MEMORANDUM FOR RESPONDENT - Electronic Library · PDF fileMEMORANDUM FOR RESPONDENT UNIVERSITY OF ST.GALLEN ... D. CLAIMANT IS NOT ENTITLED TO DAMAGES ... Paulsson’s Moral Hazard

EIGHTEENTH ANNUAL

WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT

APRIL 15TH

– 21ST

2011, VIENNA

MEMORANDUM FOR RESPONDENT

UNIVERSITY OF ST.GALLEN

CLAIMANT RESPONDENT

MEDITERRANEO TRAWLER EQUATORIANA

SUPPLY AS FISHING LTD

c/o Horace Fasttrack c/o Joseph Langweiler

75 Court Street 14 Capital Boulevard

Capitol City, Mediterraneo Oceanside, Equatoriana

Tel. (0) 146-9845 Tel. (0) 214 77 32

Fax (0) 146-9850 Fax (0) 214 77 33

[email protected] [email protected]

SAMUEL HORNER GEORG LORENZ NADIA WALKER

FLORIAN WEGMANN LUZIUS ZUMSTEIN

University of St. Gallen

_____________________________________________________________________

Memorandum for Respondent ii

TABLE OF CONTENTS

Table of Contents................................................................................................. ii

Table of Abbreviations ........................................................................................ v

Index of Authorities .......................................................................................... vii

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

Summary of Argument ....................................................................................... 2

Argument ............................................................................................................. 3

I. The Tribunal does not have jurisdiction ..................................................... 3

A. CONSTITUTION OF THIS TRIBUNAL VIOLATES THE CLAUSE ................. 3

1. The parties derogated from the Milan Rules ........................................... 4

2. Horace Z.’s appointment violates the Clause .......................................... 6

3. The parties did not waive their right to object......................................... 6

B. CONSTITUTION OF THIS TRIBUNAL VIOLATES THE MILAN RULES ....... 6

1. The Arbitral Council violated Art. 20(3) Milan Rules ............................ 7

2. The non-confirmation exceeded Arbitral Council’s mandate ................. 8

3. The parties did not waive their right to object....................................... 10

C. ANY AWARD RENDERED BY THIS TRIBUNAL WOULD NOT BE

RECOGNIZED AND ENFORCED .............................................................. 10

II. Interim measures should be granted and Claimant is liable for breach of

confidentiality ............................................................................................... 12

A. CLAIMANT BREACHED CONFIDENTIALITY ........................................... 12

1. CLAIMANT has a duty of confidentiality ................................................ 12

(a) The 2010 Milan Rules apply .............................................................................. 12


_____________________________________________________________________

Memorandum for Respondent iii

(b) Pursuant to Art. 8(1) of the 2010 Milan Rules CLAIMANT has a duty of

confidentiality ..................................................................................................... 13

(c) CLAIMANT agreed to confidentiality by consenting to choose arbitration ........ 13

2. CLAIMANT’s interview breached the duty of confidentiality ................. 13

3. The breach was not justified .................................................................. 14

(a) The exception of Art. 8(1) Milan Rules only refers to arbitral awards .............. 14

(b) CLAIMANT was not protecting its rights ............................................................. 14

B. INTERIM MEASURES SHOULD BE GRANTED .......................................... 15

1. The Tribunal has authority to order interim measures .......................... 15

2. The prerequisites to grant interim measures are fulfilled ...................... 15

3. The prerequisites do not have to be strictly fulfilled ............................. 16

C. CLAIMANT IS LIABLE FOR BREACH OF CONFIDENTIALITY .................. 16

III. Claim for breach of contract should be dismissed .................................. 16

A. NO BREACH OF CONTRACT OCCURRED ................................................. 17

1. The goods fulfilled all contractual requirements pursuant to Art. 35(1)

CISG ...................................................................................................... 17

(a) The contract was formed on the basis of the sale confirmation ......................... 17

(b) The contract did not include a size requirement ................................................ 18

2. The squid fulfilled all requirements of Art. 35(2) CISG ....................... 20

(a) The squid were fit for all ordinary purposes ...................................................... 21

(b) The squid were fit for the particular purpose ..................................................... 21

(c) CLAIMANT did not rely on RESPONDENT’s skill and judgement ......................... 22

(d) The squid possessed the qualities held out by the sample .................................. 22

B. CLAIMANT LOST ITS RIGHT TO RELY ON AN ALLEGED LACK OF

CONFORMITY ......................................................................................... 23


_____________________________________________________________________

Memorandum for Respondent iv

1. CLAIMANT did not examine the goods properly .................................... 23

(a) The quantity examined was not sufficient .......................................................... 23

(b) The examined samples were not representative ................................................. 24

(c) The quality of examination was not sufficient ................................................... 24

2. CLAIMANT did not give proper notice about non-conformity ............... 25

(a) Communication of 16 August 2008 was not in time .......................................... 25

(b) Communication of 29 July 2008 was inadequate ............................................... 27

(c) RESPONDENT did not waive its right to object .................................................... 28

C. AVOIDANCE OF THE CONTRACT WAS NOT POSSIBLE ............................ 29

1. The alleged breach of contract was not fundamental ............................ 29

(a) CLAIMANT was not substantially deprived of the benefit of the contract ........... 29

(b) The results were not foreseeable ........................................................................ 31

2. Other remedies would have been sufficient .......................................... 31

3. CLAIMANT failed to declare avoidance .................................................. 32

4. The alleged non-conformity only affected an easily separable part of the

goods ...................................................................................................... 32

D. CLAIMANT IS NOT ENTITLED TO DAMAGES .......................................... 33

1. The prerequisites for damages are not fulfilled ..................................... 33

2. Mitigation of losses would have been possible ..................................... 33

(a) The measures taken were not adequately executed ............................................ 34

(b) Further measures would have been adequate ..................................................... 35

IV. Prayers for Relief ........................................................................................ 35


_____________________________________________________________________

Memorandum for Respondent v

TABLE OF ABBREVIATIONS

Art. Article

Amend. Amendment

Cf. Compare

Cir. Circuit (U.S. Court of Appeals)

CISG United Nations Convention on Contracts for the International

Sale of Goods, Vienna, 1980

Cl. Ex. Claimant’s Exhibit

CLOUT Case Law on UNCITRAL Texts

DIS Deutsche Institution für Schiedsgerichtsbarkeit (German

Institute for Arbitration)

Ed / Eds Editor / Editors

ed. edition

e.g. exemplum gratia (for example)

Encycl. Encyclopedia

et al. et alia (and others)

etc. et cetera (and so forth)

ETD Estimated Time of Departure

et seq. / et seqq. et sequens (and the following one) / et sequentia (and those that

follow)

g grams

IBA International Bar Association

ICC International Chamber of Commerce

id. idem (the same)

i.e. id est (that is)

LCIA London Court of International Arbitration

Lloyd’s Rep. Lloyd’s Law Reports

Ltd Limited

Mem. Cl. Memorandum for Claimant

No. Number

NYC New York Convention

p. / pp. page / pages

para. / paras. paragraph / paragraphs


_____________________________________________________________________

Memorandum for Respondent vi

proc. ord. Procedural Order

prot. protocol

Re. Ex. Respondent’s Exhibit

Req. for Arb. Request for Arbitration

Stat. of Def. Statement of Defense

UN United Nations

UNCITRAL United Nations Commission on International Trade Law

UNIDROIT International Institute for the Unification of Private Law

US United States of America

v. versus (against)

Vol. Volume

WIPO World Intellectual Property Organization


_____________________________________________________________________

Memorandum for Respondent vii

INDEX OF AUTHORITIES

Abbreviation Citation Cited in

TREATIES, COVENTIONS AND LAWS

CISG Convention on Contracts for the International

Sale of Goods, Vienna, 1980.

passim

IBA Guidelines IBA Guidelines on Conflicts of Interest in

International Arbitration, 2004.

21,28

DIS Rules Rules of the German Institute of Arbitration. 12

ICC Rules Rules of Arbitration of the International

Chamber of Commerce.

11

LCIA Rules Arbitration Rules of the London Court of

International Arbitration.

11,12

Milan Rules Arbitration Rules of the Milan Chamber of

Arbitration.

passim

New York Convention Convention on the Recognition and

Enforcement of Foreign Arbitral Awards, New

York, 1958.

35,54

Swiss Rules Arbitration Rules of the Swiss Chambers' Court

of Arbitration and Mediation.

11,12

UNCITRAL Model Law UNCITRAL Model Law on International

Commercial Arbitration, 1985 with amendments

as adopted in 2006.

1,4,39,54

WIPO Rules Arbitration Rules of the World Intellectual

Property Organization.

47


_____________________________________________________________________

Memorandum for Respondent viii

COMMENTARY

Achilles WILHELM-ALBRECHT ACHILLES, Kommentar

zum UN-Kaufrechtsübereinkommen (CISG),

Neuwied, 2000.

94,101,

102,115

Bianca/Bonell/Author CESARE MASSIMO BIANCA/MICHAEL JOACHIM

BONELL (Eds), Commentary on the International

Sales Law, The 1980 Vienna Sales Convention,

Milan, 1987.

96

Blackaby/Partasides NIGEL BLACKABY /CONSTANTINE PARTASIDES

/ET AL., Redfern and Hunter on International

Arbitration, Oxford, 2009.

33

Born (2009) GARY BORN, International Commercial

Arbitration, 3rd

ed., Austin, 2009.

3,35,54,56,

60,61

Brown ALEXIS BROWN, Presumption Meets Reality: An

Exploration of the Confidentiality Obligation in

International Commercial Arbitration, Browns

Published, 2001, 969-1025.

47,60,61

Carbonneau THOMAS E. CARBONNEAU, “The Exercise of

Contract Freedom in the Making of Arbitration

Agreements”, Vanderbilt Journal of

Transnational Law, October 2003, 1189-1232.

8

Coker DON COKER, Letters of Credit, Bills of Lading

& International Trade Finance -Documentation

Issues Important in Litigation, HG.org, 2010.

Found under:

< http://www.hg.org/article.asp?id=18850> (last

visited 30.12.2010).

70,71

Coppo BENEDETTA COPPO , “The 2010 Revision of the

Arbitration Rules of the Chamber of Arbitration

26


_____________________________________________________________________

Memorandum for Respondent ix

of Milan”, Vindobona Journal of International

Commercial Law and Arbitration, Vol. 14,

2010, 283-296.

Derains/Schwartz YVES DERAINS /ERIC A. SCHWARTZ , Guide to

the ICC Rules of Arbitration, The Hague, 2005.

29,33

Dessemontet FRANÇOIS DESSEMONTET, “Arbitration and

Confidentiality”, The American Review of

International Arbitration, Vol. 7, 1996, 299-318.

47

DiMatteo et al. LARRY DIMATTEO/ LUCIEN DHOOGE/STEPHANIE

GREENE/VIRGINIA MAURER/ MARISA

PAGNATTARO, “The Interpretive Turn in

International Sales Law: An Analysis of Fifteen

Years of CISG Jurisprudence”, Northwestern

Journal of International Law & Business,

Winter 2004, 299-440.

66

Enderlein/Maskow/

Strohbach

FRITZ ENDERLEIN/DIETRICH MASKOW/HEINZ

STROHBACH (Eds), Internationales Kaufrecht:

Kaufrechtskonventionen,

Verjährungskonventionen,

Vertretungskonventionen,

Rechtsanwendungskonventionen, Berlin, 1991.

112

Enderlein/Maskow FRITZ ENDERLEIN/DIETRICH MASKOW,

International Sales Law, New York, 1992.

89

Ferrari FRANCO FERRARI, “Fundamental Breach of

Contract Under the UN Sales Convention - 25

Years of Article 25 CISG”, Journal of Law and

Commerce, Spring 2006, 489-508.

124

Fry/Greenberg JASON FRY/SIMON GREENBERG, “The Arbitral

Tribunal: Applications of Articles 7-12 of the

ICC Rules in Recent Cases”, ICC International

29


_____________________________________________________________________

Memorandum for Respondent x

Court of Arbitration Bulletin Vol. 20 No. 2,

2009, 12 et seqq.

Greenberg/Mange SIMON GREENBERG/FLAVIA MANGE,

Institutional and Ad Hoc Perspectives on the

Temporal Conflict of Arbitral Rules, Journal of

International Arbitration, Vol. 27, 2010, 199 -

213.

43

Honsell/Author HEINRICH HONSELL (Ed), Kommentar zum UN-

Kaufrecht: Übereinkommen der Vereinten

Nationen über Verträge über den Internationalen

Warenkauf (CISG), Berlin, 2010.

106,115,

129,134,

141,144,

145

Huber/Mullis PETER HUBER/ALISTAIR MULLIS, The CISG,

Munich, 2007.

66,137,143

Hyland RICHARD HYLAND, “Conformity Of Goods To The

Contract Under The United Nations Sales

Convention And The Uniform Commercial Code”

In: PETER SCHLECHTRIEM, Einheitliches Kaufrecht

und Nationales Obligationenrecht: Referate und

Diskussionen der Fachtagung Einheitliches

Kaufrecht, Freiburg i. Breisgau, 16./ 17. February

1987, 305-341.

