CLAIMANT had the right to avoid the contract pursuant to Art. 49(1)(b) CISG because RESPONDENT, after failing to deliver by the contract date, did not even deliver within the additional period of time (Nachfrist) [1] granted by CLAIMANT in accordance with Art. 47(1) CISG [I.]. CLAIMANT's right to avoid the contract was not restricted by an alleged right of RESPONDENT to cure according to Art. 48 CISG [II.]. So, CLAIMANT had the right to avoid the entire contract and exercised this right [III.].

I. CLAIMANT Had the Right to Avoid the Contract Pursuant to Art. 49(1)(b) CISG, as RESPONDENT Did Not Even Deliver Within the Additional Period of Time (Nachfrist) Granted by CLAIMANT in Accordance with Art. 47(1) CISG

1. RESPONDENT Failed to Perform the Contractually Defined Delivery Obligation

RESPONDENT did not deliver at all [a)]. Even if the sale and the installation of the control system were to be seen as two separable duties, the failure to install still constituted a non-delivery in the sense of Art. 49(1)(b) CISG [b)].

a) RESPONDENT Did Not Deliver at all

RESPONDENT did not deliver by 16 September 1996 as would have been required by the contract of 10 June 1996.[2] Actually, RESPONDENT never delivered in the way the parties had agreed in the contract. Art. 30 CISG provides that the seller must deliver the goods "as required by the contract", thereby emphasizing the "importance of terms to which the parties have actually agreed."[3] The contract in this case called for a computerized control system "to be installed by Seller in the facilities of Buyer."[4] The CISG guarantees the parties' autonomy both in choice of law and in formulating contractual provisions.[5] Therefore, pursuant to Art. 8(1) CISG, the term 'delivery' must be interpreted with regard to the parties' intention. According to the parties' intention, 'delivery' by RESPONDENT was defined as handing over and installing the control system. On 20 August 1996, the control system was deposited at CLAIMANT's facilities on behalf of RESPONDENT.[6] However, the system was never installed. Handing over was one necessary element of 'delivery', but it was not sufficient for fulfilling this duty, as 'delivery' is more than the physical act of transferring possession.[7] To consider this mere physical placing of the control system into CLAIMANT's facilities as a completed delivery would be to disregard the parties' agreement.

Furthermore, besides defining the place at which RESPONDENT was obliged to deliver, the contract required delivery to be completed "on or before 16 September 1996".[8] By not stating two different dates for the handing over and the installation, the parties intended a unified delivery to be made by the date that was fixed.[9] Consequently, RESPONDENT must have been well aware of the scope of the delivery duty at the time of agreement:[10] The fact that sale and installation represent an unseverable unity [11] is widely known as a usage in this particular trade,[12] so such an agreement is nothing unusual. As long as installation did not take place, RESPONDENT had not performed what had been specified as its delivery duty under the contract.

This is also supported by an interpretation according to the understanding that a reasonable person of the same kind would have had in the same circumstances, pursuant to Art. 8(2) CISG. The fact that the CISG was chosen by CLAIMANT and RESPONDENT to govern the contract in its entirety can reasonably only lead to the conclusion that RESPONDENT owes a unified and unseverable duty to deliver. By agreeing to apply the CISG to the actual sale and to the service part of the contract, the parties chose Art. 49(1)(b) CISG to deal with both elements as well. Installation became part of the obligation to deliver. RESPONDENT would have complied with its delivery obligation at the moment CLAIMANT would have been able to derive profits from the system, i.e. when the system would have been in operable condition.[13] A comparison can be made with 'turn-key contracts',[14] including both goods and services, as in the case at hand. In 'turn-key contracts' the seller's obligation is not fulfilled until the unit has been made ready for use and the 'key' has been delivered to the buyer.[15]

This interpretation is further supported by the fact that Arts. 38 and 39 CISG [16] would lose their purpose if the meaning of delivery would not include both sale and installation of the control system:[17] The buyer has the duty to examine the goods within a short period of time in order to be able to give a possible notice of lack of conformity within a reasonable amount of time. As an inoperable control system cannot be examined, the period for a notice of defect can only begin after the installation. As the duty to examine does not arise before the goods have been delivered, 'delivery' can only be fulfilled with the completed installation.[18]

In consequence, the obligation to 'deliver' included the installation of the control system. This was the parties' actual intention and the objective interpretation of the delivery duty. By not installing the control system, RESPONDENT did not deliver.

b) Even if the Sale and the Installation of the Control System Were to Be Seen as Two Separable Duties, the Failure to Install Still Constituted a Non-Delivery in the Meaning of Art. 49(1)(b) CISG

Even if the Tribunal came to the conclusion that the sale and the installation of the control system were two separable duties, RESPONDENT's non-installation still must be considered as a non-delivery in the meaning of Art. 49(1)(b) CISG. As previously stated, the CISG is applicable due to § 22 of the contract,[19] representing the parties' choice of law.[20]

Even if RESPONDENT's failure to install were not considered to be a 'non-delivery' in the wording of Art. 49(1)(b) CISG, it should nevertheless be treated as one:[21] By choosing the CISG for transactions including the supply of services,[22] the parties' could only have meant non-installation to be seen as a case of non-delivery expressly settled in Art. 49(1)(b) CISG.[23] This is substantiated as the installation-part of the contract was of such an importance for CLAIMANT that the whole intention of the contract stood and fell with its performance. Without installation the control system would not function and was therefore completely useless for CLAIMANT. In addition, the installation was of high technical complexity, as its performance needed a considerable number of working hours [24] and numerous technical skills CLAIMANT did not possess.[25] The duty to install the control system formed such a significant part of the contract, that the non-performance of the installation and testing of the control system totally impaired CLAIMANT's interests, and must therefore be subsumed under 'non-delivery' according to Art. 49(1)(b) CISG.

