14 th Annual Willem C. Vis (East) International Commercial Arbitration Moot Hong Kong Memorandum for CLAIMANT Center for Arbitration and Mediation of the Chamber of Commerce Brazil - Canada Wright Ltd. v. SantosD KG Abdul Ameer Faheem • Gharsanay Amin • Munira Aziz Niyaz Muhammad Nickkhah • Sadaf Baseer • Samiullah Sharifi American University of Afghanistan (AUAF) On behalf of Write Ltd. 232 Garrincha Street Oceanside Equatoriana CLAIMANT Against SantosD KG 77 Avenida O Rei Cafucopa Mediterraneo RESPONDENT
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Memorandum for CLAIMANT - · PDF file17.10.1995 · Memorandum for CLAIMANT III 3. RESPONDENT’s request for security for cost is out of time based on the CAM-CCBC Rules
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14th Annual
Willem C. Vis (East) International Commercial Arbitration Moot Hong Kong
Niyaz Muhammad Nickkhah • Sadaf Baseer • Samiullah Sharifi
AmericanUniversityofAfghanistan(AUAF)
On behalf of
Write Ltd.
232 Garrincha Street
Oceanside
Equatoriana
CLAIMANT
Against
SantosD KG
77 Avenida O Rei
Cafucopa
Mediterraneo
RESPONDENT
Memorandum for CLAIMANT
II
Table of Contents
Table of Contents.......................................................................................................................................II
TABLE OF ABBREVIATIONS..............................................................................................................IV
INDEX OF LEGAL AUTHORITIES...................................................................................................VIII
INDEX OF CASES..................................................................................................................................XX
LEGAL SOURCES AND MATERIAL..............................................................................................XXVII
STATEMENT OF FACTS........................................................................................................................1
SUMMARY OF ARGUMENTS...............................................................................................................2
ISSUE ONE: CLAIMANT INITIATED THE ARBITRATION PROCEEDINGS ON TIME AND WITHIN 60 DAYS PERIOD SPECIFIED IN SECTION 21 OF THE DSA.........................................3
A. CLAIMANT'S ARBITRATION REQUEST IS ADMISSIBLE BECAUSE IT MEETS ALL THE REQUIREMENTS UNDER SECTION 21 OF DSA.................................................................4
1. CLAIMANT tried to resolve the dispute amicably in good faith through negotiation by considering the first step of dispute resolution mechanism adopted in section 21...........4
2. CLAIMANT initiated the arbitration proceedings on time considering the 60 days limitation set of on section 21 of DSA after the failure of negotiation...................................6
B. CAM-CCBC, THE GOVERNING RULE FOR THE CONTRACT COMPLIES WITH THE ARBITRATION REQUEST OF CLAIMANT..........................................................................7
C. THE INTERNATIONAL ARBITRATION PRACTICES DEEMS THE ARBITRATION PROCEEDINGS ON TIME AND ADMISSIBLE...............................................................................9
1. International arbitration practices are adopted in section 21 of the DSA which further accepts the day of commencement of arbitration on the day request is received by the administrator........................................................................................................................9
2. CLAIMANT's arbitration request meets the tests provided under Article 3 of CIArB........................................................................................................................................10
ISSUE TWO: THE ARBITRAL TRIBUNAL’S POWER IS LIMITED TO GRANT SECURITY FOR RESPONDENT’S COST UNDER DSA, TERMS OF REFERNCE AND THE GOVERNING RULES IN LINE WITH INTERNATIONAL ARBITRATION PRACTICES..................................11
A. UNDER THE DSA, TOR AND GOVERNING RULES SUCH AS CAM-CCBC AND UNCITRAL MODEL LAW, RESPONDENT IS NOT ELIGIBLE TO RECEIVE SECURITY FOR ITS COSTS..................................................................................................................................11
1. Silence of Development and Sales Agreement constitutes parties agreement on exclusion of security for cost....................................................................................................12
2. RESPONDENT’s request for security for cost was not included in the ToR............12
Memorandum for CLAIMANT
III
3. RESPONDENT’s request for security for cost is out of time based on the CAM-CCBC Rules..............................................................................................................................13
4. UNCITRAL Model Law limits the Tribunal’s power to award security for RESPONDENT’s costs.............................................................................................................14
B. THE INTERNATIONAL ARBITRATION PRACTICES LIMIT ARBITRAL TRIBUNAL’S POWER TO ORDER SECURITY FOR RESPONDENT’S COSTS.....................15
1. RESPONDENT failed to provide the likelihood of success for its claim in a prima facie test under Art. 2 of the CIArB........................................................................................15
2. RESPONDENT failed to show that CLAIMANT does not have funds to pay an adverse costs award..................................................................................................................17
3. RESPONDENT’s request to provide security for its cost is unfair under Art. 4 of CIArb........................................................................................................................................19
ISSUE THREE: CLAIMANT IS ENTITLED TO THE FULL PAYMENT IN THE AMOUNT OF US $22,723, 800 FOR THE FAN BLADES AND US$ 102,192.80 FOR THE FEE DEDUCTED FOR BANK CHARGES BASED ON THE DSA............................................................................................21
A. DSA, CISG AND UNIDROIT PRINCIPLES ENTITLE CLAIMANT TO THE FULL PAYMENT OF PURCHASE PRICE FOR THE FAN BLADES IN THE AMOUNT OF US$ 22,723, 800.............................................................................................................................................22
1. Parties’ intention behind adding fixed exchange rate provision in the addendum was only to govern the sale of the clamps, not the fan blades......................................................22
2. CISG entitles CLAIMANT to the full purchase price in the amount of US$22,723, 800 26
B. RESPONDENT IS OBLIGED TO PAY THE BANK CHARGES IN THE AMOUNT OF US$ 102,192.80 BASED ON THE DSA AND CISG..........................................................................28
1. Section 4(3) of the DSA obliges RESPONDENT to pay the levy charges in the amount of US$ 102,192.80........................................................................................................29
2. Art. 54 of CISG requires RESPONDENT to take all enabling steps, including paying the levy charges to make the full deposit of purchase price to CLAIMANT..........31
3. RESPONDENT’s analogy of Art.35 (2) CISG is not applicable in the current contract......................................................................................................................................33
CLAIMANT has fulfilled this obligation, and the arbitrators shall accept the request for arbitration
as procedurally admissible [Commentary on CIArb. Art.3, P.16].
ii. CLAIMANT initiated the arbitration proceeding within the time bar
limitation provided under the DSA, making it enforceable
43. Article 3 of CIArb obliges the arbitrators to examine the wordings of the arbitration clause and
determine whether the clause applies any limitations [Commentary on CIArb. Art. 3, P.16, Para.
