List of Abbreviations“the Basic-Agreement”: the Agreement between RED and BLUE as shown in
Ex.5“the Basic-Agreement.Art.(number)”: the article (number) of the
Basic-Agreement“BLUE”: BLUE Corporation in Arbitria“Brown”: the deputy general manager of the international department of BLUE.
“CISG”: UNITED NATIONS CONVENTION ON CONTRACTS FOR THE
INTERNATIONAL SALE OF GOODS as shown in Attachment 1 of thismemorandum“CISG.Art.number(number)(letter)”: the article of CISG
“the CER Purchase Agreement”: the CER Purchase Agreement as shown in
Ex.7“the CER Purchase Agreement.Art.(number)”: the article (number) of the
CER Purchase Agreement“Ex. (number)”: Exhibit in the problem“Green”: Green Corporation, the joint venture of RED and BLUE.
“the Joint-Venture-Agreement”: the Joint Venture Agreement between RED
and BLUE, creating Green, as shown in Ex.7
“the Joint-Venture-Agreement.Art(number)”: the article (number) of the
Joint-Venture-Agreement“the License-Agreement”: the License Agreement between RED and BLUE asshown in Ex.6
“the License-Agreement.Art.(number)”: the article (number) of theLicense-Agreement“the NEP-agreement”: the license agreement between NEP and BLUE
“NEP”: Negoland Electric Power in Negoland“Para.(number)”: Paragraph number in the problem“Prince Robert”: the eldest son of Nego III, the minister of environment of
Negoland, and a major shareholder of NEP“RED”: Red Corporation in Negoland“Smith”: the deputy general manager of the power generation businessdepartment of RED“UNIDROIT.Art.(number)”: Articles of UNIDROIT Principles of International
Commercial Contracts 2004
“US$”: U.S. dollars
2

I. Introduction
The aim of this memorandum is to delegate BLUE’s claims regarding
disputes between BLUE and RED.
BLUE’s submission that BLUE is not under any obligation regarding two
main issues: CO2 emissions reduction technology transaction and discussionof the biomass power generation transaction.

II. Regarding the CO2 Emissions Reduction Technology Transaction
Issue 1: Should the RED’s claim that BLUE shall immediately
terminate the license agreement with NEP and/or BLUE pay US$1
million be allowed?

BLUE’s submissions regarding the NEP-agreement:
BLUE is not under any obligation to terminate the NEP-agreement for thefollowing reasons:
1. The Basic-Agreement is invalid
2. BLUE is exempt from its obligation owing to a Force Majeure

1. Invalidity of the Basic-Agreement
It is submitted that the Basic-Agreement is invalid for the reasons below,
and thus, BLUE is under no obligation to terminate the NEP-agreement.
A.) Completeness of its expected rolei.) The purpose of the Basic-Agreement
The purpose of the Basic-Agreement is to encourage both parties to deal
with each other in order to conclude official contracts. In light of this feature of
the Basic-Agreement, its effects naturally become invalid as the formal
agreement is put into practice to a sufficient extent.
ii.) No termination stipulation
Also, non-existence of the termination clause clearly shows that the
Basic-Agreement will become invalid as it accomplishes its purpose.
3

iii.) Accomplishment of its purpose
With the execution of the three agreements in Ex.5, 6, and 7, the following
three main topics have already yielded following results:1.) CO2 emissions reduction technology transaction 1
2.) Biomass power generation transaction 2
3.) CER purchase 3
Therefore, it is reasonable to conclude that the Basic-Agreement has
accomplished its purpose and, as a result, it becomes invalid.
B.) No periodic meetings
Despite the existence of the Basic-Agreement.Art.2, “the periodic
meetings...were not held from the beginning” 4 . This shows that the
Basic-Agreement is not strictly legally binding.
Therefore, it is clear that the Basic-Agreement is no longer valid.
2. The Conclusion of the NEP-agreement and a Force MajeureBLUE should be exempt from its obligation due to Force Majeure for thereasons below.
A.) An Impediment beyond Control
The NEP-agreement was executed because of the strong request from
Prince Robert. Moreover, Nomura stated that it would be “impossible to refuseit” 5. Therefore, the request from him is “an impediment beyond control” 6.
B.) No reasonable expectations
As a government official and a member of the royal family of Negoland,
Prince Robert has “a strong influence on politics of Negoland as a whole” 7. In
addition, as a major stakeholder of NEP and the fact that he asked directly to
1

