Source: http://www.cisg.law.pace.edu/cisg/moot/claimant7-3.html
Timestamp: 2019-04-23 02:26:18+00:00

Document:
a.	Different interpretation of "good cause"
in: Yearbook for Commercial Arbitration (YCA) 1987, at 3 et seq.
in: Yearbook for Commercial Arbitration (YCA) 1989, at 528 et seq.
in: Tijdschrift voor Privaatrecht (TvA) (1984), at 171 et seq.
in: Labes / Lörcher (ed.), Nationales und Internationales Schiedsverfahrensrecht, Munich 1998, at XV et seq.
in: Recht der Internationalen Wirtschaft (RIW) 1990, at 693 et seq.
London 1991, at 195 et seq.
Carlsen, Anja Can the Hardship-Provisions in the UNIDROIT-Principles be applied when the CISG in the governing law?
in: Journal of International Arbitration 1997, Vol. 14, No. 2, at 67 et seq.
in: Revue de l'arbitrage (Rev.d'Arb.) 1979, at 67 et seq.
in: Rabels Zeitschrift für ausländisches und internationales Privatrecht (RabelsZ) 1979, at 413 et seq.
in: Revue de l'arbitrage (Rev.d'Arb) 1987, at 482 et seq.
in: van den Berg (ed.), Planning Efficient Arbitration Proceedings - The Law Applicable in International Arbitration, ICCA Congress Series No. 7, at 145 et seq.
in: American Journal of Comparitive Law (Am.J.Comp.L.) 1992 (Vol. 40), at 662 et seq.
in: van den Berg (ed.), Planning Efficient Arbitration Proceedings - The Law Applicable in International Arbitration, ICCA Congress Series No. 7, at 112 et seq.
in: Revue de l'arbitrage (Rev.d'Arb.) 1984, at 249 et seq.
in: Praxis des Internationalen Privat- und Verfahrensrechts (IPRax) 1995, at 236 et seq.
in: Schlechtriem (ed.), Einheitliches Kaufrecht und nationales Obligationenrecht, Baden-Baden 1987, at 149 et seq.
in: Revue de l' arbitrage (Rev.d'Arb.) 1989, at 385 et seq.
in: van den Berg (ed.), Planning Efficient Arbitration Proceedings - The Law Applicable in International Arbitration, ICCA Congress Series No. 7, at 131 et seq.
Schultsz, Jan C. Legislation in the Netherlands and International Arbitration, Medelingen van de Nederlands Vereniging voor Internationaal Recht No. 93 (November 1986), at 3 et seq.
Stoll, Hans Zur Haftung bei Erfüllungserweigerung im Einheitlichen Kaufrecht.
�	RESPONDENT is to pay the costs of the arbitration [Issue 6].
The Tribunal should attach substantial, if not full evidential weight to the written statement of Mr. Dean. Evidence in this form is admissible pursuant to Art. 20.3 LCIA Rules [I] and should not be excluded under Art. 20.4 LCIA Rules [II]. Furthermore, the Tribunal should exercise its inherent general discretion under Art. 14.2 LCIA Rules to apportion substantial, if not full weight to Mr. Dean's statement [III].
Mr. Dean's written statement is admissible pursuant to Art. 20.3 LCIA Rules. This provision explicitly states that subject to any order otherwise by the an arbitral tribunal, the testimony of a witness may be presented by a party in written form, either as a signed statement or as a sworn affidavit. Firstly, Mr. Dean's testimony has been delivered in a signed statement, and secondly, there has been no order made by the Tribunal to the contrary.
The sole explicit provision under which Mr. Dean's statement may be discounted is to be found within Art. 20.4 LCIA Rules. Mr. Dean's statement cannot be excluded under this provision as Art. 20.4 LCIA Rules is not directly applicable . Even an application by analogy should not permit exclusion or reduction in evidential weight of Mr. Dean's statement .
The provision of Art. 20.4 LCIA Rules is not directly applicable to this case as its preconditions have not been met. Art. 20.4 LCIA Rules specifically requires that the Tribunal has issued an "order" to produce a witness and that the witness has failed to comply with it.
Firstly, no order to produce Mr. Dean as a witness has been made by the Tribunal.
Secondly, Mr. Dean has not failed to attend a hearing before the Tribunal for he has not been asked to appear. He is not even aware of the arbitral proceedings that take place between CLAIMANT and RESPONDENT. Since an order to produce Mr. Dean as a witness has not been made, Mr. Dean cannot have failed to comply with the same.
In the event the Tribunal decides to apply Art. 20.4 LCIA Rules by analogy, it should nevertheless not discount Mr. Dean's statement. An analogous application in this specific case would require a different interpretation of the precondition "good cause" [a]. Such interpretation should result in the conclusion that CLAIMANT's good cause is sufficient for not producing Mr. Dean [b].
According to the wording of Art. 20.4 LCIA Rules, the witness must have "good cause" not to appear in person before a tribunal. It is impossible, however, to state whether Mr. Dean has had "good cause" for any failure to comply with a non-existing order of the Tribunal. As there was no order to attend, his causes for not appearing would have to be anticipated. Thus, determination of any "good cause" would be purely hypothetical.
Should the Tribunal decide to apply Art. 20.4 LCIA Rules to a situation in which a written witness statement has been introduced as evidence, but the witness has neither been ordered nor failed to attend a hearing, "good cause" can only refer to the party seeking to rely on the statement. Therefore, the Tribunal should focus on whether CLAIMANT has "good cause" not to produce Mr. Dean, rather than on whether Mr. Dean has had "good cause" not to attend a hearing.
CLAIMANT has sufficient good cause not to produce Mr. Dean as a witness, since it has been legally advised not to contact Mr. Dean [aa] and is not in a position to ensure his attendance or seek enforcement of any order made by the Tribunal [bb].
CLAIMANT has been legally advised by counsel, who represent our Client in unrelated proceedings subsequent to the termination of Mr. Dean's contract of employment, not to contact Mr. Dean. Counsel recommended that under no circumstances should CLAIMANT attempt to approach Mr. Dean in relation to the proceedings in the current dispute between our Client and RESPONDENT. CLAIMANT submits that the Tribunal should respect this advice, as such advice by counsel attempts to prevent any conflict of interest between our Client and Mr. Dean. On the one hand CLAIMANT seeks to rely on Mr. Dean's statement in the arbitral proceedings, yet on the other hand it is involved in litigation against Mr. Dean which might influence his presentation before this Tribunal. Due to the likelihood of such a conflict of interest it would be unacceptable for our Client to produce Mr. Dean as a witness.
As Mr. Dean is no longer employed with PROCESSING, our Client cannot require Mr. Dean to attend a hearing before the Tribunal under a contract of employment. Also, an order made by the Tribunal in relation to Mr. Dean cannot be enforced. The powers of the Tribunal do not extend to persons who are not party to the arbitration. It must therefore rely on court assistance in order to enforce any order in relation to third persons. Court assistance is governed by the laws of the country in which the witness is domiciled. Mr. Dean is a resident of Mediterraneo. The law of Mediterraneo does not have any procedure for the taking of evidence relating to an arbitration taking place in a foreign country. Art. 27 UNCITRAL Model Law, which provides for court assistance in the process of taking evidence, has not been incorporated into the national law of Mediterraneo. The fact that Danubia, the country where the arbitration takes place, has adopted the UNCITRAL Model Law as its national arbitration law only allows for court assistance within its own jurisdiction. As the adoption of this law in Danubia has no extra-territorial effect, it does not apply to persons domiciled in Mediterraneo.
Since Art. 20.4 LCIA Rules is not applicable, or since sufficient good cause exists for CLAIMANT not to produce Mr. Dean if Art. 20.4 LCIA Rules is considered applicable by analogy, it need not be discussed whether discounting Mr. Dean's statement would be "appropriate" pursuant to Art. 20.4 LCIA Rules.
Acknowledging that the Tribunal has an inherent general discretion beyond Art. 20.4 LCIA rules , it is submitted that exercise of such discretion should result in the conclusion that substantial, if not full weight should be attributed to Mr. Dean's statement and that under no circumstances should such evidence be excluded a priori .
Alongside the powers of evaluation of evidence laid down in Art 20.4 LCIA Rules, the Tribunal has a general discretion to admit and evaluate evidence. Art. 14.2 LCIA Rules provides that the Tribunal has the widest discretion in exercising its duties. This includes any decision as to the application and extent of rules of evidence. The Tribunal may exercise its discretion in order to fill any gaps in procedural provisions as to how evidence should be treated. This corresponds with the general principle expressed within Art. 19(2) UNCITRAL Model Law that the Tribunal may determine the admissibility, relevance and weight of evidence. Art. 20.4 LCIA Rules is thus merely one expression of this principle and is consequently not exhaustive.
