memorandum for claimant - · pdf file17.10.1995 · memorandum for claimant iii 3....

14th Annual

Willem C. Vis (East) International Commercial Arbitration Moot Hong Kong

MemorandumforCLAIMANTCenterforArbitrationandMediationoftheChamberofCommerceBrazil-Canada

WrightLtd. v. SantosDKG

Abdul Ameer Faheem • Gharsanay Amin • Munira Aziz

Niyaz Muhammad Nickkhah • Sadaf Baseer • Samiullah Sharifi

AmericanUniversityofAfghanistan(AUAF)

On behalf of

Write Ltd.

232 Garrincha Street

Oceanside

Equatoriana

CLAIMANT

Against

SantosD KG

77 Avenida O Rei

Cafucopa

Mediterraneo

RESPONDENT

Memorandum for CLAIMANT

II

Table of Contents

Table of Contents.......................................................................................................................................II

TABLE OF ABBREVIATIONS..............................................................................................................IV

INDEX OF LEGAL AUTHORITIES...................................................................................................VIII

INDEX OF CASES..................................................................................................................................XX

LEGAL SOURCES AND MATERIAL..............................................................................................XXVII

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

SUMMARY OF ARGUMENTS...............................................................................................................2

ARGUMENTS............................................................................................................................................3

ISSUE ONE: CLAIMANT INITIATED THE ARBITRATION PROCEEDINGS ON TIME AND WITHIN 60 DAYS PERIOD SPECIFIED IN SECTION 21 OF THE DSA.........................................3

A. CLAIMANT'S ARBITRATION REQUEST IS ADMISSIBLE BECAUSE IT MEETS ALL THE REQUIREMENTS UNDER SECTION 21 OF DSA.................................................................4

1. CLAIMANT tried to resolve the dispute amicably in good faith through negotiation by considering the first step of dispute resolution mechanism adopted in section 21...........4

2. CLAIMANT initiated the arbitration proceedings on time considering the 60 days limitation set of on section 21 of DSA after the failure of negotiation...................................6

B. CAM-CCBC, THE GOVERNING RULE FOR THE CONTRACT COMPLIES WITH THE ARBITRATION REQUEST OF CLAIMANT..........................................................................7

C. THE INTERNATIONAL ARBITRATION PRACTICES DEEMS THE ARBITRATION PROCEEDINGS ON TIME AND ADMISSIBLE...............................................................................9

1. International arbitration practices are adopted in section 21 of the DSA which further accepts the day of commencement of arbitration on the day request is received by the administrator........................................................................................................................9

2. CLAIMANT's arbitration request meets the tests provided under Article 3 of CIArB........................................................................................................................................10

ISSUE TWO: THE ARBITRAL TRIBUNAL’S POWER IS LIMITED TO GRANT SECURITY FOR RESPONDENT’S COST UNDER DSA, TERMS OF REFERNCE AND THE GOVERNING RULES IN LINE WITH INTERNATIONAL ARBITRATION PRACTICES..................................11

A. UNDER THE DSA, TOR AND GOVERNING RULES SUCH AS CAM-CCBC AND UNCITRAL MODEL LAW, RESPONDENT IS NOT ELIGIBLE TO RECEIVE SECURITY FOR ITS COSTS..................................................................................................................................11

1. Silence of Development and Sales Agreement constitutes parties agreement on exclusion of security for cost....................................................................................................12

2. RESPONDENT’s request for security for cost was not included in the ToR............12


III

3. RESPONDENT’s request for security for cost is out of time based on the CAM-CCBC Rules..............................................................................................................................13

4. UNCITRAL Model Law limits the Tribunal’s power to award security for RESPONDENT’s costs.............................................................................................................14

B. THE INTERNATIONAL ARBITRATION PRACTICES LIMIT ARBITRAL TRIBUNAL’S POWER TO ORDER SECURITY FOR RESPONDENT’S COSTS.....................15

1. RESPONDENT failed to provide the likelihood of success for its claim in a prima facie test under Art. 2 of the CIArB........................................................................................15

2. RESPONDENT failed to show that CLAIMANT does not have funds to pay an adverse costs award..................................................................................................................17

3. RESPONDENT’s request to provide security for its cost is unfair under Art. 4 of CIArb........................................................................................................................................19

ISSUE THREE: CLAIMANT IS ENTITLED TO THE FULL PAYMENT IN THE AMOUNT OF US $22,723, 800 FOR THE FAN BLADES AND US$ 102,192.80 FOR THE FEE DEDUCTED FOR BANK CHARGES BASED ON THE DSA............................................................................................21

A. DSA, CISG AND UNIDROIT PRINCIPLES ENTITLE CLAIMANT TO THE FULL PAYMENT OF PURCHASE PRICE FOR THE FAN BLADES IN THE AMOUNT OF US$ 22,723, 800.............................................................................................................................................22

1. Parties’ intention behind adding fixed exchange rate provision in the addendum was only to govern the sale of the clamps, not the fan blades......................................................22

2. CISG entitles CLAIMANT to the full purchase price in the amount of US$22,723, 800 26

B. RESPONDENT IS OBLIGED TO PAY THE BANK CHARGES IN THE AMOUNT OF US$ 102,192.80 BASED ON THE DSA AND CISG..........................................................................28

1. Section 4(3) of the DSA obliges RESPONDENT to pay the levy charges in the amount of US$ 102,192.80........................................................................................................29

2. Art. 54 of CISG requires RESPONDENT to take all enabling steps, including paying the levy charges to make the full deposit of purchase price to CLAIMANT..........31

3. RESPONDENT’s analogy of Art.35 (2) CISG is not applicable in the current contract......................................................................................................................................33

CONCLUSION.........................................................................................................................................34

PROCEDURAL REQUEST....................................................................................................................35

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


IV

TABLE OF ABBREVIATIONS

AAA American Arbitration Association

ACICA Australian Center for International Commercial Arbitration

CAM-CCBC

Center for Arbitration and Mediation of the Chamber of

Commerce Brazil-Canada

Clm CLAIMANT

CIArB Chartered Institute of Arbitrators, Application for Security of

Cost

CEO Chief Executive Officer

CISG United Nation Convention of Contracts for the International

Sales of Goods

Co. Corporation

COO Chief Operating Officer

DIAC Dubai International Arbitration Center

DSA Development and Sales Agreement

EQD Equatorianian Dinar

et al. and others (et alii/et aliae/et alia)


V

Ex. Exhibition

e.g. For Example

HKIAC Hong Kong International Arbitration Center

ICC International Chamber of Commerce

ICDR International Center for Dispute Resolution

ICSID International Center for Settlement of Investment Disputes

i.e Pronoun (for example)

LAC Ljubljana Arbitration Centre

LCIA London Court of International Arbitration

Ltd. Limited

Mr. Mister

Ms. Miss

ML/2010 Money Laundering Law 2010

ML UNCITRAL Model Law

No. Number


VI

NCAP Notice for Commencement of Arbitration Proceedings

NY New York Convention

Ord of Pr. Order of the President of CAM-CCBC

P. Page

Para. Paragraph

PLC Private Limited Company

PO 1 Procedural Order No.1

PO 2 Procedural Order No.2

Res, RESPONDENT

Rec Record

SFC Security for Cost

SIAC Singapore International Arbitration Center

SoC Statement of Claim

SoR Statement of Response

Switz Switzerland


VII

TOR Terms of Reference

UK United Kingdom

UN United Nation

UNCITRAL United Nations Commission on International Trade Law

UNIDRIOT International Institute for Unification of Private Law

USA United States of America

USD United Stares Dollar

VIAC Vienna International Arbitration Center

Vol. Volume

Vs. Versus (Against)

YIA Yearbook International Arbitration

& And


VIII

INDEX OF LEGAL AUTHORITIES

A.O. RHODES – VIVOUR Security for the RESPONDENT’s costs of arbitral

proceedings with particular reference to the Arbitration

and Conciliation Act Cap 19, 1990 Laws of Nigeria

(ACA), News Journal of the Chartered Institute of

Arbitrators Nigerian Branch Vol. 2, 2005

cited as: A.O. Rhodes – Vivour

in para. 78

ALLISON E. BUTLER Allison E. Buttler, “A practical guide to the CISG:

Negotiations throughout litigation”, Aspen Publishers

(2007 Supplement).

http://cisg3.law.pace.edu/cisg/biblio/butler6.html

cited as: Allison E. Butler

in para. 110

ALI YESILIRMAK Provisional Measures in International Commercial

Arbitration, International Arbitration Law Library,

Volume 12; Kluwer Law International (2005); pp. 47 –

11

cited as: Ali Yesilirmak

in para. 73


IX

BORN GARY B. International Commercial Arbitration, 2nd edition,

Kluwer Law International

New York 2014, pp. 518, 538

cited as: Born

in para. 58, para. 59, para. 65

BLACKABY NIGEL &

PARTASIDES CONSTANTINE

WITH REDFREN ALAN &

HUNTER MARTIN

Redfern and Hunter on International Arbitration, Fifth

Edition, Student Version, August 2009

cited as: Blackaby et al.

in para. 40

CHARLES N. BROWER AND W.

MICHAEL TUPMAN

Court-Ordered Provisional Measures Under the New

York Convention

The American Journal of International Law

Vol. 80, No. 1 (Jan., 1986), pp. 24-42

Published by: American Society of International Law

cited as: Charles et al.

in para. 49


X

DENIS TALLON The Buyer's Obligations Under the Convention on

Contracts for the International Sale of Goods Published

in Galston & Smit ed., International Sales: The United

Nations Convention on Contracts for the International

Sale of Goods,

Matthew Bender (1984), Ch. 7, pages 7-1 to 7-20.

cited as: Tallon

in para. 125

DIETRICH MASKOW Commentary on Article 54 of CISG

Cite as Maskow, in Bianca-Bonell Commentary on the

International Sales Law, Giuffrè: Milan (1987) 383-393.

Reproduced with permission of Dott. A Giuffrè Editore,

S.p.A

Para,2.2.2. Page: 395

http://www.cisg.law.pace.edu/cisg/biblio/maskow-

bb53.html

cited as: Maskow

in para. 108, para. 125, para.126


XI

FRTIZ ENDERLEIN &

DIETRICH MASKOW

Commentary on Preamble of CISG

www.cisg.law.pace.edu/cisg/text/preamble.html

cited as: Enderlein & Maskow

in para. 112

GARY F. BELL Kroll/Mistelis/Perales/Viscasillas. eds, (Book),

Gary F. Bell, p. 858

cited as: F. Bell

in para. 110

HENRY DEEB GABREIL THE BUYER’S PERFORMANCE UNDER THE CISG:

ARTICLES 53-60 TRENDS IN THE DECISIONS

Journal of law and commerce: 274 JOURNAL OF LAW

AND COMMERCE [Vol. 25:273]

cited a:. Gabreil, P. 274

in para. 125

HOLTZMANN, NEUHAUS Chap IV, p. 530-547

cited as: Holtzmann, Neuhaus, et al.

in para. 58


XII

HONNOLD & FLECHTER Uniform Law for International Sales under the 1980

United Nations Convention , 4th edition

cited as: Honnold & Flechter

in para. 101

JULIAN D M LEW, LOUKAS A

MISTELIS, STEFAN M KROLL

Comparative International Commercial Arbitration,

Kluwer Law International, New York 2014

cited as: Julian


JOHN O. HONNOLD Article 8 words and phrases, Degrees of knowledge

http://www.cisg.law.pace.edu/cisg/text/words8.html

cited a: John O. Honnold

in para. 117

LUDMILLA HERBST Security for costs in commercial arbitration: playing hard

to get, The Lawyers Weekly, Canada, 2009

cited as: Ludmilla Herbst

in para. 47


XIII

LEIF SEVÓN Commentary on article 54 of CISG P.205

cited as: Leif Sevón

in para. 110

MALCOLM EVANS Commentary on the preamble of CISG

Cite as Evans, in Bianca-Bonell Commentary on the

International Sales Law, Giuffrè: Milan (1987) 23-25.

