university of washington respondent's memorandum

University of Washington – Respondent’s Memorandum

i

WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT 2007-08

MEMORANDUM FOR THE RESPONDENT

On behalf of:

The Respondent Equatoriana Super Markets S.A. 415 Central Business Center Oceanside, Equatoriana

Against:

The Claimant

Mediterraneo Wine Cooperative 140 Vineyard Park

Blue Hills, Mediterraneo

UNIVERSITY OF WASHINGTON

Seattle

Brianne Anderson Bradley Bowen Nicole Jabaily

Lavanga Wijekoon Alexander Wu


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TABLE OF CONTENTS

TABLE OF CONTENTS ........................................................................................................ ii

TABLE OF ABBREVIATIONS ............................................................................................. iv

TABLE OF AUTHORITIES.................................................................................................. vi

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

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

PART ONE: THE ARBITRAL TRIBUNAL, IN ITS DISCRETION, SHOULD DEFER

TO THE COMMERCIAL COURT TO DECIDE THE JURISDICTIONAL ISSUE. ........ 4

I. THE TRIBUNAL SHOULD STAY THE ARBITRAL PROCEEDINGS PENDING A DECISION BY THE

COMMERCIAL COURT............................................................................................................. 4

A. The Danubian Arbitration Law Expressly Authorizes a Party to Seek a Judicial

Determination of the Existence of an Agreement to Arbitrate. ....................................... 4

B. Prior to Oral Arguments Scheduled for March 2008, this Tribunal Should Issue an

Interim Order to Stay These Proceedings Pending a Decision of the Commercial Court.

........................................................................................................................................... 6

C. Even if this Tribunal Permits Oral Argument, this Tribunal Should Grant a Stay of

These Proceedings Pending a Decision of the Commercial Court.................................. 7

D. Wine Cooperative’s Arguments that this Tribunal Should Not Stay These

Proceedings Are Unpersuasive. ........................................................................................ 8

II. THIS TRIBUNAL HAS NO JURISDICTION............................................................................ 11

A. If the Parties Agreed to Arbitrate, then the Arbitral Proceedings Must Conform with

the New York Convention and the Danubian Arbitration Law. ..................................... 11

B. The New York Convention and the Danubian Arbitration Law both Require an

Agreement to Arbitrate.....................................................................................................12

C. The Doctrine of Separability Does Not Apply in All Cases. .......................................12

D. The Doctrine of Separability Does Not Apply to this Case........................................15

PART TWO: NO CONTRACT OF SALE WAS CONCLUDED, BUT EVEN IF IT HAD

BEEN CONCLUDED BLUE HILLS 2005 WOULD HAVE BEEN UNFIT FOR SUPER

MARKETS’ PROMOTION. ...................................................................................................15

I. NO CONTRACT EXISTS BETWEEN THE PARTIES BECAUSE SUPER MARKETS PROPERLY

REVOKED ITS 10 JUNE 2006 OFFER. .......................................................................................16

A. Super Markets Made an Offer to Wine Cooperative Through the Purchase Order. ..16


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B. Super Markets Revoked Its Offer Through Its 18 June 2006 Email. ..........................17

1. Under CISG Art 16(1), Super Markets validly revoked its offer................................18

a. Revocation occurred before contract conclusion. ............................................18

b. Revocation reached offeree before offeree dispatched acceptance. ................18

2. Under CISG Article 16(2), Super Markets validly revoked its offer..........................21

a. Under CISG Article 16(2)(a), Super Markets’ offer did not fix a time for

acceptance that created an irrevocable offer. ...........................................................21

b. Under CISG Article 16(2)(a), Super Markets’ conduct subsequent to the offer

did not fix a time for acceptance that created an irrevocable offer..........................23

c. Under CISG Article 16(2)(b), Super Markets validly revoked its offer because

Wine Cooperative did not act in reasonable reliance on the purportedly irrevocable

offer 24

C. No Contract Was Concluded Between Wine Cooperative and Super Markets. .........25

II. WINE COOPERATIVE DID NOT FULFILL ITS OBLIGATION TO PROVIDE WINE THAT WAS FIT

FOR PARTICULAR OR ORDINARY USES. ...................................................................................25

A. Blue Hills 2005 is Unfit for the Particular Use of Promotion......................................25

1. Super Markets need not have taken delivery............................................................26

2. Wine Cooperative was on notice of Super Market’s intended purpose of promotion.

......................................................................................................................................26

3. Super Markets reasonably relied on Wine Cooperative’s assurances. .....................27

B. Blue Hills 2005’s Low Quality Made It Unfit for the Ordinary Use Under the CISG.

..........................................................................................................................................29

1. Blue Hills 2005 is unfit for consumption. .................................................................29

2. Blue Hills 2005 is below the quality required by Super Markets. ............................29

C. Wine Cooperative Bore the Economic Risk................................................................31

D. Wine Cooperative Acted in Bad Faith. .......................................................................32

PART THREE: CONCLUSION............................................................................................32

PART FOUR: RELIEF ...........................................................................................................32


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TABLE OF ABBREVIATIONS

CISG United Nations Convention on Contracts for the International

Sale of Goods of 11 April 1980

Cl. Ex. Claimant’s Exhibit

Cl. Memo. Memorandum for Claimant

Co. Company

Commercial Court Commercial Court of Vindobona, Danubia

Ct. Court

Dist. District

Danubian Arbitration

Law

UNCITRAL Model Law, including the amendment to Art. 8

Ed. / eds. Editor / Editors

Ed. Edition

e.g./e.g.s exemplum gratii [for example]

Electronic Commerce

Law

UNCITRAL Model Law on Electronic Commerce

FN Footnote

F.Supp. Federal Supplement [United States Federal District Court

reporter]

Guide to Electronic

Commerce Law

Guide to Enactment of the UNCITRAL Model Law on

Electronic Commerce

Id. Idem [the same]

i.e. id est [that is]

JAMS Rules JAMS Arbitration Rules

Law. Lawyer

Ltd. Limited

Memo. Memorandum

No./Nos. Number / Numbers


v

NY Convention United Nations Convention on the Recognition and

Enforcement of Foreign Arbitral Awards of 7 June 1959

p. Page

para./paras. Paragraph / Paragraphs

Pro. Order Procedural Order

Rep. Report

§ Section

Statement of Claim Request for Arbitration and Statement of Claim

Statement of Def. Statement of Defense

Super Markets Equatoriana Super Markets, S.A.

UK United Kingdom of Great Britain and Northern Ireland

UNCITRAL Model

Law

UNCITRAL Model Law on International Commercial

Arbitration of 1985

UNIDROIT Principles UNIDROIT Principles of International Commercial Contracts

of 1984

US$ United States Dollars

USA United States of America

v. versus [against]

Vol. Volume

Wine Cooperative Mediterraneo Wine Cooperative


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TABLE OF AUTHORITIES

Table of Publications

C.M. Bianca and M.J.

Bonell

COMMENTARY ON THE INTERNATIONAL SALES LAW:

THE 1980 VIENNA SALES CONVENTION, Guiffre, Milan 1987

cited as: Bianca

cited in paras. 79, 100, 108

Chow, Daniel C.K. and

Schoenbaum, Thomas J.

INTERNATIONAL BUSINESS TRANSACTIONS, Aspen

Publishers, 2005

cited as: Chow

cited in para. 72

Fawcett, James (ed.) "Declining Jurisdiction in Private International Law," Report to the

XIVth Congress of the International Academy of Comparative Law,

Athens, 1994 (Oxford University Press, Oxford, 1995)

cited as: Fawcett

cited in para. 32

Felemegas, John (ed.) AN INTERNATIONAL APPROACH TO THE

INTERPRETATION OF THE UNITED NATIONS

CONVENTION FOR THE INTERNATIONAL SALE OF

GOODS (1980) AS UNIFORM SALES LAW, Cambridge:

Cambridge University Press, 2007

cited as: author in Felemegas

cited in paras. 67-68, 76, 79-81, 83

Folsom, Ralph H.,

Gordon, Michael W, and

Spanogle, John A.

Principles of International Business Transactions, Trade, and

Economic Relations, Thomson-West, 2005

cited as: Folsom

cited in paras. 61, 69


vii

Garro, Alejandro M. “Reconciliation of Legal Traditions in the U.N. Convention on

Contracts for the International Sale of Goods,” 23 INT'L LAW. 443

(1989)

cited as: Garro

cited in para. 68

Henschel, René Franz THE CONFORMITY OF GOODS IN INTERNATIONAL

SALES: AN ANALYSIS OF ARTICLE 35 IN THE UNITED

NATIONS CONVENTION ON CONTRACTS FOR THE

INTERNATIONAL SALE OF GOODS (CISG), Copenhagen:

Forlaget Thompson, 2005

cited as: Henschel

cited in paras. 97, 99, 100, 102, 107

Honnold, John UNIFORM LAW FOR INTERNATIONAL SALES UNDER THE

1980 UNITED NATIONS CONVENTION, 3d ed. The Hague:

Kluwer Law International, 1999

cited as: Honnold

cited in paras. 61, 79, 81, 86

International Law

Association Report

Toronto Conference (2006) on International Commercial Arbitration:

Final Report on Lis Pendens and Arbitration, Professor Filip De Ly

(chair), available at: http://www.ila-

hq.org/pdf/Int%20Commercial%20Arbitration/Report%202006.pdf

cited as: Int’l Law Ass’n Report

cited in para. 32

International Law

Association Resolution

Resolution 1/2006, International Law Association, 4-8 June 2006, available

at: http://www.ila-

hq.org/pdf/Int%20Commercial%20Arbitration/Resolution%201%2

02006%20Commercial%20ArbitrationEnglish.pdf

cited as: International Law Association Resolution


viii

Lookofsky, Joseph “Convention on Contracts for the International Sale of Goods,”

INTERNATIONAL ENCYCLOPAEDIA OF LAWS -

CONTRACTS, The Hague: Kluwer Law International, 1980

cited as: Lookofsky


Ramberg, Christina ELECTRONIC COMMUNICATIONS UNDER CISG, CISG-AC

Opinion no 1, 15 August 2003,

cited as: CISG-Advisory Council Opinion no 1

cited in para. 72

Redfern, Alan and

Hunter, Martin

LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL

ARBITRATION: STUDENT EDITION, Sweet & Maxwell, 2003

cited as: Redfern & Hunter, paras. 45-46, 52

Sanders, Pieter “Hommage a Frederic Eisemann Liber Amicorum” (1979)

cited as: Sanders


Sanders, Pieter and

van den Berg, Albert Jan

(eds.)

INTERNATION HANDBOOK ON COMMERCIAL

ARBITRATION, Kluwer (2007)

cited as: author in IHCA at country - p.

cited in para. 56

Schlechtriem, Peter and

Ingeborg Schwenzer (eds.)

