Contract analysis

1. Respondent Whitmore Aerospace LLC ("WAL" or "Respondent") respectfully submits these comments on the Draft Terms of Reference circulated by the Tribunal on February 18, 2023 (the "Draft"), following the Preliminary Procedural Conference held on February 14, 2023 pursuant to Procedural Order No. 1 issued by the Tribunal on February 3, 2023.

2. These comments are submitted in accordance with Article 23 of the ICC Rules of Arbitration (2021 edition) (the "ICC Rules") and the Tribunal's direction at the Preliminary Procedural Conference that the parties provide their respective written comments on the Draft by the end of February 2023. As directed by the Presiding Arbitrator, these comments address each section of the Draft in the order in which it appears

3. Respondent's counsel has reviewed the Draft and has conferred with Claimant's counsel, Haber Reinhardt Schlosser Partnerschaft mbB ("HRS"), regarding areas of agreement and disagreement. While the parties have been able to reach consensus on certain descriptive and procedural matters, a number of substantive differences remain with respect to the characterization of the dispute, the formulation of the list of issu

4. Respondent recognizes that the Terms of Reference serve the important function of delineating the scope of the arbitration and framing the issues to be determined by the Tribunal. For this reason, WAL considers it essential that the final Terms of Reference accurately and completely reflect the positions of both parties, including Respondent's counterclaim and the full scope of its affirmative defenses, so as to a

II. IDENTIFICATION OF THE PARTIES A. Respondent.

5. Respondent confirms that the following identification, as set forth in the Draft, is accurate and complete: Full Legal Name: Whitmore Aerospace LLC Entity Type: Delaware limited liability company, organized and existing under the laws of the State of Delaware Headquarters: 4200 Wilson Boulevard, Suite 1100, Arlington, Virginia 22203, United States of America Registered Agent Address: 1209 Orange Street, Wilmington

6. Respondent has no corrections or additions to propose with respect to its own identification. Respondent confirms that all communications and submissions in these proceedings should be directed to Calderwood & Harkness LLP at the addresses specified above, to the attention of Theodore Langston, Partner, and Simone Laroche, Senior Associate. B. Claimant.

7. Respondent confirms that the identification of Claimant is understood to be as follows, based on the information contained in the Request for Arbitration dated November 8, 2022, and as reflected in the Draft: Full Legal Name: Kestrel Dynamics GmbH Entity Type: Gesellschaft mit beschränkter Haftung (German limited liability company), organized and existing under the laws of the Federal Republic of Germany Registere

8. Respondent notes, however, that the Draft omitted the German Trade Register number (Handelsregisternummer) for Kestrel Dynamics GmbH. Respondent respectfully requests that the final Terms of Reference include the German Trade Register number HRB 745621 (Amtsgericht Stuttgart) for precision and to ensure that the entity party to these proceedings is identified with sufficient particularity. This is consistent with

9. Respondent confirms that the composition of the Tribunal, as constituted on January 20, 2023, is accurately reflected in the Draft. The Tribunal is composed of the following members: Presiding Arbitrator: Prof. Dame Eleanor Fitzwilliam (British national), appointed by agreement of the parties on January 12, 2023, and confirmed by the ICC Court on January 20, 2023 Co-Arbitrator (Claimant's nominee): Dr. Hans-Ulrich

10. Respondent has no objections or proposed amendments to the identification of the Tribunal as set forth in the Draft.

III. COMMENTS ON THE DESCRIPTION OF THE DISPUTE A. The Underlying Contract

11. Respondent agrees in general terms with the Draft's description of the underlying contract that gives rise to the present dispute. However, Respondent requests the following clarifications and additions, which Respondent believes are necessary to ensure that the Terms of Reference contain a sufficiently precise and complete description of the contractual framework:

12. The underlying contract is the Master Supply Agreement for Titanium Alloy Turbine Housings (the "MSA"), bearing reference number WAL-KDG-MSA-2018-0615, executed on June 15, 2018 between Whitmore Aerospace LLC, as Buyer, and Kestrel Dynamics GmbH, as Seller. The key terms of the MSA, as relevant to these proceedings, are as follows: Contract Title: Master Supply Agreement for Titanium Alloy Turbine Housings Refere

13. In addition to the foregoing, Respondent requests that the Terms of Reference include express reference to the two amendments to the MSA, both of which are material to the issues in dispute: (a) Amendment No. 1 (dated February 10, 2020): Amendment No. 1 expanded the scope of the MSA to include engineering specification WAL-SPEC-TH-410 for a new high-temperature variant of the turbine housing, and increased the ma

14. These amendments are directly relevant to the issues in dispute. Amendment No. 1 bears upon the scope of the Products covered by the MSA and the calculation of Claimant's damages claims. Amendment No. 2 bears upon the cure period applicable to the rejected lots and the standard against which Kestrel's compliance with its cure obligations must be measured. The Draft referenced the MSA in general terms but did not

15. Respondent requests that the Draft's description of the claims and defenses be revised to more accurately and completely reflect the positions of the parties as articulated in their respective submissions. The Draft's current characterization, while not inaccurate in every respect, contains certain omissions and formulations that Respondent considers potentially misleading or incomplete. Claimant's Claims.

