MEMORANDUM FOR CLAIMANTThe Doctrines of Impossibility of Performance and clausula rebus sic stantibus in the 1980 Vienna Convention on Contracts for the International Sale of Goods

TWENTIETH ANNUAL

WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT

22 TO 28 MARCH 2013

MEMORANDUM FOR CLAIMANT

LUDWIG-MAXIMILIANS-UNIVERSITÄT MÜNCHEN

ON BEHALF OF:

Mediterraneo Exquisite Supply, Co.

45 Commerce Road

Capital City

Mediterraneo

CLAIMANT

AGAINST:

Equatoriana Clothing Manufacturing, Ltd.

286 Third Avenue

Oceanside

Equatoriana

RESPONDENT

COUNSEL:

Felix Aiwanger Clara Freißmuth Ronja Schregle

Sophie Schröter Luise Seidel Michael Strecker


II

TABLE OF CONTENTS

INDEX OF AUTHORITIES....................................................................................................... V

INDEX OF CASES ............................................................................................................XVIII

INDEX OF ARBITRAL AWARDS ......................................................................................... XXII

INDEX OF LEGAL SOURCES ............................................................................................ XXVI

LIST OF ABBREVIATIONS...............................................................................................XXVII

STATEMENT OF FACTS........................................................................................................... 1

SUMMARY OF ARGUMENT ......................................................................................................3

ARGUMENT............................................................................................................................4

I. MR. SHORT’S WRITTEN WITNESS STATEMENT IS INADMISSIBLE ...................................4

A. Mr. Short’s Written Statement Alone Does Not Suffice as Evidence Under the

CEAC Rules ............................................................................................................4

1. The circumstances call for a dismissal of Mr. Short’s written statement......................5

(a) Discrepancies in the witnesses’ perception need to be challenged in an oral

hearing.............................................................................................................................5

(b) An oral hearing is indispensible to ensure Mr. Short’s testimony is objective ....5

2. Admitting Mr. Short’s written statement would frustrate CLAIMANT’s right to an

oral hearing.............................................................................................................................6

B. The Tribunal Shall Disregard Mr. Short’s Statement under the IBA Rules...........7

1. The Tribunal should apply the IBA Rules as they reflect international practice in

the taking of evidence...........................................................................................................7

(a) International commercial arbitration recognizes the IBA Rules as best practice7

(b) The IBA Rules take account of the different approaches in the parties’ legal

systems ............................................................................................................................8

2. Mr. Short’s written witness statement shall be disregarded under Art. 4 (7) IBA

Rules ........................................................................................................................................8

(a) Mr. Short’s absence is not justified by a valid reason..............................................8

(b) No exceptional circumstances legitimize an admission of Mr. Short’s statement9

C. Disregarding the Statement Does Not Violate RESPONDENT’s Right to Be Heard9

D. An Award Based on Mr. Short’s Written Statement Might Be Set Aside ............. 10

1. The admission of the statement would violate CLAIMANT’S right to be heard......... 11

2. Admitting the written statement would amount to unequal treatment...................... 11


III

II. DUE TO RESPONDENT’S LATE DELIVERY CLAIMANT IS ENTITLED TO THE AGREED

SUM OR DAMAGES ......................................................................................................... 12

A. RESPONDENT’s Non-Delivery on 19 February 2011 Was a Breach of Contract .... 12 1. The parties did not amend the Contract ......................................................................... 13

(a) There was no need to amend the Contract as Sec. 10 provided for the situation

of late delivery............................................................................................................. 13

(b) Mr. Long’s conduct does not imply his intent to amend the Contract ............. 13 (c) Mr. Long’s reference to “paper work” does not suffice to indicate an intent to

change the Contract ................................................................................................... 14 2. Any purported amendment is invalid lacking written form......................................... 15

(a) Mediterraneo’s reservation under Art. 96 CISG is mandatory rendering the

parties’ agreement ineffective................................................................................... 15

(i) Parties cannot change the effect of Part IV of the CISG............................... 16

(ii) The parties could not exclude Art. 96 CISG in particular .............................. 16

(b) Mediterraneo’s Art. 96 CISG reservation directly leads to a written form

requirement ................................................................................................................. 17

B. The Strike at a Factory of RESPONDENT’s Supplier Does Not Exclude Its

Liability ................................................................................................................. 18

1. The strike was not beyond RESPONDENT’s control...................................................... 18

2. RESPONDENT could have overcome the consequences of its supplier’s non-

delivery ................................................................................................................................. 18

C. CLAIMANT Is Entitled to the Agreed Sum Under the Contract ............................ 19

1. The applicable law allows for an agreement on specified sums .................................. 19

2. The sum is not grossly excessive...................................................................................... 19

D. Subsidiarily, CLAIMANT Is Entitled to Damages under the CISG........................ 20

III. DUE TO RESPONDENT’S USE OF CHILD LABOR CLAIMANT IS ENTITLED TO

REIMBURSEMENT OF THE PURCHASE PRICE AND DAMAGES........................................ 21 A. RESPONDENT Breached Its Obligation Not to Use Child Labor ......................... 21

1. The shirts were not of the quality required by the Contract........................................ 22 (a) “Highest ethical standards” exclude the use of child labor ................................. 22

(i) The term “highest ethical standards” by definition disallows the use of child

labor ..................................................................................................................... 22

(ii) In light of Oceania Plus’s policy the requirement “highest ethical standards”

prohibits child labor........................................................................................... 22


IV

(iii) The circumstance that ILO Convention No. 182 is in force in both

parties’ countries underlines that the parties understood “highest ethical

standards” to exclude child labor .................................................................... 23 (b) The exclusion of child labor applies to RESPONDENT’s entire business activities23

(i) The term “conduct of business” requires RESPONDENT to refrain from

using child labor in its entire business activites ............................................. 24

(ii) The “Yes Casual” brand requires the overall absence of child labor............ 24 2. The polo shirts were unfit for their particular purpose ................................................ 25

(a) The shirts were not fit for resale in Oceanian Doma Cirun stores .................... 25 (i) CLAIMANT made the particular purpose known to be the resale in Oceanian

Doma Cirun stores............................................................................................. 26 (ii) CLAIMANT reasonably relied on RESPONDENT’s skill and judgement to

deduce from the particular purpose that it may not use child labor .......... 26

(b) RESPONDENT is liable since CLAIMANT was not aware of its use of child labor27

3. RESPONDENT breached its obligations under Sec. 12 of the Contract ...................... 28

B. RESPONDENT’s Breach Is Fundamental............................................................... 28

1. CLAIMANT is substantially deprived of its expectation ................................................. 29

(a) CLAIMANT was entitled to expect polo shirts from a child labor free company29

(b) CLAIMANT was substantially deprived of its expectation..................................... 29

2. This substantial detriment was also foreseeable to RESPONDENT.............................. 30

3. In any case, the Tribunal should confirm a fundamental breach since avoidance

is the only remedy which fully compensates CLAIMANT’s detriment......................... 30

C. CLAIMANT Declared Non-Conformity and Avoidance of the Contract ................ 31

D. CLAIMANT Is Entitled To Damages...................................................................... 32

1. CLAIMANT suffered revocerable losses as a result of RESPONDENT’s breach .......... 32 2. The losses CLAIMANT demands were foreseeable ......................................................... 33

3. CLAIMANT duly mitigated all arisen losses...................................................................... 34

REQUEST FOR RELIEF ......................................................................................................... 35


V

INDEX OF AUTHORITIES

Oxford Dictionaries Online

Available at: http://oxforddictionaries.com

Cited as: Oxford Dictionaries

In § 104

Statista 2006: Boykott unsozialer Firmen, Kinderarbeit, schlechte

Löhne

Available at:

http://de.statista.com/statistik/daten/studie/178557/umfrage/boyko

tt-unsozialer-firmen-kinderarbeit-schlechte-loehne-etc/

Cited as: Statista 2006

In § 117

AMERASINGHE,

Chittharanjan

Evidence in International Arbitration

Martinus Nijhoff Publishers, Leiden/Boston, 2005

Cited as: AMERASINGHE

In § 13

BEECHEY, John Cross-Examination, in: BÖCKTIEGEL, Karl-Heinz (Ed.),

Beweiserhebung in internationalen Schiedsverfahren

Carl Heymanns Verlag, Cologne et al., 2001

Cited as: BEECHEY

In §§ 13, 45

BENEYTO, José-Maria/

BRÖDERMANN, Eckart/

MEYER, Bernhard F./

ZHAO, Hang

Neue Wege in der Schiedsgerichtsbarkeit: das Chinese European

Arbitration Centre (CEAC) für China-Verträge

[2011] Recht der Internationalen Wirtschaft, pp. 12-29

Cited as: BENEYTO ET AL.

In § 64


VI

BIANCA, Cesare/

BONELL, Michael

Joachim

(Eds.)

Commentary on the International Law of Sales

The 1980 Vienna Sales Convention

Guiffre, Milan, 1987

Cited as: AUTHOR in Bianca/Bonell

In §§ 68, 70, 149

BINDER, Peter International Commercial Arbitration and Conciliation in

UNCITRAL Model Law Jurisdictions

Thomson Reuters, London, 3rd ed. 2010

Cited as: BINDER

In §§ 17, 39, 45

BLESSING, Marc Die LCIA Rules – aus der Sicht des Praktikers

[2003] SchiedsVZ, pp. 198-205

Cited as: BLESSING

In §23

BRÖLSCH, Martin W. Schadensersatz und CISG

Peter Lang, Frankfurt am Main, 2007

Cited as: BRÖLSCH

In § 138

BROWNLIE, Ian Principles of Public International Law

Oxford University Press, Oxford et al., 5th ed. 1998

Cited as: BROWNLIE

In § 67

BRUNNER, Christoph UN-Kaufrecht – CISG. Kommentar zum Übereinkommen der

Vereinten Nationen über Verträge über den Internationalen

Warenverkauf von 1980

Stämpfli, Bern, 2004

Cited as: BRUNNER

In § 134


VII

BUTLER, Allison E. A Practical Guide to the CISG: Negotiations Through Litigation

Aspen Publishers, New York 2006

Cited as: BUTLER

In §§ 67, 75

CARON, David D./

CAPLAN, Lee M./

PELLONPÄÄ, Matti

The UNCITRAL Arbitration Rules. A Commentary

Oxford University Press, Oxford et al., 2006

Cited as: CARON ET AL.

In § 18

CHU, Ben Shoppers show they still care as ethical products beat downturn

The Independent, London, 15 December 2011

Cited as: CHU

In § 117

ENDERLEIN, Fritz/

MASKOW, Dieter

International Sales Law: United Nations Convention on Contracts for

the International Sale of Goods

Oceana Publications, New York, 1992

Cited as: ENDERLEIN/MASKOW

In § 166

FERRARI, Franco Fundamental Breach of Contract Under the UN Sales Convention:

25 Years of Article 25 CISG

[2006] 25 Journal of Law and Commerce 2, pp. 489-508

Cited as: FERRARI

In § 144

FLAMBOURAS,

Dionysios P.

The Doctrines of Impossibility of Performance and clausula rebus sic

stantibus in the 1980 Vienna Convention on Contracts for the

International Sale of Goods and the Principles of European Contract

Law: A Comparative Analysis

[2001] 13 Pace International Law Review, pp. 261-293

Cited as: FLAMBOURAS

In § 79


VIII

FLECHTNER, Harry M. The Several Texts of the CISG in a Decentralized System –

Observations on Translations, Reservations and other Challenges to

the Uniformity Principle in Article 7 (1)

[1998] 17 Journal of Law and Commerce, pp. 187-217

Cited as: FLECHTNER

In § 68

GARRO, Alejandro M.

CISG Advisory Council Opinion No. 7, Exemption of Liability for

Damages under Article 79 of the CISG

Available at: http://www.cisg.law.pace.edu/cisg/CISG-AC-op7.html

Cited as: CISG-AC Op. No. 7

In § 81

GODFREY, Paul C./

MERRILL, Craig B./

HANSEN, Jared M.

The Relationship Between Corporate Social Responsibility and

Shareholder Value: An Empirical Test of the Risk Management

Hypothesis

[2009] 30 In: Strategic Management Journal, pp. 425-445

Cited as: GODFREY ET AL.

In § 170

GREENBERG, Simon/

KEE, Christopher/

WEERAMANTRY, J.

Romesh

International Commercial Arbitration. An Asia-Pacific perspective

Cambridge University Press, Cambridge et al., 2011

Cited as: GREENBERG ET AL.

In § 25

HANOTIAU, Bernard Document Production in International Arbitration: A Tentative

Definition of ‘Best Practices’

[2006] ICC Special Supplement 2006: Document Production in

International Arbitration, pp. 113-119

Cited as: HANOTIAU

In § 24


IX

HENSCHEL, René F. Conformity of Goods in International Sales

Forlaget Thomson/Gadjura, Copenhagen, 2005

Cited as: HENSCHEL

In § 100

HERBER, Rolf/

CZERWENKA, Beate

Internationales Kaufrecht. Kommentar zu dem Übereinkommen vom

11. April 1980 über Verträge über internationalen Warenkauf

C.H. Beck Verlag, Munich, 1991

Cited as: HERBER/CZERWENKA

In § 145

HOLTZMANN, Howard/

NEUHAUS, Joseph

A Guide To The UNCITRAL Model Law on International

Commercial Arbitration. Legislative History and Commentary

Kluwer Law and Taxation Publishers, Deventer, 1989

Cited as: HOLTZMANN/ NEUHAUS

In § 19

HONNOLD, John O./

FLECHTNER, Harry M.

Uniform Law for International Sales under the 1980 United Nations

Convention

Kluwer Law International, The Hague, 4th ed. 2009

Cited as: HONNOLD/ FLECHTNER

In §§ 84, 134

HONSELL, Heinrich

(Ed.)

