MASARYK UNIVERSITY Memorandum for Respondent

MEMORANDUM FOR RESPONDENT

WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT

On behalf of Against

RESPONDENT CLAIMANT

Equatoriana Clothing Manufacturing, Ltd. Mediterraneo Exquisite Supply, Co.

286 Third Avenue 45 Commerce Road

Oceanside Capital City

Equatoriana Mediterraneo

__________________________________________________

FALTUS Vojtěch • FEIGLER Michal • HOLOUBKOVÁ Kamila

MALANÍK Michal • ŠLAMPA Martin • THIELOVÁ Linda

UHŘÍČEK Jiří • ZÁVODNÁ Martina • ŽIVĚLOVÁ Alexandra

MASARYK UNIVERSITY

FACULTY OF LAW

BRNO, CZECH REPUBLIC

MASARYK UNIVERSITY Memorandum for Respondent

I

Table of Contents

Table of Contents ............................................................................................................. I

List of Abbreviations ..................................................................................................... III

List of Authorities ........................................................................................................... V

Statement of Facts ........................................................................................................... 1

Summary of Argument ................................................................................................... 3

I. THE WITNESS TESTIMONY OF MR. SHORT SHOULD BE

CONSIDERED BY THE TRIBUNAL EVEN IF HE DOES NOT APPEAR

AT THE HEARING ............................................................................................. 5

A. Mr. Short’s oral testimony is not needed since his written statement

addresses the disputed events sufficiently ................................................... 5

B. Admission of Mr. Short’s written testimony should be considered only in

scope of CEAC Rules and DAA ...................................................................... 7

1. Mr. Short’s written statement should be admitted under both CEAC

Rules and DAA ..................................................................................... 7

2. Application of IBA Rules would violate party autonomy and legal

certainty ............................................................................................... 8

C. By disrupting equality of the parties the Tribunal risks unenforceability of

the award ....................................................................................................... 9

II. THE DELIVERY DATE HAS BEEN MODIFIED BY THE TELEPHONE

CONVERSATION BETWEEN CLAIMANT AND RESPONDENT .......... 10

A. Oral modification of the Contract was allowed .......................................... 10

1. The parties have excluded the application of Mediterraneo’s

reservation in their choice-of-law clause .......................................... 10

2. Even if the Tribunal applies Art. 96 CISG, oral modification would

still be possible .................................................................................... 13

2.1. The Tribunal should apply conflict of laws rules in case Art. 96

CISG is not excluded ................................................................... 13


II

2.2. The conflict of laws rules would result in the application of the

law of Equatoriana which allows oral modifications ................. 14

B. Parties amended the Contract by the telephone conversation ....................16

1. The telephone conversation did constitute an offer to change the

date of delivery in the Contract ..........................................................16

2. Claimant accepted Respondent’s offer during their telephone

conversation ........................................................................................ 17

III. RESPONDENT DID NOT BREACH THE CONTRACT .............................19

A. Respondent did not have the obligation to avoid child labour in its whole

business ........................................................................................................19

1. The “policy clause” did not oblige Respondent to avoid child labour

as such .................................................................................................19

2. There is no applicable international trade usage that would oblige

Respondent to avoid child labour ...................................................... 21

B. Respondent delivered goods conforming to the Contract .......................... 23

1. There are no applicable public law requirements to which the polo

shirts would have to conform ............................................................ 23

2. Respondent delivered goods conforming to the Contract ................ 24

C. Even if the Contract was breached, Claimant cannot rely on such a breach

as this would be contrary to the good faith principle ................................. 25

D. In case there was a breach of the Contract, it was not a fundamental one 27

IV. CLAIMANT IS NOT ENTITLED TO ANY RAISED CLAIMS .................. 30

Request for Relief .......................................................................................................... 31


III

List of Abbreviations

AA Application for Arbitration

Art./Arts. Article/Articles

CIETAC China International Economic and Trade Arbitration Commission

CISG United Nations Convention on Contracts for the International Sale of

Goods

CEAC Chinese European Arbitration Centre

CE Claimant’s Exhibit

Claimant Mediterraneo Exquisite Supply, Co. Manufacturing, Ltd.

45 Commerce Roead, Capital City, Mediterraneo

the Contract The sales contract for 100,000 polo shirts concluded by Claimant

and Respondent on 5 January 2011

the

Convention

United Nations Convention on Contracts for the International Sale of

Goods

e.g. exempli gratia (for example)

et seq. et sequens (and the following)

fn. footnote

i.e. id est (that is)

IBA International Bar Association

ICC International Chamber of Commerce

ILO International Labour Organization

L/C Letter of Credit

LCIA London Court of International Arbitration

MC Memorandum for Claimant

No./Nos. Number/Numbers

NYC New York Convention on the recognition and enforcement of foreign

arbitral awards

Oceania Plus Oceania Plus Enterprises

p./pp. Page/pages


IV

para./paras. Paragraph/paragraphs

PO Procedural Order

RE Respondent’s Exhibit

Respondent Equatoriana Clothing Manufacturing, 286 Third Avenue, Oceanside,

Equatoriana

SD Statement of Defence

SF Statement of Facts

the Tribunal The arbitration tribunal constituted for the case at hand consisting of

Professor Presiding Arbitrator, Dr. Arbitrator 1 and Ms. Arbitrator 2

UN United Nations

UNCITRAL United Nations Commission on International Trade Law

UNIDROIT International Institute for the Unification of Private Law

US/U.S. United States

USD United States Dollar

v. Versus

Vienna

Convention

Vienna Convention on the Law of Treaties


V

List of Authorities

Books

Cited as Title Cited in

Bonell BONELL, J., Michael. Article 7.

Bianca-Bonell Commentary on the

International Sales Law. Milan.

Giuffré. 1987.

http://cisgw3.law.pace.edu/cisg/bib

ibl/bonell-bb7.html

Para. 84

Born BORN, Garry B. International

Commercial Arbitration. Austin.

Kluwer Law International. 2009.

Paras. 11, 29

Fouchard FOUCHARD, Philippe; GAILLARD,

Emmanuel; GOLDMAN, Berthold;

SAVAGE, John. On International

Commercial Arbitration. The

Hague. Kluwer Law International.

1999.

Para. 3

Honnold HONNOLD, John, O. Uniform Law

for International Sales under the

1980 United Nations Convention.

The Hague. Kluwer Law

International. 1999.


lio/ho8.html

Para. 38

Huber HUBER, Peter; MULLIS, Alastair. Para. 91

http://cisgw3.law.pace.edu/cisg/bibibl/bonell-bb7.html

http://cisgw3.law.pace.edu/cisg/bibibl/bonell-bb7.html

http://cisgw3.law.pace.edu/cisg/biblio/ho8.html

http://cisgw3.law.pace.edu/cisg/biblio/ho8.html


VI

The CISG A new textbook for

students and practitioners. sellier.

european law publishers. 2007.

Lew/Mistelis/

Kröll

LEW, Julian D.; MISTELIS, Loukas;

KRÖLL, Stefan. Comparative

International Commercial

Arbitration. The Hague. Kluwer

Law International. 2003.

Paras. 4, 11, 12,

29

Petrochilos PETROCHILOS, Georgios.

Procedural Law in International

Arbitration. Oxford. Oxford

University Press. 2004.

Paras. 4, 14, 15,

27

Rajski RAJSKI, Jerzi. Article 96. In Bianca-

Bonell: Commentary on the

International Sales Law. 1987.

http://www.cisg.law.pace.edu/cisg/bibl

io/rajski-bb96.html

Paras. 21, 36, 37

Redfern/Hunter REDFERN, Alan; HUNTER, Martin;

BLACKABY Nigel; PARTASIDES,

Constantine. Redfern and Hunter

on International Arbitration.

Oxford. Oxford University Press.

2009.

Paras. 11, 29

Schlechtriem SCHLECHTRIEM, Peter. Uniform

Sales Law – The UN-Convention on

the Contracts of the International

Para. 36

http://www.cisg.law.pace.edu/cisg/biblio/rajski-bb96.html

http://www.cisg.law.pace.edu/cisg/biblio/rajski-bb96.html


VII

Sales of Goods. Vienna. Manz. 1986.

http://www.cisg.law.pace.edu/cisg/

biblio/schlechtriem.html

Schlechtriem/

Schwenzer

SCHLECHTRIEM, Peter;

SCHWENZER, Ingeborg.

Commentary on the UN Convention

on the international sales of goods

(CISG). Oxford. Oxford University

Press. 2010.

Paras. 50, 67, 81,

84

Schwenzer/Leisi

nger

SCHWENZER, Ingeborg;

LEISINGER, Benjamin. Ethical

Values and International Sales

Contracts. Commercial Law

Challenges in the 21st Century. 2007.

Para. 85

Winship WINSHIP, Peter. The Scope of the

Vienna Convention on

International Sales Contracts. In

Galston & Smit ed., International

Sales: The United Nations

Convention on Contracts for the

International Sale of Goods. 1984.

Para. 36

http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem.html

http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem.html


VIII

Articles


Brodernann/

Weimann

BRODERMANN, Eckart,

WEIMANN, Thomass. Arbitration

in 55 jurisdictions worldwide.

CEAC. Global Arbitration Review.

