WILLEM C. VIS INTERNATIONAL COMMERCIAL ......Blair/Gojkovic Cherie Blair and Ema V. Gojkovic ‘WikiLeaks and Beyond: Discerning an International Standard for the Admissibility of

UNIVERSITY OF SYDNEY

TWENTY-SIXTH ANNUAL

WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT

12-18TH APRIL 2019

MEMORANDUM FOR CLAIMANT

THE UNIVERSITY OF SYDNEY

ON BEHALF OF:

Phar Lap Allevamento

Rue Frankel 1

Capital City

Mediterraneo

CLAIMANT

AGAINST:

Black Beauty Equestrian

2 Seabiscuit Drive

Oceanside

Equatoriana

RESPONDENT

COUNSEL:

Kilian

Elkinson

Nina

Mao

Lucy

Nason

Beata

Szabo


II

TABLE OF CONTENTS

TABLE OF CONTENTS .............................................................................................................. II

INDEX OF ABBREVIATIONS ....................................................................................................... V

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

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

SUMMARY OF CLAIMANT’s ARGUMENTS ................................................................................... 2

ISSUE 1: The Tribunal has jurisdiction to adapt the contract ............................................. 3

I. Mediterranean law governs the arbitration clause because the doctrine of separability is not

engaged ........................................................................................................................................... 3

II. Mediterranean law governs the arbitration clause regardless of whether it is a separate

agreement........................................................................................................................................ 4

A. In the absence of an express choice of law, the law of the underlying contract governs

the arbitration clause ..................................................................................................................... 5

B. In the alternative, Mediterranean law governs the arbitration agreement under the

Sulamérica framework .................................................................................................................... 5

1. The Parties impliedly chose Mediterranean law .............................................................. 6

2. Mediterranean law is the law with the closest and most real connection with the

arbitration clause ....................................................................................................................... 6

C. The choice of Mediterranean law is consistent with the validation principle .................... 7

III. The Tribunal has jurisdiction to adapt the contract .................................................................... 7

A. Danubian Arbitration Law does not preclude tribunals from adapting contracts ............ 8

B. The CISG may apply to the arbitration clause including its interpretation ....................... 9

C. Adaptation is within the scope of the arbitration clause ................................................... 10

ISSUE 2: CLAIMANT should be entitled to submit evidence from RESPONDENT’s other

arbitration ............................................................................................................... 12

I. The Tribunal should admit the evidence despite objections based on confidentiality........... 12

A. The confidentiality provisions in the HKIAC Rules 2013 should not bar the admission

of the documents ........................................................................................................................ 13

B. There is otherwise no implied duty of confidentiality on which RESPONDENT may rely13

C. The need to protect the integrity of the proceedings should be paramount ................... 14


III

D. The evidence may be in the public domain ........................................................................ 15

II. CLAIMANT should be entitled to submit the evidence despite objections of illegality ........... 15

A. There is no evidence CLAIMANT was party to any illegality .............................................. 16

B. Public interest favours admitting the documents .............................................................. 16

III. The availability of consolidation indicates that the evidence should be admissible ............... 17

ISSUE 3: The Tribunal should adapt the contract to increase the contract price by US

$1,250,000 or any other amount ............................................................................. 19

I. The Hardship Clause requires the Tribunal to adapt the contract price ................................. 19

A. The Tribunal is required to adapt the contract according to cl 12 ................................... 20

B. Clause 12 prescribes circumstances where the Tribunal must adapt the contract .......... 21

1. The tariff is a “comparable” event ................................................................................. 22

2. The tariff was “unforeseen” ........................................................................................... 22

3. The tariff rendered performance “more onerous” ....................................................... 23

4. CLAIMANT did not assume the risk of the tariffs by agreeing to delivery “DDP” ..... 23

5. The Tribunal must adapt the contract price to increase by US $1,250,000 ................ 24

C. CLAIMANT is entitled to adaptation due to RESPONDENT’s subsequent conduct .......... 24

1. The Parties agreed to vary the terms of the contract ................................................... 25

2. In the alternative, RESPONDENT is estopped from opposing the variation of cl 12 .. 25

3. RESPONDENT cannot rely on Mr Shoemaker’s lack of authority ................................ 26

II. In the alternative, the Tribunal should adapt the contract to increase the contract price by

US $1,250,000 or any other amount under the CISG............................................................... 27

A. The CISG permits adaptation of a contract in situations of hardship ............................. 27

1. Art 6.2 UNIDROIT Principles should be used to supplement Art 79 CISG ............ 28

2. In the alternative, the CISG itself impliedly permits adaptation ................................. 29

3. In the alternative, the CISG permits Art 6.2 UNIDROIT Principles to apply as the

rule applicable by virtue of the rules of private international law....................................... 30

B. CLAIMANT has experienced hardship.................................................................................. 31

1. There has been a fundamental alteration of the equilibrium of the contract ............. 32

(a) The imposition of tariffs increased the cost of performance for CLAIMANT ........ 32

(b) RESPONDENT’s conduct decreased the value of performance for CLAIMANT ...... 33

2. CLAIMANT satisfies the remaining requirements of Art 6.2 UNIDROIT Principles . 34

C. The amount CLAIMANT seeks is modest and reasonable .................................................. 34

Conclusion ............................................................................................................................... 35


IV

REQUEST FOR RELIEF ..................................................................................................... 35

CERTIFICATE OF VERIFICATION .......................................................................... XXIV


V

INDEX OF ABBREVIATIONS

Abbreviation Term

& and

¶(¶) Paragraph(s)

§(§) Section(s)

Answer RESPONDENT’s Answer to Notice of Arbitration

Art(s) Article(s)

cf Compare

CISG United Nations Convention on Contracts for the International

Sale of Goods, 11 April 1980

Cl (#) Clause Number

Cl. Ex. (#) CLAIMANT’s Exhibit Number

CLAIMANT Phar Lap Allevamento

CLOUT Case Law on UNCITRAL Texts

e.g. exempli gratia; for example

Hague Principles Hague Principles on Choice of Law in International Commercial

Contracts 2015

HKIAC Hong Kong International Arbitration Centre

HKIAC Rules 2018 2018 Hong Kong International Arbitration Centre Administered

Arbitration Rules

HKIAC Rules 2013

2013 Hong Kong International Arbitration Centre Administered

Arbitration Rules

IBA Rules International Bar Association Rules

Model Law UNICTRAL Model Law on International Commercial

Arbitration (with amendments as adopted in 2006), 21 Jun 1958

Notice CLAIMANT’S Notice of Arbitration

p(p). page(s)

Partial Interim Award The award handed down by the arbitral tribunal on 29 June 2018

in the arbitral proceedings between RESPONDENT and a

Mediterranean buyer in respect of a sale of a mare

Parties CLAIMANT and RESPONDENT

PO. No. 1 Procedural Order No. 1, dated 5 October 2018


VI

PO. No. 2 Procedural Order No. 2, dated 2 November 2018

R. Ex. (#) RESPONDENT’s Exhibit Number

RESPONDENT Black Beauty Equestrian

Sales Agreement Frozen Semen Sales Agreement as executed by the Parties on 6

May 2017 reproduced as Cl. Ex. 5.

the Tribunal The Arbitral Tribunal of Davis, Dettorie, and de Souza

constituted for proceedings Phar Lap Allevamento v Black Beauty

Equestrian

UNIDROIT International Institute for the Unification of Private Law

UNIDROIT Principles UNIDROIT Principles of International Commercial Contracts

US $ United States dollar


VII

INDEX OF AUTHORITIES

TREATIES, CONVENTIONS AND RULES

Cited as Reference Paragraph(s)

CISG United Nations Convention on Contracts for the

International Sale of Goods, opened for signature

11 April 1980 (entered into force 1 January 1988)

¶¶5, 7, 8, 11, 12,

13, 19, 21, 23,

28, 35-38, 40,

42, 45, 72, 75-

78, 91, 97,

100, 105-111,

113-125, 127,

139, 140, 142

Hague Principles Hague Principles on Choice of Law in International

Commercial Contracts 2015

¶19

HKIAC Rules 2018

1.

2018 Hong Kong International Arbitration Centre

Administered Arbitration Rules

¶¶5, 12, 14-16,

28, 47, 54, 58,

65, 66, 68

HKIAC Rules 2013

2013 Hong Kong International Arbitration Centre

Administered Arbitration Rules

¶¶46, 49-51, 68

IBA Rules International Bar Association Rules ¶47

LCIA Rules London Court of International Arbitration Rules

2014

¶59

Model Law UNICTRAL Model Law on International

Commercial Arbitration (with amendments as

adopted in 2006), 21 June 1985

¶¶12, 14-16, 22,

27, 28, 30, 32,

33, 44, 47, 49,

65, 68

New York Convention Convention on the Recognition and Enforcement

of Foreign Arbitral Awards, 7 June 1959

¶¶22, 27, 44

Rome I Regulation Regulation (EC) No 593/2008 of the European

Parliament and of the Council of 17 June 2008 on

the law applicable to contractual obligations

(Rome I)

¶¶19, 36

Swiss Rules Swiss Rules of International Arbitration ¶59


VIII

UNIDROIT Principles UNIDROIT Principles of International

Commercial Contracts 2016

¶¶11, 35, 76, 77,

102-104, 108-

115, 123-126,

129, 130, 137,

138, 140

WIPO Rules World Intellectual Property Organization

Arbitration Rules 2014

¶59


IX

COMMENTARIES AND ARTICLES

Cited as Citation Paragraph(s)

Bantekas Ilias Bantekas

‘The Proper Law of the Arbitration Clause: A

Challenge to the Prevailing Orthodoxy’

Journal of International Arbitration, vol. 27, issue 1,

2010, pp.1-8

¶22

Berger Klaus P. Berger

‘Power of Arbitrators to Fill Gaps and Revise

Contracts to Make Sense’

Arbitration International, vol. 17, issue 1, 2001, pp.1-

18

¶28

Blair/Gojkovic Cherie Blair and Ema V. Gojkovic

‘WikiLeaks and Beyond: Discerning an

International Standard for the Admissibility of

Illegally Obtained Evidence’

ICSID Review – Foreign Investment Law Journal, vol.

33, issue 1, 2018 pp.235-259

¶¶47, 60-62

Bonell Michael J. Bonell

‘Article 6’

Bianca-Bonell, Commentary on the International Sales

Law, Giuffré, Milan, 1987, pp.51-64

¶120

Born Gary B. Born

International Commercial Arbitration

2nd ed, Kluwer Law International, 2014

¶¶14, 16, 22,

44, 47, 49,

51, 52, 54,

67

Born 2014 Gary B. Born

‘The Law Governing International Arbitration

Agreements: An International Perspective’

Singapore Academy of Law Journal, vol. 26, 2014,

pp.814-848

¶27


X

Brunner Christoph Brunner

Force Majeure and Hardship under General Contract

Principles

Kluwer Law International, 2009

¶¶76, 106,

118, 129

Bühler/Webster

Michael W. Bühler & Thomas H. Webster

Handbook of ICC Arbitration: Commentary, Precedents,

Materials

2nd ed, Sweet & Maxwell, 2008

¶68

Carmody

Matthew Carmody

‘Overturning the Presumption of Confidentiality:

Should the UNCITRAL Rules on Transparency Be

Applied to International Commercial Arbitration’

International Trade and Business Law Review, vol.19,

2016, pp.96-179

¶¶49, 57

Cheshire

Geoffrey C. Cheshire

Private International Law

7th ed, Butterworth & Co Ltd, London, 1965

¶25

CISG-AC Opinion No. 3 CISG Advisory Council

Opinion No. 3, ‘Parol Evidence Rule, Plain

Meaning Rule, Contractual Merger Clause and the

CISG’, Rapporteur: Professor Richard Hyland,

Rutgers Law School, Camden, NJ, USA.

Adopted by the CISG-AC on its 7th meeting in

Madrid with no dissent, 23 October 2004

¶40

CISG-AC Opinion No. 7 CISG Advisory Council

Opinion No. 7, ‘Exemption of Liability for

Damages Under Article 79 of the CISG’,

Rapporteur: Professor Alejandro M. Garro,

Columbia University School of Law, New York,

N.Y., USA.

