The case is an international commercial arbitration between Wright Ltd, the claimant, and SantosD KG, the respondent. The same company previously owned the two parties. The parties agreed to jointly develop TRF 192-I, which then be produced by the claimant for sale to the respondent. The respondent agreed to purchase at least 2000 of the fan blades in the first year of production. The parties set a formula to be used to compute the purchase price of the fan blades. It was dependent on the cost of production. However, the price would not fall below$9,975 and rise beyond $13,125 regardless of the cost of production. The respondent wanted the price invoiced in US$ while the claimant would incur costs in Equatorianian Denars (EQD). After agreeing on the development and sales contract, the claimant then agreed to sell clamps needed to connect the blades to the shaft of the fans to the respondent on a cost basis. However, they agreed that the fixed exchange between US$ and EQD would be used to compute the price for the clamps.
The parties also agreed that the UN Convention on the International Sale of Goods (“CISG”) would govern their agreement. They also agreed that the UNIDROIT Principles would be applicable for the issues not covered by the CISG. Additionally, the parties agreed to arbitration conducted under the Rules of the Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada (CAM-CCBC) and in line with international arbitration practice as their preferred method of resolving all disputes not settled amicably and in good faith between them.
Statement of Legal Issues
The claimant incurred EQD 19,586 in production cost for every fan blade and the exchange rate between the two currencies was US$1=EQD1. Therefore, the exact cost per fan blade in US$ was 10,941.90. As per the agreed upon formula, the claimant would have sold each fan blade for US$11,361.9. However, the claimant’s accountant used the fixed exchange rate to convert the cost incurred into US$, which resulted in a cost of US$9744.3 per fan blade. Due to the mix-up, the claimant invoiced each fan blade at US$10,219.3. The respondent took advantage of the mix-up and paid the bill. The bank deducted $102,192.80 from the money paid by the respondent as a levy for investigating the money concerning money laundering. The legal issue before the arbitration committee was whether the claimant was entitled to the additional payment from the respondent to make up for the mix-up in applicable exchange rates and whether the claimant was entitled to the money deducted by the Central Bank as a levy for investigating the money concerning money laundering.
As per articles 53 and 54 of CISG, the claimant is entitled to the additional payment of UD$ 2,285,240 from the respondent to make up for the accounting error. The two articles address the obligations of the buyer. Article 53 requires a buyer to pay the price of goods and take delivery of them as required by the contract (UN, 2010). Article 54 requires a buyer to take all steps and comply with the formalities of the contract to enable the payment of the price to be made (UN, 2010).
In this case, the contract between the claimant and the respondent was evident on how the price of the products would be determined. It stated that the price would be computed based on cost plus an allowance for profits. It also indicated that the actual costs would be reimbursed as they were incurred, which implied that the prevailing exchange rate between the two currencies would be applied in computing the true value in US$. The agreement was clear that the fixed exchange rate would be used only in determining the price of the clamps. Therefore, the respondent should have complied with the agreed-upon formula and exchange rate when making the payment for the goods delivered. As a way of taking all steps to comply with the terms of the contract, the respondent should have noted that the invoice contained an error and should have complied with the adjusted invoice.
The claimant is also entitled to the US$ 102,192.80 deduced by the Central Bank for investigating the money. The entitlement is based on the provisions of Article 6.1.11 of UNIDROIT Principles, which addresses the costs of performance of contracts. The article requires each party to bear the cost of the performance of its obligations (UNIDROIT, 2010). Additionally, in part, Article 62 of CIG states that a seller may require the buyer to perform his other obligations (UN, 2010).
The contract seems to have had two primary obligations, which were the production and delivery of the fan blades and the payment upon delivery. The claimant was responsible for output and delivery. Transportation costs must have been the associated costs of performance of the delivery obligation. The respondent was responsible for making the payment upon the provision of the products. The bank levy was the cost associated with the performance of the payment obligation. The claimant required the respondent to perform his other duty by claiming payment for the amount deducted as bank levies. Therefore, in performing his other obligations, the respondent should have paid the levy, which would ensure that the claimant received the whole amount as per the terms of the contract.
The arbitration committee should compel the respondent to pay the additional US$ 2,285,240 to the claimant. It should also compel the respondent to pay UD$ 102,192.80 to the claimant to make up for the levy deduced by the Central Bank.
- UN,. (2010). United Nations Convention on Contracts for the International Sale of Goods (1st ed., pp. 16-19). New York: NY: United Nations. Retrieved from https://www.uncitral.org
- UNIDROIT,. (2010). Principles of International Commercial Contracts (1st ed., p. 197). UNIDROIT. Retrieved from http://www.unidroit.org