STOCKHOLM UNIVERSITY MEMORANDUM FOR CLAIMANT | i NINETEENTH ANNUAL WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT 30 MARCH TO 5 APRIL 2012 VIENNA MEMORANDUM FOR RESPONDENT STOCKHOLM UNIVERSITY ON BEHALF OF: EQUATORIANA CONTROL SYSTEMS, INC 286 SECOND A VENUE OCEANSIDE EQUATORIANA RESPONDENT AGAINST: MEDITERRANEO ELITE CONFERENCES SERVICE, L TD 45 CONFERENCE PLACE CAPITAL CITY MEDITERRANEO CLAIMANT BRIAN KOTICK • RAGNHILDUR OLAFSDOTTIR • CELESTE SALINAS QUERO Y AROSLAVA SOROKHTEY • ANINA WISSNER • GUNNAR WITTE
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STOCKHOLM UNIVERSITY
MEMORANDUM FOR CLAIMANT | i
NINETEENTH ANNUAL
WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT
30 MARCH TO 5 APRIL 2012
VIENNA
MEMORANDUM FOR RESPONDENT
STOCKHOLM UNIVERSITY
ON BEHALF OF:
EQUATORIANA CONTROL SYSTEMS, INC 286 SECOND AVENUE
OCEANSIDE EQUATORIANA
RESPONDENT
AGAINST:
MEDITERRANEO ELITE CONFERENCES SERVICE, LTD
45 CONFERENCE PLACE CAPITAL CITY
MEDITERRANEO
CLAIMANT
BRIAN KOTICK • RAGNHILDUR OLAFSDOTTIR • CELESTE SALINAS QUERO
YAROSLAVA SOROKHTEY • ANINA WISSNER • GUNNAR WITTE
STOCKHOLM UNIVERSITY
MEMORANDUM FOR CLAIMANT | ii
TABLE OF CONTENTS
INDEX OF AUTHORITIES.............................................................................................. v
INDEX OF CASES ............................................................................................................ ix
INDEX OF STATUTES, RULES,TREATIES AND OTHERS ..................................... xii
TABLE OF ABBREVIATIONS ...................................................................................... xiii
STATEMENT OF FACTS ...................................................................................................1
SUMMARY OF ARGUMENTS .......................................................................................... 3
ARGUMENT ON Procedure ............................................................................................. 5
I. The Tribunal Should order the removal of Dr. Mercado from Claimant’s Legal Team ............................................................................................ 5
A. THE TRIBUNAL HAS THE POWER TO ORDER THE REMOVAL OF DR. MERCADO............................................................................................................ 6
1. The Tribunal’s discretionary power encompasses this Tribunal’s Power to Order the Removal of Dr. Mercado ............................. 6
2. The Exercise of the Tribunal’s Power to Order the Removal of Dr. Mercado Safeguards the Integrity of these Proceedings and does not Infringe on Claimant’s Rights ................................................ 7
i. By removing Dr. Mercado the Tribunal would safeguard the integrity and efficiency of these proceedings ........................................ 7
ii. By ordering the removal of Dr. Mercado the Tribunal does not infringe on Claimant’s rights ............................................................ 9
3. The Tribunal Should Exercise its Power to Order the Removal of Dr. Mercado. The Extraordinary Circumstances of Dr. Mercado’s relation with Professor Compromise the Integrity of these Proceedings ................................................................................... 10
i. Professor Presiding Arbitrator’s and Dr. Mercado’s professional relationship creates dependency and partiality ................................................................................................. 11
ii. Professor Presiding Arbitrator’s personal relationship with Dr. Mercado creates appearance of bias ............................................... 13
B. RESPONDENT MAY EXERCISE ITS RESERVED RIGHT TO CHALLENGE
PROFESSOR PRESIDING ARBITRATOR ................................................................. 14
ARGUMENT ON MERITS .............................................................................................. 15
II. RESPONDENT IS EXEMPT FROM LIABILITY UNDER ARTICLE 79(2) CISG ............................................................................................. 15
STOCKHOLM UNIVERSITY
MEMORANDUM FOR CLAIMANT | iii
A. IT IS IRRELEVANT WHETHER OR NOT RESPONDENT’S LATE
DELIVERY WAS A FUNDAMENTAL BREACH ........................................................... 16
B. RESPONDENT IS EXEMPT FROM LIABILITY FOR LATE DELIVERY
AND INSTALLATION OF THE MASTER CONTROL SYSTEM UNDER
1. Specialty Devices is the only third party Respondent engaged to perform the Contract ............................................................................... 17
2. Respondent is exempt from liability under Article 79(1) CISG ....................... 18
i. Specialty Devices’ late delivery was an impediment that caused Respondent’s breach. ................................................................ 18
ii. Specialty Devices’ late delivery was beyond Respondent’s control .................................................................................................... 19
iii. Respondent could not foresee Specialty Devices’ late delivery of the processing units ........................................................... 20
iv. Respondent could not reasonably overcome Specialty Devices’ late delivery of the processing units ....................................... 21
3. Specialty Devices is exempt under Article 79(1) CISG ................................... 22
i. High Performance’s late delivery was the impediment that caused Specialty Devices’ breach ......................................................... 22
ii. High Performance’s late delivery was beyond Specialty Devices’ control .................................................................................... 23
iii. Specialty Devices could not foresee High Performance’s late delivery of the chips ............................................................................. 24
iv. Specialty Devices could not reasonably overcome High Performance’s late delivery of the chips .............................................. 24
III. EVEN IF THE TRIBUNAL DECIDES THAT RESPONDENT IS LIABLE FOR ITS DELAY, RESPONDENT Is NOT OBLIGED TO PAY DAMAGES TO CLAIMANT ............................................... 25
A. THE BRIBERY COMMITTED BY CLAIMANT RENDERS ALL COSTS FOR
LEASING THE M/S PACIFICA STAR NOT ALLOWABLE ITEMS OF
1. The Tribunal should apply the laws of Pacifica to find that the yacht broker’s success fee is illegal ............................................................ 26
i. Meditteraneo policy to adopt international public policy standards leads to the application of Pacifica criminal law ......................................................................................................... 26
ii. The payment made using the yacht broker’s success fee was illegal ..................................................................................................... 28
2. Claimant is Imputable for the Bribery ............................................................ 28
3. The Illegality of the success fee taints the lease and all its associated costs, rendering them Non-allowable Items of Damages ..................................................................................................... 29
STOCKHOLM UNIVERSITY
MEMORANDUM FOR CLAIMANT | iv
B. RESPONDENT IS NOT OBLIGED TO PAY CLAIMANT DAMAGES THAT
WERE UNFORESEEABLE AND UNREASONABLE .................................................. 30
1. Claimant is not entitled to recover damages that were unforeseeable for Respondent ..................................................................... 31
2. Claimant incurred unreasonable costs to mitigate its losses. Moreover, amongst these costs, the ex-gratia payment and success fee are, in themselves, not allowable as items of damages ...................................................................................................... 32
i. Respondent does not need to reimburse Claimant the ex-gratia payment ...................................................................................... 32
ii. Respondent does not need to reimburse the success fee .......................... 34
STOCKHOLM UNIVERSITY
MEMORANDUM FOR CLAIMANT | v
INDEX OF AUTHORITIES
COMMENTARY ABBREVIATION CITATION CITED ON Alqudah Mutasim Ahmad Alqudah
Enforceability of Arbitration Clauses in Online Business-to-Consumer Contracts Journal of International Arbitration, Kluwer Law International 2011 Volume 28 Issue 1 pp. 67 – 79
96
Bernardini
Bernardini, Piero, The Role of the International Arbitrator, in: Arbitration International, Arbitration International, Volume 20 Number 2, 2004
20, 21
Böckstiegel Böckstiegel, Karl-Heinz Arbitrator’s case management: experiences and suggestions Published in Global Reflections on International Law, Commerce and Dispute Settlement - Liber Amicorum for Robert Briner, Paris, 2005, p. 6.
