Sixth Annual Willem C. Vis
International Arbitration Moot

Memorandum

for Essential Controls, S.A.

- Respondent -

Counsel:

Tobias Bräutigam, Christine Heeg, Alexander Kutsch,
Andrea Torka, Dorothee Pfeifle, Bettina Wawretschek

Albert-Ludwigs-Universität Freiburg

Table of Contents

Statement of Facts

Respondent's Requests

Introduction

Applicable Law and Jurisdiction

Issue 1: Respondent qualifies under Art. 79 (1) and (2) (a) CISG for exemption from paying damages as a result of the delayed installation of the control system

Statement of Facts

1. On 10 June 1996, Superb Paper, Plc. (hereinafter: the Claimant) and Essential Controls, S.A. (hereinafter: the Respondent) entered into a contract (hereinafter: main contract) by which the Respondent agreed to sell and install a paper control system for $ 500,000 in the facilitites of the Claimant.

2. Since the Respondent was not authorized to do the installation in Mediterraneo, the Claimant suggested that the installation and final testing should be done by Reliable Installation Co. (hereinafter: Reliable), which he had prior experience with and which he found to be a good firm to work with. Without having had prior business experience with Reliable, the Respondent entered into a contract with it (hereinafter: subcontract) on 7 June 1996.

3. Both contracts required that installation and testing had to be completed by Reliable on or before 16 September1996.

4. On 20 August 1996, the system was delivered to the facilities of the Claimant and $ 400,000 were paid on 22 August 1996 as agreed.

5. On 27 August 1996, the Respondent notified the Claimant that the entire team of Reliable had been killed in a plane crash the day before.

6. On 29 August 1996, the Respondent informed the Claimant that there might be a delay of the installation since Reliable's only other team qualified to do the installation was still bound to another contract but would leave for the premises of the Claimant as soon as possible.

7. During the next three weeks the Respondent telephoned Reliable almost daily to inquire when the team could be expected but was assured that the installation team was about to leave. At the same time, the Claimant telephoned the Respondent several times to inquire when he could expect the team of Reliable.

8. On 18 September 1996, the Claimant threatened the Respondent that if the system was not operational by 9 October 1996, he would look to his legal rights.

9. On the same day, the Respondent informed Reliable that he would terminate the contract and seek a new installation firm, if no team arrived at the facilities of the Claimant within the next three weeks.

10. On 19 September 1996, the Respondent told the Claimant that the installation should begin within the next three weeks and asked him, if he was satisfied with a completion of the installation within the next six weeks, i.e. by 30 October 1996, in case he would have to turn to a different installation firm.

11. The Claimant did not react to this inquiry. On 9 October 1996 he declared the contract avoided.

12. On 10 October 1996, the Respondent replied that he had been promised by Reliable that the installation would be completed by 30 October 1996. The Claimant reiterated the avoidance of the contract and informed the Respondent that he would hold the system as a security.

13. During four months of negotiations, the Respondent insisted that the Claimant had not had justifiable grounds for avoidance of the contract and demanded the system to be returned since its value diminished every day.

14. On 13 March 1997, the Claimant threatened to sell the system.

15. On 20 March 1997, the Respondent restated his wish to settle the matter amicably. He reiterated his offer to concurrently exchange the payment less the damages he had suffered and the system. In case the Claimant would reject the offered $ 330,000 for the system, the Respondent provided for a minimum price in the amount of $ 290,000.

16. The Claimant did not reply to that letter and sold the system for $ 250,000 on 4 April 1997.

17. On 3 August 1998, Reliable acknowledged to defend the Respondent in the arbitration and to waive any right he might have to participate in the creation of the arbitral tribunal.

Respondent's Requests

We respectfully submit the following requests on behalf of our client Essential controls, S.A.:

May it please the Tribunal,

a) to decide that the Respondent is exempt from any damages that the Claimant may have suffered as a result of the delayed installation of the control system;

b) to decide that the Claimant did not have legal grounds on which to avoid the contract on 9 October 1996;

c) to order the Claimant to pay the costs of the arbitration.

By way of counterclaim the Respondent requests the Tribunal

d) to decide that the Claimant breached the contract by claiming that he had avoided the contract on 9 October 1996;

e) to find that the Respondent suffered damages in the amount of $ 70,000 from the breach of the contract and to order that these damages be setoff against the advance payment of $ 400,000;

f) to decide that the Claimant did not have legal authority to sell the control system for $ 250,000 on 4 April 1997 and that the control system was not sold by appropriate means;

g) to find that the Respondent suffered damages in the amount of $ 40,000 from the improper sale of the control system by the Claimant, and to order that these damages be setoff against the advance payment of $ 400,000.

Additionally, we respectfully request the Tribunal,

h) to order that Reliable shall be joined as a defendant in this arbitration in accordance with the terms of paragraph 24 of the contract dated 10 June 1996 between the Claimant and the Respondent and paragraphs 14 and 15 of the contract dated 7 June 1996 between Reliable and the Respondent.

Introduction

In response to the Tribunal's Procedural Order No. 1 of 2 October 1998, we respectfully submit the following arguments on behalf of our client Essential Controls, S.A.:

Firstly, it will be shown that the Respondent does qualify under Art. 79 (1) and (2) (a) for exemption from paying damages as a result of the delayed installation of the control system [Issue No. 1].

Secondly, it will be shown that the Claimant was not authorized to avoid the contract on 9 October 1996 under Art. 49 (1) (b) CISG [Issue No. 2].

Thirdly, it will be shown that the Claimant was not authorized under Art. 88 CISG to sell the system on 4 April 1997 and that the sale was not done by appropriate means [Issue No. 3].

Finally, it will be shown that if the Respondent qualifies under Art. 79 (1) and (2) (a) for exemption from paying damages as a result of the delayed installation of the control system, Reliable shall be joined to this arbitration as requested by the Respondent [Issue No. 4].

Applicable Law and Jurisdiction

The Claimant and the Respondent agreed that the contract is subject to the United Nations Convention on Contracts for the International Sale of Goods (CISG).[1] The arbitration shall be governed by the International Arbitration Rules of the American Arbitration Association (hereinafter: IAR), the UNCITRAL Model Law on International Commercial Arbitration (hereinafter: ML) and the Convention of Enforcement and Recognition of Foreign Arbitral Awards (hereinafter: New York Convention)[2]; the International Arbitration Center of Danubia is determined as the place of the arbitration.[3]

Issue 1: Respondent qualifies under Art. 79 (1) and (2) (a) CISG for exemption from paying damages as a result of the delayed installation of the control system

Art. 79 provides:

(1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.

(2) If the partyīs failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if:

(a) he is exempt under the preceding paragraph; and

(b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him.

The Respondentīs exemption is to be determined according to Art. 79 (2) CISG [I.]. The delay in installing was due to an impediment beyond the Respondent's control [II.] which could neither be avoided nor overcome [III.]. At the time of conclusion of the main contract, the impediment could not reasonably have been foreseen [IV.]. The Respondent's letter of 27 August 1996 did not constitute "a fresh promise" to perform the installation on or before 16 September 1996 [4] but was a notice to the Claimant as required under Art. 79 (4) CISG [V.].

I. Respondentīs exemption to be determined under Art. 79 (2) CISG *

Art. 79 CISG provides for two different regulations if a promisorīs failure to perform an obligation is due to a failure by one of his subcontractors: In case this person is engaged to perform the whole or part of the contract, the promisorīs liability has to be judged under Art. 79 (2) CISG; in any other case, he is liable pursuant to Art. 79 (1) CISG.

The Respondent submits that Reliable is a third person within the meaning of Art. 79 (2) CISG: Reliable was to perform the installation which was an obligation of the Respondent under the main contract. Reliable is not integrated in the Respondentīs organisational sphere[5] and it had competence to decide on the way the installation was to be effected. Reliable was aware of these circumstances.[6] Thus, the Respondentīs exemption is to be determined according to Art. 79 (2) CISG.[7]

II. Non-availability of a competent team from Reliable as an impediment beyond the Respondent's control

After the death of the original team in a plane crash on 26 August 1996, Reliable was unable to achieve the installation on time since it had only one other competent team at hand which was still engaged in another job. This non-availability of competent personnel placed an impediment to the Respondent's ability to perform.[8]

An impediment according to Art. 79 CISG is assumed when performance is prevented due to circumstances not within the promisor's sphere of control.[9] Since the terms of Art. 79 CISG are rather imprecise [10] and, since according to Art. 6 CISG "The parties may [...] vary any of [...] [the Convention's] provisions", the ability of the promisor to perform has to be judged not only abstractly but with reference to the terms of contract.[11] The contract terms - express or implied - can modify the extent to which Art. 79 CISG applies.[12] Thus, if it has been agreed that the contract must be performed by certain personnel, unforeseen disability of that personnel exempts the promisor.[13] In para. 4 of the main contract, the parties reached such a binding agreement by laying down that "The control system is to be installed by [...] Reliable [...]" [14].

