'………

l. The Parties

l . Claimant: …

2. Claimant is incorporated and existing under the laws of Germany.

………

4. Respondent: …

5. Respondent is a company organized and existing under the laws of [State X].

………

7. Claimant and Respondent are hereinafter collectively referred to as the "Parties".

II. The Arbitral Tribunal

………

III. Procedure

12. In 2006, the Parties entered into two agreements in connection with the construction and management of two hotels (the "Hotels") … in [a city in State X]. Specifically, … the Parties entered into a Hotel Management Agreement ("HMA"), and [six weeks later] they entered into a Technical Service Agreement ("TSA"). (Together, the HMA and TSA shall be referred to as the ''Agreements".)

12. Article XI Section 11.9 of the HMA, captioned "Arbitration", provides as follows:

Section 11.9 Arbitration

11.9.1 In the event of any dispute arising out of or in connection with the present contract, the parties agree to submit the matter to settlement proceedings under the ICC ADR Rules of [Middle Eastern city]. If the dispute has not been settled pursuant to the said Rules within 45 days following the filing of a Request for ADR or within such other period as the parties may agree in writing, such dispute shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by the arbitrators appointed in accordance with the said Rules of Arbitration.

11.9.2 The number of arbitrators shall be chosen in accordance with the ICC Rules.

11.9.3 The language to be used in the proceedings shall be English.

11.9.4 The decision of the arbitration board shall be final and binding upon the parties, and such decision shall be enforceable through any courts having jurisdiction.

The costs and expenses of arbitration shall be allocated and paid by the parties as determined by the arbitrators.

11.9.5 For matters relating to Accounting & Financial matters at least one member of the Arbitration panel has to be an independent financial auditor.¹

13. Article XXIII of the TSA, also entitled "Arbitration", provides as follows:

1. In the event of any dispute arising out of or in connection with the present contract, the parties agree to submit the matter to settlement proceedings under the ICC ADR Rules of [Middle Eastern city]. If the dispute has not been settled pursuant to the said Rules within 45 days following the filing of a Request for ADR or within such other period as the parties may agree in writing, such dispute shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by the arbitrators appointed in accordance with the said Rules of Arbitration.

2. The number of arbitrators shall be three unless either party to the arbitration requests otherwise, in which case there shall be one.

3. The language to be used in the proceedings shall be English.

4. The decision of the arbitration board shall be final and binding upon the parties, and such decision shall be enforceable through any courts having jurisdiction.

5. The costs and expenses of arbitration shall be allocated and paid by the parties as determined by the arbitrators.

14. Over the course of 2007-2009, certain disputes arose between the Parties.

15. On 22 February 2010, Claimant filed a Request for Arbitration (''Request") with the ICC Court in accordance with Article 4 of the Rules. In the Request, Claimant proposed to: (i) submit the matter to a three-member arbitral tribunal; and (ii) fix a [Middle Eastern venue] as the place of arbitration.

16. On 26 February 2010, in accordance with Article 4(5) of the Rules, the Secretariat of the ICC Court ("Secretariat") notified a copy of the Request to Respondent, inviting it, among other things, to file an Answer to the Request ("Answer") within 30 days.

17. On 30 March 2010, Respondent wrote to the Secretariat, requesting a 21-day extension of the time limit for filing its Answer, i.e., until 21 April 2010. In the same letter, Respondent: (i) agreed to submit the matter to a three­ member arbitral tribunal; and (ii) suggested [an alternative place of arbitration].

18. On 1 April 20 l 0, the Secretariat granted Respondent the requested extension for filing its Answer, in accordance with Article 5(2) of the Rules.

19. On 19 April 2010, Respondent ultimately agreed to the [initial proposal for] the place of arbitration.

20. On 21 April 2010, Respondent sent its Answer to the Secretariat, which the Secretariat received on 23 April 2010, in accordance with Article 5 of the Rules.

21. Thereafter, the Parties agreed several times to extend the time limit for the co-arbitrators to jointly nominate, the Chairman. The Arbitral Tribunal was fully constituted on 19 July 2010 … The Secretariat transmitted the file to the arbitrators on 20 July 2010, in accordance with Article 13 of the Rules.²

22. On 7 October 2010, a conference call was held between the Parties and the Arbitral Tribunal for the purpose of determining the procedural calendar and various aspects of the arbitral procedure, as well as finalizing the Terms of Reference, in accordance with Article 18 of the Rules.

