FOURTH LL.M. INTERNATIONAL COMMERCIAL ARBITRATION COMPETITION Washington, D.C., March 6 - 7, 2015

Analysis of the Problem LL.M. International Commercial Arbitration Moot Competition Washington, D.C., March 6-7, 2015 I.

INTRODUCTION

This year's problem revolves around the issue of consent to arbitrate, on the consequences of ambiguities in the expression of the intent to arbitrate, and on the consequences of negligent conduct of pre-contractual negotiation under the Unidroit Principles and resulting contract interpretation. II.

STATEMENT OF THE FACTS

Triple Felicidad S.A. (“TFSA”) (Claimant) invests in real estate and owns land in the town of Marcara, including a valuable property known as Felicidad (“The Property” or “Felicidad”), 1 which Claimant was seeking to develop with the help of a partner. Alegría Incorporada (“Alegría”) (Respondent) is a company with experience and knowledge of the building and operation of theme parks. In August 2013, John Smith (“Smith”) contacted TFSA’s general manager Pedro Romero (“Romero”), about the building and operation of a theme park on the Property. 2 Most of the negotiation was conducted orally between Romero and John Smith. Romero claims that, in the course of the negotiations, he expressed his expectation that there be high thrill attractions, particular roller coasters built and operated by Respondent in the past. During the initial meetings Romero informed Respondent that the Property had experienced an earthquake 100 years earlier but that studies showed no geographical fault on the Property. Romero indicated that TFSA would not carry out any geological survey or investigation of the Property. He recommended that Respondent conduct its own surveys of the Property to determine the stability and suitability of the terrain. Claimant alleges that Respondent neither agreed nor disagreed with the survey recommendation, but dismissed the earthquake 1 2

Problem, Claimant’s Notice of Arbitration, pages 3-4, paras 9, 10 and 12. Problem, Claimant’s Notice of Arbitration, page 4, para 14. 1

FOURTH LL.M. INTERNATIONAL COMMERCIAL ARBITRATION COMPETITION Washington, D.C., March 6 - 7, 2015

information as irrelevant. 3 Regardless of what was said by Romero and Smith during the negotiations, Respondent did not conduct a geological survey prior to the signing of the Agreement. On September 5, 2013, Claimant’s Board of Directors approved the conclusion of an agreement with Alegría for the development of a theme park on the Property. No draft of the agreement was circulated to TFSA’s attorneys and the board reached its decision without having reviewed the draft Agreement. Romero received and signed the Agreement on December 24, without reviewing its terms. Smith signed it on December 25. 4 Pursuant to the Agreement, at project completion, the parties would enter into a twentyyear lease, where Respondent would pay monthly rent to the Claimant. Respondent was to provide Claimant with Project drawings on or before January 15, 2014. Claimant had until January 30, 2014 to review and comment on the drawings. Respondent was entitled to begin land preparation for construction on February 14, 2014. 5 The Agreement is silent about high tech thrill rides and roller coasters. The Agreement is governed by the UNIDROIT 2010 Principles on international commercial contracts. Disputes arising out of the Agreement are to be submitted to ICDR-administered arbitration, pursuant to the ICC Rules. The seat of the arbitration is New York. Alegría was over a month late providing its drawings to TFSA. Moreover, Alegría’s plans did not include high tech thrill rides and roller coasters. Despite TFSA’s protests over the plans, Alegría entered the Property and started installing its equipment. However, the equipment was damaged due to a seismic tremor. TFSA’s security personnel then took over the property, expelled Alegría’s workers, and kept the equipment. 6

3

Problem, Claimant’s Notice of Arbitration, pages 4-5, para 15, 16, 17 and 18. Problem, Claimant’s Notice of Arbitration, page 6, para 24. 5 Problem, Claimant’s Exhibit No. 1, Joint Venture Agreement, Articles I and III. 6 Problem, Claimant’s Notice of Arbitration, pages 6-8, paras 29, 30-37. 4

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FOURTH LL.M. INTERNATIONAL COMMERCIAL ARBITRATION COMPETITION Washington, D.C., March 6 - 7, 2015

Alegría justifies its delay due to the geological situation it discovered once its engineering team entered the Property. In particular, a significant geological failure was found on the terrain that limited the type of attractions Alegría could use for the project. 7 Romero filed a Notice of Arbitration on behalf of Claimant on July 2, 2014. Alegría filed its response on August 1, 2014. When Claimant’s Notice of Arbitration was filed, Romero had ceased to be an authorized representative of Alegría. His successor, Ms. Matilde Rodriguez recognized that TFSA had not authorized the filing of a Notice of Arbitration on its behalf on July 2, 2014. However, at the procedural conference call that took place in September, Matilde Rodriguez indicated that TFSA endorsed the claims submitted in the Notice of Arbitration. III.

