Memorandum for John Frost - the Claimant - Assignment Example

Name: Tutor: Course: Date: Part 1 Memorandum for John Frost- the Claimant John Frost Millers Rd. Melbourne Against: Honest Dealers Ltd Nathan Rd. Hong Kong Index of legal sources Arbitration Rules of the International Chamber of Commerce (ICC) of 1998 Arbitration Rules of Singapore International Arbitration Centre (SIAC) (1997) New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). UNCITRAL Model Law on International Commercial Arbitration, as adopted by the United Nations Commission on International Trade Law as Amended in 2006. UNCITRAL Arbitration Rules, as adopted by the United Nations Commission on International Trade Law (1976), United Nations Convention on Contracts for the International Sale of Goods (CISG) (1980). Statement of facts i. 1st December2009: Introduction letter from John Frost Ltd (herein after referred to as Claimant) to Honest Dealers ltd (herein after referred to as Respondent) inquiring into the possibility of being a supplier of live cattle. ii. 10th December 2009: Letter of offer from Honest dealers to John Host indicating a yearly a requisition of a yearly shipment of 10,000 steers on a four installments of three months apart. Other offer conditions include; Less or equal to 10% heifers in the total shipment Live weight at loading within 10%( plus or minus) of 500kg Animals of class A grade cattle and fat within the range of 3mm to 10mm. Grain feeding on the ship is the responsibility of John Host Port of shipment is Darwin and port of destination is Padang Any dispute, controversy or claim arising out of, relating to, or in connection with the shipment shall be resolved by Arbitration in accordance to SIAC Arbitration rules. The Arbitration shall held in Hong Kong in English language. iii. 15th December 2009: Letter from the Claimant to the Respondent indicating acceptance to the letter of offer with its related conditions of supply. The Claimant further indicated that the supply shall constitute only Angus cross cattle and pricing based on the spot price at Melbourne stock exchange. Further terms and conditions were to be discussed over a telephone conversation. iv. 20th December 2009: E-mail from the Respondent requesting the first order of 25,000 cattle (plus or minus 2%) before December 30th 2009. v. 21st December 2009: E- mail to the respondent accepting the request order e-mail and further indicating compliance to a telephone conversation. vi. 21st January 2010: E-mail to the respondent indicating the trade terms and conditions of the Complainant as earlier discussed and agreed on 15th December 2009. The conditions were as follows; Transport is pursuant to DES INCOTERMS International Commercial Terms 2010 via usual ship the ‘Elders’. The letter of credit should be opened upon receipt of documentary credit subject to UCP 600 with the Claimants bank in Melbourne. Any dispute, controversy or claim arising out of, relating to, or in connection with the contract, including any question regarding its existence, validity, and termination shall be resolved by arbitration in accordance to ICC rules. The seat of the Arbitration shall Melbourne in English language. Dr Diddi Zeller will always verify the quality and state of health of cattle. vii. 7th March 2010: Letter from the Respondent acknowledging a telephone conversation that took place earlier in the day and the high quality of previous shipment from the Claimant. The respondent further requested a new order with unusual terms for trial basis with their new client. The order details were as follows; 25,000 aged cows, weight plus or minus 800Kg Fat range between 7mm to 10mm. Carcass classification B viii. 10th March 2010: Letter to the Respondent from the Claimant indicating the incapacity to oblige to the terms of the new offer. ix. 23rd April 2010: Letter from John Host to Honest dealers acknowledging and appreciating the Claimants’ quality supply. x. 23rd June 2010: A complaint Letter from John Host to Honest dealers on the poor quality of the second order indicating that the heifer count was 12% not the accepted 10% and as a result they intent to deduct 5 cents per kilo for the whole shipment. xi. 10th July 2010: Protest letter to Respondent from the Claimant indicating decision to deduct 5 cents per kilo by the Respondent and offering reimbursement on any losses incurred. The letter further indicates that the Claimant is aware that the heifers were sold in a live market. The claimant further indicated to the respondent the need to initiate arbitration if the respondent couldn’t respond in two weeks time. xii. 20th August 2010: Letter from the ICC to the Respondent indicating that an arbitration process has been initiated by John Host and enclosed with it the statement of the claim. The letter further requested the Respondent to submit their choice of arbitrator as per the ICC rules. xiii. 30th September 2010: Letter to the ICC Secretary General by the respondent indicating their choice o respondent and further objection to the capability of the tribunal. The respondent further indicated their intentions of the file a claim for the