Al Raha Group for Technical Services v. PKL Services

I, THE UNDERSIGNED EMERGENCY ARBITRATOR, having been appointed as Emergency Arbitrator pursuant to Article 6 of the International Centre for Dispute Resolution's International Dispute Resolution Procedures and designated in accordance with an arbitration agreement entered into between the above named parties and dated February 5, 2012, and having been duly sworn, and having heard the proofs and allegations of the parties, do hereby, AWARD, as follows:

On August 13, 2018, Al Raha Group for Technical Services ("Claimant" or "RGTS") filed an Application for Emergency Injunctive Relief Under Article 6 of the International Dispute Resolution Procedures of the International Centre for Dispute Resolution ("Procedures"), seeking an interim emergency order enjoining PKL Services, Inc. ("Respondent" or "PKL") from proceeding with its announced termination for cause, effective August 31,2018, of a certain Subcontract between the parties, prior to constitution of the full three arbitrator tribunal.

On August 14, 2018, the Emergency Arbitrator was appointed to hear and rule on Claimant's application.

On August 15, 2018, Claimant filed an amendment to its application, requesting that the interim emergency order apply to any other termination (in addition to cause) of the Subcontract between the parties.

A preliminary hearing was conducted by telephone on August 15, 2018.

On August 22, 2018, the parties filed their written submissions in support of their respective positions. On August 23, 2018, the parties filed their written replies.

The issues to be addressed in determining whether or not Claimant’s requested relief should be granted include the following: A. Whether the American Arbitration Association, via its International Centre for Dispute Resolution, has jurisdiction to hear this matter, and, in that regard, whether the Emergency Arbitrator has the authority to rule on the issue of jurisdiction. B. Whether Claimant is likely to succeed on the merits. C. Whether Claimant would suffer irreparable harm if the requested relief were not granted. D. Whether the requested relief, if granted, should be contingent upon the posting of security.

On February 5, 2012, the parties entered into a Teaming Agreement for the purpose of performing certain support services in the Kingdom of Saudi Arabia related to aircraft maintenance for the Royal Saudi Air Force (the "Teaming Agreement"). Pursuant to its terms, the Teaming Agreement expired in January 2016. Thereafter, the parties entered into Subcontract Number RGTS-16-R-0007, effective as of October 25, 2016 (the "Subcontract").

Despite the fact that the Teaming Agreement had expired prior to the execution and entry into force of the Subcontract, the Subcontract referred to the Teaming Agreement, attached it as an exhibit, and incorporated provisions of it in the text. For example, Section 4 of the Subcontract (Period of Performance) provides, in relevant part, "Subcontractor's services shall be performed during the period of performance as specified at the sole discretion of Prime Contractor as long as it does not conflict with PKL and RGTS Teaming Agreement." Section 10 of the Subcontract (Performance Work Statement) provides, in relevant part, "All work performed hereunder is subject to the terms and conditions of this Agreement and PKL and RGTS Teaming Agreement."

The dispute resolution provisions of the Teaming Agreement are found in Section 15 (Governing Law and Arbitration), which provides, in relevant part:

15.2 Any controversy, dispute, or claim of whatever nature arising out of, in connection with, or in relation to the interpretation, performance or breach of this Agreement, or any subcontract awarded under this Agreement, whether based on contract, tort, or statue, shall be settled by final and binding arbitration conducted in Dekalb County, Georgia. The arbitration shall be administered by a panel of three arbitrators, one of which shall be selected unilaterally by each party and one which will be selected by mutual agreement. Arbitration shall be conducted in accordance with the then existing rules of the American Arbitration Association (AAA), and judgment upon any award rendered by the arbitrators may be entered by any state or federal court having jurisdiction....

