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Lawyers, other representatives, expert(s), tribunal’s secretary

Partial Award on Merits

Introduction

1.
This Partial Award Regarding the merits is issued by the following arbitrators duly appointed and acting in this matter

Alex Baykitch (Chairman)
Richard A. Eastman
Douglas K. Freeman
Hereinafter the "Tribunal"

The addresses of the arbitrators are as follows:

Alexander Baykitch
Chairman
Holman Fenwick Willan
Level 29
201 Elizabeth Street
Sydney NSW 2000
AUSTRALIA
Ph:+61 2 9320 4605
Fax: +61 2 9320 4666
Email: alex.baykitch@hfw.com

Richard A. Eastman
Kojimachi Heights Suite #206
6-4 Kojimachi, Chiyoda-ku
Tokyo 102-0083
JAPAN
Ph: +81 3 3263 7930
Fax: +81 3 3263 7931
Email: richard.eastman@eastmanlaw-tokyo.com

Douglas K. Freeman
The Law Offices of Douglas K. Freeman
TCCI Building, Suite 606
3-2-2 Marunouchi, Chiyoda-ku
Tokyo 100-0005
JAPAN
Ph: +81 3 5208 5122
Fax: +81 3 5208 5124
Email: dfreeman@dkfreemanlaw.com

2.
The Parties

Marubeni Corporation (Marubeni) is a company organised under the laws of Japan. Marubeni's principal place of business is located at:

4-2 Ohtemachi 1-chome
Chiyoda-ku
Tokyo 100-8088
JAPAN

3.
Marubeni is represented by Mitchell L. Lathrop of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., 3580 Carmel Mountain Road, Suite 300, San Diego, California, 92130, United States of America (hereinafter sometimes "Claimant's Counsel").
4.
MediVas LLC (MediVas) is a company organised under the laws of California, United States of America. MediVas's principal place of business is located at:

8950 Villa La Jolla Drive, No. 2160
La Jolla
California 92037
USA

5.
MediVas is represented by Stephen L. Schreiner of Solomon Ward Seidenwurm & Smith, LLP, Wells Fargo Plaza, 401 B Street, Suite 1200, San Diego, California 92101, United States of America (hereinafter sometimes "Respondent's Counsel").

Summary of Procedural History and Current Status

6.
This proceeding was initiated when Marubeni filed a Request for Arbitration dated 8 April 2010 with the Secretariat (the "Secretariat") of the International Court of Arbitration of the International Chamber of Commerce (the "ICC Court").
7.
In its Request for Arbitration, Marubeni named 9 other individual Respondents in addition to MediVas. At its session of 24 June 2010, the ICC Court decided, pursuant to Article 6(2) of the Rules of Arbitration in force as from 1 January 1998 (the "Rules"), that the arbitration shall proceed between Marubeni and MediVas, but not with respect to the other 9 Respondents.
8.
In its Request for Arbitration, Marubeni also nominated Richard A. Eastman as its designated arbitrator. Mr Eastman was confirmed by the ICC Court at its session of 22 July 2010.
9.
As Respondent failed to nominate an arbitrator, Mr Freeman was appointed by the ICC Court at its session of 22 July 2010 upon the proposal of the United States National Committee, pursuant to Article 9(b) of the Rules; and Mr. Baykitch was appointed by the ICC Court at its session of 19 August 2010 upon the proposal of the Australian National Committee.
10.
Respondent MediVas disputed the Tribunal's jurisdiction to arbitrate this case, has not filed an Answer and has refused to take part in drawing up, and signing the Terms of Reference or the proceedings generally. MediVas has, however, been copied on all correspondence with the Tribunal, participated through Respondent's Counsel in a procedural phone conference with the Tribunal and Claimant's Counsel on 16 September 2010, has submitted jointly with Marubeni the stipulation referred to in Paragraph 13 and has submitted periodic correspondence (at times detailed and lengthy correspondence) to Marubeni and the Tribunal, including its submissions of 5 January 2011 and 11 January 2011 relating to jurisdiction, all of which the Tribunal has taken into account in its deliberations.
11.
The Terms of Reference were signed by all members of the Tribunal and by Claimant's Counsel, and were submitted to the ICC Court for approval on 4 November 2010. On 18 November 2010 the Court approved the Terms of Reference.
12.
The Terms of Reference set out the following claims and issues for determination by this Tribunal:

"An award from the Arbitral Tribunal of USD4,500,000, plus interest at the default rates, costs and attorney fees according to proof.

Determination of the following issues raised by MediVas in the pending California litigation and disputed by Marubeni:

• MediVas's claims that Marubeni breached the implied covenant of good faith and fair dealing in the [Note Purchase] Agreement;

• MediVas's claims that it can avoid the [Note Purchase] Agreement and its accompanying Note because Marubeni was not qualified to do business in California;

• MediVas's claims that it transferred a security interest without equivalent value and that the transfer is therefore voidable; and

• MediVas's claims that Marubeni improperly and illegally interfered with MediVas's business relationships with Nastech and DSM

13.
The parties asked the Tribunal to determine its jurisdiction as a preliminary matter. They filed a joint stipulation dated 17 September 2010 (the "Stipulation") with the Tribunal stating as follows:

"The Tribunal may decide the issue of jurisdiction as its first order of business, based on the pleadings and correspondence accompanying this Stipulation as well as all correspondence and other documents previously supplied to the International Chamber of Commerce, the International Court of Arbitration, or the Tribunal.

MediVas's failure to sign the Tribunal's proposed Terms of Reference shall not preclude the Tribunal from deciding the issue of jurisdiction as its first order of business."

14.
The Tribunal rendered an Interim Award regarding jurisdiction on 5 May 2011 (hereinafter sometimes the "Jurisdiction Award").
15.
Pursuant to Procedural Order No 3 issued by the Tribunal on 16 May 2011, a procedural hearing was held by telephone on 17 May 2011 (Sydney/Tokyo) and 16 May 2011 (San Diego). The Claimant was represented by Mr Mitchell Lathrop. There was no appearance on behalf of the Respondent, although the Tribunal did delay the commencement of the procedural hearing by five minutes in the event that the Respondent altered its position from that in its email from the Respondent's lawyers dated 14 March 2011.
16.
The summary minutes of the Procedural Hearing along with the timetable were sent to the parties on 18 May 2011. The Claimant filed its memorial in accordance with the timetable, consisting of its Brief on the Merits of the Case, Statements of witnesses Messrs. Jeffry A. Davis (the "31 May 2011 Davis Statement"), Hidekazu Futai, Sosuke Tanaka and Ryoichi Watanabe with attached Exhibits.
17.
On 17 June 2011 the Respondent's lawyer, Mr Stephen Schreiner acknowledged by email the Tribunal's invitation to participate in the proceedings but declined to participate in these proceedings which has been the Respondent's position throughout the arbitration.
18.
Pursuant to Procedural Order No 4 a further procedural hearing was held by telephone at which the Claimant's legal representative appeared but there was no appearance for the Respondent. The summary of the minutes of procedural hearing was sent to the parties on 8 July 2011.
19.
Pursuant to Procedural Order No 5 the Claimant filed a supplemental brief dated 11 July 2011 (the "11 July 2011 Supplemental Brief") and a Supplemental Statement by Jeffry A Davis dated 11 July 2011 (the "11 July 2011 Supplemental Statement").
20.
By application dated 11 July 2011 the Claimant sought pursuant to Article 19 of the Rules the Arbitral Tribunal's authorisation to add:

• claims in respect of the forbearance agreement set forth in the Points of Agreement dated 31 October 2008 (the "Points of Agreement"); and

• MediVas's claims that Marubeni breached its obligations under the Agency Agreement (as defined in the Terms of Reference) dated 13 April 2004.

21.
In Procedural Order No 6, the Tribunal authorised pursuant to Article 19 of the Rules the addition of Claimant's additional claim under the Points of Agreement and the Claimant's request for the Tribunal's ruling on the issue of the Claimant's alleged breach of the Agency Agreement. The Tribunal finds jurisdiction over the claim regarding the Points of Agreement because such claim clearly falls under the arbitration clause in the Note Purchase Agreement (as defined below) which refers to "all disputes and differences which may arise out of or in connection with" such agreement. The Tribunal further finds jurisdiction regarding the claim based on the Agency Agreement pursuant to the arbitration clause contained therein which is not in conflict with the arbitration clause in the Note Purchase Agreement.
22.
Pursuant to an email to the parties dated 21 July 2011 the Tribunal held a further procedural hearing by telephone conference on 28 July 2011 (Sydney/Tokyo)/27 July 2011 (San Diego). The Claimant's legal representative appeared but there was no appearance for the Respondent. The parties were provided with minutes of the procedural hearing on 28 July 2011 and pursuant to Procedural Order No 7, the Claimant filed a bundle of Exhibits a Second Supplemental Brief dated 29 July 2007 (the "Second Supplemental Brief") and a supplementary brief statement from Mr. J A Davis dated 29 July 2011 (the "29 July 2011 Supplemental Statement").
23.
By letter dated 31 October 2011, the Tribunal was informed by the Secretariat that at its session of 20 October 2011, the Court extended the deadline for rendering the final Award until 31 December 2011 under Article 24 of the Rules.
24.
Pursuant to Procedural Order No 8, the Tribunal notified the parties on 17 August 2011 that the proceedings were closed with respect to the merits only under Article 22(1) of the Rules.
25.
Despite being invited on several occasions to participate in these proceedings, the Respondent has declined to do so.

The Relief Sought

26.
The issues which the Tribunal must decide are as follows:

(a) The Claimant's request to recover the balance of its loan to the Respondent in the amount of USD2,250,000;

(b) The Claimant's Request to recover the Forbearance Fee (as defined below) in the amount of USD500,000;

(c) The Claimant's request to recover interest on the loan principal;

(d) The Claimant's request to recover interest on the Forbearance Fee;

(e) The Claimant's request that the Tribunal rule on the merits of the following claims advanced by the Respondent in the complaint filed in the Superior Court of the State of California for the Country of San Diego on 28 April 2010:

(i) avoidance of Note Purchase Agreement and accompanying Note because Marubeni was not qualified to do business in California;

(ii) the Claimant's alleged breach of covenant of good faith and fair dealing;

(iii) the Claimant's alleged intentional interference with prospective economic advantage;

(iv) the Claimant's alleged breach of certain obligations under the Agency Agreement; and

(v) that MediVas transferred a security interest without equivalent value and that the transfer is therefore voidable..

27.
The Claimant also seeks an award of costs, including attorneys' fees. In this regard, the Tribunal will defer this request to a separate, subsequent phase of the proceedings.

Burden of Proof in Ex Parte Proceedings

28.
In connection with the posture of this case whereby MediVas refuses to participate in the proceedings, in its 11 July 2011 Supplemental Brief the Claimant states that Respondent "has had the burden of producing evidence from the outset,... [but] has failed to do so" and that therefore "the factual allegations of the complaint... will be taken as true."1 The Tribunal recognizes, however, that under the Rules,2 applicable law3 and accepted practice in international arbitration,4 it is not appropriate to enter an award based on accepting as admitted claims which have not been denied, in the way that a court might render a default judgment. The Tribunal is required to receive and evaluate evidence of the claims and arguments and establish the facts by all appropriate means.5
29.
While the Tribunal has no duty to act as an advocate for the party who elected not to appear, it must examine the merits of the arguments of law and evidence put to it by the participating party, so as to satisfy itself that these are well-founded.6
30.
In these circumstances, the normal rules of burden of proof cannot be applied. The party who is taking part, here the Claimant, must prove its case to the satisfaction of the Tribunal. In this case that involves providing evidence regarding issues as to which, were the Respondent participating, it would have the burden of proof. In these circumstances, the Tribunal has also found it necessary to conduct supplemental research with respect to the issues presented to verify the legal arguments presented by the parties while taking care to ensure that the legal bases for our decision are within the parameters of the Claimant's submissions.

