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 PRE-HEARING ORGANIZATIONAL SUBMISSIONS
December 18, 2023
Submitted by:
Calderwood & Harkness LLP 600 Lexington Avenue New York, NY 10022 Counsel for Respondent, Whitmore Aerospace LLC
Addressed to:
The Arbitral Tribunal:
Prof. Dame Eleanor Fitzwilliam — Presiding Arbitrator Dr. Hans-Ulrich Perren — Co-Arbitrator Hon. Robert A. Castillo — Co-Arbitrator
Copies to:
Haber Reinhardt Schlosser Partnerschaft mbB Königstraße 35, 70173 Stuttgart, Germany 30 St Mary Axe, London EC3A 8BF, United Kingdom Counsel for Claimant
Attn: Dr. Maximilian Haber; Katrin Schäfer
Place of Arbitration: New York, New York
Language of Arbitration: English
Applicable Rules: ICC Rules of Arbitration (2021 edition)
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I. INTRODUCTION
1. Respondent, Whitmore Aerospace LLC ("WAL" or "Respondent"), hereby submits these Pre-Hearing Organizational Submissions pursuant to the procedural directions issued in Procedural Order No. 1, dated February 14, 2023 ("PO No. 1"), and the procedural timetable established therein. The purpose of these submissions is to set forth Respondent's position on the organization, logistics, and scheduling of the evidentiary hearing currently scheduled for January 8 through January 12, 2024 (five hearing days) (the "Hearing"), to be held at the ICC Hearing Centre in New York, New York.
2. By way of background, the procedural history of this arbitration is as follows:
(a) The Arbitral Tribunal was constituted on January 20, 2023, with the appointment of Prof. Dame Eleanor Fitzwilliam as Presiding Arbitrator, Dr. Hans-Ulrich Perren as the Co-Arbitrator nominated by Claimant, and Hon. Robert A. Castillo as the Co-Arbitrator nominated by Respondent.
(b) A preliminary procedural conference was held on February 14, 2023, resulting in the issuance of Procedural Order No. 1 ("PO No. 1"), which established, inter alia, the procedural timetable, the applicable rules of evidence, and the framework for the organization of the evidentiary hearing.
(c) Procedural Order No. 2 ("PO No. 2") was issued on March 17, 2023, addressing document production requests and establishing the applicable standards for document production under the IBA Rules on the Taking of Evidence in International Arbitration (2020 revision).
(d) Claimant filed its Statement of Claim on April 28, 2023, advancing claims for alleged wrongful termination of the Master Supply Agreement dated November 15, 2019, as amended (the "MSA"), and seeking damages in the aggregate amount of €47.3 million.
(e) Respondent filed its Statement of Defense and Counterclaim on June 30, 2023, denying Claimant's claims in their entirety and asserting a counterclaim in the amount of €5.17 million for replacement-component costs arising from Claimant's material breach of the MSA.
(f) Claimant filed its Reply and Defense to Counterclaim on August 11, 2023.
(g) Respondent filed its Rejoinder on September 29, 2023.
(h) The parties exchanged expert reports on October 16, 2023, and rebuttal expert reports on November 13, 2023.
3. As the procedural timetable contemplates, the Hearing will constitute the final phase of evidence-gathering prior to the submission of post-hearing briefs (due February 9, 2024) and the Tribunal's deliberation on the merits. In light of the approaching Hearing, Respondent submits the organizational proposals set forth below for the Tribunal's consideration and invites Claimant's comments thereon. Respondent has endeavored to propose a hearing schedule and logistical arrangements that will facilitate the efficient, fair, and orderly conduct of the proceedings.
II. PROPOSED HEARING SCHEDULE AND DAILY TIMETABLE
A. Overall Hearing Duration
4. The Hearing is scheduled for five hearing days, commencing on Monday, January 8, 2024, and concluding on Friday, January 12, 2024. It is Respondent's considered view that five hearing days should be sufficient for the completion of all fact witness testimony, expert witness testimony, opening statements, and any closing submissions the Tribunal may wish to hear. As set forth in greater detail below, the total estimated time for the examination of all witnesses and the delivery of opening statements is approximately 35.5 hours. While this exceeds the total available effective hearing time of approximately 32.5 hours, Respondent proposes several practical mechanisms to ensure that the Hearing is completed within the allotted five days, including the potential deferral of closing submissions to post-hearing briefs and the modest extension of sitting hours on one or two hearing days if necessary.
