Twenty Forth Annual Willem C. Vis International Commercial

Twenty Forth Annual

Willem C. Vis International Commercial Arbitration Moot

Vienna, Austria April 7-13, 2017

MEMORANDUM FOR CLAIMANT

On behalf of Against

Wright Ltd SantosD KG

232 Garrincha Street 77 Avenida O Rei

Oceanside, Equatoriana Cafucopa, Mediterraneo

CLAIMANT RESPONDENT

ALEXIA-NEFELI DOUMA • ILLIA CHERNOHORENKO • PENKA KOSTOVA

Memorandum for CLAIMANT

TABLE OF CONTENTS

INDEX OF ABBREVIATIONS ........................................................................................................................................... IV

INDEX OF STATUTES, RULES AND TREATIES .......................................................................................................... VI

INDEX OF AUTHORITIES ............................................................................................................................................... VII

INDEX OF COURT DECISIONS ........................................................................................................................................ XI

INDEX OF ARBITRAL AWARDS ................................................................................................................................... XII

STATEMENT OF FACTS ...................................................................................................................................................... 1

SUMMARY OF THE ARGUMENTS .................................................................................................................................... 4

ARGUMENTS ON THE PROCEDURAL ISSUES.............................................................................................................. 5

I. THE CLAIMANT’S CLAIMS ARE ADMISSIBLE. ................................................................................. 5

1. ‘Failure of negotiation’ did not take place on 1st April 2016, therefore, claims are admissible. ........... 5

1.1. Ambiguity in the time-bar clause must be resolved in favour of restrictive application. ...... 5

1.2. Claimant did not foreclose negotiation, or declare ‘failure of negotiation’ through the

email dated 1st April 2016. .................................................................................................................................... 6

1.3. Alternatively, negotiations failed not with the email dated 1st April 2016, but with

Respondent’s failure to reply to the same became apparent. .............................................................. 7

2. In arguendo, the DSA does not apply the sixty-day time-bar to compliance with technical requirement

of the CAM-CCBC Rules. ................................................................................................... 7

3. In any case, arbitration commenced within the prescribed time as there was substantial compliance with

Article 4.1 of the CAM-CCBC Rules. ................................................................................. 8

3.1. Arbitration commences where there is substantial compliance with technical requirements. ..... 8

3.2. Defect relating to power attorney was technical and curable. ....................................................................... 9

3.3. Non-payment of Registration Fee does not affect ‘commencement’ of arbitration under Article

4.1 of the CAM-CCBC Rules. ............................................................................................................................... 10

II. THE RESPONDENT’S REQUEST FOR SECURITY FOR COSTS SHOULD BE DISMISSED .............. 10

1. Special considerations apply to grant of security for costs, in view of the measure’s exceptional

nature. ................................................................................................................................. 11

2. The Respondent’s application for security for costs is precluded on grounds of consent and delay.

........................................................................................................................................... 11

3. The application must be dismissed since there has been no ‘fundamental change in

circumstances’. ...................................................................................................................... 12

4. Security of costs cannot be ordered as the Claimant does not suffer from an inability to satisfy an

award of costs, or an inadequacy of assets. ............................................................................. 13

4.1. Claimant’s inability to satisfy an adverse award for costs is relevant to deciding the

application, and not its alleged unwillingness. ........................................................................................ 13

4.2. Application cannot be decided in Respondent’s favour on the basis of the information

presented. ................................................................................................................................................................... 14


III

4.3. Claimant does not suffer from an inability to pay costs or lack of resources against which

an award may be enforced. ................................................................................................................................ 14

5. It would be unfair to grant security for costs, as the claims have substance and have been made in

good faith. ............................................................................................................................ 15

CONCLUSION ON PROCEDURAL ISSUES .................................................................................................................... 16

ARGUMENTS ON THE MERITS ..................................................................................................................................... 16

III. THE CLAIMANT IS ENTITLED TO USD 2,285,240 FOR THE FAN BLADES

BASED ON THE PRESENT EXCHANGE RATE ............................................................. 16

1. The parties agreed to the conversion of Claimant’s production cost on a flexible ‘cost-plus basis’

under the DSA ................................................................................................................... 16

1.1 The DSA must be interpreted through the parties’ common intention, which was not to

have any fixed exchange rate. ........................................................................................................................... 17

1.1A fixed exchange rate is incompatible with the common intention to calculate price on

a ‘cost-plus basis’ ................................................................................................................................. 17

1.1B. No previous practice between the parties relating to the application of a fixed

exchange rate. ...................................................................................................................................... 19

1.2. Additionally, and alternatively, the fixed exchange rate could not be read into the DSA by a

reasonable person .................................................................................................................................................. 20

2. The Addendum did not alter or amend any terms of the DSA. ............................................. 21

2.1. There was no intent as to the rights and obligations under the main DSA. ............................ 22

2.1A Neither parties intended to modify the main DSA through the Addendum. ......... 22

2.1B The Claimant specifically intended for the fixed-rate clause to apply only to sale

of clamps. ................................................................................................................................................ 23

2.2. Applying the ‘reasonable interpretation’ test, the written terms show that the fixed-rate

clause was limited to the Addendum. ........................................................................................................... 23

2.3. Applying the contra-preferentem rule, uncertainty in the interpretation and application

must be resolved in the Claimant’s favour. ................................................................................................ 25

IV. THE CLAIMANT IS ENTITLED TO USD 102,192.80 FOR THE FEES DEDUCTED BY

THE EQUATORIANA CENTRAL BANK. ......................................................................... 25

1. Respondent is liable to pay the levy under the DSA. ............................................................. 26

1.2 The levy under ML/2010C falls within the meaning of ‘bank charges’ ........................................ 26

2. Respondent is liable to pay the levy under the general legal framework. ................................... 27

2.1 Respondent has the obligation to take all necessary measures to effect full payment to the

Claimant under Art. 54 CISG ............................................................................................................................. 27

2.2 Respondent did not discharge its obligation for payment when the Central Bank deducted

the 0.5% levy before the funds reached Claimant’s financial institution. ................................... 28

CONCLUSION ON SUBSTANTIVE ISSUES ................................................................................................................... 29

REQUEST FOR RELIEF ..................................................................................................................................................... 31


IV

INDEX OF ABBREVIATIONS

AAA American Arbitration Association

Art./Arts. Article/Articles

CA Court of Appeal

CAM-CCBC Center for Arbitration and Mediation of the Chamber of Commerce

CISG United Nations Convention on Contracts for International Sale of

Goods, Vienna 1980

CLAIMANT Wright Ltd

Co. Company

Corp. Corporation

DSA Development and Sales Agreement, 1 August 2010

Ed.

EQD

Edition

Equatorianian Denar

EU European Union

EWHC England and Wales High Court of Justice

Exhibit/Ex.C [No.] CLAIMANT’s Exhibit [No.]

Exhibit/Ex.R [No.]

FIU

GBP

RESPONDENT’s Exhibit [No.]

Financial Investigation Unit

Great British Pound

i.e. Id est [that is]

ICC International Chamber of Commerce International Court of

Arbitration

Inc. Incorporated

LCIA The London Court of International Arbitration

Ltd Limited

No./Nos. Number/Numbers

p./pp. Page/Pages

para./paras. Paragraph/Paragraphs

PO No. 1 Procedural Order Number 1

PO No. 2 Procedural Order Number 2

Prof./Profs. Professor/Professors

Res. Answer Answer to Statement of Claim by RESPONDENT

RESPONDENT SantosD KG

Sec. Section


V

St. Cl. Statement of Claim by CLAIMANT

Swiss Rules Swiss Arbitration Rules 2012

The Parties CLAIMANT and RESPONDENT

The U.S. The United States of America

The UK The United Kingdom

UKHL The United Kingdom House of Lords

UNCITRAL United Nations Commission for the Unification of International

Trade Law

UNCITRAL Rules United Nations Commission for the Unification of International

Trade Law Arbitration Rules 2010

UNIDROIT Principles of International Commercial Contracts of 2004 of the

International Institute for the Unification of Private Law

USD United States Dollar

v. Versus [against]

Vol. Volume


VI

INDEX OF STATUTES, RULES AND TREATIES

Chartered Institute of Arbitrators Guidelines on Applications for Security for Costs (2015)

CIA Guidelines on Applications for Interim Measures (2016)

Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York

1958) (the “New York Convention”)

International Bar Association Rules on the Taking of Evidence in International Arbitration

(2010)

International Chamber of Commerce International Court of Arbitration Rules (2012)

Singapore International Arbitration Centre Arbitration Rules (2013)

United Nation Commission on International Trade Law Arbitration Rules (2010)

United Nation Commission on International Trade Law Model Law on International

Commercial Arbitration (1985)

United Nations Convention on Contracts for International Sale of Goods (Vienna 1980)


VII

INDEX OF AUTHORITIES

Cited as Sources Cited at para.

Blacks Law Dictionary Blacks Law Dictionary 1290

Bonell

Cf. Ole Lando

Bonell, M. J., The UNIDROIT Principles in Practice,

(2nd. Ed., Transnational Publishers, 2006).

Cf. Ole Lando and Hugh Beale eds., Principles of

European Contract Law: Parts I and II, Kluwer Law

International (2000)

Derains,Schwartz Yves Derains & Eric A. Schwartz, A Guide to the ICC

Rules of Arbitration, 2nd edn

The Hague: Kluwer Law International (2005), 57 and

43

DiMatteo DiMatteo, L. A. [et al.], International Sales Law: A

Critical Analysis of CISG Jurisprudence, Cambridge

University Press, 2006, at 154-156.

DiMatteo DiMatteo, L. A., International Contract & Sales Law,

Kluwer Law International (2009), at 214-224.

Friedland Paul D. Friedland, The Swiss Supreme Court Sets

Aside an ICC Award, Journal of International

Arbitration, (© Kluwer Law International;

Kluwer Law International 1996, Volume 13 Issue 1)

pp. 111 – 116, at page 112, 113

Fouchard John Savage; Emmanuel Gaillard; Fouchard Gaillard

Goldman, International Commercial Arbitration

Kluwer Law International (1999)


VIII

Gabriel

J. Waincymer

Gabriel, H. D., The Buyer's. Performance under the

CISG: Articles 53-60 Trends in the Decisions, 25 J.L.

& Commerce, at 273.

Jeff Waincymer , Procedure and Evidence in

International Arbitration, (© Kluwer Law

International; Kluwer Law International 2012) at page

224

Finkelstein/Casado

Filho/Straube

Frederico Jose Straube; Claudio Finkelstein; Napoleao

Casado Filho, The CAM-CCBC Arbitration Rules 2012

: A commentary (Eleven International Publishing 2016)

Richard Hyland CISG-AC Opinion no 3, Parol Evidence Rule, Plain

Meaning Rule, Contractual Merger Clause and the

CISG, 23 October 2004. Rapporteur: Professor,

Rutgers Law School, Camden, NJ, USA.

Kröll/Mistelis/

Viscasillas

John O. Honnold

Johan Erauw

Stefan Kröll; Loukas Mistelis; Pilar Perales Viscasillas

UN Convention on the International Sale of Goods

(CISG) Commentary

C. H. Beck (2011)

Uniform law for international sales under the 1980

United Nations convention / John O. Honnold ;

edited and updated by Harry M. Flechtner. [4th ed.]

