The respondent, CONTROLS has prepared this memorandum in order to defend itself from the issues raised by SUPERB which pursuant to Procedural Order No.1 of the International Arbitration Center of Damubia. In response to those issues, CONTROLS argues that:
1. CONTROLS is not hold liable for paying damages as a result of the delayed installation of the control system, from which it should be qualified for exemption.
2. SUPERB is not authorized to avoid the contract with CONTROLS on 9 October 1996 due to the non-delivering within the additional period.
3. SUPERB is not authorized to sell the control system with a prior notice as of 4 April 1997 due to the unreasonable delay of the CONTROLS and the sale was not by an appropriate means.
4. RELIABLE should be joined as a defendant in this arbitration in accordance with the terms of paragraph 24 of the contract dated to June 1996 between SUPERB and CONTROLS and paragraph 14 and 15 of the contract between RELIABLE and CONTROLS.
Although SUPERB claims CONTROLS to pay damages as the result of delayed installation of the control system, CONTROLS denied that CONTROLS was not the one to blame for this failure. Even if there was a failure to perform of any obligations under the contract, CONTROLS strongly insists their situations during that period, which SUPERB emphasizes the existence of the failure by CONTROLS, is under the circumstance of Article 79 CISG and CONTROLS should be validated to exercise its right to be exempted from paying damages from the following reasons explained below.
As it repeatedly argues during the negotiations of four months from 10 October 1996 and also in here, CONTROLS insists that the contract date could not be fixed to 9 October 1996 and CONTROLS was not obliged to perform by that date. If SUPERB sets its opinion forth that the contract date was modified, there should be given the argument of the parties as Article 29(1) CISG prescribes SUPERB wrote CONTROLS on 18 September 1996 as, "We expect the system to be fully installed and operational by 9 October 1996 at the latest" and CONTROLS replied with explaining its situation and asking SUPERB as, "I would like to know whether you would be satisfied with an installation that would be completed by October 30, 1996." This letter is not mentioning that CONTROLS has made the argument to the additional period by SUPERB, but CONTROL'S offer to take an additional period of time to complete the job.
In this memorandum we argued it was granted the right to perform installation by 30 October 1996 under the Article 48(2) CISG. However CONTROLS requested SUPERB to make known whether SUPERB would satisfied with the additional period of time by 30 October 1996, SUPERB did not make any comply until it unilaterally avoided the contract on 9 October. This fact applies to what is subscribed in Article 48(2) and therefore CONTROLS has a right to perform installation within the time of 30 October 1996 indicated in its request written in the letter of 19 September 1996. Thus, 9 October 1996 is no more legal appointed date and CONTROLS should not be claimed of delayed installation until 30 October 1996 and of course should not be demanded to pay damages as a result of delayed installation.
Even though there was a failure to be claimed as delayed installation and to be demanded to pay for damages, CONTROLS is qualified under Article 79(1) CISG to be exempt from liability of paying this. Pursuant to the clause, the 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 its control and that he could not reasonably be exempted 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. In order to be applied to this clause, the party should prove that it have been faced with the impediment which disturbed to supply its performance. The impediment defined in Article 79(1) needs to be composed of three situations, such as;
Refer to these situations, CONTROLS insists there was the two impediment according to Article 79(1) CISG one is airplane crash and another is the unexpected accident occurred by RELIABLE. From these, CONTROLS must be exempt from the payment demanded by SUPERB as a result of delayed installation.
2-B.(1)- The airplane crash is an impediment.
RELIABLE, at first, was scheduled to arrive in Mediterraneo to commence installing the control system on 26 August 1996 and complete its work by 6 September 1996. Unfortunately for RELIABLE and CONTROLS, there was an accident of airplane crash on 25 August 1996 and all team members from RELIABLE was killed. The sufferings of RELIABLE and CONTROLS wholly originated from this unlucky accident. If there was no airplane crash, the installation team from RELIABLE would finished its job by 9 September as it had planned for, and the contract between SUPERB and CONTROLS would be completed with no problem. Thus, CONTROLS argues that airplane accident defines as an impediment which disturbed RELIABLE and of course CONTROLS to make their performance of the contract, and also argues this impediment corresponds to that of Article 79(1) to exempt CONTROLS from paying damages of SUPERB resulted from the late installation. As it stated above, the impediment must meets three conditions provided in the clause. The airplane crash, as the impediment, fulfills these conditions.