Reproduced with permission of Dott. A Giuffrè Editore,

S.p.A.

http://cisg.law.pace.edu/cisg/biblio/preamble-bb.html

cited as: CISG Preamble

in para. 112

MARIANNE ROTH MICHAEL

GEISTLINGER¸ MARIANNE

STEGNER

Yearbook on International Arbitration, Volume III,

Vienna, 2013

cited as: YIA, Vol III

in para. 73


XIV

MARTINEZ LUIS MANUEL,

HANESSIAN GRANT

ICDR Awards and Commentaries

CHAPTER 1, A GUIDE TO ICDR CASE

MANAGEMENT, September 2012

cited as: Martinez

in para. 39, para. 40

KATIA YANNACA-SMALL Arbitration Under International Investment Agreements:

A Guide to the Key Issues

Katia Yannaca-Small, Oxford University Press, 2010

cited as: Katia Yannaca

in para. 71

PETER SCHLECHTRIEM AND

PETRA BUTLER

UN Law on International Sales: The UN Convention on

the International Sale of Goods

cited as: Schlechtriem/Butler

in para. 94


XV

PETER SCHLECHTRIEM Uniform Sales Law: The UN-Convention on Contracts

for the International Sale of Goods: Manz, 1986

cited as: Schlechtriem


PETER SCHLECHTRIEM Peter Schlechtriem Commentary on Article 8 of CISG

Published by Manz, Vienna: 1986.Reproduced with their

permission. Interpretation of Statements and Conduct

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

tml



PETER SCHLECHTRIEM Commentary on Art.53(2) of CISG

www.cisg.law.pace.edu/cisg/biblio/schlechterim10.html

P.6-20

Cites as: Schlechtriem

In para. 126


XVI

PETER SCHLECHTRIEM Uniform Sales Law in the Decisions of the

Bundesgerichshof

p.88

http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem3

.html


in para. 110

PETRA BUTLER & ARJUN

HARINDRAANATH

Kroll/Mistelis/Perales/Viscasillas. eds, (Book),

Petra Butler/ and Arjun Harindraanath p. 797

cited as: Butler/Harindraanath


PILAR PERALESVISCASILLAS Kroll/Mistelis/Perales/Viscasillas. eds, (Book),

Pilar Perales Viscasillas, P.121

cited as: Perales Viscasillas

in para. 90


XVII

PATRICK X. BOUT Trade Usages: Article 9 of the Convention on Contracts

for the International Sale of Goods, Commentary on

article 9, Pace essay submission (1998).

www.cisg.law.pace.edu/cisg/biblio/bout.html

cited as: Patrick X. Bout


PETER ASHFORD Handbook on International Commercial Arbitration:

Second Edition, United States, 2014

cited as: Peter Ashford

in para. 67

RICHARD STONE The Modern Law of Contract 6th edition: Richard Stone,

P.228

cited as: Stone

in para. 101

SCHLECHTRIEM &

SCHWENZER

Commentary on the UN Convention on the International

Sales of Goods (CISG), 3rd Edition

Edited by: Ingerborg Schwenzer

cited as: Schlechtriem & Schwenzer



XVIII

STEPHEN COLBRAN Security for Costs of Arbitration Proceedings in England,

New Zealand and Australia, Australia, 1993

cited a: Stephen

in para. 47

STEPHEN COLBRAN Security for Costs against Corporations - s 1335

Corporations Act, Australia, 1993

cited as: Stephen Colbran

in para. 72

THOMAS H. WEBSTER Handbook of ICC Arbitration: Commentary, Precedents,

Materials, 3rd edition, UK 2014

cited as: Webster Commentary

in para. 26

VICTOR KNAPP Commentary on Art.54 of CISG

Bianca-Bonell Comentary on the International Sales

Law, Giuffre,

P.453

cited as: Knapp

in para. 111


XIX

WENDY/DUNCAN Wendy/Duncan, P. 33

cited as: Wendy/Duncan

in para. 58

WEIXIA GU Security for Costs in International Commercial

Arbitration, 2005

Kluwer Law International Journal of International

Arbitration, Issue 3 PP. 167-206

cited as: Weixia Gu

in para. 79

WEBSTER THOMAS H/

BUHLER DR MICHAEL

Handbook of ICC Arbitration Commentary, Precedents,

Materials,

Third edition, United Kingdom

cited as: Webster et al.

in para. 76


XX

INDEX OF CASES

ICC Awards

ICC Case No. 13070 (2006) Award in ICC No. 13070 in 2006 in Paris,

pp.434

cited as: ICC Case No. 13070 (2006)

in para: 77

ICC Case No. 10032 (1999) Award in ICC Case No. 10032 in 1999 in

Zurich, European Union

Yugoslavia vs. Serbia

cited as: ICC Case No. 10032

in para. 74

Vekoma B V vs. Moren Coal Corps Jurisdiction and Admissibility

Jan Paulsson

Published in November 2005

ICC Publication, Publication 693

cited as: Vekoma B V. Vs. Maran Coal Corp

in para. 22


XXI

ICSID Awards

Maffezini v. Spain (1999) Maffezini v. Spain in 1999, Spain,

International Centre for Settlement of

Investment Disputes, (ICSID).

cited as: Maffezini v. Spain


Libananco v. Turkey (2008) Libananco v. Turkey in 2008, Libananco

International Center for Settlement of


cited as: Libananco v. Turkey

in para. 68

Burimi S.R.L. v. Albania (2012) Burimi S.R.L. v. Albania in 2012,



cited as: Burimi S.R.L. v. Albania

in para. 72


XXII

Burimi S.R.L. and Eagle Games SH.A. v. Republic of Albania (2012)

Burimi S.R.L. and Eagle Games SH.A. v. Republic of Albania (2012)

International Centre for Settlement of Investment Disputes, (ICSID).

cited as: Burimi S.R.L. and Eagle Games SH.A. v. Republic of Albania (2012))

in para. 56

RSM production Corporation vs. Government

of Grenada (2010)

RSM production Corporation vs. Government

of Grenada in 2010



ICSID Case No. ARBII 0/6

cited as: RSM production Corporation vs.

Government of Grenada (2010)

in para. 70

Republic of Guinea v. Atlantic Triton

Company (1986)

Republic of Guinea v. Atlantic Triton

Company (1986)



cited as: Republic of Guinea v. Atlantic Triton

Company (1986)

in para. 71


XXIII

Clout Cases

Clout Case No. 142 Clout Case No. 142

Russia 17 October 1995 Arbitration proceeding 123/1992

Arbitration at Russian Federation Chamber of Commerce

and Industry [No. 123/1992 of 17 October 1995]

http://cisgw3.law.pace.edu/cases/951017r1.html

cited as: Clout Case No. 142


Clout Case No. 104 Clout case No. 104

Court of Arbitration of the International Chamber of

Commerce

A/CN.9/SER.C/INDEX/1

19 September 1995

www.uncitral.org/clout/clout/data/oth/clout_case_104_leg-

1307.html

cited as. Clout case No. 104

in para. 132


XXIV

CLOUT case No. 652 CLOUT case No. 652

Tribunale di Padova (District Court Padova)

Italy, 10 January 2006

Italian company Vs. United Kingdom

http://cisgw3.law.pace.edu/cases/060110i3.html

cited as: CLOUT case No. 652

in para. 109

CLOUT case No. 608 CLOUT case No. 608

Tribunale di Rimini (District Court Rimini)

Italy, 26 November 2002

France Vs. Italy


citedas:CLOUT case No. 608

in para. 109


XXV

A. S.p.A. v. B AG (1997) A.S.p.A. v. B AG, case in 1997, Rules of Arbitration of

the Geneva Chamber of Commerce and Industry

cited as: A. S.p.A. v. B AG

in para. 80

Agriculture products case Agriculture products case

Tribunale di Padova, No.40552

Italy, 25 February 2004

Austria Vs. Italy


cited as: Agriculture products case

in para. 109

Kantonsgericht Schaffhausen Kantonsgericht Schaffhausen

Switzerland, 25 February 2002

Italy Vs. Switzerland

http://cisgw3.law.pace.edu/cases/020225s1.html

cited as: Kantonsgericht Schaffhausen

in para. 109


XXVI

American Cyanamid Co vs.

Ethicon LTD case (1975)

American Cyanamid Co vs. Ethicon LTD in 1975, United,

Kingdom, House of Lords

cited as: American Cyanamid Co vs. Ethicon LTD


Medical Marketing v.

Internazionale Medico

Scientifica

Clout case No. 418

Tribunal: U.S. District Court, Eastern District of Louisiana

http://cisg3.law.pace.edu/cases/990517u1.html

cited as: Medical Marketing v. Internazionale Medico

Scientifica

in para. 137


XXVII

LEGAL SOURCES AND MATERIAL

ACICA RULES ACICA Expedited Arbitration Rules

1 January 2016

Article 4.2

AAA INTERNATIONAL

ARBITRATION RULES

Commercial Arbitration Rules and Mediation

Procedures, Including Procedures for Large

Complex Commercial Disputes Rules Amended and

Effective October 1, 2013 Fee Schedule Amended and

Effective July 1, 2016

R-4 (h)

CAM-CCBC ARBITRATION

RULES

Center for Arbitration and Mediation of the Chamber

of Commerce Brazil-Canada, Arbitration Rules, 2011

Article 2.6, Article 4, Article 4.1, Article 4.21, Article

6.2.


XXVIII

COMMENTARY ON CAM-CCBC

Commentary on Center for Arbitration and Mediation

of the Chamber of Commerce Brazil-Canada,

Arbitration Rules,

Wald Arnoldo / Borja Ana Gerdau/ Longo Bryan/

Terashima Edardo Ono/ de Melo Maria/ Vieira/

Filho Napoleao Casado and Gagliardi Rafael Villar.

CIARB, APPLICATION FOR

SECURITY FOR COST

International Arbitration Practice Guideline,

Application for Security for cost, CIArb, London,

Article 1.2, Article 2, Article 3, Article 4.

CISG Methodology Commentary about the preamble of CISG,

Authors: Andre Janssen and Olaf Meyer

P.137

COMMENTARY ON CIARB,

APPLICATION FOR SECURITY

FOR COST

International Arbitration Practice Guideline,

Application for Security for cost,

Chartered Institute of Arbitrators

CIArb, Practice and Standards Committee, Tim Hardy

et.al, London.


XXIX

CISG United Nations Convention on Contracts for the

International Sales of Goods,

Article 53, Article 54, Article 62.

COMMENTARY ON HONG

KONG INTERNATIONAL

ARBITRATION CENTRE

Commentary on HKIAC’s proposed administered

arbitration rules, March 20, 2008

Simon Chee Wai Hung

COMMENTARY ON UNCITRAL

ARBITRATION RULES

The UNCITRAL Arbitration Rules

Kluwer Law International,

David D. Caron et.al, P.517

DIAC RULES Dubai International Arbitration Centre,

2007

Article: 4.6

DIS- GERMAN INSTITUTION OF

ARBITRATION RULES

DIS- GERMAN INSTITUTION OF ARBITRATION

RULES

as from 1 July 1998

Article 2.6


XXX

EXPLANATORY NOTE ON

CAM-CCBC RULES

Approved by an extraordinary general meeting of

Brazil- Canada Chamber of Commerce on September 1,

2011 with amendments on April 28, 2016

GUIDELINE INTERNATIONAL ARBITRATION PRACTICE

GUIDELINE,

Chartered Institute of Arbitrators

Jurisdictional Challenges

London, United Kingdom

Founded in 1915 and with a Royal Charter granted in

1979 Article 3 commentary “Admissibility of Claims"

HKIAC ARBITRATION RULES Administered Arbitration Rules

Hong Kong International Arbitration Centre

November, 2013

Article 4.2, Article 4.7

ICA India Council of Arbitration

(with effect on and from1 January,

2014, Rule 15 (e))

ICC ARBITRATION RULES International Chamber of Commerce, Rules of

Arbitration, Paris, 2009


XXXI

ICDR INTERNATIONAL ARBITRATION

RULESINTERNATIONAL DISPUTE RESOLUTION

PROCEDURES (Including Mediation and Arbitration

Rules) Rules Amended and Effective June 1, 2014 Fee

Schedule Amended and Effective July 1, 2016

LCIA RULES UK, 2014 London Court of International Arbitration Rules

LJUBLJANA ARBITRATION

CENTER

Ljubljana Arbitration at the Chamber of Commerce and

Industry of Slovenia

Dispute Resolution Since 1928

Article 4

LUTTRELL S R, MOENS G A Commentary on the Arbitration Rules of the Australian

Centre for International Commercial Arbitration

MILAN CHAMBER OF

COMMERCE - INTERNATIONAL

ARBITRATION RULES

Milan Chamber of Commerce - International Arbitration

Rules

Appointing Authority under the Arbitration Rules of the

United Nations Commission for International Trade

Law (UNCITRAL)

Article 1.4, Article 3


XXXII

NEW YORK CONVENTION Convention on the Recognition and Enforcement of

Foreign Arbitral Awards, New York, June 10, 2958

Article V (1) (c)

RECOGNITION AND

ENFORCEMENT OF FOREIGN

ARBITRAL AWARDS

A Global Commentary on the New York Convention

Kluwer Law International; Kluwer Law

International 2010

pp. 257 – 280

SWISS RULES Swiss Rules of International Arbitration (Swiss Rule)

January 2006

Article 3.2, Article 3.5

SIAC RULES Arbitration Rules of the Singapore International

Arbitration Centre SIAC Rules 6th Edition, 1 August

2016

Article 3.3

SCC ARBITRATION RULES The Arbitration Institute of Stockholm/ Stockholm

International Arbitration Rules 2010

Article 4


XXXIII

THE ARBITRATION INSTITUTE

OF STOCKHOLM / STOCKHOLM

INTERNATIONAL

ARBITRATION RULES

The Arbitration Institute of Stockholm / Stockholm

International Arbitration Rules

Article 4

THE VIENNA RULES:

COMMENTARY ON

INTERNATIONAL

ARBITRATION IN AUSTRIA

Rules of Arbitration of the Vienna International

Arbitral Centre (VIAC), Vienna July 1, 2013,

Franz T. Schwarz, Christian W. Konrad

Kluwer Law International, Netherland, 2013

UNCITRAL MODEL LAW UNCITRAL Model Law on International Commercial

Arbitration 1985 with amendments as adopted in 2006,

Vienna June 21, 1985

UNIDROIT PRINCIPLES International Institute for the Unification of Private

Law

Article 4.1

VIAC RULES Rules of Arbitration

Vienna Rules in force as from 1 July 2013

Article 7


1

STATEMENT OF FACTS

1. Parties to this arbitration are Wright Ltd. “CLAIMANT” and SantosD KG “RESPONDENT”.

CLAIMANT is a highly specialized manufacturer of fan-blades for jet engines incorporated in

Equatoriana. RESPONDENT, a medium sized manufacturer of jet engines incorporated in

Mediterraneo.

