THIRTEENTH ANUAL VIS EAST INTERNATIONAL COMMERCIAL...

THIRTEENTH ANUAL

VIS EAST INTERNATIONAL COMMERCIAL ARBITRATION MOOT

15 April 2016

KAIHARI WAINA, CLAIMANT

v.

VINO VERITAS, RESPONDENT

MEMORANDUM FOR CLAIMANT

Ana Laura Miranda

Mariana Marreiros

Ricardo Moniz

Ricardo Mota Gonçalves

Vera Machado

Mestrado Forense e Arbitragem

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2 Memorandum for Claimant

INDEX

Index of authorities ........................................................................................................... 4

Index of cases of arbitral awards ...................................................................................... 5

Index of rules and legal sources ....................................................................................... 7

Abbreviations ................................................................................................................... 8

Statement of Facts ............................................................................................................ 9

Summary of the argument .............................................................................................. 11

I. This tribunal should order Respondent to produce the appealed documents ...... 12

A. This Tribunal is empowered to order Respondent to produce the documents . 12

1. Vienna Rules allow document production ................................................... 12

2. The contract does not inhibit document production ..................................... 14

i. “No discovery” only excludes broad US-type discovery ......................... 15

B. The Tribunal should order Respondent to produce said documents ................ 17

1. The documents requested by Claimant are unarguably relevant to determine

the result of the present dispute ........................................................................... 18

2. The refuse of this request diminishes Claimant’s opportunity to be heard .. 18

II. Claimant is undoubtedly entitled to recover litigation costs in the amount of USD

50.280 ......................................................................................................................... 19

A. Respondent Should Recover the Interim Injunction Costs Under CISG Article

74…. ........................................................................................................................ 20

1. The Recovery of Attorneys’ Fees As Damages Is Consistent accordingly the

General Principles of CISG Article 74. ............................................................... 22

B. Respondent Should Recover Costs for the Application for Declaratory

Relief… ................................................................................................................... 24

C. All the damages are retrievable ....................................................................... 24

1. Respondent Breached the Arbitration Clause .............................................. 25

2. A Claim for Declaratory Relief Is Completely Different from the

Proceedings For A Preliminary Injunction .......................................................... 26

3. There´s a relation of identity between the remedies used to “cure” the

“wrong” of a Breach of an arbitration agreement and the ones used for a breach

of contract. ........................................................................................................... 27

4. Alternatively, Attorneys’ Fees Are Recoverable by Comparison to Cases

Allowing Recovery of Attorney’s Fees in Current Arbitral Proceedings ........... 29

5. 5. Claimant Was Coerced To Defend Proceedings In Order To Mitigate

Loss. ..................................................................................................................... 30


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D. Alternatively, the respondent should be granted “arbitration costs” under

Article 44 of the Vienna rules ................................................................................. 31

III. The claimant should be awarded profits from respondent’s sale to SuperWines

31

A. The claimant is entitled to compensation under CISG Article 74 ................... 32

1. The claimant mitigated its losses as required under article 77 ..................... 32

2. Respondent is not excluded of the liability notion under the article 79

CISG… ................................................................................................................ 33

3. Claimant is able to prove it’s lost with reasonable certainty........................ 34

B. Claimant should be awarded with Respondent profits as Damages ................ 36

1. Claimants losses are impossible to accurately determine ............................ 36

2. Superwines Profits reflect what claimant should have earned from selling the

5.500 bottles ........................................................................................................ 38

3. Granting respondents profits matches the purposes of article 74 CISG ...... 39

C. Superwines Profits should be awarded to Claimant because respondent should

not be allowed to beneficiate from its contract breach............................................ 40

IV. Request for Relief ................................................................................................ 42


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INDEX OF AUTHORITIES

Cited as Full citation Paragraphs

Honnold Honnold, John

Uniform Law for International sales under

the 1980 Convention, 1991, 2ºed

¶ 53

Petz

Posch, Willibald and Petz, Thoma

http://www.cisg.law.pace.edu/cisg/biblio/pos

ch-petz.html

¶ 50

Stoll Peter Schlechtriem/ Stoll

http://www.cisg.law.pace.edu/cisg/biblio/sch

lechtriem21.html

¶ 103,128,132,134,139

Born 1 Born, Gary B.

International Commercial Arbitration, 2014.

Wolters Kluwer Law & Business

¶ 5; 16; 17; 18; 19

Born 2 Born, Gary B.

International Arbitration: Law and Practice,

2012. Kluwer Law International. Available

at:

http://learning.ecupl.edu.cn/pluginfile.php/6

3812/mod_resource/content/1/International%

20Arbitration_%20Law%20%20-

%20Born%2C%20Gary.pdf

¶ 15

D. Caron &

L. Caplan

The UNCITRAL Arbitration Rules: a

commentary, 2013 ¶ 16

http://www.cisg.law.pace.edu/cisg/biblio/posch-petz.html

http://www.cisg.law.pace.edu/cisg/biblio/posch-petz.html

http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem21.html

http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem21.html

http://learning.ecupl.edu.cn/pluginfile.php/63812/mod_resource/content/1/International%20Arbitration_%20Law%20%20-%20Born%2C%20Gary.pdf





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INDEX OF CASES OF ARBITRAL AWARDS

Cited as Full Citation Paragraphs

Foamed board

machinery

http://cisgw3.law.pace.edu/cases/92758

5i1.html

¶ 51

Pallets, Germany http://cisgw3.law.pace.edu/cases/02041

1g1.html#cx

¶ 54

4A_232/2013,

Switz

http://www.swlegal.ch/getdoc/d53b89a

a-1825-4d51-9ce9-

4c01d5490111/2013_Nathalie-

Voser_Aileen_Truttmann_Considers-

arb.aspx

¶ 78

Malaysia Dairy,

Netherlands


2n1.html

¶ 103

Esso Petroleum v

Niad, UK

http://www.ucc.ie/law/restitution/archi

ve/englcases/esso.htm

¶ 122

Clothing case http://cisgw3.law.pace.edu/cases/97878

6i1.html

¶ 90

Viechtach

Amtsgericht


1g1.htm

¶ 83

http://cisgw3.law.pace.edu/cases/927585i1.html


http://cisgw3.law.pace.edu/cases/020411g1.html#cx

http://cisgw3.law.pace.edu/cases/020411g1.html#cx

http://www.swlegal.ch/getdoc/d53b89aa-1825-4d51-9ce9-4c01d5490111/2013_Nathalie-Voser_Aileen_Truttmann_Considers-arb.aspx





http://www.ucc.ie/law/restitution/archive/englcases/esso.htm

http://www.ucc.ie/law/restitution/archive/englcases/esso.htm



http://cisgw3.law.pace.edu/cases/020411g1.html

http://cisgw3.law.pace.edu/cases/020411g1.html


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INDEX OF RULES AND LEGAL SOURCES

Cited as Full Citation

CISG United Nations Convention on Contracts for the International Sale of

Goods (1980)

IBA Rules International Bar Association Rules for Taking of Evidence in

International Arbitration

New York Convention United Nations Convention on the Recognition and Enforcement of

Foreign Arbitral Awards (1958)

UNCITRAL UNCITRAL Model Law on International Commercial Arbitration (1985

with amendments adopted in 2006)

US Federal Rules of Civil

Procedure

United States Federal Rules of Civil Procedure


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ABBREVIATIONS

Art./Arts. Article/Articles

CISG United Nations Convention on Contracts for the International Sale of

Goods (1980)

Ex. C. Exhibit Claimant

Ex. R. Exhibit Respondent

Proc. Or. 1 Procedural Order 1

Proc. Or. 2 Procedural Order 2

St. Cl. Statement of Claim

UNCITRAL United Nations Commission on International Trade Law

USD United States Dollars

VIAC Vienna International Arbitration Centre


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Statement of Facts

1. Claimant is a wine merchant that sells Mediterranean wine of great quality. Kaihari

Waina Ltd has an unstained reputation of trustworthiness in the Wine market (statement

of claim, page 3, paragraph 1).

2. On the 22 of April Claimant entered in a framework contract with Vino Veritas Ltd

Respondent). On that contract it was promised that Claimant would buy at least 7.500

bottles per year and Respondent agreed to deliver a maximum of 10.000 bottles per year.

(Statement of claim, page 4, paragraph 3).

3. Both parties had a good trading relationship in the past six years. Claimant would

normally order between 7.500 bottles and 8.500 per year.

4. The framework contract is ruled by the laws of Danubia including the CISG.

Responded firmly asserted in the negotiations that it wished to avoid the costs of a dispute

resolution and agreed upon an arbitration clause

5. On 4 November 2014, Claimant ordered 10.000 bottles of wine. On the meeting held

between Claimant manager Mr. Buharit and Mr. Weibauer (Respondent managing

director), Mr. Buharit left with the idea that Respondent would fulfil its contract duties

6. On 1 December 2014, Claimant received a letter informing that Respondent would only

deliver a maximum of 5.000 bottles at the price of 41.50 euros per bottle. Respondent

justified these shortcoming of bottles on the bad harvest it had.

