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XXIII Annual Willem C. Vis International

Commercial Arbitration Moot

April 15, 2016 • Vienna

MEMORANDUM FOR CLAIMANT

NOVA LAW SCHOOL

On Behalf of: Against:

Kaihari Waina Ltd Vino Veritas

12 Riesling Street 56 Merlot Rd

Oceanside St Fundus

Equatoriana Vuachoua

Mediterraneo

CLAIMANT RESPONDENT

COUNSEL

ISABEL FERREIRA*JOÃO ANTUNES

MARIA BEATRIZ BRITO*RITA FAIAL FIGUEIREDO

NOVA Law School Memorandum for CLAIMANT

ii

TABLE OF CONTENTS

TABLE OF ABBREVIATIONS .......................................................................................v

INDEX OF AUTHORITIES............................................................................................ vii

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

ISSUE 1: CLAIMANT REQUEST ON DOCUMENT PRODUCTION SHOULD BE

GRANTED IN ORDER TO CALCULATE THE LOSSES SUFFERED ....................... 3

A. THE TRIBUNAL HAS THE POWER TO AND SHOULD ORDER

DOCUMENT PRODUCTION ..................................................................................... 3

B. THE TRIBUNAL SHOULD ORDER DOCUMENT PRODUCTION TO

SATISFY CLAIMANT’S REQUEST ......................................................................... 7

1. The Tribunal should apply IBA rules to guide document production .................. 8

ISSUE 2: CLAIMANT IS ENTITLED TO THE PROFITS RESPONDENT MADE

SELLING THE BOTTLES TO SUPERWINES AS PART OF ITS DAMAGES......... 13

A. CLAIMANT CAN CLAIM RESPONDENT’S PROFITS TO

COMPENSATE ITS LOSS SUFFERED FROM RESPONDENT’S BREACH

UNDER THE LOSS-BASED APPROACH .............................................................. 13

1. CLAIMANT’S loss of profits is caused by RESPONDENT’S breach .............. 14

2. CLAIMANT has taken all reasonable measures to mitigate losses, including

loss of profit, resulting from RESPONDENT’S breach ......................................... 15

3. CLAIMANT’S loss of profits was foreseeable to RESPONDENT at the

conclusion of the framework agreement................................................................. 15

4. RESPONDENT is not exempt from liability under article 79 ............................ 16

5. RESPONDENT’S profits are as appropriate measure for compensatory

damages .................................................................................................................. 17


iii

B. RESPONDENT’S PROFITS SHOULD BE DISGORGED UNDER THE

GAIN-BASED APPROACH...................................................................................... 20

ISSUE 3: LITIGATION COSTS SHALL COMPLETELY BE REIMBURSED .......... 22

A. LITIGATION COSTS CAN BE RECOVERED UNDER CISG ART. 74:

THEORETICAL APPROACH .................................................................................. 23

1. Litigation costs can be included in CISG Art.74 scope of recoverable damages 23

2. Damages as a consequence of the contractual breach ......................................... 25

3. Foreseeability of damages................................................................................ 25

B. CLAIMANT IS ENTITLED TO THE DAMAGES CLAIMED FOR

LITIGATION COSTS INCURRED IN ITS APPLICATION FOR INTERIM

RELIEF ....................................................................................................................... 25

1. RESPONDENT breached the Framework Agreement .................................... 26

2. Litigation costs for the application for the interim relief are a consequence of

RESPONDENT’s behaviour and foreseeable under CISG Art.74 ......................... 26

C. CLAIMANT IS ENTITLED TO THE DAMAGES CLAIMED FOR THE

LITIGATION COSTS INCURRED IN THE DEFENCE AGAINST

RESPONDENT’S COURT PROCEEDINGS ............................................................ 27

1. Damages for breach of the Arbitration Agreement are commonly accepted and

recognized ............................................................................................................... 28

2. Damages for breach of the Arbitration Agreement are recoverable under the

CISG ....................................................................................................................... 29

3. The aforementioned damages are both a consequence of the breach and

foreseeable under the CISG 74 ............................................................................... 29

4. The Arbitral Tribunal’s decision on damages does not breach res judicata....... 30

5. CLAIMANT did not have to clarify RESPONDENT’s doubts as to the

arbitration agreement, since it was neither unclear nor unworkable ...................... 31


iv

6. CLAIMANT complied with its obligation to mitigate its losses ........................ 32

D. THE TOTAL AMOUNT OF DAMAGES (US$ 50.280) SHOULD BE

RECOVERED ............................................................................................................ 34

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


v

TABLE OF ABBREVIATIONS

& And

¶/¶¶ Paragraph/ paragraphs

Ans. to Claim Answer to Statement of Claim

Art. / Arts. Article / Articles

CISG-AC CISG Advisory Council

CLAIMANT Kaihari Waina Ltd

ed./eds. editor / editors

edn. edition

EUR Euro

Exhibit C CLAIMANT’s Exhibit

Exhibit R RESPONDENT’s Exhibit

IBA International Bar Association

IBA Rules IBA Rules on the Taking of Evidence in

International Arbitration

i.e. id est (that is)

Inc. Incorporated

Infra See below

Ltd Limited

Mr / Ms Mister / Miss

No. Number

p. / pp. page / pages


vi

n/p without page

Parties CLAIMANT and RESPONDENT

PO1 Procedural Order No. 1

PO2 Procedural Order No. 2

r. Rule

RESPONDENT Vino Veritas Ltd

Stat. of Claim Statement of Claim

Supra See above

UNCITRAL United Nations Commission on International Trade Law

UNCITRAL Model Law UNCITRAL Model-Law on International Commercial

Arbitration

UNIDROIT International Institute for the Unification of Private Law

UNIDROIT Principles UNIDROIT Principles on International Contract Law

UK United Kingdom

US United States of America

US$ US Dollars

v. versus (against)

VIAC Vienna International Arbitral Centre


vii

INDEX OF AUTHORITIES

COUNTRY SOURCE CITED IN

CANADA

Noble China Inc. v.

Lei Kat Cheong

Noble China Inc. v. Lei Kat Cheong

Ontario Court of Justice, Canada

4 November 1998

¶15

ENGLAND &

WALES

Esso Attorney-General v. Blake [2001] AC 268

(HL)

¶¶37, 52

Experience Hendrix Experience Hendrix LLC v. PPX

Enterprises Inc. [2003] EWCA Civ 323

¶¶37, 52

West Tankers West Tankers Inc. v. Allianz SpA, 2012

EHWC 854 (Comm)

¶92

WWF World Wide Fund for Nature v. World Wrestling Federation Entertainment Inc. [2002] FSR 32 (Ch)

¶¶37, 38, 52

Wrotham Park Wrotham Park Estate Co. Ltd. v. Parkside

Homes Ltd. [1974] 1 WLR 798

¶¶37, 52

FRANCE

Bonaventure

Bonaventure v. Société SARL BRI

Production Pan African Export

“Bonaventure” v Société Pan African

Export, Appellate Court Grenoble (France)

22 February 1995

¶37


viii

GERMANY

Chinese goods case

Chinese goods case

Schiedsgericht der Handelskammer

[Arbitral Tribunal] Hamburg

21 March 1996, summary available at:

http://cisgw3.law.pace.edu/cases/960321g1

.html

¶76

SWITZERLAND

4A_444/2009

Decision of Swiss Supreme Court

4A_444/2009

11 February 2010, available at:

http://www.swissarbitrationdecisions.com/

sites/default/files/11%20fevrier%202010%

204A%20444%202009.pdf

¶92

4A_232/2013

Decision of Swiss Supreme Court

4A_232/2013

30 September 2013, available at:

http://www.swissarbitrationdecisions.com/

sites/default/files/30%20septembre%2020

13%204A%20232%202013.pdf

¶92, 98

UNITED STATES

Filanto v. Chilewich

Filanto v. Chilewich

U.S. Federal District Court [Southern

District of New York]

14 April 1992, summary available at:

http://www.cisg.law.pace.edu/cases/92041

4u1.html

¶5


ix

COMMENTARIES

ABBREVIATION CITATION CITED

IN

Born

CISG-AC

Opinion No.6

Gary B. Born

International Commercial Arbitration

Kluwer Law International, 2014

CISG Advisory Council,

“CISG Advisory Opinion No. 6, Calculation of

damages Under CISG,

Article 74”, available at:

http://www.cisg.law.pace.edu/cisg/CISGACop6.

html

¶90, 91

Cunnington Ralph Cunnington

“The Measure and Availability of Gain-based

Damages for Breach of Contract”, available at:

https://www.academia.edu/785542/The_Measure_and_

Availability_of_Gain-

Based_Damages_for_Breach_of_Contract

¶63

El-

Ahdab/Bouchenaki

Jalal El-Ahdab and Amal Bouchenaki

“Discovery in International Arbitration: A Foreign

Creature for Civil Lawyers?”

In Albert Jan van den Berg (ed)

Arbitration Advocacy in Chanching Times, ICCA

Congress Series, Volume 15

Kluwer Law International, p. 65-113

¶9

¶50

https://www.academia.edu/785542/The_Measure_and_Availability_of_Gain-Based_Damages_for_Breach_of_Contract




x

Felemegas John Felemegas

“An Interpretation of Article 74 CISG by the U.S.Circuit

Court of Appeals”

Pace International Law Review, Volume 15, Issue 1

Spring 2003, available at:

http:/ /digitalcommons.pace.edu/pilr/vol15/iss1/3

¶76

Fouchard/ Gaillard/

Goldman

Emmanuel Gaillard and John Savage (eds.)