B. Proposed Daily Sitting Hours
5. Respondent proposes the following daily timetable for each of the five hearing days:
6. Respondent proposes that brief mid-session breaks of approximately 15 minutes each be taken during both the morning session and the afternoon session, at the Tribunal's discretion or upon the request of either party. Accounting for these two breaks, the effective hearing time per day would be approximately 6.5 hours.
7. Over five hearing days, the total effective hearing time available to the parties and the Tribunal would therefore be approximately 32.5 hours.
8. Respondent respectfully submits that this daily timetable strikes an appropriate balance between maximizing the productive use of the Hearing and ensuring that the Tribunal, counsel, witnesses, and the court reporter are afforded adequate opportunity for rest and preparation during the day.
C. Proposed Day-by-Day Allocation
9. Respondent proposes the following day-by-day allocation of hearing time, subject to the Tribunal's direction and any modifications that may be required as the Hearing progresses:
Day 1 — Monday, January 8, 2024.
Morning Session (9:30 a.m. – 1:00 p.m.): Opening statements.
• Claimant's opening statement: approximately 1.5 hours
• Respondent's opening statement: approximately 1.5 hours
Afternoon Session (2:15 p.m. – 5:45 p.m.): Commencement of fact witness testimony. Examination of Claimant's first fact witness, Mr. Friedrich Brenner, Managing Director (Geschäftsführer) of Kestrel Dynamics GmbH.
Day 2 — Tuesday, January 9, 2024.
Morning Session (9:30 a.m. – 1:00 p.m.): Continuation and completion of Mr. Friedrich Brenner's testimony (if not completed on Day 1). Commencement of examination of Claimant's second fact witness, Ms. Luisa Erdmann, Commercial Director of Kestrel Dynamics GmbH.
Afternoon Session (2:15 p.m. – 5:45 p.m.): Completion of Ms. Luisa Erdmann's testimony. Commencement of examination of Claimant's third fact witness, Dr. Stefan Voss, Head of Quality Assurance of Kestrel Dynamics GmbH.
Day 3 — Wednesday, January 10, 2024.
Morning Session (9:30 a.m. – 1:00 p.m.): Completion of Dr. Stefan Voss's testimony. Commencement of Respondent's fact witness testimony, beginning with the examination of Mr. Gerald Huang, Vice President of Global Supply Chain Operations at Whitmore Aerospace LLC.
Afternoon Session (2:15 p.m. – 5:45 p.m.): Completion of Mr. Gerald Huang's testimony. Commencement of examination of Respondent's second fact witness, Dr. Ingrid Vollmer, Senior Vice President of Engineering & Manufacturing at Whitmore Aerospace LLC.
Day 4 — Thursday, January 11, 2024.
Morning Session (9:30 a.m. – 1:00 p.m.): Completion of Dr. Ingrid Vollmer's testimony. Commencement of expert witness testimony, beginning with the technical/metallurgical experts (Dr. Raymond Chow and Dr. Martina Kessler).
Afternoon Session (2:15 p.m. – 5:45 p.m.): Continuation of expert witness testimony in the technical/metallurgical discipline.
Day 5 — Friday, January 12, 2024.
Morning Session (9:30 a.m. – 1:00 p.m.): Completion of expert testimony in the damages/quantum discipline (Dr. Nadia Ostrovsky and Prof. Dieter Langfeld).
Afternoon Session (2:15 p.m. – 5:45 p.m.): Closing submissions, if time permits and if the Tribunal considers oral closings to be appropriate. Alternatively, the afternoon session may serve as overflow time for the completion of any testimony that could not be accommodated within the preceding sessions. Respondent notes that the existing procedural timetable already contemplates simultaneous post-hearing briefs due February 9, 2024, which may serve as an adequate substitute for oral closing submissions.
III. PROPOSED WITNESS ORDER — FACT WITNESSES
A. Respondent's Position on Sequence
10. Respondent proposes that the fact witnesses be examined in sequential order, with Claimant's fact witnesses examined first, followed by Respondent's fact witnesses. This approach is consistent with the allocation of the burden of proof in these proceedings: Claimant, as the party asserting material breach of the MSA and seeking damages in the amount of €47.3 million, bears the burden of establishing its claims. The natural sequence of the evidence thus calls for Claimant to present its witnesses first, allowing the Tribunal to hear the factual narrative in the order in which the claims have been advanced.
