NLIU Annual University Pool Selections, 2022

CASE RECORD

IN THE MATTER OF ARBITRATION BETWEEN

MITCH INFRASTRUCTURE CO. CLAIMANT

V.

NATIONAL WAREHOUSING CORPORATION (NWC) RESPONDENT

UNDISPUTED FACTS - BACKGROUND OF THE DISPUTE

1. Mitch Infrastructure Co. (MIC) is a company established in 1991 in Burmistan and is

involved in constructing roads, bridges, warehouses and factories in Burmistan and around
the world.

2. Durbaria is an island country located in the Arabian Sea and is part of a significant trade
route between Africa and the coastal Countries of Asia. Its primary source of income is
tourism and tax residency for international corporations due to its low tax rates. Being an
island nation, Durbaria receives moderate to heavy rainfall throughout the year and its soil
and weather conditions are perfect for sugarcane cultivation. It is one of the largest
producers in the world of Sugarcane and related products such as jaggery, jams, refined
sugar, and single-origin chocolates products. Durbarian Sugar is famous worldwide for its
quality and for using only natural fertilizers for its produce.

3. Considering that Durbaria is part of a major sea trade route for perishable goods and that
Durbarian farmers produce a massive quantity of Sugarcane products which require
warehousing facilities, in 2015, the Government of Durbaria set up the National
Warehousing Corporation (NWC) in Trongo (the capital of Durbaria). The purpose of the
NWC was to provide warehousing facilities to perishable goods being traded through the
sea route and the locally produced sugarcane and sugar products produced by the local
farmers and manufacturers of Durbaria.

4. On 26th January 2016, the NWC invited bids against specification no. C-458-3 “Package
A” for constructing 1 Warehouse of 3 Storeys at the site near the Mujtabian Port of
Durbaria. The warehouse was to have adequate crane facilities for the transport of goods

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within the warehouse and temperature-controlled refrigeration facilities for the storage of
perishable food products. Notably, the land for the construction of the warehouses was
allotted by the Government of Durbaria to the NWC and the successful bidder was to
receive access to the land to build the warehouse complex.

5. Pursuant to the above, MIC participated in the tender released by the NWC. MIC estimated
that the cost of the construction of the project would be 150 million Durbarian Dollars and
accordingly submitted a bid on 23rd March 2016 for 180 million Durbarian Dollars keeping
a 20% profit margin therein. Consequently, MIC was declared the lowest bidder and
awarded the tender. Upon selection and acceptance of MIC as the successful bidder, NWC
issued a Letter of Award (LOA) no. C-827/LOA/1900 dated 12th April 2016 to MIC.

6. Upon acceptance of the aforesaid LOA by MIC, the parties executed a contract on 15th
July 2016. As per the terms of the above Contract, MIC was directed to deposit the
Performance Bank Guarantee (PBG) equivalent to 10% of the Contract Price i.e., 18
Million Durbarian Dollars before 15th August 2016 and the land for the project was to be
handed over to MIC latest by 31st October 2016 and the Construction period was to begin
from 1st November 2016.

7. In accordance with the usual trade practice, Claimant had quoted its tender price, structured
inter-alia on the following- (i) cost of mobilization and deployment of necessary
equipment and materials, (ii) on-site expenses. The construction of the warehouses was to
be on a turnkey basis wherein the Contractor would be responsible for the overall design
and construction of the warehouse and would thereby be entitled to receive payments at
certain milestones as per the terms stipulated in the Contract. The relevant clauses of the
Contract stipulating the payments are as below:

“4.0 CONTRACT PRICE AND PAYMENT

4.1 We agree to pay you a total sum of 180 Million Durbarian Dollars as the
Contract Price for the entire scope of work under this Contract.

4.2. The payment to the Contractor for the performance of the works under
the Contract will be made by the Owner as per the guidelines and conditions
specified herein. All payments made during the Contract shall be on account
payments only. The final payment will be made on completion of all Works
and on fulfillment by the Contractor of all his liabilities under the Contract.

