memorandum for claimant - · pdf filetwenty fourth annual willem c. vis international...

TWENTY FOURTH ANNUAL

WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT

Vienna, Austria 8 April – 13 April 2017

Memorandum for Claimant

Dar Al-Hekma University

On behalf of Against

Wright LTD SantosD KG

232 Garrincha Street 77 Avenida O Rei

Ocenside Cafucopa

Equatoriana Medditerraneo

(CLAIMANT)

(RESPONDENT)

Ayah Hashim – Duaa Amer – Lina Samaha – Nouf Bannan Rahaf Zaini – Tala Bukhari – Wid Massoud


II

TABLE OF CONTENT

INDEX OF ABBREVIATIONS .............................................................................................. VII

INDEX OF AUTHORITIES ...................................................................................................... IX

INDEX OF LEGAL SOURCES ............................................................................................. XXI

INDEX OF CASES ................................................................................................................. XXII

INDEX OF ARBITRAL AWARDS ................................................................................... XXVII

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

SUMMARY OF ARGUMENT ...................................................................................................... 3

ISSUE 1: CLAIMANT’S CLAIMS ARE ADMISSIBLE, DUE TO THEIR TIMELY

SUBMISSION ............................................................................................................................... 4

A. CLAIMANT’s Claims are Admissible as Initiation of Arbitral Proceedings Occurred on

May 31 2016 as Per Section 21 DSA .......................................................................................... 4

I. Failure of Negotiation and Initiation of Arbitral Proceedings Occurred on May 31 2016

......................................................................................................................................................... 4

II. CLAIMANT Expressed its Willingness to Attempt Further Negotiations on April 1

2016 ................................................................................................................................................ 6

III. Commencement of Arbitral Proceedings Occurred on June 7 2016 .............................. 6

IV. Even If the Arbitral Tribunal Considers that Failure of Negotiations Occurred on

April 1 2016, CLAIMANT’s Claims are Still Admissible ...................................................... 7

B. CLAIMANT’s Request for Arbitration is in Line with the Requirements Set Out under the

DSA and CAM-CCBC Rules ...................................................................................................... 7

I. CLAIMANT Fulfilled the Condition Precedent Set Forth under Section 21 DSA ......... 7

II. CLAIMANT’s Request for Arbitration Satisfied the Requirements Prescribed Under

the CAM-CCBC Rules ................................................................................................................ 8

1. The Requirements Set Out by Art. 4.1 CAM-CCBC Rules are Met ............................ 9

2. The Requirements Set Under Art. 4.2 CAM-CCBC Rules are Satisfied ................... 10


III

CONCLUSION OF THE FIRST ISSUE .................................................................................. 10

ISSUE 2: CLAIMANT IS ENTITLED TO THE FULL PAYMENT OF THE PURCHASE

PRICE ACCORDING TO THE DSA AND CISG .................................................................. 10

A. CLAIMANT is Entitled to the Outstanding Amount of US$ 2,285,240.00 from

RESPONDENT as the Remainder of the Purchase Price for the Fan Blades ........................... 11

I. The Purchase Price for the Fan Blades is Determined on the Basis of the Current

Exchange Rate ............................................................................................................................ 11

1. The Purchase Price for the Fan Blades is Determined in Accordance with the DSA 11

2. There is No Practice Established Between the Parties in Regards to the Use of the

Exchange Rate at the Time of Contracting. ....................................................................... 13

3. Even if There was an Established Practice Between Parties, Such Practice Will Not Be

Binding upon Parties in the Present Case. ......................................................................... 14

II. The Fixed Exchange Rate Provision in the Addendum Applies Only to the Purchase

of the Clamps .............................................................................................................................. 14

1. The Addendum in Relation to the Clamps is a Separate Agreement, and Therefore, the

Fixed Exchange Rate Clause Does Not Apply to the DSA ............................................... 14

2. Even if the Tribunal were to Find that the Addendum is Not a Separate Agreement, the

Fixed Exchange Rate Clause Must Be Interpreted to Apply Only to the Clamps .............. 15

a. The Fixed Exchange Rate Clause in the Addendum Applies Only to the Clamps

Pursuant to Art. 8(1) CISG ............................................................................................. 16

i. CLAIMANT Did Not Know and Could Not Have Been Aware of

RESPONDENT’s Intention to Apply the Fixed Exchange Rate Clause to the DSA . 16

ii. CLAIMANT’s Reply to RESPONDENT’s Email Refers to the Clamps’ Purchase

.................................................................................................................................... 17

b. The Fixed Exchange Rate in the Addendum Applies Only to the Purchase of the

Clamps Pursuant to Article 8(2) CISG ........................................................................... 18


IV

i. A Reasonable Person in the Position of CLAIMANT and under the Same

Circumstances Would Have Understood the Fixed Exchange Rate Clause to Apply

Solely to the Clamps ................................................................................................... 18

ii. In Any Case, Any Ambiguity in the Addendum Must be Interpreted Against

RESPONDENT According to the Contra Proferentem Rule ..................................... 18

B. CLAIMANT is Entitled to the Outstanding Payment of US$ 102,192.80 for the Bank

Inspection Levy from RESPONDENT ..................................................................................... 19

I. RESPONDENT is under a Contractual Obligation to Pay the Full Price to CLAIMANT

....................................................................................................................................................... 19

1.RESPONDENT is Contractually Obliged to Bear the Transfer Fee as Per Sec. 4.3 DSA

............................................................................................................................................ 19

2.RESPONDENT Must Pay the Bank Inspection Charge to CLAIMANT Based on the

Principle of Pacta Sunt Servanda ....................................................................................... 20

II. Art. 54 CISG Imposes an Obligation on RESPONDENT to Pay the Transfer Fee ...... 21

1. Art. 54 CISG Imposes an Obligation on RESPONDENT to Take Necessary Measures

to Pay the Price .................................................................................................................. 21

2. RESPONDENT’s Failure to Take Necessary Steps for Payment Constitutes a Breach of

Contract .............................................................................................................................. 22

3. CLAIMANT is Not Bound by its Own Past Practice in Previous Dealings According to

Art. 9(1) CISG ................................................................................................................... 22

III. RESPONDENT Cannot Rely on Art. 35(2) CISG to be Exempted from its Liability to

Pay the Levy Amount ................................................................................................................ 23

1. New Zealand Mussels Case Does Not Apply to the Case at Hand ............................ 23

2. Following the Mussels Case Approach Conflicts with the Fundamental Objective of

Art. 7(1) CISG ................................................................................................................... 24

CONCLUSION OF THE SECOND ISSUE ............................................................................. 25

ISSUE 3: THE TRIBUNAL DOES NOT HAVE THE AUTHORITY TO ORDER

CLAIMANT TO PROVIDE SECURITY FOR RESPONDENT’S COSTS ......................... 25


V

A. The Tribunal Does Not Have the Authority to Grant Security for Costs Order ................ 25

I. Section 21 DSA is Silent on the Matter of Security for Costs .......................................... 25

II. Danubian Arbitration Law Does Not Explicitly Grant the Tribunal the Power to Order

Security for Costs ....................................................................................................................... 26

III. RESPONDENT Cannot Base its Argument on International Arbitration Practice ..... 27

1. Granting the Tribunal the Power to Order Security for Costs is Not Common in

International Arbitration Practice ...................................................................................... 27

2. RESPONDENT Has Not Met Any International Criteria to Qualify for a Security for

Costs Order .................................................................................................................................. 28

IV. RESPONDENT’s Has Not Established Prima Facie that CLAIMANT Will Bear the

Costs of the Arbitration .............................................................................................................. 28

1. RESPONDENT’s Assumption that the Unsuccessful Party Will Bear the Costs of

Arbitration is Wrong .................................................................................................................. 29

2. RESPONDENT’s Assumption is a Prejudgment to the Merits ..................................... 29

B. Even if the Tribunal Has the Power to Order CLAIMANT to Provide Security for

RESPONDENT’s Costs, it Should Not Exercise this Power .................................................... 30

I. RESPONDENT’s Request for Security for Costs is Not Admissible According to Art.

4.21 CAM-CCBC ....................................................................................................................... 30

II. RESPONDENT Carries the Burden of Proof with Respect to the Existence of

Exceptional Circumstances in CLAIMANT’s Financial Situation ...................................... 31

1. RESPONDENT Carries the Burden of Proof ................................................................ 31

2. RESPONDENT Has Not Met its Burden of Proof ........................................................ 32

III. Even if RESPONDENT Has Met its Burden of Proof, CLAIMANT’s Financial

Situation Has Not Changed Substantially ............................................................................... 33

1. CLAIMANT’s Financial Situation Has Not Changed Substantially .......................... 33

2. Even if CLAIMANT’s Financial Situation Has Changed Substantially, that Change is

Justifiable ........................................................................................................................... 33


VI

a) The Change in CLAIMANT’s Financial Situation was Due to RESPONDENT’s

Breach ............................................................................................................................. 33

b) The Change in CLAIMANT’s Financial Situation is a Normal Commercial Risk 34

c) The Change in CLAIMANT’s Financial Situation is Not Enough to Grant Security

for Costs ......................................................................................................................... 34

CONCLUSION OF THE THIRD ISSUE ................................................................................. 35

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

CERTIFICATE .................................................................................................................. XXXIII


VII

INDEX OF ABBREVIATIONS

Ans. to Req. for Arb. Answer to Request for Arbitration

Ans. to Security for Costs Answer to Request for Security for Costs

Art. / Artt. Article / Articles

Aug August

Bank Equatoriana National Bank

BGH The Federal Court of Justice (Bundesgerichtshof)

BIS Bank of International Settlements 2013

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

Brazil-Canada

CFO Chief Financial Officer

CISG United Nations Convention on Contracts for the International Sale

of Goods of 11 April 1980

CISG Digest UNCITRAL Digest of Case Law on the United Nations Convention

on Contracts for the International Sale of Goods—2012 & 2016

CLAIMANT Wright Ltd

Cl.Ex. Claimant’s exhibit

COO Chief Operations Officer

DAL Danubian Arbitration Law

Dec December

DSA Development and Sales Agreement

ed. Editions

EISA Engineering International SA

EQD Equatorianian Denars

etc. et cetera (and so on)

ICC International Chamber of Commerce

ICSID International Centre For Settlement of Investment Disputes

Jan January

MAL UNCITRAL Digest

Ms. Miss


VIII

Ltd. Limited

No. Number

NYC 1958

New York Convention on the Recognition and Enforcement of

Foreign Arbitral Awards

Oct October

Ordr. of Pres. Order of CAM-CCBC President

p. /pp. Page / Pages

PoA Power of Attorney

PO1 Procedural Order Number 1

PO2 Procedural Order Number 2

Para./paras. Paragraph/paragraphs

R. Record

Req. for Arb. Request for Arbitration

Req. for Relief Request for Relief

Req. for Security for Costs Request for Security for Costs

RESPONDENT SantosD

Resp.Ex. Respondent’s Exhibit

Sec. Section

Sep September

Terms of Ref. Terms of Reference

UNCITRAL United Nations Commission on International Trade Law

UNIDROIT International Institute for the Unification of Private Law

US$ US dollars

v. versus (against)

Vol Volume

WIPO World Intellectual Property Organization

WS Witness statement

Xanadu Government of Xanadu


IX

INDEX OF AUTHORITIES

Angus, Paul

Paquet, Priya

Maiorana, Nicholas

Court of Appeal upholds order for security for costs in

favour of insurer: Hassoun v Wesfarmers General

Insurance Ltd t/a Lumley General [2015] NSWCA 33,

Turks Legal, (2015)

Available at:

http://bit.ly/2eNBpif

Cited as: Angus/Paquet/Maiorana

in para. 152

Bank for International

Settlements

A glossary of terms used in payments and settlement

systems,

(2003)

Available at:

http://www.bis.org/cpmi/glossary_030301

Cited as: BIS, 2003

in para. 99

Blackaby, Nigel

Partasides, Constantine

Redfern, Alan

Hunter, Martin

Redfern and Hunter on International Commercial

Arbitration,

5th ed., Oxford University Press, (2009)

Cited as: Blackaby/Partasides/Redfern/Hunter

in paras. 38, 48,126,146

Born, Gary B.

International Arbitration: Law and Practice,

1st ed., Kluwer Law International, (2012)

Cited as: Born (2012)

in para. 142

Born, Gary B. International Commercial Arbitration,


X

2nd ed., Kluwer Law International, (2014)

Cited as: Born (2014)

in paras. 44,128,145,156,157,168

Bout, Patrick X.

Trade Usages: Article 9 of the Convention on Contracts

for the International Sale of Goods,

(1998)

Available at:

http://www.cisg.law.pace.edu/cisg/biblio/bout.html

Cited as: Bout

in para. 72

Caron, David D.

Schill, Stephan W.

Smutny, Abbey Cohen

Triantafilou, Epaminontas E.

Practicing Virtue: Inside International Arbitration,

1st ed., Oxford Scholarship, (2015)

Ch. Pre-Arbitration Procedural Requirements; Born, Gary

B. & Marija Scekic.

Cited as: Born/Scekic

in paras. 41,45,55

Chartered Institute of

Arbitrators

International arbitration practice guideline: Applications

for Security for Costs,

Chartered Institute of Arbitrators, (2015)

Available at:

http://bit.ly/2frWWu6

Cited as: CIoA (1)

in para. 171

Chartered Institute of

Arbitrators

International arbitration practice guideline: Applications

for Interim Measures,

Chartered Institute of Arbitrators, (2015)

Available at:


XI

http://bit.ly/2gnqYSZ

Cited as: CIoA (2)

in para. 148

Derains, Yves

Schwartz, Eric A.

