AMERICAN ARBITRATION ASSOCIATION

Case No. Moot 6

Superb Paper, Plc
Claimant

v.

Essential Controls, S.A.
Respondent

MAY IT PLEASE THE TRIBUNAL

9. The Facts

1. 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.
2. 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.
3. SUPERB is a producer of paper and paper products. CONTROLS produces control systems for various manufacturing processes, including the production of paper and paper products.
4. 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 computerized control system for a total price of $500,000. The contract required that a payment of $400,000 be made upon delivery of the control system to the facilities of SUPERB. A further payment of $50,000, or ten percent (10%), was due ten days after 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. (Claimant’s Exhibit No. 1)
5. During the period when the negotiations were taking place, at a meeting on 13 May 1996, CONTROLS had indicated that it was not authorized to do electrical work in Mediterraneo, including the installation of the control system in question. Although there were several firms that were qualified to do the installation and testing, none of them were located in Mediterraneo. Finally, SUPERB suggested that the installation and final testing should be done by Reliable Installation Co., a small firm from the country of Hanseatica. SUPERB stated that they had had prior experience with Reliable and had found them to be a good firm to work with. Although CONTROLS had had no prior business relations with Reliable, it knew that the firm had a good reputation. Therefore, it undertook negotiations with Reliable, and entered into a contract with it to do the installation and testing. (Respondent’s Exhibit No. 1) Once that contract had been concluded, the contract of sale between CONTROLS and SUPERB was concluded. Both contracts required that the installation and testing be completed on or before 16 September 1996.
6. The control system was delivered to the facilities of SUPERB on 20 August 1996 and the payment of the $400,000 called for by the contract was made on 22 August 1996. Reliable had estimated that it would take two weeks to complete the installation and testing, a period that conformed to CONTROLS’ experience. The team from Reliable was scheduled to arrive in Mediterraneo to commence installing the control system on Monday, 26 August 1996, with completion expected by Friday, 6 September 1996. On Sunday, 25 August 1996 the charter airplane in which the team from Reliable Installation Co. was flying to Mediterraneo crashed and every member of the team was killed. Reliable notified CONTROLS of the crash on 26 August 1996 and CONTROLS notified SUPERB by telephone on 27 August 1996. Reliable had stated to CONTROLS, and CONTROLS so informed SUPERB, that it could assemble a new team and assign it to the job the following week and that the installation and testing at SUPERB should be completed by the contract date of 16 September 1996. The contents of the telephone call from CONTROLS to SUPERB were confirmed in a fax later that day. (Claimant’s Exhibit No. 2)
7. On 29 August 1996 Reliable telephoned CONTROLS to inform it that there might be a delay of a few days in sending the installation team to SUPERB. Reliable informed CONTROLS that, except for those who had died in the plane crash, the only personnel qualified to install the type of system CONTROLS had sold to SUPERB were assigned to a large contract that was scheduled to be completed by 30 August 1996. The installation called for in that contract had been completed that day, 29 August 1996. When it was tested, unexpected problems had arisen. As soon as the source of the problems was found and fixed, the team was ready to leave directly for Mediterraneo.
8. During the next three weeks CONTROLS telephoned Reliable almost daily to inquire when it would commence the installation of the control system at SUPERB. Reliable continuously assured CONTROLS that the installation team was about to leave for Mediterraneo. CONTROLS continuously reminded Reliable of the contract date for completion, and the importance of meeting that date.
9. When CONTROLS received the fax from SUPERB on 13 September 1996 (Claimant’s Exhibit No. 3), CONTROLS sent Reliable a fax that, unless a firm date was given by which they would begin the installation at SUPERB, CONTROLS would have to turn to another firm. (Respondent’s Exhibit No. 2) Reliable replied on 16 September 1996 that it would certainly be able to give a firm date by the end of the week, i.e., 20 September 1996. (Respondent’s Exhibit No. 3)
10. Upon receipt of the fax from SUPERB on 18 September 1996 (Claimant’s Exhibit No. 4), CONTROLS immediately sent a fax to Reliable stating that if it did not send a new installation team to SUPERB with the next three weeks, CONTROLS would terminate the contract and seek a new firm to do the installation. (Respondent’s Exhibit No. 4) At this stage it was clear that the three week deadline mentioned in the SUPERB fax could be met only if Reliable would be able to send the installation team to Mediterraneo within the next week. Since Reliable had still not informed CONTROLS when the installation team would arrive in Mediterraneo, it remained doubtful whether the installation would be completed by 9 October 1996. Therefore, CONTROLS sent a fax to SUPERB on 19 September 1996 asking whether SUPERB would be satisfied by completion within the next six weeks, i.e., by 30 October 1996. (Claimant’s Exhibit No. 5) No reply was received until 9 October 1996 when CONTROLS received by fax a notice from SUPERB that the contract was avoided. The fax also demanded return of the $400,000 already paid to CONTROLS and stated that SUPERB would return the control system only upon return of the $400,000. (Claimant’s Exhibit No. 6)
11. On 10 October 1996 CONTROLS telephoned SUPERB to say that it had insisted to Reliable that the installation had to be completed 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) SUPERB replied that it was too late; the contract was avoided. SUPERB also stated that it was holding the control system as security for the return of the $400,000. (Claimant’s Exhibit No. 8)
12. During the negotiations that took place during the next four months CONTROLS insisted that SUPERB had not had justifiable grounds for the avoidance of the contract on 9 October 1996. This position was clearly stated in CONTROLS’ letter of 17 February 1997 in which it claimed the right to recover its damages from the advance payment. CONTROLS also demanded that the control system be returned to it promptly since the value of the control system diminished in value daily. (Respondent’s Exhibit No. 5) 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 replied on 20 March 1997 basically reiterating the position it had taken in its letter of 17 February 1997 that SUPERB was the party that had breached the contract. In this letter it specifically offered to reimburse SUPERB the $400,000 less its damages of $70,000. CONTROLS also warned SUPERB that CONTROLS would hold SUPERB responsible for the consequences if it sold the control system. (Respondent’s Exhibit No. 6) SUPERB did not reply to the letter from CONTROLS and sold the control system for $250,000.

