memorandumfor respondent - cisgmoot.org china university of political... · cisgdigest uncitral...

FIFTEENTHANNUALWILLEM C. VIS (EAST)

INTERNATIONALCOMMERCIALARBITRATIONMOOT

11March – 18March 2018

MEMORANDUM FORRESPONDENT

COUNSELS

CHANG ENNINGGU YUXINLI YANLONG LUO YINGKAILINNALV RUOYI

QIUMINGLIANGWANG JUN XIE YUTONGYAN JINYANG JIALI ZHONG JINGHUI

ON BEHALFOF: AGAINST:

Comestibles Finos Ltd

75 Martha Stewart Drive

CPAITAL CITY, MEDITERRANEO

Delicatesy Whole Foods Sp

39 Marie-Antoine Carême Avenue

OCEANSIDE, EQUATORIANA

RESPONDENT CLAIMANT

East China University of Political Science and Law

MEMORANDUM FOR RESPONDENT i

TABLE OFCONTENTS

TABLE OF CONTENTS............................................................................................................. i

INDEX OFAUTHORITIES......................................................................................................iii

STATUTESAND RULES................................................................................................. iii

COMMENTARY................................................................................................................ v

ARBITRATIONAWARDS................................................................................................xi

TABLE OFABBREVIATIONS.............................................................................................. xiv

STATEMENT OF FACTS.......................................................................................................... 1

PART 1: THE ARBITRAL TRIBUNAL SHOULD DECIDE ON THE CHALLENGEWITHOUT THE PARTICIPATION OF MR. PRASAD........................................................... 3

I. The Tribunal has authority over the challenge.................................................................3

A. The Parties excluded the application of Art. 13(4) of UNCITRAL Rules.............3

B. Art. 13 (2) of Model Law shall apply and grant the Tribunal authority on thechallenge..................................................................................................................... 5

II. The decision should be made without Mr. Prasad participation.....................................6

A. Mr. Prasad should not decide on his own challenge.............................................. 6

B. Leaving the two remaining arbitrators to make the decision is proper.................. 7

PART 2: MR. PRASAD SHOULD BE REMOVED FROM THE TRIBUNAL........................9

I. The challenge against Mr. Prasad is admissible.............................................................. 9

A. RESPONDENT has not waived its right to challenge Mr. Prasad........................ 9

B. The notice of challenge was sent timely.............................................................. 10

II. In the eyes of a reasonable and informed third party, Mr. Prasad lacks independenceand impartiality..................................................................................................................10

A. IBA-Guidelines shall apply to the present arbitration..........................................11

B. CLAIMANT and Mr. Prasad breached their obligations of disclosing conflicts ofinterest....................................................................................................................... 11

C. The connections between Mr. Prasad, CLAIMANT and the funder impair hisindependence.............................................................................................................13

D. Mr. Prasad expressed favorable opinions towards CLAIMANT in his article.... 16

E. The failure of disclosure and conflicts of interests are sufficient to disqualify Mr.Prasad altogether....................................................................................................... 16

PART 3: THE RESPONDENT'S STANRARD CONDTIONS SHALL GOVERN THECONTRACT............................................................................................................................. 17


MEMORANDUM FOR RESPONDENT ii

I. A contract has been concluded between CLAIMANT and RESPONDENT, which isgoverned by RESPONDENT's standard conditions......................................................... 17

A. Both CLAIMANT and RESPONDENT showed intention to applyRESPONDENT's standard conditions...................................................................... 17

B. Claimant failed to incorporate its standard conditions only by small front print inits mail.......................................................................................................................20

II. Even if RESPONDENT's standard conditions do not govern the contract, GlobalCompact principles will guide the contract.......................................................................22

A. CLAIMANT and RESPONDENT have no consensus on applying CLAIMANT'sstandard conditions................................................................................................... 23

B. The facts and circumstances of the case dictate that the Global Compactprinciples should govern the contract at a minimum................................................ 23

PART 4: THE CLAIMANT DELIVERED NON-CONFORMING GOODS PURSUANT TOART. 35 OF CISG BY THE CONDITIONS THAT RESPONDENT'S GENERALCONDITIONSAREAPPLICABLE........................................................................................ 25

I. CLAIMANT delivered non-conforming goods pursuant to Art. 35.1 of CISG as thecocoa was not farmed in accordance with the ethical standards underlying the GeneralConditions and the Code of Conduct for Suppliers.......................................................... 26

A. Art. 35.1 CISG set the contractual obligation of goods, which delivered by seller.26

B. The ETHICAL STANDARD should be included in the QUALITYREQUIREMENT of goods underlying the CISG, accordingly the CLAIMANTshould ensure cocoa farmed in a sustainable way.....................................................26

C. Michelgault Business News clearly disclose the unethical conduct ofCLAIMANT's supplier............................................................................................. 28

D. Based on analysis above, the non-conforming unethical product delivered byCLAIMANT constitutes the breach of QUALITY and other REQUIREMENTunderlying the General Conditions and the Code of Conduct for Suppliers............ 29

II. Turning a blind eye on the explicit contractual agreement, CLAIMANT's chocolatecakes do not conform with the contract under Art. 35.2 of the CISG...............................30

A．The contract did not exclude the use of CISG Art.35.2..................................... 30

B. The chocolate cakes are not fit for the purpose which sustainably sourced foodwould ordinarily be used under CISG Art.35.2.a..................................................... 31

C. The chocolate cakes does not fit for its particular purpose according to CISGArt.35(2)(b)............................................................................................................... 31

D. CLAIMANT willingly undertook the risk of its own supplier's non-conformity.32

E. Claimant could not be relieved by CISG Art.35.3 for exclusivity....................... 33


MEMORANDUM FOR RESPONDENT iii

INDEX OFAUTHORITIES

STATUTESAND RULES

CITEDAS DETAILS CITED IN

CIETAC China International Economic and Trade Arbitration

Commission, CIETACArbitration Rules (2015)

¶39

CISG CISG, United Nations Convention on International Sale

of Goods

¶¶55, 56, 57,

59

FAA Federal Arbitration Act, 9 U.S.C. § 10(a)(2) ¶40

Global

Compact

https://www.unglobalcompact.org/participation/join/com

mitment ,last access time: 10/24/2017.

¶75

IBA

Guidelines

IBA Guidelines on Conflicts of Interest in International

Arbitration

¶¶44, 45, 46,

48

LCIA Rules London Court of International Arbitration Rules (2014) ¶51

LCIA

Reference

LCIA Reference No. UN3490, Decision of 21 October

2005

¶51

https://www.unglobalcompact.org/participation/join/commitment

https://www.unglobalcompact.org/participation/join/commitment


MEMORANDUM FOR RESPONDENT iv

Model Law UNCITRAL Model Law on International Commercial

Arbitration (1985), with amendments as adopted in 2006

¶¶6, 11, 15,

17, 22, 23, 26

PICC UNIDROIT Principles of International Commercial

Contracts

¶55

UNCITRAL

Rules

Arbitration Rules of United Nations Commission on

International Trade Law, 2010

¶¶6, 12, 15,

22, 23, 24, 34

NYC United Nations Convention on the Recognition and

Enforcement of Foreign Arbitral Awards, New York,

10 June 1958

¶25


MEMORANDUM FOR RESPONDENT v

COMMENTARY


A/CN.9/246 Seventh session of the Working Group onInternationalContract Practices (New York,6-17 February 1984)

¶¶17, 26

A/40/17 Report of the United Nations Commission onInternational Trade Law on the work of its eighteenthsession (Vienna, 3-21 June 1985)

¶¶17, 22, 23

AML Bill 2016 Arbitration and Mediation Legislation (Third PartyFunding) (Amendment) Bill 2016 by Hong KongLegislative Council

¶39

Born 2014 Born, Gary, International Commercial Arbitration,Kluwer Law International (2nd ed. 2014).

¶¶10, 27, 35,

42, 46

Black Law

Dictionary

Garner, Bryan A., Black Law Dictionary. (10thed.,Thomson West, 2014)

¶26

Caron, Caplan Caron, David D., Caplan, Lee M. The UNCITRALArbitration Rules: A commentary(with an intergratedand comparative discussion of the 2010 and 1976UNCITRAL Arbitration Rules),(2nd, OxfordUniversity Press, 2013)

¶26

CETA Comprehensive Economic And Trade Agreement(CETA) by Canada and The EU

¶39

CISG Advisory

Op.No.3

“CISG-AC Opinion no 3, Parol Evidence Rule, Plain

Meaning Rule, Contractual Merger Clause and the

CISG.” (2004)

¶76


MEMORANDUM FOR RESPONDENT vi

CISG Digest UNCITRAL Digest of Case Law on the United

Nations on Contracts for the International Sale of

Goods, 2016 Edition

¶¶56, 88, 90

Daele Daele, Karel, Challenge and Disqualification ofArbitrators in International Arbitration, Kluwer LawInternational (2012).

¶¶32, 36

Goeler Goeler, Jonas, Third-Party Funding in InternationalArbitration and its Impact on Procedure, Kluwer LawInternational (2016).

¶¶38, 42, 35,

49

Guidelines for

TPF

Guidelines for Third Party Funding for Arbitration byCIETAC

¶39

IBA

Explanation

Explanation to General Standard 6 IBA Guidelines onConflicts of Interest.

¶37

IBA Report The IBA Guidelines On Conflicts Of Interest InInternational Arbitration: The First Five Years2004–2009, Report of the IBA Conflicts Committee, aSub-committee of the IBA Arbitration Committee,Dispute Resolution International, Vol 4, No 1, May2010

¶35

J Lew J.Lew, L.Mistelis & S.Krdl1,ComparativeInternational Commercial Arbitration (The Hague,Kluwer Law International, 2003)

¶37


MEMORANDUM FOR RESPONDENT vii

Kauffman

Kohler

Gabrielle Kauffman-Kohler, Soft Law in InternationalArbitration, Journal of International DisputeSettlement 1 (2010).

¶35

Lookofsky 2000 Lookofsky, Joseph “The 1980 United Nations

Convention on Contracts for the International Sale of

Goods.” (2000) ¶ 84

¶79

Luttrell Sam Luttrell, Bias Challenges in International

Commercial Arbitration: The Need for a “Real

Danger” Test, International Arbitration Law Library,

Volume 20.

