I.

PART ONE – TERMS OF THE CONTRACTFirst Submission
It is a term of the contract for the supply of beef in the context of the generalbusiness relationship contract that products supplied by Red Co. (Red) to Blue Inc.
(Blue) would be of a type that satisfies the preferences of Blue’s customers in
Arbitria, and therefore the beef would not have been administered growth
hormones.
The Memorandum is a binding contract
It is submitted that the Memorandum executed between Blue and Red is a binding
contract between the parties. UNIDROIT Art. 2.1 permits a broad application ofnotions of offer and acceptance, stating that a contract need only be concluded ‘bythe acceptance of an offer or by conduct of the parties that is sufficient to show
agreement’. The offer was sufficiently definite (Art. 2.2), having regard to:
(i)
(ii)

the clear intention of the parties to be bound; andthe fact that any missing terms could be determined by interpreting theagreement (per Art 4.1 et seq.) or supplied by Art 4.8 or Art 5.2.

Furthermore, mere agreement between the parties is sufficient to establish a valid
contract.1
Terms of the contract
It is submitted that the relevant term is that Red acknowledged the substance of thisMemorandum that it would seek to satisfy the preferences of the customers of Bluein Arbitria. This is an express term, and provides the background under which all
future contracts would operate. This was clearly the mutually beneficial environment
in which the specific soybean contract operated, and the terms of this contract
would also applied to contract of beef.
The terms of the contract have been affirmed on several occasions.
(i)

(ii)

1

Meeting of the Presidents in 2000 where the President of Red promised toprovide Blue with ‘high quality products that can satisfy the customers in
Arbitria as in the past’ in return for financial support from Blue.
Meeting of the Presidents in 2006 extended ‘high quality products that cansatisfy the customers in Arbitria as in the past’ to mean products not fed withgrowth hormones.

UNIDROIT Art. 3.2.

12

Terms of Contract Number 123 (‘specific beef contract’)
The specific beef contract executed on 15 March 2007 was for the supply of beef.
There is a term as to quality and while that does not specify the particularrequirement, it must be read in light of the terms of the Memorandum as a generalcontract for formation.

Second Submission
In the alternative, even if it were not an express term of the contract at the time ofcontract formation that the products supplied by Red to Blue would be of a type thatsatisfies the preferences of Blue’s customers in Arbitria, and therefore would not be
fed with growth hormones, then the contract was altered by several documents toinclude that term.
Mr. Orange’s e-mail is an offer to modify the specific beef contract
It is submitted that Mr. Orange’s e-mail is an offer to modify the specific beef
contract. The offer was sufficiently definite and indicates the intention of the offeror
to be bound in case of acceptance,2 having regard to the intention of the parties toenter a binding agreement, and that missing terms can be supplied to the agreementin accordance with Arts. 4.1 et seq.3
Mr. Grape’s e-mail is a modified acceptance of Mr. Orange’s e-mailIt is submitted that Mr. Grape’s reply to Mr. Orange’s e-mail is a modified
acceptance. Although a reply to an offer which purports to be an acceptance but
contains modifications is a rejection of the offer and constitutes a counter-offer,4 if
the reply contains additional or different terms which do not materially alter theterms of the offer, the reply constitutes an acceptance, unless the offeror, without
undue delay, objects to the discrepancy.5
It is clear that Mr. Grape’s e-mail indicates agreement to the use of beef from Sambo
Farm, but contains an additional limitation that beef raised with feed containing
growth hormones should not be used.6 This limitation, however, is not a material
alteration of the terms of the offer because it only related to the quality of the beef,
and not

2

UNIDROIT Art. 2.2.
UNIDROIT Official Comment Art. 2.2 [1].
4
UNIDROIT Art. 2.11(1).
5UNIDROIT Art. 2.11(2).
6Agreed Facts, Attachment 11.
3

12

Mr. Grape’s modified acceptance ‘reached’ Mr. Orange
Art. 1.9 defines the circumstances in which a notice ‘reaches’ a person. A notice‘reaches’ a person when delivered at that person’s place of business or mailingaddress.7 It is critical to note that it is sufficient that the communication is placed in
the addressee’s mailbox, or received by the addressee’s computer.8
It is submitted that Mr. Grape’s e-mail reached Mr. Orange because it was delivered
to Mr. Orange’s e-mail. Although the e-mail was automatically sorted into the folder
for junk e-mail, the e-mail nevertheless reached Mr. Orange for the purposes of Art.
1.3. Therefore the contract was modified to the extent that beef not fed with growth
hormones should be used in this transaction.

