Contract analysis

1. This post-hearing brief is submitted on behalf of Respondent Whitmore Aerospace LLC ("WAL" or "Respondent") following the evidentiary hearing held from January 8 through January 12, 2024, at the ICC Hearing Centre in New York, New York, before the Tribunal constituted pursuant to the ICC Rules of Arbitration (2021 edition). WAL respectfully submits this brief to address the evidence adduced during the hearing, to

2. This arbitration was commenced by Claimant Kestrel Dynamics GmbH ("Kestrel" or "Claimant"), a German manufacturer of precision-machined titanium alloy components, on November 7, 2022. Kestrel alleges that WAL committed a material breach of the Master Supply Agreement for Titanium Alloy Turbine Housings dated June 15, 2018, as amended (the "MSA"), by rejecting fourteen lots of Ti-6Al-4V ELI titanium alloy turbine h

3. WAL's position throughout this proceeding has been clear, consistent, and amply supported by documentary and testimonial evidence. WAL did not commit any material breach of the MSA. To the contrary, Kestrel's repeated delivery of non-conforming products—turbine housings exhibiting porosity levels in excess of the expressly stated contractual specification of ≤0.25%—constituted a Persistent Quality Failure within t

4. WAL further maintains its counterclaim in the amount of €5.17 million for the replacement-component costs WAL was compelled to incur in sourcing conforming turbine housings from an alternative supplier, Valkyr Precision Components Inc. ("Valkyr"), following Kestrel's Persistent Quality Failure. The premium WAL paid to Valkyr—which was substantially higher on a per-unit basis than the contract price under the MSA—i

5. Additionally, WAL seeks reimbursement of its legal costs totaling $3.12 million, comprising attorney fees, expert fees, and costs and disbursements incurred in defending against Kestrel's meritless claims and prosecuting WAL's counterclaim.

6. The evidentiary hearing confirmed the strength of WAL's defense and exposed fundamental weaknesses in Kestrel's factual and expert evidence. In particular: (a) Kestrel's own Head of Quality Assurance, Dr. Stefan Voss, confirmed under cross-examination that Kestrel's internal testing revealed porosity readings exceeding the ≤0.25% contractual threshold for multiple lots prior to shipment, and that Kestrel made a de

7. This brief is organized as follows: Section II sets forth the procedural history of this arbitration. Section III summarizes the issues presented for the Tribunal's determination. Section IV demonstrates that the hearing evidence confirms WAL did not commit material breach and that WAL's termination was proper. Section V addresses each category of Kestrel's damages claims and demonstrates that none is recoverable.

II. PROCEDURAL HISTORY A. Pre-Hearing Proceedings

8. On June 15, 2018, WAL (as Buyer) and Kestrel (as Seller) entered into the Master Supply Agreement for Titanium Alloy Turbine Housings (the "MSA"), pursuant to which Kestrel agreed to manufacture and deliver Ti-6Al-4V ELI titanium alloy turbine housings to WAL in accordance with WAL engineering specifications WAL-SPEC-TH-401 through WAL-SPEC-TH-410. The MSA established a comprehensive quality assurance framework, i

9. On February 10, 2020, the parties executed Amendment No. 1 to the MSA (R-003). Amendment No. 1 added WAL-SPEC-TH-410 (covering a new variant of turbine housing for WAL's next-generation propulsion platform) and increased the maximum annual volume from 3,600 units to 4,000 units to accommodate anticipated increased demand for WAL's military and commercial aviation programs. Amendment No. 1 also revised the pricing

10. On September 3, 2021, the parties executed Amendment No. 2 to the MSA (R-004). Amendment No. 2 was negotiated against the backdrop of supply-chain disruptions caused by the global pandemic. Its principal terms extended the lot-level cure period under § 8.4 from 30 calendar days to 45 calendar days, reflecting the parties' recognition that pandemic-related logistics constraints might require additional time for Ke

11. Beginning in March 2022 and continuing through September 2022, WAL rejected fourteen lots of turbine housings (Lot KDG-2022-0307 through Lot KDG-2022-0919) totaling 1,680 units for non-conformance with the porosity specification in WAL-SPEC-TH-401, Appendix C, Table 3. For each rejected lot, WAL issued a formal written rejection notice specifying the nature of the non-conformance and referencing the applicable sp

12. On October 3, 2022, WAL issued a Notice of Termination for Cause to Kestrel, terminating the MSA pursuant to § 14.2(b) on the grounds of Persistent Quality Failure (R-018). The Notice of Termination identified the seven uncured rejections by lot number and date, referenced the applicable contractual provisions, and stated that the termination was effective immediately in accordance with the terms of § 14.2(b).

