INTERNATIONAL CHAMBER OF COMMERCE
INTERNATIONAL COURT OF ARBITRATION
Case No. 27914/MHM
KESTREL DYNAMICS GmbH Industriestraße 88, 70565 Stuttgart, Germany
Claimant
v.
WHITMORE AEROSPACE LLC 4200 Wilson Boulevard, Suite 1100, Arlington, VA 22203
Respondent
RESPONDENT'S POST-HEARING BRIEF
Before the Arbitral Tribunal:
Prof. Dame Eleanor Fitzwilliam — Presiding Arbitrator Dr. Hans-Ulrich Perren — Co-Arbitrator Hon. Robert A. Castillo — Co-Arbitrator
I. INTRODUCTION
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 analyze the testimony of the fact and expert witnesses presented by both parties, and to set forth WAL's final position on the legal and factual issues before the Tribunal.
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 housings (totaling 1,680 units) between March and September 2022, and by terminating the MSA on October 3, 2022. Kestrel seeks approximately €47.3 million in damages, an amount that is both grossly inflated and entirely unsupported by the contractual framework or the evidentiary record.
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 the meaning of § 14.2(b) of the MSA. WAL's termination of the MSA on October 3, 2022, was the direct consequence of Kestrel's inability or unwillingness to deliver products meeting the agreed-upon engineering specifications and quality standards over a sustained period of seven months.
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—is a direct and foreseeable consequence of Kestrel's failure to perform its contractual obligations.
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 deliberate commercial decision to ship those lots and dispute any rejections.
(b) Kestrel's metallurgical expert, Dr. Martina Kessler, conceded that she did not independently verify the calibration of Kestrel's testing equipment for the specific lots at issue and that Kestrel's internal testing methodology differed from the ASTM E2903 standard referenced in the MSA specifications.
(c) Kestrel's damages expert, Prof. Dieter Langfeld, admitted that his lost-profit calculations assumed with certainty that WAL would exercise two discretionary renewal options and purchase at maximum volumes, without applying any discount for the probability that WAL might not renew—an assumption that is unreasonable on its face.
(d) Kestrel's Managing Director, Friedrich Brenner, admitted that he had not personally reviewed the controlling porosity specification in WAL-SPEC-TH-401, Appendix C, Table 3 prior to this dispute, and was unable to identify a single customer or contract lost as a result of alleged reputational harm.
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. Section VI addresses WAL's counterclaim. Section VII analyzes the cross-examination of Kestrel's witnesses. Section VIII summarizes the testimony of WAL's witnesses. Section IX addresses costs. Section X sets forth WAL's prayer for relief.
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, including requirements for AS9100 Rev D certification, detailed incoming inspection procedures under WAL-QCP-100, and specified tolerances for critical parameters such as porosity, surface finish, dimensional accuracy, and mechanical properties. The MSA contemplated an initial term of five contract years (CY1 through CY5), with an annual minimum purchase commitment of 2,400 units and a maximum annual volume of 3,600 units.
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 schedule for CY3 and subsequent contract years to reflect the additional specification.
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 Kestrel to remediate non-conforming lots. Amendment No. 2 also added a force majeure carve-out for pandemic-related delays, including government-mandated facility closures, quarantine requirements, and documented raw material supply interruptions attributable to pandemic conditions. The extension of the cure period to 45 calendar days is particularly significant in this arbitration, as it demonstrates WAL's good faith in providing Kestrel with additional time and flexibility to address quality issues—an accommodation that Kestrel nevertheless failed to utilize.
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 specification. Despite the 45-day cure period provided under Amendment No. 2, seven of these fourteen rejections remained uncured—far exceeding the threshold of three uncured rejections that constitutes a "Persistent Quality Failure" under § 14.2(b) of the MSA.
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 document production, the examination of witnesses, and the conduct of the hearing.
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 was completed in accordance with the schedule set forth in Procedural Order No. 2.
B. Written Submissions
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. The Statement of Defense was accompanied by documentary exhibits R-001 through R-064 and the witness statements of Gerald Huang (R-WS-1) and Dr. Ingrid Vollmer (R-WS-2). WAL's Counterclaim sought €5.17 million in replacement-component costs.
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 (C-ER-2), and WAL submitted the report of Dr. Raymond Chow of Arclight Materials Science Inc. (R-ER-2). Each expert report was accompanied by detailed appendices, supporting data, and the expert's curriculum vitae.