Ex.5
Ex.6
3
Ex.7
4
Para.18.a5
Para.22.g
6
UNIDROIT.Art.7.1.7(1)27Para.22.g
4

Ota to meet people of NEP, his intention to encourage BLUE to execute license
agreement with NEP is clear. This fulfils an impediment which “could notreasonably be expected....to have avoided or overcome its consequences”8.
Therefore, owing to a Force Majeure, BLUE shall be exempt from its
obligation.
For all the reasons above, BLUE is not under an obligation to terminate the
NEP-agreement.

BLUE’s submission regarding the prize:
BLUE does not have to pay US$1 million to RED for the following reasons:
1. BLUE is under no obligation to receive the prize for RED
2. RED’s claim for damages should not be allowed

1. No obligation regarding the prize in the License-Agreement
BLUE is under no obligation regarding the prize for the reasons below:A.) Terms of the License-Agreement
There is no clause that enacts BLUE’s responsibility of getting the
prize for RED in the License-Agreement 9.
B.) Conversation between RED and BLUE
Although there is a conversation referring to the prize 10, BLUE did not statethat it would be responsible for or cooperate in getting said prize for RED. In
light of the fact that there is no mutual agreement between BLUE and RED,
BLUE is not responsible for the prize.
Therefore, BLUE is under no obligation to obtain the prize for RED under the
License-Agreement.

8
9
10

UNIDROIT.Art.7.1.7(1)Ex.5
Para.17.b5

2. No Basis for RED’s Claim for Damages
It is submitted that there is no basis for RED’s claim for damages as
demonstrated below.
A.) The principle of foreseeabilityi.) According to the License-Agreement.Art.13, the applicable law is
UNIDROIT.
ii.) UNIDROIT.Art.7.4.4 stipulates that a party is liable only for harm which
it foresaw or could reasonably have foreseen at the time of the conclusionof the contract.
iii.) BLUE could not foresee the cancellation of the internal decision for thefollowing reasons:1.) At a party celebrating signing of the Basic-Agreement, Nomura
stated that the Negoland government “will commend the power
generator enterprise making the best contribution to environmental
protection in 2009.” 112.) It was impossible for BLUE to foresee that the cancellation of the
prize could be affected by any occurrence after 2010.
3.) Prince Robert’s approach was not until January 2010 12.
4.) No work for the technology transaction to NEP has started yet 13.
Therefore, foreseeability of harm does not exist, and RED has no right fordamages.
B.) Force MajeureBLUE shall not be liable to pay US$1 million to RED because it shall be
exempt due to Force Majeure as stated above, regarding the NEP-agreement
and a Force Majeure on page 4 of this memorandum.
Therefore, RED’s claim for damages should not be allowed.
11

Para.17.b
Para.22.g
13
Para.22.b
12

6

For these reasons above, BLUE is under no obligation to pay US$1 million toRED.

Issue 2: Is BLUE under Obligation to Pay US$15 Million?

BLUE’s submission:
BLUE is not under any obligation to pay US$15 million to RED for the reasons
below:
1. BLUE fulfilled its obligations
2. There is no basis for RED’s claim for damages

1. Fulfilment of Obligations
RED claims that BLUE is liable to pay US$15 million for the following
reasons:(1) BLUE did not supply the technology that could satisfy the initiallyplanned emission reductions.
(2) BLUE failed to dispense advice required as a professional operator 14.
However, it is submitted that BLUE fulfilled its obligations.
A.) BLUE’s obligation concerning the Technologyi.) BLUE’s duty of best efforts
UNIDROIT stipulates “the way in which the obligation is expressed in
the contract should be considered to determine a kind of duty.” 15
According to the License-Agreement.Art.7.1, the Technology to be supplied
by BLUE is “the best technology” that BLUE “possesses at the time of its
disclosure” 16. Therefore it is clear that there was no obligation to provide thetechnology to achieve a specific result of satisfying the planned emissions
reduction.
ii.) Fulfilment of BLUE’s duty of best efforts
BLUE fulfilled its obligation of best efforts as demonstrated below:
14