89

Kaufmann-Kohler/Stucki GABRIELLE KAUFMANN-KOHLER/BLAISE

STUCKI, International Arbitration in

Switzerland, Zurich, 2004.

61

Lew/Mistelis/Kröll JULIAN LEW/LOUKAS MISTELIS/STEFAN KRÖLL,

Comparative international commercial

arbitration, The Hague, 2003.

33

Lionnet/Lionnet

ANNETTE LIONNET/KLAUS LIONNET, Handbuch

der internationalen und nationalen

Schiedsgerichtsbarkeit, 3rd

ed., Stuttgart, 2005.

45,47


_____________________________________________________________________

Memorandum for Respondent xi

Lookofsky JOSEPH LOOKOFSKY, Understanding the CISG,

3rd

ed., Alphen aan den Rijn, 2008.

84,85,87

Magnus ULRICH MAGNUS, “The Remedy of Avoidance

of Contract Under CISG - General Remarks and

Special Cases”, Journal of Law and Commerce,

06-2005, 423-436.

132

Moses

MARGARET MOSES, The principles and practice

of international commercial arbitration,

Cambridge, 2008.

8,22

Paulsson JAN PAULSSON, quoted in: ALEXIS MOURRE,

“Are unilateral appointments defensible? On Jan

Paulsson’s Moral Hazard in International

Arbitration”, 05 October 2010.

Found under:

<http://kluwerarbitrationblog.com/blog/2010/10

/05/are-unilateral-appointments-defensible-on-

jan-paulsson%E2%80%99s-moral-hazard-in-

international-arbitration/> (last visited:

19.01.2011).

22

Poudret/Besson JEAN-FRANÇOIS POUDRET/SÉBASTIEN BESSON,

Comparative Law of International Arbitration,

2nd

ed., London, 2007.

1,5

Schlechtriem/Butler PETER SCHLECHTRIEM/PETRA BUTLER, UN Law

on International Sale of Goods, Heidelberg,

2009.

124

Schlechtriem/Schwenzer/

Author

PETER SCHLECHTRIEM/INGEBORG SCHWENZER

(Ed), Commentary on the UN Convention on

the International Sale of Goods (CISG), 3rd

ed.,

Oxford, 2010.

67,75,85,94,

95,96,104,

118,129,132


_____________________________________________________________________

Memorandum for Respondent xii

Schlechtriem PETER SCHLECHTRIEM, Damages and

performance interest, Festschrift Apostolos

Georgiades, Athens, 2005.

141

Secretariat Commentary to

Art. 33

Secretariat Commentary on the 1978 Draft -

Guide to Article 35 CISG.

Found under:

<http://www.cisg.law.pace.edu/cisg/text/secom

m/newsecomm/secomm-35.html> (last visited

28.12.2010).

89,91

Shackelford, ELISABETH SHACKELFORD, Party Autonomy and

regional Harmonization of Rules in

International Commercial Arbitration,

University of Pittsburgh Law Review, Vol. 67,

2006, 897-912.

43

Staudinger/Magnus JULIUS VON STAUDINGER/ULRICH MAGNUS,

Kommentar zum Bürgerlichen Gesetzbuch –

Wiener UN-Kaufrecht (CISG), Berlin, 2005.

94,95,98,

101,102

Tannò PATRICK TANNÒ, Die Berechnung der Rügefrist

im schweizerischen, deutschen und UN-

Kaufrecht, St. Gallen, 1993.

96,98

UNCITRAL Digest FRANCO FERRARI/HARRY FLECHTNER/ RONALD

BRAND (Ed), The Draft UNCITRAL Digest and

Beyond: Cases, Analysis and Unresolved Issues

in the U.N. Sales Convention, London, 2004.

87,112,

118,137,

145,147

Yesilirmak ALI YESILIRMAK, Provisional Measures in

International Commercial Arbitration, The

Hague, 2005.

56

Zeller BRUNO ZELLER, Damages under the Convention

on Contracts for the International Sale of Goods,

New York, 2005.

145,150


_____________________________________________________________________

Memorandum for Respondent xiii

CASES

AUSTRALIA

CISG-online Case No. 218 Federal Court of Australia (South Australia

Registry), 28.4.1995.

134

AUSTRIA

CISG-online Case No. 120 Internationales Schiedsgericht der

Bundeskammer der gewerblichen Wirtschaft in

Österreich, 15.06.1994, SCH4318.

118

CISG-online Case No. 224 Oberster Gerichtshof, 6.2.1996, 10Ob518/95. 144

CISG-online Case No. 485 Oberster Gerichtshof, 27.8.1999, 1Ob223/99x. 106,108

CANADA

Corporacion Trans-

nacional v. STET

Superior Court of Justice, 22.11.1999, 45

O.R.3d 183, CLOUT Case No. 391.

39

FRANCE

E.T.P.M v. Gas del Estado Cour de Cassation, Chambre Civile 1,

4.12.1990, 88-13336.

4

GERMANY

CISG-online Case No. 26 Landgericht Frankfurt am Main, 16.9.1991, 3/11

O 3/91.

134

CISG-online Case No. 119 Oberlandesgericht Düsseldorf, 14.01.1994, 17 U

146/93.

147

CISG-online Case No. 135 Bundesgerichtshof, VIII. Zivilsenat, 3.4.1996,

VIII ZR 51/95.

126,132


VIII 159/94.

106

CISG-online Case No. 150 Oberlandesgericht Stuttgart, 21.08.1995, 5 U

195/94.

106


_____________________________________________________________________

Memorandum for Respondent xiv


VIII ZR 306/95.

115


VIII 300/96.

118,145


VIII 259/97.

118

CISG-online Case No. 561 Landgericht Erfurt, 29.7.1998, 3 HKO 43/98. 115

CISG-online Case No. 618 Oberlandesgericht Oldenburg, 5.12.2000, 12 U

40/00.

118

CISG-online Case No. 683 Oberlandesgericht Oldenburg, 28.4.2000, 13 U

5/00.

115

CISG-online Case No. 709 Oberlandesgericht Köln, 14.10.2002, 16 U

77/01.

134

CISG-online Case No. 817 Oberlandesgericht Karlsruhe, 19.12.2002, 19 U

8/02.

134


VIII 67/04.

84

CISG-online Case No.

1581

Oberlandesgericht Köln, 17.01.2007, 19 U

11/07.

96


1681

Oberlandesgericht Hamburg, 25.1.2008, 12 U

39/00.

106

HUNGARY

CISG-online Case No. 163 Arbitration Court attached to the Hungarian

Chamber of Commerce and Industry, 5.12.1995,

VB/94131.

106


_____________________________________________________________________

Memorandum for Respondent xv

ICC

CISG-online Case No. 36 ICC International Court of Arbitration, 1992,

ICC Case No. 7197.

147

CISG-online Case No. 129 ICC International Court of Arbitration,

23.8.1994, ICC Case No. 7660.

137

CISG-online Case No. 749 ICC International Court of Arbitration, 1997,

ICC Case No. 8786.

148

CISG-online Case No. 844 ICC International Court of Arbitration,

1.3.1995, ICC Case No. 7645.

75

NETHERLANDS

CISG-online Case No. 29 District Court Roermond, 19.12.1991, “Fallini

Stefano v. Foodik”.

101,106

CISG-online Case No. 547 Gerechtshof Arnhem, 17.6.1997, 96/449. 106,109

CISG-online Case No. 740 Netherlands Arbitration Institute, 15.10.2002,

Condensate crude oil mix ("Rijn Blend").

85

CISG-online Case No. 945 Rechtbank van Koophandel Kortrijk, 4.6.2004,

AR 21 36/2003.

134

SPAIN


1488

Audiencia Provincial de Castellon,

21.3.2006, Appeal No. 621/2005.

134

SWITZERLAND

CISG-online Case No. 413 Schweizerisches Bundesgericht, 28.10.1998,

4C.179/1998.

106,107,

126, 132

CISG-online Case No. 415 Handelsgericht des Kantons Zürich, 30.11.1998,

HG 930634.

119,120

CISG-online Case No. 727 Handelsgericht des Kantons St. Gallen,

3.12.2002, HG.1999.82-HGK.

150


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Memorandum for Respondent xvi

UNITED KINGDOM

Offshore International v.

Banco Central

In: (1976) 2 Lloyd’s Rep. 402. 43

Bunge v. Kruse In: (1979) 1 Lloyd’s Rep. 279. 43

Ali Shipping Corp. v.

Shipyard Trogir

In: (1998) 1 Lloyd’s Rep. 643. 45

Emmott v. Michael Wilson

& Partners

In: (2008) 1 Lloyd's Rep. 616. 45

UNITED STATES OF AMERICA

Encycl.Universalis v.

Encycl. Britannica

US Court of Appeals (2nd Cir.), 31.3.2005,

403 F.3d 85.

36,38


_____________________________________________________________________

Memorandum for RESPONDENT 1

STATEMENT OF FACTS

CLAIMANT, Mediterraneo Trawler Supply AS, is a company from Mediterraneo which sells

seafood as bait and for human consumption. RESPONDENT, Equatoriana Fishing Ltd, is a

company from Equatoriana which catches and sells squid of the species illex danubecus, both

as bait and for human consumption.

On 14 April 2008, RESPONDENT received an email from CLAIMANT requesting offers for the

sale of squid. In mid May, a representative of RESPONDENT visited CLAIMANT and submitted a

sample of its goods for sale. The sample was clearly marked “illex danubecus 2007”.

CLAIMANT found the squid in the sample to be adequate and on 29 May 2008 ordered 200

metric tons thereof, modifying its original request by demanding the squid to be “certified fit

for human consumption”. On the same day, RESPONDENT replied to the order of the squid and

added an arbitration clause, which was duly acknowledged by CLAIMANT. The sale

confirmation specified that the delivery would consist of both 2007 and 2008 catch. This was

necessary because the 2008 catch season had already begun and RESPONDENT was running

low on 2007 catch. It is general knowledge in the fishing industry and a law of nature that

squid caught as early in the season as May are smaller than those caught later.

The squid were delivered on 1 July 2008. CLAIMANT tested only five of 20’000 cartons. All

five were of the 2007 catch and CLAIMANT did not inspect the 2008 catch at all. CLAIMANT

re-sold the squid to its customers without complaint.

Only on 29 July 2008 did CLAIMANT contact RESPONDENT by email to inform it about

complaints from some of its customers regarding the squid. The email did not specify the

nature of the problem. Therefore, RESPONDENT replied on 3 August 2008 and asked for

inspection by a certified testing agency to ascertain the source of the complaints. On 16

August 2008 CLAIMANT forwarded the report of the agency to RESPONDENT. The report

showed the squid to be in excellent condition and fit for human consumption. The size of both

the 2007 and 2008 catch was representative for the time of their catch as specified in the

contract. Although RESPONDENT had delivered squid exactly according to its sale

confirmation, CLAIMANT asserted that it was of no use. On 18 August 2008, RESPONDENT

informed CLAIMANT by email that it had complied with the contract and could not take

responsibility for any problems CLAIMANT encountered in re-selling the ordered squid.

On 20 May 2010, CLAIMANT submitted its request for arbitration to the Milan Chamber of

Arbitration (hereinafter the “Milan Chamber”). Only two days later, on 22 May 2010,

CLAIMANT committed a flagrant violation of the confidentiality duty contained in the Milan


_____________________________________________________________________


Rules by making the arbitral proceedings public in an interview with a reputable trade

magazine published in many countries. CLAIMANT damaged RESPONDENT’s reputation

worldwide and this at a time before RESPONDENT had even received the request for

arbitration. Therefore, when RESPONDENT filed its statement of defense on 24 June 2010, it

contained a counter-claim for this serious breach of confidentiality.

On 15 July 2010, the party-selected arbitrators appointed Malcolm Y. as Chairman pursuant

to the arbitration clause (hereinafter “the Clause”). A partner at a foreign office of Malcolm

Y.’s law firm had once consulted CLAIMANT. Both parties were aware of this and explicitly

waived their objections to his appointment. The Milan Chamber, however, disregarded the

party agreed appointment provision and the parties’ waiver. It appointed Horace Z. as

Chairman without any consultation of the parties or the co-arbitrators.

Consequently, when the final composition of the Tribunal was announced to the parties on 20

September 2010, RESPONDENT filed its objection to the jurisdiction of this Tribunal on 24

September 2010.

SUMMARY OF ARGUMENT

Jurisdiction of an arbitral tribunal can only be derived from the arbitration clause. This

Tribunal was constituted in violation of the Clause as its Chairman Horace Z. was appointed

by the Arbitral Council rather than by the co-arbitrators as provided in the Clause. This

Tribunal therefore has no jurisdiction. Moreover, CLAIMANT blatantly breached its duty of

confidentiality by disclosing the arbitral proceedings in an interview with a widely published

trade magazine. RESPONDENT’s reputation suffered as a result.

CLAIMANT’s demand for damages should be dismissed as no breach of contract occurred. The

size of the squid was never part of the contract. Subsequently, the alleged non-conformity

arising out of the size of the squid is of no relevance as RESPONDENT delivered squid which

was perfectly in accordance with the agreed upon specifications. Further, CLAIMANT failed to

properly examine the delivery. Its notification of the alleged lack was late by any standard,

and it therefore lost the right to rely on any potential non-conformity. RESPONDENT did not

waive its right to object to the late notice by asking for an expert examination.

