Eighth Annual Willem C. Vis

International Commercial Arbitration MootCase No. Moot 8

2000 / 01MEMORANDUM FOR CLAIMANT

UNIVERSITY OF BASEL

Team Members:

Monica Armesto * Tobias RufStefan Simon

On behalf ofSports and More Sports, Inc.214 Commercial AvenueOceansideDanubia Claimant

AgainstVis Water Sports Co.395 Industrial PlaceCapitol CityEquatoriana Respondent

II

Table of Contents:

Index of Authorities ...................................................................................................................................IIIIndex of Legal Sources...............................................................................................................................IXIndex of Abbreviations ...............................................................................................................................IXStatement of Facts .................................................................................................................................... XIIIntroduction.............................................................................................................................................. XIIIssue 1: Jurisdiction......................................................................................................................................1

A. The Arbitral Tribunal Has Jurisdiction...............................................................................................1I. CL and RE Entered into a Materially Valid Arbitration Agreement........................................................1

1. The AML Is the Lex Arbitri in the Present Arbitration and Its Provisions Are Binding for theArbitral Tribunal....................................................................................................1

2. The Arbitration Agreement Meets the Material Requirements of the CISG..............12.1 The Law Governing the Arbitration Agreement Is the CISG...................................22.2 CL’s Arbitration Clause in its GCP Became an Integral Part of Both Contracts Concluded

Between RE and CL..............................................................................................32.2.1 First Contract: CL’s Arbitration Clause Became an Integral Part of its Offer of 5 April 1999

which Was Subsequently Accepted by RE on 6 April 1999 .................................3(a) CL’s Arbitration Clause Became an Integral Part of its Offer of 5 April 1999......................3(b) RE’s Accepted CL’s Offer of 5 April 1999 Including the Arbitration Clause.......................3(aa) RE Accepted CL’s Offer Including its Arbitration Clause on 5 April 1999.........................4(bb) If The Tribunal Comes to the Conclusion that a Battle of Forms Arose, then the TermsGoverning the Second Contract Apply Also to the First Contract due to Their Economic Unity......................................................................................................................................................5

2.2.2 Second Contract: CL’s Arbitration Clause Became an Integral Part of its Offer of May 271999, which Was Subsequently Accepted by RE on 28 May 1999 ......................6

(a) CL’s Arbitration Clause Became an Integral Part of its Offer of 27 May 1999.....................6(b) RE Accepted CL’s Offer Including its Arbitration Clause on 28 May 1999 .........................6

II. The Arbitration Agreement Meets the Formal Requirements of the AML.............................................71. Communication by E-Mail Complies With the "Exchange in Writing" requirement of Art. 7

(2) AML in Conjunction with Art. 6 EML............................................................72. The Formal Requirements of the AML Are Met for the First Contract......................92.1. CL's E-Mail of 5 April 1999 Including the Arbitration Clause Meets the First Part of the

"Exchange in Writing" Requirement of Art. 7 (2) AML.......................................92.2. RE's E-Mail of 6 April 1999 Meets the Second Part of the "Exchange in Writing"

Requirement of Art. 7 (2) AML..........................................................................103. The Formal Requirements of the AML Are Met for the Second Contract...............113.1. CL's E-Mail of 27 May 1999 Meets the First Part of the "Exchange in Writing" Requirement

of Art. 7 (2) AML................................................................................................113.2. RE's E-Mail of 28 May 1999 Meets the Second Part of the "Exchange in Writing"

Requirement of Art. 7 (2) AML..........................................................................11Issue 2: CL Avoids the Contracts...............................................................................................................11

A. CL Had the Right to Avoid the Contracts in Accordance with Art. 49 (1)(a) CISG........................12I. The Goods Delivered by RE Were Not in Conformity with the Contracts Under Art. 42 CISG...........12

1. The Goods Delivered by RE Were not Free from any Claim of a Third Party.........122. RE Could Not Have Been Unaware of the Basis of Vis Fish Company's Claim at the Time of

Conclusion of the Contracts.................................................................................143. CL Was Unaware of the Basis of the Claim at the Time of Conclusion of the Contracts 154. CL Gave Notice to RE Specifying the Nature of the Claim Within a Reasonable Time 165. As a Precaution, CL Will Show that the Requirements of Art. 44 CISG Are Met...17

III

II. The Breach of Contract Committed by RE is Fundamental Within the Meaning of Art. 25 CISG......181. The Breach of Contract Committed by RE Deprived CL of What It Was Entitled to Expect

Under the Contracts .............................................................................................182. CL’s detriment was foreseeable for RE....................................................................20

B. CL Avoided the Contracts in Accordance with Art. 49 (1)(a) CISG................................................20I. CL Partially Avoided the Contracts........................................................................................................20

II. Alternatively, the Contracts Were Avoided in Their Entirety...............................................................21

III. CL Declared the Contracts Avoided Within a Reasonable Time.........................................................21Issue 3: CL Does Not Have to Account for Any Benefits.........................................................................22

A. CL Did Not Derive Any Benefits from the Unsold Goods ...............................................................22B. Even if the Contracts Are Considered to Have Been Totally Avoided, CL Does Not Have toAccount for Any Benefits ......................................................................................................................22

Issue 4: CL Is Entitled to Damages in the Amount of $112,000 ...............................................................24A. CL Is Entitled to Damages as a Consequence of RE’s Breach of Contract Under Art. 45 (1)(b) andArt. 74 CISG..........................................................................................................................................24

I. CL Is Entitled to Damages for Shipping Costs Relating to the Goods Purchased as well as Storage andMiscellaneous Expenses Incurred after Avoidance for a Total Amount of $37,000 .................................24

II. CL Is Entitled to Have its Advertising Costs Reimbursed for a Total Amount of $35,000..................25

III. CL Is Entitled to Reimbursement of its General Selling Costs Allocated to the Goods Sold for aTotal Amount of $40,000...........................................................................................................................25

IV. CL Is also Entitled to Reimbursement of its Additional Storage and Other Expenses Incurred fromthe Date of Submission of the Request for Arbitration Until Mutual Restitution Has Been Made...........26

B. CL Would also Be Entitled to Damages Under Art. 44 CISG..........................................................26C. RE Is not Exempt from Paying Damages Under Art. 79 CISG........................................................27D. CL Acted in Accordance with any Duty to Mitigate the Loss in Accordance with Art. 77 CISG...27E. Under Art. 45 (2) CISG CL Is not Deprived of its Right to Claim Damages by Having Exercised itsRight to Avoid the Contracts..................................................................................................................27F. Legal Consequences...........................................................................................................................27

Issue 5: CL Is Entitled to Interest on the Sum of $480,000 .......................................................................28A. CL Is Entitled to Interest on Damages of $112,000 Pursuant to Art. 78 CISG................................28B. CL Is Entitled to Interest on the Net Purchase Price of $368,000 Pursuant to Art. 84 (1) CISG.....28C. The Interest Rate Has to Be Determined in Conformity with the General Principles on which theCISG Is Based in Accordance with Art. 7 (2) CISG..............................................................................29

I. The Applicable Interest Rate Must Be Fixed in Accordance with the Short Term Commercial LendingRate in Equatoriana, i.e., at 7%..................................................................................................................29

II. Subsidiarily, the Interest Rate Must Be Fixed in Accordance with an International Rate of Interestsuch as LIBOR, i.e., at 6.7%. .....................................................................................................................30Issue 6: Costs of Arbitration.......................................................................................................................30Conclusion ...................................................................................................................................................30Annex.........................................................................................................................................................31

Chronology of Events:............................................................................................................................31Claimant’s Exhibits:...............................................................................................................................32

Index of Authorities

Atiyah/Adams The Sale of Goods, 9th edition, London: Pitman (1995)

IV

[cited as: Atiyah]Audit, Bernard La vente internationale de marchandises - Convention des Nations-Unies du11

avril 1980, Paris 1990[cited as: Audit]

Bianca, CesareMassimo /Bonell, MichaelJoachim

Commentary on the International Sales Law - The 1980 Vienna Sales Convention,Milan 1987[cited as: Bianca/Bonell- Reviser]

Botzenhardt,Bernard

Die Auslegung des Begriffs der wesentlichen Vertragsverletzung im UN-Kaufrecht, Frankfurt am Main 1998[cited as: Botzenhardt]

Brand, Roland /Fletchner, HarryM.

Arbitration and Contract Formation in International Trade: First Interpretations ofthe U.N. Sales Convention, in The Journal of Law and Commerce, 1993 (12 J. L.& Com.), at 239-260[cited as: Brand/Fletchner]

Broches, Aron Commentary on the UNCITRAL Model Law on International CommercialArbitration, Deventer 1990[cited as: Broches]

Caemmerer,Ernst v.

Vertragsverletzung im internationalen Einheitlichen Kaufrecht, in Geschichte undGegenwart, Festgabe für Helmut Coing Band II ,1982, at 32-52[cited as: v. Caemmerer]

Calavros,Constantin

Das UNCITRAL Modellgesetz über die internationaleHandelsschiedsgerichtsbarkeit, Bielefeld: Gieseking 1988 [cited as: Calavros]

Czerwenka, G.Beate

Rechtsanwendungsprobleme im internationalen Kaufrecht – Das Kollisionsrechtbei grenzüberschreitenden Kaufverträgen und derAnwendungsbereich derinternationalen Kaufrechtsübereinkommen, Berlin1988[cited as: Czerwenka]

Dölle, Hans Kommentar zum Einheitlichen Kaufrecht, München 1976[cited as: Dölle-Reviser]

Doralt, Peter Das UNCITRAL-Kaufrecht im Vergleich zum Österreichischen Recht, Wien1985[cited as: Doralt]

Drobnig, Ulrich Allgemeine Geschäftsbedingungen im internationalen Handelsverkehr, in: Flume(Hrsg.), Internationales Recht und Wirtschaftsordnung, Festschrift für F.A. Mannzum 70. Geburtstag, München: Beck 1977, at 591-615[cited as: Drobnig, FS Mann]

Enderlein, Fritz Rights and Obligations of the Seller Under the UN Convention on Contracts forthe International Sale of Goods, in: Sarcevic, Petar / Volken, Paul (eds.):International Sale of Goods: Dubrovnik Lectures, New York 1986, at 133-201[cited as: Enderlein in Sarcevic/Volken]

Enderlein, Fritz/Maskow,Dietrich /Stargardt,Monika

Kommentar. Konvention der Vereinigten Nationen über Verträge über deninternationalen Warenkauf; Konvention über die Verjährung beim internationalenWarenkauf, Protokoll zur Änderung der Konvention über dieVerjährung beiminternationalen Warenkauf, Berlin (Ost) 1985[cited as: Enderlein/Maskow/Stargardt]

Enderlein, Fritz/Maskow,Dietrich /Strohbach,Heinz

Internationales Kaufrecht - Kaufrechtskonvention,Verjährungskonvention,Rechtsanwendungskonvention, Berlin 1991[cited as: Enderlein/Maskow/Strohbach]

Farnsworth, Farnsworth on Contracts, Boston (etc.) 1990

V

Allan E. [cited as: Farnsworth]Ferrari, Franco Uniform Interpretation of the 1980 Uniform Sales Law, in: Georgia Journal of

International and Comparative Law (Ga. J. Int'l & Comp. Law ) 1994, at 183[cited as: Ferrari, Ga. J. Int'l & Comp. Law 1994]

Gabriel, HenryD.

The battle of the forms: A comparison of the United Nations Convention for theInternational Sale of Goods and the Uniform Commercial Code, The BusinessLawyer 1994 (49 Bus. Law),[cited as: Gabriel]

Granzow,Joachim H.

Das UNCITRAL Modellgesetz über die internationaleHandelsschiedsgerichtsbarkeit von 1985, München: VVF 1988,[cited as: Granzow]

Hancock,William A.

Guide to the International Sale of Goods Convention, Chesterland (Ohio)1987(Suppl. 1988)[cited as: Hancock]

Hartnell, HelenElizabeth

Rousing the sleeping dog: The Validity Exception to the Convention on Contractsfor the International Sale of Goods, in Yale Journal of International Law , 1993(18 Yale J. Int’l L.), at 1-93[cited as: Hartnell]

Hascher,Dominique T.

Consolidation of Arbitration in American Courts, in: Journal of InternationalArbitration (J. Int'l Arb.) 1984, at 127[cited as: Hascher, J. Int'l Arb 1984]

Heilmann, Jan Mängelgewährleistung im UN-Kaufrecht – Voraussetzungen und Rechtsfolgen imVergleich zum deutschen internen Kaufrecht und zu den Haager EinheitlichenKaufgesetzen (Diss. Hamburg 1992), Berlin: Dunckner & Humboldt 1994[cited as: Heilmann]

Hellner, Jan The Vienna Convention and Standard Form Contracts, in Sarcevic/Velden (Hrsg.),Dubrovnik Lectures, New York Oceana 1986, at 335-363[cited as: Hellner]

Herber, Rolf Wiener UNCITRAL-Übereinkommen über internationale Warenkaufverträgevom11. April 1980, 3rd ed., Köln 1991[cited as: Herber]

Herber, Rolf /Czerwenka,BeateTR

Internationales Kaufrecht - Kommentar zum Übereinkommen der VereintenNationen vom 11. April 1980 über Verträge über den internationalenWarenkauf,München 1991[cited as: Herber/Czerwenka]

Heuzé , Vincent La vente internationale de marchandises - Droit uniform, Paris 1992[cited as: Heuzé]

Holthausen,Rüdiger

Die wesentliche Vertragsverletzung des Verkäufers nach Art. 25 UN-Kaufrecht,in: Recht der Internationalen Wirtschaft (RIW) 1990, at 101-107[cited as: Holthausen, RIW 1990]

Holtzmann,Howard M. /Neuhaus , JosephE.

Guide to the UNCITRAL Model Law on International Commercial Arbitration,Deventer 1994[cited as:Holtzmann/Neuhaus]

Honnold, JohnO.

Uniform Law for International Sales under the 1980 United Nations Convention,3rd ed., Deventer 1999[cited as: Honnold]

Honsell,Heinrich

Die Vertragsverletzung des Verkäufers nach dem Wiener Kaufrecht,in:Schweizerische Juristen-Zeitung (SJZ) 1992, at 345-354, 361-365[cited as: Honsell, SJZ 1992]

Honsell,Heinrich

Kommentar zum UN-Kaufrecht, Berlin, Heidelberg 1997[cited as: Honsell- Reviser]

VI

Huber,Ulrich Der UNCITRAL-Entwurf eines Übereinkommens über internationaleWarenkaufverträge, RabelsZ 43 (1979), at 413-526,[cited as Huber, RabelsZ]

Kaplan, Neil Is the need for writing as expressed in the NY-Convention and the Model Law outof step with commercial practice?, in Arbitration International (Arb. Int.) 1996, at27-45[cited as: Kaplan, Arb. Int. 1996]

Karollus , Martin UN-Kaufrecht - Eine systematische Darstellung für Studium und Praxis,Wien1991[cited as: Karollus]

Kranz, Norbert Die Schadenersatzpflicht nach den Haager Einheitlichen Kaufgesetzen und nachdem Wiener UN-Kaufrecht (Diss. Hamburg), Frankfurt a. M.: Lang (1989)[cited as: Kranz]

Krebs , Markus Die Rückabwicklung im UN-Kaufrecht, Diss. München Beck 2000[cited as: Krebs, Rückabwicklung]

Kritzer, AlbertH.

Guide to Practical Applications of the United Nations Convention for theInternational Sale of Goods, Deventer, Boston 1989[cited as: Kritzer]

Kromer, Ulrich Der Begriff der Lieferung im Haager einheitlichen Kaufrecht:Entstehungsgeschichte, Bedeutung und Funktion in rechtsvergleichender Sicht,Pfaffenweiler 1987[cited as: Kromer]

Leser, Hans G. Vertragsaufhebung und Rückabwicklung unter dem UN-Kaufrecht,in:Schlechtriem, Peter (ed.): Einheitliches Kaufrecht und nationalesObligationenrecht, Baden-Baden 1987, at 225-256[cited as: Leser in Schlechtriem]

Lew, Julian D.M Applicable Law in International Commercial Arbitration, New York 1978[cited as: Lew]

Lüderitz,Alexander

Übereinkommen der Vereinten Nationen über Verträge über den internationalenWarenkauf, in: Soergel, H.-T. / Siebert, W. (eds.):Bürgerliches Gesetzbuch mitEinführungsgesetz und Nebengesetzen, 12th ed.,Stuttgart 1991, at 2231-2341[cited as: Lüderitz in Soergel/Siebert]

Lüderitz,Alexander

Pflichten der Parteien nach UN-Kaufrecht im Vergleich zu EKG und BGB,in:Schlechtriem, Peter (ed.): Einheitliches Kaufrecht undnationalesObligationenrecht, Baden-Baden 1987, at 179-198[cited as: Lüderitz in Schlechtriem]

Magnus , Ulrich Die allgemeinen Grundsätze im UN-Kaufrecht, in: Rabels Zeitschrift fürausländisches und internationales Privatrecht (RabelsZ) 1995, at 469-494[cited as: Magnus, RabelsZ 1995]

Mann, FrancisA.

State Contracts and International Arbitration, in Brooklyn Journal of InternationalLaw 1967 (42 Brooklyn J.Int’l L.) [cited as: Mann]

Mertens , Hans-Joachim /Rehbinder,Eckard

Internationales Kaufrecht: Kommentar zu den Einheitlichen Kaufgesetzen,Frankfurt am Main 1975[cited as: Mertens/Rehbinder]

Murphey,Arthur G. Jr.

Consequential Damages in Contracts for the International Sale of goods and theLegacy of Hadley, 23 Geo. Wash. J. Int. L. & Econ. 415 (1989), 415-474[ cited as: Murphey]

Neumayer, KarlH.

Offene Fragen zur Anwendung des Abkommens der Vereinten Nationen über deninternationalen Warenkauf, RIW 1994, at 99-109,[cited as Neumayer]

Neumayer, Karl Convention de Vienne sur les contrats de vente internationale de marchandises -

VII

H. /Ming, Catherine

Commentaire, Lausanne 1993[cited as: Neumayer/Ming]

Nicholas, Barry Impractability an Impossibility in the U.N. Convention on Contracts for theInternational Sale of Goods, in: Galston, N.M. / Smit, H. (eds.): InternationalSales: The United Nations Convention on Contracts for the International Sale ofGoods, New York 1984, Chapter 5[cited as: Nicholas in Galston/Smit]

Nöcker, Thomas Mehparteienschiedsverfahren - Quo Vadis?, in: Iusto Iure: Festgabe fuer OttoSandrock zum 65. Geburtstag, Heidelberg 1995, 193-203.[cited as: Nöcker]

Park The Lex Loci Arbitri and International Commercial Arbitration, in TheInternational and Comparative Law Quarterly, 1983 (32 Int’l & Comp. L. Q.)[cited as: Park]

PeralesViscasillas,Maria del Pilar

La formación del contrato en la compraventa international de mercaderías,Valencia Tirant Lo Blanch 1996[ cited as: Perales Viscasillas, Formación del contrato]

Piltz, Burghard Internationales Kaufrecht - Das UN-Kaufrecht (Wiener Übereinkommenvon1980) in praxisorientierter Darstellung, München 1993[cited as: Piltz]

Piltz, Burghard UN-Kaufrecht, in: v. Westphalen, Graf Friedrich (ed.): Handbuch desKaufvertragsrechts in den EG-Staaten einschliesslich Österreich, Schweiz undUN-Kaufrecht, Köln 1992[cited as: Piltz in v.Westphalen]

Prager, Martin Verkäuferhaftung und ausländische gewerbliche Schutzrechte, Diss. Pfaffenweiler1987 [cited as: Prager]

Redfern, Alan /Hunter, Martin

Law and Practice of International Commercial Arbitration, London 1991[cited as: Redfern/Hunter]

Reinhart, Gert UN-Kaufrecht: Kommentar zum Übereinkommen der Vereinigten Nationen vom11. April 1980 über Verträge über den internationalen Warenkauf, Heidelberg1991[cited as: Reinhart]

Reinhart, Gert Zurückbehaltungsrecht und Unsicherheitseinrede nach UN-Kaufrecht imVergleich zu EKG und BGB, in: Schlechtriem, Peter (ed.): EinheitlichesKaufrecht und nationales Obligationenrecht, Baden-Baden 1987[cited as: Reinhart in Schlechtriem]

Rudolph, Helga Kaufrecht der Export- und Importverträge, Kommentierung des UN-Übereinkommens über internationale Warenkaufverträge mit Hinweisen fürdieVertragspraxis, Freiburg, Berlin 1996[cited as: Rudolph]

Russel, Francis /Sutton, DavidSt. John et al.eds.

