MOOT PROBLEM: Moot Court and Trial Advocacy

March – May 2022

The Envirolysium Development Project v Urban Springs Interiors

The Envirolysium Development Project (“Envirolysium”) is a US$ 500 million project aimed at
establishing a premium residential complex in Mariola, the capital city of the Kingdom of
Bononia. The project has marketed itself to be a 100% environmentally sustainable project,
which has not only got a ‘0’ carbon footprint future projection, but also claims to be
developed with “100% sustainably sourced materials”. The project claims this to be the future
of residential living and has marketed itself as the leading example of how such urban
development projects are possible with the technology and resources available to us. It has
repeatedly advertised its bold claim that the housing project boasts of facilities such as 100%
garbage recycling, 100% renewable energy usage, and maximized rainwater harvesting and
recycling technologies.

Envirolysium administrators were confident with its endeavors in creating such a utopic
environmentally sustainable paradise and built into its property sales agreements a
‘conditional price reduction’ clause which provided for a 70% reduction in property price, if
any of its claims were found to be untrue. Knowing that changes in future circumstances could
not be ruled out, the price reduction clause excluded from its ambit, all claims related to the
future carbon footprint of the establishment.

Envirolysium after vetting and rigorous background checks on several potential contractors
from across the continent, signed an “Interior Development Agreement” (“The Agreement”)
on 20 March 2015 with “Urban Springs” Interiors (“Urban”), a new-age interiors solutions
start-up company incorporated in and based out of the Republic of Phillipi with satellite
offices in Mariola. Urban, although a relatively small player in the interiors sector, had since
its incorporation in 2009, shown a commitment to developing and implementing
environmentally sustainable interiors manufacturing practices, and after several
negotiations, the contract for all interiors and furnishings for Envirolysium’s residential
properties was given to Urban for US$50 million to be paid as per various milestones set out
within the contract. This was the largest contract to have been awarded to Urban in its short
history, and due to this the company’s valuation shot up tremendously.

As per the Agreement, the interiors for the project were to be completed by November 2021,
as the inauguration of Envirolysium was set to be in early 2020. The Agreement had a
“sustainability clause” (Clause 6.2 of the Agreement)

“Clause 6.2: All the materials used for the purposes of interior development are to be
sustainably sourced. The duty of due diligence is placed on the Contractor (Urban Springs
Interiors) and a breach of this clause is to be considered a material breach of the agreement
for all legal purposes”

Later realizing that the contract was signed with a Phillipan entity, the legal head of
Envirolysium, Ms Catherine Kumar called the Founder CEO of Urban Mr Marc Antony over
the phone and informed him that they would be including an arbitration clause into the
Agreement. Mr Marc Antony agreed to this over the phone-call and asked for a copy of the
amended agreement to be sent to him. Ms. Kumar handwrote the following clause into the
Agreement:

“Clause 13.2: All disputes arising out of or in connection with the present contract shall be
finally settled under the Rules of Arbitration of the London Court of International
Arbitration (LCIA) in force at the time of the dispute by three arbitrators, one nominated
by each party and the presiding arbitrator appointed by the Director General of the LCA
Court. Both the contract and arbitration agreement are to be governed by the Laws of the
Republic of Lupitia. The Arbitration shall take place in Lupitia and the language of the
Arbitration shall be English. The Emergency Arbitrator Provisions and the Expedited
Procedure Provisions of the LCIA Arbitration Rules shall not apply.”
A copy of this agreement was then sent to Mr Antony’s office but allegedly never received
by him. There were no further communications on this matter, and neither party followed
up on this conversation.

