memorandum for respondent - institute of ... of international arbitration, vol.9, issue 3, 1992...

NINETEENTH ANNUAL WILLEM C. VIS INTERNATIONAL COMMERCIAL

ARBITRATION MOOT 30 MARCH - 5 APRIL 2012

MEMORANDUM FOR RESPONDENT

Xiamen University School of Law

COUNSELS

Ding Xia Feng Chaoyi Jiang Zhaoqi Rong Lu Tao Nanying

Wang Chunyan Wang Jian Wang Jiayuan Yu Rou

Zang Dongyue Zhang Lingling Zhang Yue Zheng Yun

On Behalf of Against

Equatioriana Control Systems, Inc. Mediterraneo Elite Conferences Services, Ltd.

286 Second Avenue 45 Conference Place Oceanside Capital City Equatoriana Mediterraneo Tel. (0) 237 86 00 Tel. (0) 146-9845 Fax. (0) 237 86 01 Fax. (0) 146-9850 RESPONDENT CLAIMANT

Xiamen University School of Law Memorandum for Respondent

II

TABLE OF CONTENTS

TABLE OF CONTENTS ................................................................................................................... II

INDEX OF ABBREVIATIONS ......................................................................................................... V

INDEX OF AUTHORITIES ............................................................................................................ VII

INDEX OF CASES ..................................................................................................................... XXI

INDEX OF AWARDS ............................................................................................................... XXVI

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

SUMMARY OF ARGUMENTS ......................................................................................................... 3

ARGUMENTS ............................................................................................................................... 4

ISSUE I: DR. MERCADO SHOULD BE REMOVED BY THE TRIBUNAL ........................ 4

A. The Tribunal Has Power to Remove Dr. Mercado ......................................................... 4

B. It Is Necessary and Appropriate for the Tribunal to Remove Dr. Mercado .................... 6

1. The independence and impartiality of the current properly constituted Tribunal is

likely to be impaired by the participation of Dr. Mercado ........................................... 6

1.1. According to CIETAC Rules and Model Law, “justifiable doubts” standard

should be applied ................................................................................................... 6

1.2. The relationships between Dr. Mercado and Presiding Arbitrator would give

rise to justifiable doubts as to the latter’s independence and impartiality ............ 7

2. Removal of Dr. Mercado shall take priority over removal of Presiding Arbitrator . 9

2.1. The request to remove Dr. Mercado is legally well founded ......................... 9

2.2. Removal of Dr. Mercado trumps removal of Presiding Arbitrator due to

immutability of the Tribunal and policy perspectives ......................................... 10

3. Removal of Dr. Mercado would not lead to non-enforcement of the award under

New York Convention ................................................................................................ 11

C. If the Tribunal Refuses to Remove Dr. Mercado, Presiding Arbitrator Shall Be

Removed ........................................................................................................................... 12

1. Respondent has raised a timely challenge to Presiding Arbitrator ......................... 13

2. If the Tribunal refuses to remove Presiding Arbitrator, the award would face high

risk of non-enforcement under New York Convention .............................................. 13

ISSUE II: THE TRIBUNAL HAS NO JURISDICTION TO CONSIDER THE CLAIMS

ASSOCIATED WITH THE LEASE CONTRACT ................................................................. 14

A. The Bribery Impairs the Arbitrability of the Claims .................................................... 14


III

1. The bribery is against public policy and impacts the arbitrability of the claims ... 15

2. The direct connection between the bribery and the dispute makes the claims

inarbitrable ................................................................................................................. 16

3. The Tribunal should consider the laws of Pacifica when determining the

arbitrability of the claims ........................................................................................... 17

B. The Enforcement of the Award Would Be Rejected If the Tribunal Considers the

Claims ............................................................................................................................... 17

1. The enforcement of the award will be refused due to the non-arbitrability of the

claims ......................................................................................................................... 18

2. The enforcement of the award would violate the public policy under New York

Convention ................................................................................................................. 18

2.1. The anti-corruption policy falls within the public policy under Model Law

and New York Convention .................................................................................. 18

2.2. The enforcement of the award would be contrary to the anti-corruption

public policy ........................................................................................................ 19

ISSUE III: RESPONDENT SHOULD BE EXEMPT FROM LIABILITY UNDER ART.79

CISG ......................................................................................................................................... 20

A. Respondent Fulfilled the Requirements of Exemption ................................................ 21

1. The fire suffered by High Performance was beyond Respondent’s control ........... 21

2. Respondent could not be reasonably expected to foresee the fire suffered by High

Performance ............................................................................................................... 22

3. Respondent was not reasonably expected to avoid or overcome the fire or its

consequences .............................................................................................................. 22

B. The Third Parties Fulfilled the Requirements of Exemption ....................................... 23

1. The fire was beyond the control of High Performance and Specialty Devices ...... 23

2. High Performance and Specialty Devices could not be reasonably expected to

foresee the fire ............................................................................................................ 24

2.1. High Performance could not be reasonably expected to foresee the fire ..... 24

2.2. Specialty Devices could not be reasonably expected to foresee the fire ...... 25

3. The fire and its consequences could not be reasonably expected to be avoided or

overcome .................................................................................................................... 25

3.1. High Performance was not reasonably expected to have avoided or

overcome the fire or its consequences................................................................. 25

3.2. Specialty Devices was not reasonably expected to have avoided or overcome


IV

the fire or its consequences ................................................................................. 27

C. Respondent Gave a Timely and Qualified Notice to Claimant .................................... 27

ISSUE IV: THE CLAIMED DAMAGES SHOULD NOT BE RECOVERABLE ................. 28

A. The Loss for Chartering the Yacht Should Not Be Compensated ................................ 28

1. The loss for chartering the yacht was not compensable under Art.74 .................... 28

1.1. The loss for chartering the yacht is not a result of Respondent’s breach ..... 28

1.2. Respondent could not have foreseen all the costs concerning the lease

contract ................................................................................................................ 30

2. The corruption renders all losses associated with the lease contract not

compensable ............................................................................................................... 31

B. The Ex Gratia Payment Should Not Be Compensated Pursuant to Art.74 ................... 32

1. The ex gratia payment was not a possible item of damages .................................. 32

2. Respondent could not have foreseen the ex gratia payment .................................. 33

C. Respondent May Claim a Reduction in the Damages Pursuant to Art.77 .................... 34

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


V

INDEX OF ABBREVIATIONS

&

and

§

section

¶

paragraph

AAA

American Arbitration Association

Art.

article

CIETAC

China International Economic and Trade Arbitration Commission

CISG-AC

CISG Advisory Council

Cl. Ex.

Claimant’s Exhibit

Co.

company

Corp.

corporation

Dr.

doctor

ed.

edition

et al.

et alii (and others)

ex officio

resulting from somebody’s official position

i.e.

id est (that is)

IBA

International Bar Association

ICC

International Chamber of Commerce

Inc.

incorporated

LC

Letter from Claimant

LCIETAC

Letter from CIETAC

lex arbitri

law of the place where arbitration is to take place


VI

LR

Letter from Respondent

Ltd.

limited

Memo of Cl.

Memorandum of Claimant

Memo of Res.

Memorandum of Respondent

Mr.

Mister

No.

number

Op

opinion

p.

page/pages

P. O.

Procedural Order

per se

in itself

Res. Ex.

Respondent’s Exhibit

Sta. of Cl.

Statement of Claim

Sta. of Def.

Statement of Defense

Tel.

telephone

UK

United Kingdom

UNCITRAL

United Nations Commission on International Trade Law

US

United States

USD

United States Dollar

v.

versus

Vol. volume


VII

INDEX OF AUTHORITIES

Legislations & Rules

AAA/ABA Code of Ethics for Arbitrators

The Code of Ethics for Arbitrators in Commercial Disputes by American Arbitration Association and American Bar Association, 2004

Anti-trust Law of China The Anti-trust Law of the People’s Republic of China, 2008

CIETAC Rules Arbitration Rules of China International Economic and Trade Arbitration Commission, 2011

CISG United Nations Convention on Contracts for the International Sale of Goods, 1980

Criminal Law of China The Criminal Law of the People’s Republic of China, 1997

CSCE Convention Convention on Conciliation and Arbitration within the CSCE, 1992

Danish Liability Act Danish Liability Act, 2007

English Arbitration Act English Arbitration Act, 1996

FCPA The Foreign Corrupt Practices Act, 1977

IBA Guidelines IBA Guidelines on Conflicts of Interest in International Arbitration, 2004

IBA Rules of Ethics IBA Rules of Ethics for International Arbitrators, 1987

ICC Force Majeure Clause

ICC Force Majeure Clause, 2003

ICC Rules Arbitration Rules of International Chamber of Commerce, 1998

ICC Rules of Conduct The ICC Rules of Conduct: Extortion and Bribery in International Business Transactions, 2005

ICSID Arbitration Rules

Arbitration Rules for International Centre for Settlement of Investment Disputes, 2002


VIII

ICSID Convention Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 2006

LCIA Rules Arbitration Rules of the London Court of International Arbitration, 1998

Model Law UNCITRAL Model Law on International Commercial Arbitration, 2006

New York Convention The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958

OECD Convention The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, 1997

Penal Code of Brazil The Penal Code of Brazil, 1940

Revised Uniform Arbitration Act

Uniform Arbitration Act, 2000

SIAC Rules Arbitration Rules of the Singapore International Arbitration Centre, 2010

Swiss Rules Swiss Arbitration Rules, 2006

UK Bribery Act The UK Bribery Act, 2011

UNCAC The United Nations Convention against Corruption, 2005

UNCITRAL Arbitration Rules

UNCITRAL Arbitration Rules, 2010

UNTOC The United Nations Convention against Transnational Organized Crime, 2003


IX

Scholarly Works & Articles Referred to

in American Law Institute

The Restatement (Second) of Contracts American Law Institute, 1981 Cited as: Second American Restatement of Contracts

¶78

Babiak, Andrew Defining “Fundamental Breach” under the United Nations Convention on Contracts for the International Sale of Goods http://www.cisg.law.pace.edu/cisg/biblio/babiak.html#v Cited as: Babiak

¶82,92

Ball, Markham Probity Deconstructed: How Helpful, Really, Are the New International Bar Association Guidelines on Conflicts of Interest in International Arbitration? Arbitration International, Vol.21, Issue 3 Hague: Kluwer Law International, 2005 Cited as: Ball

¶10

Barratt, James Ichilcik, Hayley

Bribery The European & Middle Eastern Arbitration Review London: Law Business Research Ltd., 2011 Cited as: Barratt/Ichilcik

¶35

Bianca, Cesare Massimo Bonell, Michael Joachim

Commentary on the International Sales Law: The 1980 Vienna Sales Convention Milan: Giuffrè, 1987 Cited as: Bianca/Bonell

¶49,50,52 54,58,62,64 65,69,71,94

Birks, Peter Recovering Value Transferred under an Illegal Contract Theoretical Inquiries in Law, January 2000 Cited as: Birks

¶86

Bishop, Doak Reed, Lucy

Practical Guidelines for Interviewing, Selecting and Challenging Party - Appointed Arbitrators in International Commercial Arbitration Arbitration International, Vol.14, Issue 4 Hague: Kluwer Law International, 1998 Cited as: Bishop/Reed

¶12,13,15


X

Born, Gary B. International Commercial Arbitration - Commentary and Materials, 2nd ed. Hague: Kluwer Law International, 2001 Cited as: Born (2001)

¶2,3,9,17 18,42

Born, Gary B. International Commercial Arbitration Hague: Kluwer Law International, 2009 Cited as: Born (2009)

¶6,9,13,15 18,22,24

30,34

Brubaker, Joseph R. The Judge Who Knew Too Much: Issue Conflicts in International Adjudication Berkeley Journal of International Law, Vol.6, p.111-152 Cited as: Brubaker

¶11

Brunner, Christoph Force Majeure and Hardship under General Contract Principles Hague: Kluwer Law International, 2008 Cited as: Brunner

¶65

Bühler, Michael Weigand, Frank Bernd

Practitioner’s Handbook on International Arbitration Munich: C.H.Beck, 2002 Cited as: Bühler/Weigand

¶10

Cane, Marilyn Blumberg Shub, Patricia A.

The Arbitrator’s Manual Journal of International Arbitration, Vol.9, Issue 3, 1992 Cited as: Cane/Shub

¶9

CIETAC CIETAC Ethical Rules for Arbitrators Journal of International Arbitration, Vol.12, Issue 2 Hague: Wolters Kluwer, 1995 Cited as: CIETAC Ethical Rules for Arbitrators

¶9,10

Cisár, Ivan Status of Arbitration in Public International Law Dny práva Days of Law, Vol.1, 2010 http://www.law.muni.cz/content/cs/proceedings/ Cited as: Cisár

¶21


CISG Advisory Council Opinion No.6 Calculation of Damages under CISG Article 74 http://cisgw3.law.pace.edu/cisg/CISG-AC-op6.html Cited as: CISG-AC Op6

¶76,89,90


XI


CISG Advisory Council Opinion No.7 Exemption of Liability for Damages under Article 79 of the CISG http://cisgw3.law.pace.edu/cisg/CISG-AC-op7.html Cited as: CISG-AC Op7

¶49,50,54

Cremades, Bernardo M. Cairns, David J. A.

Corruption, International Public Policy and the Duties of Arbitrators Dispute Resolution Journal, November 2003-January 2004 Cited as: Cremades/Cairns

¶35

David, René Arbitration in International Trade Deventer: Springer, 1985 Cited as: David

¶9

Derains, Yves Schwartz, Eric A.