2. CLAIMANT and RESPONDANT were subsidiaries of Engineering International SA (EISA) until

year 2010, which was a multinational, based in Oceania and active in various fields of engineering,

in particular turbines of all sorts. However, in June 2010, CLAIMANT was sold to Wright Holding

PLC. In July 2010, RESPONDENT was sold to a Private Equity Fund the SpeedRun.

3. In 2010, during their sale, CLAIMANT and RESPONDENT were in negotiations to jointly

“develop” a new fan blade for the next generation of RESPONDENT’s high-spec jet engine, JE

76/TL14b. [Clm, Ex.C1, P.9, Section 2].

4. RESPONDENT ordered to buy 2,000 of the swept fan blades for the first year [Clm, Ex.C2, P.9,

Section 2, Para. 3]. While entering into contract, the final cost of new blades in terms of

development and production were not clear. However, RESPONDNET insisted to fix a maximum

price to be paid so that it could offer itself a price for engine to Earhart [Clm, Ex.C1, P.8, Para.

4]. CLAIMANT determined the price range of blades on the basis of estimate, which is per blade

US$ 9,975 to US$ 13,125 [Clm, Ex.C2, P.10, Section 4] to which a certain profit will be added.

CLAIMANT estimated the production cost per blade around EQD 20,000, considering the recent

experience with TRF 192. According to the exchange rate, this cost would be around US$10,000,

since the exchange rate had stayed same for last three years and it has been around US$ 1 = EQD

2.00 and US$ 1 = EQD 2.02 [Clm, Ex.C1, P.8, Para. 4].

5. After the conclusion of contract for fan blades, RESPONDENT ordered to have the same amount

of clamps connecting the blades to the shaft of the fans. RESPONDENT at first wanted to buy the

clamps form another producer but due to the quality it decided to with CLAIMANT [Res, Ex.R2,

P.28]. CLAIMANT out of good faith and considering the limited size of the second contract

accepted RESPONDANT’s request and agreed on the fixed exchange rate for clamps only and

signed the addendum on October 24, 2010 [Res, Ex.R2, P.28]. Since influence of exchange rate

was limited due to the much lower amount of clamps.


2

6. On 14 January 2015, as per contract, CLAIMANT fulfilled its obligation and delivered requested

amount of fan blades and clamps to the RESPONDENT. Unfortunately, due to a mistake in

CLAIMANT’s accounting department, the invoice for the fan blades attached to the delivery was

wrong. Instead of providing for a price of US$ 22,723,800, the invoice was only for US$

20,438,560 it was because Mr. Lee the person who was responsible for creating the invoice, had

first prepared the invoice for the clamps using the fixed exchange rate as under the addendum.

When he prepared the invoice for the fan blades, he applied the same fixed exchange rate,

overlooking that for the price calculation for the fan blades the current exchange rate was to be

applied [Clm, Ex.C4, P.13].

7. Using the opportunity, RESPONDENT immediately paid the amount on CLAIMANT's account

at the Equatoriana National Bank and informed CLAIMANT via email on 15 January that a

payment of US$ 20,438,560 for blades and US$ 183,343.28 for clamps has been paid [Clm,

Ex.C3, P.12]. After doing an inquiry at the Equatoriana National Bank, Ms. Beinhorn found out

that the Equatoriana Central Bank had investigated the payment for money laundering as per

Regulation ML/2014C. 0.5% levy was deducted as per Section 11 of the Regulation.

8. CLAIMANT had made it clear that The BUYER will deposit the purchase price in full into the

SELLER’s the bank charges has to be covered by RESPONDANT [Clm, Ex.C2, P.10, Section 4,

Para. 3]. On 2 February 2015 Mr. Lindbergh denied any additional purchase price. [Clm, Ex.C7

P.16]. CLAIMANT by making several offers with the combination of reduction in the sales price

for the 2,000 fans tried to resolve the dispute amicably as per requirement under Section

21.However, RESPONDENT insisted on $ 9,744.28 per fan blade.

9. After all the efforts to resolve the dispute amicably Having no other choice, CLAIMANT,

respecting the section 21 of agreement, initiated the process of arbitration within 60 days and

informed the RESPONDENT on April 01 [Res, Ex.R3, P.29]. Parties signed the Terms of

Reference and agreed on the submitted issues on August 22, 2016. 15 days later on September 6,

2016 RESPODANT made the request of security for cost but it failed to provide any justification

or proof of their need of the security for their cost.

SUMMARY OF ARGUMENTS

10. RESPONDENT’s breach of its contractual obligations under the Development and Sales

Agreement (DSA), i.e., its failure to deposit the purchase price in full into CLAIMANT’s account


3

and not bearing the bank charges, eviscerates CLAIMANT’s contractual rights. With respect to

the good faith and section 21 of the DSA, CLAIMANT was open for any meaningful negotiation

till the last moment of the 60 days time period. CLAIMANT initiated arbitration proceedings

against RESPONDENT on time when found that it is not possible to resolve the dispute amicably

(I).

11. During the arbitration proceedings, RESPONDENT made a belated request for security of its costs

that it is likely to incur. Under the Development and Sales Agreement, Terms of Reference, other

governing rules, particularly Chartered Institute of Arbitrators, the arbitral tribunal power is

limited to grant security for RESPONDENT’s cost in this particular case (II).

12. Parties agreed in section 4 (3) of the DSA that the BUYER (RESPONDENT) will deposit the

purchase price in full into the SELLER’s (CLAIMANT’s) account and will bear the bank transfer

charges. RESPONDENT failed to perform its contractual obligations by not paying the purchase

price in full and bearing the bank transfer charges as agreed in the DSA. CLAIMANT is entitled

to the outstanding payments from RESPONDENT in the amount of US$ 2,285,240.00 for the fun

blades based on the current exchange rate of (US$ 1 = EQD 1.79) and US$ 102,192.80 for the fees

deducted by the central bank (III).

ARGUMENTS

ISSUE ONE: CLAIMANT INITIATED THE ARBITRATION PROCEEDINGS ON TIME

AND WITHIN 60 DAYS PERIOD SPECIFIED IN SECTION 21 OF THE DSA

13. RESPONDENT by taking advantage of the obvious mistake made in the first invoice, immediately

effected the payment [Clm, Ex.C3, P.12]. Even after CLAIMANT provided clarification on the

mistake and requested outstanding payment in the amount of US $ 2,285,240.00 [Clm, Ex.C5,

P.14], yet RESPONDENT rejected any additional payment [Clm, Ex.C7, P.16].

14. CLAIMANT tried to resolve the dispute amicably in good faith through negotiation considering

all the provisions mentioned on the section 21 of the DSA [PO2, P.58, para. 23; Res, Ex.R3, P.29].

However, RESPONDENT refused any further payment and was not willing to continue with the

contract on the purchase of another 2000 blades [PO2, P.58, para. 23]. This act of

RESPONDENT left no other choice to CLAIMANT other than initiating the arbitration

proceedings.


4

15. CLAIMANT valuing the long-term contractual relationship informed RESPONDENT that

CLAIMANT will remain open to negotiation, if RESPONDENT reconsiders its view, otherwise

CLAIMANT will initiate the arbitration proceedings [Res, Ex.R3, P.29]. RESPONDENT by not

showing any reaction to CLAIMANT's amicable efforts forced CLAIMANT to exercise its right

under section 21 of the DSA and initiate the arbitration proceedings [PO2, P.58, para. 23; Clm,

Ex.C2, P.11].

16. According to RESPONDENT, CLAIMANT has initiated the arbitration proceedings late [Res,

P.25, para. 13]. To the contrary, CLAIMANT will show that it has initiated the arbitration

proceedings on time for the following reasons: First, CLAIMANT's arbitration request meets all

the requirements of section 21 of DSA (A). Second, President of CAM-CCBC confirmed and

accepted the receipt of the arbitration proceedings since the arbitration request submitted by the

CLAIMANT was in compliance with the requirements of article 4.1 of CAM-CCBC (B).

According to the International Practices adopted in section 21 of the DSA, arbitration is

commenced on the day the request is received by the administrator, or secretariat making

CLAIMANT's arbitration request on time (C).

A. CLAIMANT'S ARBITRATION REQUEST IS ADMISSIBLE BECAUSE IT

MEETS ALL THE REQUIREMENTS UNDER SECTION 21 OF DSA

17. Section 21 of the DSA, the dispute resolution agreement provides that the first step to dispute

resolution is to resolve the dispute amicable through negotiation. If the parties failed to reach an

agreement, both have the right to initiate arbitration proceedings within 60 days after the failure of

negotiation [Clm, Ex.C2, P.11].

18. In the following, CLAIMANT put efforts to resolve the dispute amicably through negotiation (1)

when negotiation failed CLAIMANT initiated the arbitration proceedings within 60 days and

submitted the request on time (2).

1. CLAIMANT tried to resolve the dispute amicably in good faith through

negotiation by considering the first step of dispute resolution mechanism adopted

in section 21

19. Section 21 of the DSA provides “All disputes arising out of or in connection with this Agreement

shall be settled amicably and in good faith between the parties"[Clm, Ex.C2, P.10/11].

Accordingly CLAIMANT put efforts to have amicable solution for the dispute. CLAIMANT sent


5

an email to RESPONDENT on January 15 trying to negotiate and apologized for the mix up on

the invoices. Furthermore, CLAIMANT offered that the additional cost for the transfer of

remaining money will be borne by CLAIMANT [Clm, Ex.C5, P.14, para. 3], but RESPONDENT

did not respond.

20. CLAIMANT sent another email on February 9, 2015 stating that CLAIMANT has not received

the outstanding payment in the amount of US $ 2,285,240. The amount received on 29 January,

2016 is US$ 20,336,367.20 which is not effected based on the mistaken invoice [Clm, Ex.C6,

P.15]. In response, RESPONDENT completely rejected making any further payments [Clm,

Ex.C7, P.16]. CLAIMANT could initiate the arbitration proceedings. However, respecting the

long term-contractual relationship and the provision of amicable resolution in section 21 of DSA,

CLAIMANT agreed to have a meeting with RESPONDENT on March 31, 2016 to further discuss

and find amicable solution [PO2, P.58, para. 23].

21. In the meeting, CLAIMANT proposed several other offers to RESPONDENT. The offers included

reduction in the price of the fan blades as well as a firm confirmation to the delivery of fan blades

within the next five years [PO2, P.57, para. 23]. These efforts were again rejected by

RESPONDENT, because RESPONDENT was not willing to pay the due payment [PO2, P.57,

para. 23]. Subsequently, CLAIMANT sent an email on April 1, 2016 stating that if

RESPONDENT reconsiders its view, CLAIMANT will remain open to any meaningful

negotiation. CLAIMANT did not receive any response and was obliged to initiate the arbitration

proceedings [Res, Ex.R3, P.29, Para. 2].

22. In a similar case (Vekoma B V. Vs. Maran Coal Corp) where the seat of Arbitration was in

Switzerland, the CLAIMANT had only 30 days to initiate the Arbitration proceedings. The parties

had a similar agreement like the section 21 of the DSA on limitation of the time set of for 60 days

to initiate the arbitration proceedings. RESPONDENT challenged the admissibility of the case

based on lapse of time, but the arbitral tribunal rejected the request of RESPONDENT and

accepted the admissibility. Since, RESPONDENT did not respond to the last email sent by

CLAIMANT. CLAIMANT having good faith waited for the last responds of RESPONDENT in

order to make the final decision for initiation of the arbitration proceedings.


6

2. CLAIMANT initiated the arbitration proceedings on time considering the 60 days

limitation set of on section 21 of DSA after the failure of negotiation

23. Section 21 of the DSA provides “if no agreement could be reached, each party has the right to

initiate arbitration proceeding with 60 days after the failure of negotiation” [Clm, Ex.C2, P.11].

Based on the Law 9.307 1996 a contract having an arbitration clause any dispute arising between

the parties shall be resolved through arbitration [Wald et al. P.71]. CLAIMANT, after not

receiving the response to its email on April 01, 2016, found that negations have failed [Clm, Ex.R3,

P.29, Para. 2]. CLAIMANT initiated the arbitration proceedings on May 31, 2016 [Clm, P.2].

24. Article 4.2.of Arbitration Rule of International Chamber of Commerce (ICC), dictates that “the

date on which the Request is received by the Secretariat, shall, for all purposes, be deemed to be

the date of the commencement of the arbitration". It is found from the facts of the case that the

date of the commencement of arbitration is 31st May, 2016 [Ord of Pr. P.19, para. 1; NCAP, P.22,

para. 1]

25. Article 3.5 of Swiss rules and article 6.4 of DIS-German Institute of Arbitration rules states that if

the defects in the arbitration request is submitted within the applicable time-limit, then the

arbitration shall be deemed to have been validly filed on the date on which the initial version was

received by the Secretariat.

26. According to Thomas H. Webster and Dr. Michael Buhler under article 4 (2) the date of the receipt

of arbitration is the date of commencement of arbitration. Accordingly, ICC arbitration has to be

differentiated from the ad hoc arbitrations or the general provisions under the UNCITRAL Model

Law which provides that the date of commencement is the date when the RESPONDENT is

notified. Consequently, the date of receipt of the arbitration request by Secretariat will prevail and

be the date of commencement of arbitration [Webster Commentary, P.69, para. 4-12].

