Internatioal Commercial Arbitration: Memorandum for the Claimant - 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 Merlbourne Germany Australia CLAIMANT RESPONDENT Counsel Dr. Bruno Zeller for the CLAIMANT ______________________________ for the RESPONDENT Table of Contents Page List of abbreviations 3 Index of Authorities 3 Cases 3 Statement of Facts 4 Arguments 9 I. As agreed upon by the parties in their exchanges in correspondence, the German Arbitral Tribunal has jurisdiction over the arbitration process and this binds the parties. II. The statute that is controlling in the instant case is the United Nations Convention on Contracts for the International Sale of Goods, together with other laws related or allied to it. The choice of the governing law has been stipulated by the CLAIMANT and the RESPONDENT as evidenced by their communications. III There is an allegation on the part of the CLAIMANT that the diamonds came from Sierra Leone and not from South Africa. In view of this, it is proper for the CLAIMANT to resort to arbitration. IV It is of record that there is another arbitration matter likewise between herein CLAIMANT and herein RESPONDENT where the latter has questioned the competence of the Tribunal by lodging a request to the Supreme Court of Victoria. In the interest of simplifying the issues, of saving on time and costs, and of expediting the proceedings, it is imperative to combine the hearings of both cases. It is the stand of the CLAIMAINT that the Supreme Court of Victoria cannot acquire jurisdiction over the afore-mentioned arbitration case. V It is proper for the CLAIMANT to pursue the award for $200,000. On the application for $20,000 filed by the RESPONDENT as an off-setting claim allegedly because of the cancellation of the letter of credit instituted by the CLAIMANT, it must heard altogether in the same arbitration proceedings. Request for Relief 13 List of abbreviations CISG – United Nations Convention on the International Sale of Goods DIS – German Arbitral Tribunal e. g. – for example i. e. – that is ULIS – Uniform Law on International Sales Index of Authorities Eiselen, Siegfried A Comparison of the Remedies for Breach of Contract under the CISG and South African Law http://www.cisg.law.pace.edu/cisg/biblio/eiselen2.html cited as: Eiselen Koch, Robert The Concept of Fundamental Breach of Contract under the United Nations Convention on Contracts for the Sale of Goods (CISG) http://www.cisg.law.pace.edu/cisg/biblio/koch.html#II cited as: Koch Index of Cases Downs Investments v. Perwaja Steel, Australia, 17 November 2000, Supreme Court of Queensland cited as: Downs Investments v. Perwaja Steel [Australia] Geneva Pharmaceuticals Tech. Corp. v. Barr Labs. Inc., 10 May 2002 United States District Court [Southern Dist. NY], 201 F.Supp.2d 236 at 285 http://www.cisg.law.pace.edu/cisg/text/preamble.html cited as: Geneva Pharmaceuticals Tech. Corp. v. Barr Labs. Inc. Statement of Facts Schmitt GmbH, likewise hereinafter referred to as the CLAIMANT, is an entity engaged in the trading of diamonds from South Africa. Its business address is at Karls Platz, Kreuzlinger, Germany, and Karl Schmitt represents it. Thompson Pty Ltd, also hereinafter referred to as the RESPONDENT, is a company which has its business location along Bell Street, Melbourne, Australia. It is in the general business of supplying precious stones including diamonds from South Africa, Sierra Leone and other sources. It is managed by John Thompson. Karl Schmitt and John Thompson talked over the phone on August 1, 2002, regarding the possibility of the Schmitt GmbH, the CLAIMANT, buying South African diamonds from Thompson Pty Ltd, the RESPONDENT in this case. Among others, it was discussed that the CLAIMANT wanted to purchase some 500 uncut diamonds which it had just physically checked in the premises of the RESPONDENT. It was emphasized by Karl Schmitt to John Thompson that the nature of the business of the CLAIMANT is quite known to the RESPONDENT. Schmitt also informed Thompson that he had gathered sufficient information regarding the status of the RESPONDENT for its ability to find sources of the precious stones and to supply the goods. Schmitt added that he was aware of the fact that the RESPONDENT had delivered diamonds to the CLAIMANT’s associates in Prag and that the reputation of Thompson Pty Ltd is above board in the diamond business community. On the part of the CLAIMANT, Schmitt made it very specific that it only buys diamonds coming from South Africa and that for the moment it desired to purchase the maximum of $150,000 worth of diamonds for delivery on or before September 15, 2002, to its location in Germany. On that same day of August 