Kommentar zum UN-Kaufrecht

Springer, Berlin et al., 1997

Cited as: AUTHOR in Honsell

In § 127

HUBER, Peter/

MULLIS, Alastair

The CISG: A new textbook for students and practitioners

Sellier. European Law Publishers, Munich, 2007

Cited as: AUTHOR in Huber/Mullis

In §§ 100, 136, 144, 168


X

HUßLEIN-STICH,

Gabriele

Das UNCITRAL-Modellgesetz über die internationale

Handelsschiedsgerichtsbarkeit


Cited as: HUßLEIN-STICH

In § 18

KAZAZI, Mojtaba Burden of Proof and Related Issues. A Study on Evidence Before

International Tribunals

Kluwer Law International, The Hague, 1996

Cited as: KAZAZI

In § 37

KEILY, Troy Harmonisation and the United Nations Convention on Contracts for

the International Sale of Goods

[2003] 1 Nordic Journal of Commercial Law of the University of

Turku

Cited as: KEILY

In § 67

KELLER, Bertram Favor Contractus. Reading the CISG in Favor of the Contract,

in: ANDERSON, Camilla B./SCHROETER, Ulrich G. (Eds.), Sharing

International Commercial Law across National Boundaries:

Festschrift for Albert H. Kritzer on the Occasion of his Eightieth

Birthday

Wildy, Simmonds and Hill Publishing, London, 2008

Cited as: KELLER

In § 74

KIM, René/

VAN DAM, Erik

The added value of corporate social responsibility

NIDO, Leeuwarden, 2003

Cited as: KIM/VAN DAM

In § 117


XI

KOCH, Robert The Concept of Fundamental Breach of Contract Under the United

Nations Convention on Contracts for the International Sale of Goods

(CISG), in: Pace International Law Review, Review of the Convention

on Contracts for the International Sale of Goods (CISG) 1998

Kluwer Law International, The Hague, 1999

Cited as: KOCH

In § 153

KRÖLL, Stefan/

MISTELIS, Loukas/

VISCASILLAS, Pilar

Perales (Eds.)

UN Convention For The International Sale of Goods (CISG)

C.H. Beck/Hart/Nomos, Munich, 2011

Cited as: AUTHOR in Kröll et al.

In §§ 100, 107

KRUISINGA, Sonja (Non-)conformity in the 1980 UN Convention on the International

Sale of Goods – a uniform concept?

Intersentia, Antwerp, 2004

Cited as: KRUISINGA

In § 136

LEW, Julian D.M./

SHORE, Laurence

Harmonizing Cultural Differences

[1999] 54 Dispute Resolution Journal, p. 33-38

Cited as: LEW/SHORE

In § 25

LIU, Chengwei Remedies in International Sales. Perspectives from CISG,

UNIDROIT Principles and PECL

JurisNet, New York, 2007

Cited as: LIU

In § 166


XII

Force Majeure - Perspectives from the CISG, UNIDROIT Principles,

PECL and Case Law [2nd edition: Case annotated update (April

2005)]

Available at: http://www.cisg.law.pace.edu/cisg/biblio/liu6.html

Cited as: LIU Force Majeure

In § 79

MAGNUS, Ulrich Die allgemeinen Grundsätze im UN-Kaufrechts

[1995] 59 Rabels Zeitschrift für ausländisches und internationales

Privatrecht, pp. 469-494

Cited as: MAGNUS

In § 48

MALEY, Kristian The Limits to the Conformity of Goods in the United Nations

Convention on Contracts for the International Sale of Goods (CISG)

[2009] 12 International Trade & Business Law Review, pp. 82-126

Cited as: MALEY

In § 129

NEUMAYER, Karl H./

MING, Catherine

Convention de Vienne sur les contrats de vente international de

marchandises – Commentaire

Centre du Droit de l'Entreprise de l'Université, Lausanne, 24th ed.

1993

Cited as: NEUMAYER/MING

In §§ 79, 145

O’MALLEY, Nathan Rules of Evidence in International Arbitration. An Annotated Guide

Informa, London, 2012

Cited as: O’MALLEY

In passim


XIII

PETROCHILOS, Georgios Procedural Law in International Arbitration


Cited as: PETROCHILOS

In § 35

PILTZ, Burghardt Internationales Kaufrecht: Das UN-Kaufrecht in praxisorientierter

Darstellung

C.H. Beck München, Munich, 2nd ed. 2008

Cited as: PILTZ

In § 136

REDFERN, Alan/

HUNTER, Martin/

BLACKABY, Nigel/

PARTASIDES,

Constantine

Redfern and Hunter on International Arbitration

Oxford University Press, Oxford et al., 5th ed. 2009

Cited as: REDFERN/HUNTER

In §§ 13, 45

SANDERS, Pieter Procedures and Practices under the UNCITRAL Rules

[1979] 27 American Journal of Comparative Law, pp. 453-468

Cited as: SANDERS

In § 17

SCHLECHTRIEM, Peter/

BUTLER, Petra

UN Law on International Sales

Springer, Heidelberg, 2009

Cited as: SCHLECHTRIEM/BUTLER

In § 168

SCHLECHTRIEM, Peter/

SCHWENZER, Ingeborg

(Eds.)

Commentary on the UN Convention on the International Sale of

Goods (CISG)

Oxford University Press, Oxford et al., 3rd ed. 2010

Cited as: AUTHOR in Schlechtriem/Schwenzer

In passim


XIV

SCHOOP, Jan Die Haftungsbefreiung für arbeitskampfbedingte

Vertragsverletzungen im UN-Kaufrecht (CISG)

LIT Verlag, Münster et al., 2000

Cited as: SCHOOP

In § 79

SCHROETER, Ulrich G. The Cross-Border Freedom of Form Principle Under Reservation:

The Role of Articles 12 and 96 CISG in Theory and Practice -

Working Paper 31 October 2012

Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id

=2169834

Cited as: SCHROETER

In §§ 57, 67

SCHWENZER, Ingeborg CISG Advisory Council Opinion No. 5, The buyer’s right to avoid the

contract in case of non-conformity of the goods or documents

Available at: http://www.cisg.law.pace.edu/cisg/CISG-AC-op5.html

Cited as: CISG-AC Op. No. 5

In § 153

SCHWENZER, Ingeborg/

LEISINGER, Benjamin

Ethical Values and International Sales Contracts, in: Cranston, Ross/

Ramberg, Jan/Ziegel, Jacob (Eds.), Commercial Law Challenges In

The 21st Century

Iustus Förlag, Uppsala, 2007

Cited as: SCHWENZER/LEISINGER

In §§ 153, 171

SHENTON, David Supplementary rule governing the presentation and reception of

evidence in international commercial arbitration, in: Lew, Julian D.M.

(Ed.), Contemporary Problems in International Arbitration

Martinus Nijhoff Publishers, Dordrecht et al., 1987

Cited as: SHENTON

In §24


XV

SHORE, Laurence Three Evidentiary Problems in International Arbitration: Producing

the Adverse Document, Listening to the Document that does not

Speak for Itself, and Seeing the Witness through her Written

Statement

[2004] SchiedsVZ, pp. 76-80

Cited as: SHORE

In § 14

SUTCLIFFE, Jonathan/

WIRTH, Markus

Witness Evidence: Written or Oral, Who asks the Questions?, in:

BÖCKSTIEGEL, Karl-Heinz/BERGER, Klaus-Peter/BREDOW, Jens, The

Taking of Evidence in International Commercial Arbitration


Cited as: SUTCLIFFE/ WIRTH

In § 25

UNCITRAL UNCITRAL Digest of Case Law on the United Nations Convention

on Contracts for the International Sale of Goods 2012 Edition

Available at: http://www.uncitral.org/pdf/english/clout/CISG-

digest-2012-e.pdf

Cited as: UNCITRAL Digest

In §§ 70, 79

UNICEF Child protection from violence, exploitation and abuse, Child labour

Available at: http://www.unicef.org/protection/57929_58009.html

Cited as: UNICEF

In § 104

UNITED NATIONS

COMMISSION ON

INTERNATIONAL TRADE

LAW

Report of the Working Group on the work of its seventh session, in:

Yearbook Volume XV: 1984

United Nations, New York, 1987

Cited as: Working Group Report

In § 42


XVI

VOGENAUER, Stefan/

KLEINHEISTERKAMP,

Jan

(Eds.)

Commentary on the Unidroit Principles of International Commercial

Contracts (PICC)


Cited as: AUTHOR in Vogenauer/Kleinheisterkamp

In § 87

VON MEHREN, George/

SALOMON, Claudia

Submitting Evidence in an International Arbitration: The Common

Lawyer’s Guide

[2003] 20 Journal of International Arbitration 3, pp. 285-294

Cited as: VON MEHREN/SALOMON

In § 25

VON STAUDINGER,

Julius (Ed.)

J. von Staudingers Kommentar zum Bürgerlichen Gesetzbuch mit

Einführungsgesetz und Nebengesetzen. Wiener UN-Kaufrecht

(CISG)

Sellier-de Gruyter, Berlin, 1999

Cited as: AUTHOR in Staudinger

In §§ 93, 129, 144

VOSER, Nathalie Harmonization by Promulgating Rules of Best International

Arbitration

[2005] SchiedsVZ, pp. 113-118

Cited as: VOSER

In § 24

WALTHER, Lena/

MORAWIETZ, Matthias

Declaration according to Article 96 CISG – Senseless?

[2006] 6 Internationales Handelsrecht, pp. 252-254

Cited as: WALTHER/MORAWIETZ

In § 75


XVII

WARHURST, Alysson Future roles of business in society: the expending boundaries of

corporate responsibility and a compelling case for partnership

[2005] 37 Futures, pp. 151-168

Cited as: WARHURST

In § 117

WEIGAND, Frank-Bernd

(Ed.)

Practitioner’s Handbook on International Arbitration

C.H. Beck Verlag, Munich, 2002

Cited as: AUTHOR in Weigand

In § 35, 42

WITZ, Wolfgang/

SALGER, Hanns-

Christian/

LORENZ, Manuel

International Einheitliches Kaufrecht. Praktiker-Kommentar und

Vertragsgestaltung zum CISG

Verlag Recht und Wirtschaft, Heidelberg, 2000

Cited as: AUTHOR in Witz et al.

In § 145

ZUBERBÜHLER, Tobias/

HOFMANN, Dieter/

OETIKER, Christian/

ROHNER, Thomas

IBA Rules of Evidence. A commentary on the Taking of Evidence in

International Arbitration

Sellier. European Law Publisher, Munich, 2012

Cited as: ZUBERBÜHLER ET AL.

In § 29


XVIII

INDEX OF CASES

Austria

Oberlandesgericht Linz, 23 January 2006

Available at: http://cisgw3.law.pace.edu/cases/060123a3.html (full text in English)

Cited as: OLG Linz 23 January 2006 (Austria)

In § 68, 72

Canada

Corporacion Transnacional de Inversiones S.A. de C.V. et al. v. STET International, S.p.A. et al.

Superior Court of Justice, 22 September 1999

[1999] CanLII 14819 (ON SC)

Cited as: STET v. COTISA (Canada)

In § 35

France

Cour d’Appel de Grenoble, 22 February 1995

Available at: http://cisgw3.law.pace.edu/cases/950222f1.html (full text in English)

Cited as: Cour d’Appel Grenoble 22 February 1995 (France)

In § 138

Germany

Bundesgerichtshof, 3 April 1996

Available at: http://cisgw3.law.pace.edu/cases/960403g1.html (full text in English)

Cited as: BGH 3 April 1996 (Germany)

In § 153

Oberlandesgericht Hamburg, 28 February 1997


Cited as: OLG Hamburg 28 February 1997 (Germany)

In § 58


XIX

Oberlandesgericht Köln, 21 May 1996


Cited as: OLG Köln 21 May 1996 (Germany)

In § 93

Oberlandesgericht Frankfurt, 17 September 1991


Cited as: OLG Frankfurt 17 September 1991 (Germany)

In §§ 138, 146

Italy

Tribunale di Vigevano, 12 July 2000

Available at: http://cisgw3.law.pace.edu/cases/000712i3.html (full text in English)

Cited as: Tribunale di Vigevano 12 July 2000 (Italy)

In § 72

Appellationsgericht Basel-Stadt, 22 August 2003

Available at: http://cisgw3.law.pace.edu/cases/030822s1.html (full text in English)

Cited as: AG Basel-Stadt 22 August 2003 (Switzerland)

In § 147

Schweizerisches Bundesgericht, 15 September 2000

Available at: cisgw3.law.pace.edu/cases/000915s2.html (full text in English)

Cited as: BG 15 September 2000 (Switzerland)

In § 145

Schweizerisches Bundesgericht, 7 September 1993

BGE 119 II pp. 386-391 (full text in German)

Cited as: BG 7 September 1993 (Switzerland)

In § 35


XX

USA

Forestal Guarani S.A. v. Daros International, Inc.

United States Federal Appellate Court (3rd Cir.), 21 July 2010

Available at: http://cisgw3.law.pace.edu/cases/100721u1.html (full text in English)

Cited as: Forestal Guarani S.A. v. Daros International, Inc. (USA)

In § 75

Chateau des Charmes Wines Ltd v. Sabaté Inc.

United States Federal Appellate Court (9th Circuit), 5 May 2003


Cited as: Chateau des Charmes Wines Ltd v. Sabaté Inc.

In § 57

China National Building Material Investment Co. Ltd. v. BNK International LLC.

United States District Court (Western District of Texas), 3 December 2009

LEXIS 113194 (full text in English)

Cited as: China National Building Material Investment Co. Ltd. v. BNK International LLC.

(USA)

In § 30

Norfolk Southern Railway Company v. Power Source Supply, Inc.

United States District Court (Western District of Pennsylvania), 25 July 2008


Cited as: Norfolk Southern Railway Company v. Power Source Supply, Inc. (USA)

In § 60

Solae, LCC v. Hershey Canada, Inc.

