STOCKHOLM UNIVERSITY

NINETEENTH ANNUAL WILLEM C. VIS INTERNATIONAL COMMERCIAL ARBITRATION MOOT 30 MARCH TO 5 APRIL 2012 VIENNA MEMORANDUM FOR RESPONDENT STOCKHOLM UNIVERSITY ON BEHALF OF: EQUATORIANA CONTROL SYSTEMS, INC 286 SECOND AVENUE OCEANSIDE EQUATORIANA RESPONDENT AGAINST: MEDITERRANEO ELITE CONFERENCES SERVICE, LTD 45 CONFERENCE PLACE CAPITAL CITY MEDITERRANEO CLAIMANT BRIAN KOTICK RAGNHILDUR OLAFSDOTTIR CELESTE SALINAS QUERO YAROSLAVA SOROKHTEY ANINA WISSNER GUNNAR WITTE MEMORANDUM FOR CLAIMANT i

TABLE OF CONTENTS INDEX OF AUTHORITIES... v INDEX OF CASES... ix INDEX OF STATUTES, RULES,TREATIES AND OTHERS... xii TABLE OF ABBREVIATIONS... xiii STATEMENT OF FACTS...1 SUMMARY OF ARGUMENTS... 3 ARGUMENT ON Procedure... 5 I. The Tribunal Should order the removal of Dr. Mercado from Claimant s Legal Team... 5 A. THE TRIBUNAL HAS THE POWER TO ORDER THE REMOVAL OF DR. MERCADO... 6 1. The Tribunal s discretionary power encompasses this Tribunal s Power to Order the Removal of Dr. Mercado... 6 2. The Exercise of the Tribunal s Power to Order the Removal of Dr. Mercado Safeguards the Integrity of these Proceedings and does not Infringe on Claimant s Rights... 7 i. By removing Dr. Mercado the Tribunal would safeguard the integrity and efficiency of these proceedings... 7 ii. By ordering the removal of Dr. Mercado the Tribunal does not infringe on Claimant s rights... 9 3. The Tribunal Should Exercise its Power to Order the Removal of Dr. Mercado. The Extraordinary Circumstances of Dr. Mercado s relation with Professor Compromise the Integrity of these Proceedings... 10 i. Professor Presiding Arbitrator s and Dr. Mercado s professional relationship creates dependency and partiality... 11 ii. Professor Presiding Arbitrator s personal relationship with Dr. Mercado creates appearance of bias... 13 B. RESPONDENT MAY EXERCISE ITS RESERVED RIGHT TO CHALLENGE PROFESSOR PRESIDING ARBITRATOR... 14 ARGUMENT ON MERITS... 15 II. RESPONDENT IS EXEMPT FROM LIABILITY UNDER ARTICLE 79(2) CISG... 15 MEMORANDUM FOR CLAIMANT ii

A. IT IS IRRELEVANT WHETHER OR NOT RESPONDENT S LATE DELIVERY WAS A FUNDAMENTAL BREACH... 16 B. RESPONDENT IS EXEMPT FROM LIABILITY FOR LATE DELIVERY AND INSTALLATION OF THE MASTER CONTROL SYSTEM UNDER ARTICLE 79(2) CISG... 16 1. Specialty Devices is the only third party Respondent engaged to perform the Contract... 17 2. Respondent is exempt from liability under Article 79(1) CISG... 18 i. Specialty Devices late delivery was an impediment that caused Respondent s breach.... 18 ii. Specialty Devices late delivery was beyond Respondent s control... 19 iii. Respondent could not foresee Specialty Devices late delivery of the processing units... 20 iv. Respondent could not reasonably overcome Specialty Devices late delivery of the processing units... 21 3. Specialty Devices is exempt under Article 79(1) CISG... 22 i. High Performance s late delivery was the impediment that caused Specialty Devices breach... 22 ii. High Performance s late delivery was beyond Specialty Devices control... 23 iii. Specialty Devices could not foresee High Performance s late delivery of the chips... 24 iv. Specialty Devices could not reasonably overcome High Performance s late delivery of the chips... 24 III. EVEN IF THE TRIBUNAL DECIDES THAT RESPONDENT IS LIABLE FOR ITS DELAY, RESPONDENT Is NOT OBLIGED TO PAY DAMAGES TO CLAIMANT... 25 A. THE BRIBERY COMMITTED BY CLAIMANT RENDERS ALL COSTS FOR LEASING THE M/S PACIFICA STAR NOT ALLOWABLE ITEMS OF DAMAGES... 26 1. The Tribunal should apply the laws of Pacifica to find that the yacht broker s success fee is illegal... 26 i. Meditteraneo policy to adopt international public policy standards leads to the application of Pacifica criminal law... 26 ii. The payment made using the yacht broker s success fee was illegal... 28 2. Claimant is Imputable for the Bribery... 28 3. The Illegality of the success fee taints the lease and all its associated costs, rendering them Non-allowable Items of Damages... 29 MEMORANDUM FOR CLAIMANT iii

B. RESPONDENT IS NOT OBLIGED TO PAY CLAIMANT DAMAGES THAT WERE UNFORESEEABLE AND UNREASONABLE... 30 1. Claimant is not entitled to recover damages that were unforeseeable for Respondent... 31 2. Claimant incurred unreasonable costs to mitigate its losses. Moreover, amongst these costs, the ex-gratia payment and success fee are, in themselves, not allowable as items of damages... 32 i. Respondent does not need to reimburse Claimant the exgratia payment... 32 ii. Respondent does not need to reimburse the success fee... 34 MEMORANDUM FOR CLAIMANT iv

INDEX OF AUTHORITIES COMMENTARY ABBREVIATION CITATION CITED ON Alqudah Mutasim Ahmad Alqudah Enforceability of Arbitration Clauses in Online Business-to- Consumer Contracts Journal of International Arbitration, Kluwer Law International 2011 Volume 28 Issue 1 pp. 67 79 96 Bernardini Böckstiegel Bernardini, Piero, The Role of the International Arbitrator, in: Arbitration International, Arbitration International, Volume 20 Number 2, 2004 Böckstiegel, Karl-Heinz Arbitrator s case management: experiences and suggestions Published in Global Reflections on International Law, Commerce and Dispute Settlement - Liber Amicorum for Robert Briner, Paris, 2005, p. 6. 20, 21 28 Author in Bianca/Bonell Bianca, Cesare Massimo; Bonell, Michael Jochim (eds.) Commentary on the International Sales Law: The 1980 Vienna Sales Convention Giuffrè, Milan, 1987 Born 2009 Born, Gary B. International Commercial Arbitration Kluwer Law International, The Netherlands, 2009 Born 2011 Born, Gary B. International Commercial Arbitration: Commentary and Materials Kluwer Law International, 2011 58, 111 17, 30, 34, 35, 36 23, 29 Brunner Chengwei CISG-AC Opinion No. 6 Brunner, Christoph Force Majeure and Hardship under General Contract Principles: Exemption for Non-performance in International Arbitration Wolters Kluwer Law and Business, 2008 Chengwei, Liu Force Majeuere - Perspectives from CISG, UNIDROIT Principles & PECL and Case Law, 2 nd ed., April 2005 CISG-AC Opinion No. 6 Calculation of Damages under CISG Article 74 89 57, 58, 63, 75, 81 121 MEMORANDUM FOR CLAIMANT v

CISG-AC Opinion No. 7 Crivellaro DAC Report Explanatory Note Flambouras Fortier Rapporteur: Professor John Y. Gotanda. Villanova University School of Law, Villanova, Pennsylvania, USA. Adopted by the CISG-AC at its Spring 2006 meeting in Stockholm, Sweden. CISG-AC Opinion No. 7, Exemption of Liability for Damages under Article 79 of the CISG Rapporteur: Professor Alejandro M. Garro, Columbia University School of Law, New York, N.Y., USA. Adopted by the CISG-AC at its 11th meeting in Wuhan, People's Republic of China, on 12 October 2007. Reproduction of this opinion is authorized. Antonio Crivellaro "Arbitration Case Law on Bribery: Issues of Arbitrability, Contract Validity, Merits and Evidence" in Kristine Karsten and Andrew Berkeley, Arbitration, Money Laundering, Corruption and Fraud, Dossiers- ICC Institute of World Business Law (September 2003) Departmental Advisory Committee on Arbitration Report on English Arbitration Bill, February 1996 Explanatory Note by the UNCITRAL Secretariat on the Model Law on International Commercial Arbitration Flambouras, Dionysios Comperative Remarks on CISG Article 79 &PECL Articles 6:111, 8:108 May 2002 CISG database L. Yves Fortier: The Minimum Requirements of Due Process in Taking Measures Against Dilatory Tactics: Arbitral Discretion in International Commercial Arbitration - A Few Plain Rules and a Few Strong Instincts 55, 57, 68, 76, 84 98 26 20, 21, 23 57, 63 17, 20, 22, 23, 25 Holtzmann/Neuhaus Holtzmann, Howard M.; Neuhaus, Joseph E. A Guide to the UNCITRAL Model Law on International Commercial Arbitration Legislative History and Commentary Kluwer Law and Taxation Publishers, Deventer, The Netherlands, Boston, 1998. 20, 30 Honnold Honnold, John Uniform Law for International Sales under the 1980 United Nations Convention, 3 th Ed. Kluwer Law International, The Netherlands, 2009 63 MEMORANDUM FOR CLAIMANT vi

Howard Jenkins Huber/Mullis Hwang/Lim Howard Jenkins, Sarah "Exemption for Nonperformance: UCC, CISG, UNIDROIT Principles, A Comparative Assessment": 72 Tulane Law Review (1998), p. 2026 Huber, Peter; Mullis, Alastair The CISG. A new textbook for students and practitioners Sellier, European Law Publishers, 2007 Hwang, Michael S.C.; Lim, Kevin Corruption in Arbitration Law and Reality Expanded version of Herbert Smith-SMU Asian Arbitration Lecture, 4 August 2011, Singapore STOCKHOLM UNIVERSITY 63 66, 114, 117, 118, 121, 126 96 Karrer Karrer, Pierre A. Freedom of an Arbitral Tribunal to Conduct Proceedings, ICC International Court of Arbitration Bulletin Vol. 10 No. 1, 1999 26 Kolo Kolo, Abba Witness Intimidation, Tampering and Other Related Abuses of Process in Investment Arbitration: Possible Remedies Available to the Arbitral Tribunal Arbitration International, Volume 26, No. 1, 2010 36 Lubowitz Lubowitz, Michael E. The Right to Counsel of Choice after Wheat v. United States: Whose Choice is it? The American University Law Review [Vol. 39:437 1990] Park Park, William W. Arbitrator Integrity: The Transient and the Permanent, 46 San Diego Law Review, 629 2009 29 38 Huber in MüKo Sayed Scherer Säcker, Franz Jürgen; Rixecker, Roland (ed) Münchener Kommentar zum Bürgerlichen Gesetzbuch, Vol. 3 5th. ed. Munich C. H. Beck, 2008 Sayed, Abdulhay Corruption in International Trade and Commercial Arbitration Kluwer Law International, 2004 Scherer, Matthias Circumstantial Evidence in Corruption Cases Before International Arbitral Tribunals International Arbitration Law Review, Vol. 5, 2002, pp. 29-40 114 98 98 MEMORANDUM FOR CLAIMANT vii

Author in Schlechtriem Author in Schwenzer/Schlechtriem Schlechtriem Schlechtriem, Peter; Schwenzer, Ingeborg Commentary on the UN Convention on the International Sale of Goods (CISG), 2 rd Ed. Oxford University Press, Northants, 2005 Schlechtriem, Peter; Schwenzer, Ingeborg Commentary on the UN Convention on the International Sale of Goods (CISG), 3 rd Ed. Oxford University Press, Northants, 2010 Schlechtriem, Peter ; Published by Manz, Vienna: 1986. Reproduced with their permission, excerpt from: Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods 63, 66, 75, 83, 117, 121 72, 85 57, 83 Server Server, Jay R. The Relaxation of Inarbitrability & Public Policy checks on U.S.and Foreign Arbitration: Arbitration out of control? 65 Tul. L. Rev. 1661, 1664 (1991) 95 Sheppard/Chance Southerington Spivack Sachs/Lörcher Magnus in Staudinger Sheppard, Audley; Chance, Cliffor Public Policy and the Enforcement of Arbitral Awards: Should there be a Global Standard? 1 Oil, Gas & Energy Law Intelligence No. 2, 2003 Southerington, Tom Impossibility of Performance and Other Excuses in International Trade, Faculty of Law of the University of Turku, Finland: Private Law Publication Series B:55 (2001) Spivack, Carla Of Shrinking Sweatsuits and Poison Vine Wax: A Comparison of Basis for Excuse under U.C.C. 2-615 and CISG Article 79, 27 Pennsylvania Journal of International Economic Law (Fall 2006) 757-802 Sachs, Klaus; Lörcher, Torsten Part II - Commentary on the German Arbitration Law (10th Book of the German Code of Civil Procedure), Chapter V Conduct of the Arbitral Proceeding, 1042 General Rules of Procedure in Karl-Heinz Böckstiegel, Stefan Michael Kröll, et al. (eds), Arbitration in Germany: The Model Law in Practice, Kluwer Law International 2007 von Staudinger, Julius Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen, Wiener UN-Kaufrecht 95 84 76, 83 66 25 66, 121 MEMORANDUM FOR CLAIMANT viii