There is no dispute resolution or forum selection provision in the Subcontract. Rather, there is only a governing law provision and a reference to waiver of objection to jurisdiction, but with no forum named:

43. LAWS GOVERNING

Prime Contractor and Subcontractor agree to use best, good faith efforts to negotiate in a business-like manner any disputes arising under this Agreement or in the performance of this Agreement. Any dispute which is not disposed of by agreement between the parties within thirty (30) calendar days of the beginning of negotiations between the parties with respect thereto shall he resolved as set forth below. All negotiations of disputes will commence with detailed descriptions of the dispute

All questions with respect to the construction, enforcement and interpretation of this Agreement and the rights and liabilities of the Parties hereto shall be determined in accordance with the laws of the State of California, without regard to principles of conflicts of law. Each party irrevocably waives any objections or immunities to jurisdiction to which it may otherwise he entitled or become entitled (including immunity to pre-judgment attachment post-judgment attachment and execution) in any legal suit, action or proceeding against it arising out of, or relating to, the Contract, this Agreement, or the transactions contemplated hereby, which is instituted in any such court.

Claimant’s position is that these two conflicting provisions must be interpreted as requiring the terms of the Teaming Agreement to control, both with respect to governing law and dispute resolution forum selection. Respondent's position is that the Subcontract modified the terms of the Teaming Agreement with respect to both governing law and dispute resolution forum so that only the language of the Subcontract controls. I find, however, neither of these two interpretations to be correct. Rather, I find that, where there appears to be a conflict between the parties’ two agreements, the Subcontract could in fact modify the Teaming Agreement, but only where done expressly, not by implication or the making of an assumption. The Subcontract expressly modified governing law. Therefore, I find that the law to be applied is the law of the State of California. However, the Subcontract did not expressly modify the dispute resolution forum provisions of the Teaming Agreement. Therefore, I find that the dispute resolution forum provisions of the Teaming Agreement apply. In short, I find that the parties expressly agreed to their disputes being resolved by the American Arbitration Association in accordance with its rules and procedures. This provision was incorporated into the Subcontract, along with the other Teaming Agreement provisions that were not expressly changed in the Subcontract. This finding also resolves the issue of who determines American Arbitration Association jurisdiction. Article 6, subsection 3 of the Procedures states: "The emergency arbitrator shall have the authority vested in the arbitral tribunal under Article 19, including the authority to rule on her/his own jurisdiction, and shall resolve any disputes over the applicability of this Article."

Claimant's claims against Respondent are multiple. They include the claim that (i) the grounds asserted by Respondent to support termination for cause are not valid, and do not support any termination for cause; (ii) Respondent’s actions constitute an anticipatory breach of the Subcontract; and (iii) the term of the Subcontract does not expire on its own on August 31, 2018, but is coterminous with the term of Respondent's Prime Contract with the United States Air Force. A large component of the dispute relates to the inability of Claimant to secure visas from the Saudi government for expat employees, one of Claimant's tasks in addition to housing, etc.

In their written submissions, both parties' have set forth their respective version of the facts with great vigor and impending urgency.

Respondent contends that the securing of visas is solely Claimant’s obligation, and that Claimant’s failure is due to its inability to achieve amongst its employees a certain ratio between the Saudi national workforce and the non-Saudi/expat workforce for which visas are required. Claimant, hinting at force majeure, contends that its inability to secure visas is a result of the need to satisfy new and more stringent Saudization percentages implemented by the Kingdom of Saudi Arabia effective September 3, 2017. Claimant contends further that it had proposed to Respondent the names of Saudi nationals to employ, which would have achieved compliance with the ratio, but that Respondent had rejected them. However, Respondent responds that the reason Claimant is not in compliance with the new required ratio is that Claimant lost other contracts with a resulting loss of employees who met the Saudi national criteria, and additionally that Respondent has no responsibility under the Subcontract to hire Saudi nationals to assist Claimant in meeting the ratio requirements.

