AMERICAN ARBITRATION ASSOCIATION

AMERICAN ARBITRATION ASSOCIATION

Case No. Moot 6

Superb Paper, Plc
Claimant

v.

Essential Controls, S.A.
Respondent

PROCEDURAL ORDER NO. 2

This procedural order contains answers to Requests for Clarification submitted pursuant to Procedural Order No. 1. Where similar questions have been asked, the questions have been rephrased so as to permit a single answer. Questions relating to the Second Phase of the arbitration following oral argument on the First Phase of the arbitration have not been dealt with in this Procedural Order, e.g.,

a. Whether Reliable could have taken measures to complete the installation at SUPERB prior to 9 October 1996.

b. The amount of damages recoverable by either party or the rate of interest potentially applicable to those damages.

c. The costs of the arbitration.

Similarly, questions to which the answers already appear in the Statement of Claim, Statement of Defense, the supporting Exhibits or in the governing legal texts, which appear to be irrelevant and for which no explanation has been given or which ask for legal conclusions have not been dealt with.

The Tribunal wishes to repeat that the memoranda and the oral arguments are to be limited to the four issues set out in its Procedural Order No. 1, including the question as to whether Reliable Installation Co. should be joined to this arbitration. Any additional issues that might arise will be considered in the second phase of the arbitration. In particular, since the question has been asked whether SUPERB could argue that avoidance of the contract is justified under article 49(1)(a), it should be noted that the Statement of Claim, para. 17, limits its justification to article 49(1)(b). If claimant wishes to amend its Statement of Claim in accordance with article 4 of the International Arbitration Rules, it should make that request after oral arguments on the first phase of the arbitration.

Legal Questions

1. Are Equatoriana, Mediterraneo, Danubia and Hanseatica party to the United Nations Convention on Contracts for the International Sale of Goods?

Yes, all four countries are party to the Convention. No declarations have been made by any of them.

2. Are they all party to the Convention on the Recognition and Enforcement of Foreign Arbitral Award?

Yes, all four countries are party to the Convention.

3. Are there any other bilateral or multilateral treaties concerning arbitration to which any of the four countries are party that might be applicable to this arbitration?

No.

4. Have any of the four countries adopted the UNIDROIT Principles of International Contract Law?

No.

Factual Questions

1. Did Reliable know about the contents of the contract between SUPERB and CONTROLS? Did Reliable know about SUPERB's repeated demands for implementation of the contract?

As indicated in the Preamble to the contract between CONTROLS and Reliable, Reliable was fully aware that its contract was in implementation of the contract between SUPERB and CONTROLS. It was also aware of the text of clauses 4 and 22 to 24, the only clauses that were of concern to Reliable.

There has been no direct contact between SUPERB and Reliable at any time, either prior to the conclusion of the contract between SUPERB and CONTROLS or subsequently..

2. Was it normal for control systems of the type sold by CONTROLS to SUPERB to be sold with installation as a non-separable part of the contract?

Yes.

3. Did the price at which the control system delivered by CONTROLS to SUPERB could have been sold to a third party diminish between 16 September 1996 and 4 April 1997?

The list price for the control system Ex Works was $430,000 during 1996, $390,000 in 1997 and $350,000 in 1998. The decline in price was normal in the industry as newer systems were developed by CONTROLS and its competitors.

The price of $250,000 realized in the sale of the system on 4 April 1997 was a fair price for a system sold by a broker experienced in the sale of similar equipment, selling on the instructions of a party in the position of SUPERB.

4. Was the control system a standard system or was it specially designed for SUPERB? Was it difficult to install?

The control system was a standard system applicable to the paper and paper products industry generally. Installation requires a certain amount of adaptation to the user, but such work is not beyond the capabilities of a number of firms. It would be unusual, however, for a firm in the paper and paper products industry to be able to do it itself, and SUPERB did not have such a capability.

5. Did CONTROLS attempt to secure another firm to do the installation between 29 August and 9 October 1996?

No.

