NOVA LAW SCHOOL - LoginXXIII Annual Willem C. Vis International Commercial Arbitration Moot April...
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XXIII Annual Willem C. Vis International
Commercial Arbitration Moot
April 15, 2016 • Vienna
MEMORANDUM FOR CLAIMANT
NOVA LAW SCHOOL
On Behalf of: Against:
Kaihari Waina Ltd Vino Veritas
12 Riesling Street 56 Merlot Rd
Oceanside St Fundus
Equatoriana Vuachoua
Mediterraneo
CLAIMANT RESPONDENT
COUNSEL
ISABEL FERREIRA*JOÃO ANTUNES
MARIA BEATRIZ BRITO*RITA FAIAL FIGUEIREDO
NOVA Law School Memorandum for CLAIMANT
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TABLE OF CONTENTS
TABLE OF ABBREVIATIONS .......................................................................................v
INDEX OF AUTHORITIES............................................................................................ vii
STATEMENT OF FACTS ............................................................................................... 1
ISSUE 1: CLAIMANT REQUEST ON DOCUMENT PRODUCTION SHOULD BE
GRANTED IN ORDER TO CALCULATE THE LOSSES SUFFERED ....................... 3
A. THE TRIBUNAL HAS THE POWER TO AND SHOULD ORDER
DOCUMENT PRODUCTION ..................................................................................... 3
B. THE TRIBUNAL SHOULD ORDER DOCUMENT PRODUCTION TO
SATISFY CLAIMANT’S REQUEST ......................................................................... 7
1. The Tribunal should apply IBA rules to guide document production .................. 8
ISSUE 2: CLAIMANT IS ENTITLED TO THE PROFITS RESPONDENT MADE
SELLING THE BOTTLES TO SUPERWINES AS PART OF ITS DAMAGES......... 13
A. CLAIMANT CAN CLAIM RESPONDENT’S PROFITS TO
COMPENSATE ITS LOSS SUFFERED FROM RESPONDENT’S BREACH
UNDER THE LOSS-BASED APPROACH .............................................................. 13
1. CLAIMANT’S loss of profits is caused by RESPONDENT’S breach .............. 14
2. CLAIMANT has taken all reasonable measures to mitigate losses, including
loss of profit, resulting from RESPONDENT’S breach ......................................... 15
3. CLAIMANT’S loss of profits was foreseeable to RESPONDENT at the
conclusion of the framework agreement................................................................. 15
4. RESPONDENT is not exempt from liability under article 79 ............................ 16
5. RESPONDENT’S profits are as appropriate measure for compensatory
damages .................................................................................................................. 17
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B. RESPONDENT’S PROFITS SHOULD BE DISGORGED UNDER THE
GAIN-BASED APPROACH...................................................................................... 20
ISSUE 3: LITIGATION COSTS SHALL COMPLETELY BE REIMBURSED .......... 22
A. LITIGATION COSTS CAN BE RECOVERED UNDER CISG ART. 74:
THEORETICAL APPROACH .................................................................................. 23
1. Litigation costs can be included in CISG Art.74 scope of recoverable damages 23
2. Damages as a consequence of the contractual breach ......................................... 25
3. Foreseeability of damages................................................................................ 25
B. CLAIMANT IS ENTITLED TO THE DAMAGES CLAIMED FOR
LITIGATION COSTS INCURRED IN ITS APPLICATION FOR INTERIM
RELIEF ....................................................................................................................... 25
1. RESPONDENT breached the Framework Agreement .................................... 26
2. Litigation costs for the application for the interim relief are a consequence of
RESPONDENT’s behaviour and foreseeable under CISG Art.74 ......................... 26
C. CLAIMANT IS ENTITLED TO THE DAMAGES CLAIMED FOR THE
LITIGATION COSTS INCURRED IN THE DEFENCE AGAINST
RESPONDENT’S COURT PROCEEDINGS ............................................................ 27
1. Damages for breach of the Arbitration Agreement are commonly accepted and
recognized ............................................................................................................... 28
2. Damages for breach of the Arbitration Agreement are recoverable under the
CISG ....................................................................................................................... 29
3. The aforementioned damages are both a consequence of the breach and
foreseeable under the CISG 74 ............................................................................... 29
4. The Arbitral Tribunal’s decision on damages does not breach res judicata....... 30
5. CLAIMANT did not have to clarify RESPONDENT’s doubts as to the
arbitration agreement, since it was neither unclear nor unworkable ...................... 31
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6. CLAIMANT complied with its obligation to mitigate its losses ........................ 32
D. THE TOTAL AMOUNT OF DAMAGES (US$ 50.280) SHOULD BE
RECOVERED ............................................................................................................ 34
REQUEST FOR RELIEF ............................................................................................... 35
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TABLE OF ABBREVIATIONS
& And
¶/¶¶ Paragraph/ paragraphs
Ans. to Claim Answer to Statement of Claim
Art. / Arts. Article / Articles
CISG-AC CISG Advisory Council
CLAIMANT Kaihari Waina Ltd
ed./eds. editor / editors
edn. edition
EUR Euro
Exhibit C CLAIMANT’s Exhibit
Exhibit R RESPONDENT’s Exhibit
IBA International Bar Association
IBA Rules IBA Rules on the Taking of Evidence in
International Arbitration
i.e. id est (that is)
Inc. Incorporated
Infra See below
Ltd Limited
Mr / Ms Mister / Miss
No. Number
p. / pp. page / pages
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n/p without page
Parties CLAIMANT and RESPONDENT
PO1 Procedural Order No. 1
PO2 Procedural Order No. 2
r. Rule
RESPONDENT Vino Veritas Ltd
Stat. of Claim Statement of Claim
Supra See above
UNCITRAL United Nations Commission on International Trade Law
UNCITRAL Model Law UNCITRAL Model-Law on International Commercial
Arbitration
UNIDROIT International Institute for the Unification of Private Law
UNIDROIT Principles UNIDROIT Principles on International Contract Law
UK United Kingdom
US United States of America
US$ US Dollars
v. versus (against)
VIAC Vienna International Arbitral Centre
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INDEX OF AUTHORITIES
COUNTRY SOURCE CITED IN
CANADA
Noble China Inc. v.
Lei Kat Cheong
Noble China Inc. v. Lei Kat Cheong
Ontario Court of Justice, Canada
4 November 1998
¶15
ENGLAND &
WALES
Esso Attorney-General v. Blake [2001] AC 268
(HL)
¶¶37, 52
Experience Hendrix Experience Hendrix LLC v. PPX
Enterprises Inc. [2003] EWCA Civ 323
¶¶37, 52
West Tankers West Tankers Inc. v. Allianz SpA, 2012
EHWC 854 (Comm)
¶92
WWF World Wide Fund for Nature v. World Wrestling Federation Entertainment Inc. [2002] FSR 32 (Ch)
¶¶37, 38, 52
Wrotham Park Wrotham Park Estate Co. Ltd. v. Parkside
Homes Ltd. [1974] 1 WLR 798
¶¶37, 52
FRANCE
Bonaventure
Bonaventure v. Société SARL BRI
Production Pan African Export
“Bonaventure” v Société Pan African
Export, Appellate Court Grenoble (France)
22 February 1995
¶37
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GERMANY
Chinese goods case
Chinese goods case
Schiedsgericht der Handelskammer
[Arbitral Tribunal] Hamburg
21 March 1996, summary available at:
http://cisgw3.law.pace.edu/cases/960321g1
.html
¶76
SWITZERLAND
4A_444/2009
Decision of Swiss Supreme Court
4A_444/2009
11 February 2010, available at:
http://www.swissarbitrationdecisions.com/
sites/default/files/11%20fevrier%202010%
204A%20444%202009.pdf
¶92
4A_232/2013
Decision of Swiss Supreme Court
4A_232/2013
30 September 2013, available at:
http://www.swissarbitrationdecisions.com/
sites/default/files/30%20septembre%2020
13%204A%20232%202013.pdf
¶92, 98
UNITED STATES
Filanto v. Chilewich
Filanto v. Chilewich
U.S. Federal District Court [Southern
District of New York]
14 April 1992, summary available at:
http://www.cisg.law.pace.edu/cases/92041
4u1.html
¶5
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COMMENTARIES
ABBREVIATION CITATION CITED
IN
Born
CISG-AC
Opinion No.6
Gary B. Born
International Commercial Arbitration
Kluwer Law International, 2014
CISG Advisory Council,
“CISG Advisory Opinion No. 6, Calculation of
damages Under CISG,
Article 74”, available at:
http://www.cisg.law.pace.edu/cisg/CISGACop6.
html
¶90, 91
Cunnington Ralph Cunnington
“The Measure and Availability of Gain-based
Damages for Breach of Contract”, available at:
https://www.academia.edu/785542/The_Measure_and_
Availability_of_Gain-
Based_Damages_for_Breach_of_Contract
¶63
El-
Ahdab/Bouchenaki
Jalal El-Ahdab and Amal Bouchenaki
“Discovery in International Arbitration: A Foreign
Creature for Civil Lawyers?”
In Albert Jan van den Berg (ed)
Arbitration Advocacy in Chanching Times, ICCA
Congress Series, Volume 15
Kluwer Law International, p. 65-113
¶9
¶50
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Felemegas John Felemegas
“An Interpretation of Article 74 CISG by the U.S.Circuit
Court of Appeals”
Pace International Law Review, Volume 15, Issue 1
Spring 2003, available at:
http:/ /digitalcommons.pace.edu/pilr/vol15/iss1/3
¶76
Fouchard/ Gaillard/
Goldman
Emmanuel Gaillard and John Savage (eds.)