28
Author in Bianca/Bonell Bianca, Cesare Massimo; Bonell, Michael Jochim (eds.) Commentary on the International Sales Law: The 1980 Vienna Sales Convention Giuffrè, Milan, 1987
58, 111
Born 2009 Born, Gary B. International Commercial Arbitration Kluwer Law International, The Netherlands, 2009
17, 30, 34, 35, 36
Born 2011
Born, Gary B. International Commercial Arbitration: Commentary and Materials Kluwer Law International, 2011
23, 29
Brunner
Brunner, Christoph Force Majeure and Hardship under General Contract Principles: Exemption for Non-performance in International Arbitration Wolters Kluwer Law and Business, 2008
89
Chengwei
Chengwei, Liu Force Majeuere - Perspectives from CISG, UNIDROIT Principles & PECL and Case Law, 2nd ed., April 2005
57, 58, 63, 75, 81
CISG-AC Opinion No. 6
CISG-AC Opinion No. 6 Calculation of Damages under CISG Article 74
121
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MEMORANDUM FOR CLAIMANT | vi
Rapporteur: Professor John Y. Gotanda. Villanova University School of Law, Villanova, Pennsylvania, USA. Adopted by the CISG-AC at its Spring 2006 meeting in Stockholm, Sweden.
CISG-AC Opinion No. 7
CISG-AC Opinion No. 7, Exemption of Liability for Damages under Article 79 of the CISG Rapporteur: Professor Alejandro M. Garro, Columbia University School of Law, New York, N.Y., USA. Adopted by the CISG-AC at its 11th meeting in Wuhan, People's Republic of China, on 12 October 2007. Reproduction of this opinion is authorized.
55, 57, 68, 76, 84
Crivellaro Antonio Crivellaro "Arbitration Case Law on Bribery: Issues of Arbitrability, Contract Validity, Merits and Evidence" in Kristine Karsten and Andrew Berkeley, Arbitration, Money Laundering, Corruption and Fraud, Dossiers- ICC Institute of World Business Law (September 2003)
98
DAC Report Departmental Advisory Committee on Arbitration Report on English Arbitration Bill, February 1996
26
Explanatory Note Explanatory Note by the UNCITRAL Secretariat on the Model Law on International Commercial Arbitration
20, 21, 23
Flambouras
Flambouras, Dionysios Comperative Remarks on CISG Article 79 &PECL Articles 6:111, 8:108 May 2002 CISG database
57, 63
Fortier L. Yves Fortier: The Minimum Requirements of Due Process in Taking Measures Against Dilatory Tactics: Arbitral Discretion in International Commercial Arbitration - “A Few Plain Rules and a Few Strong Instincts”
17, 20, 22, 23, 25
Holtzmann/Neuhaus
Holtzmann, Howard M.; Neuhaus, Joseph E. A Guide to the UNCITRAL Model Law on International Commercial Arbitration – Legislative History and Commentary Kluwer Law and Taxation Publishers, Deventer, The Netherlands, Boston, 1998.
20, 30
Honnold Honnold, John Uniform Law for International Sales under the 1980 United Nations Convention, 3th Ed. Kluwer Law International, The Netherlands, 2009
63
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MEMORANDUM FOR CLAIMANT | vii
Howard Jenkins
Howard Jenkins, Sarah "Exemption for Nonperformance: UCC, CISG, UNIDROIT Principles, A Comparative Assessment": 72 Tulane Law Review (1998), p. 2026
63
Huber/Mullis Huber, Peter; Mullis, Alastair The CISG. A new textbook for students and practitioners Sellier, European Law Publishers, 2007
66, 114, 117, 118, 121, 126
Hwang/Lim
Hwang, Michael S.C.; Lim, Kevin Corruption in Arbitration – Law and Reality Expanded version of Herbert Smith-SMU Asian Arbitration Lecture, 4 August 2011, Singapore
96
Karrer Karrer, Pierre A.
Freedom of an Arbitral Tribunal to Conduct Proceedings, ICC International Court of Arbitration Bulletin Vol. 10 No. 1, 1999
26
Kolo Kolo, Abba Witness Intimidation, Tampering and Other Related Abuses of Process in Investment Arbitration: Possible Remedies Available to the Arbitral Tribunal Arbitration International, Volume 26, No. 1, 2010
36
Lubowitz
Lubowitz, Michael E. The Right to Counsel of Choice after Wheat v. United States: Whose Choice is it? The American University Law Review [Vol. 39:437 1990]
29
Park Park, William W. Arbitrator Integrity: The Transient and the Permanent, 46 San Diego Law Review, 629 2009
38
Huber in MüKo
Säcker, Franz Jürgen; Rixecker, Roland (ed) Münchener Kommentar zum Bürgerlichen Gesetzbuch, Vol. 3 5th. ed. Munich C. H. Beck, 2008
114
Sayed Sayed, Abdulhay Corruption in International Trade and Commercial Arbitration Kluwer Law International, 2004
98
Scherer Scherer, Matthias Circumstantial Evidence in Corruption Cases Before International Arbitral Tribunals International Arbitration Law Review, Vol. 5, 2002, pp. 29 - 40
98
STOCKHOLM UNIVERSITY
MEMORANDUM FOR CLAIMANT | viii
Author in Schlechtriem Schlechtriem, Peter; Schwenzer, Ingeborg Commentary on the UN Convention on the International Sale of Goods (CISG), 2rd Ed. Oxford University Press, Northants, 2005
63, 66, 75, 83, 117, 121
Author in Schwenzer/Schlechtriem
Schlechtriem, Peter; Schwenzer, Ingeborg Commentary on the UN Convention on the International Sale of Goods (CISG), 3rd Ed. Oxford University Press, Northants, 2010
72, 85
Schlechtriem Schlechtriem, Peter ; Published by Manz, Vienna: 1986. Reproduced with their permission, excerpt from: Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods
57, 83
Server Server, Jay R.
The Relaxation of Inarbitrability & Public Policy checks on U.S.and Foreign Arbitration: Arbitration out of control? 65 Tul. L. Rev. 1661, 1664 (1991)
95
Sheppard/Chance Sheppard, Audley; Chance, Cliffor Public Policy and the Enforcement of Arbitral Awards: Should there be a Global Standard? 1 Oil, Gas & Energy Law Intelligence No. 2, 2003
95
Southerington Southerington, Tom
Impossibility of Performance and Other Excuses in International Trade, Faculty of Law of the University of Turku, Finland: Private Law Publication Series B:55 (2001)
84
Spivack Spivack, Carla Of Shrinking Sweatsuits and Poison Vine Wax: A Comparison of Basis for Excuse under U.C.C. § 2-615 and CISG Article 79, 27 Pennsylvania Journal of International Economic Law (Fall 2006) 757-802
76, 83
66
Sachs/Lörcher Sachs, Klaus; Lörcher, Torsten Part II - Commentary on the German Arbitration Law (10th Book of the German Code of Civil Procedure), Chapter V – Conduct of the Arbitral Proceeding, § 1042 – General Rules of Procedure in Karl-Heinz Böckstiegel , Stefan Michael Kröll , et al. (eds), Arbitration in Germany: The Model Law in Practice, Kluwer Law International 2007
25
Magnus in Staudinger
von Staudinger, Julius Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen, Wiener UN-Kaufrecht
(CISG) [Commentary on the German Civil Code with all other Relevant Laws] Ulrich Magnes ed., Dr. Arthur L. Sellier & Co., 2005
Sutton
Sutton, David St. John; Gill, Judith Rusell on Arbitration London Sweet & Maxwell Limited, 2003
111
Waincymer
Waincymer, Jeff Reconciling Conflicting Rights in International Arbitration: The Right of Choice of Counsel and the Right to an Independent and Impartial Tribunal 26(4) Arbitration International, 597, 2010, 618
29
Watts Edited by Watts, Peter G. Bowstead & Reynolds on Agency (2010) 19th Ed at 6-084 Sweet & Maxwell Ltd, August 2010
100, 104
INDEX OF CASES
CASE LAW Austria Propane case
Supreme Court 6 February 1996, Case. No. 10 Ob 518/95
111
France Gas Turbines v. Westman
Paris Court of Appeal 30 September 1993 Société European Gas Turbines SA v Westman International Ltd.