Sutton Waincymer (CISG) [Commentary on the German Civil Code with all other Relevant Laws] Ulrich Magnes ed., Dr. Arthur L. Sellier & Co., 2005 Sutton, David St. John; Gill, Judith Rusell on Arbitration London Sweet & Maxwell Limited, 2003 Waincymer, Jeff Reconciling Conflicting Rights in International Arbitration: The Right of Choice of Counsel and the Right to an Independent and Impartial Tribunal 26(4) Arbitration International, 597, 2010, 618 111 29 Watts Edited by Watts, Peter G. Bowstead & Reynolds on Agency (2010) 19 th Ed at 6-084 Sweet & Maxwell Ltd, August 2010 100, 104 CASE LAW Austria Propane case France Gas Turbines v. Westman Richy v. Warlaumont Avax v. Tecnimont(1) Avax v. Tecnimont(2) Milan Presse v. Média Sud INDEX OF CASES Supreme Court 6 February 1996, Case. No. 10 Ob 518/95 Paris Court of Appeal 30 September 1993 Société European Gas Turbines SA v Westman International Ltd. Paris Court of Appeal, 20 October 1994 [1996] Rev. Arb. 422 Richy v Warlaumont & Anor, Paris Court of Appeal 12 February 2009, 1st Chamber, Court of Appeal Paris. in Branson, David J J&P Avax SA v. La Société Technimont SpA Reims Court of Appeal Case No 10/02888 2 November 2011 Paris Court of Appeal 12 January 199 Société Milan Presse v. Société Média Sud 111 108 41 27, 30, 33 27, 49 46 MEMORANDUM FOR CLAIMANT ix

Germany Video recorders case Vine wax case Iron molybdenum case Spain Dye for clothes case Switzerland Art books case Centroza v. Orbis United Kingdom Lennards v. Petroleum Westacre Investments v. Jugoimport United States Distilling v. Liquor United States v. Gipson United States v. Hobson Wheat v. United States District Court, Darmstadt 9 May 2000 Supreme Court BGH 24 March 1999 CLOUT Appellate Court Hamburg 28 February 1997 Appellate Court, Barcelona 20 June 1997 Commercial Court, Zürich 10 February 1999 Swiss Federal Court 26 October 1966 Centroza v. Orbis House of Lords [1915] AC 705 Lennards Carrying Co v. Asiatic Petroleum Court of Appeal 12 May 1999 [1992] 2 Lloyd s Rep. 65 Westacre Investments, Inc. v. Jugoimport-SDRP Holding Company Ltd. & ORS Court of Appeals, 7 th Cir. 15 April 1939, 104 F.2d 582 (1939) American Distilling v. Wisconsin Liquor Court of Appeals 693 F. 2d 109, 111 (10 th Cir. 1982) United States v. Gipson Court of Appeals 672 F. 2d 825, 828 (11 th Cir. 1982) United States v. Hobson United States Supreme Court 486 U.S. 153, 1998 Wheat v. United States 122 66, 83, 84 76 122 121, 122 46 100, 104 95 106 29 29 29 MEMORANDUM FOR CLAIMANT x

Dickenson v. Iowa Court of Appeals 300 N.W. 2d 112, 1981 Dickenson Co. Inc. v. Iowa State Dept of Transportation STOCKHOLM UNIVERSITY 73 ARBITRATION AWARDS Court of Arbitration of the International Chamber of Commerce ICC Award ICC Award case No. 1110 of 1963 1110/1963 10 Arb. Int l para. 16 (1994) 106 ICC Award 6294/1991 ICC Award case No. 6294 of 1991 99 ICC Award 7197/1992 ICC Award case No. 7197 of 1992 CLOUT 85 CIETAC Bulgarian Chamber of Commerce and Industry Coal case Bulgaria 24 April 1996 Arbitration Case 56/1995 85 ICSID Hrvatska v. Slovenia 6 May 2008 Case No. ARB/05/24 Hrvatska Elektroprivreda, d. d. v. The Republic of Slovenia Rompetrol v. Romania 14 January 2010 Case No. ARB/06/3 Rompetrol Group N. V. v. The Republic of Romania 20, 21, 24, 26, 28, 34, 42 36 ICSID case no Arb./10/05 ICSID case no Arb./10/05, Dispute Resolution International Vol. 4 No, 1 May 2010 42 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry Metallic sodium case 16 March 1995, Arbitration proceedings No. 155/1994 89 MEMORANDUM FOR CLAIMANT xi

INDEX OF STATUTES, RULES,TREATIES AND OTHERS DAL CISG NY Conv. GC on Agency IBA Guidelines CAISG CICA Interim Report CIETAC Rules CIETAC Ethical Rules CLCCCE AUCPCC ICC Guidelines UNCITRAL Model Law on International Commercial Arbitration 1985 With amendments as adopted in 2006 United Nations Convention on Contracts for the International Sale of Goods, Vienna 1980 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 1958 Geneva Convention on Agency in International Sale of Goods IBA Guidelines on Conflicts of Interest in International Arbitration Convention on Agency in the International Sale of Goods (Geneva, 17 February 1983) International Law Association, Committee on International Commercial Arbitration Interim Report on Public Policy as a Bar to Enforcement of International Arbitral Awards London 2000 Arbitration Rules of the China International Economic Trade Arbitration Commission Ethical Rules for Arbitrators of the China International Economic Trade Arbitration Commission Criminal Law Convention on Corruption of the Council of Europe African Union Convention on Preventing and Combating Corruption ICC Guidelines on Agents, Intermediaries and Third Parties, Article XI passim passim 95 103 30, 35, 38, 45 103 96 Passim 30, 38 96 96 125 UN CAC United Nations Convention against Corruption 96, 100 Restatement American Law Institute Restatement (3rd) of Agency (2006) 104 MEMORANDUM FOR CLAIMANT xii

Cir. AC Art./Arts. ASA BGH BULL CA CEO CIETAC CISG Civ. Cl. Ex. Claimant CQ. CLOUT Co. Conv. Corp. Corporate Executives DAL Dr. Ed. ed./eds. et al. TABLE OF ABBREVIATIONS Circuit (U.S. Court of Appeal) Advisory Council Article/Articles Association suisse de l arbitrage (Swiss Arbitration Association) Bundesgerichtshof Bulletin Court of Appeal Chief Executive Officer China International Economic and Trade Arbitration Commission United Nations Convention on Contracts for the International Sale of Goods, Vienna 1980 Civil Division Claimant s Exhibit Mediterraneo Elite Conferences Services, Ltd Clarification Question Case Law on UNCITRAL texts Company Convention Corporation Worldwide Corporate Executives Association Danubian Arbitration Law Doctor Edition editor/editors and others MEMORANDUM FOR CLAIMANT xiii

EWCA EWHC F.2d F.3d F.Supp. High Performance IBA Ibid/Id. ICC ICSID ILA Inc. Int l/intern. ITL Ltd. MAL Mfg Mr. No./Nos. NY Conv. N.W. Op p./pp. para./paras. PECL PO No./Nos. England and Wales Court of Appeal High Court of England and Wales Federal Reporter, Second Series Federal Reporter, Third Series Federal Supplement (District Court Reports) Atlantis High Performance Chips International Bar Association Ibidem/ Same place International Chamber of Commerce International Centre for Settlement of Investment Disputes International Law Association Incorporated International International Trade Law Limited UNCITRAL Model Law on International Commercial Arbitration Manufacturing Mister Number/Numbers Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 1958 North West Opinion Page/pages paragraph/paragraphs Principles of European Contract Law Procedural Order Number/Numbers MEMORANDUM FOR CLAIMANT xiv

Prot. Professor RA Rep. Resp. Ex. Respondent RfA SCC Secretariat SoC SoD Specialty Devices Protocol Professor Presiding Arbitrator Registrar s Appeal Report Respondent s Exhibit Equatoriana Control Systems, Inc Request for Arbitration Stockholm Chamber of Commerce The UNCITRAL Secretariat Statement of Claim Statement of Defence Oceania Specialty Devices UNCC United Nations Convention Against Corruption 2011 U.S. UNCITRAL Vol. United States United Nations Commission on International Trade Law Volume v. versus (against) MEMORANDUM FOR CLAIMANT xv

STATEMENT OF FACTS 1. Mediterraneo Elite Conference Services Ltd. ( Claimant ) is a company incorporated under the laws of Mediterraneo [RfA p. 4, para. 1] and provides high-end conference service packages to a number of demanding clients [Id.; RfA p. 5, para. 6]. Claimant bought a yacht, the M/S Vis, and sought to refurbish it for its use as the newest luxury venue for off-shore conferences [Id.]. 2. On 26 May 2010, Claimant contracted with Equatoriana Control Systems Inc. ( Respondent ), a company incorporated under the laws of Equatoriana [RfA p. 4, para. 2] for the supply, installation and configuration of the master control system for the M/S Vis [RfA p. 5, para. 7]. Claimant desired for the yacht to meet the highest standards and use the latest in cabin technology, superior to anything else available on the market [RfA p. 5, para. 6]. The completion of the entire refurbishment was scheduled for 12 November 2010, followed by a 10 weeks verification period [RfA p. 5, para. 7]. 3. In order to meet Claimant s need for the latest in cabin technology, Respondent required a range of subcontractors and suppliers to manufacture a master control system [RfA p. 5, para. 6]. Respondent engaged Oceania Specialty Devices ( Specialty Devices ) to manufacture processing units, which serve as the core element in the control system [RfA p. 5, para. 8]. The only way to fulfill Claimant s high expectations was to design the processing units to require state of the art technology, namely a D-28 chip, which offered significant improvements over all rival chips currently on the market and projected to remain unrivaled for another six months [RfA p. 5, para. 9]. Atlantis High Performance ( High Performance ) was the sole manufacturer on the market that produced D-28 chips and therefore Specialty Devices engaged High Performance to supply these chips for their processing units [RfA p. 5, para. 9]. 4. High Performance started the production of the D-28 chip as scheduled in middle August 2010 [RfA p. 6, para. 12]. However, on 6 September 2010 a fire at its plant forced High Performance to halt production and delay its delivery of chips [RfA p. 6, para. 12; Cl. Ex. No. 3, p. 11]. This late delivery caused subsequent delays in delivery for every other link in the supply chain, including Respondent s delivery to Claimant [SoD pp. 38, 39 para. 7]. High Performance had a limited supply of chips in its warehouse when the fire occurred. For MEMORANDUM FOR RESPONDENT 1

commercial reasons, High Performance decided to use the entire stock of chips to fulfill its obligations towards Atlantic Technical Solutions, a firm whose CEO was a longstanding close friend of High Performance s CEO [RfA p. 6, para. 15]. 5. On 13 September 2010, as soon as Respondent received confirmation of the delay by Specialty Devices, and cognizant of the monopolistic supply situation, Respondent telephoned Claimant about Specialty Devices delay and how this delay would now lead to Respondent s own late delivery [RfA p. 6, para. 12]. Without any communication or attempt to solve the problem, Claimant resorted to a rather expensive alternative to using the M/S Vis [RfA p. 7, para 18]. Since, unbeknownst to Respondent, Claimant itself was facing an upcoming event with one of its most demanding clients, Corporate Executives Association ( Corporate Executives ), it hired a yacht broker to find a substitute luxury yacht. 6. Claimant offered the yacht broker a commission fee of USD 60,000 and volunteered an additional USD 50,000 success fee to secure the agreement [Id.]. The yacht broker used part of this promised success fee to bribe a local yacht owner s assistant for an introduction with the owner, which led to the eventual lease of the M/S Pacifica Star [SoD p. 38, para 13]. The assistant was later convicted for accepting bribes [Id.]. Claimant then took another liberty without Respondent s knowledge and volunteered an ex gratia refund payment of USD 112,000 to Corporate Executives for a loss of goodwill that never even threatened to materialize [PO No. 2, CQ 20, p. 40]. 7. Without any further delays, Respondent delivered Claimant the master control system on 14 January 2011 [RfA p. 6, para. 16] and completed the installation, configuration and verification of the system to Claimant s full satisfaction [Cl. Ex. No. 4, p. 12]. Claimant confirmed that it was very pleased with the control system and it did everything [they] had hoped for [Id.]. Claimant then paid Respondent the full Contract price [RfA pp. 6, 7, para. 16]. It was not until six months after Respondent communicated the anticipated delay [PO No. 2, CQ 15, p. 48] that Respondent received a letter from Claimant expressing its satisfaction, but also requesting to be reimbursed for expenses incurred for having to find a new location for a conference due to Respondent s delay [Id.]. Respondent was surprised by such a request considering there had never been any prior mention of Corporate Executives conference or the fact that it had to be rescheduled [PO No. 2, CQ 15, p. 48]. MEMORANDUM FOR RESPONDENT 2