Johan Erauw, CISG Articles 66-70: The Risk of Loss

and Passing It p. 203-215

80, 86

Lew/Mistelis/Kröll Julian D. M. Lew; Loukas A. Mistelis; Stefan Michael

Kröll, Comparative International Commercial

Arbitration

Kluwer Law International (2003) at page 224

Macdonald Macdonald, E., Bank Charges and the Core

Exemption: Office of Fair Trading v. Abbey National

Plc,

The Modern Law Review, 2008, at 994.

http://library.kcl.ac.uk/F/MU5I5KUFSV5G3I1UD5BR6DFKRYXS73I2CH7CY6L8R9FTCEFL8L-20405?func=full-set-set&set_number=013858&set_entry=000004&format=999




IX

Magnus Magnus, Ulrich, General Principles of UN-Sales Law,

Rabels Zeitschrift for Foreign and International Private

Law,

Volume 59, Issue 3-4, 1995, at 469-494.

Maskow Maskow, D., Article 54, Bianca, C.M. & Michael

Bonell. Commentary on the International Sales Law:

The 1980 Vienna Sales Convention (Milan: Guiffre,

1987), at 394-400.

Needham Michael J. Needham, Orders for Security for a Party's

Costs, 63 J.C.I. Arb. 122–29 (1997).

Osana-Gonzalez

Schlechtriem and

Schwenzer

Osana-Gonzalez, Buyer’s enabling steps to pay the

Price: Article CISG, 25 Journal of Law & Commerce

(2005-06), at 299-323.

Peter Schlechtriem; Ingeborg Schwenzer, Schlechtriem

& Schwenzer Commentary on The UN Convention on

The International Sale of Goods (CISG).]

Redfern/Hunter Nigel Blackaby; Constantine Partasides; Alan Redfern;

J. Martin Hunter, Redfern and Hunter on International

Arbitration

Kluwer Law International (6th ed., 2015)

105

Reid Greg Reid, Security for Costs in International

Arbitrations: Forget It?, New Law Journal, September

27, 2002 (Arbitration and ADR supplement) at 1427

Saidov Djakhongir Saidov, The Law of Damages in

International Sales : The CISG and Other International

Instruments,

Hart Publishing (2008), sec.2.1

Sevón L. Sevón L., Obligations of the Buyer under the Vienna

Convention on the International Sale of Goods,

Reproduced with permission from Suomalainen

Lakimiesten Yhdistys: -Tidskrift utgiven av Juridiska

Föreningen i Finland

[Finnish Law Society] 126 (1990), at 327-343

102


X

Gary Soo Gary Soo, Securing Costs in Hong Kong Arbitration, 3

Int'l Arb. L. Rev. 25 (2000) at page 25.

Tallon, D. Published in Galston & Smit ed., International Sales:

The United Nations Convention on Contracts for the

International Sale of Goods, Matthew Bender (1984),

Juris Publishing, Ch. 7, at 7-1 & 7-20.

UNCITRAL Model

Law Digest

United Nations Commission on International Trade

Law, UNCITRAL Secretariat, UNCITRAL 2012

Digest of Case Law on the Model Law on International

Commercial Arbitration

116

UNIDROIT

Principles

Commentary

Stefan Vogenauer

in: Commentary on the UNIDROIT Principles of

International Commercial Contracts (PICC)

Oxford University Press (2009)

121, 123

Veeder V Veeder, International Handbook on Commercial

Arbitration

Paulsson ed, (1997)

Waincymer Jeffrey Waincymer, Procedure and Evidence in

International Arbitration

Kluwer Law International (2012)

Weixa

Weixia Gu, Security for Costs in International

Commercial Arbitration, Journal of International

Arbitration, (© Kluwer Law International; Kluwer Law

International 2005, Volume 22 Issue 3) pp. 167 – 205,

at page 188;

Zeller Bruno Zeller “Determining the Contractual Intent of Parties

under the CISG and Common Law -- A Comparative

Analysis” Reproduced with permission of European Journal

of Law Reform (Kluwer) Vol. 4, No. 4 (2002) 629-643


XI

INDEX OF COURT DECISIONS

Hong Kong

China Shipping Co. v.

Whistler Charterers

China Ocean Shipping Co. Owners of the M/V Fu

Ning Hai v. Whistler International Charterers of the

M/V Fu Ning Hai (1999) H.C.C.T. No. 20, May 24,

1999, Findlay J.

The United Kingdom

Berkley C Villages v

Pullen

Berkeley Community Villages Ltd v Pullen, [2007]

EWHC 1330

Nobahar-Cookson v. Hut

Group

Nobahar-Cookson & Ors v The Hut Group Ltd

[2016] EWCA Civ 128

OFT v Abbey National

PLC

Office of Fair Trading v Abbey National plc and

Others [2009] UKSC 6, [2009] EWCA 116, [2008]

EWHC 875 (Comm)

Copée Lavalin v. Ken-

Ren Chemicals

S.A. Coppée Lavalin N.V. v. Ken-Ren Chemicals and

Fertilisers Ltd. [1995] 1 A.C. 38

The Sabrewing The Sabrewing [2008] 1 Lloyd's Rep 286 at para 16-

17

The Starsin Homburg Houtimport BV v Agrosin Private Ltd

[2004] 1 AC 715 at p.779

XY International v.

Société Z

2010 FOLIO

XY International, Inc. v. Société Z (ICC), reprinted

in 1997(2) ASA Bull. 363 cited as: XY Int’l, Inc. v.

Société Z (ICC)

High Court of Justice, Queen's Bench Division

(Commercial Court), Case No: 2010 FOLIO 849, 9

February 2011

Spain

MCC-Marble Ceramic

v Ceramica

See MCC-Marble Ceramic Center, Inc. v. Ceramica

Nuova D'Agostino S.p.A.; Spain 14 July 2010

Cáceres Court of Appeals (Rolls of rubber case)

http://cisgw3.law.pace.edu/cases/100714s4.html

http://cisgw3.law.pace.edu/cases/100714s4.html


XII

INDEX OF ARBITRAL AWARDS

International Centre for Settlement of Investment Disputes (ICSID)

ICSID Case No.

ARB/12/18, 25 January,

Valle Verde Sociedad Financiera S.L. v. Bolivarian

Republic of Venezuela (Decision on Provisional

Measures), ICSID Case No. ARB/12/18, 25 January

Tribunal of International Commercial Arbitration at the Russian Federation Chamber of

Commerce and Industry

CLOUT Case No. 142

Tribunal of International Commercial Arbitration at the

Russian Federation Chamber of Commerce and Industry,

Russian Federation, 17 October 1995 (Arbitral award No.

123/1992)

CLOUT case No. 215 SWITZERLAND Bezirksgericht [District Court] St.

Gallen 3 July 1997, available online at

<http://cisgw3.law.pace.edu/cases/970703s1.html>

CLOUT Case No. 222 CLOUT case No. 222 [UNITED STATES MCC-Marble

Ceramic Center v. Ceramica Nuova D'Agostino, [Federal

Appellate Court] [11th Circuit] 29 June 1998, available:

<http://cisgw3.law.pace.edu/cases/980629u1.html>

CLOUT Case No. 236 Landgericht Tübingen, Germany, 18 June 2003,

Internationales Handelsrecht, 2003,

CLOUT Case No. 268 GERMANY Bundesgerichtshof [Supreme Court] 11

December 1996, available online at

<http://cisgw3.law.pace.edu/cases/961211g1.html>

CLOUT Case No. 313

FRANCE Cour d'appel [Appellate Court] Grenoble 21

October 1999, available online at

<http://cisgw3.law.pace.edu/cases/991021f1.html>

International Chamber of Commerce International Court of Arbitration (ICC)

ICC XY International, Inc. v. Société Z (ICC), reprinted in

1997(2) ASA Bull. 363

96

ICC Case No.10032 ICC Case No. 10032 of November 1999 (Nos. 82–84)

http://cisgw3.law.pace.edu/cases/980629u1.html


XIII

ICC Award No.6228 ICC Award No.6228 (1990), ICC BULLETIN, Vol.8,

No.1

ICC Case No. 7197 ICC Arbitration Case No. 7197/1992

ICC Case No. 6784 ICC Case No. Veeder 1 (1997): 53

ICC Case No. 7074

ICC 8324/1995

ICC Case No. 7074 of 1996, published extracts in 8 ICC

Arb. Bull. 61 (No. 1, 1997)

ICC 8324/1995, published on the Internet at

http://www.unilex.info

Ad hoc Tribunal

Vekoma v Maran Coal Transport- en Handelsmaatschappij 'Vekoma' B.V. V.

Maran Coal Corporation, judgment of 17 August 1995,

ASA Bulletin 1996, 673


1

STATEMENT OF FACTS

1. The Parties to this dispute are Wright Ltd (“Wright”), the CLAIMANT, which is a highly-specialized

manufacturer of fan‐blades for jet engines in Equatoriana, and SantosD KG (“SantosD”), the

RESPONDENT, which is a medium sized manufacturer of jet engines from Mediterraneo. Both

CLAIMANT and RESPONDENT were subsidiaries of Engineering International SA (“Engineering”), a

company based in Oceania, operating in the engineering industry, more particularly in turbines. The

contractual relationship between the Parties dates back to two contracts, in 2003 and 2005, respectively.

Engineering International SA sold CLAIMANT on 1 August 2010 to Skymover, which later became

Wright Holding PLC, and RESPONDENT to SpeedRun, a Private Equity Fund on 3 August 2010. Wright

Holding PLC owns 88 % of CLAIMANT’s shares.

2. In 2010 CLAIMANT and RESPONDENT were in negotiations to jointly “develop” a new fan blade for

the next generation of RESPONDENT’s high‐spec jet engine, JE 76/TL14b. The fan blade was to be

based on CLAIMANT’s newest model of swept fan blade. The improved fan blade – TRF 192‐I, was

supposed to lead to a considerable noise reduction in RESPONDENT’s new engine. The improved fan

blade was to be developed jointly under the technical leadership of CLAIMANT.

3. RESPONDENT agreed to buy at least 2,000 of the swept fan blades in the first year, but the final

development and production costs for the new blades was not yet certain. RESPONDENT insisted on

fixing a maximum price to be paid, in order for it to be able to offer itself a price for the engine to Earhart

SP (“Earhart”), and parties agreed on a flexible price structure for the fan blade.

4. According to the Development and Sales Agreement (“DSA”) of 1 August 2010 RESPONDENT ordered

2,000 swept fan blades for a price per blade ranging between USD 9,975 to USD 13,125 based on an

estimate by CLAIMANT about the likely cost per blade to which a certain profit was to be added.

CLAIMANT estimated that the production costs per blade would be around EQD (Equatorianian Denars)

20,000 and in USD around USD 10,000. The exchange rate had largely remained the same for the last

three years fluctuating between USD 1 = EQD 2.00 and USD 1 = EQD 2.02.

5. At the same time, RESPONDENT had intended to purchase the same number of clamps from another

producer. Following the conclusion of the DSA, and in particular when it turned out that those clamps

from the other producer were not suitable, it became clear that RESPONDENT would have to purchase

the clamps from CLAIMANT.

6. Accordingly, an Addendum was added to the contract and signed by the parties on 26 October 2010. In the

Addendum the parties agreed that the price for the clamps would be calculated on a cost coverage basis.

