FINAL EXAMINATION IN INTERNATIONAL COMMERCIAL ARBITRATION
Spring Semester, 2008 Professor Maggs
If you use a computer, follow the instructions of the College of Law computer staff. If you handwrite your exam, put your exam ID number, but not your name on the front of each exam book. If you handwrite and use several exam booklets, number them in a pattern like: #1 of 3; #2 of 3; #3 of 3.
This is a completely open-book, open-notes, open-computer examination. You may bring and use any printed, typed, photocopied, or handwritten material, whether prepared by yourself or others. You may bring a computer and use anything stored on its hard disk or other storage media, but may not use the Internet, databanks, e-mail, chat, etc. You may connect to the law school network only in accordance with instructions from the law school computer staff in order to submit your completed answers. You are expected to bring the Casebook and Statutory Supplement assigned for the course. In case a problem arises during the exam, I will be in my office, or if I have stepped out of my office, I will be reachable at my mobile phone number: (202) 413-3213.
The examination software required by the law school does not allow "cutting and pasting," but it does allow "dragging and dropping," so you can highlight and then "drag and drop" previously prepared material into your exam answers. However, putting material in an exam answer that you do not clearly and specifically relate to the issues in the exam question will reduce your grade even if the material is a correct statement of the law.
This is a three-hour examination (except for students for whom the appropriate authorities have authorized extra time.) There are five questions. You should take thirty-six minutes for each question.
ALLOCATE YOUR TIME CAREFULLY!!!
GENERAL BACKGROUND APPLICABLE TO ALL QUESTIONS
Ruritania is a small country, which became independent in 1991. In 1992 it became a party to the New York Convention and to the European Convention on International Commercial Arbitration. Ruritania has adopted the UNCITRAL Model Law. Article 6 of the law, as adopted in Ruritania, replaced ". . ." with "the Chief Justice of the Supreme Court of Ruritania". The capital of Ruritania is Rurbana. The national language of Ruritania is Ruritanian.
Question 1
(thirty-six minutes)
US (a United States Company) and Nous (a French Company) signed a contract containing the following arbitration clause: "Any dispute arising out of or connected with this contract shall be decided by arbitration under the laws of Ruritania. Any arbitration shall be held in Geneva, Switzerland. The language of the arbitration shall be English. The parties waive all rights to appeal or contest any decision of the arbitrators." The contract also contained a choice of law clause: "this contract shall be governed by the internal law of the State of Illinois, USA, except that no consequential damages shall be awarded for breach of contract." The contract was for the construction by Nous of a food-processing plant for US in France.
US brought a claim against Nous, claiming that US had spend one million dollars repairing faulty construction of the plant and had lost two million dollars in profits due to delays in opening the plant. There were no problems with the appointment of the arbitrators or the hearing procedures. The arbitration tribunal awarded one million dollars for out-of-pocket losses, two-million dollars "for consequential damages," and two hundred thousand dollars for costs to US. In its opinion the tribunal said, "the contract provision denying consequential damages is shocking to the conscience, so we will not follow it."
Nous immediately brought proceedings in Switzerland to set aside the award. US brought proceedings in the United States and France to enforce the award. What arguments can you expect Nous to make in the United States and France, and what do you think is their chance of success?
Question 2
(thirty-six minutes)
Engco (an English company) and Rurco (a Ruritanian Company, all of whose stock was and is owned by the Ruritanian government) signed a contract under which Engco agreed to construct a building in Rurbana for Rurco. The contract contained the following arbitration clause "Any dispute arising out of or connected with this contract shall be decided by arbitration under the laws of Ruritania. The arbitration shall be held in Rurbana." The contract did not contain a "choice of law" clause.
Because the two party-appointed arbitrators could not agree on a third arbitrator, the Chief Justice of the Supreme Court of Ruritania, following her invariable practice, asked the President of the Ruritanian Arbitration Association to name a third arbitrator and to prepare an appointment form with the name of the arbitrator, which form the Chief Justice signed.
The three arbitrators issued an interim award, in which they indicated that they had decided to apply "lex mercatoria" as the law of the contract. Soon thereafter all three arbitrators resigned due to serious illnesses. A new arbitral tribunal was formed consisting of two new party-appointed arbitrators and a third arbitrator chosen by them. The new tribunal indicated that it disagreed with the interim award. It instead applied the law of Ruritania, as having the closest connection to the contract. The new tribunal awarded one million dollars in damages and costs to Engco for breach of contract by Rurco.
Rurco asked the Ruritanian courts to set aside the decision, arguing rather inconsistently that the first arbitral tribunal was not properly appointed and that the second arbitral tribunal was bound by the first arbitral tribunal's choice of law award. The Ruritanian Supreme Court held that the first arbitral tribunal was properly appointed and set aside the second tribunal's award on the ground that the second tribunal was bound by the first tribunal's award.
Enco is now seeking to enforce the second tribunal's award in the United States, where Rurco has considerable assets.
What result do you expect and why?