A Guide to ICC Rules of Arbitration Hague: Kluwer Law International, 2005 Cited as: Derains/Schwartz

¶13,24

Eastwood, Gillian A Real Danger of Confusion? The English Law Relating to Bias in Arbitrators Arbitration International, Vol.17, Issue 3 Hague: Kluwer Law International, 2001 Cited as: Eastwood

¶9

Eicher, Sharon Corruption in International Business: the Challenge of Cultural and Legal Diversity Farnham: Gower, 2009 Cited as: Eicher

¶35

Farnsworth, E. Allan

Damages and Specific Relief American Journal of Comparative Law, 1979 http://cisgw3.law.pace.edu/cisg/biblio/farns.html Cited as: Farnsworth

¶76

Fouchard, Philippe Gaillard, Emmanuel Goldman, Berthold Savage, John

Fouchard Gaillard Goldman on International Commercial Arbitration E. Gaillard/J. Savage eds Hague: Kluwer Law International, 1999 Cited as: Fouchard et al.

¶2,3,6,9,10 24,30,35,44


XII

Fuller, L. L. Perdue, William R.

The Reliance Interest in Contract Damages 46 Yale Law Journal, 1936, p.52-96 http://cisgw3.law.pace.edu/cisg/biblio/fuller.html#v Cited as: Fuller/Perdue

¶76

Gaillard, Emmanuel Pietro, Domenico Di Leleu-Knobil, Nanou

Enforcement of Arbitration Agreements and International Arbitral Awards: the New York Convention in Practice London: Cameron, 2008 Cited as: Gaillard et al.

¶44

Garner, Bryan A. Black’s Law Dictionary, 8th ed. US: Thomson West, 2004 Cited as: Black’s Law Dictionary

¶28

Gearing, Mathew A Judge in Its Own Case? Actual or Unconscious Bias of Arbitrators International Arbitration Law Review, 2000 Cited as: Gearing

¶9

Goossens, Wim National and International Anti-bribery Regulations: Practical Implications for Multinational Companies and Compliance Programs International Business Law Journal, 1999 Cited as: Goossens

¶85

Hascher, Dominique ICC Practice in Relation to the Appointment, Confirmation, Challenge and Replacement of Arbitrators ICC International Court of Arbitration Bulletin, Vol.6/No.2, November 1995 Cited as: Hascher

¶12

Hoffmann, Anne K. Duty of Disclosure and Challenge of Arbitrators: The Standard Applicable under the New IBA Guidelines on Conflicts of Interest and the German Approach Arbitration International Arbitration International, Vol.21, Issue 3 Hague: Kluwer Law International, 2005 Cited as: Hoffmann

¶9


XIII

Hoffman, Camilla Bribery and Arbitration http://www.siac.org.sg Cited as: Hoffman

¶40

Holtzmann, Howard M. Neuhaus, Joseph E.

A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary Hague: Kluwer Law and Taxation Publishers, 1989 Cited as: Holtzmann/Neuhaus

¶2,9,25

Honnold, John O. Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. Hague: Kluwer Law International, 1999 Cited as: Honnold

¶50,51,52

Hwang, Michael Lim, Kevin

Corruption in Arbitration - Law and Reality http://www.arbitration-icca.org/media/0/13261720320840/corruption_in_arbitration_paper_draft_248.pdf Cited as: Hwang/Lim

¶35,47,84

ILA Committee on International Commercial Arbitration

Final Report on Public Policy as a Bar to the Enforcement of International Arbitral Awards New Delhi Conference, 2002 http://www.ila-hq.org Cited as: ILA Final Report

¶35,44,45

Impert, J. E. A Program for Compliance with the FCPA and Foreign Law Restrictions on the Use of Sales Agents The International Lawyer, 1990 Cited as: Impert

¶85

Jaksic, Aleksandar Arbitration and Human Rights New York: Frankfurt, 2002 Cited as: Jaksic

¶9

Jarvin, Sigvard Objections to Jurisdiction The Leading Arbitrators’ Guide to International Arbitration 83 L. Newman and R. Hill ed. Conyers: Juris Publishing, 2004 Cited as: Jarvin

¶17


XIV

Kaufmann-Kohler, Gabrielle Stucki, Blaise

International Arbitration in Switzerland Hague: Kluwer Law International, 2004 Cited as: Kaufmann-Kohler/Stucki

¶2

Khan, Rahmatullah The Iran-United States Claims Tribunal: Controversies, Cases, and Contribution Dordrecht: Martinus Nijhoff Publishers, 1990 Cited as: Khan

¶28

Kolo, Abba Witness Intimidation, Tampering and Other Related Abuses of Process in Investment Arbitration: Possible Remedies Available to the Arbitral Tribunal Arbitration International, Vol.26, Issue 1, p.43-85 Hague: Kluwer Law International, 2010 Cited as: Kolo

¶18

Kronke, Herbert Nacimiento, Patricia Otto, Dirk Port, Nicola Christine

Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentary on the New York Convention Hague: Kluwer Law International, 2010 Cited as: Kronke et al.

¶42,44,47

Lauterpacht, E. Greenwood, C. J

The Arbitration Treaty: Appointment and Withdrawal of Arbitrators International Law Reports, Vol.68, p.515-559 Cambridge: Cambridge University Press, 1985 Cited as: Lauterpacht/Greenwood

¶28

Lew, Julian D.M. Mistelis, Loukas A. Kröll, Stefan

Comparative International Commercial Arbitration Hague: Kluwer Law International, 2003 Cited as: Lew et al.

¶2,3,12 17,24,30 35,42,47

Lookofsky, Joseph M.

The 1980 United Nations Convention on Contracts for the International Sale of Goods International Encyclopedia of Laws - Contracts, Suppl. 29 Hague: Kluwer Law International, 2000 Cited as: Lookofsky (2000)

¶49,50,51 52,54,64

71

Lookofsky, Joseph M.

Consequential Damages in CISG Context 19 Pace International Law Review, Spring 2007/1 http://cisgw3.law.pace.edu/cisg/biblio/lookofsky18.html Cited as: Lookofsky (2007)

¶78


XV

Lowenstein, Daniel Hays

Political Bribery and the Intermediate Theory of Politics UCLA Law Review, 1985 Cited as: Lowenstein

¶35

Luttrell, Samuel Ross

Bias Challenges in International Commercial Arbitration: The Need for a “Real Danger” Test Hague: Kluwer Law International, 2009 Cited as: Luttrell

¶11,12

Mayer, Pierre Mandatory Rules of Law in International Arbitration Arbitration International, Vol.2, No.4, 1986 Cited as: Mayer

¶39

Mistelis, Loukas A. Keeping the Unruly Horse in Control or Public Policy as a Bar to the Enforcement of Foreign Arbitral Awards International Law Forum du Droit International Vol.2 (2000), No.4 Leiden: Koninklijke Brill N.V., 2000 Cited as: Mistelis (2000)

¶44

Mistelis, Loukas A. Concise International Arbitration Hague: Kluwer Law International, 2010 Cited as: Mistelis (2010)

¶24,25

Mistelis, Loukas A. Brekoulakis, Stavros L.

Arbitrability: International and Comparative Perspectives Hague: Kluwer Law International, 2009 Cited as: Mistelis/Brekoulakis

¶35,39

Montesquieu, Charles de Secondat

The Spirit of Laws Ontario: Batoche Books, 2001 Cited as: Montesquieu

¶17

Mourre, Alexis Arbitration and Criminal Law: Reflections on the Duties of the Arbitrator Arbitration International, Vol.22 No.1, 2006 Cited as: Mourre

¶39

Nesbit, Julie B. Transnational Bribery of Foreign Officials: a New Threat to the Future of Democracy Vanderbilt Journal of Transnational Law, 1998 Cited as: Nesbit

¶35


XVI

Nichols, Philip M. Are Extraterritorial Restrictions on Bribery a Viable and Desirable International Policy Goal under the Global Conditions of the Late Twentieth Century? Increasing Global Security by Controlling Transnational Bribery Michigan Journal of International Law, 1999 Cited as: Nichols

¶35

Opie, Elisabeth Commentary on the Manner in Which the UNIDROIT Principles May be Used to Interpret or Supplement Article 77 of the CISG http://cisgw3.law.pace.edu/cisg/principles/uni77.html Cited as: Opie

¶95

Pritchard, Robert Before You Venture Forth - A Checklist of Legal Safeguards for Foreign Investment in Energy and Natural Resources Projects http://www.dundee.ac.uk/cepmlp/journal/html/vol4/article4-14.html Cited as: Pritchard

¶86

Pryles, Michael Moser, Michael J.

The Asian Leading Arbitrators’ Guide to International Arbitration New York: JurisNet LLC, 2007 Cited as: Pryles/Moser

¶47

Redfern, Alan Hunter, Martin Blackaby, Nige Partasides, Constantine

Law and Practice of International Commercial Arbitration, 5th ed. London: Sweet & Maxwell, 2009 Cited as: Redfern et al.

¶2,9,17,24 30,34,35

39,40

Reisman, W. Michael Craig, Laurence W. Park, Willian Paulsson, Jan

International Commercial Arbitration Cases, Materials and Notes on the Resolution of International Business Disputes New York: The Foundation Press Inc., 1997 Cited as: Reisman et al.

¶6

Riznik, Peter Reasonableness of the Measures Undertaken to Mitigate the Loss http://cisgw3.law.pace.edu/cisg/biblio/riznik.html Cited as: Riznik

¶94


XVII

Saidov, Djakhongir Methods of Limiting Damages under the Vienna Convention on Contracts for the International Sale of Goods http://cisgw3.law.pace.edu/cisg/biblio/saidov.html Cited as: Saidov (2001)

¶76,82,92 94,95

Saidov, Djakhongir The Law of Damages in International Sales: The CISG and Other International Instruments http://www.cisg.law.pace.edu/cisg/biblio/saidov5.html Cited as: Saidov (2008)

¶81,82,92

Schlechtriem, Peter Uniform Sales Law - The UN - Convention on Contracts for the International Sale of Goods Vienna: Manz, 1986 Cited as: Schlechtriem (1986)

¶49,65

Schlechtriem, Peter Non-Material Damages - Recovery under the CISG Reproduced with permission of 19 Pace International Law Review, Spring 2007/1, p89-102 http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem15.html Cited as: Schlechtriem (2007)

¶89

Schlechtriem, Peter Schwenzer, Ingeborg

Commentary on the UN Convention on the International Sale of Goods (CISG), 2nd (English) ed. New York: Oxford University Press, 2005 Cited as: Schlechtriem/Schwenzer

¶49,50,51 54,66,75,83

92,94

Schwarz, Franz T. Konrad, Christian W.

The Vienna Rules: A Commentary on International Arbitration in Austria Hague: Kluwer Law International, 2009 Cited as: Schwarz/Konrad

¶9

Sheppard, Audley Delaney, Joachim

Corruption and International Arbitration http://www.10iacc.org/content.phtml?documents=106&art=167 Cited as: Sheppard/Delaney

¶35,84

Shore, Laurence Disclosure and Impartiality: An Arbitrator’s Responsibility vis-à-vis Legal Standards Dispute Resolution Journal, Vol.57 Cited as: Shore

¶9


XVIII

Silva, Gui Conde e An Illustration of Substantive Transnational Public Policy in International Arbitration Vindobona Journal of International Commercial Law & Arbitration, 2009 Cited as: Silva

¶35

Sophia, Nilsson The Small Print: Damage Liability Comparative Study on Article 74 of the CISG and Section 53 of the SGA http://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=1763439&fileOId=1763441 Cited as: Sophia

¶83,92

Transparency International

The Definition of Corruption http://www.transparency.org/ Cited as: Transparency International

¶35

UNCITRAL Guide to CISG Article 79, Secretariat Commentary Electronic Communications under CISG http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-79.html Cited as: Secretariat Commentary on Art.79

¶71

UNCITRAL Explanatory Note by the UNCITRAL Secretariat on the Model Law on International Commercial Arbitration Vienna: United Nations Commission on International Trade Law Cited as: Explanatory Note

¶2

UNCITRAL International Commercial Arbitration Analytical Commentary on Draft Text of a Model Law on international Commercial Arbitration Report of the Secretary - General Vienna: United Nations Commission on International Trade Law, Eighteenth session Cited as: A/CN.9/264

¶2

UNCITRAL Commentary on the Draft Convention on Arbitral Procedure Adopted by the International Law Commission at Its 5th Session New York: United Nations International Law Commission, 1955 Cited as: A/CN.4/92

¶21


XIX

United Nations Economic & Social Council

Consideration of the Draft Convention on the Recognition and Enforcement of Foreign Arbitral Awards - Comparison of Drafts Relating to Articles III, IV and V UN Doc E/CONF.26/L.33/Rev.1, 1958 Cited as: UN ESC Document

¶47

van den Berg, Albert Jan

The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation, 2nd ed. Hague: Kluwer Law International, 1981 Cited as: van den Berg (1981)

¶9,44


12 January 1989 - Tribunal Fédéral [Supreme Court] Yearbook Commercial Arbitration 1990 - Vol.XV, Vol.XV, p.509 - 514 Hague: Kluwer Law International, 1990 Cited as: van den Berg (1990)

¶30


11 July 1992 - Corte di Cassazione [Supreme Court] No. 8469 Yearbook Commercial Arbitration 1997 - Vol.XXII, Vol.XXII, p.715 - 724 Hague: Kluwer Law International, 1997 Cited as: van den Berg (1997)

¶11,15,30


18 October 1999 - Oberlandesgericht [Court of Appeal], Stuttgart, No.5 U 89/98 Yearbook Commercial Arbitration 2004 - Vol.XXIX, Vol.XXIX, p.700 - 714 Hague: Kluwer Law International, 2004 Cited as: van den Berg (2004)

¶30

van der Bend, Bommel Leijten, Marnix Ynzonides, Marc

A Guide to the NAI Arbitration Rules Including a Commentary on Dutch Arbitration Law Hague: Kluwer Law International, 2009 Cited as: van der Bend et al.