Third Submission
In the alternative, if not an express term of the agreement, then it was an implied
obligation that the products supplied by Red to Blue would be of a type that satisfies
the preferences of Blue’s customers in Arbitria, and therefore would be free fromgrowth hormones.
Implied obligations can arise under Art. 5.2, stemming from:
(i)

(ii)

(iii)

Nature and purpose of the contract – Even if the tribunal were to find thatthe memorandum is not a binding contract, it still provides evidence of thenature and purpose of the contract.
Practices and usage – Established practice between Red and Blue indicatesthat Red has never sold to Blue beef produced on a farm other than Otto
Farm. A sample transaction of beef was from Otto Farm, and previoustransactions between 2002 and 2007 have only involved beef from Otto
Farm.9 Red is therefore bound by this usage established between Red andBlue.
Good faith and fair dealing – Even if the tribunal were to find that at the timeof contract formation the parties did not intend that the beef supplied would
not be administered growth hormones, through Red’s practise of supplying
exclusively from Otto Farm, this became an implied term which dictated bothparties’ practise. It would therefore be unconscionable for Red to resile fromthat position without further negotiation with Blue just because it had somedifficulties with its other supplies to Red Trading, taking particular note that

7

UNIDROIT Article 1.9
UNIDROIT Official Comments, Art. 1.9 [4].
9Agreed Facts, Paragraph 25.
812

the possibility of using Sambo Farm beef was never discussed,10 and also that
Red Trading did not request beef not to be fed with growth hormones. 11

Fourth Submission
In the alternative, if the parties are found not to have agreed with respect towhether the products would be free of growth hormones, it was an omitted termthat they would not have been administered growth hormones.
Art. 4.8 provides that an appropriate term shall be supplied into the contract, having
regard to;(a) the intention of the parties;(b) the nature and purpose of the contract;(c) good faith and fair dealing; and(d) reasonableness.
In determining the intention of the parties, prior negotiations and any conductsubsequent to the conclusion of the contract are admissible under comment 3 :Prior negotiations clearly indicate an intention to use beef not fed with growth
hormones
This is something the contracting parties did not foresee as an issue. In the context
of their existing business relationship it was unnecessary to make express the termthat Red would make the utmost effort to supply products that satisfied thepreferences of Blue’s customers, and in this case, that meant supplying beef that was
free of growth hormones. This is supported by the fact that the contracting parties
never talked about the possibility of using beef from Sambo Farm,12 and that thenegotiations were premised upon the trading the beef produced by Otto Farm.13
Conduct subsequent to contract formation
It is submitted that Blue took steps to ensure that Red was informed of theenactment of the ordinance prohibiting importation into Arbitria of beef fed withgrowth hormone. Blue also informed Yellow Co. (‘Yellow’) of this enactment andrequested Yellow to investigate whether it would affect its business. These clearly
indicate the intention of the contracting parties that beef procured to Blue would be
growth hormone free.

10

Agreed Facts, Paragraph 17.
The Collection of Questions and Answers (‘Q&A’)
12
Q&A 8.
13
Agreed Facts, Paragraph 17.
1112

NON-PERFORMANCE OF CONTRACT
Fifth Submission
If the tribunal were to find that the contract did require Red to provide beef not fed
with growth hormones, then Red’s failure to deliver beef not fed with growth
hormones amounted to non-performance.
Non-performance is defined as to include all forms of defective performance.14 Red’s
failure to deliver beef not fed with growth hormones to Blue clearly falls within thescope of this definition.
It is submitted that Blue did not cause the non-performance of Red.15 As discussed in
the Second Submission, Blue had given notice to Red that it would require growth
hormone free beef.
Invocation of Exemption clause is grossly unfair
Exemption clauses may not be invoked if it would be grossly unfair to do so, having
regard to the purpose of the contract.16 It is submitted that clause 11 of the specificbeef contract limits Red’s liability for defects in beef. However, it would be grossly
unfair to invoke this clause having regard to:17
(i)

