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TWENTY FIFTH ANNUAL VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT
DELICATESY WHOLE FOODS SP (CLAIMANT)
v
COMESTIBLES FINOS LTD (RESPONDENT)
MEMORANDUM FOR CLAIMANT
Counsel for CLAIMANT
VIVA DADWAL CAMERON HOGG-TISSHAW
DAVID MATYAS GUILLAUME RENAUD
McGILL LAW SCHOOL
MONTREAL, CANADA
Memorandum for CLAIMANT I
TABLE OF CONTENTS
INDEX OF LEGAL AUTHORITIES ................................................................................................................ V
INDEX OF COURT JUDGEMENTS ............................................................................................................ XIV
INDEX OF ARBITRAL CASES .................................................................................................................... XVII
SUMMARY OF FACTS ......................................................................................................................................... 1
SUMMARY OF ARGUMENT .............................................................................................................................. 3
ARGUMENT .......................................................................................................................................................... 4
THE TRIBUNAL CANNOT DECIDE THIS CHALLENGE TO MR. PRASAD ............................... 4
A. THE APPOINTING AUTHORITY HAS POWER OVER THE CHALLENGE DECISION .......................................... 4
i. CLAIMANT did not know that RESPONDENT intended to exclude the application of UNCITRAL
Rules Art. 13(4) ................................................................................................................................................................ 4
ii. A reasonable person in CLAIMANT’s position could not have known that RESPONDENT intended
to exclude the application of UNCITRAL Rules Art. 13(4) ...................................................................................... 6
B. IF THE APPLICATION OF UNCITRAL RULES ART. 13(4) IS DENIED, ONLY THE SUPREME COURT OF
DANUBIA HAS THE POWER TO RULE ON THE UNSUCCESSFUL CHALLENGE .................................................................. 9
C. ONLY IF THE TRIBUNAL WERE TO FIND THAT THE PARTIES HAD NO AGREEMENT ON THE CHALLENGE
PROCEDURE, COULD THE FULL TRIBUNAL, INCLUDING MR. PRASAD, DECIDE THE CHALLENGE ........................... 10
i. The Tribunal must decide the challenge with the participation of Mr. Prasad ............................................ 10
ii. Even if he were allowed, Mr. Prasad cannot unilaterally withdraw from the challenge decision .............. 11
iii. RESPONDENT cannot overcome fatal delays by insisting that the Tribunal decide on its challenge ... 11
THE CHALLENGE TO MR. PRASAD IS WITHOUT MERIT AND SHOULD BE DISMISSED 12
A. RESPONDENT MUST DEMONSTRATE THE EXISTENCE OF JUSTIFIABLE DOUBTS UNDER UNCITRAL
RULES ART. 12(1) IN ORDER TO REMOVE MR. PRASAD ................................................................................................. 12
B. RESPONDENT HAS FAILED TO DEMONSTRATE THE EXISTENCE OF JUSTIFIABLE DOUBTS AS TO MR.
PRASAD’S INDEPENDENCE OR IMPARTIALITY ................................................................................................................. 13
i. Mr. Prasad’s previous appointments do not raise justifiable doubts ............................................................ 14
ii. Mr. Prasad’s law firm connections do not raise justifiable doubts................................................................ 15
iii. Mr. Prasad’s past publications are irrelevant to the present proceedings..................................................... 17
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iv. Even cumulatively, the grounds cited by RESPONDENT do not raise justifiable doubts as to Mr.
Prasad’s independence or impartiality ......................................................................................................................... 18
CLAIMANT’S GENERAL CONDITIONS GOVERN THE CONTRACT ........................................ 19
A. CLAIMANT’S GENERAL CONDITIONS, AND AT THE VERY LEAST ITS CODES OF CONDUCT, GOVERN
THE CONTRACT................................................................................................................................................................... 19
i. Through its Sales Offer form with accompanying letter, CLAIMANT made an Offer to
RESPONDENT incorporating CLAIMANT’s General Conditions and Codes of Conduct ............................. 19
ii. RESPONDENT accepted CLAIMANT’s Offer, which incorporated CLAIMANT’s General
Conditions and Codes of Conduct, thereby excluding its own................................................................................ 21
C. IF THE TRIBUNAL FINDS THAT BOTH THE PARTIES’ GENERAL CONDITIONS WERE INCORPORATED
INTO THE CONTRACT, IT SHOULD FIND BOTH CLAIMANT’S AND RESPONDENT’S GENERAL CONDITIONS
APPLICABLE TO THE EXCLUSION OF ANY CONFLICTING TERMS ................................................................................... 23
EVEN IF RESPONDENT’S GENERAL CONDITIONS APPLY, CLAIMANT STILL
DELIVERED CONFORMING GOODS PURSUANT TO CISG ART. 35................................................... 24
A. THE CONTRACT DOES NOT EXPLICITLY CREATE AN OBLIGATION UNDER CISG ART. 35(1) THAT
CLAIMANT GUARANTEE THE PRODUCTION METHODS OF ITS SUPPLIER, BUT MERELY CREATES MECHANISMS
FOR CLAIMANT TO EXERCISE ITS BEST EFFORTS ........................................................................................................ 25
RESPONDENT’s claim of non-conformity has no basis in the terms of the Contract ........................... 25
iii. Under Principle F of RESPONDENT’s Code of Conduct, RESPONDENT’s allegation of non-
conformity is unsubstantiated ...................................................................................................................................... 28
B. THE CIRCUMSTANCES SURROUNDING THE CONTRACT IMPLY, UNDER CISG ART. 35(1), THAT
CLAIMANT MERELY OWED RESPONDENT AN OBLIGATION TO USE ITS BEST EFFORTS TO ENSURE ITS SUB-
SUPPLIERS ADHERED TO ETHICAL STANDARDS, AN OBLIGATION IT DISCHARGED .................................................... 30
i. There are no external trade usages that impliedly create an obligation for CLAIMANT to guarantee its
supplier provide ethically conforming goods ............................................................................................................. 30
ii. Given the UN Global Compact’s aversion to concrete ends, the Parties’ shared UN Global Compact
membership demonstrates best effort obligations regarding supplier compliance................................................ 32
iii. RESPONDENT’s interest in CLAIMANT’s management processes over production steps such as
certification schemes emphasizes best efforts to ensure that its suppliers would deliver ethical goods ............. 32
C. ANY PUTATIVE ARGUMENT REGARDING OBLIGATIONS OF CONFORMITY BASED ON A PARTICULAR
PURPOSE UNDER CISG ART. 35(2)(B) IS BOUND TO FAIL SINCE THE FACTS OF THE PRESENT CASE DISCLOSE NO
SUCH PARTICULAR PURPOSE .............................................................................................................................................. 33
D. IT WOULD BE UNREASONABLE FOR RESPONDENT TO HAVE CONSIDERED THAT CLAIMANT COULD
GUARANTEE RESULTS FROM ITS SUPPLIER IN ALL CIRCUMSTANCES ............................................................................. 34
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Memorandum for CLAIMANT
III
LIST OF ABBREVIATIONS
& And
¶ Paragraph(s)
Art(s). Article(s)
CISG
United Nations Convention on Contracts for the International Sale
of Goods
CLAIMANT’s General
Conditions
CLAIMANT’s General Conditions of Sale
Commitment Commitment to a Fairer and Better World
Cover Letter NoC Letter Langweiler (14 September 2017)
Declaration Prasad Declaration Prasad (Connections with Funder – 11 September
2017)
Disclosure Order Letter Rizzo (Decision on Request to Name Funder – 1 September
2017)
et al. And others
FN(s) Footnote(s)
Funding Disclosure Letter Fasttrack (Disclosure of Funder – 7 September 2017)
IBA International Bar Association
ICSID International Centre for Settlement of Investment Disputes
ICDR International Centre for Dispute Resolution
ISO International Organization for Standardization
INCOTERMS International Commercial Terms
Letter Rizzo Invitation to Case Management Conference – 22 August 2017
LP Limited Partnership
LCIA London Court of International Arbitration
Ltd Limited
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Memorandum for CLAIMANT
IV
Model Law UNCITRAL Model Law
Mr. Mister
NoA Notice of Arbitration (30 June 2017)
NoC Notice of Challenge of Arbitrator (14 September 2017)
P(P) Page(s)
PCA Permanent Court of Arbitration
PO Procedural Order
PO2 Second Procedural Order
Prasad Decision Letter Prasad (Refusal to Step Down – 21 September 2017)
RESPONDENT’s General
Conditions
RESPONDENT’s General Conditions of Contract
Response NoA Response to the Notice of Arbitration (31 July 2017)
Response to Challenge Letter Fasttrack (Refusal to Agree to Removal – 19 September
2017)
SCC Arbitration Institute of the Stockholm Chamber of Commerce
Tribunal Arbitral Tribunal
v Against (versus)
UCP 600 Uniform Customs and Practice for Documentary Credits
UN United Nations
UNGC United Nations Global Compact
UNCITRAL United Nations Commission on International Trade Law
UNCITRAL Rules [YEAR] United Nations Commission on International Trade Law
Arbitration Rules
UNEP United Nations Environment Program
USD United States Dollar
WIPO Word Intellectual Property Organization
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V
INDEX OF LEGAL AUTHORITIES
Rules and Laws
CISG United Nations Convention on Contracts for the International
Sales of Goods
Vienna, 11 April 1980
Cited throughout
Egypt Arbitration Act Law No. 27/1994 Promulgating the Law Concerning Arbitration
in Civil and Commercial Matters
Available at:
http://www.wipo.int/edocs/lexdocs/laws/en/eg/eg020en.pdf
Cited in ¶: 48
IBA Guidelines IBA Guidelines on Conflicts of Interest in International
Arbitration (2014)
Cited in ¶: 59, 62, 66, 69, 72, 75
ICC Internal Rules ICC Rules of Arbitration, Appendix II: Internal Rules of the
International Court of Arbitration
Available at:
https://iccwbo.org/dispute-resolution-services/arbitration/rules-
of-arbitration/#article_b1
Cited in ¶: 39
ICSID Rules ICSID Arbitration Rules (2006)
Cited in ¶: 64
LCIA Notes LCIA Notes for Parties
August 2017
Available at:
http://www.lcia.org//adr-services/lcia-notes-for-parties.aspx
Cited in ¶: 39
UNCITRAL Rules UNCITRAL Arbitration Rules (2010)
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Cited throughout
UNCITRAL Transparency
Rules
UNCITRAL Rules on Transparency in Treaty-based Investor-
State Arbitration (2014)
Cited in ¶: 36
UNIDROIT Principles UNIDROIT Principles of International Commercial Contracts
Rome, 2010
Cited in ¶: 43
PCA Internal Rules Rules Concerning the Organization and Internal Working of the
International Bureau of the Permanent Court of Arbitration
September 1900
Cited in ¶: 39
SCC Institute Rules Arbitration Institute of the Stockholm Chamber of Commerce
(2010)
Cited in ¶: 39
UNCITRAL Explanatory Note Explanatory Note by the UNCITRAL Secretariat on the 1985
Model Law on International Commercial Arbitration as amended
in 2006
Available at:
www.uncitral.org/pdf/english/texts/arbitration/ml-
arb/MLARB-explanatoryNote20-9-07.pdf
Cited in ¶: 49
Commentaries
Advisory Council 13 CISG Advisory Council
Opinion No. 13
Available at:
http://www.cisg.law.pace.edu/cisg/CISG-AC-op13.html
Cited in ¶: 88, 90, 96
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Memorandum for CLAIMANT
VII
Amado/Kern/Doe Jose Daniel Amado, Jackson Shaw Kern & Martin Doe Rodriguez
Arbitrating the Conduct of International Investors
(New York: Cambridge University Press, 2018)
Cited in ¶: 124
Audit Bernard Audit
La vente internationale de marchandises : convention des Nations-
Unies du 11 avril 1980
(Paris: L.G.D.J., 1990)
Cited in ¶: 96
Binder 2013 Peter Binder
Analytical Commentary to the UNCITRAL Arbitration Rules
(London: Sweet & Maxwell Press, 2013)
Cited in ¶: 31, 40
Binder 2010 Peter Binder
International Commercial Arbitration and Conciliation in
UNCITRAL Model Law Jurisdictions, Third Edition
(London: Thomson Reuters, 2010)
Cited in ¶: 49
Blackaby et al. Nigel Blackaby, Constantine Partasides, Alan Redfern & Martin
Hunter
Redfern and Hunter on International Arbitration, Sixth Edition
(New York: Oxford University Press, 2015)
Cited in ¶: 70
Born Gary Born
International Commercial Arbitration, Second Edition
(Alphen aan den Rijn: Kluwer Law International, 2014)
Cited in ¶: 51, 56, 58, 66, 72, 75
Butler Petra Butler
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Memorandum for CLAIMANT
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The CISG – A Secret Weapon in the Fight for a Fairer World?
In: Ingeborg Schwenzer (ed.)
35 Years CISG and Beyond
(Portland: International Specialized Book Services, 2016)
Cited in ¶: 122
Daele Karel Daele
Challenge and Disqualification of Arbitrators in International
Arbitration, International Arbitration Law Library
(Alphen aan den Rijn: Kluwer Law International 2016)
Cited in ¶: 33, 57, 58
Caron/Caplan
David D Caplan & Lee M Caron
The UNCITRAL Arbitration Rules: A Commentary, Second
Edition
(Oxford: Oxford University Press, 2013)
Cited in ¶: 31, 35, 42, 43
Cronstedt/Thompson Claes Cronstedt & Robert C Thompson
An International Arbitration Tribunal on Business and Human
Rights (Version Five)
Working Group on International Arbitration Tribunal on
Business and Human Rights
April 2015
Available at: www.l4bb.org/news/TribunalV5B.pdf on Dec 4
2017
Cited in ¶: 124
Ross Alison Ross
Rise in Challenges Headache for Lawyers
In: Global Arbitration Review 5(1) (2010)
Available at:
http://globalarbitrationreview.com/article/1028952/rise-in-
challenges-a-headache-for-lawyers
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Cited in ¶: 33
Ferrari Franco Ferrari
Contracts for the International Sale of Goods: Applicability and
Applications of the 1980 United Nations Sales Convention
(Boston: Martinus Nijhoff Publishers, 2012)
Cited in ¶: 130
Grimmer Sarah Grimmer
The determination of arbitrator challenges by the Secretary-
General of the Permanent Court of Arbitration
In: Chiara Giorgetti (ed.)
