Contract analysis

1. Respondent Whitmore Aerospace LLC ("WAL" or "Respondent") respectfully submits this Rejoinder in ICC Arbitration Case No. 27914/MHM, in accordance with the procedural timetable established by Procedural Order No. 1 and as further confirmed by the Tribunal's directions at the case management conference held on May 19, 2023. This Rejoinder is filed in response to Claimant Kestrel Dynamics GmbH's ("Kestrel" or "Claim

2. WAL filed its Statement of Defense and Counterclaim on June 30, 2023 (the "Statement of Defense"), in which it set forth a comprehensive factual account of the events giving rise to this dispute, demonstrated that WAL's termination of the Master Supply Agreement for Titanium Alloy Turbine Housings dated June 15, 2018 (Ref. WAL-KDG-MSA-2018-0615) (the "MSA") was both procedurally and substantively proper under § 14

3. Having now reviewed Claimant's Reply in detail, Respondent confirms that the Reply fails to rehabilitate Kestrel's claim for €47.3 million in alleged damages. The Reply introduces no new evidence of substance. It does not produce a single document, test result, or contemporaneous record that contradicts the comprehensive evidence of Kestrel's quality failures already before this Tribunal. Instead, the Reply relies

4. More specifically, Claimant's Reply rests on the premise that WAL applied an undisclosed porosity tolerance of ≤0.15% to incoming inspections, rather than the contractual standard of ≤0.25% set forth in WAL-SPEC-TH-401, Appendix C, Table 3. This premise is flatly contradicted by the text of WAL-QCP-100, by WAL's inspection records for every rejected lot, and by the independent metallurgical analysis conducted by D

5. WAL further reaffirms its counterclaim for €5.17 million in replacement-component costs incurred in sourcing Ti-6Al-4V ELI titanium alloy turbine housings from Valkyr Precision Components Inc. ("Valkyr") following the termination. As set forth in Section VI below, Kestrel's defenses to the counterclaim — including its arguments on causation, mitigation, and quantum — are without merit. The counterclaim is supporte

6. This Rejoinder is structured as follows: • Section II sets forth corrections and clarifications to the factual background, including the terms and amendments of the MSA and the errors in Claimant's factual narrative. • Section III addresses the porosity specification dispute, demonstrating that the contractual standard is ≤0.25% and that Claimant's ≤0.15% argument is without merit, including a comparative assessme

II. FACTUAL BACKGROUND — CORRECTIONS AND CLARIFICATIONS A. The MSA and Its Amendments

7. The MSA was executed on June 15, 2018, between Whitmore Aerospace LLC, a Delaware limited liability company with its principal place of business in Manassas, Virginia, as Buyer, and Kestrel Dynamics GmbH, a company organized under the laws of the Federal Republic of Germany with its registered office in Stuttgart, Baden-Württemberg, as Seller. The MSA bears the internal reference number WAL-KDG-MSA-2018-0615, and

8. The MSA is governed by the laws of the State of New York, without regard to its conflict of laws principles, as expressly provided in § 22.1 of the MSA. Disputes arising under or in connection with the MSA are subject to arbitration under the ICC Rules of Arbitration (2021 edition) before a three-member tribunal, with the seat of arbitration in New York, New York, as provided in § 22.3. The Parties do not dispute

9. Under the MSA, Kestrel agreed to manufacture and deliver to WAL precision-engineered Ti-6Al-4V ELI (Extra Low Interstitial) titanium alloy turbine housings (the "Products"), conforming to WAL's engineering specifications designated WAL-SPEC-TH-401 through WAL-SPEC-TH-409. These specifications, which total over 340 pages of detailed engineering requirements, cover dimensional tolerances, material composition, surfa

10. The MSA established a five-year term commencing on June 15, 2018, and expiring on June 14, 2023, with two optional one-year renewal periods exercisable by WAL at its sole discretion. Section 3.2 of the MSA states in relevant part: "Buyer shall have the option, exercisable in its sole and absolute discretion, to extend the term of this Agreement for up to two (2) additional periods of one (1) year each, by providi