So, whether one classifies the delivery duty as one single or as two connected ones, in any case RESPONDENT failed to deliver. Even if it were only a non-delivery with regard to the installation, it was not a partial non-delivery according to Art. 51(1) CISG, but so serious that CLAIMANT was allowed to avoid the contract in its entirety, as will be shown below.[26]

2. CLAIMANT Fixed an Additional Period of Time of Reasonable Length in Accordance with Arts. 49(1)(b) and 47(1) CISG

As RESPONDENT failed to perform its obligation by 16 September 1996, CLAIMANT fixed an additional period of time for performance. On 18 September 1996, CLAIMANT demanded performance by expecting "the system to be fully installed and operational by 9 October 1996 at the latest."[27] By doing so, CLAIMANT fixed a specific and final period. Pursuant to Art. 47(1) CISG, the additional period of time must be of reasonable length.[28] In the light of the parties' interests, CLAIMANT's Nachfrist of three weeks was reasonable. Firstly, CLAIMANT's interest in rapid delivery was apparent upon conclusion of the contract and after many weeks of constant reminding of the nearing date.[29] The control system utilized a new technology available in the control of the paper making process [30] and, as in any competitive industry, it is vital to take advantage of such new technologies.[31] CLAIMANT was pressed to get the control system up and running, as the depreciation of such investments is very fast. Secondly, the date of installation kept being pushed out further and further,[32] so CLAIMANT had to draw the line somewhere in order to clarify whether the fear that RESPONDENT would not perform within a reasonable time was warranted.[33] Thirdly, the length of the original time allotted for the installation and final testing by Reliable justified the length of the additional period. On 26 August 1996, the team of Reliable was scheduled to arrive in Mediterraneo and three weeks later, on 16 September 1996, Reliable should have completed the installation and final testing.[34] As Reliable itself estimated the necessary time for installation at about two weeks,[35] three weeks total time were more than enough. This argument is further supported by the fact that RESPONDENT would even have had enough time to recruit a different company for the installation.[36] Three other companies were potentially available that on occasion accept commissions on as little as one week's notice. They all agreed that the job itself should take two weeks.[37] Therefore the adequacy of the additional period of time of three weeks is not lessened by RESPONDENT's necessity to look for another company. In the light of these circumstances, the Nachfrist fixed by CLAIMANT balanced the interests of both parties in a fair solution.

3. RESPONDENT Did Not Deliver even Within the Additional Period of Time

RESPONDENT was well aware that the Nachfrist was reasonable, as it had never distinctively objected to it. At the end of the additional period of time, RESPONDENT had neither begun with the installation of the control system at CLAIMANT's facilities nor had looked for another company to fulfill the obligation.[38] Even assuming that CLAIMANT would have been satisfied if the installation had only begun by the deadline of 9 October 1996, as RESPONDENT wrongly supposed in its letter to Reliable of 18 September 1996,[39] RESPONDENT failed to perform. Reliable had not yet arrived on 9 October 1996. Therefore, even within the Nachfrist RESPONDENT failed to perform the contractually defined delivery obligation, in the same way described above.[40] In consequence, CLAIMANT was allowed to avoid the contract.

II. CLAIMANT's Right to Avoid the Contract Was Not Restricted by an Alleged Right of RESPONDENT to Cure According to Art. 48 CISG

1. RESPONDENT Had no Right to Cure as Art. 48 CISG is Subject to Art. 49 CISG

Art. 48(1) CISG states that it is "[s]ubject to Art. 49 CISG". This reservation [41] leaves no doubt concerning the relationship between these two articles: The right to cure pursuant to Art. 48(1) CISG only exists so long as no steps in accordance with Art. 49 CISG have been taken. In our case CLAIMANT granted an additional period of time in the meaning of Art. 49(1)(b) in conjunction with Art. 47(1) CISG. This led to Art. 49(1)(b) CISG taking precedence over Art. 48(1) CISG.[42] There would be no sense in applying both Art. 47 and 48 CISG simultaneously as they govern the same issue.[43] Art. 48(1) CISG provides the possibility for the seller to perform after the contractual date and Art. 48(2) CISG is intended to give the seller a means of clarifying the question of how long buyer would still accept performance.[44] Both issues are dealt with when the buyer sets a Nachfrist: The seller has the possibility to cure and he is well informed about the time-frame within which he has to do so. Thus, in this case there is no need and no possibility to apply Art. 48 CISG.

These arguments are further supported by the legislative history of Art. 48 CISG: The then Federal Republic of Germany suggested an amendment that the seller may not make a request if the buyer has already fixed a period for performance.[45] The amendment was withdrawn because it was common opinion that its content was already implied by the final version of Art. 48 CISG.

It is of no significance that RESPONDENT had asked in its letter dated 18 September 1996 whether CLAIMANT might accept its delivery. There was no need for CLAIMANT to answer this inquiry as RESPONDENT had no right to cure under Art. 48 CISG.

2. Even if RESPONDENT Had Attained a Right to Cure, it Could Not Have Remedied Without Unreasonable Delay

If the Tribunal came to the conclusion that in this case Art. 48 CISG were to be applied simultaneously with Art. 49(1)(b) CISG in conjunction with Art. 47(1) CISG, it would have been necessary for RESPONDENT to remedy its failure to perform "without unreasonable delay".[46]

In literature, the period of time to cure asked for in accordance with Art. 48(2) CISG must be reasonable in the meaning of Art. 48(1) CISG.[47] Otherwise, the buyer's legal position would be prejudiced substantially, since he would not be protected by a maximum time-limit for cure. CLAIMANT had already fixed a Nachfrist of three weeks, which was reasonable under the given circumstances, as shown above.[48] So any longer period of time could not be regarded as being reasonable. RESPONDENT's suggested time-frame of six weeks, twice as long as the reasonable Nachfrist fixed by CLAIMANT, was definitely unreasonable. This could not be assumed to balance the interests of both parties, since it was also more than twice the time that was actually needed to accomplish the job.[49] Therefore after 9 October 1996 any further delay was unreasonable.