7. Respondent assured Claimant it was honouring its commitments on a percentual

standard- pro rata basis.

8. SuperWines is Claimants biggest competitor.

9. Respondent CEO Mr. Weinrich held a meeting with Mr. Barolo (SuperWines CEO) on

30 January 2014. On that meeting it was discussed the possibility of Respondent to sell

wine to SuperWines.

10. On August of the same year Respondent was completely aware that a sale to

SuperWines would surely affect the numbers of bottles available to sell to other


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customers. That being known still Respondent sold 5.500 bottles to SuperWines and

agreed to supply at a maximum of 15.000 bottles per year.

11. Very credible rumours in the wine trade suggest that SuperWines paid a premium per

bottle as a “market entry fee” as a new costumer in the wine trade. The premim paid was

said to be between 15 to 20 euros per bottle.

12. On 2 December of 2014 Claimant sent a letter do Respondent insisting on the delivery

of 10.000 as promised in the framework contract. Two days later Respondents managing

director decided to terminate the contract and refused to deliver any quantity of wine

during this year.

13. On 8 December 2014 claimant had already received orders for 6.500 bottles of wine

(Vino Veritas ltd wine) from its customers and already accepted some of them up to 800

bottles. Claimant was then forced to seek an interim injunction in order to not let

Respondent sell 10.000 bottles of wine. The ones it were obliged previously to sell to

Claimant. The injunction was awarded by Court on 12 December 2014.

14. Claimant as a last resort measure bought 5.500 bottles of wine from Vignobilia Ltd at

a price of 42 euro per bottle to replace the bottles that we´re due by contract with

Respondent. That buy was made in a desperate try to mitigate the losses of Claimant´s

customers.

15. On 30 January 2015 Respondent breached the arbitration agreement and sought a

declaration of non-liability in a Mediterranean court.

16. Claimant incurred in USD 50.280 costs in jurisdictional proceedings.


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Summary of the argument

In this summary we aim to provide you a route, to guide you through it, in a way

that becomes perfectly clear why should Claimant´s claims be granted.

In this initial Chapter, we address document production stating unarguably that

this Tribunal should order Respondent to produce the appealed documents due to the

importance it has to make justice in this case. We support our claim in 5 different

arguments: (I)- Vienna Rules allow document production. (II)- The contract does not

inhibit document production. (III)- “No discovery” only excludes broad US-type

discovery. (IV)- The documents requested by Claimant are unarguably relevant to

determine the result of the present dispute. (V)-. The refuse of this request diminishes

Claimant’s opportunity to be heard.

In this Second very big chapter we address the necessity for Claimant to recover

all litigation costs as damages related to Respondent´s breach of contract.. We shield our

claim under the ruling of article 74 of the CISG and or in the Vienna rules alternately.

The cost incurred seeking interim relief must be recovered also. Likewise, Claimant is

entitled to recover from the costs it incurred in defending against Respondent application

for declaratory relief. Respondent breached the arbitration clause and it was that beached

that triggered the defence proceedings sought by Claimant. The costs are recoverable

under article 74, or as arbitration costs under the article 44 of the Vienna rules.

Last but not the least, Respondents profits from its sale to SuperWines must be granted

for Claimant even if they can´t be precisely calculated they sure consubstantiate a measure

of Claimant´s loss.


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I. This tribunal should order Respondent to produce the appealed documents

We hereby argue that this Tribunal may order Respondent to produce the documents

requested by Claimant, namely: the documents from the period of 1 January – 14 July

2015 pertaining to communications between Respondent and SuperWines, in regard to

the purchase of diamond Mata Weltin 2014 and any contractual documents, including the

documents relating to the negotiation of that contract between said Parties. The

documentation shall include reference to the number of bottles purchased and the

purchase price. [St. Cl., paragraph 27, page 7].

These documents are of the utmost importance, since they are indispensable to calculate

the damages Claimant incurred (St. Cl., paragraph 28, page 8).

A. This Tribunal is empowered to order Respondent to produce the documents

We intend to demonstrate that the Tribunal has the power to order the production of

documents requested by the Claimant. When deciding on this matter, the Tribunal should

bear in consideration the vital importance of said documents to Claimant’s defence and

to the justice of the decision.

1. Vienna Rules allow document production

Claimant and Respondent both choose to solve the disputes which might eventually

arise from the contract celebrated between them through arbitration.

The Parties agree to arbitrate their disputes mainly due to the procedural conduct of

international arbitration. What attracts Parties towards arbitration is, in particular, the fact

that, through this form of alternative dispute resolution, they are able to obtain fair and

neutral procedures that are flexible, efficient and capable of being tailored to the needs of

each and every dispute, without reference to the formalities and technicalities of

procedural rules applicable in national courts. This happens as a result of the substantial

autonomy the Parties are granted, under international arbitration conventions and

developed national arbitration legislation, to agree on arbitration procedures (including

institutional arbitration rules). [Born 1, pages 2123-2125].

Their agreement is the source of the Tribunal´s power. Document production and

discovery are procedural matters and the Parties are free to agree on the procedure the

Tribunal shall adopt in relation to the matter.


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The Law of Danubia, including the CISG, governs the contract. [Ex. C. 1 and Proc.

Or. 2, page 61, paragraph 63.] The UNIDROIT principles are applicable. [Proc. Or. 2,

page 61, paragraph 62.] The arbitration is based on the UNCITRAL Model Law with the

2006 amendments [Proc. Or. 2, page 61, paragraph 58. and Proc. Or. 1, paragraph (3),

page 51] The IBA rules are also applicable, since the Parties decided to solve the possible

disputes according to international practice. [Proc. Or. 2, page 61, paragraph 59.; Ex. C.

1, article 20]

The Parties have eliminated the possibility of discovery in the arbitration clause. [Ex.

C.1, page 9, article 20]

Article 19 of the Model Law states that the Parties have the power to decide the

procedure that the arbitral Tribunal should follow in solving the dispute. Both discovery

and document production and the matter of knowing whether they are admissible or not

are procedural questions. As a result, the Parties are free to decide the procedure they

would like the Tribunal to adopt on the matter. The Parties’ choice was to resort to both

the Vienna Rules and international practice [Ex. C. 1, article 20].

The Parties are free to agree to arbitration pursuant to international arbitration rules.

When the Parties agree to arbitrate in accordance with a particular set of rules, they

consent to the procedural and substantive provisions of those rules, including delegation

of some procedural decisions to the arbitral institution. [Born 1, page 2136-2138]. Once

the Parties chose the VIAC as the competent Tribunal, they incorporated the rules into

the arbitration clause by reference and that reference is binding, as if the rules were part

of the contract. [Vienna Rules, article 1, (1) and (2) Vienna Rules].

The tribunal has the power to order production of necessary evidence. [Article 29,

Vienna Rules]. When the Parties determined the Vienna Rules shall govern their

agreement, they provided the arbitral Tribunal with the power to order production of all

necessary evidence.

The reference made by the Parties to international practice is relevant as well. The

IBA rules are considered to be the guidance in international practice and there is no need

for the Parties to adopt them because they are generally accepted as an authority and

reference whenever international practice is cited. According to the IBA rules, document

production should be ordered when necessary, thus, the Tribunal has the power to order

document production.

Since the Parties decided the Vienna Rules were to be applicable, and that

international practice was to be taken into account, they bequeathed the Tribunal with the


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power to order document production. That power might be diminished because of the

exclusion of discovery [Ex. C. 1, article 20], but it exists, nonetheless, as we intend to

demonstrate.

2. The contract does not inhibit document production

The arbitral Tribunal’s power to require the Parties to produce documentary or other

materials, relevant to resolving the matters in dispute, is a critical aspect of the arbitral

process.

The range of disclosure in international arbitration is determined by the procedural

law of the arbitration and the arbitration agreement (including any institutional rules).

These sources define the extent and scope of the Tribunal’s power to order disclosure.

The Tribunal will only exercise its power to order disclosure depending on a set of factors

(including the circumstances and needs of the case, the backgrounds of the arbitrators and

Parties, the arbitration agreement and the law and practice of seat). [Born 2, page 233].

Most institutional rules provide arbitrators with the power to order discovery or

disclosure by the Parties. Even in cases where institutional rules only refer disclosure

authority indirectly, there is a practice in which arbitral Tribunals consistently conclude

that they have the authority to order disclosure to the Parties to an arbitration. The

UNCITRAL rules (article 27 (3)) authorize the Tribunal to order the production of

“documents, exhibits or other evidence”. This allows for the conclusion that the arbitral

Tribunal possesses at least some power to order disclosure of evidentiary materials by the

Parties. [Born 2, pages 2337 - 2339]. Other authorities sustain that the party who asks the

Tribunal for the production of proof must demonstrate the relevance of the documents to

his claim or defence. [D. Caron & L. Caplan, page 567].