23. On that same date (7 October 2010), the Arbitral Tribunal issued Procedural Order No. 1, which set forth the procedure and calendar to be followed in this matter.

24. On 4 November 2010, the Parties and Arbitral Tribunal signed the Terms of Reference.

25. The Parties subsequently exchanged correspondence regarding the proper identity of Respondent. On 9 November 2010, Claimant wrote to the Arbitral Tribunal, suggesting that Respondent answer certain questions regarding its identity before allowing the arbitration to proceed further. On 17 November 2010, the Arbitral Tribunal responded as follows:

The Tribunal has taken note of the Parties' recent correspondence.

The Tribunal refers to Claimant's letter to the Tribunal of 9 November 2010, in which Claimant requests that the ''inconsistencies" regarding Respondent's name "should be explained [...] before the arbitration proceeds further''.

The Tribunal understands that it is important for Claimant to ensure that it has filed this arbitration against, and signed Terms of Reference with, the proper party.

However, the Tribunal also understands Respondent to have provided information that it considers to have responded to Claimant's concerns regarding its identity.

In light of this, the Tribunal does not consider that it is in a position to intervene regarding this issue at this stage. Accordingly, the Tribunal has decided that this matter shall proceed as normal.

This being said, the Tribunal wishes to make clear that, to the extent that Claimant wishes to continue investigating this issue, the Tribunal's decision does not prevent Claimant from doing so as it so desires, whether in parallel to these proceedings, or in any other manner as agreed by the Parties.

26. On 17 January 2011, Claimant filed its Statement of Claim, together with exhibits, legal authorities, [witness statements and an expert report].

………

28. On 10 April 2010, Respondent filed its Statement of Defence, together with exhibits and legal authorities, as well as [an] expert report …

29. On 26 April 2011, the Parties exchanged requests for production of documents, in accordance with Procedural Order No. l. Having respectively made objections to the production of certain documents, on 18 May 2011 the Parties submitted their document production requests for determination by the Arbitral Tribunal. On 30 May 2011, the Arbitral Tribunal issued Procedural Order No. 2, in which it ordered the production of certain documents.

30. On 16 June 2011, Respondent submitted [a] witness statement … It also requested that the Arbitral Tribunal reconsider certain decisions taken in Procedural Order No. 2. Claimant responded to this request on 21 June 2011, and submitted its own, further request for the Arbitral Tribunal to make further orders for Respondent to produce various documents. On 23 June 2011, Respondent replied to Claimant's letter. On 27 June 2011, the Arbitral Tribunal issued Procedural Order No. 3, in which it granted Respondent's request and rejected Claimant's.

31. On 22 August 2011, Claimant submitted its Statement of Reply, together with exhibits, legal authorities and the second witness statements of … [and] the second expert report of … and the first expert report of ...

32. On 24 October 2011, Respondent submitted its Statement of Rejoinder, together with exhibits and the second expert report of … and the first expert report of …

33. On 24 October 2011, Respondent notified Claimant and the Arbitral Tribunal of those witnesses it wished to cross-examine. Pursuant to the Parties' agreement, Claimant did the same on 2 November 2011.

34. From 29 November to 2 December 2011 hearings were held … The following witnesses were heard …

35. At the hearing, the Parties and the Tribunal agreed that instead of presenting closing submissions, the Parties would file post-hearing briefs (maximum thirty pages) on 30 January 2012. The deadline was subsequently extended to 6 February 2012. The Parties filed their post-hearing briefs on that date. They filed their statements of costs on 22 February 2012.

36. On 15 June 2012, the Arbitral Tribunal declared the proceedings closed, in accordance with Article 22 of the ICC Rules.

