masaryk university memorandum for respondent
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MEMORANDUM FOR RESPONDENT
WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT
On behalf of Against
RESPONDENT CLAIMANT
Equatoriana Clothing Manufacturing, Ltd. Mediterraneo Exquisite Supply, Co.
286 Third Avenue 45 Commerce Road
Oceanside Capital City
Equatoriana Mediterraneo
__________________________________________________
FALTUS Vojtěch • FEIGLER Michal • HOLOUBKOVÁ Kamila
MALANÍK Michal • ŠLAMPA Martin • THIELOVÁ Linda
UHŘÍČEK Jiří • ZÁVODNÁ Martina • ŽIVĚLOVÁ Alexandra
MASARYK UNIVERSITY
FACULTY OF LAW
BRNO, CZECH REPUBLIC
MASARYK UNIVERSITY Memorandum for Respondent
I
Table of Contents
Table of Contents ............................................................................................................. I
List of Abbreviations ..................................................................................................... III
List of Authorities ........................................................................................................... V
Statement of Facts ........................................................................................................... 1
Summary of Argument ................................................................................................... 3
I. THE WITNESS TESTIMONY OF MR. SHORT SHOULD BE
CONSIDERED BY THE TRIBUNAL EVEN IF HE DOES NOT APPEAR
AT THE HEARING ............................................................................................. 5
A. Mr. Short’s oral testimony is not needed since his written statement
addresses the disputed events sufficiently ................................................... 5
B. Admission of Mr. Short’s written testimony should be considered only in
scope of CEAC Rules and DAA ...................................................................... 7
1. Mr. Short’s written statement should be admitted under both CEAC
Rules and DAA ..................................................................................... 7
2. Application of IBA Rules would violate party autonomy and legal
certainty ............................................................................................... 8
C. By disrupting equality of the parties the Tribunal risks unenforceability of
the award ....................................................................................................... 9
II. THE DELIVERY DATE HAS BEEN MODIFIED BY THE TELEPHONE
CONVERSATION BETWEEN CLAIMANT AND RESPONDENT .......... 10
A. Oral modification of the Contract was allowed .......................................... 10
1. The parties have excluded the application of Mediterraneo’s
reservation in their choice-of-law clause .......................................... 10
2. Even if the Tribunal applies Art. 96 CISG, oral modification would
still be possible .................................................................................... 13
2.1. The Tribunal should apply conflict of laws rules in case Art. 96
CISG is not excluded ................................................................... 13
MASARYK UNIVERSITY Memorandum for Respondent
II
2.2. The conflict of laws rules would result in the application of the
law of Equatoriana which allows oral modifications ................. 14
B. Parties amended the Contract by the telephone conversation ....................16
1. The telephone conversation did constitute an offer to change the
date of delivery in the Contract ..........................................................16
2. Claimant accepted Respondent’s offer during their telephone
conversation ........................................................................................ 17
III. RESPONDENT DID NOT BREACH THE CONTRACT .............................19
A. Respondent did not have the obligation to avoid child labour in its whole
business ........................................................................................................19
1. The “policy clause” did not oblige Respondent to avoid child labour
as such .................................................................................................19
2. There is no applicable international trade usage that would oblige
Respondent to avoid child labour ...................................................... 21
B. Respondent delivered goods conforming to the Contract .......................... 23
1. There are no applicable public law requirements to which the polo
shirts would have to conform ............................................................ 23
2. Respondent delivered goods conforming to the Contract ................ 24
C. Even if the Contract was breached, Claimant cannot rely on such a breach
as this would be contrary to the good faith principle ................................. 25
D. In case there was a breach of the Contract, it was not a fundamental one 27
IV. CLAIMANT IS NOT ENTITLED TO ANY RAISED CLAIMS .................. 30
Request for Relief .......................................................................................................... 31
MASARYK UNIVERSITY Memorandum for Respondent
III
List of Abbreviations
AA Application for Arbitration
Art./Arts. Article/Articles
CIETAC China International Economic and Trade Arbitration Commission
CISG United Nations Convention on Contracts for the International Sale of
Goods
CEAC Chinese European Arbitration Centre
CE Claimant’s Exhibit
Claimant Mediterraneo Exquisite Supply, Co. Manufacturing, Ltd.
45 Commerce Roead, Capital City, Mediterraneo
the Contract The sales contract for 100,000 polo shirts concluded by Claimant
and Respondent on 5 January 2011
the
Convention
United Nations Convention on Contracts for the International Sale of
Goods
e.g. exempli gratia (for example)
et seq. et sequens (and the following)
fn. footnote
i.e. id est (that is)
IBA International Bar Association
ICC International Chamber of Commerce
ILO International Labour Organization
L/C Letter of Credit
LCIA London Court of International Arbitration
MC Memorandum for Claimant
No./Nos. Number/Numbers
NYC New York Convention on the recognition and enforcement of foreign
arbitral awards
Oceania Plus Oceania Plus Enterprises
p./pp. Page/pages
MASARYK UNIVERSITY Memorandum for Respondent
IV
para./paras. Paragraph/paragraphs
PO Procedural Order
RE Respondent’s Exhibit
Respondent Equatoriana Clothing Manufacturing, 286 Third Avenue, Oceanside,
Equatoriana
SD Statement of Defence
SF Statement of Facts
the Tribunal The arbitration tribunal constituted for the case at hand consisting of
Professor Presiding Arbitrator, Dr. Arbitrator 1 and Ms. Arbitrator 2
UN United Nations
UNCITRAL United Nations Commission on International Trade Law
UNIDROIT International Institute for the Unification of Private Law
US/U.S. United States
USD United States Dollar
v. Versus
Vienna
Convention
Vienna Convention on the Law of Treaties
MASARYK UNIVERSITY Memorandum for Respondent
V
List of Authorities
Books
Cited as Title Cited in
Bonell BONELL, J., Michael. Article 7.
Bianca-Bonell Commentary on the
International Sales Law. Milan.
Giuffré. 1987.
http://cisgw3.law.pace.edu/cisg/bib
ibl/bonell-bb7.html
Para. 84
Born BORN, Garry B. International
Commercial Arbitration. Austin.
Kluwer Law International. 2009.
Paras. 11, 29
Fouchard FOUCHARD, Philippe; GAILLARD,
Emmanuel; GOLDMAN, Berthold;
SAVAGE, John. On International
Commercial Arbitration. The
Hague. Kluwer Law International.
1999.
Para. 3
Honnold HONNOLD, John, O. Uniform Law
for International Sales under the
1980 United Nations Convention.
The Hague. Kluwer Law
International. 1999.
http://cisgw3.law.pace.edu/cisg/bib
lio/ho8.html
Para. 38
Huber HUBER, Peter; MULLIS, Alastair. Para. 91
MASARYK UNIVERSITY Memorandum for Respondent
VI
The CISG A new textbook for
students and practitioners. sellier.
european law publishers. 2007.
Lew/Mistelis/
Kröll
LEW, Julian D.; MISTELIS, Loukas;
KRÖLL, Stefan. Comparative
International Commercial
Arbitration. The Hague. Kluwer
Law International. 2003.
Paras. 4, 11, 12,
29
Petrochilos PETROCHILOS, Georgios.
Procedural Law in International
Arbitration. Oxford. Oxford
University Press. 2004.
Paras. 4, 14, 15,
27
Rajski RAJSKI, Jerzi. Article 96. In Bianca-
Bonell: Commentary on the
International Sales Law. 1987.
http://www.cisg.law.pace.edu/cisg/bibl
io/rajski-bb96.html
Paras. 21, 36, 37
Redfern/Hunter REDFERN, Alan; HUNTER, Martin;
BLACKABY Nigel; PARTASIDES,
Constantine. Redfern and Hunter
on International Arbitration.
Oxford. Oxford University Press.
2009.
Paras. 11, 29
Schlechtriem SCHLECHTRIEM, Peter. Uniform
Sales Law – The UN-Convention on
the Contracts of the International
Para. 36
MASARYK UNIVERSITY Memorandum for Respondent
VII
Sales of Goods. Vienna. Manz. 1986.
http://www.cisg.law.pace.edu/cisg/
biblio/schlechtriem.html
Schlechtriem/
Schwenzer
SCHLECHTRIEM, Peter;
SCHWENZER, Ingeborg.
Commentary on the UN Convention
on the international sales of goods
(CISG). Oxford. Oxford University
Press. 2010.
Paras. 50, 67, 81,
84
Schwenzer/Leisi
nger
SCHWENZER, Ingeborg;
LEISINGER, Benjamin. Ethical
Values and International Sales
Contracts. Commercial Law
Challenges in the 21st Century. 2007.
Para. 85
Winship WINSHIP, Peter. The Scope of the
Vienna Convention on
International Sales Contracts. In
Galston & Smit ed., International
Sales: The United Nations
Convention on Contracts for the
International Sale of Goods. 1984.
Para. 36
MASARYK UNIVERSITY Memorandum for Respondent
VIII
Articles
Cited as Title Cited in
Brodernann/
Weimann
BRODERMANN, Eckart,
WEIMANN, Thomass. Arbitration
in 55 jurisdictions worldwide.
CEAC. Global Arbitration Review.
2011
http://www.academia.edu/1742737/
INTERNATIONAL_ARBITRATION
_LAW_-_55_JURISDICTIONS
Paras. 26, 27
Gruber GRUBER, Peter. The Convention on
the International Sale of Goods
(CISG) in Arbitration. International
Business Law Journal. 2009.
