M3010-C

Kuala Lumpur Regional Centre for Arbitration

Kuala Lumpur, Malaysia

The 2011 LAWASIA Moot Court Competition

Astoria Produce Company

(Claimant)

v.

Rolga Farmer’s Exchange

(Respondent)

Memorial for Claimant

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TABLE OF CONTENT

INDEX OF AUTHORITIES ………………………………………………….…………..…….v

STATEMENT OF JURISDICTION ………….………………………………………..………1

QUESTIONS PRESENTED ……………..…………………………………..……..…………..2

STATEMENT OF FACTS ………………………………………………………...……………3

SUMMARY OF PLEADINGS …………………………….……..………………..…………...6

PLEADINGS

1. THE KLRCA HAS THE AUTHORITY TO RESOLVE THIS DISPUTE BETWEEN

THE PARTIES……………..……………………………………………………….……..8

1.1 A Valid Arbitration Agreement Exists Between the Parties Subjecting Disputes

to the KLRCA…… ……………………………………………………………….8

1.1.1 Pursuant to the CISG, the Arbitration Agreement was accepted

once Respondent dispatched the bananas ………………………...9

1.1.2 Even under the UNIDROIT Principles, Respondent’s

performance constitutes an acceptance of the agreement

to arbitrate before the KLRCA…………………………………..12

1.1.3 The UNIDROIT Battle of the Forms provision should not

apply……………………..……..…………………………..…….13

1.1.4 The controlling document is Claimant’s Bill of Sale, which

includes the agreement to arbitrate before the KLRCA ………....14

1.2 The Requirement that Arbitration Agreements Be in Writing Has Been

Satisfied…..…………………………………………………………….……...…14

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2 THE APPOINTMENT OF ARBITRATORS WAS PROPERLY

CONDUCTED..………………………………………………………………………..…….16

2.1 The Second Arbitrator Was Properly Appointed After Respondent Failed To

Select Its Arbitrator For The Panel …………………………………………..….16

2.2 Respondent Should Be Deemed To Have Waived Any Objection To the

Appointment Of The Presiding Arbitrator Because It Failed To Make A

Timely Objection ……………………………………..…………………………18

3 THE TRIBUNAL SHOULD REQUIRE RESPONDENT TO PAY UNNECESSARY

COSTS AS A SANCTION FOR ITS FAILURE TO APPEAR AT THE ORIGINAL

HEARING………….…..………………………………….……………………………..….19

4 THE CISG IS THE APPLICABLE SUBSTANTIVE LAW THAT GOVERNS THIS

DISPUTE………………………………………………………..………………………...…20

4.1 Astoria’s Choice-Of-Law Rules Is More Appropriate And Therefore Should

Be Applied …………..…………………………………………………………..21

4.1.1 Astoria’s choice-of-law rule leads to the CISG as the applicable

law ……………………………………….………………………22

4.1.2 Rolga’s Choice of law rule, if applied, would lead to the CISG

as the governing law regardless………………………………….23

4.2 Under The CISG, KLRCA Has The Authority To Resolve This Dispute.…...….24

5 RESPONDENT SHOULD BE HELD LIABLE FOR ALL DAMAGES SINCE IT

COMMITTED A FUNDAMENTAL BREACH OF ITS OBLIGATIONS..…………...…...24

5.1 Respondent Failed To Meet Its Obligation Under The Contract by

Delivering A Large Number of Non-Conforming Bananas…..…………………25

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5.1.1 Respondent did not deliver the bananas which were of the

quality required by the contract …………..…………….……….26

5.1.2 The bananas were not fit for ordinary use…….………..…..……26

5.1.3 The bananas were not fit for the particular purpose expressly

made known to the seller at the time of the conclusion of the

contract …………………..………………………………………27

5.1.4 The bananas were not properly packaged in the manner required

by the contract ……………...……………………………………28

5.2 Respondent’s Actions Constitutes A Fundamental Breach And Gives Claimant

A Right To Declare The Contract Avoided ………...…………………….…..…29

5.2.1 Claimant cannot use or resell the ripe bananas without suffering

unreasonable inconvenience ……………………..……..……….30

5.2.2 Respondent should have foreseen that the bananas would arrive

in non-conforming condition..……………………………….…..31

6 CLAIMANT DID NOT HAVE A LEGAL OBLIGATION TO MITIGATE

DAMAGES, BUT CLAIMANT WAS EXEMPT FROM DOING SO UNDER

THE CISG ……..…………………………………………………………………………….32

6.1 Claimant Was Exempt From Mitigation Requirements Because of Conditions

Beyond its Control ……………………………………………..………………..32

6.2 Claimant Could Not Reasonably be Expected to Have Taken the Impediment

into Account At the Time of the Conclusion of the Contract ….……………..…33

CONCLUSION AND PRAYER FOR RELIEF……………………………………………....34

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INDEX OF AUTHORITIES

International Treaties & Conventions

European Community Regulation No 593/2008 …………………..…………………………….24

UNCITRAL Model Law on Electronic Commerce (1996) ……………………………………..15

UNCITRAL Model Law on International Commercial

Arbitration………………………………………………………………….8,15,16,17,18,20,21,22

UNIDROIT principles ………………………………………….……………………12, 13, 20,31

United Nations Convention on Contracts for the

International Sale of Goods …………………..…………8, 9, 10, 11, 12, 25, 27, 29,30, 31,32, 33

United Nations Convention on the Recognition and Enforcement of Foreign

Arbitral Awards (New York, 1958)………………………..……………………………….……14

U.S. Restatement (Second) of Conflict of Laws ……………………………………...…………22

International Court and Tribunal Cases

Case No. M/21/95 Compromex [Mexican Commission for the Protection of Foreign Trade]

(1996)…………………………………………………………………………………………….29

Case No. S 96/1215, Helsinki Court of Appeal (1998)………………………………..…….28, 30

Case No. 7 O 147/94, District Court of Paderborn, Germany (1996)……………………...……26

CLOUT Case No. 34, Ontario Superior Court of Justice (1999)……………………………..….27

CLOUT Case No. 49, BayerischesOberstesLandesgericht (16 January 2002)…………..……...17

CLOUT Case No. 166, Schiedsgericht der Handelskammer Hamburg (1995)…………….……32

CLOUT Case No. 170, Germany: Landgericht Trier(1995)………………………………....26-27

CLOUT CASE No. 173, Hungary Metropolitan Court (1997)…………….……………………11

CLOUT Case No. 203, Courd’appel, Paris, France (13 December 1995)………………..….11-12

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CLOUT Case No. 248, Switzerland: SchweizerischesBundesgericht (1998)……………….…..30

CLOUT Case No. 251, Switzerland: Handelsgericht des Kantos Zurich (1998)………………..22

Forestal Guarani S.A. v. Daros Intern, Inc……………………………………………...………23

H. Small Limited v. Goldroyce Garment Limited [13 May 1994] 2 HKC 526……………..……15

Rungee v. Allied Van Lines, Inc………………………………………………………………….23

Texaco Overseas Petroleum Co. & California Asiatic Oil Co. v. The Government of the

Libyan Arab Republic (1979)………………………………………………………………..…….8

Books and Articles

Andrea Fejs, Battle of Forms Under the Convention on Contracts for the

International Sale of Goods (Cisg): A Uniform Solution? (2007) …..……………………...…….9

Howard Hunter, Modern Law of Contracts………………..…………………………………….23

John O. Honnold, Uniform Law for International Sales under the 1980 United Nations

Convention, 186, 187-88. 3d ed. (1999)…………………...……………………16,12,27,28,30,31

The International Comparative Legal Guide to: International Arbitration 2010, Chapter 9,

Section 4, published by Global Legal Group, in association with CDR (2001)…….………..… 21

