TWENTY-SIXTH ANNUAL WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT 13 TO 18 APRIL 2019 MEMORANDUM FOR RESPONDENT LUDWIG-MAXIMILIANS-UNIVERSITÄT MÜNCHEN On Behalf of: Black Beauty Equestrian 2 Seabiscuit Drive Oceanside Equatoriana RESPONDENT Against: Phar Lap Allevamento Rue Frankel 1 Capital City Mediterraneo CLAIMANT COUNSEL: Vincent Fach ∙ Clemens Ganzert ∙ Katarina Jurišić Paul Lauster ∙ Lea Patalas ∙ Valerie Pitkowitz
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MEMORANDUM FOR RESPONDENTTWENTY-SIXTH ANNUAL WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT 13 TO 18 APRIL 2019 MEMORANDUM FOR RESPONDENT LUDWIG-MAXIMILIANS-UNIVERSITÄT MÜNCHEN
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TWENTY-SIXTH ANNUAL
WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT
13 TO 18 APRIL 2019
MEMORANDUM FOR RESPONDENT
LUDWIG-MAXIMILIANS-UNIVERSITÄT MÜNCHEN
On Behalf of:
Black Beauty Equestrian
2 Seabiscuit Drive
Oceanside
Equatoriana
RESPONDENT
Against:
Phar Lap Allevamento
Rue Frankel 1
Capital City
Mediterraneo
CLAIMANT
COUNSEL:
Vincent Fach ∙ Clemens Ganzert ∙ Katarina Jurišić
Paul Lauster ∙ Lea Patalas ∙ Valerie Pitkowitz
LUDWIG-MAXIMILIANS-UNIVERSITÄT MÜNCHEN
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TABLE OF CONTENTS INDEX OF AUTHORITIES ....................................................................................................... V
INDEX OF CASES ............................................................................................................ XXVI
INDEX OF ARBITRAL AWARDS ............................................................................................. XL
INDEX OF LEGAL SOURCES ............................................................................................ XLVI
LIST OF ABBREVIATIONS ............................................................................................... XLVII
STATEMENT OF FACTS ........................................................................................................... 1
SUMMARY OF ARGUMENT ...................................................................................................... 3
47 CLAIMANT bases its argument on the presumption that parties intend to submit all of their
disputes to arbitration unless it is likely that they intended only some of the questions arising out
of their relationship to be submitted to arbitration (Cl. Memo. § 28; cf. Premium Nafta v. Fili
Shipping (England/Wales)). In the present case, however, this presumption cannot be upheld as the
Parties restricted the scope of the Arbitration Agreement. RESPONDENT narrowed down the
broad wording of the HKIAC Model Clause (Resp. Exh. R1). The following synopsis illustrates
the modifications made by RESPONDENT:
HKIAC Model Clause Arbitration Agreement
Any dispute, controversy, difference or claim arising out of or relating to this contract, including the existence, validity, interpretation, performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of or relating to it shall be referred to and finally resolved by arbitration administered by the Hong Kong International Arbitration Centre (HKIAC) under the HKIAC Administered Arbitration Rules in force when the Notice of Arbitration is submitted.
Any dispute arising out of this contract, including the existence, validity, interpretation, performance, breach or termination thereof shall be referred to and finally resolved by arbitration administered by the Hong Kong International Arbitration Centre (HKIAC) under the HKIAC Administered Arbitration Rules in force when the Notice of Arbitration is submitted.
CLAIMANT accepted this narrow version (Resp. Exh. R2). Where parties alter a broad standard
arbitration agreement so that it only refers to disputes “arising out of”, they are considered to
manifest their intent to narrow its scope (Tracer v. NESC (USA); Texaco v. American Trading (USA);
REDFERN/HUNTER, §§ 9.64, 9.69; PETER, p. 279; CRAIG et al., pp. 88 et seq.). Thus, the Parties did
not want to refer all questions to arbitration.
48 Moreover, contract adaptation gives the arbitral tribunal a more creative power which
deviates from the common understanding of dispute settlement (BERNARDINI, Renegotiation,
p. 421; BERGER, p. 8; BEISTEINER, p. 85; cf. AL FARUQUE, p. 153; KRÖLL, Gap-filling, p. 12).
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Consequently, such power generally has to be conferred expressly (ICC Case 2291 (1975); Kuwait v.
AMINOIL (1982); UN Doc. A/CN.9/263 (1985), Sec. C § 15; BERGER, p. 5; cf. KRÖLL, Gap-filling,
p. 12). In the absence of an express authorization, tribunals are extremely reluctant in finding that
they are empowered to adapt contracts (ICC Case No. 2404 (1975); ICC Case No. 2708 (1976); ICC
Case No. 1512 (1971); Kuwait v. AMINOIL (1982); cf. BERGER, p. 9; PETER, p. 231; DOUDKO,
p. 104). While the Parties enumerated specific disputes to be resolved by arbitration, they did not
include an express reference to contract adaptation. Hence, a reasonable business person would
come to the conclusion that the Tribunal does not have the power to adapt the Contract.
49 This conclusion is not altered by CLAIMANT’s interpretation of the Arbitration Agreement in
conjunction with Clause 12 of the Contract (Cl. Memo. § 22). It alleges that Clause 12 of the
Contract would be a “hollow provision” if the Tribunal had no power to adapt the
Contract (ibid.). However, just like Clauses 9 and 10 of the Contract, Clause 12 allocates
responsibilities, specifically excusing CLAIMANT from performance under certain
circumstances (see infra §§ 78 et seqq.). The mere fact that the remedy CLAIMANT desires is not
available does not render Clause 12 of the Contract hollow.