2B-(1)-a. Airplane crash is beyond one's control.
Naturally, the airplane crash is unable to control. It is nothing but an accident. Accidents would be generally defined as an event which occurred unexpectedly and which produce a difficulty to make an ordinal behavior. This also refers to the definition of impediments. Since the accident occurs suddenly, there is no way to govern this. Therefore, airplane crash as an accidents or impediment is certainly beyond the control.
2B-(1)-b. Airplane crash is unable to be foreseen.
Defining as an accident, impediment of the airplane crash on 25 August 1996 naturally could not be taken into account at the time of conclusion of the contract. It is hardly expected to think that all of the members of the team in the contract would be killed by such accident. The airplane which RELIABLE used for its team to travel was owned by a well-respected company that charters airplanes and was being flown by a pilot of the charter company . Therefore, there is no wonder that CONTROLS and RELIABLE to relied on its safety and did not anticipate the crash.
2B-(1)-c. CONTROLS had done all things to overcome.
CONTROLS, as to overcome this difficulty, had done all things it could do during that time, however the impediment could not easily be avoided or overcome. It might be needless to say that the occurrence of airplane crash was impossible to avoid or overcome. After it was notified the crash by RELIABLE on 26 August 1996, CONTROLS neatly informed this to SUPERB on 29 August 1996, telling exactly what RELIABLE told to CONTROLS. As it stated in this letter, "I will keep you informed if there are any further development." CONTROLS tried to inform SUPERB as it was informed by RELIABLE. However SUPERB asked the firm date for the commence of installation, CONTROLS had not received such a developed information from RELIABLE and was just assured of RELIABLE's work. Thus, to answer SUPERB's inquiry, the only CONTROLS could do was to assure SUPERB as it was assured by RELIABLE.
Even if SUPERB claims that CONTROLS was capable to turn into other firm to complete installation, CONTROLS argues that it was not the contents of the contract and therefore CONTROLS has not duty or granted the right to do so. Before CONTROLS and SUPERB entered into the contract, it was SUPERB who suggested to use RELIABLE for the installation. As long as suggested so, CONTROLS should not be responsible of choosing RELIABLE for the installation firm in the contract. Moreover, the contract between CONTROLS and SUPERB on 10 June 1996 clearly states that the control system is to be installed by RELIABLE. Having an agreement with the contract, SUPERB should understand that CONTROLS is obligated to use RELIABLE for install the control system and has no right to use any other firms in Mediterraneo. According to this, CONTROLS need not to be turned into the contract with other firm before SUPERB suggested doing so by its letter on 18 September 1996.
After it received the letter from SUPERB which informed its exemption of additional period of 9 October 1996, CONTROLS informed RELIABLE to start installation by that date otherwise it would terminate the contract by the letter of 18 September. CONTROLS asked SUPERB whether SUPERB would be satisfied by 30 October 1996 for the installation completed. Moreover CONTROLS informed that they are ready to make a suitable adjustment on the purchase price to compensate. From these, CONTROLS should be said it had done all its deeds to overcome and avoid the damages of SUPERB as the consequence of the crash.
2-B.(2)- The failure of CONTROLS was a result of RELIABLE's failure.
Although on 27 August 1996 RELIABLE had stated to CONTROLS, so CONTROLS informed SUPERB that it could assemble a new team to complete the job by the deadline, the unexpected problems arisen to the other team of RELIABLE after this notice. This problems prevented RELIABLE from setting out for SUPERB's faculty and, so to speak, it was a second impediment which applies to Article 79(1) or 79(2)(a) to exempt CONTROLS from paying damages claimed by SUPERB. The clause of Article 79(2)(a) corresponds to the circumstance of which 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, and that party is exempt from liability only if it is exempt under Article 79(1). Since CONTROL'S failure to perform was induced by the failure of RELIABLE, it may define as an impediment. CONTROLS insists that this impediment falls under the Article 79(1) and also 79(2)(a) CISG for the exemption from paying damages.
