twenty fourth annual willem c. vis international …€¦ · twenty fourth annual willem c. vis...

TWENTY FOURTH ANNUAL WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT

MEMORANDUM FOR RESPONDENT

On behalf of:

SantosD KG

77 Avenida O Rei

Cafucopa, Mediterraneo

RESPONDENT

Against:

Wright Ltd

14 Capital Boulevard

Oceanside, Equatoriana

CLAIMANT

EKATERINA NUZHDOVA • POLINA SIZIKOVA • MARIIA ZINOVEVA • EVGENII PUCHKOV

ELZA DAULETSHINA • KSENIIA SOLOVEVA • ALEXANDER ZHDANOVICH • KONSTANTIN

VASCHENKO

Higher School of Economics • Moscow

Higher School of Economics

II

TABLE OF CONTENTS

TABLE OF ABBREVIATIONS ............................................................................................................. V

INDEX OF LEGAL AUTHORITIES .................................................................................................. X

INDEX OF CASES .............................................................................................................................. XIV

INDEX OF ARBITRAL AWARDS .................................................................................................. XIX

LEGAL SOURCES AND MATERIAL ............................................................................................ XXI

INTRODUCTION ..................................................................................................................................... 1

STATEMENT OF FACTS ........................................................................................................................ 2

I. CLAIMANT’S CLAIMS ARE INADMISSIBLE AND SHOULD BE REJECTED BY

THE CURRENT TRIBUNAL ............................................................................................4

A. Current arbitration should be regarded as being commenced on 7 June 2016 only after a

valid Request for Arbitration was accepted by CAM-CCBC, which is beyond contractual

limitation period ...................................................................................................................................... 4

1. CLAIMANT failed to properly initiate arbitral proceedings within agreed time limits .......... 4

2. The Arbitration Agreement became inoperative as CLAIMANT missed the time

limits ............................................................................................................................................... 6

3. The defects contained in Request for Arbitration could not be dealt between

CLAIMANT and the CAM-CCBC due to expiration of limitation period .................................. 7

B. CLAIMANT’s initial Request for Arbitration does not comply with CAM-CCBC Rules

8

1. CLAIMANT’s failure to fully pay the Registration Fee made impossible valid

commencement of arbitral proceedings ......................................................................................... 8

2. The Request for Arbitration of 31 May 2016 was submitted without proper authority

and cannot be sufficient for commencement of current arbitration ......................................... 9

C. Conclusion .................................................................................................................................. 10

II. THE TRIBUNAL SHOULD GRANT RESPONDENT SECURITY FOR ITS

COSTS ................................................................................................................................. 10

A. The Tribunal has the power and should order security for RESPONDENT’s costs. ......... 11

1. The Agreement between the Parties does not limit the power of the Tribunal to

order security for costs. .................................................................................................................. 11

2. CAM-CCBC rules and lex arbitri confer the Tribunal with the power to order

security for costs .............................................................................................................................. 11

3. Security for costs is accepted both in common and civil jurisdictions. ..................... 12


III

B. RESPONDENT satisfied all the requirements provided by lex arbitri and arbitration

practice .................................................................................................................................................... 13

1. RESPONDENT’s harm overweighs the harm that CLAIMANT would incur if security

for costs is granted. ......................................................................................................................... 13

2. RESPONDENT established the possibility to succeed on the merits of the claim ..... 14

C. RESPONDENT fulfilled the conditions established by arbitral practice. ............................. 14

1. CLAIMANT is in poor financial conditions and lacks funds ......................................... 14

2. After the conclusion of the Arbitration Agreement the situation changed

fundamentally and unexpectedly. .................................................................................................. 15

D. Conclusion .................................................................................................................................. 16

III. CLAIMANT IS NOT ENTITLED TO THE ADDITIONAL PAYMENT FROM

RESPONDENT FOR FAN BLADES ............................................................................... 16

A. The fixed exchange rate introduced by the Addendum applies to the entire DSA ......... 16

1. CLAIMANT was aware or should have been aware about the intent of RESPONDENT

17

2. Reasonable person test applies in favor of RESPONDENT .......................................... 19

B. The exchange rate under the DSA is USD 1 = 2.01 EQD ................................................. 20

1. Under the rule of supplying an omitted term the exchange rate is USD 1 = 2.01

EQD ............................................................................................................................................ 21

2. The past practice of the parties is binding for the present dispute ............................ 22

(i). The Parties are bound by their previous practice of applying the exchange rate of

the time of production .............................................................................................................. 22

(ii). The Parties are bound by their intention expressed in the negotiation to apply the

exchange rate around USD 1 = 2 EQD ................................................................................. 23

3. CLAIMANT bears the risk of fluctuation of EQD ......................................................... 24

C. Conclusion .................................................................................................................................. 24

IV. CLAIMANT IS NOT ENTITLED TO ADDITIONAL PAYMENT OF

USD 102,192.80 FOR THE FEES DEDUCTED BY THE CENTRAL BANK OF

EQUATORIANA ............................................................................................................... 25

A. RESPONDENT performed all of its obligations related to payment when it was effected

to CLAIMANT ......................................................................................................................................... 25

1. The contractual obligations have been fulfilled by RESPONDENT ............................. 26

2. The Levy is not a bank charge, but a public charge, and therefore is exempted from

the DSA’s allocation of responsibility for bank charges ............................................................ 27


IV

3. Art. 54 CISG does not encompass public regulations unrelated to the payment .... 28

4. Payment of the levy is not an “usage” implied in the DSA ........................................ 30

B. CLAIMANT should have notified RESPONDENT about the existence of the levy ............. 31

C. RESPONDENT should be granted exemption under Article 79 CISG ................................ 33

D. Conclusion .................................................................................................................................. 34

PRAYER FOR RELIEF .......................................................................................................................... 35


V

TABLE OF ABBREVIATIONS

ACICA Australian center of International Commercial Arbitration

AML Anti Money Laundering

Answer to Request

for Arbitration

Answer to Request for Arbitration from 24 June 2016

Arbitration

Agreement

Sec. 21 of DSA

ASA Swiss Arbitration Association (Association Suisse de l’Arbitrage)

Article Art.

AUT Austria

CAM-CCBC Center for Arbitration and Mediation of the Chamber of Commerce

Brazil-Canada

CAM-CCBC Rules Center for Arbitration and Mediation of the Chamber of Commerce

Brazil-Canada Arbitration Rules 2011

CE CLAIMANT’s Exhibit

CEPANI Belgian Centre for Arbitration and Mediation

CIETAC China International Economic & Trade Arbitration Commission

(Beijing, China)

CISG United Nations Convention on Contracts for the International Sale

of Goods of 11 April 1980


VI

CISG-AC Advisory Council of the Vienna Convention on Contracts

for the International Sale of Goods

CHN China

DSA Development and Sales Agreement of 1 August 2010

e.g. exemplum gratii (for example)

ed. Edition

ECB Equatoriana Central Bank

ENB Equatoriana National Bank

EQD Equatorianian Denars

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

et.seq./et.seqq. et sequens/et sequentes (and the following one/s)

EWHC High Court of Justice of England and Wales

Fasttrack Horace Fasttrack, representative of CLAIMANT, to the CAM-CCBC

FIN Finland

FIU Financial Investigation Unit

FRA France

GER Germany

GmbH Limited Liability Company in Germany (Gesellschaft mit be-

schränkter Haftung)


VII

HKIAC Hong Kong International Arbitration Center (Hong Kong, SAR of

the People's Republic of China)

i.e. id est (that is)

ibid. ibidem (the same)

ICC International Chamber of Commerce (Paris, France)

ICSID International Centre for Settlement of Investment Disputes

Inc. Incorporated

infra. see below

inter alia among other things

LCIA London Court of International Arbitration

CLAIMANT Memorandum for CLAIMANT

ML/2010C ML/2010C Regulation, entered into force on 1 January 2010

NAI Netherlands Arbitration Institute

No. Number

Notice of

commencement

Notice of Commencement of Arbitration Proceedings from 8 June

2016

Order of the

President

Order of the President of the CAM-CCBC from 1 June 2016

p./pp. page/pages

para./paras. paragraph/paragraphs

PLC Public Limited Company


VIII

PO Procedural Order

PoA Power of Attorney

PY Paraguay

RE RESPONDENT's exhibit

Registration Fee CAM-CCBC administrative fee paid by CLAIMANT at the time of

presentation the notice for commencement of arbitration

Request for

Arbitration

Request for Arbitration of 31 May 2016

Request for Security

for Costs

RESPONDENT’s Request for Security for Costs dated 6 September

2016

RUS Russian Federation

SA Limited Company in Spain (Sociedad Anónima)

SCAI Swiss Chambers’ arbitration institution

SCC Stockholm Chamber of Commerce

Sec. Section

SIAC Singapore International Arbitration Centre

SUI Switzerland

supra. see above

UN United Nations

UNCAC United Nations Convention against Corruption


IX

UNCITRAL United Nations Commission On International Trade Law

UNIDROIT International Institute for the Unification of Private Law

USA United States of America

USD United States Dollar

v. versus (against)

WIPO World Intellectual Property Organization (Geneva, Switzerland)


X

INDEX OF LEGAL AUTHORITIES

BERGER BERNHARD/

Arbitration Practice: Security for Costs: Trends and Developments in

Swiss Arbitral Case Law

cited as: Berger

in para. 39

BORN GARY B. International Commercial Arbitration: Law and Practice, Kluwer Law

International, Alphen aan den Rijn 2012

cited as: Born

in paras. 4, 27, 33, 35, 35-38

ERAUW JOHAN Cisg Articles 66-70: The Risk Of Loss And Passing It, Journal Of Law

And Commerce [Vol. 25:203 2005-06], pp. 204 – 217

cited as: Erauw

in para. 73

FARNSWORTH E.

ALLAN

in Bianca-Bonell Commentary on the International Sales Law, Giuffrè:

Milan (1987) 95-102

cited as: Farnthworh

in para. 54

FOUCHARD PHILIPPE/

GAILLARD

EMMANUEL/

GOLDMAN

BERTHOLD

International Commercial Arbitration, Kluwer Law International, The

Hague 1999

cited as: Fouchard/Gaillard/Goldman

in paras. 17, 64, 87

GOODHART A. E.

CHARLES

The Evolution Of Central Banks. MIT Press Books, Boston 1988.

cited as: Goodhart

in para. 87

HO JEAN Getting the Shoe to Fit – Obtaining Security for Costs under the Rules

of Arbitration of the International Chamber of Commerce, 9

Vindobona J. of Int’l Comm’l Law & Arb. 329, 332 (2005)

cited as: Ho

in para. 39


XI

HONNOLD JOHN O.

Uniform Law for International Sales under the 1980 United Nations

Convention, 3rd edition, Kluwer Law International, 1999

cited as: Honnold

in para. 65

HUBER PETER Some introductory remarks on CISG, in: Internationales Handelsrecht,

Volume 6 (2006), Issue 6, pp. 228 – 238

cited as: Huber

in para. 47

KEE CHRISTOPHER International Arbitration And Security For Costs-A Brief Report On

Two Developments

Am. Rev. Int'l Arb. 17, 273-615

cited as: Kee

in para. 30

LEW JULIAN D.M./

MISTELIS LOUKAS A./

KRÖLL STEFAN

Comparative International Commercial Arbitration, Kluwer Law

International, The Netherlands 2003

cited as: Lew, Mistelis, Kröll

in paras. 8, 12, 14

MAGNUS ULRICH

CISG vs. Regional Sales Law Unification, With a focus on the New

Common European Sales Law, Walter de Gruyter 2007

cited as: Magnus

in para. 46

MASKOW DIETRICH Article 54 of the United Nations Convention on Contracts for the

International Sale of Goods, in: Bianca-Bonell Commentary on the

International Sales Law: The 1980 Vienna Sales Convention, Giuffrè,

Milano 1987

cited as: Maskow

in para. 81

PAMBOUKIS

CHARALAMBOS

The Concept and Function of Usages in the United Nations

Convention on the International Sale of Goods, 25th Journal of Law

and Commerce (2005-06), pp. 107-131

cited as: Pamboukis

in para. 65


XII

REDFERN ALAN/

HUNTER MARTIN

Redfern and Hunter on International Arbitration, Redfern

Alan/Hunter Martin et al. (editors), 7th edition, Oxford University

Press, New York 2015

cited as: Redfern and Hunter

in paras. 35, 39

RUBINS NOAH In God We Trust, All Others Pay Cash: Security for Costs in

International Commercial Arbitration, 11 Am. Rev. Int'l Arb. 307

Cited as: Rubins

in para. 26

SCHLECHTRIEM

PETER

Uniform Sales Law - The UN-Convention on Contracts for the

International Sale of Goods, Manz, Vienna 1986

cited as: Schlechtriem

in paras. 47, 54, 94, 100

SCHWENZER

INGEBORG/

FOUNTOULAKIS

CHRISTIANA/

DIMSEY MARIEL

International Sales Law: A Guide to the CISG, 2nd edition, Hart

Publishing, Oxford and Portland, Oregon 2012

cited as: Schwenzer

in paras. 46

SEGESSER GEORG

VON /BOOG

CHRISTOPHER

in International Arbitration in Switzerland: A Handbook for

Practitioners - 2nd Edition, Kluwer Law International 2013

cited as: Segesser , Boog

in para. 32

STRAUBE FREDERICO

JOSÉ/

FINKELSTEIN

CLAUDIO/

FILHO NAPOLEÃO

CASADO

The CAM-CCBC Arbitration Rules 2012: a commentary, Eleven

International Publishing, The Hague 2016

cited as: Straube, Finkelstein, Filho

in paras. 9, 16

TWEEDDALE

ANDREW

Delay in Commencing an Arbitration

Available at: http://dev.corbett.co.uk/wp-

content/uploads/Arbitration-article-Delay-in-Commencement.pdf

cited as: Tweeddale

in paras. 8, 12

http://dev.corbett.co.uk/wp-content/uploads/Arbitration-article-Delay-in-Commencement.pdf

http://dev.corbett.co.uk/wp-content/uploads/Arbitration-article-Delay-in-Commencement.pdf


XIII

WAINCYMER JEFF Procedure and Evidence in International Arbitration, Kluwer Law

International, Alphen aan den Rijn 2012

cited as: Waincymer

in paras. 8, 11

YANG FAN Foreign-Related Arbitration in China: Commentary and Cases,

Cambridge University Press, 2016

Cited as: Yang

in para. 36

YESILIRMAK ALI Provisional Measures in International Commercial Arbitration, Kluwer

Law International, the Hague 2005

cited as: Yesilirmak

in para. 28

ZUBERBÜHLER

TOBIAS

MULLER KLAUS

HABEGGER PHILIPP A.