Article 27 of the UNCITRAL rules does not inhibit the arbitral Tribunal from

providing for one party to make discovery requests to the other, and the Tribunal itself

may order appropriate disclosure. Disclosure occurs only if ordered by the Arbitral

Tribunal. [Born 2, 2339]

Most institutional rules offer the arbitral Tribunal large discretion over evidence-

taking in international arbitration. Even in cases where institutional rules are mute on this

matter, it is almost universally recognized that arbitrators possess a large range of

disclosure powers [Born 1, page 2342].


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Most authorities hold that disclosure may be of determining importance in international

arbitration and that, even in cases where there is no express authorization in the Parties’

agreement or applicable institutional rules, the power to order disclosure exists, because

it is inherent to the Tribunal in international arbitration. [Born 1, 2342]

The great majority of international rules do not limit the range of disclosure that the

arbitral Tribunal may order.

It is a fact that institutional arbitration rules almost universally allow Tribunals to order

document disclosure by the Parties. The problem lies in defining the range of that power.

It mainly depends on the Parties’ agreement to arbitrate. If such agreement is silent on

this matter, the arbitrators may exercise their powers to order discovery.

Article 18 of the UNCITRAL Model Law and article 28 of the Vienna Rules are of

great importance and state that the Tribunal must not exclude document production in its

entirety, unless the Parties specifically, clearly and beyond any doubt left clear that it was

their intention to do so.

This allows us to conclude that arbitral Tribunals may, in general, order document

production from one or both Parties. This Tribunal should order the production of

documents requested by Claimant, since document production is not the same as

discovery.

i. “No discovery” only excludes broad US-type discovery

One must interpret the meaning of “discovery”. Discovery is used in the American

Law system. It is a highly intrusive and costly procedure that does not respect one’s

privacy. It includes the right to inspect and copy any documents that are perceived as

relevant to the case and the right to inspect and copy documents which the party does not

know whether are relevant or not, but there is a suspicion that they may eventually lead

to relevant evidence. [US Federal Rules of Civil Procedure, R. 61]. This is why discovery

is also referred to as “fishing expedition”. It has high risks of abuses, has excessive costs

and can be used as a weapon against the other party. This is the reason why the Parties

intended to exclude discovery. They did not, however, intend to exclude document

production as a whole, which is a much less intrusive and costly process. Excluding

discovery is not the same, nor can it ever be perceived as being the same, as excluding

every document production. The Parties never intended to prohibit requests for document

production, which consist of requests for narrow categories of irrefutably relevant

documents that are absolutely and undeniably necessary to determine the truthful

outcome of the case.


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Beyond determining what discovery means, it is of the utmost relevance to determine

the will of the Parties in excluding discovery. The CISG, which one of the applicable

laws, states that the interpretation of contractual clauses must follow the intent of the

Parties. The Parties only intended to exclude US-style discovery, in order to protect their

clients’ personal data and more private business matters.

“Discovery” is mainly used in North American litigation. In international arbitration,

the process of taking evidence (more specifically, documents) is referred to as “document

production” or “disclosure”. Since the Parties used specifically the vocabulary

“discovery”, that should be seen as indicating that their will was to exclude US-style

discovery and not to exclude document production, which is common in international

arbitration.

The Claimant requests document production. The only request is for Respondent to

produce the specific documentation requested (documentation from the period of 1

January – 14 July 2015 pertaining to communications between Respondent and

SuperWines in regard to the purchase of Mata Weltin 2914 and contractual documents

relating to the negotiation of that contract between SuperWines and Respondent,

including all documents relating to the number of bottles purchased and the purchase

price), which is absolutely indispensable for the righteous and fair decision of the case.

Mr. Weinberger, Managing Director of Respondent at the time of the celebration of the

contract, understood the request for document production to be admissible and that the

contract only excluded discovery, allowing for document production. [Ex. R 1, page 31,

specifically last paragraph]

Moreover, when attending to the pre contractual negotiations content the only

conclusion possible, especially after Mr. Weinbauer agreement to the arbitration clause,

is that “the average joe” person would have understood this to only exclude costly and

burdensome discovery of large categories of documents. Thus, obviously not excluding

the production of a small number of specific documents, which would be neither costly

nor difficult, and without which the fairness of the resolution would be in serious doubt.

It is much important here to affirm that the agreement of Mr. Weinbauer was an extent of

the will of Respondent had it insisted that arbitration would be the right forum to find

closure in what regards the rise of disputes. The reasons behind this preference for

arbitration rested upon its inherent fastness and informality.

If the Respondent defence decide to play the “Respondent doesn´t now the legal terms

card” and it couldn´t understand the difference between discovery and document


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production we must state that it lacks strength and can be easily dismissed by

understanding that giving the reputation of Respondent in the wine trade it is surely very

experienced in celebrating contracts and in the absence of a law degree Respondent

always needed the assistance of legal counsels who we are surely know the “legal terms”

and the differences between them. In fact, document exchange regimes in other common

law jurisdictions are fundamentally different in their nature and scope to US discovery.

If we analyse the different regimes regarding document production, we can only conclude

that Us-style is a suis generis regimen and that the US-style “fishing expeditions” are

generally not allowed. It suffices to argue that in the light of the stated above the

Respondent lawyers, at least, surely understood the legal differences at stake here. It is

obvious to conclude that discovery and document production doesn´t mean the same. Any

average lawyer would grasp that and only a narrow minded American lawyer would have

thought “discovery” as synonymous with general document production and Respondent’s

local lawyer wasn´t even a United States lawyer.

One can therefore establish that both Claimant and Respondent understood perfectly

that only discovery – the fishing expedition, US-type – was to be excluded. An average

person with the most common lawyer would have only understood discovery to mean Us-

style discovery, so did Respondent.

Both Parties agreed that only discovery was to be excluded. The Model Law gives the

arbitral Tribunal the power to conduct the arbitration as it considers appropriate, and that

power also includes evidence-related matters: it includes the power to “determine the

admissibility, relevance, materiality and weight of any evidence”. [Model Law, article 19

(2)]. The IBA rules, which are usually accepted as a major point of reference in

international arbitration, explicitly refer the possibility of a Tribunal ordering a party to

disclose documents that are relevant to the case and its material outcome, since some form

of document production is necessary to obtain the material truth [IBA Rules, article 3;

Pressure Sensors case].

For all these reasons, one is logically forced to arrive to one conclusion and one

conclusion only: The Tribunal has the power to order document production.

B. The Tribunal should order Respondent to produce said documents


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It is imperative to respect the principle of due process, which appears in several

international instruments, such as the UNCITRAL and the Vienna Rules, as well as

honouring the commitment of the parties. All of this can only be achieved by obtaining

the documents that the Claimant asks before the Tribunal.

The relevance of the documents regarding the dispute relates to two essential points:

they are an indispensable and irreplaceable form of evidence, as well as crucial for the

outcome of the dispute [1]; if the Court refuses this request, this will result in a unjustified

and unacceptable violation of Claimant’s opportunity to be heard [2].

1. The documents requested by Claimant are unarguably relevant to

determine the result of the present dispute

The reason Claimant asks these documents is so he can understand the data involved

in the purchase of bottles made by SuperWines to the Respondent. Specifically, the

number of bottles purchased and the priced charged per bottle.

The requested documents are specific documents, implying only one of the

Respondent’s clients, SuperWines. In addition, the documents do not impose too high of

a cost to the counterparty or delay the current arbitration.

These documents are of particular relevance and interest because they will enable the

Court to determine the damages asked by the Claimant arising from breach of contract

and from breach of the arbitration agreement.

Such documents are not privileged, or are subject to disclosure. Nor it is true that they

are business secrets, not depending the Respondent’s business model on the fact that the

number and price of the bottles sold to customers is kept secret.

Anyway, the Claimant recognizes that, although the documents in question are

essential for the action in progress, the Respondent can feel uncomfortable with sharing

them. Thus, the Court may, inspired by the IBA rules (rule 3.7) subject these documents

to a confidentiality order.

2. The refuse of this request diminishes Claimant’s opportunity to be heard


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The Claimant has the burden of proof when it comes to demonstrating the value of

the damages claimed1. The documents mentioned above, which are currently held by the

Respondent, are essential to the quantification of such damages.

Refusal of production of such documents redounds in a privation of the Claimant’s

opportunity to be heard2, besides being contrary to the principle of procedural fairness,

referred in art. 18 of the UNCITRAL and in art. 28 of the Vienna Rules.

The principle of procedural fairness also results from the express agreement of the

parties, since both agreed that the arbitration shall take place in accordance with

international practice.

The Court should also take into consideration that the refusal of producing documents

could be considered as grounds for non-recognition of the arbitral award, under art. 5

(1)(d) of the New York Convention, due to the arbitration not taking place in accordance

with the agreement of the parties3.