(ii)

the purpose of the contract: as outlined in the Memorandum and fromexchanges between representatives of Blue and Red on previous occasions,that Red is to deliver products to satisfy the preferences of the customers ofBlue.
what Blue could legitimately have expected from the performance of thecontract: Blue could legitimately have expected Red to supply beef not fed
with growth hormones.

Force majeure
It is submitted that Red’s non-performance is not excused by the enactment of theordinance prohibiting importation of beef that has been administered growth
hormones into Arbitria by reason of force majeure.18
Although the enactment of the ordinance is beyond Red’s control, it would not be
open to Red to argue force majeure to excuse its non-performance. Red could
reasonably have expected to take the impediment into account at the time of theconclusion of the contract because Blue had informed it in the meeting of the

14

UNIDROIT Official Comments, Art. 7.1.1.
UNIDROIT Art. 7.1.2.
16
UNIDROIT Art. 7.1.6.
17
UNIDROIT Official Comments, Art. 7.1.6 [5].
18
UNIDROIT Art. 7.1.7.
15

12

Presidents of the two companies in 2006 that some lawmakers in Arbitria arepushing for a law to prohibit the importation of beef fed with growth hormones.

12

II.

PART TWO – DAMAGES AND PURCHASE PRICE

If the tribunal accepts that the Red is liable for the non-performance of obligations
specified above, the Blue submits that the Red is obliged to pay damages for theharm incurred in providing a 30 percent discount to Purple Co (‘Purple’)19. In supportof this submission, the Blue relies on Art. 7.4 and the provisions therein.
Sixth Submission
Red is liable for the damage incurred by the imposition of the discount.
Blue submits that the Red is prima facie liable for damages for non-performanceunless the non-performance is excused under the Principles.20 A discount is a ‘loss’
because ‘the notion of loss must be understood in a wide sense.’21 Alternatively, the30 percent discount is a ‘gain of which *Blue+ was deprived’22 because such a gain
would have normally accrued to the Blue had the contract been properly
performed23.
Blue submits that there is a sufficient causal relationship between the nonperformance and harm. But for Red’s delivery of prohibited beef, the discount toPurple would not have needed to be given. Therefore, there is direct causal
relationship between the non-performance and harm.
Moreover, Blue submits that the harm was reasonably certain.24 The discount had
already been given to Purple on June 1225. In addition, Blue submits that the extent
of the harm is certain. It has been quantified to be a 30 percent discount. 26 This is
not the case where there is ‘loss of a chance’27 or where the amount of damages
cannot be established.28
It is Blue’s submission that the harm was either foreseeable by Red or could havereasonably have been foreseen at the conclusion of the contract. 29 What isforeseeable is to be determined at the conclusion of the contract.30 Red would have
known of the type or kind of harm (viz pecuniary harm) as a result of nonperformance. The extent of the harm is not such to transform the harm into a
different kind of harm. 31 Reasonable foreseeability in Article 7.4.4 should be
19

Agreed facts, para. 28
UNIDROIT, Art. 7.4.1
21
UNIDROIT, Official Comments, Art. 7.4.2 [2].
22
UNIDROIT, Art. 7.4.2.
23
UNIDROIT, Official Comments, Art. 7.4.2 [2].
24
UNIDROIT, Art. 7.4.3(1).
25Since Mr Grape only found out about the confiscation on June 12 and had said in his telephone
conversation with Mr Orange on June 12 that he has already informed Purple Co: Agreed facts Para 28
26
Agreed facts, para. 28.
27
UNIDROIT, Art. 7.4.3(2).
28
UNIDROIT, Art. 7.4.3(3).
29
UNIDROIT, Art. 7.4.4.
30
UNIDROIT, Official Comments, Art. 7.4.4.
31
UNIDROIT, Official Comments, Art. 7.4.4.
20

