Module 9Commercial Dispute Resolution

InternationalSummer 2014/15

©MNoonan2009

This presentation and Copyright therein is the property of Maureen Noonan and is prepared for the benefit of students enrolled in the Commercial Transactions course conducted by the Law Extension Committee and is available for their individual study. Any other use or reproduction, including reproduction by those students for sale without consent is prohibited.

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Is this topic examinable?Yes, either --by a short direct question on international

arbitration and/or CISG in a larger problem question or in Q6 of the exam. The appropriate answer would be descriptive.

Or--as the whole subject of a problem question.

NOTE: in Winter semester14, any whole problem question on the international sale of goods whether concerning transactional liability or arbitration would involve the facts in VIS Moot 11.

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International DisputesIf a dispute involves an international sale of

goods to or from Australia, assume for examination purposes that the United Nations Convention on Contracts for the International Sale of Goods (CISG) applies unless specifically excluded.(aka Vienna Convention). This is part of State Law…Sale of Goods (Vienna Convention) Act NSW.

Note: Insurance issues can also be involved.

Methods of dispute resolution of International commercial disputes

International commercial Arbitration

Trans national Litigation

ADR-e.g. expert determination on a particular issue, negotiation, mediation.

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Role of the lawyer in international commercial dispute resolution

• Opportunities to be more involved in international law and harmonising efforts of model laws such as CISG.

• Opportunities to use non legal skills e.g. languages, technical knowledge, cultural training, negotiation.

• As a professional mediator, arbitrator.• Management of international arbitrations for

exporters/importers/multinationals.• Role in international organisations.• Advising clients of alternatives for resolution

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Moot opportunity

Interested in International Arbitration?

LEC regularly puts together a team for the Vis moot in Vienna or Hong Kong.

Contact Frank Astill, Director LEC for information.

Legal role in Risk Management• Objective is to avoid dispute or minimise

damage resulting from a dispute• Must understand business• Conduct due diligence to ascertain main areas

where dispute/legal liability likely to arise• Appreciate bargaining position and

opportunities/limitations• Develop skills in risk allocation during contract

negotiation phase.• A sound understanding of Insurance is required,

and its interaction with contract risk allocation.

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Some Exporter Legal Risks

Customer does not pay-unpaid sellerUnable to recover /enforce rights in foreign countryProduct liability-wrong item, quality, quantity,

unsafe, late, incompleteUnable to produce/acquire-breach contractLoss in transit-who bears loss?Competition cheaper-buyer defaults so they can

take advantage of cheaper opportunity

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Some importer legal risksGoods or services inappropriate, not what was

ordered-claim for compensation available?Supply does not meet local standards/lawsCrime –bribing foreign officialsTax, customs issuesUnfamiliar with particular free trade treaty

provisionsUnable to enforce rights /recover money in a

foreign countryUnable to sell items purchasedVulnerability to local customers for problems

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Some manufacturing risks

Raw material problemsMachineryFinanceDeliveryQuality/quantity issuesDamage to othersFailure to sell productsTitle issues

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Risk and InsuranceUnskilled allocation of risks (usually based on an

incorrect assumption that they can be imposed on other party or left to insurance) in contract negotiation and drafting stage can lead to:

• Multiple insurances covering same risks• Unnecessary extra costs built into prices• Unexpected contribution results between

insurers.• Unexpected legal consequences• Some risks not covered at all

ARBITRATION

• Parties agree to resolve disputes by arbitration in accordance with nominated Rules.

• Parties appoint Arbitrator or panel• Arbitration conducted• Decision made by Arbitrator• Binding on the parties• Enforceable in approx 142 countries

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Arbitration process• Can be similar to a court process• Can be informal• Can be remote• Can be on “papers” only, i.e. written materials and no

oral hearing• Parties can choose an arbitrator with expertise in their

business• Usual to choose 1 or 3 arbitrators so no deadlock

possible• Usually confidential, so limited precedent bank to consult

/ research. • Important elements are a process, rules defining how

that works, and a timetable to keep it moving along.

