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LAWASIA INTERNATIONAL MOOT COMPETITION 2011

IN THE KUALA LUMPUR REGIONAL CENTRE OF ARBITRATION

2011

IN THE CASE CONCERNING THE ZETIAN PROVINCES

ASTORIA PRODUCE COMPANY

Claimant

v.

ROLGA FARMER’S EXCHANGE

Respondent

MEMORIAL FOR CLAIMANT

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TABLE OF CONTENTS

TABLE OF CONTENTS ........................................................................................................... 2

INDEX OF AUTHORITIES...................................................................................................... 6

STATEMENT OF JURISDICTION.......................................................................................... 9

QUESTIONS PRESENTED .................................................................................................... 10

STATEMENT OF FACTS ...................................................................................................... 11

SUMMARY OF PLEADINGS................................................................................................ 14

PLEADINGS ........................................................................................................................... 18

I. THE KLRCA HAS THE JURISDICTION TO RESOLVE THIS DISPUTE

BETWEEN THE PARTIES PURSUANT TO A VALID AGREEMENT ENTERED INTO

BETWEEN THEM .............................................................................................................. 18

A. There is a vaild arbitration agreement existing between the Parties under the

Malaysian Arbitration Act 2005 ...................................................................................... 18

B. In any event, RFE has lead AP to believe that RFE had agreed to arbitrate the dispute

in KLRCA ............................................................................................................................ 19

1. RFE has by conduct, expressed its intentions to arbitrate in KLRCA without

any objections made. .................................................................................................... 19

2. RFE is estopped from claiming that it had never intended to arbitrate in the

KLRCA ........................................................................................................................ 20

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II. THE APPOINTMENT OF THE SECOND ARBITRATOR AND PRESIDING

ARBITRATOR WERE PROPER ....................................................................................... 21

A. RFE was not improperly denied the opportunity to appoint the Second Arbitrator 21

B. The appointment of the second arbitrator by the Director of the KLRCA is proper.

22

C. In addition, the appointment of the Presiding Arbitrator is proper. ......................... 23

D. In any event, the Director‟s appointment would not prejudice or affect the

enforcement of awards made by the arbitral tribunal ...................................................... 24

III. THE ARBITRAL PANEL HAS THE AUTHORITY TO IMPOSE SANCTIONS

ON RFE IN THE FORM OF A FINE ................................................................................. 25

A. The Arbitral Tribunal has the authority to impose sanctions on RFE ..................... 25

B. In any case, the arbitral tribunal does not have the authority to sanction RFE in the

form of a fine ................................................................................................................... 26

IV. THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE

INTERNATIONAL SALE OF GOODS IS THE LAW APPLICABLE TO THIS

DISPUTE ............................................................................................................................. 27

A. The applicable law to the contract is to be determined by way of the lex locus

solutionis approach .......................................................................................................... 27

B. The “FOB: Rolga City” Clause does not restrict the characteristic performance of

delivery to be affected in Astoria ..................................................................................... 28

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V. IMPROPER STORAGE WAS THE CAUSE THE BANANAS ARRIVED AT THE

PORT OF ASTORIA CITY IN UNSATISFACTORY CONDITION BUT RFE DID

BREACH ITS CONTRACTUAL OBLIGATION TO AP ................................................. 28

A. The bananas have arrived in unsatisfactory condition because they were stored in

high temperatures and have not been packed properly .................................................... 29

B. RFE breached its contractual obligation to AP ........................................................ 29

1. The contract between RFE and AP is an Extended FOB contract ..................... 29

2. RFE has breached its obligation under the extended FOB contract .................. 29

(a) RFE has failed to ensure that the bananas are packed in the best possible

manner which would withstand the length of the voyage ....................................... 29

(b) RFE's failure to nominate an effective carrier amounts to a breach of the FOB

contract ..................................................................................................................... 30

(c) RFE has failed to fulfill their obligation to supply AP with bananas of

satisfactory quality under the FOB contract ............................................................ 31

VI. AP DOES NOT HAVE THE DUTY TO MITIGATE THE HARM THAT

RESULTED FROM THE BREACH OF CONTRACT ...................................................... 35

A. AP does not have a duty to take reasonable measures to protect the bananas from

further spoilage. ............................................................................................................... 35

B. AP does not have a duty to attempt to sell the bananas as it would have been

unreasonable for them to do so as the bananas were unsafe for human consumption ..... 36

PRAYERS OF RELIEF ........................................................................................................... 38

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INDEX OF AUTHORITIES

TREATIES AND CONVENTIONS

Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1985 ....... 12, 18

JUDICIAL DECISIONS FROM MUNICIPAL COURTS

Amalgamated Investment & Property Co Ltd (In Liquidation) v Texas Commerce

International Bank Ltd [1981] 2 All ER 577 ....................................................................... 15

Baker v Yorkshire Fire and Life Assurance Company [1892] 1 QB 144 ................................ 13

Bannerman v White [1861] 10 CBNS 844. .............................................................................. 29

Cheng Keng Hong v Government of Malaya ........................................................................... 20

Engineering Environmental Consultants Sdn Bhd v Sime UEP Development Sdn Bhd, [2009]

MLJU 0534 .......................................................................................................................... 19

Gibson v Mahchester City Council [1979[ 1 W.L.R. 294 ....................................................... 14

Hagop Ardahalian v Unifert International SA (The “Elissar”)[1984] 2 Lloyd‟s Rep............ 19

Heilbut Symons v. Buckleton [1913] AC 30 ............................................................................ 28

Mash & Murrell Ltd v Joseph I Emanuel Ltd [1961] 1 Ll Rep 46 .......................................... 26

Mitsui & Co. Ltd. And Another V. Flota Mercante [1988] Vol. 2 Lloyd's Law Reports 208 . 24

Ng Chee Yew Sdn Bhd & Ors v IJM Corp Bhd & Anor [2011] 7 MLF 122............................ 17

Oscar Chess Ltd v Williams [1957] 1 WLR 370. .................................................................... 29