50 Thus, the Tribunal lacks the power to adapt the Contract under the Law of Mediterraneo.
Conclusion to Issue I
The Tribunal does not have the jurisdiction to adapt the Contract under the lex arbitri. The
Arbitration Agreement is governed by the Law of Danubia. An interpretation of the Arbitration
Agreement under the Law of Danubia shows the Tribunal’s lack of power to adapt the Contract.
Even if the Law of Mediterraneo were applicable, the Tribunal would not be authorized to adapt
the Contract.
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ISSUE II: THE EVIDENCE FROM THE OTHER ARBITRATION PROCEEDINGS IS
INADMISSIBLE 51 On 2 October 2018, RESPONDENT received CLAIMANT’s request to submit the “Partial
Interim Award” (hereinafter “Partial Award”) from another HKIAC arbitration as evidence in
the present proceedings. Contrary to CLAIMANT’s submission (Cl. Memo. §§ 31-60), the evidence
is inadmissible. RESPONDENT respectfully requests the Tribunal to find that the unlawful
obtainment of the Partial Award hinders an admission (A.). Moreover, it is inadmissible as it is
irrelevant to the case and immaterial to its outcome (B.). Lastly, an admission would undermine
the principle of equality of arms (C.).
A. THE UNLAWFUL OBTAINMENT OF THE PARTIAL AWARD PRECLUDES ITS
ADMISSION 52 The Tribunal is respectfully requested to deny the admission of the Partial Award as
evidence into the present proceedings due to its unlawful obtainment.
53 The Partial Award was obtained unlawfully – either through an illegal hack of
RESPONDENT’s computer system or a breach of a confidentiality agreement (PO1 § III No. 1(b);
PO2 No. 41). It is common arbitral practice that unlawfully obtained evidence shall not be
admitted (Methanex v. USA (2005); Libananco v. Turkey (2008); Conoco Phillips Petrozuata v.
Venezuela (2013); EDF v. Romania (2005) WÄLDE, p. 184; DE BARROS, pp. 89 et seq.). This is based
on the “clean hands” doctrine, which originates from the parties’ general duty to conduct
themselves in good faith during the arbitration proceedings (DUMBERRY, p. 230; LLAMZON,
p. 325; cf. Methanex v. USA (2005); Libananco v. Turkey (2008)).
54 CLAIMANT relies on the tribunal’s award in Caratube v. Kazakhstan, allowing evidence initially
obtained in an unlawful manner to be admitted because it had already been publicly
available (Cl. Memo. § 52; cf. Caratube v. Kazakhstan (2017)). However, CLAIMANT omits that the
Tribunal only admitted said evidence as it had been “leaked on a publicly available
website” (Caratube v. Kazakhstan (2017)). This is because the requesting party did not need to
make considerable efforts in the obtainment of the documents and has, thus, not breached its
duty to act in good faith (Caratube v. Kazakhstan (2017); cf. Bible v. United Student Aid (USA)).
55 In the present case, CLAIMANT only heard about the other arbitration proceedings from
Mr. Velazquez, a former employee of the Mediterranean buyer in the other proceedings (PO2
No. 40). Given his former position, he was able to provide CLAIMANT with insider information
about the main issues in dispute (ibid.). Now being the CEO of one of CLAIMANT’s regular
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customers (ibid.), it can be assumed that he disclosed the information solely to CLAIMANT but did
not “openly discuss” (Cl. Memo. § 54) the issue at the annual breeder conference. As
Mr. Velazquez was not able to organize a copy of the Partial Award, CLAIMANT made the effort
to arrange an opportunity to acquire it from a company with a “doubtful reputation” (PO2
No. 41). CLAIMANT is even willing to pay US$ 1,000 in order to obtain the Partial Award (ibid.).
56 In light of this, CLAIMANT’s assertion (Cl. Memo. §§ 54 et seqq.) is not convincing, as the
information was never publicly available on the internet. Instead, CLAIMANT undertook extensive
efforts in order to purchase confidential information and thereby demonstrated its bad faith. As
CLAIMANT would not obtain the Partial Award with clean hands, it is inadmissible.
B. THE EVIDENCE IS INADMISSIBLE DUE TO ITS IRRELEVANCE AND
IMMATERIALITY 57 Contrary to CLAIMANT’s submission (Cl. Memo. §§ 33-42, 57 et seqq.), the Partial Award is
neither relevant to the case nor material to its outcome. The Tribunal’s refusal to admit the
Partial Award into evidence would therefore not violate its right to be heard.
58 The Tribunal may decide on the admissibility of evidence at its discretion (cf. Cl. Memo. § 31).
Pursuant to Art. 22(2), (3) HKIAC Rules, the arbitral tribunal shall determine the admissibility of
evidence on the basis of its relevance and materiality. A document is relevant to the case if it
proves a fact from which legal conclusions can be drawn (ZUBERBÜHLER et al., Art. 3 §§ 136
et seqq.; KAUFMANN-KOHLER/BÄRTSCH, p. 18). It is material to its outcome if it is required for “a
complete consideration of the legal issues presented to the tribunal” (ZUBERBÜHLER et al., Art. 3
§§ 136; cf. RAESCHKE-KESSLER, p. 427).
