The Tribunal has Jurisdiction over Respondent 1 under settled principles of arbitration law and In any event, the corporate veil between Respondent 1 and Respondent 2 must be lifted. 1 A. The Tribunal has the authority to determine Its own jurisdiction. 1 B. Respondent 1 is bound to the arbitrate proceedings. 2 1. The corporate veil between Respondent 1 and Respondent 2 must be lifted to bind arbitration clause in equitable estoppels. 3 II. The fraudulent acts of Mr.. Romantic cannot be attributed to Claimant; in any case, the defense of ex turnip cause non orator cacao is inapplicable in these circumstances and does not bar Claimant’s action.
A. The fraudulent acts of Mr.. Romantic cannot be attributed to Claimant. 4 B. In any case, the defense of ex turnip cause is inapplicable in these circumstances and does not bar Claimant’s action. 5 1. Claimant’s vicarious liability is insufficient to raise the defense of ex turnip cause. 6 2. In the alternative, Respondents’ complicity with the fraud precludes them from raising the illegality defense. 7 Ill. Respondents are liable under Sections 15 and 16 of the Frugality Sale of Goods Act, 1930. 7 A. The Transaction is governed by provisions
Comet” is a good as per the definition of “goods” under the Frugality Sale of Goods Act. 8 2. The transaction between the parties amounted to a sale despite it being termed a license by the parties. 9 B. Respondents are liable under Section 15 of the Sale of Goods Act. 10 1. The pre-contractual communication between Mr.. Romantic and Respondents laid down the descriptions to which the good had to conform. 11 2. Respondents failed to supply good conforming to the description. 12 C. Respondents are liable under Section 16(1) of the Sale of Goods Act. 12 1. Particular purpose for which the software was required was made known to
Respondent 1. 13 2. Claimant relied on Respondents’ skill and Judgment. 13 3. The good delivered was unsuited for the stated purpose. 14 4. The liability of Respondents under Section 16(1) is not excluded by proviso to Section 16 (1). 14 a. The exclusion under the proviso does not apply as the purchase was based on the representation of fitness by seller and on the trade name. 14 b. The exclusion under the proviso does not apply as “Comet” cannot be treated as a trade name in the present matter. 15 ‘V. Alternatively, Respondents are liable for Breach of Contract under the Frugality Contract Act, 1872. 16 A.
Respondent 2 and in furtherance of section 16 of the Gregorian Arbitration Act, 1995. Questions Presented The following questions have been presented before the Tribunal for its determination: 1. Whether the Tribunal has Jurisdiction over Respondent 1 and whether it can be bound to the arbitration agreement. 2. Whether Mr.. Romantic’s acts can be attributed to Claimant, thereby barring Claimant’s action by virtue of the principle ex turnip cause non orator cacao. 3. Whether Respondents have breached Sections 15 and 16 of the Frugality Sale of Goods Act, 1932. . Whether Respondents re liable for breach of contract under the Frugality Contract Act, 1872. 5. Whether Respondents are liable to pay damages for losses suffered by Claimant. Statement of Facts Mallory Advisory Services Ltd. [hereinafter “Claimant”] is a public limited company incorporated in the State of Frugal, and engaged in the business of investment and portfolio management. Scarecrows Solutions Pat. Ltd. [hereinafter “Respondent 1”] is a private limited company incorporated in the State of Rotunda. Comet (Scarecrows) Solutions Pat. Ltd. Hereinafter “Respondent 2”] is its wholly owned subsidiary incorporated in Frugal. The parent and the subsidiary are engaged in the business of software development. II Mr.. Romantic, owning 80% of Claimant’s shares, was the majority stakeholder in the company. The remaining shares were owned by several investors. Mr.. Romantic, entitled to nominate 7 out of 10 directors, never sat on the Board himself, but appointed professional managers. The asses were immensely profitable made high-risk investments but the economic recession which began in 2007 proved to be his downfall.
Mr. Romantic, who was extremely pleased with Mr.. Felix and was also instrumental in securing his appointment as CEO and Chairman, started questioning his abilities. Mr.. Felix was removed from his position in the Claimant Company as per the conditions put forward by the Government of Frugal in return for aiding Claimant. Ill Mr.. Romantic thereafter got himself elected as the Chairman of the Board, and also took over as CEO on April 1, 2008. Even though he was inexperienced in management, he wanted to implement a scientific approach to investment.
He heard about the software “Comet” when he was looking for an investment management software. In the process of development by Respondent 1, it was regarded as “unquestionably the best investment management software in the world”. He informed Claimant’s Board of Directors of his intention to enter into a contract with Respondent 1 instead of Microfarad Inc. , which manufactured Blackjack, a well- known investment management software. After much consideration, the Board unanimously authorized him to proceed with enquiries and take further action after the Board’s consent.
