Source: http://www.cisg.law.pace.edu/cisg/moot/responde.html
Timestamp: 2019-04-19 12:38:49+00:00

Document:
Holtzmann, Howard M. / Neuhaus, Joseph E.
Mustill, Michael J./ Boyd, Stewart C.
Patrikis, Ernest T. / Bhala, Raj K. / Fois, Michael T.
Zivilprozeßordnung, Kommentar, 20th Ed. Köln 1997 [cited as: Zöller-author].
United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980, UN Doc. No. A/Conf.9 7/18 (Annex I) 1980.
Respondent respectfully submits its legal position to the Arbitral Tribunal. It will be demonstrated that there is no contract between the parties [First Part] and that none of the reliefs should be granted by the Tribunal, even if it should find that a contract exists [Second Part].
Claimant and Respondent have agreed that the Arbitral Tribunal has jurisdiction and that the arbitration should be conducted under the UNCITRAL Arbitration Rules (the Rules) and the UNCITRAL Model Law on International Commercial Arbitration (ML). It is also undisputed that the United Nations Convention on Contracts for the International Sale of Goods (CISG) is the applicable law and that matters not settled by the CISG are to be governed by the principles of international commercial contracts.
No contract was concluded between the parties [A.]. However, even if the Tribunal should find that there was a contract, it was avoided by DEEP WELL because SPECULATIVE did not comply with its contractual obligations [B.].
There is no contract between the parties. SPECULATIVE could not accept DEEP WELL�s offer on 5 June 1997 because the offer had previously become invalid. The ineffectiveness was caused by SPECULATIVE�s rejection of the offer on 21 May 1997 [I.], and alternatively, by Respondent�s revocation of the offer on 3 June 1997 [II.].
According to Art. 17 CISG, DEEP WELL�s offer was terminated on 21 May 1997, when SPECULATIVE rejected it. SPECULATIVE�s letter constituted a rejection, because it contained a counter-offer [1.], as well as other circumstances which qualify it as a rejection according to Art. 17 CISG [2.].
Contrary to its allegations, in the letter of 21 May 1997 Claimant put forward a counter-offer by proposing another price for the rig. A counter-offer always constitutes a rejection according to Art. 17 CISG, rendering the offer ineffective, regardless of the question of revocability.
Claimant denies that its letter was a counter-offer according to Art. 19 (1) CISG because it did not purport to be an acceptance. Nevertheless, proposals containing material alterations of the contractual terms which do not purport to be an acceptance and so do not fall within the scope of Art. 19 (1) CISG are also classified as counter-offers and therefore as rejections. A counter-offer is any return offer which indicates the offeree�s unwillingness to accept the original offer. Art. 19 (1) CISG merely deals with one special kind of counter-offer. Claimant infers that the eventual price of the rig was immaterial to both parties. However, Art. 19 (3) CISG states that changes of the price are material modifications, unless the proposing party had reason to believe that the change would be acceptable to the other party. If the CISG considers an �acceptance� according to Art. 19 (1) CISG containing a change of price as a counter-offer, this must be the case all the more for a mere letter which does not purport to be an acceptance, but contains such a material modification.
SPECULATIVE had no reason whatsoever to believe that a difference in price of E$ 2,000,000, amounting to almost 7 % of the total price, would be immaterial to DEEP WELL, especially as this price difference had already been the reason that the contract was not concluded on 9 May 1997.
Even if the letter is not held to be a counter-offer, it still contains a rejection of Respondent�s offer according to Art. 17 CISG.
Contrary to Claimant�s assertion, a rejection of an offer may be stated explicitly or implicitly. A rejection is a reply from which it can be deduced that the offeree does not want to accept the offer, at least not under the conditions proposed. A rejection of the price, the only detail still unsettled, combined with the actual use of the verb "to reject", had to appear to DEEP WELL as a rejection of the entire contract. The expressions "major disappointment", "same price", and "a fairer price" add to this impression. Finally, the sentence "It is just too much" carries such an air of finality that DEEP WELL had little alternative but regard its offer as rejected: this is the "clear statement to the contrary" SPECULATIVE claims not to have made. The authority Claimant cites to support its position actually gives the words "I cannot accept your offer since the price is too high" (which corresponds exactly to the phrase employed by Claimant) as an example for an explicit rejection.
Claimant alleges that DEEP WELL�s offer implied that further negotiations would not be interpreted as a rejection. The opposite holds true: DEEP WELL stated expressly in its offer that it wished "to bring this negotiation to a close." An invitation for further negotiations was only expressed after Respondent had no choice but to regard its offer as rejected, i.e. in the letter sent to SPECULATIVE on 3 June 1997.
Even if the Tribunal should find that Claimant�s letter did not contain a rejection, Respondent's letter of revocation made the offer ineffective on 3 June 1997 according to Art. 16 (1) CISG, because it reached Claimant before the offer was accepted. Contrary to Claimant's allegations, Respondent's offer was not irrevocable according to Art. 16 (2) (a) CISG [1.]. Moreover, as opposed to what Claimant seems to imply in his memorandum, Respondent did not lose its right of revocation according to Art. 16 (2) (b) CISG [2.].
Respondent was not debarred from revoking its offer according to Art. 16 (2) (a) CISG, because the offer contained neither a fixed time [a)] nor other indications of irrevocability [b)].
DEEP WELL did not set a fixed time in its offer, but a lapse time. Whether a time set is meant as a fixed time, excluding revocation of the offer, or not depends on its wording. For a fixed time, the offereror�s intent to be personally bound by the offer until the time mentioned must be clearly demonstrated, as shown by the expressions given in the commentaries as examples for a fixed time, e.g. "Our offer is at any rate good till...", "I stand by my offer till..." or "I will hold this offer open until..." The sentence "We expect to hear from you by 10 June 1997" cannot be understood as a fixed time, but only as an expectation. DEEP WELL�s letter merely illustrates the time it anticipated SPECULATIVE�s answer, but does not affect the question of revocability.
