STOCKHOLM UNIVERSITY · 10 No. 1, 1999 26 Kolo Kolo, Abba Witness Intimidation, Tampering and Other...

STOCKHOLM UNIVERSITY

MEMORANDUM FOR CLAIMANT | i

NINETEENTH ANNUAL

WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT

30 MARCH TO 5 APRIL 2012

VIENNA

MEMORANDUM FOR RESPONDENT


ON BEHALF OF:

EQUATORIANA CONTROL SYSTEMS, INC 286 SECOND AVENUE

OCEANSIDE EQUATORIANA

RESPONDENT

AGAINST:

MEDITERRANEO ELITE CONFERENCES SERVICE, LTD

45 CONFERENCE PLACE CAPITAL CITY

MEDITERRANEO

CLAIMANT

BRIAN KOTICK • RAGNHILDUR OLAFSDOTTIR • CELESTE SALINAS QUERO

YAROSLAVA SOROKHTEY • ANINA WISSNER • GUNNAR WITTE


MEMORANDUM FOR CLAIMANT | ii

TABLE OF CONTENTS

INDEX OF AUTHORITIES.............................................................................................. v

INDEX OF CASES ............................................................................................................ ix

INDEX OF STATUTES, RULES,TREATIES AND OTHERS ..................................... xii

TABLE OF ABBREVIATIONS ...................................................................................... xiii

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

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

ARGUMENT ON Procedure ............................................................................................. 5

I. The Tribunal Should order the removal of Dr. Mercado from Claimant’s Legal Team ............................................................................................ 5

A. THE TRIBUNAL HAS THE POWER TO ORDER THE REMOVAL OF DR. MERCADO............................................................................................................ 6

1. The Tribunal’s discretionary power encompasses this Tribunal’s Power to Order the Removal of Dr. Mercado ............................. 6

2. The Exercise of the Tribunal’s Power to Order the Removal of Dr. Mercado Safeguards the Integrity of these Proceedings and does not Infringe on Claimant’s Rights ................................................ 7

i. By removing Dr. Mercado the Tribunal would safeguard the integrity and efficiency of these proceedings ........................................ 7

ii. By ordering the removal of Dr. Mercado the Tribunal does not infringe on Claimant’s rights ............................................................ 9

3. The Tribunal Should Exercise its Power to Order the Removal of Dr. Mercado. The Extraordinary Circumstances of Dr. Mercado’s relation with Professor Compromise the Integrity of these Proceedings ................................................................................... 10

i. Professor Presiding Arbitrator’s and Dr. Mercado’s professional relationship creates dependency and partiality ................................................................................................. 11

ii. Professor Presiding Arbitrator’s personal relationship with Dr. Mercado creates appearance of bias ............................................... 13

B. RESPONDENT MAY EXERCISE ITS RESERVED RIGHT TO CHALLENGE

PROFESSOR PRESIDING ARBITRATOR ................................................................. 14

ARGUMENT ON MERITS .............................................................................................. 15

II. RESPONDENT IS EXEMPT FROM LIABILITY UNDER ARTICLE 79(2) CISG ............................................................................................. 15


MEMORANDUM FOR CLAIMANT | iii

A. IT IS IRRELEVANT WHETHER OR NOT RESPONDENT’S LATE

DELIVERY WAS A FUNDAMENTAL BREACH ........................................................... 16

B. RESPONDENT IS EXEMPT FROM LIABILITY FOR LATE DELIVERY

AND INSTALLATION OF THE MASTER CONTROL SYSTEM UNDER

ARTICLE 79(2) CISG ........................................................................................... 16

1. Specialty Devices is the only third party Respondent engaged to perform the Contract ............................................................................... 17

2. Respondent is exempt from liability under Article 79(1) CISG ....................... 18

i. Specialty Devices’ late delivery was an impediment that caused Respondent’s breach. ................................................................ 18

ii. Specialty Devices’ late delivery was beyond Respondent’s control .................................................................................................... 19

iii. Respondent could not foresee Specialty Devices’ late delivery of the processing units ........................................................... 20

iv. Respondent could not reasonably overcome Specialty Devices’ late delivery of the processing units ....................................... 21

3. Specialty Devices is exempt under Article 79(1) CISG ................................... 22

i. High Performance’s late delivery was the impediment that caused Specialty Devices’ breach ......................................................... 22

ii. High Performance’s late delivery was beyond Specialty Devices’ control .................................................................................... 23

iii. Specialty Devices could not foresee High Performance’s late delivery of the chips ............................................................................. 24

iv. Specialty Devices could not reasonably overcome High Performance’s late delivery of the chips .............................................. 24

III. EVEN IF THE TRIBUNAL DECIDES THAT RESPONDENT IS LIABLE FOR ITS DELAY, RESPONDENT Is NOT OBLIGED TO PAY DAMAGES TO CLAIMANT ............................................... 25

A. THE BRIBERY COMMITTED BY CLAIMANT RENDERS ALL COSTS FOR

LEASING THE M/S PACIFICA STAR NOT ALLOWABLE ITEMS OF

DAMAGES ........................................................................................................... 26

1. The Tribunal should apply the laws of Pacifica to find that the yacht broker’s success fee is illegal ............................................................ 26

i. Meditteraneo policy to adopt international public policy standards leads to the application of Pacifica criminal law ......................................................................................................... 26

ii. The payment made using the yacht broker’s success fee was illegal ..................................................................................................... 28

2. Claimant is Imputable for the Bribery ............................................................ 28

3. The Illegality of the success fee taints the lease and all its associated costs, rendering them Non-allowable Items of Damages ..................................................................................................... 29


MEMORANDUM FOR CLAIMANT | iv

B. RESPONDENT IS NOT OBLIGED TO PAY CLAIMANT DAMAGES THAT

WERE UNFORESEEABLE AND UNREASONABLE .................................................. 30

1. Claimant is not entitled to recover damages that were unforeseeable for Respondent ..................................................................... 31

2. Claimant incurred unreasonable costs to mitigate its losses. Moreover, amongst these costs, the ex-gratia payment and success fee are, in themselves, not allowable as items of damages ...................................................................................................... 32

i. Respondent does not need to reimburse Claimant the ex-gratia payment ...................................................................................... 32

ii. Respondent does not need to reimburse the success fee .......................... 34


MEMORANDUM FOR CLAIMANT | v

INDEX OF AUTHORITIES

COMMENTARY ABBREVIATION CITATION CITED ON Alqudah Mutasim Ahmad Alqudah

Enforceability of Arbitration Clauses in Online Business-to-Consumer Contracts Journal of International Arbitration, Kluwer Law International 2011 Volume 28 Issue 1 pp. 67 – 79

96

Bernardini

Bernardini, Piero, The Role of the International Arbitrator, in: Arbitration International, Arbitration International, Volume 20 Number 2, 2004

20, 21

Böckstiegel Böckstiegel, Karl-Heinz Arbitrator’s case management: experiences and suggestions Published in Global Reflections on International Law, Commerce and Dispute Settlement - Liber Amicorum for Robert Briner, Paris, 2005, p. 6.

28

Author in Bianca/Bonell Bianca, Cesare Massimo; Bonell, Michael Jochim (eds.) Commentary on the International Sales Law: The 1980 Vienna Sales Convention Giuffrè, Milan, 1987

58, 111

Born 2009 Born, Gary B. International Commercial Arbitration Kluwer Law International, The Netherlands, 2009

17, 30, 34, 35, 36

Born 2011

Born, Gary B. International Commercial Arbitration: Commentary and Materials Kluwer Law International, 2011

23, 29

Brunner

Brunner, Christoph Force Majeure and Hardship under General Contract Principles: Exemption for Non-performance in International Arbitration Wolters Kluwer Law and Business, 2008

89

Chengwei

Chengwei, Liu Force Majeuere - Perspectives from CISG, UNIDROIT Principles & PECL and Case Law, 2nd ed., April 2005

57, 58, 63, 75, 81

CISG-AC Opinion No. 6

CISG-AC Opinion No. 6 Calculation of Damages under CISG Article 74

121


MEMORANDUM FOR CLAIMANT | vi

Rapporteur: Professor John Y. Gotanda. Villanova University School of Law, Villanova, Pennsylvania, USA. Adopted by the CISG-AC at its Spring 2006 meeting in Stockholm, Sweden.

CISG-AC Opinion No. 7

CISG-AC Opinion No. 7, Exemption of Liability for Damages under Article 79 of the CISG Rapporteur: Professor Alejandro M. Garro, Columbia University School of Law, New York, N.Y., USA. Adopted by the CISG-AC at its 11th meeting in Wuhan, People's Republic of China, on 12 October 2007. Reproduction of this opinion is authorized.

55, 57, 68, 76, 84

Crivellaro Antonio Crivellaro "Arbitration Case Law on Bribery: Issues of Arbitrability, Contract Validity, Merits and Evidence" in Kristine Karsten and Andrew Berkeley, Arbitration, Money Laundering, Corruption and Fraud, Dossiers- ICC Institute of World Business Law (September 2003)

98

DAC Report Departmental Advisory Committee on Arbitration Report on English Arbitration Bill, February 1996

26

Explanatory Note Explanatory Note by the UNCITRAL Secretariat on the Model Law on International Commercial Arbitration

20, 21, 23

Flambouras

Flambouras, Dionysios Comperative Remarks on CISG Article 79 &PECL Articles 6:111, 8:108 May 2002 CISG database

57, 63

Fortier L. Yves Fortier: The Minimum Requirements of Due Process in Taking Measures Against Dilatory Tactics: Arbitral Discretion in International Commercial Arbitration - “A Few Plain Rules and a Few Strong Instincts”

17, 20, 22, 23, 25

Holtzmann/Neuhaus

Holtzmann, Howard M.; Neuhaus, Joseph E. A Guide to the UNCITRAL Model Law on International Commercial Arbitration – Legislative History and Commentary Kluwer Law and Taxation Publishers, Deventer, The Netherlands, Boston, 1998.

20, 30

Honnold Honnold, John Uniform Law for International Sales under the 1980 United Nations Convention, 3th Ed. Kluwer Law International, The Netherlands, 2009

63


MEMORANDUM FOR CLAIMANT | vii

Howard Jenkins

Howard Jenkins, Sarah "Exemption for Nonperformance: UCC, CISG, UNIDROIT Principles, A Comparative Assessment": 72 Tulane Law Review (1998), p. 2026

63

Huber/Mullis Huber, Peter; Mullis, Alastair The CISG. A new textbook for students and practitioners Sellier, European Law Publishers, 2007

66, 114, 117, 118, 121, 126

Hwang/Lim

Hwang, Michael S.C.; Lim, Kevin Corruption in Arbitration – Law and Reality Expanded version of Herbert Smith-SMU Asian Arbitration Lecture, 4 August 2011, Singapore

96

Karrer Karrer, Pierre A.

Freedom of an Arbitral Tribunal to Conduct Proceedings, ICC International Court of Arbitration Bulletin Vol. 10 No. 1, 1999

26

Kolo Kolo, Abba Witness Intimidation, Tampering and Other Related Abuses of Process in Investment Arbitration: Possible Remedies Available to the Arbitral Tribunal Arbitration International, Volume 26, No. 1, 2010

36

Lubowitz

Lubowitz, Michael E. The Right to Counsel of Choice after Wheat v. United States: Whose Choice is it? The American University Law Review [Vol. 39:437 1990]

29

Park Park, William W. Arbitrator Integrity: The Transient and the Permanent, 46 San Diego Law Review, 629 2009

38

Huber in MüKo

Säcker, Franz Jürgen; Rixecker, Roland (ed) Münchener Kommentar zum Bürgerlichen Gesetzbuch, Vol. 3 5th. ed. Munich C. H. Beck, 2008

114

Sayed Sayed, Abdulhay Corruption in International Trade and Commercial Arbitration Kluwer Law International, 2004

98

Scherer Scherer, Matthias Circumstantial Evidence in Corruption Cases Before International Arbitral Tribunals International Arbitration Law Review, Vol. 5, 2002, pp. 29 - 40

98


MEMORANDUM FOR CLAIMANT | viii

Author in Schlechtriem Schlechtriem, Peter; Schwenzer, Ingeborg Commentary on the UN Convention on the International Sale of Goods (CISG), 2rd Ed. Oxford University Press, Northants, 2005

63, 66, 75, 83, 117, 121

Author in Schwenzer/Schlechtriem

Schlechtriem, Peter; Schwenzer, Ingeborg Commentary on the UN Convention on the International Sale of Goods (CISG), 3rd Ed. Oxford University Press, Northants, 2010

72, 85

Schlechtriem Schlechtriem, Peter ; Published by Manz, Vienna: 1986. Reproduced with their permission, excerpt from: Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods

57, 83

Server Server, Jay R.