Russel on Arbitration, 21st ed., London 1997[cited as: Russel]

Schlechtriem,Peter

Commentary on the UN-Convention on the International Sale of Goods(CISG),2nd ed. (in translation), Oxford 1998[cited as: Schlechtriem (1998) – Reviser]

Schlechtriem,Peter

Auslegung und Lückenfüllung im Internationalen Einheitsrecht: Erfüllungsort fürRückabwicklungen in EuGVÜ und EKG, in: Praxis des Internationalen Privat-und Verfahrensrechts (IPrax) 1981, at 113-116[cited as: Schlechtriem, IPrax 1981]

Schlechtriem,Peter /

Internationale Rechtsprechung zu EKG und EAG, Baden-Baden 1987[cited as: Schlechtriem/Magnus]

VIII

Magnus , UlrichSchlechtriem,PeterTR

Kommentar zum Einheitlichen UN-Kaufrecht, 3rd ed., München 1999[cited as: Schlechtriem- Reviser]

Schwenzer,Ingeborg

"The Battle of the Forms" und das EAG, in: Praxis des Internationalen Privat- undVerfahrensrechts (IPrax) 1988, at 212-214[cited as: Schwenzer, IPrax 1988]

Schwerha,Joseph J.

Warranties Against Infringement in the Sales of Goods: A Comparison of U.C.C.§ 2-312 and Article 42 of the U.N. Convention on Contracts for the InternationalSale of Goods, in Michigan Journal of International Law, Winter, 1995 (16 Mich.J. Int’l L.), at 441-483[cited as: Schwerha]

Shinn, Allen M. Liabilities Under Article 42 of the U.N. Convention on the International Sale ofGoods, in Minnesota Journal of Globe Trade, Winter, 1993 (2 Minn. J. GlobalTrade), at 115-142[cited as: Shinn]

Staudinger,Jochen von /Magnus , Ulrich

Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz undNebengesetzen - Wiener UN-Kaufrecht (CISG), 13th ed., Berlin 1994[cited as: Staudinger-Magnus]

Stoffel, WalterA.

Formation du contract, in: Schweizerisches Institut für Rechtsvergleichung(Hrsg.), Lausanner Kolloquium 1984, Zürich Schulthess 1985, at 55-76,[cited as: Stoffel]

Summers ,Robert S. /White, James J.

Uniform Commercial Code § 9-12, Practioner Treatise Series, 4th ed., Minnesota1995[cited as: White & Summers, UCC]

Teklote, Stephan Die einheitlichen Kaufgesetze und das deutsche AGB Gesetz – Probleme bei derVerwendung Allgemeiner Geschäftsbedingungen im CISG und im EKG/EAG,Nomos Recht 1994[cited as: Teklote]

Ulmer, Peter /Brandner, HansErich / Hensen,Horst Dieter

AGB Gesetz, Kommentar zum Gesetz zur Regelung des Rechts der AllgemeinenGeschäftsbedingungen 8th edition, Köln O. Schmidt 1997[cited as: Ulmer/Brandner/Hensen – Reviser]

van den Berg,Albert Jan

Consolidated arbitrations, the 1958 New York Arbitration Convention and theDutch Arbitration Act 1986 - A Replique to Mr Jarvin, in: ArbitrationInternational (Arb. Int.) 1987, at 257[cited as: van den Berg, Arb. Int. 1987]

Van der Velden,Frans J. A.

Uniform International Sales Law and the Battle of forms, in: Unification andComparative Law in Theory and Practice: liber amicorum Jean GeorgesSauveplanne, Deventer Kluwer 1984, at 233-249[cited as: Van der Velden]

Weber, Rolf H. Berner Tage für die juristische Praxis (BTJP) 1990, Wiener Kaufrecht, Bucher(Hrsg.), Bern Stämpfli 1991[cited as: Weber, Vertragsverletzungsfolgen]

Witz, Wolfgang/ Salger, HannsChristian /Lorenz, Manuel

International Einheitliches Kaufrecht, Heidelberg 2000[cited as: Witz/Salger/Lorenz - Reviser]

Wolff, Katharina Die Rechtsmängelhaftung nach dem Uniform Commercial Code und dem UN-Kaufrecht, Diss. Bonn 1990[cited as: Wolff]

Zweigert,Konrad /

Einführung in die Rechtsvergleichung, 3rd ed., Tübingen 1996[cited as: Zweigert/Kötz]

IX

Kötz, Hein

Index of Legal Sources

Agreement on Trade-Related Aspects of Intellectual Property Rights, Annex 1C to the UruguayRound 1986-1994

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 10th ofJune 1958 [abbreviated as: New York Convention]

Convention Relating to the Uniform Law on the International Sale of Goods, DiplomaticConference, The Hague, 2-22 April 1964 [abbreviated as: Convention relating to ULIS]

Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legalaspects of information society services, in particular electronic commerce, in the internal market[abbreviated as: Directive on electronic commerce]

Guide to Enactment on the UNCITRAL Model Law on Electronic Commerce, as adopted by theGeneral Assembly of the United Nations Commission International Trade Law on December 16, 1996,UN-Doc. No. A/51/162 [abbreviated as: Guide to Enactment]

Rules of Arbitration of the International Chamber of Commerce as effective from 1 January 1998[abbreviated as: ICC-Rules]

Madrid Agreement Concerning the International Registration of Trade Marks of 1891, asamended in 1957 in Nice

Paris Convention for the Protection of Industrial Property of 1883, as amended in 1967 atStockholm

Trademark Law Treaty of 1994, Geneva

UNCITRAL Model Law on Electronic Commerce, as adopted by the General Assembly of the UnitedNations Commission International Trade Law on December 16, 1996, UN-Doc. No. A/51/162[abbreviated as: EML]

UNCITRAL Model Law On International Commercial Arbitration as adopted by the UnitedNations Commission on International Trade Law on June 21, 1985, UN-Doc. No. A/40/17 (Annex I)[abbreviated as: Model Law]

UNIDROIT-Principles of International Commercial Contracts, Rome 1994 [abbreviated as:UNIDROIT Principles]

Uniform Law on the International Sale of Goods, Diplomatic Conference, The Hague, 2-22 April1964[abbreviated as: ULIS]

United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980, UN-Doc. No. A/Conf. 9 7/18 (Annex 1) 1980 [abbreviated as: CISG]

Index of Abbreviations

§ section, paragraph§§ sections, paragraphs

X

AAA American Arbitration AssociationAG Amtsgericht (Germany)Ariz. J. Int’l &Comp.L.

Arizona Journal of International and Comparative Law (Periodical, United States ofAmerica)

Arb. Int. Arbitration International (Periodical, England)Art. ArticleArts. ArticlesBGE Entscheidungen des Schweizerischen Bundesgericht (decisions of the Swiss Federal

Court of Justice)BGH Bundesgerichtshof (supreme court, Germany)Bus. Law The Business Lawyer (Periodical, United States of America)B. Y. I. L. Brooklyn Journal of International Law (Periodical, United States of America)BGHZ Entscheidungen des Bundesgerichtshofes in Zivilsachen (decisions of the civil

chamber of the supreme court, Germany)Cf. confer (= compare)CISG United Nations Convention on Contracts for the International Sale of Goods of 11

April1980Diss. Dissertationed. edition, editore.g. Exempli gratia (= for example)EKG Einheitliches Gesetz über den internationalen Kauf beweglicher Sachen (of 17

July1973, see ULIS)et al. et alii (= and others)etc. et cetera (= and so on)et seq. et sequentes (= and following)GCP General Conditions of PurchaseGCS General Conditions of SaleHG Handelsgericht (court of commerce, Switzerland)ICC International Chamber of CommerceI. C: L:Q: International and Comparative Law Quarterlyid. Idem (= the same)i.e. (= that is)infra (= below)Int'l & Comp. L.Q.

International and Comparative Law Quarterly (Periodical, United Kingdom)

IPrax Praxis des Internationalen Privat- und Verfahrensrechts (Periodical, Germany)J.L. & Com. Journal of Law and Commerce, The (Periodical, United States of America)LG Landgericht (trial court, Germany)Minn. J. GlobalTrade

Minnesota Journal of Global Trade (Periodical, United States)

Mich. J. Int’l. L. Michigan Journal of International Law (Periodical, United States)NJW Neue juristische Wochenschrift (Periodical, Germany)no. Note, number etc.No. Numbernos. Notes, numbers etc.note FootnoteOLG Oberlandesgericht (trial court for selected criminal matters and court of appeals,

Germany)O.R. United Nations Official Records (of the United Nations Conference on Contracts for

the International Sale of Goods, Vienna 10 March - 11 April 1980), cited fromHonnold, Documentary History

RabelsZ Rabels Zeitschrift für ausländisches und internationales Privatrecht (Periodical,

XI

Germany)Rev. int. Dr.Comp.

Revue internationale de droit comparé (Periodical, France)

RIW Recht der Internationalen Wirtschaft (Periodical, Germany)S. D. N. Y. United States District Court, Southern District of New Yorksupra (= above)ULIS Uniform Law on the International Sale of Goods (1964)UN United NationsUNIDROIT International Institute for the Unification of Private LawUNILEX Database on the UN Convention on Contracts for the international Sale of GoodsU.S. D. C. United States District Courtv. versus (= against)Yal J. Int’l. L. Yale Journal of International Law

XII

Statement of Facts

For a summary of the facts, compare the chronology of events in the Annex.

Introduction

In response to the Tribunal's Procedural Order No. 1 of 7 October 2000, we respectfully make the followingsubmissions on behalf of our client Sports and More Sports (CL).

• Firstly, we will show that the Arbitral Tribunal has jurisdiction as a result of CL and RE entering into amaterially valid arbitration agreement which meets the formal requirements of the UNCITRAL ModelLaw on International Commercial Arbitration [Issue 1].

• Secondly, we will show that CL was authorized by Art. 49 (1)(a) CISG to avoid the contract with VisWater Sports Co. (RE) partially because RE breached its obligation under Art. 42 CISG. [Issue 2].

• Thirdly, we will show that CL is entitled to restitution of the purchase price in the amount of $368,000and that it does not have to account for any benefits [Issue 3].

• Fourthly, we will show that CL is entitled to damages in the amount of $112,000 as a consequence ofRE’s breach of contract under Art. 45 (1)(b) and Art. 74 CISG [Issue 4].

• Fifthly, we will show that CL is entitled to interest on damages of $112,000 and on the net purchaseprice of $368,000, i.e., on a total amount of $480,000 [Issue 5].

• Finally, we will show that RE has to bear full costs of the arbitral proceedings including counsel’s feesas a result of the outcome of this award [Issue 6].

1

Issue 1: Jurisdiction

A. The Arbitral Tribunal Has Jurisdiction

CLAIMANT1 and RESPONDENT2 entered into a materially valid arbitration agreement [I.] which meets the for-

mal requirements of the UNCITRAL Model Law on International Commercial Arbitration3[II.]. Therefore, the

Arbitral Tribunal has jurisdiction.

I. CL and RE Entered into a Materially Valid Arbitration Agreement

The AML is the lex arbitri in the present arbitration and its provisions are binding for the Arbitral Tribunal [1.].

The arbitration agreement meets the material requirements of the CISG [2.].

1. The AML Is the Lex Arbitri in the Present Arbitration and Its Provisions Are Binding for the Arbitral

Tribunal

The provisions of the AML apply only if the place of arbitration is in the territory of a state which has adopted the

AML. The AML is thus based on the well-established seat theory in international arbitration. 4 The seat theory pro-

vides that the law of the place of arbitration governs the arbitration. 5 In casu, Vindobona/Danubia has been se-

lected as the place of arbitration.6 Danubia has adopted the AML.7 Thus, the AML is applicable according to its

Art. 1 (2).

Art. 1 (1) AML provides that it applies to “international commercial arbitration”.8 Both requirements, i.e., the

international and commercial nature of the arbitration are fulfilled in casu. According to Art. 1 (3)(a) AML, arbi-

tration is considered international if the parties to an arbitration agreement have, at the time of the conclusion of

that agreement, their places of business in different states. The requirement of Art 1 (3)(a) AML is met. CL and

RE had and still have their place of business in Danubia and Equatoriana respectively. According to the second

footnote of Art. 1 (1) AML, relationships of a commercial nature include “any trade transaction for the supply or

exchange of goods”. The commercial nature of the contracts is obvious.

The conclusion is that the present arbitration falls within the scope of the AML. The AML is therefore the lex ar-

bitri9 in the present arbitration and its provisions are binding for the Arbitral Tribunal.

2. The Arbitration Agreement Meets the Material Requirements of the CISG

The law governing the arbitration agreement is the CISG [2.1] and CL’s arbitration clause in its General Condi-

tions of Purchase [hereinafter GCP] became an integral part of both contracts concluded between RE and CL

[2.2].

1 Hereinafter referred to as CL.2 Hereinafter referred to as RE.3 UNCITRAL Model Law on International Commercial Arbitration [hereinafter AML].4 See, e.g., Mann, 42 B.J.I.L. (1967) 1, 4 et seq.; Park, 32 I.C.L.Q. (1983), 21.5 See Redfern/Hunter , no. 2-08.6 See Terms of Reference No. 18.7 See Request for Arbitration No. 23.8 See also Art 1 (1) ICC: “The function of the Court is to provide for the settlement by arbitration of business disputes of an international

character in accordance with the Rules of Arbitration of the International Chamber of Commerce (the “Rules”)”; Calavros, 10.9 For the notion of the lex arbitri and the matters generally governed by it, see Redfern/Hunter, 2-06 et seq.

2

2.1 The Law Governing the Arbitration Agreement Is the CISG

Art. 7 AML addresses the material and formal validity of an arbitration agreement. With regard to the material

side of an arbitration agreement, Art. 7 (1) AML only states that an arbitration agreement is an agreement to sub-

mit disputes to arbitration but the law does not define that process as such.10 As a consequence the AML does not

contain any express rule regarding the valid inclusion of standard terms.11 Art. 7 (2) III AML only states that:

“The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement

provided that … the reference is such as to make that clause part of the contract”.12 However, Artt. 34 (2)(a)(i) and

36 (1)(a)(i) AML contain a conflict rule with respect to the arbitration agreement.13 According to these provisions,

the law governing the arbitration agreement under the AML is the one chosen by the parties.14 In casu the parties

did not choose a law governing the arbitration agreement, both parties are however in agreement that their con-

tracts are governed by the CISG.15 It seems that an arbitration clause, forming part of a contract, should be gov-

erned by the same law as that contract16; in casu the CISG.17 Courts have also held that arbitration agreements are

a matter falling within the scope of the CISG.18

The CISG does not lay down particular requirements for the incorporation of standard business terms into a con-

tract.19 Nevertheless, the questions regarding formation of arbitration agreements are exclusively governed by the

generally applicable contract law.20 Since the rules on formation of contract are governed by Artt. 14-24 CISG,

these regulations apply also for the inclusion of standard terms.21 Holding that the arbitration agreement is gov-

erned by the CISG allows a uniform approach toward the inclusion of standard terms.22 A useful tool to interpret

and supplement the CISG are the UNIDROIT Principles.23 They are a set of Principles whose objective it is to

provide a Uniform Code in matters related to international commercial contracts and which were clearly inspired

by the Vienna Sales Convention. Therefore, the UP are particularly well suited to interpret and supplement the

CISG when the CISG is silent on a specific issue. 24

10 See Broches, 37.11 See Herber/Czerwenka, Art. 4, no. 3.12 For a similar regulation see Art. 178 Swiss PIL Act and Germany’s § 1027 (1) ZPO; The same choices are to be found in the New York

Convention Art. V.1(a)13 See Calavros, 152: “With respect to the validity of the arbitration clause, Art. 34 (2)(a)(i) contains a hidden conflict rule (translation by

the counsels); see also Granzow, 93; see also Redfern/Hunter , no. 3-04 et seq.14 See AML UN-Dok.A/CN.9/WG.II/WP.49, § 37; Redfern/Hunter , no. 3-35; Calavros, 152; Granzow, 93.15 See Request for Arbitration No. 22.16 See Redfern/Hunter , no. 3-36 et seq.; Lew, § 136; Teklote, 76; Holthausen, RIW 1989, 513, 517; Herber/Czerwenka, Vor Art. 14, no.

15; id., Art. 14, no. 11; Drobnig, FS Mann, 591, 615.17 See also Schlechtriem-Ferrari, Art. 4, no. 21; Hartnell, 18 Yale J. Int’l L. (1993), 1, 83 et seq.; See Brand/Fletchner, 12 J.L. & Com.

239, 243; Hellner, Standard Form Contracts, 355 et seq.; Honnold, nos. 235 et seq.; Staudinger/Magnus, Art. 4, no. 25; Teklote, 91; cf.Arbitration Award No. [D.1994-12] Amtsgericht Nordhorn, Germany, 14 June 1994.

18 It has become an established practice of Tribunals, i.e., see Filanto v. Chilewich International Corp., 789 F.Supp. 1229, at 1238(S.D.N.Y. 1992); see also Piltz, 51.

19 See Honsell-Schnyder/Straub, Art. 14, no.55; Schlechtriem-Schlechtriem , Art. 14, no. 16.20 See Witz/Salger/Lorenz-Witz, Vor Artt. 14 –24, no. 10; Herber/Czerwenka, Art. 14, no. 11, Honsell-Schnyder/Straub, Art. 14, no. 55.21 See Piltz, § 3, no. 75; Ulmer/Brandner/Hensen-Ulmer, § 2, no. 16a; Schlechtriem-Schlechtriem , Vor Artt. 14-24, no. 8;

Herber/Czerwenka, Art. 14, no. 11, Holthausen; RIW 1989, 513, 517 et seq.22 See Piltz, § 3, no. 80.23 UNIDROIT Principles of International Commercial Contracts [hereinafter referred to as UNIDROIT Principles or UP].24 This is one of the tasks the drafters of the Principles set forth in its Preamble. With regard to this and other objectives of the

Restatement, see the Preamble of the Principles: “They may be used to interpret or supplement international uniform law instruments.”;Magnus, 59 RabelsZ, (1985), 469, 492; Viscasillas, 13 Ariz. J. Int’l & Comp. L. (19), 380, 385.

3

2.2 CL’s Arbitration Clause in its GCP Became an Integral Part of Both Contracts Concluded Between RE

and CL

CL’s arbitration clause became an integral part of both contracts concluded between the parties; i.e., of the first

contract concluded on 5/6 April 1999 [2.2.1] and of the second contract concluded on 27/28 May 1999 respec-

tively [2.2.2].

2.2.1 First Contract: CL’s Arbitration Clause Became an Integral Part of its Offer of 5 April 1999 which

Was Subsequently Accepted by RE on 6 April 1999

CL’s arbitration clause became an integral part of its offer of 5 April 1999 [(a)] and RE accepted CL’s offer on 6

April 1999 [(b)].

