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M3050-R

LAWASIA MOOT COMPETITION

2011

IN THE KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION

ASTORIA PRODUCE

Claimant

v.

ROLGA FARMER’S EXCHANGE

Respondent

MEMORIAL FOR THE RESPONDENT

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Table of Contents

INDEX OF AUTHORITIES 4

QUESTIONS PRESENTED 7

STATEMENT OF JURISDICTION 8

STATEMENT OF FACTS 9

SUMMARY OF PLEADINGS 12

I. THE TRIBUNAL DOES NOT HAVE JURISDICTION TO HEAR THIS

DISPUTE 14

A. THE TRIBUNAL DOES NOT HAVE JURISDICTION AS THE PARTIES DO NOT HAVE A VALID

AGREEMENT TO SUBMIT TO THE JURISDICTION OF THE KLRCA 14

B. THE TRIBUNAL‟S CONSTITUTION WAS TAINTED BY SERIOUS PROCEDURAL DEFECTS

WHICH WOULD ALLOW THE AWARD TO BE SET ASIDE OR RENDER IT UNENFORCEABLE. 18

II. THE TRIBUNAL DOES NOT HAVE THE POWER TO IMPOSE A FINE ON

RFE FOR ITS FAILURE TO APPEAR 23

III. THE LAW APPLICABLE TO THE SUBSTANCE OF THE DISPUTE ARE

GENERAL PRINCIPLES OF INTERNATIONAL LAW, AS MANIFESTED IN THE

PICC 25

A. THE KLRCA RULES ALLOW THE TRIBUNAL TO APPLY A SET OF NON-NATIONAL LAWS

TO THE SUBSTANCE OF THE DISPUTE 25

B. APPLYING GENERAL PRINCIPLES OF INTERNATIONAL LAW IS NEUTRAL AND FAIR IN THE

CIRCUMSTANCES 26

C. APPLYING GENERAL PRINCIPLES OF INTERNATIONAL LAW IS CONSISTENT WITH

ESTABLISHED INTERNATIONAL ARBITRATION PRACTICE 27

IV. RFE WAS NOT IN BREACH OF ANY SELLER’S OBLIGATIONS UNDER

THE CONTRACT 28

A. RFE FULFILLED ITS OBLIGATIONS TO WAS TO DELIVER THE BANANAS “FOB ROLGA

CITY” 28

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B. RFE AND AP DID NOT OMIT ANY TERMS AND THE TRIBUNAL THEREFORE NEED NOT

SUPPLY ANY TERMS TO THEIR CONTRACT OF SALE 32

V. AP HAD AN OBLIGATION TO PRESERVE THE BANANAS AND/OR SELL

AS MANY OF THE BANANAS AS SOON AS PRACTICABLE AFTER THE

PINAFORE DOCKED 32

A. UNDER ITS OBLIGATION TO ACT IN ACCORDANCE WITH GOOD FAITH AND FAIR DEALING,

AP HAD TO TAKE REASONABLE MEASURES TO PROTECT THE BANANAS 32

CONCLUSION AND PRAYER FOR RELIEF 36

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Index of Authorities

Malaysian & English Judicial Decisions

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 ................................................................ 14

CN Associates (A Firm) v Holbeton Limited [2011] EWHC 43 .............................................. 16

Entorres v Miles Far East [1955] 2 QB 327............................................................................ 14

Harvey v Facey [1893] UKPC 1 .............................................................................................. 14

James Finlay v Kwik Hoo Tong [1929] 1 KB 400 ................................................................... 34

Jamil bin Harun v Yang Kamsiah[1984] 1 MLJ 217 ............................................................... 14

Klockner Pentaplast Gmbh v Advance Technology [2011] HKEC 941 .................................. 13

Mitsui Babcock Energy v John Brown Engineering [1996] 51 Con LR 129 ........................... 14

Olley v Marlborough Court Ltd [1949] 1 KB 532 ................................................................... 15

Pilkington v Wood [1953] Ch 770 .......................................................................................... 34

Solectron Scotland Ltd v Roper [2004] IRLR 4....................................................................... 16

Stent Foundations v Carillion Construction [2001] 78 Con LR 188....................................... 14

Tan Chong & Sons Motors v Alan McKnight [1983] 1 MLJ 220 ............................................ 14

Tekdata Interconnections Ltd v Amphenol Ltd [2009] EWCA Civ 1209 ................................ 14

The “Mahia” (No. 2) [1960] 1 Lloyd‟s rep 191 ...................................................................... 30

International Statutes

Gaillard and Savage, Fouchard Gaillard Goldman on International Commercial Arbitration,

(Kluwer Law International, 1999) ........................................................................................ 13

The Uniform Law on the International Sale of Goods ............................................................ 32

Uniform Commercial Code ...................................................................................................... 32

Miscellaneous

Ramberg, ICC Guide to INCOTERMS 2010 (ICC Services Publications, 2011) .............. 29, 30

Report on the Sixth session of the Working Group on International Contract Practices,

International Commercial Arbitration A/CN.9/245 ............................................................. 25

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Treatises & Commentaries

Baker & Davis, The UNCITRAL Arbitration Rules in Practice: The Experience of the Iran-

United States Claims Tribunal (Boston, Kluwer Law and Taxation Publishers, 1992) ...... 21

Blackaby et al, Redfern and Hunter on International Arbitration (Oxford University Press,

5th ed 2009) .......................................................................................................................... 22

Born, International Commercial Arbitration (Kluwer Law International, 3rd

ed 2009) .......... 13

Bridge, The International Sale of Goods (Oxford University Press, 2007)............................. 30

Caron, Pellonpää and Caplan, The UNCITRAL Arbitration Rules: A Commentary (Oxford

University Press, 2006) ............................................................................................ 21, 22, 23

Craig, Park and Paulsson, International Chamber of Commerce Arbitration, (ICC, 2000).... 25

Gabriel, Contracts for the Sale of Goods (Oceana Publications 2004) ................................... 33

Gabriel, Contracts for the Sale of Goods (Oceana Publications, 2004) .................................. 27

Honnold, Uniform Law for Interntional Sales under the 1980 United Nations Convention,

(Kluwer Law International, 2009 4th

Ed) ............................................................................. 33

Kronke & Nacimiento , et al. (eds), Recognition and Enforcement of Foreign Arbitral Awards:

A Global Commentary on the New York Convention, (Kluwer Law International 2010) ... 18

Lew and Mistelis, Comparative International Commercial Arbitration, (Kluwer Law

International, 2003) .............................................................................................................. 25

Vogenauer and Kleinheisterkamp, Commentary on the UNIDROIT Principles of

International Commercial Contracts, (Oxford University Press, 2009) ........................ 27, 34

Journals & Articles

Blessing, Choice of Substantive Law in International Arbitration, 14(2) J. Int‟l Arb. 39 (1997)

.............................................................................................................................................. 25

Hyland, “On setting forth the law of contract: A Foreword” (1992) 40 Am J Comp L 541 .. 32

WSW Davidson and Sundra Rajoo, Arbitration Act 2005: Malaysia Joins the Model Law,

The Malaysian Bar, 10 July 2006

<http://www.malaysianbar.org.my/adr_arbitration_mediation/arbitration_act_2005_malays

ia_joins_the_model_law.html> (last accessed 19 August 2011) ......................................... 19

UN Documents

Official Commentary to the PICC ......................................................................... 29, 31, 32, 34

Report of the Secretary-General on the Analytical Commentary on Draft Text of a Model

Law on International Commercial Arbitration, UN Doc. A/CN.9/264 ................................ 24

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UNIDROIT International Institute UNIDROIT Study L Doc 12 ............................................ 29