Summary Statement of Facts

31.
The following paragraphs provide an overview of the facts presented, largely if not all undisputed. More specific discussion of relevant facts will be found in the Tribunal's consideration of particular issues.
32.
On 13 April 2004, Marubeni and MediVas entered into an agreement in writing called a "Convertible Note Purchase Agreement" dated as of 13 April 2004 (the "Note Purchase Agreement").7 Pursuant to the terms of the Note Purchase Agreement Marubeni was obligated to make advances to the Respondent in an aggregated principal amount not to exceed USD5,000,000, which it did on 11 June 2004.8 Interest at the rate of 12% per annum was payable quarterly, with the principal amount due three years from date of first Advance (11 June 20079).
33.
The Note Purchase Agreement contained an arbitration clause providing as follows:

"Section 10.14 Arbitration. All disputes and differences which may arise out of or in connection with this Agreement, or the breach thereof, will be settled amicably insofar as possible by means of negotiations among the responsible executive officers of the parties. All such disputes and differences which are not settled in this manner within thirty (30) days after the receipt by responsible executive officers of either party of written notification from the other party of the existence of a dispute, shall be submitted to arbitration under the commercial arbitration rules of the International Chamber of Commerce (the "ICC") for final and binding arbitration. The arbitration proceeding, including all hearings or meetings, shall be at a mutually convenient location in Tokyo, Japan. Each party to the arbitration shall select one arbitrator and those two arbitrators shall in turn select the third arbitrator; provided that, if the two arbitrators cannot agree on an additional arbitrator within sixty (60) days after notice of the dispute, or if either party fails to appoint its arbitrator within sixty (60) days after notice of the dispute, the ICC shall make such selection in accordance with its rules. The third arbitrator shall be the presiding arbitrator and shall be a national of a country other than the United States, Japan or any other country in which a party to this Agreement is incorporated, or in which a party's ultimate parent is incorporated or domiciled. The arbitration will be conducted in the English language; provided that any witness whose native language is not English may give testimony in his or her native language, with simultaneous translation into English (at the expense of the party presenting any such witness) and that either party may request simultaneous translation of the proceedings into Japanese (with the related expense to be borne equally by the parties). Each party to the arbitration shall bear its own costs, including attorneys' fees, as well as one-half of the cost of the arbitration panel, unless the arbitration panel determines that arbitration expenses, including attorneys' fees, shall be allocated on a different basis, according to the equities of the matter at issue. The remedies of the parties in the event of a breach of this Agreement shall not include any amount for lost profits or other consequential or indirect damages, nor for punitive or exemplary damages. All decisions rendered by a majority of the arbitration panel shall be final and binding among the parties, and shall include a statement of the reasons for the decision. Judgment upon the award rendered may be entered and shall be enforceable in any court of competent jurisdiction having jurisdiction over the parties. Either party to this Agreement may request any judicial or other authority to order any provisional or conservatory measure, prior to the institution of the arbitration proceeding, or during the proceeding, for the preservation of its rights and interests."

34.
At or about the same time that they entered the Note Purchase Agreement, the parties also entered another agreement called the "Agency Agreement" also dated as of 13 April 2004 and also containing an arbitration clause, which provided as follows:

"9.2 Any controversy or dispute arising out of or in connection with this Agreement, its interpretation, performance, or termination, ("Dispute") that the parties are unable to resolve within thirty (30) days after written notice by one party to the other of the existence of such Dispute, shall be submitted to arbitration. The arbitration shall be conducted in Tokyo, Japan, except as may otherwise be agreed by the parties, in accordance with the Rules of Arbitration of the International Chamber of Commerce ("ICC") then in effect by three (3) arbitrators selected in accordance with said rules. The arbitration shall be held in English language. The award rendered therein shall be final and binding upon both parties."

35.
During 2007, the Respondent began experiencing cash flow shortages and liquidity problems (Complaint, Paragraph 48). When the principal obligations on the Note Purchase Agreement became due, the Respondent could not meet its obligations under the Note Purchase Agreement and so informed the Claimant of its inability to repay the debt (Complaint, Paragraph 49). Meanwhile as a measure of dealing with its financial difficulties, the Respondent entered into merger discussions with Nastech Pharmaceutical Company Inc ("Nastech") (Complaint, Paragraph 50). According to MediVas, by September 2007 the Respondent and Nastech drafted an agreement and plan of merger and, in order to complete the merger, Nastech requested the Respondent's lender (Claimant) to consent to the merger (Complaint, Paragraphs 51 and 53). MediVas further claims that it was in order to obtain the Claimant's consent to the merger that the Respondent agreed to enter into 3 additional agreements relating to the Note Purchase Agreement and the loan made thereunder, consisting of a:

(a) Forbearance Agreement (the "Forbearance Agreement") (Exhibit J);

(b) a Security Agreement (the "Security Agreement") (Exhibit K); and

(c) an Intellectual Property Security Agreement (the "IP Security Agreement") (Exhibit L).

The evidence indicates that these agreements were entered between Claimant and Respondent, each dated 10 October 2007 (31 May 2011 Davis Statement, Paragraph 7).

36.
The Forbearance Agreement is an agreement by Marubeni to forbear from exercising certain contractual remedies under the Note Purchase Agreement in exchange for MediVas agreeing to abide by certain terms and conditions including the provision of security. Among other things, the agreement provides a repayment schedule, specifies that the interest rate is the "default rate" of 15% per annum, and is conditional on entry into the Security Agreement and IP Security Agreement (forms of which were included as Exhibits J, K and L). It contains no clause expressly dealing with dispute resolution. While the Forbearance Agreement expressly amends Paragraph 8.1(a) of the Note Purchase Agreement, it states in Paragraph 11(f) that the other provisions remain unchanged:

"Legal Effect. Except as amended by this Agreement, all of the terms of the Loan Documents [defined to mean the Note Purchase Agreement and the Note] remain in full force and effect...."

37.
The Security Agreement grants Marubeni a "security interest" within the meaning of the Uniform Commercial Code in a broad range of collateral including MediVas's present and future Inventory, Equipment and Fixtures, Documents of Title, Accounts, Contract Rights, General Intangibles (defined to include Intellectual Property), and including the proceeds of any of such collateral (the "Collateral").
38.
Upon the occurrence of an Event of Default (as defined in the Security Agreement), the Security Agreement, Paragraph 5.2, provides for "Obligations" (defined to include the obligations of MediVas to Marubeni under the Note as well as under the Security Agreement and IP Security Agreement) to become immediately due and payable without notice, and Paragraph 5.3 provides Marubeni with a number of other specific remedies with respect to the Collateral.
39.
The Security Agreement contains the following clause:

"6.14 Venue and Jurisdiction. Grantor [MediVas] and Lender [Marubeni] agree that the state and federal courts located in San Diego, California (the "San Diego Courts"), will have exclusive jurisdiction to hear and determine any dispute, claim or controversy between or among them concerning the interpretation or enforcement of this Agreement, or any other matter arising out of or relating to this Agreement. Each party to this Agreement specifically covenants and agrees that if it institutes litigation against any other party to this Agreement, it will file and maintain the action only in one of the San Diego Courts. Each party to this Agreement hereby unconditionally and irrevocably consents and submits to the exclusive jurisdiction of the San Diego Courts for this purpose only, and acknowledges and agrees that it has sufficient contacts within the State of California and the City and County of San Diego to warrant the imposition of jurisdiction over it for this purpose only."

40.
All of the 2004 and 2007 agreements referred to above contain governing law clauses specifying California law as follows10:

Note Purchase Agreement

Section 10.13 Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of California.

Agency Agreement

9.1 This Agreement shall be construed and interpreted in accordance with and governed by the laws of the state of California, U.S.A. without regard to the conflict of laws provisions thereof.

Forbearance Agreement

11.h. Applicable Law. This Agreement shall be governed by the laws of the State of California without regard to principals concerning choice of the law.

Security Agreement

6.13 Governing Law. Grantor and Lender agree that all disputes, claims and controversies between or among them concerning the interpretation or enforcement of this Agreement, or any other matter arising out of or relating to this Agreement, will be governed by, construed and enforced in accordance with the internal laws of the State of California, without regard to principles of conflicts of laws.

IP Security Agreement

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute the same instrument. This Agreement shall be governed by the laws of the State of California.

41.
The Nastech merger failed.11
42.
No payment was made by the Respondent to the Claimant on 1 December 2007 as called for in the Forbearance Agreement and the repayment schedule which had been agreed to by the Respondent.12
43.
By February 2008 despite assurance from the Respondent, no payments had been made by the Respondent to the Claimant. On 8 February 2008, the Respondent informed the Claimant for the first time that it was going to have discussions with DSM Biomedical Materials B.V. ("DSM").13
44.
By September 2008 Respondent represented to Claimant that DSM and the Respondent were in advanced discussions of a license agreement.14 On 31 October 2008 the Claimant and Respondent entered into the Points of Agreement15 whereby the Claimant agreed to a further forbearance through 31 December 2008 in exchange for the payment of all amounts including interest due under the Loan Documents of a forbearance fee of USD500,000 payable on or before 30 December 2009. The Respondent did not pay this amount.16 Respondent suggested to Claimant that DSM had determined that the Respondent had financial difficulties and drew out negotiations with the goal of getting the lowest price for the license.17 Mr. Carpenter of MediVas emailed Mr. Matsubara of Marubeni on 8 December 2008 that a letter of intent with DSM was close to being signed, and, although a final amount for the license had not been agreed upon, the upfront fee was in the USD6,000,000 to USD7,000,000 range.18 The Claimant advised that if DSM wanted to ensure that the Claimant would not be able to void the license, the Respondent would need the Claimant's express consent to the license and asked for a proposal as to how the Claimant would be repaid in connection with the license transaction.19 The Claimant was requested to provide DSM with written consent allowing the Respondent to negotiate for exclusive licenses in four medical fields.20 The Claimant initially declined the Respondent's request21 but eventually an agreement was reached regarding repayment of debt from the license transaction.22
45.
On 11 February 2009, the Respondent and DSM executed a Technology License Agreement (Complaint, Paragraph 74).
46.
On 13 February 2009, the Claimant received USD2,250,000 from the proceeds of the DSM license.23
47.
After 13 February 2009 discussions continued between the Respondent and other possible partners without any apparent success.24
48.
MediVas and nine individuals as plaintiffs filed 2 separate suits in the Superior Court of California for the County of San Diego against Marubeni, one in February 2010 and the other in April 2010 (the "Complaint"), seeking damages from Marubeni under several causes of action. The earlier complaint was withdrawn without prejudice. The Complaint alleges a broad range of wrongs by Marubeni against the plaintiffs including causes of action based on:

(i) avoidance of illegal contracts, specifically the Note Purchase Agreement, the Agency Agreement, the Forbearance Agreement, the Security Agreement and the Intellectual Property Agreement, premised on the allegations that Marubeni was doing business in California without properly qualifying to do business in the state;

(ii) breach of a covenant of good faith and fair dealing implied in the Note Purchase Agreement;

(iii) breach of certain obligations under the Agency Agreement, including failure to adequately explore the Japanese market on behalf of MediVas;

(iv) fraudulent conveyance and avoidable transfer, concerning the conveyance of security interests by MediVas to Marubeni in October 2007;

(v) intentional interference with prospective economic advantage in connection with an alleged prospective merger with Nastech;

(vi) intentional interference with prospective economic advantage in connection with an alleged prospective acquisition of MediVas by DSM;

(vii) a request for declaratory relief relating to primarily the allegations under the first 6 causes of action; and

(viii) a request for declaratory relief concerning a series of promissory notes, called the "Incentive Notes" which had been executed by the 9 individual plaintiffs in favor of MediVas and which Marubeni allegedly sought wrongly to treat as Collateral under the Security Agreement.