International Commercial Arbitration
Kluwer Law International, 1999
¶90
Honnold John O. Honnold.
Uniform Law for International Sales Under the 1980
United Nations Convention
3rd Edition, Kluwer Law International
¶7
IBA Commentary
Commentary on the revised text of the 2010
IBA Rules on the Taking of Evidence in
International Arbitration, 1 October 2010
¶¶10, 18, 19,
20, 26, 31
Jaroslavsky Pablo Jaroslavsky
“Damages for the breach of an arbitration
agreement: is it a viable remedy?”
Available at:
http://www.academia.edu/17174787/Damages_for_the_
breach_of_an_arbitration_agreement_is_it_a_viable_re
medy
¶¶98,106
Kankkunen Juho Kankkunen
Document Production under the IBA Rules on the
Taking of Evidence in International Arbitration
University of Helsinki, 2014, available at:
helda.helsinki.fi
¶¶9,22,31
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Knapp Victor Knapp
“Article 74”
Available at:
http://cisgw3.law.pace.edu/cisg/biblio/knapp-bb74.html
¶73
Koch Robert Koch
“The CISG as the Law Applicable to Arbitration
Agreements” available at:
http://www.cisg.law.pace.edu/cisg/biblio/koch5.pdf
¶5
Lookofsky Joseph Lookofsky
“The United Nations Convention on Contracts for the
International Sale of Good”
Available at:
http://www.cisg.law.pace.edu/cisg/biblio/lookofsky.htm
¶79
Marghitola Reto Marghitola
Document Production in International Arbitration
Kluwer Law International, 2015
¶¶9,10, 12,
18, 22, 31, 32
Piltz Burghard Piltz
“Litigation Costs as Reimbursable Damages”
in
Larry A. DiMatteo (ed.)
International Sales Law: A Global Challenge
Cambridge University Press 2014
¶77
Redfern/Hunter Alan Redfern and Martin Hunter
Redfern and Hunter on International
Arbitration
6th edn., Oxford University Press, 2015
¶¶2, 9,12, 15,
16, 31
Saidov Djakhongir Saidov
“Methods of Limiting Damages under the
Vienna Convention on Contracts for the
International Sale of Goods”
(2002) 14 Pace International Law Review 307
¶¶37,
52,55, 64
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Saidov/Cunnington Djakhongir Saidov and Ralph Cunnington
Contract Damages: Domestic and
International Perspectives
Hart Publishing, 2008
¶¶38, 57, 63
Schlechtreim/Butler Peter Schlechtreim/ Petra Butler
UN Law on International Sales: The UN Convention the
International Sale of Goods
Springer 2009
¶75
Schmidt-Ahrendts in
MMA
Nils Schmidt-Ahrendts
State of play: the 3rd Annual MAA
Schalechtriem CISG Conference
¶¶61,66
Schwarz/Konrad Franz T. Schwarz and Christian W. Konrad
“The Vienna Rules: A commentary on International
Arbitration in Austria”
Kluwer Law International, 2009
¶¶14,15,16
Tercier/Bersheda Pierre Tercier and Tetiana Bersheda
“Document production in arbitration: a civil law
viewpoint”
in The Search for the “truth” in Arbitration”
ASA Special Series, n.º 35, 2011
¶¶9,14, 15, 17
Schlechtriem/Schwe
nzer
Peter Schlechtriem and Ingeborg H.
Schwenzer
Schlechtriem & Schwenzer: Commentary on the UN
Convention on the International Sale of Goods
3rd edn., Oxford University Press, 2010
¶¶42, 45, 48,
50,73, 75, 78,
80
Schwenzer/ Hachem Ingeborg Schwenzer; Pascal Hachem
“The Scope of the CISG
Provisions on Damages”
in Djakhongir Saidov;
Ralph Cunnington (eds.)
Contract Damages, Hart Publishing, 2008
¶¶55, 60, 64
NOVA Law School Memorandum for CLAIMANT
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STATEMENT OF FACTS
1. CLAIMANT, Kaihari Waina Ltd., is an Equatorian wine merchant specialized in top
quality wines for high end markets, with a reputation for being able to resell Diamond
Quality Mediterranean Mata Weltin wines [St. of Claim, ¶.1, p.3].
2. RESPONDENT, Vino Veritas Ltd., is a top Mediterranean vineyard in the Vuachoua
region which won the Mediterranean gold medal for its Mata Weltin wine for five
years in a row [St. of Claim, ¶2, p.4].
3. On 22 April 2009, CLAIMANT and RESPONDENT (Parties) entered into a five year
Framework Agreement for the yearly purchase of diamond quality wines from
RESPONDENT. CLAIMANT saw the Framework Agreement as an opportunity to assist
RESPONDENT in its time of financial hardship, while securing a stable supply of Mata
Weltin wines for its exclusive clientele.
4. The Framework Agreement was structured so that CLAIMANT would place its order in
November of each year, before RESPONDENT received orders from any other customers.
The Framework Agreement also excluded US-style discovery, as the Parties knew of
situations where broad discovery increased the costs of dispute resolution.
5. By September 2014, RESPONDENT’s high end wine had won several awards. For that
reason, CLAIMANT already had a significant numbers of pre-orders [St. of Claim, ¶5,
p.4].
6. On 4 November 2014, pursuant to the Framework Agreement, CLAIMANT ordered
10,000 bottles of diamond Mata Weltin from RESPONDENT. CLAIMANT also arranged to
meet RESPONDENT to discuss this order to cement its relationship with RESPONDENT
[Exhibit C2, p.10, ¶2].
7. CLAIMANT met with RESPONDENT on 25 November 2014 and RESPONDENT initially
refused to deliver 10,000 bottles. However, RESPONDENT subsequently promised to
give the order of 10,000 bottles “a favourable consideration” [Exhibit C5, p.13, ¶3].
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8. On 1 December 2014, even though it experienced a bad harvest, RESPONDENT accepted
a new client and committed itself to supply SuperWines with Mata Weltin 2014 [PO2,
p.56, ¶22]. SuperWines paid a premium of EUR15-20 per bottle to secure the wine it
wanted. On the same day, RESPONDENT informed CLAIMANT that it would only deliver
4,500-5,000 bottles, despite creating the impression that RESPONDENT would deliver
the quantity requested [Exhibit C3, p.11, ¶1]. Had RESPONDENT not entered into an
agreement with SuperWines, RESPONDENT would have been able to satisfy the orders
of all its customers, including CLAIMANT [PO2, p.56, ¶27].
9. On 2 December 2014, CLAIMANT sent an email to RESPONDENT where it reiterated the
demand for 10,000 bottles [Exhibit C6, p.14]. On the same day, SuperWines’ Mr
Barolo called RESPONDENT’s Mr Weinbauer to accept the offer of 4,500 bottles [PO2,
p.56, ¶22]. RESPONDENT terminated the Framework Agreement with CLAIMANT two
days later [Exhibit C7, p.15, ¶s.3-4].
10. On 8 December 2014, to enforce its contractual rights, CLAIMANT applied to the High
Court of Capital City, Mediterraneo for an interim injunction preventing RESPONDENT
from selling any wine [Exhibit C8, p.16]. The injunction was to prevent RESPONDENT
from selling 10,000 bottles to other customers.
11. On 12 December 2014, the interim injunction was granted [St. of Claim, p.5, ¶10 &
Exhibit C8, p.16]. At the same time, CLAIMANT contacted other vineyards and made
substitute arrangements to obtain 5,500 bottles of diamond Mata Weltin RESPONDENT
had refused to deliver [St. Cl. p.11]
12. On 30 January 2015, RESPONDENT initiated court proceedings before the Court of
Mediterraneo seeking for a declaration of non-liability and in breach of the Arbitration
Agreement. On 23rd April, the Court denied the abovementioned request [St. of Claim,
¶12, p.5]. Due to both legal proceedings, CLAIMANT incurred considerable legal
expenses (EUR 50.280), including not only procedural costs, but also attorney’s fees
[St. of Claim, ¶13, p.5, & Exhibit C10, 11].
13. Finally, on 11 July 2015, CLAIMANT started arbitration proceedings, seeking
reimbursement of legal fees and damages due to RESPONDENT’s breach of the contract
[St. of Claim, ¶15, p. 5].
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ISSUE 1: CLAIMANT REQUEST ON DOCUMENT PRODUCTION SHOULD BE
GRANTED IN ORDER TO CALCULATE THE LOSSES SUFFERED
1. The Tribunal has the power and should order document production concerning
communications in regard of diamond Mata Weltin 2014 between RESPONDENT and
SuperWines and any contractual documents regarding that purchase [St. of Claim, ¶27,
p. 7]. That is so because they are relevant to the outcome of the dispute and without
them it will not be possible to calculate the damages that CLAIMAINT is claiming [St.
of Claim, ¶28, p. 8]. The Tribunal has the power to and should order document
production [A]. The Tribunal should order document production as requested by
CLAIMANT [B].
A. THE TRIBUNAL HAS THE POWER TO AND SHOULD ORDER DOCUMENT
PRODUCTION
2. The Arbitration Agreement is the foundation stone of international arbitration [Redfern/
Hunter, p. 71]. Both parties agreed that the arbitration is governed by Vienna Rules and
Danubian Arbitration Law, which is a verbatim adoption of Model Law [PO1, ¶5(3), p.
