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7/30/2019 Hong Kong International Commercial Arbitration Moot
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SECONDANNUALWILLEMC.VIS(EAST)20042005
HONGKONGINTERNATIONALCOMMERCIALARBITRATIONMOOTPACEUNIVERSITY INSTITUTEOFINTL
SCHOOLOFLAW COMMERCIALLAW CITYUNIVERSITY
SCHOOLOFLAW
MEMORANDUMforCLAIMANT
OnBehalfOf:
MediterraneoConfectionaryAssociates,Inc.
121SweetStreet
CapitolCity
Mediterraneo
TheCLAIMANT
Against:
EquatorianaCommodityExporters,S.A.
325CommoditiesAvenue
PortCity
Equatoriana
TheRESPONDENT
UNIVERSITYofHOUSTONLaw Cen t e r
LACY JOHNSON ELAHE PARSA JAMESROGERS BRETT THORSTAD
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
TABLEOFCONTENTS
TABLEOFCONTENTS .................................................................................................................................. iLISTOFABBREVIATIONS .........................................................................................................................iiiINDEXOFAUTHORITIES ............................................................................................................................vSTATEMENTOFFACTS............................................................................................................................... 1STATEMENTOFPURPOSE.......................................................................................................................... 3ARGUMENTS................................................................................................................................................. 4PARTONE:RESPONDENTFUNDAMENTALLYBREACHEDTHECONTRACTBYFAILINGTO
SUBSTANTIALLYPERFORMITSOBLIGATIONS;THEREFORE,CLAIMANTWASENTITLEDTOAVOID
THECONTRACTANDRECOVERDAMAGES............................................................................................. 4I. RESPONDENTFundamentallyBreacheditsContractualObligations............................. 5II. RESPONDENTwasnotExcusedfromPerformingitsObligation..................................... 5
a. Article79oftheCISG...............................................................................................................6b. HardshipprovisionoftheUNIDROITPrinciples .................................................................. 7
III. CLAIMANTwasEntitledtoAvoidtheContract ................................................................. 10IV. CLAIMANTValidlyAvoidedtheContract .......................................................................... 11
a. Implicitnoticeofavoidanceon15August2002.................................................................... 11b. Expressnoticeofavoidanceon25October2002 ................................................................... 13c. CLAIMANTsletterof15November2002 ............................................................................... 13
PARTTWO:CLAIMANTISENTITLEDTORECOVERDAMAGESUNDERTHETERMSOFTHECISG. 14I. CLAIMANTisEntitledtoUSD289,353.00inDamagesPursuanttoArticle75............ 14
a. CLAIMANTpurchasedsubstitutecocoainareasonablemanner ............................................14b. CLAIMANTpurchasedsubstitutecocoawithinareasonabletimeafteravoidance ................15
i
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
II. IfCLAIMANTisnotEntitledtoDamagesUnderArticle75,itShouldbeEntitledtoUSD289,353.00inDamagesUnderArticle76 ............................................................................ 16
a. Timeofavoidance ....................................................................................................................17b. Placeofdelivery ....................................................................................................................... 18
III. IfthisTribunalfindsNeitherArticle75norArticle76Acceptable,itShouldAwardCLAIMANTUSD289,353.00inDamagesPursuanttoArticle74 ..............................................18
PARTTHREE:THISTRIBUNALLACKSJURISDICTIONTOHEARRESPONDENTSCOUNTERCLAIM. 19I. NeithertheCocoaContractnorSwissRulesArticle21(5)ProvidesJurisdictionforthisTribunaltoHearRESPONDENTsCounterclaim .................................................................. 21II. TheSpecializedArbitrationClauseInTheSugarContractPreemptsAnyJurisdictiontoHearRESPONDENTsCounterclaim ..................................................................... 22III. IfthisTribunalwastoHearRESPONDENTsCounterclaim,theAwardmayRuntheRiskofnotBeingEnforced .............................................................................................................23
PARTFOUR:IFTHISTRIBUNALHASJURISDICTIONTOCONSIDERTHECOUNTERCLAIM,THE
RECOVERYSHOULDBELIMITEDTOSETOFFTHEAMOUNTRECOVEREDBYCLAIMANT................24I. TheIntentoftheDrafterswastoMaketheSetoffDefenceDistinctfromthatofCounterclaim ...................................................................................................................................... 24II. LegalJurisprudenceDistinguishesSetofffromthatofCounterclaimandHoldsthatSetoffMaynotbeUsedtoObtainaPositiveRecovery..................................................25
a. Setoffisdistinctfromcounterclaim....................................................................................... 25b. Setoffmaynotexceedtheamountoftheoriginalclaim .......................................................26c. Modellawprescribesthelimitingnatureofsetoff................................................................ 27
III. FairnessConsiderationsDemandthatSetoffDefencesbeTreatedDifferentlythanCounterclaims .................................................................................................................................... 28
REQUESTFORRELIEF ............................................................................................................................... 29
ii
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
LISTOFABBREVIATIONS
/ Section/Sections
/ Paragraph/Paragraphs
Am.Jur. AmericanJurisprudence
Arb. Arbitration
Art. Article
BEL Belgium
C.J.S. CorpusJurisSecundum
CCIG ChamberofCommerceandIndustryofGeneva
cf.
conferatur
(compare)
Cir. Circuit
CISG UnitedNationsConventiononContractsforthe
InternationalSaleofGoods
Co. Company
Comm. Commentary
Corp. Corporation
e.g. Example
ECJ EuropeanCourtofJustice
ed. Editor
ENG England
EST Estonia
etal. etalii(andothers)
F. Federal
FRA France
GER Germany
id. idem(sameasabove)
i.e. idest(thatis)
iii
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
ICC InternationalChamberofCommerce
Inc. Incorporated
Intl International
ITA
Italy
J. Journal
L. Law
Ltd. Limited
No. Number
p. Page
Q.B. QueensBench
Rev. Review
Sec. Secretariat
SWI Switzerland
U.C.C. UniformCommercialCode
UNCITRAL UnitedNationsCommissiononInternationalCommercial
Arbitration
UNIDROIT
InternationalInstitute
for
the
Unification
of
Private
Law
USA UnitedStatesofAmerica
USD UnitedStatesDollars
v. Versus
iv
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
INDEXOFAUTHORITIES
ARTICLES&TREATISES
20Am.
Jur.
2d.
American
Jurisprudence
Second
20AM.JUR.2DCounterclaim,Recoupment,Setoff6(2004)
Berger KlausPeterBergerSetOffinInternationalEconomicArbitration,15Arb.Int l53(1999)
Bonell MichaelJ.BonellUNIDROITPrinciples2004TheNewEditionofthePrinciplesof
InternationalCommercialContractsadoptedbytheInternational
InstitutefortheUnificationofPrivateLaw,9UniformLawReview5
(UNIDROIT2004)
Burger LaurenceBurgerTheNewSwissRulesofInternationalArbitration:AComparative
Analysis,196MealeysInt.Arb.Rep.13,inLEXIS(2004)
Bus.Trans.Ger. BusinessTransactionsinGermany110BusinessTransactionsinGermany,inLEXIS(2004)
C.J.S. CorpusJurisSecundum80C.J.S.SetOffandCounterclaim110(2004)
Carlsen AnjaCarlsenCantheHardshipProvisionsintheUNIDROITPrinciplesBeApplied
WhentheCISGistheGoverningLaw?PaceEssaySubmission,(June
1998)
Coe JackCoeInternational Commercial Arbitration: American Principles and
PracticeinaGlobalContext(1997)
Craig/Park/Paulsson LaurenceW.Craig,WilliamW.Park&JanPaulssonInternationalChamberofCommerce3rded.,OceanaPublicationsInc.
(2000)
Flambouras DionysiosFlambourasTheDoctrinesofImpossibilityofPerformanceandClausulaRebusSic
Stantibusinthe1980ConventiononContractsfortheInternational
SaleofGoodsandthePrinciplesofEuropeanContractLawA
ComparativeAnalysis,13PaceIntlL.Rev.261(2001)
v
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
FlambourasII DionysiosFlambourasComparativeRemarksonCISGArticle79&PECLArticles6:111,
8:108,availableat
Folsom/Gordon/
Spanogle
RalphFolsometal.
InternationalBusinessTransactions(2ded.2001)
Honnold JohnHonnoldUniformLawforInternationalSalesUnderthe1980UnitedNations
Convention(2ded.1991)
Jenkins SarahHowardJenkinsExemptionforNonperformance:UCC,CISG,UNIDROITPrinciples
AComparativeAssessment,72Tul.L.Rev.2015(1998)
Johnson/Hazen PhilipMcBrideJohnson&ThomasLeeHazenCommodities,Regulation 2.05[8](3ded.1998)
Lorenz AlexanderLorenzFundamentalBreachundertheCISG,availableat
Matasar RichardA.MatasarRediscoveringOneConstitutionalCase:ProceduralRulesandthe
Rejection
of
theGibbs
Test
for
Supplemental
Jurisdiction,
71
Calif.
L.
Rev.1401(1983)
ODonnell/Ratnikov NeilF.ODonnell&KirillY.RatnikovDisputeResolutionintheCommercialLawTribunalsoftheRussian
Federation:LawandPractice,22N.C.J.Int lL.&Com.Reg.795(1997)
Park WilliamParkNationalLamandCommercialJustice:SafeguardingProcedural
IntegrityinInternationalArbitration,63Tul.L.Rev.647(1989)
Pellonp/Caron
Matti
Pellonp
&
David
D.