The Relaxation of Inarbitrability & Public Policy checks on U.S.and Foreign Arbitration: Arbitration out of control? 65 Tul. L. Rev. 1661, 1664 (1991)

95

Sheppard/Chance Sheppard, Audley; Chance, Cliffor Public Policy and the Enforcement of Arbitral Awards: Should there be a Global Standard? 1 Oil, Gas & Energy Law Intelligence No. 2, 2003

95

Southerington Southerington, Tom

Impossibility of Performance and Other Excuses in International Trade, Faculty of Law of the University of Turku, Finland: Private Law Publication Series B:55 (2001)

84

Spivack Spivack, Carla Of Shrinking Sweatsuits and Poison Vine Wax: A Comparison of Basis for Excuse under U.C.C. § 2-615 and CISG Article 79, 27 Pennsylvania Journal of International Economic Law (Fall 2006) 757-802

76, 83

66

Sachs/Lörcher Sachs, Klaus; Lörcher, Torsten Part II - Commentary on the German Arbitration Law (10th Book of the German Code of Civil Procedure), Chapter V – Conduct of the Arbitral Proceeding, § 1042 – General Rules of Procedure in Karl-Heinz Böckstiegel , Stefan Michael Kröll , et al. (eds), Arbitration in Germany: The Model Law in Practice, Kluwer Law International 2007

25

Magnus in Staudinger

von Staudinger, Julius Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen, Wiener UN-Kaufrecht

66, 121

http://www.cisg.law.pace.edu/cisg/biblio/southerington.html





http://www.cisg.law.pace.edu/cisg/biblio/spivack.html







MEMORANDUM FOR CLAIMANT | ix

(CISG) [Commentary on the German Civil Code with all other Relevant Laws] Ulrich Magnes ed., Dr. Arthur L. Sellier & Co., 2005

Sutton

Sutton, David St. John; Gill, Judith Rusell on Arbitration London Sweet & Maxwell Limited, 2003

111

Waincymer

Waincymer, Jeff Reconciling Conflicting Rights in International Arbitration: The Right of Choice of Counsel and the Right to an Independent and Impartial Tribunal 26(4) Arbitration International, 597, 2010, 618

29

Watts Edited by Watts, Peter G. Bowstead & Reynolds on Agency (2010) 19th Ed at 6-084 Sweet & Maxwell Ltd, August 2010

100, 104

INDEX OF CASES

CASE LAW Austria Propane case

Supreme Court 6 February 1996, Case. No. 10 Ob 518/95

111

France Gas Turbines v. Westman

Paris Court of Appeal 30 September 1993 Société European Gas Turbines SA v Westman International Ltd.

108

Richy v. Warlaumont Paris Court of Appeal, 20 October 1994 [1996] Rev. Arb. 422 Richy v Warlaumont & Anor,

41

Avax v. Tecnimont(1) Paris Court of Appeal 12 February 2009, 1st Chamber, Court of Appeal Paris. in Branson, David J J&P Avax SA v. La Société Technimont SpA

27, 30, 33

Avax v. Tecnimont(2) Reims Court of Appeal Case No 10/02888 2 November 2011

27, 49

Milan Presse v. Média Sud

Paris Court of Appeal 12 January 199 Société Milan Presse v. Société Média Sud

46


MEMORANDUM FOR CLAIMANT | x

Germany Video recorders case District Court, Darmstadt

9 May 2000

122

Vine wax case

Supreme Court BGH 24 March 1999 CLOUT

66, 83, 84

Iron molybdenum case Appellate Court Hamburg 28 February 1997

76

Spain Dye for clothes case Appellate Court, Barcelona

20 June 1997

122

Switzerland Art books case Commercial Court, Zürich

10 February 1999

121, 122

Centroza v. Orbis Swiss Federal Court 26 October 1966 Centroza v. Orbis

46

United Kingdom Lennards v. Petroleum

House of Lords [1915] AC 705 Lennards Carrying Co v. Asiatic Petroleum

100, 104

Westacre Investments v. Jugoimport

Court of Appeal 12 May 1999 [1992] 2 Lloyd‟s Rep. 65 Westacre Investments, Inc. v. Jugoimport-SDRP Holding Company Ltd. & ORS

95

United States Distilling v. Liquor Court of Appeals, 7th Cir.

15 April 1939, 104 F.2d 582 (1939) American Distilling v. Wisconsin Liquor

106

United States v. Gipson Court of Appeals 693 F. 2d 109, 111 (10th Cir. 1982) United States v. Gipson

29

United States v. Hobson

Court of Appeals 672 F. 2d 825, 828 (11th Cir. 1982) United States v. Hobson

29

Wheat v. United States United States Supreme Court 486 U.S. 153, 1998 Wheat v. United States

29


MEMORANDUM FOR CLAIMANT | xi

Dickenson v. Iowa Court of Appeals 300 N.W. 2d 112, 1981 Dickenson Co. Inc. v. Iowa State Dept of Transportation

73

ARBITRATION AWARDS

Court of Arbitration of the International Chamber of Commerce ICC Award 1110/1963

ICC Award case No. 1110 of 1963 10 Arb. Int‟l para. 16 (1994)

106

ICC Award 6294/1991

ICC Award case No. 6294 of 1991 99

ICC Award 7197/1992

ICC Award case No. 7197 of 1992 CLOUT

85

CIETAC

Bulgarian Chamber of Commerce and Industry Coal case Bulgaria 24 April 1996 Arbitration Case 56/1995

85

ICSID Hrvatska v. Slovenia

6 May 2008 Case No. ARB/05/24 Hrvatska Elektroprivreda, d. d. v. The Republic of Slovenia

20, 21, 24, 26, 28, 34,

42

Rompetrol v. Romania 14 January 2010 Case No. ARB/06/3 Rompetrol Group N. V. v. The Republic of Romania

36

ICSID case no Arb./10/05

ICSID case no Arb./10/05, Dispute Resolution International Vol. 4 No, 1 May 2010

42

Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry Metallic sodium case 16 March 1995, Arbitration proceedings No. 155/1994 89


MEMORANDUM FOR CLAIMANT | xii

INDEX OF STATUTES, RULES,TREATIES AND OTHERS

DAL UNCITRAL Model Law on International Commercial

Arbitration 1985 With amendments as adopted in 2006

passim

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

passim

NY Conv. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 1958

95

GC on Agency Geneva Convention on Agency in International Sale of Goods

103

IBA Guidelines IBA Guidelines on Conflicts of Interest in International Arbitration

30, 35, 38, 45

CAISG

Convention on Agency in the International Sale of Goods (Geneva, 17 February 1983)

103

CICA Interim Report

International Law Association, Committee on International Commercial Arbitration Interim Report on Public Policy as a Bar to Enforcement of International Arbitral Awards London 2000

96

CIETAC Rules Arbitration Rules of the China International Economic Trade Arbitration Commission

Passim

CIETAC Ethical Rules

Ethical Rules for Arbitrators of the China International Economic Trade Arbitration Commission

30, 38

CLCCCE Criminal Law Convention on Corruption of the Council of Europe

96

AUCPCC African Union Convention on Preventing and Combating Corruption

96

ICC Guidelines ICC Guidelines on Agents, Intermediaries and Third Parties, Article XI

125

UN CAC United Nations Convention against Corruption

96, 100

Restatement American Law Institute Restatement (3rd) of Agency (2006)

104


MEMORANDUM FOR CLAIMANT | xiii

TABLE OF ABBREVIATIONS

Cir. Circuit (U.S. Court of Appeal)

AC Advisory Council

Art./Arts. Article/Articles

ASA Association suisse de l’arbitrage (Swiss Arbitration Association)

BGH Bundesgerichtshof

BULL Bulletin

CA Court of Appeal

CEO Chief Executive Officer

CIETAC China International Economic and Trade Arbitration Commission

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

Civ. Civil Division

Cl. Ex. Claimant‟s Exhibit

Claimant Mediterraneo Elite Conferences Services, Ltd

CQ. Clarification Question

CLOUT Case Law on UNCITRAL texts

Co. Company

Conv. Convention

Corp. Corporation

Corporate Executives Worldwide Corporate Executives Association

DAL Danubian Arbitration Law

Dr. Doctor

Ed. Edition

ed./eds. editor/editors

et al. and others


MEMORANDUM FOR CLAIMANT | xiv

EWCA England and Wales Court of Appeal

EWHC High Court of England and Wales

F.2d Federal Reporter, Second Series

F.3d Federal Reporter, Third Series

F.Supp. Federal Supplement (District Court Reports)

High Performance Atlantis High Performance Chips

IBA International Bar Association

Ibid/Id. Ibidem/ Same place

ICC International Chamber of Commerce

ICSID International Centre for Settlement of Investment Disputes

ILA International Law Association

Inc. Incorporated

Int‟l/Intern. International

ITL International Trade Law

Ltd. Limited

MAL UNCITRAL Model Law on International Commercial Arbitration

Mfg Manufacturing

Mr. Mister

No./Nos. Number/Numbers

NY Conv. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 1958

N.W. North West

Op Opinion

p./pp. Page/pages

para./paras. paragraph/paragraphs

PECL Principles of European Contract Law

PO No./Nos. Procedural Order Number/Numbers

http://www.legalabbrevs.cardiff.ac.uk/displaydetails?portal=false&abbr=F.2d.&title=3762

http://www.legalabbrevs.cardiff.ac.uk/displaydetails?portal=false&abbr=F.3d.&title=3777


MEMORANDUM FOR CLAIMANT | xv

Prot. Protocol

Professor Professor Presiding Arbitrator

RA Registrar„s Appeal

Rep. Report

Resp. Ex. Respondent‟s Exhibit

Respondent Equatoriana Control Systems, Inc

RfA Request for Arbitration

SCC Stockholm Chamber of Commerce

Secretariat The UNCITRAL Secretariat

SoC Statement of Claim

SoD Statement of Defence

Specialty Devices Oceania Specialty Devices

UNCC United Nations Convention Against Corruption 2011

U.S. United States

UNCITRAL United Nations Commission on International Trade Law

Vol. Volume

v. versus (against)


MEMORANDUM FOR RESPONDENT | 1

STATEMENT OF FACTS

1. Mediterraneo Elite Conference Services Ltd. (“Claimant”) is a company incorporated

under the laws of Mediterraneo [RfA p. 4, para. 1] and provides high-end conference

service packages to a number of demanding clients [Id.; RfA p. 5, para. 6]. Claimant bought

a yacht, the M/S Vis, and sought to refurbish it for its use as the newest luxury venue for

off-shore conferences [Id.].

2. On 26 May 2010, Claimant contracted with Equatoriana Control Systems Inc.

(“Respondent”), a company incorporated under the laws of Equatoriana [RfA p. 4, para. 2]

for the supply, installation and configuration of the master control system for the M/S Vis

[RfA p. 5, para. 7]. Claimant desired for the yacht to meet the highest standards and use the

latest in cabin technology, superior to anything else available on the market [RfA p. 5, para.

6]. The completion of the entire refurbishment was scheduled for 12 November 2010,

followed by a 10 weeks verification period [RfA p. 5, para. 7].

3. In order to meet Claimant‟s need for the latest in cabin technology, Respondent required a

range of subcontractors and suppliers to manufacture a master control system [RfA p. 5,

para. 6]. Respondent engaged Oceania Specialty Devices (“Specialty Devices”) to

manufacture processing units, which serve as the core element in the control system [RfA p.

5, para. 8]. The only way to fulfill Claimant´s high expectations was to design the processing

units to require state of the art technology, namely a D-28 chip, which offered significant

improvements over all rival chips currently on the market and projected to remain unrivaled

for another six months [RfA p. 5, para. 9]. Atlantis High Performance (“High

Performance”) was the sole manufacturer on the market that produced D-28 chips and

therefore Specialty Devices engaged High Performance to supply these chips for their

processing units [RfA p. 5, para. 9].

4. High Performance started the production of the D-28 chip as scheduled in middle August

2010 [RfA p. 6, para. 12]. However, on 6 September 2010 a fire at its plant forced High

Performance to halt production and delay its delivery of chips [RfA p. 6, para. 12; Cl. Ex.

No. 3, p. 11]. This late delivery caused subsequent delays in delivery for every other link in

the supply chain, including Respondent‟s delivery to Claimant [SoD pp. 38, 39 para. 7]. High

Performance had a limited supply of chips in its warehouse when the fire occurred. For



commercial reasons, High Performance decided to use the entire stock of chips to fulfill its

obligations towards Atlantic Technical Solutions, a firm whose CEO was a longstanding

close friend of High Performance‟s CEO [RfA p. 6, para. 15].

5. On 13 September 2010, as soon as Respondent received confirmation of the delay by

Specialty Devices, and cognizant of the monopolistic supply situation, Respondent

telephoned Claimant about Specialty Devices‟ delay and how this delay would now lead to

Respondent‟s own late delivery [RfA p. 6, para. 12]. Without any communication or attempt

to solve the problem, Claimant resorted to a rather expensive alternative to using the M/S

Vis [RfA p. 7, para 18]. Since, unbeknownst to Respondent, Claimant itself was facing an

upcoming event with one of its most demanding clients, Corporate Executives Association

(“Corporate Executives”), it hired a yacht broker to find a substitute luxury yacht.

6. Claimant offered the yacht broker a commission fee of USD 60,000 and volunteered an

additional USD 50,000 success fee to secure the agreement [Id.]. The yacht broker used

part of this promised success fee to bribe a local yacht owner‟s assistant for an

“introduction” with the owner, which led to the eventual lease of the M/S Pacifica Star

[SoD p. 38, para 13]. The assistant was later convicted for accepting bribes [Id.]. Claimant

then took another liberty without Respondent‟s knowledge and volunteered an ex gratia

refund payment of USD 112,000 to Corporate Executives for a loss of goodwill that never

even threatened to materialize [PO No. 2, CQ 20, p. 40].

