Only for Academic purposes of ICLP

VIDEO ON THE MOCK ARBITRATION

CONDUCTED BY SRI LANKAN AND SWEDISH LAWYERS
IN NOVEMBER 1996
AT HOTEL TRITON, AHUNGALLA

Conductor – Professor Jan Ramberg

Professor Ramberg is a professor of Private (Commercial) Law at the University of Stockholm and
was the former Dean of the Law Faculty. He has extensive experience in international commercial
arbitration and is the author of many books, articles and legal publications in the field of
commercial and maritime law.

Chairman of the Arbitral Tribunal - Dr. A.R.B.Amerasinghe

Co Arbitrators
Counsel for the Claimant
Counsel for the Respondent
- Mr. Ulf Franke – Secretary General of the
Arbitration Institute of the Stockholm Chamber
of Commerce.
- Mr. L.C.Seneviratne PC
- Mr. K.Kanag-Isvaran PC
- Mr. Sampath Welgampola
- Mr. Varuna Basnayake PC
- Mr. Nithi Murugesu

SYNOPSIS OF THE CASE

The arbitration concerns a joint venture between Poly Technological Company Limited (Poly) of
India and Swedish Machinery Company Limited (SMC) of Sweden. The two companies entered
into a joint venture agreement for the erection of a saw mill in Sri Lanka.

The terms and conditions of the joint venture agreement were that 80% of the capital was to be
contributed by Poly and 20% by SMC. Article 18 of the agreement contained the following
arbitration clause:-

“All disputes arising out of this agreement or in connection therewith shall be settled through
negotiations between the respective General Managers of the parties. If such negotiations do
not lead to a settlement, the dispute shall be resolved by arbitration under the Rules of the
ICLP Arbitration Centre in Colombo. The Chairman of the Tribunal shall be a judge and his
nationality shall be neither Sri Lankan nor Swedish. The arbitration shall be conducted in the
English language.”

SMC did not contribute to the capital of the company within the stipulated time and therefore Poly
had to borrow money from a bank to commence the construction. Therefore Poly has filed a request
for arbitration with the ICLP Arbitration Centre for the recovery of the said sum together with
interest.
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To the Arbitration Centre of the Development of Commercial Law & Practice

REQUEST FOR ARBITRATION

ARBITRATION BETWEEN

Claimant Poly Technological Company Ltd,

New Delhi, India.

Counsel

Respondent Swedish Machinery Company

Stockholm, Sweden.

On behalf of the poly Technical Company Ltd., I hereby respectfully request arbitration in the
dispute that has arisen under a contract dated30thn August 1995 entered in to between the parties

The Arbitration Clause of the contract is contained in Section 18 of the Contract and provides for
Arbitration in Colombo pursuant to the Arbitration rules of the Arbitration Centre of the Institute for
the Development of Commercial Law and Practice.

STATEMENT OF CLAIM OF THE CLAIMANT

CLAIM NO: 1

The facts of the case

01. The Claimant (Poly Technological Co. Ltd of India) and the Respondent (Swedish
Machinery Co. of Sweden) entered into a Joint Venture Agreement (“the JV Agreement”)
dated 30th August, 1995 for inter alia forming a Sri Lankan Company to be jointly owned by
the Claimant and the Respondent to be known as “The Sri Lankan Saw Mill Company”
(“Newco”) by section 4.2 of the JV Agreement. It was agreed that the Respondent would
contribute 20% of the equity capital of Newco.

02. The Respondent failed to contribute the 20% of the equity capital of Newco as agreed by the
Respondent by section 4.2 of the JV Agreement.