¶12

van Houtte, Hans From a National to a European Public Policy Law & Justice in a Multistate World: Essays in Honour of Arthur T Von Mehren Nafziger, James/Symeondies, Symeon eds New York: Transnational Publ. Corp., 2002 Cited as: van Houtte

¶44


XX

Veeder, V. V. The Lawyer’s Duty to Arbitrate in Good Faith Arbitration International, Vol.18, Issue 4 Hague: Kluwer Law International, 2002 Cited as: Veeder

¶18

Waincymer, Jeff Reconciling Conflicting Rights in International Arbitration: The Right to Choice of Counsel and the Right to An Independent and Impartial Tribunal Arbitration International, Vol.26, Issue 4 Hague: Kluwer Law International, 2010 Cited as: Waincymer

¶20,23 24,25

Working Group of Much Shelist

Breach of Contract: Are You Protected from the Unforeseeable? - UCC Guidance 23 October 2008 http://www.muchshelist.com/knowledge-center/article/uniform-commercial-code-breach-of-contract-are-you-protected-from-the-unforeseeable Cited as: UCC Guidance

¶61

Zhao, Xiaojian Framing Contingencies in Contracts University of Mannheim, Germany, May 2009 http://www.uni-mannheim.de/cds/cdse/dipa/79.pdf Cited as: Zhao

¶58

Zhilsov, A. N. Mandatory and Public Policy Rules in International Commercial Arbitration Netherlands International Law Review, Vol.42 (1995), Issue 1 Cited as: Zhilsov

¶44

Ziegel, Jacob S. Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods July 1981 http://cisgw3.law.pace.edu/cisg/wais/db/articles/english2.html Cited as: Ziegel

¶54


XXI

INDEX OF CASES

Canada Referred to in

2005 Case No. QJ 14742 Smart Systems Technologies, Inc. v. Domotique Secant, Inc. Court of Appeals of Quebec, Canada 5 October 2005 Cited as: Smart v. Domotique

¶44

Hong Kong

1999 Case No. HKCFA 40 Hebei Import & Export Corp. v. Polytek Engineering Co. Ltd. Hong Kong Court of Final Appeal, Hong Kong China 9 February 1999 Cited as: Hebei v. Polytek

¶44

Korea

1995 Extract in Yearbook Commercial Arbitration Vol.XXI (1996), Korea No.3 Adviso NV v. Korea Overseas Construction Corp. Supreme Court of Korea 14 February 1995 Cited as: Adviso NV v. Korea Overseas Construction Corp.

¶47

Pakistan

2000 Case No. PLC 2000 SC 841 The Hub Power Company Ltd. v. Pakistan WAPDA and Federation of Pakistan Super Court of Pakistan 14 June 2000 Cited as: HUBCO v. WAPDA

¶35

Sweden

2007 Case No. T2448-06 Supreme Court of Sweden 19 November 2007 Cited as: Swedish Supreme Court, T2448-06

¶9


XXII

2008 Case No. T10321-06 Court of Appeal of Svea, Swenden 10 December 2008 Cited as: Svea Court of Appeal, T10321-06

¶9

United Kingdom

1775 Case No.1 Cowp. 342 Holman v. Johnson Court of King’s Bench, UK 5 July 1775 http://www.e-lawresources.co.uk/Holman-v-Johnson.php Cited as: Holman v. Johnson

¶84

1854 Case No. 9 Exch. 341 Hadley v. Baxendale Court of Exchequer, UK 23 February 1854 Cited as: Hadley v. Baxendale

¶78

1987 Case No. 1 All ER 513 Lemenda Trading Co. Ltd. v. African Middle East Petroleum Co. Ltd. Queen’s Bench Division (Commercial Court), UK 3 November 1987 Cited as: Lemenda v. African Middle East Petroleum

¶47

1999 Case No. WL 477322 Westacre Investments Inc. v. Jugoimport - SDRP Holding Company Ltd. Court of Appeal (Civil Division), UK 12 May 1999 Cited as: Westacre v. Jugoimport

¶42,47,84

1999 Case No. QB 785 Soleimany v. Soleimany Court of Appeal, UK 7 May 1999 Cited as: Soleimany v. Soleimany

¶44,47,84

2007 Case No. 2007 WL 2861 Fiona Trust & Holding Corp. v. Privalov Court of Appeal (Civil Division), UK 24 January 2007 Cited as: Fiona v. Privalov

¶42


XXIII

2007 Case No. 2007 UKHL 40 Fili Shipping v. Premium Nafta House of Lords, UK 17 October 2007 Cited as: Fili Shipping v. Premium Nafta

¶37

United States

1968 Case No. 393 U.S. 145 Commonwealth Coatings Corp. v. Continental Casualty Co. Supreme Court of US 18 November 1968 Cited as: Commonwealth Coatings v. Continental Casualty

¶9

1973 Case No. 364 F.Supp. 82 Intermar, Inc. v. Atlantic Richfield Company District Court for the Eastern District of Pennsylvania, US Cited as: Intermar v. Atlantic Richfield

¶67

1974 Case No. 508 F. 2d 969 Parsons & Whittemore Overseas Co., Inc. v. Société Générale de l'Industrie du Papier RAKTA and Bank of America Court of Appeals, Second Circuit, US 23 December 1974 Cited as: Parsons & Whittemore Overseas Inc. v. RAKTA

¶44

1976 Case No.424 U.S. 319 Mathews v. Eldridge Supreme Court of US 24 February 1976 Cited as: Mathews v. Eldridge

¶24

1981 Case No.C-1-79-570 Fertilizer Corporation of India, et al. v. IDI Management, Inc. District Court of Ohio, US 9 June 1981 Cited as: Fertilizer et al. v. IDI MgtI

¶24


XXIV

1981 Case No. 430 A.2d 214 Barcon Associates, Inc. v. Tri-County Asphalt Corp. Supreme Court of New Jersey, US 28 May 1981 Cited as: Barcon Assoc. Inc. v. Tri-County Asphalt Corp.

¶13

1983 Case No. 705 F.2d 134 Roth Steel Products v. Sharon Steel Corp. Court of Appeals, Sixth Circuit, US 8 April 1983 Cited as: Roth Steel Products v. Sharon Steel Corp.

¶67

1984 Case No. 729 F.2d 1530 Nissho-iwai Co., Ltd. v. Occidental Crude Sales, Inc. Court of Appeals, Fifth Circuit, US 23 April 1984 Cited as: Nissho-iwai v. Occidental Crude Sales

¶60

1985 Case No. 775 F.2d 781 The Waldinger Corporation v. Crs Group Engineers, Inc., Clark Dietz Division Court of Appeals, Seventh Circuit, US 14 October 1985 Cited as: Waldinger Corp. v. CRS Group Engineers

¶60

1988 Case No. 374 S.E.2d 165 Ruffin Woody and Associates, Inc. v. Person County and American Arbitration Association Court of Appeals of North Carolina, US 6 December1988 Cited as: Ruffin Woody v. Person County

¶13

1990 Case No. Civ. A. No. 89415JLL National Oil Corporation v. Libyan Sun Oil Company District Court of Delaware, US 15 March 1990 Cited as: Nat’l Oil v. Libyan Sun Oil

¶30

1995 Case No. 1995 WL 37586 Forest Elec. Corporation v. HCB Contractors District Court, E.D. Pennsylvania, US 30 January 1995 Cited as: Forest Elec. Corp. v. HCB Contractors

¶13


XXV

1996 Case No. 78 F.3d 424, 427 Timothy L. Woods v. Saturn Distribution Corporation Court of Appeals, Ninth Circuit, US 10 January 1996 Cited as: Woods v. Saturn Distrib. Corp.

¶13

1996 Case No. 472 S.E.2d 346 William C. Vick Construction Co. v. North Carolina Farm Bureau Federation Court of Appeals of North Carolina, US 2 July 1996 Cited as: William C. Vick Constr. Co. v. N. C. Farm Bureau

¶14


XXVI

INDEX OF AWARDS

Index of Awards Referred to in

ICC

1963 ICC Award No. 1110 Cited as: ICC No.1110

¶35


¶37


¶37

1988 ICC Award No. 5622 XIX Y.B. Com. Arb.105(1994) Cited as: ICC No.5622

¶37


¶37

1994 ICC Award No. 6497 XXIV Y.B. Com. Arb.71(1999) Cited as: ICC No.6497

¶37

1998 ICC Case No. 8891 Cited as: ICC No.8891

¶37,85

Iran-United States Claims Tribunal

1982 Challenge Decision re Judge N. Mangard The Hague, Netherlands 15 January 1982 Cited as: Challenge Decision re Judge N. Mangard

¶28

ICSID

1997 ICSID Case No. ARB/00/7 World Duty Free Company Ltd. v. The Republic of Kenya International Centre for Settlement of Investment Disputes, Washington D.C. 4 October 2006 Cited as: World Duty Free v. Kenya

¶35,84,86,87


XXVII

2008 ICSID Case No. ARB/05/24 Hrvatska Elektroprivreda, d.d. v. Republic of Slovenia International Centre for Settlement of Investment Disputes, Washington D.C. 6 May 2008 Cited as: Hrvatska v. Slovenia

¶4,19,21,25

2010 ICSID Case No. ARB/06/3 The Rompetrol Group N.V. v. Romania International Centre for Settlement of Investment Disputes, Washington D.C. 14 January 2010 Cited as: Rompetrol v. Romania

¶19

2010 ICSID Case No. ARB/03/25 Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines International Centre for Settlement of Investment Disputes, Washington D.C. 23 December 2010 Cited as: Fraport v. Philippines

¶25

Netherland

2002 Case No. 2319 Arbitration Institute, Netherlands 15 October 2002 http://cisgw3.law.pace.edu/cases/021015n1.html Cited as: Condensate Crude Oil Mix Case

¶95

London Court of International Arbitration

2000 Case No. Moot 7 Feed Processing Corp. v. Grain Dealers, PLC London Court of International Arbitration April 2000 Cited as: Feed Processing Corp. v. Grain Dealers, PLC

¶67


1

STATEMENT OF FACTS

Equatoriana Control Systems (“Respondent”) is a company incorporated under the laws of

Equatoriana. It signed a contract with Mediterraneo Elite Conferences Services, Ltd.

(“Claimant”), a company incorporated under the laws of Mediterraneo, to refurbish

Claimant’s yacht, the M/S Vis. The contract was signed on 26 May 2010, and Respondent

was to supply, install and configure the master control system of the M/S Vis before 12

November 2010 [Sta. of Cl., ¶8]. In the contract, the parties incorporated an arbitration clause,

stipulating that the arbitration shall be subject to the Arbitration Rules of China International

Economic and Trade Arbitration Commission which came into force on 1 March 2011

(“CIETAC Rules”) and take place in Danubia, which adopts UNCITRAL Model Law on

International Commercial Arbitration with the 2006 amendments (“Model Law”) [Cl. Ex. 1].

The core element in the master control system was a series of processing units. Respondent

engaged Specialty Devices to manufacture the processing units. Specialty Devices had

designed the processing units based on the D-28 chips, which would be manufactured by

High Performance [Sta. of Cl., ¶7, 8 & 9]. On 6 September 2010, a fire at High Performance

halted the production of the D-28 chips [Cl. Ex. 2]. As a result, the chips were not available to

Specialty Devices until 2 November 2010. Subsequently, Respondent completed the control

system and delivered it on 14 January 2011 [Sta. of Def., ¶16]. On 21 March 2011, the

contract was fully paid by Claimant [Sta. of Cl., ¶16].

Due to the late performance, the M/S Vis was not usable during February and March. Thus it

missed a conference planned by Claimant [Sta. of Cl., ¶11]. Claimant voluntarily made an ex

gratia payment of USD 112,000 to Corporate Executives [Sta. of Cl., ¶18; Sta. of Def., ¶11].

Without noticing Respondent, Claimant chartered an expensive substitute yacht, the M/S

Pacifica Star, at a cost of USD 558,600 [Sta. of Cl., ¶18]. The cost covered a USD 50,000

success fee which was passed in part to the personal assistant of Samuel Goldrich (“Mr.


2

Goldrich”), the owner of the M/S Pacifica Star, to effect an “introduction” to Mr. Goldrich

[Res. Ex. 1]. And the assistant has been convicted of bribery by the national criminal court of

Pacifica [P. O. 2, ¶25; Sta. of Def., ¶15].