UNIDROIT Official Comments .............................................................................................. 28

International Court and Tribunal Decisions

Corte di Appello of Florence, Apr. 13, 1978, Rederi Aktiebolaget Sally v S.r.l. Termarea, IV

Y.B. Com. Arb. 294 (1979) .................................................................................................. 19

Deutsche Shachtbau – und Tiefbohrgesellschaft mbH v Ras Al Khaimah National Oil Co.,

[1987] 2 All ER 769 ............................................................................................................. 26

Encyclopaedia Universalis SA v Encyclopaedia Britannica Inc (“Encyclopaedia”) 403 F.3d

85 .......................................................................................................................................... 20

Encyclopaedia Universalis SA v Encyclopaedia Britannica Inc [2003] WL 22881820 ......... 20

Firm in Hamburg (buyer) v Corporation (A.G.) in Basel (seller), Basel Court of Appeals,

Sept. 6, 1968, I Y.B. Com. Arb. 200 (1976) ........................................................................ 19

Fougerolle v Banque du Proche Orient, Cour de cassation, 9 December 1981, 1982 JDI 931

.............................................................................................................................................. 26

ICC Case No. 117, 2001, < http://www.unilex.info/case.cfm?id=793> (Last accessed 19

August, 2011) ....................................................................................................................... 25

ICC Case No. 7375, 5 June 1996, <http://www.unilex.info/case.cfm?id=625> ..................... 27

ICC Case No. 8502, ICC International Court of Arbitration Bulletin (1996) 72 .................... 26



Norsolor v Pabalk Ticaret (1984) 9 Y. Comm. Arb. 109, (1984), (1984) 9 Y. Comm. Arb.

159 ........................................................................................................................................ 26

US-Iran Claims Tribunal Case No. 299, Chamber One, Order of 22 Mar 1984 ..................... 23

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Questions Presented

1. Whether the Kuala Lumpur Regional Centre for Arbitration (“KLRCA”) has the

authority to resolve the dispute between Astoria Produce (“AP”) and Rolga

Farmer‟s Exchange (“RFE”); specifically, whether there was an agreement

between the parties to submit the dispute to the KLRCA.

2. Whether it was inappropriate for the KLRCA to appoint an arbitrator on RFE‟s

behalf and the presiding arbitrator.

3. Whether the arbitration panel has the authority to impose sanctions, in the form of

a fine, on RFE for failing to appear at the initial hearing.

4. Whether the United Nations Convention of International Sale of Goods (“CISG”)

or other general principles of international law governs the dispute.

5. Whether the shipment of bananas arrived in an unsatisfactory condition due to

improper storage and whether this was a breach of the seller‟s obligation under the

contract between the parties.

6. Whether either party to this dispute had a legal obligation to attempt to sell any of

the bananas soon after the PINAFORE docked at the Port of Astoria

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Statement of Jurisdiction

1. RFE objects to this tribunal‟s jurisdiction on two grounds. The agreement to arbitrate

is invalid because RFE did not accept AP‟s amended forum selection clause.

Additionally, there were serious procedural defects in the arbitral process. These

defects affect both the enforceability of the final award and the likelihood of such an

award being set aside by Malaysian courts. Accordingly, the RFE requests that the

tribunal decline jurisdiction.

M3050-R

Statement of Facts

The exchanges leading up to the signing of the agreement

2. Astoria Produce (“AP”) contacted the Rolga Farmer‟s Exchange (“RFE”) for the first

time on 15 July 2010 to order bananas. RFE‟s General Sales Manager, Rocco, liased

with AP. Later that day, Rocco sent a confirming Bill of Sale (“BOS”) via email to

Vogel, AP‟s Chief Purchasing Agent.

3. Rocco and Vogel exchanged emails before signing the BOS. In these emails, Vogel

expressed concern over the carrier and insurance. In her reply, Rocco expressed that

RFE “fully [understood AP‟s] concerns” and that RFE would “make sure that the

Captain [of the carrier] is well aware of the special care that [the bananas] must

receive”.

AP’s modification of the forum selection clause

4. Before signing the BOS, Vogel amended the forum selection clause accordingly:

Any dispute… shall be settled by arbitration in accordance with the

rules of the Western Pacific Regional Kuala Lumpur Regional Centre

for Arbitration. The number of arbitrators shall be one three. The place

of arbitration shall be Rolga City Kuala Lumpur.

5. The BOS, with the amended forum selection clause (“the amended clause”), was

signed and returned to RFE via email to Rocco. Rocco did not acknowledge the

amended forum selection clause.

Shipping the bananas

6. Under the BOS, shipment was to be made “FOB Rolga City”. In accordance with

trade custom, RFE arranged for shipment of the bananas on board the M/S

PINAFORE (“the PINAFORE”).

7. On 23 September 2010, a clean Bill of Lading (“BOL”) was signed by the captain of

the PINAFORE. It was a general purpose cargo ship.

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8. Within the BOL were RFE‟s standard instructions for the shipment of bananas. These

instructed that the “bananas must be stored in a cool, dry location with good

circulation to prevent spoilage.” RFE was named the shipper, while AP the consignee.

AP was to bear the carrier‟s costs.

9. RFE was paid in full on 30 September 2010 when it presented the required documents

to the Farmers Bank of Rolga.

10. On 1 October 2010, the PINAFORE departed for Astoria City.

Inspecting the bananas

11. The PINAFORE arrived in Astoria on the night of 24 November 2010. Dr Bartolo,

AP‟s Director of Food Safety, inspected the shipment before the PINAFORE docked

the next morning. He found that some bananas were ripe or ripening..

12. The next day, John Sparrow (“Sparrow”) inspected the bananas. He found that the

bananas were stored in two ways: stowed by the stem and in cartons that were tightly

packed. Most ripening occurred in the cartons that were tightly packed because there

was insufficient air flow. There were no problems with the boxes used to pack the

bananas. At this time, Sparrow opined that 30% of the bananas were ripe or ripening

and were worth less than $250,000.

13. On Bartolo‟s recommendation, Vogel rejected the entire shipment via email on 26

November 2010. RFE replied immediately reminding AP that it could sell the bananas.

14. As the PINAFORE had other ports of call, its captain arranged for the bananas to be

stored at a warehouse. AP had 48 hours to pick up the bananas but neglected to do so

despite notifications of the bananas‟ deterioration. Eventually the warehouse owner

disposed of the bananas because it was economically unfeasible to salvage the unripe

bananas.

The arbitral proceedings

15. On 1 June, 2011, AP commenced this arbitration with the Kuala Lumpur Regional

Centre for Arbitration (“KLRCA”). KLRCA‟s Director (“the Director”) notified RFE

of the filing of the Request and enclosed a copy of the Rules of the KLRCA 2010

M3050-R

(“KLRCA Rules”). On June 15, the Director requested that RFE appoint its party

appointed arbitrator within 30 days. RFE was not explicitly informed that an arbitrator

may be appointed on its behalf.

16. After 45 days, RFE had yet to appoint its arbitrator. The Director appointed Riska

Benti (“Benti”) as the second arbitrator and Judge John Chong as the presiding

arbitrator. AP did not request for these appointments.

17. An initial hearing was scheduled for 15 August, 2011. Just before the hearing, RFE

stated that it would not appear lest its appearance constituted a waiver of its right to

challenge the tribunal‟s jurisdiction. The Director then assured RFE that an

appearance would not be treated as such a waiver. Another hearing was scheduled for

October 10, 2011. RFE then attempted to appoint an arbitrator but was denied by the

Director.

