TABLE OF CONTENTS

3rd Place Memoranda for Claimant



 

 

GRIFFITH UNIVERSITY
SCHOOL OF LAW

 

 

FIFTH ANNUAL

WILLEM C.VIS

 

INTERNATIONAL COMMERCIAL ARBITRATION MOOT

 

1997-98

 

International Arbitration Center

Of Danubia

 

 

 

MEMORANDUM

 

 

 

ON BEHALF OF: AGAINST:

 

Speculative Drilling, Co.: Deep Well Drilling, Inc.

 

Petroleum City: Industrial City

Mediterraneo: Equatoriana

 

 

TEAM MEMBERS:

James Bremen • Tanya Denning • Sheree Hardy

Sonya Holmes • Shivchand Jhinku • Matthew Phillips

Michael Ryan



TABLE OF CONTENTS

 

TABLE OF RERERENCES

International Agreements, Treaties, Rules and Official Records

Bibliography

Awards & Cases

 

ABBREVIATIONS



SUMMARY OF SPECULATIVE’S ARGUMENTS

 

1. JURISDICTION OF THE ARBITRAL TRIBUNAL

 

A. Valid Arbitration Agreement Under Art. 7(2) Model Law

I. Offer and Acceptance of Arbitration Agreement

II. Consent to and Participation in Arbitration

III. Severance of Arbitration Clause

 

2. FORMATION OF CONTRACT

 

A. The Substantive Law Governing the Contract

 

B. DEEP WELL Letter of 13 May was an Irrevocable Offer

I. A Clearly Constituted Offer Under Art. 14 CISG

II. Irrevocable Under Art. 16(2)(a) CISG

III. Irrevocable Under Art.16(2)(b) CISG

 

C. Acceptance and Rejection of Offer Under Art. 17 and Art. 19 CISG

I. SPECULATIVE’s Letter of 21 May 1997 Was Not a Counter
Offer – Art. 19 Does Not Apply

II. SPECULATIVE’s Letter of 21 May 1997 Was Not a Rejection of
Offer Art. 17 Does Not Apply

a) Interpretation of Statements Made by Other Party Under
Art. 8 CISG

b) Interpretation of the Convention Under Art.7 CISG

I. SPECULATIVE’s Letter of 5 June 1997 was an Acceptance of the
Offer and a Binding Contract was Formed the Moment it Reached
DEEP WELL

 

3. TERMS OF THE CONTRACT

 

A. Relationship Between Clause 3 and CISG

 

B. DEEP WELL Was Not Entitled to Avoid the Contract Under Clause 3

I. Compliance with Clauses 1 and 2

a) Guarantee Was Opened Under Clause 2

b) Extension of DEEP WELL’s Time-Limits For Performance
of Clause 1 and 2

c) Interpretation of "Days"

 

C. DEEP WELL Was Not Entitled to Avoid the Contract Under Art.64

I. No Fundamental Breach

II. Limits on Time For Avoidance Expired

a) DEEP WELL’s Return of the Payment and Guarantee Does Not
Constitute Notice of Avoidance

b) Effect Of An Instalment Contract

III. No Effective Notice of Avoidance

 

4. AWARDS SOUGHT BY THE TRIBUNAL

 

A. SPECULATIVE Requests the Arbitral Tribunal to Grant an Award of Specific
Performance

I. SPECULATIVE’s Right to Specific Performance

II. Specific Performance is the Most Appropriate Remedy

III. Art.28 CISG is Applicable to this Dispute: Court Will Order Specific
Performance

 

B. SPECULATIVE Requests the Arbitral Tribunal to Grant an Interim Injunction to Prevent the Sale of Drilling Rig #23

I. The Arbitral Tribunal Has Authority to Grant an Interim Injunction

 

C. Enforcement of the Arbitral Awards in Polarity

I. Applicability of the New York Convention

II. Enforcement of the Foreign Arbitral Award in Polarity

 

5. COSTS




TABLE OF REFERENCES

 

International Agreements, Treaties, Rules and Official Records

 

New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

 

Official Records (Secretariat Commentary); United Nations Convention on Contracts for the International Sale of Goods.

 

UNCITRAL Model Law on International Commercial Arbitration

 

UNCITRAL Arbitration Rules

 

United Nations Convention on Contracts for the International Sale of Goods

 

Bibliography

 

Babiak, "Defining 'Fundamental Breach' Under the [CISG]", Temple International & Comparative Law Journal,. 6 (1992)

 

Bianca, C.M. and Bonnell, M.J. (ed.) Commentary on the International Sales Law: the 1980 Vienna Sales Convention. Milan: Giuffre, 1987.

 

Blanpain (ed) International Encyclopedia of Laws, Kluwer: 1993, p.64

 

Doralt, P (ed), Das UNCITRAL-Kaufrecht im Vergleich zum Osterreichischen Recht, Manzsche Verlags und Universitatsbuchhandlung, Vienna: 1985

 

Enderlein, Fritz and Maskow, Dietrich. International Sales Law
New York: Oceana Publications, 1992.

 

Farnsworth, Allan, "Damages and Specific Relief" The American Journal of Comparative Law 27 (1979)

 

Feltham, "The United Nations Convention on Contracts for the International Sale of Goods", Journal of Business Law, (1981)

 

Flechtner, Harry. "Remedies Under the New International Sales Convention: The Perspective From Article 2 of the U.C.C.", Journal of Law and Commerce 8(53) (1988)

 

Gabiel, Henry. Practicitioners Guide to The Convention on Contracts for the International Sale of Goods (CISG) and The Uniform Commercial Code (UCC). New York: Oceania Publications, Inc, 1994

 

Herman, A.H. International Trade Terms Standard Terms for Contracts for the International Sale of Goods. London: Graham & Trotman Ltd & Kluwer Academic Publishers Group, 1993

 

Huleatt, James, Mark. and Gould, Nicholas, International Commercial Arbitration: A Handbook. London: LLP Limited, 1996

 

Holtzmann, Howard M., and Joseph E. Neuhaus. A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Leglislative History and Commentary. Deventer: Kluwer Law and Taxation Publishers, 1989.

 

Honnold, John O. Documentary History of the Uniform Law for International Sales. Deventer Kluwer Law and Taxation Publishers, 1989

 

Honnold, John O. Uniform Law for International Sales under the 1980 United Nations. (2nd ed). Deventer: Kluwer Law and Taxation Publishers, 1991.

 

ICM-Guide to UN Convention - Supplement 8 (January 1994)

 

Kaczorowska, Alina. International Trade Conventions and Their Effectiveness Present and Future Southampton: Kluwer Law International, 1995

 

Kastely, Amy. "Requiring Performance in International Sales" Washington Law Review 63 (1988)

 

Kelso, J, "The United Nations Convention on Contracts for the International Sale of Goods: Contract Formation and the Battle of Forms" Columbia Journal of Transnational Law, 21(3) (1983)

 

Murray, John, "An Essay on the Formation of Contracts and Related Matters Under the United Nations Convention on Contracts for the International Sale of Goods", Journal of Law and Commerce, 8(11) (1988)

 

O’Donovan, James and Phillips, John. The Modern Contract of Guarantee (3rd ed)
Australia: LBC Information Services, 1996

 

Pierce, Anthony, Bank Guarantees in International Trade, London: Sweet & Maxwell Limited,1993

 

Roussakis, Emmanuel, N. International Banking Principles and Practices
United States: Praeger Special Studies, 1983

 

Redfern, Alan and Hunter, Peter. International Commercial Arbitration (2nd ed)
London: Sweet & Maxwell, 1991

 

Redfern, Alan. "Arbitration and the Courts: Interim Measures of Protection - Is the Tide About To Turn?" Texas International Law Journal 30 (1995): 71-88

 

Ryder, F.R. Legal Problems of International Banking London: Sweet & Maxwell, 1987

 

Šarcevic, Petar and Volken, Paul (ed) International Sale of Goods Dubrovnik Lectures New York Oceania Publications, Inc, 1986

 

Secretariat's Commentary on the 1978 Draft CISG (http://www.cisg.law.pace.edu/secomm)

 

Sono, Kazuaki. "Restoration of the Rule of Reason in Contract Formation: Has There Been Civil and Common Law Disparity?" Cornell International Law Journal 21 (1988) 477- 485

 

Schlechtriem, P Uniform Sales Law The UN Convention on Contracts for the International Sale of Goods Vienna: Manzsche, 1986

 

van Houtte, Hans. The Law of International Trade London: Sweet & Maxwell, 1995.