In contrast, a period of time which merely indicates when the offer expires but does not limit the revocability is classified as a lapse time. The mentioning of 10 June 1997 was an indication of the time when the offer would lapse, combined with the warning that at least after that date Respondent might not be willing to continue negotiations, underscored by the words "we would like to bring this negotiation to a close".
Finally, it is not conceivable why DEEP WELL should have made an irrevocable offer to SPECULATIVE (thereby limiting its own scope of action) without receiving anything in return.
There are no other indications in the letter that could lead Claimant to understand the offer as being irrevocable. Claimant alleges that there was an implicit agreement to continue negotiations until 10 June 1997, and that DEEP WELL�s recognition of the fact that SPECULATIVE needed sufficient time to make the financial arrangements constitutes such an indication.
On the contrary, Respondent wanted "to bring this negotiation to a close." The words "the price for the rig is E$ 30,000,000" also indicate that this would be Respondent's last offer ("as we stated in our last meeting"). The fact that Respondent offered the same price twice demonstrates the importance of this price and Respondent�s unwillingness to debate it any further. Respondent�s statement that "in the light of our extensive negotiations we expect to hear from you by..." shows that Respondent considered the previous negotiations as fully sufficient and simply expected an acceptance by Claimant, but not further attempts at negotiation. This is emphasized by the words "I look forward to receiving the signed contract so that we can go forward with the deal" as well as the reminder of the need to make the first payment and establish the bank guarantee in time.
Furthermore, the words "That should give you sufficient time to make the necessary financial arrangements" do not imply a guarantee to keep the offer open. They are aimed at the purely organizational matter of making sure Claimant would start early enough to ensure functioning bank connections (which proved necessary later on). It was obvious that Claimant would only start incurring expenses for its bank transactions after it signed the contract. Thus, this phrase does not contain any assurance of irrevocability of the offer.
Respondent's offer was not irrevocable according to Art. 16 (2) (b) CISG, because it was not reasonable for Claimant to regard the offer as irrevocable and Claimant had not undertaken any action in reliance on such a misunderstanding before the revocation by DEEP WELL, as clearly required by Art. 16 (2) (b) CISG. Even though Claimant maintains that it acted in reliance on the assumed irrevocability, it fails to mention any concrete action of this kind.
Even if the Tribunal should decide that there was a contract between the parties, DEEP WELL avoided it pursuant to Clause 3 [I.]. However, even if Clause 3 was held to be invalid, as Claimant alleges, DEEP WELL avoided the contract according to the CISG [II.]. Avoidance of the contract does not violate the principle of good faith [III.].
DEEP WELL made clear that it regarded the contract as avoided by rejecting the payment and by its subsequent letter of 24 June 1997. It was entitled to such an avoidance because Clause 3 is a valid contractual term [1.], abrogates the provisions of the Convention [2.] and provides DEEP WELL with a right to avoid the contract, because its requirements are fulfilled [3.].
Contrary to SPECULATIVE�s allegation that Clause 3 is invalid because it violates the general principles of reasonableness, fairness, and good faith, Clause 3 is a valid contractual term. Neither the time for the establishment of the bank guarantee [a)], nor the amount guaranteed [b)] are contrary to these principles. As Art. 4 (a) CISG provides, the Convention does not deal with the validity of contractual terms. However, the parties agreed that any matters not covered by the Convention should be settled according to the general principles of law governing international contracts, so that the general principle of good faith and fair dealing is applicable.
Claimant alleges that the time allowed for the establishment of the bank guarantee was unnecessarily harsh and thus violates the principle of good faith. However, Clause 3 is not unnecessarily harsh: the time allowed for the financial arrangements was by no means too short or rendered the clause "impossible to meet". The ten-day-period allowed to issue the bank guarantee was more than twice the time normally required, which is three to four days in normal banking practice. Furthermore, when accepting on 5 June 1997, SPECULATIVE had known it would have to make the "necessary financial arrangements" for more than three weeks from the explicit notice by DEEP WELL on 13 May 1997 onwards. Hence, Claimant could have avoided the delay by making the relevant inquiries and giving its bank instructions to prepare arrangements with a first class bank in Equatoriana well in advance.
Furthermore Claimant fails to show why a harsh clause should be against good faith. On the contrary, private autonomy implies that the parties are free to agree on the contractual terms they wish to adopt. Even an initially impossible obligation - the harshest obligation possible - is not considered to lead to invalidity according to the general principle formulated in Art. 3.3 UNIDROIT. The principle of good faith implies only that every party must act with consideration for the other party and is not entitled to abuse its rights under the contract.
The amount guaranteed in Clause 3 is not excessive and does not violate the general principle of good faith, contrary to SPECULATIVE�s claims. Art. 3.10 UNIDROIT, which is a specification of the principle of good faith, states that certain clauses of a contract can be avoided if they bestow an excessive and unjustifiable advantage on one party. The sum of the bank guarantee is by no means excessive or unjustifiable, covering E$ 33,000,000, i.e. 10 % more than the price of the rig. A coverage of 110% is usual in banking practise; the German Federal Supreme Court even considers this the coverage established by customary law. The reason for this is that a guarantee is intended to cover all possible circumstances, including possible legal expenses, interests and any damages resulting for example from speculation or market changes and for which Claimant might be liable. Such an inclusion of interests, costs and damages is perfectly admissible and thus also justifiable.
Claimant invokes the applicability of the CISG concerning avoidance. However, according to Art. 6 CISG, the Convention is partially excluded by the contract and its terms. To effect an abrogation pursuant to Art. 6 CISG, it is not necessary for the parties to include a clause containing an express mentioning of abrogation, but sufficient to agree on terms altering the CISG provisions. Clause 3 states that "if either payment is not made or the bank guarantee is not established in the manner and by the date provided in this contract, Seller shall have the right to avoid the contract." This clause is incompatible with several articles of the CISG, e.g. the provision of Art. 63 (2) CISG concerning the necessity of fixing an additional period of time or Art. 64 (1) CISG tying the right of avoidance to a fundamental breach of contract. Therefore, this regulation of Respondent�s right of avoidance excludes the application of the differing CISG rules on avoidance.