Swiss Rules of International Arbitration: Commentary

Kluwer Law International 2005

cited as: Zuberbühler, Muller, et al.

in para. 16


XIV

INDEX OF CASES

Australia

CLOUT case 631 (AUS, 2000) Downs Investments Pty Ltd.v. Perwaja Steel SDN BHD

Supreme Court of Queensland

17 November 2000

Case No 10680 of 1996

cited as: CLOUT case 631 (AUS, 2000)

in para. 94

Austria

CLOUT Case No. 176 (AUT, 1996) Propane case

Oberster Gerichtshof [Supreme Court]

6 February 1996

CISG-online Case No 10 Ob 518/95

cited as: CLOUT Case No. 176 (AUT, 1996)

in para. 70

China

CLOUT case No. 986 (CHN, 2002) International Economic and Trade Arbitration

Commission

04 February 2002

Cited as: CLOUT case No. 986 (CHN, 2002)

in para. 94

CLOUT case No. 717 (CHN, 1999) China International Economic & Trade Arbitration

Commission

6 January 1999

Cited as: CLOUT case No. 717 (CHN, 1999)

in para. 94


XV

Finland

CISG-online Case No. S 01/269 (FIN,

2004)

Crudex Chemicals Oy v. Landmark Chemicals S.A.

Appellate Court of Helsinki

May 31, 2004

CISG-online Case No. S 01/269

cited as: CISG-online Case No. S 01/269 (FIN, 2004)

in para. 46

Italy

Rocco Giuseppe e Figli snc V Armadora

San Francisco SA, X YBCA 446

(1985)

Rocco Giuseppe e Figli snc V Armadora San Francisco SA

Corte di Cassazione X YBCA 446 (1985)

cited as: Rocco Giuseppe e Figli snc V Armadora San Francisco SA (1985)

In para. 8

Switzerland

CISG-online Case No.

4C.296/2000/rnd (SUI, 2000);

Roland Schmidt GmbH v. Textil-Werke Blumenegg AG

Swiss Federal Supreme Court Bundesgericht

22 December 2000

CISG-online Case No. 4C.296/2000/rnd

cited as: CISG-online Case No. 4C.296/2000/rnd (SUI, 2000);

in para. 46

CLOUT Case No. 217 (SUI, 1997) Cutlery case

Commercial Court Aargau

26 September 1997

CLOUT Case No. 217

cited as: CLOUT Case No. 217 (SUI, 1997)

in para. 67


XVI

“Vekoma” B.V. v. Maran Coal Corp

(1995)

Transport en Handelsmaatschappij “Vekoma” B.V. (Netherlands) v. Maran Coal Corp (U.S.A.)

Swiss Federal Supreme Court Bundesgericht 1995

cited as: Vekoma v. Maran Coal

in para. 8

Sport Club A. v. B. ( SUI, 2015) Sport Club A. v. B.

Swiss Federal Supreme Court, 4A_70/2015

ASA Bull. 1/2016, p. 147.

29 April 2015

in para. 20

United Kingdom of Great Britain and Northern Ireland

Nanjing Tianshun Shipbuilding Co Ltd

V Orchard Tankers Pte Ltd

Nanjing Tianshun Shipbuilding Co Ltd V Orchard Tankers Pte Ltd [2011] EWHC 164 (Comm),

Queen's Bench Division, Commercial Court, Mr Justice David Steel,

11 February 2011

cited as: Nanjing Tianshun Shipbuilding (2011)

in para. 8

Expofruit SA and Others v Melville

Services Inc and Lavina Corporation

Expofruit SA and Others v Melville Services Inc and Lavina Corporation [2015] EWHC 1950 (Comm)

High Court of Justice in England

cited as: Expofruit SA (2015)

in paras. 8, 12


XVII

Harbour & General Works Ltd v

Environment Agency (2000)

Harbour & General Works Ltd v Environment Agency (2000) 1 Lloyd's Rep. 65

Court Of Appeal Adj.L.R. 02/19

Before Lord Justice Wallerand Lord Justice Tuckey

cited as: Harbour & General Works Ltd v Environment Agency (2000)

in para. 12

SOS Corporacion Alimentaria SA and

Mataluni Spa v Inerco Trade SA (2010)

SOS Corporacion Alimentaria SA and Mataluni Spa v Inerco Trade SA [2010] EWHC 162 (Comm)

High Court of Justice in England

cited as: Ukrainian Sunflowers case (2011)

in para. 12

Tenax Steamship Co v Owners of the

Motor Vessel Brimnes (1974)

Tenax Steamship Co v Owners of the Motor Vessel Brimnes [1974] EWCA Civ 15

Royal Courts of Justice

23rd May 1974

cited as: The Brimnes

in para. 82

USA

Delbrueck & Co. v. Manufacturers

Hanover Trust Co

Delbrueck & Co. v. Manufacturers Hanover Trust Co

United States Court of Appeals, Second Circuit.

1979.

in para. 82

Delbrueck & Co. v. Mfrs. Hanover Trust

Co., 464 F. Supp. 989 (S.D.N.Y.

1979)

Delbrueck & Co. v. Mfrs. Hanover Trust Co.

U.S. District Court for the Southern District of New York - 464 F. Supp. 989 (S.D.N.Y. 1979)

January 11, 1979

cited as: Delbrueck & Co. v. Mfrs. Hanover Trust Co.

in para. 82


XVIII

InterGen NV v. Grina (2003) Intergen N.V. V. Eric F. Grina, Alstom (Switzerland) Limited, And Alstom Power NV

United States Court of Appeals, First Circuit.

Case No. 03-1056. September 22, 2003

cited as: InterGen NV v. Grina

in para. 21

Thyssen, Inc. v. Calypso Shipping Corp.,

S.A., (USA, 2002)

Thyssen, Inc., V. Calypso Shipping Corp., S.A.

United States Court of Appeals, Second Circuit.

Docket No. 01-9044. Official Number 9897

September 26, 2002

cited as: Thyssen, Inc. v. Calypso Shipping Corp., S.A.

in para. 12


XIX

INDEX OF ARBITRAL AWARDS

CIETAC

CLOUT case 717 CLOUT case 717

6 January 1999

cited as: CLOUT case 717

in para. 94

CLOUT case 986 CLOUT case 986

04 February 2002

CISG/2002/03

cited as: CLOUT case 986

in para. 94

ICC Court

ICC Case No. 10032 (1999) Procedural Order of Case No. 10032

(London, UK)

9 November 1999

Cited in Karrer & Desax, Liber Amicorum

Böckstiegel pp. 339, 348

cited as: ICC Case 10032

in para. 41

ICC Case No. 14020 (2006) Award in ICC Case No. 14020 in 2006

in: ICC International Court of Arbitration Bulletin,

Volume 24 (Supplement 2014)

pp. 67 – 70

cited as: ICC Case 14020 (2006)

in para. 38


XX

ICC Case No. 14433(2008) Procedural Order of Case No. 14433

October 2008 (Paris, France)

Available at: ICC Bulletin, pp. 19 - 20


in para. 38

ICC Case No. 14355 (2007) Award in ICC Case No. 14355 in 2007

in: ICC International Court of Arbitration Bulletin,

Volume 24 (Supplement 2014)

pp. 16 - 18


in para. 38

ICC Case 14661(2008)

Case No. 14661

October 2008

Available at: ICC Bulletin, pp. 20 - 21


in para. 38

ICC Case 15951/FM (2010) Procedural Order No. 2, Case No. 15951/FM

(Switzerland)

29 May 2009

Available at: 28 ASA Bulletin (2010)

cited as: ICC Case 15951/FM

in para. 41


XXI

LEGAL SOURCES AND MATERIAL

ASA Bulletin 2001 ASA Bulletin, Vol. 19, No. 4, 2001.

in para. 38

Working Group II Report

A/CN.9/WG.II/WP.147 – Report of the Working Group II on

47th session Settlement of commercial disputes, Vienna, 10-14

September 2007

Cited as: UN Doc A/CN.9/WG.II/WP.147

in para. 6

A/CN.9/508 - Report of the Working Group II on Arbitration

of 36th session 4-8 March 2002, New York

Cited as: UN Doc A/CN.9/508

in para. 31

A/CN.9/589 -Report of the Working Group II on Arbitration

and Conciliation on the work of its 43 session 3-7 October

2005, Vienna

Cited as: UN Doc A/CN.9/589

in para. 31

Baker and McKenzie

Yearbook

The Baker and McKenzie International Arbitration Yearbook

2015-2016

in para. 32

Bank of America Personal

Schedule of Fees

Bank Of America Personal Schedule of Fees

Effective November 4, 2016

Available at:

https://www.bankofamerica.com/deposits/resources/personal-

schedule-fees.go

in para. 90

http://daccess-ods.un.org/access.nsf/Get?Open&JN=V0253386

http://daccess-ods.un.org/access.nsf/Get?Open&JN=V0253386

https://www.bankofamerica.com/deposits/resources/personal-schedule-fees.go

https://www.bankofamerica.com/deposits/resources/personal-schedule-fees.go


XXII

Black’s Law Dictionary,

Definition: “Central Bank”,

Central Bank Definition in Black’s Law Dictionary (2nd ed.)

Available at:

http://thelawdictionary.org/central-bank/

in para. 87

BNP Paribas Banking Services

& Tariff

BNP Paribas Banking Services & Tariff for Businesses, Associations and Non-Profit-Making Organizations

January 2012

Available at: http://entreprises.bnpparibas.fr/file/22004_DOC.pdf

in para. 90

Cambridge English Dictionary,

Definition: “bank charge”

Bank Charge Definition in Cambridge English Dictionary

Available at:

https://dictionary.cambridge.org/dictionary/english/bank-

charge

in para. 87

Cambridge English Dictionary,

Definition: “Central Bank”

Central Bank Definition in Cambridge English Dictionary

Available at:

https://dictionary.cambridge.org/dictionary/english/central-

bank

in para. 87

CEPANI Rules Arbitration Rules of Belgian Centre for Arbitration and

Mediation 2013

in para. 32

CIETAC Rules Rules of Arbitration of the China International Economic &

Trade Arbitration Commission (CIETAC), Beijing January 1,

2015

in para. 17

http://thelawdictionary.org/central-bank/

http://entreprises.bnpparibas.fr/file/22004_DOC.pdf

https://dictionary.cambridge.org/dictionary/english/bank-charge

https://dictionary.cambridge.org/dictionary/english/bank-charge

https://dictionary.cambridge.org/dictionary/english/central-bank

https://dictionary.cambridge.org/dictionary/english/central-bank


XXIII

Conference on contracts A/CONF.97/19 – Documents of the United Nations

Conference on Contracts for the International Sale of Goods

and Summary Records of the Plenary Meetings and of the

Meetings of the Main Committees of the, Vienna, March 10 –

April 11, 1980

in para. 46

Deutsche Bank List of Prices

and Services

Deutsche Bank AG; List of Prices and Services; Valid as of 1

January 2017; (Translation to English)

Available at: https://www.deutsche-

bank.de/pfb/data/docs/List-of-Prices-and-Services-Deutsche-

Bank-Privat-und-Geschaeftskunden-01042016.pdf

in para. 90

Egmont Group Members Complete list of Membership in Egmont Group of Financial

Intelligence Units

Available at: http://www.egmontgroup.org./

in para. 97

English Oxford Dictionary,

Definition: “bank charge”

Bank Charge Definition in Oxford English Dictionary

Available at:

https://en.oxforddictionaries.com/definition/bank_charge

in para. 86

FIU: An Overview Financial intelligence units : an overview. International

Monetary Fund, World Bank, 2004.

