Kuala Lumpur Regional Centre for Arbitration. Kuala Lumpur, Malaysia. The 2011 LAWASIA Moot Court Competition. Astoria Produce Company.

Transcription

1 M3010-C Kuala Lumpur Regional Centre for Arbitration Kuala Lumpur, Malaysia The 2011 LAWASIA Moot Court Competition Astoria Produce Company (Claimant) v. Rolga Farmer s Exchange (Respondent) Memorial for Claimant

2 i M3010 C

3 TABLE OF CONTENT INDEX OF AUTHORITIES....v STATEMENT OF JURISDICTION... 1 QUESTIONS PRESENTED STATEMENT OF FACTS... 3 SUMMARY OF PLEADINGS PLEADINGS 1. THE KLRCA HAS THE AUTHORITY TO RESOLVE THIS DISPUTE BETWEEN THE PARTIES A Valid Arbitration Agreement Exists Between the Parties Subjecting Disputes to the KLRCA Pursuant to the CISG, the Arbitration Agreement was accepted once Respondent dispatched the bananas Even under the UNIDROIT Principles, Respondent s performance constitutes an acceptance of the agreement to arbitrate before the KLRCA The UNIDROIT Battle of the Forms provision should not apply The controlling document is Claimant s Bill of Sale, which includes the agreement to arbitrate before the KLRCA The Requirement that Arbitration Agreements Be in Writing Has Been Satisfied ii

4 2 THE APPOINTMENT OF ARBITRATORS WAS PROPERLY CONDUCTED The Second Arbitrator Was Properly Appointed After Respondent Failed To Select Its Arbitrator For The Panel Respondent Should Be Deemed To Have Waived Any Objection To the Appointment Of The Presiding Arbitrator Because It Failed To Make A Timely Objection THE TRIBUNAL SHOULD REQUIRE RESPONDENT TO PAY UNNECESSARY COSTS AS A SANCTION FOR ITS FAILURE TO APPEAR AT THE ORIGINAL HEARING THE CISG IS THE APPLICABLE SUBSTANTIVE LAW THAT GOVERNS THIS DISPUTE Astoria s Choice-Of-Law Rules Is More Appropriate And Therefore Should Be Applied Astoria s choice-of-law rule leads to the CISG as the applicable law Rolga s Choice of law rule, if applied, would lead to the CISG as the governing law regardless Under The CISG, KLRCA Has The Authority To Resolve This Dispute RESPONDENT SHOULD BE HELD LIABLE FOR ALL DAMAGES SINCE IT COMMITTED A FUNDAMENTAL BREACH OF ITS OBLIGATIONS Respondent Failed To Meet Its Obligation Under The Contract by Delivering A Large Number of Non-Conforming Bananas.. 25 iii

5 5.1.1 Respondent did not deliver the bananas which were of the quality required by the contract The bananas were not fit for ordinary use The bananas were not fit for the particular purpose expressly made known to the seller at the time of the conclusion of the contract The bananas were not properly packaged in the manner required by the contract Respondent s Actions Constitutes A Fundamental Breach And Gives Claimant A Right To Declare The Contract Avoided Claimant cannot use or resell the ripe bananas without suffering unreasonable inconvenience Respondent should have foreseen that the bananas would arrive in non-conforming condition CLAIMANT DID NOT HAVE A LEGAL OBLIGATION TO MITIGATE DAMAGES, BUT CLAIMANT WAS EXEMPT FROM DOING SO UNDER THE CISG Claimant Was Exempt From Mitigation Requirements Because of Conditions Beyond its Control Claimant Could Not Reasonably be Expected to Have Taken the Impediment into Account At the Time of the Conclusion of the Contract CONCLUSION AND PRAYER FOR RELIEF...34 iv

6 INDEX OF AUTHORITIES International Treaties & Conventions European Community Regulation No 593/ UNCITRAL Model Law on Electronic Commerce (1996)..15 UNCITRAL Model Law on International Commercial Arbitration.8,15,16,17,18,20,21,22 UNIDROIT principles. 12, 13, 20,31 United Nations Convention on Contracts for the International Sale of Goods.. 8, 9, 10, 11, 12, 25, 27, 29,30, 31,32, 33 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) U.S. Restatement (Second) of Conflict of Laws International Court and Tribunal Cases Case No. M/21/95 Compromex [Mexican Commission for the Protection of Foreign Trade] (1996).29 Case No. S 96/1215, Helsinki Court of Appeal (1998)...28, 30 Case No. 7 O 147/94, District Court of Paderborn, Germany (1996) CLOUT Case No. 34, Ontario Superior Court of Justice (1999)...27 CLOUT Case No. 49, BayerischesOberstesLandesgericht (16 January 2002) CLOUT Case No. 166, Schiedsgericht der Handelskammer Hamburg (1995). 32 CLOUT Case No. 170, Germany: Landgericht Trier(1995) CLOUT CASE No. 173, Hungary Metropolitan Court (1997). 11 CLOUT Case No. 203, Courd appel, Paris, France (13 December 1995) v

