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LAWASIA MOOT COMPETITION

2011

IN THE KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION

ASTORIA PRODUCE

Claimant

v.

ROLGA FARMER’S EXCHANGE

Respondent

MEMORIAL FOR THE CLAIMANT

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Table of Contents

INDEX OF AUTHORITIES 4

QUESTIONS PRESENTED 8

STATEMENT OF JURISDICTION 9

STATEMENT OF FACTS 10

SUMMARY OF PLEADINGS 13

I. THE TRIBUNAL, UNDER THE AUSPICES OF THE KLRCA HAS JURISDICTION TO

RESOLVE THE DISPUTE 15

A. THE PARTIES HAVE A VALID ARBITRATION AGREEMENT TO REFER DISPUTES ARISING UNDER

THE CONTRACT TO THE KLRCA 15

B. THE ARBITRATORS‟ APPOINTMENTS WERE NOT TAINTED BY SERIOUS PROCEDURAL DEFECTS

AFFECTING THE ENFORCEABILITY OF ANY AWARD MADE BY IT 18

C. THE TRIBUNAL SHOULD RESUME ARBITRAL PROCEEDINGS 22

II. THE TRIBUNAL HAS AUTHORITY TO IMPOSE A FINE ON RFE FOR ITS

FAILURE TO APPEAR AT THE INITIAL HEARING 22

A. ART 17 KLRCA RULES GIVES THE TRIBUNAL WIDE DISCRETION TO CONDUCT THE

ARBITRATION 22

B. THE LIMITS READ INTO ART 17 KLRCA RULES DO NOT PRECLUDE THE IMPOSITION OF A FINE

23

III. THE APPLICABLE LAW TO THE SUBSTANCE OF THE DISPUTE IS THE CISG 23

A. MALAYSIAN CONFLICT RULES SHOULD BE USED TO DETERMINE THE APPLICABLE LAW 24

B. MALAYSIAN CONFLICT RULES POINT TO THE DOMESTIC LAW OF ASTORIA AS THE APPLICABLE

LAW 25

C. THE CISG APPLIES TO THE DISPUTE BECAUSE IT FORMS A PART OF ASTORIAN DOMESTIC LAW

28

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IV. THERE WAS A BREACH OF SELLER’S OBLIGATION TO DELIVER THE

BANANAS IN CONFORMITY WITH THE CONTRACT 28

A. THE BANANAS WERE NOT IN CONFORMITY WITH THE CONTRACT UNDER ART 35(2)(B) CISG 29

B. RFE IS LIABLE FOR THE NON-CONFORMITY OF THE BANANAS UNDER ART 36(2) CISG 30

C. RFE‟S BREACHES OF OBLIGATIONS AMOUNTED TO FUNDAMENTAL BREACHES, ALLOWING AP

TO VOID THE CONTRACT 34

V. AP HAS NO OBLIGATION TO PRESERVE OR SELL THE BANANAS 36

A. AP WAS NOT REQUIRED TO TAKE POSSESSION OF THE BANANAS BECAUSE DOING SO INVOLVED

UNREASONABLE EXPENSE 37

B. SINCE AP WAS NOT BOUND TO TAKE POSSESSION ON BEHALF OF RFE, THE REQUIREMENT TO

MAKE EMERGENCY SALE OF THE BANANAS UNDER ART 88(2) CISG DOES NOT ARISE 38

CONCLUSION AND PRAYER FOR RELIEF 39

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Index of Authorities

Malaysian & English Judicial Decisions

Benaim v Debono [1924] AC 514 ................................................................................................. 25

Bonython v Commonwealth of Australia [1951] AC 201 ............................................................. 24

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 ..................................................................... 15

Claxton Engineering Services Ltd v TXM Olaj-es GazkutatoKft [2010] EWHC 2567 ................ 16

Coast Line Ltd. v Hudig and Veder Chartering N.V. [1972] 2 QB 34 ......................................... 24

Entorres v Miles Far East [1955] 2 QB 327................................................................................. 15

Gibson v Manchester City Council [1978] 1 WLR 520 ............................................................... 15

Guernsey v Jacobs UK Ltd [2011] EWHC 918 ............................................................................ 16

Harvey v Facey [1893] UKPC 1 ................................................................................................... 15

Hyde v Wrench [1840] EWHC Ch J90 ......................................................................................... 16

Jamil bin Harun v Yang Kamsiah[1984] 1 MLJ 217 .................................................................... 15

Klockner Pentaplast Gmbh v Advance Technology [2011] HKEC 941 ....................................... 14

N. V. Handel My. J. Smits Import-Export v English Exporters (London) Ltd [1957] 1 Lloyd‟s

Rep 517 ..................................................................................................................................... 26

PagnanSpA v Feed Products Ltd[1987] 2 Lloyd‟s Rep 601 ......................................................... 15

Tan Chong & Sons Motors v Alan McKnight [1983] 1 MLJ 220 ................................................. 15

The Julia [1949] 1 AC 293 ........................................................................................................... 26

The Society of Lloyds v Geoffrey George Twins [2000] WL 281281 ........................................... 16

Whitworth Street Estates (Manchester) Ltd. v James Milller and Partners Ltd. [1970] AC 583 24

Y K Fung Securities Sdn Bhd v James Cape (Far East) Ltd [1997] 2 MLJ 621 .......................... 24

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International Statutes

Arbitration Ordinance CAP 341 (Hong Kong) ............................................................................. 17

Private International Law Act 1987 (Switzerland) ....................................................................... 17

Malaysian Statutes

Malaysian Arbitration Act 2005 ............................................................................................. 12, 23

Miscellaneous

International Chamber of Commerce INCOTERMS 2010, ICC Publication No. 715 (2010) ..... 25

Treatises & Commentaries

Blackaby et al, Redfern and Hunter on International Arbitration (Oxford University Press, 5th

ed

2009).............................................................................................................................. 16, 17, 20

Born, International Commercial Arbitration (Kluwer Law International, 3rd

ed 2009) ... 13, 17, 23

Bridge, Contracts for the International Sale of Goods: Law and Practice (Oxford University

Press, 2007) ............................................................................................................................... 26

Dicey and Morris, Dicey and Morris on the Conflict of Laws (Stevens & Sons, 11th

ed 1987), Vol

2 ................................................................................................................................................. 24

Enderlein, Maskow and Strohbach, InternationalesKaufrecht (Berlin, 1991) ............................ 27

Fawcett, Harris and Bridge, International Sale of Goods in the Conflict of Laws (Oxford

University Press, 2009) ............................................................................................................. 26

Fonseca and Fonseca, Williston on Sales (Clark Boardman Callaghan, 2010) ............................ 25

Karl-Heinz Böckstiegel et al (eds), Arbitration in Germany: The Model Law in Practice,

(Kluwer Law International, 2007) ............................................................................................. 19

Lew, Comparative International Arbitration (Springer, 2001) .................................................... 17

Lookofsky, Understanding the CISG, (Kluwer Law International, 2008) ............................. 29, 30

Schlectriem and Schwenzer, Commentary on the United Nations CISG, (Oxford University

Press, 2010) ............................................................................................................................... 27

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Journals & Articles

Bagner, Enforcement of International Commercial Contracts by Arbitration (1982) 14 Case

Western Reserve Journal of International Law 573 .................................................................. 22

WSW Davidson and Sundra Rajoo, Arbitration Act 2005: Malaysia Joins the Model Law, The

Malaysian Bar, 10 July 2006

<http://www.malaysianbar.org.my/adr_arbitration_mediation/arbitration_act_2005_malaysia_j

oins_the_model_law.html> (last accessed 19 August 2011) .................................................... 23

UN Documents

Report of the SG on the Preliminary Draft Set of Arbitration Rules, UNCITRAL, 8th

Session,

UN DOC/A/CN.9/97, reprinted in (1975) VI UNCITRAL Yearbook 163 .............................. 22

