Team 11R

3 NATIONAL LAW SCHOOL INTERNATIONAL ARBITRATION MOOT COURT COMPETITION, 2010

RD

COURT OF INTERNATIONAL ARBITRATION, GREGARIA CITY, GREGARIA

Mallory Advisory Services Ltd.………………………………………………………Claimant

v.

Shawcross Solutions Pvt. Ltd…………………………………………………….Respondent 1

Comet (Shawcross) Solutions Pvt. Ltd…………………………………………...Respondent 2

(Arb/Cas/0410/2009)

MEMORANDUM for RESPONDENT

 -Table of Contents-

0B TABLE OF CONTENTS

0BTable of Contents...................................................................................................................i

1BTable of Abbreviations.........................................................................................................iv

2BIndex of Authorities..............................................................................................................vi

9BTreaties............................................................................................................................vi

10BStatutes..........................................................................................................................vi

11BCases..............................................................................................................................vi

12BTreatises.........................................................................................................................ix

13BArticles............................................................................................................................x

3BStatement of Jurisdiction.....................................................................................................xii

4BQuestions Presented ..........................................................................................................xiii

5BStatement of Facts..............................................................................................................xiv

6BSummary of Arguments....................................................................................................xvii

7BArguments Advanced............................................................................................................1

I. 14BRespondent 1 is not bound by the Arbitration Clause Contained in the Contract

between Respondent 2 and Claimant.....................................................................................1

i. 19BAny attempt to hold Respondent 1 bound to arbitrate is rendered untenable

by the doctrine of privity and the requirement of consent in arbitration...................1

ii. 20BThe corporate veil between Respondent 1 and Respondent 2 cannot be lifted.
2

II. 15BIn any event, the action is barred by virtue of ex turpi causa non oritur actio, since
Mr. Romanovich’s fraudulent acts are attributable to Claimant, and Claimant cannot base
its Action on what is (in law) its own fraud...........................................................................3

MEMORANDUM for RESPONDENT

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 -Table of Contents-

A. 21BClaimant cannot base its action upon an illegal act committed by it. .............3

ii. 22BMr. Romanovich’s fraudulent acts are attributable to Claimant.....................4

III. 16BThe Frugalian Sale of Goods Act is inapplicable, since the transaction in question
constitutes a “licence” and not a “sale”. In any event, neither Respondent 2 nor Respondent
1 is in breach of Sections 15 and 16 of the Act, since Comet is not defective.......................5

A. 23BThe Frugalian Sale of Goods Act is inapplicable...............................................5

1. 28BRespondents admit that Comet is a “good” under the Frugalian Sale of Goods
Act..................................................................................................................................5

2. 29BThe transaction between the parties amounted to a license and not a sale..........6

3. 30BThe transaction cannot be viewed as a conditional sale......................................7

ii. 24BArguendo, neither Respondent 1 nor Respondent 2 is liable under sections 15

and 16 of the Frugalian Sale of Goods Act....................................................................8

1. 31BRespondents are not liable under Section 15.......................................................8

a. 35BThe sale is not a sale by description.................................................................9

b. 36BIn the alternative, non-adherence with the description is not evident from the
factual matrix............................................................................................................10

2. 32BRespondents are not liable under Section 16.....................................................13

a. 37BThe sale was by trade name and hence implied terms under Section 16(1) are
of no application.......................................................................................................13

b. 38BAlternatively, the good was fit for its particular purpose..............................14

IV. 17BRespondents are not Liable for Breach of Contract under the Frugalian Contract
Act........................................................................................................................................14

V. 18BArguendo, the Liability of Respondents does not Extend to Compensating Claimant

for the Losses Sustained by it by Investing in Truism.........................................................15

A. 25BThe rule of Hadley v Baxendale as adopted by Indian courts has to be

applied in the present case.............................................................................................15
MEMORANDUM for RESPONDENT

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 -Table of Contents-

1. 33BThe choice of Frugalian law by the parties mandates application of the Hadley
v Baxendale rule notwithstanding later developments English law.............................15

2. 34BDeparture from the Hadley v Baxendale rule will render the award
unenforceable and even liable to be set aside in Frugalia............................................16

ii. 26BUnder the rule of Hadley v Baxendale, Respondents cannot be held liable for
the losses sustained by Claimant by investing in Truism...........................................17

iii. 27BArguendo, even if the subsequent developments in English law were to be

taken into account, the Respondents cannot be held liable for the losses sustained
by Claimant by investing in Truism.............................................................................18

8BConclusion and Prayer for Relief........................................................................................20

MEMORANDUM for RESPONDENT

-iii-
 -Table of Abbreviations-

1B TABLE OF ABBREVIATIONS

¶/¶¶………………………………………………………………………………...Paragraph(s)

§…………………………………………………………………………………………Section

AIR…………………………………………………………………………..All India Reporter

All ER………………………………………………………………..All England Law Reports

Anr. …………………………………………………………………………………….Another

Art. ……………………………………………………………………………………...Article

Bom. …………………………………………………………………………………..Bombay

Cal……………………………………………………………………………………...Calcutta

CD……………………………………………………………………………….Compact Disk

CEO……………………………………………………………………Chief Executive
Officer

Co. ……………………………………………………………………………………Company

Com. ………….………….………….………….………….………….…………..Commercial

ed./eds. ………………………………………………………………………………..Editor(s)

edn. ……………………………………………………………………………………...edition

ER……………………………………………………………………………...English Reports

EULA……………………………………………………………End User License Agreement

EWCA Civ. ……………….......................Court of Appeal, Civil Division (England &

Wales)

EWHC…………………………………………………………England and Wales High Court

F.3d ………………………………………………………………..Federal Reporter, 3rd series

Fam. ………….………….………….………….………….………….………….……..Family

MEMORANDUM for RESPONDENT

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 -Table of Abbreviations-

Ibid. ……………………………………………………………………………………..Ibidem

Inc. ………………………………………………………………………………..Incorporated

Ltd. …………………………………………………………………………………….Limited

Mad. ……………………………………………………………………………………Madras

No. ……………………………………………………………………………………..Number

NYU……………………………………………………………………..New York University

Oct. …………………………………………………………………………………….October

Ors…………………………………….………….………….………….………….……Others

PTC…………….………….………….………….………….……Patent and Trademark Cases

Rep. ………….………….………….………….………….………….………….……..Reprint

SC………….………….………….………….………….………….…………...Supreme Court

SCC………….………….………….………….………….………….…..Supreme Court Cases

Sd/-…………….………….………….………….………….………….………….……Signed

SLR…………………………………………………………………...Singapore Law Reporter

Supp. ………….………….………….………….………….………….…………...Supplement

U.N.T.S. ………….………….………….………….……………United Nations Treaty Series

UKHL………….………….………….………….………….United Kingdom House of Lords

UNCITRAL………….………….…...United Nation Commission on International Trade Law

USA/US………….………….………….………….………….……..United States of America

v. ………….………….………….………….………….………….………….…………Versus

Vol. ………….………….………….………….………….………….………….……..Volume

Y. B. Com. Arb. ………………………………………..Yearbook of Commercial Arbitration

MEMORANDUM for RESPONDENT

-v-
 -Index of Authorities-

2B INDEX OF AUTHORITIES

9B TREATIES

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 10 June 1958,
New York, 330 U.N.T.S. 3.....................................................................................................1

10B STATUTES

French Code Civil......................................................................................................................3

German Bürgerliches Gesetzbuch..............................................................................................3

Indian Companies Act, 1956......................................................................................................2

Indian Evidence Act, 1872.......................................................................................................10

Indian Sale of Goods Act, 1930...............................................................................5, 6, 8, 9, 14

New Zealand Illegal Contracts Act, 1970..................................................................................3

United States Restatement (Second) of Contracts.....................................................................3

11B CASES

AIB Group (UK) Plc. v. Martin, [2001] UKHL 63....................................................................7

Arnold v. North American Chemical Co., 232 Mass. 196..........................................................8

Banque Arabe et Internationale d’Investissement v. Inter-Arab Investment Guarantee Corp,

(1996) XXI Y. B. Com. Arb. 13 (Ad Hoc, UNCITRAL, 1994)............................................1

Barnard v. Kellogg, 77 U.S. 383 (1870)..................................................................................12

Bauer & Cie v. O'Donnell, 229 U.S. 1 (1913)...........................................................................8

Box v. Jubb, [1879] 4 Ex. D. 76...............................................................................................20

MEMORANDUM for RESPONDENT

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 -Index of Authorities-

Bridas SAPIC v. Turkmenistan, 345 F.3d 347, 358 (5th Cir. 2003)..........................................1

Burrows v. Rhodes and Jameson, [1899] 1 QB 816..................................................................4

Central Bank of India v. Hartford Fire Insurance Co., AIR 1965 SC 1288.........................7, 9

Centrotrade Minerals and Metal Inc. v. Hindustan Copper Limited, (2006) 11 SCC 245.....17

Chandelor v. Lopus, (1603) 79 ER 3.......................................................................................12

Chartbrook Homes Ltd. v. Persimmon Homes Ltd., [2007] 1 All ER (Comm.) 1083.............10