Paras. 32, 33
Hathaway HATHAWAY, Oona. Do Human
Rights Treaties Make a Difference?
The Yale Law Journal. 2002.
http://digitalcommons.law.yale.edu
/cgi/viewcontent.cgi?article=1852&
ccontex=fss_papers
Para. 71
Lautenschlager LAUTENSCHLAGER, Felix. Current
Problems Regarding the
Interpretation of Statements and
Party Conduct under the CISG - The
Reasonable Third Person,
Language Problems and Standard
Terms and Conditions. Vindobona
Journal of International
Paras. 50, 51
MASARYK UNIVERSITY Memorandum for Respondent
IX
Commercial Law & Arbitration.
2007.
http://cisgw3.law.pace.edu/cisg/bib
lio/lautenschlager.html#
Magnus MAGNUS, Ulrich. General
Principles of UN-Sales Law. Rabels
Zeitschrift for foreign and
international private law. 1995.
http://cisgw3.law.pace.edu/cisg/tex
t/magnus.html
Para. 84
Magnus II MAGNUS, Ulrich. Remarks on good
faith.
http://www.cisg.law.pace.edu/cisg/
principles/uni7.html
Para. 84
Saf SAF, Carolina. A Study of the
Interplay between the Conventions
Governing International Contracts
of Sale. 1999.
http://www.cisg.law.pace.edu/cisg/t
ext/saf1.html
Para. 27
Schroeter SCHROETER, Ulrich. Backbone or
Backyard of the Convention? The
CISG’s Final Provisions. Sharing
International Commercial Law
across National Boundaries. 2008.
http://www.cisg.law.pace.edu/cisg/
biblio/schroeter5.html
Paras. 27, 36
MASARYK UNIVERSITY Memorandum for Respondent
X
Schwenzer SCHWENZER, Ingeborg.
Conformity of the Goods – Physical
Features on the Wane? 2011.
https://ius.unibas.ch/uploads/publi
cs/9982/20120413143056_4f881c8
0d278b.pdf
Paras. 81, 82
Singh SINGH, Raj, Om. Child Labour.
2011.
http://ssrn.com/abstract=1817086
Para. 68
Tadaki TADAKI, Junko; KINLEY, David.
From Talk to Walk: The Emergence
of Human Rights Responsibilities
for Corporations at International
Law. Virginia Journal of
International. 2004.
http://ssrn.com/abstract=923360
Paras. 69, 72
The Case of Nike LOCKE, Richard M. The Promise
and Perils of Globalization: The
Case of Nike. Massachusets Institute
of Technology. IPC Working Paper
Series. 2002.
http://mitsloan.mit.edu/50th/pdf/nikepaper.pdf
Para. 65
Wolf/Preteroti WOLF, John A.; PRETEROTI, Kelly
M. Written Witness Statements – A
Practical Bridge of the Cultural
Divide. Dispute Resolution Journal.
Para. 4
MASARYK UNIVERSITY Memorandum for Respondent
XI
May 2007.
http://www.ober.com/publications/
205-written-witness-statements---
practical-bridge-cultural-
divide#.UN1YBQzn6dE.email
Xiaolin/
Andersen
XIAOLIN, Wang; ANDERSEN,
Camilla, Baasch. The Chinese
Declaration as to Form of Contracts
under CISG – Time to Withdraw?
Uniform Law Review. 2003.
Para. 27
MASARYK UNIVERSITY Memorandum for Respondent
XII
Case Law
Cited as Title Cited in
Adamfi Video
case
Metropolitan Court Budapest.
Hungary. No. 12.G.41.471/1991/21.
1992.
http://cisgw3.law.pace.edu/cases/9
20324h1.html
Para. 39
Broadcasters
case
Appellate Court Celle. Germany. No.
13 W 48/09. 2009.
http://cisgw3.law.pace.edu/cases/0
09072g1.html
Para. 84
Cobalt Sulphate
case
German Supreme Court. VIII ZR
51/95. 1996.
http://cisgw3.law.pace.edu/cases/9
60403g1.html#ua
Paras. 91, 93
Dalmia Dairy
case
Court of Appeal. [1978] 2 LR 223.
United Kingdom. 1977.
http://www.i-
law.com/ilaw/doc/view.htm?id=147
756
Para. 3
Designer Clothes
case
Appellate Court Köln. 16 U 77/01.
2002.
http://cisgw3.law.pace.edu/cases/021014g1.html
Paras. 91, 94
Fashion
Products case
I.C.C. International Court of
Arbitration. No. 11849. 2003.
Para. 33
MASARYK UNIVERSITY Memorandum for Respondent
XIII
http://www.globalsaleslaw.org/cont
ent/api/cisg/display.cfm?test=1421
FCF v Adriafil Supreme Court Switzerland.
4C.105/2000. 2000.
http://cisgw3.law.pace.edu/cases/000915s2.html
Para. 95
Forestal Guarani
case
United States Court of Appeals for
the Third Circuit. No. 08-4488.
2010.
http://cisgw3.law.pace.edu/cases/1
00721u1.html
Para. 39
Frozen Pork case Austria Supreme court, No. 7 Ob
302/05w, 2006.
http://cisgw3.law.pace.edu/cases/0
60125a3.html
Paras. 76, 77, 78,
79
Hispafruit BV
case
Arrondissementsrechtbank,
Rotterdam. HA ZA 99-529,
Hispafruit BV v. Amuyen S.A. 2001.
http://cisgw3.law.pace.edu/cases/0
10712n1.html
Para. 39
Hot-Rolled Coils
case
CIETAC Arbitration proceeding 15
December 1997. 1997.
http://cisgw3.law.pace.edu/cases/9
71215c1.html
Para. 39
Locks case Bavarian Highest Regional Court. Para. 30
MASARYK UNIVERSITY Memorandum for Respondent
XIV
No. 4 Z Sch 23/99. 1999.
http://www.dis-
arb.de/en/47/datenbanken/rspr/ba
yoblg-az-4-z-sch-23-99-datum-
1999-12-15-id16
Mussels case German Federal Supreme Court. No.
VIII ZR 159/94. 1995.
http://cisgw3.law.pace.edu/cases/9
50308g3.html
Para. 75
Onions case High Arbitration Court of the
Russian Federation. No. 4670/96.
1997.
http://cisgw3.law.pace.edu/cases/9
70325r2.html
Para. 39
Protective Film
case
Oberlandesgericht Karlsruhe. No. 1
U 280/96. Germany. 1997.
http://cisgw3.law.pace.edu/cases/9
70625g1.html
Para. 84
Shoes case Appellate Court Frankfurt. 5 U
15/93. 1994.
http://cisgw3.law.pace.edu/cases/940118g1.html
Paras. 91, 92
Tegernseer
Gebräuche case
Oberster Gerichtshof. No. 10 Ob
344/99g. Germany. 2000.
http://cisgw3.law.pace.edu/cases/0
00321a3.html
Para. 70
MASARYK UNIVERSITY Memorandum for Respondent
XV
Rules
Cited as Title
CEAC Rules CEAC Hamburg Arbitration Rules
CISG United Nations Convention on
Contracts for the International Sale of
Goods
Contract Law of
the PRC
Contract Law of the People's Republic
of China
DAA Danubian Arbitration Act based on
UNCITRAL Model Law on
International Commercial Arbitration
with amendments as adopted in
2006. Option II of Article 7
IBA Rules IBA Rules on the Taking of Evidence
in International Arbitration
ILO Convention
182
ILO Convention No 182 on Worst
Forms of Child Labour
ILO Convention
138
ILO Convention No 138 on the
Minimum Age for Admission to
Employment and Work
LCIA Rules London Court of International
Arbitration Rules
NYC New York Convention on the
recognition and enforcement of
MASARYK UNIVERSITY Memorandum for Respondent
XVI
foreign arbitral awards
UNIDROIT
Principles
UNIDROIT Principles of
International Commercial Contracts,
2010
MASARYK UNIVERSITY Memorandum for Respondent
XVII
Other Authorities
Cited as Title Cited in
IBA
Commentary
1999 IBA Working Party & 2010 IBA
Rules of Evidence Review
Subcommittee. Commentary on the
revised text of the 2010 IBA Rules
on the Taking of Evidence in
International Arbitration.
http://www.ibanet.org/Publications
/publications_IBA_guides_and_fre
e_materials.aspx
Para. 15
ILO Statistics Global child labour developments:
Measuring trends from 2004 to
2008.
http://www.google.com/url?sa=t&r
ct=j&q=&esrc=s&source=web&cd=1
&ved=0CDIQFjAA&url=http%3A%2
F%2Fwww.ilo.org%2Fipecinfo%2Fp
roduct%2Fdownload.do%3Ftype%3
Ddocument%26id%3D13313&ei=YE
mhUIrNOoPStAaQm4CQCw&usg=
AFQjCNGGKEZVvCgSkITv5Rv_35i
FzevLVw&sig2=uXaBgeFhag2iHCL
psJs7Eg
Paras. 65, 68
UNCITRAL
Digest on CISG
UNCITRAL Digest of Case Law on
the United Nations Convention on
Contracts for the International Sale
of Goods. 2012.
Para. 21
MASARYK UNIVERSITY Memorandum for Respondent
XVIII
UNCITRAL
Digest on Model
Law
UNCITRAL Digest of Case Law on
the Model Law on International
Commercial Arbitration. 2012.
