Team 11C

3RD NATIONAL LAW SCHOOL INTERNATIONAL ARBITRATION MOOT COURT COMPETITION,

2010

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 CLAIMANT

 -Table of Contents-

TABLE OF CONTENTS

Table of Contents........................................................................................................................i

Table of Abbreviations..............................................................................................................iv

Index of Authorities.................................................................................................................vii

Cases....................................................................................................................................vii

Statutes...................................................................................................................................x

Treatises.................................................................................................................................x

Articles..................................................................................................................................xi

Statement of Jurisdiction........................................................................................................xiii

Questions Presented................................................................................................................xiv

Statement of Facts....................................................................................................................xv

Summary of Arguments........................................................................................................xviii

Arguments Advanced.................................................................................................................1

I. The Tribunal has jurisdiction over Respondent 1 under settled principles of arbitration
law and in any event, the corporate veil between Respondent 1 and Respondent 2 must be
lifted.......................................................................................................................................1

A. The Tribunal has the authority to determine its own jurisdiction..............................1

B. Respondent 1 is bound to the arbitral proceedings....................................................2

1. The corporate veil between Respondent 1 and Respondent 2 must be lifted to

bind Respondent 1 to the arbitral proceedings...............................................................2

2. Respondent 1 is bound by the arbitration clause in equitable estoppel................3

MEMORANDUM for CLAIMANT

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 -Table of Contents-

II. The fraudulent acts of Mr. Romanovich cannot be attributed to Claimant; in any case,
the defence of ex turpi causa non oritur actio is inapplicable in these circumstances and
does not bar Claimant’s action...............................................................................................4

A. The fraudulent acts of Mr. Romanovich cannot be attributed to Claimant................5

B. In any case, the defence of ex turpi causa is inapplicable in these circumstances and
does not bar Claimant’s action...........................................................................................6

1. Claimant’s vicarious liability is insufficient to raise the defence of ex turpi

causa.6

2. In the alternative, Respondents’ complicity with the fraud precludes them from
raising the illegality defence..........................................................................................7

III. Respondents are liable under Sections 15 and 16 of the Frugalian Sale of Goods
Act, 1930................................................................................................................................8

A. The Transaction is governed by provisions of the Frugalian Sale of Goods Act......8

1. “Comet” is a good as per the definition of “goods” under the Frugalian Sale of
Goods Act.......................................................................................................................8

2. The transaction between the parties amounted to a sale despite it being termed a
license by the parties......................................................................................................9

B. Respondents are liable under Section 15 of the Sale of Goods Act.........................11

1. The pre-contractual communication between Mr. Romanovich and Respondents

laid down the descriptions to which the good had to conform....................................12

2. Respondents failed to supply good conforming to the description....................12

C. Respondents are liable under Section 16(1) of the Sale of Goods Act....................13

1. Particular purpose for which the software was required was made known to
Respondent 1................................................................................................................14

2. Claimant relied on Respondents’ skill and judgment........................................14

3. The good delivered was unsuited for the stated purpose...................................15

MEMORANDUM for CLAIMANT

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 -Table of Contents-

4. The liability of Respondents under Section 16(1) is not excluded by proviso to

Section 16 (1)...............................................................................................................15

a. The exclusion under the proviso does not apply as the purchase was based on
the representation of fitness by seller and on the trade name..................................16

b. The exclusion under the proviso does not apply as “Comet” cannot be treated
as a trade name in the present matter.......................................................................16

IV. Alternatively, Respondents are liable for Breach of Contract under the Frugalian
Contract Act, 1872...............................................................................................................17

A. The communication between parties as to the description and purposes of the

software has been incorporated by reference as a term of the EULA..............................18

B. There has been a breach of the contractual term regarding description and purpose
to be served by the product..............................................................................................18

V. Respondents are liable to refund the purchase price and pay requisite damages for the
erroneous advice and consequential losses suffered by Claimant.......................................19

Conclusion and Prayer for Relief.............................................................................................21

MEMORANDUM for CLAIMANT

-iii-
 -Table of Abbreviations-

TABLE OF ABBREVIATIONS

¶/¶¶ - Paragraph(s)

§/S./ss.- Section(s)

A.C. – Appeal Cases

AIR- All India Reporter

All ER – All England Law Reports

Am. Rev. Int’l. Arb. –American Review of International Arbitration

Anr. – Another

Art.- Article

Cal. – Calcutta

CD – Compact Disk

CEO - Chief Executive Officer

Ch. – (20)

Cir. – Circuit

Co. - Company

Com. - Commercial

Corp. - Corporation

ed./eds. – Editior(s)

edn. – edition

ER – English Reports

EULA - End User License Agreement

EWCA Civ. - England and Wales Court of Appeals (Civil)

MEMORANDUM for CLAIMANT

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 -Table of Abbreviations-

EWHC – England and Wales High Court

F.2d – Federal Reporter, 2nd series

F.3d - Federal Reporter, 3rd series

Ibid – Ibidem

Inc. - Incorporated

Int’l. Arb. L. Rev. – International Arbitration Law Review

Ker – Kerala

Ltd.- Limited

Mad. – Madras

No. - Number

Ors. – Others

PC – Privy Council

pp. – Pages

Pvt. - Private

QB – Queen’s Bench

Rep. - Reprint

SC – Supreme Court

SCC – Supreme Court Cases

Sd/- - Signed

SLR – Singapore Law Reports

SLT – Scot Law Times

Supp. - Supplement

UKHL – United Kingdom House of Lords

MEMORANDUM for CLAIMANT

-v-
 -Table of Abbreviations-

UNCITRAL - United Nations Commission on International Trade Law

Univ. Miami L. Rev. – University Miami Law Review

UP – Uttar Pradesh

USA/US – United States of America

v. - Versus

MEMORANDUM for CLAIMANT

-vi-
 -Index of Authorities-

INDEX OF AUTHORITIES

CASES

Adams v. Cape Industries Plc, [1991] 1 All ER 929.................................................................3

American Tobacco Company v. United States, 328 US 781 (1946).......................................11

Anglo Petroleum Limited v. TFB (Mortgages) Limited [2007] EWCA Civ. 456......................8

Baldry v. Marshall, [1924] All ER Rep 155............................................................................17

Bauer & Cie. v. O'Donnell, 229 U.S. 1 (1913)........................................................................11

Bharat Sanchar Nigam Ltd. and Anr. v. Union of India and Ors., AIR 2006 SC 1383...........9

Board of Trustees of Port of Calcutta v. Bengal Corp. Pvt. Ltd., AIR 1979 Cal. 142.............15

Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908)..................................................................11

Bridas SAPIC v. Turkmenistan, 345 F.3d 347, 358 (5th Cir. 2003)..........................................4

Burrows v. Rhodes and Jameson, [1899] 1 QB 816..................................................................7

C. Czarnikow Ltd. v. Koufos, [1967] 3 All ER 686.................................................................20

Canadian Dredge and Dock Co. Ltd. v. The Queen, [1985] 1 SCR 662...................................5

Commissioner of Income Tax-TDS v. Glenmark Pharmaceuticals Ltd., (2010) 127 TTJ 719
(Mum.).................................................................................................................................15

Deloitte Noraudit A/S v. Deloitte Haskins & Sells, 9 F.3d 1060, 1064 (2d Cir. 1993)..............4

Dhampur Sugar Mills Ltd. v. Commissioner of Trade Tax, UP, (2006) 5 SCC 624...............10

E. I. Dupont De Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S. A. S., 269
F.3d 187, 199 (3rd Cir. 2001)................................................................................................4

Eternit Everest Ltd. v. Abraham, AIR 2003 Ker. 273..............................................................14