(a) CL’s Arbitration Clause Became an Integral Part of its Offer of 5 April 1999

Whether CL’s arbitration clause became an integral part of its offer has to be decided pursuant to Art. 14 CISG in

combination with the principles laid out in Art. 8 CISG.25 Standard terms become an effective part of the offer if

the offeree26 can reasonably take note of them.27

CL included its standard ICC arbitration clause in its purchase order No. 6839 of 5 April 1999 by explicitly refer-

ring to its GCP, and emphasizing that they were part of its purchase order.28 According to Art. 7 (2) III AML, the

reference has to be such as to make that clause part of the contract. “The Working Group of the AML agreed that

the AML would not preempt other provisions of domestic law but might regulate the material validity of the arbi-

tration agreement itself...”.29 The Working Group made clear that it should not be understood as requiring an ex-

plicit reference to the arbitration clause in the offer.30 CL pointed out in its offer that it included its GCP and RE

could easily take note of them; indeed RE even opened the Attachment containing the GCP.31

RE might argue that clause 14 of the GCP did not form a part of CL’s offer, as a “reasonable person”32 within the

meaning of Art. 8 (2) CISG would not have understood an arbitration clause to be incorporated into CL’s offer

because it constituted an unusual clause. A clause is unusual where its provisions clearly depart from the other

party’s expectations and where in the circumstances that party could not really have expected to be confronted

with such a clause.33 It is common that businessmen submit their contracts to arbitration. That CL included its

arbitration clause in its offer cannot be considered unusual, as it is common in international commercial transac-

tions.34 Therefore, RE cannot argue that CL’s arbitration clause is unusual and CL’s GCP containing its arbitration

clause became an integral part of its offer.

(b) RE’s Accepted CL’s Offer of 5 April 1999 Including the Arbitration Clause

25 See supra, Issue 1, A. I. 2.1.26 Cuiusque sexus.27 See Staudinger/Magnus, Art. 14, no. 41; Schlechtriem-Schlechtriem , Art. 14, no. 16.28 See CL’s Exhibit No. 3.29 Holtzmann/Neuhaus, 259.30 See Doc. A/CN.9/246, § 19; see also Analytical Commentary, 23, § 8; Calavros, 50; Broches, 41; Holtzmann/Neuhaus, 264; JMA

Investments et al. v. C. Rijkaart B.V. et al., unpublished decision of June 1985, U.S.D.C., E.D. Wash; extracts in XI YB 578 (1986).31 See Request for Clarifications, No. 36.32 Cf. Art. 8 (2) CISG.33 See Zweigert/Kötz , 328; Schlechtriem-Schlechtriem , Art 14, no. 16.34 See Ulmer/Brander/Hensen-Brandner, Anh. §. 9-11.

4

RE accepted CL’s Offer including the arbitration clause and its GCS were not incorporated in its acceptance

[(aa)]. If the Tribunal comes to the conclusion that RE’s GCS became an integral part of its acceptance, then the

clauses governing the second contract apply also to the first contract due to their economic unity [(bb)].

(aa) RE Accepted CL’s Offer Including its Arbitration Clause on 5 April 1999

RE accepted CL’s offer containing the arbitration clause set out in clause 14 of the GCP pursuant to Art. 18 CISG

in conjunction with Art. 8 (2) CISG. Art. 18 (1) CISG provides that a statement made by or other conduct of the

offeree indicating assent35 to an offer is an acceptance. 36

A reference to standard terms not included with the acceptance must be so clear that a reasonable person “in the

shoes of recipient” – Art. 8 (2) CISG - would understand the standard terms to be incorporated. Moreover, the ad-

dressee must also be in a position to appreciate the content of those terms and conditions.37 Furthermore, under the

CISG, CL does not have a duty to make inquiries whether RE wants to include its GCS nor to make inquiries

what the content of these GC might be.38 RE did not incorporate its GCS in its acceptance but simply referred to

its homepage where the GCS laid out in clause 23 were accessible.39

CL did not want to conclude a contract via the Internet on the basis of RE’s general terms. Therefore, CL in its

letter of 31 March 1999 explicitly asked RE for attractive terms to determine whether it should consider to con-

clude a contract with RE or not.40 It is quite confusing to CL that RE mentioned its GC in its answer to the request

for special conditions while simultaneously offering special conditions as requested by CL.41 As a consequence,

CL did not know that RE wanted to include its GCS, nor would have a “reasonable person” within the meaning of

Art. 8 (2) CISG known whether RE wanted to incorporate its GCP if it offered special conditions in the same

letter.

Nor did CL have the possibility to take note of RE’s terms as they were not even attached to RE’s e-mail of 28

May 1999. Under the CISG, CL does not have a duty to make inquires what the content of the GCS might be.42 It

was RE’s duty to make certain that all Conditions which it wished to be applicable to the contract were included

in its acceptance. As a consequence, neither CL nor the “reasonable person” of Art. 8 (2) CISG were able to rea-

sonably take note of RE’s terms.43

Furthermore, CL would like to point out that GC only accessible only on a web site can be changed at any time.

Accordingly, and at every whim CL had had certain knowledge that RE wanted to include its GCS, it would have

been unable to obtain definite knowledge of the contents of the GCS. No experienced businessman will bear the

risk of GC that can be changed unilaterally at any time in favour of the other party. In order to ensure the invari-

ability of the GCS, RE should have incorporated its GCS in its acceptance via an attachment. By failing to do so,

RE also failed to effectively incorporate its GC in its acceptance.

35 See Honsell-Schnyder/Straub, Art. 18, no. 20; Perales Viscasillas, Formacíon del contrato, 495; Rudolph, Art. 18, no. 5;

Staudinger/Magnus, Art. 18, no. 7.36 See Schlechtriem-Schlechtriem , Art. 18, no. 4;37 See Schlechtriem-Schlechtriem , Art. 14, no. 16.38 See Teklote, 112 et seq.39 See CL’s Exhibit No. 4.40 See CL’s Exhibit No. 1.41 See CL’s Exhibit No. 2.42 See Teklote, 112 et seq.43 See Staudinger/Magnus, Art. 14, no. 41; Schlechtriem-Schlechtriem , Art. 14, no. 16.

5

Consequently, RE e-mail of 6 April 1999 constitutes an acceptance of CL’s offer of 4 April 1999 including the

arbitration clause which hereby became an integral part of the contract.

(bb) If The Tribunal Comes to the Conclusion that a Battle of Forms Arose, then the Terms Governing the

Second Contract Apply Also to the First Contract due to Their Economic Unity

Should the Tribunal hold that RE’s GCS became an integral part of its e-mail of 5 April 1999, then there was a

conflict between the parties’ declarations and the question arises which terms are to govern the contract.

The CISG does not contain special rules on the battle of the forms; proposals to that effect met with no success.44

A useful tool to interpret and supplement the CISG when the CISG is silent on a specific issue are the UNIDROIT

Principles.45 The UNIDROIT Principles adopt the “knock out rule”. Art. 2.22 UP states that where both parties

use standard terms and reach agreement except on those terms, a contract is concluded on the basis of the agreed

terms and of any standard terms which are common in substance.46 As a consequence, none of the conflicting

clauses became applicable for the first contract.

Should the Tribunal hold that the problem of conflicting standard business terms must be solved using the mecha-

nisms of Art. 19 CISG,47 then the parties within the meaning of Art. 6 CISG impliedly derogated from Art. 19 (1)

CISG.48 Art. 19 (1) CISG states that an acceptance containing modifications is a rejection of the offer and consti-

tutes a counter-offer. Art. 19 (1) CISG is only applicable when the parties are in dispute if a contract was

concluded. In casu, the parties agreed on the essentialia negotii of the contract and both parties started

performance of the contract, thereby showing their intention to be bound by it and by the terms already agreed

upon. The interpretation of the parties’ declarations leads to the conclusion that the parties placed less weight on

their terms of business than on the contract they wished to conclude49 and therefore that they wished to be bound

despite a patent or latent dissent regarding standard business terms and their incorporation. 50 It follows that the

parties impliedly derogated from Art. 19 (1) CISG. This leads to the same result envisaged by the UNIDROIT

Principles, i.e., the knock out rule.

RE might argue that its GCS became applicable to the contract due to the last shot doctrine. This theory cannot be

followed. It is an arbitrary solution because it tends to favour the last person who sends its form. Firstly, the fa-

voured protection is given to the party who sends its form last, ordinarily the seller; and secondly, the vulnerable

position of the buyer; if the seller does not send the goods the contract will not be concluded, while if buyer ac-

cepts the goods, he will have impliedly accepted the terms contained in the seller’s form. Furthermore, the results

of the rule are too mechanistic and formal and it favours the ping-pong effect. Therefore, the last shot doctrine

cannot be applied.

44 See YB VIII (1977), 82, no. 105 (2b); 100, no. 12; Schlechtriem-Schlechtriem , Art. 19, no. 20; Wey, 1328 et seq.; Ender-

lein/Maskow/Strohbach, Art. 19, no. 10; Witz/Salger/Lorenz-Witz, Art. 19, no. 3; on the Secretariat’s proposals and the views of theWorking Group see Sutton, 7 U. W. Ont L. Rev. (1977), 144; Schlechtriem, 43 et seq.

45 See supra, Issue 1, A. I. 2.1.46 See also Art. 2-207 UCC, adopting the “knock out rule”.47 See Holthausen, RIW 1989, 513, 517 et seq.; Schlechtriem-Schlechtriem , Art. 19, no. 20; Gabriel, 49 Bus Law (1994), 1053, 1058 et

seq.; Schlechtriem-Junge, Art. 8, no. 11.48 Arbitration Award No. [UNILEX D.1995-26] Amtsgericht Kehl, Germany, 6 October 1995; see Holthausen, RIW 1989, 513, 518;

Sieg, RIW 1997, 811, 814; Staudinger/Magnus, Art. 19, no. 25; see also Heuzé, 149.49 See Witz/Salger/Lorenz-Witz, Art. 19, no. 16; Stoffel, 75; Schlechtriem-Schlechtriem , Art. 19, no. 20;50 See Schlechtriem-Schlechtriem , Art, 19, no. 20; id., Vor Art. 14-24, nos. 1,2,5.

6

Due to the economic unity of both contracts the clauses governing the second contract also govern the first con-

tract. Both contracts concerned with identical goods. RE and CL treated the two shipments as a single contract or

at least as two closely related contracts51 and RE also offered a special 8% discount rate for the first contract based

on the calculations for the second contract.52 Furthermore, the goods sold under the second contract amounts to a

total list price of $500,000; for the first contract the total list price was $100,000. 53 In the second contract RE sold

five times the amount of goods sold in the first contract. Since both parties treated the two contracts as one, even

though they were separate contracts, and due to the economic importance of the second contract, the terms of the

second also govern the first contract.

2.2.2 Second Contract: CL’s Arbitration Clause Became an Integral Part of its Offer of May 27 1999,

which Was Subsequently Accepted by RE on 28 May 1999

CL’s arbitration clause became an integral part of its offer of 27 May 1999 [(a)] and RE accepted CL’s offer on 6

April 1999 [(b)].

(a) CL’s Arbitration Clause Became an Integral Part of its Offer of 27 May 1999

Whether CL’s arbitration clause became an integral part of its offer has to be decided pursuant to Art. 14 CISG in

combination with the principles laid out in Art. 8 CISG.54 Standard terms become an effective part of the offer if

the offeree can reasonably take note of them.55 A reference to standard terms not included with the offer must be

so clear that a reasonable person “in the shoes of the recipient” – Art. 8 (2) CISG – would understand the standard

terms to be incorporated. Moreover, the addressee must also be in a position to appreciate the content of those

terms and conditions.56

CL sent its offer for the second contract (purchase order No. 6910) for additional goods totalling list price

$500,000 on 27 May 1999. CL drew RE’s attention to the fact that it did not need to attach the GCP since RE had

already received a copy with the first contract.57 A “reasonable” person in the shoes of RE could have easily taken

note of the GCP as they were already in its possession.

As already shown, arbitration clauses are common in international commercial contracts.58 Thus, RE cannot argue

that clause 14 of the GCS did not form a part of CL’s offer as a “reasonable person”59 would not have understood

an arbitration clause to be incorporated into CL’s offer because it constituted an unusual clause.60

Therefore, CL’s GCP containing its arbitration clause became an integral part of its offer.

(b) RE Accepted CL’s Offer Including its Arbitration Clause on 28 May 1999

51 See Answer to the Request for Arbitration, No. 15.52 See CL’s Exhibit No. 6.53 See CL’s Exhibit Nos. 3-6.54 See supra, Issue 1, A. I. 2.1.55 See Staudinger/Magnus, Art. 14, no. 41; Schlechtriem-Schlechtriem , Art. 14, no. 16.56 See Schlechtriem-Schlechtriem , Art. 14, no. 16.57 See CL’s Exhibit No. 5.58 See supra, Issue 1, A. I. 2.2.1. (a).59 Cf. Art. 8 (2) CISG.60 See supra, Issue 1, A. I. 2.2.1.

7

RE accepted CL’s offer containing the arbitration clause set out in clause 14 of the GCP pursuant to Art. 18 CISG

in conjunction with Art. 8 (2) CISG. Art. 18 (1) CISG provides that a statement made by or other conduct of the

offeree indicating assent61 to an offer is an acceptance.62

RE confirmed the receipt of purchase order No. 6910 in its e-mail of acceptance of 28 May 1999.63 RE did not re-

fer to its GCS at all nor contested the incorporation of CL’s GCP.

RE might argue its GCS are an integral part of all its sales contracts concluded due to the preliminary negotiations

established between CL and RE within the meaning of Art. 8 (2) CISG. RE referred to GCS in its first acceptance

of 6 April 1999. 64 Therefore, RE might claim that its GCS were also incorporated in the second acceptance. CL

could not know that RE wanted to incorporate its GCS. A “reasonable person” within the meaning of Art. 8 (2)

CISG would have interpreted RE’s acceptance of CL’s offer as an acceptance of the inclusion of CL’s GCP. CL

incorporated its GCP in both offers.65 RE did not even mention its GCS in its second acceptance.66 Thus, RE

could not assume that CL agreed to RE’s GCS becoming a part of all contracts concluded. It is obvious that an

established practice regarding the inclusion of GC has never existed prior to this contract between CL and RE. RE

and CL only had a single contact prior to this contract. By no means has a mutual practice regarding the inclusion

of GC ever existed prior to this contract taking the preliminary negotiations into consideration. Therefore, RE ‘s

GCS were not incorporated in its acceptance.

Consequently, RE’s e-mail of 28 May 1999 constitutes an acceptance of CL’s offer of 27 May 1999 including the

arbitration clause which hereby became an integral part of the contract.

If the Tribunal comes to the conclusion that RE’s GCS became an integral part of its acceptance for the first

contract,67 then the terms of the second contract also govern the first contract due to their economic unity. 68

Consequently, CL’s arbitration clause applies to both contracts.

II. The Arbitration Agreement Meets the Formal Requirements of the AML

It will be shown that communication by e-mail complies with the "exchange in writing" requirement of Art. 7 (2)

AML in conjunction with Art. 6 EML [1.], and that therefore the formal requirements of the AML are met for the

first contract [2.] as well as for the second contract [3.].

1. Communication by E-Mail Complies With the "Exchange in Writing" requirement of Art. 7 (2) AML in

Conjunction with Art. 6 EML

Art. 7 (2) AML settles the formal validity of an arbitration agreement. In its first sentence, Art. 7 (2) AML re-

quires that the arbitration agreement be in writing. 69 In its second sentence, Art. 7 (2) AML defines in closer terms

what is to be understood by writing. There are two alternatives: Firstly, the arbitration agreement can be contained

in a single document which is signed by both parties. Secondly, the arbitration clause can be contained in an ex-

61 See Honsell-Schnyder/Straub, Art. 18, no. 20; Perales Viscasillas, Formacíon del contrato, 495; Rudolph, Art. 18, no. 5;

Staudinger/Magnus, Art. 18, no. 7.62 See Schlechtriem-Schlechtriem , Art. 18, no. 4;63 See CL’s Exhibit No. 6.64 See CL’s Exhibit No. 4.65 See supra, Issue 1, A. I. 2.2.1 (a), 2.2.2. (a).66 See CL’s Exhibit No. 6.67 See supra, Issue 1, A. I. 2.2.1 (b) (bb).68 See supra, Issue 1, A. I. 2.2.1 (b) (bb).69 See Holtzmann/Neuhaus, 260; Granzow, 87; Husslein-Stich, 39; Calavros, 45; Broches, Art. 7, no. 8; Redfern/Hunter , no. 3-09; Second

Working Group Report, UN-Doc. A/CN.9/232, para. 42.

8

change of letters, telex, telegrams or other means of telecommunications 70 that provide a record of the agreement.

Subsequently, we will only refer to the latter alternative; in the present case, there is no common contract

document since the two contracts were entered into by exchange of e-mails.

In its second sentence, Art. 7 (2) AML states that the requirement of the writing form is also met by the exchange

of other means of telecommunication which provide a record of the agreement. The intention of this passage of

Art. 7 (2) AML is to cover modern and future means of telecommunication. 71 In their Commentary on the AML,

Holtzmann/Neuhaus state that "unifying law has its greatest potential effect [...] at the point where it meets the

everyday transactions of life".72 One of the aims of the AML to make arbitration as a system for resolving

international disputes as easy and attractive as possible. In order to reach this goal, it has to respond to new

modern systems of telecommunication such as e-mail if it seeks to remain attractive for business people.73 The

passage in Art. 7 (2) AML stating that "other means of telecommunication that provide a record of the agreement"

also meet the writing requirement has just this task.74 By its wording the AML leaves an open door for new ways

of telecommunication which were hitherto not well known or not widespread as for example e-mail. 75 To fulfil the

writing requirement of the AML, it is sufficient that the exchange of other means of telecommunication provides a

record of the arbitration agreement. The requirement of a "record" is to ensure that there is some writing involved.

It already suffices that data appears on a computer screen or in its memory disks;76 a written record is provided

even if no paper copy is produced.

The most important device for the interpretation of the writing requirement of Art. 7 (2) AML in the present case

is the E-Commerce Model Law77 which both countries of the parties, Danubia and Equatoriana, have adopted.78

Art. 1 EML determines the sphere of application of the EML. This Article is to be read in conjunction with the

definition of "data message" in Art. 2 EML.79 Therein, data messages are defined as "information generated, sent,

received or stored by electronic, optical or similar means including [...] electronic mail". The EML is cut to size to

any kinds of data messages that might be generated, stored or communicated, and it is particularly well suited to

construe any legal act including a writing requirement and subsequently, to determine if data message also

complies with this requisite. Art. 7 (2) AML must be interpreted in the light of the EML. The Guide to Enactment

of the EML80 expressly cites Art. 7 (2) AML as an example for legal instruments which need to be interpreted

with regard to modern means of telecommunication. 81 The EML relies on a "functional-equivalent" approach

which is based on an analysis of the purposes and functions of the traditional paper-based requirement of writing

70 Art. 7 (2) II AML.71 See Holtzmann/Neuhaus, 263; Granzow, 88; Husslein-Stich, 39; Broches, Art. 7, no. 8; Seventh Secretariat Note, UN-Doc.

A/CN.9/264, para. 7.72 Holtzmann/Neuhaus, 258.73 Cf. Lieschke v. RealNetworks Inc., decision of the U.S.D.C. for the Northern District of Illinois, N.D. I11., 99 C 7274, 2/10/00; Simon v.

RealNetworks Inc., N.D. I11., 99 C 7380, 2/10/00.74 Holtzmann/Neuhaus, 263; Granzow, 88; Husslein-Stich, 39; Broches Art. 7, no. 8; Seventh Secretariat Note, UN-Doc. A/CN.9/264,

para. 7; cf. also Carbomin S.A. v. Ekton Corp., decision of the Cour de justice de Genève of 14 April 1983, La Semaine Judiciaire 37(1984), XII YB 502 (1987).

75 The most recent act regarding this problem is the Directive 2000/31/EC on electronic commerce of the European Parliament andCouncil of 8 June 2000 [hereinafter referred to as: European Directive on Electronic Commerce] published in OJ L 178.

76 See Holtzmann/Neuhaus, 260; Fourth Working Group Report UN-Doc. A/CN.9/245, para. 181.77 UNCITRAL Model Law on Electronic Commerce [hereinafter referred to as EML].78 Problem Clarifications No. 2.79 Guide to Enactment of the Model Law on Electronic-Commerce, no. 24.80 Hereinafter referred to as Guide to Enactment.81 See Guide to Enactment no. 15.