COMMENTARY ON THE UN CONVENTION ON THE

INTERNATIONAL SALE OF GOODS (CISG), 2nd. ed. Oxford:

Oxford University Press, 2005

cited as: author in Schlechtriem

cited in paras. 58, 65, 71-73, 77, 81, 84, 91, 97, 99, 102, 104-108, 110-

111


ix

United Nations “Report of the United Nations Commission on International Trade

Law on the work of its eighteenth Session,” Vienna, 1985.

cited as: UN Report


UNCITRAL MODEL LAW ON ELECTRONIC COMMERCE

WITH GUIDE TO ENACTMENT 1996, New York: United

Nations Publication, 1999 at 56

cited as: Guide to Electronic Commerce Law

cited in para. 74

van den Berg, Albert Jan The New York Arbitration Convention of 1958, Kluwer (1981)

cited as: van den Berg


Table of Cases

Bermuda Sojuznefteexport v. Joc Oil Ltd., XV Yearbook Commercial

Arbitration 384 (1989)

cited as

cited in Joc Oil, para. 56


x

Canada Chateau des Charmes Wines Ltd. v. Sabate USA Inc., Sabate

S.A., Ontario Superior Court of Justice (2005)

cited as: Chateau des Charmes Wines Ltd

cited in para. 61

Heyman v. Darwins Ltd., 1 All E.R. 337 (1942)

cited as: Heyman v. Darwins

cited in para. 56

Canadian Motion Picture Productions Ltd. v. Maynard Film

Distributing Co., 4 D.L.R. 458 (1949)

cited as: Canadian Motion Picture

cited in para. 56

China America Inland Sea Incorporated and China Jiedong County

Haifu Fishery v. Jiedong County Yuequn Fishery and Yuequn

Hong, Higher People's Court [Appellate Court] of Guangdong

Province (10 October 2004)

cited as: America Inland Sea Case

cited in para. 93

France Sacovini s.r.l. v. 1. Société Les Fils de Henri Ramel s.a.r.l.; 2.

Société Bonfils Georges S.A.; 3. Société Preau et Compagnie

S.A., Cour de Cassation (1996)

cited as: Sacovini

cited in para. 109

L & B Cassia v. Pia Investments, Cass 10.7.90, Rev. Arb. (1990)

cited as: Cassia v. Pia

cited in para. 56


xi

Germany New Zealand Mussels Case (Switzerland v. Germany), Appellate

Court Frankfurt No. 13 U 51/93 (1994)

cited as: Mussels Case

cited in para. 100

Seller (Belgium) v. Buyer (Germany) Oberlandesgericht

Schleswig (2002)

cited as: Live Sheep Case

cited in para. 98

Seller (Belgium) v. Buyer (Germany), Bundesgerichtshof (2005)

cited as: Pork-Meat

cited in para. 104

Seller (Italy) v. Buyer (Germany), Landgericht Trier (1995)

cited as: Diluted Wine Case

cited in para. 101

Italy Buyer (Ecuador) v. Seller (Italy), Tribunale di Busto Arsizio

(2001)

cited as: Machinery Case

cited in para. 98

Netherlands Condensate Crude Oil Mix Case (Netherlands v. UK),

Netherlands Arbitration Institute, Case No. 2319 (2002)

cited as: Condensate Crude Oil

cited in para. 108

Spain Manipulados de Papel y Cartón, SA (Spain) v. Sugem Europa,

SL (Spain), Audencia Provincial de Barcelona (1997)

cited as: Manipulados de Papel y Cartón

cited in para. 98


xii

Switzerland Centrala Cooperativa de Import si Export v. Murel et Cie, ATF

65I 19 (1939)

cited as: Centrala Cooperativa

cited in para. 56

United States Allen v. Attorney General of the State of Maine, 80 F.3d 569 (1st

Cir 1996)

cited as: Allen

cited in para. 96

Geneva Pharmaceuticals Technology Corp. v. Barr

Laboratories, Inc., et al., 201 F.Supp.2d 236 (S.D.N.Y., 2002)

cited as: Geneva Pharmaceuticals

cited in para. 89

MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova

D’Agostino, 144 F.3d 1384 (11th Cir. 1998)

cited as: MCC-Marble Ceramic Center, Inc.

cited in para. 65

Prima Paint Corp v. Flood & Conklin Mfg. Co., 87 S.Ct. 1801

(1967)

cited as: Prima Paint

cited in paras. 48, 50-51, 53-55

Sandvik AB v. Advent Int’l Corp., 220 F.3d 99 (3rd Cir. 2000)

cited as: Sandvik AB

cited in para. 55

Three Valleys Municipal Water District v. E.F. Hutton & Co.,

925 F.2d 1136 (9th Cir. 1991)

cited as: Three Valleys

cited in paras. 53-54


1

STATEMENT OF FACTS

1. Mediterraneo Wine Cooperative (“Wine Cooperative”), the seller in this case, participated in a trade

fair for the wine industry in the country of Oceania. Equatoriana Super Markets (“Super Markets”),

the buyer in this case, attended the trade fair in order to find a wine to promote in Equatoriana in

the fall of 2006 [Statement of Claim, para. 5].

2. Mr. Wolf, of Super Markets, expressed interest in the Blue Hills 2005 wine variety to Mr. Cox, of

Wine Cooperative [Cl. Ex. No. 2]. After an exchange of letters between Mr. Wolf and Mr. Cox,

Super Markets offered to purchase 20,000 cases of Blue Hills 2005 wine from Wine Cooperative on

10 June 2006 for use in an upcoming promotion [Cl. Ex. Nos. 4, 5]. Super Markets required the wine

to be shipped in four separate shipments [Cl. Ex. No. 5, para. 2].

3. Super Markets submitted a purchase order for 20,000 cases of Blue Hills 2005 wine [Cl. Ex. Nos. 4,

5]. In an accompanying letter, Super Markets stated the following: “[Super Markets] would have to

turn to another quality wine as the featured item in our promotion if the contract closing were to be

delayed beyond 21 June 2006.” [Cl. Ex. No. 4].

4. The purchase order included an arbitral clause [Cl. Ex. No. 5, para. 13]. This clause states:

Any dispute, controversy or claim arising out of or relating to this contract, including the formation, interpretation, breach or termination thereof, including whether the claims asserted are arbitrable, will be referred to and finally determined by arbitration in accordance with the JAMS International Arbitration Rules. The tribunal will consist of three arbitrators. The place of arbitration will be Vindobona, Danubia. The language to be used in the arbitral proceedings will be English. Judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof.

5. When the purchase order and letter arrived at Wine Cooperative on 10 June 2006, Mr. Cox was

absent from the office on a business trip [Statement of Claim, para.8]. Ms. Kringle, Mr. Cox’s assistant,

emailed Mr. Wolf informing him that Mr. Cox was absent from the office [Cl. Ex. No. 6].

6. Mr. Wolf responded to Ms. Kringle’s email on the same day [Cl. Ex. No. 7]. In his email he stated:

“Please be sure to have Mr. Cox act on our purchase order immediately on his return, since we are

operating under a narrow time frame for our wine promotion in September.” [Id.].


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7. On 18 June 2006, Super Markets sent a revocation email (“the revocation email”) to Wine

Cooperative, stating that Super Markets revokes “the offer to purchase 20,000 cases of Blue Hills

2005 made by [Super Markets] on 10 June 2006” [Cl. Ex. No. 9]. The email entered Wine

Cooperative’s server on 18 June 2006, and a service failure on that day prevented the email from

arriving in Mr. Cox’s email inbox until the afternoon of 19 June 2006 [see Statement of Claim, para. 10;

see also Proc. Order 2, para. 26].

8. While the revocation email was stuck in Wine Cooperative’s own server, Mr. Cox signed the

purchase order and dispatched the acceptance on the morning of 19 June 2006 [see Cl. Ex. No. 5].

On the afternoon of 19 June 2006, after he had dispatched acceptance and after Wine Cooperative

finally repaired its server, Mr. Cox received the revocation email [Statement of Claim, para. 10].

9. In the revocation email, Mr. Wolf expressed that Super Markets’ reason for withdrawing the offer to

purchase was because newspapers in Equatoriana published an article describing a scandal

concerning wine production in the Blue Hills region of Mediterraneo [Cl. Ex. No. 9]. Specifically, the

articles reported that anti-freeze had been used to sweeten wine in Mediterraneo [Id.].

10. In response to Mr. Wolf’s email, Mr. Cox retained an expert on wine research who submitted a

report that conceded that Blue Hills 2005 wine had been sweetened with a substance that can be

used as anti-freeze. [Cl. Ex. No. 13; see also Cl. Ex. No. 12]. Mr. Cox’s own expert submitted a report

claiming that the sweetened wine was safe for consumption [Id.].

11. Wine Cooperative’s purported acceptance of the offer reached Mr. Wolf on 21 June 2006, when Mr.

Wolf received the signed document [see Statement of Claim, para. 9].

12. Super Markets refused to take delivery of the Blue Hills 2005 wine [Cl. Ex. No. 11]. Wine

Cooperative subsequently offered to reduce its price [Cl. Ex. No. 15]. Super Markets reiterated that it

refused to purchase the Blue Hills 2005 wine [Cl. Ex. No. 16].

13. Super Markets commenced a proceeding in the Commercial Court of Vindobona, Danubia

(“Commercial Court”) [Langweiler Letter, 17 July 2007]. Super Markets asked the Commercial Court to

declare that the arbitral clause was never concluded [id; see also Pro. Order 2, para. 9.].

14. The Commercial Court is unlikely to consider the issue before the summer of 2008 [Pro. Order 2,

para. 10].


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15. Equatoriana, Mediterraneo, and Danubia are signatories to the New York Convention [Statement of

Claim, para. 18].

16. Mediterraneo and Equatoriana are parties to the CISG [Statement of Claim, para. 15].

17. Neither purchase order nor the arbitral clause contained a choice of law clause [Statement of Claim,

para. 15; Cl. Ex. No. 5, para. 13].

18. Wine Cooperative and Super Markets agree that the CISG governs any contract for sale between

them [Statement of Def., para. 2; see also Statement of Claim, para. 23].

19. Both Mediterraneo and Equatoriana have adopted the text of the Electronic Commerce Law

[Statement of Claim, para. 16].

20. Equatoriana follows common law contract formation rules [Pro. Order. 2, para. 7].

21. Mediterraneo follows contract formation rules similar to those in the CISG [Pro. Order. 2, para. 7].

SUMMARY OF THE ARGUMENT

PART ONE: THE ARBITRAL TRIBUNAL, IN ITS DISCRETION, SHOULD DEFER TO

THE COMMERCIAL COURT TO DECIDE THE JURISDICTIONAL ISSUE.

22. Under the Danubian Arbitration Law, Super Markets is expressly permitted to seek judicial relief

concurrently with arbitral proceedings. This Tribunal should stay these arbitral proceedings and

defer to the Commercial Court’s decision regarding the existence of an arbitral agreement to ensure

an efficient resolution to this dispute and to avoid duplicative proceedings. Furthermore, this

Tribunal does not have jurisdiction to resolve this dispute because the parties did not conclude any

aspect of a contract for sale, including an agreement to arbitrate.

PART TWO: NO CONTRACT WAS CONCLUDED BETWEEN THE PARTIES BECAUSE

SUPER MARKETS PROPERLY REVOKED ITS OFFER.

23. Under CISG Article 16, Super Markets properly revoked its offer to Wine Cooperative through its

18 June 2006 email. An offer is generally revocable, but the revocation must meet the requirements

of Articles 16(1) and 16(2). Super Markets’ revocation email meets the requirements of CISG Article

16(1) because the revocation occurred before contract conclusion and the revocation email reached


4

Wine Cooperative before Wine Cooperative dispatched its acceptance. Super Markets’ revocation

email also meets the requirements of CISG Article 16(2) because Super Markets did not fix a time

for acceptance that created an irrevocable offer, and Wine Cooperative did not act in reasonable

reliance of the purportedly irrevocable offer. Thus, Super Markets’ revocation email meets the

requirements of both CISG Articles 16(1) and 16(2). Because the offer was properly revoked

through Super Markets’ revocation email, no contract was concluded between the parties.

24. Because Wine Cooperative’s wine contained an anti-freeze substance, Super Markets properly

refused to take delivery of the conforming goods. Super Markets informed Wine Cooperative that

the particular purpose for the wine was for promotion in Equatoriana. The wine was unfit for the

particular purpose of promotion. Further, the wine was also unfit for the ordinary uses of resale and

consumption.

