memorandumforrespondent - cisgmoot.org university... · qm/wc...

Fifteenth AnnualWillem C. VIS (East) International Commercial Arbitration Moot

Hong Kong, 2018

UNCITRALArbitration Nr. 200/2018/SEC7

MEMORANDUM FOR RESPONDENT

XIAMENUNIVERSITY

On Behalf of AgainstRESPONDENT CLAIMANT

Tel. (0) 241 77 32 Tel. (0) 146-9845Telefax (0) 214 77 33 Telefax (0) 146-9850Email Langweiler@lawyer Email [email protected]

COUNSEL

CHEN Lifan CHEN Sijie LIANGQingyi SHEN PeiWANG Ya ZHANGQifei ZHANG Sihua

DELICATESY WHOLE FOODS SP39 Marie-Antoine CaremeAvenueOceansideEquatoriana

COMESTIBLES FINOS LTD75 Martha Stewart DriveCapital CityMediterraneo

XIAMENUNIVERSITY MEMORANDUM FOR RESPONDENT

I

TABLE OF CONTENT

INDEX OFABBREVIATIONS······························································· V

INDEX OFAUTHORITIES·································································VII

INDEX OF RULES···········································································XIV

INDEX OFARBITRALAWARDS·························································XV

INDEX OF CASES··········································································XVII

STATEMENT OF FACTS······································································ 1

SUMMARYOFARGUMENT·································································3

ARGUMENT ON ISSUES······································································5

ISSUE I: The Tribunal Has the Power to Decide on the Challenge on Mr. Prasad

without Mr. Prasad’s Participation.·························································· 5

A. The Tribunal has the power to decide on the challenge of Mr.Prasad.··················5

1. Art. 13(4) UNCITRAL Rules should be excluded.······································ 5

2. Under Art. 13(2) Model Law the challenge should be decided by the Tribunal.····7

B. The decision should be made without Mr.Prasad’s participation.······················· 7

ISSUE II: Mr. Prasad Should Be Removed from the Arbitral Tribunal.············· 8

A. The Tribunal should refer to the IBA-Guidelines when deciding the challenge.······8

B. Mr. Prasad Should Be Removed Due to the Existence of “Justified Doubts”towards

His Impartiality And Independence.··························································· 10

1. The challenge was raised within the time limit.········································ 10

2. Findfunds LP and its subsidiaries’ past and present relationships with Mr. Prasad

give rise to justifiable doubts to Mr. Prasad’s independence and impartiality.········11

a. The ongoing commercial relationship between Mr. Prasad’s law firm and

Findfunds LP give rise to justifiable doubts to Mr. Prasad’s independence and

impartiality.···················································································11

(a) The ongoing commercial relationship of Mr. Prasad’s colleague should be

attributed to him under the “law firm conflicts” theory.···························· 11

(b) As long as the relationship is still ongoing, further conflicts of interests are


II

likely to appear.··········································································· 12

b. Mr. Prasad's previous appointments by Findfunds’ subsidiaries give rise to

justifiable doubts to Mr. Prasad’s independence and impartiality.··················· 13

3. Mr. Prasad's previous appointments by Mr. Fasttrack’s law firm constitute

problematic “repeat appointments”.·························································13

4. Mr. Prasad’s previous publication gives rise to justifiable doubts to his

independence and impartiality. ····························································· 14

5. Mr. Prasad violated his duty to identify conflict of interest according to IBA-

Guidelines.······················································································ 15

ISSUE III: RESPONDENT’s General Conditions of Contract Govern the

Contract.·························································································· 16

A. RESPONDENT’s General Conditions of Contract are legally binding.············· 16

1. CLAIMANT Has Accepted RESPONDENT’s General Conditions of Contract by

its Letter of Acknowledgement on 17th March 2014.···································· 16

2. CLAIMANT incorporated RESPONDENT’s General Conditions of Contract in

its offer.·························································································· 18

B. CLAIMANT’s General Conditions of Sale have not been incorporated in the

Contract.····························································································18

1. CLAIMANT failed to give clear reference to its General Conditions of Sale when

concluding the Contract.······································································ 19

2. Neither CLAIMANT nor RESPONDENT intended to be bound by

CLAIMANT’s General Conditions of Sale.················································20

C. Even if CLAIMANT’s General Conditions of Sale were incorporated in the

Contract, they should not govern the Contract.·············································· 21

1. CLAIMANT’s General Conditions of Sale should not govern the Contract due to

the lack of conflict between the two general conditions.·································21

2. CLAIMANT’s General Conditions of Sale should not govern the Contract

because of the knock-out rule.······························································· 22

ISSUE IV: Based on the Application of RESPONDENT’s General Conditions,


III

CLAIMANT Failed to Deliver Conforming Goods as Required by the Contract

pursuant to Art.35 CISG Because CLAIMANT Failed to Guarantee Its

Supplier’s Compliance with the Relevant Ethical Standards.·························23

A. The ethical standards stipulated in RESPONDENT’s General Conditions are part

of the requirements for the product quality under Art. 35(1) CISG.······················ 24

B. Even if the Tribunal holds that ethical standards do not fall into the scope of

“quality” under 35(1) CISG, they constitute a particular purpose which CLAIMANT’s

goods should be fit for under Art. 35(2)(b) CISG.···········································25

1. RESPONDENT has made the particular purpose known to CLAIMANT during

the negotiation and conclusion of the contract without any ambiguity.················26

a. RESPONDENT has more than once expressly shown its strict and special

requirements for CLAIMANT’s suppliers during the negotiation proceeding.···· 26

b. The ethical requirements have been directly set forth in the contract.············28

c. CLAIMANT could not have been unaware of such particular purpose because

it has accepted it by performance and without any objection.························ 29

2. RESPONDENT relies on CLAIMANT’s skill and judgment to guarantee the

cocoa supplier’s compliance with ethical standards.······································30

3. It is reasonable for RESPONDENT to rely on CLAIMANT with regard to

CLAIMANT’s supplier’s adherence to the sustainable standards.····················· 30

a. It has been established in practice that seller assumes the responsibility for any

defects with few exceptions where it receives raw materials from independent

suppliers.······················································································31

b. CLAIMANT’s skills and capabilities indicate that it is able to inspect and

guarantee its supplier’s compliance.······················································32

c. The details of the negotiation proceedings indicate that it is reasonable for

RESPONDENT to rely on CLAIMANT to guarantee the supplier’s compliance

with ethical standards.······································································ 33

C. CLAIMANT failed to guarantee its supplier’s compliance with ethical standards,

thus making the cakes delivered non-conforming goods under Art. 35 CISG.·········· 34


IV

REQUEST FOR RELIEF····································································· 36

SIGNATURE····················································································· 37


V

INDEX OF ABBREVIATIONS

ABBREVIATION FULL FORM

¶ / ¶¶ Paragraph / Paragraphs

Sec. Section / Sections

et al. Et alii (And others)

Art. / Arts. Article / Articles

CLAIMANT Delicatesy Whole Foods SP

RESPONDENT Comestibles Finos Ltd

Cl. Ex. CLAIMANT’s Exhibit

Re. Ex. RESPONDENT’s Exhibit

The parties Delicatesy Whole Foods Sp and Comestibles

Finos Ltd

The Contract Contract No. 1257 between Delicatesy Whole

Foods Sp and Comestibles Finos Ltd

CISGUnited Nations Convention on Contracts for the

International Sale of Goods

CISGA-C Opinion CISGAdvisory Council Opinion

UNCITRALModel Law UNCITRAL Model Law on International

Commercial Arbitration 1985 with amendements

as adopted in 2006

UNCITRALRules UNCITRAL


VI

Arbitration Rules

ICSID Convention Convention on the Settlement of Investment

Disputes Between States and Nationals of Other

States

IBA-Guidelines IBAGuidelines on

Conflicts of Interest

in International

Arbitration

Adopted by

QM/WC Queen Mary University of London and White and

Cae LLP 2012 International Arbitration Survey:

Current and Preferred Practice in the Arbitral

Process


VII

INDEX OF AUTHORITIES

AUTHOR SOURCE CITED AT

PARA:

Alfonso

Gomez-Acebo

Party-Appointed Arbitrators in Internationl

Commercial Arbitration

International Arbitration Law Library, Kluwer

International 2016, Vol.34, p. 113

Cited as: Alfonso, p. 113

46

BB C.M.

Bianca/M.J.Bonell

Commentary on the International Sales Law,

The 1980 Vienna Sales Convention, Milan

1987, p.272

Cited as: Bianca/BB, p. 272

84

Born, Gary International Commercial Arbitration

Kluwer Law International

The Hague 2009

p. 1840; p. 1842; p. 1914

Cited as: Born, p. 1840; Born, p.1842; Born, p.

1914

30, 32, 39

Born, Gary International Commercial Arbitration

2nd Edition

Kluwer Law International 2014

p. 2781; p. 1564

Cited as: Born, p. 2781; Born, p. 1564

31

Christoph Brunner Force Majeure and Hardship under General

Contract Principles: Exemption for

Non-performance in International Arbitration

Kluwer Law International 2008

81, 100, 103

http://www.kluwerarbitration.com/search?authorfullnamereversed=Brunner, Christoph

http://www.kluwerarbitration.com/book-toc?title=Force Majeure and Hardship under General Contract Principles: Exemption for Non-performance in International Arbitration




VIII

pp. 167 - 206

Cited as: Christoph, pp. 167-206

Daele, Karel Challenge and Disqualification of Arbitrators

in International Arbitration

International Arbitration Law Library, Kluwer

Law International 2012, Vol. 24

p.1; p. 9

Cited as: Daele, p. 1; Daele, p. 9; Daele, p. 166

26, 36, 47

Darmstadter

Howard

Shall&Will: Who Makes the Rules

Legal-Ease,

Business Law Today 7 (1997-1998)

Cited as: Darmstadter

82, 89

Domitille Baizeau,

Anne-Marie Loong

Domitille Baizeau and Anne-Marie Loong,

Chapter 13, Part X: Multi-tiered and Hybrid

Arbitration Clause', in Manuel Arroyo

(ed), Arbitration in Switzerland: The

Practitioner's Guide

Kluwer Law International 2013, pp. 1451-

1461

Cited as: Domitille & Anne, pp. 1451-1461

82

Farnsworth, A. Interpretation of the Contract,

Bianca-Bonell Commentary, 1987, Vol.. 5, p.

99

Cited as: Farnsworth, p. 99

74

Farnsworth, E. On trying to keep one's promises: The duty of

best efforts in contract law

University of Pittsburgh Law Review

1984, Vol. 46(1), pp. 1-20.