Caron
TheUNCITRALArbitrationRulesasInterpretedandApplied(1994)
Perillo JosephM.PerilloForceMajeureandHardshipUndertheUNIDROITPrinciplesof
InternationalCommercialContracts,5Tul.J.Intl&Comp.L.5(1997)
vi
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
Povrzenic NivesPovrzenicInterpretationandGapfillingUndertheUnitedNationsConvention
onContractsfortheInternationalSaleofGoods(1998),availableat
Rimke
JoernRimke
Forcemajeureandhardship:Applicationininternationaltrade
practicewithspecificregardtotheCISGandtheUNIDROIT
PrinciplesofInternationalCommercialContracts(2001),availableat
Redfern/Hunter AlanRedfernandMartinHunterLawandPracticeofInternationalCommercialArbitration,3rded.,
Sweet&Maxwell,London(1999)
RubinoSammartano RubinoSammartano
InternationalArbitrationLawandPractice,2rded.KluwerLaw(2001)
Schlechtriem PeterSchlechtriemUniformSalesLaw:theUNConventiononContractsforthe
InternationalSaleofGoods(1968),availableat
Slater ScottD.SlaterOvercomebyHardship:TheInapplicabilityoftheUnidroitPrinciples
HardshipProvisionstotheCISG,12Fla.J.IntlL.231(1998)
VanHof JacomijnJ.VanHofCommentaryontheUNCITRALArbitrationRules:The
ApplicationbytheIranU.S.ClaimsTribunal,KluwerLaw&
TaxationPublishers(1992)
VanHoutte HansVanHoutteTheUNIDROITPrinciplesofInternationalCommercialContracts,
ArbitrationInternational,Vol.11No.4(1995)
Ziegel JacobS.ZiegelTheUNIDROITContractPrinciples,CISGandNationalLaw,
PresentationataseminarontheUNIDROITPrinciplesatValencia,
Venezuela(69November1996),availableat
vii
http://cisg.law.pace.edu/cisg/biblio/schlectriem.htmlhttp://cisg.law.pace.edu/cisg/biblio/schlectriem.html7/30/2019 Hong Kong International Commercial Arbitration Moot
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
CASES
CaseNo.1U143/95and
410O21/95(GER)
CaseNo.1U143/95and410O21/95
OberlandesgerichtHamburg,Germany(1997),availableat
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Schuhfabriken(ECJ)
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1995ECJCELEXLEXIS9180,CaseC341/93(1995)
FCFv.Adriafil
Commercial(SWI)
FCFS.A.v.AdriafilCommercialS.r.l.
4C.105/2000,SupremeCourtofSwitzerland(2000),availableat
Foliopackv.Daniplast
(ITA)
FoliopackA.G.v.DaniplastS.p.A.
PreturadiParmaFidenza,Italy(1989),availableat
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(ITA)
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Const.Co.(USA)
Mackv.HuggerBrothersConstructionCompany
283S.W.448(Tenn.1925)
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v.ASMaseko(EST)
NoviaHandelsgesellschaftv.ASMaseko
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NuovaFucinativ.
FondmetalIntl(ITA)
NuovaFucinatiS.p.A.v.FondmetalInternationalA.B
TribunaleCiviledeMonza,Italy(1993),availableat
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http://www.cisg-online.ch/cisg/urteile/826.pdfhttp://www.cisg-online.ch/cisg/urteile/826.pdfhttp://www.cisg-online.ch/cisg/urteile/826.pdfhttp://www.cisg-online.ch/cisg/urteile/826.pdf7/30/2019 Hong Kong International Commercial Arbitration Moot
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
RogueRiverMgmt.Co.v.
Shaw(USA)
RogueRiverManagementCompanyv.Shaw
411P.2d440(Or.1966)
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Schenckv.CoordinatedCoverageCorporation
376N.Y.S.2d131(N.Y.1975)
Schiedsgerichtder
Handelskammer(GER)
SchiedsgerichtderHandelskammer
Hamburg,Germany(1996),availableat
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Divisional
Court,
5
Q
B
D
569
(1880)
(Cockburn,
C.J.)
UnknownParties(FRA) UnknownPartiesCourdAppeldeColmar,France(2001),availableat
VitalBerryv.Rechtbank
(BEL)
VitalBerryMktgNVv.DiraFrostNVRechtbankvanKoophandel
Hasselt,Belgium(1995),availableat
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availableat
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IndustryoftheRussianFederation,Russia(1997),availableat
HamburgArbitration
Proceeding(GER)
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ArbitralTribunal(F.R.G.)(1998),availableat
ix
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
ICC3540 CaseNo.3540ICCInternationalCourtofArbitration
YearbookCommercialArbitration,Kluwer(1982)
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Case
No.
7531/1994
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ICC8873 CaseNo.8873ICCInternationalCourtofArbitrationParis(1997),availableat
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SchiedsgerichtHamburger
Freundschaftliche
Arbitrage
UnknownParties
SchiedsgerichtHamburgerFreundschaftlicheArbitrage(1998),
availableat
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March1997
x
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
LEGALTEXTS,RULES&MODELLAWS
ArbitrationRules UNCITRALArbitrationRules(1976),availableat
BlacksLawDictionary BlacksLawDictionary(8thed.2004)
CCIGRules RulesofArbitrationoftheChamberofCommerceandIndustryofGenevaSwitzerland
CISG UnitedNationsConventiononContractsfortheInternationalSaleofGoods(1980),availableat
FrenchCivilCode FrenchCivilCode(1804)
ICSD InternationalCentralSecuritiesDepositoryRules
NewYorkConvention UnitedNationsConventionontheRecognitionandEnforcementofForeignArbitralAwards(NewYork,10June1958)
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UNIDROIT1994 UNIDROITPrinciplesofInternationalCommercialContracts(1994),availableat
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theInternationalSaleofGoods,UNDoc.No.A/CONF.97/5
SwissRules SwissRulesofInternationalArbitration(2004),availableat
ZurichRules InternationalArbitrationRulesofZurichChamberofCommerce(1989),availableat
xi
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
STATEMENTOFFACTS
ORIGINALCLAIM(COCOA)
19
November
2001
EquatorianaCommodity
Exporters,
S.A.
(hereinafter
RESPONDENT) telephones Mediterraneo Confectionary
Associates,Inc.(hereinafterCLAIMANT)withanoffertosell
cocoa.An agreement is reachedwhereupon RESPONDENT
will sell400metric tonsof cocoa toCLAIMANT fora total
contract price is USD 496,299.55 (market price). Date of
deliveryistobebetweenMarchandMay2002,andistobe
fixed by RESPONDENT sometime between January and
February2002.
14February2002 SeverestormhitsthecocoaproducingareaofEquatoriana
resultinginextensivedamagetothecocoacrops.
22February2002 Equatoriana Government Cocoa Marketing Organization
(EGCMO)ordersabanonallcocoaexports.
24February2002 RESPONDENTinformsCLAIMANTofthestormandofthefact
thattheEGCMOhassuspendedexportofcocoathroughat
leastMarch2002.
5March2002 CLAIMANT reaffirms the obligation of RESPONDENT,while
informing RESPONDENT that itwillbe under pressure to
receivethecocoalaterintheyear.
20March2002 EGCMOextendsthecurrentbanofcocoaexports.
10April2002 CLAIMANT informsRESPONDENT that itexpectsdeliveryof
thecocoa
by
the
end
of
May
2002.
7May2002 RESPONDENT informsCLAIMANTthat100tonsofcocoawill
bedeliveredlaterinthemonth.
28May2002 RESPONDENT ships 100 tonsof cocoa forwhichCLAIMANT
paysUSD124,075.
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
JuneJuly2002 CLAIMANTmakesnumerous inquiriesas to the remaining
cocoa.
15August2002CLAIMANT
informs
RESPONDENT
that
it
will
soon
require
the
remaining300tonsofcocoaandmayhavetopurchasethe
cocoaelsewhere.CLAIMANTreiteratesthatRESPONDENTwill
be liableforanyextraexpenses thatmaybe incurredasa
result.
24October2002 CLAIMANT purchases 300 tons of cocoa from Oceania
ProduceLtd.atthecurrentmarketpriceofUSD661,578.
25October2002 CLAIMANT informsRESPONDENT that ithas purchased the
remainingcocoaelsewhereandwillbeseekingrecoveryof
theextraexpensesincurred.
11November2002 CLAIMANT informsRESPONDENTby letter that itdemands
paymentofUSD289,353representing theamountpaid in
excessofthecontractprice.
12November2002 EGMCOremovestheexportbanoncocoa.
13November2002 RESPONDENT informs CLAIMANT that itwould havebeen
prepared to deliver the remaining 300 tons of cocoa.
RESPONDENT asserts that CLAIMANT has breached the
contractbyelectingcover.
15November2002 CLAIMANT provides RESPONDENT written notice formally
avoidingthecontract.
COUNTERCLAIM(SUGAR)
20November2003 RESPONDENT sells 2,500metric tonsof sugar toCLAIMANT
foratotalcontractpriceofUSD385,805.
4December2003 RESPONDENTdeliverssugarthecarrier.
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
8December2003 Sugarisloadedontothevessel(passestheshipsrails).
19December2003 CLAIMANT informs RESPONDENT that the sugar arrived
soaked and contaminated as is unfit for humanconsumption.
NOTICEOFARBITRATION
5July2004 CLAIMANT filesNoticeofArbitrationwith theChamberof
CommerceandIndustryofGeneva(CCIG).
6July2004 CCIGacknowledgesreceiptoftheNoticeofArbitrationand
informsCLAIMANTthatasof1January2004theCCIGhas
adoptedthenewSwissRulesofInternationalArbitration.
10August2004 RESPONDENT acknowledges receipt of the Notice of
Arbitrationandfilesaresponsealongwiththecounterclaim
pursuanttoSwissRulesArticle21(5).
STATEMENTOFPURPOSE
InlightoftheaforementionedfactsandincompliancewiththeArbitralTribunalsProcedural
OrderNo.1,Counsel for theCLAIMANThasprepared thisMemorandumand sets forth the
followingsubmissions:
RESPONDENTfundamentallybreachedthecocoacontract; RESPONDENTwasnotexcusedfromperformingitsobligation; CLAIMANTavoidedthecocoacontractandisentitledtorecoverdamages; damagesshouldbeUSD289,253.00pursuanttoCISGArticles74,75,and76; theTribunallacksjurisdictiontohereRESPONDENTscounterclaim; and,iftheTribunalhearsthecounterclaim,itshouldbelimitedtothesetoff
amount.