Adopted by the CISG-AC at its 11th meeting in

Wuhan, People’s Republic of China, on 12 October

2007

¶¶29, 106,

107, 113,

116, 118


XI

CISG Digest United Nations Commission on International

Trade Law

‘Article 29’

UNCITRAL Digest of Case Law on the United Nations

Convention on Contracts for the International Sale of

Goods, United Nations, Vienna, 2016, pp.123-124

¶¶32, 97,

100

Chiu

Julie C. Chiu

‘Consolidation of Arbitral Proceeding and

International Arbitration’

Journal of International Arbitration,

vol. 7, issue 2, 1990, pp.53-76

¶67

McLachlan Campbell McLachlan

‘Arbitration and Foreign Awards’

Albert V. Dicey, John H. C. Morris and Lawrence

Collins

Dicey, Morris and Collins on the Conflict of Laws, 15th

ed, Sweet & Maxwell, London, 2012, pp.93-107

¶16

Ferrari et al Franco Ferrari, Clayton Gillette, Marco Torsello

and Steven Walt

‘The Inappropriate Use of the PICC to Interpret

Hardship Claims under the CISG’

Internationales Handelsrecht, vol. 17, issue 3, 2017,

pp.97-102

¶¶109, 110,

121

Ferrario Pietro Ferrario

The Adaptation of Long-Term Gas Sale Agreements By

Arbitrators


¶¶34, 39

Flambouras Dionysios P. Flambouras

‘The Doctrines of Impossibility of Performance

and Clausula Rebus SIC Stantibus in the 1980

Convention on Contracts for the International Sale

of Goods and the Principles of European Contract

Law – A Comparative Analysis’

¶122


XII

Pace International Law Review, vol. 13, issue 2, 2001,

pp.261-292

Fucci Frederick R. Fucci

‘Hardship and Changed Circumstances as Grounds

for Adjustment or Non-Performance of Contracts:

Practical Considerations in International

Infrastructure Investment and Finance’

American Bar Association, Section of International

Law 2006 Spring Meeting, pp.1-43

¶130

Garro Alejandro M. Garro

‘Gap-Filling Role of the UNIDROIT Principles in

International Sales Law: Some Comments on the

Interplay Between the Principles and the CISG’

Tulane Law Review, vol. 69, 1995, pp.1149-1190

¶¶111, 113

Girsberger/Zapolskis Daniel Girsberger and Paulius Zapolskis

‘Fundamental Alteration of the Contractual

Equilibrium Under Hardship Exemption’

Jurisprudence, vol. 19, issue 1, 2012, pp.121-141

¶¶129, 130,

132

Glick/Venkatesan Ian Glick and Niranjan Venkatesan

‘Chapter 9: Choosing the Law Governing the

Arbitration Agreement’

Neil Kaplan and Michael J. Moser (eds), Jurisdiction,

Admissibility and Choice of Law in International

Arbitration, Liber Amicorum, 2018

¶14

Greenberg/Kee/Weeramantry Simon Greenberg, Christopher Kee and Romesh

Weeramantry

‘Applicable Substantive Law’

International Commercial Arbitration: An Asia-Pacific

Perspective, Cambridge University Press, 2017, pp.94-

143

¶33

Heiskanen Veijo Heiskanen

‘Forbidding Dépeçage: Law Governing Investment

Treaty Arbitration’

¶22


XIII

Suffolk Transnational Law Review, vol. 32, issue 2,

2009, pp.367-407

Honnold John O. Honnold

Uniform Law for International Sales under the 1980

United Nations Convention

Harry M. Flechtner (ed), 4th ed, Kluwer Law

International, 2009

¶¶77, 100

Horn Norbert Horn

‘Standard Clauses on Contract Adaptation in

International Commerce’

Norbert Horn (ed), Adaptation and Renegotiation of

Contracts in International Trade and Finance, Kluwer

Law and Taxation Publishers, Denver, 1985,

pp.111-140

¶¶29, 76

ICC International Chamber of Commerce

Incoterms® 2010: ICC rules for the use of domestic and

international trade terms, ICC Services Publications,

France, 2010

¶90, 91

Johnson William P. Johnson

‘Analysis of Incoterms as usage under Article 9 of

the CISG’

University of Pennsylvania Journal of International Law,

vol. 35, 2014, pp.380-430

¶91

Lindström Niklas Lindström

‘Changed Circumstances and Hardship in the

International Sale of Goods’

Nordic Journal of Commercial Law, vol. 1, 2006,

www.cisg.law.pace.edu/cisg/biblio/lindstrom.html

¶138

Lookofsky Joseph Lookofsky

‘Not Running Wild With the CISG’

Journal of Law and Commerce, vol. 29, issue 2, 2010,

pp.141-169

¶121

Loomis Paul R. Loomis ¶132


XIV

‘Storage, Handling and Distribution of Frozen

Semen’

Proceedings of the Annual Convention of the AAEP, vol.

47, 2001, pp.296-301

Magnus Ulrich Magnus

‘General Principles of UN-Sales Law’

Max-Planck-Institute for Foreign and International Private

Law, vol. 59, issue 3-4, 2005, ¶¶1-7

¶116

Model Law Digest United Nations Commission on International

Trade Law

‘Article 28’

UNCITRAL Digest of Case Law on the Model Law on

International Commercial Arbitration, United Nations,

Vienna, 2012, pp.121-122

¶¶30, 32

O’Sullivan

Nikki O’Sullivan

‘Lagging behind: is there a clear set of rules for the

treatment of illegally obtained evidence in

international arbitrations?’

Practical Law Arbitration Blog, 31 August 2017

¶61

Pair/Frankenstein

Lara M. Pair & Paul Frankenstein

‘The New ICC Rule on Consolidation: Progress or

Change?’

Emory International Law Review, vol. 25, issue 3, 2011,

pp.1061-1085

¶68

Pirozzi Roberto Pirozzi

‘The Effect of Changing Circumstances in

International Commercial Contracts’

The Vindobona Journal of International Commercial Law

and Arbitration, vol. 16, issue 2, 2012, pp.207-222

¶¶106, 117

Poorooye/Feehily

Avinash Poorooye and Ronán Feehily

‘Confidentiality and Transparency in International

Commercial Arbitration: Finding the Right Balance’

¶¶52, 57


XV

Harvard Negotiation Law Review, vol. 22, 2017,

pp.275-323

Redfern/Hunter Nigel Blackaby, Constantine Partasides, Alan

Redfern and Martin Hunter

Redfern & Hunter on International Arbitration

6th ed, Oxford University Press, Oxford, 2015

¶20

Schlechtriem Peter Schlechtriem

Comments

Harry M. Flechtner (ed), ‘Transcript of a Workshop

on the Sales Convention: Leading CISG Scholars

discuss Contract Formation, Validity, Excuse for

Hardship, Avoidance, Nachfrist Contract

Interpretation, Parol Evidence, Analogical

Application, and much more’

Journal of Law Commerce, vol. 18, 1999, pp.191-258

¶¶109, 118,

119

Schmidt-Ahrendts Nils Schmidt-Ahrendts

‘CISG and Arbitration’

Belgrade Law Review, vol. 59, issue 3, 2011, pp.211-

223

¶¶36, 37

Schmidt-Kessel

Martin Schmidt-Kessel

‘Article 8’ and ‘Article 9’

Schwenzer, Ingeborg (ed), Schlechtriem & Schwenzer:

Commentary on the UN Convention on the International

Sale of Goods (CISG)

4th ed, Oxford University Press, London, 2016,

pp.143-196

¶¶40, 43, 77

Schroeter Ulrich G. Schroeter

‘Article 29’

Schwenzer, Ingeborg (ed), Schlechtriem & Schwenzer:




pp.494-513

¶93


XVI

Schwenzer 2008 Ingeborg Schwenzer

‘Force Majeure and Hardship in International Sales

Contracts’

Victoria University of Wellington Law Review, vol. 39,

issue 4, 2008, pp.709-726

¶¶76, 106,

116, 117,

119, 125,

127, 129,

132

Schwenzer 2013 Ingeborg Schwenzer and David Tebel

‘The Word is not Enough – Arbitration, Choice of

Forum and Choice of Law Clauses under the

CISG’

ASA bulletin, vol. 31, issue 4, pp.740-755

¶36

Schwenzer/Hachem Ingeborg Schwenzer and Pascal Hachem

‘Article 4’ and ‘Article 7’

Ingeborg Schwenzer (ed), Schlechtriem & Schwenzer:




pp.73-94; 119-142

¶¶100, 102,

122

Schwenzer/Hachem/Kee Ingeborg Schwenzer, Pascal Hachem and

Christopher Kee

Global Sales and Contract Law

Oxford University Press, London, 2012

¶¶91, 113

Smeureanu Ileana M. Smeureanu

‘Chapter 4: Actors Bound by the Duty to Maintain

Confidentiality’

Ileana M. Smeureanu and Julian D. M. Lew

Confidentiality in International Commercial Arbitration,

International Arbitration Law Library, 2011, p.133-

159

¶¶51, 55, 56,

59

Stoll/Gruber Hans Stoll and Georg Gruber

‘Article 79’

Peter Schlechtriem and Ingeborg Schwenzer (eds)


¶138


XVII

Sale of Goods, 2nd ed, Oxford University Press,

Oxford, 2005

Uribe Rodrigo M. Uribe

‘Change of Circumstances in International

Instruments of Contract Law: The Approach of the

CISG, the PICC, the PECL and the DCFR’

Vindabona Journal of International Commercial Law and

Arbitration, vol. 15, issue 2, 2011, pp.233-266

¶¶110, 113

Viscasillas Pilar P. Viscasillas

‘Interpretation and Gap-Filling under the CISG:

Contrast and Convergence with the UNIDROIT

Principles’

Uniform Law Review, vol. 22, issue 1, 2017, pp.4-28

¶¶77, 111,

113

Vogenauer Stefan Vogenauer (ed)

Commentary on the UNIDROIT Principles of

International Commercial Contracts (PICC)

2nd ed, Oxford University Press, Oxford, 2015

¶¶77, 125,

126, 128,

138, 139

Waincymer Jeffrey Waincymer

Procedure and Evidence in International Arbitration


¶31

Working Group 1983 UNCITRAL Working Group

‘Report of the Working Group on International

Contract Practices on the work of its fifth session’

Report No. A/CN.9/233 (New York, 1983)

¶31

Working Group 1985 UNCITRAL Working Group

‘Analytical commentary on draft text of a model

law on international commercial arbitration’

Report No. A/CN.9/264 (1985)

¶32

Working Group Note UNCITRAL Working Group

‘Note by the Secretariat: model law on international

commercial arbitration: possible further features

and draft articles of a model law’

Report No. A/CN.9/WG.II/WP.41 (1983)

¶29


XVIII

ARBITRAL AWARDS

Cited As Citation Paragraph(s)

Caratube v

Kazakhstan

Caratube International Oil Company LLP v The Republic of

Kazakhstan, Award, ICSID Case No. ARB/08/12, 5

June 2012

¶52

ConocoPhillips ConocoPhillips Company et al v Bolivarian Republic of

Venezuela, ICSID Case No. ARB/07/30

¶62

ICAC Case No. 252 Award in ICAC Case No. 252/2010, International

Commercial Arbitration Court at the Chamber of

Commerce and Industry of the Russian Federation, 31

August 2011

¶39

ICC Case No. 6840 Final Award in ICC Case No. 6840

Jean-Jacques Arnaldez, Yves Derains & Dominique

Hascher (eds.), Collection of ICC Arbitral Awards 1991-

1995 (1997) p.467

¶21

Libananco Holdings Libananco Holdings Co. Limited v Republic of Turkey, Award,

ICSID Case No. ARB/06/8, 2 September 2011

¶¶61, 64

Methanex Methanex Corporation v United States, Final Award on

Jurisdiction and Merits, NAFTA Tribunal, 3 August 2005

¶¶47, 61

Rolled Metal Sheets

Case

SCH-4388, Internationales Schiedsgericht der

Bundeskammer der gewerblichen Wirtschaft - Wien

(Vienna), Austria, 15 June 1994

http://www.unilex.info/case.cfm?pid=1&do=case&id

=55&step=FullText

¶100

Sylvania Technical Sylvania Technical Sys., Inc. v Islamic Repub. of Iran, Vol. 8,

Iran-US Claims Tribunal Reports, p.298, 1985

¶54

Wool Case China International Economic and Trade Arbitration

Commission (CIETAC), China, 28 February 2005,

https://cisgw3.law.pace.edu/cisg/wais/db/cases2/050

228c1.html

¶102

Yukos Awards RosInvestCo UK Ltd. v The Russian Federation, SCC Case

No. 079/2005, Russian Federation-United Kingdom

BIT, 12 September 2010

¶¶61, 62


XIX

CASES

Australia


Bristol-Myers Bristol-Myers Squibb Company v Apotex Pty Ltd (2015) 228

FCR 1

Federal Court of Australia

¶75

Esso Australia

Esso Australia Resources Ltd v Plowman (Minister for Energy

and Minerals) (1995) 128 ALR 391

High Court of Australia

¶52

Belgium


Scafom International Scafom International BV v Lorraine Tubes S.A.S. [2009]

Case No. C.07.0289.N

Hof van Cassatie

¶¶106, 109,

115

Canada


Adesa Corporation

Adesa Corporation v Bob Dickenson Auction Service Ltd

[2004] O.T.C. 1061 (SC)

Superior Court of Justice of Ontario

¶52

Lilydale Lilydale Cooperative Limited v Meyn Canada Inc 2015

ONCA 281

Ontario Court of Appeal

¶¶25, 26

Quintette Quintette Coal v Japanese Steel Companies, unpublished, 28

May 1990

As extracted from Quintette Coal Ltd. v Nippon Steel

[1990] B.C.W.L.D. 2410 (British Columbia Court of

Appeal)

¶¶34, 39


XX

European Union


A.T. v Finanzamt A.T. v Finanzamt Stuttgart-Körperschaften [2008], Case C-

285/07

Court of Justice and the Court of First Instance

¶75

France


D21 v Gabo Dupiré Invicta Industrie (D21) v Gabo [2015]

Cour de Cassation

¶115

Germany


Owerri Owerri Commercial Inc. v Dielle Srl

Judgment of 4 August 1993, XIX Y.B. Comm. Arb.

703 (1994)

Hague Gerechtshof

¶25

Roland Schmidt Roland Schmidt GmbH v Textil-Werke Blumenegg AG

[2000], Switzerland, Bundesgericht (BGer),

http://cisgw3.law.pace.edu/cases/001222s1.html

¶38

Wochenschrift German Supreme Court (BGH), 3.5.2011, Neue Juristische

Wochenschrift Rechtsprechungs-Report 2011, 1350

¶36

Y. B. Comm. Arb.

679

Y. B. Comm. Arb. 679

Judgment of 21 September 2005, XXXI Y.B. Comm.

Arb. 679 (2006)

German Bundesgerichtshof

¶25

International


Iranian Hostages Case United States Diplomatic and Consular Staff in Tehran,

Judgment, ICJ Reports 1980, p.3

International Court of Justice

¶64


XXI

Singapore


BCY v BCZ BCY v BCZ [2016] SGHC 249

High Court of the Republic of Singapore

¶¶14, 20

FirstLink Investments FirstLink Investments Corp Ltd v GT Payment Pte

Ltd [2014] SGHCR 12

High Court of the Republic of Singapore

¶20

Sweden


Bulbank

Bulgarian Foreign Trade Bank Ltd v A.I. Trade Finance Inc.