49.
In response to each of the lawsuits initiated by MediVas and its co-plaintiffs, Marubeni on 10 May 2009 removed the actions to the Federal District Court of the United States for the Southern District of California (the "District Court"). In the earlier lawsuit its removal was based on diversity of citizenship, while the April lawsuit was removed on the basis of federal jurisdiction under Chapter 2 of the Federal Arbitration Act, 9 USC §§ 201-208, which enacts the Convention on Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 (The New York Convention) into law.
50.
Further, as already stated above, Marubeni filed a Request for Arbitration dated 8 April 2010 with the Secretariat initiating the instant proceeding.
51.
By order issued by the Honorable Thomas J. Whelan, District Judge of the District Court dated 28 February 2011 (the "Order"), the Court granted Claimant Marubeni's motion to compel arbitration as to Respondent MediVas. The Court's Order, inter alia, finds that removal of the state court action to the District Court was proper because there was a question of federal jurisdiction under the Federal Arbitration Act, Chapter Two, 19 USC §§ 203-205.25 Further the Court points out that "MediVas does not dispute that all of the claims have the same factual genesis," but argues that the "arbitration provision was replaced by the Security Agreement's venue provision26." The Court then found that the Note Purchase Agreement was not superseded and that:

[apart from the amendment to paragraph 8.1(d) of the Note Purchase Agreement] [t]here are no other provisions in the Forbearance Agreement, the Security Agreement or the IP Security Agreement that amend or supersede the Note Purchase Agreement or the arbitration clause. Because MediVas concedes that all of its claims are related to the 2004 Note Purchase Agreement, MediVas must arbitrate its claims.27

52.
On 21 March 2011, the Respondent filed an Ex Parte Application for leave to file a Motion to Reconsider the Order and on 21 March 2011, the Claimant filed an Opposition to the Ex Parte Application for Reconsideration.
53.
On 16 May 2011, the Respondent made an Ex Parte Application for leave to Supplement Record re Pending:

(a) Request for reconsideration of the Order; and

(b) Determination re Demand of Individual Plaintiff's Claims.

54.
On 31 May 2011, the Hon Thomas J Whelan of the District Court noted that although the majority of Medivas's arguments were unpersuasive, he thought reconsideration was warranted in light of a recent Ninth Circuit case, Polimaster Ltd v RAE Systems, Inc., 623 F. 3d. 832 (9th Cir. 2010), which was decided after the parties submitted their original briefs on the underlying motion.
55.
Subsequently the Tribunal received from Counsel for the Respondent, correspondence dated 3 August 2011 with an attached Order dated 2 August 2011 of the District Court granting in part the Respondent's motion to that court for reconsideration of its previous Order. The Court found that the following causes of action were either not covered by the arbitration provision or covered by the venue provision contained in the Security Agreement and therefore, were remanded to the Superior Court:

(a) Avoidance of illegal contract with respect to the Forbearance Agreement, IP Security Agreement and Security Agreement;

(b) Declaratory Relief (7th cause of action) with respect to the Forbearance Agreement, IP Security Agreement and Security Agreement;

(c) Declaratory Relief - incentive notes (8th cause of action).

56.
On 4 August 2011, the Tribunal received from Counsel for the Claimant, correspondence attaching copies of a motion filed with the District Court for reconsideration of that part of its remand order which held portions of the Respondent's claim not arbitrable.
57.
On 5 August 2011, the Tribunal received correspondence from the parties' legal counsel advising that the Claimant's motion for reconsideration of that part of its remand order which held portions of the Respondent's complaint non-arbitrable was denied.

Discussion and Decision of Claims

Claimant's Request to Recover the Balance of its Loan to the Respondent in the Amount of USD2,250,000

58.
In its Complaint initially filed in the Superior Court the Respondent admits:

(a) that on 13 April 2004 it entered into the Note Purchase Agreement; and

(b) that it borrowed USD5,000,000 from the Claimant.

59.
The Respondent was required under the Note Purchase Agreement to pay the principal on the Notes' Maturity Date, (i.e. 11 June 2007, 3 years from the date of first advance).
60.
By 11 June 2007 when the principal obligation on the Note Purchasing Agreement became due, the Respondent could not meet its obligations under the Note. The Claimant agreed to extend the time for repayment by the Respondent until the end of July; however, the Respondent failed to meet that extended date either.
61.
On or about 27 August 2007, subject to final documentation the Respondent agreed to pay:

(a) the Claimant by 15 September 2007, USD500,000 principal plus accrued and unpaid interest of USD142,215.0.

(b) successive quarterly principal payments of USD1,000,000 to be made on 1 December 2007,1 March 2008,1 June 2008, 1 September 2008 and a final payment on 1 December 2008 of USD500,000.

62.
The Respondent made a payment of principal in mid 2007 in the amount of USD500,000 on 14 September 2007.
63.
Following further negotiations between the Respondent and the Claimant, the parties entered into 3 additional agreements dated 10 October 2007 which incorporated the terms of the agreement reached by an exchange of emails on 27 August 2007 namely:

(a) the Forbearance Agreement;

(b) the Security Agreement; and

(c) the IP Security Agreement.

64.
The Nastech merger failed and the Respondent did not meet its obligations to pay undertaken in the Forbearance Agreement.
65.
On 31 October 2008, the Points of Agreement were agreed between the Claimant and Respondent, whereby Respondent agreed to pay a forbearance fee of USD500,000, in exchange for the Claimant's agreement not to exercise its rights under the Note Purchase Agreement and the subsequent 2007 agreements through the end of 2008.
66.
Various emails and discussions took place in the period September through December 2008 and January 2009 between the Claimant and Respondent regarding repayment of the debt to the Claimant from the proceeds of the license transaction culminating in the Claimant consenting to a partial payment of USD2,250,000, which was received on 15 February 2009 (refer to Paragraphs 44 through 46 supra). Since then, the balance owed to the Claimant remains outstanding.
67.
The Tribunal accepts the testimony of the Claimant's Counsel, Jeffry A Davis contained in his 29 July 2007 Statement that of the USD5,000,000 in principal advanced by the Claimant, the Respondent has repaid USD2,750,000 as follows:

• 14 September 2007 - USD500,000 (29 July 2011 Supplemental Statement Paragraph 2);

• 15 February 2009 - USD2,250,000 (29 July 2011 Supplemental Statement Paragraph 4).

68.
The Tribunal therefore awards in favour of the Claimant on account of principal only the sum of USD2,250,000.

Claimant's Request to Recover the Forbearance Fee of USD500,000

69.
The Tribunal now turns to the claim by Claimant Marubeni for payment of a forbearance fee of USD500,000 including interest thereupon based upon the Points of Agreement dated 31 October 2008 (the "Forbearance Fee").
70.
This claim was not included in Marubeni's Request for Arbitration dated 8 April 2010 and was therefore not included in the Terms of Reference. Marubeni, however, requested that this claim be authorized for inclusion in these proceedings pursuant to Article 19 of the Rules in its application to this Tribunal dated 11 July 2011. The Tribunal subsequently granted authorization to include this claim pursuant to Procedural Order No. 6 dated 21 July 2011.
71.
Marubeni bases its claim for the Forbearance Fee on the Points of Agreement dated 31 October 2008.28 The Points of Agreement provide, in relevant part, as follows:

1. MediVas shall pay to Marubeni all amounts, including interest, due under the Loan Documents by not later than December 31, 2008;

2. Marubeni agrees to forbear from exercising its rights under the Loan Documents or the original Forbearance Agreement through December 31, 2008;

3. MediVas agrees to pay to Marubeni a forbearance fee of USD500,000 in value agreed to by the parties for the period through December 31, 2008, payable on or before December 31, 2009; and

4. The parties agree to discuss alternatives to a cash payment of the forbearance fee including possible equitable rights in MediVas or an affiliated entity.

72.
The promise for payment of the USD500,000 forbearance included in Clause 3 appears on its face to have been made in consideration for Marubeni's promise under Clause 2 to forbear from exercising its rights under the relevant loan documents and appears as a matter of form to be a legally binding promise. Furthermore, witness Jeffry A. Davis notes that "[t]he Points of Agreement were the result of face-to-face negotiations held in San Diego, California" and that "[t]he $500,000 forbearance fee was a negotiated amount."29 This evidence lends support to the fact that the Points of Agreement was entered into as a legally binding agreement between Marubeni and MediVas.
73.
The Tribunal considered two issues concerning certain aspects with regards to the Points of Agreement document.
74.
First, because of the words "(Subject to management approval)" appearing directly below the signature provided from Marubeni by Mr. Hajime Sasagaki, which suggest that subsequent management approval was required to authorize the agreement, the Tribunal considered the question of whether authorization was properly provided on behalf of Marubeni with respect to these Points of Agreement.
75.
In this regard, witness Davis states that "[t]he Points of Agreement were approved by Marubeni management on or about 5 November 2008" although "[n]o formal notice of approval was sent to MediVas."30 The Tribunal finds the statement to be credible given that there exists no apparent reason that Marubeni's management would decline to ratify the Points of Agreement which reflect the negotiation between the parties, particularly given that their content is beneficial to Marubeni.
76.
This fact is further supported by witness Davis's statement that "Marubeni performed all of its obligations under the Points of Agreement,"31 which the Tribunal understands to refer to Marubeni's performance of its obligation under Clause 2 "to forbear from exercising its rights" under the relevant loan documents through 31 December 2008. Moreover, witness Davis notes that "MediVas acknowledged the obligation to pay the forbearance fee in its 2009 cash flow projections provided to Marubeni and my office in December 2008 reflecting total payments to Marubeni in 2009 of $6 million," which statement is corroborated by the documentary evidence of the 2009 cash flow projections provided under Exhibit AT, Page 001, which contains an indication of a repayment of USD5 million by Marubeni in April 2009, and a repayment of USD5 million in December 2009 under the column "Debt Repayment," at a time when the principal amount due was USD4.5 million.
77.
Second, the Tribunal further considered whether Clause 4 of the Points of Agreement to "discuss alternatives to a cash payment of the forbearance fee including possible equitable rights in MediVas of an affiliated entity" may be interpreted to represent a condition requiring that such discussions be made between the parties before an obligation for the payment of the Forbearance Fee in cash arises.
78.
In this regard, however, witness Davis states that "no subsequent discussions were held regarding alternatives to a cash payment of the forbearance fee, nor were any such discussions ever requested or initiated by MediVas,"32 and the Tribunal finds no other evidence contradictory to this statement. Therefore, even if Clause 4 may be interpreted to constitute a condition to payment in cash, such condition would be deemed to have been satisfied or waived and would not serve as a bar to the Forbearance Fee payment obligation.
79.
In addition, the Tribunal further considered whether there was any usury law issue concerning the amount of the Forbearance Fee.
80.
According to witness Davis, although the Points of Agreement were dated as of October 31, 2008, it represented an agreement by Marubeni not to exercise its right under the relevant loan documents throughout 2008. Interpreted this way, the amount of USD500,000 on an annual basis represents less than the default interest on the principal amount (USD4.5 million x 15% = USD675,000) and does not appear excessive on its face from this perspective.
81.
Furthermore, although it may be, as suggested by Marubeni, that the Forbearance Fee is not properly to be considered as "interest" for usury analysis purposes, in any event the Tribunal agrees that, as Marubeni points out,33 Marubeni's loan to MediVas is exempt from the California usury law pursuant to California Corporations Code § 25118, thereby exempting the Forbearance Fee even if it were deemed to be interest.
82.
Based on the foregoing, the Tribunal holds that the Points of Agreement constitute a legally valid and binding agreement between the parties and that MediVas is obligated to pay Marubeni USD500,000 pursuant to its terms.