PART ONE: THE ARBITRAL TRIBUNAL, IN ITS DISCRETION, SHOULD DEFER

TO THE COMMERCIAL COURT TO DECIDE THE JURISDICTIONAL ISSUE.

I. THE TRIBUNAL SHOULD STAY THE ARBITRAL PROCEEDINGS PENDING A DECISION BY THE

COMMERCIAL COURT.

25. Danubian Arbitration Law expressly permits Super Markets to seek judicial relief while arbitral

proceedings are pending. The Tribunal should stay these proceedings and defer to the Commercial

Court for reasons of efficiency and to avoid duplicative proceedings.

A. The Danubian Arbitration Law Expressly Authorizes a Party to Seek a Judicial

Determination of the Existence of an Agreement to Arbitrate.

26. The Danubian Arbitration Law allows for court proceedings and encourages them as a matter of

law. Article 8 of the Danubian Arbitration Law states:

(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. (2) Prior to the constitution of the arbitral tribunal, an application may be made to the court to determine whether or not arbitration is permissible.


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(3) Where an action referred to in paragraph (1) or (2) of this article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.

27. Article 8 embodies the principle that courts are entitled to review the existence and validity of an

agreement to arbitrate. According to Article 8(1), courts will, after reviewing and confirming the

existence and validity of an agreement to arbitrate, subsequently refer the parties to arbitration.

Moreover, Article 8(2) of the Danubian Arbitration Law authorizes a party to apply to a court to

determine whether or not arbitration is permissible. Consequently, a purpose of Article 8 is to

balance the responsibility of determining the existence and validity of an agreement to arbitrate

between courts and arbitral tribunals. Article 8(2) permits a party to challenge arbitral jurisdiction

provided that the challenging party raises the issue prior to the constitution of an arbitral tribunal.

28. In its Report of the United Nations Commission on International Trade Law (1985), the

Commission detailed the history of Article 8 of the UNCITRAL Model Law (upon which the

Danubian Arbitration Law is partially based). The Commission articulated the reasoning and

intention behind Article 8, which is balancing the power of courts and tribunals to determine the

permissibility of arbitration and implying a preference that courts decide matters of validity when

there are serious doubts:

[W]here the arbitral tribunal had serious doubts as to its jurisdiction, it would probably either proceed to a final determination of that issue in a ruling on a plea referred to in article 16(2) or, in exercising the discretion accorded to it by [Danubian Arbitration Law Article 8(3)], await the decision of the court before proceeding with the arbitration.

[UN Report, para. 92]. Furthermore, there was serious discussion within the Commission as to

whether Article 8 should be amended to preclude the possibility of concurrent arbitral and court

proceedings [id., para. 91]. Members of the Commission argued that “once the issue as to whether

the arbitration agreement was null and void was raised before the court, priority should be accorded

to the court proceedings by recognizing a power in the courts to stay the arbitral proceedings or, at

least, by precluding the arbitral tribunal from rendering an award.” [Id., para. 91]. The drafters of the

UNCITRAL Model Law declined to amend Article 8, so as not to restrict the functioning of

tribunals. However, Danubia amended the UNCITRAL Model Law to permit for more expansive

court review [see infra. para. 37 for a discussion of the Danubian amendment].


6

29. Super Markets brought an action before the Commercial Court on 4 July 2007 to determine the

permissibility of arbitration [Pro. Order 2, para. 9]. Super Markets applied to the Commercial Court

well before the constitution of this Tribunal and within the procedural requirements of Article 8 of

the Danubian Arbitration Law. In fact, Super Markets had commenced the action before it was

required to correspond with the JAMS Case Manager [see Langweiler Letter, 17 July 2007; see also

O’Shaughnessy Letter, 21 June 2007]. Super Markets’ first correspondence with the JAMS Case Manager

included a Statement of Defense, named a party-arbitrator, and immediately notified the JAMS Case

Manager that an action was already pending before the Commercial Court [Langweiler Letter, 17 July

2007.]. The action before the Commercial Court was commenced prior to the appointment of a

second or third arbitrator, and before Procedural Order 1 or 2 was issued [see Langweiler Letter, 17 July

2007; see also generally Pro. Order 1; see also generally Pro. Order 2]. Nevertheless, Article 8(3) of the

Danubian Arbitration Law permits this Tribunal to exercise discretionary authority to commence

proceedings even while there is a pending action before the Commercial Court. This Tribunal

should exercise its discretion to stay these arbitral proceedings.

B. Prior to Oral Arguments Scheduled for March 2008, this Tribunal Should Issue an

Interim Order to Stay These Proceedings Pending a Decision of the Commercial

Court.

30. A decision regarding the admissibility of the agreement to arbitrate is expected within a reasonable

time period. The decision will be forthcoming after the summer of 2008 [Pro. Order 2, para. 10].

Where this Tribunal has not yet convened, nor considered the merits or substance of the claims of

either party, this Tribunal should exercise its discretion to stay these proceedings. This decision is

reasonable because it will reduce duplicative concurrent proceedings, reduce costs to both parties by

allowing them to address jurisdictional issues in a single forum, and avoid conflicting decisions

between the Commercial Court and this Tribunal.

31. Regardless of what the Commercial Court holds as to the existence of the arbitral agreement, both

parties benefit. This encourages an efficient resolution of the dispute. On one hand, if the

Commercial Court finds that an agreement to arbitrate never existed, as the ultimate authority on

jurisdiction under Article 8(1), the parties avoid duplicate proceedings. On the other hand, if the

Commercial Court finds that an agreement to arbitrate does exist, then it will refer the parties to

arbitration and reinforce the jurisdiction of this Tribunal. Consequently, this Tribunal would not be

asked to decide the overarching question as to the existence of an agreement to arbitrate, which


7

would then be subject to an appeal in the Commercial Court. Article 16(3) of the Danubian

Arbitration Law clarifies that a tribunal’s decision on the admissibility of the arbitral agreement is

subject to court appeal:

The arbitral tribunal may rule on a plea … [that the tribunal lacks jurisdiction] either as a preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court specified in article 6 to decide the matter, which decision shall be subject to no appeal: while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.

32. In this case, the phrase “the court specified in article 6” refers to the Commercial Court [Pro. Order 2,

para. 10]. As a result, this Tribunal’s decision regarding its competence to hear the claims of Super

Market and Wine Cooperative will be subject to an appeal to the Commercial Court unless this

Tribunal stays its decision.

C. Even if this Tribunal Permits Oral Argument, this Tribunal Should Grant a Stay of

These Proceedings Pending a Decision of the Commercial Court.

33. In 2006, the International Law Association authored a report on how tribunals can most effectively

deal with parallel proceedings under the doctrine of lis pendens [Int’l Law Ass’n Report]. Lis pendens is a

“situation in which parallel proceedings, involving the same parties and the same cause of action, are

continuing in two different states at the same time.” [Fawcett, 27]. The Report seeks to “give

guidance to arbitrators, when faced with an argument that other proceedings dealing with the same

matter are running in parallel and that the arbitral tribunal should suspend or terminate the

arbitration.” [Int’l Law Ass’n Report, para. 5.4]. The Report offers a number of recommendations

relevant to this Tribunal’s decision. The relevant considerations for granting a stay are sound case

management, avoiding conflicting decisions, preventing costly duplication of proceedings, and

protecting a party from obstructionist tactics [Int’l Law Ass’n Report, para. 6]. In light of these

considerations, the Report recommends that a tribunal may grant a stay when the tribunal is “(1) not

precluded from doing so under the applicable law; (2) satisfied that the outcome of the other

pending proceedings or settlement process is material to the outcome of the Current Arbitration;

and (3) satisfied that there will be no material prejudice to the party opposing the stay.” [Int’l Law

Ass’n Report, paras. 6.1-6.3].


8

34. These three conditions should weigh into this Tribunal’s decision on whether or not to grant a stay.

First, this Tribunal is not precluded under JAMS Rules or Danubian Arbitration Law from issuing a

stay of proceedings. In fact, the UNCITRAL Model Law implies that a tribunal has the authority to

stay arbitral proceedings while parallel proceedings are pending before a court of competent

authority [UN Report, para. 92]. Second, a decision of the Commercial Court is material to the

outcome of the current arbitral proceedings. If the Commercial Court rules that the purported

agreement to arbitrate is inadmissible, this Tribunal lacks jurisdiction to consider the parties’ claims.

Wine Cooperative agrees, noting that: “If the Commercial Court of Vindobona, Danubia finally

decides that arbitration proceedings are not admissible, Claimant [Wine Cooperative] will lose the

case.” [Cl. Memo., para. 44]. Third, there will be no material prejudice to Wine Cooperative if this

Tribunal stays proceedings until the Commercial Court has considered the admissibility of the

alleged agreement to arbitrate [see infra discussion paras. 35-44].

D. Wine Cooperative’s Arguments that this Tribunal Should Not Stay These

Proceedings Are Unpersuasive.

35. Wine Cooperative presents four unpersuasive arguments supporting denial a stay of arbitration.

None of these four reasons should persuade this Tribunal to deny a stay of proceedings. Rather, a

stay would be valid, reasonable, and prudent.

36. First, Wine Cooperative argues that the Commercial Court is likely to dismiss the claim under Article

8(2) of the Danubian Arbitration Law because the scope of Article 8(2) is narrow. However, under

Danubian Arbitration Law, the Commercial Court is expressly permitted to find whether there is a

permissible agreement to arbitrate by determining whether the alleged arbitral clause is “null and

void, inoperative or incapable of being performed.” [Art. 8(1)]. The Commercial Court is

considering this exact issue: the existence of an agreement to arbitrate.

37. Furthermore, when enacting the Danubian Arbitration Law, Danubia adopted the UNCITRAL

Model Law with one major amendment. Danubia added a provision (Danubian Arbitration Law

Article 8(2)), which expands judicial review to determine the permissibility of an agreement to

arbitrate. This amendment expressly authorizes and encourages the Commercial Court to examine

the jurisdiction of this Tribunal beyond that which would otherwise be provided in the UNCITRAL

Model Law. The amendment to the UNCITRAL Model Law serves no other purpose but to expand

the Commercial Court’s power to review the permissibility of arbitration. Super Markets’ action


9

before the Commercial Court is well within the Danubian Arbitration Law’s scope of review.

Furthermore, the cases that Wine Cooperative cites to interpret Article 8 are from countries that

have enacted the UNCITRAL Model Law, absent the amendment expanding judicial review of

arbitral jurisdiction [see Cl. Memo. para. 35, arguing that the Tribunal has the power in the first

instance to decide whether an agreement to arbitrate exists, based on Canadian and Hong Kong case

law]. Consequently, the reliability of these cases to predict a decision of the Commercial Court is

limited because they do not consider the Commercial Court’s expanded power of review.

38. Wine Cooperative argues that this Tribunal has the power to decide whether an agreement to

arbitrate exists as a matter of first instance [Cl. Memo. para. 35]. Super Markets does not dispute that

the question of the existence of an agreement to arbitrate may be considered by this Tribunal. This

Tribunal is authorized to consider such questions in the context of parallel proceedings under

Article 8(3) of the Danubian Arbitration Law and under Article 16(3). However, an assertion that

this Tribunal is the only forum relevant for disputing the existence of an agreement to arbitrate is

false and does not take into account the Danubian amendment to the UNCITRAL Model Law.

39. Wine Cooperative also cites Article 16(3) of the Danubian Arbitration Law as support that this

Tribunal should make the decision in the first instance [Cl. Memo., para. 35]. However, Article 16(3)

allows a tribunal to rule on jurisdiction, but it in no way limits the ability of a court to rule on the

existence of an agreement to arbitrate.