United States District Court (Delaware), 9 May 2008


Cited as: Solae, LCC v. Hershey Canada, Inc. (USA)

In § 57


XXI

Parsons & Whittemore Overseas Co. Inc. v. Société Générale de l’ Industrie du Papier (RAKTA)

United States Circuit Court of Appeals (2nd Cir.), 23 December 1974

508 F.2d pp. 969 et seq. (full text in English)

Cited as: Parsons & Whittemore Overseas Co. Inc. v. Société Générale de l’ Industrie du Papier

(USA)

In § 30


XXII

INDEX OF ARBITRAL AWARDS

China International Economic & Trade Arbitration Commission [CIETAC]

CIETAC Award of 31 December 1997

Available at: http://cisgw3.law.pace.edu/cases/971231c1.html (full text in English)

Cited as: Award of 31 December 1997 (CIETAC)

In § 75

CIETAC Award of 25 October 1994

Available at: http://cisgw3.law.pace.edu/cases/941025c1.html (full text in English)

Cited as: Award of 25 Oct 1994 (CIETAC)

In § 93

Hamburg Chamber of Commerce [HCC]

Partial award of 21 March 1996


Cited as: Award of 21 March 1996 (HCC)

In § 81

Tribunal of International Commercial Arbitration at the Russian Federation Chamber of

Commerce and Industry [ICAC]

ICAC Arbitration Award of 9 June 2004

Available at: http://cisgw3.law.pace.edu/cases/040609r1.html (full text in English)

Cited as: Award of 9 June 2004 (ICAC)

In § 75

ICAC Arbitration Award of 5 June 1997


Cited as: Award of 5 June 1997 (ICAC)

In § 87


XXIII

ICAC Arbitration Award of 16 March 1995


Cited as: Award of 16 March 1995 (ICAC)

In § 79

International Chamber of Commerce [ICC]

ICC Arbitration Case No. 14925 (2007), Procedural Order No. 1

[2012] O’Malley, Rules of Evidence in International Arbitration, p. 232 et. seq. (extract in

English)

Cited as: Case No. 14925 (ICC)

In § 17

ICC Arbitration Case No. 13225 (2004), Procedural Order of 8 October 2004

[2010] Special Supplement 2010: Decisions on ICC Arbitration Procedure; A Selection of

Procedural Orders issued by Arbitral Tribunals acting under the ICC Rules of Arbitration (2003-

2004), pp. 97-100 (full text in English)


In § 24

ICC Arbitration Case No. 12296 (2004), Procedural Order of 21 June 2004

[2010] Special Supplement 2010: Decisions on ICC Arbitration Procedure; A Selection of

Procedural Orders issued by Arbitral Tribunals acting under the ICC Rules of Arbitration (2003-

2004), pp. 45-46 (full text in English)


In § 7

ICC Arbitration Case No. 8128 (1995)

Available at: http://www.cisg.law.pace.edu/cases/958128i1.html (full text in English)


In § 79


XXIV

ICC Arbitration Case No. 15892

[2012] O’Malley, Rules of Evidence in International Arbitration, p. 129 et seq. (extract in English)


In § 29

ICC Arbitration Case No. 11258

[2012] O’Malley, Rules of Evidence in International Arbitration, p. 130 (extract in English)


In § 29

International Centre for Settlement of Investment Disputes [ICSID]

Gemplus S.A. et al. v. The United Mexican States, 16 June 2010

Available at: https://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&action

Val=showDoc&docId=DC2112_En&caseId=C41 (full text in English)

Cited as: Gemplus S.A. v. United Mexican States (ICSID)

In § 13

Railroad Development Corporation v. Republic of Guatemala, 15 October 2008



Cited as: Railroad Development Corporation v. Republic of Guatemala (ICSID)

In § 24

Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, 24 July 2008



Cited as: Biwater Gauff Ltd. v. United Republic of Tanzania (ICSID)

In § 24

Noble Ventures Inc. v. Romania, 12 October 2005

Available at: http://italaw.com/documents/Noble.pdf (full text in English)

Cited as: Noble Ventures Inc. v. Romania (ICSID)

In § 24


XXV

Iran-United States Claims Tribunal [Iran-US Claims Tribunal]

Harris International Telecommunications Inc. v. The Islamic Republic of Iran et. al.,

2 November 1987

[1987] 17 Iran-US CTR, pp. 31 et seqq.

Cited as: Harris International Telecommunications Inc. v. Islamic Republic of Iran (Iran-US

Claims Tribunal)

In § 7

London Court of International Arbitration [LCIA]

LCIA Arbitration Case No. UN 5699, Procedural Order No. 1

[2012] O’Malley, Rules of Evidence in International Arbitration, p. 9 (extract in English)

Cited as: Case No. UN 5699 (LCIA)

In § 24


XXVI

INDEX OF LEGAL SOURCES

• Arbitration Rules of the Chinese European Arbitration Centre in Hamburg, 2012 (CEAC

Rules)

• IBA Rules on the Taking of Evidence in International Arbitration, 29 May 2010 (IBA Rules)

• Free Alongside Ship INCOTERMS ® 2010 (FAS INCOTERMS® 2010)

• International Labour Organisation, Convention Concerning the Prohibition and Immediate

Action for the Elimination of the Worst Forms of Child Labour, 17 June 1999 (ILO

Convention No. 182)

• UNCITRAL Model Law on International Commercial Arbitration, 1985 with 2006

Amendments

• UNCITRAL Arbitration Rules, 2010 (UNCITRAL Rules)

• UNIDROIT Principles of International Commercial Contracts (PICC)

• United Nations Convention on the International Sale of Goods, 1980 (CISG)

• Vienna Convention on the Law of Treaties, 1969


XXVII

LIST OF ABBREVIATIONS

% per cent

& and

§(§) paragraph(s)

AG Appellationsgericht (Swiss Court of Appeal)

Art(t). Article(s)

BG Schweizerisches Bundesgericht (Federal Supreme Court of

Switzerland)

BGH Bundesgerichtshof (German Federal Supreme Court)

CEAC Rules Arbitration Rules of the Chinese European Arbitration

Centre, Hamburg, September 2012

cf. confer

CIETAC China International Economic and Trade Arbitration

Comission

Cir. Circuit

CISG United Nations Convention on the International Sale of

Goods, Vienna, 11 April 1980

CISG-AC Op. No. CISG Advisory Council Opinion Number

Cl. Ex. No. Claimant’s Exhibit Number

Co. Company

DAL Danubian Arbitration Law

Ed(s). Editor(s)

ed. Edition

EGBGB Einführungsgesetz zum Bürgerlichen Gesetzbuch

emph. add. emphasis added

et al. et alii (and following)

et seq. et sequented (and following)

FAS INCOTERMS® 2010 Free Alongside Ship International Commercial Terms ®

2010

HCC Hannover Congress Centrum

i.e. id est (that means)

IBA International Bar Association


XXVIII

IBA Rules IBA Rules on the Taking of Evidence in International

Arbitration, London, 29 May 2010

ibid. ibidem (the same)

ICAC Tribunal of International Commercial Arbitration at the

Russian Federation Chamber of Commerce and Industry

ICC International Chamber of Commerce and Industry

ICSID International Centre for Settlement of Investment

Disputes

ILO International Labour Organization

Inc. Incorporated

infra see below

Iran-US Claims Tribunal Iran-United States Claims Tribunal

LCIA The London Court of International Arbitration

LG Landgericht (German Regional Court)

LLC Limited Liability Company

Ltd. Limited

Mr. Mister

No. Number(s)

Oceania Plus Oceania Plus Enterprises

OG Obergericht (Swiss High Court)

OLG Oberlandesgericht (German Regional Court of Appeal)

p(p). pages

Pacifica Trading Pacifica Trading Co.

passim throughout

Proc. Procedural

Proc. Order No. Procedural Order Number

Prof. Professor

Res. Ex. No. Respondent’s Exhibit Number

Sec. Section

sent. sentence

supra see above

U.S. United States

UN United Nations

UNCITRAL United Nations Commission on International Trade Law


XXIX

UNICEF United Nations Children’s Fund

UPICC UNIDROIT Principles of International Commercial

Contracts

USA United States of America

USD United States Dollar(s)

v. versus


1

STATEMENT OF FACTS

RESPONDENT produced „Yes Casual“

polo shirts

Oceania Plus is known for its

high ethical standards

Pacifica Trading Co. bought the remaining shirts

Gold Service Clothing delivered shirts as substitute

sold shirts CLAIMANT procured „Yes Casual“

polo shirts for Doma Cirun

Doma Cirun retailed “Yes Casual”

polo shirts

sold shirts

owns amongst others

Jumpers Production

Mr. Tomas Short changed employers

The parties to this arbitration are Mediterraneo Exquisite Supply, Co. (hereinafter CLAIMANT)

and Equatoriana Clothing Manufacturing, Ltd. (hereinafter RESPONDENT).

CLAIMANT is a supplier in the fashion business. It procures clothing for its mother company

Oceania Plus Enterprises (hereinafter Oceania Plus) and their subsidiaries. For this purpose

CLAIMANT contracts with a range of different manufacturers.

Oceania Plus is a large multi-national group supplying leisure clothing to a variety of retailers. It

is known for its high ethical standards. Amongst others, its subsidiaries are CLAIMANT and Doma

Cirun.

Doma Cirun is a retailer of clothing targeting the upper end of the middle market segment. It

operates in the ethically sensitive Oceanian market. Its house brand is “Yes Casual”.

RESPONDENT is a manufacturer of clothing. It agreed to produce 100,000 polo shirts for

CLAIMANT.


2

April 2008 CLAIMANT audits RESPONDENT in regard to its ethical standards,

particularly labor matters.

2 January 2011 Doma Cirun enquires with CLAIMANT for the supply of 100,000 polo

shirts in time for the launch of its summer collection.

5 January 2011 CLAIMANT and RESPONDENT conclude a contract over the manufacture

of 100,000 polo shirts to be delivered on 19 February 2011. They agree

that RESPONDENT would adhere to the highest ethical standards in the

conduct of its business.

7 January 2011 CLAIMANT and Doma Cirun conclude a contract over the delivery of the

polo shirts.

9 February 2011 Mr. Short, contracting officer of RESPONDENT, calls Mr. Long,

procurement specialist of CLAIMANT letting him know that RESPONDENT

would not meet the delivery date of 19 February 2011. Mr. Long

emphasizes the importance of timely delivery.

24 February 2011 RESPONDENT delivers the polo shirts five days late.

5 April 2011 CLAIMANT learns from the media that RESPONDENT has employed child

labor in at least one of its production facilities. The media condemn

Oceania Plus as well as Doma Cirun for dealing with RESPONDENT.

8 April 2011 Since there are almost no sales of “Yes Casual” polo shirts Doma Cirun

avoids the procurement contract with CLAIMANT. CLAIMANT declares the

Contract with RESPONDENT avoided.

18 August 2011 RESPONDENT’s witness Mr. Short submits a written statement alleging

that the parties amended the delivery date of the shirts.

15 September 2011 Doma Cirun initiates arbitral proceedings against CLAIMANT. CLAIMANT

reaches a very favourable settlement agreement with Doma Cirun.

January 2012 Mr. Short’s employment at RESPONDENT’s is terminated. He now works

for Jumpers Production.

15 February 2012 Oceania Plus brings suit against CLAIMANT. CLAIMANT pays Oceania Plus

the requested sum. Independent advisors confirm that this payment could

not have been avoided.


3

SUMMARY OF ARGUMENT

1 Contracts require commitment. RESPONDENT neither committed to the Contract nor is it

now committed to resolving the ensuing dispute. CLAIMANT on the other hand was

committed beyond its contractual obligations in order to overcome RESPONDENT’s

shortcomings.

2 Seasons change and today’s trend is outdated tomorrow. In the fashion business, time is

of the essence. This is particularly true in the present case. At short notice, Doma Cirun had

learned that its original supplier had declared bankruptcy. It thus needed CLAIMANT to

procure polo shirts on a rush basis for the launch of its summer collection. RESPONDENT

understood that timely delivery was essential and agreed to deliver the shirts on 19 February

2011. When it realized that it could not meet this deadline it did not commit to taking any

additional measures. Rather, it frustrated its commitment to deliver on time. Instead of

avoiding it, CLAIMANT did commit to the Contract even though its essential interest of timely

delivery was frustrated. RESPONDENT now misinterprets this commitment as intent to amend

the Contract (Issue 2).

3 When CLAIMANT finally did receive the shirts, it had to learn from the media that

RESPONDENT had used child labor, enriching itself at the expense of infants. This was

particularly frustrating for CLAIMANT since RESPONDENT had promised to adhere to highest

ethical standards. A manufacturer who lets children do the work cannot be considered

adhering to any ethical standards, least of all the highest. This left no choice for CLAIMANT but

to avoid the contract. Since it was still committed to minimize the losses CLAIMANT organized

a cover purchase for Doma Cirun and sold the shirts on RESPONDENT’s account (Issue 3).

4 Now, RESPONDENT does not demonstrate commitment by amicably resolving the

dispute. It submitted a written witness statement of its former employer Mr. Short to support

its allegation that the parties changed the delivery date in the contract. It was up to

RESPONDENT to produce its witness for oral testimony. It tries to shift this burden to

CLAIMANT and have the witness’s written statement admitted without the possibility to

question Mr. Short. Rather than contributing to the fair resolution of the case, an admission of

this statement would endanger any eventual award (Issue 1).


4

ARGUMENT

I. MR. SHORT’S WRITTEN WITNESS STATEMENT IS INADMISSIBLE

5 CLAIMANT respectfully requests the Tribunal to find that the written witness statement

RESPONDENT relies on (Res. Ex. No. 1) is inadmissible. RESPONDENT has presented this piece

of evidence in order to substantiate its allegations that the parties amended the delivery date in

the Contract (Statement of Defense § 7). Despite CLAIMANT’s request, Mr. Short refuses to attend

an oral hearing (Proc. Order No. 1 § 4). Since there is no possibility to subpoena him (Proc. Order

No. 2 § 28) RESPONDENT is not able to produce the witness for oral questioning.

6 Without oral examination the written witness statement shall be disregarded both under

the Rules of the Chinese European Arbitration Centre (hereinafter CEAC Rules) (A.) and the

IBA Rules on the Taking of Evidence (hereinafter IBA Rules) (B.). This result does not

violate RESPONDENT’s right to be heard (C.). Any award on the basis of inadmissible

evidence is in danger of being set aside (D.).

A. Mr. Short’s Written Statement Alone Does Not Suffice as Evidence

Under the CEAC Rules

7 Without the requested oral examination Mr. Short’s written statement is inadmissible (cf.

Case No. 12296 (ICC)). In general, Art. 27 (2) CEAC Rules allows for witness statements to be

presented in writing (Harris International Telecommunications Inc. v. Islamic Republic of Iran (Iran-US

Claims Tribunal) [on the equivalent UNCITRAL Rules]). However, the CEAC Rules limit this

general principle in two regards.

8 First, Art. 27 (2) sent. 2 CEAC Rules allows the Tribunal to regard written witness

statements as inadmissible if the circumstances so require. Second, under Art. 17 (3) CEAC

Rules written statements without an evidentiary hearing do not suffice if one party has

requested such a hearing.

9 Since the circumstances require Mr. Short’s written witness statement to be challenged

and verified by oral examination, it cannot be admitted without the possibility to question Mr.

Short (1.). The written statement is also inadmissible because CLAIMANT cannot exercise its

right to an oral hearing under Art. 17 (3) CEAC (2.).