27. S R Luttrell and G A Moens, the two legal commentators have agreed on the commencement time

of Arbitration proceeding based on the ICC article 4.2, Article 5.2 ACICA, Article 3.2 of Swiss

Rules that the arbitral proceeding shall be deemed to commenced on the date the Notice of

Arbitration is received by the administrator, chamber of tribunal and registry, not the

RESPONDENT [Luttrell et al, P.8]. President's Order on the receipt of the arbitration request and

the Notice of Commencement of arbitration sent to RESPONDENT are the firm proofs that the


7

Arbitration Proceeding was initiated and accepted on May 31, 2016. [Ord of Pr. P.19, para. 1;

NCAP. P.22, para. 1].

28. CLAIMANT respected all the dispute resolution mechanisms provided under section 21 of the

DSA and initiated the arbitration proceeding on time on May 31, 2016 after negotiation failed on

April 1, 2016.

B. CAM-CCBC, THE GOVERNING RULE FOR THE CONTRACT COMPLIES

WITH THE ARBITRATION REQUEST OF CLAIMANT

29. In section 21 of the DSA, Parties have agreed to include CAM-CCBC as the governing rule [Clm,

Ex.C2, P.11]. Article 4.1. CAM-CCBC states, “The party desiring to commence an arbitration

will notify the CAM/CCBC, through its President”. CLAIMANT submitted the arbitration

proceeding request on May 31, 2016 [Clm, P.4] and the CAM-CCBC president confirmed the

receipt of request for arbitration [Ord of Pr. P.19, Para. 1].

30. As per Arlando Wald “Whenever a dispute arises out of such a contractual relationship, the

damaged party should notify the CAM-CCBC’s president, requesting the commencement of

arbitration. Such a notification must contain all the information and document listed under 4.1,”

[Wald et al. P.64. Para. 2]. CAM-CCBC after receiving the request did not reject the request but

the CAM-CCBC asked for amendments [Ord of Pr. P.19, para. 4].

31. Article 4.1 of CAM-CCBC provides certain requirements that has to be fulfilled for the

commencement of an arbitration, and CLAIMANT’s request for arbitration met all the

requirements under article 4.1 of CAM-CCBC. CLAIMANT was asked by the secretariat of CAM-

CCBC to bring the required amendments on two of the submitted documents within 10 days [Ord

of Pr. P.19, para. 3]. The power of attorney was submitted in the name of Wright Holding PLC

instead of Wright Ltd, and the registration fee was paid in amount of 400$ instead of 4000$ [Ord

of Pr. P.19, Para. 2]. CLAIMANT submitted the amended documents on 7 June 2016, which was

within the 10-day period allowed by CAM-CCBC [Clm, P.20].

32. Article 2.6 of CAM-CCBC states the duties of president of CAM-CCBC. Furthermore, Article 2.6

(f) of CAM-CCBC provides that the president of CAM-CCBC can issue the complementary rules

in order to remove doubts and provide guidance for proper application of CAM-CCBC rules, as

well as in cases of gaps. Additionally, Article 2.6 (i) dictates that the president can decide on

extension of time periods which do not came under the authority of the Tribunal.


8

33. Likewise, the explanatory note on the arbitration rules of CAM-CCBC, which was approved by

an extraordinary general meeting of Brazil-Canada Chamber of Commerce on 01 September, 2011

with amendments on 28 April, 2016, provides that amendments have no impact on the

administration of the arbitration proceedings of CAM-CCBC (Explanatory Note, CAM-CCBC).

34. Moreover, Hong Kong International Arbitration Center leaves no doubt about the fact that the day

of commencement of arbitration is the date when the request was submitted. These rules were

approved by the council of HKIAC for the parties who look for the requirements of an administered

arbitration. [Simon, P.13 of 17]. According to Article 4.2 of HKIAC, the arbitral proceedings shall

be deemed commenced on the date on which the notice of arbitration is received.

35. Additionally, Article 4.7 provides “If the Notice of Arbitration is incomplete or if the Registration

Fee is not paid, HKIAC may request the CLAIMANT to remedy the defect within an appropriate

period of time. If the CLAIMANT complies with such directions within the applicable time limit,

the arbitration shall be deemed to have commenced under Article 4.2 on the date the initial version

was received by HKIAC". Furthermore, the Notice for the commencement of arbitration confirms

that arbitration request was received in May 31, 2016 [NCAP, P.22, para. 1].

36. According to Simon, "HKIAC will only serve the Notice to the RESPONDENT only when the

CLAIMANT’s submitted Notice is adequate and its Council considers that there is a case to

arbitrate." CLAIMANT initiated the arbitration proceedings on time and CAM-CCBC requested

for amendments of two documents in order to make it adequate before sending the notice to

RESPONDENT [PO, P.19; NCAP, P.22]. According to Wald et al., a legitimate and on time

arbitration request can result in legal consequences one of which is setting aside the issue of time

limitation [Wald et al. P.66].

37. The arbitration initiation request met all the requirements under article 4.1 of CAM-CCBC.

Therefore, the president of CAM-CCBC exercising its power confirmed the receipt of the request

on May 31, 2016 and asked CLAIMANT to bring amendments on two of the documents. The

amendments which was asked have no impact on the administration of the arbitration proceedings.

Therefore, May 31, 2016 is the day of commencement of arbitration proceedings and was approved

by CAM-CCBC.


9

C. THE INTERNATIONAL ARBITRATION PRACTICES DEEMS THE

ARBITRATION PROCEEDINGS ON TIME AND ADMISSIBLE

38. CLAIMANT's initiated the arbitration proceeding within 60 days on May 31, 2016 after the failure

of negotiation on April 1, 2016. International Arbitration Proceedings deems CLAIMANT'

arbitration request to commence on May 31, 2016 (1). The arbitration request is in line with the

Chartered Institute of Arbitrators Guideline on Admissibility of Claims, which is one of the best

established commercial arbitration practice [CIArB, P.1, Para. 1] (2).

1. International arbitration practices are adopted in section 21 of the DSA which

further accepts the day of commencement of arbitration on the day request is

received by the administrator

39. Initiating the arbitration request is an important phase of the arbitration process [Martinez, P.10].

According to Section 21 of DSA, “The arbitration shall be conducted … in line with international

arbitration practice.” [Clm, Ex.C2, P.11]. Consequently, international practices deem the

arbitration to commence on the date on which the Statement of Claim is received by the

administrators. [VIAC Rules Art. 7; ICDR Art 2; SIAC Rules, Art. 3.3; AAA Rules R-4, (h); ACICA

Art. 4.2; LCIA Rules, Art.1.4, Swiss Law, Art. 3.2; Stockholm Arbitration Rules Art. 1-4, Milan

Chamber of Commerce, Art.1-4; Ljubljana Arbitration Rules; India International Arbitration

rules; DIAC Rules Art. 4].

40. Similar to CAM-CCBC the ICDR considers this situation to be dealt on two different ways. If any

of the requirements of Article 2.2 of ICDR is not met then it is determined by the ICDR, whether

to proceed with the administration or to make additional request from the CLAIMANT [Martinez,

P.11, para. 3]. ACICA international arbitration rules seated in Australia, has the objective to

facilitate and assist the international arbitration [Luttrell et al. P.1]. One of the vital points under

ACICA rules is that the arbitration starts when the Arbitration request is received by the registry

not when the notice of commencement is send to the RESPONDENT [Luttrell et al. P.8, para. 2].

"Time usually starts to run from the date which the cause of action arises" (Blackaby et al. P.243,

para 4. 05). Thus, the date when the notice of arbitration is received by the administrators is of

particular important since it guarantees the parties that the arbitration is set in motion [Warwas,

P.74, para. 2]


10

2. CLAIMANT's arbitration request meets the tests provided under Article 3 of

CIArB

41. Article 3 of CIArB articulates four key elements of the test for the admissibility of the claim.

CLAIMANT's arbitration request complies with all the elements of this test. First, The Arbitration

agreement under DSA includes condition precedent (multi-tier) arbitration clauses and

CLAIMANT's arbitration request meets the condition precedent to referring the dispute to

arbitration (i). Second, CLAIMANT initiated the arbitration proceeding within the time bar

limitation provided under the DSA, making it enforceable (ii).

i. CLAIMANT's arbitration request meets the conditions precedent to referring

the dispute to arbitration

42. Section 21 of the DSA states that parties shall solve the dispute amicably in good faith through

negotiation before commencing the arbitration proceedings [Clm, Ex.C1, P.11]. “In such a case,

arbitrators should decide whether (1) such a clause imposes an obligation and (2) if so, whether

such an obligation should be or has been satisfied". The amicable resolution clause in section 21

of the DSA, imposes a binding obligation on the parties; consequently, CLAIMANT tirelessly

tried to negotiate the dispute and resolve it in good faith [Clm, Ex.C5, P.14, para. 3; Ex.C6, P.15;

SOC, P.5, para. 9; PO2, P.58, para. 23; PO2, P.57, Para. 23; Res, Ex.R3, P.29, Para. 2].

CLAIMANT has fulfilled this obligation, and the arbitrators shall accept the request for arbitration

as procedurally admissible [Commentary on CIArb. Art.3, P.16].

ii. CLAIMANT initiated the arbitration proceeding within the time bar

limitation provided under the DSA, making it enforceable

43. Article 3 of CIArb obliges the arbitrators to examine the wordings of the arbitration clause and

determine whether the clause applies any limitations [Commentary on CIArb. Art. 3, P.16, Para.

(c)]. Section 21 of DSA, explicitly provides time limitation within which an arbitration request is

to be initiated [Clm, Ex.C1, P.11], which was respected by CLAIMANT and the initiation was on

time [Ord of Pr. P.19, para. 1; NCAP, P.22, para. 1]. The president's order and the notice of

commencement of arbitration are evidences that the arbitration proceedings were initiated on time,

for that it is admissible. [Ord of Pr. P.19, para. 1; NCAP, P.22, para. 1].

44. To conclude, based on the aforementioned laws and facts CLAIMANT tried to resolve the dispute

amicably in good faith through negotiation. When RESPONDENT did not show willingness to


11

amicable resolution, CLAIMANT was left with no other choice other than initiating the arbitration

proceedings. Furthermore, CLAIMANT sent the arbitration request on May 31, 2016 after the

failure of negotiation on April 1, 2016. May 31, 2016 shall be deemed to be the date of the

commencement of arbitration based on DSA, CAM-CCBC, and International Practices.

ISSUE TWO: THE ARBITRAL TRIBUNAL’S POWER IS LIMITED TO GRANT SECURITY

FOR RESPONDENT’S COST UNDER DSA, TERMS OF REFERNCE AND THE

GOVERNING RULES IN LINE WITH INTERNATIONAL ARBITRATION PRACTICES

45. RESPONDENT requested payment for security of its costs that it is likely to incur in this

arbitration proceedings. The amount requested covers both RESPONDENT’s legal costs for

services of its lawyer and expenses of arbitration including oral hearing, witnesses and experts. As

a first estimation, RESPONDENT requests for a minimum of US $ 200,000 [SFC, P.46, Para. 1].

46. No provision in the Development and Sales Agreement allows the parties for security for cost.

RESPONDENT is not entitled to the security for its costs because it does not meet the general

requirements and the standard conditions provided in the governing rules of the DSA. Therefore,

the Arbitral Tribunal’s power is limited to award RESPONDENT security for its cost.

RESPONDENT’s request is not in line with DSA, Terms of Reference (ToR), and governing rules

such as CAM-CCBC and UNCITRAL Model law (A). Furthermore, RESPONDENT failed to

meet elements of the tests and exceptional circumstances, which are prerequisite for such an award

under Chartered Institute of Arbitrators (CIArB) Guideline on Application of Security for Costs

and other relevant rules (B).

A. UNDER THE DSA, TOR AND GOVERNING RULES SUCH AS CAM-CCBC AND

UNCITRAL MODEL LAW, RESPONDENT IS NOT ELIGIBLE TO RECEIVE

SECURITY FOR ITS COSTS

47. The nature of this case and the laws adopted in the contract limit the authority of the Tribunal to

order security for RESPONDENT's cost. As per Ludmilla Herbst, a well-known litigator,

“Arbitrators have long been recognized as lacking inherent power to order security for costs”

[Ludmilla Herbst, the Lawyers Weekly]. Similarly, Stephen Colbran, puts more emphasize that the

arbitrators possess very limited power to grant security for cost [Stephen, P.275].

48. The Development and sales Agreement signed between parties, does not empower the Tribunal to

grant and award such a request (1). Terms of Reference as a core document of arbitration


12

proceeding further limits Arbitral Tribunal’s power to award the request (2). CAM-CCBC the

governing law in this particular case also limit the Tribunal’s authority (3). UNCITRAL Model

Law further puts limitation on the Tribunal for granting security for RESPONDENT’s cost (4).

1. Silence of Development and Sales Agreement constitutes parties agreement on

exclusion of security for cost

49. Development and Sales Agreement, which is the base for the relationship between the parties is

silent about security of cost and therefore it does not authorize the Arbitral Tribunal to grant

security for RESPONDENT’s cost [Clm, Ex.C2, P.11]. As per Art. 25 (4) of London Court of

International Arbitration (LCIA) Rules which states, “by agreeing to arbitration under the

Arbitration Agreement, the parties shall be taken to have agreed not to apply to any state court or

other legal authority for any order for security for Legal Costs or Arbitration Costs” Several

courts in United States have rejected security for cost request in the recent years because they were

in contrary with the arbitration agreement of parties [Charles et al. P.24].

