Vis Moot Claimant Memorial Singapore Management University

SEVENTH ANNUAL WILLEM C. VIS (EAST)

INTERNATIONAL COMMERCIAL ARBITRATION MOOT

HONG KONG- MARCH 2010

MMEE MM OO RR AA NN DD UU MM FF OO RR CCLL AA II MM AA NN TT

ON BEHALF OF:

MEDITERRANEO ENGINEERING CO

CLAIMANT

AGAINST:

EQUITORIANA SUPER PUMPS S.A.

RESPONDENT

ENOCH ANG • ASIYAH ARIF • EUNICE CHAN • JANE LIM

LUCAS LIM • NICHOLAS POON • SOONG WEN E • CHERYL TEO

SINGAPORE MANAGEMENT UNIVERSITY TABLE OF CONTENTS

II

TABLE OF CONTENTS

INDEX OF ABBREVIATIONS …………………………………………………………...….…. VI

INDEX OF AUTHORITIES…..…………………………………………………………..….…. VIII

INDEX OF CASES….……………………………………………………………………..…… XI

INDEX OF ARBITRAL AWARDS..……………………………………………………….. …….. XV

STATEMENT OF FACTS ..……………………………………………………………….….… 1

ISSUE 1: TRIBUNAL HAS JURISDICTION TO ARBITRATE THE DISPUTE BETWEEN ENGINEERING AND

SUPER PUMPS……………….……………………………………….....

3

(A) The fulfillment of the conciliation procedure in cl. 18 is not a prerequisite for

commencement of arbitration….….….….….….….….….….….….….….….….…

3

(i) Commencing conciliation is not a prerequisite for commencing

arbitration…………………………………………………………………..……..

3

(a) Commencement of conciliation as a prerequisite is inconsistent with the parties‘

intentions………………………………………………………………………

4

(b) Commencement of conciliation as a prerequisite is inconsistent with the reasonable

hypothetical man test…………………………………………………………...

5

(ii) Successful attempt at conciliation is not a prerequisite for commencing

arbitration………………………………………………………………………….

5

(a) Successful conciliation as a prerequisite is inconsistent with parties‘

intentions………………………………………………………………………

6

(b) Successful conciliation as a prerequisite is inconsistent with the reasonable

hypothetical man test…………………………………………………………...

6

(B) Even if conciliation procedure was a prerequisite, the parties' attempt at

conciliation fulfils the requirements of cl. 18………………………………………..

7

(i) Mr. Holzer was acting with the full authority of the CEO of Engineering……………… 7

(ii) Representation by CEOs was not of the essence to the

conciliation………………………………………………………………………...

8


III

(iii) Super Pumps impliedly agreed to Engineering‘s representation by Mr. Holzer………… 8

(C) TRIBUNAL SHOULD ASSUME JURISDICTION AS FURTHER CONCILIATION IS UNLIKELY TO

RESOLVE DISPUTE…………………………………………………………………………

9

Conclusion to issue 1………………………………………………………………………... 10

ISSUE 2: ENGINEERING IS ENTITLED TO DAMAGES AS SUPER PUMPS HAD BREACHED ITS OBLIGATION

TO PROVIDE PUMPS THAT WERE IN CONFORMITY WITH REGULATIONS……………………………

10

(A) Super Pumps breached the contract by delivering pumps that did not comply

with all relevant regulations for importation into Mediterraneo and for use in

Oceania………………………………………………………………………………...

11

(i) Super Pumps had breached its warranty under the Contract to provide pumps that would

comply with the regulations in Mediterraneo and the requirements of IR 08-45Q

……………………………………………………………………………………

11

(ii) Super Pumps is liable under Art. 35(2)(b) for delivering goods that were not fit for the

particular purpose stated in the contract……………………………………………..

12

(a) The purpose of the pumps was made known to Super Pumps……………………... 12

(b) Engineering reasonably relied on Super Pumps‘ skill and judgment……………….. 13

(iii) Super Pumps breached its obligations to ensure conformity until risk passed…………... 14

(B) Super Pumps cannot rely on the exemption under Art. 79………………………… 16

(i) Super Pumps cannot rely on Art. 79 of the CISG because Super Pumps had assumed the

risk under the contract……………………………………………………………...

(ii) Super Pumps cannot rely on Art. 79 of the CISG because Super Pumps fails to satisfy the

requirements under the Article……………………………………………………...

16

16

(a) Super Pumps could reasonably have foreseen the impediment at the time of

conclusion of the Contract………………………………………………………

17

(b) Super Pumps could reasonably have overcome the consequence of the

impediment……………………………………………………………………

18

(C) Engineering is entitled to avoid the contract with Super Pumps as the breach

amounted to a fundamental breach………………………………………………….

19

(i) Engineering was substantially deprived of what it was entitled to expect under the

contract……………………………………………………………………………

20


IV

(ii) Super Pumps did foresee the detriment……………………………………………... 20

(iii) Engineering properly avoided the contract ………………………………………….. 21

Conclusion to issue 2………………………………………………………………………... 21

ISSUE 3: ENGINEERING IS ENTITLED TO DAMAGES AS SUPER PUMPS HAD BREACHED ITS OBLIGATION

TO DELIVER THE PUMPS ON TIME ……………………………………………………………….

21

(A) Super Pumps breached its obligation to deliver on time…………………………… 22

(i) Super Pumps failed to perform in the additional time period fixed by

Engineering...………………………………………………………………………

22

(a) Engineering‘s acceptance of Super Pumps‘ extended delivery date amounts to the

fixing of an additional time period ………………………………………………

22

(b) The additional time period was of a reasonable length …………………………… 23

(ii) Alternatively, Super Pumps failed to deliver by the modified delivery date ……............ 23

(B) Super Pumps’ breach of its obligations to deliver on time is not exempted under

Art. 79 of the CISG……………………………………………………………………..

24

(i) Super Pumps could reasonably have foreseen the impediment at the time of conclusion of

the contract ………………………………………………………………………..

24

(ii) Super Pumps could reasonably have overcome the consequences of the impediment …... 25

(a) Super Pumps could have procured substitute pumps for Engineering……………… 25

(b) Super Pumps could have arranged for alternative transport for the pumps…………. 26

(C) Engineering is entitled to avoid the contract ………………………………………. 27

(i) Engineering can avoid the Contract as Super Pumps failed to perform in the additional

period fixed ………………………………………………………….....................

27

(ii) Engineering is entitled to avoid the Contract with Super Pumps as late delivery

amounted to a fundamental breach …………………………………………….........

27

(a) Engineering suffered substantial detriment as a result of Super Pumps‘

breach………………………………………………………………………….

28

(b) The detriment was foreseeable to Super Pumps …………………………………. 28

(iii) Engineering properly avoided the contract ………………………………………….. 28

Conclusion to Issue 3 ………………………………………………………………………. 29


V

ISSUE 4: ISSUE 4: ENGINEERING DID NOT FAIL TO MITIGATE THE CONSEQUENCES OF THE

CANCELLATION OF IR 08-45Q ………………………………………………………………….

29

(A) The duty to mitigate did not arise prior to the avoidance of the contract ……….. 29

(B) Even if the duty to mitigate had arisen, Engineering did not breach its duty to

mitigate………………………………………………………………………………..

30

(i) Engineering‘s delay in avoiding the Contract was not unreasonable …………………... 31

(a) Engineering was not obliged to avoid the Contract………………….................. 31

(b) Engineering did not delay the avoidance in an unreasonable manner…………….. 31

(ii) Engineering could not have mitigated the loss occasioned by the breach ………………. 32

(a) Engineering could not have found full substitute performance for its contractual

obligations to Water Services………………………………………………….

32

(b) Engineering could not find substitute performance given the short time span …… 34

Conclusion to Issue 4 ………………………………………………………………………. 35

Relief Requested ………………………………………………………………………….... 35

SINGAPORE MANAGEMENT UNIVERSITY INDEX OF ABBREVIATIONS

VI

INDEX OF ABBREVIATIONS

AC Court of Appeal

ACICA Australian Centre for International Commercial Arbitration

All ER All England Reports

Art. Article

BGH Bundesgerichthof [Federal Supreme Court—Germany]

CEO Chief Executive Officer

CISG United Nations Convention on Contracts for the International Sale of Goods

Cl. Clause

CLOUT Case Law on UNCITRAL Texts

Conciliation Rules UNCITRAL Conciliation Rules

Corp. corporation

e.g. exempli gratia [for example]

Engineering Mediterraneo Engineering Co.

Etc. Et cetera

ICC International Chamber of Commerce

Inc. Incorporated

IR 08-45Q Irrigation Project IR 08-45Q

Ltd. Limited

No. Number

OLG Oberlandesgericht (German Upper Regional Court)

para paragraph

paras paragraphs

SINGAPORE MANAGEMENT UNIVERSITY INDEX OF ABBREVIATIONS

VII

p. page

pp. pages

Pty. Private

Super Pumps Equitoriana Super Pumps S.A.

UNCITRAL United Nations Commission on International Trade Law

US Ct. App. United States Court of Appeals

U.S. Circ. Ct. United States Circuit Court

U.S. S. Ct. United States Supreme Court

v versus

Water Services Oceania Water Services

WLR World Law Reports

SINGAPORE MANAGEMENT UNIVERSITY INDEX OF AUTHORITIES

VIII

INDEX OF AUTHORITIES

BACH CHRISTIANSEN, LISBETH

What Risks Does it Involve to Seller and How Does He Secure

Against Them? A Practical Guide

Thesis, University of Capetown (2005)

(cited: BACH CHRISTIANSEN, in para 49)

BERNSTEIN, HERBERT

LOOKOFSKY, JOSEPH

Understanding the CISG in Europe

Netherlands (1997)

(cited: BERNSTEIN/ LOOKOFSKY, in para 146)

BIANCA, CESARE MASSIMO

BONELL, MICHAEL JOACHIM

TALON, DENIS

Commentary on the International Sales Law

The 1980 Vienna Sales Convention

Milan (1987)

(cited: BIANCA/BONELL/TALLON, in paras 62, 64, 97, 98)

BIANCA, CESARE MASSIMO

BONELL, MICHAEL JOACHIM

BENNETT, TREVOR

Commentary on the International Sales Law The 1980 Vienna Sales Convention Milan (1987) (cited: BIANCA/BONELL/BENNETT, in para 125 )

DHARMANANDA, KANEGA Reflections on Drafting Effective Dispute Clauses

(2008) 24 BCL 150

(cited: DHARMANANDA, in para 8 )

EARLE, WENDY Drafting ADR and Arbitration Clauses for Commercial Contracts

Toronto (2002)

(cited: EARLE, in para 12 )

HEUZE, VINCENT La Vente Internationale de Marchandises - Droit Uniforme/ The

Uniform Law on the International Sale of Goods

Paris (2000)

(cited: HEUZE, in paras 70 and 102)

HONNOLD, JOHN Uniform Law for International Sales under the 1980

United Nations Convention,

2nd Edition,

Deventer, Boston (1991)

(cited: HONNOLD, in paras. 4, 14, 23)