3. Any Additional Period of Time Alleged by RESPONDENT According to Art. 48(2) CISG Had Been Rejected in Advance by CLAIMANT's Nachfrist, and Therefore CLAIMANT's Silence Did Not Amount to an Acceptance of any Other Prolongation

Even presuming RESPONDENT had had a right to cure and that such cure would have been possible "without unreasonable delay" according to Art. 48(1) CISG, Art. 48(2) requires that CLAIMANT did not reject RESPONDENT's suggestion to cure. CLAIMANT had already fixed an additional period of time which constituted an anticipated rejection of any other prolongation RESPONDENT might request.[50] The meaning of CLAIMANT's letter was unequivocal. It was additionally enhanced as RESPONDENT's Nachfrist was combined with a refusal to accept performance after the expiration of this period.[51] By threatening sanctions [52] and by stating that the system was expected "to be fully installed and operational by 9 October 1996 at the latest",[53] CLAIMANT stated that it would refuse to accept performance in satisfaction of RESPONDENT's delivery obligation after the given date. CLAIMANT obviously intended to render the contract void after the expiration of the additional period of time, as statements of this kind sufficiently make the intention to avoid the contract evident or even represent a conditional declaration of avoidance.[54]

It is thus evident that RESPONDENT had to be well aware of the fact that a prolongation of CLAIMANT's Nachfrist would have been unacceptable. The intention of Art. 48(2) CISG is to offer the seller a means of clarifying the situation,[55] as to whether or not the buyer would still accept later performance. The rejection made by CLAIMANT, no matter whether in advance or not, did not leave RESPONDENT in any uncertainty. CLAIMANT's Nachfrist and the refusal to accept performance after 9 October 1996 had already amounted to a rejection of any later inquiry by RESPONDENT and therefore, a repeated rejection by CLAIMANT was superfluous. Thus, CLAIMANT's silence did not amount to an acceptance in the sense of Art. 48(2) CISG.

If the Nachfrist was seen to be combined with a conditional declaration of avoidance, a different period of time suggested by RESPONDENT would constitute an offer for a new contract consisting of the installation of the system. RESPONDENT's letter of 19 September 1996 would then have been the offer for a new contract to which the general contract formation rules must be applied. Thus, according to Art. 18(1) CISG, mere silence could never be seen as CLAIMANT's consent.[56]

RESPONDENT's letter dated 19 September 1996, including the purported Nachfrist, ended with the words "I await your reply."[57] This shows that RESPONDENT wanted to receive an express acceptance of the alleged Nachfrist and with that an express annulment of the additional period of time fixed by CLAIMANT.[58] Consequently, in the given circumstances mere silence in response to that letter could again not be deemed to constitute CLAIMANT's acceptance, resulting as a general principle from Art. 18(1) CISG.[59]

For all these reasons, CLAIMANT's notice of an additional period of time ending on 9 October 1996 remained standing as CLAIMANT was not obliged to counter RESPONDENT's alleged Nachfrist with an additional rejection.

4. Even If RESPONDENT Was to Be Allowed to Unilaterally Change the Additional Period of Time for Performance it Did Not Make a Request in Accordance with Art. 48(2) CISG but only Made a Mere Inquiry Without Legal Significance

Upon receipt of CLAIMANT's notice fixing the additional period of time ending on 9 October 1996, RESPONDENT replied by fax on 19 September 1996, admitting that "it is clear that the control system must be installed at your plant promptly",[60] thereby agreeing to the Nachfrist procedure commenced by CLAIMANT. RESPONDENT's acceptance of the Nachfrist is supported by the fact that it forwarded CLAIMANT's letter of 18 September 1996 to Reliable.[61] From the wording - "If we have to turn to a different installation firm, it will take an additional several weeks to complete the job"[62] - it was obvious under the circumstances prevailing at that time that RESPONDENT made no request in the meaning of Art. 48(2) CISG but merely suggested that CLAIMANT reconsider the Nachfrist in case of Reliable's non-performance "within the next three weeks."[63] Therefore, RESPONDENT's letter had to be seen as a mere inquiry without any legal consequences. This interpretation is further supported by the factual circumstances: At the time the letter was sent[64] it was apparent that the three week deadline in the notice of the Nachfrist fixed by CLAIMANT could only be met if Reliable would be able to send the installation team to Mediterraneo within the following week,[65] or if RESPONDENT turned to a different company within the next few days.[66] Reliable promised RESPONDENT to give a firm date for the team's arrival by 20 September 1996.[67] This means that on 19 September 1996, RESPONDENT could only speculate on the future development. An actual request could only have been sent the following day, after Reliable's notice had clarified this uncertainty. Only if Reliable gave a negative answer the following day, the suggestion of 30 October 1996 as a deadline would have been more convenient for RESPONDENT. Since RESPONDENT had not yet received a definite cancellation from Reliable, it had no reason to place an official request. As the communication was of no legal significance, RESPONDENT was not allowed to derive any rights from CLAIMANT's lack of response nor to regard it as an acceptance. Summing up, CLAIMANT's right to avoid the contract was not restricted since RESPONDENT made a mere inquiry.

III. CLAIMANT Had the Right to Avoid the Entire Contract and Exercised its Right

1. Art. 51 CISG Providing Partial Avoidance of the Contract Is Not Applicable, Since RESPONDENT's Delivery Obligation Did Not Consist of a Number of Separate Items

Art. 51(1) CISG limits the buyer's right to avoid the contract to the part which is missing or which does not conform with the contract, if performance can be divided into independent parts.[68] Important is that a number of separate items make up the sale, as in the ICC Court of Arbitration case of 23 August 1994,[69] where several separately listed and valued machines were to be sold and installed. Art 51(1) CISG, however, is not applicable where the delivery duty consists of one obligation unifying several constituent parts of which one is missing.[70] RESPONDENT, as shown above,[71] had a single and indivisible obligation: the delivery of an installed and tested new control system. Delivery could not be achieved before this system was installed in CLAIMANT's facilities, and neither the control system nor the installation was a part of RESPONDENT's obligation that could stand alone. CLAIMANT consequently did not have to avoid the contract only in regard to the installation part, since the requirement of divisible performance in Art. 51(1) CISG was not met and this article therefore did not apply.

2. Even if the Delivery Obligation Did Consist of Separate Items, Art. 51(2) CISG Still Allowed the Contract to Be Avoided in its Entirety, as the Control System Was Useless Without Installation

Even if the Tribunal came to the conclusion that the contractual obligation was divisible after all, RESPONDENT's failure to install the control system still left CLAIMANT the right to avoid the contract in its entirety. According to Art. 51(2) CISG, the contract can be entirely avoided, if the failure to deliver completely amounts to a fundamental breach of the contract.[72] Art. 51(2) CISG would apply for example to the delivery of computer-hardware without appropriate software. Since having one without the other is of no use, the whole contract can be avoided, although only the software is outstanding.[73] The same can be said in this case: Although, after expiration of the Nachfrist, the part of the contract concerning the installation could have been avoided,[74] this uncompleted delivery was of no interest to CLAIMANT. It entered into the contract with RESPONDENT so as to obtain a control system that was installed and tested in its facilities. Without the installation, the bare control system would not function at all. This again would deprive CLAIMANT substantially of what it was entitled to expect under the contract and would render the control system entirely useless. Such a result could have been foreseen by RESPONDENT at the time the contract was concluded.[75] Thus, CLAIMANT's contractual expectations were frustrated, leading it to validly avoid the contract in its entirety.