7 CLOUT Case No. 248, Switzerland: SchweizerischesBundesgericht (1998)...30 CLOUT Case No. 251, Switzerland: Handelsgericht des Kantos Zurich (1998)..22 Forestal Guarani S.A. v. Daros Intern, Inc H. Small Limited v. Goldroyce Garment Limited [13 May 1994] 2 HKC Rungee v. Allied Van Lines, Inc.23 Texaco Overseas Petroleum Co. & California Asiatic Oil Co. v. The Government of the Libyan Arab Republic (1979)...8 Books and Articles Andrea Fejs, Battle of Forms Under the Convention on Contracts for the International Sale of Goods (Cisg): A Uniform Solution? (2007) Howard Hunter, Modern Law of Contracts...23 John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 186, d ed. (1999)... 16,12,27,28,30,31 The International Comparative Legal Guide to: International Arbitration 2010, Chapter 9, Section 4, published by Global Legal Group, in association with CDR (2001) Maria del Pilar Perales Viscasillas, The Formation of Contracts & the Principles of European Contract Magnus in Ferrari et al Neil Kaplan, Is the Need for Writing as Expressed in the New York Convention and the Model Law Our of Step with Commercial Practice? (1996) Samuel P. Baumgartner, Is Transnational Litigation Different?,(2004) 21 Ulrich Magnus, Last Shot vs. Knock Out Still Battle over the Battle of Forms Under the CISG, from Ross Cranston, Jan Ramberg& Jacob Ziegel, eds., Commercial Law Challenges in the 21st vi

8 Century; Jan Hellner in memorium, Stockholm Centre for Commercial Law Juridiskainstitutionen (2007) UN A/CN on International Trade Law, UNCITRAL Digest of case law on the CISG.26 Varady et al., International Commercial Arbitration: A Transnational Perspective, 4th ed. (2009)...8, 14 William Johnson, Understanding Exclusion of the CISG: A New Paradigm of Determining Party Intent (2011) Miscellaneous Matti S. Kurkela and SanttuTurunen, Due Process in International Commercial Arbitration 43 (2010)... 9, 17, 18 Oberster Gerichtshof, 1997 (Australia) vii

9 STATEMENT OF JURISDICTION Astoria Produce Company (hereinafter Claimant )has submitted the present contractual dispute before the Kuala Lumpur Regional Centre for Arbitration (hereinafter KLRCA ), pursuant to the terms of the arbitration agreement between the Parties and Rule 1(1) of the Rules of Arbitration of the KLRCA, to be read together with Article 1 of the UNCITRAL Arbitration Rules 2010.The Parties shall accept any Judgment of the Tribunal as final and binding upon them and shall execute it in its entirety and in good faith. 1

10 QUESTIONS PRESENTED 1. Whether the KLRCA has the authority to resolve the dispute between the parties. 2. Whether the arbitral panel was properly appointed and whether Respondent was improperly denied the opportunity to select its party appointed arbitrator. 3. Whether the tribunal can impose sanctions on Respondent for failing to appear at the initial hearing and for not providing adequate notice of its intention not to appear. 4. Whether the United Nations Convention of the International Sale of Goods (hereinafter CISG ) or the UNIDROIT Principles of International Commercial Contracts (hereinafter UNIDROIT Principles ) shall govern this dispute. 5. Whether Respondent breached its obligations as the seller when it delivered bananas in an excessively damaged, unsatisfactory condition to Claimant. 6. Whether either party had a legal obligation to sell the bananas or protect them from further spoilage in order to mitigate damages. 2

11 STATEMENT OF FACTS The Order On June 15, 2010, Claimant contacted Rolga Farmers Exchange ( Respondent ), a major bananas exporter in the Western Pacific. Claimant, a distributor of produce to retail grocery stores, placed a large order for bananas with Respondent. Later that day, Respondent sent Claimant a confirmation with the Bill of Sale indicating that shipment would be made FOB Rolga City. The Bill of Sale also contained an arbitration clause stating that any dispute arising out of the contract would be settled by arbitration in Rolga City with a single arbitrator and in accordance with the Rules of the West Pacific Regional Centre for Arbitration. On August 1, 2010, Claimant indicated via its concerns regarding the shipment, requesting that Respondent: (1) properly handle and store the bananas in a cool location on the ship with the temperature not exceeding 12 or 13 C; and (2) ensure that the bananas arrive in an unripe condition so that they can be sold to Claimant s grocery store clients. The next day, Respondent assured Claimant that it was experienced in ocean shipping and that it would make sure the Captain would be well aware of the essential conditions necessary to ensure that the bananas arrive in Astoria unripe. On August 4, 2010, Claimant signed and returned the Bill of Sale to Respondent with some modifications. Specially, Claimant expanded the scope of the clause and changed the number of arbitrators to three, the rules to that of the KLRCA, and most importantly, the location of the arbitration to Kuala Lumpur. 3

12 The Shipment After receiving the revised Bill of Sale from Claimant and full payment for the shipment, Respondent loaded the bananas onto the M/S Pinafore, which set sail on October 1. Respondent gave the ship s captain general instructions that the bananas must be stored in a cool, dry location with good circulation to prevent spoilage. The shipment arrived in Astoria City on November 24. Dr. Bartolo, Claimant s Director of Food Safety, inspected the load before unloading. He noticed that some of the bananas were already ripe or ripening. Most of the ripening occurred in the number #2 hold, where the packing of the bananas was different from that used in the number #1 hold. The following day, Claimant retained an independent professional Maritime Surveyor to inspect the bananas. The Surveyor found that 30% of the bananas were ripe or ripening; 3% to 5% was normal and expected and a rate of more than 10% was excessive. He concluded that the ripened state of the bananas was clearly due to high temperatures during transport. In addition, the bananas in the number #2 hold were tightly stowed and no slots had been used to facilitate the flow of air between the cartons. Based on recommendations of Dr. Bartolo and the Surveyor s report, on November 26 Claimant informed Respondent that they had no choice but to reject the entire shipment. Respondent replied that it had no intention of paying for the damage to the bananas and recommended that Claimant sell the ripe bananas to commercial bakers in Astoria. That day the Captain had the bananas placed in a warehouse. The following day, an Astoria Department of Agriculture Inspector concluded that 54% of the bananas were over-ripe while the remainder was ripe or ripening. The warehouse owner attempted to salvage the nonripe bananas but concluded that the process of sorting and repacking would be so difficult as to 4