IX

LEISINGER, BENJAMIN Fundamental Breach Considering Non Conformity of the Goods

Beiträge Zum Internationalen Wirtschaftsrecht/ Contributions on

International Commercial Law

München, 2007

(cited: LEISINGER, in para. 49)

PILTZ, BURGHARD Internationales Kaufrecht, 2nd Edition, München (2008)

(cited: PILTZ, in paras. 70, 102)

REINHARDT, GERT Un- Kaufrecht Kommentar zum Übereinkommen der Vereinten

Nationen vom April 1980 über Verträge über den Internationalen

Warenkauf

Heidelberg (1991)

(cited: REINHARDT, in para. 49)

SAIDOV, DJAKHONGIR Methods for Limiting Damages under the Vienna Convention on

Contracts for the International Sale of Goods

United Kingdom (2001)

(cited: SAIDOV, in para. 125)

SECRETARIAT COMMENTARY UNCITRAL Commentary on the Draft Convention on Contracts

for the International Sale of Goods

UN-Document No. A/CONF. 97/5

(cited: SECRETARIAT COMMENTARY, in paras 79, 81, 83, 95, 125)

SCHLECTRIEM, PETER Uniform Sales Law in the Decisions of the Bundesgerichtshof

50 Years of the Bundesgerichtshof [Federal Supreme Court of

Germany]

A Celebration Anthology from the Academic Community

Germany

(cited: SCHLECTRIEM, in paras 54, 62)


X

SCHLECTRIEM, PETER

SCHWENZER, INGEBORG

Commentary on the UN Convention on the International Sale of

Goods (CISG)

2nd English edition

Oxford (2005)

(cited: SCHLECTRIEM/SCHWENZER)

SCHLECTRIEM, PETER

STOLL, HANS

Kommentar zum Einheitlichen Kaufrecht – CISG

Germany, 2005

(cited: STOLL/ SCHLECTRIEM, in paras. 138, 14 , 146)

WITZ, WOLFGANG

SALGER, HANNS-CHRISTIAN

LORENZ, MANUEL

International Einheitliches Kaufrecht,

Praktiker-Kommentar und Vertragsgestaltung

zum CISG

Heidelberg (2000)

(cited: WITZ/SALGER/LORENZ, in para. 4)

SINGAPORE MANAGEMENT UNIVERSITY INDEX OF CASES

XI

INDEX OF CASES

Australia

Supreme Court of Queensland

Allco Steel (Queensland) Pty Ltd v Torres Strait Gold Pty. Ltd

12 March 1990

Unreported, 2742 of 1989

(cited: ALLCO STEEL V TORRES STRAIT GOLD, Unreported, 2742 of 1989, IN PARA. 36)

Finland

Helsinki Court of Appeal

Skin care products case

30 June 1998

Unilex Database No. 19067

(Cited: HELSINKI COURT OF APPEAL, 30 June 1998, IN PARA. 50, 52)

Germany

Oberlandesgericht Braunschweigh

Frozen meat case

28 October 1999

CLOUT Abstract No. 361

(cited: OLG BRAUNSCHWEIGH, 28 October 1999, IN PARA. 124)

Oberlandesgericht Düsseldorf

Shoes case

14 January 1994

CISG Online No.119

(cited: OLG DÜSSELDORF, 14 January 1994, IN PARA. 124)

Oberlandesgericht Frankfurt a M

Seller (Germany) v Buyer (Austria)


XII

31 March 1995

CISG-online 137

(cited: OLG FRANKFURT A M, 31 March 1995, IN PARA. 14)

Oberlandesgericht Hamburg

Iron molybdenum case

28 February 1997

CISG Online No. 261

(Cited: OLG HAMBURG, 28 February 1997, IN PARA. 71, 90, 92, 104, 115)

Schiedsgericht der Handelskammer Hamburg

Chinese goods case

21 March 1996

CISG Online No. 187

(cited: SCHIEDSGERICHT DER HANDELSKAMMER HAMBURG, 21 March 1996, IN PARA. 146, 147)

Landgericht Frankfurt

Shoe case

16 September 1991


(cited: LANDGERICHT FRANKFURT, 16 September 1991, IN PARA. 83)

Oberlandesgericht Karlsruhe

Machine case

19 December 2002


(cited: OLG KARLSRUHE, 19 December 2002, IN PARA 84)

Great Britain

United Kingdom House of Lords

White and Carter (Councils) Ltd v McGregor


XIII

[1962] 2 AC 413

(cited: WHITE & CARTER V MCGREGOR, [1962] 2 AC 413, IN PARA. 132)

Switzerland

Appelationshof Bern

Wire and Cable Case

11 February 2004

CISG Online No. 1191

(cited: APPELATIONSHOF BERN, 11 February 2004, IN PARA. 56)

Cassation Court of the Canton of Zurich

15 March 1999

ZR 99 (2000) No. 29

(cited: KASSATIONSGERICHT ZURICH, ZR 99 (2000) NO.29, IN PARA. 38)

United States of America

United States District Court – District of Maine

Cumberland and York Distributors v Coors Brewing Co

February 7, 2002

No 01-244-P-H, 2002 WL 193323, at *4 D Me

(Cited: CUMBERLAND AND YORK DISTRIBUTORS V COORS BREWING CO, No 01-244-P-H, 2002 WL 193323, at *4 D

Me, IN PARA. 36)

United States Court of Appeals for the Eleventh Circuit (1998)

MCC-Marble Ceramic Center, Inc v Ceramica Nuova D‘Agostino SpA

144 F 3d 1384,1391

(cited: MCC-MARBLE CERAMIC CENTRE V CERAMICA NUOVA D’AGOSTINO, U.S. Ct. App. 11th Circ., IN PARA 4, 23)

United States District Court - Eastern District of Louisiana

Medical Marketing Int'l, Inc. v. Internazionale Medico Scientifica, S.r.l,

17 May 1999


XIV

CISG Case Presentation

(cited: MEDICAL MARKETING INT’L V INTERNAZIONALE MEDICO SCIENTIFICA, 17 May 1999, IN PARA 53)

SINGAPORE MANAGEMENT UNIVERSITY INDEX OF ARBITRAL AWARDS

XV

INDEX OF ARBITRAL AWARDS

ICC Cases

ICC Case No. 7331

Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft

15 June 1994

(cited: ICC Case No. 7331, IN PARA. 3)

ICC Case No.9977

Cour d'Appel Grenoble

Final Award of June 22, 1999

CLOUT 15/1998, case 202 = TranspR-IHR 1999, 7

(cited: ICC Case No. 9977, IN PARA. 28)

CLOUT Cases

CLOUT Case No. 204

Cour d‘appel, Grenoble, France

15 May 1996

(cited: CLOUT Case No. 204, IN PARA. 58)

CLOUT Case No. 253

Cantone del Ticino Tribunale d‘appello, Switzerland

15 January 1998

(cited: Clout Case No. 253, IN PARA. 58)

SINGAPORE MANAGEMENT UNIVERSITY STATEMENT OF FACTS

1

STATEMENT OF FACTS

1 July 2008 Mediterraneo Engineering Co. [hereafter ―Engineering‖] enters into a contract

[hereafter ―Contract‖] with Equatoriana Super Pumps S.A. [hereafter ―Super

Pumps‖].

The Contract stipulates that Super Pumps is to supply three P-52 pumps and a

number of other field pumps to draw water from a reservoir for the purposes of

an irrigation project, [hereafter ―IR 08-45Q‖] with Oceania Water Services

[hereafter ―Water Services‖].

Super Pumps warrants that the pumps will be in compliance with all regulations

in Oceania relating to the pumps.

The Contract contains the DES (Incoterms 2000) trade term, providing that

delivery to Engineering will be at the port of Capitol City, Mediterraneo on or

before 15 December 2008. Super Pumps is aware that the delivery date is

important for Engineering to perform its contractual obligations to Water

Services.

1 August 2008 Oceania Office of Environmental Health adopts a regulation restricting the use of

beryllium in copper and steel products that have moving parts and that are to be

used in enclosed spaces.

The steel used in the three P-52 pumps contains beryllium and are to be used in

an enclosed space. Super Pumps procures new steel to manufacture the three P-

52 pumps in accordance with the regulation.

15 November 2008 Production of pumps is completed.

22 November 2008

The ship delivering the pumps to Capitol City, Mediterraneo leaves port. The

expected arrival date of the ship is 22 December 2008, a week after the original

contract date for delivery. Engineering agrees to the delay in delivery.

28 November 2008

An accident involving another ship causes extensive damage to the locks on the

Isthmus Canal. The canal is closed, and the ship‘s scheduled transit of the Canal is

delayed. The ship only transits the Canal on 12 December.

1 December 2008 The government of Oceania resigned and military rule was enforced.

SINGAPORE MANAGEMENT UNIVERSITY STATEMENT OF FACTS

2

28 December 2008 The military regime passed a decree effective 1 January 2009 prohibiting the

import or manufacture of products containing any amounts of beryllium.

The military regime gives instructions that projects involving foreign suppliers of

goods should be cancelled if any term of the contract was breached.

1 January 2009 The decree becomes effective.

5 January 2009 Water Services cancels the contract for irrigation project IR 08-45Q on the

grounds that the pumps had not yet been delivered to Oceania as required by the

contract.

Engineering immediately notifies Super Pumps and avoids the contract, and

requests for the return of purchase price.

6 January 2009 The ship reaches the port of Capitol City, Mediterraneo.

15 January 2009 Counsel for Engineering writes to Super Pumps claiming damages of

US$320,000. He also claims the return of the purchase price of US $1,214,550.

Engineering‘s efforts to sell the goods pursuant to CISG Art. 88 are unsuccessful.

28-30 May 2009 Parties decide to carry out conciliation pursuant to Cl. 18 of the contract at the

conference for The Future of Irrigation.

The clause states that the parties are to be represented by ―their Chief Executive

Officer‖. Engineering is represented by Mr. William Holzer, its Deputy Chief

Executive Officer. Super Pumps does not question the authority of Mr. Holzer at

the conciliation.

Conciliation is unsuccessful.

7 June 2009 Mr. Wilson discovers that Mr. Holzer is the Deputy Chief Executive Officer of

Engineering after looking at the list of participants at the conference.

17 August 2009 Super Pumps objects to the representation of Engineering at conciliation by its

Deputy Chief Executive Officer and claims that the conciliation had not taken

place.

SINGAPORE MANAGEMENT UNIVERSITY ISSUE 1

3

ISSUE 1: TRIBUNAL HAS JURISDICTION TO ARBITRATE THE DISPUTE BETWEEN

ENGINEERING AND SUPER PUMPS

1. The tribunal has jurisdiction to arbitrate the dispute because (A) the conciliation procedure in Cl. 18 of

the Contract is not a prerequisite for the commencement of arbitration. Alternatively, (B) even if

conciliation was a prerequisite, the stipulated conciliation procedure had been fulfilled. Furthermore,

the tribunal should assume jurisdiction as (C) further conciliation would not have resolved the dispute.

(A) The fulfillment of the conciliation procedure in cl. 18 is not a prerequisite for

commencement of arbitration

2. The fulfillment of the conciliation procedure in cl. 18 is not a prerequisite for commencement of

arbitration as (i) commencing conciliation itself is not a prerequisite for the commencement of

arbitration and (ii) even if commencing conciliation was a prerequisite, a successful conciliation was not

a prerequisite for commencement of arbitration.

