The claimant, SUPERB Paper, Plc, has prepared this Memorandum pursuant to Procedural Order No.1 of the International Arbitration Center of Danubia. In response to the issues raised by the Procedural Order, SUPERB argues that:
SUPERB has prepared this Memorandum to assist the Tribunal in its assessment of SUPERB's claim for enforcement of the contract.
On 27 August 1996 SUPERB received a telephone call from CONTROLS in which SUPERB informed that there was an air accident and the team from RELIABLE Installation Co. had been killed. Between 30 August and 12 September, SUPURB was assured by CONTROLS that RELIABLE was working on assembling the new installation team. Though SUPERB reminded CONTROLS that the control system should be installed completely by 16 September, there was no installation taken by RELIABLE. SUPERB wrote CONTROLS and fixed an additional period of time ending on 9 October 1996, but CONTROLS replied by asking for a 30 October deadline. There was no installation completed by RELIABLE by 9 October. SUPERB avoided the contract on 9 October. SUPERB signed new contract with Bridget CONTROLS GMBH for a comparable control system for an installed price of 550000E$ on 10 October. The control system was installed by Bridget and was fully functional on 11 November 1996. The contract price was paid in full on 18 November 1996. SUPERB asks for an order for CONTROLS to pay damages of 500000E$, that being the difference between the contract price of E$500000 and the cost of the substitute control system purchased from Bridget CONTROLS GMBH.
To make the arguments of Article 79(1) and (2)(a), at first it is necessary to assert that CONTROLS fails to meet its obligation on 9 October. The arguments of whether a party will or will not form its liability for failure to perform any of its obligations under Article 79(1) and (2)(a) must assert that there first exists a failure of the party to perform its obligation. SUPERB wants CONTROLS to admit that CONTROLS failed to perform on 9 October and which results in its obligation to pay damages of 50000E$. Therefore, SUPERB will prove that CONTROLS was not permitted to fix the additional period ending on 30 October, and failed to complete its performance by 9 October.
CONTROLS replied to SUPERB on 19 September to ask for an additional period ending on 30 October. It looks like a counter-offer from CONTROLS to SUPERB which is in accord on Article 19(1), "A reply to an offer which purpose to be an acceptance but contains additions, limitation or other modifications is a rejection of the offer and constitutes a counter-offer," however SUPERB argues CONTROLS can not use this Article. The letter of 18 September from SUPERB, which stated about the additional date for completing installation by 9 October, was not an offer, but instead a letter requiring performance by CONTROLS of its obligation. SUPERB's right to this performance comes from Article 46(1). CONTROLS, who failed to complete the contract by 16 September, must obey this requirement from seller. Moreover, SUPERB could legally fix an additional period of time of 9 October for performance by CONTROLS of his obligation. (Article 47(1) CISG). Therefore, the letter on 18 September was not an offer to modify the contract, and CONTROLS can not make a counter offer to fix the deadline to 30 October.
2-A.1. SUPERB is qualified under Article 46(1) to require CONTROLS to perform his obligation until 9 October.
Article 45(1)(a) states," If the
seller fails to perform any of his obligations under the contract or this
Convention, the buyer may exercise the rights provided in articles 46 to
52. ". Because of a failure of performance from CONTROLS by
16 September, SUPERB may insist to exercise its rights from 46(1)
and the letter of 18 September fails to meet this requirement. To
confirm this, SUPERB stated in his letter, "If it is not operational by
that date, we will have to look to our legal rights", and also they said,
"We expect". From this letter, it is clear that SUPERB is not
asking of modify, but requiring CONTROLS to make his performance.
Since the installation of the control system was not completed by 16 September,
SUPERB may have a right to require CONTROLS to perform under Article 46(1)
which was the right qualified under Article 45(1)(a). Therefore,
CONTROL'S claim, which infers 30 October as the adjusted date of contract,
does not make sense.
As long as the requirement in the letter of 18 September is legal, there should be no offer made by SUPERB. Therefore, there should be no counter-offer made by CONTROLS to modify the contract date to 30 October. CONTROLS had an obligation to complete installation of the control system by 9 October, and he is now obligated to pay damages as a result of the delayed installation.
2-A.2. SUPERB's telefax on 18 September is qualified under Article 47(1) for SUPERB to fix an additional period of time ending on 9 October.