9

with a view to determining how those purposes or functions could be fulfilled through electronic-commerce

techniques.82 When analyzing the function of the writing requirement of Art. 7 (2) AML, it has to be determined

whether the latter is met by e-mail. The function of the requirement of writing form is to establish clearness

whether there is an arbitration agreement. Since an agreement to arbitrate excludes the jurisdiction of national

courts, the existence of the arbitration agreement should be clearly established. 83 Transmission by e-mail is also in

accordance with the function of the writing form under Art. 7 (2) AML firstly because it is recorded in the hard

disk of the addressee's computer and is therefore in a durable storage place,84 secondly because it can be

transported into a paper-based writing form very easily by being printed out, and finally because it develops the

same effect of reminding one that one is taking a serious step by entering into an arbitration agreement as a paper-

based document. There is enough evidence for the existence of an arbitration agreement also when concluded via

electronic means by the exchange of e-mails. Therefore, there is no doubt that the function of Art. 7 (2) AML is

fulfilled by e-mail communication.

When looking at the aim of Art. 7 (2) AML, it becomes plain that Art. 7 (2) AML must be interpreted in the light

of Art. 6 (1) EML. Art. 6 (1) EML states that "where the law requires information to be in writing, that require-

ment is met by a data message". The information in the data message must "be accessible so as to be usable for

subsequent reference", which simply means that it must be readable and interpretable.85 This is doubtless the case

for an e-mail attachment since a simple mouse click is sufficient to view the attachment, to read it and to interpret

it. The addressee must also have the software required to make the data message accessible to him.

Summing up, e-mail communication meets the requirement of "exchange in writing" already with regard to Art. 7

(2) AML by itself. This requirement is met all the more with regard to Art. 7 (2) AML in conjunction with Art. 6

(1) EML.

2. The Formal Requirements of the AML Are Met for the First Contract

In the present case, CL's e-mail of 5 April 1999 including the arbitration clause meets the first part of the "ex-

change in writing" requirement of Art. 7 (2) AML [2.1.] and RE's answer by e-mail of 6 April 1999 meets the

second part of the "exchange in writing" requirement of Art. 7 (2) AML [2.2.].

2.1. CL's E-Mail of 5 April 1999 Including the Arbitration Clause Meets the First Part of the "Exchange in

Writing" Requirement of Art. 7 (2) AML

In its e-mail of 5 April 1999 to RE, CL ordered goods for a total list price of $100,000. Attached to this offer were

CL's general conditions of purchase to which CL expressly referred in its e-mail.86 Clause 14 of the general condi-

tions of purchase provided for the standard ICC arbitration clause.87 As this proposal for arbitration was in writ-

ing,88 the first part of the exchange in writing requirement of Art. 7 (2) AML is obviously fulfilled.

82 See Guide to Enactment no. 16.83 Redfern/Hunter, no. 3-09, Husslein-Stich, 39 et seq. The possibility of healing the formal invalidity of an oral requirement that is given

to the parties by entering into arbitration in spite of the lack of a writing agreement clearly shows that if it is clear for both parties thatthey want arbitration also an oral agreement may lead to arbitration because the function of Art. 7 (2) AML to establish clearnesswhether there is an arbitration agreement or not is fulfilled.

84 This is also expressly stated by the wording of Art. 7 (2) AML.85 See Guide to Enactment no. 50.86 See CL's Exhibit No. 3.87 See Request for Arbitration No. 18.88 See supra, Issue 1: B. II. 1, e-mail attachments fulfil the writing requirement.

10

RE cannot object that the arbitration clause was not formally incorporated into the e-mail. CL expressly refers to

its GCP in the text of the e-mail and the GC were attached to the e-mail. Art. 7 (2) III AML requires the reference

to be such as to ensure that the clause is a part of the contract. The Working Group made clear that it did not mean

that the contract had to make explicit reference to the arbitration clause, the reference to the document being suf-

ficient as such.89

The formal validity of an arbitration clause included in general conditions appearing on the reverse side of a con-

tractual document has been confirmed in several court decisions in connection with Art. II (2) New York Con-

vention,90 to which both, Danubia and Equatoriana are party. Since Art. 7 (2) AML was intentionally modeled by

its Drafters on Art. II (2) NYC,91 an interpretation in accordance with commentaries92 and court decisions 93

construing Art. II (2) NYC is justified. An arbitration clause included in general conditions attached to an e-mail

must be treated in the same way as an arbitration clause included in general conditions appearing on the reverse

side of a contractual document, both situations being very similar. Moreover, in the present case RE's attention

was drawn to these terms in a particularly adequate manner as e-mails with attachments are specially marked in

the inbox and one can see whether an e-mail contains an attachment already before reading it. By a simple mouse

click RE could view the attachment and also become aware of the arbitration clause, as it was advised by the e-

mail software that there was an attachment. Thus, CL’s e-mail of 5 April 1999 meets the first part of the exchange

in writing requirement of Art. 7 (2) III AML.

2.2. RE's E-Mail of 6 April 1999 Meets the Second Part of the "Exchange in Writing" Requirement of Art.

7 (2) AML

In order to complete the exchange requirement of Art. 7 (2) AML, it is essential that CL's e-mail was replied to

with any means of communication which provide a record of the arbitration agreement. The second alternative of

Art. 7 (2) AML does not require a specific reply to the document containing the arbitration clause. Rather any

scrap of written evidence - in a subsequent letter, telex, telegram or other means of telecommunication (e-mail) -

of a reference to arbitration is sufficient.94 In its e-mail of 6 April 1999, RE makes reference to CL's e-mail of 5

April 1999. 95 This is sufficient to fulfil the "exchange in writing" requirement of Art. 7 (2) AML.

RE cannot object that the incorporation by reference of the arbitration clause did not put it on notice that it would

be deemed to have made in its e-mail of 6 April 1999 an indirect stipulation in favour of arbitral jurisdiction. In

89 Seventh Secretariat Note, UN-Doc. A/CN.9/264, para. 8; Fifth Working Group Report, UN-Doc. A/CN.9/246, para. 19;

Holtzmann/Neuhaus, 264; Husslein-Stich, 41 et seq.; Broches, Art. 7, no. 11; Granzow, 91 et seq.; see also JMA Investments et al. v. C.Rijkaart B.V. et al., unpublished decision of 18 June 1985, U.S.D.C., E.D. Wash., extracts in XI YB 578 (1986); Tracomin S.A. v. SudanOil Seeds Co. Decision of the Swiss Federal Supreme Court, in XII YB 511 (1987); Tradax Export S.A. v. Amoco Iram Oil Company,decision of the Swiss Federal Supreme Court .

90 Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 [hereinafter referred to as NYC].91 See Holtzmann/Neuhaus, 260; Broches, Art. 7, no. 6; Husslein-Stich, 39; Kaplan, Arb. Int. 12, No. 1, 36 (1994).92 Secretariat Study on the NYC, UN-Doc. A/CN.9/168, no. 25; cf. also Holtzmann/Neuhaus, 260.93 Corte di Appello di Firenze, decision of 8 October 1977, YCA IV, 289 (1979); see also JMA Investments et al. v. C. Rijkaart B.V. et al.,

unpublished decision of 18 June 1985, U.S.D.C., E.D. Wash., extracts in XI YB 578 (1986); Tracomin S.A. v. Sudan Oil Seeds Co.Decision of the Swiss Federal Supreme Court in XII YB 511 (1987); Tradax Export S.A. v. Amoco Iram Oil Company, decision of theSwiss Federal Supreme Court.

94 See Craig/Park/Paulsson, 77; see also Tracomin S.A. v. Sudan Oil Seeds Co, decision of the Swiss Federal Supreme Court, in XII YB511 (1987); cf. also Corte di Appello di Firenze, decision of 8 October 1977, YCA IV, 289 (1979); JMA Investments et al. v. C.Rijkaart B.V. et al., unpublished decision of 18 June 1985, U.S.D.C., E.D. Wash., extracts in XI YB 578 (1986); Bobbie Brooks Inc. v.Lanificio Walter Banci S.a.S (Italy No. 29); Zambia Steel v. Clark & Eaton, 2 Lloyd's Rep., 225 (1986); Kaplan, Arb. Int. 12, No. 1, 40(1994).

95 CL's Exhibit No. 4.

11

JMA Investments et al. v. C. Rijkaart B.V. et al.,96 the USDC E.D. Wash. stated: "Parties, especially commercial

parties, are generally held to their contracts whether they have read them or not. Were this not the law, there

would be no certainty in contracts." It has already been shown that in the present case a materially valid

arbitration agreement has been reached.97 A denial of jurisdiction for lack of a written agreement would mean that

the material part and the formal part of the agreement would be contradictory. As a consequence, RE’s e-mail of 6

April 1999 meets the second part of the exchange in writing requirement of Art. 7 (2) III AML.

3. The Formal Requirements of the AML Are Met for the Second Contract

CL's e-mail of 27 May 1999 referring to its arbitration clause also meets the first part of the "exchange in writing"

requirement of Art. 7 (2) AML [3.1.] and RE's answer to it by e-mail of 28 May 1999 meets the second part of the

"exchange in writing" requirement of Art. 7 (2) AML [3.2.].

3.1. CL's E-Mail of 27 May 1999 Meets the First Part of the "Exchange in Writing" Requirement of Art. 7

(2) AML

As already shown for the first contract, the arbitration agreement can also be in a separate document that is re-

ferred to in an exchange in writing. 98 CL's e-mail of 27 May 1999 referred to its GCP which became an integral

part of the second contract.99 The GC must have been intended to be incorporated into the contract. Therefore, the

reference to them must be in such a form to incorporate the GC to the contract.100 It is doubtless that the language

adopted by CL when it referred to the GC in its e-mail wanted to incorporate the latter into the contract. Since RE

was already in possession of the GC, CL did not need to attach them also to the second e-mail, a simple reference

to the GC was sufficient in order to make them part of the contract.

Therefore, the e-mail of 27 May 1999 fulfils the "exchange in writing" requirement of Art. 7 (2) AML.

3.2. RE's E-Mail of 28 May 1999 Meets the Second Part of the "Exchange in Writing" Requirement of Art.

7 (2) AML

In analogy to the first contract, it is essential that CL's e-mail was replied to with any means of communication

which provide a record of the arbitration agreement in order to complete the "exchange in writing" requirement of

Art. 7 (2) AML. RE's e-mail of 28 May 1999101 fulfils the requirements of the second part of the "exchange in

writing" requirement of Art. 7 (2) AML.

Issue 2: CL Avoids the Contracts

CL Had the Right to Avoid the Contracts [A.]. CL Restricted its Avoidance to Part of the Contracts. Should This

Partial Maintenance of the Contracts Not Be Possible the Contracts Were Avoided in Their Entirety [B.].

96 JMA Investments et al. v. C. Rijkaart B.V. et al., unpublished decision of 18 June 1985, U.S.D.C., E.D. Wash., extracts in XI YB 578

(1986)97 See supra, Issue 1, A. I.98 Fifth Working Group Report, UN-Doc. A/CN.9/246, para. 19, cf. also Holtzmann/Neuhaus, 264; Husslein-Stich, 42; Broches , Art. 7,

no. 11; Granzow, 87; see also JMA Investments et al. v. C. Rijkaart B.V. et al., unpublished decision of 18 June 1985, U.S.D.C., E.D.Wash., extracts in XI YB 578 (1986); Tracomin S.A. v. Sudan Oil Seeds Co. Decision of the Swiss Federal Supreme Court, in XII YB511 (1987); Tradax Export S.A. v. Amoco Iram Oil Company, decision of the Swiss Federal Supreme Court .

99 CL's Exhibit No. 5.100 Seventh Secretariat Note, UN-Doc. A/CN.9/264, para. 8; Fifth Working Group Report, UN-Doc. A/CN.9/246, para. 19;

Holtzmann/Neuhaus, 264; Granzow, 91 et seq.; Husslein-Stich, 41 et seq.; Broches, Art. 7, no. 11.101 CL's Exhibit No. 6.

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A. CL Had the Right to Avoid the Contracts in Accordance with Art. 49 (1)(a) CISG

According to Art. 49 (1)(a) CISG, the buyer may declare the contract avoided if the failure by the seller to per-

form any of his obligations under the contract amounts to a fundamental breach of contract. RE has violated its

obligation under Art. 42 CISG [I.]. This breach of contract amounts to a fundamental breach under Art. 25 CISG

[II.].

I. The Goods Delivered by RE Were Not in Conformity with the Contracts Under Art. 42 CISG

The goods delivered by RE were not free from any claim of a third party [1.]. RE could not have been unaware of

the claim at the time of conclusion of the contracts [2.]. CL was justifiedly unaware of the claim at the time of

conclusion of the contracts [3.]. CL gave notice to RE specifying the nature of the claim within a reasonable time

in accordance with Art. 43 (1) CISG [4.]. As a precaution CL will show that the requirements of Art. 44 CISG are

met [5.].

1. The Goods Delivered by RE Were not Free from any Claim of a Third Party

According to Art. 42 (1)(a) CISG, the seller breaches the contract if he does not deliver goods free of any right or

claim based on intellectual property under the law of the state where the goods should be resold, if it was contem-

plated by the parties at the time of conclusion of the contract that the goods would be resold in that state.

RE agreed that the goods should be resold in Danubia.102 The law of Danubia also applies as the law of the place

where CL has its business under Art. 42 (1)(b) CISG. The Danubian Law regarding trademarks consists of the in-

ternational conventions regarding trademarks to which Danubia is party103 and which define largely unanimously

the matters falling within the scope of intellectual property as all rights based on intellectual activity in the indus-

trial, scientific, literary or artistic fields as for example rights relating to trademarks.104

According to Art. 42 CISG, it suffices that a third party make a claim against the buyer, which, if it existed, would

be based on an intellectual or other industrial property right of the third party. 105 The claim can be made unright-

fully and frivolously, the actual existence of an intellectual property right is irrelevant.106 Art. 42 CISG protects

the essential expectation of a buyer that he is not purchasing a lawsuit.107 It follows that the buyer’s reliance on

Art. 42 CISG must always be protected whenever a third party utters a serious threat of litigation. The seller’s li-

ability encourages buyers to enter the international market and thus promotes the international sale of goods.

Furthermore, the legal consequence in most civil law systems of that the losing party must pay the winning party's

litigation fees prevents unrightful claims of third parties.108 Therefore, claims can be even made per nefas.109

102 See CL's Exhibit Nos. 1, 2.103 Paris Convention for the Protection of Industrial Property of 1883, as amended in 1967 at Stockholm, TS 61 (1970); Madrid Agreement

Concerning the International Registration of Trade Marks of 1891, as amended in 1957 in Nice; Trademark Law Treaty of 1994,Geneva; Agreement on Trade-Related Aspects of Intellectual Property Rights, Annex 1C to the Uruguay Round 1986-1994; seeClarifications No.4.

104 Paris Convention Art. 1; cf. Prager, 145;. Schlechtriem-Schwenzer, Art. 42, no. 4; Honnold no. 270.105 See e.g. Wolff, 66.106 See Schlechtriem-Schwenzer, Art. 42, no. 6; Staudinger/Magnus, Art. 42, no. 13; Achilles, Art. 42,

no. 2; cf. Bianca/Bonnell-Date-Bah, Art. 41, no. 2.1; Piltz, § 5, no. 104.107 Cf. Honnold, no. 266.108 See Schwerha, 16 Mich. J. Int’l. L. (1995), 441, 458.109 See Huber, RabelsZ 43 (1979), 413, 501.

13

Vis Fish Company is known as a company defending its trademarks aggressively. 110 By letter of 20 September

1999, Mr Kurt Streng, the Managing Director of Vis Fish Company, informed CL of its registered trademark and

demanded that CL cease to advertise and sell any goods under the name of Vis111. Despite CL’s attempts to come

to an amicable agreement with Vis Fish Company, the latter reiterated its position by letter of 15 October 1999

and threatened legal action if CL should not promptly comply with Vis Fish Company’s demand.112 The letter of

Howard & Heward, Advocates at the Court, of 28 October 1999, clearly shows that Vis Fish Company was not

simply uttering empty threats. Howard & Heward informed CL that any litigation with Vis Fish Company would

be complex and disruptive to CL’s business.113 The claim of Vis Fish Company, based on the trademark Vis

registered in Danubia , was thus also considered serious by legal experts in the field of trademarks. Such a claim is

clearly sufficient within the meaning of Art. 42 CISG.

Even if the Tribunal should consider Vis Fish Company’s claim to be frivolous, the requirements of Art. 42 CISG

would still be met as the majority of Commentators do not differentiate between frivolous and other claims.114 The

buyer is as a rule not in the position to determine whether a claim is frivolous or not.115 It is for this reason exactly

that CL made an inquiry with Howard & Heward as to the nature of Vis Fish Company’s claim.116 Considering

that the aim of Art. 42 CISG is to protect the buyer from the threat of litigation,117 the claim of Vis Fish Company

meets the requirements of Art. 42 CISG regardless of whether its claim is considered frivolous or not.

Accordingly, Vis Fish Company’s threat of taking legal actions against CL if it should not cease to sell goods

under the name "Vis"118 constitutes a claim within the requirements of Art.42 CISG.

RE failed to deliver goods free of any potentially assertable claim.

The decisive time when the delivered goods must be free of the third party’s claim is the time of delivery. It is

however sufficient that at that time the basis of the claim existed.119 Vis Fish Company's claim is based on a trade-

mark first registered on 25 September 1972. The last renewal for an additional period of ten years took place in

1992. 120 Therefore, the basis for Vis Fish Company's claim existed at the time of delivery in 1999. To conclude,

RE defied its obligation to deliver goods free from any claim under Art. 42 CISG and therefore breached the con-

tracts.

110 See CL's Exhibit No. 10.111 See CL's Exhibit No. 7.112 See CL’s Exhibit Nos. 8, 9.113 See CL’s Exhibit No. 10.114 See Schlechtriem-Schwenzer, Art. 42, no. 6; Staudinger/Magnus, Art. 42, no. 13; Achilles, Art. 42, no. 2; cf. Bianca/Bonnell-Date-Bah,

Art. 41, no. 2.1; Piltz, § 5, no. 104.115 See Staudinger/Magnus, Art. 43, no. 20; Enderlein/Maskow/Stargardt, Art. 43, no. 2; Reinhart, Art. 42, no. 2; Schlechtriem-Schwenzer ,

Art. 43, no. 3; Soergel/Siebert-Lüderitz, Art. 43, no. 2.116 See Request for Arbitraion No. 8; CL’s Exhibit No. 10.

117 See Honnold, no. 266; cf. Schwerha; 16 Mich. J. Int’l. L. (1995), 441; 442.118 See CL's Exhibit Nos. 7, 9.119 See Staudinger/Magnus, Art. 41, no. 19; Schlechtriem-Schwenzer, Art. 41, no. 15; Schwerha, 16 Mich. J. Int’l. L. (1995), 441, 450; cf.

Honnold, no. 270; Schlechtriem-Schwenzer, Art. 42, no. 8; Staudinger/Magnus, Art. 42, no. 25.120 A registration is valid for ten years and can be renewed for an additional time of ten years. See also Clarifications no. 10.

14

2. RE Could Not Have Been Unaware of the Basis of Vis Fish Company's Claim at the Time of Conclusion

of the Contracts

According to Art. 42 (1) CISG, the seller is liable for claims of which he could not have been unaware at the time

of contracting. Therefore, he is liable for claims foreseeable on the basis of the circumstances at the time of

sale.121 The seller is obligated to inform himself about the trademark situation in the buyer's country;122 he must at

least investigate the registered and published trademarks.123 The seller is especially obligated to investigate the

trademark situation when he is the party that initiated the contract.124

RE could not have been unaware of the basis of Vis Fish Company's claim since "Vis" is a registered and pub-

lished trademark in Danubia.125 The classes in which the trademark is registered126 form the basis to allege a claim

against the selling of sports material under the name of “Vis” by CL. Moreover, RE is the party that initiated the

contracts by informing CL that it was offering goods on a webpage and thus seeking its patronage.127

Should the Tribunal hold that the term "could not have been unaware" does not imply an actual duty to investi-

gate, the seller is nonetheless liable for his unawareness of registered and published trademarks. The liability for

claims based on registered and published trademarks is not founded on the seller's failure of investigate, but on the

objective obviousness of these rights. The registration gives notice to the seller of the trademark’s existence.128

Moreover, RE was under a duty to perform a trademark search because it had long been desiring to enter the mar-

ket of Danubia.129 CL could rightfully trust that RE had investigated the situation regarding trademarks prior to

contracting. By performing such an investigation in Danubia, RE easily would have found the registration of

"Vis". 130

RE offered and is still offering goods on its webpage in the World Wide Web. A remark informing clients and

potential clients that to date its goods are only being sold in eight countries and that the trademark "Vis Water

Sports" is registered only in these countries is lacking. 131 The information for which countries the legal situation

has been examined is normally to be found on webpages.132 By staging an appearance in the World Wide Web

without such a remark, RE impliedly suggested its potential customers that it had clarified the legal situation for

all countries of potential clients. RE thus suggested a certain knowledge and experience which in reality it lacked.

