Module 9
Commercial Dispute Resolution
International
Winter 2015
©MNoonan2009
This presentation and Copyright therein is the
property of Maureen Noonan and is prepared
for the benefit of students enrolled in the
Commercial Transactions course conducted by
the Law Extension Committee and is available
for their individual study. Any other use or
reproduction, including reproduction by those
students for sale without consent is prohibited.
©MNoonan2009
International Arbitration
We look at dispute resolution by
way of International Commercial
Arbitration for contracts where
CISG applies as a way of seeing
CISG in action as well as gaining
an understanding of International
Commercial Arbitration
Is this topic examinable?
Yes, either
--by a short direct question on international
arbitration in Q6 of the exam. The appropriate
answer would be descriptive.
Or
--as the whole subject of a problem question.
NOTE: in Winter 15, if there is such a question, it
will concern an international sale of goods
involving the CISG/Vienna Convention and be
based on the facts in VIS Moot 11.See later
slides for details.
©MNoonan2009
International Disputes
If a dispute involves an international sale of
goods to or from Australia, assume for
examination purposes that the United
Nations Convention on Contracts for the
International Sale of Goods (CISG) applies
unless specifically excluded.(aka Vienna
Convention). This is part of State
Law…Sale of Goods (Vienna Convention)
Act NSW.
Note: Insurance issues can also be involved.
Methods of dispute resolution of
International commercial disputes
International commercial Arbitration
Trans national Litigation
ADR-e.g. expert determination on a
particular issue, negotiation, mediation.
©MNoonan2009
Role of the lawyer in international
commercial dispute resolution
• Opportunities to be more involved in
international law and harmonising efforts of
model laws such as CISG.
• Opportunities to use non legal skills e.g.
languages, technical knowledge, cultural
training, negotiation.
• As a professional mediator, arbitrator.
• Management of international arbitrations for
exporters/importers/multinationals.
• Role in international organisations.
• Advising clients of alternatives for resolution
©MNoonan2009
Moot opportunity
Interested in International Arbitration?
LEC regularly puts together a team for the
Vis moot in Vienna or Hong Kong.
Contact Frank Astill, Director LEC for
information on what teams are being put
together at the relevant time.
Legal role in Risk Management
• Objective is to avoid dispute or minimise
damage resulting from a dispute
• Must understand business
• Conduct due diligence to ascertain main areas
where dispute/legal liability likely to arise
• Appreciate bargaining position and
opportunities/limitations
• Develop skills in risk allocation during contract
negotiation phase.
• A sound understanding of Insurance is required,
and its interaction with contract risk allocation.
©MNoonan2009
Some Exporter Legal Risks
Customer does not pay-unpaid seller
Unable to recover /enforce rights in foreign country
Product liability-wrong item, quality, quantity,
unsafe, late, incomplete
Unable to produce/acquire-breach contract
Loss in transit-who bears loss?
Competition cheaper-buyer defaults so they can
take advantage of cheaper opportunity
©MNoonan2009
Some importer legal risks
Goods or services inappropriate, not what was
ordered-claim for compensation available?
Supply does not meet local standards/laws
Crime –bribing foreign officials
Tax, customs issues
Unfamiliar with particular free trade treaty
provisions
Unable to enforce rights /recover money in a
foreign country
Unable to sell items purchased
Vulnerability to local customers for problems
©MNoonan2009
Some manufacturing risks
Raw material problems
Machinery
Finance
Delivery
Quality/quantity issues
Damage to others
Failure to sell products
Title issues
©MNoonan2009
Risk and Insurance
Unskilled allocation of risks (usually based on an
incorrect assumption that they can be imposed
on other party or left to insurance) in contract
negotiation and drafting stage can lead to:
• Multiple insurances covering same risks
• Unnecessary extra costs built into prices
• Unexpected contribution results between
insurers.
• Unexpected legal consequences
• Some risks not covered at all
ARBITRATION
• Parties agree to resolve disputes by
arbitration in accordance with nominated
Rules.
• Parties appoint Arbitrator or panel
• Arbitration conducted
• Decision made by Arbitrator
• Binding on the parties
• Enforceable in approx 142 countries
©MNoonan2009
Arbitration process
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Can be similar to a court process
Can be informal
Can be remote
Can be on “papers” only, i.e. written materials and no
oral hearing
Parties can choose an arbitrator with expertise in their
business
Usual to choose 1 or 3 arbitrators so no deadlock
possible
Usually confidential, so limited precedent bank to consult
/ research.
Important elements are a process, rules defining how
that works, and a timetable to keep it moving along.
