ICC CASE NO. 27914/MHM
WHITMORE AEROSPACE LLC (Respondent)
v.
KESTREL DYNAMICS GmbH (Claimant)
RESPONDENT'S COMMENTS ON DRAFT TERMS OF REFERENCE
Submitted to: The Arbitral Tribunal
Prof. Dame Eleanor Fitzwilliam (Presiding Arbitrator)
Dr. Hans-Ulrich Perren (Co-Arbitrator, Claimant's nominee)
Hon. Robert A. Castillo (Co-Arbitrator, Respondent's nominee)
Date: February 28, 2023
Prepared by:
Calderwood & Harkness LLP 600 Lexington Avenue New York, NY 10022 Counsel for Respondent Whitmore Aerospace LLC
Submitted by:
Simone Laroche, Senior Associate, on behalf of Theodore Langston, Partner Engagement No. 1019-00001
I. INTRODUCTION
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, identifying areas of agreement, proposing revisions and clarifications where appropriate, and explaining the basis for any requested modifications.
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 issues, and certain procedural matters. This submission identifies both the areas of agreement and the points on which Respondent respectfully requests modifications to the Draft, and sets forth the reasons for each proposed revision.
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 avoid any ambiguity as the proceedings advance through the written submissions, document production, and evidentiary hearing phases.
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, Delaware 19801, United States of America
Represented by: Calderwood & Harkness LLP, 600 Lexington Avenue, New York, New York 10022, United States of America
Responsible Partner: Theodore Langston
Address for Service of All Communications: Calderwood & Harkness LLP, 600 Lexington Avenue, New York, New York 10022, United States of America, with copies to Calderwood & Harkness LLP, 1750 K Street NW, Washington, DC 20006, United States of America
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
Registered Office: Industriestraße 88, 70565 Stuttgart, Federal Republic of Germany
German Trade Register Number: HRB 745621 (Amtsgericht Stuttgart)
Represented by: Haber Reinhardt Schlosser Partnerschaft mbB, Königstraße 35, 70173 Stuttgart, Federal Republic of Germany, and 30 St Mary Axe, London EC3A 8BF, United Kingdom
Lead Partner: Dr. Maximilian Haber
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 standard practice in international commercial arbitrations involving German limited liability companies, and Respondent understands that Claimant does not object to this addition.
C. The Tribunal
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 Perren (Swiss national), nominated by Claimant in the Request for Arbitration dated November 8, 2022, and confirmed by the ICC Court on December 19, 2022
Co-Arbitrator (Respondent's nominee): Hon. Robert A. Castillo (United States national), retired judge of the United States District Court for the Southern District of New York, nominated by Respondent in the Answer and Counterclaim dated December 12, 2022, and confirmed by the ICC Court on December 19, 2022
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
Reference Number: WAL-KDG-MSA-2018-0615
Date of Execution: June 15, 2018
Parties: Whitmore Aerospace LLC (Buyer) and Kestrel Dynamics GmbH (Seller)
Term: Five (5) years, commencing on June 15, 2018 and expiring on June 14, 2023, with two (2) optional one-year renewal periods exercisable solely at WAL's discretion upon not less than ninety (90) days' written notice prior to the expiration of the then-current term (§ 3.1 of the MSA)
Scope: Manufacture and delivery of Ti-6Al-4V ELI (Extra Low Interstitial) titanium alloy turbine housings (the "Products") in accordance with WAL engineering specifications WAL-SPEC-TH-401 through WAL-SPEC-TH-409, and (following Amendment No. 1, described below) WAL-SPEC-TH-410
Delivery Terms: DDP (Delivered Duty Paid) WAL's receiving facility at 8500 Coppermine Road, Manassas, Virginia 20110, United States of America, in accordance with Incoterms® 2020 as published by the International Chamber of Commerce
Quality Standards: Seller shall at all times maintain AS9100 Rev D certification issued by a certification body accredited by the International Aerospace Quality Group (IAQG); all Products subject to incoming inspection in accordance with WAL Quality Control Procedure WAL-QCP-100, with acceptance or rejection to be communicated within fifteen (15) business days of delivery (§ 8.3 of the MSA)
Governing Law: The laws of the State of New York, without regard to its conflict of laws principles (§ 22.1 of the MSA)
Dispute Resolution: Any dispute arising out of or in connection with the MSA shall be finally resolved by arbitration under the ICC Rules of Arbitration, by a tribunal of three arbitrators, with the seat of arbitration in New York, New York (§ 22.3 of the MSA)
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 maximum annual purchase volume from 3,600 units to 4,000 units per contract year. Amendment No. 1 was executed by both parties and is attached as Exhibit C-3 to the Request for Arbitration.