In any event, CLAIMANT is not entitled to full damages as the alleged breach was not

fundamental and CLAIMANT failed to mitigate its losses. CLAIMANT could have resold the

squid for other purposes and in other markets. Even if these attempts would have been futile,

it could have easily separated the allegedly undersized squid and still resold the rest as bait.


_____________________________________________________________________


ARGUMENT

I. THE TRIBUNAL DOES NOT HAVE JURISDICTION

1 The Tribunal is competent to rule on its own jurisdiction which includes finding no

jurisdiction. Arbitration is governed by the law at the seat of the arbitration

[Poudret/Besson, para. 112]. In this case, the seat of the arbitration is Danubia [Cl. Ex.

No. 4]. Danubian Arbitration Law (for ease of reference hereinafter “Model Law”)

codifies the doctrine of competence-competence in Art. 16(1), since Danubia has adopted

the UNCITRAL Model Law [Req. for Arb., para. 25].

2 The Tribunal in its current composition does not have jurisdiction because (A) this

composition is in violation of the arbitration clause (hereinafter “the Clause”) and (B) in

any event also in violation of the Milan Rules. (C) Further, any award rendered by this

Tribunal will not be enforceable, making any proceedings before this Tribunal futile.

A. CONSTITUTION OF THIS TRIBUNAL VIOLATES THE CLAUSE

3 Jurisdiction of a tribunal can only be derived from the parties’ agreement to arbitrate

[Born, p. 197]. This means that the provisions of the arbitration clause govern, among

other things, the scope of the jurisdiction, the numbers of arbitrators, the appointment

process, procedural rules, language and seat of the arbitration.

4 This party autonomy is restricted only by mandatory provisions of the lex arbitri [Art.

19(1) Model Law]. Institutional rules do not have this power to restrict party autonomy.

Their applicability is derived only from the parties’ agreement. This means that parties

are free to make modifications to such rules which are binding on the institution.

Therefore, provisions in the arbitration clause regarding the appointment of arbitrators

take precedent over the rules’ provision [E.T.P.M. v. Gas del Estado]. The Milan

Chamber of Arbitration is familiar with this hierarchy, given that it is codified in Art.

832(2) of the Italian Code of Civil Procedure which expressly states that the arbitration

clause prevails over conflicting provisions of the chosen institutional rules.

5 This modification power, however, is unilateral. If an institution deems modifications

incompatible with its rules, it may refuse administration [Poudret/Besson, para. 96]. But

it cannot disregard the parties’ agreement and force its rules upon the parties. It can only

apply its rules hoping that the parties will waive any objections and thereby agree to the

institution’s decision [Fouchard/Gaillard, para. 780].


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6 In the case under consideration, (1) the parties agreed on an appointment mechanism not

provided by the Milan Rules. (2) The appointment of Horace Z. by the Arbitral Council

was not pursuant to said mechanism. (3) As the parties did not waive their objections to

his appointment, the composition of this Tribunal is in violation of the Clause.

1. The parties derogated from the Milan Rules

7 Choosing appropriate arbitrators is of the utmost importance in arbitration. The parties

therefore intended to appoint the panel without any interference from the Arbitral

Council and expressed this in the wording of the Clause.

8 Arbitration practitioners agree that selecting the arbitrators is a critical step in any

arbitration [Carbonneau, p. 1209]. “The arbitrator is one-half of your case”, as one

arbitrator said [Moses, p. 122]. This applies in particular to the appointment of the

chairman: “Choosing the chair of the tribunal is far too important to delegate to anyone.

It is perhaps the most important decision in a case” (emphasis added) [id., p. 125]. This

means that parties should strive to exert as much control over the appointment process as

possible. That is exactly what RESPONDENT did. It provided for the final appointment of

the panel by the parties and the co-arbitrators in the Clause.

9 The Clause contains the following appointment provision:

“All disputes arising out of or related to this contract shall be settled by arbitration

under the Rules of the Chamber of Arbitration of Milan (the Rules), by three

arbitrators. Each party shall appoint one arbitrator and the two arbitrators shall

appoint the presiding arbitrator” (emphasis added) [Cl. Ex. No. 4].

10 This provision is in no way a choice for an appointment option of the Milan Rules but

rather an appointment mechanism which modifies the Milan Rules. The wording is not

consistent with the appointment provisions of the Milan Rules, differs considerably from

the model clause and provides for the final appointment of the arbitrators without any

confirmation by the Arbitral Council.

11 CLAIMANT notes that most arbitral institutions reserve the right to exercise control over

the final composition of the tribunal [Mem. Cl., para. 34]. This is reflected in the use of

language for describing the appointment process by many institutions: Parties only

“designate” or “nominate” arbitrators, the actual appointment is done by the institution

[e.g. Art. 8 ICC Rules; Art. 7 LCIA Rules; Art. 7 Swiss Rules]. The Milan Rules do not

use such differentiated wording and use the term “appoint” even if it only means

“nominate” (e.g. Art. 14 Milan Rules). This inaccuracy in terminology raises the


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question of what wording is necessary in order to successfully derogate from the standard

appointment procedure of the Milan Rules, i.e. what wording is necessary to opt out of

the confirmation process.

12 Analysis of model clauses shows two different approaches of dealing with the limited

meaning of “appoint” in the sense of “nominate”/”designate”: Some institutions avoid

the problem by simply defining the numbers of arbitrators: “The number of arbitrators

shall be ... (one or three)” [Swiss Rules; identical: LCIA Rules; DIS Rules]. Other

institutions use the term “appoint” but clarify its meaning by adding “[…] arbitrators

appointed in accordance with the said Rules” (emphasis added) [ICC Rules; also

2004/2010 Milan Rules]. This wording makes clear that “appoint” refers to the entire

appointment process which leads to the constitution of a tribunal and not just to the

question of who makes the final decision in this process (this is governed in the rules).

Thus, “appoint” in the sense used in the model clause (in connection with “in accordance

with the Rules”) is not the same as “appoint” without any further reference to the rules.

13 At the time of the conclusion of the arbitration agreement in 2008 [Cl. Ex. No. 4], the

2004 version of the Milan Rules was in force. To establish the parties’ intent at that time,

the Clause needs to be analyzed in the light of the 2004 model clause. The 2004 model

clause for international arbitration contains the following appointment provision:

“All disputes arising out of this contract shall be settled by arbitration under the

Rules of the Chamber of National and International Arbitration of Milan. The

Arbitral Tribunal shall consist of a sole arbitrator/three arbitrators appointed

pursuant to those Rules” (emphasis added) [2004 Milan Rules, p. 3].

14 This provision makes it clear that “appoint” is to be understood in the framework of the

appointment provision of the Milan Rules, which govern the process in detail. “Pursuant

to those Rules” cannot be interpreted to simply mean the incorporation of the Milan

Rules, as this is already done in the first sentence (“[...] arbitration under the Rules [...]”).

15 The Clause, however, does not contain the relativization “pursuant to those Rules”. It

only speaks of “appoint” [Cf. para. 9]. This “appoint” means that the decision made by

the parties or, in this case, the co-arbitrators is final and not subject to any review by

another authority (unless an arbitrator is challenged). The parties agreed that the Arbitral

Council would not interfere in the appointment of arbitrators. In its letter to the Milan

Chamber, dated 24 June 2010, RESPONDENT wrote “Equatoriana Fishing Ltd appoints

Professor Arbitrator 2”. This shows that RESPONDENT had the power to appoint its co-

arbitrator rather than simply make a nomination at the hands of the Chamber.


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16 Art. 14(4)(b) Milan Rules offers two choices for the appointment of the Chairman, either

by the Arbitral Council or by the co-arbitrators. CLAIMANT argues that the parties opted

for the second option [Mem. Cl., para. 22]. This is not the case. If it were, the Chairman

would still need to be confirmed by the Arbitral Council pursuant to Art. 18(4) Milan

Rules. However, the Clause provides for the final appointment without any confirmation.

Thus, the parties created an appointment mechanism independent from the Milan Rules.

2. Horace Z.’s appointment violates the Clause

17 As shown above, the Clause contains an appointment provision separate and independent

from the Milan Rules. This Tribunal was not constituted in accordance with this

provision because Chairman Horace Z. was not appointed by the co-arbitrators but by the

Arbitral Council [Prot. No. 9410/9]. This violation of the Clause is particularly grave

considering that the co-arbitrators never even nominated Chairman Z. Even confirmation

of a nominated Chairman would technically violate the Clause but this violation would

be irrelevant because it had no influence on the composition of the Tribunal.

3. The parties did not waive their right to object

18 Parties may waive their objections to an improper constitution of a tribunal [Cf. para. 4].

In such cases, a tribunal does have jurisdiction even though its composition is in

violation of the arbitration clause. Art. 12 Milan Rules requires that objections be raised

in the first brief or at the first hearing following the offending event, otherwise they are

deemed waived. Although this is not alleged by CLAIMANT, RESPONDENT did not waive

its right. It objected to the jurisdiction of this Tribunal as soon as the final composition

was announced to the parties in the Procedural Order No. 1 on 20 September 2010

[Amend. to Stat. of Def., para. 8]. The amendment to the Statement of Defense

constituted the first brief after the improper constitution of the Tribunal and was filed

within four days. RESPONDENT therefore did not waive its right to object.

B. CONSTITUTION OF THIS TRIBUNAL VIOLATES THE MILAN RULES

19 Even if the parties did not opt out of the confirmation provisions of the Milan Rules, this

Tribunal would still have no jurisdiction because its constitution was in violation of the

Milan Rules. The Arbitral Council interfered unduly in the constitution of this Tribunal

and deprived the co-arbitrators of their right to appoint a Chairman as expressed both in

the Clause and in Art. 14(4)(b) of the Milan Rules in several ways. (1) The co-arbitrators

were denied the chance to appoint a substitute arbitrator for Malcolm Y. and (2) the


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Arbitral Council exceeded its confirmation powers. (3) The parties did not waive their

right to object to this violation of the Milan Rules.

1. The Arbitral Council violated Art. 20(3) Milan Rules

20 Art. 20(3) Milan Rules provides that if an arbitrator needs to be replaced, his substitute

shall be appointed by the same authority that appointed the original arbitrator. This

means that following the non-confirmation of Malcolm Y., the co-arbitrators had the

authority to appoint a different Chairman. CLAIMANT argues that the co-arbitrators used

their second opportunity to appoint Malcolm Y. a second time [Mem. Cl., para. 44]. This

argument cannot be followed. In their letter dated 13 August 2010, the co-arbitrators

simply submitted additional information to the Milan Chamber regarding Malcolm Y.

rather than appoint him a second time. They asked the Arbitral Council to revisit his non-

confirmation, taking into consideration the fact that Malcolm Y. has not derived any

income from Wise, Strong & Clever for the past three years.

21 This information has a considerable impact on the potential for a conflict of interest. The

cut-off period for prior services rendered to a party by an arbitrator under section 3.1 of

the orange list of the IBA Guidelines is three years. For example, after three years,

disclosure of any prior services is no longer required. Provision 3.4.2 of the orange list

even applies the three years limit to actual employment of an arbitrator by one of the

parties, i.e., after three years a former employee may serve as arbitrator without

disclosing the employment [p. 18, paras. 6-7]. This implies that after a period of three

years, income derived from a party is no longer considered to constitute a conflict of

interest. Therefore, the additional information provided in the letter [Cf. para. 20] was of

considerable importance to assess Malcolm Y.’s statement of independence and the co-

arbitrators felt that before nominating a different Chairman, the Arbitral Council should

be given the opportunity to revise its decision.

22 The letter did not, however, amount to the appointment of a substitute. A failed attempt

to appoint a substitute leads to the Arbitral Council appointing a replacement [Art. 20(3)

Milan Rules]. Considering the importance of the Chairman [Cf. para. 8], simply re-

appointing the same person and hoping for a different result would be unreasonable, if

not irresponsible, for the co-arbitrators. In that case, they would very likely end up with a

Chairman they do not know and whose competence they cannot assess, a problem known

as “ICC roulette” [Moses, p. 125]. This passivity is all the more unreasonable given that


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arbitration institutions cannot always be trusted to excel at appointing competent

arbitrators [Paulsson].

23 CLAIMANT further argues that the co-arbitrators failed to appoint a different Chairman

within the time limit set by the Arbitral Council [Mem. Cl., para. 43]. While it is

technically correct that no new name was provided within the time limit, this failure by

the co-arbitrators should be considered in the light of the argument of the paragraph

above. The Arbitral Council only gave the co-arbitrators eleven days for a new

appointment [Prot. No. 9410/7]. During that time, the co-arbitrators had to receive Prot.

