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Team No. M3060-C

M3060-C

THE 6TH

LAWASIA INTERNATIONAL MOOT

IN THE KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION

KUALA LUMPUR, MALAYSIA

2011

Between

ASTORIA PRODUCE COMPANY

(CLAIMANT)

AND

ROLGA FARMER’S EXCHANGE

(RESPONDENT)

MEMORIAL FOR CLAIMANT

Team No. M3060-C

I

TABLE OF CONTENTS

TABLE OF CONTENTS ............................................................................................ I

INDEX OF AUTHORITIES .................................................................................... IV

STATEMENT OF JURISDICTION ....................................................................... XI

QUESTIONS PRESENTED ................................................................................... XII

STATEMENT OF FACTS .................................................................................... XIII

SUMMARY OF PLEADINGS ............................................................................. XVI

CLAIMANT’S PLEADINGS ..................................................................................... 1

I. THE TRIBUNAL HAS JURISDICTION OVER THE PRESENT

DISPUTE ............................................................................................................... 1

A. MALAYSIAN LAW GOVERNS THE VALIDITY OF THE ARBITRATION

AGREEMENT /FORUM SELECTION CLAUSE ................................................ 1

(i) Malaysia, seat of arbitration, is the applicable national law ................ 2

(ii) Malaysia, Rolga and Astoria adopt similar contract law principles ..... 3

B. CLAIMANT NEVER ACCEPTED RESPONDENT’S OFFER FOR WRCA TO ACT AS

THE ARBITRATION FORUM ......................................................................... 3

C. RESPONDENT ACCEPTED CLAIMANT’S COUNTER-OFFER FOR KLRCA TO

ACT AS THE ARBITRATION FORUM ............................................................. 4

(i) Purported acceptance of the offer with a revision of the terms

amounts to a counter-offer ....................................................................... 4

(ii) A reasonable person in the shipping industry would have viewed

Respondent’s shipment as acceptance .................................................... 5

(iii) Shipment was clearly referable to the counter-offer, including the

revised arbitration clause ......................................................................... 5

II. THE ARBITRATION PANEL WAS PROPERLY CONSTITUTED AS

RESPONDENT HAD WAIVED BOTH ITS RIGHT TO APPOINT A CO-

ARBITRATOR AND ITS RIGHT TO CHALLENGE THE PRESIDING

ARBITRATOR’S APPOINTMENT. .................................................................. 6

A. RESPONDENT WAIVED ITS RIGHT TO APPOINT ITS CO-ARBITRATOR ........ 6

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II

B. RESPONDENT WAIVED ITS RIGHT TO CHALLENGE THE APPOINTMENT OF

BOTH THE DIRECTOR APPOINTED CO-ARBITRATOR AND PRESIDING

ARBITRATOR............................................................................................... 7

(i) Appointment of arbitrators is a non-mandatory provision of the

Arbitration Act .......................................................................................... 8

(ii) Respondent had prior knowledge of the improper appointment ......... 8

(iii) Respondent’s failure to raise its objection timely resulted in undue

delay ........................................................................................................... 9

(iv) Respondent proceeded with the arbitration ........................................... 9

C. IN ANY EVENT, THERE ARE NO PERMITTED GROUNDS FOR RESPONDENT TO

CHALLENGE THE DIRECTOR APPOINTED CO-ARBITRATOR AND

PRESIDING ARBITRATOR ‘S MANDATE ..................................................... 10

(i) There are no permitted grounds for substituting co-arbitrator .............

10

(ii) There are no permitted ground for challenging the Presiding

Arbitrator ................................................................................................ 10

III. KLRCA HAS THE AUTHORITY TO IMPOSE A FINE ON

RESPONDENT FOR PROCEDURAL MISCONDUCT ............................... 11

A. KLRCA HAS BROAD POWERS TO TAKE PUNITIVE MEASURES TO ENSURE

EXPEDITIOUS HEARING ............................................................................ 11

B. KLRCA HAS THE INHERENT AUTHORITY TO PENALISE BAD FAITH

CONDUCT THAT DISRUPTS ARBITRAL PROCEEDINGS .............................. 12

C. FURTHERMORE, MONETARY SANCTIONS IN THE FORM OF FINES CAN

HAVE A STRONGER DETERRENCE EFFECT IN ENSURING EXPEDITIOUS

PROCEEDINGS ........................................................................................... 13

IV. THE APPLICABLE LAW GOVERNING THE SUBSTANTIVE

DISPUTE IS CISG ............................................................................................. 14

A. ASTORIA IS THE STATE MOST CLOSELY CONNECTED TO THE

SUBSTANTIVE DISPUTE .............................................................................. 15

B. THROUGH THE APPLICATION OF SECTION 6 OF THE RESTATEMENT, THE

APPLICABLE LAW TO THE SUBSTANTIAL DISPUTE IS CISG ..................... 17

V. THE BANANAS ARRIVED IN AN UNSATISFACTORY CONDITION

DUE TO RESPONDENT’S BREACH OF ITS CONTRACTUAL

OBLIGATIONS .................................................................................................. 20

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III

A. RESPONDENT BREACHED ITS OBLIGATIONS IN THE CONTRACT .............. 20

(i) Claimant and Respondent’s agreement for the bananas to arrive in an

unripe state formed a condition in the contract ................................... 20

(ii) The purpose of the goods was expressly made known to Respondent

and the goods were not fit for ordinary or particular purpose as

required by CISG Article 35(2)(a). ....................................................... 21

(iii) Respondent failed to arrange for adequate stowage of the bananas to

protection and preservation ................................................................... 23

(iv) Claimant was not aware of lack of conformity ..................................... 24

B. FURTHERMORE, RESPONDENT’S NON-CONFORMITY CONSTITUTED A

FUNDAMENTAL BREACH UNDER CISG ARTICLE 25. .............................. 25

(i) Claimant suffered a detriment which substantially deprived of what

he was expected to get under the sales contract. .................................. 26

(ii) The non-conformity could not be cured ................................................. 26

(iii) Respondent could foresee, and a reasonable person would have

foreseen the consequences of a breach .................................................. 27

VI. CLAIMANT IS NOT REQUIRED TO PRESERVE AND ATTEMPT

TO SELL THE BANANAS ............................................................................... 27

A. CLAIMANT IS NOT UNDER A DUTY TO PRESERVE BANANAS UNDER CISG

ARTICLE 86(2) DUE TO IMPENDING LOSS OF VALUE ............................... 27

B. CLAIMANT WAS NOT UNDER LEGAL OBLIGATION TO SELL BANANAS

UNDER CISG ARTICLE 88(2) DUE TO ECONOMIC UNFEASIBILITY AND

PRACTICAL INCONVENIENCE ................................................................... 28

CONCLUSION AND PRAYER FOR RELIEF .............................................. 30

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IV

INDEX OF AUTHORITIES

Statutes and Treaties

ICC INCOTERMS 2000 ...................................................................................... 23

KLRCA Rules for Arbitration ................................................................................ 4

Malaysian Arbitration Act 2005 ............................................................................. 2

Malaysian Contract Act 1950 (revised 2006) ......................................................... 2

Malaysian Courts of Judicature Act 1964 (revised 2006) .................................... 13

MalaysianSubordinate Courts Act 1948 (revised 2006) ....................................... 13

UNCITRAL Commentary .................................................................................... 14

UNCITRAL Model Rules of Arbitration ............................................................... 4

US Restatement (Second) of Conflicts of Law1969 ............................................. 18

Arbitral Awards

Case Laws on UNCITRAL Texts Case No. 219, Tribunal Cantonal Valais No. Cl

97 167, Switzerland, 28 October 1997 ................................................................. 25

Court of Arbitration of the International Chamber of Commerce Case No. 7645,

1995 ...................................................................................................................... 27

Houston Contracting Co. v National Iranian Oil Co. 20 Iran-US CTR 3 128(1988)

(Award No.378-173-3) ........................................................................................... 7

Marocaine des Loisirs v France Quick SAS (2008) Case No. 07-14539 ............... 7

Sedco Inc. v National Iranian Oil Co. 8 Iran-US CTR 28, 38-39(1985); Ministry

of National Defence v U.S. 12 Iran-US CTR 33, 36 (1986) (Award No.247-

B59/B69-1) ............................................................................................................. 7

Malaysian Cases

Cheng Keng Hong v Government of the Federation of Malaysa [1966] 2 MLJ 33 .

................................................................................................................................ 1

Minoutsi Shipping Corp v Trans Continental Shipping Services Pte Ltd (1972) 2

MLJ 5 .................................................................................................................... 15

Who Hup (Pte) Ltd v Property Development (1991) 3 MLJ 82 ........................... 15

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V

UK Cases

Brogden v Metropolitan Railway Co (1877) LR 2 AC 666 ................................... 6

Comptoir d’Achat et de Vente du Boerendbond Belge S/A Appellants v Luis de

Ridder Limitada Respondents (The Julia) [1949] AC 293 (H.L.) ........................ 24

CPC Consolidated Pool Carriers GmbH v CTM Cia Transmediterreanea SA, The

CPC Gallia [1994] 1 Lloyd‟s 68 ............................................................................ 8

Fung Sang Trading Ltd v Kai Sun Sea Products and Food Co Ltd [1992] ADRLJ

224 .......................................................................................................................... 8

Hyde v Wrench (1840) 3Beav.334 .......................................................................... 5

Interfoto Picture Library v Stiletto Visual Productions Ltd [1989] QB 433 .......... 5

Kennedy v Lee (1817) 3 Mer.441 ........................................................................... 4

The Assunzione (1954) 2 WLR. 234 ..................................................................... 15

Unimarine SA v Canadian Transport Co Ltd, The Catherine L [1982] 1 Lloyd‟s

484 ........................................................................................................................ 14

University of Edinburgh v Daniel Onifade (2005) SLTx (Sh Ct) 63 ..................... 5

U.S. Cases

Ancon Ins. Co. (U.K.) Ltd v GE Reins. Corp. 480 F.Supp.2d 1278 ....................... 6

Certain Underwriters at Lloyd’s London v Argonaut Ins. Co. 500 F.3d 571(7th

Cir. 2007) ................................................................................................................ 6

Certain Underwriters at Lloyd’s London v Argonaut Ins., 264 F.Supp.2d

926,944(N.D. Cal. 2003) ...................................................................................... 14

InterChem Asia 2000 PTE Ltd v Oceana Petrochem. AG, 373 F.Supp.2d 340

(S.D.N.Y. 2005) .................................................................................................... 11

Reliastar Life Insurance Co. Of New York v EMC National Life Co. 546 F.3d 81.