37. As the Terms of Reference were signed on 4 November 2010, the Final Award was initially to be rendered by 4 May 2011. In accordance with Article 24(2) of the Rules, the ICC Court subsequently extended this time limit five times …

IV. Factual background

38. The key facts of this matter are largely undisputed and can be summarized as follows.

39. Claimant is a hotel management company. Respondent is an investment company that, among other things, owns plots [in a Middle Eastern tourist resort] …

41. Respondent was interested in developing the Hotels on [the plots], which would be managed by, and operated under the brand name of, a third-party hotel management company. Claimant, being such a hotel management company, was interested in establishing its brands [A] and [B] in [the locality] … It identified the [resort] as the best location for doing so.

42. From April 2004 to September 2005, the Parties engaged in a period of preliminary negotiations. On 10 September 2005, the Parties recorded a "Letter of Intent" in order to summarize their preliminary understandings and facilitate future cooperation … The Letter of Intent included an exclusivity agreement …

43. Following further negotiations, the Parties entered into the HMA on 25 January 2006 and the TSA on 10 March 2006 …

44. Following the signing of the Agreements, the Parties worked together in order to submit the design for the Hotels to the relevant authority … for approval. [The said authority] found the Project acceptable but requested various adjustments. The Parties then met on 12 August 2006 to discuss the Project further … A few days before that meeting, the involvement of the general contractor initially hired to build the Hotels … was terminated and replaced by a new contractor …

45. Subsequently, Respondent decided that the initial design concept communicated to Claimant needed to be changed. Accordingly, over the course of 2006, Respondent developed a new concept for [the plots], which involved building a number of villas on those plots, in addition to the two hotels initially foreseen. While Respondent was having second thoughts about the Project, Claimant was promoting what it thought to be its future resort …

46. On 8 January 2007, the Parties met in Germany, where Respondent outlined its new concept for [the plots]. In correspondence dated 16 January 2007, Claimant communicated the fact that it did not consider the new concept to be compatible with the Parties' original agreements, and outlined its views on a number of alternative proposals …

47. In light of this divergence, Respondent wrote to Claimant on 4 March 2007, purporting to terminate the Agreements in the following terms …

Following a re-evaluation of this Company's investment strategy and planned development programme we are obliged to inform you of the decision taken to cancel the Project. The Hotel Resorts as previously planned and which is the subject matter of the Agreement will no longer be built.

In view of this decision we must bring to a conclusion the current Agreement and the technical services being provided.

48. By letter dated 27 April 2007, Claimant disputed the legitimacy of Respondent's action in purporting to terminate the Agreements …

49. Respondent subsequently built a hotel and villas on [the plots] using its new concept, ultimately using the services of a different management company.

V. Relief sought

50. Claimant argues, among other things, that Respondent was obliged to build and make the Hotels available under the HMA, which Claimant would then operate for a management fee. Claimant contends that this obligation is reiterated in the TSA.

51. As the Hotels were never built, Claimant seeks the following relief in 10.1 of the Statement of Reply:

(a) An award of at least [amount] in respect of losses suffered arising from the HMA;

(b) An award of [amount] in respect of the unpaid lump-sum fees due pursuant to the terms of the TSA;

(c) An award of interest on the above sums at such rate and for such period as may be considered appropriate by the Arbitral Tribunal;

(d) Costs; and

(e) All such further relief as the Arbitral Tribunal determines is just and appropriate. (emphasis in original)

52. The amount [claimed for losses suffered arising from the HMA] was reduced to [amount] at the hearing and in Claimant's post hearing brief. In the same post hearing brief, Claimant limited its request to interest running from the date of the award.

53. Respondent, on the other hand, is of the view that it was under no obligation to develop the Hotels in light of the fact that Respondent assumed all the costs and risks of the Project and was free to reject any specifications for the Hotels requested by Claimant. Instead, Respondent considers that the Hotels were essentially its own project, which Claimant would operate for a fee in the event Respondent chose to build them.

54. In light of this, in § 233 of the Statement of Defence, Respondent claims the following:

a. An order dismissing the Claimant's claims;

b. An order that the Agreements were properly terminated and stand terminated;

c. An order that the Claimant pay the cost of these proceedings, including the Respondent's legal fees.

VI. The Parties' positions

55. In the analysis below , the Arbitral Tribunal has not only considered the positions of the Parties as summarized in this Award, but also the numerous detailed arguments made in their written memorials and at the Hearing. To the extent these arguments are not referred to expressly, they must be deemed to be subsumed in the Arbitral Tribunal's analysis.