DEEP WELL was entitled to exercize the contractual right deriving from Clause 3 because neither the payment of E$ 3,000,000 [a)] nor the bank guarantee [b)] were issued in time.
SPECULATIVE did not comply with the payment clause because according to the contract, the payment of E$ 3,000,000 was due on 15 June 1997 [aa)], and SPECULATIVE only performed its payment obligation on 17 June 1997 [bb)]. Claimant is also liable for this delay [cc)].
The time period derived from Clause 1 cannot be extended from 15 June 1997 to 17 June 1997, as Claimant alleges. There are no grounds for an analogous application of Art. 20 (2) CISG: the contract provides a rule for the calculation of the deadline [a )], and alternatively, there is no room to apply Art. 20 (2) CISG analagously, as the prerequisites for an anology are not met [b )]. Moreover, SPECULATIVE�s interpretation of Art. 20 (2) CISG is faulty: the provision contains an exception only for holidays on the last day, and does not extend every period for acceptance in which a holiday occurs, as it claims.
There is no gap in the contract that would warrant the application of the CISG. The contract between SPECULATIVE and DEEP WELL contains a regulation for the calculation of the time in which the payment must be made: Clause 1 expressly states that the first payment must be made within 10 days of the conclusion of the contract. Therefore, the buyer bears the risk of the period ending on a non-business day and must take the necessary precautions to ensure a timely payment. The fact that the parties abstained from even mentioning non-business days leads to the conclusion that these are not to be considered as exceptional in the calculation of the period. Thus, on the strength of the contractual clause, there is no room for an analogous application of Art. 20 (2) CISG or any other provision.
Alternatively, Art. 20 (2) CISG cannot be applied analogously because there is no involuntary gap in the Convention, which is a necessary prerequisite for analogy. The time for payment must be determined according to Art. 58 CISG: it is either specified by the parties or by this provision. As the determination of the time for payment is regulated conclusively, there is no need to apply Art. 20 (2) CISG.
Furthermore, there is no similarity between the case at hand and the cases regulated in law which would justify an analogous application of Art. 20 (2) CISG. An analogy requires two comparable situations that cannot be treated differently without inherent injustice (argumentum per analogiam).
Claimant has failed to demonstrate why the conclusion of a contract and its performance should be comparable: Art. 20 (2) CISG deals exclusively with the timeliness of the acceptance of an offer, while the situation in question is that of the timeliness of the payment.
In fact, both situations differ significantly, the main difference being that while no recoverable damage arises to either party from the late acceptance of an offer, once the contract has been concluded, late performance leads to remedies which the obligee would be deprived of if the period was extended by analogy with Art. 20 CISG.
One of the underlying notions of Art. 20 CISG is that if the party fixing the time could have been more precise in its statement, its failure should not prove detrimental to the other party. This concept does not apply here, as the time for performance was not fixed unilaterally by one party, but was part of the contractual negotiations between the parties. Therefore, any lack of precision should not be borne by DEEP WELL. Furthermore, it was up to SPECULATIVE to determine the end date of the period, because this depended on the date of acceptance.
When stating an offer, the offeror cannot be expected to be familiar with the various holidays applying to the potential offeree. However, if a contract has been entered into, both parties have the opportunity of informing each other about the holidays of the other side.
Contrary to Claimant�s assertions, the payment obligation was not fulfilled on 11 June 1997 when SPECULATIVE instructed its bank to transfer the money to DEEP WELL�s bank [a )]. SPECULATIVE only performed its payment obligation under Clause 1 on 17 June 1997 [b )].
The issuing of the payment order to the Farmers and Merchants Bank of Mediterraneo is not sufficient to fulfill Claimant�s payment obligation because according to Art. 57 (1) (a) CISG, the buyer must pay the price at the seller�s place of business. A funds transfer to an account of the seller is accepted as fulfillment. Therefore, the place where a payment obligation is discharged is the seller�s bank. If for any reason the payment order remains at the buyer�s bank and is not transferred further to the seller, it cannot be considered made.
Pursuant Art. 57 (1) (a) CISG, the payment obligation was fulfilled on 17 June 1997 with the crediting of DEEP WELL�s account. Alternatively, the payment was made on 17 June 1997 with the opening hour of EICB, in application of the general principles of commercial contracts.
It can be concluded from Art. 57 (1) (a) CISG that payment was only fulfilled when DEEP WELL�s account was credited, i.e. on 17 June 1997. The intention of the provision, i.e. that the buyer should have immediate access to the payment at his place of business, implies that the payment must actually have reached the account and thus be at the seller�s disposal.
Even if the Tribunal should hold that Art. 57 CISG does not contain an answer to the question of effectiveness of a payment by a transfer, it follows from Art. 6.1.8. of the UNIDROIT Principles that the payment obligation was only fulfilled on 17 June 1997. Since SPECULATIVE�s payment order has been received by EICB on Friday, 13 June 1997, after the bank�s cut-off time, the payment order is considered received on the following business day of EICB, i.e. at its opening hour on Tuesday, 17 June 1997. As Art. 6.1.8. UNIDROIT provides, the obligation of the transferor is discharged when the transfer to the obligee�s financial institution becomes effective, effectiveness depending "on banking practices in the case concerned." Equatorianean bank practices provide that a payment order received after the cut-off time is considered to have been received on the next banking day and thus payment only becomes effective on that day. This approach is appropriate, as it cannot be expected of a bank to accept payment orders until the last minute of its opening hours. Otherwise, the bank would be forced to execute payment orders beyond its opening hours. Moreover, the bank must be aware of the receipt of the payment in order to be able to assess whether it is willing to accept it.
This solution corresponds with various legal systems. In American law the discharge of the payment obligation is linked to the acceptance by the beneficiary�s bank. As � 4A-209 (c) UCC provides, acceptance cannot occur before the payment order is received by the bank. However, a payment received after the bank�s cut-off time is considered as having been received on the next business day pursuant to � 4A-106 (a) UCC. In English law the payment obligation is discharged when the beneficiary�s bank acting as its agent decides to accept the payment order received. However, the agent has authority only to "receive and accept the punctual payment". In the case at hand, EICB could not knowingly decide to accept the payment order on 13 June 1997, because it arrived after its cut-off time. On 17 June 1997, the bank could not accept the payment order, because it was not punctual. In French law the crediting of the debtor�s account is relevant.
