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Erkens, Sabine; Goss, Ryan Allan; Hodge, Andrew Edward; Isobel, Marion Alice Jane; Jackson, Benjamin John; McKeering, Siobhan Maree; Zaccaria, Elena Christine; Moens, GabriŽl --- "The Willem C Vis International Commercial Arbitration Moot 2002-2003 " [2003] IntTBLawRw 13; (2003) 8 International Trade and Business Law Review 311

The Willem C Vis International Commercial

Arbitration Moot 2002–2003

Sabine Erkens, Ryan Allan Goss, Andrew Edward Hodge,

Marion Alice Jane Isobel, Benjamin John Jackson, Siobhan Maree McKeering

Elena Christine Zaccaria, and Gabriël Moens

Introduction

The TC Beirne School of Law of the University of Queensland participated in the prestigious Willem C Vis International Commercial Arbitration Moot, the orals of which were held in Vienna between 21–28 March 2002. In the general round, our team defeated the University of Athens, Greece; the University of Fribourg, Switzerland; Xiamen University, People’s Republic of China, and the University of the Americas, Mexico. In the octo-final, our students defeated the University of Potsdam, Germany. This was followed by a win in the quarterfinal against the University of Muenster, Germany. In the semi-final, Queensland triumphed over the University of Zagreb, Croatia. The TC Beirne School of Law team proceeded to the Grand Final, which was held in the Rathaus (City Hall) of Vienna. In a closely contested final, the arbitral panel awarded the Moot to the University of Singapore. However, the members of the panel described the performance of the T C Beirne School of Law team as ‘brilliant’ and our two speakers, Marion Isobel and Ryan Goss, were given a standing ovation. In addition, our team also won the prestigious Pieter Sanders Award for Best Memorandum for the Claimant (First Prize). This is a stunning achievement in view of the fact that 108 teams representing 36 countries participated in the Moot and prepared a Memorandum for the Claimant. Also, Marion Isobel obtained the Martin Domke Award, first prize, best oralist and her colleague, Ryan Goss, received an honourable mention as best oralist. Finally, our Memorandum for the Respondent was also awarded an Honourable Mention, which means that it was in the top ten best memoranda of the entire Moot.

On their way to Vienna, the team also participated in a regional American Vis competition, known as the Gambit Cup (named after a newspaper in New Orleans that donated the Cup). Our team performed in the Grand Final of the Cup against Tulane University and won the Cup! The Final of the Gambit Cup was conducted before the Supreme Court of Louisiana, with the Chief Justice of that State presiding over the arbitral tribunal.

The Willem C Vis Moot has previously been won by the TC Beirne School of Law in 1997 and 2000. In the next section, the 2001–2002 Moot problem and its clarifications are reproduced. This is followed by the Memorandum for the Claimant (which won the Pieter Sanders Award for best memorandum and the Memorandum for the Respondent). The problem, clarifications and the memoranda are useful resources in the teaching of the CISG, and of international commercial arbitration law. It also serves as a historical record of the Ninth Willem C Vis International Commercial Arbitration Moot 2001–2002.

The Moot Problem

NINTH ANNUAL WILLEM C VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT

Vienna, Austria March 22 to 28, 2002

THE PROBLEM

Revised October 11, 2001

Organized by: Institute of International Commercial Law Pace University School of Law 78 North Broadway White Plains, NY 10603

USA 5 June 2001 International Center for Dispute Resolution American Arbitration Association 1633 Broadway 10th Floor New York, NY 10019–6708 USA

Dear Sirs:

I represent Futura Investment Bank, which hereby gives notice that it wishes to commence an arbitration against West Equatoriana Bobbins SA under the American Arbitration Association International Arbitration Rules. A copy of this letter with the Notice of Arbitration has been sent to West Equatoriana Bobbins SA as called for in Article 2.1 of the Rules.

Futura Investment Bank became the assignee of the right to receive the payments due from West Equatoriana Bobbins SA to Tailtwist Corp under a contract dated 1 September 1999. The contract between West Equatoriana Bobbins SA and Tailtwist Corp included an arbitration clause providing for arbitration by the American Arbitration Association. Futura Investment Bank claims as assignee of the rights of Tailtwist Corp. I enclose five copies of the Notice of Arbitration with its supporting exhibits. I also enclose US$8,500 for the Initial Filing Fee as an advance payment on the administrative costs, as provided in the Rules.

Sincerely,

(Signed)_____________________

Counsel for Futura Investment Bank

cc: West Equatoriana Bobbins SA

Futura Investment Bank

Claimant

v

West Equatoriana Bobbins SA

Respondent

NOTICE OF ARBITRATION I Parties

1 Futura Investment Bank (hereafter referred to as ‘INVESTMENT’) is a corporation organized under the laws of Mediterraneo. It has its principal office at 395 Industrial Place, Capitol City, Mediterraneo. The telephone number is 483–5800 and the fax number is 483–5810. INVESTMENT is an investment bank with interests in numerous countries.

2 West Equatoriana Bobbins SA (hereafter referred to as ‘BOBBINS’) is a corporation organized under the laws of Equatoriana. It has its principal office at 214 Commercial Ave, Oceanside, Equatoriana. The telephone number is 555– 1212 and the fax number is 555–1214. BOBBINS is a producer of textiles for use in clothing and table linens from natural and synthetic fibers.

II Non-party entities

3 Tailtwist Corp (hereafter referred to as ‘TAILTWTST’) was a corporation organized under the laws of Oceania. It had its principal office at 14 Seaside Boulevard, Sea Part, Oceania. The telephone number was 523–6910 and the fax number was 523–6920. It was a manufacturer of machinery and production processes for the textile trade, some of which were of a type used by BOBBINS. TAILTWIST is currently in insolvency proceedings.

III The facts of the dispute A The contract of sale

4 On 1 September 1999 BOBBINS and TAILTWIST concluded a contract whereby TAILTWIST agreed to manufacturer and install at BOBBINS’ facilities in Equatoriana a manufacturing line for spinning polyester yarn. (Claimant’s Exhibit No 1) The total price was $9,300,000. Payment was to be made in five installments: 20% with order; 20% on completion of tests at the TAILTWIST works; 25% on delivery to site; 25% on completion of commissioning on site; the balance of 10% after three months satisfactory performance.

5 The TAILTWIST equipment was delivered and installation by TAILTWIST’s personnel was completed on 18 April 2000. As provided in the contract, TAILTWIST’s personnel remained on site until 10 May 2000 to train the personnel of BOBBINS in the operation, adjustment and maintenance of the machinery. The three-month period at the end of which final payment was due closed on 10 August 2000.

B Payments, assignment and non-payment

6 As provided in the contract, BOBBINS paid to TAILTWIST 20% of the contract price ($1,860,000) on the signing of the contract on 1 September 1999, a further 20% ($1,860,000) on 6 January 2000 upon completion of tests of the equipment at the TAILTWIST works and 25% of the contract price ($2,325,000) upon delivery of the equipment to BOBBINS site on 20 February 2000.

7 On 29 March 2000 TAILTWIST assigned to INVESTMENT the right to receive the remaining two payments of 25% of the contract price ($2,325,000) on completion of commissioning on site and 10% of the contract price ($930,000) after three months satisfactory performance. Notice of the assignment was sent to BOBBINS on 5 April 2000 (Claimant’s Exhibit No 2) with return receipt requested. Delivery of the notice of assignment was signed for on 10 April 2000. Although the original notice was in German, the fact that it contained the names of Tailtwist Corp and West Equatoriana Bobbins SA, the date of the contract between the two, the amount remaining due under the contract, the name of Futura Investment Bank and an account number, all of which were easy to read by an English-speaking person who did not know German, clearly indicated the nature of the document. At the very least, it should have put BOBBINS on notice to inquire further and not to make any payment on the contract without making such an inquiry. A simple telephone call would have sufficed. A translation of the notice into English is contained in Claimant’s Exhibit No 3.

8 Since that time no payment has been made by BOBBINS to INVESTMENT. In the case of the payment due upon commissioning on site, BOBBINS paid it to TAILTWIST on 19 April 2000, ie, nine days after having received notice of the assignment. BOBBINS has claimed that the notice was defective in form and that it was not received in time to be acted upon prior to payment to TAILTWIST (Claimant’s Exhibit No 4). These objections are manifestly unfounded.

9 In the case of the payment due after three months satisfactory performance, BOBBINS has refused to pay it at all. It has claimed that the training called for in the contract was not adequate and that the machinery as delivered was not able to operate at the promised capacity (Claimant’s Exhibit No 4). As a result it has claimed the right to reduce the price of the contract by the unpaid amount of the contract, namely $930,000 (Claimant’s Exhibit No 5).

10 INVESTMENT is in no position to ascertain whether the complaints that BOBBINS raises in regard to the performance of TAILTWIST are accurate or not. However, INVESTMENT would like to point out that the contract of sale included a clause in which BOBBINS agreed not to assert defenses against any assignee of TAILTWIST should TAILTWIST assign the right to receive the payments (Claimant’s Exhibit No 1). Although the clause provided that it did not apply to deficient performance under the contract that TAILTWIST did not attempt in good faith to remedy, to the best of belief of INVESTMENT, BOBBINS did not give notice to TAILTWIST of either any deficiency in the training it received or in the equipment itself. As a result, TAILTWIST could not have attempted to remedy the deficiencies and BOBBINS has lost the right to assert them as defenses against INVESTMENT.

IV Arbitration clause

11 The contract between BOBBINS and TAILTWIST provides: Any controversy or claim between Tailtwist Corp and West Equatoriana Bobbins SA arising out of or relating to this contract shall be determined by arbitration by the American Arbitration Association by a panel of three arbitrators with the place of arbitration being Vindobona, Danubia and the language of the arbitration English.

12 When INVESTMENT was assigned the right to payment under the contract between BOBBINS and TAILTWIST, it was necessarily assigned the right to enforce its rights in the same manner as the assignor, TAILTWIST, would have had.

13 According to Article 1(1) of the American Arbitration Association International Rules currently in force, where parties have provided for arbitration by the American Arbitration Association without specifying which rules shall apply and the dispute is international, the arbitration shall take place in accordance with the International Rules, BOBBINS and TAILTWIST, parties to the original arbitration agreement, are from Equatoriana and Oceania respectively, while INVESTMENT is from Mediterraneo. Therefore, the dispute is international and the International Rules apply to the arbitration.

14 As provided in the arbitration clause, the arbitration tribunal should consist of three arbitrators and the arbitration should be held in Vindobona, Danubia. The language of the arbitration should be English, that being the language specified in the arbitration agreement.

15 INVESTMENT hereby nominates Dr XXXX as its arbitrator.

V Applicable law

16 Equatoriana and Oceania are parties to the United Nations Convention on Contracts for the International Sale of Goods and it, therefore, governs the contract of sale. Furthermore, the contract itself provides that the contract is governed by the Convention and, in regard to any questions not governed by it, by the law of Oceania.

17 Mediterraneo and Oceania are party to the [draft] Convention on the Assignment of Receivables in International Trade. [Note: At the time of writing the Problem UNCITRAL had adopted the draft Convention on the Assignment of Receivables in International Trade and had recommended to the General Assembly that it adopt the draft convention as a convention and open it for signature. The General Assembly is expected to follow the recommendation in December 2001.]

18 Danubia has adopted the UNCITRAL Model Law on International Commercial Arbitration.

19 Equatoriana, Oceania, Mediterraneo and Danubia are all party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

VI Relief requested

20 INVESTMENT requests the arbitral tribunal:

– to find that it has jurisdiction to consider the claim brought by INVESTMENT against BOBBINS;

– to order BOBBINS to pay the sum of $3,255,000 to INVESTMENT;

– to order BOBBINS to pay interest on the said sum from the date payment was due until the date of payment;

– to order BOBBINS to pay all costs of the arbitration.

(Signed) XXXX Counsel for Futura Investment Bank

Date 5 June 2001

Claimant’s Exhibit No 1

Contract (Excerpts) Tailtwist Corp agrees to sell and West Equatoriana Bobbins SA agrees to purchase the following ‘Spin-a-Whizz’ equipment: Item 1—One complete six-end manufacturing line for pre-oriented polyester yarn (POY), with High Speed (6,000 rpm) automatic winders, each complete with inverter drive and automatic reel change, all as our standard manufacture, illustrated in the attached diagram. Price $1,300,000 per single end. Item 2—One ‘Auto-Swop’ Doffer, to service the above line, remove filled bobbins and deliver them automatically to a pin-store, provided by you, at the end of the production aisle. Price $1,420,000. Item 3—Training for three weeks on site. Price $80,000. Total Price $9,300,000, payable as follows: 20% with order; 20% on completion of tests at our works; 25% on delivery to site; 25% on completion of commissioning on site; the balance after three months satisfactory performance. Each stage to be certified by consultants for West Equatoriana Bobbins SA. Delivery, six calendar months from receipt of first payment. Installation and commissioning, two months from delivery. Included in the price, Tailtwist Corp will provide all installation work, setting to work and commissioning on site, West Equatoriana Bobbins SA to have carried out all building work, including the preparation of floors and the installation of doffer rails to Tailtwist specification. On completion of commissioning tests, Tailtwist personnel will remain on site for three weeks, during which West Equatoriana Bobbins personnel will be trained in the correct operation, adjustment and maintenance of the machinery. All rights in the automation software to remain the property of Tailtwist. West Equatoriana Bobbins shall not reveal to others any information provided by Tailtwist nor permit any person not authorised by Tailtwist to have access to the software or source code. If Tailtwist should assign the right to the payments due from West Equatoriana Bobbins, the latter agrees that it will not assert against the assignee any defense it may have against Tailtwist arising out of defective performance of this contract, unless Tailtwist does not in good faith attempt to remedy the deficiency. This contract is subject to the United Nations Convention on Contracts for the International Sale of Goods and, in regard to any questions not governed by it, to the law of Oceania. Any controversy or claim between Tailtwist Corp and West Equatoriana Bobbins SA arising out of or relating to this contract shall be determined by arbitration by the American Arbitration Association by a panel of three arbitrators with the place of arbitration being Vindobona, Danubia and the language of the arbitration English.

(Signed) (Signed) September 1999 Tailtwist Corp West Equatoriana Bobbins SA Date

Claimant’s Exhibit No 2

Futura Investment Bank 395 Industrial Place Capitol City, Mediterraneo Telephone 483–5800 Telefax 483–5810

5 April 2000 Bekanntgabe der Zession Hiermit wird bekanntgegeben, dass das Recht noch verbliebene Zahlungen von

West Equatoriana Bobbins SA an die Tailtwist Corp in der Höhe von $3.255.000, gernäß dem Vertrag vom 1. September 1999, entgegenzunehmen, an die Futura Investment Bank am 25. März 2000 zediert wurde.

Künftige Zahlungen sind gernäß diesem Vertrag an die Futura Investment Bank, Capitol City, Mediterraneo, Kontonr. 123456, Referenz Tailtwist/Bobbins 010999, zu leisten.

(Untergeschrieben) Harold Fine Vizepräsident

Claimant’s Exhibit No 3

Futura Investment Bank 395 Industrial Place Capitol City, Mediterraneo Telephone 483–5800 Telefax 483–5810

(Translation) 5 April 2000 Notice of Assignment Notice is hereby given that the right to receive the remaining payments totalling

$3,255,000 due from West Equatoriana Bobbins SA to Tailtwist Corp under a contract dated 1 September 1999 were assigned by Tailtwist Corp to the Futura Investment Bank on 29 March 2000.

Future payments under this contract should be made to Futura Investment Bank, Capitol City, Mediterraneo, account 123456, reference Tailtwist/Bobbins 010999.

(Signed) Harold Fine Vice-President

Claimant’s Exhibit No 4

West Equatoriana Bobbins SA 214 Commercial Ave Oceanside, Equatoriana Telephone 555–1212 Telefax 555–1214

16 May 2001 Mr Harold Fine Vice-President Futura Investment Bank

395 Industrial Place Capitol City, Mediterraneo Dear Mr Fine I wish to make the position of West Equatoriana Bobbins SA completely clear.

West Equatoriana Bobbins SA has no intention of making any further payments in respect of the contract with Tailtwist Corp dated 1 September 1999. There is no basis for further discussions between our two companies.

The notice of assignment sent by Futura Investment Bank on 5 April 2000 was totally deficient when received on 10 April 2000. It was written in the German language, which no one at West Equatoriana Bobbins SA could read. It therefore gave no notice whatsoever. Furthermore, even if it could have been read, it was fatally defective in form, since it called upon West Equatoriana Bobbins SA to make the payments to a different country from that to which payments were being made under the contract itself.

Although the English translation finally sent to us by fax on 19 April 2000 eliminated the language problem, it did nothing in regard to the change of country of payment. Moreover, it arrived after the commencement of the payment process within West Equatoriana Bobbins SA of the $2,325,000 due to Tailtwist Corp. Futura Investment Bank simply acted too late in regard to that payment.

As far as the final payment of $930,000 is concerned, you are aware that the training given our personnel was not that called for by the contract. You are also aware that there have been problems with the machinery delivered to us by Tailtwist that our personnel have not been capable of fixing. You are also aware that we have not been able to call upon Tailtwist for assistance from the time they entered insolvency proceedings on 20 April 2000. As a result, our agreement not to assert defenses in certain circumstances does not apply. You have received a copy of the letter we addressed to the administrator for Tailtwist Corp on 10 January 2001 in which we declared a reduction of the price by $930,000.

There is no further sum due from West Equatoriana Bobbins SA in respect of its contract with Tailtwist Corp. If you wish to pursue this matter further, the courts of Equatoriana are open to you.

Sincerely, Simon Black Vice President

Claimant’s Exhibit No 5

West Equatoriana Bobbins SA 214 Commercial Ave Oceanside, Equatoriana Telephone 555–1212 Telefax 555–1214

10 January 2001 Dr Herbert Strict Administrator in Insolvency

14 White Horse Place Sea Part, Oceania Reference: Contract with Tailtwist Corp dated 1 September 1999 Dear Mr Strict On 18 April 2000, immediately prior to the opening of the insolvency proceedings of

Tailtwist Corp on 20 April 2000, our consultant certified that the equipment contracted for in the referenced contract had been installed and that the commissioning tests had been completed by the Tailtwist personnel. Consequently, on 19 April 2000 West Equatoriana Bobbins SA made the payment of $2,325,000 as called for in the contract.

Our consultant’s certification did not, of course, imply that the equipment was in full working order. That was to be determined by a three month period of satisfactory operation by West Equatoriana Bobbins SA. Prior to the three-month period and subsequent to the installation and commissioning tests a team of four from Tailtwist was to remain on site to train our personnel in the operation, adjustment and maintenance of the equipment. Only two of the team remained on site to conduct the training and they were so distracted by the opening of the insolvency proceedings that their training was grossly insufficient.

At no time has West Equatoriana Bobbins SA been able to operate the equipment in a fully satisfactory manner. The problems may lie in difficulties with the equipment itself or in the inadequate training given to our personnel. The result is the same in either case.

West Equatoriana Bobbins SA has determined that the deficiencies in the performance of the equipment has reduced its value by 10%. Therefore, West Equatoriana Bobbins SA hereby declares a reduction in the price of 10%, or $930,000.

Sincerely, Simon Black Vice President

cc: Futura Investment Bank

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June 5, 2001

VIA FEDERAL EXPRESS

Joseph Langweiler

Counsel

Futura Investment Bank

14 Capitol Boulevard

Capitol City, Mediterraneo

West Equatoriana Bobbins SA

Legal Department

214 Commercial Avenue

Oceanside, Equatoriana

Re: Futura Investment Bank and West Equatoriana Bobbins SA

Dear Parties

This will acknowledge receipt by the International Centre for Dispute Resolution on

June 5, 2001 from Claimant of a Demand for Arbitration dated June 5, 2001 of a controversy arising out of a contract between the above-captioned parties, containing a clause providing for administration by this Association. We understand that a copy was sent to Respondent. A copy of our International Arbitration Rules is enclosed.

Pursuant to Article 3, within thirty days of the date of this letter, a Respondent shall file a statement of defense in writing with the Claimant and this Association. If Respondent wishes to counterclaim, file three copies of same with the appropriate administrative fee and send a copy directly to Claimant.

Claimant has requested that the hearing be held in Vindobona, Danubia. Please review

Article 13 of the Rules regarding the locale of hearings. We note that the arbitration clause of the contract in this matter provides that three arbitrators will be appointed to resolve this dispute. We therefore acknowledge receipt of Claimant’s nomination of Dr XXXX as its Arbitrator.

This will also serve to confirm your participation in an Administrative Conference Call on June 15, 2001 at 2:00 pm local New York time. The purpose of this call is to address matters that will assist the Association in administering your case as efficiently and expeditiously as possible. The Association has found that such calls greatly improve the administrative process. Please be prepared to discuss the following items:

Whether mediation or other methods of dispute resolution might be appropriate. As an option for resolution of this dispute, we propose mediation, as outlined in the enclosed Commercial Mediation Rules. It is our experience that mediation is expeditious, cost saving and highly successful. No additional administrative fee will be required for

this process in the event the Parties desire to first attempt to mediate this dispute. Please note that the process is non-binding and the Parties must consent to these procedures. We note that the arbitration clause of the contract in this matter provides for that three

arbitrators will be appointed to resolve this dispute. We therefore acknowledge receipt of Claimant’s nomination of Dr XXXX as its Arbitrator. Please be prepared to further discuss the appointment method and process during the call.

Please provide a brief description of the case, the specification of the claims and the

anticipated length of hearing. Parties are advised to consider the information to be exchanged during the arbitral proceedings. Please note that at this stage all discovery will be voluntary and any difficulties that may arise will be decided by the arbitrators once appointed.

Parties are also encouraged to prepare a stipulation for uncontested facts, which

will be reviewed by the arbitrators again, once appointed. Please limit your discussions to the administrative process. Any discussions regarding issues of arbitrability or the merits of the dispute should be reserved for the arbitrators.

Once appointed we will schedule the preliminary hearing where all substantive matters will be brought to the attention of the arbitrator(s). It should be noted that failure to participate in the arbitral proceedings will not prevent the arbitrators from issuing an arbitration award that may be enforced pursuant to the New York Convention.

The call will be initiated by our office on that date. If the Parties are not able to participate on the scheduled date of the call, we kindly request that the parties mutually agree on an alternate date and advise the undersigned so that the call may be scheduled accordingly.

The Association encloses herewith to each Party a form entitled ‘Checklist for Conflicts’ and requests that each Party fill out the document with the required information and return it to this office by June 14, 2001, be treated as confidential information, and not required to be exchanged by the Parties, unless the Parties agree otherwise. This is only a preliminary list to identify potential witnesses and for the arbitrator to perform a conflicts check. It will not commit the Parties at this point.

This matter is now being administered by the International Centre for Dispute Resolution of the American Arbitration Association in New York City, and has been assigned to Sara Matathias. Please address all future correspondence to her. In the event I can be of assistance throughout the administration of this matter and to respond to any questions or issues that may arise, regarding the administrative process, please feel free to contact me directly. My contact information is set forth below. Please note that all our case administrators are supervised by multilingual attorneys trained in international arbitration and mediation. We look forward to working with you and to providing you with assistance during your participation in the arbitral process.

Thank you for selecting the American Arbitration Association, a leader in worldwide

alternative dispute resolution. Sincerely, Eleni Lappa ICDR Supervisor 212–484–3270 Lappae@adr.org

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Smart & Smart Advocates at the Court 14 Court Street Oceanside, Equatoriana 13 June 2001

International Center for Dispute Resolution

American Arbitration Association

1633 Broadway

10th Floor

New York, NY 10019–6708

USA

Dear Sirs

We are in receipt of a Notice of Arbitration filed with your Center by Futura

Investment Bank against West Equatoriana Bobbins SA, whom we represent.

It is stated in the Notice of Arbitration that the arbitration clause that is relied upon was in a contract between Tailtwist Corp and West Equatoriana Bobbins SA. My client, West Equatoriana Bobbins SA, has had no relations whatsoever with Futura Investment Bank, with the exception of receipt of a notice of assignment indicating that Futura Investment Bank is the assignee of rights held by Tailtwist Corp. Even though the rights held by Futura Investment Bank are based on an assignment of rights from Tailtwist Corp arising out of the contract between Tailtwist and my client, it is clear that my client has never entered into any arbitration agreement with the claimant. Furthermore, I can assure you that my client would not enter into an arbitration agreement with it.

If Futura Investment Bank believes that it has a claim against my client, it should bring an action in the proper court, which in this case would seem to be the Commercial Court in Oceanside, Equatoriana.

I ask you, therefore, to inform Futura Investment Bank that its request for arbitration at the American Arbitration Association must be denied without the trouble and expense that would result from constituting an arbitral tribunal.

(Signed) Jonathan Smart

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June 13, 2001 Joseph Langweiler Counsel Futura Investment Bank 14 Capitol Boulevard

Capitol City, Mediterraneo West Equatoriana Bobbins SA Legal Department 214 Commercial Avenue Oceanside, Equatoriana

Re: Futura Investment Bank and West Equatoriana Bobbins SA Dear Parties This acknowledges receipt of a letter dated June 13, 2001 from Counsel for

West Equatoriana Bobbins. We note that a copy of said letter was not sent to Joseph Langweiler thus we have attached a copy for your reference. The parties are hereby advised to please copy each other on all correspondence.

This will serve to invite Mr Langweiler’s comments regarding this letter by June 18, 2001. If no response is received by said date we will proceed with the next administrative step in this matter. Please note that pursuant to Article 15 of the International Arbitration Rules that govern this matter, pleas as to jurisdiction will be determined by the tribunal, as soon as it constituted.

Sincerely, Eleni Lappa ICDR Supervisor 212–484–3270 Lappae@adr.org

American Arbitration Association

Moot Case No 9

Futura Investment Bank

Claimant

v

West Equatoriana Bobbins SA

Respondent

STATEMENT OF DEFENCE I Parties

1 The information given in the Notice of Arbitration in respect of the name and address of West Equatoriana Bobbins SA and Tailtwist Corp are accurate. West Equatoriana Bobbins SA has no independent knowledge in respect of Futura Investment Bank.

II Arbitration clause

2 The arbitration clause set forth in paragraph 14 of the Notice of Arbitration reproduces the clause to be found in the contract between Tailtwist Corp and West Equatoriana Bobbins SA. Therefore, any arbitration based on the clause would be at the American Arbitration Association, would take place in Vindobona, Danubia before a tribunal of three arbitrators and in the English language. Respondent also agrees that any such arbitration would be conducted under the AAA International Arbitration Rules that came into force on 1 September 2000.

3 Respondent denies, however, that Futura Investment Bank can rely upon the clause to commence an arbitration against it. Respondent neither has nor has ever had any business or contractual relationship with Futura Investment Bank and specifically has never contemplated agreeing to arbitrate any dispute, current or in the future, with it. It will be noted that the arbitration clause specifically states that it applies to any dispute between Tailtwist Corp and West Equatoriana Bobbins SA. Since Tailtwist is not a party to the Notice of Arbitration, it is clear that the attempt is to apply the arbitration clause to a dispute that is not contemplated by it.

4 While Respondent has no reason to contest that Futura Investment Bank is the assignee of the right to payment under the contract between Tailtwist Corp and Respondent, the assignment is of the right to payment, not to the dispute settlement mechanism in the contract. If Futura Investment Bank wishes to pursue its claim against Respondent further, the courts of Equatoriana are available to it.

5 Recognizing that the American Arbitration Association has decided that an arbitral tribunal should decide whether Futura Investment Bank can bring an arbitration against Respondent based upon the arbitration clause in the Tailtwist contract, Respondent appoints Attorney XXXX as its arbitrator.

III Response on the merits A Payment of $2,325,000

6 Although Respondent is firmly convinced that it is not bound to arbitrate against Futura Investment Bank, an explanation will be given as to why there is no substantive claim against Respondent.

7 As is stated in the Notice of Arbitration, Respondent received the notice of assignment to Futura Investment Bank of the right to payment from Respondent to Tailtwist Corp under the contract of 1 September 1999 on 10 April 2000. As can be seen from Claimant’s Exhibit No 2, the notice of assignment was in the German language, the language spoken in Méditerranée but not in Equatoriana. No one who worked for Respondent could read the notice. Nevertheless, since the name of Tailtwist Corp and the date of the contract were mentioned, the notice was sent to Mr Simon Black, Vice-President of Respondent and the person responsible for the Tailtwist contract. Mr Black was on a business trip at the time and did not return to his office until 13 April 2000. Although Mr Black also could not read the notice, the references to Tailtwist and to the date of the contract led him to send a fax on 15 April 2000 to Futura Investment Bank inquiring as to the nature of the communication (Respondent’s Exhibit No 1). A reply was received the morning of 19 April 2000 stating that the earlier communication was a notice of assignment of the right to payment under the Tailtwist contract and containing a translation of the notice of assignment into English (Respondent’s Exhibit No 2). The English translation that was included with the fax is set out as Claimant’s Exhibit No 3, though without indication that it was transmitted to Respondent on 19 April 2000.)

8 It was not clear to Mr Black what actions should be taken in regard to the purported assignment, especially since the notice had been sent by Futura Investment Bank and not by Tailtwist Corp. Nevertheless, he sent a memorandum to the accounting department not to make any payments to Tailtwist until further notice (Respondent’s Exhibit No 3). The accounting department received the memorandum late the same afternoon. Mr Black’s intention was to inquire of Tailtwist as to whether there had been such an assignment. The eventual confirmation came in the form of a notice from the insolvency administrator dated 17 October 2000 (Respondent’s Exhibit No 4).

9 The day previous to receipt of the notice of assignment in English, 18 April 2000, the consultant for Respondent certified that the installation and commissioning tests of the Tailtwist equipment had been completed and sent his certification to the accounting department. The accounting department acted upon the certification in the early afternoon of 19 April 2000 prior to receipt of the memorandum from Mr Black. It sent the requisite payment order to the Equatoriana Commercial Bank directing payment of $2,325,000 to Tailtwist Corp.

10 The payment made by Respondent on 19 April 2000 entered into the assets of the insolvent. The administrator of the Tailtwist insolvency has approved the sale (assignment) and there is no reason to doubt that it is fully effective between Tailtwist and Futura Investment Bank (Respondent’s Exhibit No 5). Futura Investment Bank undoubtedly has a claim to the amount of the payment in the Tailtwist insolvency proceedings.

11 As can be seen, the effective indication that there had been an assignment came subsequent to the payment by Respondent to Tailtwist. Furthermore, we note that the notice of assignment directed us to change the country of payment from Oceania, where Tailtwist and its bank are located, to Mediterraneo, where Futura Investment Bank is located. The notice of assignment was, therefore, formally defective since a change in the country to which the debtor (West Equatoriana Bobbins SA) must make payment is not permitted under the Convention on Assignments of Receivables in International Trade. The formal invalidity of the notice of assignment was rectified by Futura Investment Bank only on 5 July 2000 (Respondent’s Exhibit No 5).

B Payment due after three months satisfactory performance

12 According to the contract with Tailtwist two periods began upon the certification of successful installation and commissioning tests on 18 April 2000. The first was a period of three weeks during which the Tailtwist personnel would remain to train the Respondent’s personnel in the correct operation, adjustment and maintenance of the machinery and a further three month period of satisfactory performance of the Tailtwist equipment, at the end of which Respondent was required to pay the final balance of $930,000 of the contract price.

13 The sale (assignment) by Tailtwist to Futura Investment Bank of its right to payment from Respondent was apparently a final effort to save Tailtwist from insolvency. The effort failed and insolvency proceedings were opened in Oceania on 20 April 2000.

14 The commencement of insolvency proceedings had an immediate effect on the implementation of Tailtwist’s remaining obligations under the contract. A team of four persons had been expected to carry out the training of Respondent’s personnel. However, on the opening of the insolvency proceedings on 20 April 2000 two of them were ordered to return immediately to Oceania. On their return they were notified that their employment was terminated effective immediately. The two remaining Tailtwist employees would have had a difficult time at best to conduct the training that was called for under the contract for which four persons had been anticipated. Under the circumstances, they were obviously upset and concerned about their own future. As a result, they were not able to give even the amount and quality of training that they otherwise might have given. In total, the training given by Tailtwist’s personnel under the contract was totally unsatisfactory.

15 The result for Respondent has been that the Tailtwist equipment has not performed satisfactorily. Full production has not been attained. Respondent’s personnel have had to experiment with adjusting the equipment for different raw materials, with constant fear that an incorrect adjustment would result in damage to the product and perhaps to the equipment itself.