03. By reason of this failure by the Respondent to contribute its share of the equity capital of
Newco as agreed , the Claimant was compelled to at the request of the Respondent lend to
the Respondent a sum of U.S. $ 4 Million as an interest free loan which sum was utilized by
the respondent to contribute on 30th November, 1995 the Respondent’s 20% share of the
equity capital of Newco in terms of section 4.2 of the JV Agreement although the
Respondent agreed to contribute the said sum on 30th October ,1995.
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04. In order to make the said loan to the Respondent, on the 30th November 1995, the Claimant
borrowed the sum of U.S. $ 4 Million from X Bank. The Claimant incurred the interest at
the rate of 24% per annum on this loan it took from X Bank.

05. However, subsequently on 30th June 1996 the Respondent repaid to the Claimant the said
loan it took from the Claimant. The repayment of the Loan was made by the Respondent
after a period of 8 months from the date when the Respondent agreed to make the equity
capital contribution to Newco in terms of the JV Agreement and after a period of seven
months from the date on which the claimant took then said loan from X Bank.

06. The interest on the said loan taken by the Claimant from X Bank in order to loan the
Respondent the sum due from the Respondent for making the said equity capital
contribution to Newco amounted to U.S $ 560, 000,00.

07. The Claimant bore and paid to X Bank the said sum of U.S. $ 560,000.00 as interest on the
said loan taken from X Bank.

08. By Reason of the Claimants delay of one Month in making the equity capital contribution,
which compelled the Claimant to loan the Respondent the sum of U.S. $ 4 Million, the
Claimant has incurred a loss of U.S. $ 560,000.00 being the interest paid by the Claimant to
X Bank on account of the loan it took in order to in turn loan the said sun of U.S. $ 4 Million
to the Respondent.

09. Although the Claimant agreed to lend the said sum of U.S. $ 4 Million on an interest free
loan and as the respondent failed and neglected to repay the said sum of U.S. $ 4 Million on
30th December 1995, the Claimant is entitled to recover the interest for the entire period.

10. The Claimant states that as the Respondent delayed to repay the said sum of U.S. $ 4
Million, the Claimant was deprived of and prevented from obtaining banking Facilities from
X Bank and thus, the Claimant was unable to carry on its business activities and thus there
has been a loss.

11. The Claimant states that the Claimant estimates a sum of U.S. $ 5 Million on account of
damages caused to it and also on account of loss of profit and loss of business suffered by
the Claimant.
12. The Claimant further states that the Respondent has breached Article 13 of the JV
Agreement by starting to erect a saw mill in Malaysian with a joint venture partner.

THE CLAIM

The Claimant therefore, claims from the Respondent compensation as follows.

01. A sum of U.S. $ 560,000.00 constituting the interest paid by the Claimant paid to the X
Bank in order to be able to lend to the Respondent a sum of U.S. $ 4 Million.
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02. Interest at the Rate of 24% on the said sum of U.S. $ 560,000.00 from 1st July 1995 until
payment in full.

03. A sum of U.S. $ 5 Million on account of loss of business, loss of profits and other damages
caused to the Claimant as result of the delay in repaying the said sum of U.S. $ 4 Million
together with the legal interest from date hereof till payment in full.

04. A declaration that the Respondent has committed a breach of the non competition clause in
Article 13 of the JV Agreement.

05. A sum of U.S. $ 10 Million on account of the breach of the Joint Venture Agreement of
Article 13 in relation to non competition

06. The cost of this Arbitration

The Poly Technological Company Ltd, appoints……………………………to serve as arbitrator

in the present arbitration.

A duly signed Power of Attorney is enclosed herewith.

On this 11th day of November, 1996

Counsel for the Claimant

Only for Academic purposes of ICLP

THE ARBITRATION CENTRE OF THE INSTITUTE FOR THE DEVELOPMENT OF

COMMERCIAL LAW AND PRACTICE

RESPONDENT’S REPLY TO REQUEST FOR ARBITRATION

ARBITRATION BETWEEN

Poly Technological Company Ltd,

New Delhi, India.

Claimant

AND

Swedish Machinery Company

Stockholm, Sweden

Respondent

On this 20th day of November 1996

The reply of the Respondent to the Claimant’s request for Arbitration and statement of relief dated
…..November 1996, represented by …………..states as follows.