40. Second, Wine Cooperative argues that Super Markets should not benefit from a breach of JAMS

Rule 17.3 [Cl. Memo., para. 38]. However, Super Markets did not breach JAMS Rule 17.3. Under

JAMS Rule 17.3, parties that agree to arbitrate also agree not to apply to any court or other judicial

authority for relief. However, JAMS Rule 1.5 notes that the Rules “govern the conduct of the

arbitration except that where any of these Rules is in conflict with a mandatory provision of

applicable arbitration law of the place of the arbitration, that provision of law will prevail.” JAMS

Rule 1.5 states that mandatory arbitration laws supercede JAMS Rules when the two conflict. Since

Danubian Arbitration Law permits a party to pursue judicial recourse, this provision should

supersede JAMS Rule 17.3. Moreover, it would be unreasonable to infer that any consequences

should follow from Super Markets pursuing a remedy that is permitted under the Danubian

Arbitration Law. Super Markets acted in good faith and within the scope of the Danubian

Arbitration Law when asking the Commercial Court to decide whether or not there is an agreement


10

to arbitrate. Furthermore, as a threshold matter, if there is no agreement to arbitrate, then the JAMS

Rules do not even apply. Super Markets gains no benefit by pursuing an action in the Commercial

Court that would materially prejudice Wine Cooperative; drawing any inferences from pursuing legal

recourse would be unreasonable.

41. Third, Wine Cooperative argues that it would face substantial costs if this Tribunal stays arbitral

proceedings [Cl. Memo., para. 41]. The costs that Wine Cooperative lists are the cost of storage of

20,000 cases of Blue Hills 2005 and the costs associated with any delayed sale of those cases [Cl.

Memo., para. 41-43]. The argument that this results in substantial costs to Wine Cooperative is not a

persuasive argument for denying a stay of these proceedings. Such costs are minimal. Moreover,

Wine Cooperative argues that it cannot sell those cases to a third party during these proceedings [Cl.

Memo., para. 41]. However, if Wine Cooperative were to sell those cases to a third party, there would

be a substantial mitigation of costs and a more efficient resolution to this dispute. Wine Cooperative

may have a duty to mitigate costs by attempting to sell the cases to a third party [see CISG Art. 77].

42. Wine Cooperative then argues that commencing the action before the Commercial Court and

seeking a stay from this Tribunal “place[s] it in a worse position. Those measures are taken in bad

faith by [Super Markets] and should therefore not be supported by the Tribunal.” [Cl. Memo., para.

42]. Super Markets, in seeking a recourse provided by Danubia’s legislature, is acting in good faith.

43. Contrary to the assertion of Wine Cooperative, staying these arbitral proceedings will not “destroy

those benefits of arbitration.” [Cl. Memo., para. 43]. In fact, even if this Tribunal accepts Wine

Cooperative’s recommendation to “take pure economic-based arguments strongly into account,”

such arguments favor staying these proceedings [id.]. Rather than litigating in two fora, staying these

proceedings has the advantage of reducing the number of proceedings. Furthermore, under Article

16(3), if this Tribunal proceeds and rules it has jurisdiction, such a decision will be subject to an

appeal of the Commercial Court regardless [see supra para. 31]. Moreover, if the Commercial Court

refers the parties to arbitration, then this Tribunal will decide jurisdiction. If the Commercial Court

finds that arbitration is not permissible, the parties are spared an extended arbitration process. An

economic approach that favors efficiency gives support to staying these arbitral proceedings.

44. Fourth, Wine Cooperative argues that it bears the risk of higher procedural costs [Cl. Memo., para.

44-46]. This is untrue. Wine Cooperative argues that a Commercial Court decision that there was no


11

agreement to arbitrate would lead the court to impose costs upon Wine Cooperative [Cl. Memo., para.

44]. While this may be true, Super Markets and Wine Cooperative share the costs of continuing

these arbitral proceedings. These proceedings will be wasted if the Commercial Court rules the

agreement to arbitrate does not exist in the first instance. Wine Cooperative then notes that “[i]f,

however, the Court decides that the Tribunal is the competent body to settle the dispute and the

Proceedings are stayed at this point in time, unnecessary costs are created which have to be paid by

[Wine Cooperative] due to a breach of the obligation of [Super Markets].” [Cl. Memo., para. 46].

There is no indication that Wine Cooperative bears any additional or disproportionate costs if this

Tribunal stays these proceedings until after the summer of 2008, except for the storage of 20,000

cases of Blue Hills 2005. This reason should not play into this Tribunal’s decision of whether to

grant the stay. In reality, this Tribunal has the power to consider such costs when and if it renders an

award.

II. THIS TRIBUNAL HAS NO JURISDICTION.

45. This Tribunal is competent to decide its own jurisdiction [JAMS Rule 17.1]. However, this Tribunal

does not have jurisdiction to resolve this dispute because the parties did not conclude any aspect of

the agreement, including the agreement to arbitrate.

A. If the Parties Agreed to Arbitrate, then the Arbitral Proceedings Must Conform with

the New York Convention and the Danubian Arbitration Law.

46. Wine Cooperative contends that it and Super Markets contracted for the sale of wine by accepting

Super Markets’ offer to purchase wine, contained in the Purchase Order [Cl. Memo., para. 9]. The

Purchase Order contained an arbitral clause. The clause reads, in part: “Any dispute, controversy or

claim arising out of or relating to this contract, including the formation, interpretation, breach or

termination thereof, including whether the claims asserted are arbitrable, will be referred to and

finally determined by arbitration…. The place of arbitration will be Vindobona, Danubia.” [Cl. Ex.

No. 5, para. 13]. The term “place” is a legal term of art indicating the parties’ agreement to the legal

situs of the arbitration [Redfern & Hunter § 3-52]. In this case, the place of arbitration is Vindobona,

Danubia. Danubia is party to the New York Convention, as are Equatoriana and Mediterraneo

[Statement of Claim, para. 18; Statement of Def., para. 5]. Danubia has also enacted the Danubian

Arbitration Law [Statement of Def., para. 4]. Therefore, if the parties concluded an agreement to

arbitrate, that agreement would be governed by the New York Convention and the Danubian

Arbitration Law.


12

B. The New York Convention and the Danubian Arbitration Law both Require an

Agreement to Arbitrate.

47. The existence of an agreement to arbitrate is a prerequisite for an arbitral tribunal’s jurisdiction. For

example, New York Convention Article II(3) states:

The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

[Emphasis added]. Further, Danubian Arbitration Law Article 8(1) is essentially identical. Read

together, these laws require that parties agree to arbitrate in writing before an arbitral tribunal has

jurisdiction over a claim:

The agreement to arbitrate is the foundation stone of international commercial arbitration. It serves to evidence the consent of the parties to submit to arbitration. This consent is indispensable to any process of dispute resolution outside national courts; such processes depend for their very existence upon the agreement of the parties.

[Redfern & Hunter, § 3-01]. Therefore, the absence of an arbitral agreement necessarily precludes

arbitral jurisdiction. When the Tribunal considers whether to apply various legal doctrines, such as

the doctrine of separability discussed below, to the facts of this case, it should remember that its

jurisdiction is based solely on the consent of both parties. Without mutual consent formalized in an

agreement to arbitrate, this Tribunal should decline jurisdiction over this dispute.

C. The Doctrine of Separability Does Not Apply in All Cases.

48. Super Markets agrees with Wine Cooperative that the doctrine of separability operates to make an

arbitral clause in a contract independent from the main contract of which it forms a part [Cl. Memo.,

para. 11]. The doctrine is commonly applied when one party alleges that it was fraudulently induced

to enter into a contract containing an arbitral clause [see Prima Paint]. In such cases, the doctrine

permits arbitral tribunals to retain jurisdiction over the dispute even if the underlying contract is

found to be invalid or voidable [id.]. However, the doctrine does not always apply when the

underlying contract (a “container contract”), including an arbitral clause, never existed. Here, Super

Markets and Wine Cooperative never concluded the purported contract, including the arbitral clause

contained therein.


13

49. The Danubian Arbitration Law codifies the doctrine of separability. Article 16(1) of the Danubian

Arbitration Law states:

The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of the contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

However, the New York Convention does not address the doctrine of separability [van den Berg at

146].

50. Wine Cooperative cites the Prima Paint decision to support the doctrine of separability [Cl. Memo.

para. 13]. Prima Paint can be broadly read to hold that an arbitral clause in a contract remains

enforceable even where one party alleges that the party was fraudulently induced to enter into the

contract. However, a careful reading of Prima Paint shows that the U.S. Supreme Court held that

when an arbitral clause is broad in scope, a party alleging fraudulent inducement of the container

contract must also allege that the party was fraudulently induced to enter into the arbitral agreement

[Prima Paint, 403-04]. Fraud makes an existing contract voidable by the victim of the fraud, though

the contract remains enforceable against the party that perpetrated the fraud [UNIDROIT Principles

Art. 3.8; Rest. of Contracts § 7 cmt. b]. Thus, Prima Paint did not address a situation where the container

contract was nonexistent.

51. The issue that the Prima Paint Court did not address, a situation where the container contract was

nonexistent, is a recognized limit to the doctrine of separability [Sanders, 34; van den Berg, 145]. In a

case where a container contract is nonexistent, an arbitral tribunal should not apply the doctrine of

separability. Such an application would violate the agreement requirement of New York Convention

Article II(3) and Danubian Arbitration Law Article 7(3). If an arbitral tribunal did apply said law, a

supervising court may choose to set aside the award pursuant to Article 34(2)(a)(i) of the Danubian

Arbitration Law.

52. An example of this limit to the doctrine of separability arises

in the case where the existence of the contact itself is contested. If the question arises whether the parties have indeed concluded a


14

contract containing an arbitration clause, the jurisdiction of the arbitrator is put in question. If there is no contract at all [i.e. no agreement], the legal basis of the arbitrator’s powers which reside in the arbitration clause found in the contract ‘is also missing’.

[Sanders, 34]. This exception recognizes that there is a distinction between the nullity of a contract (a

voidable contract), and its nonexistence [Redfern & Hunter, § 3-34]. When a party contends that no

contract ever existed, “such a contention must be deemed to apply equally to the arbitral clause.”

[van den Berg, 145].

53. United States decisions following Prima Paint have recognized the distinction between nonexistent

and voidable contracts when deciding whether to apply the doctrine of separability. For example, in

Three Valleys (United States, 1991), Three Valleys alleged that the agreements it entered into with

Hutton never existed because Hutton’s representatives had no power to sign on Hutton’s behalf.

The Three Valleys court held that Three Valleys could not be compelled to arbitrate the issue of the

existence of their agreements because a party could not be required to arbitrate any dispute that it

had not agreed to arbitrate. The Three Valleys court chose to take a narrow reading of Prima Paint to

reach its holding, reading the decision as “limited to challenges seeking to avoid or rescind a

contract—not to challenges going to the very existence of a contract.” [Three Valleys, 1140]. The

Three Valleys court further stated that, “a party who contests the making of a contract containing an

arbitration provision cannot be compelled to arbitrate the threshold issue of the existence of an

agreement to arbitrate; only a court can make that decision.” [Id.].

54. Had the Three Valleys court chosen to read Prima Paint more broadly, the result would have been

untenable. To illustrate the point, the court included a simple example of an untenable result reached

through a broad reading of Prima Paint: “Party A could forge party B’s name to a contract and

compel party B to arbitrate the question of the genuineness of its signature.” [Id.]. The narrow

reading of Prima Paint by the Three Valleys court, which Super Markets urges this Tribunal to adopt,

avoids this untenable result: an arbitral tribunal using the power of a purported agreement to

arbitrate to determine the existence of that agreement to arbitrate.

55. In another USA decision, the court accepted the nonexistence and voidable distinction because an

agreement to arbitrate “cannot arise out of a broader contract if no broader contract ever existed.”