108
Richy v. Warlaumont Paris Court of Appeal, 20 October 1994 [1996] Rev. Arb. 422 Richy v Warlaumont & Anor,
41
Avax v. Tecnimont(1) Paris Court of Appeal 12 February 2009, 1st Chamber, Court of Appeal Paris. in Branson, David J J&P Avax SA v. La Société Technimont SpA
27, 30, 33
Avax v. Tecnimont(2) Reims Court of Appeal Case No 10/02888 2 November 2011
27, 49
Milan Presse v. Média Sud
Paris Court of Appeal 12 January 199 Société Milan Presse v. Société Média Sud
46
STOCKHOLM UNIVERSITY
MEMORANDUM FOR CLAIMANT | x
Germany Video recorders case District Court, Darmstadt
9 May 2000
122
Vine wax case
Supreme Court BGH 24 March 1999 CLOUT
66, 83, 84
Iron molybdenum case Appellate Court Hamburg 28 February 1997
76
Spain Dye for clothes case Appellate Court, Barcelona
20 June 1997
122
Switzerland Art books case Commercial Court, Zürich
10 February 1999
121, 122
Centroza v. Orbis Swiss Federal Court 26 October 1966 Centroza v. Orbis
46
United Kingdom Lennards v. Petroleum
House of Lords [1915] AC 705 Lennards Carrying Co v. Asiatic Petroleum
100, 104
Westacre Investments v. Jugoimport
Court of Appeal 12 May 1999 [1992] 2 Lloyd‟s Rep. 65 Westacre Investments, Inc. v. Jugoimport-SDRP Holding Company Ltd. & ORS
95
United States Distilling v. Liquor Court of Appeals, 7th Cir.
15 April 1939, 104 F.2d 582 (1939) American Distilling v. Wisconsin Liquor
106
United States v. Gipson Court of Appeals 693 F. 2d 109, 111 (10th Cir. 1982) United States v. Gipson
29
United States v. Hobson
Court of Appeals 672 F. 2d 825, 828 (11th Cir. 1982) United States v. Hobson
29
Wheat v. United States United States Supreme Court 486 U.S. 153, 1998 Wheat v. United States
29
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MEMORANDUM FOR CLAIMANT | xi
Dickenson v. Iowa Court of Appeals 300 N.W. 2d 112, 1981 Dickenson Co. Inc. v. Iowa State Dept of Transportation
73
ARBITRATION AWARDS
Court of Arbitration of the International Chamber of Commerce ICC Award 1110/1963
ICC Award case No. 1110 of 1963 10 Arb. Int‟l para. 16 (1994)
106
ICC Award 6294/1991
ICC Award case No. 6294 of 1991 99
ICC Award 7197/1992
ICC Award case No. 7197 of 1992 CLOUT
85
CIETAC
Bulgarian Chamber of Commerce and Industry Coal case Bulgaria 24 April 1996 Arbitration Case 56/1995
85
ICSID Hrvatska v. Slovenia
6 May 2008 Case No. ARB/05/24 Hrvatska Elektroprivreda, d. d. v. The Republic of Slovenia
20, 21, 24, 26, 28, 34,
42
Rompetrol v. Romania 14 January 2010 Case No. ARB/06/3 Rompetrol Group N. V. v. The Republic of Romania
36
ICSID case no Arb./10/05
ICSID case no Arb./10/05, Dispute Resolution International Vol. 4 No, 1 May 2010
42
Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry Metallic sodium case 16 March 1995, Arbitration proceedings No. 155/1994 89
STOCKHOLM UNIVERSITY
MEMORANDUM FOR CLAIMANT | xii
INDEX OF STATUTES, RULES,TREATIES AND OTHERS
DAL UNCITRAL Model Law on International Commercial
Arbitration 1985 With amendments as adopted in 2006
passim
CISG United Nations Convention on Contracts for the International Sale of Goods, Vienna 1980
passim
NY Conv. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 1958
95
GC on Agency Geneva Convention on Agency in International Sale of Goods
103
IBA Guidelines IBA Guidelines on Conflicts of Interest in International Arbitration
30, 35, 38, 45
CAISG
Convention on Agency in the International Sale of Goods (Geneva, 17 February 1983)
103
CICA Interim Report
International Law Association, Committee on International Commercial Arbitration Interim Report on Public Policy as a Bar to Enforcement of International Arbitral Awards London 2000
96
CIETAC Rules Arbitration Rules of the China International Economic Trade Arbitration Commission
Passim
CIETAC Ethical Rules
Ethical Rules for Arbitrators of the China International Economic Trade Arbitration Commission
30, 38
CLCCCE Criminal Law Convention on Corruption of the Council of Europe
96
AUCPCC African Union Convention on Preventing and Combating Corruption
96
ICC Guidelines ICC Guidelines on Agents, Intermediaries and Third Parties, Article XI
125
UN CAC United Nations Convention against Corruption
96, 100
Restatement American Law Institute Restatement (3rd) of Agency (2006)
104
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MEMORANDUM FOR CLAIMANT | xiii
TABLE OF ABBREVIATIONS
Cir. Circuit (U.S. Court of Appeal)
AC Advisory Council
Art./Arts. Article/Articles
ASA Association suisse de l’arbitrage (Swiss Arbitration Association)
BGH Bundesgerichtshof
BULL Bulletin
CA Court of Appeal
CEO Chief Executive Officer
CIETAC China International Economic and Trade Arbitration Commission
CISG United Nations Convention on Contracts for the International Sale of Goods, Vienna 1980
Civ. Civil Division
Cl. Ex. Claimant‟s Exhibit
Claimant Mediterraneo Elite Conferences Services, Ltd
CQ. Clarification Question
CLOUT Case Law on UNCITRAL texts
Co. Company
Conv. Convention
Corp. Corporation
Corporate Executives Worldwide Corporate Executives Association
DAL Danubian Arbitration Law
Dr. Doctor
Ed. Edition
ed./eds. editor/editors
et al. and others
STOCKHOLM UNIVERSITY
MEMORANDUM FOR CLAIMANT | xiv
EWCA England and Wales Court of Appeal
EWHC High Court of England and Wales
F.2d Federal Reporter, Second Series
F.3d Federal Reporter, Third Series
F.Supp. Federal Supplement (District Court Reports)
High Performance Atlantis High Performance Chips
IBA International Bar Association
Ibid/Id. Ibidem/ Same place
ICC International Chamber of Commerce
ICSID International Centre for Settlement of Investment Disputes
ILA International Law Association
Inc. Incorporated
Int‟l/Intern. International
ITL International Trade Law
Ltd. Limited
MAL UNCITRAL Model Law on International Commercial Arbitration
Mfg Manufacturing
Mr. Mister
No./Nos. Number/Numbers
NY Conv. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 1958
UNCC United Nations Convention Against Corruption 2011
U.S. United States
UNCITRAL United Nations Commission on International Trade Law
Vol. Volume
v. versus (against)
STOCKHOLM UNIVERSITY
MEMORANDUM FOR RESPONDENT | 1
STATEMENT OF FACTS
1. Mediterraneo Elite Conference Services Ltd. (“Claimant”) is a company incorporated
under the laws of Mediterraneo [RfA p. 4, para. 1] and provides high-end conference
service packages to a number of demanding clients [Id.; RfA p. 5, para. 6]. Claimant bought
a yacht, the M/S Vis, and sought to refurbish it for its use as the newest luxury venue for
off-shore conferences [Id.].
