Pursuant to Article 27 of the Arbitration (Additional Facility) Rules, Mondev is represented in these proceedings by:
Ms. Abby Cohen Smutny
Ms. Anne D. Smith and
Mr. Lee A. Steven
White & Case, LLP
601 Thirteenth Street, N.W.
Washington, D.C. 20005-3807, USA
Mr. Stephen H. Oleskey and
Ms. Lisa J. Pirozzolo
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803, USA
and since February 1, 2001,
Sir Arthur Watts, KCMG, QC
20 Essex Street
London WC2R 3AL, UK
Pursuant to Article 27 of the Arbitration (Additional Facility) Rules, the Government of the United States of America is represented in these proceedings by:
Mr. Barton Legum
Chief, NAFTA Arbitration Division
Office of International Claims and Investment Disputes
Office of the Legal Adviser (L/CID)
2430 E Street, N.W.
Suite 203, South Building
Washington, D.C. 20037-2800,
In the event, the City decided to demolish the Hayward Place garage, and LPA notified its intention to purchase the Hayward Parcel in 1986. But there were various delays and difficulties in realising Phase II. By a further amendment to the Tripartite Agreement made in 1987, the last date for closure under LPA's option was 1 January 1989 unless otherwise agreed; this was however subject to the proviso that the option would not expire if "the City and/or the Authority shall fail to work in good faith with the Developer through the design review process to conclude a closing". But this change in the Tripartite Agreement did not accelerate progress. What then happened was described by the SJC in the following terms:
"LPA never demanded and the city never tendered a deed within the required time period or at any other time. The basis of [LPA's] contract action against the city is that the city in bad faith failed to carry out those of its obligations under the Tripartite Agreement necessary to allow LPA to proceed to demand a closing, and indeed that it engaged in bad faith actions designed to impede LPA in effecting a timely closing. The reason for these obstructionist tactics by the city, as LPA sought to show... was that the new administration of Mayor Raymond Flynn believed that the price established by the Section 6.02 formula, which was based on 1978 values, was grossly unfair to the city in the light of a strong surge in real estate prices in the intervening years. LPA offered evidence of several instances of what it claimed were the city's obstructionist tactics. These included failing to complete the appraisals necessary to establish the price for the Hayward Parcel, initiating zoning changes that would have greatly reduced the allowable height of the office towers planned for the site, lack of cooperation about determining [certain road closures], and threatening to put a new street through the middle of the parcel, which would have made its development economically unviable."2
In March 1988 LPA leased its rights in the project to another larger Canadian developer, Campeau, which proceeded to redesign the project.3 It was Campeau acting as lessee which vainly sought an extension of the closure date of 1 January 1989. When this was refused, in December 1988 Campeau notified the City that it wished to complete the transaction immediately. But there was no tender of payment at the time, nor was any other formal step taken. Subsequent to 1 January 1989, Campeau obtained permission for the redesigned project. But subsequently it defaulted on its obligations to LPA under the lease agreement, and LPA terminated the lease. In February 1991, the mortgagor, Manufacturers Hanover Trust Co., foreclosed on the mortgage. LPA subsequently, in March 1992, brought proceedings against the City and BRA.
For its part the Tribunal agrees with the parties both as to the non-retrospective effect of NAFTA and as to the possibility that an act, initially committed before NAFTA entered into force, might in certain circumstances continue to be of relevance after NAFTA's entry into force, thereby becoming subject to NAFTA obligations. But there is a distinction between an act of a continuing character and an act, already completed, which continues to cause loss or damage.9 Whether the act which constitutes the gist of the (alleged) breach has a continuing character depends both on the facts and on the obligation said to have been breached. In that regard it is convenient to deal initially with Mondev's claim under Article 1110 for expropriation.
As to the loss of LPA's and Mondev's rights in the project as a whole, this occurred on the date of foreclosure and was final. Any expropriation, if there was one, must have occurred no later than 1991. In the circumstances it is difficult to accept that there was a continuing expropriation of the project as a whole after that date. All that was left thereafter were LPA's in personam claims against Boston and BRA for breaches of contract or torts arising out of a failed project. Those claims arose under Massachusetts law, and the failure (if failure there was) of the United States courts to decide those cases in accordance with existing Massachusetts law, or to act in accordance with Article 1105, could not have involved an expropriation of those rights.