Text of Secretariat Commentary on Art 23 of 1978 CISG Draft (draft counterpart of CISG Art

25).............................................................................................................................................. 34

Text of Secretariat Commentary on Art 71 of 1978 CISG Draft (draft counterpart of CISG Art

75).............................................................................................................................................. 36

UNCITRAL Notes on Organizing Arbitral Proceedings, UNCITRAL, UN GAOR, 51st Session,

para 4, UN Doc A/51/17 (1996) .......................................................................................... 21, 23

CISG Cases

ECEM European Chemical Marketing B.V. v The Purolite Company, United States, District

Court, 29 January 2010, CISG Online < http://cisgw3.law.pace.edu/cases/100129u1.html .... 31

Machine case, OLG, 19 December 2002, CISG-online 1219, <

http://cisgw3.law.pace.edu/cases/021219g1.html ..................................................................... 35

Magnesium case, ICC Arbitration Case No. 8324 of 1995, CISG-online 569

<http://cisgw3.law.pace.edu/cases/958324i1.html> ................................................................. 32

Shoe case, LG, 16 September 1991, CISG-online 916,

<http://cisgw3.law.pace.edu/cases/910916.html> ..................................................................... 35

International Court and Tribunal Decisions

MCC-Marble Ceramic Center, Inc. v CeramicaNuovad’Agostino, S.p.A, 144 F3d 1384 (11th

Cir,

1998).......................................................................................................................................... 31

Nanjing Cereals, Oils and Foodstuffs Import & Export Corp v Luckmate Commodities Trading

Ltd [1994] 3 HKC 552 .............................................................................................................. 18

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Shenzhen Nan Das Industrial v FM International [1992] HKCFI 162 ........................................ 18

TeeVee Tunes, Inc. et al v Gerhard Schubert GmbH, United States, District Court, 22 March

2002, CISG Online ; <http://cisgw3law.pace.edu/cases/060823ul.html> ................................ 31

Werner v The N’s Co [1978] HKLR 281 ...................................................................................... 18

Arbitration Rules

Rules of the Kuala Lumpur Regional Centre for Arbitration 2010 ........................................ 11, 22

UNCITRAL Arbitration Rules 1976 ...................................................................................... 21, 22

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Questions Presented

1. Whether the Kuala Lumpur Regional Centre for Arbitration (“KLRCA”) has the

authority to resolve the dispute between Astoria Produce (“AP”) and Rolga Farmer‟s

Exchange (“RFE”); specifically, whether there was an agreement between the parties

to submit the dispute to the KLRCA.

2. Whether it was inappropriate for the KLRCA to appoint an arbitrator on RFE‟s behalf

and the presiding arbitrator.

3. Whether the arbitration panel has the authority to impose sanctions, in the form of a

fine, on RFE for failing to appear at the initial hearing.

4. Whether the United Nations Convention of International Sale of Goods (“CISG”) or

other general principles of international law governs the dispute.

5. Whether the shipment of bananas arrived in an unsatisfactory condition due to

improper storage and whether this was a breach of the seller‟s obligation under the

contract between the parties.

6. Whether either party to this dispute had a legal obligation to attempt to sell any of the

bananas soon after the PINAFORE docked at the Port of Astoria.

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Statement of Jurisdiction

1. AP and RFE have agreed to submit to the KLRCA the present dispute under the

forum selection clause of the BOS governing their agreement, subject to RFE‟s

reservation of its objection to the jurisdiction of the tribunal. AP maintains that this

tribunal has jurisdiction because: (1) RFE had accepted its counter-offer which

included the amended forum selection clause (“the amended clause”) by conduct; and

(2) there are no procedural defects that threaten the enforceability of a potential

award.

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Statement of Facts

The exchanges leading up to the signing of the agreement

2. AP contacted the RFE for the first time on 15 July 2010 to order a large quantity of

bananas by telephone. The conversation was between Michael Vogel (“Vogel”) AP‟s

Chief Purchasing Agent, and Lenore Rocco (“Rocco”), RFE‟s General Sales

Manager. Rocco subsequently sent a confirming Bill of Sale (“BOS”) Vogel.

3. An email exchange between Vogel and Rocco followed this. Vogel made it clear that

AP was relying on RFE to ensure that the bananas arrived in “excellent condition”. In

her reply, Rocco expressed that RFE “fully [understood AP‟s] concerns” and that

RFE would “make sure that the Captain [of the carrier] is well aware of the special

care that [the bananas] must receive”.

AP’s modification of the forum selection clause

4. After the email exchange, Vogel amended the forum selection clause, and returned

the signed BOS with the new forum selection clause (“the amended clause”) on 4

August 2010.1

Shipping of the bananas

5. The BOS indicated that shipment was to be made “FOB Rolga City”. RFE

nevertheless arranged for shipment of the bananas on board the M/S PINAFORE

(“the PINAFORE”). On 23 September 2010, a clean bill of lading (“BOL”) was

signed by the captain of the PINAFORE. On the BOL, RFE instructed that the

“bananas must be stored in a cool, dry location with good circulation to prevent

spoilage.” These were the only instructions RFE provided.2

1 Further Corrections and Clarifications at 5


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6. On board the PINAFORE, the bananas were packed in two holds. In the number #1

hold, the bananas were stowed by the stem. In the number #2 hold, the bananas were

packed in boxes.

7. AP had previously furnished a letter of credit covering the shipment. RFE was paid in

full on 30 September 2010 under that letter of credit upon furnishing the required

documents.

8. The PINAFORE departed on 1 October 2010.

Discovery of the ripe bananas

9. The PINAFORE arrived in Astoria City on the night of 24 November 2010. Dr

Bartolo, AP‟s Director of Food Safety, inspected the shipment on 25 November 2010

when the PINAFORE docked.3 He found that some of the bananas were ripe or

ripening, most occurred in the number #2 hold which contained 60% of the bananas.4

10. On 26 November 2010, John Sparrow (“Sparrow”), a professional Maritime Surveyor

retained by AP, inspected the bananas. He found that 30% of the bananas were ripe or

ripening. Normally, only 3% to 5% of the bananas ripen at sea. The high temperatures

at which they were transported caused the excessive ripening. The parties do not

contest the impartiality or accuracy of Sparrow‟s findings.5

11. Dr Bartolo subsequently recommended the rejection of the entire shipment of

bananas. Vogel sent an email to RFE on 26 November 2010 rejecting the entire

shipment.

12. RFE replied reminding AP that it could sell off the remaining bananas, ripe or

otherwise. RFE also declared that it had no intention of paying damages.

13. AP did not take possession of the bananas and the warehouse owner eventually

disposed of the bananas because it became economically unfeasible to salvage them.



5 Corrections and Clarifications at B.2

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The arbitral proceedings

14. On 1 June 2011, AP commenced this arbitration with the KLRCA. KLRCA‟s

Director (“Director”) notified RFE of the filing of the request and enclosed a copy of

the Rules of the KLRCA for Arbitration 2010 (“KLRCA Rules”). The Director

requested that RFE appoint its arbitrator within 30 days. RFE does not deny the

receipt of both notices.

15. After 45 days, RFE had yet to appoint its arbitrator. The Director appointed Risk

Benti (“Benti”) as the second arbitrator and Judge John Chong as the presiding

arbitrator. No request for these appointments were made by AP.6

16. An initial hearing was scheduled on 15 August 2011 and both parties received timely

notice. However, an hour before the hearing RFE stated that it would not appear, lest

appearance constituted a waiver of its right to challenge the tribunal‟s jurisdiction.

17. The Director rescheduled the hearing to 10 October 2011, representing that RFE‟s

appearance would not be regarded as a waiver.

18. RFE subsequently made a request to appoint an arbitrator but was denied by the

Director. At the Director‟s request, the arbitrators submitted a “Hearing Agenda” for

this hearing, which our pleadings address.