11. The importance of this provision to the present dispute cannot be overstated. The two renewal periods were options vested exclusively in WAL's discretion. Kestrel had no right to compel renewal, and WAL had no obligation to exercise either option. This fact bears directly on Kestrel's claim for €27.15 million in renewal-period lost profits, which, as discussed in Section V.C.2 below, constitutes over 57% of its t

12. The MSA established an annual volume commitment of a minimum of 2,400 units and a maximum of 3,600 units per contract year ("CY"). Unit pricing was set at a CY1 base price of €4,850 per unit, escalating at a rate of 2.5% per annum, compounded annually, as provided in § 5.2. Applying this escalation formula, the CY4 unit price was €5,222.92, and the CY5 unit price would have been €5,353.49. These pricing provision

13. Delivery terms were specified as DDP (Delivered Duty Paid) per Incoterms 2020, with the designated delivery point being WAL's manufacturing facility located at 8500 Coppermine Road, Manassas, Virginia 20110. Under DDP terms, Kestrel bore all costs and risks associated with transporting the Products to WAL's facility, including import duties, customs clearance, and transportation.

14. Quality standards under the MSA were rigorous and multi-layered. Section 6.1 required Kestrel to maintain AS9100 Rev D certification throughout the term of the MSA, a quality management system standard specifically developed for the aviation, space, and defense industries. Section 6.2 required that all Products conform to the engineering specifications WAL-SPEC-TH-401 through WAL-SPEC-TH-409 as a condition of acc

15. The MSA was amended twice during its term. Amendment No. 1, dated February 10, 2020 (Exhibit R-2), added a new engineering specification, WAL-SPEC-TH-410, governing a high-temperature variant of the turbine housing designed for the WT-7000HT application. Amendment No. 1 also increased the maximum annual volume from 3,600 to 4,000 units to accommodate anticipated demand for the high-temperature variant.

16. Amendment No. 2, dated September 3, 2021 (Exhibit R-3), was negotiated in response to ongoing supply chain disruptions arising from the COVID-19 pandemic. Amendment No. 2 extended the cure period under § 8.4 from thirty (30) calendar days to forty-five (45) calendar days, providing Kestrel with additional time to replace or rework non-conforming lots before a rejection would be deemed uncured. Amendment No. 2 als

17. Respondent notes that the extension of the cure period under Amendment No. 2 was a concession made by WAL in recognition of the genuine logistical challenges created by the pandemic. It reflects WAL's good faith in the commercial relationship and its willingness to accommodate Kestrel's operational difficulties. The suggestion in Claimant's Reply that WAL acted in bad faith in terminating the MSA must be viewed a

18. Claimant's Reply contains a number of factual misrepresentations and omissions that Respondent must correct for the Tribunal's benefit. These are not mere matters of emphasis or characterization; they go to the chronology, nature, and severity of the quality failures that precipitated WAL's termination of the MSA.

19. First, the Reply misrepresents the chronology and scope of the lot rejections. The correct facts, as documented in WAL's lot rejection notices (Exhibits R-7 through R-20), are as follows: between March 7, 2022 (Lot KDG-2022-0307, the first rejection) and September 19, 2022 (Lot KDG-2022-0919, the final rejection), WAL rejected a total of fourteen (14) lots comprising 1,680 individual turbine housing units. Each r

20. Second, and critically, seven (7) of the fourteen (14) rejected lots remained uncured after the expiration of the forty-five (45) calendar day amended cure period provided under Amendment No. 2. This is more than double the three-rejection threshold required to constitute a "Persistent Quality Failure" under § 8.4 of the MSA. The Reply's attempt to characterize certain cure attempts as timely or improperly reject