Accordingly, Respondent refused to compensate Claimant’s costs for it had no responsibilities

[Cl. Ex. 4 & 5]. Claimant then submitted its request for arbitration to CIETAC on 15 July

2011. During 2-3 August 2011, Claimant and Respondent separately appointed Ms. Arbitrator

1 and Dr. Arbitrator 2, and agreed to appoint Professor Presiding Arbitrator (“Presiding

Arbitrator”) as the chair [LC, 2 Aug.; LR, 3 Aug.]. Subsequently, the Tribunal was constituted

on 30 August 2011 [LCIETAC, 30 Aug.]. Respondent was notified that Claimant added a

new counsel, Dr. Elizabeth Mercado (“Dr. Mercado”), into its legal team and started her work

on 30 August 2011 [P. O. 2, ¶29]. Dr. Mercado has close relationships with Presiding

Arbitrator [Sta. of Def., ¶16-22; P. O. 2, ¶30]. Therefore, Respondent requested the

termination of Dr. Mercado’s role in Claimant’s legal team [Sta. of Def., ¶16].


3

SUMMARY OF ARGUMENTS

ISSUE I: The Tribunal may exercise its power to remove a counsel when it is necessary and

appropriate. In the present case, the participation of Dr. Mercado impaired the independence

and impartiality of the properly constituted Tribunal. In order to secure a fair hearing, either

Presiding Arbitrator or Dr. Mercado shall terminate the role in this arbitration. Taking the

immutability, efficiency and other policy perspectives into consideration, the removal of Dr.

Mercado takes priority over the removal of Presiding Arbitrator. If the Tribunal refuses to do

so, Presiding Arbitrator shall be considered to be removed to secure an unbiased tribunal,

otherwise the award would face high risk of non-enforcement.

ISSUE II: Contrary to Claimant, Respondent submits that the Tribunal has no jurisdiction to

consider the claims associated with the lease contract. The bribery violates public policy and

thus would impact the arbitrability of the claims. In the present case, the relationship between

the alleged bribery and the dispute was so close that makes the claims associated with the

lease contract inarbitrable. Respondent suggests the Tribunal considering the laws of Pacifica

in order to prudently examine the arbitrability. Otherwise, the award would risk

non-enforcement due to the violation of the public policy under the Convention on the

Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”).

ISSUE III: Respondent should be exempt from the liability pursuant to Art.79 CISG.

Art.79(2) CISG shall be applied in the present case; Respondent and its third parties fulfilled

the requirements of a force majeure under this article. Besides, Respondent gave a timely and

qualified notification to Claimant.

ISSUE IV: The damages that Claimant alleged consists of the loss for chartering the yacht,

i.e., the rental cost, the brokerage commission and the success fee, together with the ex gratia

payment. Respondent submits that the loss for chartering the yacht shall not be compensated

under Art.74 CISG, and the bribery tainted the compensability. And the ex gratia payment

shall not be recovered under Art.74 CISG, for it was not made to retain the loss of goodwill,

and could not be foreseen. Should the Tribunal uphold such losses, Respondent still reserves a

right to claim a reduction in damages, for Claimant failed to mitigate under Art.77 CISG.


4

ARGUMENTS

ISSUE I: DR. MERCADO SHOULD BE REMOVED BY THE TRIBUNAL

1. Respondent submits that the Tribunal has power to remove Dr. Mercado [A], and it is

necessary and proper to remove her [B]. If the Tribunal refuses to do so, Respondent

respectfully requests a removal of Presiding Arbitrator to secure an unbiased tribunal

[C].

A. THE TRIBUNAL HAS POWER TO REMOVE DR. MERCADO

2. An arbitral tribunal is empowered broad discretion over procedural matters [Redfern et al.,

p.316; Holtzmann/Neuhaus, p.565; Born (2001), p.436-437; Fouchard et al., p.664-684;

Kaufmann-Kohler/Stucki, p.55]. It is expressly recognized in international and domestic

arbitration laws, as well as leading institutional rules [Art.44 ICSID Convention;

Art.IV4(d) European Convention; §1, 34(1) English Arbitration Act; Art.1494 & 1460

French New Code of Civil Procedure; Art.15(a) Revised Uniform Arbitration Act;

Art.15(1) UNCITRAL Arbitration Rules; Art.15(1) ICC Rules; Art.14(1) LCIA Rules].

The tribunal’s discretionary power derives from the autonomy principle of parties and

arbitrators in governing the procedural conduct in arbitration [A/CN.9/264, Art.19, ¶1;

Holtzmann/Neuhaus, p.565; Born (2001), p.444]. It enables an arbitral tribunal to display

initiative in solving any procedural questions regulated neither in the arbitration

agreement nor the lex arbitri in a fair and orderly manner [Explanatory Note, ¶35;

Holtzmann, p.565; Born (2001), p.436-437]. It also secures necessary effectiveness and

flexibility to prevent parties abusing the process in arbitration [Lew et al., p.525;

Explanatory Note, ¶38].

3. In the present case, as Claimant admitted, the Tribunal is conferred upon “general” power

by Art.19(2) Model Law [Memo of Cl., ¶15]. Moreover, the discretionary power is

explicitly confirmed in Art.33(1) CIETAC Rules by providing that “the arbitral tribunal

shall examine the case in any way it deems appropriate unless otherwise agreed by the


5

parties”. However, Respondent opposes Claimant’s argument that the Tribunal can only

decide about matters confined to “proceedings”, like “length of oral hearing and at which

oral hearing could be held”, but not an order to remove a counsel [Memo of Cl., ¶15]. As

discussed above, the discretionary power shall cover any “procedural matters”, which

includes right to representation of the parties [Fouchard et al., p.664-684; Born (2001),

p.412; Lew et al., p.527].

4. In a similar case Hrvatska v. Slovenia, the tribunal clearly found that it had power to

remove a counsel, partly rest on the textual foothold in Art.44 ICSID Convention which

authorizes the tribunal to decide “any procedural questions” not expressly dealt with in

the Convention, the ICSID Arbitration Rules and any rules agreed by parties [Hrvatska v.

Slovenia]. Likewise, in the present case, without special agreement between Claimant and

Respondent, the Tribunal is empowered to control the procedural issues concerning

whether the counsel chosen by Claimant is appropriate and how to remedy it when a

biased tribunal is caused by such choice.

5. By contrast with Claimant’s allegation that there are no procedural orders to remove Dr.

Mercado [Memo of Cl., ¶5], Art.33(5) CIETAC Rules further stipulates that “the arbitral

tribunal may issue procedural order it considers it necessary” when exercising its

discretionary power over procedural matters.

6. Furthermore, with respond to Claimant’s allegation that an interim measure is impossible

for granting a removal of Dr. Mercado [Memo of Cl., ¶12-14], Respondent submits that

the discretionary power performed in the form of procedural order is sufficient for a

removal. Nevertheless, an interim measure can also be granted to remove Dr. Mercado.

The arbitral tribunal’s power to grant an interim measure extends to any measures which

serve to facilitate the proceedings, preserve parties’ right and permit the effective

execution of a final award [Born (2009), p.1945-1947; Reisman et al., p.754; Fouchard et

al., p.721]. In this regard, the removal of Dr. Mercado to protect Respondent’s right to an

unbiased tribunal as well as to facilitate the arbitral proceedings, shall fall within the

scope of the Tribunal’s power to grant an interim measure.


6

B. IT IS NECESSARY AND APPROPRIATE FOR THE TRIBUNAL TO REMOVE DR. MERCADO

7. The independence and impartiality of the current properly constituted Tribunal is likely to

be impaired by the participation of Dr. Mercado [1]. In order to preserve a fair hearing,

either Presiding Arbitrator or Dr. Mercado should be removed. Respondent submits that

the removal of Dr. Mercado shall take priority over the removal of Presiding Arbitrator

[2], which would not lead to non-enforcement of the award under New York Convention

[3].

1. The independence and impartiality of the current properly constituted Tribunal is

likely to be impaired by the participation of Dr. Mercado

8. By applying the standard under CIETAC Rules and Model Law [1.1], justifiable doubts

on Presiding Arbitrator’s independence and impartiality exist due to his close

relationships with Dr. Mercado [1.2].

1.1. According to CIETAC Rules and Model Law, “justifiable doubts” standard

should be applied

9. In deciding procedural issues in the arbitral process, the applicable law to the proceedings

should be firstly examined [Redfern et al., p.163; Art.1 CIETAC Ethical Rules for

Arbitrators]. In the present case, both CIETAC Rules and Model Law incorporate the

standard of “justifiable doubts” on arbitrators’ independence and impartiality [Art.12

Model Law; Art.30 CIETAC Rules]. This formula directs analysis to the existence of

risks or possibilities of partiality, rather than requiring a certainty or probability. Enough

“doubt” or “suspicion” as to an arbitrator’s impartiality is sufficiently disqualifying [Born

(2009), p.1475; Fouchard et al., p.571; Hoffmann, p.427; Gen.Sta.2 IBA Guidelines]. The

rationale behind this lies in the consensual nature and the lack of appellate review in

arbitration [Commonwealth Coatings v. Continental Casualty; Shore, p.34], together

with the paramount importance of arbitrators’ independence and impartiality as hallmarks

of international arbitration [Redfern et al., ¶267; Schwarz/Konrad, p.119; Born (2001),

p.620; Swedish Supreme Court, T2448-06; van den Berg (1981), p.377; Jaksic, p.275;


7

David, p.252]. The evaluation of independence and impartiality under the justifiable

doubts standard has to be subject to a strict review [Holtzmann/Neuhaus, p.391;

Eastwood, p.287-312; Gearing, p.46; Cane/Shub, p.84; Svea Court of Appeal,

T10321-06].

10. Without a careful examination of the applicable standard, Claimant erroneously

contended the relationships between Dr. Mercado and Presiding Arbitrator were unlikely

to impact the latter’s impartial decision, for there being no provisions dealing with the

present case within certain ethical rules [Memo of Cl., ¶16]. In essence, ethical rules for

arbitrators should not be regarded as absolute, but merely collective creation of generally

accepted standards [Fouchard et al., p.178; Bühler/Weigand, p.163; Ball, p.327;

Introduction on IBA Guidelines, ¶6; AAA/ABA Code of Ethics for Arbitrators, Preamble,

¶2]. To be more specific, Art.5 CIETAC Ethical Rules for Arbitrators, which was largely

relied on by Claimant [Memo of Cl., ¶18], uses the words “may affect the fair trial” and

“such as” to describe the various kinds of relationships quoted by Claimant [Art.5

CIETAC Ethical Rules for Arbitrators; Memo of Cl., ¶18], which means the article is

merely an incomplete enumeration of examples. Situations not listed do not necessarily

guarantee independence and impartiality.

1.2. The relationships between Dr. Mercado and Presiding Arbitrator would give

rise to justifiable doubts as to the latter’s independence and impartiality

11. Respondent submits that when assessing an arbitrator’s independence and impartiality,

the “totality of the circumstances” should be taken into account [van den Berg (1997),

p.240; Luttrell, p.154; Brubaker, p.142]. Claimant’s method of separately addressing the

professional relationship, private relationship and prior involvement in three arbitrations

[Memo of Cl., ¶19-23], is not appropriate. Taking the totality of circumstances into

consideration, justifiable doubts arise as to Presiding Arbitrator’s independence and

impartiality.

12. Firstly, close personal relationship, as a general rule, will cause justifiable doubts to arise

[Luttrell, p.159; Hascher, p.8; Bishop/Reed, p.417; Lew et al., p.264]. In the present case,


8

although Presiding Arbitrator and Dr. Mercado have only occasional contact in faculty

[Sta. of Def., ¶20], it goes without saying that occasional socializing in professional

associations has a marked distinction with regular personal visits to a friend who is also a

professional colleague [Bishop/Reed, p.413; van der Bend et al., p.83]. Apart from their

professional connection, a close family tie between them was established and

consolidated by Dr. Mercado’s friendship with Presiding Arbitrator’s wife, where they

keep regular personal contact [P. O. 2, ¶38; Sta. of Def., ¶21], and Dr. Mercado’s status

as the godmother to the youngest son of Presiding Arbitrator [P. O. 2, ¶32; Sta. of Def.,

¶21]. The closeness is also reflected by face-to-face meetings when Dr. Mercado called

Presiding Arbitrator “Peter”, rather than the more formal “Professor” [Sta. of Def., ¶20].

13. Secondly, Presiding Arbitrator’s non-disclosure of the existing connection enhances the

justifiable doubts. Both Model Law and CIETAC Rules provide that an arbitrator shall

disclose “any facts or circumstances likely to give rise to justifiable doubts as to his

impartiality or independence” [Art.12(1) Model Law; Art.29(1) CIETAC Rules]. Such

affirmative duty to disclose potential conflicts [Born (2009), p.1524; Ruffin Woody v.

Person County; Barcon Assoc. Inc. v. Tri-County Asphalt Corp.], is the first tier of

protection for an unbiased tribunal [Derains/Schwartz, p.126; Bishop/Reed, p.417]. A

non-disclosure can itself become a ground for challenge and highly results in a finding of

partiality or vacatur of award [Born (2009), p.1656; Woods v. Saturn Distrib. Corp.;

Forest Elec. Corp. v. HCB Contractors; Art.4(1) IBA Rules of Ethics]. However,

Presiding Arbitrator, who is under the on-going duty of disclosure in arbitral proceedings

under Art.29(2) CIETAC Rules, chose not to disclose any of his dealings with Dr.

Mercado [P. O. 2, ¶36].

14. In the William C. Vick Constr. Co. v. N. C. Farm Bureau case, the sole arbitrator failed to

disclose numerous dealings with a partner in the law firm representing the winning party.

