German Arbitral Tribunal - Case Study Example

GERMAN ARBITRAL TRIBUNAL (DIS) MEMORANDUM FOR THE CLAIMANT On behalf of Against Schmitt GmbH Thompson Pty Ltd Karls Platz Bell Street Kreuzlingen Melbourne Germany. Australia. CLAIMANT RESPONDENT COUNSEL Mr. Allan Espinson for the CLAIMANT --------------------------------for the RESPONDENT Table of Contents Index of abbreviations……………………………………………………………………….page 3 Index of Authorities……………………..………………………………………………….page 4 Index of Cases…………………………………………………………………………..….page 4 Statement of facts…………..……………………………………………………………….page 5 Introduction……………………………………………………………...............…………..page 7 Arguments…………………………………………………………………………………...page 8 I. Whether the tribunal has jurisdiction over the arbitration process as agreed upon by the CLAIMANT and RESPONDENT in their contract of sale. a) the parties agreed to the arbitration clause in the contract b) the arbitration clause and the arbitration agreement are in writing c) the tribunal so constituted is valid and legitimate to arbitrate over this dispute II. The choice of the governing law is provided for by the CLAIMANT and the RESPONDENT as indicated in the letter of acceptance by the CLAIMANT. a) what law governs the contract between the parties, is it CISG or the domestic law b) what set of laws govern the arbitration, is it the procedural law under the German arbitral Tribunal c) the respondent has challenged the competence of the tribunal to hear the matter III. The RESPONDENT misrepresented that the diamonds were obtained from South Africa when they had been from Sierra Leone and was in breach of a fundamental provision of the contract with the CLAIMANT that the diamonds were from South Africa. The RESPONDENT is in total breach of the contract and breach of trust. IV. The objection by the RESPONDENT that the matter should be settled before the Supreme Court of Victoria and to question the validity of the arbitration agreement and the apparent filing of a suit is in breach of the contract. a) the tribunal awarded the claimant $20,000 in the first dispute which the respondent has not paid b) the respondent has moved to court to have the dispute reheard since it did not like the decision V. The CLAIMANT is entitled to an award of $ 200,000 and the RESPONDENT is liable to pay the same. The RESPONDENT’S counter claim of $ 20,000 for set off be denied as the Supreme Court of AU has no jurisdiction over the matter and the same being misplaced. Request for Relief…………………………………………………………………………..page 13 Index of Abbreviations MEL………………………………………………………..……………………..MELBOURNE DIS…………………….……………….…………………GERMAN ARBITRAL TRIBUNAL PL………………………………...……………………………………….PROCEDURAL LAW AU……………………………………………………………….………………..AUSTARALIA CISG………………………….……UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS ULIS………….……………………………UNIFORM LAW OF INTERNATIONAL SALES S………………………………………………………………………………...………SECTION Index of Authorities The German Arbitral Tribunal (DIS) The United Nations Convention on Contracts for the International Sale of Goods Margaret L. Moses: The principles and practice of international Commercial Arbitration – Cambridge University Press. Sean J. Cleary, International Arbitration- Foreign Arbitral Awards- Enforcement of Foreign Awards Refused Under Article V, I (b) of the New York Convention. KCT SUTTON; sales and consumer law (LBC information services 1995) Index of cases Pearson & Whitemore Overseas vs. Societe Generale de L’Industrie du papier (RAKTA), 508 F. 2d 962 (Second Circuit 1974) Kwei Tek Chao, www.justcite.com Vitol SA vs. Norelf [1996] 3 ALL ER 193 Statement of facts The CLAIMANT Schmitt GmbH is a limited liability Company with its registered office in the Germany and the RESPONDENT Thompson Pty Ltd is a limited liability company with its registered offices in Australia. While the CLAIMANT is in the business of trading in diamonds, it sought to purchase 500 uncut diamonds from South Africa for the price of $ 140,000 and thus procured the RESPONDENT to supply the same. The CLAIMANT is managed by Jerry Cole. The RESPONDENT is in the business of supply of diamonds form South Africa and Sierra Leone, procured to supply the CLAIMANT with 500 of such diamonds being those from South Africa. The RESPONDENT ‘S Managing Director is Mr. Danny Law. The CLAIMANT and the RESPONDENT through their managing directors discussed over the phone on the 1st day of August 2002 and agreed on a contract for the supply 500 uncut diamonds from