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ReliaStar Life Insurance Co. of New York v EMC National Life 546, F.3d. 81 (2d Cir. 2009)

(„the ReliaStar‟) ............................................................................................................. 19, 20

Scottish & Newcastle International Limited (Respondents) v Othon Ghalanos Limited (a

company incorporated in Cyprus) (Appellants) [2008]. UKHL 11 .................................... 25

Soh Beng Tee Co Pte v Fairmount Development Pte Ltd [2007] 3 SLR 86 ............................ 18

Spiro v Lintern [1973] 1 W.L.R 1002 ...................................................................................... 14

Tan Chong & Sons Motor Co (Sdn) Bhd v. Alan McKnight [1983] 1 MLJ 220 FC .............. 28

The Propane Case Austrian Supreme Court 6th

February 1996

http://cisgw3.law.pace.edu/cases/960206a3.html ................................................................ 31

The Skincare Products Case, Finland 30 June 1998 Helsinki Court of Appeal 19 ................. 27

Usahasama SPNB-LTAT Sdn Bhd v Borneo Synergy (M) Sdn Bhd [2009] 2 MLJ 308 .......... 14

STATUTES AND MUNICIPAL LEGISLATIONS

James Capel (Far East) Ltd v YK Fung Securities Sdn Bhd [1991] 1 CLJ 770 HC ............... 22

Malaysian Arbitration Act 2005 ............................................................................ 12, 16, 20, 21

Malaysian Evidence Act 1950 ........................................................................................... 27, 28

TREATISES, DIGESTS AND BOOKS

Benjamin's Sale of Goods, 7th ................................................................................................. 26

Black, Henry Campbell (1990), Black’s Law Dictionary, 6th edition St.Paul, MN. ............... 20

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Carole Murray,David Holloway & Daren Timson-Hunt, Schmitthoff’s Export Trade The Law

and Practice of International Trade, 11th Ed. ,Thomas Reuters ........................................ 25

Chitty on Contracts, 30th edn .................................................................................................. 26

Ewan McKendrick, Goode On Commercial Law, LexisNexis UK & Penguin Books, 4th

Edition .................................................................................................................................. 25

ARTICLES AND COMMENTARIES

Thomas W. Walsh, ReliaStar Life Insurance co. of New York V. EMC National Life Co. 546

F.3d 81.United States Court of Appeals for the Second Circuit, April 8, 2009. ................. 20

Mistelis, L. Reality Test: Current State of Affairs in Theory and Practice Relating to “Lex

Arbitri” (available

http://qmul.academia.edu/LoukasMistelis/Papers/207138/REALITY_TEST_CURRENT_S

TATE_OF_AFFAIRS_IN_THEORY_AND_PRACTICE_RELATING_TO_LEX_ARBIT

RI) ........................................................................................................................................ 12

OTHERS

Rules of Arbitration of the KLRCA (as revised in 2010) .................................................. 20, 21

UNCITRAL Arbitration Rules .............................................................................. 16, 17, 18, 27

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STATEMENT OF JURISDICTION

Astoria Produce submit the present dispute to this Arbitral Panel based on the

agreement allegedly entered into between the Parties dated 4th

August 2010, However, Rolga

Farmer‟s Exchange dispute the jurisdiction of this tribunal. The parties have agreed to the

contents of the facts submitted as part of the contractual agreement. Each party shall accept in

good faith, the award of this panel as final and binding in its entirety.

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QUESTIONS PRESENTED

I. Whether there was a valid arbitration agreement existing between the parties, thus

conferring jurisdiction to the KLRCA to resolve this dispute;

II. Whether the appointment of Riska Benti as the Second Arbitrator and Judge John

Chong as the Presiding Arbitrator by the Director of the KLCRA is proper, and

whether the Director in exercising his authority has deprived Rolga Farmer‟s

Exchange of an opportunity to appoint its party arbitrator;

III. Whether the KLRCA has the authority to impose sanctions on Rolga Farmer‟s

Exchange, and whether KLRCA can do with the imposition of a fine;

IV. What is the applicable law that governs this dispute between the Parties;

V. Whether Rolga Farmer‟s Exchange has breach its substantial obligations as the seller

VI. Whether a duty of mitigation falls on either party to either salvage or resell the

bananas.

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STATEMENT OF FACTS

The Claimant Astoria Produce Company („AP‟) is a major distributor of produce,

amongst others, bananas, to retail grocery stores throughout Astoria. The Respondent Rolga

Farmer‟s Exchange (RFE) is approximately 6,000 miles away from Astoria, and is an

agricultural coorperative organized under the laws of Rolga.

On the 15th of July 2010, AP contracted RFE by phone and made an order for a large

quantity of green and unripe bananas fit for retail purposes. Following that, a series of

negotiations that took place between the two parties by email on the 1st of August of 2010

and the 2nd

of August 2010. Both parties understood that the shipment of bananas will be

stored on board the seller nominated ship the M/S Pinafore („the Ship), and they shall be

properly stored and handled in a cool location where temperatures do not exceed 12 to 13°C.

Due to circumstances of improper storage and handling, the bananas did not arrive in the

condition they were contracted on the 24th

of November 2010. In fact, 30% of the bananas

were ripe or ripening upon arrival.

On the 26th

of November 2010, AP decided to reject the entire shipment of bananas

based on the report of John Sparrow, a professional Maritime Surveyor retained by AP, and

the advise of Dr. Basilio Bartolo, the Director of Food Safety. In an email exchange which

took place between AP and RFE on the same date, RFE expressed that it has no intention for

paying for the damage to the bananas as RFE claims that its responsibilities has ended when

the goods were loaded on the Ship. The shipments of bananas were eventually disposed of as

waste.

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On the 1st of June 2011, AP commenced the arbitration by filing a request for

arbitration with the Kuala Lumpur Regional Centre for Arbitration (KLRCA) and designated

Bernard Bodd as its party appointed arbitrator. RFE was duly notified by the Director of the

KLRCA of such a noticed filed by AP and was enclosed with a copy of the KLRCA 2010

Rules. RFE was further required to appoint its party arbitrator within 30 of having received

the notification.