II. Claimant is undoubtedly entitled to recover litigation costs in the amount of

USD 50.280

The article 74 CISG allows Claimant to recover attorney fees in the amount of

USD 50.280 as a loss. Claimant attorney fees are also eligible for recovery as legal costs

under the Vienna Rules. Respondent breached its contract with Claimant. Thus Claimant

only applied for interim relief because he was forced to do so he can maintain the status

quo of its business. The costs incurred by Claimant we´re due to the hiring of an attorney

to file an application for an interim injunction and to defend against Respondent

application for declaratory judgment. Regarding this matter is of great importance to

highlight that those proceedings demanded local representation, consequently Claimant

was forced to maintain Mediterranean representation. Damages are the reflection and

echo of the amount Claimant was forced to “invest” to assure its rights and the rights of

1 “This is consistent with commentary, which cites the general rule of actori incumbit probation: each party bears the

burden of proving the facts relied on in support of its case. Most arbitral awards also take the same same approach

(…)”, Born, 1, page 2313. 2 “The UNCITRAL Model Law is representative in this aspect, providing that «[t]he parties shall be treated with

equality and each party shall be given a full opportunity of presenting his case»”, Born, 1, 2171. 3 “The New York Convention gives effect to the central role of the parties’ autonomy to fashion the arbitral

procedure, and provides for the non-recognition of awards following proceedings that did not follow the parties’

agreed procedures.”, Born, 2, page 199.


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the costumers. Claimant is entitled to the recovery of these damages under article 74 of

the CISG.

A. Respondent Should Recover the Interim Injunction Costs Under CISG

Article 74

Article 74 of the CISG entitles parties to recover the damages caused to them by

another party’s breach. Article 74 should be interpreted in a broad way, including the

recovery of attorneys’ fees as damages. Under Article 74, damages are conceptualized as

“loss, including loss of profit, suffered by the other party as a consequence of the breach”

(Art. 74 CISG). Recovery under Article 74 is restrained only by the limitations of

foreseeability and reasonability, with reasonability requiring a nonbreaching party to

mitigate its losses. The present claim meets all burdens under CISG Article 74/1.

Recovery under Article 74 is also consistent with the general principles of the CISG.

Moreover, the principle of full compensation demands that Claimant recovers attorneys’

fees.

It´s now time to address each of these topics separately and to clarify the issues

that inevitably might rise. First, and to take off, Claimant’s Claim fulfils all CISG Article

74 requirements. Claimant’s claim for damages incurred in its application for interim

relief meets each of these threshold burdens. Respondent concedes it refused to honour

the terms of the contract and Claimant relied on that refusal. Then Its crystal clear that

Respondent breached the contract, consequently that breach forced Claimant to seek an

interim injunction, which makes Claimant’s costs for the injunction a loss attendant to

Respondent’s breach. Third, it is both reasonable and foreseeable that Claimant would

pursue an injunction to protect his rights.

Regarding the existence of an arbitration agreement, we already addressed this

question early but we consider that it is of vital importance to mention it again in a briefly

way though this time.

To definitely find closure on the question mentioned above we must understand

perfectly that the existence of an arbitration agreement does not supersede on the powers

of the competent court to issue interim measures, so it’s possible for the parties to request

interim measures from the courts.


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To fully grasp the action took by claimant in regard of pursuing an interim

injunction its mandatory to ask the question Why. Why did Claimant sought an interim

injunction?

Answering this question, Claimant only pursued an interim injunction to protect

its rights and the rights of its clients (Claimant had already received orders for wine). It

is of great reasonability for a party to seek to protect its rights when facing a breach of

contract. Claimant only sought interim relief due to the harmful nature of the

consequences that inaction would bring. If Claimant did nothing he would suffer

irreparable harm to its reputation, and would have incurred liability to its customers. The

measures used by Claimant we´re both used to protect its rights and to mitigate losses

incurred to third parties as a result of the breach. All the procedures partaken by Claimant

borned in result of the breach of the contract. Had Respondent not breached the contract

Claimant wouldn´t felt the need to seek an interim injunction. In fact, had Respondent

complied with its obligations under the contract, as Claimant dutifully expected at the

time of conclusion of the contract, Claimant would not have incurred any costs in any

legal proceedings. The costs incurred in the application for injunctive relief are thus

attendant to the breach. That´s the only conclusion possible given the explanation of the

motives underlying the seek of an interim injunction.

Regarding the foreseeability standard present in article 74 CISG. First It is

important to state that a party does not foresee that it will incur costs to protect or defend

its rights when it enters a contract in good faith with another party presumably operating

in good faith. As a result, it is important to consider the nonbreaching party’s state of

mind at the conclusion of the contract when assessing damages. Under this philosophy,

the doctrine believes “damages include all foreseeable loss, including loss of profits as

well as consequential damages and damages for delayed performance, are recoverable

pursuant to Article 74 CISG” (Petz, 2006). The doctrine supports us and gives strength to

our argument but it’s not nearly enough to make it indisputable. To make our argument

come alive we need to consult and guide your trough a very illustrative case and you will

surely conclude that the resemblances are remarkable and the analogy is inevitable.

The Foamed board machinery case is an important mean for us to understand what

the Tribunals normally decides in cases like that.


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In that case, a claimant was awarded damages for the storage, care, and

maintenance of a quantity of non-delivered supplies. The claimant was also awarded

damages for its costs and expenses. The costs were held to be “usual in situations of

avoidance of contract for breach of one party” and thus “foreseeable” under Article 74. I

would like you to retain the “usual word”. It is indeed usual for the tribunals to decide in

“claimants favour” in situations relating breaches of the contract by one party.

1. The Recovery of Attorneys’ Fees As Damages Is Consistent accordingly the

General Principles of CISG Article 74.

The basic philosophy behind an award of damages is to place the injured party in

the same position he would have been without the breach (Honnold). The only way to

place Claimant in the same position is to allow Claimant to recover attorney fees as

damages, because if there was no breach there wouldn´t have been necessary for Claimant

to have incurred in costs by filing for interim relief. This is the only solution possible

following the scope of article 74 CISG. To shed some light in this matter we need to resort

to case Law. If we analyse carefully the case law in this matter, it´s easy to grasp that the

tribunals in similar cases have allowed commercial sellers to recover attorney fees under

article 74 CISG considering that a loss “encompasses the cost of pursuing one’s rights”

(Pallets case, Germany).

The Court in the Pallets case concluded “the seller was entitled to commission an

attorney, because the buyer persistently refused payment”. Thus, it becomes clear that

recovery of attorneys’ fees is an integral part of a non-breaching party’s right to recovery

and the 74/3 CISG standard of full compensation must include attorney fees.

In our particular case full compensation (Underlying principle of article 74 CISG)

demands that Claimant recovers attorney fees either as direct or indirect loss.

Accordingly to the principle of full compensation present on article 74 CISG,the

concept of loss should be broadly construed, accordingly to Stoll´s view and doctrine.

Therefore, full compensation should include compensation for both direct and indirect

losses. The application for interim relief was filed to protect rights, not to defend them.

Therefore, they should be considered losses for the purposes of recovery. The Tribunal

should consider these “losses” as direct losses under Article 74.


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Although, if by any reason that escapes our grasp, costs incurred in the application

for interim relief are not considered direct losses, they should be even though recoverable

as indirect losses. Even if the Tribunal does not grant Claimant damages for attorneys’

fees as direct losses, the fees should be considered indirect losses attendant to the breach

of contract. When Claimant applied for interim relief, it sought to protect its rights under

the Contract. Claimant was compelled to take such a measure only after respondent.

unilaterally terminate the Contract. Indeed, it was the refusal to honour the Contract by

respondent that triggered the necessity to sought interim relief Consequently, at

minimum, the costs incurred are indirect losses coming from Respondent`s breach. As

you can see, claimant suffered losses and those losses we´re triggered by respondent’s

actions as explained in detail above. Therefore, to achieve the philosophical purposes of

article 74 CISG its clear that they should be considered direct losses. That the claimant

suffered losses is indisputable. Now the Tribunal must decide only if they´re direct or

indirect but the existence of losses isn´t open for debate.

The CISG has already provided for recovery of “predictable” damages. In one

aforementioned case, an ICC Arbitration tribunal found that Article 74 gives an aggrieved

party rights to recover for any predictable damages which may arise from the fundamental

non-performance of a contracting party (Foamed board machinery case). Another court

awarded attorneys’ fees to a claimant under Article 74 after finding that the term “loss”

in Article 74 includes the cost of pursuing one’s rights (Pallets case)

As we can see the Tribunals already laid grounds for recoverability of predictable

damages arising from the non-compliance of a contracting party. Consequently, it´s

possible to conclude that the same decision by identity of reason should be applied for

Claimant. In each of the aforementioned cases, it was found that the claimant’s losses

were both reasonable and foreseeable by virtue of the breaching party’s conduct.