RESPONDENT cannot argue that CLAIMANT had a duty to undertake the installation itself and then claim compensation for the cost of installation by a third party according to Art. 74 CISG. CLAIMANT itself could not turn to an installation company during the additional period of time pursuant to Art. 47(1) CISG, as RESPONDENT could still decide on how to remedy its failure to perform.[76]

An alleged duty of CLAIMANT to repair after expiration of the grace period cannot be assumed because any repair effected on its own initiative might have led to a disagreement on whether any damages were caused by a defect of the control system itself or by a fault in the subsequent installation by an independent third party. Furthermore, the guarantee given by RESPONDENT as to the performance of the control system would have lost its validity.[77] The costs of the installation (at least $30,000) would have had to be advanced by CLAIMANT and taking destroyed trust between the parties into account, it is doubtful if RESPONDENT would have reimbursed these expenses.

Even if the obligation to install was regarded as a part of RESPONDENT's entire obligation to deliver that could stand alone, its non-performance made the sole control system become useless. Consequently, CLAIMANT was entitled to declare the contract avoided in its entirety pursuant to Arts. 49(1)(b) and 51(2) CISG.[78]

3. CLAIMANT Exercised its Right to Declare Avoidance of the Contract

Once the additional period of time fixed by CLAIMANT in accordance with Art. 47(1) CISG had elapsed and RESPONDENT had still not delivered, CLAIMANT declared avoidance of the contract pursuant to Arts. 26 and 49(1)(b) CISG. By notifying RESPONDENT of the avoidance on 9 October 1996,[79] it became effective in accordance with Art. 26 CISG.

Alternatively, if the sending of the control system was not to be regarded as a non-delivery, but only as a partial one, the reasonable period of time stated in Art. 49(2)(b)(ii) CISG must be observed. As the additional period of time ended the same day avoidance was declared, i.e. on 9 October 1996, the declaration of avoidance was also within a reasonable time according to Art. 49(2)(b)(ii) CISG.

Issue 2: CLAIMANT Was Authorized by Art. 88 CISG to Sell the Control System on 4 April 1997, and Did so by an Appropriate Means

CLAIMANT was entitled to sell the control system on 4 April 1997 [I.] and did so by an appropriate means [II.]. Therefore, RESPONDENT must comply with the legal consequences consisting of the payment of the outstanding sum plus interest [III.].

I. CLAIMANT Was Authorized to Sell the Control System According to Art. 88(1) CISG

CLAIMANT was authorized to sell the control system on 4 April 1997 according to Art. 88(1) CISG as it was bound to preserve the control system according to Art. 86(1) CISG [1.], RESPONDENT refused [80] to take back the control system [2.], and CLAIMANT had given it reasonable notice of its intention to sell [3.].

1. CLAIMANT Was Bound to Preserve the Control System According to Art. 86(1) CISG, Since it Had Validly Avoided the Contract and Intended to Exercise its Right to Reject the Control System

As a precondition of Art. 88(1) CISG the buyer must be bound to preserve the goods pursuant to Art. 86(1) CISG. CLAIMANT was bound to preserve the control system, since it had validly avoided the contract and therefore intended to exercise its right to reject the control system. As shown above,[81] CLAIMANT validly avoided the contract on 9 October 1996.[82] By means of avoidance the contract ceases to exist, i.e. the buyer has the right to reject the goods he received under it.[83] As CLAIMANT intended to reject the control system that had been in its possession since 20 August 1996, CLAIMANT was first bound to preserve it.[84]

2. RESPONDENT Unjustifiedly Refused to Take Back the Control System

a) RESPONDENT Unjustifiedly Refused to Retrieve the Control System at CLAIMANT's Place of Business Although CLAIMANT Had Correctly Placed it at RESPONDENT's Disposal

The modalities of concurrent restitution after avoidance of contract are not explicitly settled in the CISG. Art. 31 CISG only settles the place of delivery under the contract. Aiming at defining a uniform place for restitution, literature holds the undisputed view[85] that the place for restitution after having avoided the contract must be seen as a 'other case' according to Art. 31(c) CISG. As the parties' roles are reversed,[86] the goods must be held at the seller's disposal at the buyer's place of business. The control system had been stored at CLAIMANT's facilities since the day it had been delivered, and was held there at RESPONDENT's disposal as soon as the contract was avoided.[87] CLAIMANT had offered the control system to RESPONDENT in a correct way. In this view, RESPONDENT's demand that CLAIMANT return the control system to RESPONDENT's localities[88] was unfounded and contrary to Art. 31(c) CISG. As CLAIMANT had correctly offered the control system, it had performed its obligation under restitution.

b) Even if the Place of Restitution Was Not at CLAIMANT's Facilities, RESPONDENT Failed to Take Back the Control System as it Unjustifiedly Refused Reimbursement Under Restitution

According to Art. 81(2) CISG, restitution of what has been supplied and paid under the contract has to occur concurrently after avoidance of the contract. Concurrent restitution means that the buyer can refuse to return the goods if the seller does not offer to restitute the price.[89] CLAIMANT did not have to return the control system unless RESPONDENT performed its corresponding obligation, i.e. reimbursed the $400,000 that had been paid under the contract on 22 August 1996.[90] RESPONDENT refused restitution by clearly stating in its letter of 17 February 1997 that it would not reimburse the $400,000.[91] Rather, it intended to deduct $70,000 in alleged damages it supposed to have suffered through avoidance of the contract by CLAIMANT.[92] It founded its right on a purported breach of contract by first claiming that the granted Nachfrist was not reasonable and by secondly asserting a right to cure that no longer existed.[93] However, as has been shown above,[94] CLAIMANT validly avoided the contract because of RESPONDENT's breach of contract due to non-delivery even within the additional period of time, and therefore did not breach the contract itself.