13 render doing so economically unfeasible. Five days after the shipment arrived in Astoria, the Department of Agriculture supervised the dumping of the entire shipment as waste. The Arbitration Proceedings On June 1, 2011, Claimant filed a request for arbitration with the KLRCA. The KLRCA Director notified Respondent and requested that it appoint its arbitrator within 30 days. Once 45 days had passed without an appointment, the director appointed a second and third arbitrator. A hearing was scheduled for August 15. Less than an hour before the hearing, Respondent sent an indicating its intent to challenge the KLRCA s jurisdiction and that it did not plan to appear at the hearing. Following this , the Director decided to postpone the hearing to October 10, when Respondent s objection to the tribunal s authority will be heard. Furthermore, the Director did not allow Respondent to appoint its attorney as its party-appointed arbitrator because it was too late to make substitutions to the arbitral panel. 5

14 SUMMARY OF PLEADINGS 1. The KLRCA has the authority to resolve the present dispute because a valid arbitration clause exists. Under both the CISG and UNIDROIT Principles, Respondent s original Bill of Sale, was material because it included an arbitration clause. Therefore, it could not constitute an acceptance of the telephone offer. Claimant s modified Bill of Sale, which included the revised arbitration clause, was also material, and therefore was a rejection of Respondent s offer and was considered a counter-offer. The modified Bill of Sale, along with the revised arbitration clause was accepted by Respondent when it shipped the bananas, making the modified Bill of Sale the controlling document. The revised Bill of Sale deemed all disputes to be subject to arbitration before the KLRCA. In addition, the agreement to arbitrate met the writing requirement set out by modern international law. 2. The appointment of the arbitral panel was properly conducted in accordance with the UNCITRAL Arbitration Rules (2010). Respondent was not denied the chance to appoint a party-appointed arbitrator. Rather it failed to do so timely, transferring the power to the KLRCA Director. Moreover, the appointment of the presiding arbitrator is considered proper because both parties have waived their objections to his appointment by this point in time. 3. The Tribunal has the power to subject Respondent to monetary sanctions. By informing the KLRCA Director that it would not appear at the original hearing only one hour prior to the hearing, Respondent has caused Claimant unnecessary costs and burdens. The Tribunal has the authority and should exercise the authority to require Respondent to pay for those unnecessary costs. 4. The CISG is the applicable substantive law that governs this dispute. Using Astoria s choiceof-law rule allows provides a fair balancing test to determine the appropriate substantive law. 6

15 An analysis of the factors leads to the use of the laws of Astoria. Because Astoria is a Contracting State, the CISG will be applied pursuant to Article 1(1)(b). 5. Respondent should be required to return a full refund to Claimant. Respondent committed a fundamental breach by failing the meet its obligations under the contract. This failure allows Claimant to declare the contract avoided. 6. While there was a legal obligation to mitigate damages, Claimant was exempted from this obligation for two reasons. First, Claimant was not required to mitigate damages due to conditions beyond its control. Second, Claimant could have no reasonable way of knowing of the impediment prior to concluding the contract. 7

16 PLEADINGS 1. THE KLRCA HAS THE AUTHORITY TO RESOLVE THE DISPUTE BETWEEN THE PARTIES. Along with the contract for the sale of bananas, an agreement to arbitrate was concluded when Respondent shipped the bananas to Astoria. Respondent s conduct constituted an acceptance of the arbitration clause set forth in Claimant s modified Bill of Sale 1, and also satisfied the requirement that arbitration agreements must be in writing. 2 Because the Parties have entered into an agreement to settle their disputes before the KLRCA, the KLRCA has the authority to resolve this dispute. Only if it is found that the arbitration agreement is null or void will the KLRCA lack jurisdiction. In order to make such a determination, the KLRCA will need to decide on its own competence to hear the present dispute. Consistent with the well-established principle of Kompetenz-Kompetenz, and pursuant to Article 23 of the UNCITRAL Arbitration Rules , the KLRCA has the authority to determine its own jurisdiction A Valid Arbitration Agreement Exists Between the Parties Subjecting Disputes to the KLRCA. The effect of an arbitration agreement on a dispute depends on its existence, validity and scope. 5 For an arbitral tribunal to have the authority to resolve a dispute, a valid arbitration agreement is a condition precedent, and thus a due process requirement. 6 Here, the arbitration 1 CISG Article 18(3); UNIDROIT Principles Article UNCITRAL Model Law 2006 Article 7 (Option I) 3 Arbitration Rules of the KLRCA are the UNCITRAL Arbitration Rules 2010 plus modifications made by the KLRCA. Rules for Arbitration of the KLRCA (2010) 4 Texaco Overseas Petroleum Co. & California Asiatic Oil Co. v.the Government of the Libyan Arab Republic, 53 Int l L. Rep (1979); John Barceló, Who Decides the Arbitrators Jurisdiction? Separability and Competence-Competence in Transnational Perspective, 36 Vanderbilt J. Transnat l L Varady et al., International Commercial Arbitration: A Transnational Perspective, 4th ed. (2009), pp Matti S. Kurkela and SanttuTurunen, Due Process in International Commercial Arbitration 43 (2010). 8