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
ARGUMENTS
PART ONE: RESPONDENT FUNDAMENTALLY BREACHED THE CONTRACT BY FAILING TO
SUBSTANTIALLYPERFORMITSOBLIGATIONS;THEREFORE,CLAIMANTWASENTITLEDTOAVOIDTHE
CONTRACTANDRECOVERDAMAGES
1. According to Article 25 of the CISG, RESPONDENT fundamentally breached the cocoaagreementbysubstantiallydeprivingCLAIMANTofwhat itwasentitled toexpectunderthe
contract [CISG, art. 25]. TheCISGmakes it absolutely clear that a sellermustdeliver the
contractedgoodseitherwithintheperiodoftimefixedbythecontractorwithinareasonable
timeaftertheconclusionofthecontract[CISG,arts.
33].Bydeliveringonlyonequarterofthe
contracted amount of cocoa [Claimants ExhibitNo. 6],CLAIMANTwas unfairly deprived of
threequartersofitsexpectation.AlthoughRESPONDENTmaysuggestthatitshouldbeexcused
fromperformance,RESPONDENT fails to show that it satisfies thenecessary requirements for
excuse.AsaresultCLAIMANTchosetoemployitsexpressrightofavoidanceandassuch,the
CISGprovidesthatitmaynowrecoverdamages[CISG,arts.7476].
2. A substantial breach of performance from a contemplated agreement should not gouncompensated.CLAIMANTshouldnotbeaskedtobeartheexpenseofRESPONDENTsfailureto
perform.SucharesultwouldconstituteawindfalltotheRESPONDENTandwouldflyintheface
ofcontractpolicythatbeingtheenforcementofcontractualexpectations.TheCISGstrivesto
promote thedevelopmentof international tradeandfriendly relationsamongStatesby
providing a set of uniform rules that will be upheld by our enforcement bodies [CISG,
Preamble].CLAIMANTsuggeststhatthisTribunalrecognizethecalamityofRESPONDENTsbreach
and, inpromoting theobservanceofgood faith in international trade,honor theremedies
contemplatedbytheCISG[CISG,art.7(1)].
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
I. RESPONDENTFundamentallyBreacheditsContractualObligations3. TheCISGdefinesfundamentalbreachas
abreachofcontractbyoneof theparties isfundamental if itresults in
suchdetrimental to the otherparty as substantially todeprivehimof
what he is entitled to expect under the contract, unless the party in
breachdidnotforeseeandareasonablepersonofthesamekindinthe
samecircumstanceswouldnothaveforeseensucharesult[CISG,art.25].
As per the cocoa contract concluded inNovember of 2001, RESPONDENTwas obligated to
deliver400metrictonsofcocoatoCLAIMANTduringthemonthsofMarch,AprilorMayof2002
[ClaimantsExhibitNo.2].RESPONDENTsonlydeliveryof cocoa toCLAIMANTwas100metric
tonsshippedinMayof2002[ClaimantsExhibitNo.6].DespiterepeatedrequestsbyCLAIMANT,
RESPONDENT failed todeliver theremaining300metric tonsby24October2002nearly five
andonehalfmonthsafterRESPONDENTwasrequiredtodeliverall400tonsofcocoa[Claimants
ExhibitNo.8].RESPONDENTora reasonableperson in itspositionknew,orought tohave
known, that CLAIMANT requires large quantities of cocoa for producing its confectionaries
[ClaimantsRequestforArbitration,1,3]. Accordingly,RESPONDENTshouldhaveforeseenthat
failuretodeliverwouldpotentiallydisruptCLAIMANTsoperations,andCLAIMANTwouldhave
topurchase
cocoa
elsewhere.
4. By failing todeliver the remaining 300metric tons of cocoawithin the contracted timeframe,RESPONDENTfundamentallybreachedthecontract[Foliopackv.Daniplast(ITA);Lorenz,
II].Article33expresslyprovidesthatasellermustdeliverthegoods:(1)onadatefixedbythe
contract;(2)withinaperiodoftimefixedbythecontract;or(3)withinareasonabletimeafter
theconclusionofthecontract[CISG,art.33].NotonlydidRESPONDENTfailtodeliverthecocoa
withinthetimeperiodfixedbythecontract,itwouldnothavebeenabletodeliverthegoodsan
entireyearaftertheconclusionofthecontract[ClaimantsExhibit
No.
10].RESPONDENTwould
need topurportavery colorfulargument to suggest thatoneyear isa reasonable time for
delivery.Therefore,once ithadbecomeclear thatRESPONDENTwasnotgoing todeliver the
cocoa, CLAIMANTwas forced tobuy replacement cocoa and avoid the contract [Claimants
ExhibitNo.8].
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
II. RESPONDENTwasnotExcusedfromPerformingitsObligationa. Article79oftheCISG
5. RESPONDENTclaimsthatitshouldbeexcusedfromdeliveringthe300metrictonsofcocoaunderArticle79(1)oftheCISG[RespondentsAnswer,18].Article79(1)provides:
Apartyisnot liableforafailuretoperformanyofhisobligationsifhe
provesthatthefailurewasduetoanimpedimentbeyondhiscontroland
thathecouldnotreasonablybeexpectedtohavetakentheimpediment
into account at the time of the conclusion of the contract or to have
avoidedorovercomeitoritsconsequences[CISG,art.79].
Thus,inordertoclaimexcuseunderArticle79(1),RESPONDENTmustprove:(1)theimpediment
wasbeyonditscontrol;(2)itcouldnotreasonablybeexpectedtohavetakentheimpediment
intoaccountatthetimeoftheconclusionofthecontract;and,(3)itcouldnothaveavoidedor
overcome itsconsequences [Id.;CISGSec.Comm.,art.793].RESPONDENTcannotmeet this
burden.
6. WhileCLAIMANT concedes that the stormand subsequentgovernmentbanon exportofcocoawerebeyond thecontrolofRESPONDENTthus fulfilling the firstrequirementofCISG
Article79
(1),
CLAIMANT
suggests
that
RESPONDENT
cannot
meet
the
second
requirement
of
Article79(1)becauseRESPONDENTcouldhavereasonablybeenexpectedtohavetakenthestorm
intoaccountat theconclusionof thecontract.Stormsregularlyoccur inEquatoriana,and in
1980 a severe storm damaged Equatorianas cocoa trees [ProceduralOrderNo. 2, 8]. It is
reasonable to expectRESPONDENTabusiness entity that has operated since 1961tohave
taken the possibility of a similar severe storm into accountwhen it entered into the sales
contract [CISG Sec.Comm., art. 79 5]. Furthermore,because the EquatorianaGovernment
CocoaMarketingOrganization(EGCMO)controlsalldistributionsofcocoainEquatoriana,itis
reasonableforRESPONDENTtohavetakenintoaccountthepossibilitythatEGCMOcouldban
exports. [ProceduralOrderNo.2,11]CLAIMANT suggests thatRESPONDENT cannotmeet the
secondrequirementofArticle79(1)andthuscannotclaimexcusefromperformance.
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
7. RESPONDENTalsocannotmeet the thirdrequirementofArticle79(1)becauseRESPONDENTcould have foreseen the storm and export ban, it could and should have overcome the
consequencesofthestormandexportban.ThecontractbetweenRESPONDENTandCLAIMANT
wasfor
cocoa;
nowhere
does
the
contract
state
that
RESPONDENT
must
deliver
Equatorianan
cocoa[ClaimantsExhibitNo.2].AlthoughthestormandexportbanresultedinnoEquatorianan
cocoabeingavailable, thestormdidnotaffectanyothercocoagrowingcountries[Procedural
OrderNo.2,9].RESPONDENTcouldandshouldhaveboughtcocoafromanothersourceand
deliveredittoCLAIMANTinordertofulfillitscontractualobligations.Itchosenottodoso.
8. RESPONDENTsclaimthatitdidnotbuycocoafromanothersourcebecause itwouldhavecostmore iswithoutmerit. [RespondentsAnswer, 48]. It is awellsettled principle that
additionalcostsofperformancearenotenoughtoinvoketheprotectionofCISGArticle79(1)
[SchiedsgerichtderHandelskammer (GER);CaseNo.1U143/95and410O21/95 (GER);CaseNo.
11/1996(BUL);UnknownParties(FRA);VitalBerryv.Rechtbank(BEL);NuovoFucinativ.Fondmetal
Intl(ITA)].Indeed,additionalcostssuchasapricechangeareacommercialriskthattheseller
acceptswhenenteringintoasalescontract[Id.].Article79(1)doesnotencompassthenotionof
economichardship,whichisdefinedexcusefromperformancebecausethecostofperformance
hasincreased
[Nuovo
Fucinati
S.p.A.
v.
Fondmetal
Intl
(ITA);
ICC
8873;
Carlsen,
IIV].CISG
Article79reflectsthetraditionalviewofcontracts:pactasuntservanda,agreementsmustbekept
though the heavens fall [Jenkins, 2019; Perillo, 112;Rimke, I].Article 79 of theCISG only
provides an excuse where performance has become impossible [Flambouras, 277]. To be
permittedtoexcuseperformanceonthebasisofeconomichardship,RESPONDENTshouldhave
includedahardshipclauseinthecontractitself[UnknownParties(FRA);Perillo,115,129;Rimke,
IV9;VanHouette,NoAssumptionofRisk].Itfailedtodoso.
b. HardshipprovisionoftheUNIDROITPrinciples9. WhenprovisionsoftheCISGandprovisionsoftheUNIDROITPrinciplesconflict,theCISG
will take precedence [Carlsen, 2A].RESPONDENTmay suggest that theTribunal use the
UNIDROITPrincipleshardshipprovisiontogapfilltheCISG.Article7(2)oftheCISGallows
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
theTribunaltosettlequestionsabouttheCISGwhicharenotexpresslysettledinit,aretobe
settledinaccordancewiththegeneralprinciplesonwhichtheCISGisbased[CISG,art.7(2)].