Such an appearance in the world Wide web imposes a responsibility on RE to at least ascertain the trademark

situation in a particular country prior to contracting.

121 See Schlechtriem-Schwenzer , Art. 41, no. 15; Shinn, 2 Minn. J. Global Trade (1993), 115, 127; Schwerha, 16 Mich. J. Int’l. L. (1995),

441, 450.122 See Schlechtriem-Schwenzer, Art. 42, no. 14.123 See Staudinger/Magnus, Art. 42, no. 22; Audit, no.117; Herber/Czerwenka, Art. 42, no. 5; Enderlein/Maskow/Strohbach, Art. 42, no. 4;

cf. Secretariat's Commentary, Art. 40, no. 6: The seller is liable for claims based on "a patent application or grant which has beenpublished in the country in question."

124 Cf. Heuzé, no. 316.125 See Clarifications No. 9.126 See Clarifications No. 7.127 See CLs's Exhibit No. 1.128 See Wolff, 75; cf. Secretariat's Commentary, Art. 40, no. 6.129 See CL's Exhibit No. 2.130 See Clarifications No. 11.131 See Clarifications Nos. 24, 25.132 Amazon.com. e.g. specificly indicates in which countries its trademarks are protected under http://www.amazon.com.

15

The use of the word "Vis" by many companies133 does not exempt RE's duty to investigate the registered trade-

marks. Indeed, the fact that “Vis is a common name in commerce should have been familiar to a company actually

bearing that name and should therefore have sharpened RE’s awareness of the possibility of trademark in-

fringement. Accordingly, RE cannot be considered to have been unaware of the basis of Vis Fish Company's

claim.

3. CL Was Unaware of the Basis of the Claim at the Time of Conclusion of the Contracts

According to Art. 42 (2)(a) CISG, the seller is liable if the buyer was unaware of the third party's claim at the time

of contracting. 134 Following a general principle of the Convention that the seller should be liable for the buyer's

accession of unburdened title 135 the buyer is under no duty to investigate the trademark situation in the country

where the goods are to be resold. 136

CL - being in the buyer’s position - was therefore fully allowed not to have any knowledge of the Vis Fish Com-

pany trademark especially with regard to the fact that it was RE who initiated the contracts.137

Should the Tribunal conclude that RE’s liability is not founded on a failure to investigate but on the objective ob-

viousness of the registered trademark,138 CL nevertheless can rely on Art. 42 CISG. The drafters of the Conven-

tion intended to hold the seller liable for claims based on registered and published trademarks.139 Applying this

principle to the buyer however would result in the exclusion of liability of the seller under Art. 42 CISG and thus

be in complete contradiction to the intentions of the drafters of the CISG.140 Therefore, the standard of seller’s

knowledge of registered trademarks cannot be applied to the buyer.

Even actual knowledge of the existence of a certain company does not imply a duty to investigate the trademark

situation. The buyer is neither obligated to inform himself nor to investigate the registered trademarks if third

party's business relates to a different field of commerce. If the extent to which their respective fields of commerce

differ would not induce a reasonable person in the same situation to investigate possible trademark problems, the

buyer is justifiedly unaware of the third party’s claim. CL had knowledge of Vis Fish Company, however CL sell

sports equipment, while Vis Fish Company sells fish and fish related food products.141 The difference between

CL's and Vis Fish Company's business is pronounced and would not induce a reasonable person to investigate

whether Vis Fish Company has registered trademarks which might be infringed by CL's business. RE argues that

even the knowledge of the registration of “Vis” for all water-related products would by itself not be sufficient to

establish that RE should have known that the Vis Fish Company would assert a claim in regard to athletic equip-

133 See Answer to the Request for Arbitration No. 5.134 See Schwerha, 16 Mich. J. Int’l. L. (1995), 441, 459; Honsell-Magnus, Art. 42, no. 16; Schlechtriem-Schwenzer , Art. 42, no. 18;

Staudinger/Magnus, Art. 42, no. 27.135 See Witz/Salger/Lorenz, Art. 42, no. 8.136 See Staudinger/Magnus, Art. 42, no. 26; Enderlein, 182; Herber/Czerwenka, Art. 42, no. 6; Enderlein/Maskow/Strohbach, Art. 42, no.

9; Piltz, § 5, no.111; no. 16; Prager, 174; Witz/Salger/Lorenz, Art. 42, no. 8; Heilmann, 664; Achilles, Art. 42, no. 11; see also supraIssue 2, A. 1.2.

137 See supra Issue 2, A. I.2.138 See supra Issue 2, A. I.2.139 See Secretariat's Commentary, Art. 40, no. 6.140 Cf. Huber, RabelsZ 43 (1979), 413, 503: The consequence would be that a buyer can only rely on Art. 42 CISG if the seller

fraudulently conceals a right or claim of a third party.141 Clarifications No. 16.

16

ment.142 Even less should CL have known that Vis Fish Company would assert a claim, only because of its knowl-

edge of the existence of the latter. Accordingly, CL was under no duty to perform a trademark search.

Nor does the identity of the word "Vis" in itself imply a duty to investigate.

CL purchased "Vis" sports material. "Vis" in the name of Vis Water Sports is a word borrowed from the Latin

language and means "Power" sports material. Vis Fish Company's "Vis" apparently means "Fish" and is borrowed

from Dutch language. In the language of Danubia "Vis" has no actual meaning. 143 Thus, the identity of the words

implies no additional responsibility for CL. Even the of Vis Water Sports’ slogan "like a fish in water" by CL144

did not indicate possible trademark problems with a fish food company. The slogan "like a fish in water" in asso-

ciation with "Power" sports material should and indeed does evoke associations of freedom and clearly does not

give rise to associations with fish food products. Incidentally, such an association would actually be disruptive for

the fish selling business, because the associations with fish food products should rather be "like a fish in a pan".

Therefore, CL was rightfully unaware of the basis of Vis Fish Company’s claim. 145

4. CL Gave Notice to RE Specifying the Nature of the Claim Within a Reasonable Time

According to Art. 43 (1) CISG, the buyer can rely on the provisions of Art. 42 CISG if he gives notice to the seller

specifying the nature of the claim within a reasonable time after he has become aware of the claim. The buyer

must indicate the identity of the third party and must also inform the seller of the kind of right the claim is based

upon and which goods delivered by seller are encumbered by the third party's claim. 146 Furthermore, information

about the steps already taken by the third party must be given.147

CL's notice included the name of the third party - Vis Fish Company - and informed RE that the claim was based

on a trademark registered in Danubia for all water related products. By informing RE that the claim was made be-

cause the advertising and selling of the goods under the name Vis Water Sports would violate Vis Fish Com-

pany’s trademark, CL also specified the goods encumbered by the claim. CL also notified Vis Water Sports of the

steps threatened by Vis Fish Company, as well as of those already taken.148

The reasonable period for giving notice begins at the point in time when the buyer became aware of the claim. 149

The buyer must not give notice immediately. The reasonable time must be determined in the light of the fact that

the buyer has to assess the third party's claim. Considering the nature of the claim and possible lawsuits, this will

often not be possible for the buyer without legal advice. Therefore, the time it takes to receive legal advice must

also be taken into account when calculating the reasonable period for giving notice.150 A comparison of different

domestic laws shows that under Art. 39 (1) CISG151 a period of one month at least should be considered reason-

able,152 giving due regard to the internatonal character of the CISG. In the USA153 and in France154 it is consue-

142 See Answer to the Request for Arbitration No. 5.143 See Clarifications No. 17.144 See Clarifications No. 22.145 See Clarifications No. 17.146 Cf. Enderlein, 184; Schlechtriem-Schwenzer , Art. 43, no. 3.147 Cf. Schwerha, 16 Mich. J. Int’l. L. (1995), 441, 468; Honnold, no. 256, 271; Enderlein/Maskow/Strohbach, Art. 43, no. 4;

Schlechtriem-Schwenzer , Art. 43, no. 2; Herber/Czerwenka, Art. 43, no. 2; Karollus, 127; Heuzé, no. 313.148 See CL's Exhibit No. 12.149 See Schwerha, 16 Mich. J. Int’l. L. (1995), 441, 457; Schlechtriem-Schwenzer, Art. 43, no. 4; cf. Honnold, no. 257.150 See Enderlein/Maskow/Stargardt, Art. 43, no. 2; cf. Reinhart, Art. 42, no. 2; Schlechtriem-Schwenzer , Art. 43, no. 3;

Staudinger/Magnus, Art. 43, no. 20.151 No judicial precedents exist regarding Art. 43 CISG .152 See Schlechtriem-Schwenzer , Art. 39, no. 17; cf. BGH, Germany [UNILEX E.1995-9].

17

tudo inveterata that a notice after several months and even more is still reasonable. The provision in Art. 39 (1)

CISG is comparable to that of Art. 43 (1) CISG with regard to the requirement of notice.155 However, under Art.

43 (1) CISG, a longer period must still be considered reasonable as the necessary time for taking legal advice has

to be taken into account.

CL became aware of Vis Fish Company's claim on 22 September 1999 by letter of Vis Fish Company. 156 CL gave

notice to RE within a period of 42 days on 3 November 1999. Within this period, CL assessed the claim's serious-

ness by taking legal advice of legal counsel specialized in trademark law.157 Additionally, complying with a duty

under the Convention,158 CL tried to mitigate within this period the loss resulting from the breach of contract. CL

suggested to Vis Fish Company that they jointly promote the name "Vis" and come to an agreement159 which

would have been the best solution for RE and CL. The reasonable time should in casu be calculated giving due

regard to the fact that CL waited 14 days for the response of Vis Fish Company160 and twelve days for the legal

information. 161 On the other hand, CL replied within eight working days to Vis Fish Company, sent the inquiry

about the legal assessment of the claim to Howard & Heward’s within three days and avoided the contracts two

days after receipt of the legal information. Therefore, CL was only actually able to act during 17 of the 42 days

and made the most of its time.

Taking legal advice with regard to the trademark situation would have been RE's obligation prior to contracting.162

This duty would have imposed itself all the more after RE was notified of the possible trademark infringement. If

RE had wanted to maintain the contracts it would have been its duty to cure the nonconformity of the goods by

reaching an agreement with Vis Fish Company. CL tried courteously to perform RE’s duty and ascertained the

trademark situation impartially, as at that point in time CL wanted to maintain the contracts. The circumstances

would have been the same on 3 November 1999 even if CL had given notice to RE immediately on 22 September

1999, as RE would also have had to take the same steps. Indeed, these investigations and negotiations would have

taken more time if RE had carried them out because of the distance between Danubia and Equatoriana.163

Therefore, CL gave notice to RE specifying the nature of the claim within a reasonable time after it became aware

of the claim.

5. As a Precaution, CL Will Show that the Requirements of Art. 44 CISG Are Met

The buyer is excused under Art. 44 CISG if the seller’s damage and disadvantage resulting from the buyers over-

sight is in no relation with the serious consequence of losing all remedies under Art. 45 CISG164 in the light of the

153 Under the UCC cf. White & Summers, UCC, § 11-10, 611 et seq.154 Cf. Ghestin/Desché, no. 737; Audit, no. 107: under Art. 1648 Code Civil even a period of two years and more is considered reasonable.155 See Bianca/Bonnell-Sono, Art. 43, no. 2.1.156 See CL's Exhibit No. 7; cf. Clarifications No. 31: domestic business letters arrives on the second business day.157 See Request for Arbitration No. 8; CL's Exhibit No. 10.158 According to Art. 77 CISG, a party who relies on a breach of contract must take such measures as are reasonable in the circumstances

to mitigate the loss resulting from the breach.159 See CL's Exhibit No. 8.160 See CL's Exhibit Nos. 8 & 9: CL sent its letter on 4 October and received Vis Fish Company's response on 18 October 1999.161 See Clarifications No. 12 and CL's Exhibit No. 10: CL sent its inquiry to Howard & Heward on 21 October and received response on 1

November 1999.162 See supra Issue 2, A. I.2.163 See Clarifications No. 31: If CL had informed RE immediately, it would have been aware of the claim on 25 September 1999. Each

letter to investigate the situation in Danubia would have taken one day more to arrive than CL’s letters.164 Cf. Staudinger/Magnus, Art. 44, no. 10; Karollus, 128; Schlechtriem-Huber, Art. 44, no. 5.

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fact that it is after all the seller who is in breach.165 Additionally, the oversight must deserve a degree of

understanding in the circumstances,166 meaning that the same could easily have happened to a reasonable person

in the buyer’s position. Excusable oversights are for example if notice is given slightly after what was a reason-

able period or if the buyer’s notice did not sufficiently specify the lack of conformity because of minor organisa-

tion problems or missing expertise.167

If the period of 42 days for giving notice is not considered reasonable, the delay must have resulted in such dam-

age and disadvantage for RE for the loss of all remedies to appear as an equitable consequence. A delay resulting

from an oversight might only be seen in the time CL took to reply to Vis Fish Company and was thus at the most

five days.168 It is hardly conceivable that a delay of five days specifically placed RE in a more disadvantageous

position. RE does not claim that it has suffered any particular damage or disadvantage due to the period of time

used by CL for giving notice. The delay was caused by CL’s missing expertise in trademark infringement cases

which is in casu excusable.

The same applies should the specification of the claim not be sufficient. Oversights might be seen in the ommis-

sion of Vis Fish Company’s address or of the trademark’s registration dates. A trademark investigation in Danubia

would easily have led to the registered trademark,169 and a missing address of a certain company is no disadvan-

tage. Again, RE does not claim that any damages or noteworthy disadvantages resulted from any lack of

specification. This minor oversight can also be excused giving due regard to CL's missing expertise in trademark

infringement cases.

Therefore, in case that CL’s notice did not meet the requirements of Art. 43 (1) CISG, CL would be excused un-

der Art. 44 CISG and still entitled to damages.

II. The Breach of Contract Committed by RE is Fundamental Within the Meaning of Art. 25 CISG

The breach of contract committed by RE resulted in such detriment to CL as substantially to deprive it of what it

was entitled to expect under the contracts [1.]. RE did foresee and a reasonable person of the same kind in the

same circumstances would have foreseen such a result [2.].

1. The Breach of Contract Committed by RE Deprived CL of What It Was Entitled to Expect Under the

Contracts

According to Art. 25 CISG, a breach of contract is fundamental if it results in such detriment to the other party as

substantially to deprive it of what it is entitled to expect under the contract – i.e., to use the goods as contractually

agreed.170 The detriment must be the reflection of the benefit because of which the other party entered into the

contract.171 The breach is fundamental if the lack of conformity prevents the buyer from making reasonable use of

the goods.172 CL's motive to conclude the contracts was the profit of the resale of the goods. RE’s failure to

165 See Bianca/Bonell-Date-Bah, Art. 44, no. 2.2.166 See Schlechtriem-Huber, Art. 44, no. 5.167 See Schlechtriem-Schwenzer , Art. 44, no. 6; cf. Staudinger/Magnus, Art. 44, no. 13.168 See supra Issue 2, A. I.4; CL's Exhibits Nos. 7, 8: period of 12 days.169 See Clarifications No. 9.170 See Honnold, no. 183; Herber/Czerwenka, Art. 25, no. 6; Piltz, § 5, no. 157; Schlechtriem-Schlechtriem , Art. 25, no. 2.171 See Bianca/Bonnell-Will, Art. 25, no. 2.2.2.1; Staudinger/Magnus, Art. 25, no. 11; Schlechtriem-Schlechtriem , Art. 25, no. 9.172 Cf. OLG Frankfurt am Main, Germany [UNILEX, E.1994-2]: The breach of contract is not fundamental if the defects do not prevent

the buyer from making reasonable use of the goods; see also BGE, Switzerland [UNILEX, E.1998-18.1].

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deliver goods free of any claim deprived it of this profit, as CL was unable to resell the goods in Danubia as

contractually agreed without the risk of legal actions against it due to Vis Fish Company's claim.173

The delivery of goods burdened with third-party claims based on intellectual property amounts to a fundamental

breach of contract if obtaining discharge of the right through a licence or litigation with the third party would

result in unreasonable inconvenience for the buyer.174 Vis Fish Company refused an agreement to renounce its

claim and is generally known as a company defending its trademarks aggressively. 175 Therefore, it would have

been unreasonable for CL to enter into a long and complex litigation176 since this would have been financially too

risky and disruptive to its business.177 CL had to expect that as an injunctive measure a court would prohibit the

sale of the goods pending final resolution of the claim.178 The delivered goods such as surfboards and windsurf-

boards179 do not decline in value with regard to use and material. However, due to the rapid progress in

technical improvements and the constantly changing dictates of fashion to which this industry is also

subjected, there is such little demand for last year's surfmaterial that retailers can only sell it with a minimum

discount of 30 percent.180 Even if CL had been able to sell the goods during a pending claim, there would still

have been the risk of losing the benefits because of subsequent licence fees for having violated a trademark.181 A

prolonged litigation would damage the image of CL in the market of Danubia. There is no doubt that the

difference between a trademark infringement and forged articles would have been muddled by CL’s clients. CL

would therefore have lost the position of trust it holds with its customers and would have suffered a significant

drop in turnover through litigation. In these circumstances, litigation would have constituted an unreasonable step

and a high financial risk for CL. RE’s offer to pay reasonable legal costs could not change the unacceptability of

litigation for CL. RE did not offer to pay for the possible drop in turnover.182

The breach of contract must also be considered fundamental in light of the fact that the name “Vis” could not be

removed from the goods without damaging them. CL clearly cannot be expected to sell damaged goods to its

customers. Nor could CL be expected to attempt to sell the goods in another country. CL only sells in Danubia

and has no sales experience abroad.183 Additionally, selling the goods abroad despite the fact that CL had

explicitly purchased them for the market in Danubia 184 would have implied a trademark search in the respective

countries which would have taken time and money.

Accordingly, the goods could not reasonably be put to use by CL and the breach of contracts deprived it

substantially of what it was entitled to expect under the contracts.

173 CL's Exhibit Nos. 7, 9.174 See Schlechtriem-Schlechtriem , Art. 25, no. 20; cf. Honnold, no. 266; Bianca/Bonell-Will, Art. 48, no. 2.1.1.1.1; 2.2.3; Wolff, 168; LG

Heidelberg, Germany [UNILEX E.1992-14]; cf. ICC Court of Arbitration –Paris [UNILEX E.1994-31]: The right to cure after the dateof delivery is dependent on the consent of the buyer.

175 Request for Arbitration No.8.176 CL's Exhibit No. 10.177 See supra Issue 2, A. I.1.178 See Clarifications no. 11.179 See Clarifications no. 46.180 Cf. for a representative pricelist under http://www.dobler-ingold.ch. (Marina Surfsport, Switzerland)181 Cf. Schlechtriem-Schwenzer, Art. 42, no. 5; for a similar case, BGHZ 81, 75.182 See Clarification nos. 23, 26.183 See Clarifications No. 57.184 See CL’s Exhibits No. 1.