7. Without any further delays, Respondent delivered Claimant the master control system on 14

January 2011 [RfA p. 6, para. 16] and completed the installation, configuration and

verification of the system to Claimant‟s full satisfaction [Cl. Ex. No. 4, p. 12]. Claimant

confirmed that it was “very pleased” with the control system and it did “everything [they]

had hoped for” [Id.]. Claimant then paid Respondent the full Contract price [RfA pp. 6, 7,

para. 16]. It was not until six months after Respondent communicated the anticipated delay

[PO No. 2, CQ 15, p. 48] that Respondent received a letter from Claimant expressing its

satisfaction, but also requesting to be reimbursed for expenses incurred for having to find a

new location for a conference due to Respondent‟s delay [Id.]. Respondent was surprised by

such a request considering there had never been any prior mention of Corporate

Executives‟ conference or the fact that it had to be rescheduled [PO No. 2, CQ 15, p. 48].



8. On 15 July 2011, Claimant initiated CIETAC arbitration against Respondent [RfA p. 3]

requesting damages for the ex gratia payment and compensation for costs arising from a

lease secured by bribery comprised of the lease itself, the success fee used for bribery, and

the commission fee.

9. From the beginning of the initiation of arbitration, Respondent was responsive to all

correspondence and cooperated in the appointment of arbitrators on time and without any

objection. However, three days before Respondent‟s submission of its Statement of

Defense and also on the same date CIETAC confirmed the constitution of the arbitral

panel [CIETAC Letter p. 34], Claimant decided to reveal to Respondent that it had added a

new member to their legal team, Dr. Mercado [PO No. 2, CQ 29, p. 50; SoD, p. 39 para. 16].

10. Respondent objects to Dr. Mercado‟s participation in this arbitration since Claimant‟s last-

minute inclusion has introduced a conflict with Professor Presiding Arbitrator

(“Professor”), the previously agreed upon chair of the arbitral panel [Horace Fasttrack’s letter,

p. 24; Joseph Langweiler’s letter, p. 25; CIETAC Letter, p. 34; PO No. 2, CQ 34, p. 50]. Dr.

Mercado is a co-lecturer of Professor Presiding Arbitrator at Danubia National University,

she is the godmother of Professor‟s youngest child and is good friends with Professor‟s

wife. Professionally, Dr. Mercado has received favorable outcomes in all prior arbitrations

in which she appeared as counsel before Professor [SoD, pp. 39, 40, paras. 16-22].

11. On 2 September 2011 Respondent submitted its Statement of Defense objecting to all

damages claimed by Claimant [SoD, p. 40, para. 24]. Damages related to the substitute lease

agreement are not recoverable as tainted by bribery, nor is the sum paid ex gratia as it is a

voluntary payment made in pure speculation of possible loss of goodwill that never even

threatened to materialize. Respondent lastly objects to the participation of Dr. Mercado in

this arbitration as it would jeopardize the integrity of these proceedings and, if denied,

reserves its right to challenge Professor Presiding Arbitrator.

SUMMARY OF ARGUMENTS

12. The Tribunal should remove Dr. Mercado from Claimant’s legal team. The Tribunal

has inherent powers to deal with procedural matters not regulated by party agreement or by

the DAL. The Tribunal may exercise its inherent power in order to ensure the integrity and

efficiency of the proceedings. By adding Dr. Mercado to its legal team, Claimant has casted

on this properly constituted Tribunal doubts as to the Tribunal‟s ability to impartially and



independently decide this dispute. The extraordinary circumstances of Dr. Mercado‟s

academic, professional and personal relationship with the chair of this Tribunal, Professor

Presiding Arbitrator (“Professor”) affect the integrity of these proceedings and call for her

removal. The Tribunal should therefore exercise its inherent powers and order Dr.

Mercado‟s removal.

13. Respondent has not waived its right to challenge Professor Presiding Arbitrator. If

the Tribunal does not remove Dr. Mercado, Respondent can exercise its reserved right to

challenge Professor. Respondent raised the issue of Professor‟s potential bias within the 15-

day time limit established by CIETAC Rules, in writing and with supporting evidence.

When raising its objection Respondent expressly reserved its right to challenge Professor if

the challenge to Dr. Mercado was dismissed. Respondent cannot be deemed to have waived

its right.

14. Respondent is exempt from liability for its late delivery. Respondent is exempt because

both, Respondent‟s and its third party, Specialty Devices‟ attempts to perform were

frustrated by impediments which they could not control, foresee, or overcome.

Respondent‟s impediment consisted in its impossibility to receive on time the processing

units from Specialty Devices. In turn, Specialty Devices‟ impediment was its impossibility

to receive on time the D-28 chips from High Performance. The relevant impediment was

not the fire at High Performance‟s plant. In fact, High Performance was not a third party to

Respondent. But even if the Tribunal considers that High Performance was a third party,

for which the fire was an impediment, this impediment was still unforeseeable, beyond its

control and one it could not overcome. Even then, Respondent is exempt from liability for

its late delivery.

15. The success fee was illegal. Respondent is not obliged to pay damages arising from

a corrupt transaction. The success fee used to procure the lease of the M/S Pacifica Star

was illegal. The illegal payment made by Claimant‟s broker to procure the lease was such an

integral part of the transaction, that it cannot be separated from it. The success fee‟s

illegality taints the lease and its associated costs, rendering them unallowable items of

damages, and thereby not recoverable by Claimant.

16. Respondent is not obliged to pay damages that were unforeseeable and

unreasonable. Even if the Tribunal finds the lease and its associated costs are unaffected



by the illegality of the success fee, Claimant is not entitled to recover damages. Claimant

attempts to recover damages that were unforeseeable for Respondent. Respondent did not

know at the time of the Contract about Corporate Executives‟ conference. Also, Claimant

failed its duty to reasonably mitigate losses. The ex-gratia payment was a voluntary

disbursement for an inexistent loss of goodwill. Claimant has not substantiated its

hypothetical loss or measurement. Also, the broker‟s success fee was an unreasonable costly

means for mitigation. The unforeseeability and unreasonableness of the damages renders

them unallowable items of damages. Claimant is thus not allowed to its recovery.

ARGUMENT ON PROCEDURE

I. THE TRIBUNAL SHOULD ORDER THE REMOVAL OF DR. MERCADO FROM CLAIMANT’S LEGAL TEAM

17. Respondent respectfully requests this Tribunal to order the removal of one of Claimant‟s

counsel, Dr. Mercado, from Claimant‟s legal team. By recently adding her to its legal team,

Claimant endangers the integrity of these arbitral proceedings. Dr. Mercado‟s relationship

with Professor Presiding Arbitrator (“Professor”) - the jointly agreed chair of this Tribunal

- raises justifiable doubts as to his independence and impartiality. In selecting arbitration

Respondent and Claimant chose to rely, in large measure, on the arbitrators to ensure that

justice is done [Fortier, p. 408]. In particular, they rely on Professor, the presiding arbitrator,

as he plays a crucial role in these arbitral proceedings by leading the deliberations and even

in holding the decisive vote [Article 47 (6) CIETAC Rules; Born 2009, p. 1663]. Due to

Professor‟s expertise [PO No. 2, CQ 34, p. 50] and special position within this Tribunal, his

retention in these proceedings is of primary importance. Also, if Claimant is forced to

bring a challenge procedure before CIETAC against Professor instead of Dr. Mercado, this

would substantially delay these proceedings.

18. This Tribunal should exercise its inherent procedural power when conducting these

proceedings and remove the root of the conflict, i.e the recently added counsel, Dr.

Mercado (A). Alternatively, if the Tribunal does not order Dr. Mercado‟s removal,

Respondent reserves its right to challenge Professor Presiding Arbitrator before the

Chairman of CIETAC (B).



A. THE TRIBUNAL HAS THE POWER TO ORDER THE REMOVAL OF DR. MERCADO

19. The Tribunal has the power to remove Dr. Mercado from Claimant‟s legal team, as the

Tribunal has the general power to deal with procedural matters as it considers appropriate

(1). By exercising this general power, the Tribunal safeguards the integrity of these

proceedings and does not infringe on Claimant‟s right to counsel of choice (2). The

extraordinary circumstances of Dr. Mercado‟s and Professor‟s relation justify the exercise

of the Tribunal‟s power to remove Dr. Mercado. Allowing Claimant to retain her would

jeopardize the integrity and finality of these arbitral proceedings (3).

1. The Tribunal’s discretionary power encompasses this Tribunal’s Power to Order the Removal of Dr. Mercado

20. Contrary to Claimant‟s submissions [MfC pp. 6, 7, paras. 32-36], this Tribunal has the power

to remove Dr. Mercado from Claimant‟s legal team. The powers of this Tribunal are those

conferred upon it by the agreement of the parties within the limits of the DAL, together

with any additional powers granted by operation of law [Redfern/Hunter, para. 5.04].

including this Tribunal‟s inherent discretionary power to determine any procedural matters

[Redfern/Hunter, para. 5.11] that are not regulated in the arbitration agreement or the DAL

[Explanatory Note, p. 32, para. 35; Hrvatska, footnote 15]. Absent the parties‟ agreement as to

the procedure, it must follow that this Tribunal has broad discretionary power to conduct

the proceedings as it deems “appropriate” [Redfern/Hunter, paras. 5.11, 514; Fortier, p. 398;

Holtzmann/Neuhaus, p. 564; Bernardini, p. 117; Article 19(2) DAL]. Furthermore, CIETAC

Rules expressly afford the Tribunal with discretionary power to issue procedural orders as it

considers necessary to conduct the hearing [Article 33(1), (4) CIETAC Rules].

21. The only restrictions to the Tribunal‟s discretionary power stem from the mandatory

provisions of the DAL, the agreement of the parties and the arbitration rules [Article 19 (2)

DAL; Explanatory Note, p. 32, para. 34; Bernardini, pp. 114, 117 Hrvatska, footnote 15]. In

this case, these restrictions do not apply. As developed below [see paras. 29-33], the removal

of Dr. Mercado conforms with the mandatory provisions of the DAL, the lex arbitri

applicable to these proceedings [Cl. Ex. No. 1, p. 9]. There is no agreement of the parties

on her removal; moreover, the CIETAC Rules – the procedural rules agreed by Claimant

and Respondent - and the DAL are silent on the procedural question of the removal of a

conflicted counsel.



22. This Tribunal‟s inherent discretionary power is further derived from its duty to ensure the

integrity and efficiency of these proceedings. A tribunal has the power to conduct the

proceedings in an “appropriate” manner, provided that it treats the parties with equality,

gives each party a full opportunity to present its case [Article 18 DAL; Pryles, p. 336;

Redfern/Hunter para. 514] and simulatneously seeks to reduce delay and achieve efficiency in

the proceedings [Fortier, p. 396]. Its discretionary powers enable the Tribunal to control

dilatory tactics employed by a party [Id.]. In doing so, the Tribunal fulfills its duty to carry

out its own adjudicative tasks without undue delay [Article 14 DAL] within the time period

established by the CIETAC Rules [Article 31(1) CIETAC Rules; Redfern/Hunter, para. 5.65].

23. The discretionary powers of a tribunal constitute one of the hallmarks of international

arbitration [Fortier, p. 396; Redfern/Hunter, para. 5.14; Born, 2011, p. 715] compared with

litigation where fixed procedures exist [Redfern/Hunter, para. 5.14]. Here, the Tribunal is

empowered to tailor the proceedings to the specific features of this case [Explanatory

Note, p. 32, para. 35] in order to ensure the integrity and efficiency of these proceedings.

Consequently, this Tribunal has the inherent power to order the removal of Dr. Mercado.

2. The Exercise of the Tribunal’s Power to Order the Removal of Dr. Mercado Safeguards the Integrity of these Proceedings and does not Infringe on Claimant’s Rights

24. Contrary to Claimant‟s submission [MfC, paras. 37-46] the Tribunal‟s power to remove Dr.

Mercado safeguards the integrity of these proceedings and does not infringe on Claimant‟s

right to counsel of choice. In order to promote the integrity of the proceedings and the

tribunal‟s legitimacy, a tribunal may exercise its powers to limit a party‟s right to choose

counsel [Hrvatska para. 26] (i). Further, by exercising its power to remove Dr. Mercado the

Tribunal does not infringe on Claimant‟s right to counsel of choice (ii).

i. By removing Dr. Mercado the Tribunal would safeguard the integrity and efficiency of these proceedings

25. By exercising its discretionary procedural powers to remove Dr. Mercado, this Tribunal

safeguards the integrity of these proceedings and avoids Claimant‟s tactic to imperil the

Tribunal‟s legitimacy and delay the proceedings. Discretionary powers to conduct the

proceedings enable the arbitrators to seek to reduce delay and achieve efficiency by

controlling dilatory tactics employed by a party [Fortier, p. 396]. Arbitral tribunals can be the

direct target of a party‟s maneuver to delay the proceedings by, for example, deliberately

nominating a biased arbitrator or similar to this case, practically force its nominated



arbitrator to resign [Greenberg, pp. 1, 2]. The Tribunal may then exercise its discretionary

powers to limit a party‟s right to fully present its case as a party is not entitled to obstruct

the proceedings by such dilatory practices and tactics [Sachs/Lörcher, pp. 277 – 288].