Para.22.j
UNIDROIT.Art.5.1.5(a)
16
Ex.5
15

7

a.) The best technology has been provided and the installation has been
finished by the end of 2009 17.
b.) The amount of CO2 emissions reduction at the three thermal plants,
where on-site survey was conducted, has achieved the planned level of
reduction. 18c.) The order to return the subsidy was caused by differences between
the planned reduction amount and the actual performance due to thelack of investigation, instead of the technology level. It is not disputedthat BLUE had an alternative way to achieve planned level if BLUE had
known the existence of decrepit thermal power plants 19.
Therefore, BLUE has fulfilled its obligation regarding the Technology.
B.) BLUE’s obligation regarding the advice as a professional operator
The order to return the subsidy was caused by differences between
planned emissions reduction and the actual performance due to the lack ofsufficient investigation 20. Regarding the investigation, BLUE has dispensed theadvice required of a professional operator as followings:i.) BLUE clearly stated “To ensure accuracy, we need to conduct on-site
surveys at all power plants… investigations will take about two months” 21.
ii.) BLUE has declared that it is expecting Red to “select… representative
thermal power plants… to get a good overall picture of your entire…plants” 22. As RED has said, “Because your company doesn’t know thedetails of our power plants” 23 , RED was under obligation to choose
appropriate sites which fulfils BLUE’s instruction.

17

Para.18.i
Para.22.h
19
Para.22.h
20
Para.22.h
21Para.18.e
22
Para.18.e
23
Para.18.e
188

iii.) Decrepit thermal power plants had been a concerning issue for RED 24;
therefore, RED should be aware of the effect of long time usage upon
performance. Also, BLUE told RED “actual reductions vary depending on thecurrent equipment…” 25 Therefore, to “grasp an overall picture of the entire
thermal power plants” 26, RED should have taken the age of the facility into
account and chosen average power plants.
iv.) From License-Agreement.Art.2.1 BLUE is not under obligation toprovide information that is not “free disposal”. Since BLUE is a solid business
entity 27, it is reasonable to assume that BLUE has keeping its all facilities up todate, not leaving them outdated.
Therefore, the possibility of existence of data concerning decrepit power
plants and, moreover, its actual effect to the result of CO2 emissions reduction
is quite low.
Given the aforementioned facts, BLUE has fulfilled its obligation to dispenseadvice upon investigation.
Therefore, there is no default of obligations, and Blue is not under any
obligation to pay US$15 million.
2. Exemption or Mitigation of Damages
Even if BLUE’s claim is fully or in part not successful, there are,nevertheless, reasons for exemption from damages or mitigation of damages.
A.) Acquisition of the subsidy
In this case, there is no written stipulation concerning the acquisition of thesubsidy. Therefore, it is reasonable to interpret that RED, which submitted thesubsidy form 28 had a risk of acquiring the subsidy. In addition, RED is the only
one to benefit by receiving the subsidy. Therefore, it is reasonable to interpretthat the risk of acquiring the subsidy still remains with RED even after the24

Para.9Para.18.e
26
Para.18.e
27
Para.14.a
28
Para.18.e
25

9Basic-Agreement has become invalid.
Therefore, RED has no right to claim damages against BLUE. RED may not
rely on the non-performance of BLUE to the extent that such non-performancewas caused by another event as to which the first party, or RED, bears therisk 29.
Therefore, RED shall not claim damages from BLUE.
B.) Effect of RED’s act
Even if BLUE is liable for damages, RED could have reduced harm if RED
has followed BLUE’s instruction to choose three appropriate power plants tograsp an overall understanding of the situation.
i.) UNIDROIT.Art.7.4.7 stipulates “Where the harm is due in part to an act
or omission of the aggrieved party....the amount of damages shall be reduced
to the extent that these factors have contributed to the harm, having regard to
the conduct of each of the parties” 30.
ii.) As mentioned in page 8 of this memorandum, the cancellation ofsubsidy was caused by lack of on-site investigation which took place at three
new large thermal power plants.
Therefore, BLUE is exempt from its obligation or the amount of damages
should be mitigated.