[Sandvik AB, 108 (United States, 2000)]. In Sandvik, the court noted that Prima Paint’s holding did not

grapple with what is to be done when a party contends that no contract ever existed [id. at 105].


15

Arbitration is a matter of contract, and a party cannot be required to arbitrate any dispute to which it

has not agreed to submit to arbitration [id.]. If there is doubt as to whether an agreement to arbitrate

exists based on a question implicating the validity of the underlying contract, the matter should be

submitted to a court [id. at 106].

56. Countries other than the USA also apply the distinction between nonexistent and voidable contracts

when deciding whether to apply the doctrine of separability. In Joc Oil (Bermuda, 1989), though the

Court of Appeal of Bermuda recognized that the doctrine of separability existed under Soviet Law,

the Court also acknowledged that the doctrine does not apply when the container contract never

came into existence. The courts of many countries, including France, Canada, Switzerland, and

Germany recognize the same distinction when applying the doctrine of separability [Cassia v. Pia

(France, 1990); Heyman v. Darwins and Canadian Motion Picture (Canada, 1942); Centrala Cooperativa

(Switzerland, 1939); Kröll in IHCA at Germany-19; van den Berg in IHCA at Netherlands-8; Möller in IHCA

at Finland-6; Ottolenghi in IHCA at Israel-6; Lane in IHCA at South Africa-6; Leitão in IHCA at Portugal-

13; Haug in IHCA at Norway-5,6]. Therefore, where a party challenges the existence of the container

contract, as opposed to merely seeking to repudiate the container contract, a tribunal should not

apply the doctrine of separability. In such cases, if a tribunal determines that the container contract

never existed, it should decline jurisdiction over the dispute. Such a rule conforms to actual business

practices: when businesspeople revoke a contract, they typically intend to revoke the entire

agreement.

D. The Doctrine of Separability Does Not Apply to this Case.

57. As will be discussed below, the parties never formed a contract for the purchase of Blue Hills 2005

wine [see infra at para. 58]. The nonexistence of a contract for the purchase of Blue Hills 2005 wine

precludes the application of the doctrine of separability, and because the arbitral clause is not

separate from the container contract, a finding by this Tribunal that no contract ever existed means

that an agreement to arbitrate also never existed. Therefore, this Tribunal’s determination of the

existence of the contract to purchase wine determines the issue of this Tribunal’s jurisdiction.

PART TWO: NO CONTRACT OF SALE WAS CONCLUDED, BUT EVEN IF IT HAD

BEEN CONCLUDED BLUE HILLS 2005 WOULD HAVE BEEN UNFIT FOR SUPER

MARKETS’ PROMOTION.


16

I. NO CONTRACT EXISTS BETWEEN THE PARTIES BECAUSE SUPER MARKETS PROPERLY

REVOKED ITS 10 JUNE 2006 OFFER.

58. This Tribunal should apply the CISG to determine whether a contract was concluded between the

parties. Under CISG Article 1(1)(a), the CISG applies to contracts of sale of goods between parties

whose places of business are in different Contracting States [see Schlechtriem, 25]. Super Markets’

principal place of business is in Equatoriana [Statement of Claim, para.3]; Wine Cooperative’s principal

place of business is in Mediterraneo [Statement of Claim, para.1]. Both Equatoriana and Mediterraneo

are parties to the CISG [Statement of Claim, para. 15]. Super Markets and Wine Cooperative attempted

to conclude a contract for the sale of wine, which qualifies the transaction as a “contract of sale of

goods.” [See Schlechtriem, 26, noting that a “contract of sale” is a contract in which one party is obliged to deliver

the goods and the other party is obliged to pay the price for the goods; see also id., 28 noting that “goods” are basically

moveable, tangible objects]. Accordingly, the CISG applies to the question of whether a contract of sale

of goods between the two parties exists.

59. Under the CISG, Super Markets made an offer to Wine Cooperative, but Super Markets properly

revoked that offer through an 18 June 2006 email. Therefore no contract was concluded between

Wine Cooperative and Super Markets.

A. Super Markets Made an Offer to Wine Cooperative Through the Purchase Order.

60. Wine Cooperative assumes that the letter accompanying the 10 June 2006 purchase order is also part

of Super Markets’ offer [Cl. Memo., para. 50]. Wine Cooperative provides no legal basis to consider

the accompanying letter, in addition to the purchase order, as the offer [see id.]. Contrary to Wine

Cooperative’s conception of Super Markets’ offer, this Tribunal should consider Super Markets’

emailed purchase order alone to constitute an “offer” under CISG Article 14.

61. Under CISG Article 14, an “offer” must meet three requirements: it must (1) be a proposal for

concluding a contract, (2) indicate an intention to be bound in case of acceptance, and (3) be

sufficiently definite [Folsom, 25; see also Honnold, 133]. A proposal is “sufficiently definite” if it

includes a description of the goods, their quantity, and their price [id.; Chateau des Charmes Wines Ltd.

(Canada, 2005)].

62. Super Markets’ purchase order itself satisfies all three Article 14 requirements. Super Markets

addressed the order specifically to Wine Cooperative: “Super Markets … offers to purchase from


17

Mediterraneo Wine Cooperative.” [Cl. Ex. No. 5, para. 1]. Super Markets includes an arbitral clause

in reference to “this contract” [Cl. Ex. No. 5, para. 13.]. The order also contained the signature of

Mr. Wolf, the Principal Wine Buyer of Super Markets [id.]. A reasonable person in the place of Wine

Cooperative would interpret these facts to indicate the following: that Super Markets’ purchase

order was a proposal for concluding a contract and that Super Markets intended to be bound in case

Wine Cooperative accepted [see CISG Art. 8(2)]. Furthermore, the purchase order was sufficiently

definite because Super Markets proposed to purchase 20,000 cases of Blue Hills 2005 wine for a

total price of US$1,360,000 [Cl. Ex. No. 5, para. 1]. Consequently, this Tribunal should find that

Super Markets’ purchase order satisfies CISG Article 14 requirements for an offer.

63. Further, under the reasonable person analysis of CISG Articles 8(2) and 8(3), Wine Cooperative’s

own conduct indicates that it initially understood that only the purchase order was the offer. Wine

Cooperative only signed and dated the purchase order in its attempt to accept the offer [see Cl. Ex.

No. 5]. Wine Cooperative did not sign and date the letter accompanying the purchase order [see Cl.

Ex. No. 4]. This conduct on the part of Wine Cooperative contradicts its present assumption that

both the letter and the purchase order were part of the offer [see Cl. Memo., para. 50].

64. Under CISG Article 15(1), Super Markets’ offer was effective when the purchase order reached

Wine Cooperative [see Lookofsky, 64-65]. Super Markets does not dispute that the purchase order

reached Wine Cooperative [see generally Statement of Def.].

65. Even though the purchase order alone is a valid offer under CISG Article 14, in light of the rejection

of the parol evidence rule in CISG contracts [see CISG Art. 8(3); see also MCC Marble Ceramic Center,

Inc. (USA, 1998)], this Tribunal may nonetheless consider the accompanying letter as “additional

material [that] explains the content of [the alleged] written contract.” [Schmidt-Kessel in Schlechtriem,

125].

66. Super Markets’ revocation is proper and no contract was concluded between the parties regardless

of whether the Tribunal agrees with Wine Cooperative’s assumption that the accompanying letter is

part of the offer.

B. Super Markets Revoked Its Offer Through Its 18 June 2006 Email.

67. Super Markets sent a revocation email (“the revocation email”) to Wine Cooperative on 18 June

2006, stating that Super Markets revokes “the offer to purchase 20,000 cases of Blue Hills 2005


18

made by [Super Markets] on 10 June 2006” [Cl. Ex. No. 9]. Under CISG Article 16, offers are

generally revocable [see Vincze in Felemegas, 85; see also Lookofsky, para. 106, noting that “revocability is [the]

general rule”]. Even though an offer is generally revocable, the revocation must meet certain

requirements set forth in Articles 16(1) & 16(2) [see Vincze in Felemegas, 85]. Super Markets’

revocation email meets these requirements and is therefore, a valid revocation under CISG.

1. Under CISG Art 16(1), Super Markets validly revoked its offer.

68. Under CISG Article 16(1), a valid revocation must: (1) occur before contract conclusion; and (2)

reach offeree before offeree dispatches acceptance [Vincze in Felemegas, 86; Garro, 455 (noting that Art

16(1) is an “important consequence of the common law ‘mail-box rule’” and that “dispatch remains the standard to

determine the timeliness of revocation”)]. Because Super Markets’ revocation email meets both these

requirements, under CISG Article 16(1), Super Markets validly revoked its offer.

a. Revocation occurred before contract conclusion.

69. Super Markets revoked its offer before a contract was concluded between the parties. Under Article

16(1), the right to revoke terminates when the contract is concluded [Schelchtriem, 209]. Under CISG

Article 23, a contract is concluded when an acceptance of an offer becomes effective [Folsom, 25]. A

statement or conduct of an offeree indicating assent to an offer is an acceptance [see CISG Art.

18(1)], and such acceptance is effective only when it “reaches” the offeror [see CISG Art. 18(2); see

also Schelchtriem, 209]. An acceptance “reaches” the offeror when it is delivered to the offeror’s place

of business or mailing address [see CISG Art. 24]. Super Markets did not receive any acceptance

from Wine Cooperative before Super Markets sent and Wine Cooperative received the revocation

email. Consequently, under the first requirement of Article 16(1), Super Markets retained its right to

revoke its offer.

b. Revocation reached offeree before offeree dispatched acceptance.

70. The revocation email “reached” Wine Cooperative before Mr. Cox dispatched his acceptance. Even

though the revocation email entered Mr. Cox’s email inbox in the afternoon of 19 June 2006, the

email entered Wine Cooperative’s server on 18 June 2006 [Statement of Claim, para. 10]. Wine

Cooperative’s server was located on Wine Cooperative’s premises [Pro. Order 2, para, 27]. On 18 June

2006, there was an internal network failure at Wine Cooperative, which Wine Cooperative neglected

to fix until the afternoon of 19 June 2006 [Statement of Claim, para. 10]. Wine Cooperative’s network

failure prevented the revocation email from entering Mr. Cox’s email inbox until 19 June 2006 [see id;


19

Pro. Ord. 2, paras. 26-27.]. Therefore, the question whether Super Markets meets the CISG Article

16(1) condition for revocation hinges on when the revocation email “reached” Wine Cooperative.

71. Because CISG Article 24 does not define when an electronic communication “reaches” an

addressee, proper interpretation of this “gap” leads to the conclusion that the revocation email

reached Wine Cooperative when it entered Wine Cooperative’s server. CISG Article 24 defines

when a revocation reaches an addressee. A revocation “reaches” an addressee when “it is made

orally to him or delivered by any other means to him personally, to his place of business or mailing

address or, if he does not have a place of business or mailing address, to his habitual residence.”

[CISG Art. 24]. However, the CISG does not expressly define when a revocation communicated

through electronic means reaches an addressee [see Schelchtriem, 267]. This constitutes a “gap” in the

CISG [Schlechtriem, 95-96; see also CISG Art. 7(2)]. A gap must be decided in accordance with the

“general principles” of the CISG, and in the absence of such principles, in accordance with the

“applicable … private international law.” [Id.]. Wine Cooperative assumes that the applicable private

international law in this case is the Electronic Commerce Law [Cl. Memo., paras. 68-69]. Under both

the general principles of the CISG and the Electronic Commerce Law, the revocation email

“reached” Wine Cooperative when it entered Wine Cooperative’s own server, and not when it

entered Mr. Cox’s email inbox.