Moreover, because of RESPONDENT’s insistence and deviation from the rules applicable to the price

calculation for the fan blades, the parties agreed on a fixed exchange rate for the cost of the clamps.


2

7. CLAIMANT delivered the fan blades and the clamps on 14 January 2015 to RESPONDENT as per

contract and attached invoices for both goods. RESPONDENT accepted delivery and after inspection

confirmed that the swept fan blades – model TRF 192‐I, and the clamps were in conformity with the

contract.

8. Due to a mistake by CLAIMANT’s accounting department, the invoice for the fan blades attached during

delivery was inaccurate. Instead of the due amount of USD 22,723,800 under Section 4 of the DSA, the

invoice was only for USD 20,438,560. Mr. Lee, the person responsible for creating the invoice, had first

prepared the invoice for the clamps using the fixed exchange rate as under the addendum. When he then

prepared the invoice for the fan blades, he applied the same fixed exchange rate, overlooking that for the

price calculation for the fan blades the current exchange rate was to be applied.

9. RESPONDENT paid the amount invoiced and informed CLAIMANT about the payments made. On 15

January 2015, Mr. Cyril Lindbergh, RESPONDENT’s Chief Financial Officer, emailed Ms. Amelia

Beinhorn, the COO of CLAIMANT, that he had effected payment of USD 20,438,560 and USD

183,343.28 to the CLAIMANT’s account at the Equatoriana National Bank for the fan blades and clamps,

respectively.

10. Immediately after receiving the email, Ms. Beinhorn contacted Mr. Lindbergh to clarify the mistake and to

point out that on the basis of the formula agreed upon in the contract the costs per fan blade was USD

10,941.90, resulting in an overall purchase price of USD 22,723,800. RESPONDENT in computing the

price and making the transfer had applied the wrong exchange rate. It assumed that the fixed exchange rate

relevant for the clamps produced under the Addendum was also applicable to the fan blades. It is

uncontested that CLAIMANT incurred costs in the amount of EQD 19,586 per fan blade. Based on the

correct exchange rate at the time of production, the costs per blade in USD were 10,941.90 and not USD

9,744.28 as assumed by REPONDENT based on the wrong exchange rate also included in our invoice.

11. On 29 January 2015, USD 20,336,367.20 was credited to CLAIMANT’s account at the Equatoriana

National Bank. On 9 February 2015, Ms. Beinhorn notified Mr. Lindbergh via e-mail that CLAIMANT

was demanding the outstanding payment of USD 2,387,432.80 by 4 March 2015. However, in his reply

dated 10 February 2015, Mr. Lindbergh denied that any additional purchase price payment was due. He

reiterated RESPONDENT’S view, that the costs per fan blade was only USD 9,744.28 insisting again on

the application of the fixed exchange rate set out in the Addendum to the DSA, for converting the cost

incurred by CLAIMANT in EQD into USD.

12. Ms. Beinhorn’s inquiry with the Equatoriana National Bank revealed that the bank had investigated the

payment for money laundering under Regulation ML/2010C. A 0.5% levy was deducted from the

funds transferred by Respondent as per Section 12 of the Regulation.


3

13. In line with the requirements in Section 21, CLAIMANT tried to resolve the dispute amicably.

CLAIMANT made several offers combining a reduction in the sales prices for the 2,000 fan blades directly

covered by the DSA with a firm commitment for further fan blades to be delivered within the next five

years. RESPONDENT, however, insisted on a cost of USD 9,744.28 per fan blade. Mr. Lindbergh stated

that RESPONDENT was not aware of any reason why USD 102,192.80 had been deducted from the USD

20,438,560 they had transferred.

14. CLAIMANT submitted its Request for Arbitration at the Center for Arbitration and Mediation of the

Chamber of Commerce Brazil-Canada (“CAM-CCBC”) on 31 May 2016, requesting payment by

RESPONDENT under the Contract. RESPONDENT submitted his Answer to the Statement of Claim

on 24 June 2016.


4

SUMMARY OF THE ARGUMENTS

1. Claimant submits that its recourse to arbitration is allowed and that its claim is admissible. The

Request for Arbitration was filed within the sixty-day period. The ‘failure of negotiation’ did not

take place on 1st April 2016 contrary to Respondent’s assertion. The sixty-day time-bar under

Section 21 of the DSA applies specifically to the ‘initiation of arbitration’ and not to the

‘commencement of arbitration’ as defined under Article 4 of the CAM-CCBC Rules. Assuming

arguendo that the time-bar clause requires ‘commencement’ within sixty-days from the failure of

negotiations, Claimant’s request still constitutes a valid commencement of arbitration because the

failure of negotiations occurred on 31 May 2016.

2. Furthermore, Respondent’s request for security for costs should be dismissed. Art. 8 of the

CAM-CCBC Rules provides that “[u]nless the parties have otherwise agreed, the Arbitral

Tribunal can grant provisional measures, both injunctive and anticipatory” in accordance with

international arbitration. Claimant does not suffer from an inability to satisfy an adverse order for

costs, or a lack of resources against which such an order could be enforced. The balance of

convenience is in favour of the Claimant as its claims have been made in good faith and prima

facie have merit.

3. Claimant is entitled to USD 2,285,240 for the blades under the current exchange rate. According

to Art. 8 (1) and (2) CISG, Claimant maintains that during negotiations for the DSA, the parties

agreed on a ‘cost + basis’ or a cost plus profit price scheme in Section 4 DSA, where they fixed the

minimum and maximum price in USD. Despite the parties’ agreement on payment in USD,

Claimant was supposed to receive the respective equivalent amount in EQD upon payment.

Concomitantly, the cost of USD 102,192.80 is to be borne by Respondent.

4. The Addendum did not modify the main Agreement, as the intention of the parties was clearly

not to alter the DSA provisions. Claimant was made to believe that the Addendum’s purpose was

limited to the sale of clamps. Based on Arts. 4.1 and 4.2 UNIDROIT mirroring Art. 8 (1) & (2)

CISG on contractual interpretation, Respondent’s concealed intention to fix the exchange rate

cannot be considered. Applying the contra-preferentum rule, uncertainty in the interpretation must

be resolved in the Claimant’s favour.

5. Last but not least, Claimant requests USD 102,192.80 for the fees deducted by the Equatoriana

Central Bank. According to Arts. 53 and 54 CISG, Claimant is entitled to the full price of

payment under the DSA, whereas Respondent must take all steps in complying with such

formalities as may be required under the contract or any laws so as to effect payment.

Accordingly, the levy under Regulation ML/2010C is a bank charge contemplated under the

DSA.


5

ARGUMENTS ON THE PROCEDURAL ISSUES

I. THE CLAIMANT’S CLAIMS ARE ADMISSIBLE.

1. The Respondent has raised an objection to the admissibility of the claims, on the ground that

they have been submitted beyond the time limit provided under Section 21 of the DSA [Ans.

Resp. p. 26, para. 11-15]. This objection should be rejected, as: Firstly, the claims were made within

the sixty-day period, as the ‘failure of negotiation’ did not take place on 1st April 2016, contrary to

the Respondent’s assertion (1). Secondly, the sixty-day time bar under Section 21 of the DSA

applies not to ‘commencement of arbitration’ as defined under Article 4 of the CAM-CCBC

Rules, but instead to ‘initiation of arbitration.’ Through its request for arbitration dated 31st May

2016, the Claimant initiated arbitration within time, whether or not it commenced arbitration

under Article 4.1 of the CAM-CCBC Rules (2). Finally, assuming arguendo that the time-bar

clause required ‘commencement’ under CAM-CCBC Rules within sixty-days, the Claimant’s 31st

May 2016 request was a valid commencement of arbitration (3).

1. ‘Failure of negotiation’ did not take place on 1st April 2016, therefore, claims are

admissible.

2. Section 21 of the DSA provides that “each party has the right to initiate arbitration proceedings

within sixty days after the failure of the negotiation”. The application of this provision depends

on when the Tribunal deems the “failure of negotiation” to have taken place. In making this

determination, the Tribunal must resolve issues of interpretation in favour of restricting the

application of the time-bar provision (1.1). In line with this approach, the Tribunal must hold

that either: (a) ‘failure of the negotiation’ did not take place until the filing of request for

arbitration, as there was no express foreclosure of negotiations or ‘failure of the negotiation’, nor

was there any mutual agreement to that effect (1.2); or (b) ‘failure of the negotiation’ did not take

place when Claimant sent the email on 1st April 2016, but took place when it became clear that

the Respondent would not reply to the said email (1.31.2). In both cases, the effect would be that

the claims are admissible, irrespective of the date of commencement of arbitration.

1.1. Ambiguity in the time-bar clause must be resolved in favour of restrictive

application.

3. Contractual provisions that serve the limited purpose of restricting a party’s rights under the

contract should be interpreted narrowly [Nobahar-Cookson & Ors v The Hut Group Ltd]. This is

especially true for time-bar clauses [The Starsin, para.144; The Sabrewing, para 16,17]. The High

Court of Justice in the United Kingdom (UK) has held that where a time-bar clause can be

applied in two alternate ways, the court should choose the application that extends the period of


6

limitation [2010 FOLIO, p. 849]. This decision was rendered in the context of an arbitration

agreement, which contained a time-bar clause.

4. In the present case, Section 21 of the DSA contains an exclusion clause or a time-bar clause. This

time bar clause states that right to initiate arbitration must be exercised within sixty-days of the

‘failure of the negotiation’. The clause does not define what this failure is, how it takes place or

when it takes place. There are arguably multiple answers to these questions. From amongst these

answers, the Tribunal must choose the ones that limit the effect of the time-bar.

5. Therefore, as long as the Tribunal finds that the interpretation proposed by the Claimant is

reasonable and is not against the terms or the contract, or the intent of the parties, the Tribunal

should adopt the same.

1.2. Claimant did not foreclose negotiation, or declare ‘failure of negotiation’

through the email dated 1st April 2016.

6. Due to the absence of guidance in the DSA as to when the deemed ‘failure of negotiation’ takes

place, the parties may validly have different understandings of the same. Since the interpretation

of this phrase affects the parties’ right to arbitration, an interpretation should be adopted which

makes the ‘failure of arbitration’ objectively determinable. This is in line with the argument

presented above (1.1).

7. Failure of negotiation cannot be objectively determined in the absence of an statement from one

of the parties that there has been a “failure of negotiation; or a clear mutual understanding

between the parties to that effect. This is the standard that the Tribunal should adopt. This view

is in line with decision of the Tribunal in the Vakoma v. Maran case, in which a similar arbitration

agreement was at issue [Vekoma v Maran Coal, p. 673]. The arbitration agreement in that case

provided that arbitration may be initiated within thirty days after the parties agreed that dispute

cannot be resolved through negotiation [Friedland, p. 112]. The Tribunal held that there must be

an unequivocal agreement between the parties that negotiations had failed, even though there

were clear circumstances from which a common understanding to this effect could have been

inferred [Friedland, p. 113].