5

1. The circumstances call for a dismissal of Mr. Short’s written statement

10 Under the given circumstances the Tribunal cannot admit Mr. Short’s written statement

by itself (Art. 27 (2) sent. 2 CEAC Rules). Discrepancies in the witnesses’ written statements

as to the alleged amendment of contract (Cl. Ex. No. 2; Res. Ex. No. 1) need to be clarified in

an evidentiary hearing (a). Furthermore, it must be evaluated whether RESPONDENT’s witness

gave an objective account of the events (b).

(a) Discrepancies in the witnesses’ perception need to be challenged in an oral hearing

11 RESPONDENT argues that the telephone conversation between Mr. Short and Mr. Long

amounted to an amendment of contract (Statement of Defense § 13). CLAIMANT rejects this

notion (Statement of Claim §§ 13, 14, 33; infra §§ 49 et seqq.). It is undisputed between the parties

that Mr. Long agreed to change the delivery date of the polo shirts in the “paper work” (Proc.

Order No. 2 § 27). Yet, both witnesses draw differing conclusions as to what that entailed.

While Mr. Short seems to have interpreted this statement as an amendment of contract

(Statement of Defense § 7), Mr. Long did not intend to amend the delivery date (Cl. Ex. No. 2).

The interpretation of the statement is crucial for the dispute’s resolution.

12 For its decision, the Tribunal must gain insight into how Mr. Short deduced that “paper

work” referred to the contract itself. The written statement does not reveal his train of

thought leading up to this conclusion. An evidentiary hearing with Mr. Short would serve to

clarify his perception. The Tribunal could thereby determine whether a reasonable third

person would have come to the same conclusion.

(b) An oral hearing is indispensible to ensure Mr. Short’s testimony is objective

13 Admitting a written witness statement on its own would allow RESPONDENT to present

its case without direct challenge to the reliability of its only piece of evidence. An oral

examination would provide the opportunity to test a written statement’s reliability and

authenticity (REDFERN/HUNTER § 6.136; cf. Gemplus S.A. v. United Mexican States (ICSID)). The

Tribunal’s impression of a witness answering questions is more detailed and vivid than a pre-

drafted statement (BEECHEY p. 99). If there are concerns about the reliability of a witness their

written statement is inadmissible without an evidentiary hearing (AMERASINGHE p. 180). Mr.

Short’s written statement needs verification in two regards.

14 In international arbitration counsel influence or even draft written witness statements

(SHORE p. 79). This is appropriate in regard to formal requirements. But the line between

formal assistance and substantial influence is often blurry. CLAIMANT must anticipate that

Mr. Short’s written statement might have been modified by RESPONDENT’s counsel.


6

15 Moreover, it cannot be excluded that Mr. Short later interpreted the telephone

conversation in favour of his employer RESPONDENT and not according to his intent at the

time of the conversation. At that time, Mr. Short did not bother to ensure that the contract

was amended, as was his purported intention. In fact, neither RESPONDENT nor Mr. Short

himself mentioned an amendment of contract until the Statement of Defense. Mr. Short’s

conduct might also be motivated by personal reasons to avoid responsibility as a non-

amendment could be accounted as his fault. This might have motivated him to interpret the

conversation in light of RESPONDENT’s interests. Now, Mr. Short is not employed by

RESPONDENT anymore (Proc. Order No. 2 § 26) and is thus free of influences which might have

modified his testimony in the first place. By examining Mr. Short now, the Tribunal could

detect inaccuracies in his statement, which he submitted more than a year ago (cf. Res. Ex.

No. 1). Such outdated witness statements weaken the reliability of a witness.

16 In light of the concerns mentioned, without the possibility to question Mr. Short on his

perception of the telephone conversation and to verify his written statement, this exhibit is

inadmissible to the proceedings.

2. Admitting Mr. Short’s written statement would frustrate CLAIMANT’s right to an oral

hearing

17 Mr. Short’s written statement is inadmissible because CLAIMANT cannot exercise its right

to an oral hearing under Art. 17 (3) CEAC (cf. Case No. 14925 (ICC)). Under this provision the

Tribunal shall grant an oral hearing, if a party requests so at an appropriate stage of the

proceedings. Such request is binding upon the Tribunal (BINDER § 5-109; SANDERS p. 459 [on

the equivalent UNCITRAL Rules]). CLAIMANT duly submitted its request when it informed Prof.

Presiding Arbitrator that it wanted to question Mr. Short (Proc. Order No. 1 § 4).

18 The term “oral hearing” includes evidentiary hearings with the possibility to question

witnesses (CARON ET AL. p. 45; HUßLEIN-STICH p. 124 [on the equivalent UNCITRAL Rules]).

Thus, Art. 17 (3) CEAC Rules covers CLAIMANT’s request for examination of Mr. Short.

19 CLAIMANT also made its request “at an appropriate stage of the proceedings”. This

requirement serves to prevent disruption of proceedings (HOLTZMANN/NEUHAUS p. 673 [on

the equivalent UNCITRAL Rules]). CLAIMANT’s counsel requested Mr. Short’s appearance

during the conference call with Prof. Presiding Arbitrator and RESPONDENT’S counsel on 4

October 2012 (Proc. Order No. 1 § 4). This conference call was organized in order to plan the

further course of the proceedings (Proc. Order No. 1 § 2). It was the appropriate occasion for its

request.


7

20 Since the prerequisites of Art. 17 (3) CEAC Rules are met CLAIMANT is entitled to an

evidentiary hearing with Mr. Short. His absence frustrates the possibility of such a hearing.

The written witness statement itself does therefore not suffice as evidence, rendering the

written statement inadmissible.

21 In conclusion, under Art. 27 (2) sent. 2 CEAC Rules the circumstances of the case lead to

the inadmissibility of Mr. Short’s written statement. The same results from CLAIMANT’s right

to question Mr. Short in terms of Art. 17 (3) CEAC Rules. Under the applicable procedural

rules, the statement is therefore inadmissible.

B. The Tribunal Shall Disregard Mr. Short’s Statement under the IBA Rules

22 The inadmissibility of Mr. Short’s written statement is also in line with the IBA Rules

referenced by the Tribunal (cf. Proc. Order No. 2 § 24). CLAIMANT submits that the proceedings

would benefit from their application (1.). Under Art. 4 (7) IBA Rules Mr. Short’s witness

statement shall be disregarded (2.).

1. The Tribunal should apply the IBA Rules as they reflect international practice in the

taking of evidence

23 The IBA Rules are commonly accepted to be an efficient tool for the taking of evidence

in international arbitration (BLESSING p. 203). The proceedings would profit from the

application of the IBA Rules as they are best practice in international commercial

arbitration (a) and account for national differences in the taking of evidence (b).

(a) International commercial arbitration recognizes the IBA Rules as best practice

24 The IBA Rules provide an efficient and fair process for the taking of evidence in

international arbitration (O’MALLEY § 1.24). Accordingly, they have found widespread

acceptance within the arbitration community and are often referred to (VOSER, p. 116); this is

not only true for commercial arbitration but even for the more regulated investment

arbitration (cf. Noble Ventures Inc. v. Romania (ICSID); Biwater Gauff Ltd. v. United Republic of

Tanzania (ICSID)). Even when not directly binding, tribunals consider them as guidelines as

they reflect the experience of recognized professionals (Railroad Development Corporation v.

Republic of Guatemala (ICSID); cf. Case No. 13225 (ICC); Case No. UN 5699 (LCIA)). They can

thus be regarded as best practice and can be applied as default rules for the taking of evidence

(HANOTIAU p. 114; SHENTON p. 188).


8

(b) The IBA Rules take account of the different approaches in the parties’ legal systems

25 It is particularly useful to apply the IBA Rules when the parties are from different legal

cultures (Preamble of the IBA Rules). They reflect a compromise between the different

approaches towards the taking of evidence (VON MEHREN/SALOMON p. 292;

GREENBERG ET AL. § 7.124). The gulf between the different approaches is particularly wide

between common and civil law countries (cf. LEW/SHORE p. 34; SUTCLIFFE/WIRTH p. 34).

CLAIMANT’s place of business is located in the common law country Mediterraneo.

Equatoriana as RESPONDENT’s place of business and Danubia as the seat of arbitration are

civil law countries (Proc. Order No. 2, § 36). In order to take account of the international

character of this arbitration, the Tribunal should apply the IBA Rules to evidentiary questions.

26 In conclusion, the Tribunal would be in line with international practice when applying the

IBA Rules as guidelines. Therefore, CLAIMANT endorses the Tribunal’s reference to the IBA

Rules.

2. Mr. Short’s written witness statement shall be disregarded under Art. 4 (7) IBA Rules

27 The present situation falls within the scope of Art. 4 (7) IBA Rules. Pursuant to this

provision the Tribunal shall disregard written statements by witnesses whose appearance has

been requested but fail to attend an evidentiary hearing without valid reason. The Tribunal

may only still consider the written statement in exceptional circumstances.

28 Mr. Short refuses to appear for examination although CLAIMANT has requested his

appearance (supra § 19). His absence cannot be justified by a valid reason (a). There are also

no exceptional circumstances that would justify the admission of Mr. Short’s written

statement (b).

(a) Mr. Short’s absence is not justified by a valid reason

29 Under Art. 4 (7) IBA Rules the Tribunal may only admit a written statement if the

witness’s failure to appear is excused by a valid reason. Generally, the party submitting a

written statement carries the duty to present this witness at an evidentiary hearing if so

requested (O’MALLEY § 4.53). Consequently, the presenting party bears the risk of removal of

the statement in case this burden is not met (ibid.). The term “valid reason” must be

interpreted in light of this principle (ibid.). Reasons that lie within the witness’s sphere of

control and reliability do not excuse their failure to attend an oral hearing (Case No. 15892

(ICC)). Hence, this term only refers to objective reasons such as serious illness, overlong travel

distance or death (cf. Case No. 11258 (ICC); ZUBERBÜHLER ET AL. Art. 4 § 73).


9

30 Accordingly, neither conflicting appointments nor inconvenience are valid reasons in

terms of Art. 4 (7) IBA Rules (cf. Parsons & Whittemore Overseas Co. Inc. v. Société Générale de

l’Industrie du Papier (USA); China National Building Material Investment Co. Ltd. v. BNK International

LLC. (USA)). Thus Mr. Short’s tight timetable at Jumpers Production (Proc. Order No. 2 § 26)

does not justify his absence from an evidentiary hearing. Neither does the inconvenience of

acting contrary to the wish of his new employer. There is no legal obligation to comply with

his employer’s “wish” (Proc. Order No. 1 § 4). Mr. Short’s decision to avoid the inconvenience

is solely subjective. Hence, no valid reason justifies Mr. Short’s absence.

(b) No exceptional circumstances legitimize an admission of Mr. Short’s statement

31 RESPONDENT did not allude to any circumstances, which would require to regard Mr.

Short’s written statement without an oral hearing. There are none.

32 Only in exceptional circumstances may a Tribunal admit a written statement without

examination of the witness. The fact that Mr. Short is RESPONDENT’s only witness is not an

exceptional circumstance. The exception may refer to the probative value of the written

statement and applies when the Tribunal has little or no other evidence (cf. O’MALLEY § 4.58).

However, Mr. Long’s and Mr. Short’s written statements both express that Mr. Long referred

to “paper work” that would reflect the new delivery date. The crucial issue which would need

to be addressed and challenged in an evidentiary hearing is the discrepancy of their

perceptions. No special probative value can thus be accounted to Mr. Short’s statement as it

does not contain any facts not stated in Mr. Long’s statement.

33 In conclusion, no valid reason excuses Mr. Short’s absence at an evidentiary hearing. An

admission of his statement can also not be justified by exceptional circumstances. Thus

Mr. Short’s written statement shall be disregarded pursuant to Art. 4 (7) IBA Rules.

C. Disregarding the Statement Does Not Violate RESPONDENT’s Right to

Be Heard

34 RESPONDENT may allege that ignoring Mr. Short’s witness statement would violate its

right to be heard under Art. 17 (1) CEAC Rules and Art. 18 of the Danubian Arbitration Law

(hereinafter DAL), which is equivalent to the UNCITRAL Model Law. This is not the case.

35 The right to be heard entails that each party should have an equal opportunity to express

its views on all crucial points the tribunal intends to adopt (PETROCHILOS § 4.86). In particular,

it entitles the parties to participate in the proceedings and submit evidence (BG 19 December


10

1990 (Switzerland)). Though it is of fundamental nature, this principle is limited on grounds of

fair and efficient proceedings (ROTH in Weigand p. 1229). In particular, it does not protect a

party from its own failures or strategic choices (cf. STET v. COTISA (Canada)). Accordingly,

the Tribunal can disallow evidence not offered in due form without violating the requesting

party’s right to be heard (BG 7 September 1993 (Switzerland)).

36 Upon CLAIMANT’s request, the due form for Mr. Short’s witness statement would have

been to produce him for oral questioning (supra § 19). It was up to RESPONDENT to fulfil this

requirement as it was its evidential burden.

37 To determine which party bears the evidential burden the Tribunal should take into

account the parties’ circumstances in addition to the rules concerning the burden of proof

(KAZAZI pp. 35 et seqq.). RESPONDENT’S connection to Mr. Short as its former employee is

much closer than CLAIMANT’s. Furthermore, pursuant to Art. 27 (1) CEAC Rules

RESPONDENT bears the burden of proving the contract amendment supporting its defense (cf.

Statement of Defense § 13). Under these circumstances the evidential burden lies with

RESPONDENT. It did not produce Mr. Short’s testimony in due form and has therefore

forfeited its right to be heard.

38 Thus the restriction of RESPONDENT’s opportunities to be heard is justified.

RESPONDENT neglected its responsibilities arising out of its evidential burden. It thereby

restricted its rights itself. Not admitting the written statement does not violate RESPONDENT’s

right to be heard.

D. An Award Based on Mr. Short’s Written Statement Might Be Set Aside

39 RESPONDENT’s rights are not infringed when disregarding Mr. Short’s written witness

statement. CLAIMANT’s procedural rights, however, would be violated if the Tribunal based an

award on Mr. Short’s inadmissible written statement. In that case, CLAIMANT reserves its right

to challenge any eventual award on grounds of Art. 34 (2) (a) (ii) and (iv) DAL. Both grounds

refer to Art. 18 DAL (BINDER § 5-010) which sets forth that “[t]he parties shall be treated with

equality and each party shall be given a full opportunity of presenting his case.”