17 agreement came into existence once the bananas were dispatched by Respondent. Further, the agreement was validly concluded and its terms cover the scope of this dispute because the dispute directly arises out of the contract. While jurisdiction is generally a procedural issue, it has a more substantive impact in this particular case. Here, it is, in essence, a substantive issue because resolution of the question of jurisdiction largely depends on contract formation, which is determined by the substantive law. It is Claimant s position that the CISG is the applicable law in instant case Pursuant to the CISG, the Arbitration Agreement was accepted once Respondent dispatched the bananas. The parties here disagree on one essential question: which arbitration provision is enforceable. Claimant contends that its version of the clause, a marked-up copy of the one offered by Respondent, is the one which should control. Under Article 19 of the CISG, it is clear that the mirror image and last shot doctrines apply. 8 In order for a purported acceptance to actually be considered an acceptance, it must be a mirror image of the offer. If it contains any additions, limitations, or modifications that are deemed material pursuant to Article 19(3), then it will not be considered an acceptance, but rather a rejection of the offer and a counter-offer. 9 Accordingly, the terms of a contract are often times determined by the terms of the last submitted form, which is then accepted by performance. 10 Looking at the correspondence between the two parties, it is quite clear that the last communication was made by Claimant, which was then accepted by Respondent s conduct. When Claimant contacted Respondent via telephone, it was, in essence, making an offer to enter 7 See Issue 4. 8 Andrea Fejs, Battle of Forms Under the Convention on Contracts for the International Sale of Goods (Cisg): A Uniform Solution?, 11 VJ 113, 119 (2007). 9 CISG Article 19(1). 10 CISG Article 18(3). 9

18 into a contract for the purchase of bananas. Under the CISG, a proposal constitutes an offer if it is sufficiently definite and indicates an intention to be bound in the case of acceptance. 11 Presumably, the telephone conversation included an offer to buy a specific number of bananas at a price that was either set or provisions for determining the price were made. Following the oral offer made via telephone, Respondent ed Claimant a confirming Bill of Sale. However, Respondent s confirming Bill of Sale did not simply confirm the terms discussed over the telephone. It added the FOB Rolga City term, which indicates that the risk of loss would transfer to the buyer once the goods were loaded for transport. 12 Additionally, the Bill of Sale included an arbitration clause, subjecting all disputes arising out of the contract to arbitration in Rolga City, with one arbitrator and in accordance with the Rules of the Western Pacific Regional Centre. Under CISG Article 19, Respondent s confirming Bill of Sale will constitute a rejection of the telephone offer and a counter-offer if the additions are considered material changes. 13 The arbitration clause contained in Respondent s confirmation was a material alteration to the contract because it directly affects the settlement of disputes. 14 In some cases, the addition of a term would not be considered material because it is the result of a common trade usage. 15 A term may be rendered immaterial by the fact that it states an obligation that would be an implied term of the contract because of practices established by the parties or by trade usages. 16 However, here there is no indication that practices or trade usages imply an obligation to 11 CISG, Article Both Astoria and Rolga often use ICC INCOTERMS, even though they are not explicitly referred to as such. 13 CISG, Article 19(1). 14 CISG, Article 19(3). 15 Oberster Gerichtshof, 1997 (Australia) (translated at 16 John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3d ed., 186 (1999). 10

19 arbitrate disputes. Therefore, the arbitration clause was material, making the Confirming Bill of Sale sent by Respondent a counter-offer and a rejection of the original telephone offer. 17 In response to the counter-offer, Claimant sent Respondent an titled Green Bananas (Exhibit #1). However, this correspondence was not an acceptance of Respondent s counter-offer, but rather a clarification of the terms of the final contract, if the Parties would decide to enter into one. 18 Claimant was merely making inquiries before concluding the final contract. Respondent replied to this by giving Claimant assurances that the bananas would arrive in good condition (Exhibit #2), which made Claimant comfortable enough to conclude the contract. The next correspondence in the chain of offer and acceptance was thus Claimant s returned Bill of Sale. But, even though Claimant signed the Bill of Sale as accepted, this Bill of Sale was also a counter-offer because Claimant had made some material modifications. Specifically, Claimant expanded the breadth of the arbitration clause, changed the number of arbitrators to three to provide a more equitable panel, and changed the location to Kuala Lumpur, a neutral forum, where the rules of the KLRCA would govern. 19 Because it included material alterations to the contract, Claimant s Bill of Sale is considered a rejection of Respondent s offer, and constitutes a counter-offer. Courts have occasionally refused to enforce modifications to terms on the basis that the modifying party failed to make explicit reference to those terms. 20 However, that was not the case here. Claimant crossed out the original terms, explicitly indicating which of the original terms were being changed. Thus, Respondent was well-aware of 17 CISG, Article 19(1). 18 CLOUT Case No. 173, Hungary Metropolitan Court (1997) 19 CLOUT Case No. 203, Courd appel, Paris, France (1995) (rejecting an arbitration agreement that changed a jurisdiction clause through an order confirmation). 20 Id. 11