Frito-Lay India and Ors. v. Radesh Foods and Anr., (2009) 40 PTC 37 (Del).......................15

MEMORANDUM for CLAIMANT

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 -Index of Authorities-

Govindji Jevat and Co. and Ors. v. Cannanore Spinning and Weaving Mills Ltd., AIR 1968
Ker 310.................................................................................................................................12

Grant v. Australian Knitting Mills, AIR 1936 PC 34........................................................14, 15

Gray v Thames Trains Ltd. and Another, [2008] EWCA Civ. 713...........................................6

Groupe Chimique Tunisien S. A. v. Southern Petrochemicals Industries Corpn. Ltd., (2006) 5

SCC 275...............................................................................................................................19

Hadley v. Baxendale, [1843-60] All ER Rep. 461...................................................................20

Hardy v Motor Insurers' Bureau, [1964] 2 All ER 587.............................................................7

Hodgson v. Temple (1813) 128 ER 656.....................................................................................8

Holman v. Johnson [1775] 98 ER 1120.................................................................................6, 8

In re Hampshire Land Company, [1896] 2 Ch 743...................................................................5

International Paper Co. v. Schwabedissen Maschinen & Anlagen GmbH, March 14, 206 F.3d
411, 418 (4th Cir. 2000).........................................................................................................4

Investors Compensation Scheme v. West Bromwich Building Society, [1998] 1 All ER 98....19

K. S. Satyanarayana v. V. R. Narayana Rao, AIR 1999 SC 2544...........................................20

K/S Lincoln v. C. B. Richard Ellis Hotels Ltd., [2009] All ER (D) 38 (Oct).............................6

Kalyani Breweries Ltd. v. State of West Bengal and Ors., (1997) 7 SCC 738..................10, 11

Lancashire County Council v. Municipal Mutual Insurance Ltd., [1996] 3 All ER 545...........7

Langton v. Hughes (1813) 105 ER 222......................................................................................8

Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007)..........................11

Lennard’s Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd., [1914-15] All ER Rep. 280........5

M/S Hindustan Lever Ltd., Bombay v. MRTP Commission, New Delhi, (1997) 3 SCC 227...11

Mani Muthusamy v. Personal Assistant to the Collector, [2010] 186 TAXMAN 339 (Mad).15

Merchandise Transport Ltd. v. British Transport Commission (No. 1), [1961] 3 All ER 495..3
MEMORANDUM for CLAIMANT

-viii-
 -Index of Authorities-

Meridian Global Funds Management Asia Ltd v Securities Commission, [1995] 3 All ER 918
................................................................................................................................................5

Multinational Gas and Petrochemical Co. v Multinational Gas and Petrochemical Services
Ltd., [1983] 2 All ER 565.......................................................................................................7

National Textile Workers' Union and Ors. v. P. R. Ramakrishnan and Ors., AIR 1983 SC 757

Popatlal Shah v. State of Madras AIR 1953 SC 274...............................................................10

Prenn v. Simmonds, [1971] 3 All ER 237................................................................................19

Principal, Apeejay Scool v. MRTP Commission and Another, (2001) 8 SCC 702..................11

Raghava Menon v. Kuttappan Nair, Proprietor, Krishnan Nair Watch Company, Ernakulam,
AIR 1962 Ker. 318...............................................................................................................14

Revill v Newbery, [1996] 1 All ER 291......................................................................................6

Safeway Stores v. Simon John Twigger and Ors., [2010] EWCH 11 (Com.)............................7

Smith, Stone and Knight Ltd v. City of Birmingham, [1939] 4 All E.R. 116.............................3

Sorabjee Hormusha v. V. M. Ismail, AIR 1960 Mad. 520.......................................................12

St. Albans City and District Council v. International Computers Ltd., [1996] 4 All ER 481.. .9

Standard Oil Company of New Jersey v. United States, 221 U.S. 1 (1911)............................11

State of Maharashtra, Bombay and Ors. v. Britannia Biscuits Co. Ltd. and Ors., (1995) Supp.
(2) SCC 72......................................................................................................................10, 11

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

Stone & Rolls (In Liquidation) v. Moore Stephens (A Firm), [2009] UKHL 39...................5, 6

Tata Consultancy Services v. State of Andhra Pradesh, AIR 2005 SC 371........................9, 10

Tesco Supermarkets Ltd. v. Nattrass, [1972] AC 153................................................................5

The Board Of Trustees Of The Port Of Calcutta v. Bengal Corporation Pvt. Ltd., AIR 1979
Cal. 142................................................................................................................................15

MEMORANDUM for CLAIMANT

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 -Index of Authorities-

Tinsley v. Milligan, [1993] 3 All ER 65.....................................................................................6

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

Union of India v. The Central India Machinery Manufacturing Company Ltd. and Ors.,
(1977) 2 SCC 847.................................................................................................................10

United Breweries Ltd. v. State of Andhra Pradesh, (1997) 3 SCC 530...................................10

United Project Consultants Pte Ltd v. Leong Kwok Onn, [2005] 4 SLR 214............................7

United States v. Wise, 550 F.2d 1180 (9th Cir. 1977)...............................................................11

Vijay Traders v Bajaj Auto Ltd., (1995) 6 SCC 566................................................................11

Wallis v. Pratt, [1911] A. C. 394.............................................................................................17

Woolfson v Strathclyde Regional Council, 1978 S.L.T. 159.....................................................3

STATUTES

UK Arbitration Act, 1996..........................................................................................................2

UNCITRAL Model Law on International Commercial Arbitration, 21 June 1985 (with

amendments as adopted on 7 July 2006), U.N. Docs. A/40/17, Annex I and A/61/17,
Annex I...................................................................................................................................2

TREATISES

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

Bryan Garner, ed., Black’s Law Dictionary, 7th edn. (West Publishing Co., St. Paul: 1999). .17

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

G. C. Bharuka, ed., Pollock and Mulla on the Sale of Goods Act, 7th edn. (LexisNexis,
Butterworths, New Delhi: 2007)..........................................................................................15

Gary Born, International Commercial Arbitration: Commentary and Materials, 2nd edn.
(Transnational Publishers, Ardsley, New York: 2001)..........................................................1
MEMORANDUM for CLAIMANT

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 -Index of Authorities-

Howard M. Holtzmann and Joseph E. Neuhaus, A Guide to the UNCITRAL Model Law on
International Commercial Arbitration: Legislative History and Commentary (Boston:
1989)......................................................................................................................................1

Jonathan M. Jacobson, Antitrust Law Developments, 6th edn. (American Bar Association:
2007)....................................................................................................................................11

Kim Lewison, The Interpretation of Contracts, 4th edn. (Sweet & Maxwell, London: 2007).19

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

(Cambridge University Press, 2008)..................................................................................2, 4

P. Ramanatha Aiyer, The Law Lexicon, 2nd edn. (Wadhwa & Co., Nagpur: 2004).................17

ARTICLES

Daniel Busse, “Privity to an Arbitration Agreement”, (2005) 8(3) Int’l. Arb. L. Rev. 95
(2005).....................................................................................................................................2

Michael P. Daly, “Come One, Come All: The New And Developing World Of Non-Signatory
Arbitration And Class Arbitration”, (2007) 62 Univ. Miami L. Rev. 95...............................2

Peter Watts, “Imputed Knowledge in Agency Law – Excising the Fraud Exception”, (2001)
117 Law Quarterly Review 300.............................................................................................5

Stephan Wilske, Laurence Shore & Jan-Michael Ahrens, “The “Group of Companies
Doctrine” – Where is it Heading?”, (2006) 17 Am. Rev. Int’l. Arb. 73................................2

Stephen Schwebel, “The Severability of the Arbitration Agreement” in: Stephen Schwebel,
International Arbitration: Three Salient Problems, pp. 1-60 (Grotius: 1987)......................1

MEMORANDUM for CLAIMANT

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 -Statement of Jurisdiction-

STATEMENT OF JURISDICTION

Mallory Advisory Services, Ltd., the Claimant in the instant case, has 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.