Although CONTROLS claim that a period ending on 9 October is not enough to allow for performance, SUPERB argues about this from Article 45(1)(a) and 47(1). Since CONTROLS failed to complete the installation of the control system by 16 September, SUPERB was granted the rights of Article 46 through 52, and this was stated as a provision by Article 45(1)(a). The rules regarding additional periods of time fixed by the buyer are stated in Article 47(1) as, "The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations."
CONTROLS, perhaps, will claim that it is not a reasonable length for completing installation since SUPERB fixed on additional period of time only to 9 October. CONTROLS will also say that they rejected this period by the letter of 9 October. However, the notice that tells "the seller will not perform within the period so fixed" , is makes no effect on the right of buyer to claim damages. Thus, the length of an additional period of time is not a question to talk here. SUPERB may be granted the right to require CONTROLS to pay damages caused by CONTROL'S delayed performance on 9 October.
Article 79 (1) CISG provides " A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to as 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". To be exempted by this Article, the impediment which makes it impossible to perform the contract must be fulfilled according to three important factors. First, a failure to perform one's obligation is caused by an impediment beyond the party's control. Second, the party could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract. Third, the party could not reasonably be expected to have avoided or overcome its impediment of its consequences. And SUPERB argues that the situation of CONTROL does not apply to the third of these factors. Therefore CONTROLS cannot rely on Article 79(1).
2-B.1. CONTROLS must have done all things they could do for concluding.
CONTROLS was able to perform the contract before 9 October 1996. CONTROLS could find another installation firm between 27 August to 9 October. There were three other firms potentially available to do work in Mediterraneo at that time. All three could have shifted personnel so as to have had an installation team available if CONTROLS approached them in August; and also not impossible even if the approach from CONTROLS was made after 2 September. They all agreed that the job would take two weeks if there were no problems. According to these facts, CONTROLS could have had the control system installed if they had approached these firms after they knew that the airplane crashed and it became difficult for RELIABLE to complete their service. Moreover, SUPERB reminded CONTROLS on 13 September that it was very important for SUPERB to have the control system installed , CONTROLS was able to find another firm between 27 August to 9 October, but CONTROLS did not attempt to secure another firm. From these facts SUPERB argues that CONTROLS did not fulfill the third requirement of Article 79(1). It is true that RELIABLE was faced with difficulty, but CONTROLS itself was able to overcome the difficulty by finding another firm or making a suitable adjustment on the price to compensate SUPERB's damage. There was plenty of time left for CONTROLS to make some performance that could be a reasonable compensation in the commercial trade . Moreover, CONTROLS must give notice informing of the effect on CONTROL'S ability to perform. This means that CONTROLS' telefax of 27 August is all about the airplane accident and its effect on RELIABLE's ability to perform, but not about CONTROL'S ability. Therefore, CONTROLS is not qualify under this to be exempted from paying damages as a result of delayed install by 9 October.
Article 79(2)(a) says, "If the party's 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 ability only if he is exempt under the preceding paragraph (Article 79(1))", and from here, SUPERB will say that this does not apply to CONTROLS, who cannot be said to be exempt under Article79(1). In short, CONTROLS, who has been proved not to be eligible for exemption under Article79(1), is not the one of " if he is exempted under the preceding paragraph". Thus, this Article cannot be a reason for CONTROLS to be released from his obligation of paying damages as a result of his failure to complete installation.
Even if there was an impediment in accord with Article 79(1) and CONTROLS qualifies under this and should be exempted, SUPERB argues against this by Article 79(4). The article provides 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. If the other party does not receive the notice within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non-receipt. ". The notice under Article 79(4) requires clear mention. From these facts, SUPERB may say that CONTROLS gives no notice which applies to "the notice" intended by Article 79(4), "give notice to the other party of the impediment and its effect on his ability. ". In the letter of 19 September, CONTROLS asked for another additional period until 30 October. There is the potential for CONTROLS to use this letter as the notice required by Article 79(4) for exemption, however SUPERB denies this by below.
2-D.1. The telefax given on 19 September was not a notice of impediment for CONTROLS under Article 79(4).