M3050-R

Summary of Pleadings

The tribunal has no jurisdiction over this dispute

18. There is no legally binding arbitration agreement between the parties because RFE did

not agree to the amended clause. Absent such an agreement, the tribunal has no

authority to resolve this dispute. In any case, the tribunal should decline jurisdiction

since its constitution was tainted by serious procedural defects which may affect the

enforceability of an award made. Accordingly, the tribunal should allow arbitration

proceedings to continue.

The tribunal has no power to impose penal sanctions in the form of a fine on RFE

19. The tribunal has no express authority under the arbitration agreement or the MAA to

impose a penal fine. Neither is it within the discretion conferred by Art 17(1) KLRCA

Rules because this discretion is limited by an express provision of the KLRCA Rules

restricting the KLRCA‟s powers in the event of a party‟s default. Accordingly, the

tribunal cannot fine RFE for its failure to appear at the initial hearing.

The PICC governs this dispute

20. The tribunal has a wide discretion in determining the applicable law under the

KLRCA. This includes the selection of a non-national system of law. In light of the

international nature of the contract, general principles of international law should

govern the dispute, as it will be the most neutral and fair solution.

RFE fulfilled its contractual obligations

21. RFE was bound to deliver the bananas “FOB Rolga City”. Under the PICC, this is to

be construed according to ICC INCOTERMS 2010. Under this construction, RFE was

only obliged to deliver the bananas to the carrier at the Rolga City port. This

obligation was satisfactorily discharged. RFE also gave further instructions to the

carrier to care for the bananas.

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AP had a legal obligation to preserve the bananas or sell them when they were

deteriorating

22. AP has a duty to act in accordance with good faith and fair dealing in international

trade under Art 1.7 PICC. This is an international standard and its role in preserving

unwanted goods is evident from the widespread use of similar provisions in the

United Nations Convention for International Sale of Goods (“CISG”), the Uniform

Law on International Sale of Goods (“ULIS”) and the American Uniform Commercial

Code (“UCC”). Under these standards, AP had a duty to take possession of the

bananas as the consignee under the BOL. This, in turn, gave rise to a duty to preserve

the bananas. When the bananas were rapidly deteriorating, AP‟s duty to sell them

arose. No steps were taken towards any of these duties.

M3050-R

PLEADINGS

I. THE TRIBUNAL DOES NOT HAVE JURISDICTION TO HEAR THIS

DISPUTE

23. The tribunal has no jurisdiction to hear this dispute because the parties have not

agreed to resolve their disputes by arbitration under the KLRCA. RFE and AP do not

have a valid agreement to arbitrate [A]. Even if the tribunal has jurisdiction, it should

decline to do so as the tribunal‟s constitution is tainted by serious procedural defects

which would affect the enforceability of any award made [B]. Accordingly, the

tribunal should decline to hear this dispute [C].

A. The tribunal does not have jurisdiction as the parties do not have a valid

agreement to submit to the jurisdiction of the KLRCA

24. The tribunal‟s authority to resolve disputes derive from the consent of the parties.1

Such consent stems from a valid contractual agreement between the parties.2

Accordingly, this turns on whether the parties have a valid contractual agreement to

submit disputes to the KLRCA.

25. S 18 MAA empowers the tribunal to resolve jurisdictional challenges. This is the

generally accepted kompetenz-kompetenz principle.

26. The law governing the validity of the arbitration agreement is – the law of the seat –

Malaysian law. Courts in countries adopting the UNCITRAL Model Law on

International Commercial Arbitration 1985 (“Model Law”), as Malaysia does, have

held as such.3 A practical consequence of applying the law of the seat is that this does

not risk the eventual award being unenforceable under Art V(1)(a) New York

Convention.

1 Born, International Commercial Arbitration (Kluwer Law International, 3

rd ed 2009), at pages 639 to 640.

[hereinafter Born] 2 Gaillard and Savage, Fouchard Gaillard Goldman on International Commercial Arbitration, (Kluwer Law

International, 1999), at page 255 3 Klockner Pentaplast Gmbh v Advance Technology [2011] HKEC 941, at paras 26 and 33

M3050-R

27. It should be noted that English contract law has strong influence over Malaysian

contract law, the law of the seat.4

The apex Malaysian court consistently and

extensively relies on English cases and academic writings in its decisions.5

28. Under Malaysian law, a contract is formed when there is a valid offer by one party

and an acceptance of that offer by the other party.6

29. RFE asserts that there is no valid agreement to arbitrate between the parties. The

contract to purchase bananas (“the Contract”) between RFE and AP was concluded

over the telephone conversation on 15 July 2011 [i].7 The amended arbitration clause

was not incorporated in the Contract and is therefore not legally binding on the

parties [ii]. There was no subsequent variation of the Contract incorporating the

amended clause [iii]. Consequently, the tribunal has no jurisdiction to hear this

dispute [iv] of the arbitration agreement

i) A contract between AP and RFE was formed at the end of the telephone

conversation between them on 15 July 2010

30. In addition to the conventional test of offer and acceptance,8 courts often ask whether

they can objectively conclude that the parties‟ conduct shows an agreement on all

essential matters and an intention to be legally bound by it.9

31. The English Court of Appeal in Stent Foundations v Carillion Construction (“Stent

Foundations),10

without referring to any offer and acceptance, concluded that a valid

contract existed because the parties‟ conduct reflected an intention to be bound by

their agreement. This was so because payments were made pursuant to the contract,

and the dispute was handled according to the contractually stipulated procedure.11

4 Jamil bin Harun v Yang Kamsiah[1984] 1 MLJ 217, at para 14 where the Privy Council, on appeal from

Malaysia, held that Malaysian courts, subject to any written law, were free to apply English law 5 Tan Chong & Sons Motors v Alan McKnight [1983] 1 MLJ 220, at para 26 where the Federal Court, the

Malaysian apex court, applied the law as stated in Benjamin’ Sale of Goods (Sweet & Maxwell, 1974), at paras

810 to 824 6 Harvey v Facey [1893] UKPC 1; Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256; Entorres v Miles Far

East [1955] 2 QB 327 7 Compromis at page 1

8 Tekdata Interconnections Ltd v Amphenol Ltd [2009] EWCA Civ 1209

9 Mitsui Babcock Energy v John Brown Engineering [1996] 51 Con LR 129

10 [2001] 78 Con LR 188

11 Ibid, at para 44

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32. After the telephone conversation on 15 July 2010, the RFE and AP conducted

themselves as if they were bound by a contract like in Stent Foundations. By 1

August 2010, RFE had made shipping arrangements with the M/S PINAFORE. 12

Vogel‟s email to Rocco which used phrases such as “we are counting on you to make

sure the bananas arrive in excellent condition”,13

reflected an expectation of

performance on RFE‟s part.

33. Applying the approach in Stent Foundations, a contract was concluded between RFE

and AP over the telephone on 15 July 2010.14

ii) The amended clause is not legally binding on the parties as it was not

incorporated into the contract

34. The amended clause, like any other written term, will only be legally binding if it was

incorporated into the contract.15

Incorporation is only possible if notice of the term

was given at or before the time of the contract‟s formation.16

35. In Thornton v Shoe Lane Parking,17

the English Court of Appeal applied this principle.

There, the claimant was not given notice of an exclusion clause before the contract

was concluded. It was held that the exclusion clause was not incorporated and the

defendant could not rely on it.

36. Similarly, the amended clause was not incorporated as it was only introduced after the

conclusion of the contract on 15 July 2010. The amended clause from Vogel was

introduced and only brought to RFE‟s notice on 4 August 2010, after the contract was

formed, when he signed and returned the bill of sale.18

Accordingly, the amended

clause is not legally binding and there exists no agreement to submit disputes to be

resolved by the KLRCA.