16 Since there has been no period of three months satisfactory performance, Respondent’s consultant has given no such certification and Respondent has not paid the final balance of $930,000. Finally, in order to bring a close to the open aspects of the Tailtwist contract, on 10 January 2001 Respondent declared a reduction of the price of $930,000 in accordance with Article 50 of the United Nations Convention on Contracts for the International Sale of Goods (Claimant’s Exhibit No 5). Consequently, there is no balance due on the contract and no sum due to be paid to Futura Investment Bank. That West Equatoriana Bobbins SA considered the matter to be closed and not subject to further discussion was communicated to Futura Investment Bank on 16 May 2001 (Claimant’s Exhibit No 4).

C Agreement not to assert defenses; notice of defective goods

17 In the Notice of Arbitration, Futura Investment Bank refers to the clause in the contract by which Respondent agreed not to assert against an assignee of Tailtwist’s right to receive payments from Respondent ‘any defense it may have against Tailtwist arising out of defective performance of this contract, unless Tailtwist does not in good faith attempt to remedy the deficiency’.

18 During the negotiation of the contract, Tailtwist insisted upon a clause of this nature. It anticipated that it might wish to assign the right to receive the payment from Respondent and it would receive better terms from the assignee if such a clause were present. Respondent did not wish to have such a clause in the contract, since it would make reclamations against defective performance more difficult. Finally, it was agreed that there would be a clause, but that deficiencies Tailtwist did not in good faith attempt to remedy would be excluded from its operation. If there would be a deficiency in Tailtwist’s performance of the contract, Tailtwist would be bound to attempt in good faith to remedy the deficiency (which at the time of negotiating the contract Respondent was convinced would remedy all likely difficulties) or Respondent would be able to assert the deficiency as a defense against the assignee.

19 The opening of the Tailtwist insolvency proceedings on 20 April 2000 upset all of the calculations. As already mentioned, the first consequence was that two of the four men expected to remain at Respondent’s place of business for training Respondent’s personnel were immediately called back and their employment was terminated on their arrival in Oceania. On 13 June 2000 the insolvency administrator recommended to the court in Oceania that all further business activities of Tailtwist be terminated immediately and that the company be liquidated. The recommendation was accepted by the court on 16 June 2000. From then on the only activities carried on in respect of Tailtwist were in connection with the liquidation.

20 The contract provided that at the end of a three month period of satisfactory performance the final 10% of the purchase price ($930,000) was to be paid. The anticipated period of three months ended on 10 August 2000, but the machinery had not worked in a satisfactory way. Full production has not been attained. As noted above, Respondent’s personnel have had to experiment with adjusting the equipment for different raw materials, with constant fear that an incorrect adjustment would result in damage to the product and perhaps to the equipment itself. It is not clear to Respondent whether the problem lies in the equipment or in the inadequate training given to Respondent’s personnel by Tailtwist. In either case, the result has been the same.

21 The obvious response would normally have been that Respondent would have notified Tailtwist of the problems and would have expected the arrival of Tailtwist personnel who would either have fixed the machinery or have given additional training, or both. However, with the insolvency of Tailtwist and the complete cessation of all its operations except those devoted to liquidating the company, there was no one to whom to send any such notice.

22 In respect of the agreement not to assert defences, it is obvious that Tailtwist did not attempt in good faith to remedy the deficiencies in its performance. It is also obvious that Tailtwist would not have remedied the defects, or attempted in good faith to do so, even if Respondent had sent a notice to the insolvency administrator, who was the only available addressee to whom such a notice could theoretically have been sent. Consequently, Respondent is not precluded from asserting its defenses against Tailtwist’s assignee (Futura Investment Bank) either as a result of the clause or as a result of not having given notice of the deficient performance of the equipment.

IV Request of the tribunal

23 The Respondent requests the arbitral tribunal:

– to declare that it does not have jurisdiction to hear the claim brought against the Respondent for lack of an arbitration agreement;

– to award Respondent all costs of the arbitration.

24 If the arbitral tribunal should find that it has jurisdiction to hear the claim, the Respondent requests the arbitral tribunal to declare:

– that the notice of assignment sent by Futura Investment Bank was ineffective against Respondent since it was in the German language;

– that the notice of assignment sent by Futura Investment Bank was ineffective against Respondent because it changed the country to which payment should be made;

– that the notice of assignment was not binding on Respondent until it was confirmed by the assignor;

– that the English language translation of the notice of assignment sent by Futura Investment Bank on 19 April 2000 arrived too late to stop the payment of $2,325,000 due on the completion of the installation of the equipment and the commissioning tests;

– that the agreement not to assert defenses against an assignee of Tailtwist Corp does not preclude Respondent from asserting the defective performance of the contract since Tailtwist Corp did not in good faith attempt to remedy the deficiencies;

– that there was no effective person to whom Respondent could have sent a notice of defective performance once all of Tailtwist’s business activities were terminated by the court in Oceania handling its insolvency proceedings.

Respondent further requests the arbitral tribunal to award Respondent all costs of

the arbitration.

(Signed)

Counsel for West Equatoriana Bobbins SA 14 June 2001

Respondent’s Exhibit No 1

West Equatoriana Bobbins SA 214 Commercial Ave Oceanside, Equatoriana Telephone 555–1212 Telefax 555–1214 15 April 2000

Harold Fine

Vice-President

Futura Investment Bank

395 Industrial Place

Capitol City, Mediterraneo

Dear Mr Fine We are in receipt of a communication from you dated 5 April 2000 that we do not understand. Since it contains the name of Tailtwist Corp and the date 1 September 1999, which is the date of a contract between Tailtwist and ourselves, we inquire as to the nature of your communication to us.

I must ask you to reply in the English language, since that is the only language that I and my colleagues are able to read.

In anticipation of your reply, I remain Sincerely yours, Simon Black Vice President FAX

Respondent’s Exhibit No 2

Futura Investment Bank 395 Industrial Place Capitol City, Mediterraneo Telephone 483–5800 Telefax 483–5810

19 April 2000 Mr Simon Black Vice President West Equatoriana Bobbins SA 214 Commercial Ave Oceanside, Equatoriana

Dear Mr Black

The correspondence from us dated 5 April 2000 was a notice of assignment. Tailtwist

Corp has assigned to us the right to receive the payments due to it under your contract

with Tailtwist dated 1 September 1999.

I apologize for the fact that the notice of assignment sent to you was in German. A

translation into English is attached.

Please be sure that all future payments in regard to your contract with Tailtwist are

made to our account.

Sincerely,

Harold Fine

Vice-President

Encl: Notice of Assignment (English) [Note: the enclosed translation of the notice of

assignment is set forth as Claimant’s Exhibit No 3.]

Fax and Mail

Respondent’s Exhibit No 3

West Equatoriana Bobbins SA 214 Commercial Ave Oceanside, Equatoriana

To: Accounting Department From: Simon Black

Date: 19 April 2000 Re: Tailtwist contract I have just received a notice that Tailtwist assigned to Futura Investment Bank the

right to receive the payments from us due on the Tailtwist contract. One of them will soon be due. Please be sure not to make any payment to Tailtwist until I receive confirmation from Tailtwist that they have indeed made the assignment.

Respondent’s Exhibit No 4

Dr Herbert Strict Administrator in Insolvency 14 White Horse Place Sea Part, Oceania

MATTER OF THE INSOLVENCY OF TAILTWIST CORP

On 29 March 2000 Tailtwist Corp assigned to the Futura Investment Bank, 395 Industrial Place, Capitol City, Mediterraneo, the right to receive the remaining payments due from West Equatoriana Bobbins SA under a contract dated 1 September 1999. The amount of the payments assigned was $3,255,000. Futura Investment Bank paid to Tailtwist the sum of $3,150,000 in exchange for the assignment.

Transfers of property made by an insolvent within 90 days of the opening of the insolvency proceedings may be set aside by the Insolvency Administrator under certain circumstances. The assignment referred to above was made within 90 days of the opening of the insolvency proceedings.

I find that the transfer did not contravene the policies set forth in the Insolvency Law

of Oceania. Therefore, the assignment is confirmed. Signed 17 October 2000 Date

Respondent’s Exhibit No 5

Futura Investment Bank 395 Industrial Place Capitol City, Mediterraneo Telephone 483–5800 Telefax 483–5810

5 July 2000 Mr Simon Black Vice President West Equatoriana Bobbins SA 214 Commercial Ave Oceanside, Equatoriana

Dear Mr Black I refer to the notice of assignment dated 5 April 2000 in which Futura Investment Bank notified you that your payment obligations under the contract with Tailtwist Corp had been assigned to the Bank.

In the notice of assignment you were instructed to make payment to Futura Investment Bank, Capitol City, Mediterraneo, account 123456, reference Tailtwist/Bobbins 010999.

You are hereby instructed to make future payments to Oceania Commercial Bank, Part City, Oceania, account of Futura Investment Bank, account number 345678, reference Tailtwist/Bobbins 010999.

(Signed) Harold Fine Vice-President

June 14, 2001 Joseph Langweiler Counsel Futura Investment Bank 14 Capitol Boulevard Capitol City, Mediterraneo West Equatoriana Bobbins SA Legal Department 214 Commercial Avenue Oceanside, Equatoriana

Re: Futura Investment Bank and West Equatoriana Bobbins SA Dear Counsel This will acknowledge receipt on June 14, 2001 from Respondent of a

Statement of Defense to the Demand for Arbitration which was initiated by Claimant on 5 June, 2001. We understand that a copy was sent to the Claimant.

We further note that Respondent has appointed Attorney XXXX as its arbitrator. The Parties are kindly reminded of our administrative conference call set for tomorrow, June 15, 2001, at 2:00 pm local New York time.

Sincerely, Eleni Lappa ICDR Supervisor 212–184–3270 Lappae@adr.org

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June 15, 2001 Joseph Langweiler Counsel Futura Investment Bank 14 Capitol Boulevard

Capitol City, Mediterraneo West Equatoriana Bobbins SA Legal Department 214 Commercial Avenue Oceanside, Equatoriana

Re: Futura Investment Bank and West Equatoriana Bobbins SA

Dear Counsel

This will serve to confirm that an administrative conference call took place on June 15, 2001, wherein the following matters were discussed. Participating on

the call were Joseph Langweiler representing the Claimant and YYYYY representing the Respondent. Although mediation was discussed, the parties felt that mediation was not an

option at this time. Number of arbitrators: The parties agree that the arbitration will be heard by a tripartite panel. Method of appointment: Your arbitration agreement provides for party-appointed arbitrators. The parties have each appointed their respective arbitrators and we will be confirming said appointments and assisting in the appointment of the third Arbitrator shortly. Locale: Your arbitration agreement provides for the arbitration to be held in Vindobona, Danubia Thank you for your participation in today’s conference call.

Sincerely,

Eleni Lappa

ICDR Supervisor

212–484–3270

Lappae@adr.org

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October 6, 2001 Joseph Langweiler Counsel Futura Investment Bank 14 Capitol Boulevard

Capitol City, Mediterraneo West Equatoriana Bobbins SA Legal Department 214 Commercial Avenue Ocean side, Equatoriana

Re: Futura Investment Bank and West Equatoriana Bobbins SA

Dear Counsel

This acknowledges receipt of Procedural Order No 1 issued by the Arbitrator.

A copy of said Order is attached herewith for your review and compliance.

Sincerely,

Eleni Lappa

ICDR Supervisor

212–484–3270

Lappae@adr.org

American Arbitration Association

Moot Case No 9

Futura Investment Bank

Claimant

v

West Equatoriana Bobbins SA

Respondent

PROCEDURAL ORDER NO 1

1 The Arbitral Tribunal, composed of Mr ___, Dr ____, and myself as chairman, has authorized me in conformity with AAA International Arbitration Rules, Article 26.2, to make procedural rulings alone.

2 On 30 September 2001 I met with ___________, counsel for the Claimant, Futura Investment Bank, and _______________, counsel for the Respondent, West Equatoriana Bobbins SA. We discussed the procedures that should be followed in the arbitration. Counsel agreed that the Tribunal might be able to decide the arbitration on legal issues alone, without the need for an extensive procedure to determine facts beyond those already set forth in the Notice of Arbitration and the Statement of Defense. The factual issues that may need to be developed at this first stage of the arbitration will be determined in accordance with the procedures found in the Rules of the Ninth Annual Willem C Vis International Commercial Arbitration Moot. In accordance with those Rules questions may be submitted to Professor Eric Bergsten, preferably by e-mail at eric.bergsten@chello.at, by Friday, 26 October 2001. The answers will be distributed to all parties by 5 November 2001.

3 West Equatoriana Bobbins SA has contested the jurisdiction of the arbitral ttribunal to consider this dispute on the grounds that there is no arbitral agreement between it and Futura Investment Bank. Futura Investment Bank in reply argues that as the assignee of Tailtwist Corp, it can rely on the arbitration clause in the contract between Tailtwist and West Equatoriana Bobbins SA

4 West Equatoriana Bobbins SA has also contested on the merits the claims put forward by Futura Investment Bank. In respect of the sum of $2,325,000 due from West Equatoriana Bobbins SA on the completion of the commissioning tests, it claims that the notice of assignment dated 5 April 2000 from Futura Investment Bank, was:

– defective in form when received in that it was in the German language, which no one at West Equatoriana Bobbins SA could read;

– defective in form, whether in German or in the English translation later received, in that it called for payment to be made in Mediterraneo rather than in Oceania as in the contract with Tailtwist;

– did not bind West Equatoriana Bobbins SA until confirmation of the assignment was received from Tailtwist Corp, the assignor; and

– received too late in the readable English translation to affect the payment to Tailtwist already in process.

Futura Investment Bank counters with the argument that even if the German text was not fully readable to the personnel of West Equatoriana Bobbins SA, there were sufficient indications in it as to its nature to give notice that payment should not be made to Tailtwist Corp until further inquiry was made.

5 In respect of the sum of $930,000 due upon the completion of three months satisfactory operation of the equipment, West Equatoriana Bobbins SA claims that the machinery did not perform satisfactorily and that it was justified in reducing the price by the outstanding sum due, namely $930,000. In response to the argument raised by Futura Investment Bank that it had signed an agreement not to assert against an assignee of Tailtwist Corp defenses arising out of the deficient performance of the contract, West Equatoriana Bobbins SA states that the agreement did not apply to deficient performance that Tailtwist Corp did not in good faith attempt to remedy. It goes on to say that, because of the insolvency of Tailtwist Corp, there was no attempt to remedy the deficient performance. Futura Investment Bank in reply has stated that West Equatoriana Bobbins SA did not give Tailtwist Corp notice of the deficient performance. Not only did that preclude Tailtwist Corp from attempting to remedy the deficient performance, but by itself would have been grounds for precluding West Equatoriana Bobbins SA from asserting the deficient performance against Tailtwist Corp itself. West Equatoriana Bobbins SA replies that Tailtwist Corp was in insolvency proceedings at the time notice would have been given and all functions had ceased, except those associated with liquidating the company. It states that there was no one to whom an effective notice could have been given.

6 It would be normal practice for the Arbitral Tribunal to receive arguments first as to its jurisdiction before it received arguments on the substance of the dispute. However, in the interests of efficient administration of the arbitration, the parties are requested to submit their arguments as to all the issues at the same time. A memorandum for Claimant in regard to these issues is to be submitted by email to Professor Eric Bergsten by 13 December 2001. At least five hard copies must be received in Vienna by 18 December 2001. A further 20 copies are due in Vienna by 10 January 2002. Counsel are reminded that they may need to send the hard copies before 13 December in order for them to arrive by 18 December. Counsel are also reminded that failures of the delivery service, whether the post or a courier service, are at their risk.

7 A memorandum for respondent is to be submitted by e-mail to Professor Eric Bergsten by 8 February 2002. At least five hard copies must be received in Vienna by 13 February 2002 with an additional twenty copies due by 19 February 2002.

8 Oral arguments will be held during the period 22 to 28 March 2002. There swill be an unofficial welcoming party organized by the Moot Alumni Association on Thursday evening, 21 March 2002.

(Signed) 6 October 2001

American Arbitration Association

Moot Case No 9

Futura Investment Bank

Claimant

v

West Equatoriana Bobbins SA

Respondent

PROCEDURAL ORDER NO 2

Following the procedure agreed upon by the parties and set forth in Procedural Order No 1, the parties have submitted a number of requests for clarifications. The responses to those requests are set forth below.

On 2 November 2001 there was a further conference telephone call between the President of the Tribunal and counsel for the parties. During that telephone call it was clarified that there were a certain number of factual questions that might require the taking of evidence at hearings to be held at some time after the hearings in March 2002 [ie, after the Moot is over.] In particular, if the Tribunal were to decide that West Equatoriana Bobbins SA was not precluded from reducing the price by reason of either the clause in the contract in which it agreed not to assert certain defenses against a future assignee of the right to receive payment or the fact that it had not given notice of the deficiencies in performance of the equipment, there might still be a need to determine whether there was in fact such a deficiency in performance and whether the amount of reduction in the price was appropriate. Similarly, if the Tribunal were to find that West Equatoriana Bobbins SA was obligated to pay to Futura Investment Bank either or both of the two payments claimed, the amount of interest would need to be determined at a time after the hearings in March 2002. It was, therefore, agreed that for the purposes of preparing the memoranda to be submitted in accordance with the schedule set forth in Procedural Order No 1 and the oral hearings 22 to 28 March 2002, no issues as to the monetary amount owed by one party to the other should be discussed. Furthermore, all facts alleged in either the Notice of Arbitration or the Statement of Defense, as well as all facts clarified in the present Procedural Order, would be accepted as being correct. That would not prevent either party from contesting any of those facts at later evidentiary hearings after the hearings in March 2002.

Applicable law 1 Was the draft Convention on the Assignment of Receivables in International

Trade in force at the time of the contract between Tailtwist and Bobbins and

at the time of the conclusion of the contract of assignment between Tailtwist

and Futura?

Yes. Even though at the time of distribution of the Problem the text is in fact a draft Convention, for the purposes of the Moot the Convention is in force, and was in force for Mediterraneo and Oceania, but not for Equatoriana, at all relevant times. The existence of the Convention was well known in Oceania and Mediterraneo in the professional circles dealing with trade financing. This included the financial officers of Tailtwist and the relevant personnel in Futura. There is no knowledge whether there is interest in the Convention in Equatoriana. The Convention may be referred to as the ‘Receivables Convention’.

2 Have Equatoriana and Oceania incorporated into their domestic law the United Nations Convention on Contracts for the International Sale of Goods and have Oceania and Mediterraneo incorporated into their domestic law the draft Convention on the Assignment of Receivables in International Trade? Have they made any reservations or declarations to the conventions to which they are party?

The conventions have been incorporated into domestic law by the constitutional

procedures of the three countries.

No reservations or declarations have been made by any of the three States to any of

the Conventions relevant to this arbitration to which they are party.

3 Were Equatoriana, Oceania or Mediterraneo parties to the UNIDROIT Convention on International Factoring at any of the relevant times?

No, none of the three States is party to that Convention.

4 Are there any trade usages in the sense of Article 11 of the draft Convention on Assignments of Receivables in International Trade that would affect the relations between Tailtwist and Futura?

No.

5 Is there anything in the law of Oceania that would preclude the application of the draft Convention on Assignments of Receivables in International Trade to Bobbins?

There is nothing in the law of Oceania that is contrary to the provisions of the draft Convention. Application of the draft Convention to Bobbins would, of course, have to be justified.

6 Are Equatoriana, Oceania and Mediterraneo common law or civil law countries?

Equatoriana and Oceania are common law countries while Mediterraneo is a civil law country.

7 Have any of the three countries adopted the UNCITRAL Model Law on Cross-Border Insolvencies?

Sadly, no.

Contract, contract terms and prior business relations

8 What language is spoken in Equatoriana, Oceania and Mediterraneo?

English is spoken in Equatorliana and Oceania while German is spoken in Mediterraneo.

9 In what language was the contract between Tailtwist and Bobbins?

English.

10 Had Bobbins had previous dealings with parties who communicated in German?

Basically no, though it had received inquiries in German in regard to its products on several occasions. On those occasions it had sent the letters to a local translation service to have them translated into English. All follow-up correspondence had been in English.

11 Who drafted the contract?

The contract was negotiated, but the negotiations commenced on the basis of the Tailtwist standard contract form. As was noted in the Statement of Defense para 18, the clause relating to the agreement not to assert defenses was specifically negotiated. There were other provisions that have not arisen in this arbitration that were also specifically negotiated.

12 Did the contract specify the country to which payments to Tailtwist were to be made?

The contract specified that payments were to be made to Tailtwist’s bank account in Oceania.

13 Had Bobbins had any prior dealings with Tailtwist?

Bobbins had purchased other equipment from Tailtwist on several occasions in the past. There had been no disputes arising from those transactions.

14 Has Bobbins ever had the situation before where its creditor assigned the right to receive payments from Bobbins?

In some countries assignment of trade credit is a common form of business financing. That is the situation in Equatoriana. Therefore, it had happened on many occasions that creditors of Bobbins had assigned to someone else the right to receive payment from Bobbins. Moreover, Bobbins had also on occasion financed its current operations by assigning its receivables to a financing company.

Assignment 15 Was the assignment from Tailtwist to Futura oral or written and in what

language was the contract concluded?

It was written in English. It met all formal requirements for being a valid and effective assignment.

16 Was it a factoring contract?

No.

17 Did the contract give Futura a right of recourse against Tailtwist if Bobbins did not make the two anticipated payments to Futura?

Yes, Futura has a right of recourse under the contract of assignment.

18 Did the assignment contract contain an arbitration clause?

No.

19 Did the assignment contract provide which of the two parties would notify Bobbins of the assignment?

It provided that Futura would notify Bobbins.

20 At the time of the assignment did Futura know of the terms of the contract between Tailtwist and Bobbins?

Yes. Futura would not have paid $3,150,000 (see Respondent’s Exhibit No 4) if it had not known in detail for what it was paying.

Insolvency

21 When did Bobbins learn of the opening of the Tailtwist insolvency proceedings?

Bobbins learned of the opening of the insolvency proceedings on 23 April 2000. It knew of the decision of the administrator to request the court to terminate all of Tailtwist business operations and the decision of the court to accede to the request on the day on which they were made.

22 Is there anything in the insolvency law of Oceania that would affect the

rights of Bobbins or Futura in regard to the assignment of the right of payment

from Tailtwist to Futura?

There is nothing other than that which is set forth in the decision of Dr Herbert Strict, Administrator in Insolvency, Respondent’s Exhibit No 4. Under the insolvency law and procedure in Oceania, the decision of Dr Strict was a final decision on all matters to which it pertained.

23 In what manner, if any, did the opening of insolvency proceedings in Oceania affect Tailtwist’s contractual rights and obligations towards Bobbins?

Under the insolvency law of Oceania the contract remains in force unless and until the court decides otherwise. If Bobbins has an affirmative claim against Tailtwist, it would have to be assert in the insolvency proceedings. Tailtwist would have claims against Bobbins only to the extent that it had fulfilled its contractual obligations. Under the insolvency law of Oceania a reduction of the price for failure by a seller to fulfill its obligations is not considered to be an affirmative claim on the part of the buyer.

24 Did the payment of the $2,325,000 by Bobbins to Tailtwist on 19 April 2000 become part of the assets of Tailtwist in the insolvency proceedings?

Yes, the funds became part of the assets of Tailtwist in the insolvency proceedings. If anyone other than Tailtwist had a right to those funds, he/it would have to file a claim in the insolvency proceedings as a general creditor and would share with all other general creditors of Tailtwist on a pro rata basis. A claimant to those funds would have no priority in the insolvency proceedings in regard to them. It is anticipated that general creditors in the Tailtwist insolvency will receive approximately 20% of their claims.

25 When did Bobbins write Tailtwist’s administrator in insolvency to request confirmation of the assignment?

It never did. Since it had already paid Tailtwist the $2,325,000, it had no intention of paying Futura as well, even if there was an effective assignment. Similarly, since it had no intention of paying the final amount of $930,000, it had no interest in whether there had been an assignment.

26 Was Bobbins aware at any time prior to the opening of the Tailtwist insolvency proceedings on 20 April 2000 that Tailtwist was in financial difficulties?

There had been some speculation in business circles that Tailtwist might be having financial difficulties, but the opening of insolvency proceedings was a surprise to Bobbins.

Payment procedures 27 Was there anyone besides Mr Black to whom the notice of assignment in

German might have been sent?

The secretary who opened the envelope containing the notice of assignment had no idea what it was. She could tell that it involved the contract with Tailtwist, since the name of the company was on the notice. All correspondence dealing with the Tailtwist contract was sent to Mr Black. No one had been delegated to deal with the contract while he was on the business trip.

28 When did Mr Black read the notice?

He did not actually read the notice, since he could not read German. However, he looked at it on Saturday, 15 April 2000, the day he sent the inquiry by fax to Futura.

29 When Tailtwist received the payment initiated by Bobbins on 19 April 2000, was there any instruction from Futura to hold the payment for Futura’s benefit?

No, it had been expected that notice would be given to Bobbins of the assignment and that Bobbins would pay directly to Futura.

30 By what procedure did Mr Black send his memorandum to the Accounting Department, Respondent’s Exhibit No 3?

Mr Black followed the usual procedure. After he dictated the memorandum, which was one of several he dictated at the same time, it was typed by his secretary and presented to him for signature. After he signed it, the memorandum was placed in the out-going mailbox for the internal messenger service. The memorandum was delivered to the Accounting Department by the internal messenger service. It took about two and a half hours from the time the memorandum was signed to the time it was received in the Accounting Department.

31 Was it necessary for Mr Black to sign or in any other way authorize the payment to Tailtwist?

No. Before he left on his business trip he had discussed with the consultant the progress being made in the installation and commissioning of the Tailtwist equipment. Since there was the possibility that it would be completed while he was still travelling, he had left instructions that the certification would go directly from the consultant to the accounting department and that payment should then be made.

32 Would it have been possible for Bobbins to stop the payment after the accounting department received the memorandum from Mr Black that payment should not be made to Tailtwist until further information in regard to the assignment was received?

The instruction to Equatoriana Commercial Bank to make the payment was transmitted to it by Internet. Since the payment order sent by Bobbins was in the format prescribed by the Bank, the account of Bobbins was debited and the payment order was sent by the Bank to Tailtwist’s bank in Oceania within an hour of receipt. That was prior to the time that Mr Black’s memorandum was received by the accounting department.

33 Would it have been prejudicial to Bobbins to make payment to a bank in

Mediterraneo rather than to a bank in Oceania? Would the transfer have

cost more?

No, there would have been no difference as far as Bobbins was concerned.

Quality of the goods and nature of the training

34 Were there specifications of performance set out in the contract?

Yes, there were detailed specifications in the annexes to the contract as to the performance of the Tailtwist ‘Spin-a-Whizz’ equipment as well as the ‘Auto-Swop’ Doffer. Bobbins will be prepared to present evidence as to the deficiencies in performance of the equipment, if the arbitration reaches a stage of detailed fact-finding. Such detailed presentation of evidence would take place, if at all, only after the oral hearings scheduled for March 22–28, 2002 [ie, only after the Moot is completed].

35 Did Tailtwist agree that they would provide four of their personnel for the training?

In oral discussions prior to the conclusion of the contract Tailtwist had said that the training would be conducted by four of their personnel. It was also stated that the cost would be $20,000 per person for the three week period. The contract did not specifically state how many persons would conduct the training.

36 Were there any specifications as to what would be covered by the training or

the level of competence Bobbins’ personnel would achieve in regard to

operation, adjustment and maintenance of the Tailtwist equipment?

No. The assertion by Bobbins in paragraph 14 of the Statement of Defense that the training given was totally unsatisfactory would be supported in any later evidentiary hearing by evidence from its personnel as to the training they had been given as to how to operate, adjust and maintain the equipment and why that training was insufficient.

37 Did the two men that remained to give the training know that the other two men had been laid off?

Yes.

38 Did the contract contain any provisions as to the obligations of a party if a problem of performance arose?

There were no special provisions other than what is to be found in the United Nations Convention on Contracts for the International Sale of Goods.

39 Did Bobbins at any time inform an employee of Tailtwist or the insolvency

administrator about the problems in operating the equipment or the

insufficiency of the training?

Various statements were made to the two men from Tailtwist who gave the training that the training being given was not sufficient. No other complaints were made. As for the performance of the equipment, the deficiencies in performance became evident only after the end of the training period. Although full production was never achieved, it was not before the end of June that Bobbins reached the conclusion that they would not be able to make whatever adjustments might be necessary to achieve the desired level of production. By that time Tailtwist was no longer an operating concern, including that there was no after-sales servicing available. No communications in regard to the operation of the machinery were made to Tailtwist following the end of the training period on 10 May 2000.

40 Is there any reason why Bobbins couldn’t have notified Tailtwist or the

administrator of the defective performance prior to the letter dated 10 January

2001 (Claimant’s Exhibit No 5)? Although Bobbins did not see the utility of giving notice for the reasons given above, there was no reason why Bobbins could not have notified the administrator of the defective performance.

41 Could Bobbins have obtained the training from any third party or have sought assistance with the machinery from any third party?

The machinery and software were proprietary to Tailtwist. It is unlikely that any third party could have given Bobbins the training or assistance that it could normally have expected to receive from Tailtwist.

42 In the light of paragraph 10 of the Notice of Arbitration, has Futura conceded that the training given by Tailtwist was inadequate?

At this point in the arbitration Futura has neither admitted nor denied that the training given was inadequate, or that there were any deficiencies in the machinery. That is not an issue, of course, if Futura’s argument in regard to the lack of notice is upheld by the Arbitral Tribunal. Therefore, at the stage of the arbitration that is the subject matter of the Moot it can be assumed that there are deficiencies in the performance of the Tailtwist equipment. It may still incumbent upon Bobbins to prove those deficiencies in later stages of the arbitration that may take place after the completion of the Moot.

43 Did Bobbins approach any former Tailtwist personnel to give further training after Tailtwist ceased business operations on 16 June 2000?

No, it did not.

44 Was the building and preparation work performed by Bobbins according to the specifications provided by Tailtwist?

Apparently so, since at no time did the personnel of Tailtwist suggest that there were any problems with it.

Other matters

45 How did Bobbins arrive at the figure of a 10% reduction in the price?

The contract provided that 10%, or $930,000 was to be paid at the end of three months satisfactory performance. Bobbins claims there was not satisfactory performance and, therefore, the $930,000 is not due to be paid. It calculated that it would have paid approximately $8,300,000 to $8,400,000 for machinery that would have performed as the Tailtwist machinery was performing.

46 Was it common for Bobbins to enter into contracts for $9,000,000?

Such contracts were not unknown to Bobbins, but they were not common.

47 Were Bobbins or Futura experienced in arbitration law and practice?

Arbitration is common within the textile trade in which Bobbins is engaged. Bobbins had less experience with arbitration outside the trade, though it had happened. Futura had engaged in several arbitrations in the past. Bobbins arbitrations within the textile trade had usually been handled without the assistance of outside counsel, since they were usually quality disputes. All of the disputes outside the textile trade and all arbitrations in which Futura had been engaged had been handled by outside counsel.

(Signed) November 5, 2001 President of the Tribunal

American Arbitration Association

Moot Case No 9

Futura Investment Bank

Claimant

v

West Equatoriana Bobbins SA

Respondent

PROCEDURAL ORDER NO 3

It has been suggested that it is not completely clear what issues will be considered in the memoranda to be submitted by Claimant and Respondent and to be argued in the hearings scheduled for 22–28 March 2002 and what issues should not be considered at this time. It is understood that, at a later time, the Tribunal may consider the issues not considered at the present time, if the occasion calls for it [but not in the Moot]. The memoranda and hearings should consider the following issues:

– whether the Tribunal has jurisdiction to hear the merits of the claim brought by Futura Investment Bank on the basis of the arbitration clause in the sales contract between Tailtwist Corp and West Equatoriana Bobbins SA;

– whether the notice of assignment, either the German text received on 10 April 2000 or the English text received on 19 April 2000, was effective to obligate West Equatoriana Bobbins SA to pay the $2,325,000 to Futura Investment Bank rather than to Tailtwist Corp;

– whether the ‘waiver of defense’ clause in the sales contract precludes West Equatoriana Bobbins SA from asserting against Futura Investment Bank the alleged deficiencies in the training and in the performance of the equipment;

– whether the failure to give notice of the alleged deficiencies precludes West Equatoriana Bobbins SA from asserting the alleged deficiencies in the training and in the performance of the equipment.