There are some scholars and tribunals thatbelieve theUNIDROIT Principles embody the
principlesupon
which
the
CISG
is
based
[Case
No.
229/1996
(RUS);
ICC
8817;
ICC
9117].
However,theuseoftheUNIDROITPrincipleshardshipprovisiontogapfillCISGArticle79
wouldbeinappropriateforseveralreasons[ICC887;ICC9029].
10. First,thereisnogapinArticle79thatneedstobefilled;simplybecausetheCISGdoesnotmentiontheconceptofhardshipdoesnotmeanthatthematterisnotexpresslysettledinthe
CISG [Ziegel, 4]. This Tribunal is authorized to look at the legislative history (traveaux
preparatoire)oftheCISGinmakingthisdetermination[Povrzenic,3A].Thelegislativehistory
oftheCISGrevealsthattheWorkingGroupnotonlyconsideredaddingahardshipprovision,
butspecificallyrejectedaddingahardshipprovision[Carlsen,1998;FlambourasII,3;Rimke,
B2;Ziegel,1C].TheWorkingGrouprejectedthehardshipprovisionbecauseoftheproblems
associatedwiththeConventionRelatingtoaUniformLawontheInternationalSaleofGoods
(ULIS)the predecessor of the CISGwhich allowed contracting parties to escape their
contractual obligations too easily [Flambouras II, 3; Rimke, B2]. The Working Groups
rejectionof
ahardship
provision
is
adispositive
settlement
of
the
hardship
matter:
the
CISG
doesnotallowperformancetobeexcusedformereeconomichardship[Flambouras,278].Thus,
withallduerespect,theTribunalwouldexceeditsauthorityifitweretousetheUNIDROITs
hardshipprovisionstoexcuseRESPONDENTsperformanceinthiscase.
11. Second,theUNIDROITshardshipprovisionisnotageneralprincipleonwhichtheCISGisbased [Slater, 250]. While some provisions ofUNIDROITwere includedbecause drafters
thoughttheywerethebestrulesandhopedthattheywouldbecomeinternationallyaccepted
[Id.],severalscholarsandtribunalsrecognizethattheUNIDROIThardshipprovisionisnotan
internationallyacceptedprincipleofcontractlaw[Id.;ICC8873;ICC9029].Althoughsomemay
argue thathardship isbecomingmoreaccepted, itcannotbe thoughtof,at thispoint,asa
generalprincipleuponwhichtheCISGisbased[Id.].
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
12. Furthermore, even if this tribunal decides to apply theUNIDROIT hardship provision,RESPONDENTcannotmeettherequirementsofUNIDROITArticle6.2.2,whichreads:
There ishardshipwhere theoccurrenceofevents fundamentallyalters
the equilibrium of the contract either because the cost of a partys
performancehas increasedorbecause the value of theperformance a
partyreceiveshasdiminished,and
(a)theeventsoccurorbecomeknownto thedisadvantagedpartyafter
theconclusionofthecontract;
(b)theeventscouldnotreasonablyhavebeentakenintoaccountbythe
disadvantaged party at the time of the conclusion of the contract;
(c) the events arebeyond the controlof thedisadvantagedparty; and
(d)theriskoftheeventswasnotassumedby thedisadvantagedparty
[UNIDROIT1994,art.6.2.2].
Asnotedabove [supra,4],RESPONDENTcouldhavereasonably taken intoaccountboth the
stormand theEGCMObanonexportingcocoaat the timeof theconclusionofthecontract.
RESPONDENTcannotmeettherequirementsofUNIDROITArticle6.2.2andthuscannotclaim
hardship.
13. Assuming,arguendo, that thisTribunal finds thatRESPONDENTmeets the requirementsofUNIDROITArticle6.2.2,RESPONDENTSremedywasrenegotiationofthecontract,anactionnot
takenby
RESPONDENT
[UNIDROIT
1994,
art.
6.2.3;
Perillo,
125,
129].UNIDROIT
does
not
entitle
a contracting partywho is experiencing economic hardship to simply not perform, as has
occurred in this case [UNIDROIT1994, art.6.2.3OfficialComment].AllRESPONDENTdidwas
informCLAIMANTthatitwouldnotdeliverthecocoawithinthecontractualtimeframedueto
thestormandexportban[ClaimantsExhibitNo.3&No.6].
14. Moreover,even ifRESPONDENThadrequestedrenegotiationof thecontract, itwouldnothavebeenentitledtowithholdperformancesimplybecauseoftherequest[UNIDROIT1994,
art.6.2.3
Official
Comment].BecauseUNIDROITArticle6.2.3(2)isofanexceptionalnatureandis
easilyabused,Article6.2.3(2)anditsOfficialCommentsmakeitclearthatsimplybecausethe
disadvantagedpartyhasrequestedrenegotiation, thedisadvantagedparty isnotentitled to
withholdperformance[Id.].
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
III. CLAIMANTwasEntitledtoAvoidtheContract15. Article49(1)(a)oftheCISGstates:
(1)thebuyermaydeclarethecontractavoided:
(a)ifthefailurebythesellertoperformanyofhisobligationsunderthecontractorthisConventionamountstoafundamentalbreachofcontract
[CISG,art.49(1)(a)].
As established above, RESPONDENT fundamentallybreached its contractwithCLAIMANTby
failingtodelivertheremaining300metrictonsofcocoa[supra112].Thus,CLAIMANTwas
legallyentitledtoavoidthecontract[CISG,art.49(1)(a);ICC7531;ICC 9978].
16. Nevertheless, RESPONDENT argues that CLAIMANT was not entitled to avoid the cocoacontractbecauseithadnotfixedanadditionalperiodforperformanceunderCISGArticle47
[RespondentsAnswer,1011].Article47reads:
(a)Thebuyermayfixanadditionalperiodoftimeofreasonablelength
forperformancebythesellerofhisobligations.
(b)Unlessthebuyerhasreceivednoticefromthesellerthathewillnot
perform within the period so fixed, thebuyermay not, during that
period,resorttoanyremedyforbreachofcontract.However,thebuyer
isnotdeprivedtherebyofanyrighthemayhavetoclaimdamagesfor
delayinperformance[CISG,art.47(emphasisadded)].
17. CLAIMANTnotesthatthelanguageofArticle47indicatesthatfixinganadditionalperiodforperformance is an option thebuyer haswhen the seller has fundamentallybreached the
contract,but is not amandatory undertaking [CISG Sec.Comm., art. 49 5& art. 47 6].
CLAIMANTwasentitledtoavoidbecauseRESPONDENTfundamentallybreachedthecontract,not
becauseRESPONDENTfailedtoperformwithinafixedadditionalperiodoftime.Alternatively,
CLAIMANT was not required to fix an additional time period for performance because
RESPONDENTmadeclearthatitwasunabletodeliverthecocoaduringthecontractualperiod
[ClaimantsExhibitsNo.4,5&6; SchiedsgerichtHamburgerFreundschaftlicheArbitrage;CaseNo.1
U143/95and410O21/95(GER)].
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
IV. CLAIMANTValidlyAvoidedtheContracta. Implicitnoticeofavoidanceon15August2002
18. Anaggrievedpartysdeclarationofavoidanceisnoteffectiveunlessitismadebynoticetotheotherparty[CISG,art.26]. RelyingonCLAIMANTsletterdated15November2002,inwhich
CLAIMANTstatedthatinanabundanceofcaution,Iwishnowtostateclearlythat[CLAIMANT]
considers the referenced contract to be terminated, RESPONDENT asserts that CLAIMANT
effectivelydeclareditsintentiontoavoidthecontracton15November2005 [ClaimantsEx.No.
11].However,applicablecaseauthorityholdsthattheCISGdoesnotprovideanyobligation
concerningtheformofavoidance[FCFv.AdriafilCommercial (SWI)A(a);seealso ICCBasel
8128
(statingthat
when
apartys
requests
for
performance
are
unmet,
acontract
may
be
avoidedeven in theabsenceofanexpresssubsequentdeclarationofavoidance,provided
thatareasonablepersonwouldhaveunderstoodthecontracttobeavoided)].
19. InFCFS.A.v.AdriafilCommercialS.r.l.,thebuyerandsellerenteredintoacontractforcotton[FCFv.AdriafilCommercial(SWI),A(a)].DeliverywastobemadebetweenMayandJune1994
[Id.]. InJune1994,sellerinformedbuyerthatperformancewouldnotberendered[Id.,A(c)].
Buyerresponded,vialetter,requestingthatsellerperformthecontractassoonaspossible[Id.].
Having received no response from seller, buyer purchased substitute cotton from other
suppliersatahigherpriceandrequestedcompensation fromseller ina letterdated27June
1994 [Id.]. The Supreme Court of Switzerland held that the CISG does not provide any
obligationconcerningtheformoftheavoidanceofsalecontracts....Therefore,itisaccepted
thataconclusiveconductconstitutedbyarejectionofthegoodsthatthatdonotconformtothe
contract and a refusal topaymay,dependingon the circumstances,beheld as an implicit
declarationofavoidanceofthecontract[Id.,C(3)].
20. Similarly,inICCArbitrationCaseNumber8128,thebuyerandsellerenteredintoacontractunderwhich sellerwas to providebuyerwith chemical fertilizer [ICC 8128]. Buyer then
enteredintoaforwardingcontractwithanotherparty[Id.]. Whensellerfailedtoperformpart
ofhiscontractualobligations,buyersentaletterinforminghimthatitsclientwasthreatening
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
contractualpenaltiesandadditional costsunder its forwarding contract. [Id.]Further,buyer
insisted that it must receive a definitive response from seller regarding sellers ability to
perform [Id.]. Buyer also indicated that sellers failure to respond would result in buyer
purchasingchemical
fertilizer
from
another
supplier
[Id.].