Analysis

The problem raises preliminary questions. In particular: -

The validity of Claimant’s ratification regarding the commencement of the arbitration in its name, and the possibility for Claimant to cure its initial lack of consent.

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The validity of the arbitration clause due to the choice of the ICDR as administering institution, and the ICC Rules as the applicable arbitration rules.

The substantive issues in the case stem from the parties’ carelessness/bad faith in the conduct of the pre-contractual negotiations, and such lack of diligence and care in the conduct of the negotiation interplayed with the environment constraints in the project. a. PRELIMINARY QUESTIONS The discussion of the preliminary issues should lead the parties to interpret Article 1 of the ICDR Rules and to reflect upon the exercise of consent to arbitrate. i. Did Claimant properly authorize the commencement of these proceedings and, if not, can it cure its lack of initial authorization of the arbitration? 7

Problem, Respondent’s Answer, page 4, para 12. 3

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Both parties may discuss the law applicable to the validity of TFSA’s ratification of Romero’s commencement of the arbitration. Because the issue implicates Romero’s authority to represent TFSA, a Cariame corporation, the law of Cariame would normally apply. Contestants have been advised that Cariame is a Civil law jurisdiction. However, if the issue is framed as a matter of TFSA’s lack of consent to arbitrate, then one could consider that New York law, the law of the seat, may also be relevant to determine the issue of ratification. Respondent could argue that Romero’s lack of authority to commence proceedings in the name of TFSA is a matter of consent to arbitrate, or lack thereof, and that lack of consent to initiate arbitration affects all proceedings prior to ratification, including the constitution of the arbitral tribunal. While Claimant’s argument on ratification is stronger, Respondent may want to raise the points above. Under New York law, it is recognized that "only persons who expressly agree to arbitrate can be compelled to do so” (citing to Mtr. of Marlene Industries Corp. (Carnac Textiles), 45 N.Y.2d 327, 408 N.Y.S.2d 410; Schubtex, Inc. v. Allen Snyder, Inc., 49 N.Y.2d 1, 5, 424 N.Y.S.2d 133, 399 N.E.2d 1154). In Brookfield (In re Application of BROOKFIELD CLOTHES, INC., v. TANDLER TEXTILES, INC., 78 A.D.2d 841 (Nov. 25, 1980) (Supreme Court, Appellate Division, First Department, New York.). Thus, if they apply New York law, for the commencement of the arbitration to be properly ratified, the arbitrators would have to be satisfied that Ms. Rodriguez made some positive affirmation regarding TFSA’s acceptance of the arbitration, and of its standing as claimant in the arbitration. Civil law jurisdiction also tend to uphold the validity of an arbitration commenced by an alleged representative of the claimant, provided that the claimant’s later conduct in the arbitration supports ratification. In a recent ICC award, the arbitrators held that even though the officers initiated arbitration without authority to do so, the issue was ratified by the appointment of the attorneys by one with the authority to do so. The Tribunal reasoned the following: […] The delegation of power granted by Mr. C to Mr. D to initiate these proceedings should be valid according to Iraqi and Swiss Law, 7 which do not request any special form to the contrary of

