Memorandum Analysis: Guidance for the Claimant

MEMORANDUM FOR CLAIMANT

This arbitration arises from a contractual relationship between Innovative Cancer Treatment Ltd. (“ICT” or the “Claimant”) and Hope Hospital (the “Respondent”) in which the Respondent agreed to purchase a proton accelerator with three individual treatment rooms for USD 53.5 million. The dispute is essentially about Respondent’s attempt to evade full payment by alleging viability of the proton therapy facility.

Claimant, a company registered in Anteega, is a few manufacturer of particle therapy equipment. It provides passive beam scattering technique to facilities. Respondent Hope Hospital is a medical university with its business office located at Barbadiosa. It has a cancer research and treatment centre, and it provides treatment of localized tumours.

According to the Framework and Sales Agreement, dated 13th January 2011, the Respondent agreed to purchase proton therapy facility consisting of a proton accelerator and two independent treatment facilities from the Claimant for USD 50 million. This amount was to be paid in initial payment of USD 10 million and subsequent four installment of USD 7.5 million two times in each of two consecutive years. The initial payment and the first installment were paid as agreed. The facility was completed on 15th April 2013.

While the balance from the payment from the Framework and Sales Agreement was due, on 20th July 2014, a Sale and Licensing Agreement was entered between the parties of installation of a third treatment room for USD 3.5 million. For this, USD 2 million was paid as initial payment on 2 February 2015, and the room was provided on 13th January 2015.

On 15th August 2015, the Respondent informed the Claimant of its decision to not pay further, contending in its letter of alleged misrepresentation by the Claimant of the financial viability of the project for the size of country like Barbadiosa. The Respondent relied on Barbadiosa’s Auditor-General question on 10th July 2015 regarding the facility’s viability. The Auditor-General had reported confirmed the Respondent’s finding that there was only 70% of its planned operational capacity in the 2014/2015. The Respondent also cited inaccuracy due to faulty software.

In these circumstances, the Claimant requests for CEPANI Arbitration under Article 3(1) of CEPANI Rules of Arbitration.

STATEMENT OF FACTS

In 2010, the Respondent reached out ICT to seek purchase of a proton therapy facility that would help them increase its treatment options for certain types of cancer.

Thereby, the parties signed a Framework and Sales Agreement (Cl. Ex. No. 1) on 13 January 2011, which provided for the purchase of a facility consisting of one proton accelerator and two independent treatment rooms. This Agreement covers future transactions and also extension terms of the mentioned facility.

The Agreement provided for constructing required building structures and for delivering a particle accelerator, two treatment rooms, relevant software installations and interface, and needed staff training.

During 2010 and 2011 discussions, both the parties discussed in detail the prospect of a third treatment room that could use more advanced scanning technology. ICT was in the final stages of developing this new technique for delivering the proton beam and it was therefore looking for a renowned cancer research facility serving a particular demographic to provide and verify the required data and engage in clinical studies.

During that discussion too, price had been a major stumbling block even and therefore no contract for this third treatment room, using active scanning technology, was concluded. However, ICT was willing to give a considerable discount so long as it received the required data mentioned above, which it could later use the technique unrestricted from any intellectual property rights for world-wide sales. Such data was crucial in developing, testing and refining the necessary steering software for the accelerator and the proton beams used for treatment

Consequently, the Claimant and Respondent developed a close cooperation. Possessing an advanced scanning technology, the Claimant wanted to enter the market for this type of treatment facility. ICT’s management considered the active scanning technology both to be an excellent enhancement of the equipment already being offered and to be an important element in consolidating ICT’s position as a leading firm in the expanding field of cancer treatment.

Price for the facility with two treatment rooms was USD 50 million and the payment schedule was as follows: An initial payment of USD 10 million was due on 1 February 2011 and a further four installments of USD 7.5 million each were due following completion of the installation of the proton therapy facility; those payments were due on 30 June and 31 December of each of the two years following successful installation. A final payment of USD 10 million was due 240 days after the fourth and final semi-annual installment.

ICT gave a pre-sales budgeting analysis on request by Hope Hospital, and based on considerable amount of information concerning, inter alia, the number of potential patients and the personnel and technical resources available. The analysis stated that the facility would at least run on zero costs, if the price charged for each treatment was in the range considered to be acceptable by Hope Hospital.