 

Voskuil & Wade (eds), Hague-Sagreb Essays 4 on the Law of International Trade, Nijhoff: The Hague, 1983

 

Will, Michael R. The UN Convention on Contracts for the International Sale of Goods.
Geneve: 995.

 

Awards & Cases

 

Arbitral award in case No. 123/1992 of 17 October 1995 (Unpublished)

 

Enrique C. Wellbers S.A.I.C.A.G v Extraktiionst echnik Gesellschaft für Anlagenbau M.B.B:S/ Ordinario 26 September 1988 26 September 1988

 

Landgericht Frankfurt a.M.;3/11 O 3/91

 

Oberlandesgerricht Düsseldorf; 17 U 146/93

 

Oberlandesgericht Frankfurt am Main; 25 U 185/94

 

Robert E Schreter v Gasmac Inc 7 Ontario Reports (3d), 608




ABBREVIATIONS

 

Art. Article

 

Arbitration Rules UNCITRAL Arbitration Rules

 

Co Company

 

CISG United Nations Convention on Contracts for the International Sale of Goods

 

DEEP WELL Deep Well Drilling, Inc.

 

Model Law Model Law on International Commercial Arbitration, adopted by the United Nations Commission on International Trade Law on June 21 1985

 

New York Convention Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958

 

No. Number

 

Par. Paragraph

 

SPECULATIVE Speculative Drilling, Co.

 

Tribunal Arbitral Tribunal

 

Yearbook Commercial Arbitration Yearbook of the International Council for Commercial Arbitrtion

 

UNCITRAL United Nations Commission on International Trade Law


SUMMARY OF SPECULATIVE’S ARGUMENTS

  1. The Tribunal has jurisdiction to adjudicate this dispute as a binding arbitration agreement exists and the present dispute falls within the scope of the arbitration.
  2. DEEP WELL has to make drilling rig #23 available for delivery to SPECULATIVE pursuant to Art. 46 and its obligations under Clause 5 of the draft contract. DEEP WELL is therefore not free to deliver the drilling rig to a third party.
  3. A binding contract has been concluded between SPECULATIVE and DEEP WELL pursuant to Arts. 14 et seq CISG. DEEP WELL extended an offer to SPECULATIVE in its letter of 13 May 1997. This offer was irrevocable pursuant to Art. 16 as it fixed a time for acceptance and SPECULATIVE reasonably acted in reliance upon the offer by arranging payment and a bank guarantee. Therefore, DEEP WELL's withdrawal of the offer on 3 June 1997 was not valid. Although SPECULATIVE sent an inquiry to DEEP WELL on 21 May 1997 suggesting consideration of a different price, it did not purport to accept or reject the offer of 13 May 1997. Finally, SPECULATIVE accepted DEEP WELL's offer in its telefax of 5 June 1997. Therefore, a binding contract exists between SPECULATIVE and DEEP WELL.
  4. SPECULATIVE fulfilled its obligations set out under the terms of the draft contract. The first payment of E$3,000,000 was made and the bank guarantee was established as required by Clauses 1 and 2 of the draft contract. Thus, DEEP WELL is not entitled to avoid the contract under Clause 3 of the draft contract. Furthermore, DEEP WELL has no grounds under the CISG to avoid the contract as there was no fundamental breach by SPECULATIVE. SPECULATIVE had taken all the necessary steps to comply with Clauses 1 and 2 of the draft contract and DEEP WELL suffered no detriment pursuant to Arts. 64(1) and 25 CISG. In addition under Art. 64(2) CISG, DEEP WELL lost its right to avoid under Clause 3 of the draft contract as SPECULATIVE rendered performance and DEEP WELL was aware that performance was rendered.
  5. DEEP WELL did not effectively give any declaration of avoidance according to Art. 26 CISG. DEEP WELL's letter of 24 June 1997 did not expressly or impliedly declare the contract avoided. Hence, the contract remains in force.
  6. SPECULATIVE has a right to demand specific performance of the contract pursuant to Art. 46(1) CISG. Damages would be substantial, making them very difficult to calculate. Furthermore drilling rigs are not a common or substitutable item, thus making the acquisition of a substitute drilling rig very difficult for SPECULATIVE. As a result, SPECULATIVE would be placed at a serious disadvantage if damages were to be ordered. Hence, an order for specific performance under the terms of the draft contract would be more appropriate and just to the parties.
  7. DEEP WELL cannot deny its obligations to make drilling rig #23 available for delivery to SPECULATIVE by relying on Art. 28 CISG. Drilling rig #23 is located in Polarity and the courts of Polarity can and do issue orders for specific performance. Therefore, SPECULATIVE respectfully submits that DEEP WELL be ordered to make the drilling rig available for delivery as required by the terms of the contract. Furthermore, SPECULATIVE submits that an interim injunction be ordered to prevent the sale of drilling rig #23 to any other party to allow SPECULATIVE to exercise its rights under the contract.
  8. SPECULATIVE respectfully submits that DEEP WELL must pay all arbitral cost as it has tried to evade the contract in bad faith and so forced SPECULATIVE to claim its rights in these arbitral proceedings. SPECULATIVE has acted in full accordance with the CISG and requests that the Tribunal consider its position when determining costs.

1. JURISDICTION OF THE ARBITRAL TRIBUNAL

The Tribunal has jurisdiction to hear this dispute since a valid contract exists between SPECULATIVE and DEEP WELL, which contains an arbitration clause referring the dispute for determination by ad hoc arbitration in accordance with the UNCITRAL Arbitration Rules. Furthermore, SPECULATIVE submits that the Tribunal has jurisdiction because a valid arbitration agreement exists under the provisions in Art. 7(2) UNCITRAL Model Law (ML). This arbitration agreement can be treated as an agreement separate from the contract under Art 16 ML, and amounts to a valid arbitration agreement under Article 7(2) independent of the validity of the main contract.

A. Valid Arbitration Agreement Under Art. 7(2) ML

I. Offer and Acceptance of Arbitration Agreement

Art. 7(2) ML states that "The arbitration agreement shall be in writing". Such an agreement exists if the agreement is contained in an "exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement" Hence, the basic test for a written agreement is that each party has declared in writing its consent to arbitration.

SPECULATIVE submits that the written offer sent by DEEP WELL dated 13 May 1997 and SPECULATIVE’s acceptance of this offer by telefax on 5 June amounted to consent from both parties to an agreement to arbitrate according to the terms of the arbitration clause in the draft contract. There is no requirement for the draft contract to be signed or even that SPECULATIVE’s acceptance by telefax refer specifically to an arbitration agreement, it is enough that both parties assented to it. This is clearly satisfied as a valid contract was formed between the parties.

