Vienna, Austria

March 27 to April 1, 1999

THE PROBLEM

Organized by:

Institute of International Commercial Law

Pace University School of Law

78 North Broadway

White Plains, NY 10603

USA

AMERICAN ARBITRATION ASSOCIATION

Case No. Moot 6

Superb Paper, Plc
Claimant

v.

Essential Controls, S.A.
Respondent

NOTICE OF ARBITRATION
(American Arbitration Association, International Arbitration Rules, Article 2)

I. The Facts of the Case

1. Superb Paper, Plc. (hereinafter referred to as SUPERB) is a company organized under the laws of the country of Mediterraneo. It has its principal office at 123 Industrial Avenue, Highlands, Mediterraneo.
2. Essential Controls, S.A. (hereinafter referred to as CONTROLS) is a company organized under the laws of the country of Equatoriana. It has its principal office at 26 Export Pl., Southside City, Equatoriana.
3. SUPERB is a producer of paper and paper products. In early 1996 it decided that it should take advantage of the new technologies available in the control of the paper making process. CONTROLS is one of several companies that produce control systems for the making of paper and paper products.
4. On 10 June 1996 SUPERB and CONTROLS entered into a contract by which CONTROLS agreed to sell and install in the facilities of SUPERB a new control system at a cost of $500,000. A payment of $400,000 was called for upon delivery of the control system to the facilities of SUPERB. A payment of $50,000, or ten percent (10%), was to be made within ten days of completion of the final testing of the installed control system. The final payment of $50,000 was to be made within six months of completion of the final testing. The contract provided that installation and final testing would be completed by Reliable Installation Co. on behalf of CONTROLS on or before 16 September 1996. (Claimant’s Exhibit No. 1, clauses 3 and 4.)
5. The control system was delivered to the premises of SUPERB on 20 August 1996, and the payment of $400,000 was made 22 August 1996 as agreed. On 27 August 1996 SUPERB received a telephone call from CONTROLS in which SUPERB was informed that the charter airplane in which the team from Reliable Installation Co. that was bound for Mediterraneo to install the system had crashed and every member of the team had been killed. CONTROLS said that Reliable had stated that it would assign a new team to the job and that the installation and testing should be completed on schedule. The contents of the telephone call were confirmed in a faxed letter later that day. (Claimant’s Exhibit No. 2)
6. 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. On each occasion CONTROLS assured SUPERB that it was informed by Reliable that it was working on assembling the new installation team. Finally, on 13 September 1996 SUPERB wrote CONTROLS reminding it that the contract date by which the installation was to be complete and tested and the control system operational was the next business day. CONTROLS was reminded of the importance to SUPERB that the system be available for use promptly. A copy was sent by fax and the original by courier. (Claimant’s Exhibit No. 3)
7. 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 that time, SUPERB would exercise its legal rights. The letter also suggested that CONTROLS should have secured the services of a different installation firm if Reliable was not able to assemble a new team in time to meet its contract obligations. (Claimant’s Exhibit No. 4) The letter was sent by fax and by courier. The following day, 19 September 1996, CONTROLS replied that it had given Reliable notice that if it did not send a new installation team to SUPERB within the next three weeks, it would terminate the contract and seek a new firm to do the installation. CONTROLS asked whether SUPERB would be satisfied if the installation was completed, including the testing, within the next six weeks, i.e., by 30 October 1996. (Claimant’s Exhibit No. 5)
8. By this time SUPERB was prepared to give up on the contract with CONTROLS. While SUPERB sympathized with the loss that Reliable had suffered, it was imperative that the control system be installed and operating. From CONTROLS’ fax of 19 September 1996 it was obvious that CONTROLS did not expect to meet the deadline of 9 October 1996. Nevertheless, SUPERB waited the three weeks until the deadline expired on 9 October 1996 before SUPERB sent to CONTROLS a notice that the contract was avoided. The letter avoiding the contract also demanded return of the $400,000 already paid to CONTROLS and stated that it was storing the computer for CONTROLS’ account. (Claimant’s Exhibit No. 6)
9. The following day, 10 October 1996, SUPERB concluded a contract with Bridget Controls GMBH for a comparable control system for an installed price of $550,000, with installation to be completed within 30 days of contract. 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.
10. On 10 October 1996 CONTROLS telephoned SUPERB to say that it had insisted to Reliable that the installation had to be complete prior to 30 October 1996, and that it had been promised by Reliable that the installation would completed by then. CONTROLS faxed a letter to SUPERB the same day to the same effect. (Claimant’s Exhibit No. 7) In the telephone conversation SUPERB told CONTROLS that it was too late; the contract was avoided. Following receipt of the fax from CONTROLS, SUPERB reiterated its position by return fax in which it also stated that it was holding the control system as security for the return of the $400,000. (Claimant’s Exhibit No. 8)
11. During the following four months there were negotiations over the consequences that should result from these events. SUPERB consistently insisted that CONTROLS should return the $400,000 advance payment. CONTROLS claimed that SUPERB had breached the contract by avoiding the contract on 9 October 1996 and claimed a right to recover its damages from the advance payment. On 13 March 1997 SUPERB wrote CONTROLS that, if CONTROLS did not return the $400,000 advance payment within ten days, SUPERB would sell the control system in its possession and reimburse itself from the proceeds. (Claimant’s Exhibit No. 9) CONTROLS did not return the advance payment and the system was sold for $250,000 on 4 April 1998. The costs of preserving the control system prior to its sale and the selling costs amounted to $3,000, leaving net receipts of $247,000.