In exercising this general discretion, the Tribunal is asked to conclude that the statement of Mr. Dean is given substantial, if not full weight. This follows from the generally accepted principles that each party should be given a reasonable opportunity to present its case [a] and that the arbitral proceedings must be conducted efficiently [b]. Furthermore, neither the impossibility of cross-examination [c] nor any express law of Danubia [d] demands for the exclusion of Mr. Dean's statement.
Exclusion of Mr. Dean's statement would bar our Client from effectively presenting its case. Art. 14.1(i) LCIA Rules explicitly provides that at all times the Tribunal has to grant each party a reasonable opportunity to present its case. This reflects the general principle of the parties' right to be heard which is considered fundamental in international arbitration. As acknowledged by RESPONDENT in its Statement of Defense, Mr. Dean's statement is crucial to our Client's case. Mr. Dean was the sole person on CLAIMANT's side who dealt with RESPONDENT during the time of negotiating and implementing the contract. His statement contains exclusive and essential knowledge that would otherwise not be available for CLAIMANT's presentation of case. Violation of this right to be heard might constitute grounds for setting aside the arbitral award according to Art. 34(2)(a)(ii) UNCITRAL Model Law.
In the interest of efficiency and expediency in the arbitral proceedings, Mr. Dean's statement should be admissible in its written form. Art. 14.1(ii) LCIA Rules stipulates that it is a general duty of the Tribunal at all times to adopt such procedure which avoids unnecessary delay or expense, so as to provide for a fair and efficient conduct of the proceedings. Reliance on written evidence helps to avoid unnecessary questioning and evidentiary warfare, and thus preserves the parties' resources of time and money. It is doubtful that Mr. Dean's oral testimony would reveal any new information, because at the time of the hearing more than two years will have passed since the occurrence of the events in question. Even if Mr. Dean was to attend a hearing for questioning, his appearance would likely result in unnecessary delay and expenses for the arbitral proceedings.
The impossibility of cross-examining Mr. Dean at a hearing before the Tribunal does not require to exclude his statement per se. Cross-examination primarily serves to ascertain the credibility of a witness. If this is not possible, the Tribunal may react by apportioning less than full weight to the statement. Since the Tribunal is composed of experienced professional arbitrators, there should not be any concerns that they could be misled by a written statement as it might be the case, for example, with a jury in certain types of litigation in state courts.
adopted the UNCITRAL Model Law. There is no provision contained within this body of law according to which written evidence must be disregarded by the Tribunal. On the contrary, it is general practice in international arbitration that evidence may be presented in written form. For example, Art. 25(5) UNCITRAL Arbitration Rules provides that evidence of witnesses may also be presented in the form of written statements signed by them. The UNCITRAL Arbitration Rules reflect a well-respected standard for international arbitration as has been demonstrated through their employment by the U.S-Iran Claims Tribunal. One of the principal drafters of the UNCITRAL Model Law, Howard M. Holtzmann, even proposed to include the provision of Art. 25(5) UNCITRAL Arbitration Rules in the UNCITRAL Model Law. The proposal was not adopted only because it was believed that such a point of detail should be left under the aegis of the general principle of Art. 19 UNCITRAL Model Law, i.e. the general discretion of the Tribunal.
An arbitral agreement was concluded between CLAIMANT and RESPONDENT in light of Mr. Dean's statement [I]. In the alternative, such agreement exists as a result of trade usage [II] and past practice [III].
Mr. Dean on behalf of PROCESSING and Mr. Stern on behalf of DEALERS consented to arbitration, both during the telephone conversation and in their subsequent correspondence . This agreement fulfills the formal requirements of Art. 7(2) UNCITRAL Model Law .
Firstly, that both parties were aware of the fact that the SCS-5 contain an arbitration clause. RESPONDENT admits in its Response to Request for Arbitration that the SCS-5 contain an arbitration clause, since it maintains to have incorporated such a clause into a contract with IMPORTS based on those conditions "set out in the Request for Arbitration", i.e. the SCS-5.
Secondly, that they agreed to incorporate such a clause into a contract. In the Response to Request for Arbitration, RESPONDENT does not repudiate the fact that it wanted to incorporate the SCS-5 into the contract.
RESPONDENT therefore must be bound to arbitrate with our Client as it alleges not to have entered into a contract with CLAIMANT but nevertheless has already agreed to submit to arbitration any dispute concerning the existence of a contract between them. In other words, from that moment, when both parties were aware of the arbitration clause contained within SCS-5 and agreed to subject a contract to these conditions, an arbitral agreement between them came into existence. The doctrine of severability must preclude RESPONDENT from invoking the argument that arbitration has not been agreed upon because a contract between CLAIMANT and RESPONDENT allegedly does not exist. Such argumentation by RESPONDENT would render useless Clause 13 of the SCS-5 which explicitly subjects any dispute regarding the existence of a contract to arbitration.
The agreement to arbitrate also fulfilled the formal requirements of Art. 7(2) UNCITRAL Model Law. According to this provision any arbitral agreement shall be in writing. It requires that both parties sign the document containing the arbitral agreement. Under normal circumstances, signing a document that simply makes reference to such terms which contain an arbitration clause does not satisfy the formal requirements of Art. 7(2) UNCITRAL Model Law. However, in case both parties are aware of the existence of an arbitration provision within, for example, standard conditions of sale, written reference to the same is sufficient under Art. 7(2) UNCITRAL Model Law. Since the parties consciously oust the jurisdiction of the competent courts, mere written reference to standard conditions of sale is not contrary to the aim of this provision which tries to ensure that a party is not involuntarily compelled to arbitration.
In their respective letters both Mr. Dean and Mr. Stern explicitly state that the contract was to be subject to the SCS-5. Even though they did not expressly mention the arbitration provision in Clause 13 of the SCS-5, both parties - as has been shown above - were fully aware of the fact that such a provision was contained therein. The written reference to the SCS-5 thus fulfilled the formal requirements of Art. 7(2) UNCITRAL Model Law.
If the Tribunal comes to the conclusion that an arbitral agreement between CLAIMANT and RESPONDENT has not been explicitly agreed upon, such an agreement exists as a result of trade usage in the feed and grain industry. Trade usage binds to arbitration , there is a general practice of arbitration in the feed and grain industry which must be considered a trade usage  and both CLAIMANT and RESPONDENT are involved in this industry .
It is generally accepted in international arbitration that arbitral agreements can be based on trade usages without explicit consent of one of the parties. The binding nature of trade usages for the conclusion of arbitral agreements has been consistently recognized and upheld in various decisions by national courts. Arbitral awards were unsuccessfully challenged on the grounds that such agreements cannot originate from trade usage. Participants in international commerce and trade are subject to an increased responsibility to acknowledge the binding nature of trade usages. Therefore, unless otherwise agreed, parties have impliedly made applicable to their agreement and its formation usages of which they knew or ought to have known and which are regularly observed by parties in their particular area of trade. The express mentioning of trade usages in arbitration laws reveals that the Tribunal should observe and uphold trade usages and relevant customs in its decision-making process.
The general practice of arbitration in the grain industry constitutes a trade usage. As has been clarified by the Tribunal, the SCS-5, which contain the arbitration clause, are used and have been used for all contracts of sale by the various grain dealers in Danubia, all of whom are members of the Feed and Grain Association. This entails that settling of disputes by way of arbitration must be considered a trade usage in the Danubian grain industry.
Such trade usage can even be considered to apply on an international level. Firstly, grain dealers in Equatoriana employ similar standard conditions of sale containing arbitration provisions. Secondly, the Grain and Feed Trade Association (GAFTA), which comprises more than 815 members from over 80 countries, provides for large number of different standard forms of contract that contain an arbitration clause. GAFTA operates its own Arbitration Service which applies GAFTA's own arbitration rules which are specifically designed for disputes in the international grain and feed trade industry. Except for specialized fields of the international economy such as financial transactions, arbitration is the traditional method for dispute resolution in international commerce and trade.
Both CLAIMANT and RESPONDENT are companies involved in the grain industry. Thus, the specific trade usage in this respective field of commerce to settle disputes by way of arbitration should lead the Tribunal to the result that an arbitral agreement between the parties was concluded. Such result would be in line with a judgement of the German Supreme Court, which decided that an arbitral agreement may form part of a contract, if an arbitral clause is custom in the area of trade.
RESPONDENT might argue that CLAIMANT cannot rely on any trade usage of the grain industry in Danubia since our Client's company is located in Mediterraneo. The Tribunal, however, should take into account that only RESPONDENT repudiates the existence of an arbitral agreement. Whilst CLAIMANT explicitly agrees to arbitration, RESPONDENT as a grain dealer from Danubia should not be allowed to exempt itself from trade usages of the grain industry in its own country.
If an arbitral agreement does not exist as result of a trade usage, RESPONDENT is bound to arbitrate with CLAIMANT as a result of past practice. In the past, arbitral agreements between IMPORTS and RESPONDENT were also concluded between CLAIMANT and RESPONDENT . The number of arbitral agreements which also applied to CLAIMANT constitutes a past practice between CLAIMANT and RESPONDENT .
