TABLE OF CONTENTS

1st Place Memoranda for Respondent



University of Münster

Germany




 

 

fifth annual

Willem C. Vis

International

Commercial Arbitration Moot

Vienna, Austria

1997 - 1998





Team Members:

Björn Gehle • Sebastian von Koppenfels • Alison Williams

Mathias Wittinghofer • Guido Zöllner


International Arbitral Tribunal

Case No. Moot 5

 


Memorandum for Respondent

 



On Behalf of:

Deep Well Drilling. Inc.

1 Deep Well Plaza

Industrial City

Equatoriana Respondent

 

 

Against:

Speculative Drilling, Co.

123 Water Street

Petroleum City

Mediterraneo Claimant




Table of Contents

 

Index of Authorities

Index of Legal Sources

Introduction

Summary of CLAIMANT’s Contentions

Issue 1: A contract between the parties is not in existence

A. The parties did not conclude a contract

I. The parties did not form a contract in terms of offer and acceptance on 5 June 1997

1. CLAIMANT rejected RESPONDENT`s offer in its letter of 21 May 1997

2. RESPONDENT effectively revoked its offer on 3 June 1997

a) RESPONDENT’s offer was not irrevocable under Art. 16(2)(a) CISG

b) RESPONDENT’s offer was not irrevocable under Art. 16(2)(b) CISG

II. The parties did not form a contract in terms of agreement on 9 May 1997

1. The agreement is not sufficiently definite

2. The parties did not intend to be legally bound

B. RESPONDENT avoided the alleged contract

I. A right of avoidance for RESPONDENT has arisen under the contract

1. Right to avoid under the contract concluded on 5 June 1997

a) The first payment was too late

aa) The time period for the first payment had lapsed prior to 17 June 1997

(1) "10 days" in the contract does not mean ten working days

(2) The parties have dispensed with Art. 20(2)(2) CISG

bb) The mere transfer on 13 June 1997 did not discharge the obligation

b) The bank guarantee was opened too late

c) CLAIMANT cannot rely upon its best efforts to discharge its obligations

d) CLAIMANT’s breach does not have to be fundamental

2. Right to avoid under the contract concluded on 9 May 1997

II. RESPONDENT exercised its right to avoid the contract

1. RESPONDENT declared avoidance in its letter of 24 June 1997

2. RESPONDENT declared avoidance by rejecting the first payment on 17 June 1997

III. RESPONDENT has not lost its right to avoid

IV. In avoiding the contract, RESPONDENT did not act in bad faith

 

Issue 2: The Tribunal should not order RESPONDENT to deliver rig #23 to CLAIMANT

A. The prerequisites for an order of specific performance are not met

I. RESPONDENT cannot be in breach of its duty to deliver rig #23 to CLAIMANT

II. CLAIMANT cannot rely on an anticipatory breach

B. The Tribunal should refuse a judgment for specific performance

I. Art. 28 CISG applies to this Tribunal

II. The prerequisites of Art. 28 CISG are met

III. The Tribunal should exercise its discretion to dismiss CLAIMANT’s motion

 

Issue 3: The Tribunal should not order RESPONDENT not to sell rig #23 to any third

party prior to the determination to be made by CLAIMANT

A. Order for specific performance under the CISG

I. RESPONDENT does not owe a duty to refrain from selling rig #23 to any third party

II. Supposing RESPONDENT owes such duty, it is not in breach of it

B. Order of interim protection under the UNAR

I. The order should not be issued if the Tribunal grants a final award

II. The order should not be issued if the Tribunal does not grant a final award

 

Issue 4: The Tribunal should not order RESPONDENT to enter into a contract with

CLAIMANT on the terms negotiated

A. Observance of good faith is not owed at a pre-contractual stage under the CISG

B. RESPONDENT is not in breach of good faith

C. CLAIMANT relies on the wrong legal consequence..

 

Costs

Conclusion




Index of Authorities

 

   

Audit, Bernard

La vente internationale de marchandises - Convention des Nations - Unies du 11 avril 1980, Paris 1990

[cited as: Audit, Vente Internationale]

   

Berger, Klaus Peter

International Economic Arbitration, Deventer, Boston 1993

[cited as: Berger, Arbitration]

   

Berger, Klaus Peter

Formalisierte oder "schleichende" Kodifizierung des transnationalen Wirtschaftsrechts, Berlin, New York 1996

[cited as: Berger, Kodifizierung]

   

Bergsten, Eric E.

Basic Concepts on the International Sale of Goods, at 15-27, in: Doralt (ed.), Das UNCITRAL-Kaufrecht im Vergleich zum österreichischen Recht

[cited as: Bergsten, in: Doralt (ed.), UNCITRAL-Kaufrecht]

   

Bianca, Cesare Massimo /
Bonell
, Michael Joachim

Commentary on the International Sales Law - The 1980 Vienna Sales Convention, Milan 1987

[cited as: Bianca/Bonell-Reviser]

   

Bonell, Michael Joachim

Vertragsverhandlungen und culpa in contrahendo nach dem Wiener Kaufrechtsübereinkommen, in: Recht der Internationalen Wirtschaft 1990, at 693-702

[cited as: Bonell, RIW 1990]

   

Bonell, Michael Joachim

UNILEX, International Case Law & Bibliography on the UN Convention On Contracts for the International Sale Of Goods, Irvington-on-Hudson, New York 1997

   

Caemmerer, Ernst von /
Schlechtriem
, Peter

Kommentar zum Einheitlichen UN-Kaufrecht, 2nd ed., München 1995

[cited as: v.Caemmerer/Schlechtriem-Reviser]

   

Caron, David

Interim Measures of Protection: Theory and Practice in the Light of the Iran-United States Claims Tribunal, in: Zeitschrift für ausländisches Öffentliches Recht und Völkerrecht 1986, at 465-518

[cited as: Caron, ZAÖRV 1986]

   

Elder, Troy E.

The Case Against Arbitral Awards of Specific Performance in Transnational Commercial Disputes, in: Arbitration International 13 (1997), at 1-32

[cited as: Elder, AI 1997]

   

Enderlein, Fritz

Die Verpflichtung des Verkäufers zur Einhaltung des Lieferzeitraums und die Rechte des Käufers bei dessen Nichteinhaltung nach dem UN-Übereinkommen über Verträge über den internationalen Warenkauf, in: Praxis des internationalen Privat- und Verfahrensrechts 1991, at 313 –316

[cited as: Enderlein, IPRax 1991]

 

Enderlein, Fritz /
Maskow
, Dietrich /


Strohbach, Heinz

 

Internationales Kaufrecht – Kaufrechts-konvention, Verjährungskonvention, Rechtsanwendungskonvention, Berlin 1991

[cited as: Enderlein/Maskow/Strohbach-Reviser]

   

Feltham, John D.

The United Nations Convention on Contracts for the International Sale of Goods, in: Journal of Business Law 24 (1981), at 346-361

[cited as: Feltham, J.Bus.L. 1981]

   

Herber, Rolf /
Czerwenka
, Beate

Internationales Kaufrecht – Kommentar zum Übereinkommen der Vereinten Nationen vom 11. April 1980 über Verträge über den internationalen Warenkauf, München 1991

[cited as: Herber/Czerwenka]

   

Hof, Jacomijn J. van

Commentary on the UNCITRAL Arbitration Rules - The Application by the Iran-U.S. Claims Tribunal, Deventer, Boston 1991

[cited as: van Hof]

   

Honnold, John O.

Documentary History of the Uniform Law for International Sales, The studies, deliberations and decisions that led to the 1980 United Nations Convention with introductions and explanations, Deventer 1989

[cited as: Honnold, Documentary History]

   

Honnold, John O.

Uniform Law for International Sales under the 1980 United Nations Convention, 2nd ed., Deventer 1991

[cited as: Honnold, Uniform Law]

   

Honsell, Heinrich

Kommentar zum UN-Kaufrecht, Berlin, Heidelberg 1997

[cited as: Honsell-Reviser]

   

Hoyer, Hans /
Posch,
Willibald

Das Einheitliche Wiener Kaufrecht: neues Recht für den internationalen Warenkauf, Wien 1992

[cited as: Hoyer/Posch, Wiener Kaufrecht]

   

Hußlein-Stich, Gabriele

Das UNCITRAL-Modellgesetz über die Internationale Handelsschiedsgerichtsbarkeit, Köln, Berlin, Bonn, München 1990

[cited as: Hußlein-Stich, UNCITRAL-Modellgesetz]

   

Karollus, Martin

UN-Kaufrecht - Eine systematische Darstellung für Studium und Praxis, Wien, New York 1991

[cited as: Karollus, UN-Kaufrecht]

   

Kohl, Berthold Johannes

Vorläufiger Rechtsschutz in internationalen Handelsschiedsverfahren, Frankfurt am Main, Bern, New York, Paris 1990

[cited as: Kohl, Vorläufiger Rechtsschutz]

   

Kritzer, Albert H.

Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods, Deventer, 1994

[cited as: Kritzer, Guide to Practical Applications]

   

Loewe, Roland

Internationales Kaufrecht - Wiener UN-Kaufrechtsübereinkommen und New Yorker UN-Verjährungsübereinkommen, Wien 1989

[cited as: Loewe]

Ludwig, Katharina S.

Der Vertragsschluß nach UN-Kaufrecht im Spannungsverhältnis von Common Law und Civil Law, Frankfurt am Main 1994

[cited as: Ludwig, Vertragsschluß]

   

Neumayer, Karl H. /
Ming
, Catherine

Convention de Vienne sur les contrats de vente international de marchandises - Commentaire, Lausanne 1993

[cited as: Neumayer/Ming]

   

Niggemann, Friedrich

Buyer’s Obligations under the United Nations Convention on Contracts for the International Sale of Goods, in: International Business Law Journal (Paris) 1 (1988), at 27-34

[cited as: Niggemann, Int’l Bus.L.J. 1988]

   

Piltz, Burghard

Internationales Kaufrecht - Das UN-Kaufrecht (Wiener Übereinkommen von 1980), in praxisorientierter Darstellung, München 1993

[cited as: Piltz, Internationales Kaufrecht]

   

Rehbinder, Eckard

Vertragsschluß nach UN-Kaufrecht im Vergleich zu EAG und BGB, at 149-170, in: Schlechtriem (ed.), Einheitliches Kaufrecht und nationales Obligationenrecht

[cited as: Rehbinder, in: Schlechtriem (ed.), Einheitliches Kaufrecht]

   

Reinhart, Gert

UN-Kaufrecht: Kommentar zum Übereinkommen der Vereinten Nationen vom 11. April 1980 über Verträge über den internationalen Warenkauf, Heidelberg 1991

[cited as: Reinhart]

   

Rudolph, Helga

Kaufrecht der Export- und Importverträge, Kommentierung des UN-Übereinkommens über internationale Warenkaufverträge mit Hinweisen für die Vertragspraxis, Freiburg, Berlin 1996

[cited as: Rudolph]

   

Sandkühler, Gerd

Bankrecht: ein Leitfaden für Ausbildung und Praxis, 2nd ed., München 1993

[cited as: Sandkühler, Bankrecht]

   

Sandrock, Otto /
Nöcker
, Thomas

Einstweilige Maßnahmen internationaler Schiedsgerichte: bloße Papiertiger?, in: Jahrbuch der Schiedsgerichtsbarkeit 1 (1987), at 74-93

[cited as: Sandrock/Nöcker, JPS 1987]

   

Schlechtriem, Peter

Internationales UN-Kaufrecht: ein Studien- und Erläuterungsbuch zum Übereinkommen der Vereinten Nationen über Verträge über den internationalen Warenkauf (CISG), Tübingen 1996.

[cited as: Schlechtriem, Internationales UN-Kaufrecht]

   

Schütz, Markus

UN-Kaufrecht und Culpa in contrahendo,

Frankfurt am Main 1996

[cited as: Schütz, UN-Kaufrecht und Culpa in contrahendo]

 

 

 

 

Schwab, Karl Heinz

Walter, Gerhard

Schiedsgerichtsbarkeit, 5th ed.,München 1990

[cited as: Schwab/Walter, Schiedsgerichtsbarkeit]

   

Schwintowski, Hans-Peter /
Schäfer
, Frank A.

Bankrecht: Commercial Banking -Investment Banking, Köln, München 1997

[cited as: Schwintowski/Schäfer, Bankrecht]

   

Soergel, Hans Theodor

Bürgerliches Gesetzbuch: mit Einführungsgesetz u. Nebengesetzen, 11th ed., Stuttgart, Berlin, Köln, Mainz 1983

[cited as: Soergel-Reviser]

   

Staudinger, Jochen von

Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen - Wiener UN-Kaufrecht (CISG), 13th ed., Berlin 1994

[cited as: Staudinger-Reviser]

   

Stern, Elisabeth

Erklärungen im UNCITRAL-Kaufrecht, Wien 1990

[cited as: Stern, Erklärungen]

   

Unidroit

Principles of International Commercial Contracs, Rome 1994

[cited as: UNIDROIT, Commentary]

   

Witz, Wolfgang

Der unbestimmte Kaufpreis: Ein rechtsvergleichender Beitrag zur Bedeutung des pretium certum, Neuwied, Frankfurt am Main 1989

[cited as: Witz, Der unbestimmte Kaufpreis]

 

Index of Legal Sources

 

 

Arbitration Rules of the United Nations Commission on International Trade Law as adopted by the general Assembly on 15 December 1976, Supplement No. 17, Doc. No. A/31/17 Chapter V, Section C

 

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 10 June 1958

 

UNCITRAL Model Law on International Commercial Arbitration as adopted by the United Nations Commission on International Trade Law on 21 June 1985, UN Doc. No. A/40/17 (Annex I)

 

UNCITRAL Model Law on International Credit Transfers as adopted by the United Nations Commission on International Trade Law, New York 1992

 

UNIDROIT Principles of International Commercial Contracts, Rome 1994

 

Uniform Law on the Formation of Contracts for the International Sale Of Goods, Diplomatic Conference, The Hague, 2-25 April 1964

 

United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980, UN Doc. No. A/Conf. 9 7/18 (Annex I) 1980

 

 




Introduction

In response to the Tribunal’s Procedural Order No. 1 of 3 October 1997 and the Memorandum for CLAIMANT of 9 December 1997, RESPONDENT respectfully requests the Tribunal:

 

Summary of CLAIMANT’s Contentions

In its Memorandum, CLAIMANT contends

RESPONDENT respectfully makes the following submissions to dismiss these contentions.

 

Issue 1: A contract between the parties is not in existence

The parties did not conclude a contract concerning the sale of drilling rig #23 [A.]. Even if the Tribunal should find that the parties concluded such contract, RESPONDENT effectively avoided that contract [B.].

 

A. The parties did not conclude a contract

Contrary to CLAIMANT’s contentions, the parties neither formed a contract in terms of offer and acceptance on 5 June 1997 [I.] nor in terms of agreement on 9 May 1997 [II.].

 

I. The parties did not form a contract in terms of offer and acceptance on 5 June 1997

Pursuant to Artt. 23, 15(1), 24 CISG, a contract is concluded when an acceptance reaches the offeror. In its letter of 13 May 1997 containing a draft contract, RESPONDENT offered to sell rig #23 to CLAIMANT at a price of E$ 30,000,000. CLAIMANT purports to have accepted this offer in its telefax of 5 June 1997. However, on 5 June 1997 there was no valid offer for CLAIMANT to accept: Prior to its alleged acceptance, CLAIMANT had already rejected the offer in its letter of 21 May 1997 [1.]. Even if the Tribunal should be of the opinion that CLAIMANT did not reject the offer on 21 May 1997, RESPONDENT effectively revoked its offer in its telefax of 3 June 1997 [2.].

 

1. CLAIMANT rejected RESPONDENT`s offer in its letter of 21 May 1997

CLAIMANT rejected RESPONDENT’s offer pursuant to Art. 17 CISG in its letter of 21 May 1997. In that letter CLAIMANT stated that [t]he 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 . CLAIMANT describes these phrases as unclear, ambiguous language. RESPONDENT argues that CLAIMANT’s message unequivocally reflects CLAIMANT’s intention to reject. As the content of CLAIMANT’s message is in dispute, Art. 8(2) CISG calls for its interpretation according to the understanding of a reasonable person. A reasonable person would have construed CLAIMANT’s statement to be a rejection: Its wording alone made it clear that CLAIMANT intended to reject RESPONDENT’s offer. By emphasizing that it had already rejected the price of E$ 30,000,000 at the end of the negotiations, any reasonable observer would have assumed that CLAIMANT confirmed its intention to reject the same price again and with it the offer as a whole. In addition, there was no new indication that CLAIMANT was now suddenly prepared to accept the price of E$ 30,000,000: The situation had not changed at all since 9 May 1997. CLAIMANT demonstrated this by using the present tense in its phrase It is just too much. , which also rebuts CLAIMANT’s submission that it was merely referring to the prior informal negotiations.