II. The Law Applicable to the Case

12. Paragraph 22 of the contract between SUPERB and CONTROLS provides that the contract is governed by the United Nations Convention on Contracts for the International Sale of Goods. The Convention would be the governing law in any case since both Equatoriana and Mediterraneo are party to the Convention.
13. Paragraph 23 of the contract provides that the arbitration will be in accordance with the International Arbitration Rules of the American Arbitration Association.
14. Paragraph 23 of the contract provides that the place of arbitration will be the Danubia International Arbitral Centre, Vindobona, Danubia. Danubia has adopted the UNCITRAL Model Law on International Commercial Arbitration.
15. Equatoriana, Mediterraneo and Danubia are all party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

III. The Legal Rights of the Claimant

16. The contract with CONTROLS provided that the control system was to be installed and operational on or before 16 September 1996. When it was not installed and no firm date by which installation would be commenced had been given by 18 September 1996, SUPERB fixed a period of time ending on 9 October 1996 as the period when CONTROLS was required to perform its obligation to install, test and turn over the control system in operable condition

.

17. CONTROLS had not even begun the installation on 9 October 1996. Therefore, SUPERB was authorized to avoid the contract, and did do so by letter that was faxed to CONTROLS as well as sent by courier. CISG Article 49(1)(b)
18. SUPERB had a right to reimbursement of the $400,000 advance payment that it had made and had the right to retain possession of the control system until the reimbursement was made. CISG Article 81(2) Since CONTROLS did not reimburse SUPERB the $400,000 advance payment for approximately five months after the contract was avoided, the sale of the control system on 4 April 1997 was authorized. SUPERB has the right to reimburse itself the costs of storing the control system and of selling it. CISG Article 88(1)
19. SUPERB has the right to interest on the $400,000 from 22 August 1996 to 4 April 1997 and to interest on the balance of $153,000 since that date.
20. SUPERB has the right to recover damages in the amount of $50,000, being the difference between the contract price of $500,000 in the contract with CONTROLS and the control system SUPERB purchased from Bridget Controls GMBH in replacement with interest from 18 November 1996. CISG Articles 45(1)(b) and 75

IV. Relief Sought

21. SUPERB hereby demands that the dispute between it and CONTROLS be referred to arbitration in accordance with clause 23 of the contract between them dated 10 June 1996.
22. SUPERB appoints Dr. ____________________ as its arbitrator as provided in the arbitration agreement.
23. SUPERB requests the Tribunal:

• To order CONTROLS to reimburse to it the sum of $153,000, being the difference between the advance payment of $400,000 and the net receipts of $247,000 realized on the sale of the control system,
• To order CONTROLS to pay interest on the sum of $400,000 from 22 August 1996 to 4 April 1997 and to interest on the balance of $153,000 since that date.
• To order CONTROLS to pay damages of $50,000, being the difference between the contract price of $500,000 and the cost of the substitute control system purchased from Bridget Controls GMBH,
• To order CONTROLS to pay interest on the damages of $50,000 from 10 October 1996, and
• To order CONTROLS to pay the costs of the arbitration.

(The Exhibit sets forth the entire contract. Only the relevant excerpts are reproduced here.)

1. Essential Controls, S.A., 26 Export Pl., Southside City, Equatoriana, (hereafter Seller) agrees to sell and Superb Paper, Plc., 123 Industrial Avenue, Highlands, Mediterraneo (hereafter Buyer) agrees to buy a computerized control system for a total price of $500,000. The system is to be installed by Seller in the facilities of Buyer. The technical specifications are contained in Appendix I.

* * *

3. Payment of $400,000 is to be made upon delivery of the control system to the facilities of Buyer. A payment of $50,000, or ten percent (10%), is to be made within ten days of completion of final testing of the installed control system. The final payment of $50,000 is to be made within six months of completion of the final testing.

4. The control system is to be installed by the Reliable Installation Co., Baltic City, Hanseatica. Certification that the system is properly installed, that it has been tested in place and that it is fully operational will be made by Reliable on behalf of Seller on or before 16 September 1996.