Arbitral agreements between IMPORTS and DEALERS in the past also applied to disputes between CLAIMANT and DEALERS, because CLAIMANT and IMPORTS formed a group of companies [a] and CLAIMANT was a factual party to contracts between IMPORTS and DEALERS [b].
PROCESSING and IMPORTS formed a group of companies, as our Client held 51% of the capital stock of IMPORTS and three members of the board of PROCESSING also served on the board of IMPORTS. Even though Danubian law did not treat CLAIMANT and IMPORTS as one legal entity, there was a perception in the market that CLAIMANT had a privileged position with IMPORTS. PROCESSING imported all of its supplies of grain through IMPORTS. IMPORTS must be seen as a purchasing department which had been outsourced into a legally independent entity, but had remained under close management control of PROCESSING. Thus, irrespective of any distinct juridical identity, PROCESSING and IMPORTS constituted one and the same economic reality, at least as far as the purchase of grain from other countries is concerned.
When importing grain from RESPONDENT through the purchasing department of IMPORTS, CLAIMANT was a factual party to the contracts and arbitral agreements between IMPORTS and RESPONDENT. "Factual party" in this context means the active and effective participation of a group member in the negotiation, implementation and termination of a contract between another member of the group and a third party. If by such participation the non-signatory member of a group reveals its intent to be treated on an equal footing with the signatories to the contract, arbitral tribunals have decided to extend arbitral agreements between the signatories to the "factual party". This even applies if the non-signatory party later ceases to be a member of the corporate group. Such argumentation has been confirmed and upheld by national courts.
The contracts between IMPORTS and DEALERS, which concerned grain ordered for PROCESSING, were directly implemented with PROCESSING. It was common practice that the grain was directly shipped to PROCESSING. Therefore, RESPONDENT considered PROCESSING to be the "ultimate party in interest". Mr. Stern explicitly stated that DEALERS was always "happy to work directly with Feed Processing" in the implementation of its contracts with IMPORTS. Thus, CLAIMANT must have also been directly concerned by the arbitral agreements which were contained in the contracts between IMPORTS and RESPONDENT.
Since an arbitration agreement between CLAIMANT and RESPONDENT existed on numerous prior occasions due to IMPORTS position in the PROCESSING group of companies, the Tribunal is asked to find that RESPONDENT is now bound to arbitrate with CLAIMANT as a result of past practice. During the past four years, 18 contracts between RESPONDENT and IMPORTS including an arbitration clause were directly implemented with CLAIMANT. Agreeing to arbitration thus should be considered to constitute a common practice in the relations between RESPONDENT and CLAIMANT.
In case of such long-standing business relations and a high number of previous contracts containing the same arbitration clause, customary arbitral agreements based on past practice also fulfill the formal requirements of Art. 7(2) UNCITRAL Model Law.
CLAIMANT entered into a contract with RESPONDENT by telephone for the purchase of 6,000 tons of standard feed wheat at a price of $60.00 per ton on 19 February 1998 [I]. Should the Tribunal come to the conclusion that no contract was formed by telephone, CLAIMANT and RESPONDENT concluded a contract through consenting letters of 20 February and 24 February 1998 [II]. In case that the Tribunal should find that a contract was neither formed by telephone nor through consenting correspondence, RESPONDENT's subsequent conduct led to the formation of a contract [III].
Mr. Dean on behalf of CLAIMANT and Mr. Stern on behalf of RESPONDENT entered into a contract by telephone on 19 February 1998, as all relevant terms were agreed upon. RESPONDENT limits its defense to the argument that it was not clear that Mr. Dean acted for PROCESSING rather than for IMPORTS. It thus alleges that the contract was concluded with IMPORTS. This allegation, however, does not prevent the conclusion of a contract between CLAIMANT and RESPONDENT as the identity of parties need not be determined under the CISG . Even if the Tribunal should regard the identity of parties relevant under the CISG to formation of contract, a contract has nevertheless been concluded; an interpretation of Mr. Dean's statements pursuant to Art. 8 CISG reveals that PROCESSING was to be party to the contract .
The identity of the parties need not be determined under the CISG. A contract for the sale of goods does not demand for any personal emphasis, in contrast to, for example, a contract of service in which the identity of parties is of crucial importance. Contracts of service are usually negotiated on the basis of unique qualifications or abilities of the provider of services. The main objective in a contract of sale, however, is the exchange of goods. Consequently, the identity of the parties is irrelevant for the formation of such contracts. This principle is reflected in the CISG, as Art. 14(1) CISG does not require the identity of parties to be determined for a valid offer. According to Art. 14(1) CISG an offer has to be sufficiently definite and indicate the offeror's intention to be bound in case of acceptance. For the purposes of the CISG an offer is sufficiently definite if it indicates goods, quantity and price according to Art. 14(1)(2) CISG. Therefore, only these elements constitute the indispensable parts of an offer (essentialia negotii); while the identity of parties need not be determined. This is underlined by the legislative history of Art. 14 CISG. During the travaux préparatoires it was never discussed that the identity of parties was to be a requirement for the validity of an offer under the CISG.
That the identity of parties need not be determined, corresponds with civil and common law approaches expressing that an error as to the identity of parties is irrelevant for the validity of contract. Art. 1110(2) French Code Civil, for example, stipulates that an error as to identity of party is only relevant if the identity was the principal cause for entering into the contract. Similarly, common law treats a mistake as to the identity of contracting party as irrelevant to the validity of contract, provided that the identity is not of crucial importance.
In case the Tribunal finds that identity of parties is relevant under the CISG for formation of contract, a contract had still been concluded between CLAIMANT and RESPONDENT. The allegation that it was not clear that Mr. Dean was acting on behalf of PROCESSING is untenable in the light of Art. 8 CISG. An interpretation of Mr. Dean's statements pursuant to Art. 8(1) CISG reveals that Mr. Stern could not have been unaware of the fact that Mr. Dean acted for PROCESSING [a]. In the alternative according to Art. 8(2) CISG, a reasonable person in the position of Mr. Stern would not have been unaware of the fact that Mr. Dean acted for PROCESSING [b].
RESPONDENT could not have been unaware that CLAIMANT was to be a party to the contract. Pursuant to Art. 8(1) CISG, statements made by a party are to be interpreted according to its intent where the other party could not have been unaware of what the intent was. Mr. Dean made several clear indications that he was acting on behalf of PROCESSING and thereby demonstrated that PROCESSING and not IMPORTS was party to the contract. Not only was Mr. Stern told that PROCESSING was selling all the stock it owned in IMPORTS, but also that PROCESSING was ceasing to use the services of IMPORTS. Mr. Dean stated that PROCESSING was building up its own purchasing department and that he was now the responsible person at PROCESSING. Mr. Stern himself even admits that PROCESSING and not IMPORTS was looking for standard feed wheat.
In the alternative, a reasonable person would not have been unaware that PROCESSING was party to the contract. Pursuant to Art. 8(2) CISG, statements of a party are to be interpreted in line with the understanding of a reasonable person of the same kind under the same circumstances. Mr. Stern knew that as a consequence of the sale of stocks which PROCESSING owned in IMPORTS, it was building up its own purchasing department. He assumed that the "sale of stock would be completed at the end of the week". Mr. Dean and Mr. Stern negotiated the contract on 19 February 1998 - a Thursday - which, as Mr. Stern believed, was one day prior to the day upon which changes in PROCESSING's company structure were to take effect. Despite this belief, Mr. Stern alleges that it was clear to him that the change in the company structure "had nothing to do with the current sale". This position is, however, untenable. A reasonable person in the same circumstances and with Mr. Dean's knowledge would have concluded that one day prior to the completed change in company structure PROCESSING would sign a contract under its own name, rather than continue to rely on the services provided by IMPORTS. Such a conclusion is supported by the fact that contractual performance was not to take place until July, i.e. five months after the contractual negotiations. It is unreasonable to assume that PROCESSING, whilst it was just about to break its ties with IMPORTS, would once again make itself contractually dependent on IMPORTS for such a long time.
If the Tribunal should find that CLAIMANT and RESPONDENT did not conclude a contract by telephone on 19 February 1998, then the consenting correspondence of 20 and 24 February 1998 between the parties led to the formation of a contract. CLAIMANT's letter of 20 February 1998 constituted an offer , which RESPONDENT accepted in its letter of 24 February 1998 .
The letter of 20 February 1998 sent by Mr. Dean constituted a valid offer as it fulfilled the requirements of Art. 14 CISG. Whilst the letter was intended to acknowledge the formation of a contract, at the same time it reiterated CLAIMANT's intention to be bound in case of acceptance. Furthermore, it contained all relevant terms for a contract of sale. Any allegation that the identity of the offeror was unclear cannot be upheld in the light of Art. 8 CISG. RESPONDENT could not have been unaware that PROCESSING was to be a party to the contract pursuant to Art. 8(I) CISG [a]. In the alternative, according to Art. 8(2) CISG, a reasonable person would have come to the conclusion that it was PROCESSING who wanted to enter into a contract [b].