Nytt Juridiskt Arkiv [NJA] Case No. T 1881–99, 27

October 2000 p.147

Högsta domstolen

¶52

Switzerland


Machines, Devices and

Replacement Parts

Case

Case No. 12/1997/322, 25 February 2002,

http://cisgw3.law.pace.edu/cases/020225s1.html

Kantonsgericht (KG) Schaffhausen

¶140

United Kingdom


Cruz City Arsanovia Ltd v Cruz City 1 Mauritius Holdings [2012]

EWHC 3702 (Comm)

High Court of Justice

¶20

Fiona Trust Fiona Trust v Privalov [2007] EWCA Civ 20

Court of Appeal of England and Wales

¶¶14, 39, 44

London and Leeds

Estates

London and Leeds Estates Ltd v Paribas Ltd (No 2) [1995]

1 EGLR 102


¶55

Michael Wilson v

Emmott

Michael Wilson and Partners Ltd v Emmott [2008] EWCA

Civ. 184

¶55


XXII


Ronly Holdings JSC Zestafoni G Nikoladze Ferroalloy Plant v Ronly Holdings

Ltd [2004] EWHC 245 (Comm)


¶¶14, 16

Sonatrach Petroleum Sonatrach Petroleum Corporation (BVI) v Ferrell International

Limited [2002] 1 All ER (Comm. 627)


¶21

Sulamérica

Sulamérica Cia Nacional De Seguros S.A. and others v Enesa

Engenharia S.A [2012] EWCA Civ 638


¶¶14, 19, 20,

23-26

United States of America


First Options First Options of Chicago, Inc. v Kaplan, 514 U.S. 398 (U.S.

S. Ct. 1995)

United States Supreme Court

¶44

Granite Rock Co Granite Rock Co. v Int’l Bhd of Teamsters 130 S. Ct. 2847


¶14

Mastrobuono Mastrobuono v Shearson Lehman Hutton, Inc., 514 U.S. 52

(U.S. S. Ct. 1995)


¶39

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

D’Agostino 144 F.3d 1384 (29 June 1998)

Federal Appellate Court (11th Circuit Court)

¶42

Mitsubishi Mitsubishi Motors Corp. v Soler Chrysler-Plymouth, Inc., 473

U.S. 614 (U.S. S.Ct. 1985)


¶44

Panhandle

United States v Panhandle E. Corp., 118 F.R.D. 346, 350

(D. Del. 1988) (21 March 1988)

United States District Court

¶52

Sabata Chateau des Charmes Wines Ltd v Sbata USA Inc., Sabata

S.A., 328 F.3d 528 (5 May 2003)

Federal Appellate Court (9th Circuit)

¶36


XXIII

Treibacher Industrie Treibacher Industrie, A.G. v Allegheny Technologies, Inc., 464

F.3d 1235 (12 September 2006)

Federal Appellate Court (11th Circuit)

¶91

CASE SUBMISSIONS

Cited as Citation Paragraph(s)

Kruger Inc. Brief Thomas J. O’Reilly

Sandra R. Chaytor

In the Supreme Court of Newfoundland and Labrador

Richard Dewey, William Perry, Charlotte Jacobs and William

Turner, PLAINTIFFS v Kruger Inc., Deer Lake Power

Company Limited, Corner Brook Pulp and Paper Limited, and

the Town of Deer Lake, Her Majesty the Queen in right of

Newfoundland and Labrador, DEFENDANT

Applicant’s Reply to Respondent’s Memoranda of Fact

and Law

¶75


1

STATEMENT OF FACTS

1. CLAIMANT, a business in Mediterraneo which runs a stud farm, agreed to sell RESPONDENT, the

owner of a broodmare line, 100 doses of frozen semen from its most successful racehorse. The

contract price of $100,000 per dose would produce a 5% profit margin for CLAIMANT.

2. The Parties expressed in their contract that the sale was to be Delivered Duty Paid (DDP) so

CLAIMANT would handle the delicate shipping process, to protect against unforeseen risks.

However, CLAIMANT emphasised that it could not assume all risks associated with DDP and

insisted on a hardship clause in the contract. Delivery was to take place in 3 instalments.

3. CLAIMANT shipped the first two instalments as agreed. Days before the third was due, CLAIMANT

became aware that, against all expectations, Equatoriana’s significant new retaliatory tariffs applied

to frozen horse semen. CLAIMANT immediately impressed upon RESPONDENT the urgent need to

renegotiate before CLAIMANT could fulfil its obligation, as the tariff would increase importation

costs by 30%. RESPONDENT urged CLAIMANT to authorise the shipment, assuring CLAIMANT that

a solution would be found. On that basis, CLAIMANT shipped.

4. CLAIMANT and RESPONDENT commenced renegotiation of the purchase price, but before an

agreement could be reached, RESPONDENT stopped negotiations. CLAIMANT discovered that

RESPONDENT had repeatedly breached the strict contractual prohibition on re-selling the frozen

semen. With RESPONDENT uninterested in further cooperation, CLAIMANT initiated arbitration

proceedings.

5. The Parties agreed to arbitrate under the HKIAC Rules 2018 and had expressly provided for

Mediterranean law, which includes the CISG, to govern the Sales Agreement. The Parties did not

provide for a different law to govern the arbitration clause. During pre-contractual negotiations,

RESPONDENT proposed an arbitration clause which was governed by Equatorianian law and

selected Equatorianian law as the seat. CLAIMANT made clear that it could not agree to a foreign

governing law without the approval of its creditors’ committee. In response, CLAIMANT required

the law of the Sales Agreement to remain Mediterranean law and as a compromise suggested an

amendment providing for the lex arbitri to be Danubia.

6. RESPONDENT is a party to another arbitration in which it has argued that adaptation is available in

light of the tariffs imposed by the Mediterranean government. CLAIMANT seeks to adduce into

evidence documents from that arbitration.


2

SUMMARY OF CLAIMANT’s ARGUMENTS

7. The Tribunal should adapt the contract to increase the price payable to CLAIMANT by US

$1,250,000. The Tribunal has jurisdiction to decide the dispute and is empowered to redress the

hardship suffered by CLAIMANT under the contract or the CISG.

8. The lex arbitri, and the Parties’ agreement, permit the Tribunal to adapt the contract. The intention

of the parties to permit adaptation is evident when the CISG is used to interpret the arbitration

clause. The parties selected Mediterranean law including the CISG to govern the Sales Agreement.

The arbitration clause should also be governed by the CISG because the arbitration clause is not

separate from the underlying contract in this case; even if it was, Mediterranean law is applicable

on a choice of law approach. The application of Art 8 CISG reveals that the intention that the

jurisdiction of the Tribunal would encompass adaptation in circumstances of hardship (Issue 1).

9. The Tribunal should, in its discretion, admit the evidence from RESPONDENT’s other arbitration

to support the claim to adaptation. It is material evidence which would prevent RESPONDENT from

holding inconsistent legal positions, notwithstanding its objections relating to confidentiality and

illegality (Issue 2).

10. Clause 12 of the contract requires the Tribunal to adapt the contract in a situation of hardship,

which encompasses the financial hardship resulting from unprecedented and unforeseeable tariffs.

According to the Parties’ particular understanding of DDP, CLAIMANT never assumed the risk of

the tariff. In the alternative, the subsequent interactions of the Parties now preclude RESPONDENT

from denying adaptation is available: either by contract variation or estoppel (Issue 3, I).

11. Alternatively, the CISG permits adaptation in circumstances of hardship. A general principle of

hardship is derived from Art 79. The CISG should be supplemented by the UNIDROIT Principles,

which explicitly address hardship and adaptation. Alternatively, Art 79 itself impliedly establishes

adaptation as a remedy. If neither position is accepted, Mediterranean law applies to the same

effect. Given CLAIMANT’s vulnerable financial position and RESPONDENT’s breach of contract in

bad faith by reselling the semen, the burdensome tariff fundamentally altered the equilibrium of

the contract. This more than entitles CLAIMANT to the modest amount sought (Issue 3, II).


3

ISSUE 1: The Tribunal has jurisdiction to adapt the contract

12. This Tribunal has jurisdiction to order a remedy of adaptation. The jurisdiction of the Tribunal is

determined by the mandatory laws of the seat and the Parties’ agreement. In this case, the lex arbitri

is the law of Danubia, an almost verbatim adoption of the Model Law [Sales Agreement, cl 15; PO.

No. 1 ¶III(4)]; and the parties nominated the HKIAC Rules 2018 [Sales Agreement, cl 15; PO.

No. 1 ¶II]. The Parties have agreed for Mediterranean law, including the CISG, to apply to the

entire Sales Agreement [Sales Agreement, cl 14]. That agreement does not expressly provide for a

separate law to govern the arbitration clause [Sales Agreement, cl 15].

13. The first question is whether the Tribunal has authority to decide whether the contract should be

adapted. This is a question of the scope of the arbitration clause and the ambit of the lex arbitri.

The Parties’ true intentions can only be revealed by reference to extrinsic evidence. Therefore the

Parties’ intentions can only be realised if Mediterranean law, including the CISG, applies, rather

than Danubian law, which restricts interpretation of intention to the text of the agreement. The

available choice of law rules all lead to that conclusion: (I) the doctrine of separability does not

preclude Mediterranean law from applying to the arbitration clause. (II) Nonetheless,

Mediterranean law governs the separate arbitration agreement on a choice of law approach. (III)

Under Mediterranean law, the arbitration clause confers jurisdiction on the Tribunal to adapt the

contract. Therefore, when properly analysed, the Parties intended that the Tribunal be equipped to

completely deal with this dispute.

I. Mediterranean law governs the arbitration clause because the doctrine of

separability is not engaged

14. The doctrine of separability does not preclude the Parties’ selection of Mediterranean law from

applying to the arbitration clause. Under the doctrine of separability, an arbitration clause is

“separable from the contract in which it appears” [Art 16(1) Model Law; Art 19.2 HKIAC Rules

2018; Granite Rock ¶2857; Born, p.350]. However, the doctrine is only engaged when there is a

challenge to the validity of the underlying contract or of the arbitration clause itself [Fiona Trust ¶17;

Glick/Venkatesan, p. 137]. Where there is no such challenge, the arbitration clause should not be

treated as a distinct agreement [Ronly Holdings ¶¶30-31; Glick/Venkatesan, p. 137]. This is because

the purpose of separability is to ensure that the parties can still submit their dispute to arbitration

even if the underlying contract is found to be invalid, “not to insulate the arbitration agreement …

for all purposes” [Sulamérica ¶26; BCY v BCZ ¶60; Glick/Venkatesan, p.137].


4

15. This approach to the doctrine of separability is expressly adopted by Art 16(1) of the Model Law,

which provides that the tribunal may rule on “objections with respect to the existence or validity

of the arbitration agreement”, and it is only “[f]or that purpose” that an arbitration clause shall be

treated as an independent agreement. This approach is also reflected in Art 19.2 HKIAC Rules

2018, which treats arbitration clauses as independent agreements for the purpose of determining

the “existence or validity” of the underlying contract.

16. It has been suggested that the underlying contract is always distinct from the arbitration clause

[McLachlan ¶16-012]. This view is not correct [Ronly Holdings ¶¶30-31; Glick/Venkatesan, pp.137-8].

It is inconsistent with the approach in the Model Law and the HKIAC Rules 2018. The wider

conception of separability is justified by the need to allow for the application of a different national

law to the arbitration clause [Born, p.351]. However, this result could be achieved through dépeçage

(where different law may apply to different sections of a single agreement) by express choice

[Glick/Venkatesan, p.140]. The wider application of the doctrine of separability departs from its

focus on preserving the validity of contracts.

17. Here the question of the scope of the Tribunal’s powers is clearly not an issue that goes to the

validity of the agreement. In the absence of that issue, the doctrine of separability has no role in

ascertaining the law of the arbitration clause. Therefore, the arbitration clause must be governed

by the same law that applies to the rest of the Sales Agreement: Mediterranean law [Sales

Agreement, cl 14].

II. Mediterranean law governs the arbitration clause regardless of whether it is a

separate agreement

18. If the Tribunal determines that the arbitration clause constitutes an agreement separate to the Sales

Agreement, it is still governed by Mediterranean law on a choice of law approach, despite the

absence of an express identification of the law applicable to the arbitration agreement.

19. There are different choice of law approaches taken by courts and tribunals to determine the law

applicable to arbitration agreements in the absence of an express election. Although the Hague

Principles are the general conflict of law rules for contracts in Danubia, Mediterraneo and

Equatoriana, they do not apply to arbitration agreements [Art 1(e) Rome I Regulation]. (A) The

correct approach is to extend the law of the underlying contract to the arbitration agreement. (B)

Alternatively, the Tribunal should apply the Sulamérica approach which produces the same result.

(C) The application of the CISG is consistent with the validation principle.


5

A. In the absence of an express choice of law, the law of the underlying contract

governs the arbitration clause

20. Where there is no indication to the contrary, and the arbitration agreement is a clause in the

underlying contract, it should be assumed that the parties intend the law of the underlying contract

to also govern the arbitration agreement [Redfern/Hunter, p.158; Sulamérica ¶11; BCY v BCZ ¶59;

Cruz City ¶8]. This is because it is reasonable to assume that “the parties intended the whole of

their relationship to be governed by the same system of law” [Sulamérica ¶11; Cruz City ¶8]. The law

of the underlying contract should only be displaced if “choosing it as the governing law of the

arbitration agreement would negate the arbitration agreement” contrary to the expressed intention

of the parties [BCY v BCZ ¶74; cf FirstLink Investments ¶11].

21. Given the Parties’ express choice that Mediterranean law applies to the Sales Agreement [Sales

Agreement, cl 14], it only makes sense that they expected Mediterranean law to govern the

arbitration agreement [ICC Case No. 6840 ¶469; Sonatrach Petroleum ¶32]. Prior to the contract being

finalised, CLAIMANT made clear it has a policy which prohibits consenting to a contract being

subject to a foreign law without special approval from its creditors’ committee [R. Ex. 2].

Additionally, there is consistent jurisprudence in Mediterraneo that in sales contracts governed by

the CISG, the CISG also applies to the conclusion and interpretation of the arbitration clause

contained in such contracts [PO. No. 1 ¶III(4)].

22. It has been suggested that Art 36(1)(a)(iv) Model Law and Art V(1)(a) New York Convention

indicate that the law of the seat should apply to an arbitration agreement in the absence of an

express choice. This is misconceived. Those provisions simply specify grounds for setting aside an

award. Moreover, the argument ignores the contractual character of the agreement to arbitrate

[Bantekas, p.8]. It also disregards the intimate connection between the arbitration agreement and

the underlying contract [Born, p.518]. The better view is that the law of the seat might be applied

only where the parties have not identified a law applicable to the underlying contract [Heiskanen,

p.381]. That is not this case.