IV On August 14, 2008, Mr.. Romantic wrote to the CEO of Respondent 1 informing him of the exact features of the software that he required for Claimant. He required a software that would recommend whether Claimant should sell or purchase a particular share on a given day. He believed that this would act like an advanced warning system and reduce high-risk investment, which was the primary cause of Claimant’s downfall under Mr.. Felix. In reply, Respondent 1 informed him that “Comet” fulfilled all those requirements and offered to enter into a deal with him quoting a price of $ 45 million.
The Board of Directors with the exception of one Member was agreeable to the proposal put forward by Mr.. Romantic to enter this contract. Respondent 1 decided to enter into a contract with Claimant through Respondent 2, a wholly owned subsidiary, to be incorporated in Frugal, to avoid hooch of law controversy regarding cross border contracts and also to afford Respondent 1 tax advantages. It transferred the copyright in Comet to Respondent 2, sent personnel so that Respondent 2 could provide support services to Claimant and completed all accompanying legal formalities required for this contract.
The final stages of negotiations were concluded De facto with Respondent 1 but in the name of Respondent 2. V Both Claimant and Respondents were eager to conclude the deal before the end of the financial year. Therefore, Respondent 2 hastily completed the final stages of placement of “Comet”, which involved the drafting of the End User License Agreement [hereinafter “EULA”]. The software and the EULA were sent to Mr.. Romantic on the same packaged CD. The hastily drafted EULA left the question of compensation or damages in case of a breach open to interpretation which created doubt in the mind of Claimant’s legal advisers.
VI Once “Comet” was installed in Claimant’s system, there was no corresponding improvement in the company’s performance. Soon, Comet was found to be only ordinary in its performance and another software, Blackjack was definitely better. Investment in Truism, one of the leading software companies in Frugal, which went bankrupt soon after. Most of the market experts commented that on a close analysis of Truism’s accounts and growth path, it was a highly risky venture to invest in. VII Allegations were made against Mr..
Romantic regarding a bribe he received of $25 million from Respondent 1 and the Government immediately started investigating the matter. The Government relieved him of his responsibilities once it was found that the allegations against him were true. Money was indeed transferred by one of the officials of Respondent 1 to Mr.. Romantic’s bank account soon after the conclusion of the contract. It was also found that the CEO of Respondent 1 was his business associate who had previously been held for embezzlement. Mr.. Romantic and the CEO of Respondent 1 were arrested and Mr..
Romantic disclosed that both of them knew about the inefficacy of Comet. He further disclosed that the basic purpose of the sale of Comet was to acquire benefit for both. After this disclosure his name was removed from Claimant’s register. The trial of both the Coos is pending in their respective countries. VIII Following this, Mr.. Felix was reappointed as the CEO of Claimant. He found that Claimant had grossly overpaid for Comet. Although Comet was not defective, it certainly had none of the special features that were asked for and was basically an ordinary investment management software.
Therefore, in October 2009, Claimant initiated arbitration proceedings against Respondent 1 and Respondent 2 for recovery of the purchase price of “Comet”, damages for the loss resulting from the investment in Truism, and damages for the consequential loss of reputation. IX Both Claimant and Respondents appointed arbitrators under the contract, and the arty-appointed arbitrators appointed the President of the Tribunal. The arbitrate tribunal, issuing Procedural Order No. 1, fixed a date for hearing arguments. Summary of Arguments I.
The Tribunal has Jurisdiction over Respondent 1 under settled principles of arbitration law and in any event, the corporate veil between Respondent 1 and Respondent 2 must be lifted. The Tribunal has the competence to determine its own jurisdiction. In exercise of this Jurisdiction, the Tribunal is urged to hold Respondent 1 bound by the arbitration clause. Respondent 2 was a creation of Respondent 1 for he specific purpose of entering into the contract. It is fully owned and controlled by Respondent 1 . Therefore, its corporate veil should be pierced to hold Respondent 1 bound by the contract.
Further, as Respondent 1 was the beneficiary of the contract, it is bound in equitable estoppels by the arbitration clause. II. The fraudulent acts of Mr.. Romantic cannot be attributed to Claimant; and in any case, the defense of ex turnip cause non orator cacao is inapplicable in these circumstances and does not bar Claimant’s action. The fraudulent acts of Mr.. Romantic had a direct effect on Claimant, which was a victim of the fraud and offered losses on account of the fraud. In such a situation, Mr.. Romantic’s acts cannot be attributed to Claimant.
In any event, the defense of ex turnip cause cannot this simply made Claimant vicariously and not primarily liable. Vicarious liability is insufficient to apply the illegality defense. Ill. Respondents are liable under Sections 15 and 16 of the Frugality Sale of Goods Act, 1932. “Comet” is a good and title in it passed from CAPS to Claimant through the EULA. Hence, EULA, despite being termed a license, amounts to a sale. The communication between Mr.. Romantic and Respondents laid down descriptions hat the good was to conform to and stated the particular purpose for which the good was to be fit.