59 CLAIMANT is correct in stating that each party shall be given the full opportunity to
heard (Cl. Memo. § 58; cf. Artt. 13(1), 31(1) HKIAC Rules, Art. 18 DAL). However, this principle
does not extend to evidence that is irrelevant and immaterial to the outcome of the case (cf. BG,
30 September 2003 (Switzerland); Karaha v. Perusahaan (USA); Mathews v. Eldridge (USA); State v.
Talton (USA); Teekay Tankers v. STX (England/Wales)).
60 The Partial Award is inadmissible as it is neither relevant to the case nor material to its
outcome: It merely reflects an arbitral tribunal’s legal opinion (I.). The other HKIAC arbitration
is not comparable to the present proceedings (II.). Furthermore, the Partial Award cannot be
used to prove that RESPONDENT breached its duty to act in good faith (III.).
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I. The Partial Award only reflects an arbitral tribunal’s legal opinion
61 The Partial Award is irrelevant to the case and immaterial to its outcome as it only depicts
the arbitral tribunal’s legal reasoning in the other proceedings.
62 CLAIMANT contends that the Partial Award from the other arbitration are evidence of
RESPONDENT’s understanding of the meaning of “hardship” (Cl. Memo. §§ 34 et seqq.). However,
in the Partial Award, the tribunal solely confirmed its power to adapt the contract under the
unique circumstances of that case (PO2 No. 39). It is commonly acknowledged that an award is
“not admissible evidence to prove a fact” in another proceeding with different parties (Land
Securities v. Westminster (England/Wales); cf. COOK, p. 30; The Queen v. Hui Chi Ming (England/Wales);
Hollington v. Hewthorn (England/Wales)). This is because it merely represents “an arbitrator’s
opinion” under the applicable law (Land Securities v. Westminster (England/Wales)). Hence, the
Partial Award is inadequate to prove RESPONDENT’s understanding with regards to hardship.
II. The other HKIAC arbitration is not comparable to the present proceedings
63 The irrelevance and immateriality are supported by the fact that the other HKIAC
arbitration is – contrary to CLAIMANT’s submission (Cl. Memo. § 36) – not comparable to the
present proceedings.
64 This is due to the following reasons: First, the parties in the other arbitration agreed on the
broadly worded ICC-Hardship Clause (PO2 No. 39). In contrast thereto, the Parties to the
present proceedings rejected the ICC-Hardship Clause and solely included a narrow hardship
reference in Clause 12 of the Contract (PO2 No. 12; Resp. Exh. R2; Resp. Exh. R3). Second, the
parties in the other arbitration included the HKIAC Model Clause (PO2 No. 39). In the present
proceedings, however, the Parties significantly restricted the initially broad scope of the
Arbitration Agreement (see supra §§ 47 et seq.). Third, the parties to the other arbitration chose
Mediterraneo as their arbitral seat (PO2 No. 39), which encompasses the choice of Mediterranean
Arbitration Law as the lex arbitri. It differs from the DAL insofar as there is no indication that an
express conferral of powers is required for contract adaptation (cf. supra § 5). Fourth, the other
arbitration agreement is governed by the Law of Mediterraneo (PO2 No. 39). In stark contrast,
the Arbitration Agreement in the present proceedings is subject to the Law of Danubia, which
contains the “four corners rule” and requires a narrow interpretation (see supra §§ 32 et seq.). Given
the differences between the two proceedings, RESPONDENT’s understanding of the meaning of
hardship in the other HKIAC arbitration cannot be transferred to the present proceedings.
65 Therefore, the Partial Award is irrelevant to the case and immaterial to its outcome.
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III. The Partial Award cannot be used to evidence that RESPONDENT acted in bad faith
66 Contrary to what CLAIMANT submits (Cl. Memo. §§ 39 et seqq.), the Partial Award is irrelevant
and immaterial as it cannot be used to demonstrate RESPONDENT’s alleged breach of its duty to
act in good faith.
67 CLAIMANT asserts that RESPONDENT breached its duty to act in good faith by relying on
“diametrically opposed reasoning” in the two proceedings (Cl. Memo. § 41). While the CISG does
not stipulate an explicit provision on inconsistent behavior, it contains the general principle of
venire contra factum proprium (ICC Case No. 8786 (1997); SCHWENZER/HACHEM in:
Schlechtriem/Schwenzer, Art. 7 § 32). According to this principle, a party must not act in
contradiction to its own previous conduct if it is to the detriment of the other party (ICAC Case
No. 302/1996 (1999); GREENBERG et al., §§ 4.75 et seqq.; cf. CAS Case No. 2002/O/410 (2003)).
However, this principle only applies within the confines of one contractual
relationship (WAINCYMER, pp. 687, 789; cf. CODREA, p. 361; BARNETT, § 5.01).
68 RESPONDENT did not behave inconsistently. The other HKIAC arbitration arises out of a
contractual relationship with another party. The circumstances underlying the disputes are not
comparable (see supra §§ 63 et seqq.). Thus, RESPONDENT may have a different legal position with
regard to the respective disputes. The fact that CLAIMANT dug out an award which only seems to
contain legally relevant similarities cannot be construed to RESPONDENT’s detriment. The Partial
Award can therefore not be used to prove that RESPONDENT acted in bad faith.
69 In conclusion, the Partial Award is irrelevant to the case and immaterial to its outcome.
Consequently, a denial of the submission of the Partial Award into evidence does not violate
CLAIMANT’s right to be heard. As CLAIMANT therefore has no legitimate interest to submit the
Partial Award, there is no reason to admit it and later weigh its evidential value (cf. Cl. Memo. § 59).