The
arbitral
panel
stated
that
[i]t
doesnotmatterthattheBuyerdidnotexpresslydeclarethecontractpartlyavoidedandthat
the guide for interpretation is the manner in which a reasonable person would have
understood[the]declaration...orconductinthesamecircumstances[Id.]. Accordingly,the
panelheld thatbuyers letter constituted effectivenoticeof avoidancebecausea reasonable
personwouldhaveknown that failure tomeetaconditionput forthby thebuyerwould
avoidthecontract[Id.].
21. CLAIMANT made a final attempt at inducing RESPONDENT to perform its contractualobligations ina letterdated15August2002 [ClaimantsEx.No.7]. In that letter,CLAIMANT
cautionedthatintheeventRESPONDENTfailedtonotifyCLAIMANTofwhentheoutstanding300
tonsofcocoawouldbeshipped,CLAIMANTwouldbeforcedtopurchasecocoaelsewhere[Id.].
CLAIMANTawaitedaresponsefromRESPONDENTforovertwomonths[ClaimantsEx.No.8].By
October2002,CLAIMANTwasrunningdangerouslylowonitssupplyofcocoaandwouldhave
hadto
cease
production
of
certain
products
if
it
did
not
receive
additional
cocoa
[Procedural
Order No. 2]. Faced with the likelihood of running out of cocoa and shutting down its
production, CLAIMANT purchased substitute cocoa in October 2002 [Claimants Ex. No. 8].
CLAIMANTS letterdated15August2002constitutedconclusiveconductbyCLAIMANT that
RESPONDENTS failure todeliverwould result in terminationof the contract.Furthermore, a
reasonable person in RESPONDENTs position would have understood that under the
circumstances, its failure to respond toCLAIMANTS letterandperform forover twomonths
amounted to an avoidance of the contract.Accordingly, this Tribunal should find that the
contractbetweenCLAIMANTandRESPONDENTwasavoidedon15August2002.
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
b. Expressnoticeofavoidanceon25October200222. Alternatively,CLAIMANTsubmits to theTribunal that itvalidlyavoided thecontract ina
letter dated 25 October 2002 [Claimants Exhibit No. 8]. In this letter, CLAIMANT informed
RESPONDENTthat
it
had
been
forced
to
buy
300
metric
tons
of
replacement
cocoa
in
order
to
avoidrunningoutofsupplies [Id.].CLAIMANTalso informedRESPONDENT thatRESPONDENTs
presidentwouldbereceivingademandletterfromCLAIMANTslegalcounselrequestingthat
RESPONDENTpayCLAIMANTthepriceofthereplacementcocoa[Id.].Thislanguageissufficient
to alert a sophisticatedbusiness entity such as RESPONDENT thatCLAIMANT considered the
contracttobeavoided.
23. A German arbitral panel reached the same conclusion in the Hamburg ArbitrationProceedingof29December1998[HamburgArbitrationProceeding(GER),V(6)(a)].Thataction
arosefromsellerspartialbreachindeliveryof300tonsofcheese[Id.,Facts].Uponlapseofthe
timefordelivery,buyerinitiatedarbitrationproceedingsagainstsellerbyservingpapersonthe
selleranddeclaring thecontractavoideddue tononperformance [Id.]. Although thebuyer
affirmativelydeclared the contract avoided, theGerman arbitralpanelnoted that a fitting
declaration . . .without requirements as to form, that isdirected to the termination of the
businessrelationship
is
sufficient
notice
[Id.,
V(6)(a)].The
panel
then
concluded
that
buyers
faxedstatementthathewouldnotdoanybusinesswiththesellerinthefutureandhisserving
oflegalpapersamountedtosufficientnoticeofavoidanceunderarticle26[Id.].Accordingly,
thisTribunalshouldfindthatCLAIMANTsletterdated25October2002constitutesanimplicit
declarationofavoidance insomuchas it isamanifestationofCLAIMANTs terminationof its
contractualrelationshipwithRESPONDENT.
c. CLAIMANTsletterof15November200224. Despite prior communications that gave RESPONDENT notice of avoidance, CLAIMANT
formallyreiterateditsavoidanceofthecontractinitsletterdated15November2002.Thatletter
clearlystatedthatCLAIMANTconsideredthecontractterminated[ClaimantsExhibitNo.11].This
language is clear enough to give notice to RESPONDENT that CLAIMANT was avoiding the
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
contract.Inothercases,wherecourtsandtribunalshadtodeterminewhatwassufficientnotice
of avoidance, they found that languages andbehaviors thatweremuchmore vague than
CLAIMANTs language in the 15November 2002 letter,was sufficient. For instance, onone
occasion,canceling
apurchase
order
is
sufficient
notice
of
avoidance
[Italdecor
v.
Yius
Indus
(ITA)].Onanotheroccasion,notificationtosellerofbuyersintenttodiscontinuerelationship
andhaveshoesproducedbyanothercompanywassufficientnoticeofavoidance[CaseNo.5U
164/90 (GER)]. Another tribunal held that buyers fax refusing to pursue its business
relationship with seller was sufficient notice of avoidance [Schiedsgericht Hamburger
Freundschaftliche Arbitrage]. CLAIMANTs statement that it considered the contract to be
terminated in the 15November 2002 lettermeets the threshold establishedby courts and
tribunalsforaneffectivenoticeofavoidance.
PARTTWO:CLAIMANTISENTITLEDTORECOVERDAMAGESUNDERTHETERMSOFTHECISG
I. CLAIMANTisEntitledtoUSD289,353.00inDamagesPursuanttoArticle7525. Article75oftheCISGprovidesameansofcalculatingdamageswhenanaggrievedparty
has avoided the contract and has purchased substitute goods [CISGSec.
Comm.,
art.
75].
BecauseCLAIMANTavoideditscontractandpurchasedsubstitutecocoa,Article75isapplicable
indeterminingCLAIMANTsdamages.Article75states,
If the contract isavoidedand if, ina reasonablemannerandwithina
reasonable time after avoidance, the buyer has bought goods in
replacement or the seller has resold the goods, the party claiming
damagesmayrecoverthedifferencebetweenthecontractpriceandthe
price in the substitute transaction as well as any further damages
recoverableunderarticle74[CISG,art.
75].
a. CLAIMANTpurchasedsubstitutecocoainareasonablemanner26. Asubstitutetransactionisconductedinareasonablemannerifitislikelytohavecauseda
coverpurchaseatthelowestpricereasonablypossible[CISGSec.Comm,art.75]. Useofcurrent
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
marketprice isrelevant indeterminingwhetherasubstitute transactionwasconducted ina
reasonablemanner[Honnold,508].
27. CLAIMANTpurchasedsubstitutecocoaon24October2002atarateofUSD100.03centsperpound
[Claimants
Ex.
No.
8,
3].
According
to
the
International
Cocoa
Organizations
table
of
MonthlyAverageCocoaPrices,thepriceofcocoaon24October2002wasUSD100.03centsper
pound [Respondents Ex. No. 3]. Since CLAIMANT purchased the substitute cocoa at current
marketpriceforOctober,thisTribunalshouldfindthatCLAIMANTsrepurchasewasconducted
inareasonablemanner.
b. CLAIMANTpurchasedsubstitutecocoawithinareasonabletimeafteravoidance28. Anaggrievedpartysdeclarationofavoidanceisnoteffectiveunlessitismadebynoticeto
the other party [CISG, art. 26]. Relying on CLAIMANTs letter dated 15 November 2002,
RESPONDENTassertsthatCLAIMANTeffectivelydeclareditsintentiontoavoidthecontracton15
November2002[ClaimantsEx.No.11,4].
29. However,applicablecaseauthorityholdsthattheCISGdoesnotprovideanyobligationconcerningtheformofavoidanceandthatacontract isavoidedeven intheabsenceofan
expresssubsequent
declaration
of
avoidance,
provided
that
areasonable
person
would
have
understoodthecontracttobeavoided[FCFv.AdriafilCommercial(SWI)A(a);ICC8128]. Thus,
a partymay effectively avoid its contract via implicit notice of avoidance [FCF v.Adriafil
Commercial(SWI)C(3)]. Accordingly, thisTribunalshouldfindthatCLAIMANTS15August
2002letterconstitutedanimplicitnoticeofavoidanceinsomuchasitconstitutedaconclusive
conduct informingRESPONDENT that its failure todeliverwouldresult in terminationof the
contract.
30. Inthatletter,CLAIMANTcautionedthatintheeventRESPONDENTdoesnotnotifyCLAIMANTofwhentheoutstanding300 tonsofcocoawouldbeshipped,CLAIMANTwouldbeforcedto
purchasecocoaelsewhere[Id.].CLAIMANTawaitedaresponsefromRESPONDENTforovertwo
months[ClaimantsEx.No.8,2].ByOctober2002,CLAIMANTwasrunningdangerouslylowon
itssupplyofcocoaandwouldhavehadtoceaseproductionofcertainproducts if itdidnot
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
receiveadditionalcocoa[ProceduralOrderNo.2,24]. Facedwiththelikelihoodofrunningout
of cocoaand shuttingdown itsproductionCLAIMANTpurchased substitute inOctober2002
[Claimants Ex. No. 8, 2]. A reasonable person in RESPONDENTs position would have
understoodthat
under
the
circumstances,
its
failure
to
respond
and
perform
for
over
two
monthswould result inCLAIMANTavoiding the contract.Accordingly, thisTribunal should
findthatthecontractbetweenCLAIMANTandRESPONDENTwasavoidedon15August2002,that
CLAIMANTpurchasedsubstitutecocoawithinareasonabletimeafteravoidanceofthecontract,
andthatCLAIMANTisentitledtoUSD289,353.00indamages.