Any matters relevant to these issues may be brought to the attention of the Tribunal in the current memoranda and the hearings in March 2002. The memoranda and hearing should not consider the following issues:

– whether the alleged deficiencies in training and performance of the equipment in fact justified a reduction in the price and, consequently, whether the amount of reduction was appropriate;

– the rate of interest that West Equatoriana Bobbins SA should pay to Futura Investment Bank if it has to pay Futura any amount of the purchase price assigned;

– any calculation or apportionment of the costs of the arbitration.

(Signed) 8 November 2001 President of the Tribunal

The University of Queensland Memorandum for the Claimant

List of abbreviations

§
Section
A
Atlantic Reporter
A2d
Atlantic Reporter, Second Series
AAA Rules
American Arbitration Association International

Arbitration Rules, 1993
ABGB
Allgemeines Bürgerliches Gesetzbuch (Austrian Civil

Code)
AD2d
New York Supreme Court Appellate Division Reports,

Second Series
BGB
Bürgerliches Gesetzbuch (German Civil Code)
BLR
Business Law Reports
BOBBINS
West Equatoriana Bobbins SA
Cal
California
CISG
The United Nations Convention on Contracts for the

International Sale of Goods 1980
Ch
High Court of Justice (Chancery Division) (England)
1st Cir
United States Court of Appeal First Circuit
2d Cir
United States Court of Appeal Second Circuit
8th Cir
United States Court of Appeal Eighth Circuit
9th Cir
United States Court of Appeal Ninth Circuit
Co
Company
Corp
Corporation
NY Ct App
New York Court of Appeal
DLR (4th)
Dominion Law Reports, Fourth Series
DNY
United States District Court, Southern District of New York
DColo
United States District Court, District of Colorado
DDel
United States District Court, District of Delaware
ed
Editor
eds
Editors
EDPa
United States District Court, Eastern District of

Pennsylvania
F 2d
Federal Reporter, Second Series
F3d
Federal Reporter, Third Series
F Supp
Federal Supplement
FlaDistCtApp 1st Dist
Court of Appeal of Florida, First District
HCJ
High Court of Justice

344
International Trade & Business Law
HG
Handelsgericht
Inc
Incorporated
ICC
International Chamber of Commerce
ICC Rules
Rules of Arbitration of the International Chamber of

Commerce 1998
ICDR
International Center for Dispute Resolution
ICSID
International Center for the Settlement of Investment

Disputes
INVESTMENT
Futura Investment Bank
JB1
Juristische Blätter
JDI
Journal du droit international
KB
High Court of Justice (King’s Bench) (England)
LCIA Rules
London Court of International Arbitration Rules 1998
Lloyd’s Rep
Lloyd’s Reports
Ltd
Limited
Minn
Minnesota
Misc2d
Miscellaneous Reports (New York), Second Series
Model Law
UNCITRAL Model Law on International Commercial

Arbitration 1985
NH
New Hampshire
New York Convention
United Nations Convention on the Recognition and

Enforcement of Foreign Arbitral Awards, 1958
NIPR
Nederlands Internationaal Privaatrecht
NJW
Neue Juristische Wochenschrift
No
Number
Nos
Numbers
NY
New York Court of Appeal Reports or New York
NYAppDiv 1st Dep’t
Supreme Court of New York, Appellate Division, First

Department
NYCtApp
New York Court of Appeal
NYSupCt
New York Supreme Court
OGH
Oberster Gerichtshof (Austria)
OntDivCt
Ontario Divisional Court
PaSuperCt
Superior Court of Pennsylvania
Pty
Proprietary
QB
High Court of Justice (Queen’s Bench) (England)
RevArb
Revue de l’arbitrage
RG
Revue générale de droit international public
RGZ
Entscheidungen des Reichsgerichts in Zivilsachen

(Germany)
RIW
Recht der Internationalen Wirtschaft
SDNY
United States District Court, Southern District of New

York
SDOhio
United States District Court, Southern District of Ohio
Sez
Sezione

So2d SpA Srl SupCtPa TAILTWIST Trib Civ UCC RepServ2d

(Callaghan) UK ULIS UNCITRAL UNIDROIT UNBDROIT Principles

US USDist USSupCt

WN YB ZR

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List of legal authorities

Allgemeines Bürgerliches Gesetzbuch (Austria) [ABGB]

American Arbitration Association International Arbitration Rules, 1 September 2000

[AAA Rules]

Bürgerliches Gesetzbuch (Germany) [BGB]

Code Civil (France)

Codice Civile (Italy)

Codigo para El Distrito Federal en Materia Comun y para toda La Republica en

Materia Federal (Mexico)

Contracts (Rights of Third Parties) Act 1999 (UK)

Convention on the Assignment of Receivables in International Trade [Receivables

Convention]

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New

York, 10 June 1958 [New York Convention]

London Court of International Arbitration Rules, 1 January 1998 [LCIA Rules]

Schweizerisches Obligationenrecht (Switzerland)

UNCITRAL Model Law on International Commercial Arbitration, 21 June 1985

[Model Law]

UNIDROIT Principles of International Commercial Contracts, Rome, 1994

[UNIDROIT Principles]

Uniform Law on the International Sale of Goods, The Hague, 2–22 April 1964

[ULIS]

United Nations Convention on Contracts for the International Sale of Goods, Vienna,

11 April 1980 [CISG]

Statement of purpose

The Claimant, Futura Investment Bank (INVESTMENT), has prepared this

memorandum in compliance with the Arbitral Tribunal’s Procedural Order No 1,

issued on 6 October 2001.

It is argued that:

a legally valid arbitration agreement exists between INVESTMENT and the Respondent, West Equatoriana Bobbins SA (BOBBINS);

INVESTMENT is entitled to payment of $2,325,000 from BOBBINS;

INVESTMENT is entitled to payment of the final installment of $930,000 from BOBBINS;

INVESTMENT is entitled to claim interest on the sum of $3,255,000; and that

BOBBINS should bear the costs of the arbitration.

In arguing these propositions, INVESTMENT will demonstrate the legal and factual bases for its claim, and will respond to BOBBINS’ affirmative defences.

Arguments

1 There is a valid arbitration agreement between INVESTMENT and BOBBINS

1.1 The arbitral tribunal has authority to rule on its own jurisdiction

This dispute concerns an arbitration clause originally contained in a contract concluded between TAILTWIST and BOBBINS on 1 September 1999.[1] That clause incorporated the American Arbitration Association International Arbitration Rules (AAA Rules).[2] Art 15(1) AAA Rules states that ‘The tribunal shall have the power to rule on its own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement’.[3] INVESTMENT and BOBBINS recognised the authority of the Arbitral Tribunal to rule on its own jurisdiction in the Notice of Arbitration[4] and in the Statement of Defense[5] respectively. Furthermore, the AAA International Center for Dispute Resolution accepted INVESTMENT’S Demand for Arbitration on 5 June 2001.[6] Therefore, the Arbitral Tribunal has the authority to rule on its own jurisdiction in the dispute between INVESTMENT and BOBBINS.

1.2 There is a valid arbitration agreement between TAILTWIST and BOBBINS

In order to prove the existence of a valid arbitration agreement between INVESTMENT and BOBBINS, it is first necessary to establish the existence of a valid arbitration agreement between TAILTWIST and BOBBINS. BOBBINS and TAILTWIST included in their contract of 1 September 1999 a clause which stated that ‘Any controversy or claim between [TAILTWIST] and [BOBBINS] arising out of or relating to this contract shall be determined…by a panel of three arbitrators with the place of arbitration being Vindobona, Danubia and the language of the arbitration English’.[7] Danubia, the country of arbitration,[8] has adopted the UNCITRAL Model Law on International Commercial Arbitration (Model Law),[9] which applies to all international commercial arbitrations conducted in Danubia.[10] Danubia is also a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NewYork Convention).[11]

According to Art 7(1) Model Law, ‘An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement’. The arbitration agreement between TAILTWIST and BOBBINS appears in the form of a clause in their contract, and thus satisfies Art 7(1) Model Law. Article 7(2) Model Law stipulates that ‘The arbitration agreement shall be in writing. An agreement is in writing if it is contained in a document signed by the parties’.[12] A writing requirement is also contained in Art II(1) and Art II(2) NewYork Convention. Article II(1) provides that ‘Each contracting State shall recognize an agreement in writing’. According to

Art II(2), ‘The term ‘agreement in writing’ shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties’.[13] On 1 September 1999 both TAILTWIST and BOBBINS signed the contract containing the arbitration clause.[14] The clause thus constitutes a written arbitration agreement under Art 7(2) Model Law and Art II(1) and Art II(2) New York Convention. BOBBINS has not disputed the existence of this agreement.[15] Therefore, a valid arbitration agreement exists between TAILTWIST and BOBBINS.

1.3 The arbitration clause was transferred from TAILTWIST to INVESTMENT with the assignment of the right to receive payment

(a) The right to receive payment was validly assigned from TAILTWIST to INVESTMENT under the Convention on the Assignment of Receivables in International Trade

The law applicable to the contract of assignment concluded between TAILTWIST and INVESTMENT is the Convention on the Assignment of Receivables in International Trade (Receivables Convention).[16] Under Art 1(1)(a) Receivables Convention, the Convention applies to ‘Assignments of international receivables and to international assignments of receivables…if, at the time of conclusion of the contract of assignment, the assignor is located in a Contracting State’.[17] Under Art 2(a) Receivables Convention, ‘assignment’ is defined as ‘the transfer by agreement from one person (‘assignor’) to another person (‘assignee’) of all or part of an undivided interest in the assignor’s contractual right to payment of a monetary sum ( ‘receivable’) from a third person (‘the debtor’)’. Under Art 3 Receivables Convention, a receivable is ‘international’ if ‘the assignor and the debtor are located in different States’. An assignment is ‘international’ under Art 3 Receivables Convention if ‘the assignor and the assignee are located in different States’.

TAILTWIST, the assignor, was located in Oceania, a ‘Contracting State’ under Art 1(1)(a) Receivables Convention.[18] On 29 March 2000 TAILTWIST transferred to INVESTMENT its contractual right to receive payment from BOBBINS of $3,255,000[19] and hence this transaction fulfils the requirements of an ‘assignment’ under Art 2(a) Receivables Convention. INVESTMENT paid TAILTWIST the sum of $3,150,000 in exchange for the assignment.[20] Under Art 3 Receivables Convention, both the receivable and the assignment are international because at the time of the conclusion of the original contract TAILTWIST, BOBBINS, and INVESTMENT, as the assignor, debtor, and assignee respectively, were all located in different States.[21] Accordingly, under Art 1(1)(a) Receivables Convention, this Convention is the law applicable to the contract of assignment between TAILTWIST and INVESTMENT.

BOBBINS does not dispute that INVESTMENT is the rightful assignee of the right to receive payment.[22] TAILTWISTs Administrator in Insolvency, Dr Strict, confirmed the assignment on 17 October 2000.23 Accordingly, the right to receive payment of $3,255,000 from BOBBINS was validly assigned from TAILTWIST to INVESTMENT,

(b) BOBBINS is obliged to arbitrate this dispute with INVESTMENT for legal reasons

(i) The arbitration clause was automatically transferred to INVESTMENT

Where a contractual right to receive payment has been validly assigned to a third party, other rights deriving from the original contract are automatically transferred with the assigned right.[24] This rule is commonly referred to as the ‘automatic transfer rule’.[25] Specifically, an arbitration clause is automatically transferred with a validly assigned contractual right to receive payment because arbitration clauses would be rendered ineffective and irrelevant ‘if either party [to a contract]…could escape the effect of such a clause by assigning a claim subject to arbitration between the original parties to a third party’.[26]

There are several reasons that support the application of the automatic transfer rule to arbitration clauses. First, an arbitration clause can be classed either as an accessory right or as analogous to an accessory right, and because of this, the clause is automatically

transferred with an assigned claim.[27] This reasoning has been employed by, for example, courts in Germany,[28] Austria,[29] Switzerland[30] and France.[31] Secondly, courts in the United States[32] and the United Kingdom[33] have determined that an arbitration clause will be transferred automatically because otherwise the assignment of a contractual right would change the fundamental nature of that right, given that it would be subject to a different dispute resolution mechanism to that agreed upon in the original contract. Finally, arbitral tribunals have held that, as a matter of common sense, an arbitration clause travels with an assignment of a contractual right.[34]

There are several exceptions to the automatic transfer rule. The rule does not apply if the contractual provision containing the right subject to transfer stipulates that it does not bind an assignee.[35] Nor does the rule operate if the right requires ‘some performance…of the assignor personally which cannot be rendered by an agent or assignee’.[36] Finally, the right subject to transfer is not automatically transferred if the assignee gives notice to the debtor that the assignee does not intend to be bound by that clause.[37] In the present case, the arbitration clause concluded between TAILTWIST and BOBBINS and contained in their contract of 1 September 1999 does not stipulate that it will not bind TAILTWIST’s assignees. Further, the arbitration clause does not require some personal performance by TAILTWIST, especially given that ‘the prevailing rule today is…that [arbitration agreements] are entered into because of non-personal reasons, such as expediency, cost-efficiency and other perceived advantages of the arbitration process’.[38] Finally, INVESTMENT has not notified BOBBINS that it intends not to be bound by the arbitration clause.[39] Therefore, in this case, there is no applicable limitation to the operation of the automatic transfer rule and, accordingly, the arbitration clause in the contract of 1 September 1999 was automatically transferred from TAILTWIST to INVESTMENT together with the assignment of the right to receive payment.

(ii) The transfer of the arbitration clause to INVESTMENT does not affect its validity

The arbitration clause remains valid even though INVESTMENT is not a party to the original contract of 1 September 1999. Indeed, once the arbitration clause satisfies the in-writing requirement of Art 7(2) Model Law, the clause’s validity is

not compromised by its transfer to a third party to whom the right of payment has been assigned.[40] At law, an arbitration clause signifies a party’s consent to arbitrate a dispute, rather than to arbitrate with a specific party.[41] In the present case, both INVESTMENT and BOBBINS have consented to arbitration of ‘any controversy or claim…arising out of or relating to [the original] contract’ concluded between TAILTWIST and BOBBINS.[42] BOBBINS consented to arbitrate ‘any controversy or claim’ by incorporating an arbitration clause in the contract of 1 September 1999.[43] INVESTMENT also indicated its willingness to arbitrate by referring the dispute to the AAA’s International Center for Dispute Resolution.[44]

In addition, the automatic transfer of the arbitration clause does not contravene the principle of debtor protection found in Art 15(1) Receivables Convention, which states that ‘an assignment does not, without the consent of the debtor, affect the rights and obligations of the debtor’.[45] The automatic transfer of the arbitration clause means that INVESTMENT now stands in TAILTWIST’s position and assumes TAILTWIST’s right to arbitration.[46] However, the fact that INVESTMENT seeks to exercise its right to arbitration does not alter BOBBINS’ legal position. The dispute between INVESTMENT and BOBBINS relates to the same goods, the same prices and the same obligations that were governed by the contract between TAILTWIST and BOBBINS. Therefore, BOBBINS has not been disadvantaged by the fact that the claim is made by INVESTMENT rather than TAILTWIST.[47]

(c) BOBBINS is also obliged to arbitrate this dispute with INVESTMENT for policy reasons

There is a strong presumption in favour of arbitration in the field of international commerce.[48] As a matter of policy, it is strongly desirable that ‘having made the bargain to arbitrate’,[49] BOBBINS should be held to this commitment. BOBBINS agreed to a clause that compelled it to refer to arbitration ‘any controversy or claim between [TAILTWIST] and [BOBBINS] arising out of or relating to this contract’.[50] BOBBINS claims that because it would never have entered into an arbitration agreement with INVESTMENT, BOBBINS should not be bound to arbitrate this dispute with INVESTMENT.[51] However, before signing the contract with TAILTWIST, BOBBINS was aware of the possibility that TAILTWIST might assign the right to payment and that the arbitration agreement could thus be transferred.[52] Furthermore, as a business engaged in the textile trade in Equatoriana,[53] BOBBINS should have been particularly aware of this possibility because arbitration is frequently used as a dispute resolution

mechanism in the textile trade,[54] and because assignment of trade credit is commonly used as a form of business financing in Equatoriana.55 Anticipating the assignment and the subsequent transferral of the arbitration clause, BOBBINS could have chosen to restrict the application of the clause in the original contract by expressly providing that the clause would not apply to an assignee.[56] However, the wording of the clause is particularly wide.[57] BOBBINS chose not to restrict the clause; BOBBINS chose to arbitrate.

In conclusion, the assignment from TAILTWIST to INVESTMENT of the right to receive payment automatically transferred the right to arbitration from TAILTWIST to INVESTMENT. As a result, a valid arbitration agreement now exists between INVESTMENT and BOBBINS. There are no applicable legal or policy reasons that should exempt BOBBINS from its obligation to arbitrate. BOBBINS must therefore arbitrate this dispute with INVESTMENT.

2 INVESTMENT is entitled to payment of $2,325,000 from BOBBINS

2.1 The receivables convention is the law applicable to the notice of assignment

Article 29 Receivables Convention states that ‘The law governing the original contract determines…the relationship between the assignee and the debtor, the conditions under which the assignment can be invoked against the debtor and whether the debtor’s obligations have been discharged’. Article 5(a) Receivables Convention defines the ‘original contract’ as ‘the contract between the assignor and the debtor from which the assigned receivable arises’. The law governing the original contract of 1 September 1999 is the United Nations Convention on Contracts for the International Sale of Goods (CISG) because TAILTWIST and BOBBINS had their places of business in

Oceania and Equatoriana respectively, both of which are ‘Contracting States’ within the meaning of Art 1(1)(a) CISG.[58] Additionally, the original contract expressly provided that it was subject to the CISG ‘and, in regard to any questions not governed by it, to the law of Oceania’.[59] Thus the CISG and the law of Oceania govern the relationship between the assignee, INVESTMENT, and the debtor, BOBBINS.

For the purposes of determining whether INVESTMENT is entitled to payment of $2,325,000 from BOBBINS, the central issue is the notification of assignment provided by INVESTMENT to BOBBINS.[60] However, the CISG does not govern the question of assignment, and therefore the applicable law is the domestic law of Oceania. As Oceania has adopted the Receivables Convention and incorporated it into its domestic law,[61] the Receivables Convention is the law applicable to the relationship between INVESTMENT and BOBBINS with regard to the payment of $2,325,000.

2.2 The notice of assignment sent by INVESTMENT to BOBBINS was valid

On 29 March 2000 TAILTWIST assigned to INVESTMENT its right to receive payment of the two outstanding installments due from BOBBINS.[62] On 5 April 2000 INVESTMENT sent BOBBINS a notice of assignment and ordered that the two remaining payments totaling $3,255,000 be made to INVESTMENT instead of to TAILTWIST.[63] BOBBINS received this notice on 10 April 2000.[64] On the afternoon of 19 April 2000, nine days after receipt of this notice, BOBBINS paid the first outstanding installment of $2,325,000 to TAILTWIST.[65]

(a) INVESTMENT had the right to notify BOBBINS of the assignment

The contract of assignment between INVESTMENT and TAILTWIST provided that INVESTMENT would notify BOBBINS of the assignment.[66] However, BOBBINS claims that it required confirmation from TAILTWIST that the assignment had taken place,[67] and that because the confirmation did not arrive until 17 October 2000, the notice of assignment was ineffective.[68] This claim is unfounded due to Art 13(1) Receivables Convention, which states: ‘Unless otherwise agreed between the assignor and the assignee, the assignor or the assignee or both may send the debtor notification of the assignment and a payment instruction [emphasis added]’. Hence, Art 13(1) Receivables Convention recognises that parties to a contract of assignment can agree as to whom will inform the debtor. In their contract of assignment, INVESTMENT and TAILTWIST validly exercised their right to agree who would inform BOBBINS of the assignment.[69] Hence INVESTMENT’S right to notify, and to request payment[70] from, BOBBINS without the co-operation or authorisation of TAILTWIST is protected by Art 13(1) Receivables Convention.[71]

If BOBBINS was concerned by the fact that the notice of assignment came from INVESTMENT rather than TAILTWIST,[72] BOBBINS could have requested proof of the assignment from INVESTMENT under Art 17(7) Receivables Convention, which states that ‘the debtor is entitled to request the assignee to provide within a reasonable period of time adequate proof that the assignment…[has] been made’.[73] BOBBINS, however, chose not to take this reasonable and relatively simple step.[74] BOBBINS requested no such proof from INVESTMENT, nor did it attempt to confirm the assignment.

(b) The initial notice of assignment fulfilled the requirements of the Receivables Convention

BOBBINS received INVESTMENT’S initial notice of assignment on 10 April 2000.[75] BOBBINS claims that because this notice was written in German, none of its personnel could read it, and as a result the notice was ‘totally deficient’.[76] However, there is no requirement in the Receivables Convention that the notification must be drafted in the language of the original contract, nor that it must be in a language that the debtor is able to understand.

Article 16(1) Receivables Convention states that ‘Notification of the assignment or payment instructions is effective…if it is in a language that is reasonably expected to inform the debtor about its contents’. The reference in Art 16(1) to ‘reasonable’ expectations ‘is an attempt to introduce an objective standard that must be determined according to the relevant circumstances’. [77] The essence of this objective standard may be gleaned from Art 5(d) Receivables Convention, which requires that the notice must reasonably identify the assignee and the assigned receivables.[78] In the circumstances of this case, the notice received by BOBBINS on 10 April 2000[79] fulfilled the requirements of Arts 16(1) and 5(d) Receivables Convention. Indeed, it identified the assignee by making specific reference to INVESTMENT; it also explicitly referred to TAILTWIST and BOBBINS and to the date on which the contract between TAILTWIST and BOBBINS was concluded. In fact, Mr Black, Vice-President of BOBBINS, acknowledged that the notice contained ‘the name of [TAILTWIST] and the date 1 September 1999, which is the date of a contract between [TAILTWIST] and ourselves’.[80] Further, the notice identified the receivables by referring to the figure of $3,255,000.[81] Given that these basic details were apparent to a person who could not understand the German language, then under an objective standard, these details could reasonably be expected to inform the recipient about the content of the notice. Consequently, under Arts 5(d) and 16(1) Receivables Convention, this notice of assignment was effective,

(c) Changing the country of payment does not invalidate the notice of assignment nor prevent payment to INVESTMENT

The contract of 1 September 1999 specified that payment was to be made to TAILTWIST’s bank account in Oceania.[82] The payment instructions sent by INVESTMENT to BOBBINS required payment of the two remaining installments to INVESTMENT to be made in

Mediterraneo.[83] BOBBINS claims that the change of the country of payment from Oceania to Mediterraneo renders the notice of assignment formally defective under the Receivables Convention.[84] Article 15(2)(b) Receivables Convention states that ‘A payment instruction may not change…the State specified in the original contract in which payment is to be made to a State other than that in which the debtor is located’.

A conceptual distinction must be drawn between the payment instruction and the notice of assignment.[85] Article 5(d) Receivables Convention makes this distinction by limiting the definition of ‘notification of the assignment’ to ‘a communication in writing that reasonably identifies the assigned receivables and the assignee’.[86] In accordance with the fact that the payment instruction and the notice of assignment are distinct, the letter sent to BOBBINS on 5 April 2000 refers to the notice of assignment in the first paragraph and the payment instruction in the second.[87] The document of 5 April 2000 is thus constituted of two parts, each separate and distinct from the other. Therefore, contrary to BOBBINS’ claim, a technical deficiency in the payment instruction does not invalidate the notice of assignment.

In any event, policy considerations also suggest that a technical deficiency such as changing the country of payment should not invalidate the notice of assignment.[88] Under Art 7(1) Receivables Convention, ‘In interpretation of [the Receivables Convention], regard is to be had to its object and purpose as set forth in the preamble’. The Preamble to the Receivables Convention notes that the Convention’s aims include reducing technical formalities,[89] increasing the availability and cost effectiveness of credit in international trade[90] and facilitating the availability of credit in greater volume and at lower interest

rates.[91] It would be contrary to these aims to allow a deficiency in the payment instruction to render a notice of assignment invalid, especially considering that the change of the country of payment was in no way prejudicial to BOBBINS.[92]

Finally, under the Receivables Convention ‘a payment instruction may be changed or corrected until the debtor pays’.[93] In this case, any deficiency in the payment instruction was corrected by INVESTMENT on 5 July 2000 by directing that ‘You are hereby instructed to make future payments to Oceania Commercial Bank, Part City, Oceania, account of Futura Investment Bank, account number 345678, reference Tailtwist/Bobbins 010999’.[94] Consequently, there is no remaining impediment to BOBBINS making full and proper payment to INVESTMENT.

2.3 The notice of assignment was received before payment was made by BOBBINS to TAILTWIST

BOBBINS received the initial notice of assignment, written in German, from INVESTMENT on 10 April 2000.[95] Under Art 16(1) Receivables Convention, any notification or payment instruction will become effective when received by the debtor.[96] As BOBBINS received the initial German notice on 10 April 2000, it became effective nine days before BOBBINS paid TAILTWIST on 19 April 2000. Article 17(2) Receivables Convention provides that ‘After the debtor receives notification of the assignment…the debtor is discharged only by paying the assignee’. Thus, in failing to make payment of $2,325,000 to INVESTMENT, BOBBINS failed to discharge its obligation under this Article.

Furthermore, Mr Black, Vice-President of BOBBINS, received a facsimile of the English translation of the German notice on the morning of 19 April 2000[97] before any payment was made to TAILTWIST.[98] It was not until the early afternoon of 19 April 2000 that BOBBINS’ Accounting Department electronically instructed the Equatoriana Commercial Bank to pay $2,325,000 to TAILTWIST.[99] Mr Black could have promptly ordered that the payment be stopped. Instead, he relied on BOBBINS’ usual office procedure[100] to instruct the Accounting Department ‘not to make any payments to [TAILTWIST] until further notice’.[101] Mr Black’s instruction was in the form of an internal memorandum that took two and a half hours to arrive at the Accounting Department.[102] However, this situation required more than the application of the usual office procedure. Mr Black had just received the English translation of a notice which implied that payment of $2,325,000 to TAILTWIST would constitute payment to a company to whom the sum was no longer owed. He was also aware that this payment would soon be due[103] and he had prior notice of a possible assignment.[104] Despite these significant facts, Mr Black chose not to use more rapid means of communication that would have facilitated a prompt halt to the payment, but rather chose to rely merely on the internal office messenger service.[105] In conclusion, INVESTMENT was entitled to send the notice of assignment under Art 13(1) Receivables Convention, and effective notice was received by BOBBINS before it made payment to TAILTWIST. In effecting payment to TAILTWIST, BOBBINS assumed the risk of paying twice. Therefore, BOBBINS has a duty to pay $2,325,000 to INVESTMENT under Art 17(2) Receivables Convention.

3 INVESTMENT is entitled to the final instalment of $930,000

3.1 The CISG is the law applicable to payment of the f inal instalment of $930,000

In considering whether INVESTMENT is entitled to payment of $930,000 from BOBBINS, the central issue is whether BOBBINS is precluded from ‘asserting [against INVESTMENT] the alleged deficiencies in the training and in the performance of the equipment’.[106] Under Art 29 Receivables Convention, the law governing the original contract applies to the relationship between the assignee and the debtor. The original contract ‘is governed by the [CISG] and, in regard to any questions not governed by it, by the law of Oceania’. [107] As BOBBINS’ reliance on the alleged deficiencies and its resulting declaration to reduce the contract price are governed by the CISG, the CISG is the law applicable to the relationship between INVESTMENT and BOBBINS with regard to the payment of $930,000.

Under the contract of assignment, INVESTMENT obtained the right to receive the final installment of $930,000.[108] However, on 10 January 2001 BOBBINS informed the Administrator in Insolvency, Dr Strict, that it had been unable ‘to operate the equipment in a fully satisfactory manner’ and that the problems ‘may lie in difficulties with the equipment itself or in the inadequate training given to our personnel’.[109]

Consequently, BOBBINS declared a $930,000 reduction of the contract price based on ‘deficiencies in the performance of the equipment’.110 BOBBINS’ declaration of a price reduction involves the application of several provisions of the CISG. In particular, BOBBINS claims that its asserted price reduction was in accordance with Art 50 CISG,[111] which states that ‘If the goods do not conform with the contract…the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time’. In order to rely on a lack of conformity under Art 50 CISG, a buyer must fulfill one of three requirements. First, under Art 39(1) CISG, the buyer must ‘give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it’. Secondly, under Art 44 CISG, if the buyer does not give such notice, the buyer must have ‘a reasonable excuse for his failure to give the required notice’. Thirdly, under Art 40 CISG, if the buyer neither gives such notice nor has a reasonable excuse, the buyer must be able to demonstrate that ‘the lack of conformity relates to facts of which [the seller] knew or could not have been unaware and which he did not disclose to the buyer’. As is argued in Parts 3.2, 3.3 and 3.4 of this Memorandum, BOBBINS has not fulfilled any of these applicable requirements, and thus there is no basis for the assertion of a reduction in price under Art 50 CISG.

In any event, in the contract of 1 September 1999 BOBBINS agreed not to assert any defences against an assignee of TAILTWIST unless TAILTWIST did not in good faith attempt to remedy the deficiency.[112] As is argued below, BOBBINS’ failure to fulfil the requirements of Arts 39(1), 40 and 44 CISG meant that TAILTWIST was given no opportunity to remedy the deficiency and thus, under the contract of 1 September 1999, there is no basis for BOBBINS’ assertion of a price reduction against INVESTMENT.

3.2 BOBBINS failed to notify TAILTWIST of the lack of conformity within a reasonable time under Article 39(1) CISG

Article 39(1) CISG states that the buyer will lose the right to rely on a lack of conformity ‘if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he discovered it or ought to have discovered it’.[113] BOBBINS identifies the lack of conformity on which it seeks to rely as ‘deficiencies in the performance of the equipment’.[114] BOBBINS identifies two possible causes of the lack of conformity: first, the inadequacy of the training provided by the TAILTWIST personnel or, second, a problem in the equipment itself. BOBBINS further asserts that, while it is not clear

which of these two possible causes created the lack of conformity in the performance of the equipment, the result ‘is the same in either case’.[115]

(a) BOBBINS discovered the lack of conformity in the performance of the equipment as from 10 May 2000

In the event that the inadequate training caused the lack of conformity, an examination of the record discloses that this inadequacy was manifest as from 10 May 2000, when the training period ended.[116] Indeed, on 20 April 2000, on the commencement of the insolvency proceedings, two of the four TAILTWIST personnel were recalled from their positions and their employment was terminated immediately.[117] The consequence of this was that the two remaining TAILTWIST personnel ‘would have had a difficult time at best to conduct the training that was called for under the contract for which four persons had been anticipated’.[118] BOBBINS further asserts that the two remaining personnel, under the circumstances, ‘were obviously upset and concerned about their own future’ [emphasis added].[119] Additionally, according to BOBBINS, it was apparent that the remaining personnel were unable ‘to give even the amount and quality of training that they otherwise might have given’[120] and that BOBBINS’ staff were later forced ‘to experiment with adjusting the equipment for different raw materials, with constant fear that an incorrect adjustment would result in damage to the product and perhaps to the equipment itself’.[121] In order to make these assertions, BOBBINS must have been aware of the inadequacy of the training at the latest by the end of the training period on 10 May 2000. Hence, as from 10 May 2000, BOBBINS was certainly aware of one of the possible causes of the lack of conformity in the performance of the equipment.

If the lack of conformity was caused by problems with the equipment itself, the record discloses that these problems were also evident as from 10 May 2000. Indeed, BOBBINS asserts that the ‘equipment has not performed satisfactorily’[122] and it is established that ‘full production was never achieved’ [emphasis added].[123] Accordingly, as from 10 May 2000 at the latest, when the training period ended, BOBBINS was aware that the equipment was not working at full capacity and that, therefore, there was a lack of conformity in the performance of the equipment. Thus, to the extent that the inadequacy of the training did not in fact contribute to the lack of conformity in the performance of the equipment, the lack of conformity was necessarily caused by a problem with the equipment itself.

