2nd Reading of the 31st Vis Moot Problem: The Duty to Communicate!

Note: This article should be read with 1st Reading where the problem’s facts and issues were summarised: 1st Reading of the 31st Vis Moot Problem: Legal Obligation or Good Faith!

PO2:

Before delving deeper into the PO2, it’s worth highlighting two key facts, first, Art. 41.6 of the disputed Framework Agreement (signed on 7 June 2019) reads, ‘the place of arbitration is Danubia and the Framework Agreement and all individual contracts concluded hereunder are governed by the law of Danubia’. And we know from the problem that the general contract law of Danubia is verbatim adoption of the UNIDROIT Principles on International Commercial Contracts. Also, the general contract laws of Mediterraneo (the claimant domicile), and Equatoriana (the respondent domicile), adopted the UNIDROIT (p. 59). Art. 5.1.3 of the UNIDROIT reads, ‘Each party shall cooperate with the other party when such co-operation may reasonably be expected for the performance of that party’s obligations.’ Second, the CISG (all three above are contracting States) has Art. 80 which stipulates ‘A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party’s act or omission.’ According to different sources, this CISG article imposes a duty of cooperation (Neumann, the Duty to Cooperate in International Sales; Kroll, Misteles & Viscasillas, CISG Commentary; State Joint Stock Holding Company Artem v. Gray Fox Aviation).

Usually, the PO2 adds more facts and clarifies some issues to help the team refine their arguments, this is why it is an essential reading. Let us start with the last paragraphs of the 1st Reading, that one of the questions the problem asked you to raise concerned the rejection of the initiative to create a data protection law in Mediterraneo. But there’s no clarification, we only have one reason from the request for arbitration and Mr Isetta that the central argument against this initiative is fear of mass claims against Mediterranean businesses in cases of alleged or actual violations of data privacy (ps. 8, 17). Po2 para 16 reveals that the respondent was NOT aware that the law of Mediterraneo does not include a duty to inform equivalent to the one in the Equatorian Data Protection Act i.e. the GDPR. Also, para 37 says that Articles 3, 4, 33, 34, 82 and 83 of the EU GDPR exactly match the data privacy law in Equatoriana (with required amendments concerning the territorial scope).?

Considering these GDPR articles, the teams need to discuss some of them in full e.g. Art. 3 Territorial scope, 4 Definitions, 34 Communication of a personal data breach to the data subject (after notifying the supervisory authority of the breach Art. 33), and 82 the right to compensation and liability. So in light of the facts below, the teams need to answer the following: considering Po2 para. 26. can the claimant be deemed to be bound by the letter and the spirit of the GDPR?, and considering the duty of cooperation in the CISG and UNIDROIT, and the reasonable commercial standards of fair dealing (Art. 3.2.7 UNIDROIT), can the GDPR be deemed applicable to the Framework Agreement? if yes, to what extent?

A number of paragraphs confirm and reveal key facts about who was liable for the cyberattack, in particular Po2 para 5 confirms what was mentioned in para 7 of answer to the arbitration that Ms Audi was the entry-door for the cybercriminals (p. 31). This occurred despite the claimant cybersecurity training of most of its employees (para 24). She was the claimant key contact person for Order 9601, authorizing and arranging for the shipment and verifying the payments made in late February (para 13). But para 5 reveals that ‘Ms. Audi was quickly identified as the person responsible for the infiltration discovered on 23 January 2022, [but] to find a face-saving solution for everyone it was agreed that [her] termination would only be effective from 1 July onwards’. And during this period with the claimant knowing about Ms Audi role, it neither informed respondent about the departure of Ms Audi and its background (because due to problems with IT systems the message to inform respondent only went out on 1 July 2023) (para 6), nor made any public announcements about the data breach (para. 26). Furthermore, para. 4 reveals that following 28 March 2022 email, Mr Royce tried to call Ms Audi on her work mobile to verify the email but no reply, he then called her on 7 July after the journal article but was told she left the company (para. 17).

Despite the lack of communication from the claimant during this 5 months period of a cyberattack, the respondent’s account at Sensor X was only effectively taken over by Mr Gabrielson from 1 August onward (para.7). The following paras. 8-9 also add more facts in favour of respondent, that the use of electronic means i.e. email was very common between the parties for a) annual fixing of prices, b) most business communications between Ms Audi and Mr Royce, and c) sending purchase order No 9601 which bore the digital signature of Mr Toyoda. An informal email was also used between Mr Toyoda and Ms. Peugeotroen concerning the agreement on the notice of defect and removal of written requirement for any amendments (para. 27). With regard to the acceptance, there was no letter of confirmation sent by claimant for seven orders that deviated from the Framework Agreement including Order 9601 (all had the same arbitration agreement), but there was a letter for Order 15604 (para. 11). More interestingly, the parties did agree in September 2020 to change the bank account specified by the claimant for an individual order in Danubia, but this agreement was in a signed side letter (para. 12). On procedure, para. 19 reveals that it was the respondent who insisted on including the consolidation provision in the arbitration clause of the Framework Agreement in reaction to its experience with three ad hoc proceedings concerning similar orders.