40 A violation of the right to present one’s case (Art. 18 alternative 2 DAL) is grounds for

setting aside under Art. 34 (2) (a) (ii) DAL. An award risks annulment under

Art. 34 (2) (a) (iv) DAL if a party’s right to equal treatment (Art. 18 alternative 1 DAL) has

been violated.


11

41 If the Tribunal considered Mr. Short’s inadmissible witness statement, it would deprive

CLAIMANT of its opportunity to directly contest the statement (1.). Admitting Mr. Short’s

written statement would amount to an unequal treatment of CLAIMANT in regards to Art. 18,

1st alternative DAL (2.).

1. The admission of the statement would violate CLAIMANT’S right to be heard

42 A party’s right to present its case generally requires oral hearings as laid down in

Art. 24 (1) DAL (ROTH in Weigand p. 1243). The term “oral hearing” thereby comprises

contesting a written statement by cross-examination of the witness (Working Group Report § 79).

43 As Mr. Short is not available for examination, CLAIMANT does not have the opportunity

to question his statement. Therefore, Mr. Short’s absence infringes CLAIMANT’s right to

present its case by cross-examining Mr. Short. CLAIMANT would not need to contest

Mr. Short’s statement in the first place if the Tribunal did not admit it. To the contrary,

admitting Mr. Short’s written statement would prevent CLAIMANT from presenting its case,

thus violating Art. 18, alternative 2 DAL. Such violation is a ground for annulment under

Art. 34 (2) (a) (ii) DAL.

2. Admitting the written statement would amount to unequal treatment

44 Upon request, RESPONDENT may challenge CLAIMANT’s witness by cross-examination.

CLAIMANT in contrast does not have the opportunity to question Mr. Short despite its request.

45 Art. 18 alternative 1 DAL provides that neither party shall be given an advantage over the

other (cf. BINDER § 5-008). The Tribunal’s impression of a witness answering questions is more

detailed and vivid than a pre-drafted statement (BEECHEY p. 99). Being able to cross-examine

a hostile witness is therefore advantageous to a party. It allows for challenging the witness’s

statements directly, thereby assisting the Tribunal to detect inaccuracies

(cf. REDFERN/HUNTER § 6.140).

46 If RESPONDENT requests Mr. Long’s oral examination, it can contest his written witness

statement. CLAIMANT, however, is deprived of the opportunity to directly challenge

Mr. Short’s testimony though it had requested an examination.


12

47 RESPONDENT’s advantage of an unchallenged witness constitutes unequal treatment in

terms of Art. 18, alternative 1 DAL. If the Tribunal based its award on Mr. Short’s written

statement it would risk annulment action under Art. 34 (2) (a) (ii) or (iv) DAL.

CONCLUSION: The Tribunal should strike Mr. Short’s written witness statement from the record.

It is inadmissible under the CEAC Rules and not to be regarded under the IBA Rules. Rather

than supporting the case, a consideration of the statement would lead to further proceedings.

II. DUE TO RESPONDENT’S LATE DELIVERY CLAIMANT IS ENTITLED TO THE

AGREED SUM OR DAMAGES

48 In their Contract, the parties agreed for the polo shirts to be delivered on 19 February 2011

(Cl. Ex. No. 1 § 3). RESPONDENT failed to meet this deadline and now tries to evade the

consequences of its late delivery. It tries to deduce an amendment of contract from Mr. Long’s

reference to “paper work” that he would take care of (Statement of Defense § 7; Proc. Order No. 2

§ 27). RESPONDENT bears the burden of proof for any such allegation (cf. MAGNUS No. 5 b 26).

Since Res. Ex. No. 1 is inadmissible (supra § 20), it fails to substantiate its allegation and cannot

discharge its burden of proof. Thus, the Tribunal may not find that the parties changed the

delivery date.

49 Even if the Tribunal did attach weight to Mr. Short’s perception, RESPONDENT still cannot

discharge its burden. The parties’ conduct cannot be interpreted as an amendment of Contract.

Consequently, RESPONDENT’s non-delivery on 19 February 2011 constituted a breach of contact

(A.). RESPONDENT is not exempt from liability under Art. 79 (1) CISG (B.). The non-

performance triggered the agreed payment under Sec. 10 of the Contract entitling CLAIMANT to

the agreed sum of USD 27,500 (C.). In any case, the late delivery constitutes a breach of

Art. 33 (a) CISG entitling CLAIMANT to damages under Artt. 45 (1) (b), 74 CISG (D.).

A. RESPONDENT’s Non-Delivery on 19 February 2011 Was a Breach of

Contract

50 Since the parties did not amend the Contract RESPONDENT’s non-performance constituted a

breach of contract. Sec. 3 of the Contract calls for delivery of the shirts on 19 February 2011

(Cl. Ex. No. 1 § 3). At no point did the parties agree to adjust this delivery date and to thereby

amend the Contract in terms of Art. 29 (1) CISG (1.). Even if they had agreed to amend the


13

contract, such amendment lacked written form required by Mediterraneo’s reservation under

Art. 96 CISG (2.).

1. The parties did not amend the Contract

51 The parties’ conduct cannot be construed as an agreement to amend the contract in terms of

Art. 29 (1) CISG. This conduct has to be interpreted in light of the understanding of a reasonable

third person in the position of the other party (Art. 8 (2) CISG).

52 In the case at hand, such a reasonable third person would not have understood Mr. Long to

want to amend the contract. It cannot have been his intent to amend the Contract since the

Contract already anticipated the exact situation of late delivery and provided a solution (a).

Neither can Mr. Long’s conduct (b) or his reference to “paper work” (c) be construed as an

agreement to amend the Contract.

(a) There was no need to amend the Contract as Sec. 10 provided for the situation of

late delivery

53 In the fast-paced fashion business, time is of the essence. This is particularly true in the

present case as CLAIMANT was under pressure to supply the polo shirts for the launch of Doma

Cirun’s majorly advertised summer collection (cf. Statement of Claim §§ 7, 11). This is why the

parties included a clause dealing with deviations from the fixed delivery date (Cl. Ex. No. 1 § 10).

Sec. 10 b) of the Contract anticipates exactly the situation of late delivery (ibid.). Any reasonable

person would have realized that an amendment as to the delivery date would have been

unnecessary and contradictory to the parties’ intent behind the clause, effectively leaving no room

for the purported amendment.

54 In any case, such amendment would have been economically unviable. Mr. Long was aware

that late delivery would “cause all kinds of trouble for Doma Cirun” (cf. Cl. Ex. No. 2 § 4)

meaning that CLAIMANT would be liable to pay damages (cf. Cl. Ex. No. 3). A reasonable third

person would have understood that it could not have been CLAIMANT’s intent to act

economically unfeasible by waiving its right to the agreed sum. It cannot have been its intent to

pay the damages out of its own pocket.

(b) Mr. Long’s conduct does not imply his intent to amend the Contract

55 Mr. Long changed the shipping contract as well as the letter of credit and had to accept the

delayed delivery. This would not have led a reasonable person to the conclusion that Mr. Long

agreed to an amendment of Contract.


14

56 By including the clause FAS INCOTERMS® 2010 Oceanside, Equatoriana, the parties

agreed that RESPONDENT would only have to deliver the shirts to the port of its place of business

(Cl. Ex. No. 1 § 2, Cl. Ex. No. 7). In order to ensure delivery from Equatoriana to Doma Cirun’s

place of business in Oceania, the shipping contract needed to reflect the delayed date of arrival at

Oceanside, Equatoriana. However, this measure did not form part of the contractual relation

between CLAIMANT and RESPONDENT. The shipping contract does therefore not affect the

Contract.

57 Neither did the change in the letter of credit. Where a party’s conduct constitutes no more

than steps in performing the contract this cannot be given the explanatory power of an

agreement to amend the contract (cf. Chateau des Charmes Wines Ltd v. Sabaté Inc (USA); Solae, LLC

v. Hershey Canada, Inc. (USA); SCHROETER in Schlechtriem/Schwenzer Art. 29 § 54). The step in

question is the payment of the purchase price. Since a bank will only cash the letter of credit if it

reflects the actual delivery date (cf. WIDMER in Schlechtriem/Schwenzer Art. 34 §§ 3 et seq.)

CLAIMANT’s change of the letter of credit was a necessary step to fulfil its obligation to pay the

purchase price.

58 CLAIMANT’s statement that it would have to accept the delayed delivery only shows its intent

to still receive the shirts. It had repeatedly emphasized the importance of timely delivery

(Cl. Ex. No. 2 § 3). Accordingly, its statement is more similar to granting an additional period of

time pursuant to Art. 47 (1) CISG in order to be able to immediately avoid the contract after

expiration of this period (OLG Hamburg 28 February 1997 (Germany); MÜLLER-CHEN in

Schlechtriem/Schwenzer Art. 47 § 5) than to an agreement to amend the Contract.

59 A reasonable third person must have understood that Mr. Long’s conduct does not reflect

his intent to amend the contract.

(c) Mr. Long’s reference to “paper work” does not suffice to indicate an intent to change

the Contract

60 With “paper work” Mr. Long referred to the letter of credit and the shipping contract. These

documents are of merely administrative nature (supra §§ 54 et seqq.). The Contract already

provided a pragmatic and fair solution for changes in the delivery date. In Norfolk v. Power Source

one party had indicated that it would “shoot for” a certain delivery date. This ambiguous

reference was held to be insufficient to fix a delivery date (cf. Norfolk Southern Railway Company v.

Power Source Supply, Inc. (USA)). Therefore, for a deviation from the contractually provided

solution indirect reference to a different delivery date is insufficient. Mr. Long’s statement that he

would take care of the “paper work” (Proc. Order No. 2 § 27) is such insufficient reference.


15

61 Even if the Tribunal still had doubts whether there was an agreement to amend the contract,

such doubts cannot suffice to assume an amendment of contract. Rather the unambiguous

original contract needs to be honored. The parties did therefore not amend the Contract in terms

of Art. 29 (1) CISG. The original delivery date of 19 February 2011 is to be upheld.

RESPONDENT breached its contractual obligation under Sec. 3 of the Contract when it did not

deliver on the fixed day.

2. Any purported amendment is invalid lacking written form

62 Even if the parties had agreed on an amendment of Contract, such amendment would have

been invalid lacking written form. This form requirement stems from Mediterraneo’s reservation

under Art. 96 CISG.

63 Mediterraneo, where CLAIMANT is seated, has a written form requirement for contracts and

their amendments in its national legislation (Proc. Order No. 2 § 34). Accordingly it has submitted a

reservation under Art. 96 CISG (Proc. Order No. 1 § 6). This reservation declares the freedom of

form principle in Artt. 11, 29 CISG inapplicable. It is mandatory rendering all agreements

changing the effect of Art. 96 CISG ineffective (a) and directly leads to a written form

requirement for contract amendments (b).

(a) Mediterraneo’s reservation under Art. 96 CISG is mandatory rendering the parties’

agreement ineffective

64 The Tribunal is respectfully requested to find that the mandatory nature of Art. 96 CISG

renders the party agreement ineffective. The parties have agreed to apply the “CISG without

regard to any national reservation” (Cl. Ex. No. 1 § 20; Standard Choice of Law Clause, Art. 35 (1)

CEAC Rules). While this constitutes an agreement to apply the CISG to the substance of the

dispute (BENEYTO ET AL. p. 19) the parties have not expressly provided for a law governing the

validity of this choice of law clause itself. Their agreement does, however, reflect an intent to

apply the CISG in some way. Since it is the law with the closest connection to the Contract, the

Tribunal should apply the CISG as such to determine the validity of the parties’ choice of law

clause.

65 Art. 4 CISG sets forth that, in general, the Convention is not concerned with the validity of

contractual clauses. However, it does provide that parties cannot validly agree to deviate from

mandatory provisions. The parties’ agreement to apply the CISG “without regard to any national

reservation” is ineffective. This is because Part IV of the CISG (Artt. 89-101) in general (i) and

Art. 96 CISG in particular (ii) are mandatory and thus not up to the parties’ discretion.


16

(i) Parties cannot change the effect of Part IV of the CISG

66 Since Part IV of the CISG is directed at the Contracting States it is not up to the parties to

change the effect of any of its provisions.

67 Part IV of the CISG includes Art. 98 which allows for reservations to the CISG. A

reservation is a Contracting State’s declaration that particular parts of an international treaty such

as the CISG do not apply (cf. Artt. 2 (1) (d), 19 Vienna Convention on the Law of Treaties;

BROWNLIE p. 612; BUTLER § 2.03). Such reservations were included where no consensus on

certain issues could be reached in the drafting process of the CISG (SCHROETER p. 2). The

drafters did not just want to impose a unilateral decision on these issues risking that some states

would not ratify the CISG. To rather promote uniformity (Art. 7 CISG) and make the CISG

more attractive to a wider range of States, they therefore included the possibility to abstain from

certain provisions as a compromise (KEILY § 2.6).

68 Art. 21 (a) and (b) of the Vienna Convention on the Law of Treaties which the relevant

countries are parties to (Proc. Order No. 2 § 36) determines the effect of such reservations. It

stipulates that a reservation automatically modifies the provisions of a treaty such as the CISG for

the Reserving State and the other Contracting States. The reservations in Part IV of the CISG are

thus addressed at Contracting States and not at parties (SCHLECHTRIEM ET AL. in

Schlechtriem/Schwenzer Introduction to Artt. 89-101 § 4, 7). The latter cannot control the application

or exclusion of these provisions (OLG Linz 23 January 2006 (Austria); FLECHTNER § 29; RAJSKI in

Bianca/Bonell Art. 96 CISG § 2.2) restricting their party autonomy in this regard.

(ii) The parties could not exclude Art. 96 CISG in particular

69 Its legislative history and Art. 12 CISG determine the essential importance of the

Art. 96 CISG reservation.

70 As to the drafting process, Art. 96 CISG aimed at resolving difficulties arising because some

states considered it indispensible to keep up their national writing requirement for contracts

(UNCITRAL Digest Art. 96 § 1; RAJSKI in Bianca/Bonell Art. 96 CISG § 1.1). Thus, the general

freedom of form principle could only be agreed upon because the exception of Art. 96 CISG was

granted (SCHLECHTRIEM ET AL. in Schlechtriem/Schwenzer Art. 96 §§ 1, 2).