Entitlement to Interest and Interest Calculation

83.
Marubeni seeks recovery of interest on the principal amount of the loan to MediVas and on the unpaid and overdue Forbearance Fee. We now consider the legal and factual grounds for recovering interest, and then turn to calculation of interest. Different considerations apply to the loan principal and the Forbearance Fee and accordingly we consider them separately.
84.
Loan: Interest rates are provided for in the Note Purchase Agreement (Claimant's Exhibit B). Section 2.5 specifies interest at the rate of 12% per annum calculated using a year of 360 days. Interest is to be paid quarterly in arrears pursuant to Section 2.5, although in the event of default, interest may be demanded to be paid immediately pursuant to Section 9.2. Section 3.1 (b) also deals with interest, and provides that overdue amounts of principal, interest "or any other amount payable hereunder" shall bear interest at the rate of 15%, presumably per annum although, unlike the wording of Section 2.5, this is not stated, nor is mention made of a 360 day year.
85.
Evidence is lacking but the Tribunal infers that MediVas made interest payments through the second quarter of 2007. Paragraphs 43 and 47 of the Complaint so suggest, as does the amount of interest paid in September 2007, USD142,500, which Mr. Davis described in testimony as "all interest on the Marubeni loan due up to that time,"34 and which is approximately equivalent to one quarter's interest. In any case based on the submissions made by Claimant, the demand of Claimant as of its Second Supplemental Brief is limited to interest accruing after 14 September 2007.
86.
The loan was not paid timely. Pursuant to the Note Purchase Agreement, the principal was to fall due three years after the first Advance. The first advance was made on 11 June 200435 and accordingly the principal balance fell due on 11 June 2007. However the evidence (for instance the Statement of Mr. Davis already quoted above) shows that the first payment made was on 14 September 2007, by which time the loan was approximately 3 months overdue.36
87.
Accordingly, we conclude that Marubeni is entitled to recover interest at the rate of 15% per annum after 14 September 2007 on the unpaid balance of the loan from time to time outstanding. The evidence shows that the outstanding balance was USD4,500,000 from 14 September 2007 to 15 February 2009, and USD2,250,000 from 16 February 2009 to the present (supported in the evidence by, inter alia, the 29 July 2011 Second Supplemental Statement of Mr. Davis, Paragraphs 2 and 4).
88.
We now turn to calculation of interest. Claimant has submitted several varying calculations and demands for interest, including a very summary one contained in its initial Brief on the Merits, Exhibit AY submitted with the 11 July 2011 Supplemental Statement on the Merits and referred to in Paragraph 14 thereof, and yet a further and different calculation submitted as Part 4 of Claimant's Second Supplementary Brief. We have found that none of these calculations is completely in accordance with our interpretation of the contract and applicable legal principles, for a number of reasons.
89.
Disregarding the first two calculations and demands since we deem them superseded by that contained in Part 4 of Claimant's Second Supplementary Brief, we base our comments on the last calculation. First, while Claimant's calculation combines the principal of the loan with the Forbearance Fee, as already noted we think differing considerations apply to the two and our calculations are made separately for each. Second, we find that the evidence does not support use of a 360 day year for calculation of default interest under Section 3.1 (b), as the interest calculation in Claimant's Second Supplemental Brief does, and instead believe a 365 day year should apply. This finding is based on principles of contract construction. In the absence of a clear statement that a 360 day year should apply, we believe it is fair and prudent to interpret Section 3.1(b) as not incorporating the 360 day year of Section 2.5. In the absence of any provision for compounding of interest, the interest should be simple interest, not compounded.
90.
Thus the Tribunal's calculation of interest accrued and unpaid on the loan from 14 September 2007 to the date of the award is as follows:

On USD4,500,000 at 15% per annum 14 September 2007 -15 February 2009:

USD961,643.

On USD2,250,000 at 15% per annum 16 February 2009 - 25 November 2011: USD932,979.

91.
Total for loan interest to date of award: USD1,894,622.

Claimant's Request to Recover Interest on Forbearance Fee

92.
The entitlement to the Forbearance Fee arises from the Points of Agreement which is Claimant's Exhibit S. Claimant's entitlement to recover the Forbearance Fee is discussed at Paragraphs 69 to 82 of this award. As provided in the Points of Agreement and as stated in the 29 July 2011 Supplemental Statement of Mr. Davis the Forbearance Fee should have been paid on or before 31 December 2009 and became overdue as of 1 January 2010. As Claimant has indicated in its Second Supplemental Brief, interest should be calculated from that date. The Tribunal has concluded that the Claimant is entitled to simple interest at the California statutory rate of 10% per annum, pursuant to California Civil Code § 3289(b), and is not entitled to interest at the default rate specified in the Note Purchase Agreement, Section 3.1(b). This determination rests on our reading of Section 3(b) in the Note Purchase Agreement and the Points of Agreement. We do not deem that the Forbearance Fee is an "amount due hereunder" referred to in Section 3.1(b) of the Note Purchase Agreement. Nothing in the Points of Agreement suggests that any specific interest rate would attach to the Forbearance Fee if not timely paid. If the parties had so intended, the Points of Agreement could easily have been drafted so as to incorporate either a specific interest clause or, by reference, the interest clauses of the Note Purchase Agreement. Further, we note that in the calculation of interest on the Forbearance Fee contained in Claimant's Exhibit AY, the rate used for such purpose was 10% which accords with the statutory rate and not that provided in Section 3(b). No explanation of the change in rate to 15% in its last submission was submitted by Claimant.
93.
Calculation of the interest accrued is straightforward. The Tribunal finds that the amount of interest accrued on the Forbearance Fee from 1 January 2010 to 25 November 2011 is USD94,520.
94.
Total interest to be awarded to Claimant accordingly is USD1,989,142.

Avoidance of Note Purchase Agreement and Accompanying Note Because Marubeni Was Not Qualified to Do Business in California

95.
For purposes of this arbitration, the Tribunal has deemed MediVas' allegation to be as set forth in the Complaint (particularly in the FIRST CAUSE OF ACTION) (refer to Paragraph 48 of this Partial Award).37
96.
The Tribunal has treated these allegations as a plea in avoidance of Marubeni's claim for payment of the amounts owed it by MediVas under the Note Purchase Agreement and other agreements between Marubeni and MediVas.
97.
The Tribunal deems that the key allegations of this CAUSE OF ACTION are the following:

• Marubeni, a Japanese company, was doing business in the State of California (Complaint, Paragraph 80, on "information and belief");

• Marubeni failed to qualify to do business in California or name an agent for the service of process in the state (Complaint, Paragraph 83);

• pursuant to R&TC § 23304.1 contracts made by a foreign corporation in the state while not qualified to do business and not having a corporate account number with the California Franchise Tax Board and which has failed to file a tax return are voidable at the instance of any party to such contract (Complaint, Paragraph 85); and

• Marubeni had failed to obtain a corporate account number from the Franchise Tax Board, failed to file franchise tax returns and had failed to pay franchise tax (Complaint, Paragraph 87).

98.
Based on these allegations, MediVas' requested relief was that the Note Purchase Agreement, Agency Agreement, Forbearance Agreement and its related security agreements, as well as MediVas's obligations thereunder, all be voided.
99.
R&TC § 23304.1(b) and (c) provide in relevant part:

23304.1.

(b) If a foreign taxpayer that neither is qualified to do business nor has a corporate account number from the Franchise Tax Board, fails to file a tax return required under this part, any contract made in this state by that taxpayer during the applicable period specified in subdivision (c) shall, subject to Section 23304.5, be voidable at the instance of any party to the contract other than the taxpayer.

(c) For purposes of subdivision (b), the applicable period shall be the period beginning on January 1, 1991, or the first day of the taxable year for which the taxpayer has failed to file a return, whichever is later, and ending on the earlier of the date the taxpayer qualified to do business in this state or the date the taxpayer obtained a corporate account number from the Franchise Tax Board.

100.
We note that in implementing § 23304.1, § 23304.5 requires the right to void a contract to be exercised only in the lawsuit and further limits voidability as follows:

23304.5. A party that has the right to declare a contract to be voidable pursuant to Section 23304.1 may exercise that right only in a lawsuit brought by either party with respect to the contract in a court of competent jurisdiction and the rights of the parties to the contract shall not be affected by Section 23304.1 except to the extent expressly provided by a final judgment of the court, which judgment shall not be issued unless the taxpayer is allowed a reasonable opportunity to cure the voidability under Section 23305.1. If the court finds that the contract is voidable under Section 23304.1, the court shall order the contract to be rescinded. However, in no event shall the court order rescission of a taxpayer's contract unless the taxpayer receives full restitution of the benefits provided by the taxpayer under the contract.

101.
As a threshold matter, the Tribunal notes the requirement that one "may exercise [the right to void the contract] only in a lawsuit." MediVas did attempt to "exercise (its) right" in the Complaint, but both this Tribunal and the District Court found its claim to be an issue to be resolved in arbitration.38 The question whether the right can be exercised in an arbitration proceeding was not raised by either of the parties during our consideration of our jurisdiction. In our interim award we found that we have jurisdiction over the issue (framed as "Avoidance of Note Purchase Agreement and accompanying Note because Marubeni was not qualified to do business in California"). Moreover, since MediVas has not sought positive relief, we do not need to determine whether it would have been possible for MediVas to request voiding of contracts pursuant to § 23204.1 in this proceeding. Rather for purposes of this proceeding we treat MediVas's claim as one in avoidance of Claimant's monetary claims. We therefore proceed on the basis that we have jurisdiction for the reasons stated in the Jurisdiction Award.
102.
Based on the allegations in the Complaint, the Tribunal understands the position of MediVas to be that Marubeni was doing business within California at the relevant times and at the time of entry into the contracts had failed to comply with the requirements of California law as to filing of tax returns and payment of tax imposed on foreign corporations doing business within the state.
103.
California imposes a "franchise ta"x on the net income of corporations which are "doing business"39 in California and are not specifically exempt from taxation.40 Corporations incorporated in California or qualified to do business in California41 are subject to a minimum franchise tax.42
104.
At the same time, under the R&TC, corporations, other than banks, which are not "doing business," incorporated or qualified to do business in California, and are therefore not subject to the franchise tax, are subject to the California Corporate Income Tax on income derived from California sources.43
105.
The voidability provisions of R&TC § 23304.1 would apply to both failure to comply with the requirements of Chapter 2 (Franchise Tax) or Chapter 3 (Corporate Income Tax) under R&TC, Part 10.2. However, the allegations made by MediVas in the Complaint relate only to Marubeni's compliance with the requirements of the California Franchise Tax. Therefore we have considered only Marubeni's possible non-compliance with the provisions of the R&TC relating to that tax.
106.
The record in this matter reveals that it is undisputed that Marubeni is neither organized as a California corporation nor is qualified to do business in California. Thus these bases for the application of the Franchise Tax would not apply. The remaining issue is whether Marubeni is "doing business" in California for purposes of the Franchise Tax. The Tribunal regards this as a contested issue both from a factual and legal perspective.
107.
The applicable legal standard for evaluating when a foreign corporation is "doing business" in California for purposes of the Franchise Tax is contained in R&TC § 23101 which defines the term. Under this provision, a foreign corporation is "doing business" in California if it is found to be "actively engaging in any transaction for the purpose of financial or pecuniary gain or profit."44
108.
With regard to Marubeni's activities in California, Jeffry A. Davis, counsel for Claimant Marubeni has, in his statement provided the following testimony:45

• "Marubeni, as opposed to Marubeni America Corporation, does not transact intrastate business in California...."