99


IX

Cited as: Farnworth, pp. 1-20

Fatima-Zahra

Slaoui

The Rising Issue of 'Repeat Arbitrators': A

Call for Clarification

Arbitratoon International, LCIA 2009, Vol. 25,

No.1

p. 111

Cited as: Slaoui, p. 111

43, 46

Folsom, Gordon &

Spanogle

International Business Transactions in a Nut

Shell

3d ed., West (1988), p. 88.

Cited as: Folsom & Spanogle, p. 88

96

Frans J.A. van der

Velden

The Law of International Sales: The Hague

Conventions 1964 and the UNCITRAL

Uniform Sales Code 1980 -- Some Main

Items Compared,

Voskuil & Wade eds.,

Hague-Zagreb Essays 4 on the Law of

International Trade, 1983, note 2, p. 52

Cited as: van der Velden, p. 52

99

Freiburg Einheitliches Kaufrecht und nationales

Obligationenrecht,

Referate und Diskussionen der Fachtagung

Einheitliches Kaufrecht, Freiburg im Breisgau

am 16./ und 17.2.1987, Baden-Baden, 1987

Cited as: Freiburg, p. 338

84

Fritz Enderlein The Vienna Sales Convention: History and

Perspective,

Sarcevic & Volken eds.

105


X

Oceana (1986) p. 157

Cited as: Enderlein, p. 157

Ghith, Aburima

Abdullah

"Exemption of Non-Performance of the

Seller's Contractual Obligations (Comparative

Study)." Arab Law Quarterly 20 (2006), p.

287.

Cited as: Ghith, p. 287

100

Giuffre International Sales Law, Reproduced with

permission of Dott. A Guiffre Editore.

Milan, 1987, pp.268-283

Cited as: Giuffre, pp. 268-283

81

Golsong Heribert A Guide to Procedural Issues in International

Arbitration, 18 Int'l L. 633, 644 (1984)

p. 11

Cited as: Golsong, p. 11

27

Helen Anderson Australian Accounting Review No. 61 Vol. 22

Issue 2 2012 p.12

Cited as: Anderson

95

John O. Honnold Uniform Law for International Sales Under

the 1980 United Nations Convention,

3rd Edition,

Kluwer Law International, 1999, p.101

Cited as: Honnold, p. 101

99

Jelena Vilus In Homenaje a Jorge Barrera Graf,

2nd Edition,

Universidad Nacional Autóma de Mexico,

1989, pp.1440-1441

Cited as: Vilus, pp. 1440-1441

97

Nathalie Voser, NATHALIE VOSERANDANGELINA 52


XI

Angelina M.Petti M. PETTI, 'THE REVISED IBA

GUIDELINES ON CONFLICTS OF

INTEREST IN INTERNATIONAL

ARBITRATION', ASA BULLETIN,

ASSOCIATION SUISSE DE

L'ARBITRAGE; KLUWER LAW

INTERNATIONAL 2015, VOLUME 33

ISSUE 1), p.20

Cited as: Voser & Petti, p. 20

Paulo Nalin International Fair Trade (Fair Trade in

International Contracts and Ethical Standard)

in Ingeborg Schwenzer (ed), 35 Years CISG

and Beyond (Eleven International Publishing

2016), p. 333.

Cited as: Paulo, p. 333

81

Peter Schlechtriem ‘Uniform Sales Law in the Decisions of the

Bundesgerichtshof’, in 50 Years of the

Bundesgerichtshof, s. III.3.

Cited as: Schlechtriem

100

Peter Schlechtriem,

Ingeborg

Schwenzer

Commentary on the UN Convention on the

International Sale of Goods (CISG)

2nd (English) Edition

Oxford University Press, June 16, 2005, Art

14 paras 39&56-57, Art 19 paras 35-38

Cited as: Schlechtriem & Schwenzer

75

Pietro Ferrario Pietro Ferrario, 'The Group of 41


XII

Companies Doctrine in

International Commercial

Arbitration: Is There any

Reason for this Doctrine to Exist?', Journal of

International Arbitration

Kluwer Law International 2009, Vol. 26, p.

567

Cited as: Ferrario, p. 567

Schwarz, Franz T.,

Konrad, Christian

W.

The Vienna Rules: A Commentary on

International

Arbitration in Austria,

Kluwer Law International

The Hague 2009, p. 415

Cited as: Schwarz & Konrad, p. 415

30

Schwenzer,

Ingeborg

"Avoidance of the Contract in Case of

Non-Conforming Goods (Article 49(1)A)

CISG)." Journal of Law and Commerce 25.1

(2005)

pp. 437-442.

Cited as: Schwenzer, pp. 437-472

81

Summers Robert S. ‘Good Faith’ in General Contract Law and the

Sales Provisions of the Uniform Commercial

Code.

Virginia Law Review

1968, vol. 54, no. 2, pp. 195–267

Cited as: Summers, pp.195–267

59

Survey of School 2012 International Arbitration Survey: 31


XIII

of International

Arbitration, Centre

for Commercial

Law Studies,

Queen

Mary University

Current and Preferred Practices in the Arbitral

Process

Cited as: QM/WC

Tunc, A. Commentary of the Hague Convention on

International Sale of Goods,

The Hague, 1966, p. 26.

Cited as: Tunc, p. 26

99

Varv, Age; Karu,

Piia.

"The Seller's Liability in the Event of Lack of

Conformity of Goods." Juridica

International 16 (2009), p. 86

Cited as: Varv&Karu, p. 86

107

Zimmermann

Reinhard

Savigny's Legacy: Legal History,

Comparative Law and the Emergence of a

European Legal Science

Law Quarterly Review

1996.112, p.577

Cited as: Zimmermann, p. 577

59


XIV

INDEX OF RULES

ABBREVIATION FULL FORM

UNCITRAL

Arbitration Rules

UNCITRALArbitration Rules(with new article 1, paragragh

4, as adopted in 2013)

UNCITRAL Model

Law

UNCITRAL Model Law on International Commercial

Arbitration with amendments as adopted in 2006

UNIDROIT Principles UNIDROIT PRINCIPLES of International Commercial

Contract, 2016

IBA-Guidelines IBA Guidelines on Conflicts of Interest in International

Arbitration, 2014

CISG United Nations Convention On Contracts For The

International Sale Of Goods，1980

UNCITRAL Model

Law

UNCITRAL Model Law on International Commercial

Arbitration with the 2006 amendments

German Arbitration

Act

Article 1, No. 7 of the Arbitral Proceedings Reform Act:

Tenth Book of the Code of Civil Procedure

Arbitration Procedure

Sections 1025 - 1066

DIS-Arbitration Rules DIS-Arbitration Rules 98

(in force as of July 1, 1998)


XV

INDEX OF ARBITRAL AWARDS

INSTITUTION SOURCE CITED AT

PARA:

ICSIDInternational Centre for Settlement of

Investment Disputes (ICSID)

Alpha Projektholding GmbH v. Ukraine

ICSID Case No. ARB/07/16

19 March 2010

Cited as: ICSID Case No. ARB/07/16

31

PCAPermanent Court of Arbitration

ICS Inspection and Control Services Limited

(United Kingdom) v. The Republic of

Argentina

December 17, 2009

Cited as : ICS case

42

LCIALondon Court of International Arbitration

(LCIA)

LCIA Reference No. 81160

28 August 2009

Cited as: LCIA Reference No. 81160

31

LCIADecision in LCIA Ref. No. UN96/X15 of 29

May 1996

Case No. Ref. No. UN96/X15

London Court of International Arbitration

(LCIA)

29 May 1996

Cited as : Case UN96

40


XVI

German Institution

of Arbitration

Case No. DIS

Award No. SV-217/02

DIS Award No. SV-217/02, BB (2003),

Beilage No. 8, 24 et seq.,

Cited as: Case Beilage

40

ICC ICC Case No. 8128 of Jan. 1995

Cited as: ICC Case No. 8128

100


XVII

INDEX OF CASES

JURISDICTION SOURCE CITED AT PARA:

Belgium N.V. G. v. N.V. H.P.

Rechtbank van Koophandel [District Court

for Commercial Matters] Mechelen

18 January 2002

Cited as: Tomatoes case

France S.a.r.l. Pelliculest / S.A. Rhin et Moselle

Assurances v. GmbH Morton International /

Société Zurich Assurances

Cour d'appel de Colmar

24 October 2000

Cited as: Pelliculest v. Morton International

Finland 30.06.1998

Country:Finland

Number:19067

Court:Helsinki Court of Appeals

Parties: EP S.A. v. FP

Cited as: Case 19067Germany Germany 31 October 2001 Supreme Court

(Machinery case)

Bundesgerichtshof [Federal Supreme Court]

31 October 2001

VIII ZR 60/01

Cited as: Machinery case

Germany Germany 23 October 2000 Appellate Court

Dresden (Powdered milk case)

OLG Dresden [OLG = Oberlandesgericht =

Appellate Court]


XVIII

23 October 2000

2 U 1181/00

Cited as: Powdered milk case


1

STATEMENT OF FACTS

1. CLAIMANT (Delicatesy Whole Foods Sp) is a medium sized manufacturer of fine

bakery products registered in Equatoriana. RESPONDENT (Comestibles Finos Ltd) is

a gourmet supermarket chain in Mediterraneo.

2. On 3-6 March 2016, Kapoor Tsai (CLAIMANT’s Head of Production) and Annabella

Ming (RESPONDENT’s Head of Purchasing) met and approached each other in the

yearly Danubian food fair, during which they exchanged the basic information of their

companies and showed the inclination to establish commercial relationship.

3. On 10 March 2014, CLAIMANT received from RESPONDENT the Invitation to

Tender and the attached Tender Document.

4. On 17 March 2014, CLAIMANT submitted the requested Letter of Acknowledgement

to inform RESPONDENT that it would tender according to the specified requirements,

i.e. RESPONDENT’s General Conditions and its Code of Conduct. But it was on 27

March 2014 that CLAIMANT formally tendered, with some minor modifications to

the Tender Document concerning only the size of the cake and mode of payment. And

on 7 April 2014, RESPONDENT accepted CLAIMANT’s offer, which meant that the

Contract was concluded between the Parties.

5. On 1 May 2014, CLAIMANT made the first delivery and everything went smoothly

until 27 January 2017 when RESPONDENT demanded confirmation on the

compliance of CLAIMANT’s cocoa supplier to the ethical and environmental

production process after learning a bribery and deforestation scandal in Ruritania. Also

in this e-mail, RESPONDENT objected to any further delivery or payment until the

situation was clarified.

6. Immediately on 27 January 2017, CLAIMANT replied to RESPONDENT,

confidently suggesting that its cocoa supplier is qualified due to its best efforts to


2

supervise while promising to make further investigation. Moreover, CLAIMANT

pointed out that there was no ground for RESPONDENT to reject the payment of the

cakes delivered.