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International Disputes

Advantages of arbitration• Neutrality• Flexibility• Efficiency• Confidentiality• Enforceability

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Global Survey –International Arbitration- large corporates- PWC 2007 – See: www.pwc.com

• 73% corporations prefer it to transnational litigation• Advantages outweigh disadvantages• Clear dispute resolution policy an important strategic asset. 65 % of

respondents had one. Minimised escalation and costs.• Arbitration clause in contract can give a tactical advantage• More than 75% arbitrations conducted under the auspices of an

arbitration institution such as ICC and London Court of International Arbitration; with regional centres growing

• Legal consequences most important for choice of venue• 91% liked finality and rejected idea of appeals• Concern that experienced arbitrators scarce. 90% wanted arbitrator

with established reputation in their field and region.• Corporations retain specialist arbitration counsel rather than usual

litigation lawyers to assist• 91% in house counsel well informed about international arbitration

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Framework for International Arbitration

UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (The New York Convention)

When local court faced with dispute covered by an arbitration agreement, it must stay proceedings and recognise and enforce arbitral awards.

Incorporated into Australian law via International Arbitration Act 1974(Cth). Note best practice amendments passed in June 2010 to improve its appeal for International Arbitration.

Australian Centre for International Commercial Arbitration. See www.acica.org.au

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International Arbitration Act (Cth)

Section 7(2) Subject to this part, where:(a) Proceedings instituted by a party to an arbitration

agreement to which this section applies against another party to the agreement are pending in a court; and

(b) (b) the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration;

(c) On the application of a party..the Court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings….and refer the parties to arbitration……

International Arbitration Act (Cth)

Recognition of foreign awardsSection 8(1) Subject to this Part, a foreign award is

binding….for all purposes on the parties to the arbitration agreement…

(2) Subject to this Part, a foreign award may be enforced in the Federal Court of Australia as if the award were a judgement or order of that court…..

International Arbitration Act (Cth)

Exceptions to recognition and enforcement of foreign awards.

See Section 8, subsections 4-11.Examples of exceptions…incapacity at time

of arbitration agreement, arbitration agreement not valid in country where order made, no notice of appointment of arbitrator, decision beyond scope of arbitration.

ACICA

The Australian Centre for International Commercial Arbitration is a non profit organisation formed in 1985 to provide a framework for international commercial arbitration and to foster Sydney as a centre for such arbitrations

See www.acica.org.au

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Why Sydney?

• Supportive legal environment-International Arbitration Act provides for various opt in/out alternatives, foreign lawyers can appear, signatory to NY Convention on Recognition and Enforcement of arbitral awards, supportive courts and political stability.

• Sophisticated legal profession and some internationally respected arbitrators such as Sir Laurence Street QC. Good support services, languages, resources.

• Cost savings when compared with London, NY, Paris, Geneva, HK…cost hotel rooms, rates etc.

The fundamentals of arbitration

1. The agreement to arbitrate2. Applicable law of contract & other

aspects.3. Seat of arbitration4. The arbitrators5. The procedure6. Confidentiality7. The award

The agreement to arbitrateAgreement in contractEmpowers independent arbitrator(s) to determine

issues and disputesEnables parties to choose arbitrator, language,

rules, jurisdiction governing procedural issues and merits

Makes decision bindingIs enforceable under UN Convention on the

Recognition and Enforcement of Foreign Arbitral Awards 1958 (NY Convention 1958)

The agreement to arbitrateDecide whether parties want the agreement to enable:

•Referral of any and all disputes arising in relation to or out of agreement, to arbitration•Referral of a specific dispute type to arbitration only.

Dispute Resolution Clause• Whether to refer disputes to arbitration or some other

method• Institutional or ad hoc arbitration• Rules, if institutional• Language• Where arbitration will be held• “seat” of arbitration-which law will govern procedure?• Which law will govern arbitration• Which law will govern merits of dispute-e.g. contract.• Activation trigger

Drafting issues

Note the problems caused in Vis Moot 21 from poor drafting….the apparent conflict between the Dispute Resolution clauses and Standard Terms and Conditions, not only with the separate agreements….even within the same agreement…resulting in a challenge to the validity of the Arbitration agreement….Arbitration to be final v. right to appeal to courts.