2B-(2)-a. The problem was beyond CONTROL'S control.
The problem occurred in the course of the contract with RELIABLE and the unknown other company on 29 August 1996. It was RELIABLE's personal contract and the problems belonged to RELIABLE and the other company, so CONTROLS was irrelevant to this. Taking no part in the contract, CONTROLS had no liability of those problems. Therefore, the all CONTROLS could do was to wait to be informed when RELIABLE will finish to fix the source of the problems and leave for Mediterraneo. Under this circumstance without proper details of the problems, CONTROLS was definitely out of its control to solve this.
2B-(2)-b. The problem was unable to consider at the time of the contract.
With its experience, CONTROLS may foreseen the potential problems in the case RELIABLE install the control system delivered by CONTROLS to SUPERB's faculty, but the actual fact of the problems was occurred between the contract of RELIABLE and the other company. Even though the problems with the installation are common occurrence, for every firm that does installation and CONTROLS does such business; it was impossible to predict CONTROLS would get involved in the position as this case. Therefore, CONTROLS should not be claimed for the problems out of its contract. Since SUPERB argues that CONTROLS should have predicted such problems before recommitting itself on the letter of 27 August 1996, CONTROLS counters this that it was impossible for CONTROLS to have foreseen on 26 August that the only personnel qualified to install the type of control system CONTROLS sold to SUPERB were assigned to the other contract, and also it was impossible to predict that RELIABLE assembled the new teams for SUPERB from that personnel. Moreover, it was unpredictable for CONTROLS who did not know about RELIABLE's contract with others that those personnel fall into the unexpected problems which detains them to leave for Mediterraneo. Furthermore, CONTROLS had had no prior business relation with RELIABLE to have known that RELIABLE was in the other contract while holding the contract with CONTROLS, and it was also common in that business not disclosing all their contract. Concluding above, it was unreasonable for CONTROLS to be expected to predict on 27 August 1996, just a day after it was informed of the crash, that RELIABLE assemble the new team from the personnel on other contract, and the personnel fall into the problems.
2B-(2)-c. CONTROLS could not overcome the consequences.
CONTROLS had the knowledge of the installation companies licensed in Mediterraneo, although CONTROLS was not in the position to turn into another firm without permissions of SUPERB and RELIABLE. It was true that CONTROLS undertook the installation and testing of the control system, but CONTROLS argues it was under the agreement with CONTROLS and SUPERB to have control system installed by RELIABLE, and this is clearly written in the contract. Before CONTROLS entered into the contract with RELIABLE, it was SUPERB who suggested RELIABLE for the installation and final testing. CONTROLS was also stated that SUPERB had had no prior experience with RELIABLE. Understanding these facts, and the agreement made by SUPERB to use RELIABLE on the contract, CONTROLS has obligation to make RELIABLE to do installation on 27 August 1996, not any other firms.
Even though SUPERB insists that it had granted CONTROLS extra three weeks and asked to look for other firm by its letter on 18 September 1996, CONTROLS argues the additional period was not permitted by CONTROLS and CONTROLS under its legal position of the contract was not able to turn to the other firms on 18 September 1996. While CONTROLS was in the contract with SUPERB, it was also in the contract with RELIABLE. If CONTROLS turns into the other firm, it means CONTROLS should terminate the contract with RELIABLE. Since it was not clear whether RELIABLE could complete its job, CONTROLS could not terminate the contract with RELIABLE on its own convenience. CONTROLS claims that it was SUPERB who breached the contract without the permission of CONTROLS who finally had given a firm date available for RELIABLE to arrive in SUPERB's facility. By its letter on 19 September, CONTROLS asked SUPERB for another additional period to overcome its difficulty and also informed to make an adjustment on the price to compensate SUPERB's damages , however SUPERB did not answer to this.