II. Consent to and Participation in Arbitration

Alternatively, if the Tribunal finds that the correspondence between the parties does not evidence a record of agreement, the ML further provides under Art 7(2) that a written arbitration agreement can be found "in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by another." This is clearly the situation here. SPECULATIVE submitted a statement of claim stating that an arbitration clause exists, calling for ad hoc arbitration under the Arbitration Rules. DEEP WELL submitted in their statement of defence that they agree to arbitrate on the basis of this arbitration clause; that they have participated in establishing the Tribunal; and that they are prepared to proceed in accordance with the agreed arbitral procedures. Therefore agreement by both SPECULATIVE and DEEP WELL to proceed with the dispute on the basis of the arbitration clause, constitutes a valid arbitration agreement, as evidenced in their statements of claim and defence respectively.

III. Severance of Arbitration Clause

Additionally, SPECULATIVE asserts that the arbitration clause in the agreement can be treated as an agreement independent of the other terms of the alleged contract pursuant to Art. 16(1) ML. Separability is a commonly accepted principle in international commercial arbitration and the arbitration agreement in Clause 9 of the contract does not automatically terminate when the validity of the contract is questioned or the contract comes to an end. Therefore, a finding by the Tribunal that no contract is in existence, does not require a conclusion that the arbitration clause is invalid.

Thus, SPECULATIVE submits that the Tribunal has jurisdiction to hear the dispute because a valid arbitration agreement exists regardless of whether a valid contract is found to be in existence.

2. FORMATION OF CONTRACT

A. The Substantive Law Governing the Contract

Clause 8 of the draft contract provides that the contract is to be governed by the United Nations Convention on Contracts for the International Sale of Goods (CISG) and any matters not governed by the convention shall be governed by the general principles of law governing international contracts.

However, even in the absence of the choice of law clause, since Equatoriana and Mediterraneo are both Contracting States to the CISG, the convention would still apply.

B. DEEP WELL Letter of 13 May was an Irrevocable Offer

SPECULATIVE submits that DEEP WELL made an offer to SPECULATIVE and the offer was irrevocable. The letter to SPECULATIVE from DEEP WELL dated 13 May 1997 (Claimant's Exhibit 1) was an offer in the terms of the attached draft contract (Claimant's Exhibit 2) and was an offer held open until 10 June 1997. SPECULATIVE accepted the offer on 5 June 1997 (Claimant's Exhibit 5), before DEEP WELL's offer expired.

I. A Clearly Constituted Offer Under Art. 14 CISG

Pursuant to Art. 14, a proposal addressed to one or more specific persons, which is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance, constitutes an offer. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes the quantity and price.

SPECULATIVE relies on the undisputed fact that the letter dated 13 May 1997 and the attached contract from DEEP WELL to sell drilling rig #23 was clearly an intention to be bound in case of acceptance. The offer was expressly addressed to SPECULATIVE, which also expressly indicated drilling rig #23 to be the goods for sale and its sale price of E$30,000,000. The contract attached to the letter contained in detail the remaining terms of the offer. Therefore, the letter dated 13 May 1997 and the attached contract satisfied the minimum criteria for an offer. The offer became effective on 16 May 1997 when it reached SPECULATIVE, and the offer was not withdrawn before it became effective.

II. Irrevocable Under Art. 16(2)(a) CISG

SPECULATIVE submits that the offer made by DEEP WELL was irrevocable. The letter sent by DEEP WELL dated 13 May 1997 states that "In light of our extensive negotiations, we expect to hear from you by 10 June." DEEP WELL alleges that this was merely an expression of expectation and did not constitute a fixed time for acceptance of the offer. However, SPECULATIVE submits that the weight of authority provides that fixing a time for acceptance creates a presumption of irrevocability. Thus, the fact that the offer by DEEP WELL fixed 10 June 1997 for acceptance means that the offer is open and irrevocable until that date.

Art. 16(2)(a) provides that "an offer cannot be revoked if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable". The Secretariat Commentary notes that this provision "does not require a promise on the part of the offeror not to revoke his offer nor does it require any promise, act, or forbearance on the part of the offeree for the offer to become irrevocable". The Secretariat Commentary expressly states that the offer may indicate that it is irrevocable by stating a fixed time for acceptance. The 1978 UNCITRAL Draft provisions on formation adopted by the delegates to the Vienna Diplomatic Conference, specifically retained the implied indication of irrevocability by reference to a "fixed time for acceptance or otherwise". Honnold states that this retention of a reference to a fixed time for acceptance creates a presumption of irrevocability until the stated date. Thus, the setting of 10 June 1997 for acceptance creates a presumption that the offer made by DEEP WELL was irrevocable. DEEP WELL did not, prior to the offer closing on 10 June, make any statement or engage in any conduct that rebutted the presumption of irrevocability.

DEEP WELL alleges that the statement "we expect to hear from you by 10 June" does not constitute a fixed time for acceptance and was not the type of statement that would make the offer irrevocable. Further, DEEP WELL argues that the fixing of 10 June 1997 was merely an expression of expectation and was not an expression of irrevocability. However, these assertions are contrary to the effect of Arts. 8(2) and (3) CISG on the interpretation of the offer made by the DEEP WELL. According to Honnold, an offeror who wishes to set a date for expiration of the offer and also to reserve the power to withdraw the offer should make this intention clear. In effect, the reservation of the power to withdraw an offer that contains a fixed date requires a clear expression of intent. No such intent was expressed by DEEP WELL in the letter of 13 May. In fact, an interpretation of the offer in its full setting demonstrates that the statements made by and other conduct of DEEP WELL point clearly to an irrevocable offer.

In order to interpret what DEEP WELL had intended by its 13 May offer, assistance can be gained from Art. 8 CISG, which deals with the interpretation of the words and conduct of parties. That is, Art. 8 assists with determining whether the communications between the parties have been sufficient in form and substance to be considered a firm, irrevocable offer. In doing so, it deals with prior and post contract communications and actions. Therefore, to determine whether the letter of 13 May was irrevocable it is necessary to apply the rules set out in Art. 8 to interpret DEEP WELL's statement, "In light of our extensive negotiations, we expect to hear from you by 10 June", in its full setting.

Art. 8(1) does not assist because it refers to interpreting DEEP WELL's intent on the basis that SPECULATIVE "knew or could not have been unaware" of DEEP WELL's intent. The offer extended in the letter of 13 May was made by DEEP WELL and was sent to SPECULATIVE for consideration. Thus, SPECULATIVE could not have known or been aware what DEEP WELL's intent was when writing the letter of 13 May. Honnold states that in this setting Art. 8(2) applies, as the statements made by a party who prepared the instrument of the offer are interpreted according to the understanding of a reasonable person of the same kind as the other party would have had in the same circumstances. Thus, the words actually used, or conduct engaged in, by DEEP WELL are to be interpreted as they would be understood by the reasonable business person engaged in large commercial transactions. SPECULATIVE maintains that a reasonable person of that kind would have taken the words "we expect to hear from you by 10 June" as fixing the period of time that the offer will be open for acceptance. The words that DEEP WELL used clearly reveal that the offer was irrevocable, as it positively highlights a period of time during which the offer is open.

Furthermore, Art. 8(3) states that "[I]n determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case". Honnold states that this allows the offer to be considered in its full setting. Art. 8(3) allows consideration of all the relevant circumstances of the case, which also provides a non-exhaustive list of circumstances such as "negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties". In this context, DEEP WELL's letter of 13 May concluded two months of negotiations, which is continued by DEEP WELL's statement in the letter that "we would like to bring the negotiations to a close". This statement is followed by the more definite statements that "In light of our extensive negotiations, we expect to hear from you by 10 June" and that this "should give you sufficient time to make the necessary financial arrangements". The natural reading of these statements build, step by step, to the conclusion that DEEP WELL intended to draw the negotiations to a close by making an offer, based on the negotiations, which it was holding open to 10 June. The date of 10 June was established to allow sufficient time for SPECUALTIVE to make the necessary financial arrangements, which itself contemplates SPECULATIVE's acceptance by performance (by making the necessary financial arrangements) or explicit communication of acceptance before 10 June. Accordingly, DEEP WELL's fixing of 10 June for acceptance is supported by the nature of the negotiations and the other statements made in the letter of 13 May 1997. The negotiation of the contract ran for nearly 2 months and was extensive. This is contrary to a "first come, first serve" process of preparing for a contract. In fact, the fixing of a specific date for acceptance in light of the extensive negotiations, would to a reasonable person, be a strong indication of an irrevocable offer.