An interpretation of Mr. Dean's statements according to Art. 8(1) CISG leads to the result that Mr. Stern could not have been unaware of the fact that PROCESSING was to be party to the contract. Mr. Dean sent his offer on business stationery of PROCESSING. It has been acknowledged that business stationery has to be regarded as authentic. Furthermore, even RESPONDENT admits that the use of PROCESSING's business stationery indicates that PROCESSING was the contractual party. RESPONDENT cannot assume that the use of PROCESSING's business stationery was "a mistake of some kind". In light of the telephone conversation that had taken place the previous day, this position is untenable. As shown above, Mr. Dean made several clear indications in this telephone conversation that PROCESSING was party to the contract.
In the alternative, interpretation pursuant to Art. 8(2) CISG demonstrates that a reasonable person under the same circumstances would not have been unaware that PROCESSING was the contracting party.
Firstly, a reasonable business person would not have come to the conclusion that the use of business stationery was "a mistake of some kind"; particularly considering the undisputed fact that it was PROCESSING and not IMPORTS who was looking for wheat. It cannot be reasonable for a business person involved in international trade to question the authenticity of business stationery. If the authenticity of business stationery could not be relied upon, the conclusion of business contracts on an international level would be rendered practically impossible.
Secondly, Mr. Dean sent the letter on Friday 20 February 1998, the very day RESPONDENT believed that the sale of stocks in IMPORTS was completed. If a reasonable person had been unaware during the telephone conversation that PROCESSING was to be party to the contract, such a person would at least now have been aware of the fact that PROCESSING was party to the contract. Assuming that the two companies were separated from that day on, it is unreasonable to come to the conclusion that after the sale of stocks had been completed, PROCESSING would continue to rely on IMPORTS rather than on its own purchasing department. This conclusion is particularly unreasonable if one considers that RESPONDENT was aware that the PROCESSING's purchasing department was to take over the services formerly provided by IMPORTS.
RESPONDENT accepted CLAIMANT's offer in its letter of 24 February 1998. Any expression of assent to the offer showing intention to be bound by the contractual terms constitutes an acceptance. RESPONDENT unconditionally consented to all contractual terms proposed by our Client; its unconditional consent was unaffected by its allegation to have entered into a contract with IMPORTS.
Firstly, RESPONDENT indicated that the identity of the contracting party was not of crucial importance. Mr. Dean's personal responsibility for the implementation of the contract seemed to have been more important to RESPONDENT than the contracting party itself, since Mr. Stern held Mr. Dean personally responsible for the performance of the contract. Focusing on Mr. Dean demonstrates that the identity of the contracting party was irrelevant to RESPONDENT provided that the performance of the contract was to be administered by Mr. Dean. RESPONDENT thereby focused on the assurance that Mr. Dean would handle the contract rather than on the question who the was to be party to the contract.
Secondly, by acknowledging that the business stationery of PROCESSING indicated that PROCESSING might be a party to the contract, RESPONDENT did not explicitly reject PROCESSING's offer. Mr. Stern even stated that RESPONDENT would be "happy to work directly" with PROCESSING. This demonstrates that RESPONDENT specifically wanted to enter into a contract; whether with PROCESSING or IMPORTS was not a matter of concern.
Thirdly, RESPONDENT's subsequent conduct which should be taken into account according to Art. 8(3) CISG, confirms that it had consented to enter into contractual relations with PROCESSING. After the sale of stock had been completed, IMPORTS and RESPONDENT resumed contractual negotiations for the first time on 2 March 1998. Even presuming that Mr. Stern had misunderstood Mr. Dean's information as to his employment with PROCESSING, he had full positive knowledge of this fact from that date on. Mr. Stern, nevertheless, made no effort in discovering as to whom IMPORTS may had assigned as Mr. Dean's successor. Regardless of his knowledge to the contrary, Mr. Stern sent his letter of 17 April 1998 to IMPORTS with copy to PROCESSING so as to ensure that the letter reached Mr. Dean "at one of the two locations".
In the event that the Tribunal should find that a contract between CLAIMANT and RESPONDENT was neither concluded by telephone nor through consenting letters of 20 and 24 February 1998, CLAIMANT and RESPONDENT nevertheless concluded a contract through subsequent conduct. Contracts in international trade often fall out of the offer and acceptance model and are concluded through other consensual means. The drafters of the CISG even attempted to include a rule providing that agreements may be inferred from conduct. The main reason for not adopting any provision was the difficulty in formulating such a rule. Thus, agreements without identifiable elements of offer and acceptance fall within the CISG. This is reflected within Part II CISG which assumes the principle of consensus to be the underlying idea of contract formation. If interpretation of subsequent conduct according to Art. 8 (2)(3) CISG indicates the parties' intent to be bound, a contract is regarded as having been concluded. RESPONDENT demonstrated that it considered itself contractually bound to PROCESSING for various reasons.
After 17 April 1998 Mr. Stern sent all correspondence concerning the contract directly to PROCESSING, contrary to normal procedures between IMPORTS - on behalf of PROCESSING - and RESPONDENT in the past years. If RESPONDENT had regarded IMPORTS as the contracting party, correspondence would not have been sent directly to PROCESSING.
The fact that RESPONDENT considered itself contractually bound to PROCESSING is further demonstrated through its initial acceptance that PROCESSING provided the letter of credit, whilst in the past it was always IMPORTS who opened the letter of credit in contracts on behalf of PROCESSING. RESPONDENT, thereby, clearly agreed that the purchase price was to be paid by PROCESSING and not by IMPORTS. If RESPONDENT did not consider PROCESSING as party to the contract, it would not have accepted that the main duty of a purchaser to provide payment pursuant to Art. 53 CISG was to be fulfilled by our Client. The sole ground cited by RESPONDENT for refusing the letter of credit was that PROCESSING had failed to amend the terms as requested. PROCESSING and not IMPORTS - as the alleged party to the contract - was requested to adapt the contract.
Finally, in its letter of 16 June 1998, RESPONDENT showed that it considered itself contractually bound to PROCESSING. In this letter, RESPONDENT declared the contract avoided. Avoidance of contract has to be declared to the contracting party pursuant to Art. 26 CISG. RESPONDENT, therefore, must have considered itself to have entered into a contract with PROCESSING, since it addressed the avoidance to our Client rather than to IMPORTS. RESPONDENT also expressed its hope that "the break in our relationship" would only be temporary. If RESPONDENT believed that it had entered into a contract with IMPORTS, any break thus would be with IMPORTS rather than with PROCESSING.
RESPONDENT committed a breach of contract when it expressed its final and definite refusal to deliver 6,000 tons of standard feed wheat to CLAIMANT by letter of 16 June 1998 [I] and this refusal was not justified [II].
RESPONDENT's final and definite refusal on 16 June 1998 to deliver 6,000 tons of standard feed wheat, prior to the date performance was due, constituted a breach of its contractual obligations pursuant to Art. 30 CISG.
Under the CISG any non-performance of a contractual obligation is a breach. Even if performance of an obligation is not yet due, a promisor's definite and final refusal of such performance also constitutes a breach. This follows from Art. 72 CISG giving a party the right to avoid the contract if, prior to the date of performance, it is clear that the other party will commit a fundamental breach.
In its letter of 16 June 1998 prior to the date performance was due RESPONDENT told CLAIMANT that it would allocate the standard feed wheat that was meant to be shipped to CLAIMANT to its other customers. Thereby RESPONDENT made clear that in no case would it perform its obligation to deliver under the contract with our Client.
The refusal to deliver was not justified as RESPONDENT had no right to relieve itself from its contractual obligation. The only such right which the CISG provides for is the right of avoidance. RESPONDENT alleges that it rightfully avoided the contract as CLAIMANT had not amended the letter of credit as demanded. RESPONDENT's demand was based on the fact that it was barred by a government quota from delivering in full. This did not give RESPONDENT a legitimate right for avoiding the contract pursuant to Art. 64(1) CISG, since the requirements of this provision were not met.
The two alternatives of this provision, i.e. Art. 64(1)(a) and (b) CISG, both require a failure by the other party to perform a contractual duty. CLAIMANT, however, did not fail to comply with its contractual duties. It did not amend the letter of credit as requested by RESPONDENT, since it was not obliged to do so. Under the contract, CLAIMANT had no duty to adapt it to changed circumstances . Neither does such a duty exist under the CISG . Even if a duty to adapt the contract had existed, it would not have taken effect, as the preconditions were not met .
The CISG does not provide for a duty to adapt the contract to changed circumstances.
Firstly, the sole provision in the CISG which regulates the issue of changed circumstances is Art. 79 CISG. It does not, however, impose a duty upon the parties to adapt the contract. Art. 79 CISG only releases the non-performing party from liability for damages. The original obligation to perform is preserved in its initial form, which is reflected in Art. 79(5) CISG.