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Spanish Law. This having been said, whether or not Spanish law shall govern the issue of the authority granted to Mr. D as contended by the Respondent [i.e. the Appellant] is a question that does not need to be solved because the lawyers in charge of representing the Claimant [i.e. the Respondent] in these proceedings were not the law firm E selected by Mr. D but Messrs F and G. It is true that these attorneys were appointed at a time, i.e. on December 23, 2009 (...) when Mr. C. was no longer the general manager of the Claimant . According to the Respondent, such appointment should have been made by Mr. H. who during the period starting from November 7, 2009 replaced Mr C. as general manager of the company. However, this contention should not affect Messrs F. and G. 's authority to represent the Claimant before the Arbitral Tribunal, and this for the reason that the alleged lack of power of Messrs F and G could be cured by a ratification of their appointment by the actual manager of the company, i.e. Mr C who reacquired his position of general manager of Y after November 19, 2011. In this respect, it should be noted that when asked by Messrs F and G to confirm or infirm the threat he allegedly made to prevent Mr. I from testifying, Mr C reacted to this request by addressing a letter to these lawyers which was read at the end of the hearing. Therefore, Mr. C 's positive reaction as to the request of these two lawyers should be interpreted as a confirmation or ratification of their power to represent the Claimant in this case. ii. The validity of the arbitration clause due to the conflict between the ICDR and the ICC Rules Parties will have to refer to Article 1(1) and (3) of the ICDR’s International Arbitration Rules which read as follows: Where parties have agreed to arbitrate disputes under these International Arbitration Rules (“Rules”), or have provided for arbitration of an international dispute by the International Centre for Dispute Resolution (ICDR) or the American Arbitration Association (AAA) without designating particular rules, the arbitration shall take place in accordance with these Rules as in effect at the date of commencement of the arbitration, subject to modifications that the parties may adopt in writing. The ICDR is the Administrator of these Rules. Art.1.1 […]

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FOURTH LL.M. INTERNATIONAL COMMERCIAL ARBITRATION COMPETITION Washington, D.C., March 6 - 7, 2015

When parties agree to arbitrate under these Rules, or when they provide for arbitration of an international dispute by the ICDR or the AAA without designating particular rules, they thereby authorize the ICDR to administer the arbitration. These Rules specify the duties and responsibilities of the ICDR, a division of the AAA, as the Administrator. The Administrator may provide services through any of the ICDR’s case management offices or through the facilities of the AAA or arbitral institutions with which the ICDR or the AAA has agreements of cooperation. Arbitrations administered under these Rules shall be administered only by the ICDR or by an individual or organization authorized by the ICDR to do so. Art. 1.3 However, as demonstrated by Article IV of the Joint Venture Agreement, the parties did designate particular rules: “Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be finally determined by arbitration administered by the International Center for Dispute Resolution in accordance with the Arbitration Rules of the International Chamber of Commerce.” (emphasis added) 8. The parties have agreed to submit to arbitrate under the current ICC rules since there is no designation otherwise. Article 6.1 of the ICC Rules provides: Where the parties have agreed to submit to arbitration under the Rules, they shall be deemed to have submitted ipso facto to the Rules in effect on the date of commencement of the arbitration, unless they have agreed to submit to the Rules in effect on the date of their arbitration agreement. ICC Article 6.1 In particular, Article 6(2) states: 8

See Claimant’s Exhibit No.1 at Art. IV. 6

FOURTH LL.M. INTERNATIONAL COMMERCIAL ARBITRATION COMPETITION Washington, D.C., March 6 - 7, 2015

By agreeing to arbitration under the Rules, the parties have accepted that the arbitration shall be administered by the Court. ICC Article 6.2 This creates a conflict in the determination of the applicable rules, and a question as to whether the parties’ consent to arbitration is valid. The ICDR Rules provide that the ICDR Rules apply when the ICDR is chosen as the administering authority and no arbitration rules are chosen by the parties. In the present case, arbitration rules were chosen, but not the ICDR’s. Moreover, the ICC Rules, chosen by the parties, do not allow for an institution other than the ICC to administer the arbitration. Indeed, the use of “shall” under Article 6(2). Additionally, ICDR Article 1(1) does not appear to leave room for the ICDR to administer arbitrations under any other rules than the ICDR. See for example, the case of ISC Holding v. Nobel Biocare Invest (351 Fed.Appx 480 (2d. Cir.)) where the ICDR had refused to administer a case designating it as the administering authority, with the arbitration to be conducted pursuant to the ICC Rules. Thus, under both the ICDR and the ICC Rules, the parties’ choice as expressed in the JV Agreement is not permitted. In order for the contestants to move forward in the context of an ICDR arbitration, a clarification was issued informing the contestants that the parties agreed, without prejudice to any jurisdiction or admissibility objections they might have, that the ICDR would administer the proceedings under the ICDR Rules. Because the clarification – communicated as a letter from the ICDR to the Parties memorializing the parties’ agreement – did provide that the parties did not waive any of their jurisdictional arguments, Respondent could still challenge the jurisdiction of the arbitral tribunal on the grounds that the arbitration clause is pathological. However, arbitration-friendly jurisdictions tend to uphold the jurisdiction of the arbitrators as soon as there is an unambiguous indication that the parties intended to arbitrate their dispute. See, for example, the 2nd Circuit decision cited above: the Court focused more on the reference to “other courts” in the clause at issue, than to the fact the parties had agreed to a hybrid clause.