Over the period from 2015 – 2020, Urban performed its tasks and developments with high
levels of diligence and efficiency. However, in January 2021, in the last leg of the works,
there emerged reports of illegal logging and smuggling of wood from the Amazon
rainforests, the supplies of which had entered the markets of Bononia and Phillipi being
marketed as “sustainably sourced wood and recycled pulp-based products”. These supplies
had entered the market between 2017 and 2019 and were accompanied with fraudulent
“certificates of authenticity” claimed to be issued by the Government of Lupitia, which is
known for its wood export industry based on environmentally sustainable wood production
techniques. This deforestation in the Amazon was met with huge protests and opposition
from the environment protection and climate activist groups in Bononia and Phillipi and was
heavily reported by the media.

Upon coming across these reports, Ms Portia Marcus the Project Manager from Elysium
wrote the following email to Mr Marc Antony:

20 January 2021

Dear Mr Antony,

We were shocked to hear about the recent developments in Bononia and Phillipi
regarding the Amazonian wood being smuggled into these countries. It is for these very
reasons that our residential development is the need of the hour. We do hope that your
work and in turn our project is not affected by these terrifying activities.

Please do confirm that Urban was not working with supplies such as this smuggled wood.
We look forward to hearing from you.

Kind regards,
Portia Marcus
Envirolysium Development Project
Mariola,
Kingdom of Bononia
Following this letter, Urban re-checked its sources only to find that some of its suppliers had
in fact been duped by the fraudulent certificates and had supplied this smuggled wood to
Urban. Urban had ended up using a lot of this smuggled wood in the interiors of Envirolysium.
Given its longstanding relationships with its suppliers and no cause for concern at the time of
work, Urban had not kept stringent records of the batches of wood being used in the interiors
of Envirolysium, and therefore had no way of determining which parts of the project had used
this smuggled wood.

Urban relayed this information to the administrators of Elysium, who were appalled, given
this meant either redoing the entirety of the interiors of Elysium within the year, a project
that had taken 6 years to complete, or exposing themselves to liability under the conditional
price reduction clause which would have them sell the residential properties at losses
amounting to US$ 50 million.

Elysium immediately initiated formal negotiations with Urban, to work around this situation.
Their demands were that Urban either redo the entire interior woodwork again within the
year (amounting to around US$ 20 million), or refund the entire amount paid (US$ 40 million
had been paid up already as per the milestone payments clause in the contract) under the
Agreement which would then be used by Elysium to get the work done by an alternative
contractor.

Urban acknowledged that while the work had been done using smuggled wood, there was no
way it could have known given the very believable certificates of origin that had been
provided to it by its suppliers. It argued that it had performed all due diligence possible, and
it being a small start-up company did not have any way of redoing interior work worth US$
20 million within one year. The negotiations went on for a month, failing which Elysium
initiated LCIA arbitration under the Interior Development Agreement, demanding specific
performance, or in the alternative damages to the tune of US$ 30 million in costs of reworking
and allied damages. Urban denied the jurisdiction of the tribunal as it maintains that the
arbitration agreement was never entered into or communicated in writing to them. It also
denies any breach of contract as it performed all the duties under the contract, and the use
of smuggled wood was an outcome beyond its control.
The LCIA accepted the Request for Arbitration and the parties together with the LCIA have
constituted a three-member arbitrator panel. The tribunal has ordered, through Procedural
Order 1, that arguments on the following issues be presented during the hearing:

Issue I - Whether the tribunal has the jurisdiction over this dispute.
Issue II - Whether there was a breach of the Interior Development Agreement.

No discussion on specific performance of contract is to be entered into at this stage of the

proceedings.

The tribunal has also clarified the applicable laws in the following dispute:

• The Kingdom of Bononia, Republic of Phillipi and the Republic of Lupitia have all
verbatim adopted the contract and related commercial laws of the Republic of India,
with the exception of the Arbitration and Conciliation Act, 1996 (see below).

• The Arbitration Acts of the three countries are verbatim adoption of the UNCITRAL
Model Law on International Commercial Arbitration. All countries have chosen Option
1 for Article 7 of the UNCITRAL Model Law.

• All three countries are signatory to the New York Convention, 1958.

The hearings are to be held at the Jindal Global Law School Campus.