8. On 15 July 2011, Claimant initiated CIETAC arbitration against Respondent [RfA p. 3] requesting damages for the ex gratia payment and compensation for costs arising from a lease secured by bribery comprised of the lease itself, the success fee used for bribery, and the commission fee. 9. From the beginning of the initiation of arbitration, Respondent was responsive to all correspondence and cooperated in the appointment of arbitrators on time and without any objection. However, three days before Respondent s submission of its Statement of Defense and also on the same date CIETAC confirmed the constitution of the arbitral panel [CIETAC Letter p. 34], Claimant decided to reveal to Respondent that it had added a new member to their legal team, Dr. Mercado [PO No. 2, CQ 29, p. 50; SoD, p. 39 para. 16]. 10. Respondent objects to Dr. Mercado s participation in this arbitration since Claimant s lastminute inclusion has introduced a conflict with Professor Presiding Arbitrator ( Professor ), the previously agreed upon chair of the arbitral panel [Horace Fasttrack s letter, p. 24; Joseph Langweiler s letter, p. 25; CIETAC Letter, p. 34; PO No. 2, CQ 34, p. 50]. Dr. Mercado is a co-lecturer of Professor Presiding Arbitrator at Danubia National University, she is the godmother of Professor s youngest child and is good friends with Professor s wife. Professionally, Dr. Mercado has received favorable outcomes in all prior arbitrations in which she appeared as counsel before Professor [SoD, pp. 39, 40, paras. 16-22]. 11. On 2 September 2011 Respondent submitted its Statement of Defense objecting to all damages claimed by Claimant [SoD, p. 40, para. 24]. Damages related to the substitute lease agreement are not recoverable as tainted by bribery, nor is the sum paid ex gratia as it is a voluntary payment made in pure speculation of possible loss of goodwill that never even threatened to materialize. Respondent lastly objects to the participation of Dr. Mercado in this arbitration as it would jeopardize the integrity of these proceedings and, if denied, reserves its right to challenge Professor Presiding Arbitrator. SUMMARY OF ARGUMENTS 12. The Tribunal should remove Dr. Mercado from Claimant s legal team. The Tribunal has inherent powers to deal with procedural matters not regulated by party agreement or by the DAL. The Tribunal may exercise its inherent power in order to ensure the integrity and efficiency of the proceedings. By adding Dr. Mercado to its legal team, Claimant has casted on this properly constituted Tribunal doubts as to the Tribunal s ability to impartially and MEMORANDUM FOR RESPONDENT 3

independently decide this dispute. The extraordinary circumstances of Dr. Mercado s academic, professional and personal relationship with the chair of this Tribunal, Professor Presiding Arbitrator ( Professor ) affect the integrity of these proceedings and call for her removal. The Tribunal should therefore exercise its inherent powers and order Dr. Mercado s removal. 13. Respondent has not waived its right to challenge Professor Presiding Arbitrator. If the Tribunal does not remove Dr. Mercado, Respondent can exercise its reserved right to challenge Professor. Respondent raised the issue of Professor s potential bias within the 15- day time limit established by CIETAC Rules, in writing and with supporting evidence. When raising its objection Respondent expressly reserved its right to challenge Professor if the challenge to Dr. Mercado was dismissed. Respondent cannot be deemed to have waived its right. 14. Respondent is exempt from liability for its late delivery. Respondent is exempt because both, Respondent s and its third party, Specialty Devices attempts to perform were frustrated by impediments which they could not control, foresee, or overcome. Respondent s impediment consisted in its impossibility to receive on time the processing units from Specialty Devices. In turn, Specialty Devices impediment was its impossibility to receive on time the D-28 chips from High Performance. The relevant impediment was not the fire at High Performance s plant. In fact, High Performance was not a third party to Respondent. But even if the Tribunal considers that High Performance was a third party, for which the fire was an impediment, this impediment was still unforeseeable, beyond its control and one it could not overcome. Even then, Respondent is exempt from liability for its late delivery. 15. The success fee was illegal. Respondent is not obliged to pay damages arising from a corrupt transaction. The success fee used to procure the lease of the M/S Pacifica Star was illegal. The illegal payment made by Claimant s broker to procure the lease was such an integral part of the transaction, that it cannot be separated from it. The success fee s illegality taints the lease and its associated costs, rendering them unallowable items of damages, and thereby not recoverable by Claimant. 16. Respondent is not obliged to pay damages that were unforeseeable and unreasonable. Even if the Tribunal finds the lease and its associated costs are unaffected MEMORANDUM FOR RESPONDENT 4

by the illegality of the success fee, Claimant is not entitled to recover damages. Claimant attempts to recover damages that were unforeseeable for Respondent. Respondent did not know at the time of the Contract about Corporate Executives conference. Also, Claimant failed its duty to reasonably mitigate losses. The ex-gratia payment was a voluntary disbursement for an inexistent loss of goodwill. Claimant has not substantiated its hypothetical loss or measurement. Also, the broker s success fee was an unreasonable costly means for mitigation. The unforeseeability and unreasonableness of the damages renders them unallowable items of damages. Claimant is thus not allowed to its recovery. ARGUMENT ON PROCEDURE I. THE TRIBUNAL SHOULD ORDER THE REMOVAL OF DR. MERCADO FROM CLAIMANT S LEGAL TEAM 17. Respondent respectfully requests this Tribunal to order the removal of one of Claimant s counsel, Dr. Mercado, from Claimant s legal team. By recently adding her to its legal team, Claimant endangers the integrity of these arbitral proceedings. Dr. Mercado s relationship with Professor Presiding Arbitrator ( Professor ) - the jointly agreed chair of this Tribunal - raises justifiable doubts as to his independence and impartiality. In selecting arbitration Respondent and Claimant chose to rely, in large measure, on the arbitrators to ensure that justice is done [Fortier, p. 408]. In particular, they rely on Professor, the presiding arbitrator, as he plays a crucial role in these arbitral proceedings by leading the deliberations and even in holding the decisive vote [Article 47 (6) CIETAC Rules; Born 2009, p. 1663]. Due to Professor s expertise [PO No. 2, CQ 34, p. 50] and special position within this Tribunal, his retention in these proceedings is of primary importance. Also, if Claimant is forced to bring a challenge procedure before CIETAC against Professor instead of Dr. Mercado, this would substantially delay these proceedings. 18. This Tribunal should exercise its inherent procedural power when conducting these proceedings and remove the root of the conflict, i.e the recently added counsel, Dr. Mercado (A). Alternatively, if the Tribunal does not order Dr. Mercado s removal, Respondent reserves its right to challenge Professor Presiding Arbitrator before the Chairman of CIETAC (B). MEMORANDUM FOR RESPONDENT 5

A. THE TRIBUNAL HAS THE POWER TO ORDER THE REMOVAL OF DR. MERCADO STOCKHOLM UNIVERSITY 19. The Tribunal has the power to remove Dr. Mercado from Claimant s legal team, as the Tribunal has the general power to deal with procedural matters as it considers appropriate (1). By exercising this general power, the Tribunal safeguards the integrity of these proceedings and does not infringe on Claimant s right to counsel of choice (2). The extraordinary circumstances of Dr. Mercado s and Professor s relation justify the exercise of the Tribunal s power to remove Dr. Mercado. Allowing Claimant to retain her would jeopardize the integrity and finality of these arbitral proceedings (3). 1. The Tribunal s discretionary power encompasses this Tribunal s Power to Order the Removal of Dr. Mercado 20. Contrary to Claimant s submissions [MfC pp. 6, 7, paras. 32-36], this Tribunal has the power to remove Dr. Mercado from Claimant s legal team. The powers of this Tribunal are those conferred upon it by the agreement of the parties within the limits of the DAL, together with any additional powers granted by operation of law [Redfern/Hunter, para. 5.04]. including this Tribunal s inherent discretionary power to determine any procedural matters [Redfern/Hunter, para. 5.11] that are not regulated in the arbitration agreement or the DAL [Explanatory Note, p. 32, para. 35; Hrvatska, footnote 15]. Absent the parties agreement as to the procedure, it must follow that this Tribunal has broad discretionary power to conduct the proceedings as it deems appropriate [Redfern/Hunter, paras. 5.11, 514; Fortier, p. 398; Holtzmann/Neuhaus, p. 564; Bernardini, p. 117; Article 19(2) DAL]. Furthermore, CIETAC Rules expressly afford the Tribunal with discretionary power to issue procedural orders as it considers necessary to conduct the hearing [Article 33(1), (4) CIETAC Rules]. 21. The only restrictions to the Tribunal s discretionary power stem from the mandatory provisions of the DAL, the agreement of the parties and the arbitration rules [Article 19 (2) DAL; Explanatory Note, p. 32, para. 34; Bernardini, pp. 114, 117 Hrvatska, footnote 15]. In this case, these restrictions do not apply. As developed below [see paras. 29-33], the removal of Dr. Mercado conforms with the mandatory provisions of the DAL, the lex arbitri applicable to these proceedings [Cl. Ex. No. 1, p. 9]. There is no agreement of the parties on her removal; moreover, the CIETAC Rules the procedural rules agreed by Claimant and Respondent - and the DAL are silent on the procedural question of the removal of a conflicted counsel. MEMORANDUM FOR RESPONDENT 6

22. This Tribunal s inherent discretionary power is further derived from its duty to ensure the integrity and efficiency of these proceedings. A tribunal has the power to conduct the proceedings in an appropriate manner, provided that it treats the parties with equality, gives each party a full opportunity to present its case [Article 18 DAL; Pryles, p. 336; Redfern/Hunter para. 514] and simulatneously seeks to reduce delay and achieve efficiency in the proceedings [Fortier, p. 396]. Its discretionary powers enable the Tribunal to control dilatory tactics employed by a party [Id.]. In doing so, the Tribunal fulfills its duty to carry out its own adjudicative tasks without undue delay [Article 14 DAL] within the time period established by the CIETAC Rules [Article 31(1) CIETAC Rules; Redfern/Hunter, para. 5.65]. 23. The discretionary powers of a tribunal constitute one of the hallmarks of international arbitration [Fortier, p. 396; Redfern/Hunter, para. 5.14; Born, 2011, p. 715] compared with litigation where fixed procedures exist [Redfern/Hunter, para. 5.14]. Here, the Tribunal is empowered to tailor the proceedings to the specific features of this case [Explanatory Note, p. 32, para. 35] in order to ensure the integrity and efficiency of these proceedings. Consequently, this Tribunal has the inherent power to order the removal of Dr. Mercado. 2. The Exercise of the Tribunal s Power to Order the Removal of Dr. Mercado Safeguards the Integrity of these Proceedings and does not Infringe on Claimant s Rights 24. Contrary to Claimant s submission [MfC, paras. 37-46] the Tribunal s power to remove Dr. Mercado safeguards the integrity of these proceedings and does not infringe on Claimant s right to counsel of choice. In order to promote the integrity of the proceedings and the tribunal s legitimacy, a tribunal may exercise its powers to limit a party s right to choose counsel [Hrvatska para. 26] (i). Further, by exercising its power to remove Dr. Mercado the Tribunal does not infringe on Claimant s right to counsel of choice (ii). i. By removing Dr. Mercado the Tribunal would safeguard the integrity and efficiency of these proceedings 25. By exercising its discretionary procedural powers to remove Dr. Mercado, this Tribunal safeguards the integrity of these proceedings and avoids Claimant s tactic to imperil the Tribunal s legitimacy and delay the proceedings. Discretionary powers to conduct the proceedings enable the arbitrators to seek to reduce delay and achieve efficiency by controlling dilatory tactics employed by a party [Fortier, p. 396]. Arbitral tribunals can be the direct target of a party s maneuver to delay the proceedings by, for example, deliberately nominating a biased arbitrator or similar to this case, practically force its nominated MEMORANDUM FOR RESPONDENT 7