application of Commercial Arbitration Act in Melbourne failure to which they intent to file a litigation with the supreme court in Melbourne. Statement of purpose The Claimant has prepared this memorandum in compliance to ICC rules and makes the following submissions; The respondent has fundamentally breached the contract by instituting a penalty clause which is against the common law. The shipment to the Respondent were in conformity with the contract The order to fine the Claimant 5 cents per kilo of the whole shipment is rejected Claimant is ready to compensate the Respondent in the third shipment for the variation the second shipment heifer counts if every part shipment had to comply with the 10% rule. The respondent cannot object area of operation and competence of the arbitration tribunal to determine the case The claimant is willing and ready to demonstrate to the arbitration team the factual and legal basis for its claims and also respond to the counter claims of the Respondent. The claimant will fully comply with the ICC rules and regulations. Arguments a. The respondent has fundamentally breached the contract by instituting a penalty clause which is against the common law. a. The respondent by instituting a penalty of 5 cents per kilo of the total shipment was more of a penalty than a claim for compensation of any losses suffered as a result of non compliance to the terms of the contract. Further the Respondent had not indicated in the trade preconditions and terms on the use of penalty and its associated rate or amount. b. Australia being a common law country does not allow for compensation where there has been a loss suffered as a consequence of not discharging contractual obligation and it does not allow for institution of penalty clauses which usually are oppressive and exploitative. c. The shipment were verified by an expert to ensure that it meets the required standards and in the normal course of business the Respondent should have just sent a complaint letter for non conformity to the Claimant for clarification but he just decided on an arbitrary figure of penalty and could not declare nature of loss he had suffered. d. The respondent has breach the contract by failing on his duty to inform the Claimant on the disparity in the quality expectations in the shipment on a timely basis. He cannot claim to declare penalties or even damages for unverified claims. The Respondent ought to have informed the Claimant immediately the shipment disembarked that they were not of the expected quality. Additionally this can confirm that the Respondents silence on the part of John Host meant satisfaction to the quality of goods. e. The Respondent deliberately breached the contract. This can be affirmed by the silence the Respondent underwent after the Claimant did not comply to the unusually order that the Respondent has offered. This must have been a plan by the Respondent to fraudulently exploit the Claimant because immediately after, the Respondent was supplied with the normal shipment complained after he had sold all the cattle. The actions of the respondent can be construed to imply a preplanned breach of contract. b. The conveyance to the respondent was in conformity to the contract a. The part shipment of 25,000 cattle to the Respondent is part of a yearly shipment of 10,000 cattle therefore the respondent could not conclude the heifer count for the contract based on that particular shipment since the whole contract was ongoing. The Claimant always adhered to the contractual terms and could have even adjusted the heifer count in the third shipment. b. The Respondent only complained after the sales had been made putting into doubts their allegations since if he was dissatisfied on receipt of the shipment then, he should have informed the Complainant of the anomaly and associated penalty prior to their clearance sales. c. The order to fine the complainant of 5 cents per kilo of the total shipment is rejected by the Claimant. a. The Respondent did not indicate the basis for arriving at 5 cents per kilo since it is not a piece of the trade preconditions term and conditions of the contract. This amount therefore is arbitrary and can be construed to be intended just to exploit the Claimant. b. Where there is deviation on the quality of the stock supplied, the respondent can only be allowed damages where there has been a clear and reasonable amount in the light of the harm or loss suffered not just an exorbitant and arbitrary figure. The arrival of the figure is based an arbitrary basis which the Claimant cannot even understand since it is affecting the whole shipment and the Respondent did not elaborate the arrival of the figure. c. Considering the variations in the heifer count with contractual threshold, the Respondent needs to recheck his calculations and heifer classification since the Claimant has an expert pre-checking the shipment for health and compliance. d. The heifer count as per the expert report were as per the contract and this means that the Respondent must also provide an expert report contradicting the originals report, but using their own judgment to get the percentage