Report: Arbitration Case Between Zug Textile and Santiago Weaving

This report analyzes an arbitration case between Zug Textile Machine Manufacturers SA and Santiago Weaving Company, heard at the London Court of International Arbitration. The dispute arose from Santiago Weaving's refusal to pay for weaving equipment. The contract, governed by UNCITRAL Model Arbitration Law and Rules, involved an arbitrator appointed by the London Court. The report details the arbitrator's appointment, the claimant's challenge to the arbitrator's independence based on potential conflict of interest, and the examination of the contract terms. The report further outlines the substantive law (Swiss contract law, English law) and procedural law (Arbitration Act of 1996) applied. The analysis covers the findings of fact, applicable laws, and the resulting arbitration award, providing a comprehensive overview of the case's legal and procedural aspects.

Introduction:
This paper provides an award that is derived from an arbitration case between Zug Textile
Machine Manufacturers SA and the Santiago Weaving Company in Chile. This arbitration case
took place at the London Court of International Arbitration, 70 Fleet Street, London EC4. In this
case, Santiago Weaving Company refused to pay Zug Textile Machine Manufacturers SA, a
balance of the weaving shed that it purchased from the company.
Nevertheless, when the two companies were forming a contract, they agreed to be bound by the
UNCITRAL Model Arbitration Law and Rules. This is contained in their clause 36, which was
created on 15th of June 2015, and it states that,
“In case of any dispute that emerges between the parties to the contractual agreement, they shall
settle the dispute in accordance to the UNCITRAL Model Arbitration Law and Rules, and the
decisions arrived at the arbitration court shall be final and binding. Moreover, the clause denotes
that their disputes shall be heard by one arbitrator, who should sit at the London Court of
International Arbitration. Thus, the seat of arbitration shall be in the city of London, England.
It is based on this clause, that the claimant, Zug Textile Machine Manufacturers SA, notified the
respondent, who is Santiago Weaving Company, of their desire to refer the case for arbitration.
Under the rules of UNCITRAL, Zug Textile Machine Manufacturers SA, requests the London
Court of International Arbitration to appoint 1 arbitrator as agreed in clause 36, to hear the case,
and make a decision of the dispute that is under consideration.
In a letter dated 1st of April 2016, the London Court of Arbitration appointed me, Michael
Hamilton as an arbitrator in the case of Zug Textiles Machine Manufacturers v The Santiago
Weaving Company. While appointing me as an arbitrator to the case, the court of arbitration
denoted that it had examined my statement of independence and curriculum Vitae, and found me
to be suitable for the role of an arbitrator.

On 29th of April 2016, I responded with a letter to the appointment, and I agreed to act as an
arbitrator to the case. I agreed to use the UNCITRAL rules for purposes of solving this problem.
Some of the factors that made me agree to act as an arbitrator are based on my extensive
knowledge of issues pertaining to the textile industry, and my country of nationality. I am an
American national, thus, I will definitely not favor any of these companies, since one was from
Switzerland and another one from Chile. Moreover, the other reason that made me to take the
case is because I do not have any direct contact with the parties to the conflict, or any other
personal interest.
Nevertheless, a dispute arose over whether I am qualified enough to act as an arbitrator. The
dispute was brought forth by the claimant, when he asserted that I had breached the 2015 IBA
Guidelines on Conflict of Interests pertaining to matters of International arbitration. This is
because the claimant, Zug Textile Machine Manufacturers SA denoted that I could not be
independent, since I had knowledge of Mr. Pablo Nerja, who was the chairman of the Santiago
Weaving Company. On this note, the claimant argued that I provided a false statement of
independence, thus, I should resign, as per the International Arbitration Guidelines of 2015.
However, as a professional arbitrator, I believe that I do not have any personal interest to this
case, and my knowledge of Mr. Pablo Nerja cannot influence the decision that I will arrive at,
during the process of arbitration.
To continue, for purposes of arriving at an appropriate decision in this case, there was a need of
examining the contract between the claimant and the respondent. For instance, clause 3 of the
contract denoted that Zug Textile Machine Manufacturers SA will have the responsibility of
delivering 300 weaving looms and auxiliary equipment to Santiago Weaving Company. The
equipment had to meet specific standards and those standards and specifications must meet the
standards that are established by the Swiss Textile Council. Clause 8 of the contract denoted that
$ 40,000 was to be paid to the suppliers. $ 10 million was a deposit that was to be paid during the
signing in of the contract, and the remaining $ 30 million was to be paid within 30 days after
delivery. Moreover, clause 19 mandated Zug to guarantee the quality of the delivery, and any
defects will be immediately replaced by Zug. Clause 36 of the contract identified the methods to
be used in solving any disputes that arose from the breach of contract. This contract was formed

on 15th of June 2015.
Procedural and Substantive Law in Use
With the commencement of the arbitration procedure at the London Court of International
Arbitration, 70 Fleet Street, London, EC4, there were a number of substantive and procedural
laws that I relied on, for purposes of solving the case. For instance, the substantive law relied
upon was article 35 of the UN Convention of the International Sale of Goods, and this was
pursuant to the laws of another state that is agreeable by the parties to the contract.
However, the parties to the dispute did not have an express choice of law to use, in resolving this
dispute. Based on the precedent established in the 1988 case of XIII Y.B. Comm. Arb, the
substantive law to be used is the English laws of contract and the 1979 sale of Goods Act. In this
case, there was a dispute between an Australian equipment franchisor and its franchisee that was
based in South Africa. In this case, the parties to the conflict agreed that the seat of arbitration
will be in London, thus, there was a need of applying the English private international law.
Under these private rules and laws, the substantive laws that can be used for purposes of
solving a breach of contractual obligations is the laws of the place where the contractual
obligations have a close connection. That is, where majority of the contractual relationship
occurs. In this case of Zug, most contractual obligations and activities was happening in the
state of Zug Textile Machine Manufacturers v The Santiago Weaving Company, most activities
of this contract was happening in Switzerland. On this note, the substantive law that was to be
used in arbitrating over the disputes in this contract is the contract laws of Switzerland.
However, the English private international law denotes that the application of any foreign law in
England should be a matter of fact that is confirmed by expert evidence. If the evidence is
unavailable, then the foreign law will be seen to be the same as the English law, thus the laws of
England will be used to solve the dispute. This is the precedent established in the 1988 case of
XIII Y.B. Comm. Arb. Basing on these facts, it is possible to assert that article 35 of the UN
Convention of the International Sale of Goods will be the substantive law that is used
pursuant to the English laws of Contract and the 1979 Sale of Goods Act.

On the other hand, the procedural laws in use are the Arbitration Act of 1996. This act
establishes the general duty of the tribunal, and this includes the need to act in an impartial and
fair manner, give each parties to the case an equal opportunity to put argue their case, and to
avoid the unnecessary delays and expenses, during the arbitration process.
The Oral Evidence and Arguments
Findings of Fact
The Applicable Laws and the Award
Conclusion