71 The great significance of this particular reservation is furthermore stressed in the declaratory

provision of Art. 12 CISG. It reaffirms that the parties cannot change an Art. 96 CISG

reservation (sent. 1) and underlines its mandatory nature (sent. 2). Other than Part IV of the

CISG, Art. 12 CISG is the only limitation of the principle of party autonomy in the CISG

(SCHWENZER/HACHEM in Schlechtriem/Schwenzer Art. 6 § 9). When the parties agreed on the


17

application of the CISG they also agreed on applying Art. 12 CISG and thereby accepted the

mandatory character of the Art. 96 reservation.

72 Its history and Art. 12 CISG underline the outstanding importance of an Art. 96 reservation

and its mandatory nature. Due to this mandatory nature, party agreements dissenting from

Art. 96 CISG are ineffective (Tribunale di Vigevano 12 July 2000 (Italy); cf. OLG Linz 23 January

2006 (Austria)).

73 The parties could therefore not effectively agree to apply the CISG “without regard to any

national reservation”. The CISG applies in its entirety including Mediterraneo’s Art. 96 CISG

reservation.

74 Rather than declaring the entire choice of law clause null and void, CLAIMANT requests the

Tribunal to uphold the clause in its essence. This is in line with the principle of favor contractus.

This principle is inherent to the CISG and provides that an otherwise pathological contractual

agreement should be maintained as far as possible (KELLER p. 259). The Tribunal should

therefore clear the parties’ choice of law clause of the ineffective agreement that no national

reservations should apply. It should preserve the applicability of the CISG in its entirety,

supplemented by the UNIDROIT Principles and these supplemented by the otherwise applicable

national law (cf. Cl. Exh. No. 1 § 20).

(b) Mediterraneo’s Art. 96 CISG reservation directly leads to a written form requirement

75 Mediterraneo’s Art. 96 CISG reservation has the effect that all contracts and their

amendments have to be concluded in written form. Art. 96 CISG directly refers back to the

domestic substantive provisions of the Reserving State and preserves the writing requirement as

it exists in its national legislation (BUTLER § 2.03 F). In light of the compromise between states

which advocated freedom of form and those which wanted to keep up their national writing

requirements (supra § 66), it would be inconsistent to circumvent the Reserving State’s

requirement for written form (Award of 31 December 1997 (CIETAC); Award of 9 June 2004

(ICAC); Forestal Guarani S.A. v. Daros International, Inc. (USA)). Any other conclusion would

render Art. 96 CISG needless. Rather, legal certainty and foreseeability demand direct application

of written form (cf. WALTHER/MORAWIETZ p. 254).

76 Therefore, Mediterranean substantive law applies to matters of form. It provides that for

international contracts both the original contract as well as any amendments thereto have to be

concluded in writing (Proc. Order No. 2 § 33). This writing requirement is not fulfilled for the

purported contract amendment in the present case. Since the purported Contract amendment

was not recorded in writing the parties have not changed the fixed delivery date.


18

77 In conclusion, the parties did not agree on changing the contractually agreed delivery date.

Even if the parties had agreed on an adjustment of Contract, such amendment was not recorded

in writing rendering it invalid. The Contract applies in its original form. When RESPONDENT did

not deliver on 19 February 2011 it breached Sec. 3 of the Contract.

B. The Strike at a Factory of RESPONDENT’s Supplier Does Not Exclude Its

Liability

78 RESPONDENT may try to argue that a strike at its supplier’s production facility exempts it

from liability according to Art. 79 (1) CISG. CLAIMANT rejects this notion. Art. 79 (1) CISG

provides that a party is not liable if its failure to perform was due to an impediment beyond its

control and it could not have overcome the consequences of it. However, the strike at

RESPONDENT’s supplier lies within RESPONDENT’s sphere of control (1.) and it could have

overcome the consequences of it (2.).

1. The strike was not beyond RESPONDENT’s control

79 The strike at the production facility of RESPONDENT’s supplier was within its sphere of

responsibility. The seller’s responsibility for his supplier is an integral part of the general risk of

the supply of goods (Case No. 8128 (ICC)). Thus, the seller is not exempt from liability only

because his supplier caused the seller’s failure to perform the contract (Award of 16 March 1995

(ICAC); OLG Hamburg 28 February 1997 (Germany); FLAMBOURAS p. 268; LIU Force Majeure 6.3 § 1

note 20; UNCITRAL Digest Art. 70 § 14). Especially, difficulties in obtaining deliveries due to a

supplier’s involvement in a labor dispute are generally part of the seller’s procurement risk

(SCHWENZER in Schlechtriem/Schwenzer Art. 79 § 2; c.f. NEUMAYER/MING Art. 79 § 3; SCHOOP

pp. 197-200).

80 The strike at RESPONDENT’s supplier’s production was thus not beyond RESPONDENT’s

control.

2. RESPONDENT could have overcome the consequences of its supplier’s non-delivery

81 If the seller can overcome the impediment with reasonable financial effort it is not exempt

from liability (Award of 21 March 1996 (HCC); CISG-AC Op. No. 7 §33). After having received the

information that its supplier would not be able to deliver RESPONDENT enquired for other

suppliers (Proc. Order No. 2 § 13). It found various suppliers offering the fabric on a rush basis for

a higher price (ibid). Considering that RESPONDENT could have collected the price difference

from its original supplier it would not have had to make any additional financial effort


19

whatsoever. RESPONDENT could therefore have overcome the consequences of the supplier’s

non-delivery.

82 As the strike was not beyond RESPONDENT’s control and RESPONDENT could have

overcome its consequences, its liability is not exempt under Art. 79 (1) CISG.

C. CLAIMANT Is Entitled to the Agreed Sum Under the Contract

83 In Sec. 10 b) of the Contract, the parties agreed that CLAIMANT would be entitled to a

payment of 1% of the contract price per day for late delivery not exceeding fifteen days (Cl. Ex.

No. 1 § 10). The applicable law allows for such agreement (1.) and the arising sum is not grossly

excessive (2.).

1. The applicable law allows for an agreement on specified sums

84 An agreement on specified sums such as Sec. 10 b) of the Contract is valid under the

applicable law. According to Art. 4 (a) CISG, the Convention does not decide on the validity of

contractual provisions such as agreed sums. The effectiveness of provisions not governed by the

CISG is based on the subsidiarily applicable law (OLG München 8 February 1995 (Germany);

SCHWENZER in Schlechtriem/Schwenzer Art. 74 § 58; HONNOLD/FLECHTNER Art. 74 § 498.1). The

Contract at hand includes a choice of law clause providing for the UNIDROIT Principles of

International Commercial Contracts (UPICC) to apply subsidiarily (Cl. Ex. No. 1 § 20).

85 Art. 7.4.13 UPICC establishes the possibility of agreeing on a specified sum for non-

performance. Non-performance is a failure by one party to perform any of its obligations under

the contract, including late delivery (Art.7.1.1 UPICC). Therefore, the parties validly agreed on a

specified sum for late delivery.

2. The sum is not grossly excessive

86 CLAIMANT submits that the payable sum of USD 27,500 should not be reduced under

Art. 7.4.13 (2) UPICC. According to this provision a specified sum is to be reduced if it is grossly

excessive. This means that parties can agree on an excessive sum, higher than the actual harm

suffered. Just a grossly excessive sum is to be reduced.

87 A sum is grossly excessive if it “would clearly be so to any reasonable person” (MCKENDRICK

in Vogenauer/Kleinheisterkamp Art. 7.4.13 § 18; emph. added). This was the case where the specified

sum was higher than half of the costs of the goods (cf. Award of 5 June 1997 (ICAC)).

RESPONDENT’s delay of delivery by five days entitled CLAIMANT to a reduction of the purchase

price by only 5%. In light of the case law this is not “clearly” grossly excessive.


20

88 Another factor to determine whether a sum is grossly excessive is the equality of the

bargaining power between the parties (MCKENDRICK in Vogenauer/Kleinheisterkamp Art. 7.4.13

§ 18). When negotiating the Contract, CLAIMANT had repeatedly stressed the importance of

timely delivery (Statement of Claim § 14). RESPONDENT had understood this necessity and still

guaranteed to deliver on time (Cl. Ex. No. 1 § 3, Cl. Ex. No. 2 § 3). Both parties thus knew about

the significance of the clause on the specified sum. In addition, RESPONDENT is a major clothes

manufacturer as it was able to produce 100,000 polo shirts on a rush basis besides its normal

course of business (Statement of Claim § 9). The parties have thus equal bargaining power. Also in

this regard the specified sum is not grossly excessive. CLAIMANT submits that the payable sum of

USD 27,500 should thus not be reduced under Art. 7.4.13 (2) UPICC.

89 When RESPONDENT did not deliver on time it triggered Sec. 10 b) of the Contract. This

entitles CLAIMANT to 5 % of the purchase price amounting to USD 27,500.

D. Subsidiarily, CLAIMANT Is Entitled to Damages under the CISG

90 Even if the Tribunal found that CLAIMANT is not entitled to the agreed sum, it may, in any

case, claim damages for late delivery under Artt. 45 (1) (b), 74 CISG.

91 Art. 45 (1) (b) CISG entitles the buyer to claim damages under Art. 74 CISG if the seller

breached the contract. Art. 74 CISG sets forth, that the party in breach has to pay a sum equal to

the loss suffered as a consequence of the breach not exceeding the loss which it foresaw or ought

to have foreseen. As a consequence of the late delivery CLAIMANT had to pay a respective sum

under a settlement to Doma Cirun (Statement of Claim § 27). As this loss was foreseeable,

CLAIMANT may recover this sum from RESPONDENT.

92 RESPONDENT’s non-delivery on 19 February 2011 consitutes a breach of Art. 33 (a) CISG.

93 This breach was the precondition for the detriment (“but-for-rule”) (cf. MAGNUS in Staudinger

Art. 74 §§ 28 et seqq.). Had RESPONDENT delivered on time the shirts would have been in the

Doma Cirun stores for the launch of the summer collection. Doma Cirun would not have

incurred losses due to the late delivery. CLAIMANT would not have had to pay a respective sum

under the settlement with Doma Cirun. Such settlements with third parties are recoverable

damages under Art. 74 CISG (cf. Award of 25 October 1994 (CIETAC); OLG Köln 21 May 1996

(Germany)).

94 RESPONDENT could have foreseen that late delivery would result in a loss for CLAIMANT.

CLAIMANT has repeatedly stressed the importance of delivery on 19 February 2011 (Cl. Ex. No 2

§ 3; cf. Cl. Ex. No 1 § 10). RESPONDENT had “understood” this (Cl. Ex. No. 2 § 3).


21

95 Furthermore, CLAIMANT fulfilled its duty to mitigate under Art. 77 CISG. This provision

requires a buyer to take such measuers as a reasonable to mitigate the loss. CLAIMANT enquired

whether the airlines it normally used could transport the goods in order to still deliver the shirts

on time and thereby tried to minimise the loss (Proc. Order No. 2 § 14).

96 CLAIMANT is therefore entitled to damages under Artt. 45 (1) (b), 74 CISG in the amount to

be quantified at a later stage of the proceedings (Proc. Order No. 1 § 9).

CONCLUSION: The parties did not change the contractually agreed delivery date. RESPONDENT’s

late delivery triggered the clause on specified sums in the Contract. Alternatively, CLAIMANT is

entitled to damages.

III. DUE TO RESPONDENT’S USE OF CHILD LABOR CLAIMANT IS ENTITLED TO

REIMBURSEMENT OF THE PURCHASE PRICE AND DAMAGES

97 Not only did RESPONDENT deliver the shirts late but it also breached the contract by using

child labor. CLAIMANT thus respectfully requests the Tribunal to grant reimbursement of the

purchase price under Art. 45 (1) (a) CISG as it effectively avoided the contract under Artt. 49

(1) (a) CISG. It is also entitled to damages under Artt. 45 (1) (b), 74 CISG.

98 Pursuant to Art. 49 (1) (a) CISG, the buyer is entitled to declare the contract avoided if the

failure by the seller to perform any of his obligations under the contract or the CISG amounts to

a fundamental breach. RESPONDENT breached its obligation to refrain from the use of child labor

in its entire course of business (A.). This breach was fundamental within the meaning of

Art. 25 CISG (B.). CLAIMANT duly notified RESPONDENT of the lack of conformity and declared

the Contract avoided (C.). In addition to reimbursement of the purchase price CLAIMANT is

entitled to damages (D.).

A. RESPONDENT Breached Its Obligation Not to Use Child Labor

99 RESPONDENT breached its obligations under Art. 35 (1) CISG as the shirts were not of the

quality required by the contract (1.). In any case, the shirts delivered were not fit for their

particular purpose under Art. 35 (2) (b) CISG (2.). Regardless of whether there was a breach of

Art. 35 CISG, RESPONDENT failed to fulfil its obligation under Sec. 12 of the Contract (3.).


22

1. The shirts were not of the quality required by the Contract

100 By producing shirts for CLAIMANT while using child labor in one of its plants, RESPONDENT

breached its obligations under Art. 35 (1) CISG. Under this provision a seller is required to

deliver goods of the quality required by the contract. Quality includes non-physical attributes like

the circumstances of the production (HUBER in Huber/Mullis p. 132; KRÖLL in Kröll et al.

Art. 35 § 25). These attributes have to be determined by the parties’ agreement and may include

the observance of ethical principles, such as the prohibition of child labor (HENSCHEL p. 162; cf.

SCHWENZER in Schlechtriem/Schwenzer Art. 35 § 9).

101 In the case at hand, the parties agreed that RESPONDENT would adhere to “the highest

ethical standards in the conduct of [its] business” (Cl. Ex. No. 1 § 12). This agreement is

incompatible with the use of child labor (a) and applies to RESPONDENT’s entire course of

business (b).

(a) “Highest ethical standards” exclude the use of child labor

102 Under an interpretation according to Art. 8 (2), (3) CISG, the parties agreement on “highest

ethical standards” cannot include the use of child labor. The understanding of a reasonable

person in terms of Art. 8 (2) CISG is to be determined under the relevant circumstances

(Art. 8 (3) CISG).

103 A reasonable person would have understood the term “highest ethical standards” as to

exclude child labor due to its literal meaning (i), the reference to Oceania Plus’s policy (ii) and the

circumstance that ILO Convention No. 182 is in force in both parties’ countries (iii).