56. Pursuant to Section 11.8.1 of the HMA and Article XXII of the TSA, the law applicable to the Parties' dispute is the law of [State X].

A. The validity of the termination

57. Claimant alleges that Respondent breached and wrongfully terminated both of the Agreements. Respondent denies this. These claims are discussed below.

1. Did Respondent have an obligation to build the Hotels and in the affirmative did it breach this obligation?

58. Claimant argues that Respondent breached the Agreements by failing to build the Hotels.

59. Paragraph 3.3.1 of the HMA is the contractual provision central to Claimant's claim. It provides that:

The OWNER shall be obliged to make the HOTELS available on the opening date to have them adhere to the QUALITY STANDARDS, and to maintain them in good condition suitable for the implementation of the Agreement during the whole term of this Agreement Moreover, the OWNER has to ensure that all necessary permits required by law or by any governmental agency are issued on the opening date and remain valid during the whole term of the Agreement

60. In addition, Claimant refers to Article Ill, paragraph 6 of the TSA, which provides that:

The OWNER and MANAGER shall make every effort to ensure that the Project is completed within the agreed timetable and fully operational at the opening.

61. Further, Claimant refers to Article VIII of the TSA, which provides that:

1. Before the commencement of the construction work, all parties involved, but especially the OWNER and MANAGER, shall jointly examine the Project documents so as to verify that the same are complete and correct and that agreement has been reached on all matters.

2. MANAGER shall visit the construction site in June with the agreed timetable and at the express request of the OWNER, and shall check the progress of the construction work and the adherence to the mutually agreed plans and the other binding Project requirements from the point of view of the hotel operator.

3. After each visit, MANAGER shall prepare and submit to the OWNER a written report on the visit which shall document all objections, comments, suggestions and all measures recommended by MANAGER. The discussion of this report shall be on the agenda of the project meetings.

4. Requests for modifications or additions affecting the Project which are likely to extend the period of construction and/or require additional expenditure may only be implemented with the written consent of the senior management of both the OWNER and MANAGER.

5. The OWNER shall be responsible for monitoring the construction timetable and the investment budget. The timetable and the budget shall be discussed and/or updated during the project meetings.

6. No later than 8 days before each project meeting, the OWNER shall circulate the relevant agenda to all participants, enclosing all required documents if possible.

62. According to Claimant, paragraph 3.3.1 of the HMA (cited at 59 above) reflects the Parties' agreement that Respondent would provide the Hotels by the contractual opening date (the ''Opening Date") and that Claimant would manage and operate the Hotels. Relying on the expert report of [a chartered surveyor] and the witness statement of [Claimant's Director of Administration], Claimant submits that the Parties' deal reflects standard practice in the hotel industry, namely, that commercial parties will usually conclude: (i) a hotel management agreement requiring the construction of a hotel (to be subsequently managed by an operator); and (ii) a technical services agreement, obliging the operator to advise the owner during the design and construction process so as to ensure that the hotel is built to the operator's specifications.

63. Claimant thus disputes Respondent's position that the HMA did not become effective until the Opening Date. In support of this, Claimant points to the fact that other obligations ripened before the Opening Date, such as Respondent's obligation to obtain the necessary permits (Section 3.3.1 of the HMA) and insurance (Section 7.1 of the HMA), as well as Claimant's obligations as the hotel ''Manager" (Section 3.2 of the HMA). In light of this, Claimant contends that the Parties never intended to draw a distinction between the Hotels being built and being ready to open.

64. Claimant considers that the language of the TSA supports its reading of the HMA, reiterating that the Agreements are related and must be read together. In this regard, Claimant refers to the following passages of the Preamble to the TSA:

1. The Owner intends to develop, finance, build and manage [under its brand names] two high-class holiday complexes (hereinafter referred to as the "HOTELS") on the plots …

[...]