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2. CL’s detriment was foreseeable for RE

The criterion of foreseeability under Art. 25 CISG requires that the defaulting party did foresee and any reason-

able person in the same circumstances would have foreseen at the time of contracting that the subsequently com-

mitted breach would result in such detriment.185 It is foreseeable for any reasonable seller that a buyer always buys

goods with the expectation of accession of unburdened title. This is the essential expectation in a contract of sale

and is therefore also foreseeable.186 The burden of proving unforeseeability rests with the seller.187 RE knew at the

time of contracting and any reasonable person would have known that for CL as a retailer the benefit of selling the

goods undisturbed within a reasonable time was the essential reason for which the contracts of sale with RE were

entered into. Therefore, the requirements in the light of foreseeability are met.

B. CL Avoided the Contracts in Accordance with Art. 49 (1)(a) CISG

The delivery of goods which are not free from any claim of a third party amounts in casu to a fundamental breach

of contract. Following a maxim of the Convention, the favor contractus,188 CL declared the contracts partially

avoided [I.]. Should the Tribunal hold that this restriction is not possible, then the contracts were avoided in their

entirety [II.]. CL declared the contracts avoided within a reasonable time after it knew of RE's breach in

accordance with Art. 49 (2)(b)(i) CISG [III.].

I. CL Partially Avoided the Contracts

According to Art. 49 (1)(a) CISG, the buyer may declare the contract avoided if the failure by the seller to

perform any of its obligations under the contract amounts to a fundamental breach of contract.189 Even if the

breach is such as to meet the requirements for total avoidance, the buyer is entitled to partial avoidance if the

goods in question are separable items and the buyer has already resold a part of them in the normal course of

business according to Art. 82 (2)(c) CISG.190 The criterion of becoming aware of the goods’ non-conformity

under Art. 82 (2)(c) CISG has to be construed differently than under Art. 43 (1) CISG. Under the former

provision, the period for giving notice begins at the point in time when the buyer became aware of the third

party’s claim. The seller cannot be interested that the buyer immediately withdraw after every contested claim the

goods in question from the stores. Therefore, the point in time when the buyer is considered to have become

aware of the goods’ non-conformity under Art. 82 (2)(c) CISG must be after he has assessed the seriousness and

intensity of the claim. Art. 26 CISG requires that the buyer give notice of avoidance of the contract to the seller.

There are no formal requirements for the declaration191 and the buyer can specify the right or claim and avoid the

contract with the same notice.192 There are no high demands with regard to the notice’s content.193 The buyer has

only to make plain that he will no longer perform the contract because of the seller's breach.194

185 See Bianca/Bonnell-Will, Art. 25, no. 2.2.2; Schlechtriem-Schlechtriem , Art. 25, nos. 14, 15; Staudinger/Magnus, Art. 25, nos. 14, 16.186 See Wolff, 168.187 See Bianca/Bonnell-Will, Art. 25, no. 2.2.1.188 See Bianca/Bonnel-Bonnell, Art. 7, no. 2.3.2.2.189 See Herber/Czerwenka, Art. 49, no. 12.190 Cf. Staudinger/Magnus, Art. 49, no. 27; Schlechtriem-Huber, Art. 49, no. 32; BGH NJW 1982, 2730 et seq. (about the corresponding

position under ULIS).191 See Herber/Czerwenka, Art. 26, no. 3; Enderlein/Maskow/Strohbach, Art. 26, no. 1; Schlechtriem-Leser/Hornung, Art. 26, nos. 8, 9.192 See Schlechtriem-Huber, Art. 49, no. 24.193 Cf. OLG, Frankfurt am Main, Germany [UNILEX, E.1994-10].194 See Schlechtriem-Huber, Art. 49, no. 29; cf. Federal Court, South Australia District Adelaide, Australia [UNILEX E.1995-15.1.1].

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RE committed a fundamental breach of contract.195 The goods were sold in the normal course of business until CL

had assessed Vis Fish Company’s claim by taking legal advice from Howard & Heward. Accordingly, pursuant to

Art. 49 (1)(a) in conjunction with Art. 82 (2)(c) CISG, CL would have been entitled to avoid the contracts in their

entirety. However, in compliance with the principle of favor negotii, CL only partially avoided the contracts with

RE. This follows clearly from the interpretation of CL’s notice of avoidance of 3 November 1999196 based on the

principles laid out in Art. 8 (2) CISG. By applying this principle to the mentioned letter it becomes apparent that a

lucid person in the shoes of RE would have interpreted the passage in which CL makes reference only to the

unsold goods as a partial avoidance. Restricting avoidance to only part of the contract complies with the principle

of favor negotii.197 The fundamental expectation in a contract of sale is that the seller wants to sell the goods and

the buyer wants to use or resell the goods. If part of the contract comes up to the expectations of both parties there

is no necessity to avoid that part also. CL therefore avoided the contracts partially.

II. Alternatively, the Contracts Were Avoided in Their Entirety

According to Art. 49 (1)(a) CISG, the buyer may declare the contract avoided if the failure by the seller to

perform any of his obligations under the contract amounts to a fundamental breach of contract. Additionally, any

goods which the buyer can no longer restitute substantially must have been resold in the normal course of

business in accordance with Art. 82 (2)(c) CISG. It has been shown that RE committed a fundamental breach and

that CL was entitled to avoid the contracts in their entirety. 198 Accordingly, should the Tribunal hold that CL’s

declaration of avoidance of 3 November 1999 must be interpreted as a declaration of total avoidance, then CL

rightfully avoided the contracts with RE in accordance with Artt. 49 (1)(a) and 82 (2)(c) CISG. Reference is made

to supra Issue 2, A. II. and B. I.

III. CL Declared the Contracts Avoided Within a Reasonable Time

According to Art. 49 (2)(b)(i) CISG, the buyer must give notice to seller that it avoids the contract within a rea-

sonable time after the buyer knew of the breach. In cases of intellectual property infringements, the time necessary

for obtaining legal advice assessing the claim must be taken into account when considering the reasonable time.199

If the buyer’s notice to the seller meets the requirements of Art. 43 CISG and the breach is at that point in time al-

ready fundamental, he is entitled to declare the contract avoided with the same notice.200 In such a case the period

for the declaration of avoidance is consequently reasonable.201 It has been shown that CL specified Vis Fish

Company’s claim within a reasonable time202 CL was therefore entitled to avoid the contracts with the same notice

to RE as on 3 November 1999 RE's breach of contract was already fundamental.203 To conclude, CL avoided the

contracts within a reasonable time in accordance with Art. 49 (2)(b)(i) CISG.

195 See supra, Issue 2, A. II.1.196 CL’s Exhibit No. 12.197 Cf. Bianca/Bonnell-Bonnell, Art. 7, no. 2.3.2.2; Honnold, no. 245; Audit, no. 51; v. Caemmerer , FS Coing II, 50 et seq.198 See supra Issue 2, B. I.199 See Schlechtriem-Huber, Art. 49, no. 44; Herber/Czerwenka, Art. 49, 13.200 See supra Issue 2, B. I.; cf. Schlechtriem-Huber, Art. 48, no. 24.201 Cf. Schlechtriem-Huber, Art. 49, no. 45.202 See supra Issue 2, A. I.1.4.203 See supra Issue 2, A. I.2.1.

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Issue 3: CL Does Not Have to Account for Any Benefits

CL does not have to account for any benefits regardless of whether the contracts are considered to have been

partially avoided [A.] or totally avoided [B.].

A. CL Did Not Derive Any Benefits from the Unsold Goods

Since the contracts were validly avoided by CL on 3 November 1999,204 CL is entitled to restitution of the price

paid for the unsold goods, i.e., $368,000, whereupon CL will refund the goods in accordance with Art. 81 (2)

CISG. Art. 81 (2) CISG states that each party is entitled to claim restitution of whatever it supplied or paid under

the contract once the latter has been validly avoided.205 Restitution relates only to the avoided part of the

contract.206 CL is entitled to restitution of the price it paid for the part of the contracts relating to the unsold goods.

The amount that has to be refunded is determined as follows: The total price paid by CL was $552,000.207 From

this amount, $184,000, the price paid for the sold goods has to be deducted. Hence, RE must refund CL

$368,000. 208

Art. 84 (2)(a) CISG provides that the buyer must render to the seller all benefits derived from the goods while

they were in his possession.209 A duty to render such benefits only exists if the buyer has actually derived any

profit from the goods.210 Restitution relates solely to the part of the contract that was avoided and thus only to the

goods that could not be sold. Since CL could not sell them it could not draw any benefits from them. There are no

benefits that CL might render to RE.

B. Even if the Contracts Are Considered to Have Been Totally Avoided, CL Does Not Have to Account for

Any Benefits

Should the Tribunal come to the conclusion that CL avoided the contracts totally, the situation with regard to

restitution is no different than if the contract is partially avoided.211 Although CL had sold one third of the

delivered goods, it was nevertheless entitled to avoid the contracts because it had sold them in the normal course

of business.212

By the wording of Art. 84 (2)(a) CISG, when refunding the goods the buyer must render to the seller also the

benefits derived from them. As shown above,213 CL did not derive any profits from the unsold goods and thus

drew no benefits from them which could be equalized.

Art. 84 (2)(b) CISG applies to that part of the restitution relating to the goods no longer in CL's possession. It

follows from Art. 84 (2)(b) CISG that if the goods are no longer in the buyer's possession, a surrogate takes their

204 See supra, Issue 2; CL's Exhibit No. 12.205 Schlechtriem(2000)-Leser/Hornung, Art. 81, no. 11; Bianca/Bonell-Tallon, Art. 81, no. 2.5; Honsell-Weber, Vor Art. 81, no. 14;

Neumayer/Ming, Art. 81, no. 3; Audit, 182; Weber, Vertragsverletzungsfolgen, 185; Piltz, § 5, no. 286.206 Schlechtriem(2000)-Leser/Hornung, Vor Art. 81, no. 14, no. 4; Bianca/Bonell-Tallon, Art. 81, no. 2.2; Reinhart, Art. 81, no. 4;

Honsell-Weber, Vor Art. 81, no. 15; cf. also Roder Z. v. Rosedown Pk., Fed. Ct., S. Aus., D.Adelaide, 28-04-1995, 57 Fed. Ct. Rep.(1995) 216-240 [UNILEX D. & E. 1995-15.1.1].

207 $600,000 total list price minus $48,000 total discount.208 Request for Arbitration no. 13.209 Schlechtriem(2000)-Leser/Hornung, Art. 84, no. 16; Bianca/Bonell-Tallon, Art. 84, no. 2.2; Reinhart, Art. 84, no. 5; Honsell-Weber,

Art. 84, no. 12; Staudinger/Magnus, Art. 84, no. 14; Honnold, Art. 84, no. 451.3; Piltz, § 5 no. 290; Heuzé, p. 323, no. 428.210 Schlechtriem(2000)-Leser/Hornung, Art. 84, no. 16; Reinhart, Art. 84 no. 5; Enderlein/Maskow/Strohgard, Art. 84 no. 4.1; Honsell-

Weber, Art. 84, no. 13; Staudinger/Magnus, Art. 84, no. 19; Witz/Salger/Lorenz-Salger, Art. 84, no. 3; Neumayer/Ming, Art. 84, no. 3;Karollus, 154; Piltz, § 5 no. 290; Goddard, 270; Krebs, Rückabwicklung, 73; cf. decision of the OLG Oldenburg, 1.2.1995, 11U64/94[UNILEX D. 1995-1-2].

211 See supra, Issue 3, A.212 See supra, Issue 2, II.

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place.214 The aim of Art. 84 (2)(b) CISG is to equalize benefits which flow directly from the substance of the

goods.215 If the goods or a part of them were sold, the surrogate for them must be in a close connection with the

substance of the goods.216 In other words, solely the objective value of the goods must be refunded,217 since only

their objective value is in close correlation with the goods themselves. Anything surpassing their value - thus also

any profit derived from their sale - no longer correlates with the goods themselves but is based on the buyer's

particular efforts in selling them and must therefore remain his alone. The objective value of the goods consists

solely in their price, i.e., $184,000,218 and not in the benefits which CL drew from their sale. Furthermore, one of

the general principles of restitution is to re-establish the status quo ante .219 This also means that none of the

parties can be placed in a better position than if the contract had not been avoided. If CL should have to hand over

the benefits from the sale of the goods, RE would be in a better position than if it had not committed a

fundamental breach of contract. RE is a manufacturer of equipment for water sports.220 Its own profit from the

present sales contracts is obviously already included in the calculation of the price which CL had to pay for the

goods. Since RE does not sell goods directly to consumers,221 it would not have sold the goods to a third party at

the same price at which CL - who is a retail seller222 - resold them. Being the manufacturer of the goods, RE only

has to bear the cost of production and therefore sells at a lower price than a retail seller, whereas CL has to buy the

goods before it resells them. Accordingly, CL has to sell the goods at a higher price than RE. To grant RE the

benefits derived by CL in addition to the profit drawn by RE from selling the goods to CL would lead to an

untenable result. RE would profit from restitution and thus from its fundamental breach of contract instead of

being placed in the status quo ante, a result utterly incompatible with the principles of restitution.

The solution that the buyer is not obligated to account for benefits derived from its own particular efforts in

reseeling the goods is also envisaged by the UNIDROIT Principles. In his commentary on Art. 7.3.6 UP,223 Bonell

states that "[i]f the non-performing party cannot make restitution it must make allowance in money for the value it

has received". 224

It follows from the principle of concurrent restitution as settled in Art. 81 (2) CISG that reciprocal demands can

be set off when both demands are for restitution. 225 The amount claimed by CL in its Request for Arbitration226

shows that under Art. 81 (2) CISG, it sets off the value of the sold goods against its claim for restitution of the

price paid. As a result, RE has to refund $368,000, i.e., $552,000 (the price paid for the totality of the goods)

minus $184,000 (the sold third of the goods).

213 See supra, Issue 2, II.214 Schlechtriem(1998)-Leser/Hornung, Art. 84, no. 23; Honsell-Weber, Art. 84, no. 19; Weber, Vertragsverletzungsfolgen, 189.215 Krebs, Rückabwicklung, 59.216 Krebs, Rückabwicklung, 116; cf. Weber, Vertragsverletzungsfolgen, 189.217 Weber, Vertragsverletzungsfolgen, 189; Krebs, Rückabwicklung, 116; Honsell-Weber, Art. 84,no. 21.218 Request for Arbitration, No. 13.219 Cf. also Honsell-Weber, Art. 84, no. 21.220 Request for Arbitration, No. 2.221 Clarifications No. 41.222 Request for Arbitration, No. 1.223 Art. 7.3.6 (1) UP states: “ On termination of contract either party may claim restitution of whatever it has supplied, provided that suchparty concurrently makes restitution of whatever it has received. If restitution in kind is not possible or appropriate allowance should bemade in money whenever reasonable.”224 Black Letter Rules on the UNIDROIT Principles, 191, emphasis added.225 Schlechtriem(2000)-Leser/Hornung, Art. 81, no. 16; Honsell-Weber, Art. 81, no. 19; Staudinger/Magnus, Art. 81, no. 15; Krebs,Rückabwicklung, 80 et seq.; Neumayer/Ming, Art. 84, no. 3; Herber/Czerwenka, Art. 84, no. 8.

226 Request for Arbitration, No. 13.

24

To conclude, there is nothing which CL might refund to RE after having set off the amount of $184,000, i.e., the

value of the goods, against its claim to restitution, whereas RE is under the duty to refund to CL the amount of $

368,000.

Issue 4: CL Is Entitled to Damages in the Amount of $112,000

RE committed a breach of contract227. As a consequence of that breach, CL is entitled to damages under Art. 45

(1)(b) and Art. 74 CISG [A.]. CL would also be entitled to damages under Art. 44 CISG [B.]. RE is not exempt

from paying damages under Art. 79 CISG [C.] and CL complied with any duty to mitigate loss in accordance with

Art. 77 CISG [D.]. Under Art. 45 (2) CISG CL is not deprived of its right to claim damages by having exercised

its right to avoid the contracts [E.]. To conclude, CL is entitled to Damages in the amount of $112,000 [F.]

A. CL Is Entitled to Damages as a Consequence of RE’s Breach of Contract Under Art. 45 (1)(b) and Art.

74 CISG

CL is entitled to recover damages equalling its foreseeable loss suffered as a result of RE’s breach of contract un-

der Art. 45 (1)(b) and Art 74 CISG. Art. 45 (1)(b) CISG provides that the buyer may claim damages as provided

in Artt. 74 - 77 CISG, if the seller fails to perform any of its obligations under the contract or this Convention.228

Under the CISG, the obligation to pay damages arises directly from any objective breach of contract, regardless of

fault by the party in breach.229 This provision does not even require the breach to be fundamental.230 The right to

claim damages is only limited by the requirement that the party in breach foresaw or ought to have foreseen the

loss occurred.231

Based on both contracts concluded CL incurrred shipping costs, storage and miscellaneous expenses, advertising

and general selling costs. CL is burdened by these costs which all relate to the contracts concluded with RE. Thus,

RE should compensate CL for all these costs.

Therefore, CL is entitled to damages for shipping costs relating to the purchased goods as well as to damages for

storage and miscellaneous expenses incurred after avoidance up to the date of submission of the Request for Ar-

bitration [I.]. Secondly, CL is entitled to have its advertising costs reimbursed [II.]. Thirdly, CL has the right to be

reimbursed for its general selling expenses allocated to the goods sold [III.]. Finally, CL requests additional stor-

age and other expenses incurred from the date of submission of the Request for Arbitration until mutual restitution

has been made [IV.].

I. CL Is Entitled to Damages for Shipping Costs Relating to the Goods Purchased as well as Storage and

Miscellaneous Expenses Incurred after Avoidance for a Total Amount of $37,000

227 See supra, Issue 2, A. I.228 See Schlechtriem-Huber, Art. 45, no. 2; Honsell-Schnyder/Straub, Art. 45, no. 17; Herber/Czerwenka, Art. 45, no. 2;

Enderlein/Maskow/Strohbach, Art. 45, no. 1; Witz/Salger/Lorenz-Salger, Art. 45, no. 7; Kritzer, Art. 45, no. 3;229 See Schlechtriem-Stoll, Art. 74, no. 7; Enderlein/Maskow/Strohbach, Art. 74, no. 1; Honsell-Schönle, Art. 74, no. 8;

Witz/Salger/Lorenz-Witz, Art 74, no. 1; Herber/Czerwenka, Art. 74, nos. 2 et seq.; Reinhardt, Vor Art. 74, no. 1; Kranz, 190.230 See Honnold, 276; Bianca/Bonell-Will, Art. 45, no. 2.1.2; Staudinger/Magnus, Art. 45, no. 10; Heilmann, 553.231 See Schlechtriem-Stoll, Art. 74, nos. 4, 34 et seq.; Witz/Salger/Lorenz-Witz, Art. 74, nos. 27 et seq.; Karollus, 166 et seq.; 140;

Honsell-Schönle, Art. 74, no. 1; Herber/Czerwenka, Art. 74, no. 10; Reinhardt, Art. 74, no. 2; Audit, 163; Kranz, 210 et seq.; Huber,RabelsZ 43 (1979), 413, 469; Magnus, RabelsZ 45 (1981), 144, 155; the principle of foreseeability was first developed for the commonlaw in Hadley v. Baxendale (1854) 9 Ex. 341, 156 Eng. Rep. 145); Atiyah, 417, 418; Murphey, 23 Geo. Wash. J. Int. L. & Econ. (1989),415; for the similar solution under the UCC, see Farnsworth, 873 et seq.

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CL concluded two contracts with RE.232 The shipping costs totalled $7,000 for the first contract and $26,000 for

the second contract respectively.233 Thus, CL spent a total of $33,000 for the goods to be shipped; furthermore, it

spent $4,000 to store the goods from the date of avoidance (3 November 1999) until the date of submission of the

Request for Arbitration (6 June 2000).234 It was foreseeable for RE that by delivering goods that were non-

conforming under Art. 42 CISG, the shipping costs incurred by CL would have been incurred for nothing.235 It

was also foreseeable for RE that CL would have to store the non-conforming goods until it received instructions

as to what it should do with them. 236 Therefore, CL suffered a loss within the meaning of Art. 74 CISG due to the

non-conformity of the goods sold by RE. RE does not contest the calculation of the shipping and storage costs. 237

Consequently, CL is entitled to have its expenses for shipping and storage reimbursed for a total amount of

$37,000.