OBJECTIONS TO JURISDICTION

01. The Arbitration in Colombo of the Institute for Commercial Law & Practice has no
jurisdiction over the dispute. The Respondent hereby submits the following legal grounds.

a. There is no proper reference of the disputes to arbitration for the reason that the
Respondent has not received any notice to refer or concur in the reference of the
matters raised in the claim to arbitration nor to appoint or join in the appointment of
an arbitral tribunal.

b. That the parties having agreed that the seat of the Arbitral Tribunal shall be
Colombo, this arbitral Tribunal has no jurisdiction to hold the Arbitral proceedings in
Ahungalla.

c. In terms of the Arbitration Agreement the Chairman appointed by the arbitrators is a

Sri Lankan National and is disqualified from functioning as Chairman of the Arbitral
Tribunal.

d. There has been no request for Negotiations by the Claimant and no Negotiations
have taken place between the respective General Mangers of the parties regarding
the mattes in dispute. Hence the Arbitration cannot be deemed to have commenced.
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02. The Respondent’s reply to the specific averments contained in the claim by Ply
Technological Company Ltd., is as follows.

I. The Respondent admits the averments contained in paragraphs 1, & 2 subjects however to
stating that the respondent agreed to contribute only 20% of the equity capital agreed to be
invested by the parties. The Respondent states that there is no provision in the joint
Venture Agreement as to when the Respondent was to make the said capital contribution.

II. The Respondent denies the averments……………………….

III. The Respondent states that the Claimant of its own volition provided a sum of U.S. $ 4
Million for the payment of the Respondent’s agreed contribution towards the equity capital
of Sri Lanka Saw Mill Company Ltd. No date was fixed for the payment of the said sum.

IV. The Respondent avers that the claimant expressly stated at the time of making the said
contribution on behalf of the Respondent that it was an interest free loan, as such the
Respondent is not liable to pay interest on account of the said loan.

V. The Respondent states that it was not aware of the Claimant having borrowed from X
Bank in order to make the said loan to the Respondent. The Respondent states that while it
denies that it would be liable to pay the interest incurred by the claimant in respect of the
loan it obtained from X Bank, because the Respondent was unaware that such a loan had
been taken and that the claimant was paying interest. The Respondent is not liable for the
interest paid by the Claimant.

VI. The Respondent denies that any loss or damage was caused to the Claimant by reason of
the Claimant making the said loan to the Respondent.

VII. The Respondent specifically denies having started to erect a saw mill in Malaysia; in any
event the Respondent has not acted in breach of Article 13 of the Joint Venture
Agreement. The Respondent is aware that the Swedish Manufacturing Company of
Stockholm Sweden has provided services to set up a saw mill in Malaysia. The
Respondent denies that the said company is in anyway connected with the Respondent

The Respondent hereby requires the arbitrators to:

a. Dismiss the Claimant’s Claim: and

b. To order the Claimant to pay the Respondent’s Counsels’ fees and Costs, later to
be specified and, as between the parties, that the Claimant shall pay the
Arbitrator’s fees and costs including the costs of Arbitration Centre.

Duly signed Power of Attorney is enclosed in this Reply.

Respondent nominates Mr.……………………….of ………………………………….as their

arbitrator.

Counsel for the Respondent

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THE ARBITRATION CENTRE OF THE INSTITUTE FOR THE DEVELOPMENT OF

COMMERCIAL LAW AND PRACTICE

RESPONDENT’S REPLY TO REQUEST FOR ARBITRATION

ARBITRATION BETWEEN

Sri Lanka Saw Mill Company Ltd

of Colombo Sri Lanka.

Claimant

AND
Swedish Machinery Company,
Stockholm, Sweden

Respondent

On this 20th day of November 1996

The reply of the Respondent to the Claimant’s request for Arbitration and statement of relief dated
…..November 1996, represented by …………..states as follows.