arbitrator to resign [Greenberg, pp. 1, 2]. The Tribunal may then exercise its discretionary powers to limit a party s right to fully present its case as a party is not entitled to obstruct the proceedings by such dilatory practices and tactics [Sachs/Lörcher, pp. 277 288]. 26. Claimant s full opportunity to present its case must be understood with reference to the overall goal of arbitral proceedings of rendering a final decision of a dispute, as a reasonable opportunity to present its case [Karrer, para. 13.4; DAC Report, p. 300 para. 165]. The DAL does not intend to entitle Claimant to do whatever it wants, however unreasonable it may be [Id.]. Regarding the choice of Dr. Mercado, which introduces a conflictive relationship with Professor, Claimant attempts to abuse its right to a full opportunity to present its case as granted by DAL. Although a party is free to select its legal team as it sees fit prior to the constitution of the tribunal, it is not entitled to subsequently amend the composition of its legal team in such a fashion as to imperil the tribunal's status or legitimacy [Hrvatska, para. 26]. 27. A similar reasoning was followed in Avax v. Tecnimont where the Paris and Reims Courts of Appeals dealt with the issue of conflicts of interests which surfaced after the tribunal had been properly constituted. In that case, the presiding arbitrator was a partner in an international law firm and completed his disclosure statement after consulting his firm's conflict of interest centre and was duly confirmed. Avax then became aware that the arbitrator s firm had accepted several assignments for Tecnimont after the arbitrator made his initial disclosure. The Paris Court of Appeals vacated the award holding that a party has the responsibility to protect the integrity of the proceeding and that it must be aware of the law firm in which an arbitrator works and should avoid employing that firm where it would create a conflict and imperil the award. [Avax v. Tecnimont (1); Avax v. Tecnimont (2), p. 630]. 28. The decisions of Hrvatska and Avax v. Tecnimont mirror the present case in the sense that Claimant after Professor s disclosure and this Tribunal s proper constitution later creates a potential conflict of interest by employing Dr. Mercado. This Tribunal should stand firm against any attempts of Claimant to manipulate or sabotage these proceedings [Böckstiegel, p. 6]. In Hrvatska, the tribunal s inherent power to protect the proceedings enabled it to remove the conflictive counsel, frustrating the party s attempt to delay the proceedings. Similarly, in this case, the Tribunal should exercise its power to remove Dr. Mercado. Its exercise safeguards the integrity and efficiency of these proceedings, preventing Claimant from abusing of the opportunity it was given to present its case. MEMORANDUM FOR RESPONDENT 8

ii. By ordering the removal of Dr. Mercado the Tribunal does not infringe on Claimant s rights 29. By exercising its power to remove Dr. Mercado the Tribunal would not infringe Claimant s right to counsel of choice. The right to counsel of choice is not an absolute one. It may be restricted when necessary to safeguard conflicting rights [Waincymer, p. 610; Born 2011, p. 965; Lubowitz, p. 438; Wheat v. United States; United States v. Gipson; United States v. Hobson]. Such conflicting rights are Respondent s fundamental right to an independent and impartial arbitral tribunal [Waincymer, p. 615; Article 12 DAL] and Claimant s right to be represented by Dr. Mercado -its counsel of choice. 30. The right to an independent and impartial tribunal is mandatory [Holtzmann/Neuhaus, p. 390] and ensures the integrity of the arbitral process [Born 2009, pp. 1463-1464] in favor of both, Claimant and Respondent. Indeed, every arbitrator shall be impartial and independent of the parties at the time of accepting an appointment and shall remain so [Article 22 CIETAC Rules; Articles 1, 2 CIETAC Ethical Rules] during the entire arbitration proceeding until the final award has been rendered [Article 47 (1) CIETAC Rules] or the proceedings have otherwise finally terminated [IBA Guidelines, Part 1, para. 1, p. 7]. As such, although Claimant s and Respondent s fundamental procedural rights may conflict, the right to an independent and impartial tribunal should prevail. An award rendered by a biased Tribunal jeopardizes the finality of the proceedings, as such award would be open to challenge [Article 34 (2)(a)(iv) DAL; Avax v. Tecnimont (1)]. 31. Contrary to Claimant s assertion [MfC p. 7, para. 34], the removal of Dr. Mercado does not deprive in practice Claimant of its right to counsel of choice. Claimant is represented by a legal team which comprises of various members including Mr. Horace Fasttrack, Claimant s arbitral agent [RfA p. 4, para. 1]. Respondent s defense would therefore continue to be fully operable during the proceedings. Besides, because of the early stage of these proceedings, Claimant has plenty of time and opportunity to resort to a new qualified counsel. Admittedly, Dr. Mercado is well-versed in arbitration and trade law and has an academic background [SoD p. 39 para. 20; PO No. 2, CQ 33, p. 51]. Such qualifications, however, are often required in international commercial arbitration. A large number of practicing lawyers have emerged that endeavor to and succeed in marketing a multi-discipline profile in order to best meet their clients needs. Claimant could still easily and within short time find an equally qualified lawyer as a replacement counsel for Dr. Mercado. MEMORANDUM FOR RESPONDENT 9

32. More importantly, Dr. Mercado was engaged by Claimant only for the purpose of these proceedings. This is also the first time she has worked with Mr. Fasttrack [PO No. 2, CQ 29, p. 50]. Absent any significant pre-existing client relationship between Claimant and Dr. Mercado, there can hardly be a relationship of trust as alleged by Claimant of which it would be deprived [MfC p. 6, para. 34]. 33. In conclusion, the removal of Dr. Mercado does not infringe on Claimant s rights to counsel of its choice or to present its case. As a consequence, and contrary to Claimant s submissions [MfC pp. 14, 15, paras. 54-56] removing Dr. Mercado would not jeopardize the finality of the award. In contrast, removing her would actually ensure the immutability of the properly constituted and mutually agreed upon Tribunal. If, however, Claimant remains represented by Dr. Mercado, the consequent lack of independence and impartiality of the presiding arbitrator would taint the Tribunal and jeopardize the finality of the award [Article 34 (2)(a)(iv) DAL; Avax v. Tecnimont (1)]. 3. The Tribunal Should Exercise its Power to Order the Removal of Dr. Mercado. The Extraordinary Circumstances of Dr. Mercado s relation with Professor Compromise the Integrity of these Proceedings 34. The Tribunal should exercise its discretionary procedural powers to remove Dr. Mercado, as her presence in Claimant s legal team creates a conflict which compromises the integrity of these arbitral proceedings. The Tribunal must preserve the integrity of the proceedings and, ultimately, of the award [Hrvatska, para. 30]. This is ensured by the arbitrators impartiality and independence [Born 2009, pp. 1463 1464] in dealing with the parties [Article 22 CIETAC Rules] and when rendering the arbitral award [Article 47 (6) CIETAC Rules]. 35. A fundamental rule of procedure is that the parties should not have any justifiable doubts as to the impartiality or independence of any Tribunal member. Justifiable doubts exist when a reasonable and informed third party [IBA Guidelines, General Standard 2(c); Born 2009, p. 1476], with supporting objective evidence [Article 30 (2) CIETAC Rules; Korsnäs v. Fortum] suspects that a member of the tribunal would be influenced when reaching its decision [IBA Guidelines, General Standard 2(c)]. In such case, that member may be removed from the panel [Article12(2) DAL; Article 30(2) CIETAC Rules]. 36. The parties right to an independent and impartial tribunal demands such importance that it prevails over their right to choose an arbitrator [Born 2009, pp. 1463 1464]. This is equally MEMORANDUM FOR RESPONDENT 10

applied to the choice of a counsel, which subordinates a parties right to an unbiased tribunal. This principle was recently confirmed by ICSID cases including Hrvatska and Rompetrol- as well as admitted by Claimant itself [MfC para. 37, p. 8]. A Tribunal s inherent power to remove counsel should be exercised under extraordinary circumstances where the integrity of the arbitral process is threatened [Rompetrol v. Romania, para. 15; Kolo, pp. 63, 64]. 37. The extraordinary circumstances of Dr. Mercado s professional (i) and personal (ii) relationship with Professor compromise the integrity of these proceedings, by raising reasonable doubts as to Professor s impartiality and independence. As such, this Tribunal should exercise its power to remove Dr. Mercado from Claimant s legal team in order to protect the integrity of these arbitral proceedings. i. Professor Presiding Arbitrator s and Dr. Mercado s professional relationship creates dependency and partiality 38. Contrary to Claimant s assertions [MfC p. 12, para. 51], the professional relationship between Dr. Mercado and Professor gives rise to justifiable doubts of his impartiality and independence. CIETAC Ethical Rules emphasize that business relationships may affect the fair trial of the case [Article 5 CIETAC Ethical Rules]. Dr. Mercado s and Professor s colectureship at the same University resembles the business relationship when the arbitrator and another arbitrator are lawyers in the same law firm [IBA Guidelines, 3.3.1 Orange list] or when the arbitrator and the counsel for one of the parties are members of the same barristers chambers [IBA Guidelines, 3.3.2 Orange list]. In such business relationships, conflicts that give rise to justifiable doubts as to the arbitrator s impartiality or independence [IBA Guidelines, Part II, Section 3] when the relationship between working colleagues may significantly influence the progress of each other s career [Park, William W.: Arbitrator Integrity: The Transient and the Permanent, 2009, p. 686]. 39. In this case, Dr. Mercado s successful career as counsel [PO No. 2, CQ 33, p. 50] directly influences the progress of Professor s career because her accolades reflect directly on the reputation of the ITL Faculty of which Professor is Head. Her impressive curriculum reflects her reputation in the field: She is an expert in arbitration, has worked at several universities, was general counsel of a large international trading company and is often asked for advice or engaged in legal teams in arbitration proceedings [SoD, p. 39, para. 19; PO No. 2, CQ 31, 33, p. 50]. Her successful career makes Dr. Mercado an asset for the ITL Faculty as besides of her the arbitration lectures she also co-lectures for Professor s ITL course MEMORANDUM FOR RESPONDENT 11

on International Trade Law. Her excellent reputation in arbitration is then also of importance for Professor in keeping her employed in the ITL Faculty. Her reputation is of such interest, that Dr. Mercado secured her Visiting Lectureship, after she was personally contacted on Professor s behalf [SoD p. 39, para. 18]. 40. Dr. Mercado s and Professor s academic relation creates a potential conflict of interest since Dr. Mercado s success on arbitration reflects on Professor s academic success. A counsel who maintains a high success rate, in turn maintains a high reputation in both practice and academia. This reputation is what Professor needs in order to progress his own reputation as department head of the ITL Faculty. Professor has co-arbitrated three previous arbitrations with Dr. Mercado appearing as counsel [SoD p. 40, para. 22]. In all three arbitrations Professor ruled in favor of Dr. Mercado s client [Id.]. Dr. Mercado s client won two of the three cases. The third case, where Dr. Mercado s client was unsuccessful on a majority decision, Professor issued a Dissenting Opinion in her client s favor [SoD p. 40, para. 22]. When those arbitrations took place, she was already a lecturer at the University and she was already friends with Professor s wife [PO No. 2, CQ 37, p. 51]. Their colectureship presents an inevitable level of contact and influence on a daily basis. 41. Besides, Dr. Mercado is often engaged to provide advice and work in different legal teams. [PO No. 2, CQ 33, p. 50]. For Professor, Dr. Mercado s contacts and connections in the field may serve to receive future appointments. Such appointments are even more likely to happen if Dr. Mercado s client receives a favorable decision. Dr. Mercado s and Processor s academic and professional connections thus support Respondent s fear that retaining Dr. Mercado would jeopardize the independence of this Tribunal. Similarly, the Paris Court of Appeals held that the tribunal s independence was impaired by the fact that one of the arbitrators was hierarchically superior to one of the parties [Richy v Warlaumont]. In that case the arbitrator was a professor and also the chief of surgery at the same hospital where respondent, a doctor, exercised his professional activity. The Court held that the existence of close professional relations and of hierarchical subordination is incompatible with the independence and neutrality required of an arbitrator [Richy v. Warlaumont, p. 443]. 42. In Hrvatska a claimant objected to the addition of a counsel to the respondent s legal team as the counsel was affiliated with the same chambers as the president of the tribunal. The tribunal ordered respondent to refrain from using the services of the challenged counsel [Hrvatska Elektroprivreda d.d. v Slovenia, ICSID Case No. ARB/05/24, 12 June 2009] based on MEMORANDUM FOR RESPONDENT 12