(b) Amendment No. 2 (dated September 3, 2021): Amendment No. 2 extended the cure period for quality non-conformances under § 8.4 of the MSA from thirty (30) calendar days to forty-five (45) calendar days, and added a force majeure carve-out for pandemic-related supply chain delays, reflecting the parties' negotiated response to the disruptions caused by the COVID-19 pandemic during the period 2020–2021. Amendment No. 2 was executed by both parties and is attached as Exhibit R-2 to the Answer and Counterclaim.
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 identify either amendment by name or date. Respondent submits that the Terms of Reference should include this information for completeness and precision.
B. Summary of Claims
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 October 3, 2022, by which WAL terminated the MSA on the ground of Persistent Quality Failure under § 14.2(b) of the MSA.
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): €27.15 million;
(c) Unreimbursed rework costs incurred by Kestrel in attempting to bring the rejected lots into conformity with WAL's specifications: €3.42 million; and
(d) Reputational damages and lost business opportunities allegedly suffered by Kestrel as a result of the termination: €3.90 million.
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 written notice, and that WAL was under no obligation to exercise those options. This distinction is of fundamental importance to the quantification of Claimant's damages, as more than half of Kestrel's total claimed damages (€27.15 million of the €47.3 million total) relates to profits that Kestrel alleges it would have earned during renewal periods that WAL had no contractual obligation to grant.
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 to contain Products with porosity levels exceeding the contractual specification of ≤0.25% (by volume) as set forth in WAL-SPEC-TH-401, Appendix C, Table 3. WAL's inspection results were contemporaneously documented and communicated to Kestrel in accordance with the notice and cure provisions of the MSA.
(b) Proper Termination for Persistent Quality Failure. WAL's termination of the MSA on October 3, 2022 was procedurally and substantively proper under § 14.2(b) of the MSA. Section 14.2(b) provides that the Buyer may terminate the MSA upon written notice if three (3) or more lots are rejected for quality non-conformance and remain uncured within a rolling twelve (12)-month period, constituting a "Persistent Quality Failure." In the twelve-month period from March 2022 through September 2022, seven (7) rejected lots remained uncured, well in excess of the three-rejection threshold.
(c) Failure to Cure. Kestrel failed to cure the non-conformances within the forty-five (45) calendar day cure period (as extended by Amendment No. 2) with respect to five (5) of the seven (7) uncured rejected lots. In certain instances, Kestrel did not respond to WAL's rejection notices at all within the cure period; in other instances, Kestrel submitted reworked Products that continued to fail porosity testing upon re-inspection.
(d) Consequential Damages Waiver. Section 8.7 of the MSA contains a mutual waiver of consequential, incidental, special, and indirect damages, and limits the Buyer's remedies for quality non-conformance to replacement of defective Products, credit against future purchase orders, or, upon occurrence of a Persistent Quality Failure, termination of the MSA. This waiver is enforceable under New York law and bars the entirety of Kestrel's claims for lost profits, unreimbursed rework costs, and reputational damages.
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 counterclaim has not been challenged by Claimant.
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"), located in Tucson, Arizona, United States of America. The replacement units were procured at a unit price of €8,432.92, as compared to the Kestrel Contract Year 4 price of €5,222.92 per unit under the MSA, representing a per-unit premium of €3,210.00. After application of Valkyr's introductory volume discount of 4.2%, WAL's total incremental replacement cost amounts to €5.17 million.
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 ensure that the scope of the arbitration as defined in the Terms of Reference encompasses all claims and counterclaims properly before the Tribunal.
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 for lost profits, unreimbursed rework costs, and reputational damages.
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 relevant issues of causation and mitigation.
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 applicable principles of damages quantification under New York law, and the contractual limitations on remedies.
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 costs are properly characterized as direct or consequential damages.
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 €8,432.92 versus the Kestrel Contract Year 4 price of €5,222.92 per unit, net of Valkyr's introductory discount of 4.2%.
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 counterclaim; and (c) whether Kestrel took reasonable steps to mitigate its losses following the termination of the MSA.
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 resolved by the Tribunal in its award. Issue 12 (mitigation) is a defense and cross-cutting issue that is relevant to both Claimant's claims and Respondent's counterclaim. Respondent respectfully submits that all four of these issues should be expressly included in the list of issues to be determined to ensure clarity and to ensure that the Tribunal's ultimate award addresses each component of the parties' respective claims and defenses.
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 edition)
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 with this deadline and has no objection.