2. On 26 May 2010, Claimant contracted with Equatoriana Control Systems Inc.
(“Respondent”), a company incorporated under the laws of Equatoriana [RfA p. 4, para. 2]
for the supply, installation and configuration of the master control system for the M/S Vis
[RfA p. 5, para. 7]. Claimant desired for the yacht to meet the highest standards and use the
latest in cabin technology, superior to anything else available on the market [RfA p. 5, para.
6]. The completion of the entire refurbishment was scheduled for 12 November 2010,
followed by a 10 weeks verification period [RfA p. 5, para. 7].
3. In order to meet Claimant‟s need for the latest in cabin technology, Respondent required a
range of subcontractors and suppliers to manufacture a master control system [RfA p. 5,
para. 6]. Respondent engaged Oceania Specialty Devices (“Specialty Devices”) to
manufacture processing units, which serve as the core element in the control system [RfA p.
5, para. 8]. The only way to fulfill Claimant´s high expectations was to design the processing
units to require state of the art technology, namely a D-28 chip, which offered significant
improvements over all rival chips currently on the market and projected to remain unrivaled
for another six months [RfA p. 5, para. 9]. Atlantis High Performance (“High
Performance”) was the sole manufacturer on the market that produced D-28 chips and
therefore Specialty Devices engaged High Performance to supply these chips for their
processing units [RfA p. 5, para. 9].
4. High Performance started the production of the D-28 chip as scheduled in middle August
2010 [RfA p. 6, para. 12]. However, on 6 September 2010 a fire at its plant forced High
Performance to halt production and delay its delivery of chips [RfA p. 6, para. 12; Cl. Ex.
No. 3, p. 11]. This late delivery caused subsequent delays in delivery for every other link in
the supply chain, including Respondent‟s delivery to Claimant [SoD pp. 38, 39 para. 7]. High
Performance had a limited supply of chips in its warehouse when the fire occurred. For
STOCKHOLM UNIVERSITY
MEMORANDUM FOR RESPONDENT | 2
commercial reasons, High Performance decided to use the entire stock of chips to fulfill its
obligations towards Atlantic Technical Solutions, a firm whose CEO was a longstanding
close friend of High Performance‟s CEO [RfA p. 6, para. 15].
5. On 13 September 2010, as soon as Respondent received confirmation of the delay by
Specialty Devices, and cognizant of the monopolistic supply situation, Respondent
telephoned Claimant about Specialty Devices‟ delay and how this delay would now lead to
Respondent‟s own late delivery [RfA p. 6, para. 12]. Without any communication or attempt
to solve the problem, Claimant resorted to a rather expensive alternative to using the M/S
Vis [RfA p. 7, para 18]. Since, unbeknownst to Respondent, Claimant itself was facing an
upcoming event with one of its most demanding clients, Corporate Executives Association
(“Corporate Executives”), it hired a yacht broker to find a substitute luxury yacht.
6. Claimant offered the yacht broker a commission fee of USD 60,000 and volunteered an
additional USD 50,000 success fee to secure the agreement [Id.]. The yacht broker used
part of this promised success fee to bribe a local yacht owner‟s assistant for an
“introduction” with the owner, which led to the eventual lease of the M/S Pacifica Star
[SoD p. 38, para 13]. The assistant was later convicted for accepting bribes [Id.]. Claimant
then took another liberty without Respondent‟s knowledge and volunteered an ex gratia
refund payment of USD 112,000 to Corporate Executives for a loss of goodwill that never
even threatened to materialize [PO No. 2, CQ 20, p. 40].
7. Without any further delays, Respondent delivered Claimant the master control system on 14
January 2011 [RfA p. 6, para. 16] and completed the installation, configuration and
verification of the system to Claimant‟s full satisfaction [Cl. Ex. No. 4, p. 12]. Claimant
confirmed that it was “very pleased” with the control system and it did “everything [they]
had hoped for” [Id.]. Claimant then paid Respondent the full Contract price [RfA pp. 6, 7,
para. 16]. It was not until six months after Respondent communicated the anticipated delay
[PO No. 2, CQ 15, p. 48] that Respondent received a letter from Claimant expressing its
satisfaction, but also requesting to be reimbursed for expenses incurred for having to find a
new location for a conference due to Respondent‟s delay [Id.]. Respondent was surprised by
such a request considering there had never been any prior mention of Corporate
Executives‟ conference or the fact that it had to be rescheduled [PO No. 2, CQ 15, p. 48].
STOCKHOLM UNIVERSITY
MEMORANDUM FOR RESPONDENT | 3
8. On 15 July 2011, Claimant initiated CIETAC arbitration against Respondent [RfA p. 3]
requesting damages for the ex gratia payment and compensation for costs arising from a
lease secured by bribery comprised of the lease itself, the success fee used for bribery, and
the commission fee.
9. From the beginning of the initiation of arbitration, Respondent was responsive to all
correspondence and cooperated in the appointment of arbitrators on time and without any
objection. However, three days before Respondent‟s submission of its Statement of
Defense and also on the same date CIETAC confirmed the constitution of the arbitral
panel [CIETAC Letter p. 34], Claimant decided to reveal to Respondent that it had added a
new member to their legal team, Dr. Mercado [PO No. 2, CQ 29, p. 50; SoD, p. 39 para. 16].
10. Respondent objects to Dr. Mercado‟s participation in this arbitration since Claimant‟s last-
minute inclusion has introduced a conflict with Professor Presiding Arbitrator
(“Professor”), the previously agreed upon chair of the arbitral panel [Horace Fasttrack’s letter,
p. 24; Joseph Langweiler’s letter, p. 25; CIETAC Letter, p. 34; PO No. 2, CQ 34, p. 50]. Dr.
Mercado is a co-lecturer of Professor Presiding Arbitrator at Danubia National University,
she is the godmother of Professor‟s youngest child and is good friends with Professor‟s
wife. Professionally, Dr. Mercado has received favorable outcomes in all prior arbitrations
in which she appeared as counsel before Professor [SoD, pp. 39, 40, paras. 16-22].
11. On 2 September 2011 Respondent submitted its Statement of Defense objecting to all
damages claimed by Claimant [SoD, p. 40, para. 24]. Damages related to the substitute lease
agreement are not recoverable as tainted by bribery, nor is the sum paid ex gratia as it is a
voluntary payment made in pure speculation of possible loss of goodwill that never even
threatened to materialize. Respondent lastly objects to the participation of Dr. Mercado in
this arbitration as it would jeopardize the integrity of these proceedings and, if denied,
reserves its right to challenge Professor Presiding Arbitrator.
SUMMARY OF ARGUMENTS
12. The Tribunal should remove Dr. Mercado from Claimant’s legal team. The Tribunal
has inherent powers to deal with procedural matters not regulated by party agreement or by
the DAL. The Tribunal may exercise its inherent power in order to ensure the integrity and
efficiency of the proceedings. By adding Dr. Mercado to its legal team, Claimant has casted
on this properly constituted Tribunal doubts as to the Tribunal‟s ability to impartially and
STOCKHOLM UNIVERSITY
MEMORANDUM FOR RESPONDENT | 4
independently decide this dispute. The extraordinary circumstances of Dr. Mercado‟s
academic, professional and personal relationship with the chair of this Tribunal, Professor
Presiding Arbitrator (“Professor”) affect the integrity of these proceedings and call for her
removal. The Tribunal should therefore exercise its inherent powers and order Dr.