II. The Governing Law

13. CONTROLS acknowledges that the dispute with SUPERB should be settled by arbitration in accordance with clauses 22 through 24 of the contract between them dated 10 June 1996; that the arbitration is governed by the International Arbitration Rules of the American Arbitration Association, the UNCITRAL Model Law on International Commercial Arbitration and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards; and that the contract is subject to the United Nations Convention on Contracts for the International Sale of Goods (CISG).

III. The Legal Rights of Respondent against Claimant

14. The delay in installing the control system was caused by the airplane crash that killed the installation team from Reliance that was en route to Mediterraneo. Because of other contractual commitments, Reliance was not able to assign another installation team to the SUPERB contract in time to meet the contractual commitments in that contract. As a result CONTROLS is exempt under CISG Article 79 from the obligation to pay damages to SUPERB for the late installation.
15. SUPERB claims that it gave CONTROLS an additional period of reasonable time to install the control system and that it could avoid the contract because the control system was not installed within that period of time. CISG Articles 47(1) and 49(1)(b). Under the circumstances of the case the period of time was not reasonable and, therefore, the avoidance of the contract was void and amounted to a breach of the contract by SUPERB.
16. As a second reason why the attempted avoidance of the contract was void and amounted to a breach of contract by SUPERB, CONTROLS in its letter of 19 September 1996 requested SUPERB to make known whether it would be satisfied with an installation that would be completed by 30 October 1996. (Claimant’s Exhibit No. 5) SUPERB did not answer. As a result, under CISG Article 48(2) until 30 October 1996 SUPERB could not resort to any remedy which was inconsistent with performance by CONTROLS.
17. As a result of the breach of contract by SUPERB, CONTROLS has suffered damages equivalent to the loss of the profit it would have made on the contract. CISG Articles 45(1)(b) and 74. The profit would have amounted to $70,000.
18. The sale of the control system by SUPERB was not authorized by CISG Article 88. There was no delay on the part of CONTROLS in taking back the goods. On the contrary, by its letters of 13 February 1997 and 17 March 1997 CONTROLS insisted that the control system should be returned to it and that the control system should not be sold by SUPERB. Those letters merely restated the position that CONTROLS had taken consistently during the negotiations beginning in October 1996.