29

UNIDROIT.Art.7.1.2

30

UNIDROIT.Art.7.4.7
10

III. Regarding the Biomass Power Generation Transaction
Since RED’s breach of duty caused the cancellation of the subsidy, RED is
obliged to pay US$9 million to BLUE, the amount of which BLUE has paid to thegovernment of Negoland.
Even if this claim is unsuccessful, under the Joint-Venture-Agreement,
RED is obligated to pay US$4.5 million.
Also, under the CER Purchase Agreement and Ex.8, RED is underobligation to refund US$1.5 million to BLUE.
Issue 1: Is RED under Obligation to Pay US$9 Million or US$4.5 Million
to BLUE?

BLUE’s submissions:
1. RED is obligated to pay US$9 million to BLUE for the following reasons:A.) Breach of dutyB.) BLUE’s right to damages
C.) No basis to RED’s claims
2. Even if the submission above does not succeed, RED is under an obligation
to pay at least US$4.5 million to BLUE.

1. RED is obligated to pay US$9 million to BLUE.
It is submitted that the cancellation of the subsidy was caused by RED’s
breach of duty.
A.) RED breached its dutyi.) Terms of the Joint-Venture-Agreement
According to the Joint-Venture-Agreement.Art.14.3 31, RED’s duty was to“procure bird manure and wood waste necessary to operate the power
generation facility.”ii.) Interpretation of Art.14.3
RED’s duty shall be understood as procuring bird manure and wood waste
in Negoland for the following reasons:
31

Ex.6
11

a.)BeforetheexecutionoftheJoint-Venture-Agreement,BLUEemphasized the importance of individuality of the two materials as
follows: BLUE has informed RED “Actual output varies depending on
the conditions of chicken manure and wood chips, among othermatters” 32.
b.) Considering the lack of time for investigation, it was impossible toconduct incineration testing using other samples. Therefore, it was
important for RED to provide the materials with the same
constituents to secure the outcome.
c.) Since both RED and BLUE have conducted incineration testing using
samples provided by RED 33, it is reasonable for BLUE to believe that RED
would procure the chicken manure and wood chips with the same
constituents as the samples. Otherwise, there would be no reason to
conduct such a test.
d.) Due to the fact of lack of time and conducting incineration testing, RED
knew that RED’s duty was to provide materials with the same
constituents. Therefore, in light of UNIDROIT.Art.4.2(1), interpretationof the duty should be providing the materials with the same constituents.
e.) Providing the materials in Negoland as a sample 34, RED should haverecognized its duty as procuring bird manure and wood waste in
Negoland.
Moreover, it is stipulated in CISG that when a party supplied a sample,“the goods do not conform with the contract unless they: (c) possess thequalities of goods which the seller has held out to the buyer as asample” 35. Therefore, it is reasonable to think that the sample provider,which is RED, should provide chicken manure and wood waste with same
constituents.