B. In the alternative, Mediterranean law governs the arbitration agreement under the

Sulamérica framework

23. In the alternative, the Tribunal should apply the approach outlined in the seminal UK Case

Sulamérica. In that case, Moore-Bick LJ outlined a three-step approach to determining the law which

applies to the arbitration agreement. On the assumption there is no express choice of law because


6

the arbitration agreement is separable, that framework should be applied as follows: (1) The Parties

impliedly agreed that Mediterranean law, including the CISG, would apply. (2) If there is no implied

agreement, the CISG applies as the law with the closest and most real connection to the arbitration

agreement.

1. The Parties impliedly chose Mediterranean law

24. In Sulamérica, Moore-Bick LJ recognised a presumption that the law of the contract governs the

arbitration agreement [Sulamérica ¶27]. Here, as in Sulamérica, the parties have expressly selected a

different law of the underlying contract to that of the seat [Sales Agreement, cl 15; Sulamérica ¶30].

However, the “powerful factor” which displaced the presumption in Sulamérica was that the parties’

intentions would have been frustrated by the application of the law of the contract to the arbitration

clause [Sulamérica ¶31]. In Sulamérica, the application of Brazilian law would have entitled one party

to withhold consent to arbitrate. Here, the intention of the Parties that adaptation be permitted

would be advanced if the law of the contract governs the arbitration agreement. In contrast, the

application of Danubian law would deprive CLAIMANT of the right to arbitrate its claim to

adaptation on the basis of hardship. Consequently, unlike in Sulamérica, the presumption is not

rebutted and there is an implied agreement as to the law of the arbitration agreement.

2. Mediterranean law is the law with the closest and most real connection with the

arbitration clause

25. If the Tribunal finds there is no implied agreement, Mediterranean law, as the law of the underlying

contract, applies to the arbitration agreement because it is the law with the closest and most real

connection to it [Sulamérica ¶32; Owerri ¶705; Y. B. Comm. Arb. 679 ¶683]. Factors to be considered

when determining the law with the closest and most real connection include the place where the

contract is made, the place where the contract is performed, the residence of the parties, and the

style in which the contract is drafted [Cheshire, ¶190; Lilydale ¶10; Sulamérica ¶26].

26. Mediterraneo has the closest and most real connection with the arbitration agreement because it is

the place of the final negotiations and the place of contract formation [PO. No. 2 ¶13]. It is also

the place of performance since, like Lilydale, it is the place from which the goods were shipped

[Notice ¶¶1,9]. The Sales Agreement is based on a standard industry template from Mediterraneo

[PO. No. 2 ¶3] and the original version of the arbitration had a choice of forum in favour of

Mediterranean courts [PO. No. 2 ¶13]. Mediterranean law should apply because the application of

another law would frustrate the Parties’ intention that the Tribunal have the jurisdiction to adapt


7

the contract in circumstances of hardship [Sulamérica ¶32]. Taken together, these factors indicate

that Mediterranean law has the closest and most real connection notwithstanding that Danubia is

the seat. The selection of the seat is not a conclusive factor and it does not displace the intimate

connection between Mediterranean law and the actions and intentions of the Parties.

C. The choice of Mediterranean law is consistent with the validation principle

27. The validation principle supports the application of Mediterranean law to the arbitration agreement

as it gives effect to the Parties’ intentions. The validation principle provides that in the absence of

an express election, a tribunal is to select the law which will give effect to the parties’ agreement to

arbitrate [Born 2014, p.836]. This principle is mandated by the objectives of the New York

Convention and Danubian law which is largely a verbatim adoption of the Model Law [Art II New

York Convention; Art 8 Model Law]. Under Danubian law the contemplated purpose of the

arbitration agreement, which is in part to afford the tribunal the power to rule on issues such as

adaptation, would be frustrated. Whereas, under Mediterranean law the Parties’ agreement to

provide for adaptation would be given effect (see Issue 3 below).

III. The Tribunal has jurisdiction to adapt the contract

28. The Tribunal may decide the existence and scope of its jurisdiction [Art 16(1) Model Law; Art 19.1

HKIAC Rules 2018]; and shall decide the dispute in accordance with the substantive law chosen

by the Parties [Art 28 Model Law; Art 36.1 HKIAC Rules 2018]. Since Mediterranean law applies

to the arbitration clause, the Tribunal will have jurisdiction to adapt the contract if the lex arbitri

and the Parties’ arbitration clause permit adaptation [Berger, p.9]. CLAIMANT submits that both of

these requirements are met. (A) Tribunals constituted in accordance with Danubian Arbitration

Law, which is an almost verbatim adoption of the Model Law, may adapt contracts. (B) The CISG

is capable of applying to arbitration clauses including to their interpretation. (C) The subjective

and objective intention of the Parties was to confer on the Tribunal the jurisdiction to adapt the

Sales Agreement. Once jurisdiction has been established, it will be shown that cl 12 of the contract

and the CISG each contain a power to order the adaptation of the Sales Agreement and that the

Tribunal should adapt the contract price in the present case (Issue 3).

29. Adaptation of a contract refers to the adjustment of contract terms to new circumstances. For

example, adaptation may occur in response to force majeure events or new facts or developments

which cause hardship to one or both parties [Horn, p.7]. A contract can be adapted by the parties

themselves through negotiations, or by a third party (for example a court, expert or arbitral tribunal)


8

[Horn, pp.7-8]. Unlike other remedies (such as rescission, termination, or damages), adaptation may

be ordered without a breach of contract [Working Group Note, ¶6]. Adaptation frequently arises in

response to hardship – a situation in which “performance of a contractual obligation has become

extraordinarily burdensome”. The legal doctrine of hardship exists in a variety of jurisdictions

[CISG-AC Opinion No. 7, ¶26].

A. Danubian Arbitration Law does not preclude tribunals from adapting contracts

30. The lex arbitri, which is largely an adoption of the Model Law, does not impose any general

restrictions on what substantive remedies may be awarded by the Tribunal and therefore does not

prohibit adaptation. Danubian courts have interpreted Art 28(3) Danubian Arbitration Law to

impose a general requirement that a tribunal can only exercise special powers (including adaptation)

if parties expressly confer such powers [PO. No. 2 ¶36]. However, the Tribunal ought to regard

the arbitration clause as affecting substantive rights and obligations. The Danubian Arbitration

Law is procedural in nature [Model Law Digest, Introduction, ¶1] and therefore cannot affect the

scope of a substantive contract such as the arbitration clause.

31. To hold otherwise would be contrary to the intention of the Parties, as they intended for

Mediterranean law to apply to the arbitration clause. Given the deference afforded to party

autonomy in respect of applicable law in international arbitration [Waincymer, §13.4.1], the Tribunal

should endeavour to give effect to the Parties’ intentions. An UNCITRAL Working Group

acknowledged that the ability of the parties to entrust adaptation to a third person is “inherent” to

this principle [Working Group 1983, ¶16].

32. Furthermore, Art 28(3) does not apply to restrict the Tribunal’s exercise of power as a mandatory

procedural law of the seat. This is demonstrated by the CISG Digest which provides that the Model

Law “simply calls the attention of the parties on the need … specifically to empower the arbitral

tribunal” with the quite exceptional ex aequo et bono jurisdiction [Model Law Digest, Art 28, ¶2]. The

justification behind this requirement was in part to protect an “unwary party unfamiliar with [that

jurisdiction]” from inadvertently clothing tribunals with such special power [Working Group 1985,

Art 28, ¶8]. This does not apply here as the Parties clearly contemplated contractual adaptation by

the Tribunal [Cl. Ex. 8].

33. Regardless, the Tribunal should depart from the Danubian jurisprudence, which misconstrues the

Model Law. Article 28(3) is limited to the very extraordinary amiable compositeur jurisdiction. It does

not evince a general principle that all special powers, such as adaptation, must be expressly


9

conferred on the Tribunal. The better view is that the amiable compositeur jurisdiction to determine

disputes is distinct from the commonplace power to adapt a contract. Further, Art 28(3) is subject

to Art 28(4), which requires the Tribunal “in all cases” to “decide in accordance with the terms of

the contract” [Greenberg/Kee/Weeramantry, §3.167]. The terms of this contract provide for

adaptation.

34. In the context of long-term gas sale agreements, “the prevailing view in international arbitration is

in favour of the adjustment of the agreement by arbitrators independent of the applicable

procedural law” [Ferrario, p.170]. It is appropriate for this principle to apply to the Sales Agreement

since the Parties intended the agreement to begin a “long-term mutually beneficial relationship”

[Cl. Ex. 2; Cl. Ex. 3; Ferrario, p.168]. Moreover, tribunals and courts have adapted contracts even

in the absence of an adaptation clause [Ferrario, p.170; Quintette].

B. The CISG may apply to the arbitration clause including its interpretation

35. Mediterranean contract law is a verbatim adoption of the UNIDROIT Principles [PO. No. 1

¶III(3)]. The CISG applies to the Sales Agreement by virtue of Art 1(1)(a), as CLAIMANT and

RESPONDENT have their places of business in Mediterraneo and Equatoriana respectively [Notice

¶¶1,4], and both are signatories to the CISG [PO. No. 1 ¶III(4)]. The CISG is capable of governing

arbitration clauses and its application is consistent with the intention of the Parties.

36. The CISG can apply to arbitration clauses and their interpretation. This is explicitly contemplated

by Art 19(3) and Art 81(1) CISG [Schwenzer 2013, p.746; Schmidt-Ahrendts, p.4; Sabata] According to

Schwenzer, it is widely held that the CISG can apply to questions that are either procedural or

substantive in nature, specifically dispute resolution clauses [Schwenzer 2013, p.746; Wochenschrift

¶1353]. This is supported by Arts 3(5), 10 Rome I Regulation [Schwenzer 2013, p.747].

37. Arbitration clauses can certainly be governed by the CISG if the clause is contained in the sales

contract, and the CISG governs both the underlying contract and that clause [Schmidt-Ahrendts, p.3]

Here cl 15 is contained within the Sales Agreement which is governed by Mediterranean law [Sales

Agreement, cl 14], and as shown above, Mediterranean law applies to the arbitration clause.

38. Moreover, there is consistent jurisprudence in Mediterraneo that in sales contracts governed by the

CISG, the Convention also applies to the conclusion and interpretation of their arbitration clauses

[PO. No. 1 ¶III(4)]. Since the CISG applies, the Tribunal is to determine whether it has jurisdiction

to adapt the contract by identifying the scope of the arbitration clause in accordance with Art 8

CISG [Roland Schmidt].


10

C. Adaptation is within the scope of the arbitration clause

39. The Parties conferred jurisdiction on the Tribunal to adjudicate “any dispute arising out of this

contract, including the existence, validity, interpretation, performance, breach, or termination

thereof” [Sales Agreement, cl 15]. Although adaptation is not referred to in cl 15, tribunals and

courts have consistently given an expansive definition to the words “any dispute arising out of this

contract” [ICAC Case No. 252; Mastrobuono; Fiona Trust] and in long-term contracts this has

extended to an adaptation context [Quintette; Ferrario, p.86]. Clearly, a dispute about an adjustment

of the contract price arises “out of” that contract.

40. This interpretation accords with the Parties’ intentions as understood through Arts 8(1) and 8(2)

CISG. Under Art 8(1) CISG, a party’s intention will govern the interpretation of the clause where

the other party knew or could not have been unaware of it. If this cannot be made out, the tribunal

will interpret the clause in accordance with the understanding of a reasonable person of the same

kind as the other party [Art 8(2) CISG]. The underlying principle of Art 8 is the determination of

the “true intent” of the parties, arrived at by giving “due consideration” to all the relevant facts and

circumstances of the case, including negotiations, any practices which the parties have established

between themselves, usages and any subsequent conduct of the parties [CISG-AC Opinion No. 3

¶2.8; Art 8(3) CISG]. The CISG requires individual clauses to be interpreted in light of the contract

as a whole [Schmidt-Kessel, ¶30] as well as the contract’s purpose [Schmidt-Kessel, ¶29].

41. CLAIMANT made its intention clear that the remedy of contractual adaptation would be available in

the event of arbitration and RESPONDENT knew, or could not have been unaware of this.

CLAIMANT expressly adverted to the need for an adaptation clause in the negotiations. Ms

Napravnik (CLAIMANT’s representative) noted to Mr Antley (RESPONDENT’s representative) that

it was “important to have a mechanism in place which would ensure an adaptation of the contract”

[Cl. Ex. 8]. Mr Antley agreed that “it should probably be the task of the arbitrators to adapt the

contract” [Cl. Ex. 8]. While the Parties’ intent was crystallised at this point, Mr Antley promised to

come back with a proposal to expressly provide for it in the contract.

42. RESPONDENT cannot now resile from this understanding simply on the basis that Ms Napravnik

and Mr Antley were replaced. RESPONDENT is bound by Mr Antley’s knowledge and assertions

because the knowledge or intent of their representatives are imputed to the company where the

contracting parties are companies [MCC-Marble]. Any reservations that RESPONDENT’s subsequent

negotiator, Mr Krone, would have had [R. Ex. 3] are irrelevant because they were never

communicated to CLAIMANT [Art 8(1) CISG]. Further, the mere fact that Mr Krone and Ms


11

Napravnik’s replacement, Mr Ferguson, had “agreed on the inclusion of a narrow hardship

reference” [R. Ex. 3] is evidence they agreed that only particular circumstances would constitute

hardship, not that there would be a “narrow” remedy in such a case. RESPONDENT agreed to the

contract, where it knew, or could not have been unaware, that CLAIMANT intended the Tribunal to

be able to adapt the contract.

43. Furthermore, the contract is to be interpreted as a whole [Schmidt-Kessel, ¶30]. CLAIMANT submits

that cl 12 requires the Tribunal to adapt the contract if the Parties do not agree to an amendment

in light of hardship (Issue 3(I)). It would be highly unlikely that the Parties would provide an

adaptation remedy under cl 12 in circumstances where it is beyond the Tribunal’s jurisdiction to

hear the claim, or order the remedy.

