Team 129C
[NAME OF THE MOOT COURT COMPETITION]
IN THE MATTER OF [..........]
A.........................................................................................................Claimant
v.
B.....................………………........................................................Respondent
(Arb/Cas/12/35)
MEMORANDUM for CLAIMANT
TABLE OF CONTENTS
Table of Abbreviations .................................................................................................................... I
Index of Authorities ...................................................................................................................... IV
Statement of Jurisdiction............................................................................................................... XI
Statement of Facts ........................................................................................................................ XII
Questions Presented .....................................................................................................................XV
Summary of Pleadings ............................................................................................................... XVI
Arguments Advanced...................................................................................................................... 1
I.
The tribunal has jurisdiction over all the claims brought before it. .................................... 1
Claimant’s undertaking amounts to an investment. ........................................................ 1
A.
1.
The investment by the Claimant is a foreign investment in the Respondent State. .. 1
2.
The undertaking has the characteristics of an investment. ....................................... 2
An exclusive dispute resolution clause in the contract does not affect the Tribunal’s
B.
jurisdiction. ............................................................................................................................. 3
The exclusive dispute resolution clause does not bar the Tribunal’s jurisdiction
1.
under the BIT. ..................................................................................................................... 3
2.
C.
The Tribunal may consider contractual claims to determine a violation of the BIT. 3
Contractual breaches of the Respondent State give rise to a violation of the BIT. ........ 4
1.
There is a prima facie case of a BIT violation for the purposes of establishing
jurisdiction. ......................................................................................................................... 4
2.
Article X of the BIT allows contractual breaches to be treated as treaty breaches. . 5
3.
The impugned acts violate the National Treatment requirement. ............................. 6
4.
The impugned acts violate the requirement for fair and equitable treatment. .......... 7
a.
The Government of Calona did not maintain stability in the legal order. ............. 7
b.
The Government of Calona did not comply with the contractual obligations. ..... 8
c.
The Government did not observe due process in its actions. ................................ 8
d.
The Government did not adhere to the principle of good faith. ............................ 9
5.
D.
The impugned acts violate the requirement for full protection and security. ......... 10
The jurisdiction of the Tribunal does not get affected even if there is a multi-tier
arbitration clause. .................................................................................................................. 10
E.
The Tribunal has jurisdiction even if the contract is tainted with corruption. .............. 11
The actions of the government of Calona including the seizure of Wayne Calona’s assets,
I.
were a violation of the BIT. ...................................................................................................... 12
A.
The actions of the Government of Calona amount to expropriation. ........................... 12
1.
There has been expropriation of Wayne Calona’s assets........................................ 12
2.
Avoidance of contract can lead to expropriation of contractual rights. .................. 12
3.
The investor’s property has been indirectly expropriated....................................... 13
a.
The measures are so severe in light of their purpose that they cannot be
reasonably viewed as having been adopted and applied in good faith. ........................ 14
b.
B.
II.
The measure of the government was discriminatory. ......................................... 16
The expropriation by the Government of Calona is illegal. .......................................... 17
1.
There was no payment of compensation. ................................................................ 18
2.
Due process was not observed. ............................................................................... 18
The Respondent is not entitled to avoid the contract. ....................................................... 20
A.
Respondent cannot avoid the contract on the ground of defect in alternatives provided,
as the same were in compliance of the contractual terms. .................................................... 20
B.
1.
Variation to the terms of the original Contract was mutually agreed. .................... 20
2.
The doctrine of substantial performance is applicable. .......................................... 21
3.
The ‘all best endeavours’ obligation has been fulfilled by the Claimant. .............. 21
4.
A breach of a warranty does not give rise to a right of avoidance. ......................... 22
Claimant is not liable for the late delivery of the original consignment. ...................... 23
1.
Late delivery of the original consignment was beyond Claimant’s control. .......... 23
2.
Mere representation does not bind Claimant for misrepresentation. ...................... 24
C.
Arguendo, the contract could not be avoided fully. ...................................................... 24
1.
The contract cannot be fully avoided as it is divisible in nature. ............................ 24
2.
The contract cannot be avoided fully as partial performance was accepted by the
Respondent. ....................................................................................................................... 25
The act of the Respondent was not in good faith with respect to Claimant’s
D.
Performance. ......................................................................................................................... 25
1.
Respondent did not act in good faith. ..................................................................... 26
2.
Evidence can be obtained from another private arbitration to prove the intention of
the Respondent. ................................................................................................................. 26
E.
Corruption cannot invalidate the contract and give rise to a right of avoidance. ......... 27
1.
The Respondent cannot rely on the corrupt acts of its officials to escape
responsibility. .................................................................................................................... 27
2.
The Corruption charges were mere allegations. ..................................................... 28
3.
Allowing avoidance based on corruption would be against the spirit of the BIT... 28
Prayer for Relief ............................................................................................................................ 29
TABLE OF ABBREVIATIONS
¶¶/¶ - Paragraph
A.C./App. Cas. – Appealed Cases
A.L.R.- American Law Reporter
APP.L.R- Arbitration, Practice & Procedure Law Reports
AIR- All India Reporter
All E.R.- All England Law Reports
AM. J. Comp. L.- American Journal of Comparative Law
ARB- Arbitration
AJIL- American Journal of International Law
BCLC- Butterworths Company Law Cases
BIT- Bilateral Investment Treaty
BYIL- British Yearbook of International Law
C.A.- Court of Appeals
C.L.R.- Commonwealth Law Reports
Cal- Calcutta
Ch.- Chancery
CISG- Convention on International Sale of Goods
Co.- Company
Comm.- Commercial
Corp.- Corporation
[I]
D.Del.- District of Delaware
E.R.- England Reports
ECR- European Court Reports
ed.,- Edition
EHRR- European Human Rights Reports
EWCA- England and Wales Court of Appeal
EWHC- England and Wales High Court
F.R.D.- Federal Rules Decisions
FILJ- Fordham International Law Journal
H.BI.- Henry Blackstone's Common Pleas Reports
I.L.M.- International Legal Materials
I.L.R.- International Law Reports
IBA- International Bar Association
ICJ- International Court of Justice
ICSID- International Centre for Settlement of Investment Disputes
ILM- International Legal Materials
Iran- U.S. C.T.R.- Iran- United States Claims Tribunal Reports
J Int’l Arb- Journal of International Arbitration
KB- King’s Bench
LJQB- Law Journal Queen's Bench
Ltd.- Limited
[II]
M & W- Meeson & Welsby's Reports
NAFTA- North American Free Trade Agreement
No.- Number
OECD- Organization for Economic Cooperation and Development
P & CT – Property and Compensation Reports
p.- Page
PCIJ Rep- Permanent Court of International Justice Reports
pp.- Pages
Q.B.- Queen’s Bench
R.I.A.A- Reports of International Arbitral Awards
S.A.- South Africa.
Sd/- Signed
Tex. Int’l L.J.- Texas International Law Journal
UNCITRAL- United Nations Commission on International Trade Law
UNCTAD- United Nations Conference on Trade and Development
UNIDROIT- Institut International Pour L'Unification du Droit Prive
v.- Versus
Vol.- Volume
[III]
INDEX OF AUTHORITIES
Court Cases
1. .................................................................................................................................. B
altic Shipping Co. v. Dhillon, (1993) 176 C.L.R. 344 ...................................................... 24
2. .................................................................................................................................. B
ehn v. Burness, (1863) 32 LJQB 204. ............................................................................... 22
3. .................................................................................................................................. B
oone v. Eyre, (1779) 1 H.Bl. 273 ...................................................................................... 20
4. .................................................................................................................................. B
room v. Davis, (1794) 7 East 480 ..................................................................................... 20
5. .................................................................................................................................. C
arter v. Boehm, (1766) 97 ER 1162. ................................................................................. 25
6. .................................................................................................................................. C
hanter v. Hopkins (1838) 4 M & W 399 ........................................................................... 22
7. .................................................................................................................................. D
ick Bentley Productions v. Harold Smith Motors, (1965) 2 All ER 65. .......................... 23
8. .................................................................................................................................. E
mmott v. Michael Wilson and Partners,(2008) EWCA (Civ) 184 (C.A.). ....................... 26
9. .................................................................................................................................. E
sso Australia Resources v. Plowman, 128 A.L.R. 391 (1995).......................................... 26
10. ................................................................................................................................ H
arling v. Eddy, (1951) 2 KB 739....................................................................................... 23
11. ................................................................................................................................ H
auer v. Land Rheinland-Pfalz, [1979] E.C.R 2749 ,Case no. 44/79, 13 December 1979. 15
12. ................................................................................................................................ H
eilbut, Symons and Co. v. Buckleton , (1913) A.C. 30. .................................................... 23
13. ................................................................................................................................ J
ames v. United Kingdom, (1986) 8 E.H.R.R. 123. ............................................................ 17
[IV]
14. ................................................................................................................................ J
uggilal Kamlapat v. NV International Credit-En-Handels, Vereeldging ‘Rotterdam’, AIR
1955 Cal 65. ...................................................................................................................... 20
15. ................................................................................................................................ O
scar Chess v. William, (1957) 1 All ER 325 ..................................................................... 23
16. ................................................................................................................................ P
ips (Leisure Production) Ltd. v. Walton, [1980] 43 P & CR 415. .................................... 21
17. ................................................................................................................................ P
ress Compania Naviera S.A. & Others v. Belgium, (1997) 21 E.H.R.R. 301. .................. 15
18. ................................................................................................................................ R
ackham v. Peek Foods Limited, (1990) BCLC 895. ......................................................... 21
19. ................................................................................................................................ R
hodia International Holdings Limited v. Huntsman International LLC, (2007) EWHC
292 (Comm). ..................................................................................................................... 21
20. ................................................................................................................................ S
carf v. Jardine, (1882) 7 App Cas 345, 351...................................................................... 19
21. ................................................................................................................................ S
im v. Rotherham Metropolitan Borough Council, (1987) Ch. 216 ................................... 20
22. ................................................................................................................................ S
teele v. Tardiani, (1946) 72 C.L.R. 386. ........................................................................... 24
23. ................................................................................................................................ S
umpter v. Hedges, (1898) 1 QB 673. ................................................................................ 24
24. ................................................................................................................................ U
nited States v.Panhandle Eastern Corp., 118 F.R.D. 346 (D.Del.1998). ......................... 26
25. ................................................................................................................................ W
allis, Son and Wells v. Pratt and Hyanes (1910) 2 K.B. 1003.......................................... 22
Other Tribunals
1. .................................................................................................................................. A
merican Bell Int’l, Inc. v. Iran, 12 Iran- U.S. C.T.R. 170, 19 September 1986................ 12
[V]
2. .................................................................................................................................. A
moco Int’l Finance Corp v. Iran,16 Iran - U.S. C.T.R. 3, 24, 14 July 1987. .................... 12
3. .................................................................................................................................. B
ritish Petroleum v. Libya, (1979) 53 ILR 297. .................................................................. 8
4. .................................................................................................................................. B
ritish Petroleum v. Libya, (1979) 53 ILR 297. ................................................................. 19
5. .................................................................................................................................. d
e Sabla Claim (US v. Panama), (1933) 6 RIAA 358. ....................................................... 18
6. .................................................................................................................................. G
reek Government v. VulkanWerke, (1925) 3 I.L.R. 402 ..................................................... 3
7. .................................................................................................................................. H
impurna California Energy Limited (Bermuda) v. PT. (Persero) Perusahaan Listruik
Negara, Final Award, 4 May 1999, (2000) XXV Yearbook of Commercial Arbitration. 27
8. .................................................................................................................................. J
alapa Jailroad and power Co, American- Mexican Claims Commission, 1948, 8
Whiteman, Digest of International Law 908 (1976). ........................................................ 12
9. .................................................................................................................................. L
ibyan American Oil Company (LIAMCO) v. The Libyan Arab Republic, (1982) 62 I.L.R.