However, RFE did not respond to such a request made by the Director, thus

prompting the KLRCA director to appoint Riska Benti, a prominent Rolgan attorney as the

second arbitrator and Judge John Chong, the former Chief Justice of Malaysia as the

presiding arbitrator.

An initial hearing was scheduled on 15 August 2011 and both parties had received

timely notice.

RFE chose to respond an hour before the commencement of the initial hearing, and

expressed its intentions to not attend the initial hearing and further alleging that it intends to

challenge the jurisdiction of the arbitral tribunal.

.

The Director then advised both parties that the Tribunal would entertain challenges to

its jurisdiction at another hearing to be scheduled on the 10th October 2011.

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The Parties submit to the jurisdiction of the arbitral tribunal to resolve the Questions

Presented.

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SUMMARY OF PLEADINGS

I.

There exists a valid arbitration agreement as between the AP and RFE based on to the

provisions of the Malaysian Arbitration Act 2005.

Assuming that RFE challenges the validity of the arbitration agreement, it remains that the

conduct of RFE had led AP to believe that there was a valid arbitration agreement exisiting

between the Parties.

As RFE‟s conduct had amounted to a representation that it intended to arbitrate in the

KLRCA, it is thus estopped from claiming that there was never an agreement to arbitrate in

the KLRCA.

II.

RFE had been given adequate notice and time to respond to AP‟s notice of arbitration, it

should not insist that it has been deprived of the opportunity to appoint its party arbitrator.

As RFE had defaulted in appointing its party arbitrator based on the rules of the KLRCA, the

appointment of the second arbitrator made by the Director of the KLRCA is proper.

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The appointment in respect of the Presiding Arbitrator made by the Director of the KLRCA is

also proper.

The exercise of authority by the Director of the KLRCA in constituting the arbitral tribunal is

thus proper and would not prejudice the recognition and enforcement of awards made by the

tribunal.

III.

The arbitral tribunal has an inherent equitable authority to impose sanctions on a defaulting

party in an arbitral proceeding if it is found to have acted in bad faith.

However, the arbitral tribunal does not have the authority to impose sanctions on a defaulting

party in the form of a fine.

It remains that the arbitral tribunal can impose sanctions in the form of costs as RFE had

frustrated and delayed the arbitral proceedings.

IV

The United Nations Conventions on Contracts for the International Sale of Goods is the

proper applicable law based on the lex locus solutionis approach.

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Notwithstanding the contract was termed “FOB: Rolga City”, it remains that the

characteristic performance under the lex locus solutionis approach can be extended to

Astoria.

V

The bananas sold under the contract between AP and RFE had arrived in an unsatisfactory

condition due to improper packaging and storage.

RFE has therefore, breached its contractual obligations under the FOB contract by failing to

ensure proper packaging and storage onboard the Ship, to nominate a suitable vessel, and to

deliver goods of satisfactory quality.

VI

The onus of mitigating the harm arising from the breach of contract does not fall on AP. AP

does not have the duty to prevent the bananas from further spoilage.

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Furthermore, it is unreasonable for AP to attempt to sell the bananas as they were found to be

unfit for human consumption.

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PLEADINGS

I. THE KLRCA HAS THE JURISDICTION TO RESOLVE THIS DISPUTE

BETWEEN THE PARTIES PURSUANT TO A VALID AGREEMENT ENTERED

INTO BETWEEN THEM

A. There is a vaild arbitration agreement existing between the Parties under the

Malaysian Arbitration Act 2005

The essential validity of an arbitration agreement is determined with reference to the

law of the arbitral tribunal, ie, the lex arbitri1. The Convention on the Recognition and

Enforcement of Foreign Arbitral Awards 1985 (herein “New York Convention”), stipulates

that the arbitration agreement must be valid with reference to the law agreed upon by the

parties2. The Parties may have indeed envisaged arbitrating their disputes in the Western

Pacific Regional Centre for Arbitration, however, by the Bill of Sale dated 4th

August 20103,

the parties have entered into a valid arbitration agreement as required under the provisions of

the Malaysian Arbitration Act 2005 („MAA 2005‟).

The MAA 2005 stipulates that a valid arbitration agreement must necessarily display

two characteristics4: that the Parties must have agreed to settle their disputes by way of

arbitration and the agreement must be made in writing. As the arbitration clause to arbitrate in

the Kuala Lumpur Regional Centre for Arbitration („KLRCA‟) has been incorporated in the

1 Mistelis, L. Reality Test: Current State of Affairs in Theory and Practice Relating to “Lex Arbitri” (available

http://qmul.academia.edu/LoukasMistelis/Papers/207138/REALITY_TEST_CURRENT_STATE_OF_AFF

AIRS_IN_THEORY_AND_PRACTICE_RELATING_TO_LEX_ARBITRI) 2 Article V(1)(a) of the New York Convention

3 Further Corrections and Clarifications, Correction, point 5

4 s.9 Malaysian Arbitration Act 2005

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Bill of Sale, and was later signed and returned to RFE,5 it is not disputed that the agreement

has been reduced into written form.

Notwithstanding RFE having not expressly accepted amended clause, either in writing

or verbally,6 it can be regarded as having agreed to arbitrate the present dispute in KLRCA.

This is because the law does not mandate that only an arbitration agreement signed by both

parties can constitute a valid arbitration agreement.7

B. In any event, RFE has lead AP to believe that RFE had agreed to arbitrate the

dispute in KLRCA

1. RFE has by conduct, expressed its intentions to arbitrate in KLRCA without

any objections made.