44. Moreover, the arbitration clause is to be interpreted in light of pro-arbitration objectives. The New

York Convention and the Model Law are predicated on the general principle that parties intend

for disputes to be settled in one forum [Born, pp.1319, 1397; Art 2 New York Convention; Art 8

Model Law]. These objectives provide that any doubts concerning the scope of issues should be

resolved in favour of arbitration [Born, pp.1319-1320, 1344; Mitsubishi ¶626]. Such a rule gives effect

to the good faith intentions of commercially reasonable parties and furthers the purpose of

international arbitration clauses [First Options ¶¶944-945; Fiona Trust ¶18; Born, pp.1325-1326]. As

such the Tribunal has jurisdiction to decide this claim.

Conclusion

45. The Tribunal should determine that it has jurisdiction to hear and decide this claim. Mediterranean

law, including the CISG, governs the arbitration clause and its interpretation. This choice enables

the Tribunal to have regard to extrinsic evidence to determine the Parties’ true intention.

Consequently, on its proper interpretation it is clear that the Parties intended the Tribunal to have

jurisdiction to adapt the Sales Agreement in circumstances of hardship.


12

ISSUE 2: CLAIMANT should be entitled to submit evidence from RESPONDENT’s

other arbitration

46. RESPONDENT is a party to another arbitration conducted under the HKIAC Rules 2013 [Letter by

Langweiler (2 October 2018)]. In that proceeding, RESPONDENT (as seller of a mare) has argued

for an adaptation of the contract price based on an unforeseeable change of circumstances, arising

from a 25% tariff imposed by Mediterraneo [Letter by Langweiler (2 October 2018)]. CLAIMANT

seeks to adduce RESPONDENT’s submissions and a copy of the Partial Interim Award from that

arbitration to demonstrate that RESPONDENT took exactly the position it is now attempting to

refute: that adaptation is available under Mediterranean law; and that the 25% tariff was unforeseen

and would constitute hardship [PO. No. 2 ¶41]. CLAIMANT has been promised a copy of these

documents but does not have them in its possession as yet.

47. The Tribunal has a wide discretion to determine the admissibility of evidence based on an

assessment of its relevance, materiality and weight [Art 19.2 Model Law; Art 22.2 HKIAC Rules

2018]. This position accords with international practice [Art 9(1) IBA Rules; Art 34(1) ICSID Rules;

Born, p.2307]. In considering materiality, if there is little other evidence going to a particular point,

the evidence is more likely to be admitted [Blair/Gojkovic; Methanex]. In these proceedings, the

documents in question are the only evidence currently available regarding RESPONDENT’s

contradictory approach to the foreseeability of hardship, and recognition that a lower threshold

should be applied in considering requests for adaptation [Letter by Langweiler (2 October 2018)].

As such, these documents are significant. To preclude them from these proceedings would be to

prevent CLAIMANT from fully presenting its case and risk an unreasonable conclusion. Although

not binding, the Partial Interim Award would also provide persuasive reasoning for the Tribunal

[Born, p.3823].

48. Given its materiality, the evidence should be admitted notwithstanding RESPONDENT’s objections

based on (I) confidentiality and (II) illegality, which are unsubstantiated and unproven. (III) Even

though CLAIMANT does not seek an order for consolidation, the availability of that procedure

shows that the documents should be admitted.

I. The Tribunal should admit the evidence despite objections based on confidentiality

49. There is no universal approach to the treatment of confidentiality in international arbitration. The

Model Law does not regulate the confidentiality of arbitral proceedings because the drafters formed

the view that it should be determined by the parties [Born, p.2784; Carmody, p.162]. Consequently,


13

practice in international commercial arbitration suggests that the admissibility of documents which

are said to be confidential is a matter for the Tribunal’s discretion. The Tribunal should admit the

documents because (A) the confidentiality provisions in the HKIAC Rules 2013 do not render

them inadmissible, (B) there is otherwise no implied duty of confidentiality on which

RESPONDENT may rely and (C) the need to preserve the integrity of the proceedings should

outweigh concerns regarding confidentiality.

A. The confidentiality provisions in the HKIAC Rules 2013 should not bar the

admission of the documents

50. RESPONDENT claims that admitting the documents would violate “contractual and statutory

confidentiality obligations” [Letter by Fasttrack (3 October 2018)]. It submits that the express

obligation of confidentiality in Art 42 HKIAC Rules 2013 (the procedural rules which were applied

in that arbitration) is a bar to admissibility of the documents. Under Art 42.1, no party or participant

in the arbitration may publish, disclose, or communicate any information relating to the arbitration

under the arbitration agreement or the award. That obligation extends to the Parties, the arbitral

tribunal, the secretary of the arbitral tribunal and HKIAC, and any experts and witnesses involved

in the proceedings [Art 42.2 HKIAC Rules 2013].

51. Article 42 HKIAC Rules 2013 does not preclude the Tribunal from admitting the documents

because CLAIMANT is not a party to the other arbitration [Born, p.2789; Smeureanu, p.31]. It is

therefore irrelevant how the documents have been or will be obtained. RESPONDENT has suggested

that the documents have been obtained either via hackers, who exploited RESPONDENT’s outdated

and weak firewall [PO. No. 2 ¶42], or former employees [Letter by Fasttrack (3 October 2018)].

There is no suggestion that CLAIMANT was involved in either process. The obligation of confidence

in Art 42 HKIAC Rules 2013 does not apply to hackers because they are not involved in the

arbitration. Although the former employees would be bound by Art 42.2 HKIAC Rules 2013, the

obligation of confidentiality is immaterial because CLAIMANT is not a party to that arbitration.

B. There is otherwise no implied duty of confidentiality on which RESPONDENT may

rely

52. If the Tribunal does not find a breach of an express duty of confidentiality, there is no automatically

applicable doctrine of privilege or confidentiality in international arbitration which would exclude

the admission of the documents. Arbitral proceedings are usually conducted in private in the

absence of contrary intention [Born, p.2782; Esso Australia]. However, that alone is not a basis for


14

an automatic implication of an obligation of confidentiality because parties are free to agree to

confidentiality rules [Esso Australia p.401; Bulbank B-2, B-3; Panhandle; Poorooye/Feehily, p.293].

Further, there is no generally recognised doctrine of “arbitration privilege” in international

commercial arbitration, and regardless privilege is typically treated as distinct from confidentiality

[Adesa Corporation]. For example, in Caratube v Kazakhstan the tribunal allowed the admission of all

non-privileged leaked documents that had been released online by hackers. These approaches to

confidentiality and privilege recognise the autonomy of the parties in arbitration to determine the

existence and scope of their obligations.

C. The need to protect the integrity of the proceedings should be paramount

53. RESPONDENT may be giving evidence and providing submissions inconsistent with the

fundamental position it has taken in the other arbitration: that the tariff was unforeseen and the

threshold of hardship met; and that adaptation is available.

54. If the Tribunal has concerns about the confidential nature of the documents, it should still admit

the documents in its discretion. First, the Tribunal should have regard to a party’s right to present

its case [Art 13.1 HKIAC Rules 2018] and bear in mind that defects in evidence can be accounted

for in the consideration of credibility, materiality and weight [Born, p.2311; Sylvania Technical].

Further, RESPONDENT will have the opportunity to comment on and clarify the evidence when the

Tribunal considers its weight, relevance, and materiality.

55. For example, in Michael Wilson v Emmott, the respondent sought disclosure of all documents from

an arbitration despite an implied obligation of non-disclosure because the claimant’s case was

materially inconsistent with concurrent overseas court proceedings. The Court of Appeal of

England and Wales ordered disclosure of the confidential documents on the basis that it was in the

interests of justice for foreign courts not to be misled, particularly where the cases dealt with similar

allegations and were proceeding concurrently [Michael Wilson v Emmott; Smeureanu, p.123]. Similarly,

in London and Leeds Estates, the Court held that confidentiality could be overridden where an expert

witness gave inconsistent evidence in a previous arbitration because disclosure was in the interests

of the public and the parties.

56. While these cases deal with confidentiality in the context of disclosure, they reflect a broader

concern that it would be against the interests of justice to uphold an obligation of confidentiality,

where doing so would allow a party to mislead a decision maker in legal proceedings dealing with


15

similar allegations [Smeureanu, p.124]. RESPONDENT’s attempt to mislead this Tribunal hinders the

interests of justice.

57. The Tribunal should exercise its discretion in accordance with dominant trends in international

arbitration. One such trend is the recognition that transparency enhances the consistency and

legitimacy of arbitral awards, promotes fairness, equity, and due process, and facilitates the overall

development of international commercial arbitration law [Reith, p.300; Carmody, p.168;

Poorooye/Feehily, p.285]. This approach is encapsulated in the UNCITRAL Transparency Rules.

While the Rules apply to treaty-based investor-State arbitration, they are predicated on the view

that transparency is a paramount consideration in determining issues of confidentiality [Carmody,

p.155]. This should be taken into account in weighing up considerations of transparency and

confidentiality.

58. Rather than excluding the documents altogether, the better approach for the Tribunal would be to

admit them, but to implement procedural measures to ensure that RESPONDENT’s concerns are

recognised. For example, the Tribunal could require non-essential witnesses to leave the hearing

during the examination of the documents [Art 22.7 HKIAC Rules 2018].

D. The evidence may be in the public domain

59. Even when arbitral materials are subject to obligations of confidentiality, the documents will only

be protected for as long as they remain confidential [Art 43.1 Swiss Rules; Art 74 WIPO Rules; Art

30.1 LCIA Rules]. If these documents have been obtained by hackers, they may have been

published on the internet and as a result, lost their confidential nature [Smeureanu, p.111].

II. CLAIMANT should be entitled to submit the evidence despite objections of illegality

60. RESPONDENT asserts that the documents should not be admitted because they were ‘illegally’

obtained by hackers or two former employees [Letter by Fasttrack (3 October 2018)]. However, as

the Tribunal has a wide discretion to admit evidence, evidence obtained illegally is not automatically

inadmissible [Blair/Gojkovic]. There are no laws to the contrary in Equatoriana, Mediterraneo, or

Danubia [PO. No. 2 ¶46]. In the absence of any supporting evidence from RESPONDENT as to any

purported illegality, the Tribunal should admit the evidence because (A) there is no evidence of

any illegality on the part of CLAIMANT, and (B) public interest favours that outcome.


16

A. There is no evidence CLAIMANT was party to any illegality

61. It might be accepted that a party should not be entitled to “profit from its own misconduct”

[O’Sullivan; Blair/Gojkovic; Methanex; Libananco Holdings]. Under this “clean hands” approach,

evidence may be inadmissible if the party seeking to adduce the evidence was involved in its illegal

obtainment; as doing so would not be in good faith [O’Sullivan; Blair/Gojkovic; Methanex; Libananco

Holdings]. Even if there were some evidence as to any wrongdoing of CLAIMANT, this approach is

not universal. Tribunals have in the past been reluctant to recognise that the “clean hands” doctrine

constitutes a general principle of law that would operate to bar a party from bringing a claim before

an arbitral tribunal because it has “unclean hands” [Yukos Awards]. The discretion of the Tribunal

is paramount.

62. Further, in cases where a party has sought to rely on illegally obtained evidence but did not

participate in any illegal activity, tribunals have not considered this a sufficient reason to preclude

the evidence from the proceedings [Blair/Gojkovic; Yukos Awards; ConocoPhillips]. There is no

suggestion, nor any evidence, that CLAIMANT participated in any hacking – it has merely been

“promised a copy of the award and the relevant submissions” and been provided with the address

of a company which may have access to it [PO. No. 2 ¶41]. In relation to the employees,

RESPONDENT has not been able to identify how disclosure of the documents could amount to

illegality, as opposed to a mere breach of contract [PO. No. 2 ¶41]. Therefore, CLAIMANT is

approaching these proceedings with clean hands.

B. Public interest favours admitting the documents

63. It is in the public interest that the integrity of arbitrations be maintained. By admitting evidence

from a previous award made under a variation of the current rules, the benefit to that public interest

and the development of international commercial arbitration outweighs the concern that a party

should not profit from its own misconduct. This is especially so in the present case, where there is

no evidence of any such misconduct by CLAIMANT.

64. Admitting the documents would not raise any public interest issues. Moreover, past cases indicate

that public interest concerns must be serious and substantial before evidence will be excluded on

such grounds, such as the need to mitigate high risk diplomatic crises [Iranian Hostages Case] and the

need to not condone the misuse of state surveillance services [Libananco Holdings].

65. Admitting these documents would not constitute unequal treatment of the Parties, nor would it

undermine RESPONDENT’s opportunity to fully present its case [Art 13(1) HKIAC Rules 2018;


17

Art 18 Model Law]. The mere fact that it may be disadvantageous to RESPONDENT does not equate

to RESPONDENT being treated unequally, especially absent any indication that CLAIMANT took

steps to improperly source the documents.

III. The availability of consolidation indicates that the evidence should be admissible

66. Under Art 28(1)(c) HKIAC Rules 2018, the Tribunal has the power to consolidate two or more

arbitrations conducted under separate arbitration agreements, which illustrates that the documents

should be regarded as cross-admissible. Consolidation is available where a common question of

law or fact arises, the rights to relief claimed are in respect of, or arise out of, the same or related

transactions and the arbitration agreements are compatible. As CLAIMANT recognises that costs

have already been outlaid in these proceedings in engaging the arbitrators, it does not seek an order

for consolidation. However, if such an order were made, the documents would be admissible in

both proceedings. This illustrates that the documents may be admitted via multiple procedures. It

is in the interests of the Parties and the Tribunal to admit the documents in the most time and

cost-efficient manner, which is in this arbitration.

67. Common questions of both law and fact clearly arise in both arbitrations, which are concerned

with the need for adaptation of a contract price as a result of the tariff war between Mediterraneo

and Equatoriana [PO. No. 2 ¶39]. The transactions in the two arbitrations are “related” in the sense

that they have a common party, RESPONDENT [Born, p.2566; Chiu, p.53]. RESPONDENT has

arbitration agreements with CLAIMANT and the party to the other arbitration. The transactions are

also related in subject matter, both dealing with sales of goods in the racehorse breeding industry

unexpectedly affected by the trade war [PO. No. 2 ¶39].

68. The requirement for the compatibility of the arbitration agreements is generally satisfied if the core

features of the arbitrations are compatible [Pair/Frankenstein; Bühler/Webster]. The core features of

these two arbitrations are identical in choice of language, institution, law governing the contract,

and, in CLAIMANT’s submission, law governing the arbitration agreement [PO. No. 2 ¶39].