* * *

22. This contract shall be governed by the United Nations Convention on Contracts for the International Sale of Goods.

23. Any controversy or claim arising out of or relating to this contract shall be determined by arbitration in accordance with the International Arbitration Rules of the American Arbitration Association. The number of arbitrators shall be three. The place of arbitration shall be the Danubia International Arbitral Centre, Vindobona, Danubia. The language of the arbitration shall be English.

24. 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.

June 10, 1996

Mr. William Spiegel
Superb Paper, Plc
123 Industrial Avenue
Highlands, Mediterraneo

Dear Mr. Spiegel:

I wish to confirm to you the contents of our telephone conversation of earlier today. The charter airplane carrying the team from Reliable Installation Co. that was on its way to Mediterraneo to install the control system crashed yesterday and all passengers were killed.

Needless to say, when Reliable called me this morning to tell me of the accident, they were extremely upset. Nevertheless, they 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. I will keep you informed if there are any further developments.

Trusting that there will be no further difficulties, I remain

Sincerely,

Mr. Thomas Oletti
Essential Controls, S.A.
26 Export Pl.
Southside City
Equatoriana

Dear Mr. Oletti:

In your letter to me of 27 August 1996 confirming to me the news of the crash of the airplane carrying the team from Reliable Installation Co. to Mediterraneo, you stated that Reliable would be sending a new team to our plant and the installation would be completed on time.

Since that time I have telephoned you on 30 August, 4, 9 and 12 September inquiring when the installation team from Reliable could be expected. On each occasion you have assured me that Reliable was working on assembling the new installation team. However, we have never been given a firm date by which we could expect their arrival.

I wish to remind you that you contracted with us that the control system would be completely installed, tested and operational by this coming Monday. It does not seem necessary to remind you how important it is to our operations to have it working, and working promptly.

I trust that you will inform me immediately when the team from Reliable will arrive.

Sincerely,

Mr. Thomas Oletti
Essential Controls, S.A.
26 Export Pl.
Southside City
Equatoriana

Dear Mr. Oletti:

I refer to my letter to you of 13 September 1996 reminding you that the contract date for installation of the control system was last Monday. You have still not informed us when the team from Reliable will arrive to install the control system. It is, therefore, necessary for us to be more insistent.

We expect the system to be fully installed and operational by 9 October 1996 at the latest. If it is not operational by that date, we will have to look to our legal rights.

I should add that we are completely sympathetic to the loss that Reliable has suffered. We wonder, however, why you have not looked to some other firm to do the installation if Reliable is not able to meet its obligations.

Sincerely,

Mr. William Spiegel
Superb Paper, Plc
123 Industrial Avenue
Highlands, Mediterraneo

Dear Mr. Spiegel:

I acknowledge your letter of 18 September 1996. This is a difficult situation. The loss of some of their old employees in the plane crash has been difficult for Reliable, both in a human way and professionally.

I know that Reliable has been trying to put a team together to install the control system at your plant. They have had had some unexpected difficulties with an installation on which their key personnel are committed.

Nevertheless, it is clear that the control system must be installed at your plant promptly. Therefore, I have informed Reliable that they must be ready to begin within the next three weeks or we would have to terminate our contract with them.

If we have to turn to a different installation firm, it will take an additional several weeks to complete the job. Therefore, 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.

I await your reply.

Sincerely,

Mr. Thomas Oletti
Essential Controls, S.A.
26 Export Pl.
Southside City
Equatoriana

Dear Mr. Oletti:

I refer to my letter of 18 September 1996. In that letter I told you that we expected the control system to be installed and fully operational by 9 October 1996. I also said that if the system was not installed and fully operational by 9 October 1996, Superb Paper, Plc would have to look to its legal rights.

The deadline is today. The team from Reliance that is supposed to install the control system has still not arrived, and we have not been told when or if they will. Therefore, we are hereby canceling the contract.

We are holding the control system for your account and will return it to you upon your return of the $400,000 we have paid you, which we hereby demand.

Sincerely,

Mr. William Spiegel
Superb Paper, Plc
123 Industrial Avenue
Highlands, Mediterraneo

Dear Mr. Spiegel:

I refer to the fax of your letter of 9 October 1996 and to our telephone conversation of today.

We completely reject your claim that you had a right to cancel the contract. We acknowledge that the installation of the control system has been delayed, for the tragic reasons of which you are well aware. However, the delay has not been unusually long and it will soon be rectified.

Reliable has finally finished the installation to which I referred in my letter of 19 September 1996. The personnel qualified to do the installation are available to arrive at your facility on Monday, 14 October. We have insisted to Reliance that the installation had to be completed by 30 October at the latest, and they have assured me that, if there are no unusual problems, it will be finished by Friday, 25 October.

I wish to express my regrets for this unfortunate delay, but I am sure that you will be fully satisfied with the Essential Control System.