26. Claimant‟s “full” opportunity to present its case must be understood with reference to the

overall goal of arbitral proceedings of rendering a final decision of a dispute, as a

“reasonable” opportunity to present its case [Karrer, para. 13.4; DAC Report, p. 300 para.

165]. The DAL does not intend to entitle Claimant to do whatever it wants, however

unreasonable it may be [Id.]. Regarding the choice of Dr. Mercado, which introduces a

conflictive relationship with Professor, Claimant attempts to abuse its right to a “full”

opportunity to present its case as granted by DAL. Although a party is free to select its

legal team as it sees fit prior to the constitution of the tribunal, it is not entitled to

subsequently amend the composition of its legal team in such a fashion as to imperil the

tribunal's status or legitimacy [Hrvatska, para. 26].

27. A similar reasoning was followed in Avax v. Tecnimont where the Paris and Reims Courts of

Appeals dealt with the issue of conflicts of interests which surfaced after the tribunal had

been properly constituted. In that case, the presiding arbitrator was a partner in an

international law firm and completed his disclosure statement after consulting his firm's

conflict of interest centre and was duly confirmed. Avax then became aware that the

arbitrator‟s firm had accepted several assignments for Tecnimont after the arbitrator made

his initial disclosure. The Paris Court of Appeals vacated the award holding that a party has

the responsibility to protect the integrity of the proceeding and that it must be aware of the

law firm in which an arbitrator works and should avoid employing that firm where it would

create a conflict and imperil the award. [Avax v. Tecnimont (1); Avax v. Tecnimont (2), p. 630].

28. The decisions of Hrvatska and Avax v. Tecnimont mirror the present case in the sense that

Claimant – after Professor‟s disclosure and this Tribunal‟s proper constitution – later

creates a potential conflict of interest by employing Dr. Mercado. This Tribunal should

stand firm against any attempts of Claimant to manipulate or sabotage these proceedings

[Böckstiegel, p. 6]. In Hrvatska, the tribunal‟s inherent power to protect the proceedings

enabled it to remove the conflictive counsel, frustrating the party‟s attempt to delay the

proceedings. Similarly, in this case, the Tribunal should exercise its power to remove Dr.

Mercado. Its exercise safeguards the integrity and efficiency of these proceedings,

preventing Claimant from abusing of the opportunity it was given to present its case.



ii. By ordering the removal of Dr. Mercado the Tribunal does not infringe on Claimant’s rights

29. By exercising its power to remove Dr. Mercado the Tribunal would not infringe Claimant‟s

right to counsel of choice. The right to counsel of choice is not an absolute one. It may be

restricted when necessary to safeguard conflicting rights [Waincymer, p. 610; Born 2011, p.

965; Lubowitz, p. 438; Wheat v. United States; United States v. Gipson; United States v. Hobson].

Such conflicting rights are Respondent‟s fundamental right to an independent and impartial

arbitral tribunal [Waincymer, p. 615; Article 12 DAL] and Claimant‟s right to be represented

by Dr. Mercado -its counsel of choice.

30. The right to an independent and impartial tribunal is mandatory [Holtzmann/Neuhaus, p.

390] and ensures the integrity of the arbitral process [Born 2009, pp. 1463 - 1464] in favor

of both, Claimant and Respondent. Indeed, every arbitrator shall be impartial and

independent of the parties at the time of accepting an appointment and shall remain so

[Article 22 CIETAC Rules; Articles 1, 2 CIETAC Ethical Rules] during the entire arbitration

proceeding until the final award has been rendered [Article 47 (1) CIETAC Rules] or the

proceedings have otherwise finally terminated [IBA Guidelines, Part 1, para. 1, p. 7]. As such,

although Claimant‟s and Respondent‟s fundamental procedural rights may conflict, the right

to an independent and impartial tribunal should prevail. An award rendered by a biased

Tribunal jeopardizes the finality of the proceedings, as such award would be open to

challenge [Article 34 (2)(a)(iv) DAL; Avax v. Tecnimont (1)].

31. Contrary to Claimant‟s assertion [MfC p. 7, para. 34], the removal of Dr. Mercado does not

deprive in practice Claimant of its right to counsel of choice. Claimant is represented by a

legal team which comprises of various members including Mr. Horace Fasttrack, Claimant‟s

arbitral agent [RfA p. 4, para. 1]. Respondent‟s defense would therefore continue to be fully

operable during the proceedings. Besides, because of the early stage of these proceedings,

Claimant has plenty of time and opportunity to resort to a new qualified counsel.

Admittedly, Dr. Mercado is well-versed in arbitration and trade law and has an academic

background [SoD p. 39 para. 20; PO No. 2, CQ 33, p. 51]. Such qualifications, however, are

often required in international commercial arbitration. A large number of practicing

lawyers have emerged that endeavor to and succeed in marketing a multi-discipline profile

in order to best meet their clients‟ needs. Claimant could still easily and within short time

find an equally qualified lawyer as a replacement counsel for Dr. Mercado.



32. More importantly, Dr. Mercado was engaged by Claimant only for the purpose of these

proceedings. This is also the first time she has worked with Mr. Fasttrack [PO No. 2, CQ 29,

p. 50]. Absent any significant pre-existing client relationship between Claimant and Dr.

Mercado, there can hardly be a relationship of trust as alleged by Claimant of which it

would be deprived [MfC p. 6, para. 34].

33. In conclusion, the removal of Dr. Mercado does not infringe on Claimant‟s rights to

counsel of its choice or to present its case. As a consequence, and contrary to Claimant‟s

submissions [MfC pp. 14, 15, paras. 54-56] removing Dr. Mercado would not jeopardize the

finality of the award. In contrast, removing her would actually ensure the immutability of

the properly constituted and mutually agreed upon Tribunal. If, however, Claimant remains

represented by Dr. Mercado, the consequent lack of independence and impartiality of the

presiding arbitrator would taint the Tribunal and jeopardize the finality of the award [Article

34 (2)(a)(iv) DAL; Avax v. Tecnimont (1)].

3. The Tribunal Should Exercise its Power to Order the Removal of Dr. Mercado. The Extraordinary Circumstances of Dr. Mercado’s relation with Professor Compromise the Integrity of these Proceedings

34. The Tribunal should exercise its discretionary procedural powers to remove Dr. Mercado,

as her presence in Claimant‟s legal team creates a conflict which compromises the integrity

of these arbitral proceedings. The Tribunal must preserve the integrity of the proceedings

and, ultimately, of the award [Hrvatska, para. 30]. This is ensured by the arbitrators‟

impartiality and independence [Born 2009, pp. 1463– 1464] in dealing with the parties

[Article 22 CIETAC Rules] and when rendering the arbitral award [Article 47 (6) CIETAC

Rules].

35. A fundamental rule of procedure is that the parties should not have any justifiable doubts

as to the impartiality or independence of any Tribunal member. Justifiable doubts exist

when a reasonable and informed third party [IBA Guidelines, General Standard 2(c); Born 2009,

p. 1476], with supporting objective evidence [Article 30 (2) CIETAC Rules; Korsnäs v. Fortum]

suspects that a member of the tribunal would be influenced when reaching its decision

[IBA Guidelines, General Standard 2(c)]. In such case, that member may be removed from the

panel [Article12(2) DAL; Article 30(2) CIETAC Rules].

36. The parties‟ right to an independent and impartial tribunal demands such importance that it

prevails over their right to choose an arbitrator [Born 2009, pp. 1463 – 1464]. This is equally



applied to the choice of a counsel, which subordinates a parties‟ right to an unbiased

tribunal. This principle was recently confirmed by ICSID cases –including Hrvatska and

Rompetrol- as well as admitted by Claimant itself [MfC para. 37, p. 8]. A Tribunal‟s inherent

power to remove counsel should be exercised under extraordinary circumstances where the

integrity of the arbitral process is threatened [Rompetrol v. Romania, para. 15; Kolo, pp. 63, 64].

37. The extraordinary circumstances of Dr. Mercado‟s professional (i) and personal (ii)

relationship with Professor compromise the integrity of these proceedings, by raising

reasonable doubts as to Professor‟s impartiality and independence. As such, this Tribunal

should exercise its power to remove Dr. Mercado from Claimant‟s legal team in order to

protect the integrity of these arbitral proceedings.

i. Professor Presiding Arbitrator’s and Dr. Mercado’s professional relationship creates dependency and partiality

38. Contrary to Claimant‟s assertions [MfC p. 12, para. 51], the professional relationship

between Dr. Mercado and Professor gives rise to justifiable doubts of his impartiality and

independence. CIETAC Ethical Rules emphasize that business relationships may affect the

fair trial of the case [Article 5 CIETAC Ethical Rules]. Dr. Mercado‟s and Professor‟s co-

lectureship at the same University resembles the business relationship when the arbitrator

and another arbitrator are lawyers in the same law firm [IBA Guidelines, 3.3.1 Orange list] or

when the arbitrator and the counsel for one of the parties are members of the same

barristers‟ chambers [IBA Guidelines, 3.3.2 Orange list]. In such business relationships,

conflicts that give rise to justifiable doubts as to the arbitrator‟s impartiality or

independence [IBA Guidelines, Part II, Section 3] when the relationship between working

colleagues may significantly influence the progress of each other‟s career [Park, William W.:

Arbitrator Integrity: The Transient and the Permanent, 2009, p. 686].

39. In this case, Dr. Mercado‟s successful career as counsel [PO No. 2, CQ 33, p. 50] directly

influences the progress of Professor‟s career because her accolades reflect directly on the

reputation of the ITL Faculty of which Professor is Head. Her impressive curriculum

reflects her reputation in the field: She is an expert in arbitration, has worked at several

universities, was general counsel of a large international trading company and is often asked

for advice or engaged in legal teams in arbitration proceedings [SoD, p. 39, para. 19; PO No.

2, CQ 31, 33, p. 50]. Her successful career makes Dr. Mercado an asset for the ITL Faculty

as – besides of her the arbitration lectures –she also co-lectures for Professor‟s ITL course



on International Trade Law. Her excellent reputation in arbitration is then also of

importance for Professor in keeping her employed in the ITL Faculty. Her reputation is of

such interest, that Dr. Mercado secured her Visiting Lectureship, after she was personally

contacted on Professor‟s behalf [SoD p. 39, para. 18].

40. Dr. Mercado‟s and Professor‟s academic relation creates a potential conflict of interest since

Dr. Mercado‟s success on arbitration reflects on Professor‟s academic success. A counsel

who maintains a high success rate, in turn maintains a high reputation in both practice and

academia. This reputation is what Professor needs in order to progress his own reputation

as department head of the ITL Faculty. Professor has co-arbitrated three previous

arbitrations with Dr. Mercado appearing as counsel [SoD p. 40, para. 22]. In all three

arbitrations Professor ruled in favor of Dr. Mercado‟s client [Id.]. Dr. Mercado‟s client won

two of the three cases. The third case, where Dr. Mercado‟s client was unsuccessful on a

majority decision, Professor issued a Dissenting Opinion in her client‟s favor [SoD p. 40,

para. 22]. When those arbitrations took place, she was already a lecturer at the University

and she was already friends with Professor‟s wife [PO No. 2, CQ 37, p. 51]. Their co-

lectureship presents an inevitable level of contact and influence on a daily basis.

41. Besides, Dr. Mercado is often engaged to provide advice and work in different legal teams.

[PO No. 2, CQ 33, p. 50]. For Professor, Dr. Mercado‟s contacts and connections in the field

may serve to receive future appointments. Such appointments are even more likely to

happen if Dr. Mercado‟s client receives a favorable decision. Dr. Mercado‟s and Processor‟s

academic and professional connections thus support Respondent‟s fear that retaining Dr.

Mercado would jeopardize the independence of this Tribunal. Similarly, the Paris Court of

Appeals held that the tribunal‟s independence was impaired by the fact that one of the

arbitrators was hierarchically superior to one of the parties [Richy v Warlaumont]. In that case

the arbitrator was a professor and also the chief of surgery at the same hospital where

respondent, a doctor, exercised his professional activity. The Court held that the existence

of close professional relations and of hierarchical subordination is incompatible with the

independence and neutrality required of an arbitrator [Richy v. Warlaumont, p. 443].

42. In Hrvatska a claimant objected to the addition of a counsel to the respondent‟s legal team

as the counsel was affiliated with the same chambers as the president of the tribunal. The

tribunal ordered respondent to refrain from using the services of the challenged counsel

[Hrvatska Elektroprivreda d.d. v Slovenia, ICSID Case No. ARB/05/24, 12 June 2009] based on



the fact that respondent refused to reveal the actual nature of the conflicting relationship

and also based on the timing in the disclosure of the conflictive information.