1, 2002, Schmitt wrote a letter to Thompson setting forth the details of their telephone conversation, a photocopy of the said letter being hereto attached as part of this memorandum and marked as “Exhibit 1” for the CLAIMANT. Official admission of the exhibit will be sought during the initial arbitration hearing. On August 20, 2002, there was again a phone talk between Schmitt and Thompson. This time the CLAIMANT finalized its decision to order for 500 diamonds for $140,000 for which a letter of credit would be issued in favour of the RESPONDENT in consideration of an official airway bill. It was agreed by the parties that the United Nations Convention on Contracts for the International Sale of Goods (CISG) will be 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. The parties were furthermore in agreement that in the event of any controversy regarding the transaction, the dispute would be submitted for arbitration to the German Arbitral Tribunal or DIS with the venue of the proceedings set in Melbourne, Australia, and that English will be the official language of the arbitration case. It was also stipulated that the UNCITRAL Model Law would not be included in the resolution of the arbitration matter. A letter written by Karl Schmitt dated when the phone conversation took place confirmed the afore-mentioned details. A photocopy of the said letter is attached here as Exhibit “2” for the CLAIMANT. The finishing touches of the finalized agreement of the parties regarding the supply of the diamonds by the RESPONDENT unto the CLAIMANT were confirmed by them on January 20, 2003, in the morning during another talk over the phone. The details of the final contract included the stipulation that the diamonds would come from South Africa. At this point, it was John Thompson who put on record the final conditions of the agreement in a letter he sent to Karl Schmitt dated 20 January 2003. Aside from the precious stones said to have been sourced from South Africa, the letter likewise made mention of the facts that the diamonds were cleaned in Melbourne, Australia, and that the CLAIMANT was just so fortunate that the previous owner of the goods already went out of business and that the CLAIMANT had the opportunity to acquire the diamonds in a bidding in Pretoria. It was agreed that concerning the transport of the diamonds, the REPONDENT would facilitate an aircraft booking for the delivery on or before the end of September 2003. A machine copy of the 20 January 2003 letter of John Thompson mentioned above is hereto attached and made an integral part hereof as Exhibit “3” for the CLAIMANT. Karl Schmitt responded in his letter of July 25, 2003 confirming all the agreements of the parties in their communications. In this July 25, 2003 letter, Schmitt made it clear that he trusted the RESPONDENT who should supply and deliver the diamonds to the satisfaction of Schmitt GmbH. On the basis of all these incidents, there was then legal perfection of the contract between the parties who had totally a meeting of their minds as of that date, July 25, 2003. A photocopy of the said reply letter of Karl Schmitt is hereto attached and made an integral part of this memorandum as Exhibit “4” for the CLAIMANT. There are people who say that the only most certain thing that can happen the next day is the rising of the sun in the east because many events are said to happen but do not happen and many promises are made but are not kept. As in this case, there can sometimes be a quick twist of fate. Despite the commitments and assurances of the RESPONDENT, an aggrieved Karl Schmitt sent a letter to John Thompson on May 25, 2004, complaining that indeed the diamonds came from Sierra Leone and not from South Africa. The CLAIMANT thus stressed in the said letter that the precious stones 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 or to John Thompson. A machine copy of the afore-cited May 25, 2004 letter of Karl Schmitt to John Thompson is hereto attached and made a part hereof as Exhibit “5” for the CLAIMANT. The CLAIMANT warned the RESPONDENT about initiating an arbitration proceedings for breach of contract and other relief or remedies in Melbourne for $200,000. The CLAIMANT further mentioned in the letter about its knowledge of RESPONDENT’s action for a $20,000 application with the Tribunal allegedly as a counterclaim or any responsive reaction as an off-setting factor in view of the cancellation of the covering letter of credit caused by the CLAIMANT. Having sought the services of this representation in this case, herein CLAIMANT, through the undersigned counsel, sent a letter to Mr. John Thompson on May 15, 2005, indicating that the submissions of the CLAIMANT