MEMORANDUM for CLAIMANT

-xii-
 -Questions Presented-

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 CLAIMANT

-xiii-
 -Statement of Facts-

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 in the
company. The remaining shares were owned by several investors. Mr. Romanovich, entitled
to nominate 7 out of 10 directors, never sat on the Board himself, but appointed professional
managers. The 1990s were immensely profitable for Claimant, especially when Mr. John
Felix became the Chairman and the CEO. He made high-risk investments but the economic
recession which began in 2007 proved to be his downfall. Mr Romanovich, who was
extremely pleased with Mr. Felix and was also instrumental in securing his appointment as
CEO and Chairman, started questioning his abilities. Mr. Felix was removed from his
position in the Claimant Company as per the conditions 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., which manufactured 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.

MEMORANDUM for CLAIMANT

-xiv-
 -Statement of Facts-

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
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 was 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. The final stages of negotiations were concluded de
facto with Respondent 1 but in the name of Respondent 2.

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 the EULA were sent to Mr. Romanovich on the same packaged
CD. The hastily drafted EULA left the question of compensation or damages in case of a
breach open to interpretation which created doubt in the mind of Claimant’s legal advisers.

VI

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

-xv-
 -Statement of Facts-

VII

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.

VIII

Following this, Mr. Felix was reappointed as the CEO of Claimant. He found that Claimant
had grossly overpaid for Comet. Although Comet was not defective, it certainly had none of
the special features that were asked for and was basically an ordinary investment
management software. Therefore, 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 damages for the
consequential loss of reputation.

IX

Both Claimant and Respondents 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 CLAIMANT

-xvi-
 -Summary of Arguments-

SUMMARY OF ARGUMENTS

I. THE TRIBUNAL HAS JURISDICTION OVER RESPONDENT 1 UNDER SETTLED PRINCIPLES

OF ARBITRATION LAW AND IN ANY EVENT, THE CORPORATE VEIL BETWEEN RESPONDENT
1 AND RESPONDENT 2 MUST BE LIFTED.

The Tribunal has the competence to determine its own jurisdiction. In exercise of this
jurisdiction, the Tribunal is urged to hold Respondent 1 bound by the arbitration clause.
Respondent 2 was a creation of Respondent 1 for the specific purpose of entering into the
contract. It is fully owned and controlled by Respondent 1. Therefore, its corporate veil
should be pierced to hold Respondent 1 bound by the contract. Further, as Respondent 1 was
the beneficiary of the contract, it is bound in equitable estoppel by the arbitration clause.

II. THE FRAUDULENT ACTS OF MR. ROMANOVICH CANNOT BE ATTRIBUTED TO

CLAIMANT; AND IN ANY CASE, THE DEFENCE OF  EX TURPI CAUSA NON ORITUR ACTIO IS

INAPPLICABLE IN THESE CIRCUMSTANCES AND DOES NOT BAR CLAIMANT’S ACTION.

The fraudulent acts of Mr. Romanovich had a direct effect on Claimant, which was a victim
of the fraud and suffered losses on account of the fraud. In such a situation, Mr.
Romanovich’s acts cannot be attributed to Claimant.

In any event, the defence of ex turpi causa cannot be argued in this case, since, even
assuming Mr. Romanovich represented Claimant, this simply made Claimant vicariously and
not primarily liable. Vicarious liability is insufficient to apply the illegality defence.

III. RESPONDENTS ARE LIABLE UNDER SECTIONS 15 AND 16 OF THE FRUGALIAN SALE OF
GOODS ACT, 1932.

“Comet” is a good and title in it passed from CSPL to Claimant through the EULA. Hence,
EULA, despite being termed a license, amounts to a sale. The communication between Mr.
Romanovich and Respondents laid down descriptions that the good was to conform to and
stated the particular purpose for which the good was to be fit. However Comet neither

MEMORANDUM for CLAIMANT

-xvii-
 -Summary of Arguments-

matched the description nor was fit for use for the stated purpose. Hence, it is submitted that
Respondents are liable under Sections 15 and 16 of the Frugalian Sale of Goods Act.

IV. ALTERNATIVELY, RESPONDENTS ARE LIABLE FOR BREACH OF CONTRACT UNDER THE
FRUGALIAN CONTRACT ACT 1872.

Even assuming the contract was not a sales contract, the reference to SOGA in ¶12 of the
EULA, amounts to incorporation by reference of the communication between Mr.
Romanovich and Respondents as a contractual term. As this term has not been confirmed to,
there has been a breach of contract for which Respondents are liable.

V. RESPONDENTS ARE LIABLE TO REFUND THE PURCHASE PRICE AND PAY REQUISITE

DAMAGES FOR THE ERRONEOUS ADVICE AND CONSEQUENTIAL LOSSES SUFFERED BY

CLAIMANT.

In view of the commercial background of the contract, especially the exorbitant contract price
paid by Claimant, it was evident to Respondents that erroneous advice by the software would
subject Claimant to massive risks. Hence, the losses incurred cannot be said to be too remote
of unforeseeable and Claimant is entitled to damages in this regard.

MEMORANDUM for CLAIMANT

-xviii-
 -Arguments Advanced-

ARGUMENTS ADVANCED

I. THE TRIBUNAL HAS JURISDICTION OVER RESPONDENT 1 UNDER SETTLED PRINCIPLES

OF ARBITRATION LAW AND IN ANY EVENT, THE CORPORATE VEIL BETWEEN

RESPONDENT 1 AND RESPONDENT 2 MUST BE LIFTED.

Claimant contends that the Tribunal has jurisdiction over Respondent 1, under well-
established principles of arbitration law. First, the Tribunal has the authority to determine its
own jurisdiction [A]; and moreover, Respondent 1 is bound to the arbitral proceedings [B].

A. The Tribunal has the authority to determine its own jurisdiction.

Claimant asserts that in the present dispute, the Tribunal has the competence to rule on
matters affecting its own jurisdiction. The doctrine of Competence-Competence (Kompetenz-
Kompetenz / Compétence de la Compétence) confers upon arbitrators the power to rule on
challenges to their jurisdiction. This doctrine not only finds wide recognition in international
arbitration,1 but is also recognised by arbitration law of Gregaria,2 the lex arbitri in the instant
dispute.

The Gregarian Arbitration Act, 1995, modelled on the UNCITRAL Model Law on
International Commercial Arbitration, is thus the arbitration law applicable to the instant
dispute.3 Section 16 of the Gregarian Arbitration Act provides that “[t]he arbitral tribunal
may rule on its own jurisdiction, including any objections with respect to the existence or

1
Emmanuel Gaillard and John Savage (eds.), Fouchard, Gaillard, Goldman on International Commercial
Arbitration (Kluwer Law International, The Hague, Boston, London: 1999), ¶ 397; Gary Born, International
Commercial Arbitration: Commentary and Materials, 2nd edn. (Transnational Publishers, Ardsley, New York:
2001), 85; Howard M. Holtzmann and Joseph E. Neuhaus, A Guide to the UNCITRAL Model Law on
International Commercial Arbitration: Legislative History and Commentary (Boston: 1989), ¶ 478; Stephen
Schwebel, “The Severability of the Arbitration Agreement” in: Stephen Schwebel, International Arbitration:
Three Salient Problems, pp. 1-60 (Grotius: 1987), 2.