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4.3. All payments under the Contract shall be in Durbarian Dollars only.

4.4. The initial advance amount shall be payable after fulfillment of all the
conditions laid down in the Special Conditions of Contract…The price
component of the initial advance amount will become due for payment within
thirty (30) days of receipt of the Contractor’s invoice.

4.5. The Contractor shall submit application for the payment in the
prescribed proforma of the Owner.

4.6. Each application shall state the amount claimed and shall set forth in
detail, in the order of the Payment Schedule, particulars of the Works
including the Works executed at site and of the equipment shipped/brought
on to the site pursuant to the Contract upto the date mentioned in the
application and for the period covered since the last preceding certificate, if
any.”

8. The civil engineers, architects and geological experts appointed by MIC reached the
location of the project site for an inspection on 30th March 2016 and realised that the
location of the proposed warehouse near the ports had loose soil and would require
extra reinforcement and the use of deeper foundations than previously anticipated. The
same would have escalated the cost of the construction by atleast 15 Million Durbarian
Dollars.

9. MIC accordingly wrote a letter on 1st April 2016 to the executives of NWC and
informed them that the soil at the project site near the port was different from the
preliminary report prepared by NWC which was annexed to the Tender. Accordingly,
MIC claimed an additional cost of 15 Million Durbarian Dollars to compensate them
for the extra cost required for making deeper foundations at the project site for
construction.

10. The Chairman of NWC responded by way of their letter dated 5th April 2016 that it was
the prerogative of MIC to conduct due diligence prior to the submission of the bid and
that the Tender itself had categorically stated that “the preliminary report of the land is
being provided as a guide to the tenderers and that the bidders would be responsible
for their own survey and that NWC does not guarantee the accuracy of the report and

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any discrepancy in the report would not make NWC liable for damages of any sort
whatsoever.”

11. MIC responded that since it wants to maintain good relations with NWC and not stall
the progress of the works, it was going ahead with the construction project without
prejudice to its rights and liabilities and that it reserves its right to make claims at an
appropriate stage.

12. On 1st November 2016, during the initial stages of clearing the demarcated project site
for commencing the construction work, MIC realised that almost 27 % of the project
site was under the possession and control of the Mujtabian Port Trust and was fenced
by the Mujtabian Port Trust.

13. On 10th November 2016, MIC wrote a letter to NWC with a copy to the officials of the
Durbarian Sea Port Authority and the Mujtabian Port Trust to resolve the issue
regarding handing over the land to MIC. Further, Claimant also requested an extension
of time for further project planning and demarcation of land as the same would be
invariable delayed due to delay in handing over of the project site.

14. On 30th November 2016, the Mujtabian Port Trust wrote a letter to the NWC stating
that the land for the port was handed over to the trust in 1986 by the Durbarian Sea Port
Authority and that they have been in peaceful possession of the land for the past 30
years. The NWC was requested to take this matter up with the Durbarian Sea Port
Authority and the Government of Durbaria. Mujtabian Port Trust believed there had
definitely been some miscommunication from the Government of Durbaria and that the
land belonged to the Mujtabian Port Trust under a lease of 50 years and that 20 years
of the lease were remaining. The same sentiments were echoed by the Durbarian Sea
Port Authority in their letter dated 12th December 2016 and the NWC was requested to
take up the issue with the Government of Durbaria.

15. The NWC sought clarification from the Government of Durbaria regarding the issue by
way of its letter dated 15th December 2016. In the meanwhile, NWC also wrote a letter
dated 13th November 2016 to MIC to stall the mobilisation of its plant and machinery
and not perform any of the preliminary activity until the Government of Durbaria
clarified the issue regarding the dimensions of the project site and the required land is
handed over to the MIC. MIC, vide its letter dated 17th November 2016, replied that as

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a prudent contractor, it had already deployed its men and labour at the site for the survey
of the site, preparation of the drawings and planning of the construction activity at the
time when they had discovered the discrepancy regarding the project site. Nevertheless,
MIC agreed to stall the mobilisation as instructed by NWC but reserved its rights to
damages, if any, for the delay in handing over the land, as per the provisions of the
contract between the parties.

