Claimant, an Italian company, and Respondent, a Philippine company, entered into an Engineering, Procurement and Construction (EPC) Contract relating to a project to be built by Claimant and owned and operated by Respondent. The contract included a completion date, referred to as the 'Guaranteed Substantial Completion Date', which was initially set at 30 June 2000 and later deferred to 31 March 2001 by a written amendment (Amendment Agreement). Claimant initiated arbitration proceedings to obtain a further extension of the completion date on grounds of force majeure. With its Answer to the Request for Arbitration, Respondent moved to dismiss the claim of economic duress raised by Claimant in Supplement No. 2 to the Request for Arbitration.

'B) The Motion to Dismiss

22. In its Motion to Dismiss, the Respondent contends that "because the claim of duress that is the foundation of the second supplement is utterly without any legal basis-even taking all of Claimant's factual allegation (sic) as true-this claim should be dismissed by the Tribunal as a matter of law at the earliest possible date".

23. Both parties agree that New York law applies to the Supplement No. 2 claim and to the Motion to Dismiss. They further agree that, under New York law, a motion to dismiss should be granted if the movant shows that even if the allegations contained in the Claimant's pleadings were true, these allegations fail to state a claim justifying legal relief. In such circumstances, the Respondent says, a tribunal must refuse to allow pointless hearings that are intended only to distract the tribunal from the undisputed facts and the applicable legal standards.

The parties also agree that the conditions required by New York law for an economic duress claim to succeed are both "(1) a wrongful threat (2) that precludes a party from exercising its free will". However, according to the Respondent, even if one accepts for the purpose of its Motion to Dismiss that the facts alleged by the Claimant are true, they do not support a claim for economic duress since the Claimant fails to evidence that both these conditions are met. On the other hand, the Claimant contends that the Respondent does not consistently apply in its Motion the principle that facts as pleaded by the Claimant are true since it introduces various new disputed facts and it submits that the Motion should be dismissed on this ground.

(1) The alleged threats

24. The Respondent contends to the effect that under New York law contracts are given a great deal of sanctity and that the burden of proof on the Claimant is a heavy one. It submits that the process of contract negotiation can be characterized as an exchange of threats and counter-threats that eventually result in an agreement and that only unlawful threats amount to duress. It adds that the threats alleged by the Claimant in its Supplement No. 2 Claim were not unlawful ones but, assuming that facts as alleged by the Claimant are true, lawful threats that the Respondent has a lawful right to make.

25. With respect to the Notice served on the Claimant on November 8, 1999, the Respondent submits that it was entitled to serve such Notice pursuant to Section 8.3 of the EPC Contract on November 8, 1999 because, contrary to the Claimant's statement, the risk of the rock conditions under the EPC Contract was allocated to the contractor which was therefore liable for delays, even if they were due to the behaviour of the tunnelled rock. The Respondent relies in this respect on Sections 5.3(a) and 5.3(b) of the EPC Contract. It submits that Section 5.3(a) provides for a specific disclaimer by the Claimant acknowledging that it was not relying on any representation regarding the site made by the Respondent; it further submits that Section 5.3(b) provides for a warrantee by the Claimant that it had inspected the site and that it accepted all conditions at the site or surrounding areas, including all unseen, undiscovered, unknown and unusual conditions, and all geologic conditions including the nature of the soil, subsoil, rock, subsurface conditions.

26. Regarding the Respondent's inquiries to other contractors, the Respondent observes that it is not alleged by the Claimant that it was threatened to be replaced on the tunnelling component of the works. It submits that investigating all options was reasonable behaviour for the Respondent faced with a contractor which was 224 days behind schedule. It adds that this behaviour cannot be analysed as a threat, even if it was adopted with the purpose of making an impression on the Claimant.

27. Regarding the Respondent's correspondence with [Bank], the Respondent observes that it is not even alleged by the Claimant that a call on the bank guarantee was ever made or threatened to be made. It further notes that it has an independent contractual relationship with [Bank], established by the bank guarantee, and that it was reasonable to keep the guarantor apprised of circumstances that directly impact the performance of the guarantee. It adds that since it had no duty to refrain from informing [Bank] of the progress of the works, it cannot be deemed to have engaged in economic duress on the basis of communication with [Bank].