¶46

McIlwrath &

Savage

Michael McIlwrath and John Savage, InternationalArbitration and Mediation: A Practical Guide, KluwerLaw International 2010

¶35

Model Law

Explanatory

Note

Explanatory Note by the UNCITRAL Secretariat onthe Model Law on International CommercialArbitration, para.23

¶¶19, 22, 23

Redfern and

Hunter

Redfern, Alan; Hunter, Martin et al., Redfern and

Hunter on International Arbitration, Kluwer Law

International (6th ed. 2015)

¶¶5, 35, 42


MEMORANDUM FOR RESPONDENT viii

Rogers Catherine Rogers, The Politics of International

Investment Arbitration, 12 Santa Clara J. Int'l L.223,

p.226 (2014).

¶¶46, 49

Schwenzer Schlechtriem & Schwenzer: Commentary on the UNConvention on the International Sale of Goods(CISG), (4th Ed. 2016)

¶¶57, 59, 116

UNCITRAL

Digest

UNCITRAL 2012 Digest of Case Law on the ModelLaw on International Commercial Arbitration

¶¶5, 50

Walsh &

Teitelbaum

Thomas W Walsh and Ruth Teitelbaum, The LCIA

Court Decisions on Challenges to Arbitrators: An

Introduction, Arbitration International, Vol 27 Issue 3,

283–313 (2011)

¶35


MEMORANDUM FOR RESPONDENT ix

CASES


Beijing case Beijing Light Automobile Co. v. Connel, CLOUT case

no. 237, Stockholm Chamber of Commerce Arbitration

Award of 5 June 1998

http://cisgw3.law.pace.edu/cases/980605s5.html

¶¶107, 109

CC/Devas v.

India

CC/Devas (Mauritius) Ltd. et al. v. India; CC/Devas,supranote 3

¶50

CLOUT Case

No.999

Ad Hoc Arbitral Tribunal, Denmark, 10 November

2000

¶107

Cofely Cofely Ltd. v. Anthony Bingham, English High Court,[2016] EWHC 240 (Comm)

¶46

J & P Avax v.

Tecnimont

SAJ & P Avax v. Société Tecnimont SPA, ReimsCourd'appel, decision of 2 November 2011, Case No.10/02888.

¶37

Jung science Jung Science Information Technology Co. Ltd. v. Zte.Corporation, High Court-Court of First Instance, HongKong Special Administrative Region of China, 22 July2008, [2008]HKCFI 606

¶18

Karlseng

v.Cooke

Karlsengv.Cooke,346S.W.3d85,97(Tex.Ct.App.2011) ¶37


MEMORANDUM FOR RESPONDENT x

Rijin Blend

case

Netherlands Arbitration Institute, no.2319,

http://www.unilex.info/case.cfm?id=836

¶109

PTA powder

case

China International Economic and Trade Arbitration

Commission, People's Republic of China, 13 April 2008,

http://cisgw3.law.pace.edu/cases/080418c1.html

¶107

SA Fremarc SA Fremarc v. Societe ITM Enterprises, Cass. Civ. (2),French Court of Cassation, 6 Dec. 2001, Rev. Arb.1231 (2003).

¶46

SEC No.

4.837

Brazil No. 30, YPFB Andina S/A v. UNIVENPetroquímicaLtda, Superior Court of Justice of Brzail,SEC No. 4.837 – EX(2010/0089053-1), 15 August2012

¶27


MEMORANDUM FOR RESPONDENT xi

ARBITRATIONAWARDS


Alpha Alpha Projektholding GMBH v. Ukraine, ICSID

Case No. ARB/07/16, Decision on Respondent's

Proposal to Disqualify Arbitrator Dr.Yoram

Turbowicz.

¶35

AWG Suez, Sociedad General de Aguas de Barcelona S.A.

and Interagua Servicios Integrales de Agua S.A. v.

Argentine Republic, ICSID Case

No.ARB/03/17,Decision on A Second Proposal for

the Disqualification of a Member of the Arbitral

Tribunal,

¶19

Canfor v. US NAFTA Chapter 11 arbitration, Undated Decision of

March 2003

¶50

Grand River Grand River Enterprises Six Nations, Ltd., et al. v.

United States of America, ICSID Decision on the

Challenge to Arbitrator James Anaya (28 November

2007)

¶35

Highbury Highbury Int'l AVV, Compañía Minera de Bajo

Caroní AVV & Ramstein Trading Inc. v. Bolivarian

Republic of Venezuela, ICSID Case No. ARB/14/10,

Decision on the Challenge of Professor Brigitte Stern

(9 June 2015)

¶46


MEMORANDUM FOR RESPONDENT xii

ICS Inspection ICS Inspection and Control Services Limited (United

Kingdom) v. The Republic of Argentina, PCA Case

No. 2010-9, Decision on challenge to Mr. Stanimir A.

Alexandrov

¶51

ICC 7331 CLOUT case No.303, Court of Arbitration of the ICC,

1994(Arbitral award no.7331)

¶57

National Grid National Grid plc v. The Argentine Republic, LCIA

Case No. UN 7949, Decision on the Challenge to Mr.

Judd L. Kessler (3 December 2007)

¶35

Suez Suez, Sociedad General de Aguas de Barcelona S.A.,

and Vivendi Universal S.A. v. The Argentine Republic,

ICSID Case No. ARB/03/19, Decision on a Second

Proposal for the Disqualification of a Member of the

Arbitral Tribunal (12 May 2008).

¶¶19, 49

S.L.U S.L.U. v. Bolivarian Republic of Venezuela, ICSID

Case No. ARB/10/9, Decision on the Proposal to

Disqualify Prof. Brigitte Stern and Prof. Guido

Santiago Tawil, Arbitrators (20 May 2011),

¶46


MEMORANDUM FOR RESPONDENT xiii

Vito Gallo v.

Canada

NAFTA; Challenge Decision of 14 October 2009,

para. 20

¶19


MEMORANDUM FOR RESPONDENT xiv

TABLE OFABBREVIATIONS

Art. Article

Arb. Arbitration

CISG United Nations Convention on Contracts for the International Sale ofGoods

Cl. Claim(ant)

Ex. Exhibit

ICC International Centre for Settlement of Investment Disputes

Memo Memorandum

Notc. Notice

No(s). Number(s)

Ord. Order

PCA Permanent Court of Arbitration

Proc. Procedural

Pres. President

Resp. Respondent

Resps. Response

UNCITRAL United Nations Commission on International Trade Law

UNIDROIT International Institute for the Unification of Private Law


MEMORANDUM FOR RESPONDENT 1

STATEMENT OF FACTS

1. The parties to this arbitration are Delicatesy Whole Foods Sp (hereinafter “CLAIMANT”)

and Comestibles Finos Ltd (hereinafter “RESPONDENT”, collectively “the Parties”).

2. CLAIMANT is a medium sized manufacturer of fine bakery products registered in

Equatoriana.

3. RESPONDENT is a gourmet supermarket chain registered in Mediterraneo.

4. In March, 2014, RESPONDENT went to the yearly Danubian food fair Cucina to broaden

its cake offerings. Soon after the food fair, Respondent sent tender documents to five

businesses RESPONDENT had met at Cucina including CLAIMANT to invite them to

tender.

5. On 17 March 2014, RESPONDENT received the requested Letter of Acknowledgement

from CLAIMANT which clearly confirmed its intention to tender in accordance with the

specified requirements. One of the requirements is that tenderers shall make sure that

their suppliers comply with the standards of sustainability and ethicalnesss.

6. Consequently, on 17 March 2014 when CLAIMANT submitted a sales offer and informed

RESPONDENT of the two changes related to the form of cakes and the mode of payment,

which was not consistent with the international tender practice, Respondent was very

surprised. Yet, considering the creation of a long-standing, mutually beneficial

partnership, on 7 April, RESPONDENT expressed acceptance to the two changes

informed by Mr.Tsai but without any acceptance to the inclusion of CLAIMANT's

General Conditions of Sale.

7. CLAIMANT started delivery on 1 May 2014 and delivered its chocolate cake until 27

January 2017. Until that time, RESPONDENT had the impression that it got what it

contracted for: a first-class chocolate cake made out of ingredients from sustainable

farming. Only from a documentary about a scheme with falsified certificates for

environmental production showed on the Equatorian state news channel on 19 January

201 and an article published on the leading business newspaper in Equatoriana on 23



January 2017, did RESPONDENT learn the ingredients were not sourced sustainably,

which are contrary to RESPONDENT's most basic business values.

8. On 10 February 2017, CLAIMANT finally confirmed RESPONDENT's fear by way of

email that the chocolate cake was made with cocoa beans which had not been farmed in a

sustainable way but in clear contradiction to the requirements of the contract. In this

email, in an obvious attempt to downplay its breach, CLAIMANT alleged for the first

time that the contract would be governed by its own Conditions of Sales and not

RESPONDENT's General Conditions which formed part of the Tender Documents.

9. Given the undisputed fact that CLAIMANT failed to comply with the contractual

obligation to ensure the ingredients are sustainably sourced, this breach shall be

considered to constitute a fundamental breach entitling RESPONDENT to terminate the

contract with immediate effect and claim damages. With email of 12 February 2017,

RESPONDENT informed Claimant its intention to terminate the contract and claim for

damages.

10. On 30 May 2017, a meeting between the Parties did not lead to an amicable solution

11. On 30 June 2017, RESPONDENT recieved CLAIMANT's notice of arbitration and had

no objection to the appointment of Mr. Prasad at that time.

12. However, the unexpected result of a virus check of the Notice of Arbitration sent by

CLAIMANT induced RESPONDENT to suspect that there existed conflicts of interest in

the connection between Mr. Prasad and Findfunds. Led by such suspect, RESPONDENT

conducted further research in fear of potential impairment to the procedural justice of

arbitral proceeding. The results of Respondent's research gave rise to justifiable doubts of

RESPONDENT on the impartiality and independence of Mr. Prasad, the arbitrator

appointed by CLAIMANT. RESPONDENT thus sent Notice of Challenge to Mr. Prasad

and all members of the Arbitral Tribunal on 14 September, 2017 as soon as possible in

pursuant to the agreed-upon UNCITRAL Rules and in compliance with the lex arbitri and

lex fori, i.e. Model Law.