Available at:

https://www.imf.org/external/pubs/ft/FIU/fiu.pdf

in para. 97

Investopedia, Definition: “Central

Bank”,

Central Bank Definition in Investopedia

Available at:

http://www.investopedia.com/terms/c/centralbank.asp

in para. 87

https://www.deutsche-bank.de/pfb/data/docs/List-of-Prices-and-Services-Deutsche-Bank-Privat-und-Geschaeftskunden-01042016.pdf



http://www.egmontgroup.org./

https://en.oxforddictionaries.com/definition/bank_charge

https://www.imf.org/external/pubs/ft/FIU/fiu.pdf

http://www.investopedia.com/terms/c/centralbank.asp


XXIV

SIAC Rules Arbitration Rules of Singapore International Arbitration Centre

2017

in para. 32

Swiss Private International

Law Act

PILA entered into force on 1 January 1989, Switzerland

in para. 32

UNCITRAL Digest of case

law

A/CN.9/SER.C/DIGEST/CISG/54 – UNCITRAL Digest of

case law on the United Nations Convention on the

International Sale of Goods, 2012 ed.,Vienna,

in paras. 67, 93

UNCITRAL Model Law UNCITRAL Model Law on International Commercial

Arbitration (1985), with amendments as adopted in 2006

in paras. 4, 29-35

UNCITRAL Yearbook 1985 UNCITRAL Yearbook 1985, Volume XVI

in para. 4

UNIDROIT Principles UNIDROIT Principles of International Commercial Contracts

2010

UNIDROIT Principles

Commentary

Official Commentary to UNIDROIT Principles

WIPO Publication No. 741(E) World Intellectual Property Organization Conference on Rules

for Institutional Arbitration and Mediation, WIPO publication

No. 741(E), Geneva 1995

in para. 16


1

INTRODUCTION

On 31 May 2016 CLAIMANT filed the initial Request for current Arbitration that did not comply

with the requirements of CAM-CCBC Rules. CLAIMANT failed to supplement this request with a

proper PoA and to pay sufficient amount of the CAM-CCBC Registration Fee. That is why

CLAIMANT’s initial Request for Arbitration was not enough to properly commence arbitral

proceedings. All the requirements were satisfied only with CLAIMANT’s amended request, which

was, however, outside the contractual limitation period. For these reasons, the Tribunal is kindly

requested to find that CLAIMANT's claims are inadmissible and to dismiss CLAIMANT's case (I).

On 6 September 2016 RESPONDENT requested the Tribunal to provide security for its costs in

the present arbitration proceeding. RESPONDENT respectfully asks the Tribunal to order security

for costs. First, the Tribunal has the power to order security for costs as Arbitration Agreement,

CAM-CCBC Rules and the UNCITRAL Model Law confer the Tribunal with such power.

Second, all conditions to order security for costs have been met since RESPONDENT satisfied all

the requirements provided by lex arbitri (balance of convenience test and a high possibility to

succeed on the merits of the claim) and by arbitration practice as CLAIMANT is in a bad financial

situation and there was a substantial change of circumstances since the Arbitration Agreement

conclusion (II).

RESPONDENT is not under obligation to pay the additional amount of money under the DSA as

CLAIMANT alleged. The price stated in invoice and paid by RESPONDENT calculated on the basis

of the exchange rate of the time of contract conclusion equals to the price due to the DSA. The

fixed exchange rate embodied in Addendum epand to the entire DSA, i.e. to the purchase of

clamps and fan blades. Moreover, under the main DSA the applicable exchange rate is equal to

the fixed exchange rate and to the exchange rate at the time of contract conclusion (III).

RESPONDENT is not liable for the payment of USD 102,192.80 to CLAIMANT for the fees

deduced by the Central Bank of Equatoriana. RESPONDENT had already fulfilled all of his

obligations in regards to payment under the DSA and the CISG, and other provisions of DSA

and CISG are not applicable to the levy subtracted. Therefore, it is not possible to place the

burden of its payment on RESPONDENT. Moreover, by not notifying RESPONDENT about the

existence of the levy while being aware of it, CLAIMANT had not acted in good faith and therefore

should bear the costs of its payment. In case if the Tribunal finds RESPONDENT liable for the

payment, RESPONDENT requests the Tribunal to grant him an exemption from this duty under

art. 79 CISG (IV).


2

STATEMENT OF FACTS

The parties to this arbitration are Wright Ltd. (“CLAIMANT”) and SantosD KG

(“RESPONDENT” jointly with CLAIMANT “the Parties”).

CLAIMANT is a manufacturer of fan blades for jet engines, incorporated in Equatoriana.

CLAIMANT is a subsidiary of Wright Holding PLC (“Wright Holding”) that owes 88% of

CLAIMANT’s shares. Other 12% of CLAIMANT’s shares are held by institutional investors.

RESPONDENT is a medium sized manufacturer of jet engines, incorporated in Mediterraneo, and

a subsidiary of SpeedRun which is a Private Equity Fund.

Before 2010 CLAIMANT and RESPONDENT were subsidiaries of the Engineering International SA.

Spring 2010 RESPONDENT contacted CLAIMANT to discuss the joint development of a

new fan blade.

1 May 2010 First meeting of CLAIMANT and RESPONDENT at the higher management

level, where the Parties agreed on basic principles for cooperation.

27 July 2010 The date when the Development and Sales Agreement (“DSA”) about

joint development of a new fan blade TRF 192-I was supposed to be

signed. The Parties had to alter the date of signing the DSA as CLAIMANT

signed the Share and Purchase Agreement on its sale from Engineering SA

on 27 July 2010. Only when the date was changed RESPONDENT learnt

about the sale of CLAIMANT.

1 August 2010 CLAIMANT and RESPONDENT concluded the DSA. Under the Section 4 of

the DSA the price was due in USD. Section 21 of the DSA provided that

all disputes should be settled by amicable. If parties reach no agreement,

they should initiate arbitral proceedings in 60 days since the failure of

negotiations.

3 August 2010 Engineering International SA sold RESPONDENT to SpeedRun.

26 October 2010 CLAIMANT and RESPONDENT concluded Addendum to the DSA

(“Addendum”) considering the purchase by RESPONDENT of 2000 clamps

and adding the terms on the exchange rate to the DSA.

3 March 2014 The exchange rate of EQD in relation to the USD increased gradually up

to USD 1 = 1.79 EQD.


3

1 May 2014 CLAIMANT began the production of the fan blades.

14 January 2015 RESPONDENT received the fan blades and the clamps and attached invoices

for both goods from CLAIMANT. The price was calculated on the

applicable exchange rate to the DSA which was USD 1 = 2.01 USD.

15 January 2015 RESPONDENT transferred the amount stated in the invoice to CLAIMANT’s

account in the Equatoriana National Bank. On the same day CLAIMANT

sent the email demanding outstanding payment alleging that the invoice

contained the mistake in regard to the calculation of the price.

29 January 2015 Payment made by RESPONDENT was credited to CLAIMANT’s account at

the Equatoriana National Bank.

9 February 2015 CLAIMANT demanded more outstanding payment including the amount the

0.5% bank levy that was charges by the Central Bank of CLAIMANT’s place

of business.

10 February 2015 RESPONDENT stated that it acted in full conformity with the DSA and that

it was not aware of the 0.5% levy.

31 March 2016 CLAIMANT and RESPONDENT had a meeting that revealed that no amicable

solution to the dispute on the proper amount of payment can be found.

1 April 2016 CLAIMANT stated a failure to negotiate in the email sent to RESPONDENT.

31 May 2016 CLAIMANT sent the defective Request for Arbitration to the Center for

Arbitration and Mediation of Chamber of Commerce Brazil-Canada (

“CAM-CCBC”).

7 June 2016 The CAM-CCBC accepted CLAIMANT’s Request for Arbitration. However,

the acceptance occurred beyond the contractual time limit agreed by the

Parties in the DSA.

22 August 2016 The Parties have agreed on the Terms of Reference.

6 September 2016 RESPONDENT filed with the Arbitral Tribunal the Request for Security for

Costs


4

I. CLAIMANT’S CLAIMS ARE INADMISSIBLE AND SHOULD BE REJECTED

BY THE CURRENT TRIBUNAL

1. According to Sec. 21 of the DSA, if no amicable settlement of disputes arising out of or in

connection with the DSA can be reached, the dispute shall be decided in arbitration [Sec. 21

of the DSA, pp. 10-11]. By including this multi-tier Arbitration Agreement in the DSA the

Parties agreed to arbitrate under CAM-CCBC Rules and established a 60 days’ limitation

period after fail of amicable negotiations to initiate arbitration proceedings [the DSA, p. 11].

On 1 April 2016 CLAIMANT declared the failure of negotiations by sending a letter to

RESPONDENT and explicitly voiced its intention to take the necessary steps for initiating

arbitration proceedings [RE 3, p. 29].

2. On the last day of the contractual limitation period CLAIMAINT’s lawyer filed the initial

Request for Arbitration to the CAM-CCBC [Fasttrack to the CAM-CCBC of 31 May 2016, p.

2]. This Request for Arbitration was filed with violation of several requirements provided by

Art. 4 CAM-CCBC Rules and was prescribed by the President of CAM-CCBC to be

amended [Order of the President, p. 19]. Only on 7 June 2016, when the limitation period had

already expired, CLAIMANT managed to provide the amended Request for Arbitration that

complied with all the requirements of CAM-CCBC Rules [Fasttrack to the CAM-CCBC of 7

June 2016, p. 20]. Hence, CLAIMANT’s claims are inadmissible as it failed to commence

arbitration within agreed time limits (A), and because Request for Arbitration of 31 May

2016 does not comply with CAM-CCBC Rules requirements for commencement of

arbitration (B).

A. Current arbitration should be regarded as being commenced on 7 June 2016 only

after a valid Request for Arbitration was accepted by CAM-CCBC, which is

beyond contractual limitation period

1. CLAIMANT failed to properly initiate arbitral proceedings within agreed time limits

3. Proper commencement of current arbitration requires full conformity with CAM-CCBC

Rules, which CLAIMANT failed to provide while filing Request for Arbitration on 31 May

2016.

4. The commencement of arbitration shall comply with applicable rules of chosen arbitration

institution as well as laws of seat of arbitration and may include specified information in

order to be valid [Born, pp. 2213-2214]. Thus, request for arbitration shall not only show

party’s intention to initiate legal proceedings but also fall within the requirements established

by parties and applicable law. CLAIMANT’s reference to law of the seat of arbitration


5

[Claimant, para. 89] with the example of French law requirements is irrelevant to the current

case. The seat of the present arbitration is Vindobona, Danubia [Terms of References, para. 6.2,

p. 42]. Danubia has adopted UNCITRAL Model Law with 2006 amendments [PO 2, para. 37,

p. 60], thus the lex loci arbitri is UNCITRAL Model Law. The travaux préparatoires of the

UNCITRAL Model Law shows that arbitral institutions may create their own rules the

regarding commencement date and such rules would override the provisions of the

UNCITRAL Model Law [UNCITRAL Yearbook 1985, Volume XVI, pp. 182-187]. By

choosing the CAM-CCBC Rules as law applicable to current arbitration proceedings the

Parties agreed that all provisions of CAM-CCBC Rules shall be completed to validly initiate

arbitration proceedings [Sec. 21 of the DSA, p. 11].

5. The wording of the Arbitration Agreement indicates that in case of no amicable settlement

“each party has the right to initiate arbitration proceedings” under CAM-CCBC Rules and in line with

international arbitration practice [Sec. 21 of the DSA, p. 11]. Initiating arbitration proceedings

under CAM-CCBC Rules requires full conformity with the list of documents prescribed [Art.

4.1 - 4.2 CAM-CCBC Rules]. Contrary to this, on 31 May 2016 Request for Arbitration did

not contain a PoA complying adequate representation requirement and Registration Fee was

not fully paid. That is why the Request for Arbitration cannot be considered as properly filed

as well as, arbitration cannot be regarded commenced. Moreover, this approach is also

confirmed by the fact that CAM-CCBC highlighted that original request for arbitration did

not comply with the requirements of Art.4 CAM-CCBC Rules and had to be supplemented

[Notice of Commencement, p. 22].

6. It is commonly recognized that in a case when amendments are required the arbitral

institution may delay the date of commencement of the arbitration until such defects are

remedied [Art. 5.6 of ACICA Rules; UN Doc A/CN.9/WG.II/WP.147, para. 24]. Thus, only

after required amendments were made on 7 June 2016, Request for Arbitration was

considered as valid to commence the arbitral proceedings. Hence, the arbitral proceedings

shall be regarded commenced only when all requirements of the CAM-CCBC Rules are met,

which is on 7 June 2016. As this date is out limitation period established by parties,

CLAIMANT’s claims cannot be resolved in current arbitration.


6

2. The Arbitration Agreement became inoperative as CLAIMANT missed the time

limits

7. CLAIMANT did not commence the arbitral proceedings within the time limit established in the

Arbitration Agreement, which leads to barring the arbitration as a way to deal with

CLAIMANT’s claims.

8. The most important legal consequence of the commencement of arbitration proceedings is

the effect it has on the expiry of time limits [Lew, Mistelis, Kröll paras. 20 - 29; Waincymer, p. 222].

Therefore the timely initiation of arbitral proceedings is crucial for the enforcement of any

claim or right [Rocco Giuseppe e Figli snc v Armadora San Francisco (1985)]. It is up to parties’

consent to limit the effect of arbitration clause excluding the right to arbitrate after particular

period has expired. Therefore, claimant who serves a defective notice of commencement may

find that the notice has no effect and, if the limitation period has subsequently expired, has no

remedy [Tweeddale, pp. 238-239]. For example, Switzerland’s highest court annulled an award in

which the arbitrators had declared themselves competent to hear a claim arguably brought

after the contractually stipulated time limits [Vekoma v. Maran Coal]. Moreover, recent

arbitration and court practice rules in favor that failure to meet contractual time limits to

commence arbitration is a time bar to claim itself [Nanjing Tianshun Shipbuilding (2011); Expofrut

SA (2015)]

9. Contractual limitation period of 60 days after failure of negotiations was established by parties

to provide legal certainty and timely dispute resolution [Sec. 21 of the DSA, p. 11]. CLAIMANT

declared amicable solution impossible in its letter of 1 April 2016, then limitation period

started to run [RE 3, p. 29]. CLAIMANT also informed RESPONDENT that necessary steps to

initiate arbitral proceedings had been already taken by CLAIMANT’s lawyer [ibid.]. Nevertheless,

CLAIMANT sent a deficient notice requesting commencement of arbitration on 31 May 2016 -

the very last day before claim is barred by contractual limitation period. However, only a valid

timely filed request for arbitration is capable of setting aside time limits issues [Straube,

Finkelstein, Filho, p.66]. If arbitration is commenced by the request submitted with lack of

documents required by Art. 4 CAM-CCBC Rules, then an award made in such arbitration may

be barred even if missing documents were provided on later stages [ibid.]. That means that

Arbitration Agreement between parties terminated as no valid commencement happened

within contractual time limits.