The Challenge and Recusal of Judges and Arbitrators in
International Courts and Tribunals
(Leiden: Brill 2015)
Cited in ¶: 74
Nalin Paulo Nalin
International Fair Trade (Fair Trade in International Contracts
and Ethical Standard)
In: Schwenzer (ed.)
35 Years CISG and Beyond
(Portland: International Specialized Book Services 2016)
Cited in ¶: 132
Paulsson 2006 Jan Paulsson & Georgios Petrochilos
Revision of the UNCITRAL Arbitration Rules
(Unpublished report prepared for the UNCITRAL Secretariat)
Available at:
http://www.uncitral.org/pdf/english/news/arbrules_report.pdf
Cited in ¶: 43
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Paulsson 2010 Jan Paulsson
“Moral Hazard in International Dispute Resolution”
In: ICSID
Review – Foreign Investment Law Journal 25:2 (2010) 339
Available at:
www.arbitrationicca.org/media/0/12773749999020/paulsson_m
oral_hazard.pdf
Cited in ¶: 36
Ramberg Christina Ramberg
Emotional Non-Conformity in the International Sale of Goods,
Particularly in Relation to CSR-Policies and Codes of Conduct
In: Ingeborg Schwenzer & Lisa Spagnolo
Boundaries and Intersections, 5th Annual MAA Schlechtriem
CISG Conference
(The Hague: Eleven International Publishing, 2015)
Cited in ¶: 121
Schmidt-Kessel Martin Schmidt-Kessel
In: Peter Schlechtriem & Ingeborg Schwenzer (eds.)
Commentary on the UN Convention on the International
Sale of Goods (CISG), Fourth Edition
(Oxford: Oxford University Press, 2016)
Cited in ¶: 92, 121, 122
Schroeter
Ulrich G Schroeter
In: Peter Schlechtriem & Ingeborg Schwenzer (eds.)
Commentary on the UN Convention on the International
Sale of Goods (CISG), Fourth Edition
(Oxford: Oxford University Press, 2016)
Cited in ¶: 82, 84, 88, 90, 91, 96
Schwebel Stephen M Schwebel
International Arbitration: Three Salient Problems
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(Cambridge: Grotius, 1987)
Cited in ¶: 51
Schwenzer 2016 Ingeborg Schwenzer
In: Peter Schlechtriem & Ingeborg Schwenzer (eds.)
Commentary on the UN Convention on the International
Sale of Goods (CISG), Fourth Edition
(Oxford: Oxford University Press, 2016)
Cited in ¶: 100, 119, 121, 129, 130
Schwenzer 2017 Ingeborg Schwenzer
Ethical Standards in CISG Contracts
In: Uniform Law Review 1 (2017) 122-131
Cited in ¶: 127
Schwenzer/Leisinger Ingeborg Schwenzer & Benjamin Leisinger
Ethical Values and International Sales Contracts
In: Ross Cranston, Jan Ramberg & Jacob Ziegel (eds.)
Commercial Law Challenges in the 21st Century: Jan Hellner in
Memorium
(Stockholm: Stockholm Centre for Commercial Law, 2007).
Cited in ¶: 121, 132
Smeureanu Ileana M. Smeureanu
Confidentiality in International Commercial Arbitration
(Alphen aan den Rijn: Kluwer Law International, 2011)
Cited in ¶: 39
UN Doc A/10017 Report of the United Nations Commission on International
Trade Law on the Work of its Eighth Session
UN Doc A/10017 (1975)
Cited in ¶: 42, 48, 49
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UN Doc A/40/17 Report of the United Nations Commission on International
Trade Law on the Work of its Eighteenth Session
United Nations Commission on International Trade Law
UN Doc A/40/17 (1985)
Cited in ¶: 46, 48
UN Doc A/CN.9/97
Preliminary Draft Set of Arbitration Rules for Optional Use in
Ad Hoc Arbitration Relating to International Trade
UN Doc A/CN.9/97 (1975)
Cited in ¶: 33, 39, 41
UN Doc A/CN.9/112/Add.1 Revised Draft Set of Arbitration Rules for Optional Use in Ad
Hoc Arbitration Relating to International Trade (UNCITRAL
Arbitration Rules) (Addendum): Commentary on the Draft
UNCITRAL Arbitration Rules
UN Doc A/CN.9/112/Add.1 (1976)
Cited in ¶: 43
UN Doc A/CN.9/264
Analytical Commentary on Draft Text of a Model Law on
International Commercial Arbitration
UN Doc A/CN.9/264 (1985)
Cited in ¶: 49
UN Doc A/CN.9/634 UNCITRAL Arbitration Rules: Report of the Secretary-General
of the Permanent Court of Arbitration on its activities under the
UNCITRAL Arbitration Rules since 1976
UN Doc A/CN.9/634 (2007)
Cited in ¶: 35
UNGC 2010 United Nations Global Compact (2010)
United Nations Global Compact Management Model
Available at:
www.unglobalcompact.org/docs/news_events/9.1_news_archiv
es/2010_06_17/UN_Global_Compact_Management_Model.pdf
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Cited in ¶: 124
UNGC 2015 United Nations Global Compact (2015)
Supply Chain Sustainability: A Practical Guide for Continuous
Improvement 2nd ed.
Available at:
www.unglobalcompact.org/docs/issues_doc/supply_chain/Supp
lyChainRep_spread.pdf
Cited in ¶: 123
UNGC 2016 United Nations Global Compact (2016)
Fighting Corruption in the Supply Chain: A Guide for Customers
and Suppliers Second Edition.
Available at:
www.unglobalcompact.org/docs/issues_doc/Anti-
Corruption/Fighting_Corruption_Supply_Chain.pdf
Cited in ¶: 115
UNGC 2017 United Nations Global Compact (2017)
United Nations Global Compact: The Ten Principles
Available at:
www.unglobalcompact.org/what-is-gc/mission/principles
Cited in ¶:
Varady et al. Tibor Varady, John J Barcelo III & Arthur T von Mehren
International Commercial Arbitration: a Transnational
Perspective, Fourth Edition
(St. Paul: Thomson Reuters, 2009)
Cited in ¶: 48
Zeller Bruno Zeller
In: Larry A DiMatteo (ed.)
International Sales Law: A Global Challenge
(New York: Cambridge University Press, 2014)
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INDEX OF COURT JUDGEMENTS
Austria
Conveyor Bands
Conveyor Bands Case
Supreme Court of Austria
23 March 2005
Case No. 6 R 200/04f
Available at:
http://cisgw3.law.pace.edu/cases/050323a3.html
Cited in ¶: 90
Tantalum Powder Tantalum Powder Case
Supreme Court of Austria
17 December 2003
Case No. 7 Ob 275/03x
Available at:
http://cisgw3.law.pace.edu/cases/031217a3.html
Cited in ¶: 87
Canada
Geci Española Government of The Dominican Republic c Geci Española
Superior Court of Quebec
2017 Canlii QCCS 2619
Available at:
https://www.canlii.org/en/qc/qccs/doc/2017/2017qccs2619/
2017qccs2619.html?autocompleteStr=2017%20Canlii%20QCC
S%202619%C2%A0&autocompletePos=1
Cited in ¶: 41
France
Verreries de Saint Gobain Société Les Verreries de Saint Gobain, SA v. Martinswerk
GmbH
Cour de Cassation
16 July 1998
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Case No. J 96-11.984
Available at:
http://cisgw3.law.pace.edu/cases/980716f1.html
Cited in ¶: 96
Germany
Knitware Knitware Case
Petty District Court
6 October 1995
Case No. 3 C 925/93
Available at:
http://cisgw3.law.pace.edu/cases/951006g1.html
Cited in ¶: 96
Machinery Machinery Case
Federal Supreme Court of Germany
31 October 2001
Case No. VIII ZR 60/01
Available at:
http://cisgw3.law.pace.edu/cases/011031g1.html
Cited in ¶: 82, 88
Powdered Milk Powdered Milk Case
Federal Supreme Court of Germany
9 January 2002
Case No. VIII ZR 304/00
Available at:
http://cisgw3.law.pace.edu/cases/020109g1.html
Cited in ¶: 96
Rubber Sealing Parts Rubber Sealing Parts Case
Provincial Appellate Court
25 July 2003
Case No. 17 U 22/03
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Available at:
http://cisgw3.law.pace.edu/cases/030725g1.html
Cited in ¶: 96
Netherlands
Wavin Wavin Overseas B.V. v. Picenum Plast SPA
District Court
December 3, 2014
Case No. C-07-198594 - HZ ZA 12-139
Available at:
http://www.globalsaleslaw.org/content/api/cisg/urteile/2568.
Cited in ¶: 96
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INDEX OF ARBITRAL CASES
Ad Hoc Tribunals
XXII Y.B. Challenge Decision of the Appointing Authority Designated by
Secretary-General of the PCA
11 January 1995
XXII Y.B. Comm. Arb. 227, 234
Cited in ¶: 56
London Court of International Arbitration
National Grid National Grid PLC v The Republic of Argentina
Decision on the Challenge to Mr. Judd L. Kessler
3 December 2007
Case No. UN 7949
Cited in ¶: 55
International Centre for Settlement of Investment Disputes
AWG Group AWG Group Ltd. v. The Argentine Republic, UNCITRAL
Decision on a Second Proposal for the Disqualification of A
Member of the Arbitral Tribunal
12 May 2008
ICSID Case No. ARB/03/17
Cited in ¶: 70
Tidewater Tidewater v The Bolivarian Republic of Venezuala
Decision on Claimants’ Proposal to Disqualify Professor
Brigette Stern, Arbitrator
23 December 2010
ICSID Case No. ARB/10/5
Cited in ¶: 64
North American Free Trade Agreement
Methanex Methanex Corporation v United States of America,
UNCITRAL
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Final Award of the Tribunal on Jurisdiction and Merits
3 August 2005
Cited in ¶: 31
Permanent Court of Arbitration
Aeroport Belbek Press Release: Aeroport Belbek LLC and Mr. Igor Valerievich
Kolomoisky v. The Russian Federation
January 2016
Available at:
https://pcacases.com/web/sendAttach/1553
Cited in ¶: 41
Gallo Gallo v Canada
Decision on the Challenge to Mr. J. Christopher Thomas
14 October 2009
PCA Case No. 2008-02
Cited in ¶: 55
Merck Merck Sharp & Dohme v The Republic of Ecuador
Decision on Challenge to Arbitrator Judge Stephen M.
Schwebel
8 August 2012
PCA Case No. AA442
Cited in ¶: 55, 59, 62, 65
Perenco Perenco v Ecuador
Decision on Challenge to Arbitrator
8 December 2009
PCA Case No. IR-2009/1
Cited in ¶: 75
PJSC CB Privatbank Press Release: PJSC CB Privatbank and Finance Company
Finilon LLC v. the Russian Federation
March 2016
Available at:
https://pcacases.com/web/sendAttach/1619
Cited in ¶: 41
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INDEX OF OTHER AUTHORITIES
ISO 14001 International Organization for Standardization,
Environmental Management
Available at:
www.iso.org/iso-14001-environmental-management.html
Cited in ¶: 122
McInerney-Lankford Siobhán McInerney-Lankford
“Human Rights and the SDGs: Progress or a Missed
Opportunity”
In: Oxford Human Rights Hub
January 2017
Available at:
http://ohrh.law.ox.ac.uk/human-rights-and-the-sdgs-
progress-or-a-missed-opportunity/
Cited in ¶:
McGill University
Memorandum for CLAIMANT
1
SUMMARY OF FACTS
1. Delicatesy Whole Foods Sp. (the “CLAIMANT”), registered in Equatoria, is a manufacturer of fine
bakery products committed to using its best efforts to produce goods in accordance with the highest
possible ethical standards [NoA ¶1].
2. Comestibles Finos Ltd (the “RESPONDENT”) is a gourmet supermarket chain in Mediterraneo
[NoA ¶2].
3. CLAIMANT and RESPONDENT (the “Parties”) met on 3 March 2014 at the Cucina Food Fair
in Danubia where they initiated negotiations for the sale of CLAIMANT’s cakes [NoA ¶3].
4. The Parties subscribe to the ethical business principles of the UN Global Compact [R5 ¶4].
Previously, there have been allegations of unethical behavior against RESPONDENT [R5 ¶4].
5. On 10 March 2014, RESPONDENT invited CLAIMANT to submit a tender to supply chocolate
cakes (the “Tender”) [NoA ¶4]. There, RESPONDENT expressed interest in CLAIMANT’s
supply chain management and in their shared ethical values [C1 ¶3].
6. Given CLAIMANT’s negative experience with ad-hoc arbitration and RESPONDENT’s concern
for confidentiality, the Parties contemplated dispute resolution early on [R5 ¶5]. RESPONDENT
reassured CLAIMANT that its arbitration clause would not cause any problems in practice [C1 ¶5].
7. On 27 March 2014, CLAIMANT communicated to RESPONDENT its completed Sales Offer
form [C4] with accompanying letter [C3] making an offer to supply chocolate cakes (the “Offer”).
CLAIMANT restated its understanding of the arbitration clause as precluding the possibility of
recourse to arbitral institutions for the composition of the Tribunal [C3 ¶4].
8. On 7 April 2014, RESPONDENT informed CLAIMANT that they had been awarded the supply
contract (the “Contract”) [C5 ¶1]. In the letter, RESPONDENT wrote that CLAIMANT’s
commitment to sustainable production had been a decisive factor in awarding the Contract [C5 ¶2].
9. For three years, delivery and payment between the Parties proceeded without incident [NoA ¶6].
10. On 27 January 2017, RESPONDENT emailed CLAIMANT, abruptly indicating its unilateral
decision to withhold payment to CLAIMANT for recently-delivered 600 000 cakes and inquiring
about the source of CLAIMANT’s cocoa [C6 ¶2]. Citing the UNEP Special Rapporteur’s
investigation revealing widespread corruption in Ruritania, RESPONDENT expressed concern
about whether CLAIMANT’s cocoa supplier “strictly [adhered] to UN Global Compact” [C6 ¶2].
11. Given past compliance assessments, CLAIMANT promptly responded that it was “fairly confident”
its cocoa complied with the UN Global Compact [C8 ¶2]. CLAIMANT then stressed the
importance of making payment for chocolate cakes that had already been delivered [C8 ¶3].