Despite these arguments, CLAIMANT asserts that it cannot be held to have rejected the offer because it deemed the contract very important. However, this assertion is of no legal relevance since it was not discernable to a reasonable observer: CLAIMANT was only just beginning to sense it should arrange for a drilling rig and apparently felt comfortable to continue to negotiate a more profitable price. Also, CLAIMANT submits that it "invested much in the negotiations", a fact which it argues, implies the importance of the contract. However, CLAIMANT produces no evidence for this contention.

Additionally, CLAIMANT asserts that its letter of 21 May 1997 was merely a businessperson’s negotiating ploy . It bases this argument on the fact that the parties only disagreed on one final aspect, namely the price. However, this fact does not serve CLAIMANT’s cause because price was of the utmost importance to the parties. CLAIMANT’s agreement to the price was crucial for the sale of rig #23, since without such agreement the parties could not proceed with the deal.

For these reasons, CLAIMANT rejected and thus terminated RESPONDENT’s offer on 21 May 1997 pursuant to Art. 17 CISG. A contract was therefore never concluded.

 

2. RESPONDENT effectively revoked its offer on 3 June 1997

Even if the Tribunal should not agree that CLAIMANT rejected the offer, a valid offer was nevertheless not in existence on 5 June 1997. RESPONDENT had revoked its offer in its telefax of 3 June 1997. Although our client speaks of withdrawing the offer, the Tribunal should regard this as meaning to revoke the offer because a late withdrawal should generally be construed to represent a revocation. Revocation presupposes revocability. Revocability of an offer is governed by Art. 16 CISG. Art. 16(1) CISG establishes the free revocability of an offer before the offeree has dispatched an acceptance as a general principle. Art. 16(2) CISG lists exceptions to this principle. Contrary to CLAIMANT’s contentions, RESPONDENT argues that these exceptions do not apply: The offer was not irrevocable under Art. 16(2)(a) [a)] nor under Art. 16(2)(b) CISG [b)].

 

a) RESPONDENT’s offer was not irrevocable under Art. 16(2)(a) CISG

RESPONDENT’s offer did not indicate its irrevocability under Art. 16(2)(a) CISG by stating a fixed time for acceptance (first alternative) or otherwise (second alternative).

The offer did not indicate its irrevocability by stating a fixed time for acceptance. In its letter of 13 May 1997, RESPONDENT indicated it "expect[ed] to hear from...[CLAIMANT] by 10 June". Contrary to CLAIMANT’s allegations, this wording does not allow for the outright conclusion that RESPONDENT stated a fixed time for acceptance. RESPONDENT rather expressed an expectation as to when it hoped that CLAIMANT would reply. The ambiguity of the phrase calls for construction according to the understanding of a reasonable person pursuant to Art. 8(2),(3) CISG. In view of the long-term nature of the contract, our client was in no hurry to dispose of its drilling rig. Furthermore, in international business practice, the expression of such expectation, contrary to the customary expression "offer is open until", does not establish a rigid deadline, but is often followed by the setting of a Nachfrist. The Tribunal should hence conclude that RESPONDENT never stated a fixed time for acceptance.

Even if the Tribunal should conclude that our client stated a fixed time for acceptance, this does not lead to the automatic irrevocability of the offer. Rather, under Art. 16(2)(a) CISG, stating a fixed time for acceptance creates a rebuttable presumption of irrevocability. This evaluation, which is supported by the legislative history of the CISG, is recognized by CLAIMANT. The presumption of irrevocability is rebutted by the circumstances of the present case, which highlight that an irrevocable offer would not have made any business sense. At the end of the negotiations on 9 May 1997, neither party knew how the situation would develop. Our clients’ correspondence of 13 May 1997 was therefore an attempt to proceed to the next stage of negotiations, i.e. the proposal of a written contract. However, our client felt no pressure to conclude a contract and this was known to CLAIMANT. This uncertainty as to the future of the deal, combined with the lack of pressure to conclude a deal straight away, indicates that it would not have made business sense to issue an irrevocable offer. In the light of these facts the wording of the accompanying letter can only be construed as asking CLAIMANT to state its position concerning the deal as a whole. That way our client could in turn evaluate this reaction and, if need be, revoke the offer. This position is further supported by the fact that our client comes from a country where offers are freely revocable. A reasonable observer would have had due regard to this fact and consequently would have construed the statement accordingly. Hence, the offer did not indicate its irrevocability by stating a fixed time for acceptance.

RESPONDENT’s offer did not indicate its irrevocability in any other way pursuant to the second alternative of Art. 16(2)(a) CISG either. The factual circumstances of the case, as demonstrated above, do not provide any indication to this effect.

 

b) RESPONDENT’s offer was not irrevocable under Art. 16(2)(b) CISG

RESPONDENT’s offer was not irrevocable under Art. 16(2)(b) CISG. It was not reasonable for CLAIMANT to rely on the offer as being irrevocable and CLAIMANT did not act in reliance on such irrevocability.

It was unreasonable for CLAIMANT to rely on the irrevocability of RESPONDENT’s offer since it did not in any way indicate its irrevocability. In any case, CLAIMANT could not rely on the irrevocability after RESPONDENT’s revocation had reached it on 3 June 1997. Consequently, CLAIMANT can only have acted in reasonable reliance before this date.

Before this date, however, CLAIMANT did not undertake any act in the sense of Art. 16(2)(b) CISG. CLAIMANT submits that such an act was the delay of its acceptance. However, this is not sufficient. It is universally recognized that Art. 16(2)(b) CISG requires acts such as: onerous price calculations, preparatory obtaining measures, extensive investigative acts or simply financial measures in general. CLAIMANT undertook none of these: CLAIMANT’s mere inactivity in delaying its acceptance cannot amount to an act under Art. 16(2)(b) CISG. If this were the case, the general principle of revocability would virtually be reversed, because it is be impossible to prove that a party has not delayed its acceptance.

Accordingly, RESPONDENT’s offer was not irrevocable pursuant to Art. 16(2)(b) CISG. RESPONDENT thus effectively revoked its offer on 3 June 1997.

 

II. The parties did not form a contract in terms of agreement on 9 May 1997

Contrary to CLAIMANT’s contentions, the parties did not form a contract in terms of agreement on 9 May 1997 either. CLAIMANT submits that the agreement model applies when a sequence of offer and acceptance is not identifiable. CLAIMANT further submits that such situation had arisen by the end of the negotiations on 9 May 1997. However, even if this assessment of the situation on 9 May 1997 were correct, such agreement would still have to contain the basic requirements of a contract. Contrary to CLAIMANT submissions, Art. 14 CISG applies to such agreements as well as to offers: The agreement must be sufficiently definite and express the parties’ intentions to be legally bound. However, the agreement allegedly reached on 9 May 1997 fails to be sufficiently definite [1.] and does not indicate the parties’ common intention to be legally bound [2.].

 

1. The agreement is not sufficiently definite

The agreement is not sufficiently definite pursuant to Art. 14(1)(2) CISG since the parties had not decided on a price or a method for its determination: Both parties unanimously state that an agreement as to price had not been reached by 9 May 1997.

CLAIMANT, however, purports that such an agreement may still be upheld despite the lack of a reference to price. CLAIMANT bases this argument on Art. 55 CISG and on Art. 2.14.1 of the UNIDROIT Principles of International Commercial Contracts (UNIDROIT Principles). RESPONDENT objects that neither of these provisions supports CLAIMANT’s arguments.

Turning to Art. 55 CISG, the wording of that provision appears to be in conflict with Art. 14 CISG. Art. 14 CISG presupposes a reference to price whereas Art. 55 CISG discusses contracts not raising the issue of price. This conflict can be adequately resolved by generally treating Art. 14 CISG as the prevailing provision for three reasons: Firstly, the wording of Art. 55 CISG speaks of a validly concluded contract . This makes clear that Art. 55 CISG does not deal with the conclusion of contract under Part II of the Convention, but rather requires a concluded contract. Secondly, the systematic position of Art. 55 CISG within Chapter III of Part III of the Convention (Obligations of the Buyer) shows that the provision is concerned with determining what the obligations of the buyer are. It is not concerned with establishing or undermining the prerequisites for a valid contract concluded under Part II. Thirdly, legislative history reveals that the word "validly" was introduced into Art. 55 CISG to draw attention to the requirements of validity as laid down in Art. 14 CISG. Hence, the Tribunal should conclude that Art. 14 CISG is the prevailing provision and that the agreement allegedly reached on 9 May 1997 was therefore not sufficiently definite.