Maria del Pilar Perales Viscasillas, The Formation of Contracts & the Principles

of European Contract………………………………………..………………………………...…13

Magnus in Ferrari et al. 2004………………………………………………………….…………31

Neil Kaplan, Is the Need for Writing as Expressed in the New York Convention

and the Model Law Our of Step with Commercial Practice? (1996)…………..………………..15

Samuel P. Baumgartner, Is Transnational Litigation Different?,(2004)…………………………21

Ulrich Magnus, Last Shot vs. Knock Out – Still Battle over the Battle of Forms Under the CISG,

from Ross Cranston, Jan Ramberg& Jacob Ziegel, eds., Commercial Law Challenges in the 21st

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Century; Jan Hellner in memorium, Stockholm Centre for Commercial Law

Juridiskainstitutionen (2007)………..…………………………….……………....……………..13

UN A/CN on International Trade Law, UNCITRAL Digest of case law on the CISG………….26

Varady et al., International Commercial Arbitration: A Transnational Perspective,

4th ed. (2009)……………………………………………………………………………….....8, 14

William Johnson, Understanding Exclusion of the CISG: A New Paradigm of Determining

Party Intent (2011)…………………………………………………………………..…………...22

Miscellaneous

Matti S. Kurkela and SanttuTurunen, Due Process in International Commercial

Arbitration 43 (2010)………………………………………………………...……………9, 17, 18

Oberster Gerichtshof, 1997 (Australia) ……………………………...…………………………..10

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STATEMENT OF JURISDICTION

Astoria Produce Company (hereinafter “Claimant”)has submitted the present contractual

dispute before the Kuala Lumpur Regional Centre for Arbitration (hereinafter “KLRCA”),

pursuant to the terms of the arbitration agreement between the Parties and Rule 1(1) of the Rules

of Arbitration of the KLRCA, to be read together with Article 1 of the UNCITRAL Arbitration

Rules 2010.The Parties shall accept any Judgment of the Tribunal as final and binding upon them

and shall execute it in its entirety and in good faith.

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QUESTIONS PRESENTED

1. Whether the KLRCA has the authority to resolve the dispute between the parties.

2. Whether the arbitral panel was properly appointed and whether Respondent was improperly

denied the opportunity to select its party appointed arbitrator.

3. Whether the tribunal can impose sanctions on Respondent for failing to appear at the initial

hearing and for not providing adequate notice of its intention not to appear.

4. Whether the United Nations Convention of the International Sale of Goods (hereinafter

“CISG”) or the UNIDROIT Principles of International Commercial Contracts (hereinafter

“UNIDROIT Principles”) shall govern this dispute.

5. Whether Respondent breached its obligations as the seller when it delivered bananas in an

excessively damaged, unsatisfactory condition to Claimant.

6. Whether either party had a legal obligation to sell the bananas or protect them from further

spoilage in order to mitigate damages.

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STATEMENT OF FACTS

The Order

On June 15, 2010, Claimant contacted Rolga Farmers’ Exchange (“Respondent”), a

major bananas exporter in the Western Pacific. Claimant, a distributor of produce to retail

grocery stores, placed a large order for bananas with Respondent. Later that day, Respondent

sent Claimant a confirmation email with the Bill of Sale indicating that shipment would be made

“FOB Rolga City.” The Bill of Sale also contained an arbitration clause stating that any dispute

arising out of the contract would be settled by arbitration in Rolga City with a single arbitrator

and in accordance with the Rules of the West Pacific Regional Centre for Arbitration.

On August 1, 2010, Claimant indicated via email its concerns regarding the shipment,

requesting that Respondent: (1) properly handle and store the bananas in a cool location on the

ship with the temperature not exceeding 12 or 13°C; and (2) ensure that the bananas arrive in an

unripe condition so that they can be sold to Claimant’s grocery store clients.

The next day, Respondent assured Claimant that it was experienced in ocean shipping

and that it would make sure the Captain would be well aware of the essential conditions

necessary to ensure that the bananas arrive in Astoria unripe.

On August 4, 2010, Claimant signed and returned the Bill of Sale to Respondent with

some modifications. Specially, Claimant expanded the scope of the clause and changed the

number of arbitrators to three, the rules to that of the KLRCA, and most importantly, the location

of the arbitration to Kuala Lumpur.

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The Shipment

After receiving the revised Bill of Sale from Claimant and full payment for the shipment,

Respondent loaded the bananas onto the M/S Pinafore, which set sail on October 1. Respondent

gave the ship’s captain general instructions that the bananas must be stored in a “cool, dry

location” with “good circulation to prevent spoilage.”

The shipment arrived in Astoria City on November 24. Dr. Bartolo, Claimant’s Director

of Food Safety, inspected the load before unloading. He noticed that some of the bananas were

already ripe or ripening. Most of the ripening occurred in the number #2 hold, where the packing

of the bananas was different from that used in the number #1 hold.

The following day, Claimant retained an independent professional Maritime Surveyor to

inspect the bananas. The Surveyor found that 30% of the bananas were ripe or ripening; 3% to

5% was normal and expected and a rate of more than 10% was excessive. He concluded that the

ripened state of the bananas was clearly due to high temperatures during transport. In addition,

the bananas in the number #2 hold were tightly stowed and no slots had been used to facilitate

the flow of air between the cartons.

Based on recommendations of Dr. Bartolo and the Surveyor’s report, on November 26

Claimant informed Respondent that they had no choice but to reject the entire shipment.

Respondent replied that it had no intention of paying for the damage to the bananas and

recommended that Claimant sell the ripe bananas to commercial bakers in Astoria.

That day the Captain had the bananas placed in a warehouse. The following day, an

Astoria Department of Agriculture Inspector concluded that 54% of the bananas were over-ripe

while the remainder was ripe or ripening. The warehouse owner attempted to salvage the non-

ripe bananas but concluded that the process of sorting and repacking would be so difficult as to

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render doing so economically unfeasible. Five days after the shipment arrived in Astoria, the

Department of Agriculture supervised the dumping of the entire shipment as waste.

The Arbitration Proceedings

On June 1, 2011, Claimant filed a request for arbitration with the KLRCA. The KLRCA

Director notified Respondent and requested that it appoint its arbitrator within 30 days. Once 45

days had passed without an appointment, the director appointed a second and third arbitrator. A

hearing was scheduled for August 15. Less than an hour before the hearing, Respondent sent an

email indicating its intent to challenge the KLRCA’s jurisdiction and that it did not plan to

appear at the hearing.

Following this email, the Director decided to postpone the hearing to October 10, when

Respondent’s objection to the tribunal’s authority will be heard. Furthermore, the Director did

not allow Respondent to appoint its attorney as its party-appointed arbitrator because it was too

late to make substitutions to the arbitral panel.

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SUMMARY OF PLEADINGS

1. The KLRCA has the authority to resolve the present dispute because a valid arbitration

clause exists. Under both the CISG and UNIDROIT Principles, Respondent’s original Bill of

Sale, was material because it included an arbitration clause. Therefore, it could not constitute

an acceptance of the telephone offer. Claimant’s modified Bill of Sale, which included the

revised arbitration clause, was also material, and therefore was a rejection of Respondent’s

offer and was considered a counter-offer. The modified Bill of Sale, along with the revised

arbitration clause was accepted by Respondent when it shipped the bananas, making the

modified Bill of Sale the controlling document. The revised Bill of Sale deemed all disputes

to be subject to arbitration before the KLRCA. In addition, the agreement to arbitrate met the

writing requirement set out by modern international law.

2. The appointment of the arbitral panel was properly conducted in accordance with the

UNCITRAL Arbitration Rules (2010). Respondent was not denied the chance to appoint a

party-appointed arbitrator. Rather it failed to do so timely, transferring the power to the

KLRCA Director. Moreover, the appointment of the presiding arbitrator is considered proper

because both parties have waived their objections to his appointment by this point in time.