RFE had forwarded the initial Bill of Sale to AP, in which the Bill contained an

arbitration clause to arbitrate in the Western Pacific Regional Center for Arbitration.8 In a

series of negotiations that followed upon the receipt of the initial Bill,9 AP revised, and

returned a signed Bill of Sale – the arbitration clause now stipulates that any dispute between

the parties shall be referred to the KLRCA instead.10

Accordingly, RFE by forwarding the initial Bill of Sale to AP had made an invitation

to treat, such that it was a proper indication that RFE was interested in contracting with AP

on terms agreeable between the parties. It is submitted that, at most, the initial Bill of Sale

5 Facts, pg 2, para 5

6 Corrections and Clarifications, Point D, No.1

7 Baker v Yorkshire Fire and Life Assurance Company [1892] 1 QB 144 at p 147 per Al Smith J

8 Moot Problem. Pg 2. para 3

9 Facts, Exhibits #1 and 2

10 Facts, pg 2, para 5

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and the series of exchanges that followed were not distinct offers and could not be construed

as such.11

AP in indicating that it intends to enter into a legally binding contract with RFE based

on the revised terms of sale, made the initial offer to RFE. AP had through its amendments,

demonstrated that it intends to contract with RFE and refer any disputes arising from the

contract to the KLRCA. RFE has not denied having received the revised Bill of Sale. In fact,

upon the receipt of AP‟s offer, RFE proceeded to arrange for the shipment of bananas to

Astoria, dispatched the goods, and received payment in full for the bananas.12

None of RFE‟s

conduct was made pursuant to a proper objection to AP‟s intentions to arbitrate in KLRCA.

2. RFE is estopped from claiming that it had never intended to arbitrate in the

KLRCA

As between RFE and AP, because no objections were made by RFE in relation to the

amended Bill of Sale, and that RFE had further, by its conduct of dispatching the goods and

accepting payment from AP, there exists a common intention between the parties that both

parties had intended to be bound by the amended terms that AP had tendered to RFE.13

RFE had, if it had not had the intention to arbitrate in KLRCA, represented to AP that

it had intended to be bound by the contract existing between AP and RFE on the terms as

revised by AP.14

The performance of RFE‟s substantial duties in the contract, as well as the

receipt of payment for the bananas in full had reinforced the representation that RFE had in

fact, intended to be bound by the amended terms of contract.

11

Gibson v Mahchester City Council [1979[ 1 W.L.R. 294 12

Facts, pg 2, para 6 and 7 13

Usahasama SPNB-LTAT Sdn Bhd v Borneo Synergy (M) Sdn Bhd [2009] 2 MLJ 308 14

Spiro v Lintern [1973] 1 W.L.R 1002

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RFE as such should be estopped from claiming that it had not made such

representations to AP,15

and that no such contract existed between the Parties. It is

unreasonable for RFE to be allowed to insist that it had never intended to arbitrate in the

KLRCA notwithstanding the fact that it received and acknowledged the amended Bill of Sale

forwarded by AP, that it had not objected to that Bill of Sale in any form or manner, and that

it had continued to discharge its contractual obligations pursuant to the contract in return for

payment.

As such, had RFE objected to the initial offer made by AP to arbitrate in the KLRCA

and chose not to carry out its obligations under the contract in return for payment, RFE would

not be estopped from claiming that no such arbitration agreement had subsisted between the

Parties.

II. THE APPOINTMENT OF THE SECOND ARBITRATOR AND PRESIDING

ARBITRATOR WERE PROPER

A. RFE was not improperly denied the opportunity to appoint the Second

Arbitrator

RFE had been properly notified that the arbitration shall be conducted in the KLRCA

when AP had filed a Request for Arbitration with the KLRCA16

. The Director of the KLRCA

(„the Director‟) gave due notice to RFE of such a request made by AP and provided RFE with

a copy of the KLRCA Rules.17

Furthermore, RFE was requested by the Director that it shall

appoint its party arbitrator within 30 days.

15

Amalgamated Investment & Property Co Ltd (In Liquidation) v Texas Commerce International Bank Ltd

[1981] 2 All ER 577 16

Facts, pg 4, para 2 17

Rules of Arbitration of the KLRCA (as revised in 2010)

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Notwithstanding such directions given, RFE had only chosen to respond by voicing its

intentions to challenge the jurisdiction of the arbitral tribunal on the initial hearing scheduled

on the 15th

of August 2011. RFE further claimed that it had not appointed its party arbitrator

as that would prejudice its intentions to challenge the jurisdiction of the arbitral tribunal.18

It is submitted that this claim made by RFE is unfounded and unreasonable. Under

Article 4 of the UNCITRAL Arbitration Rules („UNCITRAL Rules‟), RFE is required to

communicate its response within 30 days after having received the notice of arbitration. This

response may include amongst others, objections that the arbitral tribunal so constituted lacks

to jurisdiction to hear the matter19

. Furthermore, as provided by Section 18 (4) of the

Malaysian Arbitration Act 2005, RFE would not have been precluded from challenging the

jurisdiction of the arbitral tribunal had it appointed its party arbitrator.

It thus remains that RFE had been given adequate time to appoint its arbitrator under

the KLRCA Rules. In fact, RFE was fully aware of the need to respond to the notice of

arbitration and to appoint its party arbitrator within 30 days. Thus, it does not follow that RFE

were denied the opportunity to appoint its party arbitrator when RFE‟s non-appointment had

resulted from its manifest failure to comply with the KLRCA Rules.

B. The appointment of the second arbitrator by the Director of the KLRCA is

proper.

As RFE has defaulted in the appointment of its party arbitrator, Article 9(2) of the

UNCITRAL Rules allows AP to request the appointing authority to appoint the second

18

Facts. Page 4, para 3 19

Article 4(2)(a) UNCITRAL Arbitration Rules

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arbitrator. The Director being the appointing authority in the present case20

has the power to

make such an appointment.

Indeed, AP did not make a request to the Director for the appointment of the second

arbitrator21

. However, the absence of such a request would not preclude the Director from

exercising his jurisdiction to facilitate the object of a speedy and expeditious disposal of the

dispute referred to before the arbitral tribunal.22

It is submitted that the purpose of Article 9(2) of the UNCITRAL Rules is to prevent

the appointing authority from constituting the tribunal against the wishes of the non-

defaulting party. In the present case, AP, as the non-defaulting party, did not object to the

Director‟s decision to expedite the constitution of the arbitral tribunal. In fact, AP initiated

the arbitration process and it was in AP‟s interests to expedite the constitution of the arbitral

tribunal.