International Commercial Arbitration


¶90

Honnold John O. Honnold.

Uniform Law for International Sales Under the 1980

United Nations Convention

3rd Edition, Kluwer Law International

¶7

IBA Commentary

Commentary on the revised text of the 2010

IBA Rules on the Taking of Evidence in

International Arbitration, 1 October 2010

¶¶10, 18, 19,

20, 26, 31

Jaroslavsky Pablo Jaroslavsky

“Damages for the breach of an arbitration

agreement: is it a viable remedy?”

Available at:

http://www.academia.edu/17174787/Damages_for_the_

breach_of_an_arbitration_agreement_is_it_a_viable_re

medy

¶¶98,106

Kankkunen Juho Kankkunen

Document Production under the IBA Rules on the

Taking of Evidence in International Arbitration

University of Helsinki, 2014, available at:

helda.helsinki.fi

¶¶9,22,31

http://www.academia.edu/17174787/Damages_for_the_breach_of_an_arbitration_agreement_is_it_a_viable_remedy




xi

Knapp Victor Knapp

“Article 74”

Available at:

http://cisgw3.law.pace.edu/cisg/biblio/knapp-bb74.html

¶73

Koch Robert Koch

“The CISG as the Law Applicable to Arbitration

Agreements” available at:

http://www.cisg.law.pace.edu/cisg/biblio/koch5.pdf

¶5

Lookofsky Joseph Lookofsky

“The United Nations Convention on Contracts for the

International Sale of Good”

Available at:

http://www.cisg.law.pace.edu/cisg/biblio/lookofsky.htm

¶79

Marghitola Reto Marghitola

Document Production in International Arbitration


¶¶9,10, 12,

18, 22, 31, 32

Piltz Burghard Piltz

“Litigation Costs as Reimbursable Damages”

in

Larry A. DiMatteo (ed.)

International Sales Law: A Global Challenge

Cambridge University Press 2014

¶77

Redfern/Hunter Alan Redfern and Martin Hunter

Redfern and Hunter on International

Arbitration

6th edn., Oxford University Press, 2015

¶¶2, 9,12, 15,

16, 31

Saidov Djakhongir Saidov

“Methods of Limiting Damages under the

Vienna Convention on Contracts for the

International Sale of Goods”

(2002) 14 Pace International Law Review 307

¶¶37,

52,55, 64

http://cisgw3.law.pace.edu/cisg/biblio/knapp-bb74.html

http://www.cisg.law.pace.edu/cisg/biblio/koch5.pdf

http://www.cisg.law.pace.edu/cisg/biblio/lookofsky.htm


xii

Saidov/Cunnington Djakhongir Saidov and Ralph Cunnington

Contract Damages: Domestic and

International Perspectives

Hart Publishing, 2008

¶¶38, 57, 63

Schlechtreim/Butler Peter Schlechtreim/ Petra Butler

UN Law on International Sales: The UN Convention the

International Sale of Goods

Springer 2009

¶75

Schmidt-Ahrendts in

MMA

Nils Schmidt-Ahrendts

State of play: the 3rd Annual MAA

Schalechtriem CISG Conference

¶¶61,66

Schwarz/Konrad Franz T. Schwarz and Christian W. Konrad

“The Vienna Rules: A commentary on International

Arbitration in Austria”


¶¶14,15,16

Tercier/Bersheda Pierre Tercier and Tetiana Bersheda

“Document production in arbitration: a civil law

viewpoint”

in The Search for the “truth” in Arbitration”

ASA Special Series, n.º 35, 2011

¶¶9,14, 15, 17

Schlechtriem/Schwe

nzer

Peter Schlechtriem and Ingeborg H.

Schwenzer

Schlechtriem & Schwenzer: Commentary on the UN

Convention on the International Sale of Goods

3rd edn., Oxford University Press, 2010

¶¶42, 45, 48,

50,73, 75, 78,

80

Schwenzer/ Hachem Ingeborg Schwenzer; Pascal Hachem

“The Scope of the CISG

Provisions on Damages”

in Djakhongir Saidov;

Ralph Cunnington (eds.)

Contract Damages, Hart Publishing, 2008

¶¶55, 60, 64


1

STATEMENT OF FACTS

1. CLAIMANT, Kaihari Waina Ltd., is an Equatorian wine merchant specialized in top

quality wines for high end markets, with a reputation for being able to resell Diamond

Quality Mediterranean Mata Weltin wines [St. of Claim, ¶.1, p.3].

2. RESPONDENT, Vino Veritas Ltd., is a top Mediterranean vineyard in the Vuachoua

region which won the Mediterranean gold medal for its Mata Weltin wine for five

years in a row [St. of Claim, ¶2, p.4].

3. On 22 April 2009, CLAIMANT and RESPONDENT (Parties) entered into a five year

Framework Agreement for the yearly purchase of diamond quality wines from

RESPONDENT. CLAIMANT saw the Framework Agreement as an opportunity to assist

RESPONDENT in its time of financial hardship, while securing a stable supply of Mata

Weltin wines for its exclusive clientele.

4. The Framework Agreement was structured so that CLAIMANT would place its order in

November of each year, before RESPONDENT received orders from any other customers.

The Framework Agreement also excluded US-style discovery, as the Parties knew of

situations where broad discovery increased the costs of dispute resolution.

5. By September 2014, RESPONDENT’s high end wine had won several awards. For that

reason, CLAIMANT already had a significant numbers of pre-orders [St. of Claim, ¶5,

p.4].

6. On 4 November 2014, pursuant to the Framework Agreement, CLAIMANT ordered

10,000 bottles of diamond Mata Weltin from RESPONDENT. CLAIMANT also arranged to

meet RESPONDENT to discuss this order to cement its relationship with RESPONDENT

[Exhibit C2, p.10, ¶2].

7. CLAIMANT met with RESPONDENT on 25 November 2014 and RESPONDENT initially

refused to deliver 10,000 bottles. However, RESPONDENT subsequently promised to

give the order of 10,000 bottles “a favourable consideration” [Exhibit C5, p.13, ¶3].


2

8. On 1 December 2014, even though it experienced a bad harvest, RESPONDENT accepted

a new client and committed itself to supply SuperWines with Mata Weltin 2014 [PO2,

p.56, ¶22]. SuperWines paid a premium of EUR15-20 per bottle to secure the wine it

wanted. On the same day, RESPONDENT informed CLAIMANT that it would only deliver

4,500-5,000 bottles, despite creating the impression that RESPONDENT would deliver

the quantity requested [Exhibit C3, p.11, ¶1]. Had RESPONDENT not entered into an

agreement with SuperWines, RESPONDENT would have been able to satisfy the orders

of all its customers, including CLAIMANT [PO2, p.56, ¶27].

9. On 2 December 2014, CLAIMANT sent an email to RESPONDENT where it reiterated the

demand for 10,000 bottles [Exhibit C6, p.14]. On the same day, SuperWines’ Mr

Barolo called RESPONDENT’s Mr Weinbauer to accept the offer of 4,500 bottles [PO2,

p.56, ¶22]. RESPONDENT terminated the Framework Agreement with CLAIMANT two

days later [Exhibit C7, p.15, ¶s.3-4].

10. On 8 December 2014, to enforce its contractual rights, CLAIMANT applied to the High

Court of Capital City, Mediterraneo for an interim injunction preventing RESPONDENT

from selling any wine [Exhibit C8, p.16]. The injunction was to prevent RESPONDENT

from selling 10,000 bottles to other customers.

11. On 12 December 2014, the interim injunction was granted [St. of Claim, p.5, ¶10 &

Exhibit C8, p.16]. At the same time, CLAIMANT contacted other vineyards and made

substitute arrangements to obtain 5,500 bottles of diamond Mata Weltin RESPONDENT

had refused to deliver [St. Cl. p.11]

12. On 30 January 2015, RESPONDENT initiated court proceedings before the Court of

Mediterraneo seeking for a declaration of non-liability and in breach of the Arbitration

Agreement. On 23rd April, the Court denied the abovementioned request [St. of Claim,

¶12, p.5]. Due to both legal proceedings, CLAIMANT incurred considerable legal

expenses (EUR 50.280), including not only procedural costs, but also attorney’s fees

[St. of Claim, ¶13, p.5, & Exhibit C10, 11].

13. Finally, on 11 July 2015, CLAIMANT started arbitration proceedings, seeking

reimbursement of legal fees and damages due to RESPONDENT’s breach of the contract

[St. of Claim, ¶15, p. 5].


3

ISSUE 1: CLAIMANT REQUEST ON DOCUMENT PRODUCTION SHOULD BE

GRANTED IN ORDER TO CALCULATE THE LOSSES SUFFERED

1. The Tribunal has the power and should order document production concerning

communications in regard of diamond Mata Weltin 2014 between RESPONDENT and

SuperWines and any contractual documents regarding that purchase [St. of Claim, ¶27,

p. 7]. That is so because they are relevant to the outcome of the dispute and without

them it will not be possible to calculate the damages that CLAIMAINT is claiming [St.

of Claim, ¶28, p. 8]. The Tribunal has the power to and should order document

production [A]. The Tribunal should order document production as requested by

CLAIMANT [B].