(i) Commencing conciliation is not a prerequisite for commencing arbitration

3. Preliminarily, the curial law or lex arbitri is the UNCITRAL Model Law on International Commercial

Arbitration with the 2006 amendments (―2006 ML‖). This is supplemented by the Australian Centre for

International Commercial Arbitration Rules (―ACICA Rules‖) which the parties have agreed to be

subject to. Since neither the 2006 ML nor the ACICA Rules deal with the issue of when an arbitration

agreement becomes effective, the arbitral tribunal is free to apply international commercial arbitration

principles [ICC Case No. 7331].

4. Art. 8(1) of the CISG provides that party intention is the primary criterion for interpretation of the

arbitration clause [SCHLECHTRIEM/SCHWENZER, pp. 113-114]. Art. 8(2) further provides for an objective

ascertainment, according to the hypothetical understanding of a reasonable person in the shoes of the

party [MCC-MARBLE CERAMIC CENTRE V CERAMICA NUOVA D’AGOSTINO, U.S. Ct. App. 11th Circ.; HONNOLD, para.

107]. Circumstances such as wording of the statement, negotiations, established prior trade practices

and subsequent conduct of the parties should be taken into account when interpreting party intention

[WITZ/SALGER/LORENZ, Art. 8, paras. 5-11].

SINGAPORE MANAGEMENT UNIVERSITY ARGUMENTS

4

5. Thus, there was no requirement that the conciliation procedure should be commenced before parties

could turn to arbitration because it is inconsistent with (a) parties‘ intention or in the absence of parties

intention, (b) the reasonable hypothetical man‘s test.

(a) Commencement of conciliation as a prerequisite is inconsistent with the parties’ intentions

6. Commencing conciliation could not have been a prerequisite for commencing arbitration as this would

be contrary to the common intention of both parties. The purpose of cl. 18 was to preserve the

underlying healthy business relationship by providing that parties are to attempt conciliation or

arbitration instead of litigation which is more acrimonious. This was all the more important as the

parties had every intention to work closely not just on the irrigation project but for future projects as

well [Claimant’s Exhibit 2].

7. Cl. 18 does not impose on parties an obligation to resolve by conciliation over arbitration. It is unlikely

that that the parties intended for conciliation to be a necessary precondition to arbitration and there is

no express common intention to this effect. Instead, cl. 18 simply indicates that the parties preferred

for the occurrence of conciliation prior to arbitration. This was all parties had intended but this does

not amount to conciliation being a necessary prerequisite for the commencement of arbitration.

8. Furthermore, a typical multi-tiered dispute resolution clause must have a clear transitioning mechanism

such that parties know when to proceed on to the next dispute resolution mechanism. In this case, the

absence of any method of ascertaining the ―point of failure‖ of conciliation indicates that parties did not

intend for any transitioning of conciliation to arbitration [DHARMANANDA, p. 158]. Instead, conciliation

and arbitration are simply to be treated as alternatives. Conciliation is at best a preference in light of the

intention to maintain the healthy business relationship.

9. Hence, the dispute is referable to arbitration in any situation where "the dispute has not been settled

pursuant to the said conciliation procedure‖ and this includes the situation where parties choose not to

conciliate or cannot agree to commence conciliation.


5

(b) Commencement of conciliation as a prerequisite is inconsistent with the reasonable hypothetical man test

10. A ‗reasonable hypothetical man‘ is unlikely to view conciliation as a precondition as that would confer

on either party a right to hold the other hostage by not agreeing to attempt conciliation.

11. To hold that conciliation was a precondition to arbitration would lead to the absurd conclusion that a

party may refuse to have the matter resolved by both conciliation and arbitration by simply not

participating in conciliation. A party could be entirely excluded from access to an adjudicatory body

(court or arbitral tribunal) if such an interpretation of cl. 18 was taken.

12. The clear absence of any timeframe in which conciliation must take place also points towards an

interpretation which does not render conciliation a prerequisite. This is because it is important that a

clear beginning and end be specified so that one party is not left to the mercy of the co-operation of the

other party [EARLE, p. 3-12]. Such a unilateral allocation of power would place one party at the mercy

of the other and is antithetical to the very notion of dispute resolution.

13. Furthermore, a reasonable man would be able to envisage situations whereby conciliation would be

inappropriate or unsuitable for a particular dispute. If conciliation was to be strictly interpreted as a

necessary prerequisite, it would severely frustrate any attempts to resolve the issue since arbitration

cannot commence unless conciliation, even when it is obviously unsuitable, has been commenced. In

such cases, the reasonable man would say that the tribunal should take jurisdiction.

14. Lastly, since cl. 18 was drafted by Super Pumps, the well established rule of contra proferentum which

applies under the Convention [OLG FRANKFURT A M, 31 March 1995; HONNOLD, para. 107.1] operates to

make Super Pumps bear the risk of the ambiguity of the clause. Hence, commencing conciliation is not

a prerequisite to commencement of arbitration.

(ii) Successful attempt at conciliation is not a prerequisite for commencing arbitration

15. Even if the commencement of conciliation is a prerequisite, cl. 18 does not require the conciliation to

be successful before parties can have recourse to arbitration because it is inconsistent with (a) parties‘

intention or in the absence of intention, (b) the reasonable hypothetical man‘s test.


6

(a) Successful conciliation as a prerequisite is inconsistent with parties’ intentions

16. Parties could not have intended for a successful conciliation as a prerequisite for the commencement of

arbitration. The key phrase in cl. 18 is ―if the dispute has not been settled pursuant to the said

conciliation procedure‖ and this operates as a qualifier on the commencement of arbitration when

conciliation has already been elected.

17. In the UNCITRAL Conciliation Rules (―Conciliation Rules‖) which parties expressly selected to govern

the conciliation, ―settled‖ can be understood in the context of a settlement agreement under Art. 13

which binds parties and puts an end to the dispute. However, Art. 15(b) clearly envisages the possibility

that conciliation may not produce a settlement and that it can be terminated by a declaration from the

conciliator.

18. The reference to the Conciliation Rules therefore reflects parties‘ intention that conciliation may not be

effective and the next step would be to resort to arbitration. Therefore, a successful conciliation is not a

prerequisite for the commencement of arbitration.

(b) Successful conciliation as a prerequisite is inconsistent with the reasonable hypothetical man test

19. Even if parties‘ intention cannot be found, a reasonable man would not conclude that a successful

conciliation is a prerequisite for the commencement of arbitration. If ―settled‖ in cl. 18 is interpreted as

resulting in successful settlement, it would render the arbitration aspect in cl. 18 otiose as there would

be no more dispute to refer to arbitration. Thus, it is likely that cl. 18 simply reflects parties‘

expectation that commencement of arbitration is valid as long as a settlement agreement has not been

reached despite reasonable effort by both parties.

20. As the conciliation procedure was attempted and validly terminated by the conciliator pursuant to Art.

15(b) of the Conciliation Rules [Claimant’s Notice of Arbitration and Statement of Claim at para 23],

Engineering is entitled to commence arbitration.


7

(B) Even if conciliation procedure was a prerequisite, the parties' attempt at conciliation

fulfils the requirements of cl. 18

21. The requirements of the conciliation clause had been fulfilled because (i) Mr. Holzer was acting with

the full authority of the CEO of Engineering, or alternatively (ii) the representation of the parties by

their CEOs was not of the essence to the conciliation. Alternatively, Super Pumps is estopped from

invalidating the conciliation proceedings as (iii) Super Pumps had impliedly agreed to Mr. Holzer‘s

representation.

(i) Mr. Holzer was acting with the full authority of the CEO of Engineering

22. As Mr. Holzer is the Deputy CEO of Engineering, it is a reasonable inference that he possessed actual

authority to act and represent Engineering in the conciliation.

23. Art. 8(1) of the CISG states that party intention is the primary criterion of contractual intention.

Pursuant to Art. 8(2) of the CISG, a reasonable person in the shoes of Super Pumps [MCC-MARBLE

CERAMIC CENTRE V CERAMICA NUOVA D’AGOSTINO, U.S. Ct. App. 11th Circ; HONNOLD, para 107] would have

understood that the contractual requirement of representation by the CEO at conciliation would allow

an individual with the authority of the CEO to act in his capacity during conciliation.

24. It is reasonable to expect CEOs to delegate their duties to other competent individuals within the

company. It would be manifestly onerous on one party if the law required a specific person to be

physically present to represent the company in the conciliation proceedings, since the company could

have vested the Deputy CEO with the requisite authority to act in the capacity of the CEO.

25. Furthermore, a literal interpretation results in each party having unduly powerful leverage over the

other. Since only CEOs could conciliate, a literal interpretation would render any conciliation void and

ineffective as long as one party chooses not to be represented by its CEO. This situation could not have

been intended by parties given the commercial need to resolve disputes to minimize antagonism and

business uncertainty. The fact that parties had an amicable relationship at the time of conclusion of the

Contract also suggests that they could not have intended that each party could have held the other

hostage through an abuse of their right under cl. 18.


8

26. Hence, Engineering did not breach cl. 18 through the non-attendance of its CEO since its Deputy CEO

had authority to act on behalf of the CEO as representative of Engineering in the conciliation.

(ii) Representation by CEOs was not of the essence to the conciliation

27. It was not the intention of the parties for the representation of the parties by their CEOs to be of the

essence to conciliation. Hence, the purported technical breach of Cl. 18 by Mr. Holzer‘s representation

of Engineering at conciliation did not go to the root of the contractual term nor was it sufficient to

prevent the conciliation procedure from being fulfilled.

28. In ICC Case No. 9977, the arbitrator found that a first tier obligation to first submit the controversy ―to

senior management representatives of the parties who will attempt to reach an amicable settlement

within fourteen calendar days after submission‖ was fulfilled, despite the meetings only being attended

by the legal representatives of the claimant, not by a member of senior management.

29. Similarly, cl. 18 merely suggests that parties intended to attempt settle the dispute in good faith

through conciliation through an agreement between the highest levels of management of the respective

companies. This is in line with their intention to maintain their close business relationship which existed

prior to the Contract [Claimant’s Exhibit 1 and 2], as well as their intention to co-operate on future

projects. Therefore, the reference to representation by the CEOs was merely a label to reflect the need

for the companies to be represented by members of the higher management who would take into

account their business relationship.

30. Being a member of the company‘s highest management, Mr. Holzer was able to appreciate the

importance of the parties‘ business relationship and his decision at the conciliation would be binding as

if the CEO had made the very same decision. Hence, the clause was not breached.

(iii) Super Pumps impliedly agreed to Engineering’s representation by Mr. Holzer

31. Super Pumps is stopped from invalidating the conciliation procedure since they impliedly agreed to vary

the parties‘ obligation to be represented by its CEO at the conciliation proceedings.


9

32. It is likely that Super Pump‘s representative, Mr. James Stecker, knew that Engineering was

represented by Mr. William Holzer, its Deputy CEO instead of its CEO. Parties must have been

introduced by name and designation at the conciliation proceedings. It is likely that parties exchanged

business cards which would have stated the designation of the participants. Therefore, Mr. Stecker

ought to have known that Mr. Holzer was the Deputy CEO.