In conclusion, the only way to respect the underlying principle of full

compensation present on article 74 CISG, is to allow claimant litigation costs. Moreover,

the doctrine conceives the concepts “loss” and “costs” to be interpreted broadly, including

in this broad conception attorney fees. Last but not the least, the case law shields our

position. The only decision possible is for Claimant to be allowed to recover those costs.


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B. Respondent Should Recover Costs for the Application for Declaratory

Relief

Claimant is entitled to recover costs incurred in defending proceedings for a

declaratory relief because respondent breached the arbitration clause, by seeking

declaratory relief. It lacks defense power that Claimant sought a preliminary

injunction, because proceedings for a declaratory judgment and for interim

injunctions are fundamentally different. A breach of an arbitration agreement

resembles a breach of any contractual clause, litigation costs incurred in remedying it

constituted “loss” under Article 74. Alternatively, attorneys’ fees are recoverable by

analogy to cases which allow recovery of fees incurred in the arbitration proceedings

themselves, rather than past judicial proceedings. Finally, Claimant was required to

defend proceedings in order to mitigate loss flowing from Respondent’s breach

pursuant to Article 77 CISG

C. All the damages are retrievable

The invoice issued by the claimant’s lawyer proves the preciseness of the claimant’s

damages [Cl. Ex. C 10, p. 18].

Hiring a lawyer was the best way for the claimant to mitigate its loss (claimant was

compelled to use a local lawyer by the laws of Mediterraneo). So, employing a lawyer

on a contingency fee basis was considered a mitigative measure. The contingency fee

arrangement is justified when compared to the monetary value of the claim. As such, the

claimant had an obligation to defend proceedings, and is entitled to recover the costs.

As a result of successfully challenging the application for declaratory relief, the

respondent offered the claimant 4.500 bottles. Had claimant failed to defend the motion

seeking a declaration of non-liability its loss would have been enormous, as the delivery

of 10.000 bottles of wine (priced at EUR 41,50 per bottle) was at stake. So, the

merchandise that the respondent was under an 24 obligation to deliver had a total value

of 415.000 euros. Moreover, claimant sold bottles for between 90 euros and 100. Thus,

even taking only EUR 90 as the basis for this calculation, the loss of profits would have

been enormous: EUR 485.000.

The contingency fee of USD 45.000 was reasonable and proportionate considering

the loss the claimant was facing, almost half a million Euros.


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The most affordable option were contingency fees, as they were of acceptable cost

and allowed under the laws of both States. Art. 20 of the Contract states: “This contract

is governed by the law of Danubia including the CISG.” The Tribunal clarifies that

Danubia allows contingency fee arrangements. Thus, claimant had a right under the

contract to retain a lawyer on a contingency fee basis. Like Danubia, the High Court of

Mediterraneo allows contingency fee arrangement and both the applications for an

interim injunction and for declaratory relief was heard.

1. Respondent Breached the Arbitration Clause

Respondent breached the Arbitration Clause by starting proceedings in the High

Court. This breach puts the case in range of the CISG jurisdiction that rules the “rights

and obligations of the seller and the buyer” arising from the Contract, in article 4. It is

within the scope of this Tribunal’s power, under the Vienna Rules, to award relief under

the CISG. This time we think that it would be extremely useful to start our argument with

a simple conclusion because everything regarding this matters rests upon the validity of

this conclusion

The conclusion: Respondent lacked concern with the arbitration clause. That can

be easily understood and corroborated by the fact that Respondent sought a declaration

of non-liability from the High court of Mediterraneo. That choice made by respondent

was made knowingly the possibility to rather ask a VIAC tribunal to rule on this matter

of its jurisdiction. The court, under the light of the principle of competence is allowed to

do so because the Tribunal itself has the power to decide whether it´s competent or not

including any objections concerning the existence or validity of the arbitration

agreement.

Alternatively, in the first instance, Respondent should have asked the High Court

of Mediterraneo to rule on the validity of the arbitration clause. Instead, clearly in bad

faith and after the parties agreement on arbitration contract, Respondent choose to

proceed to file its application for a declaration of nonliability on 30 January 2015. . More

importantly, the duty was entirely on Respondent to oblige to its obligations under the

Arbitration Clause, so it escapes our comprehension why respondent in its statement of

claim somehow suggested that claimant should have developed efforts preventing


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respondent from breaching the arbitration clause. Understanding a bold claim like that is

beyond us and for that we respectfully apologise.

Respondent behaviour is even more inappropriate given its desire for an

arbitration clause, as is evident from the witness statement of Mrs. Kim Lee, the sole in-

house lawyer working for Claimant. During the negotiation of the Contract Respondent

agreed to the arbitration clause, highlighting enthusiastically the benefits of arbitration,

by saying that arbitration was “a fast and informal dispute resolution process” and that it

was “important that there should be no major costs involved in dispute resolution”.

Respondent placed this much emphasis on the arbitration clause, and yet later ignored it.

Thereby Respondent incurred in two different violations: both (a) Article 20 of the

Contract, which provides that disputes should be resolved in good faith, and also (b) the

observance of good faith in international trade under Article 7 CISG.

2. A Claim for Declaratory Relief Is Completely Different from the

Proceedings For A Preliminary Injunction

There is a fundamental difference between seeking, an interim injunction to

protect the interests and business reputation of Claimant, and pursuing a request for a

declaration of non-liability (Respondent). The distinction is, in essence, between

temporality and finality.

The interim injunction sought by Claimant was meant only and exclusively to

maintain the “status quo” and prevent what would have been a breach fatal to Claimant’s

business pending arbitration. It is just a temporary measure that aims to assure the

sanctity of arbitration. Claimant was legitimised to seek it in order to protect its interests

and business reputation, and the Contract itself. It´s all about the temporality vs finality

ins this matter

. By disparity, the proceedings for a declaratory judgment asked the court for a

final decision on the merits, which would likely have preclusive effect. Unlike Claimant’s

desire to preserve the status quo, it can be easily comprehended that Respondent did not

apply to the High Court of Mediterranean with the objective of preserving the sanctity of

the Arbitration Clause, but rather with the will of destroying it completely. In addition,

Respondent violated the principles of party autonomy and good faith by resorting to court


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jurisdiction, notwithstanding the Parties’ previous agreement to bestow such power upon

the arbitrators through the arbitration clause. Respondent may argue that it was forced to

initiate proceedings for declaration because Claimant had first initiated proceedings for

an interim injunction. However, this argument overlooks the fundamental difference

between an interim injunction (Claimant) and a request of non-liability on the merits

(Respondent). Again the temporality vs finality is key to resolve this matter and to make

justice in this case because underlying temporality there´s a will to preserve the

arbitration agreement and underlying finality there´s an intention of destroying it to his

core.

The arbitration rules expressly permit parties to seek recourse in courts even when

there is a binding arbitration clause, so long as the recourse they seek is interim relief.

Even rules that have now adopted emergency arbitrator provisions usually still permit

parties to select between going to court or initiating an emergency arbitration for interim

relief. By contrast, no such provision exists for a declaratory judgment in breach of an

arbitration clause. This just highlights the world of difference between an interim

injuction and declaratory judgement and the conclusions extracted are due to this core

distinction.

3. There´s a relation of identity between the remedies used to “cure” the

“wrong” of a Breach of an arbitration agreement and the ones used for a

breach of contract.

Despite the absence of a provision in the CISG dealing with consequences for

breach of a mandatory arbitration clause, the breach of an arbitration agreement resembles

any other breach of contract. Article 7/2 CISG is therefore applicable. Reading and

analysing this article in detail made us able to extract detrimental conclusions to make

Claimant´s will proceed and to make justice.

The breach of contract is to be remedied under the general principle of pacta

sunt servanda, on which the CISG is based: when a party breaches an arbitration

agreement, the breach ought to attract the very same remedies as an ordinary breach

of contract.


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It is “widely accepted” on the majority of the doctrine that a claim for damages

arising from the breach of an arbitration agreement – the so-called “damages for

damages” – falls within the scope of that very arbitration agreement The present claim is

on the basis that such damages are limited to legal and other costs incurred by the innocent

party in state court proceedings. To support this, we must first analyse the textual

interpretation of the CISG to conclude that it allows recovery of attorneys’ fees as

damages. Article 45 stipulates that if the seller fails to perform any of its obligations under

the Contract, the buyer may “claim damages as provided in articles 74 to 77”. Article 74

shelters two basic notions: the principle of full compensation and limitation of liability

by the foreseeability rule. The former entitles the promise to be fully compensated for all

disadvantages suffered as a result of the breach of contract, and the latter counterbalances

and restraints this. The loss sought by Claimant´s it is qualified as an incidental loss.