©MNoonan2009
International Disputes
Advantages of arbitration
• Neutrality
• Flexibility
• Efficiency
• Confidentiality
• Enforceability
©MNoonan2009
Global Survey –International Arbitration- large
corporates- PWC 2007 – See: www.pwc.com
• 73% corporations prefer it to transnational litigation
• Advantages outweigh disadvantages
• Clear dispute resolution policy an important strategic asset. 65 % of
respondents had one. Minimised escalation and costs.
• Arbitration clause in contract can give a tactical advantage
• More than 75% arbitrations conducted under the auspices of an
arbitration institution such as ICC and London Court of International
Arbitration; with regional centres growing
• Legal consequences most important for choice of venue
• 91% liked finality and rejected idea of appeals
• Concern that experienced arbitrators scarce. 90% wanted arbitrator
with established reputation in their field and region.
• Corporations retain specialist arbitration counsel rather than usual
litigation lawyers to assist
• 91% in house counsel well informed about international arbitration
©MNoonan2009
Framework for International
Arbitration
UN Convention on the Recognition and
Enforcement of Foreign Arbitral Awards 1958
(The New York Convention)
When local court faced with dispute covered by an
arbitration agreement, it must stay proceedings
and recognise and enforce arbitral awards.
Incorporated into Australian law via International
Arbitration Act 1974(Cth). Note best practice
amendments passed in June 2010 to improve its
appeal for International Arbitration.
Australian Centre for International Commercial
Arbitration. See www.acica.org.au
©MNoonan2009
International Arbitration Act (Cth)
Section 7
(2) Subject to this part, where:
(a) Proceedings instituted by a party to an arbitration
agreement to which this section applies against
another party to the agreement are pending in a court;
and
(b) (b) the proceedings involve the determination of a
matter that, in pursuance of the agreement, is capable
of settlement by arbitration;
(c) On the application of a party..the Court shall, by order,
upon such conditions (if any) as it thinks fit, stay the
proceedings….and refer the parties to arbitration……
International Arbitration Act (Cth)
Recognition of foreign awards
Section 8
(1) Subject to this Part, a foreign award is
binding….for all purposes on the parties
to the arbitration agreement…
(2) Subject to this Part, a foreign award may
be enforced in the Federal Court of
Australia as if the award were a
judgement or order of that court…..
International Arbitration Act (Cth)
Exceptions to recognition and enforcement
of foreign awards.
See Section 8, subsections 4-11.
Examples of exceptions…incapacity at time
of arbitration agreement, arbitration
agreement not valid in country where
order made, no notice of appointment of
arbitrator, decision beyond scope of
arbitration.
ACICA
The Australian Centre for International
Commercial Arbitration is a non profit
organisation formed in 1985 to provide a
framework for international commercial
arbitration and to foster Sydney as a centre
for such arbitrations www.acica.org.au
Now part of the combined domestic and
international brand Australian Disputes
Centre www. disputescentre.com.au
©MNoonan2009
Why Sydney?
• Supportive legal environment-International
Arbitration Act provides for various opt in/out
alternatives, foreign lawyers can appear,
signatory to NY Convention on Recognition and
Enforcement of arbitral awards, supportive
courts and political stability.
• Sophisticated legal profession and some
internationally respected arbitrators such as Sir
Laurence Street QC. Good support services,
languages, resources.
• Cost savings when compared with London, NY,
Paris, Geneva, HK…cost hotel rooms, rates etc.
The fundamentals of arbitration
1. The agreement to arbitrate
2. Applicable law of contract & other
aspects.
3. Seat of arbitration
4. The arbitrators
5. The procedure
6. Confidentiality
7. The award
The agreement to arbitrate
Agreement in contract
Empowers independent arbitrator(s) to determine
issues and disputes
Enables parties to choose arbitrator, language,
rules, jurisdiction governing procedural issues
and merits
Makes decision binding
Is enforceable under UN Convention on the
Recognition and Enforcement of Foreign Arbitral
Awards 1958 (NY Convention 1958)
The agreement to arbitrate
Decide whether parties want the agreement
to enable:
•Referral of any and all disputes arising in
relation to or out of agreement, to arbitration
•Referral of a specific dispute type to
arbitration only.
Dispute Resolution Clause
• Whether to refer disputes to arbitration or some other
method
• Institutional or ad hoc arbitration
• Rules, if institutional
• Language
• Where arbitration will be held
• “seat” of arbitration-which law will govern procedure?
• Which law will govern arbitration
• Which law will govern merits of dispute-e.g. contract.
• Activation trigger
Drafting issues
Note the problems caused in Vis Moot 21
from poor drafting….the apparent conflict
between the Dispute Resolution clauses and
Standard Terms and Conditions, not only
with the separate agreements….even within
the same agreement…resulting in a
challenge to the validity of the Arbitration
agreement….Arbitration to be final v. right to
appeal to courts.