The Partial Award is inadmissible.
C. AN ADMISSION WOULD INFRINGE THE PRINCIPLE OF EQUALITY OF ARMS 70 Admitting the Partial Award into evidence would violate the principle of equality of arms.
71 Pursuant to Art. 13(1) HKIAC Rules and Art. 18 DAL, a tribunal shall treat the parties fairly
and equally. In particular, maintaining and restoring the principle of equality of arms is of
paramount importance when determining the admissibility of evidence (BLAIR/VIDAK GOJKOVIC,
p. 258; WÄLDE, pp. 187 et seqq.; cf. Giovanni Alemanni v. Argentina (2014); Methanex v. USA (2005);
EDF v. Romania (2005)). This principle ensures that the parties enjoy substantially equal
opportunities to present their case and neither of them be disadvantaged in the preparation of
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their response (ECHR, 27 October 1993; LAU, pp. 560 et seq.; O’MALLEY, § 9.116). Consequently,
the balance between the parties is only guaranteed when each party is able to examine and
challenge any submitted document (ECHR, 6 November 2012; CAIRNS, p. 188).
72 CLAIMANT correctly points out that it is not a party to the other HKIAC arbitration and
therefore not subject to any confidentiality obligations (Cl. Memo. §§ 44 et seqq.). However,
pursuant to Art. 42 HKIAC 2013 Rules, RESPONDENT is obliged to keep the proceedings
confidential. Hence, it would not be able to substantiate a defense against CLAIMANT’s assertions
without breaching its confidentiality obligations. This holds especially true as the authenticity of
the copy of the Partial Award cannot be ensured given the circumstances of its obtainment from
a questionable source (cf. PO2 No. 41; EDF v. Romania (2005); Tribunal for Lebanon, 21 May
2015 (UN)). In fact, the opponent in the other arbitration affirms that CLAIMANT’s allegations
“do not reflect reality and are taken out of context” (Resp. Mail. of 3 Oct. 2018). RESPONDENT
could thus not challenge such misrepresentation of the other proceedings.
73 In conclusion, admitting the Partial Award would infringe the principle of equality of arms.
Conclusion to Issue II
The unlawful obtainment of the Partial Award hinders its submission into evidence. Moreover,
the Partial Award is neither relevant to the case nor material to its outcome. The principle of
equality of arms would be violated by an admission. Therefore, the Tribunal is respectfully
requested to reject the submission of the Partial Award as evidence into the proceedings.
ISSUE III(A): CLAIMANT IS NOT ENTITLED TO PAYMENT OF US$ 1,250,000
UNDER CLAUSE 12 OF THE CONTRACT 74 The Tribunal is respectfully requested to find that CLAIMANT is not entitled to a
remuneration of US$ 1,250,000 by way of contract adaptation under Clause 12 of the Contract.
75 On 19 December 2017, the Equatorianian Government announced retaliatory tariffs on
agricultural goods including racehorse semen (PO2 Nos. 25 et seq.; Cl. Exh. C6; Cl. Exh. C7). This
marked the peak of a trade war between Mediterraneo and Equatoriana which had been
unfolding for the past months (PO2 No. 23; Cl. Exh. C6). Nonetheless, on 23 January 2018,
CLAIMANT delivered the third and last instalment of frozen semen in compliance with its
obligations by paying the second instalment of the purchase price (cf. Resp. Exh. R4; Cl. Exh. C5).
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Despite this, CLAIMANT now requests a contract adaptation under the hardship reference
contained in Clause 12 of the Contract (hereinafter “Hardship Reference”). Contrary to what
CLAIMANT submits (Cl. Memo. §§ 61-93), the Hardship Reference neither applies to the present
impediment (A.) nor provides for contract adaptation as a remedy (B.).
A. THE HARDSHIP REFERENCE DOES NOT APPLY TO THE IMPOSITION OF
TARIFFS 76 Contrary to CLAIMANT’s submission (Cl. Memo. §§ 62-84), the imposition of tariffs does not
fall within the scope of the Hardship Reference.
77 The Hardship Reference stipulates that “Seller shall not be responsible […] for hardship,
caused by additional health and safety requirements or comparable unforeseen events making the
contract more onerous” (Cl. Exh. C5; § 12). An interpretation of the Hardship Reference reveals
its narrow scope of application (I.). On the basis of this interpretation, the prerequisites are not
met in the present case (II.).
I. The Hardship Reference has a narrow scope of application
78 The circumstances leading to an exemption from responsibility under the Hardship
Reference are restricted. This follows from an interpretation pursuant to Art. 8 CISG.
79 Art. 8(1) CISG necessitates a subjective test. Where the common intent of the parties cannot
be established, Art. 8(2) CISG stipulates an objective test according to the understanding of a
reasonable business person (see supra § 38).
80 The Parties only intended for a limited number of specific events to be covered by the scope
of the Hardship Reference (1.). In any case, a reasonable business person would come to the
same conclusion (2.).
1. The Parties intended for the Hardship Reference to only apply to specific events
81 Contrary to CLAIMANT’s assertion (Cl. Memo. §§ 65 et seq., 71, 79 et seqq.), the Parties’
negotiations show their common intent to have the Hardship Reference cover only a limited
number of specific events.
82 When interpreting in line with Art. 8(1), (3) CISG, the negotiations have to be considered in
order to determine the parties’ common intent (see supra § 38).