C. In addition, the appointment of the Presiding Arbitrator is proper.

Under Article 9(3) of the UNCITRAL Arbitration Rules, the first and second

arbitrators are to choose a Presiding Arbitrator. Should the two arbitrators fail to agree or

consent to the choice of the Presiding Arbitrator within 30 days after the appointment of the

second arbitrator, the Director shall appoint the Presiding Arbitrator.23

In the present case, the Director having not waited for the lapse of 30 days has

appointed both the second arbitrator and the Presiding Arbitrator together on 30th

July, 2011.

The appointment of John Chong as the Presiding Arbitrator may appear to be at odds with the

UNCITRAL Rules.

20

Rules 3(1)(a)(i) and (a)(ii); 45 days have elapsed since RFE was notified of the notice of arbitration (facts,

page 4) 21

Further Corrections and Clarifications, Clarification no.18 22

Ng Chee Yew Sdn Bhd & Ors v IJM Corp Bhd & Anor [2011] 7 MLF 122 23

Article 9(3) of the UNCITRAL Arbitration Rules

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The purpose of Article 9(3) of the UNCITRAL Rules, however, was to give effect to

the consent of the first and second arbitrators as to the appointment of the Presiding

Arbitrator. The arbitrators have liaised with each other on three separate occasions: the initial

hearing on 15th

August 2011, the conference between the arbitrators in respect of the Hearing

Agenda for the October hearing, and that they shall so constitute the arbitral tribunal in the

October hearing.

None of the arbitrators have objected to the choice of John Chong as the Presiding

Arbitrator in these three separate occasions. There is therefore, an implied consent on the part

of both the first and second arbitrators to the appointment of the Presiding Arbitrator. Any

superficial irregularity surrounding the circumstances of the Presiding Arbitrator‟s is cured.

It is thus unreasonable to insist that the Director must comply with the letter of Article

9(3) of the UNCITRAL Arbitration Rules when the core purpose of it has been duly served.

The appointment of the Presiding Arbitrator is accordingly proper.

D. In any event, the Director’s appointment would not prejudice or affect the

enforcement of awards made by the arbitral tribunal

The principle of minimal interference24

allows an arbitrator to exercise his discretion

in a wide manner as long as that exercise of discretion is not manifestly unfair or contrary to

the rules of natural justice. Indeed, it may be such that under Article V(1)(a) of the New York

Convention that any awards made by the arbitral would not be recognised and enforced if the

circumstances show that the tribunal rendering this award is improperly constituted.

However, should RFE raise any objections to the award made under these

circumstances, it remains that this award necessarily relates to the procedural decisions made

24

Soh Beng Tee Co Pte v Fairmount Development Pte Ltd [2007] 3 SLR 86

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by the Director in constituting the arbitral tribunal25

. Both RFE and AP had chosen to refer

this dispute to arbitration in the KLRCA, and should accordingly, be bound by the procedural

rules of the arbitral tribunal.

As submitted above, the appointment of the second and Presiding arbitrators were

proper and in accordance to the rules of KLRCA. Additionally, the appointments of both

arbitrators do not contravene the rules of natural justice, ie, it is neither manifestly unfair nor

prejudicial to RFE in the course of the arbitral proceedings. In the absence of such manifest

unfairness or prejudice26

towards RFE, it is thus unreasonable, for RFE to challenge the

enforcement and recognition of any awards made by the arbitral tribunal for the reason that

the tribunal is improperly constituted.

III. THE ARBITRAL PANEL HAS THE AUTHORITY TO IMPOSE SANCTIONS

ON RFE IN THE FORM OF A FINE

A. The Arbitral Tribunal has the authority to impose sanctions on RFE

It is evident that RFE had deliberately frustrated the arbitral proceedings in KLRCA

by failing to respond to the arbitration notices filed by AP, and had failed to appear at the

initial hearing on the 15th of August 2011.27

It was held in the case of ReliaStar Life Insurance Co. of New York v EMC National

Life28

(„the ReliaStar‟) that in cases where an arbitration clause has been drafted widely, an

arbitral tribunal would have sufficient authority to impose sanctions to a party if it has been

found that the defaulting party had acted in bad faith. The court in the instant case had

25

Engineering Environmental Consultants Sdn Bhd v Sime UEP Development Sdn Bhd, [2009] MLJU 0534 26

Hagop Ardahalian v Unifert International SA (The “Elissar”)[1984] 2 Lloyd‟s Rep 27

Facts, page 4, para 3 28

546, F.3d. 81 (2d Cir. 2009)

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interpreted „bad faith‟ as conduct that which seeks to undermine the swift and efficient

resolution of disputes without protracted litigation.29

Accordingly, because RFE had sought to undermine expedient resolution of the

dispute between the Parties by refusing to comply with the rules of the KLRCA, the KLRCA

has thus the equitable authority30

to impose sanctions on RFE.

B. In any case, the arbitral tribunal does not have the authority to sanction RFE in

the form of a fine

The definition attached to the word „sanction‟ is necessarily a broad one31

. In the case

of Cheng Keng Hong v Government of Malaya [1966] 2 M.L.J 33,32

it was held that any form of

sanctions must be imposed by the arbitral tribunal in accordance with arbitration rules as

agreed upon by the parties.

As this present arbitral tribunal is bound to comply with the rules of the MAA 2005

and the KLRCA Rules, both the MAA 2005 and KLRCA Rules do not allow an arbitral

tribunal to impose such sanctions in the form of a fine.33

As such, while it may be the case that the arbitral tribunal has the inherent equitable

authority to impose sanctions on parties acting in bad faith, it remains that this authority does

not extend to allow the arbitral tribunal to impose punitive sanctions. It was held in the

ReliaStar that an arbitral tribunal only has the authority to impose sanctions in the form of

awards which are compensatory in nature, but not fines, which are punitive in nature.