The respondent also had no problems to exclude the emergency arbitrator rules from the arbitration clause in Order 15604 (para. 33), which imitates the ICC-Model Clause (para. 32). The claimant is also likely to initiate a separate arbitration, if its consolidation request is found insufficient (para. 41). On the Terms of Reference, para 35 stipulates that ‘The Terms of Reference reproduced the arbitration clause in Purchase Order No. 9601, and stated that ‘furthermore, the claimant referred to Art 41 of the Framework Agreement’, and Vindobona, Danubia is the place of arbitration. Also, the Terms procedural timetable 'did not exclude any explicit cut-off date for the submission of new claims or evidence.’ (para 34). Lastly, on substance, Po2 confirms the CISG is applicable in Danubia (para. 38), and neither Equatoriana nor Mediterraneo made any reservation under Art. 92 CISG (para. 39).

Issues:

Issues 1 & 2: Addition of New Claims or Consolidation: In light of Po2 paras. 32, 33, 34 & 35, and in addition to Art. 41.5 of the Framework Agreement on consolidation, Art. 3.2 and Art. 23 of ICC Rules must be discussed in full to clarify the intended role of the Terms of Reference e.g. Art. 23.4 on the discretion of the tribunal to admit new claims. Generally. the tribunal has the power to consider issues arising during the arbitration (Craig, Park & Paulsson, ICC Arbitration, 15.01). The analysis of the consolidation must be divided into two parts, consolidation by consent under an arbitration agreement, and under applicable rules. Art. 10 of ICC rules tells us the criteria to order consolidation including if the tribunal finds the arbitration agreements compatible, or the arbitrations are between the same parties, or the disputes arise in connection with the same legal relationship. Also, one of the reasons for refusing consolidation is if there are different places of arbitration (See Whitesell and Silva-Romero, Multiparty and Multicontract Arbitration). A reference can be made to court-ordered consolidation cases, e.g. the courts can refuse to order consolidation without the consent of all parties (Abu Dhabi Gas Liquefaction Co Ltd v Eastern Bechtel Corporation [1982] @ 427). Although the Model Law does not deal with consolidation, but a number of court-ordered consolidation cases cited the Model Law e.g. the court does not have the power under Art. 5 ?to intervene to order consolidation when there is no consent of the parties (Western Oil Sands Inc v Allianz Insurance Co, 2004), and the consent of the parties to arbitrate as set out in Art. 7 is required for deciding on consolidation (Liberty Reinsurance Canada v QBE Insurance and Reinsurance (Europe) Ltd 2002).

Issues 2 & 3: Entitlement to Payment of Order 9601 and Invoking the Information Duty: ???

Considering the above Po2 paragraphs which mainly help the respondent on substance, CISG Arts. 7, 77, and 80. must be discussed. First, Art. 7 on the observance of good faith as a substantive principle applicable to the formation and performance of the contract entails the following: it provides a basis for the expectation that contractual duties will be duly performed, and it imposes a code of behaviour on both parties calling each to consider the interest of the other contracting parties (Tribunal de Justica do Rio Grande Do Sul (Brazil) CISG online). More pertinent, this principle relates to Art. 54 which requires the buyer to take “such steps” and comply “with such formalities as may be required” in order to effectuate payment to the seller. The principle also relates to Art. 9.1 on practice established between the parties (ICC Award No 8611/1997), and Art. 79.4 on the duty to notify any hindrance to performance. Second, Art. 77 highlights the extent of the duty to mitigate the loss, as a general rule ‘the aggrieved party can’t passively wait to be compensated for harm that was avoidable; it must actively seek to minimize or prevent loss result from the breach’. The act of mitigating loss must be within a reasonable time, and according to the reasonable person standard, Art 8 (Nova Tool & Mold Inc. v. London Industries Inc). Third, Art. 80, which is another manifestation of the good faith, reflects the estoppel principle (one may not set one's self in contradiction to one's own previous conduct). In practice, the claimant’s act or omission of information that cause the respondent’s failure to perform the payment obligation, can result in claimant losing the remedy of payment of the purchase price, and the claim of damages too. (See Kroll, Misteles & Viscasillas, CISG: Commentary p. 1082-1089; DiMatteo et al, International Sales Law; Schwenzer & Fountoulakis (eds), International Sales Law).