72. Applying the CISG’s general principles of reasonableness and good faith to the gap in CISG Article

24, this Tribunal should conclude that the email “reached” Wine Cooperative when it entered Wine

Cooperative’s server [see Chow, 206-07, noting that “good faith” and “reasonableness” are prominent CISG

general principles]. Generally, the term “reaches” “corresponds to the point in time when an electronic

communication has entered the offeree’s server.” [CISG-Advisory Council Opinion no. 1]. Reasonably,

“the addressee … must be capable of taking notice of [the communication’s] content.” [Schlechtriem,

267]. Mere arrival of a message in a central server does not always suffice if the server is beyond

“the control of an addressee … [or] the text might not be retrievable for the addressee for reasons

beyond his control.” [Schlechtriem, 267, emphasis added].

73. However, Wine Cooperative’s server, located on the company premises, and Wine Cooperative’s

internal computer network were within the control of Wine Cooperative [see Pro. Order 2, paras. 26-

27]. Had Wine Cooperative properly maintained or repaired its server and internal network in a

timely manner, the revocation email would have entered Mr. Cox’s email inbox on 18 June 2006 and


20

not on 19 June 2006 [see Pro. Order 2, para. 26]. Wine Cooperative’s argument suggests that Wine

Cooperative should be stripped of any personal responsibility to maintain computer systems within

Wine Cooperative’s control [see Cl. Memo. paras. 68-71]. Applying this argument’s rationale could lead

to absurd results, such as finding no “receipt” when addressee cannot retrieve and read emails

because addressee failed to plug its computer to a power outlet. Such a rationale violates the

“reasonableness” principle of the CISG. Indeed, “frequently … access to the central server is

regarded as the sphere of risk of the addressee.” [Schlechtriem, 268 FN 9c]. This Tribunal should find

that in this case, Wine Cooperative’s own server should be “regarded as the sphere of risk of the

addressee.” [See id.]. Consequently, the revocation email reached Wine Cooperative when it entered

the server on 18 June 2006.

74. Applying the Electronic Commerce Law to the gap in CISG Article 24, this Tribunal should

conclude that the email “reached” Wine Cooperative when it entered Wine Cooperative’s own

server. When the addressee has not designated an information system, “receipt” occurs when the

data message enters an information system of the addressee [Electronic Commerce Law, Art. 15(2)].

Wine Cooperative incorrectly infers that “receipt” occurred when the email entered Mr. Cox’s email

inbox [see Cl. Memo., para. 68]. This proposition is based on an overly restrictive reading of the term

“information system.” “Information system” is defined as “a system for generating, sending,

receiving, storing or otherwise processing data messages.” [Electronic Commerce Law, Art. 2(f)]. This

definition “is intended to cover the entire range of technical means used for transmitting, receiving

and storing information.” [Guide to Electronic Commerce Law, 29 para. 40, emphasis added]. Depending on

the factual situation, “information system” could indicate “a communications network, … [or]

electronic mailbox, or even a telecopier” [id.].

75. Here, the factual situation compels the Tribunal to recognize the information system as the

“communications network,” including Wine Cooperative’s server and the connecting computers,

and not merely Mr. Cox’s email inbox. As previously discussed, when Super Markets’ revocation

email entered Wine Cooperative’s server, it entered an information system beyond Super Markets’

control, but within Wine Cooperative’s control [see supra para. 73]. Proper maintenance of Wine

Cooperative’s internal network is not, and should not be, Super Markets’ responsibility. The delay

between the receipt of the email by Wine Cooperative’s server and the receipt of the email into Mr.

Cox’s inbox was due to no fault of Super Markets’ and could have been avoided had Wine

Cooperative attended to its network failure in a timely manner [see Pro. Order 2, paras. 26-27]. This


21

factual scenario compels the Tribunal to find that Wine Cooperative “received” the email when it

entered Wine Cooperative’s server on 18 June 2006.

76. If it applies either the general principles of the CISG or the Electronic Commerce Law to determine

the meaning of “reach” under CISG Article 24, this Tribunal should conclude that Super Markets’

revocation email “reached” Wine Cooperative when the email entered the server. Consequently, the

revocation “reached” Wine Cooperative on 18 June 2006, before Mr. Cox had dispatched his

acceptance on 19 June 2006 [See Statement of Claim, para. 10], thereby satisfying the second

requirement of Article 16(1): that the revocation “reach offeree before offeree dispatches

acceptance” [Vincze in Felemegas, 86].

2. Under CISG Article 16(2), Super Markets validly revoked its offer.

77. There are two exceptions under CISG Article 16(2) to the general rule of revocability: (1) where the

offeror states a fixed time of acceptance that indicates an intention to be bound [CISG Art. 16(2)(a)];

and (2), where the offeree ‘acted’ in reliance on the offer being irrevocable and it was reasonable for

him to do so [CISG Art. 16(2)(b)] [see Schlechtriem, 208]. Super Markets’ revocation does not fall under

either of these two exceptions.

a. Under CISG Article 16(2)(a), Super Markets’ offer did not fix a time for acceptance

that created an irrevocable offer.

78. Super Markets’ offer did not fix a time for acceptance that created an irrevocable offer. In its 10

June 2006 letter that accompanied its purchase order, Super Markets stated the following: “[Super

Markets] would have to turn to another quality wine as the featured item in our promotion if the

contract closing were to be delayed beyond 21 June 2006.” [Cl. Ex. No. 4]. Wine Cooperative relies

on this language in the letter when incorrectly claiming that Super Markets fixed a time for

acceptance that made the offer irrevocable [Cl. Memo., paras. 52-61]. Instead, this language merely

states the time in which the offer will expire. Even if this Tribunal were to find that this letter was

part of the offer, this letter did not fix a time of acceptance that made the offer irrevocable.

79. There is no scholarly consensus on whether an indication of fixed time in the offer makes an offer

irrevocable [see Vincze in Felemegas, 89]. For example, while Malik asserts that an indication of a fixed

time means irrevocability [Malik, Ch. III.2], Honnold denies such an effect [Honnold, 171]. A clear

general rule on this question does not emerge from extant scholarly works. Wine Cooperative


22

disregards the tension in this current scholarly debate and points to selected portions of legislative

history that favor the civil law tradition of finding “automatic” irrevocability in light of a fixed time

for acceptance [see Cl. Memo., paras. 54-58]. In fact, Eorsi interprets the same legislative history as

establishing no automatic irrevocability [Eorsi in Bianca, 157, noting that “the Secretariat’s commentary …

seems to indicate that stating a fixed time for acceptance is not in itself sufficient to make the offer irrevocable.”].

Many of the delegations that drafted this article “were fully aware of [the article’s] ambiguity.” [Id.,

158]. Thus, Wine Cooperative’s argument, in effect, improperly asks this Tribunal to solely rely on

an incomplete and unclear legislative history and speculate on the drafters’ motives behind CISG

Article 16(2)(a) in finding “automatic” irrevocability [see Cl. Memo., paras. 54-58].

80. Also, Wine Cooperative incorrectly argues that to rebut a “presumption of irrevocability,” Super

Markets had a duty to “express a clear intention that it wanted to maintain [its] right to revoke.” [Cl.

Memo., paras. 59- 60]. This argument is faulty for two reasons. First, the CISG does not presume

irrevocability; instead, it presumes revocability [see Vincze in Felemegas, 86, noting that “the general rule of

revocability of offers is set out in the provisions contained in Article 16(1) CISG”; see also Lookofsky, para. 106,

noting that “revocability is general rule”]. Second, Wine Cooperative seems to provide CISG Article 8(1)

as the only legal basis to support a finding that Super Markets had a duty to “express a clear

intention,” even though Article 8(1) is merely an article of contractual interpretation that creates no

substantive standards for parties’ conduct [see Perillo in Felemegas, 48-51].

81. The Tribunal should discern the parties’ intent concerning this question of revocability by noting the

traditions of the parties’ respective legal systems [See Vincze in Felemegas, 89]. “Article 16(2)(a) is a rule

of interpretation and supplements Article 8 in that respect.” [Schlechtriem, 211, citing Honnold]. When

an offeror from a common law country makes an offer to an offeree, that offeree must not “blindly

… assume that fixing a period for acceptance in itself indicates that the offeror has bound himself

for that period.” [Schlechtriem, 212, citing Wey].

82. Because Super Markets, the offeror, is from the common law country of Equatoriana [Pro. Order 2,

para. 7], this Tribunal should find that when Super Markets wrote the letter that allegedly fixed a

time for acceptance, it pursued Equatoriana’s common law tradition of retaining revocability [see id.;

see also Schelchtriem, 211]. In this tradition, if an offer indicates a fixed time for acceptance, the offer

lapses after expiry of this certain period and the offeror may revoke his offer any time during this


23

fixed period, unless consideration has been paid by the offeree [see id.; see also Akseli 18-19]. “More

precise language is necessary” to make the offer irrevocable [see Akseli 18-19].

83. Wine Cooperative incorrectly asks the Tribunal to note “recent developments in the law of common

law countries.” [Cl. Memo. para. 66]. The alleged “trends” of irrevocability in the United States,

England, and Canada [see id.] are irrelevant in discerning a party’s intent behind this question of

revocability. A party’s intent flows from the specific legal tradition of the party’s own country, and

not from the traditions in other countries [See Vincze in Felemegas, 89].

84. This Tribunal should not permit Wine Cooperative to “blindly assume” that the time for acceptance

in the 10 June 2006 letter indicates irrevocability [Schlechtriem, 212, citing Wey]. Wine Cooperative

made no attempt to verify whether the language in the letter was binding and whether such language

indicated irrevocability [see generally Statement of Claim]. A simple telephone call to Super Markets

would have dispelled Wine Cooperative’s “blind” assumption that the offer was irrevocable.

85. This Tribunal should find that, under CISG Article 16(2)(a), Super Markets’ offer did not fixed a

time for acceptance that made the offer irrevocable.

b. Under CISG Article 16(2)(a), Super Markets’ conduct subsequent to the offer did

not fix a time for acceptance that created an irrevocable offer

86. Wine Cooperative argues that the 11 June 2006 email from Mr. Wolf to Ms. Kringle constitutes

relevant “subsequent conduct” on the part of Super Markets that fixed a time of acceptance that

made the offer irrevocable until Mr. Cox’s return on 19 June 2006 [Cl. Memo., paras. 62-63]. The

content of Mr. Wolf’s email fixed no time for acceptance that made the offer irrevocable. CISG

Article 8(3) authorizes “due consideration” for conduct subsequent to the agreement since this may

shed light on the intentions and expectations of the parties [Honnold, 123]. “Subsequent conduct”

refers to the behavior of the parties over repeated occasions (“course of performance”) when

determining their understanding of the contract [Farnsworth, 99].

87. Mr. Wolf’s 11 June 2006 email is not “subsequent conduct” that fixed a time for acceptance. That

email did not fix a time for acceptance but merely communicated that further delay in accepting the

offer would hinder Super Markets’ promotion. It stated no time limit for Mr. Cox to accept the

offer. Instead, the email directed Ms. Kringle to make sure that “Mr. Cox act on [the] purchase order

immediately on his return since [Super Markets is] operating under a narrow time frame.” [Cl. Ex.


24

No. 7]. A reasonable interpretation of the word “act” in the email cannot be equated with “accept.”

Even under an interpretation favoring Wine Cooperative, Wine Cooperative’s emphasis on this

language in Mr. Wolf’s email does not constitute the “repeated occasions for performance”

[Farnsworth, 99, emphasis added] that would indicate a fixed time for acceptance. Furthermore, Wine

Cooperative made no attempt to verify whether Mr. Wolf intended to fix a time for acceptance

through his 11 June 2006 email [see generally Statement of Claim].