According to Art. 8 (1) CISG

"[...] statements made by or other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was." [15]

The Claimant, who requested Reliable as the installing company because of prior business experiences and Reliableīs good reputation[16], knew that the Respondent had never had business with any installation companies licenced in Mediterraneo since he usually performed the installation of his systems himself[17]. Thus, he was aware that the Respondent would have had difficulties in finding a substitute for Reliable. Since the installation team was to remain at the Claimant's premises for two weeks and the Claimant could not have been expected to trust any company unknown to him, he must have been aware that the Respondent felt obliged to respect the Claimant's request for Reliable and regarded para. 4 as binding obligation.

This is in accordance with the usage in international trade that individually drafted contract terms are to be understood as having an effect.[18] Pursuant to Art. 9 (2) CISG [19] such usages are applicable to the main contract. The Claimant's argumentation that para. 4 is to be interpreted as a recital[20], i.e. a mere description of the Respondent's way of performance, is contradictory to the above usage. At the time of the conclusion of the main contract on 10 June 1996, the Respondent was already legally bound to Reliable [21] so that a recital of this fact in the contract would have been pointless and para. 4 would be divested of any effect.

In addition, the Claimant's argumentation is not in conformity with his behavior until 16 September 1996: He inquired several times when the installation team from Reliable could be expected,[22] but never mentioned that he was willing to accept performance by a substitute company.

For these reasons, para. 4 of the main contract constitutes a binding stipulation for the Respondent to have the installation performed by Reliable.

III. No possibility to avoid or overcome the impediment

The Respondent was bound to have the installation performed by Reliable until 30 October 1996 [1.]. Furthermore, the Respondent could only turn to companies after a suggestion by the Claimant [2.]. In addition, even hiring a new company would not have enabled the Respondent to a quicker performance of the installation [3.].

1. Respondent obliged to have the system installed by Reliable until 30 October 1996 *

Pursuant to Art. 48 (2) CISG, the Respondent was entitled to perform until 30 October 1996; however, he was obliged to have it done by Reliable [a)]. This situation was not affected by the Claimant's letter of 18 September 1996 [b)].

a) Installation until 30 October 1996 by Reliable

Under Art. 48 (2) CISG, the seller is entitled to perform his obligations within an additional period of time requested if the buyer does not reply to the seller's request.[23] On 19 September 1996, the Respondent inquired whether the Claimant would be satisfied with the beginning of the installation by Reliable within the next three weeks if it was completed by 30 October 1996.[24] Since the Claimant did not react to the Respondent's letter, he was bound to accept performance until 30 October 1996.

Furthermore, by not answering the Respondentīs announcement to turn to another company in case Reliable would not install within the next three weeks, the Claimant also confirmed Reliable as the installing company[25]. Thereby, the Claimant founded the expectation in the Respondent that he not only consented to the additional time period until 30 October 1996 but also to the suggested way of performance, i.e. by Reliable. Any contentions to the contrary would be in conflict with the Claimant's conduct in September 1996 and would therefore violate the principle of venire contra factum proprium laid down in Art. 80 CISG.[26] Therefore, the Respondent was allowed to install on or before 30 October 1996 and was obliged to do so by Reliable.

b) Claimant's letter dated 18 September 1996 of no effect on the Respondent's right to install until 30 October 1996

With his letter dated 18 September 1996, the Claimant asked the Respondent to discontinue the contractual relations with Reliable but set a condition under which the Respondent would be allowed to terminate his contract with Reliable. He stated that the Respondent could turn to another firm "if Reliable is not able to meet its obligations".[27] However, since Reliable was actually able to perform by 25 October 1996 [28] - thus, within the time limit ending on 30 October 1996 - the Claimant's condition never became relevant. Hence, the Respondent was not allowed to turn to a new installation company.

2. Respondent could only turn to company after suggestion by the Claimant

A new company could only be chosen by the procedure the parties followed when agreeing on Reliable. During the negotiations in May 1996, the Claimant had suggested Reliable as the installing company for he had working experiences with them and therefore trusted them. He did so because the Respondent never had any business dealings with any of the installation companies licensed in Mediteraneo [29] and thus could not make a choice based on personal experiences.

This procedure enabled the Claimant as well as the Respondent to look after their interests when selecting the installation firm: The Claimant could ensure to have the system installed by a company he had confidence in whereas the Respondent was able to give his consent if he considered the firm qualified to perform the installation.[30]

Having followed this procedure which developed from the circumstances mentioned above and which did not require the Respondent to propose a company, the Claimant could not expect the Respondent to look for a substitute for Reliable. Hence, the Claimant would have been obliged to name a new company or to ask the Respondent to select one.

3. Reliable's non-availability could not be overcome by hiring another company

Even if the Respondent was found to have been authorized to hire a new company after 18 September 1996[31], this would not have enabled him to have the installation performed earlier. At this time, the Respondent was not well-informed about the market situation of installation companies for he had not negotiated with any company other than Reliable.[32] Even though, on occasion, installation work had been organised within one week, it is usually scheduled two months in advance and all firms potentially available stated that it would have been more difficult to arrange for competent personnel after 2 September 1996.[33] Thus, contrary to the Claimantīs contentions[34], it cannot be assumed that the Respondent would have been able to perform the installation within the minimum time of three weeks.

This is supported by the fact that the Claimant, having informed himself about installation companies before entering into the contract, had his new control system installed as late as 11 November 1996 [35] even though he had started to negotiate with Bridget Controls GmbH on 16 September 1996[36].

Hence, the Respondent could hardly have installed before 25 October 1996, the date Reliable could have been able to do so[37]. Therefore, urging Reliable to install as quickly as possible was the most promising way of complying with the Respondent's obligation.

For these reasons, the Respondent could neither avoid nor overcome the impediment by turning to another company.

IV. Non-availability of a team from Reliable unforeseeable at the conclusion of the contract

The Claimant holds that "the Respondent ought to have contemplated the inability of Reliable because of an impediment at the time of the execution of the contract" because "non-availability [...] as an impediment was a natural, reasonable and normal event that ought to have been foreseen".[38] This allegation remains unfounded in the Claimant's Memorandum.

The Respondent admits that, at the time of the conclusion of the contract, it could reasonably be foreseen that one member of a team might be hindered due to illness, death or other event. This could have been compensated. However, the loss of a whole team might have been imaginable but could not reasonably be foreseen since there are no "normal and natural events" that will all of a sudden extinguish a whole group of people.[39]

Additionally, since Reliable was well reputed and nothing indicated the possibility of difficulties concerning the installation, there existed no reason to assume that its performance could be uncertain. If the Claimant himself had foreseen the possibility of a lack of personnel he could have insisted on a contract clause providing for the necessary precautions.

Requiring the Respondent to take precautions against every imaginable obstacle even though nothing indicates their necessity would oblige him, whenever concluding a contract, to hold an alternative company at his disposal in case the first one fails to perform. This would be an impracticable and unreasonable method.[40] Therefore, the Respondent could not reasonably have been expected to take the non-availability of the entire installation team into account when concluding the contract.

V. No "fresh promise" by the Claimant in his letter dated 27 August 1996

The Claimant submits that the Respondent "made a fresh promise in the eyes of law" when he informed the Claimant of the plane crash on 27 August.[41] It remains open what the Claimant intended to express by using the term "fresh promise". The Respondent submits that this is to be understood as an unilateral but binding promise to perform or as an offer in the sense of Art. 14 (1) CISG. In any case, the Respondent did not give such a "fresh promise".

The passage in question in the Respondentīs letter reads: "Nevertheless, they [Reliable] assured [me] that they would be able to assign a new team to the job and that the installation should be completed by the contract date."[42] Interpreting this statement according to Art. 8 (1) CISG, it must be regarded as notice under Art. 79 (4) CISG [43] as to whether the impediment will exclude performance permanently or only temporarily [44] and which arrangements the Respondent made in order to overcome the obstacle[45]. Thereby, the Respondent had to implicitly admit that he felt bound to his obligations to install. He did, however, not guarantee performance until 16 September 1996 but only informed the Claimant that it "should" take place until that date.