No. 9410/7 from the Milan Chamber, discuss the situation among themselves, approach

Malcolm Y. to inquire about his Statement of Independence, make a decision and relay

the crucial additional information regarding the three years since Malcolm Y.’s last client

work for Wise, Strong & Clever back to the Milan Chamber. The Arbitral Council

should have extended the time limit after it refused to confirm Malcolm Y. for the second

time and offer the co-arbitrators a real second chance at appointing a Chairman. After all,

arbitration is chosen because it allows the parties to choose a procedure that is agreeable

to both of them rather than be subject to the inflexible rules of national courts. In this

case, no party tried to stall the procedures by insisting on an unfit arbitrator. The co-

arbitrators simply wanted to make sure that this Tribunal is chaired by the person they

both saw as most fit. The Arbitral Council should have paid respect to this desire rather

than interpreting the Milan Rules against the preferences of both parties.

24 Therefore, this Tribunal is asked to find that the Arbitral Council violated the Milan

Rules when it appointed Horace Z. without giving the co-arbitrators a second opportunity

to appoint a Chairman as provided by Art. 20(3) Milan Rules.

2. The non-confirmation exceeded Arbitral Council’s mandate

25 While Art. 18(4) Milan Rules grants the Arbitral Council discretion regarding the non-

confirmation of arbitrators, the Arbitral Council did not assess the situation adequately.

26 The reason behind the existence of Art. 18(4) Milan Rules is to ensure that arbitrators are

impartial and independent and that tribunals are capable of rendering enforceable awards

[Coppo, p. 290]. However, the Milan Chamber recognizes that parties should be able to

agree on the arbitrators best qualified to hear their case, as evidenced by the possibility of

the parties to waive objections arising from the incompatibility provisions of Art. 16

Milan Rules (arbitrators with links to the Arbitral Council) [id.]. Parties can therefore


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expect that the Arbitral Council will not prevent them from appointing arbitrators that

neither party objects to and that do not pose a risk to the impartiality of the tribunal.

27 In the case under consideration, the Arbitral Council acted in a way that was against the

spirit of party autonomy and its implementation in the Milan Rules.

28 First, the risk for a conflict of interest is very small. As shown in para. 20, Malcolm Y.’s

relationship to Wise, Strong & Clever is very loose. He is still a partner and has an office

but he derives his income from being an arbitrator. [Letter from Ms. Arbitrator 1 to

Milan Chamber, dated 13 August 2010]. This means he is not dependent on any income

generated by the law firm’s work for CLAIMANT. Additionally, Wise, Strong & Clever

has 150 partners [Statement of Independence of Malcolm Y.]. Advisory work done by

any of those partners should not disqualify the rest of the law firm from serving as

arbitrators in cases involving one of these firms. The IBA Guidelines address this

problem in the explanation to General Standard 6: “The growing size of law firms should

be taken into account as part of today’s reality in international arbitration. […] [T]he

activities of the arbitrator’s firm should not automatically constitute a conflict of

interest.” (emphasis added) [p. 15].

29 Second, the Arbitral Council did not respect the parties’ waiver regarding the alleged

conflict of interest. CLAIMANT notes that institutions should also take into consideration

their own interest when confirming arbitrators because their reputation could suffer in

cases of partial tribunals [Mem. Cl., para. 33]. This notion is very troubling. An

institution should certainly not put its own interests over those of the parties to have a

panel of qualified, jointly agreed upon arbitrators unless there is a considerable danger of

a partial tribunal. Numbers from the ICC support this argument. In 2008, the ICC Court

considered 1’156 arbitrators, 168 of which made a disclosure in their Statement of

Independence. Only 24 of those were not confirmed, and only 3 of them without a party

requesting their non-confirmation [Fry/Greenberg, paras. 40 and 47]. The Court even

accepted the waiver of the parties when one party (a state) nominated one of its officers

as co-arbitrator [id., para. 44]. This shows that a renowned institution such as the ICC is

willing to accept the parties’ autonomy even in cases with an obvious potential for a

conflict of interest. This is especially important considering that the ICC exerts rather

more control over the constitution of tribunals under its rules than other institutions

[Derains/Schwartz, p. 115]. A constellation such as the one of Malcolm Y. and Wise,

Strong & Clever’s services for CLAIMANT would certainly not constitute a grave enough

conflict of interest to warrant one of those rare non-confirmations [Cf. para. 20].


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30 It should also be noted that the Arbitral Council’s action in this case is of much greater

harm to the Chamber’s reputation. Who will choose an institution if it is foreseeable that

it will respect neither the parties’ agreement nor their waivers and appoint arbitrators

against the parties’ wishes at the slightest sign of a conflict of interest?

31 The Arbitral Council exceeded its discretion, by not confirming Malcolm Y. despite the

almost non-existent risk of a potential conflict of interest, and disregarded the parties’

waiver. This excessive intervention in the appointment process is not compatible with

party autonomy and amounted to depriving the parties and the co-arbitrators of their right

to nominate a Chairman pursuant to Art. 14(4)(b) Milan Rules.

3. The parties did not waive their right to object

32 As laid out in para. 18, RESPONDENT properly objected to the jurisdiction of this

Tribunal.

C. ANY AWARD RENDERED BY THIS TRIBUNAL WOULD NOT BE RECOGNIZED

AND ENFORCED

33 The very purpose, or in the words of Derains and Schwartz, the “raison d’être” of

arbitration is to settle a dispute in the form of an award [p. 384]. An award can only

serve this purpose if it will be recognized and enforced and not be set aside. If it is

foreseeable that this will not be the case, further arbitral proceedings are a costly waste.

Furthermore, it is recognized that arbitrators have a duty to render an enforceable award

[Blackaby/Partasides, para. 9:10; Lew/Mistelis/Kröll, para. 6:48].

34 CLAIMANT alleges that any award rendered by this Tribunal would be enforceable

because the constitution was “strictly within the procedure chosen by the parties” [Mem.

Cl., para. 49]. Its entire argument depends on the assumption that the parties simply

opted for the appointment option of Art. 14(4)(b), second sentence, in which case the

Arbitral Council does have confirmation power [id., para. 51]. As shown in para. 15,

this is not the case. Rather, the Clause provides for the final appointment of the panel by

the parties and their co-arbitrators. Therefore, this Tribunal’s constitution is in violation

of the Clause because the Chairman was appointed by the Arbitral Council.

35 Art. V(1)(d) NYC provides for the non-recognition of an award “where the composition

of the arbitral authority or the arbitral procedure was not in accordance with the

agreement of the parties […].” Some courts have held that even violations of time limits

included in the arbitration agreement are sufficient to trigger non-recognition [Born, p.


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2766]. Consequently, a violation of the agreement of the magnitude seen in this case will

result in the non-recognition of any award rendered by this Tribunal.

36 CLAIMANT notes the pro-enforcement bias of courts which makes fulfilling the

requirements for non-recognition difficult [Mem. Cl., para. 50]. As the US Court of

Appeals for the 2nd

Circuit correctly noted, this bias does not, however, imply that courts

should disregard the parties’ agreement in favor of enforcing awards at any cost: “While

we acknowledge that there is a strong public policy in favor of international arbitration,

we have never held that courts must overlook agreed-upon arbitral procedures in

deference to that policy” [Encycl. Universalis v. Encycl. Britannica].

37 CLAIMANT further notes that the procedural violation of the agreement needs to result in

“substantial prejudice to the complaining party” [Mem. Cl., para. 50]. This argument

cannot be followed because it is impossible for a party to show that a properly

constituted tribunal would render a different award. In addition, this is a very dangerous

approach. It implies that the parties’ agreement is of secondary importance as long as a

reasonably correct award results. This amounts to a blatant disregard of the parties’

agreement in the interest of efficient proceedings and is not at all compatible with party

autonomy and the consensual nature of arbitration.

38 The dynamics within the panel and thereby the award are influenced by the personality

of the chairman. Choosing him is therefore of fundamental importance [para. 8].

Disregard of the parties’ agreement regarding his choice are sufficient to result in non-

recognition of any award (“The issue of how the third arbitrator was to be appointed is

more than a trivial matter of form” [Encycl. Universalis v. Encycl. Britannica]).

39 The same applies for a setting aside pursuant to Art. 34(2)(a)(iv) Model Law. “The

grounds for challenging an award under the Model Law are derived from Article V of the

New York Convention. Accordingly, authorities relating to Article V of the New York

Convention are applicable to the corresponding provisions in Articles 34 and 36 of the

Model Law” [Corporacion Transnacional v. STET].

40 Thus, any award rendered by this Tribunal would be set aside or refused recognition.

These proceedings can serve no purpose and are a costly waste. The Tribunal is asked to

prevent this foreseeable outcome by finding that it has no jurisdiction.


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II. INTERIM MEASURES SHOULD BE GRANTED AND CLAIMANT IS

LIABLE FOR BREACH OF CONFIDENTIALITY

A. CLAIMANT BREACHED CONFIDENTIALITY

41 In the case under consideration, (1) CLAIMANT has a duty of confidentiality and (2)

breached said duty by giving an interview to a trade newspaper.

1. CLAIMANT has a duty of confidentiality

42 The parties agreed on the Milan Rules. Since (a) the 2010 version of the Milan Rules

apply, (b) CLAIMANT’s duty of confidentiality arises out of Art. 8(1) Milan Rules. In any

event, (c) even if there were no explicit duty of confidentiality, there is still an implied

duty.

(a) The 2010 Milan Rules apply

43 CLAIMANT’s argument that the 2004 Milan Rules apply for the question of confidentiality

is incorrect [Cf. Mem. Cl., para. 63 et seq.]. Parties choosing institutional arbitration

should generally take into account the possibility of rule changes when drafting

arbitration clauses [Shackelford, p. 899]. The principle thereby is that the applicable

institutional rules are those in force at the time of arbitration [id., p. 905]. Unless the

arbitration clause provides for specific rules, a rebuttable presumption exists that the

parties intended to adopt the latest version of the relevant rules [Greenberg/Mange, p.

205; Offshore International v. Banco Central; Bunge v. Kruse]. If the parties do not

want to adopt the latest version, they must explicitly agree on that. This principle is

mentioned in both the 2004 and 2010 Milan Rules. Art. 39 of the 2010 Milan Rules

states that “unless otherwise agreed by the parties, these Rules shall apply to arbitrations

commenced after the date on which the Rules entered into force” (emphasis added). The

2004 Milan Rules mention in Art. 43(2) that “the Arbitral Council may add to, amend

and replace these Rules and establish the date on which the new provisions shall enter

into force”. Furthermore, Art. 43(3) of the 2004 Milan Rules states that “unless otherwise

provided, the new provisions introduced pursuant to paragraph 2 shall apply to

proceedings commenced after the date on which the provisions have entered into force”.

The parties had the option at the time of contracting to state explicitly that they want the

2004 version to apply to future disputes, but they have not made such an agreement.

http://www.kluwerarbitration.com/document.aspx?id=KLI-KA-201014004-n&query=AND(content%3A%22revision%22,content%3A%22institution%22,content%3A%22applicable%22,content%3A%22law%22,content%3A%22rules%22)#match216

http://www.kluwerarbitration.com/document.aspx?id=KLI-KA-201014004-n&query=AND(content%3A%22revision%22,content%3A%22institution%22,content%3A%22applicable%22,content%3A%22law%22,content%3A%22rules%22)#match217


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Instead, by choosing the Milan Rules in their arbitration clause, the parties included Art.

43(3) of the 2004 Milan Rules and thereby agreed that any new provisions should apply.

(b) Pursuant to Art. 8(1) of the 2010 Milan Rules CLAIMANT has

a duty of confidentiality

44 Art. 8(1) Milan Rules contains a clear rule: “The Chamber of Arbitration, the parties, the

Arbitral Tribunal and the expert witnesses shall keep the proceedings and the arbitral

award confidential, except in the case it has to be used to protect one’s rights”. Therefore,

CLAIMANT as a party has a duty of confidentiality.

(c) CLAIMANT agreed to confidentiality by consenting to choose

arbitration

45 Even if there was no explicit duty of confidentiality arising out of Art. 8(1) Milan Rules,

CLAIMANT has an implied duty of confidentiality. It is a prevailing opinion that arbitral

proceedings are confidential [Lionnet/Lionnet, p. 453]. In the leading case of Ali

Shipping Corp. v. Shipyard Trogir, an English Court held that a duty of confidentiality is

implied in every arbitration agreement as “an essential corollary of the privacy of

arbitration proceedings”. The duty of confidentiality in arbitration arises out of the nature

of arbitration [Emmott v. Michael Wilson & Partners].

2. CLAIMANT’s interview breached the duty of confidentiality

46 Art. 8(1) Milan Rules clearly states that not only the arbitral award, but also the

proceedings shall be kept confidential. In the case, CLAIMANT gave an interview to a

trade newspaper, stating that RESPONDENT had knowingly delivered completely

inappropriate squid and that arbitral proceedings had been initiated [Re. Ex. No. 1]. This

is a twofold breach of confidentiality.