12

Compromis at Exhibit #1 13

Ibid 14

Compromis at page 1 15

Olley v Marlborough Court Ltd [1949] 1 KB 532, at pages 548 to 549 16

Ibid 17

[1971] 2 Q.B. 163 18

Further Corrections and Clarifications at 5

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iii) There was no subsequent variation of the contract incorporating the

amended clause

37. AP is likely to argue that even if a contract not incorporating the amended clause had

been formed on 15 July 2010, the contract was subsequently varied to include the

amended clause. It would be argued that AP made an offer to vary the agreement by

returning a bill of sale containing the amended clause,19

which RFE accepted by

conduct.

38. RFE‟s position is that it did not accept the offer to vary by conduct, and denies any

effective variation of the contract on this basis.

39. To accept an offer to vary by conduct, such conduct must be referable only to the

variation offer; Conduct which is merely consistent with performance of the original

contract will not suffice.20

This principle was applied by the CN Associates (A Firm)

v Holbeton Limited.21

In that case, the claimant alleged that the defendant had

accepted its offer to vary by conduct. The claimant asserted that the defendant‟s

continued performance of the contract through payment of invoices constituted

acceptance by conduct. It was held that since the invoices paid were no different from

those paid under the old contract, it was not referable to the varied offer and it could

therefore not amount to acceptance.

40. Similarly in our case, RFE did not accept any offer to vary because its conduct was

not referable to the varied offer. Loading the bananas onto the PINAFORE on 21

September 2010,22

was consistent with RFE‟s obligations under the 15 July 2010

contract.

iv) The tribunal has no jurisdiction to hear this dispute

41. The absence of a valid agreement to arbitrate in our case necessarily means that the

tribunal has no authority to resolve this dispute.

42. The absence of an agreement to arbitrate risks the final award being set aside or

unenforceable. S 37(1)(a)(ii) MAA, which mirrors Art 34(2)(a)(i) Model Law,

19


Solectron Scotland Ltd v Roper [2004] IRLR 4, at para 30 ; 21

[2011] EWHC 43 22

Compromis at page 2

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provides that an award made be set aside in Malaysia if the arbitration agreement is

not valid under Malaysian law. Further, Art V(1)(a) NYC provides that enforcement

of an award made be refused on the same ground in enforcing jurisdictions.

43. Since the arbitration agreement is not valid under the Malaysian law, any award made

by the tribunal can be set aside or refused enforcement. This would be a waste of the

parties‟ resources on the arbitration, and risks the parties incurring greater expense in

subsequent enforcement proceedings. As such, the tribunal should decline jurisdiction.

B. The tribunal’s constitution was tainted by serious procedural defects which would

allow the award to be set aside or render it unenforceable.

44. The tribunal should also decline jurisdiction because it was improperly constituted.

The tribunal must be constituted in accordance with the parties‟ agreement to ensure

the enforceability of any award made under the New York Convention and MAA [i].

The tribunal was not constituted in accordance with the parties‟ agreement [ii]. These

irregularities in the tribunal‟s constitution were sufficiently serious to set aside or

refuse enforcement of any award made [iii]. Nor has RFE waived its right to object to

the improper constitution of the tribunal [iv].

i) The tribunal must be constituted in accordance with the parties’ agreement

45. According to Art V(1)(d) NYC, any award made by a tribunal which was not

constituted in accordance with the parties‟ intention can be refused enforcement.

Under s 37(1)(v) MAA, which mirrors Art (1)(d) New York Convention, an award

can be set aside on the same ground.

46. The seat of these proceedings is Malaysia. The MAA applies to this dispute since s

3(1) MAA states that the MAA will apply throughout Malaysia.

47. S 13(2) MAA further provides that the procedural rules for appointing arbitrators will

be that agreed upon by the parties. The parties have expressly agreed that the KLRCA

Rules will govern the arbitral proceedings.23

The standard of proper constitution is

strict and “[a]ny time the agreed-upon procedure is not followed, the composition of

23

Compromis at page 2

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the tribunal will be improper”.24

Accordingly if the tribunal were constituted in a

manner contrary to KLRCA Rules, any award made by it may not be enforceable.

i) The tribunal was not constituted in accordance with the parties’ agreement

48. There are two procedural irregularities in the tribunal‟s constitution according to the

KLRCA rules. First, Benti was not properly appointed as the second arbitrator [a].

Second, the presiding arbitrator was not properly appointed [b].

a. Riska Benti was not properly appointed as the second arbitrator

49. Art 9(1) KLRCA Rules provides that each party may appoint its own arbitrator .

Under Art 9(2) KLRCA Rules, if a party has not appointed an arbitrator within 30

days after receiving notice of the other party‟s appointment of an arbitrator, then the

other “party may request the appointing authority to appoint the second arbitrator.”

50. KLRCA could only appoint an arbitrator on RFE‟s behalf if this was pursuant to a

request from AP. No such request was made. Accordingly, KLRCA contrary to Art

9(1) KLRCA Rules by independently appointing the second arbitrator.

b. The presiding arbitrator was not properly appointed

51. Under Art 9(1) KLRCA Rules, the presiding arbitrator shall be appointed by the first

two party-appointed arbitrators within 30 days of the appointment of the second

arbitrator. This was not followed. Instead KLRCA directly appointed the presiding

arbitrator.25

52. Art 9(3) KLRCA Rules allows the KLRCA to appoint the presiding arbitrator, only if

the first two appointed arbitrators fail to agree on the presiding arbitrator 30 days

after the appointment of the second arbitrator. Such a power can only arise 60 days

after the notice of the first appointment was received by RFE.

53. KLRCA appointed the presiding arbitrator only 45 days after RFE received notice of

the first arbitrator‟s appointment, before KLRCA‟s power to appoint the presiding

arbitrator under Art 9(2) KLRCA Rules arose. In doing so it exceeded the scope of

24

Kronke & Nacimiento , et al. (eds), Recognition and Enforcement of Foreign Arbitral Awards: A Global

Commentary on the New York Convention, (Kluwer Law International 2010), at page 288 25

Compromis at page 4

M3050-R

power conferred by Art 9(3) KLRCA Rules by improperly denying the two

arbitrators the opportunity to appoint the presiding arbitrator.

ii) The procedural irregularities constitute a sufficient ground for setting aside

or refusing enforcement of the award

54. Generally, a departure from the procedural rules agreed upon by the party is a ground

for setting aside the award [a]. In our case, both the appointments of Riska Benti [b]

and John Chong [c] were serious procedural defects which would be grounds for

setting aside the award or refusing its enforcement [d].

a. The powers to set aside or refuse enforcement of the award are discretionary

55. S 39(1)(a)(vi) MAA and Art V(1)(d) New York Convention govern the power to set

aside or refuse the enforcement of the award for improper constitution of the tribunal

respectively.

56. S 39(1)(a)(vi) MAA is the implementation of Art 34(2)(iv) UNCITRAL Model Law

on Arbitration(“Model Law”).26

For this reason, materials relating to Art 34(2)(iv)

Model Law or its implementations in other jurisdictions may be consulted in the

application of s 39(1)(a)(vi) MAA.

57. The Basel Court of Appeals refused the enforcement of an arbitral award because the

arbitral tribunal had not complied with the express intention of the parties that there

be a two-staged arbitration followed by a single award. 27

58. In another case decided by the Florence Court of Appeals,28

the court refused to

enforce an award made in London by an arbitral tribunal comprising of two

arbitrators because the arbitration agreement expressly stipulated that the arbitral

tribunal was to comprise of three members.

