitration30, which both

parties are adopting31 states that unless otherwise agreed by the parties, the arbitral tribunal may,

at the request of a party, grant an interim measure. 32 An interim measure has been defined as a

temporary measure, whether in a form of an award or in another form, by which, at any time,

prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal

orders the party to:

(a) Maintain or restore the status quo pending determination of the dispute;

(b) Take action that would prevent, or refrain from taking action that is likely to cause,

current or imminent harm or prejudice to the arbitral process itself;

(c) Provide a means of preserving assets out of which a subsequent award may be

satisfied; or

30

Chapter IV, Interim Measures and Preliminary Order 31


Article 17 (1), UNCITRAL Model Law on International Commercial Arbit ration


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(d) Preserve evidence that may be relevant and material to the resolution of the dispute. 33

An interim measure may be granted by an arbitral tribunal subject to the request of one

party. In the case presented for arbitration, Astoria Produce Company failed to request for a grant

of such interim measure. Therefore, the arbitral tribunal, in the absence of such request does not

have the authority as it is, to impose such a fine.

In addition, the grant of interim measure has for its object maintenance, restoration and

prevention. A fine has been defined as to impose a pecuniary punishment or mulct or to sentence

a person convicted of an offense to pay a penalty in money.34 An interim measure does not

partake the nature of a penalty. Therefore, as it was defined, an interim measure does include a

fine.

B. The imposition of fines is not contemplated under the KLRA Rules

Assuming that the KLRCA acquired jurisdiction over the dispute, the same adopted the

UNCITRAL Arbitration Rules. Article 26 (3) of which states that a party requesting for an

interim measure under Art 26 (2) shall satisfy the tribunal that:

33

Article 17 (2), UNCITRAL Model Law on International Commercial Arbit ration 34

Black’s Law Dictionary


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a) Harm not adequately reparable by an award of damages is likely to result if the

measure is not ordered, and such harm substantially outweighs the harm that is likely to result to

the party against whom the measure is directed if the measure is granted; and

b) There is a reasonable possibility that the requesting party will succeed on the merits of

the claim. The determination on this possibility shall not affect the discretion of the arbitral

tribunal in making any subsequent determination.35

In the case presented for arbitration, not only did Astoria fail to request for a grant of

interim measure but it also failed to satisfy the tribunal of the abovementioned requirements.

Therefore, failure to do such, the arbitral tribunal has no means to ascertain whether or not the

grant of an interim measure is necessary. Hence, the arbitral authority has no authority to impose

a fine.

The KLRCA rules are silent on the grant neither of an interim measure nor of an

imposition of a fine. Therefore, assuming that KLRCA has jurisdiction over the dispute, its rules

do not have any provision granting the arbitral tribunal any authority to impose a fine.

35

Art. 26 (2) (a) and (b), UNCITRAL Arb itration Rules


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ISSUE 4: THE GENERAL PRINCIPLES OF INTERNATIONAL LAW, I.E. UNIDROIT

SHOULD GOVERN THE DISPUTE

A. Rolga is not a contracting party to CISG.

Contrary to claimant’s contention, the United Nations Convention in the International

Sale of Goods applies in two instances: First, in contracts of sale of goods where the parties

whose places of business are in different States, when the States are Contracting States.36

Second, it applies in contracts of sale of goods where the rules of private international law lead to

the application of the law of the Contracting State.

Rolga is not a contracting party to the CISG.37 Therefore, the parties are not bound by the

provisions thereof. To fall under the second application of the CISG despite being a non-

contracting party, the rules of private international lead to the application of the law of the

contracting state.

Rolga adopts the general principles of international law, particularly UNIDROIT and it

has recently enacted as part of its domestic laws, provisions similar to Articles 3 and 4 of the

European Community Regulation. Under Article 4 (2)(a), to the extent that the law applicable to

the contract has not been chosen in accordance with Article 3, the law governing the contract

shall be determined by:

36

Art. 1 (a) United Nat ions Contracts on International Sale of Goods 37

Compromis, page 9, Appendix no. 3


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A contract for the sale of goods shall be governed by the law of the country where the

seller has his habitual residence38 Rolga Farmer’s Exchange is an agricultural cooperative under

the laws of Rolga.39 The seller has his habitual residence in Rolga, therefore the laws of Rolga,

which is the generally accepted Principles of International law i.e. UNIDROIT, shall apply to

this case.

Assuming arguendo, that the law applicable cannot be determined, the contract shall be

governed by the law of the country that is most closely connected. 40 It is presumed that the

contract is mostly connected with the country where the party who is to effect the performance

which is characteristic of the contract has its habitual residence at the time of the conclusion of

the contract. The seller is the party who is to effect the characteristic performance in the contract

of sale of goods. Therefore, the law of the country where the seller has his habitual place of

business shall govern. The law to which the seller adheres to is the general principles of

international law.