20 the terms of the arbitration agreement when it dispatched the goods and accepted the counteroffer. Claimant s Bill of Sale was the last written or oral communication between the parties, and therefore was the last shot between them. Subsequently, Claimant s Bill of Sale (which contained the modified arbitration clause subjecting disputes to arbitration before the KLRCA) was accepted by Respondent when the bananas were dispatched Even under the UNIDROIT Principles, Respondent s performance constitutes an acceptance of the agreement to arbitrate before the KLRCA. While Claimant contends that the CISG applies to this dispute, the KLRCA may disagree and determine that the UNIDROIT Principles are the governing law here. However, even under UNIDROIT Principles a valid arbitration agreement that subjects disputes to the KLRCA exists. UNIDROIT Principles Article takes a nearly identical approach to the CISG on modified terms in a response to an offer. UNIDROIT Principles Article recognizes that a communication purported to be an acceptance with any material additions, limitations, or other modifications will be considered a counter-offer that rejects the original offer. 22 It also allows a reply with additional or different terms that are non-material to constitute an acceptance and conclude a contract, with the modified terms included. 23 Like under Article 19 of the CISG, under Article of the UNIDROIT Principles, the confirming Bill of Sale sent by Respondent to Claimant would be considered a counter-offer because it included a material addition to the original phone offer, namely the arbitration 21 CISG, Article 18(3); Honnold, at (indicating the Convention gives legal effect to the notion that actions can speak louder than words in sales transactions). 22 UNIDROIT Principles, Art (1); CISG, Art.19(1). 23 UNIDROIT Principles, Art (2); CISG, Art.19(2). 12

21 clause. 24 The modified arbitration clause sent in response by Claimant also constituted a counteroffer under Article because it included material modifications to the arbitration clause. Claimant s modified arbitration clause was then accepted by performance by Respondent when it dispatched the goods. Therefore, like in the analysis under the CISG, application of UNIDROIT Principles Article gives the KLRCA jurisdiction over this dispute The UNIDROIT Battle of the Forms Provision Should Not Apply. UNIDROIT Principles Article , which is directed at the battle of the forms issue, is not applicable here. Under Article , the knock-out principle is used, which provides that a contract will be concluded on the basis of the agreed upon terms and all other conflicting terms will be knocked-out. 25 Article specifically applies in cases where both parties use standard terms. According to the UNIDROIT Principles, standard terms are provisions which are prepared in advance for general and repeated use by one party and which are actually used without negotiation with the other party. 26 The present case, however, is not a battle of forms problem. There was only one standard form presented: Respondent s confirming Bill of Sale. Claimant s modification of the Respondent s offered arbitration clause falls outside the definition of a standard term because it was not prepared in advance for general and repeated use. Rather, Claimant merely made changes to Respondent s form in response to the original arbitration clause. This is not a case where both parties exchange pre-printed forms that each contained conflicting standard terms UNIDROIT Principles, Art , Illustration #2. 25 Ulrich Magnus, Last Shot vs. Knock Out Still Battle over the Battle of Forms Under the CISG, from Ross, et. al., Commercial Law Challenges in the 21st Century, Stockholm Centre for Commercial Law Juridiskainstitutionen (2007) UNIDROIT Principles, Article Maria del Pilar Perales Viscasillas, The Formation of Contracts & the Principles of European Contract Law, 13 Pace Int'l L. Rev. 371 (2001). 13

22 Therefore, Article of the UNIDROIT Principles does not apply to the circumstances at hand, and the facts should be governed by Article The controlling document is Claimant s Bill of Sale, which includes the agreement to arbitrate before the KLRCA. As established above, under either the CISG or the UNIDROIT Principles, the contract between the parties was formed when Respondent dispatched the bananas. This performance was an acceptance of Claimant s returned Bill of Sale, which included the arbitration clause that declared the KLRCA as the proper forum. Thus, the controlling document here is Claimant s Bill of Sale. 1.2 The Requirement that Arbitration Agreements Be in Writing Has Been Satisfied. One of the widely established requirements for an arbitration agreement to be deemed valid is that it be in writing. 28 Article II(2) of the New York Convention 29 states, The Term agreement in writing shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegraphs. However, the accepted notion of what constituted a written agreement has become more and more flexible over the past decade. 30 Specifically, UNICITRAL has taken deliberate steps to relax the strict writing requirement of the New York Convention through its recent amended version of Article 7 in the UNCITRAL Model Law from As the 2006 UNCITRAL Model Law amendment suggests, following the technical requirements may lead to inconsistent results. One commentator explains how a strict writing requirement would lead to confusing and inequitable results because it allows a party to a 28 Varady et al., International Commercial Arbitration: A Transnational Perspective, 4th ed. (2009), pp United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) 30 Varady, at Id. at

23 contract to wash his hands clean of the arbitration clause, while still maintaining a substantive action for breach or price of goods delivered. 32 Such strict reliance, as that followed in Small Limited v. Goldrayce 33, produces an absurd result which is inconsistent with commercial reality. 34 Recognizing that it is illogical to require a higher degree of proof to establish a particular clause within a contract, the 2006 amendments to the UNCITRAL Model Law made modifications to the writing requirement by making it more flexible. The revision to Article 7 is intended to modernize the form requirement of an arbitration agreement to better conform to evolving practices in international trade and technological developments. 35 In order to achieve the same goals, the Tribunal should adopt the 2006 amendments when deciding this dispute. Under the UNCITRAL Model Law (2006), an arbitration agreement satisfies the writing requirement if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means. 36 Here, the terms of the arbitration agreement were included in Claimant s counter-offer. Thus, the content of the arbitration agreement (its scope, location, applicable procedural rules, and number of arbitrators) was recorded in electronic form when Claimant ed Respondent its Bill of Sale with the modifications to the arbitration clause. 37 Subsequently, the contract (including the arbitration clause) was concluded by conduct when Respondent shipped the bananas. Therefore, under the UNCITRAL Model Law (2006), the writing requirement has been satisfied and the arbitration agreement is enforceable. 32 Neil Kaplan, Is the Need for Writing as Expressed in the New York Convention and the Model Law Our of Step with Commercial Practice? (1996) 12 Arb n Int l 27, H. Small Limited v. Goldroyce Garment Limited [13 May 1994] 2 HKC Id., Kaplan 35 Explanatory Note by the UNCITRAL secretariat on the 1985 Model Law on International Commercial Arbitration as amended in 2006, UNCITRAL Model Law (2006) Article 7(3) 37 Article 6 of the UNCITRAL Model law on Electronic Commerce (1996) states, Where the law requires information to be in writing, that requirement is met by a data message if the information contained therein is accessible so as to be usable for subsequent reference. 15

