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ICC Award No. 6363, YCA 1992, at 186 et seq.

Title
ICC Award No. 6363, YCA 1992, at 186 et seq.
Permission Text
Excerpts from this document are included in TransLex by kind permission of the ICCA.
Content

186

Final award in case no. 6363 of 1991

Facts

Claimant is a Netherlands Antilles corporation effectively wholly owned by a Dutch company (the Dutch company). The Dutch company, in December 1972, assigned to claimant the "right to exploit in all countries outside Europe all secret or confidential data, knowledge, unpatented inventions, discoveries, technology and/or experience directly and specifically connected with" a certain biological waste water or sewage treatment system.

In 1974, a Middle Eastern Country's invitation to tender for a sewage treatment installation at a city in said country (the site) specified the use, of the above-mentioned type sewage treatment system.

On 8 November 1978, claimant and defendant, the construction company which would carry out the project, concluded a "Know-How License Agreement Concerning a Sewage Treatment Plant at the Site" (the 1978 Agreement). The 1978 Agreement was governed by Netherlands Antilles law and disputes were to be settled by ICC arbitration in Zurich. On the same date, these two parties also signed an addendum to the 1978 Agreement which was an187integral part thereof. The addendum provided for a discount in the licensing fee in return for pre-payment.

On 20 May 1980, the claimant concluded a contract (the 1980 Agreement) with a company of the Middle Eastern Country (ME company) having its registered offices in the capital. The contract, inter alia, granted the ME company the exclusive non-transferable right and license to sublicense and exploit the waste water and sewage treatment system know-how in the Middle Eastern Country (Art. 2). Under Art. 6, the claimant was also to assist the ME company in conducting negotiations with the sublicensee. Furthermore, the contract granted the ME company "the non-exclusive, non-transferable right and license to use the Trademark" (Art. 9). The 1980 Agreement was deemed to have taken effect on 1 January 1980 (Art. l l) and was to be construed according to the law of the ME Country.

In the beginning of 1981, claimant discovered that defendant had been awarded the contract for an extension of the waste water treatment plant. The ME Company inquired about the extension with the defendant, as the 1978 Agreement provided for a license fee in case of extensions as well. On 10 February 1981, the defendant's project manager wrote to the ME company that the construction of the sewage treatment plant there was near completion and acknowledged that defendant had been awarded the extension. The letter requested a meeting to discuss the payment of the "fee to be due". On 28 February 1981, the ME company sent a telefax to the defendant's project manager waiving payment of inflation increases in return for payment of the license fee for the extension by 11 March 1981. On 1 March 1981, claimant wrote to the defendant confirming the license transfer to the ME company and instructing that any additional royalties due to the enlargement of the facilities were to be paid to the ME company.

The defendant built three additional units; however, the license fee was not paid. After several attempts to negotiate a settlement failed, a case was initiated by the ME company before the Committee for Settlement of Commercial Disputes of the Ministry of justice (the CSCD Committee or the Committee).

The Committee's judgment recited extensively the sequence of the proceedings and then added:

"Based on the claim and answer to the claim which were heard by the Committee, and based on the letter of the Vice President of the National Center for Science and Technology stating that the plaintiff had no right to protection within the ME Country for reasons stated in the said letter, it has not been established to us that the plaintiff's claim against the defendant is valid."

188Claimant initiated ICC arbitration regarding unpaid license fees against defendant on 5 October 1988, and the Terms of Reference became operative on 13 October 1990.

The Arbitral Tribunal held that there had been no effective transfer of claimants's rights regarding defendant to the ME establishment and that claimant had standing to pursue its claim on its own behalf. Furthermore, the Arbitral Tribunal held the defendant liable to claimant for the unpaid license fees.

Excerpt

[...]196[...]

II. RES JUDICATA

A. Is the Decision Res Judicata?

(....) 

29 "With regard to the effect of the Decision on the claimant, the claimant contends that it was not party to the proceeding in the CSCD and therefore the judgment has no effect with regard to it. With regard to the ME company, it repeated arguments that the Decision was being misinterpreted by the defendant but, in addition, urged the Tribunal to view the Decision of the Committee as invalid and to ignore it on the ground that it was substantively wrong and violated the rules of natural justice, particularly in that it is, allegedly, unreasoned. It also claimed that on grounds of reciprocity, the Decision should not be recognized by an ICC tribunal sitting in Zurich. The defendant contended that the CSCD Decision was final and binding with regard to the issues raised in this arbitration for both its opponent and the ME company due to the ‘involvement of the claimant and its parent company during the course of the litigation in the ME Country’. In oral argument, it contended that the relationship of the claimant and the ME company was that of a joint venture and that ... the General Counsel of the Dutch company served the ME company.