28. The Respondent concludes that, since the provisions contained in Sections 5.3(a) and 5.3(b) are enforceable under New York law, the Claimant was to be blamed for the delay in the works and the Respondent was entitled to serve the November 8, 1999 Notice which cannot be considered wrongful as a matter of law. It further contends that, while it does not admit the Claimant's allegations that it threatened to terminate the EPC Contract with the Claimant and to make a demand on the [Bank] guarantee, it would have been entitled to do so and that accordingly, such threat would not have been unlawful under New York law. Moreover, it contends that even if its construction of Section 5.3(a) and 5.3(b) was wrong and the Claimant was authorized to rely on [the Owner's engineer]'s representation, its threat was nevertheless not unlawful and did not amount to duress under New York law since it was reasonable for the Respondent to believe that it was exercising in good faith a contractual right.

The Respondent therefore submits that its Motion to Dismiss should be granted since the Claimant fails to show a wrongful threat.

29. The Claimant replies that the Respondent misunderstood its claim of duress. It stated that the only unlawful threat it relies upon is the November 8, 1999 Notice of Default served by the Respondent and that in the context of the Respondent's inquiries and correspondence with [Bank], this threat prevented it from exercising its free will.

With respect to the November 8, 1999 Notice, the Claimant agrees that "if, as the Respondent contends, it is clearly defeated by s. 5.3 then the Claimant had no cause of action and no claim against the Respondent in November 1999 whilst the Respondent could rightfully complain in November 1999 that the Claimant was in culpable delay and rightfully threaten to apply any of the sanctions available under the Contract for a 224 days' delay". However, Claimant contends that the disclaimer in Section 5.3 does not relieve the Respondent from liability for [the Owner's engineer]'s misrepresentation and therefore that the November 8, 1999 Notice was unlawful.

30. First, the Claimant argues that, while it is true that Section 5.3(a) expressly provides for a disclaimer covering misrepresentation by-and according to the Claimant, only by-"the Owner" (that is the Respondent), . . . or . . ., the disclaimer does not cover representations made by [the Owner's engineer]. In addition, according to the provision in Section 5.3(b), the Claimant says, if it is true that the Claimant accepted conditions at the site and surrounding areas, the wording of this acceptation shows that it does not cover any inaccurate representation by [the Owner's engineer] which regards the geomechanical behaviour of the rock.

The Claimant adds that its construction of Sections 5.3(a) and 5.3(b) is confirmed by clause 4(i) and 4(iv) of the Amendment Agreement whereby the scope of the Claimant's disclaimer in Section 5.3(a) and the scope of the Claimant's acceptation in Section 5.3(b) were expanded in order to cover the Claimant's claim as to the rock misclassification. In any case, according to the Claimant, should there be any doubt regarding the appropriate construction of Section 5.3(a) and 5.3(b), this doubt would justify that a trial be held and therefore the dismissal of the Motion to Dismiss.

31. Furthermore, the Claimant states in its Written Submission on Motion to Dismiss that, should the disclaimer in Section 5.3 be deemed as extending to exclusion of the misrepresentation made by [the Owner's engineer] as to the geomechanical classification of the rock, in effect it would raise the following defences which are likely to involve contested issues of fact or issues of mixed fact and law:

The Claimant would plead that under New York law, where the contractor has no opportunity to carry out its own inspection or where such inspection did not and could not reveal the inaccuracy of the representation made by the owner-as this was the case for the Claimant-then the owner may not rely on exculpatory provisions;

It would plead that the representation of [the Owner's engineer] constitutes, or was the result of gross negligence which, under New York law, prevents the enforcement of exculpatory provisions;

It would plead that, because of the gross misrepresentation by [the Owner's engineer] coupled with the lack of opportunity for the Claimant to make its own investigations, Section 5.3(a) and 5.3(b) are of no avail to the Respondent under New York law;

It would plead that a provision drafted by the owner that a contractor is not relying on a representation when it is plain as a matter of fact that it will obviously do so must be deemed to be a mere artifice.

32. The Claimant concludes that a hearing is necessary and that the Tribunal should dismiss the Motion since the movant failed to show that the language of the Contract plainly authorized the issuance of the November 8, 1999 Notice and since, even if Section 5.3 did exclude the complaint of misrepresentation, the Claimant's above defences should still be heard by the Tribunal.

In stark contrast, the Respondent submits that, whatever may be the correct construction of Section 5.3, the Claimant's allegation that it was threatened with termination of the EPC Contract and with a demand being made under the performance guarantee is not supported by the text of the November 8, 1999 Notice and should not be admitted in the context of a motion to dismiss under New York law. It adds that the Motion to Dismiss only addresses the claim as stated in the Claimant's Supplement No. 2 to the Request for Arbitration and that under New York law, the Claimant is not entitled to develop new arguments in reply to the Motion; accordingly, the Claimant's new arguments in its Written Submission on Motion to Dismiss (paragraph 31 hereinabove) should be rejected without being heard by the Tribunal.