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
• Dr. Stefan Voss, Head of Quality Assurance, Kestrel Dynamics GmbH
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, Partner, Rheinsberg Advisory AG (damages)
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.
III. SUMMARY OF THE ISSUES
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 the contractual porosity specification of ≤0.25% as stated in WAL-SPEC-TH-401, Appendix C, Table 3. WAL's incoming inspection process was conducted in accordance with WAL-QCP-100, using industry-standard testing methodologies, and was applied consistently and in good faith.
Issue 2: Whether WAL's termination of the MSA on October 3, 2022, was proper under § 14.2(b) for Persistent Quality Failure.
WAL submits that the termination was both procedurally and substantively proper. Seven uncured lot rejections within a rolling 12-month period far exceeded the three-rejection threshold that constitutes a Persistent Quality Failure under § 14.2(b). WAL complied with all contractual prerequisites for termination, and no additional cure notice was required under § 14.2(b).
Issue 3: Whether Kestrel applied an unpublished porosity specification or whether the ≤0.25% porosity limit in WAL-SPEC-TH-401, Appendix C, Table 3 was the controlling specification.
WAL submits that the ≤0.25% porosity limit in WAL-SPEC-TH-401, Appendix C, Table 3 was at all times the controlling specification. Kestrel's allegation that WAL applied an unpublished ≤0.15% porosity standard was thoroughly refuted at the hearing and is unsupported by any documentary or testimonial evidence.
Issue 4: Whether Kestrel's damages claims (€47.3 million in aggregate) are recoverable.
Kestrel's damages claims are comprised of the following categories:
(a) Lost profits for the remaining MSA term: €12.83 million;
(b) Lost profits for the two renewal terms: €27.15 million;
(c) Unreimbursed rework costs: €3.42 million; and
(d) Reputational damages: €3.90 million.
WAL submits that all of these claims are barred by the consequential damages waiver in § 8.7 of the MSA and are, in any event, speculative, inflated, or otherwise without merit, as set forth in detail in Section V below.
Issue 5: Whether WAL is entitled to recover €5.17 million on its counterclaim for replacement-component costs incurred in sourcing from Valkyr Precision Components Inc.
WAL submits that its counterclaim is meritorious and fully supported by the evidentiary record. WAL was compelled to source replacement turbine housings from Valkyr at a significant per-unit premium as a direct result of Kestrel's Persistent Quality Failure, and WAL acted reasonably and in good faith in doing so.
Issue 6: Allocation of arbitration costs and legal fees.
WAL submits that Kestrel should bear 100% of the arbitration costs and should reimburse WAL's legal costs in full, given the meritless nature of Kestrel's claims and the success of WAL's defense and counterclaim.
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 and was understood by both parties to reflect the safety-critical nature of the products being supplied.
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 dimensional tolerances, surface finish requirements, mechanical property requirements, and, critically, porosity limits for the Ti-6Al-4V ELI titanium alloy used in the housings.
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 environments. As Dr. Ingrid Vollmer testified, porosity in titanium alloy castings acts as a stress concentrator, reducing the fatigue life of the component and creating unacceptable risk of in-service failure in safety-critical aerospace applications. The ≤0.25% threshold represents the maximum porosity level at which WAL's engineering team has determined that acceptable fatigue-life performance can be assured with an adequate safety margin. This specification is neither unusual nor unduly stringent by aerospace industry standards; it is consistent with the requirements applied by other major aerospace OEMs for similar safety-critical titanium alloy components.
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 each lot, WAL's quality assurance team had a 15-business-day acceptance window within which to complete the incoming inspection and either accept or reject the lot.
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 period) to cure the non-conformance by delivering replacement units or, where feasible, reworking the rejected units to bring them into conformance. If the Seller fails to cure within the 45-day period, the rejection is deemed "uncured."
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 additional cure period."
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 amendments did Kestrel object to or seek to modify the ≤0.25% porosity specification or the Persistent Quality Failure termination provision.
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-grade titanium alloys. He has published more than forty peer-reviewed articles on titanium alloy microstructure, porosity characterization, and fatigue-life analysis, and has served as a consulting expert in numerous aerospace quality disputes. His qualifications were not challenged by Claimant.