the fact that respondent refused to reveal the actual nature of the conflicting relationship and also based on the timing in the disclosure of the conflictive information. 43. Similarly in this case, the close timing for revealing the addition of Dr. Mercado further triggers concerns as to the true nature and aim of adding her to the counsel team. In Hrvatska, respondent communicated to claimant close to the hearing that the problematic counsel had been added. Here, Claimant strategically decided to reveal Dr. Mercado s addition to Mr. Langweiler only on 30 August 2011. That was on the very same day CIETAC confirmed that the arbitral panel was constituted. Moreover, that was also only three days prior to Respondent s submission of its Statement of Defense on 2 September 2011 [SoD p. 36]. Claimant left Respondent very little time to prepare an appropriate defense on that particular issue. In fact, Claimant has so far not revealed when Dr. Mercado was actually added to its legal team or what is her specific role in these proceedings [PO No. 2, CQ 39, p. 51]. 44. Dr. Mercado s and Professor s academic relationship evidences their private engagement in activities unrelated to this dispute and it also evidences a potentially conflictive hierarchical relation. As such, the Tribunal should remove Dr. Mercado from these proceedings as her participation raises justifiable doubts as to Professor s independency and impartiality. ii. Professor Presiding Arbitrator s personal relationship with Dr. Mercado creates appearance of bias 45. Finally, Dr. Mercado s close relationship with Professor s family, both as a godmother of his youngest child and her friendship with Professor s wife, creates the appearance of bias. An arbitrator is biased if the arbitrator has a close family relationship with one of the parties or with a counsel representing a party [IBA Guidelines, Article 2.3.8 Waivable red list]. Close family member includes a spouse, child, sibling or parent [Note 4 IBA Guidelines]. Furthermore, an arbitrator is biased if a close personal friendship exists between an arbitrator and counsel as demonstrated by the fact that the arbitrator and the counsel regularly spend considerable time together unrelated to professional work commitments or the activities of professional and social associations [IBA Guidelines, Article 3.3.6 Orange list]. 46. In Centroza, the relationship between counsel and an arbitrator s wife were decisive for the allowance of a bias challenge. In that case the Swiss Federal Court prevented the appointment of a local magistrate as arbitrator on the grounds that the magistrate s wife was an assistant to the counsel for the Respondent [Centroza v Orbis]. In another case, the MEMORANDUM FOR RESPONDENT 13

family relationship was determinant for the Paris Court of Appeals which ruled that there was an appearance of bias where the arbitrator was stepfather of the party's counsel. The Court held that a party cannot rely on the arbitrator s independence and impartiality given the absence of disclosure about his marriage with the mother of one of the parties counsel [Milan Presse v. Média Sud]. 47. In the present case, Dr. Mercado is on first name terms with the entire family of Professor, including Professor himself [SoD, p. 39, para. 21] as she only calls him Professor when she is in professional company; otherwise she calls him Peter [SoD, p. 39, para. 20]. Dr. Mercado is also on close terms with the Professor s wife. Actually, they meet occasionally in the city for lunch or a coffee [SoD p. 39, para. 21]. Also, Professor s wife asked Dr. Mercado personally to be the godmother of hers and Professor s youngest child [PO No. 2, CQ 32, p. 50]. These circumstances evidence that Dr. Mercado and Professor have spent time together unrelated to their professional activity. These circumstances indicate then an improper closeness between Professor and Dr. Mercado that creates the appearance of bias, regardless of the fact that they are not blood relatives. 48. Before Claimant added Dr. Mercado to its team, Professor s independence and impartiality was unquestioned. Through her inclusion in these proceedings Claimant has casted on this Tribunal a cloud of doubts on the Tribunal s ability to impartially and independently decide this dispute. The Tribunal can entirely eliminate this problem by exercising its procedural power to remove the root of the conflict, Dr. Mercado; while at the same time protects the integrity of these proceedings by maintaining the impartiality and independence of the presiding arbitrator of this Tribunal unquestioned. B. RESPONDENT MAY EXERCISE ITS RESERVED RIGHT TO CHALLENGE PROFESSOR PRESIDING ARBITRATOR 49. Contrary to Claimant s submission there are doubts as to Professor s independence and impartiality that would justify a challenge to Professor [MfC pp. 11-14, paras. 47-53], just as there are for challenging Dr. Mercado. This means that if the Tribunal does not find the power to dismiss Dr. Mercado, allowing her to continue as part of Claimant s legal team, Respondent is still entitled to exercise its reserved right to challenge Professor before the Chairman of CIETAC [Article 30 CIETAC Rules]. Respondent cannot be deemed to have waived its reserved right to challenge Professor. When a party has raised the issue of an arbitrator s lack of independence and impartiality during the proceedings and reserved its MEMORANDUM FOR RESPONDENT 14

rights it cannot be deemed to have waived them [Avax v. Tecnimont (2)]. Respondent may exercise its reserved right as it raised its objections in due time, in written form and with supporting evidence [Articles 4, 13(2) DAL; Articles 10, 30(2),(3), (6) CIETAC Rules] in its Statement of Facts, on 2 September 2011 [SoD, pp. 39 40, paras. 16 22]. That was within the fifteen day time limit, considering that Respondent became aware of the conflictive circumstances only three days before, i.e. on 30 August 2011 [PO No. 2, CQ 29, p. 50]. 50. Conclusion on Procedure: The Tribunal should remove Dr. Mercado from Claimant s legal team. The Tribunal has the power to remove her based on its discretionary powers to deal with procedural matters. Dr. Mercado s removal would safeguard the integrity of these proceedings. The extraordinary circumstances of her professional and personal relationship with Professor raise justifiable doubts as to his independence and impartiality, thereby putting into question this Tribunal s ability to decide this dispute. Furthermore, the exercise of its power to remove Dr. Mercado does not infringe on Claimant s right to counsel of choice. Removing Dr. Mercado safeguards the integrity of these proceedings. If however, Claimant is allowed to retain Dr. Mercado, Respondent s concerns for a biased Tribunal calls for the exercise of its reserved right to challenge Professor before CIETAC. ARGUMENT ON MERITS II. RESPONDENT IS EXEMPT FROM LIABILITY UNDER ARTICLE 79(2) CISG 51. Respondent is exempt from liability for its late delivery of the master control system. Despite Claimant s assertions to the contrary [MfC, pp. 15-16, paras. 58-63] Respondent does not contend its late performance of the Contract. Respondent recognizes its impediment to perform in time and thereby simply argues its liability exemption. For the purpose of this dispute then, it is a moot issue whether or not Respondent s late delivery was fundamental (A). Importantly, Respondent s intent to timely deliver the master control system was frustrated, by an impediment beyond its control. Namely, the late delivery of Specialty Devices, the third party Respondent engaged to perform part of the Contract. This impediment, according to Article 79(2) CISG exempts Respondent from liability. Both Respondent and Specialty Devices are further exempt from liability under Article 79(1) CISG (B). * * * MEMORANDUM FOR RESPONDENT 15

A. IT IS IRRELEVANT WHETHER OR NOT RESPONDENT S LATE DELIVERY WAS A FUNDAMENTAL BREACH 52. Respondent does not contend that it was unable to perform under the Contract. For the purpose of the claims Claimant and Respondent raise in this dispute, it is irrelevant whether or not Respondent s late delivery was a fundamental breach. Claimant could have declared the Contract avoided if Respondent s breach of the Contract amounted to a fundamental breach [Article 49(1)(a) CISG]. Yet, Claimant did not declare the Contract avoided. Quite the opposite, both Claimant and Respondent have already performed the Contract. Respondent sold, delivered and installed the master control system for the M/S Vis [RfA, p. 6, para. 16] and Claimant was very pleased with Respondent s performance [Cl. Ex. No. 4, p. 12] and paid Respondent the full Contract price [RfA, p. 6, para. 16]. Therefore, Claimant s request for this Tribunal to find Respondent s late delivery a fundamental breach, which would allow for avoidance of the Contract which was already performed and satisfied, is both superfluous and irrelevant to the facts of this case [MfC, p. 35, para. 131]. 53. Claimant and Respondent already performed the Contract and Claimant s requests for relief are not influenced by the classification of the breach as fundamental or not. This Tribunal should therefore disregard paragraphs 58-63 of Claimant s submission. B. RESPONDENT IS EXEMPT FROM LIABILITY FOR LATE DELIVERY AND INSTALLATION OF THE MASTER CONTROL SYSTEM UNDER ARTICLE 79(2) CISG 54. Respondent is not liable to Claimant for its late performance of the Contract. Under Article 79(1) CISG a party is exempt from liability when its breach is due to an unforeseeable impediment that is beyond its control and that it could not overcome. Respondent s impediment to deliver on time the M/S Vis master control system to Claimant was Specialty Devices failure to deliver Respondent the processing units used by the master control system at the agreed date of the contract. 55. Respondent is exempt provided that its late delivery was due to the failure of Specialty Devices, the third party Respondent engaged to perform part of the contract [Article 79(2) CISG], and that both, itself and the third party engaged, are exempt under Article 79(1) [Article 79(2)(a), (b) CISG; CISG-AC Opinion No. 7]. In this case, Specialty Devices impediment to deliver to Respondent the processing units at the agreed date was its subcontractor s High Performance s failure to deliver the D-28 chips on time [SoD, MEMORANDUM FOR RESPONDENT 16

p. 38, para. 7]. Both, Respondent s and Specialty Devices impediments satisfy all requirements for exemption under Article 79(1) CISG. Respondent is thereby exempt from liability for its late deliver according to Article 79(2) CISG. 56. This Tribunal should rule that Respondent is exempt from liability for its failure to perform [Article 79(2) CISG]. Contrary to Claimant s submission [MfC, p. 18, paras. 70-74], Respondent is not liable for High Performance s actions, as Specialty Devices is the only third party Respondent engaged to perform part of the Contract [Article 79(2) CISG] (1). Furthermore, both Respondent s (2) and Specialty Devices (3) late deliveries were due to an impediment that was unforeseeable, beyond their control and that they could not overcome [Article 79(2) (a), (b); Article 79(1) CISG]. Respondent can thus invoke Article 79(2) CISG to be exempt from liability for its late performance. Alternatively, even if the Tribunal finds that High Performance was an independent third party, Respondent is still exempt from liability (4). 1. Specialty Devices is the only third party Respondent engaged to perform the Contract 57. Contrary to Claimant s submission [MfC, p. 18, para. 70], Respondent only engaged Specialty Devices as a third party to perform part of the Contract [SoD, p. 38, para. 7] and it did not engage High Performance as a third party [PO No. 2, CQ 13, p. 47; SoD, p. 38, para. 9]. A party is liable only for such third parties whom it has engaged to perform part of the contract [Art. 79(2) CISG; Flambouras; Schlechtriem; Chengwei]. Respondent can therefore only be liable for Specialty Devices performance and not for High Performance s performance. 58. Claimant relies on the fact that High Performance manufactured for Specialty Devices the D-28 chips used for the processing units of the master control system to deduce an organic link between Claimant, Respondent, Specialty Devices and High Performance [MfC, p. 18, para. 71]. Claimant uses this organic link to hold Respondent liable for High Performance s actions. Yet, an organic link requires that the defaulting party, i.e. Respondent, must have asked a third person to perform some task connected with the main contract and the latter should know that his action is a means of performing the main contract [Tallon in Bianca/Bonell; Chengwei]. Respondent never asked, contracted, or as Article 79(2) CISG provides, it never engaged High Performance as a third party to MEMORANDUM FOR RESPONDENT 17

perform part of the Contract [PO No. 2, CQ 13, p. 47; SoD, p. 38, para. 9]. Hence, no organic link exists between Respondent and High Performance. 59. In fact, Specialty Devices and not High Performance, informed Respondent about the late delivery of the D-28 chips and the subsequent delay of the processing units [RfA, p. 6, para. 12; Cl. Ex. No. 2, p. 10]. This shows that there was no relationship between Respondent and High Performance. High Performance informed its customers, including Specialty Devices, about the fire at the plant and about the allocation of the remaining D-28 chips [Cl. Ex. No. 3, p. 11]. High Performance, however, never approached Respondent. Precisely because they had no dealings with each other [SoD, p. 38, para. 9; PO No. 2, CQ 13, p. 47] High Performance had no reason to inform Respondent. 60. Accordingly, the Tribunal should rule that only Specialty Devices is a third party engaged by Respondent and that High Performance is not such. Respondent is thus not liable for High Performance s actions and it does not need to prove High Performance s exemption under Article 79(1) CISG. Respondent only needs to prove exemption of Specialty Devices under Article 79(1) CISG as required by Article 79(2) CISG. 2. Respondent is exempt from liability under Article 79(1) CISG 61. Respondent is exempt from liability under Article 79(1) CISG as its breach was due to an impediment (i) that was beyond its control (ii), that was unforeseeable (iii) and that it could not have overcome (iv). i. Specialty Devices late delivery was an impediment that caused Respondent s breach. 62. Respondent s breach was caused by an impediment. Contrary to Claimant s submission [MfC, p. 20, para. 76], the impediment met by Respondent causing its late delivery of the master control system was its failure to receive timely delivery of the processing units from its contractor, Specialty Devices [SoD, p. 38, para. 7]. Claimant incorrectly assumed that Respondent identifies the fire at High Performance s factory as the relevant impediment. 63. More importantly, and differing from Claimant s statement [MfC, p. 20, para. 75] Specialty Devices late performance is considered an impediment under CISG, as acts of third parties are events considered impediments [Chengwei, para. 4.2]. Under the CISG an impediment can be any barrier to performance other than an aspect personal to the seller s performance [Honnold, para. 427; Howard Jenkins, p. 2026] or as objective circumstances that MEMORANDUM FOR RESPONDENT 18