Paras. 12, 30
UN Global
Compact
United Nations Global Compact
http://www.unglobalcompact.org
Para. 72
MASARYK UNIVERSITY Memorandum for Respondent
1
Statement of Facts
Respondent is a manufacturer of apparel residing in
Equatoriana.
Claimant is registered and managed in the country of
Mediterraneo. It purchases clothes from manufacturers and
further resales the clothes to number of retailers.
2007
Claimant conducted audit on Respondent in connection with
April 2008 contract. There were some concerns regarding the
use of child labour. Nevertheless, the audit was approved.
There were no further audits since then.
2011
5 January Respondent contracted with Claimant for the delivery of
100,000 polo shirts, FAS Incoterms 2010 Oceanside,
Equatoriana, by 19 February 2011, for USD 550,000.
9 February Mr. Short, Respondent’s Contracting Officer, called Mr. Long,
Claimant’s Procurement Specialist, to tell him that it would not
be possible to make the shipping date of 19 February 2011 due
to the strike of Respondent’s supplier’s employees. Mr. Long
was displeased but in the end accepted that the delivery would
be late and said he would take care of the necessary paperwork.
24 February The polo shirts were delivered to Port City, Oceania.
8 April Mr. Long sent a letter of avoidance to Mr. Short. As reasons for
the avoidance, Mr. Long stated that a documentary was
MASARYK UNIVERSITY Memorandum for Respondent
2
broadcasted in Oceania showing children allegedly working in
one of Respondent’s facilities. At the same time, Claimant asked
Respondent to arrange for the disposal of the remaining polo
shirts.
10 April Respondent indicated that it had no knowledge at all about the
documentary. Furthermore, Respondent denied that it
breached the Contract and assured Claimant that did not use
child labour in the production of the polo shirts. Thus,
Respondent refused to collect the remaining polo shirts.
20 April Claimant sold remaining 99,000 polo shirts to Pacifica Trading
for USD 470,000 on Respondent’s account.
2012
January Mr. Short finished his job with Respondent and started working
for Jumpers Production.
1 July Claimant submitted a Notice of Arbitration.
4 October Claimant requested Mr. Short’s appearance at the oral hearing
before the Tribunal. Respondent informed Claimant that
Mr. Short refuses to appear; Claimant failed to act on
Respondent’s request to summon Mr. Short.
MASARYK UNIVERSITY Memorandum for Respondent
3
Summary of Argument
I. THE TRIBUNAL SHOULD CONSIDER THE WRITTEN TESTIMONY
OF MR. SHORT EVEN IF HE DOES NOT APPEAR AT THE
HEARING.
CEAC Rules and DAA should be the only rules applied to the problem as they are
binding to the parties. CEAC Rules despite not providing a precise rule to the
question at hand do contain guidance as to its interpretation in order to devise a
specific rule to a specific problem. Based on the application of CEAC Rules
supplemented by principles of cost and time efficiency the Tribunal should decide
that Mr. Short’s presence is not in fact necessary and that his written testimony forms
a sufficient ground for decision making. And for it is under no possible control of the
parties or even the Tribunal, it should consider the presented evidence as it is. If the
Tribunal, however, decides to disregard Respondent’s witness testimony, it would
disrupt Respondent’s position and equality of the parties, which is part of
fundamental principle of due process that the Tribunal should always preserve. By
this kind of breach the Tribunal risks its future award to be unenforceable.
II. THE DELIVERY DATE HAS BEEN MODIFIED BY THE TELEPHONE
CONVERSATION BETWEEN CLAIMANT AND RESPONDENT
The delivery date has been modified by a telephone conversation between the
representatives of Claimant and Respondent on 9 February 2011. Firstly, oral
modification by a telephone conversation was allowed since the parties have excluded
the application of Mediterraneo’s reservation in their choice-of-law clause.
Alternatively, the oral modification would still be possible as the rules of private
international law would lead to the application of the law of Equatoriana, which
allows oral modifications anyway. As there was no need for any particular form,
telephone conversation between Claimant and Respondent did constitute an
amendment to the Contract as Respondent validly offered the change of delivery date
and Claimant accepted this offer.
MASARYK UNIVERSITY Memorandum for Respondent
4
III. RESPONDENT DID NOT BREACH THE CONTRACT
Respondent delivered goods meeting the stipulated contractual quality. No child
labour was used during the manufacturing process of the polo shirts. Respondent’s
use of child labour in unrelated production did not constitute a breach of the Contract
because Respondent had in fact no obligation to avoid child labour in its whole
business. Alternatively, if the Tribunal holds there was a breach of the Contract, it
should preclude Claimant from relying on such breach as this would be contrary to
the good faith principle. In any case, if there was a breach of the Contract which
Claimant is liable for, the Tribunal should find that it was not fundamental.
IV. CLAIMANT IS NOT ENTITLED TO ANY RAISED CLAIMS
Claimant has no right to the restitution of the purchase price, payment of the
contractual penalty or any of the claimed settlements, because Respondent did not
breach the Contract in any aspect.
MASARYK UNIVERSITY Memorandum for Respondent
5
I. THE WITNESS TESTIMONY OF MR. SHORT SHOULD BE
CONSIDERED BY THE TRIBUNAL EVEN IF HE DOES NOT
APPEAR AT THE HEARING
1 Mr. Short wrote his witness statement on 18 August 2011, shortly after the disputed
events took place. Now, two years after that, Claimant requests Mr. Short’s
appearance at the hearing hoping to clarify his recollection of the events. Although
witness’s testimony may be important to the dispute, Mr. Short’s appearance at the
hearing will not serve the clarification purposes [A.]. Furthermore, CEAC Rules and
DAA should be the only rules applied as a result of parties’ agreement. They provide
sufficient grounds to resolve the procedural issue at hand without any need to
recourse to IBA Rules [B.]. Moreover, if Mr. Short’s witness statement is disregarded
by the Tribunal, it would constitute a breach of due process principle. Thus, it would
render the arbitral award unenforceable [C.].
A. Mr. Short’s oral testimony is not needed since his written statement
addresses the disputed events sufficiently
2 When the Tribunal considers the admissibility and materiality of the written witness
statement, it should take into account the question whether Mr. Short’s oral
testimony is essential to the proceedings [Art. 27(4) CEAC Rules; Art. 19(2) DAA].
This question should be perceived in connection with Art. 27(2) CEAC Rules allowing
for the submission of written witness statements without any limitation.
3 Firstly, the amount of facts disputed within Mr. Short’s testimony is minimal.
Therefore, his appearance at the oral hearing will not have a ground-breaking effect
upon the disputed questions of the case. In this regard the Tribunal may refuse to
hear witnesses introduced by one of the parties if it considers itself to be sufficiently
well-informed through other evidence [Fouchard, p. 698]. Likewise, in Dalmia Dairy
case the arbitrator refused to hear certain witnesses as their hearing was not deemed
necessary, but rather redundant based on the facts of the case. Mr. Short’s witness
statement provides sufficient information for the Tribunal to decide the issue of
amendment of the Contract. Hence, his appearance at the oral hearing would be
redundant.
4 Secondly, the Tribunal should consider the principles of cost efficiency and reduction
of unnecessary expenses stipulated in Art. 17(1) CEAC Rules. These are the reasons
MASARYK UNIVERSITY Memorandum for Respondent
6
why so many parties opt for arbitration in the first place as it promises to be swift and
less expensive than proceedings in front of courts [Lew/Mistelis/Kröll, p. 232]. It has
become an economic necessity in the international arbitration that non-essential
witness hearings are being avoided in favour of written witness statements because it
provides more efficient means of presenting evidence [Petrochilos, p. 914;
Wolf/Preteroti]. The cost and time efficiency demands should be also the lens
through which the actual necessity of Mr. Short’s presence should be perceived. It is
Respondent’s submission that Mr. Short’s attendance at the oral hearing would prove
to be merely a manifestation of unnecessary spendings by the Tribunal.
5 Thirdly, it should be considered that Mr. Short’s recollection of the events was
recorded only a few months after the events had taken place [RE 1, pp. 37-38]. At that
time Mr. Short’s memory was fresh. There has been a considerable time period since
the phone call in question took place. The exact wording of the phone call is not
remembered by any of the witnesses [PO 2, p. 55, para. 27]. Can Claimant reasonably
expect that Mr. Short will have a sudden epiphany about the disputed events from
two years ago? Respondent does not think so.
6 Fourthly, as to the “far too many questions unanswered” that Claimant sees in
Mr. Short’s testimony [MC, p. 6, para. 16], Respondent is sure that with relatively
little effort expended, clear answers appear. Mr. Short’s statement that “the shipping
contract was of no interest to [him]” [RE 1, p. 37], is clear once the relevant
circumstances are considered. The Contract included FAS INCOTERMS 2010
delivery term [CE 1, p. 12, para. 2]. Under this term Respondent was obliged to
deliver the goods to the port alongside the nominated vessel. From that point “it was
[Claimant’s] concern” [RE 1, p. 37]. Claimant’s assertion that Mr. Short failed to
clarify “why he was not authorized to respond to such a demand over the telephone”
[MC, p. 6, para. 16] is completely irrelevant. The statement only deals with Mr
Short’s authority to respond to Claimant’s avoidance of the Contract and its demand
to dispose of the polo shirts [RE 1, p. 37]. It does not have any connection to the issue
of the Contract amendment.