Law of the Contract
This can be critical to understanding the
rights of the parties in the event of dispute.
See the problems raised in VIS Moot 21.
What is the law of the Contract on those
facts?
Think about it!
The arbitration agreement should be carefully
drafted to maximise chances of enforcement in
the particular circumstances:
Rules
Consider location of assets of counterparty
Agree a seat which maximises chances of
enforceability-i.e. in arbitration friendly
jurisdiction
Specify that arbitral award is final and binding
Tailor agreement to address any issues arising
from domicile of counterparty, type of business.
An illustration
Taken from a Clayton Utz update 7/5/2012
Traxys was a Luxembourg company which provided
financial, marketing and distribution services to the mining
industry. Balaji was an Indian company which imported coal
and coke but failed to pay for a shipment in 2009. Traxys
resold the coke and commenced arbitration in London (as
per agreement) claiming AUD3m. However, Balaji did not
have any assets in the UK or Europe. Balaji commenced
proceedings in the Indian Court to have award set aside or
stayed and obtained an injunction. Traxys took no part in
Indian proceedings, but took proceedings in Australia to
enforce award against some shares Balaji owned in an
Australian Company. The approach of the Indian courts and
Balaji’s blatant breach of contract in taking those
proceedings made it complicated and costly for Traxys.
The “seat”
Important considerations:
Neutrality
Sophisticated legal system with trained
professionals
Role of courts suits parties
Public policy may affect remedies…party to
conventions?
Appropriate facilities…hotels,
communications, security etc
Law of Arbitration
Can be important to interpretation.
Under NY convention dispute must be
capable of being arbitrated….how will that
be interpreted under a particular law?
Arbitration Clause
ACICA recommends:
“Any dispute, controversy or claim arising out of,
relating to or in connection with this contract,
including any question regarding its existence,
validity or termination, shall be resolved by
arbitration in accordance with the ACICA
arbitration rules. The seat of arbitration shall be
(location). The language of the arbitration shall be
(language). The number of arbitrators shall be
(1,3 or Article 8 of rules).”
Note also need for choice of law clause.
Notice of trigger, referral.
©MNoonan2009
Arbitration administration
• Institutional-established institutions with
rules, procedures etc.
• Ad hoc-the parties design it themselves.
• In VIS Moot, CEPANI, The Belgian Centre
for Arbitration and Mediation.
International Arbitral Institutions
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International Court of Arbitration and ICC in Paris
London Court of International Arbitration
Swiss Chambers of Commerce and Industry
Arbitration and Institute of Stockholm Chamber of Commerce
American Arbitration Association
HK International Arbitration Centre
Singapore International Arbitration Centre
China International Economic and Trade Arbitration Commission
Kuala Lumpur Regional Centre for Arbitration
The Australian Centre for International Commercial Arbitration
International Centre for the Settlement of Investment Disputes
Asia Pacific Regional Arbitration Group (APRAG) is association of 17
regional arbitral institutions in our area. See www.aprag.org
©MNoonan2009
Institutions
Advantages
Pre established and tested rules, guidelines and
practices
Established format which has proved workable
Neutral entity to collect and hold fees, deposits
List of experienced arbitrators, often by expertise
Efficient with trained and experienced staff
Physical facilities..rooms etc
Neutral and independent
Specialist forms of Arbitration
London Maritime Arbitrators Association-maritime
disputes between commercial parties
Court of Arbitration for Sport-Lausanne, NY and
Sydney
World Intellectual Property Organisation (WIPO)
Geneva
International Centre for Settlement of Investment
Disputes-involves states
WTO
Arbitral Administration
SAMPLE ISSUES
• How will arbitrators be chosen?
• What language will be used for documents and oral
hearings-who will translate
• What if one party delays or refuses to take a step
• Interim measures
• Degrees of discovery or disclosure
• Procedure at hearings
• Rules of evidence
• Fees
• Liability for costs
Arbitration Rules
Arbitrations are conducted in accordance
with rules chosen.
See for example ACICA Arbitration rules at
www.acica.org.au. Selections follow.
Procedural as with civil/criminal procedure
court system rules.
For other rules, see appropriate organisation
Parties can make their own if they prefer
©MNoonan2009
ACICA Rules
4. Party initiating gives ACICA a Notice of
Arbitration which covers a demand for
arbitration, contact details, copy of A
clause, general nature of claim and
remedy sought and proposal re number of
arbitrators.