33. Although Super Pumps claimed that Mr. Stecker discovered one week after the conciliation that Mr.

Holzer was not the CEO but the Deputy CEO, neither Mr. Stecker nor Super Pumps made any attempt

to voice their objection immediately. Super Pumps‘ objection ex post facto is likely designed only to

thwart the prospect of resolving the dispute through arbitration under the Tribunal.

34. Since Mr. Stecker did not oppose to Mr. Holzer‘s representation during the conciliation, Super Pumps

must be taken to have impliedly agreed to Mr. Holzer‘s representation of Engineering, pursuant to Art.

6 of the Conciliation Rules which allows parties to be represented by persons of their choice.

(C) TRIBUNAL SHOULD ASSUME JURISDICTION AS CONCILIATION IS UNLIKELY TO RESOLVE DISPUTE

35. As further conciliation will not resolve the dispute, the Tribunal should assume jurisdiction and proceed

with arbitration even if the proper conciliation procedure had not been complied with. This would

enable parties to finally obtain an effective resolution which allow them to assess their respective rights

and obligations. Compelling parties to re-attempt conciliation serves no useful purpose and only causes

further delay and unnecessary uncertainty.

36. In Allco Steel, [ALLCO STEEL V TORRES STRAIT GOLD, 2742 of 1989, 12 March 1990, Unreported], the court

examined the effect of a conciliation clause as a condition precedent to commencing litigation. The

judge found that there had been a clear breach of the conciliation clause but nevertheless went on to

hold that since both parties had taken positions which effectively ruled out the possibility of

conciliation, no useful purpose would be served by compelling parties to conciliate. Thus, the court

refused to grant a stay of litigation proceedings. Also, in Cumberland [CUMBERLAND & YORK DISTRIBUTORS V

COORS BREWING, No 01-244-P-H, 2002 WL 193323, at *4 D Me], the court held that a party is not allowed

to prolong resolution of a dispute by insisting on mediation which would only lead to a delay.


10

37. Engineering does not believe that further conciliation would yield any resolution. Indeed, Mr. Holzer

who represented Engineering at the conciliation procedure had the full authority of the CEO and

competently represented Engineering‘s position. If Super Pumps could not reach a settlement with Mr.

Holzer, it would likewise not be able to resolve the issue now with Engineering‘s CEO. Hence, since

conciliation would be pointless, in the interest of efficacy, the Tribunal should assume jurisdiction to

hear the dispute.

38. In any event, it is also open to the Tribunal to hold that the breach of a conciliation clause only gives

rise to damages and does not go towards negativing jurisdiction. The Switzerland Court of Cassation,

Kassationsgericht Zurich, held that the breach of a conciliation clause was not of a jurisdictional nature and

was to be distinguished from jurisdiction or arbitration clauses which have jurisdictional consequences

for courts and arbitration tribunals [KASSATIONSGERICHT ZURICH, ZR 99 (2000) NO.29]. This functional

approach would accord more certainty and is particularly relevant in instances such as the present case

where conciliation would not be effective anyway.

CONCLUSION TO ISSUE 1

39. Conciliation was intended to be an alternative to arbitration, not a pre-condition. As such, even if

conciliation was not satisfied, commencement of arbitration was still valid. In any event, the

conciliation procedure had been satisfied. Even if it was not satisfied, further conciliation would not

yield any resolution and unnecessarily prolong the dispute. Therefore, the arbitration tribunal has

jurisdiction to hear the dispute.

ISSUE 2: ENGINEERING IS ENTITLED TO DAMAGES AS SUPER PUMPS HAD BREACHED

ITS OBLIGATION TO PROVIDE PUMPS THAT WERE IN COMFORMITY WITH

REGULATIONS

40. Super Pumps had breached its obligations under the Contract as (A) Super Pumps delivered pumps that

did not comply with all relevant regulations for importation into Mediterraneo and for use in Oceania.

Furthermore, (B) Super Pumps cannot rely on Art. 79 to exempt itself from damages, and (C)

Engineering was entitled to avoid the contract with Super Pumps and reclaim the purchase price as the

breach amounted to a fundamental breach.


11

(A) SUPER PUMPS BREACHED THE CONTRACT BY DELIVERING PUMPS THAT DID NOT COMPLY WITH ALL

RELEVANT REGULATIONS FOR IMPORTATION INTO MEDITERRANEO AND FOR USE IN OCEANIA

41. Super Pumps breached the contract because (i) Super Pumps had breached its warranty under the

Contract to provide pumps that would comply with the regulations in Mediterraneo and the

requirements of IR 08-45Q. Alternatively, (ii) Super Pumps is liable under Art. 35(2)(b) for delivering

goods that were not fit for the particular purpose stated in the contract. Furthermore, (iii) Super

Pumps breached its obligations to ensure conformity until risk passed.

(i) Super Pumps had breached its warranty under the Contract to provide pumps that

would comply with the regulations in Mediterraneo and the requirements of IR 08-45Q.

42. Cl. 2 of the Contract between Super Pumps and Engineering states that ―Super Pumps warrants that the

pumps are in compliance with all relevant regulations for importation into Mediterraneo and for use in

Oceania‖ [Claimant Exhibit 3]. The Contract also incorporates the DES (Incoterms 2000) which states

that risk passes to the buyer at the time the ship arrives at Capitol City, Mediterraneo. Hence, until risk

passes to Engineering, Super Pumps has an obligation to provide pumps that comply with regulations

for importation into Meditarraneo and the requirements of IR 08-45Q.

43. The purpose of the warranty is to ensure that the pumps comply with regulations for importation into

Mediterraneo for use in IR 08-45Q. A warranty by the seller allocates the risk on the seller to provide

goods that meet the contractual requirements since the seller retains control over the goods. Art. 36(1)

of the CISG reinforces this principle, stating that the seller is liable for any lack of conformity at the

time when risk passes to the buyer. Thus, any time before risk passes to the Engineering, Super Pumps

bears the obligation of providing goods of contractual quality.


12

44. This is buttressed by the fact that it was Engineering who had insisted on the warranty because it could

not have known whether the pumps were in compliance with Oceania‘s technical specifications

[Procedural Order No.2, para 9]. Only Super Pumps, as the manufacturer, could have known. Thus, the

warranty was a reflection of parties‘ intention that the onus of ensuring that the pumps met the

regulations for importation into Mediterraneo for use in IR 08-45Q lay with Super Pumps.

45. As a result of the warranty in the Contract, Super Pumps must be taken to have borne the risk of any

subsequent changes, which may result in a breach of its obligations under the warranty. Regulatory

changes were one such possible risk and Super Pumps cannot now renege on its warranty after it had

agreed to bear the risk. Hence, Super Pumps breached the Contract by breaching its warranty to

provide pumps that would comply with regulations pertaining to IR 08-45Q.

(ii) Super Pumps is liable under Art. 35(2)(b) for delivering goods that were not fit for the

particular purpose stated in the contract

46. Super Pumps is liable under Art. 35(2)(b) of the CISG because (a) the particular purpose of the pumps

were made known to them and (b) Engineering reasonably relied on Super Pumps‘ skill and judgment.

47. Under Art. 35(2)(b), the seller is responsible for the fitness of the goods for ―a particular purpose [that

has] been expressly or impliedly made known to the seller at the time of the conclusion of the contract,

except where circumstances show that the buyer did not rely, or that it was unreasonable for him to

rely, on the seller‘s skill and judgment‖.

48. Super Pumps is liable under Art. 35(2)(b) of the CISG because it failed to supply pumps in conformity

with the contractual terms. Super Pumps was obliged under cl. 2 to provide pumps that were in

compliance with all relevant regulations pertaining to IR 08-45Q.

(a) The purpose of the pumps was made known to Super Pumps

49. The particular purpose of the pumps for use in Oceania for the irrigation project IR 08-45Q was

expressly made known to Super Pumps in the contract. The requirement of ―making known‖ is not

strict. There is no need for the particular purpose to have been contractually agreed upon

[SCHLECHTRIEM/SCHWENZER, Art. 35 para. 20]. The generally recognized view is that it is only necessary


13

that the buyer makes known the particular purpose to the seller and not that the seller recognizes the

particular purpose [LEISINGER; ENDERLEIN MASKOW/STROHBACH, Art. 35 para. 11; REINHARDT, Art. 35 para.

6; BACH CHRISTIANSEN, p.36]. It is sufficient if a reasonable seller could have recognized the particular

purpose from the circumstances [SCHLECHTRIEM/SCHWENZER, Art. 35, para. 21]. Hence, Super Pumps

knew the purpose of the pumps as it was clearly stated in the contract that they were to be used in

Oceania in IR 08-45Q.

50. As in the skin care products case [HELSINKI COURT OF APPEAL, 30 June 1998], the court found that the seller

violated Art. 35(2)(b) when it did not deliver skin care products that maintained the specified levels of

Vitamin A throughout their shelf life. It was held that the buyer intended to purchase products with the

specified vitamin levels, that this ―special purpose ... was known by the [seller] with sufficient clarity‖

and that ―the buyer counted on the seller's expertise in terms of how the seller [reached] the required

vitamin A content and how the required preservation [was] carried out‖.

51. The requirement of ‗made known‘ is clearly met here because the particular purpose was expressly

made known to Super Pumps as Cl. 1 of the contract clearly states, ―the pumps are for installation in

Oceania by Mediterraneo Engineering Co. for Irrigation Project IR 08-45Q‖ [Claimant Exhibit 3].

(b) Engineering reasonably relied on Super Pumps’ skill and judgment

52. As a general rule, there will be reliance if the seller is a specialist or expert in the manufacture of goods

for the particular purpose intended [SCHLECHTRIEM/SCHWENZER, Art. 35, para. 23]. Super Pumps is a

specialist manufacturer of pumps for irrigation systems. It conducts sales in over 50 countries, and had

previously provided Engineering with pumps for one of their projects. In light of these circumstances,

Engineering reasonably relied on Super Pumps‘ skill and judgment to deliver pumps that would comply

with the regulations in Oceania. That Engineering is also knowledgeable in this field because it carried

out irrigation projects in Mediterraneo and six foreign countries before, does not by itself nullify its

reliance on Super Pumps‘ expertise [HELSINKI COURT OF APPEAL, 30 June 1998].

53. Engineering duly informed Super Pumps of the new regulations immediately and reasonably relied on

Super Pumps‘ expertise to supply pumps that would be in conformity with these new regulations. As in

Medical Marketing [MEDICAL MARKETING INT’L V INTERNAZIONALE MEDICO SCIENTIFICA, 17 May 1999], where an


14

arbitration tribunal and an American district court unquestioningly presupposed the applicability of the

importing country‘s (USA) safety regulations. Similarly, in ICC Case No. 9977, the Court of Appeal

found it incontestable that the seller had to comply with the marketing regulations in force in the

importing country (France). This was so given the dealings carried on between the parties for a number

of months; that the seller knew that the goods were destined for the French market and that this

knowledge obliged it to comply with the marketing regulations in force in France. Although Super

Pumps and Engineering did not deal with each other on a regular basis, Super Pumps knew that the

pumps were destined for use in the irrigation project in Oceania. Thus, this knowledge obliged it to

comply with the environmental regulations in force in Oceania.