12. On 10 February 2017, CLAIMANT informed RESPONDENT of their discovery that it had been
defrauded by their cocoa supplier [C9 ¶1]. CLAIMANT immediately terminated their Contract,
McGill University
Memorandum for CLAIMANT
2
secured an alternate source of cocoa, and informed RESPONDENT accordingly [C9 ¶2].
RESPONDENT, while still refusing to pay for the cakes, proceeded to use them in a special
marketing campaign [PO2 ¶38].
13. On 12 February 2017, RESPONDENT purported to terminate the Contract and asserted that the
cost of the delivered cakes would be set off against alleged reputational harm [C10 ¶5]. To date,
RESPONDENT’s customers have not complained [PO2 ¶38] nor has RESPONDENT put
forward any proof of its purported reputational harm [Response NoA ¶28].
14. On 30 June 2017, CLAIMANT served RESPONDENT with a Notice of Arbitration initiating the
present proceedings and nominating Mr. Rodrigo Prasad as their appointed arbitrator [NoA ¶22].
15. In his declaration of independence and impartiality dated 26 June 2017, Mr. Prasad disclosed that
he had twice been appointed to tribunals by CLAIMANT’s legal counsel [C11 ¶3]. He also reserved
the right to allow partners at his firm to be involved on matters pertaining to the Parties and related
companies [C11 ¶5].
16. On 31 July 2017, RESPONDENT submitted a Response to Notice of Arbitration recognizing the
jurisdiction of the Tribunal. At that time, RESPONDENT had no objections to the appointment
of Mr. Prasad “despite the restrictions in his declaration of independence” [Response NoA ¶22].
17. On 22 August 2017, the full Tribunal was constituted [Letter Rizzo].
18. On 29 August 2017, RESPONDENT inquired about the involvement of a third-party funder in
this arbitration [Disclosure Order ¶3].
19. On 7 September 2017, CLAIMANT disclosed that its claim was partially funded by Funding 12
Ltd., which is owned primarily by Findfunds LP [Funding Disclosure ¶1].
20. On 11 September 2017, Mr. Prasad disclosed that he had acted as an arbitrator in two cases funded
by other subsidiaries of Findfunds LP [Declaration Prasad ¶1]. He also disclosed his law firm’s
merger to create Prasad & Slowfood, and that a new partner was representing a client funded by
Findfunds LP [Declaration Prasad ¶3]. All necessary precautions had been put in place to avoid
conflicts [Declaration Prasad ¶3].
21. On 14 September 2017, RESPONDENT challenged Mr. Prasad under UNCITRAL Rules Art. 13
for lack of impartiality and independence [NoC].
22. On 21 September 2017, Mr. Prasad rejected RESPONDENT’s challenge by reasserting his
independence and declining to withdraw from the Tribunal [Prasad Decision ¶8].
23. On 29 September 2017, CLAIMANT rejected RESPONDENT’s challenge and proposed a
potential replacement arbitrator who could attend the hearing and immediately take over the role of
Mr. Prasad, in the unlikely event that RESPONDENT’s challenge was successful [Response to
Challenge ¶12].
McGill University
Memorandum for CLAIMANT
3
SUMMARY OF ARGUMENT
24. RESPONDENT is opportunistically scapegoating CLAIMANT to protect against imagined harms.
In the wake of Ruritania’s corruption scandal, RESPONDENT has hijacked the Parties’ shared
ethical commitments in order to obfuscate its contractual breach. Faced now with the possibility of
financial repercussion for the non-payment of delivered goods, RESPONDENT resorts to guerilla
tactics to deny CLAIMANT its choice of arbitrator and the right to a fair hearing. By challenging
both the arbitrator and the challenge procedure itself, RESPONDENT seeks to unjustly derail the
proceedings and to delay payment long overdue.
25. The Tribunal cannot decide this challenge to CLAIMANT’s arbitrator [I]. The Parties agreed,
pursuant to UNCITRAL Rules Art. 13(4), that an Appointing Authority would have competence
over any challenge decision. Even if the Parties excluded UNCITRAL Rules Art. 13(4), the
competent authority to decide RESPONDENT’s groundless challenge would be the Supreme Court
of Danubia, not the Tribunal. In any event, if the Tribunal decides on the challenge, it may only do
so with the involvement of Mr. Prasad.
26. Even if the Tribunal decides the challenge, it must be rejected [II]. In an attempt to delay
justice, RESPONDENT has cobbled together a disparate series of circumstances which they allege
are grounds for the removal of Mr. Prasad. In fact, RESPONDENT has failed to show that there
are any objectively justifiable doubts as to Mr. Prasad’s independence and impartiality.
27. CLAIMANT’s General Conditions govern the Contract [III]. CLAIMANT incorporated its
General Conditions, and at the very least, its Codes of Conduct into its Offer, whereas
RESPONDENT did not incorporate its General Conditions into its acceptance. Accordingly,
CLAIMANT’s General Conditions and Codes govern the Contract to the exclusion of
RESPONDENT’s. No “battle of the forms” arises. Even if the Tribunal finds that both the Parties’
standard terms were incorporated, conflicting terms should be removed, applying the “knock-out”
approach.
28. Even if RESPONDENT’s General Conditions apply, CLAIMANT still delivered
conforming goods pursuant to CISG Art. 35 [IV]. The conformity of the goods delivered by
CLAIMANT is not affected by the its supplier’s production methods. The Contract does not
explicitly or implicitly create obligations under CISG Art. 35(1) for CLAIMANT to guarantee its
supplier’s production methods and, similarly, no particular purpose creates this obligation.
29. RESPONDENT’s attempt to misconstrue CLAIMANT’s best efforts obligation as one of
guaranteed results is merely a distraction from its own self-serving and legally untenable position.
For a supermarket allegedly subscribing to ethical production, its failure to pay CLAIMANT
fundamentally undermines the ethical objectives it has committed to uphold.
McGill University
Memorandum for CLAIMANT
4
ARGUMENT
THE TRIBUNAL CANNOT DECIDE THIS CHALLENGE TO MR. PRASAD
30. RESPONDENT seeks to deny CLAIMANT its choice of arbitrator and the right to a fair hearing.
It contends that when the Parties excluded institutional arbitration, any challenges to an arbitrator
would have to be resolved by the remaining members of the Tribunal. This position is clearly
incorrect. In the present case, the Parties had agreed, pursuant to UNCITRAL Rules Art. 13(4), that
an Appointing Authority would have competence over the challenge decision [A]. Even if the
Parties had excluded the application of UNCITRAL Rules Art. 13(4), the competent authority to
decide RESPONDENT’s challenge would be the Supreme Court of Danubia [B]. Failing that, only
if the Tribunal were to find that the Parties had no agreement on the challenge procedure, could the
full Tribunal, including Mr. Prasad, decide the challenge [C].
31. Under the Parties’ arbitration agreement, the Appointing Authority has competence over the
challenge decision. RESPONDENT contends that the Parties excluded the application of
UNCITRAL Rules Art. 13(4) when they agreed to settling disputes “without the involvement of any
arbitral institution” [R4 ¶8]. This is false. When the Parties agreed to limit the involvement of an
arbitral institution, they did not exclude the application of UNCITRAL Rules Art. 13(4), which gives
the Appointing Authority exclusive power to decide the challenge [UNCITRAL Rules Art. 13(4);
Methanex II.E ¶35; Caron P256; Binder 2013 P148].
32. Since the Parties agree that the CISG governs their arbitration agreement, CISG Art. 8 guides the
interpretation of the arbitration clause, taking into account all relevant circumstances, practices, and
usages [PO ¶1]. Arts. 8(1) and 8(2) set forth two hierarchical criteria. First, Art. 8(1) requires a
subjective inquiry into the Parties’ real intent, and the party proffering such statement has the burden
of proof [Schwenzer P180]. If subjective intent cannot be determined, Art. 8(2) requires an objective
analysis pursuant to the ‘reasonable person’ standard. Here, CLAIMANT did not know and could
not have been aware of RESPONDENT’s intention to exclude the application of UNCITRAL
Rules Art. 13(4) [i]. Further, a reasonable person in the CLAIMANT’s position could not have been
aware of RESPONDENT’s intention to exclude the application of UNCITRAL Rules Art. 13(4)
[ii].
CLAIMANT did not know that RESPONDENT intended to exclude the application of
UNCITRAL Rules Art. 13(4)
33. Under CISG Art. 8(1), RESPONDENT neither intended to exclude the application of UNCITRAL
Rules Art. 13(4), nor the jurisdiction of the Appointing Authority to rule on the challenge.
McGill University
Memorandum for CLAIMANT
5
CLAIMANT understood RESPONDENT’s clear intention as wishing to establish a “practicable”
arbitration clause that “would not cause any problems in its application” [C1 ¶5]. If
RESPONDENT’s actions were to be interpreted as wanting to exclude UNCITRAL Rules Art.
13(4) from the challenge procedure, this would create an unworkable process for choosing a
decision-maker during a potential challenge. This would run contrary to RESPONDENT’s own
wishes. Indeed, CLAIMANT understood that RESPONDENT wanted an Appointing Authority
mechanism precisely because it was designed to avoid deadlocks and procedural quagmires seen in
challenges [UN Doc A/CN.9/97 ¶5(a)], and as well as affronts to due process created by arbitrators
reviewing challenges to themselves or their peers [Ross; Daele P171].
34. Nor can RESPONDENT, whose clear intention was to safeguard confidentiality [R5 ¶4], be
interpreted as wishing to exclude UNCITRAL Rules Art. 13(4), as this would ultimately force
confidential matters into the public court proceedings before the Supreme Court of Danubia, who
is competent to hear the challenge under Model Law Art. 13(3). Even though RESPONDENT
contends that it wanted “as few persons as possible to know about the arbitration,” it nevertheless
reassured CLAIMANT that its arbitration clause would avoid repeating CLAIMANT’s “bad
experience” with State courts [R5 ¶5]. In these circumstances, it is hard to believe that
RESPONDENT and its lawyers, who “did not see the necessity to make any changes” [R5 ¶6],
would have wished to exclude the competence of a trusted party-appointed adjudicator, i.e., an
Appointing Authority, to resolve similar challenges.
35. Similarly, the inclusion of UNCITRAL Rules Art. 13(4) does not necessarily lead to the involvement
of an arbitral institution. Indeed, there are many instances where disputing parties apply
UNCITRAL Rules Art. 13(4) without resorting to arbitral institutions [UN Doc A/CN.9/634 ¶5;
Caron/Caplan P150]. For example, the PCA regularly designates individuals to act as appointing
authorities [Webster P114; UN Doc A/CN.9/634 ¶5], and the UNCITRAL Rules already provide
for arbitration “where no arbitral institution is involved” [UNCITRAL Recommendations ¶1]. This
is because UNCITRAL Rules Art. 6(1)(b) specifically allows “[either party to propose to the other]
the name or names of one or more institutions or persons, [to] serve as appointing authority”
[emphasis added]. CLAIMANT understood RESPONDENT’s intention to exclude the
“involvement of any arbitral institution” [R5 ¶4]. Accordingly, the Parties’ agreement relates only to
the exclusion of “institutional arbitration” [C1 ¶5; C3 ¶4; R5 ¶5]. Therefore, the CLAIMANT never
expected that its agreement to exclude institutional arbitration could also mean excluding
UNCITRAL Rules Art. 13(4).
36. Finally, CLAIMANT could not have been aware of RESPONDENT’s intention to exclude the
application of UNCITRAL Rules Art. 13(4) given the lack of sophistication exhibited by
McGill University
Memorandum for CLAIMANT
6
RESPONDENT’s legal counsel. On one hand, RESPONDENT consulted its lawyers during the
Parties’ negotiations to ensure a “practicable” dispute resolution clause [C1 ¶5]. On the other,
RESPONDENT showed naivety towards arbitration: first, by excluding the already-inapplicable
Transparency Rules [UNCITRAL Transparency Rules Art. 1(1)]; second, by taking a monolithic
attitude that all arbitral institutions are liable to confidentiality breaches [Paulsson 2010 PP12-13];
and, third by introducing a potential pathology in saying that the presiding arbitrator would be
“appointed by the party-appointed arbitrators or by agreement of the Parties” [UNCITRAL Rules
Art. 9(1); Contract Clause 20, emphasis added]. Indeed, in RESPONDENT’s own recent
submissions, the challenge is “entrusted to the Appointing Authority” [NoC ¶8], which evinces
either a prior ignorance or a new-found familiarity with the challenge process. Given such mixed
signals, CLAIMANT could not have known of RESPONDENT’s intention to exclude the
application of UNCITRAL Rules Art. 13(4).
37. It is well established that a party who asserts the application of CISG Art. 8(1) must prove its
assertion. In fact, the standard for imputable knowledge in Art. 8(1) is the formula “could not have
been unaware,” which is understood to require a greater degree of carelessness or gross negligence
than the standard “ought to have known” [Schwenzer P152]. In the present case, the Parties only
actually ever spoke to the exclusion of “institutional arbitration” [C1 ¶5; C3 ¶4; R5 ¶5], and not the
specific exclusion of Art. 13(4). In light of the above arguments, RESPONDENT has not met the
burden of proving that the Parties excluded the application of UNCITRAL Rules Art. 13(4) [NoC
¶8]. Neither has RESPONDENT met the burden of proving that CLAIMANT could not have been
unaware that its intent was to specifically exclude the competence of the Appointing Authority from
the challenge procedure.
A reasonable person in CLAIMANT’s position could not have known that
RESPONDENT intended to exclude the application of UNCITRAL Rules Art. 13(4)
38. Under CISG Art. 8(2), a reasonable person in CLAIMANT’s position could not have been aware
that RESPONDENT intended to exclude UNCITRAL Rules Art. 13(4), or the competence of the
Appointing Authority from the challenge procedure. A reasonable person would not interpret an
agreement to exclude institutional arbitration to also exclude the Appointing Authority [a]. Indeed,
even if a reasonable person meant to deviate from the challenge procedure, she would not interpret
RESPONDENT’s intent as excluding the Appointing Authority in favour of a two-person tribunal
[b]. Finally, absent clear and unambiguous language, the provision has to be interpreted contra
proferentem [c].