Notice can include detailed Statement of
Claim or that can come later
©MNoonan2009
ACICA Rules
5. Within 30 days of receipt of Notice,
Respondents submit Answer which
includes contact details, any plea disputing
jurisdiction, comments on particulars in
notice and answer to relief/remedy sought.
It may also include Defence to Statement
of claim, but this may come later.
©MNoonan2009
ACICA Rules
6. Parties may be represented
8-16 Appointment of arbitrators
17-31 Arbitral proceedings. Tribunal may
conduct arbitration as it sees appropriate
provided that it treats parties equally and
each is given opportunity to present their
case.
Usually held in private
21 Contents of statement of claim
©MNoonan2009
What does it all cost?
Appendix A to ACICA rules
Notice of Arbitration Registration fee $2,500
Admin fee
$1-$500,000
1% of amount in dispute
And upwards
Over $100m
$39,000 plus 0.02% of
amount in dispute above $100m up to maximum
$60,000.
PLUS costs of representation, presenting case.
©MNoonan2009
Cost
Cost blowouts in Arbitrator and Party costs
can mean Arbitration is as expensive (or,
sometimes, more expensive) than
transnational litigation.
Sometimes, still attractive / chosen because
of other aspects (e.g. confidentiality, or
because neither party wants to find itself in
the courts of the other).
Attitude of our courts
Mainly support
Care must be taken when drafting to avoid
multi-party, multi-contract and multi-venue
disputes.
If arbitration clause too narrow, it may limit
range of disputes that can be settled by
arbitration
©MNoonan2009
The Arbitral Tribunal
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How does arbitration process commence
How many arbitrators on Tribunal?
Role of Institution in formation of Tribunal
How is chair chosen?
Can a party object to appointment of an
arbitrator? How?
• Who decides on any difficulties?
Assessing Prospective Arbitrators
• CV?
• Track record?
• Expertise, language, neutral, skills in
procedure of arbitration
• Qualifications and experience
• Reputation
• Cost
• Compatibility with other Arbitrators.
Note Local requirements related to
other party
Under Arbitration Law of the PRC 1994 (CN), the
arbitration commission is required to appoint
“fair and honest persons as its arbitrators” and
arbitrator must meet one of following:
1. Engaged in arbitration work, or worked as a lawyer
or judge for at least 8 yrs
2. Engaged in legal research or teaching in senior
positions
3. Legal knowledge and engaged in professional work
relating to economics and trade in a senior position.
Conflicts of interest
Arbitrator should disclose as cannot be
neutral or be seen to be neutral.
Most legislation relating to arbitration
includes a requirement to do so.
Confidentiality
• Proceedings are private unless agreed
otherwise….
• Privacy and confidentiality are important
reasons for selecting arbitration for
commercial organisations.
• Lack of precedents, but some awards
made public.
Awards
TYPES
Jurisdiction
Preliminary issue e.g. any applicable statute
Interim-e.g. measures of protection
Partial award dealing with some claims
Consent award
Default award-e.g. a party fails to appear
Final award
Enforceability
NY Convention
An attractive feature over domestic court
judgements
Example
Australian company entering JV with Malaysian
company to build infrastructure in Phillipines.
You negotiate a clause submitting disputes to
Australian courts.
However, judgement may not be enforceable (no
reciprocal enforcement treaty with Malaysia),
dispute very public, and judge may have no
expertise.
Arbitral award would be enforceable (Malaysia and
Australia both signatories to NY Convention),
and can choose arbitrator(s) with expertise
©MNoonan2009
Another example
Importer of ginger from China. No choice of
law clause. No arbitration clause. Ginger
rotten.
Bring proceedings in China? Or Australia?
Vienna convention applies to sale?
Chinese law has closest connection?
Chinese law very different to ours. E.g.
limitation periods, no precedent value
©MNoonan2009
Aust Resources example
Australian resources JV obtained international
arbitration award $70m against a Dubai
incorporated company for failure to take and pay
for numerous shipments of commodities under a
long term supply agreement (intended to be
resold to Indian Co)…during GFC..when prices
fell well below contract prices…London Court of
International Arbitration Rules…conducted in
London…sole arbitrator…17 months.
Per Mallesons Stephen Jaques report 10/12/2010.
What is arb-med?
A fusion of arbitration and mediation, which
has been widely used in China. The neutral
third party acts as an arbitrator first, but is
allowed to act as a mediator in the same
proceedings to assist parties to find a winwin outcome. If parties chose to go to
mediation first, but fail to achieve an
outcome, they may move to a binding
arbitration using the same neutral third party.
Points in favour of arb-med
• Cost efficient. Neutral third party knows the
case.
• Time efficient-parties who come to mediation
know that if it does not work, they will walk away
with a binding award and bring the dispute to an
end.
• Maximises opportunity for settlement.