3. The Tribunal has the power to subject Respondent to monetary sanctions. By informing the

KLRCA Director that it would not appear at the original hearing only one hour prior to the

hearing, Respondent has caused Claimant unnecessary costs and burdens. The Tribunal has

the authority and should exercise the authority to require Respondent to pay for those

unnecessary costs.

4. The CISG is the applicable substantive law that governs this dispute. Using Astoria’s choice-

of-law rule allows provides a fair balancing test to determine the appropriate substantive law.

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An analysis of the factors leads to the use of the laws of Astoria. Because Astoria is a

Contracting State, the CISG will be applied pursuant to Article 1(1)(b).

5. Respondent should be required to return a full refund to Claimant. Respondent committed a

fundamental breach by failing the meet its obligations under the contract. This failure allows

Claimant to declare the contract avoided.

6. While there was a legal obligation to mitigate damages, Claimant was exempted from this

obligation for two reasons. First, Claimant was not required to mitigate damages due to

conditions beyond its control. Second, Claimant could have no reasonable way of knowing of

the impediment prior to concluding the contract.

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PLEADINGS

1. THE KLRCA HAS THE AUTHORITY TO RESOLVE THE DISPUTE BETWEEN

THE PARTIES.

Along with the contract for the sale of bananas, an agreement to arbitrate was concluded

when Respondent shipped the bananas to Astoria. Respondent’s conduct constituted an

acceptance of the arbitration clause set forth in Claimant’s modified Bill of Sale1, and also

satisfied the requirement that arbitration agreements must be in writing.2 Because the Parties

have entered into an agreement to settle their disputes before the KLRCA, the KLRCA has the

authority to resolve this dispute.

Only if it is found that the arbitration agreement is null or void will the KLRCA lack

jurisdiction. In order to make such a determination, the KLRCA will need to decide on its own

competence to hear the present dispute. Consistent with the well-established principle of

Kompetenz-Kompetenz, and pursuant to Article 23 of the UNCITRAL Arbitration Rules 20103,

the KLRCA has the authority to determine its own jurisdiction.4

1.1 A Valid Arbitration Agreement Exists Between the Parties Subjecting Disputes to

the KLRCA.

The effect of an arbitration agreement on a dispute depends on its existence, validity and

scope.5 For an arbitral tribunal to have the authority to resolve a dispute, a valid arbitration

agreement is a condition precedent, and thus a due process requirement.6 Here, the arbitration

1 CISG Article 18(3); UNIDROIT Principles Article 2.1.6

2 UNCITRAL Model Law 2006 Article 7 (Option I)

3 Arbitration Rules of the KLRCA are the UNCITRAL Arbitration Rules 2010 plus modifications made by the

KLRCA. Rules for Arbitration of the KLRCA (2010) 4Texaco Overseas Petroleum Co. & California Asiatic Oil Co. v.The Government of the Libyan Arab Republic, 53

Int’l L. Rep. 389-409 (1979); John Barceló, “Who Decides the Arbitrators’ Jurisdiction? Separability and

Competence-Competence in Transnational Perspective,” 36 Vanderbilt J. Transnat’l L. 1115 5 Varady et al., International Commercial Arbitration: A Transnational Perspective, 4th ed. (2009), pp. 98-99.

6 Matti S. Kurkela and SanttuTurunen, Due Process in International Commercial Arbitration 43 (2010).

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agreement came into existence once the bananas were dispatched by Respondent. Further, the

agreement was validly concluded and its terms cover the scope of this dispute because the

dispute directly arises out of the contract.

While jurisdiction is generally a procedural issue, it has a more substantive impact in this

particular case. Here, it is, in essence, a substantive issue because resolution of the question of

jurisdiction largely depends on contract formation, which is determined by the substantive law. It

is Claimant’s position that the CISG is the applicable law in instant case.7

1.1.1 Pursuant to the CISG, the Arbitration Agreement was accepted once

Respondent dispatched the bananas.

The parties here disagree on one essential question: which arbitration provision is

enforceable. Claimant contends that its version of the clause, a marked-up copy of the one

offered by Respondent, is the one which should control. Under Article 19 of the CISG, it is clear

that the “mirror image” and “last shot” doctrines apply.8 In order for a purported acceptance to

actually be considered an acceptance, it must be a mirror image of the offer. If it contains any

additions, limitations, or modifications that are deemed material pursuant to Article 19(3), then it

will not be considered an acceptance, but rather a rejection of the offer and a counter-offer.9

Accordingly, the terms of a contract are often times determined by the terms of the last submitted

form, which is then accepted by performance.10

Looking at the correspondence between the two parties, it is quite clear that the last

communication was made by Claimant, which was then accepted by Respondent’s conduct.

When Claimant contacted Respondent via telephone, it was, in essence, making an offer to enter

7 See Issue 4.

8 Andrea Fejs, Battle of Forms Under the Convention on Contracts for the International Sale of Goods (Cisg): A

Uniform Solution?, 11 VJ 113, 119 (2007). 9 CISG Article 19(1).

10 CISG Article 18(3).

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into a contract for the purchase of bananas. Under the CISG, a proposal “constitutes an offer if it

is sufficiently definite and indicates an intention to be bound in the case of acceptance.”11

Presumably, the telephone conversation included an offer to buy a specific number of bananas at

a price that was either set or provisions for determining the price were made.

Following the oral offer made via telephone, Respondent emailed Claimant a “confirming

Bill of Sale.” However, Respondent’s confirming Bill of Sale did not simply confirm the terms

discussed over the telephone. It added the “FOB Rolga City” term, which indicates that the risk

of loss would transfer to the buyer once the goods were loaded for transport.12

Additionally, the

Bill of Sale included an arbitration clause, subjecting all disputes arising out of the contract to

arbitration in Rolga City, with one arbitrator and in accordance with the Rules of the Western

Pacific Regional Centre.

Under CISG Article 19, Respondent’s confirming Bill of Sale will constitute a rejection

of the telephone offer and a counter-offer if the additions are considered material changes.13

The

arbitration clause contained in Respondent’s confirmation was a material alteration to the

contract because it directly affects the settlement of disputes.14

In some cases, the addition of a

term would not be considered material because it is the result of a common trade usage.15

“A

term may be rendered immaterial by the fact that it states an obligation that would be an implied

term of the contract because of practices established by the parties or by trade usages.”16

However, here there is no indication that practices or trade usages imply an obligation to

11

CISG, Article 14. 12

Both Astoria and Rolga often use ICC INCOTERMS, even though they are not explicitly referred to as such. 13

CISG, Article 19(1). 14

CISG, Article 19(3). 15

Oberster Gerichtshof, 1997 (Australia) (translated at http://cisgw3.law.pace.edu/cases/970320a3.html). 16

John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3d ed., 186

(1999).

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arbitrate disputes. Therefore, the arbitration clause was material, making the Confirming Bill of

Sale sent by Respondent a counter-offer and a rejection of the original telephone offer.17

In response to the counter-offer, Claimant sent Respondent an email titled “Green

Bananas” (Exhibit #1). However, this correspondence was not an acceptance of Respondent’s

counter-offer, but rather a clarification of the terms of the final contract, if the Parties would

decide to enter into one.18

Claimant was merely making inquiries before concluding the final

contract. Respondent replied to this email by giving Claimant assurances that the bananas would

arrive in good condition (Exhibit #2), which made Claimant comfortable enough to conclude the

contract.

The next correspondence in the chain of offer and acceptance was thus Claimant’s

returned Bill of Sale. But, even though Claimant signed the Bill of Sale as “accepted”, this Bill

of Sale was also a counter-offer because Claimant had made some material modifications.