16. As Respondent understands it, Kestrel Dynamics GmbH ("Kestrel" or "Claimant") alleges material breach of the MSA by WAL, comprising two principal categories of alleged wrongful conduct: (i) the wrongful rejection of fourteen (14) lots of Products delivered between March 2022 and September 2022, totaling approximately 1,680 individual units; and (ii) the improper issuance of a Notice of Termination for Cause dated

17. On the basis of these allegations, Kestrel seeks damages in the aggregate amount of approximately €47.3 million, which Claimant's Request for Arbitration breaks down as follows: (a) Lost profits for the remaining term of the MSA (Contract Year 5, approximately June 15, 2022 through June 14, 2023): €12.83 million; (b) Lost profits for the two optional one-year renewal periods (Contract Year 6 and Contract Year 7):

18. Respondent objects to the Draft's characterization of Kestrel's claims insofar as the Draft implies, or could be read to imply, that the two optional renewal periods under the MSA were contractually guaranteed or otherwise assured. The Terms of Reference should clearly reflect that, under § 3.1 of the MSA, the renewal options were exercisable solely at WAL's discretion, upon not less than ninety (90) days' prior

19. Respondent accordingly requests that the Terms of Reference include language to the effect that "the renewal options under § 3.1 of the MSA were exercisable solely at WAL's discretion and were not mutual or automatic" and that any reference to Kestrel's lost-profit claims for the renewal periods be qualified accordingly. Respondent's Defenses.

20. WAL denies all of Kestrel's claims in their entirety. WAL's defenses, as set forth in the Answer and Counterclaim dated December 12, 2022, are as follows: (a) Justified Lot Rejections. The fourteen (14) lot rejections at issue were fully justified under § 8.4 of the MSA. Each of the rejected lots was subjected to incoming inspection in accordance with WAL Quality Control Procedure WAL-QCP-100, and each was found

21. Respondent submits that the Terms of Reference should accurately reflect each of these defenses, which go to both liability and quantum and are central to the Tribunal's determination of the claims. Respondent's Counterclaim.

22. Respondent notes with concern that the Draft Terms of Reference do not adequately describe—and in certain respects do not describe at all—WAL's counterclaim, which was filed on December 12, 2022 as part of the Answer and Counterclaim. The counterclaim is a properly asserted claim under Article 5(5) of the ICC Rules and arises out of and is directly connected to the MSA. The Tribunal's jurisdiction over the counte

23. WAL's counterclaim seeks recovery of €5.17 million in replacement-component costs incurred as a direct result of Kestrel's persistent delivery of non-conforming Products. Specifically, following the termination of the MSA on October 3, 2022, WAL was required to procure 1,680 replacement Ti-6Al-4V ELI titanium alloy turbine housing units from an alternative supplier, Valkyr Precision Components Inc. ("Valkyr"), lo

24. Respondent requests that the counterclaim be expressly included as a separate item in the list of issues to be determined by the Tribunal (see Section IV below) and that the Terms of Reference contain a description of the counterclaim with at least the level of detail set forth in paragraph 23 above. The omission of the counterclaim from the Draft was, Respondent hopes, inadvertent, but must be corrected to ensur

IV. COMMENTS ON THE LIST OF ISSUES TO BE DETERMINED

25. Respondent proposes that the Terms of Reference set forth the following list of issues to be determined by the Tribunal. Respondent believes that this list comprehensively captures the matters in dispute between the parties, including both Claimant's claims and Respondent's counterclaim, and is structured in a logical sequence that follows the anticipated analytical framework for the Tribunal's deliberations.

26. Issue 1: Material Breach. Whether WAL committed material breach of the MSA by rejecting fourteen (14) lots of Products between March 2022 and September 2022 and by issuing the Notice of Termination for Cause on October 3, 2022.