McGill University
Memorandum for CLAIMANT
7
39. Under the reasonable person standard of CISG Art. 8(2), special weight is attached to the usual
meaning of the words used by the parties [Schwenzer P163]. In its Notice of Challenge,
RESPONDENT contends that it “had explained to CLAIMANT that it…had no confidence that
a dispute would be kept confidential by any institution” [NoC ¶8, emphasis added]. It is widely
known that arbitration generally provides greater privacy and confidentiality than litigation. It is
therefore difficult to understand how a reasonable person could so quickly dismiss the reputation
of all arbitration institutions, including those serving as Appointing Authorities, based on one
negative experience for which RESPONDENT lacked any “definitive proof” [R5 ¶4]. Indeed, no
reasonable person in the CLAIMANT’s shoes would mistake RESPONDENT’s caution towards
arbitral institutions as a valid reason for extending their understanding of the phrase “without the
involvement of any arbitral institution” to mean “without the involvement of any Appointing
Authority,” much less an Appointing Authority that is not an institution but a person, as is often
the case [see ¶35 above]. Furthermore, secretariats within arbitration institutions are known to work
in a strictly confidential manner [ICC Internal Rules Art. 1; PCA Internal Rules Art. 5; SCC Institute
Rules Art. 9; LCIA Notes s. 19; Smeureanu PP148-149]. Even so, a reasonable person reading the
Contract would interpret RESPONDENT’s confidentiality clause as being open to certain
principled exceptions, including “to protect or pursue a legal right in bona fide legal proceedings”
[Contract Clause 21].
40. Additionally, the Parties agreed to resolve disputes “without the involvement of any arbitral
institution” [Contract Clause 20] at the request of RESPONDENT, who had “switched [its]
arbitration clause from an institutional…to an ad-hoc clause…under the UNCITRAL Arbitration
Rules” [R1 ¶5]. A reasonable person dealing with RESPONDENT in the context of the Parties’
negotiations would presume that in making such an important decision, RESPONDENT would
have carefully assessed how to transfer the various functions performed by an institution to other
non-institutional actors under the UNCITRAL Rules. Indeed, a reasonable person in CLAIMANT’s
position would have expected that even if RESPONDENT had not considered the various
advantages and disadvantages of switching its arbitration clause, it would have at least rectified any
mistakes when CLAIMANT made known its negative experience with state courts under ad-hoc
arbitration [R5 ¶5]. The fact that RESPONDENT’s “legal department was confident that [their
new] arbitration clause would not cause any problems in its application in practice” [C1 ¶5] would
have led a reasonable person to believe that RESPONDENT sought to use the services of the
Appointing Authority, which is standard practice under the UNCITRAL Rules. That
McGill University
Memorandum for CLAIMANT
8
RESPONDENT intended to establish a “practicable” arbitration clause that “would not cause any
problems in its application” [C1 ¶5] confirms the interpretation that RESPONDENT favoured the
competence of an Appointing Authority [UN Doc A/CN.9/97 ¶5(a); Binder 2013 P78].
41. Lastly, the UNCITRAL Rules place no limitations on who the parties may propose to serve as
Appointing Authority. Indeed, the drafters of the Rules stated, “any third party may be chosen as
an appointing authority [which] may be a physical or a legal person” [UN Doc A/CN.9/97 ¶5(a)]
and which have today included many eminent jurists like Bruno Simma [Aeroport Belbek], Yves
Fortier [Geci Española ¶9], and Michael Hwang [PJSC CB Privatbank] to name but a few. UNCITRAL
Rules Art. 6(1) allows a disputing party to make proposals for the name of one or more persons to
serve as Appointing Authority “at any time” during the arbitration. Given these considerations, a
reasonable person would not have known and could not have been aware that RESPONDENT’s
sensitivity towards arbitration institutions also extended to non-institutional appointing authorities,
leading it to request a restrictive interpretation of UNCITRAL Rules Art. 13(4). Indeed, a reasonable
person in CLAIMANT’s shoes would not have known about RESPONDENT’s “unilateral and
undisclosed” mental reservations, which are in any case irrelevant under CISG Art. 8 [Schwenzer
P148].
42. RESPONDENT states that drafters of the UNCITRAL Rules wished to have an Appointing
Authority decide challenges to avoid a challenged arbitrator deciding in her own cause [NoC ¶8]. It
then transplants this logic to Model Law Art. 13(2). However, a reasonable person would not
interpret the RESPONDENT’s intent as excluding the role of the Appointing Authority. In fact,
the primary concern of drafters in devising Art. 12(1) of the original 1976 UNCITRAL Rules was
to ensure that the authority called upon to decide the challenge be an impartial and independent one
[Caron/Caplan P269]. In considering several possibilities for an authority to decide the challenge,
state representatives declined a two-member proposal in favour of the Appointing Authority [UN
Doc A/10017 ¶85]. Therefore, contrary to RESPONDENT’s erroneous claims, the drafters of
UNCITRAL Rules Art. 13(4) did not envision a two-person tribunal deciding on the challenge.
Under these circumstances, no reasonable person would interpret RESPONDENT’s intent as
excluding the Appointing Authority.
43. While UNCITRAL Rules Art. 1(1) does not require that a modification of the Rules be in writing,
it requires that such modification be expressed clearly and unambiguously to “avoid uncertainty as
McGill University
Memorandum for CLAIMANT
9
to whether the Rules have been made applicable” [UN Doc A/CN.9/112/Add.1 P167; Paulsson
2010 ¶22; Caron/Caplan ¶12]. Consequently, clearer wording would have been required to deviate
from UNCITRAL Rules Art. 13(4). In the present case, CLAIMANT clearly and unambiguously
confirmed its understanding of the terms “without the involvement of any arbitral institution” as
applying only to the constitution of arbitral tribunals [C1 ¶5; C3 ¶4; R5 ¶5]. Risks emanating from
RESPONDENT’s lack of care in confirming relevant circumstances should be borne by
RESPONDENT. This is confirmed by the doctrine of contra proferentem, whereby any ambiguity in
a contract is interpreted in favor of the party who did not write the clause [Schwenzer P168;
UNIDROIT Principles Art. 4(6)].
44. Even excluding the application of UNCITRAL Rules Art. 13(4), the Tribunal does not have
jurisdiction to decide on the challenge. Under Model Law Art. 13(3), which constitutes the lex arbitri
in this Danubia-seated arbitration, arbitrator challenges must be decided by the Supreme Court of
Danubia “if a challenge under any procedure agreed upon by the parties…is not successful” [Model
Law Art. 13(3), emphasis added; PO2 ¶47]. The Tribunal is only allowed to decide challenges under
Model Law Art. 13(2) “[f]ailing such agreement” on a challenge procedure.
45. Here, when the Parties excluded UNCITRAL Rules Art. 13(4) from the challenge procedure, their
challenge remained subject to the rest of Art. 13, i.e., Arts. 13(1) to 13(3), and therefore the Tribunal
still lacks competence to decide the challenge under Model Law Art. 13(2). By its own accounts,
RESPONDENT only argues for the exclusion of UNCITRAL Rules Art. 13(4), not the rest of Art.
13. This is also confirmed by RESPONDENT’s unreserved and explicit reliance upon UNCITRAL
Rules Art. 13 in its Notice of Challenge and Cover Letter to the Notice of Challenge. Therefore,
even according to RESPONDENT’s case, UNCITRAL Arts. 13(1) to 13(3) continue to apply and
constitute the applicable challenge procedure.
46. Under this procedure, an arbitrator’s refusal to withdraw from office constitutes a decision rejecting
the challenge. This procedure is akin to the challenge of a sole-arbitrator, where there is no need for
a formal decision because the “refusal of a sole arbitrator to resign…constitute[s] a rejection of the
challenge” [UN Doc A/40/17 ¶129]. Similarly, RESPONDENT invoked a challenge to Mr. Prasad
when, pursuant to UNCITRAL 13(2), it communicated its notice and reasons for the challenge to
CLAIMANT, to Mr. Prasad, and the other arbitrators [NoC]. When Mr. Prasad communicated to
the Parties his decision “not [to] withdraw from [his] office as arbitrator” [Prasad Letter ¶8] pursuant
to UNCITRAL Rules Art. 13(3), RESPONDENT’s only further recourse would have been to the
Supreme Court of Danubia under Model Law Art. 13(3)—and not to the Tribunal.
McGill University
Memorandum for CLAIMANT
10
47. Contrary to RESPONDENT’s assertion, it is not “normal in ad hoc proceedings [for the] Arbitral
Tribunal…to decide the challenge” [NoC ¶8]. Rather, under Model Law Art. 13(2), the tribunal has
competence to decide the challenge only if it finds that the parties failed to agree to a procedure for
challenging an arbitrator. Should the Tribunal decide this was the case here, CLAIMANT submits
without prejudice that, pursuant to Model Law Art. 13(2), the full Tribunal, including the impugned
arbitrator, must decide the challenge [i]. Indeed, Mr. Prasad cannot unilaterally withdraw from his
mandate even if he were allowed to [ii]. In its deliberations, the Tribunal should give consideration
to the fact that RESPONDENT has carelessly lost its ability to bring the challenge before the proper
authorities who hold exclusive jurisdiction over this matter [iii].
The Tribunal must decide the challenge with the participation of Mr. Prasad
48. RESPONDENT erroneously argues that a challenged arbitrator cannot participate in his own
challenge decision. Given that Danubia adopted the UNCITRAL Model Law without amendments
[PO ¶3(4)], the full Tribunal, including Mr. Prasad, would have to decide the challenge, should the
Tribunal decide that the Parties had not agreed on a challenge procedure. The words “arbitral
tribunal” in Model Law Art. 13(2) mean the full Tribunal, including the challenged arbitrator. This
is because the possibility of a two-member Tribunal deciding the challenge was explicitly dismissed
by drafters [UN Doc A/40/17 ¶128]. Notably absent are any domestic amendments by Danubia
that would indicate that an arbitrator cannot be “a judge in his own cause” [NoC ¶8]. In contrast,
Egypt omitted the words “the arbitral tribunal shall decide on the challenge” in its Arbitration Act
[Egypt Arbitration Act Art. 19] after deciding that the impugned provision was unconstitutional
[Varady et al. P456]. Likewise, as previously mentioned, the drafters of the UNCITRAL Rules
specifically rejected the possibility of allowing two other members of the arbitral tribunal to decide
the challenge, as proposed by RESPONDENT [UN Doc A/10017 ¶85]. RESPONDENT
therefore asks the Tribunal to violate the intentions of the drafters of the Model Law and
UNCITRAL Rules, as well as those of the Danubian legislator, when it seeks to exclude Mr. Prasad
from the decision on his challenge.
49. RESPONDENT further fails to consider the practicability of a two-person tribunal. This was a
specific concern voiced by the drafters of the UNCITRAL Rules, who feared that a two-person
tribunal “might not lead to any decision, as these members might not agree” [UN Doc A/10017
¶85]. The UNCITRAL Rules and the Model Law both permit certain procedural matters to be
delegated to the presiding arbitrator [UNCITRAL Rules Art. 33(2); UNCITRAL Explanatory Note
¶41]. However, the Tribunal could not use UNCITRAL Rules Art. 33(2) to delegate the decision to
McGill University
Memorandum for CLAIMANT
11
the competence of the presiding arbitrator even if it wanted to. Deciding a challenge is a distinctly
legal and judicial task, requiring both application of the law, assessment of evidence and fair
administration of procedure. This is confirmed by the UNCITRAL Model Law Working Group,
which does not consider a challenge “to be…a decision on a question of procedure in the terms of
Art. 29 [of the UNCITRAL Model Law] and [entrusts this decision] to all members of the tribunal,
including the challenged arbitrator” [Binder 2010 P195; A/CN.9/246 ¶38]. Thus, should the
Tribunal decide that the Parties did not agree on a challenge procedure, the challenge cannot be
delegated to a presiding arbitrator, but rather must be decided by a majority or unanimous vote of
the entire panel [UN Doc A/CN.9/264 P32 ¶4].
Even if he were allowed, Mr. Prasad cannot unilaterally withdraw from the challenge
decision
50. Mr. Prasad is bound to respect the equality of the Parties and CLAIMANT’s fundamental right to
equal representation on the Tribunal. Once a mandate is accepted, it cannot be unilaterally rejected
without valid cause [Waincymer PP326-27]. Moreover, to allow a challenge procedure which is
strongly advantageous to only one party would violate Model Law Art. 18. RESPONDENT’s
proposal that a two-person tribunal decide the challenge would directly contravene the equality of
the Parties.
51. Likewise, in their dispute resolution clause, the Parties explicitly agreed that “the number of
arbitrators shall be three” [Contract Clause 20, emphasis added]. While some institutional rules
provide for truncated tribunals (e.g., LCIA, ICDR, and WIPO), such provisions are notably absent
from the UNCITRAL Rules. Indeed, the Parties to this dispute neither expressly, nor impliedly,
ever agreed to have a truncated tribunal decide on the challenge. A decision by a truncated tribunal,
without CLAIMANT’s consent, may well lead to an annulment by the Supreme Court of Danubia,
or refusal of enforcement under Art. V(1)(d) of the New York Convention on the basis that the
award was rendered by an improperly constituted tribunal [Born P1739; Himpurna ¶194; Schwebel
P146].
RESPONDENT cannot overcome fatal delays by insisting that the Tribunal decide on
its challenge
52. RESPONDENT has effectively twice waived its right to challenge by failing to bring it before the
proper authorities. Both the UNCITRAL Rules and the Model Law aim to discourage dilatory tactics
and avoid waiting out a challenge until the rendering of a final award. Even if it is not directly
relevant to the Tribunal’s own competence, it is worth raising the fact that RESPONDENT’s
heedless challenge is inadmissible in any other forum. The 30-day time period to submit the
challenge to the Appointing Authority under UNCITRAL Rules Art. 13(4) has long lapsed.
McGill University
Memorandum for CLAIMANT
12
Similarly, the 30-day time period to submit the challenge to the Supreme Court of Danubia under
Model Law Art. 13(3) has also expired. RESPONDENT cannot now seek to unfairly revive its
challenge by soliciting a decision from the Tribunal. Challenging the challenge procedure itself is a
guerilla tactic that must be discouraged. As expected, RESPONDENT’s suggestion that a two-
person Tribunal can rule on the challenge to Mr. Prasad is self-serving and legally untenable.