Incidental losses are expenses incurred by the promise which are not related to the

realization of its expectation interest, but rather are incurred in order to avoid any

additional disadvantages. Such losses are covered under the principle of full

compensation, which is central to Article 7 Claimant should recover such costs to ensure

it is fully compensated

Second, it is indeed time to resort to what the international commercial tribunals

have to say in this matter. Under the light of the international commercial tribunals

unstainable and profound knowledge in this matter, it is of great importance to highlight

that they have continuously and explicitly ordered the respondent in the proceedings to

pay costs for initiating past proceedings in breach of an agreement to arbitrate. Tribunals

have even gone beyond this limited order, and ordered payment for costs for pending

proceedings and, furthermore, any other proceedings not yet in existence that might be

commenced in breach of an agreement to arbitrate in the future. For instance, an ICC

tribunal in Switzerland rendered such award in the Swiss Federal Supreme Court’s

decision (4A_232/2013 (Switz.), applying English law as the governing law. The ICC

tribunal awarded costs of both proceedings pending before a Greek court initiated in

breach of the agreement to arbitrate, and furthermore, any proceedings initiated in the

future, regardless of the outcome.


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Therefore, the analogy with Claimant´s present case becomes clear so in the

present case it should be entitled not only to costs for the past proceedings, but also for

any other proceedings that Respondent may initiate again.

The third argument, and key conclusion regarding this matter is that in European

law the national tribunals hold the principle of paying for litigation costs incurred in

breach of an agreement to arbitrate in such a pedestal that it overrides a principle as strong

as the principle of mutual trust amongst member states of the European Union. That fact

is of extreme importance if we have present that the later principle is normally the last

ratio of the system and even though its trumped by the principle of entitlement to costs

for breach of a mandatory arbitration agreement.

4. Alternatively, Attorneys’ Fees Are Recoverable by Comparison to Cases

Allowing Recovery of Attorney’s Fees in Current Arbitral Proceedings

In answer to the arguments above, the respondent may try to win by shifting the

focus of a substantive complex question to a more formal one. He might try to do that

by choosing to count on cases which held that a procedural law, instead of CISG,

governs claim for litigation fees and, attorneys’ fees and costs. Based on that, tribunals

have refused to award these costs as damages, stating that attorneys' fees are

This argument is firmly rejected by the claimant for two reasons: Reason one, the cases

above are different from the current leading to the failing of the analogy, because in all

those cases the non-breaching party tried reimbursement of legal fees incurred in the

U.S. court proceeding. But in this one, the claimant as non-breaching party merely seeks

reimbursement of legal fees incurred in the state court proceedings, not for those

incurred during the arbitration.

Reason two, in the above example cases, the authorities relied on were limited to the

U.S. Instead, tribunals hold that the term ‘loss’ in Article 74/1 of the CISG”

encompasses the cost of pursuing one’s legal rights” so they generally award attorneys’

fees in the arbitration as costs [Amtsgericht Viechtach (Ger.)]. The costs have been

awarded by tribunals also to compensate the sellers [Forestry Equipment Case (Fin.)].

All of the above cases concerning legal costs happened in arbitrating. By contrast, the

claimant’s case concerns legal costs incurred in defending litigation proceedings that are


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claimed as part of the arbitration. The cases described above, however, provide an

important basis of analogy with the present case.

5. 5. Claimant Was Coerced To Defend Proceedings In Order To Mitigate

Loss

The respondent breached the arbitration clause by starting court proceedings. So the

claimant was required to defend itself in the proceedings (thus incurring in litigation

costs) by Article 77 CISG: defending the proceedings was mitigating the result of the

breach of contract. In addition, the claimant is a publicly traded company, (“Kaihari

Waina Ltd”) so it also had a duty to its shareholders to defend the litigation.

If claimant failed to mitigate the loss, then the respondent could claim a reduction in

damages. So, claimant had to defend in proceedings, and is allowed to regain the costs.

Disagreement with the argument of mitigation would create a paradox situation. How

can a party that suffered a breach may be held liable for failure to mitigate possible

losses which come from the breach but that it will not be compensated for the costs

incurred in doing so. It would create a counter-productive situation where a claimant

lowers its potential award at a cost to itself, while the party responsible for the breach,

benefits unjustly.

In addition, claimant’s costs were both foreseeable and acceptable. First, the costs were

foreseeable. Article 74 limits damages for breach of contract to those that were

“foreseeable”. The claimant’s costs incurred in defending the proceedings for

declaration of non-liability in the Courts of Mediterraneo, which the respondent brought

in breach of contract, constitutes loss that is a “foreseeable” consequence of breach. A

reasonable party in the same situation could expect the loss from its non-performance.

The relevant time to determine whether the loss was foreseeable is at the time the

contract was concluded]. The Parties could have certainly foreseen the need to employ a

lawyer should the mandatory arbitration agreement be breached and court proceedings

instituted.

Second, the costs were acceptable, as the contingency fee basis was an affordable

option. In good faith claimant attempted to secure legal representation with a firm that

charged an average rate for legal services in Mediterraneo. The hiring of LawFix on a

contingency fee was also necessary.


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Finally, not only the attorneys’ fees, but all litigation costs are recoverable. So the

claimant is entitled to recover these costs (like filing fees) or other expenses incurred as

a result of the breach, such as travel costs. [The Clothing Case (ICC)].

D. Alternatively, the respondent should be granted “arbitration costs” under

Article 44 of the Vienna rules

It has been debated by a number of scholars if extra-judicial costs should be left to

the applicable procedural rules on allocation of costs rather than dealt with as damages

under Article 74.

The article 44 of the Vienna Rules addresses the “composition and calculation of

procedural costs”. It indicates that procedural costs are composed of “the party’s costs,

i.e. the reasonable 25 expenses of the parties for their legal representation” [Art. 44.1.2]

and “other expenses related to the arbitration, in particular those listed in Article 43

paragraph 1.” [44.1.3].

The contract states: “All disputes shall be settled amicably and in good faith

between the parties” [Cl. Ex. C1, Art. 20, p. 9]. By starting court proceedings in the

Courts of Mediterraneo seeking a declaration of non-liability, the respondent acted in

bad faith in breach of the arbitration clause. This led to a significant increase in the

“arbitration costs” incurred by the claimant.

Costs, in Danubia are normally allocated on the basis of the outcome of the case, i.e.

“costs follow the event”. Here the Tribunal should utilize its power for a costs order

under Article 44 of the Vienna Rules to punish the respondent for its abuse of the

arbitration procedure provided for in Article 20 of the Contract. Even if under a

Convention, where the usual practice is for each party to bear their own costs, tribunals

often acknowledge that there is a need to move away from such a principle, then even

more, the claimant is entitled to have the costs incurred as a result of the respondent’s

misconduct awarded in its favor.

III. The claimant should be awarded profits from respondent’s sale to

SuperWines

Under CISG Article 45, the claimant is entitled to damages emerging from the

respondent’s breach of contract. Specifically, Article 74 entitles the claimant to


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compensation for its lost profits arising from the respondent’s non-delivery of 5.500

bottles of its diamond Mata Weltin [A]. As the claimant’s lost profits are at least as high

as the respondent’s profits from selling the 5.500 bottles to SuperWines, Claimant

should be granted the respondent’s profits from that sale as a measure of its loss [B].

Alternatively, the claimant should be granted the respondent’s profits to prevent the

respondent’s from benefitting from its willful breach of contract [C].

A. The claimant is entitled to compensation under CISG Article 74

Article 74 of the CISG allows an aggrieved party to recover damages for its loss –

including “loss of profit” – caused by another party’s breach of contract. This is

confirmed in CISG Advisory Council Opinion No. 6, which provides that “under

Article 74, an aggrieved party is entitled to net gains prevented, that is, net profits lost

as a result of the breach of contract.” Article 7.4.2 of the UNIDROIT Principles – which

form the applicable domestic law for this arbitration – also provides that an “aggrieved

party is entitled to full compensation for harm sustained” as a result of a breach,

including “any gain of which it was deprived.” The claimant is therefore entitled to its

lost profits arising from the respondent’s non-delivery.

The respondent is not absolved of its obligation to pay damages. The claimant

mitigated its losses as required under Article 77 by engaging in substitute transactions

[1]. Additionally, the respondent’s is not exempt for liability from its breach under

Article 79, as its failure to deliver 5.500 bottles to the claimant was deliberate [2].

Finally, the claimant is able to prove with reasonable certainty that it suffered loss [3].

1. The claimant mitigated its losses as required under article 77

CISG Article 77 requires the aggrieved party to mitigate the harm suffered as a

result of another party’s breach. The claimant complied with its obligation to mitigate

its losses under CISG Article 77. Upon learning of the respondent’s breach of contract,

the claimant promptly enquired whether its customers would be willing to accept a

substitute product. It then obtained 5.500 wine bottles from Vignobilia Ltd., fully

substituting for the number of bottles the respondent failed to deliver in breach of the

Contract. As such, the claimant mitigated the harm caused by the respondent’s non-

delivery. Had the claimant not taken these actions, it would have incurred far greater

losses.


