FOURTH ANNUAL
WILLEM C. VIS
INTERNATIONAL COMMERCIAL ARBITRATION MOOT

Juridicum
and
International Arbitral Centre
Federal Economic Chamber

April 1-6, 1997


THE PROBLEM

 

Further information: International Commercial Arbitration Moot
Institute of International Commercial Law
Pace University School of Law
78 North Broadway
White Plains, NY 10603
USA

Tel: (1-914) 422-4402
Fax: (1-914) 422-4229
E-mail: ebergsten@genesis.law.pace.edu



INTERNATIONAL COURT OF ARBITRATION
OF THE INTERNATIONAL CHAMBER OF COMMERCE

Case No. Moot 4

REQUEST FOR ARBITRATION

ON BEHALF OF

TEXTILE EXPORT-IMPORT CO.
Industry City
Mediterraneo -- Claimant

AGAINST

HIGH QUALITY CLOTHES CO.
Cool City
Equatoriana -- Defendant

MAY IT PLEASE THE TRIBUNAL

I. THE FACTS OF THE CASE: 1. a. High Quality Clothes Co., hereafter referred to as HIGH QUALITY, is incorporated in Equatoriana. It owns and operates a chain of 25 retail clothing stores in Equatoriana. It sells merchandise at the high-middle level of price and quality.

  1. Menís Suits Manufacturing Co., hereafter referred to as MENíS SUITS, is incorporated in Mediterraneo and all of its business is conducted in Mediterraneo. It manufactures and sells menís outer clothing, including suits and separate jackets and pants.
  2. Textile Export-Import Co., hereafter referred to as TEXTILE, is incorporated in Mediterraneo. It purchases textiles of various types for importation into Mediterraneo, which it sells to manufacturers of clothing and other finished products, and sells for export textiles, finished clothing and other finished products made from textiles that have been manufactured in Mediterraneo. Although it has purchasing and selling agencies in a number of countries, it has no such office or agency in Equatoriana.

2. On March 1, 1994, HIGH QUALITY sent a letter to MENíS SUITS ordering 5,000 menís suits of certain designated models at the prices in the list dated January 15, 1994 (Claimantís exhibit 1). MENíS SUITS forwarded to TEXTILE the letter from HIGH QUALITY since, as of February 15, 1994, MENíS SUITS had discontinued selling directly outside Mediterraneo and as of that date all of its export sales were handled by TEXTILE.

3. On March 10, 1994, TEXTILE sent to HIGH QUALITY a confirmation of the order (Claimantís exhibits 2, 3 and 4). The confirmation quoted a price of $130 CIP Handelshafen, Equatoriana (Incoterms 1990) per piece, for a total of $650,000, payable 30 days after shipment. Payment was to be made to the dollar account of TEXTILE in London. The confirmation also indicated that the goods would be shipped directly from MENíS SUITS to HIGH QUALITY on or before August 15.

4. The goods were shipped from MENíS SUITS on August 1, 1994. HIGH QUALITY did not pay the open account on August 31, 1994, as required by the contract. TEXTILE sent a routine reminder on September 9, 1994 (Claimantís exhibit 5). A second reminder was sent on October 10, 1994 (Claimantís exhibit 6). On October 14, 1994, HIGH QUALITY finally replied saying that the goods received had not been the suits ordered but had been separate jackets and pants (Claimantís exhibit 7). On October 20, 1994, TEXTILE replied that

In its letter TEXTILE offered an adjustment on the price in order to settle the dispute, but that offer was rejected by HIGH QUALITY and is no longer valid.

5. On October 27, 1994, HIGH QUALITY transferred to the account of TEXTILE in London $390,000. The same day it sent a letter to TEXTILE explaining its actions. The letter was received by TEXTILE on November 3, 1994. In the letter HIGH QUALITY said that it had sold the suits for the account of TEXTILE to Overstock Merchandising, another retailer of menís clothing in Equatoriana, for $500,000. It said that it had transferred that sum, less $110,000 for alleged costs and damages, to our account (Claimantís exhibit 9). On November 4, 1994, TEXTILE replied that it had accepted the $390,000 as a partial payment on the $650,000 owed to it by HIGH QUALITY, and it made demand for payment of the remaining $260,000(Claimantís exhibit 10). The payment has never been made. II. THE LEGAL POSITION

  1. Agreement to arbitrate

The confirmation form sent by TEXTILE contained in article 11 the standard ICC arbitration clause, and provided that in case of dispute there shall be three arbitrators, the language of the arbitration shall be English (Claimantís exhibit 4). HIGH QUALITY accepted the terms of the confirmation form as the terms of the contract, including the arbitration clause, when it failed to object to them and accepted the goods.