7 For all these reasons, Respondent asks the Tribunal to exercise its discretion under
Art. 27(4) CEAC Rules and admit the witness statement of Mr. Short despite his non-
appearance at the hearing.
MASARYK UNIVERSITY Memorandum for Respondent
7
B. Admission of Mr. Short’s written testimony should be considered
only in scope of CEAC Rules and DAA
8 The Tribunal may easily solve the current procedural problem by applying rules
agreed upon by the parties, i.e. CEAC Rules, and lex arbitri - DAA, which is based on
UNCITRAL Model Law [AA, pp. 10-11, para. 32]. Both sets of rules allow the
Tribunal a wide discretion in the area of evidence taking, recognising the need for a
flexible and individualized conduct of arbitration. Based on the analysis of these
rules, the Tribunal should reach a decision that the witness statement of Mr. Short
should be admitted without the necessity of his oral hearing [1.]. Furthermore,
Respondent will show that the application of IBA Rules in this case would be
disruptive to the arbitration proceedings for it would create a dangerous loophole
within the arbitration rules enabling outside rules to bypass CEAC Rules agreed upon
by the parties [2.].
1. Mr. Short’s written statement should be admitted under both
CEAC Rules and DAA
9 CEAC Rules supplemented by DAA are the procedural rules applicable to the current
proceedings as chosen by the parties [CE 1, p. 12-13, para. 19]. Both sets of rules were
not formed to address each minor issue which might ever arise during the arbitration
proceedings. The fact that neither CEAC Rules, nor DAA provide a specific rule on the
admissibility of written testimonies without subsequent appearance of witness does
not mean that they lack general rules and principles allowing the Tribunal to decide
the problem without further need for external rules.
10 Such a general principle can be found in Art. 19(2) DAA, and Art. 27(4) CEAC Rules,
which vest the Tribunal with powers to determine the admissibility and weight of any
evidence presented. These provisions enable the Tribunal to decide the matter of
Mr. Short’s testimony based upon its own consideration, being guided by
fundamental principles of arbitration – due process, efficiency and informality.
11 The principle of informality is among the most profound features distinguishing
arbitration from court proceedings and creates one of the reasons why the arbitration
has gained such popularity [Born, p. 1747; Lew/Mistelis/Kröll, p. 413;
Redfern/Hunter, p. 194]. This principle applies also to presenting of evidence.
MASARYK UNIVERSITY Memorandum for Respondent
8
[Lew/Mistelis/Kröll, p. 114]. The Tribunal should therefore assess the issue with
more leniency.
12 Due process [Art. 18 DAA; Art. 17(1) CEAC Rules] includes the party’s right to present
its case [Lew/Mistelis/Kröll, p. 95]. That also extends to party’s right to present its
evidence [UNCITRAL Digest on Model Law, p. 98], such as Mr. Short’s witness
statement. Respondent concedes that if Mr. Short attends the hearing in person, it
may add more weight to his written statement; however, his absence cannot logically
invalidate the evidence as such. This is supported by Art. 27(2) CEAC Rules allowing
production of written witness statements. By applying the principle of due process a
written witness testimony cannot be disregarded solely because the witness does not
attend the hearing. By disregarding the written testimony, the Tribunal would
deprive itself and the parties of valuable and highly relevant evidence.
2. Application of IBA Rules would violate party autonomy and legal
certainty
13 Despite clear presence of relevant rules and principles within the framework of CEAC
Rules and DAA, the Tribunal may still be tempted to seek further guidelines.
Claimant suggested the Tribunal should apply IBA Rules as guiding principles [MC,
p. 5, para. 12]. Respondent disagrees. By admitting any other procedural rules, even
if merely as guiding and interpretative tool, there is imminent danger of creating a
loophole through which new sets of rules can be added. As a result this would render
the future decision unpredictable and in turn undermine legal certainty of the parties.
14 The parties have agreed on CEAC Rules and DAA to govern the procedure. By adding
any other rules, e.g. IBA Rules, without the recognition of the parties, the Tribunal
would breach party autonomy principle. The Tribunal must not let that happen. It
should not operate as “a tribunal”, but rather as “the parties’ tribunal” in order to
harmonise the needs of both parties [Petrochilos, p. 173].
15 IBA Rules, in particular, are inadmissible as guiding principles to CEAC Rules for
their controversy and inconsistency. The IBA Rules constitute a misguided
combination of various aspects of different legal traditions. [Petrochilos, p. 759],
using as a basis other ad hoc or institutional rules, such as UNCITRAL Rules, or LCIA
Rules [IBA Commentary, p. 17].
MASARYK UNIVERSITY Memorandum for Respondent
9
C. By disrupting equality of the parties the Tribunal risks
unenforceability of the award
16 Claimant asks the Tribunal to disregard Mr. Short’s witness statement. Respondent
objects that by doing so, the Tribunal would disrupt the equality of the parties and
thus far the whole due process principle. By breaching this principle, the Tribunal
would face the risk of its future award being unenforceable under Art. V(1)(b) NYC.
17 The Tribunal shall treat the parties with equality and provide them with reasonable
opportunity to present their case [Art. 17(1) CEAC Rules; Art. 18 DAA]. This also
necessarily applies to the evidence-taking part of arbitration.
18 As to the Claimant’s request to disallow Mr. Long’s cross-examination if Mr. Short
will not appear at the oral hearing [MC, p. 9, para. 25], Respondent fully agrees with
that. When Mr. Short’s written statement will be accepted and considered by the
Tribunal, Respondent does not see the necessity to summon Mr. Long.
19 Mr. Short is prevented by his employer to testify in person, the Tribunal has no power
to ensure his presence and yet, his statement is still very important to solve the
dispute. Under these circumstances, the best way to deal with this issue is to
acknowledge Mr. Short’s written testimony as sufficient evidence; disregarding it
would be a breach of due process principle.
With regard to the issue of Mr Short’s witness statement admissibility,
Respondent asks the Tribunal to apply only CEAC Rules and DAA since application of
IBA Rules would infringe basic procedural rights of the parties. Consequently, the
witness statement should be accepted without Mr. Short’s appearance at the oral
hearing. By disregarding Mr. Short’s written statement the Tribunal would violate
Respondent’s right to due process by supressing its ability to present testimony of its
witness. By breaching this fundamental principle of arbitral procedure the Tribunal
risks unenforceability of the future award under NYC.
MASARYK UNIVERSITY Memorandum for Respondent
10
II. THE DELIVERY DATE HAS BEEN MODIFIED BY THE
TELEPHONE CONVERSATION BETWEEN CLAIMANT AND
RESPONDENT
20 The delivery date has been modified by the telephone conversation between the
representatives of Claimant and Respondent on 9 February 2011. Firstly, oral
modification was allowed [A.]. Secondly, telephone conversation did constitute an
amendment to the Contract since Respondent validly offered the change of delivery
date and Claimant effectively accepted [B.].
A. Oral modification of the Contract was allowed
21 Generally, in legal relationships governed by CISG freedom of form principle applies,
meaning that a contract can be concluded or modified in any form [Art. 11 CISG;
Rajski; UNCITRAL Digest on CISG, p. 73]. Freedom of form principle is restricted in
two cases, the first being parties’ express will to conclude or modify the contract only
in writing and the second being the application of national reservation under Art. 96
CISG.
22 In the case at hand the Contract did contain neither a clause requiring the written
form for any amendment, nor was there established a usage as to the application of
written form [PO 2, pp. 52-53, para. 11]. In other words, parties did not expressly or
impliedly called for a written form of the Contract.
23 With regard to Mediterraneo’s national reservation to freedom of form, Respondent
will establish that parties have excluded this reservation in the Contract [1.].
Alternatively, Mediterraneo's reservation would lead to the rules of private
international law resulting in the application of the law of Equatoriana which allows
oral modifications anyway [2.].
1. The parties have excluded the application of Mediterraneo’s
reservation in their choice-of-law clause
24 Claimant and Respondent have agreed in their choice-of-law clause that the Contract
“shall be governed by the United Nations Convention on Contracts for the
International Sale of Goods of 1980 (CISG) without regard to any national
reservation (...)” [CE 1, p. 13, para. 20]. In other words, they have excluded all
national reservations, including reservation under Art. 96 CISG. The wording of the
MASARYK UNIVERSITY Memorandum for Respondent
11
exclusion clause was not accidental. Parties have agreed the proceedings shall be
governed by CEAC Rules [CE 1, p. 12, para. 19], and in consequence opted for a
model clause proposed by CEAC itself [Art. 35 CEAC Rules, option b)].
25 Even though the exclusion clause was originally designed by CEAC, a highly respected
arbitration institution, Claimant contends that the exclusion was not possible for two
reasons [MC, pp. 10-11, paras. 28-34].
26 Firstly, Claimant argues CEAC adopted this model clause only for situations where a
Contracting State has made a reservation following its legislation requirement, and
then has derogated from such restrictions, without withdrawing the declaration [MC,
p. 11, para. 33]. Respondent acknowledges that CEAC mentioned its concern about
the situation in China where the form requirements are no longer imposed by
national legislation [Art. 10 Contract Law of the PRC] but the reservation to freedom
of form is still in force [fn. 6 to Art. 35 CEAC Rules]. However, the Chinese situation
was not the only reason CEAC had in mind when drafting the model clause excluding
national reservations. The underlying motives for its adoption were, most
importantly, the principles of neutrality and legal certainty [Brodernann/Weimann].