DEEP WELL's mention of "In light of our extensive negotiations", the allowance of "sufficient time to make the necessary financial arrangements" and the long-standing negotiations between the parties, in conjunction with a fixed date for acceptance strongly points to the expression of irrevocability. DEEP WELL alleged in its Statement of Defence that the 10 June date was an expression of an expectation. As mentioned, the setting of the date in this context of the 13 May letter created a presumption that DEEP WELL was making an irrevocable offer. The onus is on DEEP WELL to rebut this presumption. There is nothing in the 13 May letter or other conduct of DEEP WELL which makes it clear that 10 June was only an expression of an intention. Therefore, a reasonable business person could expect to rely on the period of time stated by DEEP WELL to accept or reject the offer, particularly since the parties were in extensive negotiations and SPECULATIVE was required to arrange finances.

III. Irrevocable Under Art. 16(2)(b) CISG

As an alternative argument to DEEP WELL's indication that the offer was irrevocable, SPECULATIVE submits that the offer made by DEEP WELL cannot be revoked, pursuant to Art. 16(2)(b), as it was reasonable for SPECULATIVE to rely on the offer as being irrevocable and SPECULATIVE has acted in reliance on the offer. Art. 16(2)(b) states that an offer is irrevocable "if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer".

This provision recognises that that the offeree may need a certain period of time and may need to expend a certain sum of money evaluating the offer before she or he decides whether to accept it or not. In this case, the offer should be considered to be irrevocable for the necessary period of time. It is submitted that it was reasonable for SPECULATIVE to rely on the offer as being irrevocable. As set out above, by fixing a time for acceptance the offer in the letter of 13 May, "we expect to hear from you by 10 June", looked to be irrevocable and a reasonable person would understand this to be so. It was reasonable for SPECUALTIVE or another party in the same situation as SPECULATIVE to rely on the offer made by DEEP WELL as irrevocable, because of the wording of the 13 May letter "In light of our extensive negotiations, we expect to hear from you by 10 June" and that this "should give you sufficient time to make the necessary financial arrangements", leads to the conclusion that the offer could be relied on as irrevocable. As a result, SPECULATIVE was clearly justified in relying on the offer being irrevocable.

It is submitted that SPECULATIVE acted in reliance on the letter of 13 May. SPECULATIVE's conduct in arranging the finance and establishing the bank guarantee was in reliance of this offer being open until 10 June. Honnold suggests that steps taken or not taken in preparation in reliance of an offer indicate an irrevocable offer. Preparations to accept an offer, substantial commitments or foregoing alternatives constitute justifiable reliance. Where the offeree has engaged in investigation to determine whether she or he should accept the offer, the offer should be irrevocable for the period of time necessary for the offeree to make a determination. According to Schlechtriem, Art. 16(2)(b) is "designed to cover those cases in which the special circumstances and exigencies of the proposed transaction enable and necessitate the offeree's presumption that the offer would be valid for a certain length of time, such as when calculations or cover transactions had to be and actually were made". This clearly includes the steps undertaken to arrange the necessary finances and the bank guarantee. Thus, SPECULATIVE's action in reliance on the offer made by DEEP WELL constitutes an irrevocable offer.

Furthermore, SPECULATIVE would have suffered detriment if the offer was not held open to 10 June. The determination to accept the offer was dependent on the granting of a concession by the Government of Polarity. DEEP WELL knew of the pending concession and the importance of SPECULATIVE procuring a drilling rig in advance of commencement of production. SPECULATIVE expected the Government of Polarity to extend to it the concession for Active #2 and the drilling rig was required to remain available for DEEP WELL to deliver it to SPECULATIVE if SPECULATIVE should receive the concession. To procure and transport a drilling rig from outside the country of Polarity would take three to four months. The financial penalties that SPECULATIVE would be subject to if it did not commence drilling by 1 December 1998 were such that SPECULATIVE would suffer substantial detriment if SPECULATIVE's actions in reliance of the offer do not come to fruition.

C. Acceptance and Rejection of Offer Under Art. 17 and Art. 19 CISG

DEEP WELL claims that even if the 13 May offer was irrevocable, it terminated upon receipt of SPECULATIVE's letter of 21 May requesting that DEEP WELL consider a lower price. Under Art. 17 "an offer, even if it is irrevocable, is terminated when a rejection reaches the offeror." Clarity of meaning is given to the term 'rejection' when it is read in conjunction with Art. 19(1) which states "A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer." SPECULATIVE submits that Art. 17 does not apply because the letter of 21 May was not a rejection of the offer. SPECULATIVE also submits that Art. 19 has no application because the letter of 21 May did not purport to be an acceptance. Thus, the letter of 21 May was not a rejection, nor did it purport to be an acceptance but rather was a mere inquiry. This is an intermediate category of post-offer communication between contracting parties which the framers of the Convention on the International Sale of Goods expressly intended to remain outside the ambit of Articles 17 and 19.

I. SPECULATIVE's Letter of 21 May 1997 Was Not a Counter Offer - Art. 19 CISG Does Not Apply

Under Art. 19 a reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is to be construed as a rejection and a counter-offer. Farnsworth states that when Art. 19 was drafted, the words "which purports to be an acceptance" were later inserted "to ensure that a reply which merely made inquiries or suggested the possibility of additional or different terms did not constitute a counter offer." SPECULATIVE's letter did not purport to be an acceptance. The words in the 21 May letter were plain. Therefore, "It is just too much" and "....we would ask you again to consider it" are unambiguous in their meaning and clearly cannot reasonably be construed as words of acceptance.

The Secretariat Commentary states that "a tribunal may find that a given communication from the offeree to the offeror which contained inquiries about possible changes in the terms or which proposed different terms did not purport to be an acceptance and, therefore it did not fall under Art. 17(1) [draft counterpart to CISG Article 19(1)]." It is submitted that SPECULATIVE's letter of 21 May clearly falls within this category of communication. The letter did not purport to be an acceptance and could not reasonably be construed as such. In addition, the words "....we would ask you again to consider it" in reference to the suggestion that $28,000,000 was a fairer price merely referred to the possibility that DEEP WELL might consider accepting the lower price. It is apparent that this type of response to a contractual offer is exactly what was being referred to in the Secretariat Commentary cited above. It was a mere inquiry about possible changes in the terms and therefore remains outside the scope of Art. 19.

II. SPECULATIVE's Letter of 21 May 1997 Was Not a Rejection of Offer - Art. 17 CISG Does Not Apply

SPECULATIVE's letter of 21 May was not a rejection. The meaning of the letter is unequivocal and its author's intention is clear. It merely suggested that DEEP WELL reconsider one of the terms of their offer. DEEP WELL did not respond to the suggestion by making a new offer, and nor did SPECULATIVE respond to the offer with a counter-offer. Consequently, the 13 May offer remained standing.

In the convoluted world of international commercial transactions it has long been recognised that not every response to a contractual offer is either an acceptance or a rejection. Evidence for this can be seen in the Secretariat Commentary on Art. 17 [Draft counterpart of CISG Article 19], which states:

"Even if the reply [to the offer] makes inquiries or suggests the possibility of additional terms, it may be that the reply does not purport to be an acceptance under Art. 17(1) [draft counterpart of CISG Article 19(1)]. The reply may be an independent communication intended to explore the willingness of the offeror to accept different terms while leaving open the possibility of later acceptance of the offer."