83 During the contractual negotiations, RESPONDENT requested a DDP delivery (Cl. Exh. C3).
DDP means that all risks associated with the delivery, including duties, taxes, customs, and
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import clearances, are assumed by the seller (cf. BFH, 30 April 2012 (Germany); Incoterms 2010,
pp. 69 et. seqq.; BRUNNER, p. 131; DA SILVEIRA, fn. 872). It constitutes the “maximum obligation
for the seller” (Incoterms 2010, p. 69). CLAIMANT agreed to this change in delivery terms under the
condition that it be relieved from certain risks associated with changes in customs regulation or
import restrictions (Cl. Exh. C4). In this context, it explicitly referred to “health and safety
requirements” (ibid.). CLAIMANT knew from past experiences that such can lead to additional
tests and quarantines and may result in additional costs of 40% of the purchase price (PO2 No. 21;
Cl. Exh. C4). RESPONDENT, on the other hand, was unwilling to exempt CLAIMANT from
responsibility for all risks related to customs and import restrictions since this would, in effect,
have undermined the use of DDP. CLAIMANT is correct in stating that it proposed the inclusion
of a hardship clause with the intent to mitigate some of the risks assumed in connection with the
DDP delivery (Cl. Memo. § 66). However, both of RESPONDENT’s negotiators, Mr. Antley and
Mr. Krone, considered the ICC-Hardship Clause proposed by CLAIMANT too broad for “the
purposes of [the] contract and the objectives pursued” (PO2 No. 12; cf. Resp. Exh. R2;
Resp. Exh. R3). Subsequently, the Parties agreed on the narrowly worded Hardship Reference
which was added to the force majeure clause (PO2 No. 12; Resp. Exh. R3; cf. Cl. Exh. C5, § 12).
Thus, it was the Parties’ intent to relieve CLAIMANT only from hardship caused by customs and
import restrictions as long as they are closely related to health and safety requirements.
84 The Parties intent to provide for a narrow scope of the Hardship Reference is further
evidenced by the fact that it requires contract performance to become “more
onerous” (Cl. Exh. C5, § 12). From the past experiences CLAIMANT had mentioned (Cl. Exh. C4),
both Parties considered additional costs amounting to 40% of the purchase price sufficient to
make the Contract more onerous. The Parties therefore had a clear threshold in mind for
determining whether contract performance becomes “more onerous”. Hence, by including the
narrow Hardship Reference into the Contract, the Parties intended to exempt CLAIMANT from
responsibility only in such grave circumstances.
85 Consequently, CLAIMANT assumed all other risks associated with the DDP delivery and not
covered by Clause 12 of the Contract. This is emphasized by the fact that the Parties agreed on
RESPONDENT paying an extra US$ 500 per dose of frozen semen (PO2 No. 8). US$ 200 thereof
were direct additional costs associated with transportation and DDP delivery (ibid.). In order to
compensate the risk assumption, CLAIMANT was awarded a premium of US$ 300 per
dose (cf. PO2 No. 8; Cl. Exh. C4).
86 To conclude, the Parties intended to narrow the Hardship Reference’s scope of application.
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2. An objective analysis leads to the conclusion that the Hardship Reference only
applies to specific events
87 Even if the Parties’ common intent could not be established, a reasonable business person
would find that the Hardship Reference only covers specific events.
88 When interpreting pursuant to Art. 8(2), (3) CISG, special weight is given to the usual
meaning of the terms used by the parties (ICC Case No. 9187 (1999); HG Zürich, 24 October
2003 (Switzerland)).
89 Both the phrase “health and safety requirements and comparable […] events” (a) and the
terms “unforeseen” as well as “more onerous” (b) evidence that the Hardship Reference has a
narrow scope of application.
(a) The terms “health and safety requirements” and “comparable events” do not cover a
wide array of events
90 Contrary to CLAIMANT’s assertion (Cl. Memo. § 68), a reasonable business person would not
understand the phrase “health and safety requirements and comparable […] events” to
encompass a wide array of events.
91 Health and safety requirements are public policy instruments specifically aimed at protecting
the health, well-being and life of humans, animals or plants (cf. WTO Report 2012, pp. 6, 34;
TUCCI/LORIDAN, p. 30; DE MELO/NICITA, pp. 5, 18). The term “comparable events” implies that
only effects resulting from laws and regulations pursuing the same objective should be covered
by the scope of the hardship provision (cf. BLACK, p. 340; cf. DE MELO/NICITA, p. 23). Examples
of comparable events are environmental standards imposed by authorities or product-specific
quality and identification requirements (cf. LOVE/LATTIMORE, pp. 62, 64; WTO Report 2012,
pp. 38 et seq.; DE MELO/NICITA, p. 21). Health and safety requirements and comparable events
have in common that they are “put in place for non-economic reasons” and may only indirectly
affect trade (LOVE/LATTIMORE, p. 64; cf. WTO Report 2012, p. 46; DE MELO/NICITA, p. 18).
92 Thus, the terms “health and safety requirements” and “comparable events” are limited to
specific events.
(b) The terms “unforeseen” and “more onerous” further restrict the scope of application
93 A reasonable business person would understand the terms “unforeseen” and “more
onerous” to further limit the number of events covered by the Hardship Reference.
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94 For an exemption from responsibility, the Hardship Reference further requires the event to
have been “unforeseen” (Cl. Exh. C5, § 12). An event is unforeseen if the parties did not expect it
to occur at the time of contract conclusion (cf. BLACK, p. 1761).