51]. They also established that the dispute should be settled in accordance with
international practices [St. of Claim, ¶17p.6; PO1, ¶5(3), p.51].
3. According to the Arbitration Agreement, it is clear that both Parties intended to exclude
Tribunal’s power to order discovery. However, under CISG, the Framework
Agreement and the Vienna Rules, the Tribunal does not lack power to grant document
production as requested by the CLAIMANT.
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1. The interpretation of the Arbitration Agreement under CISG
4. In accordance to the CISG framework, the Tribunal should conclude that both Parties
agreed on excluding the Tribunal’s power to order US-style discovery. However, that
limitation does not imply that Parties intended to exclude all document production.
5. The Parties have agreed that the interpretation of the contractual clauses of the
Framework Agreement, specifically the arbitration clause, should be made under the
CISG [PO1, ¶5 (3) p. 51; PO2, ¶63, p. 61]. Taking into consideration that the
arbitration agreement is a part of a sales contract, some legal writers sustain that the
CISG can govern the arbitration agreement since CISG Arts. 19(3) and 81(1)
specifically refer the settlement of the disputes [Koch, p. 270-272]. Also, a Federal
District Court has considered that the sales contract agreed by the Parties, including the
arbitration agreement within, should be interpreted according to CISG [Filanto v.
Chilewich].
6. In accordance to Art.8 (1) of the CISG, Parties’ contractual statements (including the
arbitration clause), should be interpreted according to their intent (subjective approach).
To do so, the arbitral tribunal has to analyse all relevant circumstances of the case,
including negotiations, any practices established between the parties, usages and any
subsequent conduct [CISG Art.8(3)]. Thus, the Tribunal shall decide that the Parties’
intent was to rule out US-style discovery. At least that was the interpretation of Mr.
Weinbauer, former CEO of Vino Veritas, according to his testimony [Exhibit R1, ¶8,
p.31].
7. Even if the Tribunal considers that are not enough circumstances to determine the
Parties’ intent, the parties’ statements another conducts must be interpreted in
consonance to the understanding of a reasonable person (objective approach) [CISG
Art.8(2)]. Thus, the Tribunal should not “give binding effect to what the listener or
reader personally understood but, instead, to the understanding of a reasonable person
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of the same kind” as RESPONDENT [Honnold, p. 107]. Once more, taking into account
the distinction between “discovery” and “production of documents”, the contractual
context and commercial expertise of both parties and other contractual statements made
by them, a reasonable person would have understood that the Parties only wanted to
exclude the US-style discovery.
2. The extent of the Parties’ intent to exclude discovery and how the
Framework Agreement allows document production
8. The Framework Agreement, in its Art.20, establishes that “no discovery shall be
allowed” [Exhibit C1, Art.20]. Nonetheless, contrary to what RESPONDENT has
sustained, this limit to the arbitral tribunal’s power does not exclude all types of
document production [Ans. to Claim, ¶27, p. 28].
9. Despite the legal harmonization that has been held, there are still cultural differences
depending on the parties’ legal backgrounds. Document production is not an exception.
In accordance to the arbitration agreement, the parties excluded the “discovery” and not
the “production of documents”. These are terms with different meanings. Discovery is
a specific mechanism of modern civil procedure in the US [El-Ahdab/Bouchenaki, p.
71] according to which the parties are legally obliged to produce documents that are
relevant, even if prejudicial to their case [Redfern/Hunter, p.190, footnote 73]. It allows
a party to submit relatively undefined requests for broad categories of documents in
order to find something useful to build up a case [Kankkunen, p. 32]. In addition,
discovery may also include depositions, interrogatories and requests for admissions
[Marghitola, p. 9]. In civil law jurisdictions, however, the function of document
production is to enable a party to prove its case and not to build it and because of that
the CLAIMANT must detail the facts on which the claim is based [Tercier/Bersheda, p.
81]. Therefore, the civil law approach is less concerned with finding the historical truth
than the common law approach [Tercier/Bersheda, p. 83].
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10. American-style discovery is generally not suitable to international arbitration, given
that the document production should be tailored to issues that are relevant and material
to the determination of the case [IBA Commentary, p.7] the framework of IBA Rules
imposes the requirements of specificity and materiality in order to set aside “fishing
expeditions” {Marghitola, p. 35].
11. Considering that both Parties knew the close link between the term “discovery” and US
legal system, by establishing that “no discovery shall be allowed”, a reasonable person
would have to understand that the intent of the parties was to exclude US-style
discovery.
12. Besides that, the Parties stipulated that the proceedings shall be conducted in a fast and
cost efficient way. The only interpretation that is congruent with this provision is that
the one mentioned above, because “huge document production (like US-style
discovery) proceedings can be a costly and time-consuming exercise that unnecessarily
complicates the arbitration” [Marghitola, p.1 & Redfern/Hunter, p.368].
13. Thus, the Tribunal should conclude that, by stipulating that “no discovery shall be
allowed”, the Parties meant to exclude wide broad US-style discovery.
3. The Arbitral Tribunal should order the production of documents in
accordance to the VIAC Rules
14. The Parties agreed on the application of the VIAC Rules to this arbitration. On the
contrary to what RESPONDENT advocates [Ans. Cl. ¶27, p. 28], under Art. 29(1) of the
Vienna Rules, if the Tribunal considers it necessary, it may on its own initiative collect
evidence, including the possibility to request the Parties to submit evidence. The
arbitrators have “maximum discretion in establishing the facts and taking evidence as
they deem appropriate (…) (and they also are allowed) to attach to it the evidentiary
value they deem appropriate.” [Schwarz/Konrad, p. 482-483; Tercier/Bersheda, p.79].
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15. Even if the Arbitral Tribunal does not conclude that the Parties wanted to only exclude
US-style discovery, under the Vienna Rules and Danubian Arbitration Law, that
exclusion is not allowed. As stated by RESPONDENT, the Tribunal shall conduct the
arbitration in accordance with the Vienna Rules and the Parties’ agreement. And if it is
true that the Parties can limit the arbitrators’ discretion on taking evidence on their own
initiative, Article 28(1) Vienna Rules and Article 18 of Danubian Arbitration Law
consecrate limits to that Parties’ will [Schwarz/Konrad, p. 484]. Notwithstanding with
the fact that international arbitration is characterized for its flexibility, the Tribunal
must comply the arbitral proceedings with any mandatory rules and public policy
requirements, such as the Parties’ right to be heard in order to fully present their case
[Redfern/Hunter, p. 353; Tercier/Bersheda, p. 82 & Noble China Inc. v. Lei Kat
Cheong].
16. If the CLAIMANT’s request for producing documents is not attended, the right to be
heard is violated. That is so because the Tribunal will not be granting the indispensable
means for CLAIMANT to present its case, violating, in consequence, due process
principles, that being a ground to refuse the enforcement of a foreign award [Article
V(1)(b) New York Convention]. In that order, “[t]he Parties’ right to be heard impacts
on, and must be observed at, all levels of an arbitration (…) The right to be heard is,
therefore, a prominent feature under the Vienna Rules” [Schwarz/Konrad, p. 427&
Redfern/Hunter, p.356]. Thus, the Tribunal should order the production of documents
in accordance to the VIAC Rules.
B. THE TRIBUNAL SHOULD ORDER DOCUMENT PRODUCTION TO
SATISFY CLAIMANT’S REQUEST
17. As mentioned before, under the Vienna Rules, the Tribunal has the power to order
document production. However, the Vienna Rules do not regulate any rules according
to which the document production should be held. For this reason, “[In] the absence of
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rules on documentary evidence and more specifically document production in
institutional rules and national arbitration rules (…) the IBA Rules offer a resource that
seeks a balance between common law and civil law practices” [Tercier/Bersheda, p.
84-85].
1. The Tribunal should apply IBA rules to guide document production
18. The Parties have not made any reference to the IBA Rules in the Arbitration
Agreement, and though it is very rare for them to do so, they agreed that the arbitration
shall be conducted in accordance with international practice (Exhibit C. 1, Article 20).
Nowadays, the IBA Rules are widely accepted by the arbitration community and are
very often applied by Arbitral Tribunals [Marghitola, p.1]. The application of the IBA
Rules is particularly useful when an arbitration involves Parties coming from different
legal background [IBA Commentary, p.8].
19. In addition, Parties were also silent regarding the procedure applicable on the taking of
documentary evidence. The Vienna Rules, as other institutional rules, are also
purposely silent about how evidence should be gathered in order to avoid that
arbitration proceedings being always conducted in the same manner [IBA Commentary,
p.1]. Also, Article 28 of Vienna Rules establishes that the Tribunal should conduct
arbitration proceedings as it deems appropriate and in a manner that best suits the
Parties’ interests.
20. The Arbitral Tribunal has wide discretion to establish the facts of the case through all
appropriate means, including the possibility to order one part to introduce certain
documents [IBA Commentary, p.7]. “[T]he arbitral tribunal shall order the production
[of documents] if it is convinced, first, that the issues that the requesting party wishes
to prove are relevant to the case and material to its outcome; second, that none of the
reasons for objection set forth in Article 9.2. applies; and, third that the requirements of
Article 3.3. have been satisfied” [IBA Commentary, p.8].