14....................................................................................................................................... 12
10. ................................................................................................................................ M
etalclad Corp. v. United Mexican States, 40 I.L.M. 36 (2001) ........................................ 18
11. ................................................................................................................................ M
obil Oil v. Iran, 16 Iran- U.S. C.T.R. 3, July 14, I987 ...................................................... 12
12. ................................................................................................................................ N
eer v. Mexico, 4 R.I.A.A 60, (1926). .................................................................................. 9
13. ................................................................................................................................ P
helps Dodge Corp. and Overseas Private Investment Corp. and Iran, 10 Iran U.S. C.T.R.
157, 19 March 1986 .......................................................................................................... 15
14. ................................................................................................................................ P
hillips Petroleum Co. Iran v. Iran, 21 Iran- U.S. C.T.R. 79, 29 June 1989...................... 12
[VI]
15. ................................................................................................................................ P
ope & Talbot, Inc. (U.S.) v. Canada, 40 I.L.M. 258 (2000). ............................................ 18
16. ................................................................................................................................ S
.D. Myers, Inc. v. Canada, 40 I.L.M. 1408 (2000) ........................................................ 15
17. ................................................................................................................................ S
ea-Land Service Inc. v. Iran, 6 Iran U.S. C.T.R.149, Award, 20 June 1984; ................... 18
18. ................................................................................................................................ S
edco, Inc. v. Nat’l Ir. Oil Co., 10 Iran- U.S. C.T.R. 180, 1986......................................... 18
19. ................................................................................................................................ S
hufedlt Claim (U.S. v. Guatemala), (1930) 2 R.I.A.A. 1079 ............................................ 12
20. ................................................................................................................................ S
inger Sewing Machine Company Arbitration (United States v. Turkey), (1929) 4 R.I.A.A.
47....................................................................................................................................... 13
21. ................................................................................................................................ T
ippetts v. TAMS-AFFA Consulting Engineers of Iran, 6 Iran-U.S. C.T.R. 219, 29 June
1984................................................................................................................................... 14
22. ................................................................................................................................ U
PS v. Canada, UNCITRAL Arbitration Proceedings (NAFTA) Award, 24 May 2007 ..... 4
23. ................................................................................................................................ W
estacre Investments Inc v. Jugoimport SPDR Holding Co Ltd, [1999] APP.L.R. 05/12. 11
Articles/Reports
1. .................................................................................................................................. A
Parra, ‘Provisions on the Settlement of Investment Disputes in Modern Investment Laws,
Bilateral Investment Treaties and Multilateral Instruments on Investment’, (1997) 12
ICSID Rev–FILJ 287........................................................................................................... 5
2. .................................................................................................................................. A
.F.M. Maniruzzaman, ‘Expropriation of Alien Property and the Principle of NonDiscrimination in International Law of Foreign Investment: An Overview’, 8 J.
Transnational Law & Policy, 57-59, 67-70. ..................................................................... 17
[VII]
3. .................................................................................................................................. C
harles S. Baldwin, ‘Protecting Confidential and Proprietary Commercial Information in
International Arbitration’, 31 Tex. Int’l L.J. 451,456 n.21 (1996). ................................... 26
4. .................................................................................................................................. C
hristoph H. Schreuer, ‘Unjustified Enrichment in International law’, 22 AM. J. Comp. L.
281, 1974........................................................................................................................... 18
5. .................................................................................................................................. F
. V. Garcia Amador, Special Rapporteur Report, International Law Commission (1959).
........................................................................................................................................... 16
6. .................................................................................................................................. F
A Mann, ‘British Treaties for the Promotion and Protection of Investments,’ (1981) 52
BYIL 241, 245-6. ................................................................................................................. 5
7. .................................................................................................................................. G
. C. Christie, ‘What Constitute a Taking of Property under International Law?,’ BYIL,
Vol. 38, 1962..................................................................................................................... 13
8. .................................................................................................................................. G
lanville Williams, ‘Partial Performance of the Entire Contracts’, (1941) 57 Law Quarterly
Review 373. ....................................................................................................................... 20
9. .................................................................................................................................. J
Karl, “The Promotion and Protection of German Investment Abroad”, (1996) 11 ICSID
Rev–FILJ 1, 23. ................................................................................................................... 5
10. ................................................................................................................................ M
Nash Leich, ‘Contemporary Practice of the United States relating to International
Bilateral Investment Treaties,’ (1990) 84 AJIL 895, 898. .................................................. 5
11. ................................................................................................................................ M
arc Blessing, ‘State Arbitrations: Predictably Unpredictable Solutions?’ presentation at
8th IBA International Arbitration Day Geneva, 18 March 2005, 22 J Int’l Arb 435 (2005).
........................................................................................................................................... 27
12. ................................................................................................................................ M
arc Jacob, International Investment Agreements and Human Rights, INEF Research Paper
Series Human Rights, Corporate Responsibility And Sustainable Development 03/2010. 6
[VIII]
13. ................................................................................................................................ R
aeschke Kessler, ‘Corruption in Foreign Investment – Contracts and Dispute Settlement
between Investors, States and Agents’, Journal of World Investment and Trade, Vol. 9,
No.1................................................................................................................................... 28
14. ................................................................................................................................ T
homas Wälde & Kaj Hobér, ‘The First Energy Charter Treaty Arbitral Award,’ Journal
of International Arbitration, Vol. 22, 2005, p. 97. ........................................................... 13
Books
1. .................................................................................................................................. A
. Reinisch, “Legality of Expropriations”, in A. Reinisch (ed. by), Standards of Investment
Protection, Oxfrod, Oxford University Press, 2008 ......................................................... 18
2. .................................................................................................................................. A
lexander Jollies, Consequences of Multi-Tier Arbitration Clauses : Issues of Enforcement,
Reprinted from (2006) 72 Arbitration 329–338 Sweet & Maxwell Limited. ................... 10
3. .................................................................................................................................. B
. H. Weston, ‘Community Regulation of Foreign-Wealth Deprivations: A Tentative
Framework for Inquiry,’ in R. S. Miller and R. J. Stanger (eds. by), Essays on
Expropriation, Ohio State University Press, 1967,........................................................... 17
4. .................................................................................................................................. B
eatson and Friedmann, Good Faith and Fault in Contract Law, Clarendon Press, 1995. 25
5. .................................................................................................................................. H
alsbury’s Law of England, Fourth Edition, Butterworths Lexis Nexis, London 2002. .... 22
6. .................................................................................................................................. I
Shihata, “Applicable Law in International Arbitration: Specific Aspects in the Case of
the Involvement of State Parties”, in The World Bank in a Changing World (1995) vol. II,
595, 601............................................................................................................................... 5
7. .................................................................................................................................. I
an Brownlie, Principles of Public International Law, 5th Edition., Oxford University
Press, 1998 ........................................................................................................................ 18
[IX]
8. .................................................................................................................................. J
.Beatson, Anson’s Law of Contract, 28th edition, Oxford University Press, 2002. .......... 19
9. .................................................................................................................................. J
F O’Connor, Good Faith in International Law, Aldershot, Dartmouth, 1991 ................... 8
10. ................................................................................................................................ J
oernRimke, ‘Force Majeure and Hardship: Application in international trade practice
with specific regard to CISG and the UNDROIT principles of international commercial
contracts’ Pace review on the Convention on Contracts for International sale of goods,
Kluwer, 1999-2000, 197-243. ........................................................................................... 23
11. ................................................................................................................................ P
aul E Comeaux and N. Stephan Kinsella, ‘Protecting Foreign Investment under
International Law: Legal Aspects of Political Risk,’ Dobbs Ferry, New York, Oceana,
1997................................................................................................................................... 27
12. ................................................................................................................................ P
eter Mulchinski, Fedrico Ortino&Christoph Shreuer, The Oxford Handbook of
International Investment Law, Oxford University Press, New York, 2008........................ 6
13. ................................................................................................................................ R
Dolzer& M Stevens, Bilateral Investment Treaties, Martinus Nijhoff Publishers, 1995 .. 5
14. ................................................................................................................................ R
udolf Dolzer, The Impact of International Investmenton Domestic Administrative Law,
International Law and Politics, Vol. 37:953, November 2006. ......................................... 7
ICJ Cases
1. .................................................................................................................................. A
nglo Norwegian Fisheries Case (United Kingdom v. Norway), (1951) ICJ Reports 116 ... 9
2. .................................................................................................................................. C
ase Concerning Electronica SiculaSpA (ELSI), (United States of America v. Italy), (1987)
ICJ Reports 3....................................................................................................................... 9
3. .................................................................................................................................. C
ase Concerning the Temple of PreahVihear (Cambodia v. Thailand) 1962 I.C.J.6 ........... 8
[X]
4. .................................................................................................................................. G
erman Interests in Polish Upper Silesia (Germany v. Poland), PCIJ Rep. Series A. No. 7,
25 May 1926. .................................................................................................................... 16
Miscellaneous
1. OECD, Draft Convention on the Protection of Foreign Property, 1967………………....18
2. UNCTAD, Bilateral Investment Treaties in the mid-1990s (Geneva, 1998) 54-6………..5
3. OECD, Benchmark Definition for Foreign Direct Investment, 1999………………..……4
STATEMENT OF JURISDICTION
Wayne Electronics, the Claimant in the instant case, has invoked the jurisdiction of this Tribunal
flowing from Article XIII of the Treaty Concerning the Encouragement and Reciprocal
Protection of Investment September 4, 1998 which states that:
“Any dispute in connection with this agreement shall be resolved by arbitration as is appropriate
for such disputes, in accordance with the Arbitration Rules prescribed herein.”