Secondly, during the travaux préparatoires proposals were made to include into the CISG a provision on renegotiation or adaptation of contracts in cases of changed circumstances. However, these proposals were rejected as it was considered that such a provision would provide an easy tool for the parties to free themselves from the duty to perform their contractual obligations.
Finally, systematic considerations imply that no such duty can exist under the CISG. The CISG as a whole is based upon the principle of guaranteed performance. This rules out the assumption that there is a gap in the CISG which would allow adaptation of the contract to radically changed circumstances.
Even if a duty to adapt the contract to changed circumstances had existed, it would not have taken effect in the case at hand, as its preconditions were not met.
In the absence of an explicit clause in the contract and the CISG, the preconditions can only be determined by a comparative analysis of civil and common law jurisdictions which have accepted such a duty. An analysis, however, must also consider the fact that a duty to adapt a contract to changed circumstances is not recognized in every jurisdiction. The UNIDROIT Principles of International Commercial Contracts (hereafter referred to as "UPICC") provide for such a comparative analysis in Art. 6.2 UPICC. The provisions of Art. 6.2 UPICC reflect the general presumption that in international contracts the principle of pacta sunt servanda prevails over a duty to adapt a contract to changed circumstances. Art. 6.2.1 UPICC demands that even if performance becomes more onerous, it must nevertheless be rendered. Therefore, it can be inferred that the concept of adaptation is to be applied only in exceptional circumstances.
The preconditions for an adaptation are laid down in Art. 6.2.2 UPICC. Pursuant to this provision, the duty to adapt a contract only arises under the following preconditions: Firstly, the equilibrium of the contract is fundamentally altered by the occurrence of such events which lead to an increase in cost of a party's performance. Secondly, the events could not have reasonably been taken into account and the risk of the events was not assumed by the disadvantaged party.
A duty to adapt the contract never arose for CLAIMANT as the government quota did not fundamentally alter the equilibrium of the contract [a]. Even presuming that the quota fundamentally changed the equilibrium of the contract, CLAIMANT nevertheless did not have a duty to adapt the contract, because the other requirements were not met [b].
The quota did not fundamentally alter the contractual equilibrium, since it did not result in an increase of RESPONDENT's costs of performance [aa]. Even if the Tribunal finds that the quota could have resulted in an increase of RESPONDENT's costs, such increase would not have attained a level of fundamental alteration of the contractual equilibrium [bb].
RESPONDENT's costs of performance did not increase, because the delivery of 6,000 tons of wheat to CLAIMANT was still possible under the quota in such manner as the parties had originally agreed upon.
RESPONDENT had applied for a total quota of 300,000 tons of wheat. It was, however, only allocated 240,000 tons, i.e. 80 percent of the amount requested. As of 17 April 1998, RESPONDENT held firm contracts for the export of 180,000 tons. The quota of 240,000 tons was therefore sufficient for RESPONDENT to supply parties holding firm contracts in full without any increase in cost. Contracts for a total amount of 120,000 tons, entered into between RESPONDENT and regular customers after 17 April 1998 were "subject to availability" of sufficient wheat. Thus, any reduced allocation of wheat to regular customers would have neither resulted in a breach of these contracts, nor imposed any duty on RESPONDENT to make cover purchases for fulfillment of the same. Although RESPONDENT had applied for distributing 120,000 tons to regular customers, the government never required that a certain percentage was to be reserved for such customers, since the quota was a global allocation. RESPONDENT is therefore clearly mistaken in its assumption that the total quota of 240,000 tons was not enough to cover all of its obligations.
Even presuming that the quota could have resulted in an increase of RESPONDENT's costs of performance, such increase would have not attained a level of fundamental alteration of the contractual equilibrium. An increase in RESPONDENT's costs could have only occurred, if full delivery was considered not possible under the quota, and RESPONDENT thus would have had to make a cover purchase in order to fulfill its obligation. The world market price for standard feed wheat for July delivery had increased from $60.00 to $75.00 per ton, i.e. by 25 percent. This increase in costs, however, would not have amounted to a fundamental alteration of the contractual equilibrium. Only an increase of costs which lies far beyond the normal economic development constitutes a fundamental alteration. A change in circumstances is only relevant in exceptional circumstances, which means that the contract must be performed as long as it is possible and regardless of the burden it may impose on the performing party. If the alteration can be measured in monetary terms, according to the official UNIDROIT commentary only an increase amounting to 50% or more of the costs of performance is to be regarded as a fundamental alteration.
In the event the Tribunal finds that the quota fundamentally altered the equilibrium of the contract, CLAIMANT nevertheless did not have a duty to adapt the contract, since the quota could have reasonably been taken into account by RESPONDENT at the time of the conclusion of the contract [aa] and RESPONDENT assumed the risk of a quota being issued by the government [bb].
has been acknowledged that all kinds of events - even wars, fires and embargoes are foreseeable to some degree. Being involved in the agricultural trade, the nature of which dictates dependence on seasonal and climatic changes, RESPONDENT must constantly take into account the possibility of bad weather affecting growing capacity. The fact that there have been only minor floods in the past does not, a priori, exclude the possibility of major floods. Any experienced business person involved in the agricultural trade could reasonably foresee that in the event of flooding of such magnitude as in this case there would be government intervention of some kind. Consequences of such government intervention in the form of emergency regulations must be seen as an exercise of inherent policy-making power. A quota system restricting exports thus must be regarded as foreseeable.
RESPONDENT also assumed the risk of an imposition of a government quota, since it has been impliedly agreed by the parties that RESPONDENT should bear the risk of procuring the wheat.
If the parties contract for generic goods - in contrast to specific or unique goods - and if the delivery of such is not limited to a particular market, the parties impliedly agree that the seller should bear the risk of procuring the goods. The purchase was for standard feed wheat, which is a generic product. Furthermore, the delivery of the wheat should not be limited to the market of Danubia as the parties have not agreed that the wheat was to be of Danubian origin. This follows from the fact that RESPONDENT is a dealer in grain and wheat. RESPONDENTS resources are not limited to Danubia as wheat is traded, rather than grown. Moreover, the wheat ordered was "standard", meaning that it could be delivered from grain producers outside the country who were not affected by the Danubian quotas.
CLAIMANT is entitled to recover damages in the amount of $90,000. This claim can either be based on Artt. 45(1)(b) and 75 CISG [I] or on Artt. 45(1)(b) and 74 CISG [II]. RESPONDENT is not exempt from liability pursuant to Art. 79 CISG [III]. Furthermore, pursuant to Art. 78 CISG CLAIMANT is entitled to interest on the sum of $90,000 as of 18 June 1998 [IV].
Art. 45(1)(b) CISG entitles our Client to claim damages pursuant to Artt. 74-76 CISG should Respondent have committed a breach of contract. RESPONDENT breached the contract by finally and definitely refusing to deliver the standard feed wheat. The requirements of Art. 75 CISG, under which CLAIMANT's damages can be calculated are fulfilled. CLAIMANT has rightfully made a substitute purchase . This purchase was made in a reasonable manner and time  and the sum of $90,000 is the recoverable difference between the contract price and the replacement purchase price for 6,000 tons of standard feed wheat .
CLAIMANT rightfully made a substitute transaction on 18 June 1998 by purchasing replacement goods in Equatoriana.
Art. 75 CISG generally requires avoidance of the contract prior to the performance of the substitute transaction. Commentators agree, however, that the need to preserve good faith in international trade (cf. Art. 7(1) CISG) indicates that an exception should be made from the requirement of avoidance, if, at the time of the substitute transaction, it is certain that under no circumstances will the promisor deliver. The most important example is where a party has expressed its final and definite refusal to perform. In its letter of 16 June 1998, RESPONDENT stated that as no amendment to the letter of credit had been received it was taking steps to re-allocate to other customers the standard feed wheat that otherwise would have been shipped to CLAIMANT. RESPONDENT thus made it absolutely clear that that under no circumstances would it fulfil the contractual obligation to deliver 6,000 tons of standard feed wheat to CLAIMANT.
CLAIMANT's purchase of the replacement goods on 18 June 1998 was performed in a reasonable manner and time.
The requirement of making the substitute purchase in a reasonable manner means that the promisee should act as a careful and prudent business person and observe the relevant practice of the trade concerned. This requirement demands that the substitute transaction be made at the lowest price reasonably possible. It is undisputed that CLAIMANT made the purchase of 6,000 tons in Equatoriana for the price of $75.00 per ton, the market price at that time. This increase in market price occurred because the floods in Danubia coincided with a bad growing season in other major standard feed wheat producing areas.
CLAIMANT also purchased the substitute goods within a reasonable time. This prerequisite demands that the substitute transaction be performed within the time-frame necessary for the claiming party to take every measure in accordance with the duty to mitigate losses pursuant to Art. 77 CISG. CLAIMANT performed the substitute transaction two days after RESPONDENT's final and definite refusal. As our Client has been buying standard feed wheat for the past ten years, it was familiar with the market price for this product. Two days were sufficient for CLAIMANT to ascertain the current market price. CLAIMANT's loss would not have been reduced by waiting for more than two days to perform the cover purchase, as the price per ton remained at $75.00 throughout June for July delivery.