Law of the Contract

This can be critical to understanding the rights of the parties in the event of dispute.See the problems raised in VIS Moot 21.What is the law of the Contract on those facts?

Think about it!The arbitration agreement should be carefully

drafted to maximise chances of enforcement in the particular circumstances:

RulesConsider location of assets of counterpartyAgree a seat which maximises chances of

enforceability-i.e. in arbitration friendly jurisdiction

Specify that arbitral award is final and bindingTailor agreement to address any issues arising

from domicile of counterparty, type of business.

An illustrationTaken from a Clayton Utz update 7/5/2012

Traxys was a Luxembourg company which provided financial, marketing and distribution services to the mining industry. Balaji was an Indian company which imported coal and coke but failed to pay for a shipment in 2009. Traxys resold the coke and commenced arbitration in London (as per agreement) claiming AUD3m. However, Balaji did not have any assets in the UK or Europe. Balaji commenced proceedings in the Indian Court to have award set aside or stayed and obtained an injunction. Traxys took no part in Indian proceedings, but took proceedings in Australia to enforce award against some shares Balaji owned in an Australian Company. The approach of the Indian courts and Balaji’s blatant breach of contract in taking those proceedings made it complicated and costly for Traxys.

The “seat”

Important considerations:NeutralitySophisticated legal system with trained

professionalsRole of courts suits partiesPublic policy may affect remedies…party to

conventions?Appropriate facilities…hotels,

communications, security etc

Law of Arbitration

Can be important to interpretation.

Under NY convention dispute must be capable of being arbitrated….how will that be interpreted under a particular law?

Arbitration ClauseACICA recommends:“Any dispute, controversy or claim arising out of, relating to or in connection with this contract, including any question regarding its existence, validity or termination, shall be resolved by arbitration in accordance with the ACICA arbitration rules. The seat of arbitration shall be (location). The language of the arbitration shall be (language). The number of arbitrators shall be (1,3 or Article 8 of rules).”Note also need for choice of law clause.Notice of trigger, referral.

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Arbitration administration

• Institutional-established institutions with rules, procedures etc.

• Ad hoc-the parties design it themselves.

• In VIS Moot, CEPANI, The Belgian Centre for Arbitration and Mediation.

International Arbitral Institutions• International Court of Arbitration and ICC in Paris• London Court of International Arbitration• Swiss Chambers of Commerce and Industry• Arbitration and Institute of Stockholm Chamber of Commerce• American Arbitration Association• HK International Arbitration Centre• Singapore International Arbitration Centre• China International Economic and Trade Arbitration Commission• Kuala Lumpur Regional Centre for Arbitration• The Australian Centre for International Commercial Arbitration• International Centre for the Settlement of Investment Disputes

Asia Pacific Regional Arbitration Group (APRAG) is association of 17 regional arbitral institutions in our area. See www.aprag.org

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InstitutionsAdvantagesPre established and tested rules, guidelines and

practicesEstablished format which has proved workableNeutral entity to collect and hold fees, depositsList of experienced arbitrators, often by expertiseEfficient with trained and experienced staffPhysical facilities..rooms etcNeutral and independent

Specialist forms of Arbitration

London Maritime Arbitrators Association-maritime disputes between commercial parties

Court of Arbitration for Sport-Lausanne, NY and Sydney

World Intellectual Property Organisation (WIPO) Geneva

International Centre for Settlement of Investment Disputes-involves states

WTO

Arbitral AdministrationSAMPLE ISSUES• How will arbitrators be chosen?• What language will be used for documents and oral

hearings-who will translate• What if one party delays or refuses to take a step• Interim measures• Degrees of discovery or disclosure• Procedure at hearings• Rules of evidence• Fees• Liability for costs

Arbitration Rules

Arbitrations are conducted in accordance with rules chosen.

See for example ACICA Arbitration rules at www.acica.org.au. Selections follow.

Procedural as with civil/criminal procedure court system rules.

For other rules, see appropriate organisationParties can make their own if they prefer

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ACICA Rules

4. Party initiating gives ACICA a Notice of Arbitration which covers a demand for arbitration, contact details, copy of A clause, general nature of claim and remedy sought and proposal re number of arbitrators.Notice can include detailed Statement of Claim or that can come later

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ACICA Rules

5. Within 30 days of receipt of Notice, Respondents submit Answer which includes contact details, any plea disputing jurisdiction, comments on particulars in notice and answer to relief/remedy sought.