27. Issue 2: Conformity of Rejected Lots. Whether the fourteen (14) rejected lots, designated as Lot KDG-2022-0307 through Lot KDG-2022-0919, met the contractual porosity specification of ≤0.25% (by volume) as stated in WAL-SPEC-TH-401, Appendix C, Table 3, and whether WAL's incoming inspection procedures under WAL-QCP-100 were properly and consistently applied in evaluating those lots.

28. Issue 3: Applicable Quality Standard. Whether WAL applied an unpublished or different porosity tolerance to the rejected lots (as alleged by Kestrel, which contends that WAL applied a tolerance of ≤0.15% rather than the contractual ≤0.25% standard), or whether WAL applied the contractual ≤0.25% standard as specified in WAL-SPEC-TH-401, Appendix C, Table 3.

29. Issue 4: Cure Compliance. Whether Kestrel complied with its cure obligations under § 8.4 of the MSA (as amended by Amendment No. 2, which extended the cure period from thirty (30) to forty-five (45) calendar days) with respect to each of the fourteen (14) rejected lots, and in particular with respect to the seven (7) lots that WAL contends remained uncured.

30. Issue 5: Persistent Quality Failure and Termination. Whether WAL's termination of the MSA for Persistent Quality Failure under § 14.2(b) was procedurally and substantively proper, in light of the fact that seven (7) uncured rejections occurred within a rolling twelve (12)-month period (March 2022 through September 2022), exceeding the three (3)-rejection threshold specified in § 14.2(b).

31. Issue 6: Enforceability of Consequential Damages Waiver. Whether § 8.7 of the MSA, which contains a mutual waiver of consequential, incidental, special, and indirect damages, and limits the Buyer's remedies for quality non-conformance to replacement, credit, or termination upon Persistent Quality Failure, is enforceable under the laws of the State of New York and, if enforceable, whether it bars Kestrel's claims

32. Issue 7: Kestrel's Lost-Profit Claims (Remaining Term). Whether Kestrel is entitled to recover lost profits in the amount of €12.83 million for the remaining term of the MSA (Contract Year 5, approximately June 15, 2022 through June 14, 2023), and, if so, in what amount, having regard to the contractual limitations on remedies, the applicable principles of damages quantification under New York law, and any releva

33. Issue 8: Kestrel's Lost-Profit Claims (Renewal Periods). Whether Kestrel is entitled to recover lost profits in the amount of €27.15 million for the two (2) optional one-year renewal periods, given that the renewal options under § 3.1 of the MSA were exercisable solely at WAL's discretion, and, if so, in what amount, having regard to the probability (if any) that WAL would have exercised those options, the applic

34. Issue 9: Unreimbursed Rework Costs. Whether Kestrel is entitled to recover €3.42 million in unreimbursed rework costs incurred in connection with Kestrel's attempts to bring the fourteen (14) rejected lots into conformity with WAL's specifications, and, if so, in what amount, having regard to the provisions of the MSA governing responsibility for rework, the consequential damages waiver in § 8.7, and whether such

35. Issue 10: Reputational Damages. Whether Kestrel is entitled to recover €3.90 million in alleged reputational damages and lost business opportunities, and, if so, in what amount, having regard to the consequential damages waiver in § 8.7 of the MSA, the foreseeability of such damages, and the applicable principles of damages quantification under New York law.

36. Issue 11: Respondent's Counterclaim. Whether Kestrel is liable to WAL in the amount of €5.17 million (or such other amount as the Tribunal may determine) for replacement-component costs incurred by WAL as a result of Kestrel's delivery of non-conforming Products, representing the premium paid by WAL to source 1,680 replacement turbine housing units from Valkyr Precision Components Inc. at a unit price of €8,432.9

37. Issue 12: Mitigation. Whether either party failed to mitigate its losses, including but not limited to: (a) whether WAL acted reasonably in engaging Valkyr Precision Components Inc. as a replacement supplier on the terms described above; (b) whether WAL should have sought competitive bids from additional alternative suppliers and, if so, whether the failure to do so sooner affected the quantum of WAL's countercla

38. Issue 13: Costs and Fees. Allocation of the costs of the arbitration, including ICC administrative expenses and the arbitrators' fees and expenses, as well as the parties' respective legal costs and expenses, having regard to the outcome of the proceedings and any other factors the Tribunal considers relevant.