II. IfCLAIMANT isnotEntitled toDamagesUnderArticle75, itShouldbeEntitled toUSD289,353.00inDamagesUnderArticle76
31. Incaseswhereacontractisavoided,theaggrievedpartymayresorttoArticles75and76oftheCISGfordamages[Honnold,504]. ThereisadichotomybetweentheapplicationsofArticles
75and76 inrelation tooneanother.Somecourtshave found thatwhenanaggrievedparty
performed a substitute transaction, it is automatically subjected to Article 75 [E.g. Novia
Handelsgesellschaftv.ASMaseko(EST)]. However,manyscholarsstatethatthereisnoreason
tosupposethatanaggrievedpartywhomakesanunsuccessfulattempttocomplywithArticle
75 completely looses the right to recover damages [Honnold, 512; see also Schlechtriem, 97
(statingthatwheregoodscoveredbythetransactionhaveamarketprice,theaggrievedparty
mayseekArticle76damagesabstractlyorindependentlyfromanycovertransaction)].
32. Furthermore, the SecretariatCommentary states thatArticle 76 is applicablewhere thesubstitutetransactionwasnotmadeinareasonablemannerandwithinareasonabletimeafter
avoidance,asrequiredbyarticle75[CISGSec.Comm.,art.762]. Becausethemarketpricefor
thequalityandquantityofcocoacoveredbythistransactioniseasilyascertained,thisTribunal
shouldassessCLAIMANTsdamagespursuanttoArticle76.
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
33. UnderArticle76,anaggrievedpartysdamagesmaybeassessedbasedonthecurrentpriceof the contracted goods at either the time of avoidance or at the timewhenbuyer took
possessionofthegoods[Honnold,509]. Specifically,Article76states,
(1)If
the
contract
is
avoided
and
there
is
acurrent
price
for
the
goods,
the
party claimingdamagesmay, ifhehasnotmadeapurchaseor resale
underarticle 75, recover thedifferencebetween theprice fixedby the
contractand the currentpriceat the timeofavoidanceaswellasany
further damages recoverable under article 74. If, however, the party
claimingdamageshasavoidedthecontractaftertakingoverthegoods,
thecurrentpriceatthetimeofsuchtakingovershallbeappliedinstead
ofthecurrentpriceatthetimeofavoidance.
(2)Forthepurposesoftheprecedingparagraph,thecurrentpriceisthe
priceprevailingat theplacewheredeliveryof thegoods shouldhave
beenmadeor,ifthereisnocurrentpriceatthatplace,thepriceatsuchotherplaceasservesasareasonablesubstitute,makingdueallowance
for differences in the cost of transporting the goods [CISG, art. 76
(emphasisadded)].
Therefore, when assessing the damages under Article 76, the Tribunal should
determinethecurrentpriceofcocoaatthetimeofavoidanceandplaceofdelivery.
a. Timeofavoidance34. UnderArticle76paragraphone,damagesmaybeassessedasof the time theaggrieved
partyavoidedthecontractortookpossessionofthecontractedgoods[Schlechtriem,97;Honnold,
510].BecauseCLAIMANTnever tookpossessionof theRESPONDENTsoutstanding300 tonsof
cocoa, CLAIMANT is entitled to damages as of the time it avoided its contract with
RESPONDENTnamely, 25 October 2002. RESPONDENT contends, however, that CLAIMANT
avoided itscontracton15November2002.RESPONDENTSrelianceon this letter ismisplaced.
Caseauthority
clearly
indicates
that
adeclaration
...that
is
directed
to
the
termination
of
the
businessrelationshipissufficientnoticeofavoidance[HamburgArbitrationProceeding(GER),
V(6)(a)]. Accordingly,thisTribunalshouldfindthatCLAIMANTsletterdated25October2002,
initiatingalegaldemandofcompensationforitssubstitutetransaction,constitutesanimplicit
declarationofavoidance.
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
b. Placeofdelivery35. Thecurrentpriceofgoods isassessedbasedon theofficialorunofficialmarketprice for
goodsof
the
same
kind
under
comparable
circumstances
in
the
place
where
delivery
should
havebeenmade[CISGSec.Comm.,art.766;NoviaHandelsgesellschaftv.ASMaseko(EST);Case
No.3U246/97(GER),360]. AsisindicatedbytheInternationalCocoaOrganizationstableof
MonthlyAverageCocoaPrices, the internationalmarketpriceof cocoa throughoutOctober
2002 was 100.03 US cents per pound [Respondents Ex. No. 3; Procedural Order No. 2].
Accordingly,thisTribunalshouldassessCLAIMANTsdamagespursuanttothemarketpriceof
cocoa (100.03 US cents per pound) in Equatoriana during the month of October 2002.
Specifically,thisTribunalshouldfindthatCLAIMANTisentitledtoUSD289,353.00.
III. IfthisTribunalfindsNeitherArticle75norArticle76Acceptable,itShouldAwardCLAIMANTUSD289,353.00inDamagesPursuanttoArticle74
36. Whenever and to the extent thatArticles 75 and 76 are not applicable for calculatingdamages,atribunalmayassessdamagespursuanttoArticle74[CISGSec.Comm.,art.74,2;
NoviaHandelsgesellschaft
v.
AS
Maseko
(EST) (There is a reference in CISG commentaries
allowingaclaimtobefileddirectlyonthebasisofarticle74....)]. Article74provides
Damagesforbreachofcontractbyonepartyconsistofasumequaltothe
loss,includinglossofprofit,sufferedbythepartyasaconsequenceofthe
breach.Suchdamagesmaynotexceedthelosswhichthepartyinbreach
foresaworought tohave foreseenat the timeof the conclusionof the
contract,inlightofthefactsandmattersofwhichhekneworoughtto
haveknown,asapossibleconsequenceofthebreachofcontract[CISG,
art.74].
Article74 is intended toplace theaggrievedparty inasgoodapositionas if thebreaching
partyhadperformed[Honnald,503].
37. On19November2001,CLAIMANTenteredintoacontractfor400metrictonsofcocoawithRESPONDENTatarateofUSD1,240.75permetricton(USD.5268perpound)[ClaimantsEx.No.
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2,4].ThetotalcontractpricewasUSD496,299.55[Id.].Atthetimethecontractwasconcluded,
RESPONDENT couldhave,orought tohave, foreseen that in caseofnondelivery,CLAIMANT
wouldhavetopurchasetherequisitecocoafromanothersource. AlthoughCLAIMANTwasnot
underan
immediate
pressure
to
obtain
the
400
tons
of
cocoa
at
the
time
of
contracting,
based
on
thecompaniesyearsoftradingexperience,RESPONDENTknew,oroughttohaveknown,that
CLAIMANT requires large quantities of cocoa for producing its confectionaries [Claimants
RequestforArbitration,1,3]. Accordingly,RESPONDENTknew,oroughttohaveknown,that
failuretodeliverwouldpotentiallydisruptCLAIMANTsoperations,andCLAIMANTwouldhave
topurchasecocoaelsewhere.
38. CLAIMANTexpectedtoobtain400tonsofcocoaforUSD496,299.55.HadRESPONDENTmadetimely delivery of the cocoa, RESPONDENT would have met CLAIMANTs contractual
expectations.However,duetoRESPONDENTsbreachofcontract,CLAIMANTobtainedthesumof
400tonsofcocoaatapriceofUSD661,578.00USD289,353.00morethanwhatitexpectedto
payunder the contract.Accordingly, thisTribunalshouldawardCLAIMANTdamages in the
amountofitsloss,namelyintheamountofUSD289,353.00.
PART
THREE:
THIS
TRIBUNAL
LACKS
JURISDICTION
TO
HEAR
RESPONDENTS
COUNTERCLAIM
39. Although arbitral efficiency may sometimes warrant hearing claims together withcounterclaims and setoff defences,1 CLAIMANT contends that this arbitration is not an
appropriate instance. This Tribunal is not the correct venue to adjudicate RESPONDENTs
counterclaim as it disregards the parties original intent, specialized needs and mutual
agreementtoarbitrateunderboththecocoaandsugarcontract.Moreover,consistentwiththe
generalprincipleofKompetenzKompetenz,thisTribunalhastheabilitytodecidethescopeofits
1Asapreliminarymatter,thetermscounterclaimandsetoffshouldbedistinguished.However,forclarityof
thecurrentargument,CLAIMANTwillrefertoRESPONDENTsclaimasitscounterclaimthroughoutPart
Three,butdistinguishthetwoinPartFour[seeinfra,PartFour].
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
jurisdiction and hold that RESPONDENT cannotbring a counterclaim concerning the sugar
contractinthisarbitration.
40. Thepartiesenteredintothecocoacontractinmutualagreementthat[a]nydisputearisingwith
respect
to
or
in
connection
with
the
cocoa
contract
would
be
decided
in
accordance
with
theRulesofArbitrationof theChamberofCommerceandIndustryofGenevaSwitzerland
[Claimants Ex. No. 2]. Mutual agreement is the very genesis of the creature known as
internationalarbitration;theagreementtoarbitrateisthefoundationofatribunalsjurisdiction
andtheconsentofthepartiesremainstheessentialbasisofavoluntarysystemofinternational
commercialarbitration[Redfern/Hunter,135;Coe,55; RubinoSammartano,55].
41. It isundisputed thatwhen theparties entered into the sugar contract, they agreed that[a]ny dispute arisingwith respect to or in connectionwith [the sugar contract]be finally
decidedbythreearbitratorsinPortHope,OceaniainaccordancewiththeRulesofArbitration
of the Oceania Commodity Association [Respondents Ex. No. 4]. Therefore, the parties
intended these twocontracts to remain separate; indeed there isnocommon threadamong
themexceptthefactthattheyinvolvethesameparties.
42. Thereisnoareaofarbitrationwheretheconnectionofthedisputesismoreimportantthanin
asserting
counterclaims
[Rubino
Sammartano,
596;
Bus.
Trans.