Mercado‟s removal.
13. Respondent has not waived its right to challenge Professor Presiding Arbitrator. If
the Tribunal does not remove Dr. Mercado, Respondent can exercise its reserved right to
challenge Professor. Respondent raised the issue of Professor‟s potential bias within the 15-
day time limit established by CIETAC Rules, in writing and with supporting evidence.
When raising its objection Respondent expressly reserved its right to challenge Professor if
the challenge to Dr. Mercado was dismissed. Respondent cannot be deemed to have waived
its right.
14. Respondent is exempt from liability for its late delivery. Respondent is exempt because
both, Respondent‟s and its third party, Specialty Devices‟ attempts to perform were
frustrated by impediments which they could not control, foresee, or overcome.
Respondent‟s impediment consisted in its impossibility to receive on time the processing
units from Specialty Devices. In turn, Specialty Devices‟ impediment was its impossibility
to receive on time the D-28 chips from High Performance. The relevant impediment was
not the fire at High Performance‟s plant. In fact, High Performance was not a third party to
Respondent. But even if the Tribunal considers that High Performance was a third party,
for which the fire was an impediment, this impediment was still unforeseeable, beyond its
control and one it could not overcome. Even then, Respondent is exempt from liability for
its late delivery.
15. The success fee was illegal. Respondent is not obliged to pay damages arising from
a corrupt transaction. The success fee used to procure the lease of the M/S Pacifica Star
was illegal. The illegal payment made by Claimant‟s broker to procure the lease was such an
integral part of the transaction, that it cannot be separated from it. The success fee‟s
illegality taints the lease and its associated costs, rendering them unallowable items of
damages, and thereby not recoverable by Claimant.
16. Respondent is not obliged to pay damages that were unforeseeable and
unreasonable. Even if the Tribunal finds the lease and its associated costs are unaffected
STOCKHOLM UNIVERSITY
MEMORANDUM FOR RESPONDENT | 5
by the illegality of the success fee, Claimant is not entitled to recover damages. Claimant
attempts to recover damages that were unforeseeable for Respondent. Respondent did not
know at the time of the Contract about Corporate Executives‟ conference. Also, Claimant
failed its duty to reasonably mitigate losses. The ex-gratia payment was a voluntary
disbursement for an inexistent loss of goodwill. Claimant has not substantiated its
hypothetical loss or measurement. Also, the broker‟s success fee was an unreasonable costly
means for mitigation. The unforeseeability and unreasonableness of the damages renders
them unallowable items of damages. Claimant is thus not allowed to its recovery.
ARGUMENT ON PROCEDURE
I. THE TRIBUNAL SHOULD ORDER THE REMOVAL OF DR. MERCADO FROM CLAIMANT’S LEGAL TEAM
17. Respondent respectfully requests this Tribunal to order the removal of one of Claimant‟s
counsel, Dr. Mercado, from Claimant‟s legal team. By recently adding her to its legal team,
Claimant endangers the integrity of these arbitral proceedings. Dr. Mercado‟s relationship
with Professor Presiding Arbitrator (“Professor”) - the jointly agreed chair of this Tribunal
- raises justifiable doubts as to his independence and impartiality. In selecting arbitration
Respondent and Claimant chose to rely, in large measure, on the arbitrators to ensure that
justice is done [Fortier, p. 408]. In particular, they rely on Professor, the presiding arbitrator,
as he plays a crucial role in these arbitral proceedings by leading the deliberations and even
in holding the decisive vote [Article 47 (6) CIETAC Rules; Born 2009, p. 1663]. Due to
Professor‟s expertise [PO No. 2, CQ 34, p. 50] and special position within this Tribunal, his
retention in these proceedings is of primary importance. Also, if Claimant is forced to
bring a challenge procedure before CIETAC against Professor instead of Dr. Mercado, this
would substantially delay these proceedings.
18. This Tribunal should exercise its inherent procedural power when conducting these
proceedings and remove the root of the conflict, i.e the recently added counsel, Dr.
Mercado (A). Alternatively, if the Tribunal does not order Dr. Mercado‟s removal,
Respondent reserves its right to challenge Professor Presiding Arbitrator before the
Chairman of CIETAC (B).
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MEMORANDUM FOR RESPONDENT | 6
A. THE TRIBUNAL HAS THE POWER TO ORDER THE REMOVAL OF DR. MERCADO
19. The Tribunal has the power to remove Dr. Mercado from Claimant‟s legal team, as the
Tribunal has the general power to deal with procedural matters as it considers appropriate
(1). By exercising this general power, the Tribunal safeguards the integrity of these
proceedings and does not infringe on Claimant‟s right to counsel of choice (2). The
extraordinary circumstances of Dr. Mercado‟s and Professor‟s relation justify the exercise
of the Tribunal‟s power to remove Dr. Mercado. Allowing Claimant to retain her would
jeopardize the integrity and finality of these arbitral proceedings (3).
1. The Tribunal’s discretionary power encompasses this Tribunal’s Power to Order the Removal of Dr. Mercado
20. Contrary to Claimant‟s submissions [MfC pp. 6, 7, paras. 32-36], this Tribunal has the power
to remove Dr. Mercado from Claimant‟s legal team. The powers of this Tribunal are those
conferred upon it by the agreement of the parties within the limits of the DAL, together
with any additional powers granted by operation of law [Redfern/Hunter, para. 5.04].
including this Tribunal‟s inherent discretionary power to determine any procedural matters
[Redfern/Hunter, para. 5.11] that are not regulated in the arbitration agreement or the DAL
[Explanatory Note, p. 32, para. 35; Hrvatska, footnote 15]. Absent the parties‟ agreement as to
the procedure, it must follow that this Tribunal has broad discretionary power to conduct
the proceedings as it deems “appropriate” [Redfern/Hunter, paras. 5.11, 514; Fortier, p. 398;
Holtzmann/Neuhaus, p. 564; Bernardini, p. 117; Article 19(2) DAL]. Furthermore, CIETAC
Rules expressly afford the Tribunal with discretionary power to issue procedural orders as it
considers necessary to conduct the hearing [Article 33(1), (4) CIETAC Rules].
21. The only restrictions to the Tribunal‟s discretionary power stem from the mandatory
provisions of the DAL, the agreement of the parties and the arbitration rules [Article 19 (2)
DAL; Explanatory Note, p. 32, para. 34; Bernardini, pp. 114, 117 Hrvatska, footnote 15]. In
this case, these restrictions do not apply. As developed below [see paras. 29-33], the removal
of Dr. Mercado conforms with the mandatory provisions of the DAL, the lex arbitri
applicable to these proceedings [Cl. Ex. No. 1, p. 9]. There is no agreement of the parties
on her removal; moreover, the CIETAC Rules – the procedural rules agreed by Claimant
and Respondent - and the DAL are silent on the procedural question of the removal of a
conflicted counsel.
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MEMORANDUM FOR RESPONDENT | 7
22. This Tribunal‟s inherent discretionary power is further derived from its duty to ensure the
integrity and efficiency of these proceedings. A tribunal has the power to conduct the
proceedings in an “appropriate” manner, provided that it treats the parties with equality,
gives each party a full opportunity to present its case [Article 18 DAL; Pryles, p. 336;
Redfern/Hunter para. 514] and simulatneously seeks to reduce delay and achieve efficiency in
the proceedings [Fortier, p. 396]. Its discretionary powers enable the Tribunal to control
dilatory tactics employed by a party [Id.]. In doing so, the Tribunal fulfills its duty to carry
out its own adjudicative tasks without undue delay [Article 14 DAL] within the time period
established by the CIETAC Rules [Article 31(1) CIETAC Rules; Redfern/Hunter, para. 5.65].