13. On November 7, 2022, Kestrel filed its Request for Arbitration with the ICC, commencing this proceeding. In its Request, Kestrel alleged that WAL had materially breached the MSA by wrongfully rejecting the fourteen lots and by wrongfully terminating the MSA, and sought damages in the approximate amount of €47.3 million.

14. On December 12, 2022, WAL filed its Answer to the Request for Arbitration and Counterclaim. WAL denied all of Kestrel's allegations of breach, asserted that its termination of the MSA was proper under § 14.2(b), and asserted a counterclaim in the amount of €5.17 million for replacement-component costs incurred in sourcing conforming turbine housings from Valkyr Precision Components Inc.

15. The Tribunal was constituted on January 20, 2023, with Prof. Dame Eleanor Fitzwilliam appointed as Presiding Arbitrator, Dr. Hans-Ulrich Perren appointed as Co-Arbitrator (nominated by Claimant), and the Hon. Robert A. Castillo appointed as Co-Arbitrator (nominated by Respondent). The Tribunal was confirmed by the ICC Court in accordance with Article 13 of the ICC Rules.

16. The preliminary procedural conference was held on February 14, 2023, resulting in the issuance of Procedural Order No. 1, which established the procedural timetable for the arbitration, including deadlines for written submissions, document production, expert reports, and the evidentiary hearing. Procedural Order No. 1 also addressed the procedural framework for the arbitration, including provisions regarding docu

17. On March 17, 2023, the Tribunal issued Procedural Order No. 2, which established the schedule and procedures for document production. Both parties exchanged document production requests pursuant to the IBA Rules on the Taking of Evidence in International Arbitration (2020 Revision), and the Tribunal resolved certain objections raised by both parties regarding the scope of production. The document production phase

18. On April 28, 2023, Kestrel filed its Statement of Claim, setting forth in detail its allegations of material breach and its damages claims totaling approximately €47.3 million. The Statement of Claim was accompanied by documentary exhibits C-001 through C-087 and the witness statements of Friedrich Brenner (C-WS-1), Luisa Erdmann (C-WS-2), and Dr. Stefan Voss (C-WS-3).

19. On June 30, 2023, WAL filed its Statement of Defense and Counterclaim, responding to each of Kestrel's allegations and setting forth WAL's defense that its lot rejections were justified by objective metallurgical evidence, that its termination was proper under § 14.2(b), and that Kestrel's damages claims were barred by the consequential damages waiver in § 8.7 and were, in any event, speculative and unsupported.

20. On August 11, 2023, Kestrel filed its Reply to the Statement of Defense and Defense to Counterclaim, accompanied by additional documentary exhibits C-088 through C-112 and supplemental witness statements.

21. On September 29, 2023, WAL filed its Rejoinder, accompanied by additional documentary exhibits R-065 through R-089 and supplemental witness statements.

22. On October 16, 2023, the parties simultaneously exchanged expert reports. On the issue of damages, Kestrel submitted the report of Prof. Dieter Langfeld of Rheinsberg Advisory AG (C-ER-1), and WAL submitted the report of Dr. Nadia Ostrovsky of Ridgeline Economic Consulting LLC (R-ER-1). On the issue of metallurgy and product quality, Kestrel submitted the report of Dr. Martina Kessler of Albrecht Prüftechnik GmbH

23. On November 13, 2023, the parties simultaneously exchanged rebuttal expert reports. Dr. Ostrovsky submitted a rebuttal to Prof. Langfeld's report (R-ER-3), and Dr. Chow submitted a rebuttal to Dr. Kessler's report (R-ER-4). Correspondingly, Prof. Langfeld and Dr. Kessler submitted rebuttal reports responding to the reports of Dr. Ostrovsky and Dr. Chow, respectively. C. The Evidentiary Hearing

24. The evidentiary hearing was held from January 8 through January 12, 2024, at the ICC Hearing Centre in New York, New York. All three members of the Tribunal were present in person throughout the hearing. The hearing was conducted in English, with simultaneous German-English interpretation available for certain witnesses.

25. The following witnesses of fact testified and were examined and cross-examined during the hearing: For Respondent (WAL): • Gerald Huang, Vice President, Global Supply Chain Operations, WAL • Dr. Ingrid Vollmer, Senior Vice President, Engineering & Manufacturing, WAL For Claimant (Kestrel): • Friedrich Brenner, Managing Director, Kestrel Dynamics GmbH • Luisa Erdmann, Commercial Director, Kestrel Dynamics GmbH • D

26. The following expert witnesses testified and were examined and cross-examined during the hearing: For Respondent (WAL): • Dr. Raymond Chow, Principal Engineer, Arclight Materials Science Inc. (metallurgy) • Dr. Nadia Ostrovsky, Managing Director, Ridgeline Economic Consulting LLC (damages) For Claimant (Kestrel): • Dr. Martina Kessler, Director, Albrecht Prüftechnik GmbH (metallurgy) • Prof. Dieter Langfeld, Part

27. The hearing proceeded in an orderly fashion in accordance with the procedural framework established by the Tribunal. Each witness was examined in chief, cross-examined by opposing counsel, and subject to questions from the Tribunal. The hearing transcript, prepared by Ostrander Data Systems, consists of approximately 2,800 pages across five hearing days.