It may also include Defence to Statement of claim, but this may come later.

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ACICA Rules

6. Parties may be represented8-16 Appointment of arbitrators17-31 Arbitral proceedings. Tribunal may

conduct arbitration as it sees appropriate provided that it treats parties equally and each is given opportunity to present their case.

Usually held in private21 Contents of statement of claim

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What does it all cost?

Appendix A to ACICA rulesNotice of Arbitration Registration fee $2,500Admin fee $1-$500,000 1% of amount in disputeAnd upwardsOver $100m $39,000 plus 0.02% of

amount in dispute above $100m up to maximum $60,000.

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Cost

Cost blowouts in Arbitrator and Party costs can mean Arbitration is as expensive (or, sometimes, more expensive) than transnational litigation.

Sometimes, still attractive / chosen because of other aspects (e.g. confidentiality, or because neither party wants to find itself in the courts of the other).

Attitude of our courts

Mainly supportCare must be taken when drafting to avoid

multi-party, multi-contract and multi-venue disputes.

If arbitration clause too narrow, it may limit range of disputes that can be settled by arbitration

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The Arbitral Tribunal

• How does arbitration process commence• How many arbitrators on Tribunal?• Role of Institution in formation of Tribunal• How is chair chosen?• Can a party object to appointment of an

arbitrator? How?• Who decides on any difficulties?

Assessing Prospective Arbitrators

• CV?• Track record?• Expertise, language, neutral, skills in

procedure of arbitration• Qualifications and experience• Reputation• Cost• Compatibility with other Arbitrators.

Note Local requirements related to other party

Under Arbitration Law of the PRC 1994 (CN), the arbitration commission is required to appoint “fair and honest persons as its arbitrators” and arbitrator must meet one of following:1. Engaged in arbitration work, or worked as a lawyer

or judge for at least 8 yrs2. Engaged in legal research or teaching in senior

positions3. Legal knowledge and engaged in professional work

relating to economics and trade in a senior position.

Conflicts of interest

Arbitrator should disclose as cannot be neutral or be seen to be neutral.

Most legislation relating to arbitration includes a requirement to do so.

Confidentiality

• Proceedings are private unless agreed otherwise….

• Privacy and confidentiality are important reasons for selecting arbitration for commercial organisations.

• Lack of precedents, but some awards made public.

Awards

TYPESJurisdictionPreliminary issue e.g. any applicable statuteInterim-e.g. measures of protectionPartial award dealing with some claimsConsent awardDefault award-e.g. a party fails to appearFinal award

Enforceability

NY Convention

An attractive feature over domestic court judgements

ExampleAustralian company entering JV with Malaysian

company to build infrastructure in Phillipines. You negotiate a clause submitting disputes to Australian courts.

However, judgement may not be enforceable (no reciprocal enforcement treaty with Malaysia), dispute very public, and judge may have no expertise.

Arbitral award would be enforceable (Malaysia and Australia both signatories to NY Convention), and can choose arbitrator(s) with expertise

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Another example

Importer of ginger from China. No choice of law clause. No arbitration clause. Ginger rotten.

Bring proceedings in China? Or Australia?Vienna convention applies to sale? Chinese law has closest connection? Chinese law very different to ours. E.g.

limitation periods, no precedent value

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Aust Resources exampleAustralian resources JV obtained international

arbitration award $70m against a Dubai incorporated company for failure to take and pay for numerous shipments of commodities under a long term supply agreement (intended to be resold to Indian Co)…during GFC..when prices fell well below contract prices…London Court of International Arbitration Rules…conducted in London…sole arbitrator…17 months.

Per Mallesons Stephen Jaques report 10/12/2010.

What is arb-med?

A fusion of arbitration and mediation, which has been widely used in China. The neutral third party acts as an arbitrator first, but is allowed to act as a mediator in the same proceedings to assist parties to find a win-win outcome. If parties chose to go to mediation first, but fail to achieve an outcome, they may move to a binding arbitration using the same neutral third party.