Sincerely,

Mr. Thomas Oletti
Essential Controls, S.A.
26 Export Pl.
Southside City
Equatoriana

Dear Mr. Oletti:

As I told you in our telephone conversation earlier today, we appreciate that Reliance would have installed the control system within the contract period if there had not been the airplane crash. However, we do not accept that neither Reliance nor you could have seen to the installation of the system before this time.

In any case, it is now too late. The contract was cancelled yesterday, and we have entered into a replacement contract with Bridget Controls GMBH.

To clarify our position stated in our fax of yesterday, we are holding your control system as security for the return of the $400,000 that we have paid to you.

Sincerely,

Mr. Thomas Oletti
Essential Controls, S.A.
26 Export Pl.
Southside City
Equatoriana

Dear Mr. Oletti:

It appears that we are not progressing in settling our dispute. You continue to hold our $400,000, and we continue to hold your control system as security. In order to break this deadlock, if Essential Controls does not reimburse us the $400,000 within the next ten days, i.e., by 24 March, we will sell the control system as best we can and reimburse ourselves from the proceeds. If we are not able to sell the control system for the full amount that you owe us, we will be forced to begin legal proceedings in the appropriate forum.

Sincerely,

AMERICAN ARBITRATION ASSOCIATION

Case No. Moot 6

Superb Paper, Plc
Claimant

v.