(2d. Cir. 2009) ...................................................................................................... 12

Universal Reins. Corp. v Allstate Ins. Co. 16 F.3d 125(7th

Cir. 1993) ................... 6

International Cases

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Lotus case (France v Turkey) (1927) PCIJ Rep Ser. A No. 10 ............................ 11

Prosecutor v Blaskic, the Appeal Chamber of the International Court for the

Former Yugoslavia, Judgement of 29 October 1997 ............................................ 13

German Cases

Bayerisches Oberstes Landesgericht 4 Z SchH 9/01(January 16 2002) ................. 6

Bundesgerichtshof (Supreme Court of Germany) – 3/4/1999 .............................. 26

Case No. 4C.474/2004, Bundesgericht (Supreme Court), Germany, 5 April 2005

.............................................................................................................................. 20

Landgericht Köln, Germany, 16 November 1995 ................................................ 26

Oberlandesgericht [German Appellate Court of Frankfurt], 17 September 1991,

CISG- online (5 U164/90) .................................................................................... 26

Australian Cases

Safond Shipping Sdn.Bhd v East Asia Sawmill Corp., High Court of Hong Kong,

6 October 1993, CLOUT(unpublished) .................................................................. 6

Austrian Cases

Russian Federation v. Austria Oberster Gerichtshof (1997) Case No. 2 Ob 58/97

.............................................................................................................................. 21

Scholarly Work and Articles

Amerasinghe, C.F. Jurisdiction of Specific International Tribunals (Martinus

Nijhoff Publishers 2009) ........................................................................................ 1

Aron Broches Commentary on the UNCITRAL Model Law on International

Commercial Arbitration (Kluwer Law and Taxation Publishers 1990) ............... 10

Beale, H.G.(ed) Chitty on Contracts Vol. I General Principles (13th

edn,

Thomson Reuters 2008) .................................................................................. 4, 5, 6

Bianca, Cesare Massimo and Bonell, Michael Jochim (editors) Commentary on

the International Sales Law: The 1980 Vienna Sales Convention (Giuffrè Editore

S.p.A 1987) ..................................................................................................... 22, 23

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Binder, Peter International Commercial Arbitration and Conciliation in

UNCITRAL Model Law Jurisdictions (Thomson Reuters 2010) .................. 8, 9, 10

Broches , Aron Commentary on the UNCITRAL Model Law on International

Commercial Arbitration (Kluwer Law and Taxation Publishers 1990) ................. 8

Brown, Chester “The Inherent Powers of International Courts and Tribunals”

(2005) 76 BYIL 195 ............................................................................................. 13

Brown, Chester A Common Law of International Adjudication New York

(Oxford University Press 2007) ............................................................................ 14

Caron, David, Caplan, Lee and Pellonpaa, Matti Oxford Commentaries on

International Law: The UNCITRAL Arbitration Rules (Oxford University Press

2006) ............................................................................................................... 10, 14

Cecil, Abraham Arbitration In Asia (Michael Moser eds, LexisNexis 2001) ........ 1

Cesare Massimo; Bonell, Michael Jochim (eds) Commentary on the International

Sales Law: The 1980 Vienna Sales Convention (Giuffrè Editore S.p.A 1987) ... 18,

22, 23

Clayton P. Gillette and Robert E. Scott, “The Political Economy of International

Sales Law” (2005) 25 Int‟l Rev. of L.&Econ. 446 ............................................... 18

Collins, Lawrence (ed) Dicey, Morris and Collins on The Conflict of Laws, Vol. 1

(14th

edn, Sweet & Maxwell Thomson 2006)....................................... 3, 15, 16, 17

Davis and Baker The UNCITRAL Arbitration Rules in Practice: The Experience

of the Iran-United States Claims Tribunal (Kluwer Law and Taxation Publishers

1992) ..................................................................................................................... 14

Eady, David and Smith, A.T.H. (eds) Arlidge, Eady and Smith on Contempt (2nd

edn, Sweet & Maxwell 1999) ............................................................................... 13

Furmston, Michael (ed) The Law of Contract (4th

edn) Great Britain, Lexis Nexis

2010 ........................................................................................................................ 5

Gabrielle Kaufmann-Kohler “Identifying and Applying the Law Governing

Arbitration – The Role of the Law of the Place of Arbitration” in Albert Jan van

den Berg (ed), Improving the Efficiency of Arbitration and Awards: 40 Years of

Application of the New York Convention (ICCA Congress Ser. no. 9, Kluwer Law

International, 1999) ................................................................................................ 3

Gaeta, P. “Inherent Powers of International Courts and Tribunals” in L.C. Vohrah

et al (eds), Man’s Inhumanity to Man: Essays on International Law in Honour of

Antonio Cassese (Kluwer Law International 2003) 363 ................................ 13, 14

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Gaillard, Emmanuel and Savage, John (ed) Fouchard Gaillard and Goldman on

International Commercial Arbitration (Kluwer Law International 1999) ...... 3, 15

Gotanda, John “Using UNIDROIT Principles to fill gaps in CISG” Villanova

University School of Law Working Paper Series Paper 88 2007 ......................... 19

Graffi, Leonardo Case Law on the Concept of “Fundamental Breach” in the

Vienna Sales Convention (2003) 3 Int‟l Bus. LJ 339 ........................................... 26

Higgins, Rosalyn “Aspects of the Case Concerning the Barcelona Traction Light

and Power Co Ltd” (1971) 11 Virg JIL 327 ......................................................... 13

Honnold, John Uniform law for international sales under the 1980 United

Nations Convention (Kluwer Law and Business 2009) ........................................ 21

Hotlzmann and Neuhaus A Guide to the UNCITRAL Model Law on International

Commercial Arbitration (Kluwer Law and Taxation Publishers 1989) ....... 2, 8, 10

Hotlzmann, Howard “What an Arbitrator Can Do To Overcome Delays in

International Arbitration” in American Bar Association(eds), Justice for a

Generation (West Publishing 1985) ..................................................................... 14

Ingeborg and Fountoulakis, Christiana (eds) International Sales Law (Routledge-

Cavendish 2008) ................................................................................................... 25

Jacob, I.H. “The Inherent Jurisdiction of the Court” (1970) 23 CLP 23 .............. 13

K. Scott, “Contract – Offer and Acceptance – Place of Acceptance” (1955) 13

CLJ 148 ................................................................................................................. 16

Knieper, Rolf “Celebrating Success by Accession to CISG” (2005/6) 25 JLCOM.

477 ........................................................................................................................ 18

Lookfsky, Joseph and Bernstein, Herbert Understanding the CISG in the USA: A

Compact Guide to the 1980 United Nations Convention on Contracts for

International Sale of Goods (3rd

edn, Kluwer Law International 2008) .............. 19

Lorenz, Alexander, Fundamental Breach under the CISG Pace essay submission

(June 1998) ........................................................................................................... 26

Lowe, Nigel and Sufrin Brenda (eds) Borrie and Lowe The Law of Contempt

(Buttersworth 1996) .................................................................................. 11, 12, 18

Merrill, Houston , Williams, Charles, Michie, Thomas and Garland,David The

American and English Encyclopedia of Law: Carriers of Stock to Contracts vol 3

(Houston Merrill edn, Edward Thompson 1888) ................................................. 17

Michael Joachim Bonell, “The Unidroit Initiative for the Progressive

Codification of International Trade Law” (1978) 27 ICLQ 413 .......................... 18

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Morrissey J. and Graves J. International Sales Law and Arbitration: Problems,

Cases and Commentary (Kluwer Law International 2008) .................................... 2

Neil,Philip D. “The Power of Arbitrators to Award Monetary Sanctions for

Discovery Abuse” (Nov. 2005/ Jan. 2006) 60 Disp. Res .J. 60 ............................ 11

Rajoo,Sundra and Davidson, W.S.W. The Arbitration Act 2005: UNCITRAL

Model Law as applied in Malaysia (Malaysia, Sweet & Maxwell 2007)2, 8, 9, 10,

11, 15

Redfern, Alan and Hunter, Martin Law and Practice of International Commercial

Arbitration (Sweet & Maxwell 2009) ................................................................... 1

Rene David Arbitration in International Trade (Kluwer Law International 1985)3

Sannudurai,Visu Contract Law in Malaysia and Singapore (Oxford University

Press 1979) ............................................................................................................. 2

Schreuer Christopher The ICSID Convention: A Commentary (Cambridge

University Press 2001) .................................................................................... 13, 14

Schwenzer, Ingborg Schlechtriem & Schwenzer Commentary on the UN

Convention on the International Sale of Goods (CISG) (3rd ed, Oxford

University Press 2010) .............................................................................. 21, 25, 28

Singer, Joseph“Pay No Attention to That Man Behind the Curtain: The Place of

Better Law in a Third Restatement of Conflicts” (2000) 75 Ind. LJ 659 ............. 19

Vanduzer, Anthony „The Adolescence of United Nations Convention on

Contracts for the International Sale of Goods in Canada‟ ( Canada Bar

Association‟s International Law Section Annual Conference, Ottawa, May 2001)

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

Webster, Thomas H. Handbook of UNCITRAL Arbitration (Thomson Reuters

2010) ....................................................................................................................... 7

Wilner, Gabriel “Determining the Law Governing Performance in International

Commercial Arbitration: A Comparative Study” (1965) 19 Rutgers L. Rev. 646

.............................................................................................................................. 14

International Organizations Documents

CISG A-C Opinion, No. 5 .................................................................................... 27

Crops, Market information in the commodites area, United Nations Conference

on Trade and Development, retrieved at

http://www.unctad.org/infocomm/anglais/banana/crop.htm ................................ 24

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Mario Giuliano and and Paul Lagarde, Report on the Convention on the law

applicable to contractual obligations (Official Journal C 282, 31 October 1980)

.............................................................................................................................. 16

National Horticulture Board, Ministry of Agriculture, Gov‟t of India “Banana”

<http://nhb.gov.in/bulletin_files/fruits/banana/ban009.pdf> assessed June 30

2011 ...................................................................................................................... 24

Orchard, B.K. Dadzie et J.E. Routine Post-Harvest Screening of Banana/Plantain

Hybrids: Criteria and Methods INIBAP Technical Guidelines 2, Rome, Italy,

International Plant Genetic Resources Institute, 1997,

http://bananas.bioversityinternational.org/files/files/pdf/publications/tg2_en.pdf

.............................................................................................................................. 22

Secretariat of CISG, Guide to CISG: Commentary on the Draft Convention on

Contracts for the International Sale of Goods Text to Secretariat Commentary ......