Claimant has the honour to submit this Statement of Claim pursuant to Article 18 of the
International Arbitration Rules under Article XIII of the Treaty Concerning the Encouragement
[XI]
and Reciprocal Protection of Investment (September 4, 1998) between the Democratic Republic
of Calona and the Kingdom of Nolania
STATEMENT OF FACTS
I
Democratic Republic of Calona after independence opted to constitute itself as a socialist State.
Faced with economic crisis however, Calona became a free market economy and entered into
several Bilateral Investment Treaties, one with the neighbouring country of Nolania. The new
economic policy attracted, highly profitable but risky destination for their investments, the latter
being very substantial because of the systemic failures in the justice delivery mechanism in
Calonian Supreme Court where cases have a huge backlog.
II
[XII]
In 1998, Calona and Nolania entered into a BIT to encourage investments between two states. In
2008, Calona won the bid to host the 15th edition of the Global Peace Games in 2011. In order to
improve its infrastructure before the Games, the Government of Calona entered into several
contracts with leading global companies. One such contract was with Wayne Electronics which
was one of the most prominent suppliers of generators in the region in addition to other
electronic equipments.
III
The contract was for the supply of 50 high-power generators and 25000 high-power capacitors
for use in the new floodlight system at the main stadium, Champs’ National Stadium where the
Games where to take place. Unfortunately, customized capacitors were not produced by Wayne
Enterprises or their subsidiary, Wayne Calona. The contract contained a clause permitting
Wayne Enterprises to procure goods from another sub-supplier in case of capacitors. The
contract between the two parties came into effect on January 1, 2010. Companies The
Government indicated that the Stadium had to be completed by the December 30, 2010 and
therefore, timely delivery of both parts of the consignment was essential, Stadium by the
authorities.
IV
Wayne decided to procure the individual capacitors required from Star Technologies Pvt. Ltd., a
company incorporated in Nolania. The Communist Party of Calona however alleged that Wayne
Enterprises had given bribes to obtain the contract, a claim that died down due to lack of public
support. Wayne Enterprises completed the first delivery of 50 high-power generators to Calona
on June 30, 2010. Conversely though, two of the generators supplied by Wayne Electronics
proved insufficient, on testing, to handle the load of providing power to a section of the stadium.
After negotiations were held between both the parties and a settlement agreement was signed, it
was stipulated that Wayne Electronics would deliver two new generators as replacements on or
before July 25, 2010. The above replacement was done on July 22, 2010 and the replacements
tested successfully. Also a dispute resolution clause was added in the agreement if further
differences were to crop up.
V
[XIII]
On October 15, Star Technologies intimated Wayne Enterprises, about an expected delay of
around 20 days due to unavoidable manufacturing issues which was informed immediately to the
Ministry of Sports, Calona, However Wayne Enterprises did not receive any reply to this. The
Ministry of Sports, Calona by an email dated November 13, 2010, sought an update on the status
of delivery. To Wayne’s reminder of the earlier intimation regarding a delay in the delivery, the
Ministry of Sports reiterated the essentiality of timely delivery and asked Wayne to find suitable
alternatives. Wayne provided the alternative option of standard capacitors generally used in
floodlights, that which did not adhere to the exact specifications of the contract, but which could
be manufactured by Wayne’s subsidiary in Calona and sent within 15 days. The same was
accepted by the Ministry of Sports as the capacitors would reach by early-December.
VI
Unfortunately, this arrangement proved to be a let-down for Wayne Electronics as on being
tested, there were substantial indications that the capacitors would be unable to handle the load
of the floodlights in the Stadium. The Ministry of Sports, frustrated by the abrupt change of
events, entered into talks to acquire low quality capacitors from a local manufacturer on
December 4, 2010 which were compliant with the requirement of the floodlights at the Champs’
Stadium. Owing to a substantially huge effort, the stadium lighting was finally completed on
December 30, 2010. This came as a jolt for Wayne Enterprises, as the required installation time
indicated to them was much longer. In order to take legal action, Ms. Sersee Lanning, the legal
counsel for the company, began flexing her resources to gain knowledge of all relevant
documents of the transaction
VII
One of Wayne’s subsidiaries, Nakamuka Lighting Solutions (“NLS”), was involved in providing
customized light bulbs to the Government of Calona, for the construction of the Champs’
National Stadium. During the course of proceedings, on 15th November, 2010, between the
Government and NLS, the former permitted NLS to deliver late, as it did not expect the delivery
of the capacitors by Wayne Enterprises on the expected date of 28th November, 2010. However
the government stated in reply that no such communication was made to Wayne Enterprises.
Subsequently the Government voiced their displeasure with regards to Wayne’s performance and
[XIV]
stated that the contract was terminated with immediate effect because of failure to deliver the
capacitors on time.
VIII
On 20th January, 2011, owing to the inability of Wayne to deliver the capacitors and linking it to
incompetence, CCP raised the issue of bribery again. Under public demands the Special
Prosecutor appointed by Calona’s Special Bureau of Investigation (“SBI”), filed criminal charges
against Wayne Enterprises and its subsidiaries, under the Calonian Prevention of Corruption Act
(“CPCA”). The Special Prosecutor filed an application seeking an order for the freezing of
Wayne Calona’s properties under the CPCA. The lower court granted the application, and the
SBI immediately seized all assets of Wayne Calona, including their factory and bank accounts,
valued approximately at $22 million and appeal against the order was dismissed by both Courts
of Appeal and the Supreme Court. Wayne Calona on 25th January, 2011, issued a statement
condemning the actions of the Government. Owing to the seizure of its assets in Calona and the
refusal of the Government to pay the purchase price as per the contract, Wayne Enterprises has
approached this Arbitral Tribunal, validly constituted under the BIT.
QUESTIONS PRESENTED
I.
WHETHER THE TRIBUNAL HAS JURISDICTION OVER ALL THE CLAIMS BROUGHT BEFORE
IT?
II.
WHETHER THE ACTIONS OF THE GOVERNMENT OF CALONA INCLUDING THE SEIZURE
OF WAYNE CALONA’S ASSETS, WERE A VIOLATION OF THE CALONA-NOLANIA BIT?
III.
WHETHER THE RESPONDENT IS ENTITLED TO AVOID THE CONTRACT?
[XV]
SUMMARY OF PLEADINGS
I. THE TRIBUNAL HAS JURISDICTION OVER ALL THE CLAIMS BROUGHT BEFORE IT.
The Tribunal has complete jurisdiction over all the claims brought before it. There is an
investment on the part of the Claimant as under the BIT as it is foreign in origin and has the
characteristics of an “investment” as under the BIT and established arbitral practice.
An exclusive dispute resolution clause in the contract does not affect the Tribunal’s jurisdiction,
as it cannot operate as a bar to the application of a BIT. The Tribunal’s jurisdiction cannot be
subordinated by a clause in the contract. Furthermore, a Tribunal may consider issues based on
contractual performance to determine an allegation of whether there has been a violation of a
BIT.
[XVI]
Contractual breaches of the Respondent State give rise to a violation the BIT. There is a prima
facie case of BIT violation, which is sufficient for establishing the Tribunal’s jurisdiction. The
Respondent State failed to meet the standards of National Treatment as it accorded to its local
company differential treatment from that which it accorded to the Claimant. The acts also violate
the principles of fair and equitable treatment. In this regard, the government of Calona did not
maintain stability in its legal order. Although there were allegations of corruption from the
beginning the Claimant had the support of the Government in the beginning. However with
public support shifting the Government used unfair expropriation on grounds of criminal charges
as a tool. The Respondent State did not comply with contractual obligations and the reasons
adduced for the Government’s failure to pay show that they acted in sovereign capacity and not
merely as an ordinary contracting party. The Government did not observe due process in its
actions as there was no fair and effective system of justice provided to the foreign investor. The
Respondent State also did not adhere to the principle of good faith based on local favouritism
and a lack of honesty and loyalty. The impugned acts violate the requirement of full protection
and security because the Government failed to provide adequate guarantee for all losses suffered
by the investor.
Article X of the BIT allows contractual breaches to be treated as treaty breaches. It therefore has
the effect of an umbrella clause which makes it a breach of treaty, whenever there is a noncompliance of contractual obligations by any of the parties.
The jurisdiction of the Tribunal does not get affected even if there is a Multi-Tier Arbitration
Clause between the parties. Such a clause cannot restrict the jurisdiction of a Tribunal constituted
under the BIT between the two nations.
The Tribunal has jurisdiction even if the contract is tainted with corruption because even if
expropriation by the Government is justified on the grounds of corruption on the part of the
Claimant, such an allegation does not have the effect of precluding the jurisdiction of this
Tribunal.
II.
THE ACTIONS OF THE GOVERNMENT OF CALONA INCLUDING THE SEIZURE OF WAYNE
CALONA’S ASSETS, WERE A VIOLATION OF THE CALONA-NOLANIA BIT.
[XVII]
The Claimant contends that the actions of the Government of Calona violate the BIT. This is
because the actions of the Government amount to expropriation which is illegal under the BIT.
There has been an expropriation of Wayne’s assets including the factory, bank accounts. Further,
the avoidance of the contract has led to expropriation of the contractual rights since the State has
acted as a sovereign and expropriated their assets on charges of corruption. A contract tainted by
corruption can be declared to be invalid. Hence, this measure has been taken by the Government
mala fide in order to avoid the contract and make no payments under it.
The expropriation is an indirect expropriation because the measures were so severe in light of
their purpose that they cannot be reasonably viewed as having been adopted and applied in good
faith. This is due to the reason that the measure is not aimed at protecting bona fide public
welfare because the government has exercised their right of seizure for mostly out of political
pressure. Moreover, the intensity of the measure has led to substantial deprivation of Wayne
Calona’s property. since, there is a systematic failure of justice in Calona, by the time the matter
would be resolved, they would suffer substantial economic loss. The seizure of assets and
freezing of properties of Wayne Calona resulted in a devastating economic effectdepriving it of
approximately $22 million. Moreover, their contractual rights were expropriated causing them a
further loss of $2 million. There must also be proportionality between the means employed and
the aim sought to be realised by any measure depriving the person of his possession. Therefore,
the measure is not proportional. Furthermore, they are discriminatory measures. Due to the fact
that the local manufacturer got benefitted, when the contract was illegally avoided by the
Government and also because the expropriation was done for purely extraneous political reasons,
the measure is arbitrary and discriminatory.