28. The Tribunal is called upon to resolve the following issues in this arbitration: Issue 1: Whether WAL committed material breach of the MSA by rejecting 14 lots of Products (1,680 units) between March and September 2022. As set forth in detail in Section IV below, WAL submits that it did not commit material breach. Each lot rejection was based on objective metallurgical evidence demonstrating non-conformance with

29. The governing law of the MSA, including all disputes arising out of or in connection with the MSA, is the law of the State of New York, as specified in § 22.1 of the MSA.

IV. THE HEARING EVIDENCE CONFIRMS WAL DID NOT COMMIT MATERIAL BREACH A. WAL's Lot Rejections Were Justified by Objective Metallurgical Evidence

1. The Contractual Quality Standards Are Clear and Unambiguous.

30. The quality standards applicable to Kestrel's performance under the MSA are clearly and unambiguously set forth in the contractual documents. These standards are not matters of interpretation or inference; they are express, written, and specific.

31. First, the MSA required Kestrel to maintain certification under AS9100 Rev D, the internationally recognized quality management system standard for the aviation, space, and defense industry, throughout the term of the MSA. AS9100 Rev D imposes rigorous requirements regarding process control, product conformity, defect prevention, and continual improvement. This certification requirement was a condition of the MSA

32. Second, the MSA required Kestrel to deliver products conforming in all respects to WAL engineering specifications WAL-SPEC-TH-401 through WAL-SPEC-TH-410. These specifications were developed by WAL's engineering team, were provided to Kestrel prior to the execution of the MSA, and were incorporated by reference into the MSA. The specifications address all critical parameters of the turbine housings, including dim

33. The porosity specification is found in WAL-SPEC-TH-401, Appendix C, Table 3, which expressly states a maximum permissible porosity level of ≤0.25% for all Ti-6Al-4V ELI titanium alloy turbine housings delivered under the MSA. This specification was the product of WAL's extensive engineering analysis of the fatigue-life requirements for turbine housings operating in high-temperature, high-stress propulsion system

34. Each lot delivered by Kestrel under the MSA was subject to WAL incoming inspection in accordance with WAL-QCP-100, WAL's quality control procedure for incoming materials and components. WAL-QCP-100 prescribes a systematic inspection protocol including visual examination, dimensional measurement, surface roughness testing, and, for titanium alloy components, non-destructive porosity evaluation. Upon receipt of eac

35. If WAL rejected a lot, the rejection/cure provision in § 8.4 of the MSA governed the parties' respective rights and obligations. Section 8.4 provides that upon rejection of a lot, WAL shall issue a written rejection notice specifying the nature of the non-conformance and the applicable specification not met. The Seller (Kestrel) then has 45 calendar days (as extended by Amendment No. 2, from the original 30-day p

36. The definition of "Persistent Quality Failure" is set forth in § 14.2(b) of the MSA. That provision states, in relevant part: "If the Seller fails to cure three (3) or more lot rejections within the applicable cure period in any rolling twelve (12) month period (a 'Persistent Quality Failure'), the Buyer may terminate this Agreement immediately upon written notice to the Seller, without the requirement of any add

37. The contractual quality framework is thus comprehensive, clearly delineated, and fair: Kestrel was required to deliver conforming products; WAL had the right to inspect and reject non-conforming lots; Kestrel had a generous 45-day cure period to remediate any non-conformances; and if Kestrel repeatedly failed to cure, WAL had the right to terminate. At no point during the negotiation of the MSA or its two amendme

2. Dr. Raymond Chow's Expert Testimony Was Credible and Unrebutted on Key Points.

38. Dr. Raymond Chow, Principal Engineer at Arclight Materials Science Inc., was retained by WAL to conduct an independent metallurgical analysis of the fourteen rejected lots (Lot KDG-2022-0307 through Lot KDG-2022-0919). Dr. Chow holds a Ph.D. in Materials Science and Engineering from the Massachusetts Institute of Technology and has over twenty-five years of experience in the metallurgical analysis of aerospace-gr

39. Dr. Chow's analysis was based on representative samples drawn from each of the fourteen rejected lots. His testing methodology involved micro-computed tomography (micro-CT) scanning and image analysis, a methodology that is consistent with ASTM E2903 (Standard Practice for Examination of Metal Powder Parts Using Micro Computed Tomography). Micro-CT scanning provides a three-dimensional, non-destructive visualizat

40. Dr. Chow's analysis confirmed porosity levels ranging from 0.19% to 0.38% across the fourteen rejected lots. Of the fourteen lots, seven exhibited porosity levels above the ≤0.25% contractual threshold—in some cases substantially so. The remaining seven lots exhibited porosity levels between 0.19% and 0.25%, placing them at or near the contractual limit.