II. CL Is Entitled to Have its Advertising Costs Reimbursed for a Total Amount of $35,000.

CL had to start an extensive advertising campaign in order to promote the goods sold to it by RE. CL advertised in

all the major newspapers in Danubia and featured RE’s water sports equipment using the slogan “like a fish in

water”.238 Although RE does not contest the claim for advertising costs in its Answer to the Request for Arbitra-

tion, RE might claim that the advertising of the Vis Water Sports equipment was in general newspaper advertise-

ments for CL’s stores and did not result in expenses that would not otherwise have been incurred.239

CL advertised all of the Vis water sports equipment but could sell only a third of all the goods advertised for.240

Had CL been aware of the non-conformity of the goods, CL could have advertised other products in their stead,

with the possibility to sell them all. CL incurred a financial loss by advertising goods that could not be sold and

being thus unable to advertise different products that would sell in the meantime. Therefore, CL suffered a loss

within the meaning of Art. 74 CISG due to the non-conformity of the goods sold by RE. As required by Art. 74

CISG, it was foreseeable for RE that CL would advertise for the water sports equipment and that by delivering

non-conforming goods, CL’s advertising campaign would become futile.

Therefore, CL is entitled to be compensated for its advertising costs under Art. 45 (1)(b) and Art. 74 CISG.

III. CL Is Entitled to Reimbursement of its General Selling Costs Allocated to the Goods Sold for a Total

Amount of $40,000

CL also incurred further costs for a total amount of $40,000 with regard to the goods delivered by RE. These costs

constitute damages within the meaning of Art. 45 (1)(b) and Art. 74 CISG for which RE is liable. RE states that

since CL refers to these costs as “allocated” costs, CL appears to be applying to these contracts the average of its

general selling and administrative costs. CL would only have a right to claim damages with regard to additional

costs incurred by it because of the goods purchased from RE, not an allocated share of costs that would be in-

232 See CL’s Exhibit Nos. 2 – 6; see also supra, Issue 1, A. I. 2.2.233 See CL’s Exhibit Nos. 4, 6.234 See Request for Arbitration No. 13.235 See supra, Issue 2, I. 1.1, 1.2.236 See CL’s Exhibit No. 12.237 See Terms of Reference No. 14.238 See Request for Arbitration No. 6; see also CL’s Exhibit No. 7.239 See Request for Clarifications No. 49.240 See Request for Arbitration No. 13.

26

cluded in its general overhead.241 RE states that allocation of average costs would lead to the reimbursement of ex-

penditures that were not caused by the contracts with RE or their avoidance.242

CL, however, would like to emphasize that general selling and administrative costs are frustrated expenditures for

which RE is liable. General selling and administrative expenses include costs such as wages of the employees,

rent, electricity, costs for accounting, etc. These expenses are allocated to the goods sold. Consequently, CL is not

claiming an allocated share of costs that would be included in its general overhead, but costs that are additional

costs resulting from the contracts concluded with RE.

The chosen method of calculating its general expenses is common for companies of the size of CL. The sum of

$40,000 general selling and administrative expenses were calculated by dividing the total amount of costs by the

total sales and applying that percentage to the amount of RE’s goods sold. 243 CL would like to point out that the

calculation of the amount of $40,000 has been set at a low level. The first contract was concluded in April 1999244

and CL declared avoidance in November 1999245, therefore the amount claimed is based on a period of approxi-

mately seven months. The amount claimed for a single month is approximately $6,000. This is clearly a very rea-

sonable amount taking into consideration that the list price of the goods sold is $200,000. 246 In conclusion RE can-

not claim that the costs claimed are exorbitant in comparison with the contract price. RE might state that the sum

requested for the general selling and administrative costs does not equal the costs incurred by the contracts. CL on

the other hand would like to point out that within the meaning of Art. 74 CISG second sentence it is not deprived

to claim for an amount approximately equal to the loss incurred,247 and that the Tribunal has to decide on this

matter.248

Therefore, CL is entitled to have its general selling and administrative costs reimbursed in the amount of $40,000.

IV. CL Is also Entitled to Reimbursement of its Additional Storage and Other Expenses Incurred from the

Date of Submission of the Request for Arbitration Until Mutual Restitution Has Been Made

CL would like to point out that the unsold goods are still being stored at present.249 The storage costs mentioned

above250 were only calculated from the time when avoidance of the contracts was declared until the date of

submission of the Request for Arbitration. 251 CL was and still is storing the goods in its warehouses for RE’s

account and yet awaits RE’s instructions as to what it should do with the goods.252 The storage expenses for a

month amount to approximately $500.253

As a result, CL is also entitled to additional storage costs that will accrue until mutual restitution has been made.

B. CL Would also Be Entitled to Damages Under Art. 44 CISG

241 See Answer to the Request for Arbitration No. 9.242 See Terms of Reference No. 14.243 See Clarifications No. 49.244 See CL’s Exhibit Nos. 2 - 4.245 See CL’s Exhibit No. 12.246 See Terms of Reference No. 13.247 See Kranz, 213; Bianca/Bonell-Knapp, Art. 74, no. 2.9.248 See Enderlein/Maskow/Stargardt, Art. 74, no. 2, Schlechtriem, 90; the Tribunals have to decide on the appropriate method of

calculating the loss.249 See Request for Arbitration No. 12.250 See supra, Issue 4, A. I.251 See Terms of Reference No. 13.252 See CL’s Exhibit No. 12.

27

CL as a precautionary measure has already shown that the requirements of Art. 44 CISG would be met.254 This

provision stating that “not withstanding the provisions of…paragraph (1) of Article 43, the buyer may…claim

damages…if he has a reasonable excuse for his failure to give the requires notice”, leaves CL the right for dam-

ages.

C. RE Is not Exempt from Paying Damages Under Art. 79 CISG

RE does not qualify under Art. 79 (1) CISG for exemption from paying damages as a result of delivering goods

which are not free from any claim of a third party. RE does not contend in its Answer to the Request for Arbitra-

tion that the failure to deliver goods free from any third-party claim was due to an impediment beyond its control,

nor that it could not reasonably be expected to have taken any alleged impediment into account at the time of the

conclusion of the contracts or to have avoided or overcome it or its consequences.

Therefore, CL sees no necessity to go into this question and requests the Tribunal to conclude that RE is not ex-

empt from paying damages under Art 79 CISG.

D. CL Acted in Accordance with any Duty to Mitigate the Loss in Accordance with Art. 77 CISG

CL acted in accordance with the duty to mitigate the loss in accordance with Art. 77 CISG. RE has not made any

claim for reduction in the amount of damages based on the argument that CL has violated such duty. A duty to

mitigate the loss arose at the earliest when CL avoided the contracts. All costs arose before CL avoided the

contracts except for storage and miscellaneous expenses. CL stored the goods in its own warehouses255 in order to

keep the costs as low as possible. Furthermore, CL would like to point out that it could not sell the goods in a dif-

ferent country. CL only sells goods in Danubia and has no sales experience in other countries. CL cannot be ex-

pected to venture forth into markets unknown to it and of which it has no experience. It would have been hard to

find a buyer as it has no experience in selling either at wholesale or for export.256

Therefore, CL has not violated its duty to mitigate the loss.

E. Under Art. 45 (2) CISG CL Is not Deprived of its Right to Claim Damages by Having Exercised its Right

to Avoid the Contracts

Under Art. 45 (2) CISG CL is not deprived of its right to claim damages by having exercised its right to avoid the

contracts. Under this provision, CL is entitled to combine the claim for damages with any other claim257 possible

under the CISG. In casu, CL as a consequence of RE’s breach of contract avoided the contracts and claims dam-

ages for the loss suffered.

F. Legal Consequences

RE did not fulfil its obligations under the contracts and is therefore liable for damages under Art. 45 (1)(b) CISG

and Art. 74 CISG. RE is not exempt from paying damages under Art. 79 CISG. Furthermore, CL acted in accor-

dance with its duty to mitigate the loss and is not deprived of its right to claim damages by having exercised its

right to avoid the contracts.

253 The storage costs and miscellaneous expenses amount to $4,000 for a period of time of 7 months, therefore the storage costs for a single

month amount to approximately $500.254 See supra, Issue 2, A. I. 5.255 See Request for Arbitration No. 13.256 See Clarifications No. 57.257 See Artt. 46-52 CISG.

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Therefore, CL is entitled to damages for the sum of $112,000 as well as additional storage costs that will accrue

from the date of submission of its Request for Arbitration until mutual restitution has been made.

Issue 5: CL Is Entitled to Interest on the Sum of $480,000

CL is entitled to interest on damages of $112,000 [A.] and on the net purchase price of $368,000 [B.] at an interest

rate of 7%, subsidiarily 6.7% [C.]

A. CL Is Entitled to Interest on Damages of $112,000 Pursuant to Art. 78 CISG

Art. 78 CISG grants interests on any sum in arrears, including due damages.258 The only requirement is that the

payment is due.259 Damages become due whether they constitute a liquidated sum or not.260 The CISG contains no

express rule regarding the time when damages are due. In the absence of any other indication, it must be assumed

that they are to be paid immediately when the claim arises.261 This solution is also in accordance with the

UNIDROIT Principles.262 Art. 7.4.10 UP determines the time from which interest on damages accrue in case of

non-performance of obligations other than monetary obligations. The present article sets up as the starting point

for the accrual of interest the date of the occurrence of the harm. This solution is considered to be particularly well

suited to international trade where it is not the practice for businesspersons to leave their money idle. In effect, the

aggrieved party’s assets are diminished as from the occurrence of the harm whereas the non-performing party, for

as long as the damages are not paid, continues to enjoy the benefit of the interest on the sum which it will have to

pay.263

CL requests interest on damages up to the date that RE pays damages.264 Therefore, RE owes interest on a total

sum of $112,000 until the date this sum is paid to CL by RE.

B. CL Is Entitled to Interest on the Net Purchase Price of $368,000 Pursuant to Art. 84 (1) CISG

According to Art. 84 CISG, the seller who is bound to refund the price paid by the buyer must also pay interest.

The only requirement is that the buyer avoided the contract.265 CL avoided the contracts on 3 November 1999, the

same day that CL withdrew the Vis water sports equipment from sale.266 The contracts concluded between CL and

RE do not mention when the price was due.267 Pursuant to Art. 84 CISG, RE must pay interest from the date of

payment.268 The opening bank paid the bills of exchange drawn under the letters of credit and the account of CL

was charged on 10 May 1999 and 25 June 1999 respectively.269 Therefore, RE is entitled to interest on the price of

258 See Schlechtriem-Bacher, Art. 78, no. 5; Bianca/Bonell-Nicholas, Art. 78, no. 3.1; Herber/Czerwenka, Art. 78, no. 2; Karollus, 227;

Honsell-Magnus, Art. 78, no. 5; Witz/Salger/Lorenz-Witz, Art. 78, no. 3; Enderlein/Maskow/Strohbach, Art. 78, no. 4.2; Schlechtriem ,no. 319.

259 See Schlechtriem-Bacher, Art. 78, no. 7; Bianca/Bonell-Nicholas, Art. 78, no. 3.1; Enderlein/Maskow/Strohbach, Art. 84, no. 4.1;Honnold, no. 422; Witz/Salger/Lorenz-Witz, Art. 78, no. 3.

260 See Schlechtriem-Bacher, Art. 78, nos. 7 et seq.; Herber/Czerwenka, Art. 78, no. 3; Witz/Salger/Lorenz-Witz, Art. 78, no. 5.261 See Schlechtriem-Bacher, Art. 78, no. 9; Herber/Czerwenka, Art. 78, no. 3; Staudinger/Magnus, Art. 78, no. 10; Honsell-Magnus, Art.

78, nos. 8, 9.262 On the relevance of the UNIDROIT Principles for interpreting the CISG, see supra, Issue 1, A. I. 2.1.263 See Commentary on the UNIDROIT Principles, 210.264 See Terms of Reference No. 15.265 See Schlechtriem-Leser/Hornung, Art. 84, no. 6; Enderlein/Maskow/Strohbach, Vorbem. zu Art. 81, no. 6; id. Art. 84, no. 1; Honnold,

451.1; Schlechtriem, 100 et seq.266 See CL’s Exhibit Nos. 12, 13.267 See CL’s Exhibit Nos. 2 - 6.268 See Staudinger/Magnus, Art. 84, no. 8; Piltz, § 5, no. 288; Enderlein/Maskow/Strohbach, Art. 84, no. 2.269 See Clarifications No. 48.

29

$46,000270 for the period from May 10 1999 to the date of payment, and from June 25 to the date of payment on

the price of $322,000271 respectively. 272

C. The Interest Rate Has to Be Determined in Conformity with the General Principles on which the CISG

Is Based in Accordance with Art. 7 (2) CISG

Specific formulas for calculating interest were rejected at the Vienna Sales Convention.273 Therefore, the interest

rate has to be determined in accordance with the general principles underlying the CISG (Art. 7 (2) CISG) in or-

der to reach an international, uniform rule.274 The fact that the interest rate was not expressly provided for at the

Vienna Conference does not preclude a uniform approach to the problem.275

The applicable interest rate has to be fixed in accordance with the short term commercial lending rate in Equatori-

ana [I.]; if the Tribunal does not agree, the interest rate must be fixed in accordance with an international rate of

interest [II.].

I. The Applicable Interest Rate Must Be Fixed in Accordance with the Short Term Commercial Lending

Rate in Equatoriana, i.e., at 7%

One of the general principles of the CISG is the principleof compensation for unjust enrichment.276 The purpose

of Art. 78 CISG is to return to a party benefits unjustifiably received by the other party; the interest rate should

therefore be determined in accordance with the usual rate at the debtor’s place of business.277 RE is able as a result

of the non-payment to continue receiving interest on the sum which has not yet been refunded. Thus, the interest

rate has to be fixed in accordance with the rate RE would have had to pay if it had made a loan from a local bank.

The short term commercial rate at RE’s place of business in Equatoriana is 7%.278 The application of the short

term commercial rate at RE’s place of business is also in accordance with Art. 7.4.9. (2) UP. Art. 7.4.9. (2) UP

states that “[t]he rate of interest shall be the average bank short-term lending rate to prime borrowers prevailing

for the currency of payment at the place of payment.” The CISG does not contain an express rule with regard to

the place of restitution of the price paid for goods and to the place of payment for damages respectively. 279 This

gap has to be filled using the general principles referred to by Art. 7 (2) CISG.280 Art. 58 (1) II CISG reflects the

Convention’s basic principle that the buyer and seller must perform their obligations concurrently.281 It follows

from Art. 57 (1)(b) CISG that the place of payment of the net purchase price has to be the place of the handing

over of the goods and for damages the place where the obligation should have been performed.282 Thus, the place

270 The value of the goods for the first contract was $100,000, $50,000 were sold = $50,000 minus 8% discount = $46,000.271 The value of the goods for the second contract was $500,000, $150,000 were sold = $350,000 minus 8% discount = $322,000.272 See Terms of Reference No. 15.273 See Honnold, 421; Bianca/Bonell-Nicholas, Art. 78, no. 1.3; Witz/Salger/Lorenz-Witz, Art. 78, no. 1; Reinhardt, IPrax 1991, 376, 377et seq.; Schlechtriem , JZ 1988, 1037, 1047; Herber/Czerwenka, Art. 78, no. 6; Schlechtriem-Bacher, Art. 78, nos. 2, 26.274 See Honnold, 420; Schlechtriem-Bacher, Art. 78, no. 27; Witz/Salger/Lorenz-Witz, Art. 78, no. 6; Neumayer/Ming, Art. 78, no. 2;Neumayer, RIW 1994, 99, 106; Heuzé, no. 449, Audit, 171; Reinhardt, IPrax 1991, 376, 377 et seq.; Schlechtriem-Leser, Art. 84, no. 13;Arbitration court practice also often refrains from applying conflict rules when determining the interest rate, cf. ICC Award No. 6653/1993,J D I 1993, 1040, 1046.275 Schlechtriem-Bacher, Art. 78, no. 28.276 See Schlechtriem-Bacher, Art. 78, no. 28; Witz/Salger/Lorenz-Witz, Art. 78, no. 5; cf. Honsell-Weber , Art. 78, no. 8.277 See Schlechtriem-Bacher, Art. 78, no. 29; Neumayer/Ming, Art. 78, no. 2; Neumayer, RIW 1994, 99, 106; Heuzé, no. 449.278 See Clarifications No. 54.279 See Schlechtriem-Hager, Art. 57, no. 25.280 Cf. OLG Düsseldorf, RIW 1993, 845.281 Cf. with regard to ULIS Rabel, Recht des Warenkaufs, vol 1, § 19, 128 et seq.; cf. Dölle-Huber, Art. 71 EKG, § 6 et seq.282 In accordance with this principle EuGH and BGH: see Staudinger/Magnus, Art. 57, no. 22.

30

of payment for the restitution of the net purchase price and for the payment of damages respectively is RE’s place

of business..

Consequently, RE has to pay interest at a rate of 7% for the amount of $112,000 for the period from the date of

payment for the goods until RE pays damages.

II. Subsidiarily, the Interest Rate Must Be Fixed in Accordance with an International Rate of Interest such

as LIBOR, i.e., at 6.7%.

If the Tribunal does not acknowledge CL’s calculation of the interest rate at 7%,283 the rate must be fixed in accor-

dance with an international uniform rate of interest, such as the LIBOR rate.284 It is not local circumstances that

should be considered the relevant criterion for a uniform approach, but the currency in which the sum has to be

paid. 285 Thus, CL is entitled to the relevant inflation rate for that currency.286 Therefore, CL is entitled to ask for

the LIBOR rate, which is also currency-related. The LIBOR rate is currently at 6.7%.287 CL points out that the LI-

BOR rate best fits the approach for unification of the interest rate,288 and that its application has already become

an established practice in certain business branches for sums in the currency of US Dollars.289

Issue 6: Costs of Arbitration

Art. 31 (3) ICC-Rules provides that “the final Award shall fix the costs of the arbitration and decide which of the

parties shall bear them...” According to Art. 31 (1) ICC-Rules, the costs of the arbitration include the arbitrators’

fees, the administrative costs and the reasonable legal and other costs incurred by the parties. CL respectfully

requests the Arbitral Tribunal to order RE to pay to CL all costs and expenses in these arbitration proceedings

including all attorneys’ fees on a full indemnity basis.

Conclusion

In response to the Tribunal's Procedural Order No. 1 of 7 October 2000, we have respectfully made the abovesubmissions on behalf of our client Sports and More Sports, Inc. May it accordingly please the honourableTribunal:

• firstly, to declare that CL and RE entered into a materially valid arbitration agreement, which meets theformal requirements of the Model Law

• secondly, to declare that CL had the right to avoid the contract partially on 3 November 1999

• thirdly, to declare that CL is entitled to restitution of the purchase price in the amount of $368,000 andthat it has not to account for any benefits

• fourthly, to declare that CL is entitled to damages for a total amount of $112,000

• fifthly, to declare that CL is entitled to interest on damages of $112,000 and on the net purchase price of$368,000 for a total amount of $480,000

• and finally, that RE has to bear full costs of the arbitral proceedings including the counsels’fees.

283 See supra, Issue 5, C. I.284 Cf. Audit, 171; ICC Award No. 6653/1993, J D I 1993, 1040, 1046, [UNILEX D. 1993-1].285 See Schlechtriem-Bacher, Art. 78, no. 30; Enderlein/Maskow/Strohbach, Art. 78, no. 2.2; arbitration award No [UNILEX D.1995-29]

of the Hungarian Chamber of Commerce and Industry, 5 December 1995; in connection with private international law see Basedow,contribution to discussions in Schlechtriem, 288 et seq.

286 Schlechtriem-Bacher, Art. 78, no. 30.287 See Request for Clarifications No. 54.288 See Bianca/Bonell-Nicholas, Art. 78, no. 1; Schlechtriem-Bacher, Art. 78, no. 2; Honnold, no. 420; Reinhardt, IPRax 1991,376, 377 et

seq.; Enderlein/Maskow/Strohbach, Art. 78, no. 1; cf. Audit, 171.289 See Witz/Salger/Lorenz-Witz, Art. 78. no. 9; cf. Piltz, NJW 1994, 1101, 1105.