8. In this case, through email dated 1st April 2016, the Claimant did not foreclose negotiations

between the parties. To the contrary it specifically stated that it “remain[ed] open for any

meaningful negotiations” [Ex. R.3, page 29]. The email even contemplated a future settlement,

stating that “from now on the costs incurred for [Claimant’s] lawyer must be part of any

settlement reached.” By stating that it had instructed its lawyer to prepare for initiation of

arbitration, the Claimant cannot be said to have barred the option of negotiation. Stating the


7

possibility of litigation is a legitimate and commonly used tool in negotiation. That ipso facto does

not indicate an unwillingness to negotiate.

9. Thus, objective ‘failure of negotiation’ did not take place prior to the Claimant’s request for

arbitration. As a result, the limitation period in Section 21 of the DSA was not triggered, making

the claims admissible.

1.3. Alternatively, negotiations failed not with the email dated 1st April 2016, but

with Respondent’s failure to reply to the same became apparent.

10. Under Section 21 of the DSA, the parties were obliged to amicably settle their disputes through

negotiations in good faith. The obligation of ‘good faith’ is an obligation of “faithfulness to

agreed common purpose and consistency with the justified expectations of the other party”

[Berkley C Villages v Pullen]. In the present case, the common purpose of the parties was to

solve their difference amicably through earnest negotiations, and to prevent disputes from

reaching the stage of arbitration.

11. The Respondent was not discharged from this obligation by Claimant’s email dated 1st April

2016. Through the email dated 1st April 2016, the Claimant stated that amicable settlement was

not “presently possible”, at that point in time. This presumption was based on the Respondent’s

inflexibility to the various offers that the Claimant made in the meeting on 31st March 2016 [Ex.

R3, page 29]. It was the obligation of the Respondent to reply to the said email at the very least,

since failure to do so is contrary to the common purpose of trying to prevent arbitration of the

differences. The Claimant would also be justified in expecting a reply to the said email, either

confirming that no settlement would be possible or indicating a basis for settlement.

12. The Claimant cannot be punished for relying on this expectation. Therefore, the Tribunal should

hold that the ‘failure of the negotiation’ took place when it became clear that no reply would be

forthcoming from the Respondent. It would be safe to assume that it took the Claimant at least

more than a week to become certain that the Respondent would not reply to the Claimant’s email

sent on 1st April 2016. On that basis, ‘failure of the negotiation’ would have taken place after 8th

April 2016, which would bring even the rectifications in the Request to Arbitration (done on 7th

June, 2016) within the sixty-day limitation period. Therefore, employing this approach, it can be

seen that the Claimant’s claims are not time-barred and are admissible.

2. In arguendo, the DSA does not apply the sixty-day time-bar to compliance with

technical requirement of the CAM-CCBC Rules.

13. Section 21 of the DSA reads, “each party has the right to initiate arbitration proceedings within

sixty days after the failure of the negotiation”. This clause does not refer to the ‘Commencement


8

of Arbitration’ as defined in Article 4 of the CAM-CCBC Rules. Therefore, the Tribunal cannot

apply the contractual time-bar to the concept of ‘commencement of arbitration’, particularly as it

is defined in the CAM-CCBC Rules. This is because there is no contractual language or intention

to that effect.

14. The ‘term’ initiation should instead be interpreted to mean, the clear notification by any of the

parties of their intention to settle the dispute through arbitration. This is in line with the general

purpose of limitation clauses, which is to limit the time a party has to decide its course of action,

so that the counter-party can accordingly make its own decisions.

15. In the present case, the Claimant certainly ‘initiated’ arbitration within the sixty-day time period,

whether or not it ‘commenced arbitration’ under the CAM-CCBC Rules, as discussed in

argument (3.) hereinafter. Therefore, the claims are admissible.

3. In any case, arbitration commenced within the prescribed time as there was

substantial compliance with Article 4.1 of the CAM-CCBC Rules.

16. Assuming arguendo, that the sixty-day time limitation applied to ‘commencement of arbitration’,

the requirement was complied with as the ‘Request for Arbitration’ dated 31st May 2016 validly

‘commenced arbitration’. Here, the Claimant will show that under international practice,

‘commencement of arbitration’ is not delayed by technical defects, as long as there has been

substantial compliance with the requirements of the arbitration institutions (3.1). The Claimant

will then show that the defect relating to power of attorney in the Claimant’s request, was

technical in nature and did not affect the date on which the arbitration commenced (3.2). Finally,

the Claimant will show that the error in depositing inadequate Registration Fee does not form

part of the ‘Request for Arbitration’ and was in any case curable (3.3).

3.1. Arbitration commences where there is substantial compliance with technical

requirements.

17. The claims should not be held inadmissible on grounds of technical non-compliance with Article

4.1 of the CAM-CCBC Rules. In deciding the consequences of the defects in the notice to

commence arbitration, the “test should be whether the respondent is prejudiced other than

through losing the right to succeed on technical arguments” [Waincymer, p. 224]. The Tribunal

should not declare the claims inadmissible, unless due to the non-compliance the “[R]espondent

is truly unable to identify the nature of the claims” [Derains & Schwartz, p. 57].

18. The international practice is that where information has been given about the initiation of

arbitration, “non-fulfilment of additional requirements will not prevent the valid commencement

of an arbitration.” [Lew/Mistelis/Kroll, p. 519 ]. In ICC Case No. 6784, the Tribunal held that the


9

elements of the request for arbitration are pre-conditions to the admissibility of the Claims [ICC

Case No. 6784]. This is because the purpose of the concept of ‘commencement of arbitration’ is

to determine when the Claimant clearly notified the other party or arbitral institution, of its

intention to arbitrate the matter.

19. In the present case, the Claimant’s notice to CAM-CCBC served the purpose of announcing the

Claimant’s intent to invoke arbitration, and the nature and basis of its claim. No prejudice was

caused to the Respondent because of the defective power of attorney, or the deficient

Registration Fee, both of which have been additionally dealt with below. Therefore, in view of

substantial compliance with Article 4.1 of the CAM-CCBC Rules, the date of commencement is

31st May.

3.2. Defect relating to power attorney was technical and curable.

20. Power of attorney is “an instrument granting someone authority to act as agent or attorney-in-

fact for the grantor” [Black’s Law Dictionary, p. 1290]. Power of attorneys are submitted to

arbitration institutions to show that a representative is acting on the instructions of a party. For

this reason, some arbitration tribunals and institutions, including the ICC, do not require the

submission of a power of attorney at the time of commencement of arbitration [ICC Rules on

Arbitration, Art.4]. In fact, the Arbitral Tribunal in ICC Case No. 6228 held that a request for

arbitration need even be signed for it validly commence arbitration [ICC Award No. 6228]

Therefore, it is reasonable to say that Article 4.1 of the CAM-CCBC Rules requires the

submission of a Power of Attorney, not as a precondition to the admissibility of claims, but as a

formality for determining the authority of the person acting on behalf of the Claimant.

21. The power of attorney first submitted to CAM-CCBC was defective so far as it was not from the

Claimant (Wright Ltd), but from Claimant’s parent company (Wright Holding PLC). However, it

nonetheless established that in commencing the arbitration Mr. Horace Fasttrack had not acted

without proper instruction. The Claimant thereafter ratified the commencement of arbitration, by

providing Mr. Fasttrack an appropriate power of attorney, which the Claimant was entitled to do

under Article 2.2.9 of the UNIDROIT Principles. The effect of this ratification is that Mr.

Fasttrack will be deemed to have commenced the arbitration with proper authority. This

retrospectively removes any defect in the Request for Arbitration filed on 31st May, 2016.

22. Therefore, the 31st May 2016 ‘commencement of arbitration’ is not affected by the originally

defective power of attorney, and the claims are therefore within time.


10

3.3. Non-payment of Registration Fee does not affect ‘commencement’ of arbitration

under Article 4.1 of the CAM-CCBC Rules.

23. Under Article 4 of the CAM-CCBC Rules, ‘commencement of the arbitration’ takes place when

the Claimant sends notice to CAM-CCBC of its claim, in accordance with Article 4.1. Under

Article 4.2, “[T]he party [commencing arbitration] will attach proof of payment of the Registration Fee together

with the notice”. Article 4.2 does not provide what the contents of the notice should be, but only

requires that ‘proof of payment’ be attached to the notice. The actual content of the ‘notice’ is

provided by Article 4.1. Thus, the Claimant’s failure to attach proof of full payment does not

impact the date of ‘commencement’ of arbitration.

24. This rationale is consistent with ICC practice relating to Article 4 of ICC Rules of Arbitration,

which is similar to Article 4 of the CAM-CCBC Rules. Article 4(3) of the ICC Rules provides the

information which forms part of the ‘request’ which commences arbitration; and Article 4(4)

provides that, “[t]ogether with the Request… the claimant shall make payment of the filing fee”. The ICC

Secretariat has always construed the requirements for a valid request under Article 4(3), without

regard to the receipt of any payment [Schwartz and Derains, p. 43].

25. Since, Registration Fee is not a part of the Notice/’Request for Arbitration’ which commences

arbitration, any deficiency in Registration Fee has no bearing on the admissibility of the claims in

the present case.

II. THE RESPONDENT’S REQUEST FOR SECURITY FOR COSTS SHOULD BE DISMISSED

26. The Respondent has requested the tribunal to order an interim measure, in the form of security

for costs from the Claimant [Request, page 46]. The Tribunal is a creature of Section 21 of the DSA

which provides that “[T]he arbitration shall be conducted under the Rules of the Centre for Arbitration and

Mediation of the Chamber of Commerce Brazil-Canada and in line with international arbitration practice”.

27. Under the CAM-CCBC Rules, Article 8 provides that “[u]nless the parties have otherwise agreed, the

Arbitral Tribunal can grant provisional measures, both injunctive and anticipatory.” However, the CAM-

CCBC Rules do not provide any guidance as to the scope and exercise of this power. In

accordance with the DSA, the Tribunal must therefore exercise the power ‘in line with

international arbitration’.

28. In accordance with the international arbitration practice, security for costs can be granted in rare

and exceptional cases, only on an assessment of certain special factors (1). Applying these criteria

to the present case, the Respondent’s application for security must be dismissed, since: Claimant


11

cannot pray for security of costs contrary to the implied agreement of the parties not to ask for

such security; and in view of its waiver of its right to ask for such security (2); the Respondent’s

application does not meet the threshold requirement of disclosing a fundamental change in the

circumstances of the Claimant after signing of the arbitration agreement and the terms of

reference (3); the Claimant did not suffer from an inability to satisfy an adverse order for costs,

or a lack of resources against which such an order could be enforced (4); The balance of

convenience is in favour of the Claimant as its claims have been made in good faith and prima

facie have merit (5).

1. Special considerations apply to grant of security for costs, in view of the measure’s

exceptional nature.

29. In international arbitration practice, security for costs is viewed as a special kind of interim

measure, which should only be granted in highly exceptional circumstance [ICC Case No. 10032,

p. 366]. Even the literature relating to international arbitration is unanimous on the point that

security for costs should be rarely be used and is to be generally avoided [Veeder]. The criteria that

usually applied to interim measures, are not to be similarly applied to security for costs

[Redfern/Hunter]. Security for costs is the only type of interim measure for which the Chartered

Institute of Arbitrators released a separate ‘Guidelines for Applications for Security for Costs’

[Chartered Institute of Arbitrators Guidelines on Applications for Security for Costs].