Question 3
(thirty-six minutes)
USCO (a United States Company) and Swissco (a Swiss Company) signed a contract containing the following arbitration clause: "All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. The arbitration shall take place in Geneva, Switzerland." The contract provided that it should be governed by Swiss law. Performance was to take place in Ruritania, where Swissco was to seek to obtain a construction contract for USCO with the Ruritanian government and was to be paid a commission of 10% of the total amount received by USCO under the contract, with Swissco to receive an advance of $100,000 toward this amount on signing. USCO paid the advance. Ruritanian law provided: "It shall be illegal for anyone to accept payment for services in obtaining a construction contract with the Ruritanian government." Nevertheless Swissco did obtain the contract. USCO performed the contract with the Ruritanian government and was paid in full by the Ruritanian government. However USCO did not pay Swissco, so Swissco brought an arbitration claim against USCO.
USCO and Swissco each appointed an arbitrator. USCO brought a challenge before the appropriate International Chamber of Commerce body with respect to the arbitrator appointed by Swissco, showing that the arbitrator's boyfriend was a substantial minority shareholder in Swissco. This challenge was rejected. At the hearing, USCO introduced an properly certified copy of a document from the Ruritanian Property Registry showing the transfer of title to a vacation home worth $100,000 from the majority shareholder of Swissco to the Minister of Construction Projects of Ruritania. The tribunal found that the contract was unlawful under Ruritanian law, but lawful under Swiss law, and awarded $500,000 damages to Swissco. The majority found that no bribery was contemplated or had occurred. The International Chamber of Commerce suggested to the arbitrators that they reconsider their decision that there was no bribery, but the arbitrators did not change their minds.
However, the award was signed only by the arbitrator appointed by Swissco and by the third arbitrator, who had been chosen by the International Chamber of Commerce. The arbitrator appointed by USCO refused to sign the award, stating that he thought the contract involved bribery, (The other arbitrators had found that this transaction merely reflected that the two were long-time friends.)
USCO sued to set aside the award in Ruritania. The Ruritanian Supreme Court upheld the award on the basis that the Court was bound by the decision of the International Chamber of Commerce on the challenge and by the award of the arbitral tribunal. Swissco seeks to enforce the award in the United States. What result in the enforcement proceedings and why?
Question 4
(thirty-six minutes)
Denco (a Danish company) and Tanian (a Ruritanian Company) signed a contract that was in two versions, one in English, the other in Ruritanian. The contract stated, "Both the English and Ruritanian versions of this contract shall have equal force." The English version contained the following arbitral clause: "Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the London Court of International Arbitration Rules, which Rules are deemed to be incorporated by reference into this clause. The number of arbitrators shall be one. The seat, or legal place, of arbitration shall be London, England. The languages to be used in the arbitral proceedings shall be English and Ruritanian. The governing law of the contract shall be the substantive law of England." The Ruritanian-language version contained provisions that were identical, except that the provisions called for arbitration under the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce and called for three arbitrators.
Denco commenced arbitration proceedings against Tanian for breach of contract before the London Court of International Arbitration, which appointed a sole arbitrator. Tanian filed a formal statement with the London Court of International Arbitration objecting to its jurisdiction and did not participate further in the arbitration. Tanian commenced arbitration proceedings against Denco for breach of contract before the Arbitration Institute of the Stockholm Chamber of Commerce. Denco ignored all communications from the Stockholm Chamber of Commerce and did not participate in the Stockholm arbitration.
The London arbitrators found that they had jurisdiction and awarded two million dollars to Denco. The Stockholm arbitrators found that they had jurisdiction and awarded three million dollars to Tanian. Denco sought an obtained from an English court a decision confirming the award and enjoining Tanian from enforcing the Stockholm award anywhere in the world.
Disobeying the injunction, Tanian sought enforcement of its award in the United States, and Denco counterclaimed, seeking enforcement of its award. What result and why?
Question 5
(thirty-six minutes)
What appeared to be the signatures of the Presidents of Amco (a United States company) and of Rurco (a Ruritanian Company) were on a contract containing the following arbitral clause. "Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be determined by arbitration administered by the American Arbitration Association in accordance with its International Arbitration Rules. The number of arbitrators shall be three. The place of arbitration shall be New York, NY. The language to be used in the arbitral proceedings shall be English. The contract shall be governed by the law in effect in the State of New York, USA." The contract envisioned that Amco would organize distribution of Rurco products in the United States and would require retailers to sell at prices set by Rurco by agreement with other makers of similar products. Under numerous United States Supreme Court precedents, such an agreement would be in violation of United States antitrust laws.
Rurco initiated arbitration proceedings. Amco filed a formal objection to jurisdiction of the tribunal stating that: (1) the purported signature of Amco's president was a forgery and (2) the contract was void because it envisioned price-fixing agreements in clear violation of United States antitrust law.
The arbitrators found that the signature was genuine and that the contract was legal because it could be expected that the United States Supreme Court would overturn precedents finding this type of price-fixing to be unlawful. They awarded 3 million dollars to Rurco.
Rurco has gone to a United States federal court to enforce the award. Amco, in answer had repeated its antitrust claim, and has offered new evidence based on DNA analysis of traces of sweat on the signature page, to show that both signatures were made by the same person.
You are clerk to the Federal judge, who has asked you to write a brief summary of what the judge should state in his opinion. The judge has told you that if the fact situation had come up as an ordinary civil case, rather than as an arbitration award enforcement, he would find the contract void because of violation of United States antitrust law.
END OF EXAMINATION