11. If, however, the Tribunal prefers an interleaved witness order — for example, alternating between Claimant's and Respondent's witnesses based on the chronological development of the underlying facts — Respondent is prepared to accommodate such an arrangement. Respondent's sole concern is that the Hearing be organized in a manner that permits the efficient and comprehensible presentation of the evidence.
B. Claimant's Fact Witnesses (for Cross-Examination by Respondent)
12. Respondent understands that Claimant intends to call the following three fact witnesses. Respondent sets forth below its anticipated topics for cross-examination and its estimates of the time required for each witness's testimony.
1. Friedrich Brenner — Managing Director (*Geschäftsführer*), Kestrel Dynamics GmbH.
13. Mr. Brenner is the Managing Director of Kestrel Dynamics GmbH and is understood to have had overarching management responsibility for the Kestrel–WAL commercial relationship, including the decision to commence this arbitration. Respondent anticipates cross-examining Mr. Brenner on the following topics:
(a) Kestrel's awareness of porosity non-conformances in the 14 rejected lots (Lot KDG-2022-0307 through Lot KDG-2022-0919), including the timing and substance of internal communications within Kestrel's management regarding the quality issues identified by WAL;
(b) Kestrel's internal decisions regarding cure and rework of the rejected lots, including the allocation of resources and the prioritization of rework efforts;
(c) Kestrel's knowledge of the contractual porosity specification of ≤0.25% as set forth in WAL-SPEC-TH-401, Appendix C, Table 3, and Kestrel's understanding of this specification at the time of contract execution and throughout the performance of the MSA;
(d) Kestrel's motivations for commencing this arbitration, including any internal strategic or commercial considerations;
(e) Kestrel's dealings with other customers for comparable Ti-6Al-4V ELI titanium alloy components, including whether other customers accepted lots with porosity levels in excess of 0.25%.
14. The estimated time for Mr. Brenner's testimony is as follows:
2. Luisa Erdmann — Commercial Director, Kestrel Dynamics GmbH.
15. Ms. Erdmann served as Kestrel's Commercial Director and was the principal commercial contact between Kestrel and WAL throughout the life of the MSA. Respondent anticipates cross-examining Ms. Erdmann on the following topics:
(a) The commercial negotiations leading to the execution of the MSA and the parties' respective understandings regarding pricing, volume commitments, and quality standards;
(b) Ms. Erdmann's communications with WAL's Mr. Gerald Huang regarding the lot rejections, including the substance and timing of discussions concerning cure periods and the possibility of rework;
(c) Kestrel's pricing and margin assumptions as they relate to the 22.4% margin figure that forms the basis of Claimant's lost-profit damages calculation;
(d) Kestrel's expectations regarding the two optional one-year renewal periods under the MSA, including any communications between Ms. Erdmann and WAL regarding WAL's intention to exercise or not exercise the renewal options;
(e) The negotiation and execution of Amendment No. 1 (dated February 10, 2020), which addressed certain pricing adjustments, and Amendment No. 2 (dated September 3, 2021), which extended the cure period from 30 calendar days to 45 calendar days.
16. The estimated time for Ms. Erdmann's testimony is as follows:
3. Dr. Stefan Voss — Head of Quality Assurance, Kestrel Dynamics GmbH.
17. Dr. Voss served as Kestrel's Head of Quality Assurance and is understood to have had direct supervisory responsibility for the quality control and inspection processes applied to the Ti-6Al-4V ELI titanium alloy turbine housings manufactured by Kestrel under the MSA. Respondent anticipates cross-examining Dr. Voss on the following topics:
(a) Kestrel's quality assurance processes and its compliance (or non-compliance) with AS9100 Rev D, the internationally recognized quality management standard for the aerospace industry;
(b) Kestrel's internal testing data for the 14 rejected lots, including whether Kestrel's own testing confirmed the porosity non-conformances identified by WAL's incoming inspection process;
(c) The adequacy of Kestrel's cure and rework efforts within the 45-calendar-day amended cure period established under Amendment No. 2, and in particular the reasons why 7 of the 14 rejected lots were not successfully cured within that period;
(d) Kestrel's contention that WAL applied an unpublished porosity tolerance of ≤0.15% (as opposed to the contractual specification of ≤0.25%), including any communications between Dr. Voss and WAL engineering personnel regarding the applicable porosity standard;
(e) Kestrel's quality audit records, including internal audit findings and any corrective action reports issued in connection with the quality issues at the center of this dispute.