6. Did SUPERB attempt to secure another firm to do the installation between 18 September and 9 October 1996?

No.

7. At what time in the day on 9 October 1996 did SUPERB avoid the contract?

The letter avoiding the contract was sent by fax at 11:15 and by mail at noon. SUPERB and CONTROLS are in the same time zone.

8. Did SUPERB offer to return the control system to CONTROLS between 9 October 1996 and 4 April 1997 or, during that period, did CONTROLS offer to take it back?

The two were in negotiation during this period. SUPERB offered to return the control system if CONTROLS would return the entire $400,000 advance payment. CONTROLS insisted that it had a right to the return of the control system on reimbursement of the $400,000 less its damages, as set out in para. 12 of the Statement of Defense and Counterclaim.

9. When did SUPERB begin to negotiate with Bridget Controls GMBH?

SUPERB had discussed with Bridget the possibility of purchasing a control system from it prior to the decision to buy the system from CONTROLS. A new contact was made by SUPERB on 16 September 1996. On 25 September 1996 Bridget made a formal offer. The terms of the offer were accepted by SUPERB and incorporated into the contract that was signed on 10 October 1996.

10. Was the contract with Bridget Controls GMBH concluded on 10 October 1996

before or after the telephone call from CONTROLS described in para. 10 of the Notice of Arbitration and Statement of Claim?

The telephone call was about 10:00 a.m. and the contract with Bridget was signed about 2:00 p.m.

11. When did the letter from SUPERB to CONTROLS dated 13 March 1997 arrive?

The letter was sent by fax the same day. The original was sent by mail and arrived on 17 March 1997.

12. Has SUPERB had any prior problems with Reliable as an installer?

No.

13. Are there any clauses in the contract between SUPERB and CONTROLS and Reliable that have not been reproduced that might be relevant to this arbitration?

No.

14. Would any of the firms qualified to do the installation work in Mediterraneo have been available and willing to do the work between 27 August and October 9?

Three other firms were potentially available. All three have indicated that they could have shifted personnel so as to have had an installation team available if approached in August. It would have been more difficult following 2 September, but probably not impossible. Normally such work is scheduled a minimum of two months in advance, but on occasion work had been undertaken on as little as one weeks notice. They all agreed that the job itself should take two weeks if there were no special problems.

15. Could SUPERB have contracted with one of these firms to do the installation of the rather than have contracted for an entirely new system from Bridget?

That might have been possible. It may be significant that the guarantees given by CONTROLS as to the performance of the control system would not have been in force unless the installation was performed by CONTROLS or a firm responsible to CONTROLS.

16. Where is the place of business of Bridget Controls GMBH?

Equatoriana.

17. Does CONTROLS usually test and install its control systems in Equatoriana?

It does business in a number of countries in addition to Equatoriana. In most it is authorized to do the electrical work that is necessary for an installation.

The licensing requirements in Mediterraneo are such that CONTROLS found it undesirable to apply.

18. Had SUPERB been informed that Reliable was scheduled to arrive at SUPERBís premises on 26 August 1996?

Yes.

19. Are problems with installation a common occurrence?

They are not common, but they are not unknown. Every firm that does such installations has had experience with installations that had unexpected problems.

20. Who owned the charter airplane?

It was owned by a well respected company that charters airplanes. The plane was being flown by a pilot of the charter company.

21. Is there evidence that the plane really crashed?

Yes. CONTROLS does not know the cause of the crash and, if it is important, it will be part of the fact-finding process in the Second Phase of the arbitration.

22. Is the control system hardware, computer software, or a combination?

It is a combination of both. There is no question but what it is "goods".

23. What was the significance to SUPERB that the control system be installed by 16 September?

The date was of no particular significance. The control system currently in place was out of date and SUPERB expected to make significant cost savings from the new system over time, but the amount had not been calculated.

(Signed)
President of the Tribunal

1 November 1998
Date