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LAWASIA INTERNATIONAL MOOT COMPETITION 2011

IN KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION

KUALA LUMPUR (MALAYSIA)

2011

ASTORIA PRODUCE COMPANY

Claimant

v.

ROLGA FARMER’S EXCHANGE

Respondent

MEMORIAL FOR THE RESPONDENT

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TABLE OF CONTENTS

TABLE OF CONTENTS ........................................................................................................ 2

INDEX OF AUTHORITIES ................................................................................................... 5

STATEMENT OF JURISDICTION ...................................................................................... 8

STATEMENT OF FACTS .................................................................................................... 10

QUESTIONS PRESENTED ................................................................................................... 9

SUMMARY OF PLEADINGS ............................................................................................. 12

PLEADINGS .......................................................................................................................... 14

I. THE KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION

(KLRCA) HAS NO JURISDICTION OVER THE PRESENT DISPUTE ................... 14

A. THE AGREEMENT TO ARBITRATE IN KLRCA MUST BE VALID UNDER MALAYSIAN

LAW. 14

B. THERE WAS NO ACCEPTANCE BY RFE TO THE PROPOSAL MADE BY AP TO

ARBITRATE IN KLRCA. ..................................................................................................... 15

II. RFE’s “PARTY APPOINTED ARBITRATOR” AND THE PRESIDING

ARBITRATOR WERE IMPROPERLY APPOINTED ................................................. 18

A. RFE HAS BEEN IMPROPERLY DENIED THE OPPORTUNITY TO SELECT ITS PARTY-

APPOINTED ARBITRATOR. ................................................................................................... 18

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C. THE APPOINTMENT OF RFE‟S PARTY APPOINTED ARBITRATOR WAS MADE ULTRA

VIRES THE KLRCA DIRECTOR‟S AUTHORITY. ................................................................... 19

D. IN ADDITION, THE APPOINTMENT OF THE PRESIDING ARBITRATOR WAS IMPROPER . 20

1. The improper appointment of RFE‟s party-appointed arbitrator affected the

appointment of the Presiding Arbitrator. ...................................................................... 20

2. In any event, the Claimant‟s and RFE‟s party appointed arbitrators were not

allowed to choose the Presiding Arbitrator. .................................................................. 21

III. THE ARBITRAL TRIBUNAL DOES NOT HAVE THE AUTHORITY TO

IMPOSE SANCTIONS IN THE FORM OF FINE ON RFE. ....................................... 22

A. THE ARBITRAL TRIBUNAL DOES NOT HAVE AUTHORITY SANCTION IN THE FORM OF

FINE AS PER LEX ARBITRI AND THE RULES AS AGREED BY BOTH PARTIES ............................. 22

B. IN ANY CASE, THE ARBITRAL TRIBUNAL CANNOT IMPOSE A FINE ON RFE EVEN IF IT

ACCEPTS THAT IT HAS AN INHERENT AND EQUITABLE AUTHORITY TO IMPOSE SANCTION .. 23

IV. UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL

CONTRACTS 2010 SHOULD BE THE SOLE APPLICABLE LAW TO THE

PRESENT DISPUTE ......................................................................................................... 24

A. THE APPLICABLE LAW SHOULD BE DETERMINED BASED ON THE MALAYSIAN

CONFLICTS OF LAW. .......................................................................................................... 24

B. THE APPLICABLE LAW SHALL BE ROLGAN LAW, THE UNIDROIT PRINCIPLES

WHICH HAS THE CLOSEST AND MOST REAL CONNECTION TO THE TRANSACTION. ............... 25

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V. IMPROPER STORAGE WAS THE CAUSE THE BANANAS ARRIVED AT

THE PORT OF ASTORIA CITY IN UNSATISFACTORY CONDITION BUT RFE

DID NOT BREACH ITS CONTRACTUAL OBLIGATION TO AP ........................... 26

A. THE BANANAS HAVE ARRIVED IN UNSATISFACTORY CONDITION BECAUSE THEY

WERE STORED IN HIGH TEMPERATURES .............................................................................. 26

B. RFE DID NOT BREACH ITS CONTRACTUAL OBLIGATION TO AP ............................... 27

1. The contract between RFE and AP is an Extended FOB contract. ....................... 27

2. RFE has discharged its obligations under the contract. ......................................... 28

3. RFE has not undertaken any additional obligations outside of the contract. ....... 29

(a) The arbitral tribunal is guided by the Parole Evidence Rule and should not

admit any extrinsic evidence to establish additional obligations ............................. 29

4. In any case RFE has not undertaken any extra obligations outside of the contract

to ensure the bananas arrive at the port of Astoria in green and unripe condition. ...... 29

VI. AP IS LEGALLY OBLIGATED TO PROTECT THE BANANAS FROM

FURTHER SPOILAGE AND TO ATTEMPT TO SELL AS MANY OF THEM AS

POSSIBLE .......................................................................................................................... 30

A. AP HAS A DUTY TO MITIGATE THE HARM THAT RESULTED FROM ANY BREACH OF

CONTRACT ......................................................................................................................... 30

B. AP HAS NOT TAKEN ANY REASONABLE STEPS TO MITIGATE .................................... 31

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1. AP has a duty to protect the bananas from further spoilage .................................. 31

2. AP has not taken any reasonable steps to attempt to sell the bananas ................... 32

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INDEX OF AUTHORITIES

TREATIES AND CONVENTIONS

Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1985 ............. 16

JUDICIAL DECISIONS FROM MUNICIPAL COURTS

Bauer(M) Sdn Bhd v Deawoo Corp. [1999] 4 MLJ 5458 ........................................................ 17

Bonython v Commonwealth of Australia 1951 A.C. 201,219. ................................................. 27

Boustead Trading (1985) Sdn Bhd v Arab-Malaysian Merchant Bank Bhd. [1995] 3 MLJ 331.

