Memorandum: John Frost Ltd. and Honest Traders Ltd.

Statement of Facts

CLAIMANT, John Frost Ltd., a company specializing in the business of supplying and transporting livestock. It is located in Melbourne, Australia. RESPONDENT, Honest Traders Ltd., a company that specializes in the selling of livestock to various markets in China. The company headquarters are located in Hong Kong, China. On December 1, 2009, the CLAIMANT contacted RESPONDENT, with a prospect to do business. This is the business of transporting live cattle to a docking station in Padang, China. Both parties agreed to commence with business, however, no contract was drawn up. Nevertheless, there was no indication that the deal will not go through. Some emails went back and forth between the parties’ headquarters.

The Respondent agreed to the deal on December 10, 2009, by indicating that they both are amenable to the terms of the agreement. The RESPONDENT provided its terms and conditions to the CLAIMANT. RESPONDENT’s conditions were provided stating that: the shipment was to be executed in four installments, three months apart.

Heifers are permitted but not over 10% of the total shipment. Live weight at loading should be within 10% of 500 Kg. The fat within the range of 3mm to 10mm and all animals must be classified as A-Grade cattle. Grain feeding on the ship shall be the shipper’s responsibility. The place of shipment shall be Darwin, and the port of destination shall be Padang.

Trade terms were yet to be sent or given to the respondent as the claimant had previously discussed on December 15 of last year. It was necessary to submit the trade and conditions to complete the necessary paperwork. A copy of the trading terms was provided stating: that in the event of any dispute, controversy, or claim arising out of, relating to, or in connection with shipment shall be resolved by arbitration by the SIAC Arbitration Rules. The seat of arbitration shall be in Hong Kong. The language shall be English. The mention of the SIAC Arbitration Rules is an important component of the deal because this means that both parties were informed of the existence of arbitration in case of any dispute or problems arise from the transaction. This also means that the RESPONDENT was well-informed when it comes to the use of arbitration to resolve the future conflict between the two parties.

Shipments were made and all four were completed based on the agreed-upon timetable. Orders were being sent out and fulfilled by both parties. It would seem that business was going smoothly between the two companies and instructions were being sent out successfully. Cattle were being inspected by the veterinarian chosen by RESPONDENT. On June 23, 2010, RESPONDENT claimed that the number of heifer on the shipment was twelve percent, two percent over the allocated ten percent. Then the Respondent informed the CLAIMANT of this error, whilst informing CLAIMANT that there will be a penalty charge for the mistake. A fee of five cents per kilo total of the whole shipment was to be compensated to the RESPONDENT.

The CLAIMANT found the claim absurd because constant communication was made between two parties. The CLAIMANT understood as much as the RESPONDENT that arbitration was the first step in the conflict resolution process. But the most glaring inconsistency with the charge made by the RESPONDENT is the difficulty of finding an explanation as to why there is a complaint only after the last shipment was made. It has to be pointed out that all four installments were completed without any reported problems from the RESPONDENT.

RESPONDENT was not serious about establishing good business relationships then why is it that there were no steps taken to repair the strained relationship between two parties. The RESPONDENT immediately demanded that the CLAIMANT should pay a significant amount, a penalty that seems to reflect the dissatisfaction of the RESPONDENT with regards to the performance of the CLAIMANT. But since the RESPONDENT accepted every single shipment without raising any complaints then the CLAIMANT find the amount demanded as unfair. On July 10, 2010, the CLAIMANT refused to acknowledge the unilateral decision from RESPONDENT stating that the unfair deduction of five cents per kilo amounts to a penalty clause in the common law. This forced CLAIMANT to file a request for arbitration by the arbitration clause that the RESPONDENT had previously agreed upon. On August 20, 2010, a request to arbitrate has been made by CLAIMANT. The proceedings are noted to take place in Hong Kong on April 4, 2011. The arbitrator for the claimant has been selected, a Mr. Delbon, Managing Director of the Elders group. In compliance with this, on September 30, 2010, Mr. Chan contacted the Secretary-General, Ms. Francis to agree to arbitration, stating their seat and announcing Mr.Ying as their arbitrator.

Summary of Argument

The Tribunal Should Find That Both Parties Formed a Valid and Enforceable Arbitration Agreement

1. This arbitration arises from a contract in which the RESPONDENT, agreed to purchase cattle from the CLAIMANT. The dispute is essentially about the Respondent’s attempt to evade the terms of the contract, and request that the claimant pay a compensation fee to the RESPONDENT. But this should not be the course of action even if RESPONDENT has a valid claim with regards to the actions of CLAIMANT.
2. Both parties previously agreed that any dispute, should it arise, between them the parties would be referred to and finally determined by arbitration by the International Arbitration Rules. This was made through correspondence via email or telephone where a clear line of communication was established between two parties. It was made clear by the RESPONDENT that it has utmost faith with regards to the capabilities of CLAIMANT to honor all the details of their agreement. CLAIMANT every available resource to demonstrate the willingness to establish good business relations with the RESPONDENT. The International Arbitration Act says that foreign agreements are enforceable [IAAA Sect. 7].
3. In the course of the correspondence between two parties, Respondent demonstrated not only its willingness to pursue the deal but also its clear understanding of the nature of the conflict resolution facility that was available in this particular agreement. The RESPONDENT was well-aware that both parties are talking about arbitration. In this regard RESPONDENT chose the following arbitration clause to include in its purchase order: “Any dispute, controversy, or claim arising out of, relating to, or in connection with shipment shall be resolved by arbitration following the SIAC Arbitration Rules. The seat of Arbitration shall be Hong Kong. The language shall be English.”
4. The clause included in the purchase order is a standard clause included in most arbitration agreements. This is by the suggested clause given by organizations involved in international arbitration [ICC Rules ¶1]. It is also important that there was a request coming from the RESPONDENT and the fact that it was included in the purchase order. This is because an arbitration agreement was done in writing because under the 1985 Model Law an arbitration agreement had to be in writing [Burnett/Bath 455].
5. An arbitration agreement is valid when the parties signed a document that proves that there was consent and that both parties agreed to the use of arbitration in the event of dispute or controversy [Moses 18]. This is easily established in this case because the RESPONDENT sent a Purchase Order with a specific clause that made it clear that both parties are willing to do the same.
6. Herein lies the conflict when RESPONDENT had not primarily set out to resolve the dispute through arbitration. Even if there is already ample proof that agreement as to the use of arbitration, RESPONDENT immediately demanded a penalty fee and claiming that there was a breach in the agreement.
7. Based on the rules and laws that were reviewed there is no longer any doubt that RESPONDENT wanted to renege on the previous agreement made with regards to arbitration. Yet, it can be argued that it is the respondent that breached the arbitration clause of the agreement, by not seeking a resolution beforehand.