26

Davidson and Rajoo, Arbitration Act 2005: Malaysia Joins the Model Law, The Malaysian Bar, 10 July 2006

<http://www.malaysianbar.org.my/adr_arbitration_mediation/arbitration_act_2005_malaysia_joins_the_model_

law.html> (last accessed 19 August 2011) 27

Firm in Hamburg (buyer) v Corporation (A.G.) in Basel (seller), Basel Court of Appeals, Sept. 6, 1968, I Y.B.

Com. Arb. 200 (1976) 28

Corte di Appello of Florence, Apr. 13, 1978, Rederi Aktiebolaget Sally v S.r.l. Termarea, IV Y.B. Com. Arb.

294 (1979)

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59. These cases illustrate the general rule that in constituting the tribunal, any deviation

from the rules agreed will affect the enforceability of an award. As explained by the

US 2nd

Circuit Court of Appeal in Encyclopaedia Universalis SA v Encyclopaedia

Britannica Inc (“Encyclopaedia”), “the parties explicitly settled on a form and the

New York Convention requires that their commitment be respected.”29

b. The improper appointment of the presiding arbitrator is a procedural defect

undermining an award‟s enforceability

60. In Encyclopaedia, the rules chosen by the parties specified that the two party-

appointed arbitrators must attempt to agree on a third, mirroring the requirement

under Art 9(3) KLRCA Rules. There, one of the arbitrators, without first contacting

the other arbitrator, requested an appointing authority to appoint the third. The district

court, whose judgement on Art V(1)(d) NYC was upheld on appeal, held that the

premature appointment of the third arbitrator “irremediably spoiled the arbitration

process.” and denied enforcement on this basis.30

61. The defect in Encyclopaedia is substantially similar to the present case. That the

appointment was made independently by the KLRCA, unlike in Encyclopaedia where

the appointment was made at one arbitrator‟s request, is not material. Ultimately, the

first two arbitrators in our case were denied an opportunity to agree on the presiding

arbitrator. This is a procedural defect in the tribunal‟s constitution which affects the

enforceability of an award made.

c. The appointment of Benti was a procedural defect undermining an award‟s

enforceability

62. KLRCA‟s appointment of Benti was an improper denial of RFE‟s right to appoint its

arbitrator.

63. Although RFE did not appoint an arbitrator within the 30 day time limit specified in

Art 9(1) KLRCA Rules, its right to appoint its arbitrator is not automatically

extinguished. Rather, RFE‟s right to appoint “continues only at the sufferance of the

29

403 F.3d 85, at para 19 30

[2003] WL 22881820 at page 1182, reversed in part on other grounds although judgement on Art V(1)(d)

New York Convention was upheld on appeal

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party who has appointed”,31

and endures until a request is made by AP. It is therefore

significant that AP made no request for the appointment of the second arbitrator as

RFE‟s right to appoint its arbitrator survives the 30-day time period in Art 9(1)

KLRCA Rules.

64. By appointing Benti RFE was deprived of a right it was entitled to exercise, rendering

this a serious procedural defect which affects the enforceability of an award.

iii) RFE has not waived its right to object under s 7(b) MAA

65. Contrary to AP‟s assertion, RFE has not waived its right to object to the tribunal‟s

improper constitution.

66. Under Art 32 KLRCA Rules, a party may be deemed to have waived his right of

objection against any non-compliance with the rules agreed upon by the parties. As

Art 32 KLRCA Rules mirrors Art 30 UNCITRAL Arbitration Rules 1976 (“1976

Rules”), materials related to the Art 30 1976 Rules may be consulted in the

application of Art 32 KLRCA Rules.

67. There are three requirements for deeming a party to have waived his right to object

under Art 30 1976 Rules.32

First, he must possess knowledge of the non-compliance.

Second, he must have proceeded with arbitration. Last, the objection was not

promptly stated.

68. The threshold of knowledge required for waiver is that of actual knowledge;

constructive knowledge will not suffice.33

RFE had no actual knowledge of the

alleged non-compliance with the KLRCA Rules. Notifying RFE of the initial

hearing,34

in itself, does not supply RFE with actual knowledge of the procedural

impropriety. There is no evidence that specific notice of their appointment was

provided to RFE.

31

Caron, Pellonpää and Caplan, The UNCITRAL Arbitration Rules: A Commentary (Oxford University Press,

2006), at page 179 [hereinafter Caron] 32

Caron at page 740; Haersolte-van Hof, Concise International Arbitration, (Kluwer Law International 2010) at

pages 214 to 215 33

Baker & Davis, The UNCITRAL Arbitration Rules in Practice: The Experience of the Iran-United States

Claims tribunal (Boston, Kluwer Law and Taxation Publishers, 1992), at page 147 34

Compromis at page 4

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69. Continuing with proceedings has been defined with reference to a party who advances

to the next stage of the arbitral proceedings.35

RFE did not continue with arbitration.

Ultimately, RFE did not present itself at the initial hearing and the fact that it only

gave notice one hour before the hearing is irrelevant.

70. The objection was also raised “promptly”. The tribunal has discretion to decide time

within which the party must object. RFE duly complied with the requirement to

object without undue delay. It could only have discovered the procedural defect, at

the earliest, on 1 August 2011 when the KLRCA appointed the presiding arbitrator.36

At the latest, RFE raised its objection two weeks later. As the parties must be given a

sufficient time to formulate its challenge in a substantiated manner, this interval is

justifiable. Having objected promptly, RFE cannot be deemed to have waived its right

of objection

71. The tribunal has no jurisdiction to hear this dispute because its underlying source of

authority, the parties‟ consent, is absent in this case. Even if the parties had consented,

the tribunal should decline jurisdiction as its constitution was so seriously defective

that any award made by it may be refused enforcement.

II. THE TRIBUNAL DOES NOT HAVE THE POWER TO IMPOSE A FINE ON

RFE FOR ITS FAILURE TO APPEAR

72. The powers of an arbitral tribunal to impose sanctions are derived from the agreement

of the parties and the law of the seat.37

If the tribunal has jurisdiction, the MAA and

KLRCA Rules govern the proceedings under the arbitration agreement.

73. No such power arises either from agreement or from the law of the seat. Neither the

MAA nor the KLRCA Rules provides for a power to impose a fine for RFE‟s failure

to appear at the initial hearing.

74. Despite the wide discretion granted to the tribunal to conduct the arbitral proceedings

under Art 17 KLRCA Rules, the express provisions of the KLRCA Rules limit the

tribunal‟s discretion to impose a fine. The discretion to impose a fine on RFE for its

35

Caron, at page 742 36


Blackaby et al, Redfern and Hunter on International Arbitration (Oxford University Press, 5th ed 2009), at

para 9.47

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failure to appear at an initial hearing is precluded by the existence of Art 30(2)

KLRCA Rules which clearly defines a tribunal‟s powers to respond to a party‟s

default.

75. As Art 17 KLRCA Rules mirrors Art 15 UNCITRAL Arbitration Rules 1976

(“UNCITRAL Rules”), materials on Art 15 UNCITRAL Rules may assist the

interpretation of Art 17 KLRCA Rules.

76. The discretion conferred by Art 15 UNCITRAL Rules is subject to the express

provisions of the UNCITRAL Rules.38

This discretion is intended to provide the

tribunal flexibility in dealing with situations which the UNCITRAL Rules do not

cover. Examples include Art 24(3) UNCITRAL Rules which states that “at any time

during the arbitral proceedings the arbitral tribunal may require the parties to produce

documents, exhibits or other evidence within such a period of time as the tribunal

shall determine” (emphasis added). Accordingly, the more clearly defined the

tribunal‟s powers are under the UNCITRAL Rules, the narrower their discretion to

exercise powers beyond those expressly stated.39

77. The discretion to impose a fine on RFE for its failure to appear at an initial hearing is

precluded by the existence of Art 30(2) KLRCA Rules which clearly defines a

tribunal‟s powers to respond to a party‟s default. Such clearly defined scope

necessarily limits the tribunal‟s discretion to exercise powers to those expressly stated

in Art 30(2) KLRCA Rules.