43. Similarly in this case, the close timing for revealing the addition of Dr. Mercado further

triggers concerns as to the true nature and aim of adding her to the counsel team. In

Hrvatska, respondent communicated to claimant close to the hearing that the problematic

counsel had been added. Here, Claimant strategically decided to reveal Dr. Mercado‟s

addition to Mr. Langweiler only on 30 August 2011. That was on the very same day

CIETAC confirmed that the arbitral panel was constituted. Moreover, that was also only

three days prior to Respondent‟s submission of its Statement of Defense on 2 September

2011 [SoD p. 36]. Claimant left Respondent very little time to prepare an appropriate

defense on that particular issue. In fact, Claimant has so far not revealed when Dr. Mercado

was actually added to its legal team or what is her specific role in these proceedings [PO No.

2, CQ 39, p. 51].

44. Dr. Mercado‟s and Professor‟s academic relationship evidences their private engagement in

activities unrelated to this dispute and it also evidences a potentially conflictive hierarchical

relation. As such, the Tribunal should remove Dr. Mercado from these proceedings as her

participation raises justifiable doubts as to Professor‟s independency and impartiality.

ii. Professor Presiding Arbitrator’s personal relationship with Dr. Mercado creates appearance of bias

45. Finally, Dr. Mercado‟s close relationship with Professor‟s family, both as a godmother of his

youngest child and her friendship with Professor‟s wife, creates the appearance of bias. An

arbitrator is biased if the arbitrator has a close family relationship with one of the parties or

with a counsel representing a party [IBA Guidelines, Article 2.3.8 Waivable red list]. “Close

family member” includes a spouse, child, sibling or parent [Note 4 IBA Guidelines].

Furthermore, an arbitrator is biased if a close personal friendship exists between an

arbitrator and counsel as demonstrated by the fact that the arbitrator and the counsel

regularly spend considerable time together unrelated to professional work commitments or

the activities of professional and social associations [IBA Guidelines, Article 3.3.6 Orange list].

46. In Centroza, the relationship between counsel and an arbitrator‟s wife were decisive for the

allowance of a bias challenge. In that case the Swiss Federal Court prevented the

appointment of a local magistrate as arbitrator on the grounds that the magistrate‟s wife

was an assistant to the counsel for the Respondent [Centroza v Orbis]. In another case, the



family relationship was determinant for the Paris Court of Appeals which ruled that there

was an appearance of bias where the arbitrator was stepfather of the party's counsel. The

Court held that a party cannot rely on the arbitrator‟s independence and impartiality given

the absence of disclosure about his marriage with the mother of one of the parties‟

counsel [Milan Presse v. Média Sud].

47. In the present case, Dr. Mercado is on first name terms with the entire family of Professor,

including Professor himself [SoD, p. 39, para. 21] as she only calls him “Professor” when

she is in professional company; otherwise she calls him “Peter” [SoD, p. 39, para. 20]. Dr.

Mercado is also on close terms with the Professor‟s wife. Actually, they meet occasionally in

the city for lunch or a coffee [SoD p. 39, para. 21]. Also, Professor‟s wife asked Dr. Mercado

personally to be the godmother of hers and Professor‟s youngest child [PO No. 2, CQ 32, p.

50]. These circumstances evidence that Dr. Mercado and Professor have spent time

together unrelated to their professional activity. These circumstances indicate then an

improper closeness between Professor and Dr. Mercado that creates the appearance of

bias, regardless of the fact that they are not blood relatives.

48. Before Claimant added Dr. Mercado to its team, Professor‟s independence and impartiality

was unquestioned. Through her inclusion in these proceedings Claimant has casted on this

Tribunal a cloud of doubts on the Tribunal‟s ability to impartially and independently decide

this dispute. The Tribunal can entirely eliminate this problem by exercising its procedural

power to remove the root of the conflict, Dr. Mercado; while at the same time protects the

integrity of these proceedings by maintaining the impartiality and independence of the

presiding arbitrator of this Tribunal unquestioned.

B. RESPONDENT MAY EXERCISE ITS RESERVED RIGHT TO CHALLENGE PROFESSOR

PRESIDING ARBITRATOR

49. Contrary to Claimant‟s submission there are doubts as to Professor‟s independence and

impartiality that would justify a challenge to Professor [MfC pp. 11-14, paras. 47-53], just as

there are for challenging Dr. Mercado. This means that if the Tribunal does not find the

power to dismiss Dr. Mercado, allowing her to continue as part of Claimant‟s legal team,

Respondent is still entitled to exercise its reserved right to challenge Professor before the

Chairman of CIETAC [Article 30 CIETAC Rules]. Respondent cannot be deemed to have

waived its reserved right to challenge Professor. When a party has raised the issue of an

arbitrator‟s lack of independence and impartiality during the proceedings and reserved its



rights it cannot be deemed to have waived them [Avax v. Tecnimont (2)]. Respondent may

exercise its reserved right as it raised its objections in due time, in written form and with

supporting evidence [Articles 4, 13(2) DAL; Articles 10, 30(2),(3), (6) CIETAC Rules] in its

Statement of Facts, on 2 September 2011 [SoD, pp. 39 – 40, paras. 16 – 22]. That was within

the fifteen day time limit, considering that Respondent became aware of the conflictive

circumstances only three days before, i.e. on 30 August 2011 [PO No. 2, CQ 29, p. 50].

* * *

50. Conclusion on Procedure: The Tribunal should remove Dr. Mercado from Claimant‟s

legal team. The Tribunal has the power to remove her based on its discretionary powers to

deal with procedural matters. Dr. Mercado‟s removal would safeguard the integrity of these

proceedings. The extraordinary circumstances of her professional and personal relationship

with Professor raise justifiable doubts as to his independence and impartiality, thereby

putting into question this Tribunal‟s ability to decide this dispute. Furthermore, the exercise

of its power to remove Dr. Mercado does not infringe on Claimant‟s right to counsel of

choice. Removing Dr. Mercado safeguards the integrity of these proceedings. If however,

Claimant is allowed to retain Dr. Mercado, Respondent‟s concerns for a biased Tribunal

calls for the exercise of its reserved right to challenge Professor before CIETAC.

ARGUMENT ON MERITS

II. RESPONDENT IS EXEMPT FROM LIABILITY UNDER ARTICLE 79(2) CISG

51. Respondent is exempt from liability for its late delivery of the master control system.

Despite Claimant‟s assertions to the contrary [MfC, pp. 15-16, paras. 58-63] Respondent does

not contend its late performance of the Contract. Respondent recognizes its impediment

to perform in time and thereby simply argues its liability exemption. For the purpose of

this dispute then, it is a moot issue whether or not Respondent‟s late delivery was

fundamental (A). Importantly, Respondent‟s intent to timely deliver the master control

system was frustrated, by an impediment beyond its control. Namely, the late delivery of

Specialty Devices, the third party Respondent engaged to perform part of the Contract.

This impediment, according to Article 79(2) CISG exempts Respondent from liability. Both

Respondent and Specialty Devices are further exempt from liability under

Article 79(1) CISG (B).



A. IT IS IRRELEVANT WHETHER OR NOT RESPONDENT’S LATE DELIVERY WAS A

FUNDAMENTAL BREACH

52. Respondent does not contend that it was unable to perform under the Contract. For the

purpose of the claims Claimant and Respondent raise in this dispute, it is irrelevant

whether or not Respondent‟s late delivery was a fundamental breach. Claimant could have

declared the Contract avoided if Respondent‟s breach of the Contract amounted to a

fundamental breach [Article 49(1)(a) CISG]. Yet, Claimant did not declare the Contract

avoided. Quite the opposite, both Claimant and Respondent have already performed the

Contract. Respondent sold, delivered and installed the master control system for the M/S

Vis [RfA, p. 6, para. 16] and Claimant “was very pleased with Respondent‟s performance”

[Cl. Ex. No. 4, p. 12] and paid Respondent the full Contract price [RfA, p. 6, para. 16].

Therefore, Claimant‟s request for this Tribunal to find Respondent‟s late delivery a

fundamental breach, which would allow for avoidance of the Contract which was already

performed and satisfied, is both superfluous and irrelevant to the facts of this case [MfC, p.

35, para. 131].

53. Claimant and Respondent already performed the Contract and Claimant‟s requests for

relief are not influenced by the classification of the breach as fundamental or not. This

Tribunal should therefore disregard paragraphs 58-63 of Claimant‟s submission.

B. RESPONDENT IS EXEMPT FROM LIABILITY FOR LATE DELIVERY AND

INSTALLATION OF THE MASTER CONTROL SYSTEM UNDER ARTICLE 79(2) CISG

54. Respondent is not liable to Claimant for its late performance of the Contract. Under

Article 79(1) CISG a party is exempt from liability when its breach is due to an

unforeseeable impediment that is beyond its control and that it could not overcome.

Respondent‟s impediment to deliver on time the M/S Vis master control system to

Claimant was Specialty Devices‟ failure to deliver Respondent the processing units used by

the master control system at the agreed date of the contract.

55. Respondent is exempt provided that its late delivery was due to the failure of Specialty

Devices, the third party Respondent engaged to perform part of the contract

[Article 79(2) CISG], and that both, itself and the third party engaged, are exempt under

Article 79(1) [Article 79(2)(a), (b) CISG; CISG-AC Opinion No. 7]. In this case, Specialty

Devices‟ impediment to deliver to Respondent the processing units at the agreed date was

its subcontractor‟s – High Performance‟s – failure to deliver the D-28 chips on time [SoD,



p. 38, para. 7]. Both, Respondent‟s and Specialty Devices‟ impediments satisfy all

requirements for exemption under Article 79(1) CISG. Respondent is thereby exempt from

liability for its late deliver according to Article 79(2) CISG.

56. This Tribunal should rule that Respondent is exempt from liability for its failure to perform

[Article 79(2) CISG]. Contrary to Claimant‟s submission [MfC, p. 18, paras. 70-74],

Respondent is not liable for High Performance‟s actions, as Specialty Devices is the only

third party Respondent engaged to perform part of the Contract [Article 79(2) CISG] (1).

Furthermore, both Respondent‟s (2) and Specialty Devices‟ (3) late deliveries were due to

an impediment that was unforeseeable, beyond their control and that they could not

overcome [Article 79(2) (a), (b); Article 79(1) CISG]. Respondent can thus invoke

Article 79(2) CISG to be exempt from liability for its late performance. Alternatively, even

if the Tribunal finds that High Performance was an independent third party, Respondent is

still exempt from liability (4).

1. Specialty Devices is the only third party Respondent engaged to perform the Contract

57. Contrary to Claimant‟s submission [MfC, p. 18, para. 70], Respondent only engaged

Specialty Devices as a third party to perform part of the Contract [SoD, p. 38, para. 7] and it

did not engage High Performance as a third party [PO No. 2, CQ 13, p. 47; SoD, p. 38,

para. 9]. A party is liable only for such third parties whom it has engaged to perform part

of the contract [Art. 79(2) CISG; Flambouras; Schlechtriem; Chengwei]. Respondent can

therefore only be liable for Specialty Devices‟ performance and not for High Performance‟s

performance.

58. Claimant relies on the fact that High Performance manufactured for Specialty Devices the

D-28 chips used for the processing units of the master control system to deduce an

“organic link” between Claimant, Respondent, Specialty Devices and High Performance

[MfC, p. 18, para. 71]. Claimant uses this organic link to hold Respondent liable for High

Performance‟s actions. Yet, an organic link requires that the defaulting party, i.e.

Respondent, “must have asked a third person to perform some task connected with the

main contract and the latter should know that his action is a means of performing the main

contract” [Tallon in Bianca/Bonell; Chengwei]. Respondent never asked, contracted, or as

Article 79(2) CISG provides, it never engaged High Performance as a third party to



perform part of the Contract [PO No. 2, CQ 13, p. 47; SoD, p. 38, para. 9]. Hence, no

“organic link” exists between Respondent and High Performance.

59. In fact, Specialty Devices and not High Performance, informed Respondent about the late

delivery of the D-28 chips and the subsequent delay of the processing units [RfA, p. 6, para.

12; Cl. Ex. No. 2, p. 10]. This shows that there was no relationship between Respondent

and High Performance. High Performance informed its customers, including Specialty

Devices, about the fire at the plant and about the allocation of the remaining D-28 chips

[Cl. Ex. No. 3, p. 11]. High Performance, however, never approached Respondent. Precisely

because they had no dealings with each other [SoD, p. 38, para. 9; PO No. 2, CQ 13, p. 47]

High Performance had no reason to inform Respondent.

60. Accordingly, the Tribunal should rule that only Specialty Devices is a third party engaged by

Respondent and that High Performance is not such. Respondent is thus not liable for High

Performance‟s actions and it does not need to prove High Performance‟s exemption under

Article 79(1) CISG. Respondent only needs to prove exemption of Specialty Devices under

Article 79(1) CISG as required by Article 79(2) CISG.

2. Respondent is exempt from liability under Article 79(1) CISG

61. Respondent is exempt from liability under Article 79(1) CISG as its breach was due to an

impediment (i) that was beyond its control (ii), that was unforeseeable (iii) and that it

could not have overcome (iv).

i. Specialty Devices’ late delivery was an impediment that caused Respondent’s breach.