In addition, as a consequence of the Claimantīs submission, every notice in accordance with Art. 79 (4) CISG would amount to a "fresh promise" and therefore exemption could never be grounded on Art. 79 CISG for either the necessary notice would not be rendered or it would amount to a "fresh promise", thereby barring the promisor from relying on an impediment. Thus, in his letter of 27 August 1997, the Respondent merely fulfilled his duty to give notice as required under Art. 79 (4) CISG.

Consequently, the Respondent qualifies under Art. 79 (1) and (2) (a) CISG for exemption from paying damages.

Issue 2: Respondent was not authorized to avoid the contract on 9 October 1996 under Art. 49 (1) (b) CISG

The submissions made by the Claimant as to whether the Claimant had a right to avoid the contract due to a fundamental breach on the side of the Respondent [46] are of no relevance to his right to cancel the contract under Art. 49 (1) (b) CISG on 9 October 1996 as a fundamental breach would only constitute a right of avoidance according to Art. 49 (1) (a) CISG.[47] Following Procedural Orders No. 1 and No. 2, the Respondent will only state his position on arguments submitted by the Claimant concerning Art. 49 (1) (b) CISG.

Contrary to his contentions, the Claimant was not entitled to avoid the contract according to Art. 49 (1) (b) CISG on 9 October 1996, since the preconditions of Art. 49 (1) (b) CISG were not met [I.]. Even if it is found that the non-installation amounted to a non-delivery and that the Claimant had fixed an additional time period under Art. 47 CISG (hereinafter: Nachfrist), the Claimant would not be entitled to avoidance of the entire contract pursuant to Art. 49 (1) (b) CISG, since Art. 51 CISG would be applicable [II.].

I. Preconditions of Art. 49 (1) (b) CISG not met

On 9 October 1996, the Claimant had no right of avoidance under Art. 49 (1) (b) CISG since this provision only applies to cases of non-delivery. Delivery, however, had taken place on 22 August 1996 [1.]. Furthermore, the Respondent was permitted to install until 30 October 1996 according to Art. 48 (2) CISG [2.]. Even if the tribunal does not follow this argument, a Nachfrist in the sense of Art. 49 (1) (b) CISG expiring on 9 October 1996 had not been set by the Claimant [3.].

1. Delivery of the control system

A right of avoidance under Art. 49 (1) (b) CISG did not arise since the control system was delivered to the premises of the Claimant on 22 August 1996.[48] Contrary to the Claimant's contentions, non-delivery within the meaning of Art. 49 (1) (b) CISG cannot be extended as to include non-installation [a)]. Furthermore, the term non-delivery under Art. 49 (1) (b) CISG was not modified by party agreement as to be comprised of non-transfer and non-installation [b)].

a) Non-delivery within the meaning of Art. 49 (1) (b) CISG as not including non-installation

In contrast to the Claimant's submissions[49], the mere setting of an additional period of time according to Art. 47 (1) CISG for performance does not turn a simple breach of contract into a fundamental one and does thus not render a right of avoidance under Art. 49 (1) (b) CISG.[50] Although this provision was inspired by the German Nachfrist model, in the Convention the buyer's right to terminate a contract is limited to the most severe cases of breach of contract [51] for international trade often involves expensive long distance transportation with a high risk of loss[52].

Since delivery is the basic obligation of the seller, it is irrefutably assumed under Art. 49 (1) (b) CISG that non-delivery amounts to a fundamental breach of contract after the expiry of an additional period of time.[53] This can be derived from the fact that when drafting Art. 49 (1) (b) CISG a Canadian proposal to use the wider term non-performance instead of non-delivery had been rejected.[54] Thus, avoidance of the contract under Art. 49 (1) (b) CISG is limited to cases in which the transfer of goods has not been achieved; therefore in all cases but non-delivery the buyer's right of avoidance is to be determined under Art. 49 (1) (a) CISG.

Since the transfer of goods not in conformity with the contract as well as of only part of the goods was found to constitute delivery[55], the transfer of the whole control system must all the more be regarded as delivery in the sense of Art. 49 (1) (b) CISG.

Even if other essential obligations were found to render a right of avoidance under Art. 49 (1) (b) CISG, the Claimant would not be entitled to avoid the contract pursuant to this provision since the installation is only a minor and thus no essential part of the main contract.[56]

In addition, if the installation was as important as submitted by the Claimant, the contract would not fall within the scope of the Convention since according to Art. 3 (2) CISG the "Convention does not apply to contracts in which the preponderant part of the obligations [...] consists in the supply of labor or other services."

Thus, in the case at hand, the term non-delivery within the meaning of Art. 49 (1) (b) CISG has to be regarded as excluding non-performance of the installation.

b) No modification of Art. 49 (1) (b) CISG

The parties did not explicitly agree on a modification of the Convention as to equate non-delivery and non-installation of the system although they would have been free to adjust the terms of the Convention to suit their needs.

Even if it is found that the parties might implicitly have modified provisions of the Convention by concluding a mixed contract and choosing the Convention as the applicable law[57], non-installation would not amount to non-delivery: In respect of Art. 49 (1) CISG there was no need for modifications, since in case of non-installation the Claimant was rendered sufficient protection by Art. 49 (1) (a) CISG, supposing the failure to install was severe [58] and consequently was to result in a fundamental breach of contract.

In conclusion, the parties did not modify Art. 49 (1) (b) CISG in order to render the Claimant the right of avoidance in case of non-installation.

2. The Claimant bound to accept performance according to Art. 48 (2) CISG

The Claimant was bound to accept performance of the installation until 30 October 1996 pursuant to Art. 48 (2) CISG [59] since the Respondent had inquired for additional time for performance without receiving answer.[60] The Claimant's contentions that the seller is entitled to cure under Art. 48 (2) CISG only if "the buyer has not exercised his remedy under Art. 47 CISG" and only "within a reasonable period of time" [61] are not convincing. The setting of a Nachfrist by the buyer pursuant to Art. 47 CISG does neither deprive the seller of his right to inquire for further time for performance [62] nor does the period demanded have to be reasonable[63]. Since in both cases the buyer is free to reject any offer to cure by the seller, he is obliged to accept performance within the time suggested by the seller if he fails to answer to the request.

In addition, the Respondent submits that it cannot be argued that the Claimant's anticipatorily rejected any request for additional time in his letter dated 18 September 1996 for he did not even indicate that the date mentioned was intended to constitute the Respondents final chance to perform.[64] Therefore, the Claimant was bound to accept performance until 30 October 1996.

3. No Nachfrist until 9 October 1996

Even if it is held that the Claimant was not bound until 30 October 1996, he was not entitled to avoidance on 9 October 1996 for he had not set a Nachfrist under Art. 47 CISG [a)]. Furthermore, the period fixed by the Claimant was unreasonable [b)]. Even if these arguments are not followed, the Claimant declared the contract avoided before the expiry of the additional period until 9 October 1996 [c)].

a) No Nachfrist pursuant to Art. 47 (1) CISG

Contrary to his contentions, the Claimant did not set a Nachfrist in his letter of 18 September 1996. In order to set such a Nachfrist the buyer has to warn the seller that the date indicated constitutes his final chance to perform.[65] This warning has to be expressed so clearly that the seller needs no further interpretation in order to understand that the buyer is not prepared to accept performance after this date.[66] The Claimant, however, merely stated that he might "look to our [his] legal rights"[67] but did not specify what legal consequences he took into consideration.

Taking into account that the Convention allows termination of contract only in severe cases of breach of contract[68], that the Claimant had negotiated for several months before contracting with the Respondent [69] and that the Respondent was willing to compensate the Claimant for any damages resulting from the delayed installation[70], the Respondent did not have to assume that the Claimant intended to immediately cancel their contract. Therefore, the Claimantīs letter of 18 September 1996 can merely be regarded as a strong request for performance but not as the setting of a Nachfrist under Art. 47 CISG.

b) Unreasonableness of the Nachfrist

Furthermore, the additional period of three weeks granted for performance was unreasonable. Under Art. 47 CISG, an unreasonable period is automatically extended to a period of reasonable length.[71]

Considering that the Claimant was obliged to have the system installed by Reliable[72], that the installation would take a minimum of two weeks [73] and that the team from Reliable was still engaged in another job, the Respondent could not reasonably be expected to perform the installation within that period. If the Respondent is found to have been authorized to turn to a new installation company, he would not been have able to meet the deadline of 9 October 1996 either.[74] Therefore, the period until 9 October 1996 was unreasonable. Consequently, the additional period granted for performance did not expire on 9 October 1996 and thus the Claimant was not entitled to avoid the contract on that date.

c) Avoidance of contract before expiry of additional period

If the additional period of time until 9 October 1996 fixed by the Claimant was considered reasonable, it would expire at the end of that day. Thus, the Claimant was not authorized to avoid the contract at 11:15 am on 9 October 1996, i.e. before the end of the deadline.[75] Therefore, the Claimant committed a breach of contract by declaring the contract avoided on 9 October 1996 thereby preventing the Respondent from installing the system.