3. The Owner shall provide for the Project the site outlined in red in Annex 2 and having a size of appr. 96.000m²

65. In addition, Claimant refers to paragraph 6 of Article III of the TSA, which provides that the Parties "shall make every effort to ensure that the Project is completed within the agreed timetable and fully operational at the opening". In this connection, Claimant contends that its own obligations under the TSA confirm the Parties' expectation that Respondent would provide the Hotels and that their agreement could not be modified without Claimant 's consent (e.g., "Compatibility With The Environment" (Article II), "Planning" (Article III), "Supervision of Construction " (Article VIII), "Infrastructure" (Article IX), ''Preopening and Opening" (Chapter 2)).

66. In this context, Claimant disputes Respondent's position that, had there been an obligation to build the Hotels, the Parties would have entered into a separate "development agreement'' to this effect, or at least would have provided for a precise opening date or "long stop date" in the HMA. Relying on [the chartered surveyor's] expert report, Claimant submits that it is not customary for development agreements to accompany hotel management agreements in the region. Relying on [Claimant's managing director's] witness statement, Claimant submits that due to the inherent difficulties of fixing a specific opening date, hotel management agreements rarely provide for one.

67. Finally, Claimant contends that there was no basis for Respondent to reject the initial design concept of the Hotels, arguing that: (i) the idea to build a 5-star, "luxury" hotel was not excluded by Claimant's wish to offer "budget" prices; (ii) it was not Claimant that failed to produce a viable concept, but rather Respondent that failed to select the proper general contractors and designers from the outset, (iii) [the approval authority] did not reject the Parties' initial design concept - it merely provided comments regarding technical and regulatory compliance issues; and (iv) the letter of intent signed by the Parties on 10 September 2005 documents the Parties' intention that Respondent would not enter into any competing hotel management negotiations and "shared a vision to construct and operate [...] two hotels" [in the resort].

68. For its part, Respondent submits that the purpose of the HMA was, as described in the Recital of the HMA, simply to give Respondent "use of expertise in the operation, and management of the completed hotel upon and subject to the terms and conditions set forth in this Agreement". In Respondent's view, this passage proves that obligations would not be incurred under the HMA merely through the construction of hotels on [the plots], but only by construction of hotels to Claimant's brand specifications.

69. Respondent asserts that Claimant has fundamentally misread Section 3.3.1 of the HMA by alleging that Respondent was obliged to make the Hotels available "by" the Opening Date, when in fact the HMA states that Respondent must make them available "on" the Opening Date. In Respondent's view, this language makes clear that Respondent was only obliged to make those hotels available that had been built in accordance with Claimant's brand specifications. Respondent concludes that, since the Opening Date did not occur, it was relieved of any alleged obligations vis-à-vis Claimant. Respondent argues that this is consistent with the TSA requiring Claimant to perform certain tasks prior to the Opening Date, so that the Hotels should be ready for Claimant, although the bulk of the obligations contained within the HMA would only arise when the Hotels accepted their first paying customer and were ready for occupation.

70. Respondent further points out that there is no term in the Agreements obliging Respondent to build the Hotels and, contrary to Claimant's hopes and the opinion of its legal expert …, no such term can be implied in the Agreements because: (i) there is no scope under [State X] law for implying terms into contracts whose terms are otherwise clear; and (ii) even if a term could be implied, there is no basis to imply an obligation on Respondent to spend millions of Euros on building the Hotels.

71. Respondent in any event disagrees with Claimant's proposition that it had to "build the Hotels at its own cost and then make them available'" to Claimant, because: (i) Claimant was a service provider rather than an investor in the project; (ii) Claimant neither commissioned the construction of the Hotels nor accepted any risk in relation to the project's success; and (iii) Claimant agreed to provide technical assistance for a fixed fee under the TSA, which Respondent "was free to accept, reject or ignore". In this sense, Respondent emphasizes that the Project was not a joint venture but rather "belonged solely" to Respondent. Respondent also disputes that Claimant had a "stake" or "assumed risk" in the project, contending that Claimant merely undertook tasks in the normal course of business that were, in any event, paid for under the TSA .

72. Respondent emphasizes that even if an obligation to build the hotels did exist, which is not the case, it was subject to a condition of design feasibility and financial viability. In this respect, Respondent argues that the design phase of the project was beset with problems and delays, most of which were caused by Claimant's inability properly to manage the design team it had selected. According to Respondent, the design team managed by Claimant was unable to produce a viable design within budget, which led to [the approval authority] rejecting the original concept. Respondent contends that it was clear by the end of 2006 that the original design was not viable, and that the Agreements were in danger of becoming inoperable if Respondent did not propose a new concept. Respondent submits that once Claimant rejected the new concept and demonstrated that there was no viable design in which it was willing to be involved, Respondent had no option but to terminate the Agreements.