50. Moreover, Art. V (1) (c) of the New York Convention and UNCITRAL commentaries also

underscores that the Arbitral Tribunal’s power is derived from consent of parties and therefore

Tribunal cannot exercise its power if the parties agreement does not exist on granting interim

measures [Kluwer Law International, Nicola Christine et al.; The UNCITRAL Arbitration Rules:

David D. Caron et al. , P.517]. These provisions clearly indicate that parties should follow their

Arbitration agreement as mentioned in the contract and RESPONDENT’s request is not included

in the Arbitration agreement section 21 of DSA.

2. RESPONDENT’s request for security for cost was not included in the ToR

51. Parties signed ToR for this Arbitration proceeding on August 22, 2016 [SoC, SFC, P.49, Para.2];

however, 15 days later on September 6, 2016 RESPONDENT submitted request for security of its

costs. Parties did not include security for cost request even in the ToR, which is the core document

of arbitration proceedings, which highlights that the parties agreed to exclude security for cost.

52. Furthermore, the request for security for cost after signing the ToR falls outside the limits of the

DSA. ICC Art. 19 provides that no new claim can be made after the ToR is signed, because it falls

outside the limits of the Terms of Contract. As per Julian D M Lew the author of Comparative

International Commercial Arbitration, ToR is a significant element of arbitration proceedings and

it is a pre-requisite for the initiation of arbitration. The key purpose of ToR is to specify claims


13

and subject matter [Julian, Chap. 21, P.528]. In addition, she further emphasizes, “…this is to stop

the parties from continually changing the content and nature of the claims” [Julian, Chap. 21,

p.528].

53. Similarly, in case Maffezini v. Spain in 1999 under ICSID rules, the Arbitral Tribunal rejected

RESPONDENT’s request for security of its costs, on the grounds of not being related to the subject

matter [Maffezini v. Spain (1999)]. In this current case, RESPONDENT’s request is not included

in subject matter fixed in the ToR. RESPONDENT’s request for security of its costs contradicts

with the key purpose of the ToR. The parties specified the claims and the subject matter of the

dispute in the ToR but security for cost was not included. The importance of ToR is further

highlighted in CAM-CCBC’s rules which is the main governing rule of this arbitration proceeding.

3. RESPONDENT’s request for security for cost is out of time based on the CAM-

CCBC Rules

54. Art. 4.21 of CAM-CCBC underlines that, “parties can change, modify or amend the claims and

causes of action until the date the Terms of Reference are signed.” This article does not allow the

Tribunal to decide on any issue brought before them after the ToR is signed. The importance of

ToR is more elaborated in the commentary of Art. 4.21, which deems ToR as core document of

arbitration proceedings. Further, it put emphasis that if there is any action taken against the ToR,

it will be subject to be challenged in the national courts [Wald et al., P.65]. Likewise, Julian

articulates, “the terms of reference are binding not only on the parties, but also on the arbitrators,

who must comply with parties’ intensions” [Julian, Chp. 21, P.529]. Taking that into

consideration, RESPONDENT’s request is late and is not in line with the ToR provisions.

55. RESPONDENT may raise that Art. 8.1 of CAM-CCBC Rules empowers Arbitral Tribunal for

granting provincial measures including injunctive and anticipatory. Nonetheless, security for cost

is used in a very restrictive manner and with greatest reluctance, further it is granted in exceptional

circumstances [Thomas et al.], however, those exceptional circumstances and tests were not met

by RESPONDENT as it will be more elaborated in following submissions. 56. In case, Burimi S.R.L. and Eagle Games SH.A. Vs. Republic of Albania in 2012 under ICSID

Rules, Arbitral Tribunal rejected respondent’s request for security of its cost because it failed to

prove that circumstances of the case require security for cost or any exceptional circumstances

exist. Respondent failed to prove that claimant has lack of funds [Burimi S.R.L. and Eagle Games


14

SH.A. v. Republic of Albania (2012)], similar to that in the current case RESPONDENT did not

provide evidences to show CLAIMANT’s financial insolvency; however, CLAIMANT does not

face any financial insolvency [PO 2, P 60, Para. 31] hence, the request needs to be refrained by

Arbitral Tribunal. Importantly, considering the circumstances of this particular case, UNCITRAL

Model Law also does not provide support to RESPONDENT’s request for security of its costs.

4. UNCITRAL Model Law limits the Tribunal’s power to award security for

RESPONDENT’s costs

57. In section 21 of DSA, the seat of this arbitration is agreed to be Vindobona, Danubia. This country

has enacted the UNCITRAL Model Law on International Commercial Arbitration, which makes

UNCITRAL ML applicable in this case [Clm, Ex.C2, P.11].

58. Art. 17 of UNCITRAL Model Law highlights the lack of international consensus particularly on

security for costs [Wendy/Duncan, P. 33]. This clearly indicates that the Article(s) on security for

costs in UNCITRAL are not a mandatory provisions and it does not allow the parties to expand

the Tribunal’s authority [Holtzmann, Neuhaus, et al., Chp IV, p.530-547]. Furthermore, in some

courts security for costs is not granted under Art. 17 UNCITRAL jurisdictions [Born, Vol. II,

P.2495]. The exercise of security for cost is commonly practiced in England or Commonwealth

jurisdictions. Tribunals without English or Commonwealth orientations are skeptical of their

authority to order security for costs on the bases that security for cost may deprive a party with

limited financial means of the opportunity to pursue its claim [Born, Vol. II, P.2495].

59. Courts in some UNCITRAL ML jurisdictions have held that Art. 17 does not grant authority to

the Arbitral Tribunal to order for security of costs [Born, Vol II, P.2495]. Party that is requesting

security for costs is, at least partly, “responsible for its counter parties financial condition” [Born,

Vol II, P. 2496]. It is important to note that it is currently RESPONDENT who did not perform its

contractual obligations and made CLAIMANT suffer this situation. That is why, the Arbitral

Tribunals are generally hesitant to grant orders for security for costs [ICC case no. 8670 (2000);

CIArB, P. 1, Para. 1]. It is also noticed that UNCITRAL ML from the session reports of the

working group decided not to tackle the matter of security for costs [Miles& Speller, P. 34].

60. Additionally, as per Art. 17 (e), the Arbitral Tribunal deems RESPONDENT’s request unnecessary

and inappropriate, because the financial situation of CLAIMANT has not changed since

conclusion of DSA in 2010 and this arbitration proceeding and CLAIMANT’s financial situation


15

is stable [Clm, Ex.C9, P.50, Para. 2]. The request is inappropriate because CLAIMANT has not

been charged of bankruptcy or financial insolvency [PO2, P.60, Para. 31].

61. RESPONDENT raises that based on UNCITRAL Rules on Transparency in Treaty-based Investor-

State Arbitration the Xanadu government awards should have been made public [SFC, P.46, Para.

4]. However, the claims against government of Xanadu was available in CLAIMANT’s balance

sheet [Clm, Ex.C9, P.50, Para. 3]. Importantly, Rogers, a scholar of international arbitration

makes a differentiation between investment arbitration which is raised by RESPONDENT and

commercial arbitration. Investment arbitration is concerned with the public; although, commercial

arbitration is more focused on private [Rogers, Catherine A]. Based on the aforementioned facts

of DSA, Terms of Reference, CAM-CCBC and UNCITRAL Model Law, Tribunal’s power is

limited to grant RESPONDENT’s request for security for cost.

B. THE INTERNATIONAL ARBITRATION PRACTICES LIMIT ARBITRAL

TRIBUNAL’S POWER TO ORDER SECURITY FOR RESPONDENT’S COSTS

62. Under section 21 of Development and Sales Agreement, parties agreed on application of

international arbitration practices [Clm, Ex.C2, P.11]. RESPONDENT’s request for security for

costs is not in line with the international arbitration practices, particularly the Chartered Institute

of Arbitrators Guideline on Application of Security Costs (CIArB), which is the current best

established practice in commercial arbitrations in relation to application for security for cost

[CIArB, P.1, Para. 1].

63. Art. 1 (2) of the CIArB articulates three key elements of the tests to be highly considered by

Arbitral Tribunal before deciding to order security for costs. Unlike, RESPONDENT’s claim for

security for cost does not comply with the three elements of this test. RESPONDENT failed to

present likelihood of success of its claim in a prima facie under Art. 2 of the CIArB (1).

RESPONDENT failed to show CLAIMANT’s inability to satisfy an adverse costs award, under

Art. 3 of the CIArB (2). RESPONDENT’s request for security of its costs would unjustly stifle a

legitimate claim, considering Art. 4 of CIArB (3).

1. RESPONDENT failed to provide the likelihood of success for its claim in a prima

facie test under Art. 2 of the CIArB

64. RESPONDENT failed to provide justifying reasons to be entitled for security for cost award [SFC,

P.49, Para. 2]. RESPONDENT has the burden of proof to provide facts for the support of its


16

claims, but it failed to do so. Art. 2 of CIArB states that the arbitral tribunal shall, “Take great care

not to prejudge or predetermine the merits of the case itself.” The commentary further elaborates

this article that, merits of the case shall not be pre-judged and pre-determined by the arbitrators

before the substantive hearings. Otherwise, this would compromise their impartiality and result in

their disqualifications from proceeding further [CIArB, P.5].

65. As per Julian D M Lew, Art. 5 (2) of London Court of International Arbitration (LCIA) Rules, the

arbitrators shall not pre-judge the merits and outcome of the case to any particular party since it

will undermine their independence and impartiality [Julian, p.256, Chap. 11]. Gary B. Born

further states in his book that, “an arbitral tribunal must refrain from prejudging the merits of the

case” [Born, Vol. II, P.2477]. He further mentions that there are doubts that the likelihood of

party’s success on merits has a key role to determine appropriateness of security for cost award

[IBIT].

66. The Vienna Rules Commentary on International Arbitration in Austria requires RESPONDENT

to show a high standard of proof that the CLAIMANT will almost certainly be unable to meet an

award of cost against it. In some existing decisions, the request for security for costs was rejected

as the RESPONDENT was unable to meet the burden of proof and substantiate its allegations that

the CLAIMANT will be unable to pay the costs [Franz/Christian, P.557].

67. If the Tribunal grants security for RESPONDENT’s cost at this preliminary stage of arbitration

proceeding it undermine their impartiality and independence since the decision of this proceeding

is not certain yet. According to Peter Ashford author of International Commercial Arbitration

Handbook, CLAIMANT is accused of financial insolvency by RESPONDENT, which is yet not

proven by the Arbitral Tribunal. Therefore, CLAIMANT is “innocent until proven guilty” [Peter

Ashford, P.383] and shall not be ordered for security of RESPONDENT’s costs. In case Maffezini

v. Spain in 1999, mentioned above, another reason the Arbitral Tribunal rejected RESPONDENT’s

request for security of its costs was because its claims were hypothetical same like

RESPONDENT’s claim in current case [IBIT].

68. In another ICSID Tribunal in Libananco, the case Libananco v. Turkey in 2008, the request for

security for cost was also rejected based on similar grounds of hypothetical claims by the party

[Libananco v. Turkey, 2008]. The mentioned cases share a common ground with the current case.

In all cases the party requesting for security of its costs was claiming on the basis of hypothetical


17

understandings. Similarly, RESPONDENT puts hypothetical reasons for its request of security for

costs. Therefore, RESPONDENT’s request is not eligible to be granted by Tribunal.

2. RESPONDENT failed to show that CLAIMANT does not have funds to pay an

adverse costs award

69. RESPONDENT raises that CLAIMANT has not complied with the payment award in the other

CAM-CCBC proceedings on January 2016 [Clm, P.46, Para. 2]. Although, CLAIMANT did not

comply because the award creditor owes an even larger amount to CLAIMANT’s parent company

as damages for the delivery of non-conforming goods. Furthermore, the claim is presently being

litigated in the courts of Ruritania and any sum awarded will be set off against the award [Clm,

P.49, Para. 3]. Likewise, RESPONDENT claims that the non-compliance with the payment order

raises serious doubts as to CLAIMANT’s financial situation, as per the wrongful allegations by

the article in the Carioca Business News. It further puts wrong allegations that CLAIMANT has

apparently done unsuccessful efforts to obtain outside funding for this arbitration [Res, P.46, Para.

3].

70. In an ICSID tribunal in 2010, case RSM production Corporation vs. Government of Grenada, the

Arbitral Tribunal rejected RESPONDENT’s request for security for cost. Like the current case,

RESPONDENT had claim that non-compliance of CLAIMANT with the payment of previous

orders shows that CLAIMANT has no incentive to comply with any award. Tribunal refrained

from granting the request basing that RESPONDENT did not provide sufficient support and proof

for such a conclusion [RSM production Corporation vs. Government of Grenada (2010)]. Hence,

the allegations in Carioca Business News are not reliable and does not meet the balance of

probability and are not based on merits [Clm, Ex.C9, P.50, Para. 2].

71. Under same tribunal, ICSID, in case Atlantic Triton, Tribunal refused granting security for

RESPONDENT’s cost because RESPONDENT did not provide reasons that the government of

Guinea would not perform its obligation if the final award hold it responsible [Republic of Guinea

v. Atlantic Triton Company (1986); Katia Yannaca]. Hence, taking these practices into

consideration, REEPONDENT’s request shall not be granted on the grounds that it could not

provide evidence and wrongfully put allegations on non-compliance of CLAIMANT.