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21. Therefore, the Tribunal should apply IBA Rules as a guideline to the document
production requested by the CLAIMANT because these documents are relevant and
material to the outcome of the dispute [a], there is no valid objection to that request [b],
and, finally, IBA Rules’ criteria are satisfied [c].
a. The CLAIMANT’s requested documents are relevant and material to the
outcome of the dispute
22. The Tribunal should order the production of documents because it is relevant to
calculate the damages suffered by CLAIMANT. Under Articles 3(7) and 9(2)(a) IBA
Rules, the Tribunal should order the production of documents when the issues that the
requesting Party wishes to prove are relevant to the case and material to its outcome. A
requested document is relevant to the case when “a party has put forward a credible
argument as to the likely or prima facie relevance of the requested evidence in support
of an important contention in the petitioning party’s case” [O’Malley, n.º 3.69]. In other
words, it is necessary to explain why the requested documents are important to the
Tribunal in order to reach a just conclusion of the case at hand [Kankkunen, p.37].
Finally, a document is material to the outcome of the case when it is needed to build a
complete consideration of the facts from which legal conclusion are drawn
[Marghitola, p.52].
23. Contrary to RESPONDENT’s allegations, the requested documents are relevant and
material to the outcome of the arbitration because of their evidentiary potential to
acknowledge valuable information to calculate the damages that CLAIMANT suffered
and it is pleading.
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b. There are no valid objection to the CLAIMANT’s request from
RESPONDENT
24. Contrary to the position sustained by RESPONDENT (Ans. Claim, pp. 28-29, ¶29, 30,
31), which contests the document production requested by CLAIMANT based on
unreasonable burden, confidentiality, and right to an equal treatment [Ans. to Claim,
¶¶29-31, pp. 28-29], there are no valid grounds, under Art. 9(2) of the IBA Rules, to
refuse that request.
25. Firstly, there is no formal contract between RESPONDENT and SuperWines. There are
only several e-mails, memoranda and minutes [PO2,¶23, p.56]. In that order, the
amount of documents that needed to be produce are reduced to a minimum. Besides
that fact, it is also important to note that the CLAIMANT limits the time frame in which
those documents were created – between May 2014 and July 2015.
26. There is no legal definition of what “unreasonable burden” means, being that
responsibility left to the arbitral tribunal’s discretion (IBA Commentary, p. 26).
However, taking into consideration the factual circumstances mentioned, the Tribunal
should conclude that there is no unreasonable burden on RESPONDENT regarding
CLAIMANT’s request.
27. Also, contrary to what RESPONDENT sustained, CLAIMANT’s request does not violate
RESPONDENT’s confidentiality, because between it and SuperWines does not exist any
express or formal confidentiality agreement [PO2, ¶25, p.56]. Even if that was not the
case, the requested document production is not adequate to breach RESPONDENT’s
confidentiality, because, under Art. 3(13) of the IBA Rules, any document submitted or
produced that is not in the public domain shall be kept confidential by the Tribunal. For
example, the Tribunal may determine that it should not review the documents and, in
that event, appoint an independent expert, bound to confidentiality, to review any such
document [Art.3(8) of the IBA Rules].
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28. Finally, the document production is fair and does not violate the principle of equality.
RESPONDENT alleges that by granting the requested production of documents, the
Tribunal will not be fair and it will treat RESPONDENT unequally because Equatorianian
Law establishes exceptions to that production which Mediterranean Law does not [Ans.
to Claim, ¶30, p.28]. However, the fairness and equal treatment requirement is satisfied
by applying the same standards to both Parties. Accordingly, by applying IBA Rules to
the dispute, the Arbitral Tribunal will grant the same protection to both Parties, and, in
consequence, it will not violate the fairness and equal treatment principles [Article 9(3)
of the IBA Rules].
29. Accordingly, the Tribunal should grant the requested document production because: it
does not imply an unreasonable burden; it does not violate any RESPONDENT’s
confidentiality agreements; and it does violate the principle of equal treatment.
c. The Tribunal should order document production as requested by
CLAIMANT because IBA Rules’ criteria are satisfied
30. The Tribunal should order document production because IBA Rules’ legal
requirements are satisfied, specifically because the request is narrow and specific, and
the requested documents are in RESPONDENT’S possession.
31. In accordance to Article 3(3) IBA Rules, a request to produce documentary evidence
shall contain certain requirements. Firstly, the request to produce shall identify
documents either by describing an individual document [Art. 3.3(a)(i)of the IBA Rules]
or by describing in sufficient detail of a narrow and specific requested category of
Documents that are reasonably believe to exist [IBA Commentary, p.9]. The possibility
to describe a narrow and specific category of documents is explained by the need to
establish facts that are relevant and material to the outcome of the dispute [Marghitola,
p.39]. It is however required that the requested documents are suitable to prove a
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12
specific point, being necessary to make a description of the presumed contents of the
documents [Kankkunen, p.34 & Redfern/Hunter, p.369].
32. CLAIMANT in its request for document production satisfied all of those requirements by
requesting all documents related to the communications between RESPONDENT and
SuperWines in regard of diamond Mata Weltin 2014, and any contractual documents
related to that purchase [St. of Claim, ¶27, p.7]. So, the CLAIMANT’s request satisfies
even the most demanding legal opinions which identifies the necessary requirements in
order to produce a category of documents – the presumed author, presumed date or
time frame and presumed content [Marghitola, p. 40].
33. By requesting documents that are only related to the purchase of Mata Weltin 2014,
and taking into consideration that CLAIMANT is only requesting documents from the
period of 1 January 2014 to 14 July 2015 [St. of Claim, ¶27, p. 7], the Tribunal should
conclude that the request in narrow and specific.
34. Besides that criteria, under Art. 3(c)(i) of the IBA Rules, it is also necessary that the
requested documents are in RESPONDENT’s possession – which they presumably are.
There are enough circumstances to presume that the requested documents are in
RESPONDENT’s possession or control. Even if there was no contract signed,
RESPONDENT and SuperWines exchanged several emails summarizing meetings and
setting out details of the Parties’ cooperation, and there were several internal
memoranda and minutes discussion that cooperation [PO2, ¶23, p.56]. Thus, the
Tribunal should order document production as requested by CLAIMANT because all
legal criteria are satisfied.
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ISSUE 2: CLAIMANT IS ENTITLED TO THE PROFITS RESPONDENT MADE
SELLING THE BOTTLES TO SUPERWINES AS PART OF ITS DAMAGES
35. In a contract governed by the CISG, the non-breaching party is entitled to losses
suffered as a consequence of the breach, in accordance with the principle of full
compensation. CLAIMANT is allowed to claim RESPONDENT’s profits as a
compensation for the loss it suffered from RESPONDENT’s breach [A]. As an
alternative, RESPONDENT’s profits should be disgorged under the gain-based approach
[B].
A. CLAIMANT CAN CLAIM RESPONDENT’S PROFITS TO COMPENSATE ITS
LOSS SUFFERED FROM RESPONDENT’S BREACH UNDER THE LOSS-
BASED APPROACH
36. Under CISG Art. 45, CLAIMANT is entitled to claim the profits RESPONDENT made by
selling the 5.500 bottles of diamond Mata Weltin to SuperWines. Specifically, Art.74
provides that “[d]amages for breach of contract by one party consist of a sum equal to
the loss, including loss of profit, suffered by the other party as a consequence of the
breach” [CISG Art. 74]. This arrangement for loss compensation reflects a principle of
full compensation, one of the general principles on which the CISG is founded
[Agricultural Products Case]. Full compensation is to be gained through a monetary
claim aimed at “the positive interest, i.e., everything the damaged party would have had
if the contract was performed” [Bullet-Proof Vest].
37. The standard measure for compensatory damages is expectation interest [Saidov, p.25].
However, where the non-breaching party is not in a position to prove its expectancy
damages, courts and arbitral panels have relied on the breaching party’s profits as an
approximation of expectancy damages [Bonaventure; Pressure Sensors Case;
Experience Hendrix; WWF; Esso; Blake; & Wrotham Park Estate].
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38. RESPONDENT breached its contract and CLAIMANT is owed compensatory damages for
the losses it suffered. RESPONDENT’s profits are not an issue of disgorgement of
benefits, but of calculation of damages in accordance with the principle of full
compensation [Saidov/Cunnington p.56; WWF], being nothing more than an estimation
of these compensatory damages.
39. CLAIMANT’s loss of profits is caused by RESPONDENT’s breach [1], CLAIMANT has
taken all reasonable measures to mitigate losses [2], CLAIMANT’s loss of profits was
foreseeable to RESPONDENT at the conclusion of the framework agreement [3]
RESPONDENT is not exempt from liability under Article 79 [4] RESPONDENT’s profits
are an appropriate measure for compensatory damage [5].
1. CLAIMANT’S loss of profits is caused by RESPONDENT’S breach
40. CLAIMANT’s loss of profits is caused by RESPONDENT’s breach. Because of
RESPONDENT’s breach, CLAIMANT never received 5.500 bottles of RESPONDENT’s
wine, which it had promised to sell to its customers. CLAIMANT will suffer lost profits
from the wine it will not be able to sell and Art.74 allows CLAIMANT to recover these
profits.
41. CLAIMANT’s inability to fulfil its contractual obligations damaged its reputation as a
trustworthy wine supplier and caused CLAIMANT loss of profits from its inability to sell
RESPONDENT’s wine to those customers. As required by the UNIDROIT Principles, the
harm CLAIMANT suffered is a direct result of RESPONDENT’s breach. Therefore,
RESPONDENT’s breach caused CLAIMANT’s loss of profits, consisting of the loss of
resale profits, loss of future profits, and loss of goodwill and reputation.