South Africa to the CLAIMANT. The CLAIMANT stated it in the letter of acceptance which was not challenged by RESPONDENT that it only accepts diamonds from South Africa and would not accept delivery of any other. The was an indication of the purchase price of $140,000 being paid by September 15, 2002 by the CLAIMANT on delivery of the diamonds to its place of business in Germany. A photocopy of the letter of acceptance is hereto attached as part of this memorandum and marked as “Exhibit 1” for the CLAIMANT. The CLAIMANT shall seek official admission of the exhibit during the initial arbitration hearing. United Nations Convention on Contracts for the International Sale of Goods (CISG) was set as the law to be applied to their supply contract. In case that there were no provisions in the CISG regarding a particular matter, the gaps would be resolved according to German Domestic Law. Any further dispute over the agreement was to be referred to DIS and the place of sitting in MEL. It is provided that the UNCITRAL Model Law is not to be included in the resolution of the arbitral dispute. A letter written by the CLAIMANT as acceptance of the matters discussed over the telephone conversation of the 1st day of August 2002 confirms the afore-mentioned details. A copy of the said letter is attached here as Exhibit “2” for the CLAIMANT. The details of the final contract included the stipulation that the diamonds would come from South Africa. At this point, it was the RESPONDENT recorded the terms upon which the parties were to trade. The RESPONDENT delivered the diamonds on the 15th of September 2003 as the parties had agreed. However it turned out that the diamonds were from Sierra Leone and not South Africa as the parties had agreed. The RESPONDENT made assurances to make good the breach but despite constant reminder, it has failed to so do. The CLAIMANT was of the opinion that the said diamonds were therefore in violation of the clear stipulation that the diamonds should and must come from South Africa. It was also emphasized that the diamonds would be useless as far as the CLAIMANT was concerned presumably because it was not in the business of trading diamonds coming from other sources except those in South Africa and this had always been made unequivocal to the RESPONDENT. This was in a letter through which the RESPONDENT was given notice of the institution of arbitral proceedings. Copy of the letter is attached marked exhibit “3” for the CLAIMANT. The CLAIMANT warned the RESPONDENT about initiating arbitration proceedings for breach of contract and other relief or remedies in Melbourne for $200,000. The CLAIMANT further made it clear that it was aware of the appeal to the Supreme Court of Victoria by the RESPONDENT seeking re-hearing of the matter and a set off for $20,000. The RESPONDENT challenged the authority of this tribunal to arbitrate over this matter. Introduction By letter of acceptance, the CLAIMANT agreed with the RESPONDENT that the parties would refer any dispute over the contract to arbitration. The contract stipulated that RESPONDNET would procure and latter sell to the CLAIMANT 500 uncut diamonds from South Africa and there was a condition that the goods shall be only those form South Africa and nowhere else. The CLAIMANT covenanted to pay $ 140,000 as the purchase price for the goods on delivery. The contract further stipulated that the RESPONDENT is entitled to supply less than the contracted number if unforeseeable circumstances hinder the supply of contracted number. It is a term of the contract that the parties are governed by the CISG and the German Domestic law was to fill any gaps left. The parties further contracted that any dispute arising out of the contract as to its performance or otherwise should be referred to DIS and that the arbitration agreement was incorporated into the contract be the letter of acceptance sent by the CLAIMANT. The rules of the German arbitral tribunal were to be applied to apply as far as applicable. There was a telephone conversation between Jerry and Danny over the same subject of contract. Danny represented to Jerry that they had fully acquired 50o uncut diamonds from South Africa as had been stipulated in the contract. Danny further went on to assure Jerry that they would be delivered as they had agreed in the earlier conversation between them. However, on delivery of the said diamonds the CLAIMANT found out that the diamonds were from Sierra Leone and