47 First, CLAIMANT revealed the fact of the existence of arbitral proceedings [id.]. But to

ensure the confidentiality of the proceedings, the existence of the proceedings as well as

the names of the parties must be protected [Lionnet/Lionnet, p. 456]. CLAIMANT states

that the existence of arbitral proceedings is generally not covered by the duty of

confidentiality [Mem. Cl., para. 73 et seq.], but parties particularly worried about

adverse publicity may wish for the very fact that they are arbitrating a dispute to remain

confidential [Brown, p. 1001 et seq.]. The mere fact that a dispute broke out and is now

pending before an arbitral tribunal may be viewed as a secret [Dessemontet, p. 3]. In this

case, a confidentiality duty on a dispute’s existence arises out of the wording of Art. 8(1)


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Milan Rules: the duty to keep the proceedings confidential also includes a duty to keep

the existence of proceedings confidential. The wording “proceedings” refers to the whole

proceedings including their existence. Otherwise, the Milan Rules would have a wording

such as “the content of the proceedings”. Furthermore, the Milan Rules treat the

confidentiality in just one article, which can not explicitly mention every single variant

which is covered by the duty of confidentiality. To interpret the scope of this duty, a

comparison to more detailed arbitration rules can be made. Looking at the WIPO Rules,

which cover confidentiality in four Articles, the confidentiality of the existence of the

proceedings is explicitly mentioned [WIPO Rules, Art. 73].

48 Second, CLAIMANT did not only reveal the sheer existence of arbitration, it also revealed

the content of the proceedings by stating that RESPONDENT had knowingly delivered

completely inappropriate squid. This statement breaches the duty of confidentiality stated

in Art. 8(1) Milan Rules.

49 Therefore, CLAIMANT breached its duty of confidentiality by revealing the names of the

parties as well as the existence and the content of the proceedings.

3. The breach was not justified

50 CLAIMANT cannot rely on the exception of Art. 8(1) of the Milan Rules because (a) this

exception only refers to arbitral awards and (b) CLAIMANT was not protecting its rights.

(a) The exception of Art. 8(1) Milan Rules only refers to arbitral awards

51 Art. 8(1) Milan Rules states that “the Chamber of Arbitration, the parties the Arbitral

Tribunal and the expert witnesses shall keep the proceedings and the arbitral award

confidential, except in the case it has to be used to protect one’s rights”. CLAIMANT

cannot rely on this exemption, because as the wording states, “it” only refers to arbitral

awards. If the proceedings were meant to be included in this exception, the wording

would be “they had to be used”. In the official German translation of the Milan Rules, it

is even explicitly stated that the exception only refers to arbitral awards.

(b) CLAIMANT was not protecting its rights

52 The exception of Art. 8(1) is only applicable in order to protect a right. Pursuant to the

wording, an interest of any other nature does not fall under this article. In the case,

CLAIMANT did not protect any rights by giving the interview, so it cannot rely on this

exception. It was in no urgent need to do so. Furthermore, even if it had to protect any

rights, giving an interview to a trade newspaper which is distributed in forty-five


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countries [Stat. of Def., para. 4] is no appropriate way to do so, because many more

people are informed than need be. This course of action would be disproportionate.

B. INTERIM MEASURES SHOULD BE GRANTED

53 The Tribunal is asked to order an injunction against CLAIMANT to prevent further

breaches of confidentiality. (1) The Tribunal is competent hereto as it has authority to

order interim measures. (2) The general prerequisites to grant interim measures are

fulfilled. (3) Furthermore, even if the prerequisites were not strictly fulfilled, in cases of

breach of confidentiality they do not have to be.

1. The Tribunal has authority to order interim measures

54 The question of whether the Tribunal has authority to order interim measures requires

consulting three sources: any applicable international arbitration convention, applicable

national law and the parties’ arbitration agreement including any relevant institutional

rules [Born, p. 1945]. Both the NYC [id., p. 1945 et seq.] and the Model Law [Art.

17(1)], which are applicable in this case, give the Tribunal authority to grant interim

measures. Art. 22(2) Milan Rules states that “the Arbitral Tribunal may issue all urgent

and provisional measures of protection, also of anticipatory nature, that are not barred by

mandatory provisions applicable to the proceedings”. The Tribunal is therefore

authorized to grant interim measures.

2. The prerequisites to grant interim measures are fulfilled

55 For interim measures to be granted, they must be urgent, provisional, (anticipatory)

protective and not barred by mandatory provisions [Art. 22(2) Milan Rules]. In the case

under consideration all these prerequisites are fulfilled.

56 Urgency means that immediate or at least prompt action is necessary in order to prevent

serious or irreparable damage [Born, p. 1986], so that relief cannot be delayed until the

final determination of the parties’ case [Yesilirmak, p. 179]. If CLAIMANT gave another

interview, RESPONDENT would suffer substantial damage, as this would further harm its

reputation. CLAIMANT must be prevented from renewing false statements in the press.

This cannot wait until the Tribunal has rendered its award.

57 RESPONDENT asks the Tribunal to issue a provisional order for CLAIMANT to respect the

confidentiality of the arbitral proceedings as well as any eventual award [Stat. of Def.,

para. 8]. This requested order should apply until the final determination of the case.


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58 Since such an order aims to protect RESPONDENT’s reputation, the requested interim

measure is of protective nature.

59 As no mandatory provisions bar the Tribunal to order interim measures [Cf. para. 54], all

prerequisites to grant interim measures required by Art. 22(2) Milan Rules are fulfilled.

3. The prerequisites do not have to be strictly fulfilled

60 The aforementioned prerequisites do not need to be strictly fulfilled for the tribunal to

grant interim measures, and one should avoid mechanically applying standards [Born, p.

1993]. In cases of breach of confidentiality, an injunction against further disclosure is a

generally available remedy [Brown, p. 1016]. Because damages are seldom a satisfactory

remedy for breach of confidentiality, issuing provisional measures ordering compliance

with a confidentiality duty, particularly regarding the arbitral process itself, is appropriate

[Born, p. 2006]. It is generally acknowledged that forbidding public statements is a

suitable provisional measure in such cases [id, p. 1998].

C. CLAIMANT IS LIABLE FOR BREACH OF CONFIDENTIALITY

61 In cases of breach of confidentiality monetary damages are a permissible remedy [Cf.

e.g. Born, p. 2007 or Kaufmann-Kohler/Stucki, p. 101]. For RESPONDENT to be awarded

damages, three requirements need to be fulfilled: A duty of confidentiality existed, a

breach of that duty was committed by CLAIMANT and this breach caused monetarily

quantifiable and compensable damages to RESPONDENT [Brown, p. 1016].

62 As shown in paras. 44-49, CLAIMANT has a duty of confidentiality and breached this

duty by giving an interview to “Commercial Fishing Today”. Before the interview was

given, RESPONDENT had an outstanding reputation in the fisheries trade throughout the

world [Proc. Ord. No.3, para. 13]. CLAIMANT’s breach damaged RESPONDENT’s

reputation and thereby caused a monetary loss. The magazine’s distribution in 45

countries makes the report particularly damaging. Since not all consequences of

CLAIMANT’s breach of confidentiality can be clearly determined as of now [Stat. of Def.,

para. 9], the Tribunal should declare that CLAIMANT is liable for damages that will be

proven at a later date.

III. CLAIM FOR BREACH OF CONTRACT SHOULD BE DISMISSED

63 CLAIMANT is not entitled to restitution of the purchase price and damages because (A) no

breach of contract occurred and (B) CLAIMANT has lost its right to rely on an alleged lack


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of conformity. Further, (C) avoidance of the contract was not possible and (D)

CLAIMANT is not entitled to damages.

A. NO BREACH OF CONTRACT OCCURRED

64 RESPONDENT did not breach the contract as the goods (1) were in conformity with the

contractual requirements pursuant to Art. 35(1) CISG and (2) were in conformity with all

other requirements pursuant to Art. 35(2) CISG.

1. The goods fulfilled all contractual requirements pursuant to

Art. 35(1) CISG

65 RESPONDENT’s delivery of squid was conforming because (a) the contract was formed on

the basis of the sale confirmation, (b) it did not include a size requirement and (c) the

squid fulfilled the contractual requirements.

(a) The contract was formed on the basis of the sale confirmation

66 Contrary to CLAIMANT’s reasoning, the contract was formed on the basis of the sale

confirmation [Cf. Cl. Ex. No. 4] and not on the foundation of the reply to the sale

confirmation [Cf. Cl. Ex. No.3; Re. Ex. No. 2]. For a contract under the CISG to be

concluded, a party must make a sufficiently definite offer which must be unconditionally

accepted by the other party [Huber/Mullis, p. 69]. Any reply which materially alters the

offer is purported to be a rejection of the offer and a new offer (or counter-offer) [Art.

19(1) CISG]. Art. 19(3) CISG lists the terms considered material, thereby creating a

presumption of a counter-offer [DiMatteo et al, p. 355]. This counter-offer must then be

accepted for the contract to be concluded. The performance of an act, e.g. the payment of

the purchase price, can also be an acceptance [Art. 18(3) CISG].

67 In this case, the sale confirmation included an arbitration clause, which is a material

change [Schlechtriem/Schwenzer/Schroeter, Art. 19 para. 14]. It must therefore be

considered a counter-offer in the sense of Art. 19(1) CISG. This is undisputed [Mem. Cl.,

para. 80]. CLAIMANT alleges that the reply to this first counter-offer [Cf. Re. Ex. No. 2]

was a further counter-offer, and that the contract was formed on this basis through

RESPONDENT’s delivery of the goods. This reasoning is incorrect for several reasons.

68 First, the reply to the sales confirmation did not contain an arbitration clause. The

attachment simply consisted of the original order form, making no reference to the

arbitration clause. The wording of the accompanying email in no way indicates that the

contract should include such a clause. CLAIMANT only stated that it “note[s] that you


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have included an arbitration clause” [Re. Ex. No. 2]. Since CLAIMANT relies on the

arbitration clause, this so-called counter-offer cannot be the basis of the contract.

69 Second, the reply to the sale confirmation [Cf. Re. Ex. No. 2] cannot in fact have been a

(further) counter-offer, as CLAIMANT was the first party to perform an act under the

contract - by ordering the irrevocable letter of credit.

70 In commercial transactions involving a letter of credit and a bill of lading, the norm is

that the letter of credit is established before the seller has the goods loaded onto a ship

and thereby receives the bill of lading [Coker]. This is only reasonable since the loading

of the goods causes the seller expenses, so he will want assurance of getting paid before

making any expenditure. In this case, the fact that the letter of credit would be

established before the bill of lading is also shown by the parties’ agreement: the

estimated time of departure (ETD) of the goods was only to be announced once the letter

of credit had been received by RESPONDENT [Cl. Ex. No. 3 and 4].

71 Assuming that the reply to the sale confirmation was a counter-offer, CLAIMANT’s

actions make little sense, as it did not wait for RESPONDENT’s assent but instead

established an irrevocable letter of credit straight away. However, this would be highly

unreasonable for a party, as an irrevocable letter of credit cannot be revoked “without the

unanimous agreement of the issuing bank, the confirming bank, and the beneficiary /

seller” [Coker]. Any reasonable person would have waited for the acceptance of a

counter-offer before establishing a letter of credit. Consequently, CLAIMANT did in fact

not intend its email to be a counter-offer but an acceptance.

72 Even if the Tribunal should consider the reply to the sale confirmation a counter-offer,

this was never accepted by RESPONDENT. There was no further correspondence between

the parties until after the goods arrived [Proc. Ord. No. 3, para. 23], making an explicit

acceptance impossible. CLAIMANT’s allegation that RESPONDENT implicitly accepted

through its delivery of the goods, as allowed by Art. 18(3) CISG, is again refuted by the

fact that CLAIMANT was the first party to perform an act under the contract. Therefore, it

was not RESPONDENT who accepted CLAIMANT’s counter-offer by performing an act

under the contract, but rather CLAIMANT accepting RESPONDENT’s sale confirmation.

73 For all these reasons, the sale confirmation must be the basis of the contract.

(b) The contract did not include a size requirement

74 CLAIMANT alleges that the contract included the requirement that the squid be in the size

range of 100/150g [Mem. Cl., paras. 82 et seqq.]. However, this position is incorrect.


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75 When determining the content of the parties’ agreement, the CISG allows a range of

possible sources of interpretation and does not follow the parol evidence rule used in

many common law jurisdictions [Schlechtriem/Schwenzer/Schmidt-Kessel, Art. 8 para.

33]. However, the primary source is still the written contract. It has been held that “the

agreement of the parties has to be analyzed in first instance by interpreting the wording

of the contract itself” [CISG-online Case No. 844]. Since the contract was concluded on

the basis of the sale confirmation, its content is primarily determined by this document.

76 The sale confirmation states clearly that the delivery would consist of squid from both

2007 and 2008 [Cl. Ex. No. 4]. It also lists several criteria regarding the quality of the

squid which were required under the contract. These had been introduced by CLAIMANT

on the original order form [Cl. Ex. No. 3] and simply repeated by RESPONDENT on the

sale confirmation [Cl. Ex. No. 4]. Said criteria are: “as per sample”, “grade A”, “fit for

human consumption” and “iced on board and blast frozen immediately upon discharge”

[id.]. No mention is made of the size of the squid.