• Can be a consent award-enforceable but may
enable friendly and cooperative commercial
relationship to continue.
Problems with med-arb
• Perceptions of bias by mediator/arbitrator
• Exposure to confidential information in one
process may influence outcome of the
other.
• Perceived issues with procedural fairness
as mediation process involves one on one
meetings with one side without other side
being present to hear and rebut.
Australian position on arb-med
• Commercial Arbitration Act 2010 (NSW) s.27D
provides an arbitrator with powers to act as a
mediator (or conciliator or other non-arbitral
intermediary)
• Section contains various measures to minimise
objections for apparent bias. e.g. a mediator
cannot subsequently act as an arbitrator unless
parties have provided written consent. Arbitrator
required to disclose material obtained during
mediation if they believe it is material to
arbitration.
WTO dispute settlement
understanding (DSU)
Came out of Uruguay Round
Clearly defined rules and timetables
Parties/countries first discuss.
First WTO stage is good offices, conciliation.
Then a panel and endorsed (or rejected) by
WTO membership.
Appeals on points of law are possible.
©MNoonan2009
DSU timetables
60 days
Consultation, mediation
45 days
Panel set up, appointments
6 mths
Panel hears dispute and reports
3 wksPanel reports to WTO members
60 days
Dispute Settlement Body adopts report
(if no appeal)
TOTAL 1 year
60-90 days Appeals report
30 days
Dispute Settlement Body adopts
appeals report. TOTAL 1.25 years
©MNoonan2009
How the panels work
• Each side presents case in writing to panel
• First hearing-complaining country and
responding country present case
• Rebuttals-written and oral
• Experts, if appropriate
• Draft panel report given to both sides
• Interim report to both sides
• Review for two weeks
• Final report given to both sides and 3 weeks
later to all WTO members
©MNoonan2009
Remedies?
• Obligation on parties to respect ruling
• Trade sanctions possible
• Reading some cases is useful
e.g. See www.wto.org and go to Case Studies
Thailand: Conciliating a Dispute on Tuna Exports to the EC
Dispute Settlement between Developing Countries-Argentina and
Chilean Price Bands
Pakistan’s Dispute Settlement with the US on Combed Cotton Yarn
exports.
©MNoonan2009
Trade with China
• Australian exports include mainly rural
products, minerals and energy-wool,
cotton, beef, dairy products, wine, iron ore,
liquified natural gas-and a few services in
education, tourism, architecture, banking
and legal.
• Also considerable outsourced
manufacturing done in China with
products/components then imported.
©MNoonan2009
Trade Disputes involving China
Resolution mechanisms include:
• Consultation
• Negotiation
• Conciliation or mediation
• Arbitration
• Litigation
©MNoonan2009
Trade Disputes involving China
• Less formal methods are preferred
• Desirable to maintain a harmonious and
consensual working relationship, so
confrontational/adversarial methods often not
helpful.
• Conciliation and arbitration therefore common
• Arbitration clauses common in JV contracts –
avoid unfamiliar Chinese court system, reduce
costs, preserve business relationships,
enforceability.
©MNoonan2009
Trade Disputes involving China
• CIETAC (China’s International Economic
and Trade Arbitration Commission) is the
mechanism China has set in place to
resolve problems in trade
• Legislative encouragement for negotiation
and conciliation first and arbitration or
litigation if that fails.
• JV contracts MUST contain provisions re
settling of disputes.
©MNoonan2009
Note local characteristics: e.g.
Indonesian contracts
• Courts do not apply a doctrine of precedents,
so litigation can take years and be
unpredictable. No procedure to enforce
foreign judgements. Need to start again or
enforce against assets o/side I.
• Indonesia is a party to the NY Convention
(enforcement of foreign arbitral awards).
There is a procedure. Also a local arbitration
law. Enforcing a foreign award can be more
difficult than enforcing a domestic one.
International Sales of Goods
Where a contract for sale of goods is
between an Australian business and a
foreign business in a country a party to the
Vienna Convention, the terms of the
Vienna Convention/aka CISG applies (by
virtue of State Acts), with certain
exceptions, unless specifically excluded
and prevails over Australian law to the
extent of any inconsistency.
CISG application
If countries other than Australia are involved
(e.g. VIS Moot 11) students should
assume that CISG applies unless
specifically excluded and applies via a
national law enacted pursuant to the
Convention.
Note that for the purposes of this module, certain subtleties
of CISG application are glossed over to enable a general
view to be given in one module.
In practice, these subtleties may have significance.
CISG
Applies:
Where law of the contract is law of a party to the
convention. Students can assume in this course
that that is always so.