54. Super Pumps bears the risk associated with the observance of public law regulations because the

contract clearly delineates that the seller has an obligation to provide goods in conformity with the

particular purpose of the contract. Therefore, since Super Pumps knew that the pumps were for use in

IR 08-45Q, this risk falls on Super Pumps. Alternatively, even where no party agreement may be

discerned from the contract, Art. 35(2)(b) of the CISG determines that this risk falls on Super Pumps in

the present case. As per Schlechtriem, ―If the seller knows where the goods are intended to be used,

then he will usually be expected to have taken the factors that influence the possibility of their use in

that country into consideration‖ [SCHLECHTRIEM/SCHWENZER, Art. 35]

55. It has been established that Super Pumps knew specifically that the pumps were to be used in the

irrigation project in Oceania by virtue of Cl. 1 of the Contract and thus should have taken into account

the political situation in Oceania. It was therefore obliged to supply pumps in conformity with the

regulation of 1 August 2008 [Claimant Exhibit 4] and the decree effective 1 January 2009 [Claimant

Exhibit 11]. Moreover, as Engineering had reasonably relied on Super Pumps to provide pumps that

were in conformity, the requirements under Art. 35(2)(b) are clearly satisfied.

(iii) Super Pumps breached its obligations to ensure conformity until risk passed

56. Art. 36(1) of the CISG provides that Super Pumps is liable for any lack of conformity, which exists at

the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only

after that time. The goods must be in conformity with the terms in the contract for the purposes of Art.

35 of the CISG at the time when the risk passes to the buyer. The burden to prove conformity of the


15

goods therefore rests on the seller only until the time of the passing of the risk. [APPELATIONSHOF BERN, 11

February 2004]

57. The time at which the risk passes is governed by the parties‘ agreement, particularly Incoterms.

[SCHLECHTRIEM/SCHWENZER, Art. 36, para 3] The parties agreed to incorporate DES (Incoterms 2000) into

their Contract [Claimant Exhibit 3]. According to the DES (Incoterms 2000), the passing of risk does not

occur until the ship has arrived at Capitol City, Mediterraneo – the named port of destination [Claimant

Exhibit 3, Contract Excerpts]. Hence the time at which the goods must be in conformity with the Contract

is 6 January 2009 when the ship arrived at Capitol City, Mediterraneo.

58. The basic principle of Art. 36(1), that the seller is liable for a lack of conformity that exists at the time

risk passes to the buyer, has been affirmed in several decisions [CLOUT Case No. 204; CLOUT Case No.

24; CLOUT Case No. 253]. In CLOUT case No. 253, Switzerland, there was a contract for the sale of cocoa

beans from Ghana and the contract provided that risk should pass to the buyer when the goods were

handed over to the first carrier. It also required the seller to supply, before the goods were shipped, a

certificate from an independent testing agency confirming that the beans met certain quality

specifications. The independent agency tested the goods some three weeks before they were packed for

shipment and issued the required certificate. However, when the goods arrived, the cocoa beans were

below contract-quality. The court held that the seller would be liable for the lack of conformity in three

situations: (1) if the pre-shipment certificate of quality from the independent agency were simply

mistaken and the goods thus lacked conformity at the time they were inspected; (2) if the deterioration

in the quality of the goods occurred in the three week gap between inspection and shipment; or (3) if

the defects otherwise existed when the goods were shipped but the defects would only become

apparent after they were delivered to the buyer.

59. The present case falls squarely within the second situation identified by the court in CLOUT case No.

253. If the defects in conformity of the goods occur between inspection and shipment the seller is

liable. When Super Pumps shipped out the pumps on 22 November 2008, the pumps were in

conformity with the technical specifications required. However, when the ship arrived at Capitol City

on 6 January 2009, it was not in compliance with the Military Decree effective 1 January 2009

prohibiting the import or manufacture of products containing any amounts of a number of rare


16

elements, including beryllium. The pumps other than the P-52 pumps violated the military regime‘s

environmental decree of 28 December 2008. Thus Super Pumps had breached its obligation to supply

pumps in conformity with the regulations in Oceania when the risk passed to the buyer – 6 January

2009. Even though the decree was only effective on 1 January 2009, whilst the goods were being

transported to Capitol City, Super Pumps is still responsible for the defects that occurred during

transportation because risk has yet to pass to Engineering.

(B) SUPER PUMPS CANNOT RELY ON THE EXEMPTION UNDER ART. 79

60. Super Pumps is not entitled to exempt itself from liability to pay damages pursuant to Art. 79 as (i) it

had already assumed the risk of the lack of conformity under the contract; and (ii) at any rate, it did not

fulfill the requirements of Art 79.

(i) Super Pumps cannot rely on Art. 79 of the CISG because Super Pumps had assumed the

risk under the Contract

61. Liability under Art. 79 flows from the contractual allocation of risk at the conclusion of the contract

[SCHLECHTRIEM/SCHWENZER, pp. 807-808], and the possibility of exemption under Art 79 does not change

the allocation of the contractual risk [BGH, 24 March 1999]. Therefore, a party will not be allowed to

claim an exemption if it had assumed the risk of the event which caused its failure to perform its

obligations.

62. Super Pumps‘ standing warranty in the Contract amounted to a guarantee that Super Pumps would

ensure that the pumps would be appropriate for use in Oceania for IR 08-45Q. This form of guarantee

imposes an absolute obligation on Super Pumps from which there can be no relief of responsibility

[Schlectriem/Schwenzer, p. 828; Bianca/Bonell/Tallon, Art. 79, note 2.6.7].

(ii) Super Pumps cannot rely on Art. 79 of the CISG because Super Pumps fails to satisfy the

requirements under the Article

63. Art. 79 of the CISG provides that a party is not liable for a failure to perform any of his obligations 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. The burden is on the party claiming the exemption


17

to prove all the requirements in order to avail himself of Art. 79 [Germany, 2 February 2004, Appellate

Court Zweibrücken, Milling equipment case, http://cisgw3.law.pace.edu/cases/040202g1.html]. If any element

is not satisfied, the party will remain liable for his breach. In the present case, Super Pumps cannot rely

on Art. 79 as (a) it could reasonably have foreseen the impediment at the time of the conclusion of the

contract; and (b) Super Pumps could reasonably have overcome the consequences of the impediment.

(a) Super Pumps could reasonably have foreseen the impediment at the time of conclusion of the Contract

64. Super Pumps‘ standing warranty in the Contract amounted to a guarantee that Super Pumps would

ensure that the pumps would be appropriate for use in Oceania under Irrigation Project IR 08-45Q.

This guarantee imposes an absolute obligation on Super Pumps from which there can be no relief of

responsibility [Schlechtriem/Schwenzer, p. 828; Bianca/Bonell/Tallon, Art. 79, note 2.6.7]. Super Pumps

cannot rely on Art. 79 because regulatory changes which will affect the performance of the Contract

should have been reasonably foreseen.

65. Being experienced in the industry of manufacturing pumps, Super Pumps was clearly aware of the

potential health risks of beryllium contents in their pumps. This is further supported by their

correspondences with Engineering [Claimant’s Exhibit 6]. There is continuing debate over the use of

beryllium in industries. The International Agency for Research on Cancer lists beryllium as a

carcinogen. The Occupational Safety and Health Administration (―OSHA‖) of the United States of

America, following a petition by various groups to issue an emergency temporary standard to curb the

use of beryllium, has since conducted more studies on beryllium and is in the process of passing rules on

the use of beryllium [United States Department of Labour, 71:21962-21968].

66. Given the uncertainty clouding the use of beryllium in industrial products and the fact that the OSHA, a

leading authority on occupational hazards was in the process of passing rules on use of beryllium, the

subsequent change in regulations by the Oceania Office of Environmental Health on 1 August 2008

prohibiting the use of beryllium in moving parts for use in enclosed areas should thus be an event which

Super Pumps ought reasonably to have taken into account.

67. Similarly, the decree passed by the military regime on 28 December 2008 prohibiting the import of

products containing any amounts of beryllium was an event which Super Pumps should reasonably have

http://cisgw3.law.pace.edu/cases/040202g1.html


18

taken into account. Even if the scientific justification of the regulation is open to question, the fact

remains that the use of beryllium is a highly debated issue and thus such a regulation change, though

surprising, should have been reasonably foreseeable.

68. Furthermore, Super Pumps was also clearly aware of the unstable political climate in Oceania at the

date of contracting [Claimant’s Exhibit 2]. As such, there was a high chance that there may be changes in

regulations anytime which are likely to affect the Contract and therefore the change on 28 December

2008 should have been reasonably foreseeable.

(b) Super Pumps could reasonably have overcome the consequences of the impediment

69. Super Pumps also cannot rely on Art. 79 as Super Pumps could have overcome the consequences of the

regulatory changes.

70. It is a general rule that Super Pumps is expected to overcome the impediment even if it incurs greatly

increased costs and forces it to accept a business loss [Heuze, note 471; Piltz, s. 4, para. 232]. The courts

have been reluctant to allow exemption under Art. 79 for cases of failure to deliver conforming goods

as this would result in the injured party being left uncompensated [Digest of Art. 79 Case Law].

71. In the Iron molybdenum case [OLG Hamburg, 28 February 1997], the buyer entered into a contract of

supply of iron-molybdenum from China with the seller. The seller failed to deliver the goods as the

supplier had themselves failed to obtain the goods from their supplier. Although the market price of

iron-molybdenum had tripled, it was held that the seller is not exempt from liability as the seller bears

the risk of itself receiving delivery of the goods from its own supplier. Only if goods of an equal or

similar quality were no longer available on the market would the seller be exempted from liability.

72. Similarly, Super Pumps should not be exempted from liability since alternative performance could

reasonably have been sought. Indeed, Super Pumps attempted to overcome the consequence of the

impediment of the regulatory change of 1 August 2008 [Claimant Exhibit 4] by procuring new steel to

comply with the regulation [Claimant Exhibit 6].


19

73. With regards to the regulatory change of 28 December 2008, Super Pumps could still have overcome

this impediment. Super Pumps was aware that there was substitute performance available through the

Trading Company of Mediterraneo (―Trading Company‖) [Respondent’s Exhibit 3].

74. When Super Pumps was made aware of regulatory change on 28 December 2008, it could have

approached the Trading Company to provide the compliant field pumps to Engineering. Through this

arrangement, Super Pumps could have overcome the consequences of the later regulatory change even

it may have incurred additional costs. In fact, Super Pumps carelessly stood by without taking any

actions.

75. Therefore, Super Pumps cannot now avail itself of Art. 79 to exempt its liability for damages breach of

obligation to deliver the pumps which are compliant with Oceania‘s regulation.

(C) ENGINEERING IS ENTITLED TO AVOID THE CONTRACT WITH SUPER PUMPS AS THE BREACH AMOUNTED

TO A FUNDAMENTAL BREACH

76. Engineering is entitled to avoid the Contract and reclaim the purchase price as Super Pumps‘ breach of

its obligation to deliver conforming goods amounts to a fundamental breach.