38

Art. 4 (1) (b), European Community Regulat ion 593/2008 39


Art 4 (4), Europian Community Regulation 593/2008


-21-

B. The absence of agreement as to the governing law

The parties failed to agree as to what law will govern their transaction and following the

rules of private international law has led to the application of the law of country to where the

seller has it habitual residence. The UNIDROIT is being applied by Rolga to govern its

domestic affairs41 and adopts the generally accepted principles of international law to govern its

international transactions.

Under the UNIDROIT Principles, the same may be applied when the parties have not

chosen any law to govern the contract.

41

Further Correct ions and Clarification, page 3, number 11


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ISSUE 5: ROLGA FARMERS EXCHANGE DID NOT BREACH ITS OBLIGATION

UNDER THE CONTRACT EVEN IF THE SHIPMENT OF BANANAS ARRIVE AT ITS

DESTINATION IN AN UNSATISFACTORY CONDITION

The shipment of bananas arrived at its destination in an unsatisfactory condition due to

improper storage during the voyage. However, there was no breach of the seller’s obligation

under the contract between the parties.

A. The terms of the contract

The usage of term “F.O.B (Rolga)” is binding among the parties. RFE’s assumption of

risk over the bananas ended when the bananas were loaded on the vessel.

F.O.B. (origin) means that the seller delivers when the goods pass the ship's rail at the

named port of shipment. This means that the buyer has to bear all costs and risks of loss of or

damage to the goods from that point. The FOB term requires the seller to clear the goods for

export.42

In this term, the assumption of risk of loss or damage on the part of the seller will end on

the moment the goods are on board the vessel. The seller’s assumption of risk starts at ackaging

to inspection and ends upon loading the goods. The buyer assumes the risk and pays the cost

from the moment onwards.

42

Incoterms: ICC OFFICIAL RULES FOR THE INTERPRETATION OF TRADE TERMS


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Since on July 15, 2010, RFE and Astoria agreed that the term of shipment to be used by

the parties is “F.O.B. (Rolga)”43 RFE’s responsibility over the bananas ended the moment it was

loaded on M/S PINAFORE. Astoria should bear the risk from such moment.

A.1 The terms of the contract are binding

Art. 1.9 of the UNIDROIT Principles of International Commercial Contracts

(PICC) provides:

(1) The parties are bound by any usage to which they have agreed and by any

practices which they have established between themselves.

(2) The parties are bound by a usage that is widely known to and regularly

observed in international trade by parties in the particular trade concerned except

where the application of such a usage would be unreasonable

Par. 2 of Article 1.9 expresses the binding effect of a usage widely known and

observed in international trade by parties in a particular trade concerned. The usage of

an “F.O.B” term is widely known and likewise adopted by most parties in

commercial contracts. It has been recognized and defined as one of the general terms

used amongst majority of the parties in the international trade by the INCOTERMS.

43

Compromis, page2


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Therefore, when RFE and AP agreed that the shipment would be “F.O.B.

(Rolga)”, both parties are bound to the terms thereof by express provision of Article

1.9 of the PICC. Since RFE’s obligation over the bananas lasted until such goods

were on board the vessel and no responsibility on RFE’s part arises after such

moment, AP is thus bound to the effect of the usage. AP cannot invoke liability on the

part of RFE because their agreement regarding the term of shipment and its effects is

binding among them. The binding character of the usage is explained by ICC

International Court of Arbitration, Paris in that one party cannot just change the

usages, practices and habits followed or agreed by the parties.

B. RFE complied with all the necessary and reasonable obligations under the contract

Rolga is a civil law country which enacted a domestic law identical to European

Community Regulation No. 593.2008.

Under its domestic law, a contract for the sale of goods shall be governed by the law of

the country where the seller has his habitual residence. 44 The obligations of the seller are

derived from the provisions of the Convention of International Sale of Goods which is the result

of the application of Art. 4 of the Regulation (EC) No. 593/2008.

44

Art. 4 of the Regulation (EC) No. 593/2008 of the European parliament and of the Council)


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B.1 RFE has no liability for the lack of conformity of the bananas under the contract in

Art. 36 of the CISG.

The seller is liable in accordance with the contract and the CISG for any lack of

conformity which exists at the time when the risk passes to the buyer.

There is no question that the bananas were properly packed and were placed in

such boxes or cardboards which were specially designed for transportation as per

report of the professional maritime surveyor John Sparrow. This fact is not objected

by Astoria. Moreover, in the Bill of Sale that was handed over to the captain of M/S

Pinafore, a special instruction was given by RFE sufficient enough for the carrier to

take measures in giving extra-ordinary care over the bananas. It was also established

that M/S Pinafore has been a carrier of RFE in numerous transactions already and that

the latter did not encounter any problems with regard to the transportation of the

goods and the quality of such goods upon arrival. With regard to the past

circumstances, the vigilance of RFE over the quality of the goods and the proper

supervision over the carrier in the transportation of the goods is manifested. RFE

therefore has performed all the necessary care and proper management over the

bananas before the risk has been passed to AP.