(i) The term “highest ethical standards” by definition disallows the use of child labor

104 Ethical standards are meant to “avoid activities […] that do harm to people or the

environment” (Oxford Dictionaries). Child labor “harm[s] the physical and mental development of

children” (UNICEF). In the present case RESPONDENT employed children as young as eight

years under “appalling conditions” (Statement of Claim § 18). A reasonable person would have

understood that such practice does not uphold any ethical standards, least of all the “highest”.

(ii) In light of Oceania Plus’s policy the requirement “highest ethical standards” prohibits child labor

105 The parties have agreed for RESPONDENT to adhere to the policy of Oceania Plus (Cl. Ex.

No. 1 § 12). Oceania Plus is CLAIMANT’s parent company and known for its high ethical

standards (Cl. Ex. No. 4). As a subsidiary, CLAIMANT needs to comply with these standards (cf.

Proc. Order No. 2 § 1). When considering this policy, it becomes evident to a reasonable person

that the term “highest ethical standards” forbids the use of child labor.


23

106 Oceania Plus’s policy covers “labor matters and especially the use of child labor” (Statement of

Claim § 9, emph. add.). CLAIMANT provided RESPONDENT with the policy codified in a one-page

document (Proc. Order No. 2 § 4). Subsequently its content was “extensively discussed” (ibid.). A

reasonable person would have understood that in light of this policy the term “highest ethical

standards” prohibits child labor.

(iii) The circumstance that ILO Convention No. 182 is in force in both parties’ countries underlines that the

parties understood “highest ethical standards” to exclude child labor

107 As ILO Convention No. 182 on the Worst Forms of Child Labor is in force in both parties’

countries (Statement of Claim § 32) it must be presumed that CLAIMANT and RESPONDENT

understand “ethical standards” to exclude child labor. In Artt. 1, 3 the Convention condemns

work which is likely to harm the health, safety or morals of children. As 175 countries worldwide

have ratified ILO Convention No. 182 (Source) it can be considered a well-recognized standard

(cf. KRÖLL in Kröll et al. Art. 35 § 126). Such standards form a trans-national ordre public (Quelle),

reflecting common ethical values in all participating countries. Both parties therefore must have

shared the understanding that ethical standards are incompatible with child labor.

108 In light of the literal meaning of “highest ethical standards”, Oceania Plus’s policy and the

fact that ILO Convention No. 182 is in force in both parties’ countries, a reasonable person must

have understood that the adherence to “highest ethical standards” constitutes a contractual

obligation not to use child labor.

(b) The exclusion of child labor applies to RESPONDENT’s entire business activities

109 RESPONDENT tries to excuse itself by arguing that the shirts in question were not produced

by child labor (Statement of Defense § 15). However, the obligation to refrain from the use of child

labor extends to all of RESPONDENT’s business activities. The parties agreed that RESPONDENT

should adhere to the highest ethical standards in its entire “conduct of […] business” (Cl. Ex.

No. 1 § 12). RESPONDENT’s obligation not to employ child labor is not limited to the

manufacture of any specific shirts but embraces RESPONDENT’s entire course of business.

110 This can be directly derived from the term “conduct of […] business” (i). In addition, the

value of the “Yes Casual” brand is determined by the fact that its products are not associated

with child labor (ii).


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(i) The term “conduct of business” requires RESPONDENT to refrain from using child labor in its entire

business activites

111 The phrasing of Sec. 12 of the Contract and the parties’ previous conduct provide that no

child labor be used in any of RESPONDENT’s production plants.

112 As to the wording, had the parties wanted to agree that only the particular shirts would be

produced without child labor, they would have phrased the clause differently. The contract would

have required RESPONDENT to adhere to “the highest ethical standards in the production of the

goods”. Rather, it includes a more comprehensive term, extending the prohibition of child labor to

RESPONDENT’s entire “conduct of […] business” (Cl. Ex. No. 1 § 12, emph. add.). To a reasonable

person the literal meaning of this term suggests that all of RESPONDENT’s business activities shall

be free of child labor.

113 In terms of the parties’ previous conduct, it becomes evident from CLAIMANT’s audit in

2008 that it intended to extend the elimination of child labor to RESPONDENT’s entire business

activities. Prior to the 2008 contract between the parties, CLAIMANT audited RESPONDENT

(Statement of Claim § 9). This audit revealed that one of RESPONDENT’s suppliers used child labor

(Proc. Ord. No. 2 § 3). This was an item of concern to CLAIMANT leading to discussions with

RESPONDENT (Statement of Claim § 9; Proc. Order No. 2 § 4). Subsequently, RESPONDENT made sure

that its supplier’s manager got laid off (Proc. Order No. 2 § 3).

114 CLAIMANT already raised concerns when only one of RESPONDENT’s suppliers used child

labor. A reasonable person would have understood that child labor was all the more to be

eliminated from RESPONDENT’s business dealings altogether. RESPONDENT must have been

aware of this since otherwise it would not have caused the manager to get fired.

115 The wording of Sec. 12 and the parties’ previous conduct thus show that the term “conduct

of […] business” refers to the abolition of child labor in RESPONDENT’s entire course of

business.

(ii) The “Yes Casual” brand requires the overall absence of child labor

116 Pursuant to Art. 8 (3) CISG, it also needs to be taken into account that the ethically correct

production environment of “Yes Casual” clothing dermines its value. From this, a reasonable

person must have understood that it may not use child labor in any of its factories.

117 Social corporate responsibility increases a product’s financial value (cf. KIM/VAN DAM

passim). This is because customers do not only buy the physical product but also the ethical values

behind it (cf. CHU passim; WARHURST pp. 151 et seqq.). In fact, consumers may turn reluctant

towards products distributed by a company that uses child labor (cf. Statista 2006).


25

118 In the case of “Yes Casual” this is particularly true. In order to sell the shirts they could not

be brought in any connection with child labor. It is of no regard whether the specific shirts were

manufactured by child labor or child labor is only generally used in the production facilities.

119 This was evidenced by the reactions of the Oceanian public. As soon as the public found out

that RESPONDENT used child labor, not only did the sales of the specific shirts drop (Proc. Order

No. 2 § 19) but the public boycotted the entire “Yes Casual” brand (Proc. Order No. 2 § 17), all

Doma Cirun stores (Statement of Claim § 20) and Oceania Plus (Statement of Claim § 21). It was thus

crucial for CLAIMANT that RESPONDENT did not use any child labor whatsoever.

120 A reasonable person in RESPONDENT’s position must have been aware of this crucial

importance. It has previously delivered clothing to Oceania (Proc. Order No. 2 § 15), which is

known for its ethically highly responsive consumers (cf. Statement of Claim § 20). Since it is

furthermore familiar with the “Yes Casual” brand (Proc. Order. No. 2 § 16) it must also have been

aware that this brand is targeted at customers attentive to ethical issues. A reasonable person in

RESPONDENT’s shoes therefore would have known that it may not use child labor in any of its

production facilities in order for the shirts to fit CLAIMANT’s demands.

121 In conclusion, the term “highest ethical standards” excludes the use of child labor. This

requirement extends to RESPONDENT’s entire business activities. When RESPONDENT delivered

shirts while employing child labor in one of its plants, it breached the parties’ quality agreement

in terms of Art. 35 (1) CISG.

2. The polo shirts were unfit for their particular purpose

122 Even if the Tribunal found that the parties did not contractually agree on the prohibition of

child labor, the polo shirts were not fit for their particular purpose, namely the resale in Oceanian

Doma Cirun stores (a). RESPONDENT’s liability is not excluded under Art. 35 (3) CISG (b).

(a) The shirts were not fit for resale in Oceanian Doma Cirun stores

123 Art. 35 (2) (b) CISG sets forth that the goods do not conform with the contract unless they

are fit for their particular purpose except where the buyer could not reasonably rely on the seller’s

skill and judgement.

124 CLAIMANT made the particular purpose known to be the resale in Oceanian Doma Cirun

stores (i). It reasonably relied on RESPONDENT’s skill and judgment to deduce from this purpose

that RESPONDENT must not use child labor in any of its production facilities (ii).


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(i) CLAIMANT made the particular purpose known to be the resale in Oceanian Doma Cirun stores

125 According to Art. 35 (2) (b) CISG the particular purpose of the goods must be made known

to the seller. The particular purpose is “made known” if a reasonable seller would have

recognized the purpose from the circumstances (SCHWENZER in Schlechtriem/Schwenzer

Art. 35 § 22).

126 In the case at hand, RESPONDENT was aware that the “goods were destined for Oceania for

sale there” (Proc. Order No. 2 § 15). The shirts were to “carry the label ‘Yes Casual’ on the inside

collar” (Cl. Ex. No. 1 § 1), which is a well known brand “to manufacturers of clothing in

Equatoriana” (Proc. Order No. 2 § 16). From these circumstances RESPONDENT knew that “the

goods were to be delivered finally to Doma Cirun” (cf. Proc. Order No. 2 § 16).

(ii) CLAIMANT reasonably relied on RESPONDENT’s skill and judgement to deduce from the particular

purpose that it may not use child labor

127 Generally, the buyer may rely on the seller’s skill and judgment to deliver goods suitable for

their particular purpose (MAGNUS in Honsell Art. 35 § 21). A buyer can in any case rely if the seller

is an expert in the manufacture of goods for the particular purpose intended by the buyer

(SCHWENZER in Schlechtriem/Schwenzer Art. 35 § 24).

128 RESPONDENT was able to handle the production of 100.000 polo shirts on a rush basis

besides its normal course of business (Statement of Claim § 9), which demonstrates its expertise as a

major producer. Furthermore, it had previously contracted with parties from Oceania and

CLAIMANT over deliveries to Oceania Plus subsidiaries (ibid.; Proc. Order No. 2 § 15). It was thus an

expert in the Oceanian market. CLAIMANT thus reasonably relied on RESPONDENT’s skill and

judgement since the latter is an expert.

129 If the seller is aware of where the goods will eventually be used he is responsible for the

goods’ fitness in respect to the actual conditions of use, such as climate or ideological persuasions

of the consumers (SCHWENZER in Schlechtriem/Schwenzer Art. 35 § 21). If, for example, a seller is

aware that hydrolic pumps are to be used in Siberia, they have to be fit to handle frost (MAGNUS

in Staudinger Art. 35 § 27). Likewise, if the goods are to be sold in a market which is known for

being particularly conscious of environmental or social issues, the goods may not be associated

with environmentally or socially unsustainable methods (MALEY p. 116).

130 RESPONDENT was aware that the polo shirts were to be sold in Oceania’s Doma Cirun stores

(supra § 119). Oceanian customers are very attentive to ethical standards and child labor (cf.

Statement of Claim § 20) and would not buy clothing from a company using child labor. Thus,

RESPONDENT ought to have concluded that it needed to deliver shirts that were not associated

with the use of child labor in order to fulfil the particular purpose.


27

131 In conclusion, RESPONDENT knew the particular purpose to be the resale in Oceanian Doma

Cirun stores. CLAIMANT reasonably relied on RESPONDENT’s skill and judgment to conclude that

this meant that RESPONDENT could not use child labor in any of its plants.

132 Due to RESPONDENT’s use of child labor, Oceanian customers stopped purchasing the polo

shirts (Statement of Claim § 20). The shirts were therefore not fit for their particular purpose which

constitutes a breach of Art. 35 (2) (b) CISG.

(b) RESPONDENT is liable since CLAIMANT was not aware of its use of child labor

133 RESPONDENT cannot argue that CLAIMANT should have been aware that it used child labor

and that it is therefore exempt from liability under Art. 35 (3) CISG. This provision sets forth

that a seller is not liable where the buyer knew or could not have been unaware of the lack of

conformity at the time of the conclusion of the contract.

134 Liability is only excluded for a lack of conformity that is obvious (SCHWENZER in

Schlechtriem/Schwenzer Art. 35 § 35; cf. HONNOLD/FLECHTNER Art. 35 § 229; BRUNNER Art. 35

§ 20). CLAIMANT had carried out an “ethics audit” for a prior contract with RESPONDENT in 2008

(Statement of Claim § 9). Although this audit reveal that one of RESPONDENT’s suppliers was using

child labor (Proc. Order No. 2 § 3) it was not obvious that RESPONDENT was still concerned with

child labor when the parties concluded the instant contract in 2011.

135 In a discussion with RESPONDENT, CLAIMANT had voiced its concerns about the results of

the 2008 audit (Statement of Claim § 9; cf. Statement of Defense § 3; Proc. Order No. 2 § 3). As a

consequence, the manager of the plant had been laid off (Proc. Order No. 2 § 3). This action and

the fact that RESPONDENT complied with Oceania Plus’s policy in all subsequent contracts with

Oceania Plus’s subsidiaries (Proc. Order No. 2 § 5) indicated that RESPONDENT had understood

CLAIMANT’s need for a child-labor free production environment. It was thus by no means

obvious that RESPONDENT would again resort to the use of child labor. To the contrary,

CLAIMANT could reasonably expect that for future contracts RESPONDENT would refrain from

using child labor.

136 Moreover, RESPONDENT cannot argue that CLAIMANT should have conducted another audit

prior to the conclusion of the contract at hand. Art. 35 (3) CISG does not establish an

examination-obligation for the buyer prior to the conclusion of contract (MULLIS in Huber/Mullis

p. 143; PILTZ § 5-52; KRUISINGA p. 53). The fact that CLAIMANT did not audit RESPONDENT again

is a matter of intra-group policies (cf. Statement of Claim § 9) and has no impact on

Art. 35 (3) CISG.


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137 RESPONDENT’s use of child labor was thus not obvious at the time of the conclusion of the

contract. CLAIMANT did not know and could not have been aware of such lack of conformity.

RESPONDENT’s liability is not precluded under Art. 35 (3) CISG.

3. RESPONDENT breached its obligations under Sec. 12 of the Contract

138 Should the Tribunal hold that the polo shirts were in conformity with Art. 35 CISG,

RESPONDENT still breached its obligations arising from Sec. 12 of the Contract. Under

Art. 45 (1) CISG one reason for avoidance of the contract is that “the seller fails to perform any

of his obligations under the contract” (emph. add.). Thus, besides a breach of Art. 35 CISG, non-

compliance with contractual agreements in addition to quality requirements also entitles a buyer

to take the measures under Art. 45 (1) CISG (cf. Cour d’appel Grenoble 22 February 1995 (France);

OLG Frankfurt 17 September 1991 (Germany), BRÖLSCH p. 27 et seq.).

