AMERICAN ARBITRATION ASSOCIATION

AMERICAN ARBITRATION ASSOCIATION

Case No. Moot 6

Superb Paper, Plc
Claimant

Essential Controls, S.A.
Respondent

NOTICE OF ARBITRATION
AND
STATEMENT OF CLAIM

NOTICE OF ARBITRATION
(American Arbitration Association, International Arbitration Rules, Article 2)

I. The Facts of the Case

Superb Paper, Plc. (hereinafter referred to as SUPERB) is a company organized under the laws of the country of Mediterraneo. It has its principal office at 123 Industrial Avenue, Highlands, Mediterraneo.

Essential Controls, S.A. (hereinafter referred to as CONTROLS) is a company organized under the laws of the country of Equatoriana. It has its principal office at 26 Export Pl., Southside City, Equatoriana.

SUPERB is a producer of paper and paper products. In early 1996 it decided that it should take advantage of the new technologies available in the control of the paper making process. CONTROLS is one of several companies that produce control systems for the making of paper and paper products.

On 10 June 1996 SUPERB and CONTROLS entered into a contract by which CONTROLS agreed to sell and install in the facilities of SUPERB a new control system at a cost of $500,000. A payment of $400,000 was called for upon delivery of the control system to the facilities of SUPERB. A payment of $50,000, or ten percent (10%), was to be made within ten days of completion of the final testing of the installed control system. The final payment of $50,000 was to be made within six months of completion of the final testing. The contract provided that installation and final testing would be completed by Reliable Installation Co. on behalf of CONTROLS on or before 16 September 1996. (Claimant’s Exhibit No. 1, clauses 3 and 4.)

The control system was delivered to the premises of SUPERB on 20 August 1996, and the payment of $400,000 was made 22 August 1996 as agreed. On 27 August 1996 SUPERB received a telephone call from CONTROLS in which SUPERB was informed that the charter airplane in which the team from Reliable Installation Co. that was bound for Mediterraneo to install the system had crashed and every member of the team had been killed. CONTROLS said that Reliable had stated that it would assign a new team to the job and that the installation and testing should be completed on schedule. The contents of the telephone call were confirmed in a faxed letter later that day. (Claimant’s Exhibit No. 2)

SUPERB telephoned CONTROLS on 30 August, and 4, 9 and 12 September 1996 inquiring as to when the installation team from Reliable could be expected. On each occasion CONTROLS assured SUPERB that it was informed by Reliable that it was working on assembling the new installation team. Finally, on 13 September 1996 SUPERB wrote CONTROLS reminding it that the contract date by which the installation was to be complete and tested and the control system operational was the next business day. CONTROLS was reminded of the importance to SUPERB that the system be available for use promptly. A copy was sent by fax and the original by courier. (Claimant’s Exhibit No. 3)

On 18 September 1996 SUPERB wrote CONTROLS and fixed a period of time ending on 9 October 1996 for the installation and testing to be completed. The letter made it clear that if the control system was not operable by that time, SUPERB would exercise its legal rights. The letter also suggested that CONTROLS should have secured the services of a different installation firm if Reliable was not able to assemble a new team in time to meet its contract obligations. (Claimant’s Exhibit No. 4) The letter was sent by fax and by courier. The following day, 19 September 1996, CONTROLS replied that it had given Reliable notice that if it did not send a new installation team to SUPERB within the next three weeks, it would terminate the contract and seek a new firm to do the installation. CONTROLS asked whether SUPERB would be satisfied if the installation was completed, including the testing, within the next six weeks, i.e., by 30 October 1996. (Claimant’s Exhibit No. 5)

By this time SUPERB was prepared to give up on the contract with CONTROLS. While SUPERB sympathized with the loss that Reliable had suffered, it was imperative that the control system be installed and operating. From CONTROLS’ fax of 19 September 1996 it was obvious that CONTROLS did not expect to meet the deadline of 9 October 1996. Nevertheless, SUPERB waited the three weeks until the deadline expired on 9 October 1996 before SUPERB sent to CONTROLS a notice that the contract was avoided. The letter avoiding the contract also demanded return of the $400,000 already paid to CONTROLS and stated that it was storing the computer for CONTROLS’ account. (Claimant’s Exhibit No. 6)

The following day, 10 October 1996, SUPERB concluded a contract with Bridget Controls GMBH for a comparable control system for an installed price of $550,000, with installation to be completed within 30 days of contract. The control system was installed by Bridget and was fully functional on 11 November 1996. The contract price was paid in full on 18 November 1996.