When expropriation is in breach of contractual or treaty obligations, it has to be considered
illegal. In the present case, Article VI of the BIT states that investments made by nationals of one
Contracting Party shall not be expropriated by the other Contracting Party, either directly or
indirectly, except in such circumstances where the expropriation would be legal under
international law. Under customary international law, for an expropriation to be legal, it has to be
for a public purpose, non-discriminatory, compensation must be granted, and due process must
be observed. Public purpose means general welfare, public utility, public good or anything that is
of vital public interest. Even if a regulation is enacted for a public purpose, this prong of the
[XVIII]
expropriation test does not trump the requirement that compensation be rendered to foreign
investors where government regulation has damaged the investment. Due process has not been
observed while freezing the assets as an interim measure, as they would evidently remain frozen
for a very long time because of the huge backlog in Calonian Courts. Also, Wayne Calona’s
property was seized immediately after the order passed by the lower court without any serving of
notice. Therefore, in the present instance, none of the requirements have been fulfilled so the
expropriation of the assets and property was illegal under the BIT.
III. THE RESPONDENT IS NOT ENTITLED TO AVOID THE CONTRACT.
Claimant’s performance of contract to provide alternatives was in pursuance of varied terms of
contract mutually agreed upon by the parties and the same was substantially, if not precisely,
performed by the Claimant. The delay in the supply of the original consignment was due the
unavoidable manufacturing issues which were beyond the control of either of the parties and the
risk of such an event was not assumed by the parties at the time of entering into contract.
Moreover, the Respondent agreed to the late delivery of supply of goods by remaining silent.
The Respondent cannot avoid the contract as a whole as the same was divided into two
consignments of which the first consignment was delivered without any issues arising out of it.
The Respondent cannot claim the contract as being void because of been procured through
bribery since State in general must meet its obligations as a contractual party despite the corrupt
activities of its officials. The Respondent’s argument for making the contract void on the ground
of corruption may impede, with serious effect, the treaty signed between both the countries as it
contradicts the host state’s obligation of protecting investments. For the above reasons, the
respondent, the Government of Calona, cannot avoid the contract and hence make the payment
as required.
[XIX]
[XX]
ARGUMENTS ADVANCED
I.
THE TRIBUNAL HAS JURISDICTION OVER ALL THE CLAIMS BROUGHT BEFORE IT.
Claimant contends that the Tribunal has jurisdiction over all the claims brought before it as there
is an investment on the part of the Claimant and the tribunal’s jurisdiction is not affected by the
exclusive dispute resolution clause in the contract. Further, contractual breaches lead to violation
of the BIT. Even if, there is a Multi-Tier Arbitration Clause in the contract, the Tribunal’s
jurisdiction remains unaffected. Finally, the Tribunal has jurisdiction even if the contract is
tainted with corruption.
A. Claimant’s undertaking amounts to an investment.
Claimant asserts that there has been an investment on its part under the definition contained in
the Treaty Concerning the Encouragement and Reciprocal Protection of Investment (“BIT”). 1
The investment in the Respondent State by the Claimant is a foreign investment and it has the
characteristics of an investment.
1. The investment by the Claimant is a foreign investment in the Respondent State.
The Claimant’s investment is a foreign investment in the Respondent State as it is controlled by a
foreign investor (the Claimant), incorporated in Nolania.2 There is no additional requirement of
foreignness for the investment in terms of its origin.3 Hence the undertaking by the Claimant in
the Respondent State is a foreign undertaking. Direct investors may have direct investment
enterprises which have subsidiaries, associates and branches in one country or in several
countries.4 Hence, the Claimant which has a subsidiary, Wayne Calona, is the investor.
1
Problem File, Annexure 1.
2
Problem File, 7.
3
Tradex v. Albania, 5 ICSID Reports 70, Award, 29 April 1999, ¶¶105, 108-111.
4
OECD, Benchmark Definition for Foreign Direct Investment, 1999.
[1]
2. The undertaking has the characteristics of an investment.
The undertaking of the Claimant has the characteristics of an investment as required under the
BIT.5 It involved the commitment of capital and resources as the Claimant did commit a
substantial capital for purchasing products from Star Technologies and allocate resources for the
same to deliver the capacitors to the Government for the construction of the stadium. 6 There was
an expectation of gain and profit in the transaction as well as the assumption of risk in case of
failing to deliver the goods. Also, applying the Salini7 test to determine whether an undertaking
is an investment, there was certain duration of the project, which was till the Games and a
contribution to the host state’s development, as the Games were to go a long way in enhancing
the image of the Respondent state.8
Even if the particular undertaking of the Claimant does not meet the “traditional” notion of
investment, it will nevertheless fall within this category using new, wider interpretation as has
been illustrated by the Fedax 9and CSOB10 cases. The Tribunals held that an investment is often
a complex operation composed of various inter-related transactions. Each element of these,
standing alone, might not qualify to be an investment. However, if the particular transaction
forms an integral part of an overall operation when the facts are considered in totality, it qualifies
as an investment.11 Using this logic, in the present case the undertaking of the Claimant when
looked at in toto does qualify as an investment. In this case, the contract and the investment are
so intrinsically linked, that the contractual performance in procuring and delivering the
5
Problem File, Annexure 1.
6
Problem File, ¶¶11, 12.
Salini Construttori S.p.A. and ItalstradeS.p.A. v. Kingdom of Morocco, 42 I.L.M. 609 (2003) (“Salini”), Decision
on Jurisdiction, 23 July 2003.
7
8
Problem File, ¶10.
Fedax N.V. (Netherlands Antilles) v. Republic of Venezuela (“Fedax”), 37 I.L.M. (1998) 1378, Decision on
Jurisdiction, 11 July 1997.
9
Ceskoslovenska Obchodni Banka, S.A. v.The Slovak Republic (“CSOB”), 14 ICSID Review- FILJ (1999),
Decision on Jurisdiction, 24 May 1999.
10
11
Id at ¶ 72; Enron v. Argentina, 11 ICSID Reports 273, 14 January 2004, ¶ 70.
[2]
capacitors, when considered together, makes the contract an investment. Hence there is an
investment on part of the Claimant.
B. An exclusive dispute resolution clause in the contract does not affect the Tribunal’s
jurisdiction.
An exclusive dispute resolution clause in a contract cannot operate as a bar to the application of
the BIT and the Tribunal may consider contractual claims while determining a violation of the
BIT.
1. The exclusive dispute resolution clause does not bar the Tribunal’s jurisdiction under
the BIT.
Contractual dispute resolution clauses do not affect the jurisdiction of Tribunals constituted for
violations of the BIT.12 A State cannot rely on an exclusive jurisdictional clause in a contract to
avoid the characterization of its conduct as internationally unlawful under a treaty.13 Therefore
the forum selection clause of the Contract between the Claimant and the Respondent State 14 does
not affect this Tribunal’s jurisdiction to hear matters which relate to the BIT. In the event of
prima facie overlap of the jurisdiction of the two forums, (contract and the BIT) the jurisdiction
of the tribunal constituted under the BIT must prevail, as its jurisdiction is wider than that of the
jurisdiction of the forum under the contract.15
2. The Tribunal may consider contractual claims to determine a violation of the BIT.
Claimant maintains that the Tribunal may consider contractual issues in determining claims
based on a BIT despite the fact that contract claims and treaty claims have different legal bases.
A particular investment dispute may at the same time involve issues of the interpretation and
12
Azurix Corp. v. Argentine Republic, 43 I.L.M. 262 (2004) (“Azurix”), Decision on Jurisdiction, December 8, 2003.
13
Compania de Aguas del Aconquija S.A. and CompagnieGenerale des Eaux v. Argentine Republic, 41 I.L.M. 1135
(2002), ¶¶95,96,101,103 (“Compania”), Decision on Annulment, 3 July 2002.
14
15
Problem File, Annexure 7, Clause 4.
Greek Government v. VulkanWerke, (1925) 3 I.L.R. 402.
[3]
application of BIT standards as well as questions of a contract.16 It is proper and often necessary
for a Tribunal to interpret a contract and consider issues of contractual performance in
accordance to the relevant law governing the contract. This can be in order to determine whether
there has been a violation of international law under the BIT, and its jurisdiction allows it to
resolve an underlying contractual issue for the same.17
C. Contractual breaches of the Respondent State give rise to a violation of the BIT.
Claimant argues that the violation of contractual obligations by the Respondent State lead to a
violation of the BIT. The Claimant maintains that the Tribunal in this case needs only to be
satisfied that if the facts or the contentions alleged by the Claimant are ultimately proven true,
they would be capable of constituting a violation of the BIT. Further, Article X of the BIT allows
contractual breaches to be treated as treaty breaches. In the present case, the governmental acts
violate the provisions of the BIT regarding national treatment, fair and equitable treatment and
full protection and security.
1. There is a prima facie case of a BIT violation for the purposes of establishing
jurisdiction.
The prima facie test applied in UPS v. Canada18 and the assumption relied upon in Methanex v.
United States19 shoes that, for the limited purpose of determining jurisdiction, the Claimants’
factual contentions are prima facie deemed to be correct. The prima facie test has also been
applied in a number of ICSID cases, including Maffezini,20 CMS,21 Azurix,22 SGS v. Pakistan23
16
Compania, Supra n.13,¶¶ 60,72,76.
17
Bayindir v. Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction, 14 November 2005, at ¶ 270.
18
UPS v. Canada, UNCITRAL Arbitration Proceedings (NAFTA) Award, 24 May 2007, ¶ 83.
19
Methanex v. United States, 44 I.L.M. 1345 (2002).
20
Emilio Agustín Maffezini v. Kingdom of Spain, 16 ICSID Rev.—FILJ 212 (2001), Decision on Objections to
Jurisdiction, January 25, 2000.
21
CMS Gas Transmission Company v. Argentine Republic, 42 I.L.M. 788 (2003), Decision on Jurisdiction, July 17,
2003.
22
Supra n.12.
[4]
and Salini v. Morocco.24 Hence the Tribunal should prima facie accept the Claimant’s
contentions that the actions of the Respondent State lead to a violation of the BIT.
2. Article X of the BIT allows contractual breaches to be treated as treaty breaches.
Claimant maintains that Article X of the BIT which is an umbrella clause, makes contractual
breaches, breaches of the BIT. Article X is a provision that guarantees the observation of
obligations assumed by the host state vis-à-vis the investor. This provision must be interpreted
broadly to mean that the implication of such a clause is to convert a breach of contract to a
breach of treaty. Such a broad interpretation has been supported by Joachim Karl, 25 Ibrahim
Shihata,26 F.A. Mann,27 M. Nash Leich,28 Dolzer and Stevens,29 Antonio Parra30 and an
UNCTAD publication of 1998 on BIT practice.31 Such an interpretation is in consonance with
Article 31 of the Vienna Convention on the Law of Treaties, which requires an interpretation in
good faith of the particular clause of the treaty. The object and purpose rule in the Article also
supports such an interpretation.32 Here an interpretation that interprets the clause in exclusive
favour of the investors is justified. Any other interpretation would deprive Article X of practical
23
SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Rev. FILJ 301 (2003),
Decision on Objections to Jurisdiction, August 6, 2003.