II. Art. 51 applicable

If the Tribunal finds the above arguments not to be fully convincing, the Respondent submits that Art. 51 CISG would be applicable and thus the Claimant was not authorized to avoid the entire contract. In cases of partial performance of a contract, Art. 51 CISG restricts the buyerīs right of avoidance to that portion of the contract which has not been complied with. This portion must be a factually separable [76] and thus an independent [77] part of the contract.[78] Since, in the case at hand, several firms were capable of performing the installation, it was separable from the sales part of the contract.

This is not in conflict with the fact that it is "common that control systems [...] are sold with the installation as a non-separable part of the contract"[79], since this only refers to usage in contractual relationships whereas Art. 51 CISG refers to factual separability.

Furthermore, since it is not required that separable parts within the meaning of Art. 51 CISG are of the same nature[80], e.g. hardware and software of a computer system are considered separable under Art. 51 CISG [81], the installation as a service obligation and the delivery as a sales obligation are separable parts under Art. 51 CISG. This is supported by the general principle inherent in the Convention that a party relying on a breach of contract is obliged to mitigate the losses of the other party.[82]

Moreover, the guarantees given by the Respondent concerning the performance of the installation [83] would not necessarily be refused in case of installation by a company other than Reliable. The purpose of this limitation of the guarantees was to ensure installation by a team meeting the expectations of the Respondent as to its qualification.

Therefore, pursuant to Art. 51 (1) CISG, any right of the Claimant to avoid the contract under Art. 49 (1) (b) CISG was limited to the installation part of the contract. Furthermore, according to Art. 51 (2) CISG, the buyer is solely entitled to avoid the entire contract due to a partial non-performance if this breach of contract amounts to a fundamental one, and thus this right is to be determined under Art. 49 (1) (a) CISG.

Consequently, the Claimant was not entitled to avoid the entire contract on 9 October 1996 under Art. 49 (1) (b) CISG.

Issue 3: Respondent was not authorized by Art. 88 CISG to sell the control system on 4 April 1997 and the sale was not done by appropriate means

Art. 88 (1) CISG provides:

"A party, who is bound to preserve the goods in accordance with article 85 or 86 may sell them by any appropriate means if there has been an unreasonable delay by the other party in taking possession of the goods or in taking them back or in paying the price or the cost of preservation [...]".

The Claimant was not authorized to perform the self-help sale because these requirements were not met [I.] and the sale was not done by appropriate means [II.].

I. No legal authority of the Claimant to sell the system for $250,000 on 4 April 1997

The Claimant's obligation to preserve the system under Art. 86 (1) CISG had not arisen [1.], and the Respondent was not delayed in taking back the system [2.]. Furthermore, the return of the down-payment was neither delayed [3.] nor would a failure of this obligation allow a sale under Art. 88 (1) CISG [4.]. Even if the Tribunal chooses not to follow this argumentation, the sale was hindered by the objection of the Respondent [5.].

1. No obligation of Claimant to preserve the system under Art. 86 (1) CISG

In arguing that a "failed consideration", i.e. the failure to install, would provide the "right to hold the panel as security" [84] the Claimant uses an English common law principle. Even though the Convention provides for gap filling by falling back on national law this may only be done by virtue of the private international law.[85] However, in the case at hand English law is not applicable.

In order for the obligation to arise under the Convention, the seller must have the intention and the justification to reject the good.[86] The Respondent acknowledges that the Claimant intended to sell the system after 10 October 1996[87]. However, as the avoidance was not authorized[88], there was no legitimation to reject the system. Consequently, the Claimant was not obligated to preserve the system under Art. 86 (1) CISG.

2. No delay of Respondent in taking back the system

The Respondent offered to take back the system consistently during the negotiations from October 1996 until the sale occured[89]. He reiterated this offer in his letter from 17 February 1997 by demanding that "[the Claimant shall] return the control system"[90], and again in his letter of 20 March 1997[91], offering a concurrent exchange of the system and the down-payment less the set-off of the Respondentīs damages. Thus, the Respondent was not delayed in taking back the system.

3. No right to sell under Art. 88 (1) CISG because of delayed return of payment

The Claimant argues that he was allowed to sell the system because of an alleged delay of the Respondent in returning the payment. However, Art. 88 (1) CISG does not mention a delayed return of a payment, but exclusively enumerates the cases in which a right to sell may arise[92]. Since in other articles the Convention provides for the situation that other, non-enumerated cases shall be included[93], a lack of such a statement signifies that other cases are not to be included. Furthermore, such interpretation of Art. 88 CISG could render a party the right to take enforcement measures against another partyīs property, comparable to the right to seize someoneīs property. However, such a right is generally not granted to non-state authorities, as for example arbitral tribunals.[94] It can therefore not be assumed that the Convention intended to provide for such a right in any case not explicitly mentioned in Art. 88 CISG.

Therefore, a delayed return of the payment would not entitle the Claimant to perform a self-help-sale under Art. 88 (1) CISG.

4. Return of payment not delayed

Even if the Tribunal rejects the above argument, the Respondent was not delayed in returning the payment. During the negotiations the Respondent was constantly interested in a concurrent exchange of the system and the payment less the damages[95], which he was entitled to claim under Art. 74 CISG[96]. Thus, the Claimant was not allowed to sell the system.

5. Willingness to comply with his obligation after receiving notice of the possible sale

Art. 88 (1) CISG requires a reasonable notice of the intention to sell in order to give the other party a warning and thus the opportunity to take the appropriate steps to fulfil his obligation thereby avoiding the self-help-sale.[97] On 20 March 1997, after receiving notice of the intention to sell[98], the Respondent expressed his willingness to comply with the obligation to return the money. Consequently, the Respondent has performed the appropriate steps to avoid the self-help-sale.

II. Sale not done by appropriate means

The Respondent agreed with the Claimant that in determining whether the sale was done by appropriate means, only the selling price is relevant[99]. For the seller must concentrate his efforts on realising the highest possible price, a rejection of the best offer would violate the general principle to mitigate losses which can be derived from Art. 77 CISG and the principle of good faith and fair dealing under Art. 7 (1) CISG.[100] Taking into account that the Claimant was offered $ 330,000 by the Respondent[101], the realised sum of only $ 250,000 made by the Claimant was not appropriate.

However, providing for the situation that the Claimant would reject the return of the $ 330,000, the Respondent informed the Claimant, that only a price of $ 290,000 would be appropriate. This sum was based on the current list price [102] and excluded the costs for the installation. The calculation considered that the system was located in Mediterraneo and the fact that it had taken on an element of being a rejected or second-hand good. Additionally, the Claimant's contention that "the system did not carry any certificate or condition of merchantability" [103] remains unfounded.

Finally, it has to be considered that the right to sell under Art. 88 (1) CISG is especially granted if a buyer has to expect remarkable expenses for the preservation of the good.[104] As, however, in the case at hand, the preservation and selling costs merely amounted to $ 3,000, the Claimant was all the more urged to realise $ 290,000.

Thus, the realised amount of $ 250,000 was not appropriate, the sale was not done by appropriate means as required by Art. 88 (1) CISG.

Consequently, the Claimant was not authorized by Art. 88 CISG to sell the control system on 4 April 1997, and the sale was not done by appropriate means.

Issue 4: If the Respondent qualifies for exemption from paying damages under Art. 79 (1) and (2) (a) CISG, Reliable is to be joined to this arbitration as requested by the Respondent

The Respondent requests that Reliable shall be joined as defendant in this arbitration under para. 24 [105] of the main contract which provides:

If, in any arbitration arising out of or relating to this contract, Buyer shall make a claim which, if found to be justified, would give rise to a claim by Seller against one of its suppliers, Buyer agrees that the claim of Seller against the supplier may be settled in the arbitration between Buyer and Seller, provided that the supplier agrees to have the claim of Seller against it settled in the arbitration, that the supplier agrees to waive any right it may have to participate in the selection of the arbitral tribunal, and that the claims of Seller against the supplier raise no new questions of law or fact from those to be decided in the arbitration between Buyer and Seller.

The preconditions of para. 24 for a joinder of Reliable are met [I.]. In addition, such a joinder would be possible without consent of the Claimant [II.]. The objections submitted by the Claimant are not convincing [III.].