(c)]. Section 21 of DSA, explicitly provides time limitation within which an arbitration request is
to be initiated [Clm, Ex.C1, P.11], which was respected by CLAIMANT and the initiation was on
time [Ord of Pr. P.19, para. 1; NCAP, P.22, para. 1]. The president's order and the notice of
commencement of arbitration are evidences that the arbitration proceedings were initiated on time,
for that it is admissible. [Ord of Pr. P.19, para. 1; NCAP, P.22, para. 1].
44. To conclude, based on the aforementioned laws and facts CLAIMANT tried to resolve the dispute
amicably in good faith through negotiation. When RESPONDENT did not show willingness to
Memorandum for CLAIMANT
11
amicable resolution, CLAIMANT was left with no other choice other than initiating the arbitration
proceedings. Furthermore, CLAIMANT sent the arbitration request on May 31, 2016 after the
failure of negotiation on April 1, 2016. May 31, 2016 shall be deemed to be the date of the
commencement of arbitration based on DSA, CAM-CCBC, and International Practices.
ISSUE TWO: THE ARBITRAL TRIBUNAL’S POWER IS LIMITED TO GRANT SECURITY
FOR RESPONDENT’S COST UNDER DSA, TERMS OF REFERNCE AND THE
GOVERNING RULES IN LINE WITH INTERNATIONAL ARBITRATION PRACTICES
45. RESPONDENT requested payment for security of its costs that it is likely to incur in this
arbitration proceedings. The amount requested covers both RESPONDENT’s legal costs for
services of its lawyer and expenses of arbitration including oral hearing, witnesses and experts. As
a first estimation, RESPONDENT requests for a minimum of US $ 200,000 [SFC, P.46, Para. 1].
46. No provision in the Development and Sales Agreement allows the parties for security for cost.
RESPONDENT is not entitled to the security for its costs because it does not meet the general
requirements and the standard conditions provided in the governing rules of the DSA. Therefore,
the Arbitral Tribunal’s power is limited to award RESPONDENT security for its cost.
RESPONDENT’s request is not in line with DSA, Terms of Reference (ToR), and governing rules
such as CAM-CCBC and UNCITRAL Model law (A). Furthermore, RESPONDENT failed to
meet elements of the tests and exceptional circumstances, which are prerequisite for such an award
under Chartered Institute of Arbitrators (CIArB) Guideline on Application of Security for Costs
and other relevant rules (B).
A. UNDER THE DSA, TOR AND GOVERNING RULES SUCH AS CAM-CCBC AND
UNCITRAL MODEL LAW, RESPONDENT IS NOT ELIGIBLE TO RECEIVE
SECURITY FOR ITS COSTS
47. The nature of this case and the laws adopted in the contract limit the authority of the Tribunal to
order security for RESPONDENT's cost. As per Ludmilla Herbst, a well-known litigator,
“Arbitrators have long been recognized as lacking inherent power to order security for costs”
[Ludmilla Herbst, the Lawyers Weekly]. Similarly, Stephen Colbran, puts more emphasize that the
arbitrators possess very limited power to grant security for cost [Stephen, P.275].
48. The Development and sales Agreement signed between parties, does not empower the Tribunal to
grant and award such a request (1). Terms of Reference as a core document of arbitration
Memorandum for CLAIMANT
12
proceeding further limits Arbitral Tribunal’s power to award the request (2). CAM-CCBC the
governing law in this particular case also limit the Tribunal’s authority (3). UNCITRAL Model
Law further puts limitation on the Tribunal for granting security for RESPONDENT’s cost (4).
1. Silence of Development and Sales Agreement constitutes parties agreement on
exclusion of security for cost
49. Development and Sales Agreement, which is the base for the relationship between the parties is
silent about security of cost and therefore it does not authorize the Arbitral Tribunal to grant
security for RESPONDENT’s cost [Clm, Ex.C2, P.11]. As per Art. 25 (4) of London Court of
International Arbitration (LCIA) Rules which states, “by agreeing to arbitration under the
Arbitration Agreement, the parties shall be taken to have agreed not to apply to any state court or
other legal authority for any order for security for Legal Costs or Arbitration Costs” Several
courts in United States have rejected security for cost request in the recent years because they were
in contrary with the arbitration agreement of parties [Charles et al. P.24].
50. Moreover, Art. V (1) (c) of the New York Convention and UNCITRAL commentaries also
underscores that the Arbitral Tribunal’s power is derived from consent of parties and therefore
Tribunal cannot exercise its power if the parties agreement does not exist on granting interim
measures [Kluwer Law International, Nicola Christine et al.; The UNCITRAL Arbitration Rules:
David D. Caron et al. , P.517]. These provisions clearly indicate that parties should follow their
Arbitration agreement as mentioned in the contract and RESPONDENT’s request is not included
in the Arbitration agreement section 21 of DSA.
2. RESPONDENT’s request for security for cost was not included in the ToR
51. Parties signed ToR for this Arbitration proceeding on August 22, 2016 [SoC, SFC, P.49, Para.2];
however, 15 days later on September 6, 2016 RESPONDENT submitted request for security of its
costs. Parties did not include security for cost request even in the ToR, which is the core document
of arbitration proceedings, which highlights that the parties agreed to exclude security for cost.
52. Furthermore, the request for security for cost after signing the ToR falls outside the limits of the
DSA. ICC Art. 19 provides that no new claim can be made after the ToR is signed, because it falls
outside the limits of the Terms of Contract. As per Julian D M Lew the author of Comparative
International Commercial Arbitration, ToR is a significant element of arbitration proceedings and
it is a pre-requisite for the initiation of arbitration. The key purpose of ToR is to specify claims
Memorandum for CLAIMANT
13
and subject matter [Julian, Chap. 21, P.528]. In addition, she further emphasizes, “…this is to stop
the parties from continually changing the content and nature of the claims” [Julian, Chap. 21,
p.528].