Points in favour of arb-med• Cost efficient. Neutral third party knows the

case.• Time efficient-parties who come to mediation

know that if it does not work, they will walk away with a binding award and bring the dispute to an end.

• Maximises opportunity for settlement.• Can be a consent award-enforceable but may

enable friendly and cooperative commercial relationship to continue.

Problems with med-arb

• Perceptions of bias by mediator/arbitrator• Exposure to confidential information in one

process may influence outcome of the other.

• Perceived issues with procedural fairness as mediation process involves one on one meetings with one side without other side being present to hear and rebut.

Australian position on arb-med• Commercial Arbitration Act 2010 (NSW) s.27D

provides an arbitrator with powers to act as a mediator (or conciliator or other non-arbitral intermediary)

• Section contains various measures to minimise objections for apparent bias. e.g. a mediator cannot subsequently act as an arbitrator unless parties have provided written consent. Arbitrator required to disclose material obtained during mediation if they believe it is material to arbitration.

WTO dispute settlement understanding (DSU)

Came out of Uruguay RoundClearly defined rules and timetablesParties/countries first discuss.First WTO stage is good offices, conciliation.Then a panel and endorsed (or rejected) by

WTO membership.Appeals on points of law are possible.

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DSU timetables

60 daysConsultation, mediation45 daysPanel set up, appointments6 mths Panel hears dispute and reports3 wks Panel reports to WTO members60 daysDispute Settlement Body adopts report (if

no appeal) TOTAL 1 year60-90 days Appeals report30 daysDispute Settlement Body adopts appeals

report. TOTAL 1.25 years

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How the panels work• Each side presents case in writing to panel• First hearing-complaining country and

responding country present case• Rebuttals-written and oral• Experts, if appropriate• Draft panel report given to both sides• Interim report to both sides• Review for two weeks• Final report given to both sides and 3 weeks

later to all WTO members

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Remedies?

• Obligation on parties to respect ruling• Trade sanctions possible• Reading some cases is useful e.g. See www.wto.org and go to Case Studies

Thailand: Conciliating a Dispute on Tuna Exports to the ECDispute Settlement between Developing Countries-Argentina and

Chilean Price BandsPakistan’s Dispute Settlement with the US on Combed Cotton Yarn

exports.

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Trade with China

• Australian exports include mainly rural products, minerals and energy-wool, cotton, beef, dairy products, wine, iron ore, liquified natural gas-and a few services in education, tourism, architecture, banking and legal.

• Also considerable outsourced manufacturing done in China with products/components then imported.

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Trade Disputes involving China

Resolution mechanisms include:• Consultation• Negotiation• Conciliation or mediation• Arbitration• Litigation

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Trade Disputes involving China• Less formal methods are preferred• Desirable to maintain a harmonious and

consensual working relationship, so confrontational/adversarial methods often not helpful.

• Conciliation and arbitration therefore common• Arbitration clauses common in JV contracts –

avoid unfamiliar Chinese court system, reduce costs, preserve business relationships, enforceability.

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Trade Disputes involving China

• CIETAC (China’s International Economic and Trade Arbitration Commission) is the mechanism China has set in place to resolve problems in trade

• Legislative encouragement for negotiation and conciliation first and arbitration or litigation if that fails.

• JV contracts MUST contain provisions re settling of disputes.

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International Sales of Goods

Where a contract for sale of goods is between an Australian business and a foreign business in a country a party to the Vienna Convention, the terms of the Vienna Convention/aka CISG applies (by virtue of State Acts), with certain exceptions, unless specifically excluded and prevails over Australian law to the extent of any inconsistency.

CISG applicationIf countries other than Australia are involved

(e.g. VIS Moot 11) students should assume that CISG applies unless specifically excluded and applies via a national law enacted pursuant to the Convention.

Note that for the purposes of this module, certain subtleties of CISG application are glossed over to enable a general view to be given in one module.

In practice, these subtleties may have significance.

CISG

Applies:Where law of the contract is law of a party to the

convention. Students can assume in this course that that is always so.

CISG does not applyTo sales of goods bought for personal, family or

household use, auction sales, sales of financial instruments and securities, ships, electricity and sales by authority of law.