18. The estimated time for Dr. Voss's testimony is as follows:
C. Respondent's Fact Witnesses
19. Respondent intends to call the following two fact witnesses. Respondent sets forth below its anticipated topics for direct examination and its estimates of the time required for each witness's testimony.
1. Gerald Huang — Vice President, Global Supply Chain Operations, Whitmore Aerospace LLC.
20. Mr. Huang has served as WAL's Vice President of Global Supply Chain Operations since 2018 and was the principal operational contact between WAL and Kestrel with respect to the incoming inspection and lot acceptance/rejection process. Respondent anticipates presenting Mr. Huang's testimony on the following topics:
(a) WAL's incoming inspection and lot rejection process under WAL-QCP-100, including the documented procedures for identifying, categorizing, and communicating quality non-conformances to suppliers;
(b) The timeline of the 14 rejected lots, spanning the period from March 7, 2022 (Lot KDG-2022-0307) through September 19, 2022 (Lot KDG-2022-0919), and the specific basis for each lot rejection;
(c) Mr. Huang's communications with Kestrel (and in particular with Ms. Luisa Erdmann) regarding the rejection notices and the cure opportunities extended to Kestrel under the MSA;
(d) The 7 uncured rejections and their significance in exceeding the Persistent Quality Failure threshold of 3 uncured rejections in a rolling 12-month period, as defined in Section 8.4 of the MSA;
(e) WAL's issuance of the Notice of Termination for Cause on October 3, 2022, pursuant to Section 14.2(b) of the MSA, including the internal decision-making process and the factual basis for the termination;
(f) WAL's decision to engage Valkyr Precision Components Inc. (Tucson, Arizona) as a replacement supplier, the circumstances under which that engagement was made, and the fact that the engagement was a commercially reasonable response to Kestrel's quality failures and not, as Claimant alleges, a pretext for termination;
(g) The terms of WAL's engagement with Valkyr, including the unit price of €8,432.92, the introductory discount of 4.2%, and the procurement of 1,680 replacement units;
(h) WAL's efforts to mitigate its damages following the termination, including the scope and adequacy of those mitigation efforts.
21. The estimated time for Mr. Huang's testimony is as follows:
2. Dr. Ingrid Vollmer — Senior Vice President, Engineering & Manufacturing, Whitmore Aerospace LLC.
22. Dr. Vollmer has served as WAL's Senior Vice President of Engineering & Manufacturing since 2016 and was responsible for the development and maintenance of WAL's engineering specifications, including WAL-SPEC-TH-401 through WAL-SPEC-TH-410. Respondent anticipates presenting Dr. Vollmer's testimony on the following topics:
(a) WAL's engineering specifications WAL-SPEC-TH-401 through WAL-SPEC-TH-410, their development, their publication to Kestrel, and their incorporation into the MSA;
(b) The porosity specification of ≤0.25% as set forth in WAL-SPEC-TH-401, Appendix C, Table 3, establishing that this was a published, contractual standard that had been communicated to Kestrel at the time of contract execution and was not an unpublished or post-hoc standard as Claimant alleges;
(c) The quality control inspection process under WAL-QCP-100 for incoming Ti-6Al-4V ELI titanium alloy turbine housings, including the methodology and instrumentation employed for porosity measurement;
(d) The technical basis for each of the 14 lot rejections, including the specific porosity measurements obtained for each rejected lot;
(e) The porosity measurements ranging from 0.19% to 0.38% in the rejected lots, as determined by independent testing performed by Arclight Materials Science Inc., and the significance of those measurements in relation to the contractual ≤0.25% specification;
(f) The safety and engineering significance of porosity non-conformance in aerospace-grade turbine housings, including the potential consequences of deploying turbine housings with porosity levels in excess of the specified tolerances.
23. The estimated time for Dr. Vollmer's testimony is as follows:
D. Summary Table — Fact Witness Estimated Times
24. The following table summarizes the estimated hearing time for each fact witness:
25. The grand total estimated time for fact witness testimony is approximately 20 hours and 40 minutes (rounded to approximately 20.5 hours for scheduling purposes).