Differences between the HKIAC Rules 2013 and 2018 are minor; the two Rules are compatible in

all relevant aspects. Although Mediterraneo is the seat of the other arbitration [PO. No. 2 ¶39], the

agreements are still compatible because the Model Law is the arbitration law of both seats [PO.

No. 1 ¶III(4); PO. No. 2 ¶14]. The geographical difference between the seats will only affect

CLAIMANT, as the later arbitration will be consolidated into the earlier, to which RESPONDENT is

already a party [Art 28(6) HKIAC Rules 2018].


18

69. Consolidation is therefore open to this Tribunal, although CLAIMANT does not at this time seek

such an order. As CLAIMANT would be likely to obtain access to the documents in this way, and in

light of the above discussion on illegality and confidentiality, admitting them in these proceedings

is a more time and cost-efficient way of achieving the same result.

Conclusion

70. The Tribunal should exercise its discretion to admit the documents despite RESPONDENT’s

unfounded and unsubstantiated allegations. The documents are material, would prevent

RESPONDENT from giving inconsistent evidence, and ensure that the Tribunal had the fullest

evidence before it necessary to make an accurate decision in this arbitration. This is supported by

the fact that it is open to the Parties to consolidate the two proceedings.


19

ISSUE 3: The Tribunal should adapt the contract to increase the contract price by

US $1,250,000 or any other amount

71. CLAIMANT has incurred costs of $1,500,000 by delivering the semen due to the shocking 30%

import tariffs imposed by RESPONDENT’S home state Equatoriana [Cl. Ex. 6]. However, during

initial contract negotiations, the Parties agreed that CLAIMANT would not take on the risk of

hardship caused by such events [Cl. Ex. 4] and RESPONDENT indicated its willingness to adapt the

contract in these circumstances [Cl. Ex. 8]. To ensure that RESPONDENT received the frozen semen

on 23 January 2018, CLAIMANT paid the tariffs despite not being liable for them, as RESPONDENT

had emphasised during negotiations that timely delivery was important to it [Cl. Ex. 3]. However,

RESPONDENT was only interested in timeliness because it intended to breach the contract and resell

the frozen semen [PO. No. 2 ¶11]. In contradiction to its conduct both before and after execution

of the contract, RESPONDENT now claims that CLAIMANT is liable for the tariffs and the Tribunal

cannot adapt the contract.

72. The Tribunal has jurisdiction to adapt the contract. Clause 12 requires the Tribunal to adapt the

contract in certain circumstances. (I) CLAIMANT is entitled to an adaptation of the contract because

these facts fall within the circumstances covered by cl 12 or (II) alternatively CLAIMANT is entitled

to an adaptation under the CISG. CLAIMANT seeks an adaptation of the contract price so

CLAIMANT may recover the cost of the tariffs only insofar as CLAIMANT breaks even on this final

shipment; as an act of good faith, CLAIMANT does not seek to recover the whole amount even

though it is entitled to do so.

I. The Hardship Clause requires the Tribunal to adapt the contract price

73. (A) Clause 12 imposes a requirement on the Tribunal to exercise the power of adaptation in the

event of hardship. (B) The import tariffs constitute “hardship” under cl 12, therefore CLAIMANT

is entitled to the adaptation remedy such that CLAIMANT is not liable for the burden of the import

tariffs. CLAIMANT seeks an adaptation to the extent that RESPONDENT bears a fair proportion of

the damage caused by Equatoriana’s imposition of tariffs. (C) To the extent that the Tribunal is

not convinced it is required to adapt the contract under cl 12 as originally agreed, the Parties later

modified the contract to make clear that adaptation is available. (D) In the further alternative,

RESPONDENT is estopped from asserting that cl 12 does not require adaptation.


20

A. The Tribunal is required to adapt the contract according to cl 12

74. The Parties conferred jurisdiction on the Tribunal to adapt the contract under cl 15. Clause 12

requires adaptation so that the hardship caused by the tariff is borne by RESPONDENT. Clause 12

provides: “Seller shall not be responsible for lost semen shipments or delays in delivery not within

the control of the Seller such as missed flights, weather delays, failure of third party service, or acts

of God neither for hardship, caused by additional health and safety requirements or comparable unforeseen events

making the contract more onerous” [Sales Agreement] (emphasis in original).

75. The non-italicised part of cl 12 is a force majeure clause excluding CLAIMANT’s liability for certain

breaches [Answer ¶9]. Clause 12 is a disjunctive clause [see: Bristol-Myers ¶104; Kruger Inc. Brief ¶13-

15; A.T. v Finanzamt ¶31]. The phrase “shall not be responsible for” applies to both the force majeure

events (“lost semen shipments” and “delays in delivery”) which relate to non-performance, and

separately to events where performance must occur despite “hardship”. The Parties abandoned the

ICC hardship clause, which only permits termination if negotiations fail [Art 3]. This indicates that

the Parties intended that the remedies not be limited to termination [Art 8(1) CISG]. Furthermore,

the reference in Mr Antley’s note to “connection of hardship clause with arbitration clause” [R.

Ex. 3] demonstrates RESPONDENT’s awareness that cl 12 was such a clause.

76. CLAIMANT’s statement that it “should probably be the task of the arbitrators to adapt the contract

if the Parties could not agree” [Cl. Ex. 8] was clear in its terms [Cl. Ex. 4]. RESPONDENT knew or

could not have been unaware that this remedy would apply to hardship. Adaptation due to hardship

is a recognised legal doctrine in many continental jurisdictions [Schwenzer 2008, p.711].

RESPONDENT, as a commercial party with international contracting experience, would be aware

that many soft law instruments allow adaptation in circumstances of hardship [Art 6.2.2(b)

UNIDROIT Principles; Art 6:111(3)(b) PECL]; for Brunner, such instruments show that there is

a generally recognised principle of hardship which gives rise to contractual adaptation [Brunner,

p.15]. Furthermore, Horn notes in relation to hardship, that there is a generally accepted concept

of “adaptation … in international commercial practice” [Horn, p.29]. This doctrine should be

considered a “usage” known to RESPONDENT under Art 8(3) CISG.

77. RESPONDENT suggested the italicised hardship clause wording [PO. No. 2 ¶12]. Therefore, to the

extent that it is ambiguous as to the availability of adaptation, the clause should be construed against

RESPONDENT as the drafting party according to the contra proferentem rule. The drafters of Art 8(2)

envisaged that the contra proferentem rule would apply when that article is engaged [Honnold, ¶107.1].

Furthermore, Schmidt-Kessel states that it is a general principle according to Art 7(2) that is derived


21

from various articles such as Art 14 CISG (offers must be sufficiently definite) and applies to

“portions of an agreement … drafted by one side” [Schmidt-Kessel ¶49]. Because the UNIDROIT

Principles may be used to supplement the CISG [Viscasillas, p.4], the Tribunal may have recourse

to Art 4.6 UNIDROIT Principles. This clarifies that the principle of contra proferentem also applies

to “individually negotiated terms”, albeit the strength of the presumption is lessened [Vogenauer

¶6]. That RESPONDENT drafted the wording with reference to risks mentioned by CLAIMANT does

not preclude use of this rule.

78. After contract formation, RESPONDENT told CLAIMANT that “if the contract provides for an

increased price in the case of such a high additional tariff we will certainly find an agreement on

the price” [R. Ex. 4]. Moreover, RESPONDENT entered into negotiations in respect of adaptation

[PO. No. 2 ¶35]. This is further evidence that RESPONDENT considered itself obliged to negotiate

an adaptation to the contract [Art 8(1) CISG].

79. If the prerequisites for hardship under cl 12 are made out, the Tribunal “shall” order adaptation

[Sales Agreement]. CLAIMANT told RESPONDENT that it was “important to have a mechanism in

place which would ensure an adaptation” if the Parties could not agree on an amendment [Cl. Ex.

8], communicating an intention that adaptation must follow the failure of negotiations. There is no

evidence that RESPONDENT objected to this.

B. Clause 12 prescribes circumstances where the Tribunal must adapt the contract

80. The Tribunal should adapt the contract by increasing the contract price by US $1,250,000 because

CLAIMANT suffered hardship within the terms of cl 12.

81. Clause 12 provides that CLAIMANT “shall not be responsible” for “hardship, caused by additional

health and safety requirements or comparable unforeseen events making the contract more onerous” [Sales

Agreement] (emphasis in original). The three elements that constitute a hardship event within the

meaning of cl 12 were made out: the tariff was (1) “comparable” to “health and safety

requirements”, (2) “unforeseen”, and (3) rendered performance “more onerous”. (4) CLAIMANT

did not assume the risk of the import tariffs by agreeing to delivery DDP. (5) Therefore, cl 12

requires the Tribunal to shift at least some of the burden of hardship onto RESPONDENT by

increasing the contract price.


22

1. The tariff is a “comparable” event

82. Events causing “hardship” within the meaning of cl 12 are “comparable” to “additional health and

safety requirements” [Cl. Ex. 3]. CLAIMANT referred to both “changes in customs regulation or

import restrictions” and “additional health and safety requirements” as risks it was not willing to

bear [Cl. Ex. 4]. This clearly demonstrated to RESPONDENT that CLAIMANT saw tariffs as

“comparable” to health and safety requirements.

83. That the Parties chose to amend the existing force majeure clause [Answer ¶4] instead of adding a

new clause to address hardship confirms that the hardship events are “comparable” to the force

majeure situations in that clause which include “missed flights, weather delays, failure of third party

service, or acts of God” [Cl. Ex. 3]. Therefore, the Parties had a broad conception of “comparable”

events.

84. The tariffs represent a change in customs regulation, so they are “comparable” events within cl 12.

Because the import tariffs are “not within the control of the [CLAIMANT]”, they are “comparable”

to force majeure under cl 12.

2. The tariff was “unforeseen”

85. The requirement that the events be “unforeseen” refers to whether the Parties actually foresaw the

event. The most practical commercial reading of this requirement is that the event, rather than a

class of events resembling it, must be unforeseen.

86. While the Parties contemplated a general change in customs regulation, they did not foresee that

Equatoriana would impose a significant 30% tariff generally, let alone one that would apply to

horse semen [Notice ¶9]. Racehorse breeding is generally categorised differently to other

agricultural exports [Notice ¶11; Cl. Ex. 6]. That Equatoriana’s retaliatory tariffs would include

horse semen was not reasonably foreseeable. In fact, when the tariffs were announced neither party

realised that they would affect frozen semen [PO. No. 2 ¶26]. The current governing party of

Equatoriana has never engaged in “direct retaliatory measures” [Cl. Ex. 6; Notice ¶19] and the

retaliation came as a “big surprise even to informed circles” [Cl. Ex. 6]. Equatoriana has always

been “one of the biggest supporters of the existing system of free trade” [Cl. Ex. 6; Notice ¶10]

and the racehorse industry in Equatoriana has been experiencing rapid growth [Notice ¶4]. Given

that Equatoriana has lifted the ban on artificial insemination to support such growth [Notice ¶4],

a reasonable person in RESPONDENT’s position would not have foreseen that Equatoriana would

impose a heavy import tariff on frozen horse semen.


23

3. The tariff rendered performance “more onerous”

87. The “onerous” requirement is not limited in form or degree. It clearly encompasses economic

burden because CLAIMANT expressed to RESPONDENT that it was “not willing to take over any

further risks” such as those which “can increase the cost by up to 40%” [Cl. Ex. 4]. RESPONDENT

did not object to this view.

88. The 30% tariff destroyed CLAIMANT’s profit margin as it incurred a liability of US $1,500,000,

which is six times the amount of profit CLAIMANT expected from the third shipment [Cl. Ex. 8]. It

is “impossible” for CLAIMANT to shoulder the cost of the tariffs [Cl. Ex. 8]. RESPONDENT had

information that CLAIMANT may be in financial difficulties [PO. No. 2 ¶22]. Therefore,

RESPONDENT likely knew that CLAIMANT would insist on a hardship clause because it was

vulnerable to increased costs of performance.

89. In any event, CLAIMANT has suffered a significant burden because the onerous tariffs threaten its

current business model. CLAIMANT only ever intended to earn a 5% profit from this contract [Cl.

Ex. 8]. The tariffs would convert CLAIMANT’s expected profit of US $250,000 on this final

shipment to a US $1,250,000 loss. CLAIMANT entered into a restructuring agreement with its

creditors that depends on CLAIMANT remaining profitable [PO. No. 2 ¶29]. The tariffs threaten

this arrangement. In comparison, RESPONDENT gains profits earned from its unauthorised resale

of frozen semen, the future income-earning potential of foals sired by the internationally renowned

Nijinsky III and the advantage of being the first breeder in the world to use frozen semen from

the stud [PO. No. 2 ¶15].

4. CLAIMANT did not assume the risk of the tariffs by agreeing to delivery “DDP”

90. RESPONDENT incorrectly argues that CLAIMANT assumed the risk of tariffs by agreeing to delivery

DDP, or “Delivered Duty Paid”, in cl 8 of the Sales Agreement [Sales Agreement; Answer ¶¶4,

19]. Under the INCOTERMS 2010, DDP means that the “seller delivers the goods when the goods

are placed at the disposal of the buyer, cleared for import on the arriving means of transport …

[and] has an obligation to clear the goods … for import, to pay any duty for … import and to carry

out all customs formalities” [ICC, p.69]. However, the Parties modified the meaning of DDP in

the contract, excluding liability for events such as the tariffs.

91. The Parties are free to amend the meaning of a trade term in a contract [Treibacher Industrie; Johnson,

p.416]. This is expressly permitted by the ICC INCOTERMS 2010 [ICC, p.10]. The meaning of a

trade term is therefore a matter of contract interpretation in accordance with Art 8 CISG


24

[Schwenzer/Hachem/Kee, ¶29.27]. RESPONDENT itself used the “removal of certain risks associated

normally with a DDP delivery” to justify lowering the overall price for the frozen semen [PO. No.

2 ¶8], indicating RESPONDENT’s awareness that CLAIMANT did not intend to assume all the risks

of a DDP delivery [Art 8(1) CISG]. Furthermore, the Parties are “bound by any usage to which

they have agreed” [Art 9(1) CISG; Johnson, p.394]; through their negotiations, the Parties formulated

a specific meaning of DDP in which CLAIMANT did not undertake to assume the risk of the tariffs.