In any case, restitution had to be made even if RESPONDENT did not agree with the avoidance of the contract: Pursuant to Art. 26 CISG, the avoidance of contract is effective as soon as notified to the other party, since it is merely a unilateral declaration that need not be endorsed by the addressee.[95] CLAIMANT, according to the principle that "a party may suspend performance if the other party does not perform a substantial part of his obligations",[96] had the right to retain the control system so as not to give away a security for its own claim for reimbursement of $400,000.[97]

3. CLAIMANT Gave Reasonable Notice of its Intention to Sell the Control System

In its letter of 13 March 1997, CLAIMANT notified RESPONDENT of the impending sale of the control system[98] in a reasonable way according to Art. 88(1) CISG. Its reason was not to obtain RESPONDENT's permission for the resale, but to give RESPONDENT an opportunity to undertake the corresponding omitted steps that were necessary to avoid the sale.[99] RESPONDENT was to be given a last chance to indicate its willingness to pay the required $400,000. The period of ten days CLAIMANT granted RESPONDENT was a reasonable time to prevent the sale, for a telephone call indicating its willingness to pay the sum would have sufficed.[100] Thus, CLAIMANT gave reasonable notice of the sale and was left with no other choice than to conclude the 'self-help sale'.

II. The Sale Was by an Appropriate Means

Art. 77 CISG states the general obligation of the party who relies on a breach of contract to take such measures as are reasonable to mitigate the loss resulting from the breach. More specifically, pursuant to Art. 88(2) CISG, the buyer who is bound to preserve the goods in accordance with Art. 86 CISG must take reasonable measures to sell them, if the goods are subject to rapid deterioration. The term 'deterioration' makes obvious that not only perishableness, but also economic loss of value of the goods obliges the buyer to undertake a resale.[101] At the time the 'self-help sale' was concluded, the control system represented a model that had existed on the market for about one year. In the domain of technology, every week that passes is a milestone in the process of aging. About one year's presence on the market had lessened the worth of RESPONDENT's control system significantly, as also admitted by RESPONDENT, since it stated in its letter of 17 February 1997 that "[the control system] diminishes in value every day".[102] Therefore, the market price of the control system was subject to rapid deterioration, and the resale according to Art. 88(2) CISG was not only CLAIMANT's right but also its obligation.

In order to be sure that the sale was correct and appropriate, CLAIMANT called upon a broker to sell the control system,[103] although a sale by CLAIMANT itself would have been allowed,[104] as Art. 88(1) CISG allowes the sale to be effected by any appropriate means. As a professional, a broker guaranteed the reasonability of the sale. The $250,000 were an appropriate and fair price for the control system.[105] Moreover, CLAIMANT, as a member of the business community, was pressed to sell the control system because of the necessity to be financially liquid. After all, a large portion of its finances was bound in the stored control system. It was in CLAIMANT's interest to obtain as high an amount in this sale as possible, as the attained price had to cover the sum of storing and selling the control system as well as the $400,000 that RESPONDENT had not repaid. Therefore, it was in no way an advantage for CLAIMANT to sell the system at a lower price than it would have paid if the contract were still in existence.

These facts should lead the Tribunal to the conclusion that there would have been no other, more suitable method to sell the control system and that it was therefore sold by an appropriate means.

III. Legal Consequences

CLAIMANT was authorized to retain out of the proceeds of the 'self-help sale' the amount equal to the expenses of preserving and selling the control system. It also had the right to set off the net proceeds of the sale against its claim for reimbursement of the $400,000. Furthermore, it had the right to the still outstanding sum plus interest. Counsel have agreed that these questions are not to be discussed in the first phase of the arbitration.[106]

Issue 3: RESPONDENT Is Not Exempt from Paying Damages Under Art. 79 CISG

I. The Question of Reliable's Exemption Is Not to be Discussed in this Part of the Arbitration

Counsel are agreed that the question whether Reliable would be exempt from liability for damages under Art. 79(2)(b) CISG is not to be dealt with in this first phase of the arbitration.[107] Thus, with regard to exemption from paying damages, the only issue remaining to be discussed at this time is that of RESPONDENT's exemption.

II. RESPONDENT Does not Qualify for Exemption Under Art. 79(1) and 79(2)(a) CISG

RESPONDENT does not qualify under Art. 79(1) and (2)(a) CISG for exemption from paying damages as a result of the delayed installation of the control system. Considering counsel's agreement[108] and the Tribunal's Procedural Order No. 3,[109] it is clear that RESPONDENT's exemption must be discussed under Art. 79(2) CISG and not under Art. 79(1) CISG alone. As stated above,[110] Art. 79(2)(b) CISG is to be ignored at this stage. The remaining letter (a) refers discussion to the preceding paragraph, i.e. to Art. 79(1) CISG. So, the question whether RESPONDENT is exempt from liability for damages in accordance with Art. 79(2)(a) must be considered under the requirements of Art. 79(1) CISG. The only difference to an examination under paragraph (1) alone is that any arguments concerning the exemption of Reliable are to be disregarded, as they would be dealt with under Art. 79(2)(b) CISG.

RESPONDENT cannot prove that the failure to perform the installation was due to an impediment beyond its control [1.], nor that it could not reasonably be expected to have taken any alleged impediment into account at the time of the conclusion of the contract [2.] or to have avoided or overcome it or its consequences [3.].

1. The Failure to Perform Was Not Due to an Impediment Beyond RESPONDENT's Control

The failure to perform was not due to an impediment beyond RESPONDENT's control. In fact, no impediment ever arose [a)]. Had there been an impediment, it would not have been beyond RESPONDENT's control [b)].

a) No Impediment ever Existed

An impediment within the meaning of Art. 79 CISG must be "objective circumstances that prevent performance".[111] The Italian Tribunale di Monza confirmed in the case 'Nuova Fucinati S.P.A. v. Fondmetall Int'l A.B.'[112] that Art. 79 CISG only exempts a party if performance has become impossible. The performance by RESPONDENT was never impossible; no impediment ever existed that would have prevented RESPONDENT from fulfilling its obligation to install the control system it had delivered. The fact that Reliable was not able to perform that task, which it had been assigned by RESPONDENT, does not constitute an impediment for RESPONDENT. The installation could be performed by numerous companies and did not depend on a specific person or on specific skills or knowledge that were not freely available.[113] RESPONDENT never lost the opportunity or possibility of being able to recruit a different company, one that would have been able to perform on time. In fact, RESPONDENT was bound to recruit a different company, in order to enable the contract to be fulfilled on time.