12

construed as what a reasonable party of the same kind as Red would have foreseenin the circumstances at the conclusion of the contract.32 Even if Red could not haveforeseen pecuniary loss to Blue as a result of Red’s non-performance, Blue submits
that a reasonable party would have foreseen such loss in the circumstances.
Blue submits that it did not contribute to the harm 33 since it took all steps to notify
Red about the prohibition of GM beef.
Furthermore, Blue submits that it took ‘reasonable steps’ to mitigate the harm. 34
Reasonable steps should be construed as steps which would have been taken by areasonable person of the same kind as Blue in the circumstances.35 The purpose of
the Article is to avoid the aggrieved party from doing nothing and waiting forcompensation for harm which it could have reasonably avoided or lessened.36 Bluesubmits that, as soon as it knew of the damage on June 12, it immediately took steps
to mitigate by offering the 30 percent discount to Purple, rather than being subject
to the full extent of a contractual claim.37

Seventh Submission
Red is liable for the damage incurred due to the higher cost of the replacementtransaction.
As a result of Red’s non-performance, Blue purchased alternative beef from Sakura
Farm on June 14.38 This resulted in the payment of an additional US$300,000 for thesame quantity of beef.
As stated above, Blue submits that Red’s non-performance gives right to Blue toclaim damages.39 Blue is again entitled to full compensation for the harm suffered,40
being a loss which Blue suffered as a result of the additional cost of beef. It is clearthat the harm, the additional cost of the replacement transaction, was the result of
non-performance. The harm suffered is sufficiently certain,41 being harm that has
already come into existence on June 1442 and its extent is quantifiable.

32

UNIDROIT, Art. 4.1; UNIDROIT, Official Comments, Art. 4.1 [2].
UNIDROIT, Art. 7.4.7.
34
UNIDROIT, Art. 7.4.8.
35
UNIDROIT, Art. 4.2.
36
UNIDROIT, Official Comments, Art. 7.4.8 [1].
37
Agreed facts, para. 28
38
Agreed facts, para. 29.
39
UNIDROIT, Art. 7.4.1.
40
UNIDROIT, Art. 7.4.2.
41
UNIDROIT, Art. 7.4.3
42
The date of Blue’s contract with Sakura Farm.
33

12

As to the foreseeability of the harm,43 following the principles stated above, Red
foresaw, or could have reasonably foreseen that non-performance would result in a
replacement transaction being entered into and that harm would arise if the cost of
this transaction exceeds the cost of the original transaction. The replacementtransaction was made in a reasonable time and a reasonable manner after Blue’s
valid termination of the contract.44 The right to terminate arose because Red’s nonperformance was fundamental,45 in that Blue was substantially deprived to what itwas entitled to under the contract46 and the obligation to deliver non-GM beef wasof essence.47 Notice to terminate48 was given in the telephone conversation on June
12, where Mr Grape stated Blue’s intention to look for replacements.49
The existence of replacements is inconsistent with the continued existence of theoriginal contract; thus, the notice to terminate had been given. Should the tribunal
decide that valid notice had not been given on June 12, Blue submits that Article
7.4.5 should not be read as limiting claims due to replacement transactions only inthe situations provided for in the Article. The replacement transaction was made in areasonable time and manner after termination.50 The replacement transaction wasmade within a reasonable time, 2 days after Blue became aware of nonperformance.51 There is nothing to suggest the manner in which Blue entered into
the replacement transaction was malicious or caused prejudice to Red.
Blue further submits that there was no reasonable steps it could take to mitigate theharm caused by the replacement transaction.52 Even if Blue had been aware of theharm on May 31, the price for beef from Sakura Farm would have been the same.53
Worldwide prices had increased between April to June.54 There would have been no
action that Blue could reasonably undertake to mitigate the harm caused by the
replacement transaction.
Therefore, in light of the above reasons, Red is liable for damages due to the higher
cost of Blue’s replacement transaction with Sakura Farm.