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

Cheng Keng Hong v Government Federation of Malaya [1966] 2 M.L.J. 33 ......................... 24

Felthouse v Bindley (1862) EWHC CP J 35. ........................................................................... 19

Gibson v Manchester City Council [1979] 1 W.L.R. 294. ...................................................... 17

Harvey v. Facey [1893] A.C. 552 ............................................................................................ 18

James Capel(Far East) Ltd v YK Fung Securities Sdn Bhd(Tan Koon Swan, Third Party)

[1996] 2 MLJ 97, .................................................................................................................. 27

KG Bominflot Bunkergesellschaft fur Mineraloele mbH & Co KG v Petroplus Marketing AG

(The Mercini Lady), The Court of Appeal (Civil Division)19 October 2010 ...................... 30

Mitsui & Co.Ltd v Flota Mercantia Grancolombiana SA [1988] 1 WLR 1145 ..................... 30

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Mitsui & Co.Ltd v Flota Mercantia Grancolombiana SA [1988] 1 WLR 1145; CA, Scottish

& Newcastle International Limited v Othon Ghalanos Limited [2008] UKHL 11 .............. 28

New England Reinsurance Corp. v. Tennessee Insurance Co. 780 F. Supp. 73 (D. Mass 1991

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

Pyrene v. Scindia [1954] 2 QB 402, 424 ................................................................................. 29

ReliaStar Life Insurance of New York Co. v EMC National Life Co 546 F.3d 81. United

States Court of Appeals for the Second Circuit, April 8, 2009 ............................................ 25

Scottish & Newcastle International Limited (Respondents) v Othon Ghalanos Limited (a

company incorporated in Cyprus) (Appellants) [2008]. UKHL 11, p 34 ............................ 29

Spiro v Lintern and Others [1973] 1 W.L.R. 1002 ................................................................. 19

Usahasama SPNB-LTAT Sdn Bhd v Borneo Synergy (M) Sdn Bhd, ....................................... 17

STATUTES AND MUNICIPAL LEGISLATIONS

Evidence Act 1950 (Malaysia)................................................................................................. 31

Malaysian Arbitration Act 2005 ........................................................................................ 19, 26

TREATISES, DIGESTS AND BOOKS

G.H. Treitel, The Law of Contract, 10th edn ........................................................................... 17

The Law and Practice of Commercial Arbitration in England by Mustill and Boyd .............. 17

ARTICLES AND COMMENTARIES

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Belden Premaraj, “The Choices of Law – Better Safe than Sorry – The Malaysian Arbitration

Perspective”. ........................................................................................................................ 26

Horvath, The Duty of the Tribunal to Render an Enforceable Award, Journal of International

Arbitration Vol. 18/2 (2001), ............................................................................................... 16

OTHERS

Rules for the Arbitration of KLRCA (as revised in 2010). ....................................................... 22

UNIDROIT Principles of International Commercial Contracts 2010 ............................... 18, 20

United Nations Commission on International Trade Law (UNCITRAL) Rules ... 20, 21, 22, 23

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STATEMENT OF JURISDICTION

The State of Ardenia and the State of Rigalia submit the present dispute to this Court

by Special Agreement, dated May 5, 2010, pursuant to Article 40(1) of the Court‟s Statute.

The parties have agreed to the contents of the Compromis submitted as part of the Special

Agreement. In accordance with Article 36(1) of the Court‟s Statute, each party shall accept

the judgment of this Court as final and binding and shall execute it in good faith in its

entirety.

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QUESTIONS PRESENTED

I. Whether there was a valid arbitration agreement existing between the parties, thus

conferring jurisdiction to the KLRCA to resolve this dispute;

II. Whether the appointment of Riska Benti as the Second Arbitrator and Judge John

Chong as the Presiding Arbitrator by the Director of the KLCRA is proper, and whether the

Director in exercising his authority has deprived Rolga Farmer‟s Exchange of an opportunity

to appoint its party arbitrator;

III. Whether the KLRCA has the authority to impose sanctions on Rolga Farmer‟s

Exchange, and whether KLRCA can do with the imposition of a fine;

IV. What is the applicable law that governs this dispute between the Parties;

V. Whether Rolga Farmer‟s Exchange has breach its substantial obligations as the seller;

and

VI. Whether a duty of mitigation falls on either party to either salvage or resell the

bananas.

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STATEMENT OF FACTS

The Respondent Rolga Farmer‟s Exchange (RFE) is an agricultural coorperative organized

under the laws of Rolga. The Claimant Astoria Produce Company („AP‟), is 6,000 nautical

miles away from Rolga, is a major distributor of produce, which amongst others, bananas, to

retail grocery stores throughout Astoria.

On the 15th of July 2010, AP had contacted RFE by phone and had placed with RFE,

an order for a large quantity of green, and unripe bananas. Following that, a series of

negotiations that took place between the two parties by email on the 1st of August of 2010

and the 2nd

of August 2010. RFE understood that AP intended to have the shipment of

bananas be stored on board the M/S Pinafore („the Ship), and that these bananas shall be

properly stored and handled in a cool location where temperatures do not exceed 12 to 13°C.

The bananas were eventually found to not have arrived in the condition they were contracted

on the 24th

of November 2010 with 30% of the bananas were ripe or ripening upon arrival.

On the 26th

of November 2010, AP contacted RFE expressing its intentions to reject

the entire shipment of bananas based on the report of John Sparrow, a professional Maritime

Surveyor retained by AP, and the advise of Dr. Basilio Bartolo, the Director of Food Safety.