I. Preconditions of para. 24 met

Reliable is a supplier within the meaning of para. 24 [1.]. Reliableīs joinder does not raise new questions of law or fact [2.]. Reliable agreed to waive any right it may have to participate in the selection of the tribunal [3.]. The Claimant consented to a joinder of suppliers of the Respondent in the arbitration [4.].

1. Reliable as a supplier within the meaning of para. 24

The Respondent submits that regarding Reliable as a supplier under para. 24 is not in contradiction to his contentions in Issue 1 that Reliable is a third person and thus no supplier in respect of Art. 79 CISG. In this context, the term supplier is used in order to describe the contractual relationship between a promisor and his subcontractor, i. e. if he is or is not engaged in performing part of the promisorīs obligation, and thus with consideration to the liability of the promisor for different subcontractors.[106]

In the contract, the term supplier has to be interpreted with respect to the intention of the parties. The Claimant asserted that this intention still has to be taken from the words of the contract as it had been the practice in 19^th-Century-England.[107] However, according to Art. 8 (3) CISG, it has to be derived from "all relevant circumstances of the case [...]".[108]

When concluding the contract, the Claimant and the Respondent used the term supplier in reference to subcontractors who the Respondent would be entitled to recourse claims against, since para. 24 was to provide the Respondent with the procedural means to avoid contradictory awards resulting from separate proceedings.[109] The Respondent submits that Reliable is his subcontractor and that he is entitled to claim recourse against it.

Furthermore, it is consequent to interpret para. 24 as providing for a joint settlement of any recourse claims under the subcontract with those claims of the Claimant due to which they arise because both contracts were linked as to their subject-matter and concluded in reference to each other.

In addition, it would be inconsequent to assume that the Claimant intended to exclude Reliable although the Respondent had contracted with Reliable on demand of the Claimant [110] and the Claimant generally consented to a joinder of subcontractors.

Thus, Reliable has to be regarded as a supplier under para. 24.

2. No arising of new questions of law or fact*

The Respondent admits that a joinder of Reliable will raise new questions of law or fact. However, since para. 24 does not specify the implementation of the joinder and since according to Art. 15 (1) IAR the Tribunal has the power to rule on "any objections with respect to the existence, scope or validity of the arbitration agreement", any joinder will bring about procedural problems, for instance the questions of whether the preconditions for a joinder are met and how the joinder is to be effected. Therefore, para. 24 is to be read as not referring to questions of procedure.

Except for the above mentioned questions, the joinder does not raise any questions of law or fact: Firstly, Reliableīs exemption under Art 79 (2) (b) CISG has to be determined in order to decide on the Respondent's liability. Secondly, the parties implicitly modified the UNIDROIT Principles [111] by agreeing that "[Reliable will] be liable to Controls to the same degree and in the amount as Controls was found liable to Superb."[112] This agreement makes Reliableīs liability subject to the Tribunalīs decision on the Respondentīs liability. Accordingly, the Tribunal will not have to decide on any additional questions of law or fact concerning the claims of the Respondent against Reliable.

Hence, a joinder of Reliable does not raise new questions of law or fact as required in para. 24.

3. Waiver of any right to participate in the selection of the tribunal*

In para. 15 of the subcontract Reliable agreed "to waive any right it might otherwise have to participate in the creation of the arbitral tribunal." This waiver will not hinder the recognition and enforcement of an award, since it comports with Art. V (1) (d) New York Convention[113], Artt. 34 (2) (a) (iv), 36 (1) (a) (iv) ML[114]: It does not violate the due-process clause under Art. 18 ML [115] which governs the party agreement on the composition of the arbitral tribunal [116] under Art. 11 (2) ML[117]. Considering that the Model Law renders to the parties a large amount of autonomy in arranging the arbitration to suit their own needs [118] and that a party is free to refrain from joining the action, a predominant position of one party in respect of the appointment of the arbitral tribunal [119] can only be assumed if justifiable doubts within the meaning of Art. 12 (2) ML [120] arise concerning the impartiality and independence of an arbitrator.[121] This applies all the more to cases in which a third person joins a pending dispute since the composition of the tribunal can only be altered under difficulties.[122]

In the case at hand, the Respondent and Reliable share basically the same interest in respect of the dispute, i. e. proving Reliableīs exemption under Art. 79 (2) (b) CISG, and Reliable freely decided to join in the arbitration.

Furthermore, the AAA Code of Ethics requires arbitrators to act in good faith and with integrity and fairness, i.e. on the basis of the law and the facts rather than party affiliation.[123] Thus, arguing that a third party is deprived of its rights when joining an arbitration without having participated in the selection of the tribunal would underestimate the impact of professional ethics rules and neglect the fact that arbitration is widely accepted as due process of law. Even if one were to perceive any interference with Reliableīs procedural position, such minor disadvantage would be outweighed because with regard to the selection of arbitrators the Respondent looks after the interests of Reliable.[124]

For these reasons, it can be assumed that the arbitrator appointed by the Respondent will judge impartially and independently on issues concerning Reliable and may thus not be challenged by Reliable under Art. 12 (2) ML.

The above arguments not withstanding, the Respondent submits that Reliable reiterated its waiver in its letter of 3 August 1998 after having received Notice of Arbitration.[125] Thereby, Reliable submitted itself to this arbitral tribunal and accepted its constitution. The admissibility of such an acceptance can be concluded, inter alia, from the fact that an arbitral tribunal can be constituted without the participation of a party delayed in appointing an arbitrator.[126] Moreover, the subsequent submission to the tribunal selected by the Respondent can be construed as consent to the selection, and it is not readily intelligible why such consent should be judged differently just because it was not given in the selection process but afterwards.[127] Therefore, Reliable effectively waived its rights to participate in the selection process. This does not violate any procedural rights of Reliable.

4. Para. 24 as providing for a joinder of Reliable as requested by the Respondent

Providing for the settlement of the Respondentīs recourse claims in this arbitration para. 24 permits that an award is rendered upon the claim of the Respondent against his supplier. By reaching this agreement the parties intended to enable the Respondent to save costs and time and to avoid inconsistent awards [128] if the joinder does not expand the dispute[129]. Apart from this condition, it is not specified in para. 24 how to proceed in order to settle the recourse claims. Since it is common in the law of civil procedure of numorous jurisdictions [130] as well as in arbitration [131] to have claims against a subcontractor settled by joining him as a defendant in the main proceedings, it must be assumed that such a joinder of the Respondentīs suppliers is within the scope of para. 24.

Paras. 14 and 15 [132] of the subcontract provide for such a joinder of Reliable as a defendant in this arbitration.[133] The condition that the dispute is not expanded is complied with, since the joinder of Reliable will not raise new questions of law or fact.[134] Furthermore, the subcontract provides for disputes between the Respondent and Reliable to be arbitrated under the IAR in Danubia and thus under the same conditions as the main contract.[135]

Therefore, in para. 24 the Claimant had consented to a joinder of Reliable and to the consequences this joinder may have.

II. Joinder of Reliable possible without consent of the Claimant

Furthermore, it is supported that a party can be joined in an arbitration even without the consent of all parties to the dispute[136], e.g. if otherwise the fundamental principle of equality of the parties in the proceedings is violated[137].

In the case at hand, a joinder of Reliable is necessary to secure the Respondent's right to fully present his case. Pursuant to Art. 79 (2) (b) CISG the Respondent is obliged to prove Reliableīs exemption in order to be discharged from liability under Art. 79 (2) CISG. However, since Reliable cannot be compelled to act as witness or provide any documents of importance for the Respondentīs tendering of evidence, a joinder is the only promising way to attain access to certain documents in its possession.[138] Thus, only a joinder of Reliable will lead to equal positions of the parties in the dispute. Therefore, Reliable should be permitted to join in this arbitration as a party.

III. Objections made by the Claimant not convincing

The Claimant's argument that a joinder of Reliable "[...] would extinguish the independent legal right which the Claimant may exercise against Reliable in the capacity of a third party beneficiary" [139] should be rejected for the following reasons: The Claimant is no third party beneficiary to the subcontract and does thus not have independent legal rights against Reliable [1.]. Even if the Claimant were found to be a third party beneficiary, a joinder of Reliable would not deprive the Claimant of his rights [2.].

1. Claimant no third party beneficiary to the subcontract

The Claimant's allegation to be a third party beneficiary is solely founded on the fact that the installation is to be performed on the premises of the Claimant.[140] However, the subcontract does not grant the Claimant the status of a third party beneficiary and thus does not entitle him to any rights.