Although it is unclear which of the two possible causes in fact created the lack of conformity in the performance of the equipment, the record thus reveals that the inadequacy of the training and any problem with the equipment itself were both evident as from 10 May 2000. These two possible causes manifested themselves in the lack of conformity in the performance of the equipment, which also became evident as from 10 May 2000. As BOBBINS was aware of the lack of conformity as from 10 May 2000, it is immaterial that BOBBINS did not know ‘whether the problem lies in the equipment or in the inadequate training’.[124] Consequently under Art 39(1) CISG, the period during which TAILTWIST must be notified of the lack of conformity in the performance of the equipment began as from 10 May 2000.

(b) BOBBINS failed to notify TAILTWIST within a reasonable time

(i) BOBBINS was required to notify TAILTWIST of the lack of conformity within one month after 10 May 2000

In order to claim a price reduction under Art 50 CISG, BOBBINS was required to give TAILTWIST notice of the lack of conformity in the performance of the equipment within a reasonable time after 10 May 2000. ‘Reasonable time’ under Art 39(1) CISG depends upon the circumstances of each case.[125] Substantial case authority supports the

proposition that a reasonable time for giving notice may not be more than eight days.[126] While some courts adopt a more generous approach, the longest period generally accepted as a reasonable time for non-perishable goods is one month.[127] In the circumstances of this case, especially given that the TAILTWIST insolvency proceedings commenced on 20 April 2000,[128] of which BOBBINS was aware,[129] it was imperative that TAILTWIST be notified of the deficiencies in the equipment as soon as possible, thereby enabling those deficiencies to be remedied before the complete cessation of TAILTWIST’S business activities. Thus, in accordance with Art 39(1) CISG, BOBBINS was required to notify TAILTWIST of the lack of conformity as soon as possible as from 10 May 2000, or at the very latest within a period of one calendar month.

(ii) The complaints made to TAILTWIST’s personnel did not constitute notice under Article 39(1) CISG

BOBBINS made Various statements’ to TAILTWIST’s personnel indicating that ‘the training being given was not sufficient’.[130] No additional complaints were made.131 For the ‘various statements’ to constitute notice under Art 39(1) CISG, they must possess two distinct characteristics: first, the notice must be specific; and secondly, the notice must be in an appropriate form.

First, in order to be sufficiently specific, the notice must describe the lack of conformity in detail and the manner in which the buyer wishes it to be remedied.[132] Arbitral tribunals and courts have consistently interpreted the requirement of specificity strictly.[133] However, in the provision of notice to the seller, ‘Especially in the case of machines and technical apparatus, the buyer can only be required to give an indication of symptoms, not to indicate their cause’.[134] Therefore, in the present case, which deals with machines and technical apparatus, BOBBINS need not have provided TAILTWIST with specific details of the causes of the lack of conformity in the equipment’s performance, but merely with a specific description of the consequences of these causes. As BOBBINS knew the

consequences of whatever caused the lack of conformity,[135] it is irrelevant that BOBBINS may not have known whether the cause was the inadequacy of the training or a problem in the equipment itself.[136] The record discloses only that the ‘various statements’ made by BOBBINS to TAILTWIST’s personnel stated that the training was ‘not sufficient’. Such statements do not contain the required description of the lack of conformity in order for them to be considered as notice under Art 39(1) CISG.

Secondly, notice given under the provisions of the CISG must be in a form appropriate to the circumstances.[137] Given that in this case the lack of conformity concerned equipment worth $9,220,000,[138] and that the lack of conformity resulted in the equipment not attaining full capacity,[139] any notice should have been communicated directly to TAILTWIST’s management, rather than to two personnel who were not even located at TAILTWIST’s principal office.[140] Consequently, the ‘various statements’ made to the TAILTWIST personnel do not constitute notice under Art 39(1) CISG.

BOBBINS has failed to give notice under Art 39(1) CISG and is thus prevented from relying on a lack of conformity in the performance of the equipment to assert a price reduction under Art 50 CISG.

3.3 BOBBINS has no reasonable excuse for its failure to give notice of the lack of conformity under Article 44 CISG

Under Art 44 CISG, if a buyer does not give notice under Art 39(1) CISG, the buyer may still rely on Art 50 CISG if ‘he has a reasonable excuse for his failure to give the required notice’. However, arbitral tribunals and courts have only recognised a reasonable excuse under Art 44 CISG in exceptional circumstances.[141] Further, any buyer who discovered a lack of conformity but failed to notify the seller of this deficiency within a reasonable time will always be considered to have acted ‘without the care required of a businessman’.[142] However, it is necessary to take into account all the circumstances of an individual case to determine whether the careless actions of the buyer deserve to be treated with leniency.[143] Such circumstances include first, the seriousness of the breach of the duty to notify; secondly, the nature of the buyer’s business; and thirdly, the experience of the buyer in its business.144

First, a reasonable excuse under Art 44 CISG may exist if, for example, the notification of deficiency is delivered only slightly late.[145] However, BOBBINS’ breach of its contractual obligation to notify the seller under Art 39(1) CISG is not a similarly minor breach.146 Indeed, BOBBINS did not provide notification to TAILTWIST until it wrote to TAILTWIST’s Administrator in Insolvency on 10 January 2001.[147] Secondly, BOBBINS’ situation as a manufacturer involved in multi-million dollar international transactions[148] can be contrasted with situations in which a reasonable excuse has been applied because the buyer was a sole trader, with few employees and limited resources.[149] Thirdly, for the same reasons, BOBBINS cannot be considered an inexperienced trader with little experience in the purchase of valuable equipment, or in the procedure for giving notice under Art 39(1) CISG.[150] BOBBINS seeks to rely on a reasonable excuse, claiming that it did not send notice to TAILTWIST because ‘there was no one to whom to send any such notice’.[151] This claim is unfounded. Although the insolvency proceedings commenced on 20 April 2000, it was not until 16

June 2000 that TAILTWIST was liquidated and its business activities terminated.[152] Thus BOBBINS had a period of 36 days, between 10 May 2000 and 16 June 2000, in which it could have sent TAILTWIST notice of the lack of conformity. Even in the event that BOBBINS doubted TAILTWIST’s ability to remedy the lack of conformity, a telephone call would have sufficiently fulfilled the notice requirement under Art 39(1) CISG.[153]

Furthermore, an interpretation of Art 44 CISG which allows a corporation to resile from its obligations under Art 39(1) CISG, despite having made no effort to comply with those obligations, is not in accordance with the need to observe good faith in international trade. Article 7(1) CISG, which is used as an interpretative tool, states that ‘In the interpretation of [the CISG], regard is to be had to…the need to promote…the observance of good faith in international trade’. In the circumstances of this case, it would be contrary to the need to promote good faith if BOBBINS’ failure to make efforts to comply with the notice requirements of Art 39(1) CISG was excused on the basis of Art 44 CISG. Consequently, BOBBINS has no ‘reasonable excuse’ under Art 44 CISG for its failure to give notice of the lack of conformity, and thus cannot reduce the price in accordance with Art 50 CISG.

3.4 Artcle 40 CISG does not prevent INVESTMENT from relying on Article 39(I) CISG

Article 40 CISG states that ‘The seller is not entitled to rely on the provisions of Arts 38 and 39 if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer’. Article 40 CISG ‘results in a dramatic weakening of the position of the seller,’ and thus ‘should only be applied in special circumstances’.[154] The buyer bears the burden of proving that the seller knew or could not have been unaware of the lack of conformity and thus that it was unnecessary for BOBBINS to give notice under Art 39(1) CISG.[155] Under

the CISG, the standard of ‘could not have been unaware’ is close to the standard of actual knowledge, and thus there is little practical difference between the two standards.[156] Therefore, if TAILTWIST could not have been aware of facts related to the lack of conformity, it necessarily could not have had actual knowledge of those facts.

The record gives no indication that TAILTWIST possessed information that would have alerted it to the lack of conformity in the equipment’s performance. In order to establish whether a seller had the requisite degree of knowledge, Art 40 CISG requires that there be an ‘obvious lack of conformity’[157] and that the seller ‘displayed more than gross negligence’[158] in not recognising this lack of conformity.[159] The lack of conformity in the performance of the equipment was not obvious to TAILTWIST. Indeed, the first indication that BOBBINS had experienced any problems with the equipment arose when BOBBINS asserted the price reduction in its letter of 10 January 2001 to TAILTWIST’s Administrator in Insolvency.[160] Prior to this letter, the last communication from BOBBINS to TAILTWIST was to the effect that BOBBINS’ own technical consultant had certified ‘that the installation and commissioning tests of the TAILTWIST’s equipment had been completed’.[161] Furthermore, BOBBINS never communicated to TAILTWIST that the equipment was not working at full capacity.

In addition, TAILTWIST was not grossly negligent in failing to recognise that the inadequacy of the training might lead to the lack of conformity in the performance of the equipment. TAILTWIST was not aware of the inadequacy of the training, nor that this inadequacy might potentially lead to a lack of conformity. Indeed, two of the TAILTWIST personnel remained on site at BOBBINS, which was an acceptable number under the contract,[162] and there was never any indication given to TAILTWIST of the possibility that those two personnel were not performing their work satisfactorily. Although BOBBINS made statements to TAILTWIST’s employees concerning the insufficient nature of the training,[163] the employees’ knowledge of these complaints is not attributable to TAILTWIST itself because the knowledge of an employee cannot be considered to become automatically part of the knowledge of the employer.[164]

TAILTWIST could not have been aware of the lack of conformity in the performance of the equipment. Consequently,Art 40 CISG does not provide an excuse for BOBBINS to escape its obligation to give notice in accordance with Art 39(1) CISG.

3.5 BOBBINS may not assert defences against INVESTMENT under the contract of 1 September 1999

BOBBINS agreed in the contract of 1 September 1999 that it would not assert against an assignee of TAILTWIST ‘any defense it may have against

[TAILTWIST] arising out of the defective performance of this contract, unless [TAILTWIST] does not in good faith attempt to remedy the deficiency’.[165] BOBBINS claims that this clause does not prevent it from asserting a price reduction in accordance with Art 50 CISG because TAILTWIST did not attempt in good faith to remedy the lack of conformity in the equipment’s performance. This clause is subject to Art 19(1) Receivables Convention which provides that ‘The debtor may agree with the assignor in a writing signed by the debtor not to raise against the assignee the defences…that it could raise’ against the assignor prior to the assignment.[166] A waiver agreement between the debtor and assignor is formed when a specific clause is inserted at the time of the conclusion of the contract.[167] The contract concluded between BOBBINS and TAILTWIST contained a specific waiver clause, inserted into the written document, signed by both BOBBINS and TAILTWIST.[168] The clause is therefore valid under Art 19(1) Receivables Convention.

Hence the agreement between BOBBINS and TAILTWIST prevents BOBBINS from refusing payment to INVESTMENT on the basis of TAILTWIST’s defective performance.[169] The only exception is if TAILTWIST did not attempt in good faith to remedy a deficiency in its contractual performance. However, BOBBINS gave TAILTWIST no opportunity to remedy any deficiency in performance. Indeed, under Arts 39(1), 40 and 44 CISG, BOBBINS failed to give notice of a lack of conformity;[170] did not provide a reasonable excuse for that failure;[171] and is unable to claim that TAILTWIST was prevented from relying on this failure.[172] TAILTWIST cannot be expected to remedy deficiencies in its performance if it was not even given the opportunity to remedy the deficiencies. Thus BOBBINS remains bound by its agreement not to assert defences against an assignee of TAILTWIST and cannot claim a price reduction in accordance with Art 50 CISG.

4 INVESTMENT is entitled to claim interest on the sum of $3,250,000

Article 78 CISG states that ‘If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it’. Under Art 78 CISG, payable interest begins to accrue on the date from which the sum is due.[173] The first installment of $2,325,000 fell due on 18 April 2000, the date on which BOBBINS’ consultants certified the successful installation and commissioning tests.[174] The sum of $930,000 fell due on 10 August 2000, upon completion of three months satisfactory performance of the equipment.[175] Therefore, BOBBINS is compelled to pay INVESTMENT interest on the installment of $2,325,000 from 18 April 2000 and interest on the installment of $930,000 from 10 August 2000 until it makes payment to INVESTMENT. In accordance with Procedural Order No 3, issued on 8 November 2001, this Memorandum need not deal with the rate of interest that BOBBINS must pay INVESTMENT[176]

BOBBINS should bear the costs of arbitration

Article 31 AAA Rules provides procedural guidelines for the allocation of costs between the parties to an arbitration. This Article states that The Tribunal may apportion such costs among the parties if it determines that such apportionment is reasonable, taking into account the circumstances of the case’. Apart from the fees and expenses of the arbitrators and the expenses incurred by the administrator and the Tribunal, under Art 31(d), the Tribunal is also allowed to award to the successful party the costs of their legal representation.[177] The failure of BOBBINS to meet its obligations with regards to payment caused the dispute that has led to this arbitration.[178] In the interests of reasonableness, under Art 31 AAA Rules, BOBBINS should pay all costs of the Tribunal. In addition, in accordance with Art 31(d) AAA Rules, BOBBINS should bear INVESTMENT’S legal costs. In accordance with Procedural Order No 3, this memorandum need not address the calculation or apportionment of the costs of arbitration.[179]

INVESTMENT commends the arguments in this memorandum to the Arbitral Tribunal’s discretion in order to achieve a just and fair resolution of the dispute.


[1] Claimant’s Exhibit No 1.

[2] Claimant’s Exhibit No 1: The contract states that ‘Any controversy or claim between [TAILTWTST] and [BOBBINS] arising out of or relating to this contract shall be determined by arbitration by the American Arbitration Association’. Art 1(1) AAA Rules states that ‘Where parties…have provided for arbitration of an international dispute by the American Arbitration Association without designating particular rules, the arbitration shall take place in accordance with these rules’. BOBBINS and TAILTWTST, parties to the original arbitration agreement, are from Equatoriana and Oceania respectively, while INVESTMENT is from Mediterraneo. Therefore this dispute is international in nature and the AAA Rules apply.

[3] This is an articulation of a principle in international arbitration that provides that an arbitral tribunal is competent to rule on its own jurisdiction. This principle is usually referred to as ‘competencecompetence’. It allows the tribunal to make such inquiries as are necessary to resolve the dispute regarding its jurisdiction. See Craig, Park & Paulsson, 59; Derains & Schwartz, 99–102. The principle is also embodied in various arbitration rules, for example, ICC Rules 15(1); LCIA Rules 23.1.

[4] Notice of Arbitration, No 11.

[5] Statement of Defense, No 5.

[6] See letter of 5 June 2001 from Eleni Lappa, ICDR Supervisor.

[7] Claimant’s Exhibit No 1.

[8] Notice of Arbitration, No 14 and Statement of Defense, No 2. Further, the letters of 5 June and of 15 June 2001 from Eleni Lappa, ICDR Supervisor, recognised that the arbitration agreement provides for the arbitration to be held in Vindobona, Danubia.

[9] Notice of Arbitrati on, No 18.

[10] This dispute falls within the Model Law’s definitions of ‘international’ (see Art 1(3)(a)), ‘commercial’ (see note to Art 1(1) Model Law) and ‘arbitration’ (see Art 2(a) Model Law). The relevant provisions of the Model Law for the purposes of this dispute are contained in Arts 7 and 19 Model Law. Article 19(1) Model Law states that ‘Subject to the provisions of this Law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings’ [emphasis added]. Article 19(1) Model Law was described by the UNCITRAL Secretariat as ‘the most important provision of the Model Law’: Model Law Commentary (A/CN.9/264), No 1. In subjecting the procedure in the arbitral proceedings to the ‘provisions’ of the Model Law, Art 19(1) effectively limits the discretion of the Arbitral Tribunal to determine the conduct of the proceedings. In particular, the discretion of the Arbitral Tribunal is limited by the ‘mandatory’ provisions of the Model Law. ‘Mandatory [provisions] cannot be derogated from by the contract’: Hill, 491. The mandatory provisions were not enumerated in the Model Law because of ‘drafting difficulties’: Fourth Secretariat Note (A/CN.9/WG.II/WP.50), No 9; Holtzmann & Neuhaus, 1119–20. However, commentators consistently identify Art 7(2) Model Law, which contains the ‘in-writing’ requirement, as a mandatory provision: Redfern & Hunter, 141; Holtzmann & Neuhaus, 260.

[11] Notice of Arbitration, No 19.

[12] The specification that ‘An agreement is in writing if it is contained in a document signed by the parties’ is one of several examples of an agreement ‘in writing’ contained in Art 7(2) Model Law. The full text of Art 7(2) Model Law provides that ‘The arbitration agreement shall be in writing. An agreement is in writing if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by another. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract’.

[13] Equatoriana, Oceania, Mediterraneo and Danubia are all party to the New York Convention: Notice of Arbitration, No 19. Under Art I(1) New York Convention, the writing requirement of Art II(2) of this Convention must be adhered to if the arbitral award is ‘made in the territory of a State other than the State where the recognition and enforcement of such awards are sought’.

[14] Claimant’s Exhibit No 1.

[15] Statement of Defense, No 3.

[16] Note that Procedural Order No 2, Clarification No 1 states that ‘Even though at the time of distribution of the Problem the text [was] in fact a Draft Convention, for the purposes of the Moot the Convention is in force…at all relevant times’.

[17] This provision has the effect of ensuring both the ‘broad applicability of the…Convention, and a sufficient level of certainty and predictability for all interested parties’: Report on Twenty-Sixth Session (A/CN.9/434), No 20. The territorial scope of the application of the draft Convention has been the subject of detailed discussion in the Working Group: Report on Twenty-Fourth Session (A/CN.9/ 420), Nos 30–31; Report on Twenty-Fifth Session (A/CN.9/432), Nos 29–32; Report on Twenty-Seventh Session (A/CN.9/445), Nos 131–36. See also Sigman & Smith, 345; Smith, 478; Bazinas (2001), 271. The Working Group considered allowing the application of the draft Convention only when all three parties had their places of business in Contracting States. However, it was decided that this would ‘unduly narrow the scope of the draft Convention’: Report on Twenty-Sixth Session (A/ CN.9/434), No 22. Furthermore, the place of business of the debtor should not be a factor in determining the applicability of the Convention. The debtor receives sufficient protection from the Convention, which is not aimed at changing the debtor’s legal position: Report on Twenty-Sixth Session (A/CN.9/434), No 23. See also Ferrari (2000) (Melbourne Journal), 17.

[18] Notice of Arbitration, No 17.

[19] Notice of Arbitration, No 7.

[20] Respondent’s Exhibit No 4.

[21] Article 5(h) Receivables Convention states that ‘A person is located in the State in which it has its place of business’. INVESTMENT is located in Mediterraneo (Notice of Arbitration, No 1); BOBBINS is located in Equatoriana (Notice of Arbitration, No 2) and TAILTWIST was located in Oceania (Notice of Arbitration, No 3). Furthermore, An 1(3) Receivables Convention provides that the Convention does not affect the rights and obligations of the debtor [BOBBINS] unless ‘the law governing the original contract is the law of a Contracting State’. The law governing the original contract between TAILTWIST and BOBBINS is ‘the United Nations Convention on Contracts for the International Sale of Goods [CISG] and, in regard to any questions not governed by it, to the law of Oceania’ which is a Contracting State: Claimant’s Exhibit No 1; Notice of Arbitration, No

[17] . See also Procedural Order No 2, Clarification No 5. 22 Statement of Defense, No 4, states that BOBBINS ‘has no reason to contest that [INVESTMENT]

is the assignee of the right to payment under the contract between [TAILTWIST] and [BOBBINS]’.

[23] Respondent’s Exhibit No 4.

[24] Girsberger & Hausmaninger, 122–23.

[25] Girsberger & Hausmaninger, 122–23.

[26] Hosiery Manufacturing Corp v Goldston 238 NY 22 (NYCtApp 1924), 28. See also GMAC Commercial

Credit LLC v Springs Industries, Inc 44 UCC Rep Serv 2d (Callaghan) 903 (SDNY 2001).

[27] This position is supported by Art 10(1) Receivables Convention, which states that ‘A personal or property right securing payment of the assigned receivable is transferred to the assignee without a new act of transfer’.

[28] The German Federal Supreme Court has drawn an analogy between an arbitration clause and a security interest (under §401 Bürgerliches Gesetzbuch [BGB]) and has held that an arbitration clause is an attribute of the right to receive payment (‘claim’). As such, the arbitration clause is assigned automatically with the claim: Bundesgerichtshof: III ZR 2/96 of 2 October 1997, Bundesgerichtshof: III ZR 18/77 of 28 May 1979, NJW 1979, 1166; Bundesgerichtshof: III ZR 103/73 of 18 December 1975; Reichsgericht: VII ZR 321/09 of 8 December 1903.

[29] Austrian law characterises an arbitration clause as an accessory right which is attached to the claim and is automatically transferred with the assignment of the claim: §1394 Allgemeines Bürgerliches Gesetzbuch [ABGB] provides that ‘the assignee’s rights are identical to the assignor’s rights with respect to the assigned claim’ [Translated from German by the authors of this Memorandum]. See Girsberger & Hausmaninger, 127.

[30] Article 170(1) Schweizerisches Obligationenrecht (Switzerland) states that ‘The assignment of a claim includes the transfer of the privileges and accessory rights’ [translated from German by the authors of this Memorandum].

[31] Article 1692 Code Civil (France) states that The sale of assignment of a claim includes all accessories attaching thereto’ [translated from French by the authors of this Memorandum]. Traditionally, French courts have approved the automatic transfer rule. See Société CCC Filmkunst Gmbh c/ Société Etablissement de Diffusion Internationale de Films in 1988 Rev Arb 565, 568; Société Clark International Finance c/ Société Sud Material Service et Autre in Rev Arb 570, 571. In Fraser v Compagnie européenne des Pétroles, Cour de Cassation Première Section Civile of 6 November 1990, it was decided that an arbitration clause does not travel with the assignment of contractual rights unless the assignee has expressly or implicitly agreed to be bound by that clause. This principle was endorsed in SMABTP v Statinor, Cour d’Appel de Paris of 22 March 1995. At the time of the assignment from TAILTWIST, INVESTMENT knew of the terms of the contract between BOBBINS and TAILTWIST: Procedural Order No 2, Clarification No 20. INVESTMENT therefore implicitly agreed to be bound by the arbitration clause.

[32] GMAC Commercial Credit LLC v Springs Industries, Inc 44 UCC Rep Serv 2d (Callaghan) 903 (SDNY 2001), 16: ‘an assignment cannot alter a contract’s bargained-for remedial measures, for then the assignment would change the very nature of the rights assigned’; Cone Constructors Inc v Drummond Community Bank 754 So 2d 779 (FlaDistCtApp 1st Dist 2000), 780; Banque de Paris et des Pays-Bas v Amoco Oil Company 573 F Supp 1464 (SDNY 1983), 1469; Robert Lamb Hart Planners and Architects v Evergreen Ltd 787 F Supp 753 (SD Ohio 1992). See also Coe, 138.

[33] Montedipe SpA and Another v JTP-RO Jugotanker (‘The Jordan Nicolov’) [1990] 2 Lloyd’s Rep 11, 15–16 states that the assignee should have ‘the benefit of the arbitration clause as well as other provisions in the contract’. United Kingdom law provides that a benefit to be obtained under a contract is assignable and that an arbitration clause will be automatically assigned with the assignment of such a benefit. See s 8 Contracts (Rights of Third Parties) Act 1999; Schiffahrtsgesellschaft Detlef von Appen GmbH v Wiener Allianz Versicherungs AG and Voest Alpine Intertrading GmbH [1997] 2 Lloyd’s Rep 279, 285–286; Shayler v Woolf [1946] 1 Ch 320; Aspell v Seymour [1929] WN 152.

[34] ICC Arbitration Case No 3281 of 1981; ICC Arbitration Case No 1704 of 1977; ICC Arbitration Case No 2626 of 1977. It should be noted at this point that the doctrine of separability does not affect the transfer of the arbitration clause. The doctrine aims to protect and preserve the agreement to arbitrate and to encourage the use of arbitration, thus using it to preclude the transfer would be contrary to these intentions: Weinacht, 9–10; AI Trade Finance Inc v Bulgarian Foreign Trade Bank Ltd, Stockholm Chamber of Commerce, Arbitration Award of 5 March 1997; Hosiery Manufacturing Corp v Goldston 238 NY 22 (NYCtApp 1924).

[35] ICC Arbitration Case No 3281 of 1981. See also Reichsgericht: VII ZR 321/08 of 8 December 1903.

[36] Canister Co v National Can Corp 71 F Supp 45 (DDel 1947), 49. BOBBINS must establish that when it entered into the contract, TAILTWIST’s identity was a fundamental consideration. Generally, BOBBINS must demonstrate that it viewed TAILTWIST ‘as possessing the good faith and procedural loyalty necessary for an arbitration to run smoothly and that the assignee [INVESTMENT] may not share those qualities’: Gaillard & Savage, 434. There will not be an arbitration clause ‘intuitu personae’ where there was no particular skill required from the assignor, and where performance of the contract was not based on any relationship of personal confidence between the contracting parties: Application of Reconstruction Finance Corp In re Harrions & Crosfield Ltd 106 F Supp 358 (DNY 1952), 360. See also Kelso, 89. In Maritime Co ‘Spetsai’ SA v International Commodities Export Corporation 348 F Supp 258 (SDNY 1972), 259, the court stated that ‘it is relatively clear today that an agreement to arbitrate such as the one now before this Court is not an unassignable, personal contract’.

[37] The assignee may solicit the debtor’s consent to take the claims free from the arbitration requirement: GMAC Commercial Credit LLC v Springs Industries, Inc 44 UCC Rep Serv 2d (Callaghan) 903 (SDNY 2001), 10. Alternately, the assignee may be released from the requirement if it can show that it has given ‘proper notice of the limited nature of its involvement, or by obtaining a separate and legally sufficient agreement with the account debtor that the debtor will pay without asserting offsets or counterclaims’: Banque de Paris et des Pays-Bas v Amoco Oil Company 573 F Supp 1464 (SDNY 1983), 1466.

[38] Girsberger & Hausmaninger, 141. See also American Manufacturing & Trading, Inc v Democratic Republic of the Congo, ICSID Arbitration Case ARB/93/1, in 22 YB 60; Asian Agricultural Products Ltd v Democratic Socialist Republic of Sri Lanka, ICSID Arbitration Case ARB/87/3, in 17 YB 106; Southern Pacific Properties (Middle East) Ltd v Arab Republic of Egypt, ICSID Arbitration Case ARB/84/3, in 19 YB 51; Maritime Co ‘Spetsai’ SA v International Commodities Export Corporation 348 F Supp 258 (SDNY 1972), 259; Cottage Club Estates v Woodside Estates Co (1928) 2 KB 463; In the Matter of Lowenthal 233 NY 621 (NYCtApp 1922). See also Weinacht, 12.

[39] In fact, INVESTMENT has given notice that it seeks to rely on the clause. Notice of Arbitration, No 12.

[40] Fisser v International Bank [1960] USCA2 238; 282 F 2d 231 (2d Cir NY 1960), 233; Bundesgerichtshof: III ZR 2/ 96 of 2 October 1997. This is because an assignee is sufficiently warned in relation to the transfer of an arbitration agreement. The assignee is able to inquire about the existence of an arbitration clause before entering into the contract of assignment: Girsberger & Hausmaninger, 143.

[41] The key is that the party is in fact a party to the arbitration agreement, even though there is no agreement to arbitrate with each other. ‘A natural person or a company who did not sign an arbitration agreement may…be precluded from alleging that they are not parties to such an agreement; they may hence be bound and entitled to appear either as defendants or as claimants in the ensuing arbitration proceedings’: Sandrock in Dominicé, Patry and Reymond, 635.

[42] Claimant’s Exhibit No 1.

[43] Claimant’s Exhibit No 1.

[44] Letter sent from Joseph Langweiler (INVESTMENT’S Lawyer) to ICDR on 5 June 2001.

[45] While under Art 1(3) Receivables Convention, the Convention may apply generally to the rights and obligations of the debtor (see Note 21 above), this provision is subject to the principle of debtor protection, which is articulated in the more specific provisions of Art 15(1) Receivables Convention. Under Art 15(1) Receivables Convention, the debtor’s rights and obligations may only be affected with ‘the consent of the debtor’. See also Procedural Order No 2, Clarification No 5.

[46] Technetronics Inc v Leybold-Geaeus GmbH, LeyboldAG and Ley bold Technologies, Inc 1993 US Dist LEXIS 7683 (EDPa 1993). See also Boart Sweden AB v NYA Stromnes AB (1988) 41 BLR 295 (Ont (HCJ)); Rumput (Panama) SA and Belzetta Shipping Co SA v Islamic Republic of Iran Shipping Lines (‘The Leage’) [1984] 2 Lloyd’s Rep 259; Fisser v International Bank [1960] USCA2 238; 282 F 2d 231 (2d Cir NY 1960); Walker v Mason 116 A 305 (PaSupCt 1922).

[47] BOBBINS retains the defences and counterclaims it would have had, prior to the assignment, against TAILTWIST pursuant to the contract of 1 September 1999, as well as any it may have against INVESTMENT separately. An analogous situation was discussed in Smith v Cumberland and Mass Construction Group 687 A2d 1167 (PaSup 1997).

[48] Smith v Cumberland and Mass Construction Group 687 A2d 1167 (PaSup 1997); ABN AMRO Bank Canada v Krupp Mak Maschinenbau GmbH 135 DLR (4th) 130 at 135–36 (OntDivCt 1996); Filanto SpA v Chilewich International Corp 789 F Supp 1229 (SDNY 1992); Teledyne, Inc v Kone Corp [1990] USCA9 63; 892 F 2d 1404 (9th Cir Cal 1989), 1410; First City Capital Ltd v Petrosar Ltd 42 DLR (4th) 738 (HCJ 1987); Westland Helicopters Ltd (UK) v Arab Organisation for Industrialisation, United Arab Emirates, Kingdom of Saudi Arabia, State of Qatar, Arab Republic of Egypt and Arab British Helicopter Co (Egypt) Chamber of National and International Arbitration of Milan of 2 February 1986, in (1986) 11 YB 127, 133; Mitsubishi Motors Corp v Soler Chrysler-Plymouth, Inc [1985] USSC 203; 473 US 614 (USSupCt 1985), 631; Scherk v Alberto Culver Co 47 US 506 (USSupCt 1974); Borough ofAmbridgeWater Authority v Columbia 328 A2d 498 (SupCtPa 1973), 501; Bremen v Zapata Off-Shore Co 407 US 1 (USSupCt 1972). See also Bortolotti, 233.

[49] Mitsubishi Motors Corp v Soler Chrysler-Plymouth, Inc [1985] USSC 203; 473 US 614 (USSupCt 1985), 626.

[50] Claimant’s Exhibit No 1.

[51] Letter sent from Smart & Smart, lawyers for BOBBINS, to ICDR on 13 June 2001: ‘my client [BOBBINS]…has never entered into any arbitration agreement with the claimant [INVESTMENT]. Furthermore, I can assure you that my client would not enter into an arbitration agreement with it [INVESTMENT]’.

[52] Statement of Defense, No 18: ‘During the negotiation of the contract [TAILTWIST]…anticipated that it might wish to assign the right to receive the payment from [BOBBINS].’ This was recognised in the signed contract between TAILTWIST and BOBBINS, which included a provision covering the situation: ‘If [TAILTWIST] should assign the right to the payments due from [BOBBINS]’: Claimant’s Exhibit No 1.

[53] Notice of Arbitration, No 2.