30. Thus, the Tribunal should approach the application for security of costs, with a general

disinclination to decide the same in favor of the Respondent. It should base its decision not on

the usual factors ordinarily considered for granting interim measures. Instead, its decision should

be based on the exceptional considerations hereinafter discussed, in line with international

practice.

2. The Respondent’s application for security for costs is precluded on grounds of

consent and delay.

31. The Tribunal must first consider, whether the parties have by expressly or impliedly agreed that

neither should apply for security of costs [Gary Soo, p. 25]. In the S.A. Coppee Lavalin N.V. v. Ken-

Ren Chemicals case, Lord Mustill stated that in deciding security for costs applications in

arbitration, “[t]he first step must therefore be to identify, so far as is possible, the kind of arbitral

procedure which the parties have envisaged” [Coppée Lavalin N.V. v. Ken-Ren Chemicals and

Fertilisers Ltd ]. In applying this approach, it is to be considered that parties to arbitrations rarely

expressly agree on details such as security for costs. Therefore, the appropriate application of the

Ken-Ren approach would be, as per the view of the Court of First Instance of Hong Kong – to

“consider the kind of arbitral process that the parties had contemplated and whether it was


12

inconsistent with that process to make an order for security” [China Shipping Co. v. Whistler

Charterers].

32. In this case, the parties have expressly contemplated and made provisions for costs in the Terms

of Reference [Terms of Reference, page 41]. They have agreed that: (a) Tribunal shall have the power

to award costs [Terms of Reference, page 43, clause 12.3] and, (b) that parties shall bear their own costs

for the duration of the arbitration proceedings [Terms of Reference, page 43, clause 12.4]. The parties

did not contemplate the provision of security for costs for either party. The parties’ intention was

for each party to bear the burden of its own costs only during the arbitration process. Ordering

the Claimant to provide security for costs would place an additional burden on the Claimant,

which would defeat the agreed process contemplated by the parties.

33. Moreover, the Respondent waived its right to pray for security of costs by making a delayed

application for the same [Waincymer, p. 650]. This view is supported by the Chartered Institute of

Arbitrator’s commentary on its ‘Guidelines for Applications for Security for Costs’, which

provides that such applications must be made at the first possible instance [Guidelines, 10].

34. In this case, the delay cannot be justified on the ground of subsequent new information. This is

because the supposedly new information does not prove a substantial deterioration of the

Claimant’s financial condition, or the Claimant’s inability to satisfy an award for costs.

3. The application must be dismissed since there has been no ‘fundamental change

in circumstances’.

35. In international arbitration practice, unless a party can show that there has been a ‘fundamental

change of circumstances’ in the financial position of the opposite party since the parties entered

into the arbitration agreement, applications for security for are not entertained [Weixia]. The

party requesting security for costs must prove the emergence of exceptional circumstances

warranting security, which did not earlier exist [ICC Case No. 10032]. The rationale for this

requirement is that a party should not be able to raise those facts as a defense, which it knew

when it entered into agreement with the counter-party [ICC Case No. 7074].

36. In this case, the Claimant’s audited accounts for the years 2009, 2010, and 2015, were publicly

available in April of the years 2010, 2011 and 2016 [PO 2, Page 58, Clarification 28]. This means

that the financial position of the Claimant was in public domain, at the time when DSA was first

signed on 1st August 2016, as well as when the parties signed the Terms of Reference of the

present arbitration on 22nd August 2016.

37. In view of the publicly accessible information, the Respondent must demonstrate that there has

been a fundamental deterioration in the financial position of the Claimant since the time when


13

the DSA was entered. The Respondent has failed to aver or demonstrate this. The correct

position is that there has been no fundamental change in the financial position of the Claimant

that warrants a consideration of the Respondent’s application [PO 2, Page 58].

38. The Respondent has pleaded that it has only recently learned that an arbitration award for USD

2,500,000 was passed against the Claimant in January 2016 [Request, page 46]. However, this

information does not indicate that the said award has fundamentally deteriorated the financial

condition of the Claimant, such that it will be unable to comply with adverse award for costs.

Additionally, the said award is yet to be enforced against the Claimant. It may not even impact

the financials of the Claimant in any way, in view of the Claimant’s asserted set-off against the

award [Letter, page 49].

39. Therefore, since the Respondent has failed to show fundamental deterioration in the financial

condition of the Claimant, its application for security of costs deserves to be dismissed without

further consideration.

4. Security of costs cannot be ordered as the Claimant does not suffer from an

inability to satisfy an award of costs, or an inadequacy of assets.

40. Security for costs can only be granted where the claimant is unable to satisfy an adverse award of

costs, and not where the respondent alleges an unwillingness to pay an adverse award of costs

(4.1). This inability to pay, and the lack of resources against which award may be enforced, must

be proven by the Respondent. The Respondent is required to show more than a mere probability

of inability to pay, by reference to a credible testimony from a source familiar with the Claimant’s

financial position. The information presented by the Respondent does not meet these

requirements and therefore the application must fail (4.2). Finally, the Claimant’s financial

statements indicate that there no irreparable harm will be caused to the Respondent if security for

costs is not granted. Therefore, in the absence of such harm, security for costs cannot be granted

(4.3)

4.1. Claimant’s inability to satisfy an adverse award for costs is relevant to deciding

the application, and not its alleged unwillingness.

41. The purpose of granting security for costs is to enable shifting of costs to take place from the

losing party to the winning party, at the conclusion of the arbitration [CIA Guidelines on

Applications for Security for Costs]. It is a measure to protect against the possibility of a party not

being able to recover the awarded costs of arbitration, due to a lack of resources of the opposite

party [Reid, p. 1427].

42. For this reason, the CIA Guidelines - which provide guidance on how to decide applications for


14

security for costs, in line with international practice – provide in Article 3 that a claimant’s ability

to satisfy an award, and availability of its assets for enforcement are relevant for deciding an

application for security for costs. The CIA Guidelines do not at any point consider the claimant’s

intention to comply with an adverse costs award as a relevant factor.

43. Thus, all averments relating to intent of the Claimant should be disregarded in determining this

issue. The only factor relevant is whether in light of the Claimant’s ability to pay, and availability

of its resources for enforcement, an order for security ought to be made.

4.2. Application cannot be decided in Respondent’s favour on the basis of the

information presented.

44. Since the Claimant asserts that the Respondent asserts that Claimant will be unable to pay costs

in the case of an adverse order, the burden of proving this assertion is on the Respondent. In

view of the exception nature of a measure granting security for costs, a high standard of proof is

required for the Tribunal to exercise its discretion in favour of the requesting party. In order to

succeed on its application for security for costs, the requesting party must satisfy the following

conditions: (a) “It must provide credible testimony from sources having knowledge of the

claimant's financial affairs, relevant and persuasive documents including, the annual accounts and

statutory returns of the claimant”; and (b) “[s]uch testimony must, by itself, give rise to a reason

to believe that the claimant will be unable to pay the respondent's costs if successful in the

defence; and (c) “[t]he respondent must demonstrate that the claimant will be unable to pay, not

a probability of the same”[Gu, 188; Needham, 122–129].

45. In this case, the Respondent’s request for security of costs is entirely based on conjecture and a

news article published in ‘Carioca Business News’ [Exhibit R6, page 47]. This news article is not a

credible testimony; is not from a source having knowledge of the Claimant’s financial affairs or

its financial documents; and fails to demonstrate with certainty that the Claimant will be unable

to pay the Respondent’s costs. Similarly, by stating that the Claimant has suffered an adverse

award of USD 2,500,000, the Respondent does not prove what he is required to.

46. Therefore, the Respondent’s application is insubstantial and hopelessly inadequate, and deserves

to be dismissed for want of proof or basis.

4.3. Claimant does not suffer from an inability to pay costs or lack of resources

against which an award may be enforced.

47. The Claimant’s financial statements for at least three years – 2009, 2010 and 2015, have been

publicly available. All three financial statements indicate that the Claimant’s total assets are far in

excess of its liabilities. The value of the Claimant’s assets far exceeds the Respondent’s arbitration


15

costs estimated at USD 200,000. Even accounting for a possible enforcement of the adverse

USD 2,500,000 award, the Claimant’s assets more than sufficient to secure the Respondent the

cost of arbitration. An award for costs will be enforceable in Equitoriana, jurisdiction of the

Claimant, since it is a signatory to the New York Convention 1958, and the Respondent does not

plead otherwise [PO2, page 60, clarification 35]. Thus, there is no harm that may result to the

Respondent, if the Tribunal does not order security for costs, which will not adequately be

repaired by an award for costs at a subsequent stage [CIA Guidelines on Applications for Interim

Measures, Art. 2(1)(iii)].

48. Therefore, since there no urgency for the grant of security for costs, the Respondent’s application

must be dismissed [ICSID Case No. ARB/12/18]. In view of the Claimant’s ability to satisfy an

adverse award for costs, there is no ground for the Tribunal to grant the Respondent’s

application.

5. It would be unfair to grant security for costs, as the claims have substance and

have been made in good faith.

49. A factor for consideration in determining applications for security of costs is the substance of the

claims advanced. The Tribunal must consider whether claims have been made in a good faith

[CIA Guidelines, 5- 6]. As noted in the Working Group Report “the idea of a guarantee for costs

being required was often associated with the claim being apparently frivolous” [Report – 9/502].

The suggested need to provide security for costs arises out of a policy goal to prevent frivolous

or nuisance litigation [Waincymer, page 641].

50. In this case, the Claimant’s claims are neither frivolous, nor made in bad faith. The claims, as

discussed in issues III. and IV. below, disclose genuine disputes between the parties relating to

law and facts. The claims advanced are substantial and are likely to succeed on merits. With

respect to issue III., it is to be seen that the Claimant’s case is supported by the literal text of the

Addendum and the DSA, as well as by clear conduct and intent of the parties. With respect to

issue IV., the default position of the law under CISG read with the UNIDROIT Principles,

makes the buyer (Respondent) liable for incurring all costs associated with transfer of full price to

the seller (Claimant). The contract too expressly provides that the Respondent is liable to bear

bank charges.

51. This shows that the Claimant has a strong prima facie case, and therefore the balance of

convenience lies in favor of not order the Claimant to provide security for costs.


16

CONCLUSION ON PROCEDURAL ISSUES

52. Claimant’s submission of the present dispute to arbitration is admissible since the ‘failure of

negotiation’ did not occur on 1st April 2016, contrary to Respondent’s assertion. We argue that

the sixty-day time-bar under Section 21 DSA applies not to ‘commencement of arbitration’ as

defined under Article 4 of the CAM-CCBC Rules, but, instead, to ‘initiation of arbitration’.

Therefore, Claimant has brought a valid arbitration commencement before the CAM-CCBC

Tribunal.

53. Respondent’s request for security for costs is unsound as it contravenes Art. 8 CAM-CCBC

Rules, which provides that “[u]nless the parties have otherwise agreed, the Arbitral Tribunal can

grant provisional measures, both injunctive and anticipatory.” Respondent has breached the

principle of good faith, whereas Claimant did not suffer from an inability to satisfy an adverse

order for costs, or a lack of resources against which such an order could be enforced.