01. The Arbitration Centre in Colombo of the Institute for Commercial Law & Practice has no
jurisdiction over the dispute. The Respondent hereby submits the following legal grounds

a. No binding Arbitration Agreement has been entered into by the parties and no such
arbitration agreement has been disclosed or demonstrated by the claimant in his
request for arbitration.

b. Without prejudice to objection (a) above the Respondent states that there is no proper
reference of the disputes to arbitration for the reasons that the Respondent has not
received any notice to refer or concur in the claim to arbitration nor to appoint or join
in the appointment of an arbitral tribunal.

c. However should the Arbitration centre decide that it has jurisdiction in this matter,
the Respondent submits the claims rejected by the Claimant and appoints below its
arbitrator and submits its response to the Claim. The appointment of an arbitrator by
the Respondent is without prejudice to the Respondent’s position that no Arbitration
Clause exists and/or that there was no proper reference for arbitration.

03. The Respondent objects to the arbitration between Poly Technologies Company and the
Respondent being heard together with the present Arbitration and request that matters to be
dealt with separately.
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04. The Respondent’s reply to the specific averments contained in the claim by Sri Lanka Saw
Mill Company Ltd, is as follows.

I. The Respondent admits the averments contained in paragraphs 1,2, 9 & 10

II. The Respondent admits the averments in paragraph 3 but states that the date
for delivery was extended by agreement of parties.

III. Replying to paragraph 4 & 5 the respondent states:

a. That the equipment was delivered on 15th May 1996; but denies the rest of
the averments therein;

b. ………………………………

c. That even if there was a delay in the delivery of the equipment such delay
was attributable to a strike which prevented the Respondent from
performing its obligations under the contract and for that reason no liability
arose from such delay under section 06 of the contract.

d. In any event the Respondent denies that any loss or damage was caused to
the Claimant by reason of delay as the building which was t house the
equipment provided by the Respondent , was not completed by the
Claimant until 15.5.1996.

IV. The Respondent denies the averments in paragraphs 6 and states that time
was not the essence of either of the two contracts with the claimant and
section 8 of the Sales Agreement is not enforceable in law as it is an
unconscionable false penalty clause providing for unjust enrichment of the
Claimant over and above the actual loss and damage suffered.

V. The Respondent denies the averments contained in paragraphs 7,8,11,12,13,

14,15 & 16

05. Replying further to paragraphs 7 & 8 Respondent states;

a. That the Claimant had no reason or justification for expending the amounts set out as charges
for stand by labour and stand by building machinery in the circumstances,

b. in any event the Claimant has no right to claim any consequential loss from the Respondent
by reason of section 05 of the Sales agreement between the parties.

06. a. Replying to paragraph 11 712 the Respondent states that while the erection drawings
were delivered in December 1995 the Claimant was made well aware of the reason for such
delay which was due to a fire which severely damaged the Respondent’s drawing office
which is a circumstance contemplated under section 12.
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b. Hence the Claimant had no reason or justification for expending the amount set out in
paragraph 12 or any other sum on account of stand by labour charges or stand by machinery
charges.

c. Neither SMC nor any of its employees has been guilty of any misconduct in the performance
of the services contemplated under the Agreement and are therefore not liable to the claims by
reason of section 10 of the Agreement.

07. Replying to paragraph 13 & 14 the Respondent states that the erection drawings were not
defective and did not need any rewarding or rectification. In the circumstances the
Respondent is not liable for the claim set out in the said paragraphs.

The Respondent hereby requires the arbitrators to:

(a) dismiss the claimant’s claim; and

(b) order the claimant to pay the Respondent’s Counsels’ fees and costs, later to be specified
and, as between the parties, that the claimant shall pay the Arbitrators’ fees and costs
including the costs of the Arbitrators’ feed and costs including the costs of the
Arbitration Centre.

A duly signed Power of Attorney is enclosed in this reply.

The Respondent nominates Mr………………………… of …………. as their Arbitrator.