IV. PROPOSED WITNESS ORDER — EXPERT WITNESSES
A. Respondent's Position on Expert Examination Sequence
26. Respondent proposes that expert witness testimony be organized by discipline, with the technical/metallurgical experts testifying first, followed by the damages/quantum experts. This sequence is logical insofar as the Tribunal's assessment of the quantum of damages will necessarily be informed by its understanding of the technical evidence regarding whether, and to what extent, the rejected lots failed to conform to the contractual porosity specification.
27. With respect to the format of expert examination, Respondent is open to the Tribunal's preference. Respondent notes that concurrent expert examination — sometimes referred to as "hot-tubbing" or "witness conferencing" — may offer efficiencies in this case, particularly with respect to the technical/metallurgical experts, whose opinions diverge on discrete and identifiable issues (e.g., the appropriate testing methodology for porosity measurement and the interpretation of the porosity data). If the Tribunal considers concurrent examination to be appropriate, Respondent is prepared to participate in that format. Alternatively, if the Tribunal prefers sequential examination of the experts, Respondent is equally prepared to proceed on that basis.
B. Technical / Metallurgical Experts
1. Dr. Raymond Chow — Principal Engineer, Arclight Materials Science Inc. (Respondent's Expert).
28. Dr. Raymond Chow of Arclight Materials Science Inc. (7900 Westpark Drive, Suite 200, McLean, Virginia 22102) has been engaged by Respondent to provide independent metallurgical analysis of the 14 rejected lots. Dr. Chow filed his expert report on October 16, 2023, and his rebuttal expert report on November 13, 2023.
29. The scope of Dr. Chow's anticipated testimony includes the following:
(a) His independent metallurgical analysis of the 14 rejected lots, including the testing methodology employed (computed tomography scanning, optical microscopy, and image analysis in accordance with ASTM E1441 and ASTM E2109);
(b) His porosity measurements confirming porosity levels between 0.19% and 0.38% across the 14 rejected lots, with the majority of lots exceeding the contractual ≤0.25% limit;
(c) His assessment of the adequacy of Kestrel's quality assurance processes under AS9100 Rev D, including his opinion that certain aspects of Kestrel's internal inspection protocols were deficient;
(d) His rebuttal of the testing methodology and conclusions set forth in the expert report of Dr. Martina Kessler (Claimant's technical expert), including his critique of the sampling techniques and measurement tolerances employed by Dr. Kessler.
30. The estimated time for Dr. Chow's testimony is as follows:
2. Dr. Martina Kessler — Director, Albrecht Prüftechnik GmbH (Claimant's Expert).
31. Dr. Martina Kessler of Albrecht Prüftechnik GmbH (Robert-Bosch-Straße 12, 71229 Leonberg, Germany) has been engaged by Claimant to provide non-destructive testing analysis in support of Claimant's position. Respondent understands that the scope of Dr. Kessler's anticipated testimony includes the following:
(a) Her non-destructive testing analysis of representative samples from the rejected lots;
(b) Claimant's position that WAL applied an unpublished porosity standard (allegedly ≤0.15%) that was more stringent than the contractual specification of ≤0.25%;
(c) Her alternative interpretation of the porosity data, including her contention that certain of the rejected lots were within the contractual specification when tested using what she considers to be the appropriate methodology.
32. The estimated time for Dr. Kessler's testimony is as follows:
C. Damages / Quantum Experts
1. Dr. Nadia Ostrovsky — Managing Director, Ridgeline Economic Consulting LLC (Respondent's Expert).
33. Dr. Nadia Ostrovsky of Ridgeline Economic Consulting LLC (200 Park Avenue, Suite 3400, New York, NY 10166) has been engaged by Respondent to provide expert testimony on damages and quantum issues. Dr. Ostrovsky filed her expert report on October 16, 2023, and her rebuttal expert report on November 13, 2023.