78. This was the interpretation adopted in the Art 28(2) UNCITRAL Rules, an equivalent

provision, in George Meyer Manufacturing Division of Figgie International Inc v

Zamzam Bottling Company.40

There the tribunal proceeded with arbitration in the

defaulting party‟s absence, under Art 28(2) UNCITRAL Rules. However, it could not

prevent the defaulting party from subsequently filing submissions due on the date of

the hearing it had failed to appear at. The case illustrates the narrow limits of a

tribunal‟s powers in response to default under the UNCITRAL Rules and KLRCA

Rules. Accordingly the tribunal does not have the authority to impose fines.

38



US-Iran Claims tribunal Case No. 299, Chamber One, Order of 22 Mar 1984

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III. THE LAW APPLICABLE TO THE SUBSTANCE OF THE DISPUTE ARE

GENERAL PRINCIPLES OF INTERNATIONAL LAW, AS MANIFESTED IN

THE PICC

79. The law applicable to the substance of the dispute (“applicable law”) is the PICC. In

light of the international nature of the contract, the application of a supranational

body of law would be the fairest and most neutral solution.

80. In the absence of a choice of applicable law, the KLRCA affords the arbitral tribunal a

wide discretion in determining the applicable law to the substance of the dispute. This

discretion includes the power to choose non-national systems of law as the

appropriate governing law [A]. The tribunal should apply general principles of

international law to the substance of the dispute; to do so would consistent result in a

neutral and fair set of law governing the contract [B], and be consistent with

international arbitration practice [C].

A. The KLRCA rules allow the tribunal to apply a set of non-national laws to the

substance of the dispute

81. Art 35(1) KLRCA Rules provides that the tribunal is to “apply the law which it

determines to be appropriate.” This grants the tribunal wide discretion to determine

the applicable law by what it deems is appropriate. It should be read broadly as

allowing the tribunal to apply even non-national systems of law to the substance of

the dispute.

82. The wording of Art 35(1) KLRCA differs from the rules of other arbitration

institutions which allow tribunals constituted under their auspices to apply

appropriate “rules of law”.41

The distinction has been interpreted, based on the draft

history of the Model Law,42

as allowing tribunals falling within the latter category to

apply non-national systems of law, but constricting tribunals falling within the former

category to that of national legal systems.

83. This view should not be adopted. The UN Working Group Report indicates that “rules

of law” was originally not envisaged to include “general legal principles … or case

41

See for example, ICC Rules of Arbitration 2011 42

Report of the Secretary-General on the Analytical Commentary on Draft Text of a Model Law on

International Commercial Arbitration, UN Doc. A/CN.9/264 at pages 132 to 133

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law developed in arbitration rewards”.43

Rather, with proliferation of international

trade, “rules of law” began to be regarded as including internationally accepted legal

principles. This illustrates that the categories of “rules of law” and “law” are not

closed. To draw bright-lines between the categories of “law” and “rules of law” is an

exercise in semantics, and this goes against the grain of the arbitration rules which

aim to provide neutral and fair resolution to the dispute.

84. Lew has argued that the role played by the arbitral tribunal in transnational disputes is

fast shifting. tribunals are no longer required to localise legal issues, because many

transnational transactions have connections with a number of jurisdictions.44

The time

has come where “it would be irresponsible for any arbitral tribunal to ignore

[transnational rules of law] and confine itself to apply a particular national law”.45

B. Applying general principles of international law is neutral and fair in the

circumstances

85. In light of the international nature of the contract, an application of a particular system

of national laws may prejudice one of the parties and result in unfairness. Awards

based on general principles of international law would reflect more correctly the real

intent of the parties, rather than would the application of a conflictualist approach,

which determines only one single choice of national law.46

86. A case that illustrates this point is ICC case 117.47

In the absence of an express choice

of law by the parties, the tribunal came to the conclusion that if the question of

applicable law arose, the law chosen would be one that would protect the parties‟

interests in a way that nay normal business man would consider adequate and

reasonable. This was necessarily without any surprises that could result from the

application of domestic laws of which they had no deeper knowledge.

43

Report on the Sixth session of the Working Group on International Contract Practices, International

Commercial Arbitration A/CN.9/245 at page 165 paragraph 1 44

Lew and Mistelis, Comparative International Commercial Arbitration, (Kluwer Law International, 2003) at

para 17 - 42. 45

Blessing, Choice of Substantive Law in International Arbitration, 14(2) J. Int‟l Arb. 39 (1997), at page 56 46

Craig, Park and Paulsson, International Chamber of Commerce Arbitration, (ICC, 2000), at para 17.03 47

ICC Case No. 117, 2001, < http://www.unilex.info/case.cfm?id=793> (Last accessed 19 August, 2011)

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87. The tribunal came to the conclusion that the PICC was widely recognised, and protect

contracting parties in a ways that adequately reflect the basic principles of

commercial relations in most, if not all developed countries.

C. Applying general principles of international law is consistent with established

international arbitration practice

88. There are numerous cases where tribunals made awards on the basis of general

principles of international law, where the parties had made no express choice of law.

89. A case with facts largely similar to the present is ICC case 11265. The dispute arose

out of an international sales contract between two parties situated in different

countries. One party asserted the CISG, while the other the PICC as the proper law of

the contract. The tribunal rejected the suggestion that the contract should be governed

by a domestic law, and decided that the PICC should apply because it is “a

codification of trade usages and an expression of the general principles of contract

law”.

90. In the Rice case,48

the dispute arose from a contract between a Vietnamese exporter

and French buyers. The contract was silent as to the applicable law. The contract

contained various references to international trade usages, such as the INCOTERMS

1990 and the UCP 500. The tribunal found that these indicated the parties‟

“willingness to have their Contract governed by international trade usages and

customs.”

91. Arbitral awards made on the basis of general principles of international law have been

upheld by various national courts, including the Austrian Supreme Court,49

the

French Cour de cassation50

and the English Court of Appeal.51

This supports the

efficacy of the increasing trend to apply general principles of international law to

international contracts with no express choice of law.

92. In the words of the tribunal in ICC case no. 7375, the PICC “contain in essence a

restatement of those “principles directeurs” that have enjoyed universal acceptance

48

ICC Case No. 8502, ICC International Court of Arbitration Bulletin (1996) 72 49

Norsolor v Pabalk Ticaret (1984) 9 Y. Comm. Arb. 109, (1984), (1984) 9 Y. Comm. Arb. 159. 50

Fougerolle v Banque du Proche Orient, Cour de cassation, 9 December 1981, 1982 JDI 931 51

Deutsche Shachtbau – und Tiefbohrgesellschaft mbH v Ras Al Khaimah National Oil Co., [1987] 2 All ER

769

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and, moreover, are at the heart of those most fundamental notions which have

consistently been applied in arbitral practice.”52

93. The PICC is a neutral set of laws that is fair, and would accord with the reasonable

legitimate expectations of the parties. It should therefore be applied to the substance

of the dispute.

IV. RFE WAS NOT IN BREACH OF ANY SELLER’S OBLIGATIONS UNDER

THE CONTRACT

94. There was no breach of seller‟s obligations because RFE was only bound to deliver

the bananas “FOB Rolga City”, and the bananas were satisfactory when the delivery

was made on board the PINAFORE [A]. No terms were omitted from the contract,

and therefore none need be supplied [B].