SPECULATIVE claims that it acted with a reasonable estimation of the time the payment would need to arrive and did all it could and all that could reasonably have been expected of it.
However, ten days are a reasonable time for a money transfer, as SPECULATIVE�s payment took only seven days to be transferred to DEEP WELL�s account. It is mere speculation by Claimant that DEEP WELL wanted to allow more than ten days for payment. Additionally, SPECULATIVE did not do all it could because it could have instructed its bank on 5 June 1997 already. Moreover, it is irrelevant what SPECULATIVE could or could not have done because according to Art. 57 CISG, the buyer bears the risk of any delay in payment.
The bank guarantee was established on 18 June 1997, and thus was late, as SPECULATIVE concedes. Claimant�s assertions that the delay was beyond the control of the parties (Art. 79 (1) CISG) and that it did all it could possibly have done to ensure the timely establishment of the bank guarantee are irrelevant in this context and can be refuted.
The delay in the issuing of the bank guarantee was not beyond SPECULATIVE�s control, because it is liable for the actions of third parties engaged by it to perform its obligations (i.e. its bank). The exculpation provided by Art. 79 (1) CISG and sought by Claimant is not available here because according to Art. 79 (5) CISG this does not prevent either party from exercizing any right other than to claim damages.
Moreover, Claimant could have done more, as Respondent advised Claimant to make the necessary financial arrangements already in its letter of 13 May 1997. Hence, SPECULATIVE could have made inquiries with its bank and instructed it to establish the relevant banking arrangements in Equatoriana well before the date of acceptance. Claimant would then have known that its bank had no connections with a corresponding bank in Equatoriana, making delays in the establishment of bank guarantee likely. Furthermore, it was not sufficient to merely give its own bank the order for a bank guarantee, but this should have been followed up by further inquiries about the current state of proceedings, especially in the absence of any notice from the Farmers and Merchants Bank. Claimant would then have been aware of the delay at an earlier point and could have informed DEEP WELL. Furthermore, according to Art. 57 CISG it is irrelevant what a party could or could not have done. It is fully liable for any delay, because it must perform in time at the seller�s place of business.
Alternatively, even if the CISG was applicable, DEEP WELL was entitled to avoid the contract according to Art. 64 (1) (a) CISG for the following reasons: The late establishment of bank guarantee and payment constituted a fundamental breach of contract [1.]. DEEP WELL declared avoidance pursuant to Art. 26 CISG [2.]. DEEP WELL�s avoidance was not excluded by Art. 64 (2) CISG [3.].
The late payment and establishment of the bank guarantee constituted a fundamental breach of contract according to Art. 64 (1) (a) CISG, because it caused substantial detriment to DEEP WELL [a)] and SPECULATIVE could have foreseen this consequence [b)].
SPECULATIVE�s late performance caused substantial detriment to DEEP WELL. Art. 25 CISG defines substantial detriment as any harm so substantial to one party as to deprive it of what it is entitled to expect under the contract. Detriment as a general term indicates any material or immaterial harm or loss inflicted by one party upon the other. Substantiality must be assessed according to the expectations the party expressed in the contract.
Claimant affirms that due to the late performance Respondent�s only detriment was the loss of interest which was not considered to be substantial. However, if the parties� contract states a fixed time for performance, fulfillment on this date is of such supreme importance that any delay is a valid reason for avoidance. In Clause 1 and 2, DEEP WELL clearly stated its expectations of SPECULATIVE: chief among them was the timely fulfillment of their payment obligations on the date derived from the contract, i.e. 15 June 1997. To give this priority further significance, in its letter of 13 May 1997 Respondent pointed out specifically that the rig could only be reserved if the first payment and the bank guarantee were established on time.
Claimant maintains that the payment could have occured up to 20 June 1997 if Claimant had only accepted the offer on 10 June 1997. This can be refuted: the observance of the 10-day-period is not only a measure for a timely payment in technical terms, but also an indication for the reliability of SPECULATIVE with regard to such a long-term contract.
The substantial detriment could have been foreseen by Claimant. The party in breach, or at any rate a reasonable person in its place, ought to have foreseen the damage. The burden of proof for unforeseeability rests with the party in breach, i.e. SPECULATIVE.
If the contract demonstrates that a certain contractual obligation is essential to the obligee, e.g. by stating a fixed time for performance, unforeseeability cannot be invoked by the obligor in case of breach. The time for payment was fixed in the contract, therefore it must have been clear to SPECULATIVE how important a timely fulfillment was to DEEP WELL: it cannot invoke unforeseeability. Therefore, SPECULATIVE�s submission that there was nothing it could do to prevent the delay, even if it had known or foreseen it, is irrelevant.
DEEP WELL declared avoidance implicitly with the rejection of SPECULATIVE�s payment of E$ 3,000,000 on 17 June 1997. This was confirmed by its letter of 24 June 1997.
Art. 26 CISG provides that a declaration of avoidance is only effective if made by notice to the other party. This declaration can be made not only explicitly, but also implicitly. Whenever the conduct of a party implies an avoidance of the contract, this must be clear and recognizable to the other party. Avoidance occurs at the point at which it is unmistakable and clear to the party in breach that the other party considers the contract terminated. With the re-transfer of the money immediately after it was credited to DEEP WELL�s account on 17 June 1997, Respondent demonstrated its clear rejection of any contractual relationship with Claimant. Naturally, DEEP WELL did not explicitly declare avoidance of a contract that never existed in its opinion. The letter of 24 June 1997 confirms this view and reiterates its implicit avoidance.
