• <i>Administraive contract</i>

'385. It is a well established principle that in case of an administrative contract the public party is under an obligation to compensate the private party if it unilaterally suspends or terminates its contractual performance. Already in the Greek Telephone Company Case (reported in J. Gillis Wetter and Stephen Schwebel, Some Little Known Cases on Concessions, in British Yearbook of International Law, Vol. 40 (1964), at pages 183, 216 et seq.), the arbitral tribunal stated that

". . . by virtue of the general principle of public law . . . under contracts concluded between a State and third parties, the State, in spite of being contractually bound, retains its superiority vis-à-vis the other party and is always entitled, when important State interests so demand, to renounce the contract, on the condition that it pay due compensation to the contracting party. (See in this respect Jeze, Les principes généraux du droit administratif, - Le fonctionnement des services publics, 1926, p. 299. Also: Hauriou, Précis de Droit Administratif et de Droit Public, 1927, p. 797). In case of such a refusal by the State, it is liable in damages to the Company and must compensate it for what it would have obtained . . ."

. . . . . . . . .

389. It is common ground between the Parties that there are three criteria relevant to determining whether a contract is administrative. The first is that one of the contracting parties is a governmental authority (or acts by delegation). Given the nature of [Respondent], this criteria is obviously met here.

390. The two remaining criteria have been debated at great length. They are:

- that the subject matter of the contract must relate to the functions of a public utility or service; and that

- the contract must possess the characteristics of administrative contracts, notably in following the patterns of the public law in containing clauses exorbitantes as compared with ordinary stipulations in private contracts.

391. [Respondent] asserts that the Contract related to a public service; the relevant ammunition and military equipment were the property of [State X], and the task to be performed under the Contract was the last step of the decontamination of [State X] territory.

392. [Respondent] further alleges that proceeds expected from the sale of the refurbished ammunition and equipment were intended to mitigate the cost of the decontamination and to provide to [State X] resources in excess of such costs.

393. [Claimant] replies that the Contract between the Parties is a commercial contract involving the sale and international trade of ammunition, weapons, and military vehicles recovered from [State Y] armed forces. [Claimant] maintains that its purpose was to derive monetary gain to be shared between the contracting Parties, and not the performance of administrative functions relating to the execution of ministerial duties.

394. In particular, [Claimant] asserts that the object of the Contract was not to rid the territory and environment of [State X] of dangerous and polluting substances and materials, since that work had already been performed under previous contracts with other parties. According to [Claimant], the contemplated sales of the captured ordnance were to be private sales of government owned property, as opposed to public sales of commodities of general public interest and provided through the operation of an organised and permanent public service. [Claimant] further alleges that the funds which [Respondent] expected to collect as revenues from the performance of the Contract were to be private funds of the State for its general use, rather than funds collected from the public and allocated to the operation of a public service.

395. The Arbitral Tribunal agrees with [Claimant] that the Contract did not relate to the functions of a public utility or service.

396. As has been pointed out above . . ., the Arbitral Tribunal has no doubt that on the [State X] side, the initial objective after the end of the war was clearance rather than recuperation. . . . But the fact is that [Claimant] was not involved in the clearance and decontamination of the [State X] territory. It entered the scene when these works . . . were already in full progress. The ammunition and equipment left behind by the [State Y] forces were spread all over the [State X] territory, and posed serious risks for the civilian population. The purpose of these decontamination works was to secure public safety. There is no doubt that the clearance and decontamination works themselves related to the functions of a public utility or service.

397. Such was not the case with regard to the Contract between [Claimant] and [Respondent]. [Claimant] was concerned only with ammunition and equipment which had already been collected, and which therefore no longer represented the public danger described.

. . . . . . . . .

399. Even though there is a connection between the Contract and the clearance and decontamination works performed by . . ., the Arbitral Tribunal does not consider the Contract between [Claimant] and [Respondent] to be . . . "a link in the whole chain of confronting the military aggression" and therefore "directly related to the essence of the public service of Defense." There is no reason to give the meaning of the term "public service" such an extensive interpretation. Moreover, it has to be interpreted in accordance with its purpose in the context of the distinction between administrative and private law contracts.

400. The Arbitral Tribunal has no doubt that the purpose of the Contract for both Parties was purely commercial. It aimed at deriving monetary gain from selling ammunition and equipment, which had already been securely stored. The reason why [Respondent] entered into the Contract with [Claimant] was not to secure the safety of [State X], but the prospect of recovering economic value by selling ammunition and equipment through [Claimant]. There is no evidence that the Contract would have affected the operations of [State X]'s military facilities or operations in any way and would have had an effect on national security or public safety.

401. Therefore, the Contract's purpose was distinct from that of the contracts relating to the clearance and decontamination of the [State X] territory. This conclusion is consistent with the fact that, when starting the clearance and decontamination activities, [Respondent] did not consider it necessary to include any refurbishment and selling activities to secure public safety in [State X]. This idea only emerged later, when [State X]'s officials realised that economic value could be recovered.