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 visualization of the internal structure of titanium alloy castings, enabling precise quantification of porosity volume fraction, pore size distribution, and pore morphology. Dr. Chow described this methodology in detail during his direct examination and confirmed that it is widely accepted in the aerospace industry as a reliable and accurate means of characterizing porosity in metallic components.
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 initiation and propagation under the cyclic thermal and mechanical loading conditions experienced in service. This is not a matter of marginal non-conformance or aesthetic imperfection; it is a safety-of-flight concern that any responsible aerospace manufacturer would take seriously.
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 systemic deterioration in Kestrel's manufacturing process control. Dr. Chow emphasized that in aerospace quality assurance, consistency and process stability are as important as individual lot measurements, and that the pattern he observed was indicative of a fundamental process control problem at Kestrel's manufacturing facility.
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 material concession. He acknowledged, in response to questions from Dr. Haber, that porosity measurements can vary depending on sample location within a lot and the specific testing parameters employed, but explained that his sampling methodology was designed to provide representative lot-level measurements and that his results were consistent across multiple samples from each lot.
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% porosity specification. This approach is fundamentally flawed: the central factual dispute in this arbitration is whether Kestrel's internal quality data can be relied upon, given the discrepancies between Kestrel's data and WAL's independent incoming inspection results. By relying on the very data whose accuracy is in question, Dr. Kessler's analysis is circular and unhelpful to the Tribunal.
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. This concession is significant, as it means that Dr. Kessler's opinion that all fourteen lots were conforming rests on Kestrel's own unverified data.
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 measurements and Dr. Chow's independent measurements. This concession directly undermines Kestrel's position that its internal test results should be credited over WAL's incoming inspection results and Dr. Chow's independent analysis.
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 rejected lots. When confronted with these documents during cross-examination, Dr. Kessler attempted to explain the discrepancy by reference to different measurement points within the lots, but her explanation was not persuasive and was inconsistent with her earlier testimony that all lots met the specification.
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 multiple lots exceeded the ≤0.25% porosity specification.
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 was never informed of and never agreed to. This argument is central to Kestrel's claim that WAL's rejections were wrongful, and its refutation at the hearing is therefore of critical importance.
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 meeting minutes, no engineering change order—that references a ≤0.15% porosity threshold. WAL has never applied, communicated, or referenced such a standard.
53. Dr. Ingrid Vollmer, WAL's Senior Vice President of Engineering and Manufacturing, testified unequivocally that WAL's incoming inspections under WAL-QCP-100 were conducted against the published ≤0.25% specification and that WAL never applied a ≤0.15% standard. Dr. Vollmer explained that the ≤0.25% specification was established through WAL's engineering analysis and validated through extensive testing of turbine housing prototypes prior to the execution of the MSA. She confirmed that the specification was not revised at any time during the term of the MSA and that no WAL employee, engineer, or inspector was instructed to apply any standard other than the published ≤0.25% threshold.
54. Gerald Huang corroborated this testimony. Mr. Huang, who was responsible for managing the day-to-day commercial and quality-related communications between WAL and Kestrel, testified that he never communicated a ≤0.15% porosity standard to anyone at Kestrel and that all written rejection notices issued by WAL referenced the ≤0.25% specification in WAL-SPEC-TH-401, Appendix C, Table 3.
55. On the Claimant's side, the documentary evidence was notable for what it did not contain. Despite extensive document production, Kestrel produced no documentary evidence of any communication from WAL referencing a ≤0.15% threshold. No email, no letter, no meeting note, no record of a telephone call or videoconference—nothing in the documentary record supports the allegation. Kestrel's Managing Director, Friedrich Brenner, admitted under cross-examination that he had not personally reviewed WAL-SPEC-TH-401, Appendix C, Table 3 prior to this dispute and could not identify the basis for Kestrel's assertion that WAL applied an unpublished ≤0.15% standard. When pressed by Mr. Langston as to the source of Kestrel's belief, Mr. Brenner could only state that "this is what our quality team understood," without being able to point to any specific communication or document that would have created such an understanding.
56. The "unpublished specification" argument appears to have been a litigation strategy devised after the fact, not a genuine reflection of the parties' contractual relationship. The evidentiary record is clear: the controlling porosity specification was ≤0.25%, and WAL's lot rejections were based on that specification. This argument should be rejected in its entirety.