Sale of Goods

Note that CISG applies to sales of GOODS

Do we have contracts for the sale of goods in VIS Moot 11?

CISGSeller to deliver goods and any documents (Arts 31-34) of

the quantity, quality, description, packaging required by contract (Art 35). Partial and excessive delivery (Art 51,52). Goods must conform. If seller does not meet obligations, buyer may compel performance, claim damages or reduce price. Buyer may fix additional time (Art 47) or declare contract avoided (Art 49) Buyer may reduce price for non conformity (Art 50). Buyer obliged to pay price and take delivery (Arts 53,60). Unpaid seller remedies (Arts 61). Arts 54-59 deal with determining price when not fixed. Seller may compel buyer to pay price or take delivery (Art 62) or fix additional period for performance (Art 63). Seller can avoid contract for fundamental breach (Arts 64,25). Anticipatory breach and instalment contracts dealt with in Arts 71-73. Damages covered by Arts 74-77.

Formation of Contract

While Agreement (offer and acceptance) and intention to be bound are elements of a contract under the Convention, consideration is not a necessary element.

See Article 23

Offer • Offer must be sufficiently definite and indicate an intention to be bound…indicate goods,price and quantity. Article 14

• Offer to be interpreted “according to the offeror’s intention as perceived by the offeree”

• Offer becomes effective when it reaches offeree. Article 15

• Offer can be revoked if revocation reaches offeree before they have dispatched acceptance. Article 16

• Offer terminated when rejection reaches offeror. Article 17

Acceptance

Acceptance is statement or conduct indicating assent to an offer. Article 18

Acceptance effective as soon as it reaches offeror. An acceptance which attempts to modify an offer is

a counter-offer and a rejection of original offer. Article 19

Subjective intent important and parol evidence can be used, even if written contract meant to be complete record-different to local law.

Modification and usage

Can be modified by agreement. Article 29

A failure to object to a unilateral attempt to modify does not constitute agreement.

Parties bound by any usage they have agreed or any practices they have established between themselves. Article 9

ConformitySeller must deliver goods which are of the quantity, quality

and description required by contract and in containers or packaging required by Contract. Article 35.

In the absence of agreement to contrary, goods do not conform unless

• they are fit for the purposes for which goods of the same description would ordinarily be used

• fit for any particular purpose made known.• Have same qualities as any sample• Packaged in manner usual for such goods or if no such

way, adequate to preserve and protect goods.Note details in Article 35.

Liability for non conformitySeller liable for nonconformity existing at the time risk

passes even if only becomes apparent later. Article 36

Also liable for nonconformity occurring after risk has passed due to a breach of any seller obligation.

If delivered prior to delivery date, seller can make up deficiency or part to time of delivery. Article 37

Buyer must examine goods for nonconformity within shortest period practicable Article 38

Buyer must notify non conformity or lose right to rely on it. Article 39

If goods do not conform, buyer may reduce the price in certain circumstances. Article 50

Article 35The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract. Except where the parties have agreed otherwise, the goods do not conform with the contract unless they:(a) are fit for the purposes for which goods of the same description would ordinarily be used; (b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement; (c) possess the qualities of goods which the seller has held out to the buyer as a sample or model; (d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity.

Liability for third party claims

Seller must deliver goods free from rights or claims of third parties. Article 41

Seller must deliver goods free of IP claims. Article 42

Buyer cannot rely on these provisions unless they give notice. Articles 43,44.

Payment

Buyer must pay price, including take steps required by contract or law to enable payment to be made. Articles 53,54.

In absence of price deemed to have agreed comparable price. Article 55

Buyer not bound to make payment until given the opportunity to examine goods, and other payment details. Article 58.

Delivery

Seller must deliver and transfer property in goods. Article 30.

If place not specified, provisions in Article 31.Date –on date specified or within range

specified or reasonable time after contract. Article 33

Buyer must take delivery as required. Article 53, including all acts reasonably expected to enable delivery. Article 60.

Risk

Loss or damage to goods after risk has passed to buyer does not discharge obligation to pay unless loss or damage caused by seller’s act or omission. Article 66

Where carriage included, risk passes when handed to first carrier. Article 67

See also 68, 70.