  1. Law applicable to the contract

Article 10 of the confirmation form provided that the contract was to be governed by the United Nations Convention on Contracts for the International Sale of Goods. That would have been the result in the absence of article 10, since both Equatoriana and Mediterraneo are, and were prior to March 1, 1994, parties to the Convention.

      c. Legal rights of the claimant

  1. TEXTILE and HIGH QUALITY entered into a contract of sale for 5,000 menís suits for a total sale price of $650,000. The goods were shipped to and received by HIGH QUALITY. According to the contract payment was due 30 days after shipment, i.e., on August 31, 1994. Payment of $390,00 was made on October 27, 1994, leaving a remaining balance of $260,000 outstanding.
  1. HIGH QUALITY gave no notice to TEXTILE that the goods as delivered were not as ordered for more than a month after they were received and not until TEXTILE had twice made demand for payment. As a result of this long delay in giving notice, HIGH QUALITY has no right to rely on the lack of conformity of the goods.
  1. The goods actually delivered to HIGH QUALITY were of the same quality as those specified in its letter of March 1, 1994 to MENíS SUITS and in the confirmation form of TEXTILE dated March 10, 1994, and HIGH QUALITY has never suggested otherwise. Therefore, even if HIGH QUALITY had given notice of non-conformity, the non-conformity did not amount to a fundamental breach of the contract.
  2. Even if HIGH QUALITY had given proper notice of the non-conformity and even if the non-conformity had amounted to fundamental breach, HIGH QUALITY did not give notice of avoidance of the contract. Therefore, the contract remains in existence and HIGH QUALITY owes the unpaid portion of the price for the goods.

MAY IT PLEASE THE ARBITRAL TRIBUNAL

(signed) , 5 May 1996

Attorneys for Textile Export-Import Co., Claimant

CLAIMANTíS EXHIBITS
(Contents only)

CLAIMANTíS EXHIBIT No. 1

Letter from High Quality Clothes Co. to Menís Suits Manufacturing Co. dated March 1, 1994

March 1, 1994

Mr. Sidney Lockwood
Sales Manager
Menís Suits Manufacturing Co.
123 Textile Place
Industry City, Mediterraneo

Dear Mr. Lockwood:

We are now prepared to place an order with you for 5,000 menís suits for the forthcoming winter season on the usual terms and conditions. The distribution between models, sizes and colors is indicated on the accompanying list. [List not included in this reproduction.] Please arrange to ship so that they will arrive in Equatoriana by the end of August.

Please inform us immediately if the prices would be different from those in your 1994 catalogue and accompanying price list dated January 15, 1994.

Sincerely,

(Signed)
Claude Simpson
Purchasing Manager
High Quality Clothes Co.

 

CLAIMANTíS EXHIBIT No. 2

Letter dated March 10, 1994 from Textile Export-Import Co. to High Quality Clothes Co.

March 10, 1994

Mr. Claude Simpson
Purchasing Manager
High Quality Clothes Co.
456 Retail Street
Cool City, Equatoriana

Dear Mr. Simpson:

Your letter of March 1, 1994 addressed to Menís Suits Manufacturing Co. in which you ordered 5,000 menís suits of various model numbers has been referred to us. Since February 15 Textile Export-Import Co. handles all the export sales for Menís Suits Manufacturing Co.

We enclose our confirmation of your order. Since you have been a regular customer of Menís Suits Manufacturing Co. for the past seven years, we have granted you the same payment terms you have been enjoying with Menís Suits Manufacturing Co., i.e., payment is due 30 days after shipment. We are pleased to confirm that the prices quoted in our confirmation are in accord with those in the price list of Menís Suits Manufacturing Co. dated January 15, 1994, including shipping and insurance.

We wish to express our pleasure in welcoming you as a new customer of Textile Export-Import Co.

Sincerely,

(Signed)
Harold Swenker
Export Manager
Textile Export-Import Co.

 

CLAIMANTíS EXHIBIT No. 3

Front of confirmation form sent by Textile Export-Import Co. to High Quality Clothes Co. in the letter of March 10, 1994

TEXTILE EXPORT-IMPORT CO.

Sales Confirmation

Customerís name:

High Quality Clothes Co.

Address:

456 Retail Street
Cool City, Equatoriana

Supplierís name

Menís Suits Manufacturing Co.
Address: 123 Textile Place
Industry City, Mediterraneo
Merchandise Menís suits
Quantity 1,000 each of referenced numbers. Total, 5,000
Model numbers 4250, 4263, 5176, 6228, 7398
Sizes: Equatoriana sizes 48, 49, 50, 51 52 (200 each size, each model)

Shipment

Direct from supplier on or before August 15, 1994
Price per unit $ 130 CIP HANDELSHAFEN, Equatoriana (Incoterms 1990
Total price $ 650,000
Payment terms Due 30 days after shipment. Payment to be made to Textile Export-Import Co. $ account 17335, Foreign Exchange Bank, London, England

OUR CONFIRMATION OF YOUR ORDER IS SUBJECT TO OUR GENERAL CONDITIONS OF SALE SET OUT ON THE REVERSE SIDE OF THIS FORM. THEY WILL BE THE TERMS AND CONDITIONS OF THE CONTRACT UNLESS YOU SPECIFICALLY OBJECT WITHIN FIFTEEN (15) DAYS OF THE RECEIPT OF THIS CONFIRMATION.