Commissioner of Sales-Tax, Eastern Division, Nagpur v. Husenali Adamji and Co., AIR
1959 SC 887...........................................................................................................................8

Deutsche Genossenschaftsbank v. Burnhope, [1995] 4 All ER 717..........................................7

Dunlop Pneumatic Tyre Co. v. Selfridge and Co., [1914-15] All ER Rep. 333........................1

Food Corporation of India v. Babulal, (2004) 2 SCC 712......................................................16

G. Ramachandra Reddy and Co. v. Union of India and Anr., AIR 2009 SC 2629.................17

Gray v. Thames Trains Ltd. and Another, [2008] EWCA Civ. 713..........................................3

Hadley v. Baxendale, [1843-60] All ER Rep. 461.............................................................16, 19

Hardy v. Motor Insurers' Bureau, [1964] 2 All ER 587............................................................4

Hashem v. Shayif, [2008] EWHC 2380 (Fam)...........................................................................2

Holman v. Johnson, (1775) 98 ER 1120....................................................................................3

Investors Compensation Scheme v. West Bromwich Building Society, [1998] 1 All ER 98....10

Jackson v. Royal Bank of Scotland, [2005] UKHL 3...............................................................19

K/S Lincoln v. C. B. Richard Ellis Hotels Ltd., [2009] All ER (D) 38 (Oct).............................3

Kalyani Breweries Ltd. v. State of West Bengal and Ors., (1997) 7 SCC 738......................6, 8

Karnataka Pawn Brokers' Association v. State of Karnataka, ILR 1993 Kar. 240...................8

KR v. Royal & Sun Alliance Plc.,[2007] 1 All ER (Comm.) 161..............................................4

MEMORANDUM for RESPONDENT

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 -Index of Authorities-

Laidlaw v. Organ, 15 U.S. 178 (1817).....................................................................................12

Lancashire County Council v. Municipal Mutual Insurance Ltd., [1996] 3 All ER 545...........4

Lennard’s Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd., [1914-15] All ER Rep. 280........4

M. C. Chacko v. State Bank of Travancore, AIR 1970 SC 504.................................................1

M.P. Electricity Board v. Shail Kumar, AIR 2002 SC 551.....................................................20

Madhya Pradesh Mines Ltd v. RB Shriram Durga Prasad Ltd., (1972) 3 SCC 180...............16

Meridian Global Funds Management Asia Ltd. v. Securities Commission [1995] 3 All ER
918..........................................................................................................................................4

Ouchterloney Valley Estates Ltd. v. State of Kerala, (1965) 1 SCR 803...................................8

Pannalal Jankidas v. Mohanlal & Anr,. AIR 1951 SC 144.....................................................16

Pioneer Shipping Ltd. v. BTP Tioxide Ltd., [1981] 2 All ER 1030...........................................6

Popatlal Shah v. State of Madras, AIR 1953 SC 274................................................................6

Prenn v. Simmonds, [1971] 3 All ER 237................................................................................10

Rabin v. Gerson Berger Association Ltd., [1986] 1 All ER 374................................................9

Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises, (1999) 9 SCC
283........................................................................................................................................17

Rajkot Municipal Corporation v. Manjulaben Jayantilal Nakum and Ors., (1997) 9 SCC 552
..............................................................................................................................................16

Ranbirsingh Shankarsingh Thakur v. Hindusthan General Electric Corporation Ltd. and

Anr., AIR 1971 Bom. 97........................................................................................................9

Reckitt and Coleman of India Ltd. v. M. P. Ramachandran, (1999) PTC 741 (Cal.)..............12

Reckitt and Coleman v. Kiwi, (1999) PTC 393........................................................................12

Richards v. Lothian, [1913] AC 263........................................................................................20

Royal Brunei Airlines Sdn Bhd v. Tan, [1995] 3 All ER 97.......................................................4

MEMORANDUM for RESPONDENT

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 -Index of Authorities-

Safeway Stores v. Simon John Twigger and Ors., [2010] EWCH 11 (Com.)............................4

Salomon v. A. Salomon & Co. Ltd., [1895 – 99] All ER Rep. 33..............................................2

Shogun Finance Ltd. v. Hudson, [2004] 1 All ER 215..............................................................9

Sirius International Insurance Co. v. FAI General Insurance Ltd., [2005] 1 All ER 117........7

Sorabjee Hormusha v. V. M. Ismail AIR 1960 Mad. 520..........................................................9

State of Gujarat v. Variety Body Builders, AIR 1976 SC 2108.................................................7

State of Kerala v. Cochin Chemical Refineries, AIR 1968 SC 1361.......................................16

State of Madras v. Gannon Dunkerley and Co., (Madras) Ltd., AIR 1958 SC 560..................8

State of Maharashtra, Bombay and Ors. v. Britannia Biscuits Co. Ltd. and Ors., (1995) Supp.
(2) SCC 72..........................................................................................................................6, 8

State of Punjab v. Modern Cultivators, Ladwa, AIR 1965 SC 17...........................................20

State of Tamil Nadu v. Srinivasa Sales Circulation, (1996) 10 SCC 648..................................6

Steel Authority of India Ltd. v. Gupta Brother Steel Tubes Ltd., (2009) 10 SCC 63...............17

Stone & Rolls (In Liquidation) v. Moore Stephens (A Firm), [2009] UKHL 39...................3, 4

Tata Consultancy Services v. State of Andhra Pradesh, AIR 2005 SC 371..............................6

Transfield Shipping Inc. v. Mercator Shipping Inc., [2008] 4 All ER 159..............................20

United Breweries Ltd. v. State of Andhra Pradesh, (1997) 3 SCC 530.................................6, 8

United Project Consultants Pte Ltd. v. Leong Kwok Onn, [2005] 4 SLR 214...........................4

Venture Global Engineering v. Satyam Computer Services Ltd. and Anr., AIR 2008 SC 1061
..............................................................................................................................................18

Vitol BV v. Compagnie Europeene des Petroles, [1988] 1 Lloyd’s Rep. 574...........................7

12B TREATISES

MEMORANDUM for RESPONDENT

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 -Index of Authorities-

Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration,
4th edn. (Sweet and Maxwell, London: 2004)........................................................1, 2, 17, 18

Bernard Hanotiau, Complex Arbitrations: Multiparty, Multicontract, Multi-issue and Class

Actions (Kluwer Law International, The Hague: 2005).........................................................1

Bethany MacLean and Peter Elkind, The Smartest Guys in the Room: The Amazing Rise and
Scandalous Fall of Enron (Penguin, USA: 2003)................................................................13

Bryan Garner, ed., Black’s Law Dictionary, 7th edn. (West Publishing Co., St. Paul: 1999)....3

Emmanuel Gaillard and John Savage (eds.), Fouchard, Gaillard, Goldman on International
Commercial Arbitration (Kluwer Law International, The Hague, Boston, London: 1999). 1,
17

H. E.Guest, ed., Chitty on Contracts, Vol. 1, 27th edn. (Sweet & Maxwell, London: 1994)..16

J. Beatson, Anson’s Law of Contract, 27th edn. (Oxford University Press: 1998)...................15

Jean-François Poudret and Sébastien Besson, Comparative Law of International Commercial

Arbitration (Sweet and Maxwell: 2007)................................................................................1

Kim Lewison, The Interpretation of Contracts, 4th edn. (Sweet & Maxwell, London: 2007)..6,
9, 10

Margaret L. Moses, The Principles and Practice of International Commercial Arbitration

(Cambridge University Press, 2008)......................................................................................1

Mauro Rubino-Sammartano, International Arbitration Law and Practice (Kluwer Law

International: 2001)................................................................................................................1

N. Bhadbhade, ed., Pollock and Mulla on the India Contract Act, Vol. I, 12th edn.
(Butterworths, Delhi: 2001).................................................................................................10

P. Ramanatha Aiyer, The Law Lexicon, 2nd edn. (Wadhwa & Co., Nagpur: 2004)...................6

13B ARTICLES

MEMORANDUM for RESPONDENT

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 -Index of Authorities-

Barry W. Boehm and Kevin J. Sullivan, “Software Economics: A Roadmap” (Association for
Computing Machinery, New York: 2000)...........................................................................12

E. Kumar Sharma, “The Great Satyam Robbery”, Business Today, January 20, 2009,
available at http://businesstoday.intoday.in (Last visited: May 12, 2010)...........................13

P. R. Balasubramanian, Tomas Isakowitz, Rob Kauffman, and Raghav K. Madhavan,

“Exploiting Hypertext Valuation Links for Business Decision Making: A Portfolio
Management Illustration”, NYU Working Paper No. IS-91-20 (July, 1991), available at
http://ssrn.com/abstract=1289043 (Last visited: May 13, 2010).........................................13

MEMORANDUM for RESPONDENT

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 -Statement of Jurisdiction-

3B STATEMENT OF JURISDICTION

Shawcross Solutions Pvt. Ltd. the first Respondent in the instant case and Comet (Shawcross)
Solutions Pvt. Ltd., the second Respondent in this matter, have the honour to submit this
Memorial before the Tribunal in the Court of Arbitration, Gregaria, in pursuance of Clause 13
of the End User License Agreement between Claimant and Respondent 2 and in furtherance
of Section 16 of the Gregarian Arbitration Act, 1995, while expressing reservations to the
jurisdiction of this Tribunal, with respect to Respondent 1.