72. Stephen Colbran, author of Security for Costs against Corporations mentions that RESPONDENT

must provide a credible evidence to prove CLAIMANT is unable to pay the security for cost


18

granted against it [Stephen Colbran, P.275]. In case, Burimi S.R.L. v. Albania decided by ICSID

Tribunal in 2012 was rejected because RESPONDENT’s claim was alleged without proving the

bankruptcy of CLAIMANT. Nonetheless, in the current case, RESPONDENT puts wrongful

allegations that CLAIMANT is under financial insolvency and bankruptcy. Even though,

CLAIMANT is not under any bankruptcy explicitly highlighted in Procedural Order 2 [PO2, P.60,

Para. 31]. Therefore, similar to Burimi S.R.L. v. Albania case, RESPONDENT’s requested is to

be rejected by Tribunal.

73. Essentially, CLAIMANT’s financial situation has been stable since 2010 until current arbitration

proceeding as provided, “The financial situation of Wright Ltd has not changed substantially or

unexpectedly between the conclusion of the Development and Sales Agreement in 2010 and the

initiation of these arbitration proceedings” [Clm, Ex.C9, P.50, Para. 2]. As per Yearbook

International Arbitration, RESPONDENT is required to prove that there has been a fundamental

change in financial situation of CLAIMANT [YIA, Vol III, P.167 Para (c)].Yesilirmak, a legal

scholar, further emphasizes that RESPONDENT will be awarded security for its costs, if there is

a change in the circumstance of CLAIMANT’s financial situation from the time parties signed

agreement [Ali Yesilirmak]. However, RESPONDENT was not able to provide evidence on

financial insolvency of CLAIMANT.

74. In an ICC Case no. 10032, in Zurich, Yugozalvia vs. Serbia, regarding the international embargo

declared in 1999 by the European Union on the Federal Republic of Yugoslavia and the

Government of the Republic of Serbia, the arbitral tribunal, explicitly expressed that

RESPONDENT need to show “that the factual situation at the present time is substantially

different from that which existed at the time the parties entered into their arbitration convention”

[ICC Case no. 10032], Similar to this case, CLAIMANT’s financial situation has not been changed

from the time of contract conclusion and this arbitration proceeding.

75. Moreover, CLAIMANT has access to sufficient financial resources which makes its financial

situation rock solid and paves the way to satisfy any cost award [Clm, Ex.C9, P.49]. Furthermore,

CLAIMANT has not been charged of any financial insolvency and bankruptcy [PO2, P.60, Para.

31]. RESPONDENT request for security of its cost is around USD $ 200,000; however,

CLAIMANT is one of the largest aircraft industry and is involved in large transactions. For

example, CLAIMANT has the US$ 12 million received from Xanadu government [PO2, P.58,


19

Para. 28]. Additionally, as per Art. 3 of the CIArb, if CLAIMANT has assets that will enable it to

pay the costs awarded, arbitrators shall refrain from granting security for cost. Hence, CLAIMANT

not only has other financial resources highlighted above but also assets for instance, development

work which went for TRF 305 reflected an increase in the position of assets for the CLAIMANT

[PO2, P.59, Para. 28]. This shows the ability of CLAIMANT to pay any costs awarded.

76. According to Handbook of ICC Arbitration Commentary, Precedents, Materials, security for cost

can be ordered only in exceptional circumstances. For instance, when there is a sufficient, clear

and present danger that CLAIMANT will not be able to provide the expenses because of its

insolvency. This, however, must be proved by RESPONDENT [Webster et al. P.432].

77. Echoing these concerns, a Tribunal sitting in Paris in 2006 rejected RESPONDENT’s request for

security costs in an ICC case No. 13070. This rejection was based on the lack of any exceptional

circumstances in RESPONDENT’s request. The Tribunal expressed that RESPONDENT failed to

provide specific and sufficient proof [ICC case No. 13070 (2006) P.434]. This is similar to the

current case, as RESPONDENT is unable to prove its claim and as well it does not meet any

exceptional circumstances.

3. RESPONDENT’s request to provide security for its cost is unfair under Art. 4 of

CIArb

78. Although RESPONDENT claims that ordering security for cost is necessary to efficiently protect

its rights [Res, P.46, Para. 5], CLAIMANT’s right to fully present its claim must also be protected.

Art. 4 of the CIArb states, “arbitrators should consider whether awarding security would unjustly

stifle a legitimate and material claim”. This is further highlighted by A.O. Rhodes Vivour author

of Security for the RESPONDENT’s Costs of Arbitral Proceedings with Particular Reference ACA

that CLAIMANT’s right to access the court shall be protected, if CLAIMANT is deprived of

access to court, it is unfair [A.O. Rhodes – Vivour].

79. The members of the drafting committee of CIArB state that the conduct of RESPONDENT should

be taken into account both before and during the Arbitration proceedings to determine fairness.

For instance, if the lack of funding has been caused by conduct of RESPONDENT, it would be

unfair to award security for cost request [Commentary of CIArB. P.32]. Here, the Tribunal should

deem award of security for cost unfair because lack of funding is caused by RESPONDENT’s

nonperformance of its contractual obligation. “CLAIMANT does not face any financial insolvency,


20

even if CLAIMANT faces with any lack of funding, it has been caused by RESPONDENT who had

not paid the price due under the Development and Sales Agreement” [Clm, P.49, Para. 4]. Weixia

Gu as well indicates that it is unfair if CLAIMANT’s financial situation is caused by the improper

behavior of RESPONDENT and in that instance Arbitral Tribunal needs to reject the request for

security for cost [Weixia Gu].

80. Furthermore, Swiss law and jurisdictions have been among the most reluctant ones toward security

for costs as one of the international practices which is also agreed by parties [Jean-Baptiste

Pessey]. In A. S.p.A. v. B AG case, arbitration proceedings conducted under the Rules of

Arbitration of the Geneva Chamber of Commerce and Industry, the CLAIMANT had applied for

security for costs on the grounds that the CLAIMANT had filed for liquidation after the start of

the proceedings. The tribunal refused to order security for costs and considered that the

CLAIMANT’s insolvency was a normal commercial risk that the RESPONDENT should bear [A.

S.p.A. v. B AG]. Similarly, in above mentioned case, Tribunal refused security for cost request on

the grounds of financial insolvency claim considering it normal commercial risk. Therefore,

Tribunal’s power is limited to grant RESPONDENT security for cost [Clm, Ex.C9, P.50, Para. 2].

81. According to CIArb Art. 4, “applications for security for costs should be made promptly, that is,

as soon as the risk or facts giving rise to the application are known or ought to have been known.”

Arbitrators should consider whether an application has been made at an appropriate time. If the

application is made after significant expense has been incurred, they may consider that this unfairly

disadvantages the other party and refuse the application and RESPONDENT’s claim is not in

compliance with the requirements set in Art. 4 (1) of CIArB.

82. RESPONDENT’s claim for security of its cost is similar to American Cyanamid Co vs. Ethicon

LTD case, decided in the UK House of Lords. In that case, one party requested for interim measures

to prevent the other party of infringing their patent. The party requesting for interim measures was

relying on balance of convenience but there was no rule that the court must first look at the

prospects of success of each party. Lord Diplock developed a set of guidelines for granting interim

measures whether an applicant’s case merited the granting of interim measures.

83. Lord Diplock rules that RESPONDENT must show that it is likely to win the case. RESPONDENT

is requesting interim measure without demonstrating enough evidence to win the arbitration. Even

if the RESPONDENT could present enough evidence, based on the holding of American


21

Cyanamid case law; it’s not required to order security costs based on the following three reasons.

First, there is no ruling for interim measures at this stage of proceeding. Second, there is no ruling

for balance of convenience to compel the Arbitral Tribunal to consider who is likely to succeed in

the case. Third, RESPONDENT’ claims on CLAIMANT’s financial position are inaccurate

[American Cyanamid Co vs. Ethicon LTD].

84. In conclusion, the Development and Sales Agreement, Terms of Reference, CAM-CCBC rules,

UNICTRAL Model and the International Rulings, particularly the International Chartered of

Arbitration guideline on Security for Cost limits the authorities of the Arbitral Tribunal to grant

security for RESPONDENT’s cost, and the Tribunal is requested not to order CLAIMANT for

RESPONDENT’s cost.

ISSUE THREE: CLAIMANT IS ENTITLED TO THE FULL PAYMENT IN THE AMOUNT

OF US $22,723, 800 FOR THE FAN BLADES AND US$ 102,192.80 FOR THE FEE

DEDUCTED FOR BANK CHARGES BASED ON THE DSA

85. In 2010, CLAIMANT and RESPONDENT were in negotiations to jointly develop a new fan blade.

During finalization of their DSA, the final production cost of new blades were uncertain. However,

RESPONDNET insisted to fix a maximum price to be paid so that it could offer itself a price for

engine to Earhart [Clm, Ex.C1, P.8]. Taking that into consideration, parties agreed on a formula

fixing a maximum and minimum price for the blades [Clm, Ex.C2, P.10], which also served as the

basis for risk sharing.

86. The DSA section 4 (1) requires RESPONDENT to pay the purchase price in full amount. The full

purchase price for the blades is USD 2,285,240.00; nevertheless, RESPONDENT made the

payment in the amount of USD 20,336,367.20 [Clm, Ex.C3, P.12]. Moreover, DSA explicitly

provides the agreement of parties that the bank charges must be borne by the buyer, which

RESPONDENT failed to meet its obligation.

87. In the following, CLAIMANT will submit that according to DSA, CISG, and UNIDRIOIT

principles, it is entitled to the full payment of purchase price for the fan blades in the amount of

USD 22,723, 800 (A). DSA and CISG further obliges RESPONDENT to pay bank transfer charges

in the amount of USD 102,192.80 (B).


22

A. DSA, CISG AND UNIDROIT PRINCIPLES ENTITLE CLAIMANT TO THE FULL

PAYMENT OF PURCHASE PRICE FOR THE FAN BLADES IN THE AMOUNT

OF US$ 22,723, 800

88. CLAIMANT incurred costs in the amount of EQD 19,586 per fan blade [Clm, Ex.C5, P.14, para.

2]. On the basis of the correct exchange rate charged at the time of the production of the fan blades,

the price per fan blade in US$ was US$10,941.90 which results in an overall purchase price of

US$ 22,723,800 for the 2,000 fan blades [Clm, Ex.C5, P.14, para. 2].

89. On January 14, 2015, after the production of the fan blades, CLAIMANT sent two invoices for the

fan blades and clamps [Clm, Ex.C3, P.5, para. 9]. On January 15, 2015, CLAIMANT informed

RESPONDENT about the mix up in CLAIMANT’s accounting department. CLAIMANT

mentioned that the invoice for the fan blades was prepared on the basis of fixed exchange rate

provision of the addendum, which should be applied only for clamps [Clm, Ex.C5, P.14, para. 5].

However, RESPONDENT still effected the payment based on the wrong invoices [Clm, Ex.C3,

P.12].

90. The principle of good faith requires RESPODNET that it should have informed CLAIMANT about

the mistake in the invoices. Based on Article 7(1) of CISG Convention, “In the interpretation of

this Convention, regard is to….. the observance of good faith in international trade”. Good faith

is one of the main principles of the convention. “The principle of good faith provides a basis for

the expectation that contractual duties will be performed. The principle of good faith imposes a

code of behavior on both parties, calling each to consider the interests of the other contracting

party” [Perales Viscasillas, P.121].

91. The DSA does not contain any provision regarding the applicability of fixed exchange rate for the

fan blades. Parties’ intention behind adding fixed exchange rate provision in the addendum was

only to govern the sale of the clamps not the fan blades (1). CISG entitles CLAIMANT to the

outstanding payment of purchase price in the amount of US$ 2,285,240.00 (2).

1. Parties’ intention behind adding fixed exchange rate provision in the addendum

was only to govern the sale of the clamps, not the fan blades

92. After the conclusion of the DSA, RESPONDENT realized that the suitable clamps cannot be found

from other suppliers, it approached CLAIMANT for the purchase of the clamps. Thus, an

addendum was added to the contract and signed by the parties [Clm, P.5, para. 8; Clm, Ex.C2,


23

P.11; Res, Ex.R5, P.3, para. 2]. Intention of the parties behind adding the addendum was to govern

the sale of the clamps. DSA and Addendum are different agreements; therefore, provisions of the

addendum shall not have any applicability on the DSA (i). Fixed exchange rate does not apply to

the DSA based on Art.8 of CISG and UNIDROIT principles (ii). Based on the objective intention,

fixed exchange rate is only applicable to the addendum (iii). Based on Art. 4.6 of UNIDROIT

principles (Contra proferentem rule), the text of addendum shall be interpreted against the drafter

(RESPONDENT) (iv). Parties have no established practice between them regarding the usage of

fixed exchange rate (v).

i. DSA and Addendum are different agreements; therefore, provisions of the

Addendum shall not have any applicability on the DSA

93. DSA and addendum are different agreements. In order to distinguish between the DSA and

addendum, Art.4 (4) of UNIDROIT principle requires considering the terms and references in light

of the whole contract or statements in which they appear. It is explicitly stated in the addendum

that, “the buyer may request the seller to produce and deliver 2,000 clamps. The price for the

clamps shall be on a cost coverage base and be paid in US$” [Clm, Ex.C2, P.11]. In the addendum,

the parties agreed to deliver the clamps on a cost coverage basis, where CLAIMANT did not

charge any profit to the cost of the clamps. However, based on the Section 4(1) of the DSA, the

purchase price of the fan blades is calculated based on a cost plus profit basis [Clm, Ex.C2, P.10].