REPONDENT seeks to derail the proceedings and deny CLAIMANT its choice or arbitrator and
the right to a fair hearing. As expected, RESPONDENT’s suggestion that a two-person Tribunal
can rule on the challenge to Mr. Prasad is self-serving and legally untenable. RESPONDENT seeks
to derail the proceedings and deny CLAIMANT its choice of arbitrator and the right to a fair
hearing.
THE CHALLENGE TO MR. PRASAD IS WITHOUT MERIT AND SHOULD BE DISMISSED
53. In an obvious attempt to deny CLAIMANT its right to a fair and balanced Tribunal,
RESPONDENT seeks to remove Mr. Prasad, CLAIMANT’s party-appointed arbitrator, from the
arbitral proceedings [NoC ¶13]. RESPONDENT supports its spurious challenge by cobbling
together a disparate series of facts and circumstances, which it erroneously claims raises justifiable
doubts as to Mr. Prasad’s independence or impartiality. By triggering this protracted legal skirmish,
RESPONDENT not only seeks to strain CLAIMANT’s financial position, but further delays any
possible resolution on the merits.
54. The Tribunal must reject RESPONDENT’s meritless proposition that there are justifiable doubts
as to Mr. Prasad’s independence or impartiality. RESPONDENT has failed to identify the
appropriate objective standard of review for the challenge of an arbitrator and has instead proposed
a subjective threshold of review which is informed by non-binding guidelines [A]. Under the correct
standard of review, REPONDENT has failed to establish objectively justifiable doubts as to Mr.
Prasad’s independence or impartiality [B].
55. RESPONDENT has failed to discharge its burden of proof of demonstrating that there are
objective grounds to remove Mr. Prasad from the Tribunal. Instead, RESPONDENT has
erroneously suggested a lower, subjective standard of review by which to remove Mr. Prasad.
56. The correct test for the removal of an arbitrator requires circumstances which give “justifiable
doubts as to the arbitrator’s impartiality or independence” [UNCITRAL Rules Art. 12(1), emphasis
added]. The standard for justifiable doubts is widely recognized to be objective, requiring the
McGill University
Memorandum for CLAIMANT
13
tribunal to consider the perspective of “a reasonable and fair-minded third person, having
knowledge of the relevant facts” [Merck ¶73; National Grid ¶73; Gallo ¶19; XXII YB ¶23]. It has been
highlighted that this standard adopts the perspective of a disinterested third-person, rather than the
view of the tribunal or the parties [Born P1780]. In order to apply this standard, tribunals must pay
particular attention to the unique factual scenario of a given challenge; as one tribunal observed, “it
is only logical to conclude that all relevant facts and circumstances must be considered in reaching
[a] judgement” [Gallo ¶19].
57. RESPONDENT misleadingly suggests that the Tribunal should use an alternative, subjective
standard in an attempt to lower its evidentiary burden to show justifiable doubts as to Mr. Prasad’s
independence and impartiality. While a party’s subjective concerns may be sufficient to raise a
challenge, they are insufficient to support the removal of an arbitrator [Daele P241]. As noted by
one appointing authority, “[i]f the doubt had merely to arise in the mind of a party contesting the
impartiality of an arbitrator, ‘justifiable’ would have been almost redundant” [XXII YB ¶23].
58. RESPONDENT also suggests that the early stage of the proceedings strengthens the merits of their
challenge [NoC ¶12]. This proposition is incorrect, as the standard of review for a challenge remains
an objective one at all stages of the arbitral proceedings [Daele P250]. While it may be relevant for
the Tribunal to consider how the progression of the proceedings might contribute to objectively
justifiable doubts concerning Mr. Prasad, this factor alone “should not be permitted to preempt an
objective, careful analysis of partiality or bias” [Born, P1822]. The stage of the proceedings is
therefore not determinative in the assessment of the challenge against Mr. Prasad.
59. Lastly, RESPONDENT has suggested that the Tribunal “should take into account” the IBA
Guidelines in deciding the challenge [NoC ¶9]. However, the IBA Guidelines are merely the “non-
binding views of one group of practitioners on arbitrator conflicts of interest” [Merck ¶75]. The IBA
Guidelines “are not legal provisions and do not override any applicable national law or arbitral rules
chosen by the parties” [IBA Rules, Introduction, Art. 6]. Furthermore, they should not be applied
in a strictly mechanistic fashion [Waincymer P297]. In considering the challenge to Mr. Prasad, the
Tribunal must refrain from following the IBA Guidelines in isolation as RESPONDENT suggests
and instead apply the correct objective standard of justifiable doubts.
60. The grounds cited by RESPONDENT do not indicate bias that rises to the level of justifiable doubts
as to Mr. Prasad’s independence or impartiality. None of Mr. Prasad’s previous appointments [i],
firm connections [ii], or past publications [iii] are sufficient grounds to have Mr. Prasad removed
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from the Tribunal. Nor is the cumulative effect of the circumstances raised by RESPONDENT
sufficient to raise justifiable doubts [iv].
Mr. Prasad’s previous appointments do not raise justifiable doubts
61. Contrary to the views of RESPONDENT, the fact that Mr. Prasad has been previously appointed
by the Parties indirectly related to CLAIMANT of the present arbitration is not a source of concern
[NoC ¶10]. RESPONDENT claims that these previous appointments raise justifiable doubts as to
Mr. Prasad's independence and impartiality. However, when considered in the context of the
applicable test [a], none of these appointments raise justifiable doubts [b].
62. The relevant test to determine the impact of repeat appointments is whether “the number and
significance of the appointments considered in context, and in light of the period of time over which
the appointments were made, raise justifiable doubts in the eyes of a reasonable and fair-minded
third person as to the arbitrator’s independence or impartiality” [Merck ¶87]. This is a stark
difference to the purely numerical IBA Guidelines criteria proposed by RESPONDENT [IBA
Guidelines Art. 3.1.3 and 3.3.8]. In the present case, the factual surroundings of each appointment
are sufficient to convince the Tribunal that there are no justifiable doubts as to Mr. Prasad’s
independence or impartiality.
63. RESPONDENT cites four appointments which they claim must be considered collectively in
assessing Mr. Prasad’s alleged bias [NoC ¶10]. However, when considered in context and over the
three-year time period in which they occurred, these appointments fail to rise to the level of
objectively justifiable doubts as to Mr. Prasad’s independence or impartiality.
64. First, none of these appointments were made directly by any of the Parties involved in the present
arbitration. Two of the appointments were made by Mr. Fasttrack’s law firm, in the context of cases
in which Mr. Fasttrack was not involved [PO2 ¶9]. The two other appointments were made by
third-parties entirely unrelated to the present arbitration, but whose claims were funded in part by
other subsidiaries of Findfunds LP, the same parent company which partially funds CLAIMANT’s
case [PO2 ¶6]. Thus, the previous nominations were made by third-parties with only distant
connections to the present arbitration. These connections are all the more tenuous, given that
Findfunds LP does not typically involve itself in the appointment of arbitrators [PO2 ¶4]. In one of
the cases, the funder only ever became involved after Mr. Prasad’s appointment [Letter Prasad ¶4].
As one ICSID tribunal observed, “multiple appointments as arbitrator by the same party in unrelated
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cases are neutral, since in each case the arbitrator exercises the same independent arbitral function”
[Tidewater ¶60]. The difference in challenge under ICSID Rules does not detract from the pertinence
of this general comment. The previous appointments cited by RESPONDENT therefore have little
relevance on the present proceedings.
65. Second, while the quantum of Mr. Prasad’s earnings is unknown, the proportions derived from the
impugned appointments represent an immaterial part of Mr. Prasad’s arbitration income. In the past
three years, Mr. Prasad has acted as an arbitrator in 21 proceedings, which have accounted for at
most 40% of his earnings [PO2 ¶10]. The cases in which he was appointed by Mr. Fasttack’s law
firm were of minor value and the disputes involving the third-party funder accounted for only 20%
of the fees that he generated in the past three years [PO2 ¶10]. This means that in a given year, Mr.
Prasad has earned approximately 8% of his income from the cases cited by RESPONDENT. This
is insufficient to create the “financial dependence” that previous tribunals have held necessary to
raise justifiable doubts [Merck ¶87].
66. Third, RESPONDENT offers no justification as to why these four separate appointments should
be amalgamated [NoC ¶10]. While not explicitly cited by RESPONDENT, the relevant IBA
Guidelines state as a ground for challenge that “[t]he arbitrator has, within the past three years, been
appointed as arbitrator on two or more occasions by one of the parties, or an affiliate of one of the
parties” [IBA Guidelines 3.1.3, emphasis added]. Nothing in the language of this provision suggests
that previous appointments from different parties should be considered cumulatively. In criticizing
the IBA Guidelines on the issue of previous appointments, Born has suggested that “[t]he better
approach would be to consider repeat appointments by a single party or lawyer only where they
constituted a material part of the arbitrator’s professional activities and income” [Born P1883].
RESPONDENT has therefore failed to indicate why the Tribunal should consider these four
previous appointments as a whole.
67. Under the factual context of the previous appointments cited by RESPONDENT, it is clear that
Mr. Prasad is not financially, or otherwise dependent on any of the parties involved in these cases
as they account for only a small portion of his arbitrator practice. Nor is there any reason to believe
that Mr. Prasad has any history of judging partially. In fact, all of the cases cited by RESPONDENT
were resolved by unanimous decision [PO2 ¶15]. The Tribunal must reject RESPONDENT’s claim
that the four previous cases are relevant to the present proceedings and that they raise justifiable
doubts as to Mr. Prasad’s independence or impartiality.
Mr. Prasad’s law firm connections do not raise justifiable doubts
68. RESPONDENT alleges that Mr. Prasad’s connection to a third-party funder raises doubts as to his
independence or impartiality. Specifically, RESPONDENT cites that one of Mr. Prasad’s new
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partners currently represents a client in a matter that is funded by a subsidiary of the same parent
company that has provided support to CLAIMANT in the present matter [NoC ¶11].
RESPONDENT has expressly waived its right to challenge Mr. Prasad’s law firm connections and
should be barred from doing so now [a]. In the event that the Tribunal chooses to consider these
grounds for challenge, under the correct test [b], Mr. Prasad’s law firm connections do not raise
justifiable doubts [c].
69. RESPONDENT is barred from citing the connection to Mr. Prasad’s new law firm as justification
of bias as it expressly waived its right to challenge Mr. Prasad on such grounds. In his Declaration
of Independence, Mr. Prasad stated that “his colleagues at Prasad & Partners may continue current
matters and may also accept further instructions involving the Parties as well as related companies”
[Declaration of Independence ¶6]. RESPONDENT subsequently accepted this current objection
in writing, stating that it “had no objection to the appointment of Mr. Rodrigo Prasad despite the
restrictions in his declaration of independence” [Response NoA ¶22]. This prior exercise of party
autonomy serves to waive these grounds of objection under the IBA Guidelines that
RESPONDENT relies on [Explanation to General Standard 4(c)]. Yet over one month later,
RESPONDENT challenged Mr. Prasad for the exact circumstances relating to the explicit
reservation he made in his Declaration of Independence. RESPONDENT offers no justification as
to why Mr. Prasad’s new colleagues should not be contemplated in the reservation that he made.
Therefore, there is no reason why RESPONDENT should now be able to challenge Mr. Prasad on
these grounds.
70. In the interconnected world of international arbitration, any allegation of bias based on an
arbitrator’s connections must be evaluated qualitatively [Blackaby et al. P269]. As one tribunal
observed, “arbitrators are not disembodied spirits dwelling on Mars, who descend to earth to
arbitrate a case and then immediately return to their Martian retreat to await inertly the call to
arbitrate another,” but rather are “professionals [with] a variety of complex connections with all
sorts of persons and institutions” [AWG Group ¶32]. The test to consider allegations of bias based
on the arbitrator’s supposed connections must take into account four factors: proximity, intensity,
dependence, and materiality [AWG Group ¶35]. In light of these factors, none of the circumstances
of the present case raise justifiable doubts as to Mr. Prasad’s independence or impartiality.
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71. When considered in light of the relevant factors, Mr. Prasad’s indirect connection to the third-party
funder do not raise justifiable doubts about his independence or impartiality. First, Mr. Prasad has
only a distant link to his new partner’s case, which began years before the contemplated merger
[PO2 ¶6], and which involves a distinct legal entity with no direct connection to the present
arbitration [PO2 ¶2]. Second, the intensity of the interaction between Mr. Prasad and his partner is
low, given that “all of the necessary precautions have been put in place to avoid contact between
Mr. Prasad and the partner’s case” [Declaration Prasad ¶3]. Third, as previously mentioned, as an
arbitrator and lawyer with multiple streams of income, Mr. Prasad is in no way financially dependent
on the distant connection with the third-party funder of his partner’s case [PO2 ¶10]. Fourth, the
case has nearly finished and the law firm’s involvement has already concluded with the post-hearing
submission filed last month. They are now merely awaiting for the award and nothing more [Prasad
Letter ¶3]. Fifth, Mr. Prasad receives only indirect benefit from the case. In a law firm with 20 equity
partners and 60 associates [PO2 ¶8], he derives limited financial benefit from the case. For all of
these reasons, the connection that Mr. Prasad has with the partner at his new law firm does not raise
justifiable doubts as to his independence or impartiality.
72. In their argument, RESPONDENT claims the relevance of IBA Guidelines 2.3.6, which states as a
potential circumstance for an arbitrator challenge that “[t]he arbitrator’s law firm currently has a
significant commercial relationship with one of the parties, or an affiliate of one of the parties.” As
previously discussed, the IBA Guidelines are not binding on the present arbitration [¶59 see above].
Further, scholars have criticized the approach of the IBA Guidelines as being too arbitrary and
mechanistic, suggesting instead that “[t]he better approach would be to focus largely on the personal
activities and circumstances of the arbitrator, rather than his or her law firm” [Born P1894]. Lastly,
the specific circumstance raised by RESPONDENT only appear on the Guideline’s “Orange List”,
which does not necessitate the automatic removal of an arbitrator. For these reasons,
RESPONDENT’s invocation of the IBA Guidelines cannot be used to bolster its claim of bias
against Mr. Prasad.