Their relationships included membership in the same legal fraternity, a close personal

friendship between the arbitrator and the partner’s spouse, and the two families’ traveling

together, exchanging gifts at the birth of children, and children playing together. The

court concluded that these relationships were likely to affect the arbitrator’s impartiality

and found evident partiality for the failure to disclose [William C. Vick Constr. Co. v. N.


9

C. Farm Bureau]. By analogy, the totality of circumstances in the present case, which is

more direct, similarly includes Dr. Mercado’s colleague relationship with Presiding

Arbitrator, her close friendship with his spouse, her identity as the godmother of his

youngest child, together with Presiding Arbitrator’s failure to disclose these dealings,

would make justifiable doubts arise.

15. Last but not least, Presiding Arbitrator and Dr. Mercado’s involvement in three previous

arbitrations also contributes to such doubts. An arbitrator may be more likely to find in

favor of the friend’s client because of a desire to help or at least not to hurt the friend, to

maintain the friendship or because of the friend’s proven credibility [Bishop/Reed, p.418].

At the time of the three arbitrations, Dr. Mercado was already lecturing at Danubia

National University and in regular contact with Presiding Arbitrator’s wife [P. O. 2, ¶37

& 38]. In all the three proceedings, Presiding Arbitrator consistently favored Dr. Mercado

even in disagreement with other arbitrators of his panel [Sta. of Def., ¶22]. As the

relationships between them advance over time, a “reasonable and informed third party”

[Explanation to Gen.Sta.2(b), IBA Guidelines; Born (2009), p.1476; van den Berg (1997),

¶24] would highly doubt that Presiding Arbitrator would continue to favor Dr. Mercado

in the present arbitration.

2. Removal of Dr. Mercado shall take priority over removal of Presiding Arbitrator

2.1. The request to remove Dr. Mercado is legally well founded

16. Given the above-mentioned close relationships, either Presiding Arbitrator or Dr.

Mercado shall cease to participate in the proceedings. Respondent submits that given no

prohibition of removing counsel in the applicable law, it is legally well founded to

request a removal of Dr. Mercado.

17. In international commercial arbitration, as a field of international private law, parties are

entitled to do what the law does not forbid [Montesquieu, p.39]. In other words, parties

are equipped with broad flexibility in designing arbitral procedures [Born (2001), p.560;

Lew et al., p.412; Jarvin, p.83; Redfern et al., p.248], including a request to remove a


10

counsel.

18. Furthermore, right to choice of counsel is limited by the fundamental right of parties to an

unbiased tribunal [Born (2001), p.518; Born (2009), p.72-73] and the obligation of “bona

fide cooperation” [Art.7 CIETAC Rules; Born (2009), p.1009-1010; Kolo, p.53-56;

Veeder, p.438-440; Art.15.6 Swiss Rules; Art.34(3) ICSID Arbitration Rules], otherwise

such right would be abused. In the present case, Claimant abused the right by consciously

including Dr. Mercado to its legal team with a well knowledge that this would impair the

independence and impartiality of Presiding Arbitrator [LC, 2 Aug.; LR, 3 Aug.; P. O. 2,

¶29], which would naturally lead to a request to remove Dr. Mercado.

19. The legitimacy of such requests can also be supported by case law, since both tribunals of

Hrvatska v. Slovenia and Rompetrol v. Romania accepted and heard the requests of

removing counsels [Hrvatska v. Slovenia; Rompetrol v. Romania].

2.2. Removal of Dr. Mercado trumps removal of Presiding Arbitrator due to

immutability of the Tribunal and policy perspectives

20. It would be an unacceptable defect in the procedural justice of international arbitration, if

the problem of independence and impartiality of tribunal caused by the participation of a

new counsel could only be dealt with by a replacement of an already functioning tribunal

[Waincymer, §Abstract]. In this regard, Respondent submits the removal of Dr. Mercado

trumps the removal of Presiding Arbitrator.

21. Firstly, the immutability of an arbitral tribunal is the general principle governing the

composition of the tribunal [Cisár, p.6; Art.6 CSCE Convention]. Such immutability is

important to secure the integrity and efficiency of the procedure as well as to protect the

independence of the tribunal [A/CN.4/92, ¶13]. It would be undermined if a challenge to

arbitrator would successfully lead to a removal of him due to a party’s inclusion of a new

counsel. In the similar case Hrvatska v. Slovenia, the tribunal held that even fundamental

principles like right to representation must give way to overriding exceptions, such as the

immutability of tribunals [Hrvatska v. Slovenia]. Respondent accepts that Claimant was


11

free to select its legal team as it saw fit prior to the constitution of the Tribunal, but it is

not entitled to subsequently amend the composition of its legal team in such a fashion as

to imperil the Tribunal’s status or legitimacy.

22. Secondly, the requirement of efficiency, which is a key attribute of the arbitral process

[Born (2009), p.30, 41 & 82-84], favors the removal of Dr. Mercado, rather than

Presiding Arbitrator. With his experience, abilities and availability, Presiding Arbitrator

was deemed by parties as the most appropriate [Sta. of Def., ¶17]. If he is disqualified,

under the strict and complicated procedures of Art.30 and Art.31 CIETAC Rules,

nomination of a new president with equivalent expertise and experience will cause

considerable delay and expenses, which would not happen in the removal and

replacement of a counsel.

23. Finally, a fair and efficient dispute resolution system should allow an appropriate body to

address an improper conduct directly [Waincymer, §Ⅲ-a]. In the present case, it is the

selection of Dr. Mercado, who is in close relationships with Presiding Arbitrator, that is

improper, rather than the prior appointment of Presiding Arbitrator. Forcing the

aggrieved Respondent to make a request to remove Presiding Arbitrator rather than Dr.

Mercado would lead to unfair and inefficient outcomes as well as abusive changes of

counsel for the specific purpose of undermining a tribunal.

3. Removal of Dr. Mercado would not lead to non-enforcement of the award under

New York Convention

24. Claimant alleged that if Dr. Mercado were to be removed by the Tribunal, the final award

would not be enforceable [Memo of Cl., ¶34-38], while Respondent opposes the argument.

“Right for a party to reasonably present its case” constitutes the public policy under

Art.V(2)(b) New York Convention [Redfern et al., p.600; Fouchard et al., p.982; Born

(2009), p.2729; Derains/Schwartz, p.227; Mathews v. Eldridge; Lew et al., p.710;

Mistelis (2010), p.16], but such right does not necessarily mean “right to choice of

counsel” as Claimant submitted [Memo of Cl., ¶35]. In fact, the right to choice of counsel

is merely a means to afford a party a proper opportunity to present its case [Waincymer,


12

§2b]. In the present case, Dr. Mercado initially worked with Mr. Fasttrack for Claimant

on 30 August 2011 [P. O. 2, ¶29]. Respondent promptly filed a request to remove Dr.

Mercado three days later, when Dr. Mercado’s specific role in the legal team of Claimant

probably was not determined [Sta. of Def., ¶16; P. O. 2, ¶39]. Therefore, it is

unreasonable to expect her to be profoundly engaged in Claimant’s case in such a short

period. Moreover, Dr. Mercado, who does not even practice law on a full time basis, is

only engaged as a member of the team representing Claimant [P. O. 2, ¶33]. As a result,

Dr. Mercado shall not be an irreplaceable or indispensable one for Claimant to present its

case.

25. Furthermore, the right of a party to present its case is not protected from their own

failures or strategic choices [Mistelis (2010), p.623; Holtzmann, p.551; Fraport v.

Philippines]. Specifically, a party is not allowed to claim a protection of the right to

present its case by choosing a counsel to “gain an automatic and unfair advantage” in the

litigation [Hrvatska v. Slovenia; Waincymer, §2b]. Therefore, removing Dr. Mercado to

prevent Claimant gaining an unfair advantage by its choice would not violate its right to

present the case.

26. Accordingly, as the removal of Dr. Mercado is justified, it would not lead to

non-enforcement of the award.

C. IF THE TRIBUNAL REFUSES TO REMOVE DR. MERCADO, PRESIDING ARBITRATOR

SHALL BE REMOVED

27. If the Tribunal refuses to remove Dr. Mercado while accepts Respondent’s argument that

the independence and impartiality is impaired by the participation of Dr. Mercado, a

removal of Presiding Arbitrator shall be considered because a timely challenge to

Presiding Arbitrator has been raised [1]. Otherwise, it would lead to non-enforcement of

the award under New York Convention [2].


13

1. Respondent has raised a timely challenge to Presiding Arbitrator

28. Contrary to Claimant’s allegation that Respondent could not challenge Presiding

Arbitrator because of expiration of time limit [Memo of Cl., ¶26-29], Respondent already

raised a timely challenge to Presiding Arbitrator when it submitted the statement of

defense on 2 September 2011. The challenge clauses in CIETAC Rules and Model Law

pose no specific requirements for a party to suffice a “challenge” to an arbitrator.

Essentially, a challenge is an act or instance for formally questioning the legality or legal

qualifications of a person [Black’s Law Dictionary, p.691]. In other words, an expression

of question to matters of “illegality or disqualification” of an arbitrator constitutes a

challenge. In the Challenge Decision re Judge N. Mangard, the appointing authority

concluded that a letter from Iran, which merely contained its dissatisfaction with an

arbitrator’s neutrality, constituted a challenge to this arbitrator [Challenge Decision re

Judge N. Mangard; Khan, p.69; Lauterpacht/Greenwood, p.518]. By analogy, after

elaborating the facts that possibly lead to Presiding Arbitrator’s dependence and partiality,

the request to “terminate the role of Dr. Mercado because the relationships between her

and Presiding Arbitrator is so close, otherwise, we reserve our right to ‘challenge’

Presiding Arbitrator” was raised. Therefore, a challenge to Presiding Arbitrator has

effectively constituted.

29. The word “challenge” to Presiding Arbitrator in the statement of defense, which more

precisely refers to “request a removal” of Presiding Arbitrator, and Respondent’s initial

request for removing Dr. Mercado only illustrates Respondent’s intention to better resolve

the issue instead of delaying the proceedings. It does not hurt the fact that such request

has constituted a challenge to Presiding Arbitrator. Therefore, according to Art.33(6)

CIETAC Rules, when faced with the challenge to an arbitrator, a decision to remove

Presiding Arbitrator or not shall be made.

2. If the Tribunal refuses to remove Presiding Arbitrator, the award would face high

risk of non-enforcement under New York Convention

30. If the Tribunal refuses to remove Presiding Arbitrator, the award would face high risk of

non-enforcement under New York Convention. An unbiased tribunal is the essence in


14

international arbitration, which secures procedural fairness or equality of treatment [Born

(2009), p.1461; Lew et al., p.254; Fouchard et al., p.464; Redfern et al., p.334]. It falls

within the scope of “public policy” of New York Convention and most developed

jurisdictions [van den Berg (1997), p.715-724; van den Berg (2004), p.700-714; van den

Berg (1990), p.509-514; Nat’l Oil v. Libyan Sun Oil; Fertilizer et al. v. IDI MgtI].

31. In this regard, Respondent submits that without a removal of either Dr. Mercado or

Presiding Arbitrator, the award would face high risk of non-enforcement under Art.V

New York Convention. Firstly, Art.V(1)(d) may be invoked, because the “composition of

the arbitral tribunal” was not in accordance with the independence and impartiality

requirements under Art.22 CIETAC Rules and Art.18 Model Law. Secondly, Art.V(1)(b)

may be invoked, because Respondent was “unable to present its case” under a biased

tribunal. Lastly, the award issued by a biased tribunal is contrary to the public policy

under Art.V(2)(b) New York Convention, which would lead to non-enforcement by the

court ex officio. Accordingly, in order to ensure the enforcement of the award, the

Tribunal should remove Presiding Arbitrator if it refuses to remove Dr. Mercado.

ISSUE II: THE TRIBUNAL HAS NO JURISDICTION TO CONSIDER THE

CLAIMS ASSOCIATED WITH THE LEASE CONTRACT

32. Claimant argued that, despite the alleged bribery, all of its claims are objectively

arbitrable [Memo of Cl., ¶41]. Respondent submits that the Tribunal has no jurisdiction to

consider the claims associated with the lease contract, because the bribery impairs the

arbitrability of the claims [A], and the award would risk non-enforcement if the Tribunal

considers the claims [B].

A. THE BRIBERY IMPAIRS THE ARBITRABILITY OF THE CLAIMS

33. Respondent submits that the bribery impairs the arbitrability of the claims associated with

the lease contract, because the bribery is against public policy and impacts the

arbitrability of the claims [1]; and the direct connection between the bribery and the

dispute makes the claims inarbitrable [2]. Further, the Tribunal should consider the laws

of Pacifica when determining the arbitrability of the claims [3].


15

1. The bribery is against public policy and impacts the arbitrability of the claims

34. Not every dispute can be settled by arbitration even if the parties have such arbitration

agreement [Born(2009), p.766]. Both Art.34(2)(b)(i), Art.36(1)(b)(i) Model Law and

Art.II(1), Art.V(2)(a) New York Convention require that disputes should be “capable of

settlement by arbitration”. It is generally accepted that restrictions on subject-matter

“arbitrability” are to be drawn from public policy for a given law to determine [Born

(2009), p.766; Redfern et al., p.123]. The rationale is that public interest involved in the

arbitration renders the claim not merely a private matter but one affecting the public

[Born (2009), p.767], and such disputes may entail the exercise of unique governmental

authority [Born (2009), p.774].