 

CLAIMANTíS EXHIBIT No. 4

Relevant provisions from rear side of confirmation form sent by Textile Export-Import Co. to High Quality Clothes Co. in the letter of March 10, 1994.

GENERAL CONDITIONS OF SALE

* * *

6. Limitation of remedies. If the goods delivered to Buyer are non-conforming, Buyerís rights shall be limited to a reduction of the price. Buyer shall have no right to claim damages, whether general or specific.

* * *

10. Choice of law. The contract is to be governed by the United Nations Convention on Contracts for the International Sale of Goods.

11. Arbitration. All disputes arising in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with the said Rules.

 

CLAIMANTíS EXHIBIT No. 5

Letter from Textile Export-Import Co. to High Quality Clothes Co. dated September 9, 1994.

September 9, 1994

Mr. Claude Simpson
Purchasing Manager
High Quality Clothes Co.
456 Retail Street
Cool City, Equatoriana

Dear Mr. Simpson:

I refer to your order of March 1, 1994 sent to Menís Suits Manufacturing Co. and our confirmation dated March 10, 1994. The goods indicated in your order were shipped by Menís Suits Manufacturing Co. directly to you on August 1, 1994.

According to the contract payment was due 30 days after shipment by transfer to our dollar account 17335 at the Foreign Exchange Bank, London, England. We are sure that the delay in payment is due to an oversight.

We look forward to hearing from you soon.

Sincerely,

(Signed)
Harold Swenker
Export Manager
Textile Export-Import Co.

 

CLAIMANTíS EXHIBIT No. 6

Letter from Textile Export-Import Co. to High Quality Clothes Co. dated October 10, 1994.

October 10, 1994

Mr. Claude Simpson
Purchasing Manager
High Quality Clothes Co.
456 Retail Street
Cool City, Equatoriana

Dear Mr. Simpson:

I refer to my letter of September 9, 1994. Your account is now more than a month overdue. I am sure that you wish to keep your credit standing with us.

Therefore, I would ask you to be sure to remit the balance due, $650,000, promptly to our $ account 17335, at the Foreign Exchange Bank, London, England.

Sincerely,

(Signed)
Harold Swenker
Export Manager
Textile Export-Import Co.

 

CLAIMANTíS EXHIBIT No. 7

Letter from High Quality Clothes Co. to Textile Export-Import Co. dated October 14, 1994.

October 14, 1994

Harold Swenker
Export Manager
Textile Export-Import Co.
789 Middle Street
Industry City, Mediterraneo

Dear Mr. Swenker:

I refer to your letters of September 9 and October 10, 1994.

In our order placed with Menís Suits Manufacturing Co. we ordered 5,000 menís suits of various models and sizes. Your confirmation dated March 10, 1994 also referred to 5,000 menís suits.

You did not send us menís suits. Instead, you sent us 5,000 separate jackets and pants. These were not the goods we ordered, and we are not able to use them. We had already ordered, and have received, our complete requirements for this type of clothing for the winter season. As a result of your non-fulfillment of our order, it has been necessary for us to purchase replacements from another source.

We hold the jackets and pants at your disposition. Please tell us what you wish us to do with them. I would appreciate it if you could inform me promptly, since we are short of warehouse space and we need the space your clothes are occupying.

Sincerely,

(Signed)
Claude Simpson
Purchasing Manager
High Quality Clothes Co.

 

CLAIMANTíS EXHIBIT No. 8

Letter from Textile Export-Import Co. to High Quality Clothes Co. dated October 20, 1994.

October 20, 1994

Mr. Claude Simpson
Purchasing Manager
High Quality Clothes Co.
456 Retail Street
Cool City, Equatoriana

Dear Mr. Simpson:

Your letter of October 14, 1994 has been received. I do not understand it. You received the shipment on August 20. You waited for almost two months to tell us that the wrong goods had been shipped. Surely one thing you could tell immediately upon receiving the goods was whether they were menís suits or separate jackets and pants.

Even though you waited so long to let us know the wrong goods had been shipped we would have been willing to look for another buyer for them. However, now it is too late. The season for selling winter goods to retailers is almost over. It will not be possible for us to find another buyer in Equatoriana or otherwise within reasonable shipping distance of you at the proper invoice price. The goods are yours.