***

ARGUMENTS ON THE MERITS

III. THE CLAIMANT IS ENTITLED TO USD 2,285,240 FOR THE FAN

BLADES BASED ON THE PRESENT EXCHANGE RATE

54. Claimant will establish that it is entitled to the amount of USD 2,285,240 as payment for the TRF

192-I fan blades purchased by the Respondent under the DSA. Claimant submits that the parties

agreed to the conversion of Claimant’s production cost on a flexible cost-plus basis under the

DSA (1.) The DSA must be interpreted in light of the parties’ common intention, which was not

to apply any fixed exchange rate to the total purchase price. (1.1) Furthermore, applying a fixed

exchange rate would be incompatible with the common intention of the parties to calculate price

on a cost-plus basis. (1.1A) Claimant also argues that there is no previous practice between the

parties relating to the application of a fixed exchange rate. (1.1B) In any case, the fixed exchange

rate could not be read into the DSA using the standards of a reasonable person (1.2) Lastly, the

Addendum did not alter or amend any terms of the DSA. (2.)

1. The parties agreed to the conversion of Claimant’s production cost on a

flexible ‘cost-plus basis’ under the DSA

55. The DSA is the parties’ agreement that deals with the terms of the sale of the two thousand

(2000) TRF 192-I swept fan blades. Under the DSA, the parties agreed that the purchase price is

calculated on a cost-plus basis in accordance with the formula set forth by the parties. In

negotiating the DSA, the parties did not fix any exchange rate for the conversion of Claimant’s


17

productions costs from EQD to USD. Claimant will show that there was a common intention

not to apply any fixed exchange rate to the DSA. (1.1) Alternatively, a reasonable person in

Claimant’s position would not read a fixed exchange rate into the DSA. (1.2)

1.1 The DSA must be interpreted through the parties’ common intention,

which was not to have any fixed exchange rate.

56. In Section 20 of the DSA, the parties agreed on the application of CISG, Article 8(1) of which

provides that “statements made by and other conduct are to be interpreted according to his

intent where the other party knew or could not have been unaware what that intent was.” “[I]t is .

. . undisputed that [Article 8 CISG] also regulates the interpretation of the contract.” [Schlechtriem/

Schwenzer].

57. Article 8 (1) of CISG “is built on the subjective approach” [J.O. Honald]. The parties’ intention

could be gleaned from “negotiations, established practices between the parties, usages, and any

subsequent conduct of the parties” [Article 8(3) CISG; See Art. 5:102 PECL]. In relation to this,

Article 4.1 of the UNIDROIT Principles, provides that the “contract shall be interpreted

according to the common intention of the parties”. Accordingly, the parties’ statements, conduct,

and consequently the provisions of the contract, should be interpreted according to the parties’

intention, which depends on, inter alia, their negotiations, practices, and usages. [See MCC-Marble

Ceramic Center, Inc. v. Ceramica Nuova D'Agostino].

58. Claimant maintains that during negotiations for the DSA, the parties did not intend to apply a

fixed exchange rate for the conversion of EQD to USD. The application of a fixed exchange rate

is incompatible with the common intention to calculate the purchase price on a cost-plus basis

under the DSA. (1.1A) Neither has there been previous practice between the parties as to the

application of a fixed exchange rate that would lead to a common intention of that sort. (1.1B)

1.1A fixed exchange rate is incompatible with the common intention to calculate

price on a ‘cost-plus basis’

59. As will be established by Claimant below, the parties intended to secure the Claimant's actual cost

plus profit subject to certain amount caps (a). Providing for a fixed exchange rate would defeat

the said intention. (b) Verily, a flexible exchange rate would not be incompatible with

Respondent’s concern for currency fluctuation concern considering that the parties provided for

a price upper limit in the DSA. (c)

(a) Parties intended to secure the Claimant’s actual cost plus profit

subject to certain amount caps

60. Respondent does not deny that during the negotiations the parties agreed that the production

costs for the fan blades would be incurred in EQD [Page 8, Notes, The Problem/Summary Notes of 1


18

May 2010]. Moreover, in its Answer, Respondent admitted that “…due to the uncertain costs for

the development of a new fan blade CLAIMANT could not submit to a fixed price yet. Finally,

an agreement was reached to agree on a price range with different costs and profit elements.”

61. The intention to calculate production costs in EQD was determined by the expenses Claimant

would suffer such as the cost of labour, which is paid in EQD [Request, page 7, para 22]. Claimant

intended to recover its full expenses and make some profit by way of the price per fan blade in

EQD. Respondent clearly understood this intention and did not object to it. [Ex. R5, page 31,

para 1] Therefore, the parties had agreed that final payment consists of two steps: first, Claimant

defines the price in EQD; and second, Respondent pays the equivalent price in USD.

62. Subsequently, the parties agreed on a ‘cost-plus basis’ price scheme in Section 4 of the DSA, in

which they fixed a minimum and maximum price in USD. [DSA, page 10] Since the Claimant

intended to cover all its expenses and make profit in EQD, despite the parties’ agreement for

payment in USD, the Claimant was supposed to receive the relevant equivalent payment in USD

at the time of payment.

63. As outlined by Brunno Zeller “[i]f a party knows or ought to know the intent of the other party,

Article 8(1) is applicable” [Zeller (2009)]. Considering that Respondent knew Claimant’s intention

to cover its production costs in EQD, the rule in Article 8(1) CISG clearly applies. Thus, it

should be stated that there was a common intention to secure Claimants actual costs plus profit

under Section 4 of the DSA.

(b) A fixed exchange rate would defeat the parties’ intention to secure

the Claimant’s actual cost plus profit

64. The Claimant’s intention to get the relevant equivalent of cost plus profit in USD, which was

clearly understood and recognized by the Respondent, excludes the possibility of finding that the

parties intended to fix a currency rate at the time of the conclusion of the contract.

65. Procedural Order No. 1 states that “[b]oth Parties agree that the cost statements in Equatorian

EQD which have been submitted by CLAIMANT and which formed the basis for both Parties’

cost submission are correct” [PO 1, page 52] Respondent in its Answer acknowledged that

“CLAIMANT’s production cost [per fan blade] amount to EQD 19,586” [Ibid].

66. If we multiply the actual cost of the fan blades in EQD and the number of fan blades ordered,

the total amount would be EQD 39,172,000 (EQD 19,586 x 2000 fan blades). It this amount that

Claimant intended to get and was recognized by the Respondent.

67. However, the Claimant only received EQD 36,585,022.40 (USD 20,438,560 x EQD 1.79 (the

current currency rate)). Thus, Respondent only paid EQD 18,292.51 per fan blade (EQD

36,585,022.40 / 2000 fan blades). It is clear from the foregoing computation that the application


19

of a fixed exchange rate contradicts the parties’ intention to cover Claimant’s actual costs under

the cost plus profit scheme.

(c) Flexible exchange rate not incompatible with Respondent’s

currency fluctuation concern in view of the price upper limit in

Section 4 of the DSA

68. In its Answer the Request for Arbitration, Respondent referred to a discussion in 2009 wherein

SantosD KG should be “de‐risked” through the reduction of currency risk in existing contracts.

In Respondent’s point of view, the de-risking also applied to its newly concluded contracts then.

[Answer, page 24, para 9]

69. Respondent’s view is untenable. In addressing the matter of de-risking, Respondent’s CEO

proposed two options: “EITHER agreeing on fixed exchange rates, where the contracts provide

for floating rates, OR by finding other hedging strategies which reduces [Respondent’s] exposure

to currency risks” [Ex. R1, page 27]. Thus, for future contracts, the Respondent was

recommended to fix the exchange rate or find other “hedging strategies”.

70. Ultimately, the Respondent, in its contract for TRF 192-I fan blades with Claimant, chose the

second option - “other hedging strategies.” Respondent adopted the maximum price condition in

Section 4 of the DSA under the cost plus basis method. Respondent did not incorporate another

de-risking measure such as a fixed exchange rate or the fixed-rate clause that it now forces on

Claimant.

1.1B. No previous practice between the parties relating to the application of a

fixed exchange rate.

71. Respondent alleges that in previous co‐operations parties did not explicitly regulate the exchange

rate because they were both subsidiaries of the same company [Answer, page 24, para 8]. Allegedly,

it was the exchange rate at the time of contracting that had been used for the conversion of the

cost elements, which was in favour of Respondent [Answer, page 24, para 10]. Respondent is, thus,

trying to prove the existence of previous practice between the parties by referring to an alleged

allocation of risk for currency exchange rate to the Claimant in two previous contracts.

72. Respondent’s contention is unmeritorious. Claimant invites the Tribunal’s attention to the

following factual circumstances:

73. First, Engineering International SA, as the parties’ parent company, had pursued a tax

optimization scheme. It wanted to obtain a more favorable tax regime in Mediterraneo by

applying the most profitable exchange rate for Respondent. Hence, the application of a fixed

exchange rate involving Respondent’s contracts depended on whether or not the fixed exchange

rate would be profitable for Engineering International SA.


20

74. Second, the fixed exchange rate clause in the two previous contracts (TRF-155-II and TRF-163-

I) was not negotiated between the parties. [PO2, par. 5, p. 54] In fact, in the TRF-163-I contract

there was no difference in the exchange rate. [Ibid.]

75. According to Article 9 of the CISG “the parties are bound by any usage to which they have

agreed and by any practices which they have established between themselves.” Article 8 (3) also

provides that previous practices can prove the parties’ intention. There is no definition of what

constitutes as “practices.” However, Ole Lando defines it as “previous conduct to a particular

transaction or a particular kind of transaction between the parties that may be regarded as a

common understanding” [Cf. Ole Lando (2000)].

76. Claimant submits that abovementioned circumstances could not have led to a ‘common

understanding’ to de-risk Respondent through allocation of currency risk to Claimant. Clearly,

the parties have never used the ‘fixed exchange rate’ as a method of risk allocation between

themselves. The primary reason for the application of the exchange rate at the time of agreement

was for the tax optimization of Engineering International SA and not to de-risk Respondent.

Since the application of the fixed exchange rate at the time of contract formation was a measure

of tax optimization, Respondent’s reference to the previous contracts as evidence of the parties’

intention to allocate the currency rate risk to Claimant is, therefore, irrelevant.

1.2. Additionally, and alternatively, the fixed exchange rate could not be read into the

DSA by a reasonable person

77. In case the Tribunal does not find a common intention of the parties to apply a flexible exchange

rate in the DSA, the Tribunal should employ an objective or reasonable interpretation [See case

ICC 8324/1995].

78. Thus, “[w]here it is not possible to use the subjective intent standard in article 8(1) to interpret a

party's statements or conduct, one must resort to ‘a more objective analysis’ as provided for by

article 8(2), which should allow the courts to determine ‘a presumptive’ or ‘normative’

intent.”[UNIDRTOIT Digest]. As stated in Article 8 (2) of the CISG “[s]tatements . . . or conduct

of a party are to be interpreted according to the understandings that a reasonable person of the

same kind as the other party would have had in same circumstances”. This provision refers to

the rule of interpretation according to the “objective meaning”.

79. Courts have found that absent any relevant circumstance or practice between the parties at the

time the conclusion of the contract, the buyer's intention to be bound as well as the precise terms

of the contract may be deduced from the buyer's statements and conduct according to the

understanding that a reasonable person of the same kind as the seller would have had in the same

circumstances [See CLOUT case No. 215; CLOUT case No. 877].