32

Para.20.aPara.20.d
34
Para.20.d
35
CISG.Art.35(2)(C)33

12

Therefore, RED’s duty enacted on Art.14.3 of the Joint-Venture-Agreement
is to procure bird manure and wood waste in Negoland, not from any otherplace.
iii.) RED’s breach of duty
RED supplied BLUE with materials from a neighboring country 36, whichclearly constitutes a breach of RED’s duty.
B.) BLUE has a right to damages
It is submitted that BLUE may seek damages of US$9 million to RED
pursuant to UNIDROIT.
According to UNIDROIT.Art.7.4.2(1), BLUE “is entitled to full compensation
for harm sustained as a result of the non-performance”.
In order to prove a right for damages, the following is required: existenceof non-performance of duty and causal relationship between non-performanceof duty and damages 37, certainty 38, and foreseeability 39.
i.) UNIDROIT.Art.7.4.1 and non-performance of RED’s duty
According to UNIDROIT.Art.7.4.1, “Any non-performance gives theaggrieved party a right to damages either exclusively or in conjunction withany other remedies…”
As stated above, RED has not performed its duty.
ii.) Causal Relation
The cancellation of the subsidy was caused by non-achievement of theinitially planned amount of output for the biomass generation power plant 40.
This was caused by RED’s non-performance of procuring chicken manure andwood chips with the same constituents as samples 41.
Clearly, there is a causal relation between the non-performance by RED
and the cancellation of the subsidy.

36

Para.23.b
UNIDROIT.Art.7.4.1
38
UNIDROIT.Art.7.4.3
39
UNIDROIT.Art.7.4.4
40
Para.23.a
41
Para.24
37

13

iii.) Certainty of harm
Damages occurred due to the fact that BLUE has returned the subsidy,
which was US$9 million, to the Negoland government 42.
iv.) Foreseeability of harm
RED mentioned a possibility of the cancellation of the subsidy 43. Therefore,both RED and BLUE were aware that the harm would be caused if RED failed to
procure chicken manure and wood chips. Therefore, there is foreseeability of
harm.
C.) No Basis for RED’s Claims
There is no basis for RED’s claims 44 as follows.
i.) BLUE’s responsibility
According to the Joint-Venture-Agreement.Art.14.2, BLUE’s responsibility
is to supply the necessary technology and information regarding biomass
power generation.
a.) As the output of a biomass power plant depends on bird manure andwood waste procured by RED, if RED failed to fulfill its duty, BLUE’s duty will belimited to making its best efforts in the performance 45, which does notinclude providing the technology which achieves a specific result.
b.) The extent of duty of BLUE is limited to providing RED withinformation related to the operation of the biomass power generation. BLUE’s
duty is thus limited to conducting incineration testing using samples thatare supposed to be used at the actual power plant. Therefore, BLUE isunder no obligation to conduct testing using samples from other areas.
ii.) BLUE’s request for RED not to bribe OrangeBLUE’s refusal of bribery shall not be a reason for BLUE’s responsibility forthe cancellation of subsidy. Bribery is not only prohibited both in Negoland and42

Para.26.b
Para.20
44
Para.25.b
45
UNIDROIT.Art.5.1.5(d)4314Artribia 46 , but also an action against fair dealing principles 47 as stated intreaties adopted by international organizations 48 . In addition, RED agreed
with BLUE on not to bribe RED in the conversation between Ota and Nomura 49.
Therefore, there is no basis for RED’s claim that bribing Orange would haveavoided the cancellation of the subsidy, and BLUE has no responsibility for thecancellation of the subsidy.
Therefore, RED is under obligation to pay US$9 million to BLUE.

2. RED is under obligation to pay at least US$4.5 million to BLUE
Even if BLUE’s claim is in part or fully unsuccessful, the damages should be
divided in half between RED and BLUE because both companies are liable forGreen’s default of obligations. Therefore, RED is under obligation to pay atleast US$4.5 million.
The Joint-Venture-Agreement.Art.14.4 stipulates “In case that Green
becomes liable to the third party other than the Parties because of its acts oromissions, both parties equally share the liability.” 50 In this case Green
damaged the Negoland government, a third party.
Therefore, it is reasonable that the damage of US$9 million shall be divided
equally between BLUE and RED.

46
47

Para.24
UNIDROIT.Art.1.7

Para.6
Para.24 last two lines
50
Ex.6
48
49

15

Issue 2: Is RED under obligation to pay US$1.5 million as the upfront
payment to BLUE?

BLUE’s submissions:
1. RED is under obligation to pay US$1.5 million to BLUE for the following
reasons:
A.)BLUE has a right to terminate the CER Purchase Agreement
B.)According to the written guarantee by RED 51 , RED should pay fordamages
2. BLUE does not bear the risk of not being able to obtain a satisfactory
number of credits.