53. Similarly, in case Maffezini v. Spain in 1999 under ICSID rules, the Arbitral Tribunal rejected
RESPONDENT’s request for security of its costs, on the grounds of not being related to the subject
matter [Maffezini v. Spain (1999)]. In this current case, RESPONDENT’s request is not included
in subject matter fixed in the ToR. RESPONDENT’s request for security of its costs contradicts
with the key purpose of the ToR. The parties specified the claims and the subject matter of the
dispute in the ToR but security for cost was not included. The importance of ToR is further
highlighted in CAM-CCBC’s rules which is the main governing rule of this arbitration proceeding.
3. RESPONDENT’s request for security for cost is out of time based on the CAM-
CCBC Rules
54. Art. 4.21 of CAM-CCBC underlines that, “parties can change, modify or amend the claims and
causes of action until the date the Terms of Reference are signed.” This article does not allow the
Tribunal to decide on any issue brought before them after the ToR is signed. The importance of
ToR is more elaborated in the commentary of Art. 4.21, which deems ToR as core document of
arbitration proceedings. Further, it put emphasis that if there is any action taken against the ToR,
it will be subject to be challenged in the national courts [Wald et al., P.65]. Likewise, Julian
articulates, “the terms of reference are binding not only on the parties, but also on the arbitrators,
who must comply with parties’ intensions” [Julian, Chp. 21, P.529]. Taking that into
consideration, RESPONDENT’s request is late and is not in line with the ToR provisions.
55. RESPONDENT may raise that Art. 8.1 of CAM-CCBC Rules empowers Arbitral Tribunal for
granting provincial measures including injunctive and anticipatory. Nonetheless, security for cost
is used in a very restrictive manner and with greatest reluctance, further it is granted in exceptional
circumstances [Thomas et al.], however, those exceptional circumstances and tests were not met
by RESPONDENT as it will be more elaborated in following submissions. 56. In case, Burimi S.R.L. and Eagle Games SH.A. Vs. Republic of Albania in 2012 under ICSID
Rules, Arbitral Tribunal rejected respondent’s request for security of its cost because it failed to
prove that circumstances of the case require security for cost or any exceptional circumstances
exist. Respondent failed to prove that claimant has lack of funds [Burimi S.R.L. and Eagle Games
Memorandum for CLAIMANT
14
SH.A. v. Republic of Albania (2012)], similar to that in the current case RESPONDENT did not
provide evidences to show CLAIMANT’s financial insolvency; however, CLAIMANT does not
face any financial insolvency [PO 2, P 60, Para. 31] hence, the request needs to be refrained by
Arbitral Tribunal. Importantly, considering the circumstances of this particular case, UNCITRAL
Model Law also does not provide support to RESPONDENT’s request for security of its costs.
4. UNCITRAL Model Law limits the Tribunal’s power to award security for
RESPONDENT’s costs
57. In section 21 of DSA, the seat of this arbitration is agreed to be Vindobona, Danubia. This country
has enacted the UNCITRAL Model Law on International Commercial Arbitration, which makes
UNCITRAL ML applicable in this case [Clm, Ex.C2, P.11].
58. Art. 17 of UNCITRAL Model Law highlights the lack of international consensus particularly on
security for costs [Wendy/Duncan, P. 33]. This clearly indicates that the Article(s) on security for
costs in UNCITRAL are not a mandatory provisions and it does not allow the parties to expand
the Tribunal’s authority [Holtzmann, Neuhaus, et al., Chp IV, p.530-547]. Furthermore, in some
courts security for costs is not granted under Art. 17 UNCITRAL jurisdictions [Born, Vol. II,
P.2495]. The exercise of security for cost is commonly practiced in England or Commonwealth
jurisdictions. Tribunals without English or Commonwealth orientations are skeptical of their
authority to order security for costs on the bases that security for cost may deprive a party with
limited financial means of the opportunity to pursue its claim [Born, Vol. II, P.2495].
59. Courts in some UNCITRAL ML jurisdictions have held that Art. 17 does not grant authority to
the Arbitral Tribunal to order for security of costs [Born, Vol II, P.2495]. Party that is requesting
security for costs is, at least partly, “responsible for its counter parties financial condition” [Born,
Vol II, P. 2496]. It is important to note that it is currently RESPONDENT who did not perform its
contractual obligations and made CLAIMANT suffer this situation. That is why, the Arbitral
Tribunals are generally hesitant to grant orders for security for costs [ICC case no. 8670 (2000);
CIArB, P. 1, Para. 1]. It is also noticed that UNCITRAL ML from the session reports of the
working group decided not to tackle the matter of security for costs [Miles& Speller, P. 34].
60. Additionally, as per Art. 17 (e), the Arbitral Tribunal deems RESPONDENT’s request unnecessary
and inappropriate, because the financial situation of CLAIMANT has not changed since
conclusion of DSA in 2010 and this arbitration proceeding and CLAIMANT’s financial situation
Memorandum for CLAIMANT
15
is stable [Clm, Ex.C9, P.50, Para. 2]. The request is inappropriate because CLAIMANT has not
been charged of bankruptcy or financial insolvency [PO2, P.60, Para. 31].
61. RESPONDENT raises that based on UNCITRAL Rules on Transparency in Treaty-based Investor-
State Arbitration the Xanadu government awards should have been made public [SFC, P.46, Para.
4]. However, the claims against government of Xanadu was available in CLAIMANT’s balance
sheet [Clm, Ex.C9, P.50, Para. 3]. Importantly, Rogers, a scholar of international arbitration
makes a differentiation between investment arbitration which is raised by RESPONDENT and
commercial arbitration. Investment arbitration is concerned with the public; although, commercial
arbitration is more focused on private [Rogers, Catherine A]. Based on the aforementioned facts
of DSA, Terms of Reference, CAM-CCBC and UNCITRAL Model Law, Tribunal’s power is
limited to grant RESPONDENT’s request for security for cost.
B. THE INTERNATIONAL ARBITRATION PRACTICES LIMIT ARBITRAL
TRIBUNAL’S POWER TO ORDER SECURITY FOR RESPONDENT’S COSTS
62. Under section 21 of Development and Sales Agreement, parties agreed on application of
international arbitration practices [Clm, Ex.C2, P.11]. RESPONDENT’s request for security for
costs is not in line with the international arbitration practices, particularly the Chartered Institute
of Arbitrators Guideline on Application of Security Costs (CIArB), which is the current best
established practice in commercial arbitrations in relation to application for security for cost
[CIArB, P.1, Para. 1].