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FOURTH LL.M. INTERNATIONAL COMMERCIAL ARBITRATION COMPETITION Washington, D.C., March 6 - 7, 2015

By way of a further, though non-binding, illustration, a recent Singaporean case addresses the concept of pathological clauses and hybrid arbitration. In HKL Group 9, the Defendant applied for a stay of court proceedings in favor of arbitration based on the clause between the parties providing all disputes would be settled by an arbitration committee in Singapore under the ICC Rules. Despite the clause’s reference to a non-existent arbitral body in Singapore, the Defendant argued that the Parties’ intention was to arbitrate and that the matter could be submitted to SAIC under the ICC Rules. The Plaintiff argued that the clause was inoperable because it referred to a non-existent entity. 10 The High Court stayed the court proceeding in favor of arbitration on the basis that: (a) the clause was a clear indication of the parties’ intent to conduct arbitration in Singapore pursuant to the ICC Rules, (b) the dispute was one that fell under the clause, (c) the clause stated the place of arbitration be Singapore, (d) and the clause provided for the ICC Rules. 11 In that case, the Court held that in Singapore courts will give high deference to the decision of the parties to arbitrate, resolving issues of “pathology” through the framework of the essential elements of arbitration agreements. 12 In other cases, despite references to non-existent arbitral institutions, Courts still refer the matter to arbitration.13 Finding it reasonable and within the intention of the parties, the Court held that the parties could resolve their dispute through this hybrid form- an institution in Singapore applying ICC Rules. 14 b. MERITS ISSUES The parties will want to argue what value any pre-contractual negotiation may have on the scope of their respective obligations, and on the extent of the good faith with which they performed their Agreement. The geological condition of the terrain will also raises issues of force majeure and hardship.

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HKL Group Co Ltd. V. Rizq Int’l Holdings Pte Ltd., Suit No. 972 of 2012/P (Supreme Court of Singapore) (February 19, 2013). 10 Id. at 4. 11 Id. at 27. 12 Id. at 12, 17, 24. 13 Id. 14 Id. at 38. 8

FOURTH LL.M. INTERNATIONAL COMMERCIAL ARBITRATION COMPETITION Washington, D.C., March 6 - 7, 2015

i. Impact of pre-contractual negotiations in definition of scope of parties’ obligations UNIDROIT permits pre-contractual negotiations to influence contract interpretation.15 Article 4.3 states that in applying 4.1 16 and 4.2, 17 regard is given to all circumstances, including preliminary negotiations between the parties,18 the conduct of the parties subsequent to the conclusion of the contract, 19 and the nature and purpose of the contract. 20 Giving legal weight to pre-contractual negotiations raises issues of evidence of what may have been disclosed, asked, or promised. Here, the Agreement provides no indication or requirements regarding the designs of the attractions and rides to be installed in Mega Park. 21 However, under Article 4.3, the surrounding circumstances could provide a different interpretation of the purpose of the contract which the Tribunal should consider. ii. Impact of good faith in defining scope of parties’ obligation UNIDROIT 1.7 establishes the obligation of parties to act in good faith and fair dealing.22 The commentary to this article stresses that this obligation may be considered one of the most 15

UNIDROIT Art. 4.3. “(1) A contract shall be interpreted according to the common intention of the parties. (2) If such an intention cannot be established, the contract shall be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances.” UNDROIT Art. 4.1. 17 “(1) The statements and other conduct of a party shall be interpreted according to that party’s intention if the other party knew or could not have been unaware of that intention. (2) If the preceding paragraph is not applicable, such statements and other conduct shall be interpreted according to the meaning that a reasonable person of the same kind as the other party would give to it in the same circumstances.” UNDROIT Art. 4.2. 18 UNIDROIT Art. 4.3(a) 19 UNIDROIT Art. 4.3(c) 20 UNIDROIT Art. 4.3(d) 21 Answer to the request for Arbitration ¶ 11. 22 “(1) Each party must act in accordance with good faith and fair dealing in international trade. (2) The parties may not exclude or limit this duty.” UNIDROIT Art. 1.7. 16