A. THE TRIBUNAL HAS THE POWER TO AND SHOULD ORDER DOCUMENT

PRODUCTION

2. The Arbitration Agreement is the foundation stone of international arbitration [Redfern/

Hunter, p. 71]. Both parties agreed that the arbitration is governed by Vienna Rules and

Danubian Arbitration Law, which is a verbatim adoption of Model Law [PO1, ¶5(3), p.

51]. They also established that the dispute should be settled in accordance with

international practices [St. of Claim, ¶17p.6; PO1, ¶5(3), p.51].

3. According to the Arbitration Agreement, it is clear that both Parties intended to exclude

Tribunal’s power to order discovery. However, under CISG, the Framework

Agreement and the Vienna Rules, the Tribunal does not lack power to grant document

production as requested by the CLAIMANT.


4

1. The interpretation of the Arbitration Agreement under CISG

4. In accordance to the CISG framework, the Tribunal should conclude that both Parties

agreed on excluding the Tribunal’s power to order US-style discovery. However, that

limitation does not imply that Parties intended to exclude all document production.

5. The Parties have agreed that the interpretation of the contractual clauses of the

Framework Agreement, specifically the arbitration clause, should be made under the

CISG [PO1, ¶5 (3) p. 51; PO2, ¶63, p. 61]. Taking into consideration that the

arbitration agreement is a part of a sales contract, some legal writers sustain that the

CISG can govern the arbitration agreement since CISG Arts. 19(3) and 81(1)

specifically refer the settlement of the disputes [Koch, p. 270-272]. Also, a Federal

District Court has considered that the sales contract agreed by the Parties, including the

arbitration agreement within, should be interpreted according to CISG [Filanto v.

Chilewich].

6. In accordance to Art.8 (1) of the CISG, Parties’ contractual statements (including the

arbitration clause), should be interpreted according to their intent (subjective approach).

To do so, the arbitral tribunal has to analyse all relevant circumstances of the case,

including negotiations, any practices established between the parties, usages and any

subsequent conduct [CISG Art.8(3)]. Thus, the Tribunal shall decide that the Parties’

intent was to rule out US-style discovery. At least that was the interpretation of Mr.

Weinbauer, former CEO of Vino Veritas, according to his testimony [Exhibit R1, ¶8,

p.31].

7. Even if the Tribunal considers that are not enough circumstances to determine the

Parties’ intent, the parties’ statements another conducts must be interpreted in

consonance to the understanding of a reasonable person (objective approach) [CISG

Art.8(2)]. Thus, the Tribunal should not “give binding effect to what the listener or

reader personally understood but, instead, to the understanding of a reasonable person


5

of the same kind” as RESPONDENT [Honnold, p. 107]. Once more, taking into account

the distinction between “discovery” and “production of documents”, the contractual

context and commercial expertise of both parties and other contractual statements made

by them, a reasonable person would have understood that the Parties only wanted to

exclude the US-style discovery.

2. The extent of the Parties’ intent to exclude discovery and how the

Framework Agreement allows document production

8. The Framework Agreement, in its Art.20, establishes that “no discovery shall be

allowed” [Exhibit C1, Art.20]. Nonetheless, contrary to what RESPONDENT has

sustained, this limit to the arbitral tribunal’s power does not exclude all types of

document production [Ans. to Claim, ¶27, p. 28].

9. Despite the legal harmonization that has been held, there are still cultural differences

depending on the parties’ legal backgrounds. Document production is not an exception.

In accordance to the arbitration agreement, the parties excluded the “discovery” and not

the “production of documents”. These are terms with different meanings. Discovery is

a specific mechanism of modern civil procedure in the US [El-Ahdab/Bouchenaki, p.

71] according to which the parties are legally obliged to produce documents that are

relevant, even if prejudicial to their case [Redfern/Hunter, p.190, footnote 73]. It allows

a party to submit relatively undefined requests for broad categories of documents in

order to find something useful to build up a case [Kankkunen, p. 32]. In addition,

discovery may also include depositions, interrogatories and requests for admissions

[Marghitola, p. 9]. In civil law jurisdictions, however, the function of document

production is to enable a party to prove its case and not to build it and because of that

the CLAIMANT must detail the facts on which the claim is based [Tercier/Bersheda, p.

81]. Therefore, the civil law approach is less concerned with finding the historical truth

than the common law approach [Tercier/Bersheda, p. 83].


6

10. American-style discovery is generally not suitable to international arbitration, given

that the document production should be tailored to issues that are relevant and material

to the determination of the case [IBA Commentary, p.7] the framework of IBA Rules

imposes the requirements of specificity and materiality in order to set aside “fishing

expeditions” {Marghitola, p. 35].

11. Considering that both Parties knew the close link between the term “discovery” and US

legal system, by establishing that “no discovery shall be allowed”, a reasonable person

would have to understand that the intent of the parties was to exclude US-style

discovery.

12. Besides that, the Parties stipulated that the proceedings shall be conducted in a fast and

cost efficient way. The only interpretation that is congruent with this provision is that

the one mentioned above, because “huge document production (like US-style

discovery) proceedings can be a costly and time-consuming exercise that unnecessarily

complicates the arbitration” [Marghitola, p.1 & Redfern/Hunter, p.368].

13. Thus, the Tribunal should conclude that, by stipulating that “no discovery shall be

allowed”, the Parties meant to exclude wide broad US-style discovery.

3. The Arbitral Tribunal should order the production of documents in

accordance to the VIAC Rules

14. The Parties agreed on the application of the VIAC Rules to this arbitration. On the

contrary to what RESPONDENT advocates [Ans. Cl. ¶27, p. 28], under Art. 29(1) of the

Vienna Rules, if the Tribunal considers it necessary, it may on its own initiative collect

evidence, including the possibility to request the Parties to submit evidence. The

arbitrators have “maximum discretion in establishing the facts and taking evidence as

they deem appropriate (…) (and they also are allowed) to attach to it the evidentiary

value they deem appropriate.” [Schwarz/Konrad, p. 482-483; Tercier/Bersheda, p.79].


7

15. Even if the Arbitral Tribunal does not conclude that the Parties wanted to only exclude

US-style discovery, under the Vienna Rules and Danubian Arbitration Law, that

exclusion is not allowed. As stated by RESPONDENT, the Tribunal shall conduct the

arbitration in accordance with the Vienna Rules and the Parties’ agreement. And if it is

true that the Parties can limit the arbitrators’ discretion on taking evidence on their own

initiative, Article 28(1) Vienna Rules and Article 18 of Danubian Arbitration Law

consecrate limits to that Parties’ will [Schwarz/Konrad, p. 484]. Notwithstanding with

the fact that international arbitration is characterized for its flexibility, the Tribunal

must comply the arbitral proceedings with any mandatory rules and public policy

requirements, such as the Parties’ right to be heard in order to fully present their case

[Redfern/Hunter, p. 353; Tercier/Bersheda, p. 82 & Noble China Inc. v. Lei Kat

Cheong].

16. If the CLAIMANT’s request for producing documents is not attended, the right to be

heard is violated. That is so because the Tribunal will not be granting the indispensable

means for CLAIMANT to present its case, violating, in consequence, due process

principles, that being a ground to refuse the enforcement of a foreign award [Article

V(1)(b) New York Convention]. In that order, “[t]he Parties’ right to be heard impacts

on, and must be observed at, all levels of an arbitration (…) The right to be heard is,

therefore, a prominent feature under the Vienna Rules” [Schwarz/Konrad, p. 427&

Redfern/Hunter, p.356]. Thus, the Tribunal should order the production of documents

in accordance to the VIAC Rules.

B. THE TRIBUNAL SHOULD ORDER DOCUMENT PRODUCTION TO

SATISFY CLAIMANT’S REQUEST

17. As mentioned before, under the Vienna Rules, the Tribunal has the power to order

document production. However, the Vienna Rules do not regulate any rules according

to which the document production should be held. For this reason, “[In] the absence of


8

rules on documentary evidence and more specifically document production in

institutional rules and national arbitration rules (…) the IBA Rules offer a resource that

seeks a balance between common law and civil law practices” [Tercier/Bersheda, p.

84-85].

1. The Tribunal should apply IBA rules to guide document production

18. The Parties have not made any reference to the IBA Rules in the Arbitration

Agreement, and though it is very rare for them to do so, they agreed that the arbitration

shall be conducted in accordance with international practice (Exhibit C. 1, Article 20).

Nowadays, the IBA Rules are widely accepted by the arbitration community and are

very often applied by Arbitral Tribunals [Marghitola, p.1]. The application of the IBA

Rules is particularly useful when an arbitration involves Parties coming from different

legal background [IBA Commentary, p.8].

19. In addition, Parties were also silent regarding the procedure applicable on the taking of

documentary evidence. The Vienna Rules, as other institutional rules, are also

purposely silent about how evidence should be gathered in order to avoid that

arbitration proceedings being always conducted in the same manner [IBA Commentary,

p.1]. Also, Article 28 of Vienna Rules establishes that the Tribunal should conduct

arbitration proceedings as it deems appropriate and in a manner that best suits the

Parties’ interests.

20. The Arbitral Tribunal has wide discretion to establish the facts of the case through all

appropriate means, including the possibility to order one part to introduce certain

documents [IBA Commentary, p.7]. “[T]he arbitral tribunal shall order the production

[of documents] if it is convinced, first, that the issues that the requesting party wishes

to prove are relevant to the case and material to its outcome; second, that none of the

reasons for objection set forth in Article 9.2. applies; and, third that the requirements of

Article 3.3. have been satisfied” [IBA Commentary, p.8].