not from South Africa as contracted.. Jerry then wrote a letter to Danny seeking clarification of the issues arising and informing Danny that the CLAIMANT would be obliged to reject the goods. A copy of the letter is included as part of the memorandum and marked as “Exhibit 3”. Arguments Whether the tribunal has jurisdiction over the arbitration process as agreed upon by the CLAIMANT and RESPONDENT in their contract of sale. a) the parties agreed to the arbitration clause in the contract b) the arbitration clause and the arbitration agreement are in writing c) the tribunal so constituted is valid and legitimate to arbitrate over this dispute The parties freely agreed that any dispute between them in relation to the performance of the contract or otherwise should be referred to this tribunal. It is therefore unfathomable why the RESPONDENT would at this time deny the jurisdiction of DIS over the matter. In Pearson & Whitemore Overseas vs. Societe Generale de L’Industrie du papier (RAKTA) Pearson submitted to arbitration under the International Chamber of commerce where RAKTA sought damages for breach of contract. Pearson’s defence that the tribunal did not have jurisdiction was rejected and the arbitral award was confirmed for failing to provide sound basis for vacating the foreign arbitral award. The award was held to have been made pursuant to the arbitration agreement between the parties. In Golden Lake, the owner of the goods who was also the endorsee of the bill of lading sued the sued the ship owner in tort for damages to the goods. The ship owner objected to the claim on the ground that the contract stipulated that the matter should be referred to arbitration. In rejecting the argument, the court stated that the contract only bound parties to it and that the claim had been made in tort and not contract, the parties to the contract were bound to arbitration. The argument by the CLAIMANT is that the tribunal has jurisdiction to handle the dispute between the parties as provided for in the contract between the parties and in the arbitration agreement to which the parties have referred to. A party to a contract is bound by the terms of the contract and cannot be seen to run away from its terms. The agreement was that any dispute or controversies arising out of or in relation to the contract was to be resolved by arbitration by DIS. If the RESPONDENT failed to challenge the letter of acceptance sent by the CLAIMANT, it was bound by the terms which set out that disputes shall be solved by an arbitration tribunal. The choice of the governing law is provided for by the CLAIMANT and the RESPONDENT as indicated in the letter of acceptance by the CLAIMANT. a) what law governs the contract between the parties, is it CISG or the domestic law or both b) what set of laws govern the arbitration, is it the procedural law under the German arbitral Tribunal c) the respondent has challenged the competence of the tribunal to hear the matter It necessary follows without argument that the choice of law to govern the contract between the parties is the CISG and the German Domestic law as far as it applicable and to fill the gaps in CISG. The contract between the CLAIMANT and the RESPONDENT stipulated that the parties shall be governed by the provisions of CISG, the rules of DIS and the German Domestic Law. This is not in doubt save for the conduct of the RESPONDENT seeking to resolve the dispute before the Supreme Court of Victoria by seeking a re-hearing on the matter by way of appeal. The CLAIMANTS submission in the memorandum is that the tribunal in solving the dispute between it and the RESPONDENT should be governed by the provisions of the laws referred to in the contract and in this submission, other laws related to them and to the rules of DIS to which parties have subjected themselves to. The Rules DIS shall lay out the procedure to be followed by the tribunal in solving the dispute. The competence of the tribunal is provided for the parties agreement to refer their dispute to DIS. It therefore gains legitimacy and competent to arbitrate over the matter. The RESPONDENT misrepresented that the diamonds were obtained from South Africa when they had been from Sierra Leone and was in breach of a fundamental provision of the contract with the CLAIMANT that the diamonds were from South Africa. The RESPONDENT is in total breach of the contract and breach of trust. In breach of the contract, the RESPONDENT made a misrepresentation