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2. Respondent is not excluded of the liability notion under the article 79 CISG

According to CISG article 79/1 a party is excluded from liability “if he proves that

the failure was due to an impediment beyond his control and that he could not reasonably

be expected to have taken the impediment into account at the time of the conclusion of

the contract or to have avoided or overcome it or its consequences.”

An exemption is permitted only when the impediment regarding performance is

beyond the obligor's control. However, it is necessary that the condition unpredictability

of impediment is filled. This condition is based on the idea that if the impediment was

foreseeable at the time of conclusion of the contract, the interested party should have been

cautious and inserted a contractual provision in this regard (in this case obligor must

generally accept responsibility if he has not disclaimed liability). In the absence of

forecast contract is considered that he took the risk of occurrence of such impediment.

Prof. Dr. Peter Schlechtriem says: “The obligor is always responsible for

impediments when he could have prevented them but, despite his control over

preparation, organization, and execution, failed to do so.” To prevent himself from

liability, he must specify the particular impediments for which he will not be able. In the

case of unforeseeable impediments, he must take reasonable measures to avoid or

overcome the impediment or its consequences in order to claim an exemption.

Article 79 has been interpreted to require proof of a “factual obstacle” beyond the

breaching

party’s control in order to exempt the breaching party’s from liability for its failure to

perform its

contractual obligations. Into this scope, we can bring a 1998 Dutch case “Malaysia Dairy

Case” in order to understand how “factual obstacle” influence the application of article

79.

A Dutch seller and a buyer from Singapore concluded several contracts for the

sale of milk powder. In order to satisfy a Singaporean ban on food imports polluted by

radioactivity, the parties agreed that the milk powder was to contain less than a certain

percentage of radioactivity, which they thought would be accepted as non-polluted by the

authorities of Singapore. After the conclusion of the contracts the seller encountered

difficulties in finding the required goods, and did not deliver them to the buyer. The Court

held that the seller could not rely on article 79 CISG alleging that the Singaporean

regulations were to be considered an impediment exempting the seller from performance,


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as the seller was well aware of such regulations before conclusion of the contract and

therefore took the risk of not being able to supply conforming goods. And the buyer was

awarded damages for breach of contract by the seller.

It is of vital importance in this matter to highlight that there was no “factual

obstacle” beyond the seller's control that prevented the delivery.

In our case, respondent's poor harvest does not constitute a “factual obstacle”, because

the 2014 harvest yielded were enough wine for Respondent to deliver 10.000 bottles to

Claimant. Respondent offered 4.500 bottles to SuperWines a month after Claimant

requested 10.000 bottles under its pre-existing contract. Respondent's failure was a direct

result of its deliberate decision to sell the wine to SuperWines.

The case presented and explained above is of great importance because it provides

the key to resolve the issue in discussion. Analysed carefully, the case leads us to conclude

that in our particular case Respondent is not exempt from liability under article 79 because

it´s inevitable to establish a paralelism between our case and the “Malaysia dairy case”

mentioned above. Once again, the doctrine supports our claim and the Tribunals had

already decided in “Claimants favour”.

3. Claimant is able to prove it’s lost with reasonable certainty

Claimant has the burden to prove, with reasonable certainty, that it suffered a loss.

Yet, there is no provision on CISG – including article 74 – that requires aggrieved

parties to prove, with reasonable certain, that it suffered loss. The existence of differing

rules concerning the proof of damage could lead to the differential treatment of similarly

situated parties. So, it's necessary to provide a guidance for the standard of harm. As

Bonnell noticed “On several occasions the Convention refers to the parties as

'reasonable' persons (…) requires that a particular act must be accomplished or a notice

given within a 'reasonable' time (…) and distinguishes between 'reasonable' and

'unreasonable' expense, inconvenience or excuse. These references demonstrate that

under the Convention the 'reasonableness' test constitutes a general criterion for

evaluating the parties' behaviour to which one may resort in the absence of any

specific regulation.”

Taking into account the need to promote the Convention's international character,

the need for uniformity in the Convention’s application (article 7/1 and the matters

concerning the CISG's application which are not expressly settled in it, can be decided


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according to the principles of private international law (article 7/2 ).

The regulation of the issue of certainty can be worked out on the basis of the

Unidroit Principles. One of the purposes of the Principles is to interpret or supplement

international uniform law instruments such as the CISG, they can be used to supplement

those provisions, which are within the Convention's scope, but not expressly settled in it.

Most legal systems have a requirement as to certainty of damages claimed. An

analogous requirement can be found in the Unidroit Principles, specially in Article 7.4.3

(1).

According to this, we need to incorporate some principles of private international

law, as the Article 7.4.3 (1) of the Unidroit Principles. It provides that “Compensation is

due only for harm, including future harm, that is established with a reasonable degree of

certainty.”

So understanding the purposes and policies of Article 74, the aggrieved party bears

the burden of proving with reasonable certainty such party has suffered a loss as a result

of the breach. The imposition of a "reasonable" standard is consistent with the Convention

as a whole.

Article 7.4.3 (3) states that where harm is proven but “the amount of damages

cannot be established with a sufficient degree of certainty”, the occurrence of harm has

still been proven and the assessment of damages is at the court's discretion – even in this

situation the occurrence of harm must be reasonably certain. In practice, the extent of

compensation can be determined on the basis of a mere discretion of a judge or an

arbitrator because the proof of the precise amount of damages may not always be possible.

It´s now time to address the “reasonable certainty question” by Claimant´s eyes. First you

need to understand primarily that Claimant is a reliable and respected wine supplier and

because of respondent's breach (5.500 bottles of wine that he never received) Claimant's

reputation was in peril due to the damage it suffered. Contractual obligations with other

costumers couldn´t be satisfied in result of Respondents conduct (breaching the contract).

This caused loss of profits, because of its inability to sell Respondent's wine to those

costumers. We must take into account that once a party has a track record of sales, there

is no need to doubt about future sales.

Article 7.4.2 (1) refers to the harm sustained “as a result of the non-performance”

and which therefore presupposes a sufficient causal link between the non-performance

and the harm. The harm claimant suffered is a direct result of Respondent's breach.

It becomes now clear that under Article 74 Claimant must be entitled to


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compensation, according to its capacity to prove its losses with reasonable certainty.

B. Claimant should be awarded with Respondent profits as Damages

The general rule is that damages for breach of contract are compensatory in its

nature. The award seeks to place the aggrieved party ‘in the same situation with

respect to damages as if the contract had been performed’. However, this rule is subject to a number

of exceptions, including recent recognition of “gain-based damages” for breach of contract.

It is an undisputable fact that Claimant is entitled to compensation for its lost

profits which include the difference between the profit expected to gain from selling Mata

Weltin and the profit made from selling the replacement Vignobilian wine. The exact

amount of Claimant's loss is difficult to quantify, as the Tribunal has recognized, these

damages are difficult to quantify with certainty. Although “gain-based damages” are not

expressed in the CISG, they still should be taking into account by the Tribunal.

However, we can see that Claimant's lost profits are at least as high as

Respondent's profits from its sale of the 5.500 bottles to SuperWines.

Claimant requests this Tribunal to award the SuperWines profits as practical

measure.

Into this scope, Article 74 allows tribunals a high leeway in calculating and

awarding damages. According to Article 7.4.3 (3) of the Unidroit Principles, where the

amount of damages cannot be established with a sufficient degree of certainty then, rather

than refuse any compensation or award nominal damages, the court is empowered to

make an equitable quantification of the harm sustained.

As it follows, Claimant should be granted Respondent's profits as measure of

damages because of three major reasons: First, Claimant's losses are impossible to

accurately determine; Second, SuperWines profits reflect what Claimant should have

earned from selling the 5.500 bottles; Third, granting Respondent's profits matches the

purposes of article 74 CISG.

1. Claimants losses are impossible to accurately determine

Looking back through Article 7.4.3 (3) of the Unidroit Principles there lies

established the idea discretion of the courts. So, when the amount of damages cannot be

accurately determined the assessment can be made by the tribunal. Going further on this

idea we can say that gain-based damages are an appropriate method to measure Claimant's


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loss, especially when these losses cannot be clearly quantified. The so called “sustained

gain-based damages” should only be available in exceptional cases where damages and

other contract remedies are shown to be inadequate. Therefore, we must question

ourselves: so when are damages inadequate for the purpose of an award of gain-based

damages? The answer is simple: when damages are difficult to quantify.

It is now of vital importance to the fully understand of this matter to support our

claims in the doctrine. The commentators of the CISG had already stated that, in the

context of the CISG, damage to the party's performance interest may, in some cases,

justify damages being measured by reference to the gains made by the breaching party. It

is simply a method, in appropriate cases, of implementing the compensatory purpose of

damages. Because in, some cases, Claimant is not in a position to prove their loss. That's

why is inadequate to focus on the injured party's loss. Instead, gains made by the

breaching party can be presumed to reflect the loss suffered by the innocent party.