[54] Procedural Order No 2, Clarification No 47. BOBBINS is involved in the textile trade: Notice of Arbitration, No 2. In Helen Whiting Inc v Trojan Textile Corp 307 NY 360 (NYCtApp 1954), 367, the Court stated that ‘we can almost take judicial notice that arbitration clauses are commonly used in the textile industry’. This has been affirmed in subsequent cases. The Court in Pervel Industries, Inc v TM Wallcovering, Inc [1989] USCA2 277; 871 F 2d 7 (2d Cir NY 1989), 8, noted that the specialised nature of the products of the textile industry has led to the widespread use of arbitration clauses. Similarly, in Genesco, Inc v T Kakiuchi & Co [1987] USCA2 297; 815 F 2d 840 (2d Cir NY 1987), 846: The widespread use of arbitration clauses the textile industry puts a contracting party…on notice that its agreement probably contains such a clause’; Avdon Eng’g v Seatex 112 F Supp 2d 1090 (D Colo 2000), 1096; Commercial Credit LLC v Springs Industries Inc 2001 US Dist LEXIS 5152 (SDNY 2001), 27–28; Chelsea Square Textiles Inc, Kenneth Lazar, Lester Gribetz v Bombay Dyeing and Manufacturing Co Ltd [1999] USCA2 379; 189 F3d 289 (2d Cir 1999), 296–97; Leadertex v Morganton Dyeing & Finishing Corp [1995] USCA2 1016; 67 F3d 20 (2d Cir 1995), 25: ‘arbitration is a widespread practice in the textile industry’; Imptex International Corp v Lorprint Inc 625 F Supp 1572 (SDNY 1986), 1572; Avila Group Inc v Norma J of California 426 F Supp 537 (SDNY 1977), 541 n 10; Gay nor-Stafford Industries Inc v Mafco Textured Fibres, a Division of MacAndrews & Forbes Company 52 AD2d 481 (NYAppDivlst Dep’t 1976), 485: ‘arbitration is

common in the textile industry’; N&D Fashions Inc v DHJ Industries Inc [1977] USCA8 88; 548 F 2d 722 (8th Cir Minn 1976), 726 n 7; CMI Clothesmakers Inc v ASK Knits Inc 85 Mise 2d 462 (NYSupCt 1975), 464–65; London Mfg Inc v American and Efird Mills Inc 46 AD2d 637 (NYAppDivlst Dep’t 1974), 638; Tanbro Fabrics Corp v Deering Milliken Inc, 35 AD2d 469 (NYAppDivlst Dep’t 1971), 473 (dissent); Trafalgar Square Ltd v Reeves Bros Inc AD2d 194 (NYAppDivlst Dep’t 1970), 196; Wachusett Spinning Mills Inc v Blue Bird Silk Manufacturing Co Inc 12 Misc 2d 938 (NYSupCt 1958), 945.

[55] Indeed, ‘on many occasions…creditors of BOBBINS had assigned to someone else the right to receive payment from BOBBINS. Moreover, BOBBINS had also on occasion financed its current operations by assigning its receivables to a financing company’: Procedural Order No 2, Clarification No 14.

[56] See, eg, ICC Arbitration Case No 2626 of 1977; United States of America v Panhandle Eastern Corp 672 F Supp 149 (DDel 1987).

[57] The wording of the clause is ‘any controversy or claim…arising out of or relating to this contract’: Claimant’s Exhibit No 1. This clause has been widely drafted. This is noticeable especially when it is contrasted with, eg, an arbitration agreement applying to all disputes ‘arising under’ the contract: McCarthy v Azure [1994] USCA1 211; 22 F3d 351 (1st Cir NH 1994). The phrase ‘any controversy or claim’ has been held in the United States to have a wide meaning: Prima Paint Corp v Flood & Conklin Mfg Co [1967] USSC 172; 388 US 395 (USSupCt 1967). Similarly, in the United Kingdom, the word ‘claims’ has been held to convey a wide meaning: Woolf v Collis Remerill Service [1948] 1 KB 11, 18. Furthermore, the phrase ‘arising out of conveys a wide meaning: Ethiopian Oilseeds & Pulses Export Co v Rio Del Mar Foods, Inc [1990] 1 QB 86. See also Redfern & Hunter, 160–62.

[58] Article 1 (1)(a) CISG states that ‘This Convention applies to contracts of sale of goods between parties whose places of business are in different States…when the States are Contracting States’. Both Oceania and Equatoriana are parties to the CISG (Notice of Arbitration, No 16) and have incorporated the CISG into domestic law (Procedural Order No 2, Clarification No 2). Article 3(2) CISG states that the CISG ‘does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services’. This provision does not negate the applicability of the CISG to the contract of 1 September 1999. Services will constitute the ‘preponderant part of the obligations’ under Art 3(2) CISG if they constitute ‘considerably more than 50% of the price’: Schlechtriem (1986), 31. Honnold, 58–59, considers that services will be a preponderant part of the obligations if they constitute more than 15% of the price. See also ICC Arbitration Case No 7153 of 1992; Bonell and Ligouri, 1; Ferrari (1995), 11; Gabriel, 18–19; Herber in Schlechtriem (1998), 39. The services in the contract of 1 September 1999 account for $80,000 out of $9,300,000 (Claimant’s Exhibit No 1); this is less than 1% of the contract price and clearly is not the preponderant part of the obligations of TAILTWIST, the party who furnished the goods.

[59] Claimant’s Exhibit No 1.

[60] The issue is expressed in Procedural Order No 3 as ‘Whether the notice of assignment…was effective to obligate [BOBBINS] to pay the $2,325,000 to [INVESTMENT] rather than to [TAILTWIST]’. See also Procedural Order No 1, No 4; Notice of Arbitration, Nos 7 and 8; Statement of Defense, Nos 7–11.

[61] Notice of Arbitration, No 17; Procedural Order No 2, Clarification No 2.

[62] Claimant’s Exhibit Nos 2 and 3; Notice of Arbitration, No 7.

[63] Claimant’s Exhibit No 2; Notice of Arbitration, No 7.

[64] The notice of assignment was received and signed for on 10 April 2000. Statement of Defense, No7.

[65] Notice of Arbitration, No 8; Statement of Defense, No 9.

[66] Procedural Order No 2, Clarification No 19.

[67] Mr Black expressed an intention to confirm the assignment with TAILTWIST: Statement of Defense, No 8.

[68] TAILTWIST’s InsolvencyAdministrator, Dr Strict, confirmed the assignment in the letter of 17 October 2000: Respondent’s Exhibit No 4.

[69] Procedural Order No 2, Clarification No 19.

[70] Commentary to the draft Receivables Convention Part II (A/CN.9/WG.II/WP.106), No 18; Bazinas (1998), 339–40; Bazinas (2001), 277; Trager, 636. In order to facilitate receivables financing and avoid an increase in the cost of credit, the Working Group widely considered that a notice of assignment could be sent by either the assignor or the assignee, without affecting the notification’s validity. This principle exists in many legal systems. See Art 1264 Codice Civile (Italy); §409 BGB (Germany); Art 2036 Codigo Civil para El Distrito Federal en Materia Comun y para toda La Republica en Maleria Federal (Mexico); Art 1689 Code Civil (France). For a comment of these provisions see Torrente & Schlesinger, 40.

[71] An assignee does not have to prove that it has authority from the assignor when notifying the debtor of the assignment. The Working Group decided that forcing the assignee to always provide proof of the assignment would make the assignment process ‘excessively cumbersome’: Report on Twenty-Sixth Session (A/CN.9/434).

[72] According to BOBBINS ‘It was not clear to Mr Black [Vice-President of BOBBINS] what actions should be taken in regard to the purported assignment, especially since the notice had been sent by [INVESTMENT] and not by [TAILTWIST]’: Statement of Defense, No 8.

[73] This Article aims to protect the debtor.A debtor should not be subjected to the risk of receiving a notice of assignment and a payment instruction from a party not known to the debtor. The debtor has a right, not a duty, to request additional information. Commentary to the draft Receivables Convention Part II (A/CN.9AVG.II/WP.106), No 47.

[74] Procedural Order No 2, Clarification No 25.

[75] Notice of Arbitration, No 7; Statement of Defense, No 7.

[76] Claimant’s Exhibit No 4.

[77] Bazinas (2001), 280.

[78] Article 5(d) Receivables Convention states that “Notification of the assignment’ means a communication in writing that reasonably identifies the assigned receivables and the assignee’. The Working Group noted the close relationship between Art 16(1) Receivables Convention and Art 5(d) Receivables Convention: Report on Twenty-Sixth Session (A/CN.9/434), No 167. Sigman& Smith, 350.

[79] Notice of Arbitration, No 7; Statement of Defense, No 7.

[80] Respondent’s Exhibit No 1.

[81] The document’s heading also contained the German word ‘Zession’ (Claimant’s Exhibit No 2). ‘Zession’ bears a strong resemblance to the English word ‘cession’. ‘Cession’ is synonymous with ‘assignment,’ and to equivalent words in several European languages: in French and Spanish, ‘cession’; in Italian, ‘cessione’. These words derive from the Latin root ‘cessio’. The use of ‘Zession,’ therefore, was another aspect of the document that should have alerted Mr Black to the nature of the document.

[82] Procedural Order No 2, Clarification No 12.

[83] Claimant’s Exhibit Nos 2 and 3.

[84] Statement of Defense, No 11.

[85] Proposal by United States of America (A/CN.9/WG.II/WP100), No 1 states that ‘a clear distinction should be drawn between the notification of the assignment and payment instructions’.

[86] Proposal by United States of America (A/CN.9/WG.II/WP100), No 2, discusses expressly the possibility of defining payment instruction and notice of assignment separately. This demonstrates that the notice of assignment and the payment instruction are independent documents, and that the invalidity of the payment instruction does not invalidate the notice of assignment. See also the Commentary to the draft Receivables Convention Part I (A/CN.9/WG.U/WP.105), No 55, ‘a notification containing no payment instruction is effective under the draft Convention’. See Report on Twenty-Third Session (A/CN.9/486), No 13: ‘In response to a question as to the relationship between a notification and a payment instruction it was noted that…a notification did not need to contain a payment instruction but a payment instruction could only be given in a notification or subsequent to a notification by the assignee’. See also Commentary to the draft Receivables Convention Part I (A/ CN.9/WG.II/WP.105), No 22.

[87] Claimant’s Exhibit Nos 2 and 3.

[88] Article 7(1) Receivables Convention states that ‘In the interpretation of this Convention, regard is to be had to its object and purpose as set forth in the preamble, to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade’. See Ferrari (2000) (Private Law), 182; Commentary to the draft Receivables Convention Part I (A/CN.9/ WG.II/WP.105), Nos 63–64.

[89] The Preamble to Receivables Convention states: ‘Considering that problems created by uncertainties as to the content and the choice of legal regime applicable to the assignment of receivables constitute an obstacle to international trade’. See also Bazinas (1998), 320; Bazinas (2001), 260–61, 265– 66; Schwarcz, 455–56; Oditah, 4–10.

[90] Preamble to Receivables Convention, Paragraph (5). See also Ferrari (2000) (Private Law), 182.

[91] Commentary to the draft Receivables Convention Part I (A/CN.9/WG.II/WP 105), No 8.

[92] Procedural Order No 2, Clarification No 33.

[93] See Bazinas (2001), 281: ‘In the case of multiple payment instructions given with respect to one and the same assignment involving a correction or other change of the payment instructions, the debtor is discharged if it pays in accordance with the last payment instruction received by the debtor before payment’.

[94] Respondent’s Exhibit No 5.

[95] Notice of Arbitration, No 7; Statement of Defense, No 7.

[96] An analogous principle is articulated in Art 24 CISG.

[97] Respondent’s Exhibit No 2; Statement of Defense, No 7.

[98] Statement of Defense, Nos 8 and 9.

[99] Statement of Defense, No 9; Procedural Order No 2, Clarification No 32.

[100] Procedural Order No 2, Clarification No 30.

[101] Statement of Defense, No 8.

[102] ‘The Memorandum…took about two and a half hours from the time the Memorandum was signed to the time it was received in the Accounting Department’: Procedural Order No 2, Clarification No 30.

[103] Mr Black stated in the memorandum to the Accounting Department that ‘One of [the payments due on the TAILTWIST contract] will soon be due’: Respondent’s Exhibit No 3. See also Procedural Order No 2, Clarification No 31.

[104] The possibility of assignment had been raised in pre-contractual negotiations: Statement of Defense, No 18.

[105] Procedural Order No 2, Clarification No 30.

[106] Procedural Order No 3. See also Procedural Order No 1, No 5; Notice of Arbitration Nos 9 and 10; Statement of Defense, Nos 12–16.

[107] Claimant’s Exhibit No 1.

[108] Claimant’s Exhibit Nos 2 and 3; Respondent’s Exhibit No 4. The payment of $930,000 was to be paid by BOBBINS ‘after three months satisfactory performance’ by the ‘Spin-a-Whizz’ equipment: Claimant’s Exhibit No 1.

[109] Claimant’s Exhibit No 5.

[110] Claimant’s Exhibit No 5.

[111] Statement of Defense, No 16. A price reduction under CISG is separate from an award of damages: Bergsten & Miller, 1; Burnett, 22.

[112] Claimant’s Exhibit No 1.

[113] Article 35(2)(a) CISG states that a lack of conformity will exist unless goods ‘are fit for the purpose for which goods of the same description would ordinarily be used’. In this case, Art 35(2)(a) may also be extended to apply to the provision of services under Art 3(2) CISG: See fn 58. Procedural Order No 2, Clarification No 34 states that, in annexes to the contract, ‘there were detailed specifications…as to the performance of the…equipment’.

[114] Claimant’s Exhibit No 5.

[115] Claimant’s Exhibit No 5.

[116] Notice of Arbitration, No 5.

[117] Statement of Defense, No 14.

[118] Statement of Defense, No 14.

[119] Statement of Defense, No 14.

[120] Statement of Defense, No 14.

[121] Statement of Defense, No 15.

[122] Statement of Defense, No 15.

[123] Procedural Order No 2, No 39. See also Statement of Defense, No 20; Procedural Order No 2, Clarification No 42.

[124] Statement of Defense, No 20.

[125] Ferrari (1995), 3; Honnold, 281; Magnus in Honsell, 431; Schwenzer in Schlechtriem (2000), 415; Sono in Bianca & Bonell, 309; Wautelet in Van Houtte (1997), 177.

[126] Oberlandesgericht Karlsruhe: 1 U 280/96 of 25 June 1997; Sport D’Hiver di Genevieve Culet v Ets Louyes et Fils Tribunale Civile di Cuneo: 45/96 of 31 January 1996; Bundesgerichtshof: VII ZR 159/ 94 of 8 March 1995; Amtsgericht Kehl: 3 C 925/93 of 6 October 1995; Handelsgericht Zürich: HG 920670 of 26 April 1995; Hungarian Chamber of Commerce and Industry, Court of Arbitration Award: Vb 94131 of 5 December 1995; Oberlandesgericht München: 7 U 3758/94 of 8 February 1995; Amtsgericht Riedlingen: 2 C 395/ 93 of 21 October 1994; Oberlandesgericht Düsseldorf: 17 U 136/92 of 12 March 1993; Oberlandesgericht Saarbriicken: 1 U 69/92 of 13 January 1993; Oberlandesgericht Düsseldorf: 17 U 82/92 of 8 January 1993; Landgericht Berlin: 99 O 29/93 of 16 September 1992; Landgericht Mönchengladbach: 7 O 80/91 of 22 May 1992; Fallini Stefano & Co SNC v Foodik BV Arrondissementsrechtbank Roermond: 900366 of 19 December 1991; Landgericht Bielefeld: 15 O 201/90 of 18 January 1991; Landgericht Aachen: 41 O 198/ 89 of 3 April 1990.

[127] Obergericht Kanton Luzern: 11 95 123/357 of 8 January 1997; Amtsgericht Augsburg: 11 C 4004/95 of 29 January 1996; Hungarian Chamber of Commerce and Industry, Court of Arbitration Award: Vb 94131 of 5 December 1995; Amtsgericht Kehl: 3 C 925/93 of 6 October 1995; M Caiato Roger v La Société française de factoring international factor France ‘SFF’ (SA) Cour d’appel Grenoble: 93/4126 of 13 September 1995; Oberlandesgericht Stuttgart: 5 U 195/94 of 21 August 1995; Handelsgericht Zürich: HG 920670 of 26 April 1995; Landgericht Landshut: 54 O 644/94 of 5 April 1995; Bundesgerichtshof: VIII ZR 159/94 of 8 March 1995; Oberlandesgericht München: 7 U 3758/94 of 8 February 1995; Amtsgericht Augsburg: 11 C 4004/95 of 29 January 1995; Calzaturificio Moreo Juniro Srl v SPRLU Philmar Diff Tribunal Commercial de Bruxelles: RG 1.205/93 of 5 October 1994; Oberlandesgericht Innsbruck: 4 R 161/94 of 1 July 1994; Landgericht Düsseldorf: 31 O 231/94 of 23 June 1994; Oberlandesgericht Düsseldorf: 6 U 32/93 of 10 February 1994; Landgericht Köln: 86 O 119/93 of 11 November 1993; Gruppo IMAR SpA v Protech Horst Arrondissementsrechtbank Roermond: 920159 of 6 May 1993; Oberlandesgericht Saarbrücken: 1 U 69/92 of 13 January 1993; Landgericht Berlin: 99 O 123/92 of 30 September 1992; Landgericht Berlin: 99 O 29/93 of 16 September 1992; Fallini Stefano & Co SNC v Foodik BV Arrondissementsrechtbank Roermond: 900366 of 19 December 1991.

[128] Statement of Defense, No 19.

[129] BOBBINS learned of the opening of the insolvency proceedings on 23 April 2000: Procedural Order No 2, Clarification No 21.

[130] Procedural Order No 2, Clarification No 39.

[131] Procedural Order No 2, Clarification No 39.

[132] Oberlandesgericht Koblenz: 2 U 31/96 of 31 January 1997. See also Magnus in Honsell, 429; Resch, 475; Schwenzer in Schlechtriem (2000), 413; Wautelet in Van Houtte (1997), 182–83.

[133] The requirement that notice under Art 39(1) CISG must be specific has been strictly interpreted. Eg, in Oberlandesgericht München: 7 U 2070/97 of 9 July 1997, it was held that a notice is not sufficiently specific if the deficiencies are not adequately described. In Landgericht München: 10 HKO 23750/94 of 20 March 1995, a complaint stating that ‘the goods are rancid’ was deemed to be insufficiently specific. In addition, in Landgericht München: 17 HKO 3726/89 of 3 July 1989, a complaint about the quality of goods which accused the seller of ‘poor workmanship and improper fitting’ was deemed insufficient. Similarly, in Oberlandesgericht Koblenz: 2 U 31/96 of 31 January 1997, a complaint that ‘five rolls of acrylic blankets are missing’ was not sufficiently specific because it did not indicate the manner in which the buyer wished the seller to cure the deficiency. See also Bundesgerichtshof: VIII ZR 306/95 of 4 December 1996, which stated that ‘in order to meet the requirements of [Art 39(1) CISG], the [buyer] would have been obligated to describe the defect in such detailed manner that any misunderstandings were impossible and to enable the seller to determine unmistakably what was meant’.

[134] Schwenzer in Schlechtriem (1998), 312; Schwenzer in Schlechtriem (2000), 413.

[135] ‘The [TAILTWIST] equipment has not performed satisfactorily’: Statement of Defense, No 15; ‘full production was never achieved’: Procedural Order No 2, Clarification No 39.

[136] Statement of Defense, No 20.

[137] Article 27 CISG imputes a requirement of ‘appropriate means’ to the entire Convention: Schwenzer in Schlechtriem (1998), 313. Further, ‘In circumstances in which a buyer is expected to give notice quickly, the buyer has to choose a more rapid means of communication than under regular circumstances, eg, sending a fax instead of a letter’: Wautelet in Van Houtte (1997), 182

[138] Claimant’s Exhibit No 1. The full contract price is $9,300,000 minus $80,000 for the training provided.

[139] Statement of Defense, No 15; Procedural Order No 2, Clarification No 39.

[140] TAILTWIST’s principal office was located in Sea Port, Oceania: Notice of Arbitration, No 3. ‘Notice given to the employees who install equipment or to the driver who delivers the goods are considered to be given to the incorrect addressee’: Magnus in Honsell, 433.

[141] In most cases courts have rejected claims of a ‘reasonable excuse’ under Art 44 CISG. For examples see: Rheinland Versicherungen v SrlAtlarex and Subalpina SpA Tribunale di Vigevano: No 405 of 12 July 2000; Bundesgerichtshof: VIII ZR 259/97 of 25 November 1998; NIPR 1998, 226; Oberlandesgericht Koblenz: 2 U 580/96 of 11 September 1998; Oberlandesgericht Bamberg: 8 U 4/98 of 19 August 1998; Thüringer Oberlandesgericht: 8 U 1667/97 of 26 May 1998; Oberlandesgericht München: 7 U 4427/97 of 11 March 1998; Oberster Gerichtshof: 2 Ob 328/97 of 12 February 1998; Landgericht Erfurt: 6 O 1642/97 of 28 October 1997; Oberlandesgericht München: 7 U 2070/97 of 9 July 1997; Oberlandesgericht Karlsruhe: 1 U 280/96 of 25 June 1997; Obergericht des Kantons Luzern: 11 95 123/357 of 8 January 1997; Oberlandesgericht München: 7 U 3758/94 of 8 February 1995; Landgericht Oldenburg: 12 O 674/93 of 9 November 1994; ICC Award No 7331 of 1994; Oberlandesgericht Saarbrücken: 1 U 69/92 of 13 January 1993. The fact that the seller had no opportunity to examine the goods, because they were sent immediately to a sub-contractor, cannot be seen as a reasonable excuse under Art 44 CISG. See NIPR 1997, 284. Kennedy, 319; Sono in Bianca & Bonnell, 328. ‘Examples of exceptional circumstances have included cases of a sole trader who became ill and thus was unable to give notice, and cases where notice was given incorrectly to a prior agent of the seller’: Magnus in Honsell, 466 [Translated from German by the authors of this Memorandum]; Gillies & Moens, 24, n 24; Resch, 479.

[142] Huber in Schlechtriem (1998), 350; Kuoppala, 28. In Oberlandesgericht Koblenz: 2 U 580/96 of 11 September 1998, the Court held that a ‘reasonable excuse’ required the buyer to act with reasonable care in providing for prompt examination of the goods. The buyer could not prove that it had acted with reasonable care, and thus Art 44 CISG did not apply.

[143] Huber in Schlechtriem (1998), 350; Kuoppala, 28.

[144] Huber in Schlechtriem (1998), 350; Kuoppala, 28.

[145] In Oberlandesgericht München: 7 U 3758/94 of 8 February 1995 the buyer gave notice two months after discovery of non-conformities in the goods. The court rejected the claim of ‘reasonable excuse’ under Art 44 CISG, arguing that the normal limit for non-perishable goods was 8 days. See also ICC award No 7331 of 1994.

[146] See for examples of a minor breach, Huber in Schlechtriem (1998), 350. See also ICC Award No 7331 of 1994.

[147] Claimant’s Exhibit No 5.

[148] Claimant’s Exhibit No 1; Procedural Order No 2, Clarification No 46.

[149] See Huber in Schlechtriem (1998), 349–50; Sono in Bianca & Bonell, 326; Honnold, 283; Magnus in Honsell, 466; Official Records, 320–23; Oberlandesgericht München: 7 U 3758/94 of 8 February 1995.

[150] In determining the existence of a ‘reasonable excuse’, it is important to consider the nature of the buyer’s business. BOBBINS is a corporation involved in a multi-million dollar transaction. Further, this is not the first time that BOBBINS has been involved in such a transaction: Procedural Order No 2, Clarification No 46. See Oberlandesgericht München: 7 U 3758/94 of 8 February 1995. Art 44 CISG was introduced in response to concerns that buyers from developing countries may have difficulty in satisfying the notice requirements under Art 39(1) CISG: Enderlein & Maskow, 172; Honnold, 283; Schlechtriem (1986), 267–68; Schlechtriem (1991), 26; Van Houtte (1995), 137; Ziegel & Samson, 46–47. Eg, difficulties might occur if buyers, lacking specialist knowledge, failed to discover the deficiencies in the goods or were unaware of the need to give notice within a reasonable time. BOBBINS clearly does not come within this category.

[151] Statement of Defense, No 21.

[152] Statement of Defense, No 19.

[153] Schwenzer in Schlechtriem (1998), 313; Andersen in Pace International Law Review, 106–07. There are several cases in which notice of non-conformity given over the telephone was adequate in

accordance with Art 39(1) CISG. However the buyer must prove that the seller received the notice. That is, the buyer must adduce evidence to show who took the telephone call on behalf of the seller, and the time of the telephone call. Oberlandesgericht Frankfurt am Main: 5 U 209/94 of 23 May 1995; Landgericht Frankfurt am Main: 3/3 O 37/92 of 9 December 1992; Landgericht Stuttgart: 3 KfH O 97/89 of 31 August 1989.

[154] Beijing Light Automobile Co Ltd v Connell Limited Partnership, Stockholm Chamber of Commerce, Arbitration Award of 5 June 1998, 23. See also Wautelet in Van Houtte (1997), 187.

[155] Schwenzer in Schlechtriem (1998), 324; Kuppola, 29; Wautelet in Van Houtte (1997), 186. Fallini Stefano & Co SNC v Foodik BV Arrondissementsrechtbank Roermond: 900366 of 19 December 1991.

[156] Honnold, 295, states that ‘could not have been unaware’ seems to set a standard close to actual knowledge, in contrast to ‘ought to have known’ which can imply a duty to inquire. This acts as a limitation on the seller’s responsibility. Similarly, the Law Commission of New Zealand, 40, states that ‘could not have been unaware’ appears to be close to actual knowledge. It can be contrasted with ‘ought to have known’ or ‘discovered’ which is used in several other provisions of the convention.

[157] Schwenzer in Schlechtriem (1998), 321–22; Honnold, 308; Karollus, 128. The guidelines for determining conformity are contained in Art 35(2) CISG, and include the requirement that the goods must be ‘fit for the purposes for which goods of the same description would ordinarily be used’.

[158] Commentary on Art 40 Uniform Law on the International Sale of Goods (ULIS) demonstrates that a seller ‘could not have been unaware’ where there are obvious deficiencies. Commentary on Art 40 ULIS can be used in the interpretation of Art 40 CISG because ‘Art 40 [CISG] was taken almost word-for-word from Art 40 ULIS’: Schwenzer in Schlechtriem (1998), 321.

[159] TAILTWIST was not under an obligation to investigate whether there was any possibility of nonconformity. See also Law Commission of New Zealand, 40; Grosswald Curran, 2; Kuoppala, 30.

[160] Claimant’s Exhibit, No 5.

[161] Statement of Defense, No 9.

[162] The contract between BOBBINS and TAILTWIST did not require a specific number of personnel for the training. The contract specified that ‘[TAILTWIST] personnel will remain on site for three weeks, during which [BOBBINS] personnel will be trained in the correct operation, adjustment and maintenance of the machinery’ [emphasis added]: Claimant’s Exhibit No 1. BOBBINS claims that it had anticipated that four TAILTWIST personnel would conduct the training, but this is not reflected in the contract itself: Statement of Defense, No 14; Claimant’s Exhibit No 5.

[163] Procedural Order No 2, Clarification No 39.

[164] The doctrine of respondeat superior, that is, that the acts and omissions of the employee are attributable to the employer, cannot be manipulated to suggest that the knowledge of an employee automatically becomes the knowledge of the employer: see, Kritzer, Highlights, 27. The notion of acts or omissions is clearly distinct from the concept of knowledge. See Grosswald Curran, 3. The record does not disclose whether TAILTWIST’s employees may be considered as ‘agents’ or otherwise.

[165] Claimant’s Exhibit No 1.

[166] Article 19(1) Receivables Convention states that ‘The debtor may agree with the assignor in a writing signed by the debtor not to raise against the assignee the defences and rights of set-off that it could raise pursuant to Art 18’. Art 18 Receivables Convention deals generally with the debtor’s defences and rights of set-off. The Working Group emphasised the importance of ensuring the validity of such an agreement, since it allows the assignor to increase the value of receivables and the debtor to obtain more credit or better payment terms. See Bazinas (2001), 282; Bazinas, (1998), 342; Commentary to the draft Receivables Convention Part II (A/CN.9/WG.11/WP.106), Nos 55–56.

[167] The Working Group decided not to specify the point of time at which an agreement to assert to defences should be made. However during the drafting of Art 19 Receivables Convention the Working Group pointed out that in most cases an agreement not to assert defences is made at the time of the conclusion of the original contract. See Commentary to the draft Receivables Convention Part II (A/ CN.9AVG.II/WP.106), Nos 55–56; Report on Twenty-Fourth Session (A/CN.9/420), No 138.

[168] Claimant’s Exhibit No 1.

[169] As a consequence of this agreement, BOBBINS may not refuse to pay INVESTMENT on the ground that TAILTWIST’s performance is defective. BOBBINS would have a cause of action against TAILTWIST for breach of contract. Even where an assignor has become insolvent, the debtor is not allowed to make a claim against the assignee since the debtor cannot be placed in a better situation than it would be if the assignment had not taken place. Thus, under the Receivables Convention, ‘the debtor bears the risk of the financial inability of its contractual partner to pay’. See Bazinas (1998), 344–45, referring to Art 21 Receivables Convention. Article 21 Receivables Convention deals with the situation where the debtor, having already payed the assignee, is not entitled to recover that sum if the assignor does not perform its obligation.

[170] See Part 3.2 above.

[171] See Part 3.3 above.

[172] See Part 3.4 above.

[173] Eberstein & Bacher in Schlechtriem (1998), 594; Corterier, 39.

[174] Claimant’s Exhibit No 1; Statement of Defense, No 12.

[175] Claimant’s Exhibit No 1; Statement of Defense, No 20.

[176] Procedural Order No 3 states that The memoranda…should not consider the following issues… The rate of interest that [BOBBINS] should pay to [INVESTMENT] if it has to pay [INVESTMENT] any amount of the purchase price assigned’.

[177] According to Art 31(d) AAA Rules, the Tribunal may award ‘the reasonable costs for legal representation of a successful party’.

[178] The conduct of the parties is generally considered to be a relevant factor in allocating the costs of arbitration. See Huleatt-James & Gould, 104–05.

[179] Procedural Order No 3 states that ‘The memoranda…should not consider the following issues… Any calculation or apportionment of the costs of the arbitration’.

The University of Queensland Memorandum fort the Respondant

List of abbreviations

§
Section
AAA
Rules American Arbitration Association International

Arbitration Rules 2000
AATA
Administrative Appeals Tribunal (Australia)
All ER
All England Law Reports
ALR
Australian Law Reports
BGB
Bürgerliches Gesetzbuch (German Civil Code)
BOBBINS
West Equatoriana Bobbins SA
Cass
Corte di Cassazione
CIETAC
China International Economic and Trade Arbitration

Commission
2d Cir
United States Court of Appeal Second Circuit
3d Cir
United States Court of Appeal Third Circuit
9th Cir
United States Court of Appeal Ninth Circuit
CISG
The United Nations Convention on Contracts for the

International Sale of Goods 1980
Co
Company
Corp
Corporation
D Del
United States District Court, District of Delaware
DDC
United States District Court, District of Columbia
D Mass
United States District Court, District of Massachusetts
Ed
Editor
Eds
Editors
et al
And others
EWHC Admin
High Court of England and Wales
F 2d
Federal Reporter, Second Series
F3d
Federal Reporter, Third Series
F Supp
Federal Supplement
Giust Civ
Giustizia Civile
GmbH
Gesellschaft mit beschränkter Haftung
HCJ
High Court of Justice
ICC
International Chamber of Commerce
ICC
Rules International Chamber of Commerce Rules of

Arbitration
ICDR
International Center for Dispute Resolution
IEHC
High Court of Ireland

384
International Trade & Business Law
Inc
Incorporated
INVESTMENT
Futura Investment Bank
KB
High Court of Justice (King’s Bench) (England)
LCIA Rules
London Court of International Arbitration Rules 1998
Lloyd’s L Rep
Lloyd’s Law Reports
Ltd
Limited
Mfg
Manufacturing
Model Law
UNCITRAL Model Law on International Commercial

Arbitration 1985
n
Numero
New York Convention
United Nations Convention on the Recognition and

Enforcement of Foreign Arbitral Awards 1958
NJW
Neue Juristische Wochenschrift
No
Number
Nos
Numbers
NSWLR
New South Wales Law Reports
NY
New York Court of Appeal Reports or New York
NY2d
New York Court of Appeal Reports Second Series
NY Ct App
New York Court of Appeal
NZLR
New Zealand Law Reports
Ont Sup CJ
Ontario Superior Court of Justice
Pty
Proprietary
QB
High Court of Justice (Queen’s Bench) (England)
RGZ
Entscheidungen des Reichsgerichts in Zivilsachen

(Germany)
Riv.dir.int.priv.proc.
Rivista di diritto internazionale private e processuale
RIW
Recht der Internationalen Wirtschaft
SA
Société Anonyme
SDNY
United States District Court, Southern District of New

York
Soc
Société
SpA
Società per azioni
Srl
Società a responsabilità limitata
SupCt
Supreme Court
TAILTWIST
Tailtwist Corp
UCC
Uniform Commercial Code (United States)
UK
United Kingdom
ULIS
Uniform Law on the International Sale of Goods 1978
UNCITRAL
United Nations Commission on International Trade Law
UNIDROIT
International Institute for the Unification of Private Law
UNIDROIT Principles
UNIDROIT Principles of International Commercial

Contracts, 1994
US
United States Supreme Court Reports
US Dist
United States District Court
US Sup Ct
United States Supreme Court

Va App Va Ct App WIPO YB ZPO ZR

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List of legal authorities

American Arbitration Association International Arbitration Rules 2000 [AAA

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Arbitration Act 1996 (UK)

Bürgerliches Gesetzbuch (Germany) [BGB]

Code Civil (France)

Codice Civile (Italy)

Code des Obligations (Switzerland)

Convention on the Assignment of Receivables in International Trade

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International Chamber of Commerce Arbitration Rules [ICC Rules]

London Court of International Arbitration Rules 1998 [LCIA Rules]

Massachusetts General Laws

New York Uniform Commercial Code

PRC Arbitration Law 1994 (China)

Sixième Livre du Code Judiciaire (Belgium)

Uniform Commercial Code (United States of America) [UCC]

UNCITRAL Model Law on International Commercial Arbitration, 21 June 1985

[Model Law]

UNIDROIT Principles of International Commercial Contracts, Rome, 1994

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Vienna, 11 April 1980 [CISG]

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Vierde Boek van het Wetboek van Burgerlijke Rechtsvordering (The

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Statement of purpose

The Respondent, West Equatoriana Bobbins SA (BOBBINS), has prepared this

Memorandum in compliance with the Arbitral Tribunal’s Procedural Order No 1,

issued on 6 October 2001.