2011

http://www.academia.edu/1742737/

INTERNATIONAL_ARBITRATION

_LAW_-_55_JURISDICTIONS

Paras. 26, 27

Gruber GRUBER, Peter. The Convention on

the International Sale of Goods

(CISG) in Arbitration. International

Business Law Journal. 2009.

Paras. 32, 33

Hathaway HATHAWAY, Oona. Do Human

Rights Treaties Make a Difference?

The Yale Law Journal. 2002.

http://digitalcommons.law.yale.edu

/cgi/viewcontent.cgi?article=1852&

ccontex=fss_papers

Para. 71

Lautenschlager LAUTENSCHLAGER, Felix. Current

Problems Regarding the

Interpretation of Statements and

Party Conduct under the CISG - The

Reasonable Third Person,

Language Problems and Standard

Terms and Conditions. Vindobona

Journal of International

Paras. 50, 51

http://www.academia.edu/1742737/INTERNATIONAL_ARBITRATION_LAW_-_55_JURISDICTIONS



http://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=1852&ccontex=fss_papers




IX

Commercial Law & Arbitration.

2007.


lio/lautenschlager.html#

Magnus MAGNUS, Ulrich. General

Principles of UN-Sales Law. Rabels

Zeitschrift for foreign and

international private law. 1995.

http://cisgw3.law.pace.edu/cisg/tex

t/magnus.html

Para. 84

Magnus II MAGNUS, Ulrich. Remarks on good

faith.


principles/uni7.html

Para. 84

Saf SAF, Carolina. A Study of the

Interplay between the Conventions

Governing International Contracts

of Sale. 1999.

http://www.cisg.law.pace.edu/cisg/t

ext/saf1.html

Para. 27

Schroeter SCHROETER, Ulrich. Backbone or

Backyard of the Convention? The

CISG’s Final Provisions. Sharing

International Commercial Law

across National Boundaries. 2008.


biblio/schroeter5.html

Paras. 27, 36

http://cisgw3.law.pace.edu/cisg/biblio/lautenschlager.html%23

http://cisgw3.law.pace.edu/cisg/biblio/lautenschlager.html%23

http://cisgw3.law.pace.edu/cisg/text/magnus.html

http://cisgw3.law.pace.edu/cisg/text/magnus.html

http://www.cisg.law.pace.edu/cisg/text/saf1.html

http://www.cisg.law.pace.edu/cisg/text/saf1.html


X

Schwenzer SCHWENZER, Ingeborg.

Conformity of the Goods – Physical

Features on the Wane? 2011.

https://ius.unibas.ch/uploads/publi

cs/9982/20120413143056_4f881c8

0d278b.pdf

Paras. 81, 82

Singh SINGH, Raj, Om. Child Labour.

2011.

http://ssrn.com/abstract=1817086

Para. 68

Tadaki TADAKI, Junko; KINLEY, David.

From Talk to Walk: The Emergence

of Human Rights Responsibilities

for Corporations at International

Law. Virginia Journal of

International. 2004.


Paras. 69, 72

The Case of Nike LOCKE, Richard M. The Promise

and Perils of Globalization: The

Case of Nike. Massachusets Institute

of Technology. IPC Working Paper

Series. 2002.

http://mitsloan.mit.edu/50th/pdf/nikepaper.pdf

Para. 65

Wolf/Preteroti WOLF, John A.; PRETEROTI, Kelly

M. Written Witness Statements – A

Practical Bridge of the Cultural

Divide. Dispute Resolution Journal.

Para. 4

https://ius.unibas.ch/uploads/publics/9982/20120413143056_4f881c80d278b.pdf





XI

May 2007.

http://www.ober.com/publications/

205-written-witness-statements---

practical-bridge-cultural-

divide#.UN1YBQzn6dE.email

Xiaolin/

Andersen

XIAOLIN, Wang; ANDERSEN,

Camilla, Baasch. The Chinese

Declaration as to Form of Contracts

under CISG – Time to Withdraw?

Uniform Law Review. 2003.

Para. 27


XII

Case Law


Adamfi Video

case

Metropolitan Court Budapest.

Hungary. No. 12.G.41.471/1991/21.

1992.

http://cisgw3.law.pace.edu/cases/9

20324h1.html

Para. 39

Broadcasters

case

Appellate Court Celle. Germany. No.

13 W 48/09. 2009.


09072g1.html

Para. 84

Cobalt Sulphate

case

German Supreme Court. VIII ZR

51/95. 1996.


60403g1.html#ua

Paras. 91, 93

Dalmia Dairy

case

Court of Appeal. [1978] 2 LR 223.

United Kingdom. 1977.

http://www.i-

law.com/ilaw/doc/view.htm?id=147

756

Para. 3

Designer Clothes

case

Appellate Court Köln. 16 U 77/01.

2002.

http://cisgw3.law.pace.edu/cases/021014g1.html

Paras. 91, 94

Fashion

Products case

I.C.C. International Court of

Arbitration. No. 11849. 2003.

Para. 33

http://cisgw3.law.pace.edu/cases/920324h1.html

http://cisgw3.law.pace.edu/cases/920324h1.html



http://cisgw3.law.pace.edu/cases/960403g1.html#ua

http://cisgw3.law.pace.edu/cases/960403g1.html#ua


XIII

http://www.globalsaleslaw.org/cont

ent/api/cisg/display.cfm?test=1421

FCF v Adriafil Supreme Court Switzerland.

4C.105/2000. 2000.

http://cisgw3.law.pace.edu/cases/000915s2.html

Para. 95

Forestal Guarani

case

United States Court of Appeals for

the Third Circuit. No. 08-4488.

2010.


00721u1.html

Para. 39

Frozen Pork case Austria Supreme court, No. 7 Ob

302/05w, 2006.


60125a3.html

Paras. 76, 77, 78,

79

Hispafruit BV

case

Arrondissementsrechtbank,

Rotterdam. HA ZA 99-529,

Hispafruit BV v. Amuyen S.A. 2001.


10712n1.html

Para. 39

Hot-Rolled Coils

case

CIETAC Arbitration proceeding 15

December 1997. 1997.


71215c1.html

Para. 39

Locks case Bavarian Highest Regional Court. Para. 30

http://www.globalsaleslaw.org/content/api/cisg/display.cfm?test=1421

http://www.globalsaleslaw.org/content/api/cisg/display.cfm?test=1421

http://cisgw3.law.pace.edu/cases/100721u1.html

http://cisgw3.law.pace.edu/cases/100721u1.html

http://cisgw3.law.pace.edu/cases/010712n1.html

http://cisgw3.law.pace.edu/cases/010712n1.html

http://cisgw3.law.pace.edu/cases/971215c1.html

http://cisgw3.law.pace.edu/cases/971215c1.html


XIV

No. 4 Z Sch 23/99. 1999.

http://www.dis-

arb.de/en/47/datenbanken/rspr/ba

yoblg-az-4-z-sch-23-99-datum-

1999-12-15-id16

Mussels case German Federal Supreme Court. No.

VIII ZR 159/94. 1995.


50308g3.html

Para. 75

Onions case High Arbitration Court of the

Russian Federation. No. 4670/96.

1997.


70325r2.html

Para. 39

Protective Film

case

Oberlandesgericht Karlsruhe. No. 1

U 280/96. Germany. 1997.


70625g1.html

Para. 84

Shoes case Appellate Court Frankfurt. 5 U

15/93. 1994.


Paras. 91, 92

Tegernseer

Gebräuche case

Oberster Gerichtshof. No. 10 Ob

344/99g. Germany. 2000.


00321a3.html

Para. 70



http://cisgw3.law.pace.edu/cases/000321a3.html

http://cisgw3.law.pace.edu/cases/000321a3.html


XV

Rules

Cited as Title

CEAC Rules CEAC Hamburg Arbitration Rules

CISG United Nations Convention on

Contracts for the International Sale of

Goods

Contract Law of

the PRC

Contract Law of the People's Republic

of China

DAA Danubian Arbitration Act based on

UNCITRAL Model Law on

International Commercial Arbitration

with amendments as adopted in

2006. Option II of Article 7

IBA Rules IBA Rules on the Taking of Evidence

in International Arbitration

ILO Convention

182

ILO Convention No 182 on Worst

Forms of Child Labour

ILO Convention

138

ILO Convention No 138 on the

Minimum Age for Admission to

Employment and Work

LCIA Rules London Court of International

Arbitration Rules

NYC New York Convention on the

recognition and enforcement of


XVI

foreign arbitral awards

UNIDROIT

Principles

UNIDROIT Principles of

International Commercial Contracts,

2010


XVII

Other Authorities


IBA

Commentary

1999 IBA Working Party & 2010 IBA

Rules of Evidence Review

Subcommittee. Commentary on the

revised text of the 2010 IBA Rules

on the Taking of Evidence in

International Arbitration.

http://www.ibanet.org/Publications

/publications_IBA_guides_and_fre

e_materials.aspx

Para. 15

ILO Statistics Global child labour developments:

Measuring trends from 2004 to

2008.

http://www.google.com/url?sa=t&r

ct=j&q=&esrc=s&source=web&cd=1

&ved=0CDIQFjAA&url=http%3A%2

F%2Fwww.ilo.org%2Fipecinfo%2Fp

roduct%2Fdownload.do%3Ftype%3

Ddocument%26id%3D13313&ei=YE

mhUIrNOoPStAaQm4CQCw&usg=

AFQjCNGGKEZVvCgSkITv5Rv_35i

FzevLVw&sig2=uXaBgeFhag2iHCL

psJs7Eg

Paras. 65, 68

UNCITRAL

Digest on CISG

UNCITRAL Digest of Case Law on

the United Nations Convention on

Contracts for the International Sale

of Goods. 2012.