PART 1: THEARBITRALTRIBUNAL SHOULD DECIDE ON THE CHALLENGE

WITHOUT THE PARTICIPATION OFMR. PRASAD.

1. CLAIMANT contends that the challenge of Mr. Prasad should not be decided by the

Tribunal and even if so, Mr. Prasad should participate, which is not the case. First, the

Tribunal has authority over the challenge (I). Second, the decision should be made

without Mr. Prasad's participation (II).

I. The Tribunal has authority over the challenge.

2. The Parties excluded the application of Art. 13(4) of UNCITRAL Rules (A), causing a

failure of agreement on challenge procedure. Therefore, Art. 13 (2) of Model Law shall

apply and grant the Tribunal authority on the challenge (B).

A. The Parties excluded the application of Art. 13(4) of UNCITRAL Rules.

3. Art. 13(4) of UNCITRAL Rules was excluded since the functioning body provided in this

Article, which can be institutions or individuals pursuant to Art. 6 of UNCITRAL Rules,

is not permitted in the present arbitration due to Parties' consent in two respects. First,

under Clause 20 of the Contract, any arbitral institution cannot act as appointing authority

(1). Second, having individual act as appointing authority will impair RESPONDENT's

confidentiality concern (2).

(1) Any arbitral institution cannot act as appointing authority.

4. Clause 20 of the Contract, which is Dispute Resolution Clause, prohibits the involvement

of any arbitral institution during the whole proceeding [Cl. Ex. 2]. Thus for the challenge

procedure, arbitral institution cannot participate. This claim rests on the wording, which

is “any dispute…shall be settled by arbitration…without the involvement of any arbitral

institution”. It should not be interpreted as exclusion of institutions in the composition of

the Tribunal, but in any stage of the proceeding for three reasons.

5. First, the nature of arbitration clause is a contract [Redfern and Hunter] so the arbitration

should be conducted in accordance with the “contract”. The arbitration begins with the

composition of the arbitral tribunal, including the challenge of arbitrators [Contents of

UNCITRAL Rules], which means the challenge procedure should be in conformity with

the “contract”, specifically without the involvement of institutions. If the Parties had the



intention to made the challenge procedure separated from the whole arbitral proceeding

and immune from the “contract”, a clearer wording is required, For example, according to

one German court, the parties may go so far as to exclude any challenge procedure within

the arbitral proceeding [UNCITRAL Digest]. However, there is no such explicit

expression in Clause 20 to exclude the challenge procedure.

6. Second, emails between Ms. Ming and Mr. Tsai show the agreement on exclusion of

arbitral institutions in the challenge procedure. Ms. Ming used the phrase “composition of

arbitral tribunal” in her email, by which CLAIMANT asserts that RESPONDENT was

only concerned with problems relating to the “composition” of arbitral tribunals [Cl. Ex.

1]. However, the sphere of “composition of arbitral tribunal” covers “challenge

procedure”. According to the Contents of Model Law and UNCITRAL Rules, “Chapter

III. Composition of arbitral tribunal” includes “Article 13. Challenge procedure”

[Contents of Model Law], and “Section II. Composition of the arbitral tribunal” includes

“Article 11 to 13 Disclosures by and challenge of arbitrators” [Contents of UNCITRAL

Rules]. Thus, in a reasonable and informed third-party's eyes, the intention contained in

the emails should be interpreted as exclusion of arbitral institutions in the challenge

procedure.

7. Third, the discussion between Ms. Ming and Mr. Tsai on food fair show the agreement on

exclusion of arbitral institutions in the whole arbitration proceeding. Ms. Ming talked to

Mr. Tsai about the bad experience on information leakage in institutional arbitration once

before [Resp. Ex. 5]. Due to this detailed discussion, CLAIMANT understood

RESPONDENT's efforts to exclude the involvement of arbitral institutions in any stage

of arbitration and accepted Clause 20 with a reply that “we can very well live with the

clause as it is” [Cl. Ex. 3].

8. In addition, although CLAIMANT may argue that national court or PCA can act as

appointing authority, the Parties' consent to exclude arbitral institutions also apply to

national court and PCA since arbitral institutions includes them.



(2) Having individual act as appointing authority will impair RESPONDENT's

confidentiality concern.

9. As mentioned above, CLAIMANT understood RESPONDENT's concern on information

confidentiality and agreed to have as few persons as possible know about the arbitration

[Resp. Ex, 5]. Therefore, introducing an individual to act as appointing authority shall

violate the Parties' agreement and impair RESPONDENT's confidentiality concern since

he or she will be accessible to information of the present case, causing greater risk of

information leakage and such arrangement is meaningless for following reasons.

10. As scholar Born notes, first, individuals offer no real advantages (beyond, conceivably,

confidentiality) compared to institutions. Further, selecting an individual as the

appointing authority creates the risk that the individual will become unavailable,

conflicted, or otherwise incapable of acting properly. In most cases, there is no

affirmative reason to name the holder of an office at an institution that does not ordinarily

deal with arbitral issues as appointing authority. It makes little sense to select – as parties

sometimes do – the director of some public institution (a national court or an international

inter-governmental body) to act as appointing authority. By definition, bodies or

office-holders other than arbitral institutions have other focuses and competences than

selecting international arbitrators, while arbitral institutions are specialized in precisely

this task [Born 2014].

B. Art. 13 (2) of Model Law shall apply and grant the Tribunal authority on the

challenge

11. The Parties identify UNCITRAL Rules as the arbitration rules and Danubian law as lex

arbitri, which adopts Model Law[Notice of Arbitration][Proc. Ord. No.1]. Without other

agreement on challenge procedure, Art. 13(4) of UNCITRAL Rules was supposed to

apply. However, this Article is excluded, which leaves a failure of agreement on

challenge procedure. Thus, the Art. 13(2) of Model Law shall apply. Under the

circumstance that Mr. Prasad refused to withdraw from his office [Letter Prasad] and

CLAIMANT did not agree to the challenge [Letter Fasttrack], “the arbitral tribunal shall

decide on the challenge” [Art. 13(2) of Model Law].



12. Moreover, the Tribunal bears a duty to avoid unnecessary delay and provide an efficient

process to resolve the dispute [Art. 17 of UNCITRAL Rules]. Compared to appoint

another authority to decide on the challenge, Granting the power to the Tribunal will

prevent unnecessary delay and cost in arbitral proceeding.

II. The decision should be made without Mr. Prasad participation.

13. CLAIMANT insists that Mr. Prasad should participate to make the challenge decision

[Letter Fasttrack]. However, Mr. Prasad should not do so (A). Further, leaving the two

remaining arbitrators to make the decision is proper (B).

A. Mr. Prasad should not decide on his own challenge.

14. This position is deduced from two resources. First, one should not be his own judge (1).

Second, allowing Mr. Prasad to participate will impair the justice of the Tribunal (2).

(1) One should not be his own judge.

15. Both UNCITRAL Rules and Model Law refuse Mr. Prasad to decide his own challenge

when he refuses to resign and CLAIMANT does not agree to the challenge [Art.13 (4)

UNCITRAL Rules] [Art. 13(2) Model Law] for the sharing principle that one should not

be his own judge.

16. First, UNCITRAL Rules explicitly exclude the challenged arbitrator. Although Art. 13(4)

of UNCITRAL Rules is excluded, drafters' intention presented in Art.13 (4) UNCITRAL

Rules shall be taken into account since Parties have agreed to be bound by UNCITRAL

Rules in general. Drafters of UNCITR Rules entrust appointing authority to decide the

challenge [Art.13 (4) UNCITRAL Rules] in order to maintain the impartiality and

independence of the decision-making authority, which is the aim of whole challenge

procedure [Caplan]. Parties have agreed on the qualification standard sets out in

UNCITRAL Rules. Precluding Art. 13(4) does not alter the requirement on avoiding the

challenged arbitrator being his/her own judge.

17. Second, Model Law does not expressly allow the challenged arbitrator to participate in

the decision. Excluding Mr. Prasad does not violate the mandatory provision which

stipulates “the arbitral tribunal shall decide on the challenge” [Art. 13(2) Model Law].

Despite working group's suggestion that “the decision was entrusted to all members of



the tribunal including the challenged arbitrator”[A/CN.9/246], the Commission only

notes that it “did not adopt a suggestion to exclude the challenged arbitrator from the

deliberations and the decision of the arbitral tribunal on the challenge” [A/40/17].

18. In the exceptional case where the challenged arbitrator is not excluded, he/she shall have

at least one authorization among applicable rules, lex arbitri, or parties consent [Jung

science]. As analyzed above, Mr. Prasad has none of the authorization and shall be

excluded from the challenge decision.

(2) Allowing Mr. Prasad to participate will impair the justice of the Tribunal.

19. As mentioned above, UNCITRAL Rules drafters intend to ensure the authority called

upon to decide the challenge be an impartial and independence party [Caplan]. Drafters

of Model Law share the same intention in noting that the arbitral procedure is subject to

“the fundamental requirements of justice”[Model Law Explanatory Note]. In practice, the

challenged arbitrator is excluded from the deliberation of the challenge regardless of

resignation to ensure the justice of the tribunal [AWG][Vito Gallo v. Canada].

20. In the present case, not excluding Mr. Prasad will impair the justice of the Tribunal. Mr.

Prasad's partiality disqualifies him to participate in the challenge procedure. A reasonable

third person will find his refuse to resign as manifesting his partial vote.

B. Leaving the two remaining arbitrators to make the decision is proper.

21. The two remaining arbitrators shall decide the challenge for fairness and efficiency (1) as

well as recognition and enforcement of arbitral award (2).

(1) The two remaining arbitrators shall decide the challenge for fairness and

efficiency.