........................................................................................................................ 21, 22

UNCITRAL Digest for Article 35, retrieved at

http://www.uncitral.org/uncitral/en/case_law/digests/cisg2008.html .................. 21

United Nations Commission on International Trade Law Analytical Compilation

of Comments by Governments and International Organizations on the Draft Text

of a Model Law on International Commercial Arbitration (UN Doc A/CN.9/263)

................................................................................................................................ 2

United Nations Commission on International Trade Law Status of Conventions

and Model laws 2011 (UN Doc A/CN.9/723) ........................................................ 2

United Nations Commission on International Trade Law, Analytical Commentary

on Draft Text of a Model Law on International Commercial Arbitration (UN Doc

A/CN.9/264) ........................................................................................................... 8

United Nations Commission on International Trade Law, Report on the Working

Group on International Contract Practices on the Work of its Third Session (UN

Doc A/CN.9/216) .................................................................................................... 2

United Nations Commission on International Trade Law, Summary Record of the

10th

Meeting of the Committee of the Whole(II) (UN Doc A/CN.9/9/C.2/SR.10)

.............................................................................................................................. 11

Uses, Bananas, Market information in the commodites area, United Nations

Conference on Trade and Development, retrieved at -

http://www.unctad.org/infocomm/anglais/banana/uses.htm ................................ 22

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XI

STATEMENT OF JURISDICTION

Astoria Produce (“Claimant”) and Rolga Farmer‟s Exchange (“Respondent”) jointly

submit the present dispute to the Kuala Lumpur Regional Centre for Arbitration

(“KLRCA”), Malaysia, pursuant to Rule 1 of the KLRCA Arbitration Rules for

Arbitration 2010.

The dispute includes a challenge on the Tribunal‟s jurisdiction. Pursuant to United

Nations Commission on International Trade Law Arbitration Rules 2010 Article 23

which has been incorporated into the KLRCA Rules for Arbitration (2010), the

Tribunal may elect to rule on its jurisdiction as a preliminary question or in an award

on its merits. Only if the Tribunal establishes its jurisdiction would it have jurisdiction

over Issues II to VI.

Both parties shall accept the judgment of the Tribunal as final and binding and

execute it in good faith in its entirety.

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XII

QUESTIONS PRESENTED

I. Whether the KLRCA has the authority to resolve the dispute between the

parties? Specifically, was there an agreement between the parties to submit this

dispute to it?

II. Whether the three arbitrators were properly appointed? Specifically (i) was

Respondent improperly denied the opportunity to select its “party appointed arbitrator”

and (ii) was the Presiding Arbitrator/Chairman improperly appointed?

III. Whether the arbitration panel has the authority to impose sanctions in the form

of a fine on Respondent for failing to appear at the initial hearing and/or for not

providing adequate notice that it would not appear?

IV. What law or legal principles would apply to the substantive dispute?

V. Whether the shipment of bananas arrived at its destination in an unsatisfactory

condition due to improper storage during the voyage from Rolga to Astoria. If so,

whether this constitutes a breach of the seller‟s obligation under the contract between

the parties?

VI. Whether either party had a legal obligation to (i) to take reasonable measures

to protect the bananas from further spoilage after the M/S Pinafore docked at the Port

of Astoria and/or (ii) to attempt to sell the bananas as many as possible and as soon as

practicable after the M/S Pinafore had docked?

Team No. M3060-C

XIII

STATEMENT OF FACTS

RFE AND ROLGA

Respondent, Rolga Farmer‟s Exchange which is situated in Rolga, is an agricultural

co-operative under Rolgan law which mainly exports bananas overseas. It entered into

a business deal with Astoria Produce, involving the sale of bananas. Respondent

claims to be experienced in ocean shipping. It is physically closer to Rolga City,

where the bananas bound for Astoria were loaded. It was Respondent‟s decision to

use M/S Pinafore as the carrier.

Rolga is a large tropical island in the Western Pacific. It practises civil law, applies

UNIDROIT Principles and enacted a law which is identical to Articles 3 and 4 of the

European Community Regulation No. 593/2008 (“ECR”) regarding the conflict of

laws system.

AP AND ASTORIA

Claimant, Astoria Produce Company, which is situated in Astoria, is a major

distributor of produce to retail grocery stores across the country. Claimant hired

Bartolo, PhD, as its Director of Food Safety who promptly inspected the condition of

the bananas upon arrival. It also retained Sparrow, an independent Maritime Surveyor

whose report on the spoilage of the bananas was considered impartial and accurate by

both parties. This was the first time Claimant has ever contracted with Respondent

and Claimant relies heavily on Respondent‟s expertise in the delivery of bananas.

Astoria is 6000 nautical miles away from Rolga. Its legal system recognises the

common law. Astoria adopts the American Law Institute Uniform Commercial Code

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XIV

(“UCC”), and the U.S. Restatement (Second) of Conflict of Laws Section 6. It is a

signatory of the United Nations Convention of the International Sale of Goods

(“CISG”).

ARBITRATION CLAUSE

Respondent proposed an arbitration clause in its confirming Bill of Sale, which

designated the Western Pacific Regional Centre for Arbitration as the choice of forum.

Claimant responded by amending the forum to KLRCA and aligning the terms of the

clause with the UNCITRAL Model Clause. Such an amendment was returned to

Respondent along with the substantive agreement of the Bill of Sale left unaltered to

Respondent. Respondent responded by proceeding with the shipment.

APPOINTMENT OF ARBITRATION PANEL

On 1 June 2011, Claimant filed a request for arbitration with KLRCA. KLRCA

notified Respondent on the 15 June, 2011 whilst providing it with a copy of the

KLRCA Rules.

Claimant appointed its co-arbitrator promptly. However, Respondent failed to make

its appointment 45 days after being told to do so by KLRCA. Subsequently, KLRCA

proceeded to appoint a co-arbitrator for Respondent and the Presiding Arbitrator as

well. Only on 10 October 2011, did Respondent request to appoint its own arbitrator

which KLRCA considered to be too late.

TERMS OF THE BILL OF SALE

The substantive agreement includes the confirming Bill of Sale and the parties‟ email

correspondences dated 1 & 2 August 2011. In the correspondence dated 1 August

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XV

2010, Claimant specified the storage conditions necessary in storing the bananas, so

that they would arrive „unripened‟ upon arrival.

SELLER’S CONTRACTUAL BREACH

On arrival in Astoria, a professional surveyor had ascertained that 30% of the bananas

had ripened or were ripening. The excessive ripening was due to high temperatures

and poor storage. The cartons of bananas were tightly stowed with no separators in

between to facilitate proper ventilation, with an average of 8 tiers high and had no

space between the cartons.

BUYER’S DUTY TO MITIGATE

The bananas were rapidly deteriorating to such a degree that within 2 days of arrival

at the Port of Astoria, 46% of bananas became ripe or were ripening, while the

remaining 54% became overripe. Claimant took the view that the bananas could not

be salvaged and therefore arranged the disposal of the consignment.

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XVI

SUMMARY OF PLEADINGS

I. THE AGREEMENT TO ARBITRATE AT THE KLRCA IS VALID, CONFERRING

JURISDICTION POWERS ON THE TRIBUNAL:

First, the laws of Malaysia, governs the validity of the agreement as it is the place of

the seat of arbitration. Second, the agreement is valid as Respondent had accepted

Claimant‟s revised forum clause, designating KLRCA as the forum, by way of

conduct. Third, the nature of the substantive dispute falls within the scope of the

arbitration agreement.

II. THE RESPONDENT‟S CO-ARBITRATOR AND THE PRESIDING ARBITRATOR WERE

IMPROPERLY APPOINTED:

Respondent voluntarily waived its right to appoint its own arbitrator as its late

appointment was mala fide, Moreover, it would be manifestly erroneous to substitute

the appointed co-arbitrator, Benti, on the grounds of partiality or incompetence.

Respondent had waived its right to challenge the constitution of the Tribunal as (i)

appointment of arbitrators is a non-mandatory provision of the Model law; (ii)

Respondent had prior knowledge of the non-compliance; (iii) there was undue delay

in raising the challenge; and (iv) Respondent had decided to proceed with the

arbitration nonetheless.

III. KLRCA HAS THE AUTHORITY TO IMPOSE TO A FINE ON RESPONDENT:

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First, the Malaysian Arbitration Act 2005 and the Rules of KLRCA, afford the

Tribunal with broad powers to take measures to ensure expeditious proceedings.

Second, such broad powers include the punitive power to punish procedural

misconduct that attempts to impede the effective administration of justice. Third, the

Tribunal‟s existing measures are insufficient to compel compliance, thus, the need for

a punitive measure that has a deterrence effect.

IV. CISG SHOULD GOVERN THE SUBSTANTIVE DISPUTE:

Astoria is the most closely connected country to the dispute. Accordingly, its

conflicts-of-law system (Section 6 of the U.S. Restatement (Second) of Conflict of

Laws should be applied to determine the applicable law. Section 6(2) provides that

the contract is to be governed by the law of the country that has the most significant

relationship with the contract. Astoria has the most significant relationship with the

contract. Therefore, CISG, which has been adopted by Astoria, is the applicable

law. Although Rolga is not a party to CISG, is applicable unless expressly excluded.

V. THE BANANAS ARRIVED IN AN UNSATISFACTORY CONDITION DUE TO

RESPONDENT‟S BREACH OF ITS CONTRACTUAL OBLIGATIONS:

Despite an agreement to ensure the bananas arrive in an unripe (still green) state, 30%

of the bananas arrived ripe or ripening. Respondent breached its obligations by failing

to arrange and ensure proper stowage.

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XVIII

VI. CLAIMANT COULD NOT HAVE REASONABLY PRESERVED OR RESOLD THE

BANANAS:

First, it was economically and practically unfeasible to make attempts at salvaging the

non-ripe bananas given the size of the consignment and quantity of bananas in a ripen

state. Second, the short notice and onset of rapid deterioration made it virtually

impossible to find for the deteriorating bananas. Third, it could also be reasonably

inferred that such overripe bananas were beyond human consumption, and hence

unmarketable.