A. RFE fulfilled its obligations to was to deliver the bananas “FOB Rolga City”

95. Under the BOS, the bananas were sold “FOB Rolga City”. Both RFE and AP agreed

as such: RFE by adopting it in the Bill of Sale and AP by signing the BOS without

objections to the term.53

Under the PICC, issues of risk are resolved by the express

terms of the parties and trade usage.54

Hence this issue turns on when the risk passes

– and RFE‟s obligations end – under the terms of the BOS.

96. RFE‟s obligations are to ship the bananas “FOB Rolga City”. In construing the scope

of “FOB Rolga City”, the principles of interpretation in Art 4 PICC are instructive.

97. Article 4 PICC governs the interpretation of contracts. Art 4.1(1) uses the common

intention of the parties as the starting point, while Art 4.1(2) adopts the standard of

reasonable men in the same situation as the parties. In practice, “the application of

Art 4.1(2) is the rule, whist Art 4.1(1) is the exception”55

because the common

intention of the parties is difficult to establish once a dispute arises.

52

ICC Case No. 7375, 5 June 1996, <http://www.unilex.info/case.cfm?id=625> (Last accessed 19 August 2011) 53


Gabriel, Contracts for the Sale of Goods (Oceana Publications, 2004), at page 167 55

Vogenauer and Kleinheisterkamp, Commentary on the UNIDROIT Principles of International Commercial

Contracts, (Oxford University Press, 2009), at Art 4.1, para 12 [hereinafter Vogenauer]

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98. There was no common intention between AP and RFE to depart from the terms within

the BOS [i]. Hence Art 4.1(2) applies and under which a reasonable person in the

same circumstances would construe RFE‟s obligations according to the term “FOB

Rolga City” [ii]. RFE and AP‟s pre-contractual negotiations do not “plainly

contradict” the term “FOB Rolga City” hence this term should not be disregarded or

read down [iii].

i) There was no common intention between AP and RFE to depart from the

terms within the BOS

99. A common intention between contracting parties to depart from the objective meaning

of a specific term is difficult to establish. The Official Comments to the UNIDROIT

Principles of International Commercial Contracts (“UNIDROIT Official

Commentary”) acknowledges “parties to commercial transactions are unlikely to use

language in a sense entirely different from that usually attached to it”. 56

Because of

this, such cases are “extremely rare”.57

100. No common intention can be established in the pre-contractual correspondence

between AP and RFE because they were referring to different obligations. AP wanted

RFE to “make sure the bananas arrive in excellent condition”58

while RFE only

volunteered to “make sure that the Captain is well aware of the special care [the

bananas must receive on board the ship]”.59

101. The burden of establishing such intention lies upon the party asserting the common

intention.60

102. Instead, RFE relies on interpretation of a reasonable person under Art 4.1(2) PICC.

RFE‟s burden is limited to showing how “FOB Rolga City” is interpreted by a

reasonable person.61

56

UNIDROIT Official Comments at 4.1.1 57

Vogenauer, at Art 4.1, para 11 58



Vogenauer, at Art 4.1, para 20. 61

Vogenauer, at Art 4.1, para 20.

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ii) A reasonable person in the same circumstances would construe “FOB Rolga

City” as limiting RFE’s obligations to transporting the bananas to the port at

Rolga City

103. Shippers and freight forwards in both Astoria and Rolga commonly use ICC

INCOTERMS, even when they are not specifically identified as such.62

Under the

ICC INCOTERMS, “FOB Rolga City” RFE is only obliged to deliver the bananas “in

the manner customary at the port”.63

104. “FOB Rolga City” does not oblige RFE to stow the bananas on board the PINAFORE.

Under the ICC INCOTERMS, the seller‟s obligation to place the goods on board a

ship only exists if the term used is “FOB stowed” or “FOB stowed and trimmed”.64

Consequently, RFE is only obliged to deliver the bananas to the port at Rolga City.

iii) RFE and AP’s pre-contractual negotiations do not “plainly contradict” the

term “FOB Rolga City” hence this term should not be disregarded or read

down

105. Art 4.3 PICC requires factors such as, inter alia, preliminary negotiations and

established meanings of the terms used in interpreting the terms of the agreement.

Also the PICC provides no strict priority rules for the resolution of conflicting

circumstances in the interpretation of contracts65

and that the drafters felt it would be

impossible to create such rigid rules.66

106. However such factors do not allow “FOB Rolga City” to be interpreted in a manner

over and beyond its established commercial meaning. This is because factors such as

preliminary negotiations are given less weight than that of the established meaning of

certain terms in an application of the objective interpretation under Art 4.1(2) PICC.67

Commentators assert that “strong countervailing arguments are required to deviate

62

Compromis at Appendix A 63

Ramberg, ICC Guide to INCOTERMS 2010 (ICC Services Publications, 2011), at page 173, A4. [hereinafter

Ramberg] 64

Ibid, at page 173, A4 comments 65


UNIDROIT International Institute UNIDROIT Study L Doc 12, at para 16 67

Official Commentary to the PICC, at Art 4.3, para 2

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from the „literal‟, „natural‟, or „ordinary‟ meaning of the words use.”68

Any deviation

can only be justified if the ordinary meaning is “plainly contradicted”.69

107. The term “FOB Rolga City” has not been “plainly contradicted” in the negotiations of

the parties. The ICC Guide to INCOTERMS 2010 explains that sellers sometimes

arrange for carriage in an FOB contract:

“If it is commercial practice and the buyer does not give an

instruction to the contrary in due time, the seller may contract

for carriage on usual terms at the buyer‟s risk and expense. “70

108. The Supreme Court of Victoria recognizes that in modern times, the FOB Seller is

increasingly likely to arrange carriage because the “f.o.b. contract [is] a flexible

instrument”.71

The likelihood is increased if the shipment of goods is small. This is

because the seller may have booked space on a ship with a specific route in

advance.72

109. In our case, it is customary for the seller to make shipping arrangements.73

Furthermore, the PINAFORE is a general-purpose cargo ship74

and that it had other

ports of call after the Astorian port.75

The Bill of Lading was also labelled “Freight:

Collect”.76

This strengthens the inference that RFE was arranging shipment on usual

terms at AP‟s risk and expense: the bananas were merely part of a larger shipment of

cargo on board the PINAFORE which has other ports of call and RFE did not pay the

carrier‟s fees. Consequently, the RFE‟s arranging of shipment does not “plainly

contradict” the negotiations of the parties, if at all.

110. Furthermore, RFE arranged shipment for bananas on the usual terms. The Special

Instructions to Captain Vermelho were RFE‟s standard provisions on all Bills of

Lading involving the shipment of bananas.77

RFE is experienced in ocean shipping

68



Ramberg, at page 172, A3 71

The “Mahia” (No. 2) [1960] 1 Lloyd‟s rep 191, at page 198 72

Bridge, The International Sale of Goods (Oxford University Press, 2007), at para 3.16 read with para 3.12 73

Further Corrections and Clarifications at 2 74

Corrections and Clarifications at A.1 75



Further Corrections and Clarifications at 3

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and have never had a problem.78

Hence these instructions must have been sufficient

for a carrier like the PINAFORE which was frequently used for carrying produce

including bananas.79

In giving the usual instructions to the carrier, RFE fulfilled its

obligations to ship the bananas “FOB Rolga City”.

B. RFE and AP did not omit any terms and the tribunal therefore need not supply

any terms to their contract of sale

111. Art 4.8 PICC allows terms to be supplied when “parties to a contract have not agreed

with respect to a term which is important for a determination of their rights and

duties”.