22. Having the challenged decided by two remaining arbitrators satisfy UNCITRAL Rules

and Model Law's requirement for fairness [Art.17(1) UNCITRAL Rules, Art.18 Model

Law] [Model Law Explanatory Note] and efficiency [Caplan][A/40/17]

23. First, Precluding Mr. Prasad from the deliberation of challenge decision will not impair

arbitral proceeding's fairness, which is required by UNCITRAL Rules and Model Law

[Art.17(1) UNCITRAL Rules, Art.18 Model Law] [Model Law Explanatory Note]

[Caplan] [A/40/17]. Parties' right to procedure fairness will neither be prejudiced or



impaired, because the challenge will be decided by the remaining two arbitrators who

have no predisposed partial inclination toward the decision. Besides, Mr. Prasad is still

entitled to make clarifications and disclosure to prove his impartiality and independence.

24. Second, the challenge decision will be efficient since an even number of arbitrators will

not cause dead-lock. According to Art.33(1) of UNCITRAL Rules, the decision on the

challenge shall be made by a majority of the Tribunal [Art.33(1) of UNCITRAL Rules].

With two arbitrators deciding on the challenge, only with unanimous approval or

rejection will a decision be made. If one-one vote appears, under Art. 33(2) of

UNCITRAL Rules, such questions of procedure could be decided by the presiding

arbitrator alone [Art.33(2) of UNCITRAL Rules].

(2) The two remaining arbitrators shall decide the challenge for recognition and

enforcement of arbitral award.

25. Art. V(1)(d) of New York Convention provides that if “the composition arbitral authority

or arbitral process was not in accordance with the agreement of the parties…or the law of

the country” [Art. V(1)(d) of NYC], recognition and enforcement of the award may be

refused.

26. In the case herein, parties agreement in Clause 20 that “the number of arbitrators shall be

three” [notice of arbitration] shall be subject to the mandatory provisions of arbitration

law, which is Model Law in the present arbitration [Caron, Caplan]. Art. 13(2) and

Art.12 Model Law are mandatory provisions since the word “shall” indicates that

something must be done, as opposed to the word “may” [Black Law Dictionary] and no

non-mandatory phrase, such as “unless otherwise agreed by the parties”, is

contained[A/CN.9/246]. Thus excluding Mr. Prasad complies with the requirement that

“the arbitral tribunal shall decide on the challenge” [Art. 13(2) Model Law] as explained

in Para No.17 of this work. Not excluding Mr. Prasad conflicts with the mandatory

requirement on arbitrators' impartiality for composition of Tribunal [Art. 12(1) Model

Law].

27. Moreover, courts seek to minimize judicial intervention when reviewing international

commercial arbitral awards in practice [CLOUT case No. 351]. This is because the



remaining arbitrators remain bound by obligations of impartiality, and there is no reason

to conclude that they will render an unfair or unjust award [BORN 2014].In practice,

even awards made by a truncated Tribunal are usually granted with recognition and

enforcement [SEC No. 4.837]. In the case herein, a decision made by two remaining

arbitrators is proper since they have no predisposed partial inclination toward the

challenge decision.

PART 2: MR. PRASAD SHOULD BE REMOVED FROM THE TRIBUNAL.

28. CLAIMANT considers the challenge against Mr. Prasad to be devoid of any merits and

Mr. should not be removed from the Tribunal. However, RESPONDENT initiates the

challenge based on admissible and tenable grounds. First, the challenge against Mr.

Prasad is admissible (I). Second, in the eyes of a reasonable and informed third party, Mr.

Prasad lacks independence and impartiality (II).

I. The challenge against Mr. Prasad is admissible.

29. Contrary to CLAIMANT's allegations, RESPONDENT has not waived its right to

challenge Mr. Prasad (A) because the consent to Mr. Prasad's appointment expressed in

the Response to the Notice of Challenge does not preclude RESPONDENT to raise this

challenge and the Notice of Challenge was sent timely (B).

A. RESPONDENT has not waived its right to challenge Mr. Prasad.

30. RESPONDENT stated no objection to the appointment of Mr. Prasad despite the

restrictions in his declaration of independence [Response to the Notice of Challenge],

which are the two previous appointments by the Law Firm of Mr. Fasttrack and

reservation about the business matter of his current colleagues at Prasad & Partners

[Prasad's Declaration of Impartiality and Independence]. However, as confirmed in SGS

S.A. v. Pakistan, the notice of challenge is not belated since “new fact shad a different

light on information that was already known” [SGS].

31. In the present case, yet the restrictions alone are not sufficient to bring a challenge.

Considering the new information, which is the relationship between CLAIMANT, Mr.

Prasad and Findfunds LP, RESPONDENT reasonably suspects Mr. Prasad's eligibility to



act as arbitrator. Therefore even though RESPONDENT stated no objection before, it still

has the right to challenge an arbitrator after knowing such new fact since the relationship

adds great possibility to disqualification of Mr. Prasad, which will be elaborated in Part 2,

Section II in this work.

B. The notice of challenge was sent timely.

32. Art. 13(1) of UNCITRAL Rules sets a 15-day time limit to start the challenge procedure

[Art. 13(1), UNCITRAL Rules]. To determine the starting point of the time limit, “actual

knowledge” test should be followed. That is “if the circumstances on the basis of which a

challenge is made become known to the challenging party as a result of a gradual process

and a fact finding mission, during which doubts gradually turn into hard facts, the time

for bringing a challenge only starts running from the day that these facts become known

to the challenging party”[Daele 2012]. This standard was also supported by Vito v.

Canada. In Vito v. Canada, the appointing authority rejected the notion that the Rules

contained a test of constructive knowledge of the circumstances underlying the challenge

[Vito v. Canada].

33. In the present case, the existence of third-party funder was confirmed by CLAIMANT on

7 September 2017 [Disclosure of Funder]. Mr. Prasad disclosed other two related

appointments and commercial relationship on 11 September 2017 [Connections with

Funder]. Then RESPONDENT knew Mr. Prasad's academic view on this case. Therefore,

RESPONDENT acquired the actual knowledge about the repeated appointments,

commercial relationship, academic view and CLAIMANT's failure to disclose on 11

September 2017 and immediately sent the notice of challenge on 14 September 2017,

which was within the 15-day scheme.

II. In the eyes of a reasonable and informed third party, Mr. Prasad lacks independence

and impartiality.

34. UNCITRAL Rules requires arbitrators to be independent and impartial and lack of these

attributes can be a ground for successful challenge of arbitrators, but the vague wordings

do not provide explicit standard [Arts. 11,12 of UNCITRAL Rules]. For the purpose of

evaluating arbitrators' independence and impartiality the IBA Guidelines shall apply to



serve as a supplemental and practical guidance (A). According to UNCITRAL Rules and

IBA Guidelines, CLAIMANT and Mr. Prasad breached their obligations of disclosing

conflicts of interest (B) and the circumstances they failed to disclose including

unacceptable relationships with CLAIMANT's attorney and funder (C) and favorable

opinions towards CLAIMANT in his article (D) are sufficient to disqualify Mr. Prasad

altogether(E).

A. IBA-Guidelines shall apply to the present arbitration.

35. IBA Guidelines have been widely accepted as the standard for determining independence

and impartiality in international arbitration [Redfern and Hunter; McIlwrath& Savage]

and have acquired considerable weight especially when assessing if a conflict situation

arises [IBA Report]. In practice, due to the fact that there is an absence of detailed

guidance on the duty of disclosure in both UNCITRAL Rules and Model Law while IBA

Guidelines provides specific parameter of the duties of arbitrators [Born; Walsh

&Teitelbaum], IBA Guidelines are often consulted to assess whether such disclosure

obligation exists [Kauffman-Kohler].Arbitral Tribunals referred to IBA Guidelines in

several challenge decisions applying UNCITRAL Rules[National Grid; Grand River]and

even in challenges where there was no such explicit agreement of applying IBA

Guidelines between parties [Alpha]. Besides, parties and tribunals often refer to the

IBA-Guidelines in all the three jurisdictions concerned [PO2 ¶ 18]. Accordingly, the

tribunal should have applied IBA Guidelines to decide whether an obligation of

disclosure exists as well as whether there are severe conflicts which would disqualify Mr.

Prasad.

B. CLAIMANT and Mr. Prasad breached their obligations of disclosing conflicts of

interest.

(1) Mr. Prasad bears disclosure obligation under UNCITRAL Rules and

IBA-Guidelines.

36. UNCITRAL Rules demands a pre-arbitrator “shall disclose any circumstances likely to

give rise to justifiable doubts as to his or her impartiality or independence”; and an

arbitrator should “disclose any such circumstances” during the whole arbitral proceedings



[Art.11 of UNCITRAL Rules]. Daele notes that, “the disclosure standard is further

clarified by two model statements contained in an annex to the UNCITRAL Rules”

[Daele]. In this case, the second statement applies, which requires Mr. Prasad disclose “(a)

my past and present professional, business and other relationships with the parties” and

“(b) any other relevant circumstances” [Annex UNCITRAL Rules].

37. This obligation further requires “an arbitrator to make inquiries as to whether

relationships exists which have to be disclosed and he cannot just rely on his existing

knowledge.”[J Lew] Practical view is that the duty of disclosure requires “a certain

degree of introspective reflection or what is commonly known as due

diligence.”[Karlseng v. Cooke] and “arbitrators to search proactively for conflicts”[J & P

Avax v. Tecnimont] Thereby, Mr. Prasad shall initially disclose, but failed, his article

published in VINDOBONA JOURNAL for potential bias against RESPONDENT, which

will be elaborated in sub-section D, section II, Part 2 of this work, for the reason “to

allow the parties to judge whether or not they agree with the evaluation of the arbitrator

and whether they wish to explore the situation further and challenge the arbitrator under

the objective test.”[IBA Explanation]

(2) CLAIMANT by itself shall disclose the information of the funding party even

though it is not a statutory obligation.

38. Goeler notes that “third-party funding may touch upon specific procedural issues

including impartiality and independence of arbitrators in the context of third-party

funding, which in turn require a party to disclose certain facts related to the funding in the

course of the arbitration proceedings.”[Goeler] In this case, RESPONDENT has lost

confidence in Mr. Prasad's impartiality because CLAIMANT intentionally concealed the

economic relationship between the Findfunds LP and Mr. Prasad.

39. UNCITRAL Rules is silent on the third-party funding, while as a newly-rising issue,

CLAIMANT's disclosure obligation has been enacted in several statutory regulations,

such as AML Bill 2016 by Hong Kong Legislative Council, Guidelines for TPF by

CIETAC, IBA Guidelines by the IBA Council and CETA by Canada and The EU. So it is

necessary for the Tribunal to consider the impact of CLAIMANT's non-disclosure on Mr.