92. Neither party intended for CLAIMANT to bear all the risks typically associated with delivery DDP.

CLAIMANT clearly stated that it would not “take over any further risks … in particular not those

associated with changes in customs regulation or import restrictions” or “unforeseeable additional

health and safety requirements” [Cl. Ex. 4]. Other risks typically associated with delivery DDP are

regulated directly in the contract, as acknowledged by RESPONDENT’s representative Mr Krone [R.

Ex. 3]. Clause 10 imposes responsibility for “tank rental and handling fees associated with delivery”

on RESPONDENT [Sales Agreement].

93. In any event, according to Art 8(2), a reasonable person in the position of RESPONDENT would

understand that the purpose of delivery DDP was to exploit CLAIMANT’s “much greater experience

in the shipment of frozen semen” [Cl. Ex. 3] and its “unique storage technique” [Notice ¶3].

5. The Tribunal must adapt the contract price to increase by US $1,250,000

94. Clause 12 allocates the risk of hardship events to RESPONDENT by requiring that the purchase price

be adjusted in those circumstances such that RESPONDENT is wholly liable for the US $1,500,000

tariff. However, the adaptation sought by CLAIMANT would only enable it to break even on the

final shipment. As an act of good faith, CLAIMANT does not seek an adaptation to adjust for the

total amount of the tariff even though it is entitled to do so.

95. The US $1,250,000 constitutes only 83% of the total tariff liability, a reasonable figure considering

the significant profit earned by RESPONDENT’s unauthorised resale of the frozen semen (see ¶¶133-

135) [PO. No. 2 ¶20]. In any event, RESPONDENT will not be financially endangered by bearing the

US $1,250,000 [PO. No. 2 ¶30].

C. CLAIMANT is entitled to adaptation due to RESPONDENT’s subsequent conduct

96. (1) Even if the tariff does not fall under the hardship clause concluded on 6 May 2017, the Parties

subsequently modified cl 12 such that the Tribunal is required to adapt the contract. (2) In the

alternative, RESPONDENT is estopped from denying the availability of the adaptation by its


25

subsequent conduct. (3) RESPONDENT cannot rely on its agent’s lack of authority to deny the

variation or the estoppel.

1. The Parties agreed to vary the terms of the contract

97. If cl 12 as originally concluded did not mandate adaptation in the present circumstances, the Parties

subsequently modified it so that it would have that effect. A contract may be amended by “mere

agreement” [Art 29(1) CISG], which is reached if a valid offer to modify a contract is accepted,

and that assent is communicated [CISG Digest, Art 29, ¶4; Arts 14, 18(1) and 29(1) CISG].

Agreement may be implied by conduct [Schroeter, ¶4-11]. Taken together, Ms Napravnik’s email of

20 January 2018 [Cl. Ex. 7] and her representations to Mr Shoemaker on 21 January 2018 [Cl. Ex.

8; R. Ex. 4] constituted an offer to modify the hardship clause.

98. CLAIMANT stated that it would be “impossible” to shoulder the tariff and that “we will have to

find a solution … before we can start the shipment” [Cl. Ex. 7], which amounted to an offer of a

legally binding price adjustment. RESPONDENT’s demand that CLAIMANT immediately authorise

the final shipment amounted to assent to that offer. CLAIMANT shipped, and paid the tariff, in light

of that agreement.

2. In the alternative, RESPONDENT is estopped from opposing the variation of cl 12

99. RESPONDENT is estopped from arguing that the Tribunal is not required to adapt the contract

because CLAIMANT relied on Mr Shoemaker’s representations regarding the tariff and

RESPONDENT’s subsequent entry into negotiations to adapt the contract, as indicating

RESPONDENT’s acknowledgment that CLAIMANT is entitled to an adaptation.

100. Estoppel prevents a party from acting inconsistently with its prior representation when another

party has relied on their conduct. It is a general principle of the CISG, derived from Arts 16(2)(b)

(which protects a party who has reasonably acted “in reliance” on the irrevocability of an offer),

29(2) (which protects a party who has relied on the other party’s stipulation that the contract may

only be modified in writing) and 47 (which prevents a buyer from revoking a promise to extend

the deadline for performance) [Schwenzer/Hachem Art 7, ¶32; Honnold, ¶9; CISG Digest, Art 7, ¶15].

As the arbitrator of the Rolled Metal Sheets Case, Bonell held, a party is estopped under the CISG

from relying on a legal right or defence if the other party forms a “justifiable impression” that the

party will not rely on that legal position, and has “acted in reliance on the new situation”.


26

101. CLAIMANT reasonably understood Mr Shoemaker’s representation that “if the contract provides

for an increased price in the case of such a high additional tariff we will certainly find an agreement

on the price” [R. Ex. 3] as RESPONDENT’s recognition that the Parties are required to negotiate the

contract price. Knowing that CLAIMANT would withhold performance without a price change,

RESPONDENT did not expressly state that adaptation was available, and instead benefitted from the

uncertainty, only clearly resiling from the position that a “solution” would be found when it broke

off negotiations three weeks later. Indeed, RESPONDENT’s entry into negotiations after shipment

is further evidence that CLAIMANT’s impression was well-founded. RESPONDENT should be

estopped from denying the Tribunal’s power to adapt the contract.

3. RESPONDENT cannot rely on Mr Shoemaker’s lack of authority

102. Whether an agent is authorised to bind the principal falls within the matters not dealt with by the

Convention [Schwenzer/Hachem Art 4, ¶87] and is therefore a matter for the applicable law

determined using the principle of the closest relationship to the contract [Wool case]. The Tribunal

should apply the UNIDROIT Principles because they have been adopted verbatim in the law of

the contract [Sales Agreement, cl 14] as well as the jurisdiction in which RESPONDENT conducts its

business [PO. No. 1 ¶III(4)].

103. Mr Shoemaker is authorised to modify the contract on behalf of RESPONDENT because his

representations to Ms Napravnik were ratified by RESPONDENT [Art 2.2.9(1) UNIDROIT

Principles]. RESPONDENT’s CEO ratified this conduct by accepting CLAIMANT’s request for

negotiations in respect of adaptation [PO. No. 2 ¶35].

104. Alternatively, RESPONDENT is bound by Mr Shoemaker’s representations because it held out Mr

Shoemaker as having authority to contract on its behalf. A principal is bound by the actions of an

agent under Art 2.2.5(2) UNIDROIT Principles if it causes a person “reasonably to believe that

the agent has authority to act on behalf of the principal and that the agent is acting within the scope

of that authority”. RESPONDENT introduced Mr Shoemaker to CLAIMANT as the “person

responsible for … all questions concerning the Frozen Semen Sales Agreement” [PO. No. 2 ¶32]

and permitted him to access and respond to communications from the email account used by

RESPONDENT’s negotiating team [Cl. Ex. 7].


27

II. In the alternative, the Tribunal should adapt the contract to increase the contract

price by US $1,250,000 or any other amount under the CISG

105. If the Tribunal is not satisfied that cl 12 of the contract enables it to adapt the price in the

circumstances facing CLAIMANT, the Tribunal should exercise its jurisdiction to order adaptation

under the CISG. (A) The CISG, which is the substantive law of the contract, recognises hardship

and provides a remedy of adaptation. (B) CLAIMANT’s circumstances undoubtedly constitute

hardship given the cost of performance increased while its value decreased. (C) The price sought

is reasonable given CLAIMANT is neither seeking profit nor demanding RESPONDENT bear the total

cost of the tariff despite CLAIMANT’s financial fragility.

A. The CISG permits adaptation of a contract in situations of hardship

106. Hardship occurs where performance of a contractual obligation becomes extraordinarily

burdensome [CISG-AC Opinion No. 7 ¶26]. The prevailing academic view is that Art 79 CISG

recognises hardship [Brunner, p.401; Schwenzer 2008, p.713]. Article 79(1) provides that a party will

be excused from performance if “the failure was due to an impediment beyond his control” that

he “could not reasonably be expected to have taken” into account. “Impediment” includes

hardship, as unexpected and radically changed circumstances resulting in financial difficulty are

equivalent barriers to performance [Scafom International p.13; Pirozzi, p.211]. It is not possible to

conclude that the drafters of Art 79 intended hardship to be excluded [CISG-AC Opinion No. 7

¶27]. Therefore, if hardship is suffered a party may seek redress under the CISG.

107. Non-performance is a remedy under Art 79(1). However, the remedies provided by Art 79 are not

exhaustive, because Art 79(5) provides that “nothing in this Article prevents either party from

exercising any right other than to claim damages under this Convention” [CISG-AC Opinion No. 7

¶1]. Other remedies such as hardship are not explicitly specified.

108. There are multiple ways a remedy of adaptation can be arrived at under the CISG. (1) The most

appropriate mechanism is by supplementing Art 79 CISG with the UNIDROIT Principles as they

enable clear assessment of hardship and available remedies. (2) Alternatively, an implied remedy

of adaptation may be derived from the CISG alone. (3) Failing the above, the UNIDROIT

Principles apply as the law of the contract.


28

1. Art 6.2 UNIDROIT Principles should be used to supplement Art 79 CISG

109. Given the remedies to “impediments” provided by Art 79 are non-exhaustive, but are not specified

beyond non-performance, hardship is best characterised as a matter “governed by this

Convention” but not “expressly settled in it” under Art 7(2) [Scafom International p.13; Ferrari et al,

p.98; Schlechtriem, pp.235-236].

110. To clarify the requirements and available remedies if a situation of hardship arises, this gap in Art

79 should be filled by the UNIDROIT Principles. Article 7(2) CISG dictates that matters raised by

the CISG be settled “in conformity with the general principles on which [the CISG] is based”. A

general principle of hardship may be derived from Art 79 [Ferrari et al, p.98] and a general principle

of advancing uniformity in international trade from Art 7(1) CISG [Uribe, p.237].

111. These two principles are reflected in the UNIDROIT Principles. The preamble provides that the

Principles “may be used to interpret or supplement” the CISG, which commonly occurs because

the Principles were designed for this purpose [Viscasillas, p.4; Garro, p.1153]. Garro contends that

if “the UNIDROIT Principles provide a solution … they should be used to supplement all

questions regarding … the international sale of goods” [Garro, p.1156].

112. Article 6.2.2 UNIDROIT Principles provides that hardship occurs where “events fundamentally

alter the equilibrium of the contract”. In the event of hardship, the disadvantaged party is “entitled

to request negotiations” under Art 6.2.3(1). If agreement cannot be reached the tribunal may “adapt

the contract with a view to restoring its equilibrium” under Art 6.2.3(4)(b).

113. The Tribunal should supplement the CISG with Art 6.2 for two reasons. First, this approach is the

most commercially sensible. The UNIDROIT Principles’ clear and comprehensive coverage of

hardship provides certainty for parties as to how it is defined and resolved, and the application of

the Principles is likely to produce consistent results [Garro, p.1153]. Their application also advances

fairness as it avoids recourse to domestic law, which may advantage one party in light of the

differing approaches between jurisdictions [CISG-AC Opinion No. 7 ¶35; Uribe, p.237]. Given an

aim of the UNIDROIT Principles is to develop solutions acceptable to nations with different legal

traditions, this approach is consistent with the requirement in Art 7(1) CISG that the Convention

should be interpreted “having regard to its international character” [Viscasillas, p.16;

Schwenzer/Hachem/Kee, p.45].

114. Here it is especially appropriate to apply the UNIDROIT Principles as they constitute the domestic

law of Mediterraneo, Equatoriana, and Danubia [PO. No. 1 ¶III(4); PO. No. 2 ¶45].


29

115. Second, this approach was applied in Belgium in Scafom International v Lorraine Tubes SAS (2009) and

suggested as the most appropriate by the Cour d’Appel de Reims in D21 v Gabo (2015). The Belgian

Hof van Cassatie supplemented Art 79 CISG with Art 6.2.2 UNIDROIT Principles and found that

the seller, who had been disadvantaged by a sudden increase in the price of steel, satisfied the

requirements of Art 6.2 and was entitled to renegotiation [Scafom International p.14]. The French

Cour de Cassation did not dispute the conclusion of the Cour d’Appel de Reims that the

UNIDROIT Principles could supplement the CISG under Art 7 and consequently that Art 6.2.2

is the relevant definition of hardship [D21 v Gabo]. Both cases are particularly influential in the

present dispute as in D21 v Gabo both parties approved of the UNIDROIT Principles in their

domestic law, and in Scafom International the price increase occurred after contract formation but

before delivery, and the seller had attempted to negotiate.

2. In the alternative, the CISG itself impliedly permits adaptation

116. If the above approach is not adopted, a remedy of adaptation is impliedly available under Art 79.

On this view, there is no gap to be filled in the CISG. Rather, the “other rights” referred to in Art

79(5) that parties may exercise if an “impediment” arises include adaptation. This occurs by virtue

of Art 79 and other articles in the Convention [Schwenzer 2008, p.713; CISG-AC Opinion No. 7 ¶40].

The availability of adaptation is supported by the cardinal principle of international contract law,

pacta sunt servanda, which is implied in numerous provisions of the CISG [Magnus, ¶5(2)], as well as

the principles of good faith [Art 7(1)], price reduction [Art 50] and mitigation [Art 77].

117. It is a general principle of the CISG and is in the commercial interest of parties engaged in

international trade that contractual obligations be performed [Schwenzer 2008, p.714]. Therefore, if

an impediment arises, decision-makers should have the power to impose adaptation rather than

merely relieving one party of the duty to perform [Pirozzi, p.211].

118. Moreover, the remedy of adaptation is consistent with the principle of good faith. As Brunner

contends, “the legal basis for the hardship exemption … lie[s] in the principle of good faith”

[Brunner, p.395]. The preamble to the CISG provides that “the development of international trade

on the basis of equality and mutual benefit” is an important goal. Article 7(1) provides that in the

interpretation of the CISG regard is to be had to “the need to promote … the observance of good

faith in international trade”. Schlechtriem argues that the general principle of good faith requires

parties to attempt to adapt contracts in the event of unforeseeable hardship [Schlechtriem, p.235].