(2) The absence of duress

33. Both parties agree that the Claimant can only succeed if the Tribunal finds that it was precluded from exercising its free will by one or more unlawful threats made by the Respondent. Accordingly, they agree that the Tribunal should only examine whether or not the Claimant's exercise of its free will was affected if it finds that the threats alleged by the Claimant can be characterized as wrongful.

34. The Respondent contends that, even if the Tribunal makes such finding, it should nevertheless immediately dismiss the Claim in Supplement No. 2 since undisputed circumstances show that the Claimant's will was not overborne; particularly that:

The Claimant bargained and received substantial consideration under the Amendment Agreement, namely an extension of the Guaranteed Substantial Completion Date of 226 days for a value of US$ 9.3 million (i.e.: more than the amount of time that the Claimant indicated that it was behind on the project), a title to the Respondent's equipment (including a tunnel boring machine) at the site for an estimated value of US$ 15 million and a potential bonus of US$ 6 million if it achieved Substantial Completion with at least three weeks in advance; it adds that the denial by the Claimant that it did not request the US$ 6 million bonus or its statement that the Respondent over-evaluated the value of the equipment transferred are irrelevant, the only relevant issue being that the Claimant received substantial consideration;

The two companies which are members of the Claimant are experienced, sophisticated contractors with extensive experience in international tunnelling projects;

The Claimant was represented by both in-house and outside counsel in the meeting of November 1999 and in subsequent negotiations;

Even if the Claimant's financial condition was precarious in November 1999, this factor alone does not establish that it was subjected to economic duress under New York law;

In lieu of agreeing the Amendment Agreement, the Claimant had the viable alternative to initiate an arbitration to resolve the dispute that is now the basis of its Supplement No. 2 to Request for Arbitration.

In this respect, the Respondent further relies on various New York cases which hold that, when such circumstances are met, a duress claim should fail.

35. The Respondent further relies on the Claimant's allegation in its Reply and Answer to Counterclaim that "it would have not entered into the Amendment but for the inclusion of certain provisions", namely Section 4(e) of the Amendment 1. According to the Respondent, this contention by the Claimant is an admission that the terms of the Amendment Agreement were bargained for and therefore that it was not coerced to enter the Amendment Agreement.

36. The Claimant replies that the Respondent fails to show that the threat made by it did not preclude Claimant from exercising its free will. It states that this issue "is wholly or primarily a question of facts" and "the facts are disputed. The Claimant contends that its consent [was] vitiated, the Respondent contends that it was not. This is par excellence an issue which has to go to trial so that the issue may be decided in the light of the evidence".

It states that economic duress is "peculiarly a field where each case must stand on its own facts"2 and it observes that its claim is based on an "unusual, probably exceptional situation whereby the threatening party can bankrupt the threatened party overnight without any requirement to establish liability which distinguish radically the present case from the cases quoted by the Respondent". The Claimant contends that the facts as pleaded in its Supplement No. 2-it was allegedly left with a choice between waiving its claim for geomechanical misrepresentation or, as has already been done to [the former contractor], seeing the EPC Contract terminated and demand being made under the [Bank] guarantee-meet the requirements for the existence of duress. Accordingly, the Claimant says, the Respondent can only dispute the facts as pleaded but this involves a trial and implies that its Motion to Dismiss fails.

37. The Claimant denies that it received any consideration under the Amendment Agreement.

It first denies that the postponement of the Guaranteed Substantial Completion Date was a consideration because the delay was due to the misrepresentation as to the classification of the rock and therefore that no "extension" was legally necessary. Furthermore, the new Guaranteed Substantial Completion Date of March 31, 2001 had been fixed by the Respondent while it had been advised by the Claimant at this time that this date was unrealistic and that works would not be completed before July 2001 if the misrepresentation persisted for the second part of the work not yet tunnelled.

It further denies that it bargained for a potential bonus of US$ 6 million if it achieved Substantial Completion in advance since it knew and had told the Respondent that the Guaranteed Substantial Completion Date was unrealistic.

The Claimant also denies that it sought equipment from the Respondent and that the estimated value of this equipment is US$ 15 million, as averred by the Respondent. In particular, the tunnel boring machine was dysfunctional and the actual value of the equipment is about US$ 3 million; this value is disproportionate to the amount of the cause of action waived, estimated at that time at US$ 25 million.

38. The Claimant adds that the Amendment Agreement also increased the rate of daily liquidated damages for delay which meant an increased liability of US$ 9 million for a 6-month delay and it submits that obviously such agreement would never have been agreed voluntarily by the Claimant.