29

Ibid, The ReliaStar, page 87 30

Thomas W. Walsh, ReliaStar Life Insurance co. of New York V. EMC National Life Co. 546 F.3d 81.United

States Court of Appeals for the Second Circuit, April 8, 2009. 31

Black, Henry Campbell (1990), Black’s Law Dictionary, 6th edition St.Paul, MN. 32

[1966] 2 M.L.J 33 33

Section 44 of the Malaysian Arbitration Act 2005, Article 44 of the KLRCA Rules

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It remains, however, because RFE has delayed and frustrated the proceedings by

failing to tender a timely response to the notice of arbitration, which lead to a second hearing

on the 10th

of October 2011, it is submitted that the KLRCA should exercise its equitable

authority to impose a sanction on RFE in the form of costs to compensate the fees34

and

expenses35

of the arbitral tribunal during the initial hearing, and the legal fees and costs

incurred by AP in relation to the arbitration proceedings on the 15th

of August 2011.36

IV. THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE

INTERNATIONAL SALE OF GOODS IS THE LAW APPLICABLE TO THIS

DISPUTE

A. The applicable law to the contract is to be determined by way of the lex locus

solutionis approach

The KLRCA shall apply Section 30(4) of the Malaysian Arbitration Act 2005, which

states that in the absence of an express choice made by the parties, the arbitral panel shall

apply the Malaysian conflict of law rules.

In the case of James Capel37

, where the court was to decide on the question of

applicable law between a Singaporean and Malaysia stockbroker, it was held that in such

circumstances, the proper approach to determine the applicable law is the lex locus solutionis

approach. As such, the applicable law is the law of the place where the characteristic

performance of the contract is to be performed.

34

Article 40 (2)(a) KLRCA Rules 35

Article 40(2)(b) KLRCA Rules 36

Article 40 (2)(e) KLRCA Rules 37

James Capel (Far East) Ltd v YK Fung Securities Sdn Bhd [1991] 1 CLJ 770 HC

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As this dispute concerns a contract of sale of green and unripe bananas, the

characteristic performance is thus the delivery of green and unripe bananas to the ports of

Astoria.

B. The “FOB: Rolga City” Clause does not restrict the characteristic performance

of delivery to be affected in Astoria

Notwithstanding the fact that the contract between AP and RFE was termed “FOB

Rolga City”, it remains that this term could not be interpreted to mean that the characteristic

perrformance of delivery ends when the bananas were loaded onboard the ship. Rather, the

term FOB is not determinative of when does a party's obligation end in a contract of sale. It is

mere convenient shorthand that identifies certain duties as between the contracting parties,

leaving the parties free to alter or modify the contractual obligations between them.

The correspondence between AP and RFE38

is evidence that RFE's obligations extend

to ensuring proper delivery of green and unripe bananas to the ports of Astoria. In

considering how AP had dealt with RFE for the first time,39

how RFE has better knowledge

and experience in this field40

, and how RFE has appeared to address all of AP's concerns of

receiving the goods in an unripe condition in their response to AP, the proper place where the

delivery is to be affected is accordingly Astoria. Therefore, Astorian law, that being the

United Nations Convention on Contracts for the International Sale of Goods is the lex locus

solutionis, and is the applicable law in governing this dispute.

V. IMPROPER STORAGE WAS THE CAUSE THE BANANAS ARRIVED AT

THE PORT OF ASTORIA CITY IN UNSATISFACTORY CONDITION BUT RFE

DID BREACH ITS CONTRACTUAL OBLIGATION TO AP

38

Exhibit #1, pg 7; Exhibit #2, pg 8 39

Facts, pg 2, para 3 40

Ibid, para 1

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A. The bananas have arrived in unsatisfactory condition because they were stored

in high temperatures and have not been packed properly

The ripened state of bananas was clearly due to the high temperature at which they

had been transported.41

In the hold No.2, the cartons of bananas were tightly stowed. No slots

or wooden separation had been used to facilitate the flow of air between the cartons. The

cartons were stowed an average of eight tiers high in both compartments of the No.2 hold. No

space was left between the cartons .The improper storage resulted in there being poor air

ventilation and has led the temperature to rise and thus accelerated the ripening of the

bananas.

B. RFE breached its contractual obligation to AP

1. The contract between RFE and AP is an Extended FOB contract

The sale of goods contract between AP and RFE would to be FOB contract, as

expressed in the bill of sale.42

In a traditional FOB contract the buyer arranges and nominates

the ship, but the seller ships and takes the bill of lading in his own name as consignor. In the

present case RFE have arranged for shipment and have been named as the Consignor in the

bill of lading.43

In cases where seller arranges shipment and takes the bill in his own name as

consignor the contract will be known as an extended FOB contract. Therefore the contract

between AP and RFE is an extended FOB contract.

2. RFE has breached its obligation under the extended FOB contract

(a) RFE has failed to ensure that the bananas are packed in the best

possible manner which would withstand the length of the voyage

41

Page 11 of the moot problem 3rd

paragraph (John Sparrow‟s report) 42

Page 2, 4th

line, 3rd

paragraph, Moot Problem, 43

Further Corrections & Clarifications, Clarification 1

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In an extended FOB contract the seller just like in a traditional FOB contract would

have the legal duty to pack the goods in conformity of the contract and load the goods on

board the ship44

. Two methods of packing were used in the present case. The bananas in hold

2 were being stored in boxes and the bananas in hold 1 were hung from the stem.

The degree of ripening was substantially greater in Hold no. 2 where the bananas

were packed in boxes compared to Hold no. 1 where the bananas were hung from the stem.

Clearly on the facts the best possible technique to be used here would have been for the

bananas to be hung from the stem. RFE have professed to be an expert in ocean shipping45

and AP has relied on their expertise. Thus the onus is on RFE to ensure the bananas are

packed using the most suitable and appropriate technique as this would be critical in the

contract between both parties.