41. With respect to the lots exhibiting porosity levels above 0.25%, Dr. Chow testified that these lots clearly violated the contractual specification and would be unacceptable for use in safety-critical aerospace turbine housing applications. He explained that the porosity levels observed—up to 0.38%—would result in a meaningful reduction in the fatigue life of the turbine housings, increasing the risk of crack init

42. With respect to the lots exhibiting porosity levels between 0.19% and 0.25%, Dr. Chow explained that these lots were flagged as part of WAL's broader assessment of a pattern of inconsistent process control by Kestrel. While certain individual samples within these lots may have measured at or below 0.25%, the lot-level data, when considered in conjunction with the lots exhibiting higher porosity levels, revealed a

43. Dr. Chow's methodology was described in detail at the hearing and was not challenged on methodological grounds by Claimant's counsel. Neither Dr. Haber nor Ms. Schäfer questioned the validity of micro-CT scanning as a porosity measurement technique, the appropriateness of the ASTM E2903 standard, or the calibration of Dr. Chow's equipment. Under cross-examination, Dr. Chow maintained his conclusions without mater

44. Dr. Chow's testimony was clear, methodical, and well-supported by the underlying data. He explained the safety-critical nature of porosity control in aerospace turbine housings used in propulsion systems in terms accessible to the Tribunal, while maintaining the precision and rigor expected of an expert in his field. His testimony should be afforded substantial weight by the Tribunal.

3. Dr. Martina Kessler's Expert Testimony Was Unreliable.

45. Dr. Martina Kessler, Director of Albrecht Prüftechnik GmbH, testified for Claimant on non-destructive testing and quality certification. While Dr. Kessler is a qualified materials scientist with experience in the aerospace industry, her testimony at the hearing revealed significant limitations in the scope and reliability of her analysis that render her conclusions unpersuasive.

46. First, Dr. Kessler's report relied primarily on Kestrel's own internal quality data rather than on independent re-testing of the rejected lots. In her expert report (C-ER-2), Dr. Kessler reviewed Kestrel's internal quality control records, including Kestrel's own porosity measurements, test certificates, and quality inspection reports. She then opined, based on this review, that all fourteen lots met the ≤0.25% p

47. Second, under cross-examination by Mr. Langston, Dr. Kessler conceded that she did not independently verify the calibration of Kestrel's testing equipment for the specific lots at issue. She acknowledged that calibration verification is a standard element of any reliable metallurgical analysis and that without such verification, the accuracy of Kestrel's internal test results cannot be independently confirmed. Th

48. Third, Dr. Kessler acknowledged under cross-examination that Kestrel's internal testing methodology differed from the ASTM E2903 standard referenced in WAL-SPEC-TH-401. Specifically, she acknowledged that Kestrel used a different scanning resolution and analysis protocol than those specified in ASTM E2903, and that these methodological differences could account for discrepancies between Kestrel's internal measure

49. Fourth, Dr. Kessler's testimony that all fourteen lots met the ≤0.25% porosity specification was contradicted not only by Dr. Chow's independent measurements but also by Kestrel's own internal documentation produced during the document production phase. Documents produced by Kestrel (C-067 through C-074) included internal quality reports showing porosity readings exceeding 0.25% for at least seven of the fourteen

50. For these reasons, the Tribunal should credit Dr. Chow's independent metallurgical analysis over Dr. Kessler's opinion. Dr. Chow conducted independent testing using an internationally recognized methodology; Dr. Kessler relied on Kestrel's own unverified data, using a methodology that deviated from the contractually specified standard. The weight of the metallurgical evidence strongly supports WAL's position that

4. Kestrel's "Unpublished Specification" Argument Was Definitively Refuted.

51. Throughout this proceeding, Kestrel has advanced the argument that WAL improperly applied an "unpublished" or "internal" porosity tolerance of ≤0.15%—stricter than the contractual ≤0.25% specification—as the actual basis for its lot rejections. According to Kestrel, WAL's true rejection criterion was not the published specification in WAL-SPEC-TH-401 but rather an undisclosed, more stringent standard that Kestrel

52. The evidentiary hearing demonstrated conclusively that this allegation is baseless. The ≤0.25% standard is expressly and unambiguously stated in WAL-SPEC-TH-401, Appendix C, Table 3, a document that was provided to Kestrel at the outset of the MSA and was not modified at any time during the contractual relationship. There is no document in the record—no email, no memorandum, no specification revision notice, no m