Essential Controls, S.A.
Respondent

MAY IT PLEASE THE TRIBUNAL

9. The Facts

1. Superb Paper, Plc. (hereinafter referred to as SUPERB) is a company organized under the laws of the country of Mediterraneo. It has its principal office at 123 Industrial Avenue, Highlands, Mediterraneo.
2. Essential Controls, S.A. (hereinafter referred to as CONTROLS) is a company organized under the laws of the country of Equatoriana. It has its principal office at 26 Export Pl., Southside City, Equatoriana.
3. SUPERB is a producer of paper and paper products. CONTROLS produces control systems for various manufacturing processes, including the production of paper and paper products.
4. On 10 June 1996 SUPERB and CONTROLS entered into a contract by which CONTROLS agreed to sell and install in the facilities of SUPERB a computerized control system for a total price of $500,000. The contract required that a payment of $400,000 be made upon delivery of the control system to the facilities of SUPERB. A further payment of $50,000, or ten percent (10%), was due ten days after completion of the final testing of the installed control system. The final payment of $50,000 was to be made within six months of completion of the final testing. (Claimant’s Exhibit No. 1)
5. During the period when the negotiations were taking place, at a meeting on 13 May 1996, CONTROLS had indicated that it was not authorized to do electrical work in Mediterraneo, including the installation of the control system in question. Although there were several firms that were qualified to do the installation and testing, none of them were located in Mediterraneo. Finally, SUPERB suggested that the installation and final testing should be done by Reliable Installation Co., a small firm from the country of Hanseatica. SUPERB stated that they had had prior experience with Reliable and had found them to be a good firm to work with. Although CONTROLS had had no prior business relations with Reliable, it knew that the firm had a good reputation. Therefore, it undertook negotiations with Reliable, and entered into a contract with it to do the installation and testing. (Respondent’s Exhibit No. 1) Once that contract had been concluded, the contract of sale between CONTROLS and SUPERB was concluded. Both contracts required that the installation and testing be completed on or before 16 September 1996.
6. The control system was delivered to the facilities of SUPERB on 20 August 1996 and the payment of the $400,000 called for by the contract was made on 22 August 1996. Reliable had estimated that it would take two weeks to complete the installation and testing, a period that conformed to CONTROLS’ experience. The team from Reliable was scheduled to arrive in Mediterraneo to commence installing the control system on Monday, 26 August 1996, with completion expected by Friday, 6 September 1996. On Sunday, 25 August 1996 the charter airplane in which the team from Reliable Installation Co. was flying to Mediterraneo crashed and every member of the team was killed. Reliable notified CONTROLS of the crash on 26 August 1996 and CONTROLS notified SUPERB by telephone on 27 August 1996. Reliable had stated to CONTROLS, and CONTROLS so informed SUPERB, that it could assemble a new team and assign it to the job the following week and that the installation and testing at SUPERB should be completed by the contract date of 16 September 1996. The contents of the telephone call from CONTROLS to SUPERB were confirmed in a fax later that day. (Claimant’s Exhibit No. 2)
7. On 29 August 1996 Reliable telephoned CONTROLS to inform it that there might be a delay of a few days in sending the installation team to SUPERB. Reliable informed CONTROLS that, except for those who had died in the plane crash, the only personnel qualified to install the type of system CONTROLS had sold to SUPERB were assigned to a large contract that was scheduled to be completed by 30 August 1996. The installation called for in that contract had been completed that day, 29 August 1996. When it was tested, unexpected problems had arisen. As soon as the source of the problems was found and fixed, the team was ready to leave directly for Mediterraneo.
8. During the next three weeks CONTROLS telephoned Reliable almost daily to inquire when it would commence the installation of the control system at SUPERB. Reliable continuously assured CONTROLS that the installation team was about to leave for Mediterraneo. CONTROLS continuously reminded Reliable of the contract date for completion, and the importance of meeting that date.
9. When CONTROLS received the fax from SUPERB on 13 September 1996 (Claimant’s Exhibit No. 3), CONTROLS sent Reliable a fax that, unless a firm date was given by which they would begin the installation at SUPERB, CONTROLS would have to turn to another firm. (Respondent’s Exhibit No. 2) Reliable replied on 16 September 1996 that it would certainly be able to give a firm date by the end of the week, i.e., 20 September 1996. (Respondent’s Exhibit No. 3)
10. Upon receipt of the fax from SUPERB on 18 September 1996 (Claimant’s Exhibit No. 4), CONTROLS immediately sent a fax to Reliable stating that if it did not send a new installation team to SUPERB with the next three weeks, CONTROLS would terminate the contract and seek a new firm to do the installation. (Respondent’s Exhibit No. 4) At this stage it was clear that the three week deadline mentioned in the SUPERB fax could be met only if Reliable would be able to send the installation team to Mediterraneo within the next week. Since Reliable had still not informed CONTROLS when the installation team would arrive in Mediterraneo, it remained doubtful whether the installation would be completed by 9 October 1996. Therefore, CONTROLS sent a fax to SUPERB on 19 September 1996 asking whether SUPERB would be satisfied by completion within the next six weeks, i.e., by 30 October 1996. (Claimant’s Exhibit No. 5) No reply was received until 9 October 1996 when CONTROLS received by fax a notice from SUPERB that the contract was avoided. The fax also demanded return of the $400,000 already paid to CONTROLS and stated that SUPERB would return the control system only upon return of the $400,000. (Claimant’s Exhibit No. 6)
11. On 10 October 1996 CONTROLS telephoned SUPERB to say that it had insisted to Reliable that the installation had to be completed prior to 30 October 1996, and that it had been promised by Reliable that the installation would completed by then. CONTROLS faxed a letter to SUPERB the same day to the same effect. (Claimant’s Exhibit No. 7) SUPERB replied that it was too late; the contract was avoided. SUPERB also stated that it was holding the control system as security for the return of the $400,000. (Claimant’s Exhibit No. 8)
12. During the negotiations that took place during the next four months CONTROLS insisted that SUPERB had not had justifiable grounds for the avoidance of the contract on 9 October 1996. This position was clearly stated in CONTROLS’ letter of 17 February 1997 in which it claimed the right to recover its damages from the advance payment. CONTROLS also demanded that the control system be returned to it promptly since the value of the control system diminished in value daily. (Respondent’s Exhibit No. 5) On 13 March 1997 SUPERB wrote CONTROLS that, if CONTROLS did not return the $400,000 advance payment within ten days, SUPERB would sell the control system in its possession and reimburse itself from the proceeds. (Claimant’s Exhibit No. 9) CONTROLS replied on 20 March 1997 basically reiterating the position it had taken in its letter of 17 February 1997 that SUPERB was the party that had breached the contract. In this letter it specifically offered to reimburse SUPERB the $400,000 less its damages of $70,000. CONTROLS also warned SUPERB that CONTROLS would hold SUPERB responsible for the consequences if it sold the control system. (Respondent’s Exhibit No. 6) SUPERB did not reply to the letter from CONTROLS and sold the control system for $250,000.

II. The Governing Law

13. CONTROLS acknowledges that the dispute with SUPERB should be settled by arbitration in accordance with clauses 22 through 24 of the contract between them dated 10 June 1996; that the arbitration is governed by the International Arbitration Rules of the American Arbitration Association, the UNCITRAL Model Law on International Commercial Arbitration and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards; and that the contract is subject to the United Nations Convention on Contracts for the International Sale of Goods (CISG).