Specifically, Claimant expanded the breadth of the arbitration clause, changed the number of

arbitrators to three to provide a more equitable panel, and changed the location to Kuala Lumpur,

a neutral forum, where the rules of the KLRCA would govern.19

Because it included material

alterations to the contract, Claimant’s Bill of Sale is considered a rejection of Respondent’s offer,

and constitutes a counter-offer. Courts have occasionally refused to enforce modifications to

terms on the basis that the modifying party failed to make explicit reference to those terms.20

However, that was not the case here. Claimant crossed out the original terms, explicitly

indicating which of the original terms were being changed. Thus, Respondent was well-aware of

17

CISG, Article 19(1). 18

CLOUT Case No. 173, Hungary Metropolitan Court (1997) 19

CLOUT Case No. 203, Courd’appel, Paris, France (1995) (rejecting an arbitration agreement that changed a

jurisdiction clause through an order confirmation). 20

Id.

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the terms of the arbitration agreement when it dispatched the goods and accepted the counter-

offer.

Claimant’s Bill of Sale was the last written or oral communication between the parties,

and therefore was the “last shot” between them. Subsequently, Claimant’s Bill of Sale (which

contained the modified arbitration clause subjecting disputes to arbitration before the KLRCA)

was accepted by Respondent when the bananas were dispatched.21

1.1.2 Even under the UNIDROIT Principles, Respondent’s performance

constitutes an acceptance of the agreement to arbitrate before the KLRCA.

While Claimant contends that the CISG applies to this dispute, the KLRCA may disagree

and determine that the UNIDROIT Principles are the governing law here. However, even under

UNIDROIT Principles a valid arbitration agreement that subjects disputes to the KLRCA exists.

UNIDROIT Principles Article 2.1.11 takes a nearly identical approach to the CISG on

modified terms in a response to an offer. UNIDROIT Principles Article 2.1.11 recognizes that a

communication purported to be an acceptance with any material additions, limitations, or other

modifications will be considered a counter-offer that rejects the original offer.22

It also allows a

reply with additional or different terms that are non-material to constitute an acceptance and

conclude a contract, with the modified terms included.23

Like under Article 19 of the CISG, under Article 2.1.11 of the UNIDROIT Principles, the

confirming Bill of Sale sent by Respondent to Claimant would be considered a counter-offer

because it included a material addition to the original phone offer, namely the arbitration

21

CISG, Article 18(3); Honnold, at 187-88 (indicating the Convention gives legal effect to the notion that actions

can speak louder than words in sales transactions). 22

UNIDROIT Principles, Art.2.1.11(1); CISG, Art.19(1). 23

UNIDROIT Principles, Art.2.1.11(2); CISG, Art.19(2).

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clause.24

The modified arbitration clause sent in response by Claimant also constituted a counter-

offer under Article 2.1.11 because it included material modifications to the arbitration clause.

Claimant’s modified arbitration clause was then accepted by performance by Respondent when it

dispatched the goods. Therefore, like in the analysis under the CISG, application of UNIDROIT

Principles Article 2.1.11 gives the KLRCA jurisdiction over this dispute.

1.1.3 The UNIDROIT Battle of the Forms Provision Should Not Apply.

UNIDROIT Principles Article 2.1.22, which is directed at the “battle of the forms” issue,

is not applicable here. Under Article 2.1.22, the “knock-out principle” is used, which provides

that a contract will be concluded on the basis of the agreed upon terms and all other conflicting

terms will be knocked-out.25

Article 2.1.22 specifically applies in cases where both parties use

standard terms. According to the UNIDROIT Principles, “standard terms are provisions which

are prepared in advance for general and repeated use by one party and which are actually used

without negotiation with the other party.”26

The present case, however, is not a “battle of forms” problem. There was only one

standard form presented: Respondent’s confirming Bill of Sale. Claimant’s modification of the

Respondent’s offered arbitration clause falls outside the definition of a standard term because it

was not prepared in advance for general and repeated use. Rather, Claimant merely made

changes to Respondent’s form in response to the original arbitration clause. This is not a case

where both parties exchange pre-printed forms that each contained conflicting standard terms.27

24

UNIDROIT Principles, Art. 2.1.11, Illustration #2. 25

Ulrich Magnus, Last Shot vs. Knock Out – Still Battle over the Battle of Forms Under the CISG, from Ross, et. al.,

Commercial Law Challenges in the 21st Century, Stockholm Centre for Commercial Law Juridiskainstitutionen

(2007) 185-200. 26

UNIDROIT Principles, Article 2.20. 27

Maria del Pilar Perales Viscasillas, The Formation of Contracts & the Principles of European Contract

Law, 13 Pace Int'l L. Rev. 371 (2001).

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Therefore, Article 2.1.22 of the UNIDROIT Principles does not apply to the circumstances at

hand, and the facts should be governed by Article 2.1.11.

1.1.4 The controlling document is Claimant’s Bill of Sale, which includes the

agreement to arbitrate before the KLRCA.

As established above, under either the CISG or the UNIDROIT Principles, the contract

between the parties was formed when Respondent dispatched the bananas. This performance was

an acceptance of Claimant’s returned Bill of Sale, which included the arbitration clause that

declared the KLRCA as the proper forum. Thus, the controlling document here is Claimant’s Bill

of Sale.

1.2 The Requirement that Arbitration Agreements Be in Writing Has Been Satisfied.

One of the widely established requirements for an arbitration agreement to be deemed

valid is that it be in writing.28

Article II(2) of the New York Convention29

states, “The Term

‘agreement in writing’ shall include an arbitral clause in a contract or an arbitration agreement,

signed by the parties or contained in an exchange of letters or telegraphs.” However, the

accepted notion of what constituted a written agreement has become more and more flexible over

the past decade.30

Specifically, UNICITRAL has taken deliberate steps to relax the strict writing

requirement of the New York Convention through its recent amended version of Article 7 in the

UNCITRAL Model Law from 2006.31

As the 2006 UNCITRAL Model Law amendment suggests, following the technical

requirements may lead to inconsistent results. One commentator explains how a strict writing

requirement would lead to confusing and inequitable results because it allows a party to a

28

Varady et al., International Commercial Arbitration: A Transnational Perspective, 4th ed. (2009), pp. 104. 29

United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) 30

Varady, at 104. 31

Id. at 106.

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contract to wash his hands clean of the arbitration clause, while still maintaining a substantive

action for breach or price of goods delivered.32

Such strict reliance, as that followed in Small

Limited v. Goldrayce33

, “produces an absurd result which is inconsistent with commercial

reality.”34

Recognizing that it is illogical to require a higher degree of proof to establish a

particular clause within a contract, the 2006 amendments to the UNCITRAL Model Law made

modifications to the writing requirement by making it more flexible. The revision to Article 7 is

intended to modernize the form requirement of an arbitration agreement to better conform to

evolving practices in international trade and technological developments.35

In order to achieve

the same goals, the Tribunal should adopt the 2006 amendments when deciding this dispute.

Under the UNCITRAL Model Law (2006), an arbitration agreement satisfies the writing

requirement “if its content is recorded in any form, whether or not the arbitration agreement or

contract has been concluded orally, by conduct, or by other means.”36

Here, the terms of the

arbitration agreement were included in Claimant’s counter-offer. Thus, the content of the

arbitration agreement (its scope, location, applicable procedural rules, and number of arbitrators)

was recorded in electronic form when Claimant emailed Respondent its Bill of Sale with the

modifications to the arbitration clause.37

Subsequently, the contract (including the arbitration

clause) was concluded by conduct when Respondent shipped the bananas. Therefore, under the

UNCITRAL Model Law (2006), the writing requirement has been satisfied and the arbitration

agreement is enforceable.