63. Art. 1 (2) of the CIArB articulates three key elements of the tests to be highly considered by
Arbitral Tribunal before deciding to order security for costs. Unlike, RESPONDENT’s claim for
security for cost does not comply with the three elements of this test. RESPONDENT failed to
present likelihood of success of its claim in a prima facie under Art. 2 of the CIArB (1).
RESPONDENT failed to show CLAIMANT’s inability to satisfy an adverse costs award, under
Art. 3 of the CIArB (2). RESPONDENT’s request for security of its costs would unjustly stifle a
legitimate claim, considering Art. 4 of CIArB (3).
1. RESPONDENT failed to provide the likelihood of success for its claim in a prima
facie test under Art. 2 of the CIArB
64. RESPONDENT failed to provide justifying reasons to be entitled for security for cost award [SFC,
P.49, Para. 2]. RESPONDENT has the burden of proof to provide facts for the support of its
Memorandum for CLAIMANT
16
claims, but it failed to do so. Art. 2 of CIArB states that the arbitral tribunal shall, “Take great care
not to prejudge or predetermine the merits of the case itself.” The commentary further elaborates
this article that, merits of the case shall not be pre-judged and pre-determined by the arbitrators
before the substantive hearings. Otherwise, this would compromise their impartiality and result in
their disqualifications from proceeding further [CIArB, P.5].
65. As per Julian D M Lew, Art. 5 (2) of London Court of International Arbitration (LCIA) Rules, the
arbitrators shall not pre-judge the merits and outcome of the case to any particular party since it
will undermine their independence and impartiality [Julian, p.256, Chap. 11]. Gary B. Born
further states in his book that, “an arbitral tribunal must refrain from prejudging the merits of the
case” [Born, Vol. II, P.2477]. He further mentions that there are doubts that the likelihood of
party’s success on merits has a key role to determine appropriateness of security for cost award
[IBIT].
66. The Vienna Rules Commentary on International Arbitration in Austria requires RESPONDENT
to show a high standard of proof that the CLAIMANT will almost certainly be unable to meet an
award of cost against it. In some existing decisions, the request for security for costs was rejected
as the RESPONDENT was unable to meet the burden of proof and substantiate its allegations that
the CLAIMANT will be unable to pay the costs [Franz/Christian, P.557].
67. If the Tribunal grants security for RESPONDENT’s cost at this preliminary stage of arbitration
proceeding it undermine their impartiality and independence since the decision of this proceeding
is not certain yet. According to Peter Ashford author of International Commercial Arbitration
Handbook, CLAIMANT is accused of financial insolvency by RESPONDENT, which is yet not
proven by the Arbitral Tribunal. Therefore, CLAIMANT is “innocent until proven guilty” [Peter
Ashford, P.383] and shall not be ordered for security of RESPONDENT’s costs. In case Maffezini
v. Spain in 1999, mentioned above, another reason the Arbitral Tribunal rejected RESPONDENT’s
request for security of its costs was because its claims were hypothetical same like
RESPONDENT’s claim in current case [IBIT].
68. In another ICSID Tribunal in Libananco, the case Libananco v. Turkey in 2008, the request for
security for cost was also rejected based on similar grounds of hypothetical claims by the party
[Libananco v. Turkey, 2008]. The mentioned cases share a common ground with the current case.
In all cases the party requesting for security of its costs was claiming on the basis of hypothetical
Memorandum for CLAIMANT
17
understandings. Similarly, RESPONDENT puts hypothetical reasons for its request of security for
costs. Therefore, RESPONDENT’s request is not eligible to be granted by Tribunal.
2. RESPONDENT failed to show that CLAIMANT does not have funds to pay an
adverse costs award
69. RESPONDENT raises that CLAIMANT has not complied with the payment award in the other
CAM-CCBC proceedings on January 2016 [Clm, P.46, Para. 2]. Although, CLAIMANT did not
comply because the award creditor owes an even larger amount to CLAIMANT’s parent company
as damages for the delivery of non-conforming goods. Furthermore, the claim is presently being
litigated in the courts of Ruritania and any sum awarded will be set off against the award [Clm,
P.49, Para. 3]. Likewise, RESPONDENT claims that the non-compliance with the payment order
raises serious doubts as to CLAIMANT’s financial situation, as per the wrongful allegations by
the article in the Carioca Business News. It further puts wrong allegations that CLAIMANT has
apparently done unsuccessful efforts to obtain outside funding for this arbitration [Res, P.46, Para.
3].
70. In an ICSID tribunal in 2010, case RSM production Corporation vs. Government of Grenada, the
Arbitral Tribunal rejected RESPONDENT’s request for security for cost. Like the current case,
RESPONDENT had claim that non-compliance of CLAIMANT with the payment of previous
orders shows that CLAIMANT has no incentive to comply with any award. Tribunal refrained
from granting the request basing that RESPONDENT did not provide sufficient support and proof
for such a conclusion [RSM production Corporation vs. Government of Grenada (2010)]. Hence,
the allegations in Carioca Business News are not reliable and does not meet the balance of
probability and are not based on merits [Clm, Ex.C9, P.50, Para. 2].
71. Under same tribunal, ICSID, in case Atlantic Triton, Tribunal refused granting security for
RESPONDENT’s cost because RESPONDENT did not provide reasons that the government of
Guinea would not perform its obligation if the final award hold it responsible [Republic of Guinea
v. Atlantic Triton Company (1986); Katia Yannaca]. Hence, taking these practices into
consideration, REEPONDENT’s request shall not be granted on the grounds that it could not
provide evidence and wrongfully put allegations on non-compliance of CLAIMANT.
72. Stephen Colbran, author of Security for Costs against Corporations mentions that RESPONDENT
must provide a credible evidence to prove CLAIMANT is unable to pay the security for cost
Memorandum for CLAIMANT
18
granted against it [Stephen Colbran, P.275]. In case, Burimi S.R.L. v. Albania decided by ICSID
Tribunal in 2012 was rejected because RESPONDENT’s claim was alleged without proving the
bankruptcy of CLAIMANT. Nonetheless, in the current case, RESPONDENT puts wrongful
allegations that CLAIMANT is under financial insolvency and bankruptcy. Even though,
CLAIMANT is not under any bankruptcy explicitly highlighted in Procedural Order 2 [PO2, P.60,
Para. 31]. Therefore, similar to Burimi S.R.L. v. Albania case, RESPONDENT’s requested is to
be rejected by Tribunal.