MEMORANDUM for RESPONDENT

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 -Questions Presented-

4B QUESTIONS PRESENTED

The following questions have been presented before the Tribunal for its determination:

1. Whether the Tribunal has jurisdiction over Respondent 1 and whether it can be bound
to the arbitration agreement.

2. Whether Mr. Romanovich’s acts can be attributed to Claimant, thereby barring

Claimant’s action by virtue of the principle ex turpi causa non oritur actio.

3. Whether Respondents have breached Sections 15 and 16 of the Frugalian Sale of

Goods Act, 1932.

4. Whether Respondents are liable for breach of contract under the Frugalian Contract
Act, 1872.

5. Whether Respondents are liable to pay damages for losses suffered by Claimant.

MEMORANDUM for RESPONDENT

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 -Statement of Facts-

5B STATEMENT OF FACTS

Mallory Advisory Services Ltd. [hereinafter “Claimant”] is a public limited company

incorporated in the State of Frugalia, and engaged in the business of investment and portfolio
management. Shawcross Solutions Pvt. Ltd. [hereinafter “Respondent 1”] is a private limited
company incorporated in the State of Rotundia. Comet (Shawcross) Solutions Pvt. Ltd.
[hereinafter “Respondent 2”] is its wholly owned subsidiary incorporated in Frugalia. The
parent and the subsidiary are engaged in the business of software development.

II

Mr. Romanovich, owning 80% of Claimant’s shares, was the majority stakeholder. Entitled to
nominate 7 of 10 directors, he never sat on the Board himself. The 1990s were immensely
profitable for Claimant, especially when Mr. Felix became the Chairman and the CEO. He
made high-risk investments but the recession in 2007 proved to be his downfall. Mr. Felix
was removed from his post in Claimant as per the condition put forward by the Government
of Frugalia in return for aiding Claimant.

III

Mr. Romanovich thereafter got himself elected as the Chairman of the Board, and also took
over as CEO on April 1, 2008. Even though he was inexperienced in management, he wanted
to implement a scientific approach to investment. He heard about the software “Comet” when
he was looking for an investment management software. In the process of development by
Respondent 1, it was regarded as “unquestionably the best investment management software
in the world”. He informed Claimant’s Board of Directors of his intention to enter into a
contract with Respondent 1 instead of Macrohard Inc., manufacturing Blackhawk, a well-
known investment management software. After much consideration, the Board unanimously
authorised him to proceed with enquiries and take further action after the Board’s consent.

IV

On August 14, 2008, Mr. Romanovich wrote to the CEO of Respondent 1 informing him of
the exact features of the software that he required for Claimant. He required a software that
would recommend whether Claimant should sell or purchase a particular share on a given

MEMORANDUM for RESPONDENT

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 -Statement of Facts-

day. He believed that this would act like an advanced warning system and reduce high-risk
investment, which was the primary cause of Claimant’s downfall under Mr. Felix. In reply,
Respondent 1 informed him that “Comet” fulfilled all those requirements and offered to enter
into a deal with him quoting a price of $ 45 million. The Board of Directors with the
exception of one Member were agreeable to the proposal put forward by Mr. Romanovich to
enter this contract. Respondent 1 decided to enter into a contract with Claimant through
Respondent 2, a wholly owned subsidiary, to be incorporated in Frugalia, to avoid choice of
law controversy regarding cross border contracts and also to afford Respondent 1 tax
advantages. It transferred the copyright in Comet to Respondent 2, sent personnel so that
Respondent 2 could provide support services to Claimant and completed all accompanying
legal formalities required for this contract. Respondent 1 did not participate in the actual
signing of the contract, which was signed by Respondent 2.

The Board of Directors was not very convinced with Mr. Romanovich’s idea to contract with
little-known Respondent 1. Their requests for direct discussion with executives of
Respondent 1 were denied by him, and the Board eventually agreed to the deal in order to not
upset the de-facto power behind the company.

VI

Both Claimant and Respondents were eager to conclude the deal before the end of the
financial year. Therefore, Respondent 2 hastily completed the final stages of development of
“Comet”, which involved the drafting of the End User Licence Agreement [hereinafter
“EULA”]. The software and EULA were sent to Mr. Romanovich on the same packaged CD.
The EULA did not address the question of compensation or damages in case of breach.

VII

Once “Comet” was installed in Claimant’s system, there was no corresponding improvement
in the company’s performance. Soon, Comet was found to be only ordinary in its
performance and another software, Blackhawk was definitely better. Comet’s inefficiency
was proved when it did not warn the Company about its investment in Truism, one of the
leading software companies in Frugalia, which went bankrupt soon after. Most of the market

MEMORANDUM for RESPONDENT

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 -Statement of Facts-

experts commented that on a close analysis of Truism’s accounts and growth path, it was a
highly risky venture to invest in.

VIII

Allegations were made against Mr. Romanovich regarding a bribe he received of $25 million
from Respondent 1 and the Government immediately started investigating the matter. The
Government relieved him of his responsibilities once it was found that the allegations against
him were true. Money was indeed transferred by one of the officials of Respondent 1 to Mr.
Romanovich’s bank account soon after the conclusion of the contract. It was also found that
the CEO of Respondent 1 was his business associate who had previously been held for
embezzlement. Mr. Romanovich and the CEO of Respondent 1 were arrested and Mr.
Romanovich disclosed that both of them knew about the inefficacy of Comet. He further
disclosed that the basic purpose of the sale of Comet was to acquire benefit for both. After
this disclosure his name was removed from Claimant’s register. The trial of both the CEOs is
pending in their respective countries.

IX

Following this, Mr. Felix was reappointed as the CEO of Claimant. He found that Claimant
had grossly overpaid for Comet. Although Comet had none of the special features that were
asked for, was not defective, and was basically an ordinary investment management software.
Nevertheless, in October 2009, Claimant initiated arbitration proceedings against Respondent
1 and Respondent 2 for recovery of the purchase price of “Comet”, damages for the loss
resulting from the investment in Truism, and for the consequential loss of reputation.

Both Claimant and Respondents (without prejudice to their objection to jurisdiction)

appointed arbitrators under the contract, and the party-appointed arbitrators appointed the
President of the Tribunal. The arbitral tribunal, issuing Procedural Order No. 1, fixed a date
for hearing arguments.

MEMORANDUM for RESPONDENT

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 -Summary of Arguments-

6B SUMMARY OF ARGUMENTS

I. RESPONDENT 1 IS NOT BOUND BY THE ARBITRATION CLAUSE CONTAINED IN THE CONTRACT

BETWEEN RESPONDENT 2 AND CLAIMANT.

The doctrine of privity being a fundamental law of contract and the requirement of consent
being the cornerstone of arbitration, to adhere to the doctrine of privity and in the absence of
consent, Respondent 1 cannot be bound to this arbitration.

The corporate veil between Respondent 1 and Respondent 2 cannot be lifted since there exist
no compelling reasons such as fraud or abuse of corporate form.

II. IN ANY EVENT, THE ACTION IS BARRED BY VIRTUE OF EX TURPI CAUSA NON ORITUR ACTIO, SINCE MR.
ROMANOVICH’S FRAUDULENT ACTS ARE ATTRIBUTABLE TO CLAIMANT, AND CLAIMANT CANNOT BASE ITS
ACTION ON WHAT IS (IN LAW) ITS OWN FRAUD.

Applying the defence of ex turpi causa, since Claimant, acting through Mr. Romanovich,
concluded the contract with Respondent 2 in order to fraudulently acquire money, it cannot
claim damages arising out of the same contract.

Mr. Romanovich being the ‘directing mind and will’ behind the Claimant Company, his acts
are directly attributable to Claimant.

III. THE FRUGALIAN SALE OF GOODS ACT IS INAPPLICABLE, SINCE THE TRANSACTION IN QUESTION

CONSTITUTES A “LICENCE” AND NOT A “SALE”. IN ANY EVENT, NEITHER RESPONDENT 1 NOR

RESPONDENT 2 IS IN BREACH OF SECTIONS 15 AND 16 OF THE ACT, SINCE COMET IS NOT DEFECTIVE.

The parties have expressly stated that the transaction is a license and not a sale. The Tribunal
should not disregard this manifest intention of the parties. Moreover, even if the terms of the
contract were to be examined ignoring this stipulation, it is evident that what has passed to
Claimant under the contract is a very limited right to use the software and not title over it.
Therefore the transaction is not a sale and the Sale of Goods Act is inapplicable. Even if the
said Act were applicable, Respondents are not liable under Sections 15 or 16 as no
description or prior purpose was stated in the contract. Prior communications are excluded

MEMORANDUM for RESPONDENT

-xvii-
 -Summary of Arguments-

from consideration under Clause 12 of the contract. Moreover, applicability of Section 16 is

precluded by proviso to Section 16(1) as the alleged sale was under the trade name of the
good. Assuming that pre-contractual communications constituted binding description or
statement of particular purpose for which the goods are to be fit, Comet conforms to both.