It is argued that:

No valid arbitration agreement exists between BOBBINS and the Claimant, Futura Investment Bank (INVESTMENT);

BOBBINS is not liable to make payment of $2,325,000 to INVESTMENT;

BOBBINS is entitled to declare a reduction of $930,000 in the contract price;

INVESTMENT should bear the costs of arbitration and BOBBINS’ legal costs.

In relation to each of these four issues, BOBBINS summarises the arguments made by INVESTMENT in the Memorandum for the Claimant prepared by Université de Fribourg. These summaries are italicised and boxed. Where BOBBINS refers to an issue which is not addressed in the Memorandum for the Claimant, the heading pertaining to that issue is followed by [NEW ARGUMENT]. In arguing these propositions, BOBBINS will demonstrate the legal and factual bases for its claim, and will respond to INVESTMENT’S arguments.

Arguments

I There is no valid arbitration agreement between BOBBINS and INVESTMENT

INVESTMENT claims that BOBBINS is bound to arbitrate this dispute because: 1 The arbitration clause contained in the original contract of 1 September 1999 was necessarily transferred from TAILTWIST to INVESTMENT as a result of TAILTWISTs assignment to INVESTMENT of the right to receive payment from BOBBINS (Memorandum for the Claimant, Université de Fribourg, 3–4); 2 BOBBINS consented to the transfer of the arbitration clause from TAILTWIST to INVESTMENT (Memorandum for the Claimant, Université de Fribourg, 5); and 3 The arbitration agreement between BOBBINS and INVESTMENT is formally valid (Memorandum for the Claimant, Université de Fribourg, 6–7).

[1] .1 The arbitral tribunal has authority to rule on its own jurisdiction

This dispute concerns an arbitration clause originally contained in a contract concluded between BOBBINS and TAILTWIST on 1 September 1999.[1] INVESTMENT claims that this arbitration clause was subsequently transferred from TAILTWIST to

INVESTMENT, and that as a result, INVESTMENT may now compel BOBBINS to arbitration.[2] The clause contained in the contract of 1 September 1999 incorporated the American Arbitration Association International Arbitration Rules (AAA Rules).[3] Article 15(1) AAA Rules states that the Arbitral Tribunal ‘shall have the power to rule on its own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement’. Therefore, while BOBBINS disputes the existence of any arbitration agreement between it and INVESTMENT, BOBBINS acknowledges that the Arbitral Tribunal is authorised to determine the existence, scope and validity of the alleged arbitration agreement between BOBBINS and INVESTMENT.[4]

[1] .2 The arbitration clause was not automatically transferred to INVESTMENT

On 29 March 2000, TAILTWIST assigned to INVESTMENT its right to receive payment of the two outstanding installments, of $2,325,000 and $930,000, due from BOBBINS under the contract of 1 September 1999.[5] BOBBINS has no reason to dispute that the right to receive payment was validly assigned to INVESTMENT.[6] However, BOBBINS denies INVESTMENT’S claim that the assignment of the right to receive payment also ‘necessarily’ transferred to INVESTMENT the arbitration clause contained in the contract of 1 September 1999.[7] This claim is based on an inaccurate application of what is commonly described as the ‘automatic transfer rule’.[8] Under this rule, where a contractual right to payment has been validly assigned to a third party, other rights deriving from the original contract may be automatically transferred with the assigned right.[9] BOBBINS does not dispute the existence of the automatic transfer rule, but argues that in this case the rule does not extend to the transfer of the arbitration clause for three reasons. First, the arbitration clause was not automatically transferred because, according to the doctrine of separability, the clause is separable from the main contract. Secondly, the wording of the arbitration clause limits the parties’ consent to arbitration only to disputes arising between BOBBINS and TAILTWIST. Thirdly, the automatic transfer of this arbitration clause would be contrary to the mandatory formal validity requirements of the law of Danubia, the seat of arbitration.[10]

(a) The arbitration clause was not automatically transferred because it is separable from the main contract

Under the doctrine of separability an arbitration clause is separable from the contract in which the clause is contained: ‘there are in fact two separate contracts.’[11] One of the practical consequences of the doctrine is that the ‘assignment of a right under the substantive contract could not by itself operate as a transfer of a right or obligation under the arbitration clause contained in that contract’.[12] Thus, the assignment of a right to receive payment under the main contract does not result in the transfer of the separable arbitration clause. In this way, rights arising under an arbitration clause must be distinguished from rights, such as mortgages, guarantees, or other rights securing payment, which are automatically transferred with any assignment of a right to receive payment.13 Therefore, no arbitration agreement exists between BOBBINS and INVESTMENT because arbitration

(b) The arbitration clause was limited to disputes arising between BOBBINS and TAILTWIST

(i) The automatic transfer rule does not apply if the parties have expressly consented to arbitrate only with each other

As INVESTMENT concedes, an arbitration clause will not be automatically transferred if the ‘particular circumstances justify a different solution’.[14] One ‘particular circumstance’ justifying an exception to the application of the automatic transfer rule is presented when an arbitration clause ‘is so worded as to make it clear that it binds only the original parties’.[15] This exception is based on the principle that the parties to an arbitration agreement may limit their consent to arbitrate so that they are bound to arbitrate only with each other.[16] An agreement to arbitrate constitutes a serious and significant forfeiture of the right to seek recourse in domestic courts, and this forfeiture must occur only if both parties to an arbitration agreement consented to refer a dispute arising between them to arbitration.17 Therefore, a party cannot be compelled to arbitrate unless it consented to the involvement of the other participant in the arbitration; a party’s consent to arbitrate in general is not sufficient.[18]

(ii) BOBBINS expressly consented to arbitrate only with TAILTWIST

BOBBINS argues that it consented to arbitrate only with TAILTWIST, and never consented to arbitrate with an assignee of TAILTWIST’s rights under the contract of 1 September 1999.[19] In order to determine whether BOBBINS in fact consented to arbitrate with INVESTMENT, the arbitration clause in the contract must be interpreted in accordance with ‘the same law, or rules of law, as the other provisions of the contract’.[20] The rules governing the contract of 1 September 1999 are contained in the United Nations Convention on Contracts for the International Sale of Goods (CISG). The CISG applies to the contract because, at the time of the conclusion of the contract, BOBBINS and TAILTWIST had their places of business in Equatoriana and Oceania respectively, both of which are ‘Contracting States’ within the meaning of Article 1(1)(a) CISG.[21]

Thus, the arbitration clause in the contract must be interpreted in accordance with the CISG, and in particular, Article 8 CISG.22 Article 8(1) CISG provides that ‘statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was’. However, the subjective approach of Article 8(1) CISG requires proof of the actual intent of the parties.[23] Where, as in this case, there is insufficient evidence of the parties’ subjective intent, Article 8(2) CISG provides that ‘statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances’.[24] The clause itself stated that ‘Any controversy or claim between Tailtwist Corp and West Equatoriana Bobbins SA arising out of or relating to this contract shall be determined by arbitration’ [emphasis added].[25] This clause is almost identical to the American Arbitration Association ‘standard clause’,[26] differing in one significant respect: it makes express reference to the parties to whom the clause applies.27 Viewed objectively, this deviation from the standard clause demonstrates the intent of BOBBINS and TAILTWIST to arbitrate only with each other. Indeed, under Article 8(2) CISG, a reasonable person in the position of BOBBINS or TAILTWIST would have interpreted this clause as specifically

and expressly applying only to the two parties named in the clause. The parties’ consent was thus limited to disputes arising between them. Accordingly, INVESTMENT is effectively excluded from relying on the arbitration clause contained in the contract.[28]

Therefore, due to the limitation on the arbitration clause contained in the contract of 1 September 1999, BOBBINS consented only to arbitrate with TAILTWIST and consequently, no arbitration agreement exists between BOBBINS and INVESTMENT.

(c) The alleged arbitration agreement between BOBBINS and INVESTMENT is formally invalid

In order to be valid and enforceable, the alleged arbitration agreement between BOBBINS and INVESTMENT must comply with the mandatory formal validity requirements imposed by the law of Danubia, the seat of arbitration.[29] Danubia has adopted the UNCITRAL Model Law on International Commercial Arbitration (Model Law),[30] which applies to all international commercial arbitrations conducted in Danubia.[31] Further, the enforceability of foreign arbitral awards in Méditerranée and Equatoriana is governed by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).[32] BOBBINS argues that the stringent formal validity requirements imposed by the Model Law and the New York Convention must not be circumvented on the basis of a purported application of the automatic transfer rule.

Under Article V(1)(a) NewYork Convention, domestic courts may refuse to recognise and enforce an arbitral award if the arbitration agreement does not comply with the law of the seat of arbitration.[33] Therefore, it is necessary that the alleged arbitration

agreement complies with the Model Law and, in particular, with the ‘mandatory provisions’ of the Model Law.[34] Article 7(1) Model Law states that ‘An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement’. This provision must be read in conjunction with Article 7(2) Model Law, which commentators consistently identify as one of the Model Law’s mandatory provisions.[35] Article 7(2) Model Law states:

The arbitration agreement shall be in writing. An agreement is in writing if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by another. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract.

A similar mandatory writing requirement is contained in Article II(2) New York Convention.[36] BOBBINS does not dispute that, under Article 7(2) Model Law and Article II(2) New York Convention, the contract of 1 September 1999 contained a valid arbitration agreement between BOBBINS and TAILTWIST.[37] However, BOBBINS disputes that any formally valid arbitration agreement was ever concluded between BOBBINS and INVESTMENT.[38] BOBBINS and INVESTMENT never signed any document containing an arbitration agreement; nor does the record disclose any ‘exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement’ between BOBBINS and INVESTMENT.[39] Further, there has been no ‘exchange of statements of claim and defence in which the existence of an agreement

is alleged by one party and not denied by another.’[40] Finally, as there has never been any contractual relationship between BOBBINS and INVESTMENT,[41] there cannot be any reference in a contract concluded between BOBBINS and INVESTMENT to a document containing an arbitration clause.[42] Thus, any application of the automatic transfer rule to this arbitration clause would result in a formally invalid and unenforceable arbitration agreement between BOBBINS and INVESTMENT.

Further, INVESTMENT claims that, because the contract of 1 September 1999 included a clause expressly providing for the possibility of assignment,[43] BOBBINS impliedly intended that the arbitration clause be transferred as part of such an assignment.[44] However, given that the parties expressly consented to arbitrate only with each other, the mere existence of this clause does not provide evidence that BOBBINS or TAILTWIST intended to transfer the arbitration agreement as part of any assignment.[45] This is particularly the case because Article 7(2) Model Law was drafted to exclude an implied or tacit acceptance of an arbitration agreement or an alleged acceptance that did not reflect the fully informed consent of a party.[46]

Accordingly, there is no agreement between BOBBINS and INVESTMENT that satisfies the standard of formal validity articulated in Article 7(2) Model Law. Therefore, any alleged arbitration agreement between BOBBINS and

INVESTMENT is invalid and unenforceable. If, however, the Arbitral Tribunal determines that a valid and enforceable arbitration agreement does exist, BOBBINS presents arguments relating to INVESTMENT’S claim for payment of the two final installments under the contract of 1 September 1999.

2 BOBBINS is not liable to make payment of $2,325,000 to INVESTMENT

INVESTMENT argues that:

1 The notification sent by INVESTMENT to BOBBINS in German was effective under the Receivables Convention (Memorandum for the Claimant, Université de Fribourg, 8–11);

2 In any case, the notification sent by INVESTMENT to BOBBINS in English was effective because it arrived before payment was made by BOBBINS to TAILTWIST (Memorandum for the Claimant, Université de Fribourg, 11); and

3 The invalid payment instruction did not affect the validity of the notification of assignment (Memorandum for the Claimant, Université de Fribourg, 11–12).

2.1 The Receivables Convention is the law applicable to the assignment and the notification of assignment

(a) The Receivables Convention is the law applicable to the assignment

BOBBINS acknowledges INVESTMENT’S claim that the law applicable to the contract of assignment concluded between TAILTWIST and INVESTMENT is the Convention on the Assignment of Receivables in International Trade (Receivables Convention).[47] Under Article 1(1)(a) Receivables Convention, the Convention applies to ‘Assignments of international receivables and to international assignments of receivables…if, at the time of conclusion of the contract of assignment, the assignor is located in a Contracting State’.[48] According to Article 2(a) Receivables Convention,

‘assignment’ is defined as ‘the transfer by agreement from one person (‘assignor’) to another person (‘assignee’) of all or part of or an undivided interest in the assignor’s contractual right to payment of a monetary sum (‘receivable’) from a third person (‘the debtor’)’. Under Article 3 Receivables Convention, a receivable is ‘international’ if ‘the assignor and the debtor are located in different States’; an assignment is ‘international’ if ‘the assignor and the assignee are located in different States’.

TAILTWIST, the assignor, was located in Oceania,[49] a ‘Contracting State’ under Article 1(1)(a) Receivables Convention.[50] On 29 March 2000 TAILTWIST transferred to INVESTMENT its contractual right to receive payment from BOBBINS of $3,255,000 and hence this transaction fulfils the requirements of an ‘assignment’ under Article 2(a) Receivables Convention. INVESTMENT paid TAILTWIST the sum of $3,150,000 in exchange for the assignment.[51] Pursuant to Article 3 Receivables Convention, both the receivable and the assignment are international because at the time of the conclusion of the original contract TAILTWIST, BOBBINS and INVESTMENT, as the assignor, debtor and assignee respectively, were all located in different States.[52] Accordingly, the Receivables Convention is the law applicable to the assignment,

(b) The Receivables Convention is the law applicable to the validity and effectiveness of any purported notification of assignment

Article 29 Receivables Convention provides that ‘The law governing the original contract determines…the relationship between the assignee and the debtor, the conditions under which the assignment can be invoked against the debtor and whether the debtor’s obligations have been discharged’. The law governing the original contract between BOBBINS and TAILTWIST[53] is the CISG.[54] Additionally, the original contract expressly provided that it was subject to the CISG ‘and, in regard to any questions not governed by it, to the law of Oceania’. [55] Thus the CISG and the law of Oceania govern the relationship between the assignee, INVESTMENT, and the debtor, BOBBINS.

For the purposes of determining whether INVESTMENT is entitled to payment of $2,325,000 from BOBBINS, the central issue is the notification of assignment provided by INVESTMENT to BOBBINS.[56] However, the CISG does not govern

the question of assignment, and therefore the applicable law is the domestic law of Oceania, which has adopted the Receivables Convention and incorporated it into domestic law.[57] Thus, the Receivables Convention is the law applicable to the relationship between BOBBINS and INVESTMENT with regard to the payment of $2,325,000.

[2] .2 The purported notification of assignment written in German was invalid

On 5 April 2000, INVESTMENT sent BOBBINS a document written in German.58 INVESTMENT claims that this document, signed for by BOBBINS on 10 April 2000,[59] constituted notification of the assignment of the right to receive payment.[60] More specifically, in its Memorandum for the Claimant, INVESTMENT argues that the notification fulfilled the requirements of Article 16(1) Receivables Convention,[61] which states that ‘Notification of the assignment…is effective…if it is in a language that is reasonably expected to inform the debtor about its contents’.[62] Article 16(1) Receivables Convention is ‘aimed at ensuring that the notification is designed to be understood by the debtor’.[63] Any purported notification must also comply with Article 5(d) Receivables Convention, which requires that the notification must be ‘a communication in writing that reasonably identifies the assigned receivables and the assignee’.[64] Thus, having chosen to send notice written in German, INVESTMENT must demonstrate that it could have reasonably expected that the document would inform BOBBINS of the contents of the notice, and that the document reasonably identified the assigned receivables and the assignee,

(a) The purported notification is ineffective under Article 16(1) Receivables Convention

INVESTMENT argues that its use of German was sufficient under Article 16(1) Receivables Convention because ‘German is a common language’.65 This assertion provides no basis on which INVESTMENT may hold any reasonable expectation that a notification written

in German would inform BOBBINS of the contents of the document. Indeed, under Article 16(1) Receivables Convention, ‘the parties are encouraged to provide the notification…in the language out of which the receivables arise’.[66] The Receivables Convention provides no additional guidance as to whether a language fulfills the requirements of Article 16(1). However, domestic laws have identified the language spoken in the country of the addressee and the language in which the original contract was written as two useful criteria for determining the reasonableness of the use of a language.[67] As INVESTMENT was aware of the terms of the contract of 1 September 1999,[68] it must necessarily have been aware that the original contract was written in English.[69] INVESTMENT and TAILTWIST’s contract of assignment, out of which the need for notification arose, was also written in English.[70] Further, INVESTMENT knew that BOBBINS was located in Equatoriana,[71] an English-speaking country.[72] Thus, INVESTMENT was notifying a company located in an English-speaking country of an assignment arising from a contract concluded in English between two companies based in English-speaking countries,[73] yet chose to send notification in German.[74] Therefore, INVESTMENT has no grounds on which it can establish a reasonable expectation that notice written in German could inform BOBBINS of the contents of the document.

Further, policy considerations also dictate that a document should not bind the recipient if it is written in a language that the sender should have known to be unreadable by the recipient. Article 16(1) Receivables Convention must be read in accordance with Article 7(1) Receivables Convention, which states that In the interpretation of this Convention, regard is to be had to its object and purpose as set forth in the preamble’. The preamble to the Receivables Convention specifically provides that one of the paramount aims of the Convention is the ‘adequate protection of the interests of debtors in assignment of receivables’.[75] It would be contrary to the aim of debtor protection to force the debtor to bear the risk of the assignee sending notice in an unintelligible foreign language. Thus, INVESTMENT should have written the notification so that it could be understood by BOBBINS.[76] Despite the use of English in the original contract, in the contract of assignment, and in the countries of the debtor and the assignor,[77] INVESTMENT failed to meet this relatively simple expectation. In the circumstances of this case, therefore, the notice received by BOBBINS on 10 April 2000 failed to fulfill the requirements of Article 16(1) Receivables Convention.

(b) The purported notification was also ineffective under Article 5(d) Receivables Convention

In any case, the German notice also fails to meet the standard required by Article 5(d) Receivables Convention, which provides that any notice must reasonably identify ‘the assigned receivables and the assignee’. The document does contain references to TAILTWIST, to INVESTMENT, to the date 1 September 1999 and to BOBBINS’ remaining debt under the contract.78 The notion of ‘reasonable identification’, however, requires more than mere reference to these facts. Indeed, while these references are discernible even to a person who cannot read German,[79] such skeletal details alone neither reasonably identify ‘the assigned receivables and the assignee’ under Article 5(d) Receivables Convention, nor lead to the inference that the document was a notification

of assignment. This is because an assignment is a complex legal process,[80] and such a sophisticated inference may not be drawn from these minimal details divorced from any explanation of their meaning. Similarly, it is unreasonable for INVESTMENT to make the claim[81] that BOBBINS should have understood a document written in a foreign language to be a notification of assignment simply because BOBBINS had participated in assignments before and had provided for the possibility of an assignment in the contract of i September 1999.

[2] .3 The purported notification of assignment written In english was not received In time to prevent BOBBINS from making payment to TAILTWIST

On 15 April 2000, BOBBINS sent a facsimile to INVESTMENT seeking clarification of the document written in German.[82] On the morning of 19 April 2000, BOBBINS received a facsimile from INVESTMENT responding to BOBBINS’ request for clarification.[83] This facsimile stated that the document written in German was a notification of assignment, apologised for the fact that the initial notification had been written in German, and enclosed a translation of the German document.[84] INVESTMENT claims that the facsimile sent to BOBBINS constituted an effective notification of the assignment.[85] However, BOBBINS argues that, for two reasons, the purported notification was ineffective. First, the purported notification was ineffective because it was not received by BOBBINS’ Accounting Department before the payment of $2,325,000 was made to TAILTWIST. Secondly, in any case, the notification failed to provide a reasonable time for BOBBINS to request proof of the assignment.

(a) The notification was ineffective because it was not received by BOBBINS’ Accounting Department before payment was made to TAILTWIST

INVESTMENT maintains that the notification of assignment became effective as soon as it entered BOBBINS’ ‘sphere of influence’.[86] Although Article 16(1) Receivables Convention states that a ‘Notification of the assignment…is effective when received by the debtor’, the concept of ‘receipt’ is not expressly defined in the Receivables Convention.[87] Accordingly, receipt must be interpreted in accordance with Article 7(2) Receivables Convention, which states that ‘Questions concerning matters governed by this Convention that are not expressly settled in it are to be settled in conformity with the general principles on which it is based’. As set forth in the preamble to the Receivables Convention, these principles include the need ‘to ensure adequate protection

of the interests of debtors in assignments of receivables’. Consequently, in order to protect the debtor’s interests, a debtor should not be deemed, at law, to have received a notification until it is communicated to that part of the debtor’s organisation authorised to act on the notification. Indeed, this principle is embodied in the law of domestic legal systems.[88] Otherwise, especially in situations where the debtor learns of the assignment for the first time in the notification of assignment, a debtor would immediately be bound by a notification from the moment of delivery to the debtor’s organisation before there is an opportunity to act on the notification.

In this case, Mr Black, Vice-President of BOBBINS, had directed that the consultant’s certification be sent ‘directly from the consultant to the accounting department’.[89] Mr Black had also ordered the Accounting Department to make payment to TAILTWIST upon the arrival of the certification without seeking Mr Black’s authorisation.[90] Hence, in effect, Mr Black had delegated his authority to the Accounting Department for the purposes of making this payment to TAILTWIST. The Accounting Department was thus that part of BOBBINS’ organisation authorised to make payment, and any communication regarding a notification of assignment was effective only when delivered to the Accounting Department.

Upon his receipt of the purported notice of 19 April 2000, Mr Black sent a memorandum to BOBBINS’ Accounting Department, communicating to it, as the relevant department in charge of the transaction, the details of the purported notification of assignment.[91] In sending this memorandum through the internal messenger service, Mr Black acted in accordance with BOBBINS’ usual office procedure.[92] However, INVESTMENT claims that Mr Black’s adherence to the usual office procedure was an unreasonable means of communicating with the Accounting Department.[93] While the issue of office communications is not addressed by the Receivables Convention,

the right to adhere to usual office procedure is protected, and its use encouraged, in various domestic jurisdictions.[94] For example, under §1–201(27) US Uniform Commercial Code, ‘An organization exercises due diligence if it maintains reasonable routines for communicating significant information’. Thus, in the circumstances of this case, INVESTMENT’S criticism of BOBBINS’ usual office procedure is misplaced.

Accordingly, because the memorandum did not arrive at the Accounting Department until after payment had been irreversibly made to TAILTWIST’s account, the notification simply arrived too late to be effective.

(b) INVESTMENT failed to provide a reasonable time in which to request proof of the assignment

If the Arbitral Tribunal determines that the notification did not need to arrive at the Accounting Department to be effective, the notification was nonetheless ineffective when it arrived at Mr Black’s office on 19 April 2000.

(i) INVESTMENT was obliged to allow a reasonable time in which BOBBINS could request proof of the assignment

Article 17(7) Receivables Convention states that ‘If the debtor receives notification of the assignment from the assignee, the debtor is entitled to request the assignee to provide within a reasonable period of time adequate proof that the assignment…[has] been made’. Furthermore, if a request for proof is made but no proof arrives prior to the time at which a payment must be made, Article 17(7) Receivables Convention provides that the debtor is ‘discharged by paying…as if the notification from the assignee had not been received’.[95] Hence the debtor is discharged by paying the assignor if payment becomes due while the debtor is awaiting adequate proof.[96] Otherwise, if the debtor failed to pay the assignor, ‘the debtor could be in default and become liable to [pay] damages and interest for late payment’.[97]

The necessary implication of Article 17(7) Receivables Convention is that notification of assignment must arrive at a time, sufficiently prior to payment becoming due, to enable the debtor to request and receive proof of the assignment within a reasonable

time. Thus, in sending notification to the debtor, the assignee must allow a sufficiently long period of time, prior to payment being due, to provide an opportunity for a request to be made and answered. If that period is not sufficiently long, the debtor would be effectively denied its right to request proof under Article 17(7) Receivables Convention. The right to request proof of an assignment is of particular importance in a situation where, as in this case, the debtor is sent notification of assignment by an assignee with whom the debtor has had no previous business relationship.[98]

(ii) INVESTMENT did not allow BOBBINS a reasonable time in which to request and receive proof of the assignment

Prior to signing the contract of assignment of 29 March 2000, INVESTMENT knew ‘in detail for what it was paying’.[99] Thus it may be inferred that INVESTMENT was aware that payment of the first of the remaining two installments owed by BOBBINS was due on 19 April 2000.[100] Despite this awareness, INVESTMENT failed to provide BOBBINS with notification of the assignment until the morning of 19 April 2000.[101] This notification allowed BOBBINS less than one business day before payment was due, a period of time in which it would be unreasonable to expect BOBBINS to request and receive proof of the assignment from INVESTMENT.[102]

Had INVESTMENT chosen to enclose proof of the assignment with the notification of assignment on 19 April 2000, there would have been no need for BOBBINS to request proof, and thus the notification would have been effective notwithstanding Article 17(7) Receivables Convention. While not expressly

required under the Receivables Convention,[103] it would have been reasonable for INVESTMENT to enclose such proof with the notification, particularly given that INVESTMENT was sending notification as a means of demanding a substantial payment from a company with which it had never had any business or contractual relationship prior to the assignment.[104] However, because such proof was not enclosed with the notification, the notification was ineffective, and BOBBINS has thus discharged its obligation by making payment to TAILTWIST.

[2] .4 Both purported notif ications were formally invalid due to a change in the country of payment

Any purported notification of assignment must be formally valid under Article 15(2)(b) Receivables Convention. This Article provides that a payment instruction may not change ‘The State specified in the original contract in which payment is to be made to a State other than that in which the debtor is located’. For the purposes of interpreting this provision, it is apparent that in instances in which a payment instruction is made simultaneously and concurrently within a notification of assignment, that instruction is deemed to be part of the notification of assignment itself.[105] Thus, any formal invalidity in one part of the notification of assignment must consequently render the entire notification of assignment formally invalid.

In this case, the purported notifications of assignment which were received by BOBBINS on 10 April 2000 and on 19 April 2000 included a paragraph in which the country in which payment was to be made was changed from Oceania, where TAILTWIST was located, to Mediterraneo, where INVESTMENT was located.106 This change constitutes a violation of Article 15(2)(b) Receivables Convention, and the principle of debtor protection, for which purpose this Article was included in the Convention.[107] Thus a significant part of each of the two purported notifications of assignment was not formally valid, and as such the notifications of

assignment themselves must be considered to have been invalid and ineffective.[108] As such, there was no notification of assignment, and thus BOBBINS’ obligation to pay $2,325,000 was discharged by making payment to TAILTWIST.[109]

3 BOBBINS is entitled to declare a reduction of $930,000 in the contract price

INVESTMENT argues that:

1 BOBBINS is prevented from asserting defences against INVESTMENT (Memorandum for the Claimant, Université de Fribourg, 19–21); and

2 BOBBINS may not declare a reduction in the price by $930,000 under Article 50 CISG (Memorandum for Claimant, Université de Fribourg, 12–19).

[3] .1 The CISG is the law applicable to payment of the f inal Instalment of $930,000

BOBBINS agrees with INVESTMENT’S contention that the CISG is the law applicable to determining whether BOBBINS is liable to make payment of the final instalment of $930,000 to INVESTMENT.[110] Under Article 29 Receivables Convention, the law governing the original contract governs the relationship between the assignee and the debtor.[111] The original contract ‘is governed by the [CISG] and, in regard to any questions not governed by it, by the law of Oceania’.[112] As BOBBINS’ reliance on the defective performance of the contract by TAILTWIST and its resulting declaration to reduce the contract price are issues governed by the CISG, the CISG is the law applicable to the relationship between BOBBINS and INVESTMENT with regard to the payment of $930,000.

[3] .2 The waiver of defence clause does not prevent BOBBINS from asserting defences against INVESTMENT

BOBBINS argues that it does not have to pay the final installment of $930,000

to INVESTMENT because of a lack of conformity in the performance of the equipment provided by TAILTWIST. BOBBINS has been unable ‘to operate the equipment in a satisfactory manner’[113] with the result that ‘full production was never achieved’.[114] In accordance with Procedural Order No 2, it can be assumed that ‘there are deficiencies in the performance of the TAILTWIST equipment’.[115] BOBBINS has determined that these deficiencies reduce the value of the equipment by $930,000.[116] At this stage of the Arbitral Proceedings, INVESTMENT has not disputed that the deficiencies constitute a lack of conformity in the performance of the equipment.[117] While it is not clear whether the lack of conformity was caused by ‘difficulties with the equipment itself or in the inadequate training given to [BOBBINS’] personnel’,[118] the result was ‘the same in either case’.[119] Consequently, BOBBINS wrote to TAILTWIST’s Administrator in Insolvency on 10 January 2001 to inform the Administrator of the lack of conformity in the performance of the equipment and to declare a reduction in the price by $930,000 under Article 50 CISG.[120]

However, according to INVESTMENT, BOBBINS is prevented from asserting this lack of conformity against INVESTMENT because TAILTWIST

and BOBBINS included a waiver of defence clause in the contract of 1 September 1999.[121] BOBBINS does not dispute the existence or validity of the waiver of defence clause,[122] which stated that ‘If [TAILTWIST] should assign the right to the payments due from [BOBBINS], the latter agrees that it will not assert against the assignee any defense it may have against [TAILTWIST] arising out of defective performance of this contract, unless [TAILTWIST] does not in good faith attempt to remedy the deficiency’.[123] BOBBINS has no reason to suggest that TAILTWIST ever failed to act in good faith. However, BOBBINS argues that INVESTMENT may not rely on this clause because TAILTWIST simply never attempted to remedy the lack of conformity in the performance of the equipment.

(a) The lack of conformity in the performance of the equipment became apparent at the end of June 2000

On 18 April 2000, BOBBINS’ consultant certified that the installation and commissioning tests of the equipment had been successfully completed.[124] However, the consultant’s certification ‘did not…imply that the equipment was in full working order. That was to be determined by a three month period of satisfactory operation’.[125] Upon the expiration of the three month period on 10 August 2000, BOBBINS was obliged to pay the final installment of $930,000.[126] However, by the end of June 2000, BOBBINS ‘reached the conclusion that [it] would not be able to make whatever adjustments might be necessary to achieve the desired level of production’.[127] As a result, the equipment never reached full capacity.[128] Therefore, the lack of conformity in the performance of the equipment became apparent by the end of June 2000.[129]

(b) TAILTWIST did not attempt to remedy the lack of conformity in the performance of the equipment because of its insolvency

TAILTWIST entered insolvency proceedings on 20 April 2000.130 After 16 June 2000, when TAILTWIST was liquidated and its business activities terminated, ‘the only activities

carried on in respect of [TAILTWIST] were in connection with the liquidation’.[131] As a result, from 16 June 2000, BOBBINS has ‘not been able to call upon [TAILTWIST] for assistance’.[132] Under the contract of 1 September 1999, BOBBINS is prevented from asserting defences against an assignee of TAILTWIST for defective performance of the contract ‘unless [TAILTWIST] does not in good faith attempt to remedy the deficiency’.[133] As has been established above,[134] the lack of conformity in the performance of the equipment became apparent at the end of June 2000. However, given that after 16 June 2000 TAILTWIST was no longer conducting any business activities, it was not possible for TAILTWIST, or its Administrator in Insolvency, to make any attempt to remedy the lack of conformity. Accordingly, because TAILTWIST simply did not attempt to remedy the lack of conformity in the performance of the equipment, the waiver of defence clause does not prevent BOBBINS from relying upon the lack of conformity as a defence, and asserting this defence against INVESTMENT.