prevent performance [Stoll/Gruber in Schlechtriem, p. 812, para. 12]. These objective circumstances excuse non-performance of a party s obligations under the contract [Flambouras, para. 3]. 64. Whether objective circumstances or non-personal barrier, late performance by Specialty Devices is the impediment that prevented Respondent s performance. Claimant, in its Request for Arbitration, even subscribes to the late delivery of the processing units as the impediment that caused Respondent s breach. Claimant admits that when Respondent anticipated its late delivery the unavailability of the processing units [RfA, p. 6, para. 12; Cl. Ex. No. 2, p. 10] and goes on to admit that as a result, delivery of the control system could not be expected before the middle of January 2011 [Id.]. 65. Accordingly, the Tribunal should rule that Specialty Devices late delivery was the impediment that prevented Respondent s performance. ii. Specialty Devices late delivery was beyond Respondent s control 66. Specialty Devices late delivery of the units was beyond Respondent s control. A party has control within the meaning of the CISG only over the economic risks likely to occur under performance of a contract [Vine wax case], for example, the risk that a supplier does not deliver [Stoll/Gruber in Schlechtriem, p. 816, para. 18]. Generally, absent parties agreement on risk allocation, the procurement risk for performance falls on the seller [Stoll/Gruber in Schlechtriem, p. 812, para. 12; Huber/Mullis, p. 259; Magnus in Staudinger, p. 692, para. 16]. Yet, in this particular case Respondent did not undertake to bear the economic risks for performance of the Contract, regardless of Claimant s and Respondent s failure to agree on risk allocation [PO No. 2, CQ 4, p. 46]. 67. Instead, Claimant implicitly accepted the risk of Specialty Devices late delivery. By implicitly directing Respondent to use processing units which could only operate with the D-28 chips [PO No. 2, CQ 12, p. 47], Claimant restricted Respondent to rely exclusively on Specialty Devices performance. Claimant demanded superior technology [RfA, p. 5, para. 6] and the D-28 chip was the only one to give such performance and it was to remain that way for another six months [RfA, p. 5, para. 9]. By directing Respondent to such a limited product, Claimant took the risk associated with Specialty Devices potential failed performance without any alternatives to remedy. Consequently, the breach caused by this exact impediment for which Claimant set all the conditions was beyond its control. MEMORANDUM FOR RESPONDENT 19

68. Even if without Claimant s implicit risk allocation Respondent is still exempt from liability, as the seller does not bear the risk of performance when it had no control over the choice of the third person because that third person enjoys a monopoly in the supply of goods or services required by the contract [CISG-AC Opinion No. 7, para. 20]. 69. Respondent had no control over Specialty Device s choice of High Performance in the supply chain. Respondent needed Specialty Devices processing units, as they were the core element of the master control system for the M/S Vis [RfA, p. 5, para. 8]. Specialty Devices involved High Performance in the supply chain, as it specifically designed the processing units to use High Performance s D-28 super chip. Specialty Devices chose High Performance because its chips lived up to Claimant s standards: they were unique and the latest technology available on the market [PO No. 2, CQ 12, p. 27; RfA, p. 5, para. 9; Cl. Ex. No. 7, p. 13]. Respondent had no control over Specialty Devices choosing High Performance to manufacture the chips. 70. Specialty Devices faced a monopoly as High Performance was the only supplier of the D- 28 chip [RfA, p. 5, para. 9]. Therefore, when the D-28 chips were unavailable for Specialty Devices processing units, Respondent was left with no alternative but to accept Specialty Devices delay. Respondent could only perform its obligation under Claimant s high demands by using Specialty Devices units, which could only served to that purpose by using the specific D-28 chips [RfA, p. 5, para. 9; PO No. 2, CQ 12, p. 47]. 71. Respondent had no control over Specialty Devices choice of a monopolistic supplier, i.e. High Performance. This, together with the fact that Specialty Devices was also the only supply source of useful processing units, prevented Respondent from having any control over the economic risks of the contract. Therefore, the Tribunal should rule that Respondent had no control over Specialty Devices late delivery of the processing units, being thereby exempt under Article 79(1) CISG. iii. Respondent could not foresee Specialty Devices late delivery of the processing units 72. Respondent could not reasonably foresee Specialty Devices late delivery. Foreseeability depends on whether Respondent could reasonably be expected to have allowed for Specialty Devices delay at the time of the conclusion of the contract [Article 79(1) CISG], considering the circumstances at that time and taking into account trade practices [Schwenzer in Schlechtriem, p. 1068, para. 13]. The fire was not the impediment, which prevented MEMORANDUM FOR RESPONDENT 20

Respondent s and Specialty Devices performances. Then, contrary to Claimant s assertions [MfC p. 21, para. 80], Respondent and Specialty Devices should not have taken such impediment into account. 73. There were no circumstances at the time of the Contract that should have led Respondent to reasonably foresee that Specialty Devices would not perform on time. In fact, the production of the chips used by the processing units started just as scheduled, by middle August 2010 [RfA, p. 6, para. 12]. The fact that Claimant and Respondent allowed for ample time for performance under the contract shows parties foresaw accounted for any risk of slight delays [RfA, p. 5, para. 9]. Moreover, Specialty Devices allocated ample time by ordering the chips from High Performance about seven weeks before the fire occured [Cl. Ex. No. 3, p. 11]. A slight delay is foreseeable, but unusually long delays cannot be contemplated or intended by the parties at the time of contracting [Dickenson v. Iowa]. Respondent allocated extra time as slight delays are reasonably contemplated, but several months caused by a complete shut down of a monopolistic supplier is unreasonably long and outside the scope initially contemplated [Id.]. 74. Accordingly, there were no circumstances at the time of the Contract that could make Respondent reasonably foresee that Specialty Devices would not deliver on time the processing units for the master control system. The Tribunal should rule then that Respondent is exempt from liability for its breach under Article 79(1) CISG. iv. Respondent could not reasonably overcome Specialty Devices late delivery of the processing units 75. Specialty Devices late delivery of the processing units was an unforeseeable impediment that Respondent could not have reasonably overcome. To reasonably overcome means to take the necessary steps a reasonable third person, in the same circumstances as Respondent, would take to prevent the consequences of the impediment [Chengwei, para. 4.5; Stoll/Gruber in Schlechtriem, p. 817, para. 23]. 76. Respondent could not overcome Specialty Devices late delivery of the processing units. A timely delivery of Specialty Devices units was the only thing that would serve Respondent to fulfill its obligation under the Contract. Yet, Respondent had no per se obligation to try to overcome the lack of the D-28 chips. Even if such obligation existed, High Performance s monopolistic control of the D-28 chips made it impossible for Respondent to overcome Specialty Devices late delivery. Specialty Devices was the only source of processing units MEMORANDUM FOR RESPONDENT 21

that Respondent could use in order to perform as Claimant required [PO No. 2, CQ 12, p. 47]. The failure of the single source of supply is a valid excuse for non-performance [Spivack; CISG-AC Opinion No. 7, para. 25]. High Performance had the monopoly of the D- 28 chips [RfA, p. 5, para. 9] and Specialty Devices designed its processing units to contain these super chips [Id.] to fulfill Claimant s demands for the latest in technologies, superior to anything otherwise available on the market [RfA, p. 5, para. 6]. A seller is exempt from liability when it is not possible to find goods of similar quality on the market [Iron molybdenum case] and this case presented no alternatives to use any other sort of processing unit or any other chip. 77. Furthermore, Respondent could not reasonably overcome the late delivery of the processing units by directly resorting to the supplier of the chips, High Performance. Respondent had no dealings with High Performance [SoD, p. 38, para. 9; PO No. 2, CQ 13, p. 47]. There was no privity, no prior dealings, nor even any knowledge of their respective existence between these parties at the time of contract [Id.]. Contacting High Performance was thus no measure Respondent could take. Respondent was in no position to resort to Atlantis Technical Solutions the company which received all D-28 stock after the fire. 78. Respondent could not reasonably overcome Specialty Devices late delivery of the processing units. As a consequence, the Tribunal should rule that Respondent is exempt from liability under Article 79(1) CISG. 3. Specialty Devices is exempt under Article 79(1) CISG 79. Specialty Devices is exempt from liability under Article 79(1) CISG as its breach was due to an impediment (i) that was beyond its control (ii), unforeseeable (iii) and that it could not overcome (iv). i. High Performance s late delivery was the impediment that caused Specialty Devices breach 80. Specialty Devices impediment was High Performance s late delivery of the D-28 chips [SoD, p. 38, para. 7]. Claimant misleads the Tribunal [MfC, p. 20, paras. 75-76] because the fire at High Performance s plant in itself was not the impediment that prevented Specialty Devices from performing its obligations. The fire was only an impediment for High Performance and its own obligation to deliver the D-28 chips to Specialty Devices. MEMORANDUM FOR RESPONDENT 22

81. As non-performance by another party qualifies as an impediment under the CISG [Chengwei, para. 4.2], High Performance s late delivery of the chips qualifies as impediment under the CISG. Furthermore, when Specialty Devices informed Respondent about its delay [RfA, p. 6, para. 12], it explained that it expected delivery of the D-28 chips from High Performances by the beginning of November 2010. Specialty Devices, in its turn, expected to deliver Respondent the processing units at the end of November 2010 [Id]. This shows that Specialty Devices late performance was due to High Performance s own failure to deliver the chips on time. 82. The Tribunal should therefore rule that High Performance s late delivery was the impediment that barred Specialty Devices from delivering the processing units to Respondent on time. This exempts Specialty Devices from liability for its breach under Article 79(1) CISG. ii. High Performance s late delivery was beyond Specialty Devices control 83. High Performance s late delivery of the chips was beyond Specialty Devices control. Control includes having control over the economic risks that are likely to occur during performance of a contract [Vine wax case], one of these risks being failed delivery by a supplier [Stoll/Gruber in Schlechtriem, p. 816, para. 18]. A seller, however, does not bear the risk when it faces a monopoly on the side of its supplier [Schlechtriem, pp. 613-17; Spivack]. Here, Specialty Devices did not bear the risk for its supplier s, High Performance s, late delivery of the D-28 chips, because High Performance s monopolistic situation prevented Specialty Devices from controlling any economic risks. 84. Moreover, in exceptional cases a seller is not liable if it has no control over the choice of a third person [Southerington] when that third person enjoys a monopoly in the supply of goods or services [CISG-AC Opinion No.. 7, para. 20; Vine Wax Case]. Here, it cannot be admitted that Specialty Devices chose High Performances for the delivery of the D-28 Chips. Specialty Devices had one choice of that could produce the technology powerful enough to meet the high demand outlined by Claimant. This monopolistic situation made it impossible for Specialty Devices to have any control over the risks associated with this part of their performance of the contract. Therefore, High Performance s late delivery of the chips is an impediment beyond Specialty Devices control. MEMORANDUM FOR RESPONDENT 23

iii. Specialty Devices could not foresee High Performance s late delivery of the chips 85. High Performance s late delivery of the chips was unforeseeable. Foreseeability depends on whether Specialty Devices could be expected to have allowed for High Performance s delay at the time of the conclusion of the contract [Article 79(1) CISG; ICC Award 7197/1992; Coal case], considering the circumstances at that time and taking into account trade practices [Schwenzer in Schlechtriem, p. 1068, para. 13]. Specialty Devices made the order for the chips allowing for ample lead time seven weeks [Cl. Ex. No. 3, p. 11]. High Performance then started to produce the chips according to schedule by the middle of August [RfA, p. 6, para. 12]. Since performance after the commencement of production continued per the terms of the contract, Specialty Devices could not reasonably foresee at the time of the execution of the contract an impediment like late delivery of the D-28 chips, regardless of the delay s cause [PO No. 2, CQ 8, p. 47]. 86. Therefore, the Tribunal should rule that High Performance s late delivery of the chips was an impediment unforeseeable for Specialty Devices. iv. Specialty Devices could not reasonably overcome High Performance s late delivery of the chips 87. Specialty Devices could not reasonably overcome the consequences of High Performance s late delivery of the D-28 chips without compromising the performance of the units required by Respondent. There were no chips similar to the D-28 on the market that could guarantee comparable performance [RfA, p. 5, para. 9; PO No. 2, CQ 12, p. 47]. A seller is exempt from liability when there is only one available source of supply [CISG-AC Opinion No. 7, para. 25]. High Performance was the only supplier Specialty Devices could resort to in order to get the unique chips [RfA, p. 5, para. 9] it needed for the processing units [RfA, p. 5, para. 8]. Even a complete redesign around a substitute chip with a different specification to the D-28 would have involved severe delay and costs while providing no guarantee of comparable performance given the unique qualities of the D-28 [PO No. 2, CQ 12, p. 47]. Specialty Devices was forced to accept High Performance s late delivery of the chips, thereby delaying its own performance towards Respondent. 88. Moreover, Specialty Devices could not reasonably overcome High Performance s decision to allocate all the remaining chips supply to one customer. High Performance was neither obliged by Atlantis law nor by contracts with its customers to distribute the chips on a pro MEMORANDUM FOR RESPONDENT 24