2.Did Respondent wrongfully terminate the Agreements?

73. Claimant argues that Respondent wrongfully terminated the Agreements. In so doing, it relies on the contractual provisions set forth in 74-78 below and on the relevant provisions of [State X legislation].

74. Article IX of the HMA, captioned "DEFAULT", provides at paragraph 9.1.3 that:

In any of such events of default, the non-defaulting party may give to the defaulting party notice of intention to terminate the operating term after the expiration of a period of sixty (60) days, (thirty (30) days in the case of default in (b) above) from the date of delivery of such notice, and upon the expiration of such period, the term shall automatically expire and this Agreement shall be terminated immediately. If, however, upon receipt of such notice, the defaulting party shall promptly cure the default within the notice period or take action to cure the default with all due diligence, if such default is not susceptible of being cured within sixty (60) days period) [sic] then such notice shall be of no force or effect.

75. Paragraph 9.1.1 of Article IX defines the "events of default" referred to in paragraph 9.1.3 as:

(1) The failure of the MANAGER to perform under the provisions of Article III (Use and Operation of the Hotel) of this Agreement.

(2) The entering of an order, judgement or decree by any competent jurisdiction, adjudication or either party as bankrupt or insolvent or approving a petition seeking reorganization or appointing a receiver, trustee or liquidator of all or a substantial part of such party's assets.

(3) The failure of the OWNER to make the payments under Article IV, the capital expenditures and maintenance as defined under Article VI.

(4) Notwithstanding anything to the contrary in this Agreement, OWNER shall have the right to terminate this Agreement in the event the GOP for 2 consecutive years is less than … for those 2 years starting from the fourth full fiscal year onwards.

(5) In case of Force Majeure non [sic] of the events (1)-(4) mentioned above shall constitute an event of default.

76. Pursuant to paragraph 1 of Article XX of the TSA, captioned "TERM OF THE CONTRACT", the TSA "shall terminate on the date at which the [HMA] will lapse".

77. Paragraph 2 of the same Article provides that:

Either party may terminate this contract prematurely pursuant to Article II, paragraph 2 (environmental compatibility). In case of such premature termination, neither the OWNER nor MANAGER may claim damages from the other party. However, MANAGER shall be entitled to receive that part of the overall contractual fee that has become due before the date of termination.

78. Under paragraphs 3 and 4 of Article XX, the TSA can also be terminated under the following circumstances:

3. lf, in the course of the implementation of the Project, it should become clear that the Project cannot be completed for reasons for which neither the OWNER nor MANAGER can be held responsible, this Contract shall be terminated by mutual agreement In this case, MANAGER shall be entitled to receive that part of the overall contractual fee that has become due before the date of such termination, but MANAGER shall not be entitled to claim any further fees or damages from the OWNER.

4. If the circumstance leading to the premature termination of the Contract pursuant to this Article XX, paragraph 3, ceases to exist, the OWNER and MANAGER shall jointly continue the implementation of the Project under this Contract.

79. Claimant argues that upon sending the termination letter referred to in § 47 above, Respondent did not make reference to the termination provisions of the HMA or TSA, and in any event none of those provisions allow for termination on the basis of a "re-evaluation of investment strategy".

80. Furthermore, Claimant points out that in the event that Respondent had alleged a default, Respondent had to give notice to Claimant and an opportunity to cure, which it never did.

81. Claimant further contends that the termination did not comply with the relevant provisions of [State X legislation]. [The following articles] are pertinent to the present case and provide as follows

Article …

If the contract is valid and binding, it shall not be permissible for either of the contracting parties to resile from it, or to vary or cancel it, save by mutual consent or an order of the court, or under a provision of the law.

Article …

lt shall be permissible to agree that a contract shall be regarded as being cancelled spontaneously (automatically) without the need for a judicial order upon non-performance of the obligations arising thereout [sic], and such agreement shall not dispense with notice unless the contracting parties have expressly agreed that it should be dispensed with.