62. Respondent‟s breach was caused by an impediment. Contrary to Claimant‟s submission

[MfC, p. 20, para. 76], the impediment met by Respondent causing its late delivery of the

master control system was its failure to receive timely delivery of the processing units from

its contractor, Specialty Devices [SoD, p. 38, para. 7]. Claimant incorrectly assumed that

Respondent identifies the fire at High Performance‟s factory as the relevant impediment.

63. More importantly, and differing from Claimant‟s statement [MfC, p. 20, para. 75] Specialty

Devices‟ late performance is considered an impediment under CISG, as acts of third

parties are events considered impediments [Chengwei, para. 4.2]. Under the CISG an

impediment can be any barrier to performance other than an aspect personal to the seller‟s

performance [Honnold, para. 427; Howard Jenkins, p. 2026] or as “objective circumstances that



prevent performance” [Stoll/Gruber in Schlechtriem, p. 812, para. 12]. These objective

circumstances excuse non-performance of a party‟s obligations under the contract

[Flambouras, para. 3].

64. Whether “objective circumstances” or “non-personal barrier”, late performance by

Specialty Devices is the impediment that prevented Respondent‟s performance. Claimant,

in its Request for Arbitration, even subscribes to the late delivery of the processing units as

the impediment that caused Respondent‟s breach. Claimant admits that when Respondent

anticipated its late delivery the unavailability of the processing units [RfA, p. 6, para. 12; Cl.

Ex. No. 2, p. 10] and goes on to admit that “as a result, delivery of the control system could

not be expected before the middle of January 2011” [Id.].

65. Accordingly, the Tribunal should rule that Specialty Devices‟ late delivery was the

impediment that prevented Respondent‟s performance.

ii. Specialty Devices’ late delivery was beyond Respondent’s control

66. Specialty Devices‟ late delivery of the units was beyond Respondent‟s control. A party has

control within the meaning of the CISG only over the economic risks likely to occur under

performance of a contract [Vine wax case], for example, the risk that a supplier does not

deliver [Stoll/Gruber in Schlechtriem, p. 816, para. 18]. Generally, absent parties‟ agreement on

risk allocation, the procurement risk for performance falls on the seller [Stoll/Gruber in

Schlechtriem, p. 812, para. 12; Huber/Mullis, p. 259; Magnus in Staudinger, p. 692, para. 16]. Yet,

in this particular case Respondent did not undertake to bear the economic risks for

performance of the Contract, regardless of Claimant‟s and Respondent‟s failure to agree on

risk allocation [PO No. 2, CQ 4, p. 46].

67. Instead, Claimant implicitly accepted the risk of Specialty Devices‟ late delivery. By

implicitly directing Respondent to use processing units which could only operate with the

D-28 chips [PO No. 2, CQ 12, p. 47], Claimant restricted Respondent to rely exclusively on

Specialty Devices‟ performance. Claimant demanded superior technology [RfA, p. 5, para.

6] and the D-28 chip was the only one to give such performance and it was to remain that

way for another six months [RfA, p. 5, para. 9]. By directing Respondent to such a limited

product, Claimant took the risk associated with Specialty Devices‟ potential failed

performance without any alternatives to remedy. Consequently, the breach caused by this

exact impediment – for which Claimant set all the conditions – was beyond its control.



68. Even if without Claimant‟s implicit risk allocation Respondent is still exempt from liability,

as the seller does not bear the risk of performance when it had no control over the choice

of the third person because that third person enjoys a monopoly in the supply of goods or

services required by the contract [CISG-AC Opinion No. 7, para. 20].

69. Respondent had no control over Specialty Device‟s choice of High Performance in the

supply chain. Respondent needed Specialty Devices‟ processing units, as they were the core

element of the master control system for the M/S Vis [RfA, p. 5, para. 8]. Specialty Devices

involved High Performance in the supply chain, as it specifically designed the processing

units to use High Performance‟s D-28 “super chip”. Specialty Devices chose High

Performance because its chips lived up to Claimant‟s standards: they were unique and the

latest technology available on the market [PO No. 2, CQ 12, p. 27; RfA, p. 5, para. 9; Cl. Ex.

No. 7, p. 13]. Respondent had no control over Specialty Devices choosing High

Performance to manufacture the chips.

70. Specialty Devices‟ faced a monopoly as High Performance was the only supplier of the D-

28 chip [RfA, p. 5, para. 9]. Therefore, when the D-28 chips were unavailable for Specialty

Devices‟ processing units, Respondent was left with no alternative but to accept Specialty

Devices‟ delay. Respondent could only perform its obligation under Claimant‟s high

demands by using Specialty Devices‟ units, which could only served to that purpose by

using the specific D-28 chips [RfA, p. 5, para. 9; PO No. 2, CQ 12, p. 47].

71. Respondent had no control over Specialty Devices‟ choice of a monopolistic supplier, i.e.

High Performance. This, together with the fact that Specialty Devices was also the only

supply source of useful processing units, prevented Respondent from having any control

over the economic risks of the contract. Therefore, the Tribunal should rule that

Respondent had no control over Specialty Devices‟ late delivery of the processing units,

being thereby exempt under Article 79(1) CISG.

iii. Respondent could not foresee Specialty Devices’ late delivery of the processing units

72. Respondent could not reasonably foresee Specialty Devices‟ late delivery. Foreseeability

depends on whether Respondent could reasonably be expected to have allowed for

Specialty Devices‟ delay at the time of the conclusion of the contract [Article 79(1) CISG],

considering the circumstances at that time and taking into account trade practices [Schwenzer

in Schlechtriem, p. 1068, para. 13]. The fire was not the impediment, which prevented



Respondent‟s and Specialty Devices‟ performances. Then, contrary to Claimant‟s assertions

[MfC p. 21, para. 80], Respondent and Specialty Devices should not have taken such

impediment into account.

73. There were no circumstances at the time of the Contract that should have led Respondent

to reasonably foresee that Specialty Devices would not perform on time. In fact, the

production of the chips used by the processing units started just as scheduled, by middle

August 2010 [RfA, p. 6, para. 12]. The fact that Claimant and Respondent allowed for ample

time for performance under the contract shows parties foresaw accounted for any risk of

slight delays [RfA, p. 5, para. 9]. Moreover, Specialty Devices allocated ample time by

ordering the chips from High Performance about seven weeks before the fire occured [Cl.

Ex. No. 3, p. 11]. A slight delay is foreseeable, but unusually long delays cannot be

contemplated or intended by the parties at the time of contracting [Dickenson v. Iowa].

Respondent allocated extra time as slight delays are reasonably contemplated, but several

months caused by a complete shut down of a monopolistic supplier is unreasonably long

and outside the scope initially contemplated [Id.].

74. Accordingly, there were no circumstances at the time of the Contract that could make

Respondent reasonably foresee that Specialty Devices would not deliver on time the

processing units for the master control system. The Tribunal should rule then that

Respondent is exempt from liability for its breach under Article 79(1) CISG.

iv. Respondent could not reasonably overcome Specialty Devices’ late delivery of the processing units

75. Specialty Devices‟ late delivery of the processing units was an unforeseeable impediment

that Respondent could not have reasonably overcome. To reasonably overcome means to

take the necessary steps a reasonable third person, in the same circumstances as

Respondent, would take to prevent the consequences of the impediment [Chengwei, para.

4.5; Stoll/Gruber in Schlechtriem, p. 817, para. 23].

76. Respondent could not overcome Specialty Devices‟ late delivery of the processing units. A

timely delivery of Specialty Devices‟ units was the only thing that would serve Respondent

to fulfill its obligation under the Contract. Yet, Respondent had no per se obligation to try to

overcome the lack of the D-28 chips. Even if such obligation existed, High Performance‟s

monopolistic control of the D-28 chips made it impossible for Respondent to overcome

Specialty Devices‟ late delivery. Specialty Devices was the only source of processing units



that Respondent could use in order to perform as Claimant required [PO No. 2, CQ 12, p.

47]. The failure of the single source of supply is a valid excuse for non-performance

[Spivack; CISG-AC Opinion No. 7, para. 25]. High Performance had the monopoly of the D-

28 chips [RfA, p. 5, para. 9] and Specialty Devices designed its processing units to contain

these “super chips” [Id.] to fulfill Claimant‟s demands for the latest in technologies, superior

to anything otherwise available on the market [RfA, p. 5, para. 6]. A seller is exempt from

liability when it is not possible to find goods of similar quality on the market [Iron

molybdenum case] and this case presented no alternatives to use any other sort of processing

unit or any other chip.

77. Furthermore, Respondent could not reasonably overcome the late delivery of the

processing units by directly resorting to the supplier of the chips, High Performance.

Respondent had no dealings with High Performance [SoD, p. 38, para. 9; PO No. 2, CQ 13,

p. 47]. There was no privity, no prior dealings, nor even any knowledge of their respective

existence between these parties at the time of contract [Id.]. Contacting High Performance

was thus no measure Respondent could take. Respondent was in no position to resort to

Atlantis Technical Solutions – the company which received all D-28 stock after the fire.

78. Respondent could not reasonably overcome Specialty Devices‟ late delivery of the

processing units. As a consequence, the Tribunal should rule that Respondent is exempt

from liability under Article 79(1) CISG.

3. Specialty Devices is exempt under Article 79(1) CISG

79. Specialty Devices is exempt from liability under Article 79(1) CISG as its breach was due to

an impediment (i) that was beyond its control (ii), unforeseeable (iii) and that it could not

overcome (iv).

i. High Performance’s late delivery was the impediment that caused Specialty Devices’ breach

80. Specialty Devices‟ impediment was High Performance‟s late delivery of the D-28 chips

[SoD, p. 38, para. 7]. Claimant misleads the Tribunal [MfC, p. 20, paras. 75-76] because the

fire at High Performance‟s plant in itself was not the impediment that prevented Specialty

Devices from performing its obligations. The fire was only an impediment for High

Performance and its own obligation to deliver the D-28 chips to Specialty Devices.




81. As non-performance by another party qualifies as an impediment under the CISG

[Chengwei, para. 4.2], High Performance‟s late delivery of the chips qualifies as impediment

under the CISG. Furthermore, when Specialty Devices informed Respondent about its

delay [RfA, p. 6, para. 12], it explained that it expected delivery of the D-28 chips from

High Performances by the beginning of November 2010. Specialty Devices, in its turn,

expected to deliver Respondent the processing units at the end of November 2010 [Id].

This shows that Specialty Devices‟ late performance was due to High Performance‟s own

failure to deliver the chips on time.

82. The Tribunal should therefore rule that High Performance‟s late delivery was the

impediment that barred Specialty Devices‟ from delivering the processing units to

Respondent on time. This exempts Specialty Devices from liability for its breach under

Article 79(1) CISG.

ii. High Performance’s late delivery was beyond Specialty Devices’ control

83. High Performance‟s late delivery of the chips was beyond Specialty Devices‟ control.

Control includes having control over the economic risks that are likely to occur during

performance of a contract [Vine wax case], one of these risks being failed delivery by a

supplier [Stoll/Gruber in Schlechtriem, p. 816, para. 18]. A seller, however, does not bear the

risk when it faces a monopoly on the side of its supplier [Schlechtriem, pp. 613-17; Spivack].

Here, Specialty Devices did not bear the risk for its supplier‟s, High Performance‟s, late

delivery of the D-28 chips, because High Performance‟s monopolistic situation prevented

Specialty Devices from controlling any economic risks.

84. Moreover, in exceptional cases a seller is not liable if it has no control over the choice of a

third person [Southerington] when that third person enjoys a monopoly in the supply of

goods or services [CISG-AC Opinion No.. 7, para. 20; Vine Wax Case]. Here, it cannot be

admitted that Specialty Devices chose High Performances for the delivery of the D-28

Chips. Specialty Devices had one choice of that could produce the technology powerful

enough to meet the high demand outlined by Claimant. This monopolistic situation made it

impossible for Specialty Devices to have any control over the risks associated with this part

of their performance of the contract. Therefore, High Performance‟s late delivery of the

chips is an impediment beyond Specialty Devices‟ control.



iii. Specialty Devices could not foresee High Performance’s late delivery of the chips

85. High Performance‟s late delivery of the chips was unforeseeable. Foreseeability depends on

whether Specialty Devices could be expected to have allowed for High Performance‟s delay

at the time of the conclusion of the contract [Article 79(1) CISG; ICC Award 7197/1992;

Coal case], considering the circumstances at that time and taking into account trade practices

[Schwenzer in Schlechtriem, p. 1068, para. 13]. Specialty Devices made the order for the chips

allowing for ample lead time – seven weeks [Cl. Ex. No. 3, p. 11]. High Performance then

started to produce the chips according to schedule by the middle of August [RfA, p. 6,

para. 12]. Since performance after the commencement of production continued per the

terms of the contract, Specialty Devices could not reasonably foresee at the time of the

execution of the contract an impediment like late delivery of the D-28 chips, regardless of

the delay‟s cause [PO No. 2, CQ 8, p. 47].