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1

CLAIMANT’S PLEADINGS

I. THE TRIBUNAL HAS JURISDICTION OVER THE PRESENT

DISPUTE

1. An arbitral tribunal‟s jurisdiction stems from the parties‟ arbitration

agreement.1 The Kuala Lumpur Regional Centre for Arbitration (“KLRCA”) has

authority to hear the present dispute as both parties have conferred it with

jurisdictional powers via a valid arbitration agreement. As a preliminary matter, the

Tribunal is competent in determining its own jurisdiction, owing to the well-

established competence-competence doctrine.2

A. MALAYSIAN LAW GOVERNS THE VALIDITY OF THE ARBITRATION AGREEMENT /

CLAUSE

2. Before the validity of the arbitration agreement can be determined, the

applicable law must first be ascertained. The agreement is governed by two bodies of

law. First, the KLRCA Arbitration Rules 2010 (“KLRCA Rules”) which incorporates

the United Nations Commission on International Trade Law Arbitration Rules 2010

(“UNCITRAL Rules”). Second, the domestic law where the arbitration hearing takes

place. Given that KLRCA is situated in Malaysia, its Arbitration Act 2005

1 Cecil, Abraham Arbitration In Asia (Michael Moser eds, LexisNexis 2001) [X]4; Cheng Keng Hong v

Government of the Federation of Malaysa [1966] 2 MLJ 33 (per Raja Azlan Shah J) 2 Redfern, Alan and Hunter, Martin Law and Practice of International Commercial Arbitration (Sweet

& Maxwell 2009) 5-39; Amerasinghe, C.F. Jurisdiction of Specific International Tribunals (Martinus

Nijhoff Publishers 2009) 442

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2

(“Arbitration Act”) and the Malaysian Contract Act 1950 (“Contract Act”) will

govern the arbitration agreement.3

3. Pursuant to Arbitration Act Section 3(3)(a), all international arbitrations are

subject to this statute.4 Article 9 when defining an arbitration agreement is silent on

matters of formal validity which according to the travaux prepertories, is to be

determined by (i) the applicable national law; and/or (ii) generally applicable contract

law principles.5

(i) Malaysia, seat of arbitration, is the applicable national law

4. If both parties fail to designate the law governing the arbitration agreement,

the law of the country where the award will be made would prevail.6 This is provided

for in Arbitration Act Section 39(1)(a)(ii) concerning the recognition or enforcement

of award when the validity of arbitration agreement is disputed. Such a provision is

equivalent to the New York Convention on Recognition and Enforcement of Foreign

Arbitral Awards 1958 (“the New York Convention”) which both parties and Malaysia,

being the seat of the arbitration are signatories of.7 The New York Convention has

received universal acceptance and reflects the general practice of international

3 Sannudurai,Visu Contract Law in Malaysia and Singapore (Oxford University Press 1979) 13;

Malaysian Contract Act 1950 (revised 2006); Malaysian Arbitration Act 2005 4Rajoo,Sundra and Davidson, W.S.W. The Arbitration Act 2005: UNCITRAL Model Law as applied in

Malaysia (Sweet & Maxwell 2007) 20,41 [ “Rajoo and Davidson”] 5 Hotlzmann, H. and Neuhaus, J. A Guide to the UNCITRAL Model Law on International Commercial

Arbitration (Kluwer Law and Taxation Publishers 1989) 260 [“Holtzmann and Neuhaus”]; United

Nations Commission on International Trade Law, Report on the Working Group on International

Contract Practices on the Work of its Third Session (UN Doc A/CN.9/216) 25; United Nations

Commission on International Trade Law Analytical Compilation of Comments by Governments and

International Organizations on the Draft Text of a Model Law on International Commercial

Arbitration (UN Doc A/CN.9/263) 19-20 6 Morrissey J. and Graves J. International Sales Law and Arbitration: Problems, Cases and

Commentary (Kluwer Law International 2008) 408, Appendix C [“Morrissey and Graves”] 7 United Nations Commission on International Trade Law Status of Conventions and Model laws 2011

(UN Doc A/CN.9/723)

http://daccess-ods.un.org/access.nsf/Get?OpenAgent&DS=a/cn.9/263&Lang=E



Team No. M3060-C

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commercial arbitrations.8 Since the award is to be made in KLRCA, Malaysian laws

would govern the validity of the arbitration agreement.9

(ii) Malaysia, Rolga and Astoria adopt similar contract law principles

5. Moreover, none of the parties are prejudiced by the application of Malaysian

law in ascertaining the validity of the arbitration agreement. Malaysian contract law,

UNIDROIT (as adopted by Rolga) and Convention on Contracts for the International

Sale of Goods (“CISG”) (as adopted by Astoria), have fundamentally similar

principles governing the formation of contracts.10

The application of Malaysian legal

principles is made even more favourable by its neutrality as a third party state.11

B. CLAIMANT NEVER ACCEPTED RESPONDENT’S OFFER FOR WRCA TO ACT AS

THE ARBITRATION FORUM

6. Respondent may contend that Claimant‟s email dated 1 August 2010, accepted

WRCA as the forum since it raised no objections. 12

Claimant challenges such an

assertion. In examining the correspondence between contracting parties, the test is to

8 Collins, Lawrence (ed) Dicey, Morris and Collins on The Conflict of Laws, vol. 1 (14

th edn, Sweet &

Maxwell 2006) 16-014 [“Dicey, Morris and Collins”]; Kaufmann-Kohler, Gabrielle “Identifying and

Applying the Law Governing Arbitration – The Role of the Law of the Place of Arbitration” in Jan van

den Berg, Albert (ed) Improving the Efficiency of Arbitration and Awards: 40 Years of Application of

the New York Convention (Kluwer Law International, 1999) para.336-365. 9 Moot problem, p.4-6

10 Morrisseyand Graves (n 6) 409; UNIDROIT Principles Art. 2.1.1-2.1.22; CISG Art. 18-22

11 Rene, David Arbitration in International Trade (Kluwer Law International 1985) 388; Gaillard,

Emmanuel and Savage, John (ed) Fouchard Gaillard and Goldman on International Commercial

Arbitration (Kluwer Law International 1999) 793 [“Fouchard, Gaillard and Goldman”] 12

Moot problem, p.2

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consider the correspondence in totality, and whether on its true construction, both

parties were merely negotiating or had already consented to the same terms. 13

7. Claimant‟s silence over the arbitration clause did not amount to acceptance as

it was simply a decision to address his concerns over the Bill of Sale in turn,

beginning with the shipping conditions of the bananas before turning to the arbitration

clause.

8. This can be seen from the substantial amendments that Claimant made to

Respondent‟s proposed arbitration clause, such as aligning the clause with standard

UNCITRAL Model Law Arbitration Clause,14

changing the forum and altering the

applicable arbitration rules to that of KLRCA. Claimant made these revisions shortly

after its first email response.15

Such hasty disapproval prevents Respondent from

inferring that Claimant‟s apparent silence in the two email correspondences regarding

WRCA as the forum amounted to acceptance. Therefore, judging from the totality of

the correspondence, Claimant‟s initial silence over WRCA as the forum was merely

part of the “continuing negotiations” with no contract being concluded.

C. RESPONDENT ACCEPTED CLAIMANT’S COUNTER-OFFER FOR KLRCA TO ACT

AS THE ARBITRATION FORUM

(i) Purported acceptance of the offer with a revision of the terms amounts to

a counter-offer

13

Kennedy v Lee (1817) 3 Mer. 441; Beale, H.G. (ed) Chitty on Contracts Vol. I General Principles

(13th

edn, Thomson Reuters 2008) para.2-029 [“Chitty on Contracts”] 14

UNCITRAL Model Rules of Arbitration Annex; KLRCA Rules for Arbitration Appendix C 15

Moot problem, p.2

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9. A counter-offer occurs when an offeree purports to accept an offer but makes

amendments to its terms at the same time, terminating the initial offer and creating a

new offer.16

Claimant‟s signature accompanied by the word “Accepted” on the Bill of

Sale did not amount to acceptance as it revised the arbitration clause. 17

Such revision

terminated Respondent‟s offer entirely and amounts to a counter-offer subject to

acceptance by Claimant.

(ii) A reasonable person in the shipping industry would have viewed

Respondent’s shipment as acceptance

10. Acceptance by conduct is measured by whether a reasonable person having

regard to the circumstances would consider the alleged conduct as acceptance of the

offer.18

In the transnational delivery business where transactions may be voluminous,

companies do not have to express their consent with a written or verbal approval of

the terms of the offer but simply proceed with delivery.19

Given both parties are

established companies in their respective trade, considering shipment as acceptance is

consistent with industry practice.20

(iii) Shipment was clearly referable to the counter-offer, including the revised

arbitration clause

16

Hyde v Wrench (1840) 3 Beav. 334; Chitty on Contracts (n 13) para.2-092 17

Moot problem, p.2 18

University of Edinburgh v Daniel Onifade (2005) SLT (Sh Ct) 63; Chitty on Contracts (n 13) para. 2-

030 19

Interfoto Picture Library v Stiletto Visual Productions Ltd [1989] QB 433; Furmston, Michael (ed)

The Law of Contract (4th

edn, Lexis Nexis 2010)528; Chitty on Contracts (n 13)para.2-030,2-111 20

Moot problem, p.2

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6

11. For conduct to be inferred in favour of the offeror, the conduct must be

unequivocally connected to the offer and cannot be plausibly explained by any other

reason. 21

Given that Respondent had already addressed Claimant‟s concerns over the

substantive agreement in the two emails, the remaining unresolved matter was the

arbitration clause alone.22

The likelihood of Claimant proceeding with shipment

without agreeing with the choice of forum is low given the risk of litigating in a forum

it disagreed with. Therefore, Claimant‟s act of shipment can only be explained as an

acceptance of the revised arbitration clause.

II. THE ARBITRATION PANEL WAS PROPERLY CONSTITUTED AS

RESPONDENT HAD WAIVED BOTH ITS RIGHT TO APPOINT A CO-

ARBITRATOR AND ITS RIGHT TO CHALLENGE THE PRESIDING

ARBITRATOR’S APPOINTMENT.

A. RESPONDENT WAIVED ITS RIGHT TO APPOINT ITS CO-ARBITRATOR

12. Pursuant to Arbitration Act Section 13(4)(b) and its equivalent in UNCITRAL

Rules Article 9, Claimant does not dispute Respondent‟s procedural right to appoint

its own arbitrator, provided it is completed within the permissible 30-day period.