Art. 64 (2) (a) CISG did not debar DEEP WELL from declaring avoidance on 17 June 1997 because the bank guarantee was only established on 18 June 1997. As Art. 64 (2) (a) CISG provides, once the buyer has paid the price, the seller loses his right to avoid if he declares avoidance after he has become aware that a late performance has been rendered. Only full payment can justify the loss of the right to avoid. According to Art. 54 CISG, a bank guarantee can form part of a payment obligation. Hence, Claimant�s obligation to pay on 15 June 1997 included the transfer of E$ 3,000,000 and the establishment of the bank guarantee. When Respondent avoided the contract on 17 June 1997, SPECULATIVE had only made the payment of E$ 3,000,000 and had not established the bank guarantee. It is irrelevant in this context that Claimant only became aware of this avoidance on 19 June 1997, i.e. after the establishment of the bank guarantee, because pursuant to Art. 27 CISG, the decisive moment is when avoidance was declared and not when it reached the other party.
Although Claimant asserts that avoidance by Respondent would be against a "good faith interpretation of the CISG", the opposite holds true. According to Art. 7 (1) CISG, when interpreting the Convention, regard is to be had to promote "the observance of good faith in international trade." To ensure an interpretation of good faith free of any national connotation, it must be "construed in the light of the special conditions and requirements of international trade."
Good faith is a behavioral standard according to which contractual relationships should be conducted. To conform with this standard, the parties� dealings must comply with the requirement of �reasonableness�. Reasonable comportment means in particular that the parties must justify their mutual trust that they will stand by their word. This is also known as the principle of pacta sunt servanda, held to be one of the most important principles of international trade law. Once the parties have agreed on the terms of their contract, they must abide by these terms, because when they accepted them, they were aware of the potential risks accompanying the contract.
In application of this standard, Clause 3 does not violate good faith. The submission that a delay in payment by one day is not material is inacceptable to Respondent. SPECULATIVE maintains that there is a contract between the parties. Therefore, it is bound by this contract, which it accepted in toto, i.e. with Clause 3. Moreover, it is a general conception of law that any breach of an engagement involves an obligation to make reparation, however short the breach may be in duration and relative in importance, so that each party may place entire confidence in the good faith of the other. Thus, even a short delay gives DEEP WELL the right to avoid the contract as prescribed in Clause 3. The very purpose of an additional contractual clause is to regulate certain situations which otherwise would cause arguments and diosputes.
Finally, Claimant�s allegation that Respondent�s right of avoidance was only exercized in order to speculate after the change in the market is mere imputation. If motives are to be questioned at all, it is not beyond doubt that Claimant itself so vehemently defends a contract that was never concluded because of that same market change.
As shown above, no contract of sale of rig #23 exists between DEEP WELL and SPECULATIVE. Contrary to Claimant�s understanding, there is no valid claim to any relief if no contract exists. However, even if the contract should be found to be in existence, the requested order for the delivery of the rig shall be rejected [A.]. Any post-award injunction, devised to bar DEEP WELL from selling the rig until SPECULATIVE has exercized its right of determination, shall not be granted [B.]. Finally, the costs of these arbitral proceedings shall be borne by Claimant [C.].
The Tribunal shall not order the delivery of the rig, because it does not have the power to order the extraordinary type of specific performance demanded by SPECULATIVE [I.]. Even if the Tribunal should be competent to order specific performance, it should still reject the order because its prerequisites are not fulfilled [II.].
The Tribunal does not have the authority to order specific performance before the obligation is due. The Tribunal�s power arises from the parties� agreement and the law governing the arbitration.
Neither did the parties specifically bestow the power on the Tribunal to decide on future claims by any explicit statement in their arbitral agreement, nor did they confer such power by their choice of procedural or substantive law [1.]. An interpretation of what the parties might have agreed implicitly does not warrant the conclusion that such power was vested in the Tribunal either [2.].
In their arbitral agreement the parties did not provide specifically for any extraordinary powers the Tribunal shall have, but used the standard formula to determine the applicable law. Neither the substantive nor the procedural law chosen allow for future claims to be awarded by the Tribunal. The UNCITRAL Rules (The Rules) chosen by the parties, and the UNCITRAL Model Law (ML) as adopted by Danubia do not define the possible contents of an award, and thus neither provide for an order of future performance. Whereas for instance in German law matters related to future claims are dealt with by the procedural law, neither the ML nor the Rules answer the question whether the Tribunal can also award such orders that are either not due yet or conditional, or both, as in the case at hand.
Therefore, the substantive law the parties agreed on has to be consulted. Art. 28 ML and Art. 33 of the Rules prescribe that the substantive law chosen, i.e. the CISG, forms the basis on which the Tribunal shall arbitrate.
However, neither does Art. 46 CISG provide for specific performance to be ordered before maturity of the claim [a)], nor can the concept of good faith be employed to construe a corresponding power of the Tribunal [b)]. Such a power cannot be derived from an application of Art. 28 CISG, either [c)].
Art. 46 CISG does not permit specific performance of an obligation that is not due yet. Claimant refers to the "remedy" of specific performance, which denotes performance ordered after a breach of contract has occurred. In the case at hand, however, Respondent is far from breaching the contract, because it is not even obliged to perform yet. Contrary to Claimant�s allegations, specific performance in the sense of Art. 46 CISG cannot simply be employed to make a party "comply with the requirements of the contract." The rule that in accordance with Art. 46 CISG, performance in nature shall prevail does not mean that the buyer may "require performance" from the seller in whatever way or at any time he wishes to do so. It only states that a breach of contract will not lead automatically to financial damages for compensation, as it would under Common Law. Art. 46 CISG does not, however, provide for the case where the obligation is not yet due: it does not empower the Tribunal to order performance before 30 September 1998.
Contrary to Claimant�s allegation, the concept of good faith of Art. 7 (1) CISG cannot be advanced to give SPECULATIVE the right to require performance on a future date. Art. 7 (1) CISG is an instrument of legal gap-filling. The fact that Art. 46 CISG does not provide for specific performance in case the obligation is not due yet, however, does not constitute a gap in the Convention. The Convention unequivocally requires a breach of contract for the remedy to be granted: thus, the power to grant future performance can simply not be construed without contorting the rationale of Art. 46 CISG. Hence, such power could only be conferred by procedural rules, which Art. 7 (1) CISG does not apply to.