CONTROLS can not say that the telefax on 19 September was a notice of the impediment. To be applied as a "notice" under Article 79(4), CONTROLS must have failed to perform the contract, but CONTROLS did not fail to complete the installation at this time. There were left some possibilities of performance by RELIABLE, and CONTROLS itself did not clearly say that they would fail to perform. CONTROLS showed that it would take three weeks to complete installation if they had to turn to a different installation firm. This can not be used as an excuse to say that CONTROLS could not perform because this information was just telling of the situation of "if" and clearly telling SUPERB that CONTROLS was going to use other firm. This means there was left some possibility that CONTROLS would not use another firm and RELIABLE would make performance. If RELIABLE begins installation within the next weeks it would take two weeks to complete and the installation could be completed by 9 October. Because CONTROLS did not clearly tell that they would use the other firm, SUPERB could rely on this possibility above. Therefore, CONTROL'S letter on 19 October cannot be that CONTROLS failed to complete to the performance by 9 October. In the same way, the telefax on 19 September can not be a "notice" of impediment. Therefore there was no notice that corresponded with Article 79(4) given by CONTROLS to tell SUPERB that he will fail to perform by 9 October because of the impediment. Thus, CONTROLS cannot be exempted from paying damages of E$50,000 by Article 79(1).
Article 49(1)(b) provides that the buyer may declare the contract avoided in case of non-delivery if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed.
Accordingly SUPERB was authorized to avoid the contract on 9 October 1998 under the CISG Article 49(1)(b).
SUPERB telephoned CONTROLS on 30 August, and 4, 9 and 12 September 1996 inquiring as to when the installation team from RELIABLE could be expected. And RELIABLE was working on assembling the new installation team. On 18 September 1996 SUPERB wrote CONTROLS and fixed a period of time ending on 9 October 1996 for the installation and testing to be completed. The letter made it clear that if the control system was not operable by on 9 October 1996, SUPERB would exercise its legal rights.
But the control system was not operable by 9 October 1996.
On 18 September 1996 SUPERB required CONTROLS to perform the contract. This demand is based on Article 46(1). This remedy for buyer is grounded on Article 45.
According to Article 47(1), the buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations. It prove that SUPERB had a right to fix a period of time ending on 9 October 1996 for the installation and testing to be completed. CONTROLS was informed by SUPERB the original was sent by courier and copy was sent by fax. (Claimant's Exhibit No. 3).
SUPERB suggested that CONTROLS look to some other firm to do the installation if RELIABLE was not able to meet its obligations. The CLARIFICATIONS said that three other install companies were in Mediterraneo.
On 19 September 1996 CONTROLS said to SUPERB, "I would like to know whether you would be satisfied with an installation that would be completed by October 30 1996. We would, of course, be ready to make a suitable adjustment on the purchase price to compensate you for your forbearance."
But SUPERB already fixed a period of time ending on 9 October 1996 for the installation and testing to have to be completed. That period of time is reasonable. It proves that SUPERB had a right to fix a period of time ending on 9 October 1996 for the installation and testing to be completed. And three other install companies were in Mediterraneo. It means that it is possible for Control to find some other firm to do the installation. It is not "counter offer" but "demanding the performance". Whether the proposition about adjustment on the purchase price be predicated on Article 50, was effective. It was obvious that SUPERB had a right to fix a period of time ending on 9 October 1996 for the installation and testing to be completed.
Therefore an additional period of
time of reasonable length for performance by the seller of his obligations
CONTROLS did not perform its duty before a period of time ending on 9 October 1996 for the installation and testing to be completed. Therefore, it made that up a shortage of required condition of a contract because CONTROLS knew that SUPERB is a producer of paper and paper products and CONTROLS produced the control systems for the making of paper and paper products.
It is difficult to say that purpose of purchasing the control system by CONTROLS is not for the making of paper and paper products. It means that CONTROL'S aim of buying the control systems is fit for goods for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract. That the control system was no use without installation means the goods are "including installation". It was reasonable for SUPERB to rely, on the CONTROL'S skill and judgement. Because CLARIFICATIONS said SUPERB is not capable to install. That is why contract included the installation by RELIABLE and CONTROLS agree that if it was reasonable for SUPERB to rely, on the CONTROL'S skill and judgement by installation included in goods and contract include the installation by RELIABLE is a shortage of required condition of a contract and made up that an offense of Article 35 (1) and Article 35 (2)(b). CONTROLS delivered Goods with shortage of required condition of a contract.
For that reason deliberation of Goods with shortage of required condition of a contract by CONTROLS is not deliberation of Goods in fixed date (9 October 1996). Consequently SUPERB may declare the contract avoided.