CISG does not apply
To sales of goods bought for personal, family or
household use, auction sales, sales of financial
instruments and securities, ships, electricity and
sales by authority of law.
Sale of Goods
Note that CISG applies to sales of GOODS
Do we have contracts for the sale of goods
in VIS Moot 11?
CISG
Seller to deliver goods and any documents (Arts 31-34) of
the quantity, quality, description, packaging required by
contract (Art 35). Partial and excessive delivery (Art
51,52). Goods must conform. If seller does not meet
obligations, buyer may compel performance, claim
damages or reduce price. Buyer may fix additional time
(Art 47) or declare contract avoided (Art 49) Buyer may
reduce price for non conformity (Art 50). Buyer obliged to
pay price and take delivery (Arts 53,60). Unpaid seller
remedies (Arts 61). Arts 54-59 deal with determining
price when not fixed. Seller may compel buyer to pay
price or take delivery (Art 62) or fix additional period for
performance (Art 63). Seller can avoid contract for
fundamental breach (Arts 64,25). Anticipatory breach
and instalment contracts dealt with in Arts 71-73.
Damages covered by Arts 74-77.
Formation of Contract
While Agreement (offer and acceptance) and
intention to be bound are elements of a
contract under the Convention,
consideration is not a necessary element.
See Article 23
Offer
• Offer must be sufficiently definite and indicate an
intention to be bound…indicate goods,price and
quantity. Article 14
• Offer to be interpreted “according to the offeror’s
intention as perceived by the offeree”
• Offer becomes effective when it reaches offeree.
Article 15
• Offer can be revoked if revocation reaches
offeree before they have dispatched acceptance.
Article 16
• Offer terminated when rejection reaches offeror.
Article 17
Acceptance
Acceptance is statement or conduct indicating
assent to an offer. Article 18
Acceptance effective as soon as it reaches offeror.
An acceptance which attempts to modify an offer is
a counter-offer and a rejection of original offer.
Article 19
Subjective intent important and parol evidence can
be used, even if written contract meant to be
complete record-different to local law.
Modification and usage
Can be modified by agreement. Article 29
A failure to object to a unilateral attempt to
modify does not constitute agreement.
Parties bound by any usage they have
agreed or any practices they have
established between themselves. Article 9
Conformity
Seller must deliver goods which are of the quantity, quality
and description required by contract and in containers or
packaging required by Contract. Article 35.
In the absence of agreement to contrary, goods do not
conform unless
• they are fit for the purposes for which goods of the same
description would ordinarily be used
• fit for any particular purpose made known.
• Have same qualities as any sample
• Packaged in manner usual for such goods or if no such
way, adequate to preserve and protect goods.
Note details in Article 35.
Liability for non conformity
Seller liable for nonconformity existing at the time risk
passes even if only becomes apparent later. Article 36
Also liable for nonconformity occurring after risk has
passed due to a breach of any seller obligation.
If delivered prior to delivery date, seller can make up
deficiency or part to time of delivery. Article 37
Buyer must examine goods for nonconformity within
shortest period practicable Article 38
Buyer must notify non conformity or lose right to rely on it.
Article 39
If goods do not conform, buyer may reduce the price in
certain circumstances. Article 50
Article 35
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.
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
judgement; (c) possess the qualities of goods which the seller
has held out to the buyer as a sample or model; (d) 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.
The seller is not liable under subparagraphs (a) to (d) of the
preceding paragraph for any lack of conformity of the goods if
at the time of the conclusion of the contract the buyer knew or
could not have been unaware of such lack of conformity.
Liability for third party claims
Seller must deliver goods free from rights or
claims of third parties. Article 41
Seller must deliver goods free of IP claims.
Article 42
Buyer cannot rely on these provisions
unless they give notice. Articles 43,44.
Payment
Buyer must pay price, including take steps
required by contract or law to enable
payment to be made. Articles 53,54.
In absence of price deemed to have agreed
comparable price. Article 55
Buyer not bound to make payment until
given the opportunity to examine goods,
and other payment details. Article 58.
Delivery
Seller must deliver and transfer property in
goods. Article 30.
If place not specified, provisions in Article 31.
Date –on date specified or within range
specified or reasonable time after contract.
Article 33
Buyer must take delivery as required. Article 53,
including all acts reasonably expected to
enable delivery. Article 60.
Risk
Loss or damage to goods after risk has
passed to buyer does not discharge
obligation to pay unless loss or damage
caused by seller’s act or omission. Article
66
Where carriage included, risk passes when
handed to first carrier. Article 67
See also 68, 70.
Exemptions
See Article 79.
Party not liable for failure due to an
impediment beyond their control Article 79
Party who fails to perform must notify other
party of impediment. If notice not received
within reasonable time, defaulting party is
liable for damages resulting.