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SUMMARY OF PLEADINGS

The tribunal should proceed with arbitration because it has jurisdiction to do so and

because it has no reason to decline jurisdiction on the basis of an improperly constituted

tribunal

21. The tribunal has authority to resolve the dispute between the parties as there exists an

agreement to submit this dispute to be resolved by the KLRCA through arbitration. The

tribunal has no reason to decline jurisdiction on the basis of the tribunal‟s constitution as

it was not tainted by procedural defects affecting the enforceability of any award made.

Accordingly, the tribunal should resume arbitral proceedings in accordance with the

parties‟ agreement.

The tribunal has the power to impose penal sanctions in the form of a fine on RFE

22. The tribunal has authority to impose a penal fine under the discretion conferred by Art

17(1) KLRCA Rules. None of the limitations which this discretion is subject to does not

bar the imposition of penal sanctions in the form of a fine.

The law applicable to the substance of the dispute should be the United Nations Convention

for the International Sale of Goods (“CISG”)

23. The reference to “the conflict of laws rules” in s 30(4) MAA requires an application of

Malaysia‟s conflict of laws rules. An application of Malaysia‟s conflict of laws rules

leads to Astorian domestic law because in contracts of sale, there is a strong presumption

that the law of the place of performance is the proper law of the contract. Astoria is the

place of performance as it is the place of delivery. The CISG, as part Astorian domestic

law, is therefore the proper law of the contract.

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RFE is in breach of a seller’s obligation to ensure that the goods conform to the contract at

the point where risk passes

24. Under the CISG, the bananas sold by RFE must conform to the contract. Under Art 35(2)

CISG, there will only be conformity if the bananas were fit for the purpose expressly

made known to the seller. The bananas were to be resold by AP and this purpose was

expressly made known to RFE. The bananas delivered were not fit for this purpose as

they ripened excessively and accordingly there was no conformity under Art 35(2) CISG.

AP is liable for this non-conformity under Art 36(2) CISG because it was due to a breach

of RFE‟s obligation to AP under the contract.

AP had no obligation to preserve or sell the bananas

25. Art 86(2) CISG requires the buyer to take possession of the goods unless it involved

unreasonable inconvenience or expense. Taking possession of the bananas involved

unreasonable inconvenience and expense. Therefore, AP had no obligation to take

possession of the bananas under Art 86 CISG. Where there is no obligation to take

possession of the bananas under Art 86(2) CISG, no obligation to preserve the bananas

arises. Since no obligation to preserve the bananas arose, AP has no obligation to sell the

bananas under Art 88(2) CISG.

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PLEADINGS

I. THE TRIBUNAL, UNDER THE AUSPICES OF THE KLRCA HAS JURISDICTION

TO RESOLVE THE DISPUTE

26. The tribunal has jurisdiction to resolve this dispute because the parties have a valid

arbitration agreement referring disputes to KLRCA [A]. The tribunal has no reason to

decline jurisdiction on the basis of the tribunal‟s constitution as it was not tainted by

procedural defects which may affect the enforceability of any award made [B].

Accordingly, the tribunal should resume arbitral proceedings in accordance with the

parties‟ agreement [C].

A. The parties have a valid arbitration agreement to refer disputes arising under the

contract to the KLRCA

27. The consent of the parties is the foundation of tribunal‟s jurisdiction to resolve a dispute7

and such consent must be in the form of a valid contractual agreement between the

parties.8 The central issue is thus whether the parties are bound by an arbitration

agreement submitting disputes arising under the contract to KLRCA.

28. The tribunal has the power to decide on this issue as s 18 MAA provides that the tribunal

shall have the power to resolve jurisdictional challenges. This is the generally accepted

kompetenz-kompetenz principle in international arbitration.

29. In the absence of a choice of law clause, the law governing the validity of the arbitration

agreement is the law of the seat. Courts in countries adopting the UNCITRAL Model

Law on International Commercial Arbitration 1985 (“Model Law”), as Malaysia does,

have held as such.9 Applying the law of the seat is also of practical importance because it

does not risk the eventual award being unenforceable under Art V(1)(a) 1958 New York

Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“NYC”).

7 Born, International Commercial Arbitration (Kluwer Law International, 3

rd ed 2009), at pages 639 to 640;

[hereinafter Born] 8 Ibid, at pages 639 to 640

9 Klockner Pentaplast Gmbh v Advance Technology [2011] HKEC 941, at paras 26 and 33

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30. As the seat of this arbitration is Malaysia, the law governing the validity of the arbitration

agreement is Malaysian contract law.

31. It should be noted that English contract law has strong influence over Malaysian contract

law.10

This is borne out by the apex Malaysian court consistently and extensively relying

on English cases and academic writings in its judgments.11

32. Under Malaysian law, a contract is formed when there is a valid offer by one party and an

acceptance of that offer by the other party.12

33. There was a valid arbitration agreement between the parties to submit disputes to the

KLRCA. The BOS from RFE constituted an offer [i]. AP‟s returned BOS, incorporating

the amended clause, was a counter-offer [ii]. RFE accepted this counter-offer by conduct,

giving rise to a legally binding contract on AP‟s terms which included the amended

clause [iii].

i) The BOS constituted an offer

34. The essential requirement of an offer is that the party making it intends to be bound by its

acceptance.13

Such an intention to be bound will be made out if the essential terms of a

contract have been established.14

35. The BOS from RFE constitutes an offer as it likely contains all essential terms of the

contract including price, place of delivery and the parties.

36. Since the BOS constituted an offer, the existence of a valid contract then turns on

whether AP accepted this offer.

10

Jamil bin Harun v Yang Kamsiah [1984] 1 MLJ 217, at para 14 11

Tan Chong & Sons Motors v Alan McKnight [1983] 1 MLJ 220, at para 26 where the Federal Court, the

Malaysian apex court, applied the law as stated in Benjamin’ Sale of Goods (Sweet & Maxwell, 1974), at paras 810

to 824 12

Harvey v Facey [1893] UKPC 1; Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256; Entorres v Miles Far East

[1955] 2 QB 327 13

Gibson v Manchester City Council [1978] 1 WLR 520, at page 299 14

Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd‟s Rep 601

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ii) AP’s amendment of the forum selection clause was a counter-offer

37. Any purported acceptance which inserts or modifies a material term of a contract

constitutes a counter-offer.15

An arbitration clause is a material term.16

Accordingly, AP‟s

returned BOS with amendments to the arbitration clause amounts to a counter-offer.

38. A counter-offer destroys the initial offer. Hence the initial offer cannot thereafter be

accepted.17

Accordingly, the original offer by RFE, along with the first arbitration clause,

becomes incapable of acceptance as a result of Vogel‟s counter-offer.

iii) RFE’s accepted this counter-offer by conduct

39. An offeree is capable of accepting an offer through conduct. It was held in Claxton

Engineering Services Ltd v TXM Olaj-es GazkutatoKft (“Claxton Engineering”)18

that

continued performance of the contract by the recipient of the counter-offer, in the absence

of any objection against the counter-offer, would amount to acceptance by conduct.

40. RFE accepted Vogel‟s counter offer by conduct. RFE proceeded to perform the contract

by accepting full payment from AP and thereafter loading the bananas onto the chartered

vessel so they could be shipped to Astoria. 19

Furthermore, RFE did not raise any

objections to Vogel‟s amendments as inferable from their neglect to make subsequent

mention of them.

41. RFE and AP have agreed to settle disputes “by arbitration in accordance with the Rules

of the Kuala Lumpur Regional Centre for Arbitration” (“KLRCA Rules”).20

Under Rule

1(b) KLRCA Rules, an agreement to arbitrate in accordance with the KLRCA Rules

gives KLRCA jurisdiction to conduct and administer the arbitration.