to the CLAIMANT that it had actually acquired the diamonds from South Africa. The RESPONDENT misrepresented that the only diamonds it had were the only ones from South Africa and that it would deliver them to the CLAIMANT. In breach of the contract the CLAIMANT is entitled to treat the RESPONDENT as having misrepresented the facts of the case with the intention of committing a fraud against it and this gives it the opportunity to reject the goods (Kwei Tek Chao). The CLAIMANT was categorical that it does not deal with diamonds from Sierra Leone and this was well known to the RESPONDENT. It is a right to submit this contention before DIS as the forum agreed to by the parties to solve disputes between them. The objection by the RESPONDENT that the matter should be settled before the Supreme Court of Victoria and to question the validity of the arbitration agreement and the apparent filing of a suit is in breach of the contract. a) the tribunal awarded the claimant $20,000 in the first dispute which the respondent has not paid b) the respondent has moved to court to have the dispute reheard since it did not like the decision The RESPONDENT filed an appeal following objections to the award made in the earlier dispute. In that dispute an award of $20,000 had been made in its favour and being dissatisfied it filed an appeal in the Supreme Court of Victoria seeking a re-hearing. The matter before the court is between the same parties to this dispute and relates to related disputes. The RESPONDENT further wants an order of set off against the award of $20,000 made to it in the earlier dispute. The CLAIMANT is opposed to the court hearing being that it lacks jurisdiction over this dispute which the parties have agreed that should be governed by DIS. Therefore, having a parallel case involving the same parties before the Supreme Court will be an impediment to speedy resolution of the dispute between the parties. This conduct by the RESPONDENT is in breach of the contract which clearly stipulates that the parties’ dispute should be subject to arbitration. The challenge on the validity of the arbitration agreement is insincere and a hindrance to the speedy disposition of the matter. The matter before the Supreme Court of Victoria be set aside and it be consolidated with this matter before the tribunal as they involve the same parties and related subject matters and thus could be resolved together. The purpose of resorting to DIS and making reference to it was to expedite the matter and not put roadblocks on resolving disputes between the parties. The CLAIMANT is entitled to an award of $ 200,000 and the RESPONDENT is liable to pay the same. The RESPONDENT’S counter claim of $ 20,000 for set off be denied as the Supreme Court of AU has no jurisdiction over the matter and the same being misplaced. On the basis of the arguments above, the RESPONDENT is liable to pay the amount of $ 200,000 to the CLAIMANT. The breach by the RESPONDENT of the contract is payable in damages, which the CLAIMANT is seeking against it. This amount would be just and fair in compensating the CLAIMANT. The RESPONDENT claim for $ 20,000 for set off claim against the CLAIMANT for the refusal to accept the diamonds and non-payment is misplaced. In the first instance, the diamonds supplied were from Sierra Leone and not from South Africa as had been contracted. To claim for payment on the basis of what was supplied is erroneous and not in order as the CLAIMANT did not get what it contracted for. It may be said after all that under the laws of contract, the buyer is entitled to reject the goods if they are not what it contracted for. Article 72 of CISG allows a party to avoid the goods if there is a fundamental breach of contract. The condition that the diamonds were to be form South Africa and not Sierra Leone was fundamental and the RESPONDENT fully aware that any diamond form elsewhere would not be accepted.. Request for Relief The CLAIMANT prays that the Tribunal makes an award in its favour for the sum of $ 200,000 against the RESPONDENT. The award is for damages incurred as a result of breach of contract by the RESPONDENT both specific, general and punitive. The claim for $ 20,000 by the RESPONDENT for set off claim be denied by the Tribunal as it is misplaced and not founded on any sound law or contract. The CLAIMANT further prays for such other relief that this Tribunal may deem fit and just to grant in the circumstances. Read More