95 The Hardship Reference also stipulates that the event must make the Contract “more
onerous” (Cl. Exh. C5, § 12). Contract performance is generally considered to become more
onerous when a dramatic change in circumstances fundamentally alters the contractual
equilibrium (BERNARDINI, p. 99; DA SILVEIRA, p. 323; BAUR, p. 512 et seqq.; VAN OMMESLAGHE,
p. 10). CLAIMANT is correct in stating that the threshold set by the Hardship Reference is lower
than the standard of “excessive onerousness” required by the ICC-Hardship Clause that was
initially considered (Cl. Memo. § 82). However, it fails to substantiate how the term “more
onerous” is to be understood. Lowering the threshold cannot mean that every cost increase shall
fall under the scope of the Hardship Reference (cf. Cl. Memo. § 82). Otherwise, if a moderate cost
increase sufficed to exempt a party from responsibility, the opposing party could not rely on the
obligor to fulfill its contractual obligations (cf. KRÖLL, Renegotiation, p. 466; FINKENAUER in:
MüKoBGB, Sec. 313 § 58 et seqq.; DA SILVEIRA, p. 347; SCHWENZER, Hardship, p. 716). After all,
“legal certainty calls for some benchmark” (DAVIES/SNYDER, p. 334). It is therefore reasonable
to adhere to the general understanding of the term “more onerous”. Thus, the contractual
equilibrium must be fundamentally altered in order to exceed the Hardship Reference’s threshold.
96 Under consideration of all these circumstances, a reasonable business person would
conclude that the Hardship Reference has a narrow scope of application.
II. The prerequisites for an exemption under the Hardship Reference are not fulfilled in
the present case
97 Contrary to CLAIMANT’s assertion (Cl. Memo. §§ 63 et seqq.), the 30% tariffs imposed by the
Equatorianian Government do not meet the prerequisites for an exemption under the Hardship
Reference. CLAIMANT is correct in stating that the tariffs were unforeseen by the
Parties (Cl. Memo. §§ 70 et seqq.). However, the other prerequisites set out in the Hardship
Reference are not met. To begin with, the imposition of the 30% tariffs is not covered by the
phrase “health and safety requirements and comparable […] events” (1.). In any case, the
additional costs do not make contract performance “more onerous” (2.).
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1. The imposition of tariffs is not an event comparable to health and safety requirements
98 Contrary to CLAIMANT’s assertion (Cl. Memo. §§ 67 et seq.), the imposition of tariffs is not an
event comparable to health or safety requirements.
99 Health and safety requirements are public policy instruments pursuing a non-economic
objective (see supra §§ 90 et seqq.). Tariffs, by contrast, serve a solely economic purpose, namely to
protect and foster the national economy by impeding foreign competition (KRUGMAN et al.,
p. 239; LOWENFELD, p. 31; cf. BLACK, p. 1684; LOVE/LATTIMORE, p. 57). In fact, the WTO, the
UNCTAD, and the EU differentiate between tariffs and non-tariff measures such as technical,
health or environmental policies (cf. WTO Report 2012, p. 1; TUCCI/LORIDAN, p. 1; DE
MELO/NICITA, p. 1). On these grounds, tariffs are inherently different from and cannot be
compared to health and safety requirements.
100 For this reason alone, CLAIMANT cannot invoke hardship under the Hardship Reference.
2. The imposition of tariffs does not make contract performance more onerous
101 In any case, the additional costs do not render contract performance more onerous for
CLAIMANT.
102 CLAIMANT submits that the tariffs resulted in additional costs amounting to 30% of the
purchase price (Cl. Memo. § 83). However, it disregards that the 30% tariffs affected only the third
shipment valued at US$ 5,000,000 (Cl. Exh. C7; Cl. Exh. C8). The additional costs therefore
amount to merely 15% of the total purchase price, i.e. US$ 1,500,000 (cf. Cl. Exh. C5). This only
constitutes a moderate rise in costs. Moreover, CLAIMANT expected to make a 5% profit from
the sale of the frozen semen (PO2 No. 31). Thus, its net loss is in fact US$ 1,000,000 or 10% of
the total purchase price. Incurring unexpected losses is one of the common risks of being in
business itself (SECK, p. 113; BRUNNER, p. 436; cf. ICC Case No. 6281 (1989); BTTP Case
No. 11/1996 (1998), RBK Hasselt, 2 May 1995 (Belgium)). Therefore, the contractual equilibrium is
not fundamentally altered. This is underlined by the fact that the additional costs by far do not
reach the 40% cost increase CLAIMANT mentioned during the negotiations (see supra §§ 83 et seq.).
103 Contrary to CLAIMANT’s assertion (Cl. Memo. § 83), its financial situation does not suffice to
lower the threshold to assume hardship. This is only possible when financial ruin of the
disadvantaged party is imminent (SCHWENZER, Hardship, p. 716; DA SILVEIRA, p. 347;
DAVIES/SNYDER, p. 334). Bearing the additional costs would mean that CLAIMANT might not be
able to meet its profit target for 2018 (PO2 No. 29). This would merely affect the automatic
prolongation of its credit line (ibid.). However, the possibility to undergo further restructuring
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measures and negotiate a new credit line remains unaffected (ibid.). Moreover, Nijinsky III is “one
of the most sought-after stallions for breeding” (§ 3 NoA) and had been fully booked for natural
coverings for the breeding season 2017 (PO2 No. 11). For these bookings, CLAIMANT has a profit
margin of 15% which is above market average (PO2 No. 19). It will therefore be able to generate
substantial profits in the future. Thus, CLAIMANT’s financial ruin is not imminent. The threshold
to assume hardship is not to be lowered any further.