(b) Statement of Defense and Counterclaim (Respondent): Deadline of June 30, 2023. Respondent agrees with this deadline and notes that this submission will include Respondent's fully developed counterclaim, together with all supporting evidence and legal argument. Respondent anticipates that the Statement of Defense and Counterclaim will address both the merits of Claimant's claims and the quantum of Respondent's counterclaim in detail.
(c) Reply and Defense to Counterclaim (Claimant): Deadline of August 11, 2023. Respondent agrees with this deadline and expects that Claimant's Reply will include its defense to WAL's counterclaim.
(d) Rejoinder (Respondent): Deadline of September 29, 2023. Respondent agrees with this deadline. Respondent understands that the Rejoinder will be the final written submission on the merits prior to the exchange of expert reports, and that the Rejoinder may address both the claims and the counterclaim, including Respondent's reply to Claimant's defense to the counterclaim.
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 documents or category of documents requested; (b) the relevance and materiality of the requested documents to the issues in the arbitration; (c) the opposing party's objections (if any) to the request; and (d) the Tribunal's decision on each request.
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 privilege issues should be resolved in accordance with the IBA Rules on the Taking of Evidence in International Arbitration (2020 revision), to the extent adopted by the Tribunal in Procedural Order No. 2.
C. Expert Evidence
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-period revenues, the recoverability and quantification of rework costs, and the calculation of WAL's replacement-component costs.
(b) Metallurgical and technical analysis. Respondent will engage an independent metallurgical expert to provide analysis of the porosity levels measured in the rejected lots and to evaluate the conformity of those measurements against the contractual specifications set forth in WAL-SPEC-TH-401, Appendix C, Table 3. This expert will also address the proper methodology for porosity measurement in Ti-6Al-4V ELI titanium alloy components and the reliability and consistency of WAL's incoming inspection procedures under WAL-QCP-100.
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.
D. Evidentiary Hearing
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 upon by the parties and the Tribunal.
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) Cross-examination of Claimant's fact witnesses, which Respondent understands will include:
• Friedrich Brenner (title and role to be confirmed in the Statement of Claim);
• Luisa Erdmann (title and role to be confirmed in the Statement of Claim); and
• Dr. Stefan Voss (title and role to be confirmed in the Statement of Claim);
(c) Direct examination and/or presentation of Respondent's expert witnesses (quantum and metallurgical/technical); and
(d) Cross-examination of Claimant's expert witnesses.
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 and to present their final arguments to the Tribunal in a comprehensive and organized manner.
55. Respondent proposes a page limit of fifty (50) pages per party for post-hearing briefs, exclusive of any annexes or appendices. Respondent believes that this page limit is appropriate given the complexity of the issues and the anticipated volume of evidence, and strikes a reasonable balance between thoroughness and efficiency.
VII. COMMENTS ON CONFIDENTIALITY
56. Respondent agrees with the confidentiality provisions set forth in the Draft and considers them consistent with standard practice in ICC arbitrations. However, Respondent requests that the confidentiality provisions be subject to the following standard carve-outs, which are necessary to ensure that WAL can comply with its legal and contractual obligations:
(a) Disclosures required by law or regulation. Respondent must be permitted to make disclosures to the extent required by applicable law, regulation, or court order, including any disclosure obligations arising under the securities laws of the United States or any reporting obligations imposed by governmental authorities.
(b) Disclosures to Respondent's insurers. WAL has notified its commercial general liability insurer, Pinnacle Continental Insurance Co., of the present dispute under Policy No. PCE-GL-2021-08854. WAL must be permitted to share information and documents relating to the arbitration with Pinnacle Continental Insurance Co. to the extent necessary for the administration and resolution of its insurance claim.
(c) Disclosures to Respondent's senior secured lender. WAL must be permitted to make disclosures to its senior secured lender, Veltrano National Bank, N.A., to the extent required under the financial reporting and material litigation disclosure covenants contained in WAL's $350 million senior secured revolving credit facility agreement. WAL's credit facility requires disclosure of material litigation and arbitration proceedings, and failure to comply with these covenants could result in an event of default under the credit facility.
(d) Disclosures to Respondent's auditors and forensic accountants. WAL must be permitted to share information and documents relating to the arbitration with its auditors and forensic accountants, Canfield & Thorpe LLP, to the extent necessary for the preparation of WAL's financial statements, the quantification of its counterclaim, and the rebuttal of Claimant's damages claims.
57. Respondent proposes that any third party to whom confidential information is disclosed pursuant to the foregoing carve-outs be required to agree in writing to be bound by the confidentiality provisions of the Terms of Reference, to the extent practicable.