The Tribunal Should Find That Respondent Acted in Bad Faith by Issuing a Compensation Fee before Referring to Arbitration

8. RESPONDENT wrongfully charged our client with an amount of five cents per kilo of the total of the last shipment. The CLAIMANT has acknowledged that, yes the number of heifers had exceeded twelve percent. However, it came to the knowledge of the CLAIMANT, through several sources, that the RESPONDENT had sold all live cattle successfully and had more than covered his costs of the total shipment. Thereby, we argue that his actions to charge an erroneous compensation fee is unlawful and without cogency.
9. The action of the RESPONDENT with regards to the compensation fee is unlawful because it was based on a unilateral decision based on its calculations without consulting with the CLAIMANT. For this reason, the amount that was demanded is something that is not seen as an example of fair business dealing. There was already an admission on the part of the CLAIMANT with regards to the number of heifer in the last shipment. However, there is no evidence that the CLAIMANT intended to defraud RESPONDENT. If this was the case then RESPONDENT should have noticed a pattern of irregularity beginning with the first and second installment. Since no complaint came from RESPONDENT then it can be argued that the first three shipments were delivered following the agreed terms. If this was not the case then RESPONDENT would have raised an issue with regards to the quality of the live cattle.
10. There were reports received with regards to how RESPONDENT was able to sell briskly and with profit the live cattle delivered by CLAIMANT. This is proof of the quality of the animals that were delivered. There is therefore no reason as to why RESPONDENT failed to communicate its grievances to CLAIMANT. There is also no explanation as to why nothing was done to resolve the issue without first demanding something that would surely create a strain in the business relationship that CLAIMANT worked so hard to develop.
11. The vindictiveness that was shown to our client is ridiculous. It comes into question as to why the RESPONDENT felt that there is an urgency to respond in such a manner and demanded a fee that will surely hurt the financial position of CLAIMANT. Why not issue a motion to move to arbitration rather than striking against the Claimant? Let it be known that RESPONDENT demanded something that is not proportional to the actual financial loss incurred by the fact that the number of heifers was a mere two percent above the contracted number.

The Laws Regarding Arbitration Must Be Enforced

12. RESPONDENT is at fault in this dispute. To show that all the facts are present and have been extensively argued over whilst including all the necessary reasons as to why CLAIMANT not be charged with this erroneous penalty clause and RESPONDENT cannot withdraw his agreement, to file a claim with the Supreme Court in Melbourne. In this regard, the rules of arbitration must be enforced [UNCITRAL Rules Art. 1].
13. When CLAIMANT entered into an agreement with RESPONDENT and made it clear to both parties that there is an arbitration clause included in the deal, CLAIMANT was aware that in the event of a dispute, claim or controversy, international arbitration organizations can be called upon to resolve the problem. CLAIMANT also understands that RESPONDENT is well-informed with regards to the principles that govern arbitration rules. There is therefore no reason why CLAIMANT will not submit to the decision of an arbiter. Thus, RESPONDENT must do the same.
14. CLAIMANT also understands that arbitration is much better than litigation. If RESPONDENT is allowed to go directly to the courts then it would be detrimental for both parties. Litigation is time-consuming and costly. There is no need to complicate the problem even further. Since CLAIMANT already acknowledged the error in shipping more heifers than it should then there is every reason to believe that arbitration will go smoothly and as a result RESPONDENT will be compensated for the trouble of receiving a heifer instead of a mature live cattle. But if arbitration will be utilized then CLAIMANT will not be forced to pay more than it should. 15. The fact that RESPONDENT is a Chinese company is not an issue when it comes to arbitration procedures. This is because in August 1994 the Chinese government adopted the Arbitration Law that also covers foreign-related arbitration [Mistelis 658]. This is a significant piece of the legislature because this means that China recognized the importance of international standards when it comes to arbitration [Mistelis 658]. Thus, there is no obstacle hindering the way for CLAIMANT to and RESPONDENT to resolve their conflict under the rules of international arbitration.

Request for Relief

CLAIMANT respectfully requests the Tribunal to find that: 1) As stated in the IAAA the arbitration agreement shall be enforced when the procedure about arbitration under an arbitration agreement is governed whether by the express terms of the agreement or otherwise, by the law of a Convention country. 2) Both parties formed a valid and enforceable arbitration agreement; 3) Respondent acted in bad faith by issuing the compensation fee before referring to arbitration; 4) The laws regarding arbitration must be enforced.