And according to Enderlein and Maskow:

"Not every answer to an offer is to be qualified as an acceptance. Inquiries or other remarks concerning the offer should not be promptly classified as a rejection.....Mere inquiries are neither acceptances or rejections."

Nowhere in the letter of 21 May are words to the effect that DEEP WELL's offer is rejected. The fact that SPECULATIVE reminded DEEP WELL in the 21 May letter that E$30,000,000 was unsatisfactory and expressly asked them to reconsider lowering the price made it clear that the offer was not rejected, SPECULATIVE were still very interested in purchasing drilling rig #23 and that the letter was a mere inquiry as to DEEP WELL's willingness to reduce their price.

a. Interpretation of Statements Made by Other Party Under Art. 8 CISG

Under Art. 8(2) a reasonable business person in the same situation as DEEP WELL would have interpreted the letter of 21 May as a mere inquiry. SPECULATIVE's statement "we would ask you again to consider it" is clearly suggesting DEEP WELL reconsider the price of E$3,000,000. Kelso states that "[T]he offeree can make inquiries concerning the offeror's terms or suggest new terms … , while not rejecting or accepting the original offer." Clearly this is what has been done in the letter of 21 May.

In the letter of 21 May SPECULATIVE states that "The price of E$30,000,000 is the same price that we rejected in our meeting with you on 9 May 1997. It is just too much." It is submitted that this statement is merely a referring back to negotiations not to a formal rejection. The letter of 21 May simply restates a negotiated position in justification of making an inquiry. This is consistent with the making of the letter of 3 June by DEEP WELL, which extends a withdrawal of the offer. If DEEP WELL honestly regarded the inquiry as a rejection or a counter-offer, then in accordance with Art. 17 they would have assumed that the offer had terminated. If they honestly believed the offer to have terminated, why did DEEP WELL, by their letter of 3 June expressly withdraw the offer? In other words why would they have bothered to withdraw an offer which they believed to have terminated? The answer of course is that they knew that the offer was not rejected. They knew because given the length of the negotiations they would reasonably have understood the letter of 21 May as making an inquiry about the price while leaving the offer open. Given that the negotiations took place over two months and that every term of the agreement was settled and agreed upon except the price, a reasonable person in the position of DEEP WELL would not have construed an inquiry as to the one remaining contentious term as a flat rejection. A reasonable person in the position of DEEP WELL would have thought that the letter was a query as to DEEP WELL's willingness to consider the one term not agreed upon during negotiations.

b. Interpretation of the Convention Under Art. 7 CISG

In the complex world of international commercial negotiations, to view every response of an offeree to an offer as either an acceptance or a rejection is to take an overly simplistic and legalistic view of commercial reality. Misinterpreting Art. 17 in this way is antagonistic to the purpose and spirit of the Convention and also contrary to Art. 7, which sets out rules for the interpretation of Articles of the Convention. Art. 7 states that "In the interpretation of [the] Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade." For DEEP WELL to assert after 2 months of intense negotiations that a mere letter of inquiry in response to their irrevocable offer was a rejection is not only a fundamental misapplication of Art. 17, but is contrary to the observance of good faith. To ignore the reality that not every response to an offer that is not an acceptance is not necessarily a rejection is incompatible with Art. 7's prescription that the articles of the convention be interpreted with regard to the need to promote the observance of good faith in international trade. DEEP WELL was manifestly aware that SPECULATIVE's intention was not to reject the offer and for them to assert a legalistic interpretation of Art. 17 is less than bona fide and thus contrary to the principles of interpretation enunciated down by Art. 7.

III. SPECULATIVE's Telefax of 5 June 1997 was an Acceptance of the Offer and a Binding Contract was Formed the Moment it Reached DEEP WELL

DEEP WELL's letter of 3 June purported to revoke the offer of 13 May. As discussed above, the offer was irrevocable under Art. 16(2), and was to remain open until 10 June, the date expressly set by DEEP WELL in their letter of offer. This meant that DEEP WELL's letter of 3 June was ineffective in revoking the offer as the offer was not revocable and the offer was still open on 5 June when SPECULATIVE accepted the offer by telefax. Under Art. 23 "A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of [the] Convention." Application of Art. 23, in conjunction with Art. 18(2), means that the contract was concluded at the moment SPECULATIVE's telefax reached DEEP WELL. This was on 5 June.

3. TERMS OF THE CONTRACT

A. Relationship Between Clause 3 and CISG

Clause 3 of DEEP WELL's offer in the draft contract provides for specific circumstances in which the seller obtains the right to avoid the contract. Two circumstances are provided for. Firstly where the buyer fails to make the prescribed payments under the contract within the required time and secondly where the buyer fails to have the bank guarantee opened within the required period. Clause 3 varies the effect of the Convention only in relation to the grounds upon which avoidance may be available. Thus, the effect of Clause 3 is to add another circumstance in which the right to avoid the contract arises under Art. 64(1). The clause makes no other express or implied mention of variation to the Convention regarding the issue of avoidance. Consequently, all other provisions of the Convention regarding avoidance remain applicable. Thus, although Clause 3 adds further grounds for avoidance to those in Art. 64(1), it is not inconsistent with the operation of Art. 64 CISG. Nor does it trigger Art. 6 to exclude any provisions of the CISG, it merely extends the operation of Art. 64(1).

Art. 64 lists the two ways a seller can avoid a contract, which are set out under paragraphs (a) and (b). Art. 64(2) restricts the seller's right to avoid where the buyer has paid the contract price. Nowhere is it stated that the restriction on the right to avoid is applied only if avoidance is exercised under Art. 64(1). It is submitted that Art. 64(2) provides general principles to constrain the right to avoid a contract where the price has been paid and that these principles must therefore apply to the right to avoidance no matter how it arises. This interpretation is supported by the overarching purpose of the Convention, which is to keep international agreements on foot whenever reasonable and to facilitate good faith between parties. Thus, Art. 64(2) remains operative, unless the parties have varied or derogated the provisions that constrain the right to avoidance. As stated above, the contract at issue has not done this either expressly or impliedly. Consequently, the right to avoid under Clause 3 is subject to the terms of Art. 64(2).

B. DEEP WELL Was Not Entitled to Avoid the Contract Under Clause 3

Clause 3 of the draft contract provides DEEP WELL with a right to avoid the contract if the payment is not made or the bank guarantee is not established as required by Clauses 1 and 2 respectively. SPECULATIVE complied with the terms of Clauses 1 and 2, as both the first payment was made and the bank guarantee opened in the manner and by the date prescribed.

I. Compliance with Clauses 1 and 2

It is submitted that SPECULATIVE complied with Clauses 1 and 2 of the contract, as the first payment of E$3,000,000 was made and the bank guarantee opened within 10 days of the conclusion of the contract. SPECULATIVE submits that it complied with Clause 3 as was only required to open the bank, not make it available to DEEP WELL. Furthermore, it is submitted that the time-limits set by DEEP WELL under Clauses 1 and 2 are extended to 17 June 1997 pursuant to Art. 20(2) in light of Art. 7(2). It is also maintained that the reference to "days" in the contract was a reference to working days. SPECULATIVE's acceptance of the offer made by DEEP WELL was effective, and thus, concluded on 5 June 1997. Therefore, the first payment of E$3,000,000 made on 17 June 1997 and bank guarantee opened on 18 June 1997 complied with Clauses 1 and 2 of the contract, as they took place within 10 working days of the formation of the contract.

a. Guarantee Was Opened Under Clause 2

It is submitted that the bank guarantee was opened as required under Clause 2 of the contract between SPECULATIVE and DEEP WELL. Clause 2 expressly makes a distinction between "The bank guarantee will be available to Seller" and "The bank guarantee will be opened within ten (10) days of the conclusion of the contract." Thus a distinction exists between opening the guarantee, which involves SPECULATIVE taking active steps to arrange for the guarantee to be in place, and having the guarantee actively available for use by DEEP WELL.