RFE have instead packed 60% of the bananas in boxes and they have breached their

obligation to pack the bananas using the most suitable technique.

(b) RFE's failure to nominate an effective carrier amounts to a breach

of the FOB contract

In an extended FOB contract the seller undertakes responsibility for procuring the

contract of carriage at the buyer‟s expense. In an extended FOB the seller acts as an agent of

the buyer to hire the vessel.46

As part of his obligation the seller has to nominate an effective

vessel like in a CIF contract and this forms part of his duty to exercise reasonable skill and

44

Mitsui & Co. Ltd. And Another V. Flota Mercante [1988] Vol. 2 Lloyd's Law Reports 208 45

Exhibit 2-Email from RFE to AP 46

See Ewan McKendrick, Goode On Commercial Law, LexisNexis UK & Penguin Books, 4th

Edition (page

1041)

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care.47

An effective ship would be a ship that is capable of carrying the goods and fulfilling

the particular purpose of the contract.48

On the facts the ripening of the bananas has happened on board the ship due to high

temperatures. The carrier in question is a general purpose ship that has been used to carry

food produce before, but there is no indication that this carrier is suitable to carry bananas as

it can be seen that they lack the experience to deal with issues like proper refrigeration which

is a core necessity in transporting unripe bananas.

The seller is well aware of the fact that bananas are a very delicate fruit to be

transported and are very susceptible to disease and can ripen very quickly if stored at a

unsuitable temperature. Thus it is concluded that RFE has breached their obligation as a

seller by not nominating an effective carrier as prescribed in the contract between the two

parties.

(c) RFE has failed to fulfill their obligation to supply AP with bananas

of satisfactory quality under the FOB contract

(i) RFE's has failed to ensure that the goods remain on specification

for a reasonable time after delivery.

Art 35 (1)CISG states that the seller must deliver the 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. Diplock J in Mash & Murrell Ltd v Joseph I Emanuel Ltd

held:-

47

Scottish & Newcastle International Limited (Respondents) v Othon Ghalanos Limited (a company

incorporated in Cyprus) (Appellants) [2008]. UKHL 11 48

See Carole Murray,David Holloway & Daren Timson-Hunt, Schmitthoff’s Export Trade The Law and

Practice of International Trade, 11th Ed. ,Thomas Reuters, page 27.

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“[…]when goods are sold under a contract such as a cif contract, or fob

contract, which involves transit before use, there is an implied warranty not

merely that they shall be merchantable at the time they are put on the vessel,

but that they shall be in such a state that they can endure the normal journey

and be in a merchantable condition upon arrival.”49

(Emphasis added)

This would mean that the goods will not only need to conform to the specification of

the contract at the point of loading but would need to conform when they are delivered at the

port of destination to the buyer. On the facts the goods have failed to meet specification

within contract which is to deliver to the port of Astoria green unripe bananas. The bananas

have arrived excessively ripened as 30% of the bananas were ripe when they arrived.50

The

usual acceptable amount of ripening would be 3% to 5%, anything above 10% would be

excessive. Thus excessive ripening would amount to a breach of the seller‟s obligation under

the FOB contract.51

(ii) Further or in the alternative, RFE has undertaken the obligation to

ensure the arrival of the bananas in green unripe condition

In the email correspondence between AP and RFE, RFE has given their undertaking

to AP that the bananas will arrive in green unripe condition. This email is the evidence of

RFE's acknowledgement of their obligation under the FOB contract to ensure that the

bananas arrive at the port of destination according to the specification contract. The arbitral

tribunal is not bound by the parole evidence rule and may elect to admit the e-mail to show

RFE's undertaking. The parole evidence rule as expressed in Sections 91 and 92 of the

Malaysian Evidence Act 1950 is not applicable in the present proceeding to exclude the

49

Mash & Murrell Ltd v Joseph I Emanuel Ltd [1961] 1 Ll Rep 46 :- see also Benjamin's Sale of Goods, 7th edn

at paras. 18-255/257 and Chitty on Contracts, 30th edn, vol. 2 at para. 43–304 50

John Sparrow‟s Report 51

The Skincare Products Case, Finland 30 June 1998 Helsinki Court of Appeal 19

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admissibility of the emails by virtue of Section 2 of the Act, which provides that the Act shall

not apply to any proceeding before an arbitrator.

Furthermore, Article 27(4) of the UNCITRAL Arbitration Rules provides the

arbitration tribunal the ultimate discretion to determine the admissibility, relevance,

materiality and weight of any evidence offered. It is thus submitted that the arbitral tribunal

need not be bound by the parole evidence rule, and may admit the email as evidence of RFE's

undertaking under the contract.

(iii) In addition, the assurance made by RFE in the email is not

excluded by the parole evidence rule as it amounts to a collateral

contract

Even if the contract between AP and RFE is subject to the parole evidence rule, the

email is still admissible to establish the existence of a collateral contract.52

Considering our

facts, this exception would apply and the parole evidence rule will still not apply. RFE has

given an assurance that bananas will arrive in the port of Astoria in green unripe condition.

These assurances or representation can be found within the two email correspondence.53

In the first email from AP to RFE, AP has told RFE to insure proper handling and

storage of the bananas as they were 6000 miles away in Astoria. They have said that RFE are

in a better position to insure these request were met and have made it clear that they were

counting on RFE to perform these request and ensure the bananas arrive in excellent

condition.

52

S. 92(b) of the Malaysian Evidence Act 1950; see also Tan Chong & Sons Motor Co (Sdn) Bhd v. Alan

McKnight [1983] 1 MLJ 220 FC 53

Page 14 para 3 exhibit 1 –AP to RFE

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AP has also reminded RFE about the fact that bananas ripen quickly and have said it

is at the utmost importance that AP receives the bananas in green unripe condition in order

for AP to sell them to local retail stores. They also have specified the temperature that the

bananas must be kept which is not exceeding 12-13celcius.