88. Therefore, no subsequent conduct on the part of Super Markets fixed a time of acceptance.

Accordingly, under CISG Article 16(2)(a), no subsequent conduct made the offer irrevocable.

c. Under CISG Article 16(2)(b), Super Markets validly revoked its offer because Wine

Cooperative did not act in reasonable reliance on the purportedly irrevocable offer

89. Wine Cooperative incorrectly concludes it reasonably relied on Mr. Wolf’s email to Ms. Kringle to

establish the offer’s irrevocability [see Cl. Memo. paras. 64-67]. However, such reliance was

unreasonable, and Wine Cooperative did not act in such reliance. Wine Cooperative argues that Ms.

Kringle and Wine Cooperative relied on the irrevocability and therefore did not immediately contact

Mr. Cox to inform him of the offer while he was away from the office [Cl. Memo., paras. 62-63]. An

offer is irrevocable if “it was reasonable for the offeree to rely on the offer as being irrevocable and

the offeree has acted in reliance on the offer.” [Geneva Pharmaceuticals (United States, 2002), noting in

dicta that Art 16(2)(b) is a “modified version of promissory estoppel” that does not require foreseeability or detriment].

90. It was not reasonable for Wine Cooperative to rely on Mr. Wolf’s email to Mr. Cox’s assistant as an

indication of irrevocability. As mentioned above, Mr. Wolf’s email mentioned no time frame that

would have made the offer irrevocable [see supra paras. 86-88]. Wine Cooperative presents no other

evidence to establish the purported reasonable reliance. [see Cl. Memo., paras. 64-67].

91. Even if this Tribunal finds that it was reasonable for Wine Cooperative to rely on Mr. Wolf’s email,

Wine Cooperative did not act in such reliance. Acts performed in reliance of irrevocability include

positive acts, such as commencing production [Schlechtriem, 212]. Acts also include failures to act,

such as a demonstrable failure to solicit further offers [id.]. Under CISG Article 16(2)(b), the nature

of “failures to act” performed in reliance involve the offeree’s repudiation of or abstention from

other customers [see id.]. These acts do not include an internal communication failure in the offeree’s

organization, as when an agent fails to timely inform its principal about a pressing offer. Thus, Ms.


25

Kringle’s failure to inform Mr. Cox about the offer does not fall under the “acts” contemplated by

Article 16(2)(b). Wine Cooperative has provided no legal basis that supports a proposition that the

term “acts” under CISG Article 16(2)(b) is broad enough to incorporate communication failures

within the offeree’s organization. Further, Wine Cooperative has not shown that Wine Cooperative

acted after Mr. Cox received the offer on the morning of 19 June 2006. He received the revocation

email a few hours later in the afternoon of 19 June 2006. Wine Cooperative has not shown that it

“acted” at all during those few hours on 19 June 2006.

92. Therefore, under CISG Article 16(2)(b), Wine Cooperative neither reasonably relied on Super

Markets offer as being irrevocable nor acted in reliance on the offer. Accordingly, under CISG

Article 16(2)(b), Super Markets validly revoked its offer.

C. No Contract Was Concluded Between Wine Cooperative and Super Markets.

93. Wine Cooperative improperly argues that a contract was concluded on 19 June 2006 when Wine

Cooperative allegedly accepted Super Markets’ offer [see Cl. Memo., paras. 72, 73]. Super Markets’ 10

June 2006 offer to Wine Cooperative was properly revoked on 18 June 2006 pursuant to the general

rule of revocability of CISG Article 16 [see supra section 66-76]. Further, Super Markets made no

subsequent offer [see Cl. Ex. Nos. 9, 11, 14; see also Cl. Ex. No. 16, noting that “the matter is closed …

[Super Markets] will not be purchasing any wines from Mediterraneo for at least the next several years”]. Because

there was no offer from Super Markets for Wine Cooperative to accept after Super Markets’ 18 June

2006 revocation, no contract was concluded between Super Markets and Wine Cooperative [see

CISG Art. 23; America Inland Sea case (China 2004), finding no “sales relationship” because there was no offer].

II. WINE COOPERATIVE DID NOT FULFILL ITS OBLIGATION TO PROVIDE WINE THAT WAS FIT

FOR PARTICULAR OR ORDINARY USES.

94. Blue Hills 2005 was unfit for the particular purpose of promotion, as well as the ordinary purposes

of consumption and resale. Furthermore, Wine Cooperative assumed the risk in the transaction.

Additionally, Wine Cooperative may have committed fraud by withholding important information

about the characteristics of the wine.

A. Blue Hills 2005 is Unfit for the Particular Use of Promotion.

95. Goods do not conform to the contract if they do not fulfill a particular purpose that the buyer

expressly or impliedly made known to the seller [CISG Art. 35(2)(b)]. To find a product unfit for a


26

particular purpose, Article 35 requires 1) that the seller knows of the particular purpose and 2) the

buyer relied on the seller’s expertise [id.].

1. Super Markets need not have taken delivery.

96. Wine Cooperative is incorrect in its assertion that Super Markets cannot prove that the wine is unfit

to be used for the particular purpose because Super Markets refused to take delivery [see Cl. Memo.

Para. 86]. The CISG allows the buyer to declare a contract avoided if there is fundamental breach

[CISG Art. 49]. Fundamental breach occurs when it results in such detriment as would

“substantially deprive [the other party] of what he is entitled to expect under the contract” [CISG

Art. 25]. Here, Super Markets was entitled to expect that Blue Hills 2005 would be saleable,

drinkable, and fit for promotion. Any contract would be avoided by the new knowledge that the

addition of an anti-freeze substance made the wine unfit for promotion, if not resale and

consumption as well. “The Law after all, should not require litigants to engage in empty gestures or

to perform obviously futile acts.” [Allen, 573 (United States, 1996)]. Requiring Super Markets to take

delivery of a product that clearly would not conform to its intended purposes amounts to a futile

act.

2. Wine Cooperative was on notice of Super Market’s intended purpose of

promotion.

97. The CISG requires that the seller be on notice of the buyer’s intended particular purpose [CISG Art.

35(2)(b)]. The purpose need not be explicit in the contract; the seller need only have known or had

reason to know the purpose [Schwenzer in Schlechtriem, 421-22]. The clearest way of making the

particular purpose known is by expressly stating it in writing [Henschel, 226]. Super Markets made its

intention to find a wine suitable for promotion known to Wine Cooperative. Both Super Markets

and Wine Cooperative repeatedly referenced, in writing, the upcoming Super Markets promotion

and the potential use of Blue Hills 2005 in the promotion during the contract negotiations [Cl. Ex.

Nos. 1-4]. Although Super Markets may have initially believed Blue Hills 2005 was suitable for

promotion, this was only before it knew of the wine’s adulterated character [Cl. Ex. No. 9].

98. Super Markets made the particular purpose of promotion abundantly known to Wine Cooperative,

in accordance with CISG Article 35(2)(b). In the Live Sheep Case, one court’s determination turned

on proof of whether the buyer had made the particular purpose known to the seller (Germany, 2002).

There, the buyer refused to pay for the sheep because they were too thin and could therefore not be


27

slaughtered immediately. The court held that the buyer failed to prove nonconformity because there

must be proof that the buyer had made the purpose of the sheep for immediate slaughter known to

the seller. In contrast, Super Markets was clear that it intended to use the wine for its promotion.

Additionally, in Manipulados de Papel y Cartón (Spain, 1997), the seller knew of buyer’s specific use, and

the court found that the seller did not fulfill its contractual obligation. The court cited CISG Article

35(2)(b) for the principle that a seller must deliver goods fit for the purpose for which the buyer

specifically intends [id.]. In the Machinery Case (Italy, 2001), the court found that the machinery was

totally unfit for the particular purpose made known to the seller before the conclusion of the

contract because the defects could not be repaired. The machinery was defective, and the defects

could not be repaired. Similarly, there is no way that Wine Cooperative could repair the defects in

the Blue Hills 2005, since they could not take the anti-freeze substance out of the wine. Because the

parties negotiated for Blue Hills 2005 in particular, this defect cannot be cured. With irreparable

defects, the wine is unfit for the particular purpose of promotion.

3. Super Markets reasonably relied on Wine Cooperative’s assurances.

99. The second requirement of fitness for particular purpose is that the buyer relied on the seller’s

assurances. Super Markets did rely [see Cl. Memo. paras. 87-92]. The buyer can generally rely on the

seller’s professional skill and judgment if the seller presents himself to the buyer as an expert, even if

this is not in fact the case [Henschel, 236]. That the buyer is knowledgeable in the particular area does

not itself nullify reliance [Schwenzer in Schlechtriem, 422]. Wine Cooperative states that Blue Hills 2005

is “an outstanding choice for a promotion of quality wines” and that Super Markets “will do very

well with it.” [Cl. Ex. No. 1]. Wine Cooperative further specified that Blue Hills 2005 is an

“exceptionally fine wine that will certainly satisfy all of [Super Market’s] customers.” [Cl. Ex. No. 3].

By these statements and its promotional actions at the trade fair, Wine Cooperative held itself out to

be an expert, and Super Markets’ own expertise in promotion is incidental. Although reliance may be

undermined if the buyer takes part in selecting the goods [Hesnchel, 237], the presence of diethylene

glycol is not detectable without chemical analysis [Pro. Order 2, para. 13], so Super Markets could not

have been on notice of the defect. Wine Cooperative admits that it is in the business of producing

high quality wine to be sold to wholesalers. Therefore, Wine Cooperative is as much in the business

of selling wine as Super Markets [see Cl. Memo. para. 91]. Accordingly, although Super Markets

employed an experienced purchasing team in selecting Blue Hills 2005, [Pro. Order 2 para. 15, Cl.


28

Memo. para. 88], the experience and assurances of Wine Cooperative and the undetectability of the

diethylene glycol justify Super Markets’ reliance on Wine Cooperative’s assurance of fitness.

100. Wine Cooperative misinterprets the Mussels Case [see Cl. Memo. Para. 84]. While Wine Cooperative is

correct that the Mussels Case (Germany, 1995) holds the seller need not be responsible for the norms

of the buyer’s country [Cl. Memo. para. 90], the holding in the Mussels Case regards ordinary, not

particular, purposes. The court stated: “The fact that the standard was exceeded is similarly not

relevant to the elements of CISG Art. 35(2)(b) (fitness for a particular purpose). There is no

evidence that the parties implicitly agreed to comply with the ZEBS-standards.” [Mussels Case]. The

Mussels Case indicates that a country’s regulations are not of themselves particular purposes [Henschel,

225]. Additionally, the seller is liable if consumer preferences are the same in the foreign country as

they are in the seller’s country [Bianca, 283]. Consumer preferences against the use of anti-freeze

substances as a sweetener appear to be similar in Equatoriana and Mediterraneo. The use of

diethylene glycol is regulated in both countries [see Pro. Order 2, para. 11], and sales were somewhat

slower overall than would have been expected following the newspaper exposé about the anti-freeze

substance in the Blue Hills 2005 [Pro. Order 2 para. 21]. Although the drop in sales was not “radical”

in the domestic market [id.], the drop in sales in the domestic market shows that the addition of the

anti-freeze substance would violate Blue Hills 2005’s fitness for promotion in Mediterraneo as well

as Equatoriana.

101. Contrary to Wine Cooperative’s assertion, Super Markets was not required to expressly state that the

wine be free from anti-freeze type substances [see Cl. Memo., para. 92]. In the Diluted Wine Case

(Germany, 1995) the dilution of wine with water made it unmarketable. The court found the buyer is

not required to have the wine examined with respect to possible water additions unless there is a

particular reason to do so, noting that such an examination is not included among those generally

undertaken in the wine industry [Diluted Wine Case]. While wine is sometimes sweetened, it is

unusual to sweeten it with a chemical anti-freeze substance. Consequently, Super Markets had no

particular duty to have the wine examined for this sweetener, nor did it have any duty to expressly

forbid such a sweetener.