Between the contracts with the two companies, CONTROLS had done all it could do to overcome or avoid the circumstances of the problems happened to the three, but the problems was more than CONTROLS was able to do. Thus, CONTROLS could not reasonably be expected to have avoided or overcome the consequences caused by the problems in RELIABLE's other contract.
According to the above, CONTROLS corresponds to the Article 79(1) and (2)(a) CISG, in order for CONTROLS to use Article 79(2) CISG to be exempt from its failure cause by the failure of RELIABLE, CONTROLS needs to show that RELIABLE would also be exempt by Article 79(2)(b). To dispute this, CONTROL'S request this tribunal to make RELIABLE's join in this arbitration to make the factual issues that are not yet clear. Even if SUPERB argues that RELIABLE is not the third person and it is not apply to 79(2)(a), CONTROLS will insist that RELIABLE and itself is the party concerned to the contract with SUPERB. In other word, CONTROLS and RELIABLE should be counted as one party who made the contract with SUPERB. Thus, the unexpected accident of RELIABLE is the accident occurred to CONTROL and this will be talked in Article 79(1)
It is true the control system was not installed by 9 October 1996 completely but CONTROLS argues that it is impossible or invalid for SUPERB to avoid the contract on 9 October 1996. There are four reasons for these CONTROL'S argument. First, it is possible for CONTROLS to remedy its failure to install the control system. Second, SUPERB could not declare to avoid the contract on 9 October 1996. Third, SUPERB has no good reasons to avoid the contract. And the failure of the delivery is not appropriate reason to make avoidance. From these SUPERB can not be said to avoid the contract.
CONTROLS argue that this failure is remediable by new installation team of RELIABLE. These reasons are following.
According to the Diplomatic negotiations in Vienna CISG, Article 49(1)(a) have two circumstances of legislation . The first circumstance of this article is that a failure of the contract not usually become the fundamental breach of the contract if the seller requests the buyer to make known whether he will or will not accept the seller to cure its failure. Second circumstance of this article is the restriction of avoidance the contract and then secure the trading . Because of these circumstances of legislation of CISG Article 49(1)(a), if it is possible to remedy and if the notice by the seller, which tells that he will perform within a specific period of time, is available, the failure will not become the fundamental breach of the contract. Therefore the one-sided immediate avoidance of the contract is not adequate.
SUPERB said CONTROLS on 18 September that "We expect the system to be fully installed and operational by 9 October 1996 at the latest". It means that SUPERB had approved that the failure of the contract is remediable. To reply for this on 19 September 1996 CONTROLS said to SUPERB, "I would like to know whether you would be satisfied with an new installation team of RELIABLE that would be completed by 30 October, 1996" . It means CONTROLS expresses clearly that CONTROLS is ready to remedy the failure of the contract by new installation team of RELIABLE. In the other words, this communication can be assumed as both CONTROLS and SUPERB made agreement that they can remedy the failure. Thus, the failure is not enough to be the fundamental breach of the contract.
If SUPERB says it fixed the additional period of time under Article 47(1), CONTROLS insists S applies to Article 47(2) and can not avoid the contract on 9 October. In Article 47(2) says “ Unless the buyer has received notice from the seller that he will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract.” CONTROLS, in its letter of 19 September, offered 30 October for the additional period of time, but not assert of not performing installation. Since RELIABLE was not giving the specific date of installing, CONTROLS just wanted to make more secure deadline for RELIABLE and CONTROLS to complete their obligation, but not intended to giving up its performance. Therefore it was not the notice that CONTROLS will not perform its obligation of installation and SUPERB can not resort to any remedy during that period, according to the clause of Article 47(2). 9 October is still in the period which SUPERB suggested by itself, so the situation applies to Article 47(2) and also not apply to the Article 49(2)(b)?. Therefore SUPERB may not resort to avoid the contract.
Even though SUPERB claims 9 October as an additional period of time, CONTROLS argues it was not fixed with the agreement of CONTROLS. CONTROLS insists CONTROLS also set the additional period of time by Article 48. On 19 September CONTROLS gives a notice which is an offer to make the additional period of time and it is based on Article 48 CISG.