• "The transaction which resulted in execution of the Convertible Note Purchase Agreement was a singular transaction. I am informed and believe that Marubeni does not regularly engage in such transactions, nor does it regularly do business in California. The transaction with MediVas was the "one off" transaction which has not been repeated to my knowledge."

109.
According to his statement, Mr. Davis has been counsel for Marubeni since 1 August 2007, and is "familiar with Marubeni's activities in the state of California." The Tribunal has found nothing in the record that contradicts the above facts.
110.
Based on these facts, the Tribunal is presented with the question whether Marubeni has been "doing business" in California for purposes of the Franchise Tax based upon the one transaction of entering into the Note Purchase Agreement.
111.
While the language of R&TC § 23101 could be read as very broad,46 the United States Constitution requires a sufficient "nexus" for a state to have jurisdiction to tax.47
112.
California case law interpreting the "doing business" definition in R&TC § 23101 is sparse. The Tribunal has considered Golden State T. & R. Corp. v. Johnson,48 one of the few cases interpreting a predecessor statute using the same wording.49 Besides being dated, however, that decision found an entity to be "doing business" based on decidedly proactive in-State activity, including, for instance, on-going rental of premises located in California as well as other transactions in the state, and cannot be a guide to the application of R&TC § 23101 to our facts.
113.
The Tribunal also reviewed treatise material comprehensively discussing the "doing business" requirement, which notes as follows:

It seems to be rather well established by most of the authorities that "doing business" in order to incur tax liability under the statutes imposing taxes on persons "doing business" in the state means that a foreign corporation must transact some substantial part of its ordinary business in the state and that it must be continuous in character as distinguished from a mere casual or occasional transaction.50

114.
Claimant has further cited authorities which lend support to the view that more is necessary in order to be conducting business.51 In particular the Tribunal has taken note of California Corporations Code § 191, cited by Claimant. Under subdivision (d) of that provision, "any foreign lending institutions including... any foreign corporation or association authorized by its charter to invest in loans secured by real and personal property... shall not be considered to be doing... business in this state solely by reason of engaging in any or all of the following activities...:

(1) The acquisition by purchase, by contract to purchase, by making of advance commitments to purchase or by assignment of loans, secured or unsecured, or any interest therein, if those activities are carried on from outside this state by the lending institution.

(2) The making by an officer or employee of physical inspections and appraisals of real or personal property securing or proposed to secure any loan, if the officer or employee making any physical inspection or appraisal is not a resident of and does not maintain a place of business for that purpose in this state.

(4) The modification, renewal, extension, transfer or sale of loans or the acceptance of additional or substitute security therefore or the full or partial release of the security therefore or the acceptance of substitute or additional obligors thereon, if the activities are carried on from outside this state by the lending institution.

115.
While California Corporations Code § 191 relates to whether a corporation is conducting intrastate business and is therefore required to qualify to do business, its description of the enumerated activities of a "foreign lending institution" is incorporated in California Corporations Code § 2104, which provides:

No foreign lending institution solely by reason of engaging in any one or more of the activities set forth in subdivision (d) of Section 191 shall be required to qualify to do business in this state nor be subject to (a) any of the provisions of the Bank and Corporation Tax Law (commencing with Section 23001)52 of the Revenue and Taxation Code....

116.
The Tribunal takes note that by virtue of its Articles of Incorporation, Paragraph 17, Marubeni is empowered to make loans and take real property and personal property security for the same.53 Therefore Marubeni appears to fall under the definition of "foreign lending institution" subject to § 191(d), and, would not be subject to taxation under § 2104 should it undertake any of the above enumerated activities. The making of loans as such (as opposed to "the acquisition by purchase... of loans," etc.) is absent from the list of activities which will not constitute doing business or subject foreign lending institutions to California tax. However, an article making this point also suggests that a single loan transaction would not constitute doing business.54 Conversely, the Tribunal has found no authority indicating that a single loan transaction such as the one before us would subject a foreign corporation to the California Franchise Tax. Based on the foregoing authorities and considerations, we conclude that Marubeni was not at the relevant times subject to the California Franchise Tax and accordingly that MediVas has no right to avoid the Note Purchase Agreement or the Note based on R&TC § 23304.1.

Violation of Covenant of Good Faith and Fair Dealing

117.
One further issue which Claimant has asked to be determined by the Tribunal, as stated in the Terms of Reference, is "MediVas's claims that Marubeni breached the implied covenant of good faith and fair dealing in the (Convertible Note Purchase) Agreement as alleged in the Complaint filed by MediVas in the case entitled MediVas, et al. v. Marubeni Corporation, California Superior Court for the County of San Diego Case No. 37-2010-00084916-CU-BC-CTL."

MediVas’s allegations

118.
The Tribunal has looked to MediVas's allegations in the Complaint as defining the issue. The claim of breach of covenant of good faith and fair dealing is most specifically and succinctly asserted in the SECOND CAUSE OF ACTION (Complaint, Paragraphs 90 through 95).55 In the SECOND CAUSE OF ACTION, MediVas asserts that the Note Purchase Agreement contains an implied covenant "that the parties to the contract will deal fairly with and act in good faith toward each other, and that neither party will do anything to deprive the other party of the benefits of the contract (Complaint, Paragraph 92).
119.
MediVas further asserts that Marubeni breached that covenant of good faith and fair dealing by its acts and omissions including the following:

(a) unreasonably withholding its consent to the Nastech Merger Agreement in an effort to extract legal concessions, priorities, powers and benefits to which it was otherwise not entitled;

(b) using the threat of legal enforcement of the Note Purchase Agreement to force MediVas to enter the illegal, voidable and oppressive Forbearance Agreement and related agreements;

(c) interfering with and ultimately causing the collapse of MediVas's pending merger with Nastech; and

(d) interfering with MediVas's proposed sale to DSM (Complaint, Paragraph 94).

Standards for showing of a breach of the covenant of good faith and fair dealing

120.
The Tribunal accepts the Respondent's position, as does the Claimant in its submissions,56 that under California law, every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement.57 Under California case law, the covenant imposes on each party to the contract the duty to refrain from doing anything which would render performance of the contract impossible by any act of his own,58 and also the duty to do everything that the contract presupposes that each party will do to accomplish its purpose.59 A party to a contract breaches the implied covenant of good faith and fair dealing by interfering with or failing to cooperate with the plaintiff in the performance of the contract.60
121.
As Claimant has pointed out in its Second Supplemental Brief, however, the precise nature and extent of the duty imposed by the implied covenant of good faith and fair dealing is very fact-specific and will depend on the particular circumstances and contractual purposes.61 In addition to reviewing the cases cited by Claimant, the Tribunal has looked to California decisional law involving lender-borrower relations as most appropriate guidance in the present matter. In the area of behavior of a lender towards a borrower, the Sutherland62 case is one where the borrower prevailed, while in another case, Price v. Wells Fargo Bank,63 the lender was found not to have violated its duty of good faith and fair dealing.
122.
In Sutherland, after the severe 1994 Northridge earthquake in Southern California badly damaged her condominium, in a phone call to the mortgage company, the borrower-mortgagor was orally granted three months during which she did not have to pay on the mortgage; at the end of that period, however, the mortgage company demanded that she catch up on payments immediately and refused to accept the fourth month's payment unless she did so. It was held that her complaint for breach of the covenant stated a cause of action on the alleged facts (the appeal arose from a successful demurrer by the defendant in the lower court).
123.
In the Wells Fargo Bank case, when the lender Wells Fargo Bank initiated foreclosure on its security, the borrowers eventually arranged to pay off the loans, but having done so sued the bank for breach of a covenant of good faith and fair dealing as well as on other grounds. The facts as stated by the court are that borrowers had understood that the bank would modify loan terms to allow five years for payment. When the bank did not do so, but instead made demand for payment, the borrowers attempted to negotiate to have the loans restructured. In fact agreement was reached on restructured payment terms, but, as in this case, borrowers did not perform in accordance with their amended agreement but, in the words of the court "fell badly behind." Eventually the borrowers paid off all the loans by borrowing elsewhere and selling assets.
124.
The District Court of Appeals, in a well-reasoned opinion by the Hon. William Newsom, found that on the facts the lender had not acted in breach of its implied covenant of good faith and fair dealing. The following passage from the Wells Fargo Bank opinion aptly describes the obligation of a lender towards a borrower:

Appellants... argue that Wells Fargo breached the implied covenant by taking a "hard line" in repayment negotiations.... The necessary implication of appellants' argument is that the bank owed them a duty of reasonable forbearance in enforcing its creditor's remedies. They do not, however, cite any authority supporting this proposition, and we are aware of none. Contracts are enforceable at law according to their terms. The covenant of good faith and fair dealing... does not impose any affirmative duty of moderation in the enforcement of legal rights (emphasis supplied).64

