Vindobona Junction - Understanding the 18th Vis Problem (Part II)

The posts is this section are intended to be of assistance to the  participants in the Willem C. Vis International Commercial Arbitration Moot. Other Readers may find some of these posts too basic. Apologies for the same. However, as this section progresses, the posts will move on from being introductory and discuss topics relevant to the moot at a higher level.

In a previous post in this section, I had made some suggestions on reading the 18th Vis problem so as to comprehend the 66 page document. I guess most participants will, by now, have overcome this first hurdle. In this part, I introduce the second aspect of understanding the problem - the issues.

Having read through the documents, you know what factual occurrence lead up to the present dispute. Now what needs to be understood is what precisely is the dispute between the parties. In other words, on what points are the parties materially disagreeing with each other and seeking the adjudication of the arbitral tribunal. This will in turn decide what is called the terms of reference of the arbitral tribunal (what questions can the tribunal validly adjudicate upon) as well as what arguments are to be made by the parties.

Unlike many other moot problems, the Vis problems hardly enlist all the issues in one place. It is often for the participants to gather the issues as well as the position of each party on each issue from the large number of documents that are provided.

Here I seek to point out what are the key issues that need to be addressed by the teams participating in the moot this year. This post will merely lay down the issues and give a brief introduction to each issue. In subsequent posts, each issue will be taken up and analysed at some length.

As evident from a preliminary reading of the problem, the most important issue of dispute between the parties is the liability of the seller for supplying undersized squid to the buyer. It is this dispute that they seek to get adjudicated before the tribunal. However, in the course of such resolution, other ancillary issues have come up which also need to be adjudicated.

The buyer's argument here is that the squid being undersized violates Article 35 of the Convention on Contracts for International Sale of Goods. The Convention lays down a set of principles that govern contractual rights, obligations and liabilities akin to domestic contract laws of several states. The Convention applies to a contract for sale of goods if (i) the places of business of the parties are in different countries and either (ii) the two countries are parties to the Convention or (iii) the rules of conflict of laws results in application of the law of a state party to the Convention (the concept of conflict of laws and how the proper law of a contract is determined through conflict of law rules will be discussed in a later post).

Article 35 of the Convention states: "(1) The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract. (2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they: (a) are fit for the purposes for which goods of the same description would ordinarily be used; (b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement; (c) possess the qualities of goods which the seller has held out to the buyer as a sample or model; (d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods. (3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity." What this provision basically means is that the seller should keep his part of the bargain as to the quality, quantity and description of goods and where no such bargain has been made, act in a reasonable manner. Article 35(2) codifies such standards of reasonable conduct. Given the fact of the 18th Vis problem Article 35(2)(a), (b) and (c) are of importance.

The first defence set up by the seller in this case relies on Article 38 of the CISG which requires the buyer to examine the goods upon or after delivery. On this point, the argument basically boils down to the practicability of such examination given that de-freezing of squid for examination would make it unfit for onward sale, the purpose of purchase of the buyer in this case. Also, there could be arguments as to whether the obligation of the buyer to examine for conformity under Article 38(1) extends to such situations where examination would deprive the goods of their value. Moreover, under such circumstances, what is the standard of examination? Is it required that every piece be examined by the buyer or is the buyer's burden discharged if he examines a random sample?

Secondly, the seller also seeks to defend himself under Article 39 which states, "(1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it. (2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer, unless this time-limit is inconsistent with a contractual period of guarantee." The reasonability or otherwise of the notice will have to be argued, in this case, relying on the communications between the parties and the commercial nature of the transaction (especially the product involved).

Apart from this central dispute on contractual liability, the parties are also in disagreement on two ancillary issues - (i) the appointment of one of the arbitrators and (ii) the alleged breach of confidentiality by the buyer by speaking to the press about the dispute.

On the point of appointment of arbitrators, the issue revolves around whether the Chamber of Arbitration of Milan can decide to substitute one of the arbitrators on considerations of impartiality, where the relationship between the arbitrator and one of the parties was revealed to the other party and both the parties waived their right to object to the arbitrator on the basis of the said relationship. Usually, rules of impartiality and independence are seen as manifestations of the right to fairness of one party. However, when that party states that it does not think that the arbitrator will be unfair, can the arbitral institution still remove him and appoint a substitute arbitrator. Here, the arguments will be hinged on the arbitration rules of the Chamber of Arbitration of Milan. The relevant provision is Article 20 of the Rules and more particularly, Article 20(1)(e).

The seller has also alleged that the buyer by giving an interview about the dispute, violated the requirement of confidentiality under Article 8 of the Rules. It may be interesting here to look at not just the existence of a violation, but also the effects of a violation if proved. That is, even if the seller is able to demonstrate that the buyer has breached confidentiality, does it prejudice the buyer's case? Does it mean that the buyer has to pay compensation?

It is unlikely that much actual practice of the Chamber under the present Rules can be found as the Rules are of recent origin and came into effect as late as January 1, 2010. Therefore, the best option will be to look at interpretations given to other institutional rules worded similarly.

In subsequent posts, these issues will be discussed in some detail. Also, some prior participants in the Vis Moots (including octa finalists and quarter finalists at Vienna) have agreed to share some tips on memorial writing as well as speaking. Finally, I will also upload my claimant and respondent memorials at the 16th Vis (both of which won Honourable Mentions) for reference. So keep watching this space.