On 15 April 2013, the Claimant delivered the completed facility and against which the Respondent had already paid USD 10 million as initial payment on 1st February 2011 and thereafter 30 June 2013, paid USD 7.5 million as the agreed first installment.

In May 2014, the Respondent reached out to the Claimant to discuss the third treatment. The Claimant was still very much interested in the further development of the active scanning technology and in particular the necessary software for steering and modelling the proton beam.

In July 2014, Hope Hospital agreed to pay heavily reduced price (USD 3.5 million for required components and software package as well as for the necessary training programs. In exchange, it was obliged to provide the trial data necessary for ICT to develop the software and hold the required number of clinical trials.

On 20th July 2014, the Sale and Licensing Agreement was signed (Cl. Exh. No. 3). The third room, including the equipment and the software necessary for the active scanning technology, became available on 13th January 2015. As agreed in the Sale and Licensing Agreement, the Respondent had made the initial payment of USD 2 million on 2nd February 2015, for the delivery of the equipment on 13th January 2015.

During the time of negotiations around the Sale and Licensing Agreement, the Claimant notified the Respondent about the overhaul of its standard terms and that these new terms will govern the Agreement (Cl. Exh. No. 2).

The Respondent, in a letter dated 15th August 2015, stated that on 10th July 2015, Barbadiosa’s Auditor-General had questioned the general viability of the proton therapy facility dues to which the Respondent, on 20th May 2015, halted treatment using the latest scanning technology raising concerns about the accuracy of the proton beam due to software default. The Respondent alleged misrepresentation of financial viability of the facility for the size of a country like Barbadiosa.

In the letter of 15th August 2015, the Respondent notified the Claimant of its decision to not to tender further payments, due from both the Framework and Sales Agreement and the Sale and Licensing Agreement. In regard to the latter Agreement, the Respondent paid only USD 2 million, leaving a balance of USD 1.5 million that should have been paid 6 months after delivery of the third treatment room.

RELEVANT CONTENTIONS

The following presents the main issues out of the different issues caused by the parties’ submissions. The Arbitral Tribunal shall address the following according to principles under Article

CEPANI Arbitration Rules:

• Jurisdiction of the Arbitral Tribunal to deal with payment claims.
• Jurisdiction of the Arbitration tribunal to consolidate the claims under a single arbitration.
• Application of applicable law as laid down in the contracts versus CISG provisions on claims
• Application of applicable law as laid down in the contracts versus CISG provisions on claims
• Related to payment against Respondent in the combined amount of USD 11,500.
• Related to payment against Respondent in the combined amount of USD 11,500.
• Related to arbitration costs and party responsible for it.

ARGUMENT

No jurisdiction of the Arbitral Tribunal to hear payment claims raised by Claimant

The disputes should be decided by arbitration under the Arbitration Rules of CEPANI– The Belgian Centre for Arbitration and Mediation (“CEPANI Arbitration Rules”). The seat of the arbitration is London, United Kingdom. The Framework and Sales Agreement contains in Article 23 an arbitration clause in favour of CEPANI Arbitration. Pursuant to Article 45 of the Framework and Sales Agreement, the Agreement also covers subsequent agreements by the Parties in relation to the Proton Therapy Facility.

Consequently, disputes arising under the Sale and Licensing Agreement are also covered by this arbitration agreement with the modifications made in Article 23 thereof. The Claimant had agreed to those modifications of the original disputes resolution clause to acknowledge the important contribution by Hope Hospital in the development and testing of the active scanning technology.

The Respondent claimed that they did not validly agree to arbitration under the CEPANI Rules, and that the Respondent, as a Government entity, could only agree to a dispute resolution clause that Article 23 of the Framework and Sales Agreement that would allow for the review of blatantly wrong decisions. Such claim should be denied in that Article 8 of CEPANI states that even if the Respondent refuses to submit to arbitration, or fails to take part in the arbitration, the arbitration shall nevertheless proceed. Also, if the Respondent raises one or more pleas concerning the existence, validity or scope of the arbitration agreement, the arbitration shall proceed without CEPANI deciding on the admissibility or merits of the pleas. In such case, the Arbitral Tribunal shall itself rule on its jurisdiction. The Respondent does not have any validity to claim that they were not clear about what type of dispute resolution the Agreements were talking about since the Article 23 of both the Contracts provide dispute resolution system to cover all claims or disputes arising out of the contract.