In sum, although the bananas arrived in an unsatisfactory condition, RFE did not breach

any obligation in the contract as it was shown that RFE had taken all the necessary and

reasonable steps in ascertaining that the bananas were in good condition and that the bananas


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were placed in such boxes as to secure its preservation prior to the passing of the risk of loss or

of damage of such goods to the buyer, AP.


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ISSUE 6: RFE HAS NO LEGAL OBLIGATION ATTEMPT TO SELL THE BANANAS

AFTER THE PINAFORE DOCKED AT THE PORT OF ASTORIA

AP has the legal obligation to sell the bananas or a portion of them soon after the

Pinafore docked at the port of Astoria under the provision of Art. 2-603(1) of the Uniform

Commercial Code as a result of the application of article 5 the Regulation (EC) No. 593/2008 of

the European parliament and of the Council.

A. RFE has no obligations under its domestic laws

The contract of sale between RFE and AP with respect to the determination of the le gal

obligation on the part of both parties to sell the bananas or a portion of them after the Pinafore

docked at the port of Astoria is a situation involving the conflict of laws. It encourages questions

as to the determination of what laws to apply, what jurisdiction should take over the dispute and

the rules or regulations that would prevail.

Art. 5 provides, among others:

“1. To the extent that the law applicable to a contract for the carriage of goods has not

been chosen in accordance with Article 3, the law applicable shall be the law of the

country of habitual residence of the carrier, provided that the place of receipt or the place

of delivery or the habitual residence of the consignor is also situated in that country. If


-28-

those requirements are not met, the law of the country where the place of delivery as

agreed by the parties is situated shall apply.”45

It is clear that the last sentence of Art. 5 is applicable to resolve the determination of the

legal obligation of either party to sell the bananas. Such application of Art. 5 then lead to the

application of the law of the country where the place of delivery is situated, which is the law of

Astoria – the Uniform Commercial Code.

B. AP has the legal obligation to sell the bananas or a portion of the m under its domestic

laws.

Art. 2-603(1) of the UCC provides: “Subject to any security interest in the buyer, when

the seller has no agent or place of business at the market of rejection a merchant buyer is under a

duty after rejection of goods in his possession or control to follow any reasonable instructions

received from the seller with respect to the goods and in the absence of such instructions to make

reasonable efforts to sell them for the seller's account if they are perishable or threaten to decline

in value speedily. Instructions are not reasonable if on demand indemnity for expenses is not

forthcoming.”46

It was established that RFE has no agent or place of business at Astoria and AP is a

merchant buyer by reason of it business as distributor of bananas to retail grocery stores

throughout Astoria.

45

Article 5 the Regulat ion (EC) No. 593/2008 of the European parliament and of the Council). 46

Art. 2-603 of the UCC


-29-

On November 26, 2010, when Vogel sent an email to Rocco informing RFE of AP’s

rejection of the bananas and demanding the reimbursement of the purchase price, an immediate

response was receive by AP instructing the latter that it could have sold or it could sell the

bananas to many of the numerous commercial bakers in Astoria who use them to make banana

bread and muffins. The legal obligation on the part of AP under the above provision was thus

created which binds AP because the instruction given by RFE constitutes a reasonable

instruction.

Under the Art. 2-603(1) of the UCC, an instruction would be unreasonable if on demand,

indemnity for expenses is not forthcoming. There was however no demand for an indemnity for

expenses. As a matter of fact, AP demanded for the reimbursement of only the purchase price.

Thus, the instruction is to be considered as reasonable for RFE cannot refuse to pay indemnity

for expenses as there was no demand for such.

In conclusion, AP has the legal obligation to sell the bananas or a portion of them as soon

as the Pinafore had docked in the port of Astoria under Art. 2-603(1) of the UCC by virtue of the

application of Article 5 the Regulation (EC) No. 593/2008 of the European parliament and of the

Council.


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PRAYER FOR RELIEF

On the basis of the foregoing facts and points of law, Astoria Produce respectfully

requests this Arbitral Tribunal to:

I. Decline its authority and jurisdiction to resolve the dispute between claimant and

respondent pursuant to 2010 UNCITRAL Arbitration Rules

II. Declare that the three arbitrators were improperly appointed and RFE did not waived

its opportunity to select its party arbitrator

III. Declare that the tribunal’s has no authority to impose fines on RFE for failure to

appear at the initial hearing

IV. Declare that the general principles of international law, i.e. UNIDROIT should apply

in resolving the dispute

V. Declare that RFE did not breach of obligation under the contract even if the shipment

of bananas arrive in an unsatisfactory condition

VI. Declare that RFE has no legal obligation to sell the bananas or a portion of them

Respectfully Yours,

Counsel for the Respondent

Documents

ROLGA FARMER’S EXCHANGE Respondent - …lawasiamoot.org/pdf/competition2011/M3080-R.pdf · SAN BEDA COLLEGE OF LAW Philippines Quinto, ... ROLGA FARMER’S EXCHANGE Respondent