IV. RESPONDENTS ARE NOT LIABLE FOR BREACH OF CONTRACT UNDER THE FRUGALIAN CONTRACT
ACT, 1872.

Contractual obligations are to flow from the text of the contract and not from negotiating
history. Therefore, the communication of Mr. Romanovich did not create any obligation upon
Respondents. Even assuming that this communication was to be treated as a contractual term,
it has already been submitted that the particulars of this communication have been fully
complied with.

V. ARGUENDO, THE LIABILITY OF RESPONDENTS DOES NOT EXTEND TO COMPENSATING CLAIMANT FOR
THE LOSSES SUSTAINED BY IT BY INVESTING IN TRUISM.

Assuming that Respondents are liable, the extent of the liability should be determined as per
the rule of Hadley v. Baxendale as applied by Frugalian and Indian courts disregarding later
developments in English law. Departure from this rule will be disregarding the express
stipulation of parties that the contract is governed by law of Frugalia. Moreover, this will
make the award patently illegal and liable to be set aside in Frugalia. Applying rule
of Hadley v. Baxendale, it is submitted that the fraud in Truism and the consequences thereof
could not have been reasonably foreseen by Respondents while entering into the contract.
Even if the subsequent developments in English law are to be taken into account,
Respondents are not liable to compensate Claimant for losses arising from investing in
Truism as these losses are attributable to the fraud in Truism, an event beyond the control of
Respondents.

MEMORANDUM for RESPONDENT

-xviii-
 -Arguments Advanced-

7B ARGUMENTS ADVANCED

I. RESPONDENT 1
14B IS NOT BOUND BY THE ARBITRATION CLAUSE CONTAINED IN THE

CONTRACT BETWEEN RESPONDENT 2 AND CLAIMANT.

Claimant seeks to extend obligations under Clause 13 of the EULA to Respondent 1 based on
the theory of veil-piercing. Respondents argue that the doctrine of privity and requirement of
consent of parties to arbitrate render the said contention untenable [A]. Moreover, the
corporate veil between Respondent 1 and Respondent 2 cannot be lifted [B].

i. 19B Any attempt to hold Respondent 1 bound to arbitrate is

rendered untenable by the doctrine of privity and the requirement of consent
in arbitration.

The doctrine of privity of contract posits that only parties to a contract may claim under or be
claimed against the contract. 1 Therefore, by application of this doctrine, only parties to an
F F

arbitration agreement can be bound to arbitrate under it. 2 Moreover, consent of parties is a
F F

necessary prerequisite for arbitral proceedings 3 and the tribunal derives its jurisdiction from
F F

such consent 4 . F F

1
Dunlop Pneumatic Tyre Co. v. Selfridge and Co., [1914-15] All ER Rep. 333; M. C. Chacko v. State Bank of
Travancore, AIR 1970 SC 504.
2
Banque Arabe et Internationale d’Investissement v. Inter-Arab Investment Guarantee Corp, (1996) XXI Y. B.
Com. Arb. 13 (Ad Hoc, UNCITRAL, 1994); Bernard Hanotiau, Complex Arbitrations: Multiparty,
Multicontract, Multi-issue and Class Actions (Kluwer Law International, The Hague: 2005), 3, 7; Jean-François
Poudret and Sébastien Besson, Comparative Law of International Commercial Arbitration (Sweet and Maxwell:
2007), ¶ 239.
3
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 10 June 1958, New York, 330
U.N.T.S. 3, Art. II(1); Bridas SAPIC v. Turkmenistan, 345 F.3d 347, 358 (5th Cir. 2003); Margaret L. Moses,
The Principles and Practice of International Commercial Arbitration (Cambridge University Press, 2008), 33;
Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration, 4th edn. (Sweet
and Maxwell, London: 2004), ¶ 1-08.
4
Jean-François Poudret and Sébastien Besson, Comparative Law of International Commercial Arbitration
(Sweet and Maxwell: 2007), ¶¶ 155, 240; Alan Redfern and Martin Hunter, Law and Practice of International
Commercial Arbitration, 4th edn. (Sweet and Maxwell, London: 2004), ¶¶ 1-06, 1-09; Mauro Rubino-
Sammartano, International Arbitration Law and Practice (Kluwer Law International: 2001), 56; Emmanuel
Gaillard and John Savage (eds.), Fouchard, Gaillard, Goldman on International Commercial Arbitration
(Kluwer Law International, The Hague, Boston, London: 1999), ¶ 477.
MEMORANDUM for RESPONDENT

-1-
 -Arguments Advanced-

An attempt to impose upon a third entity an obligation to arbitrate based on a contract it never
gave its consent to is not valid in law as it is founded in vacuum and not on the consent of the
parties and operates against the aforementioned principles. 5 F F

In the instant matter, Respondent 1 is not a party to the contract referred to as the EULA. 6 F F

The text of the EULA expressly mentions Respondent 2 by name 7 but nowhere does it F F

mention Respondent 1.

Summarising, Respondents contend that Respondent 1 is not bound by the arbitration clause
contained in the EULA entered into between Respondent 2 and Claimant.

ii. 20B The corporate veil between Respondent 1 and Respondent

2 cannot be lifted.

As a general principle of company law, a limited liability company such as Respondent 2 is

an entity separate and distinct from its shareholders. 8 Admittedly, courts have, in certain
F F

cases extended this liability under the heading of ‘piercing the corporate veil’, however, this
must be done only in exceptional circumstances when one company has control over the
other and there was impropriety in the sense that the company structure was used to avoid
liability 9 (emphasis supplied). Both these factors must be fulfilled. 10
F F F

In the instant case, although Respondent 1 can be said to exercise control over Respondent 2
since they shared a parent-subsidiary relationship, however, it cannot be argued that
Respondent 2 was set up merely to avoid liability. Respondent 1 created Respondent 2 as a
wholly owned subsidiary in Frugalia, 11 which is not illegal under the laws of Frugalia. 12 The
F F F F

5
Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration, 4th edn. (Sweet
and Maxwell, London: 2004), ¶ 3-01.
6
Problem File, ¶ 10.
7
Problem File, Annexure II, ¶¶ 2-4, 7-10, 12.
8
Salomon v. A. Salomon & Co. Ltd., [1895 – 99] All ER Rep. 33.
9
Hashem v. Shayif, [2008] EWHC 2380 (Fam).
10
Ibid.
11
Problem File, ¶ 10.
12
See Frugalian Companies Act; see also, Indian Companies Act, 1956.
MEMORANDUM for RESPONDENT

-2-
 -Arguments Advanced-

purpose behind Respondent 1 forming a separate company in Frugalia was avoiding choice-
of-law controversies which might arise out of a cross-border transaction. 13 F F

Therefore, Respondents submit that in the absence of abuse of corporate form, the corporate
veil between Respondent 1 and Respondent 2 cannot be lifted to bind Respondent 1 to this
arbitration.

II. 15B IN ANY EVENT, THE ACTION IS BARRED BY VIRTUE OF EX TURPI CAUSA NON ORITUR

ACTIO, SINCE MR. ROMANOVICH’S FRAUDULENT ACTS ARE ATTRIBUTABLE TO CLAIMANT, AND
CLAIMANT CANNOT BASE ITS ACTION ON WHAT IS (IN LAW) ITS OWN FRAUD.

Respondents submit that in the event that this tribunal possesses the requisite jurisdiction,
Claimant’s action is nevertheless barred first, due to the application of the principle ex turpi
causa non oritur actio [A] and second, because Mr. Romanovich’s fraud is attributable to
Claimant [B].

A. Claimant cannot base its action upon an illegal act committed by it.
21B

The doctrine of ex turpi causa that no person shall be permitted to benefit from his own
wrong, has been followed in several judgments over time 14 and is recognised worldwide. 15 It
F F F F

is based on a related principle that no court will lend its aid to a man who founds his cause of
action upon an immoral or an illegal act. 16 F F

An immoral act may be subjective and difficult to define, however, an act, if found to be
violating the law of the land or “forbidden by law” is said to be ‘illegal’. 17 F F

Mr. Romanovich was convicted for embezzlement under the laws of Frugalia. 18 Therefore, he F F

clearly committed an act “forbidden by law”. Since Mr. Romanovich’s actions are directly

13
Problem File, ¶ 10.
14
Holman v. Johnson, (1775) 98 ER 1120, 1122; Gray v. Thames Trains Ltd. and Another, [2008] EWCA Civ.
713; Stone & Rolls (In Liquidation) v. Moore Stephens (A Firm), [2009] UKHL 39; K/S Lincoln v. C. B.
Richard Ellis Hotels Ltd., [2009] All ER (D) 38 (Oct).
15
French Code Civil, Arts. 6, 1128, 1131, 1133, 1172; German Bürgerliches Gesetzbuch, §§ 134, 138; United
States Restatement (Second) of Contracts, § 178(1); see generally New Zealand Illegal Contracts Act, 1970.
16
Holman v. Johnson, (1775) 98 ER 1120.
17
Bryan Garner, ed., Black’s Law Dictionary, 7th edn. (West Publishing Co., St. Paul: 1999), 750.
18
Problem File, ¶ 15.
MEMORANDUM for RESPONDENT

-3-
 -Arguments Advanced-

attributable to Claimant, 19 the rule of ex turpi causa is applicable in the instant case and
F F

Claimant’s action is thus barred.

ii. 22B Mr. Romanovich’s fraudulent acts are attributable to

Claimant.