Failure to do so would be a waiver of the party‟s right to appoint.23

The only available

defence is if the delay was bona fide.24

21

Brogden v Metropolitan Railway Co (1877) LR 2 AC 666; Chitty on Contracts (n 13)para.2-031 22


Universal Reins. Corp. v Allstate Ins. Co. 16 F.3d 125(7th

Cir. 1993); Certain Underwriters at

Lloyd’s London v Argonaut Ins. Co. 500 F.3d 571(7th Cir. 2007)

24 Ancon Ins. Co. (U.K.) Ltd v GE Reins. Corp. 480 F.Supp.2d 1278 (D. Kan. 2007); Safond Shipping

Sdn.Bhd v East Asia Sawmill Corp. (H.K. High Court S. Ct. 1993); Bayerisches Oberstes Landesgericht

4 Z SchH 9/01(2002)

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13. First, it can be inferred that Respondent was well-aware of Claimant‟s request

for arbitration and the subsequent appointment of its co-arbitrator, as the former has

not denied knowledge or receipt of such request.25

Thus, Respondent cannot contend

ignorance of the arbitration proceedings. Second, Respondent notified the Director of

its absence, half an hour before the start of the hearing when it had an ample time of

two months to lodge the same notice. This suggests a deliberate attempt to delay the

proceedings.26

Furthermore, Respondent has not proffered reasons for the delay in

airing their concerns.27

B. RESPONDENT WAIVED ITS RIGHT TO CHALLENGE THE APPOINTMENT OF BOTH

THE DIRECTOR APPOINTED CO-ARBITRATOR AND PRESIDING ARBITRATOR

14. Claimant does not dispute the Director‟s procedural error in unilaterally

appointing the co-arbitrator in the absence of either party‟s request.28

The direct

appointment of the Presiding Arbitrator was also admittedly improper given that

he/she should first be nominated by the two co-arbitrators instead.29

However,

pursuant to Arbitration Act Section 7 which is synonymous with UNCITRAL Rules

Article 32, Respondent is estopped from asserting the above grounds as it implicitly

waived its right to do so,30

having met its four-prong criteria: (i) non-compliance with

a non-mandatory provision of the Model Law; (ii) prior knowledge of the non-

25



Houston Contracting Co. v National Iranian Oil Co. (1988) Award No.378-173-3; Sedco Inc. v

National Iranian Oil Co. (1985) 8 Iran-US CTR 28, 38-39; Ministry of National Defence v U.S. 12

Iran-US CTR 33, 36 (1986) 12 Iran-US CTR 33, 36 28

Further clarifications and corrections, No.18 29

UNCITRAL Art. 9(2) and 9(3); Malaysian Arbitration Act s.13(3) and 13(4)(a) 30

Marocaine des Loisirs v France Quick SAS (2008) Case No. 07-14539, para.32-40; Webster, Thomas

H. Handbook of UNCITRAL Arbitration (Thomson Reuters 2010) 443

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compliance; (iii) undue delay in raising challenge; (iv) proceeding with the

arbitration.31

(i) Appointment of arbitrators is a non-mandatory provision of the

Arbitration Act

15. To trigger such a waiver, the concerned non-compliance with the arbitration

agreement must involve a non-mandatory provision of the Arbitration Act.32

Non-

mandatory provisions are those that permit parties to alter the default provision or

provide explicit freedom to determine their own procedures.33

Pursuant to Arbitration

Act Section 13 which is synonymous with UNCITRAL Rules Article 8-10, parties are

at liberty to decide their own appointment of arbitration panel procedures.34

Failure to

do so, would result in the Acts default procedures to take effect. 35

Since both parties

did not agree on an appointment procedure different from that of the Arbitration Act

or UNCITRAL Rules, its procedures apply.

(ii) Respondent had prior knowledge of the improper appointment

31

Webster (n 30)442; Broches, Aron Commentary on the UNCITRAL Model Law on International

Commercial Arbitration (Kluwer Law and Taxation Publishers 1990) 27-28 32

Rajoo and Davidson (n 4) 31; United Nations Commission on International Trade Law, Analytical

Commentary on Draft Text of a Model Law on International Commercial Arbitration (UN Doc

A/CN.9/264), Art.4, para.2 33

Binder, Peter International Commercial Arbitration and Conciliation in UNCITRAL Model Law

Jurisdictions (Thomson Reuters 2010) 56-59 [“Binder”] ; Holtzmann and Neuhaus(n 5)198 34

CPC Consolidated Pool Carriers GmbH v CTM Cia Transmediterreanea SA, The CPC Gallia [1994]

1 Lloyd‟s 68; Fung Sang Trading Ltd v Kai Sun Sea Products and Food Co Ltd [1992] ADRLJ 224;

Rajoo and Davidson (n 4) 63 35

Rajoo and Davidson (n 4) 63

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16. Benti and Chong were directly appointed by the Director of KLRCA. These

appointments occurred 45 days after Respondent was requested to appoint its own co-

arbitrator. Despite full awareness of the circumstances in which the appointment arose,

Respondent chose not to challenge their appointment.36

(iii) Respondent’s failure to raise its objection timely resulted in undue delay

17. Pursuant to Arbitration Act Section 15 which is synonymous to UNCITRAL

Rules Article 13, a challenge has to be raised within 15 days of the party‟s knowledge

of the constitution of the Tribunal.37

Respondent was aware of the Tribunal‟s

composition by 30 July 2011 and failed to make a challenge by 15 August 2011.

Instead, it was not until 10 October 2011 when it requested for its own arbitrator to

replace Benti, amounting to a 25-day-delay in total.38

Even when Respondent called

for a substitution of Benti, it still made no attempt to challenge the appointment of

Chong, who was the presiding arbitrator. Such acquiescence cannot be revoked.

(iv) Respondent proceeded with the arbitration

18. Respondent proceeded with the arbitration despite its awareness of the

procedurally improper appointment of the two arbitrators.39

Thus, it waived its right to

challenge the constitution of the Tribunal.

36


Rajoo and Davidson (n 4)73-76; Webster (n 30) 444 38

Moot problem, p.4-5 39

Binder (n 33) 60

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C. IN ANY EVENT, THERE ARE NO PERMITTED GROUNDS FOR RESPONDENT TO

CHALLENGE THE DIRECTOR APPOINTED CO-ARBITRATOR AND PRESIDING

ARBITRATOR’S MANDATE

(i) There are no permitted grounds for substituting co-arbitrator

19. Pursuant to Arbitration Act Section 17 an arbitrator can only be substituted if

its mandate has been terminated on the grounds of incapacity and the absence of

integrity to arbitrate.40

Respondent cannot proffer such contention as Benti is a

prominent Rolgan attorney, being of the same nationality as that of Respondent.41

Though not conclusive, there is no prima facie evidence of bias against Respondent.

20. Under such circumstances, Respondent may contend that it would be

prejudiced as it does not have its own co-arbitrator to counterbalance Claimant‟s

appointment.42

Respondent‟s concern is unfounded as all arbitrators, be it party-

appointed or otherwise, are judged by the same standards of impartiality.43

If Bodd is

found to be biased towards Claimant, Respondent can challenge on the grounds of

partiality but it had not elected to do so.

(ii) There are no permitted ground for challenging the Presiding Arbitrator

21. In compliance with Arbitration Act Section 13(8)(c) which is synonymous

with UNCITRAL Rules Article 6(7), the Director had appointed Chong, a Malaysian,

40

Rajoo and Davidson (n 4) 80-81; Broches, Aron Commentary on the UNCITRAL Model Law on

International Commercial Arbitration (Kluwer Law and Taxation Publishers 1990) 70-72; Binder (n 33)

para.3-047 41

Moot Problem p.2 42

Caron D., Caplan L., Pellonpaa M. Oxford Commentaries on International Law: The UNCITRAL

Arbitration Rules (Oxford University Press 2006) 179 [“Caron,Caplan, Pellonpaa”] 43

Holtzmann and Neuhaus (n 5) 389

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who is not of the same nationality of either parties.44

Thus, no party is prima facie

prejudiced by his appointment.

III. KLRCA HAS THE AUTHORITY TO IMPOSE A FINE ON

RESPONDENT FOR PROCEDURAL MISCONDUCT

A. KLRCA HAS BROAD POWERS TO TAKE PUNITIVE MEASURES TO ENSURE

EXPEDITIOUS HEARING

22. UNCITRAL Rules Article 34(1) allows the Tribunal to make “separate awards

on different issues at different times”. The travaux preparatoires indicates that such

broad powers give arbitrators maximum freedom in issuing awards that ensures the

maximum efficiency of the proceedings.45

Given that penal awards are not expressly

excluded, it should be allowed for the following reasons:

23. First, Malaysia, being a common law jurisdiction adheres to the common law

dictum of “what is not expressly prohibited is allowed” which finds equal support in

international law jurisprudence.46

Neither the Arbitration Act nor Malaysia‟s public

policy, expressly forbid international arbitrations in Malaysia from issuing fines.47

Admittedly, the only established punitive measure that is denied would be punitive

44

Rajoo and Davidson (n 4) 63-65 45

United Nations Commission on International Trade Law, Summary Record of the 10th

Meeting of the

Committee of the Whole(II) (UN Doc A/CN.9/9/C.2/SR.10) para.59 46

Lotus case (France v Turkey) (1927) PCIJ Rep Ser. A No. 10 47

InterChem Asia 2000 PTE Ltd v Oceana Petrochem. 373 F.Supp.2d 340 (S.D.N.Y. 2005) para 933;

Neil,Philip D. “The Power of Arbitrators to Award Monetary Sanctions for Discovery Abuse” (Nov.

2005/ Jan. 2006) 60 Disp. Res .J. 60, 3

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damages which are unavailable under English common law which is adopted by

Malaysian courts.48

24. Second, both parties have not explicitly deprived the Tribunal of the power to

sanction bad faith and unnecessarily burdensome conduct, thus such authority can be

presumed. The principle of party autonomy remains uncompromised.

B. KLRCA HAS THE INHERENT AUTHORITY TO PENALISE BAD FAITH CONDUCT

THAT DISRUPTS ARBITRAL PROCEEDINGS

25. Courts have held that arbitral tribunals cannot have “efficient and swift

resolution of disputes but for good faith arbitration by the parties.”49

Courts have

upheld a tribunal‟s inherent authority to regulate bad faith conduct that affects its

efficiency.50

It is submitted that such authority should be extended to punitive

monetary fines for the following reasons.

26. First, in domestic settings, a failure to comply with a court‟s orders, such as a

deliberate act not to attend hearings, would be analogous to „contempt of court‟ as it

thwarts the court‟s ability to administer justice in a regular and effective manner.