9

21. Therefore, the Tribunal should apply IBA Rules as a guideline to the document

production requested by the CLAIMANT because these documents are relevant and

material to the outcome of the dispute [a], there is no valid objection to that request [b],

and, finally, IBA Rules’ criteria are satisfied [c].

a. The CLAIMANT’s requested documents are relevant and material to the

outcome of the dispute

22. The Tribunal should order the production of documents because it is relevant to

calculate the damages suffered by CLAIMANT. Under Articles 3(7) and 9(2)(a) IBA

Rules, the Tribunal should order the production of documents when the issues that the

requesting Party wishes to prove are relevant to the case and material to its outcome. A

requested document is relevant to the case when “a party has put forward a credible

argument as to the likely or prima facie relevance of the requested evidence in support

of an important contention in the petitioning party’s case” [O’Malley, n.º 3.69]. In other

words, it is necessary to explain why the requested documents are important to the

Tribunal in order to reach a just conclusion of the case at hand [Kankkunen, p.37].

Finally, a document is material to the outcome of the case when it is needed to build a

complete consideration of the facts from which legal conclusion are drawn

[Marghitola, p.52].

23. Contrary to RESPONDENT’s allegations, the requested documents are relevant and

material to the outcome of the arbitration because of their evidentiary potential to

acknowledge valuable information to calculate the damages that CLAIMANT suffered

and it is pleading.


10

b. There are no valid objection to the CLAIMANT’s request from

RESPONDENT

24. Contrary to the position sustained by RESPONDENT (Ans. Claim, pp. 28-29, ¶29, 30,

31), which contests the document production requested by CLAIMANT based on

unreasonable burden, confidentiality, and right to an equal treatment [Ans. to Claim,

¶¶29-31, pp. 28-29], there are no valid grounds, under Art. 9(2) of the IBA Rules, to

refuse that request.

25. Firstly, there is no formal contract between RESPONDENT and SuperWines. There are

only several e-mails, memoranda and minutes [PO2,¶23, p.56]. In that order, the

amount of documents that needed to be produce are reduced to a minimum. Besides

that fact, it is also important to note that the CLAIMANT limits the time frame in which

those documents were created – between May 2014 and July 2015.

26. There is no legal definition of what “unreasonable burden” means, being that

responsibility left to the arbitral tribunal’s discretion (IBA Commentary, p. 26).

However, taking into consideration the factual circumstances mentioned, the Tribunal

should conclude that there is no unreasonable burden on RESPONDENT regarding

CLAIMANT’s request.

27. Also, contrary to what RESPONDENT sustained, CLAIMANT’s request does not violate

RESPONDENT’s confidentiality, because between it and SuperWines does not exist any

express or formal confidentiality agreement [PO2, ¶25, p.56]. Even if that was not the

case, the requested document production is not adequate to breach RESPONDENT’s

confidentiality, because, under Art. 3(13) of the IBA Rules, any document submitted or

produced that is not in the public domain shall be kept confidential by the Tribunal. For

example, the Tribunal may determine that it should not review the documents and, in

that event, appoint an independent expert, bound to confidentiality, to review any such

document [Art.3(8) of the IBA Rules].


11

28. Finally, the document production is fair and does not violate the principle of equality.

RESPONDENT alleges that by granting the requested production of documents, the

Tribunal will not be fair and it will treat RESPONDENT unequally because Equatorianian

Law establishes exceptions to that production which Mediterranean Law does not [Ans.

to Claim, ¶30, p.28]. However, the fairness and equal treatment requirement is satisfied

by applying the same standards to both Parties. Accordingly, by applying IBA Rules to

the dispute, the Arbitral Tribunal will grant the same protection to both Parties, and, in

consequence, it will not violate the fairness and equal treatment principles [Article 9(3)

of the IBA Rules].

29. Accordingly, the Tribunal should grant the requested document production because: it

does not imply an unreasonable burden; it does not violate any RESPONDENT’s

confidentiality agreements; and it does violate the principle of equal treatment.

c. The Tribunal should order document production as requested by

CLAIMANT because IBA Rules’ criteria are satisfied

30. The Tribunal should order document production because IBA Rules’ legal

requirements are satisfied, specifically because the request is narrow and specific, and

the requested documents are in RESPONDENT’S possession.

31. In accordance to Article 3(3) IBA Rules, a request to produce documentary evidence

shall contain certain requirements. Firstly, the request to produce shall identify

documents either by describing an individual document [Art. 3.3(a)(i)of the IBA Rules]

or by describing in sufficient detail of a narrow and specific requested category of

Documents that are reasonably believe to exist [IBA Commentary, p.9]. The possibility

to describe a narrow and specific category of documents is explained by the need to

establish facts that are relevant and material to the outcome of the dispute [Marghitola,

p.39]. It is however required that the requested documents are suitable to prove a


12

specific point, being necessary to make a description of the presumed contents of the

documents [Kankkunen, p.34 & Redfern/Hunter, p.369].

32. CLAIMANT in its request for document production satisfied all of those requirements by

requesting all documents related to the communications between RESPONDENT and

SuperWines in regard of diamond Mata Weltin 2014, and any contractual documents

related to that purchase [St. of Claim, ¶27, p.7]. So, the CLAIMANT’s request satisfies

even the most demanding legal opinions which identifies the necessary requirements in

order to produce a category of documents – the presumed author, presumed date or

time frame and presumed content [Marghitola, p. 40].

33. By requesting documents that are only related to the purchase of Mata Weltin 2014,

and taking into consideration that CLAIMANT is only requesting documents from the

period of 1 January 2014 to 14 July 2015 [St. of Claim, ¶27, p. 7], the Tribunal should

conclude that the request in narrow and specific.

34. Besides that criteria, under Art. 3(c)(i) of the IBA Rules, it is also necessary that the

requested documents are in RESPONDENT’s possession – which they presumably are.

There are enough circumstances to presume that the requested documents are in

RESPONDENT’s possession or control. Even if there was no contract signed,

RESPONDENT and SuperWines exchanged several emails summarizing meetings and

setting out details of the Parties’ cooperation, and there were several internal

memoranda and minutes discussion that cooperation [PO2, ¶23, p.56]. Thus, the

Tribunal should order document production as requested by CLAIMANT because all

legal criteria are satisfied.


13

ISSUE 2: CLAIMANT IS ENTITLED TO THE PROFITS RESPONDENT MADE

SELLING THE BOTTLES TO SUPERWINES AS PART OF ITS DAMAGES

35. In a contract governed by the CISG, the non-breaching party is entitled to losses

suffered as a consequence of the breach, in accordance with the principle of full

compensation. CLAIMANT is allowed to claim RESPONDENT’s profits as a

compensation for the loss it suffered from RESPONDENT’s breach [A]. As an

alternative, RESPONDENT’s profits should be disgorged under the gain-based approach

[B].

A. CLAIMANT CAN CLAIM RESPONDENT’S PROFITS TO COMPENSATE ITS

LOSS SUFFERED FROM RESPONDENT’S BREACH UNDER THE LOSS-

BASED APPROACH

36. Under CISG Art. 45, CLAIMANT is entitled to claim the profits RESPONDENT made by

selling the 5.500 bottles of diamond Mata Weltin to SuperWines. Specifically, Art.74

provides that “[d]amages for breach of contract by one party consist of a sum equal to

the loss, including loss of profit, suffered by the other party as a consequence of the

breach” [CISG Art. 74]. This arrangement for loss compensation reflects a principle of

full compensation, one of the general principles on which the CISG is founded

[Agricultural Products Case]. Full compensation is to be gained through a monetary

claim aimed at “the positive interest, i.e., everything the damaged party would have had

if the contract was performed” [Bullet-Proof Vest].

37. The standard measure for compensatory damages is expectation interest [Saidov, p.25].

However, where the non-breaching party is not in a position to prove its expectancy

damages, courts and arbitral panels have relied on the breaching party’s profits as an

approximation of expectancy damages [Bonaventure; Pressure Sensors Case;

Experience Hendrix; WWF; Esso; Blake; & Wrotham Park Estate].


14

38. RESPONDENT breached its contract and CLAIMANT is owed compensatory damages for

the losses it suffered. RESPONDENT’s profits are not an issue of disgorgement of

benefits, but of calculation of damages in accordance with the principle of full

compensation [Saidov/Cunnington p.56; WWF], being nothing more than an estimation

of these compensatory damages.

39. CLAIMANT’s loss of profits is caused by RESPONDENT’s breach [1], CLAIMANT has

taken all reasonable measures to mitigate losses [2], CLAIMANT’s loss of profits was

foreseeable to RESPONDENT at the conclusion of the framework agreement [3]

RESPONDENT is not exempt from liability under Article 79 [4] RESPONDENT’s profits

are an appropriate measure for compensatory damage [5].

1. CLAIMANT’S loss of profits is caused by RESPONDENT’S breach

40. CLAIMANT’s loss of profits is caused by RESPONDENT’s breach. Because of

RESPONDENT’s breach, CLAIMANT never received 5.500 bottles of RESPONDENT’s

wine, which it had promised to sell to its customers. CLAIMANT will suffer lost profits

from the wine it will not be able to sell and Art.74 allows CLAIMANT to recover these

profits.