21. Third, WAL issued its Notice of Termination for Cause on October 3, 2022, invoking § 14.2(b) of the MSA — the Persistent Quality Failure provision — and not § 14.2(a) (which provides for termination upon a single material breach remaining uncured after notice). The distinction is important because § 14.2(b) applies specifically to a pattern of quality failures, which is precisely what occurred here. The Reply's r

22. Fourth, the Reply's characterization of WAL's termination as based on "fabricated or exaggerated quality deficiencies" (Reply ¶ 37) is not only unsupported by the evidence but is affirmatively contradicted by the independent metallurgical testing conducted by Dr. Raymond Chow of Arclight Materials Science Inc. Dr. Chow's analysis, which examined samples from all fourteen rejected lots using industry-standard test

III. THE POROSITY SPECIFICATION: CLAIMANT'S ≤0.15% ARGUMENT IS WITHOUT MERIT A. The Contractual Standard: ≤0.25% Porosity

23. The central technical issue in this arbitration is the permissible porosity level for the Ti-6Al-4V ELI turbine housings manufactured by Kestrel under the MSA. Porosity — the presence of microscopic voids within a cast or forged metal component — is a well-recognized quality concern in aerospace manufacturing. Excessive porosity can compromise the structural integrity of a component, leading to fatigue cracking,

24. The contractual porosity limit applicable to the Products under the MSA is unambiguous. WAL-SPEC-TH-401, Appendix C, Table 3 — one of the core engineering specifications incorporated into the MSA by § 6.1 — states in relevant part: "Maximum permissible porosity, as measured by the Archimedes method per ASTM B962-17 or equivalent, shall not exceed 0.25% by volume for all Ti-6Al-4V ELI turbine housing components de

25. This specification has been part of the MSA since its execution on June 15, 2018. It was not subsequently amended or modified by either Amendment No. 1 or Amendment No. 2. It was expressly incorporated by reference into the MSA at § 6.1, which states: "All Products shall conform in all material respects to the engineering specifications set forth in WAL-SPEC-TH-401 through WAL-SPEC-TH-409, as may be amended from

26. Kestrel acknowledged and accepted these engineering specifications as binding quality requirements at the inception of the contractual relationship. Kestrel's own letter of acceptance dated June 15, 2018 (Exhibit R-4), signed by Dr. Friedrich Heim, then Kestrel's Managing Director, states in relevant part: "Kestrel Dynamics GmbH hereby confirms that it has received, reviewed, and accepted the engineering specific

27. There is, accordingly, no ambiguity regarding the applicable porosity standard. The contractual standard is ≤0.25%. Kestrel knew this standard, accepted it, and was bound by it throughout the term of the MSA. B. Rebuttal of Claimant's "Unpublished ≤0.15% Standard" Argument

28. Despite the clarity of the contractual language, Claimant's Reply dedicates considerable attention (Reply ¶¶ 43–58) to the allegation that WAL's incoming inspections under WAL-QCP-100 applied an undisclosed, unpublished porosity tolerance of ≤0.15% — a standard materially stricter than the contractual ≤0.25% limit. On this theory, Claimant contends that the lot rejections were based not on genuine non-conformance

29. This allegation is factually baseless and is contradicted by the documentary evidence before the Tribunal. Respondent addresses each element of the argument in turn.

30. First, WAL-QCP-100 — WAL's Quality Control Procedure governing incoming inspection of supplier deliveries — expressly references and incorporates WAL-SPEC-TH-401, Appendix C, Table 3 as the governing porosity specification for all Ti-6Al-4V ELI turbine housing inspections. Section 4.3.2 of WAL-QCP-100 (Exhibit R-6) states: "Porosity measurements for Ti-6Al-4V ELI turbine housings shall be conducted in accordance

31. WAL-QCP-100 does not contain an independent porosity threshold. It does not state, suggest, or imply a ≤0.15% standard. The procedure simply directs WAL's quality inspectors to apply the engineering specification — which, as established above, sets the limit at ≤0.25%.