112. This article only gives the tribunal to supply terms to a contract when questions which

“the parties have not regulated in their contract at all” arise.80

This issue in our case is

whether RFE is contractually liable for AP‟s dissatisfaction with the bananas. The

extent of RFE contractual obligations have been regulated by the parties when they

contracted for the bananas to be shipped “FOB Rolga City”. As such, the tribunal has

no discretion to supply any additional terms via Art 4.8 PICC.

V. AP HAD AN OBLIGATION TO PRESERVE THE BANANAS AND/OR SELL

AS MANY OF THE BANANAS AS SOON AS PRACTICABLE AFTER THE

PINAFORE DOCKED

113. AP had an obligation to preserve the bananas because it had an obligation to act in

good faith and fair dealing [A]. If there was any breach of the contract by RFE, AP

had a further duty take reasonable steps to reduce the harm it would have suffered by

selling the bananas [B].

A. Under its obligation to act in accordance with good faith and fair dealing, AP

had to take reasonable measures to protect the bananas

114. Arts 85 – 88 CISG encompass an international standard of good faith in preserving

goods in an international contract of sale [i]. AP fell short of this international

standard when it left the bananas to rot [ii].

78


Corrections and Clarifications at A.1 80

Official Commentary to the PICC, Art 4.8 at 1

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115. Art 1.7 PICC imposes a duty upon both parties to act in accordance with good faith

and fair dealing in international trade. This article “converts a moral or ethical precept

into a legal standard”81

This is also an international standard; one that is “generally

accepted among the various legal systems”.82

a. Arts 85 - 88 CISG encompass an international standard of good faith in

preserving the goods in an international contract of sale

116. In international sale of goods, an international standard of good faith on the

preservation of goods is that contemplated within Art 85 – 88 of the United Nationals

Conventions for International Sale of Goods (“CISG”). The Uniform Law on the

International Sale of Goods (“ULIS”) and the Uniform Commercial Code in the United

States83

partly adopt the same wording as the CISG. The use of similar wording across

these instruments strengthens the inference that Arts 85-86 represent an international

standard of good faith in the sale of goods.

117. It has been acknowledged that Art 85 – 88 CISG is a manifestation of the “general

principles of good faith, as expressed in many legal systems”84

This principle requires

the parties to do everything that is reasonably necessary to perform the contract.85

It is

submitted that the winding up of an international sale of goods contract includes the

duty to take possession and preserve the goods, and sell them if the need arises.

118. There is further support for the use of CISG principles when the PICC provisions are

too general. In one ICC decision, the tribunal describes the “provisions of the

Convention and its general principles [as] contained in the UNIDROIT Principles of

International Commercial Contracts”86

One commentator adopts the language of Art

86 CISG in describing how the principles of good faith and fair trade should be

applied in an obligation to preserve unwanted goods:

Under the Principles, the buyer‟s obligations to take possession

and preserve the goods that the buyer intends to reject comes

81

See Hyland, “On setting forth the law of contract: A Foreword” (1992) 40 Am J Comp L 541, at 546 82

Official Commentary to the PICC, at Art 1.7 para 3 83

ULIS Art 91 – 95; UCC § 2-603 84

Schlectriem and Schwenzer, Commentary on the United Nations CISG, (Oxford University Press, 2010), at

Art 85 to 86 85

ibid 86

ICC Case No. 8817, ICC International Court of Arbitration Bulletin (1999) 75

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under the buyer‟s general obligations of good faith and fair

dealing.87

119. Essentially, the duty of good faith and fair trading of an international standard require

the parties to comply with the principles laid down within Art 85 – 88 CISG.

b. AP fell short of this international standard when it left the bananas on the

PINAFORE

120. Art 86 CISG requires a buyer, who has the goods at his disposal and intends to reject

them, to take possession and preserve the goods unless taking possession involves

unreasonable expenses or inconvenience. Art 88 CISG requires a buyer who has a duty to

preserve the goods under Art 86 CISG to sell the goods if the goods are subject to rapid

deterioration.

121. AP had previously paid for the bananas88

and was named the consignee on the Bill of

Lading.89

Where the buyer is the consignee, the seller does not retain control over the

goods by a negotiable bill of lading. 90

When such a buyer intends to reject the goods, he

has to take possession and preserve the goods unless the taking possession involved an

unreasonable expense of inconvenience.

122. AP could have taken possession of the goods without unreasonable expenses or

inconvenience. The taking possession of the goods merely involved retrieving the

bananas from the holds of the PINAFORE. There are no unreasonable expenses

associated with this. Retrieving the bananas from the PINAFORE did not involve

expenses over and above what would be ordinarily required in such contracts.

123. There is no unreasonable inconvenience associated with taking possession of the

bananas. AP, as a major distributor of produce,91

would have had the resources

required to transport the bananas, and to prevent them from ripening. This is

something that AP would have ordinarily done had it been satisfied with the bananas.

87

Gabriel, Contracts for the Sale of Goods (Oceana Publications 2004) at page 230 88



Honnold, Uniform Law for Interntional Sales under the 1980 United Nations Convention, (Kluwer Law

International, 2009 4th

Ed) at page 455 91

Compromis at page 2

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124. As such, RFE had an obligation to take possession of the bananas under Art 86(2)

CISG. The obligation to preserve the bananas under Art 86(1) CISG follows from the

obligation to take possession. The further obligation to sell the bananas, if they were

deteriorating, arose under Art 88(2) because AP had a duty to preserve the bananas

and the sell the bananas if they were deteoriating rapidly.

B. AP breached this obligation

125. Art 7.4.8 requires an injured party to take reasonable steps to reduce the harm it suffers.

While this standard is not an exacting one,92

an aggrieved party “cannot simply sit

back and let the losses mount up”.93

126. In Illustration 2 of the Official Commentary,94

the builder of a factory stopped

construction works when the project was nearing completion. The aggrieved party,

whilst seeking another builder, took no measures to protect the building on site from

deterioration because of bad weather. The aggrieved party could not recover

compensation for such deterioration because it is attributable to his failure to take

interim protective measures. This illustration extends to other goods that deteriorate.95

127. The line between reasonable and unreasonable steps is drawn at having to embark

upon complex litigation96

or to put its commercial reputation at risk.97

Although it is

English courts which adopted these criteria, commentators on the PICC adopt similar

limits.98

128. If RFE was in breach of its contractual obligations (which is denied), AP had to take

reasonable steps to sell the bananas. The bananas could have been sold to grocery

stores. 99

AP did not receive the bananas, nor did it respond to the carrier‟s notice that it

needed to pick up the bananas at the warehouse.100

AP effectively sat back and let the

losses mount up. This was in breach of Art 7.4.8 PICC and any losses flowing from

this must be discounted.

92

ICC Case No. 9594, ICC International Court of Arbitration Bulletin (2001) 73 93

Vogenauer, at Art 7.4.8 at para 3 94

Official Commentary to the PICC, Art 7.4.8 at Illustration 2 95


Pilkington v Wood [1953] Ch 770 97

James Finlay v Kwik Hoo Tong [1929] 1 KB 400 98



Compromis page 4

M3050-R

Conclusion and prayer for relief

Counsel makes the above submissions on behalf of AP. For the reasons stated in this

Memorandum, Counsel respectfully requests the honourable tribunal to declare that:

1. The arbitral proceedings should not continue (FIRST ISSUE)

2. The tribunal does not have the power to impose a fine on RFE for its default

(SECOND ISSUE)

3. The applicable law to the dispute is the PICC (THIRD ISSUE)

4. RFE was not in breach of any obligation under its contract with AP (FOURTH ISSUE)

5. AP is obliged to preserve and/or sell as many bananas as soon as practicable after the

PINAFORE arrived at Astoria (FIFTH ISSUE)

Respectfully submitted,

COUNSEL FOR ROLGA FARMER’S EXCHANGE

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