Art. 2.14.1 UNIDROIT Principles, on the other hand, does not apply. CLAIMANT and RESPONDENT both maintain that the matter is governed by the CISG. Under § 8 of the contract, recourse to general principles of law such as the UNIDROIT Principles may only be had if the matter is not governed by the CISG.

In addition, CLAIMANT states that agreements of this open kind are commonplace in the mining and exploration industry. In support of its position that open agreements should be upheld, CLAIMANT refers to heads of agreements in general. Whereas such heads of agreement may be standard business practice for concession agreements, they are not employed for sales contracts. Furthermore, heads of agreement always include terms relating to price and cost.

In conclusion, the alleged agreement is not sufficiently definite.

 

  1. The parties did not intend to be legally bound

Even if the Tribunal considers the agreement to be sufficiently definite, the parties still lacked the necessary intention to be legally bound: It is an undisputed fact that RESPONDENT had never made any indication that it wanted to commit itself to sell the rig. Furthermore, pursuant to Art. 8(3) CISG, regard is to be had to the parties’ subsequent conduct. This subsequent conduct however indicates that the parties did not intend to be legally bound on 9 May 1997: CLAIMANT as well as RESPONDENT unanimously refer to RESPONDENT’s letter of 13 May 1997 as the offer for the sale of the drilling rig. This demonstrates that the parties had not intended to reach a binding agreement before 13 May 1997.

 

In conclusion, the parties did not conclude a contract concerning the sale of drilling rig #23, neither in terms of offer and acceptance, nor in terms of agreement.

 

B. RESPONDENT avoided the alleged contract

Even if the Tribunal should be of the opinion that the parties concluded a contract, this contract is not in existence anymore as RESPONDENT, contrary to CLAIMANT’s contentions, avoided the contract and the parties were consequently released from their obligations pursuant to Art. 81 CISG. A right of avoidance has arisen [I.] and RESPONDENT has exercised such right [II.] without having lost it prior to its exertion [III.]. Finally, in avoiding the contract, RESPONDENT did not act in bad faith [IV.].

 

I. A right of avoidance for RESPONDENT has arisen under the contract

The seller’s right to avoid the contract is specified in § 3 of the contract: If the first payment is not made or the bank guarantee is not established by the time and manner specified in the contract, the seller may avoid the contract. RESPONDENT argues that the right to avoid the contract has arisen regardless of whether a contract was concluded in terms of offer and acceptance on 5 June 1997 [1.] or in terms of agreement on 9 May 1997 [2.].

 

1. Right to avoid under the contract concluded on 5 June 1997

A right to avoid the contract has arisen because CLAIMANT failed to make the first payment [a)] and failed to establish the bank guarantee [b)] on time. Additionally, CLAIMANT cannot rely upon its best efforts under Art. 54 CISG [ c)] . Finally, no further prerequisites are needed in order for RESPONDENT’s right of avoidance to arise. In particular, CLAIMANT’s breach does not have to be fundamental [d)].

 

a) The first payment was too late

The first payment was credited to RESPONDENT’s account on 17 June 1997 and thus too late. It arrived after the deadline in the contract had expired [aa)]. CLAIMANT’s assertion that the mere arrival of the payment at RESPONDENT’s bank on 13 June 1997 discharged CLAIMANT’s obligation is not correct [bb)].

 

aa) The time period for the first payment had lapsed prior to 17 June 1997

When the first payment was credited to RESPONDENT’s account on 17 June 1997, the deadline in the contract had already expired. With conclusion of the contract having occurred on 5 June 1997, the deadline for payment was at the latest 15 June 1997 because the clause 10 days is not to be interpreted to mean 10 working days [(1)] and Art. 20(2)(2) CISG has been dispensed with by the parties [(2)].

 

(1) 10 days in the contract does not mean ten working days

CLAIMANT’s interpretation that "10 days" should be regarded as meaning 10 working days is not correct. In the alleged contract, the parties made a distinction between non-working days and working days: The balance of E$ 27,000,000 was to be made within 5 working days prior to delivery, but the 10 days allowed to make the first payment of E$ 3,000,000 was specifically recorded in the contract as 10 days, not 10 working days.

Furthermore, the calculation of a time period excluding non-working days is too difficult and imprecise if one keeps in mind that different countries have different bank holidays. In the light of this, international trade should not be subject to such a complicated method of calculation. This is recognized in Art. 20(2)(1) CISG. CLAIMANT itself emphasizes that the rule leading to the greatest degree of certainty is to be preferred. Hence, a rule as uncertain as the one proposed by CLAIMANT ought not to be employed. Thus, 10 days in the contract does not mean ten working days.

 

(2) The parties have dispensed with Art. 20(2)(2) CISG

Contrary to CLAIMANT’s position, Art. 20(2)(2) CISG cannot be applied to extend the deadline until 17 June 1997: The parties excluded this provision by virtue of Art. 6 CISG. Pursuant to Art. 6 CISG, contracting parties have the right to derogate from or vary the effect of any of the provisions of the Convention. It is clear from the wording used in the contract that the parties have exercised this right. As shown above, the parties intended to include non-working days in the 10 day period. The explicit distinction in the contract between non-working days and working days makes clear that any non-working days - whether within or at the end of the period - were not to be paid attention to. This conflicts with the rule in Art. 20(2)(2) CISG. Thus, the parties must be assumed to have derogated from this provision.

Thus, when the payment was credited to RESPONDENT’s account on 17 June 1997, the deadline had lapsed.

 

bb) The mere transfer on 13 June 1997 did not discharge the obligation

The mere arrival of the first payment at RESPONDENT’s bank on 13 June 1997 did not discharge CLAIMANT’s obligation under § 1 of the contract. CLAIMANT bases its argument on Art. 6.1.8(2),(3) UNIDROIT Principles and Art. 19(1) UNCITRAL Model Law on International Credit Transfers (MLICT). RESPONDENT argues that CLAIMANT has misinterpreted Art 6.1.8(2),(3) UNIDROIT Principles and cannot rely on Art. 19 MLICT.

Art. 6.1.8(2),(3) UNIDROIT Principles states that in the case of payment by a transfer, the obligation of the obligor is discharged when the transfer to the obligee’s financial institution becomes effective. In the commentary to this provision, the exact point in time at which a payment becomes effective is considered to lie some time after reception and to depend on the special banking practices in the case concerned. Banks in Equatoriana are free to establish their own cut-off times as long as it is not earlier than 12:00. The cut-off time of the Industrial Credit Bank of Equatoriana is at 13:00. Payments received after this time are considered to have been received the next banking day. Thus the reception of the first payment on 13 June 1997 at 14:00 - one hour after the cut off time - caused the payment to be treated as if it had been received on the next banking day. As 16 June 1997 was a legal holiday in Equatoriana, this was 17 June 1997. Consequently, the first payment was not received by the bank until 17 June 1997 and was thus after the deadline in the contract.

Turning to CLAIMANT’s reference to Art. 19(1) MLICT, this provision is concerned only with the completion of a transfer and thus with the discharge of the banking system’s obligations to the originator. It is not concerned with the discharge of the originator’s obligation towards the beneficiary. This follows from the commentary to the provision and the subsequent necessity to supply an extra provision governing this very question. This additional provision is featured in a footnote added to Art. 19 MLICT giving participating states the opportunity to adopt a provision covering the originator/beneficiary relationship. However, both CLAIMANT and RESPONDENT are from countries where the additional provisions suggested by UNCITRAL in the footnotes have not been adopted. Thus, CLAIMANT is incorrect in applying Art. 19 MLICT to determine the point in time at which it was discharged of its obligation.

As a result, the first payment was rendered too late.

 

b) The bank guarantee was opened too late

RESPONDENT’s right to avoid has also arisen because the bank guarantee was opened too late. It was opened in favor of CLAIMANT on 18 June 1997 and thus after the time period had lapsed on 15 June 1997: The time period for the establishment of the bank guarantee corresponds to that for the first payment. As shown above, the time period of ten days after conclusion of the contract is not to be interpreted to mean ten working days. Furthermore, Art. 20(2)(2) CISG has been dispensed with. If the Tribunal should be of the opinion that Art. 20(2)(2) CISG has not been dispensed with, the period would have lapsed on the next banking day following 15 June 1997. As 16 June 1997 was a legal holiday in Equatoriana, this was 17 June 1997, one day before the bank guarantee was actually established. Hence, the bank guarantee was opened too late.