We recognize, however, that the error in shipping you separate jackets and pants rather than the suits you had ordered is ours. Since the list price for the jackets is $75 and for the plants $50, both CIP Handelshafen, we would be willing to make an adjustment on the outstanding balance of $25,000, bringing it down to $625,000. We hope you will accept this offer so that we can continue the good relations you have had with Menís Suits Manufacturing Co. We look forward to receiving your remittance within the next ten days, confirming that you have accepted our offer.

Sincerely,

(Signed)
Harold Swenker
Export Manager
Textile Export-Import Co.

 

CLAIMANTíS EXHIBIT No. 9

Letter from High Quality Clothes Co. to Textile Export-Import Co. dated October 27, 1994

October 27, 1994

Harold Swenker
Export Manager
Textile Export-Import Co.
789 Middle Street
Industry City, Mediterraneo

Dear Mr. Swenker:

Today we transferred to your $ account 17335 at the Foreign Exchange Bank, London the sum of $390,000. That is the net proceeds from the resale of your pants and jackets.

As you indicated in your letter of October 20, it is indeed getting late in the season for winter goods. Since it would soon become more and more difficult to resell the goods at a reasonable price, we thought we had better move quickly so as to realize the best possible price for you.

Yesterday we were able to resell them here in Equatoriana to Overstock Merchandise Inc. for $500,000. From that we have deducted the amount of $10,000 for our various expenses associated with storing, handling and selling the goods. I can furnish you with a detailed breakdown of those expenses if you should so wish.

In addition, we have deducted the amount of $100,000 for the extra expense we incurred in purchasing replacement suits in time for the winter season (i.e., $750,000 rather than $650,000 for 5,000 suits).

I should say at this point that I appreciate the offer you made in your letter of October 20, but I am sure you can understand why it was not acceptable. I am sorry that these difficulties have occurred, but I look forward to working with you in the future.

Sincerely,

(Signed)
Claude Simpson
Purchasing Manager
High Quality Clothes Co.

 

CLAIMANTíS EXHIBIT No. 10

Letter from Textile Export-Import Co. to High Quality Clothes Co. dated November 4, 1994.

November 4, 1994

Mr. Claude Simpson
Purchasing Manager
High Quality Clothes Co.
456 Retail Street
Cool City, Equatoriana

Dear Mr. Simpson:

Your letter of October 27, 1994 has been duly received.

We have accepted your payment of $390,000 to our account in London as partial payment on your obligation of $650,000. Your sale of the jackets and pants was for your account, not for ours.

We hereby make formal demand on you for the outstanding balance of $260,000.

Sincerely,

(Signed)
Harold Swenker
Export Manager
Textile Export-Import Co.

 

 

INTERNATIONAL COURT OF ARBITRATION

OF THE INTERNATIONAL CHAMBER OF COMMERCE

 