A company’s liability may be based on primary or general rules of attribution. 20 In Safeway F F

Stores v. Simon John Twigger, 21 the Court held that for the purpose of applying the ex turpi
F F

causa defence, a company must be held liable through primary rules of attribution, 22 which F F

was differentiated from vicarious liability. 23 Although a director may be called an agent of a
F F

company for some purposes, 24 in certain cases, where a director or employee is the ‘directing
F F

mind or will’ of a claimant company, that company will be deemed to be ‘personally’

liable. 25 In other words, the liability will be primary instead of vicarious. Where those
F F

managing the company are using it as a vehicle for fraud, or where there is only one person
who is managing all aspects of the company's activities, there is no difficulty in identifying
the fraud as the fraud of the company. 26 F

Mr. Romanovich was the majority shareholder in Claimant, holding 80% of the shares. 27 He F F

was also Chairman of the Board of Directors and CEO of the company while the transaction
with Respondents took place. 28 He appointed 7 of the 10 directors, 29 and his de facto power
F F F F

19
Infra Contention II(B).
20
Meridian Global Funds Management Asia Ltd. v. Securities Commission [1995] 3 All ER 918; Stone & Rolls
(In Liquidation) v. Moore Stephens (A Firm), [2009] UKHL 39.
21
Safeway Stores v. Simon John Twigger and Ors., [2010] EWCH 11 (Com.).
22
See Meridian Global Funds Management Asia Ltd. v. Securities Commission [1995] 3 All ER 918.
23
Burrows v. Rhodes and Jameson, [1899] 1 QB 816; Hardy v. Motor Insurers' Bureau, [1964] 2 All ER 587;
Lancashire County Council v. Municipal Mutual Insurance Ltd., [1996] 3 All ER 545; United Project
Consultants Pte Ltd. v. Leong Kwok Onn, [2005] 4 SLR 214.
24
Lennard’s Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd., [1914-15] All ER Rep. 280.
25
Safeway Stores v. Simon John Twigger and Ors., [2010] EWCH 11 (Com.).
26
Royal Brunei Airlines Sdn Bhd v. Tan, [1995] 3 All ER 97; KR v. Royal & Sun Alliance Plc.,[2007] 1 All ER
(Comm.) 161.
27
Problem File, ¶ 2.
28
Problem File, ¶6.
29
Problem File, ¶ 2.
MEMORANDUM for RESPONDENT

-4-
 -Arguments Advanced-

on the Board was recognised. 30 Therefore, it may be inferred that Mr. Romanovich was the
F F

“directing mind and will” of the company.

As a result, the fraudulent acts of Mr. Romanovich are attributable to Claimant.

Concluding, Claimant cannot bring an action for breach of a contract which was concluded
by fraud of Mr. Romanov, whose actions are directly attributable to Claimant.

III. 16B THE FRUGALIAN SALE OF GOODS ACT IS INAPPLICABLE, SINCE THE TRANSACTION IN

QUESTION CONSTITUTES A “LICENCE” AND NOT A “SALE”. IN ANY EVENT, NEITHER

RESPONDENT 2 NOR RESPONDENT 1 IS IN BREACH OF SECTIONS 15 AND 16 OF THE ACT,

SINCE COMET IS NOT DEFECTIVE.

It is submitted that the transaction between the parties was in nature of a “license” and not a
“sale”. Therefore, the Frugalian Sale of Goods Act is inapplicable in the instant case [A].
Alternatively, neither of the Respondents is liable under the said Act as Comet was not
defective and fully matched the description mutually agreed between the parties [B].

A. The Frugalian Sale of Goods Act is inapplicable

23B

For the Frugalian Sale of Goods Act to apply, the transaction in question should be a
“sale”, 31 defined as a “contract whereby the seller transfers or agrees to transfer the property
F F

in goods to the buyer for a price”. 32 Although the software is a ‘good’ under the Act [1], the
F F

transaction is a licence and does not amount to a sale [2], not even a conditional sale [3].

1. 28B Respondents admit that Comet is a “good” under the Frugalian Sale
of Goods Act.

The Frugalian Sale of Goods act defines “goods” as “every kind of moveable property other
than actionable claims and money”. 33 In Tata Consultancy Services v State of Andhra
F F

Pradesh, it was held that off the shelf software falls within this definition. 34 “Comet” is an off F F

30
Problem File, ¶ 11.
31
Frugalian Sale of Goods Act, 1932, Preamble, §§ 4, 5, 15, 16; see also Indian Sale of Goods Act, 1930,
Preamble, §§ 4, 5, 15, 16.

32
Frugalian Sale of Goods Act, 1932, §4(1); see also Indian Sale of Goods Act, 1930, § 4(1).

33
Frugalian Sale of Goods Act, 1932, §2(7); see also Indian Sale of Goods Act, 1930, § 2(7).

34
Tata Consultancy Services v. State of Andhra Pradesh, AIR 2005 SC 371.
MEMORANDUM for RESPONDENT

-5-
 -Arguments Advanced-

the shelf software 35 and hence it is admitted that it is a “good” in the meaning of the
F F

Frugalian Sale of Goods Act.

2. 29B The transaction between the parties amounted to a license and not a
sale.

It is submitted that not every transaction where goods pass from one person to other
constitutes a sales contract. 36 For a transfer to be a sale, the parties must have intended the
F F

title in the good to have passed. 37 A mere permission to use constitutes a “license” and not a
F F

“sale” 38 and in such a transaction, the Sale of Goods Act is of no application. As the contract
F F

forms a private transaction between the parties, their intention at the time of entering into the
contract determines the true nature of the contract. 39 In gathering the intention of the parties
F F

to a contract, the text of the contract is to be accorded primacy 40 and where the text is clear,
F F

no subsidiary means of interpretation are to be adopted 41 . F F

In the present matter, the agreement between the parties is titled “End User License
Agreement”. 42 It is admitted that a title in itself does not go on to suggest that the transaction
F F

is not a sale, but a license. However, the intention of entering into a license agreement and
not an agreement of sale is manifest in the text of the contract. Parties expressly state that the

35
Problem File, ¶ 7.

36
See generally, Kalyani Breweries Ltd. v. State of West Bengal and Ors., (1997) 7 SCC 738; United Breweries
Ltd. v. State of Andhra Pradesh, (1997) 3 SCC 530; State of Maharashtra, Bombay and Ors. v. Britannia
Biscuits Co. Ltd. and Ors., (1995) Supp. (2) SCC 72.

37
Ibid; State of Tamil Nadu v. Srinivasa Sales Circulation, (1996) 10 SCC 648; Popatlal Shah v. State of
Madras, AIR 1953 SC 274.

38
Bryan Garner, ed., Black’s Law Dictionary, 7th edn. (West Publishing Co., St.Paul: 1999), 931, 1337; P.
Ramanatha Aiyer, The Law Lexicon, 2nd edn. (Wadhwa & Co., Nagpur: 2004), 1121, 1708.

39
Supra note 36; Pioneer Shipping Ltd. v. BTP Tioxide Ltd., [1981] 2 All ER 1030; Kim Lewison, The
Interpretation of Contracts, 4th edn. (Sweet & Maxwell, London: 2007), ¶¶ 2.02, 2.03, 2.05.

40
Deutsche Genossenschaftsbank v. Burnhope, [1995] 4 All ER 717; Sirius International Insurance Co. v. FAI
General Insurance Ltd., [2005] 1 All ER 117; AIB Group (UK) Plc. v. Martin, [2001] UKHL 63; Vitol BV v.
Compagnie Europeene des Petroles, [1988] 1 Lloyd’s Rep. 574, 576; State of Gujarat v. Variety Body Builders,
AIR 1976 SC 2108; Central Bank of India v. Hartford Fire Insurance Co., AIR 1965 SC 1288.

41
Ibid.

42
Problem File, Annexure II.
MEMORANDUM for RESPONDENT

-6-
 -Arguments Advanced-

transaction is a license and not a sale. 43 In addition, only rights specified by the contract –
F F

namely, (i) the right to install, use, access, display and run one copy of the software on five
designated computers and (ii) the right to store or install a copy of the Software on a storage
device are transferred to the Claimant and all the remaining rights in respect of the software
are retained by Respondent 2. 44 Claimant requires the permission of Respondent 2 to even
F F

install the software on additional computers. 45 The computers on which the software was
F F

installed was to be notified to Respondent 2 and the latter was free to collect technical
information. 46 Further, on each computer only one processor was to run the software at a
F F

given time. 47 Also, the software could not be rented or sold without prior permission of
F F

Respondent 2. 48 F

These terms in the contract clearly indicate that what was transferred to Claimant was a right
use the software in accordance with set terms and conditions and not the title in the software
itself. Thus, it is clear that the parties intended to enter into a license agreement and not an
agreement of sale. Hence, the Frugalian Sale of Goods Act is inapplicable to the present
dispute.

