CLAIRIFICATIONS OF THE PROBLEM


To: Participants in the Third Annual Willem C. Vis International Commercial Arbitration Moot

From: Eric E. Bergsten

Re: Clarifications of the Problem

Date: November 15, 1995

During the last two weeks a number of teams have requested clarifications of the problem. Responses have been sent directly to the teams that have asked the questions. This communication is intended to group those questions and responses into categories for easy reference. In some cases the questions and the answers have been modified in this memorandum from that which was sent directly to the team that asked the question. Where there is any discrepancy in substance, the answers in this memorandum are the official responses.

STYLE OF THE MEMORANDUM

To what extent should claimant's memorandum contain a repetition of the facts as presented by documents already on the record? There is no answer to that question. It is a basic question in an arbitration when you don't know the people involved. The students should do what they think would be the most logical given the audience and the context.

FACTUAL QUESTIONS

1. What technical skills are necessary to install the replacement control system? The control system for the model 14C heating and air conditioning unit is a sophisticated system that automatically adjusts temperature and humidity in the space serviced by the unit. The control system is similar to, but somewhat different from, control systems used by other manufacturers. Installation of the control system in an otherwise complete unit is not excessively complex, but it does require a certain degree of training in the particular system used. Training is done by use of training materials prepared by Quality and sent to potential purchasers of the Model 14C units. Upon request Quality certifies that particular individuals have successfully completed the training course, but it is not necessary for a person to be certified to work on the control units.

The training materials were sent to Carlson in 1992. Mr. Thomas Winslow completed the training course and has been certified by Quality. Quality has no independent knowledge whether any other of Carlson's personnel had used the training materials and were qualified to install the replacement control system.

2. Has Carlson entered into a confidentiality agreement with Eastinghouse? Quality has no knowledge whether Carlson has entered into a confidentiality agreement with Eastinghouse.

3. When did Carlson receive the replacement control system, before or after Carlson canceled the contract? The replacement control system, which was sent by Quality on 26 July 1993, was received by Carlson late in the day on 2 August 1993, after the telex set out in Claimant's Exhibit 12 was sent.

4. Did Carlson ever attempt to install the replacement control system? Quality has no specific knowledge whether Carlson attempted to instal the replacement control system. It assumes from the sequence of telexes that no such attempt was made prior to the repair of the unit in preparation for its sale in April 1994.

5. Did Carlson have to spend a substantial amount of money in order to install the replacement control system prior to its sale? As pointed out in the telex from Quality to Carlson on 27 July 1993 (Claimant's Exhibit 10), Quality estimated that Carlson would have to spend $1,500 to install the replacement control system. Whether it cost Carlson more or less to do the repairs, and whether any of the repairs were necessitated by events that occurred after 2 August 1993, will probably become apparent in later stages of the arbitration.

6. If Mr. Thomas Winslow is really the only Carlson employee who could diagnose the control system, who determined that it was the control system that did not function? While Mr. Winslow may have been the only employee for Carlson who could do a thorough diagnosis of the problems with the unit that failed, it should not have been difficult for Carlson's other employees to determine that the problem lay with the control system. Without Mr. Winslow's help they may not have been able to determine what was wrong with the control system. The answers to those questions may become clearer when Carlson presents its case at a later stage of the arbitration.

7. Were there any other technicians available in Mediterraneo available and qualified to install the replacement control system when the problem arose? There were no other technicians who had taken the training course prepared by Quality.

8. Is there any solid evidence of the rumor that Carlson wanted to enter into an agreement with Eastinghouse for the purchase of the 6 A.C. units since early January? The question is answered in the statement of claim, para. 5.

9. What was the nature of the negotiations conducted by the parties between September and February? Did they aim at resolving the parties' differences in order to carry on with the delivery of the remaining units or did they merely concern the dispute over damages ? The negotiations conducted by the parties between September 1993 and February 1994 were aimed at resolving the dispute between them in general. It was soon apparent to Quality that the remaining five units would never be shipped, and Quality more or less anticipated that result in its telex set out as exhibit 13. Therefore, the negotiations were primarily about the consequences of the failed contract.

10. Can you list exactly the expenses for repair and storage and the sum of damages claimed by Carlson that amount to the $19,100 held back from the $40,000 received for the repaired unit? The information you have requested is in the knowledge of Carlson. It will undoubtedly be made available by Carlson to you and to the arbitral tribunal as this arbitration progresses.

11. What were Quality's costs and net margin? Is the requested $80,000 an accurate figure for lost profits? The $80,000 claimed by Quality for the five undelivered units was calculated under article 74 of the Sales Convention as the loss of profit suffered by Quality as a result of the asserted breach of contract by Carlson. It is believed to be accurate. Whether it is will probably be determined later in the arbitration, if the arbitration reaches that stage.

12. Why does the Claimant in changing his terms of payment insist on a letter of credit at a value of $ 275,000 rather than $ 300,000 (which is the total value of the units to be delivered under the contract) or $ 250,000 (which is the value of the remaining units to be delivered)? The sum of $275,000 represents the $250,000 for the five remaining units, plus 10%, the usual increase over the expected invoice price. While it might have been possible for Quality to have added the original $50,000 to the letter of credit, the basis of drawing against the letter of credit would have been different, since the first unit had already been shipped, and indeed received.

LEGAL ISSUES

1. Is Danubia's domestic law civil or common law? More specifically, what is its policy regarding specific performance? In the light of its past political history, Danubia has a mixed system of civil and common law. Its domestic law of sales has a provision similar to article 46 of the Sales Convention. When requested by a party to order the other party to perform, a court has the authority to exercise its judgment as to whether such an order would be appropriate. When such an order is judged to be appropriate, the court may also order the party who is to perform to pay a sum of money per day to the state for any delay in performing as ordered by the court. In extraordinary circumstances the court may also order the party who is to perform to pay a sum of money per day to the party who is to receive performance for any delay in performing as ordered by the court.

2. To what law will the arbitrators look for the conditions for admissibility of a piece of evidence? The question as to what law the arbitrators will look in determining the "conditions for admissibility of a piece of evidence" may be one of the issues in the Moot. For whatever it is worth, the rules of the Moot under the heading Dispute Settlement state that Danubia has enacted the UNCITRAL Model Law on International Commercial Arbitration.

3. What are the relevant rules of discovery in Danubia? There are no statutory rules of discovery in Danubia relevant to the authority of an arbitral tribunal to order one of the parties to furnish the other party with documents in the possession of the requested party, other than that which can be gleaned from the UNCITRAL Model Law on International Commercial Arbitration, which is the arbitration law in force in Danubia, and the International Arbitration Rules of the American Arbitration Association, which are the arbitration rules governing this arbitration. The courts of Danubia have not as yet had the opportunity to rule on the question.