35. Bribery is contrary to public policy [Lew et al., p.214; World Duty Free v. Kenya;

Barratt/Ichilcik, ¶1; Hwang/Lim, ¶166]. In international commercial transactions, bribery

produces a ripple effect not only on the economic, social and political fabric of the

country concerned but also that of the international community [Eicher, p.3;

Transparency International, ¶1; ILA Final Report, ¶32; Silva, p.281]. It constitutes a

hindrance to the healthy development of international business and trade, distorting the

normal function of trade [Lowenstein, p.800; Nichols, p.465]. Furthermore, it threatens

the credibility of capitalism and free-market economics, and impeaches the fair

competition order of market economics worldwide [Nesbit, p.1294; Nichols, p.465].

Besides, it is also contrary to good morals, undermining the legitimacy of democratic

systems of government [Nesbit, p.1294; Mistelis/Brekoulakis, p.210; Sheppard/Delaney,

§1]. Fighting against bribery is deemed to overridingly protect the general interest and

prevail procedural loyalty [Redfern et al., p.130; Mistelis/Brekoulakis, p.217; Fouchard et

al., p.312]. Such anti-corruption norms have been promoted by various intergovernmental

organizations, non-governmental organizations and the legislations of many states

[Cremades/Cairns, p.79; UNCA; ICC Rules of Conduct; UK Bribery Act; Penal Code of

Brazil; Criminal Law of China; Anti-trust Law of China]. Therefore, an allegation of

bribery is usually perceived to be a cause of non-arbitrability of the dispute involving that

bribery [ICC No.1110; HUBCO v. WAPDA].


16

36. In the present case, bribery is involved in the damages claims associated with the lease

contract [Sta. of Def., ¶14 & 15]. Considering that such bribery is seriously against the

anti-corruption policy, the damages claims associated with the lease contract may not be

settled by arbitration. Thus, the Tribunal should prudently decide whether to exercise its

jurisdiction over this dispute.

2. The direct connection between the bribery and the dispute makes the claims

inarbitrable

37. It is widely recognized that bribery is contrary to public policy and impacts the

arbitrability. The impact will be aggravated if the bribery is in a direct connection with

the dispute. In most international commercial arbitration cases, when such a connection

emerged, such as the contract was procured by bribery, the dispute arising out of or

associated with the contract may not be settled by arbitration [ICC No.3913; Fili

Shipping v. Premium Nafta; ICC No.3916; ICC No.5622; ICC No.6248; ICC No.6497;

ICC No.8891].

38. In the present case, Respondent defends that the lease contract, with which the damages

claims associated, was procured by the bribery. There were very few yachts that could

meet Claimant’s needs and those yachts were not available for lease during the necessary

time period except Mr. Goldrich’s, but Mr. Goldrich did not normally lease his yacht, and

he had done so only on a few occasions [P. O. 2, ¶21]. With a purpose to effect an

“introduction” to Mr. Goldrich, the broker passed part of the success fee to the personal

assistant of Mr. Goldrich [Sta. of Def., ¶13]. Furthermore, the personal assistant used to

influence Mr. Goldrich in his various financial affairs after accepting bribes [Sta. of Def.,

¶13], and had been convicted of receiving the bribe from the broker in the present case as

well as three additional counts of receiving a bribe on other occasions [P. O. 2, ¶26].

Therefore, it is reasonable to deduce that the lease contract was procured by the bribery,

although both Claimant and Mr. Goldrich were unaware of it.


17

3. The Tribunal should consider the laws of Pacifica when determining the

arbitrability of the claims

39. Respondent submits that when determining whether the claims are arbitrable, the

Tribunal should take the criminal anti-corruption laws of Pacifica into consideration. In

the present case, most of Claimant’s requests were in connection with the lease contract,

and the laws of Pacifica were closely connected to this contract, for the owner of the

yacht, Mr. Goldrich, was a resident of Pacifica, and the M/S Pacifica Star was registered

there [P. O. 2, ¶25]. In this regard, Respondent can rightfully request the Tribunal to

attach sufficient attention to the anti-corruption provision of Pacifica. The Criminal Code

of Pacifica prohibits private entities’ acceptance of money or other items of value for

assisting the provider to obtain or retain business with the employer or principal [Res. Ex.

2]. Therefore, the personal assistant’s conduct had constituted a criminal offence in

Pacifica. Since issues of criminal nature are usually considered to be inarbitrable [Redfern

et al., p.130; Mistelis/Brekoulakis, p.208; Mayer, p.275-278; Mourre, p.97], the bribery is

serious enough to impair the arbitrability of the claims.

40. Moreover, the criminal anti-corruption provision of Pacifica is not an exception. It

reflects the international consensus to prohibit bribery. A number of states also have

enacted legislations that prohibit the bribery of private individuals as appeared in the

present case [UNCAC; UK Bribery Act; Penal Code of Brazil; Criminal Law of China].

Therefore, the Tribunal needs to be vigilant to the bribery-related claims and dismisses

the arbitrability of such claims before rendering an award. Such an approach not only

ensures compliance with the relevant legislations but also serves the overall purposes of

international arbitration, by ensuring that enforceable awards are rendered and that the

arbitral process is not abused [Hoffman, ¶13; Redfern et al., p.432; Art.35 ICC Rules;

Art.36.2 SIAC Rules].

B. THE ENFORCEMENT OF THE AWARD WOULD BE REJECTED IF THE TRIBUNAL

CONSIDERS THE CLAIMS

41. Claimant argued that the Tribunal is allowed to decide on the questionable claims even if

it is a priori unclear whether arbitrability is excluded [Memo of Cl., ¶47]. Respondent


18

submits that if the Tribunal deals with such claims, the enforcement of the award would

be refused due to the non-arbitrability of the claims [1]. Further, even the claims were

arbitrable, the enforcement of the award would violate the public policy under New York

Convention [2].

1. The enforcement of the award will be refused due to the non-arbitrability of the

claims

42. The “non-arbitrability” of a dispute was a ground to refuse enforcement according to

Art.V(2)(a) New York Convention. In the present case, as demonstrated above, it is clear

that the bribery has deprived the claims of their arbitrability. The sensitive issue should be

resolved under the exclusive jurisdiction of domestic courts [Kronke et al., p.348; Lew et

al., p.187; Born (2001), p.232]. If the Tribunal rashly decides on the non-arbitrable claims,

the enforcement of the award will be refused [Fiona v. Privalov; Westacre v. Jugoimport].

2. The enforcement of the award would violate the public policy under New York

Convention

43. Presuming but not conceding that the claims associated with the lease contract are

arbitrable, an award embracing such claims would not be enforced under Art.V(2)(b)

New York Convention, because the anti-corruption policy falls within the public policy

under New York Convention [2.1]; and the enforcement of the award would be contrary

to the anti-corruption policy [2.2].

2.1. The anti-corruption policy falls within the public policy under Model Law and

New York Convention

44. The general pro-enforcement bias requires a narrow interpretation of the public policy

under Art.V(2)(b) New York Convention [Parsons & Whittemore Overseas Inc. v.

RAKTA; van den Berg (1981), p.268; Hebei v. Polytek]. Accordingly, the public policy

of enforcement state should be confined to the state’s most basic notions of morality and

justice [ILA Final Report, ¶25; Kronke et al., p.365; Gaillard et al., p.797; Fouchard et al.,


19

p.996; Mistelis (2000), p.250; Smart v. Domotique; Soleimany v. Soleimany].

Furthermore, this requirement of fundamentality also means that the public policy is

confined to the enforcement state’s public policies which have extra-territorial or

cross-border application [Hebei v. Polytek; van Houtte, p.841; Zhilsov, p.81]. For its very

nature, an enforcement court should take into account the international nature of the case

and the existence of a consensus within the international community in order to determine

whether the public policy is sufficiently fundamental to justify the refusal to enforce an

award [ILA Final Report, ¶32].

45. As demonstrated above [Memo of Res., ¶35], international consensus has gradually

developed over the effect that states ought to prohibit all forms of corruption. Many

countries make bribery a criminal offence as a result of signing international conventions

combating corruption [UK Bribery Act; FCPA; OECD Convention; UNCAC; UNTOC].

Ample case law and scholars thus acknowledge that the anti-corruption public policy falls

within the public policy for enforcement [ILA Final Report, ¶32; ICC No.1110; ICC

No.5622; ICC No.6248].

46. Claimant argued that there is no public interest in the outcome of the dispute

ascertainable [Memo of Cl., ¶44], since laws in other relevant countries, namely Danubia,

Equatoriana and Mediterraneo, do not criminalize the bribery in respect of an official of a

private company [Res. Ex. 2; P. O. 2, ¶27]. Respondent submits that the

non-criminalization does not indicate the present countries legitimate private commercial

bribery, or the public policy of the countries tolerates such bribery. Even if the

enforcement state condones the bribery, the public policy against all forms of corruption

should be maintained because the enforcement of the award should not cause or condone

injustice, otherwise it may undermine the public confidence in arbitration.

2.2. The enforcement of the award would be contrary to the anti-corruption public

policy

47. Art.V(2)(b) New York Convention can be invoked when the enforcement of the award

would have the effect of compelling the parties to act in a manner contrary to public


20

policy in the forum country [Pryles/Moser, p.412; Kronke et al., p.365; Adviso NV v.

Korea Overseas Construction Corp.; UN ESC Document]. Accordingly, if a contract is

tainted by bribery, the enforcement of an award purporting to enforce such illegal

contract would indirectly protect bribery, and therefore violates the anti-corruption policy

[Lew et al., p.723; Westacre v. Jugoimport; Soleimany v. Soleimany; Lemenda v. African

Middle East Petroleum; Hwang/Lim, ¶172].

48. The present case is not about criminal charges against the broker but about the civil law

question of damages [Memo of Cl., ¶43]. However, the majority of Claimant’s damages

are associated with the lease of the M/S Pacifica Star [Sta. of Cl., ¶4 & 18], which was

tainted by the corruption abetted by Claimant’s agent [Sta. of Def., ¶15]. Claimant alleged

that it was unaware of the bribery and the remediation expenses were reasonable [Res. Ex.

1; P. O. 2, ¶22 & 23; Sta. of Cl., ¶17 & 18; Memo of Cl., ¶112]. However, such expenses

should not include unjust enrichment of one party deriving from turpitude at the expense

of the other party. The enforcement of the award containing damages associated with

bribery would compel Respondent to pay for the bribery, which violates the

anti-corruption policy.

ISSUE III: RESPONDENT SHOULD BE EXEMPT FROM LIABILITY UNDER

ART.79 CISG

49. Respondent engaged Specialty Devices, an independent manufacturer, to provide the

processing units, which were core elements of the control system ordered by Claimant

[Sta. of Cl., ¶8]. And Specialty Devices engaged High Performance to provide D-28 chips,

an essential part of processing units [Sta. of Cl., ¶9]. D-28 chips were critical to

Respondent’s performance. Respondent submits that Specialty Devices and High

Performance were third parties within the meaning of Art.79(2) CISG. Claimant raised no

objection to the application of Art.79(2) [Memo of Cl., ¶54]. According to Art.79(2), a

breaching party could be exempt when both the party itself and the third parties it

engaged could be exempt under the preceding article, i.e., Art.79(1) [CISG-AC Op7, §2.3;

Bianca/Bonell, p.585; Lookofsky (2000), p.164; Schlechtriem/Schwenzer, p.820]. The

breaching party must also give notice to the other party of the impediment and its effect


21

on his ability to perform under Art.79(4) [Lookofsky (2000), p.166; Schlechtriem (1986),

p.105]. Respondent [A], Specialty Devices and High Performance [B] fulfilled the

requirements of Art.79(2), and Respondent gave a timely and qualified notice to Claimant

[C].

A. RESPONDENT FULFILLED THE REQUIREMENTS OF EXEMPTION

50. Under Art.79(1), a party seeking for exemption must prove that it could not reasonably be

expected to have taken that impediment beyond its control into account at the time of the

conclusion of the contract or have avoided or overcome it or its consequences, and the

non-performance must be due to that impediment [CISG-AC Op7, ¶1; Bianca/Bonell,

p.578; Honnold, p.483; Lookofsky (2000), p.161-163]. Respondent fulfilled the

requirements of exemption because the fire suffered by High Performance was beyond its

control [1]; and it was not reasonably expected to foresee the fire [2], or to avoid or

overcome the fire or its consequences [3]. A tribunal may require the impediment to be

the only reason for the non-performance [Schlechtriem/Schwenzer, p.818]. Even the

Tribunal adopts this standard, the non-performance should be considered due to the fire

since the latter is the only reason for the non-performance.

1. The fire suffered by High Performance was beyond Respondent’s control

51. The situations qualifying as force majeure are impediments that are beyond parties’

control [Honnold, p.483; Lookofsky (2000), p.161; Schlechtriem/Schwenzer, p.814]. The

sphere of control referred in this article should be under a possible and reasonable

standard [Schlechtriem/Schwenzer, p.814]. In the present case, High Performance, an

independent manufacturer, was not a contracting partner of Respondent [Sta. of Cl., ¶9; P.

O. 2, ¶13]. Respondent could not possibly control the fire happened at the manufacturing

facility of High Performance, and it was not reasonably expected to do so. Thus, the fire

suffered by High Performance and the insufficiency of the D-28 chips caused by the fire

were beyond Respondent’s sphere of control and Respondent bore no risk for them.