A Guide to the ICC Rules of Arbitration,

2nd ed., Kluwer Law International, (2005)

Cited as: Schwartz/Derains

in para. 28

Eiselen, Sieg CISG-AC Opinion No. 13, Inclusion of Standard Terms

under the CISG,

(2013)

Available at:

http://www.cisg.law.pace.edu/cisg/CISG-AC-op13.html

Cited as: CISG-AC Opinion No.13

in para. 93

Farnsworth, E. Allan Article 8

(1987)

Available at:

http://cisgw3.law.pace.edu/cisg/biblio/farnsworth-

bb8.html

Cited as: Farnsworth

in para. 81

Flechtner, Harry M. Funky Mussels, A Stolen Car, and Decrepit Used Shoes:

Non-Conforming Goods and Notice Thereof under the

United Nations Sales Convention ("CISG"),

Vol. 26:1, (2008)

Available at:

http://bit.ly/2gDXZq8


XII

Cited as: Flechtner

in paras. 116,117,121,122

Gabriel, Henry Journal of Law and Commerce,

(2005)

Cited as: Gabirel

Available at:

https://goo.gl/MSARaJ

in para. 105

Gilson, Ronald

Sabel, Charles

Scott, Robert

Contract Interpretation as Contract Design

Available at:

goo.gl/DalVN0

Cited as: Gilson/Sabel/Scott

in para. 96

González-Bueno, Carlos

Third Party Funding Again Under the Spotlight,

Kluwer Arbitration Blog, (2014)

Available at:

https://goo.gl/RR8l0t

Cited as: González-Bueno

in paras. 135,137

Graffi, Leonardo

Remarks on trade usages and business practices in

international sales law,

(2011)

Available at:

http://bit.ly/2gE5uNy

Cited as: Graffi

in para. 111


XIII

Greenberg, Simon

Kee, Christopher

Weeramantry, J. Romesh

International Commercial Arbitration: An Asia-Pacific

Perspective,

1st ed., Cambridge, (2011)

Available at:

http://bit.ly/2ePgwTZ

Cited as: Greenberg/Kee/Weeramantry

in para. 131

Herbst, Ludmila B.

Interpretation of Arbitration Agreements,

Farris, Vaughan, Wills & Murphy LLP, Vancouver, BC

(2012)

Available at:

https://goo.gl/E8VJ0U

Cited as: Herbst

in para. 126

Hoad, T. F.

The Concise Oxford Dictionary of English Etymology,

1st ed., Oxford University Press, (1993)

Cited as: Oxford ED

in paras. 30,31

Holtzmann, Howard M.

Neuhaus, Joseph E.

Kristjánsdóttir, Edda

Walsh, Thomas W.

A Guide to the 2006 Amendments to the UNCITRAL

Model Law,

Kluwer Law International, (2015)

Available at:

http://www.kluwerarbitration.com/CommonUI/book-

toc.aspx?book=TOC_Holtzmann_2006

Cited as: Holtzmann/Neuhaus/Kristjánsdóttir/Walsh

in para. 131

Honnold, John O. Interpretation of Statements or Other Conduct of a Party,


XIV

(1999)

Available at:

http://cisgw3.law.pace.edu/cisg/biblio/ho8.html

Cited as: Honnold 1999

in paras. 80, 110,116,118

Honnold, John O.

Uniform Law for International Sales under the 1980

United Nations Convention,

4th ed., Kluwer Law International, (2009)

Cited as: Honnold

in para. 60

Hussey, Anthony Security for Costs,

Hussey Fraser Solicitors, (2008)

Available at:

http://bit.ly/2g2v7HO

Cited as: Hussey

in paras. 151,168

Johnson, Lise New UNCITRAL Arbitration Rules on Transparency:

Application, Content and Next Steps,

International Institute for Sustainable Development,

(2013)

Available at:

http://www.iisd.org/pdf/2013/uncitral_rules_on_transpare

ncy_commentary.pdf

Cited as: Johnson

in para. 161

Karrer, Pierre A.

Desax, Marcus

Security for Costs in International Arbitration – Why,

when, and what if…,


XV

Carl Heymanns Verlag, (2002)

Cited as: Karrer/Desax

in paras. 131,156,158

Kazazi, Mojtaba

Burden of Proof and Related Issues: A Study on Evidence

Before International Tribunals,


Available at:

http://bit.ly/2gahV8d

Cited as: Kazazi

in para. 156

Kröll, Stefan

Mistelis, Loukas

Viscasillas, Pilar Perales

UN Convention on Contracts for the International Sale of

Goods (CISG),

C.H. Beck, (2011)

Cited as: Kröll/Mistelis/Viscasillas

in para. 106

Lemaire, Gillian

Costs in international commercial arbitration: the case for

predictability,

Dewey & LeBoeuf, (2009)

Cited as: Lemaire

in para. 130

Lew, Julian D. M.

Mistelis, Loukas A.

Kröll, Stefan Michael

Comparative International Commercial Arbitration


Available at:

http://www.kluwerarbitration.com/CommonUI/book-

toc.aspx?book=TOC_Lew_2003_V05_V06IBA

Cited as: Lew/Mistelis/Kröl

in para. 126


XVI

Lim, Steven

Interim Relief in International Arbitration,

SIAC Conference, (2014)

Available at:

https://goo.gl/QRsd30

Cited as: Lim

in paras. 138,139

Limparangsri, Sorawit

Strengthening Investor-State Arbitration Through

Transparency Measures,

(n.d).

Available at:

http://www.aseanlawassociation.org/12GAdocs/workshop

2-thailand.pdf

Cited as: Limparangsri

in para. 162

Lookofsky, Joseph Freedom of Contract: Convention as Supplementary

Regime,

(2000)

Available at:

http://cisgw3.law.pace.edu/cisg/biblio/loo6.html

Cited as: Lookofsky

in para. 93

Miles, Wendy

Speller, Duncan

Security for costs in international arbitration – emerging

consensus or continuing difference?,

WilmerHale, (2007)

Available at:

http://bit.ly/2gE1PQ5

Cited as: Miles/Speller


XVII

in paras. 131,137,138,158

Pearson Education Limited

Longman Dictionary of Contemporary English,

6th ed., Pearson Longman, (2014)

Cited as: Longman

in para. 30

Pessey, Jean-Baptiste

When to Grant Security for Costs in International

Commercial Arbitration: the Complex Quest for a

Uniform Test (2011 Writing Contest Winner),

(2011)

Available at:

http://bit.ly/2goEYf5

Cited as: Pessey

in para. 133

Roth, Marianne

Geistlinger, Michael

Stegner, Marianne

Yearbook on International Arbitration,

Vol. III, the Deutsche Nationalbiblionthek, (2013)

Available at:

http://www.winston.com/images/content/8/1/81776.pdf

Cited as: Roth/Geistlinger/Stegner

in paras. 159,171

Saidov, Djakhongir Art. 35 of the CISG: Reflecting on the Present and

Thinking about the Future,

Vol. 58, Villanova Law Review, (2013)

Available at:

http://bit.ly/2fHxe34

Cited as: Saidov

in para.114


XVIII

Schlechtriem, Peter

Schwenzer, Ingeborg

Commentary on the UN Convention on the International

Sale of Goods (CISG),

4th ed., Oxford University Press, (2016)

Cited as: Schlechtriem/Schwenzer

in paras. 60,68,70,71,93,99,107,116,118,122

Schwenzer, Ingeborg Commentary on Art. 7 CISG, Commentary on the UN

Convention on the International Sale of Goods (CISG),

3rd ed., Oxford University Press, (2010),

Cited as: Schwenzer

in para.102

Straube, Frederico José

Finkelstein, Claudio

Filho, Napoleão Casado

The CAM-CCBC Rules: A Commentary,

1st ed., Eleven International Publishing, (2016)

Cited as: Straube/Finkelstien/Filho

in paras. 29,32,35,37,48,49,54,156

Sun, Chan Leng

Interpreting an International Sale Contract,

(2005)

Available at:

http://cisgw3.law.pace.edu/cisg/biblio/sun1.html

Cited as: Sun

in para. 88

Uchkunove, Inna Security for Costs in ICSID Arbitration,

Kluwer Arbitration Blog, (2015)

Available at:

http://kluwerarbitrationblog.com/2015/02/10/security-for-

costs-in-icsid-arbitration/

Cited as: Uchkunove

in paras. 158,168,174


XIX

UNCITRAL UNCITRAL Digest of Case Law on the united nations

Convention on Contracts for the International Sale of

Goods United Nations,

(2012)

Cited as: CISG Digest 2012

in para. 105

UNCITRAL UNCITRAL Digest of Case Law on the united nations

Convention on Contracts for the International Sale of

Goods United Nations,

(2016)

Cited as: CISG Digest

in paras. 63,65,68,86,93

UNCITRAL Working Group II

on Arbitration and Conciliation

/ Dispute Settlement

Report of the Working Group on Arbitration and

Conciliation on the work of its forty-first session. Note by

the Secretariat of the meeting of Working Group II

(Arbitration) of UNCITRAL in Vienna on 13 – 17

September (2004)

Available at:

https://goo.gl/I1QvbV

Cited as: Working Group II (Sep 2004)

in para. 132

Várady, Tibor

Barceló III, John J.

Kröll, Stefan

Mehren, Arthur T.von

International Commercial Arbitration: A Transnational

Perspective,

6th ed., West Academic Publishing, (2015)

Cited as: Varady/Barcelona/Kroll/Mehren,

in paras. 106,156


XX

Vries, Justin De

Security for costs motions,

De Vires Litigation,

(n.d)

Available at:

http://bit.ly/2guVTw6

Cited as: Vries

in paras. 151,156

Waincymer, Jeffrey

Procedure and Evidence in International Arbitration,

1st ed., Kluwer Law International, (2012)

Cited as: Waincymer

in paras. 126,137,138,148,155,156,168,174


XXI

INDEX OF LEGAL SOURCES

CAM-CCBC Rules Center For Arbitration And Mediation Of The

Chamber Of Commerce Brazil-Canada

(CAM-CCBC) Arbitration Rules

CISG United Nations Convention on Contracts for

the International Sale of Goods (1980)

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

UNCITRAL Model Law United Nations Commission on International

Trade Law (UNCITRAL), UNCITRAL

Model Law on International Commercial

Arbitration (1985)

UNCITRAL Rules on Transparency UNCITRAL Rules on Transparency in

Treaty-based Investor-State Arbitration

UNIDROIT Principles

UNIDROIT Principles of International

Commercial Contracts (2010)


XXII

INDEX OF CASES

Australia

Hassoun v. Wesfarmers General Insurance Ltd t/a Lumley General

New South Wales Court of Appeal

2015

Case No. NSWCA 33

Cited as: Hassoun v. WGI Ltd

in paras. 152,158

Belgium

GmbH Lothringer Gunther Grosshandelsgesellschaft für Bauelemente und Holzwerkstoffe v. NV

Fepco International

Hof van Beroep Appellate Court

April 14 2006

Cited as: GmbH v. NV Fepco International

in para. 97

Canada

Teva Canada Limited v. Bank of Montréal

Ontario Court of Appeal

1998

Case No. ONCA 94

Cited as: Ont. Ltd. v. Bank of Montreal


XXIII

in para. 151

France

M. Caiato Roger v. La Société française de factoring international

CA Grenoble Court of Appeal

September 13 1995

CLOUT Case No. 202

Cited as: M. Caiato Roger v. La Société

in para. 120

Germany

Oberlandesgericht Appellate Court

October 14 2002

CISG Case No. 709

Cited as: CISG Case No. 709 (GER, 2002)

in para. 102

Lower Court Duisburg

April 13 2000

Case No. 49 C 502/00

CLOUT Case No. 360

Cited as: LC Duisburg, 49 C 502/00

in para. 70


XXIV

Appellate Court Dresden

December 27 1999

Case No. 2 U 2723/99

Cited as: AC Dresden, Case No. 2 U 2723/99

in para. 65

Landgericht District Court

April 17 1996

Cited as: LandgerichtDuisburg, Germany, 17 Apr. 1996

in para. 108

Bundesgerichtshof Federal Supreme Court

March 8 1995

CLOUT No. 123

Cited as: Mussels Case

in paras. 115,119

District Court Hamburg

September 26 1990

Case No. 5 O 543/88

CLOUT No. 5

Cited as: DC Hamburg, Case No. 5 O 543/88

in para. 82


XXV

New Zealand

Court of Appeal of New Zealand

July 22 2011

CLOUT Case No. 1256

Cited as: Smallmon v. Transport Sales Ltd.

in para. 120

United Kingdom

Emirates Trading Agency LLC v. Prime Mineral Exports Private Ltd

English High Court

July 1 2014

Case No. EWHC 2104

Cited as: Emirates Trading Agency LLC v. Prime Mineral Exports Private Ltd

in para. 43

Procter & Gamble v. Svenska Cellulosa Aktiebolaget

The High Court of Justice

March 8 2012

Cited as: P&G v. Svenska Cellulosa Aktiebolaget

in para. 61

Rainy Sky SA and others v. Kookmin Bank

United Kingdom Supreme Court


XXVI

November 2 2011

Cited as: Rainy Sky v. Kookmin Bank

in para. 66

Walford v. Miles

House of Lords

January 23 1992

Case No. 2 AC 128

Cited as: Walford v. Miles

in para. 45

United States

CSS Antenna, Inc. v. Amphenol-Tuchel Electronics, GMBH

Federal District Court

February 8 2011

Case No. CCB-09-2008

Cited as: CSS Antenna, Inc. v. ATE, GMBH

in para. 82


XXVII

INDEX OF ARBITRAL AWARDS

International Centre for Settlement of Investment Disputes

The Renco Group Inc v. Republic of Peru

November 9 2016

ICSID Case No. UNCT/13/1

Cited as: ICSID Case No. UNCT/13/1

Available at: http://www.italaw.com/sites/default/files/case-documents/italaw7744_1.pdf

in para. 146

Suez, Sociedad General de Aguas de Barcelona, S.A.and Vivendi Universal, S.A. v. Argentine

Republic

April 9 2015

ICSID Case No. ARB/03/19

Cited as: ICSID Case No. ARB/03/19

Available at: http://www.italaw.com/cases/1057

in para. 146

RSM Production Corporation v. Saint Lucia

August 13 2014

Case No. ARB/12/10

Cited as: RSM Production Corporation v. Saint Lucia

Available at: http://www.italaw.com/sites/default/files/case-documents/italaw3318.pdf


XXVIII

in paras. 133,134

Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentine

Republic

December 21 2012


Cited as: ICSID Case No. ARB/09/1

Available at

https://icsid.worldbank.org/apps/ICSIDWEB/cases/Pages/casedetail.aspx?caseno=ARB/09/1&ta

b=DOC

in paras. 151,168

Commerce Group Corporation & San Sebastian Gold Mines, Inc. v. Republic of El Salvador