Anticipatory breach
Article 71.
A party may suspend performance if, after
entry into contract, it becomes apparent
that the other party will not perform a
substantial part of their obligation as a
result of a serious deficiency in their ability
to perform or creditworthiness or their
conduct in performance or preparation.
Must give notice.
Fundamental breach
Article 25
A fundamental breach results in such
detriment to other party as substantially
deprives them of what they are entitled to
expect BUT not fundamental breach if
party in breach did not foresee, and a
reasonable person would not have
foreseen such a result.
Buyers remedies
Exercise rights provided by Articles 46-52-require
performance, give an extension, require
nonconformity to be remedied, avoid
contract or reduce price.
And/or
Claim damages. Article 45
Seller Remedies
Exercise rights Articles 62-65
require performance, given an extension,
avoid contract or make a specification
Damages. Article 61
Avoidance
No automatic avoidance.
Must be declaration.
Avoidance releases parties from contract obligations
subject to damages, but does not affect terms re dispute
settlement or rights and obligations on avoidance.
See Articles 72, 64, 49 for circumstances when
declarations of avoidance can be made.
See Article 73 re instalment deliveries.
Mitigation
Article 77
A party who relies on a breach of contract 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.
Damages and measure
Articles 74,75
Meant to provide equivalent of benefit of bargain
Must be capable of calculation
Lost profits recoverable
Can recover interest Article 78
Specific performance determined under domestic law Art 28
Restitution Article 81.
VIS Moots
Useful as a study tool for:
• Conduct of International Arbitration
• International disputes involving sales of goods
See http://www.cisg.law.pace.edu for copies of
problems and memoranda for claimant and
respondent.
VIS Moot 11
Winter Semester 2015
See www.cisg.law.pace.edu for copies of the
facts, clarification of facts, and memoranda
referred to in these slides for claimant
(Heidelberg University) and respondent (National
University of Singapore)
Disputing parties
Claimant
EquaPack Inc-a packager of foodstuffs for other
companies
Respondent
Medi-Machines SA-manufacturer of machinery
including dry food packaging equipment
•Both countries parties to CISG and New
York Convention
Claimant says….
Claimant, EquaPack Inc purchased
packaging machinery from Medi-Machines
S.A.
Claims they were not in conformity with the
contract in breach of CISG 35(1) and (2)(a)
and the non conformity was so serious that it
was a fundamental breach (CISG 25).
See statement of facts and Memorandum of
Claimant pp.15-28.
Respondent says….
No breach of CISG 35 because machines in
conformity at time of conclusion of contract
No mention of use for packaging salt prior to
conclusion of contract.
No duty to inform machines not suitable for
packaging corrosive materials-salt in this
case.
No fundamental breach
See Memorandum for Respondent pp 3-16.
Arbitration Clause
15. Any dispute arising out of or in connection with this contract,
including any question regarding its existence, validity or termination,
shall be referred to and finally resolved by arbitration in Vindabona,
Danubia in accordance with the Arbitration Rules of Singapore
International Arbitration Centre (SIAC Rules) for the time being in force
which rules are deemed to be incorporated by reference to this clause.
The Tribunal shall consist of three arbitrators.
The governing law of the contract shall be the United Nations
Convention on Contracts for the International Sale of Goods (CISG). All
matters not governed by the CISG shall be governed by such rules of
international commercial law deemed appropriate in the circumstances.
The language of the arbitration shall be English.
Danubia has adopted the UNCITRAL Model Law on International
Commercial Arbitration without amendment. Danubia, Equatoriana and
Mediterraneo are all party to the New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards.
Other examples
Other semesters
VIS Moot 20
Winter 2013
The commercial contract
Mediterraneo Exquisite Supply Co (MES) is
subsidiary of Oceania and Atlantica
Megastores and procures clothing needed
by its parent companies. Oceania supplies
leisure clothing to famous brand houses,
supermarkets and has its own retail
operation. Equitoriana Clothing
Manufacturing Ltd (EC) is a manufacturer.
Contract between MES and EC for 100,000
polo shirts. Late delivery. Child labour.
Arbitration clause-Art 19 of contract
Any dispute, controversy or claim arising out
of or relating to this contract, or the breach,
termination or invalidity thereof, shall be
settled by institutional arbitration
administered by the Chinese European
Arbitration Centre (CEAC) in Vindabona,
Danubia in accordance with the CEAC
Hamburg Arbitration Rules…..(a), (b), (c), (d)
and (e).