24 2. THE APPOINTMENT OF ARBITRATORS WAS PROPERLY CONDUCTED. The KLRCA was the first arbitration center in the world to adopt the UNCITRAL Arbitration Rules (2010) (hereinafter 2010 Arbitration Rules ). 38 The rules are presumed to govern any contract concluded after August 15, Article 1(2) states there is no presumption of applicability for contracts that were concluded by acceptance after that date when the offer was made before the effective date. Nothing, however, indicates that the 2010 rules cannot or should not apply; only that applicability is not automatic. Respondent agreed to arbitration in the KLRCA based on the KLRCA s rules, either by failing to object to Claimant s immaterial modifications or by dispatching the goods. Thus, the 2010 Arbitration Rules should apply, and under such rules, appointment of the arbitral panel was proper. 2.1 The Second Arbitrator Was Properly Appointed After Respondent Failed To Select Its Arbitrator For The Panel. Under the 2010 Arbitration Rules, each party is allowed to select an arbitrator for the three-member panel, and those two party-appointed arbitrators are supposed to select a third presiding arbitrator. 40 When Claimant commenced this arbitration, the KLRCA Director notified Respondent of the request on June 15, Respondent was notified that it should designate its party-appointed arbitrator within 30 days. Pursuant to Article (2) of the 2010 Arbitration Rules, an arbitrator may be appointed for a party if the party does not timely select one. The UNCITRAL Model Law on International Commercial Arbitration has a similar 30-day deadline. The explanatory note to that provision indicates such deadlines are set [i]n view of the urgency UNCITRAL Arbitration Rules (2010), Article 1(2). 40 Id., Article 9(1). 16

25 of matters relating to the composition of the arbitral tribunal or its ability to function. 41 Furthermore, the short-time periods reduce the risk and effect of any dilatory tactics. 42 A German court echoed that sentiment in a 2002 case. 43 Relying on the German Civil Code of Procedure, the complaining party sought to have an arbitrator appointed when the responding party refused to respond to requests to make its appointment. 44 The responding party attempted to appoint an arbitrator before the court could rule, but the court held that the party had waited so long that the authority to appoint had been transferred to the court. 45 Similarly, Respondent waited so long that whatever authority it originally had to appoint an arbitrator was transferred to the KLRCA Director. While the appointment of the second arbitrator is usually done at the request of the claimant when the responding party has failed to make an appointment within 30 days, 46 the rules do not require the Director to wait for a request. A full 45 days elapsed following notice to Respondent with no appointment made. Only then did the Director appoint Riska Benti. (The first arbitrator, Bernard Bodd, had already been appointed by Claimant.) Neither party has objected to the competency of Benti. Furthermore, Respondent s proposal that its own attorney be allowed to serve as its party-appointed arbitrator should be outright rejected. In a commercial dispute, considerable economic interests may be at stake. This increases the moral hazard (i.e., the risk of unethical behavior or undue influence). Even the appearance of moral hazard should be eliminated As a result, the International Bar Association has developed lists covering possible conflicts that need to be disclosed and may not 41 UNCITRAL Model Law (2006), explanatory note Id. 43 CLOUT Case No. 49, BayerischesOberstesLandesgericht (2002). 44 Id. 45 Id. 46 UNCITRAL Arbitration Rules (2010), Article 9(2). 47 Matti Kurkela, Due Process In International Commercial Arbitration , 2d ed. (2010). 17

26 18 M3010 C be waivable. 48 The list of nonwaivable conflicts includes: 1.1. There is an identity between a party and the arbitrator, or the arbitrator is a legal representative of an entity that is a party in the arbitration. 49 Respondent s proposal that it be allowed to replace Benti with its own attorney therefore cannot be considered a viable option, and Claimant would certainly urge that Respondent not be allowed to delay the proceedings by making untenable arbitrator appointments. 2.2 Respondent Should Be Deemed To Have Waived Any Objection To The Appointment Of The Presiding Arbitrator Because It Failed To Make A Timely Objection. The 2010 Arbitration Rules call for the presiding arbitrator to be selected by the two party-appointed arbitrators, or if they cannot agree within 30 days, the appointing authority may choose the presiding arbitrator. 50 Here, the Director, as the appointing authority, appointed the presiding arbitrator, Judge John Chong, on the same day that he appointed Benti. Under the 2010 Arbitration Rules, Benti and Bodd, the party-appointed arbitrators, should have been given 30 days to agree on a presiding arbitrator before the Director intervened. However, Respondent waived its right to object to the appointment of Judge Chong. Under Article 13(1), Respondent was required to object to the appointment within 15 days of being notified. The Director made the appointment on approximately August 1, While Respondent notified the Director on August 15, 2011 that it intended to challenge jurisdiction, it failed to notify the Director and Claimant of its challenge to the appointment of any of the arbitrators or provide reasons for the challenge, as required by Article 13(2). Respondent has not challenged Judge Chong s competence or integrity, and failure to object promptly to any non- 48 Kurkela, Kurkela, UNCITRAL Arbitration Rules (2010) Article 9(3).