III. The Legal Rights of Respondent against Claimant

14. The delay in installing the control system was caused by the airplane crash that killed the installation team from Reliance that was en route to Mediterraneo. Because of other contractual commitments, Reliance was not able to assign another installation team to the SUPERB contract in time to meet the contractual commitments in that contract. As a result CONTROLS is exempt under CISG Article 79 from the obligation to pay damages to SUPERB for the late installation.
15. SUPERB claims that it gave CONTROLS an additional period of reasonable time to install the control system and that it could avoid the contract because the control system was not installed within that period of time. CISG Articles 47(1) and 49(1)(b). Under the circumstances of the case the period of time was not reasonable and, therefore, the avoidance of the contract was void and amounted to a breach of the contract by SUPERB.
16. As a second reason why the attempted avoidance of the contract was void and amounted to a breach of contract by SUPERB, CONTROLS in its letter of 19 September 1996 requested SUPERB to make known whether it would be satisfied with an installation that would be completed by 30 October 1996. (Claimant’s Exhibit No. 5) SUPERB did not answer. As a result, under CISG Article 48(2) until 30 October 1996 SUPERB could not resort to any remedy which was inconsistent with performance by CONTROLS.
17. As a result of the breach of contract by SUPERB, CONTROLS has suffered damages equivalent to the loss of the profit it would have made on the contract. CISG Articles 45(1)(b) and 74. The profit would have amounted to $70,000.
18. The sale of the control system by SUPERB was not authorized by CISG Article 88. There was no delay on the part of CONTROLS in taking back the goods. On the contrary, by its letters of 13 February 1997 and 17 March 1997 CONTROLS insisted that the control system should be returned to it and that the control system should not be sold by SUPERB. Those letters merely restated the position that CONTROLS had taken consistently during the negotiations beginning in October 1996.

IV. Arbitration Agreement with Reliance Installation Co.

19. The claim by SUPERB against CONTROLS is based upon the late installation of the control system. Paragraph 4 of the contract of 10 June 1996 between SUPERB and CONTROLS provided that installation of the control system was to be done by Reliance Installation Co. In implementation of that provision CONTROLS entered into the contract with Reliable to do the installation. Therefore, the claim by SUPERB against CONTROLS implicates the obligations of Reliable under its contract with CONTROLS.
20. Paragraph 24 of the contract of 10 June 1996 provides that, "if … [SUPERB] shall make a claim against [CONTROLS] which, if found to be justified, would give rise to a claim by [CONTROLS] against one of its suppliers," the claim that CONTROLS would have against its supplier could be settled in the same arbitration as the claim of SUPERB against CONTROLS. The paragraph requires that the supplier agree to have the claim of CONTROLS against settled in the arbitration, that the supplier waive any right it may have to participate in the selection of the arbitral tribunal, and that the claims of CONTROLS against the supplier raise no new questions of law or fact from those to be decided in the arbitration between SUPERB and CONTROLS.
21. Paragraph 14 of the contract between CONTROLS and Reliable (RESPONDENT’S Exhibit No. 1) provides that "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." Paragraph 14 of the contract goes on to say "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."
22. In a letter dated 3 August 1998 Reliable has acknowledged that it is obligated under its contract to defend that portion of the claim of SUPERB against CONTROLS that is based on the failure of Reliable to install the control system as agreed. (Respondent’s Exhibit No. 7) Reliable has also waived any right it might otherwise have to participate in the creation of the arbitral tribunal.

MAY IT PLEASE THE TRIBUNAL

23. CONTROLS appoints Professor_________________________ as its arbitrator as provided in the arbitration agreement.
24. CONTROLS requests the tribunal:

• To decide that CONTROLS is exempt from any damages that SUPERB may have suffered as a result of the delayed installation of the control system;
• To decide that SUPERB did not have legal grounds on which to avoid the contract on 9 October 1996;
• To order SUPERB to pay the costs of the arbitration.

25. By way of counterclaim CONTROLS requests the tribunal:

• To decide that SUPERB breached the contract by claiming that it had avoided the contract on 9 October 1996;
• To find that CONTROLS 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;
• To decide that SUPERB 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;
• To find that CONTROLS suffered damages of $40,000 from the improper sale of the control system by SUPERB, and to order that these damages be setoff against the advance payment of $400,000.

JOINDER OF RELIANCE INSTALLATION CO. IN THE ARBITRATION

26. CONTROLS requests the tribunal:

• To order that Reliance Installation Co. 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 SUPERB and CONTROLS and paragraphs 14 and 15 of the contract dated 7 June 1996 between Reliable Installation Co. and CONTROLS.

CONTRACT

(The Exhibit sets forth the entire contract. Only the relevant excerpts are reproduced here.)

Whereas, Essential Controls, S.A., 26 Export Pl., Southside City, Equatoriana (hereafter CONTROLS) and Superb Paper, Plc., 123 Industrial Avenue, Highlands, Mediterraneo (hereafter SUPERB) have negotiated a contract in which CONTROLS expects to sell and SUPERB expects to purchase a computerized control system, and

Whereas, CONTROLS expects that it will undertake to install the control system in the facilities of SUPERB, and

Whereas, CONTROLS is not authorized to do electrical work in Mediterraneo, including the installation of the control system, and

Whereas Reliable Installation Co., 14 Ocean Avenue, Baltic City, Hanseatica, (hereafter RELIABLE) is experienced in the installation of control systems of the nature of the system to be sold to SUPERB, and

Whereas RELIABLE is licensed in Mediterraneo,

June 7, 1996

Dr. Hubert Schrumpf
14 Ocean Avenue
Baltic City
Hanseatica

Dear Dr. Schrumpf:

The situation in regard to the Superb Paper installation of our control system is becoming serious. It is hardly necessary to remind you that the contract date for the completion of the installation and testing is Monday. We have discussed this so many times already on the telephone.