24
Supra n.8.
25
J Karl, “The Promotion and Protection of German Investment Abroad”, (1996) 11 ICSID Rev–FILJ 1, 23.
I Shihata, “Applicable Law in International Arbitration: Specific Aspects in the Case of the Involvement of State
Parties”, in The World Bank in a Changing World (1995) vol. II, 595, 601.
26
27
FA Mann, ‘British Treaties for the Promotion and Protection of Investments,’ (1981) 52 BYIL 241, 245-6.
M Nash Leich, ‘Contemporary Practice of the United States relating to International Bilateral Investment
Treaties,’ (1990) 84 AJIL 895, 898.
28
29
R Dolzer& M Stevens, Bilateral Investment Treaties, Martinus Nijhoff Publishers, 1995, p. 81-2.
A Parra, ‘Provisions on the Settlement of Investment Disputes in Modern Investment Laws, Bilateral Investment
Treaties and Multilateral Instruments on Investment’, (1997) 12 ICSID Rev–FILJ 287.
30
31
UNCTAD, Bilateral Investment Treaties in the mid-1990s (Geneva, 1998) 54-6.
32
SGS v. Philippines, 8 ICSID Reports (2005) 518, Decision on Jurisdiction, 29 January 2004.
[5]
content and reference has necessarily to be made to the principle of effectiveness in interpreting
BIT provisions.33
3. The impugned acts violate the National Treatment requirement.
National treatment refers to the post-entry treatment of foreign investors.34The relative standard
of national treatment ensures that foreign investors are not treated less favourably35 than
domestic investors36 so that they are not singled out.37 Determination of the violation of this
standard is done in three stages, (1) identification of the relevant subjects for comparison; (2)
consideration of the relative treatment each comparator receives and (3) consideration of whether
any factors exist that justify any deviation in the treatment. 38 The comparison should be made
between the claimant or its investment and any other domestic investors or investments operating
in the same business or economic sector.39
The relevant subjects for comparison are Wayne Calona and the local manufacturer. 40The
treatment that Wayne Calona received by the government shows that the installation date given
to them was 28th November 2010, whereas they requested for an extension till 18th December
2010. The Government however treated the local manufacturer differently by allowing them an
installation date of 18th December 2010. This was much more than that given to Wayne
Calona.41No factors justified such a difference in treatment because they did not have a better
manufacturing quality.42 Therefore, the local manufacturer was treated more favourably.
33
Feldman v. Mexico, 18 ICSID Review-FILJ (2003) 488, Award, 16 December 2002, ¶171.
34
Problem File, Annexure 1, Article IV; Peter Mulchinski, Fedrico Ortino&Christoph Shreuer, The Oxford
Handbook of International Investment Law, Oxford University Press, New York, 2008.
35
UPS v. Canada, UNCITRAL Arbitration Proceedings (NAFTA) Award , 24 May 2007, ¶ 83.
36
Marc Jacob, International Investment Agreements and Human Rights, INEF Research Paper Series Human Rights,
Corporate Responsibility And Sustainable Development 03/2010.
37
ADC Affiliate Ltd. v. Hungary, ICSID (W. Bank) Case No.ARB/03/16, Award, October 2, 2006.
38
Pope & Talbot, Inc v. Canada, 40 I.L.M. 258 (2000), ¶¶. 96-98.
39
Id.
40
Problem File, ¶19.
41
Problem File, ¶20.
[6]
Moreover there was a discriminatory intent43 of the Government because the Government treated
Wayne Calona less favourably than the local manufacturer in like circumstances44 as the latter
was given a substantially greater installation time.45
4. The impugned acts violate the requirement for fair and equitable treatment.
The requirement of fair and equitable treatment46 has been defined as the good faith principle
under which foreign investors expect the host State to act in a consistent manner without
arbitrarily revoking any pre-existing decisions.47 Some of the contexts in which the standard has
been applied concern compliance with stability, contractual obligations, due process and action
in good faith.48
a. The Government of Calona did not maintain stability in the legal order.
Stability of the legal and business framework in the State party is an essential element of fair and
equitable treatment.49 In the present matter, at the time of the signing of the BIT, the investors
had the support of the Government, even though there were allegations of corruption right from
the beginning.50 Now, with the public support shifting towards the Communist Party of Calona,
the Government thought is wise and tactical to expropriate on the pretext of seizure for criminal
charges,51 thus disturbing the stability in their legal stand and policy and disappointing the
42
Problem File, ¶19.
43
Seimens v. Argentina, ICSID Case No. ARB/02/8, Decision on Jurisdiction, August 3, 2004; Eureko B.V. v.
Republic of Poland, 12 ICSID Reports 335, 19 August 2005.
44
Supra n.31.
45
Problem File, ¶20.
46
Problem File, Annexure 1, Article V.
47
TECMED S.A. v. Mexico, (2003) 43 I.L.M. 133, ¶ 122
48
Rudolf Dolzer, The Impact of International Investmenton Domestic Administrative Law, International Law and
Politics, Vol. 37:953, November 2006.
49
LG & E Energy Corp and ors v. Argentina, (2007) 46 I.L.M. 3.
50
Problem File, ¶26.
51
Problem File, ¶25.
[7]
legitimate investor expectation.52 Where the investor has relied on the representations of the
government and taken an action based on that, the legitimate investor expectations play a crucial
factor in determining whether violation of the fair and equitable standard has taken place. 53 State
responsibility could attach where the investor has placed detrimental reliance upon legitimate
expectation.54 The statements by the Finance Ministers of both States during the signing of the
BIT about ensuring easier flow of trade;55 the statement by the Prime Minister Neer
Venkatstation about attracting foreign investment56 were relied upon by Wayne Enterprises who
invested in Calona with expectations of profit, but was let down by these acts of the Government.
b. The Government of Calona did not comply with the contractual obligations.
The obligation to observe contractual obligations towards the investor is covered under this
standard because pacta sunt servanda is an obvious application of the stability standard.57 The
reasons adduced for the Government’s refusal to make payment under the contract indicate that
the Government did not act puissance publique, i.e., the activity were not within that of an
ordinary contracting party.58 Therefore, the Respondent’s failure to perform its contractual
obligations leads to violation of this standard.59
c. The Government did not observe due process in its actions.
The due process requirement imposes an obligation on States to maintain and make available to
aliens a fair and effective system of justice60 including reasonable advance notice and a fair
52
53
GAMI v. Mexico, 44 I.L.M. 545 (2005), Award, 16 December 2004, ¶93.
MTD Equity SdnBhd and MTD Chile SA v. Republic of Chile, 44 I.L.M. 91 (2005), Final Award, 25 May 2004.
54
Case Concerning the Temple of PreahVihear (Cambodia v. Thailand) 1962 I.C.J.6 (I.C.J Report (Merits); JF
O’Connor, Good Faith in International Law, Aldershot, Dartmouth, 1991, at 92-3.
55
Problem File, ¶4.
56
Problem File, ¶5.
57
Noble Ventures v. Romania, ICSID Case No.ARB/01/11, Award, 12 October 2005, ¶ 182.
58
Impreglio v. Pakistan, 12 ICSID Reports 245, Decision on Jurisdiction, 22 April 2005.
59
Infra, Arguments Advanced, II.
60
Loewen v. United States, 42 I.L.M. 811 (2003), Award, 26 June 2003.
[8]
hearing before an impartial adjudicator.61 This principle can be violated if the conduct of the host
state is outrageous and shocks the legal conscience,62 or if it is grossly unjust.63In the present
case, the independent report by a reputed consultancy firm estimated that a criminal case in
Calonian courts would take between 6 to 8 years to conclude and would involve another 3 to 4
years for appeals.64 Therefore, since the justice system available does not ensure effective
remedy, the due process requirement has been violated.
d. The Government did not adhere to the principle of good faith.
The principle of good faith requires that every right be exercised with honesty and loyalty. 65 Any
fictitious exercise of right, based on local favouritism,66 for the purpose of evading either a rule
of law or a contractual obligation will constitute an abuse of the right prohibited by law. 67 First,
the Government had given additional installation time to the local manufacturer. 68 Next, the
Government of Calona had made a sudden statement that they would not be making the
payment.69 Then the seizure occurred after the public support shifted towards the Communist
Party of Calona.70 Hence, all these facts go on to show that the Government had not acted bona
fide as is indicated by their sudden change in their policy.
61
Supra n.35; British Petroleum v. Libya, (1979) 53 ILR 297.
62
Neer v. Mexico, 4 R.I.A.A 60, (1926).
63
Waste Mgmt., Inc. v. Mexico, 43 I.L.M. 967 (2004) ¶¶ 171, 175.
64
Problem File, ¶3.
65
Genin v. Estonia, 17 ICSID Review FILJ (2002) 395, Award, 25 June 2001.
66
Supra, n.17.
67
Anglo Norwegian Fisheries Case (United Kingdom v. Norway), (1951) ICJ Reports 116.
68
Problem File, ¶19.
69
Problem File, ¶22.
70
Problem File, ¶24.
[9]
5. The impugned acts violate the requirement for full protection and security.
Full protection and security71 means that the government would provide the investor with a
guarantee against all losses suffered due to the destruction of the investment for whatever reason
and without any need to establish who the person that caused the damage was. 72 It also includes
legal security which entails the duty of the host state to grant the investor access to judicial
system.73 Denial of effective means of asserting claims and enforcing rights in the Respondent
State violates the requirement of full protection and security.74 In the present case, however, the
judicial system is such that it does not ensure the investor effective remedy.75
D. The jurisdiction of the Tribunal does not get affected even if there is a multi-tier
arbitration clause.
Even if clause 4 in the Agreement signed on July 6, 2010 between Wayne Electronics and
Ministry of Sports, Government of Calona (“contract”)76, is a multi-tier arbitration clause, the
jurisdiction of this Tribunal does not get affected with respect to the claims involving the
contract. Failure to comply with pre-arbitral stages does not exclude the Tribunal’s jurisdiction.
By the arbitration agreement, the parties mutually granted this authority to a tribunal and
excluded state courts. To argue that this choice is contingent on certain pre-arbitral steps would
imply that failure to take them would allow a party to withdraw from its commitment to arbitrate,
which cannot be the case.77 It has been also held that ICSID jurisdiction would not be
subordinated by any requirement of “prior exhaustion of local negotiations”.78
71
Case Concerning Electronica Sicula SpA (ELSI), (United States of America v. Italy), (1987) ICJ Reports 3
72
Asian Agricultural Products Ltd. v. Republic of Sri Lanka, 30 I.L.M. 577 (1991).