heifers is wanting. d. The Respondent cannot object area of operation and competence of the arbitration tribunal to settle down the dispute. a. The Respondent- Honest dealers and John Host- Claimant agreed upon the Arbitration clause in the Claimants proposition and contract making it binding on them. The Respondent discussed the terms and conditions of trading as per Claimants proposal over the telephone call on 15th December 2009. The hard copy of the trade preconditions and terms were communicated to the Respondent by the Claimant on the 21st January 2010 as per the email on the same date send to the Respondent. It indicated clearly that where any dispute regarding the contract; the parties were to resolve it through arbitration based on the ICC rules. The arbitration was declared to be held in Melbourne and the language chosen was English. This deters the Respondent denying to be bound by the arbitration process. b. The respondent initially did not object the contract based on the non-inclusion of UNCITRAL arbitration rules. This makes the Respondent to be bound by the ICC rules as he had agreed to it earlier as per the e-mail dated 21st January 2010. c. The Respondent’s claim that the tribunal lacks Jurisdiction should be rejected since the Tribunal itself has the power to decide whether it has necessary power over the subject matter as per the doctrine of competence-competence. Part 2 Question 1 Arbitration being a process of settling trade disputes without undergoing through the litigation requires it to be above board in its deliverables. Parties to an arbitration process must have expressly declared their intent that in case of a dispute they should undertake to solve it through an arbitration process1. Arbitration being a choice of parties to an international contract usually is specifically made to suite the interest of the contracting parties especially where they are not conversant with the foreign legal systems. Arbitration must be part of a legal contract so that it expresses the intentions of the parties to the contract not to be subject to the other judicial processes in case of a conflict. More so, to safeguard the interest of parties in discharging their responsibilities without being subjected to a slow and incapacitated court process in handling the contractual technicalities associated with commercial disputes, parties knowingly relinquish their rights to litigation and opt into arbitration. Where the parties to a contract have expressly agreed to be subject to arbitration, they will be protecting their interests, unnecessary intrusion to their privacy, slow and expensive litigation process and business relationship maintenance. Once parties have agreed to arbitration as their conflict and dispute resolution mechanism, the courts shall uphold the decision of parties to it and will even enforce the arbitral awards. With a valid arbitration Clause at hand, the courts will not meddle with the jurisdiction of the arbitral tribunal. A dispute resolution agreement is therefore a very important document in dispute resolution since it allows the parties the options of relinquishing their rights to litigations and opting for private dispute resolution mechanisms via an arbitral tribunal2. This therefore requires that the parties to it must have an express and voluntary agreement since arbitration involves relinquishing of fundamental right litigate. The courts do recognize arbitration as mechanisms for solving international commercial disputes and consequently does not respect the arbitration tribunal and their verdict. According to the New York Convention on Recognition and Enforcement of Arbitral awards 1958, it was made imperative that arbitral awards by international arbitral tribunals are enforceable worldwide. The conventions limited the grounds for which these awards may be opposed to areas touching mainly the compliance with arbitration rules and public good. This makes arbitration a mainstay is dispute resolution. Arbitration awards therefore should be based on any of the acceptable international arbitration rules and that the subject matter of arbitration is capable of settlement via arbitration. In order for arbitration to be instituted as a mechanism for conflict resolution, parties to a business contract must expressly agree and sign a dispute resolution agreement which should be annexed to the contract of the subject matter for arbitration. This process has been noted to be cumbersome and hence most contracts have included a dispute resolution mechanism in the form of an arbitration clause. For easy relation to the subject matter, the arbitration clause should be part of the contract. This will ensure that no costs is incurred in establishing the validity of the arbitration Clause therefore making a claimant through the process to surety that the process will precede the tribunal rejecting on the basis of its validity. The validity of a dispute resolution agreement cannot be put into jeopardy consequently the agreement to arbitrate must be seen to be in writing and knowingly signed by parties to it. The arbitral tribunal award can be rejected on the basis of