Claimant’s claims arising from both contracts are separate and cannot be clubbed into a single arbitration

The Claimant totally rebuts this argument. As per Article 10 of the CEPANI Arbitration Rules, the Arbitration Tribunal has jurisdiction to hear both the claim in one single arbitration proceeding. Claimant claims a combined amount of USD 11,500,000 against Respondent the arising from both the contracts.

The Respondent subjects the result of disputes arising from Framework and Sales Agreement to answer to the viability question of the treatment facility. Whereas, the latter dispute relates to the suitability of the software to the scanning technology that particularly requires a software engineering expertise. However, based on the new Article 10 of ICC, it provides the following factor, among other factors, for consolidation of claims in a single arbitration as follows:

“where the claims in the arbitrations are made under more than one arbitration agreement, the arbitrations are between the same parties, the disputes in the arbitrations arise in connection with the same legal relationship, and the Court finds the arbitration agreements to be compatible. When arbitrations are consolidated, they shall be consolidated into the arbitration that commenced first, unless otherwise agreed by all parties.”

It is to be noted that consolidating the claims will produce a fair and efficient award. As can be inferred from Giliéron and Pitte, consolidation is “the act or process of uniting into one case several independent proceedings that are pending or have been initiated”. To make the consolidation possible, there are requirements as laid down under Article 10(c) of ICC: same parties with legal relationship, and agreements that are compatible with each other. It is to be noted that both the contracts provide for the arbitration clause and (Buhler and Webster) this indicates a sufficient connection for the claims to be consolidated into a single arbitration. (Pair, Frankenstein) Also, ICC Rules empowers ICC to order consolidation in case the terms of reference are yet signed or approved.

Article 10, 12, and 13 of CEPANI provide for single arbitration for multiple contracts, consolidation of the arbitration, and jurisdiction to hear such disputes. Article 10 provides for a single arbitration for claims arising out of various contracts, and Article 13 provides for consolidation of arbitrations. Further, according to Article 12, the Arbitral Tribunal has jurisdiction over the dispute.

Recent development of cases has also favoured consolidating arbitration comprising multiple contracts.

For instance, according to the Permanent Court of Arbitration (PCA) decision on Guaracachi America Inc & Rurelec Plc v Bolivia, the contracts did not provide any restrictions or conditions preventing the Claimant from consolidating claims in a single arbitration.

Contrary to Claimant’s submission both contracts are governed by the law of Anteega excluding the CISG

Applicable Law - The national law of Anteega is applicable to the Framework and Sales Agreement of 13 January 2011 in accordance with section 22 of the Claimant’s 2000 standard terms (Annex 4 to the Agreement; Cl. Exh. No. 1). ) and that pursuant to Articles 35 and 37 of the Anteega Sale of Goods Act 2005, the Claimant is entitled to the outstanding amount of USD 10 million under the Framework and Sales Agreement.

Applicable Law - The national law of Anteega is applicable to the Framework and Sales Agreement of 13 January 2011 in accordance with section 22 of the Claimant’s 2000 standard terms (Annex 4 to the Agreement; Cl. Exh. No. 1). ) and that pursuant to Articles 35 and 37 of the Anteega Sale of Goods Act 2005, the Claimant is entitled to the outstanding amount of USD 10 million under the Framework and Sales Agreement.

The United Nations Convention on the International Sales of Goods 1980 (“CISG”)

It is applicable to the Sales and License Agreement of 20th July 2014. This is in accordance with Article 22 of its redrafted Standard Terms of June 2014 (Cl. Exh. No. 4).

The Respondent claim that the CISG would not be applicable to the Sales and License Agreement, as the agreement primarily concerned the development of a new software and the grant of a license, shall be denied pursuant to Articles 14, 53, 61 and 62 of CISG. Based on Article 14, the offer at the time of the Agreement was valid, which only after the acceptance of the offer by the Respondent the Agreement was entered. Under Article 53, which provides for payment upon delivery, the Respondent is obliged to pay the outstanding purchase price of USD 1.5 million under the Sales and Licensing Agreement. Further Article 61 provides for the Respondent to pay the price and perform its obligation, and the Claimant may avoid contract. If the parties wish to exclude recourse against the arbitral award that may be available under the applicable law, they may add a provision to that effect as suggested below, considering, however, that the effectiveness and conditions of such an exclusion depend on the applicable law.