Exemptions

See Article 79.Party not liable for failure due to an

impediment beyond their control Article 79

Party who fails to perform must notify other party of impediment. If notice not received within reasonable time, defaulting party is liable for damages resulting.

Anticipatory breach

Article 71.A party may suspend performance if, after

entry into contract, it becomes apparent that the other party will not perform a substantial part of their obligation as a result of a serious deficiency in their ability to perform or creditworthiness or their conduct in performance or preparation.

Must give notice.

Fundamental breach

Article 25A fundamental breach results in such

detriment to other party as substantially deprives them of what they are entitled to expect BUT not fundamental breach if party in breach did not foresee, and a reasonable person would not have foreseen such a result.

Buyers remedies

Exercise rights provided by Articles 46-52-require performance, give an extension, require nonconformity to be remedied, avoid contract or reduce price.

And/or

Claim damages. Article 45

Seller Remedies

Exercise rights Articles 62-65

require performance, given an extension, avoid contract or make a specification

Damages. Article 61

AvoidanceNo automatic avoidance.

Must be declaration.

Avoidance releases parties from contract obligations subject to damages, but does not affect terms re dispute settlement or rights and obligations on avoidance.

See Articles 72, 64, 49 for circumstances when declarations of avoidance can be made.

See Article 73 re instalment deliveries.

Mitigation

Article 77A party who relies on a breach of contract must

take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated.

Damages and measureArticles 74,75

Meant to provide equivalent of benefit of bargainMust be capable of calculationLost profits recoverable

Can recover interest Article 78

Specific performance determined under domestic law Art 28

Restitution Article 81.

VIS Moots

Useful as a study tool for:

• Conduct of International Arbitration

• International disputes involving sales of goods

See http://www.cisg.law.pace.edu for copies of problems and memoranda for claimant and respondent.

VIS Moot 11Winter Semester 2014

See www.cisg.law.pace.edu for copies of the facts, clarification of facts, and memoranda

referred to in these slides for claimant (Heidelberg University) and respondent (National

University of Singapore)

Disputing parties

ClaimantEquaPack Inc-a packager of foodstuffs for other companies

RespondentMedi-Machines SA-manufacturer of machinery including dry food packaging equipment

•Both countries parties to CISG and New York Convention

Claimant says….Claimant, EquaPack Inc purchased packaging machinery from Medi-Machines S.A.Claims they were not in conformity with the contract in breach of CISG 35(1) and (2)(a) and the non conformity was so serious that it was a fundamental breach (CISG 25).See statement of facts and Memorandum of Claimant pp.15-28.

Respondent says….

No breach of CISG 35 because machines in conformity at time of conclusion of contractNo mention of use for packaging salt prior to conclusion of contract.No duty to inform machines not suitable for packaging corrosive materials-salt in this case.No fundamental breachSee Memorandum for Respondent pp 3-16.

Arbitration Clause15. Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Vindabona, Danubia in accordance with the Arbitration Rules of Singapore International Arbitration Centre (SIAC Rules) for the time being in force which rules are deemed to be incorporated by reference to this clause.The Tribunal shall consist of three arbitrators.The governing law of the contract shall be the United Nations Convention on Contracts for the International Sale of Goods (CISG). All matters not governed by the CISG shall be governed by such rules of international commercial law deemed appropriate in the circumstances.The language of the arbitration shall be English.Danubia has adopted the UNCITRAL Model Law on International Commercial Arbitration without amendment. Danubia, Equatoriana and Mediterraneo are all party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

VIS Moot 20Winter 2013

The commercial contractMediterraneo Exquisite Supply Co (MES) is subsidiary of Oceania and Atlantica Megastores and procures clothing needed by its parent companies. Oceania supplies leisure clothing to famous brand houses, supermarkets and has its own retail operation. Equitoriana Clothing Manufacturing Ltd (EC) is a manufacturer.Contract between MES and EC for 100,000 polo shirts. Late delivery. Child labour.