The time line of termination: On July 11,2018, Respondent provided notice to Claimant of breaches of the Subcontract, requiring Claimant to show cause why it was not in breach On July 30, 2018, Respondent, not satisfied with Claimant’s response, notified Claimant that it was proceeding with the termination. On August 1,2018, Respondent commenced using a substitute subcontractor based on a letter of intent, but no formal contract. It is not clear when the letter of intent between Respondent and the substitute subcontractor was entered into, or if negotiations to replace Claimant preceded the notices of breach. There is also nothing in the record to indicate whether there was compliance with Section 18 of the Subcontract, which provides that if the subcontractor fails to satisfy any performance deficiencies within thirty days of written notice of such deficiencies, the prime contractor (Respondent) and subcontractor (Claimant) shall enter into discussions to resolve the performance issues. Likewise, Section 43 of the Subcontract provides that the parties agree to "use best, good faith efforts to negotiate in a business-like manner any disputes arising under [the] agreement." There is nothing in the record to indicate whether this provision was complied with Compliance with Section 18 and Section 43 may be a prerequisite to termination.

In light of the foregoing, while I cannot state with certainty which party will ultimately prevail on the merits, I can state that the wide disparity in the conflicting description of facts set forth by the parties, as well as other unanswered questions noted above, will need to be resolved by the full arbitral panel, not by the Emergency Arbitrator. Inasmuch as it is expected that the full arbitral panel will be constituted within several weeks, to permit Respondent to go forward with its actions to terminate Claimant may result in irreparable harm for the reasons set forth below.

Claimant contends that in the absence of the requested relief, Claimant will suffer irreparable and immediate harm. Among other things, Claimant contends that, due to the nature and workings of Respondent's long term Prime Contract with the U.S. Air Force, Claimant would be forced to file multiple proceedings against Respondent to recover its lost profits. Claimant also contends that it would immediately lose its workforce, and would also be required to release all registrations in the Saudi labor system, so it would be "impractical if not impossible" to regain the Subcontract should Claimant prevail in its claim on the merits.

Respondent's position is that, even if Claimant should prevail on the merits (which it believes is unlikely), Claimant has an adequate remedy at law.

With respect to an adequate remedy at law, I note that Section 13 of the Subcontract appears to restrict the remedies at law available to a prevailing party. Section 13 provides, in relevant part: "[n]either party shall be liable to the other pursuant to this subcontract for any indirect, incidental, consequential, or punitive damages to the other party, including, but not limited to loss of data, loss of profits, loss of business...In light of the inability to recover lost profits, as well as the immediate potential loss of its workforce, I find that Claimant may not have an adequate pecuniary compensation remedy at law should it prevail on the merits.

Likewise, while I recognize the urgent nature of resolving the visa issues, there was no evidence yet submitted that Respondent, as was asserted in its submissions, would suffer irreparable harm should Claimant’s request for relief pending constitution of the full arbitral panel be granted. Respondent, in its submissions, states that, although the substitute subcontractor commenced working on August 1, 2018, Respondent has not yet entered into a formal contract with the substitute subcontractor, only a letter of intent. Respondent also states that it believes the substitute subcontractor has the ability to secure the necessary visas, but there is no proof in the record that this is the case.

In light of the foregoing, and inasmuch as the full arbitral panel is expected to be constituted within the next few weeks, I find any potential threat to Respondent by issuing an order preventing the termination of the Subcontract, to be ameliorated by requiring Claimant to post an injunction bond. Respondent requested that a bond USD 2,500,000.00 be required if injunctive relief were to be granted. I find USD 500,000.00 to be a reasonable amount under the circumstances of this case.

1. Claimant’s request for an Emergency Injunction is granted to the extent that the Subcontract between Claimant and Respondent shall not be terminated on August 31, 2018, in order to retain the status quo until the full arbitral panel is constituted.

2. The relief granted to Claimant under No. 1 shall become effective upon the securing of an injunction bond in the amount of USD 500,000 00.

3. In accordance with the International Centre for Dispute Resolution Procedures, this Interim Emergency Award is subject to reconsideration, modification, or vacatur of parts or in its entirety by the full arbitral panel.

4. The administrative fees of the International Centre for Dispute Resolution and the compensation of the Emergency Arbitrator shall be shared equally between Claimant and Respondent, subject to reallocation by the full arbitral panel.

I hereby certify that, for purposes of Article I of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, this Interim Award was made in Dekalb County, Georgia, United States of America.