7. On 10 February 2017, CLAIMANT informed RESPONDENT that its cocoa supplier

was unfortunately involved in the bribery scandal and admitted that some of the cocoa

used in the cakes have not been produced in accordance with the relevant standards. It

meant that CLAIMANT failed to perform its obligation of guarantee and thus

constitutes a fundamental breach of contract as provided in RESPONDENT’s General

Conditions of Contract. Consequently, on 12 February 2017, RESPONDENT rejected

CLAIMANT’s discount offer and wanted to terminate the contract and seek for

damages.

8. On 30 June 2017, CLAIMANT sent Notice of Arbitration to RESPONDENT, together

with Mr. Prasad’s declaration of Impartiality and Independence and Availability.

9. On 31 July 2017, RESPONDENT made the Response to Notice of Arbitration.

10. On 29 August 2017, RESPONDENT requested CLAIMANT to disclose the

information about its third-party funder. On 7 September 2017, CLAIMANT revealed

the name of the funder (Funding 12 Ltd, whose main shareholder is Findfunds LP)

while requesting RESPONDENT to disclose how it got to know the information of the

third-party funding.

11. On 11 September 2017, Mr. Prasad revealed his previous experience with Findfunds

LP and the merger of his law firm with Slowfood.

12. On 14 September 2017, RESPONDENT made the Notice of Challenge of Arbitrator to

request Mr. Prasad removed from the Arbitral Tribunal.

13. On 21 September 2017, Mr. Prasad responded to RESPONDNENT’s challenge on him

and refused to withdraw from the Tribunal.

14. On 29 September 2017, CLAIMANT refuted RESPONDNET’s grounds in terms of

the challenge on Mr. Prasad.


3

SUMMARY OFARGUMENT

15. ISSUE I: Both CLAIMANT and RESPONDENT have agreed about the exclusion of

institution in dispute resolution clause. If the parties resort to the appointing authority

to decide on the challenge of Mr. Prasad, there will be a great possibility that

institutions may get involved. According to the parties’ intent, Art. 13(4) UNCITRAL

Rules was excluded. Pursuant to the lex arbitri, which is Art. 13(2) UNCITRAL Model

Law, the Tribunal has the power to decide on the challenge. Mr. Prasad should not be

his own judge and thus the challenge should be decided by the two remaining

arbitrators rather than the whole Tribunal.

16. ISSUE II:Mr. Prasad should be removed from the Arbitral Tribunal. First, the Tribunal

should refer to the IBA-Guidelines because they are accepted by as international

arbitral practice. Second, Mr. Prasad should be removed from the Tribunal due to the

existence of justifiable doubts to his independence and impartiality.

17. ISSUE III: RESPONDENT’s General Conditions govern the contract because it is

accepted by and incorporated into the contract by CLAIMANT. CLAIMANT’s General

Conditions of Sale do not govern the contract because RESPONDENT’s General

Conditions of Contract are legally binding and CLAIMANT’s General Conditions of

Sale has not been incorporated in the contract. Even if CLAIMANT’s General

Conditions of Sale were incorporated in the contract, CLAIMANT’s General

Conditions of Sale should not govern the Contract because the last shot rule should not

be applied and CLAIMANT’s General Conditions are knocked out.

18. ISSUE IV: The cakes delivered by CLAIMANT are non-conforming goods under Art.

35 CISG because CLAIMANT failed to guarantee its cocoa supplier’s compliance with

the relevant standards. Ethical standards are part of the requirements for the product

quality under Art. 35(1) CISG. Alternatively, to guarantee the cocoa supplier’s

compliance with the relevant standards constitute a particular purpose under Art.


4

35(2)(b) CISG because all the requirements for setting a particular purpose have been

met. Therefore, CLAIMANT’s obligation concerning its cocoa supplier’s compliance

is to achieve the specific result. CLAIMANT’s failure to do so renders the cakes

non-conforming goods under Art. 35 CISG.


5

ARGUMENT ON ISSUES

ISSUE I: The Tribunal Has the Power to Decide on the Challenge on Mr. Prasad

without Mr. Prasad’s Participation.

19. During the negotiation on the contract drafting, RESPONDENT emphasized that they

wanted as few people as possible to know about the arbitration and explicitly wrote in

the contract that institutions should be excluded. Such position was accepted by

CLAIMANT. In the present case, Mr.Prasad is challenged. RESPONDENT submits

that the challenged should be decided by the Tribunal [A] and Mr.Prasad should not

participate in the decision making [B].

A. The Tribunal has the power to decide on the challenge of Mr.Prasad.

20. According to the dispute resolution clause, arbitral institution may involved if Art. 13(4)

UNCITRAL Rules is applied. RESPONDENT submits that Art. 13(4) UNCITRAL

Rules should be excluded [1]. Pursuant to the lex arbitri, which is Art. 13(2) Model

Law, the challenge to Mr.vPrasad should be decided by the Tribunal [2].

1. Art. 13(4) UNCITRALRules should be excluded.

21. Art.13 UNCITRAL Rules is about the challenge proceedings and it provides that the

appointing authority has the power to decide the challenge to an arbitrator. Under Art. 6

UNCITRAL Rules, an appointing authority could be a person or an institution. When

an appointing authority steps into an ad hoc arbitral proceedings, it means there might

be institutions get involved. The dispute resolution clause states that ”any disputes,

controversy or claim arising out of or relating to this contract, or the breach,

termination or invalidity thereof, shall be settled by arbitration in accordance with the

UNCITRAL Arbitration Rules without the involvement of any arbitral institution…”

[Cl. Ex. C2, p. 9], which shows parties’ hope to resolve disputes or controversies

without any institutions involved. CLAIMANT shows no objection to the dispute


6

resolution clause when it was concluded. If Art. 13(4) is applied, there will be a great

possibility that arbitral institutions may get involved in the arbitration as the appointing

authority, which absolutely conflicts with parties autonomy on the exclusion of arbitral

institutions. In the present case, CLAIMANT’s allegation that “the Addition” , which

states that “ …without the involvement of any arbitral institution”, did not affect the

applicability of Art. 13(4) and was only intend to exclude institutional involvement for

selection of arbitrators [Memo of Cl., ¶¶. 26-43]. RESPONDENTS submits that

CLAIMANT’s allegation is pure speculation and groundless because “the Addition”

was drafted in the foreword of the dispute resolution clause and the provision about

selection of arbitrators only appeared in paragraph a of the clause, which means that

“the Addition” should be applied to the entire process of the arbitration, not only to the

selection of arbitrators.

22. RESPONDENT shows the concern for the confidentiality of arbitral proceedings

multiple times. RESPONDENT has suffered a serious reputation damage during an

institutional arbitration [Re. Ex. R5, p. 41]. An important information was leaked during

the arbitral proceeding and RESPONDENT assumed that the staff of the arbitral

institution was involved in the leakage. Whereupon, RESPONDENT includes in all its

contracts a very strict confidentiality clause with a high penalty for breaches [Re. Ex.

R5, p. 41]. And such an unpleased experience is also the reason why RESPONDENT

firmly against the involvement of arbitral institutions and choose the ad hoc arbitration.

RESPONDENT’s intent to make the arbitration confidential is explicitly stated in the

contract and expressed to CLAIMANT during the negotiation, CLAIMANT is aware

of such intent. If Art. 13(4) is applied in the present arbitration, the involvement of the

appointing authority may affect the confidentiality, which is RESPONDENT concerns

the most.

23. Further, instead of claiming the application of Art. 13(4) before the contract was

concluded, CLAIMANT alleged that Art. 13(4) should be applied after RESPONDENT

challenged Mr. Prasad. Such allegation should not be supported. During the negotiation,

RESPONDENT frequently emphasized that they did not want institutions get involved


7

and their past experience of information leakage in the institutional arbitration. Based

on the above, RESPONDENT drafted the arbitration agreement to exclude institutions

and chose an ad hoc arbitration. RESPONDENT intended to exclude Art. 13(4) as well.

In the present case, RESPONDENT communicated with CLAIMANT multiple times

that they wanted as few people as possible to know about the arbitration [Prob, p. 39].

CLAIMANT should be aware of the possibility of more people will get involved in this

arbitration if they resort to an appointing authority to decide on the challenge. If

CLAIMANT wanted Art. 13(4) to be applied, they had to propose to add an extra

provision about the application of Art. 13(4) earlier rather than the time when

Mr.Prasad has already been challenged. Therefore, Art. 13(4) UNCITRAL Rules

should be excluded in this arbitration.

2. UnderArt. 13(2) Model Law the challenge should be decided by the Tribunal.

24. Given the exclusion of Art. 13(4) UNCITRAL Rules, the appropriate gap filler should

be the lex arbitri, which is the Danubian arbitration law, the verbatim of UNCITRAL

Model Law. It is undisputed between the Parties that Equatoriana, Mediterraneo,

Ruritania and Danubia are Contracting States of the CISG. The general contract law of

all four states is a verbatim adoption of the UNIOROIT Principles on International

Commercial Contracts. All states have adopted the UNCITRAL Model Law on

International Commercial Arbitraion with the 2006 amendments [The Problem, p. 49].

25. According to Art. 13(2) Model Law, unless the challenged arbitrator withdraws from

his office or the other party agrees to the challenge, the tribunal shall decide on the

challenge. Thus in the present case, the Tribunal shall decide on the challenge of Mr.

Prasad.

B. The decision should be made without Mr.Prasad’s participation.

26. First, there is no doubt that grave injustice would be done if an arbitrator was allowed

to continue serving on a tribunal despite the existence of good reasons to disqualify the

person [Daele, p. 1]. Given that the integrity and the impartiality of Mr. Prasad are being

challenged, whatever the outcome of challenge, Mr. Prasad should not be included in


8

the arbitral tribunal before the challenging procedure come to an end. Considering that

the arbitral tribunal has power to decide on the challenge. Mr. Prasad-----excluded from

the arbitral tribunal----should not participate in his own challenge.

27. Second, a challenged arbitrator should in no case be judge in his own cause both in

theories and practices. The examination of a disqualification proposal should be left to

the two fellow arbitrators or the chairman to decide [Golsong, p. 11]. “No one should be

athlete and referee at the same time “, otherwise the devices on challenging an

arbitrator could not properly function. Challenging procedure is not for one’s likes and

dislikes prejudice. The judge on challenge must be remained neutral, however the

objective judgment could hardly be expected since the result of challenge refers to the

interest of a judge himself. In the present case, Mr. Prasad was challenged by

RESPONDENT and the challenge should be decided by two remaining arbitrators. If

Mr. Prasad participates in the decision making, he will inevitably be biased and have

great possibility to vote himself for not being removed from the tribunal, which is

absolutely unfair to RESPONDENT.