27 Principle of neutrality is recognized not only within the area of arbitral procedure
[Petrochilos, p. 219] but is also observed when it comes to the applicable rules
[Preamble of CEAC Rules; Brodernann/Weimann]. Drafters of CEAC Rules focused
on the neutrality and equal treatment bearing in mind their utmost importance when
parties come from different legal backgrounds. Also the ambiguity about the effects of
Art. 96 CISG played a role since the legal certainty was at stake. Some authors still
argue the direct application of form requirements should take place while others are
convinced the rules of private international law should apply in case of reservation
[Xiaolin/Andersen; Saf; Schroeter]. Since opinions to the effects of national
reservations differ, it was therefore reasonable for CEAC to construe the clause as
excluding them.
28 Following the same logic, it was reasonable for Claimant and Respondent to exclude
national reservations as both of them come from different legal backgrounds.
Claimant has its place of business in Mediterraneo, a common law country, where all
international sales contracts as well as their amendments must be in writing [PO 2,
p. 56, para. 34]. This was confirmed by the Supreme Court of Mediterraneo [AA, p.
MASARYK UNIVERSITY Memorandum for Respondent
12
10, para. 32]. Respondent, on the other hand, has its place of business in
Equatoriana, a civil law country [PO 2, p. 57, para. 36], where the freedom of form is
recognized [PO 2, p. 56, para. 34]. By excluding national reservations, parties
intended to bring more certainty and neutrality into their relationship.
29 Secondly, Claimant argues parties could not have derogated from Art. 96 CISG as this
is expressly forbidden by Art. 12 CISG – a provision of mandatory nature [MC, p. 11,
para. 32]. Even though Art. 12 CISG is mandatory when it comes to CISG as such, the
importance of party autonomy in arbitration proceedings must be stressed out [Born,
p. 1747; Lew/Mistelis/Kröll, p. 413; Redfern/Hunter, p. 194]. There are three
reasons why party autonomy prevails in case at hand.
30 First of all, the Tribunal is obliged to decide the dispute in accordance with rules of
law chosen by the parties as applicable to the substance of the dispute [Art. 28(1)
DAA; Art. 35(1) CEAC Rules]. Both DAA and CEAC Rules refer to the “rules of law”
chosen by the parties. This broadens the range of options available to the parties. For
example, “parties may agree on rules of law that have been elaborated by an
international forum but have not yet been incorporated into any national legal
system. Parties can also choose directly an instrument such as CISG as the body of
substantive law governing the arbitration” [UNCITRAL Digest on Model Law, p.
121]. Moreover, the importance of party autonomy with regard to the applicable rules
of law is shown in case law. It has been held that unless the tribunal respects the rules
of law chosen by the parties, the award might be successfully challenged and set aside
[Locks case].
31 Claimant and Respondent must have been aware of the fact that CISG as a whole
would be the law applicable since the parties have their place of business in
Contracting States. It follows there was no need to choose CISG. The only reason why
they specifically agreed on CISG without any national reservations must have been
that they wanted CISG to be treated as rules of law. This way they could have
excluded national reservations. As CISG was not chosen as a part of a law of a state,
the Tribunal should respect party autonomy and apply CISG in a way the parties
chose to.
32 Furthermore, the Tribunal is not bound by CISG in the same way as national courts
because arbitration tribunals cannot be considered as state organs [Gruber].
MASARYK UNIVERSITY Memorandum for Respondent
13
International treaties, including CISG, are binding upon its signatories [Art. 26
Vienna Convention] and their organs, those being the national courts. On the other
hand, arbitrators cannot be viewed as having the same position as national courts,
since the arbitration agreement, not an international treaty, is a core element of the
proceedings.
33 What is more, arbitrators apply CISG in a very flexible manner. This can be
illustrated by its application to contracts which do not fall within the scope of CISG. It
has been held that distribution agreements or contracts for work can be governed by
CISG despite not falling within the scope of CISG. Reasoning for this approach was
party autonomy and the flexibility of arbitration [Gruber; Fashion Products case].
34 In conclusion, CEAC Rules allow the parties to exclude national reservations made
under Art. 96 CISG and this was exactly what the parties did. Thus, the Tribunal is
not bound by Art. 12 CISG since it is primarily obliged to act in compliance with the
arbitration agreement.
2. Even if the Tribunal applies Art. 96 CISG, oral modification would
still be possible
35 Conflict of laws rules must be applied in case Mediterraneo’s reservation is not
excluded [2.1.]. The application of the rules of private international law leads to the
law of Equatoriana which allows oral modifications of contracts [2.2.].
2.1. The Tribunal should apply conflict of laws rules in case Art. 96 CISG is not
excluded
36 The key provisions dealing with the effects of national reservation at hand are Arts. 12
and 96 CISG. It is clearly stated that if a party to a contract has its place of business in
a reservation State, freedom of form principle “does not apply” [Art. 12 CISG].
However, nothing is said about the question which law will govern the formal validity
of the contract or its amendments [Schroeter]. It has been therefore suggested by the
majority of authors that rules of private international law should apply [Winship pp.
1-47; Rajski p. 659; Schlechtriem p. 45]. If the conflict of laws rules would point to
the country which prescribes form requirements, then form requirements would
prevail. If, on the other hand, the conflicts of laws rules would point to the country
MASARYK UNIVERSITY Memorandum for Respondent
14
where freedom of form is established, then the contract could be concluded or
modified even orally, e.g. by a telephone conversation.
37 The purpose and drafting history of Art. 96 CISG also indicates that drafters
presumed the effect of this article would lead to the application of rules of private
international law. Indeed, there was a proposal to explicitly lay down the direct
application of form requirements. However, this proposal was dismissed [Rajski,
p. 658].
38 The direct application of Mediterraneo’s form requirements should be rejected as it
would extend the law of Mediterraneo beyond its applicability. Direct application
would thus lead to absurd results, as Contracting States would start to make
reservations in order to extend the applicability of their domestic laws. That would
undermine the primary goal of CISG – to create a uniform international sales law
[Honnold, p. 189].
39 Approach favouring the rules of private international law was adopted by legal
practitioners, as well as by the national courts [Hispafruit BV case; Forestal Guarani
case; Adamfi Video case]. By contrast, Claimant points to the case law which has held
that the direct application of form requirements should take place in the event of a
reservation [MC, p. 10, para. 30]. Nevertheless, Claimant mentions only cases that
were decided by courts from the reserving Contracting States, i.e. Russia and PRC
[Onions case; Hot-Rolled Coils case]. On top of that, Hot-Rolled Coils case was
decided even before the writing requirement was abolished by the Chinese legislation.
40 In conclusion, Art. 96 CISG cannot be interpreted as imposing form requirements of
reserving Contracting State directly. To the contrary, the rules of private international
law must be applied instead.
2.2. The conflict of laws rules would result in the application of the law of
Equatoriana which allows oral modifications
41 Failing any designation of the applicable law by the parties, the Tribunal shall apply
the law determined by the conflict of laws rules which it considers appropriate
[Art. 28(2) DAA; Art. 35(1) CEAC Rules].
MASARYK UNIVERSITY Memorandum for Respondent
15
42 If the Tribunal finds that the parties did not agree on CISG as rules of law, but as a
part of applicable national law, national reservations could not have been excluded.
Hence, CISG provisions regarding the freedom of form principle do not apply.
43 UNIDROIT Principles are the second choice of the parties [CE 1, p. 13, para. 20].
They enshrine the freedom of form principle as well [Art. 1.2 UNIDROIT Principles].
However, they only apply within the framework of mandatory provisions of otherwise
applicable national law [Art. 1.4 UNIDROIT Principles]. Again, UNIDROIT Principles
do not govern the issue.
44 Under these circumstances, the Tribunal must determine otherwise applicable
national law. In order to do so, the Tribunal shall apply the law determined by the
conflict of laws rules which it considers appropriate [Art. 35(1) CEAC Rules]. In all
countries concerned, Danubia, Oceania, Equatoriana and Mediterraneo, the rules of
private international law prescribe the closest connection test in the absence of the
choice [PO 2, p. 56, para. 33]. It is reasonable that the Tribunal should apply the
closest connection test since it is decisive for the countries of arbitration seat, seat of
the seller and seat of the buyer.
45 In determining the law with the closest connection to a contract, different factors play
role, e.g. the place of contract conclusion or the place where the party making the
characteristic performance has its place of business [PO 2, p. 56, para. 33]. Since the
parties have not chosen the law applicable, the closest connection must be
established.
46 Respondent is a party giving effect to the characteristic performance since it sold
100,000 polo shirts [CE 1, p. 12, para. 1]. It has its place of business in Equatoriana
[AA, p. 5, para. 3]. Moreover, the parties concluded the Contract in Equatoriana
[PO 2, p. 52, para. 7]. Undoubtedly, Equatoriana is the country with the closest
connection because it is the place where the Contract was concluded as well as the
place where the party providing characteristic performance resides.
47 Equatoriana does not impose any restrictions regarding the form of conclusion or
modification of contracts [PO 2, p. 56, para. 34]. Thus, the delivery date in the
Contract might have been validly amended by a telephone conversation between
Mr. Long and Mr. Short.
MASARYK UNIVERSITY Memorandum for Respondent
16
B. Parties amended the Contract by the telephone conversation
48 On 9 February 2011, Respondent called Claimant to inform it about the delay in
delivery. Respondent proposed to deliver five days later. Claimant replied that it will
“make sure that all of the paper work reflected the new delivery date” [PO 2, p. 55,
para. 27].