On 10 October 1996 CONTROLS telephoned SUPERB to say that it had insisted to Reliable that the installation had to be complete prior to 30 October 1996, and that it had been promised by Reliable that the installation would completed by then. CONTROLS faxed a letter to SUPERB the same day to the same effect. (Claimant’s Exhibit No. 7) In the telephone conversation SUPERB told CONTROLS that it was too late; the contract was avoided. Following receipt of the fax from CONTROLS, SUPERB reiterated its position by return fax in which it also stated that it was holding the control system as security for the return of the $400,000. (Claimant’s Exhibit No. 8)

During the following four months there were negotiations over the consequences that should result from these events. SUPERB consistently insisted that CONTROLS should return the $400,000 advance payment. CONTROLS claimed that SUPERB had breached the contract by avoiding the contract on 9 October 1996 and claimed a right to recover its damages from the advance payment. On 13 March 1997 SUPERB wrote CONTROLS that, if CONTROLS did not return the $400,000 advance payment within ten days, SUPERB would sell the control system in its possession and reimburse itself from the proceeds. (Claimant’s Exhibit No. 9) CONTROLS did not return the advance payment and the system was sold for $250,000 on 4 April 1998. The costs of preserving the control system prior to its sale and the selling costs amounted to $3,000, leaving net receipts of $247,000.

II. The Law Applicable to the Case

Paragraph 22 of the contract between SUPERB and CONTROLS provides that the contract is governed by the United Nations Convention on Contracts for the International Sale of Goods. The Convention would be the governing law in any case since both Equatoriana and Mediterraneo are party to the Convention.

Paragraph 23 of the contract provides that the arbitration will be in accordance with the International Arbitration Rules of the American Arbitration Association.

Paragraph 23 of the contract provides that the place of arbitration will be the Danubia International Arbitral Centre, Vindobona, Danubia. Danubia has adopted the UNCITRAL Model Law on International Commercial Arbitration.

Equatoriana, Mediterraneo and Danubia are all party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

III. The Legal Rights of the Claimant

The contract with CONTROLS provided that the control system was to be installed and operational on or before 16 September 1996. When it was not installed and no firm date by which installation would be commenced had been given by 18 September 1996, SUPERB fixed a period of time ending on 9 October 1996 as the period when CONTROLS was required to perform its obligation to install, test and turn over the control system in operable condition

CONTROLS had not even begun the installation on 9 October 1996. Therefore, SUPERB was authorized to avoid the contract, and did do so by letter that was faxed to CONTROLS as well as sent by courier. CISG Article 49(1)(b)

SUPERB had a right to reimbursement of the $400,000 advance payment that it had made and had the right to retain possession of the control system until the reimbursement was made. CISG Article 81(2) Since CONTROLS did not reimburse SUPERB the $400,000 advance payment for approximately five months after the contract was avoided, the sale of the control system on 4 April 1997 was authorized. SUPERB has the right to reimburse itself the costs of storing the control system and of selling it. CISG Article 88(1)

SUPERB has the right to interest on the $400,000 from 22 August 1996 to 4 April 1997 and to interest on the balance of $153,000 since that date.

SUPERB has the right to recover damages in the amount of $50,000, being the difference between the contract price of $500,000 in the contract with CONTROLS and the control system SUPERB purchased from Bridget Controls GMBH in replacement with interest from 18 November 1996. CISG Articles 45(1)(b) and 75

IV. Relief Sought

SUPERB hereby demands that the dispute between it and CONTROLS be referred to arbitration in accordance with clause 23 of the contract between them dated 10 June 1996.

SUPERB appoints Dr. ____________________ as its arbitrator as provided in the arbitration agreement.

SUPERB requests the Tribunal:

To order CONTROLS to reimburse to it the sum of $153,000, being the difference between the advance payment of $400,000 and the net receipts of $247,000 realized on the sale of the control system,

To order CONTROLS to pay interest on the sum of $400,000 from 22 August 1996 to 4 April 1997 and to interest on the balance of $153,000 since that date.

To order CONTROLS to pay damages of $50,000, being the difference between the contract price of $500,000 and the cost of the substitute control system purchased from Bridget Controls GMBH,

To order CONTROLS to pay interest on the damages of $50,000 from 10 October 1996, and

To order CONTROLS to pay the costs of the arbitration.

(Signed)______________
For Superb Paper, Plc.
Attorneys

6 July 1998_____
Date

CLAIMANT’S EXHIBIT NO. 1

CONTRACT

(The Exhibit sets forth the entire contract. Only the relevant excerpts are reproduced here.)