Mr. Prasad’s past publications are irrelevant to the present proceedings
73. RESPONDENT cites a previous publication written by Mr. Prasad as grounds for justifiable doubts
as to his independence and impartiality. This claim must be rejected. The time period to raise a
challenge on the grounds of Mr. Prasad’s article has expired [a]. Even in the event that the Tribunal
considers this ground for challenge, Mr. Prasad’s article does not raise justifiable doubts as to his
independence or impartiality [b].
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74. The article cited by RESPONDENT cannot be used as grounds for a challenge because the requisite
time period for doing so has elapsed. Under UNCITRAL Rules Art. 13(1), a party seeking to
challenge an arbitrator must send notice of its challenge within fifteen days after its notification of
the appointment or its discovery of the grounds of the challenge. The Secretary-General of the PCA
has observed that “there are important reasons for time limits to apply to the filing of challenge
proceedings,” which serves to “protect the integrity of the proceedings” [Grimmer P89]. Mr.
Prasad’s article was publicly available since the beginning of the proceedings both on his personal
website and through legal databases. RESPONDENT had 15 days from the appointment of Mr.
Prasad to raise a challenge. Having failed to do so at the time, it is barred from doing so now.
75. Mr. Prasad’s article does not raise justifiable doubts because it is general in nature. Academic articles
pertaining to legal issues in the abstract are not grounds for establishing bias against a particular
party [Born P1888]. Even the IBA Guidelines, which RESPONDENT frequently cites, include
previous publications on their non-conflict “Green List” [IBA Guidelines 4.1.1]. Tribunals have
previously adopted the perspective of the “reasonable reader” in determining whether or not an
arbitrator’s publication raises justifiable doubts that the arbitrator would prejudge the specific
dispute at hand [Perenco ¶56]. In the present case, no reasonable reader would infer from Mr. Prasad’s
article that he would have prejudged the dispute between the Parties.
Even cumulatively, the grounds cited by RESPONDENT do not raise justifiable doubts
as to Mr. Prasad’s independence or impartiality
76. RESPONDENT argues that the cumulative effect of the grounds of challenge create justifiable
doubts [NoC ¶12]. This proposition must be rejected. As previously discussed, none of the
individual grounds on which RESPONDENT bases its claim is sufficient to raise justifiable doubts
as to Mr. Prasad’s independence or impartiality. The mere act of cobbling together a disparate set
of circumstances, regardless of how numerous, is insufficient to justify the removal of an arbitrator.
77. RESPONDENT’s motivation in raising various grounds of challenge is surely part of a broader
tactic to prevent CLAIMANT from finally obtaining relief. RESPONDENT is seeking to enter into
a protracted legal battle aimed at sapping CLAIMANT’s resources. The Tribunal should deny this
underhanded approach, and reject the proposition that there is a cumulative effect of the grounds
raised by RESPONDENT.
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CLAIMANT’S GENERAL CONDITIONS GOVERN THE CONTRACT
78. CLAIMANT’s General Conditions, upon which the Contract is formed, create obligations of best
efforts with respect to the ethical properties of the cakes. In an attempt to shirk its obligations under
the Contract and to retroactively impose upon CLAIMANT a burden it never agreed to bear,
RESPONDENT claims that its own General Conditions apply, which it erroneously asserts
imposed upon CLAIMANT an obligation of guarantee in respect to the ethical quality of the cakes.
79. Contrary to RESPONDENT’s assertions, CLAIMANT’s General Conditions, and at the very least,
its Codes of Conduct [R3] govern the Contract [A]. If the Tribunal finds that both the Parties’
General Conditions were incorporated into the Contract, thus giving rise to a “battle of the forms,”
it should find both CLAIMANT's and RESPONDENT’s general conditions applicable to the
exclusion of any conflicting terms [B].
80. CLAIMANT’s General Conditions, and at the very least, its Codes of Conduct, govern the Parties’
contractual relationship. CLAIMANT made a proposal to RESPONDENT that incorporated
CLAIMANT’s General Conditions and Codes [i]. Further, RESPONDENT accepted
CLAIMANT’s Offer, which incorporated CLAIMANT’s General Conditions and Codes, to the
exclusion of RESPONDENT’s own General Conditions [ii].
Through its Sales Offer form with accompanying letter, CLAIMANT made an Offer to
RESPONDENT incorporating CLAIMANT’s General Conditions and Codes of
Conduct
81. On 27 March 2016 CLAIMANT replied to RESPONDENT’s Tender Documents with its Sales
Offer form [C4] and accompanying letter [C3]. Here, CLAIMANT made an Offer to
RESPONDENT which incorporated CLAIMANT’s General Conditions and Codes, thus carving
out RESPONDENT’s General Conditions, Business Philosophy, and Code of Conduct.
82. Under the CISG, where a definite offer, evincing the offeror’s intention to be bound [CISG Art.
14(1)], is accepted by the offeree by a statement or other conduct signifying his assent [CISG Art.
18(1)], a contract will be formed on the terms of the offer. This holds so long as the would-be
acceptor’s reply does not contain additions, limitations or other modifications that materially alter
the terms of the offer, in which case said reply will constitute a counter-offer [CISG Art. 19(1)]. The
offer will typically contain the basic terms of the contract and may include standard business terms
[Schroeter P289]. To ascertain whether standard terms were incorporated into an offer, it must be
determined whether a reasonable addressee would conclude that the offeror intended to incorporate
its standard terms. Indeed, “it must be analyzed how a ‘reasonable person of the same kind as the
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Memorandum for CLAIMANT
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other party’ would have understood the offer (CISG Art. 8(2))” [Machinery ¶III.2]. There are two
stages to this test. First, the offeror’s intention to include her standard terms into the contract must
have been apparent to the offeree. Second, the offeror must have provided the offeree with the
possibility of becoming aware of the standard terms in a reasonable manner [Machinery ¶III.3].
83. CLAIMANT’s Sales Offer form, dated 27 March 2017 [C4], clearly incorporated its General
Conditions and Codes as it contained a clear reference therein. [a]. Further, CLAIMANT made the
text of its General Conditions reasonably available to RESPONDENT [b].
84. Generally, calls for tenders constitute mere invitations to treat—also known as invitatio ad
offerendum—[Schroeter P252 FN251] and a tender submitted in response constitutes an offer
pursuant to CISG Art. 14(1) [Schroeter PP252, 274]. The offer is then accepted, in accordance with
the terms of CISG Art. 18(1), when the purchaser (here, RESPONDENT) awards the contract to
the successful tenderer (here, CLAIMANT) [Schroeter P333].
85. RESPONDENT’s communication of its Invitation to Tender [C1] and Tender Documents [C2] to
CLAIMANT thus constituted a mere invitation to treat. In response, CLAIMANT made a valid
“proposal for concluding a contract” by sending its completed Sales Offer form [C4] with the
accompanying letter [C3] on 27 March 2017 to RESPONDENT. RESPONDENT then accepted
CLAIMANT’s Offer by way of a letter [C5] informing CLAIMANT that it had been awarded the
Contract.
86. CLAIMANT’s Sales Offer form contained a conspicuous reference to its General Conditions and
Codes. This reference indicated CLAIMANT’s clear intention that its General Conditions and
Codes would govern the Contract. CLAIMANT’s Sales Offer form provides that CLAIMANT’s
“[O]ffer is subject to the General Conditions of Sale and [its] Commitment to a Fairer and Better
World,” the latter of which is “set out in [its] Codes of Conduct” [C4]. In the Sales Offer form,
written directly below the above clause, CLAIMANT referred RESPONDENT to CLAIMANT’s
website where RESPONDENT could find CLAIMANT’s General Conditions and Codes [C4; PO2
¶28]. The express incorporation of CLAIMANT’s General Conditions and Codes was referenced
prominently on the first and only page of CLAIMANT’s Sales Offer form; it was not set out in
small print, hidden away, or otherwise printed in a way or location that it might be overlooked.
RESPONDENT had also been prompted to view CLAIMANT’s Codes on three prior occasions:
first, in CLAIMANT’s advertisement for its “King’s Delight” Vanilla-Chocolate Cake [Response
NoA ¶11; R2], second, in CLAIMANT’s Letter of Acknowledgment dated 17 March 2014 [R1], and
third, in the letter dated 27 March 2014 that accompanied CLAIMANT’s Sales Offer form [C3].
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87. In fact, RESPONDENT confirms that it indeed visited CLAIMANT’s website and reviewed its
Codes prior to accepting CLAIMANT’s Offer [C5 ¶2]. The “commitment to sustainable
production” shown in CLAIMANT’s Codes were the “decisive element” for RESPONDENT’s
decision to accept the Offer [C5 ¶2, emphasis added]. RESPONDENT thus “knew or could not
have been reasonably unaware of [CLAIMANT’s] intent” [CISG Art.8(1); Tantalum Powder ¶33] to
incorporate its Codes and General Conditions into the Contract.
88. CLAIMANT provided RESPONDENT with the reasonable opportunity to take notice of the terms
of CLAIMANT’s General Conditions. Standard terms will be incorporated into the contract
provided the party relying on them can demonstrate that the offeree had a “reasonable opportunity
to take notice of the terms” [Machinery ¶III.2; Advisory Council 13 Art. 2]. For this requirement to
be met, most commentators and courts agree that the offeror need not have transmitted the text to
the offeree as “[t]his sets too strict a standard” [Advisory Council 13 ¶B.2.5]. Rather, it suffices that
the reference to the standard terms direct the offeree to the offeror’s website where “a reasonable
person of a same kind as the other party in the same circumstances (art 8(2) CISG) [can] find and
download them” [Schroeter P299; Advisory Council 13 ¶B.2.5]. This is exactly what
RESPONDENT did in this case [C5 ¶2].
RESPONDENT accepted CLAIMANT’s Offer, which incorporated CLAIMANT’s
General Conditions and Codes of Conduct, thereby excluding its own
89. For the following four reasons, RESPONDENT accepted CLAIMANT’s Offer, which
incorporated CLAIMANT’s General Conditions and Codes of Conduct, thereby excluding its own.
90. First, RESPONDENT awarded CLAIMANT the tender notwithstanding the changes proposed by
CLAIMANT and thus assented to the exclusive applicability of CLAIMANT’s General Conditions
and Codes. When RESPONDENT sent its letter dated 7 April 2014 [C5] awarding the Tender to
CLAIMANT, RESPONDENT accepted CLAIMANT’s Offer, which incorporated CLAIMANT’s
General Conditions and Codes. Pursuant to CISG Art. 18(1), a valid acceptance is formed by “a
statement made by or other conduct of the offeree indicating assent to an offer” [Art. 18(1); Conveyor
Bands ¶5.1; Schroeter P333]. In RESPONDENT’s acceptance, RESPONDENT indicated that
CLAIMANT’s tender “was successful notwithstanding the changes suggested by [CLAIMANT]”
[C5 ¶1]. RESPONDENT merely reiterated part of CLAIMANT’s Offer and did not reject the
incorporation of CLAIMANT’s General Conditions and Codes. Accordingly, RESPONDENT
expressed its assent to the Offer thereby conveying its intention to be bound. CLAIMANT was
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then reasonably entitled to “rely on such unqualified acceptance and to accept that its terms [would]
apply” [Advisory Council 13 ¶B1.9].
91. Second, RESPONDENT’s silence in respect of the incorporation of CLAIMANT’s General
Conditions and Codes, and the fact that RESPONDENT did not expressly confirm their
applicability, is immaterial. RESPONDENT did not need actual knowledge of the terms of
CLAIMANT’s General Conditions and Codes—though it did have actual knowledge of the terms
of the latter. Moreover, REPONDENT did not need to provide a signed copy thereof [Schroeter
P311]. Furthermore, the incorporation of standard terms into the contract did not need to be
confirmed [Schroeter P311].
92. Third, RESPONDENT did not incorporate its own General Conditions into its acceptance of
CLAIMANT’s Offer [C5]. RESPONDENT did not refuse the applicability of CLAIMANT’s
General Conditions or indicate that its own General Conditions were to govern the Contract.
Rather, RESPONDENT remained silent in this respect. However, “the effective incorporation of
conditions as a rule requires at least an explicit reference to the standard terms [and that reference]
has to be sufficiently clear” [Schmidt-Kessel P172]. No such reference was present in the acceptance.
93. Finally, RESPONDENT’s conduct following its acceptance of CLAIMANT’s Offer shows
RESPONDENT’s assent to the applicability of CLAIMANT’s General Conditions and Codes.
CISG Art. 8(3) provides that when “determining the intent of a party or the understanding a
reasonable person would have had, due consideration is to be given to all relevant circumstances of
the case including…any subsequent conduct of the parties.” In the present case, the references
included in CLAIMANT’s Sales Offer form [see ¶86 above] were contained in every single invoice
communicated by CLAIMANT to RESPONDENT when it purchased its cakes [PO2 ¶24]. For
nearly three years, RESPONDENT was provided with written confirmation of the applicability of
CLAIMANT’s General Conditions and Codes to the exclusion of RESPONDENT’s. Conveniently,
RESPONDENT never protested until the current controversy arose. This demonstrates not only
that CLAIMANT intended its General Conditions and Codes to govern the Contract, but also that
RESPONDENT assented to it.
94. Since RESPONDENT’s General Conditions were never incorporated into the Contract, no “battle
of the forms” arises, and CLAIMANT’s General Conditions and Codes govern the Contract.
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95. If this Tribunal determines that both the Parties’ general conditions were incorporated into the
Contract, thus giving rise to a “battle of the forms,” it should find both the Parties’ general
conditions applicable to the exclusion of any conflicting terms.
96. Should a “battle of the forms” conundrum exist, which CLAIMANT contends is not the case here,
the Tribunal should adopt the “knock out approach” to resolve it. This approach posits that where
both parties have incorporated their respective standard terms into the contact, they will be taken
to have agreed on the main terms and all non-conflicting terms will form part of the agreement. Any
conflicting term will be “excluded and replaced by the dispositive or residual law applicable”
[Advisory Council 13 ¶10.5(b)]. This approach for resolving a “battle of the forms” issue is preferred
by most commentators [see Schroeter P367; Advisory Council 13 ¶10.6; Audit ¶71; Zeller PP213-
14] and courts [see Powdered Milk ¶II.1.b; Verreries de Saint Gobain; Knitware; Rubber Sealing Parts
¶B.II.3.bbb; Wavin ¶¶4.3.9-4.3.10]. In the Powdered Milk case, the German Federal Supreme Court
indicated that “[a]ccording to the (probably) prevailing opinion, partially diverging general terms and
conditions become an integral part of a contract (only) insofar as they do not contradict each other;
the statutory provisions apply to the rest” [Powdered Milk ¶II.1.b]. The CISG Advisory Council
favours the “knock-out approach” to its alternatives when resolving “battle of the form” issues,
observing “[w]here both parties seek to incorporate standard terms and reach agreement except on
those terms, a contract is concluded on the basis of the negotiated terms and of any standard terms
which are common in substance unless one party clearly indicates in advance, or later but without
undue delay objects to the conclusion of the contract on that basis” [Advisory Council 13 Art. 10].