RFE had recommended that AP would be able to sell the remaining unripe bananas to the

local retail stores, and the ripe bananas to commercial bakers in Astoria. AP refused to do so,

and further had refused to take possession of the goods. The shipment of bananas were

eventually disposed of as waste.

On the 1st of June 2011, AP commenced the arbitration by filing a request for

arbitration with the Kuala Lumpur Regional Centre for Arbitration (KLRCA) and designated

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Bernard Bodd as its party appointed arbitrator. RFE was duly notified by the Director of the

KLRCA of such a noticed filed by AP and was enclosed with a copy of the KLRCA 2010

Rules. RFE was further required to appoint its party arbitrator within 30 of having received

the notification.

However, RFE did not respond to such a request made by the Director, thus

prompting the KLRCA director to appoint Riska Benti, a prominent Rolgan attorney as the

second arbitrator and Judge John Chong, the former Chief Justice of Malaysia as the

presiding arbitrator. An initial hearing was scheduled on 15 August 2011 and both parties had

received timely notice.

RFE chose to respond an hour before the commencement of the initial hearing, and

expressed its intentions to not attend the initial hearing and further alleging that it intends to

challenge the jurisdiction of the arbitral tribunal

The Director then advised both parties that the Tribunal would entertain challenges to

its jurisdiction at another hearing to be scheduled on the 10th October 2011.

The Parties submit to the jurisdiction of the arbitral tribunal to resolve the Questions

Presented.

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SUMMARY OF PLEADINGS.

1. The jurisdiction of the arbitral tribunal depends on the validity of the arbitration

agreement. For there to be a valid arbitration agreement, the agreement to arbitrate in

KLRCA must be valid under Malaysian Law. However there is no valid arbitration

agreement because the Respondent did not accept the proposal made by the Claimant

to arbitrate in KLRCA. Additionally, the Respondent is also not bound by the

principles of estoppel as it has no legal duty to disclose its non-acceptance of the

offer.

2. The Respondent has been deprived its opportunity to select its party-appointed

arbitrator because the right to appoint still remains with it despite the time given to

appoint has elapsed. Besides that, the Director of KLRCA has acted ultra vires to

appoint on behalf of the Respondent.

In addition, the appointment of the Presiding Arbitrator was also improper. This is

because firstly, the improper appointment of RFE‟s party-appointed arbitrator affected

the appointment of the Presiding Arbitrator. Secondly, in any event, the Claimant‟s

and RFE‟s party appointed arbitrators were not allowed to choose the Presiding

Arbitrator.

3. The arbitral tribunal does not have the authority to impose sanction in the form of a

fine on RFE because the tribunal has limited authority to sanction. Further, in any

case, even if the tribunal accepts that it has an inherent and equitable authority to

impose sanctions, it cannot impose a fine on RFE. This is because firstly, a fine is

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against public policy as it is punitive in nature. Secondly, the Respondent did not act

in bad faith, hence the tribunal cannot exercise its inherent and equitable authority to

sanction.

4. The UNIDROIT Principles of International Commercial Contracts 2010 should be the

sole applicable law to the present dispute based on the Malaysian Conflict of Law.

This is due to the fact that Rolgan law is the closest and most real connected law with

the transaction as the place of characteristic performance of the contract was in Rolga

City.

5. Improper storage was the cause why the bananas arrived at the port of Astoria City in

unsatisfactory condition but RFE did not breach its obligation to the Claimant. The

improper storage was due to the fact of high temperature which is not the

Respondent‟s obligation as its obligations are limited to one of an FOB contract.

Further, there were no additional obligations undertaken by the Respondent.

6. The Claimant is obligated to protect the bananas from further spoilage and to attempt

to sell as many of them as possible. This is because the Claimant has a duty to

mitigate the harm that resulted from any breach of the contract. However, the

Claimant has not taken any reasonable steps to mitigate as they did not protect the

bananas nor attempted to sell any of them.

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PLEADINGS

I. THE KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION

(KLRCA) HAS NO JURISDICTION OVER THE PRESENT DISPUTE

A. THE AGREEMENT TO ARBITRATE IN KLRCA MUST BE VALID UNDER

MALAYSIAN LAW.

The validity of an arbitration agreement1 determines the jurisdiction of the arbitral

tribunal.2 Article V(1)(a) of the Convention on the Recognition and Enforcement of Foreign

Arbitral Awards 1985 (herein referred to as “the New York Convention”) must be followed

in determining the law that should govern the arbitration agreement.3 This is to ensure that

the awards granted by the tribunal are capable of being recognized and enforced.

Furthermore, the tribunal does have a duty to grant an enforceable award.4

Following Article V(1)(a)5 of the New York Convention, the law governing the

arbitration agreement is the law stipulated by the parties. However, where parties have not

stipulated their choice of law, the arbitration agreement must be valid “under the law of the

country where the award [is] made.” In the present case, AP and RFE did not stipulate their

1 Section 9(1) of the Malaysian Arbitration Act 2005 (“MAA”).

2 Section 10(1)(a) of the MAA : Courts must stay the proceedings unless it finds that the arbitration agreement is

null and void, inoperative or incapable of being performed.

3 Article V(1)(a) of the New York Convention.

4 Horvath, The Duty of the Tribunal to Render an Enforceable Award, Journal of International Arbitration Vol.

18/2 (2001), pp. 135–158.

5 The New York Convention.

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choice of law that should govern the arbitration agreement. As such, the agreement to

arbitrate in KLRCA must be valid under the law of Malaysia, where the award would be

made.

B. THERE WAS NO ACCEPTANCE BY RFE TO THE PROPOSAL MADE BY AP TO

ARBITRATE IN KLRCA.