 

c) CLAIMANT cannot rely upon its best efforts to discharge its obligations

Under § 3 of the contract, CLAIMANT had to make the first payment and establish the bank guarantee within ten days of the conclusion of the contract. CLAIMANT did not meet these conditions. However, CLAIMANT submits that it discharged its obligations before the expiration of the ten day deadline by undertaking its best efforts pursuant to Art. 54 CISG. This argument must fail:

Firstly, CLAIMANT bases its argument on the Secretariat Commentary to Art. 54 CISG which supposedly indicates that the buyer owes no more than best efforts when establishing a letter of credit or paying the price. However, this statement cannot be viewed in isolation: The next sentence reads that [o]f course, under Art. 49 the buyer is obligated to see that the price is paid [...] . Hence, the Secretariat Commentary does not provide a conclusive answer to this problem. Yet, there is ample authority to the effect that the seller owes achievement of a specific result under Art. 54 CISG.

Secondly, in trying to interpret the quality of duties owed under Art. 54 CISG, the Tribunal may turn to the UNIDROIT Principles as an aid to construe the provisions of the CISG. A distinction between a duty to achieve a specific result and a duty of best efforts is made in Art. 5.4 UNIDROIT Principles. Pursuant to Art. 5.5(c) UNIDROIT Principles, a party’s best efforts are sufficient to discharge its obligations only if the risk normally involved in achieving the expected result is of such high degree that an intention to guarantee a result is not expected by the other party. The transfer of a payment or the establishment of a bank guarantee are common and simple operations in commercial and banking practice - bank guarantees have been said to be the life blood of international commerce - and thus not subject to a specific risk. Hence, RESPONDENT was allowed to expect no less than fulfillment of the duties to establish a bank guarantee or to make a payment transfer.

Thus, CLAIMANT is under a duty to achieve a specific result and cannot rely on its mere best efforts.

Even assuming that CLAIMANT’s best efforts are sufficient, CLAIMANT did not undertake them: Knowing that a strict deadline had to be observed, CLAIMANT’s best efforts should have at least included informing its bank of the respective dates. Instead, CLAIMANT failed to give particular instructions to the Farmers and Merchants Bank of Mediterraneo as to when for example the bank guarantee had to be opened. If supplied with this information, the bank would have taken greater care to ensure the fulfillment of CLAIMANT’s obligation.

 

d) CLAIMANT’s breach does not have to be fundamental

RESPONDENT has already demonstrated that its right to avoid has arisen under § 3 of the contract. RESPONDENT submits that no further prerequisites other than failure by CLAIMANT to fulfill its contractual obligations regarding the first payment and the bank guarantee are required. This is contrary to CLAIMANT’s argument that any alleged breaches must be proven to be fundamental breaches in order for a right of avoidance on the part of the seller to arise.

§ 3 of the contract clearly defines the prerequisites of RESPONDENT’s right to avoid. The wording of § 3 does not make any reference to the degree of the breach required. In particular, it does not mention the term "fundamental". Consequently, § 3 of the contract deviates from Art. 64 CISG in its requirements.

In trying to "harmonize" these provisions, CLAIMANT comes to the conclusion that the term "fundamental" must be read into § 3 of the contract: CLAIMANT argues that § 3 of the contract cannot grant an independent right in addition to Art. 64 CISG if there is no sufficient indication that the parties intended to derogate from Art. 64 CISG pursuant to Art. 6 CISG. It further argues that such sufficient indication does not exist if § 3 must be interpreted to include the term "fundamental". Finally, CLAIMANT purports that such an interpretation is reasonable. However, such interpretation is not reasonable for three reasons:

Firstly, the unambiguous wording of § 3 leaves no room for further interpretation and thus no doubt as to the intention of the parties.

Secondly, the ratio of § 3 forbids the interpretation submitted by CLAIMANT: The provision enables RESPONDENT to withdraw from the contract if CLAIMANT does not meet its principal duties under §§ 1 and 2 of the contract. These two provisions deal with the establishment of securities which by their very nature require prompt establishment; they fail to serve their purpose if they are delayed, regardless of the duration of such delay. If the contractual partner proves himself to be incapable of providing securities, even if only briefly, the mutual trust of the parties in each other is irreversibly shattered and continuation of the relationship cannot be expected.

Thirdly, the interpretation suggested by CLAIMANT would upset the contractual equilibrium. CLAIMANT purports that because avoidance is such a serious remedy, it would be against good business practice to allow avoidance for breaches other than serious ones. However, it cannot be against good business practice to grant such serious remedy as avoidance as long as the other party is granted a corresponding right which compensates for this. Such corresponding right is CLAIMANT’s right to cancel delivery under § 6 of the contract.

In conclusion, to interpret § 3 to feature the term "fundamental" is not reasonable. The wording of the clause provides clear evidence that the parties must be assumed to have intended to supplement Art. 64 CISG. Such a supplementation is allowed under Art. 6 CISG. § 3 should thus be construed to complete the catalogue of situations in which a right of avoidance arises. § 3 of the contract does not presuppose a fundamental breach.

 

2. Right to avoid under the contract concluded on 9 May 1997

Even assuming that CLAIMANT’s assertion that a contract in terms of agreement had been concluded on 9 May 1997 is correct, RESPONDENT nevertheless has a right of avoidance under the contract because both payment and guarantee were made and established far too late: The payment had to be made and the bank guarantee had to be established within ten days of the conclusion of the contract. That would have been 19 May 1997. Yet, the two obligations were not fulfilled before 17 or 18 June 1997.

 

II. RESPONDENT exercised its right to avoid the contract

RESPONDENT has effectively declared its avoidance of the contract. It has done so both in its letter of 24 June 1997 [1.] as well as by rejecting the first payment on 17 June 1997 [2.].

 

1. RESPONDENT declared avoidance in its letter of 24 June 1997

RESPONDENT effectively exercised its right to avoid in its letter of 24 June 1997. Contrary to CLAIMANT’s contentions, RESPONDENT’s letter was sufficiently clear to represent a declaration of avoidance: In the said letter, RESPONDENT stated that "[...] if a contract had been concluded as a result of [CLAIMANT’s] telefax of 5 June 1997 [...] [RESPONDENT] would have the right to avoid the contract [...]" because of CLAIMANT’s failure to comply with the terms in the contract regarding the first payment and the bank guarantee. Whether a statement amounts to a declaration of avoidance pursuant to Art. 26 CISG must be determined by interpreting the statement according to Art. 8(2),(3) CISG. In the letter, RESPONDENT specifically used the words "to avoid". It did so in the context of those paragraphs of the alleged contract that would grant a right of avoidance. Furthermore, RESPONDENT clearly pointed out that CLAIMANT had failed to comply with the contract. Having regard to the fact that our client was of the opinion that no contract existed, it would be unreasonable to expect a more specific statement of avoidance. Hence for a reasonable observer RESPONDENT’s conduct constituted a declaration of avoidance.

CLAIMANT’s submissions, especially the authorities it relies upon, do not lead to a different result. In the Australian case, the court did not demand a clear and specific "We avoid" but rather held the statements of claim to contain a sufficiently clear declaration of avoidance even though the words were not contained in the statement. Also, the Oberlandesgericht Frankfurt am Main did not formulate a general standard which declarations of avoidance must meet: The court did not state that a party had to declare avoidance unmistakably; rather, it stated that the declaration of avoidance in the case before it was an unmistakable one. Apart from this, the cases produced by CLAIMANT are distinguishable from the one before this Tribunal on points of fact: In both of them, the existence of a contract was undisputed. Consequently, these cases cannot serve as a guide as to whether RESPONDENT’s letter of 24 June 1997 amounted to a declaration of avoidance.

CLAIMANT further asserts that a mere reminder or threat would never constitute a declaration of avoidance under Art. 26 CISG. Even if this is correct, this is so because such reminders or threats do not clearly state whether the declaring party actually intends to render the contract void. In such a case the consequences are not clear since the ambiguity of the reminder or threat may indicate that the declaring party is still interested in the contract. However, the situation between RESPONDENT and CLAIMANT is different: There can be no doubt about the fact that RESPONDENT was not interested in the contract and that it did not want to be bound by the contract in case it had been concluded. The fact that it phrased its declaration of avoidance in the conditional originates from the mere fact that it believed a contract had not been concluded and that it saw no necessity to avoid the contract. Hence, RESPONDENT effectively declared avoidance in its letter of 24 June 1997.