97. In the event that the Tribunal finds that RESPONDENT’s Code of Conduct creates an obligation
of result in respect to the ethical quality of the cakes—which is here not the case—the terms creating
these obligations would conflict with CLAIMANT’s General Conditions and Codes and must be
knocked out. CLAIMANT’s General Conditions create an obligation of best efforts as evidenced
by its preamble which provides that “Delicatesy Whole Foods will always use its best effort to
guarantee that the goods sold match the highest standards in line with its Business Code of Conduct
and is Suppliers Code of Conduct” [PO2 ¶29, emphasis added]. This obligation of best efforts is
confirmed in the letter dated 27 March 2014 which accompanies CLAIMANT’s Sale Offer form [C3
¶5]. Further, CLAIMANT’s Codes do not create an obligation of result in respect to the ethical
quality of the cakes, as is evidenced by the aspirational nature of the language used. Thus, any term
in RESPONDENT's Code of Conduct found to create an obligation of result in respect to the
McGill University
Memorandum for CLAIMANT
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ethical quality of the cakes would conflict with CLAIMANT’s General Conditions and Codes and
must be knocked-out.
98. In any event, CLAIMANT contends that no such conflict exists between CLAIMANT’s and
RESPONDENT’s codes of conduct, as neither creates an obligation of result regarding the ethical
quality of the cakes. Both the Parties acknowledged as much on multiple occasions, for example,
when RESPONDENT indicated that CLAIMANT’s “Codes show that Delicatesy Whole Foods
and Comestible Finos share the same values” [C5 ¶2], and when CLAIMANT indicated that both
the Parties share a “joint commitment to UN Global Compact Principles” [C3 ¶5]. In fact,
RESPONDENT admits that it accepted CLAIMANT’s Offer as it “had been impressed with
CLAIMANT’s commitment to ethical production” [Response NoA ¶11; C5 ¶2] as “evidenced in
[its] impressive Codes of Conduct” [C5 ¶2]. These validations of CLAIMANT’s “comparable”
Codes of Conduct, replete with allusions to best efforts, reinforce the Parties’ understanding that
these codes created no obligation for CLAIMANT to guarantee the production methods of its
suppliers.
EVEN IF RESPONDENT’S GENERAL CONDITIONS APPLY, CLAIMANT STILL DELIVERED CONFORMING GOODS PURSUANT TO CISG ART. 35
99. CLAIMANT did not deliver non-conforming goods merely because one of its suppliers produced
cocoa in an unsustainable manner. The Contract does not explicitly create an obligation under CISG
Art. 35(1) that CLAIMANT guarantee the production methods of its supplier, but merely creates
mechanisms for CLAIMANT to exercise its best efforts [A]. The circumstances surrounding the
Contract imply, under CISG Art. 35(1), that CLAIMANT solely owed RESPONDENT an
obligation to use its best efforts to ensure its supplier adhered to ethical standards, an obligation it
discharged [B]. Any putative argument regarding obligations of conformity based on a particular
purpose under CISG Art. 35(2)(b) is bound to fail since the facts of the present case disclose no
such particular purpose [C]. It would be unreasonable for RESPONDENT to have considered that
CLAIMANT could guarantee results from its supplier in all circumstances [D]. In the wake of the
Ruritania scandal, RESPONDENT’s attempt to re-frame a clear best efforts obligation as a
guarantee of results is an opportunistic attempt to scapegoat CLAIMANT and avoid imaginary
harm.
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100. The primary test of conformity under CISG Art. 35(1) inquires into which characteristics are
explicitly established in the contract [Schwenzer 2016 P594]. The burden of proving non-conformity
fell on the buyer (here, RESPONDENT) given that it had physically taken possession of the cakes
[Schwenzer 2016 P620]. RESPONDENT’s claim of non-conformity has no basis in the terms of
the Contract [i]. Furthermore, under Principle F of RESPONDENT’s Code of Conduct,
RESPONDENT’s allegation of non-conformity is unsubstantiated [ii]. Self-serving efforts by
RESPONDENT to spawn obligations ex post facto to safeguard its reputation distracts from the
obligations it owes CLAIMANT.
RESPONDENT’s claim of non-conformity has no basis in the terms of the Contract
101. RESPONDENT contends that its Code of Conduct obliges CLAIMANT to guarantee that its own
supplier complies with the values of its Code of Conduct [Response NoA ¶26]. RESPONDENT
alleges that this guarantee is “clearly stated” in Principles E and C of its Code of Conduct [Response
NoA ¶26]. This position is unfounded. Principle E of RESPONDENT’s Code of Conduct does
not oblige CLAIMANT to guarantee that its supplier conforms with RESPONDENT’s Code of
Conduct [a]. Principle C of RESPONDENT’s Code of Conduct merely creates an obligation that
CLAIMANT use its best efforts to ensure that its supplier complies with standards of health, safety,
and environmental management [b].
102. CLAIMANT did not guarantee that its supplier conforms with sustainable standards in their own
production processes but merely undertook to use its best efforts to ensure that its supplier
conducted itself in an ethically responsible manner. The preamble of Principle E is too vague to
create independent obligations that CLAIMANT guarantee its supplier provide ethically conforming
goods [1]. Principle E, Paragraph 1 of RESPONDENT’s Code of Conduct is a best efforts
obligation that focusses on sub-supplier selection [2]. Principle E, Paragraph 2 of
RESPONDENT’s Code of Conduct only refers to RESPONDENT’s General Business
Philosophy, which itself is too vague to create any binding obligations [3].
The preamble of Principle E is too vague to create independent obligations that
CLAIMANT guarantee that its supplier provide ethically conforming goods
103. Principle E begins with a preamble that CLAIMANT “must under all circumstances procure goods
and services in a responsible manner” [C2 Principle E]. Despite the mandatory language, the phrase
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Memorandum for CLAIMANT
26
“procure goods and services in a responsible manner” [C2 Principle E] is itself too vague to create
obligations independent of any subsequent paragraphs. Certainly, the narrow obligation alleged by
RESPONDENT, that CLAIMANT guaranteed its supplier provides ethically conforming goods, is
neither mentioned in, nor can it be inferred from this general preamble. If there is to be an obligation
arising from Principle E that CLAIMANT guarantee the production processes of its supplier, it
must be found in the paragraphs of Principle E and not independently in the preamble.
Principle E, Paragraph 1 of RESPONDENT’s Code of Conduct is a best efforts
obligation that focusses on supplier selection
104. The obligations that CLAIMANT undertook in Principle E, Paragraph 1 of RESPONDENT’s
Code of Conduct are restricted to supplier selection and CLAIMANT’s best efforts. This paragraph
notes, “[you will] select your own tier one suppliers…based on them agreeing to adhere to standards
comparable to those set forth [in RESPONDENT’s Code of Conduct]” [C2 Principle E]. This
obligation focusses on how CLAIMANT selects its suppliers. There is no indication that this
selection criterion guarantees adherence, nor that it creates ongoing monitoring obligations. Rather,
the obligation is focused on the supplier’s agreement as a selection criterion [C2 Principle E].
105. Moreover, the selection criterion is limited to ensuring that the sub-supplier adopt “comparable
standards” to those in RESPONDENT’s Code of Conduct. As discussed, CLAIMANT’s
comparable Code of Conduct implicitly creates obligations of best efforts and not obligations of
results [see ¶96 above; R3]. As these comparable standards do not guarantee conformity by
CLAIMANT’s supplier, by extension, there can be no guarantee that CLAIMANT will ensure that
its supplier provides ethically conforming goods.
106. Effectively, CLAIMANT’s obligation was discharged when CLAIMANT selected its supplier
through a process in which the supplier “agreed to adhere” to CLAIMANT’s “comparable” Code
of Conduct [C2 Principle E]. CLAIMANT does not owe RESPONDENT an obligation to
guarantee that its upstream supplier will conform with RESPONDENT’s Code of Conduct.
Principle E, Paragraph 2 of RESPONDENT’s Code of Conduct only refers to
RESPONDENT’s General Business Philosophy, which is too vague to create binding
obligations
107. RESPONDENT’s General Business Philosophy is too vague to create binding obligations on the
part of CLAIMANT. Principle E, Paragraph 2 notes, “you will make sure that [your suppliers]
comply with standards agreed upon to avoid that goods or services delivered are in breach of
Comestibles Finos’ General Business Philosophy” [C2 Principle E, emphasis added]. This obligation
is limited to the General Business Philosophy and has no bearing on RESPONDENT’s Code of
Conduct.
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Memorandum for CLAIMANT
27
108. RESPONDENT’s General Business Philosophy is too vague to establish binding obligations on
behalf of CLAIMANT to guarantee that its supplier provides ethically conforming goods.
RESPONDENT’s General Business Philosophy consists of a list of principles “largely identical to
the UN Global Compact Principles” and also includes an indication that RESPONDENT is
committed to the UN Sustainable Development Goals (SDGs) [PO2 ¶31]. The UN Global Compact
Principles are generally averse to concrete ends and rigid obligations, preferring processes of
continual improvement that lend themselves to best effort obligations [see ¶¶123-124 below].
Similarly, the accountability relating to human rights that underlies the SDGs has been viewed as
“diffuse and political rather than legal,” as reflected by the absence of international human rights
law references in the SDGs themselves [McInerney-Lankford].
109. CLAIMANT did not guarantee that its supplier would conform to standards of health, safety and
environmental management but merely undertook to use its best efforts to ensure its compliance.
CLAIMANT’s obligations regarding its supplier’s compliance with Principle C is limited to the sub-
paragraph requirements detailed therein [1]. Given that the processes set out in the paragraphs of
Principle C are solely safeguard mechanisms that do not guarantee ethical results, CLAIMANT
could not have reasonably agreed to guarantee a specific outcome regarding its supplier’s production
methods [2].
CLAIMANT’s obligations regarding its supplier’s compliance with Principle C are
limited to its sub-paragraph requirements
110. Principle C, Paragraph 4 observes that CLAIMANT will “ensure that [its] suppliers comply with the
above requirements” [C2 Principle C]. The broad preamble to Principle C to “conduct business in
an environmentally sustainable way” [C2 Principle C] is substantiated by the particular actions
outlined within its constituent sub-paragraphs. The words “[i]n particular you will” [C2 Principle C]
within the preamble and before the paragraphs indicate that these paragraphs are to be read as a
definition of this environmental obligation. These paragraphs constitute an exhaustive list of the
actions CLAIMANT was obliged to undertake regarding environmental sustainability.
Given the processes in Principle C’s paragraphs do not guarantee ethical results, it would
be unreasonable under CISG Art. 8(2) to consider that CLAIMANT, using its best efforts
to hold its supplier to these processes, would have guaranteed results
111. RESPONDENT is reproaching CLAIMANT for failing to prevent corruption and environmentally
harmful practices. However, it would be unreasonable to hold CLAIMANT to a guarantee of ethical
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Memorandum for CLAIMANT
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results given the very processes put forward by RESPONDENT in Principle C do not guarantee
this outcome. Under CISG Art. 8(2), if parties’ subjective intent cannot be determined, Art. 8(2)
requires an objective analysis pursuant to the “reasonable person” standard [see ¶32 above]. The
processes in Principle C include appointing a person to manage environmental programs,
establishing organizational structures to manage environmental risks, and ensuring workers are
aware and appropriately trained [C2 Principle C]. While these actions could increase the probability
of a particular environmental result, they cannot guarantee this outcome either individually or
collectively. This is because a reasonable supplier in CLAIMANT’s shoes could appoint an
environmental champion, establish organizational structures, and train its employees, all the while
still manufacturing a product in an environmentally unsustainable way. These processes merely
increase the likelihood of an outcome—they do not guarantee it. Since the scope of CLAIMANT’s
obligations was to ensure that its supplier follows requirements which do not themselves guarantee
results, it would be untenable to hold that a reasonable supplier in CLAIMANT’s position would in
any way obligate itself to guarantee results from processes that do not themselves guarantee results.
Under Principle F of RESPONDENT’s Code of Conduct, RESPONDENT’s allegation
of non-conformity is unsubstantiated
112. RESPONDENT failed to follow the correct procedure regarding corrective actions. Under
Principle F of RESPONDENT’s Code of Conduct, non-conformity cannot arise until
RESPONDENT is given an opportunity to take corrective actions [a]. Moreover, finding non-
conformity without allowing for, or taking consideration of, CLAIMANT’s corrective actions, is
both contrary to Principle F and contravenes the spirit of the UN Global Compact [b]. Finally,
RESPONDENT misused the remedy provided for in Principle F by applying it to non-compliance
by a sub-supplier [c].
113. The non-conformity of goods can only be established once RESPONDENT has followed the
procedure outlined in Principle F and provided the supplier with the opportunity to take corrective
actions [C2 Principle F]. Principle F provides that before suspending a supplier, RESPONDENT
has an obligation to conduct its own audit or inspection, focused specifically on the operations and
facilities of the supplier, and then to give the supplier time to take corrective action [C2 Principle
F]. RESPONDENT did not follow Principle F: it failed, first, to conduct its own investigation;
second, to look specifically at the operations of CLAIMANT; and, third and most importantly, to
allow CLAIMANT time to take corrective action. As a result, there can be no finding of non-
conformity of goods.