Given that the judiciary is the primary means of resolving disputes between

individuals in civil proceedings,51

the public has an intimate interest in the regular and

48

Cecil (n 1) X[4] 49

Reliastar Life Insurance Co. Of New York v EMC National Life Co. 546 F.3d 81. (2d. Cir. 2009) 50

Benvenuti & Bonfant v. People's Republic of the Congo. (ICSID Case No. ARB/77/2) ; Fitsimmons v

Lord Mostyn [1904] AC 46 ; Reliastar Life Insurance Co. Of New York v EMC National Life Co. 546

F.3d 81. (2d. Cir. 2009) 51

Lowe, Nigel and Sufrin Brenda (eds) Borrie and Lowe The Law of Contempt (Buttersworth 1996) 1,9;

A-G v Times Newspapers Ltd (1974) AC 273, para 315; Johnson v Grant (1923) SC 789, para 790

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proper administration of justice.52

In Malaysia, failure to attend a hearing without

adequate notification or legitimate reason can attract imprisonment or fines.53

27. Second, the KLRCA performs a similar judicial function as courts. 54

First,

KLRCA resolves civil disputes based on a set of laws agreed by the parties. Such

resolution often involves interim orders such as injunctions and discovery orders

which require party compliance or else the proceedings would remain in a state of

impasse. Second, KLRCA‟s arbitral awards involves interpretation of the KLRCA

Rules, the Arbitration Act and other international conventions such as CISG and

UNIDROIT, all of which would create norms that contribute to the international body

of laws that generate obedience from parties concerned in the trade.55

This is

synonymous to civil courts whose interpretation of ordinances would influences

future decisions.

C. FURTHERMORE, MONETARY SANCTIONS IN THE FORM OF FINES CAN HAVE A

STRONGER DETERRENCE EFFECT IN ENSURING EXPEDITIOUS PROCEEDINGS

52

Eady, David and Smith, A.T.H. (eds) Arlidge, Eady and Smith on Contempt (2nd

edn, Sweet &

Maxwell 1999) 54-55; Jacob, I.H.“The Inherent Jurisdiction of the Court” (1970) 23 CLP 23, 28; 53

Malaysian Courts of Judicature Act 1964 (revised 2006), Art.13; Malaysian Subordinate Courts Act

1948 (revised 2006) Art.26 54

Gaeta, P. “Inherent Powers of International Courts and Tribunals” in Vohrah, L.C. et al (eds) Man’s

Inhumanity to Man: Essays on International Law in Honour of Antonio Cassese (Kluwer Law

International 2003) 363 [“Gaeta”] 55

Brown, Chester “The Inherent Powers of International Courts and Tribunals” (2005) 76 BYIL 195,

230; Higgins, Rosalyn “Aspects of the Case Concerning the Barcelona Traction Light and Power Co

Ltd” (1971) 11 Virg JIL 327, 341

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28. UNCITRL Rules Article 17 grants tribunals the power to fill gaps in the

procedural rules.56

In particular, tribunals will be minded to fill gaps in the procedural

rules where they are insufficient in ensuring expeditious arbitral proceedings.57

29. First, pursuant to UNCITRAL Rules Article 42, the Tribunal is to award costs

to the winning party, subject to the “circumstances of the case”. Such circumstances

have been interpreted to include the “conduct of the parties”, which takes into

consideration bad faith conduct that imposes additional costs on the adversary.58

Owing to the doctrine of proportionality, the awards can only cover the extra costs

incurred by the adversary due to the defaulting party‟s misconduct which is often

limited. 59

Only if such compensations are disproportionately higher than the

additional costs incurred would they have a deterrence effect.60

30. Second, procedurally, the Tribunal only has the implicit authority to set time

limits and it depends on whether the arbitrator is willing to adopt a more “activist

management” approach to the proceedings.61

Having the authority to impose a fine for

non-compliance is essential to ensure party compliance and expeditious proceedings.

IV. THE APPLICABLE LAW GOVERNING THE SUBSTANTIVE DISPUTE

IS CISG

56

Schreuer, Christopher The ICSID Convention: A Commentary (Cambridge University Press 2001)

683[“Schreuer”] ; Prosecutor v Tihomic Blaskic IT-95-1 4-AR 108 bis (1997) para.33 57

Gaeta (n 54) 370-371; Brown, Chester A Common Law of International Adjudication New York

(Oxford University Press 2007) 78-81 58

UNCITRAL Commentary 952; Schreuer (n 56)1232; Unimarine SA v Canadian Transport Co Ltd

(The Catherine L) [1982] 1 Lloyd‟s 484 59

Caron D., Caplan L., Pellonpaa M. (n 42) 952; Davis, Mark and Baker, Stewart The UNCITRAL

Arbitration Rules in Practice: The Experience of the Iran-United States Claims Tribunal (Kluwer Law

and Taxation Publishers 1992) 214 60

Certain Underwriters at Lloyd’s London v Argonaut Ins. 264 F.Supp.2d 926,944 (N.D. Cal. 2003) 61

Hotlzmann, H. “What an Arbitrator Can Do To Overcome Delays in International Arbitration” in

American Bar Association (eds) Justice for a Generation (West Publishing 1985) 335

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31. The parties are to follow the choice of law rules of the arbitration seat when

ascertaining the applicable law for the substantive dispute.62

Pursuant to Arbitration

Act Section 30(4), the Tribunal is required to determine the applicable law to the

dispute in accordance with conflict-of-laws rules.

32. In deciding the “appropriate” applicable law, the Tribunal shall (A) determine

the state most closely connected to the substantive dispute, and (B) apply the conflict-

of-laws system of the most closely connected state to determine the applicable law

governing the substantive dispute. It is submitted that the applicable law governing

the substantive dispute should be CISG for the following reasons.63

A. ASTORIA IS THE STATE MOST CLOSELY CONNECTED TO THE SUBSTANTIVE

DISPUTE

33. The closest connection test is to consider what the applicable law would have

been had a just and reasonable man been directed to that question at the time of

contracting.64

34. Claimant submits that the following general principles of private international

law65

should be considered in the closest connection test:66

(i) The place of

contracting, (ii) the place of performance and (iii) the place where legal dispute took

place.

62

Wilner, Gabriel “Determining the Law Governing Performance in International Commercial

Arbitration: A Comparative Study” (1965) 19 Rutgers L. Rev. 646, 648 63

Rajoo and Davidson (n 4) 136; Dicey, Morris & Collins (n 8) para 32-005; Minoutsi Shipping Corp v

Trans Continental Shipping Services Pte Ltd (1972) 2 MLJ 5; Who Hup (Pte) Ltd v Property

Development (1991) 3 MLJ 82 64

The Assunzione (1954) 2 WLR 234, para 176 65

Fouchard Gaillard Goldman(n 11) 871 66

Dicey, Morris & Collins (n 8) 33

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(i) The place where the contract was made is in Astoria

35. The place where the contract was made is an important consideration as it is

the place where the acceptance occurred.67

In order for acceptance to be valid, it has

to be communicated to the offeror.68

36. It has been submitted that Respondent accepted the revised arbitration clause

by conduct.69

However, Claimant did not receive confirmation of Respondent‟s

acceptance until the bananas arrived in Astoria‟s port on 24 November 2010, where

they were inspected by Claimant.70

Therefore, it was only then when Respondent‟s

acceptance was clearly communicated to Claimant. Hence, acceptance took place in

Astoria.

(ii) The contract was performed in Astoria

37. The place of performance is defined by the performance for which obligations

are performed in exchange of payment. It is important as it constitutes the central

function of the contractual transaction.71

It is submitted that the payment was made in

exchange for Respondent‟s supply, packaging and transfer of the possession of

produce to Claimant.

38. Claimant contends that this factor should be given less weight, because the

contract was performed partly in Astoria and partly in Rolga. While the supply and

packaging of bananas occurred in Rolga, the transfer of possession occurred in

67

Dicey, Morris & Collins (n 8) 33 68

K. Scott, “Contract – Offer and Acceptance – Place of Acceptance” (1955) 13 CLJ 148, 148 69

Supra Part I.D. 70


Giuliano, Mario and Lagarde, Paul “Report on the Convention on the law applicable to contractual

obligations” (1980) O.J. Eur. Comm. C 282

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Astoria. Possession of goods was only transferred when the Bill of Lading was shown

to the Captain. Thus, this performing act occurred in Astoria. Since performance

occurred in both countries, this factor is to no avail for Claimant.

(iii) The legal dispute took place in Astoria

39. Lastly, the place of wrongdoing is a connecting factor.72

It is submitted that

the legal dispute arose in Astoria when an excessive amount of bananas was found

ripening in Astoria City on 24 November 2010.73

40. Respondent may contend that the dispute arose in Rolga, because the bananas

were improperly stowed in Rolgan territory. However, Claimant argues that this is

only the reason behind the dispute, not where it arose. The real dispute occurred when

Claimant discovered the non-conforming bananas in Astoria and decided to challenge

Respondent for their breach of obligation.

41. In conclusion, since the place of performance was split between Astoria and

Rolga it should be given less weight. However, since the place where the contract was

made and the place where the dispute arose was in Astoria, Astoria‟s conflict-of-law

system should be applied.

B. THROUGH THE APPLICATION OF SECTION 6 OF THE RESTATEMENT, THE

APPLICABLE LAW TO THE SUBSTANTIAL DISPUTE IS CISG

42. Astoria has adopted Section 6 of the Restatement (Second) of Conflict of laws

(“Restatement”) as its conflicts-of-law system. In the absence of a choice of law,

72

Dicey, Morris and Collins (n 8) 9; Merrill, J., Williams, C., Michie, T. and Garland, D. The American

and English Encyclopedia of Law: Carriers of Stock to Contracts, vol. 3 (Houston Merrill edn, Edward

Thompson 1888) 518 73

Moot problem, p.3

http://www.google.ca/search?tbo=p&tbm=bks&q=inauthor:%22Charles+Frederic+Williams%22

http://www.google.ca/search?tbo=p&tbm=bks&q=inauthor:%22Thomas+Johnson+Michie%22

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Section 6(2) of the Restatement provides principles that should be considered in the

analysis of the applicable law. The precise weight placed on each of these factors will

depend on the particular type of issue involved. Claimant contends that the following

relevant factors should be considered by the Tribunal when determining the applicable

law to the dispute:

(i) The needs of the interstate and international system74

43. This has been recognized as the most important function of choice-of-law

rules.75

The needs of the interstate and international system are the promotion of

"harmonious relations between states" and facilitation of “commercial intercourse

between them."76

Achieving these needs ensures certainty, predictability, and

uniformity of results.77

44. A stable legal framework will facilitate international commercial transactions

with greater legal certainty and lower costs to enterprises.78

Claimant contends that

CISG being more widely applied than UNIDROIT will better satisfy the international

system‟s needs.79

Although both instruments were established to unify the rules of

international commercial contracts,80

UNIDROIT is considered to be soft law, thus,

not binding on the courts.81

Although UNIDROIT has gained prominence since its

74

US Restatement(Second) of Conflicts of Law1969 s 6(2)(a) [“Restatement”] 75

Restatement (n 74) s.6, comment d 76

Restatement (n 74) s.6, comment d 77

Restatement (n 74) s.6(2)(f); Restatement (n 74) s.6, comment d 78

Clayton P. Gillette and Robert E. Scott “The Political Economy of International Sales Law” (2005)