Evidence and analysis

125.
The evidence available to us is comprised in the Statements of witness Jeffry A. Davis submitted by Claimant dated 31 May 2011 and 11 July 2011. The Tribunal finds the narrative history of dealings which Mr. Davis had with representatives of MediVas set out in the 31 May 2011 Davis Statement and the 11 July 2011 Supplemental Statement to be relevant and credible, especially as it is well supported and corroborated by the documents referred to in Mr. Davis's Statements and provided as Exhibits in this matter. Overall the two Statements cover the dealings between Claimant and its law firm on the one hand and MediVas and its legal advisors on the other from 7 August 2007 to 21 December 2009 thus dealing with the relevant time period during which the alleged breaches of covenant occurred.
126.
The Tribunal will first consider MediVas's claim regarding Marubeni's allegedly oppressive conduct in causing MediVas to enter into the Forbearance Agreement and related agreements. The evidence indicates that discussions between Marubeni and MediVas looking to a program of repayment of the latter's debt to Marubeni began 7 August 2007 (31 May 2011 Davis Statement, Paragraphs 3 and 4 and Exhibit AA). Following MediVas's failure to provide a repayment proposal by 10 August 2007 as agreed between the parties on 7 August 2007 (Davis June Statement, Paragraph 4), on 20 August 2007, then counsel for MediVas Mr. Zander sent a proposal among other things offering to pay off the loan in quarterly payments of USD1 million each from December 2007 through December 2008, agreeing to interest at 15% per annum and a security interest in all tangible assets of MediVas (explicitly excluding intellectual property; other intangible assets are not mentioned) (Exhibit AB). The Tribunal found it notable that the primary terms of what became the ultimate agreement between the parties, including the interest rate, and the provision of a security interest in all tangible assets, were initially proposed by MediVas rather than by Marubeni (although intellectual property was excluded from the security). Following MediVas's proposal, "[a] number of counter-proposals were made" (Id., Paragraph 5). On 27 August 2007, Mr. Zander on behalf of MediVas agreed to a modified version of the same terms which provided for a security interest essentially as reflected in the Forbearance Agreement and Security Agreement (Exhibit AC). Thus, the evidence indicates that the Forbearance Agreement and related agreements were entered into through a process of mutual negotiation. Moreover, despite that under Wells Fargo Bank lenders do not assume "any affirmative duty of moderation in the enforcement of legal rights," Marubeni in fact agreed to forbear enforcement of its rights by entering into these agreements. Furthermore, we have noted the memorandum from Messrs. Carpenter and Dowling to Mr. Sasagaki of Marubeni expressing appreciation for Marubeni's "past loan financing support" and Marubeni's "kind patience and cooperation in working... with us for a restructured installment payment program..." (Exhibit AD, page 003). Based on these facts, the Tribunal finds no evidence implicating a breach of the covenant of good faith and fair dealing by Marubeni.65
127.
The Tribunal next turns to MediVas's assertions that Marubeni unreasonably withheld its consent to the Nastech Merger Agreement to extract legal concessions, and that it interfered with and caused the collapse of that merger. The aforementioned Exhibit AD memorandum goes on to address discussions which MediVas is said to be having with an unnamed publicly traded company, which the Tribunal believes to be references to Nastech. These portions of the memorandum support the testimony of Marubeni's witness Mr. Davis (31 May 2011 Davis Statement, Paragraph 9) that up to November 21, 2007 Marubeni did not know with what prospective acquirer MediVas was in negotiations. The 21 November 2007 memorandum to Mr. Davis from Knox Bell, one of MediVas's legal advisors at the time (Exhibit AF) explains the failure of the Nastech merger as based on Procter & Gamble's decision to terminate its strategic alliance with Nastech and the subsequent drop of Nastech's stock price from USD15 to approximately USD4 per share putting Nastech into "conserve cash" mode without any reference to fault of Marubeni: Mr. Bell expresses his own regret and that of MediVas for having to report such "terribly bad news" to Marubeni. Given that Marubeni was not even aware of the identity of the merger partner until after the merger's collapse the Tribunal is unable to conceive how it could have interfered with and caused the termination of that merger. Moreover, the evidence indicates that the cause of the merger's collapse was due to a decision by Procter & Gamble to terminate its alliance with Nastech and the Tribunal sees nothing in the record contrary to this fact. Therefore, here too, the Tribunal finds no basis for finding a violation of the covenant of good faith and fair dealing by Marubeni. Again the Tribunal notes the contents of Exhibit AG, in which Mr. Carpenter, in an email to Mr. Matsubara of Marubeni dated 8 February 2008, reports on MediVas's efforts to obtain funding and states, inter alia, "Marubeni's cooperation and understanding in this difficult time since the Nastech failure has been greatly appreciated" (Exhibit AG page 002). The evidence reveals that MediVas failed to meet the payment terms of the Forbearance Agreement.
128.
Finally, the Tribunal turns to MediVas's claim that Marubeni interfered with its proposed sale to DSM. By email from Mr. Carpenter to Mr. Matsubara dated 2 December 2008 (Exhibit AK) Mr. Carpenter reports on the state of negotiations with DSM. The Tribunal finds it significant that in this email Mr. Carpenter never raises any complaints relating to Marubeni's behavior. Rather, he notes how MediVas was originally discussing an upfront license fee of approximately USD18-USD22 million with DSM, but that DSM reduced its proposed upfront payment to USD6 million and that MediVas declined that proposal, making a counter proposal for USD8 million upfront, and noting that if DSM made another proposal somewhere in the middle, MediVas was likely to refuse that offer too. Despite this hard-line MediVas was taking in the negotiations, Mr. Carpenter states that "[i]f [negotiations with DSM fail] MediVas will cease to operate effective this week. Should we cease operations I will be in touch with Jeff Davis and with the attorneys representing Mr. Satomi [another Japanese creditor] to discuss how to proceed with a liquidation of the company to preserve the greatest value possible" (Exhibit AK page 001). This evidence contains no suggestion that Marubeni was responsible for the failed merger with DSM and suggests rather that the lack of flexibility on the part of MediVas may have been an obstacle in its negotiations with DSM. The string of emails (contained in Exhibit AK) between Messrs. Carpenter and Matsubara between 16 October and 2 December 2008 is also notable for the courtesy expressed by both individuals in writing the other: the atmosphere is certainly not reflective of bad faith on Marubeni's side or any contemporaneous assertions of bad faith from MediVas.
129.
It appears clear that the relatively courteous and amicable relations between the parties were abruptly interrupted, however, when Marubeni, through its counsel Mr. Davis, refused to agree to consent to a proposed license with DSM. Mr. Davis sought assurance that Marubeni would be paid from the proceeds of payments made by DSM and protection for Marubeni's rights as a secured creditor in the intellectual property to be licensed. This position provoked a very strong email to Mr. Matsubara threatening legal action against Marubeni and a subsequent exchange of emails between Mr. Davis and Mr. Carpenter (Exhibit AO). Because the Tribunal considered these allegations to be the strongest among those made by MediVas, it requested and reviewed additional e-mails during that period which were provided with the 11 July 2011 Supplemental Statement.
130.
Given the legal standard enunciated in the Wells Fargo Bank case, however, these actions on Marubeni's part appear to the Tribunal to have been reasonable in the circumstances and certainly do not give rise to any appearance of bad faith on Marubeni's part. As Mr. Davis indicates (11 July 2011 Supplemental Statement, paragraph 10), Marubeni never withheld permission for MediVas to negotiate with DSM, but rather encouraged such dealings, insisting only that it would not subordinate its security interest to allow a sale or license to DSM without receiving a payment towards the debt MediVas owed Marubeni. Given that under Wells Fargo Bank a lender does not have an affirmative duty of moderation in the enforcement of its legal rights, Marubeni's position does not appear unreasonable. More generally, the Tribunal finds from its review of the evidence that there was no behavior remotely justifying a finding of breach of the covenant of good faith and fair dealing. Furthermore, Marubeni subsequently did agree to a limited subordination of its rights in MediVas's intellectual property to the license to be granted to DSM, which allowed MediVas to enter into a license agreement with DSM pursuant to which Marubeni received USD2,250,000 from the proceeds (31 May 2011 Davis Statement, Paragraphs 28 and 29; Exhibit AS). Given that the transaction with DSM ultimately was consummated albeit in the form of a license agreement, the Tribunal finds no basis to hold that Marubeni interfered with that transaction to the detriment of MediVas.
131.
The Tribunal concludes that MediVas's claims of breach of covenant of good faith and fair dealing are not supported by the evidence.

Illegal Interference with Business Relationships

132.
Another of the issues which Claimant Marubeni has asked be determined by the Tribunal, as stated in the Terms of Reference, is "MediVas' claims that Marubeni improperly and illegally interfered with MediVas's business relationships with Nastech and DSM."

MediVas's allegations

133.
As with the other issues arising from MediVas's claims against Marubeni, the Tribunal has looked to MediVas's allegations in the Complaint as defining the issue of illegal interference with business relations.
134.
The FIFTH CAUSE OF ACTION (Intentional Interference with Prospective Economic Advantage-Nastech Merger)66 and the SIXTH CAUSE OF ACTION (Intentional Interference with Prospective Economic Advantage-DSM Acquisition)67 of the Complaint set out MediVas's specific claims of illegal interference with business relationships,68 the details of which are as follows.

Nastech related allegations:

135.
Medivas alleges that it had a relationship with Nastech by which it expected to benefit69 and that Marubeni knew of this relationship70. MediVas sets forth the behavior which it claims to be wrongful in these terms:

113. MediVas is informed and believes and thereon alleges that Marubeni and its agents improperly attempted to, and did, disrupt and interfere with MediVas' above-described business relationship with Nastech through the acts and omissions alleged herein.

DSM-related allegations:

136.
MediVas alleges that it had a relationship with DSM by which MediVas would benefit71, and that Marubeni knew of this relationship72. MediVas sets forth the behavior which MediVas claims to be wrongful in these terms:

125. Medivas is informed and believes and thereon alleges that Marubeni and its agents improperly attempted to, and did, disrupt and interfere with MediVas' above-described business relationship with DSM through the acts and omissions alleged herein including in particular its false assertion of its unlawful "first priority" secured position to all of MediVas' assets.

Standards for establishing tortious interference with business relationships

137.
The Claimant in its Supplemental Brief dated 11 July 2011 accurately sets forth the requirements of California law for establishing that there has been tortious interference with business relations. In particular, the Tribunal noted the case of Della Penna v. Toyota Motor Sales, U.S.A., Inc.73 In that case the California Supreme Court reviewed the history of the tort, from its origins to 19th Century English jurisprudence and the developments in jurisprudence of California and other states of the United States up to the then present time. As Claimant correctly states,74 the Della Pena court distinguished two similar causes of action: (i) inducing a breach of contract and (ii) interfering with prospective economic advantage, applicable where there was no existing third party contract the breach of which could be induced. The case before the court in Della Pena involved a claim of the latter type, as do the claims which this Tribunal must address. The court held that:

a plaintiff seeking to recover for an alleged interference with prospective contractual or economic relations must plead and prove as part of its case-in-chief that the defendant not only knowingly interfered with the plaintiff's expectancy, but engaged in conduct that was wrongful by some legal measure other than the fact of interference itself.75

138.
Subsequently, in Korea Supply Co v Lockheed Martin Corp.76, the California Supreme Court reconfirmed its holding in Della Pena, as follows:

after Delia Penna the elements of the tort of interference with prospective economic advantage remain the same,77 except that the third element also requires a plaintiff to plead intentional wrongful acts on the part of the defendant designed to disrupt the relationship.78

139.
The elements of the tort of intentional interference with prospective economic relations thus can be summarized as follows:

1. The plaintiff and a third-party were in an economic relationship that probably would have resulted in an economic benefit to the plaintiff;

2. The defendant knew of the relationship;

3. The defendant intended to disrupt the relationship;

4. The defendant engaged in wrongful conduct (identifying independent, wrongful conduct e.g., misrepresentation, fraud, violation of statute);

5. The relationship was disrupted;

6. The plaintiff was harmed; and

7. The defendant's wrongful conduct was a substantial factor in causing the plaintiff's harm.79

Evidence

140.
As already mentioned in our discussion of the issue of breach of the covenant of good faith and fair dealing (Paragraph 125 supra), the Tribunal has found the narrative history of dealings which Mr. Davis had with representatives of MediVas set out in the 31 May 2011 Davis Statement and the 11 July 2011 Supplemental Statement to be relevant and credible, and well supported and corroborated by the documents referred to in Mr. Davis's statements and provided as Exhibits in this matter. In reviewing the evidence relevant to the issue of intentional interference with prospective economic advantage, the Tribunal will separately consider the evidence concerning the Nastech and DSM transactions respectively.

Nastech:

141.
The Tribunal identifies the memorandum from Messrs. Carpenter and Dowling to Mr. Sasagaki of Marubeni dated 14 September 2007, Exhibit AD, as the earliest evidence bearing on the Nastech transaction. Nastech is not named but the Tribunal believes the inference that Nastech is meant is unavoidable. Inter alia, the memorandum states that "This Company is fully aware of the existence of the MediVas note obligation to Marubeni and the fact that the note is currently past due." (Exhibit AD, page 004). Mr. Davis has testified that (at least up to November 21, 2007) Marubeni did not know the identity of Nastech (31 May 2011 Davis Statement, Paragraph 9) and the contents of Exhibit AD corroborate this testimony. Exhibit AF is a memorandum dated 21 November 2007 from Knox Bell, an attorney representing MediVas, to Mr. Davis, advising that the Nastech merger would not proceed and stating the reason why: Proctor & Gamble had terminated its strategic alliance with Nastech and as a consequence the Nastech share price had sunk from USD15 to about USD4 per share. As already noted elsewhere (Paragraph 126 supra) in this award, any claim on MediVas's part that Marubeni's conduct had anything to do with the failure to close with Nastech is conspicuous by its absence. Rather the memorandum dated 14 September 2007 from Messrs. Carpenter and Dowling to Mr. Sasagaki of Marubeni expresses appreciation for Marubeni's "past loan financing support" and Marubeni's "kind patience and cooperation in working... with us for a restructured installment payment program..." (Exhibit AD, page 003). Also Mr. Carpenter, in an email to Mr. Matsubara of Marubeni dated 8 February 2008, reports on MediVas's efforts to obtain funding and states, inter alia, "Marubeni's cooperation and understanding in this difficult time since the Nastech failure has been greatly appreciated" (Exhibit AG page 002).