The aim of Clause 2 is to put DEEP WELL in a position to be able to call on the guarantee if SPECULATIVE does not make payment. The earliest practical day that DEEP WELL could execute demand of the guarantee was 16 May 1998 under Clause 6 of the contract, because the first payment had already been made. Therefore, SPECULATIVE had taken all necessary steps to open the guarantee within time. The mere fact that it was not available for DEEP WELL within time does not constitute a breach, as the contract did not require the guarantee to be available within ten days. In practice, opening is a procedural step of the applicant requiring him or her to have the account opened. The bank then takes certain procedural steps, and if no problems arise, the account will be available for use at a later date. The contract did not specify a time by which the guarantee should be available to DEEP WELL. In the absence of express words, the time would be a reasonable time after the process for opening the account was initiated. Although the time taken to make the guarantee available for use was longer than SPECULATIVE expected, there was no unusual or inordinate delay. SPECULATIVE did not act in any way to retard the process for making the guarantee available to DEEP WELL, indeed it acted promptly in opening the guarantee.

This interpretation is consistent with a reasonable person's understanding of the contract. SPECULATIVE maintains that a reasonable person in similar circumstances would have understood the terms set out under Clause 2 as requiring the buyer to only take such steps as are in the power of the buyer to take. The buyer has no control over the operations of the bank. It is submitted that Clause 2 of the draft contract merely requires the buyer to open the guarantee to show good faith and to provide financial assurance should SPECULATIVE exercise its right to cancel delivery under Clause 6 or default under payment. The terms of the contract are consistent with this reality. In fact, the steps taken by SPECULATIVE to open the guarantee so that they would be available to DEEP WELL was prompt and reasonable in the circumstances. Indeed, in accordance with SPECULATIVE's past experience the guarantee would have been opened earlier.

Therefore, it is submitted that Clause 2 makes a distinction between the guarantee being opened and being available to DEEP WELL. SPECULATIVE opened the guarantee within time, that is all necessary steps were taken to have the guarantee established. In practical terms, the guarantee was established well before the first practical opportunity upon which DEEP WELL could have called on the guarantee.

b. Extension of DEEP WELL's Time-Limits For Performance of Clauses 1 and 2

SPECULATIVE submits that because the date for performance of Clauses 1 and 2 fall on a Sunday followed by a public holiday, the period for performance should be extended to the next working day.

Art. 20(2) read in light of Art. 7(2) specifically addresses DEEP WELL's allegation that the terms of the draft contract were not complied with in the required time and exposes its fallacy. Art. 7(2) provides "Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law." Honnold in giving the example of the duty to communicate as a general principle, states that general principles which can be evinced from one article can be used in the interpretation of an analogous article. Therefore, where one Article deals with a specific issue, the principle which the provision applies to the issue may be logically applied to other similar provisions.

Art. 20(2) states that with respect to acceptance of offers,

official holidays or non-business days occurring during the period for acceptance are included in calculating the period. However, if a notice of acceptance cannot be delivered at the address of the offeror on the last day of the period because that day falls on an official holiday or a non-business day at the place of business of the offeror, the period is extended until the first business day which follows.

It can be seen that Art. 20(2) provides a clear default rule, which is designed to apply in the situation where the final day for acceptance is a public holiday or non-business day. The CISG provides that the period is extended until the next business day. A public holiday falling on the last day of the period permitted for acceptance of an offer is clearly analogous to a public holiday falling on the last day permitted for performance. That is what occurred in this matter. Although SPECULATIVE had done all that it was capable of doing to ensure timely performance by the due date, DEEP WELL was unable to receive the benefit of SPECULATIVE's performance until after the due date by virtue of the fact that the due date fell on a non business day. Applying Art. 7(2), the general principle underlying Art. 20(2) is clearly that where the timely performance of the parties' acts are stymied by non business days, the time limit is extended to the next business day. This is a general principle on which the Convention is based and as such is applicable to DEEP WELL's late receipt of the benefit of SPECULATIVE's performance of the payment of E$3,000,000. Therefore, SPECULATIVE was not in breach in its payment.

c. Interpretation of "Days"

It is submitted that the term "days" used in Clauses 1 and 2 refer to working days. Art. 8 is applicable to questions of interpretation that arise under the contract when one party executes the instrument and another accepts it. In this setting Art. 8(2) applies, as the party who prepared the instrument is the one who made the statement. Thus interpretation of Clauses 1 and 2 will be governed by an objective approach, where statements made "are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances". Further, Art. 8(3) requires due consideration to be given to all relevant circumstances including negotiations and post-contract communications and actions.

To a reasonable business person involved in large commercial transactions the use of the term "days" in a clause regarding the payment of price and opening of a bank guarantee would clearly be interpreted to mean working days. In the business world, buyers and sellers conduct their business on working days and financial arrangements can only be made with banks during working hours. Thus, for practical purposes the use of "days" in a contract would be interpreted by a reasonable business person arranging finances for a substantial amount as referring to working days.

As a matter of statutory interpretation significance would normally be drawn from the difference in the use of "days" and "working days" in Clause 1 of the draft contract. However, the contract is in draft form and therefore cannot be treated the same as a complex, final contract. Further, the draft contract is relatively brief even though it is for a large sum of money. As a result, it is necessary to look at commercial realities to interpret the draft contract. Thus, it is only practical that "days" refer to working days.

In addition, prior and post-contractual communications and actions must be considered under Art. 8(3). It is submitted that the interpretation of "days" to mean working days is consistent with the conduct during the formation of the contract. In particular, when DEEP WELL made its offer it stated a fixed time for acceptance that allowed 4 weeks (20 working days) for SPECULATIVE to make a determination. By interpreting 10 "days" as 10 working days this allows 2 weeks for SPECULATIVE to comply with the contract. If 10 "days" was interpreted as calender days it only allows 6 working days, which is inconsistent with the parties conduct and arrangements during the formation of the contract.

C. DEEP WELL Was Not Entitled to Avoid the Contract under Art. 64

Alternatively, SPECULATIVE submits that DEEP WELL has not complied with the substantive requirements for avoidance of the contract under Art. 64. DEEP WELL had no grounds of avoidance outside Clause 3, because the alleged late payment and establishment of a guarantee did not amount to a fundamental breach pursuant to Arts. 64(1)(a) and 25. Even if the Tribunal is of the opinion that SPECULATIVE breached Clause 3 or committed a fundamental breach, DEEP WELL failed to give the required notice of avoidance under the Convention. Specifically, DEEP WELL failed to provide notice before becoming aware that performance had been rendered under Art. 64(2)(a) and did not provide an effective notice of avoidance under Art. 26.

I. No Fundamental Breach

SPECULATIVE submits that DEEP WELL has no grounds of avoidance outside Clause 3 of the draft contract, because late payment and establishment of the guarantee did not constituted a fundamental breach of the contract. Hence, DEEP WELL is not entitled to avoid the contract on any other grounds under the Convention.

Art. 25 distinguishes between a fundamental and non-fundamental breach. Therefore, it follows that not all breaches give rise to the right to avoid the contract. To avoid under Art. 25 a buyer must suffer a detriment that substantially deprives him of what he is entitled to expect under the contract. Therefore it is submitted that breaches alleged by DEEP WELL are of this ‘trivial nature’, as they do not affect DEEP WELL’s ability to get what it bargained for, that is full payment for the drilling rig. DEEP WELL bears the onus to point to the substantial detriment under the contract they have suffered as a result of the alleged late performance of SPECULATIVE's obligations under Clause 3. Parties may of course vary the operation of the Convention. While a breach is of a fundamental nature if contract or usage so declares, that declaration must be express. Thus, in the absence of express or implied derogation or variation of its terms, the Convention applies. Although Clause 3 of the contract extends the circumstances for avoidance, it does not expressly or impliedly vary or derogate from the Conventions provisions regarding the entitlement to avoid contracts other than to extend an entitlement to late payment and establishment of the guarantee. It is evident that if the times set for payment and guarantee were of fundamental importance to DEEP WELL then it would clearly have indicated in Clause 3 that avoidance was automatic upon the occurrence of a stipulated breach.