B. WAL's Termination for Persistent Quality Failure Was Procedurally and Substantively Proper
1. The Termination Satisfied § 14.2(b) of the MSA.
57. Section 14.2(b) of the MSA permits either party to terminate the Agreement immediately upon written notice in the event of a Persistent Quality Failure, defined as three or more uncured lot rejections within any rolling 12-month period. The provision is clear, self-executing (once the threshold is met), and does not require any additional cure period, notice, or procedural step beyond the written notice of termination itself.
58. The facts satisfy the requirements of § 14.2(b) with ample margin. Between March 7, 2022 (the date of the first lot rejection, Lot KDG-2022-0307) and September 19, 2022 (the date of the seventh uncured rejection, Lot KDG-2022-0919), WAL rejected fourteen lots of turbine housings totaling 1,680 units. Of these fourteen rejections, seven remained uncured after the expiration of the 45-calendar-day cure period provided under § 8.4 as amended by Amendment No. 2.
59. Seven uncured rejections within a seven-month period far exceeded the contractual threshold of three uncured rejections in any rolling 12-month period. Even applying the most conservative possible interpretation—Discounting the lots that Dr. Chow measured at or below 0.25% and considering only the lots that indisputably exceeded the porosity specification—the number of uncured rejections exceeded the three-rejection threshold by a significant margin.
60. WAL issued its Notice of Termination for Cause on October 3, 2022 (R-018). The Notice was in writing, was addressed to Kestrel's Managing Director, identified the specific provision of the MSA under which termination was effected (§ 14.2(b)), identified the specific uncured lot rejections giving rise to the Persistent Quality Failure, and stated that the termination was effective immediately. The Notice fully complied with the requirements of § 14.2(b).
2. Kestrel Failed to Cure Within the Contractual Timeframe.
61. The evidentiary record overwhelmingly demonstrates that Kestrel failed to cure the rejected lots within the contractual timeframe, and that this failure was the result of Kestrel's own operational deficiencies and commercial choices, not of any action or inaction by WAL.
62. Gerald Huang testified in detail regarding WAL's communications with Kestrel about each rejected lot. For each of the fourteen rejections, WAL issued a formal written rejection notice within the 15-business-day acceptance window, specifying the nature of the non-conformance (elevated porosity), the applicable specification (WAL-SPEC-TH-401, Appendix C, Table 3, ≤0.25%), and the lot number and quantity affected. These rejection notices were transmitted to Kestrel's Commercial Director, Luisa Erdmann, and to Kestrel's Head of Quality Assurance, Dr. Stefan Voss, by email with delivery confirmation, and in several instances were also transmitted by courier. Mr. Huang described WAL's documentation of the rejection and cure process as thorough and contemporaneous, and the documentary record corroborates his testimony.
63. Of the seven uncured rejections, five were lots for which Kestrel made no attempt to cure within the 45-day period. No replacement units were tendered, no reworked units were submitted, and no communication from Kestrel indicated that a cure was in progress or forthcoming. For these five lots, Kestrel simply allowed the cure period to lapse without action.
64. For the remaining two uncured lots, Kestrel did submit replacement units within the 45-day period. However, these replacement units themselves failed WAL's incoming inspection under WAL-QCP-100, exhibiting porosity levels in excess of the ≤0.25% specification. The submission of non-conforming replacement units does not constitute a cure under § 8.4; to the contrary, it underscores the systemic nature of Kestrel's quality control problems.
65. Luisa Erdmann, Kestrel's Commercial Director, acknowledged under cross-examination that she was aware of the cure deadlines and that Kestrel's production team had difficulty meeting them. She testified that Kestrel's manufacturing facility in Stuttgart was experiencing production capacity constraints and that the quality assurance team was struggling to achieve consistent porosity results on the Ti-6Al-4V ELI alloy housings. While Ms. Erdmann sought to attribute these difficulties in part to pandemic-related disruptions, she acknowledged that the pandemic-related force majeure carve-out in Amendment No. 2 applied to delivery delays, not to quality non-conformances.