3. 30B The transaction cannot be viewed as a conditional sale.

It is admitted that a sale can be conditional or unconditional. 49 The mere imposition ofF F

conditions does not reduce a contract of sale into a license agreement. 50 However, where the F F

conditions imposed are such that no intention to effect transfer of title can be inferred, the

43
Problem File, Annex II, ¶ 4.

44
Problem File, Annex II, ¶¶ 3, 4.

45
Problem File, Annex II, ¶ 3(a), (d).

46
Problem File, Annex II, ¶ 7.

47
Problem File, Annex II, ¶ 3(c).

48
Problem File, Annex II, ¶¶ 6, 8.

49
Frugalian Sale of Goods Act, 1932, § 4; see also Indian Sale of Goods Act, 1930, § 4; Ouchterloney Valley
Estates Ltd. v. State of Kerala, (1965) 1 SCR 803; State of Madras v. Gannon Dunkerley and Co., (Madras)
Ltd., AIR 1958 SC 560; Commissioner of Sales-Tax, Eastern Division, Nagpur v. Husenali Adamji and Co.,
AIR 1959 SC 887.

50
Arnold v. North American Chemical Co., 232 Mass. 196; Bauer & Cie v. O'Donnell, 229 U.S. 1 (1913);
Karnataka Pawn Brokers' Association v. State of Karnataka, ILR 1993 Kar. 240.
MEMORANDUM for RESPONDENT

-7-
 -Arguments Advanced-

transfer does not amount to a sale even in cases where the contract is termed a sale. 51 Title is F F

defined as the union of all elements (as ownership, possession, and custody) constituting the
legal right to control and dispose of property. 52 F

In this case, the contract, in addition to terming itself a license 53 and expressly stating that no
F F

sale was intended, 54 places such restrictions on the use of the software by Claimant 55 and its
F F F F

passing on title to a third party 56 that no incidence of title in the Claimant is evident. As the
F F

Claimant, through the contract, has not received any of the rights incidental to title in a
good, 57 Claimant cannot be said to have acquired title in the good. As no title has passed, no
F F

sale, not even a conditional sale can be said to have occurred.

ii. 24B Arguendo, neither Respondent 1 nor Respondent 2 is liable

under sections 15 and 16 of the Frugalian Sale of Goods Act.

Assuming but not conceding that the Sale of Goods Act applies in the present matter, it is
submitted that Respondents are not liable under Section 15 of the Frugalian Sale of Goods
Act [1] or Section 16 of the said Act [2].

1. 31B Respondents are not liable under Section 15.

For liability to arise under Section 15, first, the transaction has to be a sale by description and
second, the good should not be in conformity with the descriptions. 58 In the present matter it F F

is submitted that the discussions between Claimant and Respondent is in nature of prior
negotiations and not a description in the contract [a]. Alternatively, if the discussions

51
Kalyani Breweries Ltd. v. State of West Bengal and Ors., (1997) 7 SCC 738; United Breweries Ltd. v. State of
Andhra Pradesh, (1997) 3 SCC 530; State of Maharashtra, Bombay and Ors. v. Britannia Biscuits Co. Ltd. and
Ors., (1995) Supp. (2) SCC 72.

52
Bryan Garner, ed., Black’s Law Dictionary, 7th edn. (West Publishing Co., St.Paul: 1999), 1130.
53
Problem File, Annex II,

54
Problem File, Annex II, ¶ 4.

55
Problem File, Annex II, ¶ 3.

56
Problem File, Annex II, ¶¶ 6, 8.

57
Ibid.

58
Frugalian Sale of Goods Act, 1932, §15; see also Indian Sale of Goods Act, 1930, § 15; Sorabjee Hormusha
v. V. M. Ismail AIR 1960 Mad. 520; Ranbirsingh Shankarsingh Thakur v. Hindusthan General Electric
Corporation Ltd. and Anr., AIR 1971 Bom. 97.
MEMORANDUM for RESPONDENT

-8-
 -Arguments Advanced-

between the parties can be said to have laid down description to be adhered to by the good, it
is submitted that the said description has been fully adhered to [b].

a. The sale is not a sale by description.

35B

It is well accepted that where a contract is in writing, no evidence, however strong and
cogent, can be accepted to alter the rights and obligations of the parties as evident in the text
of the contract. 59 Where the text of the contract is unambiguous, no external or subsidiary
F F

tool of interpretation may be employed. 60 Even in cases where the contractual language is
F F

ambiguous both Common Law and judicial decisions in India vehemently reject prior
negotiations as a legitimate tool of interpretation. 61 This is in view of the fact that the
F F

negotiating history merely demonstrates a position adopted by a party at some time in the
past. 62 It is accepted that these positions are open to change in the course of negotiations and
F F

hence they are not of assistance in interpreting the final contract. 63 F

In the instant case, it is admitted that Mr. Romanovich communicated certain features he
expected in the software. 64 Other than this mention in the initial stages of the negotiation,
F F

these descriptions do not find a mention in the text of the contract 65 or even in any subsequent
F F

communication between the parties. To the contrary, the contract, by means of an entire
agreement clause, denounces such communications as a source of obligations. 66 In absence of
F F

mention in the contractual text and in light of an express rejection, it is submitted that the
alleged description in the pre-contractual communication by Mr. Romanovich cannot be

59
Shogun Finance Ltd. v. Hudson, [2004] 1 All ER 215; Rabin v. Gerson Berger Association Ltd., [1986] 1 All
ER 374; Kim Lewison, The Interpretation of Contracts, 4th edn. (Sweet & Maxwell, London: 2007), ¶ 3.10.

60
Central Bank of India v. Hartford Fire Insurance Co., AIR 1965 SC 1288; Kim Lewison, The Interpretation
of Contracts, 4th edn. (Sweet & Maxwell, London: 2007), ¶¶ 3.10, 8.15.

61
Investors Compensation Scheme v. West Bromwich Building Society, [1998] 1 All ER 98; Prenn v. Simmonds,
[1971] 3 All ER 237; Chartbrook Homes Ltd. v. Persimmon Homes Ltd., [2007] 1 All ER (Comm.) 1083; Kim
Lewison, The Interpretation of Contracts, 4th edn. (Sweet & Maxwell, London: 2007), ¶ 3.08; N. Bhadbhade,
ed., Pollock and Mulla on the India Contract Act, Vol. I, 12th edn. (Butterworths, Delhi: 2001), 257.

62
Ibid.

63
Ibid.

64
Problem File, ¶ 9.

65
Problem File, Annex II.

66
Problem File, Annex II, ¶ 12.
MEMORANDUM for RESPONDENT

-9-
 -Arguments Advanced-

relied on to enhance the contractual obligations of Respondents to beyond what was provided
for in the text of the contract. Therefore, the present contract cannot be said to be a contract
“for the sale of goods by description”. Hence, no liability can be imposed on Respondents
under Section 15 of the Frugalian Sale of Goods Act.

b. In the alternative, non-adherence with the description is not evident from the
36B

factual matrix.

It is a general principle of law of evidence that the burden of proving a particular falls upon
the party alleging the existence of the said fact. 67 Therefore, if non-adherence with
F F

description is alleged, it is for Claimant to lead evidence to establish such non-adherence. In

the given factual matrix, non-adherence with any mutually agreed description of the good is
evident.

The communication by Mr. Romanovich which is alleged to constitute a description of the

good merely required the software to (i) analyse market behaviour of every important
company over the past 50 years and based on this (ii) recommend whether Claimant should
sell or purchase a particular share on a given day, more specifically warn against proposed
investments which appear to be risky in light of this analysis. 68 To establish that the software
F F

did not conform with the alleged description, Claimant has to establish – (i) the software did
not analyse market behaviour of every important company over the last fifty years or (ii) the
analysis was faulty or erroneous or (iii) that the advice tendered by the software did not
correlate with the data analysis. None of these is evident from the facts.

All that is evident from the facts are – (i) there was no marked improvement in the market
performance of Claimant subsequent to the installation of the software 69 , (ii) in the subjective
F F

opinion of Claimant’s officials, the software was no better than a typical investment software
and is not as good as Blackhawk 70 , (iii) in the subjective opinion of some “pundits”, close
F F

analysis of Truism’s accounts and growth path would have demonstrated the risky nature of
the investment 71 . F F

67
Frugalian Evidence Act, § 102; see also Indian Evidence Act, 1872, § 102.

68
Problem File, ¶ 9.

69
Problem File, ¶ 13.

70
Ibid.

71
Problem File, ¶ 14.
MEMORANDUM for RESPONDENT

-10-
 -Arguments Advanced-

Neither of the Respondents had guaranteed in the contract or otherwise that the market
position of the Claimant would improve even marginally as a result of the software being
installed, nor was there any representation made to this effect. This did not form any part of
the alleged description. Moreover, the market position of Claimant depends on a number of
variables other than the efficacy of the software. Hence this fact cannot be said to be
indicative of non-adherence of the good with alleged description.