27 compliance shall be deemed to be a waiver of the right of such party to make such an objection, unless such party can show that, under the circumstances, its failure to object was justified. 51 Respondent has not provided the Tribunal with any such justification. 3. THE TRIBUNAL SHOULD REQUIRE RESPONDENT TO PAY UNNECESSARY COSTS AS A SANCTION FOR ITS FAILURE TO APPEAR AT THE ORIGINAL HEARING. While the 2010 Arbitration Rules do not use the word sanctions, they do provide a basis for imposing unnecessary costs on Respondent. While Respondent is certainly entitled to question the jurisdiction of the Tribunal, it failed to respond to requests to appoint an arbitrator or to provide any notice of its intention to challenge jurisdiction until less than one hour before the initial hearing was set to begin. Article 42(1) provides that the costs of arbitration shall, in principle, be borne by the unsuccessful party, but the Tribunal may apportion costs if it determines that apportionment is reasonable, taking into account the circumstances of the case. At least one commentator has observed that the fees and costs of arbitration is an ever-occurring issue. Arbitration has a reputation of being an expensive and exclusive method of dispute resolution. 52 Respondent should not be allowed to waste costs in an already expensive process. It should be held responsible for the costs, including travel and expenses of the arbitrators, witnesses and Claimant, that resulted from the missed hearing, regardless of the Tribunal s decision on the merits of the dispute. Notably, the KLRCA Director could have ordered the original hearing to go on as scheduled. 53 In fact, the Tribunal could have treated Respondent s failure to respond as an 51 UNCITRAL Arbitration Rules (2010), Article Kurkela, UNCITRAL Arbitration Rules (2010), Article

28 admission of Claimant s allegation. 54 The KLCRA Director properly notified Respondent of the proceedings and the rules, which were included with the notice, and yet, Respondent did not offer a sufficient cause for failing to appear, as required by the arbitration rules. 55 Respondent is entitled to challenge the KLRCA s jurisdiction, but it is not entitled to waste costs by failing to act in a timely manner. While monetary sanctions are not directly authorized by the 2010 Arbitration Rules, such sanctions are not without precedent. The UNIDROIT Principles, which Respondent itself is seeking to apply, provide that when a court orders a party to perform, it may also direct that this party pay a penalty if it does not comply with the order. 56 While the use of the word court has lead a majority of legal systems to deny such power to arbitrators, some modern legislation and recent court practices have recognized it. 57 The UNIDROIT Principles commentary implies that sanctions are to be used to ensure compliance with orders to perform contractual obligations. 58 But arbitration itself is a contractual obligation under the agreement between the parties, and Respondents failure to comply with the rules of the proceedings invites monetary sanctions. Respondent should be responsible for the costs of its failure to appear or provide adequate notice before the initial hearing. 4. THE CISG IS THE APPLICABLE SUBSTANTIVE LAW THAT GOVERNS THIS DISPUTE. Based on the valid contract between the parties, which included the modified arbitration clause, any dispute arising out of the contract should be settled by arbitration in accordance with the rules of the KLRCA. The KLRCA has specifically adopted the 2010 Arbitration Rules, 54 Id., Article 30(1)(b). 55 Id., Article 30(2). 56 UNIDROIT Principles, Article UNIDROIT Principles (1994) Official Commentary. 58 Id. 20

29 subject to some minor modifications. 59 Those rules will govern the procedural proceedings of the arbitration. The substantive law, on the other hand, was not specified by the parties in their agreement. The KLRCA has discretion to choose which choice-of-law rules apply here. Article 35 of the 2010 Arbitration Rules provides that when parties have failed to designate the applicable law, the tribunal shall determine which law to apply to the dispute. Generally, in the context of litigation, courts will use the choice-of-law rules of the forum state. 60 In arbitration, on the other hand, the applicable choice-of-law rule is not as clear and is usually decided by the Tribunal. 61 In the present dispute, the KLRCA will have to determine the governing law by choosing between Rolga s and Astoria s choice-of-law rules. Even though the seat of arbitration is in Malaysia, Malaysian law will not be applicable because the dispute does not involve Malaysia in any way. Rather, the KLRCA functions as a neutral forum for this international dispute. 4.1 Astoria s Choice-Of-Law Rule Is More Appropriate And Therefore Should Be Applied. The KLRCA should apply Astoria s choice-of-law rule because it provides a more equitable result. Astoria has adopted Article 6 of the U.S. Restatement (Second) of Conflict of Laws (hereinafter Article 6 ) as its choice-of-law rule. Article 6 provides a factor analysis that looks at multiple aspects of the dispute in order to make a fair determination regarding what law 59 The International Comparative Legal Guide to: International Arbitration 2010, Chapter 9, Section 4, Global Legal Group. 60 Samuel Baumgartner, Is Transnational Litigation Different?, 25 U. Pa. J. Int'l Econ. L. 1297, 1393 (2004) 61 UNCITRAL Arbitration Rules (2010) Article 35; Simon Greenberg, The Law Applicable to the Merits in International Arbitration, 8 VJ 315 (2004) ( Most States leave arbitrators enormous flexibility to decide the applicable law ). 21