66. Perhaps most significantly, Dr. Stefan Voss, Kestrel's Head of Quality Assurance, confirmed under cross-examination that Kestrel's quality assurance team was aware of elevated porosity readings on multiple lots prior to shipment but made a deliberate commercial decision to ship the lots and dispute any rejections rather than delaying shipment to resolve the quality issues. This candid admission goes to the heart of Kestrel's claim: far from being the victim of wrongful rejections, Kestrel knowingly shipped non-conforming products, gambled that WAL would accept them or that the rejections could be contested, and then failed to cure when WAL rightfully rejected the lots.
3. Termination Under § 14.2(b) Does Not Require a Separate 60-Day Cure Notice.
67. Kestrel has argued that WAL's termination was procedurally defective because WAL did not provide a separate 60-day cure notice under § 14.2(a) of the MSA prior to issuing the Notice of Termination. This argument fundamentally mischaracterizes the contractual termination framework and conflates two distinct termination provisions.
68. Section 14.2(a) of the MSA provides for termination for material breach and requires the terminating party to provide the breaching party with 60 calendar days' written notice and an opportunity to cure the breach before termination becomes effective. Section 14.2(b), by contrast, provides for termination upon a Persistent Quality Failure—defined as three or more uncured lot rejections in any rolling 12-month period—and expressly states that termination may be "immediately upon written notice," without any additional cure period.
69. The structure of § 14.2 reflects a deliberate allocation of risk and remedy. Under § 14.2(a), a material breach may be curable, and the 60-day cure period affords the breaching party an opportunity to remedy a discrete breach before the contract is terminated. Under § 14.2(b), the Persistent Quality Failure threshold is itself a cumulative measure of repeated, uncured quality failures, each of which was already subject to a 45-day lot-level cure period under § 8.4. By the time a Persistent Quality Failure has occurred, the Seller has already been given multiple opportunities to cure—at least three 45-day cure periods, one for each uncured lot rejection—and has failed to do so. Requiring an additional 60-day cure period on top of the lot-level cure periods would render the Persistent Quality Failure provision meaningless and would effectively require a fourth level of cure for which there is no contractual basis.
70. WAL terminated exclusively under § 14.2(b). It did not invoke § 14.2(a). The contractual prerequisites for termination under § 14.2(b) were fully satisfied: there were seven uncured lot rejections within a rolling 12-month period, far exceeding the three-rejection threshold, and WAL issued a written notice of termination. No additional cure period was required, and Kestrel's argument to the contrary should be rejected.
C. WAL's Decision to Onboard Valkyr Was a Mitigation Step, Not a Pretext
71. Kestrel has alleged throughout this proceeding that WAL's true motive for terminating the MSA was not Kestrel's quality failures but rather WAL's desire to replace Kestrel with Valkyr Precision Components Inc. ("Valkyr"), a domestic supplier based in Tucson, Arizona. According to Kestrel, the lot rejections were pretextual, designed to manufacture a basis for termination so that WAL could transition to a lower-cost supplier. This allegation is flatly contradicted by the evidence.
72. Gerald Huang testified that WAL first contacted Valkyr in August 2022—by which time five lots had already been rejected and two cure periods had already lapsed without any cure by Kestrel. WAL was facing a genuine supply-chain crisis: its primary supplier of safety-critical turbine housings was delivering non-conforming products on a repeated basis, was failing to cure the non-conformances within the contractual timeframe, and showed no indication that the quality problems would be resolved. Under these circumstances, reaching out to alternative suppliers was not only prudent but commercially necessary. WAL had contractual obligations to its own customers—including military and commercial aviation programs with critical production schedules—that could not be fulfilled without a reliable supply of conforming turbine housings.
73. More importantly, the pricing data definitively refutes the allegation that WAL's motivation was cost savings. The Valkyr unit price of €8,432.92 was significantly higher than the Kestrel CY4 price of €5,222.92. Even with Valkyr's introductory discount of 4.2%, WAL incurred a per-unit premium of approximately €2,854 (adjusted) for each replacement unit—a premium totaling approximately €5.17 million for the 1,680 replacement units. No rational commercial actor would terminate a supply agreement and transition to a supplier charging a 55% per-unit premium if cost savings were the motivation for the transition.
74. The proposition that WAL fabricated quality deficiencies and manufactured a basis for termination—incurring over €5 million in additional costs in the process—in order to achieve cost savings from a more expensive supplier defies basic commercial logic. WAL's onboarding of Valkyr was a commercially reasonable mitigation of the harm caused by Kestrel's quality failures, undertaken out of operational necessity, not evidence of pretextual termination. The Tribunal should reject this allegation.