According to the case of Usahasama SPNB-LTAT Sdn Bhd v Borneo Synergy (M) Sdn

Bhd,6 there must be a common intention of the parties to be bound by the agreement to

arbitrate. This intention can be in the form of an express agreement by either parties or can be

inferred from the conduct of the parties.7

However before ascertaining such an intention, it is submitted that by virtue of

Section 18(2)(a) of MAA, the arbitration clause and the larger agreement which it is part of

must be treated as agreements independent of each other.8 It necessary follows that the

conduct of the parties may amount to assent to only one of the agreement and not the other.

In the present case, RFE has made an invitation to treat9 when they sent a Bill of Sale

to AP on 15th

July 2010 with regards to the sale of bananas which also contained a forum

selection clause. It was merely an invitation to treat because the parties had no intention to be

6 [2009] 2 MLJ 308.

7The Law and Practice of Commercial Arbitration in England by Mustill and Boyd (second edition at pg.133-

134) as followed by the Court of Appeal in Bauer(M) Sdn Bhd v Deawoo Corp. [1999] 4 MLJ 5458 at Pg.563.

8 Section 18(2)(a) of MAA : For the purposes of S18(1) which allows an arbitral tribunal to rule on its own

jurisdiction including the any objections to the existence of validity of the arbitration tribunal, an arbitration

agreement which forms part of an agreement shall be treated independently from other terms of the agreement.

9 Offer is"an expression of willingness to contract on certain terms, made with the intention that it shall become

binding as soon as it is accepted by the person to whom it is addressed," see G.H. Treitel, The Law of Contract,

10th edn, p.8; Gibson v Manchester City Council [1979] 1 W.L.R. 294.

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bound10

by the Bill of Sale. This is evident in the exchange of emails between the parties

dated 1st and 2

nd August 2010 where they were still in the process of negotiation.

Subsequently when AP signed the Bill of Sale and revised the original forum selection

clause,11

an offer was made by AP to RFE on the sale of bananas as well as the proposal to

arbitrate in KLRCA.

Subsequently, RFE dispatched the bananas onto the M/S Pinafore. It is submitted that

this conduct can be inferred to be acceptance to the offer made by AP.12

However, the fact

that this tribunal is now ruling on its own jurisdiction, Section 18(2)(a) of MAA has been

triggered. Hence, the Bill of Sale with regards to the sale of bananas and the proposal to

arbitrate in KLRCA must be treated separately and independently.

Therefore, RFE‟s conduct of dispatching the bananas cannot be construed as

acceptance to the proposal to arbitrate in KLRCA but only a fulfillment of obligation under a

separate and independent agreement i.e. the Bill of Sale. It is submitted that RFE has neither

expressly nor though their conduct indicated any acceptance to be bound by such an

agreement to arbitrate in KLRCA. Ms.Rocco, as agent for RFE has neither acknowledged nor

accepted the amended clause either verbally or in writing.13

Therefore, since there was no acceptance to the proposal to arbitrate in KLRCA, there

was no valid arbitration agreement between AP and RFE. As such, KLRCA has no

jurisdiction in this dispute.

10

Harvey v. Facey [1893] A.C. 552

11 Moot Problem, Page 2 Para.5.

12 Article 2.1.6 (3) of UNIDROIT Principles of International Commercial Contracts 2010

13 Corrections and Clarifications, Page 3, Part D Question 1.

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Additionally, RFE is not bound by the arbitration agreement through the principles of

equitable estoppel.

As a general rule, if one party by his conduct made a representation to another party

which led to the latter party to rely on it to his detriment, the doctrine of estoppels would

come into operation.14

The former party would be estopped from exercising his strict legal

rights.

However in the present case, there was no conduct by RFE which has led AP to

believe that there was a binding arbitration agreement to arbitrate in KLRCA. This is because

it is submitted that the conducts of RFE such as preparing the Bill of Lading, dispatching the

bananas as well as accepting payment15

was merely an acceptance and fulfillment of its

obligations under the Bill of Sale. By virtue of Section 18(2)(a) of MAA, the arbitration

agreement must deem to be a separate agreement from the Bill of Sale. Thus, there was no

acceptance by conduct with regards to the offer to arbitrate in KLRCA.

It is also further emphasized that as a general rule, silence does not amount to

acceptance.16

However, in exceptional circumstances,17

silence on the part of one person

could amount to a representation giving rise to estoppel provided he or she has a legal duty to

disclose facts contrary to the belief of another who has relied on that silence. In the present

case, it is submitted that RFE has no duty to express its non-acceptance to the proposal by AP

14

Boustead Trading (1985) Sdn Bhd v Arab-Malaysian Merchant Bank Bhd. [1995] 3 MLJ 331.

15 Moot Problem Page 2 Para 6.

16 Felthouse v Bindley (1862) EWHC CP J 35.

17 Spiro v Lintern and Others [1973] 1 W.L.R. 1002.

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to arbitrate in KLRCA. This is because the general rule is that there is only a legal duty for an

offeree to communicate his acceptance and not to communicate his non-acceptance.18

Therefore, since RFE has no legal duty to disclose, silence would not amount to

acceptance. It was not reasonable for AP to infer that RFE has accepted the proposal to

arbitrate in KLRCA when there was no such representation made either verbally or in

writing.19

Thus, RFE is not estopped from denying the validity of the arbitration agreement as

the principles of equitable estoppel do not apply in the present case.

II. RFE’s “PARTY APPOINTED ARBITRATOR” AND THE PRESIDING

ARBITRATOR WERE IMPROPERLY APPOINTED

A. RFE HAS BEEN IMPROPERLY DENIED THE OPPORTUNITY TO SELECT ITS

PARTY-APPOINTED ARBITRATOR.