15

The Society of Lloyds v Geoffrey George Twins [2000] WL 281281, at para 48 16

Guernsey v Jacobs UK Ltd [2011] EWHC 918, at para 45 17

Hyde v Wrench [1840] EWHC Ch J90, at page 133 18

[2010] EWHC 2567, at para 29 19

Compromis at page 1 20

Compromis at page 2

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B. The arbitrators’ appointments were not tainted by serious procedural defects affecting

the enforceability of any award made by it

42. Whether Benti and the presiding arbitrator were improperly appointed is not

consequential as the manner of appointment adopted by the KLRCA in our case does not

affect the enforceability of an award made by the tribunal. An award will only be set

aside or denied enforcement if the arbitral tribunal were irregularly constituted and if the

irregularities were sufficiently serious [i]. Any procedural defects, if existing, would not

be sufficiently serious to affect the enforceability of an award made by the tribunal [ii].

Even if there existed sufficiently serious procedural defects, RFE had waived its right to

object under Art 32 KLRCA Rules [iii].

i) Only sufficiently serious irregularities in the tribunal’s constitution will justify the

setting aside or non-enforcement of an award

43. For an award to be enforced in a country that is signatory to the NYC, Art V(1)(d) NYC

requires that the tribunal be constituted in accordance with the parties‟ arbitration

agreement.21

S 37(1) MAA, being identical to Art V(1)(d) NYC, also provides that the

award can be set aside on the same ground. Any deviation from the parties‟ agreement

may therefore be a ground for setting aside or refusing enforcement of an award.

44. Not all procedural irregularities will render an award unenforceable under the NYC22

or

its legislative implementations in other jurisdictions.23

As one commentator puts it:

“Breaches of minor provisions of the arbitration rules chosen by the parties” will not

render an award unenforceable.24

21

Art V(1)(b) NYC 22

Blackaby et al, Redfern and Hunter on International Arbitration (Oxford University Press, 5th

ed 2009), at page

605 [Herein after Blackaby] 23

Art 190(2)(a) Swiss Private International Law Act 1987 and s 44 Hong Kong‟s Arbitration Ordinance CAP 341 are

implementations of Art V NYC 24

Gaillard and Savage, Fouchard Gaillard Goldman on International Commercial Arbitration, (Kluwer Law

International, 1999), at pages 991 to 992 [herein after Gaillard]

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45. In Werner v The N’s Co,25

the Hong Kong Court of Appeal articulated the approach

towards enforcement as such:

“[T]he whole tenor of Part IV of the Ordinance [which is

substantially identical to Art V of the NYC] is to discourage what

he would describe as unmeritorious technical points and to uphold

Convention awards except where complaints of substance can be

made good.” (emphasis added)

46. Similarly in Shenzhen Nan Das Industrial v FM International,26

it was held that there

were no complaints of substance in the argument that an updated set of procedural rules

were adopted instead of the rules agreed by the parties at the time of contracting. This

was because there was no prejudice to the defendant in adopting the new set of

procedural rules. Furthermore, the new set of rules was sent to the defendants at the start

of the arbitration and they took no objection to them.27

47. The cases illustrate how a sufficiently serious procedural defect is one which results in

inequality between the parties28

or is “prejudicial” to the complaining party for it to

affect the enforceability of an award.29

ii) If there were any irregularities, they were not sufficiently serious for a court to

refuse enforcement or set aside an award made by the tribunal

48. In Nanjing Cereals v Luckmate Commodities,30

the court had to determine if a procedural

defect was sufficiently serious to affect its enforceability under the NYC. It held that

where a party had ample opportunity to asset its right but chose not to do so, it cannot

25

[1978] HKLR 281, at page 284 26

[1992] HKCFI 162, at para 35 [hereinafter Shenzhen] 27

[1992] HKCFI 162, at para 32 28

Blackaby, at para 10.47 29

Lew, Comparative International Arbitration (Springer, 2001), at page 674; Born, at page 2596; Shenzhen, at para

35 30

Nanjing Cereals, Oils and Foodstuffs Import & Export Corp v Luckmate Commodities Trading Ltd [1994] 3 HKC

552

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later complain that it was treated unfairly by a subsequent denial of that right to present

its case.31

49. Applying this principle, the KLRCA‟s appointment of Benti was not a serious

irregularity. RFE was duly notified of the rules of appointment32

and had ample

opportunity to exercise its right to appoint its own arbitrator under Art 9(1) KLRCA

Rules. It deliberately ran the risk of losing its right to appoint its arbitrator by failing to

do so within the 30-day time limit under Art 9(2) KLRCA Rules. Accordingly, they

cannot be heard to say that they were treated unfairly by a subsequent denial of their right

to appoint an arbitrator.

50. John Chong‟s appointment as the presiding arbitrator was also not a serious irregularity.

When the KLRCA appointed the presiding arbitrator before the first two arbitrators could

agree on the appointment, RFE was not deprived of any rights because it never had a

direct involvement in the appointment of the presiding arbitrator. No inequality resulted

because AP and its party appointed arbitrator were equally excluded from the

appointment process.

51. Since the appointments did not cause inequality or deprive any party of a right, the

irregularities, if any, were not sufficiently serious ones.

iii) Even if there were serious procedural irregularities in the tribunal’s constitution,

RFE had waived its right to object against these procedural irregularities under Art

32 KLRCA Rules

52. Under Art 32 KLRCA Rules, a party may be deemed to have waived his right of

objection against any non-compliance with the rules agreed upon by the parties. As Art

32 mirrors Art 4 Model Law, materials related to the Art 4 Model Law may be consulted

in the application of Art 32.

31

Ibid, at para 14 32

Compromis at page 4; Corrections and Clarifications at D.2

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53. There are three requirements for deeming a party to have waived his right to object.33

First, he must possess knowledge of the non-compliance. Second, he must have

proceeded with arbitration. Last, the objection was not promptly stated.

54. RFE had actual knowledge of the alleged non-compliance with the KLRCA Rules. They

had received timely notice of the initial hearing,34

and would necessarily have known

who were appointed as arbitrators and how this was carried out.

55. RFE had also continued with arbitration. Although RFE ultimately failed to appear at the

initial hearing, Art 32 KLRCA Rules should not be read strictly to “permit a party to

avoid the effect of a waiver through deliberate and calculated efforts not to continue with

the proceedings”.35

That the notice was only given 1 hour before the initial hearing

illustrates the dilatory and pre-meditated nature of RFE‟s non-appearance. Accordingly,

RFE cannot argue that it has not continued with the proceedings.

56. It has been explained that “without undue delay” under Art 4 Model Law is equated with

“without intentional delay”.36

As Art 32 KLRCA Rules mirrors Art 4 Model Law, “an

intentional delay” would amount to a failure to object promptly under Art 32 KLRCA

Rules. RFE‟s objection was made only 1 hour before the initial hearing despite receiving

timely notice.37

The inevitable inference from the timing of RFE‟s objection is that the

delay was intentional. Accordingly, RFE failed to object promptly.

57. RFE, having fulfilled these requirements, must be deemed to have waived its right of

objection. Accordingly, any irregularities in the tribunal‟s constitution cannot be relied on

to set aside the arbitral award or refuse its enforcement.

33

Caron, Pellonpää and Caplan, The UNCITRAL Arbitration Rules: A Commentary (Oxford University Press, 2006)

at page 740 [hereinafter Caron] 34


Ibid, at page 742 36

Böckstiegel et al (eds), Arbitration in Germany: The Model Law in Practice, (Kluwer Law International, 2007), at

s 41 para 3 37

Compromis at page 4

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22

C. The tribunal should resume arbitral proceedings

58. The tribunal is authorized to resolve this dispute in accordance with the arbitration

agreement. Furthermore, the tribunal has no reason to decline jurisdiction since there

exists no defect in the tribunal‟s constitution affecting the enforceability of an award

made.