16. After a constant back and forth between the NWC and the Government of Durbaria, the
project site was redrawn and 19% of additional land towards the North-East of the
original site was provided by NWC and consequently handed over to MIC on 30th
December 2016 and the 27% of the initially planned site which belonged to Mujtabian
Port Trust was removed from the land handed over to MIC.

17. MIC by way of its letter dated 5th January 2017, intimated to NWC that consequent to
handing over of the land it had now started the planning and the construction of the
warehouse; however it also intimated that MIC was entitled to damages for the delay
in handing over of the land and claimed damages equivalent to 10% of the Contract
Price as per the liquidated damages clause for breach in the performance of the
obligation by NWC.

18. The construction progressed smoothly at the Mujtabian Port site; however, the Soil
Conditions at the project site were inappropriate for constructing a multi-storey
warehouse. Accordingly, additional concrete reinforcements were required which
required additional costs and time. MIC completed 67% of the project's construction by
the scheduled completion date of 31st October 2019. The same was attributable to the
soil conditions and the delayed handing over of the land.

19. Accordingly, by way of its letter dated 7th November 2019, MIC wrote a letter to NWC
seeking an extension of the construction period of the Project till July 2020 as the
reasons for the delay were not attributable to MIC. Further, MIC vide the above letter
also reserved its right to claim damages for the delay and the increased cost of the
construction.

20. In reply, NWC by way of its letter dated 22nd December 2019, approved the extension
of time upto 1st March 2020 only as NWC was of the view that it is only responsible
for the delay in handing over of the land and not for poor workmanship and delay in

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the mobilisation of Claimant. NWC rejected further extension of time of the

construction period of the Contract as according to them, the soil conditions were not
attributable to them and were not a valid reason for the delay in construction.
Accordingly, NWC reserved its right to claim liquidated damages from MIC for any
delay in the construction of the project beyond 1st March 2020. MIC was however able
to achieve only 80% of the construction until 1st March 2020. Majorly the works
relating to the installation of the cranes and refrigeration units had not commenced and
the same could only be installed after the construction of the building was complete.

21. MIC continued the construction works and was aiming to complete the building so as
to start the installation of the machinery at the warehouse. Meanwhile, in February
2020, CoVID-19 was declared a Pandemic by the World Health Organization and the
Government of Durbaria declared a complete lockdown in Durbaria and restricted
movement of all persons from 1st March 2020 onwards. This invariably meant that no
construction activity could take place in Durbaria. The status of the construction of the
warehouse as of 15 March 2020 was 87% and the installation of the refrigeration units
and cranes had not begun yet. Uptil this point, MIC had been paid a total of 120 Million
Durbarian Dollars for completing the milestone of 80%

22. The lockdown in some form of the other continued for a period of 6 months due to the
orders of the Government of Dubaria.

23. MIC restarted the Construction Activity in August 2020 and completed the construction
including the installation of the refrigeration facility and cranes in March 2021 and
raised its final bill on 3rd April 2021 for 30 Million Durbarian Dollars being the payment
due from the NWC for the contract and 15 Million Durbarian Dollars for the
reinforcement of the foundation with concrete due to poor soil conditions. Additionally,
it also sought payment of 9 Million Dollars for the delay in handing over the land by
NWC.

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24. NWC by way of its letter dated 21st April 2021, denied any obligation for payment of
compensation as alleged by MIC in its letter dated 3rd April 2021. NWC also alleged
that it was rather MIC that had delayed its performance of the contract and hence NWC
was entitled to damages. Accordingly, NWC indicated its intention to encash the PBG
submitted by MIC. On 29th April 2021, the PBG was encashed by NWC.