32

Neil Kaplan, Is the Need for Writing as Expressed in the New York Convention and the Model Law Our of Step

with Commercial Practice? (1996) 12 Arb’n Int’l 27, 2930. 33

H. Small Limited v. Goldroyce Garment Limited [13 May 1994] 2 HKC 526. 34

Id., Kaplan 35

Explanatory Note by the UNCITRAL secretariat on the 1985 Model Law on International Commercial Arbitration

as amended in 2006, ¶4. 36

UNCITRAL Model Law (2006) Article 7(3) 37

Article 6 of the UNCITRAL Model law on Electronic Commerce (1996) states, “Where the law requires

information to be in writing, that requirement is met by a data message if the information contained therein is

accessible so as to be usable for subsequent reference.”

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2. THE APPOINTMENT OF ARBITRATORS WAS PROPERLY CONDUCTED.

The KLRCA was the first arbitration center in the world to adopt the UNCITRAL

Arbitration Rules (2010) (hereinafter “2010 Arbitration Rules”).38

The rules are presumed to

govern any contract concluded after August 15, 2010.39

Article 1(2) states there is no

presumption of applicability for contracts that were concluded by acceptance after that date when

the offer was made before the effective date. Nothing, however, indicates that the 2010 rules

cannot or should not apply; only that applicability is not automatic. Respondent agreed to

arbitration in the KLRCA based on the KLRCA’s rules, either by failing to object to Claimant’s

immaterial modifications or by dispatching the goods. Thus, the 2010 Arbitration Rules should

apply, and under such rules, appointment of the arbitral panel was proper.

2.1 The Second Arbitrator Was Properly Appointed After Respondent Failed To

Select Its Arbitrator For The Panel.

Under the 2010 Arbitration Rules, each party is allowed to select an arbitrator for the

three-member panel, and those two party-appointed arbitrators are supposed to select a third

presiding arbitrator.40

When Claimant commenced this arbitration, the KLRCA Director notified

Respondent of the request on June 15, 2011. Respondent was notified that it should designate its

party-appointed arbitrator within 30 days. Pursuant to Article (2) of the 2010 Arbitration Rules,

an arbitrator may be appointed for a party if the party does not timely select one. The

UNCITRAL Model Law on International Commercial Arbitration has a similar 30-day deadline.

The explanatory note to that provision indicates such deadlines are set “[i]n view of the urgency

38

http:www.unicitral.org/uncitral/en/uncitral_texts/arbitration/2010Arbitration_rules.html 39

UNCITRAL Arbitration Rules (2010), Article 1(2). 40

Id., Article 9(1).

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of matters relating to the composition of the arbitral tribunal or its ability to function.”41

Furthermore, the short-time periods reduce “the risk and effect of any dilatory tactics.”42

A German court echoed that sentiment in a 2002 case.43

Relying on the German Civil

Code of Procedure, the complaining party sought to have an arbitrator appointed when the

responding party refused to respond to requests to make its appointment.44

The responding party

attempted to appoint an arbitrator before the court could rule, but the court held that the party had

waited so long that the authority to appoint had been transferred to the court.45

Similarly,

Respondent waited so long that whatever authority it originally had to appoint an arbitrator was

transferred to the KLRCA Director. While the appointment of the second arbitrator is usually

done at the request of the claimant when the responding party has failed to make an appointment

within 30 days,46

the rules do not require the Director to wait for a request. A full 45 days

elapsed following notice to Respondent with no appointment made. Only then did the Director

appoint Riska Benti. (The first arbitrator, Bernard Bodd, had already been appointed by

Claimant.)

Neither party has objected to the competency of Benti. Furthermore, Respondent’s

proposal that its own attorney be allowed to serve as its party-appointed arbitrator should be

outright rejected. “In a commercial dispute, considerable economic interests may be at stake.

This increases the moral hazard (i.e., the risk of unethical behavior or undue influence). Even the

appearance of moral hazard should be eliminated . . .”47

As a result, the International Bar

Association has developed lists covering possible conflicts that need to be disclosed and may not

41

UNCITRAL Model Law (2006), explanatory note 24. 42

Id. 43

CLOUT Case No. 49, BayerischesOberstesLandesgericht (2002). 44

Id. 45

Id. 46

UNCITRAL Arbitration Rules (2010), Article 9(2). 47

Matti Kurkela, Due Process In International Commercial Arbitration 111-112, 2d ed. (2010).

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be waivable.48

The list of nonwaivable conflicts includes: “1.1. There is an identity between a

party and the arbitrator, or the arbitrator is a legal representative of an entity that is a party in the

arbitration.”49

Respondent’s proposal that it be allowed to replace Benti with its own attorney

therefore cannot be considered a viable option, and Claimant would certainly urge that

Respondent not be allowed to delay the proceedings by making untenable arbitrator

appointments.

2.2 Respondent Should Be Deemed To Have Waived Any Objection To The

Appointment Of The Presiding Arbitrator Because It Failed To Make A

Timely Objection.

The 2010 Arbitration Rules call for the presiding arbitrator to be selected by the two

party-appointed arbitrators, or if they cannot agree within 30 days, the appointing authority may

choose the presiding arbitrator.50

Here, the Director, as the appointing authority, appointed the

presiding arbitrator, Judge John Chong, on the same day that he appointed Benti. Under the 2010

Arbitration Rules, Benti and Bodd, the party-appointed arbitrators, should have been given 30

days to agree on a presiding arbitrator before the Director intervened.

However, Respondent waived its right to object to the appointment of Judge Chong.

Under Article 13(1), Respondent was required to object to the appointment within 15 days of

being notified. The Director made the appointment on approximately August 1, 2011. While

Respondent notified the Director on August 15, 2011 that it intended to challenge jurisdiction, it

failed to notify the Director and Claimant of its challenge to the appointment of any of the

arbitrators or provide reasons for the challenge, as required by Article 13(2). Respondent has not

challenged Judge Chong’s competence or integrity, and failure to object promptly to any non-

48

Kurkela, 122 49

Kurkela, 125 50

UNCITRAL Arbitration Rules (2010) Article 9(3).

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compliance “shall be deemed to be a waiver of the right of such party to make such an objection,

unless such party can show that, under the circumstances, its failure to object was justified.”51

Respondent has not provided the Tribunal with any such justification.

3. THE TRIBUNAL SHOULD REQUIRE RESPONDENT TO PAY

UNNECESSARY COSTS AS A SANCTION FOR ITS FAILURE TO APPEAR

AT THE ORIGINAL HEARING.

While the 2010 Arbitration Rules do not use the word “sanctions,” they do provide a

basis for imposing unnecessary costs on Respondent. While Respondent is certainly entitled to

question the jurisdiction of the Tribunal, it failed to respond to requests to appoint an arbitrator

or to provide any notice of its intention to challenge jurisdiction until less than one hour before

the initial hearing was set to begin. Article 42(1) provides that the costs of arbitration shall, in

principle, be borne by the unsuccessful party, but the Tribunal may apportion costs “if it

determines that apportionment is reasonable, taking into account the circumstances of the case.”

At least one commentator has observed that the “fees and costs of arbitration is an ever-occurring

issue. Arbitration has a reputation of being an expensive and exclusive method of dispute

resolution.”52

Respondent should not be allowed to waste costs in an already expensive process.

It should be held responsible for the costs, including travel and expenses of the arbitrators,

witnesses and Claimant, that resulted from the missed hearing, regardless of the Tribunal’s

decision on the merits of the dispute.

Notably, the KLRCA Director could have ordered the original hearing to go on as

scheduled.53

In fact, the Tribunal could have treated Respondent’s failure to respond as an

51

UNCITRAL Arbitration Rules (2010), Article 32. 52

Kurkela, 130 53

UNCITRAL Arbitration Rules (2010), Article 30.

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admission of Claimant’s allegation.54

The KLCRA Director properly notified Respondent of the

proceedings and the rules, which were included with the notice, and yet, Respondent did not

offer a sufficient cause for failing to appear, as required by the arbitration rules.55

Respondent is

entitled to challenge the KLRCA’s jurisdiction, but it is not entitled to waste costs by failing to

act in a timely manner.