CLAIMANT is entitled pursuant to Art. 75 CISG to recover $90,000, the difference between the contract and the replacement purchase price. CLAIMANT paid $75.00 per ton for the replacement wheat and thus $450.000 for 6,000 tons. Had RESPONDENT fulfilled the original contractual obligation, CLAIMANT would only have paid $60.00 per ton and thus $360,000 for the entire delivery.
CLAIMANT is also entitled to recover $90,000 in damages pursuant to Artt. 45(1)(b) and 74 CISG.
Pursuant to Art. 74 CISG, damages for breach of contract by one party consist of a sum equal to the loss suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract. A breach of contract was committed by RESPONDENT on 16 June 1998, when it finally refused to deliver the wheat. The loss of $90,000 was the direct result of RESPONDENT's breach. Had RESPONDENT fulfilled his contractual obligation to deliver, CLAIMANT would not have had to purchase wheat in Equatoriana.
The loss of $90,000 was foreseeable for RESPONDENT at the time of formation of the contract. At that time RESPONDENT could reasonably have foreseen that his refusal to deliver would require CLAIMANT to perform a substitute purchase which could incur higher costs. Such loss constitutes a "non-performance" loss; it is generally accepted that non-performance losses are always foreseeable.
RESPONDENT is not exempt from liability pursuant to Art. 79(1) CISG. This provision states that a party is not liable for failure to perform, if it can prove that the failure was due to an impediment beyond its control and that it could not reasonably be expected to have taken such impediment into account at the time of conclusion of the contract or to have avoided or overcome the impediment or its consequences. A party in breach is only exempt if all requirements are fulfilled simultaneously, i.e. if any one requirement is not satisfied, the party in breach remains liable.
CLAIMANT submits that the government quota was no impediment hindering RESPONDENT's performance . Should the Tribunal hold that did constitute an impediment, RESPONDENT is nevertheless not exempt, as such an impediment was reasonably foreseeable  and could have been overcome .
The government quota was no impediment to performance beyond control pursuant to Art. 79(1) CISG.
An "impediment beyond control" within the meaning of Art. 79 CISG is considered to be any objective circumstance that prevents performance. Art. 79 CISG only exempts a party from liability, if performance has become impossible. Even though the government quota was an "objective circumstance", it did not prevent RESPONDENT from complying with its contractual obligation to deliver. As shown above, the full delivery of 6,000 tons of standard feed wheat to CLAIMANT was possible under the quota. The global allocation of 240,000 tons was sufficient for RESPONDENT to fulfill its obligations under those contracts that were not "subject to availability".
RESPONDENT's presumed inability to perform was self-inflicted and not a result of the quota, as RESPONDENT insisted on the delivery of only 80 percent to both regular customers and those who held firm contracts as of 17 April 1998. It would have been legally permissible to deprive customers with contracts "subject to availability" of more wheat, rather than deplete stocks available to parties holding firm contracts.
Even if the Tribunal should find that the government quota was an impediment to RESPONDENT's performance pursuant to Art. 79(1) CISG, the quota was nevertheless reasonably foreseeable at the time of the formation of contract. The foreseeability of the government quota has been demonstrated above.
Even presuming that the quota was not reasonably foreseeable, RESPONDENT would nevertheless remain liable, because the consequences of the quota could have been overcome by purchasing wheat outside of Danubia. An impediment exempts the promisor only if it cannot be overcome by reasonable measures. If in a sale of generic goods the initial source of supply later becomes unavailable, the seller must procure the goods from an alternative source of supply.
The contract concluded between CLAIMANT and RESPONDENT provided for a sale of generic goods. RESPONDENT's obligation was to deliver standard feed wheat and not specifically that of Danubia. RESPONDENT thus ought to have purchased wheat from outside of Danubia in order to be able to fulfill its contractual obligation to CLAIMANT. That this was possible has been demonstrated by CLAIMANT who made a replacement purchase of wheat in Equatoriana.
Such a cover purchase was reasonable and could thus legally be demanded from the seller. It has to be expected of a promisor to overcome any impediment in order to perform a contract, even where this incurs increased costs and business loss. English courts, for example, have decided that transport by ship via the Cape of Good Hope owing to closure of the Suez Canal was not "commercially or fundamentally different" from transport via the Suez Canal and therefore could reasonably be expected of the promisor. RESPONDENT would have had to make a purchase of wheat for the then increased market price of $75.00 per ton in order to deliver to CLAIMANT for the contracted price of $60.00 per ton. RESPONDENT thus would have made a loss of 25 percent. It has been decided that it is not unreasonable to make a cover purchase at a price increase of 30 percent. RESPONDENT has not proved that he suffered any additional loss, e.g. loss of good will.
Pursuant to Art. 78 CISG, CLAIMANT is entitled to recover interest on the sum of $90,000 as of 18 June 1998, when expenses for the substitute purchase were incurred. A claim for damages is due and can be charged with interest from the date when the damages were incurred. CLAIMANT can recover interest on the $90,000 from 18 June 1998, the day the substitute purchase was made.
Whilst interest traditionally can be charged only on liquidated sums, Art. 78 CISG also permits interest on damages. As a general rule, damages can be charged with interest if the exact sum of damages is sufficiently clear and does not form a separate subject of the parties' dispute. CLAIMANT incurred expenses of $90,000 by performing the substitute transaction. This sum is sufficiently clear for the purposes of the Tribunal in awarding damages and interest against RESPONDENT as of 18 June 1998.
CLAIMANT asks that RESPONDENT be charged with the full costs of the arbitration. CLAIMANT bases such claim on Artt. 28(3) and 28(4) LCIA Rules.
Art. 28(3) LCIA Rules entitles the Tribunal to order in its award that all legal or other costs incurred by one party are to be paid by the other.
Art. 28(4) enables the Tribunal to determine both arbitration and legal costs on the general principle that costs should reflect the parties' relative success and failure in the award or arbitration. It is a generally accepted principle that "costs should follow the event", the "event" being the success of a party's case.
CLAIMANT expects that the Tribunal will order RESPONDENT to pay the damages and interest as claimed by our Client. Consequently, CLAIMANT requests that arbitration and legal costs be paid by RESPONDENT.
The only provision that allows the Tribunal to depart from the rule of allocating costs according to the relative success of the parties is contained within Art. 28(4) LCIA Rules. This may be done in cases where particular circumstances would render inappropriate the allocation of costs according to success. However, no special circumstances exist in the current dispute. The need for arbitration arose solely as a result of RESPONDENT's conduct.
�	RESPONDENT is to pay the costs of the arbitration.
1. Procedural Order No. 1, para. 4; Procedural Order No. 2, para. 34.
2. Procedural Order No. 2, para. 35.
3. Procedural Order No. 2, para. 35.
4. Procedural Order No. 2, para. 8.
5. Anangel Peace Compania Naviera S.A. v. Bacchus International Commerce Corporation  1 Lloyd's Rep. 452, at 453; Paulsson, ICCA Congress Ser. no. 7, at 112; Böckstiegel in Labes/Lörcher, at XXXIX.
6. Saleh, Arb. Int'l, Vol. 15, at 141, 153.
7. Redfern, Arb. Int'l, Vol. 10, at 317, 321.
8. This principle is mirrored in Art. 19 AAA Rules.
9. Art. 18 UNCITRAL Model Law; � 1042(I) German ZPO; Sec. 33 Arbitration Act 1996 - England; � 587(I) Austria ZPO; � 14.3 DiS; Art. 15.3 ICC Rules; Art. 38 WIPO; Ceccon, at 67, 68; Redfern, Arb. Int'l, Vol. 10, at 317, 318; Rogers, ICCA Congress Ser. no. 7, at 131, 132.
10. Statement of Defense, para. 4.
11. Saleh, Arb. Int'l, Vol 15, at 141, 145.
12. Paulsson, ICCA Congress Ser. no.7, at 112, 117.
13. Harris International Telecommunications Inc., Award No. 323-409-1, Iran - U.S. Claims Tribunal, at 42, 62, 63; van Hof, at 170; Berger, International Economic Arbitration, at 427.
15. Saleh, Arb. Int'l, Vol. 15, at 141, 145.
16. Request for Arbitration, para. 3; Procedural Order No. 2, para. 35.
17. Asian Agricultural Products Ltd. v. The Republic of Sri Lanka, Case No. ARB/87/3, Final Award of 27 June 1990, in YCA 1992, at 106, 123; Holtzmann/Neuhaus, at 589 ("established practice in modern arbitration"); Berger, International Economic Arbitration, at 440.