59. On this basis, the tribunal should proceed to resolve this dispute in accordance with the

parties‟ agreement.

II. THE TRIBUNAL HAS AUTHORITY TO IMPOSE A FINE ON RFE FOR ITS

FAILURE TO APPEAR AT THE INITIAL HEARING

60. An arbitral tribunal may impose a fine if the law of the seat or the terms of the arbitration

agreement provide so.38

Art 17 KLRCA Rules gives the Tribunal discretion to conduct

the proceedings so as to “avoid unnecessary delay and expense” [A]. Although this

discretion is subject to limits, the power to impose a fine is not barred by these limits [B].

A. Art 17 KLRCA Rules gives the Tribunal wide discretion to conduct the arbitration

61. Art 17 KLRCA Rules provides the tribunal wide discretion to “conduct the arbitration in

such manner as it considers appropriate”. As Art 17 KLRCA Rules is substantially

identical to Art 15 UNCITRAL Arbitration Rules 1976 (“UNCITRAL Rules”), materials

on Art 15 UNCITRAL Rules may assist the interpretation of Art 17 KLRCA Rules.

62. The discretion conferred on the tribunal under Art 15 UNCITRAL Rules reflects the

procedural flexibility often associated with arbitration39

and is referred to as the “heart”

of the UNCITRAL Rules.40

One commentary describes Art 15 UNCITRAL Rules as “the

key to a variety of problems not regulated elsewhere in KLRCA Rules”.41

38

Blackaby, at page 529, para 9.47 39

UNCITRAL Notes on Organizing Arbitral Proceedings, UNCITRAL, UN GAOR, 51st Session, para 4, UN Doc

A/51/17 (1996) 40

Bagner, “Enforcement of International Commercial Contracts by Arbitration” (1982) 14 Case Western Reserve

Journal of International Law 573, at page 577 41

Caron, at page 26

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23

63. The tribunal‟s wide discretion is subject only to three limitations, none of which prevent

the imposition of a fine.42

B. The limits read into Art 17 KLRCA Rules do not preclude the imposition of a fine

64. The tribunal‟s discretion under Art 15 UNCITRAL Rules is subject to three limitations. It

is subject to the express provisions of the UNCITRAL Rules43

, the principle of equality

and lastly, any modifications to the UNCITRAL Rules made by the parties under Art 1(1)

UNCITRAL Rules. These limitations apply to Art 17 KLRCA Rules in like manner.

65. These limits, when applied to Art 17 KLRCA Rules, do not prevent a fine. The KLRCA

Rules do not expressly address the tribunal‟s power to impose a sanction on a party. The

principle of equality, which requires that the parties be treated “with absolute equality”,44

is not violated as the issue of equality arises as a “question concerning the right to present

one‟s case”45

and does not prevent the imposition of a fine. Alternatively, the principle of

equality is not breached since AP is no more exempt from a fine than RFE in the event of

a default by AP. The final limitation has no application because the parties to this dispute

did not modify the KLRCA Rules.

66. As the limitations do not apply to bar the tribunal‟s discretion to impose a fine, it is

within this tribunal‟s authority to do so.

III. THE APPLICABLE LAW TO THE SUBSTANCE OF THE DISPUTE IS THE CISG

67. The MAA requires the arbitral tribunal to apply Malaysian conflict of laws rules

(“conflict rules”) to determine the applicable law to the substance of the dispute (“the

applicable law”)[A]. Malaysian conflict rules will lead to the law of the place of

performance – Astoria – being the proper law of the contract, and hence the applicable

law to the substance of the dispute [B]. The CISG which forms part of the domestic law

of Astoria therefore applies to the dispute [C].

42

Caron, at page 27 43

Art 17(1) KLRCA Rules 44

Report of the SG on the Preliminary Draft Set of Arbitration Rules, UNCITRAL, 8th

Session, UN

DOC/A/CN.9/97, reprinted in (1975) VI UNCITRAL Yearbook 163, at pages 172 to 173 45

Born, at page 29

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24

A. Malaysian conflict rules should be used to determine the applicable law

68. S 30(4) MAA requires the tribunal to “apply the law determined by the conflict of laws

rules”. The conflict of laws rules referred to in s 30(4) are those of the seat of arbitration,

Malaysia. This is both required by the MAA [i], and is also in the spirit of international

arbitration practice [ii].

i) The MAA requires the conflict rules of the seat of arbitration – Malaysia – to be

applied.

69. S 30(4) MAA does not afford the tribunal the choice of the conflict rules it considers

appropriate. It differs from the Model Law counterpart which provides that the tribunal

“shall apply the law determined by the conflict of laws principles which it considers

applicable” (emphasis added).46

70. As the MAA was meant to implement the Model Law with modifications,47

almost all the

provisions in the MAA follow their Model Law counterparts to the letter. S 30(4) MAA‟s

departure from the Art 28(2) Model law must therefore be deliberate. The distinction is a

clear indication of legislative intent to constrain the tribunal to a single set of conflicts

rules.

71. Since the tribunal does not have the freedom to choose the appropriate conflict rules, the

MAA must refer to Malaysia‟s conflict rules. This follows logically as the MAA applies

to arbitrations seated in Malaysia.48

ii) Applying conflict rules of the seat is in the spirit of international arbitration practice

72. Utilizing the conflict rules of the seat is certain and efficacious, avoiding the complexity

and ambiguity of arbitrators deciding between various existing conflicts rules, or even

developing new ones.

46

Art 28(2) Model Law 47

Davidson and Rajoo, Arbitration Act 2005: Malaysia Joins the Model Law, The Malaysian Bar, 10 July 2006

<http://www.malaysianbar.org.my/adr_arbitration_mediation/arbitration_act_2005_malaysia_joins_the_model_law.

html> (last accessed 19 August 2011) 48

S 3(3) MAA

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25

73. The conflict rules of the seat are able to function as a neutral and non-partisan set of

rules. Furthermore, they are also derived from a place which the parties can be considered

to have impliedly regarded as acceptable.49

This is especially so where the place of

arbitration was agreed upon by the parties themselves.50

74. Applying the conflict rules of the seat is therefore practical, and consistent with the aims

of international arbitration.

B. Malaysian conflict rules point to the domestic law of Astoria as the applicable law

75. The applicable law under Malaysian conflict rules depends on express or inferred

intention of the parties.51

The facts provide no guidance as to the intention of the parties.

In the absence of intention, the applicable law is that with the “closest and most real

connection” to the transaction.52

76. The Malaysia Court of Appeal in Y K Fung Securities Sdn Bhd v James Cape (Far East)

Ltd53

held that the determination of the law with the “closest and most real connection”

involved consideration of several connecting factors. These include: the place of

performance, the place of contracting, the places of residence or business of the parties,

and the nature and subject-matter of the contract. Varying weight will be placed on each

of these factors depending on the circumstances.54

77. The place of performance is the most decisive factor in this case and the law of that place

is therefore the proper law of the contract [i]. The law of the place of performance is

Astoria and accordingly, its domestic law is the proper law of the contract [ii].

49

Born, at page 2139 50

Born, at page 2139 51

Whitworth Street Estates (Manchester) Ltd. v James Milller and Partners Ltd. [1970] AC 583, at page 603 52

Bonython v Commonwealth of Australia [1951] AC 201 (Privy Council on appeal from Australia), at page 219 53

[1997] 2 MLJ 621 54

Coast Line Ltd. v Hudig and Veder Chartering N.V. [1972] 2 QB 34, at pages 47 to 50. This approach was also

adopted in Y K Fung Securities Sdn Bhd v James Cape (Far East) Ltd [1997] 2 MLJ 621

M3050-C

26

i) The applicable law should be the law of the place of performance

78. In international sales contracts “the law of the place of delivery must, in absence of

evidence of contrary intention, always have a strong claim to be considered as the proper

law…”.55

The place of performance of the contract should therefore be accorded

determinative weight.

ii) The place of performance is Astoria and accordingly, its domestic law is the proper

law of the contract

79. In sales contracts, the place of performance of the contract is where the seller is bound to

deliver as held by the Privy Council in Benaim v Debono.56

80. For the purpose of the conflict of laws rules analysis, the place of performance of the

contract must be determined according to the substantive law of Malaysia.57

81. Under an FOB contract as defined in the INCOTERMS 2010,58

the seller‟s obligation to

deliver is fulfilled once the goods pass the rail on board the ship nominated by the buyer,

at the named port. If the sale was made “FOB Rolga City”, RFE would have been bound

to deliver at Rolga, and therefore the place of performance would have been Rolga City.