IV. Arbitration Agreement with Reliance Installation Co.

19. The claim by SUPERB against CONTROLS is based upon the late installation of the control system. Paragraph 4 of the contract of 10 June 1996 between SUPERB and CONTROLS provided that installation of the control system was to be done by Reliance Installation Co. In implementation of that provision CONTROLS entered into the contract with Reliable to do the installation. Therefore, the claim by SUPERB against CONTROLS implicates the obligations of Reliable under its contract with CONTROLS.
20. Paragraph 24 of the contract of 10 June 1996 provides that, "if … [SUPERB] shall make a claim against [CONTROLS] which, if found to be justified, would give rise to a claim by [CONTROLS] against one of its suppliers," the claim that CONTROLS would have against its supplier could be settled in the same arbitration as the claim of SUPERB against CONTROLS. The paragraph requires that the supplier agree to have the claim of CONTROLS against settled in the arbitration, that the supplier waive any right it may have to participate in the selection of the arbitral tribunal, and that the claims of CONTROLS against the supplier raise no new questions of law or fact from those to be decided in the arbitration between SUPERB and CONTROLS.
21. Paragraph 14 of the contract between CONTROLS and Reliable (RESPONDENT’S Exhibit No. 1) provides that "If SUPERB brings a claim against CONTROLS which is based in whole or in part on an alleged failure in respect of the installation or testing of the control system, RELIABLE agrees to defend CONTROLS against that portion of the claim based on the alleged failure in respect of the installation or testing of the control system." Paragraph 14 of the contract goes on to say "If CONTROLS is found liable to SUPERB on the basis of a failure of the installation or testing of the control system, RELIABLE agrees that it will be liable to CONTROLS to the same degree and in the same amount as CONTROLS was found liable to SUPERB."
22. In a letter dated 3 August 1998 Reliable has acknowledged that it is obligated under its contract to defend that portion of the claim of SUPERB against CONTROLS that is based on the failure of Reliable to install the control system as agreed. (Respondent’s Exhibit No. 7) Reliable has also waived any right it might otherwise have to participate in the creation of the arbitral tribunal.

MAY IT PLEASE THE TRIBUNAL

23. CONTROLS appoints Professor_________________________ as its arbitrator as provided in the arbitration agreement.
24. CONTROLS requests the tribunal:

• To decide that CONTROLS is exempt from any damages that SUPERB may have suffered as a result of the delayed installation of the control system;

• To decide that SUPERB did not have legal grounds on which to avoid the contract on 9 October 1996;
• To order SUPERB to pay the costs of the arbitration.

25. By way of counterclaim CONTROLS requests the tribunal:

• To decide that SUPERB breached the contract by claiming that it had avoided the contract on 9 October 1996;
• To find that CONTROLS suffered damages in the amount of $70,000 from the breach of the contract and to order that these damages be setoff against the advance payment of $400,000;
• To decide that SUPERB did not have legal authority to sell the control system for $250,000 on 4 April 1997 and that the control system was not sold by appropriate means;

• To find that CONTROLS suffered damages of $40,000 from the improper sale of the control system by SUPERB, and to order that these damages be setoff against the advance payment of $400,000.

JOINDER OF RELIANCE INSTALLATION CO. IN THE ARBITRATION

26. CONTROLS requests the tribunal:

• To order that Reliance Installation Co. shall be joined as a defendant in this arbitration in accordance with the terms of paragraph 24 of the contract dated 10 June 1996 between SUPERB and CONTROLS and paragraphs 14 and 15 of the contract dated 7 June 1996 between Reliable Installation Co. and CONTROLS.

(Signed)
For Essential Controls, S.A.
Attorney

13 August 1998
Date

RESPONDENT’S EXHIBIT NO. 1

CONTRACT

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

Whereas, Essential Controls, S.A., 26 Export Pl., Southside City, Equatoriana (hereafter CONTROLS) and Superb Paper, Plc., 123 Industrial Avenue, Highlands, Mediterraneo (hereafter SUPERB) have negotiated a contract in which CONTROLS expects to sell and SUPERB expects to purchase a computerized control system, and

Whereas, CONTROLS expects that it will undertake to install the control system in the facilities of SUPERB, and

Whereas, CONTROLS is not authorized to do electrical work in Mediterraneo, including the installation of the control system, and

Whereas Reliable Installation Co., 14 Ocean Avenue, Baltic City, Hanseatica, (hereafter RELIABLE) is experienced in the installation of control systems of the nature of the system to be sold to SUPERB, and

Whereas RELIABLE is licensed in Mediterraneo,