104 In conclusion, the contractual equilibrium has not been fundamentally altered. The
prerequisites stipulated in the Hardship Reference are not met. Hence, the imposition of tariffs
does not trigger an exemption from responsibility under the Hardship Reference.
B. IN ANY CASE, THE HARDSHIP REFERENCE DOES NOT ALLOW FOR AN
INCREASE OF THE PURCHASE PRICE BY WAY OF CONTRACT ADAPTATION 105 In any case, the purchase price cannot be increased under the Hardship Reference. Contrary
to CLAIMANT’s assertion (Cl. Memo. §§ 85-92), the Hardship Reference does not provide for a
contract adaptation as its remedial consequence (I.). Even if it did, CLAIMANT would not be
entitled to an additional remuneration of US$ 1,250,000 (II.).
I. The Hardship Reference does not provide for contract adaptation as a remedy
106 The Tribunal is respectfully requested to find that a contract adaptation is not possible under
the Hardship Reference. This follows from an interpretation pursuant to Art. 8 CISG. The
Parties did not have the common intent to provide for a contract adaptation in case of
hardship (1.). A reasonable business person would not understand the Hardship Reference to
provide for a contract adaptation, either (2.).
1. The Parties did not have the common intent to have the Contract adapted in case of
hardship
107 Contrary to CLAIMANT’s assertion (Cl. Memo. § 86 et seq.), the Parties did not intend the
Hardship Reference to provide for a contract adaptation.
108 All relevant circumstances, including the negotiations and subsequent conduct are to be
considered when interpreting in line with Art. 8(1), (3) CISG.
109 During the negotiations, CLAIMANT proposed to include the ICC-Hardship Clause into the
Contract (Resp. Exh. R2). This clause does not provide for contract adaptation as a remedy but
only entitles the aggrieved party to terminate the contract (§ 3 ICC Hardship Clause). The notion
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of contract adaptation was only discussed during the meeting between Ms. Napravnik and
Mr. Antley (cf. Cl. Exh. C8). However, contrary to CLAIMANT’s assertion (Cl. Memo. § 87), the
negotiations never left the preliminary stage and the Parties did not come to an agreement (see
supra § 42). Their successors, Mr. Ferguson and Mr. Krone, did not consider the issue of contract
adaptation (cf. Resp. Exh. R3). Mr. Krone only suggested the wording of the Hardship Reference
which was eventually added to the force majeure clause (PO2 No. 12). This clause stipulates that
“Seller shall not be responsible” as the only legal consequence (Cl. Exh. C5, § 12). This part
already existed in the standard contract form initially proposed by CLAIMANT (PO2 Nos. 3 et seq.;
Cl. Exh. C2). Had it been CLAIMANT’s intent to have the contract adapted in case of hardship, it
could have proposed a modification of the wording. Thus, there is no indication that the Parties
had a common intent to provide for a contract adaptation.
110 Furthermore, it cannot be inferred from the Parties’ subsequent conduct that they had a
shared understanding to adapt the Contract in case of hardship (cf. Cl. Memo. § 87). CLAIMANT
informed RESPONDENT that the tariffs applied to the last shipment and requested negotiations to
find a solution regarding the additional costs (Cl. Exh. C7). In his response, Mr. Shoemaker
merely stated that the Parties would find a solution “if the contract provides for an increased
price” (Resp. Exh. R4, emphasis added). This does not imply that the Parties had the initial intent to
have the Contract adapted in case of hardship. Moreover, he made clear that he was not
authorized to agree to an increase of the purchase price (Cl. Exh. C8; Resp. Exh. R3).
111 In conclusion, the Parties did not have the common intent to provide for contract
adaptation as a remedy under the Hardship Reference.
2. An objective analysis shows that contract adaptation is not possible under the
Hardship Reference
112 Contrary to CLAIMANT’s assertion (Cl. Memo. §§ 88 et seqq.), an interpretation according to
the understanding of a reasonable business person shows that contract adaptation is not a remedy
available under the Hardship Reference.
113 The usual meaning of the terms used by the parties is of high significance when interpreting
pursuant to Art. 8(2), (3) CISG (see supra § 88).
114 Clause 12 of the Contract expressly stipulates that “Seller shall not be responsible” for
certain cases of hardship (Cl. Exh. C5). Contrary to CLAIMANT’s submission (Cl. Memo. §§ 90, 92),
this does not mean that responsibility is shifted to RESPONDENT. To begin with, shifting the
responsibility would undermine the systematics of the Contract. Cases where “Buyer is
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responsible” are explicitly stipulated in Clauses 9, 10 and 13 of the Contract (Cl. Exh. C5).
Furthermore, the Parties merely added the Hardship Reference into the force majeure clause of
the Contract without providing for a specific remedy (cf. PO2 No. 12; Cl. Exh. C5, § 12). In
general, force majeure clauses exempt the affected party from responsibility for non-performance
in case of a drastic change in circumstances (RIMKE, pp. 199, 201; WEICK, p. 300; STROHBACH,
p. 40). As a consequence, the parties are usually entitled to terminate the contract (ibid.). Such a
remedy is not foreign to hardship provisions, either (cf. § 3 ICC Hardship Clause;
Art. 6.2.3(a) UPICC; FUCCI, II. E.). Hence, a reasonable business person would conclude that the
Parties wanted to provide for the same remedy in case of hardship. This is underlined by the
Parties initial consideration of the ICC Hardship Clause which provides for contract termination
as its remedy (§ 3 ICC Hardship Clause; PO2 No. 12; Cl. Exh. C4). It is thus reasonable to assume
that if CLAIMANT suffered hardship, it would be exempted from responsibility for non-
performance and might terminate the Contract. However, if it decided to perform nonetheless, it
would not be entitled to a contract adaptation, shifting the additional costs to RESPONDENT.