102. If a buyer rejects the goods before delivery, the seller must prove that the goods conformed with the

contract [Schwenzer in Schlechtriem, 432; Henschel, 238]. Furthermore, it is up to the seller to show that


29

it is clear from the circumstances that the buyer did not rely on the seller. [Schwenzer in Schlechtriem,

433]. Wine Cooperative failed to do this [see Cl. Memo., para. 87].

B. Blue Hills 2005’s Low Quality Made It Unfit for the Ordinary Use Under the CISG.

103. Although the question of fitness for ordinary purpose is beyond the scope of Wine Cooperative’s

Statement of Claim, Super Markets will respond to those arguments on ordinary purpose in Wine

Cooperative’s Memorandum [Cl. Memo., paras. 76-82]. Blue Hills 2005 is unfit for ordinary use

because its quality is below that which Super Markets expected, it is poisonous, and it will be

difficult to resell. CISG Article 35 states that to be fit for ordinary use, goods must be “of the

quality… required by the contract” [CISG Art. 35(1)]. Goods do not conform unless they are “fit

for the purposes for which goods of the same description would ordinarily be used.” [CISG Art. 35

(2)(a)].

1. Blue Hills 2005 is unfit for consumption.

104. Preliminarily, Wine Cooperative does not address the fact that the Blue Hills 2005 is unfit for the

ordinary purpose of consumption. Food must be fit to eat; even reasonable suspicion that the food

may be contaminated constitutes a lack of conformity [Schwenzer in Schlechtriem 417; Pork-Meat

(Germany, 2004)]. In the Pork-Meat case, there was reasonable suspicion that the meat had been

contaminated by dioxin. The court found that the seller bears the burden of proving the product’s

safety. In Pork-Meat, an ordinance for the protection of consumers was established after the first

shipment of goods was delivered [id.]. In this case, Blue Hills 2005 contains diethylene glycol, which

is poisonous in high quantities and can be used as anti-freeze [see Cl. Ex. No. 13]. Similarly, wine

must be fit to drink; even reasonable suspicion that the wine may be contaminated constitutes a lack

of conformity. The admission of Wine Cooperative’s own expert that diethylene glycol can be used

as anti-freeze makes the suspicion that the wine is contaminated reasonable [Cl. Ex. No. 13].

Although no public authority has explicitly declared that Blue Hills 2005 is unsafe, diethylene glycol

is harmful to human health in certain quantities and, as such, its use is regulated in both

Mediterraneo and Equatoriana [see Pro. Order 2, para. 11].

2. Blue Hills 2005 is below the quality required by Super Markets.

105. Even if the Tribunal finds that Blue Hills 2005 is fit for consumption, the wine’s quality is below

that for which the parties contracted. Quality depends on the circumstances: “Quality must be

understood as meaning, as well as the goods’ physical condition, all factual and legal circumstances


30

concerning the relationship of the goods to their surroundings.” [Schwenzer in Schlechtriem, 414

(footnotes omitted)]. It is irrelevant whether those circumstances affect the usability or value of the

goods due to their nature or durability, rather, any discrepancy in quality represents a lack of

conformity [id.]. Super Markets sought to purchase a generically high-quality wine [see Cl. Ex. No. 4:

“A wine of that quality,” referring to Cl. Ex. No. 3 wherein Wine Cooperative stated that Blue Hills 2005 was an

“exceptionally fine wine”]. In considering the quality of Blue Hills 2005, the addition of an anti-freeze

substance and the ensuing potential problems in resale must be considered to degrade the wine’s

quality.

106. Whether goods conform to the quality specified may be determined though the average quality test,

the merchantability test, and the reasonable quality test. The average quality test requires that the

goods be of average generic quality [Schwenzer in Schlechtriem, 418]. Blue Hills 2005 is below the

average quality of other similar goods since it is sweetened with an anti-freeze substance. Contrary

to the Wine Cooperatives, Super Markets does not protest the general use of sweetening agents but

rather the particular use of a sweetener that can be used as anti-freeze [see Cl. Ex. No. 14]. While it is

true that sweetening agents such as cane or beet sugar can be used in the production of quality wines

[Cl. Ex. No. 13], the type of sweetener used by Wine Cooperative is a chemical compound that can

be used for anti-freeze [id.]. There is no scientific consensus on the exact amount of diethylene

glycol that can be consumed safely [id.]. The adulteration of the wine with a substance that is

dangerous in high quantities and undeniably notorious gives it sub-par quality. Super Markets did

not know or have reason to know about this adulteration when it praised the wine [see, e.g., Cl. Ex.

No. 1]. All statements Super Markets made about the quality of the wine occurred before the

composition of the wine was public knowledge [Cl. Ex. No. 2; Cl. Memo., para. 78]. Furthermore, it

is notable that Wine Cooperative only used the diethylene glycol in the 2005 vintage [Cl. Ex. No. 13].

The unusual addition of diethylene glycol, as well as the slow sales of the Blue Hills 2005 [Pro. Order

2, para. 21], show that the 2005 vintage is below the average quality of wines sold even by Wine

Cooperative.

107. While Blue Hills 2005 may pass the “merchantability standard,” this standard is irrelevant to the case

at hand [see Cl. Memo. para. 80]. The merchantability concept as cited by Wine Cooperatives is the

British standard, wherein quality may be below average if the product can be resold [Schwenzer in

Schlechtriem 418, Cl. Memo., para. 80]. This concept has limited acceptability outside of England and

diminishing acceptability even in England [Henschel, 214]. Given the limited acceptability of the


31

merchantable quality standard as well as the fact that the English courts will not affect this case in

any way, Wine Cooperatives’ citation of this standard is irrelevant.

108. Wine Cooperative neglects to mention a third test for fitness for ordinary use, the “reasonable

quality” test. Under the reasonable quality test, goods must not be “conspicuously below the

standard reasonably expected according to price and other circumstances” [Bianca, 281]. The

“reasonable quality test” focuses on the justifiable expectations of the buyer and price in light of the

circumstances [Schwenzer in Schlechtriem, 418]. This buyer’s standard depends on the circumstances

and particular interpretation of the contract [id. at 419]. In the Condensate Crude Oil case (Netherlands,

2002), an arbitral tribunal found that crude oil with a high concentration of mercury would fail the

reasonable quality test because the buyer would not have paid the given price for condensate with

such levels of mercury. Blue Hills 2005 would also fail the reasonable quality test: had Super

Markets known of the wine’s adulteration, it would not have negotiated to pay the specified price.

109. Simply put, Blue Hills 2005 is unfit for resale. The current situation with Blue Hills 2005 factually

resembles Sacovini (France, 1996), in which an Italian wine producer adulterated wine with high a

quantity of sugar. The Court of Appeal found that because of the unfitness due to the quantity of

sugar, the seller had not performed its obligation to deliver goods conforming to the contract per

Article 35. Here, as in Sacovini, adulteration of wine with sweeteners renders the wine unfit.

C. Wine Cooperative Bore the Economic Risk.

110. Claimant incorrectly states that Super Markets bore the economic risk of the negative publicity [see

Cl. Memo., para. 93]. The risk does not pass to the buyer until the goods change hands [CISG Art.

67(1)]. Since the goods never changed hands, the risk is still on Wine Cooperative. “If the buyer

rejects the goods or gives immediate notice on receipt of the goods to the seller, it is the seller who

has to prove the goods conformed with the contract at the time when the risk was passed.”

[Schwenzer in Schlechtriem, 432]. Furthermore, the risk at hand is not whether damaging newspaper

articles will be published [see Cl. Memo., para. 95], rather it is that the goods will be unfit for its

particular purpose of promotion. Wine Cooperative adulterated Blue Hills 2005 with an anti-freeze

substance, and it should bear responsibility when this information about the adulteration becomes

public. Wine Cooperative could have protected against this risk by simply not adulterating its wine

with a chemical anti-freeze component, and instead used sweeteners such as cane or beet sugar

pursuant to industry practice [see Cl. Ex. No. 13].


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D. Wine Cooperative Acted in Bad Faith.

111. Wine Cooperative acted in bad faith by not disclosing the presence of diethylene glycol in the wine.

A seller cannot rely on the buyer’s conduct if the seller acts in bad faith [CISG Art. 40]. If the seller

recognizes goods selected by the buyer are not fit for the intended purpose, the principle of good

faith requires the seller to inform the buyer [Schwenzer in Schlechtriem, 422]. Wine Cooperative had

superior knowledge about the use of an anti-freeze type substance as sweetener and did not disclose

this detail, which is relevant to the promotion, sales, and consumption [see Pro. Order 2, para. 22].

Accordingly, Wine Cooperative had a duty to inform Super Markets of this important fact that

would affect the proposed promotion specifically and sales and consumption generally. Wine

Cooperative breached this duty.

PART THREE: CONCLUSION

This Tribunal should stay these arbitral proceedings and defer to the Commercial Court. Danubian

Arbitration Law expressly permits Super Markets to seek judicial relief. Further, policy reasons of

efficiency and avoidance of duplicative proceedings also compel a stay of arbitral proceedings. This

Tribunal does not have jurisdiction to resolve this dispute because the parties did not conclude any

aspect of an agreement for sale, including an agreement to arbitrate. Super Markets properly revoked

its offer for the purchase of Blue Hills 2005 wine, including any offer to arbitrate. Because Super

Markets revoked its offer before Wine Cooperative accepted, no contract was concluded. Even if

this Tribunal decides that a contract was concluded, Blue Hills 2005 was not fit for Super Markets’

particular purpose of wine promotion in Equatoriana. Therefore, Super Markets properly refused

delivery of the wine.

PART FOUR: RELIEF

112. For all of the above reasons, Super Markets respectfully requests the Tribunal to find:

No arbitration agreement was entered into between Super Markets and Wine Cooperative;

Consequently, the tribunal has no jurisdiction to consider the dispute;

The offer from Super Markets to purchase 20,000 cases of Blue Hills 2005 was not irrevocable

under CISG Article 16(2)(b);


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Since the withdrawal of the offer by Super Markets was received by Wine Cooperative before Wine

Cooperative sent its acceptance, no contract of sale was concluded;

Even if the tribunal had jurisdiction and a contract of sale had been concluded, Blue Hills 2005 was

not “fit for [the] particular purpose expressly … made known to the seller at the time of the

conclusion of the contract,” which was to feature Blue Hills 2005 in the wine promotion planned by

Super Markets in September 2006.

113. Consequently, Super Markets requests the Tribunal to:

Stay any proceedings until the Commercial Court of Vindobona, Danubia has ruled on the existence

or non-existence of an arbitral agreement;

If it should decide not to stay the proceedings, to dismiss the claim brought by Wine Cooperative on

the grounds that it has no jurisdiction since no arbitral agreement was concluded;

If it should find that an arbitral agreement was concluded, to dismiss the claim brought by Wine

Cooperative as unfounded since no contract of sale was concluded;

Order Wine Cooperative to pay all costs of the arbitration, including the costs of legal representation

incurred by Super Markets.

Respectfully submitted by University of Washington School of Law, Seattle, Washington, USA, 6

December 2007.

_______________ ______________ _____________

Brianne Anderson Bradley Bowen Nicole Jabaily

_______________ ______________

Lavanga Wijekoon Alexander Wu

university of washington respondent's memorandum

Documents

super markets offer

super markets promotion

notice of super markets

super markets properlyrevoked

irrevocable offer

arbitral tribunal

cisg article

commercial court