42. Under the Framework Agreement, CLAIMANT should have been able to secure this
reliability of supply. But for RESPONDENT’s breach, CLAIMANT’s reputation and
goodwill would not be damaged by the non-delivery of all its pre-orders. Therefore,
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RESPONDENT’s breach also caused CLAIMANT’s loss of reputation and goodwill,
covered by CISG Art.74 as consequential loss [Schlechtriem/Schwenzer, p.1012].
2. CLAIMANT has taken all reasonable measures to mitigate losses, including
loss of profit, resulting from RESPONDENT’S breach
43. CLAIMANT acted reasonably to mitigate its damage. CLAIMANT’s recovery of lost
profits is not precluded under Art.74’s principle of mitigation. CISG Art.77 has been
interpreted as requiring injured Parties to activate themselves, rather than remain
passive, to reduce damage already incurred and to prevent further damage from
materializing [Propane Case].
44. CLAIMANT took reasonable measures to mitigate the losses, including loss of profit, it
suffered due to RESPONDENT’s breach of contract. First, by informing its customers of
a disruption in supply, sought their approval to substitute wine of non-identical
qualities. Second, reaching an agreement with Vignobilia that would limit reputational
damage from the disruption in supply and lastly, by presenting a motion in
Mediterranean court to prevent RESPONDENT from selling the 5.500 bottles of diamond
Mata Weltin to SuperWines. CLAIMANT mitigated its damage.
3. CLAIMANT’S loss of profits was foreseeable to RESPONDENT at the
conclusion of the framework agreement
45. RESPONDENT could foresee that the breach would cause CLAIMANT’s loss of resale
profits. The principle of foreseeability under Art.74 allows Parties to recover damages
that the breaching party foresaw or ought to have foreseen as a consequence of the
breach. This limitation on liability allowed both Parties to carefully estimate and insure
themselves from the financial risks arising from the contract [Schlechtriem/Schwenzer,
p.1001].
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46. No further proof of the foreseeability of a resale transaction is required if commercial
goods are sold to a merchant. Lost profits which a buyer could have gained from resale
must be compensated [Propane case]. Since CLAIMANT is a wine merchant and
RESPONDENT is a wine producer, RESPONDENT knew or must have known that the
wines were procured for resale when the Framework Agreement was signed [Stat. of
Claim, ¶1 p.3 & Ans. to Claim, ¶5, p.25].
47. Therefore, CLAIMANT’s loss of profits was foreseeable to RESPONDENT at the
conclusion of the Framework Agreement. RESPONDENT could foresee that the breach
would cause CLAIMANT’s loss of reputation and goodwill, since RESPONDENT knew
during pre-contractual negotiations that a solid supply was vital to CLAIMANT [Ans. to
Claim, ¶2, p.31]. Therefore, it was foreseeable to RESPONDENT that its breach would
cause CLAIMANT’s loss of reputation and goodwill.
4. RESPONDENT is not exempt from liability under article 79
48. RESPONDENT’s failure was a direct result of its deliberate decision to sell the wine to
SuperWines, and it is consequently not exempt from liability under CISG Art.79 for its
failure to deliver the 5.500 bottles. Art.79 has been interpreted to require proof of a
“factual obstacle” beyond the breaching party’s control in order to exempt the
breaching party from liability for its failure to perform its contractual obligations. The
“obligor is always responsible for impediments when he could have prevented them”
[Schlechtriem A, p.100] and even where the impediment is not foreseeable, the obligor
“must take reasonable measures to avoid or overcome the impediment or its
consequences” [Idem].
49. RESPONDENT’s poor harvest does not constitute a “factual obstacle”, because the 2014
harvest yielded enough wine for RESPONDENT to deliver the full amount of 10.000
bottles to CLAIMANT [PO2, ¶¶21, 27, p.56-57]. RESPONDENT had a standing contract
with CLAIMANT and no firm contract with SuperWines at the time it learned of the
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harvest [Stat. of Claim, ¶8, p.4 & PO2, ¶15, p.55; ¶29, p.57]. Nevertheless,
RESPONDENT offered 4.500 bottles to SuperWines a month after CLAIMANT requested
10.000 bottles under its pre-existing contract [Exhibit C2, p.10; PO2 ¶¶22, 24, p.56].
5. RESPONDENT’S profits are as appropriate measure for compensatory
damages
50. CLAIMANT can calculate part of its loss of profits by using RESPONDENT’s profits from
the breach. Under CISG Art.74, the breaching party should not be able to escape
liability on the ground that lost profits are uncertain [CISG-AC Opinion No. 6, ¶s.2.4,
3.13]. Where damages are difficult or impossible to prove, benefits obtained by a
promisor in breaching the contract may be taken into account when calculating and
assessing damages [Schlechtriem/Schwenzer, pp.1002, 1017].
51. Art. 7.4.3(3) of the UNIDROIT Principles states that “where the amount of damages
cannot be established with a sufficient degree of certainty, the assessment is at the
discretion of the court.” This Tribunal therefore has discretion to award RESPONDENT’s
SuperWines Profits to CLAIMANT, as neither CLAIMANT’s lost profits nor harm to its
business can be measured with sufficient certainty.
52. As Commentator Saidov explains, in some cases, focus on the injured party’s loss is
inadequate in compensating a party that is not in a position to prove its loss [Saidov,
p.34]. Instead, it is appropriate to rely on the breaching party’s gains. In those cases, he
states, “damages reflecting gains made by the breaching party may be an appropriate
way of implementing the compensatory purpose of damages” [Saidov, p.33].
Employing profits as a proxy for compensatory damages has strong support in
international case law [Experience Hendrix; WWF; Esso; Blake & Wrotham Park
Estate]. In WWF, , the court awarded the injured party the breaching party’s profits,
stating that it was nothing more than a “flexible response to the need to compensate the
CLAIMANT for the wrong which has been done to him” [WWF].
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53. CLAIMANT can rely on profits made by the breaching party to calculate actual damages
because it is impossible to calculate CLAIMANT’s expectancy loss [a], CLAIMANT’s
loss is most likely higher than RESPONDENT’s profits [b], RESPONDENT’s profits are
evidence of lost profits that CLAIMANT could have realised on resale [c], and this
possibility reflects the Purposes of CISG Art.74 [d].
a. It is impossible to calculate CLAIMANT’s expectancy loss
54. CLAIMANT is not in a position to prove its loss. What is relevant to calculating
CLAIMANT’s loss is how much CLAIMANT would have been able to sell the 5,500
additional bottles of RESPONDENT’s Mata Weltin for. CLAIMANT’s profits from sales
to its customers would have likely been higher than the premium paid by SuperWines,
but this amount is currently unknown. The combination of increased demand and
decreased supply would have affected the market price for RESPONDENT’s diamond
Mata Weltin 2014, but CLAIMANT does not have the information necessary to know the
market price.
55. Awarding the breaching party’s profits is justified as long as the injured party is not in
the position to prove the amount of its loss otherwise [Saidov p.34 &
Schwenzer/Hachem 100-02]. CLAIMANT is entitled to compensation for its lost profits,
but as this Tribunal has recognized, the exact amount of CLAIMANT’s loss is difficult to
quantify [PO2, ¶13, p.54]. CLAIMANT can calculate part of its loss by using
RESPONDENT’s profits. It therefore is not in a position to prove its loss unless it relies
on the breaching party’s profits as an approximation of its losses suffered.
b. CLAIMANT’s loss is most likely higher than RESPONDENT’s profits
56. CLAIMANT’s loss is most likely higher than RESPONDENT’s profits, as measured by the
difference between CLAIMANT’s contract price and the premium paid by SuperWines
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to RESPONDENT [Stat. of Claim, ¶26, p.7; PO2, ¶66, p.62]. The contract price for
CLAIMANT was EUR41.50 per bottle, nearly half of the retail price. The premium paid
by SuperWines was EUR15-20 per bottle [PO2, ¶24, p.56]. CLAIMANT and
SuperWines are competitors in the same markets and for that reason probably subject
to the same retail market price [Exhibit C4, p.12; PO2, ¶26, p.56]. The retail price is
said to be as high as EUR90-100 per bottle, given the extraordinary quality and supply
shortage [PO2, ¶14, p.55] and so CLAIMANT’s lost profits on resale would most likely
have been higher than the premium paid by SuperWines. It is purely as a way to
facilitate the calculation that CLAIMANT is willing to restrict damages to
RESPONDENT’S profits only. CLAIMANT’s loss of profits from resale is very likely
higher than RESPONDENT’s profits.
c. RESPONDENT’s profits are evidence of lost profits that CLAIMANT could have
realised on resale
57. RESPONDENT’s SuperWines Profits indicate what CLAIMANT could have earned from
selling the wine. “If a seller who is bound by a contract sells the goods for a second
time at a higher purchase price, thus realising a higher profit, that higher purchase price
should be seen as an indication and proof of the true market conditions at the time of
the breach” [Saidov/Cunnington, p.101].
58. The profits realised by the RESPONDENT serve as an evidence of the profits CLAIMANT
could have realised by reselling the goods to third party. If market condition causes the
value of wines to appreciate, CLAIMANT should be entitled to that amount of
appreciation as its rightful profit. If RESPONDENT chose to resell the wines to third
party at a higher price, it effectively appropriated CLAIMANT’s profit for itself. That
amount represents CLAIMANT’s loss of profits for which it must be compensated.