Case No. Moot 4

REPLY AND COUNTERCLAIM

ON BEHALF OF

HIGH QUALITY CLOTHES CO.
Cool City
Equatoriana -- Defendant

AGAINST

Textile Export-Import Co.
Industry City
Mediterraneo -- Claimant

MAY IT PLEASE THE TRIBUNAL

  1. THE FACTS OF THE CASE:
  1. Since 1989 High Quality Clothes Co., hereafter referred to as HIGH QUALITY, has purchased menís clothing from Menís Suits Manufacturing Co., hereafter referred to as Menís Suits, on a regular basis for sale in its 25 retail clothing stores. On March 1, 1994, it sent the order for 5,000 menís suits set out in Claimantís Exhibit 1. The order specified model numbers and sizes and said that the order was placed on the usual terms and conditions that had prevailed in the previous contracts between HIGH QUALITY and Menís Suits. The suits were ordered for the winter season, and was so indicated in the order.
  2. In late March HIGH QUALITY received from Textile Export-Import Co., hereafter referred to as TEXTILE, a letter dated March 10, 1994 indicating that the order had been forwarded to it by Menís Suits with an explanation that TEXTILE was currently handling all of the export sales for Menís Suits. A confirmation form was included with the letter. The confirmation form was verified in the Purchasing Department of HIGH QUALITY for the quantity, model numbers and shipping date, all of which conformed to the order placed by HIGH QUALITY with Menís Suits, and for the price. The price of $130 per unit CIP Handelshafen conformed to the price list of January 15, 1994 issued by Menís Suits. The Purchasing Department did not, and had no reason to, verify the terms on the back of the confirmation form before the form was filed.
  3. A container shipped by Menís Suits to HIGH QUALITY arrived at Handelshafen on August 9, 1994, and, after some delay in customs, arrived at the HIGH QUALITY warehouse on August 20, 1994. When the container was opened no suits were found inside. Instead, the container contained 5,000 jackets, or sports coats, and 5,000 pair of slacks. Those goods had not been ordered by HIGH QUALITY.
  4. In order to supply its needs for merchandise for the winter season, which was fast approaching, on August 25, 1994, HIGH QUALITY contracted with Quick Delivery, Inc. for 5,000 menís suits of styles and qualities comparable to those ordered from Menís Suits. The price was $150 CIP Handelshafen (Incoterm 1990) per unit. Delivery was to be in installments with the first shipment of 500 units to be made by September 15, 1994. Quick Delivery Inc. fulfilled its contract obligations and the suits sold successfully during the winter selling season. HIGH QUALITY turned to Quick Delivery Inc. because, in its experience, Quick Delivery Inc. was able to deliver quality merchandise, to meet delivery schedules and to do so on shorter notice than any other supplier serving the Equatoriana market. On previous occasions Menís Suits had not been able to deliver merchandise to HIGH QUALITY on such short notice. However, Quick Delivery Inc. added a premium for orders that required delivery in less than three months. Consequently, the suits ordered from Quick Delivery, Inc. cost a total of $750,000, in place of the $650,000 contract price for the suits from TEXTILE.
  5. In response to TEXTILEís request for payment, on October 14, 1994 HIGH QUALITY sent the letter set forth in Claimantís Exhibit 7 stating that the suits ordered had not been delivered but that in their place TEXTILE had shipped 5,000 separate jackets and pants. HIGH QUALITY requested advice as to what it should do with the jackets and pants as they were occupying valuable warehouse space. In reply, in its letter of October 20, 1994, TEXTILE denied any responsibility for the jackets and pants. HIGH QUALITY legitimately understood that letter to state that TEXTILE had no interest in how HIGH QUALITY disposed of the goods, whether at retail or in bulk to another merchant that would be able sell them at retail, as HIGH QUALITY could not.
  6. As noted, the jackets and pants were occupying valuable warehouse space. As indicated in the letter of October 20, 1994 from TEXTILE, the jackets and pants sent to HIGH QUALITY by mistake were already distress merchandise that could be sold only at a lower price, and a price that was deteriorating constantly. Under those circumstances, and in order to protect the financial interests of TEXTILE, on October 26, 1994, HIGH QUALITY negotiated a sale of the jackets and pants to Overstock Merchandising for a total price of $500,000.
  7. HIGH QUALITY incurred various expenses in the sale of the jackets and pants in the order of $10,000. It also paid $100,000 more than the price in the contract for the suits coming from Menís Suits. Therefore, on October 27, 1994, HIGH QUALITY transferred to the account of TEXTILE in London the sum of $390,000.
  1. THE LEGAL POSITION
  1. Lack of an agreement to arbitrate

No arbitration agreement has been entered into. The contracts between HIGH QUALITY and Menís Suits had not included an arbitration clause. Prior to receipt of the confirmation form from TEXTILE, HIGH QUALITY had never had any contact with TEXTILE It did not reply to the confirmation form and never signed any contract containing an arbitration clause. Therefore, there is no agreement to arbitrate.

  1. Substance of the dispute

a) Law applicable to the contract

As noted below, HIGH QUALITY does not agree that any of the terms of the confirmation form that differ from the usual terms and conditions on which it contracted with Menís Suits Manufacturing Co. are binding on it. Nevertheless, HIGH QUALITY agrees that the contract is governed by the United Nations Convention on Contracts for the International Sale of Goods.

b) Clause 6 on the confirmation form sent by TEXTILE, limiting the remedy available to the Buyer in case the goods delivered are non-conforming to reduction of the price, is not binding on HIGH QUALITY

The contracts between HIGH QUALITY and Menís Suits had not included any clause purporting to limit the damages that might be available to either party in case of non-performance by the other party.

Prior to receiving the letter dated March 10, 1994 from TEXTILE, HIGH QUALITY had never had any correspondence with it. Upon receipt of the letter, HIGH QUALITY understood that TEXTILE was operating as the export agent of Menís Suits Manufacturing Co. and that, in effect, the letter and confirmation form were those of Menís Suits Manufacturing Co. Since our order had said that it was on the usual terms and conditions, the general conditions on the reverse side of the confirmation form were not reviewed by the operating personnel of HIGH QUALITY and were not brought to the attention of any of its responsible personnel. It is clear that they were were not agreed to by HIGH QUALITY and are not, therefore, part of the contract between TEXTILE and HIGH QUALITY.

c) There was complete failure of performance by TEXTILE

TEXTILE and HIGH QUALITY entered into a contract of sale for 5,000 menís suits for a total sale price of $650,000 CIP Handelshafen, Equatoriana (Incoterms 1990). TEXTILE shipped to HIGH QUALITY a container that purported to contain the suits, but which in fact contained completely different goods. As a result there was a complete failure of delivery on the part of TEXTILE

d) Notice of the failure of performance was not required

At no time has HIGH QUALITY suggested that the jackets and pants sent to it were not in conformity with the description of them in the 1994 catalogue of Menís Suits Manufacturing Co. or that they were in any other manner defective in quality. The problem is that they were not "the goods" that were the subject matter of the contract. Therefore, the issue as to whether there was a lack of conformity of the goods does not arise and the notice provisions of article 39 do not apply.