25 Int‟l Rev. of L.&Econ. 446, 448 79

Knieper, Rolf “Celebrating Success by Accession to CISG” (2005/6) 25 JLCOM. 477, 478. 80

Bonell, Michael Joachim “The Unidroit Initiative for the Progressive Codification of International

Trade Law” (1978) 27 ICLQ 413 81

Ole, Lando „Principles of European Contract Law and UNIDROIT Principles: Moving from

harmonization to Unification?‟ 8 UNIF. L. REV. (n.s.) 123, 123 (2003)

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codification, reference to it has only been in obiter and in limited cases. 82

By contrast,

CISG has been referred to in many decisions in courts and arbitral tribunals.83

As of

2003, more than 1000 CISG decisions were reported.84

Given this impressive body of

CISG jurisprudence, the application of its legal principles before the Tribunal will

ensure legal certainty and confidence in the administration of justice.85

Moreover,

Rolga‟s interest would not be undermined as UNIDROIT Principles and CISG

complement each other rather than contradict.86

(ii) The protection of justified expectations of the parties87

45. Among the Section 6(2) factors, the parties‟ expectations is of primary

importance in contracts.88

This coincides with the purpose of contract law, being the

protection of the parties.89

To not disappoint the parties‟ justified expectations, there

must be certainty, predictability and uniformity of result.90

46. Both parties did not expect to have UNIDROIT Principles applied to the

contract. Moreover, UNIDROIT is only applied in wholly domestic contracts when

82

Dr. Bruno Zeller, “The Unidroit Principles of Contract law: is there room for their inclusion into

domestic contracts?” (2008) 26 J.L. & COM 115, 116 83

Lookfsky, Joseph and Bernstein, Herbert Understanding the CISG in the USA: A Compact Guide to

the 1980 United Nations Convention on Contracts for International Sale of Goods (3rd

edn, Kluwer

Law International 2008) 33 84

Lookfsky and Bernstein (n 83) 33 85

Vanduzer, Anthony „The Adolescence of United Nations Convention on Contracts for the

International Sale of Goods in Canada‟ ( Canada Bar Association‟s International Law Section Annual

Conference, Ottawa, May 2001) 86

Gotanda, John “Using UNIDROIT Principles to fill gaps in CISG” Villanova University School of

Law Working Paper Series Paper 88 2007 3 87

Restatement (n 74) s 6(2)(d) 88

Restatement (n74) s188, comment b 89

Restatement (n 774) s 6(2)(e); Singer, Joseph “Pay No Attention to That Man Behind the Curtain:

The Place of Better Law in a Third Restatement of Conflicts” (2000) 75 Ind. LJ 659, 660 90

Restatement (n 74) s 6(2)(e)

http://www.google.ca/search?tbo=p&tbm=bks&q=inauthor:%22Herbert+Bernstein%22&source=gbs_metadata_r&cad=6

http://www.google.ca/search?tbo=p&tbm=bks&q=inauthor:%22Herbert+Bernstein%22&source=gbs_metadata_r&cad=6

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both parties to the contract are domiciled in Rolga.91

Nothing in the facts suggests the

Claimant was domiciled in Rolga.92

47. Furthermore, UNIDROIT applies if both parties have expressly adopted it into

their contract or agreed that the contracts will be governed by “general principles of

law”.93

However, both parties have not done so.

V. THE BANANAS ARRIVED IN AN UNSATISFACTORY CONDITION

DUE TO RESPONDENT’S BREACH OF ITS CONTRACTUAL

OBLIGATIONS

A. RESPONDENT BREACHED ITS OBLIGATIONS IN THE CONTRACT

48. It is submitted that Respondent breached the contract for the supply of bananas,

as (i) it was a clear term of the contract that the bananas had to arrive in an unripe

condition, (ii) Claimant‟s purpose of purchasing bananas was expressly made known

to Respondent, (iii) Respondent failed to arrange for adequate stowing of the bananas,

and (iv) Claimant was not aware of any lack of conformity at the time of the

conclusion of the contract and thus CISG Article 35(3) is not applicable.

(i) Claimant and Respondent’s agreement for the bananas to arrive in an

unripe state formed a condition in the contract

49. CISG Article 35(1) provides that regard must be had to contractual terms

setting out the quantity, quality and description stipulated in the contract.94

These

91

Further Corrections and Clarifications, No. 11 92


UNIDRIOT Preamble 94

Bundesgericht (5 April 2005) Case No. 4C.474/2004; CISG-online 628, Bundesgericht, Switzerland,

22 Decemebr 2000

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contractual requirements are determined with reference to CISG Article 8(3), which

provides that conduct, statements and negotiations are taken into account in

determining contractual intent.95

50. Under CISG Article 8(3), the understanding of a reasonable person, in the

same business, under the same circumstances, is decisive.96

The emails exchanged

between Claimant and Respondent evince a clear contractual intent. A reasonable

person would view the contract as requiring the bananas to be in an unripe condition

upon arrival. The emails stated that Claimant “must receive [the bananas] in an unripe

condition”. 97

Furthermore, Respondent had confidently assured that the bananas will

be handled properly, informing Claimant of its experience in ocean shipping.98

Hence,

it was reasonable for Claimant to rely on Respondent‟s expertise in liaising with the

Captain to ensure proper stowage of the bananas.99

(ii) The purpose of the goods was expressly made known to Respondent and

the goods were not fit for ordinary or particular purpose as required by CISG

Article 35(2)(a).

51. Under CISG Article 35(2)(a), goods are unfit for their ordinary purpose when

a lack of proper characteristic or defect impede their material use, yield deficient

95

Schwenzer, Ingborg Schlechtriem & Schwenzer Commentary on the UN Convention on the

International Sale of Goods (CISG) (3rd edn, Oxford University Press 2010) 571 [“Schlechtriem &

Schwenzer”]; United Nations Commission on International Trade Digest for Article 35(2008) para 4

<http://www.uncitral.org/uncitral/en/case_law/digests/cisg2008.html> assessed July 10 2011 96

Russian Federation v. Austria Oberster Gerichtshof (1997) Case No. 2 Ob 58/97; Honnold, John

Uniform law for international sales under the 1980 United Nations Convention (Kluwer Law and

Business 2009) 105 97

Exhibit 1 98

Exhibit 2 99

United Nations Commission on International Trade Law, Guide to CISG: Commentary on the Draft

Convention on Contracts for the International Sale of Goods Text to Secretariat Commentary [“Guide

to CISG”]

http://www.uncitral.org/uncitral/en/case_law/digests/cisg2008.html

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results or take unusual costs. This results in depriving the reasonable person of what

he would expect to receive in the contract.100

Goods are also unfit for ordinary use if,

though not affecting their material use, lessen conspicuously the value affecting their

trade use.101

Goods have to be honestly resalable in the ordinary course of business.102

Furthermore, under CISG Article 35(2)(b), the seller must deliver goods fit for the

buyer‟s particular purpose provided it was expressly or impliedly made known to the

seller.

52. The bananas arriving ripe prevented the “ordinary use” of bananas. The bulk

of bananas produced are consumed raw and easily purchasable at retail stores. .103

Only a small proportion of bananas is processed into a storable product, such as baked

products, and is considered insignificant to an ordinary consumer‟s diet.104

53. Moreover, the bananas did not fit Claimant‟s particular purpose of entering

into contract. Claimant unequivocally stated its bananas are to be used for sale to local

retail stores and emphasized the importance of an unripe state.105

In connection with

CISG Article 8(2), any reasonable person in Respondent‟s position had to be aware of

Claimant‟s requirement and purpose.106

100

Morrissey and Graves (n 6)127 101

Bianca, Cesare Massimo and Bonell, Michael Jochim (eds) Commentary on the International Sales

Law: The 1980 Vienna Sales Convention (Giuffrè Editore S.p.A 1987) 274; CISG-online 740/780,

Rotterdam, The Netherlands, 15 October 2002 102

Guide to CISG ( n99) 103

United Nations Conference on Trade and Development “Uses, Bananas, Market Information in the

Commodites Area” <http://www.unctad.org/infocomm/anglais/banana/uses.htm> assessed July 7 2011 104

Orchard, B.K. Dadzie et J.E. “Routine Post-Harvest Screening of Banana/Plantain Hybrids: Criteria

and Methods” (INIBAP Tech. Guidelines 2) 41

<http://bananas.bioversityinternational.org/files/files/pdf/publications/tg2_en.pdf> assessed July 10

2011 105

Exhibit 1 106

Guide to CISG (n 99)

http://www.unctad.org/infocomm/anglais/banana/uses.htm

http://bananas.bioversityinternational.org/files/files/pdf/publications/tg2_en.pdf

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54. Lastly, the value of bananas lessens conspicuously if they reach retail stores in

a ripe state. A last minute sale to bakeries is impractical as most bakeries would

already have agreements with other suppliers.

(iii) Respondent failed to arrange for adequate stowage of the bananas to

protection and preservation

55. Pursuant to CISG Article 35(2)(d), the bananas are to be packaged in the usual

manner for such goods or in a manner adequate to preserve and protect them. This is

synonymous with Section 2-314 of the United States Uniform Commercial Code

(“UCC”), which asserts that the goods must be properly contained, packaged and

labelled as the contract required.

56. The seller‟s obligations may also be determined by usages applicable to the

contract according to CISG Article 9(2).107

International trade has a common

presumption of an implied intention that the parties “knew or ought to have known”.

In FOB contracts, the seller is responsible for delivering the goods on board and is to

provide specific instructions in the Bill of Lading.108

Once the goods have passed the

ship‟s rail, the seller‟s obligations to deliver is fulfilled and the risk passes to the

buyer.

57. Claimant submits that the Special Instructions stating that bananas must be

stored in a “cool, dry location with good circulation”109

did not discharge the

Respondent‟s obligations under the contract. It is standard practice that bananas are

107

Bianca, Cesare Massimo; Bonell, Michael Jochim (eds) Commentary on the International Sales Law:

The 1980 Vienna Sales Convention (Giuffrè Editore S.p.A 1987) 272 108

ICC INCOTERMS 2000 109

Moot problem, p.2

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stored in specialised refrigerated ships at a temperature of 13º C in order to prevent

ripening.110

Bananas are typically stored in controlled atmospheric conditions of 2-5%

carbon dioxide and oxygen to retard the ripening process. Ethylene concentration is

maintained below 1 ppm to extend postharvest life of mature green bananas for 3-6

weeks.111

Greater specificity was therefore required in the Special Instructions. The

existing instruction being a mere “cool” condition simply means any temperature

between 1º C and room temperature and “dry” could have an equally broad meaning.