While monetary sanctions are not directly authorized by the 2010 Arbitration Rules, such

sanctions are not without precedent. The UNIDROIT Principles, which Respondent itself is

seeking to apply, provide that when a court orders a party to perform, “it may also direct that this

party pay a penalty if it does not comply with the order.”56

While the use of the word “court” has

lead a majority of legal systems to deny such power to arbitrators, some modern legislation and

recent court practices have recognized it.57

The UNIDROIT Principles commentary implies that

sanctions are to be used to ensure compliance with orders to perform contractual obligations.58

But arbitration itself is a contractual obligation under the agreement between the parties, and

Respondents failure to comply with the rules of the proceedings invites monetary sanctions.

Respondent should be responsible for the costs of its failure to appear or provide adequate notice

before the initial hearing.

4. THE CISG IS THE APPLICABLE SUBSTANTIVE LAW THAT GOVERNS THIS

DISPUTE.

Based on the valid contract between the parties, which included the modified arbitration

clause, any dispute arising out of the contract should be settled by arbitration in accordance with

the rules of the KLRCA. The KLRCA has specifically adopted the 2010 Arbitration Rules,

54

Id., Article 30(1)(b). 55

Id., Article 30(2). 56

UNIDROIT Principles, Article 7.2.4 57

UNIDROIT Principles (1994) Official Commentary. 58

Id.

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subject to some minor modifications.59

Those rules will govern the procedural proceedings of the

arbitration. The substantive law, on the other hand, was not specified by the parties in their

agreement.

The KLRCA has discretion to choose which choice-of-law rules apply here. Article 35 of

the 2010 Arbitration Rules provides that when parties have failed to designate the applicable law,

the tribunal shall determine which law to apply to the dispute. Generally, in the context of

litigation, courts will use the choice-of-law rules of the forum state.60

In arbitration, on the other

hand, the applicable choice-of-law rule is not as clear and is usually decided by the Tribunal.61

In

the present dispute, the KLRCA will have to determine the governing law by choosing between

Rolga’s and Astoria’s choice-of-law rules. Even though the seat of arbitration is in Malaysia,

Malaysian law will not be applicable because the dispute does not involve Malaysia in any way.

Rather, the KLRCA functions as a neutral forum for this international dispute.

4.1 Astoria’s Choice-Of-Law Rule Is More Appropriate And Therefore Should

Be Applied.

The KLRCA should apply Astoria’s choice-of-law rule because it provides a more

equitable result. Astoria has adopted Article 6 of the U.S. Restatement (Second) of Conflict of

Laws (hereinafter “Article 6”) as its choice-of-law rule. Article 6 provides a factor analysis that

looks at multiple aspects of the dispute in order to make a fair determination regarding what law

59

The International Comparative Legal Guide to: International Arbitration 2010, Chapter 9, Section 4, Global Legal

Group. 60

Samuel Baumgartner, Is Transnational Litigation Different?, 25 U. Pa. J. Int'l Econ. L. 1297, 1393 (2004) 61

UNCITRAL Arbitration Rules (2010) Article 35; Simon Greenberg, The Law Applicable to the Merits in

International Arbitration, 8 VJ 315 (2004) (“Most States leave arbitrators enormous flexibility to decide the

applicable law”).

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is most appropriate. Contracts involve many complexities, and a failure to deal with the complex

issues properly may have a direct impact on the parties’ substantive rights.62

4.1.1 Astoria choice-of-law rule leads to the CISG as the applicable law.

If Astoria’s choice-of-law rule leads to the application of the law of Astoria, the CISG

will apply. While Astoria’s domestic law follows the American Law Institute Uniform

Commercial Code, it will not be applied here because Astoria is a contracting state. Under

Article 1(1)(b) of the CISG, “when the rules of the private international law lead to the

application of the law of a Contracting State,” the CISG will apply.63

Under Astoria’s choice-of-law rule, the factors considered in determining the appropriate

law to be applied include: (1) the needs of the interstate and international systems; (2) the

relevant policies of the forum; (3) the relevant policies of other interested states and the relative

interest of those states; (4) the protection of justified expectations; (5) the basic policies

underlying the particular field of law; (6) certainty, predictability and uniformity of result; and

(7) ease in the determination and application of the law to be applied.64

Under the first factor it seems appropriate to adopt the CISG in this international dispute

because the CISG, which has been adopted by 76 states, covers a large portion of the world’s

international trade. The CISG is “an international treaty aimed at providing uniform rules to

govern contracts for the international sale of goods in order to, among other things, remove legal

barriers in and promote development of international trade, an important element in the

promotion of friendly relations among countries.”65

Unlike the CISG, the UNIDROIT Principles

62

Id. 63

CLOUT Case No. 251, Switzerland: Handelsgericht des Kantos Zurich (1998). 64

Restatement (Second) of Conflict of Laws § 6 (1971). 65

William Johnson, Understanding Exclusion of the CISG: A New Paradigm of Determining Party Intent, 59 Buff. J.

Int'l L. 213, 217 (2011).

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do not request endorsement by governments, and are therefore not binding authority66

, making

the CISG a more suitable option.67

Additionally, under the third factor, Astoria’s interest in the dispute is much greater than

that of Rolga. Because the damage to the goods was discovered in Astoria, the state of

destination68

, Astoria’s substantive law should be applied to this dispute. The brunt of the harm

was felt in Astoria, and therefore its interests outweigh those of Rolga.

Furthermore, under the fourth factor, Claimant was justified in believing that disputes

would be subject to arbitration before the KLRCA. Based on either the CISG or UNIDROIT

Principles, Claimant’s modified Bill of Sale was accepted by Respondent’s performance.

Aside from the binding and widespread authority of the CISG, the CISG should be

applied because of the ease of its application under the seventh factor. While Malaysia is not a

contracting state to the CISG, the KLRCA is a widely-used international arbitration center and is

likely to have experience with applying the CISG. Taking the totality of the circumstances into

account, the factor analysis points to the proper application of the CISG as the governing law in

the dispute.

4.1.2 Rolga’s choice-of-law rule, if applied, would lead to the CISG as the

governing law regardless.

If the Tribunal decides to use Rolga’s choice-of-law rule, it will still lead to the

application of the CISG. Rolga’s choice-of-law rule is identical to Articles 3 and 4 of the

European Community Regulation No. 593/2008 (hereinafter “Community Regulation”). Under

Community Regulation Article 4(1)(a), a contract for the sale of goods should be governed by

the law of the seller’s country when the parties have not agreed on an applicable law. However,

66

Howard Hunter, Modern Law of Contracts § 25:1. 67

Forestal Guarani S.A. v. Daros Intern, Inc., 613 F.3d 395 (2010). 68

Rungee v. Allied Van Lines, Inc., 449 P.2d 378, 383 (1968).

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if it is clear from all the circumstances that a contract is more closely connected with a country

other than the seller’s, the law of that country should apply.69

Here, it is clear that Astoria is more closely connected to the contract. Claimant is a major

distributor of produce in Astoria, and the bananas were expected in grocery stores across the

country. Astoria is where the bananas were to be sold to grocery stores, resold to Astorian

citizens, and consumed. The loss of a large shipment due to Respondent’s negligence will likely

cause a rise in prices and dissatisfaction among consumers. Respondent is the only entity

connected to the contract in Rolga. In comparison, numerous entities throughout Astoria were

affected by Respondent’s breach. Thus, even under Rolga’s choice-of-law rule, the CISG should

apply to this dispute.

4.2 Under The CISG, KLRCA Has The Authority To Resolve This Dispute.

As discussed above under the issue of jurisdiction, if the CISG is applied, the KLRCA

has jurisdiction over this dispute. According to CISG Article 19, both Bill of Sales sent by the

parties were rejections of an offer and constituted counter-offers. Further, under Article 18, the

dispatch of the bananas by Respondent constituted an acceptance of Claimant’s counter-offer,

which included the agreement to arbitrate at the KLRCA.