Alternatively, if the tribunal were to consider that shipment of goods unrelated to the goods called for in the contract is "a lack of conformity of the [contract] goods", it was a "lack of conformity Ö of which [TEXTILE] knew or could not have been unaware and which he did not disclose to the buyer." Accordingly, TEXTILE may not rely on the provisions of article 39.

e) HIGH QUALITY was justified in turning immediately to a different supplier for the suits it needed for the winter season

As a result of the failure of TEXTILE to deliver the suits that had been ordered, HIGH QUALITY faced the prospect of having an inadequate supply of merchandise for the winter season. Its past experience with MENíS SUITS was that a minimum period of four months was required to receive shipments in the quantities needed. Since HIGH QUALITY could not wait that long, it turned to Quick Delivery Inc., a supplier with which it had dealt in the past and which it knew could furnish the needed quantity of the requisite quality within a short period of time.

Because the purchase was entered into late in the season for acquiring such merchandise, HIGH QUALITY was required to pay $100,000 more than the contract price, for which TEXTILE is responsible.

f) HIGH QUALITY was obligated to sell the jackets and pants for the account of TEXTILE

When HIGH QUALITY informed TEXTILE of the failure of delivery and inquired what disposition it wished to be made of the merchandise that was delivered, TEXTILE indicated in its letter of October 20, 1994 that it would not be possible for them to find another buyer within reasonable shipping distance of us at the proper invoice price. Since the winter season for sale to retailers was almost over and the price for goods that had not already been purchased was deteriorating, HIGH QUALITY was under an obligation to take reasonable measures to sell them. It did so.

Accordingly, High Quality sums up as follows:

MAY IT PLEASE THE INTERNATIONAL COURT OF ARBITRATION

- to inform TEXTILE pursuant to Article 7 of the ICC Rules of Arbitration that the arbitration cannot proceed for lack of an agreement to arbitrate.

If the International Court of Arbitration should decide that there is a prima facie agreement to arbitrate:

MAY IT PLEASE THE ARBITRAL TRIBUNAL

- to declare that the arbitration clause in the confirmation form sent by TEXTILE to HIGH QUALITY is not binding on HIGH QUALITY and that there is no agreement to arbitrate.

Subsidiarily, and only if the arbitral tribunal should decide that there is an agreement to arbitrate:

MAY IT PLEASE THE ARBITRAL TRIBUNAL

(signed) June 3, 1996
Attorneys for High Quality Clothes Co., Respondent

Contents of a letter dated June 21, 1994 from Secretariat of the International Court of Arbitration to Counsel in Textile Export-Import Co. v. High Quality Clothes Co. Case No. Moot 4

June 21, 1994

Dear (title, last name),

On July 18, 1996 the International Court of Arbitration met and considered the referenced case.

Pursuant to Article 7 of the Rules, the Court found that there was a prima facie agreement to arbitrate and has referred the request for arbitration and the reply to the arbitral tribunal.

Pursuant to Article 12 of the Rules, and failing any agreement of the parties, the Court has fixed the place of arbitration to be Vindobona, Danubia.

Pursuant to Article 2 of the Rules, the Court confirmed as arbitrators the nominees of the parties. As chairman of the arbitral tribunal, the Court has named the nominee of the National Committee of Danubia, Dr. (first name, last name).

Sincerely,

(signed)
Technical Advisor

 

INTERNATIONAL COURT OF ARBITRATION

OF THE INTERNATIONAL CHAMBER OF COMMERCE

 

Case No. Moot 4

TERMS OF REFERENCE

in accordance with article 13 of the Rules of Arbitration in force 1 January 1988, as amended 14 June 1989


  1. THE PARTIES
Claimant: TEXTILE EXPORT-IMPORT CO.
Industry City
Mediterraneo
(hereafter called "TEXTILE")
Defendant: HIGH QUALITY CLOTHES CO.
Equator City
Equatoriana
(hereafter called "HIGH QUALITY")
  1. SUMMARY OF THE FACTS OF THE CASE

On March 1, 1994, HIGH QUALITY sent a letter to Menís Suits Manufacturing Co. ordering 5,000 suits of designated models and sizes for the following winter season. The letter indicated that the terms and conditions of the contract should be the same as in previous contracts between those two companies. Unbeknownst to HIGH QUALITY, Menís Suits had discontinued selling directly outside of Mediterraneo, and had turned over the export sales to TEXTILE. On March 10, 1994, TEXTILE sent a letter to HIGH QUALITY indicating that it was now handling the export sales for Menís Suits, and enclosed its confirmation of the order that had been sent to Menís Suits.