Superb is becoming quite insistent. I enclose a fax that we received from them today. Under the circumstances, if you are not able to promptly give us a firm date when the installation team will begin the Superb installation, we will have to turn to another firm.

I anticipate your earliest response.

Sincerely,

Incl.

Faxed letter from Reliable Installation Co. to Respondent dated 16 September 1996

Mr. Thomas Oletti
Essential Controls, S.A.
26 Export Pl.
Southside City
Equatoriana

Dear Mr. Oletti:

I acknowledge receipt of your letter sent by telefax dated 13 September 1996 in regard to the installation of the control system at Superb Paper, Plc.

We have been working hard to complete the contract that is keeping the team for the Superb contract occupied. It appears that the source of the problem has been found and it should soon be fixed. At the latest by Friday I will give you a firm date when our team will arrive in Mediterraneo.

Let me express our appreciation of the opportunity to work with Essential Controls and our hope that you will be completely satisfied with your experience with us.

Sincerely,

Dr. Hubert Schrumpf
Reliable Installation Co.
14 Ocean Avenue
Baltic City
Hanseatica

Dear Dr. Schrumpf:

I refer to my letter of 13 September 1996, enclosing the letter of the same date to us from Superb Paper, Plc., and your letter of 16 September 1996, all of which were transmitted by telefax, and the letter of 18 September 1996 to us from Superb Paper, which is enclosed with this letter.

As you will see in the letter of today’s date from Superb, they are concerned that they have still not been informed when the installation will begin. Although they state that they expect the system to be fully installed and operational by 9 October, we believe that they will be satisfied if the installation has begun by that date.

However, if you have not begun the installation by 9 October, we will be forced to terminate our contract and seek a new firm to do the installation.

I regret this unpleasantness, since I know the difficulties that your firm has experienced during the past month. I can only hope that it will end well and that we will be able to benefit from your services in the future as well.

Sincerely,

Incl.

Mr. William Spiegel
Superb Paper, Plc
123 Industrial Avenue
Highlands, Mediterraneo

Dear Mr. Spiegel:

This letter is to formally state in writing the position that we have consistently insisted upon in the oral negotiations during the past four months.

First, and most important, Superb had no justifiable grounds to avoid the contract on 9 October 1996.

Second, as a result of the unjustified cancellation of the contract, we have suffered damages that we have a perfect right to recover from the advance payment.

Thirdly, we demand that you return to us the control system. It diminishes in value every day that you retain it.

I trust that it will not be necessary to invoke the arbitration clause in our contract to settle this matter.

Sincerely,

Mr. William Spiegel
Superb Paper, Plc
123 Industrial Avenue
Highlands, Mediterraneo

Dear Mr. Spiegel:

I acknowledge your letter of 13 March 1997.

I wish to reiterate the position that we clearly set out in our letter of 17 February 1997. Superb had no justifiable grounds to avoid the contract on 9 October 1996. Superb breached the contract by allegedly avoiding it.

We wish to make one last effort at settling this matter amicably. We will reimburse Superb the $400,000 payment, less our damages of $70,000, or a net of $330,000. In exchange Superb will return to Controls the control system.

You should be aware that in its present condition the control system can be sold for at least $290,000 prior to installation costs. If Superb sells the control system, as stated in your letter of 13 March 1997, and sells it for less than that amount, we will hold you responsible for the consequences.

Sincerely,

Faxed letter from Reliable Installation Co. to Respondent dated 3 August 1998

Mr. Thomas Oletti
Essential Controls, S.A.
26 Export Pl.
Southside City
Equatoriana

Dear Mr. Oletti:

I acknowledge your letter of 28 July 1998 and the enclosed copy of the NOTICE OF ARBITRATION AND STATEMENT OF CLAIM dated 6 July 1998 filed by Superb Paper, Plc. against Essential Controls, S.A.

We acknowledge that, if the question whether our failure to install the control system by 16 September 1996, or any other relevant date, should become an issue in the arbitration between Superb Paper, Plc. and Essential Controls, S.A., article 14 of the contract dated June 7, 1996 would require us to defend the action on your behalf and we would be bound by the result in respect of any claim Essential Controls, S.A. might have against Reliable Installation Co.

We also acknowledge that we would waive any right we might otherwise have to participate in the creation of the arbitral tribunal.

Sincerely,

AMERICAN ARBITRATION ASSOCIATION

Case No. Moot 6

Superb Paper, Plc
Claimant

v.