7

3. The defects contained in Request for Arbitration could not be dealt between

CLAIMANT and the CAM-CCBC due to expiration of limitation period

10. CLAIMANT’s allegation that defects of Request for Arbitration should be dealt in its bilateral

relations with the CAM-CCBC is irrelevant [Claimant, para. 99].

11. CLAIMANT filed the deficient Request for Arbitration on the very last day of 60 days limitation

period, established in the DSA [Fasttrack to the CAM-CCBC of 31 May 2016, p. 2; Sec.21 of the

DSA, paras. 10-11]. CLAIMANT’s reference to international arbitration practice of giving an

additional time to amend initial request for arbitration is not applicable in present case as time

limits issues has been risen [Claimant, para. 103]. Such issues are particularly important where a

limitation period expires after the original Request for Arbitration was served and before any

correction was made as it is in present case. [Waincymer, p. 224].

12. The arbitral institution does not have the power to extend contractual time limits as neither

express agreement of the parties nor the applicable arbitration rules grant it with such power

[Lew, Mistellis, Kröll, paras. 19 - 20]. It is the state court, who exercises the power to extend time

limits for a failure to comply with contractual limitation periods, not arbitral tribunal

[Tweeddale, p. 238]. Even though, courts refuse to extend time for the commencement of

arbitration, holding that it’s CLAIMANT’s duty to commence proceedings correctly [Thyssen Inc

v. Calypso Shipping Corp S.A.]. Such power is exercised only in extraordinary cases, where timely

submission of claim to arbitration was not possible due to external factors, not dependent to

cLAIMANT’s conduct [Harbour & General Works v. Environment Agency (2000); Expofrut SA

(2015); Ukrainian sunflowers case (2011)]

13. In case at hand, Order of the President is also silent on the acceptance of CLAIMANT’s initial

Request for Arbitration of 31 May 2016, as it only confirmed its receipt and CLAIMANT’s

failures to comply with requirements of CAM-CCBC Rules [Order of the President, p. 19]. The

prescribed amendments and establishing a time period for CLAIMANT to provide them,

constitute the extension of contractual time limits. The defects of Request for Arbitration of

31 May 2016 are not a subject to bilateral relations between CLAIMANT and CAM-CCBC, as

CAM-CCBC lacks authority to extend contractual limitation period. That is why,

notwithstanding with the fact that President of CAM-CCBC issued an Order for the

amendments, current arbitration was commenced on 7 June 2016, when Request for

Arbitration complied with CAM-CCBC Rules. As this date is out of contractual limitation

period, CLAIMANT’s claims cannot be admitted.


8

B. CLAIMANT’s initial Request for Arbitration does not comply with CAM-CCBC

Rules

14. Generally, claimant should be careful to ensure that the notice of arbitration or request for

arbitration is properly drafted and served in accordance with the requirements of the relevant

rules or law [Lew, Mistelis, Kröll, paras. 20-30]. In the current case CLAIMANT failed to satisfy all

requirements to request for arbitration and, consequently, validly commence arbitral

proceedings under CAM-CCBC Rules on 31 May 2016. In particular, Registration Fee,

required by CAM-CCBC Rules, was not paid in sufficient amount (1). Moreover, CLAIMANT’s

representative lacked authority and did not provide the evidence of adequate representation

(2). The Request of Arbitration with these deficiencies cannot be considered as valid for the

purposes of commencement of arbitration.

1. CLAIMANT’s failure to fully pay the Registration Fee made impossible valid

commencement of arbitral proceedings

15. Full payment of Registration fee is a vital requirement for commencement of arbitration and

beginning of administrating of the dispute by institution.

16. The function of the Registration Fee is to cover expenses of arbitral institution on

administering the case before the Tribunal is appointed [Straube, Finkelstein, Filho, p. 67].

Arbitral institutions provide private services of case management that expectedly comes at a

price [ibid., p.67]. Case management work usually does not begin before the full amount of

their fees is deposited. [Zuberbühler, Muller, et al. pp. 26-27; WIPO Publication No. 741(E), p. 92].

17. According to Art.12.5 CAM-CCBC Rules Registration Fee is a form of administrative fee that

must be paid by CLAIMANT at the time of presentation of the notice for commencement of

arbitration, which means that its payment is a pre-condition to commencement of arbitration.

The amount of Registration Fee is stated in Table of Expenses, which cannot be set off or

reimbursed [Art. 12.5 CAM-CCBC Rules]. Moreover, fulfillment of the provisions contained in

the Table of Expenses is mandatory for the parties. [Art. 12.4 CAM-CCBC Rules]. Hence,

CAM-CCBC Rules explicitly established that attachment of proof of payment of the

Registration Fee to request for arbitration is a mandatory requirement for the valid submission

of statements of claim [Art. 4.2 CAM-CCBC Rules]. It is common practice for arbitral

institutions to treat registration fee as a vital requirement to commence arbitration [Art. 4.4(b)

ICC Rules; Art. 12.3 CIETAC Rules; Art.1.4 LCIA Rules]. For example, LCIA treats the request

as not having been received and the arbitration as not having been commenced, until both the

request and the fee have been received [FAQ to LCIA Rules].


9

18. While submitting Request for Arbitration CLAIMANT has underpaid Registration Fee. Thus,

President of the CAM-CCBC issued an order requiring completion of full payment before

starting any case management and before sending a notice to the opposing party [The CAM-

CCBC’s letter to Claimant, p. 19]. The payment of registration fee after the initial time limit has

elapsed is not sufficient for the further treatment of the claim [Schwarz, Konrad, paras. 33-012].

Even though, CLAIMANT supplemented the payment to the full amount, it does not overlap

the fact that the arbitration proceeding was commenced only when proof of payment was

provided to the CAM-CCBC on 7 June 2016, when limitation period had already expired.

CLAIMANT’s insufficient payment of the Registration Fee constitutes incompliance with

CAM-CCBC Rules. Thus, the Tribunal shall dismiss CLAIMANT’s arguments that the

arbitration was commenced on 31 May 2016 [Claimant, para. 109] and find that arbitration was

initiated outside of contractual limitation period.

2. The Request for Arbitration of 31 May 2016 was submitted without proper authority

and cannot be sufficient for commencement of current arbitration

19. The power of attorney of 2 April 2016 in favor of Horace Fasttrack did not provide

adequate representation to validly commence the current arbitration proceedings [PoA from

Wright Holding Plc., p. 18].

20. The CAM-CCBC Rules state that CLAIMANT shall enclose a PoA for any lawyers providing

for adequate representation to the request for arbitration [Art. 4.1(b) CAM-CCBC Rules].

According to the UNIDROIT Principles, established in the DSA as a supplementary source

of applicable law [Sec. 20 of the DSA, p. 10], the principal's grant of authority to an agent may

be express or implied [Art. 2.2.2. (1) UNIDROIT Principles 2010]. The most common case of

express authority is a power of attorney [UNIDROIT Principles Commentary, p. 77]. Law of

both Danubia and Equatoriana governs in favor of express authority and established that

powers of attorneys have to be in writing and must be submitted for the initiation of court

proceedings unless the parties agree otherwise [PO 2, para. 24, p. 58]. During legal

proceedings, whether court or arbitral, PoA is the main source of confirming lawyer’s ability

to present case in favor of their client, e.g. CAS arbitral tribunal ordered lawyer to leave,

when he was unable to produce a relevant PoA. [Sport Club A. v. B. ( SUI, 2015)]

21. CLAIMANT’s consideration that the “Power of Attorney presented in the name of the holding

(CLAIMANT’s parent company) was not irregular” does not constitute an adequate representation

[Claimant, para. 107]. First of all, Wright Holding Plc. lacks standing (locus standi) and cannot

bring claims against RESPONDENT on its own. The PoA of 2 April 2016 was issued by


10

CLAIMANT’s parent company Wright Holding PLC., which is not a party either to the DSA or

to the Arbitration Agreement. PoA of 2 April 2016 was not granted for current arbitration

proceedings as it explicitly referred to non-existent dispute between “Wright Holding Plc. versus

SantosD” [PoA by Wright Holding PLC, p. 18], which definitely gives Fasttrack no authority to

act on behalf of CLAIMANT and to initiate current proceedings. While it is common to decline

to extend arbitration clauses to non-signatories as sophisticated commercial actors, when

contract is concluded between their subsidiaries [InterGen NV v. Grina], PoA from Wright

Holding Plc. had no impact on CLAIMANT representative’s authority in current dispute.

Moreover, Fasttrack had never represented CLAIMANT in the negotiations preceding the

arbitration or any previous proceedings which RESPONDENT knew about [PO 2, para. 25, p.

58].

22. The PoA of 2 April 2016 was neither issued by a signatory to the DSA nor provided adequate

reference to current dispute. That is why it was correctly regarded by President of the CAM-

CCBC as non-compliant with the requirements of CAM-CCBC Rules for the commencement

of arbitration.

C. Conclusion

23. For the reasons stated above, CLAIMANT failed to initiate present arbitral proceedings in full

conformity with the DSA and CAM-CCBC Rules. CLAIMANT’s Request for Arbitration filed

on 31 May 2016 is not admissible under CAM-CCBC Rules. Thus, CLAIMANT did not comply

with contractual time limits; hence, its claims are inadmissible and should be rejected by the

Tribunal.

II. THE TRIBUNAL SHOULD GRANT RESPONDENT SECURITY FOR ITS

COSTS

24. On 6 September 2016, pursuant to Art. 8 CAM-CCBC Rules, RESPONDENT requested the

Tribunal to provide security for its costs in order to secure the expenses that CLAIMANT will

likely fail to pay if the proceeding goes in favor of RESPONDENT. RESPONDENT estimated the

approximate expenses and requested to provide security in the amount to a minimum of

USD 200,000 [Request for Security for Costs, pp. 45 - 46].

25. RESPONDENT respectfully requests the Tribunal to order security for costs for the following

reasons. First, the Tribunal has the power to order such interim measure (A). Second, all

conditions to order security for costs established either by lex arbitri or arbitration practice

have been met (B).


11

A. The Tribunal has the power and should order security for RESPONDENT’s costs.

26. The Tribunal’s power to order security for costs should be granted by an arbitration

agreement concluded by the parties (1), arbitral rules or the law of the arbitral seat (lex arbitri)

(2) [Rubins, pp. 314-315]. Security for costs exists in both common law and continental law

jurisdictions (3).

1. The Agreement between the Parties does not limit the power of the Tribunal to

order security for costs.

27. Not mentioning security for costs in the arbitration agreement does not preclude the Tribunal

from ordering security for costs. CLAIMANT alleges that the absence of a provision explicitly

granting the Tribunal the power to order security for costs means that the Tribunal lacks such

power [Claimant, paras. 20 - 21]. However, it is accepted that the lack of an express provision

granting the Tribunal the power to order interim measures should not be treated as an

exclusion of such power [Born, para. 17.02 [C], p. 2456]. The only type of agreement that can

exclude the power to order provisional relief is a written provision that expressly denies such

power [ibid.]. Therefore and in contrast to CLAIMANT’s allegations, the mere absence of an

explicit provision granting the Tribunal the power to order security for costs is not enough to

establish that the Tribunal lacks such power.

2. CAM-CCBC rules and lex arbitri confer the Tribunal with the power to order

security for costs

28. First, the Tribunal can exercise its power to order security for costs under Art. 8 CAM-CCBC

Rules. Art. 8 CAM-CCBC Rules establishes that the Tribunal can grant provisional measures,

both injunctive and anticipatory unless the parties otherwise agreed [emphasis added]. The

Arbitration Agreement does not explicitly exclude the Tribunal’s power to order any interim

measures [Sec. 21of the DSA, pp. 10 - 11]. As the Parties have not excluded the Tribunal with

the power to order interim measures, Art. 8 CAM-CCBC Rules provides that the Tribunal

may grant all types of interim measures (injunctive and anticipatory). The term “provisional

measure” (or interim measure) includes security for costs [Yesilirmak, paras. 5 - 84]. Thus, the

arbitration rules confer the Tribunal with the power to order security for costs.

29. Second, the lex arbitri, UNCITRAL Model Law with 2006 amendments, confers the power to

order security for costs to the Tribunal.[supra. para. 27]

30. Security for costs can be considered as an interim measure under lex arbitri. According to Art.

17 (d) UNCITRAL Model Law, an interim measure is any temporary measure, whether in the


12

form of an award or in another form, by which, at any time prior to the issuance of the

award, the arbitral tribunal orders a party to provide a means of preserving assets out of

which a subsequent award may be satisfied. Security for costs falls within the meaning of

interim measure provided by UNCITRAL Model Law [Kee, note 37, p. 275]. Therefore,

UNCITRAL Model Law empowers the Tribunal to order security for costs.

31. Arguments provided by CLAIMANT that UNCITRAL Model law does not grant the power to

the Tribunal to order security for costs are not applicable or sufficient in the present case

[Claimant, paras. 32, 33]. CLAIMANT supports its arguments only with the following court

practice: Lindow v. Barton (2002) and Yieldworth Engers v. Arnhold (1991) [ibid.]. However,

the mentioned cases do not deal with the current 2006 version of UNCITRAL Model Law.