21

80. In rejecting a claim, the Russian Supreme Court held that “the change in the internal rate of a

national currency against US dollars is a party's domestic affair”. The risk of currency rate

flotation “passes at the time of the valid conclusion of the agreement” [Johan Erauw, p. 203-2015].

81. As a corporation engaged in international sales of goods, Respondent should have been aware of

the fluctuating currency rate. Yet, Respondent failed to negotiate a fixed-rate in the DSA. There

is no clause in the DSA that provides for a fixed exchange rate. As established earlier,

Respondent did not incorporate a “fixed-rate” clause but incorporated another “de-risk” measure

– the “maximum price” clause [Section 4 of the DSA, page 10].

82. The Respondent tries to brush off its fatal error on the matter by claiming that it “forgot to add

an express provision as to the exchange rate” [Answer, page 24] to the DSA. Considering

Respondent’s own actions or inaction, Claimant cannot be expected to not have any reasonable

expectations in applying a flexible exchange rate in determining the purchase price of the fan

blades. The application of a flexible exchange rate in computing the price for the fan blades

under the DSA is a reasonable act of supplying an appropriate term under the circumstances.

“Where the parties to a contract have not agreed with respect to a term which is important for a

determination of their rights and duties, a term which is appropriate in the circumstances shall be

supplied.” [Art. 4.8 UNIDROIT Principles] In view of the foregoing, the Tribunal should apply

“the rate at the time of payment and not at the time of billing.” [CRCICA Case No. 21/1990].

2. The Addendum did not alter or amend any terms of the DSA.

83. The Respondent has claimed that a fixed rate should be applied to the determination of the price

in the DSA, based on a clause contained in the Addendum. The Addendum was signed by the

parties on 26th October 2010 to enable sale of clamps to the Respondent.

84. The Claimant will show that the clause contained in the Addendum did not fix the exchange rate

for calculating the cost and price of the fan blades in the DSA. Firstly, in view of the Parties’

intentions, the Addendum cannot be held to have altered the terms of the DSA (2.1). Secondly,

even applying the ‘reasonable person’ standard to interpretation of the Addendum’s text and

circumstances shows that the fixed exchange rate clause was not to be applied to the main DSA

(2.2). Thirdly, lack of clarity relating to the fixed-rate clause must be resolved against the

Respondent, since the terms of the Addendum were supplied by it. Thus, it must be held that the

fixed-rate clause regulated only the sale of clamps (2.3).


22

2.1. There was no intent as to the rights and obligations under the main DSA.

85. In accordance with Article 8(1) of the CISG and Articles 4.1 and 4.2 of the UNIDROIT

Principles, the terms of the Addendum are to be interpreted in accordance with the intention of

the parties. In discerning this intent, the Tribunal must consider all relevant circumstances

including the negotiations between the parties [Article 8(3) of CISG]. The analogous Article 4.3

of the UNIDROIT Principles enumerates in greater detail these relevant circumstances and

mentions “the nature and purpose of the contract” as being one. In this case, the negotiations of

the parties and the nature and purpose of the Addendum, both prove that neither party intended

to alter or affect any of the terms, rights or obligations under the DSA, through the conclusion of

the Addendum (1.1A). The Claimant in fact clearly intended for the fixed-rate clause to only

apply to the sale of clamps, and the Addendum should be applied in line with this intent (1.1B).

2.1A Neither parties intended to modify the main DSA through the

Addendum.

86. When the Parties signed the DSA, the Respondent intended to purchase only fan blades from the

Claimant. After the Parties signed the DSA, on 21st October, 2010 the Respondent expressed its

intention to purchase clamps from the Claimant. The Respondent proposed that for ease of

transaction, the parties execute an Addendum to the DSA rather than creating a separate

contract. Through its email dated 22nd October 2010, the Respondent proposed the terms of the

Addendum. It was in this context that the Claimant accepted the proposed terms of the

Addendum, after which the Agreement was signed on 26th October 2016.

87. These circumstances show that in the context of their discussions relating to the Addendums,

neither party expressed any intention or desire to amend the obligations contained in the DSA.

Neither Party suggested that the Addendum should affect the sale of the fan blades in any way.

The only reference that was made to the DSA, was in the context of the ease, which the DSA

would provide as a document in conclusion of the agreement for sale. The Respondent made no

statement that it wished to fix the exchange rate for the main DSA as well.

88. Moreover, the purpose of the Addendum was plainly to provide for sale of clamps. In its email

dated 22nd October 2016, the Respondent stated that “the easiest way to regulate the purchase of

the clamps is to sign an addendum to our Development and Sales Agreement and not to enter

into a separate contract for the clamps.” This is the only statement made with respect to the

purpose of the Addendum, and in view of its purpose it cannot be interpreted as affecting or

altering the original DSA in any way.


23

2.1B The Claimant specifically intended for the fixed-rate clause to apply only

to sale of clamps.

89. The Claimant’s intent very clearly was for the fixed-rate clause to apply to the clamps only. Prior

to agreeing to the proposed terms of the Addendum, Mrs. Amelia Beinhorn specifically verified

whether the Claimant could agree to a fixed exchange rate for the clamps [Ex. C. 9, page 50]

which shows that the Claimant clearly understood the fixed-rate clause to apply only to the sale

of clamps. This intent is relevant for the interpretation of the fixed-rate clause because Article

8(1) instructs that statements and other conduct of a party are to be interpreted according to its

intent as long as the other party “knew or could not have been unaware” of that intent. The plain

language used in the CISG sets a mandate as to a party's subjective intent as long as its

counterparty was aware of that intent" [CLOUT case No. 222] or could not have been unaware of it

[CLOUT case No. 215].

90. The Respondent could not have been unaware of the intent of the Claimant. The Respondent

could not have concluded that the Claimant would implicitly agree, without negotiation, to

applying the fixed-rate clause to the sale of the fan blades. This is because applying the fixed-

exchange rate to the main DSA would have significant repercussions on the price of the main

DSA. A fixed-rate of conversion for fan blades would also have displaced the previous intention

of the parties, which was for the Claimant to receive its actual costs plus profit. In previous

negotiations relating to the conclusion of the DSA, the Claimant had accepted only the risk that

production costs might not be recoverable if they exceeded a particular threshold. Subject to this

risk, the Claimant was always intended to receive actual costs. The Claimant would not implicitly

accept the further risk of not recovering its costs in the event of unfavorable currency

fluctuation.

91. Thus, the Tribunal must hold that the fixed-rate clause does not apply to the sale of fan blades,

but only applies to the sale of clamps.

2.2. Applying the ‘reasonable interpretation’ test, the written terms show that the

fixed-rate clause was limited to the Addendum.

92. Article 8(2) of the CISG provides for an objective interpretation of a contract, where no

common intention is discernible. In such an interpretation, special importance is to be given to

its text of the agreement [CISG-AC Opinion no 3]. The parties’ intent is to be gathered and

understood from the terms of the agreement itself [Honnold, (1999)].

93. In textually interpreting a contract, the fundamental principle codified in Article 4.4 of the

UNIDROIT Principles needs to be applied. Article 4.4 provides that, “[T]erms and expressions


24

shall be interpreted in the light of the whole contract or statement in which they appear.” Thus,

the terms of the Addendum must be interpreted in the context of the whole document in which

they appear. By doing so, it becomes clear that the fixed-rate clause was to apply only to the

Addendum and not to the main DSA.

94. In this case, there are two agreements between the Parties, which are intentionally placed in a

single document – the main DSA for sale of fan blades and the Addendum for sale of clamps. In

the text of the DSA, as well as in the Addendum, whenever reference is made to the DSA, the

word “Agreement” (with capital ‘A’) has been used. Reference may be made to Section 2(3) of

the DSA, where the Respondent agreed to purchase “2,000 fan blades under this Agreement”. In

Section 20 of the DSA, the Parties provide that “[t]his Agreement” is to be governed by CISG

and the UNIDROIT Principles. Section 21 of the DSA is particularly important as it uses the

words “Agreement” and “agreement” both – in the first instance to refer to the DSA and in the

second instance to connote the ordinary meaning of the word. Thus, there is an established

usage/practice under Article 8(3), to the effect that references to the DSA in written contract are

to be made using the word “Agreement”. It is important (but not critical), to note that Mr. Cyril

Lindberg, who signed both the DSA and the Addendum on behalf of the Respondent, would

have been aware of this convention.

95. In the text of the Addendum as well, “Agreement” and “agreement” both have been used. The

second paragraph of the Addendum incorporates the terms of the DSA into the Addendum,

using the following words - “Other terms as per main Agreement”. Thus, agreement with a

capital ‘a’ was used to refer to the DSA, in line with the settled convention of the document. On

the other hand, the immediately following paragraph provides “The exchange rate for the

agreement is fixed to US$ 1= EQD 2.01.” In this clause, the Respondent has conspicuously

chosen to use the word “agreement” (with a small ‘a’). By using the word “agreement”, the clause

was clearly intended to apply to the Addendum, and not to the DSA, which has been constantly

referred to as “Agreement” in the DSA and the Addendum. It is axiomatic but important to

restate here that the Addendum is an agreement between the Parties, whatever name it may be

called by.

96. Thus, it is clear from an overall interpretation of the Addendum that the fixed-exchange rate

clause is only to be applied to the Addendum and not to the DSA. Since the fixed-rate clause

does not apply to the DSA, a flexible rate must be applied to the calculation of the costs in the

DSA. Consequently, the Claimant becomes entitled to amount claimed herein.


25

2.3. Applying the contra-preferentem rule, uncertainty in the interpretation and

application must be resolved in the Claimant’s favour.

97. Art. 4.6 UNIDROIT Principles provides that “if contract terms supplied by one party are

unclear, an interpretation against that party is preferred”. This principle is referred to as the

contra-proferentem rule. It is a general long-standing contractual interpretative technique that any

ambiguous rule is interpreted against the party that drafted it [ICC Case No. 8261; UK High Court

of Justice No. 2004 Folio 272]. This is because the party drafting any terms has the economic and

informational resources necessary to foresee and specify contingencies and, therefore to write the

terms to contain those risks.

98. In the present case, the terms of the Addendum were proposed by the Respondent through its

email dated 22nd August 2010 [Ex.R2, page 28]. The proposed terms were verbatim incorporated

into the Addendum. If the Respondent intended for the fixed-rate clause in the Addendum to

apply to the sale of fan blades under DSA, there was no difficulty in clarifying the text of the

Addendum to reflect that intention. However, instead of clearly specifying this result, the text of

the Addendum in fact appears to be designed to give the impression that the fixed-rate clause

does not apply to the main DSA. Thus, the fixed-rate clause was intentionally kept vague and

uncertain.

99. In this situation, the Respondent should be made to bear the consequence of the avoidable

uncertainty in the Addendum. The Tribunal should therefore adopt the interpretation that the

Addendum only governed the sale of clamps and the fixed rate clause does not affect the

obligations in the DSA.

IV. THE CLAIMANT IS ENTITLED TO USD 102,192.80 FOR THE FEES

DEDUCTED BY THE EQUATORIANA CENTRAL BANK.