rata basis [RfA, p. 5, para. 13]. The decision by High Performance to supply Atlantis Technical Solutions because of a friendly relationship between the two companies CEOs is further proof of the futility in even attempting to negotiate a proper remedy to the impediment [Cl. Ex. No. 7, p. 15]. Even if High Performance had distributed the chips on a pro rata basis, thereby receiving Specialty Devices the chips it needed [PO No. 2, CQ 9, p. 47], that would not have been satisfactory for the majority of [High Performance s] customers [Cl. Ex. No. 3, p. 11]. Specialty Devices who was not a regular customer of High Performance nor could be expected to become one [RfA, p. 6, para. 14] nor could have influenced High Performance s decision to allocate the chips to one of its regular clients that needed a greater amount of chips. 89. Specialty Devices took all reasonable efforts in order to prevent the consequences of High Performance s late delivery of the chips. A seller is excused when it uses its efforts to assure that an exclusive source of supply will not fail [Brunner, p. 178]. As it appeared useless to try to convince High Performance to supply the chips, Specialty Devices approached Atlantis Technical Solutions. Specialty Devices offered for the small number of chips a higher price than Atlantis Technical Solutions had paid [RfA, p. 6, para. 14; Cl. Ex. No. 3, p. 11]. But Atlantis Technical Solutions refused [PO No. 2, CQ 11, p. 47]. A refusal on the part of the supplier to supply the goods discharges the seller from liability, when the seller's source of performance is limited to a particular supplier or the goods of the relevant type and description are unavailable [Metallic sodium case]. This was the case here. 90. The impediment which caused their delay was unforeseeable, beyond their control, and could not have been overcome. In conclusion, both Respondent and Specialty Devices are exempt from liability for late performance under Article 79(1) CISG. Accordingly, Article 79(2) CISG exempts Respondent from liability for its late delivery, installation and configuration of the M/S Vis master control system. III. EVEN IF THE TRIBUNAL DECIDES THAT RESPONDENT IS LIABLE FOR ITS DELAY, RESPONDENT IS NOT OBLIGED TO PAY DAMAGES TO CLAIMANT 91. Respondent is excused from late delivery. If, however, the Tribunal does not find Respondent exempt under Article 79(2) CISG, Claimant is still not entitled to recover damages. The bribery committed using the success fee Claimant paid to its broker to procure the lease of the M/S Pacifica Star, renders all costs deriving from the lease not allowable items of damages (A). This being the case, Claimant is not entitled to recover MEMORANDUM FOR RESPONDENT 25

those damages. Furthermore, even if the Tribunal considers that the lease and its associated costs are unaffected, Claimant is still not entitled to recover damages that were unforeseeable and unreasonable (B). A. THE BRIBERY COMMITTED BY CLAIMANT RENDERS ALL COSTS FOR LEASING THE M/S PACIFICA STAR NOT ALLOWABLE ITEMS OF DAMAGES 92. Claimant is not entitled to recover damages arising out of transactions procured through acts of bribery. Claimant promised, and subsequently paid, its yacht broker a success fee for securing the contract of the M/S Pacifica Star, the substitute yacht of the M/S Vis [PO No. 2, CQ 22, p. 49; RfA, p. 7, para. 18]. Claimant s broker used part of that fee to pay the assistant of the M/S Pacifica Star s owner, Mr. Goldrich, for an introduction to Mr. Goldrich [SoD, p. 38, para. 13; Resp. Ex. No. 1, p. 41]. That payment was unlawful under Pacifica criminal law, the country where the bribery was committed [Resp. Ex. No. 1, p. 41]. 93. The Tribunal should find that the illegality of that payment renders the broker s success fee illegal by applying Pacifica criminal law, which is line with the international standards Mediterraneo adopts (1). Furthermore, Claimant is also imputable by the illegal offense committed by its broker (2). This taints the lease agreement and its associated costs, rendering them unallowable items of damages (3). As a consequence, Claimant is not entitled to claim damages arising from an illegal transaction. 1. The Tribunal should apply the laws of Pacifica to find that the yacht broker s success fee is illegal 94. The yacht broker s success fee is illegal. This Tribunal should apply Pacifica criminal law to determine the illegality of the broker s success fee. Meditteraneo adopts and promotes the application of international public policy standards to international transactions. Pacifica criminal law is line with those standards (i). The Tribunal should then apply Pacifica criminal law as this would comply with Mediterraneo policy in aligning itself with international standards (ii). As a consequence of applying Pacifica criminal law the payment made using the success fee is illegal. i. Meditteraneo policy to adopt international public policy standards leads to the application of Pacifica criminal law 95. Mediterraneo public policy leads to applying Pacifica criminal law to determine the illegality of the success fee. States have a domestic and international understanding of public policy [Westacre Investments v. Jugoimport]. Mediterraneo s domestic public policy which protects MEMORANDUM FOR RESPONDENT 26

the primary values of its own society [Server] can also differ from its international public policy which encompasses general principles of morality accepted by civilized nations [Sheppard/Chance]. International public policy is in the focus of the analysis because violation of international public policy is what an enforcement court would look at to justify setting aside or deny enforcement of an arbitral award [Article V(2)(b) NY Conv.]. 96. In this case, corruption whether in the form of private or public bribery [Hwang/Lim, para. 87] is precisely one of the aspects that pertain to international public policy [Alqudah, pp. 67-79]. The criminalization of private bribery in international transactions is a growing concern in the international community [Articles 18 and 21 UN CAC; Articles 7 and 8 CLCCCE; Article 4(1)(f) AUCPCC; CICA Interim Report]. Even though Mediterraneo s domestic public policy does not criminalize private bribery [Resp. Ex. No. 1, p. 41], Mediterraneo s international public policy aspires to align to international standards which do criminalize private bribery. For example, Mediterraneo is signatory to the CISG, the New York Convention and also to the OECD Convention [PO No. 2, CQ 27, p. 49; RfA, p. 7, para. 20]. This shows that Mediterraneo tries to align to international public policy standards in line with best practices in international transactions. 97. This Tribunal s criminalization of the bribery committed with the success would be in line with Mediterraneo intent to adopt international public policy standards. For that purpose, this Tribunal should apply Pacifica criminal law which, in line with international standards, criminalizes private bribery. 98. Pacifica criminal law is in line with Mediterrano policy of adopting international standards. Despite Claimant s assertions to the contrary [MfC, p. 34, para. 128] Article 1453 Criminal Code of Pacifica shows that Pacifica public policy advocates the prevention of private bribery in international transactions using intermediaries, also known as brokers [See Sayed pp. 191-192; Scherer, pp. 37-40; Crivellaro pp. 119-144]. Article 1453 of the Criminal Code of Pacifica, criminalizes committing private bribery through intermediaries, considering both paying a success fee and receiving a success fee to obtain business as unlawful. 99. By applying Pacifica criminal law in line with international standards against private bribery, this Tribunal would be complying with Mediterranneo's objectives in aligning itself with international standards. As a consequence of applying Pacifica law, those acts considered criminal offenses under Pacifica law are also criminal offenses under the Contract. This MEMORANDUM FOR RESPONDENT 27

Tribunal should therefore apply Pacifica criminal law to determine the illegality of the success fee [ICC Award 6294/1991]. ii. The payment made using the yacht broker s success fee was illegal 100. Claimant s broker violated Pacifica criminal law. It is unlawful to pay an employee of a third person in order to obtain business with that third person [Article 1453(1) Criminal Code of Pacifica]. The aim of private bribery through intermediaries is to induce consent to a contract [Watts; Lennards v Petroleum; Article 21 UN CAC]. The primary element of bribery is the intent or purpose to bribe as inferred from objective factual circumstances surrounding the offense [UNCC, Article 28]. 101. Claimant promised to pay its broker a USD 50,000 success fee in addition to the customary broker s commission to secure the lease of the M/S Pacifica Star [PO No. 2, CQ 22, P. 49]. Claimant s broker paid the assistant of the owner of the yacht part of that promised success fee to get an introduction with the owner. The intent of the broker by using the success fee was to induce the assistant s consent to obtain business with the assistant s principal, Mr. Goldrich. Even Mr. Goldrich s assistant, the receiver of the bribery, was convicted for that crime. This shows the illegality of the payment itself, for which the briber, Claimant s broker, should be held responsible. 102. This Tribunal should therefore rule that broker made an illegal payment using the success fee. This renders the success fee an unallowable item of damages, which Claimant is not entitled to recover. 2. Claimant is Imputable for the Bribery 103. Claimant is responsible for the actions of its agent, the yacht broker, and is thereby also responsible for the bribery committed by its broker. An agent binds its principal when it acts within the authority given by its principal [GC on Agency Ch. 3, Art. 2]. Claimant promised its broker a success fee of USD 50,000, in addition to the normal brokerage fee, with the express condition that the success fee will be awarded only upon securing a substitute yacht [PO No. 2, CQ 22, p. 49]. Claimant did not give any limiting instructions to its agent regarding his authority to act on behalf of Claimant [Id.]. The broker, just as any agent, had then authority to perform all acts necessary in the circumstances to secure the lease, for which Claimant authorized it [Article 9(2) CAISG]. Claimant s yacht broker used a MEMORANDUM FOR RESPONDENT 28

portion of the success fee promised to it to bribe Mr. Goldrich s assistant to gain an introduction. This introduction secured the lease of the M/S Pacifica Star. 104. With such broad authority, Claimant unveiled itself to all benefits entered into by the yacht broker on Claimant s behalf. But, Claimant cannot benefit from the work of its broker without being responsible for the excesses of its broker, as principals are liable even for unauthorized acts of its agents [Restatement]. Claimant is then bound to the illegal bribery committed by its broker, even if it appeared that it did not know about it when signing the lease [Resp. Ex. No. 1, p. 41]. When an agent commits an illegal offense, this illegality is imputed to the principal even if the principal did not know but it ought to have known that its agent would act illegally to induce consent to a contract [Watts; Lennards v Petroleum]. 105. Not only that, but Claimant ought to have known that an incentive of almost doubling its agent s commission, the agent would pursue any means necessary to procure a lease, whether legal or not even if the broker s authority was not express. The circumstances of this broad agency agreement, lacking any instructions, with the express promise that if the broker succeeded, Claimant would pay such a high sum of money and that it would even later ratify the contract with Mr. Goldrich, show that Claimant granted its broker unfettered agency. The bribe was practically within the broad authority granted by Claimant to act on its behalf. Therefore this Tribunal should find that, while acting as a representative of Claimant, the yacht broker s payment of a bribe is an act imputable to Claimant thereby holding that Claimant cannot claim damages arising from that act. 3. The Illegality of the success fee taints the lease and all its associated costs, rendering them Non-allowable Items of Damages 106. The illegal conduct which procured the lease of the M/S Pacifica taints the entire lease contract and renders all costs associated to it not allowable items of damages. Where the illegal elements of a contract cannot be separated from the contract, the whole agreement must be considered invalid [ICC Award 1110/1963]. Such is the case when bribery is an integral part of procuring a contract because illegality is intertwined with that contract [Distilling v. Liquor]. In the case of an agency agreement implicating illegal conduct, that illegal object cannot be separated from the agency agreement and the whole transaction entered into by the agent must be declared invalid [ICC Award 1110/1963]. 107. The introduction was an integral part of the lease, as it facilitated its conclusion. The broker induced the assistant s consent to get an introduction with Mr. Goldrich [Resp. Ex. MEMORANDUM FOR RESPONDENT 29