28. Conclusion: The Tribunal has the power to decide on the challenge. Pursuant to

UNCITRAL Rules and UNCITRAL Model Law as well as natural justice, Mr. Prasad

should not participate into the decision making.

ISSUE II: Mr. Prasad Should Be Removed from the Arbitral Tribunal.

29. According to UNCITRAL Rules Article 12(1), any arbitrator may be challenged if

circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality

and independence. However, it is difficult to judge the existence of relevance

circumstances with the general standard. To solve this, it has become a common

practice for the arbitral tribunal to refer to IBA-Guidelines to decide whether there are

conflicts of interest [A]. In this case, Mr. Prasad should be removed due to the

existence of conflicts of interest according to IBA-Guidelines and UNCITRAL Rules

[B].

A. The Tribunal should refer to the IBA-Guidelines when deciding the challenge.


9

30. IBA-Guidelines will apply to international commercial arbitration proceedings if the

parties agree or the Tribunal so orders [Schwarz & Konrad, p. 415]. Parties in practice

virtually never incorporate IBA-Guidelines into their arbitration agreements. These

mean that the Tribunal can decide whether to apply IBA-Guidelines despite of the

parties' disagreement [Born, p. 1840]. In the present case, there are abundant reasons for

the Tribunal to apply IBA-Guidelines.

31. Firstly, IBA-Guidelines are accepted as international arbitral practice. International

practice refers to a common practice which is widely known to and regularly observed

by the parties. A detailed 2012 survey of international arbitration practice shows that

IBA Rules were adopted in 60% of arbitrations, whereas 85% of the participants in the

survey consider IBA Rules useful [QM/WC]. These figures imply that IBA-Guidelines

are widely recognized to be useful in arbitrations. In an LCIA case, the Division

accepted that, to a considerable degree, IBA-Guidelines might be seen to reflect actual

practice in significant parts of the international arbitration community [LCIA Reference

No. 81160]. What’s more, in the case Alpha Projektholding GmbH v. Ukraine, the

Tribunal sought guidance from IBA-Guidelines when deciding the conflicts of interests

[ICSID Case No. ARB/07/16]. These surveys and cases provide ground for the Tribunal

to apply them.

32. Secondly, IBA-Guidelines provide an extensive and detailed treatment of issues of

arbitrator's impartiality and independence [Born, p. 1842]. This makes great sense when

the applicable arbitral law and rules do not provide detailed provisions on conflicts of

interest. In this case, the applicable UNCITRAL Rules only provide a general standard

of “justifiable doubts” to decide challenge in Art.12 without detailed contents. This

makes it difficult for the Tribunal to decide whether there are justifiable doubts. Hence,

the Tribunal should apply IBA-Guidelines as a supplement to national law and ad hoc

rules [Schwar z/ Konrad, p. 415].

33. Therefore, given that IBA-Guidelines can help solve the dispute on conflict of interests

and enjoy wide acceptance in international arbitration community, the Tribunal should


10

not hesitate to apply them.

B. Mr. Prasad should be removed due to the existence of “justified doubts” towards

his impartiality and independence.

34. Based on the facts that give rise to justifiable doubts to Mr. Prasad’s independence and

impartiality, RESPONDENT challenged Mr. Prasad within the time limit [1].

RESPONDENT submits that Findfunds LP and its subsidiaries’ past and present

relationship with Mr. Prasad gives rise to justifiable doubts towards him [2]. Mr.

Prasad’s previous appointments by Mr. Fasttrack’s law firm constitute problematic

“repeat appointments” that provide ground for challenge [3]. What’s more, Mr.

Prasad’s previous publication gives rise to justifiable doubts towards his impartiality

and independence [4]. Mr. Prasad violated his duty to identify conflict of interest

according to IBA-Guidelines General Standard 7(d) [5].

1. The challenge was raised within the time limit.

35. RESPONDENT sent notice of challenge based on the relationship between the funder

and Mr. Prasad within the 15-day time limit. UNCITRAL Rules set forth that a party

that intends to challenge an arbitrator shall send notice of its challenge within 15 days

after the circumstances mentioned in articles 11 and 12 became known to that party. It

was not until 11 September 2017 that RESPONDENT knew the relationships between

the funder and Mr. Prasad [The problem, p. 36]. And RESPONDENT sent the Notice of

Challenge of Arbitrator on 14 September 2017, which is within the time limit. Thus,

the challenge based on the relationship between the funder and Mr. Prasad was made

within the fifteen-day period of Article 11(1) of the UNCITRAL Rules.

36. With regards other circumstances that contribute to Mr. Prasad’s lack of independence

and impartiality, RESPONDENT submits that the time-limit requirement for the

challenge should be interpreted flexibly, rather than apply the 15-day limit strictly.

Scholars have stated that absent strategic maneuvers, the requirement that a challenge

be made promptly must be interpreted flexibly [Daele, p.166]. Cases also support this

flexible approach: A good example is the Carnegie v. Gambia challenge decision in


11

which a challenge, filed seven months after the allegedly disqualifying facts occurred,

was considered timely because of the constructive and professional way in which the

challenging party had conducted the challenge procedure. Therefore, although the

challenge of Mr. Prasad was not made within the 15 days, the Tribunal may still

consider this flexibly and find the challenge made in time.

37. Even if the challenge seemingly passed the 15-day limit, the failure to object shall not

be deemed as a waiver. Art. 32 UNCITRAL Rules provides that if a party can show

that under the circumstances, its failure to object is justified, a failure by the party to

object promptly shall not be deemed to be a waiver of the right to make such an

objection. In the present case, before RESPONSENT find the potential relationship

between the funder and Mr. Prasad, the circumstances of Mr. Prasad’s appointments by

Mr. Fasttrack’s law firm and the reservation on his colleagues did not raise doubts to

Mr. Prasad’s independence and impartiality. However, after finding the new fact which

provides grounds for the challenge, the known facts also became doubtful. Therefore,

RESPONDENT’s failure to object is justified and shall not be deemed to be a waiver,

and the substance of the challenge should be considered by the Tribunal.

2. Findfunds LP and its subsidiaries’ past and present relationships with Mr. Prasad

give rise to justifiable doubts to Mr. Prasad’s independence and impartiality.

38. As Mr. Prasad has disclosed, with the merger of his law firm, a present colleague of

him is representing a case funded by Findfunds LP [Email, p.36, ¶3]. Therefore, there is

an ongoing relationship between Mr. Prasad’s law firm and Findfunds LP, which will

result in his disqualification as the arbitrator in this case.

a. The ongoing commercial relationship between Mr. Prasad’s law firm and Findfunds

LP give rise to justifiable doubts to Mr. Prasad’s independence and impartiality.

(a) The ongoing commercial relationship of Mr. Prasad’s colleague should be

attributed to him under the “law firm conflicts” theory.

39. Arbitrators are often members of law firms. Although the arbitrator himself may not


12

have represented either of the parties, his partners or other colleagues may have. That’s

what is called law firm “conflicts”. It appears settled that the arbitrator’s law firm’s

conflicts will presumptively be relevant to assessing his impartiality [Born, 1914]. In the

present case, though Mr. Prasad does not represent the case funded by Findfunds LP,

his present partner does so. So the present representation should be considered to

assess Mr. Prasad’s qualification.

40. It is a common practice in international arbitration that arbitrator’s fellow partners’

representation of parties should be attributed to the arbitrator. In a DIS (German

Institution of Arbitration) case, the tribunal declared that a client relationship of a

partner of the arbitrator's law firm with a party of the arbitration or one of its

subsidiaries must be attributed to the arbitrator, irrespective of the size of the law firm

and of whether that arbitrator was aware of that client relationship or not [Case Beilage].

In a similar LCIA case, the tribunal made a decision to uphold the challenge to an

arbitrator where the arbitrator’s law partners had done work for company associated

with party, the tribunal commented: “a partner in a law firm had to be identified with

his partners, at least insofar as their professional activities were concerned” [Case

UN96]. Therefore in the present case, the representation of Mr. Prasad’s fellow partner

should be identified to that of Mr. Prasad. The present circumstances then fall into 1.1

of IBA-Guidelines, which will cause Mr. Prasad’s disqualification as the arbitrator.

(b) As long as the relationship is still ongoing, further conflicts of interests are likely toappear.

41. As long as the representation of Mr. Prasad’s colleague is ongoing, Mr. Prasad’s law

firm will always be rendering services to Findfunds LP. These circumstances fall into

the 3.2.1 of IBA-Guidelines, which is of the orange list, and further conflicts of

interests will always appear.

42. In the an ICS case where the challenged arbitrator’s law firm is representing a series of

cases against the challenging party, the appointing authority upheld the challenge and

noted that possible conflicts of interests will always be envisaged with the law firm’s

continued representation [ICS Case]. By analogy, in this case, there are justifiable


13

doubts towards Mr. Prasad’s impartiality and independence with his law firm’s ongoing

representation for Findfunds.

b. Mr. Prasad's previous appointments by Findfunds’ subsidiaries give rise to

justifiable doubts to Mr. Prasad’s independence and impartiality.

43. Firstly, based on Findfunds’ connection with the three appointments, reasonable doubts

can be concluded that Mr. Prasad may incline to CLAIMANT to pursue a benefit.

Arbitrators may begin to expect to be reappointed by the same party and consequently

except regular fees as a result of repeat appointments [Slaoui, p. 111]. In the present case,

Mr. Prasad has acted as arbitrator in two cases which were funded by other subsidiaries

of Findfunds [The problem, p.36]. Thus, Mr. Prasad may incline to CLAIMANT to expect

more benefit from being reappointed by parties funded by Findfunds.

44. Secondly, when subsidiaries are closely connected with their parent company, they

should be deemed equal. In the present case, Findfunds LP owns 100% share of the

subsidiaries and is the main shareholder of Funding 12 Ltd., which gives rise to

justifiable doubts that it may affect the appointment of the arbitrator based on its stock

rights. Thus, the appointments by the party funded by the subsidiaries and Funding 12

Ltd can be deemed equivalent to appointments by the party funded by Findfunds LP.

45. Thirdly, third-party funder’s repeat appointments give rise to justifiable doubts to

arbitrator’s independence and impartiality. Pursuant to 3.1.3 in IBA-Guidelines, the

situation in which the arbitrator was appointed by one of the parties on two or more

occasions within the past three years is listed in the Orange List, which means that this

may give rise to reasonable doubts. IBA-Guidelines set forth that third-party funders

may have a direct economic interest in the award, and as such may be considered to be

equal to the funded party. In this case, Findfunds, as the third party funder, should be

deemed as a party. Hence, Funding 12 Ltd. and Findfunds’ subsidiaries’ repeat

appointments may equally be problematic based on their connections with Findfunds.