34. The scope of Dr. Ostrovsky's anticipated testimony includes the following:
(a) Her rebuttal of Kestrel's aggregate damages claim of €47.3 million, including a comprehensive critique of the methodology and assumptions underlying that claim;
(b) Her critique of Prof. Dieter Langfeld's (Claimant's quantum expert) lost-profit calculations for both the remaining MSA term (€12.83 million) and the two optional renewal-period terms (€27.15 million), including her opinion that the renewal-period lost-profit claim is speculative and unsupported;
(c) Her analysis of Kestrel's claimed margin of 22.4%, including her opinion that this figure is inflated and does not properly account for variable costs, rework costs, and other deductions;
(d) Her critique of Kestrel's claimed unreimbursed rework costs of €3.42 million and reputational damages of €3.90 million, including her opinion that these categories of damages are barred by the consequential damages waiver in Section 8.7 of the MSA;
(e) Her quantification and support for WAL's counterclaim of €5.17 million, calculated on the basis of 1,680 replacement units procured from Valkyr Precision Components Inc. at a per-unit premium of €3,210.00, adjusted by Valkyr's introductory discount of 4.2%.
35. The estimated time for Dr. Ostrovsky's testimony is as follows:
2. Prof. Dieter Langfeld — Partner, Rheinsberg Advisory AG (Claimant's Expert).
36. Prof. Dieter Langfeld of Rheinsberg Advisory AG (Talstrasse 62, 8001 Glenrock Assurance, Switzerland) has been engaged by Claimant to provide expert testimony on the methodology and quantification of Claimant's damages claim. Respondent understands that the scope of Prof. Langfeld's anticipated testimony will encompass his damages methodology and his quantification of Claimant's claimed losses.
37. The estimated time for Prof. Langfeld's testimony is as follows:
D. Summary Table — Expert Witness Estimated Times
38. The following table summarizes the estimated hearing time for each expert witness:
39. The grand total estimated time for expert witness testimony is approximately 12 hours and 40 minutes (rounded to approximately 12.0 hours for scheduling purposes).
V. TOTAL ESTIMATED HEARING TIME ALLOCATION
40. The following table summarizes the total estimated hearing time across all categories:
41. Respondent acknowledges that the estimated total hearing time of approximately 35.5 hours modestly exceeds the available effective hearing time of approximately 32.5 hours. To address this potential shortfall, Respondent proposes the following practical measures:
(i) Extension of afternoon sessions. If necessary, the afternoon sessions on one or two hearing days may be extended by up to one hour (i.e., concluding at 6:45 p.m. rather than 5:45 p.m.), subject to the Tribunal's availability and the availability of the hearing room. This would provide up to two additional hours of hearing time.
(ii) Deferral of closing submissions to post-hearing briefs. The existing procedural timetable already contemplates simultaneous post-hearing briefs due February 9, 2024. Respondent respectfully suggests that oral closing submissions may be appropriately deferred to the post-hearing brief phase, thereby freeing any time that might otherwise be allocated to closings. In Respondent's experience, written post-hearing submissions often afford the Tribunal a more thorough and considered summary of each party's position on the evidence than is possible in oral closing arguments delivered at the end of an intensive five-day hearing.
(iii) Time limits for individual witnesses. Respondent respectfully encourages the Tribunal to set indicative time limits for each witness — consistent with the estimates set forth in these submissions — in order to maintain discipline and ensure that the Hearing proceeds in an efficient and orderly manner. Respondent recognizes that such limits should be applied flexibly and that the Tribunal will retain discretion to extend or adjust time allocations as circumstances warrant.
42. Alternative approach: equal time allocation (chess-clock method). As an alternative to the witness-by-witness time estimates set forth above, Respondent would also be amenable to the adoption of an equal time allocation for each party, commonly referred to as the "chess-clock" method. Under this approach, each party would be allocated approximately 16 hours of hearing time for the examination of all witnesses (both fact and expert) and the delivery of opening statements. Tribunal questioning time would be excluded from each party's allocation. Respondent respectfully submits that this method, if adopted, would provide a fair and efficient framework for the management of hearing time and would incentivize both parties to use their allocated time judiciously.
VI. LOGISTICAL MATTERS
A. Hearing Venue
43. The Hearing will take place at the ICC Hearing Centre in New York, New York. Respondent requests that the Tribunal confirm the room setup for the Hearing, and in particular that the hearing room be arranged in the following manner:
(a) Tribunal-style seating for the three members of the Arbitral Tribunal, with the Presiding Arbitrator seated in the center and the Co-Arbitrators on either side;
(b) Counsel tables for each party, positioned facing the Tribunal, with adequate space for counsel teams of up to six persons per side;
(c) A witness stand equipped with a microphone and positioned so as to be visible to the Tribunal, counsel for both parties, and the court reporter;
(d) Separate breakout rooms for each party, for use during breaks and for witness preparation;
(e) A separate waiting area or room for witnesses who are subject to sequestration.