According to Art. 79(4) CISG, RESPONDENT (being the party who failed to perform) should have given notice to CLAIMANT of any alleged impediment. The fact that RESPONDENT did not do so,[114] and on the contrary even promised prompt delivery in spite of the plane crash,[115] shows that RESPONDENT never considered an impediment to be in existence.[116]

b) Any Impediment Would Not Have Been Beyond RESPONDENT's Control

Even if the Tribunal came to the conclusion that an impediment within the meaning of Art. 79 CISG can be assumed, it would not have been beyond RESPONDENT's control. The wording 'beyond control' calls for a clarification as to the objective risk allocation between the contracting parties.[117] It is irrelevant if the delay in installation is RESPONDENT's fault or not. Art. 79 CISG does not deal with the question of guilt,[118] but is based solely on the objective distribution of the sphere of risk, whereby the terms of the contract play an important role and so must be taken into consideration.[119] According to the contract between CLAIMANT and RESPONDENT, RESPONDENT is fully liable for the delay in installation [i)]. The fact that CLAIMANT suggested a name of a company able to assist in performance does not relieve RESPONDENT of its liability [ii)].

i) RESPONDENT Is Fully Liable for the Delay in Installation

The contract that CLAIMANT and RESPONDENT entered into on 10 June 1996 called for "the [computerized control] system . . . to be installed by [RESPONDENT] in the facilities of [CLAIMANT]"[120] and stated further that Reliable would make certification of proper installation, testing and full operationality "on behalf of [RESPONDENT]."[121] These clauses leave no doubt as to who is responsible for the proper installation and therefore bears the risk of possible problems: Even if it was Reliable who originally brought about the delay, RESPONDENT is fully liable for it.

ii) CLAIMANT's Express Suggestion of a Company Does Not Relieve RESPONDENT of its Liability

It is true that CLAIMANT expressly suggested the name of a company to perform the installation and that Reliable is mentioned by name in §4 of the contract between CLAIMANT and RESPONDENT.[122] However, in the main passage of the contract the parties clearly lay the responsibility of installation- and with that any risk of a possible delay - in the hands of RESPONDENT: "The system is to be installed by Seller . . . ."[123] This indicates that the purpose of the contract is delivery of an installed control system, leaving it up to RESPONDENT to make the actual arrangements for the installation. CLAIMANT would have preferred the installation to be performed by RESPONDENT. This was not possible, since RESPONDENT did not have the necessary license.[124] The suggestion by CLAIMANT of someone able to assist in the performance of the contract does not relieve RESPONDENT of its responsibility.[125] Such a suggestion has no legal consequences. The contract concerning the installation was concluded between RESPONDENT and Reliable alone. Furthermore, only RESPONDENT has the right of compensation against Reliable, which underlines the importance that the risk of any failure to perform must remain with RESPONDENT. It would have been up to RESPONDENT to recruit a new firm, when it became clear that performance would not be possible by the date fixed in the contract.

2. RESPONDENT Could Reasonably Be Expected To Have Taken any Alleged Impediment into Account at the Time of the Conclusion of the Contract

RESPONDENT could reasonably be expected to have taken any alleged impediment into account at the time of the conclusion of the contract. That the third party would not be able to perform on time was a foreseeable possibility RESPONDENT should have been prepared for. A delay in performance is not a rare occurrence and hence must be taken into account when delegating parts of one's own obligation. RESPONDENT was obligated to be prepared to turn to another company for assistance in performing the contractual obligations. RESPONDENT knew how important it was to complete the installation by 16 September 1996, because CLAIMANT's actions could not be interpreted any differently: Besides sending letters and faxes,[126] CLAIMANT made numerous telephone calls,[127] always inquiring about the expected date for installation. Nevertheless, RESPONDENT apparently did not prepare for any difficulties, as there was never talk of a contingency plan, e.g. a list of other capable firms or temporary personnel that could have been drafted for the duration of any possible problems. So, by not considering the possibility that the assisting party would not be able to perform on time, RESPONDENT eliminated any chance of exemption.

3. RESPONDENT Could Reasonably Be Expected to Have Avoided or Overcome any Alleged Impediment or its Consequences

RESPONDENT could reasonably be expected to have avoided or overcome the impediment or its consequences. RESPONDENT could have and should have turned to a different company when it became clear that Reliable would not be ready to perform on time. Both RESPONDENT and Reliable had estimated that the installation would take two weeks.[128] Thus it would have been up to RESPONDENT to ensure that an installation team would arrive at the very latest two weeks before the installation was to be completed, i.e. 2 September 1996. If Reliable was not able to send anyone at that time, a different company should have been recruited as fast as possible, to keep the delay to a minimum.[129] This would not have posed a problem, as numerous companies would have been qualified to do the installation and testing,[130] clearly shown by the fact that CLAIMANT was able to find a substitute as soon as became necessary. The argument that it was CLAIMANT in the first place who required a specific company to assist in performance has been refuted above.[131]

In consequence, not avoiding the impediment or its consequences by recruiting a different firm[132] prevents RESPONDENT from being exempt under Art. 79(1) CISG.

Even if RESPONDENT were exempt, CLAIMANT would still have been able to avoid the contract,[133] as Art. 79(5) CISG limits the exemption to damages.[134]

III. Legal consequences

Legal consequences of this claim are the payment of damages by RESPONDENT as well as interest on those damages. Counsel have agreed that these questions are not to be discussed in this phase of the arbitration.[135]

Issue 4: Reliable Should Not Be Joined to this Arbitration as Requested by RESPONDENT

RESPONDENT's request that Reliable should join this arbitration should be denied. For clarifying the situation between CLAIMANT and RESPONDENT, Reliable cannot be treated as a joining party but only as a witness [I.]. Since there is no applicable agreement for a joinder in this case, CLAIMANT cannot be forced to accept a joinder of Reliable [II.]. Even if the agreement was regarded to be applicable, its requirements were not met [III.]. The agreement would also not be valid because Reliable may not waive its right to appoint an arbitrator in advance [IV.].