3. Mr. Prasad's previous appointments by Mr. Fasttrack’s law firm constitute

problematic “repeat appointments”.


14

46. According to IBA-Guidelines, situation of repeat appointments is listed in the Orange

List [IBA-Guidelines, para.3.3.8] that may give rise to justifiable doubts as to the

arbitrator’s impartiality and independence [IBA-Guidelines Part II (3)]. Given that many

parties leave the choices of arbitrators to their counsels, the situation in which a

counsel unilaterally appoints the same arbitrator can be regarded as repeat

appointments [Alfonso, p. 113]. As a result of repeat appointments, the arbitrator may

begin to expect to be reappointed by the same party and consequently expect regular

fees [Slaoui, p. 111], which casts doubts on the arbitrator’s impartiality. In the present

case, this ongoing arbitration is the third time for which Mr. Prasad is appointed by Mr.

Fasttrack’s law firm, which provides grounds to doubt that he may incline to

CLAIMANT to pursue a benefit. Therefore, Mr. Fasttrack’s law firm’s previous

appointments can be regarded as repeat appointments in IBA-Guidelines which raise

reasonable doubts to Mr. Prasad’s independence and impartiality.

4. Mr. Prasad’s previous publication gives rise to justifiable doubts to his

independence and impartiality.

47. An arbitrator’s previous publication may give rise to “justifiable doubts” towards his

impartiality since the conflict of interests includes any sort of interest, direct or indirect,

of the arbitrator in the outcome of the dispute or in the legal issues that are being

arbitrated in the case [Daele, p.9] Thus, if an arbitrator has taken a position on certain

legal opinions, the outcome of the arbitration may be influenced by the author’s

previous positions on certain legal opinions.

48. In the present arbitration, Mr. Prasad has taken a position against the modern trend in

the understanding of the conformity concept in Art.35 CISG. Such positions are

reflected in his publication: the conformity of goods does not depend on their

compliance with the very broad and general statements in CSR-Codes [Re. Ex. R4, p.40]

In the arbitration, one main contention between parties is about whether the goods (the

chocolate cake) are in conformity with the ethical standards in CSR-Code of

RESPONDENT. However, from Mr. Prasad’s clear position expressed before,


15

RESPONDENT has sufficient reason to suspect that its high ethical standards towards

the products may be seen as a broader understanding of the concept of conformity and

would be rejected by Mr. Prasad.

49. Actually, CLAIMANT also admitted that Mr. Prasad’s expressed views in this article

are a major reason for his appointment. Mr. Fasstrack, CLAIMANT’s lawyer, directly

stated that, given Mr. Prasad’s view expressed in an article on the irrelevance of CSR

on the question of the conformity of goods, he is the perfect arbitrator for their case.

[Notice of Challenge, p.38, ¶3]

50. Hence, Mr. Prasad’s participation in the case may lead to an inequitable award of the

arbitration in favor of CLAIMANT. Mr. Prasad should be removed from tribunal

because his impartiality cannot be assured.

5. Mr. Prasad violated his duty to identify conflict of interest according to IBA-

Guidelines.

51. RESPONDENT submits that it is just Mr. Prasad’s conduct that resulted in his

violation of his duty under IBA-Guidelines. However, as will be stated below, the

concealment of the involvement of the third-party funder will cause RESPONDENT’s

justifiable doubts towards the arbitrator appointed by CLAIMANT.

52. In order for arbitrators to fully satisfy their duty of disclosure, IBA-Guidelines also

impose on them a duty of enquiry: An arbitrator is under a duty to make reasonable

enquiries to identify any conflict of interest, as well as any facts or circumstances that

may reasonably give rise to doubts as to his or her impartiality or independence [General

Standard 7(d), IBA-Guidelines]. The word “identify” means that an arbitrator needs to not

only check those conflicts which may or may not be in the forefront of his or her mind,

but also to identify, i.e. search for, additional potential conflicts of interest, thereafter

disclosing any such conflicts of interest which may exist [Voser & Petti, p. 20].

53. From what we have known, however, Mr. Prasad did not make any enquiries to check

whether CLAIMANT has been funded by a third-party funder. Non-disclosure of an


16

indirect relationship, which is unknown to a prospective arbitrator, should not be a

ground for disqualification unless it could have been ascertained by making reasonable

inquiries [Berger]. In the present arbitration, the relationships about conflicts of interest

could have been ascertained if Mr. Prasad had made some reasonable enquiries like

whether CLAIMANT has been funded by a third-party funder. Thus, the failure of Mr.

Prasad’s fulfilling the duty under General Standard 7(d) is a ground for his

disqualification.

54. Conclusion: The Tribunal should refer to IBA-Guidelines. Mr. Prasad should be

removed due to the existence of justifiable doubts as to his independence and

impartiality.

ISSUE III: RESPONDENT’s General Conditions of Contract Govern the Contract.

55. CLAIMANT’s General Conditions of Sale do not govern the contract because

RESPONDENT’s General Conditions of Contract are legally binding [A] and

CLAIMANT’s General Conditions of Sale has not been incorporated in the contract

[B]. Even if CLAIMANT’s General Conditions of Sale were incorporated in the

contract, CLAIMANT’s General Conditions of Sale should not govern the Contract

because of the lack of conflict and knock-out rule [C].

A. RESPONDENT’s General Conditions of Contract are legally binding.

56. RESPONDENT’s General Conditions of Contract are legally binding because

CLAIMANT has accepted RESPONDENT’s General Conditions of Contract by its

Letter of Acknowledgement on 17th March 2014 [1] and CLAIMANT incorporated

RESPONDENT’s General Conditions of Contract in its offer [2].

1. CLAIMANT Has Accepted RESPONDENT’s General Conditions of Contract by

its Letter of Acknowledgement on 17th March 2014.

57. Pursuant to Art. 8 CISG, statements made by and other conduct of a party are to be

interpreted according to his intent where the other party knew or could not have been

unaware of what that intent was. Otherwise, they should be interpreted according to the

understanding that a reasonable person of the same kind as the other party would have


17

had in the same circumstances. In determining the intent of a party or the

understanding a reasonable person would have had, due consideration should is to be

given to all relevant circumstances of the case including the negotiations, any practices

established between themselves, usages and any subsequent conduct of the parties.

58. In this case, the Letter of Acknowledgement on 17th March 2014 is a statement made

by CLAIMANT, so it should be interpreted according to Art.8 CISG. RESPONDENT

could never anticipate that CLAIMANT would derail from RESPONDENT’s General

Conditions after it promised in the Letter of Acknowledgement that it would “tender in

accordance with the specified requirements” [Re. Ex. R1, p.24], which are

RESPONDENT’s General Conditions of Contract and its Code of Conduct. Therefore,

a reasonable person’s understanding should be adopted and all relevant circumstances

of this case should be considered. During the negotiations between the parties,

RESPONDENT frequently emphasized the importance of its General Conditions and

Code of Conduct and they are a major part of the Tender Documents. CLAIMANT

clearly promised in the LOA that it would “tender in accordance with the specified

requirements” [Re. Ex. R1, p.24]. Also, CLAIMANT’s subsequent conduct shows its

agreement on the adoption of RESPONDNET’s General Conditions. For example, after

the dispute arose, CLAIMANT referred to Clause 20 of the General Conditions to

resort to arbitration. If CLAIMANT did not agree to apply the General Conditions, it

would not quote it on its notice of arbitration [p.6 of the problem]. Therefore, pursuant

to Art. 8 CISG, the Letter of Acknowledgement indicates that CLAIMANT has agreed

on the application of RESPONDENT’s General Conditions and should be bound by

them thereafter.

59. Furthermore, according to Art. 7(2) CISG, questions which are not expressly settled in

CISG are to be settled in conformity with the general principles. Art.1.3 UNIDROIT

provides the “pacta sunt servanda” principle. It implies the parties are free to

determine the content of their obligations and are bound by their agreement

[Zimmermann, p. 577]. In addition, Art. 7(1) CISG and Art.1.7 UNIDROIT 2016 stipulate

the “good faith” principle. The “good faith” principle functions as an “excluder”,


18

which serves to exclude many heterogeneous forms of bad faith [Summers,

pp.195–267].

60. In this case, CLAIMANT has already acknowledged that it read RESPONDENT’s

General Conditions of Contract, and would tender accordingly. Therefore, it is

reasonable for RESPONDENT to believe that CLAIMANT, in line with the “good

faith” and “pucta sunt servanda” principle, will act as it promised, which in this case is

to comply with RESPONDENT’s General Conditions of Contract, and will not act

against its own words.

2. CLAIMANT incorporated RESPONDENT’s General Conditions of Contract in its

offer.

61. On 27th March 2014, CLAIMANT made its offer following RESPONDENT’s

invitation to tender. In its offer, CLAIMANT itself stated that it only made some minor

amendments to RESPONDENT’s tender documents, primarily relating to the size of

the goods and the mode of payment [Cl. Ex. C3, p. 15]. In addition, CLAIMANT

verbatim copied RESPONDENT’s Dispute Resolution Clause contained in its General

Conditions [The Problem, p.6; The Problem, p.12, Sec. V].

62. Art. 8 (1) CISG provides that a party’s statements are to be interpreted according to his

intent. And, in determining the intent of a party, Art. 8(3) requires due consideration of

all relevant circumstances of the case, such as the negotiations and any practices. Also,

according to Art. 4.5 UNIDROIT, contract terms shall be interpreted so as to give

effect to all the terms rather than to deprive some of them of effect.

63. In this case, CLAIMANT has already read and made changes to RESPONDENT’s

tender documents. This means CLAIMANT has accepted all the other terms in the

tender documents, including RESPONDENT’s General Conditions of Contract, with

the intention to be bound by them [Cl. Ex. C3, p. 15]. Therefore, RESPONDENT’s

General Conditions of Contract have been successfully accepted and incorporated into

the contract by CLAIMANT.

64. To recapitulate, RESPONDENT’s General Conditions of Contract have been accepted


19

by CLAIMANT and subsequently incorporated into its own offer, thus making it

legally binding thereafter.

B. CLAIMANT’s General Conditions of Sale have not been incorporated in the

Contract.

65. CLAIMANT’s General Conditions of Sale were not incorporated in the Contract

because CLAIMANT failed to give clear reference to it [1], and neither CLAIMANT

nor RESPONDENT intended to be bound by CLAIMANT’s General Conditions of

Sale [2].

1. CLAIMANT failed to give clear reference to its General Conditions of Sale when

concluding the Contract.