77. Under Art. 49(1)(a), the buyer may declare the contract avoided if the failure by the seller to perform

any of his obligations under the contract or this convention amounts to a fundamental breach of

contract. According to Art. 25, a breach of contract is fundamental if ―it results in such detriment to the

other party as substantially to deprive him of what he is entitled to expect under the contract and the

party in breach did not foresee and a reasonable person of the same kind in the same circumstances

would not have foreseen such a result.‖

78. Super Pumps‘ had committed a fundamental breach as (i) Engineering was substantially deprived of

what it was entitled to expect under the Contract and (ii) Super Pumps did forsee the detriment.


20

(i) Engineering was substantially deprived of what it was entitled to expect under the

Contract

79. Engineering suffered substantial detriment as a result of Super Pumps‘ breach of contract. This

detriment does not refer to the extent of the damage, but instead to the importance of the interest

which the contract and its individual obligations actually create for the promisee

[SCHLECHTRIEM/SCHWENZER, p. 177]. In determining whether the detriment suffered is substantial, regard

must be given to the circumstances of the case, including the extent to which the breach interferes with

the activities of the injured party [SECRETARIAT COMMENTARY].

80. IR 08-45Q was Engineering‘s only reason for contracting for the pumps. The pumps are completely

useless to Engineering if they could not be used for the project. Indeed, non-conformity of the pumps

with the regulations would have been considered so serious by the parties that its existence would

eliminate Engineering‘s interest in the performance of the Contract. Hence, by delivering pumps that

did not comply with regulations, which could not be used in the project, Engineering had been

substantially deprived of what they were entitled to expect under the Contract.

(ii) Super Pumps did foresee the detriment

81. Upon the successful proof by the injured party that it suffered substantial detriment, the breach will be

fundamental unless the party in breach can prove that it did not foresee and had no reason to foresee the

result that occurred [SECRETARIAT COMMENTARY].

82. In the present case, Super Pumps knew that the pumps were to be used in the irrigation project with

Water Services. Therefore, it should have foreseen that a breach of its warranty that the pumps would

be in compliance with all relevant regulations would prevent Engineering from properly fulfilling its

contractual obligations to Water Services. Hence, the detriment to Engineering was foreseeable to

Super Pumps. As such, Super Pumps had committed a fundamental breach of contract under Art. 25

that entitled Engineering to avoid the Contract.


21

(iii) Engineering properly avoided the contract

83. Engineering properly avoided the Contract. Art. 26 of the CISG stipulates that a declaration of

avoidance is only effective if notice is given to the other party, and the contract will be avoided from

the date notice is given [SECRETARIAT COMMENTARY]. In order to be effective, the notice must express

unequivocally and with sufficient clarity that the party will not be bound by the contract any longer and

considers the contract terminated [LANDGERICHT FRANKFURT, 16 September 1991].

84. To constitute effective notice the precise phrase "declaration of avoidance" or even the term

"avoidance" need not be used, as long as one party conveys the idea that the contract is terminated

because of the other‘s breach. A written refusal to perform, coupled with a claim for repayment of

purchase price, has been deemed sufficient notice of avoidance [OLG KARLSRUHE, 19 December 2002].

85. In a letter dated 5 January 2009, Engineering unequivocally stated its intention to cancel the Contract

with Super Pumps, and also asked for a return of the purchase price for the pumps [Claimant Exhibit 13].

Therefore, the requisite notice had been given, and Engineering had properly avoided the Contract.


86. Super Pumps had an obligation to ensure that both the field and P-52 pumps it was contracted to

deliver to Engineering would meet the requirements for IR 08-45Q. Super Pumps‘ obligation was

continuous and binding until risk passed to Engineering under the DES Incoterms. Super Pumps‘ had

breached its obligation even before the risk had passed to Engineering by not ensuring that the field

pumps did not contain beryllium. As this breach amounted to a fundamental breach, Engineering is

entitled to avoid the Contract and reclaim the purchase price. Engineering can also claim damages for

the breach, as Super Pumps is not exempted by Art. 79.

ISSUE 3: ENGINEERING IS ENTITLED TO AVOID THE CONTRACT DUE TO SUPER PUMPS’

BREACH OF OBLIGATION TO DELIVER ON TIME

87. Super Pumps had breached its obligations under the Contract as (A) Super Pumps failed to deliver the

pumps by the delivery date. Furthermore, (B) Super Pumps cannot rely on Art. 79 to exempt itself


22

from damages, and (C) Engineering was entitled to avoid the Contract with Super Pumps and reclaim

the purchase price as the breach amounted to a fundamental breach.

(A) SUPER PUMPS BREACHED ITS OBLIGATION TO DELIVER ON TIME

88. Super Pumps breached its obligation to deliver the pumps to Capitol City, Mediterraneo by the

modified due date of 22 December 2008. Art. 33(a) of the CISG states that where a date is fixed or

determinable from the contract, the seller must deliver the goods on that date. The date of delivery

stipulated under the Contract was 15 December 2008. However, the delivery date was modified to 22

November 2008, either (i) by the fixing of an additional time period for performance pursuant to Art.

47(1) of the CISG; or (ii) alternatively, the agreement of the parties to vary the contractual delivery

date pursuant to Art. 29(1) of the CISG. Nevertheless, Super Pumps failed to deliver by this date.

(i) Super Pumps failed to perform in the additional time period fixed by Engineering

89. Art. 47(1) of the CISG provides that the buyer may fix an additional period of time of reasonable length

for performance by the seller of his obligations. For an additional period of time to be fixed, the buyer

must make a specific demand for performance, stipulating a particular date by which the seller has to

perform his obligations. The additional period of time must also be of reasonable length

[SCHLECHTRIEM/SCHWENZER, pp. 555-556].

(a) Engineering’s acceptance of Super Pumps’ extended delivery date amounts to the fixing of an additional time period

90. The additional time period for performance was proposed by Super Pumps, who informed Engineering

that it was unable to perform by the original delivery date of 15 December 2008, and would instead

deliver by 22 December 2008 [Claimant’s Exhibit 7]. However, it is sufficient for the purposes of Art.

47(1) if the buyer accepts a new delivery date proposed by the seller, provided the buyer makes clear

that performance by that date is essential [OLG HAMBURG, 28 February 1997]. Engineering accepted the

modified delivery date of 22 December 2008. At the same time, it emphasized the absolute importance

of delivery by this due date, clearly stating that ―it is imperative that we meet the schedule‖ and that

there could be no further delays [Claimant’s Exhibit 8].


23

91. Thus, although the additional time period was suggested by Super Pumps and not Engineering,

Engineering‘s acceptance of this extension coupled with its emphasis on the importance of prompt

performance amounts to the fixing of an additional time period for the purposes of Art. 47(1).

(b) The additional time period was of a reasonable length

92. Super Pumps requested to extend the delivery date from 15 December 2008 to 22 December 2008. A

one week extension may seem unreasonable when an additional period of two weeks for the delivery of

three printing machines from Germany to Egypt has been deemed unreasonable [OLG HAMBURG, 28

February 1997]. However, when determining if an additional period of time is reasonable, the buyer‘s

interest in rapid delivery will be decisive if such interest was apparent upon the conclusion of the

contract [SCHLECHTRIEM / SCHWENZER, p. 556]. Super Pumps certainly knew that timely delivery was

essential to Engineering at the conclusion of the Contract, as Engineering had previously stressed the

importance of meeting the delivery date [Claimant’s Exhibit 2]. Furthermore, this time period was

proposed by Super Pumps. Super Pumps was best placed to determine a reasonable additional time that

it would require for performance. As such, the additional time period of a week was reasonable.

93. Therefore, Engineering‘s acceptance of the new delivery date of 22 December 2008 is equivalent to the

fixing of an additional period of time as under Art. 47(1) for Super Pumps to perform its obligations.

94. Notwithstanding the change in delivery date, Super Pumps delivered the pumps late, its ship only

reaching Capitol City on 6 January 2009. This was a clear breach of its contractual obligation to deliver

the pumps by 22 December 2008, the extended due date. As such, Engineering can claim damages for

breach of contract.

(ii) Alternatively, Super Pumps failed to deliver by the modified delivery date

95. Even if the modification of the delivery date to 22 December 2008 did not amount to the fixing of an

additional time period for performance, the date of delivery was nevertheless extended by the

agreement of both parties. Art. 29(1) of the CISG provides that a contract may be modified by parties‘

agreement. Technical modifications such as changes to delivery date can therefore be made upon such

parties‘ agreement [SECRETARIAT COMMENTARY]. Thus, the agreement between Super Pumps and


24

Engineering as presented above amounted to an effective variation of the date of delivery under Art.

29(1), and the extended date Super Pumps was obliged to deliver by was 22 December 2008.

(B) SUPER PUMPS’ BREACH OF ITS OBLIGATION TO DELIVER ON TIME IS NOT EXEMPTED UNDER ART. 79 OF

THE CISG

96. Super Pumps cannot be exempted from its failure to make prompt delivery as (i) the impediment of the

closure of the Isthmus Canal was one that it should reasonably have taken into account; and (ii) Super

Pumps could have reasonably overcome the consequence of the impediment. The proof of any one of

these points will disentitle Super Pumps from relying on Art 79.

(i) Super Pumps could reasonably have foreseen the impediment at the time of conclusion

of the Contract

97. Super Pumps could reasonably have foreseen the delay in transiting the Isthmus Canal. Reasonable

foreseeability refers to whether, under the actual circumstances at the time of the conclusion of the

contract and taking into account the trade practice, the promisor ought to have foreseen the

impediment‘s existence or its subsequent existence. [SCHLECHTRIEM/SCHWENZER, p. 817,

BIANCA/BONELL/TALLON, Art. 79, note 2.6.3].

98. If the impediment was foreseeable at the time of the conclusion of the contract and the promisor made

no reservations regarding it, then he should be understood to have assumed the risk that performance

may be delayed or prevented by that impediment [SCHLECHTRIEM/SCHWENZER, p. 817,

BIANCA/BONELL/TALLON, Art. 79, note 2.6.3].

99. Super Pumps is actively involved and experienced in the sale of pumps, selling to over 50 countries,

including Mediterraneo [Claimant’s Statement of Claim, para. 4]. Much of Super Pumps‘ cross-border

transactions would necessarily involve the shipment of pumps. Super Pumps had also collaborated with

Engineering in the past [Claimant’s Statement of Claim, paras. 4-5; Claimant’s Exhibit 1]. As such, Super

Pumps must have been well aware of the usual route taken and duration of time required for a ship to

reach Capitol City, Mediterraneo. From its experience, it should also have known that the closure of

canals is a possible occurrence for any shipment. While a delay in transiting the Isthmus Canal was not


25

common, it had nevertheless occurred before and could certainly happen again in the future. Super

Pumps should nevertheless have reasonably been expected to take such a possibility into account.