and the RESPONDENT had already been forwarded to this Tribunal on the first issue that the diamonds subject matter of the supply contract were not as agreed upon because the same came from Sierra Leone and not from South Africa, the covenanted source of the precious stones; and on the second issue regarding the off-setting claim filed by the RESPONDENT before the Tribunal supposedly on the basis of the cancellation of the letter of credit upon the instance of the CLAIMANT. A photocopy of the letter of the undersigned counsel dated May 15, 2005 is attached hereto as Exhibit “6” for the CLAIMANT. Noted likewise in the said letter was the act of RESPONDENT having filed an application with the Supreme Court of Victoria about a previous award in another arbitration process between the very same parties now, the CLAIMANT and the RESPONDENT here, where the RESPONDENT has challenged the competence of the Tribunal to have jurisdiction over the said prior action. It was requested of the RESPONDENT that all other issues and matters related to the arbitration case at bar be served on the undersigned counsel by electronic mail. Arguments I. As agreed upon by the parties in their exchanges in correspondence, the German Arbitral Tribunal has jurisdiction over the arbitration process. Having agreed thereon, that jurisdiction is binding upon the parties. It cannot be denied by any of the parties that they have agreed to submit to this Tribunal any dispute or controversy related to the supply contract now subject of the present arbitration process. This was during the talk over the telephone between the CLAIMANT through Karl Schmitt and the RESPONDENT through John Thompson. The phone conversation was put on record in the letter of Karl Schmitt dated August 20, 2002. (Exhibit “2” for the CLAIMANT.) This poignant stand of the CLAIMANT that the Tribunal is legally authorized to acquire jurisdiction over the present arbitration proceedings is made more important by the fact that there has been a prior arbitration matter between the same parties, meaning the CLAIMANT and the RESPONDENT here, and that in order to simplify and expedite all the proceedings, it is procedurally feasible to combine both cases under the Tribunal for arbitration purposes. It is also hereby made of record that in the afore-cited prior arbitration case, the RESPONDENT has attempted to question the competence of the Tribunal to try the case in arbitration and, as a matter of fact, it has filed an application to that effect with the Supreme Court of Victoria. Definitely, the said supreme court cannot allow itself to try the case because, there being a contractual provision on the submission to arbitration, for as long as the parties have not yet fully availed of the remedial resort to arbitration, the case cannot be brought within the ambit of the judicial agencies. II. The statute that is controlling in the instant case is the United Nations Convention on Contracts for the International Sale of Goods, together with other laws related or allied to it. The choice of the governing law has been stipulated by the CLAIMANT and the RESPONDENT as evidenced by their communications. Likewise as was covenanted by the CLAIMANT and the RESPONDENT on August 20, 2002, the law to apply here and to govern the present arbitration proceedings is the United Nations CISG, including other international legislations such as the ULIS. This is not really a matter of argument but this is not being maintained considering the attitude and behaviour of the RESPONDENT in making divergent moves as when it challenged the authority of this Tribunal in the proceedings mentioned in Argument I above. It is thus advanced that the RESPONDENT must admit and confess the said statutes as the ones to control the subject and proceedings of the instant case. It is to be noted that the very purpose of the application of the CISG is to remove barriers in the betterment of international trade. (Geneva Pharmaceuticals Tech. Corp. v. Barr Labs. Inc.) III There is an allegation on the part of the CLAIMANT that the diamonds came from Sierra Leone and not from South Africa. In view of this, it is proper for the CLAIMANT to resort to arbitration. What the RESPONDENT delivered to the CLAIMANT were diamonds from Sierra Leone which were washed in Melbourne. The goods did not come from South Africa as agreed upon. Since the source of the precious stones was Sierra Leone and not South Africa, the CLAIMANT has the right to submit the controversy to arbitration. The statement of the RESPONDENT that it (RESPONDENT) was just lucky that the previous owner closed out of business and it was able to acquire the diamonds in an auction sale in Pretoria