22

2. Respondent could not be reasonably expected to foresee the fire suffered by High

Performance

52. To constitute force majeure, the impediment must be a situation that the breaching party

could not be reasonably expected to take into consideration at the time of the conclusion

of the contract [Lookofsky (2000), p.162; Bianca/Bonell, p.580; Honnold, p.483]. And the

reference is thus the reasonable person, i.e., a person “halfway between the inveterate

pessimist who foresees all sorts of disasters and the resolute optimist who never

anticipates the least misfortune” [Bianca/Bonell, p.580-581]. The defaulting party could

only be exempt if it was reasonably unforeseeable that the impediment should occur

during the course of the contract [Bianca/Bonell, p.580-581].

53. In the present case, as a reasonable person, Respondent was not expected to foresee the

fire suffered by High Performance, a third party to Respondent’s contract with Specialty

Devices [Sta. of Cl., ¶9]. Even if it was generally foreseeable that a fire would happen in

the manufacturing facility of Specialty Devices or its suppliers, it was unforeseeable that

it would occur during the performance of this contract.

3. Respondent was not reasonably expected to avoid or overcome the fire or its

consequences

54. Art.79(1) also requires the breaching party to prove that he could not reasonably be

expected to avoid or overcome the impediment or its consequences [CISG-AC Op7, ¶1;

Lookofsky (2000), p.163; Bianca/Bonell, p.580; Schlechtriem/Schwenzer, p.817]. In the

transaction where a third party is involved, the key element for exemption is whether the

performance is still practicable for the breaching party [Lookofsky (2000), p.163; Ziegel,

¶3].

55. In the present case, Respondent could not avoid the consequences of the fire since it

could not avoid the fire or the shutdown of the manufacturing facility caused by the fire.

Once there was a shutdown of the manufacturing facility, there would be an insufficiency

of D-28 chips.


23

56. Further, Respondent could not overcome the consequences of the fire. High Performance

was the monopoly manufacturer of D-28 chips [Sta. of Cl., ¶9], and all the chips in stock

were delivered to Atlantis Technical Solutions [Cl. Ex. 7]. Thus, it was impossible for

Respondent to get D-28 chips from either High Performance or Atlantis Technical

Solutions to supply Specialty Devices. Besides, it would not guarantee a timely

performance to Claimant, either redesigning a new processing unit or getting a

manufacturer to produce a “clone” of D-28 chip [P. O. 2, ¶12].

B. THE THIRD PARTIES FULFILLED THE REQUIREMENTS OF EXEMPTION

57. Respondent submits that its third parties, Specialty Devices and High Performance,

fulfilled the requirements of Art.79(2)(b) because the fire was beyond their control [1].

Both Specialty Devices and High Performance were not reasonably expected to foresee

the fire [2], or to avoid or overcome the fire or its consequences [3]. As stated above, the

fire was the only reason for the non-performance by High Performance and Specialty

Devices [Cl. Ex. 2]. Thus, the non-performance was due to the impediment.

1. The fire was beyond the control of High Performance and Specialty Devices

58. Parties will be free from obligation when an unforeseen circumstance, such as fire,

beyond the control of the parties occurs [Zhao, §4]. If the impediment is not extraneous to

the activity of the defaulting party, i.e., if it is under his control, it produces no exempting

effect [Bianca/Bonell, p.579]. In the present case, the impediment was the fire caused by a

short circuit. It was not High Performance’s behavior that incurred this accident.

Therefore, the fire was extraneous to the activities of High Performance. The fire was

beyond High Performance’s control. Claimant agreed with Respondent on this point

[Memo of Cl., ¶78]. Moreover, fire is traditionally considered an event which is beyond

the control of the contractor. In the absence of proof to the contrary and unless otherwise

agreed in the contract between the parties expressly or impliedly, a party invoking force

majeure clause shall be presumed to have established the condition “beyond control” in

case of occurrence of fire. [Art.3(f) ICC Force Majeure Clause].


24

59. The situation of Specialty Devices was similar to Respondent’s. The fire happened to

High Performance, an independent contracting party to Specialty Devices. Specialty

Devices could not influence High Performance’s management of manufacture. Besides,

D-28 chip was a monopoly product only produced by High Performance. Even the choice

of subcontractor was not in the control of Specialty Devices, nor the fire happened to the

subcontractor. Therefore the fire was beyond Specialty Devices’ control.

2. High Performance and Specialty Devices could not be reasonably expected to

foresee the fire

60. If the occurrence of the disruptive event was not reasonably foreseeable, then the

promisor cannot be deemed to have assumed the risk associated with the event

[Waldinger Corp. v. CRS Group Engineers]. Besides, contractor could be excused if he

shows affirmatively that his failure to perform was proximately caused by an

unforeseeable contingency [Nissho-iwai v. Occidental Crude Sales].

2.1. High Performance could not be reasonably expected to foresee the fire

61. As CISG keeps silent on the circumstances of unforeseeabilty, other similar legislations

could be referred to interpret it. Under the UCC, there are several occurrences that are

considered unforeseeable and may excuse a seller from performing under a contract,

including fire [UCC Guidance]. It is difficult for the defaulting party to prove the

impediment unforeseeable. So the ICC Force Majeure Clause rules that, a party alleging

force majeure shall be presumed to have established the condition “unforeseeable” in case

of occurrence of fire, without contrary proof [Art.3(f) ICC Force Majeure Clause]. In the

present case, the fire at the production facility of High Performance, which occurred on 6

September 2010, is out of expectation [Cl. Ex. 3]. It is reasonable to regard the fire as an

unforeseeable contingency which alters the essential nature of the performance.

62. Foreseeability must be appreciated at the time of the conclusion of the contract. And the

foreseeability test should focus on not only the impediment per se but also the time of its

occurrence [Bianca/Bonell, p.581]. The fire was started by a short circuit in an electrical


25

installation and the fire inspectors ruled it to be an accident [P. O. 2, ¶8]. Accidents are

usually out of expectation. By the time the contract was constituted, it was unreasonable

to expect High Performance to foresee such an accident would happen during the

performance of the contract.

2.2. Specialty Devices could not be reasonably expected to foresee the fire

63. The fire was an accident which would seldom happen. High Performance is the

subcontractor of Specialty Devices and is independent from the latter. There is no

evidence showing that the former had negligence in manufacture before or at the time of

the conclusion of the sub-contract. Therefore, it is unreasonable to expect Specialty

Devices to foresee the fire at the time of the conclusion of the contract.

3. The fire and its consequences could not be reasonably expected to be avoided or

overcome

64. Specialty Devices and High Performance could not avoid or overcome the fire or its

consequences. This issue essentially deals with whether the performance of the contract

was still practicable after the fire [Lookofsky (2000), p.163; Bianca/Bonell, p.581].

3.1. High Performance was not reasonably expected to have avoided or overcome

the fire or its consequences

65. The duty to avoid and overcome an impediment is subject to the standard of

reasonableness [Bianca/Bonell, p.581]. For instance, an obligor cannot be expected to

take precautions out of proportion to the risk or to adopt illegal means to avoid the risk

[Brunner, p.320]. The fire happened to High Performance was caused by a short circuit

[P. O. 2, ¶8]. Measures to avoid the short circuit could be extremely enormous. And it

would be impossible to avoid the short circuit completely or the fire caused thereby.

Further, in the case of unforeseeable impediments whose origins are not within one’s

control, the impediments should be considered unavoidable [Schlechtriem (1986), p.100;

Bianca/Bonell, p.581]. Since the unforeseeable fire suffered by High Performance was


26

beyond control as proved above, the fire could be reasonably considered unavoidable.

High Performance cannot be expected to avoid the fire caused by a short circuit

66. It is also unlikely for High Performance to be expected to overcome the consequences of

the fire, namely the shortage of the D-28 chips, because there was rather limited stock of

chips after the fire. High Performance was unable to fulfill the obligations to his majority

of customers [Cl. Ex. 3]. In such case, it is unreasonable to require High Performance to

satisfy Respondent alone. Rather, High Performance could allocate the stock at its option

as long as reasonable, because (1) High Performance bore no contractual or legal

obligation to deliver the chips solely to Respondent or allocate the chips on pro rata basis;

(2) when the impediment affects only a part of the seller’s capacity to perform, the seller

must allocate the stock among his customers but may at his option include regular

customers and may so allocate in any manner which are fair and reasonable [UCC

2-615(b); Schlechtriem/Schwenzer, p.816].

67. In this connection, supplying the stock to Atlantis Technical Solutions, a regular customer,

is a reasonable and fair way to allocate. The definition of regular customer in essence

includes parties with which the exporter had dealt on a regular basis during the previous

five years [Feed Processing Corp. v. Grain Dealers, PLC]. Atlantis Technical Solutions is

a regular customer considering that it has maintained close business relationship with

High Performance for five years [Cl. Ex. 7]. Satisfying the needs of regular customers

firstly was a reasonable and fair way supported by practice. In the Intermar Inc. v.

Atlantic Richfield Co. case, the court alleged allocating supply to both pre-existing

contractual customers and regular customers did not make the allocation scheme unfair or

unreasonable [Intermar v. Atlantic Richfield]. In contrast, the seller would fail to allocate

his goods in a fair and reasonable manner only when he chooses a customer who was

neither a regular customer nor a contractual partner to supply the goods [Roth Steel

Products v. Sharon Steel Corp.]. Besides, UCC also illustrates “regular customer” as an

element to be considered in allocation.

68. Supplying all the chips or half of the stock to Specialty Devices is a less reasonable way.

Specialty Devices was neither a regular customer nor could it be expected to become one

[Cl. Ex. 3]. Its order was relatively small and it appears to remain the only one in the near


27

future [Cl. Ex. 3]. Hence, there is no reason for High Performance to give Specialty

Devices such priority, and it could not convince other customers that such allocation was

reasonable and fair. As to allocating the stock on a pro rata basis, that would not have

been satisfactory for the majority of High Performance’s customers [Cl. Ex. 3].

3.2. Specialty Devices was not reasonably expected to have avoided or overcome the

fire or its consequences

69. “To avoid” means taking all the necessary steps to prevent the occurrence of the

impediment, and “to overcome” means taking the necessary steps to preclude the

consequences of the impediment [Bianca/Bonell, p.581]. It is closely associated with the

condition of the external character of the impeding event and on a case-by-case analysis

[Bianca/Bonell, p.581], which requires analysis of the behavior of the defaulting party. In

the present case, Specialty Devices could not control the fire or prevent it from damaging

the facility. Thus Specialty Devices could neither prevent nor avoid the occurrence of the

fire and insufficiency of the chips.

70. Specialty Devices had taken all necessary steps to overcome the insufficiency of the D-28

chips but failed unfortunately. As the order of Specialty Devices was quite small and it

was not a regular customer, Specialty Devices was not provided D-28 chips from High

Performance [Cl. Ex. 3]. Specialty Devices did approach Atlantis Technical Solutions to

see whether it could purchase the number of D-28 chips it would need for the processing

units, but was refused [P. O. 2, ¶11]. Besides, it was also impossible for Specialty

Devices to acquire a substitute in case of late performance. Redesigning processing units

around substitute chips with a different specification to the D-28 chips would have

involved severe delay and costs while providing no guarantee of comparable performance

with the unique qualities of the D-28 chips. Even adopting the “clone” of the D-28 chips

produced by another manufacturer would also cause delay [P. O. 2, ¶12].

C. RESPONDENT GAVE A TIMELY AND QUALIFIED NOTICE TO CLAIMANT

71. Under Art.79(4), the party who fails to perform must give notice to the other party of the


28

impediment and its effects on his ability to perform [Secretariat Commentary on Art.79,

¶15; Lookofsky (2000), p.166; Bianca/Bonell, p.586].

72. In the present case, Respondent informed Claimant of the impediment and its effects by

email on 13 September 2010, i.e., only 3 days after it got the information of the fire [Cl.

Ex. 2]. This email is a timely and qualified notice under Art.79(4).

ISSUE IV: THE CLAIMED DAMAGES SHOULD NOT BE RECOVERABLE

73. Claimant requested damages in total amount of USD 670,600, consisting of the rental

cost, the brokerage commission, the success fee and the ex gratia payment. Respondent

submits that the loss for chartering the yacht, i.e., the rental cost, the brokerage

commission, the success fee [A], and the loss for the ex gratia payment [B] should not be

compensated pursuant to Art.74 CISG. Should the Tribunal find those losses compensable,

Respondent would claim a reduction in the damages [C].

A. THE LOSS FOR CHARTERING THE YACHT SHOULD NOT BE COMPENSATED

74. Contrary to Claimant’s submission, Respondent submits that the loss for chartering the

yacht was not compensable under Art.74 [1]; the bribery tainted its compensability [2].

1. The loss for chartering the yacht was not compensable under Art.74

75. Art.74 requires that a loss is compensable if it is a result of Respondent’s breach, and

ought to have been foreseen at the time of the conclusion of the contract

[Schlechtriem/Schwenzer, p.746]. The loss for chartering the yacht is not a result of

Respondent’s breach [1.1], and could not have been foreseen by Respondent [1.2].

1.1. The loss for chartering the yacht is not a result of Respondent’s breach

76. Claimant argued that the loss for chartering the yacht was due to Respondent’s delayed

delivery, and shall be compensated [Memo of Cl., ¶86]. Such cost was out of


29

Respondent’s liability. Under Art.74, losses as a result of Respondent’s breach are to be

compensated to satisfy the aggrieved party for the value of its unrealized contractual

expectation [CISG-AC Op6, ¶3]. The object of this provision is to protect promisee’s

expectation interest and the loss beyond the expectation interest shall not be compensated

[Farnsworth, ¶2; Saidov (2001), §I.1]. The value of the expectancy is to be measured

“objectively” according to the goods’ market price, rather than in terms of its utility to the

promisee in his particular situation [Fuller/Perdue, §5].