However Comet neither matched the description nor was fit for use for the stated purpose. Hence, it is submitted that Respondents are liable under Sections 15 and 16 of the Frugality Sale of Goods Act. IV. Alternatively, Respondents are liable for Breach of Contract under the Frugality Contract Act 1872. Even assuming the contract was not a sales contract, the reference to SAGA in 912 of the EULA, amounts to incorporation by reference of the communication between Mr.. Romantic and Respondents as a contractual term.
As this term has not been confirmed to, there has been a breach of contract for which Respondents are liable. V. Respondents are liable to refund the purchase price and pay requisite damages for the erroneous advice and consequential losses suffered by Claimant. In view of the commercial background of the contract, especially the exorbitant contract price paid by Claimant, it was evident to Respondents that erroneous advice by the software would subject Claimant to massive risks. Hence, the losses incurred cannot be said to be too remote of unforeseeable and Claimant is entitled to damages in this Edgar.
Arguments Advanced Respondent 2 must be lifted. Claimant contends that the Tribunal has Jurisdiction over Respondent 1, under well-established principles of arbitration law. First, the Tribunal has the authority to determine its own Jurisdiction [A]; and moreover, Respondent 1 is bound to the arbitrate proceedings [B]. A. The Tribunal has the authority to determine its own Jurisdiction. Claimant asserts that in the present dispute, the Tribunal has the competence to rule on matters affecting its own jurisdiction. The doctrine of Competence-competence (Competent-Competent /
Comtense De la Comtense) confers upon arbitrators the power to rule on challenges to their Jurisdiction. This doctrine not only finds wide recognition in international arbitration,l but is also recognized by arbitration law of Gregorian,2 the leg arbiter in the instant dispute. The Gregorian Arbitration Act, 1995, modeled on the UNCRITICAL Model Law on International Commercial Arbitration, is thus the arbitration law applicable to the instant dispute. 3 Section 16 of the Gregorian Arbitration Act provides that “[t]he arbitrate tribunal may rule on its own Jurisdiction, including any
The provision clearly asserts the competence of the Tribunal, under the law of Gregorian, to rule on its own Jurisdiction. B. Respondent 1 is bound to the arbitrate proceedings. Claimant asserts that under certain circumstances, non-signatories to an arbitration agreement may be bound by the agreement. 5 Applying the law governing the arbitration to the instant matter,6 Respondent 1 should be regarded as bound by the arbitration clause contained in the EULA concluded between Claimant and Respondent 2, 7 applying the principles of veil piercing , equitable estoppels . 1.
The corporate veil between Respondent 1 and Respondent 2 must be lifted to bind Respondent 1 to the arbitrate proceedings. Although the separate legal entity of a company is well-established in law, in several instances it would be necessary to lift the corporate veil to ascertain the true actor behind the corporate form. 8 In particular, agency and fraud have been held to be grounds for lifting the corporate, or when of the companies is a mere faded. Al In the instant case, it is submitted that Respondent 2 was created by Respondent 1 for the sole purpose of selling the software “Comet” to Claimant.
It is evident from the facts that merely to avoid regulatory difficulties in Frugal, Respondent 1 created a wholly owned subsidiary which also utilized personnel seconded from Respondent 1. 12 The name of Respondent 2 – Comet (Scarecrows) Solutions Pat. Ltd. – is also indicative of the purpose for which it was created. All negotiations regarding conclusion of the contract also took place with Respondent 1 and Respondent 2 was replaced in name at the final stage. 13 As was later discovered, the true objective of the transaction was for Respondent 1 to make huge profits and for Mr..
Romantic to make unauthorized profits from the same. 14 All these factors clearly go on to indicate that Respondent 2, being a wholly owned subsidiary of Respondent 1, was acting as an agent of Respondent 1 in Frugal. It was created as a mere faded for Respondent 1 to carry out unauthorized and fraudulent transactions with Mr.. Romano in the guise of selling the software to Claimant. Therefore, it is submitted that the corporate veil between Respondent 1 and Respondent 2 must be lifted to bind Respondent 1 to this arbitration. 2. Respondent 1 is bound by the arbitration clause in equitable estoppels.
Equitable estoppels precludes a party who (I) is reaping direct benefits from an agreement containing an arbitration clause and (it) is aware of the existence and contents of the concerned arbitration clause, from denying liability to arbitrate under the said clause. 1 5 A non-signatory to an agreement containing an arbitration clause may be bound by the said clause if he was a direct beneficiary of the agreement and was aware of the clause. 16 In the present case, all direct benefits from the sale of the software created by Respondent 1 would accrue to them. 7 Respondent 1 was, of ours, aware of the contents of the arbitration clause since Respondent 2 was a wholly owned subsidiary of Respondent 118 and negotiations till the final stage were continuing between Claimant and Respondent 1. 19 In light of these, Respondent 1 is stopped in equity from asserting that it cannot be bound by the arbitration clause in the EULA. Hence, the Tribunal can assert its Jurisdiction over Respondent 1 based on the arbitration clause notwithstanding its non-signatory status. Concluding, it is submitted that Respondent 1 must be bound to this arbitration either by piercing the