In the subjective opinion of the officials of Claimant, Comet is not better than typical
investment software and is not as good as Blackhawk. 72 Comet is, and was meant to be, a
F F

typical investment software. Typical investment software analyses data relating to the market
behaviour of various shares and provides advice on investment based on this. 73 This, and F F

nothing more, was what Comet was required to do under the alleged description provided by
Mr. Romanovich. 74 A vendor while dealing with his customer is entitled to claim that his
F F

goods are the best, even if the statement is not necessarily true. 75 Such statements are
F F

common in the marketplace and a prudent buyer knows that these competing assertions are
not necessarily true. 76 However, in this case no such representation was ever made by either
F F

of the Respondents to Claimant. It was Mr. Romanovich, the then chairman and majority
shareholder of Claimant, who represented to the board of directors of Respondent that Comet
was far better than other investment softwares including Blackhawk. 77 Claimant, on its own
F F

free will and its own risk heeded this representation. 78 This representation was made neither
F F

by nor on behalf of Respondents and hence they are not bound by it. Therefore, this cannot be
said to be a part of any description binding on Respondents.

72
Problem File, ¶ 13.

73
Barry W. Boehm and Kevin J. Sullivan, “Software Economics: A Roadmap” (Association for Computing
Machinery, New York: 2000).

74
Problem File, ¶ 9.

75
Reckitt and Coleman of India Ltd. v. M. P. Ramachandran, (1999) PTC 741 (Cal.); Reckitt and Coleman v.
Kiwi, (1999) PTC 393.

76
Chandelor v. Lopus, (1603) 79 ER 3; Laidlaw v. Organ, 15 U.S. 178 (1817); Barnard v. Kellogg, 77 U.S. 383
(1870).

77
Problem File, ¶ 7.

78
Problem File, ¶ 9.
MEMORANDUM for RESPONDENT

-11-
 -Arguments Advanced-

Further, it is said that the risk in investing in Truism could be understood from a close
analysis of the track record of the company. 79 An investment software processes data given to
F F

it using mathematical formulae. 80 A typical market fraud involves manipulation of data. 81

F F F F

Most market frauds involve such effective manipulation of data in such a way that even the
most stringent regulatory regimes take the projected data as genuine. 82 In this case, there was
F F

a market fraud involving Truism. 83 This would have projected the financial status of Truism
F F

as better than it really was. Comet, incapable of detecting a market fraud, like most
investment advisors and investment softwares are, would have based its analysis on the
fraudulently falsified data supplied to it and rendered advice on this basis. While a human
observer may have been able to place together past records of Truism and the recent data and,
based on market experience and human intuitions, find the investment too risky. This would
have involved discounting current market data and bringing in subjective elements into the
analysis. Such analysis is possible for a human analyst and not for a software which applies
set formulae to past and present data. Claimant, used to the advantages and disadvantages of
such a system of investment planning in the past, 84 weighed them against the advantages and
F F

disadvantages of a software-based investment planning strategy and consciously shifted to

the latter 85 . The failure of Comet to engage in a subjective analysis of the circumstances
F F

reflects the disadvantages, in general, of software based investment planning strategy as such
and not non-adherence by Respondents to any description mutually agreed regarding the
good.

79
Problem File, ¶ 14.

80
P. R. Balasubramanian, Tomas Isakowitz, Rob Kauffman, and Raghav K. Madhavan, “Exploiting Hypertext
Valuation Links for Business Decision Making: A Portfolio Management Illustration”, NYU Working Paper
No. IS-91-20 (July, 1991), available at http://ssrn.com/abstract=1289043 (Last visited: May 13, 2010).

81
Bethany MacLean and Peter Elkind, The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall
of Enron (Penguin, USA: 2003); E. Kumar Sharma, “The Great Satyam Robbery”, Business Today, January 20,
2009, available at http://businesstoday.intoday.in (Last visited: May 12, 2010).

82
Ibid.

83
Problem File, ¶ 14.

84
Problem File, ¶ 4.

85
Problem File, ¶ 7.
MEMORANDUM for RESPONDENT

-12-
 -Arguments Advanced-

In light of the above, it is submitted that even if the pre-contractual communication of Mr.
Romanovich as to the expected qualities of the software constituted a description that the
good was to conform to, the facts do not establish non adherence with such description.

2. 32B Respondents are not liable under Section 16.

It is submitted that the Respondents are not liable under Section 16 of the act. Terms implied
under Section 16 have no application in the present case as the good was sold by its “trade
name”. In the alternative, the good was in conformity with the terms implied under Section
16 by the particular purpose for which the good was required.

a. The sale was by trade name and hence implied terms under Section 16(1) are
37B

of no application.

Section 16(1) imposes an implied condition of fitness of goods for a particular purpose when
such purpose has been made known by the buyer to the seller and the buyer relied on the skill
and judgment of the seller to ensure that the good was suited for such purpose. 86 However, F F

proviso to this section expressly excludes such implied warranty in case of a “contract for the
sale of a specified article under its patent or other trade name”. 87 F F

In the present case, Mr. Romanovich from the very beginning knew of Comet by its trade
name. 88 While replying to queries about the investment software, Respondent stated, “Comet
F F

is just what you are looking for” 89 , referring to Comet by its trade name. The End User
F F

License Agreement also refers to Comet by its trade name. 90 Thus at every stage of the
F F

transaction, the software was referred to by its trade name. The contract was hence a
“contract for the sale of a specified article under its patent or other trade name” and implied
warranty under Section 16(1) is inapplicable.

86
Frugalian Sale of Goods Act, 1932, § 16(1); see also Indian Sale of Goods Act, 1930, § 16(1).

87
Ibid.

88
Problem File, ¶ 7.

89
Problem File, ¶ 9.

90
Problem File, Annex II, ¶¶ 1, 2.
MEMORANDUM for RESPONDENT

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 -Arguments Advanced-

b. Alternatively, the good was fit for its particular purpose.

38B

It has already been submitted that all that Mr. Romanovich asked for was a typical investment
software. 91 It has also been shown that there exists nothing on the facts to demonstrate that
F F

Comet did not meet the requirements of a typical investment software. 92 It has further been F F

shown that the failure of Comet to advice on the risks involved in the Truism investment does
not reflect on the quality of Comet as an investment software. 93 Therefore, it is submitted that
F F

the even assuming that the implied terms under Section 16(1) apply, such terms have not
been breached.

Therefore, Respondents are not liable to Claimant under section 16 of the Frugalian Sale of
Goods Act.

Concluding, it is submitted that Respondents are not in breach of the Frugalian Sale of Goods
Act.

IV. 17B RESPONDENTS ARE NOT LIABLE FOR BREACH OF CONTRACT UNDER THE FRUGALIAN
CONTRACT ACT.

A contract is said to be breached when a party does not fulfil its obligations under the
contract. 94 Therefore, to establish a breach, it is necessary to first show the existence of the
F F

obligation alleged to have been breached. It has already been submitted that no obligations
can be cast upon a party based on prior negotiations and other factors outside the contract if
such obligation does not flow from the contract itself. 95 F

It has already been submitted that even assuming that the communication of Mr. Romanovich
created binding obligations upon Respondents, the said obligations have not been breached. 96 F F

Thus, Respondents have not breached any obligation evident in the text of the agreement or
even those obligations alleged to have been created by the pre-contractual communication of
91
Supra Contention III(B)(1)(b).

92
Ibid.

93
Ibid.

94
Bryan Garner, ed., Black’s Law Dictionary, 7th edn. (West Publishing Co., St.Paul: 1999), 182; J. Beatson,
Anson’s Law of Contract, 27th edn. (Oxford University Press: 1998), 565.

95
Supra Contention III(B)(1)(a).

96
Supra Contentions III(B)(1)(b), III(B)(2)(b).
MEMORANDUM for RESPONDENT

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 -Arguments Advanced-

Mr. Romanovich. Hence, it is submitted that the Respondents are not liable for the breach of
contract.

V. 18B ARGUENDO, THE LIABILITY OF RESPONDENTS DOES NOT EXTEND TO COMPENSATING

CLAIMANT FOR THE LOSSES SUSTAINED BY IT BY INVESTING IN TRUISM.

It is submitted that the rule of Hadley v. Baxendale 97 as accepted by Indian judicial F F

pronouncements 98 should be applied to the present case [A]. Applying the said rule,
F F

Respondents are not liable for the losses incurred by Claimant by investing in Truism [B].
Even applying current English case law, Respondents are not liable for losses accrued to
Claimant for investing in Truism [C].

A. The rule of Hadley v Baxendale as adopted by Indian courts has to be

25B

applied in the present case.

The rule is Hadley v Baxendale states that a party breaching a contract is liable only for such
consequences of the breach as were reasonably foreseeable at the time of the entering into the
contract. 99 This rule has been accepted by judicial pronouncements in India. 100 Thus, in
F F F F

Frugalian law, which is in pari materia with Indian law 101 , the award of damages for the F F

breach of contract is governed by the rule of Hadley v Baxendale. It is submitted that the
Tribunal should apply this rule in the present matter, in deference to the choice of law
expressed by the parties [1] and in interest of rendering an enforceable award in the present
matter [2].