In 2006, the Model Law was amended in order to “free” it from the “subject-matter of a

dispute” limitation [UN Doc A/CN.9/508, paras. 52–53, p. 237; UN Doc A/CN.9/589, para.

25, p. 394]. Danubia, the place of arbitration, adopted Model law with 2006 amendments [PO

2, para. 37, p. 60]. Previous provision of Art. 17 of Model law 1985 limited the power of the

Tribunal to order interim measures to the subject-matter of the dispute [UNCITRAL Model

Law 1985]. Therefore, there is no surprise that courts had found that under UNCITRAL

Model Law of 1985 arbitral tribunals lacked the power to order security for costs as such an

interim measure is not related to the subject matter of the dispute. Therefore, CLAIMANT

failed to provide sufficient arguments to establish that the Tribunal lacks the power to order

security for costs.

3. Security for costs is accepted both in common and civil jurisdictions.

32. Contrary to what was argued by CLAIMANT [Claimant, paras. 39-40] security for costs is

commonly accepted in both common law and civil law countries. For example, Art. 49 of

Japanese Arbitration Law permits a tribunal to order any party to provide security for costs

where the party requested the tribunal to order interim measure. Another example is Mexico

where the power to order interim measures includes the power of tribunals to order security

for costs [Baker and McKenzie Yearbook, p. 217]. Furthermore, even Swiss doctrine that was

usually very hostile to security for costs, established that such measure can be granted by

arbitral tribunals under Article 183(1) Swiss Private International Law Act [Segesser, Boog, pp.

107, 115]. Moreover, there are many arbitration rules adopted by arbitration institutions

placed in civil countries that explicitly grant the power to the tribunal to order security for

costs [Art. 27 CEPANI Rules; Art. 27 SIAC Rules]. Therefore, security for costs is recognized

in many countries and such recognition does not depend on the legal system. In such case the


13

tribunal should not be barred from ordering security for costs on such incentive and

CLAIMANT’s argument that security for costs is only a commonwealth concept should be

disregarded by this tribunal.

B. RESPONDENT satisfied all the requirements provided by lex arbitri and

arbitration practice

33. In order to grant security for costs, the Tribunal should apply appropriate test provided in the

arbitral rules or in lex arbitri [Born, p. 2163, para. 17.02 [G] [2]]. As far as applicable CAM-

CCBC Rules do not contain relevant tests for granting interim measures or security for costs,

the rules of UNCITRAL Model Law, which are lex arbitri in the current case, shall apply.

34. Under UNCITRAL Model Law, the following conditions should be met: harm not adequately

reparable by an award of damages is likely to result if the measure is not ordered and such

harm substantially outweighs the harm that is likely to result to the party against whom the

measure is directed if the measure is granted (1); and there is a reasonable possibility that the

requesting party will succeed on the merits of the claim (2). In contrast to CLAIMANT’s

allegations [Claimant, paras. 61 - 72], RESPONDENT showed that its Request for Security for

Costs conform to these requirements.

1. RESPONDENT’s harm overweighs the harm that CLAIMANT would incur if security

for costs is granted.

35. Under UNCITRAL Model Law, the “substantial” and “irreparable” harm that party seeking

the security would get, should “substantially outweigh” the likely harm that another party

would get after imposition of requested interim measures [Redfern and Hunter, para. 5.32]. The

issue is not so much whether serious harm will occur but whether the risks of harm are

sufficiently substantial to justify any burden that provisional measures would impose on

RESPONDENT [Born, p. 2473]. RESPONDENT filed the Request for security for costs in order

to protect its legitimate right to be paid the amount awarded to it. RESPONDENT was involved

into the arbitration initiated by CLAIMANT without any basis and had to invest its assets to

bear the fees of the attorney and possible technical assistance during the course of the

proceedings [Terms of Reference, para. 12.4, p. 43]. Moreover, there is no doubt that

RESPONDENT would comply with the final award, including the award on costs, if the

proceeding will not go in its favor. However, there is a serious doubt that CLAIMANT would

comply with the award, as there had been a case when CLAIMANT did not comply with the

award [RE 6, p. 47]. Furthermore, it was trying to receive third-party funding [ibid.]. Thus, the


14

harm that RESPONDENT would get if security for costs is not granted is sufficient and such

harm would overweight the harm CLAIMANT would get if security for costs is granted.

2. RESPONDENT established the possibility to succeed on the merits of the claim

36. When requesting interim measures, party seeking an interim measure must demonstrate a

prima facie case on the merits of the claim [Born, para. 17.02 [G], [iv], p. 2478]. Even though the

Tribunal cannot prejudge the merits, it needs to be satisfied that the applicant for interim

measures has established a prima facie case [Merkin and Flannery, p. 153]. It means that

RESPONDENT has a burden to prove that it has reasonable possibility to succeed on the

merits [Yang, para. 5.58]. CLAIMANT’s claims lack any factual and legal basis since

RESPONDENT complied with the DSA by paying agreed price [infra, para. 43, et. seqq.] and

CLAIMANT should bear the bank charge [infra, para. 76, et seqq.].

37. CLAIMANT’ allegation that the present case cannot be analyzed prima facie due to its complexity

is groundless [Claimant, para. 75]. Examining the case prima facie does not prejudge the merits

of the case; it is a pure provisional assessment based upon incomplete submission and

evidence, without preclusive effect [Born, para. 17.02 [G][iv], p. 2479]. As consideration of the

merits of the case does not have a preclusive effect, the Tribunal may examine it regardless its

difficulty and complexity.

C. RESPONDENT fulfilled the conditions established by arbitral practice.

38. The arbitral practice is applicable when there is no specific guidance or test on ordering

security for costs [Born, para. 17.02 [G] [2], p. 2163]. The most frequent issues which are taken

into consideration by the tribunals when granting security for costs, include the financial

situation of CLAIMANT (1), and whether there was a substantial change of circumstances after

the conclusion of the arbitration agreement (2) [ICC Case 14020; ICC Case 14355; ASA

Bulletin 2001, pp. 745 – 750]. Both these criteria are met in current case.

1. CLAIMANT is in poor financial conditions and lacks funds

39. In order for the Tribunal to grant security for costs RESPONDENT should prove that

CLAIMANT’s financial situation is in such condition that it will not be able to pay the costs at

the end of the proceeding [Redfern and Hunter, para. 5.32, pp. 307, 310]. CLAIMANT is in a bad

financial situation as it could not afford the current arbitration proceeding. It was trying to

receive third-party funding in vain [PO 2, p. 59]. At the end, CLAIMANT used a loan in the

amount of USD 3,000,000, that was provided to it by the parent company in order to finance

the final stages of production of the TRF-305 fan, to finance the current arbitration


15

proceeding [PO 2, p. 59]. This shows that CLAIMANT’s lack of liquidity is compensated by its

parent company. Unfortunately, RESPONDENT cannot foresee whether the parent company

would sponsor CLAIMANT if the proceeding would not go to its favor as parent company will

not be bound to cover any costs or damages awarded by the tribunal [Ho, p. 338]. Case

practice supports the idea of allocation of risks to third parties by establishing that if a party

relies on funds from other parties than its own (parent company in the present case), “the

right to have access to arbitral justice can only be granted under the condition that those third

parties are also ready and willing to secure the other party's reasonable costs to be incurred”

[Berger, p. 10]. Therefore, as CLAIMANT indirectly used funding provided by parent company

to finance the present proceeding, it should provide security for RESPONDENT’s costs.

40. The fact that CLAIMANT did not comply with previous award in the amount of USD

2,500,000, also raises the question of its financial situation [RE 6, p. 47]. Therefore,

CLAIMANT is in a poor financial condition and the Tribunal should secure the costs.

2. After the conclusion of the Arbitration Agreement the situation changed

fundamentally and unexpectedly.

41. For the security for costs to be granted, RESPONDENT should prove the substantial change in

circumstances that occurred after the conclusion of the Arbitration Agreement. The

unforeseeable change of circumstances since the conclusion of the arbitration agreement is an

essential ground to order security for costs [ICC Case 15951/FM; ICC Case No. 10032; ICC

Case No. 14433; ICC Case No. 14661]. The Arbitration Agreement between the Parties was

included in the DSA [Sec. 21 of the DSA, p. 11]. Hence, the date of the conclusion of

Arbitration Agreement is the same as for the DSA i.e. 1 August 2010 [ibid.]. That is why the

change in the circumstances ought to have taken place after this date. It shall be noted that

public information may be examined for the period of 2009 as only this information was

available for the RESPONDENT at the time of the contract conclusion (no information from

2010). In 2009, CLAIMANT was a profitable company with a high profit for the year [PO 2, p.

59]. In contrast, things have changed dramatically in 2010 when its profit had become

negative [ibid.]. Moreover, it failed to comply with the arbitral award in the amount of USD

2,500,000 and received fewer award in its favor than expected [RE 6, p. 47]. Up to today

CLAIMANT’s financial situation is not stable [PO 2, para. 11] and its liquidity is financed by its

parent company [PO 2, p. 59]. Thus, the fundamental and unexpected change of

circumstances had occurred after concluding the Arbitration Agreement.


16

D. Conclusion

42. To sum up, the Tribunal should grant RESPONDENT security of its costs as the Tribunal has

such power under CAM-CCBC Rules and arbitral practice. All conditions to order such

measures have been met since RESPONDENT established prima facie of the case and balance

of convenience test. Moreover, CLAIMANT lacks funds to comply with the awards on costs at

the end of the proceeding and there had been the unforeseeable change of circumstances

after the Arbitration Agreement conclusion.

III. CLAIMANT IS NOT ENTITLED TO THE ADDITIONAL PAYMENT FROM

RESPONDENT FOR FAN BLADES

43. The DSA contains the special price structure under which price is determined on the cost-plus

basis [Sec. 4 of the DSA, p. 10]. CLAIMANT’s costs for the production of fan blades were equal

to 19,586 EQD [CE 7, p. 16]. Under the DSA RESPONDENT should have paid the purchase

price for fan blades in USD [Sec.4 of the DSA, p. 10]. Therefore, in order to determine the

purchase price CLAIMANT’s costs should be converted from EQD to USD.

44. During the time when contract was in force the exchange rate of USD to EQD dramatically

decreased [PO 2, para. 12, p. 56]. Until 2014, when a totally unexpected shift in Equatorianian

Government policy occurred, the exchange rate was stable around USD 1 = 2.01 EQD [ibid.].

In 2014 the exchange rate reached the point of USD 1 = 1.79 EQD and merely fluctuated

since [ibid.]. Therefore, the abrupt instability of the exchange rate raised the issue of the

applicable exchange rate determination. CLAIMANT alleged that the exchange rate for the

purchase of fan blades should have been the average exchange rate of the production time

which was USD 1 = 1.79 EQD [Request for Arbitration, para. 12, p. 5]. However, later

CLAIMANT raised an ungrounded claim that the exchange rate of the day of payment should

have been applied [Claimant, para. 152]. RESPONDENT submits that both these allegations

contradict the Parties agreement to apply the exchange rate equal to USD 1 = 2.01 EQD.

RESPONDENT invoke the relevant means of interpretation revealing that fixed exchange rate

contained in the Addendum applies to the entire DSA (A). RESPONDENT also argues that

under the main DSA the exchange rate USD 1 = 2.01 EQD is applicable (B).

A. The fixed exchange rate introduced by the Addendum applies to the entire DSA

45. The Parties agreed on fixed exchange rate in the Addendum to the DSA [Addendum, p. 11].

CLAIMANT argued that fixed exchange rate applied only to the Addendum meaning only to

the purchase of clamps [Claimant, para. 119 et seqq.]. RESPONDENT submits that the


17

interpretation of the Addendum shows that fixed exchange rate applies to the entire DSA,

which is to the purchase of both fan blades and clamps.

46. The applicable law for the DSA is the CISG and UNIDROIT Principles as the

complementary source [Sec. 2 of the DSA, p. 10]. Therefore, the Tribunal should apply the

means of interpretation under the CISG first and then the means of interpretation under

UNIDROIT Principles. According to Art. 8 CISG the tribunal should subsequently apply two

basic methods of interpretation: subjective and objective [Conference on contracts, p. 18; CISG-

online Case No. 4C.296/2000/rnd (SUI, 2000); CISG-online Case No. S 01/269 (FIN, 2004)]. If

the Tribunal finds that Art. 8(1) CISG imposing subjective criterion is inapplicable then the

interpretation under Art. 8(2) imposing the objective criterion applies. Tribunals should apply

these rules of interpretation to the statements and other conduct of the parties as well as to

the provisions of a contact [Magnus, p. 110; Schwenzer, p. 60]. RESPONDENT submits that

CLAIMANT agreed to the proposal of RESPONDENT knowing the intent of the latter (1). The

interpretation under Art. 8(2) also applies in favor of RESPONDENT (2).

1. CLAIMANT was aware or should have been aware about the intent of RESPONDENT

47. Under the subjective criterion the tribunal should reveal the intention of the parties where the

other party knew or could not have been unaware of what that intent was [Huber, p. 236]. For

the interpretation under Art. 8(1) CISG the intent of one party should be recognizable to

another party [Schlechtriem, p. 39]. In order to understand whether the intent was perceptible

the regard should be paid to all relevant circumstances, especially listed in the Art. 8(3) CISG

[ibid., p. 39].