[3] .3 BOBBINS may reduce the price by $930,000 under Article 50 CISG

INVESTMENT maintains that ‘The sum of $930,000…is owed to INVESTMENT by BOBBINS’.[135] BOBBINS, however, has relied on the lack of conformity in the performance of the equipment to declare a reduction of $930,000 in the contract price under Article 50 CISG.[136] This Article states that ‘If the goods do not conform with the contract…the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of delivery bears to the value that conforming goods would have had at that time’.[137]

Generally, in order to declare a price reduction under Article 50 CISG, the buyer must fulfill the requirement of Article 39(1) CISG by giving ‘notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it’.[138] INVESTMENT argues that neither the letter sent by BOBBINS to TAILTWIST’s Administrator in Insolvency on 10 January 2001, nor complaints made by BOBBINS’ personnel to the TAILTWIST employees during the training period, amounted ‘to a notification in accordance with Article 39(1) CISG’.[139]

While BOBBINS acknowledged in its Statement of Defense that it has not given notice of the lack of conformity in accordance with Article 39(1) CISG,[140] BOBBINS nevertheless maintains that it is entitled to declare a reduction in price under Article 50 CISG for two reasons. First, under Article 44 CISG, BOBBINS has a reasonable excuse for its failure to give notice. Secondly, in any case, under Article 40 CISG, BOBBINS is not required to give notice of the lack of conformity to TAILTWIST because TAILTWIST ‘knew or could not have been unaware’ of facts relating to the lack of conformity in the performance of the equipment.

(a) BOBBINS has a reasonable excuse for its failure to give notice of the lack of conformity to TAILTWIST

Article 44 CISG allows a buyer who has failed to give notice of a lack of conformity under Article 39(1) CISG the right to declare a price reduction if the buyer has a ‘reasonable excuse for his failure to give the required notice’.[141] INVESTMENT claims that BOBBINS has no reasonable excuse for its failure to give notice.[142] However, a buyer will be excused under Article 44 CISG in circumstances where it would be unduly harsh and unfair to deprive the buyer of all remedies, especially as it is the seller who has not conformed to the contract.[143] In determining whether a buyer has a reasonable excuse for failing to give notice under Article 39(1) CISG, regard is to be had to all the relevant circumstances of the case,[144] and to the protection of the buyer’s rights.145

The relevant circumstances in this case include a consideration of whether the purposes of Article 39(1) CISG would have been achieved had notice been given. Under Article 39(1) CISG, the principal purpose of giving notice of a lack of conformity is to allow the seller to examine the goods and, if appropriate, to remedy the lack of conformity by repairing the goods or by providing substitute goods.[146] On 16 June 2000, all further business activities of TAILTWIST were terminated and the company entered into liquidation.[147] From that point onward, the only activities being undertaken by TAILTWIST and its Administrator in Insolvency were those in connection with the liquidation.[148] TAILTWIST was thus not in a position to examine the goods nor to remedy the lack of conformity. Therefore, because TAILTWIST was no longer in operation when the lack of conformity became apparent at the end of June 2000,[149] the main purpose of Article 39(1) CISG would not have been achieved by giving notice to TAILTWIST.[150] In such circumstances, it would be unfair and unreasonable to deprive BOBBINS of all remedies against TAILTWIST, especially given that it is TAILTWIST who has failed to fulfill its contractual obligations by providing equipment which does not operate at its promised capacity.[151] Hence, BOBBINS’ failure to give notice should be excused under Article 44 CISG, and BOBBINS should not be prevented from declaring a price reduction under Article 50 CISG.

(b) TAILTWIST could not have been unaware of facts relating to the lack of conformity under Article 40 CISG [new argument]

If the Arbitral Tribunal determines that, despite the reasons outlined above, BOBBINS has no reasonable excuse for its failure to give notice, BOBBINS is nevertheless entitled to declare a price reduction. Under Article 40 CISG, the seller is not entitled to rely on the failure of the buyer to give notice of a lack of conformity ‘if the lack of conformity relates to facts of which [the seller] knew or could not have been unaware and which he did not disclose to the buyer’. For Article 40 CISG to apply, it is not necessary that the seller knew or could not have been unaware of the exact nature of the lack of conformity. It is sufficient that the seller knew or could not have been unaware of facts which would ordinarily result in such a lack of conformity, or which would imply the existence of a lack of conformity.[152] Under Article 40 CISG, the standard of ‘could not have been unaware’ is satisfied if the seller is grossly negligent in failing to recognise obvious facts that relate to a lack of conformity.153

In order to interpret the terms of the contract of 1 September 1999, it is necessary to ascertain the intent of the parties in accordance with Article 8 CISG.[154] Article 8(1) CISG provides that ‘statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware of what that intent was’. According to Article 8(3) CISG, ‘In determining the intent of a party…due consideration is to be given to all the relevant circumstances of the case including the negotiations’. [155] Consequently, oral statements made during the negotiations provide evidence of the subjective intent of a party.[156] The contract of 1 September 1999 lists the training of BOBBINS’ personnel ‘for three weeks on site’, and prices it at $80,000.[157] The purpose of the training was to instruct BOBBINS in the ‘correct operation, adjustment and maintenance of the machinery’.[158] In negotiations prior to the signing of the contract, ‘TAILTWIST had said that the training would be conducted by four of their personnel…[and] that the cost would be $20,000 per person for the three week period’.[159] TAILTWIST’s intention in pricing the training at $80,000 in the contract is thus evident in the oral commitment that it made to BOBBINS, promising to provide four personnel, at $20,000 per person, for three weeks.[160] Consequently, when TAILTWIST recalled two of these four personnel upon the commencement of its insolvency proceedings on 20 April 2000,[161] TAILTWIST could not have been unaware that the training it provided after that date was only half that which it had promised under the contract.

Additionally, following the recall on 20 April 2000 of two of the four personnel performing the training,[162] BOBBINS made ‘various statements’ to the remaining two employees complaining that the training being provided was ‘not sufficient’.[163] Under Article 40 CISG, the knowledge of statements made to employees or agents is considered to be the knowledge of the employer or principal.[164] Hence TAILTWIST is deemed to have known of the complaints made to its employees concerning the inadequacy of the training provided. Consequently, TAILTWIST could not have been unaware that BOBBINS was receiving inadequate training from the TAILTWIST employees.

Therefore, TAILTWIST could not have been unaware that, as a result of the inadequate training, BOBBINS would be unable to operate, adjust and maintain the equipment correctly.[165] The necessary result of this inability would be that BOBBINS would be unable to operate the equipment at its full capacity. Therefore, under Article 40 CISG, TAILTWIST could not have been unaware of facts which related to a lack of conformity in the performance of the equipment.[166] TAILTWIST is unable to rely on the failure of BOBBINS to give notice of the lack of conformity, and hence BOBBINS may declare a reduction in the price under Article 50 CISG without giving notice.

4 INVESTMENT should bear the costs of arbitration and BOBBINS’ legal costs [new argument]

In accordance with Procedural Order No 3, this memorandum need not address the calculation or apportionment of the costs of arbitration.[167] It is a general principle of international commercial arbitration, however, that costs are borne by the unsuccessful party,[168] and thus an award by the Arbitral Tribunal in favour of BOBBINS should be followed by a decision that INVESTMENT bears the costs of arbitration and BOBBINS’ legal costs.

BOBBINS commends the arguments in this memorandum to the Arbitral Tribunal in order to achieve a just resolution of this dispute.


[1] Claimant’s Exhibit No 1: The clause states that ‘Any controversy or claim between [TAILTWIST] and [BOBBINS] arising out of or relating to this contract shall be determined by arbitration by the American Arbitration Association by a panel of three arbitrators with the place of arbitration being Vindobona, Danubia and the language of arbitration English’.

[2] Notice of Arbitration, Nos 11–14; Memorandum for the Claimant, Université de Fribourg, 3–7.

[3] Article 1(1) AAA Rules states that ‘Where parties…have provided for arbitration of an international dispute by the American Arbitration Association without designating particular rules, the arbitration shall take place in accordance with these rules’. BOBBINS and TAILTWIST, parties to the original arbitration agreement, are located in Equatoriana and Oceania respectively, while INVESTMENT

located in Mediterraneo: Notice of Arbitration, Nos 1–3. Thus, because this dispute is international in nature and because the parties have provided for arbitration by the American Arbitration Association (Claimant’s Exhibit No 1), the AAA Rules apply.

[4] This is an articulation of the principle in international arbitration that an arbitral tribunal is competent to rule on its own jurisdiction. This principle is usually referred to as ‘competence-competence’. It allows the tribunal to make such inquiries as are necessary to resolve the dispute regarding its jurisdiction. See Craig, Park & Paulsson, 59; Derains & Schwartz, 99–102; Herrera Petrus, 397. The principle is also embodied in various arbitration rules, eg, Article 15(1) ICC Rules; Article 23.1 LC1A Rules.

[5] Notice of Arbitration, No 7; Claimant’s Exhibit, Nos 2 and 3.

[6] Furthermore, TAILTWIST’s Administrator in Insolvency, Dr Herbert Strict, confirmed the validity of the assignment on 17 October 2000: Respondent’s Exhibit No 4.

[7] Notice of Arbitration, No 12 states that ‘When INVESTMENT was assigned the right to payment under the contract between BOBBINS and TAILTWIST, it was necessarily assigned the right to enforce its rights in the same manner as the assignor, TAILTWIST, would have had’.

[8] Girsberger & Hausmaninger, 122–23.

[9] The ‘automatic transfer rule’ provides that where a contractual right to receive payment has been validly assigned to a third party, security rights deriving from the original contract are automatically transferred with the assigned right: Girsberger & Hausmaninger, 122–23.

[10] Claimant’s Exhibit No 1; Notice of Arbitration, No 14; Statement of Defense, No 2.

[11] Redfern & Hunter, 154. This concept is also expressed as the ‘autonomy of the arbitration clause’. See further David, 193: ‘There is a clear tendency today, in a great number of countries, to consider that an arbitration clause is separable from the main contract in which it has been stipulated.’ See also Berger, 119; Delaume, 301; Doak Bishop (2000), 8; Doak Bishop (1998), 1137; Herrera Petrus, 401; Garnett, Gabriel, Waincymer & Epstein, 37; Gross, 306; Huleatt-James & Could, 13; Lepri, 368–69; Rubino-Sammartano,

[136] . For cases and awards, see Sidor v Linea Naviera de Cabotoje 1999 US Dist LEXIS 12705 (SDNY 1999), 11; Ferris v Plaister (1994) 34 NSWLR 474,485–87; Harbour Assurance Ltd v Kansa Ltd [1992] 1 Lloyd’s L Rep 81, 88; Fung Sang Trading Ltd v Kai Sun Sea Products & Food Co Ltd (unreported decision of Supreme Court of Hong Kong of 29 October 1991); Prima Paint Corp v Flood & Conklin Mfg [1967] USSC 172; 388 US 395 (US Sup Ct 1967), 403–04; Cass, of 17 September 1970, n 1525 in (1970) I Giust civ 1565; Cass, of 19 May 1989, n 2406 in (1989) I Giust civ 2605; ICC Arbitration Case No 5943 of 1996, 1016; ICC Arbitration Case No 5485 of 1989, 160. The principle of separability has been recognised in the Transnational Database Lex Mercatoria Principles, No XIV. 1, as well as in most national arbitration laws and institutional arbitration rules: Article 16 Model Law; Article 15(2) AAA Rules; Article 6(2) ICC Rules; Article 23.1 LCIA Rules; Section 30 Arbitration Act 1996 (UK); Article 19 PRC Arbitration Law 1994 (China) (translated by Jianlin &Yuwu); §1040(1) ZPO (Germany); Article 1697(2) Sixième Livre du Code Judiciaire (Belgium); Article 1053 Vierde Boek van het Wetboek van Burgerlijke Rechtsvordering (The Netherlands).

[12] Veeder, 285. This principle has been endorsed in Sojuznefteexport v Joc Oil (1984) in 18 Y.B. 92, 99. For commentary on this case, see Doak Bishop (1998), 1138–1139. See also Runeland, 8. A similar principle is supported in Sweden: see Ulrichs & Akerman, 79.

[13] INVESTMENT asserts that domestic law and Article 10 Receivables Convention (See Note 53 for discussion on the application of the Receivables Convention) support the application of the automatic transfer rule to an arbitration clause: Memorandum for Claimant, Université de Fribourg, 3. Article 10(1) Receivables Convention provides that ‘A personal or property right securing payment of the assigned receivable is transferred to the assignee without a new act of transfer’. However, Article 10(1) Receivables Convention is intended to provide for the automatic transfer of security rights only: Bazinas (2001), 275–76; Bazinas (1998), 332. See Analytical Commentary on the draft Receivables Convention (A/CN.9/489), No 105; Report on Twenty-Sixth Session (A/CN9/434), No 140; Commentary to the draft Receivables Convention Part I (A/ CN9/WGII/WP105), No 89. In the Working Party, it is clear that ‘rights securing payment’ is to be narrowly interpreted: Note by the Secretariat (A/CN9/WGII/WP96), Article 13[14], Remarks, No 2. An arbitration clause, which provides for a dispute resolution mechanism, is clearly not a security right and therefore the automatic transfer rule embodied in Article 10 Receivables Convention does not apply. Domestic legislation demonstrates that security rights are automatically transferred with the assignment of the right to receive payment. Eg, Article 170 Code des Obligations (Switzerland) states that ‘The ancillary and preferential rights travel with the assigned claim, unless they are inseparably connected with the assignor’ (translated by the authors of this memorandum). Article 1692 Code Civile (France) provides that ‘The sale or assignment of a contractual right includes the accessory rights, such as guarantees, preferential rights and mortgages’ (translated by the authors of this memorandum). § 401 BGB

rights are not automatically transferred with an assignment of a right to receive payment.

(Germany) states that ‘With the assigned claim, the rights of mortgage, ship mortgage or pledge which exist because of it, like the rights arising from a guarantee established for it, pass to the assignee’ (translated by Forester, Goren & Ilgen, 64). Article 1263 Codice Civile (Italy) provides that ‘By effect of the assignment, the claim is transferred to the assignee with any privileges…real…or personal…guarantees, and other accessories’ (translated by Beltramo, Longo & Merryman).

[14] Memorandum for the Claimant, Université de Fribourg, 3.

[15] Mustill & Boyd, 138.

[16] See also Gaillard & Savage, 434; Werner, 15–16; Reichsgericht: VII ZR 183/34 of 27 November 1934; Reichsgericht: VII ZR 321/08 of 8 December 1903; ICC Arbitration Case No 3281 of 1981. In Bengiovi v Prudential-Bache Securities Inc 1985 US Dist LEXIS 20391 (DDC 1985), a third party non-signatory was not entitled to rely on an arbitration agreement. The agreement made clear reference to the original co-contractors’ names, and did not contain the third party’s name. A second exception to the automatic transfer rule is where the contract has been entered into intuitu personae. A contract intuitu personae is an agreement which can only be performed by the original contracting parties, because the identity of the parties was a fundamental consideration in the contracting process. Such a contract may arise where there is a special relationship of trust between the two parties: Canister Co v National Can Corporation 71 F Supp 45 (DDel 1947), 47–48; Meyer v Washington Times Co 76 F 2d 988 (DDC 1935), 990; Charles Devlin v The Mayor, Aldermen and Commonalty of the City of New York 63 NY 8 (NY Ct App 1875), 16. Redfern & Hunter, 135. ‘Arbitration is a consensual process based on an arbitration agreement’: Hill, 503. See also Berger, 118; Coe, 55; De Boisseson, 68; Gaillard & Savage, 253; Holtzmann & Neuhaus, 260; Park (1998), 264; Park (1996), vA2; Poznanski, 71; Rosen, 599. For there to be an agreement between parties, there must be a ‘meeting of the minds’: Ripert, 598. Accordingly, a party cannot be required to arbitrate a dispute which that party has not agreed to submit to arbitration: Three Valleys Municipal Water District v EF Hutton & Co 925 F 2d 1136 (9th Cir 1991), 1142; AT & T Technologies, Inc v Communications Workers of America [1986] USSC 62; 475 US 643 (US Sup Ct 1986), 648; Barrowclough v Kidder, Peabody & Co, Inc [1985] USCA3 44; 752 F 2d 923 (3d Cir 1985), 937–38; United Steelworkers of America v Warrior & Gulf Navigation Co [1960] USSC 109; 363 US 574 (US Sup Ct 1960), 582.

[17] See Fuller Promotions v Arlo Guthrie, Sutton Artist Corporation and Route 183 Productions, Inc [1977] USCA2 963; 565 F2d 259 (2d Cir 1977), 261; Parsons and Whitiemore Overseas Co v Société Générale De L’Industrie De Papier [1974] USCA2 836; 508 F2d 969 (2d Cir 1974), 975; Washington-Baltimore Newspaper Guild, Local 35 v The Washington Post Co [1971] USCADC 27; 442 F 2d 1234 (DDC 1971), 1238. See also Berger, 138; Fox, 283; Heuman, 49; Redfern & Hunter, 5.

[18] A party can only be compelled to arbitrate when it has consented to the involvement of the other participants in the arbitral process. It is for this reason that courts will not order joinder of parties in arbitral proceedings in the absence of consent: The United Kingdom v The Boeing Company 998 F 2d 68 (2d Cir 1993); Weyerhauser Co v Western Seas Shipping Co [1984] USCA9 1954; 743 F 2d 635 (9th Cir 1984); Ore & Chemical Corp v Stinnes Interoil Inc 606 F Supp 1510 (SDNY 1985); Oxford Shipping Co Ltd v Nippon Yusen Kaisha [1984] 3 All ER 835.

[19] This does not mean that BOBBINS’ consent to the assignment from TAILTWIST to INVESTMENT was necessary. A distinction must be drawn between consenting to the assignment and consenting, during the contractual negotiation process, to arbitrate with an assignee of TAILTWIST.

[20] Redfern & Hunter, 157. See also Coe, 133–34; Holtzmann & Neuhaus, 259–60; Huleatt-James & Gould, 34; Piltz (2000), 556; Kahn Lucas Lancaster, Inc v Lark International Ltd 956 F Supp 1131 (SDNY 1997), 1134; Filanto, SpA v Chilewich International Corp 789 F Supp 1229 (SDNY 1992), 1237; David L Threlkeld &Cov Metallgesellschaft Ltd [1991] USCA2 61; 923 F 2d 245 (2nd Cir 1991), 249–50. In order to determine whether an assignee falls within the scope of an arbitration agreement, the intent of the parties to the original contract must be ascertained in accordance with general contractual principles: Local 205, Community and Social Agency Employees’ Union, District Council 1707 AFSCME, AFL-CIO v Day Care Council of NewYork, Inc 992 F Supp 388 (SDNY 1998), 392; W.J.Nolan & Co, Inc, William Nolan and Matthew Gershon v Midway Federal Credit Union 913 F Supp 806 (SDNY 1996), 812; Thomas S.McPheeters, III v McGinn, Smith and Company, Inc; Robert O.O’Farrell; and David Smith 953 F 2d 771 (2d Cir 1992), 773; Creative Securities Corp, et al, v Bear Stearns & Co, et al 671 F Supp 961 (SDNY 1987), 965; McAllister Brothers, Inc v A & S Transportation Co [1980] USCA2 392; 621 F 2d 519 (2d Cir 1980), 524. In accordance with general contractual principles, in order to ascertain whether a party is bound by a written arbitration agreement, ‘the sole issue for determination is whether…there was the requisite “meeting of the minds” between the parties’: Sidor v Linea Naviera de Cabotaje 1999 US Dist LEXIS 12705 (SDNY 1999), 13–14. See also Deloitte Noraudit A/S v Deloitte Haskins & Sells, US and J Michael Cook [1993] USCA2 1176; 9 F3d 1060 (2d Cir 1993), 1064; Fisser v International Bank [1960] USCA2 238; 282 F 2d 231 (2d Cir 1960), 233. These authorities deal generally with non-signatories to arbitration agreements. INVESTMENT, as assignee, is a non-signatory to the arbitration agreement.

[21] Article 1 (1)(a) CISG states that ‘This Convention applies to contracts of sale of goods between parties whose places of business are in different States…when the States are Contracting States’. Both Oceania and Equatoriana are parties to the CISG (Notice of Arbitration, No 16) and have incorporated the CISG into their domestic law: Procedural Order No 2, Clarification No 2. Additionally, the contract itself provided that it was subject to the CISG ‘and, in regard to any questions not governed by it, to the law of Oceania’: Claimant’s Exhibit No 1. Article 3(2) CISG states that the CISG ‘does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services’. This provision does not negate the applicability of the CISG to the contract of 1 September 1999. Services will constitute the ‘preponderant part of the obligations’ under Article 3(2) CISG if they constitute ‘considerably more than 50% of the price’: Schlechtriem (1986), 31. Honnold, 58–59, considers that services will be a preponderant part of the obligations if they constitute more than 15% of the price. See also ICC Arbitration Case No 7153 of 1992; Bonell & Liguori, 1; Ferrari (1995), 11; Gabriel, 18–19; Herber in Schlechtriem (1998), 39. The services

in the contract of 1 September 1999 account for $80,000 out of $9,300,000: Claimant’s Exhibit No 1. This is less than 1% of the contract price and clearly is not the preponderant part of the obligations of TAILTWIST, the party who furnished the goods.

[22] According to Enderiein & Maskow, 61, ‘Article 8 [CISG] governs the interpretation of statements and the otherwise legally relevant conduct of the parties’. See also Famsworth in Bianca & Bonell, 97–98; Honnold, 61; Schlechtriem in Schlechtriem (1998), 113; Secretariat Commentary in Official Records, 18; Landgericht Heilbronn: 3 KfH 653/93 of 15 September 1997; Oberlandesgericht Zweibrücken: 8 U 46/97 of 31 March 1998; Oberster Gerichtshof: 10 Ob 518/95 of 6 February 1996.

[23] Enderiein & Maskow, 63; Famsworth in Bianca & Bonell, 98; Honnold, 118; Schlechtriem (1986), 39.

[24] Article 8(1) CISG provides that a party’s intent is to be determined subjectively: Enderiein & Maskow, 62–64; Honnold, 164; Karollus, 60. See also ICC Arbitration Case No 9187 of 1999; ICC Arbitration Case No 9117 of 1998. However, if the parties’ intentions cannot be ascertained subjectively, Article 8(2) CISG provides for an objective test: August, 430; Fioravanti, 34; Gabriel, 30–31; Gillies & Moens, 12; Hascher in Arnaldez, Derains & Hascher, 598–99; Junge in Schlechtriem (1998), 71. Article 4.2 UNTDROIT Principles is analogous to Article 8(2) CISG: Bonell (1978), 430; Bonell (1997), 144; Ferri in Bonell & Bonelli, 130; Moens, Cohn & Peacock in Bonell (1999), 37–38. The record does not disclose BOBBINS’ subjective intent whilst drafting and signing the arbitration clause, therefore Article 8(2) CISG must be applied in order to determine objectively BOBBINS’ intent. The test is ‘how a reasonable person in the same circumstances would have understood the declaration’: Junge in Schlechtriem (2000), 141. See also Berlingieri, 329. When determining the objective intent of the parties, ‘all relevant circumstances’ may be taken into account: Article 8(3) CISG.

[25] Claimant’s Exhibit No 1.

[26] The ‘standard’ American Arbitration Association clause accompanying the AAA Rules states that ‘Any controversy or claim arising out of or relating to this contract shall be determined by arbitration in accordance with the International Arbitration Rules of the American Arbitration Association’. The Association further states that ‘The parties may wish to consider adding (a) “the number of arbitrators shall be (one or three)”; (b) “The place of arbitration shall be (city and/or country)”; or (c) “the language(s) of the arbitration shall be…”’.

[27] Further, none of the major permanent arbitral institutions (ICC, CIETAC, Stockholm Chamber of Commerce, WIPO, LCIA and AAA) recommend including the parties’ names in their standard clauses: see Wheeler, 111–13.

[28] This limitation is supported by Article 15(1) Receivables Convention, which states that ‘an assignment does not, without the consent of the debtor, affect the rights and obligations of the debtor, including the payment terms’. In this case, a transfer of the arbitration clause, despite the express wording of the clause, and in the absence of BOBBINS’ consent, results in BOBBINS’ rights and obligations being changed. Whereas BOBBINS was originally obliged to arbitrate only with TAILTWIST, a transfer of the arbitration clause would oblige BOBBINS to arbitrate with INVESTMENT. This change in obligations is thus contrary to the principle of debtor protection contained in Article 15(1) Receivables Convention. See Note by Secretariat (A/CN9/WGII/WP98), Article 7, Nos 1 and 2; Report on Twenty-Fourth Session (A/CN9/420), No 64; Report on Twenty-Sixth Session (A/CN9/ 434), No 87; Report on Twenty-Seventh Session (A/CN9/445), Article 7(1); Note by the Secretariat (A/CN9/WGII/WP93), Article 7, Nos 1 and 2; Note by the Secretariat (A/CN9/WGII/WP96), Article 7; Commentary to the Draft Receivables Convention Part II (A/CN9/WGII/WP106), No 29; Analytical Commentary on the Draft Receivables Convention (A/CN9/489), Nos 131–33.

[29] Danubia is the seat of arbitration: Claimant’s Exhibit No 1; Notice of Arbitration, No 14; Statement of Defense, No 2. Further, the letters of 5 June 2001 and 15 June 2001 from Eleni Lappa, ICDR Supervisor, recognised that the arbitration agreement provides that the arbitration will be held in Vindobona, Danubia.

[30] Notice of Arbitration, No 18.

[31] This dispute falls within the Model Law’s definitions of ‘international’ (see Article 1(3)(a)), ‘commercial’ (see note to Article 1(1) Model Law) and ‘arbitration’ (see Article 2(a) Model Law).

[32] Notice of Arbitration, No 19. Mediterraneo and Equatoriana, as the locations of INVESTMENT and BOBBINS respectively (Notice of Arbitration, Nos 1 and 2), are the countries in which any enforcement is likely to occur. In any event, Danubia and Oceania are also parties to the New York Convention (Notice of Arbitration, No 19).

[33] See Poznanski, 87–88; Redfern & Hunter, 461.

[34] The relevant provisions of the Model Law for the purposes of this dispute are contained in Articles 7 and 19 Model Law. Article 19(1) Model Law states that ‘Subject to the provisions of this Law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings’ [emphasis added]. Article 19(1) Model Law was described by the UNCITRAL Secretariat as ‘the most important provision of the Model Law’: Model Law Commentary (A/CN.9/ 264), No 1. In subjecting the procedure in the arbitral proceedings to the ‘provisions’ of the Model Law, Article 19(1) effectively limits the discretion of the Arbitral Tribunal to determine the conduct of the proceedings. In particular, the discretion of the Arbitral Tribunal is limited by the ‘mandatory’ provisions of the Model Law. ‘Mandatory [provisions] cannot be derogated from by the contract’: Hill, 491; Hoellering, 25.

[35] The mandatory provisions were not enumerated in the Model Law because of ‘drafting difficulties’: Fourth Secretariat Note (A/CN.9/WG.II/WP.50), No 9; Holtzmarm & Neuhaus, 1119–20. However, commentators consistently identify Article 7(2) Model Law, which contains the ‘in-writing’ requirement, as a mandatory provision: Holtzmann & Neuhaus, 260; Redfem & Hunter, 141. See also Coe, 128; Gaillard & Savage, 374 (regarding the analogous provision in the New York Convention).

[36] Article 7(2) Model Law was based on the writing requirement in Article 11(2) New York Convention: Kaplan (1996), 36. Indeed, ‘any award that satisfied the requirements of Article 7 [Model Law] would be enforceable under the [NewYork] Convention’: Holtzmann & Neuhaus, 262. See also Redfern & Hunter,

[512] . The principal purpose of the writing requirement in Article 11(2) New York Convention is to ensure

that the parties are ‘fully aware’ of having chosen to arbitrate their disputes: Bortolotti, 449.

[37] Statement of Defense, Nos 2–5.

[38] Statement of Defense, No 3.

[39] Article 7(2) Model Law requires a document in writing ‘signed by the parties’. Although the accepted view is that the parties’ signatures are not necessary, there must be sufficient written evidence of an agreement between the parties: Kaplan (1995), 24–25; Redfern & Hunter, 141. See also Hissan Trading v Orkin Shipping (unreported, CL 39, 8 September 1992), where a bill of lading was not signed by the parties. The Court held that, although there was evidence of written correspondence between the parties’ solicitors prior to the commencement of proceedings, there was insufficient written evidence of an agreement to arbitrate under Article 7(2) Model Law. Similarly, under the

New York Convention, there must be written evidence of an agreement to arbitrate: Redfern &

Hunter, 142; van den Berg in Sood, 337. In Zimmer v USA Europa SA v Cremascoli, Cass 3 June 1935 n 3285 in (1984) Riv.dir.int.priv.proc. 73–76, the Italian Supreme Court decided that Article IT New York Convention does not require the existence of a written document signed by the parties. However, ‘the parties consent to arbitration must be…unequivocally proven by written declarations made by both parties’ (translated by the authors of this Memorandum). For a similar interpretation of the written requirements in Article II New York Convention see Jauch & Huber GmbH v Soc de navigation transocéanique and Soc SIAT Cass of 14 November 1981, n 6035, in Riv.dir.int.priv.pro. (1982), 821–29.

[40] On the contrary, BOBBINS denied the existence of an arbitration agreement between BOBBINS and INVESTMENT in the Statement of Defense: Statement of Defense, Nos 2–5.

[41] Statement of Defense, No 3.

[42] The final sentence of Article 7(2) Model Law has been interpreted as referring, in a contract concluded between the parties to the arbitration agreement, to a document containing an arbitration clause. There is no such reference to an arbitration agreement in a contract concluded between BOBBINS and INVESTMENT. Thus, the requirements of Article 7(2) Model Law are not satisfied. See Holtzmann & Neuhaus, 263–64.

[43] ‘If [TAILTWIST] should assign the right to the payments due from [BOBBINS], the latter agrees that it will not assert against the assignee any defense it may have against [TAILTWIST] arising out of defective performance of this contract, unless [TAILTWIST] does not in good faith attempt to remedy the deficiency’: Claimant’s Exhibit No 1; Statement of Defense, No 18.

[44] Memorandum for the Claimant, Université de Fribourg, 4.

[45] INVESTMENT claims that ‘the fact that BOBBINS negotiated the non asserting of any defence clause against the assignee in case of an assignment, proves that they had both considered an eventual future assignment, and that BOBBINS should have inserted a clause of unassignability of the Arbitration agreement’: Memorandum for the Claimant, Université de Fribourg, 4. BOBBINS and TAILTWIST could have provided that the arbitration clause would apply to assignees: for example, in Cochran v Taylor 273 nY 172 (NY Ct App 1937), 182, an option contained a clause stating that ‘this agreement is binding upon the respective parties, personal representatives, heirs, and assigns’. This clause established the assignability of the option ‘within the clear and expressed intent of the parties’. BOBBINS and TAILTWIST could have included a similarly worded clause to demonstrate that the arbitration agreement would apply to assignees.

[46] Holtzmann & Neuhaus, 260; van den Berg, 171; Frey, Milota, Seitelberger and Vesely v F Cuccaro e Figli. Corte di Appello di Napoli of 13 December 1974. Moreover, in the drafting of Article 22 New York Convention, from which Article 7(2) Model Law derives, a proposal by the Dutch delegation that a ‘confirmation in writing by one of the parties [which is kept] without contestation by the other party’ be considered an arbitration agreement, was rejected: van den Berg, 196.

[47] Memorandum for the Claimant, Université de Fribourg, 2, 7. Note that Procedural Order No 2, Clarification No 1 states that ‘Even though at the time of distribution of the Problem the text [was] in fact a Draft Convention, for the purposes of the Moot the Convention is in force…at all relevant times’.