DSM:

142.
First mention of DSM in the evidence is found in Mr. Carpenter's email to Mr. Matsubara of 8 February 2008, Exhibit AG, advising that MediVas would be meeting with DSM on 11 February 2008 to discuss possible licensing, investment or acquisition transactions. Mr. Davis testifies that at a meeting in Tokyo which he attended on 29 February 2008, Mr. Carpenter stated to Marubeni representatives that MediVas was in discussions with DSM (the 31 May 2011 Davis Statement, Paragraph 12). Exhibit Al is an email from Mr. Carpenter to Mr. Matsubara dated 19 September 2008 reporting prospects for agreement on the acquisition of MediVas by DSM, closing projected in late January or early February, 2009 and going on to say "Marubeni will be repaid in full for all outstanding debt and interest at closing." No mention is made of the necessity for Marubeni to consent to the transaction or subject its security interests to the rights of DSM. Mr. Davis next testifies to an email from Mr. Carpenter to Mr. Matsubara reporting on negotiations with DSM dated 2 December 2008, Exhibit AK, in which Mr. Carpenter stated that "DSM seems to have decided that their tactic will be to drag out the negotiations knowing that we are running out of operating funds, with the goal of getting the lowest possible price for the license." Exhibit AK shows Mr. Carpenter going on to say that while "we originally were discussing an upfront license fee of $18-22 M... we were surprise (sic) to learn late Monday that the (DSM Management Board) had approved... only $6 M...." (Exhibit AK page 001). No assertion is made that Marubeni's acts had anything to do with this development. A further email from Mr. Carpenter to Mr. Matsubara of 8 December, Exhibit AL, reports that a letter of intent has been entered and that the up-front fee would be in the range of $6 to $7 million. By email of 12 December 2008 (Exhibit AN), Mr. Carpenter provided Mr. Matsubara a copy of the letter of intent and requested Marubeni's consent to the negotiation of licenses by MediVas to DSM as referred to in the letter of intent.
143.
Our discussion of the evidence relevant to the issue of breach of the covenant of good faith has already described what happened next: Marubeni, through its counsel Mr. Davis, refused to agree to consent to a proposed license with DSM. Mr. Davis sought assurance that Marubeni would be paid from the proceeds of payments made by DSM and protection for Marubeni's rights as a secured creditor in the intellectual property to be licensed (31 May 2011 Davis Statement, Paragraph 21 and Exhibit AO), provoking a very strong email from Mr. Carpenter to Mr. Matsubara threatening legal action against Marubeni and a subsequent exchange of emails between Mr. Davis and Mr. Carpenter (Exhibit AO). Subsequently Marubeni did agree to a limited subordination of its rights in MediVas's intellectual property to the license to be granted to DSM, the DSM-MediVas license agreement was entered into, apparently involving an initial up-front license fee of USD5 million, and Marubeni received USD2,250,000 from the proceeds (31 May 2011 Davis Statement, Paragraphs 28 and 29; Exhibit AS).
144.
We will allude to the foregoing and other relevant evidence before us in the analysis below.

Analysis and conclusion

145.
The Tribunal considered whether the evidence reflects intentional interference on the part of Marubeni with Respondent MediVas's prospective economic benefits from dealings with either Nastech or DSM which meets the requirements of California law for Marubeni to be liable and concludes that it does not. The cases of Nastech and DSM are each discussed separately below in turn.

Nastech:

146.
In the instance of Nastech, the only element of the tort of intentional interference which appears to be supported by the evidence is that MediVas did indeed have a prospect of a beneficial transaction with Nastech (Element 1 above). Otherwise, the evidence shows that (i) Marubeni never knew the identity of MediVas's prospective merger partner till the merger had already fallen through and (ii) the reasons that the merger did not proceed had nothing to do with Marubeni but were directly caused by the fall in Nastech's share price. Therefore the elements requiring that the defendant (Marubeni) knew of the relationship (Element 2) and that the defendant intended to disrupt the relationship (Element 3) are both lacking.
147.
Perhaps for this reason, MediVas allegations emphasize delay caused by Marubeni. The gist of these allegations relate to Marubeni's requirements to be provided with security for MediVas's obligations to Marubeni in return for agreeing to forbear on enforcement of its rights. As already noted in our discussion of the issue of breach of the covenant of good faith and fair dealing, we find Marubeni's behavior to have been reasonable as a lender dealing with a loan in default. It therefore cannot be viewed as conduct comparable to fraud, misrepresentation, statutory violation or other tortious conduct constituting the sort of independent wrong required under California law to establish liability (Element 4). Moreover, any such delay could not be deemed the operative cause of the failure of merger discussions with Nastech as the evidence clearly reveals that such failure was in fact due to the collapse in Nastech's share price caused by the withdrawal of Procter & Gamble. Therefore, Marubeni's conduct could not be viewed as a substantial factor in causing the plaintiff's harm (Element 7). It is also telling that neither during the run-up to the failure of the Nastech merger nor afterwards until the litigation began between the parties does it appear that MediVas expressed any contemporaneous complaints about Marubeni's behavior, but rather thanked Marubeni for its patience on at least two occasions.

DSM:

148.
With regard to the circumstances surrounding MediVas's dealings with DSM, the evidence does indicate that MediVas and DSM were indeed in an economic relationship, i.e., negotiating for an agreement between them (Element 1), and that Marubeni was aware of the relationship (Element 2). However, the evidence indicates that the reason a lesser amount was ultimately agreed to as the up-front license fee was MediVas's diminished bargaining position, as Mr. Carpenter himself stated to Mr. Matsubara in his email in Exhibit AK already quoted above.80 The Tribunal has no basis for a finding that Marubeni's behavior actually disrupted the relationship (Element 5), or caused any material harm to MediVas (Element 6).
149.
Moreover, as noted above, the Tribunal finds that Marubeni's asserted requirements in connection with the DSM license as to partial payment and protection of its rights as a secured creditor were reasonable commercial behavior. Therefore, Marubeni's conduct cannot be seen as an independent harm required under California law (Element 4).
150.
MediVas, were it participating in this proceeding, might argue, as it has pled in the Complaint, that the element of wrongful conduct is present in that Marubeni wrongfully asserted rights as a secured creditor which position it did not properly have due to the invalidity of such interest81. Elsewhere in this award (paragraphs 179 through 185 infra) we find that we do not have jurisdiction to rule on the issue of the validity of the security interests given to Marubeni by MediVas and asserted by Marubeni as reflected in the evidence. The Tribunal therefore will eschew basing its ruling on a determination of the merits of MediVas's claims, as set out in the FOURTH CAUSE OF ACTION and elsewhere in the Complaint, that the security interests are fraudulent and avoidable
151.
However, the Tribunal notes that Mr. Carpenter in his email to Mr. Matsubara dated 8 February 2008 (Exhibit AG, page 002) prior to the time when Marubeni was notified of the proposed DSM transaction, requests the release of Marubeni's security interest on all of MediVas's assets to allow MediVas to use such assets to fund ongoing operations, but conspicuously fails to raise any issue regarding the validity of such security interest.
152.
Further, in one of his most strongly worded e-mails making direct reference to a potential interference with business relations by Marubeni, Mr. Carpenter only requests to Marubeni to provide written assurance to DSM regarding approval of the negotiations regarding a license agreement and again makes no mention of the validity of the security interest. Thus it appears to the Tribunal that, at the primary relevant times, Marubeni had no reason to think any issue existed as to the validity of the security interests. Without having any such awareness, Marubeni cannot be deemed to have engaged in wrongful behavior within the intent of the rule stated in Della Pena and Korea Supply Co.
153.
For the reasons stated, the Tribunal concludes that MediVas's claims of intentional interference with prospective economic advantage are disproved by the evidence.

Agency Agreement

154.
The Tribunal now turns to the claim by Claimant Marubeni to make a determination with respect to MediVas' claim of breach by Marubeni of the Agency Agreement.
155.
This claim was not included in Marubeni's request for arbitration dated 8 April 2010 and was therefore not included in the Terms of Reference. Marubeni, however, requested that this claim be authorized for inclusion in these proceedings in its application to this Tribunal dated 11 July 2011. The Tribunal subsequently granted authorization to include this claim pursuant to Procedural Order No. 6 dated 21 July 2011.

MediVas' allegations

156.
The Tribunal has looked to MediVas' allegations in the Complaint as defining the issue. Although sparse in detail, the Complaint contains the following allegations:

• By 2007, it was evident that Marubeni was doing nothing as MediVas' exclusive agent in Japan to fulfill Marubeni's duties under the Agency Agreement (Complaint, Paragraph 46).

• Marubeni has breached the Agency Agreement by acts and omissions including, but not limited to:

(a) Failing to adequately explore the Japanese market with respect to licensing MediVas' intellectual property and selling MediVas' products;

(b) Failing to assist MediVas in negotiation of specific agreements to license MediVas' intellectual property and sell MediVas' products in Japan;

(c) Failing to use commercially reasonable efforts to license MediVas' intellectual property and sell MediVas' products in Japan; and

(d) Omitting to provide MediVas with quarterly written reports summarizing the plans, status, contacts, and results of Marubeni's efforts to license MediVas' intellectual property and sell MediVas' products in Japan throughout the entire period of the Agency Agreement (Complaint, Paragraph 101).

• As a direct and proximate result of Marubeni's above-described breaches of the Agency Agreement, MediVas has suffered damages in an amount to be proven at trial (Complaint, Paragraph 102).

Analysis

157.
Article 5 of the Agency Agreement sets forth Marubeni's responsibilities under the agreement as follows:
158.
Marubeni will, subject to the terms and conditions herein expressed:

(a) Explore the market with respect to licensing potential for the TECHNOLOGIES and sales potential for the PRODUCTS in the TERRITORY;

(b) Assist MediVas in negotiation of specific agreements relating to the license of TECHNOLOGIES for the sales of the PRODUCTS in the TERRITORY;

(c) Use commercially reasonable and diligent efforts to perform the responsibilities specified above; and

(d) Give to MediVas quarterly written reports which summarize the activities, plans, status, contacts and results with respect to performing the responsibilities specified above.

159.
Under the above provision, the primary obligation of Marubeni would appear to be to "explore the [Japanese] market with respect to licensing potential of MediVas technologies," and, assuming any interest is found, to "assist MediVas in negotiation of specific agreements" for the licensing of MediVas products.
160.
The Tribunal has reviewed evidence produced by Marubeni consisting of a string of e-mails between MediVas in Marubeni representatives between 11 May 2004 and 18 October 2007 (Exhibit V to Statement of Ryoichi Watanabe dated 27 December 2010).
161.
These e-mails, exchanged primarily between Ken Carpenter, the CEO of MediVas, and Akihiro Omura from the Incubation Team of Marubeni indicate consecutive activity on the part of Marubeni from the inception of the Agency Agreement in introducing various Japanese corporations having a potential interest in MediVas products to MediVas. Such activity persisted at least through late 2005.
162.
These e-mails reveal that Marubeni sought to set up meetings, introduce MediVas products to, or otherwise communicate with a wide range of Japanese companies, examples of which include the following (Corporate names are abbreviated according to e-mails):

• Terumo-Appointment for meeting and preparation of presentation by Marubeni (e-mail from Omura to Carpenter dated 9 June 2004; Exhibit V, Page 005);

• Nitto Denko-lntroduction of MediVas polymer product, and communication of technical queries by Marubeni to MediVas (e-mail from Omura to Carpenter dated 17 August 2004; Exhibit V, Page 023);

• Dainippon Pharmaceutical-Company visit by Marubeni and communication of indication of interest in MediVas Nanoparticle to MediVas (e-mail from Omura to Carpenter dated 3 September 2004; Exhibit V, Page 025);

• Osteogenesis-Contact with company and request for required specifications by Marubeni (e-mail from Omura to Carpenter dated 9 September 2004, Exhibit V, Page 030);

• Medgel-Communication with company and exchange of draft MTA by Marubeni (e-mail from Omura to Carpenter dated 14 November 2004; Exhibit V, Page 035);

• Kyowa Hakko-lntroduction of MediVas polymer to company by Marubeni (e-mail from Omura to Carpenter dated 12 November 2004; Exhibit V, Page 036);

• J-TEC-lntroduction of MediVas polymer to company and communication of technical queries by Marubeni (e-mail from Omura to Carpenter dated 28 November 2004; Exhibit V, Page 037);

• Takeda-Communication of expected meeting with company and indication of interest by Marubeni (e-mail from Omura to Carpenter dated 29 March 2005; Exhibit V, Page 053);

• Mitsubishi Chemical-expected meeting with company and preparation of introductory material by Marubeni (e-mail from Omura to Carpenter dated 2 May 2005; Exhibit V, Page 068);

• Kureha-Provision of signed MTA from company by Marubeni (e-mail from Omura to Carpenter dated 11 October 2005; Exhibit V, Page 083);

• Aqumen Biopharmaceuticals-Exchange of draft NDA and MTA by Marubeni (e-mail from Omura to Carpenter dated 17 August 2005; Exhibit V, Page 076).