September 20 2012

Case No. ARB/09/17

Cited as: CGC & SSGM v. El Salvador

Available at:

https://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=showDoc&d

ocId=DC2653_En&caseId=C741

in paras. 157,167,173

Merrill & Ring Forestry L.P. v. Canada

March 31 2010

ICSID Case No. UNCT/07/1


XXIX

Cited as: ICSID Case No. UNCT/07/1

Available at: http://www.italaw.com/sites/default/files/case-documents/ita0504.pdf

in para. 146

Tokios Tokeles v. Ukraine

July 1 2003


Cited as: Tokios Tokelės v. Ukraine, Case No. ARB/02/18

Available at: http://www.italaw.com/cases/1099

in para. 141

Victor Pey Casado and President Allende Foundation v. Republic of Chile

September 2001

Case No. ARB/98/2

Cited as: Pey Casado v. Chile

Available at: http://www.italaw.com/cases/829#sthash.ZxJFrx5O.dpuf

in para. 158

Emilio Agustín Maffezini Claimant v. Kingdom of Spain Respondent

October 28 1999

Case No. ARB/97/7

Cited as: Maffezini v. Spain



XXX

in para. 148

International Chamber of Commerce

M v. T

September 3 2003

ICC Case No. 11670

Cited as: ICC Case No. 11670

Available at: http://www.kluwerarbitration.com/CommonUI/document.aspx?id=ipn25737

in para. 146

European Union v. the Government of the Federal Republic of Yugoslavia and/or the

Government of the Republic of Serbia

November 9 1999

Case no. 10032

Cited as: EU v. Yugoslavia and/or Serbia

in para. 167

Seller v. Buyer

September 1996

ICC Case No. 8786/2000

Cited as: ICC Case No. 8786/2000

Available at: http://cisgw3.law.pace.edu/cases/978786i1.html

in para. 148


XXXI

Manufacturer v. Buyer

October 1996

ICC Case No. 8486


Available at: http://www.unilex.info/case.cfm?pid=2&do=case&id=630&step=FullText &

https://goo.gl/5zSka4

in para. 146

Syrian Agent v. German Trading Company

October 1995

ICC Case No. 8113


in para. 148

Tribunal of International Commercial Arbitration at the Russian Federation Chamber of

Commerce and Industry

RF CCI

October 17 1995

CLOUT Case No. 142

Cited as: RF CCI, 123/1992

in para. 108


XXXII

Ad Hoc

Thailand

Walter Bau AG (In Liquidation) V. The Kingdom of Thailand

July 1 2009

Cited as: Walter BAG v. Thailand


in para. 159

Iran

Sapphire vs. National Iranian Oil Company

March 15 1963

Cited as: Sapphire vs. National Iranian Oil Company

Available at: http://www.biicl.org/files/3940_1963_sapphire_v_nioc.pdf

in para. 102


1

STATEMENT OF FACTS

The parties to this arbitration are Wright Ltd (“CLAIMANT”) and SantosD KG (“RESPONDENT”).

CLAIMANT is a highly specialized manufacturer of fan blades for jet engines, located in Equatoriana.

RESPONDENT is a medium-sized manufacturer of jet engines, located in Mediterraneo.

1. CLAIMANT and RESPONDENT (the “Parties”) entered into negotiations during 2010, when

they were still subsidiaries to Engineering International SA (“EISA”), to develop jointly a new

fan blade for RESPONDENT’s jet engine JE 76/TL14b (the “Engine”), which is made for use in

the executive line 100 jet of Earhart, an aircraft manufacturer.

2. During the negotiations, RESPONDENT insisted on a fixed maximum price so that it could offer

the Engine to Earhart. Despite the difficulty of such request due to the cost’s uncertainty,

CLAIMANT agreed on a flexible price structure. In addition, the production costs are incurred in

Equatorianian Denars (“EQD”), however CLAIMANT agreed to base the price in US dollars

(“US$”) to satisfy RESPONDENT’s preference.

3. On Aug 1 2010, the Parties concluded a Development and Sales Agreement (“DSA”) by which

RESPONDENT agreed to buy 2,000 swept fan blades from CLAIMANT to be delivered on Jan

14 2015. The Parties agreed upon a minimum price of US$ 9,975 and a maximum price of US$

13,125 per fan blade, determined on a cost-plus basis.

4. Pursuant to RESPONDENT’s need to purchase clamps, its Chief Executive Officer (“CEO”)

emailed CLAIMANT’s Chief Operation Officer (“COO”) on Oct 22 2010, stating that signing

an addendum would be easier than writing a separate contract for the clamps.

5. As a result, the addendum was signed on Oct 26 2010, by which CLAIMANT will deliver 2,000

clamps for a price determined on a cost-coverage basis with a fixed exchange rate of US$

1=EQD 2.01 for the clamps.

6. In line with the DSA, CLAIMANT delivered the fan blades and clamps, alongside their

respective invoices to RESPONDENT on Jan 14 2015. The latter accepted the delivery and

approved the goods’ conformity with the DSA.

7. On Jan 15 2015, RESPONDENT effected the payment of US$ 20,438,560 for the fan blades,

and US$ 183,343.28 for the clamps to the Equatoriana National Bank (the “Bank”).

8. On the same day, CLAIMANT immediately emailed RESPONDENT apologizing for its mistake

of applying the wrong exchange rate. Instead of applying the fixed rate of US$ 1 = EQD 2.01

exclusively for the clamps, it was also applied to the fan blades as well. Despite CLAIMANT’s


2

clarification on its mistake, CLAIMANT received an amount of US$ 20,336,367.20 rather than

the due amount of US$ 22,723,800 on Jan 29 2015.

9. On February 9 2015, CLAIMANT communicated its concern regarding the outstanding amount

of US$ 2,387,432.80. However, RESPONDENT refused to pay the outstanding amount, and

insisted on the application of the fixed exchange rate to both the blades and clamps.

10. Furthermore, due to an investigation by the Bank for money laundering, a 0.5% levy was

deducted during the transfer of the sum credited to CLAIMANT’s account. Despite clear

contract terms requiring RESPONDENT to bear this cost, it refused to pay this levy.

11. As per the DSA, CLAIMANT tried to solve the dispute amicably. However, negotiations

remained stagnant as RESPONDENT declined the offers. Nevertheless, CLAIMANT emailed

RESPONDENT on April 1 2016 expressing its willingness to further negotiate the dispute.

12. Due to RESPONDENT’s uncooperative behavior in resolving the dispute, CLAIMANT

submitted a comprehensive request of arbitration to the Center for Arbitration and Mediation of

the Chamber of Commerce Brazil-Canada (“CAM-CCBC”) on May 31 2016; hence, initiating

arbitral proceedings.

13. On June 1 2016, CAM-CCBC notified CLAIMANT of receiving the arbitration request. In the

same notice, CAM-CCBC notified CLAIMANT that it had paid US$ 400 instead of US$ 4,000

as a registration fee as well as made a mistake in the Power of Attorney (“PoA”).

14. Therefore, an amendment to the PoA and to the Registration fee had to be made to cure the

simple errors, and so on June 7 2016 CLAIMANT sent the supplemented request.

15. CAM-CCBC sent a notice informing RESPONDENT that the arbitration request had been

received on May 31 2016 and supplemented on June 7 2016.

16. RESPONDENT replied to the arbitration request on June 24 2016. Also, the Terms of Reference

were signed by the Parties and CAM-CCBC arbitral tribunal (the “Tribunal”).

17. On Sep 6 2016, RESPONDENT requested the Tribunal to grant it security for its costs from

CLAIMANT.

18. On Sep 16 2016, CLAIMANT notified CAM-CCBC of its objection to RESPONDENT’s

unreasonable request.


3

SUMMARY OF ARGUMENT

19. In drafting the DSA, care was given to attain to RESPONDENT's needs whilst protecting

CLAIMANT's interests. Although costs were uncertain, the price calculation method agreed

upon allowed RESPONDENT to make an offer to Earhart. Consequently, RESPONDENT's

wishes of winning the chance to showcase its newly developed jet engine via the prestigious

world renowned Earhart came true.

20. RESPONDENT nonetheless refuses to pay the full purchase price agreed upon, alleging that a

fixed exchange rate set in an addendum for the purchase of the clamps also applies to the

calculation of fan blades; thus, shifting the currency exchange risk on CLAIMANT. Although

nowhere in the contract did CLAIMANT agree to bear this risk with respect to the fan blades.

21. In complying with the DSA's terms, CLAIMANT tried to resolve this dispute amicably but failed

due to RESPONDENT’s unwillingness to cooperate. Thus, CLAIMANT resorted to arbitration,

however RESPONDENT is trying to challenge the admissibility of CLAIMANT’s claim even

though minor errors in the arbitration request do not render its submission void (Issue 1).

22. CLAIMANT is requesting for the total amount of US$ 2,387,432.80 as a result of

RESPONDENT's breach of its payment obligations under both the DSA and the CISG. The

outstanding amount of US$ 2,285,240.00 is consequent to RESPONDENT’s false assumption of

applying the fixed exchange rate to the fan blades, while the amount of US$ 102,192.80 resulted

from RESPONDENT’s failure to comply with its obligation to bear the bank inspection charge

(Issue 2).

23. Finally, RESPONDENT submitted a request for security for costs from CLAIMANT, even

though the Tribunal does not have the power to grant such measure, neither under Sec. 21 DSA,

nor under the lex arbitri selected by the Parties (Issue 3).


4

ISSUE 1: CLAIMANT’S CLAIMS ARE ADMISSIBLE DUE TO THEIR TIMELY

SUBMISSION

24. On May 31 2016, CLAIMANT initiated arbitral proceedings and accordingly declared failure of

negotiations as its reasoning [R.3, Req. for Arb.]. Hence, the period of sixty days mentioned in

Sec. 21 DSA [R.11, Cl.Ex.2] is not applicable to the case at hand. However, the request for

arbitration submitted at the aforementioned date required an amendment to the registration fee

and the PoA to comply with Artt. 4.1 and 4.2 CAM-CCBC. These amendments were executed

and therefore the arbitration was commenced on June 7 2016 [R.40, Ordr. of Pres., para.1].

25. As a result, CLAIMANT’s claims are wholly admissible as initiation of arbitral proceedings

occurred on time as per Section 21 DSA (A). In addition, CLAIMANT’s request for arbitration

is in line with the requirements set out under the DSA and CAM-CCBC rules (B).

A. CLAIMANT’s Claims are Admissible as Initiation of Arbitral Proceedings Occurred on

May 31 2016 as Per Section 21 DSA

26. By virtue of Sec. 21 DSA, both Parties have agreed to resort to arbitration in case they are unable

to resolve any dispute amicably. This is to occur sixty days after they fail to resolve their issues

despite negotiations [R.11, Cl.Ex.2]. Failure of negotiation and initiation of arbitral proceedings

occurred on May 31 2016 (I). That being said, CLAIMANT communicated its willingness to

attempt further negotiations on April 1 2016 (II). In addition, commencement of arbitral

proceedings occurred on June 7 2016 (III). Even if the Arbitral Tribunal considers that failure of

negotiations occurred on April 1 2016, CLAIMANT’s claims are still admissible (IV).

I. Failure of Negotiation and Initiation of Arbitral Proceedings Occurred on May 31 2016

27. Taking into account previous communications between the Parties, it becomes evident that

failure of negotiations occurred on May 31 2016 as did the initiation of arbitral proceedings. This

corresponds to the date the President of CAM-CCBC (“President”) officially received notice of a

valid arbitration request by CLAIMANT [R.3, Req. for Arb.].

28. The date it was received was later validated through the order of the President [R.40, Ordr. of

Pres.]. Within this order, the President states that CLAIMANT submitted the request for

arbitration on the aforementioned date; hence, impliedly accepting the notice. Had the notice

been invalid, and led to CLAIMANT’s claims being inadmissible, a new request for arbitral

proceedings would have been demanded rather than a mere request for amendment


5

[Schwartz/Derains, pp.52-53].

29. The CAM-CCBC states that a request for commencement of arbitral proceedings occurs when

the President is notified of the request for arbitration [Straube/Finkelstien/Filho, p.65, para.2]. It

is important to note the difference between the terms initiation and commencement, as doing so

has a direct effect on the interpretation of both Parties’ actions.

30. According to Longman Dictionary of Contemporary English (2014), to initiate is “to arrange for

something important to start such as an official process” [Longman, p.906, para.6] while to

commence is “to begin something” [Longman, p.329, para.15]. Other established dictionaries,

such as but not limited to, Cambridge, Oxford, Macmillan, and Merriam-Webster dictionary also

put forth definitions that show the same distinction between both words. What is deduced is that

the former refers to the earliest steps of a process, before development is deemed a must.

Commencement, the latter, regards the stage when inaction changes into action. On that account,

while the words may initially seem synonymous, there is a subtle semantic difference between

them that is often overlooked.

31. Further support can be acquired through studying the word’s etymology. With regards to using

them as verbs, initiate which was from the late 1600 century Latin word initiatus is to “introduce

some practice” or “set going” [Oxford ED, p.236]. On the other hand, to commence is from the

old 1300 century French word comencier which means “to begin, start” [Oxford ED, p.86].

32. Consequently, CAM-CCBC presents instances when a request for arbitration may be considered

time-barred. It mentions that the only risk to CLAIMANT’s claim is if there were a problem with

the request’s validity [Straube/Finkelstien/Filho, p.66, para.5]. For example, invalidity occurs

when requests are submitted to CAM-CCBC with problems such as a missing copy of the

arbitration request and amendments were only done after the respective limitation period had

passed [Straube/Finkelstien/Filho, p.66, para.5]. In this case, such a limitation period is

inapplicable due to both initiation and failure of negotiations occurring on the same day, which is

May 31 2016. Therefore, the risk of invalidity may be dismissed.

33. Moreover, the requirements set forth in Artt. 4.1 and 4.2 CAM-CCBC that validate a request for

arbitration have been satisfied [See paras.48 et seq.]. Taking that into account, all matters of

paramount importance were included in the initial request and were later amended within the

appropriate time frame before commencement was to be achieved. Consequently, the slight delay

brought about with the need for two amendments should not intervene with the validity of the


6

request; and subsequently, CLAIMANT’s claims are admissible.

II. CLAIMANT Expressed its Willingness to Attempt Further Negotiations on April 1 2016

34. To determine the date of failure of negotiations, it is required to highlight the communications

that occurred between Parties. On April 1 2016, CLAIMANT’s COO emailed RESPONDENT

regarding the failure of negotiations. She mentions that “it is presently not possible to find an

amicable solution” [R.29, Resp.Ex.3]. Her use of the word “presently” limits the failure of

negotiations only to the past and current times. She then expressly conveys that CLAIMANT

“remains open for any meaningful negotiations” [R.29, Resp.Ex.3], a patent expression showing

CLAIMANT’s willingness to further discuss the issue at hand with RESPONDENT in the future

without the need to resort to arbitral proceedings. Thus, complete failure of negotiations did not

occur on April 1 2016.