2
Problem File, Annexure I, Procedural Order No. 1, ¶ 7.

3
Ibid.
MEMORANDUM for CLAIMANT

-1-
 -Arguments Advanced-

validity of the arbitration agreement”4. The provision clearly asserts the competence of the
Tribunal, under the law of Gregaria, to rule on its own jurisdiction.

B. Respondent 1 is bound to the arbitral proceedings.

Claimant asserts that under certain circumstances, non-signatories to an arbitration agreement

may be bound by the agreement.5 Applying the law governing the arbitration to the instant
matter,6 Respondent 1 should be regarded as bound by the arbitration clause contained in the
7
EULA concluded between Claimant and Respondent 2, applying the principles of veil
piercing [1], equitable estoppel [2].

1. The corporate veil between Respondent 1 and Respondent 2 must be lifted to bind
Respondent 1 to the arbitral proceedings.

Although the separate legal entity of a company is well-established in law, in several

instances it would be necessary to lift the corporate veil to ascertain the true actor behind the
corporate form.8 In particular, agency9 and fraud10 have been held to be grounds for lifting the
corporate, or when of the companies is a mere façade.11

4
Gregarian Arbitration Act, §. 16(1); see also, UK Arbitration Act, 1996, § 16(1); UNCITRAL Model Law on
International Commercial Arbitration, 21 June 1985 (with amendments as adopted on 7 July 2006), U.N. Docs.
A/40/17, Annex I and A/61/17, Annex I, Art. 16(1).

5
Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration, 4th edn. (Sweet
and Maxwell, London: 2004), ¶¶ 3-30 – 3-36; Margaret L. Moses, The Principles and Practice of International
Commercial Arbitration (Cambridge University Press, 2008), 33; Michael P. Daly, “Come One, Come All: The
New And Developing World Of Non-Signatory Arbitration And Class Arbitration”, (2007) 62 Univ. Miami L.
Rev. 95; Stephan Wilske, Laurence Shore & Jan-Michael Ahrens, “The “Group of Companies Doctrine” –
Where is it Heading?”, (2006) 17 Am. Rev. Int’l. Arb. 73; Daniel Busse, “Privity to an Arbitration Agreement”,
(2005) 8(3) Int’l. Arb. L. Rev. 95 (2005).

6
Problem File, Annex I, Procedural Order No. 1, ¶ 6.

7
Problem File, ¶ 12.
8
Adams v. Cape Industries Plc, [1991] 1 All ER 929.

9
Adams v. Cape Industries Plc, [1991] 1 All ER 929; Smith, Stone and Knight Ltd v. City of Birmingham,
[1939] 4 All E.R. 116.
10
Adams v. Cape Industries Plc, [1991] 1 All ER 929; Woolfson v Strathclyde Regional Council, 1978 S.L.T.
159.
11
Merchandise Transport Ltd. v. British Transport Commission (No. 1), [1961] 3 All ER 495; Adams v. Cape
Industries Plc, [1991] 1 All ER 929. MEMORANDUM for CLAIMANT

-2-
 -Arguments Advanced-

In the instant case, it is submitted that Respondent 2 was created by Respondent 1 for the sole
purpose of selling the software “Comet” to Claimant. It is evident from the facts that merely
to avoid regulatory difficulties in Frugalia, Respondent 1 created a wholly owned subsidiary
which also utilised personnel seconded from Respondent 1. 12 The name of Respondent 2 –
Comet (Shawcross) Solutions Pvt. Ltd. – is also indicative of the purpose for which it was
created. All negotiations regarding conclusion of the contract also took place with
Respondent 1 and Respondent 2 was replaced in name at the final stage. 13 As was later
discovered, the true objective of the transaction was for Respondent 1 to make huge profits
and for Mr. Romanovich to make unauthorised profits from the same.14

All these factors clearly go on to indicate that Respondent 2, being a wholly owned
subsidiary of Respondent 1, was acting as an agent of Respondent 1 in Frugalia. It was
created as a mere façade for Respondent 1 to carry out unauthorised and fraudulent
transactions with Mr. Romanov in the guise of selling the software to Claimant.

Therefore, it is submitted that the corporate veil between Respondent 1 and Respondent 2
must be lifted to bind Respondent 1 to this arbitration.

2. Respondent 1 is bound by the arbitration clause in equitable estoppel.

Equitable estoppel precludes a party who (i) is reaping direct benefits from an agreement
containing an arbitration clause and (ii) is aware of the existence and contents of the
concerned arbitration clause, from denying liability to arbitrate under the said clause.15 A
non-signatory to an agreement containing an arbitration clause may be bound by the said
clause if he was a direct beneficiary of the agreement and was aware of the clause.16

12
Problem File, ¶ 10.

13
Problem File, ¶ 11.

14
Problem File, ¶ 15.

15
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), 35. International Paper
Co. v. Schwabedissen Maschinen & Anlagen GmbH, March 14, 206 F.3d 411, 418 (4th Cir. 2000).

16
E. I. Dupont De Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S. A. S., 269 F.3d 187, 199
(3rd Cir. 2001); Deloitte Noraudit A/S v. Deloitte Haskins & Sells, 9 F.3d 1060, 1064 (2d Cir. 1993).
MEMORANDUM for CLAIMANT

-3-
 -Arguments Advanced-

In the present case, all direct benefits from the sale of the software created by Respondent 1
would accrue to them.17 Respondent 1 was, of course, aware of the contents of the arbitration
clause since Respondent 2 was a wholly owned subsidiary of Respondent 1 18 and negotiations
till the final stage were continuing between Claimant and Respondent 1.19

In light of these, Respondent 1 is estopped in equity from asserting that it cannot be bound by
the arbitration clause in the EULA. Hence, the Tribunal can assert its jurisdiction over
Respondent 1 based on the arbitration clause notwithstanding its non-signatory status.

Concluding, it is submitted that Respondent 1 must be bound to this arbitration either by

piercing the corporate veil between Respondent 1 and Respondent 2 or applying the doctrine
of equitable estoppel.

II. THE FRAUDULENT ACTS OF MR. ROMANOVICH CANNOT BE ATTRIBUTED TO

CLAIMANT; IN ANY CASE, THE DEFENCE OF EX TURPI CAUSA NON ORITUR ACTIO IS

INAPPLICABLE IN THESE CIRCUMSTANCES AND DOES NOT BAR CLAIMANT’S ACTION.

Claimant contends that the fraudulent action of Mr. Romanovich cannot be attributed to it
[A]. In any event, the defence of ex turpi causa non oritur actio being inapplicable in the
present situation does not bar Claimant’s action [B].

C. The fraudulent acts of Mr. Romanovich cannot be attributed to

Claimant.

In certain situations, acts of certain individuals can be attributed directly to a company,

instead of vicariously through doctrines of agency.20

17
Problem File, ¶ 15.

18
Problem File, ¶ 10.

19
Problem File, ¶ 11.

20
In re Hampshire Land Company, [1896] 2 Ch 743; Meridian Global Funds Management Asia Ltd v Securities
Commission, [1995] 3 All ER 918; Peter Watts, “Imputed Knowledge in Agency Law – Excising the Fraud
Exception”, (2001) 117 Law Quarterly Review 300.
MEMORANDUM for CLAIMANT

-4-
 -Arguments Advanced-

Acts of the “directing mind and will” or “alter ego” of the company will be acts of the
company itself,21 and not vicarious liability.22 This will be the case in all instances, except
where the fraud was played directly on the company. If the company is a vehicle of the fraud,
as opposed to the victim of the fraud, the directing mind’s fraud will be attributed to the
company.23

In this case, Claimant was a victim of the fraud perpetrated by Mr. Romanovich. Although
Mr. Romanovich was able to enter into the contract in capacity of the CEO of the Claimant
Company and was able to do so being a majority shareholder of the company, this does not
make the company a vehicle of the fraud, since fraud was committed on the company itself.
Mr. Romanovich entered into the contract on behalf of the company in spite of strong
reservations regarding the efficacy of the software “Comet”.24 This was due to the “kickback”
he would receive in return from Respondent 1. A direct outcome of this was that, a software,
the capability of which was unknown, was used by Claimant for managing its investments
and guarding against hazardous investments. Failure of this software would, and did, result in
losses to Claimant.