The information on the confirmation form relevant to the goods and shipping dates was in conformity with the order sent by HIGH QUALITY to Menís Suits. The price was $130 per unit CIP Handelshafen, Equatoriana, the port of entry for Equatoriana, for a total of $650,000. According to the confirmation, payment was due 30 days after shipment, by transfer to TEXTILEís dollar account in London.

The confirmation form also included on the bottom of the front page the following legend "OUR CONFIRMATION OF YOUR ORDER IS SUBJECT TO OUR GENERAL CONDITIONS OF SALE SET OUT ON THE REVERSE SIDE OF THIS FORM. THEY WILL BE THE TERMS AND CONDITIONS OF THE CONTRACT UNLESS YOU SPECIFICALLY OBJECT WITHIN FIFTEEN (15) DAYS OF THE RECEIPT OF THIS CONFIRMATION." The reverse side of the confirmation form included terms and conditions that varied from those on which HIGH QUALITY and Menís Suits had contracted in the past. In particular, clause 6, limiting the Buyerís remedies to reduction of the price in case of the delivery of non-conforming goods, and clause 11, the standard ICC arbitration clause, had not been in the contracts between Menís Suits and HIGH QUALITY.

HIGH QUALITY did not reply to the letter or the confirmation from TEXTILE. Shipment was made directly from Menís Suits to HIGH QUALITY. When HIGH QUALITY opened the container on August 20, 1994, it found that the suits it had ordered had not been shipped. Instead, there were 5,000 menís jackets and separate pairs of pants. HIGH QUALITY did not at that time notify TEXTILE of the mistake in goods shipped.

In order to supply its need for menís suits for the winter season, HIGH QUALITY purchased 5,000 suits from Quick Delivery Inc. at a price of $150 per unit CIP Handelshafen, or a total of $750,000.

Since the goods were shipped from Mediterraneo on August 1, 1994, the price was due on August 31, 1994. When HIGH QUALITY did not pay the price, on September 10, 1994, TEXTILE sent a reminder note, to which HIGH QUALITY did not answer. Another note was sent on October 10, 1994. HIGH QUALITY replied on October 14, 1994. In its letter it stated that the goods shipped had not been the suits ordered, but had been separate jackets and pants. HIGH QUALITY requested advice as to what should be done with them since they were occupying warehouse space. On October 20, 1994, TEXTILE replied that, because of the delay in notifying it that the wrong goods had been shipped, it was now too late for it to re-sell the jackets and pants at the invoice price. TEXTILE took the position that the goods were the responsibility of HIGH QUALITY. However, TEXTILE offered to reduce the price by a total of $25,000, since the list price for the goods shipped had been $25,000 less than the list price of the suits ordered.

On October 26, 1994, HIGH QUALITY sold the jackets and pants to Overstock Merchandising for $500,000. From that amount it deducted $10,000 for its expenses in the sale of the goods and $100,000 for the higher price it paid Quick Delivery Inc. It transferred the remaining $390,000 to TEXTILEís account in London. On November 4, 1994, TEXTILE replied that it accepted the $390,000 as partial payment on the contract price of $650,000, and made demand for the outstanding balance of $260,000.

TEXTILE filed a request for arbitration. In reply, HIGH QUALITY denied the existence of a binding arbitration clause. Subsidiarily, HIGH QUALITY defended on the merits and filed a counter-claim.

The International Court of Arbitration found that there was prima facie an arbitration clause, leaving the determination as to whether it was binding on HIGH QUALITY to the tribunal.

  1. THE PARTIESí CLAIMS

TEXTILE

TEXTILE claims that the arbitration clause in the confirmation was accepted by HIGH QUALITY when it took various actions acknowledging the existence of a contract between it and TEXTILE.

TEXTILE claims on the merits that HIGH QUALITYís delay in giving notice of the non-conformity of the goods precludes it from any remedy for the non-conformity.

TEXTILE also claims that there was no fundamental breach of the contract since the goods actually shipped were of the same basic quality as the goods ordered.

TEXTILE also argues that, even if there had been fundamental breach, HIGH QUALITY did not give any notice of any avoidance of the contract.

TEXTILE relies on clause 6 of the confirmation form that HIGH QUALITYís remedies in case of non-conformity are limited to reduction of the price.