86. Therefore, the Tribunal should rule that High Performance‟s late delivery of the chips was

an impediment unforeseeable for Specialty Devices.

iv. Specialty Devices could not reasonably overcome High Performance’s late delivery of the chips

87. Specialty Devices could not reasonably overcome the consequences of High Performance‟s

late delivery of the D-28 chips without compromising the performance of the units

required by Respondent. There were no chips similar to the D-28 on the market that could

guarantee comparable performance [RfA, p. 5, para. 9; PO No. 2, CQ 12, p. 47]. A seller is

exempt from liability when there is only one available source of supply [CISG-AC Opinion

No. 7, para. 25]. High Performance was the only supplier Specialty Devices could resort to

in order to get the unique chips [RfA, p. 5, para. 9] it needed for the processing units [RfA,

p. 5, para. 8]. Even a complete “redesign around a substitute chip with a different

specification to the D-28 would have involved severe delay and costs while providing no

guarantee of comparable performance given the unique qualities of the D-28” [PO No. 2,

CQ 12, p. 47]. Specialty Devices was forced to accept High Performance‟s late delivery of

the chips, thereby delaying its own performance towards Respondent.

88. Moreover, Specialty Devices could not reasonably overcome High Performance‟s decision

to allocate all the remaining chips supply to one customer. High Performance was neither

obliged by Atlantis law nor by contracts with its customers to distribute the chips on a pro



rata basis [RfA, p. 5, para. 13]. The decision by High Performance to supply Atlantis

Technical Solutions because of a friendly relationship between the two companies‟ CEOs is

further proof of the futility in even attempting to negotiate a proper remedy to the

impediment [Cl. Ex. No. 7, p. 15]. Even if High Performance had distributed the chips on a

pro rata basis, thereby receiving Specialty Devices the chips it needed [PO No. 2, CQ 9, p.

47], “that would not have been satisfactory for the majority of [High Performance‟s]

customers” [Cl. Ex. No. 3, p. 11]. Specialty Devices – who was not a regular customer of

High Performance nor could be expected to become one [RfA, p. 6, para. 14] nor could

have influenced High Performance‟s decision to allocate the chips to one of its regular

clients that needed a greater amount of chips.

89. Specialty Devices took all reasonable efforts in order to prevent the consequences of High

Performance‟s late delivery of the chips. A seller is excused when it uses its efforts to assure

that an exclusive source of supply will not fail [Brunner, p. 178]. As it appeared useless to try

to convince High Performance to supply the chips, Specialty Devices approached Atlantis

Technical Solutions. Specialty Devices offered for the small number of chips a higher price

than Atlantis Technical Solutions had paid [RfA, p. 6, para. 14; Cl. Ex. No. 3, p. 11]. But

Atlantis Technical Solutions refused [PO No. 2, CQ 11, p. 47]. A refusal on the part of the

supplier to supply the goods discharges the seller from liability, when the seller's source of

performance is limited to a particular supplier or the goods of the relevant type and

description are unavailable [Metallic sodium case]. This was the case here.

90. The impediment which caused their delay was unforeseeable, beyond their control, and

could not have been overcome. In conclusion, both Respondent and Specialty Devices are

exempt from liability for late performance under Article 79(1) CISG. Accordingly, Article

79(2) CISG exempts Respondent from liability for its late delivery, installation and

configuration of the M/S Vis master control system.

III. EVEN IF THE TRIBUNAL DECIDES THAT RESPONDENT IS LIABLE FOR ITS DELAY, RESPONDENT IS NOT OBLIGED TO PAY DAMAGES TO CLAIMANT

91. Respondent is excused from late delivery. If, however, the Tribunal does not find

Respondent exempt under Article 79(2) CISG, Claimant is still not entitled to recover

damages. The bribery committed using the success fee Claimant paid to its broker to

procure the lease of the M/S Pacifica Star, renders all costs deriving from the lease not

allowable items of damages (A). This being the case, Claimant is not entitled to recover



those damages. Furthermore, even if the Tribunal considers that the lease and its associated

costs are unaffected, Claimant is still not entitled to recover damages that were

unforeseeable and unreasonable (B).

A. THE BRIBERY COMMITTED BY CLAIMANT RENDERS ALL COSTS FOR LEASING

THE M/S PACIFICA STAR NOT ALLOWABLE ITEMS OF DAMAGES

92. Claimant is not entitled to recover damages arising out of transactions procured through

acts of bribery. Claimant promised, and subsequently paid, its yacht broker a success fee for

securing the contract of the M/S Pacifica Star, the substitute yacht of the M/S Vis [PO No.

2, CQ 22, p. 49; RfA, p. 7, para. 18]. Claimant‟s broker used part of that fee to pay the

assistant of the M/S Pacifica Star‟s owner, Mr. Goldrich, for an “introduction” to Mr.

Goldrich [SoD, p. 38, para. 13; Resp. Ex. No. 1, p. 41]. That payment was unlawful under

Pacifica criminal law, the country where the bribery was committed [Resp. Ex. No. 1, p. 41].

93. The Tribunal should find that the illegality of that payment renders the broker‟s success fee

illegal by applying Pacifica criminal law, which is line with the international standards

Mediterraneo adopts (1). Furthermore, Claimant is also imputable by the illegal offense

committed by its broker (2). This taints the lease agreement and its associated costs,

rendering them unallowable items of damages (3). As a consequence, Claimant is not

entitled to claim damages arising from an illegal transaction.

1. The Tribunal should apply the laws of Pacifica to find that the yacht broker’s success fee is illegal

94. The yacht broker‟s success fee is illegal. This Tribunal should apply Pacifica criminal law to

determine the illegality of the broker‟s success fee. Meditteraneo adopts and promotes the

application of international public policy standards to international transactions. Pacifica

criminal law is line with those standards (i). The Tribunal should then apply Pacifica

criminal law as this would comply with Mediterraneo policy in aligning itself with

international standards (ii). As a consequence of applying Pacifica criminal law the

payment made using the success fee is illegal.

i. Meditteraneo policy to adopt international public policy standards leads to the application of Pacifica criminal law

95. Mediterraneo public policy leads to applying Pacifica criminal law to determine the illegality

of the success fee. States have a domestic and international understanding of public policy

[Westacre Investments v. Jugoimport]. Mediterraneo‟s domestic public policy – which protects



the primary values of its own society [Server] can also differ from its international public

policy – which encompasses general principles of morality accepted by “civilized nations”

[Sheppard/Chance]. International public policy is in the focus of the analysis because

violation of international public policy is what an enforcement court would look at to

justify setting aside or deny enforcement of an arbitral award [Article V(2)(b) NY Conv.].

96. In this case, corruption – whether in the form of private or public bribery [Hwang/Lim,

para. 87] – is precisely one of the aspects that pertain to international public policy

[Alqudah, pp. 67 - 79]. The criminalization of private bribery in international transactions is

a growing concern in the international community [Articles 18 and 21 UN CAC; Articles 7

and 8 CLCCCE; Article 4(1)(f) AUCPCC; CICA Interim Report]. Even though Mediterraneo‟s

domestic public policy does not criminalize private bribery [Resp. Ex. No. 1, p. 41],

Mediterraneo‟s international public policy aspires to align to international standards which

do criminalize private bribery. For example, Mediterraneo is signatory to the CISG, the

New York Convention and also to the OECD Convention [PO No. 2, CQ 27, p. 49; RfA,

p. 7, para. 20]. This shows that Mediterraneo tries to align to international public policy

standards in line with best practices in international transactions.

97. This Tribunal‟s criminalization of the bribery committed with the success would be in line

with Mediterraneo intent to adopt international public policy standards. For that purpose,

this Tribunal should apply Pacifica criminal law which, in line with international standards,

criminalizes private bribery.

98. Pacifica criminal law is in line with Mediterrano policy of adopting international standards.

Despite Claimant‟s assertions to the contrary [MfC, p. 34, para. 128] Article 1453 Criminal

Code of Pacifica shows that Pacifica public policy advocates the prevention of private

bribery in international transactions using intermediaries, also known as brokers [See Sayed

pp. 191-192; Scherer, pp. 37-40; Crivellaro pp. 119-144]. Article 1453 of the Criminal Code of

Pacifica, criminalizes committing private bribery through intermediaries, considering both

paying a success fee and receiving a success fee to obtain business as unlawful.

99. By applying Pacifica criminal law in line with international standards against private bribery,

this Tribunal would be complying with Mediterranneo's objectives in aligning itself with

international standards. As a consequence of applying Pacifica law, those acts considered

criminal offenses under Pacifica law are also criminal offenses under the Contract. This



Tribunal should therefore apply Pacifica criminal law to determine the illegality of the

success fee [ICC Award 6294/1991].

ii. The payment made using the yacht broker’s success fee was illegal

100. Claimant‟s broker violated Pacifica criminal law. It is unlawful to pay an employee of a third

person in order to obtain business with that third person [Article 1453(1) Criminal Code of

Pacifica]. The aim of private bribery through intermediaries is to induce consent to a

contract [Watts; Lennards v Petroleum; Article 21 UN CAC]. The primary element of bribery

is the intent or purpose to bribe as inferred from objective factual circumstances

surrounding the offense [UNCC, Article 28].

101. Claimant promised to pay its broker a USD 50,000 “success fee” in addition to the

customary broker‟s commission to secure the lease of the M/S Pacifica Star [PO No. 2, CQ

22, P. 49]. Claimant‟s broker paid the assistant of the owner of the yacht part of that

promised success fee to get an “introduction” with the owner. The intent of the broker by

using the success fee was to induce the assistant‟s consent to obtain business with the

assistant‟s principal, Mr. Goldrich. Even Mr. Goldrich‟s assistant, the receiver of the

bribery, was convicted for that crime. This shows the illegality of the payment itself, for

which the briber, Claimant‟s broker, should be held responsible.

102. This Tribunal should therefore rule that broker made an illegal payment using the success

fee. This renders the success fee an unallowable item of damages, which Claimant is not

entitled to recover.

2. Claimant is Imputable for the Bribery

103. Claimant is responsible for the actions of its agent, the yacht broker, and is thereby also

responsible for the bribery committed by its broker. An agent binds its principal when it

acts within the authority given by its principal [GC on Agency Ch. 3, Art. 2]. Claimant

promised its broker a success fee of USD 50,000, in addition to the normal brokerage fee,

with the express condition that the success fee will be awarded only upon securing a

substitute yacht [PO No. 2, CQ 22, p. 49]. Claimant did not give any limiting instructions to

its agent regarding his authority to act on behalf of Claimant [Id.]. The broker, just as any

agent, had then authority to perform all acts necessary in the circumstances to secure the

lease, for which Claimant authorized it [Article 9(2) CAISG]. Claimant‟s yacht broker used a



portion of the success fee promised to it to bribe Mr. Goldrich‟s assistant to gain an

introduction. This introduction secured the lease of the M/S Pacifica Star.

104. With such broad authority, Claimant unveiled itself to all benefits entered into by the yacht

broker on Claimant‟s behalf. But, Claimant cannot benefit from the work of its broker

without being responsible for the excesses of its broker, as principals are liable even for

unauthorized acts of its agents [Restatement]. Claimant is then bound to the illegal bribery

committed by its broker, even if it appeared that it did not know about it when signing the

lease [Resp. Ex. No. 1, p. 41]. When an agent commits an illegal offense, this illegality is

imputed to the principal even if the principal did not know but it ought to have known that

its agent would act illegally to induce consent to a contract [Watts; Lennards v Petroleum].

105. Not only that, but Claimant ought to have known that an incentive of almost doubling its

agent‟s commission, the agent would pursue any means necessary to procure a lease,

whether legal or not even if the broker‟s authority was not express. The circumstances of

this broad agency agreement, lacking any instructions, with the express promise that if the

broker succeeded, Claimant would pay such a high sum of money and that it would even

later ratify the contract with Mr. Goldrich, show that Claimant granted its broker unfettered

agency. The bribe was practically within the broad authority granted by Claimant to act on

its behalf. Therefore this Tribunal should find that, while acting as a representative of

Claimant, the yacht broker‟s payment of a bribe is an act imputable to Claimant thereby

holding that Claimant cannot claim damages arising from that act.

3. The Illegality of the success fee taints the lease and all its associated costs, rendering them Non-allowable Items of Damages

106. The illegal conduct which procured the lease of the M/S Pacifica taints the entire lease

contract and renders all costs associated to it not allowable items of damages. Where the

illegal elements of a contract cannot be separated from the contract, the whole agreement

must be considered invalid [ICC Award 1110/1963]. Such is the case when bribery is an

integral part of procuring a contract because illegality is intertwined with that contract

[Distilling v. Liquor]. In the case of an agency agreement implicating illegal conduct, that

illegal object cannot be separated from the agency agreement and the whole transaction

entered into by the agent must be declared invalid [ICC Award 1110/1963].

107. The introduction was an integral part of the lease, as it facilitated its conclusion. The

broker induced the assistant‟s consent to get an introduction with Mr. Goldrich [Resp. Ex.

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No. 1, p. 41]. This introduction made it possible for Claimant to then lease Mr Goldrich‟s

yacht. In fact, as stated above, it was unusual for Mr. Goldrich to lease his yacht [PO No.2,

CQ 21, p. 49]. If Claimant had not promised the success fee to secure the lease, there would

not have been a bribe. But for the bribe, the introduction never would have taken place,

and neither the lease contract. This evidences that the illegally obtained introduction [Resp.