Assuming that the parties deviated from the UNIDROIT Principles, the preconditions for a third party beneficiary contract could be found by deriving general principles of law from national or international rules. Most rules require at least that the third party's rights can be inferred from the purpose of the contract or the circumstances of the case and that it had been the intention of the parties to benefit a third person.[141] In the case at hand, however, the parties did not have this intention:

By agreeing on the UNIDROIT Principles the parties chose a law which does not provide for third party beneficiary contracts.

Furthermore, since the installation had to take place on the Claimant's facilities, the performance of the contract would take place in the same way no matter if the Claimant was or was not a third party beneficiary. Thus, contrary to the Claimant's submissions[142], the fact that the contract provided for installation in the facilities of the Claimant does not indicate that the Respondent and Reliable intended to benefit the Claimant. In addition, the Respondent submits that it remains open why the Claimant himself had never demanded installation from Reliable in September 1996 if he considered himself to be a third party beneficiary to the subcontract.

Moreover, since the Claimant could hold the Respondent liable for proper installation[143], the possibility to approach Reliable was dispensable.

Since it cannot be assumed that the Respondent and Reliable agreed on something redundant to the transactions that would merely be to their own disadvantage, the Claimant is no third party beneficiary and thus not entitled to any rights under the subcontract.

2. Effect of a joinder on the alleged independent legal rights of the Claimant

The Claimant submits that his alleged independent legal rights against Reliable would be terminated if Reliable is joined in this arbitration and its exemption under Art. 79 (2) (b) CISG is determined.[144]

However, since pursuant to Art. 4 CISG "This Convention governs only [...] the rights and obligations of the seller and buyer arising from [such] a contract.", a determination of Reliableīs exemption does not influence any claims the Claimant might have against Reliable.

Furthermore, in the absence of an arbitration agreement, claims of the Claimant against Reliable could not be settled in this arbitration.[145] Thus, a decision of this tribunal will not have a binding effect on any issue between the Claimant and Reliable.

If the Respondent qualifies for exemption from paying damages under Art. 79 (1) and (2) (a) CISG, Reliable is to be joined to this arbitration as requested by the Respondent.

Conclusion

In response to the Tribunal's Procedural Order No. 1 of 2 October 1998, counsel for the Respondent respectfully submits the above arguments on behalf of ESSENTIAL CONTROLS, S.A. May it accordingly please the honorable Tribunal:

firstly, to determine that the Respondent does qualify under Art. 79 (1) and (2) (a) for exemption from paying damages as a result of the delayed installation of the control system;

secondly, to declare that the Claimant was not authorized to avoid the contract on 9 October 1996 under Art. 49 (1) (b) CISG;

thirdly, to determine that the Claimant was not authorized under Art. 88 CISG to sell the control system on 4 April 1997 and that the sale was not done by appropriate means;

fourthly, to declare that, in case the Respondent qualifies under Art. 79 (1) and (2) (a) for exemption from paying damages, Reliable shall be joined to this arbitration as requested by the Respondent.

Freiburg im Breisgau, 11. February 1999

Tobias Bräutigam	Christine Heeg
Alexander Kutsch	Dorothee Pfeifle
Andrea Torka	Bettina Wawretschek

FOOTNOTES

1. Claimant's Exhibit No. 1.

2. Statement of Claim No. 14 and No. 15; Statement of Defense No. 13.

3. Statement of Claim No. 14

4. This is asserted by the Claimant, comp. Memorandum for the Claimant, p. 6.

5. Comp. for this requirement: Enderlein/Maskow/Strohbach-Maskow, Art. 79, No. 7.2; Herber/Czerwenka, Art. 79, No. 16; Honnold, Uniform Law, No. 434; Honsell-Magnus, Art. 79, No. 18; Hoyer/Posch-Rummel p. 190 seq.; Karollus, p. 211 seq.; Keil, p. 146; Neumayer/Ming, Art. 79, No. 2; Schlechtriem-Stoll, Art. 79, No. 35; Staudinger-Magnus, Art. 79, No. 38 seq.

6. Comp. subcontract (Respondent's Exhibit No. 1); comp. for this requirement: Bianca/Bonell-Tallon, Art. 79, No. 2.7.1; Keil, p. 152.

7. Bianca/Bonell-Tallon, Art. 79, No. 2.7.1; Herber/Czerwenka, Art. 79, No. 3, 14, 19; Huber, RabelsZ 43 (1979), 466, 496; Keil, p. 153; Schlechtriem-Stoll, Art. 79, No. 33; Secretariat's Commentary, Art. 79, No. 2.7 seq.; Stoll, Schadensersatzpflicht, p. 277 seq.; Vischer, p. 179 seq.

8. This matter is not in dispute between the Claimant and the Respondent, comp. Memorandum for the Claimant, p. 4.

9. Comp. LG Köln, 16.11.1995, cisg-online 265; Bianca/Bonell-Tallon, Art. 79, No. 2.6.2; Herber/Czerwenka, Art. 79, No. 8; Piltz, § 4, No. 225.

10. Comp. Bianca/ Bonell-Tallon, Art. 79, No. 3.2; Farnsworth, p.135; Nicholas, § 5.02 (3).

11. Enderlein/Maskow/Strohbach-Maskow, Art. 79, No. 1.2; Herber, p. 47; Honsell-Magnus, Art. 79, No. 28; Karollus, p. 208; Keil, p. 37 seq.; Schlechtriem-Stoll, Art. 79, No. 7 seq.; Vischer, p. 178.

12. Bianca/Bonell-Tallon, Art. 79, No. 2.4; Honnold, Uniform Law, No. 424; Loewe, p. 96; Nicholas, § 5.02 (1); Reinhart, Art. 79, No. 3; Schlechtriem-Stoll, Art. 79, No. 7.

13. Comp. Piltz, § 4, No. 225; Schlechtriem-Stoll Art. 79, No. 17; on ULIS: Dölle-Stoll, Art. 74, No. 63; Soergel-Lüderitz, Art. 74, No. 18.

14. Main contract (Claimantīs Exhibit No. 1), para. 4.

15. Pursuant to Art. 8 (3) CISG, this intent has to be derived from "all relevant circumstances of the case including the negotiations, any practises which the parties have established between themselves, usages and any subsequent conduct of the parties".

16. Statement of Defense, Fact No. 5.

17. Statement of Defense, Fact No. 5.

18. Comp. Art. 4.5 UNIDROIT Principles; Art. 5:106 Principles of European Contract Law.

19. Art. 9 (2) CISG: The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract [...] a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.

20. Memorandum for the Claimant, p. 8.

21. The sub-contract had been signed on 7 June 1996.

22. Statement of Claim, Fact No. 6.

23. Bianca/Bonell-Will, Art. 48, No. 2.2.2; Enderlein/Maskow/Strohbach-Enderlein, Art. 48, No. 10; Gutknecht, p. 346; Honnold, Uniform Law, No. 298; Honsell-Schneyder/Straub, Art. 48, No. 49; Karollus, p. 144; Neumayer/Ming, Art. 48, No. 7; Piltz, § 5, No. 198; Schlechtriem-Huber, Art. 48, No. 36; Staudinger-Magnus, Art. 48, No. 41.

24. Claimant's Exhibit No. 5.

25. Claimant's Exhibit No. 5.

26. Comp. Enderlein/Maskow/Strohbach-Maskow, Art. 80, No. 3.3; Honsell-Magnus, Art. 80, No. 10; Schlechtriem-Stoll, Art. 80, No. 3; Magnus, RabelsZ (1995), p. 481; Reinhard, Art. 80, No. 2.

27. Claimant's Exhibit No. 4.

28. Claimant's Exhibit No. 7.

29. Procedural Order No. 3, Fact No. 3.

30. This was of importance to the Respondent for he was to certify that the system was properly installed; comp. Claimant's Exhibit No. 1, para. 4.

31. Comp. Claimantīs Exhibit No. 4.

32. Comp. Procedural Order No. 3, Fact No. 3.

33. Procedural Order No. 2, Fact 14.

34. Memorandum for the Claimant, p. 9.

35. Statement of Claim, Fact No. 9.

36. Procedural Order No. 2, Fact No. 9.

37. Claimant's Exhibit No. 7.

38. Memorandum for the Claimant, p. 4.

39. Comp. Societe Franco-Tunesienne d' Armement v. Sidermar S.P.A. [1961], 2 Q.B. 278, 299.

40. Comp. Schiedsgericht der Handelskammer Hamburg Teilschiedsspruch, 21.3.1996, CISG-online 187; Enderlein/Maskow/Strohbach-Maskow, Art. 79, No. 5.3.