Admittedly, RFE had not made an appointment of its party-appointed arbitrator within

30-day time limit as required by Article 9(2) of the United Nations Commission on

International Trade Law (UNCITRAL) Rules. Nevertheless, it is submitted that RFE‟s delay

in making such appointment „does not rise to a level sufficient to deprive‟20

RFE of its right

to appoint an arbitrator, „especially considering the lack of prejudice‟21

to AP. This is because

RFE‟s right to appoint its party-appointed arbitrator is paramount considering that the

18

Article 2.1.6(2) of UNIDROIT Principles of International Commercial Contract; Kessler, Friedrich/ Fine,

Edith, Culpa in Contrahendo, Bargaining in Good Faith and Freedom of Contract: A Comparative Study, 77

Harv.L.Rev. 1963/64, at 401 et seq.;

19 Corrections and Clarifications

20 New England Reinsurance Corp. v. Tennessee Insurance Co. 780 F. Supp. 73 (D. Mass 1991)

21 New England Reinsurance Corp. v. Tennessee Insurance Co. 780 F. Supp. 73 (D. Mass 1991)

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purpose of arbitration agreements is to seek amicable determination of disputes with results

which both parties would voluntarily accept.22

Absent any indication by both parties that time

is of the essence,23

extension of time to appoint arbitrator must be granted by the Director of

KLRCA to ensure the composition of the arbitral tribunal is acceptable by both parties.

As such, RFE‟s delay in making the appointment of arbitrator by itself does provide

sufficient ground for the Director of KLRCA to refuse to allow RFE to appoint arbitrator of

its own choice. Further, there was no indication of any conduct of bad faith on the part of

RFE at all material time. RFE had explained to the Director that the reason for its delay in

making the appointment was due to its reservation over the jurisdiction of KLRCA to hear its

dispute.24

Moreover, after having received assurance from the Director that its appearance

would not amount to waiver of its objection to KLRCA jurisdiction, RFE without hesitation

attempt to appoint its own arbitrator.25

Such appointment must be allowed to ensure the

arbitral tribunal is properly constituted.

C. THE APPOINTMENT OF RFE’S PARTY APPOINTED ARBITRATOR WAS MADE

ULTRA VIRES THE KLRCA DIRECTOR’S AUTHORITY.

Article 9(2) UNCITRAL Rules provides that if the Respondent does not appoint its

party appointed arbitrator within 30 days of the receipt of notification to appoint, the

Claimant may request for the appointing authority to make the appointment. Even though the

22

Compania Portorafti Commerciale v. Kaiser International, 616 F. Supp. 236, 238 (SDNY 1985)

23 See page 2 of the Moot Problem where the arbitration clause does not indicate that time is to be of the essence

for the purpose of the arbitral proceedings; New England Reinsurance Corp. v. Tennessee Insurance Co. 780 F.

Supp. 73 (D. Mass 1991)

24 Page 4 of Moot Problem

25 Page 5 of Moot Problem.

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Director is the appointing authority when the Respondent did not appoint26

, this does not

confer a default power to appoint to the Director.

Following the Article 9(2)27

, the pre-condition must be satisfied before the Director

can exercise his powers as an appointing authority. This means the Claimant must first make

a request to the Director in order for him to appoint RFE‟s party appointed arbitrator. This

mandated request is clearly absent in our case.28

Without such a request, the Director does not

have any powers to act on himself and appoint RFE‟s party appointed arbitrator.

Therefore, the Director has clearly acted ultra vires by ignoring such a pre-condition

under the rules29

and subsequently went on to appoint Riska Benti as RFE‟s party appointed

arbitrator.30

Hence, RFE‟s party appointed arbitrator was improperly appointed.

D. IN ADDITION, THE APPOINTMENT OF THE PRESIDING ARBITRATOR WAS

IMPROPER

1. The improper appointment of RFE’s party-appointed arbitrator

affected the appointment of the Presiding Arbitrator.

Article 9(1) UNCITRAL Rules provides that where three arbitrators are to be

appointed, the two party-appointed arbitrators shall choose the third arbitrator who will act as

26

Rule 3 Para.1 Rules for the Arbitration of KLRCA (as revised in 2010).

27 UNCITRAL Rules.

28 Further Corrections and Clarifications of Moot Problem No.18.

29 Article 9(2) UNCITRAL Rules.

30 Moot Problem Page 4 Para.3 Line 8&9.

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the presiding arbitrator.31

This means both Bernard Bodd and Riska Benti are to appoint the

presiding arbitrator.

However, the appointment of Riska Benti as the second arbitrator was improper. As

second arbitrator also decides on the choice of the presiding arbitrator, the fact that she was

improperly appointed will naturally affect the appointment of presiding arbitrator. Therefore,

since the second arbitrator was improperly appointed, the presiding arbitrator‟s appointment

was also improper.

2. In any event, the Claimant’s and RFE’s party appointed

arbitrators were not allowed to choose the Presiding Arbitrator.

Article 9(3) UNCITRAL Rules provides a maximum of 30 days after the appointment

of the second arbitrator for the two party appointed arbitrators to decide on the choice of the

presiding arbitrator. If the two arbitrators fail to come to an agreement within 30 days, the

presiding arbitrator shall then be appointed by the appointing authority.

This means the Director can only appoint the presiding arbitrator if the two arbitrators

cannot come to an agreement after 30 days. However in our case, it is clearly indicated that

the Director has appointed the second arbitrator and the presiding arbitrator on the very same

day.32

The Director did wait for at least 30 days. More importantly, neither did he give the

31

Article 9(1) UNCITRAL Rules.