Furthermore, even if it should be admissible to consult good faith as a general principle for the interpretation of the parties� conduct, the argument that DEEP WELL breached the good faith requirement by denying that an order requiring performance should be made is not tenable. If there is no contract, as Respondent submits, there is no obligation, either. Thus, in requesting the Tribunal to reject Claimant�s request, Respondent legitimately tries to protect its rights. On the contrary, it could even be argued SPECULATIVE itself disregarded good faith in requesting DEEP WELL to be bound by an order of future performance while insisting on its own right of cancellation.
Furthermore, as opposed to Claimant�s contention, Art. 28 CISG does not provide for the application of the domestic law of Danubia. Therefore, it does not give power to award the order under this law. Art. 28 CISG only serves as a "reservation clause" for those states with a Common Law regime, where the remedy of specific performance is either not recognized at all or considered exceptional. Instead of granting the power to order specific performance in exceptional cases, Art. 28 CISG entitles the court to decide against this remedy if its own law does not provide for it. If, by analogy, applied to arbitral tribunals, Art. 28 CISG refers to the law that governs the arbitration. In the present case these are the UNCITRAL Rules, the ML as well as the substantive rules of the CISG. Thus, domestic law cannot be consulted and all arguments that Claimant derives from this false premise are irrelevant.
Moreover, even if Danubian domestic law was of any relevance in this case, Claimant fails to demonstrate that Danubian law would provide for future claims to be awarded. The prerequisites that Claimant analyses in its memorandum are those of an ordinary specific performance, granted as a remedy. Further reference to Danubian law is not to be found.
The parties� arbitral agreement cannot be interpreted to contain an implicit agreement on the order as requested by Claimant. The remedy of specific performance itself is far from being generally accepted and is considered controversial, especially in the Common Law sphere. The power to order specific performance of an obligation which is not only not due yet, but also subject to a unilateral cancellation is such an extraordinary measure that an explicit agreement should be necessary. However, even if an implicit agreement was deemed sufficient, no such agreement can be inferred.
When the real intent of the parties is unknown, their intent must be interpreted with regard to the notion of reasonableness. Reasonable parties will invest the Tribunal with only those powers they consider necessary for the efficiency of the arbitral proceedings. The Tribunal shall have the power to decide conclusively on all substantial matters in dispute. In case the obligation to perform should be found valid, the protection this measure could offer, as it does not arrest the rig but only sanctions attemps of dissipation, could be achieved just as well or even better by any interim measure obtained from a municipal court.
Efficiency and the level of protection in a measure should also be measured by the level of legal certainty it brings and by the likelihood of its abuse: A title containing a future, conditional obligation is too precarious to be awarded. By cancellation, the beneficiary can devoid the claim of legal validity while still, significantly, retaining the title. There is an imminent danger that such a title is tampered with in a way detrimental to Respondent. In any case it is menacing to be obliged by a title, the validity and use of which is entirely entrusted to the discretion of the opposing party, and which can easily be used for bargain and speculation. Therefore Claimant should be forced instead to pursue its claim in a second arbitral proceeding after the claim�s date of maturity or simply to use the declaratory award on liability in any municipal court. This would not prejudice Claimant in any way either.
Even if the Tribunal�s general power to grant anticipatory orders was recognized, it should reject SPECULATIVE�s request, because the prerequisites for an order of this kind are not fulfilled. There is no risk that Respondent would not comply with its obligations in case the contract was found to be valid [1.] and, even if there was such a risk, the Tribunal should use its discretion to reject the order, as the inconveniences to Respondent would outweigh Claimant�s interest [2.].
SPECULATIVE does not have a legitimate interest in the order, because neither has DEEP WELL contested its obligation in case the contract should be found to be valid, nor is there a risk of dissipation.
The prerequisites Claimant examines are of no relevance in this case, as they apply only when specific performance is ordered as a remedy, i.e. after a breach of contract has already occurred. Before the cause of action has actually arisen, however, a legitimate interest is required for performance to be ordered. The few legal systems which allow future performance to be ordered in exceptional cases, require special and narrow prerequisites to be fulfilled: Claimant must reasonably fear that Respondent will not perform on the due date. This fear is only justified if the obligee seriously contests its obligation to perform. In English law only the unconditional repudiation of the contract would suffice. In the case at hand, however, DEEP WELL�s request not to order delivery cannot be interpreted as a repudiation of this obligation, as it makes this request under the premise that no contract exists. On the contrary, it is a legitimate means of protecting Respondent�s rights.
Furthermore, DEEP WELL�s entry into a contract with OCEANIA cannot be considered a real risk of dissipation of the rig, as the terms of this contract especially provide for the case that DEEP WELL should - factually or legally - not be "free to deliver": if this occurs, the contract lapses, discharging Respondent of any liability.
Even if it could be assumed that SPECULATIVE had a legally recognized interest in the title of future performance, this would still not outweigh DEEP WELL�s interest in future performance not to be granted, as the inconveniences to the parties are not balanced. Such an order would unduly prejudice Respondent: Claimant would be awarded a title to a claim it could invalidate unilaterally while still retaining the title. There is no safeguard against improper use of such a title; DEEP WELL would be forced to go to court seeking discharge of its liabilities and invalidation of the title. Furthermore, a claim that is conditional on its cancellation by SPECULATIVE does not warrant such strong protection: The situation in Polarity is very vague and most probably SPECULATIVE will not obtain the drilling concession. Thus, with cancellation forseeable, SPECULATIVE should not be fitted up with a powerful measure for the protection of a title prone to invalidation.
Claimant declares its request to order DEEP WELL not to sell the rig to a third party to be alternative to its request of specific performance. However, in its Statement of Claim and and its memorandum it demands to order DEEP WELL not to sell the rig to a third party besides delivery of the rig. This leads to the conclusion that it is asking for an additional order.