58. Furthermore, in Julia case, 112

the House of Lords ruled that a strict form of a

CIF contract, which require the seller to pay freight and insurance, may be departed

from depending on all the terms in the contract. Thus, the email exchanges that have

slightly modified the FOB contract to include Respondent ensuring proper stowage

should be taken into account. Respondent may contend that the Special Instructions

follow its company‟s standard practice and there had never been a problem before.113

However, given the perishable nature of bananas, Respondent cannot seek refuge in

its company‟s track record for its erroneous drafting of the Special Instructions in

failing to encapsulate the specific requirements for banana stowage over a long

journey. Even though by chance, Respondent had never encountered problems before,

does not mean the Special Instructions were adequate.

(iv) Claimant was not aware of lack of conformity

110

United Nations Conference on Trade and Development “Crops, Market information in the

commodites area” http://www.unctad.org/infocomm/anglais/banana/crop.htm assessed July 3 2011 111

National Horticulture Board, Ministry of Agriculture, Gov‟t of India “Banana”

<http://nhb.gov.in/bulletin_files/fruits/banana/ban009.pdf> assessed June 30 2011 112

Comptoir d’Achat et de Vente du Boerendbond Belge S/A Appellants v Luis de Ridder Limitada

Respondents (The Julia) [1949] AC 293 (H.L.) 113

Exhibit 2

http://www.unctad.org/infocomm/anglais/banana/crop.htm

http://nhb.gov.in/bulletin_files/fruits/banana/ban009.pdf

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59. CISG Article 35(3) exempts the Respondent from liability under CISG Article

35(1) and (2) if Claimant knew or ought to have known that the packaging would fall

below the contractual requirements.114

60. Claimant submits that CISG Article 35(3) does not exempt Respondent from

liability because they had expressly made clear that it was their expertise and

responsibility to ensure the goods arrived unripe. Claimant was 6,000 nautical miles

away from Rolga and it would not have been able to oversee the storage and transport

process.115

Thus, an exemption under CISG Article 35(3) should not be allowed.

B. FURTHERMORE, RESPONDENT’S NON-CONFORMITY CONSTITUTED A

FUNDAMENTAL BREACH UNDER CISG ARTICLE 25.

61. Claimant submits that Respondent‟s breach should be elevated to a

fundamental breach on the basis that (i) Claimant suffered a detriment and was

substantially deprived of what it was expected to get under the sales contract; (ii) the

non-conformity could not be cured, and (iii) Respondent could foresee and that a

reasonable person would have foreseen the consequences of a breach.116

For

Claimant to rely on fundamental breach, Respondent must have breached the contract,

which Claimant submitted it did.117

According to CISG Article 70, if the seller

commits a fundamental breach, the buyer retains all rights he is entitled to under the

convention regardless of whether risk had passed to buyer.

114

Ingeborg, S. and Fountoulakis, C. (eds) International Sales Law (Routledge-Cavendish 2008) 237,

para 1; Schlechtriem & Schwenzer (n 95) 586 115

Case Laws on UNCITRAL Texts Case No. 219 [Tribunal Cantonal Valais, Switzerland, 1997] 116

Morrissey and Graves (n 6)224 117

Supra Part V. A.

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(i) Claimant suffered a detriment and was substantially deprived of what it

expected under the sales contract.

62. A party‟s expectations can be expressly or implicitly defined in a contract.118

The term “detriment” must be interpreted broadly, covering any harmful

consequences.119

63. Claimant expressly asked for a shipment of unripe bananas.120

Claimant could

only have reasonably tolerated a maximum of 3-5% ripening of the bananas, as

customary in the industry.121

30% of ripe bananas cannot be seen as minor given its

potential to accelerate the decomposition of remaining 70%. This is because the

bananas are deteriorating exponentially due to the accumulation of the ethylene gas in

the cargo.122

Claimant had an unreasonably short time to react to this unexpected poor

delivery. Thus Claimant had failed to receive the essence of what could have been

expected according to the contract and this is determinative for fundamental breach.123

(ii) The non-conformity could not be cured

64. Had the seller been able to remedy the non-conforming goods without causing

inconvenience to the buyer, fundamental breach would not be established. 124

The only

remedy available was a reshipment of the bananas. However, not only did Respondent

elect not to cure the defect, it could not have done so without having Claimant wait a

118

Lorenz, Alexander “Fundamental Breach under the CISG Pace essay submission” (Pace Essay

Submission, June 1998) <www.cisg.law.pace.edu/cisg/biblio/paiva.html> assessed June 23, 2011 119

Bonnell (n 115) 211 120

Exhibit 1 121

Moot problem, p.3; Bundesgerichtshof (4 March 1999) VIII ZR 121/98 122

Appendix B 123

Graffi, Leonardo Case Law on the Concept of “Fundamental Breach” in the Vienna Sales

Convention (2003) 3 Int‟l Bus. LJ, 339-340; Oberlandesgericht [German Appellate Court of Frankfurt],

17 September 1991, CISG- online (5 U164/90). 124

5 November 2002 Handelsgericht des Kantons Aargau; Landgericht Köln (16 November 1995) 5O

189/94

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

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protracted period of time, given the two countries were 6000 miles away. 125

As sub-

sale contracts could not be satisfied, this amounted to unreasonable delay. 126

(iii) Respondent could foresee, and a reasonable person would have foreseen

the consequences of a breach

65. Foreseeability is assessed in light of the facts which the non-conforming party

then knew,127

such as the correspondences and negotiations between the parties.128

Respondent was well aware that Claimant intended to resale the bananas to other

retailers. Thus, a failure to deliver the bananas in the required state would cause

Claimant to default all of such sub-contracts. 129

Not only would Claimant have been

deprived of their profits, but would have to compensate for its breach of contract.

Given Claimant is a major distributor in Astoria, such cost would be exceedingly high.

VI. CLAIMANT IS NOT REQUIRED TO PRESERVE AND ATTEMPT TO

SELL THE BANANAS

A. CLAIMANT IS NOT UNDER A DUTY TO PRESERVE BANANAS UNDER CISG

ARTICLE 86(2) DUE TO IMPENDING LOSS OF VALUE

66. CISG Article 86 states that a buyer must take reasonable steps to preserve the

goods in the circumstances when they wish to reject the goods but the seller is not

able to take them back. However, unreasonable inconvenience or unreasonable

125


ICC Arbitration Case No. 7645 (1995) 127

Bonnell (n 107) 217 128

Koch Oil, S.A. v. Transocean Gulf Oil Co., U.S. Court of Appeals(Second Circuit),7 January 1985,

751 F.2d 551; CISG A-C Opinion, No. 5, s.4.4, available at http://www.cisg.law.pace.edu/cisg/CISG-

AC-op5.html 129

Exhibit 1

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expenses in preservation would exempt the buyer from this duty.130

In order to

determine whether an expense is unreasonable, the relationship between expenses

required and impending loss of the value of the goods is instructive.131

What the

defaulting party would have done otherwise in his own affairs is not relevant.

67. Claimant submits that the bananas were ripening to the extent that the value of

goods was diminishing rapidly and impending loss was evident. On 25 November

2010 when the ship docked and the bananas were inspected, 30% of the bananas were

ripe or ripening. In just two days, this increased to 46% ripe and ripening, while 54%

became overripe.132

Notwithstanding a rapid decline in commercial value, such a high

percentage of overripe fruit inevitably leads to health and safety hazards resulting

from fruit flies, maggots and mould. Furthermore, given such short notice and the

exponential deterioration of the bananas, by the time refrigerated storage is arranged,

than the bananas would be unfit for human consumption. Thus, Claimant contends

that the impending loss on the value of goods exempted it from the duty to preserve

under CISG Article 86.

B. CLAIMANT WAS NOT UNDER LEGAL OBLIGATION TO SELL BANANAS UNDER

CISG ARTICLE 88(2) DUE TO ECONOMIC UNFEASIBILITY AND PRACTICAL

INCONVENIENCE

68. A party entitled to damages must take reasonable steps to mitigate loss.133

Accordingly, under CISG Article 88(2), if the goods are subject to rapid deterioration

or preservation that would involve unreasonable expense, a party who is bound to

130

Schlechtriem & Schwenzer (n 102) 1157 131

Schlechtriem & Schwenzer (n 95) 1157 132


CISG Art.77

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preserve the goods in CISG Article 86 must take reasonable measures to sell them.134

Goods that rapidly deteriorate to the degree that the cost of selling and preserving

exceed the value of the goods would exempt the aggrieved party from obligation to

resale.135

69. Claimant submits that the cost of sorting and repackaging the non-ripe,

ripening, ripe and overripe bananas was economically unfeasible. The work needed to

find buyers to take in the deteriorating or deteriorated bananas takes considerable time

and resources. Since the bananas were deteriorating at such a rapid speed, by the time

the bananas are sorted out, buyers contacted, transport arranged, they would not be fit

for consumption.136

Furthermore, notwithstanding its declining commercial value, the

bananas were deteriorating at such a rate that would cause considerable health and

pest concerns. Therefore, selling the bananas involved unreasonable time and expense,

Claimant was not obliged to attempt to sell them under CISG Article 88(2).

134

CISG Art.88(2) 135

Guide to CISG (n 99) 136

CIETAC (China International Economic & Trade Arbitration Commission), 18 December 2002,

CISG-Online 1543

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CONCLUSION AND PRAYER FOR RELIEF

Astoria Produce Company, as Claimant, respectfully requests this Tribunal to adjudge

and declare as follows:

I. That it has the authority to resolve the dispute between the parties as there was a

(i) valid agreement to arbitrate at KLRCA and (ii) the dispute falls within its scope of

jurisdiction.

II. That the arbitrators were properly appointed as (i) Respondent had not been

improperly denied its opportunity to select its arbitrator and (ii) Respondent had

waived its right to challenge the appointment of the Presiding Arbitrator.

III. That the Tribunal has the authority to impose sanctions in the form of a fine on

Respondent for failing to appear at the first hearing and/or not providing adequate

notice.

IV. That CISG is the applicable law to the substantive dispute

V. That the shipment of bananas arrived at Astoria in an unsatisfactory condition

due to improper storage during its delivery. This amounted to a breach of the seller‟s

contractual obligation.

VI. That Claimant did not have a duty to preserve or attempt to sell the bananas.