Prasad's impartiality and independence.

(3) Failure to disclose severely increases the doubts on Mr. Prasad's qualification.

40. Violations of obligations of a judicial nature generally result in a right to have an

arbitrator removed [J.Lew]. Mr. Prasad will be removed if he is not impartial and

independent due to non-performance of his disclosure obligation. Similarly, the US

Federal Arbitration Act provides that an arbitral award may be vacated where there was

evident partiality or corruption of an arbitrator, which has been interpreted to cover

failure to make proper disclosures about relationships with parties and others that could

bear on partiality [FAA].

41. The fact that Mr. Prasad and CLAMIMANT fail to disclose the relationship may not the

main reason to disqualify Mr. Prasad, because it needs specific analysis for the conflict of

interest and how the conflict of interest influences his impartiality and independence. But

CLAMIMANT's unethical conduct to conceal the third-party funder and Mr. Prasad's

undue diligence to investigate will severely increase the doubts on Mr. Prasad's

qualification.

C. The connections between Mr. Prasad, CLAIMANT and the funder impair his

independence.

42. Dependence of an arbitrator refers to unacceptable external relationships between the

arbitrator and parties [Born 2014; Goeler; Redfern and Hunter]. In present case,

Findfunds LP can be deemed to bear the identity of CLAIMANT (1) and thus Findfunds

LP and its subsidiaries' repeated appointment of Mr. Prasad falls into the orange list of

IBA Guidelines (2). Furthermore, Mr. Prasad's law firm is having a significant

commercial relationship with Findfunds LP, which is categorized in the waivable red list

of IBA Guidelines (3).

(1) Findfunds LP can be deemed to bear the identity of CLAIMANT under IBA

Guidelines.

43. Although the direct funder of CLAIMANT is Funding 12 Ltd., one of the subsidiaries of

Findfunds LP, owing to the fact that Findfunds LP has a controlling influence on its

subsidiaries and their funding business (a) and shares a direct economic interest in the



award to be rendered in this arbitration (b), it can be considered to bear the identity of

CLAIMANT.

(a) Findfunds LP has a controlling influence on its subsidiaries and their funding

business.

44. Parties may be considered to bear the same identity if one of the parties has a controlling

influence on the other [General Standard 6 (b) IBA Guidelines]. According to the facts,

Findfunds LP owns 60% of the shares in Funding 12 [PO2 ¶2], which makes it the main

shareholder of the latter. It is also the practice of Findfunds LP to establish a separate

legal entity for each case which it intends to fund and makes a very thorough examination

of the cases [PO2 ¶2,3]. It is reasonable to conclude from the percentage of shareholding

and the business pattern that Findfunds LP has a controlling influence on its subsidiaries

and their funding business either under IBA Guidelines or from a commercial perspective.

Therefore, it is Findfunds LP who is behind all the funding business rather than its

subsidiaries which are merely tools of its funding business.

(b) Findfunds LP shares a direct economic interest in the award to be rendered in this

arbitration.

45. Pursuant to IBA Guidelines, parties sharing a direct economic interest in an award bears

the same identity [General Standard 6 (b) IBA Guidelines] and specifically, third-party

funders may have a direct economic interest in the award, and as such may be considered

to be the equivalent of the party[Explanation to General Standard 6 IBA Guidelines].In

present case, since Findfunds LP, through Funding 12, has a direct economic interest of

25% of the award to be rendered and it actively participate in the discussion of the case, it

shall be considered to bear the identity of CLAIMANT [Goeler].

(2) Findfunds LP and its subsidiaries' repeated appointments of Mr. Prasad fall into

the orange list of IBAGuidelines.

46. Recurrent appointments indicates arbitrator's professional familiarity with a party

[Luttrell] and even potential favoritism which may bring about bias[Rogers]. Repeated

appointment of the arbitrator by the same party twice or more within past three years is

also listed as an orange list circumstance providing possible ground for challenge by the



IBA Guidelines[para. 3.1.3, IBA Guidelines] and this conclusion has been affirmed by

scholars and numerous cases [Born; S.L.U; Highbury; Cofely]. Specifically, French Court

of Cassation finds that tribunal is not properly constituted because one of the arbitrator

had been appointed by the same party in three other cases and failed to disclose them [SA

Fremarc].

47. It has been established that Findfunds LP controls its subsidiaries and is equivalent to

CLAIMANT in this arbitration. Therefore, the two appointments of Mr. Prasad made

by100% subsidiaries of Findfunds LP [Letter Prasad] should be deemed as made by

CLAIMANT itself, and thus constitutes a ground for challenge against Mr. Prasad.

(3) Mr. Prasad's law firm currently has a significant commercial relationship with

CLAIMANT and RESPONDENT never expressly waived such conflict.

48. Significant commercial relationship between arbitrator's law firm and parties is

categorized by IBA as a circumstance in the waivable red list, which without express

consent of the other party will cause a serious conflict of interest directly resulting in the

removal of an arbitrator [para. 2.3.6, IBA Guidelines].The facts that Mr. Prasad's partner

is currently representing a client in an ongoing case funded by Findfunds LP and Mr.

Prasad has been appointed twice as arbitrator by Mr. Fasttrack's law firm and both of

them is making a profit from these cases indicate a commercial relationship between Mr.

Prasad's law firm and CLAIMANT, which is significant enough to raise a justifiable

doubt as to Mr. Prasad's independence and impartiality.

49. Several factors, namely closeness, intensity, materiality and dependence[Suez], may be

evaluated when assessing the significance of such business connection and its effect on

Mr. Prasad's qualification. First, the relationship is close enough since Findfunds LP and

CLAIMANT bears the same identity and Mr. Fasttrack, as CLAIMANT's counsel,

advised and even directly recommend his colleague to appoint Mr. Prasad [PO 2 ¶9].

Second, the intensity [Rogers] of the connection suffices because Mr. Prasad along with

his partner have participated in five cases relevant with CLAIMANT in total, and one of

them is an ongoing case. Finally, the fact that Mr. Prasad's partner's 1.8 million US $ as

well as Mr. Prasad's considerable income from the case funded by Findfunds LP [PO2 ¶



8,10]demonstrates the materiality [Goeler]of the relationship and thus indicates the

dependence[Rogers]of the law firm on the funder. Furthermore, although such

circumstance is listed in the “waivable” red list in IBA Guidelines, RESPINDENT never

expressly stated its willingness to accept Mr. Prasad regardless of the existing conflicts.

Therefore, the relationship between Mr. Prasad's law firm and the CLAIMANT, without

expressed waiver of RESPONDNET, constitute a solid ground for the challenge against

Mr. Prasad.

D. Mr. Prasad expressed favorable opinions towards CLAIMANT in his article.

50. The content of Mr. Prasad's article does give rise to substantial doubts on his impartiality

and leads to his disqualification. It is worth noting that the dispute at issue is which

party's General Conditions shall be applied; while in Mr. Prasad's article, his opinion

obviously and specifically favors CLAIMANT.As already shown in practice,

UNCITRAL Rules adopts “the basis of an objective assessment” when judging an

arbitrator's impartiality and independence [UNCITRAL Digest].Although Mr. Prasad is

certainly entitled to academic freedom; it is hard to say, from an informed and reasonable

third person's view, Mr. Prasad will remain impartial and probably he could not make a

decision solely based on the facts and the circumstances of the case. In Canfor v. US, the

final result also upholds “the arbitrator's comments reflected a prejudgment of two of the

measures”[Canfor v. US]. Apart from that, when associating this article with the

connections between Mr. Prasad and CLAIMANT and its funder, it is fair enough to

come to his disqualification. In practice, “on the basis of the prior view and any other

relevant circumstances, that there is an appearance of pre-judgment of an issue likely to

be relevant to the dispute on which the parties have a reasonable expectation of an open

mind” [CC/Devas v. India].

E. The failure of disclosure and conflicts of interests are sufficient to disqualify Mr.

Prasad altogether.

51. In case that tribunal considered the circumstances above insufficient to disqualify Mr.

Prasad separately, these conflicts altogether and the fact that CLAIMANT's deliberately

concealing such conflicts cumulatively justify a doubt concerning Mr. Prasad. In an



UNCITRAL arbitration in which the LCIA was acting as appointing authority, it has been

observed that an accumulation of circumstances may have spawned justifiable doubts,

where each circumstance, viewed in isolation, might have been insufficient to do so

[LCIA Reference]. In a case where PCA acted as appointing authority, the

Secretary-General cited two situations in the Orange List of IBA Guidelines and

considered that the conflict was sufficiently serious to give rise to objectively justifiable

doubts as to the arbitrator's impartiality and thus upheld the challenge [ICS Inspection].

In the present case, there are up to four circumstances which could be taken in to account

when deciding the challenge against Mr. Prasad and these situations have apparently

reached the level of a justifiable doubt.

PART 3: THE RESPONDENT'S STANRARD CONDTIONS SHALLGOVERN THE

CONTRACT.

52. A contract has been concluded between CLAIMANT and RESPONDENT, which is

governed by RESPONDENT's standard conditions (I). Even if RESPONDENT's

standard conditions do not govern the contract, Global Compact principles will guide the

contract (II).

I. A contract has been concluded between CLAIMANT and RESPONDENT, which is

governed by RESPONDENT's standard conditions.

53. The contract No.1257 concerning the trade of chocolate cakes was awarded by

RESPONDENT on 7 April 2014 [Cl. Ex. 5]. During and after the tender procedure, both

CLAIMANT and RESPONDENT showed intention to apply RESPONDENT's standard

conditions, namely the Tender Document, with some minor and primary changes to the

goods accepted by RESPONDENT (A). Claimant failed to incorporate its standard

conditions only by small front print in its mail (B).

A. Both CLAIMANT and RESPONDENT showed intention to apply RESPONDENT's

standard conditions.

54. CISG should govern the Contract No.1257 (1). In the previous dispute, it is telling that



CLAIMAT did intent to follow the instruction of RESPONDET's standard conditions (2).

RESPONDENT accepted some minor and primary changes to the goods, however, the

change of standard conditions is not in this case (3).