III. Commencement of Arbitral Proceedings Occurred on June 7 2016

35. As per CAM-CCBC, “whenever a dispute arises… the damaged party should notify the CAM-

CCBC President requesting commencement” [Straube/Finkelstien/Filho, p.65, para.2]. Through

this excerpt, it may be reiterated that commencement is when arbitral proceedings actually begin

to take place. Thus, initiation would be deemed equivalent to a request for commencement,

whereas the requirements of said request mentioned in Artt. 4.1 and 4.2 CAM-CCBC have been

adequately met, but positive action towards dispute resolution has not occurred yet.

36. Given that, failure of negotiations and initiation had occurred on May 31 2016, commencement

of arbitral proceedings accordingly started on June 7 2016, when the supplements were received.

This date is to be significantly marked, as it was the day CLAIMANT amended the required

documents submitted thereby completely fulfilling the requirements of 4.1 and 4.2 CAM-CCBC.

CLAIMANT fulfilled the amendment condition set forth by the President, as he had stated that to

send notice to RESPONDENT “claimant must first amend the Request for Arbitration within ten

days and provide evidence that all the requirements of Article 4.1 have been complied with”

[R.19, Ordr. of Pres.]. This condition was satisfied as CLAIMANT did so within eight days.

37. Accordingly, the President received the supplemented request for arbitration from CLAIMANT

against RESPONDENT on June 7 2016 [R.20, Amendment notification]. Consequently, the

arbitral proceedings shifted from the initiation to the commencement phase on that same day

through the above notice. Art. 4.21 CAM-CCBC states, “The parties can change, modify or

amend the claims and cases of action until the date of Terms of Reference are signed”


7

[Straube/Finkelstien/Filho, p.111, para.3]. If one were to address both articles in combination,

CLAIMANT has satisfied all requirements needed to commence arbitral proceedings on June 7

2016 due to submitting all documents and their respective amendment on time.

IV. Even if the Arbitral Tribunal Considers that Failure of Negotiations Occurred on April

1 2016, CLAIMANT’s Claims are Still Admissible

38. If failure of negotiations were to have occurred on April 1 2016, then the sixty-day limitation

period for arbitration would deem applicable. This is because the email sent by CLAIMANT’s

COO reflects its intent to resort to arbitration as of the day it was sent if further negotiations

failed [R.29, Resp.Ex.3]. Regardless, since initiation occurred on May 31 2016, CLAIMANT’s

claims are still admissible as request for arbitration occurred within the time limit set in Sec. 21

DSA [R.11, Cl.Ex.2]. This was supported through the President’s assertion that the request was

submitted on May 31 2016 and supplemented on June 7 2016 [R.40, Ordr. of Pres., para.1].

B. CLAIMANT’s Request for Arbitration is in Line with the Requirements Set Out under the

DSA and CAM-CCBC Rules

39. The Tribunal is requested to determine the admissibility of CLAIMANT’s claims in accordance

with the DSA and the requirements of the chosen arbitration rules

[Blackaby/Partasides/Redfern/Hunter, p.195, para.3.94]. The Parties chose CAM-CCBC as their

arbitral institution [R.11, Cl.Ex.2], and therefore, the CAM-CCBC rules are to apply in

regulating the arbitral proceedings.

40. In this regard, CLAIMANT fulfilled the condition precedent set forth under Sec. 21 DSA (I). In

addition, its request for arbitration also satisfied the requirements prescribed under the CAM-

CCBC rules (II) and therefore, CLAIMANT’s claims should be considered admissible.

I. CLAIMANT Fulfilled the Condition Precedent Set Forth under Section 21 DSA

41. Pursuant to the DSA signed by the Parties, a condition precedent was incorporated within the

multi-tier dispute resolution clause of Sec. 21 DSA [R.11, Cl.Ex.2]. The clause contained a pre-

arbitration procedural requirement, which is to resort to negotiations in the event of a dispute

[R.11, Cl.Ex.2]. This requirement is to be satisfied prior to initiation of arbitration as it is a

mandatory contractual obligation [Born/Scekic, p.237, para.1].

42. In order for CLAIMANT to comply with the pre-arbitration requirement, a meeting was held on

March 31 2016 between the Parties in which CLAIMANT negotiated its willingness to a fixed

exchange rate and a rebate in conjunction with further orders [R.58, PO2, para.23]. However,


8

RESPONDENT did not cooperate and was not willing to commit to the purchase of another

2000 blades [R.58, PO2, para.23]. Therefore, CLAIMANT’s offers were not welcomed with an

open mind from RESPONDENT and so its duty to negotiate before initiating arbitration under

Sec. 21 DSA [R.21, Cl.Ex.2] was fulfilled.

43. In a judgment of the English courts in the case of Emirates Trading Agency LLC v. Prime

Mineral Exports Private Ltd, the judge held that the condition precedent of negotiating the

dispute through friendly discussions prior to arbitration was enforceable. Therefore, when

CLAIMANT tried to negotiate the dispute amicably [R.58, PO2, para.23], it honored the

provisions of the DSA and satisfied the pre-arbitration requirement. As a result, initiating

arbitration became valid.

44. Moreover, Sec. 21 DSA [R.11, Cl.Ex.2] did not require a fruitful negotiation between the Parties,

but rather merely stated that the Parties should negotiate in the case of a dispute prior to initiating

arbitration. In fact, “the agreement to negotiate . . . is not an agreement to negotiate successfully

or to agree on any particular terms, but only an agreement to discuss a particular issue” [Born

(2014), p.922, para.4]. Thus, CLAIMANT was not under an obligation to ensure that the

negotiations with RESPONDENT were successful. On the contrary, the only duty imposed on

CLAIMANT according to Sec. 21 DSA [R.11, Cl.Ex.2] is to try to solve the dispute amicably to

satisfy the condition precedent.

45. Similarly, in the case of Walford v. Miles, the court held that an “obligation to seek to resolve a

claim by friendly discussions is no more than an agreement to negotiate with a view to settling

the dispute”. Hence, such condition precedents that involve negotiating the dispute do not have

to be successful but rather they only must be complied with prior to arbitration [Born/Scekic,

p.252, para.2].

46. Finally, the Parties are contracting states of the NYC 1958 [R.60, PO2, para.35] and therefore no

party can contest the enforceability of the arbitration agreement of Sec. 21 DSA [R.11, Cl.Ex.2]

by virtue of Art.2 NYC 1958.

II. CLAIMANT’s Request for Arbitration Satisfied the Requirements Prescribed Under

the CAM-CCBC Rules

47. RESPONDENT alleges that CLAIMANT’s claim is inadmissible due to non-compliance with

Artt. 4.1 and 4.2 CAM-CCBC rules on the day of initiating arbitration [R.25, Ans. to Req. for

Arb. para.12]. However, this allegation is groundless as CLAIMANT complied with the rules of


9

CAM-CCBC. Therefore, the requirements set out by Art. 4.1 CAM-CCBC rules are met (1) In

addition, the requirements set under Art. 4.2 CAM-CCBC rules are also satisfied (2).

1. The Requirements Set Out by Art. 4.1 CAM-CCBC Rules are Met

48. Despite RESPONDENT’s allegation, CLAIMANT satisfied the requirements for initiating

arbitration mentioned in Art. 4.1 CAM-CCBC. Art. 4.1 CAM-CCBC requires the notification of

CAM-CCBC’s President upon requesting the commencement of arbitration

[Straube/Finkelstien,/Filho, p.65, para.1]. In an arbitral institution, it is usual for “the notice to

be given to the relevant institution by a ‘request for arbitration’ or similar document, and the

institution then notifies the respondent” [Blackaby/Partasides/Redfern/Hunter, p.24, para.1.67].

49. In addition, Art. 4.1 CAM-CCBC lists a number of documents that must be attached to the

request for arbitration. The request must contain a copy of the arbitration agreement, the amount

involved, the express reference to the seat, language, law or rules of law applicable to the

arbitration, summary of the dispute, the full name of the Parties, and the PoA

[Straube/Finkelstien/Filho, p.66, para.3].

50. CLAIMANT’s request for arbitration contained all the requirements mentioned hereinabove

[R.3, Req. for Arb.] as the request contained a copy of the arbitration agreement, the seat,

language, laws, and rules applicable [R.6, St. of Cl., para.19]. It also contained the amount in

dispute [R.7, St. of Cl.], its summary, and the Parties’ names [R.3, St. of Cl.].

51. The only amendment required was the PoA, which contained the name of CLAIMANT’s parent

company, Wright Holding PLC instead of Wright Ltd. [R.18, PoA]. This occurred because

CLAIMANT’s parent company that owns 88% of CLAIMANT’s limited company [R.54, PO2,

para.2] had originally approached the lawyer to prepare the PoA [R.20, Fasttrack to CAM-

CCBC]. Nonetheless, CLAIMANT’s lawyer submitted the amended PoA promptly to CAM-

CCBC [R.21, PoA].

52. Moreover, RESPONDENT alleges that CLAIMANT’s lawyer lacked any proper authority to

submit the claim as the PoA had a minor mistake [R.25, Ans. to Req. for Arb., para.13].

However, it is vital to highlight the explicit wording of the amended PoA stating, “the grant of

this Power of Attorney shall thereby approve any actions already undertaken by the Lawyer”

[R.18, PoA]. Accordingly, any actions done by CLAIMANT’s lawyer prior to correcting the PoA

shall be deemed valid. Therefore, CLAIMANT fulfilled all the requirements of Art. 4.1 CAM-

CCBC, and the request for arbitration should be deemed admissible.


10

2. The Requirements Set Under Art. 4.2 CAM-CCBC Rules are Satisfied

53. RESPONDENT states that CLAIMANT did not satisfy the requirements of Art. 4.2 CAM-

CCBC [R.25, Ans. to Req. for Arb., para.12]. This claim lacks any legal basis. Art. 4.2 CAM-

CCBC obliges the parties wishing to arbitrate to attach the proof of payment of the registration

fee when submitting the request for arbitration. CLAIMANT fulfilled this obligation, as the

request had the proof of payment attached to it [R.3, Req. for Arb.].

54. Notwithstanding this fact, Art. 4.2 CAM-CCBC requires the payment to be in accordance with

Art. 12.5 CAM-CCBC, which states that the registration fee must be paid corresponding to the

table of expenses. The table of expenses provide that the current cost of registration is R$ 4000

[Straube/Finkelstien/Filho, p.192, para.4]. CLAIMANT’s mistake of paying $400 instead of

$4000 was a minor one as the error was simply an oversight. Regardless, this oversight was

immediately fixed on June 7 2016 when CLAIMANT paid the remainder of the fee [R.20,

Fasttrack to CAM-CCBC].

55. CLAIMANT met its obligations under Art. 12 CAM-CCBC [R.60, PO2, para.35] thus satisfying

Artt. 4.2 and 12.5 CAM-CCBC. Hence, “it would be inappropriate to bar a presumptively valid

claim on either jurisdictional or admissibility grounds” [Born/Scekic, p.254, para.2].

CONCLUSION OF THE FIRST ISSUE

56. CLAIMANT’s claims are admissible as they have been submitted on time. Sec. 21 DSA supports

that the arbitration proceedings were initiated on time as both initiation and failure of negotiation

occurred on May 31 2016. Therefore, the request to arbitration was supplemented on June 7

2016, which then commenced arbitral proceedings. CLAIMANT’s claims were also in

compliance with the DSA and CAM-CCBC Rules.

ISSUE 2: CLAIMANT IS ENTITLED TO THE FULL PAYMENT OF THE PURCHASE

PRICE ACCORDING TO THE DSA AND CISG

57. RESPONDENT is under an obligation to pay the full purchase price to CLAIMANT by virtue of

the DSA, the CISG, which is the governing law of the contract [R.11, Cl.Ex.2], and the

UNIDROIT principles [R.53, PO1]. Accordingly, CLAIMANT is entitled to the outstanding

amount of US$ 2,285,240.00 from RESPONDENT as the remainder of the purchase price for the

fan blades (A). In addition, CLAIMANT is also entitled to the amount of US$ 102,192.80 for the

bank inspection charge from RESPONDENT (B).


11

A. CLAIMANT is Entitled to the Outstanding Amount of US$ 2,285,240.00 from

RESPONDENT as the Remainder of the Purchase Price for the Fan Blades

58. Sec. 4 DSA included a price structure calculated on a cost-plus basis with a minimum and a

maximum price [R.10, Cl.Ex.2]. Even though the price of each blade was not yet certain and the

costs would be incurred in EQD, CLAIMANT kindly agreed on this provision due to

RESPONDENT’s insistence on offering Earhart a price [R.8, Cl.Ex.1]. Nonetheless, the DSA did

not specify a fixed exchange rate and so the purchase price for the fan blades is determined on

the basis of the current exchange rate (I). Additionally, the fixed exchange rate set out in the

addendum applies only to the clamps and not to the fan blades (II).

I. The Purchase Price for the Fan Blades is Determined on the Basis of the Current

Exchange Rate

59. Sec. 4 DSA did not specify a fixed exchange rate nor did it address the issue of the exchange rate

in general [R.10, Cl.Ex.2]. Therefore, the purchase price for the fan blades is to be determined

based on the current exchange rate (1). In addition, there is no established practice between the

Parties on the use of the exchange rate at the time of contracting (2). Even if there was an

established practice between the Parties, it will not be binding upon them in the present case (3).

1. The Purchase Price for the Fan Blades is Determined in Accordance with the DSA

60. Parties are only bound by the terms and provisions found within their contract [Honnold, p.19,

para.1] and so any matters that are not addressed in the contract cannot be deemed obligatory on

them. Usually, the parties to a contract will provide for a fixed price or make provision for

determining the price [Schlechtriem/Schwenzer, p.822, para.2] and so the Parties in the issue at

hand chose to agree upon a pricing structure with a minimum and a maximum price per blade

[R.10, Cl.Ex.2]. Accordingly, in order to determine that the purchase price is based on the current

exchange rate which is equivalent to US$ 1 = EQD 1.79 [R.14, Cl.Ex.5], it is essential to initially

understand the objective of the price structure found in Sec.4 DSA [R.10, Cl.Ex2].