163.
These communications leave no doubt that Marubeni was discharging its obligation under Article 5(a) of the Agency Agreement to "explore the market with respect to licensing potential" for MediVas products from the inception of the Agency Agreement through late 2005.
164.
With respect to Marubeni's obligation to "assist MediVas in negotiation of specific agreements" under Article 5(b) of the Agency Agreement, such obligation can be reasonably interpreted only to arise once a potential candidate for a specific agreement has emerged. Because no such potential candidate appears to have arisen during the period throughout 2005, Marubeni cannot be said to be in breach of this obligation.
165.
The Tribunal further considered whether Marubeni may have breached its obligations under Article 5(d) to "give to MediVas quarterly written reports which summarize [its] activities" because no formal reports have been submitted to the Tribunal as evidence of Marubeni's compliance with this obligation. Article 5(d), however, provides no specifications as to the required form of such "written reports." Given that the objective of such reports can be reasonably interpreted as to serve the purpose of apprizing MediVas of the status of Marubeni's activities, the Tribunal regards reports given by way of e-mail to satisfy the "written report" requirement so long as such reports serve to adequately notify MediVas of Marubeni's activities. Because, as indicated above, Marubeni provided abundant correspondence by e-mail between 2004 and 2005 more frequently than once a quarter, Marubeni can be deemed to have provided the reports required under Article 5(d) during this period.
166.
With regard to the time period subsequent to 2006, however, the Tribunal noted that the number of e-mails provided by Marubeni dwindled after late 2005, with only sporadic exchanges on 31 July and 1 August in 2006, and 23 July, 5 October, and 18 October in 2007.
167.
First, during the period between 2006 and 2007, the e-mails exchanged indicates the difficulties MediVas came to face in marketing its products in Japan. For example, in an e-mail from Mr. Carpenter to Mr. Omura of 11 May 2005 (Exhibit V; Page 069), Mr. Carpenter notes that "I believe that the only really interested buyer of the device business would be a company that already has decided to be in the medical polymer market." This statement reveals Mr. Carpenter's view of the limited scope of potential partners in the Japanese market.
168.
Further, in an e-mail from Mr. Carpenter to Mr. Omura of 18 October 2007 (Exhibit V; Page 089), Mr. Carpenter notes as follows:

"It is important to note that our polymers are highly specialized to be biocompatible, biodegradable medical grade polymers, which makes them far more expensive than most commercial polymers. This probably means they would never be practical for large-scale commercial activities that are not related to medical applications. Certain cosmetic applications, especially for highend cosmetics, might be appropriate for our technology."

169.
This statement further confirms MediVas' view at the time that the potential scope of interested parties in Japan was narrow.
170.
Given the relatively narrow and specific sphere of Japanese companies having a potential interest in MediVas' products, the Tribunal finds it plausible that the number of companies approached by Marubeni following the first two years of the Agency Agreement dwindled as Marubeni worked through its finite number of valid business connections. The activities required by Marubeni to perform its obligation to "explore the market with respect to licensing potential" under Article 5(a) would therefore reasonably be interpreted as being correspondingly reduced as Marubeni worked through its existing connections.82
171.
Second, and notably, the e-mail exchanges between MediVas and Marubeni during 2006 and 2007 remain amicable with no indication that Marubeni was not living up to its expected obligations.
172.
Moreover, in an e-mail dated 18 October 2007, in response to Marubeni's e-mail of the same date stating that it would like to introduce LTT Bio-Pharma to MediVas, Mr. Carpenter indicated to Marubeni as follows:

"We are currently involved in a negotiation which may have an impact on our ability to partner in this area so we will get back to you later this month on this matter.... Please allow us a few weeks to finalize our current negotiations and then we will be in touch with you." (emphasis supplied)

173.
Rather than signaling dissatisfaction with Marubeni's activities, this communication indicates an inability on the part of MediVas to communicate with Japanese companies such as LTT Bio-Pharma at this time, which status would serve to alleviate the requirement for Marubeni to provide continuous introductions to MediVas during such time.
174.
With respect to the time period subsequent to 2007, the Tribunal noted a significant change in MediVas' status in mid-2007. In this regard, witness Davis indicated that a top-level meeting was held on 7 August 2007 between MediVas and Marubeni's representatives to discuss "MediVas' default in its payment obligations under the Note Purchase Agreement" (31 May 2011 Davis Statement, Paragraph 3). According to Davis' statement, MediVas further indicated in an e-mail received on 14 September 2007, that "MediVas was in serious negotiations with several parties for a significant [merger] transaction" (Id., Paragraph 6), and that on 10 October 2007, the parties entered into the 2007 Agreements the purpose of which was to give MediVas an opportunity to bring its proposed transactions to fruition. (Id., Paragraph 7). The merger discussions subsequently fell through, following by further merger discussions with DSM and the continuance of negotiations regarding repayment between MediVas and Marubeni thereafter into and throughout 2009. (Id. Paragraphs 8-34).
175.
In light of the financial difficulties MediVas faced and the fluid situation with the proposed merger transactions after 2007, Marubeni would not have been able to viably introduce new potential partners to MediVas after 2007 and could not be interpreted to continue to be under a contractual obligation under the Agency Agreement to do so under such circumstances.
176.
Furthermore, witness Davis indicates that no complaints were raised by MediVas with respect to Marubeni's performance under the Agency Agreement until 1 May 2008:

The first time that MediVas raised a complaint about Marubeni's performance under the Agency Agreement was on 1 May 2008 when Joe Dowling, Marubeni's [sic]["MediVas'" clearly intended] COO, asked to meet with me. Mr. Dowling requested that Marubeni consent to sharing its security interest with Mr. Satomi. It was obvious to me that Mr. Dowling found the financial situation at MediVas quite desperate. When I declined, on Marubeni's behalf, to share Marubeni's security interest with Mr. Satomi, Mr. Dowling countered with the statement that MediVas' grant of a security interest to Marubeni was a "fraudulent transfer."... Growing frustrated, Mr. Dowling lashed out suggesting that Marubeni had failed to live up to its obligations under the Agency Agreement. Mr. Dowling did not elaborate" (emphasis supplied).83

177.
Davis's statements in this regard are detailed and credible, and corroborate with the amicable e-mails in late 2007 noted above. The absence of any complaint by MediVas except in the context of a heated debate regarding its request for financing further confirms the absence of a breach of its obligations under the Agency Agreement by Marubeni.
178.
Consequently, the Tribunal holds that Marubeni was not at any point in breach of its obligations under the Agency Agreement.

Transfer of Security Interest Without Equivalent Value and Voidability of Transfer

179.
The Respondent contends in the Complaint, FOURTH CAUSE OF ACTION84 that the security interest given by it to the Claimant is voidable because of a lack of consideration. This issue was identified in the Terms of Reference as one which the Claimant asked this Tribunal to resolve. In the Jurisdiction Award the issue was labeled for convenience the "Voidable Security Claim"85 and that same term will be used to refer to it herein.
180.
In the Jurisdiction Award, the Tribunal deferred a decision on its jurisdiction over the Voidable Security Claim. It is now appropriate to deal with this issue in the context of the Partial Award on the Merits.
181.
The Tribunal will not repeat here the extensive analysis of the agreements and applicable principles of law relevant to the issue of its jurisdiction which is set out in the Jurisdiction Award. In gist the Tribunal found that the arbitration agreement made by the parties in the Note Purchase Agreement86 was not completely supplanted by the Forum Clause of the Security Agreement,87 and that the Tribunal had jurisdiction to rule upon the several issues between the parties, the merits of which are dealt with above in this Partial Award.
182.
At the same time, however, the Tribunal felt that, interpreting the complex of agreements entered by the parties in 2004 and 2007 under the principles of California law,88 it would be appropriate to give effect to the Forum Clause with respect to matters directly concerning the Security Agreement.
183.
More specifically, while Marubeni contended that the Forum Clause would apply only to actions to foreclose on collateral or for breach of the Security Agreement, the Tribunal explained in the Jurisdiction Award (Paragraph 60) its concern that Marubeni had not explained satisfactorily why the clause should have such limited scope, in view of its wording, which extends to "any dispute, claim or controversy between (the parties) concerning... the interpretation or enforcement of this Agreement, or any other matter arising out of or relating to this Agreement" (emphasis supplied); that the Tribunal did not see a logical basis for distinguishing between claims for breach or for enforcement and foreclosure with respect to the Security Agreement, on the one hand, which Marubeni allows would be within the Forum Clause, and the claim by MediVas that the transfer of security interests under the Security Agreement should be voided, on the other hand, which Marubeni argues is not within the scope of the clause; and that it felt that the Forum Clause of the Security Agreement should be reasonably interpreted as displacing the arbitration clause between the parties as to any dispute concerning the subject matter of the Security Agreement itself and the collateral given or purported to be given under it.
184.
At the time of issuance of the Jurisdiction Award, however, the District Court had ruled that all issues under all of the 2004 and 2007 agreements were to be referred to arbitration.89 In order not to create a situation where there was no forum in which the parties could resolve the Voidable Security Claim, the Tribunal deferred any decision on its jurisdiction over the Voidable Security Claim. However as noted above that situation has changed90 and it is appropriate to decide on the Tribunal's jurisdiction over this issue.
185.
Because the Voidable Security Claim directly concerns the collateral given under the Security Agreement, it is the view of the Tribunal that such dispute is subject to the Forum Clause and accordingly the Tribunal does not have jurisdiction over this issue.

Summary Statement of Award

186.
For the foregoing reasons the Tribunal rules as follows:

(a) Monetary Relief: The Respondent is ordered to pay the Claimant the following sums:

(i) USD2,250,000 in respect of outstanding principal on the loan made by Claimant to Respondent;

(ii) USD500,000 on account of the Forbearance Fee; and

(iii) Accrued interest to date of award on the above sums totaling USD1,989,142.

(b) in relation to the Claimant's request that the Tribunal rule on the merits of the following claims advanced by the Respondent in the Complaint:

(i) Respondent's allegations of avoidance of allegedly illegal contracts predicated on California Revenue and Taxation Code23304 fail;

(ii) MediVas's allegations of breach by Marubeni of covenant of good faith and fair dealing fail;

(iii) MediVas's allegations of intentional interference by Marubeni with prospective economic advantage fail;

(iv) the Tribunal has jurisdiction to decide MediVas's allegations of breach of the Agency Agreement;

(v) MediVas's allegations of breach of the Agency Agreement by Marubeni fail;

(vi) The Tribunal has no jurisdiction to decide the Voidable Security Claim; and

(c) The Tribunal defers any decision on the Claimant's request for an award of costs, including attorneys' fees, to a subsequent phase of the proceedings.

(d) Further, the Tribunal defers the question of award of post-award interest to a subsequent phase of the proceedings.

Place of Arbitration: Tokyo (Japan)

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