Therefore, Claimant being the victim of the fraud in question, cannot be held liable for the
fraudulent acts of its CEO, Mr. Romanovich. Thus, fraud committed by Mr. Romanovich
cannot be attributed to the Claimant Company.

D. In any case, the defence of ex turpi causa is inapplicable in these

circumstances and does not bar Claimant’s action.

The Latin maxim ex turpi causa non oritur actio has been held to mean that “no cause of
action may be founded on an immoral or illegal act”. 25 Even assuming that Claimant was
21
Lennard’s Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd., [1914-15] All ER Rep. 280.

22
Tesco Supermarkets Ltd. v. Nattrass, [1972] AC 153.

23
Stone & Rolls (In Liquidation) v. Moore Stephens (A Firm), [2009] UKHL 39; Canadian Dredge and Dock
Co. Ltd. v. The Queen, [1985] 1 SCR 662.

24
Problem File, ¶ 11.

25
Revill v Newbery, [1996] 1 All ER 291; Holman v. Johnson, [1775] 98 ER 1120; Tinsley v. Milligan, [1993] 3
All ER 65; Stone & Rolls (In Liquidation) v. Moore Stephens (A Firm), [2009] UKHL 39; Gray v Thames
Trains Ltd. and Another, [2008] EWCA Civ. 713; K/S Lincoln v. C. B. Richard Ellis Hotels Ltd., [2009] All ER
(D) 38 (Oct).
MEMORANDUM for CLAIMANT

-5-
 -Arguments Advanced-

vicariously liable for the fraud, Respondents are precluded from raising the defence of ex
turpi causa.

Even assuming that Claimant is vicariously liable for the acts of Mr. Romanovich, the same
is insufficient to raise the defence [1]. In the alternative, Respondents being aware of the
fraud perpetrated by Mr. Romanovich, are precluded from raising this defence [2].

1. Claimant’s vicarious liability is insufficient to raise the defence of ex turpi

causa.

In Safeway Stores v. Simon John Twigger,26 the Court held that for the purpose of applying
the ex turpi causa defence, a company must be held liable through primary rules of
attribution,27 which was differentiated from vicarious liability. 28 A unanimous decision of
shareholders is considered to be primarily attributed to the company. 29 It has also been held
that unlawful acts authorised by the board of directors would also incur primary liability of
the company.30 A director of a company has been held to be an agent of a company.31

In the instant case, Claimant’s Board of Directors had authorised Mr. Romanovich to make
enquiries regarding the software. It was during these enquiries, while acting as an agent of
Claimant, that he committed the fraud. The Board did not authorise the fraudulent act, it in
fact fell victim of the fraud committed by Mr. Romanovich. Therefore, the attribution in this
case would be general and not primary.

As a result, the defence of ex turpi causa cannot be raised against Claimant.

26
Safeway Stores v. Simon John Twigger and Ors., [2010] EWCH 11 (Com.).

27
Meridian Global Funds Management Asia Ltd v. Securities Commission, [1995] 3 All ER 918.

28
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.

29
Multinational Gas and Petrochemical Co. v Multinational Gas and Petrochemical Services Ltd., [1983] 2 All
ER 565.

30
Safeway Stores v. Simon John Twigger and Ors., [2010] EWCH 11 (Com.).

31
National Textile Workers' Union and Ors. v. P. R. Ramakrishnan and Ors., AIR 1983 SC 75.
MEMORANDUM for CLAIMANT

-6-
 -Arguments Advanced-

2. In the alternative, Respondents’ complicity with the fraud precludes them

from raising the illegality defence.

In cases where the party raising the illegality defence has participated in furthering the
unlawful purpose, then that party’s claim becomes tainted with illegality and relief must thus
then be denied.32 The same is equitably justified as well, since the maxim “no one can benefit
from his own wrong” applies equally to the party raising the illegality defence.

In the present case, Respondent 1 was not only aware of the fraudulent transaction being
executed by Mr. Romanovich, but was an accomplice in the same.33 Respondent 1 itself being
aware of the illegality, and by necessary implication Respondent 2, 34 cannot raise this illegal
act as a defence against breach of contract.

In light of the above, it is submitted that Claimant is not barred from bringing a claim for
breach of contract and breach of the Frugalian Sale of Goods Act, due to the illegal acts of its
CEO.

Concluding, it is submitted that both Respondents are bound by the arbitration clause in the
EULA, and are precluded from raising the defence of illegality of action by Claimant.

LAW APPLICABLE TO MERITS OF THE DISPUTE

As per clause 11 of the EULA, the Licence Agreement is governed by the laws of Frugalia.
Therefore, the law applicable to the merits of the dispute is the laws of Frugalia.

III.RESPONDENTS ARE LIABLE UNDER SECTIONS 15 AND 16 OF THE FRUGALIAN SALE OF

GOODS ACT, 1930.

It is submitted that the transaction between the parties, despite being termed a license, 35 was
in essence a sale and hence is governed by the Frugalian Sale of Goods Act [A]. Respondents
are liable under Sections 15 [B] and 16 of the said Act [C].

32
Hodgson v. Temple (1813) 128 ER 656; Holman v. Johnson [1775] 98 ER 1120; Langton v. Hughes (1813)
105 ER 222; Anglo Petroleum Limited v. TFB (Mortgages) Limited [2007] EWCA Civ. 456.

33
Problem File, ¶ 15.

34
Supra Contention I(B).

35
Problem File, ¶ 12, Problem File, Annex II, ¶¶1, 4.
MEMORANDUM for CLAIMANT

-7-
 -Arguments Advanced-

E. The Transaction is governed by provisions of the Frugalian Sale

of Goods Act.

It is submitted that Comet is a good under the Frugalian Sale of Goods Act [1] and the
transaction amounted to a sale despite the terminology employed by the parties [2].

1. “Comet” is a good as per the definition of “goods” under the Frugalian

Sale of Goods Act.

‘Good’ has been defined under section 2(7) of the Act as every kind of moveable property
other than actionable claims and money.36 It is submitted that ‘goods’ under the Sale of
Goods Act should have attributes having regard to (a) its utility; (b) capable of being bought
and sold; and (c) capable of being transmitted, transferred, delivered, stored and possessed.37
The Apex Court of India in Tata Consultancy Services v. State of Andhra Pradesh held that
an off the shelf software which is capable of abstraction, consumption and use and which can
be transmitted, transferred, delivered, stored and possessed is a good u/s. 2(7) of SOGA.38

In the instant case Comet, an off the shelf software 39, was delivered to Claimant on a compact
disc.40 Therefore Comet being transferred onto a CD is capable of abstraction, consumption
and use. The CD containing Comet was acquired by Claimant for a consideration of $45
million.41 This, along with the statement by the parties that the transaction was not a sale 42,
indicates that Comet was capable of being transferred and being bought or sold. Thus Comet
is also capable of being sold.43 Therefore in light of the aforementioned legal principles it is
professed that Comet is a good under section 2(7) of the Sale of Goods Act.

2. The transaction between the parties amounted to a sale despite it being

termed a license by the parties.