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Memorandum for CLAIMANT
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114. Following the release of UNEP Special Rapporteur’s report on the Ruritanian cocoa production,
RESPONDENT suspended delivery from, and payment to, CLAIMANT [C6 ¶4]. In breach of
Principle F, RESPONDENT’s decision was not based on its own audit or inspection, but rather
third party information [C6 ¶1]. Furthermore, RESPONDENT’s decision was not predicated on
information about CLAIMANT’s operations and facilities, but rather general information
concerning the entire country of Ruritania [C6 ¶1]. Most significantly, RESPONDENT did not give
CLAIMANT time to take corrective action. RESPONDENT suspended taking delivery and
withheld payment before even contacting CLAIMANT [C6]. The time provided by
RESPONDENT did not reasonably allow for corrective actions. RESPONDENT contacted
CLAIMANT on Friday, 27 January 2017, expecting a response by close of business on Monday, 30
January 2017, giving CLAIMANT less than two full business days to investigate [C6]. These facts
demonstrate that RESPONDENT failed to follow its obligations to allow CLAIMANT reasonable
time to take corrective actions. Since RESPONDENT did not follow the process outlined in
Principle F, it is not possible for the goods to be non-conforming.
115. The UN Global Compact’s Guide for Fighting Corruption in the Supply Chain provides a number
of scenarios intended to provide “practice guidance” that address “the appropriate response to the
corruption demands or acts of corruption when they occur” [UNGC 2016 P18]. Scenario 9 in the
Guide details a manufacturer whose supplier bribes a government official to overlook non-
complying goods. The guide advises that the appropriate response in this situation involves
conducting an investigation of the supplier to assess the risks, terminating the contract if the
corruption is found to be systemic, and making disclosures regarding the product that might be
needed [UNGC 2016 PP26-27].
116. Scenario 9 is precisely what happened in the present case. First, upon learning of possible
corruption, CLAIMANT investigated the allegation [C8 ¶3]. Then, upon discovering that some of
the cocoa was not produced in an ethical manner, CLAIMANT immediately terminated the
Contract with its supplier and secured another supplier [C9 ¶2]. Finally, CLAIMANT was upfront
and transparent with RESPONDENT throughout this process, promptly disclosing the situation to
it [C9 ¶1].
117. Upon discovering non-compliance by its supplier, CLAIMANT not only took corrective action
pursuant to Principle F, but did so in a manner that followed UN Global Compact best practices.
Finding non-conformity without allowing for, or taking consideration of, CLAIMANT’s corrective
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Memorandum for CLAIMANT
30
actions contravenes both Principle F and the spirit of the UN Global Compact, to which the Parties
both subscribe.
118. Principle F applies exclusively to non-compliance by RESPONDENT’s supplier and thus the
remedies therein are limited to non-compliance by CLAIMANT, not its sub-suppliers. This
principle points directly to the supplier and no other upstream parties. It provides RESPONDENT
the right to inspect supplier’s “operations and facilities,” indicates that if “you do not comply…you
shall take necessary corrective actions…[and if] you fail to comply…we may take action against you”
[C2 Principle F]. Unlike Principles A through D, Principle F contains no “standards” pertinent to
sub-suppliers through Principle E, Paragraph 1 [C2 Principle E; Principle F]. Instead, Principle F
establishes obligations limited to the Parties [C2 Principle F]. While suspension and termination are
given as remedies for continued non-compliance, these can only be applied following non-
compliance by CLAIMANT. Thus, RESPONDENT misuses the remedy provided for in Principle
F by suspending CLAIMANT’s delivery and payment for the behavior of an upstream cocoa
supplier [C6 Principle F].
119. Absent explicit contractual obligations, the circumstances surrounding the Contract in general, and
specifically in the Code of Conduct, imply that CLAIMANT owed RESPONDENT an obligation
to use its best efforts to provide ethical goods. Under CISG Art. 35(1), contractual requirements
may be impliedly determined [Schwenzer 2016 P595]. RESPONDENT alleges that the surrounding
circumstances imply a guarantee by CLAIMANT that the ingredients supplied by its supplier were
ethically produced [Response NoA ¶26]. This is unsubstantiated. There are no external trade usages
that impliedly create obligations for CLAIMANT to guarantee its suppliers provide ethically
conforming goods [i]. Given the UN Global Compact’s aversion to concrete ends, CLAIMANT
and RESPONDENT’s shared UN Global Compact membership demonstrates best efforts
obligations regarding supplier compliance [ii]. RESPONDENT’s interest in CLAIMANT’s
management processes over production steps such as certification schemes emphasizes
CLAIMANT’s best efforts to ensure that its suppliers would deliver ethical goods [iii].
There are no external trade usages that impliedly create an obligation for CLAIMANT
to guarantee its supplier provide ethically conforming goods
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120. There are no relevant trade usages in the bakery industry related to environmental, ethical or
sustainable production [PO2 ¶35]. Nor is the Parties’ shared membership in the UN Global
Compact sufficient to establish a trade usage that CLAIMANT guaranteed that its supplier provides
ethically conforming goods.
121. Through CISG Art. 9(2), a trade usage can be established where the majority of persons doing
business in a particular industry recognize the practice [Schmidt-Kessel P189]. The existence of
industry or manufacturing standards can imply agreement regarding a trade usage [Schwenzer 2016
P595] particularly where both parties are members of that agreement [Schwenzer/Leisinger P265].
This membership, however, is not sufficient to establish a trade usage. As Ramberg writes “[i]t is
one thing to generally participate and sponsor a UN initiative. It is another thing to contractually
agree that a contractual party is entitled to contractual remedies if an ethical standard is not met”
[Ramberg P80].
122. The lynchpin of the creation of a trade usage is the definitiveness of the content of the agreement:
it “has to be so concrete in its terms that it is applicable to an international sales contract without
the parties particularly negotiating its content” [Butler P311]. Whereas select provisions of
agreements such as INCOTERMS and UCP 600 may be deemed sufficiently definitive to establish
a trade usage under CISG Art. 9(2) [Schmidt-Kessel PP195–196], ISO 14001, in contrast, would not
be found to be sufficiently concrete to establish implied contractual obligations [Butler PP311-312].
Notably, ISO 14001 remains insufficient despite having set criteria for environmental management,
certification possibilities, and means of measuring improvements [ISO 14001].
123. The UN Global Compact’s provisions related to compliance by sub-suppliers are far too vague to
establish a trade usage for guaranteed results. Unlike ISO 14001, the UN Global Compact does not
even have set criteria for sub-supplier management, certification possibilities, or definitive means of
measuring improvements. Instead, as illustrated in the UN Global Compact guide, “Supply Chain
Sustainability,” engagement with suppliers in the UN Global Compact is focused on continual
improvements and particular relations, and demonstrates aversion to concrete ends [UNGC 2015
PP37-49]. In individual monitoring schemes, the Guide even discourages compliance-based
approaches noting, “compliance-based approaches to monitoring have resulted in concerns about
costs, disruptions to production suppliers, doubts about accuracy of the information and potential
risks to safety of workers” [UNGC 2015 P39]. Given such vagueness, it is not possible to find that
the majority of persons who are members in the UN Global Compact recognize the practice of
guaranteeing results from sub-suppliers.
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Memorandum for CLAIMANT
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Given the UN Global Compact’s aversion to concrete ends, the Parties’ shared UN
Global Compact membership demonstrates best effort obligations regarding supplier
compliance
124. In the absence of explicit contractual obligations, the shared membership of the Parties in the UN
Global Compact indicates an obligation of CLAIMANT to use its best efforts to ensure ethical
production processes by its supplier. The UN Global Compact is averse to concrete ends and rigid
obligations, instead focusing on continuous ethical improvements as processes rather than results.
George Kell, Executive Director of the UN Global Compact describes how the UN Global
Compact’s Ten Principles “will find expression in different ways, as companies and industries can
vary significantly [UNGC 2010]. Expressing the UN Global Compact’s aversion to concrete ends
and rigid obligations, Kell underlines that no “one-size fits-all.” Rigid obligations risk undermining
these “performance aspirations” and obstructing the broad ethical goals of the UN Global Compact
[UNGC 2010]. Instead of supporting concrete ends, the UN Global Compact fosters innovative
and unique applications that “reflect the realities of a given company’s journey towards corporate
sustainability” [UNGC 2010]. This accords with the “due diligence” approach popular in the
broader “Business & Human Rights” field, where a preventative logic is favoured over establishing
strict liability for non-compliance [Amado PP123-125]. In fact, as authorities in this field recognize,
“[i]f the goal is to stop the human rights impacts as soon as possible while maintaining an otherwise
advantageous business relationship, then termination or court litigation may achieve neither [while]
compounding [the] victims…suffering” [Cronstedt/Thompson P10].
125. The Environment and Corruption principles are stark examples of this aversion to rigid obligations
and focus on best efforts. Principle 8 indicates that businesses should undertake initiatives to
promote greater environmental responsibility [UNGC 2017]. Principle 10 notes that businesses
should work against corruption [UNGC 2017]. Both principles present vague best efforts language
rather than specific language focused on concrete ends. Held against Principle 5—one of the few
UN Global Compact Principles that uses the language of concrete ends, stating “businesses should
uphold the effective abolition of child labour”—the Environment and Corruption principles
demonstrate the UN Global Compact’s aversion to rigid obligations [UNGC 2017].
RESPONDENT’s interest in CLAIMANT’s management processes over production
steps such as certification schemes emphasizes best efforts to ensure that its suppliers
would deliver ethical goods
126. In preliminary negotiations, RESPONDENT explicitly indicated its interest in CLAIMANT’s
supply-chain management processes. In correspondence dated 10 March 2014, RESPONDENT
noted that it was “particularly impressed by [CLAIMANT’s] report about the management of [its]
McGill University
Memorandum for CLAIMANT
33
supply chain, including the regular audits and reporting obligations” [C1 ¶3]. RESPONDENT
indicated that it was CLAIMANT’s supply-chain management that motivated its interest in
CLAIMANT participating in the tender process.
127. RESPONDENT could have, but did not, demand a certification scheme—an instrument more
likely to signal a guarantee of ethical conformity [Schwenzer 2017 PP124-125], and the very
instrument that was part of the supplier’s elaborate conspiracy for defrauding CLAIMANT [C7; C9
¶1]. Instead of demanding such a conformity-signaling instrument, RESPONDENT focused on
CLAIMANT management processes such as audits; systems which provide no guarantee [Wilson
P38] but instead signal that a supplier is simply increasing the likelihood of conformity and reducing
the risks of non-compliance. CLAIMANT acknowledged this limitation noting, “the reporting
obligations and the auditing possibilities…allowed [it] to monitor…suppliers in a way, that [it] could
largely guarantee compliance” [R5 ¶3, emphasis added]. RESPONDENT’s interest in a tool focused
on increasing the likelihood of conformity suggests that the Parties’ agreement was always a best
efforts obligation for CLAIMANT to ensure that its suppliers provide ethically conforming goods.
128. Given that there are no contractual obligations of ethical conformity under CISG Art. 35(1),
RESPONDENT may invoke CISG Art. 35(2)(b) to try and establish a particular purpose that
creates obligations of conformity. However, as with CISG Art. 35(1), no such obligation exists.
129. In order to establish a particular purpose under CISG Art. 35(2)(b), RESPONDENT must, first,
demonstrate that the purpose had been expressly or impliedly made known to CLAIMANT; second,
that it relied on CLAIMANT’s skill and judgement; and, third, that this reliance was reasonable
[Schwenzer 2016 PP606-609].
130. RESPONDENT made the particular purpose of avoiding bad press known to the CLAIMANT [C1
¶3]. However, RESPONDENT did not rely on CLAIMANT’s skill and judgment in avoiding bad
press, nor would such reliance have been reasonable. Reliance may be established where the seller
is an expert in a particular domain or where the seller holds herself out as such [Schwenzer 2016
P608]. Where the knowledge of the buyer is greater than [Schwenzer 2016 P608], or equal to [Ferrari
P199], that of the seller, reliance may be cancelled. CLAIMANT had no expertise in avoiding bad
press nor did CLAIMANT hold itself out as such. Furthermore, as RESPONDENT had far more
experience in avoiding bad press than CLAIMANT, reliance is not reasonable. If anything,
CLAIMANT relied on RESPONDENT’s validations of its supply chain management system as
sufficient to meet any obligations related to this particular purpose [C1 ¶3].
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34
131. Finally, no bad press has been shown to arise for RESPONDENT from the situation in Ruritania.
Indeed, RESPONDENT even went ahead and used the cakes as part of its promotional campaign
after the issue was discovered [PO2 ¶38]. While this imagined harm is sufficient for
RESPONDENT to scapegoat CLAIMANT, it did not dissuade RESPONDENT from gaining
benefit, using the very cakes it has yet to pay for.
132. In the market for ethical goods, situations may arise that constitute “ethical hardship”
[Schwenzer/Leisinger P273]. Some particularly grave ethical violations may fall “outside the sphere
of risk of the promisor” [Schwenzer/Leisinger P273]. CISG accounts for these grave violations
through Art. 79 on hardship, which can be of an ethical nature where “systemic violation[s] of
human rights in a country, only come to the fore after the execution of the contract” [Nalin P339]
and “prevents the debtor from performing the obligation” [Schwenzer/Leisinger P272]. These types
of situations are typically beyond the contemplation of contracting parties.
133. The corruption in Ruritania was of a magnitude and complexity that would constitute ethical
hardship. The scheme uncovered reached the highest levels of Ruritanian power [C7] and was
revealed only through a UN Special Rapporteur investigation. The situation was beyond the risks
that the Parties could have taken account of when drafting their Contract.
134. Neither CLAIMANT nor its expert auditor [PO2 ¶33] had the skills to uncover a risk of this
magnitude, nor would it have been reasonable for RESPONDENT to rely on CLAIMANT to do
so. CLAIMANT had robust systems in place to safeguard against ethical violations. However, it
never held itself out as having systems sufficient to uncover, much less prevent, ethical violations
that required UN Special Rapporteur-levels of scrutiny and sophistication.
McGill University
Memorandum for CLAIMANT
35
REQUEST FOR RELIEF
For the above reasons, Counsel for CLAIMANT respectfully requests that the Tribunal:
1. decline to decide the challenge, or alternatively, if the Tribunal chooses to decide the challenge, do
so with the participation of Mr. Prasad.
2. declare that the contractual relationship between CLAIMANT and RESPONDENT is governed by
CLAIMANT’s Standard Terms;
3. declare that CLAIMANT delivered conforming goods
4. order RESPONDENT to pay damages in the amount of at least USD 2,500,000;
5. order RESPONDENT to bear the costs of the arbitration.
VIVA DADWAL
CAMERON HOGG-TISSHAW
DAVID MATYAS
GUILLAUME RENAUD
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