 

 

2. RESPONDENT declared avoidance by rejecting the first payment on 17 June 1997

Apart from RESPONDENT’s declaration of avoidance in its letter of 24 June 1997, it has also exercised its right of avoidance implicitly by rejecting the first payment. It is generally recognized that avoidance may be declared implicitly under Art. 26 CISG. The refusal to accept performance of a contractual obligation, especially the rejection of goods by the buyer, is regarded to be a special case of such implicit avoidance. The same must apply to the seller rejecting the buyer’s payment. This is all the more so, as the mere return of goods could also be interpreted to be a notification of a defect of the goods or some other legal statement which could be confused with a declaration of avoidance. However, this cannot be true if a monetary performance is rejected. Hence, the Tribunal should regard RESPONDENT’s rejection of the first payment as a declaration of avoidance.

As before, the authority submitted by CLAIMANT does not prove the contrary. The Landgericht Frankfurt am Main, in the decision relied upon by CLAIMANT, did not outrightly reject the concept of implicit avoidance by returning the goods. Rather, the court held that the rejection of one part of the goods accompanied by a declaration to be willing to keep the rest and pay for it, demonstrated that the declaring party was not willing to cancel the contract: In fact, it wanted to uphold the contract as it wished to keep part of the goods and to pay for them. While this view is correct, this situation is entirely different from the one at hand.

 

III. RESPONDENT has not lost its right to avoid

RESPONDENT has not lost its right to avoid the contract pursuant to Art. 64(2)(a) CISG. CLAIMANT submits that RESPONDENT lost its right because CLAIMANT rendered the first payment and RESPONDENT was aware of this performance by 17 June 1997, seven days before it had actually declared avoidance in its letter of 24 June 1997.

RESPONDENT argues that it maintained its right to avoid the contract, regardless of whether the Tribunal concludes that it declared avoidance in its letter of 24 June 1997 or through the rejection of the first payment on 17 June 1997. Art. 64(2)(a) CISG requires the price to be paid in order for a right of avoidance to be lost. Price under Art. 64(2)(a) CISG means the full price; mere installments do not suffice. CLAIMANT’s reliance on Canadian authority to the contrary is irrelevant because the case cited does not deal with the CISG which as an international convention is to be interpreted autonomously.

CLAIMANT had not paid the full price by 17 June 1997, nor by 24 June 1997. It had merely paid the first payment of E$ 3,000,000 - not the entire sum of E$ 30,000,000 owed under the contract. This should lead the Tribunal to the conclusion that RESPONDENT had not lost its right of avoidance before its exertion.

 

IV. In avoiding the contract, RESPONDENT did not act in bad faith

CLAIMANT purports that a party avoiding a contract solely to take advantage of a market change is in breach of good faith. According to CLAIMANT, this is especially the case when a party abandons a contract only to enter into another more profitable deal. CLAIMANT further alleges that this is exactly what RESPONDENT did.

However, CLAIMANT fails to provide any convincing evidence for this allegation. CLAIMANT relies on the fact that RESPONDENT has entered into a contract with Oceania Oil Ltd. However, this contract had not even been thought of when RESPONDENT avoided the contract with CLAIMANT. RESPONDENT was not approached by Oceania Oil Ltd. until the end of August and the contract itself was not concluded before 17 September 1997 - almost three months after RESPONDENT had avoided the contract with CLAIMANT. Furthermore, when RESPONDENT entered into the contract with Oceania, it did not do so because it wanted to take advantage of the market change but because RESPONDENT had recently discovered that it would have no need for rig #23 as long as previously expected and was thus eager to find a buyer for the rig as quickly as possible. RESPONDENT felt pressure for a quick decision because this seemed necessary in the light of the turbulent market conditions which made it very uncertain that a comparable price for the rig could be negotiated in the future. Finally, RESPONDENT had already informed CLAIMANT that it would not be able to reserve the rig unless it received the payment and the guarantee at the latest by the time specified in the contract. CLAIMANT was thus aware that any delay in the performance of its contractual obligations would culminate in RESPONDENT’s avoidance.

 

In overall conclusion, a contract between the parties is not in existence.

 

Issue 2: The Tribunal should not order RESPONDENT to deliver rig #23 to CLAIMANT

CLAIMANT bases its request to order RESPONDENT to deliver rig #23 to CLAIMANT in accordance with the contract on Art. 46(1) CISG. However, the prerequisites for such an order of specific performance are not met [A.]. Even if the Tribunal should be of the opinion that they are met, it should refuse such judgment for specific performance under Art. 28 CISG [B.].

 

A. The prerequisites for an order of specific performance are not met

According to Art. 45(1) CISG, CLAIMANT may require performance by RESPONDENT under Art. 46(1) CISG if RESPONDENT is in breach of its duty to deliver rig #23 to CLAIMANT. However, RESPONDENT cannot be in breach of that duty [I.]. In addition, CLAIMANT also appears to rely alternatively on an anticipatory breach to claim specific performance. However, CLAIMANT cannot rely on an anticipatory breach in order to claim specific performance under the CISG [II.].

 

I. RESPONDENT cannot be in breach of its duty to deliver rig #23 to CLAIMANT

CLAIMANT alleges that RESPONDENT breached its contractual obligations. Yet, no further explanation for this allegation is given. In fact, RESPONDENT has not breached its duty to deliver the rig to CLAIMANT. In particular, the fact that RESPONDENT entered into a conditional contract with Oceania Oil Ltd. does not represent a breach of this duty. RESPONDENT argues that it cannot be in breach: Pursuant to § 5 of the contract, RESPONDENT will put rig #23 at CLAIMANT’s disposal on 30 September 1998. This date of delivery has not arrived yet. In consequence, RESPONDENT cannot be in breach of its obligation to deliver rig #23 to CLAIMANT since such delivery is not due before 30 September 1998.

 

II. CLAIMANT cannot rely on an anticipatory breach

By relying on an anticipatory breach in order to claim specific performance, CLAIMANT oversteps the scope of the remedies provided for by the CISG. The CISG not only regulates the parties’ obligations, but also exhaustively lists the remedies available. An action for specific performance in case of anticipatory breach is not codified in the CISG. The CISG provides adequate protection in Artt. 71-73 for instances of anticipatory breach. The proper remedy in these cases is suspension of performance under Art. 71 CISG or avoidance under Art. 72 CISG, but not specific performance.

 

B. The Tribunal should refuse a judgment for specific performance

Contrary to CLAIMANT’s contentions, even if the Tribunal should find that the prerequisites of Artt. 45(1), 46(1) CISG are met, it is not bound to enter the judgment for specific performance pursuant to Art. 28 CISG. Art. 28 CISG states that a court is not bound to order specific performance unless it would do so under its own law. RESPONDENT argues that Art. 28 CISG applies to this Tribunal [I.], that the prerequisites of Art. 28 CISG are met [II.] and that the Tribunal should exercise its discretion to dismiss CLAIMANT’s motion [III.].

 

I. Art. 28 CISG applies to this Tribunal

Contrary to CLAIMANT’s contentions, Art. 28 CISG applies to this Tribunal. Although the wording of Art. 28 CISG does not expressly include arbitral tribunals, its ratio calls for an extension of its ambit to arbitral tribunals: Art. 28 CISG is intended to enable courts to adhere to their domestic law regarding orders of specific performance. As arbitral tribunals replace courts and derive their jurisdiction from the domestic judiciary, this ratio applies to them as well. CLAIMANT concedes that there is support for the position that Art. 28 CISG applies to arbitral tribunals: CLAIMANT states that in the light of the fact that many international disputes are resolved by arbitration, "allowing arbitral tribunals to ignore Art. 28 CISG would mean that domestic laws regulating specific performance would be substantially supplanted by the CISG’s provisions on specific performance. This would thwart the purpose of Art. 28 CISG". CLAIMANT also observes that Art. 1.10 UNIDROIT Principles states that "court" includes an arbitral tribunal. Since Art. 28 CISG in its entirety is at stake if not applied to arbitral tribunals, the scope of Art. 28 CISG should be extended to international arbitral tribunals and thus to this Tribunal.

 

II. The prerequisites of Art. 28 CISG are met

Contrary to CLAIMANT’s contentions, the prerequisites of Art. 28 CISG are met since the Tribunal would not issue an order of specific performance under its own law. The Tribunal’s own law is the substantive law of its seat, i.e. Danubian law. In Danubia, orders of specific performance are almost never given if the buyer could purchase substitute goods that would be adequate to satisfy its needs. However, they can be issued if the contemplated damages are incapable of calculation.