36
Frugalian Sale of Goods Act, 1932, § 2(7); see also Indian Sale of Goods Act, 1930, § 2(7).

37
Bharat Sanchar Nigam Ltd. and Anr. v. Union of India and Ors., AIR 2006 SC 1383; St. Albans City and
District Council v. International Computers Ltd., [1996] 4 All ER 481, 493.

38
Tata Consultancy Services v. State of Andhra Pradesh, AIR 2005 SC 371.

39
Problem File, ¶7.

40
Problem File, ¶12; Problem File, Annex II, ¶2.
41
Problem File, ¶9.

42
Problem File, Annex II, ¶4.
43
Infra Contention III(A)(2). MEMORANDUM for CLAIMANT

-8-
 -Arguments Advanced-

It has been noted by the Supreme Court of India in State of Tamil Nadu v. Srinivasa Sales
Circulation44 that in order to constitute ‘sale’ under section 4 of the Sale of Goods Act there
must be (i) common intention between the buyer and seller to purchase and sell the good
respectively, (ii) capacity to enter into a contract for sale, (iii) consideration for the sale, and
(iv) passing of property in exchange for the consideration.

It is admitted that the parties have termed the contract a license and have stated that it does
not amount to a sale.45 However, while determining the nature of a contract, what parties call
the contract is immaterial.46 On several occasions, the courts have examined the terms of the
contract and arrived at the conclusion that a transaction amounts to a sale despite it being
termed otherwise.47 What is determinative is whether the parties intended that the title in the
good would pass from one to another upon the conclusion of the contract. 48 In Kalyani
Breweries,49 the transaction was held to be a sale as the return of the good was never
intended. Similarly, transactions involving software have been held to amount to sale when
the manufacturer could not demand the return of the software.50

It is submitted that the contract in the present case gave effect to a transfer of title in the
software from Respondent 2 to Claimant. It is admitted that several restrictions and

44
State of Tamil Nadu v. Srinivasa Sales Circulation, (1996) 10 SCC 648; Popatlal Shah v. State of Madras
AIR 1953 SC 274.

45
Problem File, Annex II, ¶4

46
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; Tata Consultancy Services v. State of Andhra Pradesh, AIR 2005 SC 371.

47
Kalyani Breweries Ltd. v. State of West Bengal and Ors., (1997) 7 SCC 738; State of Maharashtra, Bombay
and Ors. v. Britannia Biscuits Co. Ltd. and Ors., (1995) Supp. (2) SCC 72; Dhampur Sugar Mills Ltd. v.
Commissioner of Trade Tax, UP, (2006) 5 SCC 624; Union of India v. The Central India Machinery
Manufacturing Company Ltd. and Ors., (1977) 2 SCC 847.

48
Kalyani Breweries Ltd. v. State of West Bengal and Ors., (1997) 7 SCC 738; State of Maharashtra, Bombay
and Ors. v. Britannia Biscuits Co. Ltd. and Ors., (1995) Supp. (2) SCC 72.

49
Kalyani Breweries Ltd. v. State of West Bengal and Ors., (1997) 7 SCC 738.

50
United States v. Wise, 550 F.2d 1180 (9th Cir. 1977); Bauer & Cie. v. O'Donnell, 229 U.S. 1 (1913); Bobbs-
MEMORANDUM
Merrill Co. v. Straus, 210 U.S. 339 (1908). for CLAIMANT

-9-
 -Arguments Advanced-

conditions were placed on how Claimant would use Comet. 51 These were necessary for the
protection of intellectual property and other market interests of Respondents. Such
restrictions and conditions are common features of a modern day sales contract. 52 For
instance, several manufacturers of goods, while transferring these goods to distributors, fix
minimum and maximum prices at which the goods may be sold.53 Though some of such
conditions have attracted the provisions of competition law at times, they are not seen as
negating the vesting of a title in the buyer. Similarly, despite the conditions and restrictions
imposed on Claimant under the contract, the title in the software passed from Respondent 2 to
Claimant. Within the limitations and restrictions, neither of the Respondents could interfere
with the use of the software for any purpose or in any manner by Claimant. The software was
never intended to be returned to Respondent 2. Most importantly, if Claimant were to destroy
the software, this would not give rise to any cause of action favouring Respondents. Thus, it
is evident that despite the restrictions and limitations, the title in the good vested with
Claimant.

Therefore, it is submitted that the contract between the parties, despite the terminology
employed by the parties, effected a transfer of title and is hence to be treated as a sale and is
governed by the Sale of Goods Act.

Respondents are liable under Section 15 of the Sale of Goods Act.

Pursuant to Section 15 of the Sale of Goods Act, a breach is committed when goods delivered
by the seller do not match the description of the same given by the buyer. 54 For a delivery to
be considered as a breach of Section 15, it is important that the goods delivered to the buyer
fails to correspond to his requirements under the contract and are of a different kind from

51
Problem File, Annex II, ¶¶3-10.

52
See generally, Vijay Traders v Bajaj Auto Ltd., (1995) 6 SCC 566; Leegin Creative Leather Products, Inc. v.
PSKS, Inc., 551 U.S. 877 (2007); Standard Oil Company of New Jersey v. United States, 221 U.S. 1
(1911); American Tobacco Company v. United States, 328 US 781 (1946); Principal, Apeejay Scool v. MRTP
Commission and Another, (2001) 8 SCC 702; M/S Hindustan Lever Ltd., Bombay v. MRTP Commission, New
Delhi, (1997) 3 SCC 227; Jonathan M. Jacobson, Antitrust Law Developments, 6th edn. (American Bar
Association: 2007), 131.

53
Ibid; see generally, Dunlop Pneumatic Tyre Co. v. Selfridge and Co., [1914-15] All ER Rep. 333.

54
Frugalian Sale of Goods Act, 1932, § 15; see also Indian Sale of Goods Act, 1930, § 15.
MEMORANDUM for CLAIMANT

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 -Arguments Advanced-

those he had agreed to buy.55 The instant transaction constituted a sale by description [1], to
which Respondents did not conform [2].

1. The pre-contractual communication between Mr. Romanovich and

Respondents laid down the descriptions to which the good had to conform.

The Contract between the parties expressly refers to the Sale of Goods Act and states that the
entire agreement clause is subject to the Act. 56 The only provisions in the Sale of Goods Act
which impose implied terms in addition to those expressly laid down in the contract are
Sections 15 and 16. Therefore, the statement that the entire agreement clause is subject to the
said Act, is a reference to Sections 15 and 16 of the Act. For such a reference to operate
effectively, it is necessary that parties have had prior communications as to description of
goods and particular purpose for which the goods should be fit which they treat as binding
between them. In the absence of such communications, the reference would be futile.

The description of good was provided in the communication between Mr. Romanovich and
Respondents.57 Mr. Romanovich had communicated that what he wanted was an investment
software that would analyse market performance of all companies for the past fifty years and
device investment strategy based on the same.58 More specifically, the software was to
provide advance warning against investments that appeared risky in light of past performance
of the company.59 When questions were asked as to the feasibility of such a software, it was
Respondent 1 who emphatically asserted that Comet would meet this description. 60 It was
pursuant to this assurance that Claimant entered into the contract. Therefore, the description
was mutually agreed upon and Respondents were bound to supply good confirming to this
description.

2. Respondents failed to supply good conforming to the description.

55
Sorabjee Hormusha v. V. M. Ismail, AIR 1960 Mad. 520; Govindji Jevat and Co. and Ors. v. Cannanore
Spinning and Weaving Mills Ltd., AIR 1968 Ker 310.