59. In addition, the premium paid by SuperWines, a wine merchant like CLAIMANT, is an
objective indication of the market value of Mata Weltin wines of 2014 vintage [Exhibit
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20
C4, p.12 & PO2, ¶24, p.56]. The premium paid by SuperWines was reportedly EUR15-
20 per bottle [PO2, ¶24, p.56]. This amount of profit made by RESPONDENT
represented the minimum amount that CLAIMANT could have gained on its resale.
RESPONDENT’s profits are evidence of lost profits that CLAIMANT could have realised
on resale.
d. Awarding RESPONDENT’s profits reflects the purposes of Article 74 and
enforces “pacta sunt servanda”
60. Awarding the gains of the breaching party as measure of damages fulfills CISG
Art.74’s purposes. Art.74 is intended to afford an aggrieved party compensation, and,
as Commentators consider, in some cases the gains by the breaching party can easily be
viewed as nothing more than a presumption of what the aggrieved party has actually
lost.” [Schwenzer/Hachem, p.101]. Awarding the SuperWines Profits is a means of
restoring the breach victim to its rightful position, “still in the realm of compensatory
damages.”
61. Also, this approach serves the underlying principles of Art.74 by enforcing the notion
of pacta sunt servanda (“agreements must be kept”), ensuring that Parties take their
legal obligations seriously [Schmidt-Ahrendts B, pp. 92-95]. In a similar vein, it
upholds the CISG’s emphasis on fairness and good faith in international commerce.
B. RESPONDENT’S PROFITS SHOULD BE DISGORGED UNDER THE GAIN-
BASED APPROACH
62. Alternatively, the profits made by RESPONDENT in reselling the 5,500 bottles to
SuperWines should be disgorged under the gain-based approach. RESPONDENT acted in
bad faith by deliberately initiating a relationship with SuperWines at CLAIMANT’s
expense, and it should not be allowed to benefit from this breach.
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63. This Tribunal should therefore award RESPONDENT’s SuperWines profits to
CLAIMANT. According to the gain-based approach, the role of damages is not only to
rectify a breach but also to prevent it. This is founded on the “performance principle”
of CISG [Saidov/Cunnington, p.93], that emphasises the performance of the contract
rather than the economic loss. This construction prevents the “efficient breach of
contract” and follows the general idea under CISG that a breaching party must not
benefit from ill-gotten gains. As Cunnington notes, “gain-based damages focus on the
defendant’s gain rather than on the CLAIMANT’s loss”. [Cunnington, p.15].
64. Allowing RESPONDENT to profit from its deliberate breach of contract would therefore
contravene the spirit of the CISG. Commentators also support a gain-based approach to
compensation, ensuring the uniformity of CISG decisions, defending that the
application of CISG Art.74 to claims for disgorgement would support the idea of
uniformity on which the CISG and its Art.74 are based, given that depending on the
content of their domestic law to fulfil the gap would undermine the goal of CISG on
providing Parties with a uniform and complete set of rules governing international sales
contracts. [Saidov, p.33 & Schwenzer/Hachem, p.101].
65. While CISG doctrine contains little discussion of the question of disgorgement of
wrongfully gained profits, there is an increasing tendency of domestic legal systems
awarding the disgorgement of ill-gotten profits [Schmidt-Ahrendts B, p. 90; Schwenzer
A, p. 1017]. Regarding case law, recently the UK House of Lords determined, in
Attorney General v. Blake, that a former intelligence employee had breached his
employment contract when he published his memoirs and the employee was ordered to
pay the profits he earned from publishing [AG v. Blake]
66. RESPONDENT’s behaviour is an example of the “efficient breach of contract”.
RESPONDENT contacted SuperWines as early as the beginning of 2014. The bad harvest
resulted in a reduced supply but an extraordinary quality of grapes. RESPONDENT
found that SuperWines was a willing customer ready to pay a premium which was
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22
nearly half of the price it could charge CLAIMANT under the Framework Agreement
[Ans. to Claim, ¶¶9, 12, 15, p.26].
67. Under the “performance principle”, the profits made by RESPONDENT in reselling the
5,500 bottles to SuperWines should be disgorged under the gain-based approach, since
the disgorgement of profits serves the purpose of the CISG to ensure performance by
reducing incentives for breach and follows the tendency of many domestic legal
systems to allow disgorgement of profits in the law of damages.
ISSUE 3: LITIGATION COSTS SHALL COMPLETELY BE REIMBURSED
68. CLAIMANT is entitled to recover litigation costs under CISG Art.74.[A], since those
damages are included in its scope of application [1] Those damages have to be both a
direct consequence of the contractual breach [2] and foreseeable [3] CLAIMANT is
entitled to recover litigation costs incurred in its application for interim relief. [B]
According to Art.20 of the Framework Agreement, the Parties agreed that the contract
was governed by the Danubian law, including the CISG. Under CISG Art.74, the party
who breaches the contract is liable for damages. RESPONDENT breached the
Framework Agreement [1], causing damages to CLAIMANT on the application to the
interim relief, which are recoverable under CISG Art.74 [2]. Those damages are
foreseeable [3]. Thus, RESPONDENT is liable for litigation costs as damages under
Art.74 CISG.
69. Also, RESPONDENT breached the arbitration agreement by starting the proceedings
before the High Court of Mediterraneo. [C] Consequently, CLAIMANT incurred in legal
costs for presenting its defence. The reimbursement of damages for breach of the
arbitration under agreement is accepted internationally.[1] Moreover, those damages
can be reimbursed under CISG Art.74.[2] Those damages were foreseeable and shall be
reimbursed according to the principle of full compensation, provided both on Danubian
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contract law and the CISG.[3] RESPONDENT cannot argue that the Arbitral Tribunal’s
decision on damages breach res judicata because the same claim is not being addressed
twice.[4] The arbitration clause was not unclear and unworkable.[5] CISG Art.77
cannot be invoked since CLAIMANT has taken reasonable measures to mitigate the
losses.[5]
70. The total amount of damages (US$ 50.280) should be recovered [D].
A. LITIGATION COSTS CAN BE RECOVERED UNDER CISG ART. 74:
THEORETICAL APPROACH
71. Both the aforementioned CISG Art.74 and the Danubian contract law Art.7.4.2 and
7.4.4 (which is a verbatim adoption of UNIDROIT principles [PO1, ¶5(3), p.51])
provide the principle of full compensation, according to which the aggrieved party has
the right to be reimbursed for damages resulting from the breach.
1. Litigation costs can be included in CISG Art.74 scope of recoverable
damages
72. CISG Art.74 provides that “[d]amages for breach of contract by one party consist of a
sum equal to loss (...), suffered by the other party as a consequence of the breach.(...)”
As previously mentioned, the recovery of damages for breach of contractual obligations
results directly from pacta sunt servanda.
73. Moreover, one must bear in mind that this principle is not exclusive of CISG Art.74, is
rather a principle that shall be taken into consideration when interpreting systematically
the CISG [Schlechtriem/Schwenzer, p.1005; Knapp, n/p]. Then, in order to be fully
compensated, CLAIMANT has to be reimbursed for costs it has incurred in both judicial
proceedings.
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74. The US Court of Appeals considered that CISG Art.74’s scope of application should not
include the recovery of litigation expenses since this is a procedural matter not covered
by the Convention [Zapata Hermanos]. Notwithstanding, this decision should be
disregarded as does not take into account one of the main objectives of the CISG: “(…)
the adoption of uniform rules which govern contracts for the international sale of goods
and take into account the different social, economic and legal systems (…)” [CISG
Preamble].
75. The distinction between procedural and substantive law is a matter of national legal
systems and should not be applied in the international forum. National procedural rules
are irrelevant to interpret CISG [Schlechtriem/Schwenzer, p. 1001]. Furthermore,
considering CISG Art.7(1), “[t]he requirement to take into account the international
character of the CISG seeks to secure the principle of autonomous interpretation of the
principles of the CISG and prohibits the use of technical terms and principles of
domestic laws, especially the domestic law of the user” [Schlechtreim/Butler, p.48].
76. On the other hand, the US District Court had, in the same exact case, previously
awarded legal expenses, including attorney’s fees on the ground the so-called
“American rule” (according to which each party should bear its own costs) was not
applicable. Even though US Court of Appeals reversed the final decision, this is an
interpretation worth noting which is in accordance with the “liberal approach” of the
CISG [Felemegas, p.115]. Therefore, “(...) there should be no reason to adopt a narrow
interpretation of the CISG” [idem, p.115]. An arbitral tribunal have also shared the same
opinion deciding that “in rendering its award on the costs of the proceedings (…) the
[seller] could claim its attorney's fees for the arbitration proceedings as damages
according to articles 61 and 74 CISG” [Chinese goods case].
77. It can be also argued that legal costs are not expressly excluded from the scope of
application of CISG Art.74. This article does not, indeed, provide an exhaustive
description of the damages recoverable. Regarding this specific aspect, commentators
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have stated that the argument that legal costs fall outside the scope of CISG is not in
conformity with this Convention’s aforementioned goal of unification foreseen in CISG
Art.7 [Piltz, p.293]. Litigation costs can be included in CISG Art.74.