Ger.,
6.05;
van
Hof,
131].As
manylearnedscholarshavestatedandmanyawardshaveheld,tobeassertedinarbitration,a
counterclaimmustariseoutofthesamecontractas theunderlyingtransaction[vanHof,131,
ICSDart.II;Am.BellIntlv.Iran,83;Westinghousev.Iran,12;RubinoSammartano,596].Bothof
these contracts are separate entities,with separate arbitration clauses and separate arbitral
needs. As such, this arbitration is not the correct venue to adjudicate RESPONDENTs
counterclaim: holding otherwise disregards the parties original intent and the original
agreementstoarbitrate.
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
I. Neither theCocoaContractnorSwissRulesArticle21(5)Provides Jurisdiction forthisTribunaltoHearRESPONDENTsCounterclaim
43. RESPONDENT attempts to raise its counterclaim under Swiss RulesArticle 21(5),whichprovidesthatthearbitraltribunalshallhavejurisdictiontohearasetoffdefenceevenwhen
the relationship out ofwhich this defence is said to arise is notwithin the scope of the
arbitration clauseor is theobjectofanotherarbitrationagreement.RESPONDENT suggests
thattheserulesallowtheTribunaljurisdictiontohearthematterdespiteanylogicalconnection.
However, RESPONDENTs reliance onArticle 21(5) ismisplaced. The RESPONDENT expressly
refers to itscounterdemandasacounterclaim rather thanasetoffdefence [Respondents
Answer,
IV].However,
these
terms
are
not
interchangeable
[infra,
Part
Four]and
thus
RESPONDENTscounterclaimmaynotbeheardunderthejurisdictionofArticle21(5).
44. Inthecocoacontract,thepartiesagreedtoarbitrationaccordingtotheCCIGRules,nottheSwiss Rules [Claimants Exhibit No. 2]. Specifically, while the CCIG Rules do provide for
contractualcounterclaims,theydonotprovideforcounterclaimsbaseduponseparatecontracts
with independent arbitration clauses and facts [CCIG,Rule 16].To consolidate these claims
wouldbemanifestlyagainstthepartiesoriginalunderstandingandintent,thusexceedingthis
Tribunalsjurisdiction.
45. WhileCLAIMANTdoesnotobjecttotheapplicationoftheSwissRulestothisproceedingingeneral, it does object toArticle 21(5) [ClaimantsAnswer, 4]. The vastmajority of other
international rulesofarbitrationrequirea firmconnectionbetweendisputesbeforeallowing
thistypeofconsolidation[RubinoSammartano,59560].Theserulesrequireeitherarelationship
governedbythearbitrationagreement,aclaimarisingoutofthesamecontractortransaction,
orattheveryleastasetofconnectedcircumstances[Id.];noneoftheseconditionsarepresentin
this instance [RubinoSammartano, 596 (listingUNCITRAL, ICC&LCIA,AAA, Stockholm,
ECA Rules as examples)]. In this instance, these matters are governedby separate and
completely independent arbitration agreements, they designate separate specialized
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
institutions tohearunderlyingdisputes, theyariseoutof completely independent contracts
andtransactionsandtherearenoconnectingcircumstancessaveforthepartiesinvolved.
46. Lastly,somecountriesevenincorporatethegenerallyunderstoodnotionthatcounterclaimsin
the
area
of
commodities
contracts
must
arise
out
of
the
same
commodities
contract,
otherwise
thecounterclaimscannotbeheard[Johnson/Hazen,206[4][f](citing17C.F.R.180.1180.5)].
Inthisinstance,theconnectionissotenuousthatapplicationofSwissRulesArticle21(5)isall
themoreunreasonableandthisTribunalshoulddeclinejurisdiction.
II. TheSpecializedArbitrationClauseInTheSugarContractPreemptsAnyJurisdictiontoHearRESPONDENTsCounterclaim
47. RESPONDENTs attempt to raise a counterclaimbased upon the sugar contract is furtherpreemptedby the sugar contract itself. In the sugar contract, the parties agreed upon the
specialized arbitration institution of the Oceania Commodity Association: a venue both
physically, technically and intellectually closer to the sugar contract dispute. In fact,many
commodity exchanges requiremandatory arbitration clauses tobewritten in commodities
contracts[ProceduralOrderNo.2,6;Johnson/Hazen,206[4][f](citing17C.F.R.180.1180.5)].
Thesearbitrationclausesrequirethepartiestosubmittheirdisputestoaspecificbodyadeptat
handlingsuchclaimsasaconditionofusingtheexchange[Id.]. Suchisthecasehere[Procedural
OrderNo.2,6].
48. Scholarspointout that this increases the efficiencyof thedispute settlementprocedure,ensures expert handling of thematter and furtherminimizes the cost to the parties as all
membersarefluentinthelanguageofcommoditiescontractdisputes[17C.F.R.108(3)(b);Park,
700].Suchspecializationisessentialtotheproperresolutionofthesugarcontractdisputeand
thereby preempts jurisdiction in this arbitration as a counterclaim. Indeed, when it is
sufficientlyclearthatthepartieswantedtheclaimsubsequentlyraisedbywayofasetofftobe
dealtwithbytheordinarycourtsorbyanotherarbitralcourt,thesetoffshouldberejectedby
thearbitrators.Topermittheintroductionofclaimsbywayofasetoffwouldthusviolatethe
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
agreements between the parties [Bus. Trans. Ger., 6]. Here, the parties chose a specific
institutiontohandletheirdisputetheOceaniaCommodityAssociation. Thatvenueisbetter
suited to the needs of the Sugar Contract; it is closer to the relevant facts and necessary
evidenceand
will
offer
amore
efficient
resolution
for
the
parties
[Respondents
Exhibit
No.
4].
49. CLAIMANT asserts that these important facts preempt jurisdiction to hear the mattersrelatingtothesugarcontractasacounterclaiminthisproceeding.Tohearsuchacounterclaim
isnotonlyagainstcarefullychosenarbitrationforuminthesugarcontract,butisalsoagainst
some rules of commodity trading currently in use throughout the international economic
community. Again, the prudent choice is to allow arbitration according to the Oceania
CommodityAssociation, inOceania,according to thepartiesoriginal intent,understanding
andneeds.
III. If thisTribunalwas toHearRESPONDENTsCounterclaim, theAwardmayRun theRiskofnotBeingEnforced
50. Besidesbeingmanifestly against the parties original understanding and intent, if thisTribunalweretoallowRESPONDENTtosubmititsunrelatedcounterclaimitwouldruntherisk
ofnonenforcementundertheNewYorkConvention[NewYork
Convention,
V(1)(c);
Coe,
56]. A
tribunals mandate is circumscribed by the arbitral agreement [Coe, 55]; basic tenets of
InternationalCommercialArbitrationrequireadjudicationwithinthesebounds[Id.]. Whenan
awardisinexcessofthesubmissionofthepartiesagreement,thatawardcanbeattacked[Id.,
56]. Specifically, the New York Convention, to which both parties home countries are
members,allowsan enforcing state todecline recognitionofanarbitral awardwhen[t]he
award dealswith a difference not contemplatedby or not fallingwithin the terms of the
submission to arbitration, or it contains decisions on matters beyond the scope of the
submissiontoarbitration[NewYorkConvention,V(1)(c)]. Thus,ifthisTribunalweretoapply
SwissRulesArticle21(5)andhearthiscounterclaim,itwouldruntheriskofnonenforcement
ofthatportionoftheaward,thereforemakingallthecostandeffortofarbitratingthematter
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
senseless.Theprudentcourseofactionwouldbetohonorthepartiesoriginalunderstanding
toarbitrateanddenyapplicationofSwissRulesArticle21(5), thussavingunnecessarycosts
andburdenandgrantingthepartiestheirrightfullycontractedforexpectations.
PART FOUR: IF THIS TRIBUNAL HAS JURISDICTION TO CONSIDER THE COUNTERCLAIM, THE
RECOVERYSHOULDBELIMITEDTOSETOFFTHEAMOUNTRECOVEREDBYCLAIMANT
51. In the event that the Tribunal finds that it has jurisdiction to consider RESPONDENTscounterclaim, the amount of recovery shouldbe a setofflimited to that recoveredby
CLAIMANTinthecocoadispute.TheintentofthedraftersoftheSwissRuleswasnottoequate
the terms counterclaimand setoff.Moreover, legaljurisprudence inboth common lawand
civillawjurisdictionsdistinguishdemandsofcounterclaimfromthoseofsetoff.Furthermore,
theweightofauthoritylimitsasetoffdefencetotheamountofrecoveryhadbytheoriginal
claim.
I. The Intentof theDrafterswas toMake theSetoffDefenceDistinct from thatofCounterclaim
52. SwissRulesArticle21(5)plainlystatesthat[t]hearbitraltribunalshallhavejurisdictiontohearasetoffdefencebutexcludesfromthisstatementanequalprovisionforcounterclaims
[SwissRules,art.21(5)(emphasisadded)].StrictinterpretationoftheentireSwissRuleswould
dictatethatthedraftersintentionallyexcludedcounterclaimsfromArticle21(5).Forexample,
SwissRulesArticle3(9)states inpart,Anycounterclaimorsetoffdefenceshallinprinciplebe
raisedwith theRespondentsAnswer to theNotice ofArbitration [Id., art. 3(9) (emphasis
added)].Iftheintentofthedrafterswastoallowarespondentthefullrightsofacounterclaim
inArticle21(5),theywouldhaveexplicitlyprovidedthisasinArticle3(9).Further,iftheintent
ofthedrafterswastoequatethetermscounterclaimwithsetoffdefence,thentheywould
nothaveseparatelyidentifiedthetwotermsthroughouttheremainderoftheSwissRules.
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
53. TheUNCITRALArbitrationRulesandtheZurichRulesprovidesupportforthenotionthatasetoffdefenceistobereadassomethinginherentlydifferentthanacounterclaim.Thenew
SwissRulesweremodeledaftertheUNICTRALArbitrationRules[SwissRules, Introduction],
whichstate
in
Article
19
that
the
respondent
may
make
acounter
claim
arising
out
of
the
same
contract or rely on a claim arising out of the same contract for the purpose of a setoff
[Arbitration Rules, art. 19(3) (emphasis added)]. Likewise, the Zurich Rules emphasize this
distinctionbyproviding tribunaljurisdictionoveracounterclaim independentofjurisdiction
overasetoffdefence[ZurichRules,arts.26&27].Whenasetofarbitrationrulesbearsseparate
provisionsforacounterclaimandasetoffdefence,the intentofthedraftersmusthavebeen
thatthesetwotermswouldeffectuatedifferingresults.