VIII. COMMENTS ON COSTS
58. Respondent agrees that the Terms of Reference should reserve the question of the allocation of costs for determination in the Tribunal's award, in accordance with Article 38 of the ICC Rules. The costs to be allocated include the ICC administrative expenses, the arbitrators' fees and expenses, and the parties' respective legal costs and expenses incurred in connection with the arbitration.
59. Respondent notes its intention to seek a full award of its legal costs and expenses in the event it prevails on the merits of the dispute, including prevailing on its counterclaim. Respondent reserves the right to submit detailed cost submissions at the appropriate stage of the proceedings, as directed by the Tribunal, and anticipates that the Tribunal will request such submissions following the conclusion of the evidentiary hearing or in connection with the post-hearing briefs.
60. Respondent further notes that, under the principle of "costs follow the event" as commonly applied in international commercial arbitrations, the unsuccessful party should ordinarily bear the costs of the proceedings. Respondent reserves the right to make detailed submissions on the applicable principles governing costs allocation at the appropriate time.
IX. RELIEF SOUGHT
61. Respondent requests that the Terms of Reference accurately and completely reflect the relief sought by each party, as follows:
Claimant's Relief.
62. As Respondent understands it, Claimant seeks the following relief:
(a) An award of damages in the aggregate amount of €47.3 million, comprising:
(i) Lost profits for the remaining term of the MSA (Contract Year 5): €12.83 million;
(ii) Lost profits for the two optional renewal periods (Contract Years 6 and 7): €27.15 million;
(iii) Unreimbursed rework costs on rejected lots: €3.42 million; and
(iv) Reputational damages and lost business opportunities: €3.90 million;
(b) Interest on the amounts awarded, at a rate and for a period to be specified by Claimant in the Statement of Claim;
(c) An order that Respondent bear all costs of the arbitration, including ICC administrative expenses and arbitrators' fees and expenses; and
(d) Reimbursement of Claimant's legal costs and expenses.
Respondent's Relief.
63. Respondent seeks the following relief:
(a) Dismissal of all of Kestrel's claims in their entirety, on the grounds that WAL did not breach the MSA, that the lot rejections were justified, that the termination was proper, and that Kestrel's damages claims are barred by the consequential damages waiver in § 8.7 of the MSA;
(b) An award on Respondent's counterclaim in the amount of €5.17 million, representing WAL's replacement-component costs incurred as a result of Kestrel's delivery of non-conforming Products;
(c) Pre-award and post-award interest on the counterclaim amount, at a rate and from a date to be determined by the Tribunal;
(d) An order that Kestrel bear all costs of the arbitration, including ICC administrative expenses and the arbitrators' fees and expenses;
(e) Reimbursement of WAL's legal costs and expenses incurred in connection with these proceedings, including the fees and expenses of Calderwood & Harkness LLP, Respondent's expert witnesses, and all other costs reasonably incurred; and
(f) Such other and further relief as the Tribunal deems just and appropriate.
X. CONCLUSION
64. For the foregoing reasons, Respondent Whitmore Aerospace LLC respectfully requests that the Tribunal incorporate the comments set forth above into the final Terms of Reference. Respondent submits that the proposed revisions and clarifications are necessary to ensure that the Terms of Reference accurately and completely reflect the positions of both parties, the full scope of the claims and counterclaim, and the procedural framework for the conduct of these proceedings.
65. Respondent confirms its willingness to sign the Terms of Reference upon their finalization by the Tribunal, subject to the incorporation of the proposed revisions set forth in this submission. Respondent understands that, pursuant to Article 23(3) of the ICC Rules, the Tribunal may approve the Terms of Reference notwithstanding the refusal of any party to participate in the drafting process or to sign the document, and Respondent does not anticipate that any such issue will arise in the present case.
66. All communications in connection with these proceedings should be directed to:
Calderwood & Harkness LLP 600 Lexington Avenue New York, New York 10022 United States of America
Attention: Theodore Langston, Partner / Simone Laroche, Senior Associate
Engagement No. 1019-00001
Telephone: +1 (212) 558-4000
Email: t.langston@calderwoodharkness.com / s.laroche@calderwoodharkness.com
Respectfully submitted,
CALDERWOOD & HARKNESS LLP Counsel for Respondent Whitmore Aerospace LLC
By: ________
Name: Simone Laroche
Title: Senior Associate
________________________________________
Name: Theodore Langston
Title: Partner (Responsible Partner)
Date: February 28, 2023
Calderwood & Harkness LLP 600 Lexington Avenue New York, New York 10022 United States of America