73
Lauder v. Czech Republic, 9 ICSID Report 66, Award, 3 September 2001, ¶314.
74
White Industries Australia Limited v. Republic of India, Final Award, available
http://ilcurry.files.wordpress.com/2012/02/white-industries-award-ilcurry.pdf, Last Visited on 14 March, 2012.
75
76
at
Problem File, ¶3.
Problem File, Annexure 7, Clause 4
77
Alexander Jollies, Consequences of Multi-Tier Arbitration Clauses : Issues of Enforcement, Reprinted from
(2006) 72 Arbitration 329–338 Sweet & Maxwell Limited.
78
AES Corp. v. Argentina, 12 ICSID Reports 312, Decision on Jurisdiction, 26 April 2005.
[10]
E. The Tribunal has jurisdiction even if the contract is tainted with corruption.
A contract tainted by corruption remains a commercial contract and is therefore referable to
arbitration.79 Previous tribunals have retained jurisdiction even when the contract had questions
of bribery.80 This is also the arbitral practice which deals with contractual cases as commercial
disputes even if corruption is involved. In this case the Claimant was charged with corruption
under the Calonian Prevention of Corruption Act by the Special Bureau of Investigation on
grounds of incompetence in delivering the capacitors on time, as under the contract.81 However,
as has been proved, the Tribunal’s jurisdiction does not get affected even when the contract is
tainted with corruption.82
79
80
Supra n.15, ¶¶39-40.
World Duty Free Company Limited v. the Republic of Kenya, ICSID Case No. ARB/00/7, Award, 4 October 2006.
81
Problem File, ¶24.
82
Westacre Investments Inc v. Jugoimport SPDR Holding Co Ltd, [1999] APP.L.R. 05/12.
[11]
II.
THE ACTIONS OF THE GOVERNMENT OF CALONA INCLUDING THE
SEIZURE OF
WAYNE
CALONA’S ASSETS, WERE A VIOLATION OF THE BIT.
The Claimant contends that the actions of the Government of Calona violate the BIT. This is
because the actions of the Government amount to expropriation and the expropriation is illegal
under the BIT.
A. The actions of the Government of Calona amount to expropriation.
The Claimant asserts that the acts of the Government of Calona amount to expropriation since
Wayne’s assets including the factory, bank accounts were expropriated. Further, the avoidance of
the contract has led to expropriation of the contractual rights leading to indirect expropriation.
1. There has been expropriation of Wayne Calona’s assets.
Expropriation can be of tangible property such as real estate or factory, 83 or of intangible
property such as bank accounts.84 Thus, in the present case, the seizure of the assets of Wayne
Calona, including their factory and bank accounts, valued approximately $22 million, by
Calona’s Special Bureau of Investigation, resulted in expropriation.85 Thus, Calona has breached
its guarantee to its investors.86
2. Avoidance of contract can lead to expropriation of contractual rights.
If the State has acted in its sovereign capacity exercising its governmental or public power or
authority,87 intangible property including contractual rights88 can be expropriated.89 If a
83
Phillips Petroleum Co. Iran v. Iran, 21 Iran- U.S. C.T.R. 79, 29 June 1989; Mobil Oil v. Iran, 16 Iran- U.S. C.T.R.
3, July 14, I987; Amoco Int’l Finance Corp v. Iran,16 Iran - U.S. C.T.R. 3, 24, 14 July 1987.
84
American Bell Int’l, Inc. v. Iran, 12 Iran- U.S. C.T.R. 170, 19 September 1986.
85
Problem File, ¶25.
86
Problem File, ¶26.
87
Shufedlt Claim (U.S. v. Guatemala), (1930) 2 R.I.A.A. 1079; Jalapa Jailroad and power Co, American- Mexican
Claims Commission, 1948, 8 Whiteman, Digest of International Law 908 (1976).
[12]
Government agrees to pay money for commodities and fails to make payment, then the purchase
price of the commodities would have been expropriated.90 Thus, serious underpayment91 or
failure to pay certain sums due92 could be regarded as a measure equivalent to expropriation. In
the present matter, due to their disappointment with Wayne Enterprises’ performance, the
Government stated that they would not be making any payment under the contract. 93 This refusal
to make payments under the contract amounts to expropriation.
3. The investor’s property has been indirectly expropriated.
Expropriation can be open, deliberate and acknowledged transfer of title in favour of the host
State, and also covert, incidental or indirect interference with the use of property which has the
effect of depriving the owner of the expected economic benefit.94 In the present BIT, indirect or
direct expropriation through measures equivalent to expropriation is prohibited.95 The acts of the
Respondent amount to indirect expropriation because they fulfil the requirements under Article
VI of the BIT as well as other elements of indirect expropriation.96 Thus, the acts amount to
expropriation because measures are ‘so severe in light of their purpose that they cannot be
reasonably viewed as having been adopted and applied in good faith and they are discriminatory
measures.
88
Libyan American Oil Company (LIAMCO) v. The Libyan Arab Republic, (1982) 62 I.L.R. 14; Biloune v. Ghana,
(1993) 95 I.L.R. 183, 207; Siemens A.G. v. Argentina, ICSID Case No.ARB/02/08, Award, 6 February 2007, ¶267.
89
G. C. Christie, ‘What Constitute a Taking of Property under International Law?,’ BYIL, Vol. 38, 1962, p. 338
90
Singer Sewing Machine Company Arbitration (United States v. Turkey), (1929) 4 R.I.A.A. 47.
Thomas Wälde & Kaj Hobér, ‘The First Energy Charter Treaty Arbitral Award,’ Journal of International
Arbitration, Vol. 22, 2005, p. 97.
91
92
Supra n. 63, ¶170.
93
Problem File, ¶22.
94
Metalclad v. United Mexican States, 40 I.L.M. 36 (2001).
95
Problem File, Annexure 1.
96
Supra, n.34.
[13]
a. The measures are so severe in light of their purpose that they cannot be reasonably
viewed as having been adopted and applied in good faith.
The seizure of Wayne’s assets was ‘severe in light of their purpose that they cannot be
reasonably viewed as having been adopted and applied in good faith’97 because the intensity of
the measure resulted in substantial deprivation; the seizure was a disproportional measure as
deprivation of property was permanent; and that the measure was not intended for a bona fide
public purpose.
i.
The intensity of the measure has resulted in substantial deprivation.
The intensity requirement has been described as the degree or extent98 to which the effect is
reflected by the measures being equivalent to that of an expropriation.99 Thus, the effect of an
indirect expropriation should be severe enough to result in substantial deprivation100 of property
rights to render them useless101 or destruction102 of the commercial value of the investment and
effective neutralisation of enjoyment of property.103
The properties of Wayne Calona were frozen and their assets were seized, 104 hence, financially
Wayne Calona was rendered useless, and practically they were left dysfunctional without their
assets. The seizure of assets and freezing of properties of Wayne Calona resulted in a devastating
economic effect depriving it of approximately $22 million.105 Moreover, their contractual rights
were expropriated causing them a further loss of $2 million.106 Hence, by the time this case is
97
Problem File, Annexure 1, Art. VI.
98
Tippetts v. TAMS-AFFA Consulting Engineers of Iran, 6 Iran-U.S. C.T.R. 219, 29 June 1984.
99
Supra n. 58.
100
Supra n. 38, ¶102.
101
Supra n.47.
102
Supra n.12, ¶322.
103
Supra n.21,¶259.
104
Problem File, ¶¶25,26.
105
Problem File, ¶25.
106
Problem File, Annexure 2,¶1.
[14]
resolved, Wayne Calona would lose millions107 keeping in mind the huge backlog in the
Calonian Courts.108
ii.
The seizure was a disproportional measure as deprivation of property
was permanent.
Expropriation occurs where there is permanent economic deprivation.109 However, even
temporary measures for e.g. the seizure of two hotels for one year,110 suspension of an export
license for four months111 was found to be a permanent measure, thus amounting to
expropriation. Likewise, in the present case, even if the property is returned within a matter of
time, it would still amount to expropriation due to the substantial loss during the period. In any
case, the justice delivery system is slow with backlogs so it is uncertain as to how long the
proceedings would be pending before the court.112
There must also be proportionality between the means employed and the aim sought to be
realised by any measure depriving the person of his possession.113 The freezing of properties and
seizing of assets was meant to be a temporary measure as it was passed as an interim order by the
lower court.114 But, in light of the long-drawn legal proceedings in Calona,115 the seizure may not
continue to remain temporary. Hence it would be a disproportional measure.
107
Problem File, ¶26.
108
Problem File, ¶3.
109
Supra n. 47; S.D. Myers, Inc. v. Canada, 40 I.L.M. 1408 (2000); Phelps Dodge Corp. and Overseas Private
Investment Corp. and Iran, 10 Iran U.S. C.T.R. 157, 19 March 1986; Hauer v. Land Rheinland-Pfalz, [1979] E.C.R
2749 ,Case no. 44/79, 13 December 1979.
110
Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No.ARB(AF)/98/4, Award, 8 December 2000.
111
Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/99/6,
Award, 12 April 2002.
112
Problem File, ¶3.
113
Press Compania Naviera S.A. & Others v. Belgium, (1997) 21 E.H.R.R. 301.
114
Problem File, ¶25.
115
Problem File, ¶3.
[15]
iii.
The measure was not intended for a bona fide public purpose.
Although the effect of the governmental action rather than its purpose or intent is the major
factor in determining whether or not expropriation has occurred,116 the measures must still be for
a bona fide public purpose.117 Public purpose means general welfare, public utility, public good
or anything that is of vital public interest.118 In cases where measures cannot be justified on the
grounds of genuine public interest,119 the arbitrary nature of the act would be evident.120
It is thus submitted, that the measure in the instant case cannot be justified on the grounds of
bona fide public purpose because the State has purposely expropriated the property on the
ground of corruption, even though previously they had not paid any heed to the allegations of
bribery.121 Now, with the public support122 on the side of the Communist Party of Calona, the
Government has sought to expropriate property. Levelling charges of corruption was also to
further avoid paying the sum agreed upon by the contract, 123 thereby indirectly benefitting the
government.
b. The measure of the government was discriminatory.
The intentionally124 discriminatory nature of the State measures aimed at excluding foreign
control from the host state market would result in establishing expropriation.125 Thus, the
expropriation, having been made for purely extraneous political reasons was arbitrary and
116
German Interests in Polish Upper Silesia (Germany v. Poland), PCIJ Rep. Series A. No. 7, 25 May 1926.
117
Goetz and Others v. Republic of Burundi, ICSID Case No. ARB/95/3, Decision on Liability, 2 September 1998.
118
Norwegian Shipowners' Claims (Norway v. United States), (1992) 1 R.I.A.A. 307.
119
Supra,n.117 ¶126.