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FOURTH LL.M. INTERNATIONAL COMMERCIAL ARBITRATION COMPETITION Washington, D.C., March 6 - 7, 2015

fundamental ideas underlying the Principles, 23 as demonstrated by the number of references to good faith within the articles. The commentary further states that by “stating in general terms that each party must act in accordance with good faith and fair dealing, paragraph (1) of this Article makes it clear that even in the absence of special provisions in the Principles the parties’ behaviour throughout the life of the contract, including the negotiation process, must conform to good faith and fair dealing.” The statement “throughout the life of the contract” is especially relevant in this dispute because the parties take issues with the negotiation, signing, and execution of the contract. Additionally, UNIDROIT Art. 2.1.15 discusses the ramifications of parties who negotiate in bad faith. 24 It states “a party who negotiates or breaks off negotiations in bad faith is liable for the losses caused to the other party.” According to UNIDROIT, instances “where one party has deliberately or by negligence misled the other party as to the nature or terms of the proposed contract, either by actually misrepresenting facts, or by not disclosing facts which, given the nature of the parties and/or the contract, should have been disclosed” constitutes bad faith. 25 In this case, Mr. Romero contends he signed the agreement rushing to a Christmas celebration and trusted the terms were as discussed. TFSA’s counsel would be expected to rely on the above provisions of the Principles to establish Respondent’s liability in concealing his lack of intent to formally undertake to deliver a theme park with the specifications requested by Romero. 23

See also, Alyona N. Kucher, Pre-Contractual Liability: Protecting the Rights of the Parties Engaged in Negotiations, Paper NYU Houser Global L.S. (May 2004) (discussing the role of good faith in pre-contractual liability and stating “pre-contractual liability becomes based on the general ‘basic thesis that from the moment the parties start negotiations, a special relationship between them is established—relation of trust that requires reciprocal fairness on each parties’ side’”). 24 “(1) A party is free to negotiate and is not liable for failure to reach an agreement. (2) However, a party who negotiates or breaks off negotiations in bad faith is liable for the losses caused to the other party. (3) It is bad faith, in particular, for a party to enter into or continue negotiations when intending not to reach an agreement with the other party” UNIDROIT ART 2.1.15 25 UNIDROIT 2.1.15, Comment (2). 10

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Conversely, Respondent would argue that it is ludicrous to believe assurances as to high quality specifications without a survey of land were given, calling into question the conversation between Mr. Romero and Mr. Smith where the latter stated a survey was unnecessary since the earthquake happened 100 years ago. But under the UNIDROIT, Respondent could be held liable if the tribunal concludes that it deliberately mislead Claimant regarding the elements of the contract, and that Respondent should have disclosed the information, although this conclusion rests on the Tribunal’s factual determination as to the true circumstances. Furthermore, if the Tribunal were to find Respondent acted in bad faith, “a party’s liability for negotiating in bad faith is limited to the losses caused to the other party...In other words, the aggrieved party may recover the expenses incurred in the negotiations and may also be compensated for the lost opportunity to conclude another contract with a third person (socalled reliance or negative interest), but may generally not recover the profit which would have resulted had the original contract been concluded (so-called expectation or positive interest).” 26 iii. What is the impact on either a hardship or a force majeure argument of the parties’ pre-contractual diligence or lack thereof? The Principles mandate good faith and constructive renegotiation between the parties. The impact of the pre-contractual diligence upon the case of hardship falls under UNIDROIT Art. 6.2.3 which states: (1) In case of hardship the disadvantaged party is entitled to request renegotiations. The request shall be made without undue delay and shall indicate the grounds on which it is based. (2) The request for renegotiation does not in itself entitle the disadvantaged party to withhold performance. (3) Upon failure to reach agreement within a reasonable time either party may resort to the court. 26

UNIDROIT 2.1.15, Comment (2). 11

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(4) If the court finds hardship it may, if reasonable, (a) terminate the contract at a date and on terms to be fixed; or (b) adapt the contract with a view to restoring its equilibrium. The comments point out a number of ways a court may approach hardship. Options include restoring the equilibrium by making a fair distribution of losses amongst the parties. It may also direct the parties to resume negotiations.27 The disadvantaged party must request renegotiations without undue delay: 2. Request for renegotiations without undue delay The request for renegotiations must be made as quickly as possible after the time at which hardship is alleged to have occurred (paragraph (1)). The precise time for requesting renegotiations will depend upon the circumstances of the case: it may, for instance, be longer when the change in circumstances takes place gradually (see Comment 3(b) on Article 6.2.2). The disadvantaged party does not lose its right to request renegotiations simply because it fails to act without undue delay. The delay in making the request may however affect the finding as to whether hardship actually existed and, if so, its consequences for the contract. The impact of the pre-contractual diligence upon the case of force majeure is addressed in UNIDROIT Art. 7.1.7(2) , (3) and (4) which state: (2) When the impediment is only temporary, the excuse shall have effect for such period as is reasonable having 27