49 Respondent presented a valid offer to amend the Contract [1.] which Claimant
accepted during its telephone conversation with Respondent [2.]. Therefore,
Respondent and Claimant amended the Contract.
1. The telephone conversation did constitute an offer to change the
date of delivery in the Contract
50 An offer must be sufficiently definite and indicate the intention of the offeror to be
bound in case of acceptance [Art. 14(1) CISG]. Offeror’s statements need to be
interpreted under Art. 8 CISG. If there is no recognizable common intent of the
parties under Art. 8(1) CISG, the understanding of a third reasonable person under
Art. 8(2) CISG should be applied [Schlechtriem/Schwenzer, p. 151]. This kind of
interpretation is a dominant one because it is very difficult to prove subjective intent
of the parties [Lautenschlager, p. 261]. Since the intent of the parties is disputed,
Respondent will analyse only the third reasonable person interpretation under
Art. 8(2) CISG.
51 The third reasonable person knows e.g. trade usages, jargon, different procedures of
transaction and technical aspects of the goods [Lautenchslager, p. 262]. To put it
simply, the third person knows how the business works. In business relations, there is
no “strict legal terminology” requirement. No one can expect in an ordinary run of
business that people’s communication will follow legal doctrines and terminology.
Businessmen are not lawyers.
52 This is precisely that kind of situation. Respondent had abrupt problem with its
supplier [PO 2, p. 53, para. 12], but Respondent stayed calm, was active and
immediately investigated other options. Unfortunately, all contacted suppliers
refused to guarantee the necessary delivery date [PO 2, p. 53, para. 13].
53 As a result, Respondent called Claimant that it is able to deliver the goods only on 24
February 2011 [AA, p. 7, para. 13]. This proposal was sufficiently definite.
MASARYK UNIVERSITY Memorandum for Respondent
17
Respondent also expressed its intention to be bound because it called Claimant and
actively proposed the later date of delivery and wanted to solve this unfortunate
situation. Thus, a valid offer was made [Art. 14(1) CISG].
54 Businessmen tend to communicate quickly and in plain, not legal, language.
Therefore, particular vagueness in Respondent’s statements cannot curb the
formation of the Contract amendment. In conclusion, the third reasonable person in
shoes of Claimant would have interpreted Respondent’s statement as an offer to
change the date of delivery. To sum up, a valid offer to amend the Contract was made.
2. Claimant accepted Respondent’s offer during their telephone
conversation
55 During the phone conversation Mr. Long stated that he would “make sure that all of
the paper work reflected the new delivery date” [PO 2, p. 55, para. 27]. Respondent
thus understood that the offer to amend the delivery date had been accepted. This
view is supported by Mr. Long’s own account of the events. In his witness statement
Mr. Long said that “under the circumstances there was little [he] could do except to
accept that the delivery would be late (…) nothing was said about the deduction for
late delivery” [CE 2, pp. 14-15].
56 In other words, Claimant knew it had no other option but to accept the amended
delivery date. It reassured Respondent that it would adjust the necessary paperwork
and it did not say anything about the stipulated penalties. If Claimant really thought
that the Contract was not amended, it would definitely mention the contractual
penalty clause.
57 Claimant’s unconditional acceptance is further evidenced by its subsequent conduct.
Claimant swiftly amended L/C keeping the same amount to be paid for the goods. It
did not request the payment of the penalties at all, not even when it avoided the
Contract two months later on [CE 6, p. 20]. First occasion when Claimant mentioned
the stipulated penalties was when it filed the Application for Arbitration [AA, p. 11,
para. 37]. That is nearly a year and a half after its right to collect the penalties had
allegedly arisen.
58 In the given situation, it is inconceivable that the third reasonable person would
interpret Claimant’s conduct in any other way than as an acceptance of Respondent’s
MASARYK UNIVERSITY Memorandum for Respondent
18
offer to amend the delivery date [Art. 8(2) CISG]. In conclusion, Claimant accepted
Respondent’s offer to amend the delivery date.
With regard to the issue of the Contract amendment, Respondent asks the
Tribunal to hold that oral modification of the Contract was allowed, because the
parties have effectively excluded the application of the Mediterraneo’s reservation in
their choice-of-law clause. Even if the Tribunal applies Art. 96 CISG, oral
modification would still be possible.
Respondent validly offered to amend the Contract and Claimant accepted. Hence, the
parties amended the Contract during their telephone conversation.
MASARYK UNIVERSITY Memorandum for Respondent
19
III. RESPONDENT DID NOT BREACH THE CONTRACT
59 Respondent delivered goods that matched the precise contractual specifications in
every aspect [PO 2, p. 52, para. 9]. Without any dispute, production of these goods
was carried out in an ethical manner without any use of child labour [PO 1, p. 49,
para. 8]. Respondent managed to reach these standards despite working on the verge
of profitability since Claimant was only willing to contract with it for a depressingly
low purchase price [AA, p. 6, para. 10; PO 2, p. 52, paras. 5-6].
60 Respondent did not breach the Contract by using child labour in unrelated
production because it did not assume, contractually or otherwise, the obligation to
avoid child labour in all of its business operations [A.]. Furthermore, Respondent
delivered goods conforming to the Contract [B.]. Even if the Tribunal finds that
Respondent’s use of child labour constituted breach of the Contract, Claimant cannot
rely on such breach as this would be contrary to the good faith principle [C.]. Finally,
even if the Tribunal holds that there was a breach of the Contract which Claimant is
liable for, it was not fundamental [D.].
A. Respondent did not have the obligation to avoid child labour in its
whole business
61 Claimant alleges that Respondent’s use of child labour constituted a breach of the
Contract [MC, p. 18, para. 59]. However, it is undisputed that Respondent never used
child labour in the production of the polo shirts delivered to Claimant [PO 1, p. 49,
para. 8]. Therefore, Respondent did not breach the Contract because it had no
obligation regarding the use of child labour in its whole business, since the “policy
clause” did not include such an obligation [1.] and there is no applicable international
trade usage that would establish it, either [2.].
1. The “policy clause” did not oblige Respondent to avoid child
labour as such
62 By virtue of Art. 12 of the Contract Respondent was obliged to adhere to Oceania Plus
policy. In particular, the “policy clause” provides that: “It is expected that all
suppliers to Oceania Plus Enterprises or one of its subsidiaries will adhere to the
policy of Oceania Plus Enterprises that they will conform to the highest ethical
standards in the conduct of their business” [CE 1, p. 12, para. 12]. Claimant argues
MASARYK UNIVERSITY Memorandum for Respondent
20
that an obligation not to use child labour can be reasonably inferred from the need to
comply with the highest ethical standards [MC, p. 18, para. 60]. Nevertheless,
Respondent will prove that the “policy clause” does not oblige Respondent to avoid
child labour in its whole business.
63 Claimant concludes that Respondent was aware that the “policy clause” covered a ban
on the use of child labour based on the fact that it fired the manager of the plant
where child labour was being used during the 2008 audit [MC, p. 19, para. 64].
Firstly, Respondent itself did not fire the manager. The manager of the plant
producing for Respondent had been fired around the date of the audit after
Respondent’s intervention in that regard. Secondly, according to newspapers the
firing had been due to allegations of corruption [PO 2, p. 51, para. 3]. Moreover, the
awareness of Respondent cannot be based on a single event. According to Art. 8(3)
CISG when determining both the intent of the party or the understanding of a third
reasonable person due consideration has to be given to all relevant circumstances of
the case.
64 In the present case relevant circumstances include the fact that Respondent complied
with Oceania Plus policy in all previous contracts with Claimant regarding the goods
delivered to it. Nevertheless, this may not be affirmed with respect to Respondent’s
dealings with other companies [PO 2, p. 52, para. 5]. Assuming that Oceania Plus
policy includes the obligation not to use child labour in the production of the goods it
is clear that the ban covers only the goods delivered to Claimant because otherwise
the 2007/2008 audit would not have been approved [AA, p. 6, para. 9]. Hence,
Respondent did not know and could not have been aware that it is prohibited to use
child labour as such [Art. 8(1) CISG].
65 Moreover, a third reasonable person would have not understood that the need to
comply with the highest ethical standards implies prohibition of child labour in all of
Respondent’s business operations [Art. 8(2) CISG]. Claimant submits that the
prohibition to this effect may be derived from the existence of widespread
international concern for working children, worldwide support given to the ILO
Convention 182 and private self-regulatory guides [MC, p. 20, para. 66]. It is indeed
true that these instruments aim to abolish child labour. But as a matter of fact they
merely testify that the use of child labour is very common in a globalized society [ILO
MASARYK UNIVERSITY Memorandum for Respondent
21
Statistics]. Claimant suggests that the highest ethical standards are found in Western
countries [MC, p. 20, para. 66]. The practice of Western multinational corporations
may be well illustrated by the example of Nike scandal. In the 1990s Nike faced vast
criticism for the use of child labour in Cambodia and Pakistan in factories it
contracted to manufacture soccer balls. Although Nike averted the scandal by taking
some action to reduce the practice, it continues to contract with companies in less
regulated areas where it is hard to ensure that child labour is not being used [The
Case of Nike].
66 In conclusion, Respondent undertook no contractual obligation regarding the way it
operates its business as a whole.