(1) CISG should govern the contract No.1257.

55. Since both Equatoriana and Mediterraneo are contracting states of CISG [Proc. Ord.1 3

(4)] and parties did not opt-out the application of CISG, CISG should govern the contract

[CISG 1 (1)]. It is consistent with CLAUSE 19 in RESPONDENT'S General Conditions

of Sale which stipulates CISG as governing law and UNIDROIT Principle as gap-filling

law [CL. Ex. 2]. Paradoxically, CLAIMANT's General Conditions of Sale declares

Equatoriana law to be applicable [Proc. Ord.2 29] while CLAIMANT directly applied

CISG [Cl. Memo. ¶¶ 92, 94, 95, 104] and UNIDROIT Principle [Cl. Memo. ¶116] when

alleging the successful incorporation and governing position of its own standard

conditions in the first place. It infers CLAIMANT directly applied RESPONDENT's

General Conditions of Sale other than its own.

(2) CLAIMANT did intend to follow RESPONDENT's standard Conditions at the

point the Sales Offer was made.

56. Contrary to CLAIMANT's allegation of “counter offer” “last shot principle” on the basis

of Art. 19 [Cl. Memo. ¶¶ 90,104], there is no ground to apply them. RESPONDENT's

Invitation to Tender and Tender Document failed to constitute an effective offer under

Art.18 for the absence of intention to be bound by acceptance [CISG Digest 86 ¶5]. In a

tender procedure, the invitation to tender is simply an invitation to treat [Mckendtrick 31].

Where there is no effective offer, there is no counter-offer as well because counter-offer

concerns a reply to an “offer” [CISG Art. 19(1)].

57. RESPONDENT agrees Art. 8 should be applied to determine the true intention of party

autonomy other than apply Art 8 (2) only [Cl. Memo. ¶92]. The case law [ICC 7331] and

legislative history indicate that Article 8 can also “equally applicable to the interpretation

of ‘the contract'.” Thus, the content of an offer must be interpreted subject to

CLAIMANT's genuine intention according to Article 8.1 CISG [Schwenzer 146]. If

failing so, a reasonable person standard must be referred to [CISG Art. 8(2)].



58. Applying CISG subjective standard and objective standard to the contractual text shows

that CLAIMANT did incorporate RESPONDENT's standard conditions and was willing

to follow. First, CLAIMANT attached a full set of RESPONDENT's Tender documents

with Sales Offer [Proc. Ord.2 ¶27]. It indicates Tender Document a part of Sales Offer.

Second, this ongoing arbitration procedure initiated by CLAIMANT is based on

arbitration clause set in RESPONDENT's General Conditions of Contract [Cl. Ex. 2]. As

mentioned before, CLAIMANT directly applied Choice of Law CLAUSE in

RESPONDENT's Tender Documents. Third, in Letter of Acknowledgement sent back by

CLAIMANT, it clearly stated that “We have read the Invitation to Tender and will tender

in accordance with the specified requirements [Resp. Ex 1].” Fourthly, during the

negotiations after this previous dispute arose, CLAIMANT entirely used contract

No.1257 to refer the present contract between CLAIMANT and RESPONDENT [Cl. Ex

9]. However, Contract No.1257 stands right for the whole version of Tender Documents

[Cl. Ex 2]. RESPONDENT is reasonable to conclude that why CLAIMANT insists on its

own standard conditions is to escape from the breach of contract, for RESPONDENT

stipulates a higher standard on goods. However, during the tender procedure till the final

award of contract, CLAIMANT intended to apply RESPONDENT's tender document to

win the tender, on which basis of RESPONDENT finally got into the contract with

CLAIMANT.

(3) RESPONDENT accepted some minor and primary changes to the goods,

however, the change of standard conditions is not in this case.

59. Concerning the fruitful cooperation and longstanding business relationship in the future,

RESPONDENT tolerated two modifications of Tender Documents, which are the

payment term and form of the cake. As what was stated in Sales Offer [Cl. Ex. 4] and

Letter from Tsai [Cl. Ex. 3], CLAIMANT clarified the changes relate primarily to the

goods and mode of payment expressly and explained reasons in detail. However,

CLAIMANT did never give even a hint to tell RESPONDENT that the governing

conditions of offer is altered into CLAIMANT's General Conditions of Sales, which

cannot be regarded as a “primary change”. Even though CLAIMANT wrote “The above



offer is subject to the General Conditions of Sale and our Commitment to a Fairer and

Better World” in Sales Offer, there was no consensus to accept this term in eyes of

RESPONDENT [Id.]. Silence or inactivity does not in itself amount to acceptance unless

other additional factors associated with the silence or inactivity [Schwenzer]. It should

combine with usages, practice established between parties, etc. [CISG Art.18(3)]. In this

case, no event indicates a mere silence can amount to an acceptance.

B. Claimant failed to incorporate its standard conditions only by small front print in its

mail.

60. The small front print in CLAIMANT mail is not enough to fulfill the obligation to arouse

the attention as a requirement of the standard form (1). The CLAIMANT doesn't put

much emphasis on the point of the application of general conditions of sales (2). To apply

the standard form, special actions must be taken to attract the attention of the other party

(3). The change in the standard term related to the general condition of sales cannot be an

effective modification (4).

(1) The small front print in its mail is not enough to fulfill the obligation to arouse

the attention as a requirement of the standard form.

61. From the structure and the words of the mail, comparing with the font between the special

conditions of sales and the general one, it is very easy to find that the CLAMIANT uses a

standard form [Cl. Ex. 4], to integrate its attitude towards the general conditions of sales.

From the action, we can be inferred the following meanings.

(2) The CLAIMANT doesn't put much emphasis on the point of the application of

general conditions of sales.

62. Standard terms will never be a clause with the attention of the CLAIMANT, since it is

always written in advance without the careful consideration case by case. On other words,

under the circumstance that the standard form has the risk of being eliminated, no one

will be glad to putting an important issue into it unless the party who raise the standard

form has the dominating power in the negotiation. Clearly, in this case, the CLAIMANT

and RESPONDENT are at the same level, and it is the RESPONDENT's freedom to deny

the offer from the CLAIMANT.



63. When coming to the use of standard terms, one facing the risk of being eliminated, for as

a standard term, it is not the result of the negotiation and it is unfair for one party to

blindly agree on it. As long as it is eliminated, the clauses won't cause any effect and be

kicked out of the contract, as if it has never been there. It is obvious that if the terms are

ruined, the purpose of the CLAIMANT cannot be achieved; the result is what the

CLAIMANT cannot afford.

(3) To apply the standard form, special actions must be taken to attract the

attention of the other party.

64. To incorporate a standard form, one must do something to help the other party fully aware

of the clause. The key point here is to “help the other party aware”, but not to “do

something”. In the case, the CLAIMANT must successfully make the RESPONDENT

aware of the clause that the CLAIMANT is changing the general condition of the contract.

Putting a close look at the clause [Cl. Ex. 4], it can be found that the clause uses a smaller

font and center format, locating together with the contact number and the address.

65. First, considering that whether using a smaller font and a center format can be a way to

attract the attention. From the context [Cl. Ex. 4], it is very hard to find out the difference

between the clause and the normal content unless being read very carefully, which is to

say, if being read very briefly, it will be difficult to pay attention to the clause. On the

other hand, since careful reading is available, the effect of attracting attention never exists.

In conclusion, the change in font and format cannot be an effective way to give the alert.

66. Second, even the change in font and format can be regarded as a feasible way of alert, the

extent is not enough to help the RESPONDENT aware of the clause, not to say the

meaning backward. Normally, to emphasize is to enlarge the font or to overstrike the

words, it is very strange to use a smaller font to emphasize. Similarly, the CLAIMANT

put the place of the clause with the telephone and address, although it is truly a part of the

contract, but clause with this information is very easy to be deemed as indifferent or

useless. The CLAIMANT just gives an appearance that the RESPONDENT does not

need to notice this clause, not to say help the RESPONDENT to be aware of the

modification.



(4) The change in the standard term related to the General Condition of Sales

cannot be an effective modification.

67. The content of the clause is another issue worthy of discussion, from the offer [Cl. Ex. 4]

CLAIMANT changes the General Condition of Sales by giving a website, which is a

URL. As the requirement of the modification, a change must be clear and complete,

however, this way of CLAIMANT to modify is neither clear nor complete.

68. Usually, a clear and complete modification, in this case, means giving a complete and

up-dated version of general condition of sales from the CLAIMANT to the

RESPONDENT, just a hyperlink is totally far from enough.

69. Under one circumstance can it be a correct reference, that is: when clicking into the

website, the page can give a clear overview to tell the reader the complete scope of the

general condition of sales [CISG-ACOP 5]. However, in this short principle, two

components are included: a) the hyperlink can be clicked into; b) the page linked to shall

give a clear scope of the reference. In this case, the CLAIMANT fit neither.

70. First, the offer is not an E-mail, but a written letter. Compare with the offer [Cl. Ex. 4]

and other documents [Cl. Ex. 5,6,8], the upper part is quite different, which indicates the

offer a hard copy. Since the URL is included in the written letter, it means the URL

cannot be clicked into, although the RESPONDENT can type in the website address, it is

not the RESPONDENT's responsibility, nor is regulated in the principle. On other words,

if the hyperlink cannot be directly clicked into, then it falls out of the principle.

71. Second, when the RESPONDENT goes to the website the hyperlink points to, it is so

confusing that it is very difficult to find the documents, and it is harder to clarify whether

all the relevant documents are found. Undoubtedly, it doesn't satisfy the requirement of

being clear and complete.

72. In conclusion, what the CLAIMANT does is far from successfully incorporating its

standard conditions into its offer.

II. Even if RESPONDENT's standard conditions do not govern the contract, Global

Compact principles will guide the contract.

73. Even if RESPONDENT's standard conditions do not govern the contract, both parties did



not reach a consensus on applying the CLAIMANT's standard conditions (A). The facts

and circumstances of the case dictate that the Global Compact principles should govern

the contract at a minimum (B).

A. CLAIMANT and RESPONDENT have no consensus on applying CLAIMANT's

standard conditions.