94. The parties agreed on fixed exchange rate only for clamps, because fixed exchange rate would not

lead to a great risk in the addendum as the amount of the purchase price of the addendum was low

and no profit was expected out of this transaction. However, in the DSA parties agreed that

CLAIMANT will get profit out of the transaction. As a result, it is derived that parties’ intention

behind addendum was only regulating the clamps and fixed exchange rate does not have any

applicability on the fan blades. Schlechtriem and Butler, leading scholars, further elaborate that

the actual intent of the parties will determine the meaning of the statements or other legally relevant

conduct of the parties [Schlechtriem/Butler, P.56].

95. Furthermore, Paul Romario, CEO of RESPONDENT, in his witness statement said “After the

conclusion of the main agreement, it became clear that we would also need clamps from

CLAIMAINT” [Res, Ex.R5, P.31, para. 2]. Text of the addendum explicitly mentions that, “other

terms are as per main Agreement” and “the exchange rate for the agreement is fixed to US $


24

1=EQD 2.01” [Clm, Ex.C2, P.11]. The CEO of RESPONDENT clearly distinguishes the main

Agreement which is DSA and the agreement which is the addendum. This further clarifies the

intention of the parties that the fixed exchange rate provision is only applicable to the addendum.

ii. Fixed exchange rate does not apply to the DSA based on Art. 8 of CISG and

UNIDROIT principles

96. Based on Art.8 of CISG 4.1, and 4(3) of UNIDROIT principles, contract shall be interpreted based

on the common intention of the parties considering the circumstances. The circumstances include

negotiations, conduct of the parties after the conclusion of the contract, the nature and purpose of

the contract, and the meaning commonly given to the terms and expressions in the trade concerned

between the parties. Based on the circumstances, parties had the following intentions behind the

addendum.

97. First intention behind the Addendum was to govern sale of the Clamps. In an email sent by

RESPONDENT to CLAIMANT on August 22, 2010 under the subject line of “Clamps” [Res,

Ex.R2, P.28], RESPONDENT stated, “As already discussed we think the easiest way to regulate

the purchase of the clamps is to sign an addendum” [Res, Ex.R2, P.28, para. 3]. This indicates

that parties’ intention behind adding addendum was to govern the purchase of the clamps, and the

purchase price for the fan blades will remain as per the calculation formula in the section 4 of the

DSA. Besides that, the subject line of the email sent by RESPONDENT regarding the addendum

exactly mentions the “clamps”, which itself suggests that the purpose of addendum was to govern

the sale of the clamps [Res, Ex.R2, P.28].

98. Second intention behind the addendum was to deliver the clamps at the same time with the fan

blades, which is further elaborated in PO2 by RESPONDENT’s call of October 21, 2010, where

it informed COO of CLAIMANT that the purpose of adding the addendum was the same time

delivery of clamps with the fan blades [PO2, P.57, para. 16].This clearly indicates that the purpose

of addendum was to deliver both the clamps and the fan blades together.

99. Third intention behind the addendum was to set the cost for the clamps. The price for the clamps

in the addendum is on a cost coverage base, it is not made for governing the profit but only for the

cost of the clamps [Clm, Ex.C2, P.11, para. 4]. RESPONDENT’s interpretation of the addendum

to use fixed exchange rate to the whole contract is not correct, as it contradicts with the common

intention of the parties and with the main agreement which is DSA.


25

iii. Based on objective intention, fixed exchange rate is only applicable to the

clamps

100. Even if RESPONDENT claims that its intention behind fixed exchange rate was to govern the sale

of the fan blades, fixed exchange rate is only applicable to the clamps based on the reasonable

person test. Art.8 (2) of CIG and Art.4 (2) of UNIDROIT principles state that the statement and

other conduct of parties may also be interpreted according to the understanding and meaning that

a reasonable person of the same kind as the other party would have had in similar circumstances.

Based on the objective intention of the parties, reasonable person of the same kind would have had

the same interpretation that fixed exchange rate is only applicable to addendum. Therefore, based

on the objective interpretation, fixed exchange rate is only applicable to the clamps and it does not

have any applicability on the DSA.

iv. Based on Art. 4(6) of UNIDROIT principles (Contra proferentem rule) the

text of the addendum shall be interpreted against the drafter (RESPONDENT)

101. Based on the Contra Proferentem rule embodied in Art.4(6) of UNIDROIT principles when

contract terms are unclear, the provisions of the contract shall be interpreted against the party who

drafted the provision to ensure the principle of equality, good conscience, and justice [Stone,

P.228; Honnold & Flechter, P.98]. By drafting the addendum, RESPONDENT tries to get an

implicit understanding from the provision of the addendum. In the case under consideration, the

drafter of the addendum was RESPONDENT. Hence, the interpretation of the addendum shall be

against RESPONDENT, which means that fixed exchange rate shall only be applicable to the

clamps not to the fan blades.

v. Parties have no established practice between them regarding the usage of fixed

exchange rate

102. RESPONDENT might claim that fixed exchange rate was used in two previous contracts when

parties were subsidiaries of Engineering International SA [Res, Ex.R5, P.31].Although in both

previous contracts, CLAIMANT and RESPONDENT used fixed exchange rate [Res, Ex.R5, P.31].

Practices of those two contracts are not analogous in the current case, because factual aspects are

not the same based on the following reasons.

103. In previous two contracts both parties were subsidiaries of Engineering International SA, and

exchange rate during previous contracts would not make a significant difference [Res, P.24, Para.


26

8; Res, Ex.R5, P.31, Para. 2]. Since, Engineering International SA asked both parties to adopt the

exchange rate which was profitable for RESPONDENT for tax purposes [PO2, P.54, Para. 5].

However, after both parties were sold to different parent companies, the exchange rate could

become a major issue in the current contract. Since the production cost of the new fan blades was

not certain for the parties; therefore, it was impossible for the parties to adopt a fixed price in the

current contract. Therefore, the current contract is totally different from the previous contracts and

the fixed exchange rate shall not be applicable to the current contract.

104. Besides that, RESPONDENT may claim that in a meeting in November 2009, which was also

attended by CLAIMANT’s CEO, it had been discussed that “SantosD should be de-risked to make

it more attractive to potential buyers” [Res, Ex.R1, P.27]. However, parties shall not rely on the

discussions of this meeting regarding de-risking RESPONDENT. Since, there were no ongoing

contractual relations between the parties specifically regarding the DSA in 2009. The reason why

de-risking Santos was suggested, was to make it more attractive to potential buyers, as long as it

is subsidiary to Engineering International SA. Therefore, RESPODNENT shall not rely on the

discussions of the meeting of 2009.

105. Based on the governing laws of the DSA, namely CISG and UNIDROIT principles, and the Contra

proferentem role, the common intention of the parties behind the addendum was to govern the sale

of the clamps, simultaneous delivery of clamps with fan blades, and the cost of clamps based on

the cost coverage basis. Thus, fixed exchange rate does not apply to the fan blades and the

exchange rate charged at the time of the production of the fan blades is the applicable exchange

rate of the DSA.

2. CISG entitles CLAIMANT to the full purchase price in the amount of US$22,723,

800

106. CLAIMANT fulfilled all its contractual obligations by making the full delivery of goods that were

in conformity with the contract [Clm, Ex.C3, P.12]. RESPONDENT shall make the full payment

for fan blades to fulfill its contractual obligations. Art.53 of CISG requires RESPONDENT to pay

the full purchase price (i). Based on Art. 62 of CISG, RESPONDENT is obliged to pay the

outstanding payment in the amount of US$ 2,285,240 (ii). The Preamble of the CISG Convention

requires RESPONDENT to pay the full purchase price (iii).


27

i. Art.53 of CISG requires RESPONDENT to pay the full purchase price

107. RESPONDENT is obliged to pay the full payment of purchase price for the fan blades since Art.53

of CISG states, “The buyer must pay the price for the goods as required by the contract and this

Convention.”[CISG, Art.53]. RESPONDENT did not fulfill its contractual obligations by paying

only US$ 20,336,367.20 [Clm, Ex.C6, P.15, para. 1]. CLAIMANT incurred production cost in

the amount of EQD 19,586 per blade [Clm, Ex.C5, P.12, para. 2]. Considering the exchange rate

at the time of the production of the fan blades which is $1= 1.79 EQD [Clm, Ex.C4, P.13, para.

4], the cost per fan blade is US$ 10,941.90 and the total payment of purchase price for 2,000 fan

blades is US$ 22,723,800 [Clm, Ex.C5, P.14]. However, RESPONDENT did not fulfill its

contractual obligations by denying that any additional purchase price payment was due [Clm,

Ex.C7, P.16]. Therefore, RESPONDENT is obliged to pay the outstanding payment in the amount

of US$ 2285240 for the fan blades.

108. It is further supported by the commentaries of well-known legal scholars, Schlechtriem and

Maskow that the most important obligation of a buyer in a sales contract is to pay the full payment

[Schlechtriem, P.39; Maskow, P.384, para2.2]. Leif Sevon, a leading scholar, also says, “The main

obligation of the buyer is making the full payment of purchase price” [Leif Sevon, P.207]. Art.53

establishes the central obligation of the buyer called essentialianegotii [Butler/Harindranath,

P.797]. Based on Art.53 of CISG, RESPONDENT has the obligation to pay the full purchase price

for the fan blades.

109. According to the commentary of Henry Deeb Gabriel, “Article 53 recognizes the primacy of the

contract in defining the parties' obligations” [Gabriel, P.273]. Based on the DSA, Art.53 of CISG

and the aforementioned commentaries of leading scholars, RESPONDENT is obliged to pay the

full payment in the amount of US$ 22.723800 [Clm, Ex.C5, P.14, para. 2]. Similarly in [CLOUT

case No. 652; CLOUT case No. 608; Agriculture products case; Kantonsgericht Schaffhausen]

the tribunal obliged RESPONDENT to full payment of the purchase price under article 53 of

CISG; therefore, RESPONDENT is obliged to full payments under the contract.

ii. RESPONDENT is obliged to pay the outstanding payment in the amount of

US$ 2,285,240 as a remedy based on Art.62 of CISG

110. Art.62 of CISG states, “The seller may require the buyer to pay the price unless the seller has

resorted to a remedy which is inconsistent with this requirement”. It is emphasized in


28

commentaries by leading scholars that paying the partial amount of the purchase price is a breach

of contract which entitles the seller (CLAIMANT) to the remedy under Art.62 of CISG

[Butler/Harindraanath & F. Bell, P.798, 858; Allison E. Butler; Schlechtriem & Schwenzer,

P.802; Leif Sevón, P.205].

111. “The remedy provided under Art.62 of CISG does not create any new right to the seller or a new

obligation of the buyer. It is simply a pursuance of their initial rights and obligations under the

contract which the seller will initially require performance under Article 62 by initiating a legal

action against the buyer” [Knapp, P.453, para2.2]. Therefore, CLAIMANT approached the

arbitral tribunal to make RESPONDENT fulfill its contractual obligations by paying the

outstanding payment in the amount of US$2,285,240.00 [Clm, Ex.C2, P.15, para. 1].

iii. The preamble of CISG Convention requires RESPONDENT to pay the full

amount of purchase price

112. “Considering that the development of international trade on the basis of equality and mutual

benefit is an important element in promoting friendly relations among States”[Preamble, CISG].

Based on the preamble of CISG, RESPONDENT is obliged to pay the full purchase price agreed

in the DSA. Contract is based on mutual benefit of the parties, which requires them to perform

their respective contractual obligations [Enderlein & Maskow, P.19-20; Evan, P.24, para2.4;

Janssan & Meyer, P137; Mistelis, P.19]. However, RESPONDENT did not fulfill its contractual

obligations by denying to make the full payment, which undermines the principal of equality and

mutual benefit embodied in the preamble of CISG Convention.

113. The preamble of CISG Convention, Art.53 and Art.62 of CISG require the buyer (RESPONDENT)

to uphold its contractual obligation and make the full payment. Therefore, CLAIMANT is entitled

to the outstanding payment in the amount of US$ 2,285,240 for the fan blades.

B. RESPONDENT IS OBLIGED TO PAY THE BANK CHARGES IN THE AMOUNT

OF US$ 102,192.80 BASED ON THE DSA AND CISG

114. In section 4(3) of the DSA, both parties agreed that RESPONDENT will bear the bank charges for

depositing the full payment both for clamps and fan blades to CLAIMANT’s account. Hence, it

is RESPONDENT’s contractual obligation to pay the levy charges as part of the bank charges.

Section 4 (3) of DSA obliges RESPONDENT to pay the levy charges (1). Besides that, article 54


29

of CISG obliges RESPONDENT to pay the levy charges (2). RESPONDENT’s analogy of Art.35

(2) CISG is not applicable in the current contract (3).

1. Section 4(3) of the DSA obliges RESPONDENT to pay the levy charges in the

amount of US$ 102,192.80

115. The Equatoriana Central Bank had investigated the payment for money laundering as per

Regulation ML/2014C and deducted a levy of 0.5% based on Section 11 of the regulation [Clm,

Ex.C8, P.17]. Parties agreed and added in section 4 (3) of the DSA that “the buyer will deposit the

purchase price in full into the SELLER’s account at the Equatorianian National Bank. The bank

charges for the transfer of the amount are to be borne by the BUYER” [Clm, Ex.C2, P.11], but

RESPONDENT did not pay the levy charges. RESPONDENT knew or ought to have known about

the levy charges since it was foreseeable (i). RESPONDENT has the duty not to be unaware of the

levy charges (ii). Payment of levy charges by CLAIMANT in the past two contracts is not

analogous to the current contract (iii).

i. RESPONDENT knew or ought to have known about the levy charges, since it

was foreseeable

116. RESPONDENT might claim that levy charges were not foreseeable. However, UN-Model

Provisions on Money Laundering was considerably covered by Equatorianian press in December

2009 [PO2, P.55, para. 7]. Finally, ML/2010C regulation entered into force on January 1, 2010

and it was well publicized all over CLAIMANT’s and RESPONDENT’s place of business,

Mediterraneo, through the foreign press including newspapers [PO2, p.55, para. 7].