I. In Order to Clarify the Situation Between CLAIMANT and RESPONDENT, Reliable Cannot Be Treated as a Joining Party But Only as a Witness

Disputes concerning several parties can be solved in different ways. On one hand, an external, third person could be joined to the arbitration as a party. On the other hand, it can be heard as a witness, which is less complicated for the proceedings. In the following the purpose of a joinder will be described [1.], then it will be explained that the present case only represents a witness situation [2.] and finally it will be shown that in this case the parties' agreement provides a joinder only for recourse claims [3.].

1. The Purpose of a Joinder

Generally, there are three situations where the joinder of a third party or a consolidation of different disputes makes sense. In the first situation the claimant has claims against several defendants but all arise out of the same subject matter. In the second, there is a series of contracts and "each defendant wishes to pass on liability down . . . a 'string'."[136] In the third situation a respondent "seeks to recover from a third party in respect of the claim made against him."[137] As there are neither several defendants nor a series of contracts involved in the present case, it is the last described situation this case deals with. It is the situation where a defendant seeks recompense from a third person, since the defendant owes damages because of a failure of this third party.[138] Here it would be possible to join the external person to the arbitration as a party, so that the defendant would not have to be involved in two seperate proceedings. As one can see, the intention of a joinder is to make it easier for the respondent; the recourse claim of respondent against the third party can be settled in one arbitration to reduce the cost and duration of the proceedings for the respondent. As can also be seen, only recourse claims are concerned. It is obvious, that for a joinder different claims have to be settled in one arbitration. Cases, in which an external party need only clarify factual questions relating to the claims between the claimant and the respondent should not be solved by joining this party, since there are then no separate claims that could be consolidated in one arbitration.

2. The Characteristics of a Witness Situation

In the majority of proceedings concerning more than two parties, a joinder of the external party is not necessary, since it is sufficient to hear this party as a witness. This is especially the case, when the third person would only assist in the discussion of factual questions. The present situation does not deal with any recourse claims, which would be what a joinder is for, as explained above. Reliable would only need to be heard in this arbitration to clarify its position under Art. 79(2)(b) CISG. The clarification of this question is still part of the claim against RESPONDENT. Reliable must therefore not be allowed to join as a party since these explanations can also be given as a witness. This would have the same effect for CLAIMANT and would allow the whole arbitration to be much less expensive and complicated. Especially the increase in cost of the proceedings, which would occur by joining Reliable, is not tolerable for CLAIMANT. For instance, according to Art. 32 of the International Arbitration Rules of the American Arbitration Association (hereinafter AAA-Rules)[139] the arbitrators' compensation takes the size and complexity of the case into account. A joinder of Reliable would significantly inflate both the size and complexity of these proceedings, and CLAIMANT would therefore run the risk of having to pay multiplied costs.[140] A further factor to be taken into account is that a possible exemption of Reliable could force CLAIMANT to compensate its costs for the proceedings pursuant to Art. 31(d.) of the AAA-Rules. If Reliable were not only heard as a witness, these costs would be much higher, which is not acceptable for CLAIMANT. For these reasons Reliable must not be joined to this arbitration but can be heard as a witness.

3. The Party Agreement Reflecting this Legal Understanding Provides a Joinder for Recourse Claims Only

Basically, in the present case a joinder of a third party could be possible according to § 24 of the contract between CLAIMANT and RESPONDENT to discuss RESPONDENT's possible claims against Reliable. However, Reliable cannot be joined to this arbitration only to discuss its exemption under Art. 79(2)(b) CISG since this is not the purpose of a joinder[141] and since - being aware of this purpose - CLAIMANT and RESPONDENT have not defined a different intention in § 24 of their contract. The clause states that a possible "claim of seller against the supplier may be settled in the arbitration between buyer and seller . . . ."[142] In other words, a joinder of Reliable is only allowed for the discussion of an eventual recourse claim of RESPONDENT against Reliable. The discussion about exemption under Art. 79(2)(b) CISG is not a claim of RESPONDENT against Reliable and not even a recourse claim, but a question concerning the relationship between CLAIMANT and RESPONDENT. RESPONDENT is not requesting a joinder to discuss its possible claims against Reliable but to discuss further facts of its possible exemption. This was not what CLAIMANT and RESPONDENT intended when agreeing to § 24, and it is not the objective intention of this clause. For these reasons Reliable may not be joined to this arbitration.

II. Lacking an Agreement for a Joinder in this Case, CLAIMANT Cannot Be Forced to Accept a Joinder of Reliable

As a result, the sales contract between CLAIMANT and RESPONDENT does not contain an agreement as a possible basis for a 'joinder' of a third party to discuss the facts permitting exemption under Art. 79(2)(b) CISG. Neither the Model Law nor the AAA-Rules provide a supplementary rule that could serve as a means to order a joinder of a third person without the consent of the parties. To do so in spite of this legal situation would violate the consensual notion of the arbitration process,[143] thus being inconsistent with the basic principle of arbitration at all.[144] A joinder of a third party which is opposed upon the parties can hardly be said to be in accordance with their agreement.[145]

Reflecting these fundamental principles, it is widely known in international commercial arbitration that there is no possiblity to join a party against the intention of the other parties involved.[146] Even those countries, as Hong Kong, the Netherlands or the USA, which, with regard to their national arbitrations, introduce a court-ordered joinder of third parties against the intention of the other involved parties, acknowledge that in the international context, an agreement by the parties is an unalterable requirement. Thus, van den Berg explicitly states that the scope of Art. 1046 of the Dutch Code of Civil Procedure is restricted to national arbitration, if the proceedings are governed by rules especially designed for international arbitration, such as the ICC Rules[147] or, as in our case, the AAA-Rules. Concurring, Redfern/Hunter state that Hong Kong[148] "by adopting the UNCITRAL Model Law in 1990 . . . [did] not give power to the courts to order compulsory consolidation in relation to international cases."[149] In the United States of America the question whether or not a joinder of third parties is permitted without an agreement is unsettled in national arbitration,[150] since the US Supreme Court has denied certiorari for cases adressing this issue contradictingly.[151] However, US courts would not order consolidation in an international context. It clearly derives from cases such as 'Bremen v. Zapata Off Shore Co'[152] that standards established for the international sphere should also be adhered to in the United States. As Judge Burger held in his well-known dictum in the above case: "The expansion of American business industry would hardly be encouraged if . . . we insist on the parochial concept that all disputes must be resolved under our laws and our courts."