2. There is no applicable international trade usage that would
oblige Respondent to avoid child labour
67 Claimant argues that the obligation to avoid child labour as such is an international
trade usage applicable to the Contract [MC, p. 24, para. 82]. However, in order to
establish that the duty not to use child labour is an international trade usage that is
binding on Respondent, Claimant would have to prove that such usage was widely
known and regularly observed in the relevant trade and location and furthermore,
that Respondent knew or ought to have known about this usage [Art. 9(2) CISG;
Schlechtriem/Schwenzer p. 192].
68 As to the general knowledge and observance of the alleged usage in the trade and
location concerned, sadly enough, in countries like Equatoriana, where transnational
textile companies have their goods manufactured, usage of child labour is nothing
unusual. According to ILO estimations, there were around 306 million children (ages
5 – 17) in employment worldwide in 2008. Regarding child labour as defined in ILO
Conventions 182 and 138, there were around 216 million of child workers, more than
152 million from those belonging to the age group 5-14 years old. Unsurprisingly,
major incidence of child labour is in Asia and Pacific region – more than 96 million
children in employment [ILO Statistics]. Even though precise data are not available,
it is safe to assume that incidence of child labour in Equatoriana is quite high, since it
belongs to the region that is problematic in that respect [SD, p. 35, para. 3]. And it is
particularly the textile industry, where the occurrence of child labour is quite
frequent [Singh, p. 7].
MASARYK UNIVERSITY Memorandum for Respondent
22
69 While, as Claimant points out [MC, p. 20, para. 66], in the West the use of child
labour may be unacceptable, in developing countries it is often the only way how to
maintain the welfare of the family as a whole [Tadaki, p. 982]. This can be illustrated
on the example of Bangladesh where the complete prohibition of child labour in
garment industry caused the children to move to area of crime and prostitution
[Tadaki, p. 981], not to schools.
70 It follows that in the location where Respondent has its place of business and in the
particular trade in which it operates child labour is, unfortunately, nothing unusual.
And its ban is certainly not a usage that would be widely known and observed there.
This fact also refutes the knowledge or imputed knowledge element of international
trade usage in the sense of Art. 9(2) CISG. A party to an international sales contract
needs to be familiar only with those international trade usages that are commonly
known to and regularly observed by parties to contracts of the same specific type in
the specific geographic area where the party has its place of business [Tegernseer
Gebräuche case].
71 The fact that Equatoriana is a party to the ILO Convention 182 [AA, pp. 10-11,
para. 32] does not change anything. Firstly, the convention is not binding on
individuals. Secondly, the mere ratification of a convention by a country does not
prove that the principles promoted by such convention are generally complied with in
that country. It has been empirically proven that ratification of human rights treaties
does not correlate with actual observance of those rights and even that not
infrequently is treaty ratification associated with poorer human rights practices
[Hathaway, p. 1940].
72 Similarly, private initiatives of transnational companies like the UN Global Compact,
invoked by Claimant [MC, p. 24, para. 82], have no legal effect. Even though many
major corporations participate in the UN Global Compact or they at least publicly
declare adherence to some kind of code of conduct, it has to be born in mind that all
these instruments lack any independent monitoring and enforcement through
sanctions. At the end of the day they are little more than an instrument of rhetoric
[Tadaki, p. 951].
73 In conclusion, non-usage of child labour is not an international trade usage
applicable to the Contract.
MASARYK UNIVERSITY Memorandum for Respondent
23
B. Respondent delivered goods conforming to the Contract
74 Respondent delivered 100,000 polo shirts [AA, pp. 7-8, para. 17], in the
specifications as called for by the Contract [PO 2, p. 52, para. 9]. Nevertheless,
Claimant alleges that Respondent’s use of child labour constituted non-conformity of
the goods delivered [MC, p. 21, paras. 71 et seq.]. However, this cannot be
maintained. Firstly, there are no applicable public law requirements to which the polo
shirts would have to conform [1.]. Secondly, Respondent delivered the polo shirts
conforming to the Contract [2.].
1. There are no applicable public law requirements to which the
polo shirts would have to conform
75 The polo shirts did not have to comply with any public law standards of Oceania or
Mediterraneo. Claimant relies on Mussels case and alleges that the goods should
comply with relevant public law standards in the buyer’s country. According to
Claimant the ILO Convention 182 as such represents this standard [MC, p. 23,
para. 80]. First of all, the ILO Convention 182 does not impose any obligation on the
manufacturers of the goods because it is an international law instrument binding only
its Contracting States. Secondly, the ILO Convention 182 itself does not prohibit sale
of goods which were produced with the use of child labour in the Contracting States.
Thus, it cannot be seen as a public law standard in the sense of Mussels case.
76 The Tribunal may be concerned with Claimant’s allegations that the suspicion of the
use of child labour constituted lack of conformity of the polo shirts [MC, pp. 24-25,
paras. 83-84], as did the high level of dioxin in Frozen Pork case. However, Claimant
compares two completely different situations. There are two reasons why the case of
Yes Casual polo shirts in Oceania and the case of toxic meat in Frozen Pork case are
incomparable and therefore inapplicable to the situation at hand.
77 Firstly, when there is a suspicion that food is poisonous, the potential buyer would
avoid buying the product in order to protect its health. However, in the case of Yes
Casual polo shirts there was no serious risk to the customers. The public reaction was
rather a burst of fashion. It was a protest against big corporations offering expensive
clothes and not caring about the way the clothes are produced. The suspicion in
Frozen Pork case was sufficient to label the meat as unfit for sale. On the contrary, in
MASARYK UNIVERSITY Memorandum for Respondent
24
the case at hand Claimant sold the polo shirts to Pacifica Trading without any
difficulties [AA, p. 9, para. 24].
78 Secondly, whereas in Frozen Pork case there was legislation prohibiting sale of toxic
meat, there is no public law in Oceania prohibiting sale of clothes produced by a
company using child labour. Moreover, Respondent never used child labour in the
production of the polo shirts delivered to Claimant [PO 1, p. 49, para. 8]. Hence, the
situation is incomparable.
79 In conclusion, the ILO Convention 182 as such does not represent public law
requirement to which the polo shirts would have to comply. Additionally, suspicion of
the use of child labour could not render the polo shirts non-conforming. The Frozen
Pork case is inapplicable because it does not correspond to the case at hand.
2. Respondent delivered goods conforming to the Contract
80 Delivered polo shirts were of the stipulated quality and did conform to the Contract,
as the goods met the specified requirements [PO 2, p. 52, para. 9]. The Tribunal
should examine the quality of the delivered polo shirts only, not the quality of some
other goods produced by Respondent. As it is undisputed that Respondent never used
child labour in production of the goods delivered to Claimant [PO 1, p. 49, para. 8]
and as all the requirements of the Contract were met to the letter [PO 2, p. 52, para.
9], Respondent delivered goods of the demanded quality, thus goods conforming to
the Contract.
81 The polo shirts delivered by Respondent were fit for the purpose agreed on by the
parties, as they were fit for sale, which is the primary purpose of goods in any
international sales contract [Art. 35 CISG, Schlechtriem/Schwenzer, p. 575].
Claimant operates as a company buying goods for further resale [AA, p. 6, para. 7].
Therefore, the ordinary purpose of the polo shirts means that it must be possible for
Claimant to resell them [Schwenzer, p. 107]. First, Claimant sold the polo shirts to
Doma Cirun [AA, p. 6, para. 10], and even after the avoidance of the Contract it had
no trouble finding a substitute buyer. It took only 12 days before Claimant
successfully sold the polo shirts to Pacifica Trading for 86% of the original price [AA,
p. 9, para. 24]. It is even possible that Claimant could have gotten a higher price if it
had searched a bit longer. Furthermore, after the avoidance of Doma Cirun, Claimant
MASARYK UNIVERSITY Memorandum for Respondent
25
discussed different possibilities how to sell the goods [PO 2, p. 54, para. 20]. This
clearly demonstrates that it was very easy to find a buyer for the polo shirts.
82 Contrary to Claimant’s allegations [MC, pp. 21-22, para. 73], non-physical features of
quality did not become part of the Contract. These features can become part of a
contract through contract stipulations or trade usages [Schwenzer, pp. 105-106].
However, Respondent was under no obligation to avoid the use child labour in the
operation of its business, stemming either from the Contract or from any
international trade usage. Furthermore, there was no child labour used in the
production of the polo shirts delivered to Claimant [PO 1, p. 49, para. 8]. Hence,
Respondent delivered goods in every aspect conforming to the Contract.
83 In conclusion, there were no applicable public law requirements to which the polo
shirts would have to conform. Furthermore, the delivered polo shirts met the
demanded quality, as all the requirements of the Contract were satisfied [PO 2, p. 52,
para. 9]. Thus, Respondent delivered goods conforming to the Contract.
C. Even if the Contract was breached, Claimant cannot rely on such a
breach as this would be contrary to the good faith principle
84 Observance of good faith is a general principle of the CISG [Schlechtriem/Schwenzer,
p. 136; Magnus; Bonell; Protective Film case; Broadcasters case] and as such it is a
tool for gap filling [Art. 7(2) CISG]. Furthermore, the obligation to act in good faith is
embedded in Art. 1.7(1) UNIDROIT Principles and it is also invoked by Claimant
itself [MC, p. 16, para. 51]. The scope of this principle is specified through number of
good faith rules found throughout the CISG [Magnus II]. One of these specific good
faith rules is the prohibition of contradictory behaviour (venire contra factum
proprium) expressed e.g. in Arts. 29(2), 80, 16(2)(b) and 50 CISG [Magnus].