120
F. V. Garcia Amador, Special Rapporteur Report, International Law Commission (1959).
121
Problem File, ¶9.
122
Problem File, ¶24.
123
Infra, Arguments Advanced, III, E.
124
Supra n.19, ¶7.
125
Supra, n.43.
[16]
discriminatory in character126 since like persons were treated in an unequal manner.127 It was
done for purely political reasons as can be seen from the previous nonchalance of the
Government to allegations of bribery, and their quick action after public support shifted to the
Communist Party of Calona.128 However, expropriation may take place even where the benefit of
deprivation does not accrue to the host State129 but to third parties,130 which in this case was the
local manufacturer. This was because tainting Wayne’s contract with corruption131 could adduce
legitimacy to the Government’s act of subsequently contracting with the local manufacturer.132
This was done in violation of the requirement of non-discrimination in Article VI of the BIT and
therefore has let down the expectation of the investor to be treated equally with the domestic
enterprises.133
Therefore, the seizure of assets including the factory and bank accounts and freezing of
properties resulted in indirect expropriation.
B. The expropriation by the Government of Calona is illegal.
When expropriation is in breach of contractual or treaty obligations, it has to be considered
illegal.134 Article VI of the BIT states that investments made by nationals of one Contracting
Party shall not be expropriated by the other Contracting Party, either directly or indirectly, except
in such circumstances where the expropriation would be legal under international law. For an
expropriation to be lawful the customary requirements have been identified and which have been
126
Supra n.37,p. 329.
A.F.M. Maniruzzaman, ‘Expropriation of Alien Property and the Principle of Non-Discrimination in International
Law of Foreign Investment: An Overview’, 8 J. Transnational Law & Policy, 57-59, 67-70.
127
128
Problem File, ¶24.
129
Supra n.94, ¶103.
130
James v. United Kingdom, (1986) 8 E.H.R.R. 123.
131
Supra, Arguments Advanced, III, E.
132
Problem File, ¶19.
133
Infra, Arguments Advanced, II, A, 3, b.
B. H. Weston, ‘Community Regulation of Foreign-Wealth Deprivations: A Tentative Framework for Inquiry,’ in
R. S. Miller and R. J. Stanger (eds. by), Essays on Expropriation, Ohio State University Press, 1967, p. 119.
134
[17]
violated in the present case are public purpose135, non-discrimination136, compensation and due
process.137
1. There was no payment of compensation.
The government had unjustly enriched itself at the expense of Wayne Enterprises and hence,
adequate compensation must be paid.138 Further, even if a regulation is enacted for a public
purpose, this prong of the expropriation test does not trump the requirement that compensation
be rendered to foreign investors where government regulation has damaged or totally destroyed
the value of their investments.139 Hence, fair market value should be paid for the expropriated
assets of Wayne Calona.140
2. Due process was not observed.
The requirement of due process mandates provision of effective remedy, sufficient notice and
fair hearing before an impartial adjudicator.141
The remedy in the present case is not effective as a criminal case in Calonian courts would take
between 6 to 8 years to conclude and would involve another 3 to 4 years for appeals. 142 Hence,
due process has not been observed while freezing the assets as an interim measure, as they would
135
Supra, Arguments Advanced, II, A, 3, b.
136
Supra, Arguments Advanced, II, A, 2.
137
Ian Brownlie, Principles of Public International Law, 5th Edition., Oxford University Press, 1998; Compañiadel
Desarrollo de Santa Elena, S.A. v. Costa Rica, ICSID Case No. ARB/96/1, Award, 17 February 2000; Sedco, Inc. v.
Nat’l Ir. Oil Co., 10 Iran- U.S. C.T.R. 180, 1986; OECD, Draft Convention on the Protection of Foreign Property,
1967; A. Reinisch, “Legality of Expropriations”, in A. Reinisch (ed. by), Standards of Investment Protection,
Oxfrod, Oxford University Press, 2008, p. 174.; de Sabla Claim (US v. Panama), (1933) 6 RIAA 358.
Sea-Land Service Inc. v. Iran, 6 Iran U.S. C.T.R.149, Award, 20 June 1984; Christoph H. Schreuer, ‘Unjustified
Enrichment in International law’, 22 AM. J. Comp. L. 281, 1974.
138
139
Feldman v. United Mexican States, ICSID, 42 I.L.M. 625 (2003); Metalclad Corp. v. United Mexican States, 40
I.L.M. 36 (2001); Pope & Talbot, Inc. (U.S.) v. Canada, 40 I.L.M. 258 (2000).
140
UNCTAD, Taking of Property, 2000.
141
Supra, Arguments Advanced, I, C, 4, c.
142
Problem File, ¶3.
[18]
evidently remain frozen for a very long time.143 Also, Wayne Calona’s property was seized
immediately144 after the order passed by the lower court without any serving of notice 145, hence,
it is against due process.
143
Problem File, ¶3.
144
Problem File, ¶25.
145
British Petroleum v. Libya, (1979) 53 ILR 297.
[19]
III.
THE RESPONDENT IS NOT ENTITLED TO AVOID THE CONTRACT.
The Claimant contends that Respondent cannot avoid the contract as the alternatives provided
were in conformity with the contract. Claimant is also not liable for the late delivery of the
original consignment. Arguendo, the contract cannot be fully avoided. The act of Respondent
was not in good faith to the Claimant’s performance and even the claim of corruption cannot lead
to a right of avoidance.
A. Respondent cannot avoid the contract on the ground of defect in alternatives
provided, as the same were in compliance of the contractual terms.
Claimant asserts that Respondent’s right to avoid the contract does not arise as the alternatives
provided were mutually agreeable and were in compliance of the contractual terms, the contract
was substantially performed; the ‘all best endeavours’ obligation was fulfilled and the stipulation
in the contract for sale was a warranty.
1. Variation to the terms of the original Contract was mutually agreed.
When some representation is made by one contracting party to the original terms of the
contract146 and the same is accepted, it amounts to variation.147 The original terms continue to be
part of the contract and are not rescinded or superseded except in so far as they are inconsistent
with the variations or modifications made.148 For a variation to become effective, it must fulfil
the criteria of offer, acceptance and consideration.
In the present matter, Claimant made a representation to the Respondent to provide industrystandard capacitors instead of customized capacitors (provided in the original terms of contract),
which do not fit the technical specifications set out in Annexure 1 of the original contract. 149 The
146
J.Beatson, Anson’s Law of Contract, 28th edition, Oxford University Press, 2002.
147
Scarf v. Jardine, (1882) 7 App Cas 345, 351.
148
Juggilal Kamlapat v. NV International Credit-En-Handels, Vereeldging ‘Rotterdam’, AIR 1955 Cal 65.
149
Problem File, Annex XIII.
[20]
variation to the terms of contract was subsequently accepted by the Respondent and therefore
results into a binding contract.150
Claimant’s subsidiary, Wayne Calona, as per modified terms of the contract, performed its part
of the contract, making delivery of standard capacitors within the stipulated time 151 and thus
Respondent cannot avoid the contract.
2. The doctrine of substantial performance is applicable.
Where the contract is ‘substantially’ performed, the injured party is not discharged from the
obligation to pay,152 but is protected by the counter claim or set-off for any loss which may have
been sustained by reason of the incomplete or defective performance.153 The fact that the work
was done badly does not mean that it had not been performed at all.154
In the instant case, the contract for the delivery of industry-standard capacitors within the
stipulated time was substantially performed by the Claimant, although to the Respondent’s
dissatisfaction.155 However, this does not provide any right to the Respondent to avoid the
contract for the reason of bad performance. The contract has been substantially, if not precisely,
performed. The Respondent may raise any issue for counter-claim for bad performance from the
Claimant but a question of avoidance does not arise.
3. The ‘all best endeavours’ obligation has been fulfilled by the Claimant.
The obligation to use best endeavours has been held to oblige the party to do all that a reasonable
person could do in the circumstances.156 It does not require actions which would be detrimental
150
Problem File, Annex XIV.
151
Problem File, Annex XVI.
152
Sim v. Rotherham Metropolitan Borough Council, (1987) Ch. 216 at p.253.
153
Boone v. Eyre, (1779) 1 H.Bl. 273; Broom v. Davis, (1794) 7 East 480.
154
Glanville Williams, ‘Partial Performance of the Entire Contracts’, (1941) 57 Law Quarterly Review 373.
155
Problem File, Annex XVI.
156
Pips (Leisure Production) Ltd. v. Walton, [1980] 43 P & CR 415.
[21]
to the financial interests of the company.157 In the case of Rhodia International Holdings Limited
v. Huntsman International LLC,158 the Court stated that a party who is under the best endeavour
obligation must pursue all reasonable courses of action to achieve the main object until they are
exhausted. In the present case, ‘all best endeavours’ obligation, imposed on the Claimant, had
been incorporated in the terms of the contract159 mandating Claimant to use all reasonable
courses to achieve the desired result. The Respondent had imposed the obligation on the
Claimant to ensure the delivery of alternatives in time.160 The Claimant, according to the
contractual terms, and the obligation imposed on it made the delivery of alternatives within the
time specified.161
4. A breach of a warranty does not give rise to a right of avoidance.
Where stipulation in contract of sale is warranty, its breach may give rise to claim for damages
but not to a right to reject the goods and treat the contract as repudiated. 162 Warranty means an
agreement with reference to goods which are subject of a contract of sale, but collateral to the
main purpose of such a contract.163 A warranty must be an agreement or promise that the
representation is or will be true;164 and the agreement must be collateral to the main purpose of
the contract. Such purpose being the transfer of property in, and possession of, goods of
description contracted for.165
With respect to an option for alternatives, Claimant made a representation that standard
capacitors are generally used in floodlights but did not fit the exact specifications made out in
157
Rackham v. Peek Foods Limited, (1990) BCLC 895.
158
Rhodia International Holdings Limited v. Huntsman International LLC, (2007) EWHC 292 (Comm).
159
Problem File, Annex VII, ¶3.
160
Problem File, Annex XII.
161
Problem File, ¶17
162
Chanter v. Hopkins (1838) 4 M & W 399 at 404.
163
Wallis, Son and Wells v. Pratt and Hyanes (1910) 2 K.B. 1003 at 1012.
164
Behn v. Burness, (1863) 32 LJQB 204.
165
Halsbury’s Law of England, Fourth Edition, Butterworths Lexis Nexis, London 2002.
[22]
Annex 1 of the contract.166 On the reliance of this promise, Respondent accepted, the varied
terms of contract,167 and thus breach of warranty will entitle the Respondent to only claim for
damages but no right to avoid the contract. Further, as Claimant performed the contract (with its
varied terms) within the stipulated time, no right arises in Respondent’s favour for avoiding the
contract as to the failure of this ‘condition’.