The notice by the seller that he will perform within a specific period of time is assumed to include a request that informs the buyer to make his decision whether he will accept or not. This applies to Article 48(3).
To make CONTROLS granted the right under the Article
48, we should first mention about the purpose of Article 48. Article
48 is to limit as possibly the buyer’s right to avoid the contract, by
using Article 49, and to keep the contract safe from illegal avoidance.
Therefore, Article 48 CISG gives seller the right to make the additional
period of time to cure its failure and so CONTROLS has the right to make
the additional period of time.
Under the Article 48(2), the seller can perform its obligation if the buyer dose not comply with its request. After 19 September 1996, when CONTROLS give its request to fix the date to 30 October 1996, SUPERB did not make any comply neither it accept nor reject. To keep the safety of contract, Article 7 intents the party to act in good faith, CONTROLS argues that according to this good faith, SUPERB should have given same reaction to CONTROL'S request on 19 September1996.
Without of SUPERB’s reply, the new deadline to perform the installation remains uncertain one. Thus SUPERB can not make such an uncertain deadline as a reason to avoid the contract.
There are two ways to fail the deliver of the goods. One is a time factor, and the another is the material factor. The time factor should be solved by the money to compensate damages. Therefore the time factor will not be a good reason to avoid the contract. In the other hand, the material factor can be a reason to avoid the contract unless there left no way of remedy. If the failure is remediable, it will not become a good reason to avoid the contract. In this case, the failure to install the goods is remediable by new installation team of RELIABLE. Therefore, SUPERB could not avoid the contract. In short, SUPERB can not avoid the contract nether by the material factor nor by the time factor as the result of CONTROL'S failure.
On 4 April 1997, SUPERB sold the control system, even though CONTROLS had been insisted that SUPERB had not had justifiable grounds for the avoidance of the contract on 9 October 1996. Moreover, by its letter of 13 March 1997 CONTROLS insisted that the control system should be returned to it and that the control system should not be sold by SUPERB. SUPERB states it sells the control system under the Article 88 CISG which says, "A party who is bound to preserve the goods in accordance with the Article 85 or 86 may sell them by any appropriate means if there has been 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, provided that reasonable notice of the intention to sell has been given to the party." However SUPERB insists it applies to this article, CONTROLS argues that SUPERB is not entitled to this for selling the control system. Before it argue about Article 88(1), the party should be granted the right of Article 81 and 86(1) but it is not. In addition, SUPERB does not fulfill the components of Article 88(1).
Since the period of time made by SUPERB is not reasonable under the circumstances of the case to be applied to the Article 47 (1), "an additional period of time of reasonable length for performance by the seller of his obligations." and since SUPERB didn't answer to CONTROLS when CONTROLS requested SUPERB to make known whether it would be satisfied with an installation that would be completed by 30 October 1996 , SUPERB could not resort to any remedy which was inconsistent with the performance by CONTROLS under the Article 48(2) CISG as it says, "If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in his request. The buyer may not, during that period of time, resort to any remedy which is inconsistent with performance by the seller."
The additional period of time is not fixed to 30 October 1996 and SUPERB can not avoid the contract on that date. Therefore, the avoidance of the contract was void and CONTROLS was not failed to perform its obligation yet.
To discuss about the Article 88, the party should be authorized under the Article 81. It says, "Avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due. " It is clear that Article 81 applies only to the party who avoided the contract. SUPERB, as stated the above, can not avoid the contract, so it can not claim the restitution of $400,000 to CONTROLS by Article 81(1)(2).
As stated in Article 88(1), it is necessary for the party to be applied to Article 85 or 86 to exercise the right to sell goods. CONTROLS delivered the control system to SUPERB's facility on 22 August 1996 and this situation seems like that of Article 86(1) prescribes as, " 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 circumstances. He is entitled to retain them until he has been reimbursed his reasonable expenses by the seller." According to this clause, SUPERB who has received the control system can be thought as the buyer entitled to this, however CONTROLS argues that this clause is not appropriate for SUPERB to use as long as it can not avoid the contract on 9 October 1996.