1. 33B The choice of Frugalian law by the parties mandates application of

the Hadley v Baxendale rule notwithstanding later developments English
law.

97
Hadley v. Baxendale, [1843-60] All ER Rep. 461.

98
Food Corporation of India v. Babulal, (2004) 2 SCC 712; Rajkot Municipal Corporation v. Manjulaben
Jayantilal Nakum and Ors., (1997) 9 SCC 552; Madhya Pradesh Mines Ltd v. RB Shriram Durga Prasad Ltd.,
(1972) 3 SCC 180; State of Kerala v. Cochin Chemical Refineries, AIR 1968 SC 1361.

99
Ibid; Hadley v. Baxendale, [1843-60] All ER Rep. 461; H. E.Guest, ed., Chitty on Contracts, Vol. 1, 27th edn.
(Sweet & Maxwell, London: 1994), ¶ 26-023.

100
Pannalal Jankidas v. Mohanlal & Anr,. AIR 1951 SC 144; Rajkot Municipal Corporation v. Manjulaben
Jayantilal Nakum and Ors., (1997) 9 SCC 552.

101
Problem File, ¶ 7.
MEMORANDUM for RESPONDENT

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 -Arguments Advanced-

Arbitration is a contractual dispute resolution process and party autonomy is one of the
fundamental tenets of arbitration. 102 It is respectfully submitted that an arbitral tribunal is a
F F

creation of the contract between the parties and hence it is impermissible for such a tribunal
to disregard express stipulations in the contract. 103 In the present matter, the parties have
F F

chosen law of Frugalia to govern their contract. 104 Hence, the consequences of breach of that
F F

contract also have to be determined under the said system of law. It has already been
submitted that the award of damages for breach of contract in Frugalian law is governed by
the rule laid down in Hadley v Baxendale. 105 Therefore, the Tribunal is bound to give effect
F F

to the choice of law expressed by the parties by applying the rule in Hadley v Baxendale in
computation of damages.

2. 34B Departure from the Hadley v Baxendale rule will render the award
unenforceable and even liable to be set aside in Frugalia.

It is well accepted that an arbitral tribunal must make every effort to render an award that is
enforceable. 106 In Frugalian law an arbitral award, including a foreign award, can be set aside
F F

under Section 34 of the Arbitration and Conciliation Act, 1996 on the ground of public policy
if the award is patently illegal. 107 Patent illegality may be determined with reference to the
F F

applicable law or with reference to the contract between the parties. 108 F F

102
Centrotrade Minerals and Metal Inc. v. Hindustan Copper Limited, (2006) 11 SCC 245; Alan Redfern and
Martin Hunter, Law and Practice of International Commercial Arbitration, 4th edn. (Sweet and Maxwell,
London: 2004), ¶ 1-11; Emmanuel Gaillard and John Savage (eds.), Fouchard, Gaillard, Goldman on
International Commercial Arbitration (Kluwer Law International, The Hague, Boston, London: 1999), ¶¶ 45-
45.

103
Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises, (1999) 9 SCC 283; Steel
Authority of India Ltd. v. Gupta Brother Steel Tubes Ltd., (2009) 10 SCC 63; G. Ramachandra Reddy and Co.
v. Union of India and Anr., AIR 2009 SC 2629.

104
Problem File, ¶ 11.

105
Supra Contention V(A).

106
Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration, 4th edn. (Sweet
and Maxwell, London: 2004), ¶ 1-12.

107
Venture Global Engineering v. Satyam Computer Services Ltd. and Anr., AIR 2008 SC 1061.

108
Ibid.
MEMORANDUM for RESPONDENT

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 -Arguments Advanced-

If the Tribunal were to depart from the position of Frugalian law on award of damages, the
Respondents would be left with no choice but to approach courts in Frugalia seeking setting
aside of the award as it disregards both the law of Frugalia and the contract of the parties.
Respondents will also be forced to seek an injunction from courts in Frugalia restraining
Claimant from seeking enforcement of the award so set aside in any other jurisdiction. 109 As F F

Claimant is incorporated in Frugalia and carries on business in that country, 110 such an F F

injunction mandating personal compliance of the Claimant will render the award virtually
unenforceable in any jurisdiction.

Therefore, it is submitted that with a view to render an enforceable award in the instant
dispute, the Tribunal should apply the rule of Hadley v. Baxendale.

ii. 26B Under the rule of Hadley v Baxendale, Respondents cannot

be held liable for the losses sustained by Claimant by investing in Truism.

Respondents are not liable for the losses sustained by Claimant with respect to its investment
in Truism Limited. Under the Hadley v. Baxendale 111 test, a seller is only liable for such
F F

damages which arise according to the usual course of things or such damages which may
reasonably have been in the contemplation of both parties at the time they made the contract
as the probable result of the breach.

The major reason for the failure of Claimant’s investment was the fraudulent transactions
carried on by the CEO of Truism. 112 Comet was never intended to prevent investments of this
F F

kind. The main purpose of Comet was to avoid risky investments, which it gauged by
analyzing the market data of that company. Truism was a very successful start-up company

109
See generally Venture Global Engineering v. Satyam Computer Services Ltd. and Anr., AIR 2008 SC 1061.

110
Problem File ¶ 1.

111
Hadley v. Baxendale, [1843-60] All ER Rep. 461; see also, Jackson v. Royal Bank of Scotland, [2005] UKHL
3.

112
Problem File ¶ 14.
MEMORANDUM for RESPONDENT

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 -Arguments Advanced-

and was cited as the perfect example of entrepreneurial brilliance. 113 Considering its F F

successful history, Comet did not identify Truism as a risky venture. The reason for Truism
turning bankrupt was the fraudulent activities of its CEO. 114 Comet could never have
F F

predicted this. The above chain of events could not have arisen in the usual course of things
nor could it have been reasonably contemplated at the time of contract. Therefore,
Respondents are not liable to compensate Claimant for losses suffered by it consequent to
investing in Truism.

iii. 27B Arguendo, even if the subsequent developments in English

law were to be taken into account, the Respondents cannot be held liable for
the losses sustained by Claimant by investing in Truism.

Even assuming that later developments in English law have to be taken into account, the
Respondents are not liable to compensate claimant for losses incurred by it by investing in
Truism. Recent developments in English law on damages and remoteness of damage are
reflected in Transfield Shipping v. Mercator Shipping. 115 It was held in that case that “the
F F

question of remoteness cannot be isolated from consideration of the purpose of the contract
and the scope of the contractual obligation” and that “if, on the proper analysis of the contract
against its commercial background, the loss was within the scope of the duty, it cannot be
regarded as too remote, even if it would not have occurred in ordinary circumstances”.
However that case and the principle laid down is inapplicable in the present factual matrix.
Transfield was decided in the context of a delay of a ship necessitating the re-negotiation of
an onward charter to the prejudice of the charterer. In other words, the loss though not
necessarily foreseeable at the time of contracting was certainly and directly attributable to the
actions of the respondents in that case.

In this case, the losses accruing to Claimant are attributable to the fraud in Truism and not to
the Respondent. Moreover, common law admits third party intervention as a defence even in
cases of heightened liability like strict liability. 116 In this case, the loss would not have
F F

113
Ibid.

114
Ibid.

115
Transfield Shipping Inc. v. Mercator Shipping Inc., [2008] 4 All ER 159.

116
Box v. Jubb, [1879] 4 Ex. D. 76; Richards v. Lothian, [1913] AC 263; State of Punjab v. Modern Cultivators,
Ladwa, AIR 1965 SC 17; M.P. Electricity Board v. Shail Kumar, AIR 2002 SC 551.
MEMORANDUM for RESPONDENT

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 -Arguments Advanced-

occurred had the fraud in Truism not occurred. Hence, even under the test of Transfield
Shipping v. Mercator Shipping, Respondents cannot be held liable.

Concluding, it is submitted that Respondents are not liable to compensate Claimant for any
losses accrued to it for use of the software Comet.

MEMORANDUM for RESPONDENT

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 -Conclusion and Prayer for Relief-

8B CONCLUSION AND PRAYER FOR RELIEF

In light of the facts of the case, issues raised and arguments advanced, Counsel for
Respondents respectfully requests the Tribunal to determine:

1) The Tribunal lacks jurisdiction over Respondent 1, since it is not party to the
agreement that contains the arbitration clause.

2) In any event, the action is barred by virtue of ex turpi causa non oritur actio, since
Mr. Romanovich’s fraudulent acts are attributable to Claimant.

3) The Frugalian Sale of Goods Act is inapplicable, since the transaction in question
constitutes a “licence” and not a “sale”. In any event, neither Respondent 1 nor
Respondent 2 is in breach of ss. 15 and 16 of the Act, since Comet is not defective.

4) Alternatively, neither Respondent 1 nor Respondent 2 is liable for breach of contract

under the Frugalian Contract Act, 1872.

5) In any event, Respondents are not liable to pay damages for the erroneous investment,
or for the losses resulting there from.

All of which is respectfully affirmed and submitted

Sd/-

Counsel for Respondents

MEMORANDUM for RESPONDENT

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