32 Moot Problem Page 4 Para.3 Line 8&9.

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two arbitrators an opportunity to decide on the presiding arbitrator. It is clearly provided in

the rules33

that the two party appointed arbitrators are to choose the presiding arbitrator.

By the Director acting against the rules clearly deprived the two arbitrators‟ of their

rights to choose the presiding arbitrator. Since proper procedural rules were not adhered to,

the appointment of the presiding arbitrator was improper.

III. THE ARBITRAL TRIBUNAL DOES NOT HAVE THE AUTHORITY TO

IMPOSE SANCTIONS IN THE FORM OF FINE ON RFE.

A. THE ARBITRAL TRIBUNAL DOES NOT HAVE AUTHORITY SANCTION IN THE

FORM OF FINE AS PER LEX ARBITRI AND THE RULES AS AGREED BY BOTH

PARTIES

The definition of sanction is a broad one.34

An arbitral tribunal may have the authority

to impose sanctions in compliance with the arbitration proceedings as agreed by the parties.

However, the tribunal is only limited to impose sanctions provided by the statute35

and the

arbitration rules that were agreed by the parties.36

In the present case, RFE did not appear in the initial hearing schedule on 15th

August

and did not provide any notifications. Based on the statutes and arbitration rules applicable,

the tribunal may proceed with the proceedings ex-parte. Further, it can impose sanctions in

the form of cost, and expenses in the awards when it deems reasonable. There is no authority

33

Article 9(3) UNCITRAL Rules.

34 Black, Henry Campbell (1990), Black’s Law Dictionary, 6

th edition St.Paul, MN.

35 Section 44 of MAA.

36 Cheng Keng Hong v Government Federation of Malaya [1966] 2 M.L.J. 33.

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for the tribunal to impose sanctions in the form of a fine on a party. Therefore, it is submitted

that the arbitral tribunal does not have the authority to impose a fine on RFE.

B. IN ANY CASE, THE ARBITRAL TRIBUNAL CANNOT IMPOSE A FINE ON RFE

EVEN IF IT ACCEPTS THAT IT HAS AN INHERENT AND EQUITABLE AUTHORITY

TO IMPOSE SANCTION

As acknowledged in the case of ReliaStar Life Insurance of New York Co. v

EMC National Life Co .,37

the arbitral tribunal has an inherent equitable authority to impose

sanction on the parties if they have acted in bad faith. However the sanctions that could be

imposed cannot be punitive in nature. Hence, a fine which is punitive in nature would be

inconsistent with the proposition in ReliaStar.38

Further, it is submitted that there was no conduct of bad faith on the part of RFE. The

reason why they did not notify AP and the Director of KLRCA earlier and subsequently did

not appear in the initial hearing was because it is challenging the jurisdiction of KLRCA. It

never recognized the validity of the arbitration agreement to arbitrate in KLRCA from the

very beginning. However, once the Director of KLRCA assured that by appearing in the

hearing will not waive its right to challenge the jurisdiction of KLRCA, RFE agreed to

participate in the proceedings.

Therefore, since RFE did not act in bad faith and the tribunal‟s inherent authority to

impose sanctions precludes a fine which is punitive in nature, the arbitral tribunal does not

have the authority to fine RFE.

37

546 F.3d 81. United States Court of Appeals for the Second Circuit, April 8, 2009.

38 546 F.3d 81. United States Court of Appeals for the Second Circuit, April 8, 2009

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IV. UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL

CONTRACTS 2010 SHOULD BE THE SOLE APPLICABLE LAW TO THE

PRESENT DISPUTE

A. THE APPLICABLE LAW SHOULD BE DETERMINED BASED ON THE MALAYSIAN

CONFLICTS OF LAW.

Assuming that the seat of arbitration in the present case is in Kuala Lumpur, Part II,

inter alia, of MAA shall apply.39

Under MAA, the rule to determine the law applicable to this

dispute is Section 30(2) which stipulates the governing law as the express choice of the

parties.40

However, failing such an agreement on the law, Section 30(4) dictates that the

applicable law shall then be determined by “the conflict of law rules.”

Based on the legislative history of MAA, it is submitted that the conflict of law rules

referred to in Section 30(4) can only be interpreted to mean the Malaysian conflict of law

rules. Although MAA was enacted based on UNCITRAL Model Law, the Malaysian

Parliament refused to adopt Article 28(2) of the Model Law in its entirety which gives an

arbitral tribunal discretion to determine the appropriate conflict of law rules. Instead, the

Parliament opted for the present wording in Section 30(4) of MAA which indicates no such

discretion. 41

As such, “the conflict of law rules” in the latter provision can only mean the

Malaysian conflict of law rules.

39

Section 3(3)(a) of the MAA : In respect of an international arbitration, where the seat of arbitration is in

Malaysia, Parts I, II and IV shall apply unless the parties agree otherwise in writing.

40 Section 30(2) of the MAA : “In respect of an international arbitration, the arbitral tribunal shall decide the

dispute in accordance with the law as agreed upon by the parties as applicable to the substance of the dispute.”

41 Belden Premaraj, “The Choices of Law – Better Safe than Sorry – The Malaysian Arbitration Perspective”.

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B. THE APPLICABLE LAW SHALL BE ROLGAN LAW, THE UNIDROIT

PRINCIPLES WHICH HAS THE CLOSEST AND MOST REAL CONNECTION TO THE

TRANSACTION.

Applying Malaysian conflict of law rules, in the absence of an express and implied

choice of law by the parties, the closest and most real connection method is used to determine

the applicable law.42

This means the system of law which the transaction has the closest and

most real connection with, in the present case being either Rolgan law or Astorian law would

be the applicable law.

Using this method, the best test is the „localization‟ approach where numerous factors

regarding the contract such as the place of performance of the contract, the place where the

contract was concluded, and the place where payment was made are determined.