Chadwick LJ insists in this idea as well and stated that “gain-based damages are nothing

more than a flexible response to the need to compensate the claimant for the wrong which

has been done to him”.

The first reported decision applying “gain-based damages” was the case “Esso

Petroleum v Niad”. It concerned the operation of a petroleum marketing scheme called

‘Pricewatch’. Petrol dealers agreed to report competitors' prices and to abide

by prices set daily by Esso, which were intended to match the competition. Dealers

received financial support by Esso to assist them to do this. Niad broke the agreement by

failing to maintain prices as agreed on four occasions. Morritt VC awarded Esso

an account of the profits received by Niad. In his view, compensatory damages were

inadequate because it would be ‘almost impossible to atribute lost sales to a

breach by one out of several hundred dealers who operate Pricewatch’. In order to formulate a

claim for expectation damages, Esso would have been required, to establish that it has lost

sales of motor fuels by reason of the failure of Niad to charge at or below the

Pricewatch recommended price. This may not be easy. So damages were found

to be inadequate on the ground that they were difficult, if not impossible, to quantify.

Claimant can prove some of its losses because he had individual contracts with is

costumers but it does not show the full extent of all the losses. For example, in 2013 only

8.000 bottles had been purchased. It means that may be difficult to prove the intention to

sell 10.000 bottles ordered.

The business position of the Claimant was damaged. Claimant's interest in the


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performance of the contract is not properly protected by compensatory mechanism. The

Respondent's breach allowed SuperWines enter into the market. Respondent and

SuperWines made a powerful supply contract up to 15.000 bottles a year, causing damage

on Claimant's reputation and position in the market.

The CISG doesn´t regulate the recovery for loss of goodwill. Although the silence

of CISG on recovery for loss to goodwill, these damages are still allowed under article

74's “full compensation” principle. Also with the support of Unidroit Principles article

7.4.2 which allows recovery of goodwill.

Goodwill is such a complex concept that it becomes really arduous task to define

it. So, its loss is not easy to measure. Loss of goodwill can refer to the loss of future lost

profits or as a decline in business reputation. There is no uniform definition on

“goodwill”. Some tribunals required a higher level of proof for damages resulting from a

loss of goodwill. We consider it is not reasonable a requirement of a higher level of proof

to obtain such damages. It is consistent with Article 74 that, like other damages

recoverable under the Article, damages for loss of goodwill may be awarded the if

aggrieved party can prove with reasonable certainty that its reputation has been damaged

by the breach.

Some authors commented this question: whether injury to business reputation and

goodwill constitutes a recoverable loss under the CISG. Schwenzer and Hachem argue

that this loss should be recoverable as business reputation and goodwill have an economic

value in which substantial investments are made.

Claimant built its business based on its reputation on the market. Being a reliable

merchant of fine wines. However, because of this situation it’s not possible to satisfy

contractual obligations with multiple costumers. Trying to reduce damages Claimant

desperately sold a substitute wine to its customers. As claimant cannot currently prove

concrete harm to its reputation, the SuperWines profits should be awarded to fill the gap.

After all the exposed doctrine and cases, the Tribunal should award Claimant the

profits respondent gained by virtue of its breach of contract.

2. Superwines Profits reflect what claimant should have earned from selling

the 5.500 bottles

The Respondent breach of contract (consequently non-delivery of 5.500 bottles)

caused Claimant losses which are not able to quantify. The profits made by SuperWines


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with the sale of those bottles reflect what claimant should have earned. The Tribunal

should award those profits to Claimant.

One way to quantify what claimant should recover is to focus on the profits made

by the seller, taking in account what it could have done with the goods it was entitled to

receive. Schmidt-Ahrendts state that “when determining what the buyer could have done

with the goods, in my view it is justifiable to look at what the seller was able to do with

them”.

Respondent's wine Mata Weltin is very searched for in the market and the demands

where growing up. So it would be easy for claimant to sell those 5.500 bottles to

SuperWines or another buyer for the higher price. In a situation which a seller sells to a

third party (breaking the contract), the buyer's profits could have been at least as high as

the seller's if the buyer had been able to sell the goods to a third party itself. Consequently,

Claimant's loss of profit is at least as high as Respondent's SuperWines profits.

Claimant should be awared SuperWines profits as a reflect of what claimant

should have earned from selling the 5.500 bottles.

3. Granting respondents profits matches the purposes of article 74 CISG

Granting Respondents profits fulfils article 74's purposes in various ways.

First, the basic formula of Article 74 is quite simple: damages for breach of

contract are designed to compensate (and are thus measured by) the loss suffered by

the other party as a consequence of breach: the general principle of full compensation.

Also, it is intended to afford an aggrieved party compensation and awarding gain-based

damages falls within the scope of compensatory damages. In some cases, it is justifiable

damages being measured by reference to the gains made by the breaching party.

This opinion, is sustained by some authors (Schwenzer and Hachem), in situations

as the presented case, where a seller breaks a contract and decide to resell its goods

to another purchaser for a higher price. The gains from the breaching party are an

assumption of what the aggrieved party has actually lost. So, granting the

SuperWines profits means restoring the breach victim to its rightful position.

Second, the notion of “pact sunt servanda” (“agreements must be kept”), the

basis of fairness and good faith in international commerce are integrated in article

74, ensuring that parties take their legal obligations seriously.

Third, the notion of gain-based damages under the CISG is necessary to


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avoid a gap in the CISG. The absence of such option concerns various authors.

Author Schmidt-Ahrendts states that “One of the main goals of the CISG is to provide

parties with a uniform and complete set of rules governing international sales contracts”.

This purpose will be compromised because some jurisdictions will allow for a claim for

granting gain-based damages while others will not. Taking into account that Article 74

applies to claims for disgorgement, would do away with the uncertainty, and it would

support the idea of uniformity on which CISG and article 74 are based. Commentators

Schwenzer and Hachem express the same concern “by simply negating the issue of

disgorgement of profits and gain-based damages the CISG would be undermined in one

of its core areas.”

It is supported by all this authors that gain-based damages approach to

compensation ensures the uniformity of CISG decisions.

C. Superwines Profits should be awarded to Claimant because respondent

should not be allowed to beneficiate from its contract breach

The Ex turpi causa non oritur actio ("from a dishonorable cause an action does

not arise") is a legal doctrine which states that a plaintiff will be unable to pursue legal

remedy if it arises in connection with his own illegal act. Particularly relevant in the law

of contract. Taking this universal principle of law, Respondent should not benefit from its

breach of contract (its own wrongdoing) and Claimaint should award SuperWines profits

(if this Tribunal decline to award the Superwines profits as a measure of claimant's

damages under article 74).

Respondent and Claimant had a long-standing contract and respondent decided

deliberately violated it, in order to established a business relationship with SuperWines.

To allow respondent to retain the profits from the transaction above would be unjust, it

will consist on a violation of claimant's rights subject only to paying compensation. Allow

Respondent to take a benefit from its breach of contract would be controversial with

several fundamental principles underlying the CISG: pacta sunt servanda, principle of

good faith and deterrence of wrongful.

The principles of the CISG support the notion that a party should not be permitted

to keep gains it does not rightfully possess. Article 84 /1 “If the seller is bound to refund

the price, he must also pay interest on it, from the date on which the price was paid.” For

a buyer bound to make restitution of the goods it has purchased, Article 84 (2) requires it


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to “account to the seller for all benefits which he has derived from the goods or part of

them.”. This reveals the restitutionary principle, in order to avoid unjust enrichment. It

is clear that allowing respondent to take benefit from its deliberate breach of contract

would be contravene the spirit of CISG.

Commentator Schwenzer stated that parties cannot take profits from their

breaches. She adds that “in this context, penal elements can also play a role despite the

fact that the Convention does not allow awarding punitive damages.”

Although few cases of disgorgement exist in the CISG context, there is an

increasing trend of domestic legal systems awarding the disgorgement of ill-gotten

profits.

In this case Respondent acted in bad faith by deliberately initiating a business

relationship with SuperWines at Claimant’s expense, and it should not be allowed to

benefit from this breach. This Tribunal should award respondent's SuperWines profits to

Claimant.


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IV. Request for Relief

Based on everything that was stated above Claimant respectfully requests this Tribunal

to:

1) Order Respondent to produce the documents requested by Claimant;

2) Grant Claimant USD 50.280 in damages for litigation costs;

3) Award Claimant Damages in the amount of Respondent´s SuperWine profits.

Respectfully submitted by:

Ana Laura Miranda

Mariana Marreiros

Ricardo Moniz

Ricardo Mota Gonçalves

Vera Machado

Legal counsels for

Mr.Kaihari Waina

15 de Abril de 2016, Lisboa

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