Para. 21

http://www.ibanet.org/Publications/publications_IBA_guides_and_free_materials.aspx




XVIII

UNCITRAL

Digest on Model

Law

UNCITRAL Digest of Case Law on

the Model Law on International

Commercial Arbitration. 2012.

Paras. 12, 30

UN Global

Compact

United Nations Global Compact

http://www.unglobalcompact.org

Para. 72

http://www.unglobalcompact.org/


1

Statement of Facts

Respondent is a manufacturer of apparel residing in

Equatoriana.

Claimant is registered and managed in the country of

Mediterraneo. It purchases clothes from manufacturers and

further resales the clothes to number of retailers.

2007

Claimant conducted audit on Respondent in connection with

April 2008 contract. There were some concerns regarding the

use of child labour. Nevertheless, the audit was approved.

There were no further audits since then.

2011

5 January Respondent contracted with Claimant for the delivery of

100,000 polo shirts, FAS Incoterms 2010 Oceanside,

Equatoriana, by 19 February 2011, for USD 550,000.

9 February Mr. Short, Respondent’s Contracting Officer, called Mr. Long,

Claimant’s Procurement Specialist, to tell him that it would not

be possible to make the shipping date of 19 February 2011 due

to the strike of Respondent’s supplier’s employees. Mr. Long

was displeased but in the end accepted that the delivery would

be late and said he would take care of the necessary paperwork.

24 February The polo shirts were delivered to Port City, Oceania.

8 April Mr. Long sent a letter of avoidance to Mr. Short. As reasons for

the avoidance, Mr. Long stated that a documentary was


2

broadcasted in Oceania showing children allegedly working in

one of Respondent’s facilities. At the same time, Claimant asked

Respondent to arrange for the disposal of the remaining polo

shirts.

10 April Respondent indicated that it had no knowledge at all about the

documentary. Furthermore, Respondent denied that it

breached the Contract and assured Claimant that did not use

child labour in the production of the polo shirts. Thus,

Respondent refused to collect the remaining polo shirts.

20 April Claimant sold remaining 99,000 polo shirts to Pacifica Trading

for USD 470,000 on Respondent’s account.

2012

January Mr. Short finished his job with Respondent and started working

for Jumpers Production.

1 July Claimant submitted a Notice of Arbitration.

4 October Claimant requested Mr. Short’s appearance at the oral hearing

before the Tribunal. Respondent informed Claimant that

Mr. Short refuses to appear; Claimant failed to act on

Respondent’s request to summon Mr. Short.


3

Summary of Argument

I. THE TRIBUNAL SHOULD CONSIDER THE WRITTEN TESTIMONY

OF MR. SHORT EVEN IF HE DOES NOT APPEAR AT THE

HEARING.

CEAC Rules and DAA should be the only rules applied to the problem as they are

binding to the parties. CEAC Rules despite not providing a precise rule to the

question at hand do contain guidance as to its interpretation in order to devise a

specific rule to a specific problem. Based on the application of CEAC Rules

supplemented by principles of cost and time efficiency the Tribunal should decide

that Mr. Short’s presence is not in fact necessary and that his written testimony forms

a sufficient ground for decision making. And for it is under no possible control of the

parties or even the Tribunal, it should consider the presented evidence as it is. If the

Tribunal, however, decides to disregard Respondent’s witness testimony, it would

disrupt Respondent’s position and equality of the parties, which is part of

fundamental principle of due process that the Tribunal should always preserve. By

this kind of breach the Tribunal risks its future award to be unenforceable.

II. THE DELIVERY DATE HAS BEEN MODIFIED BY THE TELEPHONE

CONVERSATION BETWEEN CLAIMANT AND RESPONDENT

The delivery date has been modified by a telephone conversation between the

representatives of Claimant and Respondent on 9 February 2011. Firstly, oral

modification by a telephone conversation was allowed since the parties have excluded

the application of Mediterraneo’s reservation in their choice-of-law clause.

Alternatively, the oral modification would still be possible as the rules of private

international law would lead to the application of the law of Equatoriana, which

allows oral modifications anyway. As there was no need for any particular form,

telephone conversation between Claimant and Respondent did constitute an

amendment to the Contract as Respondent validly offered the change of delivery date

and Claimant accepted this offer.


4

III. RESPONDENT DID NOT BREACH THE CONTRACT

Respondent delivered goods meeting the stipulated contractual quality. No child

labour was used during the manufacturing process of the polo shirts. Respondent’s

use of child labour in unrelated production did not constitute a breach of the Contract

because Respondent had in fact no obligation to avoid child labour in its whole

business. Alternatively, if the Tribunal holds there was a breach of the Contract, it

should preclude Claimant from relying on such breach as this would be contrary to

the good faith principle. In any case, if there was a breach of the Contract which

Claimant is liable for, the Tribunal should find that it was not fundamental.

IV. CLAIMANT IS NOT ENTITLED TO ANY RAISED CLAIMS

Claimant has no right to the restitution of the purchase price, payment of the

contractual penalty or any of the claimed settlements, because Respondent did not

breach the Contract in any aspect.


5

I. THE WITNESS TESTIMONY OF MR. SHORT SHOULD BE

CONSIDERED BY THE TRIBUNAL EVEN IF HE DOES NOT

APPEAR AT THE HEARING

1 Mr. Short wrote his witness statement on 18 August 2011, shortly after the disputed

events took place. Now, two years after that, Claimant requests Mr. Short’s

appearance at the hearing hoping to clarify his recollection of the events. Although

witness’s testimony may be important to the dispute, Mr. Short’s appearance at the

hearing will not serve the clarification purposes [A.]. Furthermore, CEAC Rules and

DAA should be the only rules applied as a result of parties’ agreement. They provide

sufficient grounds to resolve the procedural issue at hand without any need to

recourse to IBA Rules [B.]. Moreover, if Mr. Short’s witness statement is disregarded

by the Tribunal, it would constitute a breach of due process principle. Thus, it would

render the arbitral award unenforceable [C.].

A. Mr. Short’s oral testimony is not needed since his written statement

addresses the disputed events sufficiently

2 When the Tribunal considers the admissibility and materiality of the written witness

statement, it should take into account the question whether Mr. Short’s oral

testimony is essential to the proceedings [Art. 27(4) CEAC Rules; Art. 19(2) DAA].

This question should be perceived in connection with Art. 27(2) CEAC Rules allowing

for the submission of written witness statements without any limitation.

3 Firstly, the amount of facts disputed within Mr. Short’s testimony is minimal.

Therefore, his appearance at the oral hearing will not have a ground-breaking effect

upon the disputed questions of the case. In this regard the Tribunal may refuse to

hear witnesses introduced by one of the parties if it considers itself to be sufficiently

well-informed through other evidence [Fouchard, p. 698]. Likewise, in Dalmia Dairy

case the arbitrator refused to hear certain witnesses as their hearing was not deemed

necessary, but rather redundant based on the facts of the case. Mr. Short’s witness

statement provides sufficient information for the Tribunal to decide the issue of

amendment of the Contract. Hence, his appearance at the oral hearing would be

redundant.

4 Secondly, the Tribunal should consider the principles of cost efficiency and reduction

of unnecessary expenses stipulated in Art. 17(1) CEAC Rules. These are the reasons


6

why so many parties opt for arbitration in the first place as it promises to be swift and

less expensive than proceedings in front of courts [Lew/Mistelis/Kröll, p. 232]. It has

become an economic necessity in the international arbitration that non-essential

witness hearings are being avoided in favour of written witness statements because it

provides more efficient means of presenting evidence [Petrochilos, p. 914;

Wolf/Preteroti]. The cost and time efficiency demands should be also the lens

through which the actual necessity of Mr. Short’s presence should be perceived. It is

Respondent’s submission that Mr. Short’s attendance at the oral hearing would prove

to be merely a manifestation of unnecessary spendings by the Tribunal.

5 Thirdly, it should be considered that Mr. Short’s recollection of the events was

recorded only a few months after the events had taken place [RE 1, pp. 37-38]. At that

time Mr. Short’s memory was fresh. There has been a considerable time period since

the phone call in question took place. The exact wording of the phone call is not

remembered by any of the witnesses [PO 2, p. 55, para. 27]. Can Claimant reasonably

expect that Mr. Short will have a sudden epiphany about the disputed events from

two years ago? Respondent does not think so.