48. CLAIMANT alleges that it was not aware about the intent of RESPONDENT to extend the

application of fixed exchange rate to the entire DSA [Claimant, p. 19 et seqq.]. These allegations

are irrelevant in the present proceedings. CLAIMANT stated that it was under the risk of not

covering its cost as the DSA had the risk structure price and was the long-term contract

[Claimant, para. 129 et seqq.]. Therefore, CLAIMANT could not presume that RESPONDENT

would try to increase CLAIMANT’s risks by proposing the provision on fixed exchange rate

[Claimant, para. 132]. However, the silence of the DSA about the applicable exchange rate

could have made CLAIMANT’s losses even more sufficient. The parties normally agree on the

value of the exchange rate or the relevant date for its determination in cost-plus contracts [PO

2, para. 13, p. 56]. The agreed means of the exchange rate determination prevents one party

from unexpected losses and adds the stability in long-term contractual relationships.


18

Consequently, the proposal of RESPONDENT to apply fixed exchange rate for the purchase of

fan blades decreased the risks of unexpected losses from the DSA for both Parties.

49. CLAIMANT tries to argue that wording of the Addendum also proves that CLAIMANT neither

was aware nor could have been aware of the intent of RESPONDENT [Claimant, paras. 133 –

139]. CLAIMANT submits that RESPONDENT referred to the DSA only as “Agreement” from

capital letter [Claimant, para. 136]. However, the wording of the Addendum does not reveal

the fact that CLAIMANT did not understood the intent of RESPONDENT. The Addendum was

handwritten [CE 3, p. 11] which could have led to a mistake of people who were responsible

for writing it. Furthermore, RESPONDENT referred to the DSA as to the “agreement” not

“Agreement” when it proposed the terms of the Addendum “I would suggest the following terms to

be added by hand to the agreement” [RE 2, p. 28, emphasis added]. RESPONDENT applied the word

“agreement” for the DSA irrespective of whether the word “agreement” was written with a

capital letter [RE 2, p. 28].Moreover, RESPONDENT used a special word for the contract on

purchase of clamps which is “Addendum” [RE 2, p. 28, emphasis added]. Therefore,

CLAIMANT either was aware or could have been aware about RESPONDENT’s intent.

50. CLAIMANT also argues all risks have already been determined in the DSA [Claimant, paras. 140

– 146]. However, RESPONDENT already revealed that silence of the DSA on the exchange

rate determination was the risk that DSA did not cover [supra, p. 48].

51. CLAIMANT also should have known about the intent of RESPONDENT because of the de-

risking policy. CLAIMANT was aware about the de-risking policy imposed by Engineering SA

which is the parent company of the Parties [RE 1, p. 27]. According to the de-risking policy,

the Parties were ought to hedge the currency risks for RESPONDENT [ibid.]. CLAIMANT’s CEO

was aware of the de-risking policy [PO 2, para. 18, p. 57]. CLAIMANT alleges that this policy

was irrelevant for the case at hand as RESPONDENT had been sold to its present parent

company at the time when the DSA was concluded [Claimant, para. 146]. However, this

contradicts the facts of the present case as the DSA was concluded on 1 August 2010 and

RESPONDENT was sold on 3 August 2010 [PO 2, para. 1, p. 54]. Therefore, with the regard to

the de-risking policy, CLAIMANT was aware or could have been aware about the intent of

RESPONDENT.

52. Furthermore, the changes in the exchange rate were not predictable at the time when the

Parties concluded the Addendum. Before the conclusion of the DSA the exchange rate was

very stable [PO 2, para. 12, p. 56]. Later, before the signing the Addendum protectionist Prime

Minister was appointed in Equatoriana [PO 2, para. 12, p. 56]. There were no grounds to

consider that the exchange rate would alter as before this assignation the exchange rate was


19

stable during the ruling of the protectionist wing in Equatoriana [PO 2, para. 12, p. 56]. Thus,

no reasons existed to consider the application of fixed exchange rate to the entire DSA as one

more risk to CLAIMANT. Therefore, CLAIMANT could not expect that the application of the

fixed exchange rate would increase its risks.

53. According to all abovementioned facts, CLAIMANT knew about the intent of RESPONDENT to

apply fixed exchange rate to the entire DSA or could have known about such intent.

CLAIMANT did not raise any objections to the proposal of RESPONDENT containing such

intent [RE 4, p. 30]. Moreover, CLAIMANT explicitly stated that it “agree to the fixed exchange rate”

[ibid.]. Therefore, CLAIMANT knowing the intent of RESPONDENT agreed on the

RESPONDENT’s proposal. Consequently, according to the interpretation of the Addendum

under Art. 8(1) CISG, fixed exchange rate applies to the purchase of fan blades.

2. Reasonable person test applies in favor of RESPONDENT

54. If the Tribunal finds that the Parties did not share the same understanding of the provision on

the exchange rate in the Addendum, then pursuant to Art. 8(2) CISG the Tribunal should

interpret the provision under reasonable person principle. Test of Art. 8(2) CISG is not of a

reasonable person in abstract but of a reasonable person in a position of the other party

[Farnsworth, p. 99]. The understanding of a reasonable person for the purpose of Art. 8(2)

CISG depends on all facts and circumstances, namely negotiations, established practice

between the parties, usages and any subsequent conduct of the parties [Schlechtriem, pp. 39 –

40]. Therefore, the reasonable person should be of the same kind as CLAIMANT and act in the

same circumstances as of the case at hand. RESPONDENT submits that with the regard to all

relevant circumstances reasonable person in the position of CLAIMANT would have

understood the provision on fixed exchange rate as applicable to the entire DSA.

55. Normally in the contracts in aircraft industry the parties explicitly agree on the exchange rate

or the relevant date for the exchange rate determination [PO 2, para. 13, p. 56]. However, in

the previous contracts between the Parties there was no provision on the exchange rate

determination [PO2, para. 5, p. 54]. Their parent company determined the applicable exchange

rate and no disputes raised between the Parties [ibid.]. The DSA contains no provision on the

exchange rate as RESPONDENT learnt about the sale of CLAIMANT only when the signing date

was changes [PO 2, para. 1, p. 54]. When RESPONDENT understood that problems with the

exchange rate could have occurred it suggested the provision on the exchange rate. For the

purpose of pure convenience RESPONDENT included this provision in the Addendum which


20

the Parties intended to sign [PO 2, para. 16, p. 57]. CLAIMANT raised no objections to the

suggestion of RESPONDENT [RE 4, p. 30]. RESPONDENT behaved in the way trying to decrease

the risks of the Parties that a reasonable person could expect from RESPONDENT.

56. Furthermore, RESPONDENT asks the Tribunal to look into negotiations of the Parties. The

Parties agreed during the negotiations on the DSA that the exchange rate should have been

stable and around USD 1 = 2 EQD [CE 1, p. 8]. Therefore, the Parties intended to fulfill the

contract when the exchange rate was around USD 1 = 2 EQD. Based on this common

intention RESPONDENT later proposed to include the exchange rate provision in the

Addendum for decreasing the risks of the Parties from the DSA. Therefore, the process of

negotiations reveals that a reasonable person would understand the suggestion of

RESPONDENT as applicable to the DSA.

57. Moreover, RESPONDENT acted in full conformity with the previous practice of the Parties. In

previous contracts the exchange rate of the time of conclusion of the contract was used [PO 2,

para. 5, pp. 54 – 55]. For the DSA RESPONDENT suggested the exchange rate of the date when

the DSA was supposed to be signed [PO 2, para. 12, p. 56]. Therefore, RESPONDENT acted

pursuant to the past practice of the Parties that a reasonable person knowing about previous

relationship between the Parties would have understood.

58. Consequently, with the regard to all relevant circumstances the reasonable person in the

position of CLAIMANT would understand the provision on the exchange rate in the

Addendum as suggested to regulate the entire DSA.

B. The exchange rate under the DSA is USD 1 = 2.01 EQD

59. If the Tribunal finds that the provision on the exchange rate in the Addendum does not

expand to the entire DSA, nevertheless, under the DSA the exchange rate for the purchase of

fan blades is USD 1 = 2.01 EQD. CLAIMANT argued that under the applicable law the

payment should be made based on the exchange rate on the date of payment [Claimant, para.

157]. CLAIMANT based its assumption on the Art. 6.1.9 UNIDROIT Principles [ibid.].

However, Art. 6.1.9. UNIDROIT Principles refers to the payment in the currency of the

place of payment. In the present case the payment is due in the USD which is not the

currency of Equatoriana [Sec. 4 of the DSA, p. 10]. Therefore, Art. 6.1.9 UNIDROIT

Principles is inapplicable for the case at hand. RESPONDENT submits that the Tribunal should

supply the gap in the DSA paying regard to the applicable rules and all relevant

circumstances. The omitted term should be supplied in accordance with the UNIDROIT

Principles which leads to the exchange rate USD 1 = 2.01 EQD under the DSA (1). The


21

Parties have established practice between themselves under which the exchange rate of the

time of conclusion applied (2). The Seller which is CLAIMANT in the case at hand should bear

economic risks for the transaction including the risk of fluctuation of its country currency

(3).

1. Under the rule of supplying an omitted term the exchange rate is USD 1 = 2.01

EQD

60. RESPONDENT asks the Tribunal to fill in the gap in the DSA in accordance with the rule of

supplying an omitted term contained in the UNIDROIT Principles. Pursuant to the DSA the

UNIDROIT Principles is complementary substantive law for the case at hand [Sec. 20 of the

DSA, p. 10]. The CISG does not cover the issue of supplying missing terms in the parties’

agreement. However, the UNIDROIT Principles provide guidance for such situations by

applying the rule of supplying an omitted term [Art. 4.8 UNIDROIT Principles]. The

UNIDROIT Principles name a set of criteria for supplying an omitted term which are the

intention of the parties, the nature and the purpose of the contract, good faith, fair dealing and

reasonableness [ibid.].

61. First, the Tribunal should reveal whether the parties have common intention on the meaning

of the missing term [UNIDROIT Principles Commentary, p. 147]. Before the conclusion of the

DSA the Parties agreed on the implied exchange rate for the DSA [CE 1, p. 8]. Thus, at the

time of conclusion of the DSA the Parties shared the same understanding on the applicable

exchange rate. Therefore, at the time of conclusion the Parties intended to apply the exchange

rate equal to USD 1= 2.01 EQD.

62. However, if the Tribunal finds that common intention cannot be ascertained, the term to be

supplied may be determined in accordance with other criteria [UNIDROIT Principles

Commentary, p. 147]. RESPONDENT submits that all these criteria reveal that the exchange rate

of USD 1 = 2.01 EQD should be used for calculating a price under the DSA. The DSA in its

nature is the agreement on the joint development and subsequent purchase of fan blades

[DSA, p. 9]. The Parties did not agree on exact time of fan blades production to start.

Therefore, CLAIMANT alone decided when to start the production of fan blades.

Consequently, RESPONDENT would be under the major risk unless the exchange rate of the

time of conclusion applies to the DSA. Otherwise, it would create many uncertainties for

RESPONDENT's business. This also applies to good faith and fair dealing. If the exchange rate

of the time of production is applicable then CLAIMANT would be able to manipulate the final


22

price of the DSA. Thus, to stabilize the relationship between the Parties the exchange rate of

the time of conclusion should be used.

63. Consequently, the exchange rate under the rule of supplying an omitted term should be equal

to the exchange rate when the DSA was supposed to be signed.

2. The past practice of the parties is binding for the present dispute

64. The Tribunal should take into account all relevant circumstances including the previous

practice of the Parties. RESPONDENT submits that previous contracts between the Parties

constitute a binding practice in the sense of Art. 9(1) CISG for the case at hand. Previous

contracts of the Parties constituted the binding practice for the Parties (i). Moreover, the

Parties are bound of their intention to apply the exchange rate around USD 1 = 2 EQD

expressed in the negotiations (ii).

(i). The Parties are bound by their previous practice of applying the exchange rate of

the time of production

65. RESPONDENT submits that two previous contracts between the Parties are binding for them.

Practices are established by a course of conduct that creates an expectation that this conduct

will be continued [Pamboukis, p. 113]. Under Article 9(1) a course of conduct by one party in

past transactions may create an expectation by another party that will bind the first party in a

future contract [Honnold, p. 126]. A tribunal should decide whether the binding practice exists

having as criterion the legitimate expectation of the parties that they can in fact rely on legal

certainty [Pamboukis, p. 114]. RESPONDENT had the legitimate expectation that the exchange

rate under the DSA would be determined in the manner as in previous contracts.

66. In both two previous contracts no discussion on the exchange rate took place [PO 2, para. 5, p.

54]. In both contracts the exchange rate of the contract formation time was applied [ibid.]

CLAIMANT did not indicate that it did not want to use the past practice between the Parties

[CE 1, p. 8]. No provision on the exchange rate was included in the DSA. When the DSA was

negotiated RESPONDENT had no knowledge about the sale of CLAIMANT [PO 2, para. 1, p. 55].

Therefore, RESPONDENT was not aware of the need to include a provision on the exchange

rate in the DSA. Consequently, RESPONDENT had a reasonable expectation that the exchange

rate under the DSA would be determined pursuant to the practice between the Parties i.e.

application of the exchange rate on the moment of the conclusion of the DSA.

67. The practice can be binding when the relationships between the parties occur with certain

frequency [UNCITRAL Digest 2012, p. 66]. Two contracts are sufficient for the constitution

of the binding practice between the parties [CLOUT Case No. 217 (SUI,1997)]. Two previous


23

contracts between the Parties in the case at hand were concluded in 2003 and 2005 [PO 2,

para. 5, p. 54]. Both these contracts were long-lasting because of the specifity of the

development and sales contracts in the aircraft industry. Development and sales contracts in

the aircraft industry cannot be oftentimes concluded. Therefore, RESPONDENT asks the

Tribunal with the regard to the special features of the development and sales contracts in the

aircraft industry find two previous contracts are enough for the binding practice in the sense

of Art. 9(1) CISG.