the validity of the arbitration Clause yet funds and time have been invested in the process. It is therefore necessary to include in every valid international commercial contract an arbitration clause that will provide recourse in case of disputes to arbitration3. . Question 2 Australian Granites limited case In the case, the unanimous decision of the Supreme Court of Appeal that the parties in the case Granites Ltd v Eisenwerk Hensel Bayreuth Dipl-Ing GmbH by adopting UNICITRAL arbitration rules did not expressly excluded them from UNCITRAL Model law. The court did not distinguish between the rules and the laws and consequently made a bad precedent that the UNICITRAL arbitration rules does include the use of UNICITRAL model law. The decision was obnoxious to the further developments in the arbitration system in Australia and an impediment to the flexibility and control environment of the arbitral tribunal. The decision of the Supreme Court actually disregarded the arbitral procedures and even the arbitration clause which had given the parties to the arbitration and the arbitral tribunal the sole responsibility of deciding on the applicable laws to the arbitration process. The ruling therefore implied an interference of the arbitration process by the courts whose mandate is usually to ensure that the applicable rules are adhered to and not to decide which rules ought to have been used4. Federal courts role in the arbitration process should be supervisory and support to the facilitation of arbitral awards. The ruling in the Australian Granites Ltd v Eisenwerk Hensel Bayreuth GmbH ([2001] 1 Qd R 461has indeed been a challenge to the arbitration mechanisms but it has on the other hand ensured review of International Arbitration Act and other legislations in Australia to give the parties to arbitration greater flexibility. The Changes also empowered the arbitrators and granted them powers to grant interim measures and make orders for security costs to protect parties’ rights. In order to preserve the model law as separate from the applicable rules, several legislations have been enacted to allow parties to UNCITRAl rules exclude themselves from the model law. This is because the ruling the Australian Granites Ltd v Eisenwerk Hensel Bayreuth GmbH ([2001] 1 Qd R 461 did put Arbitration processes into a sea of confusion and disarray. Question 3 In this case of Mr. Smith and Mr. Schmidt, the fact of the matter is that there is a business dispute between the two parties regarding the quality of goods and the that arbitration proceedings have been instituted by Mr. Schmidt as per ICC rules. The Respondent in this case being Mr. Smith does acknowledge that there has been no contract to the effect that incase of any conflict, they were suppose to undergo an arbitration process. For an effective arbitration to take place the parties must have had a dispute resolution agreement that declared the applicable rules and the subject matter that can be arbitrated5. The arbitration Clause provides a foundation for recourse to arbitration incase of dispute between parties on matters which had been declared and agreed upon to be subject to arbitration. For an arbitration proceeding to be as per the ICC rules, the Claimant- Mr. Schmidt should have submitted a request to the secretariat that contained the following information; Names and addresses of each of the parties Description of the nature and circumstances that caused the dispute Arbitration Clause Comments as to the location of arbitration, applicable laws and the language of arbitration In this case, the Claimant must have submitted all this requirement to the tribunal, in this sense the Respondent Mr. Smith has been a party to the arbitration process6. On the issue raised by Mr. Smith regarding the competence of the Arbitration tribunal based on his allegations of not being a signatory to the arbitration clause, it is the duty of the arbitration tribunal to establish whether it has powers and competence over the issue. A challenge by the respondent to the area of operation of the tribunal based on the legitimacy of the arbitration contract needs further clarification. It is necessary that the Respondent must have signed the arbitration Clause but his actions of being in a contract that might have included an arbitration clause expressly make him a party to arbitration Clause. Unless otherwise proven, if the Claimant and the Respondent truly did not have a valid arbitration Clause, the arbitration proceedings will be stopped by the ICC arbitration secretariat. In this case, Mr. Smith may or may not succeed in his quest to the declare that the ICC tribunal at Singapore lacks jurisdiction on the matter since it has to be determined by the ICC courts itself as it has the autonomy of deciding whether there is a valid arbitration Clause or not. If the arbitration tribunal finds out that the Respondent has a valid proposition then it will not facilitate the arbitration since it is not under their jurisdiction to do so given that a dispute resolution agreement is voluntary and parties to it cannot be coerced in to it. Question 4 The arbitration process in