Furthermore, SPECULATIVE obviously wants a post-award injunction to be ordered because it seeks an order for the period of time until SPECULATIVE would use its right of determination, otherwise until 30 September 1998. The Tribunal, however, is expected to render a final decision shortly after 9 April 1998, i.e. the end of the hearings. Until 14 April 1998, Claimant is protected by the Mediterraneo Commercial Court order.
Thus, the relief SPECULATIVE requests can be classified as an injunction which is known as a "Mareva injunction" in English law. The Tribunal, however, lacks the competence to grant such a post-award injunction [I.]. Even if such a competence should be assumed, the Tribunal shall reject the request [II.].
The Tribunal does not have the competence to order this type of injunction, because the parties neither conferred this power on the Tribunal explicitly or by their choice of procedural law [1.], nor can an implicit agreement be inferred [2.]. Finally, even if an agreement should be assumed, private parties are not competent to confer such powers [3.].
The parties did not give the necessary power to the Tribunal by an explicit agreement. The competence of an arbitral tribunal depends solely on the will of the parties as expressed by the arbitration clause. Clause 9, however, is silent on the possibility of granting a post-award injunction.
Even if the Tribunal should find that such an explicit agreement is not necessary, the competence of the Tribunal cannot arise out of the parties� choice of procedural law and the place of arbitration. The Rules and the ML do not provide for any post-award injunction.
In particular, contrary to what Claimant apparently alleges, a post-award Mareva-type injunction does not constitute an "interim" measure within the scope of Art. 26 of the Rules and Art. 17 ML, as will be shown. Claimant, however, repeatedly uses the term "interim" falsely and enumerates the prerequisites for such interim orders. Therefore, not surprisingly, none of the cases it cites deals with post-award injunctions.
The term "interim", however, unequivocally excludes any type of order that takes effect after the final award. There is no room for an analogous application of Art. 26 of the Rules or Art. 17 ML, as there is no gap in legislation. Instead, the drafters of the ML indirectly excluded any analogy of this kind by determining that the types of interim measures shall be limited.
Finally, any analogy must be rejected because the situation as regulated by the provisions is not comparable to that after an award. The purpose of interim measures is to protect a party from damages that may occur during the proceedings and that cannot be sanctioned as long as the legal positions have not yet been determined. Once the substantive matters are settled, however, the parties must comply with it and any breach can be sanctioned.
The parties did not implicitly confer the competence on the Tribunal to grant the requested order, because such an implicit agreement is not sufficient [a)]. Even if an implicit agreement should be deemed valid, no reasonable party would opt for such a measure [b)].
The parties cannot confer the power to grant a post-award injunction unto the Tribunal by an implicit agreement, because the Mareva-type injunction constitutes such an unusual and drastic measure that it necessitates an explicit agreement. If there is any doubt about the conferred power, especially where the contested measure is deemed to be highly unusual, the arbitration clause must be taken as conclusive. Moreover, in English cases the requested Mareva-type injunction is called a "draconian order", a "serious order", or, even more drastically, "one of the nuclear weapons of law". It cannot be assumed that the parties would agree on such a measure silently.
Even if an implicit agreement was considered to be sufficient, the parties cannot be considered to have conferred the competence on the Tribunal implicitly, because this would be unreasonable.
The parties have a profound interest in an effective protection and efficient arbitral proceedings. First, the Mareva-type injunction does not enhance the expediency of the proceedings, as it takes effect only after the proceedings have ended. Moreover, the effect of such an injunction can be achieved just as well by expediting the process of enforcement in a state court. The fact that this is not an option here, because SPECULATIVE�s claim is not even due yet, just supports the fact that a Mareva-type injunction is not the measure of choice for this case.
Reasonable parties would not agree to the ordering of a Mareva-type injunction for a period of more than half a year, as these injunctions must be limited to a short period of time to alleviate their effects.
Moreover, the Mareva injunction is known only under Common Law. Hence, SPECULATIVE, apparently coming from a Civil Law background, would not implicitly confer the power to grant Mareva-type injunctions unto the Tribunal.
Finally, the parties would not choose a protective measure if it was not enforceable and hence, failed to contribute to a better protection of one party. Enforcement is a relevant matter in considering whether a Mareva injunction should be granted. As the Mareva injunction is not known in Civil Law countries, it is questionable whether the respective enforcing municipal court will order execution of such an injunction.
The parties cannot empower the Tribunal to grant this order, because it would take effect in rem. Actions in rem, however, are restricted to state courts. The special character of an action in rem is, besides other aspects, that it refers to a specified item. As SPECULATIVE requests the freezing of a single asset, the order would, though in personam by nature, actually operate in rem in its effects. However, the Tribunal is incompetent even to grant orders that in their effects operate like an action in rem. If a Mareva injunction is directed only against a single item, such as the rig, the effects of such an injunction are comparable to an action in rem.
Even if the Tribunal was considered competent to grant a Mareva-type injunction, it should use its discretion to reject that request, because the Mareva-type injunction is not designed for a long-term imposition. The satisfaction sought by Claimant is not the kind this measure is meant to secure [1.]. Furthermore, the prerequisites for such an order are not fulfilled [2.].
Satisfaction, as sought by Claimant, does not coincide with the intentions and the rationale of a Mareva-type injunction: the Mareva-type injunction is employed in order to secure the enforcement of a title, which also means that it is only intended to bridge the short period of time until enforcement starts.
In the case at hand, however, Claimant does not request the order to secure forthcoming enforcement, as would befit the nature of this injunction. Instead, when applied according to Claimant�s request, the order will be employed to preserve SPECULATIVE�s right to determination as laid down in Clause 6. The obligation is not due yet and Claimant will not proceed to enforcement before eight months� time. Furthermore, throughout these eight months SPECULATIVE would be free to cancel delivery. Hence, it is not even clear whether the obligation will ever come to execution. This will mainly depend on Claimant�s obtainment of the drilling concession in Polarity, which is unlikely. A Mareva-type injunction however shall not remain in force any longer than necessary. It would certainly constitute an improper application to impose the injunction for more than half a year in order to secure an obligation that might never be executed.