4-B.(1)- SUPERB can not exercise the right to reject the control system.
CONTROLS insists 9 October is not legal additional period of time. Under the Article 48(2), 30 October is the very date which should be the fixed period of time in the contract because of no compliance made by SUPERB to answer the CONTROL'S request on the letter of 19 September 1996. Therefore, CONTROLS does not fail to perform and there should be no reason for SUPERB to reject the control system as saying that it is not installed.
4-B.(2)- SUPERB has no right to retain the goods.
CONTROLS argues it is illegal for SUPERB to hold the control system. Since the avoidance of the contract by SUPERB is void, there should be no turn of Article 81(1)(2) in this case and no effect of restitution. In short, there would have been left only the obligation to install the control system by 30 October unless SUPERB did not breach the contract on 9 October.
CONTROLS claims SUPERB as it had been holding the control system illegally from 9 October. CONTROLS insists it was SUPERB who first failed to perform its obligation by breaching the contract as it entered into the new contract with Bridget Controls GMBH. From this, SUPERB has the obligation to pay damages to CONTROLS as a result of its dishonest act. Therefore there is no right under the contract or this Convention to reject the goods for SUPERB and SUPERB can not take the steps to preserve the control system as stated in Article 86(1). In another word, there is no legal reason for SUPERB to retain the control system, but responsibility of breaching the contract by unreasonable avoidance.
It is clear that there needs the fact of unreasonable delay by the other party in taking back the goods and paying the price for using the Article 88(1) to verify one's right to sell the goods. SUPERB claims as CONTROLS delayed to take back the advance payment of $400,000,however, CONTROLS argues that this fact is occurred because of SUPERB's no reaction to the letter of 20 March 1997 made by CONTROLS. In that letter, CONTROLS wrote, "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." CONTROLS had showed some kinds of its effort to reimburse the payment in here. From the Article 81(2), the restitution, as which taken here, must do so concurrently. In spite of this, SUPERB did not return the control system and even not answer to CONTROL'S effort. To make the restitution concurrently, CONTROLS has the right to retain the advance payment of $400,000. CONTROLS insists that CONTROLS did not returned the advanced payment because SUPERB did not return the control system or show its attempt to do so. CONTROLS also confirmed SUPERB that the value of the control system diminishes every day and demanded the return of control system by sending the letter on 17 February 1997. SUPERB must have been aware of this and understood that there left some possibility to end the negotiation peacefully when he returns the control system, however SUPERB did not show any his reaction. There had been left several days for SUPERB to reply CONTROL'S letter on 20 March 1997 before 24 March which SUPERB insisted as the dead line. It could be even after 24 March for SUPERB to make some reply to CONTROLS. CONTROLS itself was not available to one to get into the action by that time. It was SUPERB's turn to show the effort or response, but it did not.
According to the above, CONTROLS assert that if SUPERB insists of "unreasonable delay" by CONTROLS, it was occurred because of SUPERB's failure to the CONTROL' S effort. Therefore, CONTROLS should not be claimed by SUPERB as it was unreasonable, and under this ground, SUPERB should not granted the right of the Article 88(1) to sell the control system.
The party who is going to sell the goods under the Article 88(1) must give the reasonable notice of the intention to sell to the other party. SUPERB gave CONTROLS the notice on 13 March 1997. CONTROLS understand that the ten days for the deadline seems reasonable. To define the notice, it should be given to the other party to react speedily and remedy its fault. Receiving the notice, on 13 March CONTROLS replied by the letter which reacts to SUPERB's claim. Moreover, the content of the letter contains the remedy of this case. This means CONTROLS has already given some reaction to the notice from SUPERB to remedy this unpleasantness.