41. CLAIMANT’s inability to fulfil its contractual obligations damaged its reputation as a

trustworthy wine supplier and caused CLAIMANT loss of profits from its inability to sell

RESPONDENT’s wine to those customers. As required by the UNIDROIT Principles, the

harm CLAIMANT suffered is a direct result of RESPONDENT’s breach. Therefore,

RESPONDENT’s breach caused CLAIMANT’s loss of profits, consisting of the loss of

resale profits, loss of future profits, and loss of goodwill and reputation.

42. Under the Framework Agreement, CLAIMANT should have been able to secure this

reliability of supply. But for RESPONDENT’s breach, CLAIMANT’s reputation and

goodwill would not be damaged by the non-delivery of all its pre-orders. Therefore,


15

RESPONDENT’s breach also caused CLAIMANT’s loss of reputation and goodwill,

covered by CISG Art.74 as consequential loss [Schlechtriem/Schwenzer, p.1012].

2. CLAIMANT has taken all reasonable measures to mitigate losses, including

loss of profit, resulting from RESPONDENT’S breach

43. CLAIMANT acted reasonably to mitigate its damage. CLAIMANT’s recovery of lost

profits is not precluded under Art.74’s principle of mitigation. CISG Art.77 has been

interpreted as requiring injured Parties to activate themselves, rather than remain

passive, to reduce damage already incurred and to prevent further damage from

materializing [Propane Case].

44. CLAIMANT took reasonable measures to mitigate the losses, including loss of profit, it

suffered due to RESPONDENT’s breach of contract. First, by informing its customers of

a disruption in supply, sought their approval to substitute wine of non-identical

qualities. Second, reaching an agreement with Vignobilia that would limit reputational

damage from the disruption in supply and lastly, by presenting a motion in

Mediterranean court to prevent RESPONDENT from selling the 5.500 bottles of diamond

Mata Weltin to SuperWines. CLAIMANT mitigated its damage.

3. CLAIMANT’S loss of profits was foreseeable to RESPONDENT at the

conclusion of the framework agreement

45. RESPONDENT could foresee that the breach would cause CLAIMANT’s loss of resale

profits. The principle of foreseeability under Art.74 allows Parties to recover damages

that the breaching party foresaw or ought to have foreseen as a consequence of the

breach. This limitation on liability allowed both Parties to carefully estimate and insure

themselves from the financial risks arising from the contract [Schlechtriem/Schwenzer,

p.1001].


16

46. No further proof of the foreseeability of a resale transaction is required if commercial

goods are sold to a merchant. Lost profits which a buyer could have gained from resale

must be compensated [Propane case]. Since CLAIMANT is a wine merchant and

RESPONDENT is a wine producer, RESPONDENT knew or must have known that the

wines were procured for resale when the Framework Agreement was signed [Stat. of

Claim, ¶1 p.3 & Ans. to Claim, ¶5, p.25].

47. Therefore, CLAIMANT’s loss of profits was foreseeable to RESPONDENT at the

conclusion of the Framework Agreement. RESPONDENT could foresee that the breach

would cause CLAIMANT’s loss of reputation and goodwill, since RESPONDENT knew

during pre-contractual negotiations that a solid supply was vital to CLAIMANT [Ans. to

Claim, ¶2, p.31]. Therefore, it was foreseeable to RESPONDENT that its breach would

cause CLAIMANT’s loss of reputation and goodwill.

4. RESPONDENT is not exempt from liability under article 79

48. RESPONDENT’s failure was a direct result of its deliberate decision to sell the wine to

SuperWines, and it is consequently not exempt from liability under CISG Art.79 for its

failure to deliver the 5.500 bottles. Art.79 has been interpreted to require proof of a

“factual obstacle” beyond the breaching party’s control in order to exempt the

breaching party from liability for its failure to perform its contractual obligations. The

“obligor is always responsible for impediments when he could have prevented them”

[Schlechtriem A, p.100] and even where the impediment is not foreseeable, the obligor

“must take reasonable measures to avoid or overcome the impediment or its

consequences” [Idem].

49. RESPONDENT’s poor harvest does not constitute a “factual obstacle”, because the 2014

harvest yielded enough wine for RESPONDENT to deliver the full amount of 10.000

bottles to CLAIMANT [PO2, ¶¶21, 27, p.56-57]. RESPONDENT had a standing contract

with CLAIMANT and no firm contract with SuperWines at the time it learned of the


17

harvest [Stat. of Claim, ¶8, p.4 & PO2, ¶15, p.55; ¶29, p.57]. Nevertheless,

RESPONDENT offered 4.500 bottles to SuperWines a month after CLAIMANT requested

10.000 bottles under its pre-existing contract [Exhibit C2, p.10; PO2 ¶¶22, 24, p.56].

5. RESPONDENT’S profits are as appropriate measure for compensatory

damages

50. CLAIMANT can calculate part of its loss of profits by using RESPONDENT’s profits from

the breach. Under CISG Art.74, the breaching party should not be able to escape

liability on the ground that lost profits are uncertain [CISG-AC Opinion No. 6, ¶s.2.4,

3.13]. Where damages are difficult or impossible to prove, benefits obtained by a

promisor in breaching the contract may be taken into account when calculating and

assessing damages [Schlechtriem/Schwenzer, pp.1002, 1017].

51. Art. 7.4.3(3) of the UNIDROIT Principles states that “where the amount of damages

cannot be established with a sufficient degree of certainty, the assessment is at the

discretion of the court.” This Tribunal therefore has discretion to award RESPONDENT’s

SuperWines Profits to CLAIMANT, as neither CLAIMANT’s lost profits nor harm to its

business can be measured with sufficient certainty.

52. As Commentator Saidov explains, in some cases, focus on the injured party’s loss is

inadequate in compensating a party that is not in a position to prove its loss [Saidov,

p.34]. Instead, it is appropriate to rely on the breaching party’s gains. In those cases, he

states, “damages reflecting gains made by the breaching party may be an appropriate

way of implementing the compensatory purpose of damages” [Saidov, p.33].

Employing profits as a proxy for compensatory damages has strong support in

international case law [Experience Hendrix; WWF; Esso; Blake & Wrotham Park

Estate]. In WWF, , the court awarded the injured party the breaching party’s profits,

stating that it was nothing more than a “flexible response to the need to compensate the

CLAIMANT for the wrong which has been done to him” [WWF].


18

53. CLAIMANT can rely on profits made by the breaching party to calculate actual damages

because it is impossible to calculate CLAIMANT’s expectancy loss [a], CLAIMANT’s

loss is most likely higher than RESPONDENT’s profits [b], RESPONDENT’s profits are

evidence of lost profits that CLAIMANT could have realised on resale [c], and this

possibility reflects the Purposes of CISG Art.74 [d].

a. It is impossible to calculate CLAIMANT’s expectancy loss

54. CLAIMANT is not in a position to prove its loss. What is relevant to calculating

CLAIMANT’s loss is how much CLAIMANT would have been able to sell the 5,500

additional bottles of RESPONDENT’s Mata Weltin for. CLAIMANT’s profits from sales

to its customers would have likely been higher than the premium paid by SuperWines,

but this amount is currently unknown. The combination of increased demand and

decreased supply would have affected the market price for RESPONDENT’s diamond

Mata Weltin 2014, but CLAIMANT does not have the information necessary to know the

market price.

55. Awarding the breaching party’s profits is justified as long as the injured party is not in

the position to prove the amount of its loss otherwise [Saidov p.34 &

Schwenzer/Hachem 100-02]. CLAIMANT is entitled to compensation for its lost profits,

but as this Tribunal has recognized, the exact amount of CLAIMANT’s loss is difficult to

quantify [PO2, ¶13, p.54]. CLAIMANT can calculate part of its loss by using

RESPONDENT’s profits. It therefore is not in a position to prove its loss unless it relies

on the breaching party’s profits as an approximation of its losses suffered.

b. CLAIMANT’s loss is most likely higher than RESPONDENT’s profits

56. CLAIMANT’s loss is most likely higher than RESPONDENT’s profits, as measured by the

difference between CLAIMANT’s contract price and the premium paid by SuperWines


19

to RESPONDENT [Stat. of Claim, ¶26, p.7; PO2, ¶66, p.62]. The contract price for

CLAIMANT was EUR41.50 per bottle, nearly half of the retail price. The premium paid

by SuperWines was EUR15-20 per bottle [PO2, ¶24, p.56]. CLAIMANT and

SuperWines are competitors in the same markets and for that reason probably subject

to the same retail market price [Exhibit C4, p.12; PO2, ¶26, p.56]. The retail price is

said to be as high as EUR90-100 per bottle, given the extraordinary quality and supply

shortage [PO2, ¶14, p.55] and so CLAIMANT’s lost profits on resale would most likely

have been higher than the premium paid by SuperWines. It is purely as a way to

facilitate the calculation that CLAIMANT is willing to restrict damages to

RESPONDENT’S profits only. CLAIMANT’s loss of profits from resale is very likely

higher than RESPONDENT’s profits.

c. RESPONDENT’s profits are evidence of lost profits that CLAIMANT could have

realised on resale

57. RESPONDENT’s SuperWines Profits indicate what CLAIMANT could have earned from

selling the wine. “If a seller who is bound by a contract sells the goods for a second

time at a higher purchase price, thus realising a higher profit, that higher purchase price

should be seen as an indication and proof of the true market conditions at the time of

the breach” [Saidov/Cunnington, p.101].

58. The profits realised by the RESPONDENT serve as an evidence of the profits CLAIMANT

could have realised by reselling the goods to third party. If market condition causes the

value of wines to appreciate, CLAIMANT should be entitled to that amount of

appreciation as its rightful profit. If RESPONDENT chose to resell the wines to third

party at a higher price, it effectively appropriated CLAIMANT’s profit for itself. That

amount represents CLAIMANT’s loss of profits for which it must be compensated.