5. RESPONDENT SHOULD BE HELD LIABLE FOR ALL DAMAGES SINCE IT

COMMITED A FUNDAMENTAL BREACH OF ITS OBLIGATIONS.

Respondent is liable for breach of contract and should be subject to any or all damages

regardless of which substantive law is applied. The CISG and the UNIDROIT Principles contain

rules covering breach and mitigation which are so similar that the result, in this case, would be

the same regardless of which law was applied. Respondent was negligent in taking appropriate

69

European Community Regulation No. 593/2008, Article 4(3).

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measures to properly pack and ship the bananas. It also failed to give proper instructions to the

shipper, contributing to the ripening of the bananas. Respondent held itself out to be experienced

in ocean shipping, and should have foreseen the conditions to which the bananas would be

subjected to. Yet, Respondent failed to deliver bananas that matched the quality and description

required by the contract, resulting in a fundamental breach.

5.1 Respondent failed to meet its obligation under the contract by delivering

a large number of non-conforming bananas.

CISG Article 35 clearly states that “the seller must deliver goods which are of the

quantity, quality and description required by the contract and which are contained or packaged in

the manner required by the contract.”70

Except where the parties have agreed otherwise, “the

goods do not conform with the contract unless they (a) are fit for the purposes for which goods of

the same description would ordinarily be used; (b) are fit for any particular purpose expressly or

impliedly made known to the seller at the time of the conclusion of the contract, except where

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

the seller’s skill and judgment; (c) are contained or packaged in the manner usual for such goods

or, where there is no such manner, in a manner adequate to preserve and protect the goods.”71

Respondent failed on all these elements by providing bananas that were not green, could not be

sold to grocery stores as planned, and were transported in such a manner that allowed them to

easily ripen.

70

CISG, Article 35(1). 71

CISG, Article 36(2)(a)(d).

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5.1.1 Respondent did not deliver the bananas which were of the quality required

by the contract.

As a general rule, failure by the seller to deliver goods that conform to expectations is a

breach unless the non-conforming goods are equal in value and utility to the conforming goods.72

A court in Paderborn, Germany, found that a shipment of raw plastic that contained a slightly

lower percentage of titanium dioxide (5.38 percent - 5.51 percent) than the 6 percent that was

needed, resulted in poor quality window blinds.73

Even though the difference was tiny, the court

found it sufficient to hold the seller breached its obligation under the rules of the CISG.74

The

instant case is no different. Claimant clearly told Respondent that it needed to receive the

bananas in an unripened condition. Respondent accepted this order, claimed to be experienced in

ocean shipping, and promised that the ship’s captain would get proper instructions for the

handling of the banana load. Yet, when the shipment reached the port, Claimant discovered that

30 percent of the bananas were ripe or ripening. That was six to ten times the typical number,

according to professional Maritime Surveyor John Sparrow. In light of this enormous disparity,

Respondent failed to deliver goods conforming to the contract and breached its obligations.

5.1.2 The bananas were not fit for ordinary use.

The bananas not only failed to conform to the contract requirements, but they also were

unfit for their intended purpose. CISG Article 35(2)(a) requires that the goods be fit for ordinary

use. A reduction in quality can make a good unfit. For example, a German court found an Italian

wine seller breached the contract by delivering wine that was 9 percent water.75

The reduction in

72

UN A/CN on International Trade Law, UNCITRAL Digest of case law on the CISG, UN Doc.

A/CN.9/SER.C/Digest/CSIG/35 (June, 8 2004). 73

Case No. 7 O 147/94, District Court of Paderborn, Germany (1996); translation available:

http://cisgw3.law.pace.edu/cases/960625g1.html. 74

Id. 75

CLOUT Case No. 170, Germany: Landgericht Trier (1995).

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quality made the wine unmarketable, and the Germany Court held that the buyer could treat the

non-conformity of the wine as breach of contract.76

Similarly, here, Claimant bargained for

unripe bananas. Claimant clearly told Respondent that it required bananas that were still green in

order to be able to sell them to local grocery stores, Claimant’s customer base. Instead, Claimant

received a load where at least 30 percent of the bananas were ripe.

Courts have found that a small number of non-conforming goods would not be enough to

show breach, but that was not the case here. The Ontario Superior Court of Justice refused to

find a seller in breach for delivering a small number of picture frames with defective molding,

reasoning that any shipment would include some defective products.77

Like with picture frames,

a small number of defective goods -- 3 to 5 percent according to Sparrow -- would be expected.

But anything over 10 percent is excessive. Respondent sent a shipment that had three times that

“excessive” number.

5.1.3 The bananas were not fit for the particular purpose expressly made known

to the seller at the time of the conclusion of the contract.

Article 35(2)(b) CISG requires that goods be fit for any particular purpose expressly or

impliedly made known to the seller at the time of contracting.78

This obligation arises only if

“one or more particular purposes were revealed to the seller by the time the contract was

concluded.”79

It does not apply if “the circumstances show that the buyer did not rely, or that it

was unreasonable for him to rely, on the seller’s skill and judgment.”80

Professor Honnold states

that the buyer must first show the seller knew of the purpose and that the goods were unfit for

76

Id. 77

CLOUT Case No. 34, Ontario Superior Court of Justice (1999). 78

CISG, Article 35(2)(b). 79

Id. (International Trade Law). 80

CISG, Article 35(2)(b).

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that purpose.81

“The seller, on the other hand, has the burden of proving that the buyer did not

rely or that it was unreasonable for him to rely on the seller's skill and judgment.”82

Accordingly,

the Helsinki Court of Appeal held that a seller violated Article 35(2)(b) when it failed to deliver

a skin care product that maintained a specified level of Vitamin A.83

In that case, the court found

that the buyer intended to purchase products with specified vitamin levels, relied on the seller’s

expertise, and that the “the special purpose . . . was known with sufficient clarity.”84

In this case, Claimant expressly made known to Respondent that the bananas had to be

unripe to be sellable to their customers in local grocery stores, and Respondent directly

acknowledged that it understood the goods had a particular purpose. Respondent claimed to have

vast experience in ocean shipping, with no history of problems, and because Respondent is a

major exporter of bananas, Claimant reasonably relied on Respondent’s expertise. Respondent

violated Article 35(2)(b) by failing to deliver green bananas that were fit for sale to grocery

stores.

5.1.4 The bananas were not properly packaged in the manner required by the

contract.

Goods must be “contained or packaged in the manner required by the contract,” under

CISG Article 35(2)(d). In this case, the exact packaging was not specified in the contract, but at

least one arbitration tribunal has found a violation of Article 35(2)(d) when the seller failed to

pack goods for proper preservation. In an arbitration proceeding, the tribunal held that a seller of

81

Honnold, at 258 82

Id. 83

Case No. S 96/1215, Helsinki Court of Appeal (1998); translation available:

http://cisgw3.law.pace.edu/cases/980630f5.html. 84

Id. (International Trade Law).

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canned fruit violated Article 35 because the containers were not adequate to prevent the contents

from deteriorating after shipment.85

Here, too, Respondent failed to take proper steps to ensure the bananas did not

deteriorate. While Sparrow concluded that the bananas were properly packed in boxes or

cardboard cartons especially designed for transport, ripening was actually less prevalent in Hold

No. 1, where the bananas had been hung by the stem compared to in Hold No. 2 where the

bananas were boxed. Sparrow found the cartons were tightly stowed with no slots or wooden

separators to facilitate air flow between the cartons.