V. KESTREL'S DAMAGES CLAIMS ARE WITHOUT MERIT
A. The Consequential Damages Waiver in § 8.7 Bars the Majority of Kestrel's Claims
75. Even if the Tribunal were to conclude—contrary to the weight of the evidence—that WAL committed a material breach of the MSA, Kestrel's damages claims of €47.3 million would still fail because the majority of those claims are barred by the consequential damages waiver in § 8.7 of the MSA.
76. Section 8.7 provides, in relevant part:
"IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE PERFORMANCE OR NON-PERFORMANCE OF ITS OBLIGATIONS HEREUNDER, INCLUDING, WITHOUT LIMITATION, LOST PROFITS, LOST REVENUE, LOSS OF BUSINESS OPPORTUNITY, OR REPUTATIONAL DAMAGES, REGARDLESS OF WHETHER SUCH DAMAGES ARE BASED ON CONTRACT, TORT, STRICT LIABILITY, OR ANY OTHER THEORY. THE BUYER'S SOLE REMEDY FOR NON-CONFORMING PRODUCTS SHALL BE LIMITED TO REPLACEMENT, CREDIT, OR, UPON PERSISTENT QUALITY FAILURE, TERMINATION IN ACCORDANCE WITH SECTION 14.2(b)."
77. This waiver was negotiated and agreed upon by two sophisticated commercial parties—a major U.S. aerospace company and an established German precision-machining enterprise—in an arm's-length transaction. Both parties were represented by counsel during the negotiation of the MSA, and neither party has suggested that the waiver was procured through fraud, duress, mistake, or any other basis for avoidance.
78. Under New York law, contractual limitations of liability between sophisticated commercial entities in arm's-length transactions are routinely enforced. The Court of Appeals has held that such provisions are valid and enforceable, and courts will not rewrite the bargain of sophisticated parties. See Metropolitan Life Ins. Co. v. Noble Lowndes Int'l, Inc., 84 N.Y.2d 430, 436 (1994) ("Where the parties are sophisticated business entities that have negotiated the terms of the limitation of liability provisions at arm's length, such provisions will be enforced."); see also Biotronik A.G. v. Conor Medsystems Ireland, Ltd., 22 N.Y.3d 799 (2014); Kenford Co. v. County of Erie, 73 N.Y.2d 312, 319 (1989). The consequential damages waiver in § 8.7 is clear, comprehensive, and enforceable.
79. Kestrel's claims for lost profits (both remaining-term and renewal-period), reputational damages, and lost business opportunities are all consequential in nature. They do not represent the direct, immediate, and natural consequence of any alleged breach but rather reflect indirect, remote, and speculative losses that flow from the termination of the MSA and its alleged impact on Kestrel's business. Under the plain language of § 8.7, these damages are waived and unrecoverable.
80. Kestrel has argued that the consequential damages waiver should not be enforced because WAL's termination was allegedly wrongful. This argument fails for two reasons. First, the waiver applies to all claims arising out of or relating to the MSA, regardless of the nature or characterization of the underlying breach; it does not contain an exception for wrongful termination. Second, under New York law, a limitation of liability provision negotiated between sophisticated parties is not rendered unenforceable merely because the breach giving rise to the claim is alleged to be material or willful, absent a showing of gross negligence or intentional misconduct rising to the level of tortious conduct—a showing Kestrel has not made and cannot make on this record.
B. Kestrel's Lost-Profit Claims for the Remaining MSA Term (€12.83 Million) Fail
1. The Claim Is Barred by § 8.7.
81. Lost profits for the remaining term of the MSA are consequential damages squarely within the scope of the waiver in § 8.7. Section 8.7 expressly enumerates "lost profits" among the categories of consequential damages waived by both parties. This alone is dispositive of the claim.
2. Even Absent the Waiver, the Claim Lacks Merit.
82. Even if the consequential damages waiver did not apply, Kestrel's lost-profit claim for the remaining MSA term of €12.83 million would fail on the merits for multiple independent reasons.
83. The claim, as calculated by Prof. Dieter Langfeld of Rheinsberg Advisory AG in his expert report (C-ER-1, ¶ 87), is based on the assumption that WAL would have purchased 3,600 units in contract year CY5 at a unit price of €5,353.49, and that Kestrel would have earned a margin of 22.4% on those sales. This calculation is flawed in several respects.