6 Fourthly, as to the “far too many questions unanswered” that Claimant sees in

Mr. Short’s testimony [MC, p. 6, para. 16], Respondent is sure that with relatively

little effort expended, clear answers appear. Mr. Short’s statement that “the shipping

contract was of no interest to [him]” [RE 1, p. 37], is clear once the relevant

circumstances are considered. The Contract included FAS INCOTERMS 2010

delivery term [CE 1, p. 12, para. 2]. Under this term Respondent was obliged to

deliver the goods to the port alongside the nominated vessel. From that point “it was

[Claimant’s] concern” [RE 1, p. 37]. Claimant’s assertion that Mr. Short failed to

clarify “why he was not authorized to respond to such a demand over the telephone”

[MC, p. 6, para. 16] is completely irrelevant. The statement only deals with Mr

Short’s authority to respond to Claimant’s avoidance of the Contract and its demand

to dispose of the polo shirts [RE 1, p. 37]. It does not have any connection to the issue

of the Contract amendment.

7 For all these reasons, Respondent asks the Tribunal to exercise its discretion under

Art. 27(4) CEAC Rules and admit the witness statement of Mr. Short despite his non-

appearance at the hearing.


7

B. Admission of Mr. Short’s written testimony should be considered

only in scope of CEAC Rules and DAA

8 The Tribunal may easily solve the current procedural problem by applying rules

agreed upon by the parties, i.e. CEAC Rules, and lex arbitri - DAA, which is based on

UNCITRAL Model Law [AA, pp. 10-11, para. 32]. Both sets of rules allow the

Tribunal a wide discretion in the area of evidence taking, recognising the need for a

flexible and individualized conduct of arbitration. Based on the analysis of these

rules, the Tribunal should reach a decision that the witness statement of Mr. Short

should be admitted without the necessity of his oral hearing [1.]. Furthermore,

Respondent will show that the application of IBA Rules in this case would be

disruptive to the arbitration proceedings for it would create a dangerous loophole

within the arbitration rules enabling outside rules to bypass CEAC Rules agreed upon

by the parties [2.].

1. Mr. Short’s written statement should be admitted under both

CEAC Rules and DAA

9 CEAC Rules supplemented by DAA are the procedural rules applicable to the current

proceedings as chosen by the parties [CE 1, p. 12-13, para. 19]. Both sets of rules were

not formed to address each minor issue which might ever arise during the arbitration

proceedings. The fact that neither CEAC Rules, nor DAA provide a specific rule on the

admissibility of written testimonies without subsequent appearance of witness does

not mean that they lack general rules and principles allowing the Tribunal to decide

the problem without further need for external rules.

10 Such a general principle can be found in Art. 19(2) DAA, and Art. 27(4) CEAC Rules,

which vest the Tribunal with powers to determine the admissibility and weight of any

evidence presented. These provisions enable the Tribunal to decide the matter of

Mr. Short’s testimony based upon its own consideration, being guided by

fundamental principles of arbitration – due process, efficiency and informality.

11 The principle of informality is among the most profound features distinguishing

arbitration from court proceedings and creates one of the reasons why the arbitration

has gained such popularity [Born, p. 1747; Lew/Mistelis/Kröll, p. 413;

Redfern/Hunter, p. 194]. This principle applies also to presenting of evidence.


8

[Lew/Mistelis/Kröll, p. 114]. The Tribunal should therefore assess the issue with

more leniency.

12 Due process [Art. 18 DAA; Art. 17(1) CEAC Rules] includes the party’s right to present

its case [Lew/Mistelis/Kröll, p. 95]. That also extends to party’s right to present its

evidence [UNCITRAL Digest on Model Law, p. 98], such as Mr. Short’s witness

statement. Respondent concedes that if Mr. Short attends the hearing in person, it

may add more weight to his written statement; however, his absence cannot logically

invalidate the evidence as such. This is supported by Art. 27(2) CEAC Rules allowing

production of written witness statements. By applying the principle of due process a

written witness testimony cannot be disregarded solely because the witness does not

attend the hearing. By disregarding the written testimony, the Tribunal would

deprive itself and the parties of valuable and highly relevant evidence.

2. Application of IBA Rules would violate party autonomy and legal

certainty

13 Despite clear presence of relevant rules and principles within the framework of CEAC

Rules and DAA, the Tribunal may still be tempted to seek further guidelines.

Claimant suggested the Tribunal should apply IBA Rules as guiding principles [MC,

p. 5, para. 12]. Respondent disagrees. By admitting any other procedural rules, even

if merely as guiding and interpretative tool, there is imminent danger of creating a

loophole through which new sets of rules can be added. As a result this would render

the future decision unpredictable and in turn undermine legal certainty of the parties.

14 The parties have agreed on CEAC Rules and DAA to govern the procedure. By adding

any other rules, e.g. IBA Rules, without the recognition of the parties, the Tribunal

would breach party autonomy principle. The Tribunal must not let that happen. It

should not operate as “a tribunal”, but rather as “the parties’ tribunal” in order to

harmonise the needs of both parties [Petrochilos, p. 173].

15 IBA Rules, in particular, are inadmissible as guiding principles to CEAC Rules for

their controversy and inconsistency. The IBA Rules constitute a misguided

combination of various aspects of different legal traditions. [Petrochilos, p. 759],

using as a basis other ad hoc or institutional rules, such as UNCITRAL Rules, or LCIA

Rules [IBA Commentary, p. 17].


9

C. By disrupting equality of the parties the Tribunal risks

unenforceability of the award

16 Claimant asks the Tribunal to disregard Mr. Short’s witness statement. Respondent

objects that by doing so, the Tribunal would disrupt the equality of the parties and

thus far the whole due process principle. By breaching this principle, the Tribunal

would face the risk of its future award being unenforceable under Art. V(1)(b) NYC.

17 The Tribunal shall treat the parties with equality and provide them with reasonable

opportunity to present their case [Art. 17(1) CEAC Rules; Art. 18 DAA]. This also

necessarily applies to the evidence-taking part of arbitration.

18 As to the Claimant’s request to disallow Mr. Long’s cross-examination if Mr. Short

will not appear at the oral hearing [MC, p. 9, para. 25], Respondent fully agrees with

that. When Mr. Short’s written statement will be accepted and considered by the

Tribunal, Respondent does not see the necessity to summon Mr. Long.

19 Mr. Short is prevented by his employer to testify in person, the Tribunal has no power

to ensure his presence and yet, his statement is still very important to solve the

dispute. Under these circumstances, the best way to deal with this issue is to

acknowledge Mr. Short’s written testimony as sufficient evidence; disregarding it

would be a breach of due process principle.

With regard to the issue of Mr Short’s witness statement admissibility,

Respondent asks the Tribunal to apply only CEAC Rules and DAA since application of

IBA Rules would infringe basic procedural rights of the parties. Consequently, the

witness statement should be accepted without Mr. Short’s appearance at the oral

hearing. By disregarding Mr. Short’s written statement the Tribunal would violate

Respondent’s right to due process by supressing its ability to present testimony of its

witness. By breaching this fundamental principle of arbitral procedure the Tribunal

risks unenforceability of the future award under NYC.


10

II. THE DELIVERY DATE HAS BEEN MODIFIED BY THE

TELEPHONE CONVERSATION BETWEEN CLAIMANT AND

RESPONDENT

20 The delivery date has been modified by the telephone conversation between the

representatives of Claimant and Respondent on 9 February 2011. Firstly, oral

modification was allowed [A.]. Secondly, telephone conversation did constitute an

amendment to the Contract since Respondent validly offered the change of delivery

date and Claimant effectively accepted [B.].

A. Oral modification of the Contract was allowed

21 Generally, in legal relationships governed by CISG freedom of form principle applies,

meaning that a contract can be concluded or modified in any form [Art. 11 CISG;

Rajski; UNCITRAL Digest on CISG, p. 73]. Freedom of form principle is restricted in

two cases, the first being parties’ express will to conclude or modify the contract only

in writing and the second being the application of national reservation under Art. 96

CISG.

22 In the case at hand the Contract did contain neither a clause requiring the written

form for any amendment, nor was there established a usage as to the application of

written form [PO 2, pp. 52-53, para. 11]. In other words, parties did not expressly or

impliedly called for a written form of the Contract.

23 With regard to Mediterraneo’s national reservation to freedom of form, Respondent

will establish that parties have excluded this reservation in the Contract [1.].

Alternatively, Mediterraneo's reservation would lead to the rules of private

international law resulting in the application of the law of Equatoriana which allows

oral modifications anyway [2.].

1. The parties have excluded the application of Mediterraneo’s

reservation in their choice-of-law clause

24 Claimant and Respondent have agreed in their choice-of-law clause that the Contract

“shall be governed by the United Nations Convention on Contracts for the

International Sale of Goods of 1980 (CISG) without regard to any national

reservation (...)” [CE 1, p. 13, para. 20]. In other words, they have excluded all

national reservations, including reservation under Art. 96 CISG. The wording of the


11

exclusion clause was not accidental. Parties have agreed the proceedings shall be

governed by CEAC Rules [CE 1, p. 12, para. 19], and in consequence opted for a

model clause proposed by CEAC itself [Art. 35 CEAC Rules, option b)].

25 Even though the exclusion clause was originally designed by CEAC, a highly respected

arbitration institution, Claimant contends that the exclusion was not possible for two

reasons [MC, pp. 10-11, paras. 28-34].