68. As the relationships between the Parties were long-lasting and RESPONDENT had a reasonable

expectation that the exchange rate of the time of contract formation would be used, the

Parties are bound by their previous practice.

(ii). The Parties are bound by their intention expressed in the negotiation to apply

the exchange rate around USD 1 = 2 EQD

69. RESPONDENT asks to pay the special attention to the process of negotiation between the

Parties. However, CLAIMANT tries to diminish the importance of the statements made during

the negotiation arguing that under the DSA the exchange rate is determined as the value at

the date of payment [Claimant, para. 152 et seqq.]. RESPONDENT submits that contrary to

CLAIMANT’s allegations the intention of the Parties to apply the exchange rate around USD 1

= 2 EQD is binding for the Parties.

70. Parties can be bound by the intention expressed in the process of negotiation [CLOUT Case

No. 176 (AUT, 1996)]. This requires that other party realizes that its contracting party is only

willing to enter into a contract under certain conditions or in a certain form [ibid.]

RESPONDENT wanted to enter in the DSA only under such condition which CLAIMANT

should have known about. RESPONDENT was intended to sell the fan blades to another

company Earhart SP [Answer to Request for Arbitration, para. 5, p. 24]. Earhart SP insisted on the

signing the contract between Earhart SP and RESPONDENT with fixed price [ibid, para. 7, p.

24]. Therefore, RESPONDENT needed to be sure what price would be due to the DSA.

CLAIMANT knew about the transaction between Earhart SP and RESPONDENT and the need

of RESPONDENT to be sure about the price under the DSA [Request for Arbitration, para. 4, p.

4]. The Parties agreed that the exchange rate should have been stable and around USD 1 = 2

EQD [CE 1, p. 8]. In their previous contracts no discussion on the exchange rate at the

process of negotiating was made [PO 2, para. 5, p. 54]. This reveals that RESPONDENT

attached the significant importance on the intention of the exchange rate and wanted to enter

into the DSA only on the condition when the exchange rate was to be determined on the


24

moment of the conclusion of the DSA. Therefore, with the regard to negotiation process

RESPONDENT showed that it wanted to conclude the DSA only when the exchange rate of

the time of production would be used which CLAIMANT was aware about. Therefore, with the

regard to significance of this provision RESPONDENT asks the Tribunal to find the expressed

intention of the Parties to apply the exchange rate equal to USD 1 = 2 EQD binding for the

Parties.

71. Therefore, two previous contracts between the Parties constitute the practice which is binding

for the Parties. Under this practice the exchange rate of the moment when the DSA was

supposed to be signed should be used. Moreover, the Parties are bound by their intent to

apply the exchange rate around USD 1 = 2 EQD expressed in the negotiations.

3. CLAIMANT bears the risk of fluctuation of EQD

72. The Parties did not include explicit provision on the exchange rate in the DSA. Therefore, the

Parties were under the risk of currency fluctuation. RESPONDENT submits that in the case at

hand CLAIMANT bears the risk of EQD fluctuation.

73. The CISG do not directly govern which party bears economic risks. However, economic risks

including the risk of currency fluctuation are not the risks passing to the buyer [Erauw, p.

206]. Therefore, CLAIMANT as a Seller bears the risks of currency fluctuation in the present

case.

74. Moreover, the currency of the payment under the DSA is USD [Sec. 4 of the DSA, p. 10]. The

currency of payment was not affected by the fluctuation of EQD. Indeed, the exchange rate

gradually changed while the currency of CLAIMANT’s place of business has increased in

relation to the USD [PO 2, para. 13, p. 56]. These changes were due to the changes in the

government structure of Equatoriana and subsequent changes in the economic policy of

Equatoriana [ibid.]. RESPONDENT has no relation to the changes of EQD value. Therefore,

CLAIMANT bears the risk of fluctuation of the currency of its place of business.

C. Conclusion

75. Therefore, under the applicable rules of interpretation fixed exchange rate contained in the

Addendum should be applied to the purchase of fan blades. However, if the Tribunal finds

that provisions of the Addendum do not expand to the entire DSA, under the DSA the

applicable exchange rate is equal to the fixed exchange rate suggested by RESPONDENT which

is USD 1 = 2.01 EQD.


25

IV. CLAIMANT IS NOT ENTITLED TO ADDITIONAL PAYMENT OF

USD 102,192.80 FOR THE FEES DEDUCTED BY THE CENTRAL BANK OF

EQUATORIANA

76. On 15 January 2015, RESPONDENT effected the payment for goods in amount of

USD 20,438,560 in accordance with the fixed exchange rate as stipulated in DSA [CE 3,

p. 12]. However, the sum credited to the account of CLAIMANT was lower, due to the levy

subtracted from CLAIMANT’s account by Central Bank of Equatoriana in accordance with

Equatoriana anti-money laundering regulations, namely Section 12 Regulation ML/2010C.

Under CLAIMANT’s submission, RESPONDENT is the one who should compensate the said fee

and, therefore, it should reimburse to CLAIMANT its amount which is USD 102,192.80

[Request for Arbitration, para. 23; Claimant, paras. 181 - 187]

77. Contrary to CLAIMANT’s allegations RESPONDENT argues that it is not liable for this payment

based on several reasons: RESPONDENT performed all its contractual obligations when the

payment was effected to CLAIMANT (A) and CLAIMANT should have notified RESPONDENT

about the existence of the levy (B). However, even if the Tribunal finds that RESPONDENT

bears the duty to pay said amount, RESPONDENT argues that it should be granted with an

exemption from this obligation under Article 79 CISG (C).

A. RESPONDENT performed all of its obligations related to payment when it was

effected to CLAIMANT

78. CLAIMANT argues that by not reimbursing the subtracted levy, RESPONDENT fail to exercise

its contractual obligations under the DSA and the CISG, namely the obligation to pay the

price in full [Art. 57 CISG; Sec. 4 of the DSA, p. 10], obligation to comply with all the public

regulations for payment to be made [Art. 54 CISG] and obligation to bear the bank charges

associated with the transfer of the amount underprovide by aforementioned article of the

DSA [the DSA, ibid.]. Contrary to CLAIMANT’s submissions RESPONDENT argues that all

obligations regarding payment have been fulfilled. The contractual obligations have been

fulfilled by the RESPONENT (1). The levy subtracted from CLAIMANT’s account by Central

Bank of Equatoriana is not a bank charge, but a public charge, and therefore is exempted

from the DSA’s allocation of responsibility for bank charges (2). Moreover, Art. 54 CISG

does not encompass public regulations, such as the one under the levy was subtracted (3).

Also, the payment of the levy is not an “usage” implied in the DSA (4).


26

1. The contractual obligations have been fulfilled by RESPONDENT

79. CLAIMANT argues that RESPONDENT has not fully performed its contractual obligations by

not effecting the payment in order to reimburse for the levy in question [Claimant, para. 159].

However, this allegation is ungrounded. In RESPONDENT’s view, it had performed his

contractual obligations by effecting the payment to the account in ENB.

80. Per Art. 57 CISG, the buyer (RESPONDENT) must effect payment at seller’s (CLAIMANT’s)

place of business. The place of business of CLAIMANT is in Equatoriana, and therefore, the

obligation to pay the price will be fulfilled when the transfer reaches Equatoriana. The same

holds true under UNIDROIT principles, which state that monetary obligation must be

performed at the obligee's place of business [Art. 6.1.6 UNIDROIT Principles].

81. The DSA stipulates that the payment was to be deposited in full into the CLAIMANT’s

account at the ENB [Sec. 4 of the DSA, para. 3, p. 10]. From this obligation, two relevant

consequences arise – the buyer must comply with the laws and regulations of all the countries

which are effecting the payment – the country of origin, the country of destination and all the

countries through which the payment is transferred, should it be the case. Second, buyer pays

the costs of the transmission to the seller’s place of business [Maskow, p. 415]. Therefore,

under Art. 57 CISG, RESPONDENT is liable for all deductions and fees occurring before the

payment is effected to CLAIMANT’s account in ENB.

82. Moreover, the way how international wire transfers work suggest that liability of

RESPONDENT finishes even before that moment. The wire transfer is considered finalized

when transmitting bank informs the receiving bank that it had effected the payment, not

when the payment is effectively credited on the account [Delbrueck & Co. v. Manufacturers

Hanover Trust Co]. The payment deemed effectively complete from the side of RESPONDENT

and RESPONDENT’s bank when the bank makes an internal decision to credit the account of

payee and starts the electronic procedure of crediting funds [The Brimnes], in present case,

through SWIFT network.

83. In present case, no charges have been subtracted from the payment neither by the Central

Bank of Meditterraneo, nor by the bank of RESPONDENT, nor by any other intermediaries

before the payment arrived into Equatoriana. According to the written notice from

Equatoriana National Bank, the payment in full (USD 20,438,560) was effected by the

RESPONDENT to the CLAIMANT’s account, and only after this the Equatoriana Central Bank

Financial Investigation Unit subtracted the said fee due to the fact that the sum of deposited

payment exceeded USD 2 million [CE 3, p. 12].


27

84. Therefore, it is RESPONDENT’s contention that its contractual obligations under the DSA and

CISG have been fulfilled, due to the fact that the full amount of payment reached

CLAIMANT’s country, and only after the sum was deducted by the Financial Investigation

Unit. Therefore, the costs of payment for the said levy are to be borne by CLAIMANT.

2. The Levy is not a bank charge, but a public charge, and therefore is exempted

from the DSA’s allocation of responsibility for bank charges

85. CLAIMANT argues that the subtracted fee can be seen as bank charge, since it is being

subtracted by the ECB from the payment, and, therefore, it should have been borne by the

RESPONDENT according to the DSA Sec. 4 Art. 3 – “The bank charges for the transfer of the

amount are to be borne by the BUYER” [Claimant, paras. 182 - 184, the DSA, p. 10]. However,

the nature of the said fee cannot allow for it to be interpreted as a bank charge, but

constitutes a public charge, which exempts it from the risk-allocation provisions of the DSA.

86. A bank charge is a fee or commission debited by a bank from a current account for

transactions and services carried out [English Oxford Dictionary, Definition: “bank charge”,

Cambridge English Dictionary, Definition: “bank charge”]. To be covered by the abovementioned

DSA provision, the levy imposed should be complacent with this or similar definition.

Therefore, the question arises – whether ECB can be qualified as a bank?

87. Central Bank is, normally, a “monetary authority” or, in other words, a “banker’s bank”,

which “provides services to a national government” [Investopedia, Definition: “Central Bank”,

Black’s Law Dictionary, Definition: “Central Bank”, Cambridge English Dictionary, Definition: “Central

Bank”]. Central Banks and other monetary authorities have an undeniable link to the

government and do not work as commercial bank does – they do not serve the companies or

persons, they serve banks themselves and their national governments, while managing the

financial system [Goodhart, p. 20]. Same holds true for the ECB – it is a government entity

with its own budget which transfers its annual profits to the Minister of Finance [PO 2, para.

7, p. 55]. Therefore, ECB, as it is, does not qualify as a traditional commercial bank, which is

reaffirmed by the fact that, under ML/2010 after the clearance for the transfer is given will

the amounted be credited to respective commercial bank in Equatoriana [PO 2, para. 10, p.

56, emphasis added].

88. Moreover, the payment was subtracted by Financial Investigation Unit, a special task force

under the auspices of the Central Bank, dealing with financial investigation to prevent the

financing of terrorism and money laundering [PO 2, para. 7, p. 55]. FIU, while being a part of

ECB cannot qualify as a “bank” either.


28

89. Another question is whether the levy is a “payment for transaction or service carried out”.

The fees generated by the inspections are supposed to partially constitute the budget of the

FIU [PO 2, para. 7, p. 55]. Therefore, while the levy in question could be interpreted as

payment for service carried out, it is not a service requested by the parties of the contract,

which was an international wire transfer. The AML investigation was nor expected by

RESPONDENT, nor sought for. However, due to the public nature of the payment, it is

impossible to “opt out” of this service and not pay the fee, even if you wanted to. Therefore,

the levy is not a bank charge because it is not a payment for service, but a public payment.

90. Origin of the levy’s existence also points to its public nature. Commercial banks normally

define the number of services, for which the fees will be charged and its amount, themselves

in internal documents and regulations of the bank [Bank of America Personal Schedule of Fees,

Deutsche Bank List of Prices and Services, BNP Paribas Banking Services & Tariff]. This is not the

case with ECB and the levy in question. Levy was introduced by Regulation ML/2010 [PO 2,

para. 7, p. 55], which constitutes a public instrument, enacted by a different authority than the

Central Bank itself.

91. Therefore, the facts that ECB or the FIU are not “banks”, the obligatory AML investigation

is not a “service”, and the levy was not constituted by the ECB, state that the levy in question

cannot be seen as bank charge, but as a charge of public nature. Therefore, the payment of

the levy is not covered by the bank charges responsibility allocation in the DSA and

RESPONDENT is not obliged for its payment or reimbursement of it to CLAIMANT.

3. Art. 54 CISG does not encompass public regulations unrelated to the payment

92. CLAIMANT’s argument about the side which is obliged for the payment of the levy under

CISG takes note of the notion that, under Article 54 CISG, RESPONDENT’s “duty to pay the

purchase price encompasses all arrangements stipulated in the contract” [Claimant, para. 186],

and therefore, makes RESPONDENT liable for the levy. It is the RESPONDENT’s contention

that the nature of the levy in present dispute exempts it from being encompassed under the

Art. 54 CISG due to the fact that Art. 54 implies only public laws and regulations concerning

the enabling steps for the payment, which is not true for the levy under Regulation

ML/2010C.