Applicable law-see 31,32 problem p. 10
Article 20 of Contract
This contract shall be governed by the United
Nations Convention on Contracts for the
International Sale of Goods of 1980(CISG) without
regard to any national reservation, supplemented
for matters which are not governed by the CISG,
by the UNIDROIT Principles of International
Commercial Contracts and these supplemented by
the otherwise applicable national law.
The complaint & CISG Articles
Late delivery contrary to Contract-Art 33(a)
Shirts not of quality required by contract and
Unfit for purpose-Art 35
Fundamental breach-Art 25,49,74,77
Entitled to damages-Art 45,74,77
The damages claimed
USD 27,500 for late delivery of the polo
shirts-Article 10 of contract
USD 550,000 reimbursement of purchase
price pursuant to right to avoid for
fundamental breach
USD 850,000 settlement with Doma Cirun
USD 700,000 settlement with Oceania
TOTAL USD 2,217,000
Sample Arbitration issues
• Was there a valid agreement to Arbitrate?
• What was the relevance of the Art 96 CISG
reservation by Mediterraneo?
• Why was there so much debate over
interpretation of Art 20 of the Contract?
• What uncertainties over applicable law were
discussed?
• Was the arbitral tribunal properly constituted?
• What issues were relevant to enforcement of
any favourable arbitral award?
VIS Moot 18
The commercial contract
Trawler sells supplies to fishing fleets, including
bait to long line fisheries and produces wet
salted and dry salted fish for human
consumption.
Fishing owns a fishing fleet and purchases product
from other fisheries. It catches and purchases
squid which it sells for both bait and human
consumption.
Fishing agreed to supply squid to Trawler, which it
onsold to the long line fleet.
The complaint
Trawler complains that Fishing has failed to
deliver squid in conformity with the
contract description.
When out at sea the fishing fleets
discovered that most of the squid was too
small to function properly as bait. They
refused to purchase any more. The squid
could not be sold for human consumption.
Fishing denies the claim.
The arbitration
Is there an arbitration clause?
See sales confirmation:
Dispute Settlement
All disputes arising out of or related to this contract
shall be settled by arbitration under the Rules of
the Chamber of Arbitration of Milan (the Rules),
by three arbitrators. Each party shall appoint one
arbitrator and the two arbitrators shall appoint
the presiding arbitrator. The arbitration will be
conducted in the English language. The place of
arbitration is Vindobona, Danubia.
The law governing the Contract
No choice of law clause. Ramifications?
All countries are party to CISG.
International Contract, sale of goods, not
within personal etc exclusion.
So CISG applies and governs contract.
All countries are party to New York
Convention (Convention on the
Recognition and Enforcement of Foreign
Arbitral Awards).
Relevant CISG provisions
What articles of CISG are relevant to issues?
Art 8-interpretation
Art 35-squid conforms?
Art 38-examination
Art 26, 39, 49-notice
Art 40-knowledge of facts related to conformity
Art 77-mitigation of loss
Art 25-Fundamental breach
Art 45,74, 77,81,85-compensation
VIS Moot 21
Summer 1314
Facts of VIS Moot 21
Dealings between Hope Hospital and Innovative
Cancer Treatment Ltd
Purchase of Proton treatment facility (Framework
and Sales Agreement), and later Active scanning
technology (Sale and Licensing Agreement).
Hope refused to make further and final payments,
complaining of misrepresentation concerning
viability of proton treatment and faulty software in
the new active scanning technology.
ICT deny the claims and demand payment in full.
CISG
ICT claims Hope is obliged to pay pursuant
to:
Article 14
Article 53
Article 61
Article 63
Article 14
(1) A proposal for concluding a contract addressed
to one or more specific persons constitutes an
offer if it is sufficiently definite and indicates the
intention of the offeror to be bound in case of
acceptance. A proposal is sufficiently definite if it
indicates the goods and expressly or implicitly
fixes or makes provision for determining the
quantity and the price.
(2) A proposal other than one addressed to one or
more specific persons is to be considered merely
as an invitation to make offers, unless the contrary
is clearly indicated by the person making the
proposal.
Article 53
The buyer must pay the price for the goods
and take delivery of them as required by the
contract and this Convention.
Article 61
(1) If the buyer fails to perform any of his
obligations under the contract or this Convention,
the seller may:
(a) exercise the rights provided in articles 62 to 65;
(b) claim damages as provided in articles 74 to 77.
(2) The seller is not deprived of any right he may
have to claim damages by exercising his right to
other remedies.
(3) No period of grace may be granted to the buyer
by a court or arbitral tribunal when the seller
resorts to a remedy for breach of contract.
Article 62
The seller may require the buyer to pay the
price, take delivery or perform his other
obligations, unless the seller has resorted to
a remedy which is inconsistent with this
requirement.