1. RED is under Obligation to Pay US$1.5 Million to BLUE
Due to non-performance of RED, BLUE has a right to terminate the CER
Purchase Agreement.
A.) BLUE’s right to terminate the CER Purchase Agreement
According to the CER Purchase Agreement.Art.3.1, “if the Project Entity(Green) does not deliver all of the CERs… within fifteen (15) business days…
on which it was required to deliver those CERs…, the Buyer (BLUE) may
terminate this Agreement”.
According to the fact that no emission credits were issued by the CDM 52, it
was impossible for Green to deliver credits within (15) business days.
Therefore, BLUE may terminate the CER Purchase Agreement.
B.) BLUE’s Right for Damages
RED is obliged to pay US$1.5 million for the reasons shown below.
i.) BLUE’s Right to Request Green to pay US$1.5 Million
According to the CER Purchase Agreement.Art.3.2, when the agreement isterminated, Green shall return US$1.5 million which has been paid by BLUE.
ii.) RED’s Responsibility to pay US$1.5 Million
51
52

Ex.8
Para.2716

According to the guarantee made by RED on August 9th53, RED is underobligation to pay US$1.5 million to BLUE in case Green is obliged to repay suchamount to BLUE. It is undisputed that this guarantee is legally binding 54 andRED is obliged to pay for Green’s debt.
Therefore, RED is obligated to pay US$1.5 million to BLUE.

2. No bearing of risk
BLUE does not bear the risk of failing to obtain sufficient amounts ofcredits.
A.) Oral promise by Browni.) Oral promise by Brown
In August 2009, Brown stated “if you accept this (pricing of US$10 perton) and we are be able to be registered with the United Nations CDM
Executive Board, then we could give in and bear the risk of not being able toobtain a satisfactory number” 55.
ii.) Oral promise is not legally binding
The Joint-Venture-Agreement.Art.21.2 56 is a merger clause, which“indicating that the writing completely embodies the terms on which theparties have agreed” 57. Therefore, “a contract… cannot be contradicted or
supplemented by evidence of prior statements or agreements.” In light of this,
the

oral

promise,

which

was

made

beforetheconclusion

of

the

Joint-Venture-Agreement, is not legally binding.
iii.) Even if the oral promise is valid, BLUE does not bear the risk
Risk as mentioned here, refers to the risk when default of duty by neitherof the parties exists. In this case, non-issue of credit was caused by RED’s
default, and therefore, this is not the case of risk.
53

Ex.8
Para.27
55
Para.21.b
56
Ex.6
57
UNIDROIT.Art.2.1.17
54

17

Therefore, BLUE does not bear the risk pursuant to the oral promise byBrown.
B.) No basis for RED’s claim regarding the performance of the biomass power
generation
RED may claim that the reason for Green’s obligation to return the upfront
payment to BLUE is that emissions credits were not issued due to the failure of
the performance of biomass power generation. As stated in Issue 2.1(page 12of this memorandum), the failure is due to RED’s default of duty to provide
bird manure and wood waste in Negoland.
Therefore, BLUE is not responsible for this failure. Thus, this claim of RED’s
should not be allowed.
C.) RED’s possible claim to share the liability
Based

on

the

last

sentence

of

Ex.8

and

the

Joint-Venture-Agreement.Art.14.4, RED may claim that the returning amountof upfront payment should be divided in half.
However,

BLUE

is

not

considered

as

“a

third

party”

inthe

Joint-Venture-Agreement.Art.14.4 because BLUE is a party involved in the
Joint-Venture-Agreement.
Therefore, this is not the case that the Joint-Venture-Agreement.Art.14.4
should be applied and RED’s claim of reduction of the damages should not beallowed.
Therefore, BLUE does not have to bear the risk of failing to obtain sufficientamounts of credits.

18

IV. Conclusion
As aforementioned reasons, BLUE has no obligation to terminate the
NEP-agreement, nor obligation to pay any damages to RED. Instead, RED is
obliged to pay damages of US$9 million and, furthermore, RED is obliged toreturn the upfront payment.

19