73. Essentially, CLAIMANT’s financial situation has been stable since 2010 until current arbitration
proceeding as provided, “The financial situation of Wright Ltd has not changed substantially or
unexpectedly between the conclusion of the Development and Sales Agreement in 2010 and the
initiation of these arbitration proceedings” [Clm, Ex.C9, P.50, Para. 2]. As per Yearbook
International Arbitration, RESPONDENT is required to prove that there has been a fundamental
change in financial situation of CLAIMANT [YIA, Vol III, P.167 Para (c)].Yesilirmak, a legal
scholar, further emphasizes that RESPONDENT will be awarded security for its costs, if there is
a change in the circumstance of CLAIMANT’s financial situation from the time parties signed
agreement [Ali Yesilirmak]. However, RESPONDENT was not able to provide evidence on
financial insolvency of CLAIMANT.
74. In an ICC Case no. 10032, in Zurich, Yugozalvia vs. Serbia, regarding the international embargo
declared in 1999 by the European Union on the Federal Republic of Yugoslavia and the
Government of the Republic of Serbia, the arbitral tribunal, explicitly expressed that
RESPONDENT need to show “that the factual situation at the present time is substantially
different from that which existed at the time the parties entered into their arbitration convention”
[ICC Case no. 10032], Similar to this case, CLAIMANT’s financial situation has not been changed
from the time of contract conclusion and this arbitration proceeding.
75. Moreover, CLAIMANT has access to sufficient financial resources which makes its financial
situation rock solid and paves the way to satisfy any cost award [Clm, Ex.C9, P.49]. Furthermore,
CLAIMANT has not been charged of any financial insolvency and bankruptcy [PO2, P.60, Para.
31]. RESPONDENT request for security of its cost is around USD $ 200,000; however,
CLAIMANT is one of the largest aircraft industry and is involved in large transactions. For
example, CLAIMANT has the US$ 12 million received from Xanadu government [PO2, P.58,
Memorandum for CLAIMANT
19
Para. 28]. Additionally, as per Art. 3 of the CIArb, if CLAIMANT has assets that will enable it to
pay the costs awarded, arbitrators shall refrain from granting security for cost. Hence, CLAIMANT
not only has other financial resources highlighted above but also assets for instance, development
work which went for TRF 305 reflected an increase in the position of assets for the CLAIMANT
[PO2, P.59, Para. 28]. This shows the ability of CLAIMANT to pay any costs awarded.
76. According to Handbook of ICC Arbitration Commentary, Precedents, Materials, security for cost
can be ordered only in exceptional circumstances. For instance, when there is a sufficient, clear
and present danger that CLAIMANT will not be able to provide the expenses because of its
insolvency. This, however, must be proved by RESPONDENT [Webster et al. P.432].
77. Echoing these concerns, a Tribunal sitting in Paris in 2006 rejected RESPONDENT’s request for
security costs in an ICC case No. 13070. This rejection was based on the lack of any exceptional
circumstances in RESPONDENT’s request. The Tribunal expressed that RESPONDENT failed to
provide specific and sufficient proof [ICC case No. 13070 (2006) P.434]. This is similar to the
current case, as RESPONDENT is unable to prove its claim and as well it does not meet any
exceptional circumstances.
3. RESPONDENT’s request to provide security for its cost is unfair under Art. 4 of
CIArb
78. Although RESPONDENT claims that ordering security for cost is necessary to efficiently protect
its rights [Res, P.46, Para. 5], CLAIMANT’s right to fully present its claim must also be protected.
Art. 4 of the CIArb states, “arbitrators should consider whether awarding security would unjustly
stifle a legitimate and material claim”. This is further highlighted by A.O. Rhodes Vivour author
of Security for the RESPONDENT’s Costs of Arbitral Proceedings with Particular Reference ACA
that CLAIMANT’s right to access the court shall be protected, if CLAIMANT is deprived of
access to court, it is unfair [A.O. Rhodes – Vivour].
79. The members of the drafting committee of CIArB state that the conduct of RESPONDENT should
be taken into account both before and during the Arbitration proceedings to determine fairness.
For instance, if the lack of funding has been caused by conduct of RESPONDENT, it would be
unfair to award security for cost request [Commentary of CIArB. P.32]. Here, the Tribunal should
deem award of security for cost unfair because lack of funding is caused by RESPONDENT’s
nonperformance of its contractual obligation. “CLAIMANT does not face any financial insolvency,
Memorandum for CLAIMANT
20
even if CLAIMANT faces with any lack of funding, it has been caused by RESPONDENT who had
not paid the price due under the Development and Sales Agreement” [Clm, P.49, Para. 4]. Weixia
Gu as well indicates that it is unfair if CLAIMANT’s financial situation is caused by the improper
behavior of RESPONDENT and in that instance Arbitral Tribunal needs to reject the request for
security for cost [Weixia Gu].
80. Furthermore, Swiss law and jurisdictions have been among the most reluctant ones toward security
for costs as one of the international practices which is also agreed by parties [Jean-Baptiste
Pessey]. In A. S.p.A. v. B AG case, arbitration proceedings conducted under the Rules of
Arbitration of the Geneva Chamber of Commerce and Industry, the CLAIMANT had applied for
security for costs on the grounds that the CLAIMANT had filed for liquidation after the start of
the proceedings. The tribunal refused to order security for costs and considered that the
CLAIMANT’s insolvency was a normal commercial risk that the RESPONDENT should bear [A.
S.p.A. v. B AG]. Similarly, in above mentioned case, Tribunal refused security for cost request on
the grounds of financial insolvency claim considering it normal commercial risk. Therefore,
Tribunal’s power is limited to grant RESPONDENT security for cost [Clm, Ex.C9, P.50, Para. 2].
81. According to CIArb Art. 4, “applications for security for costs should be made promptly, that is,
as soon as the risk or facts giving rise to the application are known or ought to have been known.”
Arbitrators should consider whether an application has been made at an appropriate time. If the
application is made after significant expense has been incurred, they may consider that this unfairly
disadvantages the other party and refuse the application and RESPONDENT’s claim is not in
compliance with the requirements set in Art. 4 (1) of CIArB.