100. Super Pumps was acutely aware that time was of the essence in their delivery of pumps, having been

reminded of its importance repeatedly by Engineering. A late delivery on the part of Super Pumps

would endanger Engineering‘s ability to perform their other contracts. [Claimant’s Exhibits 2 and 6]

Given the utmost importance of prompt delivery, Super Pumps should have accounted for factors, such

as canal closure, that might lead to a delay in its performance, and made the appropriate arrangements.

101. Therefore, given that Super Pumps had all this knowledge but did not make any reservations in its

Contract with Engineering, Super Pumps should be understood to have assumed the risk of delay and

therefore cannot rely on Art. 79 for exemption.

(ii) Super Pumps could reasonably have overcome the consequences of the impediment

102. Art. 79 requires the fulfillment of a standard of impossibility, and mere hardship is insufficient to

provide an exemption. The principle behind the rule is that allowing one party to rely on Art. 79 would

entail a wholly innocent party being left uncompensated. Super Pumps is therefore expected to

overcome the impediment even when this may result in greatly increased costs and forces it to accept a

business loss [HEUZE, note 471; PILTZ, s. 4, para. 232].

103. Super Pumps cannot be exempted under Art. 79 as it could have overcome the consequences of the

canal closure. The consequences of the impediment refer to delay of the shipment resulting in late

delivery of the pumps and Engineering‘s subsequent breach of its obligations under IR 08-45Q.

(a) Super Pumps could have procured substitute pumps for Engineering

104. As discussed above, Super Pumps cannot be exempted from liability unless goods of an equal or similar

quality were no longer available on the market [OLG HAMBURG, 28 February 1997].

105. Super Pumps was aware that there was substitute performance available through the Trading Company

[Respondent’s Exhibit 3]. When Super Pumps was made aware of the canal closure on 28 November

2008, it could have approached the Trading Company or any other company to provide the necessary


26

pumps to Engineering. Through this arrangement, Super Pumps could have effectively overcome the

impediment of the canal closure. Even though Super Pumps may not profit from the Contract anymore

and may instead incur the losses of having to ship back the pumps, this hardship in ensuring the due

performance of the contract is not sufficient to exempt them from liability.

106. On the contrary, Super Pumps was unconcerned with fulfilling their obligations to deliver on time and

made no attempt to remedy the consequences of the impediment despite repeated reminders that time

was of the essence of the Contract. Thus, they should not be exempted under Art. 79.

(b) Super Pumps could have arranged for alternative transport for the pumps

107. In the alternative, once they were notified of the closure of canal due to the damage of the locks, Super

Pumps should have taken immediate actions to avoid the subsequent delay. Super Pumps had made

efforts to inquire on the feasibility of taking an alternative route around the continent, and was

informed that such an action would take longer than any emergency repair to the locks was expected to

take [Claimant’s Exhibit No. 9]. However, such an effort was nevertheless insufficient.

108. Instead of waiting for the locks to be repaired, Super Pumps could have overcome this impediment by

arranging to transport the pumps the rest of the distance by air, which would be much faster. While

such a measure would have been very costly and cause hardship [Procedural Order No. 2, para. 14], it was

certainly short of the standard of impossibility required for a party to rely on the Art. 79. Although the

DES Incoterms included in the Contract necessitates delivery by sea or inland waterway, the delivery of

the pumps by air instead represents a commercially reasonable alternative, since the result would be

similar to what the parties intended for when contracting.

109. Super Pumps was aware that Engineering had to perform its obligation under IR 08-45Q by 2 January

2009 [Procedural Order No.2, para. 15]. When Super Pumps found out that the locks had broke, it was

already 28 November 2008 and it would have taken a further 25 days for the ship to arrive at Capitol

City, Mediterraneo. Thus, it must have been clear to Super Pumps that it would probably fail to deliver

by the extended delivery date of 22 December 2008. It should have known that it would take some

time for the locks to be repaired and even more time for the backlog of ships to cross the canal.

Therefore, it was only reasonable to expect Super Pumps to have taken measures to obtain a


27

commercially reasonable substitute for performance in order to overcome the impediment of canal

closure and ensure prompt delivery of the pumps. Delivering the pumps by air is likely to have

effectively prevented the subsequent cancellation of IR 08-45Q.

110. As Super Pumps did not take any action to overcome the impediment when it could have, they not be

entitled to rely on Art. 79.

(C) ENGINEERING IS ENTITLED TO AVOID THE CONTRACT

111. Engineering can avoid the Contract with Super Pumps as (i) Super Pumps failed to deliver the pumps in

the additional time fixed for performance under Art. 47(1) of the CISG; and (ii) Super Pumps‘ failure

to deliver by the agreed delivery date amounted to a fundamental breach of contract.

(i) Engineering can avoid the Contract as Super Pumps failed to perform in the additional

period fixed

112. Art. 49(1)(b) of the CISG states that in cases where the seller has not delivered the goods within the

additional time period of reasonable length fixed for delivery pursuant to Art 47(1), the buyer may

declare the contract avoided. To avoid the contract under Art 49(1)(b), the buyer need not prove that

the breach of contract amounted to a fundamental breach.

113. As established above, Engineering fixed an additional time period of a week for performance, extending

the delivery date to 22 December 2008. However, Super Pumps only delivered the pumps on 6

January 2009. Therefore, it failed to deliver within the additional time permitted by Engineering and

Engineering was hence entitled to avoid the Contract under Art. 49(1)(b).

(ii) Engineering is entitled to avoid the Contract with Super Pumps as late delivery

amounted to a fundamental breach

114. Super Pumps had committed a fundamental breach pursuant to Art. 25 of the CISG as (a) Engineering

was substantially deprived of what it was entitled to expect under the Contract and (b) Super Pumps

did foresee the detriment.


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(a) Engineering suffered substantial detriment as a result of Super Pumps’ breach

115. Super Pumps‘ breach of Contract caused Engineering to suffer substantial detriment by depriving it of

what it was entitled to expect under the Contract. While a delay in time is not generally considered as a

fundamental breach of contract, it can constitute a fundamental breach if delivery within a specific time

is of special interest to the buyer. This interest must be foreseeable at the time of the conclusion of the

contract [OLG HAMBURG, 28 February 1997].

116. In the present case, timely delivery was of special interest to Engineering, and Super Pumps was aware

of this interest when the Contract was concluded. Engineering had repeatedly made it clear to Super

Pumps that prompt delivery of the pumps was essential in order for Engineering to fulfill its contractual

obligations with Water Services under Irrigation Project IR 08-45Q [Claimant’s Exhibits 2 and 8]. As a

result of the late delivery by Super Pumps, Engineering was unable to perform these obligations and

this led to the cancellation of their contract with Water Services [Claimant’s Exhibit 12].

117. Therefore, the breach of Contract by Super Pumps caused substantial detriment to Engineering.

Engineering had an important interest in the delivery of the pumps by the stipulated date. The late

delivery hence deprived Engineering of what it was entitled to expect under the Contract.

(b) The detriment was foreseeable to Super Pumps

118. It was foreseeable to Super Pumps that late delivery on its part would result in substantial detriment to

Engineering. Engineering had stated several times that timely delivery was of utmost importance for it

to fulfill its contract with Water Services. Super Pumps also demonstrated awareness of this

importance, and had acknowledged it in the parties‘ correspondence [Claimant’s Exhibit 7].

119. Therefore, it must have been foreseeable to Super Pumps that its late delivery would result in

substantial detriment to Engineering. As such, Super Pumps fundamentally breached the Contract

under Art. 25 of the CISG, and Engineering thereby had an immediate right to avoid the Contract.

(iii) Engineering properly avoided the Contract

120. Engineering properly avoided the Contract, as it unequivocally declared its intention to avoid the

Contract, and gave notice to Super Pumps.


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121. Super Pumps had breached its obligation to deliver the pumps by 15 December 2008 as well as the

extended delivery date of 22 December 2008. Engineering was also entitled to avoid the Contract

under two grounds. First, that Super Pumps failed to perform within the additional time fixed for

performance, and second, that Super Pumps‘ failure to deliver on time amounted to a fundamental

breach. As Engineering properly avoided the Contract and Super Pumps is not entitled to rely on Art.

79, it can reclaim from Super Pumps the purchase price and damages for breach of the Contract.

ISSUE 4: ENGINEERING DID NOT FAIL TO MITIGATE THE CONSEQUENCES OF SUPER

PUMPS’ BREACHES

122. The respondents contend that Engineering had failed to mitigate the consequences of Super Pumps‘

breaches. However, Engineering did not breach its duty as (A) the duty to mitigate only arose after the

Contract was avoided and (B) even if the duty to mitigate had arisen earlier, Engineering could not have

mitigated the loss.

(A) THE DUTY TO MITIGATE DID NOT ARISE PRIOR TO THE AVOIDANCE OF THE CONTRACT

123. The duty to mitigate arose on 5 January 2009 and no earlier. Hence, Engineering was not obliged to act

during the period of 28 to 31 December 2008.

124. Art. 77 of the CISG does not impose an obligation to mitigate losses as long as the contract still exists.

An aggrieved party is therefore not obliged to mitigate their loss until the contract is terminated [OLG

BRAUNSCHWEIGH, 28 October 1999]. Before that, the aggrieved party will still be entitled to demand

performance from the seller [OLG DÜSSELDORF, 14 January 1994]. The injured party is not obliged to

avoid the contract and enter a substitute transaction just to mitigate its losses.

125. While the duty to mitigate also applies to anticipatory breaches [SECRETARIAT COMMENTARY. Art.63, para.

4; BIANCA/BONELL/ KNAPP, note 21, pp. 566-567], there was no anticipatory breach on the present facts.

Art. 72(1) sets out the conditions for an anticipatory breach: it must be clear prior to the date for

performance that the party required to perform will commit a fundamental breach. This means that an

innocent party needs to be aware of the circumstances and there needs to be a high degree of


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probability that the fundamental breach will actually occur. [SCHLECTRIEM/SCHWENZER, Art. 72, para. 11;

SAIDOV, s. 4(c)]. A strict test has to be applied in respect to the obviousness of a future breach of

contract. While complete certainty is not required, there needs to be a very high degree of probability

that there will be a fundamental breach. [BIANCA/BONELL/BENNETT, Art 72, note 2.2 Art 72, note 2.2].

126. The court in LANDGERICHT BERLIN 30 SEPTEMBER 1992 held that there was an anticipatory breach because

the buyer was unable to pay the purchase price for 212 pair of shoes from the seller. The facts showed

there was a high possibility that there would be a fundamental breach – two of the three checks handed

over for payment could not be cashed. In our present case, the facts were much less certain. Even

though Super Pumps said that it was due on 6 January 2009, this was only speculative. The email was

vague and only based on what the sales manager ‗expected‘ [Claimant Exhibit No. 10]. Moreover, the

email was sent on 12 December 2008 and by that time the ship had transited Isthmus Canal. This is

different from a case where the checks failed since Super Pumps was in the middle of performing. It was

not possible that it would arrive before the 6 January 2009.

127. Thus, there are insufficient facts to point conclusively to an anticipatory breach. Engineering had no

duty to mitigate from 28 to 31 December 2008 as the Contract was only avoided on 5 January 2009.