77 Since the contract did not include an explicit reference to the size, the only possibility

could be that there had been an implicit agreement. CLAIMANT argues that “as per

sample” is synonymous with the requirement that the squid would fall in the size range

of 100/150g following an interpretation under Art. 8 CISG [Mem. Cl., paras. 82 et

seqq.]. It particularly relies on Art. 8(3) CISG which states that the parties’ statements

must be interpreted in the light of all relevant circumstances [id.]. Conveniently,

CLAIMANT only mentions the few facts which speak for the sample to encompass the size

of the squid, but fails to mention the circumstances which contradict such an

interpretation. In the following it will be shown why an objective interpretation of the

contract under Art. 8(2), (3) CISG did not include reference to the size.

78 First, if the size had really been as important a criterion as alleged, CLAIMANT would

surely have included this on the order form, instead of only mentioning it once in an

email. Considering that CLAIMANT described the squid down to the last detail on the

order form, (“as per sample”, “grade A”, “fit for human consumption” and “iced on

board and blast frozen immediately upon discharge”) a reasonable person in the sense of

Art. 8(2) CISG would have assumed that all the important aspects had been explicitly

named. Since size was not one of them, an objective interpretation of the written contract

does not reveal a size requirement.

79 Second, the term “as per sample” cannot be synonymous with a size requirement since

the sample squid shown to CLAIMANT were unsized, as evident from the carton’s label


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[Stat. of Def., para. 12]. Furthermore, unsized squid are less expensive than sized squid

[id.]. CLAIMANT admits that it was looking to buy cheaper squid than usual [Req. for

Arb., para. 9 et seqq.]. Therefore, CLAIMANT or a reasonable party in its position could

not expect all the squid to be in the perfect size range. If it had really wanted this, it

should have ordered sized squid and paid the resulting price premium.

80 Third, the sample shown to CLAIMANT was labeled 2007 catch, and could therefore only

be representative of the squid from the 2007 catch. The contract included, however,

squid from both 2007 and 2008 [para. 76]. The requirement that the squid be as per

sample was therefore limited in its scope to the aspects which are not dependent on the

year of the catch. Independent criteria include, for example, freshness or quality of meat.

Dependent criteria are the date of catch and, more importantly, the size, since squid

caught early in the season are generally smaller [Stat. of Def., para. 13].

81 CLAIMANT, an experienced seller of bait, was well aware of the natural growth cycles of

squid [Proc. Ord. No. 3, para. 27]. The fishing season for squid of the species illex

danubecus is from April to September [Stat. of Def., para. 13]. CLAIMANT’s order of

squid was placed early in the season at the end of May 2008, when the squid are still

small. It must therefore have known that, by agreeing to a partial delivery from the 2008

catch, it would receive squid outside of the 100/150g size range. CLAIMANT denies this

and states that the fact that some of the squid would be from 2008 did not allow the

conclusion that they would be undersized, since a small percentage of the 2008 squid

were in the size range of 100/150g [Mem. Cl., para. 89]. CLAIMANT thereby implies that

it could expect RESPONDENT to sort the squid and only deliver the ones in the range of

100/150g. However, such an expectation was unreasonable as this would in fact have

meant that RESPONDENT was selling sized squid – an assumption which was clearly

refuted in para. 79.

82 The contract therefore did not include a size requirement. As it is undisputed that the

squid were in excellent condition [Cl. Ex. No. 8], they were in conformity with the

contractual requirements pursuant to Art. 35(1) CISG.

2. The squid fulfilled all requirements of Art. 35(2) CISG

83 It is further claimed that RESPONDENT breached the contract by allegedly not meeting the

requirements found in Art. 35(2) CISG regarding the qualities of the goods. However, (a)

the squid were fit for all ordinary purposes, (b) the squid were fit for the particular


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purpose and, in any event, (c) CLAIMANT did not rely on RESPONDENT’s skill and

judgement. Finally, (d) the squid possessed the qualities held out by the sample.

(a) The squid were fit for all ordinary purposes

84 Art. 35(2)(a) CISG states that the goods do not conform unless they are fit for the

ordinary purposes for which such goods are usually used. The spectrum of what is

considered ordinary use depends on the goods – in the case of squid, human consumption

and use as bait come to mind. However, in international trade, “resale” must also be

considered an ordinary use [Lookofsky, p. 79; CISG-online Case No. 999].

85 The interpretation of when goods are fit for their ordinary purposes is disputed. While

common law countries primarily rely on the theory of merchantability, civil law

countries have preferred the criterion of average quality [Schlechtriem/Schwenzer/

Schwenzer, Art. 35 para. 13 et seqq.]. A third approach, which is considered to be more

in line with a uniform interpretation of the CISG, submits that the goods must be of

reasonable quality [Lookofsky, p. 81; CISG-online Case No. 740]. The reasonable

quality depends on the circumstances of the contract, i.e. the buyer’s justified

expectations [Schlechtriem/Schwenzer/Schwenzer, Art. 35 para. 15]. A court, following

the reasonable quality criterion, held that the price of the goods must also be considered

in determining if the goods were of a reasonable quality [CISG-online Case No. 740].

86 In this case, the low purchase price [Cf. para. 79] adjusted the expectations of a

reasonable person regarding the quality of the squid. Therefore, the standard for

measuring the fitness for the ordinary purpose is lowered. First, the squid were perfectly

fit for human consumption [Cl. Ex. No. 8]. Second, the squid were fit for use as bait.

While the size range of 100/150g gives its customers “the best results” [Cl. Ex. No. 2], it

is by no means a requirement. CLAIMANT admits that the squid were usable as bait, and

that the results were simply not as good as with sized squid [Cl. Ex. No. 10, paras. 5 and

12]. Third, the squid were of sufficient quality for resale, as shown by the expert report

[Cl. Ex. No. 8] and the fact that the trading house engaged by CLAIMANT sold a

considerable amount of the squid [Cl. Ex. No. 10, para. 15]. The squid were therefore fit

for all ordinary purposes and conforming to the requirements of Art. 35(2)(a) CISG.

(b) The squid were fit for the particular purpose

87 Art. 35(2)(b) requires that the goods be “fit for any particular purpose expressly or

impliedly made known to the seller at the time of the conclusion of the contract”. This

particular purpose must be communicated to the seller before the conclusion of the


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contract [UNCITRAL Digest, Art. 35 para. 10]. A buyer’s stated particular purpose will

often overlap with the ordinary purpose of such goods [Lookofsky, p. 81].

88 The particular purpose on which CLAIMANT relies is the resale of the squid as bait [Mem.

Cl., para. 100]. In this case, the particular purpose is identical to one of the ordinary

purposes of such goods. As shown in para. 86, the squid were fit for resale and use as

bait. Since the particular and the ordinary purpose overlap in this case, a fitness for one

must mean a fitness for the other. The goods were therefore fit for the particular purpose

communicated by CLAIMANT.

(c) CLAIMANT did not rely on RESPONDENT’s skill and judgement

Even if the squid had not been fit for the particular purpose, RESPONDENT did not breach

the contract under Art. 35(2)(b) CISG as CLAIMANT did not rely on its skill and

judgement. Pursuant to Art. 35(2)(b) CISG, the fitness for the particular purpose is not a

requirement “where the circumstances show that the buyer did not rely, or that it was

unreasonable for him to rely, on the seller's skill and judgment.”

89 If the buyer makes specific provisions regarding the goods to be delivered, chooses the

manufacturing process, selects a particular brand or inspects the goods before the

purchase, there was no reliance [Hyland, p. 321 et seq.; Enderlein/Maskow, p. 146]. If

the buyer “described the goods desired in terms of highly technical specifications […] it

may be held that the buyer had not relied on the seller's skill and judgement in making

the purchase” [Secretariat Commentary to Art. 33].

90 CLAIMANT had specified the type and quality of squid it wanted exactly. It had demanded

that the squid be “as per sample”, “grade A” and “fit for human consumption” [Cl. Ex.

No. 3 and 4], leaving no responsibility with RESPONDENT to select squid for the

particular purpose. CLAIMANT had even selected the method of freezing by requiring that

the squid be “iced on board and blast frozen immediately upon discharge” [id.]. In other

words, CLAIMANT did not rely on RESPONDENT’S skill and judgement, as RESPONDENT

had no discretion in choosing the squid. Consequently, the requirement of Art. 35(2)(b)

CISG last sentence is fulfilled, and the goods did not need to be fit for the particular

purpose.

(d) The squid possessed the qualities held out by the sample

91 The delivery did not breach Art. 35(2)(c) CISG, as the contract included the year of the

catch. In general, if a seller shows a sample to the buyer, the goods delivered then need

to possess the same qualities as the ones in the sample in order to be conforming [Art.


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35(2)(c) CISG]. However, Art. 35(2) first sentence CISG allows the parties to deviate

from that requirement: If they agree otherwise, the goods do not need to be conforming

to the sample. “If the seller indicates that the sample […] is different from the goods to

be delivered in certain respects, he will not be held to those qualities of the sample”

[Secretariat Commentary to Art. 33].

92 The parties had in fact made such an agreement [Cf. para. 80]. The inclusion of the year

of the catch in the contract limited the qualities of the sample to those independent of the

time of catch. Thus, partial delivery of 2008 squid did not breach Art. 35(2)(c) CISG.

B. CLAIMANT LOST ITS RIGHT TO RELY ON AN ALLEGED LACK OF CONFORMITY

93 Even if the goods had actually been non-conforming, CLAIMANT could no longer rely on

any alleged non-conformity since (1) it did not examine the goods properly and (2) it

failed to notify RESPONDENT.

1. CLAIMANT did not examine the goods properly

94 CLAIMANT did not examine the goods properly. According to Art. 38 CISG the “buyer

must examine the goods, or cause them to be examined, within as short a period as is

practicable in the circumstances.” This provision contains two elements: The obligation

to properly examine the goods and the duty to notify the seller of any lack of conformity

within a short period [Schlechtriem/Schwenzer/Schwenzer, Art. 38, para. 4]. While

improper examination does not necessarily prevent timely notification, it makes it highly

unlikely. The buyer would not notice the lack of conformity without proper examination

and therefore fail to notify and lose the remedy [Achilles, Art. 38, para. 18;

Staudinger/Magnus, Art. 38, para. 12]. The required time period will be discussed later

in the context of Art. 39 CISG [para. 113]

95 A proper examination requires a sufficient and representative quantity and must be

sufficiently thorough [Staudinger/Magnus, Art. 38, para. 12; Schlechtriem/Schwenzer/

Schwenzer, Art. 38, para. 13]. CLAIMANT’s examination was not proper as (a) the

quantity examined was not sufficient, (b) the examined samples were not representative

of the entire delivery and (c) the quality of examination was not sufficient.

(a) The quantity examined was not sufficient

96 CLAIMANT’s spot checks were insufficient in this case. The buyer is allowed to examine

the delivery by random spot tests if large quantities of goods have been delivered

[Bianca/Bonell/Bianca, Art. 38, note 2.3]. These tests, however, are only a sufficient


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examination if the inspected number of goods is adequate. The number of goods required

depends on the influence of the test on the devaluation of the tested goods [Tannò, p.

187; Schlechtriem/Schwenzer/Schwenzer, Art. 38, para. 14; CISG-online Case No.

1581]. In general, several percent of the delivered goods have to be examined [Tannò, p.

56]. In cases where the tests substantially reduce the value of the tested goods, an

examination of 0.2 to 0.5 percent of the delivery is considered sufficient [id., p. 187].

97 In this case, CLAIMANT only inspected five out of 20’000 delivered cartons [Cl. Ex. No.

10, para. 10], which is only 0.025 percent of the delivery. Even though only spot tests

were necessary, CLAIMANT failed to examine the required percentage of the delivery. An

examination of at least 40 cartons would have been necessary.

(b) The examined samples were not representative

98 CLAIMANT did not select squid from a sufficient number of different sources. The

examined goods have to be representative of the entire delivery for the examination to be

sufficient [Staudinger/ Magnus, Art. 38, para. 29]. The samples are representative if they

can be considered a reflection of the entire delivery and if the spot tests are made with

sufficient variance [Tannò p. 176].

99 In this case, CLAIMANT inspected five cartons [Cl. Ex. No. 10, para. 10]. All tested

cartons were labeled “illex danubecus 2007” [Proc. Ord. No. 3, para. 32]. The

circumstance that the parties agreed upon 2007 and 2008 catch squid [Cf. para. 76]

shows that they were aware that both squid from 2007 and 2008 catch would be

delivered. Even if CLAIMANT had not been aware of this fact, it should have noticed that

part of the delivery was from 2008 when unpacking the clearly labeled cartons from their

containers. Since the delivery consisted of both 2007 and 2008 catch squid, the examined

squid from the 2007 catch cannot be considered representative of the whole delivery.

100 Furthermore, the spot tests were not made with sufficient variance but covered only five

out of 20’000 cartons, and just as importantly, only the first two out of twelve containers

[Cl. Ex. No. 10, para 10]. The selection of cartons from only the first two containers

cannot be considered random spot tests, as required.

(c) The quality of examination was not sufficient

101 The quality of CLAIMANT’s examination was insufficient. The purpose of an examination

is to get a reliable impression of the condition of the delivered goods and to recognize

possible non-conformities [Achilles, Art. 38, para. 3]. This aim also affects the method

of examination as possible non-conformities have to be detectable by the applied method


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[id., para. 4]. In the case of frozen goods, defrosting is a necessary part of any inspection

[Proc. Ord. No. 3, para. 33; Staudinger/Magnus, Art. 38, para. 30]. Thereby an adequate

number of samples have to be defrosted for an examination [CISG-online Case No. 29].