Specifically, it is argued that the content of a duty of good faith includes an obligation to renegotiate


30

a contract to restore equilibrium in circumstances of hardship [CISG-AC Opinion No. 7 ¶40; Brunner,

p.480]

119. Multiple CISG articles implicitly allow adaptation as a remedy. Schlechtriem argues that Art 50 may

be construed as providing for adjustment of a contract to correct disequilibrium between

performance and obligation. It allows price reduction in the case of non-conforming goods by the

same proportion as the reduction in value of the delivered goods. This principle may be extended

“to develop a general rule of adjustment in hardship cases” [Schlechtriem, p.237]. Schwenzer

identifies a general duty to mitigate loss from Art 77 and contends that this mechanism seems

“especially warranted in cases of hardship” [Schwenzer 2008, p.725]. Thus, the principles of the

CISG support the availability of adaptation under Art 79.

120. The operation of Art 79 is not displaced by the provision for changed circumstances in cl 12 [cf

Answer ¶20]. Clause 12 does not purport to replace or restrict the effect of Art 79. Art 6 does not

expressly allow implicit derogation from the CISG. This was a deliberate choice on the part of the

drafters, who were concerned that exclusions would be identified on insufficient grounds [Bonell,

p.51]. Hence, tribunals should be wary of ruling that a contract impliedly restricts or excludes the

operation of an article of the CISG without sufficient evidence and where it would serve the

interests of only one party. Moreover, CLAIMANT clearly communicated an intention that cl 12

would augment its protection against unforeseen risks (see ¶¶76-79)

3. In the alternative, the CISG permits Art 6.2 UNIDROIT Principles to apply as the

rule applicable by virtue of the rules of private international law

121. If CLAIMANT’s first or second position is rejected, the CISG dictates that the law of the contract

applies. Article 7(2) CISG provides that “in the absence of [general] principles”, matters governed

by the CISG shall be settled “in conformity with the law applicable by virtue of the rules of private

international law” [Ferrari et al, p.98; Lookofsky, p.168]. If no general principle of hardship is derived

from Art 79, the Tribunal should determine issues of hardship in accordance with Mediterranean

law.

122. Alternatively, if the Tribunal does not accept that hardship is governed by the CISG at all,

Mediterranean law applies. Article 4 CISG provides that “[t]his Convention governs only the

formation of the contract of sale and the rights and obligations of the seller and the buyer arising

from such a contract.” Schwenzer notes that the specific list of exclusions in Art 4 is non-


31

exhaustive [Schwenzer/Hachem Art 4, p.74]. Matters not governed by the CISG must be addressed

by domestic law or uniform rules [Schwenzer/Hachem Art 4, p.76; Flambouras, p.291].

123. Mediterranean law is a verbatim adoption of the UNIDROIT Principles [PO. No. 1 ¶III(4)]. In

June 2018, in line with consistent jurisprudence, an arbitral tribunal applying Mediterranean law

confirmed its power to adapt a contract if a tariff resulted in hardship [PO. No. 2 ¶39].

B. CLAIMANT has experienced hardship

124. CLAIMANT satisfies the requirements of hardship set out by Art 6.2 UNIDROIT Principles.

Therefore, the Tribunal should adapt the contract as it is permitted to do by the CISG.

125. CLAIMANT must identify a fundamental alteration of the equilibrium of the contract to establish

hardship under both Art 6.2.2 UNIDROIT Principles and Art 79 CISG. The characteristics of an

“impediment” under Art 79 are substantially the same as those of the UNIDROIT Principles.

Further, Schwenzer perceives no difference between the alteration of equilibrium standard adopted

by UNIDROIT and the “excessively onerous” standard adopted by other soft law instruments

such as the PECL [Schwenzer 2008, p.715; Vogenauer, p.817]. CLAIMANT must also establish that the

event occurred after the conclusion of the contract; that it could not reasonably have taken it into

account; that it was beyond its control; and that it did not assume the risk of the event occurring

[Art 6.2.2 UNIDROIT Principles].

126. CLAIMANT is entitled to claim hardship even though it has already performed the contract.

Although the UNIDROIT Principles ostensibly bar hardship complaints after contract completion

[Commentary to the UNIDROIT Principles, p.221; Vogenauer, p.815], CLAIMANT may bring a claim

because it alerted RESPONDENT to the hardship and requested renegotiation before performance

occurred [Cl. Ex. 7]. CLAIMANT only performed at the behest of RESPONDENT on the promise that

negotiations would result in adaptation [Cl. Ex. 8 ¶7]. Therefore, CLAIMANT is entitled to

adaptation if it has experienced hardship.

127. RESPONDENT’s conduct only reinforces CLAIMANT’s entitlement to adaptation. RESPONDENT’s

entry into sustained negotiations with CLAIMANT after the performance of the contract indicates

that it accepted that hardship had occurred [Cl. Ex. 8]. Moreover, RESPONDENT’s employee

represented to CLAIMANT that agreement on the tariff issue would be found and Schwenzer

contends that an offer to renegotiate is highly relevant in determining the availability of adaptation

[Schwenzer 2008, p.723]. RESPONDENT is therefore estopped from denying that hardship arose and

from denying its obligation to adapt the price (see ¶¶99-101).


32

1. There has been a fundamental alteration of the equilibrium of the contract

128. Fundamental disruption of equilibrium may arise in two ways: first, where the cost of performance

increases and/or, second, where the value of performance is reduced for one party [Vogenauer,

p.814]. CLAIMANT experienced both in the obliteration of its profit due to the unforeseen 30%

tariff, and in RESPONDENT’s outrageous on-selling of Nijinsky III’s semen.

(a) The imposition of tariffs increased the cost of performance for CLAIMANT

129. The circumstances of the case determine whether disequilibrium is “fundamental” [Commentary

to the UNIDROIT Principles, pp.214-215; Schwenzer 2008, p.732]; it is a question of degree

[Brunner, p.393]. Relevant factors include whether the hardship affected only one party, the nature

and purpose of the contract, the economic status and financial capabilities of the parties, and the

level of risk assumption by the burdened party [Girsberger/Zapolskis, p.130].

130. Accordingly, there is no universally recognised numerical standard which establishes hardship

[Girsberger/Zapolskis, p.121]. Since the publication of the 2004 edition of the UNIDROIT

Principles, no percentage benchmark has been given as a guide. The Commentary to the 1994

edition had included the view that “an alteration amounting to 50% or more of the cost or the

value of the performance is likely to amount to a ‘fundamental’ alteration”, however this was

removed in part because it was considered “arbitrary.” Although some authors argue for a standard

of 50% or higher [Girsberger/Zapolskis, pp.128-129], assessment of hardship is appropriately left to

the evaluation of arbitrators. An arbitral tribunal recognised hardship where the expected value of

the contract decreased by 35% [In the Matter of Arbitration Proceedings Between Icori Estero S.p.A. and

Kuwait Foreign Trading Contracting & Investment Co. in Fucci, 2006].

131. The hardship suffered by CLAIMANT fundamentally altered the equilibrium of the contract.

Equatoriana’s tariff regime made CLAIMANT’s final shipment of frozen semen 30% more expensive

[Cl. Ex. 7 ¶1]. Before the conclusion of the contract, CLAIMANT made clear that a cost increase of

up to 40% would “destroy the commercial basis of the deal” [Cl. Ex. 4 ¶4]. Under the original

contract, CLAIMANT was to make a US $250,000 profit on the third shipment. The imposition of

the US $1,500,000 tariff resulted in a loss of $1,250,000 – five times CLAIMANT’s expected profit,

attesting to the tariff’s devastating financial impact.

132. Further, the salient factors identified by Girsberger and Zapolskis apply to CLAIMANT. The tariffs

only affected CLAIMANT, who handled the extremely technical process of acquiring, preserving and

transporting the generous quantity of frozen semen [Loomis, p.191]. The purpose of this


33

arrangement was to allow RESPONDENT to derive maximum benefit from the contract [Notice

¶18], so the burden of the tariff additional to CLAIMANT’s performance of its arduous obligations

in good faith constitutes disequilibrium. Unlike RESPONDENT, CLAIMANT does not have the

financial capacity to shoulder the tariff [Cl. Ex. 8 ¶7, PO. No. 2 ¶¶29-30]. Indeed, CLAIMANT faces

financial ruin and Schwenzer argues that in such circumstances, “the threshold for allowing

hardship may be lowered” [Schwenzer 2008, p.716]. In addition, CLAIMANT rejected the assumption

of risk in relation to shipment (see ¶¶90-93).

(b) RESPONDENT’s conduct decreased the value of performance for CLAIMANT

133. In breach of contract, RESPONDENT resold 15 doses of Nijinsky III’s semen, making a profit of

US $300,000 [PO. No. 2 ¶20)]. The contract states that the semen is only “to be used for the

following mares”. In her email of 24 March 2017, Ms Napravnik specified that the semen “may

not be re-sold to third parties” without “express written consent” [Cl. Ex. 2 ¶3; PO. No. 2 ¶16].

134. In bad faith, RESPONDENT’s uncommunicated intention to sell “at least 25 doses per year to other

breeders” [PO. No. 2 ¶11] was never altered despite CLAIMANT’s insistence that such conduct

would be unacceptable. Although CLAIMANT’s representative retrospectively stated her belief that

RESPONDENT’s conduct was pre-planned, CLAIMANT took all reasonable steps to prevent on-

selling. The purpose of selling RESPONDENT a large number of doses was to allow RESPONDENT

to develop its new breeding program, exploiting the temporary lifting of Equatoriana’s ban on

artificial insemination [Notice ¶¶4-5].

135. RESPONDENT’s actions destroyed any residual commercial equilibrium. CLAIMANT was deprived

of the opportunity to sell its lucrative product to interested parties. Moreover, as RESPONDENT

would be aware, the value of a stud depends on both its own success as a racehorse, and the success

of its offspring. In on-selling Nijinsky III’s semen to other breeders to impregnate mares of any

pedigree, and given there may now be many horses sired by Nijinsky III with whom parties can

breed, RESPONDENT is likely to have decreased the value of CLAIMANT’s prize stallion. The

potential growth of CLAIMANT’s business in Equatoriana has also suffered as, in giving other parties

access to Nijinsky III’s semen, RESPONDENT has reduced the incentive for Equatorianian breeders

to lobby their Government to permanently abolish the artificial insemination ban [Cl. Ex. 8].

136. It is therefore beyond doubt that the equilibrium of the contract was fundamentally altered. While

either the dramatic increase in the cost of CLAIMANT’s performance relative to its expected profit


34

in circumstances of vulnerability, or the decrease in the contract’s value due to RESPONDENT’s

breach alone would suffice, in combination this conclusion is unassailable.

2. CLAIMANT satisfies the remaining requirements of Art 6.2 UNIDROIT Principles

137. The tariffs, which were beyond CLAIMANT’s control, were imposed 7 months after formation of

the contract [Art 6.2.2(a) and (c) UNIDROIT Principles; PO. No. 2 ¶25].

138. The events could not reasonably have been taken into account by CLAIMANT [Art 6.2.2(b)

UNIDROIT Principles]. The test is one of reasonable foreseeability [Stoll/Gruber, p.815]. It is the

position of the disadvantaged party at the time of contract that is relevant [Vogenauer, p.817]. The

question is whether a party operating in the conditions prevailing at formation in the horse breeding

industry should have foreseen that a tariff on frozen semen would be introduced [Lindström,

¶III(4.3)]. In this case, being “an ardent supporter of free trade” Equatoriana had never, with only

one exception, introduced retaliatory protectionist measures [Notice ¶10]. That exception occurred

under the National Party, whereas in 2017 Equatoriana was governed by the Progressive Liberals,

so there was no basis for CLAIMANT to expect tariffs to be introduced [Notice ¶19].

139. Even if the Tribunal finds, against all expectation, that the imposition of a tariff could have been

taken into account, it was not foreseeable that it would include horse semen. Highly specific and

extreme forms of an event are not foreseeable [Vogenauer, p.818]. As previously explained (see ¶86)

racehorse breeding is generally categorised differently from other agricultural exports [Notice ¶11]

so when the tariffs were announced neither Party considered they would affect frozen semen [PO.

No. 2 ¶26]. The tariffs were extraordinary in “several regards” including their breadth, amount, the

countries covered, and their rapid implementation [PO. No. 2 ¶23].

140. Finally, CLAIMANT did not assume the risk of the event occurring [Art 6.2.2(d) UNIDROIT

Principles]. As explained in ¶¶90-93, the parties established a particular usage of the term “DDP”

that diverted risks associated with delivery away from CLAIMANT. RESPONDENT is therefore

obliged to share the burden with CLAIMANT [Machines, Devices and Replacement Parts Case].

C. The amount CLAIMANT seeks is modest and reasonable

141. The US $1,250,000 sought by CLAIMANT represents a fair distribution of the burden of the tariff

between the Parties. Indeed, this figure does not represent the total cost of the US $1,500,000 tariff,

but rather the amount required to neutralise CLAIMANT’s costs. CLAIMANT would forego its profit

from the third shipment, while RESPONDENT would still derive considerable benefit; large


35

quantities of high quality frozen semen from an excellent racehorse. Furthermore, subtracting

RESPONDENT’s gains from the illegal on-sale of the semen, the true price adjustment is only

$950,000, which is less than 10% of the original contract price.

Conclusion

142. The Tribunal should adapt the contract pursuant to cl 12 or the CISG by awarding CLAIMANT US

$1,250,000. CLAIMANT, who at all times upheld its promises, should not bear the burden of a

hardship it never accepted while RESPONDENT derives considerably more benefit than originally

provided for through its deliberate breach of contract.

REQUEST FOR RELIEF

Counsel for CLAIMANT respectfully requests that the Tribunal adjudge and declare that:

I. The Tribunal has the jurisdiction and power to adapt the contract;

II. CLAIMANT is entitled to submit evidence from the other arbitral proceedings;

III. CLAIMANT is entitled to US $1,250,000 through an adaptation of the price under cl 12

of the Sales Agreement, or under the CISG.


XXIV

CERTIFICATE OF VERIFICATION

We hereby confirm that only the persons whose names are listed below have written this memorandum.

Respectfully signed and submitted by Counsel on the sixth day of December 2018.

Kilian Elkinson Nina Mao Lucy Nason Beata Szabo

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