39. Respondent notes that the Draft Terms of Reference omitted Issues 8, 10, 11, and 12 as separately enumerated items. Issue 8 (lost-profit claims for renewal periods) and Issue 10 (reputational damages) relate to discrete categories of Claimant's damages that raise distinct legal and factual questions and warrant separate identification. Issue 11 (Respondent's counterclaim) is an independent claim that must be reso

V. COMMENTS ON THE SEAT, LANGUAGE, AND APPLICABLE LAW

40. Respondent confirms its agreement with the following provisions as set forth in the Draft, which are consistent with § 22 of the MSA: Place (Seat) of Arbitration: New York, New York, United States of America Language of Arbitration: English Applicable Substantive Law: The laws of the State of New York, without regard to its conflict of laws principles Applicable Procedural Rules: ICC Rules of Arbitration (2021 ed

41. Respondent has no amendments to propose to this section of the Draft. The parties are in agreement on each of these matters, and the Draft accurately reflects the relevant provisions of the MSA.

VI. COMMENTS ON THE PROCEDURAL CALENDAR A. Written Submissions

42. Respondent generally agrees with the procedural calendar outlined in Procedural Order No. 1 dated February 3, 2023 and reflected in the Draft. Respondent proposes only the following minor clarifications to confirm Respondent's understanding of the schedule and to note certain points relevant to the scope of the written submissions: (a) Statement of Claim (Claimant): Deadline of April 28, 2023. Respondent agrees w

43. Respondent notes that the foregoing schedule provides for approximately two months between each round of written submissions, which Respondent considers adequate and proportionate given the complexity of the dispute and the technical nature of the issues involved. B. Document Production

44. Respondent notes that the Tribunal has scheduled the issuance of Procedural Order No. 2 regarding document production for March 17, 2023, and that the parties will be invited to confer on document production requests in advance of that date.

45. Respondent proposes that the document production phase follow the Redfern Schedule format, which is widely used in international commercial arbitrations conducted under the ICC Rules and provides an efficient and transparent framework for the resolution of document production disputes. Under this format, each party would submit its document production requests in tabular form, with columns setting forth: (a) the

46. Respondent reserves the right to object to any document production requests that are overly broad, unduly burdensome, lacking in specificity, or directed at documents that are not relevant and material to the outcome of the case. Respondent further reserves the right to assert attorney-client privilege and work product protections as applicable under the laws of the State of New York, and notes that such privileg

47. Respondent proposes that the procedural calendar include the following deadlines for the submission and exchange of expert evidence: (a) Exchange of expert reports: October 16, 2023, with simultaneous exchange by both parties. (b) Exchange of rebuttal expert reports: November 13, 2023, with simultaneous exchange by both parties.

48. Respondent intends to submit expert evidence on at least two subjects: (a) Damages and quantum analysis. Respondent will engage an independent quantum expert to provide a rebuttal analysis of Claimant's damages claims and to support the quantification of Respondent's counterclaim. This expert will address, among other things, the reasonableness of Kestrel's lost-profit projections, the probability of renewal-peri

49. Respondent requests that the Terms of Reference expressly provide that each party may submit expert evidence on both quantum and technical/liability issues, and that there be no limitation on the number of expert witnesses per party, subject to the Tribunal's overriding discretion to manage the proceedings efficiently. Respondent understands that Claimant also intends to submit expert evidence on these subjects.

50. Respondent notes the Tribunal's indication at the Preliminary Procedural Conference that the evidentiary hearing would be scheduled for a five (5)-day period in January 2024. Respondent agrees that a five-day hearing should be sufficient for the presentation of both parties' cases, including fact witness testimony, expert witness testimony, and any procedural matters that arise during the hearing.

51. Respondent proposes that the evidentiary hearing be held at the ICC Hearing Centre in New York, New York, United States of America, which is consistent with the seat of arbitration and provides appropriate facilities for an arbitration of this nature. Should the ICC Hearing Centre not be available for the proposed dates, Respondent would be agreeable to an alternative hearing venue in New York City, to be agreed

52. Respondent estimates that it will require approximately two and one-half (2.5) days for the presentation of its case at the evidentiary hearing. This estimate includes: (a) Direct examination of Respondent's fact witnesses: • Gerald Huang, Vice President, Global Supply Chain Operations, Whitmore Aerospace LLC; and • Dr. Ingrid Vollmer, Senior Vice President, Engineering & Manufacturing, Whitmore Aerospace LLC; (b

53. Respondent reserves the right to adjust this estimate following the exchange of witness statements and expert reports, and to request additional hearing time if warranted by the scope of the evidence. E. Post-Hearing Briefs

54. Respondent requests that the procedural calendar include a deadline for the filing of simultaneous post-hearing briefs by both parties, to be submitted approximately four (4) weeks after the conclusion of the evidentiary hearing. Respondent considers post-hearing briefs to be an essential component of the proceedings, as they provide the parties with an opportunity to address the evidence adduced at the hearing a