RESPONDENT had several sources to be aware of the levy charges in Mediterraneo and there was

no obstacle and impediment for RESPONDENT to be deprived of sufficient information regarding

levy charges in Equatoriana. Hence, levy charges were both foreseeable and reasonable to

RESPONDENT and it should pay the levy charges.

ii. RESPONDENT has the duty not to be unaware of the levy charges

117. In section 4(3) of the DSA, RESPONDENT agreed to pay bank charges. RESPONDENT was

obliged to pay any amount that is required for the transfer of the full purchase price in the

Equatoriana National Bank. RESPONDENT claims that it was unaware of the levy charges. John

O. Honnold, a leading legal scholar states in his commentary of Art.8 of CISG, “the Convention

differentiates among: (A) facts that a party 'knows' or of which he is 'aware'; (B) facts of which a


30

party 'could not have been unaware'; and (C) facts that a party knew or 'ought to have known.'

The facts one 'ought to have known' include those facts that would be disclosed by an investigation

or inquiry that the party should make” [Kluwer, 1999]. Since it was agreed in Section 4(3) of the

DSA, RESPONDENT could not have been unaware of the levy charges. RESPONDENT was

obliged to know the procedures to affect the payment [Clm, Ex.C2, P.10, para. 3].

118. Moreover, RESPONDENT could not have been unaware of the levy charges, especially by explicit

inclusion of the bank name in section 4(3) of the DSA [Clm, Ex.C2, P.10]. RESPONDENT should

have known the relevant procedures for transferring the payment for such a cross border transfer.

Therefore, RESPONDENT ought to have known about the levy charges and RESPONDENT must

pay it. ML/2010 C regulation says “Only after a clearance for the transfer is given will the amount

be credited to the relevant bank account with the respective commercial bank in Equatoriana, in

the present case the Equatoriana National Bank” [PO2, P.56, para. 10]. As stated above in PO2

that levy is a step which should be passed for transferring the money to the account of

CLAIMANT.

119. The payment to be deposited into the seller’s account should go through money clearance policy

under Equatoriana National Bank. This shows that the intention behind obliging RESPONDENT

to pay the bank charges is also to cover levy charges so that the full deposit of purchase price is

made into the seller’s (CLAIMANT’s) account.

120. The levy charges are part of money transfer procedure. If the party does not pass the levy

investigation/examination, the money will not be deposited to the account [PO2, P.56, para. 10].

Therefore, RESPONDENT was obliged to know the required steps in order to transfer the money

in to CLAIMANT’s bank account.

iii. CLAIMANT’s practice of paying levy charges in previous contracts is not

analogous to the current case, because the factual aspects of those contracts

are different from the current contract

121. CLAIMANT has paid levy charges in their two previous transactions, namely JetPropulse and

JumboFly [PO2, P.55, para. 8, 9]. RESPONDENT claims that CLAIMANT shall pay the levy

charges in the current transaction too based on article 9 of CISG which reads, “the parties are

considered to have impliedly made applicable to their contract or its formation a usage of which

the parties knew or ought to have known” [CISG, Art.9]. However, Patrick X. Bout, argues in a


31

commentary that practices are only applicable “if in an individual relationship between two parties

the parties act in a similar way in similar circumstances” and CLAIMANT’s previous contracts

had different circumstances than the current contract with RESPONDENT.

122. CLAIMANT’s contract with JetPropulse and JumboFly had totally different circumstance and they

are not similar with the current contract. In CLAIMANT’s both previous contracts, there was no

contractual obligation over the JetPropulse and Jumbofly to pay the cost for bank charges [PO2,

P.55/56, para. 8, 9]. They did not have any provision that would usher an obligation for payment

of bank charges by any of the parties. However, in current proceeding RESPONDENT has clearly

agreed under section 4 .3 of DSA to bear the bank charges [Clm, Ex.C2, P.10; PO2, P.54, para.

6].

123. Based on the commentary of a leading scholar, Patrick X. Bout, “if the circumstances are so

different from the previous case and the particular behavior is not justified, in this case the practice

shall not be valid”. As mentioned above, the previous contracts were under much different

circumstances and have no common grounds with the current contract. Therefore, RESPONDENT

cannot use CLAIMANT’s previous transactions as an established practice between them. Based

on the Section 4.3 of DSA, RESPONDENT shall pay the levy charges because RESPONDENT

has the duty not to be unaware of the levy charges since levy charges are foreseeable.

2. Art. 54 of CISG requires RESPONDENT to take all enabling steps, including

paying the levy charges to make the full deposit of purchase price to CLAIMANT

124. RESPONDENT shall pay levy charges based on article 54 of CISG which states, “the buyer’s

obligation to pay the price includes taking such steps and complying with such formalities as may

be required under the contract or any laws and regulations to enable payment to be made”.

Complying with all formalities, laws and regulations to affect the full payment is part of

RESPONDENT’s contractual obligations.

125. Article 54 is further elaborated in a commentary by a leading scholar, Deeb Gabreil, which says

that, “the buyer’s obligation is not only limited to owing the money but rather the obligation also

includes all steps which are necessary to ensure that the payment is actually made and the buyer

must bear the costs for measures necessary to enable him to pay the price” [Gabreil, P.274]. In

addition, the buyer's obligation to pay the price includes taking such steps and complying with


32

such governmental formalities as may be required under the contract or any laws and regulations

to enable payment to be made [Schlechtriem, P.320; Tallon, P.395, para.2 & Maskow, P.7].

126. Moreover, well-known scholars Schlechtriem & Schwenzer state, “All and any laws and

regulations that may have any effect on the payment by the buyer need to be observed by him. The

buyer is required to observe the laws and regulations of all the other countries that have an effect

on the payment. This includes even the laws and regulations in force in the country of the seller’s

place of business” [Schlechtriem & Schwenzer, P.812; Butler/Harindraanath, P.803]. The laws

that shall be observed by CLAIMANT includes laws and regulations related to foreign exchange,

transfer and clearance rules [Maskow, 397-400].

127. Article 54 of CISG obliges the buyer to comply with any law and regulations which might be

required to make the full payment. Thus, it includes ML/2010 C regulation for money laundering

which is a law adopted in CLAIMANT’s place of business. Unless the money does not go through

the clearance under this law, payment will not be affected into the seller’s account. This means

that ML/2010C regulation is a step to be taken in order to deposit the payment in CLAIMANT’s

account. Therefore, RESPONDENT is obliged to uphold the money laundering law at

CLAIAMANT’s place of business to make the full payment, and should bear the levy charges.

128. This is further supported by the Clout Case No. 142, where a German seller (CLAIMANT) brought

a claim against a Russian buyer (RESPONDENT) to the court. The only action taken by the buyer

was to send instructions to the bank for the amounts payable under the contract to be transferred,

but it had not taken any measures to ensure that the payment could actually be made. Therefore,

International Commercial Arbitration at the Russian Federation Chamber of Commerce and

Industry decided in favor of the [seller] under article 54 of CISG and ordered the buyer to make

the payment for the goods supplied.

129. In Clout case No. 142, the buyer was supposed to make the full payment and make sure the transfer

happens, which the buyer didn’t. Similarly, in the current case RESPONDENT failed to pay the

levy charges which is essential for depositing the full payment of purchase price. In both cases

RESPONDENT failed to fulfill its contractual obligations under article 54 of CISG. Since court

ordered RESPONDENT in Clout Case No. 142 to pay the bank charges which is similar to current

case, the tribunal should make the same decision and oblige RESPONDENT to pay levy charges.


33

130. Henry Deeb Gabriel, a leading scholar, says that “if a government charged a tariff on the export

of money, the buyer would be responsible for that extra cost (absent contrary agreement) as part

of the payment of the price” [Gabriel, P.274]. As the tariff charged by the government comes

under the scope of Art.54, ML/2010 C Money Laundering Regulation which charged levy as a

governmental formality comes under the scope of article 54 of CISG as well.

131. The buyer not taking enabling steps for making the full payment is in breach of contract. Therefore,

the seller is entitled to the remedies in case of breach of contract by the buyer [Schlechtriem &

Schwenzer, P.813]. Besides that, based on the principle of the cost of one’s own obligation, each

party has to bear the cost of its obligations [CISG Digest 2012]. RESPONDENT’s obligation

includes making the full payment of purchase price. The costs incurred for paying the full payment

of purchase price includes paying the levy charges; therefore, CLAIMANT has the duty to pay the

levy charge.

132. Moreover, based on Clout case No. 104, decided by the Court of Arbitration of the International

Chamber of Commerce, the buyer who only gave instructions to the bank for transferring money

but did not make sure that the payment is actually made was in breach of its contractual obligations.

133. RESPONDENT by merely affecting the payment, but not making sure if the payment is actually

transferred in full into the CLAIMANT’s account breached the contract. Hence, it entitles

CLAIMANT to remedies which is paying the levy charges. RESPONDENT’s act of denying the

levy payment is a breach of article 54 of CISG as well as the DSA, because article 54 of CISG in

a very explicit manner dictates the buyer to fulfill all its contractual obligations by paying the

contractual price and complying with all formalities that is required under the contract or any laws.

Taking the aforementioned laws, regulations and commentaries into account, it is clear that

RESPONDENT is obliged to pay the levy charges and denying the payment is breach of contract.

Therefore, the arbitral tribunal is kindly requested to oblige RESPONDENT to fulfill its

contractual obligation by paying the levy charges.

3. RESPONDENT’s analogy of Art.35 (2) CISG is not applicable in the current

contract

134. RESPONDENT claims that It is now largely accepted that unless the parties have agreed

differently the public law regulations at the seller’s place of business are relevant for the

conformity of delivery under Article 35 (2) CISG. The seller does not need to know the public law


34

regulations at the buyer’s place of business unless the buyer does not inform the seller about such

regulations [Res, P.26, para. 19]. RESPONDENT makes the analogy of the general role claiming

that CLAIMANT shall have informed RESPONDENT about the public law regulation. However,

RESPONDENT’s analysis of the rule is not correct which leads to a wrong conclusion based on

the following reasons.

135. The view that the public law regulations at the buyer’s place of business are relevant for the

conformity of the goods is challenged by many legal scholars. Scheleterim, a well-known leading

scholar, says “ordinary use will be defined by the standard terms of the country or region in which

the buyer intends to use the goods” [Schlechtriem, P6-20]. Schelechterim says that the regulations

of buyer’s place of business shall be applicable for the conformity of the goods because in this the

seller will know where the goods are intended to be used.

136. Therefore, “it will consider all the relevant factors influencing the possibility of their uses in that

country into consideration” [Schlechtriem, P.88]. This means that the public law regulation at the

buyer’s place of business are relevant for the conformity of the goods. In the current case,

RESPONDENT has the duty to comply with all the public law regulations at the CLAIMANT’s

place of business. This means that RESPONDENT has the obligation to comply with the

ML/2010C Regulation for money laundering.

137. Besides that, in Medical Marketing v. Internazionale Medico Scientifica case the court decided

that the public law regulations at the buyer’s place of business are relevant for the conformity of

the goods. The current case has a very similar nature to the above mentioned case where the public

law regulations at the CLAIMANT’s place of business are the relevant laws for the conformity of

the goods. Therefore, RESPNDENT is obliged to pay the levy charges.

138. Based on the DSA, CISG, and the UNIDROIT principles which are the governing laws of the

contract RESPODNET shall pay the outstanding payment in the amount of US$ 2,285,240 for the

fan blades and US$ 102192.80 for the levy charges.

CONCLUSION

139. RESPONDENT is trying to promote a bad culture by not obeying the provisions of the DSA and

other governing rules and practices. as per the abovementioned evidences with the support of DSA,

Terms of Reference, CISG, the international arbitration practices and other governing laws,

CLAIMANT’s Claims are admissible and on time (A). In addition, the tribunals power is limited


35

to grant RESPONDENT security for its cost, since the allegations made by RESPONDENT have

no grounds (B). Lastly, RESPONDENT is obliged to pay the full payment in the amount of US

$22,723, 800 and levy charges in the amount of US $ 102,192.80 (C). If CLAIMANT’s claims are

not fulfilled, it will lead to the breach of the DSA, and other mentioned governing laws. Therefore,

the tribunal is requested to serve the purpose of arbitration and grant CLAIMANT justice by

considering CLAIMANT’s claims fair and lawful.

PROCEDURAL REQUEST

Counsel, on behalf of CLAIMANT, respectfully requests the Arbitral Tribunal to:

1. Reject RESPONDENT’s objection over the admissibility of this arbitration proceeding

2. Reject RESPONDENT’s belated request for the Security for RESPONDENT’s cost.

REQUEST FOR RELIEF

Counsel, on behalf of CLAIMANT, respectfully requests the Arbitral Tribunal to:

1. Order RESPONDENT to pay the outstanding payment of purchase price in the amount of US$

2,285,240

2. Order RESPONDENT to pay the bank charges in the amount of US$ 102,192.80.

3. Order RESPONDENT to bear all the costs arising from this arbitration; and

4. Any other relief that the tribunal considers appropriate.

Respectfully submitted,

American University of Afghanistan, December 20, 2016

memorandum for claimant - · pdf file17.10.1995 · memorandum for claimant iii 3....

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