Article …

(1) In contracts binding on both parties, if one of the parties does not do what he is obliged to do under the contract, the other party may, after giving notice to the obligor, require that the contract be performed or cancelled.

(2) The judge may order the obligor to perform the contract forthwith or may defer performance to a specified time, and he may also order that the contract be cancelled and compensation paid in any case if appropriate.

82. In Claimant's view, the legal provisions cited in § 81 above demonstrate that under [State X] law: (i) it is difficult to terminate a contract without an order of the court; (ii) even if there is mutual consent to terminate, notice must be given; and (iii) in the event of non-performance, notice must be given before the party can require the contract to be performed or cancelled.

83. Claimant further submits that Respondent breached its obligation under [State X] law to perform the Agreements in good faith. In so doing, Claimant relies on [a provision in State X legislation], which provides that:

(1) The contract must be performed in accordance with its contents, and in a manner consistent with the requirements of good faith.

(2) The contract shall not be restricted to an obligation upon the contracting party to do that which is [expressly] contained in it, but shall also embrace that which is appurtenant to it by virtue of the law, custom, and the nature of the disposition.

84. According to Claimant, [the above provision] is "core to the performance" of all contracts governed by [State X] law, and has been recognized by [State X] courts on a number of occasions. In particular, Claimant relies on a decision … for the proposition that it is in bad faith for a party to rely on a ''trivial breach" to terminate a contact when such termination would lead to significant disruption and loss of profit.

85. Claimant contends that as the above-mentioned provisions of [State X legislation] were not complied with and as the contractual provisions were not properly followed, Respondent's purported termination was unlawful and invalid.

86. Finally, Claimant also submits that [Respondent]'s failure to properly comply with the termination requirements of [State X] law amounts to a separate breach of contract which gives [Claimant] a separate and additional right to claim damages.

87. For its part, Respondent contends that the Agreements were lawfully and validly terminated. The TSA fell to be terminated because the Project to which it related could not be built. On the other hand, the HMA was a conditional contract - it would only become effective on the date of opening and it was subject to a condition of design feasibility and financial viability - these conditions were not fulfilled, and so neither the HMA's termination clauses nor the [State X] law on termination is relevant. Respondent was therefore not even obliged to serve a termination notice but it chose to do so.

Accordingly, Respondent submits that the Tribunal must find that, as a matter of [State X] law, the termination of the HMA was lawful and valid.

B. Remedies

88. On the basis of [the relevant provisions of State X legislation], Claimant submits that performance of the HMA and TSA became impossible due to Respondent expressly and conclusively stating in its letter dated 4 March 2007 that it would no longer perform the HMA. Claimant therefore contends that it is entitled to damages including loss of profits it has suffered as a consequence of Respondent's wrongful termination of the HMA and TSA on 4 March 2007. Claimant recognizes that those damages and loss of profits must be a natural result of Respondent's non-performance of its obligations; that they must also have been anticipated, expected or have been foreseeable at the time of concluding the contract. Claimant submits however that the exact extent of the damage or loss of profit does not need to have been foreseen. Finally, once it is established that the nature of the damage / loss of profits was foreseen at the time the contract was entered into, the arbitrators have wide discretion to award damages / loss of profits based on objective reasonableness.

89. Moreover, according to Claimant, Respondent's very deliberate decision to terminate the contracts amounts to a "gross error" with the consequence that Claimant' s indirect losses are also recoverable.

90. On the basis of the above, Claimant claims that it is entitled to recover its loss of earnings: (i) under the HMA in the form of the "Basic Management Fee" and the "Incentive Management Fee"; and (ii) under the TSA in the form of a lump sum fee for services provided but unpaid as of the date of termination. Respondent denies these claims.

91. Under the HMA. Claimant's position is that it is entitled to recover both the Basic Management Fee and the Incentive Management fee under the HMA.

92. With respect to the Basic Management Fee, Claimant refers to Section 4.1 of Article IV of the HMA, where it is provided that the Basic Management Fee is calculated as 3% of the Hotels' "Gross Revenues", which includes, for example, all revenue derived from rental of rooms, food and beverage sales, gift shops, commissions, etc.