32. Second, WAL's inspection records for all fourteen (14) rejected lots — which have been produced in full and are in evidence as Exhibits R-7 through R-20 — document porosity measurements against the ≤0.25% standard. Each lot rejection form identifies the applicable specification as "WAL-SPEC-TH-401, App. C, Table 3 (max. 0.25%)" and records the measured porosity level for the rejected samples. In no instance does

33. Third, the independent metallurgical analysis conducted by Dr. Raymond Chow of Arclight Materials Science Inc. (Exhibit R-21) confirms that the rejected lots exhibited porosity levels ranging from 0.19% to 0.38%. Critically, every one of the fourteen rejected lots measured above the ≤0.25% contractual limit. Dr. Chow's analysis was conducted using the Archimedes method per ASTM B962-17, the same methodology speci

34. Respondent acknowledges that WAL's quality control process, like many quality assurance systems in the aerospace industry, involves a multi-stage inspection protocol. It is standard industry practice for an initial screening pass to flag samples that fall within a "caution zone" — for example, samples measuring above 0.15% porosity — for more detailed analysis. This preliminary screening is a quality management t

35. WAL's final rejection determinations were in every instance based on the contractual ≤0.25% standard. The screening threshold of ≤0.15% was not a rejection criterion but rather an internal quality management trigger for further investigation — a practice that any competent quality assurance professional would recognize as standard and entirely unremarkable.

36. Finally, and dispositively, even accepting Claimant's factual premises arguendo, the ≤0.15% argument is irrelevant to the ultimate outcome of this dispute. Even if WAL had initially flagged certain lots based on a preliminary ≤0.15% screening threshold, the lots were ultimately rejected because they exceeded the contractual ≤0.25% limit. Multiple lots — indeed, all fourteen rejected lots, according to Dr. Chow's

37. The competing expert metallurgical analyses submitted by the Parties warrant careful comparison, as the Tribunal will be called upon to assess their relative reliability and probative value.

38. Dr. Raymond Chow, Respondent's metallurgical expert, is a Principal Scientist at Arclight Materials Science Inc., located in McLean, Virginia. 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 analysis of titanium alloys used in aerospace applications. His expert report (Exhibit R-21) presents a comprehens

39. Dr. Chow's analysis yielded the following key findings: (a) All fourteen rejected lots exhibited porosity levels in excess of the ≤0.25% contractual limit, with measured values ranging from 0.19% (on individual samples within otherwise non-conforming lots) to 0.38%. (b) The predominant type of porosity observed was gas porosity, consistent with inadequate vacuum conditions during the casting or hot isostatic pres

40. By contrast, Dr. Martina Kessler, Claimant's metallurgical expert from Albrecht Prüftechnik GmbH in Leonberg, Germany, submitted an expert report that Respondent contends was materially deficient in several respects.

41. First, Dr. Kessler tested only a subset of the rejected lot samples. Specifically, her analysis covered samples from eight of the fourteen rejected lots, leaving six lots unexamined. Dr. Kessler's report does not provide a satisfactory explanation for this omission. A comprehensive analysis covering all rejected lots is plainly necessary to support the sweeping conclusions that Claimant draws from her report, par

42. Second, Dr. Kessler's measurement approach did not comply with the specific protocols referenced in WAL-SPEC-TH-401. While Dr. Kessler employed the Archimedes method, she used a variant of the testing procedure that deviated from ASTM B962-17 in certain respects, including the sample preparation methodology and the liquid medium used for density measurement. These deviations, while they may appear minor in isolat

43. Third, and most significantly, Dr. Kessler acknowledged in her own report that several of the lots she tested measured above the ≤0.25% contractual porosity threshold. Specifically, Dr. Kessler's Table 4.2 reports porosity values of 0.27%, 0.31%, 0.29%, and 0.26% for four of the eight lots she examined. These results directly undermine Claimant's position that the rejections were improper. If Claimant's own exper

44. For these reasons, the Tribunal should credit Dr. Chow's comprehensive and methodologically rigorous analysis over Dr. Kessler's incomplete and methodologically deficient work. Dr. Chow's analysis covers all fourteen rejected lots, employs the precise methodology specified in the contractual documents, and produces results that are internally consistent and externally validated by micro-CT scanning. The conclusio

IV. WAL'S TERMINATION WAS PROPER UNDER § 14.2(b) A. The Persistent Quality Failure Standard

45. Having established that the fourteen rejected lots were non-conforming under the applicable contractual standard, Respondent now turns to the question of whether WAL's termination of the MSA was proper under § 14.2(b). The answer is unequivocally yes.