Australia is governed by the International Arbitration Act 1974 (Cth) (the “Act”). The Act specifically increased the reliance, trust and efficiency of conducting an arbitration relating to international commercial contracts in Australia. The Act also has been harmonized with the Convention on the Recognition and Enforcement of Arbitral Awards (1958) and the UNCITRAL Model law on International Commercial Arbitration. The arbitral awards in Australia are enforceable under the direction of the Supreme Court of appeal and even the federal courts. The Act does not give the Courts the discretion to decline to put in force the foreign arbitral award consequently making arbitral tribunals a very powerful institution of resolving commercial disputes. The arbitral awards enforcement can be challenged and declared unenforceable in either of the following circumstances under the International Arbitration Act 1974 of Australia; a. The arbitration Clause is invalid with reference to the law chosen by the complainant and the respondent or if the parties have not made any choice, under the law where the award was made. Where the arbitration tribunal has not adhered to the arbitral agreement stipulations and timings, the wards may not be enforced by the courts where one of the parties to it raises his concern. b. The challenging party was incapacitated. The capacity to make a legal and binding contract is always on of the basis for ensuring that the contract is binding and legally enforceable and where such is lacking on the side of one of the parties to arbitration, the award may not be enforceable. c. The Respondent was not given proper notice of the intention to undertake arbitration. Before making an intention to arbitrate, the Claimant must always inform the respondent of his intentions and in some circumstances the arbitral agreement does have a notice period as part of the procedures to be followed. The participations in the tribunal also required that parties to it are given adequate and necessary communication as to the various attendances to the tribunal meetings7. Without proper regard to the notices to the parties to an arbitration tribunal, the award made may not be enforced especially where critical decision are being made in the absence of one of the parties. d. The arbitral awards deals with an issue beyond the arbitration subject matter. The arbitral tribunal must discharge their duties within their jurisdiction as defined in the arbitration Clause and the applicable laws. It is also the duty of the arbitral tribunal to ensure that they have jurisdiction and competence required to solve the dispute and award the parties to it. Where the tribunal has acted in such a way as to solve matters beyond their jurisdiction and outside the arbitration Clause, the awards associated with the subject matter shall not be enforceable in Australia. e. The constitution and proceeding of the arbitral tribunal contradicts the arbitration Clause. The arbitration Clause usually includes the procedural issues regarding recourse to arbitration. This includes the notices, subject matter and thresholds required for a matter to be directed for arbitration. The applicable arbitration rules and procedures agreed upon by the parties also have their own procedural matter which needs to be adhered to by all the parties. In cases where the proceedings and inception of an arbitration process is contradictory to the preset agreement and rules, the arbitration awards may not be put into effect by the courts. f. The arbitral awards has not yet been made binding on arbitration parties. Before awards are enforced by the courts, it should be made binding to all the parties to it. All parties must agree to the verdict of the arbitral tribunals by signing to the award. a. The subject matter of arbitration is not being capable of settlement through arbitration under the Australian law. Where the subject matter in the arbitration is not arbitral under the Australian law and the tribunal has gone ahead to award, the implementation of the awards will be stopped by the court on the grounds of being in contradiction to the laws of the land. g. The award is converse to public policy. Where an award does not comply with the requirements of any Australian public policy, its enforcement will be stopped by the courts. Works Cited Keenan, Denis J and Riches, Sarah. Business law. 7th edition.Melbourne: Pearson/Longman, 2005.PP.124-133. Martin, Adams and De Zylva. International commercial arbitration: developing rules for the new millennium. 2nd Edition. Melbourne: Jordans, 2000.PP. 96-101. Moses, Margaret. The principles and practice of international commercial arbitration. London: Cambridge University Press, 2008. PP. 120-134. Redfern, Allan. Law and practice of international commercial arbitration. 4th edition. London: Sweet & Maxwell, 2004.PP.231-245. Sweeney, B and O’Reilly, J. Law in Commerce. 3rd edition. Edmonton, AB: University of Alberta Press, 2007.PP. 381-390. Varady, T. Barcelo, John. and Von, Merhen. International commercial arbitration: a transnational perspective. 4th Edition. Sydney: Thomson/West, 2009.PP. 163-267. Read More