If the contract were one to deliver the goods at Astoria instead, RFE‟s place of

performance would be Astoria.

82. Here, the contract was one to deliver at Astoria, notwithstanding that the BOS indicated

that shipment was to be made “FOB Rolga City”. The contents of the contract ultimately

will “depend on the intention of the parties as to what they contemplated and the

expression f.o.b. was made to throw no light on the question, such expression merely

making it the seller‟s duty to load at his expense”.59

55

Dicey and Morris, Dicey and Morris on the Conflict of Laws (Stevens & Sons, 11th

ed 1987), Vol 2, at page 1260

[hereinafter Dicey] 56

[1924] AC 514, at pages 520 to 521 57

Dicey, at page 1261 58

International Chamber of Commerce INCOTERMS 2010, ICC Publication No. 715 (2010) 59

Fonseca and Fonseca, Williston on Sales (Clark Boardman Callaghan, 2010), at para 280

M3050-C

27

a. Labels are inconclusive

83. In The Julia,60

the Privy Council explained that substance, and not the form of the

agreement, determines the contract‟s nature. As Lord Porter held: “Not every contract

which is expressed to be a c.i.f. contract is such”.61

84. The parties had labeled a contract of sale as being “c.i.f. Antwerp”. The Privy Council

looked beyond the label and considered factors including the payment, shipping and

insurance arrangements. The Privy Council then held that the agreement was in substance

a contract to deliver at Antwerp, rather than “c.i.f. Antwerp.”

85. This reasoning applies with equal force to FOB contracts. In N. V. Handel My. J. Smits

Import-Export v English Exporters (London) Ltd,62

the English High Court applied The

Julia in the context of a purportedly FOB contract, and found that the contract was in fact

not an FOB contract.

b. RFE was contractually obliged to deliver the bananas to Astoria

86. The facts of the case show that the parties did not intend for the shipment to be made

FOB Rolga City. Rather, RFE was bound to deliver the bananas to Astoria.

87. First, Vogel made clear that the bananas must be delivered to Astoria in a particular

condition.63

Rocco‟s email reply was an acknowledgement and agreement to those

requirements,64

reflecting an understanding that risk would only pass upon delivery of

goods, a contractual term inconsistent with an FOB contract.

88. Second, AP did not make any shipping arrangements or have any contact with the carrier.

Under an FOB contract, the buyer is bound to nominate a vessel, and is also responsible

for instructing the master of the vessel of the necessary storage instructions. In the

present case RFE took up these obligations instead. This is atypical of an FOB contract.

60

[1949] 1 AC 293, at page 309 61

Ibid 62

[1957] 1 Lloyd‟s Rep 517, at pages 519 to 520 63

Compromis at Exhibit #1 64

Compromis at Exhibit #2

M3050-C

28

89. In light of these circumstances, what the parties agreed upon are inconsistent with an

FOB contract. The contract was in substance one for the delivery of bananas to Astoria.

The place of performance of the contract was therefore Astoria. As indicated above, the

place of performance should bear determinative weight. Consequently, the proper law of

the contract should be the domestic law of Astoria.

C. The CISG applies to the dispute because it forms a part of Astorian domestic law

98. Astoria is a contracting state to the CISG.65

The CISG forms part of the substantive

domestic law of Astoria.66

Art 1(1)(b) CISG mandates that it will apply to a contract when

parties to a sale of goods contract have their places of business in different states, and the

rules of private international law lead to the application of the law of a contracting state.

No reservation against Art 1(1)(b) CISG was made by Astoria to bar its operation.67

99. RFE and AP are situated in different states. Malaysian conflict rules lead to an application

of the domestic law of Astoria, a contracting state. Consequently, the CISG applies to the

substance of the dispute.

IV. THERE WAS A BREACH OF SELLER’S OBLIGATION TO DELIVER THE

BANANAS IN CONFORMITY WITH THE CONTRACT

100. RFE failed to deliver the goods in conformity with the contract under Art 35(2)(b) CISG

[A]. RFE is liable for the non-conformity of the goods with the contract under Art 36(2)

CISG regardless of when risk passed, because the non-conformity was caused by a breach

of RFE‟s obligations [B]. Further, this breach of seller‟s obligation was a fundamental

breach, entitling AP to avoid the contract [C].

65

Compromis at Appendix A 66

Bridge, Contracts for the International Sale of Goods: Law and Practice (Oxford University Press, 2007), at page

513; Fawcett, Harris and Bridge, International Sale of Goods in the Conflict of Laws (Oxford University Press,

2009), at page 919 67

Further Corrections and Clarifications at 13

M3050-C

29

A. The bananas were not in conformity with the contract under Art 35(2)(b) CISG

101. Under Art 35(2)(b) CISG, the goods do not conform to the contract if they are not fit for a

purpose which is expressly or impliedly made known to the seller. Also, the buyer must

have reasonably relied on the seller‟s skill and judgment.

102. The purpose for which AP intended to use the bananas, for re-selling, was expressly made

known to RFE [i]. AP relied on RFE‟s skill and experience in shipping bananas and it was

reasonable to do so as AP had no contact with the carrier and was situated in another

country [ii]. The bananas were not fit for the purpose made known because they showed

excessive levels of ripening [iii].

i) AP’s purpose in purchasing the bananas was expressly made known to RFE

103. The particular purpose only need be made known to the seller; there is no need for it to be

contractually agreed upon.68

The purpose must also be made known to the seller before

the conclusion of the contract.69

104. Vogel explicitly stated, well before the conclusion of the contract, that AP intended to

“sell them [the bananas] to the local retail stores which are our customers”70

and the

condition the bananas needed to be received in for that purpose: an unripe (still green)

condition. The requirement of “making known” is satisfied.

ii) AP’s relied on RFE’s skill and judgement and such reliance was reasonable

105. The second requirement under Art 35(2)(b) CISG is that the buyer relied on the seller‟s

skill and judgment. “As a rule, there will be such reliance if the seller is a specialist or

expert in the manufacture or procurement of goods.”71

or where a seller holds itself out as

such an expert or specialist.72

68

Schlectriem and Schwenzer, Commentary on the United Nations CISG, (Oxford University Press, 2010), at Art

35, para 20 [hereinafter Schlectriem] 69

Enderlein, Maskow and Strohbach, InternationalesKaufrecht (Berlin, 1991), at Art 35, note 10 70


Schlectriem, at Art 35, para 23 72

Schlectriem, at Art 35, para 23

M3050-C

30

106. RFE is a large agricultural cooperative, and one of its major export crops is bananas. They

would have a wealth of experience in the transportation, shipping and storage of bananas.

Vogel explicitly stated that AP was counting on RFE to ensure that the bananas arrive in

excellent condition73

and entrusted all packing, storage and shipping matters to RFE,

reflecting AP‟s reliance on RFE‟s skill and judgment. Further, Rocco also held out RFE as

being “experienced in ocean shipping” and that RFE has “never had a problem”.74

The

requirement of reasonable reliance is met.