2. Damages as a consequence of the contractual breach
78. Only damages caused by the breach of the contract are recoverable. Therefore, it is of
great importance to ascertain that the damages would not have been produced without
the breach [Schlechtriem/Schwenzer, p.1015]. Commentators have explained that “the
Convention leaves no room for theories on causation which limit the liability for
damages” [idem, p.1015].
3. Foreseeability of damages
79. CISG Art. 74 provides that the damages “(...) may not exceed the loss which the party
in breach foresaw or ought to have foreseen at the time of conclusion of the contract.
(...)”. Therefore, the non-breaching party has to be fully compensated if the losses
incurred were foreseeable when the contract was concluded. This is the moment when
Parties evaluate the risk they want to assume [Lookofsky,n/p]. This knowledge is
presumed when the party is objectively in position to foresee the damages, irrespective
of the actual knowledge of the facts.
80. Foreseeability also applies to the extent of the damages, even though “it is not necessary
for the party in breach to have foreseen the precise amount of the loss”
[Schlechtriem/Schwenzer, p.1020], being enough a general knowledge of the amount.
B. CLAIMANT IS ENTITLED TO THE DAMAGES CLAIMED FOR
LITIGATION COSTS INCURRED IN ITS APPLICATION FOR INTERIM
RELIEF
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81. RESPONDENT breached the contract. If RESPONDENT had delivered 10.000 bottles of
wine, CLAIMANT had not need to require an interim injunction. Thus, RESPONDENT is
responsible for damages incurred by CLAIMANT under Art.74.
1. RESPONDENT breached the Framework Agreement
82. CISG Art.74 provides the right to recovery for damages caused by a breach of contract.
RESPONDENT breached the contract. Thus, RESPONDENT has the obligation to
reimburse CLAIMANT for damages incurred.
83. Under the Framework Agreement, RESPONDENT is obliged to sell up to 10.000 bottles
per year [Exhibit C1, p.9 Art.2] to CLAIMANT. However, during the negotiations,
CLAIMANT proposed an agreement regarding a larger quantity of bottles. This proposal
was not accepted because RESPONDENT could not guarantee that it would be able to
fulfil the contract for such an amount. By settling to a smaller quantity, RESPONDENT
guaranteed that it would able to deliver, even in the bad yearsthe bottles of Mata Weltin
wine [Ans. to Claim, ¶7 p.25]. This means that the quantity agreed upon the Framework
Agreement already includes the risk caused by poor harvests. CLAIMANT ordered
10.000 bottles from RESPONDENT [Exhibit C2, p.10]. RESPONDENT was only able to
deliver 4.500 - 5.000 bottles, and then said that there will be no further deliveries
[Exhibit C3, p.11 & Exhibit C7, p.15]. RESPONDENT breached its obligation to deliver
10.000 bottles.
2. Litigation costs for the application for the interim relief are a consequence of
RESPONDENT’s behaviour and foreseeable under CISG Art.74
84. CLAIMANT explained to RESPONDENT that CLAIMANT needed to guarantee a minimum
of bottles to his clients every year [Stat. Of Claim, ¶4, p.5]. Under this fact,
RESPONDENT foresaw or ought to have foreseen that CLAIMANT has agreements with
clients and that this agreements need to be settle. In order to settle a contract, it is usual
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in international commerce that the party who wants to demand the compliance of the
contract do it in courts. Besides, when RESPONDENT informed CLAIMANT that he could
not deliver the agreed number of bottles, the CLAIMANT had already received and
accepted a considerable number of orders for diamond Mata Weltin 2014 [Stat. Of
Claim, ¶10, p.5].
85. In order to preserve its rights and to guarantee its clients’ orders, CLAIMANT sought for
an interim injunction before the High Court of Mediterraneo. CLAIMANT aimed to
ensure RESPONDENT would not promise to sell or sell the amount of 10.000 bottles of
Mata Weltin wine [Exhibit C8, p.16].
86. The interim injunction was required in Mediterraneo, place where RESPONDENT is
based. There, legal fees are very high [Stat. of Claim, ¶13, p.5]. However, being based
on Mediterraneo, RESPONDENT foresaw or ought to have foreseen the amount of
damages incurred by the CLAIMANT.
87. This interpretation of the foreseeability is in accordance with CISG Art.8 (2). CISG
Art.8 (2) states that the conduct of a party should be interpreted as a reasonable person
would have had in similar circumstances. Therefore, a reasonable international seller of
goods under these circumstances interprets that if it breaches the contract, the other
party will start court proceedings in order to guarantee the settlement of the contract.
88. RESPONDENT foresaw or could have foreseen that CLAIMANT would take measures to
grant the performance of the contract. Then, RESPONDENT foresaw or could have
foreseen that CLAIMANT would have litigation costs to do so.
C. CLAIMANT IS ENTITLED TO THE DAMAGES CLAIMED FOR THE
LITIGATION COSTS INCURRED IN THE DEFENCE AGAINST
RESPONDENT’S COURT PROCEEDINGS
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89. By commencing the court proceedings, RESPONDENT violated its contractual
obligations arising from the Arbitration Agreement. Art. 20 of the Framework
Agreement foresees that the law applicable to the Arbitration Agreement is Danubian
Law, including the CISG [Exhibit C1, p.9 & PO2, ¶63, p.61]. Accordingly, CISG
Art.45, No1, ¶b), provides that if the seller fails to perform its obligations, the buyer can
claim for damages. CLAIMANT is therefore entitled to be reimbursed for damages under
CISG Art.74.
1. Damages for breach of the Arbitration Agreement are commonly
accepted and recognized
90. CLAIMANT shall be granted monetary relief not only for the judicial costs it have
incurred in presenting its defence, but also for all costs related to that action, including
attorney’s fees (since there is a direct connection with the proceedings). “An Arbitration
Agreement is a contract in which the Parties agree to submit their existing or future
disputes to arbitrators, not to the courts.” [Fouchard/ Gaillard/ Goldman, p.381]. Thus,
“[i]n agreeing to arbitrate, the Parties do not merely negatively waive their legal rights
or access to judicial remedies, but instead affirmatively agree to participate in the
resolution of their disputes through the arbitral process (…)” [Born, p.1006].
91. RESPONDENT clearly did not comply with its negative obligation to refrain from access
to State Courts. Thus, the violation of the Arbitration Agreement (as any other breach of
contractual obligations) “entitles the non-breaching party [CLAIMANT] to relief” [idem,
p.1024].
92. The claim for damages is commonly accepted by State Courts as a remedy for breach of
the Arbitration Agreement. For instance, a dispute between a Swiss pharmaceutical
manufacturer and an Israeli medicine distributor was brought to the Swiss Supreme
Court [4A_444/2009]. Breaching the Arbitration Agreement, the distributor commenced
court proceedings. Due to that breach, the pharmaceutical was granted monetary relief:
“RESPONDENT is liable to CLAIMANT for damages (if any) incurred as a result of this
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breach (...)” [idem]. Although, the distributor appealed from the arbitral tribunal’s
decision, the Swiss Supreme Court dismissed the appeal, recognizing pharmaceutical’s
right for damages. Recently, the Swiss Supreme Court confirmed its approach and
rendered a similar decision dismissing the appeal and confirming another arbitral
tribunal’s verdict on the condemnation of the breaching party to pay “the costs of the
CLAIMANT in connection with the arbitration, and (...) in connection with the Greek
procedure” [4A_232/2013]. Also, the High Court of Justice of England and Wales
considered that the aggrieved party should be awarded legal costs for the breach of the
Arbitration Agreement [West Tankers]. Therefore, CLAIMANT shall be granted relief not
only for the judicial costs it have incurred in presenting its defence, but also for all costs
related to that action, including attorney’s fees (since there is a direct connection with
the proceedings).
2. Damages for breach of the Arbitration Agreement are recoverable under
the CISG
93. RESPONDENT’s argument that damages for the breach of the contract are not
recoverable under CISG since the Convention cannot be applied is without merit. The
arguments previously mentioned [supra, ¶6] prove that it is widely accepted that CISG
can be one of the laws governing the Arbitration Agreement as long as that is in
accordance with the parties’ will.
94. Furthermore, the argument that Arbitration Agreements are procedural and, conversely,
that the CISG is mainly substantive, cannot be followed. It was already argued [supra,
¶76] that the distinction between procedural and substantive law is matter of national
legal systems and should not be applied to international Conventions. Thus, damages
for the breach of the Arbitration Agreement are recoverable under CISG.
3. The aforementioned damages are both a consequence of the breach and
foreseeable under the CISG 74
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95. RESPONDENT’s breach of the Arbitration Agreement was conditio sine qua non for both
the damages and its amount. If RESPONDENT had not started court proceedings in
breach of the Arbitration Agreement, CLAIMANT would not have the need to prepare its
successful defence and would not have incurred in legal costs [Exhibit C9, p.17 &
Exhibit C11, p.19].
96. Likewise, all CLAIMANT’s damages were foreseeable. To begin with, RESPONDENT had
had previous experiences in litigation and expressly agreed on enter into an Arbitration
Agreement because it was a less expensive dispute resolution process [Exhibit R1, ¶¶3-
4, p.31]. Therefore, the party could objectively have foreseen, at the time the
Framework Agreement (containing the arbitration clause) was concluded, the costs
CLAIMANT would incur in presenting its defence before the High Court of
Mediterraneo. Secondly, Mediterraneo law allows contingency fee arrangements and
they are actually very common [PO2, ¶40, p.58]. RESPONDENT was also familiar with
these kinds of arrangements since it had already tried to enter into one with a local
lawyer in the proceedings brought by the insolvency administrator of LiquorLoja [PO2,
¶42, p.59]. For that reason, RESPONDENT could also have foreseen not only the costs
incurred by CLAIMANT with attorney’s fees, but also the expected amount of those
costs.