1. Essential Controls, S.A., 26 Export Pl., Southside City, Equatoriana, (hereafter Seller) agrees to sell and Superb Paper, Plc., 123 Industrial Avenue, Highlands, Mediterraneo (hereafter Buyer) agrees to buy a computerized control system for a total price of $500,000. The system is to be installed by Seller in the facilities of Buyer. The technical specifications are contained in Appendix I.

* * *

3. Payment of $400,000 is to be made upon delivery of the control system to the facilities of Buyer. A payment of $50,000, or ten percent (10%), is to be made within ten days of completion of final testing of the installed control system. The final payment of $50,000 is to be made within six months of completion of the final testing.

4. The control system is to be installed by the Reliable Installation Co., Baltic City, Hanseatica. Certification that the system is properly installed, that it has been tested in place and that it is fully operational will be made by Reliable on behalf of Seller on or before 16 September 1996.

* * *

22. This contract shall be governed by the United Nations Convention on Contracts for the International Sale of Goods.

23. Any controversy or claim arising out of or relating to this contract shall be determined by arbitration in accordance with the International Arbitration Rules of the American Arbitration Association. The number of arbitrators shall be three. The place of arbitration shall be the Danubia International Arbitral Centre, Vindobona, Danubia. The language of the arbitration shall be English.

24. If, in any arbitration arising out of or relating to this contract, Buyer shall make a claim which, if found to be justified, would give rise to a claim by Seller against one of its suppliers, Buyer agrees that the claim of Seller against the supplier may be settled in the arbitration between Buyer and Seller, provided that the supplier agrees to have the claim of Seller against it settled in the arbitration, that the supplier agrees to waive any right it may have to participate in the selection of the arbitral tribunal, and that the claims of Seller against the supplier raise no new questions of law or fact from those to be decided in the arbitration between Buyer and Seller.

June 10, 1996

(Signed)
William Spiegel
Superb Paper, Plc

(Signed)
Thomas Oletti
Essential Controls, S.A.

CLAIMANT’S EXHIBIT NO. 2

Faxed letter from Respondent to Claimant dated 27 August 1996

Mr. William Spiegel
Superb Paper, Plc
123 Industrial Avenue
Highlands, Mediterraneo

Dear Mr. Spiegel:

I wish to confirm to you the contents of our telephone conversation of earlier today. The charter airplane carrying the team from Reliable Installation Co. that was on its way to Mediterraneo to install the control system crashed yesterday and all passengers were killed.

Needless to say, when Reliable called me this morning to tell me of the accident, they were extremely upset. Nevertheless, they assured me that they would be able to assign a new team to the job and that the installation should be completed by the contract date. I will keep you informed if there are any further developments.

Trusting that there will be no further difficulties, I remain

Sincerely,

(Signed)
Thomas Oletti
Essential Controls, S.A.

CLAIMANT’S EXHIBIT NO. 3

Letter from Claimant to Respondent dated 13 September 1996

Mr. Thomas Oletti
Essential Controls, S.A.
26 Export Pl.
Southside City
Equatoriana

Dear Mr. Oletti:

In your letter to me of 27 August 1996 confirming to me the news of the crash of the airplane carrying the team from Reliable Installation Co. to Mediterraneo, you stated that Reliable would be sending a new team to our plant and the installation would be completed on time.

Since that time I have telephoned you on 30 August, 4, 9 and 12 September inquiring when the installation team from Reliable could be expected. On each occasion you have assured me that Reliable was working on assembling the new installation team. However, we have never been given a firm date by which we could expect their arrival.

I wish to remind you that you contracted with us that the control system would be completely installed, tested and operational by this coming Monday. It does not seem necessary to remind you how important it is to our operations to have it working, and working promptly.

I trust that you will inform me immediately when the team from Reliable will arrive.

Sincerely,

(Signed)
William Spiegel
Superb Paper, Plc.

CLAIMANT’S EXHIBIT NO. 4

Letter from Claimant to Respondent dated 18 September 1996

Mr. Thomas Oletti
Essential Controls, S.A.
26 Export Pl.
Southside City
Equatoriana

Dear Mr. Oletti:

I refer to my letter to you of 13 September 1996 reminding you that the contract date for installation of the control system was last Monday. You have still not informed us when the team from Reliable will arrive to install the control system. It is, therefore, necessary for us to be more insistent.

We expect the system to be fully installed and operational by 9 October 1996 at the latest. If it is not operational by that date, we will have to look to our legal rights.

I should add that we are completely sympathetic to the loss that Reliable has suffered. We wonder, however, why you have not looked to some other firm to do the installation if Reliable is not able to meet its obligations.

Sincerely,

(Signed)
William Spiegel
Superb Paper, Plc.