Subsequently, the law of the country that has a clear preponderance of these factors would be

the applicable law as it is closest and most real connected with the transaction.

However in the present case, the numerous factors are too widely dispersed to indicate

a clear preponderance as to whether Rolgan law or Astorian law is the closest and most real

connected with the transaction. As such, instead of examining numerous factors, only the

factor that carries the most weight which is the lex locus solutionis is taken into account.

By using lex locus solutionis approach, the place of characteristic performance of the

contract would determine the applicable law. The characteristic performance of the contract

42

James Capel(Far East) Ltd v YK Fung Securities Sdn Bhd(Tan Koon Swan, Third Party) [1996] 2 MLJ 97,

Bonython v Commonwealth of Australia 1951 A.C. 201,219.

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in the present case would be the delivery of the bananas.43

Hence, the place of delivery of the

bananas being either Rolga or Astoria would indicate that, that country‟s law would be the

applicable law.

In order to determine the place of delivery of the bananas would depend on the nature

of the contract. In the instant case, it is clearly indicated that the contract between the

Claimant and the Respondent is an FOB contract.44

This means the Respondent‟s obligation

as the seller is fully discharged upon loading the bananas onto the ship.45

Therefore, the place of delivery of the bananas is at the port of Rolga. Hence, Rolgan

law, the UNIDROIT Principles which has the closest and most real connection with the

transaction is the applicable law.46

V. IMPROPER STORAGE WAS THE CAUSE THE BANANAS ARRIVED AT

THE PORT OF ASTORIA CITY IN UNSATISFACTORY CONDITION BUT

RFE DID NOT BREACH ITS CONTRACTUAL OBLIGATION TO AP

A. THE BANANAS HAVE ARRIVED IN UNSATISFACTORY CONDITION BECAUSE

THEY WERE STORED IN HIGH TEMPERATURES

The bananas arrived in unsatisfactory condition because they were stored at high

temperatures as a consequence of improper storage. The ripened state of bananas was clearly

43

YK Fung

44 Moot Problem Page 2 Para.3 Line 4.

45 Mitsui & Co.Ltd v Flota Mercantia Grancolombiana SA [1988] 1 WLR 1145; CA, Scottish & Newcastle

International Limited v Othon Ghalanos Limited [2008] UKHL 11.

46 Appendix A, pg 10.

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due to the high temperature at which they had been transported.47

In the hold No.2, the

cartons of bananas were tightly stowed. No slots or wooden separation had been used to

facilitate the flow of air between the cartons. The cartons were stowed an average of eight

tiers high in both compartments of the No.2 hold. No space was left between the cartons .The

improper storage resulted in there being poor air ventilation and has led the temperature to

rise and thus accelerated the ripening of the bananas.

B. RFE DID NOT BREACH ITS CONTRACTUAL OBLIGATION TO AP

1. The contract between RFE and AP is an Extended FOB contract.

The sale of goods contract between AP and RFE is an FOB contract, as expressed in

the bill of sale.48

The mere fact that RFE has undertaken to nominate the carrier does not

make it a contract of a different kind as „there is considerable flexibility both within and

between categorizations such as FOB, CFR, CIF & ex-ship.‟49

In a traditional FOB contract

the buyer arranges and nominates the ship, but the seller ships and takes the bill of lading in

his own name as consignor. However an FOB contract is „a flexible instrument so much so

that no really satisfactory definition of such a contract is possible.‟50

It embraces cases where the seller arranges shipment and takes the bill in his own

name as consignor and this is known as an extended FOB contract.51

In the present case RFE

47

Page 11 of the moot problem 3rd

paragraph (John Sparrow‟s report)

48 Page 2, 4

th line, 3

rd paragraph, Moot Problem,

49 Scottish & Newcastle International Limited (Respondents) v Othon Ghalanos Limited (a company

incorporated in Cyprus) (Appellants) [2008]. UKHL 11, p 34

50 Pyrene v. Scindia [1954] 2 QB 402, 424

51 Ibid

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have arranged for shipment and have been named as the Consignor in the bill of lading.52

Therefore the contract between AP and RFE is an extended FOB contract.

2. RFE has discharged its obligations under the contract.

In an FOB contract the seller‟s primary obligation is to load the goods on the freight.53

Once the goods have passed the ships rail, property is deemed to have passed to the buyer54

and the seller has discharged his obligation to deliver the goods.55

RFE has loaded the goods

on the freight and the goods have conformed to the contractual description at this point. A

clean bill of lading has been signed and this would indicate that the goods meet the

description in the bill of lading before they are loaded onto the ship.56

There is no obligation on the seller to ensure that the goods remain of satisfactory

quality for a reasonable time after delivery.57

This is especially so if the buyer has inspected

the goods and certified it to be of conformity with contractual specification at the time of

delivery.58

The bananas were certified to be in compliance with specification when the carrier

signed a clean bill of lading. Thus it is submitted that the RFE has performed its duty to

deliver goods in conformity with the contract.

52

Further Corrections & Clarifications, Clarification 1

53 Mitsui & Co.Ltd v Flota Mercantia Grancolombiana SA [1988] 1 WLR 1145

54 Ibid.

55 Article 19 UNIDROIT Principles

56 Moot Problem, page 2

57 KG Bominflot Bunkergesellschaft fur Mineraloele mbH & Co KG v Petroplus Marketing AG (The Mercini

Lady), The Court of Appeal (Civil Division)19 October 2010

58 Ibid.

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3. RFE has not undertaken any additional obligations outside of the

contract.