The prerequisites of a Mareva injunction as developed in English law are not fulfilled. Those prerequisites required for a post-award injunction are the existence of a legal and equitable right, the risk of the satisfaction of the award being frustrated, and finally, a balance of inconveniences. Claimant has no legal and equitable right [a)], and there is no real risk of frustration or dissipation [b)]. Furthermore, the Tribunal shall use its discretion to reject the request because the inconveniences are not balanced [c)].
SPECULATIVE does not have a legal or equitable right on which grounds a Mareva-type injunction could be ordered. First of all, a Mareva-type injunction cannot support a relief that is only declaratory. Thus, if the Tribunal only declares the claim to be valid, but refrains from ordering future specific performance, no Mareva-type injunction can be included in the award.
Even if it should be deemed rightful to order specific performance, SPECULATIVE still lacks the legal and equitable right required, as its right to delivery is not due yet and only conditional. English cases show that the right on which the order of a Mareva-type injunction is based must be due. A potential future right is clearly not sufficient as a cause of action for a Mareva injunction. SPECULATIVE�s right to delivery does not only lack maturity, but is also conditional on its possible cancellation.
A Mareva injunction cannot be granted for lack of a real risk of frustration or dissipation. An actual risk of frustration of an award can only consist in the unenforceability of performance and the fact that damages cannot be obtained, as no assets of the opponent are available to cover the claim. Therefore, the risk is excluded if Respondent is of sound financial standing and the award is likely to be enforced in the country that Claimant would opt for. If transferred to the case at hand, there is no present risk, as DEEP WELL certainly has sound financial standing in the business world and the award can be enforced in the country of Polarity, a member state of the New York Convention.
Even if a Mareva-type injunction could secure the preservation of a special asset, this would still require a risk that is real and imminent and not just likely. Prima facie evidence of a danger of dissipation should not lead to the ordering of a Mareva-type injunction. The evidence SPECULATIVE produces can only be classified as prima facie at most, because DEEP WELL never repudiated its obligation, and the contract with OCEANIA was only conditional. Therefore, if the Tribunal held that there was a contract between the parties, Respondent would be free to deliver to SPECULATIVE.
Even if the first two prerequisites were fulfilled, the Tribunal should use its discretion not to grant the Mareva-type injunction because the inconveniences this injunction would cause to DEEP WELL would clearly outweigh the profits SPECULATIVE could draw from it.
A beneficiary to such a strong measure as a Mareva-type injunction must demonstrate that it will not sit back, but undertake "anxious efforts to pursue judgment", so that the obligee is not charged with the order longer than necessary. Thus, if SPECULATIVE wants the Tribunal to order such a drastic measure, it should contribute to its enforcement, e.g. by taking the rig and waiving its right of determination. Claimant, however, requests the Mareva-type injunction, which is not designed for long-term imposition, additionally to its right of determination. Thus, the Mareva-type injunction could stay in force until September 1998 if SPECULATIVE did not cancel the contract earlier. Especially after the announcement of the Government of Polarity, it seems unlikely that SPECULATIVE will ever need the rig. Finally, in view of the fact that the obligation is neither due nor unconditional, the granting of a Mareva-type injunction would unduly prejudice Respondent and would give Claimant the unwarranted opportunity to speculate on the situation in Polarity, while holding Respondent in liability.
Contrary to Claimant�s request, the Tribunal shall burden Claimant with the costs of arbitration. According to Art. 40 (1) s. 1 of the Rules, in principle the unsuccessful party shall bear the costs of the arbitration. Claimant has failed to show why the Tribunal should deviate from this general rule. The history of the provision shows that the exceptional circumstances (that give rise to the apportionment provided for in Art. 40 (1) s. 2 of the Rules) foreseen by the drafting commission were discontinuance, an award on agreed terms, and cases of only partial success of one of the parties. The practice of the Iran-U.S. Claims Tribunal extended these examples to cases of lack of jurisdiction or frivolous positions. Clearly, none of these apply here.
The Tribunal should also impose Respondent's costs for legal representation on Claimant according to Art. 38 (1) (e) and Art. 40 (2) of the Rules. As far as the legal costs are concerned, Art. 40 (2) of the Rules leaves a broader discretion to the Tribunal and requires a test of "reasonableness". In such a complicated international case as this one, legal assistance is necessary and therefore reasonable. Moreover, it is reasonable to burden Claimant with Respondent's legal costs because Respondent has a well-founded legal position, as this memorandum has shown, while Claimant maintained all the time that a contract existed between the parties and requested frivolous reliefs.
to impose the costs for the arbitral proceedings including legal costs on SPECULATIVE.

References: Art. 17
 Art. 17
 Art. 17
 Art. 19
 Art. 19
 Art. 19
 Art. 19
 Art. 19
 Art. 17
 Art. 16
 Art. 16
 Art. 16
 Art. 16
 Art. 16
 Art. 16
 Art. 4
 Art. 3
 Art. 3
 Art. 6
 Art. 6
 Art. 63
 Art. 64
 Art. 20
 Art. 20
 Art. 20
 Art. 20
 Art. 20
 Art. 58
 Art. 20
 Art. 20
 Art. 20
 Art. 20
 Art. 20
 Art. 57
 Art. 57
 Art. 57
 Art. 57
 Art. 6
 Art. 6
 Art. 57
 Art. 79
 Art. 79
 Art. 57
 Art. 64
 Art. 26
 Art. 64
 Art. 64
 Art. 25

Art. 26

Art. 64
 Art. 64
 Art. 54
 Art. 27
 Art. 7
 Art. 28
 Art. 33
 Art. 46
 Art. 28

Art. 46
 Art. 46
 Art. 46
 Art. 46
 Art. 7
 Art. 7
 Art. 46
 Art. 46
 Art. 7
 Art. 28
 Art. 28
 Art. 28
 Art. 28
 Art. 26
 Art. 17
 Art. 26
 Art. 17
 Art. 40
 Art. 40
 Art. 38
 Art. 40
 Art. 40