74. By concluding the contract, CLAIMANT and RESPONDENT both mentioned its General

Conditions of Sale, in tender document and sales offer respectively. Although

CLAIMANT alleged that its offer would be subject to the application of its own General

conditions of Sale, including its own Code of Conduct [Cl. Ex. 4], RESPONDENT only

accepted the changed specifications for the chocolate cakes and different payment

conditions [Cl. Ex. 5].

B. The facts and circumstances of the case dictate that the Global Compact principles

should govern the contract at a minimum.

75. The guidelines in Article 8 must be followed to determine the suitable standard conditions

govern the contract (1). The business philosophy of CLAIMANT Standard Terms and

RESPONDENT's Codes of Conduct is the same (2). Thus, under Article 8.1, the Global

Compact principles which adhere to both parties business philosophy must receive due

consideration (3). If the subjective intentions cannot be discerned, the objective

understanding of the contract by a reasonable person can be considered through Article

8.2 (4).

(1) Article 8 guides contract interpretation under the CISG.

76. If neither standard condition of parties is applied, the Tribunal should look to Article 8 to

determine the suitable standard conditions govern the contract. Article 8 clearly outlines

the steps and criteria for interpreting the statements and conduct of parties in privacy. The

underlying principle of Article 8 is the determination of the “true intent” of the parties,

arrived at through consideration of all the facts and circumstances surrounding the case

[CISG Advisory Op. No. 3 ¶ 2.8].



(2) The business philosophy of CLAIMANT standard terms and RESPONDENT's

codes of conduct is the same.

77. CLAIMANT's Standard Terms demand a best effort whereas RESPONDENT's Codes of

Conduct demand an absolution that the selling party will ensure its suppliers' compliance

to ethical production under any circumstances. [Cl. Memo] The core difference is about

the conformance to standards not business philosophy. Thus， if standard of neither party

is applicable, the tribunal must find one standard that has basically adhering to both

parties' business philosophy which is Global Compact principles.

(3) The parties intended to use the Global Compact principles as standard

conditions all the way up through the negotiation and conduct.

78. Under Article 8, the Tribunal must consider the intent of both the CLAIMANT and the

RESPONDENT that was either known or that should have been known (a). Both parties

underline that they are the members of Global Compact (b). Both parties explicitly had

the intention that the Global Compact principles are applicable to the Agreement through

negotiation and conduct (c).

(a) Under Article 8 of the CISG, the Tribunal must consider the intent of both the

CLAIMANT and the RESPONDENT, that was either known or that should have been

known.

79. This subjective test considers the actual meaning the parties gave the Agreement as well

as their intentions during contract formation [Lookofsky 2000]. Through the negotiation,

CLAIMANT and RESPONDENT used the Global Compact principle as guild line. [Cl.

Ex. 1 & 3] Thus Global Compact principles serve as standard conditions at a minimum

when neither of standard conditions has been acknowledged as exact one.

(b) Both parties underline that they are the members of Global Compact.

80. As both parties are the UN Global Compact members, they should aim to mobilize a

global movement of sustainable companies and stakeholders. Furthermore, the

RESPONDENT wants have the title of Global Compact LEAD Company by 2018 [Cl.

Ex. 1]. The philosophy of Global Compact points to be a rotten corporate culture in both

parties.



(c) Both parties explicitly had the intention that the Global Compact principles are

applicable to the Agreement through negotiation and conduct.

81. First, CLAIMANT has become a very interesting supplier for RESPONDENT at the

Danubian Food Fair because of its Global Compact membership and its strict adherence

to the principle of ethical and sustainable production [Cl. Ex. 1].

82. Second, both parties demonstrate their ideas adhering to Global Compact in their standard

conditions. RESPONDENT underlined its Global Compact member committed to high

standards of integrity and sustainability in its tender. CLAIMANT also showed the

philosophy in its Code of Conduct [Cl. Ex. 2; Resp. Ex. 2].

83. Third, as checking guild lines, the Global Compact principles at a minimum are standard.

When RESPONDENT required CLAIMANT to clarify whether its suppliers adhered to

the standard, RESPONDENT “demanded that CLAIMANT confirmed by the next

business day that CLAIMANT's suppliers all strictly adhered to Global Compact

principles” [Cl. Ex. 6].

(4) A reasonable understanding of the contract suggests the Global Compact

principle guide the contract.

84. The Tribunal should evaluate the statute of Global Compact principle to contract through

the understanding of a reasonable person. Both parties underline the Global Compact in

their standard conditions which a reasonable person can conclude that Global Compact

principle can govern the contract at a minimum. The core of standard conditions of both

parties is basically adhering to philosophy in Global Compact principles.

PART 4: THE CLAIMANT DELIVERED NON-CONFORMING GOODS PURSUANT

TOART. 35 OF CISG BYTHE CONDITIONS THAT RESPONDENT'S GENERAL

CONDITIONSAREAPPLICABLE.

85. The CLAIMANT delivered non-conforming goods pursuant to Art. 35.1 CISG as the

cocoa was not farmed in accordance with the ethical standards underlying the General

Conditions and the Code of Conduct for Suppliers (I). Turning a blind eye on the explicit

contractual agreement, CLAIMANT's chocolate cakes does not conform with the contract



under Art. 35.2 of the CISG (II).

I. CLAIMANT delivered non-conforming goods pursuant to Art. 35.1 of CISG as the

cocoa was not farmed in accordance with the ethical standards underlying the General

Conditions and the Code of Conduct for Suppliers.

86. CISG governs the contract and the Art. 35(1) set the contractual obligation of goods

delivered by seller (A). Following CISG, the ETHICAL STANDARD should be included

in the QUALITY REQUIREMENT of goods, accordingly the CLAIMANT should ensure

its cocoa farmed in a sustainable way (B). Unfortunately, the truth stated in the

Michelgault Business News also confirmed by CLAIMANT itself clearly uncovered the

unethical conduct of CLAIMANT's supplier (C). Thus, the non-conforming unethical

product delivered by CLAIMANT constitutes the breach of QUALITY and other

REQUIREMENT underlying the General Conditions and the Code of Conduct for

Suppliers (D).

A. Art. 35.1 CISG set the contractual obligation of goods, which delivered by seller.

87. In case RESP.'s General Conditions are applicable, where the Clause 19: CHOICE OF

LAW [Cl.Ex.2. Sec. V] indicated that “This Agreement is governed by the UN

Convention on the International Sale of Goods”, thus the CISG should governs the

contract.

88. Pursuant to the Art. 35.1 CISG, it requires a seller to deliver goods that meet the

specifications of the contract in terms of description, quality, quantity and packaging

[CISG Digest Art. 35.], which means goods delivered by seller are not of the quality

required by the contract should constitutes to the non-conforming goods.

B. The ETHICAL STANDARD should be included in the QUALITY REQUIREMENT

of goods underlying the CISG, accordingly the CLAIMANT should ensure cocoa farmed

in a sustainable way.

89. The ETHICAL STANDARD should be included in the QUALITY REQUIREMENT of

goods underlying the Art. 35(1). Under Article 35.1, the legal term QUALITY involves

ethical standard which the CLAIMANT should comply with this standard (a).

RESPONDENT's General Conditions are explicit enough for CLAIMANT to comply



with and have particularly important specification of goods (b).

(1) QUALITY REQUIREMENT can be determined by party autonomy.

90. In ascertaining, for purposes of article 35(1), whether the contract requires goods of a

particular quantity, quality or description, or requires that the goods be contained or

packaged in a particular manner, one must refer to general rules for determining the

content of the parties' agreement [CISG Digest Art.35(1) ¶4]. Thus, QUALITY

REQUIREMENT can be determined by party autonomy.

(2) UnderArticle 35.1 QUALITY REQUIREMENT involves ethical standard.

91. The Tribunal must consider the intent of both the CLAIMANT and the RESPONDENT

which explicitly show the fact that both parties agree on QUALITY REQUIREMENT

involving ethical standard all the way up through the negotiation and contract.

92. CLAIMANT has become a very interesting supplier for RESPONDENT at the Danubian

Food Fair because of its strict adherence to the principle of ethical and sustainable

production [Cl. Ex 1]. The General Conditions of Contract of RESPONDENT dictate that

‘conduct your business in an environmentally sustainable way' and ‘Any breach of some

relevance of Comestibles Finos' General Business Philosophy or its Code of Conduct for

Suppliers shall be considered to constitute a fundamental breach' [Cl. Ex 2].

93. In the emails between two parties, both underlined the importance of ethical standard.

RESPONDENT stated that “You can be assured that we will do everything possible to

guarantee that the ingredients sourced from outside suppliers comply with our joint

commitment to Global Compact Principles. [Cl. Ex 3]” and CLAIMANT stated that

“Your Codes show that Delicatesy Whole Foods and Comestibles Finos share the same

values and are both committed to ensure that the goods produced and sold fulfill the

highest standard of sustainability. [Cl. Ex 5]”

94. The ethical standard be attached so much importance on during the negotiations and

mails due to the specific requirement of quality. Interpret the surrounding circumstances,

that means nothing else but that the CLAIMANT guaranteed that not only its suppliers

but also the ingredients supplied by its suppliers were farmed in compliance with

sustainable farming methods. Contrary to what CLAIMANT alleges, the



RESPONDENT's Code of Conduct does not merely contain an obligation of best efforts

in this regard but an obligation of results.

95. Besides, pursuant to RESP.'s Code of Conduct for Suppliers, which in RESP.'s General

Conditions mentioned as should be complied with, the CLAIMANT also need to make

sure its supplier's conduct far away from breach the principle or ethical both parties

shared with and obeyed to. In the E. Procurement by supplier [CL.Ex.2. Sec. ⅩⅩⅥ]

clearly stated that “make sure that they comply with the standards agreed upon to avoid

that goods or services delivered are in breach of Comestibles Finos' General Business

Philosophy”.

C. Michelgault Business News clearly disclose the unethical conduct of CLAIMANT's

supplier.

96. Unfortunately, the truth mentioned in Resp.'s Request for Clarifications (January 27,

Thursday, 2017) [Cl.Ex.6 ¶1] and article excerpted in the Michelgault Business News

named THE MONEY WITH ETHICAL BUSINESS (January 23, Monday, 2017)

[Cl.Ex.7] (1) which are also confirmed by CLAIMANT itself in CLAIMANT's Email

sent in February 10, 2017[Cl.Ex.9 ¶1] (2) both clearly disclose the unethical conduct of

CLAIMANT's supplier.