56
Problem File, Annex II, ¶12.

57
Problem File, Annex II, ¶8.

58
Ibid.
59
Ibid.

60
Ibid. MEMORANDUM for CLAIMANT

-11-
 -Arguments Advanced-

Though the failure of Truism was largely attributable to the fraud committed by its CEO, a
close analysis of the growth pattern and past performance of Truism would have led to the
conclusion that the investment was too risky. 61 This kind of analysis and forewarning is
exactly what Comet should be able to do as per the description mutually agreed.62 However, it
failed to give such warning, thereby failing to meet the description.

Hence, it is submitted that Respondents are liable under Section 15 of the Sale of Goods Act.

Respondents are liable under Section 16(1) of the Sale of Goods Act.

Section 16(1) of the Frugalian Sale of Goods Act enshrines the obligation of the seller to
deliver goods fit for a particular purpose if the purpose has been expressly or impliedly made
known to the seller by the buyer and if the buyer relies on seller’s skill or judgement for this
purpose.63 It is submitted that the particular purpose is made known to the seller when the
buyer informs the seller about the intended use of goods when concluding the contract. 64 A
contract is breached when the particular purpose has been communicated to the seller and yet
the goods delivered fails to meet the specific requirements of the buyer thereby nullifying his
interest in the contract.65

It is submitted that in the present case, Claimant informed Respondents of the particular
purpose for which the good was required [1], relied on the skill and judgment of Respondents
in providing goods that meet this purpose [2] and yet Respondents failed to supply good that
meets the stated purpose [3]. Moreover, the liability of Respondents in this regard is not
excluded under the proviso to Section 16(1) on the ground that the good was purchased under
its trade name [4].

1. Particular purpose for which the software was required was made known to
Respondent 1.

61
Problem File, ¶14.

62
Supra Contention III(B)(1).

63
Frugalian Sale of Goods Act, 1932, § 16; see also Indian Sale of Goods Act, 1930, § 16.

64
Eternit Everest Ltd. v. Abraham, AIR 2003 Ker. 273; Raghava Menon v. Kuttappan Nair, Proprietor,
Krishnan Nair Watch Company, Ernakulam, AIR 1962 Ker. 318; Grant v. Australian Knitting Mills, AIR 1936
PC 34.
65
Ibid.
MEMORANDUM for CLAIMANT

-12-
 -Arguments Advanced-

In the instant case, Mr. Romanovich informed Respondent 1 that in particular he required a
software that would analyse market behaviour of every important company over the last 50
years.66 He made it known to Respondent 1 that the advice that he required from the software
was of a negative nature.67 Claimant would run its proposed investments through the
software, which would warn Claimant if it considered imprudent, the investment risky or
unstable.68 All these requirements had been expressly communicated to Respondent 1 by
Claimant prior to the conclusion of the contract. 69 Thus Claimant respectfully submits that the
particular purpose had been expressly communicated to Respondent 1.

2. Claimant relied on Respondents’ skill and judgment.

For the fulfilment of conditions under section 16(1) of the Sale of Goods Act, it is important
that the buyer relied on the seller’s skill and judgment for the quality of the goods.70 This
provision does not mandate reliance on seller’s skill and judgment to the exclusion of reliance
on anything else.71 However it is important that the reliance must be made known to the seller
either expressly or impliedly.72 Also if the nature of goods coincides with the usual business
activities of the seller then the seller is deemed to be an expert and reliance on his skill and
judgment by the buyer is to be presumed.73

66
Problem File, ¶ 9.

67
Ibid.

68
Ibid.

69
Ibid.

70
Grant v. Australian Knitting Mills, AIR 1936 PC 34; Eternit Everest Ltd. v. Abraham, AIR 2003 Ker 273; The
Board Of Trustees Of The Port Of Calcutta v. Bengal Corporation Pvt. Ltd., AIR 1979 Cal. 142; Commissioner
of Income Tax-TDS v. Glenmark Pharmaceuticals Ltd., (2010) 127 TTJ 719 (Mum.); Mani Muthusamy v.
Personal Assistant to the Collector, [2010] 186 TAXMAN 339 (Mad); Frito-Lay India and Ors. v. Radesh
Foods and Anr., (2009) 40 PTC 37 (Del).

71
Board of Trustees of Port of Calcutta v. Bengal Corp. Pvt. Ltd., AIR 1979 Cal. 142; G. C. Bharuka, ed.,
Pollock and Mulla on the Sale of Goods Act, 7th edn. (LexisNexis, Butterworths, New Delhi: 2007), 174.

72
Ibid.
73
Frugalian Sale of Goods Act, 1932,M
§ EMORANDUM for C
16(2); see also Indian Sale of Goods Act, 1930, § 16(2).
LAIMANT

-13-
 -Arguments Advanced-

Upon being told the purpose of the software, it was Respondent 1 who assured Claimant that
Comet was suited for this purpose.74 Moreover, even when there were doubts about the
feasibility of such a software, Respondents assured Claimant that Comet would meet all the
requirements.75 It was on this assurance that Claimant legitimately placed reliance in entering
into the contract.

3. The good delivered was unsuited for the stated purpose.

It has already been submitted that the software did not function the way the parties had
agreed it would.76 The sole purpose for which the software was purchased was to provide
advance warning in respect of risky investments. 77 Clearly, it has failed to do so. Hence, it is
submitted that Respondents failed to supply good fit for the particular purpose which had
been made known to them.

4. The liability of Respondents under Section 16(1) is not excluded by proviso to

Section 16 (1).

The proviso to Section 16(1) excludes the implied term of fitness for a particular purpose if
the good is sold by its trade name. 78 It is submitted that the exclusion is inapplicable in the
present case first because the decision to purchase the software was based on the assurance
by the seller of its fitness for the stated purpose and not on the trade name [a], second
because “Comet” cannot be treated as a trade name in the present case [b].

a. The exclusion under the proviso does not apply as the purchase was based on the
representation of fitness by seller and on the trade name.

The exclusion of liability under the proviso to Section 16(1) is inapplicable where despite the
mention of a brand-name the purchase was based on the representation given by the seller
that the goods are fit for a particular purpose made known to him. 79 In this case, Claimants
74
Problem File, ¶ 9.

75
Ibid.

76
Supra Contention III(B)(2).

77
Problem File, ¶ 9.

78
Frugalian Sale of Goods Act, § 16(1), proviso; see also Indian Sale of Goods Act, 1930, § 16(1), proviso.

79
Baldry v. Marshall, [1924] All ER Rep 155; Wallis v. Pratt, [1911] A. C. 394.
MEMORANDUM for CLAIMANT

-14-
 -Arguments Advanced-

intention was to purchase an investment software that would be fit for a particular purpose. 80
Claimant had no preference for “Comet” or software known by any other name. 81 It was
Respondent who represented that “Comet” would be fit for the said purpose. 82 Thus, the
Claimant cannot be said to have entered into the contract for purchase of a “specified article
under its […] trade name”.83

b. The exclusion under the proviso does not apply as “Comet” cannot be treated as a
trade name in the present matter.

A trade name is a name that distinguishes products or services of one customer from another.
It can be defined as a trademark that was not originally susceptible to exclusive appropriation
but has acquired secondary meaning.84 A trademark is the name, symbol, figure, letter, form
or device adopted and used by the manufacturer or merchant in order to designate the goods
that he manufactures or sells, and to distinguish them from those manufactured or sold by
another, to the end that they may be known in the market as his, and thus enable him to
secure such profits as result from a reputation for superior skill, industry, or enterprise 85. In
this case there is no indication on facts of “Comet” being a registered trademark of
Respondents. The product “Comet” was not yet in the market86 and hence nothing indicates
the word “Comet” had gained reputation as signifying a software manufactured and marketed
by Respondents. Moreover, given that it was only during the negotiation of the contract that
Respondent 1 gained commercial presence in the market of Frugalia 87, it is unlikely that the
term “Comet” would be associated with Respondent, particularly in the Frugalian market.