66. According to Art. 5 CISG Advisory Council No.13, in order to be binding, a reference

to the inclusion of standard terms and the standard terms themselves must be clear to a

reasonable person of the same kind as the other party and in the same circumstances.

Art. 6 CISG further provides that references are clear if readable and understandable by

a reasonable person, and the standard terms are clear if available in a language that the

other party could reasonably be expected to understand.

67. In addition, the reference to the incorporation of standard terms should not be hidden

away or printed in such a manner that it is easy to overlook. The obligation should be

on the party relying on them to ensure that they are set out in a manner and at a place

where a reasonable contractual party would notice them. In other words, there should

be a reasonable attempt to make the other party aware of the incorporation [Schlechtriem

& Schwenzer]. The German Machinery case holds that it is generally required that the

recipient of a contract offer that is supposed to be based on general terms and

conditions have the possibility to become aware of them in a reasonable manner

[Machinery case]. If this requirement is not met, those general conditions contravene the

good faith in international trade and will not be deemed as part of the offer. A case to

reinforce this argument is the French case “Pelliculest v. Morton International”, in

which a number of conditions were drafted in small print and the forum selection


20

clause is buried among them. This forum selection clause was set aside by the Court of

First Instance [Pelliculest v. Morton International]. Similarly, in the Belgium Tomatoes case,

general conditions were in German and in very small print. Despite that the two parties

have frequent business relations, the court held those unreadable terms as not

incorporated, and reduced the price of the goods [Tomatoes case].

68. In this case, in CLAIMANT’s sales offer on 27th March 2014, the references to

CLAIMANT’s standard terms are not clear: the offer contained an enlarged, underlined,

and blackened section “Specific Terms and Conditions”. However, under this

outstanding section, it stated “not applicable”. In stark contrast, the words “subject to

the General Conditions of Sale” were concealed in the bottom of this contract in fine

prints [Cl. Ex. C4, P.16]. Moreover, in the email sent on 27th March 2014, CLAIMANT

merely mentioned the changes about the goods and the mode of payments, without

mentioning the incorporation of its own standard terms [Cl. Ex. C3, p. 15]. Therefore,

since neither did CLAIMANT mention the inclusion of its General Conditions of Sale

in the email, nor did CLAIMANT clearly mention it in the offer, CLAIMANT has

failed obligation to give clear reference to the incorporation of its General Conditions

of Sale.

2. Neither CLAIMANT nor RESPONDENT intended to be bound by CLAIMANT’s

General Conditions of Sale.

69. CLAIMANT’s General Conditions of Sale were not incorporated into the contract

because neither RESPONDENT nor CLAIMANT expressed the intention to be bound

by it, and naturally, no agreement concerning the incorporation of CLAIMANT’s

General Conditions of Sale was made between the parties. Based on the rules for the

formation and interpretation of contracts under CISG, the CISG Advisory Council

offers articles with respect to “Inclusion of Standard Terms under the CISG”. Art.2

CISG Advisory Council Opinion No.13 states that standard terms are included in the

contract where the parties have expressly or impliedly agreed to their inclusion at the

time.


21

70. In this case, for the whole time, RESPONDENT has stuck to its own General

Conditions of Contract, beginning as sending the invitation to tender, and only came to

knowledge about CLAIMANT’s General Conditions of Sale on the email of 10th

February 2017 [Cl. Ex. C2, p. 9; The Problem, p.26, ¶18]. Therefore, RESPONDENT

never intended to be bound by CLAIMANT’s General Conditions of Sale.

RESPONDENT only intends to adhere to its own General Conditions of Contract and

this is not negotiable. CLAIMANT argues that RESPONDENT has silently agreed

CLAIMANT’s General Conditions because RESPONENT has downloaded

CLAIMANT’s Codes of Conduct out of curiosity and made no objection. However, in

this case, the Codes of Conduct and General Conditions are two separate documents

[Cl. Ex. C4, p. 16]. Even though RESPONDENT noticed CLAIMANT’s Codes of

Conduct, this does not necessarily mean that RESPONDENT acknowledged

CLAIMANT’s General Conditions.

71. On the part of CLAIMANT, it did not show any intention to include its own General

Conditions of Sale either. In the email CLAIMANT sent on 27th March 2014, it

claimed that it made some minor amendments to the invitation to tender and these

changes related primarily to the goods and the mode of payment [Cl. Ex. C3, p. 15]. In

addition, under the column “Specific Terms and Conditions”, it did not mention the

application of its own General Conditions of Sale [Cl. Ex. C4, p. 16]. Clearly, the only

reason why CLAIMANT never mentioned its own General Conditions of Sale is that it

never intended to do so.

72. In short, RESPONDENT, of course, intended to be bound by nothing but its own

General Conditions of Contract. Meanwhile, CLAIAMNT never showed any intention

to be bound by its General Conditions of Sale. Therefore, CLAIMANT’s General

Conditions were not incorporated into the contract.

C. Even if CLAIMANT’s General Conditions of Sale were incorporated in the

Contract, they should not govern the Contract.

73. CLAIMANT’s General Conditions of Sale should not govern the Contract due to the


22

lack of conflict between the two General Conditions [1]. Even if there is conflict,

CLAIMANT’s General Conditions of Sale should not govern the Contract because of

the knock-out Rule [2].

1. CLAIMANT’s General Conditions of Sale should not govern the Contract due to

the lack of conflict between the two general conditions.

74. Even if the tribunal finds that both CLAIMANT and RESPONDENT’s General

Conditions were incorporated in the contract, which is not the case, CLAIMANT’s

General Conditions of Sale should not govern the contract because there is no conflict

between those General Conditions. As a matter of fact, they resemble each other,

because they share the same values and are both committed to ensure the goods

produced and sold fulfill the highest standard of sustainability [Cl. Ex. C5, p. 17]. As to

the key issue of ethical standards, CLAIMANT argues that the two general conditions

impose different obligations, and it only bears the best effort obligation arising from its

own General Conditions. However, according to Art. 5.14 UNIDROIT, the duty of best

effort and the duty of specific result may co-exist. They are compatible. In effect, they

are the same kind of obligation with different degrees of performance required.

According to the “enactment overlapping” rule, each traditional obligation to achieve a

specific result can be thought of as containing within it a lesser obligation to use best

efforts to achieve that result [Farnsworth, p. 99]. Thus, the duty of specific results

encompasses the duty of best effort, or the duty of best effort is absorbed by the duty of

specific results. Namely, the duties in CLAIMANT’s General Conditions of Sale are

embodied in RESPONDENT’s General Conditions of Contract, but not vice versa.

Therefore, only when RESPONDENT’s General Conditions of Contract govern the

contract can both duties be fulfilled.

2. CLAIMANT’s General Conditions of Sale should not govern the Contract because

of the knock-out rule.

75. Even if the two General Conditions were in conflict somehow, the knock-out rule

should be applied instead of the last shot rule proposed by the opposing party. The last

shot rule often leads to results which are random, casuistic, unfair and very difficult to


23

foresee for the parties. The knock-out rule however, is favored by the majority of

commentators and case law [Schlechtriem & Schwenzer].

76. In reality, the parties tend to refer to their standard terms more or less automatically,

and there is no reason to allow the parties to question the existence of the contract.

According to Art. 2.1.22.3 UNIDROIT, that is when the knock-out rule comes into play,

unless it is explicitly excluded. To be more specific, the knock-out rule concludes that

the parties are in agreement on the main terms and that all standard terms which are not

in conflict will form part of the agreement. Conflicting terms are excluded and replaced

by the dispositive or residual law applicable Schlechtriem & Schwenzer]. In the German

Powdered Milk case, the court selected this rule and justified it as follows: “According

to the (probably) prevailing opinion, partially diverging general terms and conditions

become an integral part of a contract (only) insofar as they do not contradict each other.

Whether there is such a contradiction that impedes the integration cannot be

determined only by an interpretation of the wording of individual clauses, but only

upon the full appraisal of all relevant provisions” [Powdered milk case].

77. In the present case, CLAIMANT attached its General Conditions of Sale in its footnote,

and this is a practice for CLAIMANT. Hence, CLAIMANT did not include its general

conditions on purpose, but rather automatically, which satisfied the conditions of the

knock-out rule. This means the conflicting general conditions are not an integrate part

of the contract, and should be knocked out from the contract for the sake of the whole

picture.

78. In short, CLAIMANT should not apply its General Conditions of Sale herein because

of the knock-out rule.

79. Conclusion: RESPONDENT’s General Conditions of Contract were incorporated in

the contract, and are therefore legally binding; while CLAIMANT’s General

Conditions of Sale were not incorporated in the contract, therefore invalid. Assuming

CLAIMANT’s General Conditions of Sale were incorporated somehow, which is not

the case, in the battle of forms, CLAIMANT’s General Conditions of Sale cannot


24

govern the contract because they are either absorbed by or knocked out together with

RESPONDENT’s General Conditions of Contract. Based on all these factors,

CLAIMANT’s General Conditions of Sale don’t Govern the contract.

ISSUE IV: Based on the Application of RESPONDENT’s General Conditions,

CLAIMANT Failed to Deliver Conforming Goods as Required by the Contract

pursuant to Art.35 CISG Because CLAIMANT Failed to Guarantee Its Supplier’s

Compliance with the Relevant Ethical Standards.

80. CLAIMANT alleges that the cakes only need to be suitable for consumption and other

ordinary purposes, so it has delivered conforming goods under Art.35 CISG [Memo of

Cl., ¶¶. 117-120]. RESPONDENT submits that the cakes should not only meet those

physical and ordinary purposes, but should also satisfy the ethical standards required

by the contract under Art. 35 CISG. That is because the ethical standards stipulated in

RESPONDENT’s General Conditions are part of the requirements for the product

quality under Art. 35(1) CISG [A]. Even if the Tribunal holds that ethical standards do

not fall into the scope of “quality”, CLAIMANT’s supplier’s sustainable and ethical

production of the cocoa beans constitutes a particular purpose according to Art.35(2)(b)

CISG [B]. However, CLAIMANT failed to guarantee its supplier’s compliance with

ethical standards, thus making the cakes delivered non-conforming goods under Art. 35

CISG [C].

A. The ethical standards stipulated in RESPONDENT’s General Conditions are part

of the requirements for the quality quality underArt. 35(1) CISG.