46. Section 8.4 of the MSA establishes a structured process for addressing non-conforming deliveries. When WAL rejects a lot for non-conformance with the engineering specifications, Kestrel has forty-five (45) calendar days (as amended by Amendment No. 2) to cure the non-conformance by delivering replacement conforming units or by reworking the non-conforming units to bring them into compliance. If Kestrel fails to e

47. The relevant language of § 8.4 reads: "In the event that Seller fails to cure a non-conformance within the cure period specified herein, such failure shall be deemed an 'uncured rejection.' If three (3) or more uncured rejections occur within any rolling twelve (12) month period, such pattern of uncured rejections shall constitute a 'Persistent Quality Failure' for purposes of Section 14.2(b) of this Agreement."

48. Section 14.2(b) provides: "Either Party may terminate this Agreement upon written notice to the other Party in the event of a Persistent Quality Failure as defined in Section 8.4."

49. The application of these provisions to the facts of this case is straightforward. Between March 7, 2022 (the date of the first lot rejection, Lot KDG-2022-0307) and September 19, 2022 (the date of the final lot rejection, Lot KDG-2022-0919), WAL documented fourteen lot rejections, of which seven (7) remained uncured after the expiration of the forty-five (45) calendar day cure period. All seven uncured rejections

50. WAL issued its Notice of Termination for Cause on October 3, 2022 (Exhibit R-23), invoking § 14.2(b) of the MSA. The notice was issued only after the Persistent Quality Failure threshold had been indisputably exceeded and only after WAL had exhausted the cure process with respect to each rejected lot. The termination was procedurally proper in all respects. B. Rebuttal of Claimant's Arguments on Cure Compliance

51. Claimant's Reply (¶¶ 71–82) advances the argument that certain of Kestrel's cure attempts were improperly rejected by WAL, such that the number of uncured rejections did not in fact meet the Persistent Quality Failure threshold. This argument does not withstand scrutiny.

52. The facts regarding the seven uncured rejections are as follows:

53. For five of the seven uncured lots, Kestrel failed to deliver any replacement or reworked units whatsoever within the forty-five (45) calendar day cure period. For these five lots, there is no cure attempt to evaluate — Kestrel simply did not perform. Kestrel's Reply does not dispute this fact with respect to these five lots; instead, it focuses its argument on the remaining two lots. But even if Claimant's argum

54. For the remaining two lots (Lot KDG-2022-0614 and Lot KDG-2022-0722), Kestrel contends that it delivered cure shipments that were improperly rejected by WAL. The evidence tells a different story. Kestrel's own internal shipping records — produced during the document production phase of these proceedings and admitted as Exhibit R-25 — confirm that the cure shipments for both lots were dispatched after the expirati

55. WAL's rejection of these late cure attempts was entirely consistent with § 8.4's clear deadline. The cure period is a defined period with a fixed endpoint, and the MSA does not provide for any extension or grace period beyond the forty-five calendar days. WAL was under no obligation to accept late-delivered cure shipments, and its refusal to do so was contractually proper.

56. Claimant's suggestion (Reply ¶ 78) that WAL should have exercised discretion to accept late cure deliveries "in the interest of the ongoing commercial relationship" has no basis in the contractual language. The MSA establishes a clear framework: if Kestrel fails to cure within the specified period, the rejection is deemed uncured. There is no discretionary element in this provision. Moreover, by the time Kestrel