Claimant submits that in any case each item of the consideration allegedly given in the Amendment Agreement gives rise to disputed facts and therefore that there are several triable issues of facts.

39. Accordingly, the Claimant says, the Motion to Dismiss should be denied.

(3) Ratification of the Amendment Agreement by the Claimant

40. The Respondent also submits that a well-established principle under New York law is that a party claiming economic duress which fails to promptly disaffirm a disputed contract is deemed to have ratified the contract and waived a claim of economic duress. Accordingly, "the burden on a party seeking to avoid contractual obligations on the grounds of duress increased proportionally with the delay in initiating suit or otherwise repudiating the contract in question". 3The Respondent argues that this is particularly true when that party received good consideration for executing the release and accepts the benefit of that release before commencing suit to challenge the contract. Since the Claimant received good consideration and waited approximately a year and a half before prosecuting its claim, it should be deemed to have ratified the Amendment Agreement and thus to be precluded from asserting economic duress.

41. In reply, the Claimant denies that it could have initiated an arbitration rather than signing the Amendment Agreement. It argues that if it had done so, the Respondent would have terminated the EPC Contract and made demand under the [Bank] guarantee. In stark contrast, the Respondent's refusal to allow the Claimant to refer the dispute to arbitration was part of its oppressive behaviour. As a consequence, the Claimant could not disaffirm the Amendment Agreement until the establishment of an Arbitral Tribunal vested with the power to protect it against the Respondent's threats.

What is material for the purpose of the Motion, the Claimant adds, is that the Respondent disputes the fact that it was prevented from referring its case to arbitration and therefore the conditions for its Motion to succeed are not met.

42. This contention is denied by the Respondent. Even assuming that the Claimant was a victim of duress and could not file its misrepresentation claim before the establishment of an Arbitral Tribunal, it could have filed a Request for Arbitration immediately after the signing of the Amendment Agreement on the ground of one of the outstanding disputes expressly foreseen in section 4(d) of the Agreement.

In particular, as the Respondent pointed out in its letter dated July 10, 2001 the Claimant's admission in its oral argumentation of July 7, 2001, that at the time it entered into the Amendment Agreement, it knew that it could not have achieved the Guaranteed Substantial Completion Date established in the said Amendment. Accordingly, the Respondent says, it already knew that it would have to revive the claim it had waived in the Amendment Agreement. Nevertheless, it waited until 17 months to bring the arbitration and another two months before bringing the rock misrepresentation claim. The Respondent suggests that the reason for this delay was to prevent the Respondent from investigating and assessing the evidence on which the Claimant would rely as the rock would be covered up by subsequent works. In any case, and whatever the reasons for the Claimant's behaviour, the Respondent argues that it requires that the Claimant's duress defence and its rock misrepresentation claim be dismissed.

IV. Discussion

43. In the view of the Tribunal, the first issue that needs to be dealt with in respect to the Respondent's Motion to Dismiss is whether or not an Arbitral Tribunal has the power to grant a motion to dismiss.

44. This issue was not addressed by the parties in their oral argument on the Motion to Dismiss, except implicitly in the Respondent's statement that, by application of Section 36.2 and 37.2 of the EPC Contract, this Tribunal is sitting as a New York court applying New York law. It was mainly contemplated by the parties on July 14, 2001 in answer to the Tribunal's following question, as reflected in the transcript:

[W]e were explained our (sic) motion to dismiss functions under New York law. This was clearly explained. But in the list of authorities, which given by each party (sic), there is no example at all of arbitrators under New York law granting such a motion.

We would like the parties to give us maybe further explanations on this aspect for the following reason. Our concern is that this procedure may be part of the judicial New York system in order to take away from the burden of work of the courts cases where it is, under the conditions which have been explained to us, easy to make the decision, of the result of it is that long hearings will be avoided. It is perfectly understandable.

The difficulty we may see in the arbitration is that first the conduct of the procedure is not exactly the same, even under New York law.

The second difficulty is that there is no appeal possible of the decision of the arbitrators.

(…) When I said there was no appeal, there is no appeal on the substance of the decision of the arbitrators. There is no review of the merits.

45. The Claimant acknowledged that under New York law, an arbitral tribunal is empowered to grant a motion to dismiss but its counsel submitted that he had been informed by the General Counsel of the American Arbitration Association that it was rare for such a motion to be granted because of the absence of any appeal process. Claimant further relies on Articles 20.1, 20.2, 20.6 and 22.1 of the ICC Rules as well as Section 33 of the English 1996 Act that require that each party be given an opportunity to present its case. The Claimant argues that these provisions may be "potential problems" for an ICC Arbitral Tribunal granting a motion to dismiss.