26 Firstly, Claimant argues CEAC adopted this model clause only for situations where a

Contracting State has made a reservation following its legislation requirement, and

then has derogated from such restrictions, without withdrawing the declaration [MC,

p. 11, para. 33]. Respondent acknowledges that CEAC mentioned its concern about

the situation in China where the form requirements are no longer imposed by

national legislation [Art. 10 Contract Law of the PRC] but the reservation to freedom

of form is still in force [fn. 6 to Art. 35 CEAC Rules]. However, the Chinese situation

was not the only reason CEAC had in mind when drafting the model clause excluding

national reservations. The underlying motives for its adoption were, most

importantly, the principles of neutrality and legal certainty [Brodernann/Weimann].

27 Principle of neutrality is recognized not only within the area of arbitral procedure

[Petrochilos, p. 219] but is also observed when it comes to the applicable rules

[Preamble of CEAC Rules; Brodernann/Weimann]. Drafters of CEAC Rules focused

on the neutrality and equal treatment bearing in mind their utmost importance when

parties come from different legal backgrounds. Also the ambiguity about the effects of

Art. 96 CISG played a role since the legal certainty was at stake. Some authors still

argue the direct application of form requirements should take place while others are

convinced the rules of private international law should apply in case of reservation

[Xiaolin/Andersen; Saf; Schroeter]. Since opinions to the effects of national

reservations differ, it was therefore reasonable for CEAC to construe the clause as

excluding them.

28 Following the same logic, it was reasonable for Claimant and Respondent to exclude

national reservations as both of them come from different legal backgrounds.

Claimant has its place of business in Mediterraneo, a common law country, where all

international sales contracts as well as their amendments must be in writing [PO 2,

p. 56, para. 34]. This was confirmed by the Supreme Court of Mediterraneo [AA, p.


12

10, para. 32]. Respondent, on the other hand, has its place of business in

Equatoriana, a civil law country [PO 2, p. 57, para. 36], where the freedom of form is

recognized [PO 2, p. 56, para. 34]. By excluding national reservations, parties

intended to bring more certainty and neutrality into their relationship.

29 Secondly, Claimant argues parties could not have derogated from Art. 96 CISG as this

is expressly forbidden by Art. 12 CISG – a provision of mandatory nature [MC, p. 11,

para. 32]. Even though Art. 12 CISG is mandatory when it comes to CISG as such, the

importance of party autonomy in arbitration proceedings must be stressed out [Born,

p. 1747; Lew/Mistelis/Kröll, p. 413; Redfern/Hunter, p. 194]. There are three

reasons why party autonomy prevails in case at hand.

30 First of all, the Tribunal is obliged to decide the dispute in accordance with rules of

law chosen by the parties as applicable to the substance of the dispute [Art. 28(1)

DAA; Art. 35(1) CEAC Rules]. Both DAA and CEAC Rules refer to the “rules of law”

chosen by the parties. This broadens the range of options available to the parties. For

example, “parties may agree on rules of law that have been elaborated by an

international forum but have not yet been incorporated into any national legal

system. Parties can also choose directly an instrument such as CISG as the body of

substantive law governing the arbitration” [UNCITRAL Digest on Model Law, p.

121]. Moreover, the importance of party autonomy with regard to the applicable rules

of law is shown in case law. It has been held that unless the tribunal respects the rules

of law chosen by the parties, the award might be successfully challenged and set aside

[Locks case].

31 Claimant and Respondent must have been aware of the fact that CISG as a whole

would be the law applicable since the parties have their place of business in

Contracting States. It follows there was no need to choose CISG. The only reason why

they specifically agreed on CISG without any national reservations must have been

that they wanted CISG to be treated as rules of law. This way they could have

excluded national reservations. As CISG was not chosen as a part of a law of a state,

the Tribunal should respect party autonomy and apply CISG in a way the parties

chose to.

32 Furthermore, the Tribunal is not bound by CISG in the same way as national courts

because arbitration tribunals cannot be considered as state organs [Gruber].


13

International treaties, including CISG, are binding upon its signatories [Art. 26

Vienna Convention] and their organs, those being the national courts. On the other

hand, arbitrators cannot be viewed as having the same position as national courts,

since the arbitration agreement, not an international treaty, is a core element of the

proceedings.

33 What is more, arbitrators apply CISG in a very flexible manner. This can be

illustrated by its application to contracts which do not fall within the scope of CISG. It

has been held that distribution agreements or contracts for work can be governed by

CISG despite not falling within the scope of CISG. Reasoning for this approach was

party autonomy and the flexibility of arbitration [Gruber; Fashion Products case].

34 In conclusion, CEAC Rules allow the parties to exclude national reservations made

under Art. 96 CISG and this was exactly what the parties did. Thus, the Tribunal is

not bound by Art. 12 CISG since it is primarily obliged to act in compliance with the

arbitration agreement.

2. Even if the Tribunal applies Art. 96 CISG, oral modification would

still be possible

35 Conflict of laws rules must be applied in case Mediterraneo’s reservation is not

excluded [2.1.]. The application of the rules of private international law leads to the

law of Equatoriana which allows oral modifications of contracts [2.2.].

2.1. The Tribunal should apply conflict of laws rules in case Art. 96 CISG is not

excluded

36 The key provisions dealing with the effects of national reservation at hand are Arts. 12

and 96 CISG. It is clearly stated that if a party to a contract has its place of business in

a reservation State, freedom of form principle “does not apply” [Art. 12 CISG].

However, nothing is said about the question which law will govern the formal validity

of the contract or its amendments [Schroeter]. It has been therefore suggested by the

majority of authors that rules of private international law should apply [Winship pp.

1-47; Rajski p. 659; Schlechtriem p. 45]. If the conflict of laws rules would point to

the country which prescribes form requirements, then form requirements would

prevail. If, on the other hand, the conflicts of laws rules would point to the country


14

where freedom of form is established, then the contract could be concluded or

modified even orally, e.g. by a telephone conversation.

37 The purpose and drafting history of Art. 96 CISG also indicates that drafters

presumed the effect of this article would lead to the application of rules of private

international law. Indeed, there was a proposal to explicitly lay down the direct

application of form requirements. However, this proposal was dismissed [Rajski,

p. 658].

38 The direct application of Mediterraneo’s form requirements should be rejected as it

would extend the law of Mediterraneo beyond its applicability. Direct application

would thus lead to absurd results, as Contracting States would start to make

reservations in order to extend the applicability of their domestic laws. That would

undermine the primary goal of CISG – to create a uniform international sales law

[Honnold, p. 189].

39 Approach favouring the rules of private international law was adopted by legal

practitioners, as well as by the national courts [Hispafruit BV case; Forestal Guarani

case; Adamfi Video case]. By contrast, Claimant points to the case law which has held

that the direct application of form requirements should take place in the event of a

reservation [MC, p. 10, para. 30]. Nevertheless, Claimant mentions only cases that

were decided by courts from the reserving Contracting States, i.e. Russia and PRC

[Onions case; Hot-Rolled Coils case]. On top of that, Hot-Rolled Coils case was

decided even before the writing requirement was abolished by the Chinese legislation.

40 In conclusion, Art. 96 CISG cannot be interpreted as imposing form requirements of

reserving Contracting State directly. To the contrary, the rules of private international

law must be applied instead.

2.2. The conflict of laws rules would result in the application of the law of

Equatoriana which allows oral modifications

41 Failing any designation of the applicable law by the parties, the Tribunal shall apply

the law determined by the conflict of laws rules which it considers appropriate

[Art. 28(2) DAA; Art. 35(1) CEAC Rules].


15

42 If the Tribunal finds that the parties did not agree on CISG as rules of law, but as a

part of applicable national law, national reservations could not have been excluded.

Hence, CISG provisions regarding the freedom of form principle do not apply.

43 UNIDROIT Principles are the second choice of the parties [CE 1, p. 13, para. 20].

They enshrine the freedom of form principle as well [Art. 1.2 UNIDROIT Principles].

However, they only apply within the framework of mandatory provisions of otherwise

applicable national law [Art. 1.4 UNIDROIT Principles]. Again, UNIDROIT Principles

do not govern the issue.

44 Under these circumstances, the Tribunal must determine otherwise applicable

national law. In order to do so, the Tribunal shall apply the law determined by the

conflict of laws rules which it considers appropriate [Art. 35(1) CEAC Rules]. In all

countries concerned, Danubia, Oceania, Equatoriana and Mediterraneo, the rules of

private international law prescribe the closest connection test in the absence of the

choice [PO 2, p. 56, para. 33]. It is reasonable that the Tribunal should apply the

closest connection test since it is decisive for the countries of arbitration seat, seat of

the seller and seat of the buyer.

45 In determining the law with the closest connection to a contract, different factors play

role, e.g. the place of contract conclusion or the place where the party making the

characteristic performance has its place of business [PO 2, p. 56, para. 33]. Since the

parties have not chosen the law applicable, the closest connection must be

established.

46 Respondent is a party giving effect to the characteristic performance since it sold

100,000 polo shirts [CE 1, p. 12, para. 1]. It has its place of business in Equatoriana

[AA, p. 5, para. 3]. Moreover, the parties concluded the Contract in Equatoriana

[PO 2, p. 52, para. 7]. Undoubtedly, Equatoriana is the country with the closest

connection because it is the place where the Contract was concluded as well as the

place where the party providing characteristic performance resides.

47 Equatoriana does not impose any restrictions regarding the form of conclusion or

modification of contracts [PO 2, p. 56, para. 34]. Thus, the delivery date in the

Contract might have been validly amended by a telephone conversation between

Mr. Long and Mr. Short.