18. Iran - U.S. C.T.R., at 10, Art. III, para. 2.
21. Claimant's Exhibit No. 12, para. 3; Defendant's Exhibit No. 2, para. 1.
22. Claimant's Exhibit No. 2; Defendant's Exhibit No. 2.
23. Claimant's Exhibit No. 1.
24. Response to Request for Arbitration, para. 3.
25. Response to Request for Arbitration, para. 3.
26. Berger, International Economic Arbitration, at 119; Schlosser, no. 392; Aden, at 93; Rubino-Sammartano, at 136.
27. Cf. Clause 13 SCS-5, in: Claimant's Exhibit No. 2: "including any question regarding its existence, validity or termination".
28. Art. 7(2) UNCITRAL Model Law reflects the rule laid down by Art. 2(2) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC).
29. Holtzmann/Neuhaus, at 264; Berger, Internationale Wirtschaftsschiedsgerichtsbarkeit, at 112.
30. Schlosser, no. 379; Wackenmuth, ZZP, at 445, 458; Berger, International Economic Arbitration, at 153; Bucher, at 125; Van den Berg, YCA 1989, at 528, 552.
31. Holtzmann/Neuhaus, at 264; Berger, International Economic Arbitration, at 153; Samuel, at 89; Hußlein-Stich, at 42.
32. Claimant's Exhibit No. 2, para. 2; Defendant's Exhibit No. 2, para. 1.
33. See supra Issue 2, at I 1.
34. Berger, Internationale Wirtschaftsschiedsgerichtsbarkeit, at 113; Kessedjian, Rev. d'Arb., at 482, 497; Reymond, Rev. d'Arb., at 385, 400; BGH DZWir 1993, at 465 (English summary of judgement in: The American Review of International Arbitration, Vol. 4, 1993, at 230); Raeschke-Kessler/Berger, at 31; Schwab/Walter, at 43; Schütze/Tscherning/Wais, no. 87.
35. Leadertex, Inc. v. Marganton Dyeing & Finishing Corp. et. al.,126 F.3d. (2nd, Cir. NY) Sept. 28, 1995, No. 94 - 7949, 1170; Avedon Engineering, Inc. v. Seatex et. al., 126 F.3d. 1279 (Colorado); Schubtex Inc. v. Allen Snyder, Inc., 49 NY2d 1, 6 (1979); Woodcrest Fabrics, Inc. v. B & R Textile Corp., 464 N.Y.S.2d 359, 360 (N.Y. App. Div. 1983); BGH DZWir 1993, at 465.
36. Berger, International Economic Arbitration, at 576.
37. Bianca/Bonell-Bonell, Art. 9, No. 2.3.; Schmitthoff, at 14; Schlechtriem-Junge, Art. 9, no. 9 et seq.
38. Art. 28(4) UNCITRAL Model Law; Art. 17(2) ICC Arbitration Rules; Art. 33(3) UNCITRAL Arbitration Rules; Art. VII European Convention on International Commercial Arbitration; Art. 47 NAI Arbitration Rules; � 21.4 DIS Arbitration Rules.
39. Berger, International Economic Arbitration, at 577.
40. Procedural Order No. 2, para. 13.
41. Procedural Order No. 2, para. 54.
42. Cf. GAFTA website, at http://www.gafta.com/arbitrtn.html; http://www.gafta.com/contrule.html.
43. GAFTA Form No. 125.
44. Berger, International Economic Arbitration, at 145.
45. BGH DZWir 1993, at 465.
46. Procedural Order No. 2, para. 54; Claimant's Exhibit No. 13, para. 3.
47. Procedural Order No. 2, para 54.
48. Berger, International Economic Arbitration, at 162.
49. Dow Chemical France et al. v. ISOVER Saint Gobain, ICC Award No. 4131, YCA 1984, at 130, 134, 136; ICC Award No. 1434, Clunet 1976, at 978; ICC Award No. 2375, Clunet 1976, at 973 et seq.; See also: Berger, International Economic Arbitration, at 166; Fouchard/Gaillard/Goldman, at 282 et seq.
50. Derains, note to ICC Award No. 2375, Clunet 1976, at 975, 977.
51. Société Korsnas Marma v. Société Durand-Auzias, Paris Court of Appeals of November 30, 1988, RdA 1989, at 691; Société Ofer Brothers v. The Tokyo Marine and Fire Insurance Co. Ltd et al., Paris Courts of Appeals of February 14, 1989, RdA 1989, at 695.
52. Statement of Defense, para. 5, 6, 7; Defendant's Exhibit No. 2.
53. Defendant's Exhibit No. 1, para. 2.
54. Statement of Defense, para. 7; Procedural Order No. 2, para. 7.
55. Defendant's Exhibit No. 5, para. 2.
56. Procedural Order No. 2, para. 13.
57. Berger, Internationale Wirtschaftsschiedsgerichtsbarkeit, at 107 et seq.; Schultsz, Medelingen No. 93, at 3, 14; van den Berg, TvA 1984, at 171, 180; van den Berg/van Delden/Snijders, at 38.
58. Ranker, IPRax 1995, at 236, 237.
59. Bianca/Bonell-Eörsi, Art. 14 1.2, no. 2.2.2; Herber/Czerwenka, Art. 14, no. 4; Reinhart, Art. 14, no. 5; Schlechtriem-Schlechtriem, Art. 14, no. 2; Staudinger-Magnus, Art. 14, no. 3; Bernstein/Lookofsky, at 34; Farnsworth in Galston/Smith, at para. 3.03; Karollus, at 60; Ludwig, at 296; Lookofsky, at 28; Schlechtriem, UN-Kaufrecht, at 37; Witz, at 228; Huber RabelsZ (43) 1979, at 419, 437; Rudolph, Art. 14, no. 4; Hoyer/Posch, at 48.
60. Doc. A (12) VIII at 96; Doc.A (14) IXYB at 72, 73, 74; Doc. C (1) at 6; Doc. C (3) at 21; Doc. C(4) at 275; Doc. (5) at 92; Doc. (6) at 155 cited by Honnold, Documentary History.
61. The same principle is to be found in Art. 1266(II) Spanish Código Civil; Art. 1331(II) Philippinian Civil Code; Art. 1147(II) Venezuelan Código Civil; Art. 1512 (II) Columbian Código Civil.
63. Statement of Defense, para. 3.
64. Defendant's Exhibit No 1, para. 2.
65. Claimant's Exhibit No. 12, para. 3.
66. Defendant's Exhibit No. 1, para. 2.
67. Defendant's Exhibit No. 1, para. 3.
71. Defendant's Exhibit No. 2.
72. Defendant's Exhibit No. 2, para. 2.
73. Ram International Industries Inc. v. Iranian Air Force 3. Iran-U.S. C.T.R, at 203, 206.
74. Statement of Defense, para. 5.
76. See supra Issue, at III I 1.
77. Statement of Defense, para. 5.
79. Defendant's Exhibit No. 1, para. 3.
82. Bianca/Bonell-Farnsworth, Art. 18, no. 2.2; Herber/Czerwenka, Intro. Artt. 14-24, no. 16; Schlechtriem-Schlechtriem, Art. 18, no. 4, Honnold, Uniform Law, no. 158; Hoyer/Posch at 51.
83. Defendant's Exhibit No. 2, para. 1.
84. Defendant's Exhibit No. 2, para. 2.
85. Statement of Defense, para. 5.
86. Defendant's Exhibit No. 2, para. 2.
87. Procedural Order No. 2, para. 8.
88. Claimant's Exhibit No. 3.
90. Herber/Czerwenka, Intro. Art 14 No. 16; Bianca/Bonell-Erösi, Art. 14, no. 2.1; Bydlinski, Arch.jur.Cracov 1985, at 143, 144; Ludwig, at 293; Schlechtriem-Schlechtriem, Art. 14, no. 5; Huber, RabelsZ 1979, at 419, 447, Piltz, � 3, no. 12; Rehbinder in Schlechtriem, at 166.
91. Schlechtriem-Schlechtriem, Intro.Artt. 14-24, no. 5; Herber/Czerwenka, Intro. Art 14, no. 16; Huber, RabelsZ 1979, at 419, 477.
93. Karollus at 54.; Schlechtriem-Schlechtriem, Intro. Art. 14-24, no. 5.
95. Ludwig, at 294; Schlechtriem, UN-Kaufrecht, at 35; Bonell, RIW 1990, at 693, 695; cf. Schlechtriem-Schlechtriem, Intro. Artt. 14-24, no. 5; Huber, RabelsZ 1979, at 419, 477.
96. Procedual Order No. 2, para. 14.
97. Procedural Order No. 2, para. 16; Statement of Defense, para. 11.
98. Claimant's Exhibit No. 10, para. 2, Claimant's Exhibit No. 11, para. 1, 2.
99. Claimant's Exhibit No. 5, para.2; Claimant's Exhibit No. 7, para. 3; Claimant's Exhibit No. 8, para. 2; Claimant's Exhibit No. 10, para. 2.