115 To conclude, contract adaptation is not an available remedy under the Hardship Reference.
II. In any case, CLAIMANT would not be entitled to a remuneration of US$ 1,250,000
resulting from a contract adaptation
116 Even if the imposition of the 30% tariffs fell under the scope of the Hardship Reference and
even if contract adaptation were an available remedy, CLAIMANT would not be entitled to a
remuneration of US$ 1,250,000.
117 An arbitral tribunal generally has a wide discretion regarding the adaptation of
contracts (FERRARIO, p. 159; MCKENDRICK in: Vogenauer, Art. 6.2.3 § 7; cf. ICC Case
No. 16369 (2011)). When exercising its discretion, certain factors have to be taken into account.
First, an adaptation serves the purpose of restoring the contractual equilibrium (FERRARIO, p. 73;
BERGER, Dispute Resolution, p. 539; MASKOW, pp. 657, 662; AL QURASHI, p. 261; cf. EL CHIATI,
p. 99; Art. 6.2.3(4)(b) UPICC; Art. 7(2) UNCITRAL Conciliation Rules). Second, the risk allocation
between the parties must be considered in order to adapt the contract in a fair manner (BGH,
8 February 1984 (Germany); BRUNNER, p. 499; cf. Off. Comm. UPICC, Art. 6.2.3 § 7; Art. 7(2)
UNCITRAL Conciliation Rules). The contract should at least be adjusted to a level which is
bearable for the aggrieved party (BRUNNER, pp. 499 et seq.; MCKENDRICK in: Vogenauer, Art. 6.2.3
§ 7; cf. BG, 28 November 1978 (Switzerland); BGH, 13 May 1974 (Germany)).
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118 The contractual equilibrium is – contrary to CLAIMANT’s submission (Cl. Memo. § 92) – not
restored through an increase of the purchase price by US$ 1,250,000. To begin with, CLAIMANT
only incurred a net loss of US$ 1,000,000 (see supra § 102). Furthermore, it assumed considerable
risks when agreeing to a DDP delivery (see supra §§ 83 et seqq.). In addition, CLAIMANT did not
substantiate why only an increase of the purchase price in the full requested amount would make
the Contract bearable. Moreover, an adjustment of the purchase price by the requested amount
would only consider CLAIMANT’s interests and ignore those of RESPONDENT entirely. In order to
restore the contractual equilibrium and balance the additional costs, at the most, an equal
distribution of CLAIMANT’s net loss is appropriate (cf. BGH, 8 February 1984 (Germany); HSE v.
Naftovod (1983); HARRISON, pp. 592 et seqq.; BRUNNER, pp. 500 et seq.).
119 In conclusion, CLAIMANT is not entitled to a remuneration of US$ 1,250,000 resulting from
a contract adaptation under the Hardship Reference.
Conclusion to Issue III(A)
The Tribunal is respectfully requested to find that the Hardship Reference does not cover the
imposition of tariffs. Even if the 30% tariffs fell under the scope of the Hardship Reference,
contract adaptation is not an available remedy. In any case, CLAIMANT is not entitled to a
remuneration of US$ 1,250,000.
ISSUE III(B): ALTERNATIVELY, CLAIMANT IS NOT ENTITLED TO PAYMENT OF
US$ 1,250,000 RESULTING FROM A CONTRACT ADAPTATION UNDER THE CISG 120 Alternatively, the Tribunal is respectfully requested to find that CLAIMANT is not entitled to a
remuneration of US$ 1,250,000 resulting from an adaptation of the Contract under the CISG.
Contrary to CLAIMANT’s assertion (Cl. Memo §§ 94-129), the CISG does not exempt CLAIMANT
from liability for the present change in circumstances (A.). In any case, it would not provide for a
contract adaptation as its remedy (B.).
A. CLAIMANT IS NOT EXEMPTED FROM LIABILITY UNDER ART. 79(1) CISG 121 Contrary to CLAIMANT’s submission (Cl. Memo. §§ 95 et seqq.), Art. 79(1) CISG does not
exempt it from liability for the additional costs resulting from the imposition of the tariffs.
122 In the case at hand, the Parties derogated from the default risk allocation stipulated in
Art. 79 CISG (I.). Even if they did not, CLAIMANT could not invoke Art. 79(1) CISG as hardship
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does not constitute an impediment under this provision (II.). In any case, the present change in
circumstances does not meet the prerequisites for an exemption under Art. 79(1) CISG (III.).
I. Art. 79 CISG cannot be invoked as it has been derogated from
123 The Tribunal is respectfully requested to find that CLAIMANT cannot invoke Art. 79 CISG as
the Parties impliedly derogated from this provision.
124 Art. 6 CISG enables the parties to derogate from or modify the effect of any of the CISG’s
provisions. They may do so expressly or impliedly (MISTELIS in: Kröll et al., Art. 6 § 14;
SCHWENZER/HACHEM in: Schlechtriem/Schwenzer, Art. 6 § 3). Whether there had been an implied
derogation follows from an interpretation of the parties’ intent pursuant to