41. Memorandum for the Claimant, p. 5.

42. Claimantīs Exhibit No. 2.

43. Art. 79 (4) requires that "The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform."

44. comp. Audit, No. 184; Bianca/Bonell-Tallon, Art. 79, No. 2.8; Piltz, § 4, No. 237; Schlechtriem-Stoll, Art. 79, No. 58, 59.

45. Secretariat's Commentary, Art. 65, No. 58, 59.

46. Memorandum for the Claimant, p. 11 seq.

47. Comp. Secretariat's Commentary, O.R. pp. 354 - 356; Honnold, Documentary History, pp. 575-577; Honnold, Documentary History, p. 399.

48. Statement of Claim No. 5; Statement of Defense No. 6.

49. Memorandum for the Claimant, p. 14.

50. Honnold, Documentary History, O.R., p. 354; Enderlein/Maskow/Strohbach-Enderlein, Art. 49, No. 1; Honnold, Uniform Law, No. 288; Honsell-Schneyder-Straub, Art. 49, No. 6; Kritzer, p. 370.

51. According to § 326 BGB, the right of avoidance due to a fundamental breach of contract is rendered to the buyer in cases of delayed performance after the expiry of a Nachfrist; comp. also § 918 Austrian Civil Code, § 107 Swiss Code of Obligation. The Vienna Conference did explicitly not adapt this solution but decided to limit the Nachfrist-avoidance-mechanism to cases of non-delivery; comp. Honnold, Documentary History, p. 577.

52. Farnsworth, p. 85; Honnold, Documentary History, p. 575 - 577; Honnold, Uniform Law, Art. 49, No. 305; Honsell-Schneyder-Straub, Art. 49, No. 7; Kock, p. 23 seq.; Staudinger-Magnus, Art. 49, No. 4; von Caemmerer, Festschrift für Coing, p. 50.

53. Honsell-Schneyder-Straub, Art. 49, No. 96; Schlechtriem-Huber, Art. 49, No. 2.

54. Honnold, Documentary History, pp. 575 seq.; Honnold, Uniform Law, No. 305; Secretariat's Commentary, O.R., pp. 354 - 356.

55. LG Heidelberg, 3 July 1992, CISG-online No. 32; LG Düsseldorf, 11 October 1995, CISG-online No. 180; Bianca/Bonell-Will, Art. 51, No. 2.2.1; Enderlein/Maskow/Strohbach-Enderlein, Art. 51, No. 3; Herber/Czerwenka, Art. 49, No. 8; Honnold, Uniforn Law, No. 308; Karollus, p. 159; Piltz, § 5, No. 237; Schlechtriem-Huber, Art. 49, No. 19; Staudinger-Magnus, Art. 51, No. 4.

56. The costs of the installation amounted to 6.3 % of the entire sales price, comp. Respondent's Exhibit No. 1; Handelsgericht Kanton Zürich, 26. April 1995, CLOUT No. 196.

57. Main contract (Claimant's Exhibit No. 1), para. 22.

58. The Convention restricts the right to avoid a contract to severe cases of breach of contract, comp. Issue 2, I 1 a.

59. Art. 48 (2) CISG: If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within reasonable time, the seller may perform within the time indicated in his request.

60. Claimant's Exhibit No. 5; comp. Issue 1, III 1 a.

61. Memorandum for the Claimant, p. 14 seq.

62. Honsell-Schneyder/Straub Art. 48, No. 61; Schlechtriem-Huber, Art. 48, No. 36.

63. Enderlein/Maskow/Strohbach-Enderlein, Art. 48, No. 12; Karollus, p. 144; Neumeyer/Ming, Art. 48, No. 7; Schlechtriem-Huber Art. 48, No. 31.

64. Claimant's Exhibit No.4.

65. Audit, No. 130; Enderlein/Maskow/Strohbach-Enderlein Art. 47, No. 4; Garro/Zuppi, p. 181; Honnold, No. 289; Kritzer, p. 398; Secretariat's Commentary, O.R., p. 39, No 7; Staudinger-Magnus, Art. 47, No. 18.

66. Enderlein/Maskow/Strohbach-Enderlein, Art. 47, No. 4; Bianca/Bonell-Will, Art. 47 CISG, 2.1.3.1.

67. Claimantīs Exhibit No. 4.

68. Schlechtriem-Huber, Art. 49, No. 2; Heuzé, No. 414.

69. Statement of Claim, Fact No. 3.

70. Claimantīs Exhibit No. 5.

71. BGH WM 1985, 1107; Enderlein/Maskow/Strohbach-Enderlein, Art. 47, No. 2; Herber/Czerwenka, Art. 47 CISG, No. 4; Karollus, p. 139; Neumayer/Ming, Art. 47; No. 1; Piltz, § 5, No. 235; Schlechtriem-Huber, Art. 47, No. 12; Staudinger-Magnus, Art. 47, No. 20; comp. for ULIS: Dölle-Huber, Art. 26, 27, No. 35; Mertens/Rehbinder, Art. 27, No. 8.

72. See Issue 1, I. 2.

73. All installation companies agreed that the installation would take two weeks (Statement of Defense, Fact No. 6; Procedural Order No. 2, Fact 14) and not 10-12 days as submitted by the Claimant (Memorandum for the Claimant, p. 13).

74. Comp. Issue 1, III 1 b.

75. LG Düsseldorf, 11 October 1995, CISG-online No. 180; Bianca/Bonell-Will, Art. 47, No. 2.2.2.; Enderlein/Maskow/Strohbach-Enderlein , Art. 47, No. 5; Schlechtriem-Huber, Art. 47, No. 18.

76. Bianca/Bonell-Will, Art. 51, No. 2.1.1.; Herber-Czerwenka Art. 51, No. 3; Honsell-Schneyder-Straub, Art. 51, No. 8; Karollus, p. 159; Piltz, § 5, No. 239; Reinhart, Art. 51, No. 2; Schlechtriem-Huber, Art. 51, No. 2.

77. ICC Paris, 23 August 1994, CISG-online No. 129; LG Baden-Baden, 14 August 1991, CISG-online No. 24; Herber/Czerwenka, Art. 51, No. 3; Honsell-Schneyder-Straub, Art. 51, No. 9.

78. OLG Celle, 24 May 1995, CISG-online No. 152.

79. Procedural Order No. 2, Fact 2.

80. BGH, 25 June 1997, CISG-online No. 277; LG Düsseldorf, 11 October 1995, CISG-online No. 152; Schlechtriem-Huber, Art. 51, No. 2.

81. Schlechtriem-Huber; Art. 51, No. 2.

82. This principle is expressly stated in Art. 77 CISG.

83. Procedural Order No. 2, Fact 15.

84. Memorandum for the Claimant p.17.

85. Bianca/Bonell-Bonell, Art. 7, No. 2.3.2; Kritzer, p. 117; Honsell-Melis, Art. 7, No. 10; Schlechtriem-Herber, Art. 7, No. 8, 31; Herber/Czerwenka, Art. 7, No. 7; Neumayer/Ming, Art. 7, No. 7.

86. Schlechtriem-Eberstein, Art. 86, No. 9a; Herber/Czerwenka, Art. 86, No. 3.; Honnold, Uniform Law, No. 455.

87. Claimant's Exhibit No. 9.

88. Comp. Issue 2.

89. Statement of Defense, Fact 18.

90. Respondent's Exhibit No. 6.

91. Respondent's Exhibit No. 7.

92. These are under Art. 88 (1) CISG: (1.) delay in taking possession of the goods or (2.) in taking them back or (3.) in paying the price or (4.) cost of preservation.

93. Comp. Art. 31 (b) and (c): „[...] if, in cases not within the preceding paragraphs the contract relates to specific goods [...], in other cases [...]".

94. Comp. Rosenberg/Schwab/Gottwald, § 175 I 1, § 177, § 179 V; Kerr, (1985) 34 ICLQ, p. 1 seq.

95. The Respondent suffered these damages due to the unjustified avoidance by the Claimant (see Issue 2). An acceptance of the Respondent's proposal would not mean acknowledging the Respondent's damages because disputes about those potential damages could have been settled in an arbitration.

96. Comp. Bianca/Bonell-Knapp, Art. 74, No. 3.2; Enderlein/Maskow/Strohbach-Enderlein, Art. 74; No. 4; Karollus, p. 213; Piltz, § 5, No. 440; Schlechtriem-Schlechtriem, Art. 25, No 22, 23; Schlechtriem-Stoll, Art. 74, No. 2, 3.

