Crisang, Stephen Nikolai L. Atty.

Myra Angeli Gallardo-Batungbakal

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1) The jurisdictional issues raised by the Respondent, Electro-Ace Incorporated alleged that the
contract between the parties is tainted with illegality; it was secured through corrupt payments
wherein Asianix engaged a middleman and bribed the former power minister of Zurasia to
strongly recommend that Electro-Ace award the powerplant contract to Asianix.

The legal position of respondent’s arguments rests on the facts that corruption has long been
applied in securing international contract; has long been applied in commercial world;

Undue advantages to some, disadvantages to others; great economic cost to the nation
involved if the contract is of national importance; a loss of ease in doing business and a loss of
goodwill within the business world

1st argument: The illegality of bribing public officials is considered part of Transnational Public
Policy.

  This is a well-documented rule of Transnational Public Policy. This has been

 A number of court decisions in arbitral awards support this view as well such as ICC
case 8891 of 1998, Hotels in Egypt an exit decision, and X limited and YBV which are
all contained in our bundle of authorities.
 The Zurasian law too joins the world in declaring bribery of public officials illegal and
the punishment for such conduct in Zurasia is stringent.
 Thus it is clear, by int’l consensus, bribery and corruption are to be condemned as
morally unacceptable and economically disastrous.

2nd argument: Arbitration cannot endorse a violation of transnational public policy. This
tribunal cannot be permitted to decide the merits of this dispute.

  The use of arbitration agreements to resolve tainted disputes actually furthers criminal
schemes and violates public policy over where such disputes do arise the arbitration
agreement would be unenforceable.
  International arbitration must not be used as a tool to further unlawful contracts.
  This principle was most famously expressed by Judge Lugergen In 1961 in ICC case 1110.
He declined jurisdiction over an agent’s claim for commission because he had been
retained to bribe Argentinian govt officials to secure a govt contract, and in his words,
“parties who ally themselves in an enterprise of the present nature must realize that
they have forfeited any right to ask for assistance of the machinery of justice, national
courts or arbitral tribunals in settling their disputes.
 In another case, World Duty-Free Company, Ltd. V. Republic of Kenya, an exit tribunal
dismissed the claimants claim upon discovery that the contract under which the claims
were brought was procured pursuant to a cash bribe to the then Kenyan Head of State.
 The effect of such illegal acts is upon arbitration agreement is actually best summed up
by the exit tribunal’s decision in Chaser and El Salvador. In this case, the tribunal
decided that it is not possible to recognize the existence of rights arising from illegal acts
because to do so would, as a principle of TPP, violate respect for the law.

The respondent through factual evidence, alleged that Asianix engaged a middleman to bribe
the power minister; such middleman is notorious for unethical lobbying and corrupt practices in
Zurasia and and directed him to do “whatever is required to secure the contract with the
respondent.” No doubt therefore that under this mandate, he proceeded to bribe a person no
less than the incumbent power minister. And through him, influenced the respondent’s choice
of the claimant’s services.

To substantiate its allegations, the respondent presented the following Exhibits as pieces of
evidence:

 Letter from the power minister: directing the respondent to utilize the claimant’s
services;
 Newspaper reports showing allegations against the power minister for receiving
kickbacks;
 Investigative reports into the activities of the middleman that highlight this financial
transaction as being suspicious.

To summarize, the respondent maintains that the contract was from its very inception tainted
with corruption and therefore cannot be form the basis of a claim to adjudicated by an arbitral
tribunal and believes that Asianix, through its unjust acts, has forfeited its right to ask for
assistance of the machinery of justice to settle its disputes.

The Claimant, Asianix on the other hand maintains the jurisdiction of the arbitral tribunal and
commenced their defenses by explaining that the respondent failed to acknowledge the
development of subsequent laws. The claimant provides the following arguments:

1st argument: The tribunal has jurisdiction to examine contracts despite allegations of bribery.

 After citing the 1963 case, respondent failed to acknowledge the development of the
subsequent decisions after the said case. These decisions have made reference to the 1963
 case but they have not followed it. An example would be West Acre v. Yugo Import
Dispute, where courts in the UK, Switzerland and Kuwait, all held the arbitration agreement
to be enforceable despite corruption surrounding the main contract.
 The basis of these rulings is none other than the doctrine of separability: The tribunal treats
the arbitration agreement separate with the contract agreement in which it was contained;
and does not allow the invalidity of the main agreement to extend to the arbitration
agreement.
 To support this, they cited the UK House of Lords decision on Fionna Trust v. Frivolov
where it was held that corruption could not invalidate the arbitration agreement unless the
agreement was directly impeached by the corrupt act in question.
 The exacting test: unless the allegation of illegality relates to the arbitration clause itself,
the tribunal could proceed to decide the dispute and the dispute on the merits would
include any allegations of bribery.