4. The Arbitral Tribunal’s decision on damages does not breach res judicata
97. RESPONDENT argues that any arbitral tribunal’s decision concerning the reimbursement
of damages breaches res judicata. However, this argument is unreasonable and should
be disregarded.
98. The fact that the decision of the High Court of Mediterraneo “is a final and binding
decision as to costs recoverable for that action” [Ans. to Claim, ¶32, p.29] does not
actually conflict with CLAIMANT’s claim on the arbitral proceedings. Res judicata
principle states that a final decision on a certain matter becomes binding and cannot be
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discussed in any future proceedings, whether arbitral or judicial. However, “the
awarding of damages is not a question of non-recognition of the foreign judgment or
reviewing another court’s performance” [Jaroslavsky, ¶44, p.14]. It is crucial to
distinguish between the High Court of Mediterraneo’s ruling on costs and the Claim
presented before the arbitral tribunal. The State Court’s judgment did not address the
issue of recovery of damages incurred as a consequence of the breach of the Arbitration
Agreement, but simply who should bear the procedural costs. Further, CLAIMANT
claims the recovery of all costs concerning the declaration of non-liability and not only
procedural costs. This argument was previously followed by an arbitral tribunal which
concluded that it did not intend to overlap state court’s power to allocate judicial costs
even though it had jurisdiction to rule that any amounts spent as a consequence of court
proceedings were damages, since those proceedings were initiated in breach of the
Arbitration Agreement [4A_232/2013]. Therefore, no problem of violation of res
judicata can be raised [idem, ¶117, p.33].
5. CLAIMANT did not have to clarify RESPONDENT’s doubts as to the
arbitration agreement, since it was neither unclear nor unworkable
99. CLAIMANT did not have any duty to clarify RESPONDENT’s doubts. The argument that
the Arbitration Agreement was unclear and unworkable is unsupported.
100. Danubian contract law Art.4.1 provides “A contract shall be interpreted according to the
common intention of the Parties”. However, RESPONDENT did not respect either the
Parties’ will or the letter of the when it decided to initiate the proceedings before the
High Court of Mediterraneo. Art. 20 of theFramework Agreement expressly foresees
that “[i]f no agreement can be reached the dispute shall be decided by arbitration in
Vindobona by the International Arbitration Tribunal (VIAC)...” [Exhibit C1, p.9]. The
dispute resolution clause leaves no room for doubts that the Parties intended to solve
their disputes through arbitration. Also, according to Ms. Kim Lee’s testimony,
RESPONDENT agreed to the arbitration clause aiming to have “a fast and informal
NOVA Law School Memorandum for CLAIMANT
32
dispute resolution process” [Exhibit C12, ¶6, p.20]. Mr. Weinbauer also stated that
RESPONDENT was interested in keeping the costs low due to its bad experience in court
proceedings with a previous customer [Exhibit R1, ¶4, p.31]. Arbitration is a fast,
flexible and cost-effective dispute resolution process as assumed by both Parties [PO2,
¶53, p.60]. Although the arbitration clause is not VIAC’s model arbitration clause, there
is only one international arbitral institution seated in Vindobona which is Vienna
International Arbitration Centre (VIAC) [PO2, ¶55, p.60].
101. Danubian arbitration law Art.8, No.1 expressly provides that “[a] court (…) shall (…)
refer the Parties to arbitration unless it finds that the agreement is (…) inoperative or
incapable of being performed. Thus, had the Arbitration Agreement been “unclear and
unworkable” as alleged by RESPONDENT [Ans. to Claim, ¶ 38, p. 30], the High Court of
Mediterraneo would not have referred the Parties to arbitration [PO2, ¶ 58, p. 61].
102. If RESPONDENT’s true intention was to comply with its obligation to arbitrate, it should
have started arbitration proceedings so that arbitrators could rule on their own
jurisdiction in accordance with the internationally recognized Kompetenz-Kompetenz
principle. That way RESPONDENT would be able to clarify its doubts as to the validity of
the aforementioned agreement and would comply with the obligation arising out of its
positive effect. CLAIMANT did not have to clarify RESPONDENT’s doubts as to the
arbitration agreement.
6. CLAIMANT complied with its obligation to mitigate its losses
103. RESPONDENT argues CLAIMANT breached its obligation to mitigate damages under the
CISG since it did not clarify the content of the “pathological” arbitration clause [Ans. to
Claim, ¶36. p.29].
104. CISG Art.77 provides that “A party who relies on a breach of contract must take such
measures as are reasonable in the circumstances to mitigate the loss, (…), resulting from
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the breach. If he fails to take such measures, the party in breach may claim a reduction
in the damages in the amount by which the loss should have been mitigated”. Also,
CISG Art. 80 provides that one party cannot argue that the other party failed to perform
its obligation if that failure is caused by the former’s act or omission. However, neither
CISG Art.77, nor CISG Art. 80 are applicable to the present situation.
105. First of all, CLAIMANT sought for an interim injunction aiming to avoid future damages
occurring from the sale of the 10.000 bottles of Mata Weltin wine. If CLAIMANT had
refrained from seek for an interim injunction, the amount of damages would be superior
than it actually is since all the ordered bottles of wine would be sold by now.
106. Secondly, CLAIMANT argued (as it should have done) that High Court of Mediterraneo
lacked jurisdiction to decide on the declaration of non-liability. CLAIMANT had to
present its defence in order to assure RESPONDENT would not be exempt of its
obligation to deliver the agreed amount of wine bottles in the court proceedings.
Commentators have discussed matter referring that “[o]nce the jurisdiction of the
foreign court has been challenged and the argument that the action was instituted in
breach of an Arbitration Agreement has been made, there could be no argument that the
injured party failed to mitigate its damages or doomed its right to adjudication before
the arbitral tribunal” [Jaroslavsky, ¶56, pp. 8-19].
107. Finally, CLAIMANT, as previously mentioned, did not have any duty to clarify the
meaning of the arbitration clause. It was rather clear that both parties intended to enter
into arbitration proceedings at the time the Framework Agreement was concluded.
Moreover, the arbitration clause was clear even though VIAC’s model clause was not
adopted: VIAC was the only institution operating in Vindobona. Thus, RESPONDENT’s
breach could not, by any means, be caused by CLAIMANT’s lack of response to the
former’s letter and CLAIMANT complied with the obligation to mitigate losses.
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D. THE TOTAL AMOUNT OF DAMAGES (US$ 50.280) SHOULD BE
RECOVERED
108. The Tribunal should award CLAIMANT a total of US$ 50.280 incurred in two separate
legal actions: the application for interim relief, initiated by CLAIMANT and necessary by
RESPONDENT’s breach of contract, and the defence against proceedings in state court of
Mediterraneo, initiated by RESPONDENT in breach of the Parties’ Arbitration
Agreement. The total amount of damages (US$ 50.280) should be recovered given that
CLAIMANT had to seek for an interim injunction before the High Court of Mediterraneo
in order to prevent RESPONDENT from selling the amount of bottles the former had
ordered. Its fears were justified by RESPONDENT’s behaviour has which peremptorily
refused to comply with its obligation to make the delivery. Furthermore, CLAIMANT had
to present its defence in the action for declaration of non-liability before the High Court
of Mediterraneo otherwise it could have lost its right of delivery of the ordered bottles
of Mata Weltin wine. In both actions, CLAIMANT had significant expenses not only with
legal costs, but also with attorney’s fees.
109. The contingency arrangement was acceptable due to the circumstances, since
CLAIMANT was facing economic difficulties supporting the legal fees in Mediterraneo
that were much higher than those in Equatoriana. Also, these agreements are fairly
common in Mediterraneo and even RESPONDENT had previously tried to enter into such
arrangements so it could reasonably have foreseen not only the costs but its actual
amount. Therefore, CLAIMANT would not have incurred litigation costs in the interim
relief application but for the RESPONDENT’S breach.
110. Neither CISG Art.77 nor Art. 80 can be reasonably invoked to ease or even exclude
RESPONDENT’s liability. All steps concerning the mitigation of losses were diligently
taken. The total amount of costs CLAIMANT had incurred can be proved through the
analysis of the invoice attached to the Statement of Claim [Exhibit C11, p. 19].
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35
REQUEST FOR RELIEF
For the above reasons, Counsel for CLAIMANT respectfully requests the Tribunal to:
1. Order RESPONDENT to provide to CLAIMANT all documents from the period
of 1 January 2014 – 14 July 2015 pertaining to:
a. Communications;
b. Any contractual documents, including documents relating to the
negotiation of the contract;
between RESPONDENT and SuperWines in regard to the purchase of diamond Mata
Weltin 2014.
2. Order RESPONDENT to pay damages, including but not limited to:
a. The profits RESPONDENT made by selling the bottles to SuperWines
b. The litigation costs of US$50,280 incurred in CLAIMANT’s
i. application for interim relief; and
ii. defence against the proceedings brought by RESPONDENT;
Respectfully signed and submitted by Counsel on behalf of Kaihari Waina Ltd. on 15
April, 2016,
(signed)
/S/ Isabel Ferreira /S/ João Antunes
/S/ Maria Beatriz Brito /S/ Rita Faial Figueiredo