93. Article 54 CISG states that “the buyer's obligation to pay the price includes taking such steps

and complying with such formalities as may be required under the contract or any laws and

regulations to enable payment to be made”. This obligation is widely thought to be related to

steps, which should have been taken by the buyer to enable payment to be made at all


29

[Secretariat Commentary on the 1978 Draft of the CISG]. Article 54 is concerned solely with actions

preparatory to payment of the price [UNCITRAL Digest of case law 2012, Art. 54 CISG]

94. Examples of such steps are obtaining a letter of credit or compliance with relevant domestic

laws, in particular currency-exchange regulations [Schlechtriem, p. 81]. Examples of the cases,

where the courts have found article 54 as a primary breach of obligation of payment, also,

concern with preparatory, or enabling steps [CLOUT case No. 986 (CHN, 2002); CLOUT case

631 (AUS, 2000); CLOUT case No. 717 (CHN, 1999)]. In these cases, RESPONDENTs haven

not been able to effect even partial payment in time due to his negligence in conforming to

enabling steps, and therefore, was subject to the remedies under the CISG. This is not the

case in present dispute – RESPONDENT had effected the payment in full on time, which is

confirmed by RESPONDENT and ECB [CE 7, p. 16, CE 8, p. 17]. Thus, RESPONDENT

considers all the enabling steps in respect to the payment fulfilled by him and believes that his

obligations under Art. 54 CISG have been fulfilled.

95. CLAIMANT in his submission believes that the levy under ML/2010C is encompassed by Art.

54 CISG. However, ML/2010C is not a regulation, compliance with which is necessary to

effect payment.

96. Regulation ML/2010C is a part of extensive regulatory package designed to improve

Equatoriana’s anti-money laundering laws [PO 2, para. 7, p. 55]. The anti-money laundering

regulations, which came to prominence in the last decades have their main aim in establishing

a defined set of procedures and protocols in order to eradicate these practices and locate

people involved in them [IMF Anti-Money Laundering, pp. 5 - 7]. International community have

undertaken specific measures to battle money laundering and corruption in the world – more

than 120 countries are signatories to the UNCAC, which invites the parties to establish a

dedicated Financial Investigation Unit [Art. 50 UNCAC].

97. FIU’s have been already established since 1980’s in developed countries of the world. The

Egmont Group, the union of the FIU’s of the world, formed in 1995, now consists of more

than 130 members [Egmont Group Members]. Egmont Group, World Bank and International

Monetary Fund in their reports on the FIU’s organization and responsibilities, note that

FIU’s of the world generally use one of the four different mechanisms of operation, none of

which enables them to subtract charges for their operations from the transactions [FIU: An

Overview, p. 8]. Consequently, the nature of operation of the FIU in Equatoriana is almost

unique – only 6 countries of the world use the structure, where AML regulations are being

borne by private party directly [PO 2, para 7, p. 55].


30

98. Therefore, RESPONDENT believes that the levy subtracted from CLAIMANT’s account by the

Central Bank cannot be seen is public regulation concerning payment to be made in full, but

constitutes a part of a very specific anti-money laundering regulation, and, therefore, it is not

encompassed by obligation under Art. 54 CISG.

4. Payment of the levy is not an “usage” implied in the DSA

99. CLAIMANT implies that even if Tribunal will decide that RESPONDENT is not liable for

payment of the levy under the DSA and Art. 54 CISG, that it is liable because the existence

of the levy is an “implied usage”, which is widely known an observed by parties to contracts

of the type involved in particular trade [Claimant, paras. 188, 190]. RESPONDENT refuses to

consider the fact that the payment of the levy and the risk-allocation could be envisioned as a

usage.

100. CLAIMANT himself references that for usage to be implied the parties have to know and

ought to have known about it and the usage has to be acknowledged and observed by that

parties to contract of the type involved in particular trade [Schlechtriem, p. 59]. Both of these

cumulative characteristics cannot be applied to the present case.

101. CLAIMANT argues that implied knowledge of the “usage” derives from the widespread

application of AML regulation around the world [Claimant, paras. 191 - 193]. RESPONDENT

finds this argument unfounded. While the AML regulation, in particular establishment of

FIUs is widespread [supra. paras. 96-97], the unique nature of Equatoriana’s FIU operation

makes it near impossible not to be aware of it, albeit by chance, but also makes it highly

improbable to expect such kind of levy to be distracted [supra. paras. 88 - 91 and 97 – 98].

Therefore, the payment of the levy cannot be reasonably seen as an “well-known usage”.

102. Also, it cannot be seen as implied in the DSA due to the fact that neither negotiator knew

about Regulation ML/2010C existence at the time of negotiation of the risk-allocation part of

the DSA.

103. Secondly, CLAIMANT argues that this “usage” is acknowledged in cross-border transactions.

However, there are only reports of six other countries where burden of paying for AML

investigations, nor that they have the exact same mechanism as in Equatoriana [PO 2, para. 7,

p. 55]. To RESPONDENT’s knowledge, it still is a unique public provision, no analogues to

which exist in the world [Answer to Request for Arbitration, para. 18, p. 26].

104. The AML regulations and usages are concerned with submitting a number of key documents

as a part of “know-your-customer” policy, not with paying for AML investigation.

105. Therefore, RESPONDENT asks the Tribunal to dismiss the request of CLAIMANT to place the

burden of payment for the levy on RESPONDENT, due to the fact that there is no such


31

“usage” neither known to the parties, nor implied in the DSA, nor acknowledged in the

cross-bored sales, which obliges RESPONDENT for its payment.

106. Thus, RESPONDENT asks the Tribunal do dismiss CLAIMANT’s request to order RESPONDENT

to reimburse CLAIMANT for the fee deducted by ECB under Regulation ML/2010C, since

RESPONDENT performed all its contractual obligations by effecting the payment in full, the

levy under Regulation ML/2010CC is neither a bank charge, nor a regulation constituting an

enabling step for the payment, and therefore it is exempt from risk-allocation provisions of

both the DSA and Art. 54 CISG, and the fact that allocation of burden for the payment of

the levy cannot be seen as an implied usage.

B. CLAIMANT should have notified RESPONDENT about the existence of the levy

107. CLAIMANT argues that it was RESPONDENT’s obligation to “inform himself” about the

payment procedure in Equatoriana [Claimant, para. 180] and, therefore, had a duty to discover

the existence of the levy. This allegation is fundamentally wrong and goes against established

worldwide business practices and places substantial burden of additional due diligence on

RESPONDENT.

108. It RESPONDENT’s contention that, CLAIMANT should have notified RESPONDENT about the

existence of the said levy [Answer to the Request for Arbitration, para. 19, p. 26], since he had the

knowledge even before the DSA was signed, and well before the payment had been effected.

By not doing it, while he had the knowledge and the ability to do it, had not been acting in

good faith, and, therefore, should be liable for the payment of the levy as a valid remedy for

its negligence.

109. CLAIMANT argues that imposing on him (as the seller) obligation to inform RESPONDENT

about the existence of the levy under ML/2010C goes against the structure of the contractual

risks established by the CISG [Claimant, para. 172]. However, Art. 54 and Art. 57 CISG and

authorities quoted by CLAIMANT [Claimant, paras. 173 - 177] concern the obligation to pay the

price in the place of business and obligation to comply with laws and regulation enabling

payment to be made. Nowhere, neither in the text of the article, nor in the quoted authorities

there is a link between those obligations and imaginary “obligation to inform himself about

the existing regulations”.

110. Moreover, RESPONDENT have been obviously aware of the banking mechanism in

Equatoriana form its prior dealings with CLAIMANT in 2003 and 2005 [PO 2, para. 5, p. 54].

Additionally, there are no other big suppliers in Equatoriana with which RESPONDENT has

business relationship with.


32

111. It is common business practice for contracting parties to perform due diligence in regards to

the regulations, which obviously was done during the first business transaction. If

RESPONDENT (or any other business entity) will be doing such a costly and time-consuming

process as due diligence for each of their international payments and actions, which have

been already done before, the transaction costs would have drastically increased, rendering

international business transactions inefficient and non-profitable.

112. Even if RESPONDENT did his own due diligence, is would be excessive to expect

RESPONDENT to analyze existing AML regulations, because it is impossible to investigate all

public regulations and due to the uniqueness of the AML regulations in Equatoriana when

compared to the established practices, CLAIMANT cannot expect RESPONDENT to check and

make note of specific regulations, which are in sharp contrast with worldwide practice in the

field, without notice, which CLAIMANT failed to made. Therefore, it is extremely improbable

to expect RESPONDENT to “make himself informed” of the existence of the new AML

regulation by itself.

113. On the contrary, CLAIMANT was aware of the existence of the levy. It first became known to

him in the middle of June 2010, when the levy had been deducted from the payment to

CLAIMANT [PO 2, para. 8, p. 55]. At that time, the DSA was not yet signed, however, the

provisions regarding cost and risk allocation have been already finalized and negotiators from

CLAIMANT’s side were unaware of its existence [ibid.]. In RESPONDENT’s view, this fact alone

already proves the fact that CLAIMANT was negligent about the regulatory update, and it

should have been possible for the Financial Department of CLAIMANT to inform relevant

parts of the company about the existence of the said levy. If the existence of the levy could

have been communicated to the negotiators, it would have been taken into account, and the

risk and charges provisions of the DSA would have been redrafted to respond to that issue.

114. The timeframe between the conclusion of the DSA (August 2010) and the effect of the

payment (January 2015) is roughly 4.5 years. RESPONDENT finds it extremely negligible from

CLAIMANT not being able to inform RESPONDENT about the existence of the levy in that

extensive timeframe. One might think that CLAIMANT did it on purpose in order not to pay

for the levy in question.

115. By nature of international business transactions international companies do not have the time

or resources to be up to date with all the regulatory updates of other countries. It is easier for

the company in the place of business to inform its partners about legal updates in their

country.


33

116. Thus, negligent attitude between departments of CLAIMANT resulted in being unable to

inform RESPONDENT of the levy, even though they had known about its existence for at least

5 years. Therefore, RESPONDENT asks the Tribunal to find CLAIMANT liable for informing

RESPONDENT about the existence of the levy, and therefore, exempt RESPONDENT for the

reimbursement of the levy to CLAIMANT as a valid remedy for negligent conduct of

CLAIMANT.

C. RESPONDENT should be granted exemption under Article 79 CISG

117. Even if Tribunal finds RESPONDENT liable for the payment of the levy, RESPONDENT should

be granted exemption under Article 79 CISG, which provides for exemption from

performing its obligations.

118. Article 79 CISG provides that party is not liable for a failure to perform any of his obligations

if he proves that the failure was due to an impediment beyond his control and that he could

not reasonably be expected to have taken the impediment into account at the time of the

conclusion of the contract or to have avoided or overcome it or its consequences.

119. CLAIMANT is the only supplier from Equatoriana and no comparable levy exists in

Mediterraneo [PO 2, para. 8, p. 55]. However, CLAIMANT should have known about the

existence of the said levy – its financial department was aware about it as early as in May of

2010 [ibid.].

120. RESPONDENT finds that the existence of this unique levy is an impediment beyond its

control, as it is a result of a public regulation, of which RESPONDENT was not aware of. If it

had known about this regulation before the situation arose, it would have asked to

renegotiate the price structure or allocation of the duty of payment of the said levy, however,

since the DSA employs production cost plus CLAIMANT’s profits as a price calculation

mechanism, the payment of the said amount creates an unreasonable measure since it goes

beyond the intentions of the parties when concluding the DSA.

121. CLAIMANT may respond to this claim by submitting that RESPONDENT should have made its

own due diligence and therefore, should have made itself aware about the existence of the

levy, especially if it was made public. However, as was previously said [supra. paras. 88 - 91 and

97 – 98, 111 - 112.], it is extremely excessive to expect RESPONDENT to conduct due diligence

for each business transaction with an established trade partner, and even if due diligence

would have been conducted.

122. Therefore, RESPONDENT, in case that the Tribunal finds it liable for the levy’s payment, asks

the Tribunal to grant him an exemption from payment of the levy under Article 79 CISG


34

since the existence of the levy created an unforeseeable impediment beyond his control

which cannot be avoided or overcame by RESPONDENT.

D. Conclusion

123. For the reasons stated above, RESPONDENT requests the Tribunal to reject the request of

CLAIMANT to pay the outstanding amount of USD 102,192.80 for the fees deduced by the

Central Bank of Equatoriana due to the fact that RESPONDENT already fulfilled his

contractual obligations, and the provisions of CISG and DSA do not make it possible to

place the burden of its payment on RESPONDENT. In case if the Tribunal finds RESPONDENT

liable for the payment, RESPONDENT requests the Tribunal to grant him an exemption from

this duty under Art. 79 CISG.


35

PRAYER FOR RELIEF

On the basis of the foregoing submissions, RESPONDENT respectfully requests the

Tribunal:

(1) To find CLAIMANT’s claims inadmissible and dismiss them as belated;

(2) To satisfy RESPONDENT’s Request for security for costs;

(3) To reject all claims for payment raised by CLAIMANT.

Vindobona, Danubia

26 January 2016

Ekaterina Nuzhdova

Polina Sizikova

Mariia Zinoveva

Evgenii Puchkov

Kseniia Soloveva

Elza Dauletshina

Alexander Zhdanovich

Konstantin Vaschenko