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Basel, 1 December 2000

Monica ArmestoUniversity of Basel

Tobias RufUniversity Basel

Stefan SimonUniversity of Basel

Counsel for Sports and More Sports, Inc.

Annex

Chronology of Events:

31 March 1999 CLAIMANT receives via mail an announcement from RESPONDENT that it hasopened a new web site on the Internet. CLAIMANT’s purchasing managerconsulted RESPONDENT's web site the same day and decides to place a significantorder with RESPONDENT.E-mail negotiations are initiated the same day by CLAIMANT. (see Claimant'sExhibit No. 1)

2 April 1999 RESPONDENT answers via e-mail to CLAIMANT. (see Claimant's Exhibit No. 2)

5 April 1999 CLAIMANT sends via e-mail its order for goods in the amount of a total list priceof $100,000 to RESPONDENT. (see Claimant's Exhibit No. 3)

6 April 1999 RESPONDENT accepts CLAIMANT's offer. (see Claimant's Exhibit No. 4)

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19 May 1999 CLAIMANT receives the goods from RESPONDENT.A significant advertising campaign throughout Danubia is undertaken byprominently using the slogan: "Like a fish in water".

27 May 1999 CLAIMANT places a second order via e-mail for goods in the amount of a total listprice of $500,000. (see Claimant's Exhibit No. 5)

28 May 1999 RESPONDENT accepts via e-mail CLAIMANT's second order. (see Claimant'sExhibit No. 6)

22 September 1999 CLAIMANT receives a letter from the Vis Fish Company stating that it is violatingthe trademark of the Vis Fish Company and that CLAIMANT should stop sellingthe goods. (see Claimant's Exhibit No. 7)

4 October 1999 CLAIMANT replies via letter to the Vis Fish Company that it is not violating VisFish Company’s trademark. (see Claimant's Exhibit No. 8)

18 October 1999 Vis Fish Company sends a second letter to CLAIMANT. It threatens CLAIMANTwith legal action if it fails to stop selling goods RESPONDENT’s goods. (seeClaimant's Exhibit No. 9) CLAIMANT engages legal counsels (Howard & Heward)specialized in trademark and other intellectual property matters.

1 November 1999 CLAIMANT receives Howard & Heward’s information that the Vis Fish Companyhas aggressively defended its trademark in the past and therefore the litigationwould not be easy and might be disruptive to CLAIMANT's business. (seeClaimant's Exhibit No. 10)

3 November 1999 CLAIMANT ceases selling the goods and avoids both sales contracts withRESPONDENT. (see Claimant's Exhibits Nos. 11, 12)

10 November 1999 RESPONDENT refuses to consider taking back the unsold water sports equipmentor to refund the purchase price. (see Claimant's Exhibit No. 13)

16 November 1999 CLAIMANT states that it would reconsider its avoidance of the two contracts ifRESPONDENT is able to sell its equipment in Danubia not leading to litigationarising out of a claims for trademark infringement. (see Claimant's Exhibit No. 14)

Claimant’s Exhibits:

Claimant’s Exhibit No. 1

E-mailFrom: Samuel HirstDate: 31 March 1999To: Vis Water SportsSubject: Inquiry as to terms of purchase

I am the Purchasing Manager of Sports and More Sports, the largest retailer of sporting equipment in the countryof Danubia.

We have recently received your announcement of the enlargement of your web site and have taken a look at it. Icongratulate you on an attractive and easy to navigate site.

33

We are continuously looking for new and additional sources of supply. We note that the Vis line of water sportsequipment has not previously been sold in Danubia. If you were able to offer us sufficiently attractive terms, wewould be interested in considering taking it on.

Sincerely yours,

Samuel HirstPurchasing ManagerSports and More Sports, Inc.214 Commercial Ave.Oceanside, Danubia.Tel 555-1212, fax 555-1214

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Exhibit No. 2

E-mailFrom: Jonathon SingerDate: 2 April 1999To: Samuel HirstSubject: Your inquiry as to terms of purchaseAttach: Price list

Thank you for your e-mail of 31 March 1999. We are well aware of the reputation of Sports and More Sports inDanubia as a respected and effective retailer of sporting goods.

You are correct in saying that the Vis line of water sports equipment has not previously been sold in Danubia. Wehave long desired to enter that market, but have not previously taken the steps necessary to do so. Your interest inour goods is, therefore, very welcome.

I am attaching to this message the list of goods available for export and the prices per item. You will note thatthese prices are FOB Capitol City. We will, of course, be willing to make transportation arrangements for youraccount. We would be willing to make a concession on the price of 5 percent for an order of $100,000 and 8percent for an order of $500,000. Normally, shipment can be made within 30 days from the receipt of a firm orderand a letter of credit for the invoice amount plus 10%. We can be more precise once we know the size of yourorder and the choice of goods that you have made.

Although it is our policy not to grant exclusive dealerships, we would make a limited exception if Sports andMore Sports were to place an order for a minimum of $1,000,000. In that case we would be willing to commit notto sell to any other sporting goods dealer in Danubia for a period of one year.

You will find our general conditions of sale on our web site [URL omitted].

I look forward to hearing from you.

Sincerely yours,

Jonathon SingerSales ManagerVis Water Sports Co.395 Industrial PlaceCapitol City, EquatorianaTel: 483-5800, fax: 483-5810

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Claimant’s Exhibit No. 3

E-mailFrom: Samuel HirstDate: 5 April 1999To: Jonathon SingerSubject: Purchase orderAttach: Purchase order No. 6839; Conditions of purchase (Not reproduced except for arbitration clause inConditions of Purchase set out in Request for Arbitration.)

Dear Mr. Singer:

We have reviewed your e-mail and the attached price list. We find your offer attractive and we wish to make amoderate sized first order so as to be able to evaluate the market for the Vis brand of water sports equipment inDanubia. I am attaching to this message our purchase order No. 6839. You will notice that the total order is for listprice $100,000. With the 5 percent discount, our purchase total will be $95,000.

We would ask you to let us know the firm shipping dates that we can expect. We would indeed ask you to arrangethe shipping. As soon as you have an estimate of the shipping costs, we will establish the letter of credit that youasked for.

We look forward to a long and profitable relationship with Vis Water Sports.

For your reference I have attached our General Conditions of Purchase, which are part of our purchase order.

Sincerely yours,

Samuel HirstPurchasing ManagerSports and More Sports, Inc.214 Commercial Ave.Oceanside, Danubia.Tel 555-1212, fax 555-1214

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Claimant’s Exhibit No. 4

E-mailFrom: Jonathon SingerDate: 6 April 1999To: Samuel HirstSubject: Your inquiry as to terms of purchaseAttach: Pro forma invoice (Not reproduced)

Thank you for your purchase order. We will be able to ship by 5 May 1999. The pro forma invoice that is attachedincludes $7,000 for shipping and insurance, for a total of $102,000. We would, therefore, request you to establisha letter of credit for $112,200.

I should like to remind you that our General Conditions of Sale, which we include in all sales contracts, areavailable at [URL omitted]. I suggest that you take a look at them.

If you have any questions about your order or about any of the Vis Water Sports equipment, please feel free toask.

Sincerely yours,

Jonathon SingerSales ManagerVis Water Sports Co.395 Industrial PlaceCapitol City, EquatorianaTel: 483-5800, fax: 483-5810

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Claimant’s Exhibit No. 5

E-mailFrom: Samuel HirstDate: 27 May 1999To: Jonathon SingerSubject: Purchase orderAttach: Purchase order No. 6910

Dear Mr. Singer:

The first shipment of equipment from Vis Water Sports Inc. has arrived and we are delighted with them.Therefore, we would like to make our initial purchase larger than anticipated. I am attaching our purchase orderNo. 6910 for additional goods totaling list price $500,000. Since you already have a copy of our GeneralConditions of Purchase, I need not attach them to this order. As before, we will establish a letter of credit. Pleaseinform me of shipping dates.

Sincerely yours,

Samuel HirstPurchasing ManagerSports and More Sports, Inc.214 Commercial Ave.Oceanside, Danubia.Tel 555-1212, fax 555-1214

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Claimant’s Exhibit No. 6

E-mailFrom: Jonathon SingerDate: 28 May 1999To: Samuel HirstSubject: Your inquiry as to terms of purchase

I hereby acknowledge receipt of your purchase order No. 6910. Since you have re-ordered so quickly, even beforeyou have had the opportunity to see how the Vis Water Sports equipment will sell, for purposes of establishing theappropriate discount, we have treated your two purchase orders as one purchase. That means you will effectivelyreceive the 8 percent discount on your PO 6839 rather than the 5 percent discount previously calculated. Althoughour pro forma invoice will be sent separately, I will set out our calculation below.

PO 6839 $100,000PO 6910 500,000

Sub-total 600,000Discount 8% 48,000

552,000Shipping 6839 7,000Shipping 6910 26,000

Total $585,000Paid on 6839 102,000

Due $483,000

Therefore, the total is $483,000, including transport and insurance of $26,000 on the current shipment. You canexpect the goods to be shipped by 20 June 1999.

Sincerely yours,

Jonathon SingerSales ManagerVis Water Sports Co.395 Industrial PlaceCapitol City, EquatorianaTel: 483-5800, fax: 483-5810

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Claimant’s Exhibit No. 7

Vis Fish Company14 Water Street

Port City, Danubia

20 September 1999

Sports and More Sports, Inc.214 Commercial Ave.Oceanside

Dear Sirs:

Your recent advertisements in all the major newspapers in Danubia that feature Vis Water Sportsequipment and that use the slogan “like a fish in water” have come to our attention.

We should like you to know that “Vis” is registered in Danubia as a trademark covering all water-relatedproducts and it belongs to the Vis Fish Company. Your advertisement and sale of goods bearing the name “Vis”are, therefore, in violation of our trademark. The violation is particularly egregious because of the sloganassociated with the Vis Water Sports equipment “like a fish in water”. It evokes an obvious association betweenthe use of the equipment and the fish that we sell under our trademark Vis, which means fish in the Dutchlanguage.

We would ask you to promptly withdraw all advertisements that use our trademark “Vis” and to stopselling any goods under that name.

We would ask you to respond to this letter and to tell us the measures you have taken to be sure that youare no longer violating our rights to the “Vis” trademark.

Sincerely,

Kurt StrengManaging Director

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Claimant’s Exhibit No. 8

Sports and More Sports, Inc.214 Commercial Ave.Oceanside, Danubia

4 October 1999

Mr. Kurt StrengManaging DirectorVis Fish Company14 Water StreetPort City

Dear Mr. Streng:

I refer to your letter dated 20 September 1999 in which you claim that Sports and More Sports, Inc. isviolating your registered trademark “Vis” by advertising and selling equipment in Danubia under the trademark“Vis Water Sports”.

I must reject your demand that Sports and More Sports cease advertising and selling equipment under the“Vis Water Sports” brand. There is no likelihood that anyone would confuse athletic equipment, even that usedfor water sports, with the fish and fish products that I now understand are sold by your company. The markets andthe nature of the products are simply too different.

May I suggest, however, that there might be possibilities for joint promotion of the Vis name. I would bepleased to be in contact with Vis Water Sports, Co. to inquire whether they might be interested. If you find this tobe of interest, please let me know.

Sincerely,

Thomas KentPresident

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Claimant’s Exhibit No. 9

Vis Fish Company14 Water Street

Port City, Danubia

15 October 1999

Mr. Thomas Kent, PresidentSports and More Sports, Inc.214 Commercial Ave.Oceanside

Dear Mr. Kent:

I was sorely disappointed in your letter dated 4 October 1999 in which you refused to cease advertisingand selling water sports equipment under the brand name “Vis Water Sports”.

There is no doubt that under the law of Danubia Sports and More Sports, Inc. is in violation of ourregistered trademark “Vis”. In spite of your denial that there could be any confusion between the water sportsequipment that you are selling and the fish and fish products that we sell under the “Vis” trademark, yousuggested the possibilities of joint promotion of the “Vis” name.

If Sports and More Sports, Inc. does not cease advertising and selling goods under any name thatincorporates our registered trademark “Vis” within one week from receipt of this letter, we shall be forced to takelegal action. I trust that such an unpleasant step will not be necessary.

Sincerely,

Kurt StrengManaging Director

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Claimant’s Exhibit No. 10

Howard & HewardAdvocates at the Court

28 October 1999

Mr. Thomas Kent, PresidentSports and More Sports, Inc.214 Commercial Ave.Oceanside

Dear Mr. Kent:

You have informed us that Sports and More Sports, Inc. has recently begun to purchase from the VisWater Sports Co. of Equatoriana athletic equipment that carries the Vis Water Sports name. You have purchasedthis equipment for the purpose of sale in Danubia. You have also furnished a copy of correspondence with the VisFish Company in which that company has claimed to have registered the “Vis” trademark in Danubia and inwhich that company has claimed that advertisement and sale of “Vis Water Sports” equipment would be aviolation of their trademark. The Vis Fish Company has threatened legal action if Sports and More Sports werenot to cease selling “Vis Water Sports” equipment in Danubia. You have asked us whether the claim of the VisFish Company is well founded.

We have verified that the Vis Fish Company has registered the “Vis” name as a trademark. Theregistration claims the name for all water-related products. Nevertheless, from a search of the applicable registriesit appears that the Vis Fish Company engages only in the business of selling fish, other water-related foodproducts and their derivatives. There is no indication that the Vis Fish Company engages in any commercialactivities that are in any way related to athletics or recreation.

In our opinion the claim of the Vis Fish Company to trade mark infringement is unfounded. We are of theopinion that any legal action that they might bring would eventually be dismissed. We must caution you, however,that the Vis Fish Company has aggressively defended its trademark in the past. The fact that they have registeredthe trademark for all water-related products is likely to mean that the litigation will not be easy. You could expectthat even though, once successful, you could recover your legal costs from them, the litigation would cause acertain amount of disruption to your business.

If we can be of any further service to you in this matter, please feel free to contact me.

Sincerely,Thomas Howard

Claimant’s Exhibit No. 11

Sports and More Sports, Inc.214 Commercial Ave.Oceanside, Danubia

3 November 1999

Mr. Kurt StrengManaging DirectorVis Fish Company14 Water StreetPort City

Dear Mr. Streng:

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We are sorry that you have not accepted our suggestion that we might work together to promote the “Vis”brands for both your fish and fish products and the Vis Water Sports brand equipment. Although the two types ofgoods are so different that we continue to insist that there would be no confusion in the minds of consumers, wedo believe that an effective promotion could be made.

However, since you have rejected out suggestion and have stated that you would institute legal action ifwe were not to cease advertising and selling the Vis Water Sports brand equipment, we have decided to rely onthe other brands of water sports equipment that we have been selling successfully for the past several years.

Sincerely,

Thomas KentPresident

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Claimant’s Exhibit No. 12

Sports and More Sports, Inc.214 Commercial Ave.Oceanside, Danubia

3 November 1999

Mr. Jonathon SingerSales ManagerVis Water Sports Co.395 Industrial PlaceCapitol City, Equatoriana

Dear Mr. Singer:

This letter is to notify you that Vis Water Sports has violated its obligation under article 42 UnitedNations Convention on Contracts for the International Sale of Goods (CISG) to deliver goods free from any rightor claim of a third party based on intellectual property. Therefore, Sports and More Sports, Inc. is hereby avoidingthe contract for the purchase of water sports equipment from the Vis Water Sports Co. entered into by your e-mailacceptance of our purchase orders No. 6839 and 6910 as provided in article 49 CISG. We look forward to mutualrestitution being made as provided in articles 82 to 84 of the Convention.

The trademark “Vis” has been registered in Danubia by the Vis Fish Company for all water-relatedproducts. By letters of 20 September 1999 and 15 October 1999 the Vis Fish Company has claimed that theadvertising and selling of goods bearing the name Vis Water Sports in Danubia would violate their trademark andthey have threatened legal action if we continued to do so. Legal counsel has advised us that, although in theiropinion the claim of trade mark infringement would eventually be dismissed, the legal action would take asignificant period of time and would be disruptive to our business. We are not in a position to contest any legalaction that they might take in regard to what is, after all, your brand. Since we cannot continue to sell the VisWater Sports equipment without the serious threat of legal action, we are withdrawing all the goods bearing theVis Water Sports name from our stores and avoiding the contract.

I should like to assure you that this action on our part is in no way a reflection on your goods, with whichwe are quite satisfied and which have been well received by our clientele. If you are able to reach anunderstanding with the Vis Fish Company permitting the sale of your goods in Danubia, we would be pleased toconsider placing further orders in the future.

As soon as we have been able to ascertain the amount of your goods that remain unsold and the additionalcosts that we have been forced to undertake in regard to your goods, we shall be in further communication withyou about the means of mutual restitution. Until you give us instructions as to what we should do with the goods,we will store them in our warehouses for your account. Let me express my disappointment at this turn of events.

Sincerely,

Thomas KentPresident

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Claimant’s Exhibit No. 13

Vis Water Sports Co.395 Industrial Place

Capitol City, Equatoriana

10 November 1999

Mr. Thomas Kent, PresidentSports and More Sports, Inc.214 Commercial Ave.Oceanside

Dear Mr. Kent:

I hereby acknowledge receipt of your letter of 3 November 1999.

Vis Water Sports Co. does not accept your purported avoidance of the contracts entered into between ourtwo companies on the basis of your purchase orders Nos. 6839 and 6910.

As you yourself have indicated, even though the Vis Fish Company may have registered the trademark“Vis” for all water-related products, their business is fish and similar products. Vis Water Sports equipmentcertainly does not violate that trademark. If you were to search the Internet you would find any number ofcompanies in different countries and different lines of business that use the trademark “Vis”, of which the VisFish Company is just one. We are obviously not all in violation of one another’s trademark. Since the claim of theVis Fish Company is manifestly unfounded, we see no basis for you to avoid the contract between us.

We will, of course, do all in our power to aid you in your defense against the assertion of trademarkinfringement. If, at the conclusion of any litigation that might take place, you were not able to recover your legalcosts from the Vis Fish Company, we would stand ready to reimburse you for such reasonable costs as you hadincurred.

We are sorry that this matter has occurred, but we are sure that it will soon be resolved. We look forwardto a long and profitable relationship with you.

Sincerely,

Mr. Jonathon SingerSales ManagerVis Water Sports Co.395 Industrial PlaceCapitol City, Equatoriana

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Claimant’s Exhibit No. 14

Sports and More Sports, Inc.214 Commercial Ave.Oceanside, Danubia

16 November 1999

Mr. Jonathon SingerSales ManagerVis Water Sports Co.395 Industrial PlaceCapitol City, Equatoriana

Dear Mr. Singer:

I understand your reaction to our letter of 3 November 1999 by which we have avoided the contractsentered into between us. We at Sports and More Sports are also disappointed not to be able to continue selling theVis Water Sports equipment.

We also appreciate your offer to give whatever help is in the power of the Vis Water Sports Co. in adefense we might undertake against the claim of trademark infringement, including a guarantee of our“reasonable” legal costs in the matter. Your offer, however, shows that you misunderstand the fundamental basisof our decision to avoid the contract. We are in the business of selling athletic equipment at retail. We are not inthe business of defending against claims of trademark infringement. Any litigation brought by the Vis FishCompany would be disruptive to our business to some degree. While we appreciate the quality of the Vis WaterSports equipment, it is not unique. We are able to sell similar equipment from other suppliers to our customerswithout facing the threat of trademark infringement.

If you are able to clarify that sale of your equipment in Danubia will not lead to litigation arising out ofclaims of trademark infringement, we would be more than happy to consider rescinding our avoidance of thecontracts and to making further purchases in the future. In the meantime, however, we must insist that we haveavoided the contracts that we entered into with you. As a result, I again ask you to give instructions as to whatshould be done with the goods that have not yet been sold. As soon as possible we will send to you a detailedaccounting of the amounts due between us so as to be able to effect the mutual restitution.

Sincerely,

Thomas KentPresident