81. It is unjustifiable and strange for CLAIMANT to skip RESPONDENT’s General

Conditions and directly quote the the Global Compact Principles as the standards to

determine its degree of obligation [Memo of Cl., ¶¶.105-110]. The decisive factor for

determining whether the goods conform to the contract is the contractual description of

the goods. The characteristics are therefore not based on objective standards of quality

but rather on the denomination and description of the required quality in the contract

[Schlechtriem; Christoph, pp. 167-206; Case 19067]. Quality, apart from the traditional


25

understanding of physical features of the goods, also comprises “all factual and legal

circumstances concerning the relationship of the goods to their surroundings”

[Schlechtriem & Schwenzer, P.596]. Nowadays, international trade has gone far beyond

traditional sales. Particularly, under the influence of Global Compact, many sales

contracts emphasize not only the physical features of the goods, but also some relevant

ethical standards, which are of high economic value. For most companies, they usually

incorporate their general conditions or code of conduct into the contract so as to

achieve the goals related with ethical standards. [Schwenzer, p.122–131; Giuffre, pp.

268-283]. If such express conditions and codes have been agreed to and incorporated

into the contract by the parties, they fall into the scope of “the quality or description

required by the contract” under Article 35(1) of the CISG [Paulo, p. 333 & Schwenzer, pp.

437-472].

82. In this case, RESPONDENT’s General Conditions and its Code of Conduct for

Suppliers, which are part of the contract, expressly stipulate its high standards about

ethics, integrity and sustainability. RESPONDENT’s Code of Conduct for Suppliers

clearly states, in principles C and E, that “(Delicatesy) will make sure that they

(Delicatesy’s suppliers) comply with the standards agreed upon to avoid that goods or

services delivered are in breach of Comestibles Fino’s General Business

Philosophy”[The Problem, p. 14]. Thus, CLAIMANT is required not only to comply itself

with the values under the Code of Conduct but also to ensure compliance of its own

suppliers with such principles. That is an obligation of guarantee rather than best

efforts alleged by CLAIMANT because the word “will” used in this principle is of

mandatory nature [Black’s Law Dictionary (8th ed. 2004), 4934; Darmstadter; Domitille & Anne,

pp. 1451-1461]. What’s more, Clause 4 of the General Conditions stipulates that “[a]ny

breach of some relevance of Comestibles Fino’s General Business Philosophy or its

Code of Conduct for Suppliers shall be considered to constitute a fundamental breach

entitling Comestibles Fino to terminate the contract with immediate effect and claim

damages”[The Problem, p. 12]. Such express and strict wording indicates that

CLAIMANT’s obligation to guarantee its supplier’s compliance with ethical standards


26

is result-oriented instead of a matter of best efforts.

83. Consequently, the cakes in this case have to conform to ethical standards.

CLAIMANT’s guarantee of its suppliers’ compliance with sustainable production

process constitutes part of the obligations under Art.35 (1) CISG. That is to say,

CLAIMANT has to guarantee its supplier’s compliance just as to guaranteeing other

contractual obligations under Art. 35(1) CISG.

B. Even if the Tribunal holds that ethical standards do not fall into the scope of

“quality” under 35(1) CISG, they constitute a particular purpose which

CLAIMANT’s goods should be fit for underArt. 35(2)(b) CISG.

84. Art.35 CISG has set forth two dimensions of seller’s obligations: one is about the

general provisions concerning quality, quantity and description of the goods, which is

provided in Art.35(1) CISG; the other, according to Art.35(2) CISG, is about specific

requirements which may be deduced from purpose, usage or circumstances of the

contract [Bianca/BB, p. 272] and shall be complied with whenever the parties have not

agreed otherwise [Hyland & Freiburg, p. 338].

85. RESPONDENT does not deny that the cakes delivered by CLAIMANT satisfy the

ordinary purposes under Art.35(2)(a) CISG, which CLAIMANT has tried to prove

[Memo of Cl., ¶¶. 131-133]. However, that is not the point of this case. The focus of the

present case is whether the cakes delivered conform to ethical standards, which is a

particular purpose under Art. 35(2)(b) CISG.

86. CLAIMANT is obliged to deliver goods which are fit for the particular purpose

because the following conditions are satisfied: the buyer, RESPONDENT, has made

the particular purpose known to the seller, CLAIMANT, (expressly or impliedly) at and

before the conclusion of the contract [1], RESPONDENT also relies on CLAIMANT's

skill and judgment in this regard[2], and such reliance is reasonable [3].

1. RESPONDENT has clearly and expressly made the particular purpose known to

CLAIMANT during the negotiation and conclusion of the contract without any


27

ambiguity.

87. Contrary to CLAIMANT’s allegation that the guarantee provisions are ambiguous and

unclear [Memo of Cl., ¶110], RESPONDENT has clearly made the particular purpose

known to CLAIMANT during the negotiation [a] and directly set forth it in the

contract [b]. CLAIMANT was aware of such particular purpose and accepted it by

performance [c].

a. RESPONDENT has more than once expressly shown its strict and special

requirements for CLAIMANT’s suppliers during the negotiation proceeding.

88. At the very first beginning, aiming at finding an appropriate cake supplier who shared

the same value for the ethical and sustainable production, RESPONDENT’s Head of

Purchasing, Ms. Ming, approached to CLAIMANT’s Head of Production, Mr. Tsai, at

the Danubian food fair, Cucina, in March 2014. To ensure that RESPONDENT’s

ethical and sustainable production business philosophy could be accepted by its

suppliers, Ms.Ming had discussed a lot with Mr.Tsai about the cost versus the benefit

of ethical and environmentally sustainable production [Sta. of Cl., P. 4, ¶.3].

89. On 10 March 2014, RESPONDENT sent CLAIMANT an email to show its willingness

to build up business relationship, in which it emphasized its requirements for

CLAIMANT’s suppliers by saying that “it is very important for us that we can be sure

that also your suppliers adhere to Comestibles Finos’ Philosophy and our Code of

Conduct for Suppliers”. Attached in this email are RESPONDENT’s Invitation to

Tender and Tender Documents, in which the sustainable and ethical production

requirements were also listed expressly without any ambiguity. At the second

paragraph of the Invitation to Tender, RESPONDENT put its contract purpose at the

first place and stated that it was CLAIMANT’s strict adherence to the principle of

ethical and sustainable production and its membership of Global Compact that made it

a potential supplier for RESPONDENT[Cl. Ex. C1, p. 8]. Without this prerequisite,

RESPONDENT would never consider approaching to CLAIMANT and list it as a

potential partner, let alone establish a business relationship. Besides, in the Tender


28

Document, RESPONDENT had not only emphasized its ethical and sustainable

production purpose more than once, but also listed several specific and concrete

obligations for suppliers to conform to. Especially, in Section IV. “Whereas Clause”,

Section V. Clause 4 and Section XXVI, some ethical and sustainable production

obligations were provided directly and expressly and such provisions adopted words

like “shall” and “must” [Cl. Ex. C2, p. 9], which are of mandatory nature to set forth the

production obligations [Black’s Law Dictionary (8th ed. 2004), p. 4288; Darmstadter]. Faced

with such concise and straightforward words and provisions, an experienced

businessman could not have been unaware of the particular purpose of

RESPONDENT.

90. After reading the Tender Documents, CLAIMANT did not raise any objection

concerning RESPONDENT’s requirement that CLAIMANT has to guarantee its

supplier’s compliance with ethical standards. Instead, in its offer on 27 March 2014, it

merely made some amendments to the Tender Documents relating to the size of the

cake and the mode of payment. In the acceptance letter of 7 April 2014,

RESPONDENT stressed the production requirements again, emphasizing that a

decisive element for it to confer CLAIMANT the contract was CLAIMANT’s

convincing commitment to sustainable production [Cl. Ex. C5, p. 17].

91. Therefore, during the whole negotiation proceeding, RESPONDENT expressly made

the particular purpose known to CLAIMANT, put the ethical and sustainable

production requirement at the first place all the time and made it as an essential

element for reaching the contract, which by no means granted CLAIMANT an excuse

to avoid such obligation.

b. The ethical requirements have been directly set forth in the contract.

92. Clause 4 of RESPONDENT’s General Conditions of Conduct in conjunction with

Principle E of RESPONDENT’s Code of Conduct expressly and clearly imposes on

CLAIMANT an obligation to guarantee the specific result. Principle E of

RESPONDENT’s Code of Conduct requires CLAIMANT to guarantee that its


29

suppliers should also adhere to comparable standards so as not to breach

RESPONDENT’s General Business Philosophy. As clearly stated during the

conclusion of the contract and reflected in Section IV of the Tender Documents [The

Problem, p. 11], RESPONDENT has a “zero tolerance” policy when it comes to

unethical business behavior. In order to show its seriousness for ethical and

environmentally friendly standards, RESPONDENT reiterates and emphasizes in

Clause 4 of its General Conditions of Conduct that any noncompliance with the Code

of Conduct will constitute a fundamental breach of the contract [The Problem, p. 12]. The

clear wording and strict penalty in case of noncompliance mean that CLAIMANT has

to guarantee its supplier’s observance. As a prudent businessman, it is impossible that

CLAIMANT should neglect such particular purpose.

c. CLAIMANT could not have been unaware of such particular purpose because it has

accepted it by performance and without any objection.

93. Firstly, in CLAIMANT’s tender letter, CLAIMANT had confirmed that it guaranteed

the ingredients complying with Global Compact Principles for sustainable production

and expressed its willingness to consult with RESPONDENT for any further

requirements concerning sustainability strategy [Cl. Ex. C3, p. 15]. That means,

CLAIMANT had clearly known such particular purpose, otherwise, it would not make

such commitment and bear relevant obligations to RESPONDENT.

94. Secondly, CLAIMANT’s LETTER OF ACKNOWLEDGEMENT also indicated

CLAIMANT had known such particular purpose, which told that CLAIMANT would

tender in accordance with the specified requirements [Re. Ex. R1, p. 28].

95. Thirdly, CLAIMANT displayed maps showing the source of its ingredients, indicating

that it had known its obligation to guarantee its supplier’s compliance with relevant

standards [The Problem, p.25, ¶.11]. .

96. Fourthly, as an experienced businessman, CLAIMANT should have been aware of the

contracting party’s basic information and contractual purpose. Even if CLAIMANT

had not done such necessary research, indeed RESPONDENT had emphasized a lot.


30

Especially, both RESPONDENT and CLAIMANT are members of Global Compact,

whose principles have set forth its members shall produce sustainably. Besides,

RESPONDENT had expressed its intent to become a Global Compact LEAD company

and its advertising campaign which stated its food was part of a healthy and green

world [Response To Notice, p. 25, ¶.6]. All of these had indicated that RESPONDENT

particularly focused on sustainable production and had made great efforts to achieve its

purpose and such contractual purpose were all communicated to CLAIMANT and

reconfirmed by it. CLAIMANT, also as a member of Global Compact, could not have

been unaware of such requirements.