101. Claimant's Exhibit No.11, para 3.
102. Claimant's Exhibit No. 11.
103. Schlechtriem-Huber, Art. 45, no. 6; Bianca/Bonnell-Will, Art. 45, no. 2.1.2; Herber/Czerwenka, Art. 25, no. 5.
104. Schlechtriem-Stoll, Art. 74, no. 7; Karollus, at 163; Schlechtriem-Huber, Art. 45, no. 8; Schlechtriem, Lausanner-Kolloquium, at 158; Stoll, RabelsZ 1988, at 617, 627.
105. Claimant's Exhibit No. 11.
106. Art. 49 provides for the buyer's right of avoidance, Art. 64 for the seller's right of avoidance.
107. Claimant's Exhibit No. 11; Statement of Defense, para. 11, 12.
108. Claimant's Exhibit No. 5, para. 1; Statement of Defense, para. 9.
109. Claimant's Exhibit No. 2; Defendant's Exhibit No. 2.
110. Fouchard/Gaillard/Goldman, at 25; cf. Fouchard, Rev. d'Arb. 1967, at 67; Paulsson, Rev. d'Arb. 1984, at 249.
111. Schlechtriem-Stoll, Art. 79, no. 39; Bianca/Bonnell-Tallon, Art. 79, no. 3.1.2; Enderlein/Maskow/Strohbach-Strohbach, Art. 79, preliminary note 3; Herber/Czerwenka, Art. 79, no.2.4; cf. Honnold, Art. 79, no. 432.2; Kritzer, at 652; Nouva Fucinati S.P.A. v. Fondmetal International A.B., Tribunale di Monza, 14 January 1993, J.L. & Com. 1995, at 153; Carlsen, http://www.cisg.pace.edu/cisg/biblio/carlsen.html.
112. Honnold, Uniform Law, para. 442, 443, cited from Carlsen, http://www.cisg.pace.edu/cisg/biblio/carlsen.html; UNCITRAL YB (1977), at 160, no. 15; Schlechtriem-Stoll, Art. 79, no. 39.
113. Honnold, Uniform Law, para. 442, 443, cited from Carlsen, http://www.cisg.pace.edu/cisg/biblio/carlsen.html.
114. Schlechtriem-Huber, Art. 45, no. 37; Honnold, Uniform Law, para. 276; Karollus, at 206; Staudinger-Magnus, Art. 45, no. 18.
115. See Schlechtriem-Stoll, Art. 79, no. 39; Bianca/Bonell-Tallon, Art. 79, no. 3.1.2; Herber/Czerwenka, Art. 79, no. 24; cf. Honnold, Uniform Law, para. 432.2.
116. This concept is recoginzed in: German Law (Wegfall der Geschäftsgrundlage) see BGH NJW 1977, 2262, 2263; Italian Law see Art. 1467 of Italian CC.
117. It is only accepted for administrative contracts: French, Belgian, Luxembourg Law (doctrine de'limprévision); it seems to be rejected in English, Scottish, Irish law (frustration of purpose).
118. Cf. ICC Award No. 1512, YCA 1976, at 128; Berger, Creeping Codification, at 292.
119. Statement of Defense, para. 9.
121. Procedural Order No. 2, para. 50.
122. Procedural Order No. 2, para. 21, 23.
123. Claimant's Exhibit No. 5, para 1.
124. Procedural Order No. 2, para. 47.
125. Maskow, Am.J.Com.L., 657, at 662.
126. UNIDROIT commentary (Art. 6.2.2), at 147; UNIDROIT online commentary (Art. 6.2.).
127. UNIDROIT commentary (Art. 6.2.2), at 147; UNIDROIT online commentary (Art. 6.2.).
129. This situation can be compared to that of the 1973 Mississippi floods which led to similar export prohibitions, see: Bridge, in McKendrick, at 195 et seq.
130. Schlechtriem-Stoll, Art. 79, no. 30; Bianca/Bonell-Tallon, Art. 79, no. 2.6.5; Karollus, at 208.
131. See supra Issue IV.
132. Schlechtriem-Stoll, Art. 75, no. 5; Staudinger-Magnus, Art. 75, no. 8 ; Honsell-Schönle, Art. 75, no. 4, 9, 22; Stoll, RabelsZ 1988, 617, at 635; OLG Hamburg, 28.02.1997, 1 U 167/95.
134. Claimant's Exhibit No. 11.
135. Schlechtriem-Stoll, Art. 75, no. 7; Herber/Czerwenka, Art. 75, no. 4.
136. Bianca/Bonell-Knapp, Art. 75, no. 2.4.
137. Statement of Case, para 7.
138. Honsell-Schönle, Art. 75, no. 19.
139. Claimant's Exhibit No. 13, para. 2.
140. Procedural Order No. 2, para. 47.
141. See supra Issue V, at I 1.
142. Schlechtriem-Stoll, Art. 74, no. 38; Honsell- Schönle, Art. 74, no. 22; Karollus, at 217.
143. Schlechtriem-Stoll, Art. 79, no. 17; see also Honnold, para. 427; Bianca/Bonnell-Tallon, Art. 79, no. 2.6.1.
144. Cf. Nuova Fucinati S.P.A. v. Fondmetall International A.B., Tribunale di Monza, 14 January 1993, J.L. & Com. 1995, at 153.
145. See supra Issue IV, at II 3 a aa.
146. See supra Issue IV, at II 3 b aa.
147. Bianca/Bonell-Tallon, Art. 79, No. 2.6.5; Honsell-Magnus, Art. 79, no. 16; Lookofsky, at 86.
148. Claimant's Exhibit No. 2; Respondent's Exhibit No. 2; Statement of Defense, para. 3.
149. Request for Arbitration, para 7.
151. Karollus, at 209; Piltz, � 4, no. 235.
152. Tsalairoglu & Co. Ltd v. Noblee & Thorl GmbH  AC 93.
153. Cf. Nuova Fucinati S.P.A. v. Fondmetall International A.B., Tribunale di Monza, 14 January 1993, J.L. & Com. 1995, at 153.
154. Procedural Order No. 2, para. 43.
155. Staudinger-Magnus, Art. 78, no. 10.
156. Herber/Czerwenka, Art. 78, no. 2.
157. Staudinger-Magnus, Art. 78, no. 8; Honnold, para. 422.
158. O'Reilly, at 29; Berger, International Economic Arbitration, at 617; van den Berg, YCA 1987, at 3, 27; van Hof, at 301.

References: Art. 20
 Art. 20
 Art. 14
 Art. 20
 Art. 20
 Art. 20
 Art. 20
 Art. 20
 Art. 20
 Art. 20
 Art. 20
 Art. 27
 Art. 20
 Art. 20
 Art. 20
 Art. 20
 Art 20
 Art. 14
 Art. 19
 Art. 20
 Art. 14
 Art. 34
 Art. 14
 Art. 25
 Art. 25
 Art. 19
 Art. 7
 Art. 7
 Art. 7
 Art. 7
 Art. 7
 Art. 7
 Art. 8
 Art. 14
 Art. 14
 Art. 14
 Art. 14
 Art. 1110
 Art. 8
 Art. 8
 Art. 8
 Art. 8
 Art. 8
 Art. 14
 Art. 8
 Art. 8
 Art. 8
 Art. 8
 Art. 8
 Art. 8
 Art. 8
 Art. 53
 Art. 26
 Art. 30
 Art. 72
 Art. 64
 Art. 64
 Art. 79
 Art. 79
 Art. 79
 Art. 6
 Art. 6
 Art. 6
 Art. 6
 Art. 79
 Art. 78

Art. 45
 Art. 75

Art. 75
 Art. 7
 Art. 77
 Art. 75
 Art. 74
 Art. 79
 Art. 79
 Art. 79
 Art. 79
 Art. 79
 Art. 78
 Art. 78

Art. 28

Art. 28
 Art. 28
 v. 
 Art. 19
 Art. 18
 Art. 15
 Art. 38
 v. 
 Art. 7
 Art. 2
 v. 
 v. 
 v. 
 v. 
 Art. 9
 Art. 9
 Art. 28
 Art. 17
 Art. 33
 Art. 47
 v. 
 v. 
 v. 
 Art. 14
 Art. 14
 Art. 14
 Art. 14
 Art. 14
 Art. 14
 Art. 1266
 Art. 1331
 Art. 1147
 Art. 1512
 v. 
 Art. 18
 Art. 18
 Art 14
 Art. 14
 Art. 14
 Art 14
 Art. 14
 Art. 45
 Art. 45
 Art. 25
 Art. 74
 Art. 45
 Art. 49
 Art. 64
 Art. 79
 Art. 79
 Art. 79
 Art. 79
 Art. 79
 v. 
 Art. 79
 Art. 45
 Art. 45
 Art. 79
 Art. 79
 Art. 79
 Art. 1467
 Art. 79
 Art. 79
 Art. 75
 Art. 75
 Art. 75
 Art. 75
 Art. 75
 Art. 75
 Art. 75
 Art. 74
 Art. 74
 Art. 79
 Art. 79
 v. 
 Art. 79
 Art. 79
 v. 
 v. 
 Art. 78
 Art. 78
 Art. 78