B. Claimant is not liable for the late delivery of the original consignment.
Claimant asserts that late delivery of the original consignment was not due the failure on its part
and Respondent cannot maintain the issue of avoidance on this ground. Claimant submits that
late delivery of the original consignment was beyond its control and acceptance of the offer of
delivery was communicated to the Respondent.
1. Late delivery of the original consignment was beyond Claimant’s control.
A party is excused of non-performance, if it proves that non-performance was due to an
impediment beyond its control and could not have reasonably been foreseen by it at the time of
making the contract, nor could it have avoided or overcome it or its consequences.168
It is submitted that the contract contained a clause for the exclusion of liability for any event
occurring beyond the control of a party.169 The non-performance of the original supply occurred
due to unavoidable manufacturing issues which were beyond the control of the Claimant. The
event could not have reasonably been foreseen at the time of conclusion of the contract and wee
beyond the control of either party. Therefore, Claimant can claim the benefit of the exclusion
clause, provided in the contract and is not liable for the delay of the original consignment.
166
Problem File, Annex XIII.
167
Problem File, Annex XIV.
Joern Rimke, ‘Force Majeure and Hardship: Application in international trade practice with specific regard to
CISG and the UNDROIT principles of international commercial contracts’ Pace review on the Convention on
Contracts for International sale of goods, Kluwer, 1999-2000, 197-243.
168
169
Problem File, Annex II, ¶7.
[23]
2. Mere representation does not bind Claimant for misrepresentation.
In Heilbut, Symons and Co. v. Buckleton170, the courts laid down certain factors to determine
whether a particular statement is a mere representation or term of contract. One of the factors
was that the maker of the statement had specialist knowledge or was in a better position than the
other party to verify the statement’s accuracy.171
It is submitted that in the instant case, the statement made by the Claimant, about the capability
of Star Technologies’ top credentials and a good supply record, was not based on any specialist
knowledge of the Claimant, neither was it in any better position than the other party as the facts
stated by the Claimant were on the basis of the information available on the website of Star
Technologies.172 Therefore, Claimant cannot be held liable for misrepresentation leading to late
delivery.
C. Arguendo, the contract could not be avoided fully.
Claimant asserts that the Respondent cannot avoid the entre contract as the contract is ‘divisible’
in nature and Respondent had accepted the partial performance of the contract.
1. The contract cannot be fully avoided as it is divisible in nature.
When the contractual terms are not in its entirety and can be divided into uniform divisible units
then each such unit contracted, in legal parlance constitutes a separate agreement to obtain the
agreed commodity.173 A divisible contract is a contract, the consideration of which is, by its
terms, susceptible to apportionment on either side i.e. it is ascertained with the quantity of work
to be done. When the contract itself has divided performance of work and payment of
consideration expressly, then the contract is divisible.174
170
Heilbut, Symons and Co. v. Buckleton , (1913) A.C. 30.
171
Harling v. Eddy, (1951) 2 KB 739; Oscar Chess v. William, (1957) 1 All ER 325; Dick Bentley Productions v.
Harold Smith Motors, (1965) 2 All ER 65.
172
Problem File, ¶12.
173
Sumpter v. Hedges, (1898) 1 QB 673.
174
Steele v. Tardiani, (1946) 72 C.L.R. 386.
[24]
In the instant case the contract provided for performance in two consignments, one of 50 highpower generators and second of 25000 Electric double layer (Gold) capacitors, to an agreed
equal value of $1 million DES.175 Thus, the contract, by virtue of its terms, is divisible in nature
and Claimant has the right to obtain the benefit for the due performance done for each divisible
part.
2. The contract cannot be avoided fully as partial performance was accepted by the
Respondent.
A party who renders incomplete performance of an entire contract may nevertheless claim
remuneration where the other party has freely accepted such partial performance. 176 This
principle comes into play when the party from whom the benefit is demanded has received a
benefit from the partial performance.
The Claimant, as per the terms of contract, delivered the first consignment which was accepted
by the Respondent.177 The conduct of the Respondent indicates sufficient acceptance of partial
performance by the Claimant and therefore, Claimant can validly claim remuneration for the
work done.
D. The act of the Respondent was not in good faith with respect to Claimant’s
Performance.
Claimant submits that before the conclusion of the contract according to the varied terms,
Respondent accepted the offer of variation of Claimant but not in good faith which is essential
for every contract concluded and evidence for the same can be adduced from another private
arbitration to prove the intention of bad faith of the Respondent.
175
Problem File, Annex II, ¶1.
176
Baltic Shipping Co. v. Dhillon, (1993) 176 C.L.R. 344, at p.378.
177
Problem File, ¶ 15.
[25]
1. Respondent did not act in good faith.
The notion of good faith in contract law usually means honesty and fair dealing. 178 The good
faith is the governing principle applicable to all contracts and dealings.179 In applying the
doctrine of good faith, courts usually see the intention of the parties rather than the actual
contractual terms.180 In the present case, even though Respondent did not expect the delivery of
original capacitors from the Claimant within the stipulated time,181 they entered into the contract
by mandating the delivery of goods at the time specified. The intention revealed showed bad
faith on the part of Respondent and thus it can be directed for the specific performance of the
contract against the innocent party.
2. Evidence can be obtained from another private arbitration to prove the intention of the
Respondent.
In the case of United States v. Panhandle Eastern Corp.,182 the federal court found that, absent
explicit agreement by the parties or institutional rules on point, arbitration proceedings are not
necessarily confidential.183 The confidentiality was not made an essential attribute of the arbitral
process i.e. parties could no longer expect that any element of their arbitral proceedings would
remain protected by an umbrella of confidentiality. 184 Even if a duty of confidentiality does exist
by virtue of parties’ contract, it is not absolute.185 The definite statement emerged from the
conflicting position of confidentiality in arbitration in the case of Emmott v. Michael Wilson and
178
Beatson and Friedmann, Good Faith and Fault in Contract Law, Clarendon Press, 1995.
179
Carter v. Boehm, (1766) 97 ER 1162.
180
Supra, n.165.
181
Problem File, ¶20.
182
United States v.Panhandle Eastern Corp., 118 F.R.D. 346 (D.Del.1998).
Charles S. Baldwin, ‘Protecting Confidential and Proprietary Commercial Information in International
Arbitration’, 31 Tex. Int’l L.J. 451,456 n.21 (1996).
183
184
Esso Australia Resources v. Plowman, 128 A.L.R. 391 (1995).
185
Id, 401-402.
[26]
Partners186 where the Court did recognize potential exceptions to the confidentiality rule one of
which was that disclosure is permissible when in the interest of justice or public interest.
The evidence found by Mr. Sersee, in the course of arbitration proceedings continuing between
NLS with the Respondent showed that Respondent did not expect the delivery of capacitors by
the Claimant on the expected date,187 and thus allowed other suppliers also to deliver late. The
act of Respondent of avoiding the contract was not in good faith, with respect to Claimant and
allowing others, at the same time, to deliver late. The evidence procured should be admitted by
the tribunal as the same is in the interest of justice.
E. Corruption cannot invalidate the contract and give rise to a right of avoidance.
Claimant asserts that Respondent cannot bring the issue of corruption to render the contract
invalid as a whole as the Respondent cannot rely on the corrupt acts of its officials to escape
responsibility. In any case, the corruption charges were mere allegations and it may go against
the intent and the purpose of the BIT.
1. The Respondent cannot rely on the corrupt acts of its officials to escape responsibility.
An arbitral tribunal may find the contract valid and enforceable, even if it is tainted by
corruption. International law contains the fundamental principle of state responsibility,188
referring to the accountability of the states for the violation of international law and the
requirement that states makes reparation for such violations.189 As there is State responsibility on
part of the Respondent which also includes contractual responsibility, the Respondent must in
general meet its obligations as a contractual party in spite of the corrupt activities of its
officials.190 It is submitted that in the instant case, there exist a responsibility on the part of
186
Emmott v. Michael Wilson and Partners,(2008) EWCA (Civ) 184 (C.A.).
187
Problem File, ¶20.
188
Article 50, Vienna Convention on the Law of Treaties, 1969, 1155 U.N.T.S. 331, 8 I.L.M. 679.
Paul E Comeaux and N. Stephan Kinsella, ‘Protecting Foreign Investment under International Law: Legal Aspects
of Political Risk,’ Dobbs Ferry, New York, Oceana, 1997.
189
Marc Blessing, ‘State Arbitrations: Predictably Unpredictable Solutions?’ presentation at 8 th IBA International
Arbitration Day Geneva, 18 March 2005, 22 J Int’l Arb 435 (2005).
190
[27]
Respondent not to avoid the contract on the charges of bribery as it may have serious effects on
the economy of the host state, including its infrastructure. It is the duty of the State to bear the
consequences of corruption and assume full responsibility for the actions of its organs.
2. The Corruption charges were mere allegations.
In the case of Himpurna California Energy Limited (Bermuda)v.PT. (Persero) Perusahaan
Listruik Negara,191 the arbitral tribunal set a high threshold to prove corruption. It is submitted
that the charges for corruption have not been proved by the Respondent and they are mere
allegations. Therefore, Respondent cannot avoid the contract stating it to be invalid on the
ground of corruption.
3. Allowing avoidance based on corruption would be against the spirit of the BIT.
The BIT called for promotion and reciprocal protection of investments.192 The Respondent’s
attempt to avoid the contract on the ground of corruption would impede the host state’s
obligation of investment protection. If the investors cannot trust in the responsibility of the State
towards its contractual obligations, this will have negative effects on the investment climate and
on the State’s attractiveness to foreign investors.193 Therefore, the action of the Respondent, in
avoiding the contract, on the charge of corruption is against the intent of the BIT.
191
Himpurna California Energy Limited (Bermuda) v. PT. (Persero) Perusahaan Listruik Negara, Final Award, 4
May 1999, (2000) XXV Yearbook of Commercial Arbitration.
192
Problem File, Annex I.
Raeschke Kessler, ‘Corruption in Foreign Investment – Contracts and Dispute Settlement between Investors,
States and Agents’, Journal of World Investment and Trade, Vol. 9, No.1, February 2008, pp. 5-33.
193
[28]
PRAYER FOR RELIEF
In light of the facts of the case, issues raised and arguments advanced, Counsel for Claimant
respectfully requests the Tribunal to:
1) Declare that the Tribunal has jurisdiction over the present matter.
2) Declare that the actions of the Government of Calona, including the seizure of Wayne
Calona’s assets, were a violation of the Calona-Nolania BIT.
3) Hold that the State of Calona is not entitled to avoid the contract.
4) Direct the State of Calona to make payment of $2 million as specified in the January 1,
2010 contract.
All of which is respectfully affirmed and submitted
Sd/Counsel for Claimant
[29]