Arbitration clause-Art 19 of contractAny dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be settled by institutional arbitration administered by the Chinese European Arbitration Centre (CEAC) in Vindabona, Danubia in accordance with the CEAC Hamburg Arbitration Rules…..(a), (b), (c), (d) and (e).

Applicable law-see 31,32 problem p. 10

Article 20 of ContractThis contract shall be governed by the United Nations Convention on Contracts for the International Sale of Goods of 1980(CISG) without regard to any national reservation, supplemented for matters which are not governed by the CISG, by the UNIDROIT Principles of International Commercial Contracts and these supplemented by the otherwise applicable national law.

The complaint & CISG Articles

Late delivery contrary to Contract-Art 33(a)

Shirts not of quality required by contract andUnfit for purpose-Art 35

Fundamental breach-Art 25,49,74,77

Entitled to damages-Art 45,74,77

The damages claimed

USD 27,500 for late delivery of the polo shirts-Article 10 of contractUSD 550,000 reimbursement of purchase price pursuant to right to avoid for fundamental breachUSD 850,000 settlement with Doma CirunUSD 700,000 settlement with OceaniaTOTAL USD 2,217,000

Sample Arbitration issues• Was there a valid agreement to Arbitrate?• What was the relevance of the Art 96 CISG

reservation by Mediterraneo?• Why was there so much debate over

interpretation of Art 20 of the Contract?• What uncertainties over applicable law were

discussed?• Was the arbitral tribunal properly constituted?• What issues were relevant to enforcement of

any favourable arbitral award?

VIS Moot 18Discussed in a previous semester

The commercial contractTrawler sells supplies to fishing fleets, including

bait to long line fisheries and produces wet salted and dry salted fish for human consumption.

Fishing owns a fishing fleet and purchases product from other fisheries. It catches and purchases squid which it sells for both bait and human consumption.

Fishing agreed to supply squid to Trawler, which it onsold to the long line fleet.

The complaint

Trawler complains that Fishing has failed to deliver squid in conformity with the contract description.

When out at sea the fishing fleets discovered that most of the squid was too small to function properly as bait. They refused to purchase any more. The squid could not be sold for human consumption.

Fishing denies the claim.

The arbitrationIs there an arbitration clause?See sales confirmation:Dispute SettlementAll disputes arising out of or related to this contract

shall be settled by arbitration under the Rules of the Chamber of Arbitration of Milan (the Rules), by three arbitrators. Each party shall appoint one arbitrator and the two arbitrators shall appoint the presiding arbitrator. The arbitration will be conducted in the English language. The place of arbitration is Vindobona, Danubia.

The law governing the Contract

No choice of law clause. Ramifications?All countries are party to CISG.International Contract, sale of goods, not

within personal etc exclusion.So CISG applies and governs contract.All countries are party to New York

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

Relevant CISG provisionsWhat articles of CISG are relevant to issues?Art 8-interpretationArt 35-squid conforms?Art 38-examinationArt 26, 39, 49-noticeArt 40-knowledge of facts related to conformityArt 77-mitigation of lossArt 25-Fundamental breachArt 45,74, 77,81,85-compensation

VIS Moot 21

Summer 1314

Facts of VIS Moot 21Dealings between Hope Hospital and Innovative Cancer Treatment LtdPurchase of Proton treatment facility (Framework and Sales Agreement), and later Active scanning technology (Sale and Licensing Agreement).Hope refused to make further and final payments, complaining of misrepresentation concerning viability of proton treatment and faulty software in the new active scanning technology.ICT deny the claims and demand payment in full.

CISG

ICT claims Hope is obliged to pay pursuant to:Article 14Article 53Article 61Article 63

Article 14 (1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price.(2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.

Article 53

The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention.

Article 61 (1) If the buyer fails to perform any of his obligations under the contract or this Convention, the seller may: (a) exercise the rights provided in articles 62 to 65;(b) claim damages as provided in articles 74 to 77.(2) The seller is not deprived of any right he may have to claim damages by exercising his right to other remedies.(3) No period of grace may be granted to the buyer by a court or arbitral tribunal when the seller resorts to a remedy for breach of contract.

Article 62

The seller may require the buyer to pay the price, take delivery or perform his other obligations, unless the seller has resorted to a remedy which is inconsistent with this requirement.