61. First, Sec. 4 DSA did not expressly nor impliedly address the matter of the exchange rate nor did

the Parties discuss its application during their negotiations [R.54, PO2, para.15] and so

RESPONDENT cannot argue that there was any fixed rate in relation to the blades [R.10,

Cl.Ex2]. In the case of P&G Co v. Svenska Cellulosa Aktiebolaget, the court held that there was

no express or implied term incorporating a fixed exchange rate but rather stated that the parties


12

should not be bound by any rate other than the market rate at the date of tendering payment.

Similarly, the fan blades should be determined in accordance with the current exchange rate.

62. Second, it is also essential to highlight that RESPONDENT is merely taking advantage of

CLAIMANT’s mistake. RESPONDENT never insinuated that the exchange rate for the fan

blades was fixed at any point before CLAIMANT’s erroneous billing. CLAIMANT emailed

RESPONDENT on Jan 15 2016 informing it of the mistake in calculation in regards to the

exchange rate and apologizing for the oversight along with attaching the corrected invoice for the

blades [R.14, Cl.Ex.5]. However, RESPONDENT disregarded CLAIMANT and insisted upon

applying the fixed exchange rate [R.16, Cl.Ex.7].

63. Third, in their previous co-operations, the Parties used a price structure that is “largely identical”

to the one demonstrated in Sec. 4 DSA excluding the minimum and maximum prices [R.54,

PO2, para.5]. The previous price structure ensured that CLAIMANT would “at least recover its

costs and make a profit of 1%” [R.54, PO2, para.5]. Art. 8 CISG requires a party, in performing

its own obligation, to take into consideration the other party’s interest [CISG Digest, p.54,

para.4]. Considering the prior dealings between the Parties, RESPONDENT cannot be unaware

that it is in CLAIMANT’s interest to at least recover its production costs.

64. In this case, the DSA provides an actual cost-plus price structure [R.14, Cl.Ex.5] the purpose of

which is to recover the incurred costs. Sec. 4 DSA specifies a maximum price of US$ 13,125 for

the fan blades [R.10, Cl.Ex.2]; as long as the production costs do not exceed this price,

CLAIMANT should recover its costs and make some profit. CLAIMANT’s production costs for

a single fan blade is EQD 19,586 which is equivalent to US$ 10,941.90 [R.14, Cl.Ex.5] and so it

did not reach the maximum price. Yet, CLAIMANT did not recover its actual production costs

due to RESPONDENT’s insistence on the application of the wrong exchange rate that violates

the purpose of the cost-plus price structure. This is evident from the table below:

Comparison of Production Costs of the Fan Blades v. Price Offered by Each Party

Currency CLAIMANT’s Position RESPONDENT’s Position

Price US$ US$ 22,723,800 US$ 20,438,560

Price EQD EQD 40,675,602 EQD 36,585,022.4

The total for the production costs of the fan blades = EQD 39,172,000

The current exchange rate used for the conversion from US$ to EQD = 1.79


13

65. As shown in the table, the price RESPONDENT allegedly paid does not even cover

CLAIMANT’s production costs, which is a commercially unreasonable result. In applying Art. 8

(2) CISG, one court took into consideration the parties’ interest under the contract and found that

the buyer’s performance of its obligation was commercially unreasonable for they contradicted

the seller’s interest. Consequently, it ruled in favor of the seller [CISG Digest, p.55, para.15; AC

Dresden, Case No.2 U 2723/99].

66. In Rainy Sky v. Kookmin Bank, there were two suggested interpretations of the contract one of

which “defies commercial common sense”. The court adopted the other interpretation, which

fulfilled the commercial purpose of the contract. Henceforth, the current exchange rate must be

applied since it fulfills the commercial purpose of the contract.

67. RESPONDENT cannot rely on the de-risking decision made by its former parent company

[R.27, Resp.Ex.1] as the Parties are no longer subsidiaries to EISA [R.54, PO2, para.1].

Therefore, RESPONDENT’s argument in regards to CLAIMANT bearing the currency risk is

groundless.

68. Also, RESPONDENT’s refusal to pay the outstanding price constitutes a breach of the DSA and

Art. 53 CISG due to the fact that “if the buyer fails to pay the seller in full but performs a partial

payment, his partial performance constitutes as a breach of contract” [Schlechtriem/Schwenzer,

p.831, para.8]. Accordingly, CLAIMANT can require RESPONDENT to pay the price by virtue

of Art. 62 CISG, which enables the seller to require payment of the price [CISG Digest, p.298;

Schlechtriem/Schwenzer, p.908, para.9]. Art. 62 CISG requires the seller to only demand

payment from the buyer [CISG Digest, p.298] and so CLAIMANT satisfies this requirement in

its email when it requested RESPONDENT to pay the outstanding price [R.14, Cl.Ex.5].

69. CLAIMANT is entitled to the purchase price that is to be calculated based on the current

exchange rate. In addition, RESPONDENT is in breach of the DSA as well as Art. 53 CISG, and

therefore is required to pay the outstanding price by virtue of Art. 62 CISG.

2. There is No Practice Established Between the Parties in Regards to the Use of the

Exchange Rate at the Time of Contracting.

70. Art. 9(1) CISG bounds parties by their practices, however it does not apply to the case at hand.

The Parties previously had only two co-operations where they applied the exchange rate evident

at the time of contract conclusion [R.54, PO2, para.5]. Courts have established that following a


14

certain conduct during two previous dealings is not sufficient to establish a practice between the

parties [LC Duisburg, Case No.49 C 502/00; Schlechtriem & Schwenzer, p.185, para.8].

71. Moreover, to establish a practice parties to a contract must “recognise their conduct as practice”,

which will create a “justified expectation” that such practice will be observed by the parties in

the future [Schlechtriem & Schwenzer, p.185, para.8]. This was not the case since the Parties did

not refer to practice but rather selectively applied the exchange rate that was most favorable to

RESPONDENT in both previous contracts in compliance with their parent company’s request to

satisfy its tax planning [R.54-55, PO2]. Accordingly, it is unjustifiable for RESPONDENT to

expect that using the exchange rate at the time of contracting would apply to future contracts.

3. Even if There was an Established Practice Between Parties, Such Practice Will

Not Be Binding Upon Parties in the Present Case.

72. Had the Parties recognized that the use of the exchange rate at the time of contracting was an

established practice, such practice is not binding in relation to the DSA since the two previous

co-operations were substantially different from the case at hand. Where “circumstances are so

different from a previous case that the expectation of a particular behavior is not justified. . . the

practice will not be valid” [Bout, para.18].

73. RESPONDENT recognizes the major difference in the circumstances that resulted from the

CLAIMANT having its parent company changed [R. 31, Resp.Ex.5]. Accordingly, since it is not

explicitly stated that the exchange rate at the time of contracting should apply to this case [R.10,

Cl.Ex.2], the Parties are not obligated to use it.

II. The Fixed Exchange Rate Provision in the Addendum Applies Only to the Purchase of

the Clamps

74. Almost three months after concluding the DSA, the Parties signed an addendum for the purchase

of clamps [R.11, Cl.Ex.2]. The addendum included a fixed exchange rate clause [R.11, Cl.Ex.2],

which RESPONDENT alleges to apply to the “whole contract” [R.25, Ans. to Req. for Arb.,

para.10]. CLAIMANT rejects this allegation as the addendum is an additional separate

agreement and does not amend the provisions of the DSA even if physically attached to it (1).

Even if the addendum is not considered a separate agreement, its terms should only apply to the

clamps (2).

1. The Addendum in Relation to the Clamps is a Separate Agreement, and Therefore,

the Fixed Exchange Rate Clause Does Not Apply to the DSA


15

75. RESPONDENT suggested signing an addendum [R.57, PO2, para.16], rather than a separate

agreement for the clamps for the sole purpose of ease [R.28, Resp.Ex.2] and “convenience”

[R.57, PO2, para.16]. The addendum was not meant to change anything in the DSA. Therefore,

linking the clamps agreement, as an addendum, to the DSA was only done physically without

undermining the fact that the addendum is a separate agreement. Moreover, the fact that

RESPONDENT considered the alternative of signing a physically separate agreement indicates

that it acknowledges the purchase of the clamps as a separate agreement.

76. Additionally, the addendum relates to the purchase of clamps [R.11, Cl.Ex.2], which is a subject

matter that is completely different from that of the DSA, the object of which is the purchase of

fan blades [R.9, Cl.Ex.2]. This indicates that the addendum is indeed a separate agreement.

77. RESPONDENT’s inclusion of the clause that states “other terms as per main Agreement” [R.11,

Cl.Ex.2] further indicates that the purchase of the clamps is a separate agreement. First, this

clause refers to the DSA provisions to apply to the addendum. In other words, the terms of the

DSA apply to the purchase of the clamps and not vice versa. Accordingly, the provisions of the

DSA remain unchanged. Second, the use of the phrase “main Agreement” [R.11, Cl.Ex.2]

distinguishes the DSA from the clamps purchase agreement. If only one agreement existed, there

would not be the need to use the term “main” alongside “Agreement”. The use of the term “main

Agreement” signifies the existence of another agreement that is secondary to it, which in this

case is the clamps purchase agreement.

78. Furthermore, in its email, CLAIMANT clearly distinguished between the clamps and the blades

by referring to them respectively as “the agreement in regard to the clamp . . . contract in regard

to the TRF 192-I fan blades” [R.30, Resp.Ex.4]. CLAIMANT used the term “agreement”, which

was used by RESPONDENT in the fixed exchange rate clause, to refer to the clamps.

Accordingly, as far as the CLAIMANT is concerned, the term “agreement” in mentioned clause

is a reference to the clamps purchase agreement.

79. Thus, the clamps purchase agreement is a separate agreement and therefore, the fixed exchange

rate clause applies only to the purchase of the clamps.

2. Even if the Tribunal were to Find that the Addendum is Not a Separate Agreement,

the Fixed Exchange Rate Clause Must Be Interpreted to Apply Only to the Clamps

80. Article 8 CISG applies to the interpretation of statements made by the parties and to the

interpretation of contracts, which have not been the subject of in-depth negotiations and were


16

entered into and concluded by correspondence between the Parties [Honnold (1999), p.116]. At

hand, the fixed exchange rate clause was included into the provisions for the purchase of the

clamps in the absence of any prior discussion between the Parties regarding its scope of

application [R.57, PO2, para.17]. Since the Parties understood the scope of application of the

fixed exchange rate differently, Art. 8 CISG will apply to determine whether the fixed exchange

rate clause applies to the DSA. Thus, the fixed exchange rate clause in the addendum applies

only to the clamps pursuant to Artt. 8(1) (a), and 8(2) CISG (b).

a. The Fixed Exchange Rate Clause in the Addendum Applies Only to the Clamps

Pursuant to Art. 8(1) CISG

81. Applying the subjective test [Farnsworth, p.98] set forth in Art. 8(1) CISG, it becomes evident

that CLAIMANT did not know and could not have been aware of RESPONDENT’s intention to

apply the fixed exchange rate clause to the DSA (i) and therefore, CLAIMANT’s reply to

RESPONDENT’s email refers to the purchase of the clamps (ii).

i. CLAIMANT Did Not Know and Could Not Have Been Aware of RESPONDENT’s

Intention to Apply the Fixed Exchange Rate Clause to the DSA

82. In one case, where the CISG was applied, the court was certain that the seller neither knew nor

could have been aware of the buyer’s intention where the latter “neither mentioned its pure

internal and secret intention nor made the [seller] become aware of it” [DC Hamburg, Case

No.5 O 543/88]. Applying the CISG, another court could not establish that the buyer was aware

of the seller’s intention to include its general conditions into their contract where these condition

“were never discussed during their negotiations” [CSS Antenna, Inc. v. ATE, GMBH]. In the

present case, it is evident from the circumstances that RESPONDENT did not communicate to

CLAIMANT its intention of applying the fixed exchange rate clause to the DSA.

83. First, RESPONDENT’s email of Oct 22 2010 was the first and only time the fixed exchange rate

clause was introduced [R.57, PO2, para.17]. This email made no mention of the application of

the fixed exchange rate clause to the DSA [R.28, Resp. Ex.2]. Moreover, during the telephone

call [R.57, PO2, para.16] and in their emails of 22 Oct [R.28, Resp.Ex.2] and 24 Oct [R.30,

Resp.Ex.4], the Parties’ statements were limited to the clamps. There was no mention of the

blades at all by either party.

84. Second, RESPONDENT alleges that it “insisted” on the application of the fixed exchange rate to

the “whole contract” [R.25, Ans. to Req. for Arb., para.10]. The use of the word “insisted”


17

indicates the existence of resistance from CLAIMANT’s part which would ultimately result in

either its consent or objection to the application of the fixed exchange rate to the DSA. However,

RESPONDENT did not insist nor manifest such intention. This is evident from the statement

made by RESPONDENT’s negotiator, which reads “I cannot say whether CLAIMANT’s

negotiators had the same view” [R.31, Resp.Ex.5]. Had RESPONDENT’s intention been the

subject of discussion between the Parties, its negotiator would not be hesitant to confirm that

CLAIMANT at the least could not have been unaware of RESPONDENT’s intention.

85. Third, Ms. Beinhorn, CLAIMANT’s negotiator, had asked the CFO whether CLAIMANT can

accept a fixed exchange rate for the clamps agreement [R.50, Cl.Ex.9]. Ms. Beinhorn’s inquiry

was limited to the clamps agreement, which is an indication of her understanding that the fixed

exchange rate clause applies specifically to the clamps. The CFO consented to the application of

the fixed exchange rate to the clamps due to the “limited size of the contract” [R.50, Cl.Ex.9].

Accordingly, had Ms. Beinhorn understood the fixed exchange rate clause to apply to the DSA,

she would have asked whether CLAIMANT can accept a fixed exchange rate for the blades,

which is of a much larger amount, rather than enquiring about the clamps.

86. Since RESPONDENT did not, in any manner, reveal its intention of applying the fixed exchange

rate to the DSA, its intention is “irrelevant” [CISG Digest, p.54, para.8]. Accordingly, it cannot

be established that CLAIMANT knew or could not have been unaware of RESPONDENT’s

intention to apply the fixed exchange rate clause of the addendum to the DSA. In fact, it is

unreasonable to expect the application of the fixed exchange rate clause to the DSA when such a

matter was not explicitly mentioned nor implied at any point.

ii. CLAIMANT’s Reply to RESPONDENT’s Email Refers to the Clamps’ Purchase

87. In its reply to RESPONDENT’s email, which related specifically to the purchase of the clamps

[R.28, Resp.Ex2], CLAIMANT stated that it consents to the fixed exchange rate [R.30,

Resp.Ex.4]. Thus, RESPONDENT alleges that CLAIMANT had agreed to the application of the

fixed exchange rate clause to the DSA [R.25, Ans. to Req. for Arb., para.10].