In contrast to CLAIMANT’s submissions, such substitute goods are available in the case before this Tribunal: Although rig #23 may be the only rig available in the country of Polarity, this does not preclude CLAIMANT from acquiring a rig that at the moment is situated outside Polarity. This may involve additional transportation costs, but the rig would represent an adequate substitute since drilling rigs in general are not unique and thus irreplaceable, but rather standardized and thus interchangeable.

RESPONDENT further submits that the damages CLAIMANT would incur are calculable: The penalties CLAIMANT would be subject to under the concession agreement with the government of Polarity are clearly stated and easily ascertainable. In addition, the loss of profit cannot constitute an incalculable figure as any delay in the start of development would not diminish the profit. CLAIMANT expects Active #2 to be in production for thirty years. This is so, regardless of when production actually commences. Also, the costs for a substitute rig can be calculated since a specific price for an individual drilling rig can be determined at any time.

In conclusion, the Tribunal would not grant an order of specific performance under its own law.

 

III. The Tribunal should exercise its discretion to dismiss CLAIMANT’s motion

As shown above, the Tribunal is not bound to enter a judgment for specific performance. RESPONDENT further argues that it should not do so either. When exercising its discretion under the CISG, the Tribunal should adhere to the legal principles of its own domestic law. Hence, as the Tribunal would not grant the requested order under its own law, it should not do so under the CISG either.

Still, the Tribunal may nevertheless consider itself free to issue the requested order under Art. 28 CISG. RESPONDENT respectfully requests the Tribunal to exercise its discretion under that provision and to refuse the requested order. CLAIMANT’s interest that an order of specific performance be issued is by far outweighed by RESPONDENT’s interest that such order be refused:

CLAIMANT’s interests do not require an order of specific performance. CLAIMANT is not depending on rig #23 specifically because it is not unique. Instead, damages would be adequate to satisfy CLAIMANT’s needs. Also, CLAIMANT is not under any time pressure to locate and transport a substitute rig to Polarity. CLAIMANT states that it would take three to four months to do so. However, the time period between the end of the arbitral proceedings on 9 April 1998 and the prescribed date to commence drilling on 15 December 1998 comprises more than eight months.

On the other hand, our client has a strong interest that the requested order is not granted. An order for specific performance would prevent RESPONDENT from receiving the merits of the more profitable contract entered into with Oceania Oil Ltd. at the price of E$ 40,000,000 – E$ 10,000,000 more than under the alleged contract with CLAIMANT. Additionally, if RESPONDENT were ordered to deliver the rig at the end of September 1998, the rig would be out of use for a period of more than four months because RESPONDENT will have no further use for rig #23 after early spring. This would signify an considerable waste of industrial resources. Finally, it is highly probable that CLAIMANT will not receive the required concession since the Government of Polarity is reviewing all its major infrastructure programs. In consequence, chances are that our client will not be able to resell rig #23 at all or at a similar price.

The circumstances which have changed significantly since the alleged conclusion of the contract should lead the Tribunal to exercise its discretion under Art. 28 CISG to reject an order for specific performance.

 

In conclusion, the Tribunal should not order RESPONDENT to deliver rig #23 to CLAIMANT in accordance with the contractual provisions.

 

Issue 3: The Tribunal should not order RESPONDENT not to sell rig #23 to any third party prior to the determination to be made by CLAIMANT

The Tribunal should not order RESPONDENT to refrain from selling rig #23 to any third party. CLAIMANT bases its request on the mechanisms of specific performance under the CISG. These, however, do not apply [A.]. Nevertheless, although CLAIMANT has not argued to this effect in its Memorandum, one may argue that this order could be based upon a request for interim protection under the Arbitration Rules of the United Nations Commission on International Trade Law (UNAR). However, CLAIMANT cannot rely on such protection [B.].

 

A. Order for specific performance under the CISG

CLAIMANT alleges that its request should be granted under the principles applying to specific performance as governed by Artt. 45, 46, and 28 CISG. However, the prerequisites for such order of specific performance are not met. Art. 45(1) CISG requires RESPONDENT to be under a duty not to sell rig #23 and to have breached said duty. However, RESPONDENT does not owe a duty not to sell rig #23 to any third party [I.]. Even if the Tribunal should find that RESPONDENT owes such duty, it is not in breach of it [II.].

 

I. RESPONDENT does not owe a duty to refrain from selling rig #23 to any third party

RESPONDENT is under no duty not to sell rig #23 to any third party. Neither the CISG nor the contract place such a duty upon the seller. Yet, CLAIMANT purports that such a duty follows from the principle of good faith, as good faith imposes upon the seller the duty not to act inconsistently with the contract. However, to refrain from acting inconsistently does not necessarily mean not to sell the object to a third party, as long as there is a possibility that it may be obtained back from its current holder before delivery is actually due. This possibility exists in the case before this Tribunal: It is possible for our client to deliver the rig to CLAIMANT on 30 September 1998 as long as the rig has not been destroyed. Thus, even though RESPONDENT might be under a duty to refrain from acting inconsistently with the contract, it is not under the specific duty to refrain from selling rig #23 to any third party.

 

II. Supposing RESPONDENT owes such duty, it is not in breach of it

Assuming that the Tribunal is to decide that RESPONDENT owes such a duty, RESPONDENT contends that it is not in breach of the duty not to sell the rig to any third party. The request to order RESPONDENT not to sell the rig to any third party must be understood to mean not to deliver it to any third party since CLAIMANT asserts how important it would be for CLAIMANT that the rig remain in RESPONDENT’s possession. However, RESPONDENT has not breached the duty not to deliver the rig to any third party: RESPONDENT is still in possession of rig #23. It has not delivered the rig to anybody - in fact, RESPONDENT is still using the rig.

Additionally, as shown above, CLAIMANT cannot rely on an anticipatory breach in order to claim specific performance. Hence, the Tribunal cannot grant the requested order under the CISG.

 

B. Order of interim protection under the UNAR

Although CLAIMANT has not argued to this effect in its Memorandum, the Tribunal should not order RESPONDENT not to sell rig #23 to any third party under the UNAR either. Under the UNAR and the UNCITRAL Model Law on International Commercial Arbitration (UNML), this relief could be administered by granting an interim injunction pursuant to Artt. 26(1) UNAR, 17 UNML. However, if this Tribunal should issue a final award by 14 April 1998, it should not grant this order [I.]. If, on the other hand, the Tribunal does not find itself capable of issuing a final award by 14 April 1998, it should not grant said order either [II.].

 

I. The order should not be issued if the Tribunal grants a final award

If the Tribunal renders a final award by 14 April 1997, it should not grant the requested order.

Firstly, the Tribunal has no authority to do so: By granting an interim measure under Artt. 26(1) UNAR, 17(1) UNML after the final award has been issued, the Tribunal would exceed the universally recognized scope of the application of interim measures.

Secondly, ordering this interim measure is not necessary as required under Artt. 26(1) UNAR, 17(1) UNML. An order of interim protection is necessary if an act which is capable of irreversibly prejudicing the rights of the requesting party is impending. However, such an act is not impending. In particular, the conditional contract with Oceania Oil Ltd does not endanger CLAIMANT’s rights: RESPONDENT is under no obligation to Oceania Oil Ltd. until the condition governing the contract has been met. The said condition binds RESPONDENT to the contract if it is in a "legal and factual position to deliver" rig #23 to Oceania Oil Ltd.. This situation will not arise until 14 April 1998, the date of expiration of the order of the Commercial Court of Mediterraneo. In addition, if this Tribunal finds that there is a contract binding both CLAIMANT and RESPONDENT and even grants CLAIMANT’s request to order RESPONDENT to deliver the rig, our client will not be in a legal position to deliver rig #23 to any third party. Accordingly, it would not be bound by the contract with Oceania Oil Ltd. Furthermore, our client has not made any indications that it would not be willing to fulfill its contractual obligations towards CLAIMANT if a contract actually exists. The fact that it has only entered into a conditional contract underlines this that RESPONDENT has clearly recognized its possible obligations towards CLAIMANT. Furthermore, entering into an conditional contract with Oceania should be viewed as our client’s attempt to mitigate its loss under Art. 77 CISG.

Thirdly, the injunctive order is not necessary because it is not efficient if the final decision has already been rendered: Interim measures issued by Tribunals pursuant to Artt. 26(1) UNAR, 17(1) UNML do not constitute enforceable awards under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). In addition, if the final decision is not declared yet, the parties will often do as ordered by the Tribunal in order not to run the risk of losing the Tribunal’s sympathy. However, if the final decision has already been declared, there is no incentive for the ordered party to comply with the order.

For these reasons, the Tribunal should reject CLAIMANT’s request if it issues a final award.