Finally, TEXTILE claims that HIGH QUALITY is obligated to pay the contract price for the goods; that the transfer of $390,000 to TEXTILEís account was a partial payment on the account and that there is a balance of $260,000 due.

Therefore , TEXTILE claims:

HIGH QUALITY

HIGH QUALITY claims that the arbitration clause never became binding on it and that the tribunal should dismiss the claim for lack of jurisdiction.

HIGH QUALITY has made its claim of lack of jurisdiction in its reply, and therefore it also submitted its defenses on the merits, and has submitted a counter-claim.

HIGH QUALITY submits that TEXTILE did not perform the contract at all when the jackets and pants were shipped to it. Therefore, it argues that it was not bound to give notice of non-conformity.

As a subsidiary argument, HIGH QUALITY argues that TEXTILE could not have been unaware of a failure of performance that consisted of shipping improper goods. Therefore, HIGH QUALITY argues, even if the shipment of goods other than what was ordered was performance, albeit non-conforming, it had no obligation to notify TEXTILE of it.

On the grounds that the jackets and pants were the responsibility of TEXTILE, HIGH QUALITY argues that the price was quickly deteriorating since they were winter goods and the season for selling winter goods to retailers was already almost over. Since TEXTILE had indicated that would not accept responsibility for the goods, it was not only HIGH QUALITYís privilege, but it was HIGH QUALITYís duty to sell the goods for TEXTILEís account.

By way of counter-claim, HIGH QUALITY states that it was necessary for it to purchase substitute goods. Because it was so late to purchase winter goods, HIGH QUALITY claims that it had to pay $100,000 more for the replacement goods than the amount of the contract price.

Therefore, HIGH QUALITY claims:

  1. APPLICABLE LAW

The parties are in agreement that the contract is subject to the United Nations Convention on Contracts for the International Sale of Goods. The parties have agreed that any matter not governed by the Convention should be decided in accord with the principles of law applicable to international contracts.

Danubia has enacted the UNCITRAL Model Law on International Commercial Arbitration.

Danubia, Equatoriana and Mediterraneo are all party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

  1. STIPULATIONS

The parties have made the following stipulations:

  1. All prices quoted are in dollars of Equatoriana. TEXTILEís account in Foreign Exchange Bank is also in dollars of Equatoriana.
  1. While HIGH QUALITY denies any responsibility for the price, and therefore denies that any interest would be due, the parties have stipulated that the following interest rates exist that might be applicable if interest would be due.

7% Short term prime commercial lending rate Equatoriana dollars
5% Interbank rate Equatoriana dollars
4% Official discount rate Equatoriana dollars
6% Legal rate on unpaid judgments

10% Short term prime commercial lending rate Mediterraneo francs
7% Interbank rate Mediterraneo francs
6% Official discount rate Mediterraneo francs
5% Legal rate on unpaid judgments

6.5% Short term commercial lending rate Equatoriana dollars
5.5% Interbank rate Equatoriana dollars

3% Official discount rate Danubian marks
4% Legal rate unpaid judgments

  1. The parties have stipulated that the price of $500,000 received from Overstock Merchandise Inc. for the 5,000 jackets and pants was a fair price for winter goods sold as late as October 26, 1994.
  1. The parties have stipulated that the contract price of $750,000 paid to Quick Delivery Inc. for 5,000 menís suits of a quality comparable to that contracted for between TEXTILE and HIGH QUALITY was a fair price for winter goods ordered subsequent to the August 20, 1994 receipt of the shipment from TEXTILE.
  2. The parties have stipulated that the list price from Menís Suits for the 5,000 jackets and pants would have been $625,000 CIP Handelshafen (Incoterms 1990).
  1. ISSUES TO BE DECIDED
  1. Does the arbitration clause in the confirmation form give the Arbitral Tribunal jurisdiction to adjudicate this case?
  1. Does HIGH QUALITY have a right to right to rely on the lack of conformity of the goods?
  1. Did HIGH QUALITY sell the jackets and pants to Overstock Merchandise Inc. for the account of TEXTILE or for its own account?
  1. Does HIGH QUALITY owe any portion of the contract price, and if so, in what amount?
  1. If any amount is due from HIGH QUALITY to TEXTILE, is interest due on that amount, and if so, in what amount?
  1. How should the cost of arbitration be apportioned between the parties?
  1. NAMES AND ADDRESSES OF THE ARBITRATORS

(To be filled in later)

  1. PLACE OF ARBITRATION

The place of arbitration is Vindobona, Danubia.

  1. LANGUAGE OF ARBITRATION

The language of the arbitration is English.

____________________
Textile Export-Import Co.
____________________
High Quality Clothes Co.

The Arbitrators:

______________________
(Textile nominated arbitrator)
______________________
(ICC named chairman)
______________________
(High Quality nominated arbitrator)

October 4, 1996