88. Art. 8(3) CISG states that in interpreting a statement made by a party, “all relevant

circumstances” should be taken into consideration. Accordingly, “there is no limit under Article

8(3) as to what one can refer to in order to get at the meaning of a statement or conduct” [Sun,

p.79]. Therefore, it must be noted that CLAIMANT’s email is merely a reply to

RESPONDENT’s email, which was solely discussing the clamps purchase agreement. As a


18

result, CLAIMANT’s consent to the fixed exchange rate clause should not be interpreted in

isolation of this fact.

89. After establishing that CLAIMANT did not know and could not have been aware of

RESPONDENT’s intention to apply the fixed exchange rate clause to the DSA, it becomes

evident that CLAIMANT’s consent to the fixed exchange rate clause [R.30, Resp.Ex.4] is a

consent to the use of mentioned clause for the purchase of the clamps.

b. The Fixed Exchange Rate in the Addendum Applies Only to the Purchase of the

Clamps Pursuant to Article 8(2) CISG

90. Since it is impossible to establish CLAIMANT’s knowledge about RESPONDENT’s intention to

apply the fixed exchange rate to the DSA, Art. 8(2) CISG will apply to determine the

understanding of a reasonable person in the position of CLAIMANT under the same

circumstances (i). In any case, any ambiguity in the addendum must be interpreted against

respondent pursuant to the contra proferentem rule (ii).

i. A Reasonable Person in the Position of CLAIMANT and under the Same

Circumstances Would Have Understood the Fixed Exchange Rate Clause to Apply

Solely to the Clamps

91. When establishing the understanding of the Parties, due regard should be given to the

negotiations between them in accordance with Art. 8(3) CISG.

92. In its email, RESPONDENT stated that “the easiest way to regulate the purchase of the clamps

is to sign an addendum” [R.28, Resp.Ex.2]. This indicates that the sole purpose of signing an

addendum was to regulate the clamps purchase agreement. RESPONDENT did not mention

anything in its email to indicate that the fixed exchange rate clause applies to the DSA.

Accordingly, a reasonable person in the shoes of CLAIMANT would understand from

RESPONDENT’s email that the addendum addresses the purchase of the clamps and would not

assume the application of any terms of the addendum to the purchase of the blades.

ii. In Any Case, Any Ambiguity in the Addendum Must be Interpreted Against

Respondent According to the Contra Proferentem Rule

93. The contra proferentem rule is internationally recognized [Lookofsky, p.48]. It is addressed under

Art. 4.6 of the UINIDROIT principles and it also applies to the CISG [CISG-AC Opinion No.13,

para.9.1; Schlechtriem/Schwenzer, p.168, para.49]. In fact, it is a principle on which Art. 8(2)

CISG is founded [CISG Digest, p.56, para.20]. According to the contra proferentem rule, “the


19

party that has drafted or otherwise supplied the formulation of a certain term must bear the risk

of its possible ambiguity” [Schlechtriem/Schwenzer, p.168, para.49].

94. In the present case, RESPONDENT provided the provisions of the clamps purchase agreement

[R.28, Resp.Ex.2]. In incorporating the provisions of the DSA into the addendum,

RESPONDENT explicitly referred to the DSA as the “main Agreement” [R.11, Cl.Ex.2].

However, RESPONDENT used the word “agreement” in the fixed exchange rate clause. Since

“main Agreement” is a reference to the DSA, the word “agreement” is a reference to the clamps.

Should the Tribunal consider the clause ambiguous due to the fact that both Parties have

different interpretations of the same clause, such ambiguity should be interpreted against

RESPONDENT as the supplier of mentioned clause.

B. CLAIMANT is Entitled to the Outstanding Payment of US$ 102,192.80 for the Bank

Inspection Levy from RESPONDENT

95. RESPONDENT is contractually obligated to pay the full price as per Sec. 4.3 DSA (I). In

addition, Art. 54 CISG imposes an obligation on RESPONDENT to pay the transfer fee (II).

Also, RESPONDENT is not exempted from its liability to pay the levy amount under Art. 35(2)

CISG (III). Thus, CLAIMANT is entitled to the payment of the bank inspection charges.

I. RESPONDENT is under a Contractual Obligation to Pay the Full Price to CLAIMANT

96. Since contracts are a reflection of the parties’ intentions [Gilson/Sabel/Scott, p.37, para.42],

Parties must fulfill their contractual obligations found within the DSA. RESPONDENT is

contractually obligated to pay the full price as per Sec. 4 DSA (1). In addition, RESPONDENT

must pay the bank inspection charge to CLAIMANT based on the principle of pacta sunt

servanda (2).

1.RESPONDENT is Contractually Obliged to Bear the Transfer Fee Per Sec. 4.3 DSA 97. Contractual terms generally prevail over the CISG in the hierarchy of rules [GmbH v. NV Fepco

International]. Pursuant to Sec. 4 DSA, the Parties agreed that “the bank charges for the transfer

of the amount are to be borne by the BUYER” [R.10, Cl.Ex.2].

98. Contrary to RESPONDENT’s allegation that the 0.5% levy deducted by the Bank for money

laundering inspection should be borne by CLAIMANT [R.26, Ans. to Cl., para.18],

RESPONDENT had agreed to pay all the bank charges for the transfer fee as provided under the

DSA [R.10, Cl.Ex.2], and had showed no objection to the suggestion of including the provision

[R.55, PO2, para.6]. Sec. 4 DSA does not specify the type of “bank charges” in particular;


20

therefore, RESPONDENT must bear the risk of covering any and all “bank charges” that are

necessary for the transfer of the full purchase price to CLAIMANT’s place of business.

99. Generally, the term “transfer” refers to the process of sending of funds from one party to another

[BIS, 2003]. Moreover, the buyer and seller must agree upon the place of payment, and in cases

where the contract payment is relevant to a bank account, the bank would be the place of

payment [Schlechtriem/Schwenzer, p.855, para.5]. The latter party’s place of payment in the

case at hand is CLAIMANT’s bank account [R.10, Cl.Ex.2]. Furthermore, by virtue of Art.

57(1)(a) CISG, the buyer must to bear any cost arising from the transport of cash or any requisite

transaction until the money equivalent to the purchase price reaches the seller’s place of

business. These costs include any commissions or charges due to banks for using the contractual

means for payment. [Schlechtriem/Schewnzer, p.830, para.22].

100. The amount of US$ 102,192.80 was deducted by the Central Bank during the transfer process

and before reaching CLAIMANT’s account, as the Financial Investigation Unit deducts a 0.5%

levy when investigating every sum of money [R.17, Cl.Ex.8]. Consequently, RESPONDENT is

under the duty to pay the bank charges that are incurred during the transfer process, until the

price reaches the place of payment agreed by the parties, which is CLAIMANT’s bank account

at the Bank [R.10, Cl.Ex.2].

101. In the present case, the levy is a bank transfer fee that must be contemplated by the contract, as

the money laundering inspection is a governmental process that must be made for the transfer of

funds [Gonzalez, p.304, para.3]. In summary, RESPONDENT’s failure to pay the investigation

fee is considered a breach of Sec. 4.3 DSA.

2.RESPONDENT Must Pay the Bank Inspection Charge to CLAIMANT Based on

the Principle of Pacta Sunt Servanda

102. The CISG is built upon the international law principle of pacta sunt servanda, which provides

that contractual promises must be kept [Schwenzer, para.35; Sapphire v. National Iranian Oil

Company]. “The legal concept that the oblige has a right to require the obligor to perform the

agreed obligations following the principle of pacta sunt servanda that is knowing in all legal

systems” [Schlechtriem/Schwenzer, p.906, para.2]. This principle is further affirmed by the strict

rules of avoidance of international commercial contracts [CISG Case No.709 (GER, 2002)].

103. In this case, RESPONDENT’s constant refusal to pay the bank transfer charge to CLAIMANT is

a violation to the principle of pacta sunt servanda, which resulted in CLAIMANT not receiving


21

the full purchase price as per agreed under the DSA between the parties. Therefore, to be in line

with the principle of pacta sunt servanda, CLAIMANT should be entitled to receive the amount

of US$ 102,192.80 from RESPONDNET for the bank transfer fee.

II. Art. 54 CISG Imposes an Obligation on RESPONDENT to Pay the Transfer Fee

104. Art. 54 CISG imposes an obligation on RESPONDENT to take necessary measures to pay the

price (1). Additionally, RESPONDENT’s failure to take necessary steps for payment constitutes

a breach of contract (2). In any case, CLAIMANT is not bound by its own past practice in

previous dealings according to Art. 9(1) CISG (3).

1. Art. 54 CISG Imposes an Obligation on RESPONDENT to Take Necessary Measures to Pay the Price

105. Pursuant to Art. 54 CISG, the buyer’s obligation to pay the price extends to taking necessary

steps to enable payment, but not confined to the mere obligation of paying the price [Gabriel,

p.274]. These obligations must be borne by the buyer unless stated otherwise in the contract

between the parties [CISG Digest 2012, p.264, para.3].

106. The term “formalities” in Art. 54 CISG includes all the steps and arrangements that need to be

made in order to dispose the money owed at the agreed time [Kroll/Mistelis/Perales/Viscasillas,

p.805, para.6]. Thus, the levy deducted due to the money laundering investigation is considered

a step that must be taken in order to dispose the money to CLAIMANT.

107. The buyer’s obligation under Art. 54 CISG is to comply with the necessary formalities, which

include compliance with governmental and banking procedures [Schlechtriem/Schwenzer p.840,

para.2]. Pursuant to Art. 54 CISG, buyer’s performance of his enabling steps to pay the price

includes conforming to commercial and administrative requirements. The administrative

requirements are those that are imposed by the government, statute or administrative ordinance,

which include payment of transfer funds aboard [Gonzalez, p.304, para.3]. In this case, the Bank

is a government entity, and the bank inspection charges are under a governmental regulation that

must be made for the enablement of the price [R.55, PO2, para.7]. Hence, RESPONDENT is

obliged to comply with the necessary formalities to make the full payment.

108. Likewise, in CLOUT Case No.142, respondent was held liable for not taking the necessary steps

to ensure that payment was made [RF CCI, 123/1992]. The tribunal in the said case held that

mere instruction to the bank to pay the amount does not suffice as ensuring the enabling steps for

the payment of the price. Similarly, in the case at hand, RESPONDENT did not ensure taking the


22

necessary steps to pay the bank charges that were crucial for enablement of the payment. As

underlined by most cases, any costs associated to effect payment are rightfully borne by the

buyer [LandgerichtDuisburg, Germany, 17 Apr. 1996], Therefore, the Tribunal should order

RESPONDENT to take all necessary steps to enable full payment to CLAIMANT.

109. Furthermore, bearing transportation costs in delivering goods and bank commissions in making

monetary transfer are mandated under Art. 6.1.11 UNIDROIT principles under the obligations of

the performing party.

2.RESPONDENT’s Failure to Take Necessary Steps for Payment Constitutes a Breach of Contract

110. The buyer’s failure to follow the necessary formalities enabling the payment of the price

constitutes a breach of contract, as it is an independent obligation that the buyer must comply

with [Schlechtriem/Schwenzer p.842, para.3; Honnold 1999, p.323, para.2].

3.CLAIMANT is Not Bound by its Own Past Practice in Previous Dealings According to Art. 9(1) CISG

111. RESPONDENT mentions that the levy has been charged by the Bank on two previous occasions

which CLAIMANT paid the levy [R.26, Ans. to Cl., para.19]. However, practices are deemed

established when they are among the same parties involved in specific series of transactions

through repeated courses of dealings. Thus, other practices with other parties are regarded as

irrelevant [Graffi, p.105].

112. As per Art. 9(1) CISG, parties are bound by any practice established between them. Any practice

that is derived CLAIMANT’s dealings with other companies is only restricted to the relationship

of the specific parties between each other, and therefore may not be binding under the DSA

between the Parties. In brief, RESPONDENT shall not demand CLAIMANT to make any

payment according to the latter’s own course of dealings with other parties in which

RESPONDENT was not involved.

113. Contrary to RESPONDENT’s allegation regarding CLAIMANT’s previous dealing with

JetPropulse [R.26, Ans. to Cl., para.8], the contract between CLAIMANT and JetPropulse did

not specify who is responsible for the charges of the transfer [R.55, PO2, para.8]. The DSA,

however, imposed an explicit obligation on RESPONDENT to bear the transfer fee [R.10,

Cl.Ex.2]. The same applies to CLAIMANT’s contract in its dealing with JumboFly [R.26, Ans. to

Cl., para.9].


23

III. RESPONDENT Cannot Rely on Art. 35(2) CISG to be Exempted from its Liability to

Pay the Levy Amount

114. Art. 35(2) CISG concerns delivery of goods and not payment. There is no complete uniformity in

cases dealing with whether the buyer or the seller should bear the risk of non-conformity with the

relevant regulations [Saidov, p.542]. Due to the broad formulation of the rules, they must be

applied on a case-by-case basis [Saidov, p.543]. Contrary to RESPONDENT’s allegation New

Zealand Mussels case does not apply to the case at hand (1). Following the Mussels Case

approach conflicts with the fundamental objective of Art. 7(1) CISG (2).

1. New Zealand Mussels Case Does Not Apply to the Case at Hand

115. The well-known New Zealand Mussels Case dealt with the issue of non-compliance with public

law regulations. The case relates to a contract governed by the CISG, which involved a Swiss

seller that delivered mussels to a German buyer, without complying with the German health

authorities’ recommendation concerning the mussels’ cadmium content [BGH, 1995].

116. The German Supreme Court held as a general rule that the seller is not liable for not complying

with the buyer’s country regulations unless: the seller’s country had the same regulations; or the

buyer informed the seller of the regulations; or the seller had a good reason to know about them.

Since none of these exceptions were applicable, the seller was not under a duty to comply with

the German authority recommendation [Flechtner, p.8]. In any case, the approach followed by

the German Supreme Court is neither a fixed rule nor a presumption; it is merely a general

guideline [Honnold 1999, p.355].

117. Furthermore, the Mussels Case did not trigger any of the three exceptions to the BGH court’s

general rule, as none of the exceptions were applicable. Whereas in the present case, it falls

under the third exception to the general rule, which is that RESPONDENT had a good reason to

know about the regulations based on the circumstances. In other words, the third exception states

that a seller who knew or ought to have been aware of the standards because of “special

circumstances” will be expected to deliver the goods in compliance with the specialized public

regulations of the buyer’s country [Flechtner, p.8, para.14].