30 "While a public international tribunal may have the competence to hold 197 the judgments of a national court to be denials of justice and violations of state responsibility and order remedies, such a power is not assigned, by compromis, to this international commercial tribunal in this case. Nor does such a tribunal, absent agreement of the parties, ordinarily sit as a court of appeal for the judgments of national courts. We are persuaded by counsel for the defendant that when a party has an arbitration clause with a putative defendant but elects adjudication in a national court rather than international arbitration in conformity with the arbitration clause, it may not then take an ensuing judgment with which it is dissatisfied and bring it to international arbitration on the basis of the hitherto ignored arbitration clause for a ‘second bite at the apple’. 


31 "Violations of the Rules of Natural Justice may constitute an exception and it is arguable that some taints, e.g., the use of fraudulent evidence to secure a judgment or an award, would always make it vulnerable to attack. But no such allegations are made here with regard to the proceedings in the CSCD. The proceedings, while extending over a long period, in large part, it would appear, because of the behaviour of both litigants there, do not appear unfair. The judgment is not extensively reasoned, but it certainly meets the general requirement of sufficiency of reasoning of the two ICSID ad hoc Committees in Klöckner v. Cameroun and Amco Asia v. Indonesia, which were cited by the claimant in this regard,4 but on whose relevance this Tribunal need express no opinion. The pattern of thinking of the Committee as well as its relation to the evidence and arguments of the parties can be seen in its Decision. Insofar as the Decision is unclear, it becomes clear when read in the light of the NCST letter on which it relied and which has been produced and referred to by both parties.

32 "The absence of an institutionalized appeal mechanism would be unusual in the legal systems of the West, but no authority has been cited to us holding that an institutionalized right of appeal is a natural justice right. International arbitration itself does not have appeal options.

33 "The fact that the [Q lawfirm] represented one of the litigants in the litigation after saying that to do so would be a conflict of interest and that it would therefore not do so if litigation commenced, is troubling, but the parties did not argue this point, apparently sharing the view that it was not a tainting factor. The Tribunal has not been informed of ME Country law or professional ethics on the matter or whether, in ME Country law, a prohibition, if there is one, applies to a firm or to a particular solicitor, such that a different member of 198 a firm may take up a case when another member has been conflicted out. Because this matter was not pleaded to us, we express no opinion on this matter. But it is noteworthy that in any case the [Q lawfirm] ceased to play a role in the CSCD process relatively early on, making the relevance of the issue questionable.

34 "Accordingly, we find no reason not to treat the Decision of the Committee as a valid judicial act." 

B. Effect of the Decision

35 "The practical question is what is the content of this res judicata and against whom does it apply. Where there is, cumulatively, identity as regards parties, subject matter of the dispute petitum, and causa petendi, between a prior judgment and a new claim, the new claim is barred by the principle of res judicata.

36 "As detailed above, the minority arbitrator has expressed the opinion that the CSCD Decision dealt with the merits of the royalty claim that had validly been assigned from the claimant to the ME company, and the Decision determined that the claim as such against the defendant was not a meritorious claim. In the view of the minority arbitrator, the CSCD Decision has to be recognized as a final and binding decision. It has extinguished the royalty claim as a consequence of its res judicata effect. Therefore, it cannot validly be resubmitted in the framework of the present arbitration. As explained below, the majority of the Tribunal takes a different view.

37 "The named parties in the Committee process were the ME company as plaintiff and the Korean company as defendant. It has not been argued that the ME company and the claimant in the instant case are, in fact, one and the same. They are in law and fact separate persons. The claimant has acknowledged that it advised the ME company but said that it ‘acted merely as an advisor’. But the defendant contends

[The claimant] closely cooperated and controlled the negotiations, discussions and litigation between the ME company and the Korean company. It played an active part in the conduct of the litigation in the ME Country, which was admitted by its parent company in its telex of 30 August 1982 ... as well as in several other correspondences.’

38 "In this regard, however, the defendant has drawn attention only to two telexes in which the Dutch company used the term ‘we’ in referring to itself, the ME company and the claimant, ‘the parties at this end’:199

‘If this proposal will appear not [to] be acceptable for [the Korean company] ... we will continue the litigation before the court in the ME Country in full confidence about the results thereof.’

The defendant draws attention, as well, to a telex from the claimant on 30 August 1982, in which the claimant urges settlement or ‘we will continue the litigation before the court in the ME Country ...’. The defendant also argued that the Dutch company was sent copies of correspondence and telex messages in which [the president of the ME company] threatened suit in the ME Country if the defendant failed ‘to comply with the full terms of the contract which they signed with [the claimant]’. From the fact of being copied, the defendant concludes ‘[the president] and the Dutch company's attorney were in fact acting together to follow the same course of actions’. The defendant also concludes that the claimant was the true plaintiff in the CSCD proceedings because of its failure to object to non-arbitration:

‘At no time during the litigation for nearly five (5) years did the claimant object to the violation of the contractual arbitration provision included in the 1978 License Agreement. Quite to the contrary, they approved the CSCD proceedings.’