No. 1, p. 41]. This introduction made it possible for Claimant to then lease Mr Goldrich s yacht. In fact, as stated above, it was unusual for Mr. Goldrich to lease his yacht [PO No.2, CQ 21, p. 49]. If Claimant had not promised the success fee to secure the lease, there would not have been a bribe. But for the bribe, the introduction never would have taken place, and neither the lease contract. This evidences that the illegally obtained introduction [Resp. Ex. No. 1, p. 41] is such an integral part of the lease that lead to the costs Claimant is now trying to recover and its illegality cannot be separated from the transaction. 108. Moreover, and contrary to Claimant s assertions [MfC p. 33, para 123], the fact that Claimant and Mr. Goldrich did not know about the bribery when they entered into the lease is irrelevant for the purpose of invalidating the lease and its associated costs. The parties awareness of the immoral or illicit aim of the contract is not meant to lessen the sanction of nullity of the contract [Gas Turbines v. Westman]. On the contrary, it aims at reinforcing it by protecting the innocent party [Id.]. This is why the illegality of the success fee renders the lease and its associated costs invalid, regardless of the fact that Claimant and Mr. Goldrich consented to the lease unaware of the bribery. As an innocent party to this illegal act, Respondent should not be affected by its consequences nor expected to finance the illegal offences attributable to Claimant. 109. The Tribunal should then rule that the illegality of the bribery committed using the success fee taints the entire transaction. As a consequence, it renders the lease and all its associated costs unallowable items of damages, which Claimant is not entitled to recover. B. RESPONDENT IS NOT OBLIGED TO PAY CLAIMANT DAMAGES THAT WERE UNFORESEEABLE AND UNREASONABLE 110. Even if the Tribunal considers that there is no bribery under the applicable law, or that bribery does not taint the entire transaction, Claimant is still not entitled to recover damages. Claimant can only recover damages for foreseeable losses [Article 74 CISG] and for reasonable mitigation costs [Article 77 CISG] resulting from Respondent s late delivery. The lease agreement; the broker s commission and success fee; and Corporate Executives ex-gratia payment are costs Respondent could not foresee (1). In addition, by paying the success fee and the ex-gratia payment Claimant failed its duty to reasonably mitigate its losses resulting from Respondent s late delivery [Article 77 CISG] (2). MEMORANDUM FOR RESPONDENT 30

1. Claimant is not entitled to recover damages that were unforeseeable for Respondent STOCKHOLM UNIVERSITY 111. Claimant attempts to recover damages Respondent could not foresee. Foreseeability depends on Respondent s subjective knowledge or representation of possible facts and circumstances at the time of the conclusion of the contract [Knapp in Bianca-Bonell, pp. 539-41; Sutton] together with its objective understanding of its own and Claimant s industry [Sutton; Propane case]. 112. At the time of the Contract Respondent could not subjectively foresee that its delay could result in Claimant leasing a substitute yacht to host a conference [RfA, p. 7, para. 18] for a client Respondent only found out about two months after signing the Contract [RfA p. 5, para. 7; PO No. 2, CQ 14, p. 47]. Considering the brokerage industry, Respondent could neither subjectively foresee that Claimant would pay its broker twice. It is not customary to pay a broker a success fee on top of the standard commission [PO No. 2, CQ 23, p. 49]. Respondent could neither foresee that Claimant would make a voluntary disbursement for an hypothetical loss of goodwill [RfA, p. 7, para. 18] 113. Respondent could neither objectively foresee any of the damages Claimant demands. Respondent understands its industry, the sale, installation and configuration of master control systems. But, Respondent has no objective understanding of Claimant s industry of conferences for demanding clients [RfA, p.5, para. 5]. 114. Even if Respondent had objectively foreseen these damages, there is no objective foreseeability in cases of uncommon damages. Uncommon damages are those exceptionally high damages, which Claimant had been able to recover only if it had informed Respondent about their probable occurrence and if Respondent had agreed to contract nevertheless [Huber/Mullis, pp. 273-274]. Specifically, Corporate Executes was a high profile organization of top level executives that denied rescheduling the event and accepting one of Claimant s other available venues [RfA, p. 6, para. 11]. This was something that a common customer, one whose behavior Respondent could foresee, had improbably done. Respondent could neither reasonably foresee the uncommonly high damages Claimant attempts to recover. Claimant is asking Respondent to pay USD 670,600 for the lease of the substitute yacht. Such amount is almost the same price of the master control system, USD 699, 950. When losses are so high, they are no longer foreseeable [see also Huber in MüKo, p. 2514, para. 31 and p. 2517, para. 39]. MEMORANDUM FOR RESPONDENT 31

115. Furthermore, Claimant knew that it was common that Respondent used [PO No. 2, CQ 6, p. 46] Specialty Devices as third party to manufacture the units of the master control system. Claimant also knew that Specialty Devices needed chips from High Performance, as it was the only source for the D-28 chips [RfA, p. 5, para. 9]. As Claimant wanted the master control system to be based on the newly developed chips, it accepted the risk of High Performance s potential breach. Even if a party may subjectively have foreseen damages arising from the late delivery of any party in its supply chain, this does not mean that Respondent can be taken to have accepted the risk of such late delivery. 116. Since Respondent did not know about the conference at the time of the Contract, and therefore not about the particular circumstances of Claimant s business with Corporate Executives either, Respondent could not subjectively or objectively have foreseen the losses Claimants now requests the Tribunal to recover from Respondent. Nor can Respondent be expected to accept risks for possible damages resulting from circumstances of which Respondent was not informed. The losses Claimant requests to recover were unforeseeable to Respondent, and Claimant is therefore not entitled to its recovery. 2. Claimant incurred unreasonable costs to mitigate its losses. Moreover, amongst these costs, the ex-gratia payment and success fee are, in themselves, not allowable as items of damages 117. Claimant failed its duty to reasonably mitigate losses resulting from Respondent s late delivery [Article 77 CISG]. Corporate Executives ex-gratia payment and the broker s success fee were unreasonable mitigation measures. Considering either the conference organization and brokerage trade usages [Stoll/Gruber in Schlechtriem, p. 790, para. 7; Article 9 CISG] no prudent business person in Claimant s position would have taken such measures [Huber/Mullis, p. 290] Thereby Respondent is not obliged to reimburse Claimant the exgratia payment (i) nor the success fee (ii). i. Respondent does not need to reimburse Claimant the ex-gratia payment 118. Claimant made a voluntary payment for a non-existent loss of goodwill, which payment Respondent is not obliged to reimburse. Claimant can recover only such payments as it was forced to undertake as direct result from Respondent s breach [Huber/Mullis, p. 386]. Therefore, Claimant s voluntary disbursement to prevent an non-existent and highly unlikely loss of goodwill was unreasonable. MEMORANDUM FOR RESPONDENT 32

119. Contrary to Claimant s assertions [MfC pp. 25, 26, paras. 94-97] Claimant has not provided the Tribunal with any evidence of suffering an actual loss of its client s goodwill or damage to its reputation. In fact, Claimant hosted the conference on time on a super yacht [Resp. Ex. No. 1, p. 41], just as Corporate Executives demanded and all guests were completely satisfied [Id.]. Claimant s statements are inaccurate [MfC p. 26, para. 96] since Corporate Executives never manifested any disappointment when Claimant informed of the M/S Vis unavailability. Corporate Executives merely expressed its dismay for changing the location [PO No. 2, CQ 20, p. 48] and insisted on hosting the conference on a substitute off-shore venue [RfA, p. 7, para. 17]. Therefore, when Corporate Executives knew about the new location on the M/S Pacifica Star, it manifested its relief [Resp. Ex. No. 1, p. 41]. 120. Furthermore, Claimant is not even able to provide any means to measure its alleged losses. Claimant recognizes this in its own submission by saying that goodwill may be difficult to measure in this instance [MfC, p. 25, para. 95]. Claimant however, still paid Corporate Executives an unreasonably high amount of USD 112,000, which equals 25% of the total costs for the lease of the substitute yacht. Claimant did not substantiate how it measured its alleged loss of goodwill to that amount. 121. Respondent agrees with Claimant [MfA, p. 23, para. 86] that loss of goodwill might be recoverable under Article 74 CISG. But Article 74 does not grant claims for immaterial damages [CISG-AC Opinion No. 6, para. 7.1; Stoll/Gruber in Schlechtriem, p. 791, para.12; Huber/Mullis, p. 279; Magnus in Staudinger, p. 648, para. 27] that do not lead to measurable financial consequences [Huber/Mullis, p. 279]. In fact, damages are a sum equal to the loss ( ) suffered [Article 74 CISG]. This means that Claimant is not allowed to recover the exgratia payment for a loss of goodwill it did not suffer and whose economic extent is not measurable [Huber/Mullis, p. 279]. Damages resulting from loss of goodwill must be "substantiated and explained concretely [Art books case]. 122. In Dye for clothes, the Barcelona Court of Appeals denied damages to the aggrieved party which did not provide evidence showing loss of clients or loss of reputation [Dye for clothes case]. In Art books, the Commercial Court of the Canton of Zurich denied reimbursement of loss of goodwill, because when a party did not substantiate such goodwill claims [Id.]. Also, in Video recorders case, the District Court of Darmstadt denied damages for loss of goodwill because the buyer was unable to calculate the exact losses resulting from the MEMORANDUM FOR RESPONDENT 33

damaged reputation [Video recorders case]. This case presents a Claimant that has neither provided evidence, substantiated their claims nor able to calculate exact losses. 123. The ex-gratia payment is therefore unreasonable since the facts do not substantiate Claimant s hypothetical circumstances for loss of goodwill. Claimant did not repudiate its contract, so it did not risk losing future businesses with Corporate Executives [PO No. 2, CQ 17, p. 48]. Corporate Executives was merely unhappy for the change of location [Id.], but it never showed any intention of breaking present or future business relationships. 124. The Tribunal should rule that the ex-gratia payment was an unreasonable means for mitigation and that Claimant is therefore not allowed to its recovery. ii. Respondent does not need to reimburse the success fee 125. Even if the Tribunal considers that the success fee is not tainted by bribery, the success fee was nevertheless an unreasonable measure taken by Claimant to mitigate losses. Success fees are not customary for yacht brokers [PO No. 2, CQ 23, p. 49]. There are offered only rarely, in exceptional circumstances [Id.]. Here, considering the brokerage industry, there is nothing to justify Claimant s paying such fee. Even if the broker had difficulties finding a suitable substitute yacht, this is part of the brokers business. Clients engage brokers precisely because the specific goods they look for are not easily accessible on the market, or because the Clients require special features [ICC Guidelines]. The reasonable reward for such efforts is the payment of the commission fee. 126. The success fee Claimant paid is nothing but a voluntary and unnecessary disbursement. Claimant may only be compensated for those payments it was forced to make as a direct result of the breach [Huber/ Mullis, p. 386]. Here, Claimant paid voluntarily. The broker did not ask for the payment, nor was Claimant was obliged to make it. Furthermore, the amount of the success fee exceeds what a prudent businessperson in Claimant s situation would reasonably pay. The success fee amounted almost as much as the commission fee itself (82,5 % of the commission fee) and thus Claimant effectively paid its broker twice. 127. By paying such a high, unnecessary, and uncommon fee, Claimant took an unreasonable measure to mitigate its loss,. Therefore, the Tribunal should rule that the success fee is not an allowable item of damages and that Claimant is thus not entitled to its recovery. * * * MEMORANDUM FOR RESPONDENT 34

128. Conclusion on Merits: This Tribunal should rule that Respondent is exempt from liability for its late delivery of the master control system, and thereby not obliged to pay damages to Claimant. Respondent is exempt because both Respondent s and its third party, Specialty Devices, attempt to perform were frustrated by impediments which were they could not control, foresee, or overcome. Even if the Tribunal does not find that Respondent is exempt, Claimant is still not entitled to recover damages for costs incurred which are not allowable items of damages. Claimant s success fee was an illegal payment used to procure the lease of the M/S Pacifica Star. The illegibility of the success fee taints the lease and renders all its associated costs unallowable items of damages. Moreover, the ex-gratia payment and the success fee are further unrecoverable, as they were unreasonable means for mitigation. Claimant is thus not entitled to recover any of the damages it claims. V. REQUEST FOR RELIEF 129. In light of the above submissions, Respondent respectfully requests this Tribunal to: 1) Decide that Dr. Mercado shall terminate her role in Claimant s legal team. 2) Decide that Respondent is exempt from liability for the late delivery of the M/S Vis master control system. 3) Decide that even if Respondent is held liable for its delay, the success fee used by Claimant s broker to commit bribe is illegal and thereby not an allowable item of damages. 4) Decide that the illegal bribe, which procured the lease of the M/Pacifica Star, renders all costs associated with the lease unallowable items of damages. 5) Decide that the ex-gratia payment is not an allowable item of damages. Respectfully signed and submitted by counsel on 19 January 2012 Brian Kotick Ragnhildur Olafsdottir Celeste E. Salinas Quero Yaroslava Sorokthey Anina Wissner Gunnar Witte On behalf of Respondent, Equatoriana Control Systems, Inc. MEMORANDUM FOR RESPONDENT 35