To observe the good faith in international trade, SUPERB should be expected to give another notice to reply CONTROL'S letter if SUPERB intents to sell the control system even though CONTROLS proposed as what stated in the letter. There is no notice from SUPERB after CONTROL'S letter in fact, and from here CONTROLS argues that SUPERB does not give the reasonable notice which apply to the Article 88(1) CISG. Thus, SUPERB is not authorized to sell the control system on 4 April 1997.
CONTROLS informed SUPERB that the control system can be sold for at least $290,000 prior to the installation costs in its present condition by its letter. The price of $290,000 was estimated which based on the current list price and also was taken into consideration that the list price included installation, that control system was now located in Mediterraneo rather than Equatoriana, and that the control system had taken on an element of being rejected or second-hand goods. CONTROLS was able to sell the control system at least $290,000. Even though SUPERB was informed of this, SUPERB used the services of a broker and then sold the system by the price of $250,000. SUPERB was given an opportunity to sell higher price than it had sold, but SUPERB itself renounced it. The price of $250,000 realized in the sale of the control system on 4 April 1998 may be a fair price for a system sold by a broker, however CONTROLS argues that SUPERB is the point to be claimed. Thus, to sell the control system at $250,000 by the broker hired by SUPERB is not appropriate means.
According to the above, it is due to SUPERB that the price of the control system become $250,000. As it proclaimed on the letter of CONTROLS on 20 March, CONTROLS is not responsible for the consequences of this sale. Thus, SUPERB's claim for CONTROLS to pay $153,000 for the difference of its $247,000 profit can not be imposed to CONTROLS.
Moreover, SUPERB could have to take back at least $330,000 if it had agreed to meet the negotiation by the letter from CONTROLS on 20 March, so SUPERB is not proper to have the qualification of demanding CONTROLS to pay $153,000.
This arbitration commenced when SUPERB gave the written notice of arbitration to the administrator and to CONTROLS on 6 June 1998. From here, CONTROLS stands in the position of "Respondent" in this arbitration. In short, CONTROLS defends itself as "Respondent" from the claims of SUPERB. According to the contract between SUPERB and CONTROLS on 10 June 1996, any controversy or claim arising out of or relating to this contract should be determined by this arbitration in accordance with the International Arbitration Rules of American Arbitration Association. CONTROLS, in order to defend itself, should have the burden or right of proving the facts relied on support.
CONTROLS strongly insists that it is necessary RELIABLE to join in the arbitration for CONTROLS to fulfill its burden to prove the facts, and to support CONTROLS. Even if CONTROLS is exempted from the delayed payment by Article 79(1) and (2)(a) CISG, RELIABLE should be joined in the arbitration from the reasons below.
On 7 June 1996, CONTROLS and RELIABLE entered into the contract by which RELIABLE install the control system in the facilities of SUPERB. On 10 June 1996, SUPERB and CONTROLS entered into a contract which CONTROLS sell and install in the facilities of SUPERB. Since they were concluded in the different dates, these should be two different contracts. Although it is clear that RELIABLE takes part in the contract of SUPERB and CONTROLS, there are no direct contracts between SUPERB and RELIABLE in fact.
According to the contracts between CONTROLS and RELIABLE, RELIABLE has his obligation to install the control system to SUPERB. For CONTROLS, to complete the contract with SUPERB, there should be the delivery of the goods conformed to the contract which include the installation. This means the contract between CONTROLS and RELIABLE which formed to make installation must be performed completely at first. In this case, it should take two steps to complete all things. First, CONTROLS delivers the control system. Second, RELIABLE install the system and complete the contract between CONTROLS and RELIABLE and indeed the contract of CONTROLS and SUPERB would be completed. The failure of CONTROLS occurred because RELIABLE failed to complete its obligation in the contract between RELIABLE and CONTROLS, so RELIABLE has responsibility for failure to perform. In order to search for that responsibility, RELIABLE must participate in this arbitration.