UNIDROIT Art. 6.2.3(7). 12

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regard to the effect of the impediment on the performance of the contract. (3) The party who fails to perform must give notice to the other party of the impediment and its effect on its ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, it is liable for damages resulting from such non-receipt. (4) Nothing in this article prevents a party from exercising a right to terminate the contract or to withhold performance or request interest on money due. The effect of force majeure is to excuse liability for damages. Article 7.1.7’s effect is to provide additional time to the party to perform the contract. Claimant may argue that it is entitled to damages because the Respondent failed to give notice of the impediment. It could argue that it acted in good faith during pre-contractual negotiations by providing Respondent with a timely warning of the geographical condition of the land. Further, it instructed Respondent to conduct its own due diligence. 28 Respondent may argue that it is excused from performance, because the impediment was beyond its control and it was not adequately warned of the condition of the land.29 Further, it may argue that because Claimant took Respondent’s equipment from the property, it lost the ability to continue work on the Property after the earthquake occurred.

28

See Claimant’s Notice of Arbitration Para. 17 (“Mr. Romero thus advised Mr. Smith to conduct his own due diligence of the terrain in order to ensure that the attractions they discussed could be operated there…Mr. Romero indicated that his company would not carry out any geological survey or investigation of the Property.”). 29 See Respondent’s Answer Para. 19 (“[I]t was Claimant’s failure to disclose the existence of a geological failure that lead to Alegría’s engineers to conduct the surveys and investigations into the geological condition of the land, and then adapt the designs and drawings to their findings.”). 13

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First, Respondent contacted Felicidad to propose a partnership in connection with the Property,30 and in meeting, Mr. Smith expressed interest in building an amusement park. 31 Mr. Romero was particularly impressed with Respondent ’s roller coasters.32 Additionally, due to the high thrill rides/roller coasters Felcidad was interested in, Mr. Romero suggested Mr. Smith conduct a survey of the land.33 Finally, the agreement was for Respondent to lease the land to operate and profit from the theme park (which would suggest wanting to operate the most attractive park). 34 Taking these pre-contractual circumstances into view suggests a different purpose to the contract than the plain language suggests. However, considering that both parties were aware of the prior earthquake and the potential instability of the land can also affect the view regarding the contract’s purpose. Thus, as permitted to do, the Tribunal should evaluate in light of the surrounding circumstances. Additionally, there is dispute as to the common intention of the parties, and so under UNIDROIT Article 4.1, interpretation is done according to the meaning reasonable persons of the same kind would give. In this situation, Respondent sought out Felicidad, and so reliance on the contract to be as discussed (i.e. high thrill rides/roller coaster construction) by a person not versed in the trade and not knowledgeable about the need for fluidity when constructing seems reasonable. iv. Was there force majeure and/or hardship Force majeure and hardship are contexts in which a party’s duty to perform might be excused. Hardship encompasses frustration and impracticability while force majeure addresses impossibility. The arguments of each party will hinge on whether the earthquake and subsequent events rendered the performance frustrated/impracticable or impossible. Article 7.1.7 addresses force majeure: Non-performance by a party is excused if that party proves that the non-performance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences. 35 Should the impediment be temporary, it 30

Notice of Arbitration ¶ 14. Notice of Arbitration ¶ 15. 32 Notice of Arbitration ¶ 15. 33 Notice of Arbitration ¶ 17. 34 Notice of Arbitration ¶ 22. 35 UNIDROIT Art. 7.1.7(1). 31