2. RESPONDENT relies on CLAIMANT’s skill and judgement to guarantee the

cocoa supplier’s compliance with ethical standards.

97. Contrary to CLAIMANT’s allegation that both parties are responsible and should

cooperate with each other to inspect the cocoa supplier and guarantee its compliance

with relevant standards [Memo of Cl., ¶. 108], it is only CLAIMANT that bears the

guarantee obligation and RESPONDENT has always relied on CLAIMNAT in this

regard. It is reflected during both the negotiation and the conclusion of the contract

because it is a prerequisite and indispensable requirement for the conclusion of the

contract.

98. The afterwards conduct of both parties further proves such reliance. For the years of

trade, RESPONDENT never directly inspected the production process of the supplier.

It is CLAIMANT that signed relevant agreement with the cocoa supplier and instructed

professional institute to scrutinize the production of the supplier [Cl. Ex. C8, p. 20].

Therefore, RESPONDENT has always relied on CLAIMANT to guarantee the cocoa

supplier’s compliance and thus it is unjustifiable for CLAIMANT to deny such reliance

only after problems arose.

3. It is reasonable for RESPONDENT to rely on CLAIMANT with regard to

CLAIMANT’s supplier’s adherence to the sustainable standards.

99. To set a particular purpose, Art. 35(2)(b) also requires that the buyer’s reliance on the


31

seller should not be unreasonable, which is also met in this case. Reasonableness is a

general and fundamental principle of CISG [Albert H. Kritzer]. Many scholars have

made comments on it. Concerning the conception of reasonableness, it must be

judicious and fair [van der Velden, p. 52] and can appropriately be determined by

ascertaining what is normal and acceptable in the relevant trade [Honnold, p. 101]. There

are three aspects concerning reasonableness which are relevant to this case [Art.8 CISG;

Art. 1:302 PECL; Tunc, p. 26]: the usages and practices of the trades, the parties’ own

situations and abilities and the details of contract-conclusion proceedings. It has been

established in practice that seller assumes the responsibility for any defects with few

exceptions where it receives raw materials from independent suppliers [a].

CLAIMANT’s skills and capabilities indicate that it is able to inspect and guarantee its

supplier’s compliance [b]. The details of the negotiation proceedings indicate that it is

reasonable for RESPONDENT to rely on CLAIMANT to guarantee the supplier’s

compliance with ethical standards [c].

a. It has been established in practice that seller assumes the responsibility for any

defects with few exceptions where it receives raw materials from independent

suppliers.

100.The risk of non-conforming components made by suppliers is part of the seller's

procurement risk and therefore part of its sphere of risk [ICC Case No. 8128]. The seller

may not be excused by the mere existence of hidden defects which could not have been

discovered by a reasonable person in the seller's situation [Christoph, pp. 167-206; Ghith, p.

287; Schwenzer]. It is not only based on the control over the sphere in which damages

could arise, but also on the basis of economic reasons because the seller is perceived as

the best suited to avoid, and therefore to bear, the risk of the occurrence of an event

bringing about the non-conformity of the goods [Schlechtriem]. In the present case,

CLAIMANT is the party that has direct connection with the supplier and therefore it

should bear the obligation to make sure its supplier complies with the contractual

requirements, i.e. the ethical and environmentally friendly standards.


32

101.Contrary to CLAIMANT’s allegation that the seller itself had no skill to identify fraud

and consequently RESPONDENT should not rely on CLAIMANT [Memo of Cl., ¶.136],

the truth is that, compared to RESPONDENT, CLAIMANT indeed has more methods

and abilities to perform such obligations. REPONDENT, the buyer, has extreme

difficulties to get to know and inspect every supplier of CLAIMANT and their

production process. Besides, it was CLAIMANT who set up a business relationship

with its own cocoa suppliers. It was improper and illegal for RESPONDENT to skip

CLAIMANT and directly interfere ingredient suppliers with whom RESPONDENT

has no contractual relationship. Thus, RESPONDENT has to rely on CLAIMANT’s

skill and judgement to guarantee the ingredients are from sustainable farms.

b. CLAIMANT’s skills and capabilities indicate that it is able to inspect and guarantee

its supplier’s compliance.

102.Firstly, CLAIMANT is able to predict the possibility of its supplier’s non-compliance

and take precautionary measures to guarantee the result. Contrary to CLAIMANT’s

allegation that it has actually done everything possible and could do nothing more,

RESPONDENT submits that it is not a justifiable reason for CLAIMANT to deny its

obligation to guarantee the specific result. It is hard to prove that CLAIMANT has

adopted all possible measures. What RESPONDENT expects is the result that the

supplier complies with ethical standards rather than what CLAIMANT has done. If

CLAIMANT fails to guarantee, it will need to bear the consequence as contracted.

103.In the context of the increasingly global and complicated commercial world, the

obligor must organize its business in an orderly manner. In commercial dealings, it may

generally be expected that each party organizes its firm so as to avoid or overcome

events which may disrupt the ordinary function of the firm, regardless of whether such

events are specifically unforeseeable or whether the event occurs without the fault of

the obligor or its personnel [Christoph, pp. 167-206].

104.As an experienced manufacturer in its field, CLAIMANT is believed to have the ability

to cater for different buyers’ need and control the commercial risk arising therefrom. In


33

fact, CLAIMAN has shown such capacity in the present case. Specifically, it has

included in its Supplier Code of Conduct standards comparable to those set forth in

RESPONDENT’s Code of Conduct and made them part of the contract between itself

and its cocoa supplier. The supplier’s non-compliance constitutes a breach of contract

towards CLAIMANT and thus entitles CLAIMANT to seek for damages from its

supplier [Cl. Ex. C9]. That is to say, RESPONDENT’s requiring CLAIMANT to

undertake the guarantee obligation does not cause CLAIMANT an unreasonable

burden because once the supplier derails from the ethical and sustainable standards,

CLAIMANT has the right to request damages from the supplier.

105.Secondly, contrary to CLAIMANT’s allegation that the reliance on CLAIMANT is

unreasonable because it was an intermediary [Memo of Cl., ¶.135], actually CLAIMANT

was an independent seller in the trade of cocoa cakes. An intermediary and an

independent seller play totally different roles in commercial trade and separately have

their own legal obligations. An intermediary is a person or organization that helps other

people or organizations to make an agreement by being a means of communication

between them [Oxford dictionary]. To be specific, an intermediary is just a negotiator or

trader in the business and the buyer did not rely on his judgment [Enderlein, p. 157]. As a

seller who produced goods by itself, he shall be obliged to guarantee the goods because

of the reliance of buyer. In the present case, CLAIMANT did not sell the cakes that

others produced already. Instead, it just bought cocoa beans from others and produced

cakes by itself rather than merely resell cakes [Sta. of Cl., p. 6, ¶¶.8-9]. Therefore, as a

producer, CLAIMANT has the skills and obligations to guarantee that the components

it purchases satisfy RESPONDENT’s requirements.

c. The details of the negotiation proceedings indicate that it is reasonable for

RESPONDENT to rely on CLAIMANT to guarantee the supplier’s compliance with

ethical standards.

106.Firstly, during the negotiation proceedings, as a response to RESPONDENT’s

particular sustainable production requirement to suppliers, CLAIMANT had displayed


34

its ingredient sources to RESPONDENT and stated that it had regularly audited its

suppliers production facility, built its own supervision mechanism and had good

reputation in sustainable production, which formed an impression that it was a

competitive suppliers, and thus RESPONDENT reasonably believed in and relied on it

[Response To Notice, p. 25, ¶.11].

107.Additionally, the provision of a guarantee presumes a relevant agreement or other

circumstances based on which one may infer that the seller has given a guarantee, for

example, previous advertising of the goods[Varv&Karu, p. 86; Lucjan]. Consequently,

the expression “Sustainably Sourced Cocoa” in the advertisement for the King’s

Delight cake indicates that CLAIMANT intends to undertake the obligation of

guarantee[Re. Cl. R2, p. 29].

108.Such a series of behaviors induced RESPONDENT to set up an expectation that

CLAIMANT could guarantee its supplier’s compliance with the relevant standards and

thus reasonably relied on it.

109.To sum up, during the whole negotiation proceeding and the conclusion of the contract,

RESPONDENT has expressly made its particular purpose for sustainable production

known to CLAIMANT. While CLAIMANT responded actively and showed that it had

sufficient capability to satisfy such requirements, thus making it reasonable for

RESPONDENT to rely on CLAIMANT.

C. CLAIMANT failed to guarantee its supplier’s compliance with ethical standards,

thus making the cakes delivered non-conforming goods underArt. 35 CISG.

110.CLAIMANT insists that it has already used its best efforts to make sure of the cocoa

supplier’s compliance. RESPONDNET appreciates that, but it is not the point of the

case because as stated above, CLAIMANT’s obligation concerning its supplier’s

compliance with ethical and sustainable production process is result-oriented, which is

as onerous as that the failure to achieve the specific result regardless of the efforts

made will lead to the breach of the contract [Comment on the UNIDROIT Principles (2016),

p.158]. Since CLAIMANT failed to guarantee its supplier’s compliance with relevant


35

standards as it admitted in the email on 10 Feb 2017 [Cl. Ex. C9, p.21], the cakes

delivered were not fit for the requirements set forth in the contract and hence they are

non-conforming goods under Art.35 CISG.

111.Conclusion: Ethical standards are part of the requirement for “quality” of Art. 35(1)

CISG. Alternatively, sustainable production standards constitute a particular purpose

which the cakes delivered should be fit for. CLAIMANT failed to guarantee its

supplier’s compliance with relevant standards, so it did not deliver conforming goods

under Art. 35 CISG.


36

REQUEST FOR RELIEF

In light of the foregoing arguments, RESPONDENT respectfully requests the Tribunal to

adjudge and declare that:

(1) The Arbitral Tribunal decide on the Challenge on Mr. Prasad without his participation.

(2) Mr. Prasad should be removed from the Arbitral Tribunal.

(3) The Contract between the parties is governed by RESPONDENT’s General Conditions

of Sale.

(4) CLAIMANT has not delivered conforming goods because it failed to perform the

obligation to guarantee its cocoa supplier’s compliance with ethical and envirnmentally

friendly standards as provided in the Contract.


37

SIGNATURE

422 South Siming Road

Xiamen

China25 January 2017

In light of the Tribunal’s Procedural Orders, the prior pleadings were written by Counsel

who signed below.

On behalf of RESPONDENT, Counsel hereby submits this Memorandum pursuant to

Procedural Order No. 1.

Respectfully Signed and Submitted by COUNSEL

CHEN Lifan CHEN Sijie LIANG Qingyi SHEN PeiWANGYa ZHANG Qifei ZHANG Sihua