 

II. The order should not be issued if the Tribunal does not grant a final award

If the Tribunal cannot grant a final award on or before 14 April 1998, it should not order RESPONDENT to refrain from selling rig #23 to any third party pursuant to Artt. 26(1) UNAR, 17(1) UNML. Such order is not necessary. An interim measure is necessary if the duration of the arbitral proceedings may cause a substantial prejudice to the moving party. Such prejudice is not impending:

Firstly, as demonstrated before, there are no indications that CLAIMANT will lose rig #23 if its cause proves to be substantiated: RESPONDENT has entered into a conditional contract and has, by doing so, merely tried to mitigate its loss pursuant to Art. 77 CISG.

Secondly, the Government of Polarity has recently announced a review of all major capital programs in the future This will include programs necessary for the development of the infrastructure needed for the exploitation of Active #2. It is thus very probable that CLAIMANT will not be granted the concession necessary to conduct drilling at Active #2. As a consequence, CLAIMANT will not have any usage for the rig but will rather avail itself of § 6 of the contract and cancel it, rendering any prejudice impossible.

Thirdly, regard must be had to the fact that the necessity for a protective order is further lessened because of CLAIMANT’s weak case: With the likelihood of success of the moving party’s underlying claim being a factor in ascertaining the necessity of a measure, the Tribunal should refrain from ordering RESPONDENT as requested. It is considered inappropriate to order a costly and interuptive interim measure if a case lacks merit as manifestly as CLAIMANT’s does.

Accordingly, the Tribunal should reject CLAIMANT’s request under the UNAR.

 

In conclusion, the Tribunal should reject CLAIMANT’s request to order RESPONDENT not to sell rig #23 to any third party prior to the determination to be made by CLAIMANT.

 

Issue 4: The Tribunal should not order RESPONDENT to enter into a contract with CLAIMANT on the terms negotiated

The Tribunal should not order RESPONDENT to enter into a contract with CLAIMANT because RESPONDENT has allegedly breached good faith during the negotiations. RESPONDENT was under no duty to observe any standards of good faith during the pre-contractual negotiations under the CISG [A.]. Further, assuming that RESPONDENT was under such obligation – whether under the CISG or the general principles of law governing international contracts – it has not breached this obligation [B.]. Finally, even if RESPONDENT is in breach of good faith, CLAIMANT relies on the wrong legal consequence [C.].

 

A. Observance of good faith is not owed at a pre-contractual stage under the CISG

Contrary to CLAIMANT’s submissions, RESPONDENT was under no duty to observe standards of good faith during the pre-contractual negotiations under the CISG. CLAIMANT asserts that the duty of good faith under Art. 7(1) CISG must be extended as to apply to pre-contractual negotiations as well. However, CLAIMANT fails to provide authority for this: CLAIMANT relies upon an Australian and a French case neither of which deal with the CISG. Additionally, CLAIMANT relies on the UNIDROIT Principles. However, CLAIMANT itself states that the basis for the extension of good faith to the pre-contractual stage are Artt. 7(1) and 4 CISG. If this is true, there is no reason for relying on the UNIDROIT Principles as they only apply - by virtue of the parties’ choice of law - to matters which are not governed by the CISG. CLAIMANT thus remains without authority for its submission.

However, there is a strong indication to the contrary. Even though CLAIMANT may be right in contending that pre-contractual liability is a question of formation of contract, legislative history indicates that pre-contractual liability was not intended to be incorporated into the CISG: A proposal by the delegation of the GDR to introduce a general provision of culpa in contrahendo was refused as being too general. This should lead the Tribunal to assume that pre-contractual liability is generally not within the scope of the Convention. This is the universally recognized conclusion.

 

B. RESPONDENT is not in breach of good faith

Assuming that the Tribunal should nevertheless conclude that the CISG governs pre-contractual liability, RESPONDENT is not in breach of good faith. CLAIMANT purports that RESPONDENT is liable for its pre-contractual conduct because it has failed to comply with the legitimate expectation to negotiate exclusively and to finally conclude a contract with CLAIMANT.

Turning to the expectation that RESPONDENT would negotiate exclusively with CLAIMANT, CLAIMANT submits that RESPONDENT failed to comply with this when it commenced negotiations with Oceania Oil Ltd. RESPONDENT doubts that the duty to observe good faith manifests itself in an obligation to negotiate exclusively with one party: In particular, CLAIMANT’s reference to the small number of potential business partners does not reflect reality as the number of potential rig providers worldwide is not specifically small. Even if it were, RESPONDENT cannot recognize the relevance of this number to the need of negotiating exclusively with one party. Nevertheless, even if such duty were contained in the principle of good faith, CLAIMANT’s expectation was not a legitimate one when the alleged failure to comply with it occurred: Negotiations with Oceania Oil Ltd. did not commence before late August 1997 - at a time when negotiations with CLAIMANT were clearly over. Furthermore, RESPONDENT had informed CLAIMANT of its intentions to turn to other potential buyers as soon as 3 June 1997. RESPONDENT pointed out that the rig might be sold to another party once more in its letter of 6 June 1997. Due to this, CLAIMANT was aware of the possibility that RESPONDENT might enter into negotiations with a third party two months before RESPONDENT actually did so. Thus, CLAIMANT’s expectation that RESPONDENT would exclusively negotiate with CLAIMANT cannot be considered to be a legitimate one.

Turning to CLAIMANT’s expectation that our client would ultimately conclude a contract with it, RESPONDENT replies that it never disappointed this expectation either. Such a disappointment could only lie in the sudden and unjustified break-up of negotiations. Such a break-up however, did not occur: RESPONDENT repeatedly offered to continue negotiations with CLAIMANT even after CLAIMANT had rejected RESPONDENT’s offer and the mutual relationship had deteriorated to an extent at which none of the parties could reasonably expect that a contract would ultimately be entered into. In addition to this, RESPONDENT argues that CLAIMANT’s expectation that a contract would finally be concluded was never a legitimate one: The legitimacy of this expectation depends upon the formality of the negotiations and not upon the subject of the contract or the seriousness of the consequences to one of the parties if the contract is not concluded as CLAIMANT seems to submit. Yet, the fact that the parties had conducted their negotiations purely informally without any exchange of "letters of intent" or "memoranda of understanding", which are considered to be indications for formal negotiations, proves that CLAIMANT is wrong in asserting that it was legitimate to expect that a contract would eventually be entered into.

Furthermore, if the Tribunal should follow RESPONDENT in that the CISG does not govern pre-contractual liability, thereby giving rise to the UNIDROIT Principles which CLAIMANT refers to in this context. However, the relevant provision, Art. 2.15 UNIDROIT Principles, does not change this result. Firstly, by negotiating with Oceania Oil Ltd., RESPONDENT did not negotiate in bad faith with CLAIMANT because it adhered to this purported duty of negotiating exclusively with CLAIMANT as long as could reasonably be expected. Secondly, as demonstrated above, RESPONDENT never broke off negotiations with CLAIMANT.

Hence, our client is in no breach of any pre-contractual good faith duty under the CISG or under general principles of law governing international contracts.

 

C. CLAIMANT relies on the wrong legal consequence

In the case that the Tribunal should find that RESPONDENT breached a duty of good faith, RESPONDENT submits that it should not be ordered to enter into a contract with CLAIMANT as a consequence. CLAIMANT produces authority stating that if the principle of pre-contractual liability applies, the remedies provided by the CISG should be applied by analogy. However, this does not lead to the remedy requested by CLAIMANT: CLAIMANT fails to explain why this very specific remedy, which is not provided for under the CISG, should be granted. Furthermore, the scholar cited by CLAIMANT does not arrive at this conclusion. Rather, he proposes a liability in damages to the height of the so-called negative interest, the damage incurred by relying on a declaration. This position finds support and is also true for pre-contractual liability under the UNIDROIT Principles. Thus, CLAIMANT relies on the wrong legal consequence.

 

In conclusion, the Tribunal should not order RESPONDENT to enter into a contract with CLAIMANT.

 

Costs

In order to achieve a just and fair allocation of the costs of this arbitration, the Tribunal should not apportion the costs equally as submitted by CLAIMANT. Rather, according to Art. 40 UNAR, the Tribunal should have regard to the success of the individual requests and in view of RESPONDENT’s sound legal position should exercise its discretion to place the burden of all costs on CLAIMANT.

 

Conclusion

In view of the above submissions, may it accordingly please this Tribunal:

 

For Deep Well Drilling, Inc.

(signed) _____________________________________________, 12 February 1998

Attorneys