25. MIC by way of its letter dated 14th May 2021, vehemently denied that the delay in
performance of the contract was attributable to it. Rather, the delay if any, was
attributable to NWC and force majeure conditions of the pandemic, if any. MIC stated
that NWC had illegally encashed the PBG and sought compensation from NWC for the
same. In this letter, NIC also sought damages for the delay in handing over the land
along with compensation for the increased cost of foundation works due to poor soil
conditions at the project site. It made the following claims in the said letter.

A. Reimbursement of illegally encashed 18 Million

Performance Bank Guarantee Durbarian
Dollars

B. The balance payment for works completed 30 Million

Durbarian
Dollars

C. Damages for the delay in Handing over the 9 Million

Land Durbarian
Dollars

D. Damages for the increased cost of construction 15 Million

due to inadequate disclosure of the soil Durbarian
conditions at the project site Dollars

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D. Interest 10% per annum

compounded
annually.

26. NWC did not respond to the letter and accordingly, MIC by way of its letter dated 7
June 2021, sought a meeting between the Chairperson of the respective organization
for an amicable settlement between the parties as per Clause 32 of the Contract for
resolution of disputes.

27. MIC sent another reminder by way of its letter dated 15 June 2021 seeking an amicable
resolution of disputes between the two parties. Since NWC again did not respond to the
letter, accordingly MIC sent a notice dated 30 June 2021 seeking reference of the
disputes to arbitration and re-iterating its claims as indicated in their letter dated 14 May
2021. MIC appointed Mr. Bill Turner as its nominee arbitrator.

28. By way of its letter dated 1st July 2021, NWC denied that any claims were payable by
NWC to MIC. NWC also stated that MIC had not followed the dispute resolution
procedure provided under the contract and had not referred the matter to conciliation as
per Clause 32. Accordingly, it suggested that the matter may be settled by way of
conciliation by appointment of a mutually agreeable conciliator.

29. By way of its letter dated 7 July 2021, MIC indicated that the pre-arbitration procedure
in the dispute resolution clause was not mandatory in nature and accordingly re-iterated
its intention to initiate arbitration proceedings and requested NWC to appoint its
nominee arbitrator.

30. NWC by way of its letter dated 17 July 2021, objected to the interpretation of the dispute
resolution clause as indicated by MIC in its letter dated 7 July 2021; however, it still
nominated Mr. Jack Russell as its nominee arbitrator and reserved its rights to raise its
objection to the jurisdiction of the arbitral tribunal at an appropriate stage during the
proceedings.

31. The two nominee arbitrators have appointed Ms. Shelly Sidebottom, Former Chief
Justice of the Republic of Durbaria as the Presiding Arbitrator. Accordingly, the arbitral

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tribunal had its first meeting on 21 August 2021. The parties apprised the tribunal
regarding the background of the dispute between the parties and the preliminary
objection by the parties to the jurisdiction of the arbitral tribunal. The arbitral tribunal
provided a timeline for the completion of the pleadings of the parties by 21 February
2022.

32. On an analysis of the pleadings of the parties, the arbitral tribunal formulated the
following points of dispute/issues to be decided by the arbitral tribunal.

A. Whether the arbitral tribunal has jurisdiction to hear the claims of the Contractor
considering the steps of the dispute resolution procedure under the contract have
not been followed as alleged by the Employer?

B. Who is responsible for the delay in the performance of the contract and who is
entitled to damages, if any, and to what extent?

33. The Arbitral tribunal has fixed the hearing on 20th and 21st August, 2022 to hear the
arguments of the parties on the aforesaid two issues and also indicated that it would like
to be fully apprised regarding the law relating to the aforesaid issues applicable to the
current arbitral proceedings.

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APPENDIX A - TERMS OF THE CONTRACT

ARTICLE 1: DEFINITION OF TERMS

1.1 The ‘Contract’ means the agreement executed into between the Owner and
Contractor as per the Contract Agreement signed by the parties, including all
attachments and appendixes thereto and all documents incorporated by
reference therein.

1.2 ‘Owner’ shall mean the National Warehousing Corporation (NWC)., Trongo,
Durbaria (A Government of Durbaria Enterprise) and shall include its legal
representatives, successors and assigns.