2nd argument: The facts in the record do not reveal any clear evidence of the claimant’s
complicity in the alleged corrupt practices.

 As provided by law, the agent’s power to affect the legal position of its principal depends
on its actual or apparent authority.
 Actual authority requires consensual agreement between the principal and its agent
endorsing a certain act. None of the evidence adduced by the respondent that the claimant
requested the middleman to act in this manner or even suggested that such an act was
acceptable.
 In fact, claimant was unaware of the agent’s actions until after those actions were reported
by the media.
 As to the implied authority, neither can it be said that the claimant provided the
middleman implied authority which extends only to acts that are ordinarily incidental to
the due performance of an express authority.
 Bribing a minister can hardly be considered ordinarily incidental to the agent’s function, at
least not by the claimant, perhaps the respondent has different views.
 The key fact: the claimant is selected for the powerplant contract among several other
companies. The claimant was selected on a meritorious bases considering its expertise and
its industry-leading track record.
 The respondent, having known of the middleman’s alleged transgression, did not once
raise any objection, any alarm, until the commencement of this arbitration by the claimant.
2) 1st Issue: The Issue of the Performance Bank Guaranty

As an emergency arbitrator, I would grant the temporary relief of Injuction of the Bank
Guaranty sought by Asianix. A bank guaranty can only be invoked by a beneficiary if there is a
material breach of agreement, and in view of the foregoing there appears to be none. I will not
allow the invocation of a bank guaranty until a final determination of the dispute by a tribunal
as there is no legal ground to allow thus it would be illegal if Electro-Oceania will be allowed to
encash the bank guaranty.

2nd Issue: The challenge to the appointed arbitrator

Two grounds were raised, namely:

1) The chosen arbitrator by the respondent reportedly received a substantial sum from its
previous appointment as arbitrator for them in a case 15 years ago.
2) The arbitrator’s daughter being married to the son of the respondent’s counsel (whom
which the respondent’s counsel appointed that arbitrator).

On the first ground, I would agree that, not only is the relation between the parties regarding
the previous case so far in the past that they are no longer relevant to the present case, but
also because the International Bar Association (IBA) Guidelines on Party Representation in
International Arbitration provide that any relation between the parties stemming from more
than three years ago (with no ongoing relationship after that) should no longer be of any
significance to any present dispute. However, it is to be noted that the IBA Guidelines are not
binding to the parties in the case.

On the second ground, I disagree with the arbitrators in rejecting the claimant’s challenge after
due diligence in finding out if such relations by affinity would prove any partiality to the case in
dispute. I would root my decision more under the legal principle under Philippine laws that a
judge should not only be impartial, but also appear to be impartial as an added assurance to the
parties that his decision will be just. In my opinion, the familial relation is enough to cast doubt
on the partiality of the appointed arbitrator and must thus be replaced with one who will not
cast such a doubt in the minds of the opposing party.

3rd Issue: The Issue of the Jurisdiction of SIAC

In my opinon as the sole arbitrator, there is no sufficient evidence from the respondent for
them to be able to come to a really definitive conclusion about whether there were specific
instructions given to the middleman to commit illegal acts so as to allow the arbitrators to
arrive at the conclusion of any bribery taking place. As there was no sufficient showing of
corruption present, the SIAC does not need to tackle the legal issue cited above and may so
proceed with it having jurisdiction over the present dispute. I will submit that that the SIAC has
jurisdiction and should proceed with the arbitration proceedings.

4th Issue: The Award

Finally, as the sole arbitrator, I would decide the case in favor of Asianix, the Claimant and
award it the damages amounting to $60 million, in addition to its legal costs and the amount
expended by it towards the costs of the arbitration. This is pursuant to Article 53 of the United
Nations Convention on Contracts for the International Sale of Goods which provides that the
buyer must pay the price and take delivery of the goods. It also bears stressing that in view of
the volatile political atmosphere in Zurasia, the Respondent Electro-Ace did not even exert any
efforts to protect its rights with General Dom and the military junta. Thus, it can be concluded
that they do not fall under the exemption for liability under Article 79(1) of the United Nations
Convention on Contracts for the International Sale of Goods.