Eighth Submission
43

UNIDROIT, Art. 7.4.4.
UNIDROIT, Art 7.4.5.
45
UNIDROIT, Art. 7.3.1(1).
46
UNIDROIT, Art. 7.3.1 (2)(a).
47
UNIDROIT, Art. 7.3.1 (2)(b).
48
UNIDROIT, Art. 7.3.2(1).
49Agreed facts, para. 28.
50
UNIDROIT, Art. 7.4.5.
51
The contract with Sakura Farm was entered into on June 14
52
UNIDROIT, Art. 7.4.8.
53
Agreed facts, para. 28.
54
Agreed facts, para. 28.
44

12

A party may terminate the contract where the failure of the other party to perform
an obligation under the contract amounts to a fundamental non-performance55, andthey have given notice to the other party56. On termination, either party can claim
restitution or whatever it has supplied, provided that such party concurrently makes
restitution of whatever it has received57.
It is submitted that Blue validly terminated contract 123. Firstly, the beef shipped by
Red failed to clear customs due to administration of growth hormones, and thissubstantially deprive Blue of what it was entitled to expect under the contract 58. In
particular, Blue could not deliver beef to Purple Co, an Arbitria company, and instead,the beef was stored in a bonded customs warehouse. Secondly, Blue also gave noticeof the termination59 within a “reasonable time”60, given the circumstances where
both sides recognised that liability would be discussed later.
It follows that on termination, Blue can claim restitution for the purchase pricealready paid by the L/C. However, Blue will not need to make restitution for the beefthat was shipped by Red, since the beef never cleared customs and was stored in abonded warehouse. In any case, Red made a contract for the delivery of the beef
stored in the bonded warehouse to Green. Therefore, Blue never received the beef
and does not need to make restitution for the beef delivered by Red and latter
destroyed by the fire.

55

UNIDROIT, Art. 7.3.1,
UNIDROIT Art. 7.3.2.
57
UNIDROIT Art. 7.3.6.
58
UNIDROIT Art. 7.3.1.
59
Attachment 14
60
UNIDROIT Art. 7.3.2 (2).
56

12PART THREE – BLUE’S LIABILITY FOR THE CONTRACT BETWEEN RED AND GREEN
Ninth Submission
The UNIDROIT Principles do not apply to this claim.
Terms of the contract do not contain an arbitration clauseOn the assumption that Blue and Red entered into a contract;(i)for Red to enter into a contract with Green Co (‘Green’); and(ii)
Blue to ship the beef to Green, Blue submits that the arbitral tribunal
has no jurisdiction over this agreement. Alternatively, the UNIDROIT
Principles do not apply to this agreement.
The contract does not contain an arbitration clause. Therefore, it is not clear
whether the parties intended that disputes under this contract are to be submitted
to arbitration.
Alternatively, even if the parties intended to refer disputes to arbitration, thecontract did not refer to the application of the Principles. Here, the parties did notagree that the Principles govern this contract.61 In any case, it is submitted that theapplicable law should be determined by the application of conflict of laws rules.

Tenth Submission
In the alternative, if the tribunal were to find basis for jurisdiction and that the
UNIDROIT Principles do apply to this contract, Blue is not liable to Red for the
US$500,000 that Red paid to Green.
The lightning strike was a force majeure event which excuses
Even assuming that the contract between Red and Blue was that Blue ships the beef
on July 5, 62 Blue submits that its non-performance is excused because of thelightning strike. The lightning strike is ‘an impediment beyond *Blue’s+ control’. Blue
could not have reasonably be expected to have taken lightning strike at the time of
the conclusion of the contract, there was no custom in Arbitria to insure goods
stored in a bonded warehouse.63 Alternatively, because the actions that Blue could
take with respect to the beef are limited (viz, scrap the goods, ship elsewhere or
temporary storage),64 there was no possibility that Blue could take other measures(such as securing the beef in its own facility) to avoid or overcome theconsequences.65
61

UNIDROIT, Official Comments, Preamble.
Agreed Facts, Paragraph 31.
63
Q&A 36.
64
Q&A 30.
65
UNIDROIT Art. 7.1.7(1).
6212