80
Problem File, ¶¶ 7, 8.

81
Ibid.

82
Problem File, ¶ 9.

83
Frugalian Sale of Goods Act, 1932, § 16(1), proviso; see also Indian Sale of Goods Act, 1930, § 16(1),
proviso.

84
Bryan Garner, ed., Black’s Law Dictionary, 7th edn. (West Publishing Co., St. Paul: 1999), 1436.

85
P. Ramanatha Aiyer, The Law Lexicon, 2nd edn. (Wadhwa & Co., Nagpur: 2004), 1787.

86
Problem File, ¶ 12.

87
Problem File, ¶ 10.
MEMORANDUM for CLAIMANT

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 -Arguments Advanced-

Therefore, it is submitted that “Comet” cannot be treated as a trade name in the present
matter.

Therefore, Respondents are also liable under section 16 of the Sale of Goods Act.

In conclusion, it is submitted that Respondents are liable under Sections 15 and 16(1) of the
Sale of Goods Act and the liability under Section 16(1) is not exempted by the proviso to that
Section.

IV. ALTERNATIVELY, RESPONDENTS ARE LIABLE FOR BREACH OF CONTRACT UNDER THE
FRUGALIAN CONTRACT ACT, 1872.

Assuming but not admitting that the transaction was not governed by the Sale of Goods Act,
it is submitted that Respondents are liable for breach of contract under the Frugalian Contract
Act. The communication between Mr. Romanovich and Respondents as to the description
and purposes to be met by the software has been incorporated by reference as a term of the
End User License Agreement [A]. This term has been breached [B].

A. The communication between parties as to the description and

purposes of the software has been incorporated by reference as a term of the
EULA.

It is admitted that where a contract is in writing, prior negotiations are not usually considered
as casting obligations upon the parties.88 However, it is possible for the parties to incorporate
into the contract terms from other documents by reference. 89 It has already been submitted 90
that the reference by the parties to the Frugalian Sale of Goods Act can have effect only if the
communication of Mr. Romanovich and the response of Respondent 1 to the same can be
treated as a binding contractual term between the parties. It is a fundamental tenet of
interpretation that every clause in a contract is to be given effect to and that the intention of
the parties is paramount.

88
Investors Compensation Scheme v. West Bromwich Building Society, [1998] 1 All ER 98; Prenn v. Simmonds,
[1971] 3 All ER 237; Kim Lewison, The Interpretation of Contracts, 4th edn. (Sweet & Maxwell, London:
2007), ¶ 3.08.

89
Groupe Chimique Tunisien S. A. v. Southern Petrochemicals Industries Corpn. Ltd., (2006) 5 SCC 275.

90
Supra Contention III(B)(1).
MEMORANDUM for CLAIMANT

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 -Arguments Advanced-

Even assuming that the contract is not a sales contract and the parties were mistaken in
referring to the Sale of Goods Act, the reference indicate the manifest intention of the parties
to treat the communications between them as to the description of the software and the
purpose it was to serve as a legally binding term. Moreover, the fact that the reference was
supplied by Respondents shows that even Respondents, at the time of contracting regarded
these representations as binding terms of the contract. Thus, it is submitted that the reference
to the Sale of Goods Act should be construed as incorporating the said communication as a
term of the contract.

B. There has been a breach of the contractual term regarding

description and purpose to be served by the product.

It has already been submitted that the software did not meet the description it was supposed
to confirm to and was not fit for the particular purpose made known to Respondents. 91 Thus,
there has been a breach of the agreement between the parties in these respects which had been
incorporated by reference as a term of the EULA. Hence, it is submitted that Respondents are
liable for the breach of contract under the Frugalian Contract Act.92

V. RESPONDENTS ARE LIABLE TO REFUND THE PURCHASE PRICE AND PAY REQUISITE

DAMAGES FOR THE ERRONEOUS ADVICE AND CONSEQUENTIAL LOSSES SUFFERED BY

CLAIMANT.

It is submitted that Respondents are liable to return the purchase price and pay damages for
the erroneous advice and the consequential losses suffered by Claimant. It is well recognized
that a party breaching a contract is bound to return payments secured by him under the
contract.93 However, the right of recovery of the non-breaching party is not limited to this
extent. The non-breaching party may recover damages for any losses suffered by him as a
result of the breach of such consequences as could be reasonably foreseen by the breaching
party at the time of the conclusion of the contract. 94 It is also recognized that “the question of

91
Supra Contentions III(B)(2), III(C)(3).

92
Frugalian Contract Act, 1872, § 73; see also Indian Contract Act, 1872, § 73.

93
Ibid; Frugalian Sale of Goods Act, 1932, § 59; see also Indian Sale of Goods Act, 1930, § 59; K. S.
Satyanarayana v. V. R. Narayana Rao, AIR 1999 SC 2544.

94
Hadley v. Baxendale, [1843-60] All ER Rep. 461; C. Czarnikow Ltd. v. Koufos, [1967] 3 All ER 686.
MEMORANDUM for CLAIMANT

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 -Arguments Advanced-

remoteness cannot be isolated from consideration of the purpose of the contract and the scope
of the contractual obligation”.95 Further, “[i]f, 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”.96

In the present case, the purchase price paid by Claimant was much more that the cost of the
best existing investment software.97 Having paid such a steep purchase price, Claimant was
entitled to expect corresponding standard of performance in the software. Moreover, when all
expectations of Claimant about the software were detailed, Respondent had assured that they
would be met.98 Also, it would be apparent to Respondents, especially as Claimant exhibited
its willingness to purchase a risk-averting software for $45 million, that faulty advice by the
software would expose Claimant to the same risk it sought to avert and could result in losses
much greater than the contract price paid by Claimant.

In these circumstances it would be within the “scope of duty” of Respondents to supply

software that would not give erroneous advice. As the software has given faulty advice and
consequential damages have accrued to Claimant, Respondents are precluded, in light of the
above mentioned legal position, from claiming that the losses would not have accrued in the
normal course of events or in the absence of the fraud relating to Truism. Hence, from a
proper “analysis of the contract against its commercial back ground”, Respondents are clearly
liable to pay damages for the losses incurred by Claimant consequent to the erroneous advice
rendered by the software.

95
Transfield Shipping Inc. v. Mercator Shipping Inc., [2008] 4 All ER 159.

96
Ibid.

97
Problem File, ¶9.

98
Problem File, ¶9.
MEMORANDUM for CLAIMANT

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 -Conclusion and Prayer for Relief-

CONCLUSION AND PRAYER FOR RELIEF

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

1) The Tribunal has jurisdiction over Respondent 1 under settled principles of arbitration
law and in any event, the corporate veil between Respondent 1 and Respondent 2
must be lifted.

2) The fraudulent acts of Mr. Romanovich cannot be attributed to Claimant; and in any
case, the defence of ex turpi causa non oritur actio is inapplicable in these
circumstances and does not bar Claimant’s action.

3) Respondents are jointly and severally in breach of ss. 15 and 16 of the Frugalian Sale
of Goods Act, 1930.

4) Alternatively, Respondents are jointly and severally liable for breach of contract
under the Frugalian Contract Act, 1872.

5) Respondents are jointly and severally liable to refund the purchase price and pay
requisite damages for the erroneous advice and consequential losses suffered by
Claimant.

All of which is respectfully affirmed and submitted

Sd/-

Counsel for Claimant

MEMORANDUM for CLAIMANT

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