118. Additionally, there is an obligation on the seller to comply with the special legislative

requirements if it had already been aware of them, and that depends on the circumstances of the

case at dispute [Schlechtriem/Schwenzer, p.605, para.18]. As further mandated by Art. 8(3)

CISG, all relevant circumstances must be assessed when determining the intentions of the


24

parties, “the fact that the buyer is likely to be more familiar with the requirements of its own

jurisdiction is certainly relevant, but suppose those requirements are very well known

internationally?” [Honnold 1999, p.225].

119. In the present circumstances, RESPONDENT ought to have been aware of the implementation of

the legislation that is based on the UN-Model provisions that was considerably covered in the

press and frequently reported in the newspapers [R.55, PO2, para.8], all which suffice

reasonably as “special circumstances”. Consequently, RESPONDENT may not base its claim on

the Mussels Case to release itself from its duty to pay the bank inspection fee, as it is impliedly

responsible under Art. 35(2) CISG to meet the regulations of CLAIMANT’s country.

120. In the case of Smallmon v. Transport Sales Ltd., the court followed the Mussels Case approach

in its decision and held that the fact that the seller had previously sold goods in the buyer’s

jurisdiction establishes the requirement of “special circumstances”. Moreover, in the judgment

of M. Caiato Roger v. La Société, the court found that the seller was obliged to comply with the

buyer’s country’s standards on the grounds that the dealings with the buyer for several months

was sufficient to establish the obligation.

2. Following the Mussels Case Approach Conflicts with the Fundamental Objective of

Art. 7(1) CISG

121. Even if the Tribunal decides to follow the Mussels Case approach, it is vital to note that the

decision of BGH includes elements that suggest the “homeward trend” and signify a failure to

achieve a complete international perspective [Flechtner, p.10]. As per Art. 7(1) CISG, in order to

fulfill the Convention’s aim, a uniform interpretation in the variety of legal systems around the

world must be applied by the formation of various perspectives [Flechtner, p.9].

122. Furthermore, the international character emphasized by Art. 7(1) CISG embodies the principle of

autonomous interpretation; it underlines that terms must be determined independently from any

domestic preconception [Schlechtriem/Schwenzer, p.122, para.8]. Thus, relying on the Mussels

Case degrades the significance of the Convention’s uniform application and demonstrates

inconsistency with the mandate of Art. 7(1) CISG to interpret the CISG regarding its

“international character” [Flechtner, p.18]. Accordingly, RESPONDENT cannot rely on the

Mussels Case to release itself from its responsibility to bear the investigation levy cost as per

Sec. 4.3 DSA.


25

CONCLUSION OF THE SECOND ISSUE

123. Based on the above, RESPONDENT is obliged to pay the full amount of US$ 22,723,800,

which is a combination of US$ 102,192.80 for the Bank inspection levy and US$ 2,285,240

based on the current exchange rate by virtue of Sec 4. DSA, and Artt. 53, 54, 62 CISG.

ISSUE 3: THE TRIBUNAL DOES NOT HAVE THE AUTHORITY TO ORDER

CLAIMANT TO PROVIDE SECURITY FOR RESPONDENT’S COSTS

124. RESPONDENT’s request to the Tribunal for an order that CLAIMANT pay security for

arbitration costs must be denied [R.46, Req. for Security for Costs]. The Tribunal does not have

the authority to grant such a request neither by the DSA nor by the DAL (A). Even if the

Tribunal is authorized to order CLAIMANT to provide security for costs, it should not exercise

this authority in this particular case (B).

A. The Tribunal Does Not Have the Authority to Grant Security for Costs Order

125. The Arbitration Agreement illustrated in Sec. 21 DSA [R.11, Cl.Ex.2] does not include any

explicit or implicit clause granting the Tribunal the authority to order security for costs (I). It

only assigns the seat of Arbitration as in Danubia, in which DAL does not grant the Tribunal the

power to confer security for costs (II), and affirms that the arbitration shall be conducted in line

with international arbitration practice, in which granting security for costs is not commonly a

power the tribunals enjoy (III). In any case, RESPONDENT’s assumption that the unsuccessful

party in the dispute will bear all costs is wrong (IV).

I. Section 21 DSA is Silent on the Matter of Security for Costs

126. According to the general principle of party autonomy, the parties have broad degree of autonomy

in introducing powers or limitations to the functioning of the arbitral tribunal in the arbitration

agreement [Herbst, p.1.2.2; Blackaby/Partasides/Redfern/Hunter, p.366, para.6.10]. It is well

established that the parties’ arbitration agreement is the primary source of the arbitrators’ power,

and in most lex arbitri, party autonomy is prioritized above the other arbitrator discretions

[Waincymer, pp.51-52]. It is also accepted that the authority of the arbitral tribunal comes solely

from the parties’ agreement [Lew/Mistelis/Kröl, p.99].

127. In the case at hand, it is worth noticing that the Parties, despite their ability to include an explicit

clause in the arbitration agreement that grants the Tribunal the power to grant security for costs

upon the request of one party, chose not to [R.11, Cl.Ex.2].


26

128. The standards that the arbitral tribunal applies are heavily influenced by the contractual

agreement between the parties [Born (2014), p.2467]. The consideration of such standards is

consistent with the general principle of party autonomy. Here, the Parties did not express their

intention to grant the Tribunal the authority to confer security for costs, and so RESPONDENT

cannot suggest that the Tribunal derives any power to award security for costs from the DSA.

II. Danubian Arbitration Law Does Not Explicitly Grant the Tribunal the Power to Order

Security for Costs

129. As per the Parties’ agreement, the seat of arbitration is Vindobona, Danubia, which has adopted

the UNICTRAL Model Arbitration Law (as amended in 2006) as its domestic arbitration law

verbatim [R.60, PO2, para.37]. Consequently, the UNICTRAL Model Arbitration Law, or the

Danubian Arbitration Law (“DAL”) applies as the lex arbitri in this dispute.

130. Under Art. 17(1) DAL, “Unless otherwise agreed by the parties, the arbitral tribunal may, at the

request of a party, grant interim measures”. A traditional interpretation at the first instant would

suggest that the said article grants the tribunal the authority to confer interim measures, including

security for costs [Lemaire, para.4.8]. However, the DAL does not show any explicit provision

that grants the tribunal such power.

131. Art. 17 DAL does not expand the tribunal’s authority

[Holtzmann/Neuhaus/Kristjánsdóttir/Walsh, p.530], and does not explicitly encompass security

for costs under the wide category of interim measures. This does not explicitly grant the tribunal

the power to accept security for costs applications [Miles/Speller, p.34;

Greenberg/Kee/Weeramantry, para.7.210, p.370]. It has long been accepted that when the lex

arbitri is silent on security for costs, it means that the tribunal has no power to grant it

[Karrer/Desax, p.341, para.13].

132. The language of Art. 17 DAL demonstrates that the tribunal is not compelled to grant such

measures, ranking it as a non-mandatory provision. This interpretation is in line with the

suggestion mentioned during the Working Group II meeting in Sep 2004, where the use of the

word “may” was considered an indication to the non-binding nature of Art. 17 [Working Group

II (A/CN.9/569), p.13, para.35]. The same Working Group decided not to incorporate the matter

of security for costs explicitly in the drafting of Art. 17 DAL after the failure to reach consensus.

133. A decision by the tribunal in RSM Production Corporation v. Saint Lucia has raised controversy

regarding the tribunal’s power to grant security for costs [ICSID Case No. ARB/12/10, 2014].


27

The tribunal acting under the International Centre for Settlement of Investment Disputes rules

(“ICSID”), which shares a similar lack of preciseness regarding interim measures with DAL

[Pessey, para.25], could not reach consensus as to whether it had the power to grant a security

for costs order or not. Eventually, the majority of the tribunal decided to order claimant to pay

the security for costs requested by respondent.

134. As the dissenting arbitrator pointed out, the ICSID Rules do not include an explicit clause that

expresses the classification of security for costs as a “provisional measure” that would “be taken

to preserve the rights” of the requesting party, in contrast to other sets of arbitral rules. This

exclusion, says the dissenting arbitrator, reflects the drafters’ intention not to include security for

costs as a provisional measure which the tribunal can order from one party in favor of the other

[ICSID Case No. ARB/12/10, 2014, Dissenting opinion of Edward Nottingham, p.4, para.8].

135. The latter award has been subject to criticism, particularly because it was the first investor-state

dispute in which security for costs was granted [González-Bueno, paras.6,17]. The dissenting

arbitrator demonstrates that articles dealing generally with provisional measures without explicit

reference to security for costs do not grant tribunals the power to issue security for costs orders.

III. RESPONDENT Cannot Base its Argument on International Arbitration Practice

136. Sec. 21 DSA affirms that the arbitration proceedings should be in line with international

arbitration practice [R.11, Cl.Ex.2]. However, granting the Tribunal the power to order security

for costs is not common in most international arbitration practices (1). Even if the Tribunal has

the authority to order CLAIMANT to provide security for arbitration and legal costs,

RESPONDENT has not met any of the criteria recognized in the international arbitration practice

to qualify for such order (2).

1. Granting the Tribunal the Power to Order Security for Costs is Not Common in

International Arbitration Practice

137. Until recently, the concept of security for costs was considered an unexplored area of interim

measures. It is safe to say that the grant of security for costs is not, by any means, a universal

practice [González-Bueno, para.7]. Only limited national arbitration rules, mostly in

Commonwealth jurisdictions, expressly give power for an arbitral tribunal to make an order for

security for costs [Waincymer, p.643; Miles/Speller, p.32].

138. Traditional courts and tribunals in most European jurisdictions, such as in Italy, are reluctant to

grant power to the tribunal to order for security for costs. Additionally, other non-European


28

states, such as Argentina, China, Singapore and Quebec follow the same practice. [Miles/Speller,

p.32; Waincymer, p.623; Lim, para.5]. These major jurisdictions shape the international

arbitration practice which tends not to grant tribunals the power to order security for costs.

2. RESPONDENT Has Not Met Any International Criteria to Qualify for a Security

for Costs Order

139. Where security for costs is a permitted practice, it is widely accepted that the key determination

to whether the interim relief will be granted by the tribunal is governed by the transnational test,

which is inspired by Art. 17A of DAL. Under this test, the Arbitral Tribunal must take into

consideration three essential elements; a) whether the requesting party has a prima facie case on

the merits, b) whether there is an urgent need for interim relief, c) whether the requesting party

will suffer serious or irreparable harm if the emergency relief is not granted [Lim, para.11].

140. In the case at hand, RESPONDENT does not fulfill any of these elements in its request for

security for costs. Firstly, RESPONDENT does by no means have a prima facie case as it has not

met its burden of proof [See para. 156].

141. Moreover, RESPONDENT has not presented any evidence of the urgent nature of its request. As

established in many arbitral decisions, the criteria of urgency are met when a request may not

wait for the final award to be concluded. A measure is urgent where “action prejudicial to the

rights of either party is likely to be taken before such final decision is taken” [Tokios Tokelės v.

Ukraine, Case No. ARB/02/18].

142. Lastly, the definition of irreparable harm, approved by some commentaries, as a harm that

cannot be “compensated by a monetary award” makes it very difficult to RESPONDENT to

prove that such harm occurred. Even relying on less strict definitions of irreparable harm, such as

those limiting such harm to be “serious” or “substantial” only [Born (2012), p.266],

RESPONDANT has not provided any evidence showing the irreparability of the harm caused, if

any [R. 46, Req. for Security for Costs].

143. RESPONDENT has failed in fulfilling the transnational test’s requirements, therefore, is not

entitled for security of its arbitration and legal costs from CLAIMANT.

IV. RESPONDENT Has Not Established Prima Facie that CLAIMANT Will Bear the

Costs of the Arbitration

144. In its request for security for costs, RESPONDENT assumes that, at end of this proceeding, all

arbitration and legal representation costs will be borne by the unsuccessful party. However, in


29

fact, there has never been any “loser-pays” clause in the arbitration agreement between the

parties, neither within the CAM-CCBC Rules, nor within the DAL [R.11, Cl.Ex.2] (1).

RESPONDENT’s assumption also unfairly attempts to prejudge the dispute (2).

1. RESPONDENT’s Assumption that the Unsuccessful Party Will Bear the Costs of

Arbitration is Wrong

145. While DAL is completely silent on the matter of costs allocation, it is not questioned that it

entitles the Tribunal to issue awards of arbitration and legal costs [Born (2014), p.3088]. In

addition, Art. 10.4.1 CAM-CCBC Rules provides that the award issued by the tribunal may

include the parties’ liabilities regarding costs, including attorney’s fees, only “observing that

which was agreed upon by the parties in the Terms of Reference”. The Terms of Reference in its

Art. 12.3 affirms that the Tribunal is entitled to decide on parties’ liabilities regarding costs,

including the attorney’s fees, stressing that “The Arbitral Tribunal shall also fix the amount or

the proportion of the refund of one party to another. The Arbitrators will consider the behavior

of the parties in order to reduce the amount of cost refund” [R.43, Terms of Ref.].

146. Thus, while an award on costs is permitted under the applicable rules and terms of reference, it

would require a finding of poor “behavior” on behalf of one of the parties to issue such a cost-

shifting award. Indeed, tribunals in international commercial arbitrations are mostly hesitant to

require the unsuccessful party solely to pay the whole costs of arbitration, and it is certainly not a

universal practice [Blackaby/Partasides/Redfern/Hunter, p.547, para.9.94]. In many cases of

international arbitration, even in those under arbitration rules that explicitly require the

unsuccessful party to bear the arbitration costs such as the UNICTRAL Arbitration Rules or

other rules, tribunals have considered the parties’ behavior and the extent of the success of their

claims in allocating arbitration and legal representation costs [ICSID Case No. UNCT/13/1;

ICSID Case No. UNCT/07/1; ICSID Case No. ARB/03/19; ICC Case No. 8486; ICC Case No.

11670; Born (2014), p.3096].

147. The Tribunal thus has a duty to take the Parties’ behavior into account when considering the

costs borne by each [R.43, Terms of Ref.]. So far, CLAIMANT’s behavior has been entirely

appropriate, and its claims are forthright and genuine without any element of frivolousness.

Hence, at least at this stage in the arbitration, RESPONDENT cannot demonstrate prima facie

that it is likely to be awarded costs.