(B) EVEN IF THE DUTY TO MITIGATE HAD ARISEN, ENGINEERING DID NOT BREACH ITS DUTY TO MITIGATE

128. Alternatively, if the Tribunal finds that there was an anticipatory breach, the duty to mitigate would

have arisen by 12 December 2008 [Claimant Exhibit No. 11]. Under Art. 77, a party who relies on a

breach ―must take such measures as are reasonable in the circumstances to mitigate the loss, including

loss of profit, resulting from the breach‖. If he fails to take such measures, the party in breach may

―claim a reduction in the damages in the amount by which the loss should have been mitigated‖.

129. Engineering did not breach its duty to take reasonable measures to mitigate as (i) the delay in avoiding

the Contract was not unreasonable and (ii) it was impossible to find substitute performance


31

(i) Engineering’s delay in avoiding the Contract was not unreasonable

130. The respondents may argue that Engineering had breached its duty to mitigate by not avoiding the

Contract when they knew that Super Pumps could not perform. However, Art. 77 does not apply here

as (a) Engineering was not obliged to avoid the Contract and (b) Engineering did not act unreasonably

in choosing to delay avoidance of the Contract.

(a) Engineering was not obliged to avoid the Contract

131. Engineering was not obliged to avoid the Contract even if there was an anticipatory breach.

132. The mitigation rule will not generally override the party‘s right to performance under Art. 46(1) and

62. An aggrieved party, when faced with an anticipatory breach, has no obligation to accept it and avoid

the contract in order to mitigate losses from the breach, as this will cause him to lose his right to

performance under the contract. Following the common law position that mitigation only goes to

damages and will not constrain the injured party‘s right to require performance [WHITE & CARTER V

MCGREGOR, [1962] 2 AC 413], the CISG will not impose a general duty to avoid a contract

[SCHLECTRIEM/SCHWENZER, Art. 77, para. 4] Thus, even if there was an anticipatory breach, the innocent

party can continue to demand performance without infringing Art. 77.

133. Therefore, delaying the avoidance of the Contract does not necessarily result in a failure to mitigate.

The application of Art. 77 is only justified if the injured party delays in an unreasonable manner.

(b) Engineering did not delay the avoidance in an unreasonable manner

134. Art. 77 does not apply here as Engineering did not act unreasonably in delaying the avoidance of the

Contract. While it is clear that Art. 77 of the CISG does not impose a general duty to avoid the

contract, an unreasonable delay would constitute a failure to mitigate within the meaning of Art. 77 of

the CISG. Unreasonable delay in avoiding the contract exists if there was no plausible reason not to

avoid the contract, or if the decision to keep the contract alive was speculative, despite the existence of

a reasonable and practicable substitute transaction [SCHLECHTRIEM/SCHWENZER, pg.792, para 9].

135. Such conduct is not present here. On 12 December 2009 when Engineering found out that the pumps

would arrive only on 6 January 2009, Engineering had no reason to avoid the Contract. Although it


32

was vital to Engineering that the schedule was met, they were not aware that the failure to deliver by

the contract date of 2 January 2009 would result in a total cancellation of the contract for IR 08-45Q.

The military government only gave instructions to cancel contracts made with foreign parties for any

breach on 28 December 2008. Engineering could not have expected such unprecedented ―extreme

action‖ and was not informed of it until 5 January 2009 [Claimant’s Exhibit No. 12]. Since Engineering

had a plausible reason to keep the Contract alive and accept late performance rather than total non-

performance, it was reasonable for them to withhold avoiding the Contract with Super Pumps.

136. Thus, Engineering did not act unreasonably in choosing not to avoid the Contract with Super Pumps

and is not in breach of its duty to mitigate under Art. 77.

(ii) Engineering could not have mitigated the loss occasioned by the breach

137. Engineering could not mitigate their loss as finding substitute performance was impossible. This is

because (a) Engineering could not have found full substitute performance for its contractual obligations

to Water Services; and alternatively (b) Engineering could not have found substitute performance given

the short time span.

(a) Engineering could not have found full substitute performance for its contractual obligations to Water Services

138. Engineering did not breach its duty to mitigate losses as required by Art. 77. Art. 77 requires that a

party who relies on a breach must take such measures as are reasonable in the circumstances to mitigate

the loss of profit resulting from a breach. The principle is that a person "may not recover damages that

he could reasonably have avoided." [STOLL/SCHLECTRIEM, note 11, Art. 77, No. 3]. However, in the

present circumstances, the loss could not have been avoided.

139. The loss of the contract with Water Services could only have been prevented if Engineering had fully

performed all their contractual obligations to Water Services by the agreed execution date of 2 January

2009. Under the contract, Engineering was obliged to deliver both field pumps and the P-52 pumps

that were in compliance with Oceania‘s regulations by 2 January 2009 [Claimant Exhibit 12].

140. This strict requirement was made clear to Engineering by Mr. Horace Wilson of Water Services in a

telephone call on 28 December 2008 [Claimant Exhibit 11]. Thus, Engineering could only have avoided


33

the loss of the contract with Water Services if it was able to find an alternative source which could

provide the quantity and quality of field and P-52 pumps required by 2 January 2009. It would not have

been possible to obtain substitutes for both the field pumps and P-52 pumps required.

141. An aggrieved party is also not in any way obliged to take measures which in the circumstances

concerned are excessive or entail unreasonably high risks and expenses [BIANCA/BONELL/KNAPP, note 21,

p. 560; STOLL/SCHLECHTRIEM, note 16, p.588.]. An aggrieved party which refrains from such measures

will not be considered as not having complied with Art. 77 [BIANCE/BONELL/KNAPP, note 21, p. 560].

142. Even though Super Pumps alleges that there was an alternative source, namely the Trading Company

[Respondent Exhibit 3], the Trading Company would have been unable to supply the full quantity of field

pumps and P-52 required by Engineering. Therefore, Engineering would still not have been able to

perform all its obligations under the contract with Water Services and the contract would still have

been cancelled.

143. Furthermore, acquiring partial substitutes, as recommended by Super Pumps, would also not have

mitigated Engineering‘s loss. On Super Pumps‘ own admission, there is still no indication that the

contract would have been saved by the partial delivery of pumps, as Mr. Wilson only said that it ―might

help‖ [Respondent’s Exhibit 2]. Thus, it was reasonable for Engineering not to take those steps to mitigate

as such steps could not have mitigated the loss in any event.

144. Conversely, had Engineering procured the pumps from Trading Company and Water Services

nonetheless cancelled the contract for incomplete delivery as it was entitled to, Super Pumps would

probably contend that they are not liable for the additional procurement as Engineering was not obliged

to obtain a partial substitute and risk additional losses when it was unlikely that it would have prevented

Water Services from cancelling the contract. Thus, Engineering did not breach its duty to mitigate as

the loss was not one which could have been avoided.


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(b) Engineering could not find substitute performance given the short time span

145. In the alternative, even if it was possible that a partial delivery of pumps that met specifications would

have saved the contract with Water Services, Engineering‘s choice not to act was not a breach of its

duty to mitigate losses given the short time span in which it required the pumps.

146. Art. 77 requires that parties take ―such measures as are reasonable in the circumstances‖ to mitigate

their losses. ―Reasonable‖ measures are those which ―under the particular circumstances…could be

expected to be taken by a person acting in good faith‖ [STOLL/SCHLECHTRIEM, note 16, p. 588]. When

evaluating what is reasonable in circumstances, regard should be had to the party‘s ―ingenuity,

experience and financial resources‖ [BERNSTEIN/LOOKOFSKY, supra note 2, p. 103] and the relevant trade

practices [STOLL/SCHLECHTRIEM, supra note 16, p. 588; Article 9]. Not looking for substitute goods from

another supplier when there was a short delivery time in the contract or difficulty in finding another

supplier has been held to be ―reasonable‖ pursuant to the requirements of Art. 77 in a Germany

arbitration award case [SCHIEDSGERICHT DER HANDELSKAMMER HAMBURG, 21 March 1996].

147. Super Pumps contends that Engineering should have obtained slightly used pumps that were for sale by

the Trading Company which conformed to the requirements of IR 08-45Q and could have been

transported to Oceania on time. However, these measures could not have been reasonably expected to

be performed by Engineering. Engineering only found out about the Military Decree prohibiting

imports with beryllium on the 28 December 2008 and were expected to find substitute pumps which

could be delivered by midnight of 31 of December [Claimant Exhibit 11]. Given the short time span, it

would not be reasonable to expect Engineering to find substitute performance [SCHIEDSGERICHT DER

HANDELSKAMMER HAMBURG, 21 March 1996].

148. Furthermore, Engineering had never worked with Trading Company before [Procedural Order 2] and

could not have known that they dealt in used pumps, or that the Trading Company had the kind of

pumps that Engineering required. After all, the regulations banning beryllium were contrary to the

normal industry standard of production, where beryllium was used in the manufacturing process

because it renders the pumps more durable [Claimant Exhibit 6]. Since Super Pumps, a major player in

the pumps manufacturing industry, had to source for alternative steel and re-manufacture the pumps to

meet regulations, it was reasonable for Engineering to believe that such pumps would not be readily


35

available elsewhere, if at all. Engineering‘s experience in this field would also have contributed to its

reasonable belief that it would not have been possible to source for, examine, procure and transport the

substitute pumps within such a short time frame.

149. Therefore, even if the Trading Company was able to provide some substitute pumps, Engineering had

not acted unreasonably in choosing not to source for alternative performance under the circumstances.


150. Engineering did not have any duty to mitigate the losses arising from the possible cancellation of the

contract for IR 08-45Q as that duty did not arise until 5 January 2009. Even if it had a duty to mitigate,

Engineering had not breached the duty as there was nothing it could have done to mitigate the loss and

even if partial performance would have saved the contract under Irrigation project IR 08-45Q, it was

reasonable for Engineering not to have taken the steps to provide partial delivery and thus the inaction

did not constitute a breach of the duty to mitigate.

RELIEF REQUESTED

In light of the submissions made, Mediterraneo Engineering Co. respectfully requests that the tribunal find:

That the Tribunal has jurisdiction to consider the dispute between Mediterraneo Engineering Co.,

claimant, and Equatoriana Super Pumps S.A., respondent;

That there was a breach of the contract by Equatoriana Super Pumps S.A.;

That the breach of the contract constituted a fundamental breach;

That Mediterraneo Engineering Co. properly avoided the contract;

That Equatoriana Super Pumps S.A. is obligated to reimburse Mediterraneo Engineering Co. the

purchase price of the pumps in the amount of US$1,214,550;

That Equatoriana Super Pumps S.A. is liable for damages arising out of the breach of the contract in

the amount of US$320,000.

Engineering further requests the Tribunal to order Equatoriana Super Pumps S.A.


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To reimburse Mediterraneo Engineering Co. the purchase price of the pumps in the amount of

US$1,214,550;

To pay damages in the amount of US$320,000;

To pay interest on the said sums; and

To pay the costs of arbitration.

4 December 2009

Nicholas Poon Asiyah Arif Jane Lim Eunice Chan

Soong Wen E Cheryl Teo Enoch Ang Lucas Lim

Vis Moot Claimant Memorial Singapore Management University

Documents

Transcript of Vis Moot Claimant Memorial Singapore Management University