Respondent claimed that both the contracts state that it is only the applicable law of Anteega that should be applied. However, it was illustrated in Steel Bars Case that the choice of law of the contracting state can imply as a choice of CISG. According to the principle in this case, both the contracts concerned international trade interest that involved movement of goods and payment across borders and therefore incurs applicability of CISG. (Drago and Zoccolillo/ Magnus) For excluding applicability of CISG, the contracts should have exclusively mentioned with clear language. This was held in the Coke Case.

The total claimed by the Claimant is USD 11.5 million, consisting of: i) USD 10 million outstanding purchase price for the proton therapy facility; and ii) USD 1,500,000 for the prostate cancer treatment software.

Arbitration Costs – The Claimant also claims interest and its costs of arbitration. According to Article 36 of CEPANI rules, the Secretariat in the final Award shall decide which of the parties shall finally bear the arbitration costs, as definitively determined by the secretariat, or in what proportion they shall be borne by the parties.

Claimant misrepresented the general and financial viability of the proton therapy facility

Between January 2015 when the active scanning technique became fully operational and until the day the request for arbitration was made, the Claimant has sold the technique to two other proton therapy facilities. There has been no complaint from either of those facilities in regard to the software which both customers had seen in operation at Respondent’s premises. On the contrary, the proton treatment facility in Hobbitown, Deland, has congratulated ICT on the development of the software. In both cases the package was largely comparable to that sold to Respondent. The parties in both cases entered into the price calculation with an amount of USD 9.5 million. This refutes the claim by the Respondent of Claimant’s misrepresentation concerning the capacity of the machinery.

The Claimant notes, that at no point in time was the cost-benefit analysis presented to the Respondent as one specific to Barbadiosa. The analysis was a generic one for a country of the size of Barbadiosa and was based on the assumption that the information provided by Respondent was accurate. The Claimant is unaware of any circumstances in Barbadiosa why the aim of the zero cost target was not reached.

The parties have been in close contact since Respondent ceased the treatment in the third treatment room using the active scanning technology. During all the discussions the – contested - deficiencies of the active scanning technology alleged by Respondent in its letter of 15th August 2015 had never been an issue. There had, however, been a considerable deterioration in the climate of the discussions following the installation of Professor Szabo as the new Medical Director of Hope Hospital on 1st February 2015. He is a conventional radiotherapist and one of the most vocal critics of proton therapy. Claimant assumes that this is the true reason for the purported avoidance of the contract.

Other Arguments

The applicable law of Anteega provides the Respondent with remedies that he could claim out of the Framework and Sales Agreement due to the misrepresentations. Firstly, as explained under para. 26, the Claimant did not breach any of the contract and thus, there is no question that it give rise to a right of termination granted to the Responded. Therefore, the Respondent cannot claim to avail remedies provided under applicable laws of Anteega to avoid the Framework and Sales Agreement or to stop any payment until the cure of the defects is found. Further, the Respondent is bound the obligation under CISG rules as well that provide for solving any disputes arising out of the contract.

The Respondent also claimed that it had a right of termination when the software finally developed did not meet the necessary requirements. This claim are of no ground since the software was developed based on the data and reports provided by the Respondent information, including availability of personnel and technical resources, and count of potential patients.

CONCLUSION ON THE MERITS

Respondent claim that it did not agree to arbitration clause does not hold ground, because both the Agreements provide arbitration clause. Goods delivered by the Claimant conform in all respects to the requirements of the contracts. Ground for Respondent’s request to separate arbitrations is not sufficient. All the claims arising from the contracts should be consolidated in a single arbitration, and CISG rules shall apply.

REQUEST FOR RELIEF

Based on the submissions made by both the parties, the Claimant hereby requests the Arbitration Tribunal:

• To verify and confirm that the parties formed a valid and enforceable arbitration clause
• To hear all the claims in one proceeding
• To obliged the Respondent in fulfilling its obligation of full payment under the terms of the contracts and under CISG.