Ex. No. 1, p. 41] is such an integral part of the lease that lead to the costs Claimant is now

trying to recover and its illegality cannot be separated from the transaction.

108. Moreover, and contrary to Claimant‟s assertions [MfC p. 33, para 123], the fact that

Claimant and Mr. Goldrich did not know about the bribery when they entered into the

lease is irrelevant for the purpose of invalidating the lease and its associated costs. The

parties‟ awareness of the immoral or illicit aim of the contract is not meant to lessen the

sanction of nullity of the contract [Gas Turbines v. Westman]. On the contrary, it aims at

reinforcing it by protecting the innocent party [Id.]. This is why the illegality of the success

fee renders the lease and its associated costs invalid, regardless of the fact that Claimant

and Mr. Goldrich consented to the lease unaware of the bribery. As an innocent party to

this illegal act, Respondent should not be affected by its consequences nor expected to

finance the illegal offences attributable to Claimant.

109. The Tribunal should then rule that the illegality of the bribery committed using the success

fee taints the entire transaction. As a consequence, it renders the lease and all its associated

costs unallowable items of damages, which Claimant is not entitled to recover.

B. RESPONDENT IS NOT OBLIGED TO PAY CLAIMANT DAMAGES THAT WERE

UNFORESEEABLE AND UNREASONABLE

110. Even if the Tribunal considers that there is no bribery under the applicable law, or that

bribery does not taint the entire transaction, Claimant is still not entitled to recover

damages. Claimant can only recover damages for foreseeable losses [Article 74 CISG] and

for reasonable mitigation costs [Article 77 CISG] resulting from Respondent‟s late delivery.

The lease agreement; the broker‟s commission and success fee; and Corporate Executives‟

ex-gratia payment are costs Respondent could not foresee (1). In addition, by paying the

success fee and the ex-gratia payment Claimant failed its duty to reasonably mitigate its

losses resulting from Respondent‟s late delivery [Article 77 CISG] (2).



1. Claimant is not entitled to recover damages that were unforeseeable for Respondent

111. Claimant attempts to recover damages Respondent could not foresee. Foreseeability

depends on Respondent‟s subjective knowledge or representation of possible facts and

circumstances at the time of the conclusion of the contract [Knapp in Bianca-Bonell, pp. 539-

41; Sutton] together with its objective understanding of its own and Claimant‟s industry

[Sutton; Propane case].

112. At the time of the Contract Respondent could not subjectively foresee that its delay could

result in Claimant leasing a substitute yacht to host a conference [RfA, p. 7, para. 18] for a

client Respondent only found out about two months after signing the Contract [RfA p. 5,

para. 7; PO No. 2, CQ 14, p. 47]. Considering the brokerage industry, Respondent could

neither subjectively foresee that Claimant would pay its broker twice. It is not customary to

pay a broker a success fee on top of the standard commission [PO No. 2, CQ 23, p. 49].

Respondent could neither foresee that Claimant would make a voluntary disbursement for

an hypothetical loss of goodwill [RfA, p. 7, para. 18]

113. Respondent could neither objectively foresee any of the damages Claimant demands.

Respondent understands its industry, the sale, installation and configuration of master

control systems. But, Respondent has no objective understanding of Claimant‟s industry of

conferences for demanding clients [RfA, p.5, para. 5].

114. Even if Respondent had objectively foreseen these damages, there is no objective

foreseeability in cases of uncommon damages. Uncommon damages are those

exceptionally high damages, which Claimant had been able to recover only if it had

informed Respondent about their probable occurrence and if Respondent had agreed to

contract nevertheless [Huber/Mullis, pp. 273-274]. Specifically, Corporate Executes was a

high profile organization of top level executives that denied rescheduling the event and

accepting one of Claimant‟s other available venues [RfA, p. 6, para. 11]. This was something

that a common customer, one whose behavior Respondent could foresee, had improbably

done. Respondent could neither reasonably foresee the uncommonly high damages

Claimant attempts to recover. Claimant is asking Respondent to pay USD 670,600 for the

lease of the substitute yacht. Such amount is almost the same price of the master control

system, USD 699, 950. When losses are so high, they are no longer foreseeable [see also

Huber in MüKo, p. 2514, para. 31 and p. 2517, para. 39].



115. Furthermore, Claimant knew that it was common that Respondent used [PO No. 2, CQ 6, p.

46] Specialty Devices as third party to manufacture the units of the master control system.

Claimant also knew that Specialty Devices needed chips from High Performance, as it was

the only source for the D-28 chips [RfA, p. 5, para. 9]. As Claimant wanted the master

control system to be based on the newly developed chips, it accepted the risk of High

Performance‟s potential breach. Even if a party may subjectively have foreseen damages

arising from the late delivery of any party in its supply chain, this does not mean that

Respondent can be taken to have accepted the risk of such late delivery.

116. Since Respondent did not know about the conference at the time of the Contract, and

therefore not about the particular circumstances of Claimant‟s business with Corporate

Executives either, Respondent could not subjectively or objectively have foreseen the losses

Claimants now requests the Tribunal to recover from Respondent. Nor can Respondent be

expected to accept risks for possible damages resulting from circumstances of which

Respondent was not informed. The losses Claimant requests to recover were unforeseeable

to Respondent, and Claimant is therefore not entitled to its recovery.

2. Claimant incurred unreasonable costs to mitigate its losses. Moreover, amongst these costs, the ex-gratia payment and success fee are, in themselves, not allowable as items of damages

117. Claimant failed its duty to reasonably mitigate losses resulting from Respondent‟s late

delivery [Article 77 CISG]. Corporate Executives‟ ex-gratia payment and the broker‟s

success fee were unreasonable mitigation measures. Considering either the conference

organization and brokerage trade usages [Stoll/Gruber in Schlechtriem, p. 790, para. 7; Article 9

CISG] no prudent business person in Claimant‟s position would have taken such measures

[Huber/Mullis, p. 290] Thereby Respondent is not obliged to reimburse Claimant the ex-

gratia payment (i) nor the success fee (ii).

i. Respondent does not need to reimburse Claimant the ex-gratia payment

118. Claimant made a voluntary payment for a non-existent loss of goodwill, which payment

Respondent is not obliged to reimburse. Claimant can recover only such payments as it was

forced to undertake as direct result from Respondent‟s breach [Huber/Mullis, p. 386].

Therefore, Claimant‟s voluntary disbursement to prevent an non-existent and highly

unlikely loss of goodwill was unreasonable.



119. Contrary to Claimant‟s assertions [MfC pp. 25, 26, paras. 94-97] Claimant has not provided

the Tribunal with any evidence of suffering an actual loss of its client‟s goodwill or damage

to its reputation. In fact, Claimant hosted the conference on time on a “super yacht” [Resp.

Ex. No. 1, p. 41], just as Corporate Executives demanded and all guests were completely

satisfied [Id.]. Claimant‟s statements are inaccurate [MfC p. 26, para. 96] since Corporate

Executives never manifested any disappointment when Claimant informed of the M/S Vis‟

unavailability. Corporate Executives merely expressed its dismay for changing the location

[PO No. 2, CQ 20, p. 48] and insisted on hosting the conference on a substitute off-shore

venue [RfA, p. 7, para. 17]. Therefore, when Corporate Executives knew about the new

location on the M/S Pacifica Star, it “manifested its relief ” [Resp. Ex. No. 1, p. 41].

120. Furthermore, Claimant is not even able to provide any means to measure its alleged losses.

Claimant recognizes this in its own submission by saying “that goodwill may be difficult to

measure in this instance” [MfC, p. 25, para. 95]. Claimant however, still paid Corporate

Executives an unreasonably high amount of USD 112,000, which equals 25% of the total

costs for the lease of the substitute yacht. Claimant did not substantiate how it measured its

alleged loss of goodwill to that amount.

121. Respondent agrees with Claimant [MfA, p. 23, para. 86] that loss of goodwill might be

recoverable under Article 74 CISG. But Article 74 does not grant claims for immaterial

damages [CISG-AC Opinion No. 6, para. 7.1; Stoll/Gruber in Schlechtriem, p. 791, para.12;

Huber/Mullis, p. 279; Magnus in Staudinger, p. 648, para. 27] that do not lead to measurable

financial consequences [Huber/Mullis, p. 279]. In fact, damages are a “sum equal to the loss

(…) suffered” [Article 74 CISG]. This means that Claimant is not allowed to recover the ex-

gratia payment for a loss of goodwill it did not suffer and whose economic extent is not

measurable [Huber/Mullis, p. 279]. Damages resulting from loss of goodwill must be

"substantiated and explained concretely” [Art books case].

122. In Dye for clothes, the Barcelona Court of Appeals denied damages to the aggrieved party

which did not provide evidence showing loss of clients or loss of reputation [Dye for clothes

case]. In Art books, the Commercial Court of the Canton of Zurich denied reimbursement

of loss of goodwill, because when a party did not substantiate such goodwill claims [Id.].

Also, in Video recorders case, the District Court of Darmstadt denied damages for loss of

goodwill because the buyer was unable to calculate the exact losses resulting from the



damaged reputation [Video recorders case]. This case presents a Claimant that has neither

provided evidence, substantiated their claims nor able to calculate exact losses.

123. The ex-gratia payment is therefore unreasonable since the facts do not substantiate

Claimant‟s hypothetical circumstances for loss of goodwill. Claimant did not repudiate its

contract, so it did not risk losing future businesses with Corporate Executives [PO No. 2,

CQ 17, p. 48]. Corporate Executives was merely unhappy for the change of location [Id.],

but it never showed any intention of breaking present or future business relationships.

124. The Tribunal should rule that the ex-gratia payment was an unreasonable means for

mitigation and that Claimant is therefore not allowed to its recovery.

ii. Respondent does not need to reimburse the success fee

125. Even if the Tribunal considers that the success fee is not tainted by bribery, the success fee

was nevertheless an unreasonable measure taken by Claimant to mitigate losses. Success

fees are not customary for yacht brokers [PO No. 2, CQ 23, p. 49]. There are offered only

rarely, in exceptional circumstances [Id.]. Here, considering the brokerage industry, there is

nothing to justify Claimant‟s paying such fee. Even if the broker had difficulties finding a

suitable substitute yacht, this is part of the brokers business. Clients engage brokers

precisely because the specific goods they look for are not easily accessible on the market, or

because the Clients require special features [ICC Guidelines]. The reasonable reward for such

efforts is the payment of the commission fee.

126. The success fee Claimant paid is nothing but a voluntary and unnecessary disbursement.

Claimant may only be compensated for those payments it was forced to make as a direct

result of the breach [Huber/ Mullis, p. 386]. Here, Claimant paid voluntarily. The broker did

not ask for the payment, nor was Claimant was obliged to make it. Furthermore, the

amount of the success fee exceeds what a prudent businessperson in Claimant‟s situation

would reasonably pay. The success fee amounted almost as much as the commission fee

itself (82,5 % of the commission fee) and thus Claimant effectively paid its broker twice.

127. By paying such a high, unnecessary, and uncommon fee, Claimant took an unreasonable

measure to mitigate its loss,. Therefore, the Tribunal should rule that the success fee is not

an allowable item of damages and that Claimant is thus not entitled to its recovery.

* * *



128. Conclusion on Merits: This Tribunal should rule that Respondent is exempt from liability

for its late delivery of the master control system, and thereby not obliged to pay damages

to Claimant. Respondent is exempt because both Respondent‟s and its third party, Specialty

Devices‟, attempt to perform were frustrated by impediments which were they could not

control, foresee, or overcome. Even if the Tribunal does not find that Respondent is

exempt, Claimant is still not entitled to recover damages for costs incurred which are not

allowable items of damages. Claimant‟s success fee was an illegal payment used to procure

the lease of the M/S Pacifica Star. The illegibility of the success fee taints the lease and

renders all its associated costs unallowable items of damages. Moreover, the ex-gratia

payment and the success fee are further unrecoverable, as they were unreasonable means

for mitigation. Claimant is thus not entitled to recover any of the damages it claims.

V. REQUEST FOR RELIEF

129. In light of the above submissions, Respondent respectfully requests this Tribunal to:

1) Decide that Dr. Mercado shall terminate her role in Claimant‟s legal team.

2) Decide that Respondent is exempt from liability for the late delivery of the M/S Vis

master control system.

3) Decide that even if Respondent is held liable for its delay, the success fee used by

Claimant‟s broker to commit bribe is illegal and thereby not an allowable item of

damages.

4) Decide that the illegal bribe, which procured the lease of the M/Pacifica Star, renders all

costs associated with the lease unallowable items of damages.

5) Decide that the ex-gratia payment is not an allowable item of damages.

Respectfully signed and submitted by counsel on 19 January 2012

_____________ ___________________ ____________________ Brian Kotick Ragnhildur Olafsdottir Celeste E. Salinas Quero _________________ ________________ ____________________ Yaroslava Sorokthey Anina Wissner Gunnar Witte

On behalf of Respondent,

Equatoriana Control Systems, Inc.

STOCKHOLM UNIVERSITY · 10 No. 1, 1999 26 Kolo Kolo, Abba Witness Intimidation, Tampering and Other...

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