97. Bianca/Bonell-Barrera Art. 88, No. 2.7; Enderlein/Maskow/Strohbach-Enderlein, Art. 88, No. 3.1; Honsell-Weber, Art. 88, No. 8; Schlechtriem-Eberstein, Art. 88, No. 17; Staudinger-Magnus, Art. 88, No. 8.

98. Claimant's Exhibit No. 9.

99. Comp. Herber/Czerwenka, Art. 88, No. 5; Schlechtriem-Eberstein, Art. 88, No. 22; on ULIS: Mertens/Rehbinder, Art. 94/ 95, No. 6.

100. This principle can also be found in Art. 1.7. UNIDROIT; comp. Schlechtriem-Herber, Art. 7, No. 15 seq.; Schlechtriem-Stoll, Art. 77, para. 5.

101. Respondent's Exhibit No. 7.

102. Procedural Order No. 2, Factual Question No. 3.

103. Memorandum for the Claimant, p. 23.

104. Comp. ICC Arbitration Case No. 7531 of 1994; ICC Arbitration Case No. 7197 of 1992.

105. Main contract (Claimant's Exhibit No. 1), para. 14.

106. ICC Hamburg, 21. März 1996, C I 8 b aa (UNILEX); Bianca/Bonell-Tallon, Art. 79, No. 2.7.1; Herber/Czerwenka, Art. 79, No. 3, 14, 19; Huber, RabelsZ 43 (1979), 466, 496; Keil, p. 153; Schlechtriem-Stoll, Art. 79, No. 38; Stoll, Schadensersatzpflicht, p. 277 seq; Vischer, p. 179 et seq.

107. Claimant's Memorandum (p. 26) refers to the case Ford v. Beech, (1848) 11 Q.B. 852 at 866.

108. This method of interpretation is common in international contract law; comp. also Art. 5:101 (1) Principles of European Contract Law: A contract is to be interpreted according to the common intention of the parties even if this differs from the literal meaning of the words; Art. 4.1 (1) UNIDROIT-Principles: A contract shall be interpreted according to the common intention of the parties.

109. Memorandum for the Claimant, p. 28; this is generally the purpose of an intervention, comp. Mustill/Boyd, p. 143.

110. Comp. Issue 1.

111. According to para. 12 the contract between the Respondent and Reliable is governed by the UNIDROIT Principles of International Contract Law (Respondent's Exhibit No. 1).

112. Contract between the Respondent and Reliable (Respondentīs Exhibit No. 1), para. 14.

113. Art. V (1) (d) New York Convention: The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place.

114. Art. 34 (2) (a) (iv) ML: An arbitral award may be set aside [...] only if: the composition of the arbitral tribunal or the procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law.

According to Art. 36 (1) (a) (iv) an award may be refused recognition or enforcement under the conditions set in Art. 34 (2) (a) (iv) ML.

115. Art. 18 ML: The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.

116. Summary Record, A/CN.9/SR.322, para. 28, p. 561; Seventh Secretariat Note, A/CN.9/264, Art. 19, para. 7, p. 559; Holtzmann/Neuhaus, Art. 18, p. 552.

117. Art. 11 (2) ML: The parties are free to agree on a procedure of appointing the arbitrator or arbitrators,[...]".

118. Voskuil/Freedberg-Swartzburg, p. 64.

119. Voskuil/Freedberg-Swartzburg, p. 64, 75; comp. also for Germany: § 1025 (2) ZPO; for Switzerland: Art. 19 Concordat.

120. Art. 12 (2) ML: An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, [...]".

121. Comp. Dore, p. 108;

122. Strong, Vanderbilt Journal of Transnational Law 10/98, 915, 929.

123. Redfern/Hunter, p. 222; comp. Schwab, in: Festschrift f.Habscheid, p. 285, 291.

124. Massuras, p. 491.

125. Respondentīs Exhibit No. 7.

126. This can be derived from the fact that in case a party fails to comply with its obligation to appoint an arbitrator, he will be appointed by court, i.e. without the party's participation; comp. Voskuil/Freedberg-Swartzburg, Composition of the Arbitral Tribunal, p. 64, 76.

127. Court de Cassation, 19.5.1988, ICC-Case No. 5836; Oswald, p. 27.

128. For the purpose of joinder in arbitration comp.: Strong, Vanderbilt Journal of Transnational Law 10/98, 915, 921; Stipanowich, Iowa L. Rev. 72 (1987) 473, 476; .

129. This can be derived from the fact that the Claimant agreed under the condition that no new question of law or fact would arise due to the settlement in the arbitration; comp. Issue 4 I 2.

130. comp. for England: Order 15 r. 4-17 Rules of the Supreme Court; comp. Fleming/Hazard, p. 551; Borealis A.B. v. Stargas Ltd. and others (The "Burge Sisar") (1998) LLR Vol. 2, 475; for France: art. 323 seq. nouv.c.proc.civ.; for Germany: §§ 66 et seq. ZPO; for Poland: comp. decision of the Polish Supreme Court in: Przeglad Prawa i Administracji (C II 1605/37); for Switzerland: Art. 193, 194 OR (Schweizerisches Obligationenrecht); for the United States: comp. Teply/Whitten, p. 503; comp. also Bergen, The New German Arbitration Law, III.9, p. 29 seq.; comp. also Honnold, Uniform Law, 3^rd Ed., No. 433; Otte, p. 727 seq.

131. For Australia: comp. Australia Act s. 19 (b); Commercial Arbitration Act (s. 26); for Belgium: Art. 20 CEPANI; for England: comp. Roussel-Uclaf v. G.D. Searle & Co, (1987) LLR 225; for Hong Kong: Sec. 6 B Art. Ord HK; for Japan: Rule 40 JCAA (Japan Commercial Arbitration Association - Arbitration Rules); for The Netherlands: Art. 1046 Netherlands Arbitration Act; for Switzerland: Art. 28 Conkordat; for the United States: Art. 1281.3 Calif.-ZPO; Chap. 251; § 2 Mass. Uniform Arb. Act; comp. Oswald, p. 59 seq.

132. Contract between Respondent and Reliable (Respondentīs Exhibit No. 1), para. 14: If Superb brings a claim against Controls which is based in whole or in part on an alleged failure in respect of the installation or testing of the control system, Reliable agrees to defend Controls against that portion of the claim based on the alleged failure in respect of the installation or testing of the control system. If Controls is found liable to Superb on the basis of a failure of the installation or testing of the control system, Reliable agrees that it will be liable to Controls to the same degree and in the same amount as Controls was found liable to Superb.

Para. 15: If the claim of Superb is asserted against Controls in arbitration, Reliable agrees to waive any right it might otherwise have to participate in the creation of the arbitral tribunal.

133. Comp. for the general possibility of connecting arbitration agreements: Gavlik Const. Co. v. H. F. Campbell Co. 526 F.2d 777 (3^rd Cir. 1975); Uniroyal Inc. v. A. Epstein & Sons, Inc. 428 F.2d 523 (7^th Cir. 1970); Aksen, in: Warsaw Symposium, p. 35.

134. See above Issue 4, I 2.

135. Subcontract (Respondentīs Exhibit No. 1), para. 13.

136. Markfort, p. 66 seq.

137. Strong, Vanderbilt Journal of Transnational Law 10/98, 915, 926; Redfern/Hunter, 292 seq.

138. Comp § 1035 ZPO; Strong, Vanderbilt Journal of Transnational Law 10/98, 915, 983; Kerr (1985) 34 ICLQ 1, 3; Rosenberg/Schwab/Gottwald, § 74, I 1 d; Schlosser, para. 588; Loquin Clunet 1983, 193, 307 seq.; Perrot Rev. arb. 1980, 642; Raeschke-Kessler, No. 20.

139. Memorandum of the Claimant p. 29.

140. Memorandum of the Claimant, p. 26 seq.

141. Art. 2.115 Principles of European Contract Law; for Denmark: Ussing, Aftaler 367; for England: art. 1 (1) Draft of a Bill intituled by the Law Commission; for France: CC art. 1121; for Germany: § 328 BGB; for Greece: CC arts. 411 and 413; for Italy: CC art. 1411; for Portugal: CC art. 443; for Spain: CC art. 1257(2); for the United States: Section 302 of the Second Restatement of Contracts; for Western Australia: Act. 1969 Property Law.

142. Memorandum for the Claimant, p. 26 seq.

143. Main contract (Claimant's Exhibit No. 1), para. 4; Procedural Order No. 2, Factual Question No. 15.

144. Memorandum for the Claimant, p. 28 seq.

145. 3879 Clunet 1985, 242 seq.; Markfort, p. 60; Reiner, p. 90;