is no longer relevant as far as submission to arbitration is concerned because the main consideration is that the diamonds should have come from South Africa. Surely, had the CLAIMANT foreseen that the goods would come from Sierra Leone and not from South Africa in pursuance to the specifications of the CLAIMANT, the latter could not have reasonably entered into the contract with the RESPONDENT. (Koch) IV It is of record that there is another arbitration matter likewise between herein CLAIMANT and herein RESPONDENT where the latter has questioned the competence of the Tribunal by lodging a request to the Supreme Court of Victoria. In the interest of simplifying the issues, of saving on time and costs, and of expediting the proceedings, it is imperative to combine the hearings of both cases. It is the stand of the CLAIMAINT that the Supreme Court of Victoria cannot acquire jurisdiction over the afore-mentioned arbitration case. Aside from the present case, there has been another arbitration matter between the same parties, CLAIMANT and the RESPONDENT here. In view of this circumstance, it is procedurally imperative to combine or consolidate the proceedings. This alternative methodology will surely simplify the issues, save on time and costs and will facilitate quicker resolution of the proceedings in both incidents. Regarding the other arbitration proceedings, it is of record that the RESPONDENT attempts to challenge the jurisdiction of the Tribunal. In this regard, it is hereby argued that the Supreme Court of Victoria cannot acquire jurisdiction over the said arbitration process between the same parties because it is a universal rule in commercial arbitration that when the parties to a contract have agreed to submit to arbitration any dispute appurtenant to the covenant they had entered into, the judicial process cannot be asserted unless and until the arbitration alternative shall have been fully availed of as a matter of extra-judicial remedy. V It is proper for the CLAIMANT to pursue the award for $200,000. On the application for $20,000 filed by the RESPONDENT as an off-setting claim allegedly because of the cancellation of the letter of credit instituted by the CLAIMANT, it must heard altogether in the same arbitration proceedings. Since the goods intended by the CLAIMANT to purchase from the RESPONDENT did not come from the supposed source, South Africa, the former has the right to institute the action for arbitration regarding the claimed award for $200,000. The remedy for arbitration resorted to by the CLAIMANT is correct and proper as it is in accordance with the agreement of the parties in case of a dispute over the terms of the contract. As to the application of the CLAIMANT for $20,000 allegedly as an off-setting item because of the cancellation of the letter of credit effected by the CLAIMANT, the same must be included altogether in the same arbitration proceedings in order to simply the issues and save time, efforts and money for the parties. Besides, it is also a claim in connection with the sales contract and again, as covenanted by the parties, it is a proper subject of arbitration. Consequently, the CLAIMANT is entitled to seek from the Tribunal a declaration that the contract is without effect and such necessarily includes the cancellation of the letter of credit. (Eiselen) As mandated in Article 72 of the CISG, a party may take the appropriate action to avoid the contract if there is a claim that the actual performance was not in accordance with what was agreed upon. (Downs Investments v. Perwaja Steel [Australia]) Request for Relief PREMISES CONSIDERED, it is most respectfully requested of the Tribunal to (a) accept and entertain the present application for arbitration and to acquire jurisdiction over the controversy between the parties and to consider as valid the submission of the CLAIMANT pursuant to the sales contract it entered into with the RESPONDENT; (b) declare that the Victoria Supreme Court cannot yet acquire jurisdiction over the present matter as the arbitration proceedings must first be exhausted before the dispute or controversy may be endorsed to judicial authorities; (c) consolidate the matter on the controversy over the delivery of the diamonds and the previous dispute between the same parties before this same Tribunal in order to afford convenience and dispatch and in order to save the parties from additional cost, time and efforts; and (d) rule as a settled issue the incident that indeed the parties concluded a valid contract as borne out by their exchanges in communications. Such other relief and/or remedies as are just and equitable under the circumstances are likewise prayed for. Read More