30 is most appropriate. Contracts involve many complexities, and a failure to deal with the complex issues properly may have a direct impact on the parties substantive rights Astoria choice-of-law rule leads to the CISG as the applicable law. If Astoria s choice-of-law rule leads to the application of the law of Astoria, the CISG will apply. While Astoria s domestic law follows the American Law Institute Uniform Commercial Code, it will not be applied here because Astoria is a contracting state. Under Article 1(1)(b) of the CISG, when the rules of the private international law lead to the application of the law of a Contracting State, the CISG will apply. 63 Under Astoria s choice-of-law rule, the factors considered in determining the appropriate law to be applied include: (1) the needs of the interstate and international systems; (2) the relevant policies of the forum; (3) the relevant policies of other interested states and the relative interest of those states; (4) the protection of justified expectations; (5) the basic policies underlying the particular field of law; (6) certainty, predictability and uniformity of result; and (7) ease in the determination and application of the law to be applied. 64 Under the first factor it seems appropriate to adopt the CISG in this international dispute because the CISG, which has been adopted by 76 states, covers a large portion of the world s international trade. The CISG is an international treaty aimed at providing uniform rules to govern contracts for the international sale of goods in order to, among other things, remove legal barriers in and promote development of international trade, an important element in the promotion of friendly relations among countries. 65 Unlike the CISG, the UNIDROIT Principles 62 Id. 63 CLOUT Case No. 251, Switzerland: Handelsgericht des Kantos Zurich (1998). 64 Restatement (Second) of Conflict of Laws 6 (1971). 65 William Johnson, Understanding Exclusion of the CISG: A New Paradigm of Determining Party Intent, 59 Buff. J. Int'l L. 213, 217 (2011). 22

31 23 M3010 C do not request endorsement by governments, and are therefore not binding authority 66, making the CISG a more suitable option. 67 Additionally, under the third factor, Astoria s interest in the dispute is much greater than that of Rolga. Because the damage to the goods was discovered in Astoria, the state of destination 68, Astoria s substantive law should be applied to this dispute. The brunt of the harm was felt in Astoria, and therefore its interests outweigh those of Rolga. Furthermore, under the fourth factor, Claimant was justified in believing that disputes would be subject to arbitration before the KLRCA. Based on either the CISG or UNIDROIT Principles, Claimant s modified Bill of Sale was accepted by Respondent s performance. Aside from the binding and widespread authority of the CISG, the CISG should be applied because of the ease of its application under the seventh factor. While Malaysia is not a contracting state to the CISG, the KLRCA is a widely-used international arbitration center and is likely to have experience with applying the CISG. Taking the totality of the circumstances into account, the factor analysis points to the proper application of the CISG as the governing law in the dispute Rolga s choice-of-law rule, if applied, would lead to the CISG as the governing law regardless. If the Tribunal decides to use Rolga s choice-of-law rule, it will still lead to the application of the CISG. Rolga s choice-of-law rule is identical to Articles 3 and 4 of the European Community Regulation No. 593/2008 (hereinafter Community Regulation ). Under Community Regulation Article 4(1)(a), a contract for the sale of goods should be governed by the law of the seller s country when the parties have not agreed on an applicable law. However, 66 Howard Hunter, Modern Law of Contracts 25:1. 67 Forestal Guarani S.A. v. Daros Intern, Inc., 613 F.3d 395 (2010). 68 Rungee v. Allied Van Lines, Inc., 449 P.2d 378, 383 (1968).

32 if it is clear from all the circumstances that a contract is more closely connected with a country other than the seller s, the law of that country should apply. 69 Here, it is clear that Astoria is more closely connected to the contract. Claimant is a major distributor of produce in Astoria, and the bananas were expected in grocery stores across the country. Astoria is where the bananas were to be sold to grocery stores, resold to Astorian citizens, and consumed. The loss of a large shipment due to Respondent s negligence will likely cause a rise in prices and dissatisfaction among consumers. Respondent is the only entity connected to the contract in Rolga. In comparison, numerous entities throughout Astoria were affected by Respondent s breach. Thus, even under Rolga s choice-of-law rule, the CISG should apply to this dispute. 4.2 Under The CISG, KLRCA Has The Authority To Resolve This Dispute. As discussed above under the issue of jurisdiction, if the CISG is applied, the KLRCA has jurisdiction over this dispute. According to CISG Article 19, both Bill of Sales sent by the parties were rejections of an offer and constituted counter-offers. Further, under Article 18, the dispatch of the bananas by Respondent constituted an acceptance of Claimant s counter-offer, which included the agreement to arbitrate at the KLRCA. 5. RESPONDENT SHOULD BE HELD LIABLE FOR ALL DAMAGES SINCE IT COMMITED A FUNDAMENTAL BREACH OF ITS OBLIGATIONS. Respondent is liable for breach of contract and should be subject to any or all damages regardless of which substantive law is applied. The CISG and the UNIDROIT Principles contain rules covering breach and mitigation which are so similar that the result, in this case, would be the same regardless of which law was applied. Respondent was negligent in taking appropriate 69 European Community Regulation No. 593/2008, Article 4(3). 24

33 measures to properly pack and ship the bananas. It also failed to give proper instructions to the shipper, contributing to the ripening of the bananas. Respondent held itself out to be experienced in ocean shipping, and should have foreseen the conditions to which the bananas would be subjected to. Yet, Respondent failed to deliver bananas that matched the quality and description required by the contract, resulting in a fundamental breach. 5.1 Respondent failed to meet its obligation under the contract by delivering a large number of non-conforming bananas. CISG Article 35 clearly states that the seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract. 70 Except where the parties have agreed otherwise, the goods do not conform with the contract unless they (a) are fit for the purposes for which goods of the same description would ordinarily be used; (b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller s skill and judgment; (c) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods. 71 Respondent failed on all these elements by providing bananas that were not green, could not be sold to grocery stores as planned, and were transported in such a manner that allowed them to easily ripen. 70 CISG, Article 35(1). 71 CISG, Article 36(2)(a)(d). 25