84. First, the 22.4% margin figure is inflated and unsupported by Kestrel's own financial data. Dr. Nadia Ostrovsky of Ridgeline Economic Consulting LLC demonstrated in her expert report (R-ER-1) and in her hearing testimony that Kestrel's audited financial statements for fiscal years 2019 through 2022 show actual gross margins on aerospace components in the range of 14% to 16%. The 22.4% margin claimed by Prof. Langfeld is approximately 40–60% higher than the margins actually achieved by Kestrel on its aerospace business. Prof. Langfeld conceded under cross-examination that he did not independently verify Kestrel's cost allocations and that his margin calculation included overhead allocations that would have been incurred by Kestrel regardless of whether the MSA remained in force. By attributing to the MSA a disproportionate share of fixed overhead that Kestrel would have incurred in any event, Prof. Langfeld inflated the apparent profitability of the MSA and overstated the damages.
85. Second, the 3,600-unit volume assumption is the maximum, not the minimum, annual volume under the MSA. The MSA established a minimum annual purchase commitment of 2,400 units and a maximum of 4,000 units (as increased by Amendment No. 1). WAL was not obligated to purchase any specific quantity above the 2,400-unit minimum. Prof. Langfeld's assumption that WAL would have purchased 3,600 units—near the top of the contractual range—without any discount for the possibility that WAL might have purchased at or near the minimum volume is unsupported and results in an overstatement of the lost-profit claim.
86. Third, the lost-profit calculation double-counts certain variable costs that Kestrel avoided by not producing the rejected and replacement lots. Because the MSA was terminated and Kestrel did not deliver the remaining CY5 volumes, Kestrel did not incur the raw material costs, energy costs, direct labor costs, and other variable production costs associated with those units. A proper lost-profit calculation must deduct avoided variable costs from projected revenue to arrive at the incremental profit that Kestrel would have earned. Prof. Langfeld's calculation fails to make this adjustment with the precision required, resulting in a further overstatement of damages.
87. Even if the Tribunal were to find that a lost-profit claim for the remaining MSA term is recoverable in principle, the quantum of such a claim would be substantially lower than the €12.83 million asserted by Kestrel. Based on Dr. Ostrovsky's analysis, using Kestrel's actual margins (14–16%), the minimum volume commitment (2,400 units), and properly deducting avoided variable costs, the maximum supportable lost-profit claim for the remaining term would be in the range of €3.5 million to €4.2 million—less than one-third of the amount claimed. WAL submits, however, that no lost-profit award is warranted because the termination was proper and the claim is in any event barred by § 8.7.
C. Kestrel's Lost-Profit Claims for the Renewal Periods (€27.15 Million) Are Speculative
88. Kestrel claims €27.15 million in lost profits for the two optional one-year renewal terms of the MSA (SOC ¶ 92). This claim is speculative, legally unsupportable, and should be rejected.
89. The MSA provided for two optional one-year renewal terms exercisable solely at WAL's discretion. The renewal provision in § 3.2 of the MSA states:
"This Agreement may be renewed for up to two (2) additional one-year terms upon written notice by the Buyer to the Seller no later than ninety (90) calendar days prior to the expiration of the then-current term. The exercise of any renewal option shall be at the sole discretion of the Buyer."
90. The renewal options created a unilateral option exercisable by WAL, not a bilateral commitment or mutual obligation. Kestrel had no right to require WAL to renew, no right to expect renewal as a matter of course, and no basis for treating renewal as a certainty for purposes of damages calculations. WAL's decision whether to exercise the renewal options was entirely within WAL's discretion and would have been based on a range of factors, including WAL's production requirements, pricing, alternative supply options, and the overall performance of the contractual relationship.
91. Under New York law, lost profits based on discretionary option renewals are too speculative to support a damages award. Courts have consistently held that lost profits for periods beyond the initial contract term cannot be recovered where the continuation of the contractual relationship depended on the exercise of an option that the defendant was not obligated to exercise. See Kenford Co. v. County of Erie, 67 N.Y.2d 257, 261 (1986) (lost profits must be "capable of proof with reasonable certainty" and must not be "merely speculative, possible or imaginary"); see also Ashland Mgmt. Inc. v. Janien, 82 N.Y.2d 395, 403 (1993). The principle is straightforward: damages cannot be awarded for the loss of a benefit that the claimant had no right to receive.