59. In addition, the premium paid by SuperWines, a wine merchant like CLAIMANT, is an

objective indication of the market value of Mata Weltin wines of 2014 vintage [Exhibit


20

C4, p.12 & PO2, ¶24, p.56]. The premium paid by SuperWines was reportedly EUR15-

20 per bottle [PO2, ¶24, p.56]. This amount of profit made by RESPONDENT

represented the minimum amount that CLAIMANT could have gained on its resale.

RESPONDENT’s profits are evidence of lost profits that CLAIMANT could have realised

on resale.

d. Awarding RESPONDENT’s profits reflects the purposes of Article 74 and

enforces “pacta sunt servanda”

60. Awarding the gains of the breaching party as measure of damages fulfills CISG

Art.74’s purposes. Art.74 is intended to afford an aggrieved party compensation, and,

as Commentators consider, in some cases the gains by the breaching party can easily be

viewed as nothing more than a presumption of what the aggrieved party has actually

lost.” [Schwenzer/Hachem, p.101]. Awarding the SuperWines Profits is a means of

restoring the breach victim to its rightful position, “still in the realm of compensatory

damages.”

61. Also, this approach serves the underlying principles of Art.74 by enforcing the notion

of pacta sunt servanda (“agreements must be kept”), ensuring that Parties take their

legal obligations seriously [Schmidt-Ahrendts B, pp. 92-95]. In a similar vein, it

upholds the CISG’s emphasis on fairness and good faith in international commerce.

B. RESPONDENT’S PROFITS SHOULD BE DISGORGED UNDER THE GAIN-

BASED APPROACH

62. Alternatively, the profits made by RESPONDENT in reselling the 5,500 bottles to

SuperWines should be disgorged under the gain-based approach. RESPONDENT acted in

bad faith by deliberately initiating a relationship with SuperWines at CLAIMANT’s

expense, and it should not be allowed to benefit from this breach.


21

63. This Tribunal should therefore award RESPONDENT’s SuperWines profits to

CLAIMANT. According to the gain-based approach, the role of damages is not only to

rectify a breach but also to prevent it. This is founded on the “performance principle”

of CISG [Saidov/Cunnington, p.93], that emphasises the performance of the contract

rather than the economic loss. This construction prevents the “efficient breach of

contract” and follows the general idea under CISG that a breaching party must not

benefit from ill-gotten gains. As Cunnington notes, “gain-based damages focus on the

defendant’s gain rather than on the CLAIMANT’s loss”. [Cunnington, p.15].

64. Allowing RESPONDENT to profit from its deliberate breach of contract would therefore

contravene the spirit of the CISG. Commentators also support a gain-based approach to

compensation, ensuring the uniformity of CISG decisions, defending that the

application of CISG Art.74 to claims for disgorgement would support the idea of

uniformity on which the CISG and its Art.74 are based, given that depending on the

content of their domestic law to fulfil the gap would undermine the goal of CISG on

providing Parties with a uniform and complete set of rules governing international sales

contracts. [Saidov, p.33 & Schwenzer/Hachem, p.101].

65. While CISG doctrine contains little discussion of the question of disgorgement of

wrongfully gained profits, there is an increasing tendency of domestic legal systems

awarding the disgorgement of ill-gotten profits [Schmidt-Ahrendts B, p. 90; Schwenzer

A, p. 1017]. Regarding case law, recently the UK House of Lords determined, in

Attorney General v. Blake, that a former intelligence employee had breached his

employment contract when he published his memoirs and the employee was ordered to

pay the profits he earned from publishing [AG v. Blake]

66. RESPONDENT’s behaviour is an example of the “efficient breach of contract”.

RESPONDENT contacted SuperWines as early as the beginning of 2014. The bad harvest

resulted in a reduced supply but an extraordinary quality of grapes. RESPONDENT

found that SuperWines was a willing customer ready to pay a premium which was


22

nearly half of the price it could charge CLAIMANT under the Framework Agreement

[Ans. to Claim, ¶¶9, 12, 15, p.26].

67. Under the “performance principle”, the profits made by RESPONDENT in reselling the

5,500 bottles to SuperWines should be disgorged under the gain-based approach, since

the disgorgement of profits serves the purpose of the CISG to ensure performance by

reducing incentives for breach and follows the tendency of many domestic legal

systems to allow disgorgement of profits in the law of damages.

ISSUE 3: LITIGATION COSTS SHALL COMPLETELY BE REIMBURSED

68. CLAIMANT is entitled to recover litigation costs under CISG Art.74.[A], since those

damages are included in its scope of application [1] Those damages have to be both a

direct consequence of the contractual breach [2] and foreseeable [3] CLAIMANT is

entitled to recover litigation costs incurred in its application for interim relief. [B]

According to Art.20 of the Framework Agreement, the Parties agreed that the contract

was governed by the Danubian law, including the CISG. Under CISG Art.74, the party

who breaches the contract is liable for damages. RESPONDENT breached the

Framework Agreement [1], causing damages to CLAIMANT on the application to the

interim relief, which are recoverable under CISG Art.74 [2]. Those damages are

foreseeable [3]. Thus, RESPONDENT is liable for litigation costs as damages under

Art.74 CISG.

69. Also, RESPONDENT breached the arbitration agreement by starting the proceedings

before the High Court of Mediterraneo. [C] Consequently, CLAIMANT incurred in legal

costs for presenting its defence. The reimbursement of damages for breach of the

arbitration under agreement is accepted internationally.[1] Moreover, those damages

can be reimbursed under CISG Art.74.[2] Those damages were foreseeable and shall be

reimbursed according to the principle of full compensation, provided both on Danubian


23

contract law and the CISG.[3] RESPONDENT cannot argue that the Arbitral Tribunal’s

decision on damages breach res judicata because the same claim is not being addressed

twice.[4] The arbitration clause was not unclear and unworkable.[5] CISG Art.77

cannot be invoked since CLAIMANT has taken reasonable measures to mitigate the

losses.[5]

70. The total amount of damages (US$ 50.280) should be recovered [D].

A. LITIGATION COSTS CAN BE RECOVERED UNDER CISG ART. 74:

THEORETICAL APPROACH

71. Both the aforementioned CISG Art.74 and the Danubian contract law Art.7.4.2 and

7.4.4 (which is a verbatim adoption of UNIDROIT principles [PO1, ¶5(3), p.51])

provide the principle of full compensation, according to which the aggrieved party has

the right to be reimbursed for damages resulting from the breach.

1. Litigation costs can be included in CISG Art.74 scope of recoverable

damages

72. CISG Art.74 provides that “[d]amages for breach of contract by one party consist of a

sum equal to loss (...), suffered by the other party as a consequence of the breach.(...)”

As previously mentioned, the recovery of damages for breach of contractual obligations

results directly from pacta sunt servanda.

73. Moreover, one must bear in mind that this principle is not exclusive of CISG Art.74, is

rather a principle that shall be taken into consideration when interpreting systematically

the CISG [Schlechtriem/Schwenzer, p.1005; Knapp, n/p]. Then, in order to be fully

compensated, CLAIMANT has to be reimbursed for costs it has incurred in both judicial

proceedings.


24

74. The US Court of Appeals considered that CISG Art.74’s scope of application should not

include the recovery of litigation expenses since this is a procedural matter not covered

by the Convention [Zapata Hermanos]. Notwithstanding, this decision should be

disregarded as does not take into account one of the main objectives of the CISG: “(…)

the adoption of uniform rules which govern contracts for the international sale of goods

and take into account the different social, economic and legal systems (…)” [CISG

Preamble].

75. The distinction between procedural and substantive law is a matter of national legal

systems and should not be applied in the international forum. National procedural rules

are irrelevant to interpret CISG [Schlechtriem/Schwenzer, p. 1001]. Furthermore,

considering CISG Art.7(1), “[t]he requirement to take into account the international

character of the CISG seeks to secure the principle of autonomous interpretation of the

principles of the CISG and prohibits the use of technical terms and principles of

domestic laws, especially the domestic law of the user” [Schlechtreim/Butler, p.48].

76. On the other hand, the US District Court had, in the same exact case, previously

awarded legal expenses, including attorney’s fees on the ground the so-called

“American rule” (according to which each party should bear its own costs) was not

applicable. Even though US Court of Appeals reversed the final decision, this is an

interpretation worth noting which is in accordance with the “liberal approach” of the

CISG [Felemegas, p.115]. Therefore, “(...) there should be no reason to adopt a narrow

interpretation of the CISG” [idem, p.115]. An arbitral tribunal have also shared the same

opinion deciding that “in rendering its award on the costs of the proceedings (…) the

[seller] could claim its attorney's fees for the arbitration proceedings as damages

according to articles 61 and 74 CISG” [Chinese goods case].

77. It can be also argued that legal costs are not expressly excluded from the scope of

application of CISG Art.74. This article does not, indeed, provide an exhaustive

description of the damages recoverable. Regarding this specific aspect, commentators


25

have stated that the argument that legal costs fall outside the scope of CISG is not in

conformity with this Convention’s aforementioned goal of unification foreseen in CISG

Art.7 [Piltz, p.293]. Litigation costs can be included in CISG Art.74.