23. The discretionary powers of a tribunal constitute one of the hallmarks of international
arbitration [Fortier, p. 396; Redfern/Hunter, para. 5.14; Born, 2011, p. 715] compared with
litigation where fixed procedures exist [Redfern/Hunter, para. 5.14]. Here, the Tribunal is
empowered to tailor the proceedings to the specific features of this case [Explanatory
Note, p. 32, para. 35] in order to ensure the integrity and efficiency of these proceedings.
Consequently, this Tribunal has the inherent power to order the removal of Dr. Mercado.
2. The Exercise of the Tribunal’s Power to Order the Removal of Dr. Mercado Safeguards the Integrity of these Proceedings and does not Infringe on Claimant’s Rights
24. Contrary to Claimant‟s submission [MfC, paras. 37-46] the Tribunal‟s power to remove Dr.
Mercado safeguards the integrity of these proceedings and does not infringe on Claimant‟s
right to counsel of choice. In order to promote the integrity of the proceedings and the
tribunal‟s legitimacy, a tribunal may exercise its powers to limit a party‟s right to choose
counsel [Hrvatska para. 26] (i). Further, by exercising its power to remove Dr. Mercado the
Tribunal does not infringe on Claimant‟s right to counsel of choice (ii).
i. By removing Dr. Mercado the Tribunal would safeguard the integrity and efficiency of these proceedings
25. By exercising its discretionary procedural powers to remove Dr. Mercado, this Tribunal
safeguards the integrity of these proceedings and avoids Claimant‟s tactic to imperil the
Tribunal‟s legitimacy and delay the proceedings. Discretionary powers to conduct the
proceedings enable the arbitrators to seek to reduce delay and achieve efficiency by
controlling dilatory tactics employed by a party [Fortier, p. 396]. Arbitral tribunals can be the
direct target of a party‟s maneuver to delay the proceedings by, for example, deliberately
nominating a biased arbitrator or similar to this case, practically force its nominated
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arbitrator to resign [Greenberg, pp. 1, 2]. The Tribunal may then exercise its discretionary
powers to limit a party‟s right to fully present its case as a party is not entitled to obstruct
the proceedings by such dilatory practices and tactics [Sachs/Lörcher, pp. 277 – 288].
26. Claimant‟s “full” opportunity to present its case must be understood with reference to the
overall goal of arbitral proceedings of rendering a final decision of a dispute, as a
“reasonable” opportunity to present its case [Karrer, para. 13.4; DAC Report, p. 300 para.
165]. The DAL does not intend to entitle Claimant to do whatever it wants, however
unreasonable it may be [Id.]. Regarding the choice of Dr. Mercado, which introduces a
conflictive relationship with Professor, Claimant attempts to abuse its right to a “full”
opportunity to present its case as granted by DAL. Although a party is free to select its
legal team as it sees fit prior to the constitution of the tribunal, it is not entitled to
subsequently amend the composition of its legal team in such a fashion as to imperil the
tribunal's status or legitimacy [Hrvatska, para. 26].
27. A similar reasoning was followed in Avax v. Tecnimont where the Paris and Reims Courts of
Appeals dealt with the issue of conflicts of interests which surfaced after the tribunal had
been properly constituted. In that case, the presiding arbitrator was a partner in an
international law firm and completed his disclosure statement after consulting his firm's
conflict of interest centre and was duly confirmed. Avax then became aware that the
arbitrator‟s firm had accepted several assignments for Tecnimont after the arbitrator made
his initial disclosure. The Paris Court of Appeals vacated the award holding that a party has
the responsibility to protect the integrity of the proceeding and that it must be aware of the
law firm in which an arbitrator works and should avoid employing that firm where it would
create a conflict and imperil the award. [Avax v. Tecnimont (1); Avax v. Tecnimont (2), p. 630].
28. The decisions of Hrvatska and Avax v. Tecnimont mirror the present case in the sense that
Claimant – after Professor‟s disclosure and this Tribunal‟s proper constitution – later
creates a potential conflict of interest by employing Dr. Mercado. This Tribunal should
stand firm against any attempts of Claimant to manipulate or sabotage these proceedings
[Böckstiegel, p. 6]. In Hrvatska, the tribunal‟s inherent power to protect the proceedings
enabled it to remove the conflictive counsel, frustrating the party‟s attempt to delay the
proceedings. Similarly, in this case, the Tribunal should exercise its power to remove Dr.
Mercado. Its exercise safeguards the integrity and efficiency of these proceedings,
preventing Claimant from abusing of the opportunity it was given to present its case.
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MEMORANDUM FOR RESPONDENT | 9
ii. By ordering the removal of Dr. Mercado the Tribunal does not infringe on Claimant’s rights
29. By exercising its power to remove Dr. Mercado the Tribunal would not infringe Claimant‟s
right to counsel of choice. The right to counsel of choice is not an absolute one. It may be
restricted when necessary to safeguard conflicting rights [Waincymer, p. 610; Born 2011, p.
965; Lubowitz, p. 438; Wheat v. United States; United States v. Gipson; United States v. Hobson].
Such conflicting rights are Respondent‟s fundamental right to an independent and impartial
arbitral tribunal [Waincymer, p. 615; Article 12 DAL] and Claimant‟s right to be represented
by Dr. Mercado -its counsel of choice.
30. The right to an independent and impartial tribunal is mandatory [Holtzmann/Neuhaus, p.
390] and ensures the integrity of the arbitral process [Born 2009, pp. 1463 - 1464] in favor
of both, Claimant and Respondent. Indeed, every arbitrator shall be impartial and
independent of the parties at the time of accepting an appointment and shall remain so
[Article 22 CIETAC Rules; Articles 1, 2 CIETAC Ethical Rules] during the entire arbitration
proceeding until the final award has been rendered [Article 47 (1) CIETAC Rules] or the
proceedings have otherwise finally terminated [IBA Guidelines, Part 1, para. 1, p. 7]. As such,
although Claimant‟s and Respondent‟s fundamental procedural rights may conflict, the right
to an independent and impartial tribunal should prevail. An award rendered by a biased
Tribunal jeopardizes the finality of the proceedings, as such award would be open to
challenge [Article 34 (2)(a)(iv) DAL; Avax v. Tecnimont (1)].
31. Contrary to Claimant‟s assertion [MfC p. 7, para. 34], the removal of Dr. Mercado does not
deprive in practice Claimant of its right to counsel of choice. Claimant is represented by a
legal team which comprises of various members including Mr. Horace Fasttrack, Claimant‟s
arbitral agent [RfA p. 4, para. 1]. Respondent‟s defense would therefore continue to be fully
operable during the proceedings. Besides, because of the early stage of these proceedings,
Claimant has plenty of time and opportunity to resort to a new qualified counsel.
Admittedly, Dr. Mercado is well-versed in arbitration and trade law and has an academic
background [SoD p. 39 para. 20; PO No. 2, CQ 33, p. 51]. Such qualifications, however, are
often required in international commercial arbitration. A large number of practicing
lawyers have emerged that endeavor to and succeed in marketing a multi-discipline profile
in order to best meet their clients‟ needs. Claimant could still easily and within short time
find an equally qualified lawyer as a replacement counsel for Dr. Mercado.
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MEMORANDUM FOR RESPONDENT | 10
32. More importantly, Dr. Mercado was engaged by Claimant only for the purpose of these
proceedings. This is also the first time she has worked with Mr. Fasttrack [PO No. 2, CQ 29,
p. 50]. Absent any significant pre-existing client relationship between Claimant and Dr.
Mercado, there can hardly be a relationship of trust as alleged by Claimant of which it
would be deprived [MfC p. 6, para. 34].