107. The twin requirements of a purpose expressly made known to RFE, coupled with AP‟s

reliance on RFE‟s skill and judgment were fulfilled. In order for the bananas to be in

conformity with the contract, they had to be in a state that was fit for resale to local

retailers.

iii) The excessive levels of ripening present in the bananas meant that it was not fit for

the purpose expressly made known by RFE to AP

108. Under the CISG, the seller is liable even for immaterial discrepancies from what required

under the contract.75

In the present case there were substantial discrepancies. About 30%

of the bananas were ripe or ripening on 25 November 2010, as opposed to a reasonable

amount of 5 – 10%.76

The bananas were clearly not in conformity with requirement that

the bananas be delivered unripe.

B. RFE is liable for the non-conformity of the bananas under Art 36(2) CISG

109. Under Art 36(1) CISG, a seller is liable for any non-conformity that exists at the time

when risk passes to the buyer. Art 36(2) CISG provides that the seller is liable for lack of

conformity that occurs after the time risk passes if it is due to a breach of a seller‟s

obligation.

110. RFE was bound to inform the captain of the PINAFORE of the “special care” the bananas

required [i]. RFE failed to inform the captain fully of the “special care” required, which

73




Compromis at page 3

M3050-C

31

caused the non-conformity of the bananas. Consequently, under Art 36(2) CISG the time

when risk passed is irrelevant, and RFE is liable for the non-conformity of the bananas

[ii].

i) RFE had an obligation to inform the captain to take care of the bananas

111. Art 8 CISG governs the interpretation of statements and conduct of the parties as well as

the interpretation of contracts and its contents.77

Art 8 CISG encompasses a three-step

analysis.78

First, the tribunal seeks to ascertain the real mutual intention of the parties.79

If

this is not present, the analysis shifts to whether the unilateral intention of one party was

so obvious the other must have been aware of it.80

If that is also absent, the tribunal then

adopts a normative interpretation of the contract; according to what a reasonable person

would have understood in the circumstances.81

112. In the present case, the subjective intentions of the parties are unclear on the facts.

Therefore, emphasis will be placed on a reasonable person‟s interpretation of the

obligations to determine the contract content. The pre-contractual e-mail exchange

between the parties is important in this context [a]. A reasonable person of the same kind

would have concluded from the exchange, that RFE was contractually obliged to ensure

the captain was fully apprised of the “special care” the bananas required [b].

a. Pre-contractual negotiations are important in the determination of contract

content

113. Art 8(3) CISG allows consideration to be given to relevant negotiations, practices, usages

and subsequent conduct of the parties. The representations made in the course of such

negotiations may give rise to enforceable obligations under the subsequently formed

contract.

77

Lookofsky, Understanding the CISG, (Kluwer Law International, 2008), at page 68 78

Chemical products case, Switzerland, BG, 5 April 2005, CISG-online 1012

<http://www.cisg.law.pace.edu/cases/050405s1.html> (last accessed 19 August 2011) 79

Art 8(1) CISG 80

Ibid 81

Art 8(2) CISG

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32

114. In MCC-Marble Ceramic Center v. Ceramica Nuova D’Agostino (“MCC-Marble”),82

the

court held that the parties could adduce evidence of prior negotiations to show that they

had agreed on terms that contradicted the written document, or were not found in it.

There, the court found that the parties had agreed to the terms negotiated orally, and

consequently, that they were not bound by the conflicting terms in the subsequently

signed written instrument. This decision has garnered the approval of later cases,83

as well

as academics.84

b. A reasonable person would have concluded RFE was bound to ensure the

captain was informed of the special instructions necessary

115. The pre-contractual negotiations between AP and RFE had the effect of creating

obligations under the contract concerning the shipping arrangements RFE had to make.

116. The relevant negotiations are the e-mail exchange which took place before Vogel returned

the signed BOS on 4 August 2010.85

AP had unequivocally requested that RFE ensure that

the bananas “arrive in excellent condition”. RFE accepted this and remarked that they

would “make sure that the captain is well aware of the „special care‟ required”. Applying

Art 8(2) CISG, RFE objectively undertook to ensure that the captain was aware of the

“special care” required for the shipping of the bananas.

117. It does not matter that this additional term is in conflict with the seller‟s obligations under

the written contract, stipulated to be FOB Rolga City. This was the case in MCC-Marble,

where the oral agreement between the parties trumped the inconsistent term in the

subsequently signed written contract because the oral negotiations reflected the true

agreement between the parties.86

This reflects the generally accepted view that

82

MCC-Marble Ceramic Center Inc. v Ceramica Nuovad’Agostino, S.p.A, 144 F3d 1384 (11th

Cir, 1998)

[hereinafter MCC-Marble] 83

ECEM European Chemical Marketing B.V. v The Purolite Company, United States, District Court, 29 January

2010, CISG Online < http://cisgw3.law.pace.edu/cases/100129u1.html (last accessed 19 August 2011); TeeVee

Tunes, Inc. et al v Gerhard Schubert GmbH, United States, District Court, 22 March 2002, CISG Online ;

<http://cisgw3law.pace.edu/cases/060823ul.html> (last accessed 19 August 2011) 84

Fletchner, Uniform Law for International Sales Under the 1980 UN Convention, (Kluwer Law International,

1999), at Art 8; Lookofsky, Understanding the CISG, (Kluwer Law International, 2008), at Chapter 4 85

Further Corrections and Clarifications at 5 86

MCC-Marble, at para 30

M3050-C

33

individually agreed upon terms will take precedence over standard form terms when both

are in conflict.87

ii) The non-conformity of the bananas was due to a breach of RFE’s obligations

118. RFE was bound under the contract to make sure the captain was “well aware of the

„special care‟” that the bananas had to receive. RFE breached this obligation by providing

only general instructions which were not sufficiently detailed to the captain.

119. In order to determine the exact scope of this obligation, the same three stage analysis must

be adopted, as mandated by Art 8 CISG.

120. Art 8(3) CISG allows for trade usages to aid in the interpretation of the obligations under

the contract. In ICC Case No. 8324,88

the question was whether the purchase price had

been finally set between the parties. In coming to the conclusion that the purchase price

had not been set, the tribunal took into account the fact that provisional prices are

common on the magnesium market.

121. In the present case, RFE‟s obligation to inform the captain of the “special care” required

must necessarily extend to all storage details necessary to ensure the bananas arrive

Astoria in an unripe state. This would have included, inter alia, the ideal temperature the

bananas should be stored at and detailed instructions on the proper method of storing the

bananas. This interpretation is supported by the circumstances surrounding the contract,

and the trade usages customarily adopted in shipping bananas.89

122. RFE breached this obligation as its instructions to the captain fell short of the above

requirements. The only instructions provided by RFE were those stated in the “special

instructions box”.90

These were minimal, stock instructions91

which did not take into

account the special arrangements requested by AP, including the specific temperature

87

Schlectriem, at Art 8, page 13 88

Magnesium case, ICC Arbitration Case No. 8324 of 1995, CISG-online 569

<http://cisgw3.law.pace.edu/cases/958324i1.html> (last accessed 19 August 2011) 89

Compromis at Appendix B 90

Corrections and Clarifications at B.4 91

Further Corrections and Clarifications at 3

M3050-C

34

requirements expressly stated in AP‟s e-mail.92

The consequently poor storage of the

bananas on the ship resulted in the bananas‟ lack of conformity.93

123. As the lack of conformity stemmed from the breach of a seller‟s obligation, the time

where risk passed is inconsequential, and RFE is liable for the non-conformity of the

goods.

C. RFE’s breaches of obligations amounted to fundamental breaches, allowing AP to void

the contract

124. Art 49(1)(a) CISG provides that the buyer may avoid the contract if the failure by the

seller to perform any of his obligations under the contract amounts to a fundamental

breach of contract.

125. Art 25 CISG stipulates that a breach is fundamental if: it results in such detriment to the

other party as substantially to deprive him of what he is entitled to expect under the

contract; and the party in breach had foreseen, or a reasonable person of the same kind

would have foreseen such a result from the breach.