(a) The arbitral tribunal is guided by the Parole Evidence Rule and

should not admit any extrinsic evidence to establish additional

obligations

Sections 91 and 92 of the Malaysian Evidence Act 1950 embody the parole evidence

rule and provides that any extrinsic evidence that takes the form of negotiations or

representations that purports to modify or limit the terms of the original agreement shall not

be admissible.59

Although Section 2 of the Malaysian Evidence Act 1950 states that the

Evidence Act 1950 does not apply to any proceeding before an arbitrator, Article 27(4) of the

UNCITRAL Rules gives the arbitral tribunal the discretion, to determine the admissibility,

relevance, materiality and weight of any evidence offered.

It is submitted that the arbitral tribunal should be guided by the parole evidence rule

because as both contracting parties here, have reduced their agreement to a single and final

writing, the extrinsic evidence of past agreements or terms should not be considered when

interpreting that writing, as the both parties have decided to ultimately leave them out of the

contract.

4. In any case RFE has not undertaken any extra obligations outside

of the contract to ensure the bananas arrive at the port of Astoria

in green and unripe condition.

59

Sections 91 and 92 Evidence Act 1950 (Malaysia)

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Based on the email correspondence between both parties in Exhibits 1 & 2, it is

submitted that RFE has merely said that they will convey the message to the Captain about

the storage requirements. RFE has merely said that they will “let the captain know” about the

storage requirements.60

RFE has performed precisely what they have promised to AP, that is to "let the

captain know" about the storage requirements. The bill of lading which was issued by the

carrier contained special instructions that his cargo of bananas must be stored in a cool, dry

location with good circulation to prevent spoilage. The fact that this special requirement was

contained in the bill of lading indicates that the carrier has knowledge of the special storage

requirements. There has been no express or implied representation made by RFE that they

will ensure the bananas arrive at the port of Astoria in green and unripe condition.

VI. AP IS LEGALLY OBLIGATED TO PROTECT THE BANANAS FROM

FURTHER SPOILAGE AND TO ATTEMPT TO SELL AS MANY OF THEM

AS POSSIBLE

A. AP HAS A DUTY TO MITIGATE THE HARM THAT RESULTED FROM ANY

BREACH OF CONTRACT

Article 7.4.8 UNIDROIT Principle states that „the non-performing party is not liable

for harm suffered by the aggrieved party to the extent that the harm could have been reduced

by the latter party‟s taking reasonable steps. This provision imposes upon AP a duty to take

reasonable measures to mitigate any harm as the result of any breach of the contract by RFE.

60

Moot Problem, page, see Exhibit 2 and 3

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If AP fails to mitigate any harm then damages payable by RFE as a result of alleged breach of

contract will be reduced to the extent that the damages could have been mitigated.

B. AP HAS NOT TAKEN ANY REASONABLE STEPS TO MITIGATE

At the minimum AP must take „reasonable steps‟ to mitigate the harm as result of the

breach of contract. A reasonable measure would be a possible measure that could have been

expected from a reasonable person in the position of the claimant under the same

circumstances.61

It is submitted that AP‟s duty to take reasonable mitigation entails them to

(1) protect the bananas from further spoilage and (2) attempt to sell the bananas.

1. AP has a duty to protect the bananas from further spoilage

In the present facts, a reasonable measure would be for AP to take possession of the

bananas and ensure that were stored in a proper temperature controlled warehouse. AP was in

the position to take possession of the bananas as the bill of lading was consigned in their

name.62

However they have not taken possession of the bananas and have instead AP ignored

the call from the Captain to pick up the bananas within forty eight hours.63

The captain at this

point had no choice but to leave the bananas in a warehouse where there was no temperature

control which eventually led to the bananas rotting. Thus, AP has failed to take reasonable

steps to mitigate and RFE will not be liable for the harm that AP could have mitigated.

61

The Propane Case Austrian Supreme Court. 6 February 1996 <

http://cisgw3.law.pace.edu/cases/960206a3.html>

62Corrections and Clarifications, clarifications 1

63 Moot Problem, page 4

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2. AP has not taken any reasonable steps to attempt to sell the

bananas

In addition AP could have taken reasonable steps to attempt to sell the bananas to

local retailers or bakers to minimise the losses. On the facts 70% of the bananas can still be

sold to the retailers, while the remaining 30% which were in a ripe or ripening condition

could have been sold to local commercial bakers. The fact that AP is a wholesaler of bananas

would make very easy for them to find some potential buyers for these bananas. Further there

is no indication that the bananas could have not been sold because they were unsafe, and in

fact John Sparrow has opined that the bananas could still net less than $250,000.64

On the

facts AP has made no such attempt and never at any point indicated that they would want to

sell the bananas.

Had AP attempted to sell the bananas, RFE would have been willing to compensate

them for the cost to mitigate the losses. Nevertheless AP has made no attempt to mitigate

therefore any damages payable as the result of alleged breach of contract will be reduced to

the extent that the damages could have been mitigated.

64

Further corrections and clarififcations, correction no 2

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PRAYER FOR RELIEF

Rolga Farmer's Exchange request this arbitration tribunal to find that :

1. The KLRCA does not have the jurisdiction to resolve the dispute between both

parties as there was no agreement to arbitrate between RFE and AP.

2. The Presiding Arbitrator and RFE‟s party-appointed arbitrator have not been

properly appointed and RFE has been denied the opportunity to select its party

appointed arbitrator.

3. The arbitration tribunal does have the authority to sanction but not in the form of a

fine.

4. The applicable law to substance of the dispute is UNIDROIT Principles.

5.The shipment of bananas have arrived in unsatisfactory condition is due to improper

storage but the seller has not breached any of his obligations.

6.The duty to preserve the bananas and to sell them is on AP and they have failed to

fulfill this duty.

Respectfully submitted,

Counsel for the Respondent