33. In conclusion, the removal of Dr. Mercado does not infringe on Claimant‟s rights to
counsel of its choice or to present its case. As a consequence, and contrary to Claimant‟s
submissions [MfC pp. 14, 15, paras. 54-56] removing Dr. Mercado would not jeopardize the
finality of the award. In contrast, removing her would actually ensure the immutability of
the properly constituted and mutually agreed upon Tribunal. If, however, Claimant remains
represented by Dr. Mercado, the consequent lack of independence and impartiality of the
presiding arbitrator would taint the Tribunal and jeopardize the finality of the award [Article
34 (2)(a)(iv) DAL; Avax v. Tecnimont (1)].
3. The Tribunal Should Exercise its Power to Order the Removal of Dr. Mercado. The Extraordinary Circumstances of Dr. Mercado’s relation with Professor Compromise the Integrity of these Proceedings
34. The Tribunal should exercise its discretionary procedural powers to remove Dr. Mercado,
as her presence in Claimant‟s legal team creates a conflict which compromises the integrity
of these arbitral proceedings. The Tribunal must preserve the integrity of the proceedings
and, ultimately, of the award [Hrvatska, para. 30]. This is ensured by the arbitrators‟
impartiality and independence [Born 2009, pp. 1463– 1464] in dealing with the parties
[Article 22 CIETAC Rules] and when rendering the arbitral award [Article 47 (6) CIETAC
Rules].
35. A fundamental rule of procedure is that the parties should not have any justifiable doubts
as to the impartiality or independence of any Tribunal member. Justifiable doubts exist
when a reasonable and informed third party [IBA Guidelines, General Standard 2(c); Born 2009,
p. 1476], with supporting objective evidence [Article 30 (2) CIETAC Rules; Korsnäs v. Fortum]
suspects that a member of the tribunal would be influenced when reaching its decision
[IBA Guidelines, General Standard 2(c)]. In such case, that member may be removed from the
No. 1, p. 41]. This introduction made it possible for Claimant to then lease Mr Goldrich‟s
yacht. In fact, as stated above, it was unusual for Mr. Goldrich to lease his yacht [PO No.2,
CQ 21, p. 49]. If Claimant had not promised the success fee to secure the lease, there would
not have been a bribe. But for the bribe, the introduction never would have taken place,
and neither the lease contract. This evidences that the illegally obtained introduction [Resp.
Ex. No. 1, p. 41] is such an integral part of the lease that lead to the costs Claimant is now
trying to recover and its illegality cannot be separated from the transaction.
108. Moreover, and contrary to Claimant‟s assertions [MfC p. 33, para 123], the fact that
Claimant and Mr. Goldrich did not know about the bribery when they entered into the
lease is irrelevant for the purpose of invalidating the lease and its associated costs. The
parties‟ awareness of the immoral or illicit aim of the contract is not meant to lessen the
sanction of nullity of the contract [Gas Turbines v. Westman]. On the contrary, it aims at
reinforcing it by protecting the innocent party [Id.]. This is why the illegality of the success
fee renders the lease and its associated costs invalid, regardless of the fact that Claimant
and Mr. Goldrich consented to the lease unaware of the bribery. As an innocent party to
this illegal act, Respondent should not be affected by its consequences nor expected to
finance the illegal offences attributable to Claimant.
109. The Tribunal should then rule that the illegality of the bribery committed using the success
fee taints the entire transaction. As a consequence, it renders the lease and all its associated
costs unallowable items of damages, which Claimant is not entitled to recover.
B. RESPONDENT IS NOT OBLIGED TO PAY CLAIMANT DAMAGES THAT WERE
UNFORESEEABLE AND UNREASONABLE
110. Even if the Tribunal considers that there is no bribery under the applicable law, or that
bribery does not taint the entire transaction, Claimant is still not entitled to recover
damages. Claimant can only recover damages for foreseeable losses [Article 74 CISG] and
for reasonable mitigation costs [Article 77 CISG] resulting from Respondent‟s late delivery.
The lease agreement; the broker‟s commission and success fee; and Corporate Executives‟
ex-gratia payment are costs Respondent could not foresee (1). In addition, by paying the
success fee and the ex-gratia payment Claimant failed its duty to reasonably mitigate its
losses resulting from Respondent‟s late delivery [Article 77 CISG] (2).
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MEMORANDUM FOR RESPONDENT | 31
1. Claimant is not entitled to recover damages that were unforeseeable for Respondent
111. Claimant attempts to recover damages Respondent could not foresee. Foreseeability
depends on Respondent‟s subjective knowledge or representation of possible facts and
circumstances at the time of the conclusion of the contract [Knapp in Bianca-Bonell, pp. 539-
41; Sutton] together with its objective understanding of its own and Claimant‟s industry
[Sutton; Propane case].
112. At the time of the Contract Respondent could not subjectively foresee that its delay could
result in Claimant leasing a substitute yacht to host a conference [RfA, p. 7, para. 18] for a
client Respondent only found out about two months after signing the Contract [RfA p. 5,
para. 7; PO No. 2, CQ 14, p. 47]. Considering the brokerage industry, Respondent could
neither subjectively foresee that Claimant would pay its broker twice. It is not customary to
pay a broker a success fee on top of the standard commission [PO No. 2, CQ 23, p. 49].
Respondent could neither foresee that Claimant would make a voluntary disbursement for
an hypothetical loss of goodwill [RfA, p. 7, para. 18]
113. Respondent could neither objectively foresee any of the damages Claimant demands.
Respondent understands its industry, the sale, installation and configuration of master
control systems. But, Respondent has no objective understanding of Claimant‟s industry of
conferences for demanding clients [RfA, p.5, para. 5].
114. Even if Respondent had objectively foreseen these damages, there is no objective
foreseeability in cases of uncommon damages. Uncommon damages are those
exceptionally high damages, which Claimant had been able to recover only if it had
informed Respondent about their probable occurrence and if Respondent had agreed to
contract nevertheless [Huber/Mullis, pp. 273-274]. Specifically, Corporate Executes was a
high profile organization of top level executives that denied rescheduling the event and
accepting one of Claimant‟s other available venues [RfA, p. 6, para. 11]. This was something
that a common customer, one whose behavior Respondent could foresee, had improbably
done. Respondent could neither reasonably foresee the uncommonly high damages
Claimant attempts to recover. Claimant is asking Respondent to pay USD 670,600 for the
lease of the substitute yacht. Such amount is almost the same price of the master control
system, USD 699, 950. When losses are so high, they are no longer foreseeable [see also
Huber in MüKo, p. 2514, para. 31 and p. 2517, para. 39].
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115. Furthermore, Claimant knew that it was common that Respondent used [PO No. 2, CQ 6, p.
46] Specialty Devices as third party to manufacture the units of the master control system.
Claimant also knew that Specialty Devices needed chips from High Performance, as it was
the only source for the D-28 chips [RfA, p. 5, para. 9]. As Claimant wanted the master
control system to be based on the newly developed chips, it accepted the risk of High
Performance‟s potential breach. Even if a party may subjectively have foreseen damages
arising from the late delivery of any party in its supply chain, this does not mean that
Respondent can be taken to have accepted the risk of such late delivery.
116. Since Respondent did not know about the conference at the time of the Contract, and
therefore not about the particular circumstances of Claimant‟s business with Corporate
Executives either, Respondent could not subjectively or objectively have foreseen the losses
Claimants now requests the Tribunal to recover from Respondent. Nor can Respondent be
expected to accept risks for possible damages resulting from circumstances of which
Respondent was not informed. The losses Claimant requests to recover were unforeseeable
to Respondent, and Claimant is therefore not entitled to its recovery.