B. Interpretation.
44. The language of the arbitration is English, and Respondent does not anticipate that interpretation will be necessary for any of the witnesses to be called at the Hearing. All of Respondent's fact and expert witnesses are fluent in English. Respondent understands that Claimant's witnesses — Mr. Brenner, Ms. Erdmann, and Dr. Voss — are also proficient in English, having provided their witness statements in English.
45. If Claimant requests German-language interpretation for any witness (for example, Dr. Voss or Dr. Kessler), Respondent requests that Claimant provide advance notice of such request no later than December 22, 2023, so that appropriate arrangements may be made. Respondent further proposes that, consistent with standard practice, the cost of interpretation be borne by the party requesting it.
C. Transcript and Recording
46. Respondent requests that a real-time verbatim transcript be prepared by a qualified court reporting service throughout all five hearing days. Real-time transcription will facilitate the efficient conduct of the proceedings by allowing the Tribunal and counsel to review testimony in real time and will assist in the preparation of post-hearing briefs.
47. Respondent proposes that the cost of the verbatim transcript be shared equally between the parties, with each party bearing 50% of the total transcription cost. This is consistent with standard ICC practice and with the cost-sharing arrangements established in PO No. 1.
48. Respondent has no objection to an audio recording of the Hearing for the Tribunal's internal use and reference. However, Respondent requests that no video recording be made absent the agreement of both parties. If Claimant proposes video recording, Respondent reserves the right to address the issue with the Tribunal.
D. Document Presentation
49. Respondent proposes the use of electronic hearing bundles, accessible via screens and/or tablets, for the Tribunal, counsel, and witnesses during the Hearing. The use of electronic bundles will facilitate the efficient presentation of documentary evidence and minimize the logistical burden associated with the production and management of voluminous paper exhibits.
50. Respondent proposes that the parties collaborate in the preparation of a Joint Hearing Bundle containing the core documentary exhibits to be referenced during the Hearing. To that end, Respondent proposes that each party exchange its proposed hearing bundle index with the other party no later than December 29, 2023, with a view to finalizing a mutually agreed Joint Hearing Bundle in advance of the Hearing.
51. To the extent that either party intends to use demonstrative exhibits (such as charts, timelines, or other visual aids) during the Hearing, Respondent proposes that copies of all demonstrative exhibits be provided to the opposing party and the Tribunal at least 48 hours before their intended use. This advance notice requirement is designed to ensure that neither party is taken by surprise and that both parties have an adequate opportunity to review and, if necessary, object to the use of any demonstrative exhibits.
E. Witness Sequestration
52. Respondent requests that fact witnesses be sequestrated — i.e., excluded from the hearing room during the testimony of other fact witnesses — in accordance with the standard witness exclusion rule. This measure is appropriate to ensure the integrity of the testimonial evidence and to prevent witnesses from being influenced, even inadvertently, by the testimony of other witnesses.
53. Respondent proposes, however, that one designated party representative per side be exempt from the sequestration rule. For Respondent, the designated party representative will be Ms. Dana Prescott, Vice President and General Counsel of Whitmore Aerospace LLC. This exemption is consistent with standard ICC practice, which recognizes that each party is entitled to have a representative present in the hearing room at all times to assist counsel in the conduct of the proceedings.
54. With respect to expert witnesses, Respondent has no objection to expert witnesses being present in the hearing room during all testimony, including the testimony of fact witnesses and other expert witnesses. This is consistent with customary practice in international arbitration and is appropriate given the distinct role that expert witnesses play in the proceedings.
F. Expert Witness Aids and Presentations
55. Respondent requests that each expert witness be permitted to use a brief slide presentation (in Northgate Services Inc. or equivalent format) during the presentation portion of his or her testimony. Such presentations are a standard and efficient means of assisting the Tribunal and counsel in understanding the expert's opinions. Respondent proposes that any such presentation be limited to a summary of opinions already stated in the expert's written reports and that no new opinions or analyses be introduced through the slide presentations.
56. To ensure transparency and fairness, Respondent proposes that all slide presentations be exchanged between the parties no later than 48 hours prior to the commencement of the relevant expert's testimony. This will afford each party adequate time to review the opposing expert's presentation and to prepare for cross-examination accordingly.