1.3 ‘Contractor’ shall mean the Bidder whose bid will be accepted by Owner for
the award of the Works and shall include such successful Bidder’s legal
representatives, successors and permitted assigns.

1.4 ‘Site’ shall mean and include the land and other places on, into or through
which the works and the related facilities are to be erected or installed and
any adjacent land, paths, street or reservoir which may be allocated or used
by the Owner or Contractor in the performance of the Contract.

1.5 ‘Contract Price’ shall mean the lump-sum price quoted by the Contractor in
his bid with: additions and/or deletions as may be agreed and incorporated
in the Letter of Award, for the entire scope of works.

1.6 ‘Letter of Award’ shall mean the official notice issued by the Owner notifying
the Contractor that his bid has been accepted.

1.7 ‘Term of the Contract’ shall mean a period of 3 years commencing from 1 st
November 2016 to 31st October 2019.

1.30 ‘Drawing’ shall mean all:

a) Drawings furnished by the Owner as a part of Bid;

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b) Drawings submitted by the Contractor with his bid provided such drawings
are acceptable to the Owner;

c) Drawings furnished by the Owner to the Contractor during the progress of

the work.

ARTICLE 12: TIME-THE ESSENCE OF CONTRACT

12.1 The time and the date of completion of the Contract as stipulated in the
Contract by the Owner without or with modification, if any, and so incorporated
in the Letter of Award shall be deemed to be the essence of the Contract. The
Contractor shall so organize his resources and perform his work as to complete
it not later than the date agreed to.

ARTICLE 14: LIQUIDATED DAMAGES

14.1 If the Contractor fails to successfully complete the works within the time fixed
under the Contract, the Contractor shall pay to the Owner liquidated damages.
The total amount of liquidated damages under for delay by the contractor under
the Contract will be equal to 0.5% of the contract price for every week of delay
and subject to a maximum of 10% of the Contract price.

14.3 If the Owner fails to hand over land as per the scheduled date prescribed
under the contract for handing over of the land, the Contractor will be entitled to
liquidated damages amounting to 0.5% of the Contract Price per every week of
delay and will be limited to a maximum of 10% of the Contract Price.

ARTICLE 32 DISPUTE RESOLUTION CLAUSE

If any dispute arises regarding the interpretation, fulfilment or obligations of the

parties under this agreement, the parties may attempt amicable settlement of
disputes within a period of 20 days from the day the dispute arises. If the disputes
are not settled within the said period, it shall be deemed to have failed, unless the
parties agree otherwise to extend the period of time.

If the parties are not able to resolve their dispute amicably, each party shall outline
their disputes in a notice for conciliation and also appoint a conciliator to the

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conciliation panel within 30 days to resolve the disputes between the parties. On the
failure of the appointment of a conciliator by one of the parties, the conciliation can
move forward as a one-member conciliation panel by the conciliator appointed by
the other party. The conciliation should be completed within 90 days and shall be
governed by the London Court of International Arbitration - Mediation Rules. If the
conciliation is not completed within the said period, it shall be deemed to have failed,
unless the parties agree otherwise.

If the parties are not able to resolve their disputes, they may settle the same via
arbitration. The arbitration of the disputes will be referred to a three-member
arbitral Tribunal. Each party shall appoint an arbitrator within 30 days and the two
party appointed arbitrators will appoint the Third/ Presiding arbitrator to resolve
the disputes between the parties. The arbitration will be governed by the UNCITRAL
Model Law of Arbitration and the place of arbitration shall be Trongo, Durbaria and
the substantive law governing the contract will be of Durbaria.

ARTICLE 36: APPLICABLE LAWS

a. The Durbarian Contract Act, 1872 is in pari materia to Indian Contract Act,
1872.

b. Durbaria is a commonwealth country and its courts give due significance to

judgments of other commonwealth countries and other pro arbitration neutral
countries such as UK, Singapore, Hong Kong, India and Australia.

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