92. Prof. Langfeld acknowledged under cross-examination that his calculation of €27.15 million assumed with certainty that WAL would exercise both renewal options and purchase at maximum volume in each renewal year. He applied no probability discount, no scenario analysis, and no sensitivity test to account for the possibility—indeed, the substantial likelihood—that WAL might not renew. When asked by Mr. Langston whether he had analyzed the probability of renewal, Prof. Langfeld conceded that he had not and that his calculation was based on the assumption that "the commercial relationship would have continued absent the termination." This assumption is both legally insufficient and factually unsupported.
93. Dr. Ostrovsky's rebuttal report (R-ER-3) demonstrated that WAL had not taken any steps toward exercising the renewal options prior to the termination. No internal approvals for renewal had been initiated, no renewal notices had been drafted, and WAL's internal procurement strategy documents—produced in document production (R-071 through R-075)—showed that WAL was actively evaluating multiple sourcing alternatives for its turbine housing requirements going forward. These documents reflect a procurement strategy of diversifying WAL's supply base and reducing reliance on any single supplier, which is inconsistent with the assumption that WAL would have renewed the MSA for two additional years at maximum volume.
94. There is no basis for the Tribunal to award lost profits for periods in which no contractual obligation existed and in which the continuation of the contractual relationship was entirely within WAL's discretion. The renewal-period lost-profit claim of €27.15 million should be rejected in its entirety.
D. Kestrel's Unreimbursed Rework Costs Claim (€3.42 Million) Is Unfounded
95. Kestrel claims €3.42 million in unreimbursed rework costs allegedly incurred in attempting to rework rejected lots to bring them into conformance with WAL's specifications (SOC ¶ 96). This claim is without merit.
96. Under § 8.4 of the MSA, the cure obligation—and its attendant costs—rests on the Seller (Kestrel) as part of its quality assurance responsibilities. When WAL rejects a lot for non-conformance, it is Kestrel's obligation to cure the non-conformance, whether by delivering replacement units or by reworking the rejected units, at Kestrel's cost. The MSA does not provide for reimbursement of the Seller's cure costs by the Buyer; to the contrary, the allocation of cure costs to the Seller is a fundamental element of the contractual quality assurance framework. It would be perverse to award damages to a supplier for the costs it incurred in attempting to fix its own defective products.
97. Rework costs are not recoverable as damages where the rework was undertaken to attempt to cure the Seller's own non-conforming products. Under New York law, a party cannot recover damages for costs it was contractually obligated to bear. The cure obligation in § 8.4 is Kestrel's contractual obligation, and the costs associated with that obligation are part of Kestrel's cost of performance, not damages arising from WAL's alleged breach.
98. Luisa Erdmann testified that Kestrel "invested heavily in rework" to attempt to bring the rejected lots into conformance. However, under cross-examination, she acknowledged that rework was Kestrel's contractual obligation under § 8.4 and that Kestrel would have incurred quality remediation costs in any event as part of its ongoing quality assurance processes. She was unable to distinguish between rework costs that were attributable to Kestrel's pre-existing quality obligations and costs that were allegedly incremental to the specific rejections at issue.
99. Prof. Langfeld's damages calculation for rework costs suffers from the same deficiency. His calculation included rework costs without distinguishing between costs that would have been incurred under normal quality assurance processes and incremental costs that were specifically attributable to the disputed rejections. This failure to isolate the incremental rework costs renders the €3.42 million figure unreliable and unsupported.
100. The rework costs claim should be dismissed in its entirety.
E. Kestrel's Reputational Damages Claim (€3.90 Million) Is Speculative and Unsubstantiated
101. Kestrel claims €3.90 million in reputational damages, asserting that WAL's termination of the MSA harmed Kestrel's reputation in the aerospace supply market and caused Kestrel to lose business with other customers and prospects (SOC ¶ 101). This claim is barred by the consequential damages waiver in § 8.7, is entirely speculative, and is unsupported by any credible evidence.
102. As an initial matter, reputational damages are consequential in nature and are expressly enumerated among the categories of damages waived under § 8.7. The waiver states, in pertinent part, that neither party shall be liable for "reputational damages" arising out of or relating to th