Regardless of the “FOB Rolga City” term (which means all of the risk passes to buyer

once goods are loaded) the risk does not pass if the seller negligently loads the goods.86

Even

though Claimant specifically advised that the bananas had to be stored at low temperatures that

did not exceed 12 or 13 degrees Celsius, Respondent’s special instructions to the ship captain

gave only general directions to keep the bananas in a cool, dry location with good circulation.

Clearly, the instructions were inadequate. The bananas were not stowed with proper circulation

or in cool enough temperatures. As a result, the risk did not pass to Claimant, and Respondent

should be found to have breached its obligations under the contract.

5.2 Respondent’s Actions Constitutes A Fundamental Breach and Gives

Claimant A Right to Declare the Contract Avoided.

Under the CISG, a buyer can terminate the contract when non-conformity of the goods is

to be regarded as “a fundamental breach.”87

Many courts have examined the issue of what

constitutes a fundamental breach, and the decisions on this point have found that “any non-

85

Case No. M/21/95 Compromex [Mexican Commission for the Protection of Foreign Trade] (1996); translation

available: http://cisgw3.law.pace.edu/cases/960429m1.html. 86

Id.; CISG, Article 36(2). 87

CISG, Article 49(1)(a).

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conformity concerning quality remains a mere, non-fundamental breach of contract as long as the

buyer, without unreasonable inconveniences, can use the goods or resell them even with a

rebate.”88

However, if the non-conforming goods “cannot be used or resold with reasonable

efforts, this constitutes a fundamental breach and entitles the buyer to declare the contract

avoided,”89

as long as the breach results in a substantial detriment90

that was foreseeable by the

breaching party.”91

5.2.1 Claimant cannot use or resell the ripe bananas without suffering

unreasonable inconvenience.

Claimant entered into this contract with Respondent so that it could supply bananas to its

grocery store clients. It had no use for bananas that were ripe or ripening and could not

reasonably be expected to find another market for a product that was rapidly deteriorating

because of Respondent’s failure to ship marketable goods.

A Swiss Court held that the delivery of meat that was too fat and too wet did not amount

to a fundamental breach because the buyer had an opportunity to sell the meat, albeit at a lower

price.92

But that case is distinct from instant case. Claimant could not resell ripe and overripe

bananas. Claimant’s only customers are the local grocery stores which only purchase unripe

bananas. Claimant does not distribute to local bakers or anyone else who would buy large

quantities of ripe bananas. Given that the product was deteriorating by the hour, Claimant could

not reasonably be expected to suffer the expense of separating out the ripening bananas, locating

a new client base for ripe bananas, and arranging for their transportation and storage.

88

Id. (International Trade Law). 89

Id. 90

Case No. S 96/1215, Helsinki Court of Appeal (1998); translation available:

http://cisgw3.law.pace.edu/cases/980630f5.html. 91

Honnold, at 207. 92

CLOUT Case No. 248, Switzerland: SchweizerischesBundesgericht (1998).

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Professor Magnus stresses that for a breach to be considered a fundamental breach, “it

must nullify or essentially depreciate the aggrieved party’s justified contract expectations, i.e.

those expectation must be supported by a contract.”93

Claimant clearly stated in writing that it

expected to receive green, unripened bananas. Claimant, instead, got a mix of ripe and unripened

bananas, which contravened Claimant’s expectation. As a result, Respondent’s failure should be

deemed a fundamental breach.

5.2.2 Respondent should have foreseen that the bananas would arrive in

non-conforming condition.

A breaching party may only be found liable for the detrimental results that are

foreseeable under both the CISG and UNIDROIT Principles.94

Here, Claimant told Respondent

that the bananas must be stored in a cool location on the ship with temperatures not exceeding 12

or 13 degree Celsius. Respondent stated that it understood and promised to give special

instructions to the Captain regarding the issue. However, Respondent’s special instructions

simply stated “this cargo of bananas must be stored in a cool, dry location with good circulation

to prevent spoilage.” This instruction failed to state: (1) the actual temperature required; (2)

what constituted a cool and dry location; and (3) how much circulation was needed to prevent

spoilage. Respondent is in the business of selling bananas and claims to have shipped them on

numerous occasions. It must have foreseen that failure to properly store the bananas during

transport would result in deterioration, and yet, failed to take simple steps to ensure the goods

would conform to buyer expectations. This failure was a fundamental breach of Respondent’s

duties under the contract, and as a result, Claimant properly declared the contract avoided.

93

Magnus, at 601; Honnold, at 207. 94

CISG, Article 25; UNIDROIT Principles, Art. 7.3.1(2)(a).

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6. CLAIMANT DID HAVE A LEGAL OBLIGATION TO MITIGATE DAMAGES, BUT

CLAIMANT WAS EXEMPT FROM DOING SO UNDER THE CISG.

Under ordinary circumstances, the CISG requires the non-breaching party to take steps to

mitigate damages. Under CISG Article 86(1), “if the buyer has received the goods and intends to

exercise any right under the contract or this convention to reject them, he must take such steps to

preserve them as are reasonable in the circumstances.” In addition, the CISG provides that if the

goods are “subject to rapid deterioration or their preservation would involve unreasonable

expense, a party who is bound to preserve the goods . . . must take reasonable measures to sell

them.”95

In this case, however, it was impossible for Claimant to take such steps to preserve the

bananas, and any obligation it had to mitigate damages should be deemed excused due to an

impediment beyond his control, as allowed under Article 79(1).

6.1 Claimant Was Exempt From Mitigation Requirements Because of

Conditions Beyond its Control.

The CISG recognizes that parties must sometimes be excused from the obligation to

mitigate damages. Under Article 79(1), “[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.” One

court has explained that an “impediment” must be “an unmanageable risk or a totally exceptional

event, such as force majeure, economic impossibility or excessive onerousness.”96

In this case,

the rapid deterioration of the bananas was clearly beyond Claimant’s control. Because Claimant

and Respondent had previously agreed on proper conditions to prevent ripening, the deterioration

was not foreseeable at the time the contract was concluded, and it was economically impossible

for Claimant to mitigate damages by selling the bananas.

95

CISG, Article 88(2). 96

CLOUT Case No. 170, Schiedsgericht der Handelskammer Hamburg (1995).

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The Department of Agriculture declared the bananas “waste,” supervising the disposal of

the entire shipment just days after its arrival in Astoria. That action provides strong indication

that Claimant was facing an impediment beyond his control and selling, or attempting to sell the

bananas, would have increased costs rather than mitigate damages.

6.2 Claimant Could Not Reasonably be Expected to Have Taken the Impediment

into Account at the Time of the Conclusion of the Contract.

To satisfy the requirements for an exemption under Article 79, it is stated that the person

seeking exemption “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.”97

Many decisions have denied an exemption when the impediment was in

existence and the party should have known of them at the time the contract was concluded.98

Here, there are no facts indicating that the Claimant should have known that the bananas would

be shipped in the manner that they were. Furthermore, the Claimant could not have known that

the bananas would ripen so rapidly as to be economically impossible to sell them to its

customers. The Claimant could not have known nor foreseen any of these possibilities at the

conclusion of the contract.

Due to these reasons, the Tribunal must find that Claimant was excused from any

obligation to sell the damaged goods because of deterioration that was beyond its control which

was not known at the conclusion of the contract.

97

CISG, Article 79(1). 98

Id. (International Trade Law).

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CONCLUSION AND PRAYER FOR RELIEF

The Claimant, Astoria Produce, respectfully requests that this Tribunal declare that:

1. The KLRCA has the authority and will resolve the dispute between the parties.

2. The arbitrators were properly appointed.

3. The Tribunal has the authority to impose sanctions, in the form of wasted expenses

from Respondent’s failure to appear and other dilatory tactics.

4. The CISG is the substantive law that should apply to this dispute.

5. Respondent committed a fundamental breach by delivering non-conforming goods.

6. Claimant was exempt from mitigating damages and is entitled to a full refund.

Respectfully Submitted,

Counsel for Claimant