The United States for its part did not dispute that the decisions of the City of Boston, BRA and the Massachusetts courts were attributable to it for NAFTA purposes.12 But it denied that any conduct which occurred prior to 1 January 1994 could be taken as constituting a breach of NAFTA. In this respect it cited the following passage from Feldman v. United Mexican States :
"Given that NAFTA came into force on January 1, 1994, no obligations adopted under NAFTA existed, and the Tribunal's jurisdiction does not extend, before that date. NAFTA itself did not purport to have any retroactive effect. Accordingly, this Tribunal may not deal with acts or omissions that occurred before January 1, 1994."13
The Respondent also argued that any remedial duty that might have arisen as a result of the acts of Boston and BRA before 1994 could not, ex hypothesi, involve any continuing breach of NAFTA obligations. Any such duty could only arise from a breach of NAFTA, which was not in force at the time.
Mondev argued that, through LPA, it has subsisting and substantial interests arising from the project, and thus has standing as an investor to assert a breach of Chapter 11. In particular, it stressed the definition in Article 1139 of "investment of an investor of a Party":
"investment of an investor of a Party means an investment owned or controlled directly or indirectly by an investor of such Party;".
The phrase "owned or controlled directly or indirectly" was, in its view, specifically adopted to avoid the difficulties relating to the standing of shareholders raised by the decision of the International Court in the Barcelona Traction case.18 To interpret Chapter 11 in the light of that case, as the United States sought to do, was inconsistent both with its plain language and with its object and purpose.
Article 1105 is entitled "Minimum Standard of Treatment". It provides as follows:
"(1) Each Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security.
(2) Without prejudice to paragraph 1 and notwithstanding Article 1108(7)(b), each Party shall accord to investors of another Party, and to investments of investors of another Party, non-discriminatory treatment with respect to measures it adopts or maintains relating to losses suffered by investments in its territory owing to armed conflict or civil strife.
(3) Paragraph 2 does not apply to existing measures relating to subsidies or grants that would be inconsistent with Article 1102 but for Article 1108(7)(b)."
In the present case only Article 1105(1) is relevant. Article 1105(2) does make it clear, however, by the phrase "[w]ithout prejudice to paragraph 1", that Article 1105(1) is not limited to issues concerning the treatment of investments before the courts of the host State. This would be clear in any event, since the "minimum standard of treatment" under international law as applied by arbitral tribunals and in State practice applies to a wide range of factual situations, whether in peace or in civil strife, and to conduct by a wide range of State organs or agencies.
On this point the Supreme Judicial Court began by noting that whether there was a binding contract, and whether the City was in breach, were issues which "had to be considered together to come to a fair and sensible view of the arrangements between the parties and their dealings with each other".59 This was because the contract contained formulae and procedures to deal with unresolved issues (including the price to be paid for the Hayward Parcel); if those formulae and procedures had not been included, the arrangement would have lacked certainty on essential terms. By the same token, however, "if a party does not follow those procedures, it should not be able to claim that the other side is in breach of what is necessarily still an open-ended arrangement".60 For reasons given in detail in its opinion the SJC concluded "that there was sufficient evidence to find a binding agreement, as the jury indeed did find, but it is also clear, as a matter of law, that LPA failed to follow the steps required of it under the Tripartite Agreement as supplemented to put the city in breach".61 In particular the SJC relied on earlier authority, including its own decision of 1954 in Leigh v. Rule, for the proposition that a material failure by a plaintiff to put the defendant in breach "bars recovery, unless the plaintiff is excused from tender because the other party has shown that he cannot or will not perform".62 The only evidence of LPA's tender of performance was Campeau's letter of 19 December 1988, but this, in the Court's view, was far too unspecific to satisfy the test in Leigh v. Rule. There was accordingly no basis in law for finding the City in breach of contract.63 Moreover, the Court held, there was no outright refusal by the City to comply with the contract, and LPA could not "attribute repudiation to the city based on the mere fact that uncertainties remained that LPA shared responsibility for resolving".64 Nor did LPA's claim based on the City's bad faith assist it: the basis of that claim was the City's refusal to extend the expiry date for the exercise of the option, but the City was under no contractual obligation to consent to an extension.65
(a) That its jurisdiction is limited to Mondev's claims concerning the decisions of the United States courts;
(b) That to this extent only, Mondev's claims are admissible;
(c) That the decisions of the United States courts did not involve any violation of Article 1105(1) of NAFTA or otherwise;
(d) That Mondev's claims are accordingly dismissed in their entirety;
(e) That each party shall bear its own costs, and shall bear equally the expenses of the Tribunal and the Secretariat.
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