16

B. Parties amended the Contract by the telephone conversation

48 On 9 February 2011, Respondent called Claimant to inform it about the delay in

delivery. Respondent proposed to deliver five days later. Claimant replied that it will

“make sure that all of the paper work reflected the new delivery date” [PO 2, p. 55,

para. 27].

49 Respondent presented a valid offer to amend the Contract [1.] which Claimant

accepted during its telephone conversation with Respondent [2.]. Therefore,

Respondent and Claimant amended the Contract.

1. The telephone conversation did constitute an offer to change the

date of delivery in the Contract

50 An offer must be sufficiently definite and indicate the intention of the offeror to be

bound in case of acceptance [Art. 14(1) CISG]. Offeror’s statements need to be

interpreted under Art. 8 CISG. If there is no recognizable common intent of the

parties under Art. 8(1) CISG, the understanding of a third reasonable person under

Art. 8(2) CISG should be applied [Schlechtriem/Schwenzer, p. 151]. This kind of

interpretation is a dominant one because it is very difficult to prove subjective intent

of the parties [Lautenschlager, p. 261]. Since the intent of the parties is disputed,

Respondent will analyse only the third reasonable person interpretation under

Art. 8(2) CISG.

51 The third reasonable person knows e.g. trade usages, jargon, different procedures of

transaction and technical aspects of the goods [Lautenchslager, p. 262]. To put it

simply, the third person knows how the business works. In business relations, there is

no “strict legal terminology” requirement. No one can expect in an ordinary run of

business that people’s communication will follow legal doctrines and terminology.

Businessmen are not lawyers.

52 This is precisely that kind of situation. Respondent had abrupt problem with its

supplier [PO 2, p. 53, para. 12], but Respondent stayed calm, was active and

immediately investigated other options. Unfortunately, all contacted suppliers

refused to guarantee the necessary delivery date [PO 2, p. 53, para. 13].

53 As a result, Respondent called Claimant that it is able to deliver the goods only on 24

February 2011 [AA, p. 7, para. 13]. This proposal was sufficiently definite.


17

Respondent also expressed its intention to be bound because it called Claimant and

actively proposed the later date of delivery and wanted to solve this unfortunate

situation. Thus, a valid offer was made [Art. 14(1) CISG].

54 Businessmen tend to communicate quickly and in plain, not legal, language.

Therefore, particular vagueness in Respondent’s statements cannot curb the

formation of the Contract amendment. In conclusion, the third reasonable person in

shoes of Claimant would have interpreted Respondent’s statement as an offer to

change the date of delivery. To sum up, a valid offer to amend the Contract was made.

2. Claimant accepted Respondent’s offer during their telephone

conversation

55 During the phone conversation Mr. Long stated that he would “make sure that all of

the paper work reflected the new delivery date” [PO 2, p. 55, para. 27]. Respondent

thus understood that the offer to amend the delivery date had been accepted. This

view is supported by Mr. Long’s own account of the events. In his witness statement

Mr. Long said that “under the circumstances there was little [he] could do except to

accept that the delivery would be late (…) nothing was said about the deduction for

late delivery” [CE 2, pp. 14-15].

56 In other words, Claimant knew it had no other option but to accept the amended

delivery date. It reassured Respondent that it would adjust the necessary paperwork

and it did not say anything about the stipulated penalties. If Claimant really thought

that the Contract was not amended, it would definitely mention the contractual

penalty clause.

57 Claimant’s unconditional acceptance is further evidenced by its subsequent conduct.

Claimant swiftly amended L/C keeping the same amount to be paid for the goods. It

did not request the payment of the penalties at all, not even when it avoided the

Contract two months later on [CE 6, p. 20]. First occasion when Claimant mentioned

the stipulated penalties was when it filed the Application for Arbitration [AA, p. 11,

para. 37]. That is nearly a year and a half after its right to collect the penalties had

allegedly arisen.

58 In the given situation, it is inconceivable that the third reasonable person would

interpret Claimant’s conduct in any other way than as an acceptance of Respondent’s


18

offer to amend the delivery date [Art. 8(2) CISG]. In conclusion, Claimant accepted

Respondent’s offer to amend the delivery date.

With regard to the issue of the Contract amendment, Respondent asks the

Tribunal to hold that oral modification of the Contract was allowed, because the

parties have effectively excluded the application of the Mediterraneo’s reservation in

their choice-of-law clause. Even if the Tribunal applies Art. 96 CISG, oral

modification would still be possible.

Respondent validly offered to amend the Contract and Claimant accepted. Hence, the

parties amended the Contract during their telephone conversation.


19

III. RESPONDENT DID NOT BREACH THE CONTRACT

59 Respondent delivered goods that matched the precise contractual specifications in

every aspect [PO 2, p. 52, para. 9]. Without any dispute, production of these goods

was carried out in an ethical manner without any use of child labour [PO 1, p. 49,

para. 8]. Respondent managed to reach these standards despite working on the verge

of profitability since Claimant was only willing to contract with it for a depressingly

low purchase price [AA, p. 6, para. 10; PO 2, p. 52, paras. 5-6].

60 Respondent did not breach the Contract by using child labour in unrelated

production because it did not assume, contractually or otherwise, the obligation to

avoid child labour in all of its business operations [A.]. Furthermore, Respondent

delivered goods conforming to the Contract [B.]. Even if the Tribunal finds that

Respondent’s use of child labour constituted breach of the Contract, Claimant cannot

rely on such breach as this would be contrary to the good faith principle [C.]. Finally,

even if the Tribunal holds that there was a breach of the Contract which Claimant is

liable for, it was not fundamental [D.].

A. Respondent did not have the obligation to avoid child labour in its

whole business

61 Claimant alleges that Respondent’s use of child labour constituted a breach of the

Contract [MC, p. 18, para. 59]. However, it is undisputed that Respondent never used

child labour in the production of the polo shirts delivered to Claimant [PO 1, p. 49,

para. 8]. Therefore, Respondent did not breach the Contract because it had no

obligation regarding the use of child labour in its whole business, since the “policy

clause” did not include such an obligation [1.] and there is no applicable international

trade usage that would establish it, either [2.].

1. The “policy clause” did not oblige Respondent to avoid child

labour as such

62 By virtue of Art. 12 of the Contract Respondent was obliged to adhere to Oceania Plus

policy. In particular, the “policy clause” provides that: “It is expected that all

suppliers to Oceania Plus Enterprises or one of its subsidiaries will adhere to the

policy of Oceania Plus Enterprises that they will conform to the highest ethical

standards in the conduct of their business” [CE 1, p. 12, para. 12]. Claimant argues


20

that an obligation not to use child labour can be reasonably inferred from the need to

comply with the highest ethical standards [MC, p. 18, para. 60]. Nevertheless,

Respondent will prove that the “policy clause” does not oblige Respondent to avoid

child labour in its whole business.

63 Claimant concludes that Respondent was aware that the “policy clause” covered a ban

on the use of child labour based on the fact that it fired the manager of the plant

where child labour was being used during the 2008 audit [MC, p. 19, para. 64].

Firstly, Respondent itself did not fire the manager. The manager of the plant

producing for Respondent had been fired around the date of the audit after

Respondent’s intervention in that regard. Secondly, according to newspapers the

firing had been due to allegations of corruption [PO 2, p. 51, para. 3]. Moreover, the

awareness of Respondent cannot be based on a single event. According to Art. 8(3)

CISG when determining both the intent of the party or the understanding of a third

reasonable person due consideration has to be given to all relevant circumstances of

the case.

64 In the present case relevant circumstances include the fact that Respondent complied

with Oceania Plus policy in all previous contracts with Claimant regarding the goods

delivered to it. Nevertheless, this may not be affirmed with respect to Respondent’s

dealings with other companies [PO 2, p. 52, para. 5]. Assuming that Oceania Plus

policy includes the obligation not to use child labour in the production of the goods it

is clear that the ban covers only the goods delivered to Claimant because otherwise

the 2007/2008 audit would not have been approved [AA, p. 6, para. 9]. Hence,

Respondent did not know and could not have been aware that it is prohibited to use

child labour as such [Art. 8(1) CISG].

65 Moreover, a third reasonable person would have not understood that the need to

comply with the highest ethical standards implies prohibition of child labour in all of

Respondent’s business operations [Art. 8(2) CISG]. Claimant submits that the

prohibition to this effect may be derived from the existence of widespread

international concern for working children, worldwide support given to the ILO

Convention 182 and private self-regulatory guides [MC, p. 20, para. 66]. It is indeed

true that these instruments aim to abolish child labour. But as a matter of fact they

merely testify that the use of child labour is very common in a globalized society [ILO


21

Statistics]. Claimant suggests that the highest ethical standards are found in Western

countries [MC, p. 20, para. 66]. The practice of Western multinational corporations

may be well illustrated by the example of Nike scandal. In the 1990s Nike faced vast

criticism for the use of child labour in Cambodia and Pakistan in factories it

contracted to manufacture soccer balls. Although Nike averted the scandal by taking

some action to reduce the practice, it continues to contract with companies in less

regulated areas where it is hard to ensure that child labour is not being used [The

Case of Nike].