On 9 October, SUPERB avoided the contract with CONTROLS by sending a notice, because CONTROLS delayed to meet this deadline to make his performance completed. The letter avoiding the contract was sent by fax at 11:15 and by mail at noon . The letter demanded return of the $400,000 already paid to CONTROLS . CONTROLS replied on 10 October insist RELIABLE are available to arrive at SUPERB's facility on 14 October and the installation would be completed by 30 October at the latest. In the same time of telephone conversation above, SUPERB told CONTROLS that it was too late and repeated that the contract was avoided yesterday. SUPERB sent fax to reiterate its position and stated that SUPERB was holding the control system as security for the return of the $400,000 . There were negotiations over the consequences. On 13 March 1997 SUPERB wrote CONTROLS that SUPERB would sell the control system in its possession and reimburse it from the proceeds unless CONTROLS returns the $400,000 advance payment within ten days. CONTROLS did not return the advance payment and system was sold for $250,000 on 4 April 1997. From these facts, SUPERB asserts his right to under Article 88 CISG. To qualify under Article 88(1), SUPERB must apply to Article 86. To be entitled in Article 86(1), SUPERB should be received the control system and should intended to reject under Article 81(1)(2) to require CONTROLS his reimbursement effected by the avoidance of the contract. SUPERB insists he applies to all of these, and may exercise the right to sell the system by Article 88(1).
Since SUPERB avoided the contract on 9 October, an effect of avoidance should be given by Article 81(1) which says, "Avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due." According to this, both SUPERB and CONTROLS may released from own obligation, and from this "release" both begins to have obligation to make restitution of control system and advance payment those have been performed before. The obligation of restitution is stated on Article 81(2) as, "A party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. If both parties are bound to make restitution, they must do so concurrently, "SUPERB, who had paid its $400,000 to CONTROLS, can claim the reimbursement of this advance payment under this article, so the requirements made on 9 October 1996 and 13 March 1997 were in order .
SUPERB may require $400,000 to be reimbursed by CONTROLS. By the telefax on 10 October, SUPERB informed CONTROLS that it avoided the contract and it has entered into a replacement contract with Bridget controls GMBH . It is clean that the control system delivered by CONTROLS is no more a necessity to SUPERB and is rejected by them. Thus, SUPERB is applied to Article 86(1) to require $400,000 to CONTROLS and is granted the right to hold this control system until CONTROLS returns E$400,000. Article 86(1), " IF the buyer has received the goods and intends to exercise any right under the contract or this Convention to reject them, he must take such steps to preserve them as are reasonable in the circumstance. He is entitled to retain them until he has been reimbursed his reasonable expenses by the seller, " corresponds to the situation of SUPERB. First, SUPERB has received the control system on 20 August. Second, SUPERB intends to reject this control system. Third, SUPERB intends to exercise any right under the contract or this Convention to reject the control system. According to the first Committee 30th, it was confirmed that the right to reject the goods is only for the right to avoid the contract and the right to require delivering of substitute goods . Therefore SUPERB applies to Article 86(1) by avoiding the contract on 9 October, and is entitled to retain the control system until he has been reimbursed his advanced payment as the reasonable expenses.
To avoid the contract, it is a requisite that seller is able to make restitute of the goods substantially in the condition in which he received them . So in generally, the buyer preserve the goods. Moreover Article 86(1) also demands buyer to preserve goods from the deterioration even it is not substantial. Therefore, SUPERB, the buyer, who exercise the right to avoid the contract, qualifies under Article 86(1) CISG to hold the control system until CONTROLS reimburse the advanced payment of E$400,000.
SUPERB insists its rights to sell control system on 4 April, because of no reimbursement made by CONTROLS. Reference her is to Article 88(1) CISG which states, " 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 of the cost of preservation," SUPERB is under the obligation to preserve the control system for CONTROLS in order to exercise the right of require reimbursement from Article 81(1)(2) and 86(1). While SUPERB preserves the control system for CONTROLS, CONTROLS is in the situation of not performing his obligation to take back the control system and return E$400,000 to SUPERB. Article 88(1) permits a party to sell the goods when the other party unreasonably delayed to carry out the above obligations. Therefore, SUPERB is authorized from Article 88(1) to sell control system since CONTROLS delayed to reimburse E$400,000 by 24 March 1997 .