102 In this case, therefore, only the five defrosted cartons could theoretically have been

properly examined [Cl. Ex. No. 10, para 10] as defrosting is a necessary part of any

inspection [Proc. Ord. No. 3, para. 33]. The other 15 selected and weighed cartons are

negligible for the question of proper examination. However, even the five defrosted

cartons were not properly inspected. Where the composition and the quality of goods are

important, technical inspection procedures are required [Achilles, Art. 38, para. 4;

Staudinger/Magnus, Art. 38, para. 31]. In this case, the composition and the quality of

the squid were of the essence as the delivered goods were required to be fit for human

consumption. The parameters of the inspection are defined by the entire array of qualities

the delivery needs to have, not just one. Therefore, the quality of squid was one of these

parameters as the squid were supposed to be fit for human consumption. Since

CLAIMANT, as a supplier of bait, did not have the instruments and expert knowledge to

conduct the technical tests itself, and as the quality of squid was not visible to the eye,

proper examination could only consist of testing by a professional laboratory. CLAIMANT,

however, inspected the five containers only visually [Cl. Ex. No. 10, para 10].

103 In conclusion, CLAIMANT failed to properly examine the goods.

2. CLAIMANT did not give proper notice about non-conformity

104 CLAIMANT has lost its right to rely on an alleged lack of conformity of the goods as it did

not notify RESPONDENT properly [Art. 39(1) CISG]. The duty of notification contains two

elements: the content and the time of notification [Schlechtriem/Schwenzer/Schwenzer,

Art. 39, para. 6 and 15]. CLAIMANT has lost its right to rely on any non-conformity as (a)

the notification of 16 August 2008 was not in time, (b) its email of 29 July 2008 was not

adequate and (c) RESPONDENT did not waive its right to object.

(a) Communication of 16 August 2008 was not in time

105 According to Art. 39(1) CISG, the buyer must notify the seller about the nature of the

lack of conformity “within a reasonable time after he has discovered or ought to have

discovered it.” The definition of the term “reasonable” depends on several circumstances.

106 As a general benchmark for the overall duration of the deadline for examination and

notification, the noble month approach has been broadly accepted by courts [e.g. CISG-

online Cases No. 144, 150 and 163]. It uses one month as a rough guideline for time of


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notification. The specific circumstances of the case thereby shorten or extend the period.

An obvious lack of conformity, which can be easily detected by due examination,

shortens time for notification substantially, as a blatant defect is easily noticeable [CISG-

online Case No. 1681; Honsell/Magnus, Art. 39, para. 21]. Perishables and seasonal

goods have the same effect, even if the goods are frozen [CISG-online Cases No. 29, 485

and 413]. Finally, a party with expert knowledge is subject to a shorter period for notice

[Honsell/Magnus, Art. 39, para. 19; CISG-online Case No. 547].

107 In this case, several factors influence the period allowed for a timely notification. First,

the affected goods are perishables, as they cannot be stored indefinitely [Cf. Proc. Ord.

No. 3, para. 29]. The Swiss Federal Supreme Court decided that a period of 7 to 17 days

for notification in the case of frozen meat was adequate [CISG-online Case No. 413].

108 It is further undisputed that squid are seasonal goods since the “fishing season is

relatively short” [Req. for Arb., para. 8]. This shortens the time for notification as the

quality and the saleability deteriorate with every month. It is in both parties’ interest to

respect the seasonal character of the goods and therefore handle possible complaints

quickly, which means within 14 days [CISG-online Case No. 485].

109 Second, CLAIMANT has expert knowledge [Proc. Ord. No. 3, para. 26]. A professional

trader can be expected to check “immediately” whether the goods have all the desired

quality features, including the size, and to make appropriate notice of any non-

conformity [CISG-online Case No. 547]. The term immediately must be understood as a

very short time period. CLAIMANT is a professional trader which deals with squid on a

daily basis. The time for notification is therefore further shortened.

110 Third, as simple defrosting and weighing would have shown the alleged size flaw, this

lack was obvious, thereby further shortening the time for notification.

111 Considering all these reasons, the appropriate time period for notification in this case was

five to ten days. CLAIMANT argues that the time for notification is extended by the time

taken for the examination by TGT Laboratories [Mem. Cl., para. 120]. This is incorrect

as the alleged deviation in size was easily noticeable. CLAIMANT should therefore have

detected this deviation during the first examination. In any event, the examination by the

laboratory took only ten days [Cl. Ex. No. 6 and 8], and the time for notification would

maximally be extended by this period. Assuming such circumstances, a total time for

notification of fifteen to twenty days would have been reasonable.

112 For determining when the period begins to run, not the time of actual detection of non-

conformity is relevant but rather the time the buyer ought to have discovered a lack


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[Enderlein/Maskow/Strohbach, Art. 39, para. 4; UNCITRAL Digest, Art. 39, para. 18].

The time period for notification began to run when CLAIMANT first inspected the squid,

on 1 July 2008. Since the alleged lack of conformity was easily detectable through proper

examination [Cf. para. 110], CLAIMANT ought to have discovered it at that time.

113 Applying the five to ten day notification period established above [Cf. para. 111],

notification was due by 11 July 2008. Taking into account the laboratory examination,

notification should have been made at the very latest on 21 July 2008. The notice of the

alleged non-conformity of the goods, however, was sent on 16 August 2008 [Cl. Ex. No.

7 and 8]. RESPONDENT was therefore notified 46 days after the squid had been delivered,

which is almost one month after the latest notification date allowed. This notification

cannot be considered timely. Therefore, CLAIMANT has lost its right to rely on an alleged

non-conformity as it did not give proper notice.

(b) Communication of 29 July 2008 was inadequate

114 Although it is not argued by CLAIMANT, its email of 29 July 2008 was neither an

adequate nor a timely notice as the nature of a possible lack of conformity was not

specified and the email was not sent in time.

115 To be considered adequate, the buyer must notify the seller of the exact nature of the lack

of conformity [Honsell/Magnus, Art. 39, para. 6]. This is required to enable the seller to

initiate the steps necessary [Achilles, Art. 39, para. 3]. The lack itself thereby has to be

precisely stated in order to avoid misunderstandings and guarantee that the seller knows

exactly what the buyer means [CISG-online Case No. 260]. General complaints are

therefore not precise enough and the formulation has to be more precise than descriptions

such as “different lacks of conformity” or “not or hardly useable” [Honsell/Magnus, Art.

39, para. 10; CISG-online Case No. 683]. The seller referring to Art. 39 CISG is

required to mention at least key words indicating the deviation from the contractually

agreed type or quality [Achilles, Art. 39, para. 4]. Furthermore, the expert knowledge of

the buyer raises the standard of precision, as such a party is expected to be able to

describe the nature of a lack of conformity precisely [CISG-online Case No. 561].

116 CLAIMANT’s email of 29 July 2008 is far from this standard. It only stated that two of its

customers complained that “the squid was hardly useable as bait” [Cl. Ex. No. 5]. This

gave no hint as to the nature of the lack of conformity. It only stated that there was,

apparently, a defect. As no keywords on the deviation from the contractual quality were

mentioned, the required minimum was not fulfilled. Finally, CLAIMANT has expert


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knowledge and would therefore have been able to describe the nature of the alleged lack

of conformity very precisely. As the alleged undersize of the squid was an obvious

defect, expert knowledge would not even have been necessary to describe it. A simple

sentence like “squid are of too small size for use as bait” would have been sufficient.

117 Furthermore, as shown above in para. 113, notification was to be made at the latest by 21

July 2008. Therefore, CLAIMANT’s email of 29 July 2008 was neither precise enough to

be considered adequate nor timely in the sense of Art. 39(1) CISG.

(c) RESPONDENT did not waive its right to object

118 RESPONDENT did not waive its right to object to the fact that the notice of a possible non-

conformity was not timely. CLAIMANT alleges that RESPONDENT waived its right to

object by agreeing to an expert examination [Mem. Cl., paras. 108 et seqq]. However, a

waiver is not yet apparent just because of the mere commencement of negotiations

regarding the notified defect [CISG-online Cases No. 353 and 618;

Schlechtriem/Schwenzer/Schwenzer, Art. 39 para. 33]. In fact, a seller only waives his

right if he “misleads the buyer into thinking that the seller would not object to the

buyer’s notice” [UNCITRAL Digest, Art. 39, para. 8]. In a German Federal Court

decision, the seller explicitly stated that he will take responsibility and duly handle the

present and future complaints if these prove to be justified [CISG-online Case No. 277].

The mere fact that the seller did not immediately reject the notice as late at the time it

was given is not sufficient evidence of waiver [CISG-online Case 120].

119 CLAIMANT relies primarily on the Lambskin coat case [CISG-online Case No. 415].

Proper reading of the case, however, shows that an agreement to an expert examination

alone does not equal an implicit waiver of the seller’s right to object to an untimely

notice under Art. 39(1) CISG. The court states that “the seller's mere checking on the

defects after the period of time for notification had expired cannot be regarded as an

implicit waiver of its rights”. RESPONDENT only suggested the expert examination on 3

August 2008 [Cl. Ex. No. 6]. As the time period for giving notice had already expired at

that time [Cf. para. 113], RESPONDENT was not waiving its right.

120 The court goes on to conclude that the “[Seller] did not forfeit its rights under the

principle of good faith by entering into subsequent negotiations with the [Buyer]

concerning the claimed lack of conformity. To the contrary, the very principle of good

faith commands that such negotiations as mere gesture of good will cannot be interpreted

as a waiver of one's own rights” [CISG-online Case No. 415]. CLAIMANT failed to


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properly examine the goods, did not notify RESPONDENT of the alleged non-conformity in

time and failed to specify the nature of the alleged defect. In the light of these

shortcomings, a loss of RESPONDENT’s rights simply through its asking for a specific

description of the defect, which should have been provided by CLAIMANT in the first

place, would not be compatible with the principle of good faith.

121 Furthermore, contrary to CLAIMANT’s allegation, RESPONDENT does not show any

“willingness to remedy a confirmed non-conformity” [Mem. Cl., para. 110]. As shown

in para. 116, CLAIMANT’s notice of 29 July 2008 failed to specify the nature of the lack

of conformity. Therefore, RESPONDENT invited CLAIMANT to provide additional

information: “I am very surprised to hear that there were complaints about the illex we

sold you. Please have it inspected by a certified resting agency and keep us informed”

[Cl. Ex. No. 6]. This statement makes no indication that RESPONDENT would take

remedial actions in the case of a confirmed lack of conformity and cannot be interpreted

as a waiver. Therefore, RESPONDENT did not waive its right to object to the fact that the

notice of a possible non-conformity was not timely.

C. AVOIDANCE OF THE CONTRACT WAS NOT POSSIBLE

122 Although CLAIMANT does not argue the avoidance of the contract and its implications,

we ask the Tribunal to find that such avoidance was impossible under the given

circumstances. CLAIMANT cannot avoid the contract because (1) the alleged breach was

not fundamental and (2) other remedies would have been sufficient to protect

CLAIMANT’s interests. In any event, (3) CLAIMANT lost the right to declare avoidance due

to its failure to notify RESPONDENT in accordance with Art. 26 CISG. Finally, (4) the

alleged non-conformity only affected an easily separable part of the goods.

1. The alleged breach of contract was not fundamental

123 Art. 49(1)(a) CISG states that the buyer may declare avoidance of the contract if the

failure by the seller to perform any of his obligations amounts to a fundamental breach of

contract. In this case, any alleged breach by RESPONDENT was not fundamental in the

sense of Art. 25 CISG. (a) CLAIMANT was not substantially deprived of the benefit of the

contract and (b) the results of the breach were not foreseeable for RESPONDENT.

(a) CLAIMANT was not substantially deprived of the benefit of the contract

124 According to Art. 25 CISG, a breach of contract is fundamental if it results in such a

detriment to the other party as substantially to deprive it of what it is entitled to expect


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under the contract. The decisive factor is not necessarily the financial damage or loss, but

the significance of the breach for the aggrieved party [Schlechtriem/Butler, p. 97 et seq.].

“The fundamental character of the breach [...] depends on the impairment of the justified

contractual expectations of the damaged party” [Ferrari, p. 496].

125 In order for a potential breach to be fundamental, CLAIMANT would have to show that a

breach of contract had substantially impaired its justified expectations. Looking at the

contract and the relevant circumstances reveals the expectations which were justified.

CLAIMANT could not reasonably expect the squid to fall exclusively in the range of

100/150g, as this was not contractually agreed upon [Cf. para. 82]. Further, the price of

the goods as well as the contract indicated that the squid would be unsized [para. 79].

Especially the fact that CLAIMANT knew about quality inconsistencies of Danubian squid

[Req. for Arb., para. 10] shows that a rational party could not expect all of the squid to

fall into the perfect size range. This is also the reason why CLAIMANT had not usually

bought squid from Danubia in the past [id., paras. 9-11]. Since the catch from the

Oceanian Islands was below average, CLAIMANT had to be ready to compromise to cover

the demand of its clients. As a result, the justified contractual expectations do not cover

squid exclusively in the 100/150g size range. Rather, the expectations were limited to

delivery of squid which were fit for human consumption, sellable and usable as bait.