(1) As mentioned in the email RESPONDENT's Request for Clarifications

97. The UNEP Special Rapporteur investigating the growing deforestation in Ruritania

released a report on the state of the Ruritanian cocoa industry and its compliance with the

accepted principles of sustainable farming and Global Compact which stated that there

was widespread fraud and corruption in Ruritania [Cl.Ex.6¶1].

98. The details stated in the article named THE MONEY WITH ETHICAL BUSINESS,

which mentioned shady deals, offshore accounts, money laundering [Cl.Ex.7¶2], a group

of business people bribed officials at the Ministry for Agriculture to change the zone

plans and issue permits within nature reserves [Cl.Ex.7¶5], wrong certificates of origin

where issued for cocoa farmed in protected areas so that the beans could be sold as

“sustainably grown” despite their real origin [Cl.Ex.7 ¶8].



(2) CLAIMANT confirm the content of NEWs.

99. In CLAIMANT's email (February 10, 2017), where expressly stated that CL.'s supplier

had not only breached its contractual obligation towards cl. but also obtained falsified

certificates to cover up such breach of contract, which meant that some of the cocoa

beans used for the CLAIMANT production of its chocolate cake had not been produced

in accordance with the contractually required principles [Cl.Ex.9¶1].

100.In another CLAIMANT's email (January 27, Thursday, 2017), which stated that in the

last two years, the CLAIMANT only relied regarding their compliance assessment on the

documentation sent to them by Ruritania Peoples Cocoa [Cl.Ex.8¶2].

D. Based on analysis above, the non-conforming unethical product delivered by

CLAIMANT constitutes the breach of QUALITY and other REQUIREMENT

underlying the General Conditions and the Code of Conduct for Suppliers.

101.The non-conforming unethical product delivered by CLAIMANT breached the quality

requirement as we proved in B. (1) underlying the General Conditions and the Code of

Conduct for Suppliers (1). Furthermore, the CLAIMANT breached the requirement

concerning the Procurement by supplier owing to its neglectful and careless towards its

supplier's unethical conduct, which constitute one of the real reasons of the

non-conforming goods' production (2).

(1) CLAIMANT breached the quality requirement as we proved in the B. (1)

underlying the General Conditions and the Code of Conduct for Suppliers.

102.As we proved in the B. (1), Under Art. 35.1 “Quality” involves ethical standard, which is

playing an increasingly important part in today's business age, the core content of

“Quality” can be determined by party autonomy and the intent of both the CLAIMANT

and the RESP. were explicitly showing the fact that both parties agree on “Quality”

involving ethical standard, also, RESP.'s General Conditions are explicit enough for

CLAIMANT to conform to and have particularly important specification of goods.

103.The truth lined above is hurtful and disappointing, the “Quality” requirement should be

fitted, but CLAIMANT fail to, the ingredient of the goods delivered should be ensured to

be farmed ethical, but also, CLAIMANT fail to.



(2) CLAIMANT breached the requirement concerning the Procurement by supplier

owing to its neglectful and careless towards its supplier's unethical conduct, which

constitute one of the real reasons of the non-conforming goods' production.

104.As we point out in the B. (2), the CLAIMANT also need to make sure its supplier's

conduct far away from breach the principle or ethical both parties shared with and obeyed

to because its explicitly stated in the Procurement by supplier.

105.While, the truth revealed the CLAIMANT's neglectful and careless towards its supplier's

unethical conduct, especially in the last two years CLAIMANT only relied regarding

their compliance assessment on the documentation sent to them by Ruritania Peoples

Cocoa [Cl.Ex.8¶2]. Of course by this mean there couldn't exist anything which suggested

fraud. Obviously, the CLAIMANT did not do its duty of care and let the unethical

business conduct in Ruritania becoming a serious problem, which constitute one of

reasons of the non-conforming goods' production.

II. Turning a blind eye on the explicit contractual agreement, CLAIMANT's chocolate

cakes do not conform with the contract underArt. 35.2 of the CISG.

106.Setting aside the promise CLAIMANT made to RESPONDENT within the contract,

CLAIMANT still has delivered non-conforming goods according to Art.35.2 of the CISG.

Art. 35.2 is applicable since both parties did not derogate from this part of the article (A).

The chocolate cakes are not fit for the purpose which sustainably sourced food would

ordinarily be used under CISG Art.35(2)(a) (B). The chocolate cakes are also not fit for

the particular purpose explicitly or implicitly made known to the CLAIMANT at the

conclusion of the contract according to CISG Art.35(2)(b) (C). The risk was passed to

CLAIMANT and therefore whether the cause of non-conformity is under its sphere of

control is irrelevant(d); CLAIMANT cannot seek relief under Art 35.3 of the CISG (D).

A．The contract did not exclude the use of CISG Art.35.2

107.While the contract sufficiently specifies in its General Conditions the requirements for

conforming goods, Art.35.2 was not explicitly derogated from [PTA powder case;

CLOUT case No.999]. Therefore, in the occurrence of dispute in interpreting the agreed

requirements, Art.35.2 supplemented the test of conformity with ‘general guarantees'



[Beijing Case].

108.Even if there is no agreement on whether the contract is specified enough in determining

products quality, Art.35(2) is in place to fill the gap the contract leaves behind since there

is no explicit agreement on products quality which inactivates the default test of Art.35

(2)(b)

B. The chocolate cakes are not fit for the purpose which sustainably sourced food would

ordinarily be used under CISG Art.35.2.a.

109.It is uncontested by both parties that CLAIMANT has used unsustainable cocoa in its

production of chocolate cakes. The test applicable under the Article 35(2)(a) should be

the ‘reasonable quality requirement' for the goods delivered [Rijin Blend case, Beijing

case], thus the buyer's reasonable expectation, in this case the Respondent's, should be

taken into account, on the basis of communication both before and after the conclusion of

the contract.

110.CLAIMANT has written in black and white “sustainably sourced cocoa” on its campaign

post on Cucina Food Fair where it draws the RESPONDENT's attention [Proc. Ord.1

P29]. Throughout the pre-contractual communication, CLAIMANT practically

emphasized nothing but its capability in ensuring sustainable production [Proc. Ord.1 4 ¶

3].

111.Also, unlike Art.35.2.b, Art 35.2.a is not limited to the time ‘at the conclusion of the

contract'. Therefore when CLAIMANT invited RESPONDENT to its premise in the

summer 2014 after the contract was concluded, it further assured RESPONDENT's belief

that 100 per cent sustainable product was guaranteed [Proc. Ord.2 ¶34 ]

112.Therefore, when CLAIMANT failed to meet this expectation, it has failed to past the test

of reasonable quality requirement of the chocolate cakes and its ordinary purpose of

being sold as sustainable products.

C. The chocolate cakes does not fit for its particular purpose according to CISG

Art.35(2)(b).

113.CLAIMANT's cakes were tainted by unsustainable cocoa. Therefore, as an ethical

company which aims to become one of the Global Compact LEAD company in 2018,



RESPONDENT could no longer sell the cakes. This particular purpose of only selling

ethical products was to made know to Claimant at the conclusion of the contract and

Claimant was well aware of the particular purpose (1); it was reasonable for Respondent

to rely on Claimant's skill and judgment in making sure the conforming supply of cocoa

(2).

(1) The particular purpose was to made known to CLAIMANT before the

conclusion of the contract which CLAIMANT was well aware of;

114.The particular purpose was made known to CLAIMANT at the conclusion of the contract

through the email accompanying the tender documents [Cl. Ex.1 ¶8].

115.CLAIMANT clearly understood that it was awarded the contract largely because of its

guarantee of ethical production on the entire supplying chain. While emphasizing on its

‘joint commitment to Global Compact Principles' with RESPONDENT, CLAIMANT

strongly agree with RESPONDENT in ensuring sustainable products [Cl. Ex 3 ¶5].

Therefore, CLAIMANT cannot argue it was not aware of the particular purpose explicitly

made known to it.

(2) It was reasonable for Respondent to rely on Claimant's skill and judgment in

making sure the conforming supply of cocoa.

116.A buyer may reasonably rely on seller's skill and judgment if the seller is a specialist or

expert at the manufacture or in any event holds the seller to the buyer as such [Schwenzer

Art.35 ¶24 ]

117.CLAIMANT is a bakery manufacture and a member of Global Compact [Cl. Notc. of Arb.

¶1]. While RESPONDENT as a gourmet supermarket chain deals with a variety of food

products, bakery and chocolate cakes are Claimant's area of expertise. Claimant clearly

owes more knowledge and is a better expert in sustainable manufacture of bakery than

Respondent is. It was reasonable for Respondent to believe that Claimant's Global

Compact membership and strict adherence to sustainable production would made it

dependable in ensuring the products serves the particular purpose [Cl. Ex 1 ¶1].

D. CLAIMANT willingly undertook the risk of its own supplier's non-conformity.

118.CLAIMANT argue that the non-conformity was contributed to a third party, in this case



its own cocoa supplier. CLAIMANT further submitted that this fell outside of its sphere

of control and therefore itself should be exempted from delivering non-conforming goods

[Cl. Memo 32, 33]. This is a complete misinterpretation of the applicable law, the CISG.

119.CLAIMANT's interpretation was taking scholars' opinion out of context. By “a party

should not be held liable for things which lie outside his sphere of control”, it was meant

to discuss the occasion where the things in dispute fall under the other party's sphere of

control. The CISG however, does not contain any article that exempts parties' obligation

in case of force majeure. Therefore, when the contract was concluded, regardless of how

the contractual obligation might be breached, CLAIMANT undertook the risk and was

obliged to ensure conformity of goods.

E. Claimant could not be relieved by CISG Art.35.3 for exclusivity.

120.Respondent didn't know and could not have been aware of the cocoa Claimant used were

lack of conformity at the conclusion of the contract, therefore Claimant could not be

relieved as CISGArt.35.3 is herein not applicable for exclusivity.

121.Ensuring sustainable cocoa remains in Claimant's scope of control, thus Claimant should

be held liable for the non-compliance of products.