We already mentioned that there are two contracts, between CONTROLS and RELIABLE on June 7 and between CONTROLS and SUPERB on June 10, in this case. It is clear that there is no direct contract between SUPERB and RELIABLE since there is no factual evidence to prove the existence of the contract concluded between SUPERB and RELIABLE. In short, SUPERB can not pursue RELIABLE's responsibility itself. The contract required the "goods" which include the delivery of the control system and complete installation by RELIABLE to be comforted the control system. This is referred by the Certification No.22 . Although if CONTROLS is exempted from its responsibility under Article 79(1) and (2)(a) CISG, this responsibility corresponds to the payment of damages for the delay in delivery the control system. In other word, CONTROLS, in here, is exempted to pay damages of $50,000, the balance of the contract between SUPERB and GMBH.
Although CONTROLS is exempted, it remains doubtful of SUPERB would insist that it had avoided the contract under 49(1)(b) as CONTROLS failed to deliver the goods which include the installation. To defend itself from this, CONTROLS argues that this failure to deliver the goods occurred because RELIABLE failed to perform the installation as assumption, and these should discuss whether the additional period proposed by SUPERB is reasonable or not. Therefore RELIABLE should be discussed with these whether it has obligation or not and should join to this arbitration.
In the contract of 7 and 10 June of 1996, these states that the arbitration accords with the International Arbitration Rules of the American Arbitration Association, (from here AAA), and there is the clause about "experts" in its Article 22(1) AAA. The issue which takes in this arbitration is about the position of the obligation of installation. The "Experts", in here, would be defined as a one who has skills in a subject or circumstances. CONTROLS emphasizes the expert of the skill such as installation at this contract is RELIABLE.
The Article 22(1) AAA says, "The tribunal may appoint one or more independent experts to report to it, in writing, on specific issues designated by the tribunal and communicated to the parties." As its occupation, RELIABLE in this contract corresponds to the expert. To prove the origin and it is irresponsible about the failure of installation, it is necessary of CONTROLS that RELIABLE, who has special knowledge and technical skills, supports from the SUPERB's claim. RELIABLE firstly should verify the facts that it is technically infeasible to complete the installation by 9 October 1996. In short, to prove that there is justifiable ground to result uninstallation as this case. Secondly, it is certain for RELIABLE to prove for defending CONTROLS that problems arisen on 29 August 1996 toward RELIABLE is serious and justifiable enough to make installation team overdue to leave for SUPERB's facility.
From the reasons above, RELIABLE should defend CONTROLS by its occupational position in this case, and CONTROLS demands the tribunal to make RELIABLE participates in this arbitration.
Furthermore, Article 22-4 AAA says, "At the request of any party, the tribunal shall give the parties an opportunity to question the expert at a hearing. At this hearing, parties may present expert witnesses to testify on the points at issue." and CONTROLS argues that RELIABLE as "experts" has an opportunity to make a trial in the arbitration.
Since from the above, RELIABLE is needed to settle the arbitration as the expert in AAA and should participate in the arbitration to defend CONTROLS as stated in this content.
The contract states, "if SUPERB brings a claim against CONTROLS which is in the respect of the installation or testing of the control system, RELIABLE agrees to defend CONTROLS and be liable to CONTROLS to the same degree and in the same amount as CONTROLS was found liable to SUPERB.”
The agreement of RELIABLE to defend CONTROLS from the claim raised by SUPERB must be considered that RELIABLE had indicated its will to join the arbitration.
In this contract, there is also a clause which says, "if the claim of SUPERB is asserted against CONTROLS in this arbitration, RELIABLE agrees to waive any right it might otherwise have to participate in the creation of the arbitral tribunal."23, but in fact, RELIABLE does not really waive any right to participate in tribunal because RELIABLE agrees to defend CONTROLS and be liable to CONTROLS to the same degree and in the same amount as CONTROLS was found liable to SUPERB by the contract clause, moreover by showing its intention to defend CONTROLS on 3 August 1998.24
CONTROLS requests the tribunal:
1. To decide that SUPERB did not have the legal grounds to avoid the contract and breached the contract on 9 October 1996.
2. 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.
3. To decide that CONTROLS is exempt from any damages SUPERB may have suffered as a result of the delayed installation of the control system.
4. To order that RELIABLE should be joined as a defendant in this arbitration to support CONTROLS.