57. To the extent that any expert witness intends to use physical samples, physical demonstratives, or enlarged images (for example, metallurgical cross-section images of the tested samples), Respondent requests that such materials be provided to the opposing party and the Tribunal in advance of the Hearing, and in any event no later than 48 hours before the relevant expert's testimony.
G. Witness Availability and Scheduling
58. Respondent confirms the availability of its fact witnesses — Mr. Gerald Huang and Dr. Ingrid Vollmer — and its expert witnesses — Dr. Raymond Chow and Dr. Nadia Ostrovsky — for the full Hearing period from January 8 through January 12, 2024. All four individuals have confirmed their availability for the entirety of the scheduled Hearing.
59. Respondent respectfully requests that Claimant confirm the availability of its fact witnesses (Mr. Friedrich Brenner, Ms. Luisa Erdmann, and Dr. Stefan Voss) and its expert witnesses (Dr. Martina Kessler and Prof. Dieter Langfeld) no later than December 22, 2023. Early confirmation of witness availability will permit the parties and the Tribunal to finalize the hearing schedule and to make any necessary adjustments in advance.
60. If any witness is available only on specific days within the Hearing period, Respondent requests that this information be communicated as promptly as possible so that the proposed schedule can be adjusted to accommodate the witness's availability without disrupting the overall hearing plan.
H. Post-Hearing Submissions
61. Respondent understands that the procedural timetable established in PO No. 1 provides for simultaneous post-hearing briefs to be filed by both parties on February 9, 2024. Respondent is prepared to comply with this deadline and does not seek any modification of the post-hearing submission schedule at this time.
62. Respondent proposes a page limit of 50 pages per party for post-hearing briefs, exclusive of appendices, tables of authorities, and any other supplementary materials. In Respondent's experience, a 50-page limit is sufficient to allow each party to address the key factual and legal issues in a thorough but disciplined manner, while avoiding the burden on the Tribunal of reviewing unnecessarily voluminous submissions.
63. Respondent respectfully requests that the Tribunal confirm the format and any further directions for post-hearing submissions, including whether the Tribunal will require the parties to submit post-hearing reply briefs and, if so, the schedule and page limits for such reply submissions.
VII. RESPONDENT'S IDENTIFICATION OF KEY ISSUES FOR THE HEARING
64. For the Tribunal's organizational convenience and to assist in the efficient planning and conduct of the Hearing, Respondent identifies the following key issues that it anticipates will be addressed during the Hearing. Respondent presents this list without prejudice to any party's right to address additional issues and without limitation on the scope of inquiry that the Tribunal may consider appropriate.
(1) Porosity non-conformance. Whether the 14 rejected lots (comprising 1,680 units, Lot KDG-2022-0307 through Lot KDG-2022-0919) failed to meet the contractual porosity specification of ≤0.25% as set forth in WAL-SPEC-TH-401, Appendix C, Table 3.
(2) Published vs. unpublished specification. Whether the porosity specification of ≤0.25% was a published contractual requirement, incorporated into the MSA and known to Kestrel, or whether, as Kestrel alleges, WAL applied an unpublished and more stringent porosity standard of ≤0.15%.
(3) Failure to cure — Persistent Quality Failure. Whether Kestrel failed to cure 7 of the 14 rejected lots within the 45-calendar-day amended cure period (as established under Amendment No. 2, dated September 3, 2021), thereby constituting a "Persistent Quality Failure" under Section 8.4 of the MSA, which defines such a failure as the occurrence of 3 or more uncured rejections in a rolling 12-month period.
(4) Validity of termination. Whether WAL's termination for cause on October 3, 2022, pursuant to Section 14.2(b) of the MSA, was procedurally and substantively proper.
(5) Replacement supplier — mitigation or pretext. Whether WAL's engagement of Valkyr Precision Components Inc. as a replacement supplier was a commercially reasonable post-termination mitigation measure or whether, as Kestrel alleges, the engagement of Valkyr was a pretext for the termination of the MSA.
(6) Consequential damages waiver. Whether Kestrel's damages claims (totaling €47.3 million) are barred in whole or in part by the consequential damages waiver in Section 8.7 of the MSA, including in particular the claimed reputational damages of €3.90 million and the renewal-period lost profits of €27.15 million.