82. RESPONDENT’s claim for security of its cost is similar to American Cyanamid Co vs. Ethicon
LTD case, decided in the UK House of Lords. In that case, one party requested for interim measures
to prevent the other party of infringing their patent. The party requesting for interim measures was
relying on balance of convenience but there was no rule that the court must first look at the
prospects of success of each party. Lord Diplock developed a set of guidelines for granting interim
measures whether an applicant’s case merited the granting of interim measures.
83. Lord Diplock rules that RESPONDENT must show that it is likely to win the case. RESPONDENT
is requesting interim measure without demonstrating enough evidence to win the arbitration. Even
if the RESPONDENT could present enough evidence, based on the holding of American
Memorandum for CLAIMANT
21
Cyanamid case law; it’s not required to order security costs based on the following three reasons.
First, there is no ruling for interim measures at this stage of proceeding. Second, there is no ruling
for balance of convenience to compel the Arbitral Tribunal to consider who is likely to succeed in
the case. Third, RESPONDENT’ claims on CLAIMANT’s financial position are inaccurate
[American Cyanamid Co vs. Ethicon LTD].
84. In conclusion, the Development and Sales Agreement, Terms of Reference, CAM-CCBC rules,
UNICTRAL Model and the International Rulings, particularly the International Chartered of
Arbitration guideline on Security for Cost limits the authorities of the Arbitral Tribunal to grant
security for RESPONDENT’s cost, and the Tribunal is requested not to order CLAIMANT for
RESPONDENT’s cost.
ISSUE THREE: CLAIMANT IS ENTITLED TO THE FULL PAYMENT IN THE AMOUNT
OF US $22,723, 800 FOR THE FAN BLADES AND US$ 102,192.80 FOR THE FEE
DEDUCTED FOR BANK CHARGES BASED ON THE DSA
85. In 2010, CLAIMANT and RESPONDENT were in negotiations to jointly develop a new fan blade.
During finalization of their DSA, the final production cost of new blades were uncertain. However,
RESPONDNET insisted to fix a maximum price to be paid so that it could offer itself a price for
engine to Earhart [Clm, Ex.C1, P.8]. Taking that into consideration, parties agreed on a formula
fixing a maximum and minimum price for the blades [Clm, Ex.C2, P.10], which also served as the
basis for risk sharing.
86. The DSA section 4 (1) requires RESPONDENT to pay the purchase price in full amount. The full
purchase price for the blades is USD 2,285,240.00; nevertheless, RESPONDENT made the
payment in the amount of USD 20,336,367.20 [Clm, Ex.C3, P.12]. Moreover, DSA explicitly
provides the agreement of parties that the bank charges must be borne by the buyer, which
RESPONDENT failed to meet its obligation.
87. In the following, CLAIMANT will submit that according to DSA, CISG, and UNIDRIOIT
principles, it is entitled to the full payment of purchase price for the fan blades in the amount of
USD 22,723, 800 (A). DSA and CISG further obliges RESPONDENT to pay bank transfer charges
in the amount of USD 102,192.80 (B).
Memorandum for CLAIMANT
22
A. DSA, CISG AND UNIDROIT PRINCIPLES ENTITLE CLAIMANT TO THE FULL
PAYMENT OF PURCHASE PRICE FOR THE FAN BLADES IN THE AMOUNT
OF US$ 22,723, 800
88. CLAIMANT incurred costs in the amount of EQD 19,586 per fan blade [Clm, Ex.C5, P.14, para.
2]. On the basis of the correct exchange rate charged at the time of the production of the fan blades,
the price per fan blade in US$ was US$10,941.90 which results in an overall purchase price of
US$ 22,723,800 for the 2,000 fan blades [Clm, Ex.C5, P.14, para. 2].
89. On January 14, 2015, after the production of the fan blades, CLAIMANT sent two invoices for the
fan blades and clamps [Clm, Ex.C3, P.5, para. 9]. On January 15, 2015, CLAIMANT informed
RESPONDENT about the mix up in CLAIMANT’s accounting department. CLAIMANT
mentioned that the invoice for the fan blades was prepared on the basis of fixed exchange rate
provision of the addendum, which should be applied only for clamps [Clm, Ex.C5, P.14, para. 5].
However, RESPONDENT still effected the payment based on the wrong invoices [Clm, Ex.C3,
P.12].
90. The principle of good faith requires RESPODNET that it should have informed CLAIMANT about
the mistake in the invoices. Based on Article 7(1) of CISG Convention, “In the interpretation of
this Convention, regard is to….. the observance of good faith in international trade”. Good faith
is one of the main principles of the convention. “The principle of good faith provides a basis for
the expectation that contractual duties will be performed. The principle of good faith imposes a
code of behavior on both parties, calling each to consider the interests of the other contracting
party” [Perales Viscasillas, P.121].
91. The DSA does not contain any provision regarding the applicability of fixed exchange rate for the
fan blades. Parties’ intention behind adding fixed exchange rate provision in the addendum was
only to govern the sale of the clamps not the fan blades (1). CISG entitles CLAIMANT to the
outstanding payment of purchase price in the amount of US$ 2,285,240.00 (2).
1. Parties’ intention behind adding fixed exchange rate provision in the addendum
was only to govern the sale of the clamps, not the fan blades
92. After the conclusion of the DSA, RESPONDENT realized that the suitable clamps cannot be found
from other suppliers, it approached CLAIMANT for the purchase of the clamps. Thus, an
addendum was added to the contract and signed by the parties [Clm, P.5, para. 8; Clm, Ex.C2,
Memorandum for CLAIMANT
23
P.11; Res, Ex.R5, P.3, para. 2]. Intention of the parties behind adding the addendum was to govern
the sale of the clamps. DSA and Addendum are different agreements; therefore, provisions of the
addendum shall not have any applicability on the DSA (i). Fixed exchange rate does not apply to
the DSA based on Art.8 of CISG and UNIDROIT principles (ii). Based on the objective intention,
fixed exchange rate is only applicable to the addendum (iii). Based on Art. 4.6 of UNIDROIT
principles (Contra proferentem rule), the text of addendum shall be interpreted against the drafter
(RESPONDENT) (iv). Parties have no established practice between them regarding the usage of
fixed exchange rate (v).
i. DSA and Addendum are different agreements; therefore, provisions of the
Addendum shall not have any applicability on the DSA
93. DSA and addendum are different agreements. In order to distinguish between the DSA and
addendum, Art.4 (4) of UNIDROIT principle requires considering the terms and references in light
of the whole contract or statements in which they appear. It is explicitly stated in the addendum
that, “the buyer may request the seller to produce and deliver 2,000 clamps. The price for the
clamps shall be on a cost coverage base and be paid in US$” [Clm, Ex.C2, P.11]. In the addendum,
the parties agreed to deliver the clamps on a cost coverage basis, where CLAIMANT did not
charge any profit to the cost of the clamps. However, based on the Section 4(1) of the DSA, the
purchase price of the fan blades is calculated based on a cost plus profit basis [Clm, Ex.C2, P.10].