2. Damages as a consequence of the contractual breach

78. Only damages caused by the breach of the contract are recoverable. Therefore, it is of

great importance to ascertain that the damages would not have been produced without

the breach [Schlechtriem/Schwenzer, p.1015]. Commentators have explained that “the

Convention leaves no room for theories on causation which limit the liability for

damages” [idem, p.1015].

3. Foreseeability of damages

79. CISG Art. 74 provides that the damages “(...) may not exceed the loss which the party

in breach foresaw or ought to have foreseen at the time of conclusion of the contract.

(...)”. Therefore, the non-breaching party has to be fully compensated if the losses

incurred were foreseeable when the contract was concluded. This is the moment when

Parties evaluate the risk they want to assume [Lookofsky,n/p]. This knowledge is

presumed when the party is objectively in position to foresee the damages, irrespective

of the actual knowledge of the facts.

80. Foreseeability also applies to the extent of the damages, even though “it is not necessary

for the party in breach to have foreseen the precise amount of the loss”

[Schlechtriem/Schwenzer, p.1020], being enough a general knowledge of the amount.

B. CLAIMANT IS ENTITLED TO THE DAMAGES CLAIMED FOR

LITIGATION COSTS INCURRED IN ITS APPLICATION FOR INTERIM

RELIEF


26

81. RESPONDENT breached the contract. If RESPONDENT had delivered 10.000 bottles of

wine, CLAIMANT had not need to require an interim injunction. Thus, RESPONDENT is

responsible for damages incurred by CLAIMANT under Art.74.

1. RESPONDENT breached the Framework Agreement

82. CISG Art.74 provides the right to recovery for damages caused by a breach of contract.

RESPONDENT breached the contract. Thus, RESPONDENT has the obligation to

reimburse CLAIMANT for damages incurred.

83. Under the Framework Agreement, RESPONDENT is obliged to sell up to 10.000 bottles

per year [Exhibit C1, p.9 Art.2] to CLAIMANT. However, during the negotiations,

CLAIMANT proposed an agreement regarding a larger quantity of bottles. This proposal

was not accepted because RESPONDENT could not guarantee that it would be able to

fulfil the contract for such an amount. By settling to a smaller quantity, RESPONDENT

guaranteed that it would able to deliver, even in the bad yearsthe bottles of Mata Weltin

wine [Ans. to Claim, ¶7 p.25]. This means that the quantity agreed upon the Framework

Agreement already includes the risk caused by poor harvests. CLAIMANT ordered

10.000 bottles from RESPONDENT [Exhibit C2, p.10]. RESPONDENT was only able to

deliver 4.500 - 5.000 bottles, and then said that there will be no further deliveries

[Exhibit C3, p.11 & Exhibit C7, p.15]. RESPONDENT breached its obligation to deliver

10.000 bottles.

2. Litigation costs for the application for the interim relief are a consequence of

RESPONDENT’s behaviour and foreseeable under CISG Art.74

84. CLAIMANT explained to RESPONDENT that CLAIMANT needed to guarantee a minimum

of bottles to his clients every year [Stat. Of Claim, ¶4, p.5]. Under this fact,

RESPONDENT foresaw or ought to have foreseen that CLAIMANT has agreements with

clients and that this agreements need to be settle. In order to settle a contract, it is usual


27

in international commerce that the party who wants to demand the compliance of the

contract do it in courts. Besides, when RESPONDENT informed CLAIMANT that he could

not deliver the agreed number of bottles, the CLAIMANT had already received and

accepted a considerable number of orders for diamond Mata Weltin 2014 [Stat. Of

Claim, ¶10, p.5].

85. In order to preserve its rights and to guarantee its clients’ orders, CLAIMANT sought for

an interim injunction before the High Court of Mediterraneo. CLAIMANT aimed to

ensure RESPONDENT would not promise to sell or sell the amount of 10.000 bottles of

Mata Weltin wine [Exhibit C8, p.16].

86. The interim injunction was required in Mediterraneo, place where RESPONDENT is

based. There, legal fees are very high [Stat. of Claim, ¶13, p.5]. However, being based

on Mediterraneo, RESPONDENT foresaw or ought to have foreseen the amount of

damages incurred by the CLAIMANT.

87. This interpretation of the foreseeability is in accordance with CISG Art.8 (2). CISG

Art.8 (2) states that the conduct of a party should be interpreted as a reasonable person

would have had in similar circumstances. Therefore, a reasonable international seller of

goods under these circumstances interprets that if it breaches the contract, the other

party will start court proceedings in order to guarantee the settlement of the contract.

88. RESPONDENT foresaw or could have foreseen that CLAIMANT would take measures to

grant the performance of the contract. Then, RESPONDENT foresaw or could have

foreseen that CLAIMANT would have litigation costs to do so.

C. CLAIMANT IS ENTITLED TO THE DAMAGES CLAIMED FOR THE

LITIGATION COSTS INCURRED IN THE DEFENCE AGAINST

RESPONDENT’S COURT PROCEEDINGS


28

89. By commencing the court proceedings, RESPONDENT violated its contractual

obligations arising from the Arbitration Agreement. Art. 20 of the Framework

Agreement foresees that the law applicable to the Arbitration Agreement is Danubian

Law, including the CISG [Exhibit C1, p.9 & PO2, ¶63, p.61]. Accordingly, CISG

Art.45, No1, ¶b), provides that if the seller fails to perform its obligations, the buyer can

claim for damages. CLAIMANT is therefore entitled to be reimbursed for damages under

CISG Art.74.

1. Damages for breach of the Arbitration Agreement are commonly

accepted and recognized

90. CLAIMANT shall be granted monetary relief not only for the judicial costs it have

incurred in presenting its defence, but also for all costs related to that action, including

attorney’s fees (since there is a direct connection with the proceedings). “An Arbitration

Agreement is a contract in which the Parties agree to submit their existing or future

disputes to arbitrators, not to the courts.” [Fouchard/ Gaillard/ Goldman, p.381]. Thus,

“[i]n agreeing to arbitrate, the Parties do not merely negatively waive their legal rights

or access to judicial remedies, but instead affirmatively agree to participate in the

resolution of their disputes through the arbitral process (…)” [Born, p.1006].

91. RESPONDENT clearly did not comply with its negative obligation to refrain from access

to State Courts. Thus, the violation of the Arbitration Agreement (as any other breach of

contractual obligations) “entitles the non-breaching party [CLAIMANT] to relief” [idem,

p.1024].

92. The claim for damages is commonly accepted by State Courts as a remedy for breach of

the Arbitration Agreement. For instance, a dispute between a Swiss pharmaceutical

manufacturer and an Israeli medicine distributor was brought to the Swiss Supreme

Court [4A_444/2009]. Breaching the Arbitration Agreement, the distributor commenced

court proceedings. Due to that breach, the pharmaceutical was granted monetary relief:

“RESPONDENT is liable to CLAIMANT for damages (if any) incurred as a result of this


29

breach (...)” [idem]. Although, the distributor appealed from the arbitral tribunal’s

decision, the Swiss Supreme Court dismissed the appeal, recognizing pharmaceutical’s

right for damages. Recently, the Swiss Supreme Court confirmed its approach and

rendered a similar decision dismissing the appeal and confirming another arbitral

tribunal’s verdict on the condemnation of the breaching party to pay “the costs of the

CLAIMANT in connection with the arbitration, and (...) in connection with the Greek

procedure” [4A_232/2013]. Also, the High Court of Justice of England and Wales

considered that the aggrieved party should be awarded legal costs for the breach of the

Arbitration Agreement [West Tankers]. Therefore, CLAIMANT shall be granted relief not

only for the judicial costs it have incurred in presenting its defence, but also for all costs

related to that action, including attorney’s fees (since there is a direct connection with

the proceedings).

2. Damages for breach of the Arbitration Agreement are recoverable under

the CISG

93. RESPONDENT’s argument that damages for the breach of the contract are not

recoverable under CISG since the Convention cannot be applied is without merit. The

arguments previously mentioned [supra, ¶6] prove that it is widely accepted that CISG

can be one of the laws governing the Arbitration Agreement as long as that is in

accordance with the parties’ will.

94. Furthermore, the argument that Arbitration Agreements are procedural and, conversely,

that the CISG is mainly substantive, cannot be followed. It was already argued [supra,

¶76] that the distinction between procedural and substantive law is matter of national

legal systems and should not be applied to international Conventions. Thus, damages

for the breach of the Arbitration Agreement are recoverable under CISG.

3. The aforementioned damages are both a consequence of the breach and

foreseeable under the CISG 74


30

95. RESPONDENT’s breach of the Arbitration Agreement was conditio sine qua non for both

the damages and its amount. If RESPONDENT had not started court proceedings in

breach of the Arbitration Agreement, CLAIMANT would not have the need to prepare its

successful defence and would not have incurred in legal costs [Exhibit C9, p.17 &

Exhibit C11, p.19].

96. Likewise, all CLAIMANT’s damages were foreseeable. To begin with, RESPONDENT had

had previous experiences in litigation and expressly agreed on enter into an Arbitration

Agreement because it was a less expensive dispute resolution process [Exhibit R1, ¶¶3-

4, p.31]. Therefore, the party could objectively have foreseen, at the time the

Framework Agreement (containing the arbitration clause) was concluded, the costs

CLAIMANT would incur in presenting its defence before the High Court of

Mediterraneo. Secondly, Mediterraneo law allows contingency fee arrangements and

they are actually very common [PO2, ¶40, p.58]. RESPONDENT was also familiar with

these kinds of arrangements since it had already tried to enter into one with a local

lawyer in the proceedings brought by the insolvency administrator of LiquorLoja [PO2,

¶42, p.59]. For that reason, RESPONDENT could also have foreseen not only the costs

incurred by CLAIMANT with attorney’s fees, but also the expected amount of those

costs.