In exhibit 2, in the reply from RFE to AP they have assured AP by telling them not to

worry as they fully understand AP‟s concern and they are experienced in ocean shipping and

have never had a problem.

The assurance made by RFE in the email amounts to a term of the contract. The

question of whether a statement by a party to a contract amounts to a term depends on the

intention of the party deduced from the surrounding evidence as a whole54

. The Arbitral

Tribunal may consider a number of factors to determine whether the assurance by RFE

amounts to a term of the contract

Firstly the time the statement was made and the importance of the statement and

undertakings by the promisor.55

The statements were made in exhibit 1 & 2 and this was on

the 2nd

and 3rd

August 2010.AP only signed the bill of sale on the the 4th

of August. AP has

relied on the assurances made by RFE from the email correspondence and then only has

signed the bill of sale. Thus it is submitted that the statement made it the emails were of the

utmost importance to AP as they would have not signed the bill of sale if not for the

assurances given by RFE.

Secondly a statement will most likely be a term if the party who made the statement

has special knowledge or skill as compared to the other party.56

On our facts in exhibit 2

54

Lord Moulton, Heilbut Symons v. Buckleton [1913] AC 30. 55

Bannerman v White [1861] 10 CBNS 844. 56

Oscar Chess Ltd v Williams [1957] 1 WLR 370.

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email, RFE have stated that they are experienced in ocean shipping and have never had a

problem before. This would indicate that RFE possesses special skill and knowledge.

Finally a representation made by a party will crystalise into a term, provided there

was reasonable reliance.57

There will be reasonable reliance on that party if he was in a better

position to fulfill certain obligation as RFE are in a better position because RFE have hired

the ship58

and they are right there and said to be experienced in ocean shipping. Further AP is

6,000 miles away and clearly RFE are in a better position.

Thus, it is submitted that the representation made has crystalised into a term, that term

being for RFE to deliver green unripe bananas fit for retail purposes and to be properly

handed and stored aboard the MS Pinafore and RFE has breached its obligation.

VI. AP DOES NOT HAVE THE DUTY TO MITIGATE THE HARM THAT

RESULTED FROM THE BREACH OF CONTRACT

A. AP does not have a duty to take reasonable measures to protect the bananas

from further spoilage.

Article 86 (2) CISG lays down the duty for a buyer to preserve the goods in the event

he rejects because of non-conformity. This provision states that the buyer will have the duty

to preserve the goods only if this can be done without the buyer having to incur unreasonable

inconvenience or unreasonable expense. It is submitted that AP will not have the duty to

preserve the goods as it would have resulted in unreasonable inconvenience and unreasonable

expense for AP to do so.

57

Esso Petroleum Co Ltd v Mardon [1976] EWCA Civ 4 58

Page 14 paragraph 2

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In this case, in order for AP to preserve the bananas they would have to store the

bananas in a temperature controlled warehouse. It would be of unreasonable inconvenience

for AP to use their own warehouse facilities to store those bananas as AP has other fruit in

that warehouse. Ripening bananas exude ethylene gas and heat59

both of which will

accelerate ripening of other fruits in its proximity. Thus these bananas would be harmful to

the other fruit currently in AP‟s own warehouse facilities and thus it would have resulted in

unreasonable inconvenience for AP.

Further, AP would have incurred unreasonable expense in having to hire the

warehouse with proper temperature control and as one of the causes for the bananas ripening

so quickly was the packaging, they would have to repackage a bulk of bananas. AP would

have to also separate the bananas that have ripen and only preserve the ones that have not yet

ripen as storing the ripened bananas with the ones that have not ripened would only speed up

the ripening of the unripe bananas. AP would incur unreasonable expense to hired skilled

workers to individually separate each and everyone one of the large shipment of bananas.

It is submitted that AP will not have the duty to preserve the bananas as they would

incur unreasonable inconvenience and unreasonable cost to do so.

B. AP does not have a duty to attempt to sell the bananas as it would have been

unreasonable for them to do so as the bananas were unsafe for human consumption

Article 88(2) CISG illustrates that a party who has a duty under article 85 or 86 to

preserve the goods or if the goods cannot be preserved due to unreasonable cost then that

party must take reasonable measures to sell them. It is submitted that a reasonable measure

here would be the minimum act that can be expected of a reasonable person in his profession

59

Appendix B,Paragraph 2

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and surrounding circumstances.60

In this situation, the standard would be the standard of a

reasonable prudent businessman as this is a commercial contract. It is submitted that AP has

acted as a reasonable prudent businessman as they have decided not to attempt to sell the

bananas as they are uncertain regarding to the safety of these bananas.

AP has acted on the advice of their Director of Food Safety, Dr. Bassillio Bartolo,

PHD and has not attempted to sell them as Dr. Bartolo has recommended that the entire

shipment be rejected. It would have been unreasonable for a prudent businessman to act

against the advice of their own Director of Food Safety as it may be unfit for human

consumption.

Thus selling the bananas would be something unreasonable for AP to do thus they will not

have the duty to sell the bananas and have breach any of their obligation to mitigate.

60

The Propane Case Austrian Supreme Court 6th

February 1996

http://cisgw3.law.pace.edu/cases/960206a3.html

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PRAYERS OF RELIEF

Astoria Produce request this arbitration tribunal to find that :

1. The KLRCA does have the authority to resolve the dispute between both parties as

there has been an agreement to arbitrate between RFE and AP.

2. The Chairman and the party appointed arbitrators have been properly appointed and

RFE has not been denied the opportunity to select its party appointed arbitrator.

3. The arbitration tribunal does have the authority to sanction RFE but not in the form of

a fine.

4. The applicable law that should govern this dispute between the parties is the CISG in

accordance with the lex locus solutionis approach.

5. The shipment of bananas have arrived in unsatisfactory condition due to improper

storage and improper packing and the seller has breached his obligations.

6. The duty to preserve the bananas and to sell them has is not on AP.

Respectfully submitted,

Counsel for Claimant.

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