Similarly, there is number of rules which preclude a party from relying on certain
facts where it knew or could not have been unaware of them or their underlying
reasons [Schlechtriem/Schwenzer, p. 137], e.g. Arts. 35(3), 40 and 43(2) CISG.
85 In cases when the buyer asserts that the seller breached the contract by not
complying with certain ethical standards, the good faith principle restrains the buyer
from relying on such standards if he was only willing to a pay a price that was so low
MASARYK UNIVERSITY Memorandum for Respondent
26
that ethical production standards could not be expected to be applied
[Schwenzer/Leisinger, p. 265].
86 In the case at hand, Claimant states that it was concerned about Respondent’s use of
child labour [AA, p. 6, para. 9; MC SF, p. 1]. These concerns arose in connection with
the 2008 contract and were the reason why Claimant refrained from contracting with
Respondent for the following three years [PO 2, p. 52, para. 5]. When Claimant
decided to contract with Respondent in 2011 it was not because these concerns were
dispelled. The only reason was money [AA, p. 6, para. 10]. To be accurate,
Respondent’s price was 50.000 USD lower than the second lowest offer. The price
was even lower than the price of the original supplier that went bankrupt and
Claimant knew that it was so low it barely covered Respondent’s production costs
[PO 2, p. 52, para. 6].
87 Claimant stood in front of following decision: 50.000 USD of extra profit on one hand
and ethical concerns on the other. Claimant asked no questions and took the money.
88 It is highly hypocritical of Claimant to build an ethical image and to invoke ethical
standards when it is not ready to pay the price for it. Under the circumstances,
Claimant could not have been unaware that such a low purchase price can only be
reached at the expense of ethical standards of production. Claimant’s subsequent
insistence on compliance with those standards therefore constitutes venire contra
factum proprium and is in strong contradiction with the good faith principle.
89 Claimant submits that Respondent breached the Contract under Art. 35(2) CISG by
delivering non-complying goods [MC, pp. 23-25, paras. 79-84]. If that was the case,
Respondent is exempted from liability under Art. 35(3) CISG. Alternatively, Claimant
submits that Respondent breached the Contract under Art. 35(1) CISG by delivering
goods not conforming to the contractually stipulated quality [MC, pp. 21-23, paras.
73-78] or that Respondent breached a specific contractual obligation [MC, pp. 18-21,
paras. 60-70]. In those cases Respondent’s liability is excluded by the application of
the good faith principle in the specific form of prohibition of contradictory behaviour
and the preclusion of reliance on facts the asserting party could not have been
unaware of.
MASARYK UNIVERSITY Memorandum for Respondent
27
90 In conclusion, even if the Tribunal finds that Respondent’s use of child labour
constituted breach of the Contract, Respondent cannot rely on such a breach as this
would be contrary to the good faith principle.
D. In case there was a breach of the Contract, it was not a fundamental
one
91 Even if the Tribunal finds that Respondent breached the Contract, the breach was not
fundamental since the goods were successfully resold by Claimant. Under Art. 25
CISG a breach of contract is fundamental if it results in such detriment to the other
party as substantially to deprive him of what he is entitled to expect under the
contract. Fundamental breach concerning the quality of the goods occurs only if the
goods cannot be used for any other purpose [Huber/Mullis, p. 218; Cobalt Sulphate
case; Designer Clothes case; Shoes case].
92 Claimant submits that its primary function is the procurement and sale of goods to
the retail chains owned by Atlantica Megastores or Oceania Plus, such as Doma
Cirun. Claimant therefore argues that it was substantially deprived of what it was
entitled to expect because it was unable to sell the polo shirts in its normal course of
business [MC, pp. 25-26, para. 87]. However, this argument is unfounded and should
be disregarded by the Tribunal because Claimant’s “primary function” is not relevant
when assessing the breach. For instance, it was noted in Shoes case that there is no
fundamental breach when the buyer can make some use of the defective goods. The
court decided that there is no fundamental breach unless the goods are totally unfit
for resale.
93 In Cobalt Sulphate case invoked by Claimant [MC, p. 25, para. 87] it was ruled that
there was no fundamental breach allowing the buyer to avoid the contract since he
was not able to show that the sale of South African cobalt sulphate in Germany or
abroad was not reasonably possible. When deciding the case the German Supreme
Court took into account the remedial system of the Convention and its underlying
purposes, i.e. to preserve enforceability of the contract and to restrain avoidance in
favour of the damage or price reduction remedies. In the case at hand, not only was
Claimant unable to show that the sale of the polo shirts in Oceania or abroad was not
reasonably possible, Claimant in fact resold the goods in less than two weeks after
avoidance of the Contract [AA, p. 9, para. 24].
MASARYK UNIVERSITY Memorandum for Respondent
28
94 Likewise, Designer clothes case [MC, p. 25, para. 87] supports Respondent’s
interpretation of fundamental breach rather than Claimant’s view. OLG Köln held
that a breach is not fundamental if the buyer is able to sell the goods, albeit with a
price reduction, without unreasonable expense, despite the deviation of the goods
from the contractually agreed quality or despite another defect. In Designer clothes
case almost all of the delivered goods proved to be unmerchantable due to multitude
of defects obvious to a layperson. As regards the current dispute, Claimant considered
selling the polo shirts via a chain of discount supermarkets owned by Oceania Plus
[PO 2, p. 54, para. 20]. In the end, it was able to sell the polo shirts without
unreasonable expense for a reasonable price of USD 470,000 [AA, p. 9, para. 24].
95 In the alternative, Claimant maintains that it would have refused the Contract if it
had known of Respondent’s use of child labour and refers to the FCF v Adriafil case
[MC, p. 26, para. 88]. However, FCF v Adriafil case is unrelated to the issue at hand
since it deals with the question whether a delay in delivery of the goods constituted a
fundamental breach.
96 As regards the foreseeability requirement [MC, p. 26, paras. 89-90], Respondent did
not foresee and a reasonable third person would not have foreseen that the detriment
caused to Claimant substantially deprived it of what it was entitled to expect under
the Contract. Claimant decided to enter into the Contract with Respondent because it
was primarily concerned with the purchase price [AA, p. 6, para. 10]. Ethical
concerns were overridden by Claimant’s desire to pay the lowest possible price on the
market. The fact that Respondent did not use child labour in the production of the
goods is also highly important. Thus, even if the Tribunal holds that the breach was
fundamental, Respondent is exempted by the foreseeability requirement in Art. 25
CISG.
97 In conclusion, the breach of the Contract should not be considered fundamental
because not only the polo shirts were of merchantable quality, but they were also
successfully resold by Claimant without even changing their purpose and thus,
Claimant cannot assert that it was substantially deprived of what it was entitled to
expect under the Contract. Alternatively, the detriment was not foreseeable.
MASARYK UNIVERSITY Memorandum for Respondent
29
Regarding the issue of Respondent’s use of child labour, Respondent asks
the Tribunal to find that there was no breach of the Contract. Respondent had in fact
no obligation to avoid child labour in its whole business and it delivered goods in
compliance with the Contract. Alternatively, if the Tribunal holds there was a breach
of the Contract, it should preclude Claimant from relying on such a breach as this
would be contrary to the good faith principle. In any case, if there was a breach of the
Contract which Claimant is liable for, the Tribunal should find that it was not
fundamental.
MASARYK UNIVERSITY Memorandum for Respondent
30
IV. CLAIMANT IS NOT ENTITLED TO ANY RAISED CLAIMS
98 It is Respondent’s position that Claimant has no right to the restitution of the
purchase price, payment of the contractual penalty or any of the raised settlements
for the following reasons.
99 Firstly, under Art. 49(1)(a) CISG Claimant may declare the Contract avoided only if
Respondent’s failure to perform any of its obligations under the Contract amounts to
a fundamental breach. Respondent did not use child labour while performing the
Contract [PO 1, p. 49, para. 8] and the delivered polo shirts conformed to the
Contract. It follows that it is impossible for Claimant to effectively recover the
purchase price.
100 Secondly, under the Contract [CE 1, p. 12, para. 10] it is possible to claim penalty only
in the case of late delivery. As the delivery date was duly amended, Respondent
delivered the polo shirts according to the Contract. Therefore, Claimant is not entitled
to the contractual penalty.
101 Thirdly, the basic ground for the damages to be awarded under Art. 74 CISG is the
breach of the Contract. As Respondent did not breach the Contract the Tribunal
should not grant Claimant any damages.
Regarding the issue of damages, Respondent asks the Tribunal to dismiss all
claims on the ground that Respondent did not breach the Contract by using child
labour in unrelated production and delivered conforming goods on time.
MASARYK UNIVERSITY Memorandum for Respondent
31
Request for Relief
In light of the submissions made above, Respondent respectfully requests the
Tribunal to:
(1) consider Mr. Short’s witness statement even if he does not appear at the
hearing,
(2) hold that the delivery date has been modified by the telephone conversation
between Claimant and Respondent,
(3) hold that Respondent did not breach the Contract,
(4) hold that Respondent is not entitled to any raised claims.
On behalf of Respondent
FALTUS Vojtěch
FEIGLER Michal
HOLOUBKOVÁ Kamila
MALANÍK Michal
ŠLAMPA Martin
THIELOVÁ Linda
UHŘÍČEK Jiří ZÁVODNÁ Martina ŽIVĚLOVÁ Alexandra
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