For these reasons one must conclude, that an almost worldwide consensus exists that a third party cannot be joined to an international commercial arbitration without the agreement of all parties. In the present case, there is no such agreement as alleged by RESPONDENT, since a joinder cannot be based on § 24 of the contract between CLAIMANT and RESPONDENT. Therefore, Reliable cannot be joined to this arbitration.

III. Even if the Agreement Was Regarded as Applicable, its Requirements Were Not Met

Even if one assumed that a joinder may be based on § 24 of the contract between CLAIMANT and RESPONDENT, a joinder of Reliable would not be possible since the requirements of § 24 are not met. Reliable is not a 'supplier' in the meaning of the contract and even if it were, the exemption of a supplier could not be discussed under Art. 79(2)(b) CISG [1.]. A joinder as requested by RESPONDENT, would, contrary to § 24 of the contract, raise new questions of fact and law [2.].

1. Reliable Is not a 'Supplier' as Required in the Joinder Agreement in § 24 of the Contract Between CLAIMANT and RESPONDENT and even if it Was, the Exemption of a Supplier Cannot Be Discussed Under Art. 79(2)(b) CISG.

Reliable may not be joined to this arbitration since CLAIMANT and RESPONDENT agreed in § 24 of their contract that only a supplier of RESPONDENT could be joined under certain circumstances.[153]

Therefore, if Reliable were to be joined, it would have to be a supplier, which in fact it is not. Suppliers do not perform any part of the contract, whether in whole or in part, they only assist in preparation for performance.[154] This means that Reliable, in order to be regarded as a supplier, would have had to deliver goods to RESPONDENT (e.g. raw materials for the control system), who then would have processed them.[155] But Reliable did not supply anything either for RESPONDENT or for CLAIMANT. The whole control system did not contain any parts supplied by Reliable and neither was it placed into CLAIMANT's facilities by Reliable. Reliable's only duty was to install and test the system at CLAIMANT's place of business, which is not a supply of anything but a mere performance of work and services. The installation and testing of the system was therefore a performance of a part of RESPONDENT's contractual obligation. This shows that Reliable is not a supplier in the meaning of the joinder agreement in § 24 of the contract between CLAIMANT and RESPONDENT.

If, on the other hand, Reliable was to be regarded as a supplier, counsel have agreed and the Tribunal has emphasized that in order to be exempt from damages caused by the failure to install the system, RESPONDENT has to show that it is personally exempt under Art. 79(2)(a) CISG and that Reliable is exempt under Art. 79(2)(b) CISG.[156] Clause (2)(b) of this article governs the exemption of third persons, whom the failing party has "engaged to perform the whole or a part of the contract". Consequently, the exemption of a supplier may not be discussed on the grounds of paragraph (2) of Art. 79 CISG since he does not perform parts of the contract.[157] A joinder to discuss the exemption under Art. 79(2)(b) CISG of Reliable as a supplier would disregard the legal situation outlined above. In consequence, Reliable should not be joined to this arbitration.

2. Contrary to § 24 of the Contract, A Joinder Would Raise New Questions of Fact and Law

According to § 24 of the contract between CLAIMANT and RESPONDENT, a joinder of a supplier to this arbitration might be possible provided that no new questions of law or fact are raised. The contractual relationship between CLAIMANT and RESPONDENT differs completely from the one between RESPONDENT and Reliable, and so does the factual situation in each case. An investigation of the relations between RESPONDENT and Reliable is not reasonable for CLAIMANT, especially since this relation is not even governed by the CISG.[158] It would raise the costs and complicate the arbitration for every involved party.

IV. The Agreement Between CLAIMANT and RESPONDENT Is Not Valid Since Reliable May Not Waive its Right to Appoint an Arbitrator in Advance

Both Art. 18 of the UNCITRAL Model Law and Art. 16 of the AAA-Rules state the "fundamental principle of fairness" [159] and equality for each involved party. From these principles of international arbitration [160] can be deduced, that, as Schlosser, the leading authority in international commercial arbitration, aptly concludes,[161] no party can waive its right to appoint an arbitrator in advance. Otherwise, the agreement has to be regarded as invalid.[162] This is confirmed for example in the decision of the French Cour de Cassation 'BKMI and Siemens AG v. Dutco',[163] where the court stated that "le principe de l'égalité des parties dans la désignation des arbitres est d'ordre public; . . . on ne peut [pas] y renoncer".[164] Since international arbitration is governed by the principles of consent and parties' autonomy,[165] the parties must agree on the procedure and conduct of the arbitration, which includes the appointment of the arbitrators. It is a major disadvantage not to be able to appoint an arbitrator while the other involved parties are allowed to appoint one of their own choice and represents a breach of the principles of equality and fairness.

Reliable waived its right to appoint an arbitrator by agreeing to § 15 of its contract with RESPONDENT.[166] The fact that Reliable repeated the waiver in its letter dated 3 August 1998[167] does not change the legal situation, since this waiver was still in advance, as the Tribunal had not been appointed at that time.[168] As long as the Tribunal is not appointed, one cannot consent to the choice of an other involved party. Therefore Reliable would not be treated according to the principles of equality. That is why the joinder agreement must be regarded as invalid.

Conclusion

In response to the Tribunal's Procedural Order No. 1 of 2 October 1998, we have respectfully made the above submissions on behalf of our client Superb Paper, Plc. May it accordingly please the honorable Tribunal:

· firstly, to declare that CLAIMANT was authorized to avoid the contract on 9 October 1996,

· secondly, to declare that CLAIMANT was authorized to sell the control system on 4 April 1997 and that the sale was by an appropriate means,

· thirdly, to declare that RESPONDENT does not qualify under CISG Art. 79(1) and (2)(a) for exemption from paying damages as a result of the delayed installation of the control system,

· and finally, to deny RESPONDENT the right to join Reliable to this arbitration.

Basel, 7 December 1998
Lorenz Aebersold University of Basel	Christiana Fountoulakis University of Basel
Dominic Morris University of Basel Counsel for Superb Paper, PLC	Petra Reinhard-Brandenberg University of Basel

Annex