CLAIMANT’S EXHIBIT NO. 5

Letter from Respondent to Claimant dated 19 September 1996

Mr. William Spiegel
Superb Paper, Plc
123 Industrial Avenue
Highlands, Mediterraneo

Dear Mr. Spiegel:

I acknowledge your letter of 18 September 1996. This is a difficult situation. The loss of some of their old employees in the plane crash has been difficult for Reliable, both in a human way and professionally.

I know that Reliable has been trying to put a team together to install the control system at your plant. They have had had some unexpected difficulties with an installation on which their key personnel are committed.

Nevertheless, it is clear that the control system must be installed at your plant promptly. Therefore, I have informed Reliable that they must be ready to begin within the next three weeks or we would have to terminate our contract with them.

If we have to turn to a different installation firm, it will take an additional several weeks to complete the job. Therefore, I would like to know whether you would be satisfied with an installation that would be completed by October 30, 1996. We would, of course, be ready to make a suitable adjustment on the purchase price to compensate you for your forbearance.

I await your reply.

Sincerely,

(Signed)
Thomas Oletti
Essential Controls, S.A.

CLAIMANT’S EXHIBIT NO. 6

Letter from Claimant to Respondent dated 9 October 1996

Mr. Thomas Oletti
Essential Controls, S.A.
26 Export Pl.
Southside City
Equatoriana

Dear Mr. Oletti:

I refer to my letter of 18 September 1996. In that letter I told you that we expected the control system to be installed and fully operational by 9 October 1996. I also said that if the system was not installed and fully operational by 9 October 1996, Superb Paper, Plc would have to look to its legal rights.

The deadline is today. The team from Reliance that is supposed to install the control system has still not arrived, and we have not been told when or if they will. Therefore, we are hereby canceling the contract.

We are holding the control system for your account and will return it to you upon your return of the $400,000 we have paid you, which we hereby demand.

Sincerely,

(Signed)
William Spiegel
Superb Paper, Plc.

CLAIMANT’S EXHIBIT NO. 7

Letter from Respondent to Claimant dated 10 October 1996

Mr. William Spiegel
Superb Paper, Plc
123 Industrial Avenue
Highlands, Mediterraneo

Dear Mr. Spiegel:

I refer to the fax of your letter of 9 October 1996 and to our telephone conversation of today.

We completely reject your claim that you had a right to cancel the contract. We acknowledge that the installation of the control system has been delayed, for the tragic reasons of which you are well aware. However, the delay has not been unusually long and it will soon be rectified.

Reliable has finally finished the installation to which I referred in my letter of 19 September 1996. The personnel qualified to do the installation are available to arrive at your facility on Monday, 14 October. We have insisted to Reliance that the installation had to be completed by 30 October at the latest, and they have assured me that, if there are no unusual problems, it will be finished by Friday, 25 October.

I wish to express my regrets for this unfortunate delay, but I am sure that you will be fully satisfied with the Essential Control System.

Sincerely,

(Signed)
Thomas Oletti
Essential Controls, S.A.

CLAIMANT’S EXHIBIT NO. 8

Letter from Claimant to Respondent dated 10 October 1996

Mr. Thomas Oletti
Essential Controls, S.A.
26 Export Pl.
Southside City
Equatoriana

Dear Mr. Oletti:

As I told you in our telephone conversation earlier today, we appreciate that Reliance would have installed the control system within the contract period if there had not been the airplane crash. However, we do not accept that neither Reliance nor you could have seen to the installation of the system before this time.

In any case, it is now too late. The contract was cancelled yesterday, and we have entered into a replacement contract with Bridget Controls GMBH.

To clarify our position stated in our fax of yesterday, we are holding your control system as security for the return of the $400,000 that we have paid to you.

Sincerely,

(Signed)
William Spiegel
Superb Paper, Plc.

CLAIMANT’S EXHIBIT NO. 9

Letter from Claimant to Respondent dated 13 March 1997

Mr. Thomas Oletti
Essential Controls, S.A.
26 Export Pl.
Southside City
Equatoriana

Dear Mr. Oletti:

It appears that we are not progressing in settling our dispute. You continue to hold our $400,000, and we continue to hold your control system as security. In order to break this deadlock, if Essential Controls does not reimburse us the $400,000 within the next ten days, i.e., by 24 March, we will sell the control system as best we can and reimburse ourselves from the proceeds. If we are not able to sell the control system for the full amount that you owe us, we will be forced to begin legal proceedings in the appropriate forum.

Sincerely,

(Signed)
William Spiegel
Superb Paper, Plc.