II. LegalJurisprudenceDistinguishesSetofffromthatofCounterclaimandHoldsthatSetoffMaynotbeUsedtoObtainaPositiveRecovery
a. Setoffisdistinctfromcounterclaim54. Setoff,orcompensationas termed incivil lawjurisdictions,maygenerallybedefinedas
[a]defendantscounterdemandagainsttheplaintiff,arisingoutofatransactionindependent
oftheplaintiffsclaim[BlacksLaw
Dictionary,
1404].Asopposedtoasetoff,acounterclaimis
aseparateclaim,whichmuststillbedecideduponbythearbitratorswhentheoriginalclaim
iswithdrawnorsettled [Pellonp,348].Putanotherway,acounterclaimmustrelate to the
originalclaim,whereasthesetoffmerelyindicatestheexistenceofadebtthatextinguishesall
orpartoftheclaimantsclaim.[Id.,373].However,themostimportantdistinctionbetweenthe
twoisthatunlikeacounterclaim,asetoffmaynotexceedtheamountoftheoriginalclaim[Id.,
348;Berger,60(Contrarytoacounterclaim,therespondentcanrecovernothingforhimself.)].
55. Thedistinctionbetweensetoffandcounterclaimisexplicitlyrecognizedinbothcommonlawandcivillawjurisdictions.
French law distinguishes between demande reconventionelle and
moyensdedefenseaufond,Englishlawbetweencounterclaimand
setoff as a defence, German law between Widerklage and
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
Prozessaufrechnung, and Italian law between domanda
riconvenzionaleandeccezionedi compensazione [DanvaernProd.v.
Schuhfabriken(ECJ),17].
56. In theUnitedStates, theOregonSupremeCourtstated thedistinctionsimply,[S]etoffandcounterclaimarenotsynonymousterms[RogueRiverMgmt.Co.v.Shaw(USA),442].The
FrenchCivilCodedefinessetoff (compensation)as theextinguishmentof twodebts [French
CivilCode,art.1289]andthecivilprocedurelawdeclaresthat[n]ocounterclaimisrequiredif
the defendantwants to set off liquidated debt against the plaintiffs claim [Pellonp, 373
(citingP.Herzog,CivilProcedureinFrance,MartinusNijhof,1967,p.277)].
b. Setoffmaynotexceedtheamountoftheoriginalclaim57. Setoffis not a device to attack but a mere defence of the respondent against the
claimantsclaim[Berger,60].WhendefenceofsetoffwasfirstenactedbyEnglishstatute in
1729[RogueRiverMgmt.Co.v.Shaw(USA),442;Greenv.Farmer(ENG),158]itprovidedthatno
affirmativejudgmentcouldberecoveredbydefendantagainsttheplaintiff[RogueRiverMgmt.
Co.v.Shaw(USA),442;seealsoBerger(providingadetailedhistoryofsetoffinRoman,Civil,
and Common law jurisdictions)]. In Germany, the law defines setoff as the mutual
redemptionofreciprocaldebtsandexplainsthat[t]heeffectofthesetoffistoextinguishthe
twoclaims to theextent theyarecongruent, i.e.,up to theamountof the lesserclaim [Bus.
Trans.Ger.,2(a)(ii)].InSwitzerland,Article124oftheSwissCodeofObligationsprovidesthata
setoffallowsforthedischargeofanoutstandingdebt[Burger,4;seealsoCraig/Park/Paulsson,
101],whileRussias InternationalCommercialArbitrationCourtprovides thatcounterclaims
maybe raisedduring theproceedingsprovided that theyoperate indirectsetoffof claims
previouslyasserted
[ODonnell,
806].
58. In theUnitedStates,adefendantwhohaspleadedsetoff isnotentitled to recover theexcessofhisclaimovertheplaintiffsdemand[CJS,110;Am.Jur.2d.,6(Althoughsetoff
may be used to offset a plaintiffs claim, it may not, however, be used to recover
affirmatively.)].U.S. courts have consistently upheld this limitation [See e.g. Schenck, 134;
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MEMORANDUMforCLAIMANTUNIVERSITY o fHOUSTON
Matasar,1475(Asetoffisacounterclaimthatisuseddefensively:i.e.,adefendantmaynot
receiveany independentreliefunder theclaimandmayuse itonly toreduceanyjudgment
ultimatelyobtainedby theplaintiff.);Mack,449 (Setoff isan independentdemandof the
defendant,made
to
counterbalance
that
of
the
complainant
in
whole
or
in
part.)
(emphasis
added)].ThereasoningforthislimitationwasspelledoutbytheFourthCircuitinInreJohnson.
[S]etoffdoes not go to the foundation or justice of a plaintiffs claimand as such
constitutesadefenceonlyinthepracticalsensethatitoperatestoreducethe[plaintiffs]remedy
[InreJohnson,1078(emphasisadded)].
c. Modellawprescribesthelimitingnatureofsetoff59. Whereadisputearisesregardingthemeaningorusageofaterm,theUNIDROITPrinciples
(Principles)areintendedtobeusedasameansofinterpretingandsupplementingexisting
internationalinstruments[UNIDROIT1994,Preamble;Craig/Park/Paulsson,632].Assuch,the
Principlesmayfurtherserve to interpret theprecisemeaningofsetoffas iswritten in the
SwissRules.TheUNIDROITPrincipleswererevised in2004and includeanewchapterthat
specifically defines setoff [Bonell, 14]. The revised Principles define setoff as the situation
wheretwo
parties
owe
each
other
money
or
other
performances
of
the
same
kind
and
subsequentlyprovidethatifthetwoobligationsdifferintheiramount,setoffwilldischarge
the obligations up to the amount of the lesser obligation [Id. (emphasis added)].Under this
definition, RESPONDENTs setoff defence would be limited to the amount of the lesser
obligationthatbeingCLAIMANTsclaim.
60. TheUniformCommercialCode(U.C.C.)offersasimilarlimitingclausewhichimpliesthatsetoffdamagesshouldbelimitedtotheamountoftheoriginalclaim.U.C.C.2717provides:
Thebuyeronnotifyingthesellerofhisintentiontodosomaydeductall
oranypartofthedamagesresultingfromanybreachofthecontractfrom
anypartofthepricestilldueunderthesamecontract[Id.].
The language conveys the notion that the setoffmaybe in all or in part of the damages
resultingfromthebreach.
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61. PrecedentarbitraldecisionshavenotclarifiedthescopeofasetoffasiswrittenintheSwissRules.Althoughpriorarbitraldecisionshaveencounteredsetoff,thesedecisionshavenotbeen
facedwith a setoff in excess of the original claim [E.g. ICC 3540].Therefore, thisTribunal
shouldlook
to
precedents
and
decisions
from
other
courts.
III. FairnessConsiderationsDemand thatSetoffDefencesbeTreatedDifferentlythanCounterclaims
62. Aspreviouslyhighlighted,unlikesetoffs,counterclaimsmustrelatetoorariseoutoftheunderlyingtransaction[supra,55].Inthepresentcase,RESPONDENTssetoffdefencedoesnot
ariseout
of
the
original
cocoa
claim.
For
this
reason,
fairness
would
demand
that
the
scope
of
the setoff defence be more limited than that of the counterclaim [Seibert, 449 (The
counterclaimis broader and more comprehensive thansetoff.)]. This argument was
eloquentlystatedbyChiefJusticeCockburninStookev.Taylor[Stookev.Taylor(ENG),576].
But themost strikingdifference is that the counterclaimoperates,not
merely as a defence, as does the setoff, but in all respects as an
independentactionbythedefendantagainsttheplaintiff.Totheextentto
whichthedamagesaccruingtothedefendantonthecounterclaimmay
bein
excess
of
those
accruing
to
the
plaintiff
on
his
claim,
the
defendant
becomes entitled to judgment, with this additional advantage that,
havingbeenobliged tomeet theplaintiffon the forum chosenby the
latter,heisnotbound,astocosts,bytheconditionsonwhichtheplaintiff
dependsforobtainingthem[Id.].
63. Ifsetoffdefencescouldproduceawardsgreaterthanthatoftheoriginalclaim,respondentscouldavoidunfavorable forumsbyraisingcompletelyunrelatedclaims infavorableforums.
For example,CLAIMANT andRESPONDENT agreed to arbitratedisputes relating to the sugar
contractwith theOceaniaCommodityAssociation [RespondentsAnswer, 17] presumably
because they found this forum tobemostappropriate.However,RESPONDENTmay feel that
thisforumisunfavorabletotheirclaimandwishtosettletheclaiminamorefavorableforum,
suchastheChamberofCommerceandIndustryofGeneva.Therefore,aliberalapplicationof
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setoff, allowing awards greater than that of the original claim, may result in forum
shoppingwhereapartychoosestoraiseitsclaimsintheforummostfavorabletoit.
REQUESTFORRELIEF
Inlightoftheaboveargumentsandsubmissions,CounselforCLAIMANTrespectfullyrequests
thattheTribunalfindthat:
RESPONDENTfundamentallybreachedthecocoacontract; RESPONDENTwasnotexcusedfromperformingitsobligation; CLAIMANTavoidedthecocoacontractandisentitledtorecoverdamages; damagesshouldbeUSD289,253.00pursuanttoeitherCISGArticles74,75,or76; theTribunallacksjurisdictiontohereRESPONDENTscounterclaim; and,iftheTribunalhearsthecounterclaim,itshouldbelimitedtothesetoffamount.
Signed,
LacyJohnson ElaheParsa JamesRogers BrettThorstad
CounselforCLAIMANT.