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should only have the effect for a reasonable period of time. Further, the non-performing party must give notice of the impediment to the party expecting performance. 36 Article 6.2 addresses hardship. “Hardship” is defined as occurring where events fundamentally alter the equilibrium of the contract and must have become known to the disadvantaged party after the conclusion of the contract. Further, the events could not have been reasonably taken into account at the time of contract and the events were beyond the disadvantaged party’s control, the risk of events not being assumed by the disadvantaged party. 37 Examples of fundamental change in equilibrium of the contract are an increased cost of performance and a decrease in value received by the party. 38 Respondent’s strongest argument is force majeure. It may argue that the contract was impossible to perform because of the earthquake. In the alternative, Respondent may argue that the earthquake altered the equilibrium of the contract, making performance impracticable. Claimant will likely argue that Respondent may not claim a hardship occurred, because it was well aware of the geographical instability of the land prior to the conclusion of the contract. Although the earthquake took place at the conclusion of the contract, the comments make clear that such an event cannot cause hardship if it was foreseeable at the time the contract was concluded. 39 v. How should predictability be approached in this case? Claimant will argue that Respondent could have reasonably been expected to take the impediment into account at the time the parties concluded the contract and therefore performance should not be excused. 40 Respondent will argue that the earthquake could not have been reasonably foreseeable at the time the parties entered into the contract. Further, Respondent will argue that Mr. Romero

36

UNIDROIT Art. 7.1.7(2)-(3). Id. 38 Id. 39 UNIDROIT Art. 6.2.2(3)(a)(b). 40 Supra note 9. 37

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assured Respondent that earthquakes were rare and that it was upon this basis it agreed to perform the contract.41 vi. Impact of parties’ lack of pre-contractual diligence on defenses regarding feasibility of contractual performance

Under UNIDROIT 5.1.4, to the extent that an obligation of a party involves a duty to achieve a specific result, the party is bound to achieve that result. However, if the contract only provides for best efforts in the performance of an obligation, best efforts are assessed based on a reasonable person standard. 42 If one party to the negotiations learns of any impediment that would make the contract void or voidable, and does not inform the other party, the former may be liable for the damage suffered (negative interest), or for the profits the innocent party is unable to recoup from the contract (positive interest). 43 Respondent may wish to argue that the pre-contractual negotiations show that both parties were in agreement that the construction of the theme park was feasible. Further, under the UNIDROIT Contra Proferentem Rule 44, if contract terms supplied by one party are unclear, an interpretation against that party is preferred. Therefore, there is room for a presumption against Claimant. Claimant may, on the other hand, argue that the contract, interpreted in light of the precontractual negotiations, obliges Respondent to provide a specific result, and that Respondent’s performance falls short of that result.

vii. Tribunal’s appointment of a valuation expert Claimant should argue that Tribunal has the power to appoint an industry expert under ICDR Article 25. The rule permits the tribunal, after consultation with the parties, to appoint one or more independent experts to report to it on issues designated by the tribunal and 41

Respondent’s Answer Para. 13. UNIDROIT Art. 5.1.4(a)-(b). 43 Bernardo M. Cremades, Good Faith in International Arbitration 27 Am. U. Int’l. L. Rev. 761, 777. 44 UNIDROIT Art. 4.6. 42

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communicated to the parties. 45 The rule mandates parties provide the expert with any relevant information the expert may require. The Tribunal will decide any dispute between a party and the expert as to the relevance of the requested information. The Tribunal is to send a copy of the report to the parties and must give the parties opportunities to express their opinions on the report. Additionally, the parties must be given an opportunity to question the expert at a hearing.46 The Claimant may argue that the expert will be delegated for the purpose of calculation and nothing more. Respondent should argue that pursuant to ICDR Article 25, it must be afforded opportunities to review any expert report produced, provide comments and to question the expert. It should argue that the Tribunal must not attempt to delegate its tasks to the expert.47 In addition, the Tribunal should also proceed to handle the exchange of information pursuant to ICDR Guidelines for Arbitrators Concerning Exchange of Information. 48

45

ICDR International Arbitration Rules, Art. 25: Tribunal-Appointed Expert. Id. 47 See Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration at 339 (London Sweet & Maxwell) (1991) (discussing the Starett Housing case, where the Tribunal held “No matter how qualified an expert may be, however, it is fundamental that an arbitral tribunal cannot delegate to him the duty of deciding the case.”). 48 ICDR Guidelines for Arbitrators Concerning Exchanges of Information at 1 (“The purpose of these guidelines is to make clear to arbitrators that they have the authority, the responsibility and, in certain jurisdictions, the mandatory duty to manage arbitration proceedings so as to achieve the goal of providing a simpler, less expensive, and more expeditious process.”). 46

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