66 In conclusion, Respondent undertook no contractual obligation regarding the way it

operates its business as a whole.

2. There is no applicable international trade usage that would

oblige Respondent to avoid child labour

67 Claimant argues that the obligation to avoid child labour as such is an international

trade usage applicable to the Contract [MC, p. 24, para. 82]. However, in order to

establish that the duty not to use child labour is an international trade usage that is

binding on Respondent, Claimant would have to prove that such usage was widely

known and regularly observed in the relevant trade and location and furthermore,

that Respondent knew or ought to have known about this usage [Art. 9(2) CISG;

Schlechtriem/Schwenzer p. 192].

68 As to the general knowledge and observance of the alleged usage in the trade and

location concerned, sadly enough, in countries like Equatoriana, where transnational

textile companies have their goods manufactured, usage of child labour is nothing

unusual. According to ILO estimations, there were around 306 million children (ages

5 – 17) in employment worldwide in 2008. Regarding child labour as defined in ILO

Conventions 182 and 138, there were around 216 million of child workers, more than

152 million from those belonging to the age group 5-14 years old. Unsurprisingly,

major incidence of child labour is in Asia and Pacific region – more than 96 million

children in employment [ILO Statistics]. Even though precise data are not available,

it is safe to assume that incidence of child labour in Equatoriana is quite high, since it

belongs to the region that is problematic in that respect [SD, p. 35, para. 3]. And it is

particularly the textile industry, where the occurrence of child labour is quite

frequent [Singh, p. 7].


22

69 While, as Claimant points out [MC, p. 20, para. 66], in the West the use of child

labour may be unacceptable, in developing countries it is often the only way how to

maintain the welfare of the family as a whole [Tadaki, p. 982]. This can be illustrated

on the example of Bangladesh where the complete prohibition of child labour in

garment industry caused the children to move to area of crime and prostitution

[Tadaki, p. 981], not to schools.

70 It follows that in the location where Respondent has its place of business and in the

particular trade in which it operates child labour is, unfortunately, nothing unusual.

And its ban is certainly not a usage that would be widely known and observed there.

This fact also refutes the knowledge or imputed knowledge element of international

trade usage in the sense of Art. 9(2) CISG. A party to an international sales contract

needs to be familiar only with those international trade usages that are commonly

known to and regularly observed by parties to contracts of the same specific type in

the specific geographic area where the party has its place of business [Tegernseer

Gebräuche case].

71 The fact that Equatoriana is a party to the ILO Convention 182 [AA, pp. 10-11,

para. 32] does not change anything. Firstly, the convention is not binding on

individuals. Secondly, the mere ratification of a convention by a country does not

prove that the principles promoted by such convention are generally complied with in

that country. It has been empirically proven that ratification of human rights treaties

does not correlate with actual observance of those rights and even that not

infrequently is treaty ratification associated with poorer human rights practices

[Hathaway, p. 1940].

72 Similarly, private initiatives of transnational companies like the UN Global Compact,

invoked by Claimant [MC, p. 24, para. 82], have no legal effect. Even though many

major corporations participate in the UN Global Compact or they at least publicly

declare adherence to some kind of code of conduct, it has to be born in mind that all

these instruments lack any independent monitoring and enforcement through

sanctions. At the end of the day they are little more than an instrument of rhetoric

[Tadaki, p. 951].

73 In conclusion, non-usage of child labour is not an international trade usage

applicable to the Contract.


23

B. Respondent delivered goods conforming to the Contract

74 Respondent delivered 100,000 polo shirts [AA, pp. 7-8, para. 17], in the

specifications as called for by the Contract [PO 2, p. 52, para. 9]. Nevertheless,

Claimant alleges that Respondent’s use of child labour constituted non-conformity of

the goods delivered [MC, p. 21, paras. 71 et seq.]. However, this cannot be

maintained. Firstly, there are no applicable public law requirements to which the polo

shirts would have to conform [1.]. Secondly, Respondent delivered the polo shirts

conforming to the Contract [2.].

1. There are no applicable public law requirements to which the

polo shirts would have to conform

75 The polo shirts did not have to comply with any public law standards of Oceania or

Mediterraneo. Claimant relies on Mussels case and alleges that the goods should

comply with relevant public law standards in the buyer’s country. According to

Claimant the ILO Convention 182 as such represents this standard [MC, p. 23,

para. 80]. First of all, the ILO Convention 182 does not impose any obligation on the

manufacturers of the goods because it is an international law instrument binding only

its Contracting States. Secondly, the ILO Convention 182 itself does not prohibit sale

of goods which were produced with the use of child labour in the Contracting States.

Thus, it cannot be seen as a public law standard in the sense of Mussels case.

76 The Tribunal may be concerned with Claimant’s allegations that the suspicion of the

use of child labour constituted lack of conformity of the polo shirts [MC, pp. 24-25,

paras. 83-84], as did the high level of dioxin in Frozen Pork case. However, Claimant

compares two completely different situations. There are two reasons why the case of

Yes Casual polo shirts in Oceania and the case of toxic meat in Frozen Pork case are

incomparable and therefore inapplicable to the situation at hand.

77 Firstly, when there is a suspicion that food is poisonous, the potential buyer would

avoid buying the product in order to protect its health. However, in the case of Yes

Casual polo shirts there was no serious risk to the customers. The public reaction was

rather a burst of fashion. It was a protest against big corporations offering expensive

clothes and not caring about the way the clothes are produced. The suspicion in

Frozen Pork case was sufficient to label the meat as unfit for sale. On the contrary, in


24

the case at hand Claimant sold the polo shirts to Pacifica Trading without any

difficulties [AA, p. 9, para. 24].

78 Secondly, whereas in Frozen Pork case there was legislation prohibiting sale of toxic

meat, there is no public law in Oceania prohibiting sale of clothes produced by a

company using child labour. Moreover, Respondent never used child labour in the

production of the polo shirts delivered to Claimant [PO 1, p. 49, para. 8]. Hence, the

situation is incomparable.

79 In conclusion, the ILO Convention 182 as such does not represent public law

requirement to which the polo shirts would have to comply. Additionally, suspicion of

the use of child labour could not render the polo shirts non-conforming. The Frozen

Pork case is inapplicable because it does not correspond to the case at hand.

2. Respondent delivered goods conforming to the Contract

80 Delivered polo shirts were of the stipulated quality and did conform to the Contract,

as the goods met the specified requirements [PO 2, p. 52, para. 9]. The Tribunal

should examine the quality of the delivered polo shirts only, not the quality of some

other goods produced by Respondent. As it is undisputed that Respondent never used

child labour in production of the goods delivered to Claimant [PO 1, p. 49, para. 8]

and as all the requirements of the Contract were met to the letter [PO 2, p. 52, para.

9], Respondent delivered goods of the demanded quality, thus goods conforming to

the Contract.

81 The polo shirts delivered by Respondent were fit for the purpose agreed on by the

parties, as they were fit for sale, which is the primary purpose of goods in any

international sales contract [Art. 35 CISG, Schlechtriem/Schwenzer, p. 575].

Claimant operates as a company buying goods for further resale [AA, p. 6, para. 7].

Therefore, the ordinary purpose of the polo shirts means that it must be possible for

Claimant to resell them [Schwenzer, p. 107]. First, Claimant sold the polo shirts to

Doma Cirun [AA, p. 6, para. 10], and even after the avoidance of the Contract it had

no trouble finding a substitute buyer. It took only 12 days before Claimant

successfully sold the polo shirts to Pacifica Trading for 86% of the original price [AA,

p. 9, para. 24]. It is even possible that Claimant could have gotten a higher price if it

had searched a bit longer. Furthermore, after the avoidance of Doma Cirun, Claimant


25

discussed different possibilities how to sell the goods [PO 2, p. 54, para. 20]. This

clearly demonstrates that it was very easy to find a buyer for the polo shirts.

82 Contrary to Claimant’s allegations [MC, pp. 21-22, para. 73], non-physical features of

quality did not become part of the Contract. These features can become part of a

contract through contract stipulations or trade usages [Schwenzer, pp. 105-106].

However, Respondent was under no obligation to avoid the use child labour in the

operation of its business, stemming either from the Contract or from any

international trade usage. Furthermore, there was no child labour used in the

production of the polo shirts delivered to Claimant [PO 1, p. 49, para. 8]. Hence,

Respondent delivered goods in every aspect conforming to the Contract.

83 In conclusion, there were no applicable public law requirements to which the polo

shirts would have to conform. Furthermore, the delivered polo shirts met the

demanded quality, as all the requirements of the Contract were satisfied [PO 2, p. 52,

para. 9]. Thus, Respondent delivered goods conforming to the Contract.

C. Even if the Contract was breached, Claimant cannot rely on such a

breach as this would be contrary to the good faith principle

84 Observance of good faith is a general principle of the CISG [Schlechtriem/Schwenzer,

p. 136; Magnus; Bonell; Protective Film case; Broadcasters case] and as such it is a

tool for gap filling [Art. 7(2) CISG]. Furthermore, the obligation to act in good faith is

embedded in Art. 1.7(1) UNIDROIT Principles and it is also invoked by Claimant

itself [MC, p. 16, para. 51]. The scope of this principle is specified through number of

good faith rules found throughout the CISG [Magnus II]. One of these specific good

faith rules is the prohibition of contradictory behaviour (venire contra factum

proprium) expressed e.g. in Arts. 29(2), 80, 16(2)(b) and 50 CISG [Magnus].