The contract therefore needs to be read in the context of the Convention as a whole and as an agreement between parties in different nations involving substantial sums of money. The Convention aims to keep agreements on foot, and to not enable contracts to be arbitrarily nullified on technical or trivial grounds. In this context, the parties intended that the contract be capable of avoidance in circumstances of late payment or non-timely establishment of a guarantee. DEEP WELL's motivation for purporting to avoid the contract is not based on perceived potential losses because of late payment or potential risk through a lack of a guarantee, as both were provided or established on the first available working day. Rather, DEEP WELL is motivated by the fact that it can gain a better deal on the drilling rig market if it is relieved of its obligations under the contract. It is therefore not motivated by concerns arising from non-performance of the contract, but by opportunities that lie in the absence of the contract. DEEP WELL therefore seeks what are in effect technical and trivial grounds for avoidance. This motivation is contrary to the purpose of the Convention and the promotion of stable and workable rules to govern international trade.

II. Limits on Time For Avoidance Expired

DEEP WELL is prevented from avoiding the contract due to the expiration of its right when performance was rendered under Art. 64(2)(a).

Pursuant to Art. 64(2)(a) a seller loses the right to avoid a contract unless they do so "before the seller has become aware that performance has been rendered". In the present case, DEEP WELL knew that payment had been made and that the Bank guarantee had been issued before their alleged avoidance in their letter dated 24 June 1997. Thus, although DEEP WELL claims to have acquired the right to avoid the contract under Clause 3, they lost the right when they failed to notify SPECULATIVE of their avoidance before they became aware of the performance of SPECULATIVE’s obligations.

In situations governed by the CISG a contract remains in force unless the seller has affirmatively declared it avoided. This must necessarily be the case to give operation to other provisions of the convention such as Art. 62 which allows a seller to enforce performance after it has fallen due. If a contract did not remain in force after performance has fallen due then Art. 62 would be rendered inoperative. Flechtner states that if the seller awaiting a late payment puts off avoiding the contract and then learns that payment has been made, it will lose the right to avoid even if the buyer's delay constituted a fundamental breach. Therefore, even if SPECULATIVE's payment and establishment of a guarantee was late, DEEP WELL lost the right to avoid the contract once they were made, that is 18 June.

a. DEEP WELL's Return of the Payment and Guarantee Does Not Constitute Effective Notice of Avoidance

The fact that DEEP WELL rejected the payment and guarantee is not relevant, because under Art. 64(2)(a) all that is required is that performance is rendered prior to avoidance. If this were not the case then Art. 64 would be rendered entirely ineffective in achieving its purpose of enabling contracts to be executed in good faith and minimise potential loss or damage to the parties.

In the case of the E$3,000,000.00 downpayment, the money was in fact credited to the account of DEEP WELL, where it remained for one and a half hours before they instructed the funds to be returned to SPECULATIVE's account. Cleary this constitutes ‘payment’ of these funds and what DEEP WELL elected to do with the funds after they had received them is irrelevant to whether or not SPECULATIVE has performed that part of their obligation. Similarly, in the case of the issued guarantee, all that was required of SPECULATIVE was that the guarantee be established, whereby their performance was fully rendered at the time the guarantee was issued. SPECULATIVE’s performance of this obligation was in no way affected by any subsequent behaviour by DEEP WELL.

b. Effect of an Instalment Contract

In instalment contracts where the buyer is in breach, all that is required to prevent a seller being able to avoid the contract is the payment of any instalments, or the making of any other action that have fallen due by that time. Thus in the present case, only the first payment of E$3,000,000 and the opening of the bank guarantee were necessary to bar DEEP WELL from avoiding the contract, both of which have occurred.

III. No Effective Notice of Avoidance

DEEP WELL alleges that their letter dated 24 June 1997 constituted notice of avoidance of any contract between themselves and SPECULATIVE. It is submitted that this letter did not constitute an effective declaration of avoidance under the Convention.

At no time did the letter of 24 June sent by DEEP WELL either expressly or impliedly indicate that DEEP WELL intended to avoid the contract. The letter of 24 June merely states "As you know, paragraph 3 of the draft contract was very specific that we would have the right to avoid the contract if either the payment or the bank guarantee had not been accomplished by the date specified in the contract." This statement clearly does not expressly state that DEEP WELL has exercised its right to avoid the contract, it merely refers to that right. Further, the 24 June letter expresses disappointment and alleges late payment. This is not enough to constitute avoidance. Enderlein and Maskow state that "the wording [of the avoidance notice] must be unequivocal. In the case of doubt it should … be interpreted as a mere threat of avoidance". Thus, a seller's declaration of avoidance must expressly inform the buyer that the seller will not deliver the goods. While Babiak states that exact language need not be used to declare a contract avoided, he acknowledges that the communication must contain language that clearly operates without doubt to place the breaching party on notice that the non-breaching party will no longer perform. It is therefore submitted that to avoid the contract, implication of avoidance (which is not in any case evident in the letter) is insufficient to constitute an effective avoidance under the Convention. Thus, since DEEP WELL did not provide an express declaration of avoidance nor notice that could without doubt be a declaration of avoidance, DEEP WELL is not entitled to avoid its contract with SPECULATIVE.

4. AWARDS SOUGHT BY THE TRIBUNAL

SPECULATIVE requests the Tribunal to declare that a contract of sale for drilling rig #23 exists between DEEP WELL as seller and SPECULATIVE as buyer on the terms contained in the DEEP WELL offer of 13 May 1997 and accepted by SPECULATIVE on 5 June 1997. In addition, SPECULATIVE asks the Tribunal to grant an award of specific performance, that is, order DEEP WELL to deliver the drilling rig to SPECULATIVE in accordance with Clauses 5 and 6 of the draft contract. In addition SPECULATIVE requests the Tribunal to grant an interim injunction preventing DEEP WELL from selling the drilling rig to any other party prior to the determination to be made by SPECULATIVE in accordance with Clause 6 of the draft contract..

These awards by the Tribunal are enforceable. Enforcement of an arbitral award is an implied term of every arbitration agreement, and its importance is duly emphasised in the Arbitration Rules. Enforceability of the Final award is governed by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC), which is in force in Danubia, Equatoriana, Mediterraneo and Polarity. The Tribunal has the jurisdiction to make the awards sought by SPECULATIVE because there is a valid arbitration agreement in existence between the parties and the final award is not "domestic" as stated in Art. I(1) NYC but is a foreign arbitral award. It is a foreign award because SPECULATIVE wishes to enforce the award made in Danubia in Polarity.

A. SPECULATIVE Requests the Arbitral Tribunal to Grant an Award of Specific Performance

I. SPECULATIVE’s Right to Specific Performance

SPECULATIVE is entitled to demand specific performance of the contract from DEEP WELL. Art. 46 CISG provides the buyer a right to specific performance, an expression of the maxim pacta sunt servanda. Paragraph (1) refers to "performance by the seller of his obligations¼ .". Since "his obligations" is unrestricted and general, it necessarily refers to all of his obligations. Those obligations may have their origin not only in the contract between the parties, but also in the Convention, and established practices and usages. Thus, its purpose is to see to it that the obligations of the seller are performed as laid down in the contract and the Convention.