126 A potential breach of contract by RESPONDENT could not have caused CLAIMANT to be

substantially deprived of the benefit of the contract as its justified expectations were not

substantially impaired. First, over 45% of the squid was in the perfect size range for bait

[Cl. Ex. No. 8] which means that both the size and quality of meat of the squid were

perfect. Squid not matching perfectly the range of 100/150 grams are not automatically

unusable as bait [Cf. para. 86]. CLAIMANT just mentions that it “is the range which gives

[their] customers the best results” [Cl. Ex. No. 2]. Second, the squid could reasonably be

used for other purposes. This so called reasonable use test has been used by the highest

courts of several European countries. A breach is not considered fundamental if the

buyer can resell the goods in its ordinary course of business [e.g. CISG-online Case No.

135 and 413]. Since CLAIMANT also sells seafood for human consumption [Cl. Ex. No.

10, para. 2], when the size of the squid is irrelevant [id., para. 4], even the undersized

squid were sellable in its ordinary course of business.

127 Referring to the adapted expectations under the contract, the alleged difference in size

between the contract and the delivery do not substantially deprive CLAIMANT and

therefore an alleged breach of contract is not fundamental.


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(b) The results were not foreseeable

128 Even if the Tribunal should come to the conclusion that the delivery substantially

deprived CLAIMANT, this does not necessarily mean that it constituted a fundamental

breach. According to Art. 25 CISG, a breach of contract is not fundamental if “the party

in breach did not foresee and a reasonable person of the same kind in the same

circumstances would not have foreseen such a result.”

129 The question of foreseeability has to be interpreted with regard to Art. 8(2), (3) CISG

[Schlechtriem/Schwenzer/Schroeter, Art. 25 para. 36]. It has both a subjective and an

objective component [Honsell/Gsell, Art. 25 para. 22] meaning that both the party and a

hypothetical person in its position would not have foreseen the results of a breach.

130 In this case, the results of the breach were foreseeable neither for RESPONDENT nor for a

reasonable party in the same circumstances. RESPONDENT had delivered squid to

CLAIMANT, which sells fish products both as bait and for human consumption [Req. for

Arb., para. 2]. CLAIMANT states that the squid were “hardly usable as bait” [Cl. Ex. No.

5] and that the squid “eventually had to be destroyed” [Req. for Arb, para. 23]. In fact,

as proven by TGT Laboratories, more than 45% of the delivered squid were of perfect

size and quality to be used as bait, and the remainder was also usable as bait or for other

purposes [Cl. Ex. No. 8]. The wording used (“hardly usable”) is an exaggeration, but

implicates that the squid was still in fact usable. There was no reason either for

RESPONDENT or for a reasonable person of the same kind in the same circumstances to

foresee that the long liners would not be satisfied with the squid.

131 Even if RESPONDENT could have foreseen that the long liners would not be pleased with a

mix of 2007/2008 squid, it was definitely not foreseeable that CLAIMANT would have this

much trouble selling the squid (both to other long liners and on other markets) and that

they eventually had to be destroyed. The results of the breach were not foreseeable to

RESPONDENT, and the breach therefore not fundamental under Art. 25 CISG.

2. Other remedies would have been sufficient

132 Even if there had been a breach of contract, CLAIMANT could not have avoided the

contract as other remedies would have been sufficiently strong to protect its interests.

The remedy of avoidance is only allowed under the CISG as a last resort [Magnus, p.

423], especially when the goods have already been delivered [Schlechtriem/Schwenzer/

Müller-Chen, Art. 49 para. 2]. A contract can only be avoided “in exceptional

circumstances” [CISG-online Case No. 413]. It has been held that the “CISG has a


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tendency to limit avoidance of contract in favor of other possible remedies, in particular a

reduction of the purchase price or a claim for damages" [CISG-online Case No. 135].

133 In order to avoid the contract, CLAIMANT would have had to show that the circumstances

were exceptional and that the other remedies, such as a reduction of the purchase price or

damages, would not have been sufficient. In the case under consideration a reduction in

the purchase price would have been a suitable remedy. Almost half of the squid were

exactly as ordered, and the other half was also of excellent quality [Cl. Ex. No. 8],

despite allegedly being undersized. It would therefore have been reasonable to demand a

reduction in the purchase price for the 2008 squid or damages.

3. CLAIMANT failed to declare avoidance

134 Under Art. 26 CISG, a party must notify the other party of its avoidance in order for this

avoidance to become effective. The requirements for a notice of avoidance are very strict

[Honsell/Gsell, Art. 26 para. 11]. Even if one were to allow an implicit notice of

avoidance, it must be unequivocally clear that the buyer no longer wants to uphold the

contract [CISG-online Cases No. 26 and 218]. While it was held sufficient notification if

the seller returns the goods and demands back the purchase price [CISG-online Cases

No. 709, 817, 945 and 1488] the simple returning of the goods is not sufficient behavior

by the buyer to show its intention to avoid the contract [Honsell/Gsell, Art. 26 para 13].

135 CLAIMANT never stated its intention to avoid the contract. It only notified RESPONDENT

that it would be holding the squid at RESPONDENT’s disposal [Cl. Ex. No. 7]. This

notification is not sufficiently clear to show that CLAIMANT no longer plans to adhere to

the contract, since it only returns the squid without stating which remedy it wanted to

take. CLAIMANT therefore never properly declared avoidance.

4. The alleged non-conformity only affected an easily separable

part of the goods

136 According to Art. 51 CISG, if only part of a contract is not in conformity, the buyer may

only avoid that part unless breach of that part causes a fundamental breach of the whole

contract. If the Tribunal should conclude that RESPONDENT fundamentally breached the

contract, we ask it to find that the circumstances only allowed a partial avoidance.

137 Predominant opinion states that Art. 51 CISG is only applicable if the goods delivered

consist of separate and separable items, such as 10 container loads of cocoa

[Huber/Mullis, p. 293]. An avoidance of the contract in its entirety is limited to the cases


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where the partial breach in itself causes the buyer to lose all benefits of the entire contract

[id, p. 295]. This is however a rare exception rather than the rule [UNCITRAL Digest,

Art. 51 para. 6; CISG-online Case No. 129].

138 In this case, the goods were packaged in cartons and labeled with the year of the catch

[Cl. Ex. No. 8]. They were separate and separable, so a partial avoidance was possible.

By CLAIMANT’s own account, 45% of the squid were in perfect conformity to its

(exaggerated) expectations [id]. Since the cartons containing the squid are labeled and

the conforming squid were almost exclusively from the year 2007, it would have been

little trouble to avoid only the non-conforming part of the contract.

139 To avoid the entire contract, CLAIMANT would have to show that the partial breach

caused it to lose all the benefits of the contract. Such an assertion will be impossible to

make, as a large portion of the goods was in perfect conformity and therefore saleable.

D. CLAIMANT IS NOT ENTITLED TO DAMAGES

140 CLAIMANT is not entitled to damages as (1) the prerequisites for damages are not

fulfilled. In any event, full damages cannot be granted as (2) CLAIMANT did not

reasonably mitigate its losses.

1. The prerequisites for damages are not fulfilled

141 CLAIMANT is not entitled to claim damages as RESPONDENT did not breach any

contractual obligation. If the seller breaches a contractual obligation, the damaged party

is allowed to claim damages according to Art. 45(1)(b) CISG in connection with Art. 74

CISG [Honsell/Schönle/Th. Koller, Art. 74, para. 20]. In other words, without a breach

of a contractual obligation no claim for damages is possible [Schlechtriem, p. 3].

142 In this case, as shown above in paras. 65 et seqq., no breach of a contractual obligation

occurred. Therefore, CLAIMANT is not entitled to claim damages.

143 Even if CLAIMANT could claim damages, it would not be entitled to the full amount of

claimed damages, as it did not and could not avoid the contract. “The CISG is based on

the assumption that one cannot claim the entire performance interest without avoiding the

contract" [Huber/Mullis, p. 282]. In this case CLAIMANT could not avoid the contract as

no fundamental breach occurred [Cf. paras. 127 and 131].

2. Mitigation of losses would have been possible

144 Even if CLAIMANT were entitled to damages, it could not claim the full amount as

mitigation of losses would have been possible. The party relying on a breach of contract


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must take all possible measures to prevent the occurrence of damages or to mitigate their

extent [Art. 77 CISG]. “If [it] fails [...], the party in breach may claim a reduction in the

damages in the amount by which the loss should have been mitigated” [id.]. A party will

not be compensated for damages which it could reasonably have avoided

[Honsell/Magnus, Art. 77 para. 1]. The Austrian Supreme Court defines that a possible

measure is reasonable "if it could have been expected [...] from a reasonable person [...]

under the same circumstances” [CISG-online Case No. 224]. In this case, the measures

taken by CLAIMANT cannot be considered reasonable under the circumstances as (a) they

were not adequately executed and (b) further measures would have been adequate.

(a) The measures taken were not adequately executed

145 The measures CLAIMANT took were not reasonable under the circumstances because they

were not adequately executed. Measures to mitigate losses are adequate if they help to

avoid unnecessary costs and expenses [Honsell/Magnus, Art. 77 para. 11; UNCITRAL

Digest, Art. 77, para. 6]. Expenditures which do not limit the loss cannot be reimbursed

[CISG-online Case No. 277; Zeller, p. 112]. The measures CLAIMANT took in this case

were not adequate for the following reasons.

146 First, the delivered squid were of excellent quality [Cl. Ex. No. 8]. However, the moving

of the product unduly increased the deterioration process [Proc. Ord. No. 3, para. 19].

CLAIMANT moved the squid “at least twice” during the storage period [Req. for Arb.,

para. 22]. It would have been possible to store it in one cool house during the whole

period and thereby prevent the squid from deteriorating quickly. The moving was

unnecessary and, instead of avoiding costs, caused further avoidable expenses.

147 Second, the storing costs could have been mitigated. CLAIMANT stored the squid for at

least eleven months [Req. for Arb., para. 22]. It is known that squid is harder to sell the

longer it has been since catch and individual countries may have limits on the time from

catch to sale at retail [Req. for Arb., para. 29]. Art. 77 CISG expects the aggrieved party

to act within reasonable time, depending on the specific market [UNCITRAL Digest, Art.

77, para. 7; CISG-online Case No. 119]. As squid are perishable and seasonal goods, it

would have been reasonable to destroy the squid earlier, and thus reduce storage costs, as

the chances to sell the squid were further reduced with every week [CISG-online Case

No. 36].

148 Third, CLAIMANT tried to sell the squid abroad. It claims that these attempts were

“largely unsuccessful” [Req. for Arb., para. 20]. However, this shows that the attempts


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were at least partially successful. With an offered discount, CLAIMANT would have been

able to resell more squid on the market outside of Mediterraneo [Cf. CISG-online Case

No. 749]. The higher the discount, the larger the amount of sold squid would have been.

149 Therefore, CLAIMANT is not entitled to the full amount of claimed damages as the taken

measures were not adequately executed.

(b) Further measures would have been adequate

150 An aggrieved party is only entitled to the full amount of claimed damages if it took all

reasonable measures to mitigate losses that can be expected by a reasonable business

person [Zeller, p. 114; CISG-online Case No. 727]. CLAIMANT is not entitled to the full

amount of claimed damages as the following further measure could have been expected.

151 All cartons were labeled “illex danubecus 2007” or “illex danubecus 2008” [Proc. Ord.

No. 3, para. 32]. It would have been reasonable and possible to sort out the 2007 catch

squid, especially as it was known that “94% of the 2007 catch squid were in the range of

100-150 grams” [Cl. Ex. No. 8]. CLAIMANT may now argue that it was not possible to

resell any squid as its customers were not willing to take any chances. This is of no

relevance as CLAIMANT could have restored confidence by stating that it had found the

problem of the size (60% of squid from 2008 catch) and that it could guarantee sale of

squid in right size range (from 2007 catch). This leads to the conclusion that CLAIMANT

would have been able to resell all the 2007 catch squid. As approximately 40% of the

delivered squid were from 2007 catch [id.], this would have almost halved the losses.

152 Therefore, as further measures would have been reasonable under the circumstances,

CLAIMANT is not entitled to full amount of claimed damages.

IV. PRAYERS FOR RELIEF

RESPONDENT respectfully requests the Tribunal to find that:

1. The Tribunal does not have jurisdiction in its present composition;

2. CLAIMANT breached its duty of confidentiality and RESPONDENT’s claims for interim

measures and for damages should be granted;

3. The delivery of squid was conforming to the contractual requirements and no breach of

contract occurred;

4. CLAIMANT has lost its right to rely on an alleged lack of conformity; and

5. CLAIMANT is not entitled to damages.

Documents

MEMORANDUM FOR RESPONDENT - Electronic Library · PDF fileMEMORANDUM FOR RESPONDENT UNIVERSITY OF ST.GALLEN ... D. CLAIMANT IS NOT ENTITLED TO DAMAGES ... Paulsson’s Moral Hazard