2. Claimant incurred unreasonable costs to mitigate its losses. Moreover, amongst these costs, the ex-gratia payment and success fee are, in themselves, not allowable as items of damages
117. Claimant failed its duty to reasonably mitigate losses resulting from Respondent‟s late
delivery [Article 77 CISG]. Corporate Executives‟ ex-gratia payment and the broker‟s
success fee were unreasonable mitigation measures. Considering either the conference
organization and brokerage trade usages [Stoll/Gruber in Schlechtriem, p. 790, para. 7; Article 9
CISG] no prudent business person in Claimant‟s position would have taken such measures
[Huber/Mullis, p. 290] Thereby Respondent is not obliged to reimburse Claimant the ex-
gratia payment (i) nor the success fee (ii).
i. Respondent does not need to reimburse Claimant the ex-gratia payment
118. Claimant made a voluntary payment for a non-existent loss of goodwill, which payment
Respondent is not obliged to reimburse. Claimant can recover only such payments as it was
forced to undertake as direct result from Respondent‟s breach [Huber/Mullis, p. 386].
Therefore, Claimant‟s voluntary disbursement to prevent an non-existent and highly
unlikely loss of goodwill was unreasonable.
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119. Contrary to Claimant‟s assertions [MfC pp. 25, 26, paras. 94-97] Claimant has not provided
the Tribunal with any evidence of suffering an actual loss of its client‟s goodwill or damage
to its reputation. In fact, Claimant hosted the conference on time on a “super yacht” [Resp.
Ex. No. 1, p. 41], just as Corporate Executives demanded and all guests were completely
satisfied [Id.]. Claimant‟s statements are inaccurate [MfC p. 26, para. 96] since Corporate
Executives never manifested any disappointment when Claimant informed of the M/S Vis‟
unavailability. Corporate Executives merely expressed its dismay for changing the location
[PO No. 2, CQ 20, p. 48] and insisted on hosting the conference on a substitute off-shore
venue [RfA, p. 7, para. 17]. Therefore, when Corporate Executives knew about the new
location on the M/S Pacifica Star, it “manifested its relief ” [Resp. Ex. No. 1, p. 41].
120. Furthermore, Claimant is not even able to provide any means to measure its alleged losses.
Claimant recognizes this in its own submission by saying “that goodwill may be difficult to
measure in this instance” [MfC, p. 25, para. 95]. Claimant however, still paid Corporate
Executives an unreasonably high amount of USD 112,000, which equals 25% of the total
costs for the lease of the substitute yacht. Claimant did not substantiate how it measured its
alleged loss of goodwill to that amount.
121. Respondent agrees with Claimant [MfA, p. 23, para. 86] that loss of goodwill might be
recoverable under Article 74 CISG. But Article 74 does not grant claims for immaterial
damages [CISG-AC Opinion No. 6, para. 7.1; Stoll/Gruber in Schlechtriem, p. 791, para.12;
Huber/Mullis, p. 279; Magnus in Staudinger, p. 648, para. 27] that do not lead to measurable
financial consequences [Huber/Mullis, p. 279]. In fact, damages are a “sum equal to the loss
(…) suffered” [Article 74 CISG]. This means that Claimant is not allowed to recover the ex-
gratia payment for a loss of goodwill it did not suffer and whose economic extent is not
measurable [Huber/Mullis, p. 279]. Damages resulting from loss of goodwill must be
"substantiated and explained concretely” [Art books case].
122. In Dye for clothes, the Barcelona Court of Appeals denied damages to the aggrieved party
which did not provide evidence showing loss of clients or loss of reputation [Dye for clothes
case]. In Art books, the Commercial Court of the Canton of Zurich denied reimbursement
of loss of goodwill, because when a party did not substantiate such goodwill claims [Id.].
Also, in Video recorders case, the District Court of Darmstadt denied damages for loss of
goodwill because the buyer was unable to calculate the exact losses resulting from the
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damaged reputation [Video recorders case]. This case presents a Claimant that has neither
provided evidence, substantiated their claims nor able to calculate exact losses.
123. The ex-gratia payment is therefore unreasonable since the facts do not substantiate
Claimant‟s hypothetical circumstances for loss of goodwill. Claimant did not repudiate its
contract, so it did not risk losing future businesses with Corporate Executives [PO No. 2,
CQ 17, p. 48]. Corporate Executives was merely unhappy for the change of location [Id.],
but it never showed any intention of breaking present or future business relationships.
124. The Tribunal should rule that the ex-gratia payment was an unreasonable means for
mitigation and that Claimant is therefore not allowed to its recovery.
ii. Respondent does not need to reimburse the success fee
125. Even if the Tribunal considers that the success fee is not tainted by bribery, the success fee
was nevertheless an unreasonable measure taken by Claimant to mitigate losses. Success
fees are not customary for yacht brokers [PO No. 2, CQ 23, p. 49]. There are offered only
rarely, in exceptional circumstances [Id.]. Here, considering the brokerage industry, there is
nothing to justify Claimant‟s paying such fee. Even if the broker had difficulties finding a
suitable substitute yacht, this is part of the brokers business. Clients engage brokers
precisely because the specific goods they look for are not easily accessible on the market, or
because the Clients require special features [ICC Guidelines]. The reasonable reward for such
efforts is the payment of the commission fee.
126. The success fee Claimant paid is nothing but a voluntary and unnecessary disbursement.
Claimant may only be compensated for those payments it was forced to make as a direct
result of the breach [Huber/ Mullis, p. 386]. Here, Claimant paid voluntarily. The broker did
not ask for the payment, nor was Claimant was obliged to make it. Furthermore, the
amount of the success fee exceeds what a prudent businessperson in Claimant‟s situation
would reasonably pay. The success fee amounted almost as much as the commission fee
itself (82,5 % of the commission fee) and thus Claimant effectively paid its broker twice.
127. By paying such a high, unnecessary, and uncommon fee, Claimant took an unreasonable
measure to mitigate its loss,. Therefore, the Tribunal should rule that the success fee is not
an allowable item of damages and that Claimant is thus not entitled to its recovery.
* * *
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128. Conclusion on Merits: This Tribunal should rule that Respondent is exempt from liability
for its late delivery of the master control system, and thereby not obliged to pay damages
to Claimant. Respondent is exempt because both Respondent‟s and its third party, Specialty
Devices‟, attempt to perform were frustrated by impediments which were they could not
control, foresee, or overcome. Even if the Tribunal does not find that Respondent is
exempt, Claimant is still not entitled to recover damages for costs incurred which are not
allowable items of damages. Claimant‟s success fee was an illegal payment used to procure
the lease of the M/S Pacifica Star. The illegibility of the success fee taints the lease and
renders all its associated costs unallowable items of damages. Moreover, the ex-gratia
payment and the success fee are further unrecoverable, as they were unreasonable means
for mitigation. Claimant is thus not entitled to recover any of the damages it claims.
V. REQUEST FOR RELIEF
129. In light of the above submissions, Respondent respectfully requests this Tribunal to:
1) Decide that Dr. Mercado shall terminate her role in Claimant‟s legal team.
2) Decide that Respondent is exempt from liability for the late delivery of the M/S Vis
master control system.
3) Decide that even if Respondent is held liable for its delay, the success fee used by
Claimant‟s broker to commit bribe is illegal and thereby not an allowable item of
damages.
4) Decide that the illegal bribe, which procured the lease of the M/Pacifica Star, renders all
costs associated with the lease unallowable items of damages.
5) Decide that the ex-gratia payment is not an allowable item of damages.
Respectfully signed and submitted by counsel on 19 January 2012
_____________ ___________________ ____________________ Brian Kotick Ragnhildur Olafsdottir Celeste E. Salinas Quero _________________ ________________ ____________________ Yaroslava Sorokthey Anina Wissner Gunnar Witte