4. The Arbitral Tribunal’s decision on damages does not breach res judicata

97. RESPONDENT argues that any arbitral tribunal’s decision concerning the reimbursement

of damages breaches res judicata. However, this argument is unreasonable and should

be disregarded.

98. The fact that the decision of the High Court of Mediterraneo “is a final and binding

decision as to costs recoverable for that action” [Ans. to Claim, ¶32, p.29] does not

actually conflict with CLAIMANT’s claim on the arbitral proceedings. Res judicata

principle states that a final decision on a certain matter becomes binding and cannot be


31

discussed in any future proceedings, whether arbitral or judicial. However, “the

awarding of damages is not a question of non-recognition of the foreign judgment or

reviewing another court’s performance” [Jaroslavsky, ¶44, p.14]. It is crucial to

distinguish between the High Court of Mediterraneo’s ruling on costs and the Claim

presented before the arbitral tribunal. The State Court’s judgment did not address the

issue of recovery of damages incurred as a consequence of the breach of the Arbitration

Agreement, but simply who should bear the procedural costs. Further, CLAIMANT

claims the recovery of all costs concerning the declaration of non-liability and not only

procedural costs. This argument was previously followed by an arbitral tribunal which

concluded that it did not intend to overlap state court’s power to allocate judicial costs

even though it had jurisdiction to rule that any amounts spent as a consequence of court

proceedings were damages, since those proceedings were initiated in breach of the

Arbitration Agreement [4A_232/2013]. Therefore, no problem of violation of res

judicata can be raised [idem, ¶117, p.33].

5. CLAIMANT did not have to clarify RESPONDENT’s doubts as to the

arbitration agreement, since it was neither unclear nor unworkable

99. CLAIMANT did not have any duty to clarify RESPONDENT’s doubts. The argument that

the Arbitration Agreement was unclear and unworkable is unsupported.

100. Danubian contract law Art.4.1 provides “A contract shall be interpreted according to the

common intention of the Parties”. However, RESPONDENT did not respect either the

Parties’ will or the letter of the when it decided to initiate the proceedings before the

High Court of Mediterraneo. Art. 20 of theFramework Agreement expressly foresees

that “[i]f no agreement can be reached the dispute shall be decided by arbitration in

Vindobona by the International Arbitration Tribunal (VIAC)...” [Exhibit C1, p.9]. The

dispute resolution clause leaves no room for doubts that the Parties intended to solve

their disputes through arbitration. Also, according to Ms. Kim Lee’s testimony,

RESPONDENT agreed to the arbitration clause aiming to have “a fast and informal


32

dispute resolution process” [Exhibit C12, ¶6, p.20]. Mr. Weinbauer also stated that

RESPONDENT was interested in keeping the costs low due to its bad experience in court

proceedings with a previous customer [Exhibit R1, ¶4, p.31]. Arbitration is a fast,

flexible and cost-effective dispute resolution process as assumed by both Parties [PO2,

¶53, p.60]. Although the arbitration clause is not VIAC’s model arbitration clause, there

is only one international arbitral institution seated in Vindobona which is Vienna

International Arbitration Centre (VIAC) [PO2, ¶55, p.60].

101. Danubian arbitration law Art.8, No.1 expressly provides that “[a] court (…) shall (…)

refer the Parties to arbitration unless it finds that the agreement is (…) inoperative or

incapable of being performed. Thus, had the Arbitration Agreement been “unclear and

unworkable” as alleged by RESPONDENT [Ans. to Claim, ¶ 38, p. 30], the High Court of

Mediterraneo would not have referred the Parties to arbitration [PO2, ¶ 58, p. 61].

102. If RESPONDENT’s true intention was to comply with its obligation to arbitrate, it should

have started arbitration proceedings so that arbitrators could rule on their own

jurisdiction in accordance with the internationally recognized Kompetenz-Kompetenz

principle. That way RESPONDENT would be able to clarify its doubts as to the validity of

the aforementioned agreement and would comply with the obligation arising out of its

positive effect. CLAIMANT did not have to clarify RESPONDENT’s doubts as to the

arbitration agreement.

6. CLAIMANT complied with its obligation to mitigate its losses

103. RESPONDENT argues CLAIMANT breached its obligation to mitigate damages under the

CISG since it did not clarify the content of the “pathological” arbitration clause [Ans. to

Claim, ¶36. p.29].

104. CISG Art.77 provides that “A party who relies on a breach of contract must take such

measures as are reasonable in the circumstances to mitigate the loss, (…), resulting from


33

the breach. If he fails to take such measures, the party in breach may claim a reduction

in the damages in the amount by which the loss should have been mitigated”. Also,

CISG Art. 80 provides that one party cannot argue that the other party failed to perform

its obligation if that failure is caused by the former’s act or omission. However, neither

CISG Art.77, nor CISG Art. 80 are applicable to the present situation.

105. First of all, CLAIMANT sought for an interim injunction aiming to avoid future damages

occurring from the sale of the 10.000 bottles of Mata Weltin wine. If CLAIMANT had

refrained from seek for an interim injunction, the amount of damages would be superior

than it actually is since all the ordered bottles of wine would be sold by now.

106. Secondly, CLAIMANT argued (as it should have done) that High Court of Mediterraneo

lacked jurisdiction to decide on the declaration of non-liability. CLAIMANT had to

present its defence in order to assure RESPONDENT would not be exempt of its

obligation to deliver the agreed amount of wine bottles in the court proceedings.

Commentators have discussed matter referring that “[o]nce the jurisdiction of the

foreign court has been challenged and the argument that the action was instituted in

breach of an Arbitration Agreement has been made, there could be no argument that the

injured party failed to mitigate its damages or doomed its right to adjudication before

the arbitral tribunal” [Jaroslavsky, ¶56, pp. 8-19].

107. Finally, CLAIMANT, as previously mentioned, did not have any duty to clarify the

meaning of the arbitration clause. It was rather clear that both parties intended to enter

into arbitration proceedings at the time the Framework Agreement was concluded.

Moreover, the arbitration clause was clear even though VIAC’s model clause was not

adopted: VIAC was the only institution operating in Vindobona. Thus, RESPONDENT’s

breach could not, by any means, be caused by CLAIMANT’s lack of response to the

former’s letter and CLAIMANT complied with the obligation to mitigate losses.


34

D. THE TOTAL AMOUNT OF DAMAGES (US$ 50.280) SHOULD BE

RECOVERED

108. The Tribunal should award CLAIMANT a total of US$ 50.280 incurred in two separate

legal actions: the application for interim relief, initiated by CLAIMANT and necessary by

RESPONDENT’s breach of contract, and the defence against proceedings in state court of

Mediterraneo, initiated by RESPONDENT in breach of the Parties’ Arbitration

Agreement. The total amount of damages (US$ 50.280) should be recovered given that

CLAIMANT had to seek for an interim injunction before the High Court of Mediterraneo

in order to prevent RESPONDENT from selling the amount of bottles the former had

ordered. Its fears were justified by RESPONDENT’s behaviour has which peremptorily

refused to comply with its obligation to make the delivery. Furthermore, CLAIMANT had

to present its defence in the action for declaration of non-liability before the High Court

of Mediterraneo otherwise it could have lost its right of delivery of the ordered bottles

of Mata Weltin wine. In both actions, CLAIMANT had significant expenses not only with

legal costs, but also with attorney’s fees.

109. The contingency arrangement was acceptable due to the circumstances, since

CLAIMANT was facing economic difficulties supporting the legal fees in Mediterraneo

that were much higher than those in Equatoriana. Also, these agreements are fairly

common in Mediterraneo and even RESPONDENT had previously tried to enter into such

arrangements so it could reasonably have foreseen not only the costs but its actual

amount. Therefore, CLAIMANT would not have incurred litigation costs in the interim

relief application but for the RESPONDENT’S breach.

110. Neither CISG Art.77 nor Art. 80 can be reasonably invoked to ease or even exclude

RESPONDENT’s liability. All steps concerning the mitigation of losses were diligently

taken. The total amount of costs CLAIMANT had incurred can be proved through the

analysis of the invoice attached to the Statement of Claim [Exhibit C11, p. 19].


35

REQUEST FOR RELIEF

For the above reasons, Counsel for CLAIMANT respectfully requests the Tribunal to:

1. Order RESPONDENT to provide to CLAIMANT all documents from the period

of 1 January 2014 – 14 July 2015 pertaining to:

a. Communications;

b. Any contractual documents, including documents relating to the

negotiation of the contract;

between RESPONDENT and SuperWines in regard to the purchase of diamond Mata

Weltin 2014.

2. Order RESPONDENT to pay damages, including but not limited to:

a. The profits RESPONDENT made by selling the bottles to SuperWines

b. The litigation costs of US$50,280 incurred in CLAIMANT’s

i. application for interim relief; and

ii. defence against the proceedings brought by RESPONDENT;

Respectfully signed and submitted by Counsel on behalf of Kaihari Waina Ltd. on 15

April, 2016,

(signed)

/S/ Isabel Ferreira /S/ João Antunes

/S/ Maria Beatriz Brito /S/ Rita Faial Figueiredo