46. The Respondent acknowledged the Tribunal's observation that one of the policies behind motion to dismiss under New York law may be judicial economy but it added that more important policies of the Court were to protect parties from frivolous litigation and to allow parties to exercise their contractual rights that might otherwise be impeded by baseless litigations. Accordingly, the policy behind the motion to dismiss procedure is to protect innocent defendants by avoiding long, expensive and useless proceedings.

Respondent submits that Article 15.2 of the ICC rules empowers arbitrators to prevent unreasonable exchange of memorials or evidence that may not be of any use to the tribunal. In this respect, the tribunal should not feel prevented from granting a motion to dismiss by reason that no appeal is possible since the impossibility to appeal an award is one of the features of arbitration and was known as such by the parties when they bargained the arbitration clause. Respondent further submits that arbitrators have an obligation to try to find an equitable and commercially appropriate procedural solution to prevent irreparable harm and unnecessary injury to the parties and this applies where a party requests protection against unnecessary and intrusive litigation. In this case, it is not necessary to call evidence as to the facts since there is no legal ground for the Claimant's misrepresentation claim and the Motion to Dismiss should therefore be granted.

However, the Respondent acknowledges that it could not find in the available time clear precedent showing that motions to dismiss are accepted in arbitration by New York courts but it nevertheless adduced case law and jurisprudence showing, according to the Respondent, that motions to dismiss are compatible with arbitration.

47. The Tribunal observes that both parties acknowledge that an Arbitral Tribunal is empowered to grant a motion to dismiss under New York procedural law. However, it stresses that pursuant to Article 15.1 of the ICC Rules, it is first committed to apply the ICC Rules and that it is only when they are silent that a procedural law chosen by the parties, as, in this case New York law, must be applied by the Arbitral Tribunal. It must also consider the mandatory provisions of the lex arbitri which is the English Arbitration Act 1996 (the "English 1996 Act") since London is the seat of the arbitration.

Neither the ICC Rules, nor the English 1996 Act provide specific provision with respect to motions to dismiss. However, Article 15.2 of the ICC rules reads as follows:

In all cases, the Arbitral Tribunal shall act fairly and impartially and ensure that each party has a reasonable opportunity to present its case. (Emphasis added)

A substantially similar provision can be found in Section 33 of the English 1996 Act which reads:

(1) The tribunal shall

(a) act fairly and impartially as between the parties, giving each a reasonable opportunity of putting his case and dealing with that of his opponent, and

(b) adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.

(2) The Tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it. (Emphasis added)

48. In light of the above provisions, the view of the Tribunal is that it is empowered to grant a motion to dismiss if it is reasonable to do so in the circumstances of a case. However, the fact that its decision on the merits cannot be appealed is of serious concern and makes its position fundamentally different from that of a New York court. While the Respondent is right when it notes that parties entering into an arbitration clause know that no appeal shall be allowed, it results from this circumstance that arbitrators should apply more stringent tests than might otherwise be applied by a court and that they should not adopt a decision without an extensive examination of the various elements of the case, factually and legally. Accordingly, a motion to dismiss, which is grounded on assumptions of facts and prevents the parties from submitting elaborated memorials and submitting evidence should not be granted unless the arbitrators are confident that it is crystal clear that the claim may have no legal basis.

49. The Tribunal is not satisfied that such is the case. The Tribunal considers that duress can never be totally excluded, even between big companies, whatever their experience and their sophistication. However, it is in this context that the Claimant shall have to meet its burden of proof concerning the occurrence of duress, if it is to succeed.

With regards to the importance of the works contemplated in the EPC Contract and to the amount of the monies involved, in particular under the performance guarantee issued by [Bank], the Tribunal further finds that, even it accepts the facts as pleaded by the Claimant and eventually commented upon by the Respondent, its assessment, which is necessary to decide whether the Amendment Agreement may or may not have been executed under duress, depends on the circumstances surrounding such facts. Accordingly, it considers that the duress claim in Supplement No. 2 cannot be judged without a hearing where both parties will be allowed to fully present their case and submit evidence.'

1
According to the Claimant - and this contention is denied by the Respondent - section 4(e) of the Amendment Agreement provides for the right of the Claimant to set up and use [the Owner’s engineer]'s misrepresentation as to the geomechanical behaviour of the rock to be tunnelled as a defence to any action for damages brought by the Respondent

2
Claimant's Written Submission on the Motion to Dismiss, paragraph 17, quoting Manno v. Mutual Benefit Health & Accident.

3
Motion to Dismiss, page 26, quoting VKK Corp., 244 F.3d at 123