Essential Controls, S.A.
Respondent

MAY IT PLEASE THE TRIBUNAL

1. The Claimant, Superb Paper, Plc, denies that it breached the contract of 10 June 1996 with Essential Controls, S.A. by avoiding the contract on 9 October 1996. The Respondent admits in paragraph 6 of the Statement of Defense that it estimated that it would take two weeks to complete the installation and testing. In its letter of 18 September 1996 (Claimant’s Exhibit No. 4) Claimant gave Respondent until 9 October 1996, i.e., three weeks, to complete the job. That was certainly a reasonable amount of time under the circumstances.
2. The Claimant denies that it did not have legal authority to sell the control system on 4 April 1997. The contract had been avoided on 9 October 1996. Claimant and Respondent had a duty to make restitution concurrently. Respondent refused to do so for six moths, a period that constitutes unreasonable delay. Where there has been unreasonable delay in taking possession of the goods, the party in possession has the right to sell them by any appropriate means.
3. The means used by the Claimant to sell the control system were appropriate. Claimant does not dispute that Respondent, as a firm in the business of selling and installing control systems (even though it was not authorized to install the system in Mediterraneo) may have been able to sell them for a better price than was Claimant. That is a factor that Respondent should have taken into consideration when it refused to made concurrent restitution. Claimant used the services of a broker who has experience in the sale of similar equipment in making the sale.
4. Claimant resists the request of the Respondent to join Reliable Installation Co. in this arbitration. The request is not in accord with the arbitration agreement between Claimant and Respondent in the contract of 10 June 1996.
5. CLAIMANT requests the Tribunal:

• To dismiss the counterclaim of the Respondent;
• To deny the request to join Reliable Installation Co. in the arbitration.

AMERICAN ARBITRATION ASSOCIATION

Case No. Moot 6

Superb Paper, Plc
Claimant

v.

Essential Controls, S.A.
Respondent

PROCEDURAL ORDER NO. 1

This communication summarizes the results of the conference telephone call held yesterday, 1 October 1998, between counsel for Superb Paper, Plc, Essential Controls, S.A. and myself. The purpose of the telephone call was to decide on the procedure that would be followed in this arbitration.

I wish to begin by expressing my appreciation for the co-operation of counsel from both sides. We were able to settle a number of procedural questions with a minimum of controversy. This successful commencement of the arbitration will greatly assist the tribunal in fulfilling the mandate you have given us.

The arbitration will be conducted in two phases. These two phases depend in part on the extent to which the facts are already agreed or can easily be determined.

First phase of the arbitration: It appears that there are few open factual questions about the actions or lack of action of Superb or Controls throughout the period in question. To the extent that counsel find that there are remaining factual questions, there will be a limited period for determining them. The questions should be sent to the administrator of the arbitration, Professor Eric Bergsten, by October 23, 1998. The answers to the questions submitted will be distributed by Procedural Order No. 2 on or before November 2, 1998.

On the basis of the facts set out in the documents already submitted to the tribunal and those found in the limited period for further factual determination, the tribunal will receive arguments as to

• whether Controls qualifies under CISG Article 79(1) and (2)(a) for exemption from paying damages as a result of the delayed installation of the control system;
• whether Superb was authorized to avoid the contract on 9 October 1996 under CISG Article 49(1)(b); and
• whether Superb was authorized by CISG Article 88 to sell the control system on 4 April 1997 and whether the sale was by an appropriate means.

Counsel have agreed that there would be no need to join Reliable Installation Co. in this arbitration if Controls does not qualify for exemption from damages under CISG Article 79(1) and (2)(a). Counsel have also agreed that the issue arises if Controls meets the criteria for exemption in those two provisions, since there would then be the question as to whether Reliable Installation Co. would be so exempt under CISG Article 79(2)(b). Counsel have agreed that making any determination about the conduct of Reliable would depend upon factual issues that are not yet clear, and that cannot be determined in the limited fact-finding procedures of the first phase of the arbitration. Therefore, the tribunal will hear arguments in the first phase of the arbitration as to

• whether, if Controls qualifies under CISG Article 79(1) and (2)(a) for exemption from paying damages as a result of the delayed installation of the control system, Reliable Installation Co. should be joined to this arbitration as requested by Controls.

Schedule: Superb will submit its memorandum by 7 December 1998. Controls will submit its memorandum by 14 February1999. Oral argument will be scheduled to be held beginning on Saturday, 27 March 1999.

Second phase of the arbitration: Following the oral argument, the tribunal will render its conclusions on the questions raised in the first phase of the arbitration. Depending on its conclusions, further proceedings will take place. Those proceedings may include the question whether Reliable Installation Co. would be exempt from liability for damages under CISG Article 79(2)(b) and in regard to its contractual relationship with Controls. They may also include determination of the amount of damages suffered by the aggrieved party. Counsel are agreed that those issues will not be raised in the first phase of the arbitration.