94. The parties agreed on fixed exchange rate only for clamps, because fixed exchange rate would not
lead to a great risk in the addendum as the amount of the purchase price of the addendum was low
and no profit was expected out of this transaction. However, in the DSA parties agreed that
CLAIMANT will get profit out of the transaction. As a result, it is derived that parties’ intention
behind addendum was only regulating the clamps and fixed exchange rate does not have any
applicability on the fan blades. Schlechtriem and Butler, leading scholars, further elaborate that
the actual intent of the parties will determine the meaning of the statements or other legally relevant
conduct of the parties [Schlechtriem/Butler, P.56].
95. Furthermore, Paul Romario, CEO of RESPONDENT, in his witness statement said “After the
conclusion of the main agreement, it became clear that we would also need clamps from
CLAIMAINT” [Res, Ex.R5, P.31, para. 2]. Text of the addendum explicitly mentions that, “other
terms are as per main Agreement” and “the exchange rate for the agreement is fixed to US $
Memorandum for CLAIMANT
24
1=EQD 2.01” [Clm, Ex.C2, P.11]. The CEO of RESPONDENT clearly distinguishes the main
Agreement which is DSA and the agreement which is the addendum. This further clarifies the
intention of the parties that the fixed exchange rate provision is only applicable to the addendum.
ii. Fixed exchange rate does not apply to the DSA based on Art. 8 of CISG and
UNIDROIT principles
96. Based on Art.8 of CISG 4.1, and 4(3) of UNIDROIT principles, contract shall be interpreted based
on the common intention of the parties considering the circumstances. The circumstances include
negotiations, conduct of the parties after the conclusion of the contract, the nature and purpose of
the contract, and the meaning commonly given to the terms and expressions in the trade concerned
between the parties. Based on the circumstances, parties had the following intentions behind the
addendum.
97. First intention behind the Addendum was to govern sale of the Clamps. In an email sent by
RESPONDENT to CLAIMANT on August 22, 2010 under the subject line of “Clamps” [Res,
Ex.R2, P.28], RESPONDENT stated, “As already discussed we think the easiest way to regulate
the purchase of the clamps is to sign an addendum” [Res, Ex.R2, P.28, para. 3]. This indicates
that parties’ intention behind adding addendum was to govern the purchase of the clamps, and the
purchase price for the fan blades will remain as per the calculation formula in the section 4 of the
DSA. Besides that, the subject line of the email sent by RESPONDENT regarding the addendum
exactly mentions the “clamps”, which itself suggests that the purpose of addendum was to govern
the sale of the clamps [Res, Ex.R2, P.28].
98. Second intention behind the addendum was to deliver the clamps at the same time with the fan
blades, which is further elaborated in PO2 by RESPONDENT’s call of October 21, 2010, where
it informed COO of CLAIMANT that the purpose of adding the addendum was the same time
delivery of clamps with the fan blades [PO2, P.57, para. 16].This clearly indicates that the purpose
of addendum was to deliver both the clamps and the fan blades together.
99. Third intention behind the addendum was to set the cost for the clamps. The price for the clamps
in the addendum is on a cost coverage base, it is not made for governing the profit but only for the
cost of the clamps [Clm, Ex.C2, P.11, para. 4]. RESPONDENT’s interpretation of the addendum
to use fixed exchange rate to the whole contract is not correct, as it contradicts with the common
intention of the parties and with the main agreement which is DSA.
Memorandum for CLAIMANT
25
iii. Based on objective intention, fixed exchange rate is only applicable to the
clamps
100. Even if RESPONDENT claims that its intention behind fixed exchange rate was to govern the sale
of the fan blades, fixed exchange rate is only applicable to the clamps based on the reasonable
person test. Art.8 (2) of CIG and Art.4 (2) of UNIDROIT principles state that the statement and
other conduct of parties may also be interpreted according to the understanding and meaning that
a reasonable person of the same kind as the other party would have had in similar circumstances.
Based on the objective intention of the parties, reasonable person of the same kind would have had
the same interpretation that fixed exchange rate is only applicable to addendum. Therefore, based
on the objective interpretation, fixed exchange rate is only applicable to the clamps and it does not
have any applicability on the DSA.
iv. Based on Art. 4(6) of UNIDROIT principles (Contra proferentem rule) the
text of the addendum shall be interpreted against the drafter (RESPONDENT)
101. Based on the Contra Proferentem rule embodied in Art.4(6) of UNIDROIT principles when
contract terms are unclear, the provisions of the contract shall be interpreted against the party who
drafted the provision to ensure the principle of equality, good conscience, and justice [Stone,
P.228; Honnold & Flechter, P.98]. By drafting the addendum, RESPONDENT tries to get an
implicit understanding from the provision of the addendum. In the case under consideration, the
drafter of the addendum was RESPONDENT. Hence, the interpretation of the addendum shall be
against RESPONDENT, which means that fixed exchange rate shall only be applicable to the
clamps not to the fan blades.
v. Parties have no established practice between them regarding the usage of fixed
exchange rate
102. RESPONDENT might claim that fixed exchange rate was used in two previous contracts when
parties were subsidiaries of Engineering International SA [Res, Ex.R5, P.31].Although in both
previous contracts, CLAIMANT and RESPONDENT used fixed exchange rate [Res, Ex.R5, P.31].
Practices of those two contracts are not analogous in the current case, because factual aspects are
not the same based on the following reasons.
103. In previous two contracts both parties were subsidiaries of Engineering International SA, and
exchange rate during previous contracts would not make a significant difference [Res, P.24, Para.