Similarly, there is number of rules which preclude a party from relying on certain

facts where it knew or could not have been unaware of them or their underlying

reasons [Schlechtriem/Schwenzer, p. 137], e.g. Arts. 35(3), 40 and 43(2) CISG.

85 In cases when the buyer asserts that the seller breached the contract by not

complying with certain ethical standards, the good faith principle restrains the buyer

from relying on such standards if he was only willing to a pay a price that was so low


26

that ethical production standards could not be expected to be applied

[Schwenzer/Leisinger, p. 265].

86 In the case at hand, Claimant states that it was concerned about Respondent’s use of

child labour [AA, p. 6, para. 9; MC SF, p. 1]. These concerns arose in connection with

the 2008 contract and were the reason why Claimant refrained from contracting with

Respondent for the following three years [PO 2, p. 52, para. 5]. When Claimant

decided to contract with Respondent in 2011 it was not because these concerns were

dispelled. The only reason was money [AA, p. 6, para. 10]. To be accurate,

Respondent’s price was 50.000 USD lower than the second lowest offer. The price

was even lower than the price of the original supplier that went bankrupt and

Claimant knew that it was so low it barely covered Respondent’s production costs

[PO 2, p. 52, para. 6].

87 Claimant stood in front of following decision: 50.000 USD of extra profit on one hand

and ethical concerns on the other. Claimant asked no questions and took the money.

88 It is highly hypocritical of Claimant to build an ethical image and to invoke ethical

standards when it is not ready to pay the price for it. Under the circumstances,

Claimant could not have been unaware that such a low purchase price can only be

reached at the expense of ethical standards of production. Claimant’s subsequent

insistence on compliance with those standards therefore constitutes venire contra

factum proprium and is in strong contradiction with the good faith principle.

89 Claimant submits that Respondent breached the Contract under Art. 35(2) CISG by

delivering non-complying goods [MC, pp. 23-25, paras. 79-84]. If that was the case,

Respondent is exempted from liability under Art. 35(3) CISG. Alternatively, Claimant

submits that Respondent breached the Contract under Art. 35(1) CISG by delivering

goods not conforming to the contractually stipulated quality [MC, pp. 21-23, paras.

73-78] or that Respondent breached a specific contractual obligation [MC, pp. 18-21,

paras. 60-70]. In those cases Respondent’s liability is excluded by the application of

the good faith principle in the specific form of prohibition of contradictory behaviour

and the preclusion of reliance on facts the asserting party could not have been

unaware of.


27

90 In conclusion, even if the Tribunal finds that Respondent’s use of child labour

constituted breach of the Contract, Respondent cannot rely on such a breach as this

would be contrary to the good faith principle.

D. In case there was a breach of the Contract, it was not a fundamental

one

91 Even if the Tribunal finds that Respondent breached the Contract, the breach was not

fundamental since the goods were successfully resold by Claimant. Under Art. 25

CISG a breach of contract is fundamental if it results in such detriment to the other

party as substantially to deprive him of what he is entitled to expect under the

contract. Fundamental breach concerning the quality of the goods occurs only if the

goods cannot be used for any other purpose [Huber/Mullis, p. 218; Cobalt Sulphate

case; Designer Clothes case; Shoes case].

92 Claimant submits that its primary function is the procurement and sale of goods to

the retail chains owned by Atlantica Megastores or Oceania Plus, such as Doma

Cirun. Claimant therefore argues that it was substantially deprived of what it was

entitled to expect because it was unable to sell the polo shirts in its normal course of

business [MC, pp. 25-26, para. 87]. However, this argument is unfounded and should

be disregarded by the Tribunal because Claimant’s “primary function” is not relevant

when assessing the breach. For instance, it was noted in Shoes case that there is no

fundamental breach when the buyer can make some use of the defective goods. The

court decided that there is no fundamental breach unless the goods are totally unfit

for resale.

93 In Cobalt Sulphate case invoked by Claimant [MC, p. 25, para. 87] it was ruled that

there was no fundamental breach allowing the buyer to avoid the contract since he

was not able to show that the sale of South African cobalt sulphate in Germany or

abroad was not reasonably possible. When deciding the case the German Supreme

Court took into account the remedial system of the Convention and its underlying

purposes, i.e. to preserve enforceability of the contract and to restrain avoidance in

favour of the damage or price reduction remedies. In the case at hand, not only was

Claimant unable to show that the sale of the polo shirts in Oceania or abroad was not

reasonably possible, Claimant in fact resold the goods in less than two weeks after

avoidance of the Contract [AA, p. 9, para. 24].


28

94 Likewise, Designer clothes case [MC, p. 25, para. 87] supports Respondent’s

interpretation of fundamental breach rather than Claimant’s view. OLG Köln held

that a breach is not fundamental if the buyer is able to sell the goods, albeit with a

price reduction, without unreasonable expense, despite the deviation of the goods

from the contractually agreed quality or despite another defect. In Designer clothes

case almost all of the delivered goods proved to be unmerchantable due to multitude

of defects obvious to a layperson. As regards the current dispute, Claimant considered

selling the polo shirts via a chain of discount supermarkets owned by Oceania Plus

[PO 2, p. 54, para. 20]. In the end, it was able to sell the polo shirts without

unreasonable expense for a reasonable price of USD 470,000 [AA, p. 9, para. 24].

95 In the alternative, Claimant maintains that it would have refused the Contract if it

had known of Respondent’s use of child labour and refers to the FCF v Adriafil case

[MC, p. 26, para. 88]. However, FCF v Adriafil case is unrelated to the issue at hand

since it deals with the question whether a delay in delivery of the goods constituted a

fundamental breach.

96 As regards the foreseeability requirement [MC, p. 26, paras. 89-90], Respondent did

not foresee and a reasonable third person would not have foreseen that the detriment

caused to Claimant substantially deprived it of what it was entitled to expect under

the Contract. Claimant decided to enter into the Contract with Respondent because it

was primarily concerned with the purchase price [AA, p. 6, para. 10]. Ethical

concerns were overridden by Claimant’s desire to pay the lowest possible price on the

market. The fact that Respondent did not use child labour in the production of the

goods is also highly important. Thus, even if the Tribunal holds that the breach was

fundamental, Respondent is exempted by the foreseeability requirement in Art. 25

CISG.

97 In conclusion, the breach of the Contract should not be considered fundamental

because not only the polo shirts were of merchantable quality, but they were also

successfully resold by Claimant without even changing their purpose and thus,

Claimant cannot assert that it was substantially deprived of what it was entitled to

expect under the Contract. Alternatively, the detriment was not foreseeable.


29

Regarding the issue of Respondent’s use of child labour, Respondent asks

the Tribunal to find that there was no breach of the Contract. Respondent had in fact

no obligation to avoid child labour in its whole business and it delivered goods in

compliance with the Contract. Alternatively, if the Tribunal holds there was a breach

of the Contract, it should preclude Claimant from relying on such a breach as this

would be contrary to the good faith principle. In any case, if there was a breach of the

Contract which Claimant is liable for, the Tribunal should find that it was not

fundamental.


30

IV. CLAIMANT IS NOT ENTITLED TO ANY RAISED CLAIMS

98 It is Respondent’s position that Claimant has no right to the restitution of the

purchase price, payment of the contractual penalty or any of the raised settlements

for the following reasons.

99 Firstly, under Art. 49(1)(a) CISG Claimant may declare the Contract avoided only if

Respondent’s failure to perform any of its obligations under the Contract amounts to

a fundamental breach. Respondent did not use child labour while performing the

Contract [PO 1, p. 49, para. 8] and the delivered polo shirts conformed to the

Contract. It follows that it is impossible for Claimant to effectively recover the

purchase price.

100 Secondly, under the Contract [CE 1, p. 12, para. 10] it is possible to claim penalty only

in the case of late delivery. As the delivery date was duly amended, Respondent

delivered the polo shirts according to the Contract. Therefore, Claimant is not entitled

to the contractual penalty.

101 Thirdly, the basic ground for the damages to be awarded under Art. 74 CISG is the

breach of the Contract. As Respondent did not breach the Contract the Tribunal

should not grant Claimant any damages.

Regarding the issue of damages, Respondent asks the Tribunal to dismiss all

claims on the ground that Respondent did not breach the Contract by using child

labour in unrelated production and delivered conforming goods on time.


31

Request for Relief

In light of the submissions made above, Respondent respectfully requests the

Tribunal to:

(1) consider Mr. Short’s witness statement even if he does not appear at the

hearing,

(2) hold that the delivery date has been modified by the telephone conversation

between Claimant and Respondent,

(3) hold that Respondent did not breach the Contract,

(4) hold that Respondent is not entitled to any raised claims.

On behalf of Respondent

FALTUS Vojtěch

FEIGLER Michal

HOLOUBKOVÁ Kamila

MALANÍK Michal

ŠLAMPA Martin

THIELOVÁ Linda

UHŘÍČEK Jiří ZÁVODNÁ Martina ŽIVĚLOVÁ Alexandra

Documents

MASARYK UNIVERSITY Memorandum for Respondent