126. AP is entitled to avoid the contract and reclaim the purchase price. RFE committed

fundamental breaches of its obligations.

127. RFE‟s breach of obligations resulted in a large proportion of the bananas reaching Astoria

in a ripened state. This substantially deprived AP of what it was entitled to expect as AP

explicitly stated that it needed unripe bananas for resale them to local retailers [i].94

Such a

result would was foreseeable by RFE [ii]. For these reasons, RFE‟s breach was

fundamental. Further, AP had properly voided the contract under Art 26 CISG [iii].

92


Corrections and Clarifications at C.1 94

Compromis at Exhibit #1

M3050-C

35

i) AP suffered a detriment that substantially deprived it of what it was entitled to

expect under the contract

128. In the context of Art 25 CISG, “detriment” does not refer to the extent of loss suffered, but

rather, the importance of the obligation that was breached.95

In determining whether the

breach is fundamental, regard must be given to the circumstances of the case. This

includes whether the importance of the particular obligation was addressed in the contract

or pre-contractual negotiations,96

and the extent to which the breach interferes with the

activities of the innocent party.97

129. The crucial importance of the bananas arriving in an unripe (still green) state and the

purpose of this requirement was explicitly made known in AP‟s email. This was

acknowledged by RFE. The non-conformity made the bananas wholly unsuitable for

resale by AP, depriving them of otherwise available profits from such resale.

130. RFE failed to perform its obligations, resulting in AP being substantially deprived of what

it was entitled to expect under the contract.

ii) RFE would have foreseen such a result

131. Once the injured party proves that there was a breach, and that it suffered substantial

detriment, the breach will be fundamental unless the party in breach can show that it did

not foresee and did not have reason to foresee such a result.98

132. RFE would have foreseen that of a breach of its obligations would have caused a

substantial portion of the bananas to be unsuitable for sale to retailers. RFE are

experienced sellers and shippers of bananas who are aware of the special storage

conditions required by the bananas, and also the consequences of poor storage. In any

case, AP conveyed this information to RFE as well in its e-mail.

95



Text of Secretariat Commentary on Art 23 of 1978 CISG Draft (draft counterpart of CISG Art 25) 98

Schlectriem, at Art 25, para 34

M3050-C

36

iii) AP avoided the contract

133. Art 26 CISG provides that “a declaration of avoidance of the contract is effective only if

made by notice to the other party”. To be effective, the notice must clearly express that the

party will no longer be bound by the contract, and that it considers the contract

terminated.99

134. The notice does not need to allude expressly to “avoidance” to be effective.100

Effective

notice only requires the injured party to indicate that the contract will no longer be

performed due to the other party‟s breach.101

In the Machine case, a letter denying

acceptance of further delivery, and asking for reimbursement of installments was found to

be effective notice for the purposes of Art 26 CISG.102

135. In Vogel‟s email to Rocco dated 26 November 2010,103

Vogel stated that they would

reject the shipment due to the excessively ripe bananas. Vogel also stated that AP

expected a full refund of the purchase price. This is sufficiently expresses a desire to no

longer be bound by the contract, amounting to notice of avoidance under Art 26 CISG.

Consequently, AP had properly avoided the contract.

V. AP HAS NO OBLIGATION TO PRESERVE OR SELL THE BANANAS

136. AP has no obligation to preserve of sell the bananas. AP was not required to take

possession of the bananas under Art 86(2) CISG because doing so involved unreasonable

inconvenience or expense [A]. In such a situation, the obligation to make an emergency

sale of the bananas under Art 88(2) does not apply [B] to AP.

99

Shoe case, LG, 16 September 1991, CISG-online 916, <http://cisgw3.law.pace.edu/cases/910916.html> (last

accessed 19 August 2011) 100



OLG, 19 December 2002, CISG-online 1219, < http://cisgw3.law.pace.edu/cases/021219g1.html (last accessed

19 August 2011) 103

Compromis at page 3

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A. AP was not required to take possession of the bananas because doing so involved

unreasonable expense

137. Art 86 CISG governs the buyer‟s duties to preserve the goods despite his intention to

reject them. Art 86(1) CISG imposes duties to preserve where the buyer has accepted the

goods or is bound to take possession under Art 86(2) CISG.104

A buyer is bound to take

possession under Art 86(2) CISG when the goods “have been placed at his disposal”

provided taking possession does not involved unreasonable expense or inconvenience.105

AP had not received the bananas. Therefore Art 86(2) CISG applies.

138. It was unreasonable for AP to take possession of the bananas because the preservation of

the bananas involved unreasonable inconvenience and unreasonable expenses.

139. The main criterion when determining if the expenses are reasonable is the relation

between the expenses and the impending loss.106

Commentators suggest that it would be

unreasonable for the buyer to incur the expenses resulting from the preservation of those

goods if they reach an unreasonable level.107

140. Preserving the bananas involved unreasonable inconvenience. As ripening bananas

accelerate the ripening of other bananas in proximity,108

the bananas must be sorted to

minimize further ripening. The large percentage of ripe bananas as of 25 November109

meant that the ripening process would increase exponentially,110

reducing the amount of

time available for separation of the bananas. Notably, the sorting of bananas was no

longer feasible by 28 November 2010.111

As separation of the bananas can only be carried

out manually, this makes timely sorting of bananas impractical and potentially impossible.

141. Preserving the bananas also involved incurring unreasonable expenses. The specific

temperature required for storing bananas made ordinary warehouses unsuitable for the

104

Text of Secretariat Commentary on Art 71 of 1978 CISG Draft (draft counterpart of CISG Art 75) , at para 3 105

Art 86(2) CISG 106






Compromis at page 4

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storing them, evidenced by an increase of over 60% of the number of ripe bananas in just

a day‟s storage in a warehouse.112

In light of how the bananas would likely fetch no more

than $250,000 on 26 November 2010,113

it is highly possible that preserving the bananas

would result in greater expenses than what AP could recover from selling them thereafter,

rendering these expenses unreasonable.

142. Since the preservation of the bananas involved unreasonable expenses and unreasonable

inconvenience, a duty to preserve the bananas cannot be imposed on AP. Consequently,

AP is not bound to take possession of the bananas.

B. Since AP was not bound to take possession on behalf of RFE, the requirement to make

emergency sale of the bananas under Art 88(2) CISG does not arise

143. The possibility of a sale under Art 88 CISG only arises when the buyer is bound to take

possession of and preserve the goods on behalf of the seller under Art 86 CISG.114

144. If the buyer is not bound to take possession of the goods, the question of emergency sale

under Art 88(2) CISG does not arise. This is because Art 88(2) CISG only applies to a

buyer who is obliged to preserve the goods. If the buyer is not in possession of the

bananas, he is not bound to preserve the goods. Where there is no duty to preserve the

goods, no duty to sell the bananas can arise.115

145. Consequently, because the obligation to take possession of the bananas under Art 86

CISG does not arise, there can be no obligation to sell the bananas under Art 88 CISG.

112




Art 86(1) CISG

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Conclusion and prayer for relief

Counsel makes the above submissions on behalf of AP. For the reasons stated in this Memorial,

Counsel respectfully requests the honorable Arbitral Tribunal to declare that:

1. The tribunal should proceed with arbitration (FIRST ISSUE)

2. The tribunal has the power to impose a fine on RFE for its default (SECOND ISSUE)

3. The applicable law to the dispute is the CISG (THIRD ISSUE)

4. RFE breached its obligations to the AP and should duly compensate them for any damage

suffered (FOURTH ISSUE)

5. AP is under no obligation to sell the bananas after the PINAFORE arrived at Astoria

(FIFTH ISSUE)

Respectfully submitted,

COUNSEL FOR ASTORIA PRODUCE