And the defendant draws attention to the 3 December 1987 Letter quoted above in which the personal noun ‘we’ is used in expressing regret that the matter had not been amicably settled by both parties in 1981. The defendant also contends that the claimant and the ME company were joint venturers.

39 "Because the 1980 Agreement was prospective, its terms do not apply, as such, to the relation between the claimant and the defendant, but in explaining the relation between the claimant and the ME company, it throws light on some of the issues raised by the defendant in this regard. The Tribunal would note that the relationship between the claimant and the ME company is complex. Though many prospective rights are transferred to the latter and it is henceforth unquestionably the... licensee [for the system] in the ME Country, the claimant is contractually bound to perform services for the ME company and, e.g., under Art. 6, to assist in negotiations with sub-licensees. The claimant, as the licensor, also had a financial interest in the fees from new plants, for which it would receive two-thirds.

40 "But all of these aspects of the agreement are consistent with the separate legal and factual personalities of the claimant and the ME company. To establish that they were one and the same in the CSCD procedure or that they constituted a joint venture, only the few references in the communications cited above are 200 produced. They would be, in the best of circumstances, a very slender base on which to rest that contention. In the context, they are inconclusive. The fact that the claimant wanted the Korean company and the ME company to resolve their dispute amicably and even used ‘we’ to refer to itself and the ME company, to whom it thought it had transferred the right, does not make it a party in the case in the CSCD. Nor does the fact that it gave advice to the ME company make it a party, especially in the light of Art. 6 of the 1980 Agreement. Its role as advisor to the ME company with regard to the latter's efforts to collect from the Korean company is consistent with its obligations under the 1980 Agreement. It is not unusual for advisers to refer collectively to themselves and their principal as ‘we’, particularly when they are negotiating on behalf of their principals with third parties.

41 "Other factors also weigh against defendant's argument in this regard. Under the theory of the case the ME company adopted in the CSCD proceedings, the claimant could not have been a party. The fact that an entity is sent copies of correspondence between other parties might have some significance in some national criminal codes if the transaction contemplated is criminal and there is a duty to inform authorities, but as a matter of civil law, it has not been shown under Netherlands Antilles or ME country law that being copied, per se, makes the outside entity a party to whatever transactions are being pursued through the correspondence. The claimant's failure to object to the ME company's pursuit of litigation as opposed to arbitration hardly establishes, in itself, that the claimant was a party to the litigation. As for the use of the first person plural in the Letter of 3 December 1987, it seems to be an ‘editorial we’ and does not appear even to include ‘the parties’ who are referred to shortly thereafter. These various references are matched, more pertinently in the view of this Tribunal, by the statement of counsel for the defendant in regard to the CSCD process, that ‘the Dutch company never requested that we represent them in connection with this action’. It will be recalled that [the] potential conflict [of the solicitor] in this case arose from his firm's representation of the ME and Korean companies and not the claimant or the Dutch company. Indeed, the ME company's suit in the CSCD failed precisely because it was separate from the claimant/Dutch company and, as a result, could not rely on a contractual right with regard to the ... system.

42 "For these reasons, the Tribunal, by majority, finds that the claimant is not bound by the Decision of the Committee.

43 "A discrepancy between any one of the elements of a current claim and a past judgment comprising a res judicata is enough to defeat a defense based on res judicata. Enough has been said to show that the CSCD Decision is res judicata as between the ME company and the defendant, but not as between the claimant 201 and the defendant. This does not mean that the Decision can be ignored. Parts of it represent an authoritative ruling on the position of ME country law on certain matters that may be relevant in this case." 

(....)

C. Estoppel Regarding Jurisdiction Claims

44 "The claimant contends that the defendant reversed its arguments after prevailing in the CSCD procedure and should be estopped, for it is acting in bad faith. Defendant seems to accept the doctrine of estoppel but says its position in the CSCD has been misinterpreted.

45 "Estoppel requires that the party claiming it has relied on a representation by another party with a resulting detrimental consequence to its own interests. There is no evidence that the claimant relied on the defendant's defenses to its detriment. Hence, estoppel issues are not raised here. However, this Tribunal agrees with a related and common position of both parties about the relevance of earlier statements which they both invoke. The Tribunal cannot ignore positions taken by the parties throughout the long history of their relationship, for they are indicative of their contemporary thinking and their conception of their legal rights.

46 "The issue of estoppel does not arise with regard to jurisdictional claims in this case."

[...]

4The decision of the ad hoc Committee in Klöckner v. Cameroun of 3 April 1985 is reproduced in Yearbook XI (1986) pp. 162-184; the decision of the ad hoc Committee in Amco Asia v. Indonesia is reproduced in Yearbook XII (1987) pp. 129-148.

A project of CENTRAL, University of Cologne.