Memorandum for CLAIMANT
26
8; Res, Ex.R5, P.31, Para. 2]. Since, Engineering International SA asked both parties to adopt the
exchange rate which was profitable for RESPONDENT for tax purposes [PO2, P.54, Para. 5].
However, after both parties were sold to different parent companies, the exchange rate could
become a major issue in the current contract. Since the production cost of the new fan blades was
not certain for the parties; therefore, it was impossible for the parties to adopt a fixed price in the
current contract. Therefore, the current contract is totally different from the previous contracts and
the fixed exchange rate shall not be applicable to the current contract.
104. Besides that, RESPONDENT may claim that in a meeting in November 2009, which was also
attended by CLAIMANT’s CEO, it had been discussed that “SantosD should be de-risked to make
it more attractive to potential buyers” [Res, Ex.R1, P.27]. However, parties shall not rely on the
discussions of this meeting regarding de-risking RESPONDENT. Since, there were no ongoing
contractual relations between the parties specifically regarding the DSA in 2009. The reason why
de-risking Santos was suggested, was to make it more attractive to potential buyers, as long as it
is subsidiary to Engineering International SA. Therefore, RESPODNENT shall not rely on the
discussions of the meeting of 2009.
105. Based on the governing laws of the DSA, namely CISG and UNIDROIT principles, and the Contra
proferentem role, the common intention of the parties behind the addendum was to govern the sale
of the clamps, simultaneous delivery of clamps with fan blades, and the cost of clamps based on
the cost coverage basis. Thus, fixed exchange rate does not apply to the fan blades and the
exchange rate charged at the time of the production of the fan blades is the applicable exchange
rate of the DSA.
2. CISG entitles CLAIMANT to the full purchase price in the amount of US$22,723,
800
106. CLAIMANT fulfilled all its contractual obligations by making the full delivery of goods that were
in conformity with the contract [Clm, Ex.C3, P.12]. RESPONDENT shall make the full payment
for fan blades to fulfill its contractual obligations. Art.53 of CISG requires RESPONDENT to pay
the full purchase price (i). Based on Art. 62 of CISG, RESPONDENT is obliged to pay the
outstanding payment in the amount of US$ 2,285,240 (ii). The Preamble of the CISG Convention
requires RESPONDENT to pay the full purchase price (iii).
Memorandum for CLAIMANT
27
i. Art.53 of CISG requires RESPONDENT to pay the full purchase price
107. RESPONDENT is obliged to pay the full payment of purchase price for the fan blades since Art.53
of CISG states, “The buyer must pay the price for the goods as required by the contract and this
Convention.”[CISG, Art.53]. RESPONDENT did not fulfill its contractual obligations by paying
only US$ 20,336,367.20 [Clm, Ex.C6, P.15, para. 1]. CLAIMANT incurred production cost in
the amount of EQD 19,586 per blade [Clm, Ex.C5, P.12, para. 2]. Considering the exchange rate
at the time of the production of the fan blades which is $1= 1.79 EQD [Clm, Ex.C4, P.13, para.
4], the cost per fan blade is US$ 10,941.90 and the total payment of purchase price for 2,000 fan
blades is US$ 22,723,800 [Clm, Ex.C5, P.14]. However, RESPONDENT did not fulfill its
contractual obligations by denying that any additional purchase price payment was due [Clm,
Ex.C7, P.16]. Therefore, RESPONDENT is obliged to pay the outstanding payment in the amount
of US$ 2285240 for the fan blades.
108. It is further supported by the commentaries of well-known legal scholars, Schlechtriem and
Maskow that the most important obligation of a buyer in a sales contract is to pay the full payment
[Schlechtriem, P.39; Maskow, P.384, para2.2]. Leif Sevon, a leading scholar, also says, “The main
obligation of the buyer is making the full payment of purchase price” [Leif Sevon, P.207]. Art.53
establishes the central obligation of the buyer called essentialianegotii [Butler/Harindranath,
P.797]. Based on Art.53 of CISG, RESPONDENT has the obligation to pay the full purchase price
for the fan blades.
109. According to the commentary of Henry Deeb Gabriel, “Article 53 recognizes the primacy of the
contract in defining the parties' obligations” [Gabriel, P.273]. Based on the DSA, Art.53 of CISG
and the aforementioned commentaries of leading scholars, RESPONDENT is obliged to pay the
full payment in the amount of US$ 22.723800 [Clm, Ex.C5, P.14, para. 2]. Similarly in [CLOUT
case No. 652; CLOUT case No. 608; Agriculture products case; Kantonsgericht Schaffhausen]
the tribunal obliged RESPONDENT to full payment of the purchase price under article 53 of
CISG; therefore, RESPONDENT is obliged to full payments under the contract.
ii. RESPONDENT is obliged to pay the outstanding payment in the amount of
US$ 2,285,240 as a remedy based on Art.62 of CISG
110. Art.62 of CISG states, “The seller may require the buyer to pay the price unless the seller has
resorted to a remedy which is inconsistent with this requirement”. It is emphasized in
Memorandum for CLAIMANT
28
commentaries by leading scholars that paying the partial amount of the purchase price is a breach
of contract which entitles the seller (CLAIMANT) to the remedy under Art.62 of CISG
[Butler/Harindraanath & F. Bell, P.798, 858; Allison E. Butler; Schlechtriem & Schwenzer,
P.802; Leif Sevón, P.205].
111. “The remedy provided under Art.62 of CISG does not create any new right to the seller or a new
obligation of the buyer. It is simply a pursuance of their initial rights and obligations under the
contract which the seller will initially require performance under Article 62 by initiating a legal
action against the buyer” [Knapp, P.453, para2.2]. Therefore, CLAIMANT approached the
arbitral tribunal to make RESPONDENT fulfill its contractual obligations by paying the
outstanding payment in the amount of US$2,285,240.00 [Clm, Ex.C2, P.15, para. 1].
iii. The preamble of CISG Convention requires RESPONDENT to pay the full
amount of purchase price
112. “Considering that the development of international trade on the basis of equality and mutual
benefit is an important element in promoting friendly relations among States”[Preamble, CISG].
Based on the preamble of CISG, RESPONDENT is obliged to pay the full purchase price agreed
in the DSA. Contract is based on mutual benefit of the parties, which requires them to perform