SPECULATIVE submits that DEEP WELL should be ordered to comply with the contractual obligations that exist between the parties. SPECULATIVE has shown above that a contract exists between DEEP WELL and SPECULATIVE in relation to drilling rig #23. The Convention requires that each party must perform all of the obligations "required by the contract". This emphasis on the contract continues throughout the Convention and dominates the provisions dealing with the parties’ obligations concerning delivery, quality of the goods, and payment of the price.

It is submitted above that SPECULATIVE has not engaged in conduct that amounts to a repudiation of the contract. Further, DEEP WELL is not entitled to avoid the contract under Clause 3 of the contract or Art. 64 CISG. SPECULATIVE has shown good faith in all its dealings with DEEP WELL. At every stage SPECULATIVE has endeavoured to keep the contract on foot, and should thus be granted a declaration that a contract exists between the parties on the terms contained in the draft contract and accepted by SPECULATIVE in their letter of 5 May 1997. Thus, specific performance best provides for the fulfilment of the contract.

II. Specific Performance is the Most Appropriate Remedy

SPECULATIVE submits that specific performance is the most appropriate remedy in the circumstances of this dispute. Specific performance is appropriate in situations of scarcity and where the seller has a monopoly in the goods contracted for. When the goods can be easily obtained elsewhere, damages will, as a rule, give the buyer adequate relief. However, drilling rigs are scarce and a substitute drilling rig will be difficult to obtain in time for SPECULATIVE to commence drilling by 1 December 1998. In fact, DEEP WELL seeks to escape its contractual obligations for the sole purpose of obtaining a significantly higher price from Oceania Oil Co. This conduct would place SPECULATIVE in a highly disadvantageous position and reward DEEP WELL for failing to honour its obligations. There possibility for SPECULATIVE to either purchase or enter into a similar contract for the purchase of a substitute drilling rig in time to meet its obligations under the concession granted by Polarity is restricted due to the greater demand for a limited number of drilling rigs.

Furthermore, an alternative order for damages against DEEP WELL would amount to a extraordinarily high sum that would be very difficult to calculate and would also disadvantage DEEP WELL. Such an order would provide relief for SPECULATIVE's actual loss, as well as the expected benefit of the bargain. Hence, the cost of procuring a substitute drilling rig, fines accrued under the agreement with the Government of Polarity, and loss of profits would be recoverable by SPECULATIVE. Therefore, SPECULATIVE submits that the best outcome for the parties would be an order for specific performance, thereby allowing SPECULATIVE to continue with its operations and sparing DEEP WELL from a potentially crippling damages award. In light of these circumstances, SPECULATIVE respectfully submits that an order for specific performance should be made.

III. Art. 28 is Applicable to this Dispute : Court Will Order Specific Performance

SPECULATIVE submits that an order for specific performance in this case may be made as it is consistent with the position of the courts of both Danubia and Polarity with respect to those situations when specific performance will be granted. As a result, Art. 28 of the Convention does not inhibit the Tribunal from making the awards requested by SPECULATIVE. Art. 28 provides that even where "one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgment for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention". The phrase "unless the court would do so under its own law" is said to refer to "the domestic law of the forum and not its choice of law rules".

Art. 28 is relevant to the present dispute because the courts of Polarity can and do issue orders for specific performance. Such orders are said to be a "special" remedy. In practical terms, this means an order for specific performance is almost never given if the buyer could purchase substitute goods adequate to satisfy its needs. In the present circumstances a special remedy is warranted because it is improbable that SPECULATIVE will be able to purchase a substitute rig, within the necessary period of time to commence drilling, on similar terms to those it has bargained for. In addition, the inapplicability of alternate remedies, namely damages, amounts to special circumstances which require a remedy of specific performance.

B. SPECULATIVE Requests the Arbitral Tribunal to Grant an Interim Injunction to Prevent the Sale of Drilling Rig #23.

Because the interim order of protection granted by the Commercial Court of Mediterraneo terminates on 14 April 1998, SPECULATIVE requests the Tribunal to make an order extending the period during which DEEP WELL would be prohibited from selling the drilling rig to any other party. This order should extend to such a time pending the decision as to whether SPECULATIVE will receive the concession it requires from Polarity to begin its drilling operations in tract Active # 2.

I. The Arbitral Tribunal has Authority to Grant an Interim Injunction

The Tribunal has the power to make an interim order of this kind. Art. 26 of the Arbitration Rules provides that "the arbitral tribunal may take any interim measures it deems necessary in respect of the subject-matter of the dispute, including measures for the conservation of the goods forming the subject-matter in dispute." This power is confirmed by Art. 17 of the ML as adopted by Danubia. Therefore an order can be made preventing the sale of the drilling rig, and thus, preserving the subject-matter of the dispute.

C. Enforcement of the Arbitral Awards in Polarity

SPECULATIVE submits that an award of the Tribunal will be enforceable in this instance. It is generally accepted that any order made by an Arbitral Tribunal will be ineffective unless national courts recognise them and they can be enforced by national law. When foreign arbitral awards are not carried out by either party, they can be given recognition and enforcement by the NYC.

I. Applicability of the New York Convention

SPECULATIVE submits that the NYC is applicable, as Equatoriana, Mediterraneo, Polarity and Danubia are all parties to it. The NYC governs the recognition and enforcement of foreign arbitral awards. An award made by the Tribunal in Danubia can be classified as a foreign arbitral award on the basis that any attempt to enforce it would have to be conducted in the court of Polarity due to the fact that drilling rig #23 is located in that country. Therefore because Polarity is a party to the NYC it will govern the recognition and enforcement of the foreign arbitral awards in that country.

II. Enforcement of the Foreign Arbitral Award in Polarity

Under Art. V NYC, SPECULATIVE submits that the arbitral award cannot be challenged either by DEEP WELL or the domestic court of Polarity in relation to its recognition or enforcement. To establish recognition, SPECULATIVE is only required to produce the award and the arbitration agreement to the relevant domestic court of Polarity. . Furthermore, the burden of proof for raising a challenge and proving its validity is on DEEP WELL. However SPECULATIVE submits that there are no grounds of challenge under Art. V. NYC. Therefore, all of the circumstances present lead inexorably to the conclusion that there is no bar to the granting of the orders requested by SPECULATIVE. Any awards made by the Tribunal in favour of SPECULATIVE will be final and binding on DEEP WELL and are capable of being carried out without delay.

5. COSTS

SPECULATIVE requests that the Tribunal impose the arbitration costs and the expenses incurred for legal representation and normal legal costs on DEEP WELL. The Arbitration Rules provide, in principal, that the costs of the arbitration be borne by the unsuccessful party, although the arbitral tribunal may apportion them between the parties in its discretion, taking into account the circumstances of the case. SPECULATIVE submits that where the Tribunal orders the awards sought by it in this arbitration, DEEP WELL as the unsuccessful party should in principal bear the costs of the arbitration. However, SPECULATIVE acknowledges the Tribunal’s wide-ranging discretionary power with respect to the determination of costs and therefore asks that the Tribunal, in exercising this discretion, consider the totality of the circumstances resoundingly in SPECULATIVE’s favour. The Tribunal must take account of the reasonable and competent legal position established by SPECULATIVE, as well as it’s continued attempts to act in good faith, which, but for DEEP WELL’s desire to avoid the contract for self-motivated reasons, would have precluded the need to appear before the Tribunal in the first place.



In summary SPECULATIVE has established that:

(1) The Tribunal has jurisdiction to arbitrate this matter on the basis that Claimant and Respondent are parties to a valid arbitration agreement;

(2) Claimant and Respondent entered into a valid contract for the sale of drilling rig #23;

(3) Respondent is not entitled to avoid the contract since the Claimant fulfilled the terms of the contract; and

(4) Respondent is required to perform the obligations prescribed in the contract, that is to make available for delivery the drilling rig #23 under Clause 5 of the contract.