139 In Sec. 12 of the Contract, the parties agreed that RESPONDENT would “conform to the

highest ethical standards in the conduct of [its] business” (Cl. Ex. No. 1 § 12). This constituted an

additional duty of conduct not to use child labor in any of its business activites (supra § 119).

RESPONDENT breached this obligation by using “child labor in at least one of its production

plants” (cf. Proc. Order No. 1 § 8).

140 In conlusion, RESONDENT breached its contractual obligation not to use child labour in it

entire course of business.

B. RESPONDENT’s Breach Is Fundamental

141 In its production facilities, RESPONDENT neglected ethical standards when it used child

labor. It accepted that this would result in a breach of its contractual obligations as set forth in

Sec. 12 of the Contract. It further accepted that its negligence would amount to a breach of the

particular purpose. RESPONDENT ought to have foreseen that its indifference would not only

cause a breach of contract but beyond that lead to a substantial detriment for CLAIMANT.

Accordingly, RESPONDENT now needs to accept the ensuing consequences of its indifference.

142 A breach is fundamental under Art. 25 CISG if it substantially deprives the other party of

what it was entitled to expect under the contract unless such result was not foreseeable. In the

case at hand, the breach resulted in a substantial detriment of CLAIMANT’s expectation to receive

shirts from a child labor free producer (1.). This detriment was foreseeable for RESPONDENT

(2.). In any case, the Tribunal should confirm a fundamental breach since avoidance is the only

remedy which fully compensates CLAIMANT’s detriment (3.).


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1. CLAIMANT is substantially deprived of its expectation

143 CLAIMANT was entitled to expect polo shirts produced in a child labor free production

environment (a). It was substantially deprived of this expectation (b).

(a) CLAIMANT was entitled to expect polo shirts from a child labor free company

144 A buyer is entitled to expect that the obligations be fulfilled to which he attached particular

importance (FERRARI p. 497; HUBER in Huber/Mullis p. 214). The purpose of the contract gives

indication as to what was particularly important for the buyer (MAGNUS in Staudinger Art. 25

§ 13). The purpose of the contract was that the shirts be resold to Doma Cirun stores in Oceania

which required that RESPONDENT did not use child labor (supra § 129). This was CLAIMANT’s

reasonable expectation.

(b) CLAIMANT was substantially deprived of its expectation

145 A substantial detriment is one which makes the seller lose any interest in the performance of

the contract (NEUMAYER/MING Art. 25 § 4; HERBER/CZERWENKA Art. 25 § 8; SALGER in

Witz et al. Art. 25 § 7). The interest does not have to relate to monetary considerations (BG 15

September 2000 (Switzerland); NEUMAYER/MING Art. 25 § 7). Case law affirms that it is decisive

whether the purpose of the Contract was endangered.

146 In the “Marlboro case” two parties had agreed on an exclusivity clause in addition to the

mere production of shoes. The seller still displayed the shoes for his own purposes at a trade fair.

Despite the buyer not having suffered major monetary loss, the seller’s failure to comply with its

contractual obligation amounted to a substantial detriment as it endangered the purpose of the

contract (OLG Frankfurt 17 September 1991 (Germany)).

147 Similarly, in the “Soyprotein products case” significance had been attached to the obligation

that in addition to their general quality requirements soyprotein products were free from genetic

modification. A substantial detriment was confirmed when the seller still did not refrain from

said modifications, since they made the contractual purpose, namely the processing into tofu

schnitzel, impossible (AG Basel-Stadt 22 August 2003 (Switzerland)).

148 Equally, the parties in the case at hand have agreed that RESPONDENT should not use child

labor besides the obligation to produce the shirts according to the quality requirements set forth

in the annex of the Contract. Though not resulting in major monetary loss, it made CLAIMANT

lose all interest in the performance of the contract since it could not resell the shirts to Doma

Cirun. CLAIMANT was thus substantially deprived of its reasonable expectations.


30

2. This substantial detriment was also foreseeable to RESPONDENT

149 RESPONDENT could have foreseen the substantial detriment as it was aware of the

importance CLAIMANT had attached to child labor free production facilities. Under Art. 25 CISG,

the party in breach and a reasonable person in the same circumstances must have foreseen the

substantial detriment. Foreseeability has to be determined in light of the facts and matters known

at time of the contract conclusion (Will in BIANCA/BONELL § 2.2.2.1).

150 When the parties concluded the Contract RESPONDENT was and any reasonable person

would have been aware of the importance CLAIMANT attached to the prohibition of child labor.

This was evident from the purpose of the Contract. Being aware of this importance,

RESPONDENT and any reasonable person must have foreseen that a frustration of this obligation

would result in a substantial detriment.

151 In conclusion, RESPONDENT fundamentally breached the Contract when it delivered shirts

which were not manufactured in a child labor free production environment.

3. In any case, the Tribunal should confirm a fundamental breach since avoidance is

the only remedy which fully compensates CLAIMANT’s detriment

152 Regardless of whether the Tribunal finds that RESPONDENT’s delivery of shirts unfit for

resale in Oceania amounted to a fundamental breach, the mere granting of damages does not

suffice in the case at hand.

153 In order to determine whether a party’s breach is fundamental it is to be considered whether

it is reasonable for the buyer that the contract be upheld or whether the buyer needs to be able to

avoid the contract (“remedy-oriented approach”) (cf. KOCH, p. 12; BGH 3 April 1996 (Germany)).

The circumstances of the case determine whether the approach is justified (ibid.). Such

circumstances are given where ethical standards have been violated (cf. CISG-AC Op. No. 5 § 4.1;

SCHWENZER/LEISINGER p. 268). The agitated public will only be appeased if the buyer

completely distances itself from the contract by avoiding it, rather than merely claiming damages

(ibid.).

154 Under the circumstances CLAIMANT needs to be entitled to avoid the Contract. Beyond the

fact that the shirts were not fit for resale by Doma Cirun, the entire Oceania Plus Group suffered

severe harm to its reputation and credibility.

155 Oceania Plus and Doma Cirun had been condemned in strong terms for dealing with

RESPONDENT (Statement of Claim § 17). Moreover, there were continuous demonstrations at the

Doma Cirun stores throughout Oceania (Statement of Claim § 20). Even Oceania’s Prime Minister

called CLAIMANT’s mother company Oceania Plus and urged it to take immediate actions

(Statement of Claim, § 21), giving Oceania’s national outcry a voice. In addition, the Children


31

Protection Fund, which had invested majorly in Oceania Plus, announced its intention to sue

Oceania Plus and its directors for its losses and for the damage to its reputation (ibid.). Finally,

Oceania Plus’ share price dropped 25 % wiping hundreds of millions of dollars of value off its

stock market valuation (ibid.)

156 All these consequences show what far-reaching damage RESPONDENT’s breach did to the

reputation and credibility of the Oceania Plus Group. In order to restore the customer’s, the

government’s and the shareholders’ faith in the adherence of Oceania Plus and its subsidiaries to

highest ethical standards, CLAIMANT as the acting company needed to distance itself from

RESPONDENT using child labor. It could thus not have been expected of CLAIMANT to content

itself with claiming damages. Avoiding the contract with the company whose behaviour caused

the aforementioned strong public reactions was thus the only sensible measure to be taken by

CLAIMANT.

157 In conclusion, regardless which approach the Tribunal follows RESPONDENT fundamentally

breached the contract under Art. 25 CISG.

C. CLAIMANT Declared Non-Conformity and Avoidance of the Contract

158 In its Statement of Defense, RESPONDENT does not dispute that CLAIMANT notified

RESPONDENT of the lack of conformity (Art. 39 CISG) and declared the Contract avoided

(Art. 26 CISG), fulfilling the content and time requirements. CLAIMANT did so with its letter of

8 April 2011 (Cl. Ex. No. 6). Therein, CLAIMANT specified that the employment of children is the

reason why it is no longer willing to perform the contract. The notice was submitted only three

days after CLAIMANT duly discovered via the media that RESPONDENT had used child labour.

Thus, no further submissions in this regard shall be made.

159 In conclusion, CLAIMANT duly avoided the Contract under Artt. 45 (1) (a),

49 (2) (b) (i) CISG. As a consequence, it is entitled to reimbursement of the purchase price

pursuant to Art. 81 (2) CISG.


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D. CLAIMANT Is Entitled To Damages

160 Under Artt. 45 (1) (a), 74 CISG CLAIMANT is entitled to damages out of the settlements with

Doma Cirun and Oceania Plus. It may further claim the loss of profit from the lost sale to Doma

Cirun. These provisions require a breach of contract resulting in a foreseeable loss (supra § 90).

•  purchase price •  cover purchase •  lost sales due to the

lack of polo shirts after contract avoidance •  loss of reputation

•  loss of profit

•  settlement with investors

•  drop in shares settlement

Investors in Oceania Plus including

Children Protection Fund of Oceania

Oceania Plus Doma Cirun

CLAIMANT

161 As a result of RESPONDENT’s breach (supra § 139) CLAIMANT incurred recoverable

losses (1.). RESPONDENT could have foreseen these losses (2.). The respective sum is not to be

reduced since CLAIMANT duly mitigated the losses (3.).

1. CLAIMANT suffered revocerable losses as a result of RESPONDENT’s breach

162 As a consequence of RESPONDENT’s use of child labor CLAIMANT had to pay the two

settlements which are recoverable under Art. 74 CISG (cf. supra § 92).

163 Had RESPONDENT not used child labor, Doma Cirun could have sold the shirts. It would

not have had to claim reimbursement of the purchase price and suffered the losses due to the

cover purchase, the lost sales after it had returned the shirts and the loss of reputation. Neither

would Oceania Plus’s share price have dropped. In that event, Doma Cirun and Oceania Plus

would not have brought suit against CLAIMANT.


33

164 RESPONDENT’s breach further resulted in CLAIMANT’s loss of profit since it could not realize

its profit margin with Doma Cirun.

2. The losses CLAIMANT demands were foreseeable

165 It was foreseeable that CLAIMANT itself would suffer the loss of profit due to the lost sale to

Doma Cirun. It was furthermore foreseeable that Doma Cirun and Oceania Plus would not bear

their losses but rather collect them from CLAIMANT. Doma Cirun’s and Oceania Plus’s losses in

turn were foreseeable.

166 Generally, the loss must be foreseeable to a reasonable person (ENDERLEIN/MASKOW

Art. 74 § 10; LIU § 14.1.2).

167 As to Doma Cirun’s loss, the items the settlement comprised were foreseeable. Any

reasonable person with RESPONDENT’s knowledge about the Oceanian market would have

foreseen that it would turn impossible to sell the shirts if child labor was employed (supra § 129).

It was further foreseeable that this impossibility would result in the claim for reimbursement of

the purchase price, the costs for the cover purchase, the lost sales after Doma Cirun had returned

the shirts.

168 Loss of reputation is foreseeable when the buyer is a distributor in a sensitive market

(SCHWENZER in Schlechtriem/Schwenzer Art. 74 § 56; SCHLECHTRIEM/BUTLER § 306; HUBER in

Huber/Mullis p. 279). Doma Cirun was a distributor in a market highly responsive to the issue of

child labor (supra § 129). All of Doma Cirun’s losses were thus foreseeable.

169 In regard to Oceania’s Plus’s loss, it was foreseeable for RESPONDENT that its use of child

labor would lead to a drop in Oceania Plus’s shares. It was further foreseeable that Oceania Plus

would have to reimburse its stock holders for this drop.

170 From the Contract and the parties’ previous business relationship it was evident that

CLAIMANT was one of Oceania Plus’s subsidiaries (Proc. Order No. 2 § 4; Cl. Ex. No. 1 § 12). A

reasonable seller in RESPONDENT’s position would have further known that Oceania Plus had a

reputation for its high ethical standards. Its high ethical standards feature prominently on its

website and in its public relations and other communications (Statement of Claim § 6). Such social

compliance translates into shareholder value (cf. GODFREY ET AL., passim). This is particularly true

for Oceania where the business community strongly supports its government’s engagement to

fight child labor (Cl. Ex. No. 4).

171 It was foreseeable that a frustration of this corporate identity would adversely reflect on

Oceania Plus’s stock price (cf. SCHWENZER/LEISINGER p. 251). It was also comprehensible that

Oceania Plus’s shareholders would then sue for their losses.


34

172 In conclusion, the losses of Doma Cirun and Oceania Plus were foreseeable. So were the

suits they then brought against CLAIMANT. Furthermore, CLAIMANT’s loss of profit was

foreseeable.

3. CLAIMANT duly mitigated all arisen losses

173 CLAIMANT furthermore fulfilled its duty to mitigate the arising losses in terms of

Art. 77 CISG. It sold the remaining polo shirts to Pacifica Trading (Proc. Order No. 2 § 21) and

negotiated two favourable and unavoidable settlements (Proc. Order No. 2 § 29). These measures

satisfy the obligation under Art. 77 CISG.

174 In conclusion, all prerequisites of Art. 74 CISG are met. CLAIMANT may thus claim damages

out of the settlements with Doma Cirun and Oceania Plus as well as for the loss of profit due to

the lost sale to Doma Cirun. Claimant is entitled to these damages in addition to the specified

sum – or respectively damages – for the late delivery (supra §§ 95, 158) and reimbursement of the

purchase price (supra § 160).

CONCLUSION: When RESPONDENT used child labor it fundamentally breached the Contract.

CLAIMANT is therefore entitled to avoid the Contract and claim damages.


35

REQUEST FOR RELIEF

In light of the above submissions, counsel for CLAIMANT respectfully requests the Tribunal to

find that

(1) Mr. Short’s written witness statement is inadmissible to the further proceedings;

(2) CLAIMANT is entitled to the specified sum due to RESPONDENT’s late delivery;

(3) CLAIMANT is entitled to reimbursement of the purchase price and damages for the

losses incurred due to RESPONDENT’s use of child labor.


XXX

Munich, 6 December 2012

We hereby confirm that this Memorandum was written only by the persons who signed

below. We also confirm that we did not receive any assistance during the writing process from

any person that is not a member of this team.

______________ ________________ _____________

Felix Aiwanger Clara Freißmuth Ronja Schregle

______________ _______________ _____________

Sophie Schröter Luise Seidel Michael Strecker

Documents

MEMORANDUM FOR CLAIMANTThe Doctrines of Impossibility of Performance and clausula rebus sic stantibus in the 1980 Vienna Convention on Contracts for the International Sale of Goods