2. RESPONDENT’s Assumption is a Prejudgment to the Merits


30

148. According to the tribunal in Maffezini v. Spain, rights in dispute in provisional measures must be

existing at the time of the request and should not be regarding rights that may be acquired in the

future. The Maffezini tribunal stated that a claim of a provisional measure regarding a non-

existing right is a claim that contains many hypothetical situations and might prejudge the case.

Thus, it shall be dismissed, [ICSID Case No. ARB/97/7, pp.3-5, paras.13,14,17,18,27; ICC Case

No. 8113; ICC Case No. 8786/2000] as tribunals must be selective when granting provisional

measures by ensuring that a determination of this kind does not prejudge the dispute

[Waincymer, p.650]. Moreover, if granting an interim measure requires deciding on the merits of

the case as a whole by the tribunal, it should refrain from granting such measure [CIoA (2),

pp.10-11]. By seeking security for costs, RESPONDENT may be leading the Tribunal to

prejudge the case [R.23, Ans. to Req. for Arb., para.1].

B. Even if the Tribunal Has the Power to Order CLAIMANT to Provide Security for

RESPONDENT’s Costs, it Should Not Exercise this Power

149. According to Art. 4.21 CAM-CCBC Rules, RESPONDENT’s security for costs request should

not be admissible, as it was late in the arbitration proceedings (I). RESPONDENT also carries

the burden of proof of any exceptional change in CLAIMANT’s financial situation, and it has

not met it when it relied on poor evidences (II). Even if RESPONDENT met its burden of proof,

CLAIMANT’s financial situation did not change substantially; therefore, the Tribunal should not

order it to deposit any amount of money for security (III).

I.RESPONDENT’s Request for Security for Costs is Not Admissible According to Art.

4.21 CAM-CCBC

150. Art. 4.21 CAM-CCBC Rules allows parties to modify or amend their claims or causes of action

only until the Terms of References are signed. By requesting the security for costs after the

parties have signed the Terms of Reference, RESPONDENT has violated Art. 4.21 CAM-CCBC

Rules. The Tribunal is bound by the provisions defined by the parties in the Terms of Reference,

and any action against those provisions would subject the award issued by the Tribunal to a

challenge within the national court [Straube/Finkelstien,/Filho, p.111].

151. Many legal precedents and arbitral decisions are in line with such approach. It was held by the

Canadian courts, for example, that an unjustified delay in bringing a motion for security for costs

at a date that is late in the proceedings is a reason to dismiss such request [Vries, p.2; Ont. Ltd. v.

Bank of Montreal, Case No. ONCA 94]. The case law of many international tribunals including


31

the International Chamber of Commerce (“ICC”) and ICSID consider these grounds as well

[ICSID Case No. ARB/09/1, p.9, paras.50-51; Hussey, p.2].

152. Granting security for costs to one party should only be the last resort for a tribunal [Hassoun v.

WGI Ltd, p.1, para.2], and the gradation of such resorts in the arbitral proceedings must be

considered by the requesting party [Argus/Paquet/Maiorana, para.13].

153. In the case at hand, on Aug 22 2016, RESPONDENT signed the Terms of Reference together

with CLAIMANT and the arbitrators. Two weeks later, on Sep 6 2016, RESPONDENT

submitted its security for costs request [R.43, Terms of Ref., R.46, Security for Costs]. Although

RESPONDENT had mentioned its request to order CLAIMANT to pay its arbitration costs on its

answer to arbitration request on June 24 2016, such request was not submitted in the form of

security for costs [R.26, Ans. to Req. for Arb., para.20]. Hence, RESPONDENT’s security for

costs request was late in the arbitration proceedings, thus, the Tribunal may refuse granting it.

154. Art. V(d) NYC 1958 states that the enforceability of an award would be affected if the arbitral

proceedings were not held in accordance to the arbitration agreement. In the case at hand,

RESPONDENT’s violation of the CAM-CCBC Rules agreed upon within the arbitration

agreement jeopardizes the enforceability of the future award.

II.RESPONDENT Carries the Burden of Proof with Respect to the Existence of Exceptional

Circumstances in CLAIMANT’s Financial Situation

155. One of the well-known legal principles is that a party claiming a legal right carries the burden of

proving its eligibility to it [Waincymer, p.653]. RESPONDENT carries the burden of proof in

relation to the existence of exceptional circumstances in CLAIMANT’s current financial

situation (1), and has not met it (2).

1. RESPONDENT Carries the Burden of Proof

156. The practice of almost all arbitrators in international arbitration is to require each party to prove

the facts upon which it relies in support of its case, that goes in line with the concept of Actori

incumbit onus probandi, which is the basic rule to be applied regarding carrying the burden of

proof. [Varady/Barcelona/Roll/Mehren, p.387; Kazazi, p.88]. The obligation to offer an evidence

to prove CLAIMANT’s exceptional financial state must be borne by the requesting party

[Waincymer, p.653; Karrer/Desax, p.346, para.36]. It is a known legal principle that “the

presumption casts an evidentiary burden on those attacking the will” [Sopinka J. noted in Vout v.

Hay, [1995] as cited in Vries, p.8, para.1]. Thus, RESPONDENT carries the burden of proof in


32

respect to the existence of exceptional circumstances in CLAIMANT’s financial situation.

2. RESPONDENT Has Not Met its Burden of Proof

157. In determining whether security for costs is warranted, tribunals typically consider the financial

state of the party from whom security is requested [Born (2014), p.2496]. The power to grant

such request should only be practiced in extreme circumstances, like the appearance of an abuse

or misconduct situation that is proved by evidences [ICSID Case No. ARB/09/17, p.8, para.45].

158. Nevertheless, RESPONDENT failed to introduce strong evidence regarding CLAIMANT’s

financial situation. A sufficient evidence of CLAIMANT’s financial situation could be either its

account data provided by RESPONDENT [Karrer/Desax, p.346, para.36], or proving the

insolvency of CLAIMANT [ICSID Case No. ARB/98/2; Miles/Speller, p.33; Uchkunova,

para.4], or providing the Tribunal with a proof of CLAIMANT’s non-compliance with

contractual obligations [Hassoun v. WGI Ltd, p.1, para.7].

159. However, RESPONDENT must show that it is threatened by a substantial risk if it was not

granted the security for costs. Evidence that prove such risks could include “statutory returns,

audited annual accounts, low valuation of operating assets or previous history of entering into

voluntary arrangements, receivership or liquidation” [Roth/Geistlinger/Stegner, p.167; Walter

BAG v. Thailand, p. 9, paras.1.34-1.35].

160. RESPONDENT’s evidence does not meet these standards, as it solely relied on an article in a

business newspaper for its security for costs request. It, however, did not provide the Tribunal

with any sufficient evidence that are issued before reliable institutions; such as banks or the

government [R.47, Resp.Ex.6].

161. As RESPONDENT correctly pointed, the UNCITRAL Rules on Transparency in Treaty-based

Investor-State Arbitration were not applicable to the dispute between CLAIMANT and the

government of Xanadu [R.46, Req. for Security for Costs, para.4; Johnson, p.10], and the award

in that case is otherwise confidential. There is no basis for breaching that confidentiality or for

assuming that CLAIMANT will be rendered insolvent as a result of that case.

162. Also, RESPONDENT’s expectation of being informed of CLAIMAINT’s previous award with

the government of Xanadu [R.46, Req. for Security for Costs, para.4] does not comply with the

main purpose of UNCITRAL Rules on Transparency. The main purpose is allowing states’

nationals to be aware of their government’s international commercial activities and disputes

which would probably affect their lives and well-being [Limparangsri, p.7].


33

163. Consequently, CLAIMANT is not obliged to comply with RESPONDENT’s suggestion of being

informed of CLAIMANT’s other arbitral awards [R.46, Req. for Security for Costs, para.4].

III.Even if RESPONDENT Has Met Iis Burden of Proof, CLAIMANT’s Financial Situation

Has Not Changed Substantially

164. Even if RESPONDENT has met its burden of proof by submitting sufficient evidence to the

Tribunal, it should not issue a security for costs order against CLAIMANT, as its financial

situation has not changed substantially (1). However, even if CLAIMANT’s financial situation

has changed substantially, there are many justifications to such change (2).

1. CLAIMANT’s Financial Situation Has Not Changed Substantially

165. The audited accounts of CLAIMANT for the years 2009, 2010, and 2015 were publicly available

and RESPONDENT had access to them. They stand as evidence that a substantial change in

CLAIMANT’s financial situation has not occurred. Instead, CLAIMANT overcame the financial

difficulties it was facing in 2010 and it recovered its 2009 financial state in 2015 [R. 58-59, PO2,

para.28]. Thus, RESPONDENT cannot rely on the change in CLAIMANT’s financial situation

to request security, as such change did not occur.

2. Even if CLAIMANT’s Financial Situation Has Changed Substantially, that Change

is Justifiable

166. Even if there was a substantial change in CLAIMANT’s financial situation, it is justifiable and

does not entitle RESPONDENT to security for costs. Firstly, RESPONDENT’s incompliance

with its obligations under the DSA caused that change (a). Secondly, such change is a normal

commercial risk (b). Lastly, even if a substantial change occurred, it is not enough to order

CLAIMANT to satisfy RESPONDENT’s security for costs request (c).

a. The Change in CLAIMANT’s Financial Situation was Due to RESPONDENT’s

Breach

167. Previously rendered awards established that tribunals may deny the request of an interim

measure when it is extremely unjust for CLAIMANT [ICC Case No. 10032], and in cases where

the respondent has a hand in in raising the financial difficulties faced by the claimant [ICSID

Case No. ARB/09/17, p.7, paras.36-37].

168. In fact, tribunals may decide that the party seeking security for costs had at least played a part in

its disputant’s financial condition. In such cases, the requesting party is not entitled to be

protected against the condition he contributed in making [Born (2014), p.2496; Uchkunova,


34

para.16]. The requesting party’s actions resulted in the impecuniosity could be a reason to not

grant security, whether such action was legally and contractually valid or otherwise [Waincymer,

p.651]. Additionally, an international arbitrator may refuse to order security for costs when the

insolvency of the claimant is a direct result of the respondent’s breach, even if the former clearly

cannot meet latter’s costs [ICSID Case No. ARB/09/1, p.9, paras.50-51; Hussey, p.2].

169. In the case at hand, RESPONDENT’s non-payment of the full purchase price was a breach of a

preponderant element of DSA, although it was informed of the importance of paying the

outstanding purchase price to prevent any extra pressure on CLAIMANT’s accounting liquidity

while it was in the final development phase of the fan blades [R.15, Cl.Ex.6]. RESPONDENT’s

refusal to pay the outstanding price of US$ 2,387,432.80 has led CLAIMANT to submit its

request for arbitration [R.29, Resp.Ex.3].

170. Consequently, RESPONDENT would be unjustifiably seeking to be put above all other

CLAIMANT’s creditors should it go bankrupt, even though RESPONDENT has no contractual

or legal ground for being a superior creditor, and it caused CLAIMANT’s bankruptcy.

RESPONDENT cannot unjustly take advantage of such situation and advance in line of

CLAIMANT’s other creditors [R.49, Ans. to Security for Costs, para.2].

b. The Change in CLAIMANT’s Financial Situation is a Normal Commercial Risk

171. Tribunals may consider the decline in a party’s ability to pay a normal commercial risk that does

not permit the granting of security [CIoA (1), p.8]. Also, many tribunals ordered a fundamental

change in the claimant’s financial situation to be proven by the respondent, as the impecuniosity

of the claimant alone was not sufficient. The ground of such requirement is the possibility that

the respondent had voluntarily accepted the claimant’s financial situation, regardless of its

strength or weakness, when the business relationship was established [Roth/Geistlinger/Stegner,

pp.167-168]. Granting RESPONDENT security for costs would disturb the equilibrium of DSA

and would develop an unequal play for CLAIMANT.

172. Nevertheless, CLAIMANT’s audited accounts for the years 2009, 2010, and 2015 acknowledge

that the differences between the profit of each year is slightly lower in 2015 as a result of a

regular commercial risk [See para.165]. Additionally, RESPONDENT knows that the previous

parent company of both Parties was going through a financial crisis while negotiating the DSA,

which resulted in selling both subsidiaries to other companies [R.3, Req. for Arb., para.2].

c. The Change in CLAIMANT’s Financial Situation is Not Enough to Grant


35

Security for Costs

173. In the award of CGC & SSGM v. El Salvador, the security for costs request was dismissed

because the tribunal held that a mild change in the claimant’s financial situation is not enough to

grant the request [ICSID Case No. ARB/09/17, p.7, paras.37,48].

174. Other tribunals have similarly concluded that the claimant’s lack of ability to pay the award or its

lack of assets are inadequate bases for a security order. Likewise, such decisions were made in

connection with respondent’s failure to prove the poor financial situation of its opponent.

Instead, those claims were filed based on the possibility and assumption of such financial

situation [Uchkunova, para.15]. Even if a fundamental difference in financial circumstances of a

party exists, this cannot by itself be the sole reason for granting security for costs; other evidence

must be presented to the tribunal [Waincymer, p.650]. In any event, CLAIMANT did not suffer

from such fundamental changes in its financial condition, and therefore an order for security for

costs is not warranted [R.58-59, PO2, para.28].

CONCLUSION OF THE THIRD ISSUE

175. In accordance with the DSA and the DAL, the Tribunal does not have the authority to issue an

order for security for costs against CLAIMANT. Even if the Tribunal does enjoy such power,

RESPONDENT has not fulfilled any of the requirements to qualify for such order. As a

consequence, the Tribunal is requested to dismiss RESPONDENT’s request.

REQUEST FOR RELIEF

In light of the above arguments, Counsel for CLAIMANT respectfully requests the Tribunal:

(1) To find that CLAIMANT’s claims are admissible and in accordance with the DSA and

CAM-CCBC rules;

(2) To request RESPONDENT to pay CLAIMANT the outstanding amount of US$

2,387,432.80; and

(3) To dismiss RESPONDENT’s request for security for costs.

The CLAIMANT reserves the right to amend this request for relief as necessary.


XXXIII

CERTIFICATE

We hereby confirm that only the persons whose names are listed below and who signed this

certificate wrote this Memorandum.

Jeddah, December 8th 2016

Aya Hashim

(Signed)

Duaa Amer

(Signed)

Lina Samaha

(Signed)

Nouf Bannan

(Signed)

Rahaf Zaini

(Signed)

Tala Bukhari

(Signed)

Wid Massoud

(Signed)

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