77. In the present case, Claimant refurbished the yacht by using a range of subcontractors and

suppliers [Sta. of Cl., ¶6]. The yacht would become a venue only after all these

refurbishment contracts were executed and all the systems were tested [Sta. of Cl., ¶7].

The interest of the event operation depends on the successful performance of all

Claimant’s subcontractors. It is unreasonable to expect Respondent’s performance to

serve the purpose of the conference, because Respondent was merely one of Claimant’s

subcontractors [Sta. of Cl., ¶6 & 7], installation and configuration of the control system

only partially contributed to the yacht refurbishment. Besides, a qualified system able to

function well made by other firm would also satisfy Claimant’s expectation [Cl. Ex. 4].

78. Moreover, justice may subject the expectation protection to the limitation of damages to

avoid disproportionate compensation [Art.351(3) Second American Restatement of

Contracts; Hadley v. Baxendale; Lookofsky (2007), p.69]. The main factor to determine

the limitation is the relationship between the size of the loss for promisee and the

economic situation of the promisor [Art.24 Danish Liability Act; Lookofsky (2007), p.71].

79. In the present case, the rental cost, the brokerage commission and the success fee amount

to USD 558,600 [Sta. of Cl., ¶18]. Respondent was only paid USD 699,950 for the

underlying contract [Sta. of Cl., ¶16]. To get this price, Respondent devoted efforts to find

specialist suppliers and installers, to buy the highest standard chips, to manufacture the

sophisticated system, to deliver, install, configure and verify the final product [Sta. of Cl.,

¶8, 9 & 16]. With the claimed damages deducted, Respondent could only get USD

141,350 from the contract, which obviously cannot cover Respondent’s cost. Thus, the

claimed damages is disproportionate and goes far beyond Respondent’s liability.


30

80. For these reasons, loss for chartering the yacht was beyond the protection of expectation

interest under Art.74, and shall not be compensated resulting from Respondent’s breach.

1.2. Respondent could not have foreseen all the costs concerning the lease contract

81. The foreseeability test is both subjective and objective: the party may be held liable not

only for losses which it actually foresaw, but also for losses which it “ought to have

foreseen” [Saidov (2008), p.103]. In the present case, Respondent could not have

foreseen all the costs concerning the lease contract for the following reasons.

82. Firstly, Respondent could not be aware of the scheduled event [Sta. of Def., ¶1; Sta. of Cl.,

¶11]. Knowledge is an essential factor in evaluating foreseeability [Saidov (2008), p.105;

Saidov (2001), §II.2.(a)(i); Babiak, p.139]. Respondent had no independent knowledge as

to the Claimant’s status [Sta. of Def., ¶1; Sta. of Cl., ¶5 & 6]. Since Respondent did not

know that Claimant was to operate high-end venues, Respondent could not have foreseen

that a delayed delivery of the master control system would hinder Claimant’s plan to

operate the yacht as a venue. Claimant might argue that Respondent should have basic

knowledge about its client, but Respondent still could not have foreseen that in such a

short time Claimant would need the yacht to hold a high-end conference. All of the

systems were to be tested at the end of January [Sta. of Cl., ¶7], and the event was

scheduled on 12-18 February. The time to prepare such a high-end venue is only half a

month, which is so short that goes beyond a reasonable person’s knowledge. So

Respondent could not have foreseen the lease of a luxury yacht, a fortiori all the costs

concerning the lease contract.

83. Moreover, it is important to supplement the foreseeability rule by considering the purpose

and intention of the contract [Sophia, §2.3.3; Schlechtriem/Schwenzer, p.763]. Claimant

stated that Respondent knew the purpose of the contract was to provide an exclusive

venue to host events [Memo of Cl., ¶97]. However, Respondent could not have known

such purpose. In the present case, Claimant did not communicate with Respondent

regarding the scheduled yacht event at the time of the conclusion of the contract [P. O. 2,

¶14]. Moreover, it even paid full contracting price immediately after Respondent finished


31

the performance [Sta. of Cl., ¶16]. Respondent was only expected to deliver, install and

configure the qualified control system, and the purpose of the contract was merely the

partial refurbishment of the yacht.

2. The corruption renders all losses associated with the lease contract not

compensable

84. Although the compensation rules of CISG do not deal with money involving illegal

activities, a general principle has been established that no court will lend its aid to a man

who founds his cause of action upon an immoral or illegal act [Holman v. Johnson]. Such

principle is recognized by most legal systems and illustrated by decisions of many cases

[Sheppard/Delaney, §5; World Duty Free v. Kenya; Soleimany v. Soleimany].

Specifically, as to the success fee, money transferred under an agreement between a

principal and his intermediary for the latter to bribe a third party cannot form the subject

of a claim [Hwang/Lim, ¶99]. In the present case, part of the success fee was passed to

the assistant of Mr. Goldrich to obtain the lease contract, which is a crime under the laws

of Pacifica, the place of the commission of the act. Thus Claimant should not consider

this payment as damages since it was used to commit a crime.

85. Even though Claimant argued that it had no contractual relationship with the assistant of

Mr. Goldrich and did not know about the irregularities [Memo of Cl., ¶102], the payment

was under its authority and it ought to have recognized the existence of the bribery due to

the relevant circumstances. When concluding agency contracts with private persons,

awareness must exist of “red flags”, which would indicate the possibility of bribe [Impert,

p.1018]. These red flags may consist of, inter alia, the request of a commission at a level

substantially higher than usual, the request of a success fee and the reputation of an agent

[Goossens, §III.B.(a)]. It rarely happened that the rate of the commissions for a single

agent was greater than 1% or 2% [ICC No.8891]. However, in the present case, Claimant

paid not only a commission fee as high as 15% of the rental cost, but also a success fee in

the amount of 11% to the broker [Sta. of Cl., ¶18]. In such an unusual circumstance, it

would be unreasonable for Claimant to agree to pay such a large sum of money without

paying attention to the probable purpose and receiver of the money.


32

86. Furthermore, not only the success fee is not an allowable item, all costs associated with

the lease contract are not compensable because the contract was tainted by the bribery.

Irrespective of the risk of criminality, a contract obtained by corruption or illegal means is

both illegal and unenforceable under most legal systems [Pritchard, §9]. Such contract is

contrary to good moral and public policy common to the community of nations [World

Duty Free v. Kenya]. If claims of recovering value transferred under such contract are

allowed, it must prima facie reduce the risks of illegal conduct and encourage the plaintiff

and others like it to neglect the law’s requirements [Birks, §II]. Thus, the compensation

based on the lease contract should be denied since it is the fruit of criminality.

87. Claimant argued that the bribery did not influence the content of the lease contract since

Mr. Goldrich was unaware of the payment made to his assistant [Memo of Cl., ¶112].

However, Mr. Goldrich’s knowledge of the existence of bribery is not the critical factor of

whether the contract was obtained under undue influence. Every bribe is intended to be

secret by payer and payee, accordingly the submission of a separate or collateral bribe

based on such secrecy would save every illegal transaction tainted by bribery [World

Duty Free v. Kenya]. In the present case, the bribe cannot be separated from the lease

contract because the assistant may have somehow influenced the decision of Mr. Goldrich

in a certain degree, even though without his knowledge of the existence of the bribery.

B. THE EX GRATIA PAYMENT SHOULD NOT BE COMPENSATED PURSUANT TO ART.74

88. Claimant contended that the ex gratia payment was paid to prevent the loss of goodwill,

which could have been foreseen by Respondent. However, Claimant did not suffer a loss

of goodwill, thus the ex gratia payment was not a possible item of damages [1], and

Respondent could not have foreseen this payment [2].

1. The ex gratia payment was not a possible item of damages

89. Goodwill is an intangible asset which provides a competitive advantage. However, Art.74

does not permit recovery of non-material loss. Loss of goodwill shall only be

compensated if the aggrieved party can establish reasonable certainty that it suffered a


33

financial loss due to a breach of contract [CISG-AC Op6, ¶7; Schlechtriem (2007),

p.90-94]. In the present case, Corporate Executives just stated that their membership

would not accept an on-shore venue without specifying further requirements [Sta. of Cl.,

¶17], thus the replacement yacht has fully satisfied his clients’ need for the conference

since claimant had successfully found a yacht [Sta. of Cl., ¶ 18].

90. Moreover, Art.74 does not protect the interest or goodwill of the third side but the

benefits of the parties who directly conclude the contract [CISG-AC Op6, ¶10]. In the

present case, the ex gratia payment was a refund to the membership of Corporate

Executive [Memo of Cl., ¶67]. The ex gratia payment effectively reduced the registration

fee [Sta. of Cl., ¶19] on condition that the registration fee of the M/S Pacific Star is

roughly equal as that of the M/S Vis [P. O. 2, ¶19]. Even if such payment was made to

retain a loss of goodwill, it was for Corporate Executive, not for Claimant.

2. Respondent could not have foreseen the ex gratia payment

91. Claimant states that the ex gratia payment is made to prevent further damages and a loss

of goodwill [Memo of Cl., ¶97]. Respondent could not have foreseen there would be a

loss of goodwill, a fortiori the ex gratia payment which was made to prevent such loss.

92. An important factor in assessing the breaching party’s foreseeability is this party’s

knowledge [Saidov (2008), p.105; Saidov (2001), §II.2(a)(i); Babiak, p.139]. The seller is

liable for such a loss of goodwill only if, at the time of the conclusion of the contract, the

buyer pointed out the risk of that particular type of loss [Schlechtriem/Schwenzer, p.768;

Sophia, §2.3.2]. In the present case, at the time of the conclusion of the contract, Claimant

neither told Respondent that it had planned an event, nor pointed out the risk of a loss of

goodwill. Respondent was informed in August 2010 that Claimant had planned an event

with Corporate Executives from 12 to 18 February 2011 [P. O. 2, ¶14]. Consequently,

Respondent could not have foreseen such a loss.


34

C. RESPONDENT MAY CLAIM A REDUCTION IN THE DAMAGES PURSUANT TO ART.77

93. Should the Tribunal hold that the above claimed losses are compensable, Respondent has

right to claim a reduction because Claimant failed to mitigate the losses reasonably as

required by Art.77.

94. Art.77 requires Claimant to take measures to mitigate losses; otherwise Respondent may

claim a reduction in the damages. Claimant is to take suitable mitigation measures not

only after a loss has occurred, but also before it arises [Schlechtriem/Schwenzer, p.788].

Moreover, measures to mitigate, including the cost incurred during mitigation, have to be

reasonable [Riznik, §4; Bianca/Bonell, p.561; Saidov (2001), §II.4.b]. In the present case,

Claimant failed to mitigate the loss reasonably.

95. Firstly, Claimant contended that chartering the yacht was in Respondent’s interest.

However, Claimant chartered the yacht in an unreasonable way. The assessment of

reasonableness will take into account whether a transaction to mitigate is conducted on an

arm’s length basis, i.e., to be negotiated on a fair and equal basis [Opie, §III; Condensate

Crude Oil Mix Case], and whether it would cause excessive and unreasonably high

expenses [Saidov (2001), §II.4.b]. In the present case, the M/S Pacifica Star of Mr.

Goldrich was not normally available for lease except a few occasions [P. O. 2, ¶21].

When the broker reported this finding, Claimant promised him a success fee to secure the

lease contract [P. O. 2, ¶22]. The broker bribed Mr. Goldrich’s assistant who had been

receiving similar payments for help in doing business with Mr. Goldrich [Res. Ex. 1].

Instead of negotiating directly with the ship owner to reach a fair and equal bargain,

Claimant chose to pay an unnecessary high brokerage fee to encourage the broker to take

any possible measures, including bribery, to secure the contract. As a result, the rental

cost, brokerage commission, and the success fee were unreasonably high, and apparently

unnecessary if Claimant ever tried to bargain with Mr. Goldrich.

96. Secondly, the ex gratia payment to retain the loss of goodwill is USD 112,000 [Sta. of Cl.,

¶16], which counts about 20% of the cost to charter the yacht. The amount of ex gratia is

excessive and far from reasonable.


35

REQUEST FOR RELIEF

IN LIGHT OF THE ABOVE SUBMISSIONS, RESPONDENT RESPECTFULLY REQUESTS THE

TRIBUNAL TO FIND THAT:

l Dr. Elisabeth Mercado shall terminate her role in the legal team representing Claimant;

l the Tribunal has no jurisdiction over the damages associated with the lease contract;

l Respondent is exempt from liability for the late delivery and installation of the master

control system on the M/S Vis;

IF RESPONDENT IS HELD LIABLE, THEN RESPONDENT REQUESTS THE TRIBUNAL TO FIND

THAT:

l the ex gratia payment of USD 112,000 is not an allowable item of damages;

l the payment of USD 50,000 as the yacht broker’s “success fee” used by the broker in part

to pay a bribe is not an allowable item of damages;

l the corruption in the procuring of the lease contract for the M/S Pacifica Star renders all

costs associated with that lease contract not allowable items of damages;

AND RESPONDENT ALSO REQUESTS THE TRIBUNAL TO HOLD THAT:

l the costs of arbitration including the cost of legal representation to Claimant.

(Signed) 18 January 2012

memorandum for respondent - institute of ... of international arbitration, vol.9, issue 3, 1992...

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