Article 88(1) also provides that the other party should be given a reasonable notice of the intention to sell the goods. The word "reasonable" is added in this article to limit the extent of "notice". The purpose of this is to make clear what the "notice " in this Article 88(1) should be a notice which presents an opportunity and time to the other party informing of the date of self-help sale is able to be sent to the other party before expiring the period of unreasonable delay . By the letter on 10 October, SUPERB shows that holding the controls system is a "security" for him to take back E$400,000, and this implies of selling the goods unless CONTROLS reimburse the goods. Therefore CONTROLS had almost 5 month of period to evade SUPERB's self-help sale, but CONTROLS did not return even after the second notice on 13 March, which clearly inform of SUPERB's intention of selling control system. Thus SUPERB qualifies under Article 88(1) to sell control system to make recover of its advanced payment.
Since the sale on 4 April was occurred of delayed reimburse â€•meant of $400,000 from CONTROLS who was obliged to return E$400,000 under Article 81(1)(2) as a result of his failure of performance, and SUPERB was qualified under Article 86(1) to retain the control system until he has been reimbursed E$400,000 by CONTROLS, SUPERB is entitled to sell the control system to restore their damages of advanced payment. The ways and means of selling should be made appropriately. In here, "appropriate means" is sufficient if it is taken honestly and is made by reasonable means of mercantile. The price of E$250,000 released in the sale of the system on 4th April 1997 was a fair price for a system sold by a broker experienced in the sale of similar equally equipment . Consequently, from all above, SUPERB may say it was authorized to sell the control system on 4 April and it was by appropriate means.
4-E. SUPERB can demand CONTROLS to return E$153,000
Although CONTROLS was obliged to return E$400,000 by Article 81(1)(2), he did not reimburse it. To save himself from damages of advance payment, SUPERB sold the control system under Article 88(1). This E$3,000 should be calculated differently from the reimbursement of E$400,000. SUPERB could have a right to retain out of the proceeds of sale on the amount equal to the reasonable expenses of preserving the system and selling this by Article 88(3). Thus, the cost of E$3,000 should be retained out of E$250,000, and the net receipts of the system becomes E$247,000. Since the system worth only E$247,000, SUPERB demands CONTROLS to pay back the remaining amount of E$153,000 as an exceeding payment unequal to the value of the system.
This contract is to be considered as a contract for the sale of goods under Article 1. Therefore, to make goods conforming with this contract implies that the delivery and installation would be completed by this contract date (9 October). This is already mentioned in chapter 3 of this memorandum and cleared by Factual Question No.3. But RELIABLE does not install it by this contract date, that is, 9 October, so goods do not confirm to the contract under CISG Article 35(2)(a).
CONTROLS can not insist that CONTROLS should have performed their obligation of this contract because the goods are lack of conformity, so SUPERB can have the right to claim of damages under CISG Article 45(1)(b). Consequently, SUPERB rightly exercises the right to claim damages from the party as litigant. It is clear that the party as litigant means SUPERB as buyer and CONTROLS as seller, and also that RELIABLE is the party to the contract with CONTROLS by this contract and Factual Question No.1.
Though CONTROLS claims that RELIABLE should assume responsibility for installation because RELIABLE assured CONTROLS that they would be able to install by 16 September he, CONTROLS, is also obliged to assure performance. First, even if CONTROLS is exempted the responsibility for their installation; the goods are still in a state of lack of conformity because RELIABLE does not install the control system. And it is not exempted, so SUPERB does not lose their right to claim of damages.
Second, the parties to the contract between SUPERB and CONTROLS are only SUPERB and CONTROLS, so pursuare of responsibility in this contract should be done between SUPERB and CONTROLS, and SUPERB can claim their right to only CONTROLS because there are no contract concern between SUPERB and RELIABLE. RELIABLE is the party of the contract between RELIABLE and CONTROLS. Also, SUPERB should not intrude on the part of burden sharing as execution of the obligation for the seller, so SUPERB rightly claims to the right to CONTROLS as the party to the contract with CONTROLS. Then again, Pursuant to 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 raise to a claim by the Seller against one of its supplier may be settled in the arbitration between the Buyer and Seller, provided that the supplier agrees to have the claim of the Seller against it settled in this arbitration, that the supplier agrees to waive any right it may have to participate in the selection of the arbitration 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, RELIABLE is the party of the contract with CONTROLS .
The claim of damage should be demanded from SUPERB to RELIABLE fulfill the agreement between SUPERB and CONTROLS, so SUPERB can not have the right to claim directly to RELIABLE who is not the party to the contract between SUPERB and CONTROLS.
Thus, even if CONTROLS is exempted from the responsibility, the goods are still lack of conformity, so SUPERB should claim of the damage to CONTROLS in order to claim RELIABLE by CONTROLS.
Therefore RELIABLE should not join to this arbitration.