[48] This provision has the effect of ensuring both the ‘broad applicability of the…Convention, and a sufficient level of certainty and predictability for all interested parties’: Report on Twenty-Sixth Session (A/CN.9/ 434), No 20. The territorial scope of the application of the draft Convention has been the subject of detailed discussion in the Working Group: Report on Twenty-Fourth Session (A/CN.9/ 420), Nos 30 and 31; Report on Twenty-Fifth Session (A/CN.9/432), Nos 29–32; Report on Twenty-Seventh Session (A/CN.9/445), Nos 131–36. See also Bazinas (2001), 271; Sigman & Smith, 345; Smith, 478. The Working Group considered allowing the application of the draft Convention only when all three parties had their places of business in Contracting States. However, it was decided that this would ‘unduly narrow the scope of the draft Convention’: Report on Twenty-Sixth Session (A/ CN.9/434), No 22. Furthermore, the place of business of the debtor should not be a factor in determining the applicability of the Convention. The debtor receives sufficient protection from the Convention: Report on Twenty-Sixth Session (A/CN.9/434), No

[23] . See also Ferrari (2000)(Melbourne Journal), 17.

[49] Notice of Arbitration, No 3.

[50] Notice of Arbitration, No 17.

[51] Respondent’s Exhibit No 4.

[52] Article 5(h) Receivables Convention states that ‘A person is located in the State in which it has its place of business’. INVESTMENT is located in Mediterraneo (Notice of Arbitration, No 1); BOBBINS is located in Equatoriana (Notice of Arbitration, No 2) and TAILTWIST was located in Oceania (Notice of Arbitration, No 3). Furthermore, Article 1(3) Receivables Convention provides that ‘This Convention does not affect the rights and obligations of the debtor [BOBBINS] unless…the law governing the original contract is the law of a Contracting State’. The law governing the original contract between TAILTWIST and BOBBINS is ‘the United Nations Convention on Contracts for the International Sale of Goods [CISG] and, in regard to any questions not governed by it…the law of Oceania’, which is a Contracting State: Claimant’s Exhibit No 1. See also Notice of Arbitration, No 17.

[53] Article 5(a) defines ‘original contract’ as ‘the contract between the assignor and the debtor from which the assigned receivable arises’. The right to receive payment which was assigned to INVESTMENT arose from contract between TAILTWIST and BOBBINS.

[54] Article 1(1)(a) CISG states that ‘This Convention applies to contracts of sale of goods between parties whose places of business are in different States…when the States are Contracting States’. Both Oceania and Equatoriana are parties to the CISG (Notice of Arbitration, No 16) and have incorporated the CISG into domestic law (Procedural Order No 2, Clarification No 2).

[55] Claimant’s Exhibit No 1.

[56] This issue is expressed in Procedural Order No 3 as ‘Whether the notice of assignment…was effective to obligate [BOBBINS] to pay the $2,325,000 to [INVESTMENT] rather than to [TAILTWTST]’. See also Procedural Order No 1, No 4; Notice of Arbitration, Nos 7 and 8; Statement of Defense, Nos 7–11.

[57] Notice of Arbitration, No 17; Procedural Order No 2, Clarification No 2.

[58] Claimant’s Exhibit No 2.

[59] Statement of Defense, No 7.

[60] Memorandum for the Claimant, Université de Fribourg, 8–10. See also Notice of Arbitration, No

[7] . 61 INVESTMENT claims that ‘the notification in German was sufficient to reach the requirement’ of Article 16 Receivables Convention. Memorandum for the Claimant, Université de Fribourg, 10.

[62] In discussing Article 16(1) Receivables Convention, Bazinas (2001), 280, notes that The test…refers not to whether the debtor was in fact informed but to the expectation of the person giving the notification’. See also Analytical Commentary on the draft Convention on Assignment of Receivables in International Trade (A/CN.9/489/Add.1), No 2.

[63] Note by Secretariat (A/CN.9/WG.II/WP.98), Article 16, No 9.

[64] Article 5(d) Receivables Convention states that ‘Notification of the assignment’ means a communication in writing that reasonably identifies the assigned receivables and the assignee’. The Working Group noted the close relationship between Article 16(1) Receivables Convention and Article 5(d) Receivables Convention: Report on the Twenty-Sixth Session (A/CN.9/434), No 167. See also Sigman & Smith, 350.

[65] Memorandum for the Claimant, Université de Fribourg, 9.

[66] Smith, 482. This is reflected in the ‘safe harbour’ rule contained in the second sentence of Article 16(1) Receivables Convention: ‘It is sufficient if notification of the assignment…is in the language of the original contract.’

[67] Domestic laws impose varying criteria for determining whether the use of a particular language in legal communications is appropriate. Eg, under German domestic law, a statement in a language other than German is valid if it is in the language of the contract, the language of previous negotiations, or in the language of the addressee: Reinhart, 20. See also Beckmann, 79–80; Petzold in Jayme, 96; Piltz (2001), 11; Oberlandesgericht Frankfurt a M: 5 U 173/75 of 27 April 1976; Oberlandesgericht München: 24 U 93073 of 4 April 1974; Oberlandesgericht Bremen: 1 U 40/73 of 22 June 1973. A similar principle is applied under the CISG: Schlechtriem in Schlechtriem (1998), 169; Amtsgericht Kehl: 3 C 952/93 of 6 October 1995, in which general conditions in a different language to the rest of the contract were not incorporated into that contract because no translation was provided. Other nations, including France, Belgium and Portugal, have enacted legislation under which there is an obligation to use the language of that country even in international business transactions: Petzold in Jayme, 93.

[68] INVESTMENT was aware of ‘the terms of the contract between [TAILTWIST] and [BOBBINS]’: Procedural Order No 2, Clarification No 20.

[69] The original contract was written in English: Claimant’s Exhibit No 1; Procedural Order No 2, Clarification No 9.

[70] Procedural Order No 2, Clarification No 15.

[71] INVESTMENT had addressed the purported notification of assignment to BOBBINS in Equatoriana: Claimant’s Exhibit No 2.

[72] Procedural Order No 2, Clarification No 8.

[73] Procedural Order No 2, Clarification No 9; Notice of Arbitration, Nos 2 & 3; Procedural Order No 2, Clarification No 8.

[74] In the Memorandum for the Claimant, INVESTMENT cites a decision of the Oberlandesgericht Hamm (11 U 206/93 of 8 February 1995) as authority for the proposition that notice may be given in a language other than that of the original contract or that of the assignee: Memorandum for the Claimant, Université de Fribourg, 9. More relevantly, however, the Court also stated that ‘a reasonable person cannot be allowed to simply ignore a declaration of legal relevance only because it is not written in the language of the contract’. [Translated by the authors of this Memorandum.] INVESTMENT quotes ‘the mere fact that a notice was given in a language which was not that of the contract or that of the addressee was not an obstacle for the notice to be effective’: See Memorandum for the Claimant, Université de Fribourg, 9. The Court decided that a foreign language may be used if the addressee, under regular circumstances, is able to obtain knowledge of the content of the declaration or if, according to common usage, the addressee was expected to obtain that knowledge. Whether an addressee is expected to obtain such knowledge is to be determined by the conduct

of a reasonable person with regard to customs and common usages in international trade. A reasonable person cannot be allowed to simply ignore a declaration of legal relevance [translated and summarised in English by the authors of this memorandum]. BOBBINS did not ‘ignore’ the document in German, and in fact exceeded the requirement imposed by the court by sending a request for clarification to INVESTMENT on 15 April 2000: Procedural Order No 2, Clarification No 28; Respondent’s Exhibit No 1.

[75] The principle of debtor protection is a ‘main pillar’ of the Receivables Convention: Bazinas (2001), 266, 278; Trager, 636. This principle is not only reflected in the Preamble and in Article 15, but also throughout the Receivables Convention. See Articles 1(3), 6,7,15(1) & (2), 18(1) & (2), 19(2) and 29. See also Bazinas (1998), 279 and Ferrari (2000) (Private Law), 195.

[76] Note by Secretariat (A/CN.9/WG.II/WP.98), Article 16, No 9.

[77] Claimant’s Exhibit No 1; Procedural Order No 2, Clarification Nos 9 and 15. INVESTMENT also knew that BOBBINS was located in Equatoriana: Claimant’s Exhibit No 2. The language spoken in Equatoriana is English: Procedural Order No 2, Clarification No 8.

[78] Claimant’s Exhibit No 2. INVESTMENT claims that these references, together with the fact that ‘German is a common language,’ suggest that a person who could not read German should have understood the document: Memorandum for the Claimant, Université de Fribourg, 9.

[79] Memorandum for the Claimant, Université de Fribourg, 9, states that ‘There is no need to know German to understand this information, and it should suffice to Simon Black to recognise that the notice treats of that contract and of an assignment’.

[80] Zweigert & Kötz, 442–43.

[81] Memorandum for the Claimant, Université de Fribourg, 9.

[82] Respondent’s Exhibit No 1.

[83] Respondent’s Exhibit No 2.

[84] ‘The correspondence from us dated 5 April 2000 was a notice of assignment. [TAILTWIST] has assigned to us the right to receive the payments due to it under your contract with [TAILTWIST] dated 1 September 1999. I apologize for the fact that the notice of assignment sent to you was in German. A translation into English is attached’: Respondent’s Exhibit No 2.

[85] Memorandum for the Claimant, Université de Fribourg, 11.

[86] Memorandum for the Claimant, Université de Fribourg, 10.

[87] Analytical Commentary on the draft Receivables Convention Addendum (A/CN.9/489/Add.1), No

[2] : ‘When exactly a debtor is deemed to receive a notification is a matter left to law applicable outside the …Convention’.

[88] An analogous principle is contained in the US and German domestic jurisdictions. See § 1–201(27) of the United States Uniform Commercial Code (UCC), which states that ‘Notice, knowledge or a notice or notification received by an organization is effective for a particular transaction from the time when it is brought to the attention of the individual conducting that transaction, and in any event from the time that it would have been brought to his attention if the organization had exercised due diligence’ [emphasis added]. According to the Official UCC Commentary ‘This is said to make it clear that ‘reason to know, knowledge, or a notification, although “received” by a clerk in Department A of an organization, is effective for a transaction conducted in Department B only from the time when it was or should have been communicated to the individual conducting that transaction’: cited in Kritzer, Detailed Analysis,

[193] .A similar principle is found in German law. Pursuant to §130 BGB, declarations usually only need to reach the ‘sphere of the addressee’ to be effective. However, §407(1) BGB provides an exception to this general rule. In the specific case of a notice of assignment, it is not sufficient that the notice reach the addressee’s sphere of influence, it must actually be acknowledged by the relevant department in charge of the transaction.

[89] Procedural Order No 2, Clarification No 31.

[90] Procedural Order No 2, Clarification No 31.

[91] Respondent’s Exhibit No 3.

[92] Procedural Order No 2, Clarification No 30.

[93] Mr Black ‘didn’t act like a reasonable person’: Memorandum for the Claimant, Université de Fribourg, 11.

[94] In Morgan Guaranty Trust Co of New York and Marine Midland Bank of New York v New England

Merchants National Bank v TownBank and Trust Co 438 F Supp 97 (DMass 1977), 104, considering the equivalent Massachusetts provision [Massachusetts General Laws Chapter 106 §1–201(27)], stated that ‘A lag of a few hours in the transmission of information…does not constitute a lack

of reasonable routines’. See also; Haynes and Department of Family and Community Services [1999] AATA 62, No 23: ‘He submitted that adherence to the H & R Block office methodology… [was] a practical means of preventing a breakdown in order in the office.’; Commercial Bank ‘Hansacombank’ v Republic National Bank of New York 1999 Inc Dist LEXIS 1290 (SDNY 1999), 2; The Queen v Steve Hannemann and Criminal Lawyer’s Association (2001) Ont Sup CJ LEXIS 509, 41; Harty v Limerick County Council [1999] IEHC 137, No 6; Her Majesty R v Secretary of State for Home Department ex p Nyama [1999] EWHC Admin 141 (HCJ QB 1999), No 363; Her Majesty The Queen v Christopher Chiang (1994) Ont Sup CJ LEXIS 1439, 12–13; Re Day-Nite Carriers Ltd (In Liquidation) [1975] 1 NZLR 172 (Sup Ct 1975), 180.

[95] See Bazinas (2001), 277, 181, and Bazinas (1998), 339. The Working Group discussed this issue: Report on Twenty-Sixth Session (A/CN.9/434), No 186: ‘In absence of adequate “proof” as to the status of the assignee, the debtor should be able to discharge its obligation by paying the assignor.’ See also Remarks and Suggestions (A/CN.9/WG.II/WP.104), Article 19, No 2; Commentary to the draft Receivables Convention Part II (A/CN.9/WG.II/WP.106), No 48; Note by the Secretariat (A/CN.9/ WG.II/WP.102), Article 18, No 4; Report on Twenty-Third Session (A/CN.9/486), Nos 28 & 29; Report on Thirty-First Session (A/CN.9/466), No 127; Proposal by United States of America (A/CN.9/ WG.II/WP.100), Article 18, No 3.

[96] Remarks and Suggestions (A/CN.9/WG.II/WP.104), Article 19, No 1.

[97] Report on Thirty-First Session (A/CN.9/466), No 126.

[98] Trager, 636. BOBBINS ‘neither has nor has ever had any business or contractual relationship with [INVESTMENT]’: Statement of Defense, No 3. The Convention…recognises the need to protect the debtor in the case of a notification from a strange or dubious person’: Bazinas (2001), 277. The debtor ‘would be in a difficult position if faced with a notification from an unknown, foreign assignee’: Report on Twenty-Third Session (A/CN.9/466), No 127. See also Analytical Commentary on the draft Receivables Convention Addendum (A/CN.9/489/Add.1), No 13.

[99] Procedural Order No 2, Clarification No 20, confirms that INVESTMENT knew of the terms of the contract of 1 September 1999 and, further, that INVESTMENT ‘would not have paid $3,150,000…if it had not known in detail for what it was paying’ [emphasis added].

[100] Note that under the contract of 1 September 1999, the payment timetable was ‘20% with order [on 1 September 1999]; 20% on completion of tests at our works; 25% on delivery to site; 25% on completion of commissioning on site; the balance after three months satisfactory performance’: Claimant’s Exhibit No 1. The right to receive the final two installments was assigned by TAILTWIST to INVESTMENT: Notice of Arbitration, No 7. While under this timetable, delivery was not due until 1 March 2000, TAILTWIST made delivery on 20 February 2000: Notice of Arbitration, No 6. Thus the installments were due earlier than may have been expected. However, as is stated in Procedural Order No 2, Clarification No 20, INVESTMENT knew ‘in detail for what it was paying’. It may thus be inferred that INVESTMENT knew the dates on which it could expect payment from BOBBINS.

[101] This is the date on which the notification in English arrived: Respondent’s Exhibit No 2; Claimant’s Exhibit No 3.

[102] The exact time period between INVESTMENT’S notification to BOBBINS and the time that payment was made is not known. The facsimile containing the notification was received on the morning of 19 April 2000: Statement of Defense, No 7. The unreasonableness of the time period is emphasised by the fact that INVESTMENT had taken four days to respond to BOBBINS’ facsimile inquiry of 15 April 2000: Respondent’s Exhibit Nos 1 and 2; Statement of Defense, No 7.

[103] Report on Twenty-Sixth Session (A/CN.9/434), No 169: ‘establishing such a general condition of effectiveness would make the assignment process excessively cumbersome’.

[104] Statement of Defense, No 3.

[105] The Working Group discussed this point. There are instances in the commentary to the Receivables Convention in which a notification of assignment is said to ‘contain’ a payment instruction: See Commentary to the draft Receivables Convention Part I (A/CN.9/WG.II/WP.105), No 55; Report on Twenty-Third Session (A/CN.9/486), No 13; Report on Twenty-Sixth Session (A/CN.9/434), No 92; Note by the Secretariat (A/CN.9/WG.II/WP.93), Article 7[4], No 2; Analytical Commentary on the draft Receivables Convention (A/CN.9/489), No 64. See also Bazinas (1998), 340.

[106] Notice of Arbitration, Nos 1 and 3; Claimant’s Exhibit Nos 2 and 3; Procedural Order No 2, Clarification No 12.

[107] Article 15 Receivables Convention is entitled ‘Principle of debtor protection’. ‘In order to highlight the importance of the need to protect the debtor in a prominent manner, the Working Group decided to include a reference in the preamble and a general statement of this principle of paramount importance for the draft Convention in draft article 17 [current article 15]’: Commentary to the draft Receivables Convention Part II (A/CN.9/WG.II/WP.106), No 29. See also Analytical Commentary on the draft Receivables Convention (A/CN.9/489), No 131; Report on Twenty-Sixth Session (A/CN.9/434), No 87; Report on Twenty-Seventh Session (A/CN.9/445), No 195; Note by the Secretariat (A/CN.9/ WG.II/WP.93), Article 7, No 1; Note by the Secretariat (A/CN.9/WG.II/WP.96), Article 7, Remarks; Note by Secretariat (A/CN.9/WG.II/WP.98), Article 7, No 2.

[108] While the invalidity of the payment instruction may have been corrected by INVESTMENT on 5 July 2000 (Respondent’s Exhibit No 5), this does not retrospectively affect the validity of the purported notifications of assignment as received by BOBBINS on 10 April 2000 and 19 April 2000.

[109] Article 17(1) Receivables Convention provides that ‘Until the debtor receives notification of the assignment, the debtor is entitled to be discharged by paying in accordance with the original contract’.

[110] Memorandum for the Claimant, Université de Fribourg, 13: ‘the alleged misperformance in the contract…must be governed by the CISG.’

[111] Article 29 Receivables Convention states that The law governing the original contract determines… the relationship between the assignee and the debtor…and whether the debtor’s obligations have been discharged’.

[112] Claimant’s Exhibit No 1.

[113] Claimant’s Exhibit No 5.

[114] Procedural Order No 2, Clarification No 39; Claimant’s Exhibit No 5.

[115] Procedural Order No 2, Clarification No 42. In order for a lack of conformity to exist under the CISG, ‘The seller must deliver goods which are of the…quality…required by the contract’: Article 35(1) CISG. There were specifications in the annexes to the contract of 1 September 1999 describing the level of performance required of the equipment under the contract. If the Arbitration reaches a stage of detailed fact-finding after the conclusion of this stage of the Arbitral proceedings, BOBBINS is prepared to present evidence as to the deficiencies in the performance of the equipment. However, this Memorandum and the Oral Hearings will only determine whether BOBBINS has the legal right to declare a price reduction under Article 50 CISG, based on an application of Articles 39, 40 and 44 CISG: Procedural Order No

[3] . Therefore, it is assumed that there is a lack of conformity under Article 35(1) CISG. 116 Procedural Order No 2, Clarification No 45.

[117] Memorandum for the Claimant, Université de Fribourg, 14. However INVESTMENT may choose to do so at a later stage of the Arbitral Proceedings: Procedural Order No 3.

[118] Claimant’s Exhibit No 5.

[119] Claimant’s Exhibit No 5.

[120] Claimant’s Exhibit No 5.

[121] Memorandum for the Claimant, Université de Fribourg, 20: ‘the clause is valid and…BOBBINS is precluded from asserting any defences against TAILTWIST’s assignee, ie, INVESTMENT.’ The clause in the contract of 1 September 1999 stated: ‘If [TAILTWIST] should assign the right to the payments due from [BOBBINS], the latter agrees that it will not assert against the assignee any defense it may have against [TAILTWIST] arising out of defective performance of this contract, unless [TAILTWIST] does not in good faith attempt to remedy the deficiency.’: Claimant’s Exhibit No 1.

[122] The contract of 1 September 1999 expressly provides that the law applicable to the contract is the CISG, and ‘in regard to any questions not governed by it…the law of Oceania.’: Claimant’s Exhibit No 1. The CISG does not govern the validity of a waiver of defence clause, therefore, the law of Oceania is the applicable law to this clause. Oceania has ratified the Receivables Convention: Procedural Order No 2, Clarification No 2. Article 18(1) Receivables Convention provides that, where an assignee has made a claim, a debtor may raise against an assignee all defences and set-off rights arising from the original contract as if the assignment had not been made. Article 18(1) Receivables Convention is qualified by Article 19(1) Receivables Convention. Article 19(1) provides that ‘The debtor may agree with the assignor in a writing signed by the debtor not to raise against the assignee the defences…that it could raise pursuant to article 18’. BOBBINS agreed in its contract with TAILTWIST of 1 September 1999 that it would not assert against an assignee of TAILTWIST ‘any defense it may have against [TAILTWIST] arising out of the defective performance of this contract, unless [TAILTWIST] does not in good faith attempt to remedy the deficiency’: Claimant’s Exhibit No 1. The Working Group emphasised the importance of ensuring the validity of such an agreement, since it allows the assignor to increase the value of receivables and the debtor to obtain more credit or better payment terms. See Bazinas (2001), 282; Bazinas (1998), 342; Commentary to the draft Receivables Convention Part II (A/CN.9/WG.II/WP.106), Nos 55 and 56. The Working Group decided not to specify the point of time at which an agreement not to assert defences should be made. However, during the drafting of Article 19 Receivables Convention, the Working Group pointed out that in most cases an agreement not to assert defences is made at the time of conclusion of the original contract. See Commentary to the draft Receivables Convention Part II (A/CN.9/WG.II/WP.106), Nos 55 & 56; Report on Twenty-Fourth Session (A/CN.9/420), No 138. The contract concluded between BOBBINS and TAILTWIST contained a specific waiver clause, inserted into the written document, signed by both BOBBINS and TAILTWTST. The clause is therefore valid under Article 19(1) Receivables Convention.

[123] Claimant’s Exhibit No 1.

[124] Statement of Defense, No 9; Claimant’s Exhibit No 5.

[125] Claimant’s Exhibit No 5; Statement of Defense, No 13.

[126] Statement of Defense, No 12, states that ‘According to the contract with [TAILTWIST] two periods began upon the certification of successful installation and commissioning tests on 18 April 2000. The first was a period of three weeks during which [TAILTWIST] personnel would remain to train [BOBBINS’] personnel in the correct operation, adjustment and maintenance of the machinery and a further three month period of satisfactory performance of the [TAILTWIST] equipment, at the end of which [BOBBINS] was required to pay the final balance of $930,000 of the contract price’. The three-week training period began on the 10 May 2000, three weeks after the completion of the installation and commissioning tests on 18 April 2000. Therefore, the three-month period of satisfactory performance ended on 10 August 2000, three months after the 10 May 2000. See also Claimant’s Exhibit No 1; Statement of Defense, No 20.

[127] Procedural Order No 2, Clarification No 39.

[128] Claimant’s Exhibit No 5; Procedural Order No 2, Clarification No 39.

[129] Thus any notice given in accordance with Article 39(1) CISG would have been given within a ‘reasonable time’ from this date. The record does not disclose any information as to whether an examination has been performed in accordance with Article 38 CISG.

[130] Statement of Defense, No 13; Claimant’s Exhibit No 4.

[131] Statement of Defense, No 19.

[132] Claimant’s Exhibit No 4.

[133] Claimant’s Exhibit No 1.

[134] See Section 3.2(a) of this memorandum.

[135] Memorandum for the Claimant, Université de Fribourg, 12.

[136] Claimant’s Exhibit No 5.

[137] In accordance with Procedural Order No 3, at this stage of the Arbitral Proceedings, there is no need to determine whether the lack of conformity ‘in fact justified a reduction in the price and, consequently, whether the amount of reduction was appropriate’ [emphasis added].

[138] Schwenzer in Schlechtriem (1998), 313: ‘The notice must be addressed to the seller [emphasis added].’ See also Schlechtriem (1986), 70: ‘the notice is effective upon dispatch (Article 27 [CISG]), but it must be sent by a means of communication appropriate to the circumstances and generally designed to reach the addressee.’ For a similar opinion, see Frattini (Article 39), 178. Reasonable time depends on the circumstances of the case: Berlingieri, 331; Cabella Pisu, 362; Callegari, 983; Cottino, 161; Frattini (Article 39), 179; Honnold, 336; Piltz (1996), 2771; Veneziano, 515.

[139] Memorandum for the Claimant, Université de Fribourg, 15. See generally Memorandum for the Claimant, Université de Fribourg, 15–17.

[140] Statement of Defense, Nos 21,22 & 24. BOBBINS never gave notice of the lack of conformity: Notice of Arbitration, No 10 and Procedural Order No 1, No 5 and Procedural Order No 3, in which reference is made to ‘the failure to give notice of the alleged deficiencies’. Article 39(1) CISG states ‘The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it’.

[141] Article 44 CISG states that ‘Notwithstanding the provisions of paragraph (1) of Article 39 and paragraph

(1) of article 43, the buyer may reduce the price in accordance with article 50 or claim damages, except

for loss of profit, if he has a reasonable excuse for his failure to give the required notice’.

[142] Memorandum for the Claimant, Université de Fribourg, 18–19.

[143] Enderlein & Maskow, 172, commenting on the reasons for the adoption of Article 44 CISG, notes that

‘The loss of all rights by the buyer as a consequence of the failure to give notice seemed to some to be too harsh a punishment because it was the seller who committed the breach of contract’. See also Cottino, 159; Sono in Bianca & Bonnell, 326; Ziegel & Samson, Section II. Article 44 CISG was originally included to assuage concerns of developing countries that Article 39 CISG was too harsh: Kritzer, (Highlights),

[18] . However,Article 44 CISG will equally apply to merchants from developed countries: Schlechtriem (1991), 26–27.

[144] Huber in Schlechtriem (1998), 348–50: ‘A buyer’s conduct…is excusable if in the circumstances it deserves to be accorded a degree of leniency.’ See also Cuffaro, 202; Kennedy, 339. A proposed amendment to the draft CISG demonstrates that Article 44 CISG was not intended to be applied narrowly. Proposed amendment to draft Article 44 CISG: ‘the buyer may reduce the price in accordance with Article 46 or claim damages…if he could not reasonably be expected to give the required notice because of a circumstance beyond his control or another good ground.’: Official Records, 171. The notion of ‘fairness’ must be considered when determining whether or not there is an ‘excuse’ under Article 44 CISG: Kuoppala, 4.7.2. See further Enderlein & Maskow, 172. A buyer’s conduct, although not in itself correct and in accordance with the rules, is excusable if in the circumstances of the specific case it deserves to be accorded a degree of understanding and leniency.

[145] Huber in Schlechtriem (1998), 348.

[146] ‘The notices required under this article may serve various purposes: (i) When the seller learns that the buyer is dissatisfied with the goods, the seller is afforded the opportunity to substitute conforming goods or otherwise to “cure” the defect; (ii) On receiving such a notice the seller has the opportunity to preserve evidence of the quality of the goods’: Yearbook IV, 48. In this case, notice would not have served the purpose of allowing TAILTWIST to gather evidence, because it was insolvent and no longer conducting business activities (Statement of Defense, No 19). See also Callegari, 983; Enderlein & Maskow, 159– 60; Frattini (Article 39), 178; Schwenzer in Schlechtriem (1998), 312; Sono in Bianca & Bonnell, 309.

[147] Statement of Defense, No 19.

[148] Statement of Defense, No 19.

[149] See Section 3.2(a) of this memorandum.

[150] At the time that BOBBINS became aware of the non-conformity,TAILTWIST was effectively unoperational: Procedural Order No 2, Clarification No 39. Therefore there was no ‘utility in giving notice’: Procedural Order No 2, Clarification No 40. Further, BOBBINS did not receive correspondence from TAILTWIST’s Insolvency Administrator until 17 October 2000: Respondents Exhibit No 4. The InsolvencyAdministrator received and sent correspondence from an address which was different from that of TAILTWIST: Compare Notice of Arbitration, No 3, and Respondent’s Exhibit No 4. Consequently, when the non-conformity became apparent on 30 June 2000, it was unclear to whom notice should be sent.

[151] For the same reasons, the purposes of Article 39(1) CISG would not have been achieved by giving notice to INVESTMENT. Further, INVESTMENT, as a bank (Notice of Arbitration, No 1) and not the seller, would not have been in a position to facilitate any possible examination of, or remedy of, the lack of conformity.

[152] Sono in Bianca & Bonell, 314: ‘It is not necessary for the seller to know the exact extent of the nonconformity. It would be sufficient if the seller knew of the facts the nature of which would ordinarily result in non-conformity.’ See also Mo, 103: ‘[“facts relating to non-conformity”] includes information which may or may not directly evidence the existence of non-conformity, but which may imply the existence of, or lead to the discovery of non-conformity.’ See Frattini (Article 40), 184; Schlechtriem (1998), 322; Wautelet in Van Houtte, Wautelet & Erauw, 186. See also Oberlandesgericht Karlsruhe: 1 U 280/96 of 25 June 1997; Bundesgerichtshof: VIII ZR 123/88 of 5 January 1989.

[153] See Ferrari (1995), 113; Frattini (Article 40), 184; Magnus in Honsell, 438; Resch, 478; Schlechtriem (1986), 69; Wautelet in Van Houtte, Wautelet & Erauw, 186; Witz, 16. See Oberlandesgericht München: 7 U 4427/97 of 11 March 1998; Bundesgerichtshof: VIII ZR 123/99 of 5 January 1989. Other commentators consider ‘simple negligence’ to be sufficient: Enderlein & Maskow, 164.

[154] See Note 24.

[155] Article 8(3) CISG: ‘In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all the relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.’

[156] Bianca, 148; Enderlein & Maskow, 62. See also Yearbook DC, 63.

[157] Claimant’s Exhibit No 1.

[158] Claimant’s Exhibit No 1.

[159] Procedural Order No 2, Clarification No 35.

[160] Claimant’s Exhibit No 1; Procedural Order No 2, Clarification No 35.

[161] Statement of Defense, No 14.

[162] Statement of Defense, No 14.

[163] Procedural Order No 2, Clarification No 39. It is not clear whether these complaints were in relation to the recall of the two employees, or whether they concerned the training provided by the two remaining employees. BOBBINS states that ‘the two remaining Tailtwist employees would have had a difficult time at best to conduct the training that was called for under the contract for which four persons had been anticipated. Under the circumstances they were obviously upset and concerned about their own future. As a result, they were not able to give even the amount and quality of training that they otherwise might have given’: Statement of Defense, No 14.

[164] See Beijing Light Automobile Co Ltd v Connell Limited Partnership, Stockholm Chamber of Commerce, Arbitration Award of 5 June 1998. See also Oberlandesgericht Düsseldorf: 17 U 82/92 of 8 January 1993. Enderlein & Maskow, 164: ‘What is being referred to [in Article 40] is not only the knowledge of the seller personally, but also of his employees.’; Magnus in Honsell, 439; Resch, 478; Schwenzer in Schlechtriem (1998), 322; Wautelet in Van Houtte, Erauw & Wautelet, 186. This

is also supported by Transnational database, Lex Mercatoria Principle No II.5. For domestic law see Magco of Maryland, Inc v John Mills Barr, Commissioner of Department of Labor and Industry 33 Va App 78 (Va Ct App 2000); Beach Petroleum NL and Another v Johnson and Others [1993] FCA 283; (1993) 115 ALR 411; Benjamin Center, Individually and as a Shareholder of Hampton Affiliates, Inc, Appellant, v Hampton Affiliates, Inc, et al, Respondents, et al, Defendants 66 nY2d 782 (NY Ct App 1985).

[165] Claimant’s Exhibit No 1.

[166] A buyer cannot rely on Article 40 CISG if the seller disclosed to the buyer its knowledge of facts relating to a lack of conformity: Schwenzer in Schlechtriem (1998), 322. The record gives no indication of any such disclosure by TAILTWIST to BOBBINS.

[167] Procedural Order No 3 states that ‘The memoranda…should not consider the following issues… Any calculation or apportionment of the costs of the arbitration’. Any allocation of costs would be a procedural matter determined by reference to Article 31 AAA Rules, which states ‘The tribunal may apportion such costs among the parties if it determines that such apportionment is reasonable, taking into account the circumstances of the case’.

[168] Derains & Schwartz, 342; Gaillard & Savage, 686. See also Arbitration Act 1996 (UK), s 61(2); Article 28(4) LCIA Rules; Article 40 UNCITRAL Arbitration Rules; Channel Island Ferries Ltd v Cenargo Navigation Ltd [1994] 2 Lloyd’s L Rep 161; ICC Arbitration Case No 7585 of 1992.


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