100. This issue relates to the fees of USD 102,192.80 which was deducted from the partial payment

made by the Respondent to the Claimant. The Respondent has denied its obligation to pay the

Claimant this amount. The Claimant will herein show that it in accordance with Section 4(3) of

the DSA, it is the cost of USD 102,192.80 to be borne by Respondent and Claimant is entitled to

receive the same (1). Assuming arguendo, that the Respondent’s liability to pay this amount does

not arise under the DSA, it nonetheless arises under the substantive law (CISG and UNIDROIT

Principles) made applicable to the DSA (2). Accordingly, the Tribunal should hold that the

Claimant is entitled to recover the amount deducted by the Equatoriana Central Bank.


26

1. Respondent is liable to pay the levy under the DSA.

1.1 Bank charges are to be borne by the Respondent under Section 4(3) of the

DSA.

101. The parties agreed that Respondent would bear all the costs related to the transfer of money for

the payment of the goods under the contract. Section 4(3) of the DSA is clear that the “[t]he

bank charges for the transfer of the amount are to be borne by the BUYER.” [Exhibit C2, at 10].

It is an obligation that the parties expressly stated in their contract.

102. Parties have unlimited authority to regulate their relationship [Art.6 CISG; Magnus in Rabels

Zeitscrhrift, Vol. 3-4]. Hence, the fundamental rule is that contract stipulations are binding on the

parties [Magnus Zeitschrift, ibid]. According to Article 1.3 of the UNIDROIT Principles, “[a] contract

validly entered into is binding upon the parties”. This principle is also known as “pacta sunt servanta”

[UNIDROIT COMMENTARY], which means parties should comply with its contractual

obligations in good faith. Therefore, from the clear terms of Section 4(3) of the DSA,

Respondent is obliged to fulfil its duty to pay bank charges.

1.2 The levy under ML/2010C falls within the meaning of ‘bank charges’

103. Respondent argues that the levy under ML/2010C is not part of ordinary bank charges for

payments [Answer, p. 26, par. 18]. Claimant submits that the 0.5% levy under ML/2010C made by

the Equatoriana Central Bank on the amount transferred by Respondent is a bank charge

contemplated by the DSA.

104. “Bank charges” are those charges payable to the bank for services it supplied to the customer [See

Office of Fair Trading v. Abbey National PLC]. Bank charges may include those charges that are

levied on defined events or circumstances, and not merely a price or remuneration and not

payments in exchange for services. [See Macdonald, p. 994-997]

105. In this case, the levy made by the Central Bank was triggered by the Financial Investigation Unit’s

(FIU) investigation of Respondent’s fund transfer exceeding USD 2 million. The transfer of the

amount above the threshold triggered the imposition of the levy. The terms in the contract

should be interpreted so as to give effect to all of the terms rather than deprive some of them of

effect [Art. 4.5, UNIDROIT Principles; See Art. 5:106 PECL]. As such, the levy charge must be

borne by Respondent.

106. It must be emphasized that in two previous transactions, Claimant bore the levy charges due to

the fact that there was no contractual stipulation specifying who bears the bank transfer costs,

unlike in this case. [Problem, pp. 55-56, pars. 8-9.] In the present DSA, the parties clearly intended


27

for Respondent to bear the transaction costs. Section 4(3) of the DSA is clear that Respondent

should bear all transfer costs relating to the payment of the purchase price including the levy.

Respondent’s claim is baseless and cannot prevail over a clear contractual duty.

2. Respondent is liable to pay the levy under the general legal framework.

107. Article 53 of the CISG lays down the primary obligation of the buyer in an international sales

contract for the payment of the contract price [See Gabriel, p. 273]. “The buyer must pay the price

for the goods . . . as required by the contract and [the] Convention” [Art. 53 CISG]. It is generally

accepted that the UNIDROIT Principles of International Commercial Contracts are a “means of

interpreting and supplementing” the CISG (Art.7.1 and 7.2 CISG) [Eiselen, S., 323-370, fn. 180;

Preamble, CISG]. Also, as explicitly provided in Section 20 of the DSA as to the “CHOICE OF

LAW” agreed upon by the parties, the UNIDROIT Principles apply as to issues not dealt with by

the CISG.

108. Under Article 6.1.11 of the UNIDROIT Principles, the party required to perform an obligation

shall bear the costs of performance of that obligation [See Gabriel, p. 274]. Such costs may include

“transportation costs in delivering goods, bank commission in making a monetary transfer, fees

to be paid when applying for a permission, etc.” [Bonell UNIDROIT Principles Commentary, p. 305].

Respondent has the specific duty to pay bank charges involved in the transfer of funds for the

payment of the purchase price under the DSA. This duty is explicit in Section 4, par. 3 of the

DSA and there can be no other result than to effect full payment to Claimant by including

payment of transactional costs such as bank levy or charges.

2.1 Respondent has the obligation to take all necessary measures to effect full

payment to the Claimant under Art. 54 CISG

109. Assuming that the Tribunal finds that the levy imposed by the FIU under ML/2010C does not

fall under the term “bank charges”, Respondent is, nevertheless, required to perform enabling

steps to pay the full price to Claimant.

110. Art. 54 CISG states that the Buyer’s obligation to pay the price “includes taking such steps and

complying with such formalities as maybe required under the contract or any laws or regulations

to enable payment to be made.” Art. 54 deals with the Buyer’s obligation to comply with both

commercial and administrative requirements and formalities to enable payment.

111. Commercial requirements include the opening of letters of credit, posting security or

performance bonds, obtaining bank guarantees, or the acceptance of bills of exchange. [Osuna-

Gonzales, p. 302; Secretariat Commentary] Administrative requirements, on the other hand, involve

the buyer’s compliance with “a statute, or with a governmental or administrative ordinance, such


28

as applying for authorization to purchase foreign currency or transfer funds abroad.” [Osuna-

Gonzales, p. 304] There are instances, however, wherein the commercial requirements may

intersect with the administrative requirements to effect payment such as “the requirement of

exchange control regulations in force in the country where the place of payment lies.” [Jahn, p.

15]

112. The buyer is obliged to comply with the foreign exchange regulations that govern the country

where it must transfer the funds so as to effect payment. The buyer assumes the obligation to

examine any laws and regulations pursuant to his transaction, either local or international, which

could affect payment [Maskow, pp. 394-200].

113. For both commercial and administrative requirements, the enabling steps “must . . . lead to a

seller being able to collect the amount that he is due, and in some cases, it should allow a seller to

collect even if the buyer defaults with his duty to effect payment directly.” [Osuna-Gonzales, p. 313]

There must be a good faith effort on the buyer’s part to satisfy the requirements of the contract.

[DiMatteo, p. 95] If the buyer merely sends instructions to the bank to transfer funds to the seller,

it fails to take all measures necessary to ensure payment is made to the seller [CLOUT Case No.

142]. What is important is that the enabling steps must lead to the seller obtaining payment for

the goods sold to the buyer [Dulces Luisi, S.A. de C.V. v. Seoul Int'l Co.]

114. In the present case, Respondent did not make any good faith effort to comply with its obligation

to pay the full purchase price to Claimant. The adoption of ML/2010C was reported by the press

in Mediterraneo [PO No. 2, para ]. Respondent, as buyer, had the duty to investigate what the

requirements for compliance with the Regulation were. Despite notice of the deduction of the

levy from the payment transferred [Claimant’s Exhibit C6, p. 15], Respondent still refused to

comply with its obligations to the detriment of the Claimant. 2. Clearly, Respondent has the

obligation to take all necessary measures to effect full payment to the Claimant.

2.2 Respondent did not discharge its obligation for payment when the Central

Bank deducted the 0.5% levy before the funds reached Claimant’s financial

institution.

115. Payment may be performed in any form as perceived in the ordinary course of business at the

place of payment such as cash, check, banker's draft, a bill of exchange, credit card or any other

form, entailing electronic means of payment [CLOUT Cases No. 142 & 236; Art. 6.1.7,

UNIDROIT Principles]. The methods of payment under the UNIDROIT Principles complement

the buyer's obligation to comply with the contractual requirements or formalities to enable

payment to be made Art. 54 CISG [Osuna-Gonzalez, at 299-323].


29

116. Article 6.1.8(2) UNIDROIT Principles provides that “[i]n case of payment by a transfer, the

obligation of the obligor is discharged when the transfer to the obligee’s financial institution

becomes effective.” A buyer is considered “discharged of his obligation” when the beneficiary's

bank accepts a payment order for the beneficiary. Otherwise, the buyer does not cease to be

legally liable [CLOUT Case No. 104].

117. Under the Equatoriana Central Bank’s banking mechanism, it is only after the FIU gives the

clearance for the transfer that the amount would be credited to the relevant bank account in the

respective commercial bank. Hence, in this case, the levy or bank charge was already imposed on

the funds transferred before it reached Claimant’s bank – the Equatoriana National Bank [PO No

2, page 56, para 10-11]; Exhibit C8]. It follows then that Respondent’s obligation to effect payment

was not discharged when an amount less than the agreed purchase amount was credited to

Claimant’s bank account.

118. Indeed, the buyer may be exempted from liability if it proves that the failure to perform was due

to an impediment beyond its control and that it could not have reasonably been expected to take

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

overcome it or its consequences. [Art. 79(1) CISG] However, in the present case, Respondent

failed to show how the non-payment of the full purchase price to Claimant’s bank account due to

the imposition of the levy charge was beyond its control. A party cannot be exempted from

complying with its obligations for the sole reason that performance has become unforeseeably

more difficult [DiMatteo, p. 160]. It is arguable that the levy charge only made compliance with the

obligation difficult for Respondent; it did not render the obligation impossible.

CONCLUSION ON SUBSTANTIVE ISSUES

119. Claimant is entitled to USD 2,285,240 for the blades under the current exchange rate under the

DSA balance, where the parties agreed upon a cost plus basis price scheme fixing minimum and

maximum price in USD. Despite the parties’ agreement on payment in USD, Claimant was

supposed to receive the respective equivalent amount in EQD upon payment. Concomitantly,

the cost of USD 102,192.80 is to be borne by Respondent.

120. Claimant submits that the Addendum did not modify by any means the main Agreement (DSA).

Respondent’s concealed intent cannot be inferred, since Claimant was led to believe that the

Addendum’s limited purpose was for the sale of clamps. Since Respondent proposed the

Addendum, which was attached verbatim to the DSA, any issue of ambiguity is brought against

them, under the contra proferentem rule.

121. Last but not least, Claimant requests USD 102,192.80 for the fees deducted by the Equatoriana

Central bank. Arts. 53 and 54 CISG outline, inter alia, the obligations of the Buyer, who shall take


30

all steps in conformity with the duties they have undertaken. It flows artlessly that Respondent

must act accordingly so as to secure effective payment.


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REQUEST FOR RELIEF

CLAIMANT respectfully requests the Tribunal find that:

1. Their request for Arbitration be admissible and in conformity with Art. 4 of the CAM-CCBC

Rules.

2. RESPONDENT’s request for security for costs be unsound and therefore ought to be

dismissed.

3. They are entitled to USD 2,285,240 for the blades under the current exchange rate.

4. The cost of USD 102,192.80 is to be borne by RESPONDENT.

5. The Addendum did not modify the main Agreement.

6. CLAIMANT is entitled to USD 102,192.80 as fees deducted by the Equatoriana Central

bank.

7. RESPONDENT shall bear the costs of the arbitral proceedings.

London, 8 December 2016

Counsel for CLAIMANT

Illia Chernohorenko Alexia-Nefeli Douma

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Penka Kostova

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