402. Whether [Respondent]'s allegation that the proceeds expected from the sale of the refurbished ammunition and equipment were intended to mitigate the cost of the decontamination is correct or not, this conclusion remains the same. Even if this assertion were true, it would not mean that the Contract related to the functions of a public utility or service, thus turning it into an administrative contract.

403. At page 4 of his legal opinion, Dr . . . makes reference to a decision of the Egyptian Conseil d'Etat (24 February 1968, Collection of Judgments, 13th year, at page 577). According to Dr . . ., this case concerned a contract between an individual and an administrative authority for the purchase of quantities of gravel stored in a warehouse owned by the government. The contract was held to be a private law contract subject to the same civil and commercial law provisions which apply to contracts between individuals. According to Dr . . ., the Court in dismissing the government's contentions stated that:

"The mere fact that there is a deficit in the revenues of such utility, and the contract is concluded to cover its expenses, does not necessarily require application of the Public Law."

All experts on [State X] law in the present case agree that decisions by Egyptian Courts are of relevance with regard to [State X] law. Dr . . ., for example, explains at page 2 of his Statement relating to ICC Case No. 8646/FMS, which has been produced in the present proceedings by [Respondent]:

"Since the [State X] legal and judicial developments is [sic] quite recent, the process of codification, the development of doctrine, judicial tradition and principles have been greatly influenced by Egyptian law and is more so in the specific field of Administrative Law where [State X] courts and [State X] authors very frequently quote Egyptian court decisions and the writings of Egyptian scholars as if they were taking place in [State X]."

404. Taking into account the Egyptian Conseil d'Etat's decision, the Arbitral Tribunal considers that it would be irrelevant to identify the use to which [Respondent] may have intended to put the revenue anticipated from the Contract with [Claimant]. This is especially the case since the Contract itself does not contain any provisions dealing with [Respondent]'s intentions as to spending the revenue. Indeed, the Arbitral Tribunal doubts that an explicit mention in the Contract that proceeds expected from the sale of the refurbished ammunition and equipment were intended to mitigate the cost of the decontamination would necessarily lead to the conclusion that the Contract was administrative in nature.

405. The Arbitral Tribunal is not convinced by [Respondent]'s contention that contracts relate to the functions of a public utility or service whenever one of the contracting parties is an administrative authority intending to spend the revenue for public purposes. Such an understanding would lead to the conclusion that, notwithstanding the private parties' intention, practically every contract entered into by an administrative authority would perforce be considered as an administrative contract. This would be the case regardless of whether the private party to the contract was aware of the public party's intention to spend the revenue for public purposes. In the Tribunal's opinion, this interpretation would give a too broad meaning to the words "the functioning of a public utility or service."

406. As to the issue whether the Contract possesses the formal characteristics of an administrative contract, the Arbitral Tribunal does not believe that the Contract follows the patterns of public law with regard to the clauses exorbitantes contained in such contracts as opposed to the stipulations ordinarily found in private-law agreements. At page 6 of his legal opinion, Dr . . . explains that:

"[in] addition to being alien and contrary to the nature of private contracts, so-called exorbitant clauses must effectuate an imbalance of powers between the public entity and its private co-contractant in the former's favor with respect to the power to modify or enforce the contract or the application of non-reciprocal conditions."

407. [Respondent] has invoked a number of provisions in the Contract which it alleges are clauses exorbitantes. In particular, [Respondent] cites stipulations restricting [Claimant]'s choice of potential buyers of ammunition or equipment . . . [Claimant] also invokes provisions obligating [Claimant] to purchase related goods from designated suppliers and to use national flag transportation . . .; as well as Clause 18 prohibiting bribery and corruption.

408. None of these provisions, however, is alien to private contracts. Provisions restricting potential buyers of military related hardware and technology are common in contracts between private entities active in the defence industry or markets, and are required by legislation and regulation of many countries. Clauses requiring a co-contractant to purchase related goods from designated suppliers are also widely used in international commercial transactions. And clauses related to the prohibition of bribery and corruption are routinely made a part of commercial contracts throughout the world.

409. With regard to other provisions invoked by [Respondent], the Arbitral Tribunal does not consider it necessary to enter into any discussion, since there is no doubt that these provisions are regularly included in commercial contracts. This applies to the local party's obligation to obtain work permits and visas . . ., the monitoring of the progress and quality of [Claimant]'s contractual performance . . . and the powers of [Respondent]'s representative . . ., [Claimant]'s duty to observe safety regulations . . . and safety instructions . . ., as well as [Claimant]'s obligation to insure [Claimant]'s staff with a recognised local insurance company. It also applies to the provisions dealing with [Claimant]'s constitution . . ., customs duties . . ., and taxes and fees . . . Similar provisions are encountered in countless ordinary commercial contracts. The Arbitral Tribunal does not see, and [Respondent] has failed to provide an explanation, why these provisions should be considered to be clauses exorbitantes.

410. [Respondent] further contends that the contracting parties' intention to apply principles of administrative law is not always manifested by the inclusion in the contract of exorbitant clauses. According to [Respondent], contracts relating to an essential public service, such as national security or contracts of public works, are by virtue of their subject matter always administrative contracts. For the reasons set out in detail above . . ., the Contract neither related to national security, nor did it concern public works. This argument must also fail.'