93. With respect to the Incentive Management Fee, Claimant notes that it is calculated on a sliding scale as a percentage of the Gross Operating Profit ("GOP"), which is defined as "gross revenues minus deductions".

94. According to Claimant's reading of the HMA, the Basic Management Fee due to Claimant should be calculated over ten years (corresponding to the HMA's initial "Operating Term") as lost profits. In this respect, Claimant disputes Respondent's position that lost profits are only recoverable if they are certain to materialize, which would not be the case here. Accordingly, projecting the Basic Management Fee (and, relatedly, the Incentive Management Fee) ten years into the future based on certain feasibility studies (which Claimant contends were "conservative, including in their assessment of a realistic occupancy rate"), Claimant claims [amount], which discounted, gives a net present value for 2012 of [amount]. According to Claimant, this figure corresponds to the loss of earnings which is the natural result of Respondent's default which, even if Respondent's actions do not amount to a gross error, were foreseeable at the time the contract was entered into, and calculated as of the purported termination on 4 March 2007. In addition, Claimant notes that it tried to mitigate its damages by finding alternative locations for its project, but has been unsuccessful in doing so because of the state of the market due to the financial crisis.

95. Respondent raises in the first place a defence to Claimant 's recovering the management fees, namely, that Claimant was required to seek specific performance instead of damages under [State X] law and, in the event that the Arbitral Tribunal should find Respondent liable for damages, those damages must: (i) be actual damages assessed on the basis of the harm actually suffered at the time of breach; (ii) have been foreseeable; and (iii) be "direct", i.e., a natural consequence of the harm done. Future damages are recoverable only if they are certain. Hypothetical damages cannot be recovered. In Respondent's view, the damages claimed by Claimant are unrecoverable under [State X] law because they are too speculative and based on hypothetical and projected profits rather than profits that had been guaranteed or which were certain to materialize in the future.

96. In any event, Respondent argues that, even if the Arbitral Tribunal were to allow Claimant to claim for future lost profits, the feasibility study on which Claimant bases its calculations cannot be relied upon because it: (i) is "outdated", having been calculated in 2004; (ii) is highly speculative, including financial projections based on the "very best scenario" envisaged at that time; (iii) does not relate to this specific project but rather to possible projects that might have been built anywhere [in the resort]; (iv) does not take into account market variables, such as tourism numbers natural disasters, regional instability, etc.; (v) is based on a design concept that was not ultimately approved by the relevant authorities; and (vi) bases its figures on mathematical assumptions that are unsupported by evidence. In addition, Respondent contends that all of the projections relied upon by Claimant assume that hotel trading would have increased throughout the global economic crisis. This is at odds with both common sense and a substantial body of evidence which shows that hotel trading has suffered during the crisis.

97. Furthermore, Respondent disagrees with Claimant's position that lost profits, if awarded, should be calculated over ten years in light of the Operating Term. According to Respondent, [State X] Courts would only award loss of profits for a duration which is reasonable in the circumstances. Respondent is of the view that any lost profits should be limited to 15 months, as this was the amount of time the Agreements were in existence. Alternatively, Respondent submits that any lost profits should be limited to four years, as Claimant stated at the time of termination that it would take between four and five years to find an alternative project. Further in the alternative, Respondent submits that it may have exercised its right to terminate the Agreements after six years under Article 9.1.1 of the HMA, such that any lost profits should be limited to an absolute maximum of six years. In all events, Respondent requests that any award of damages to Claimant be reduced to account for the fact that Claimant has given up attempting to find a new project [in the resort] and has thus contributed to its own loss.

98. Finally, Respondent submits that even if the Tribunal was minded to award damages for loss of fees, it cannot rely on [the chartered surveyor]'s assessment of damages, which it considers to be completely flawed.

99. Under the TSA. With respect to the TSA, Claimant submits that in Respondent's letter purporting to terminate the Agreements, it stated that it would pay all monies due in respect of services Claimant provided to the date of termination plus incidental costs. However, Claimant contends that Respondent's proposal does not constitute the proper remedy which, in accordance with [the relevant provision of State X legislation], is compensation. Claimant submits that it completed all the services it was required to undertake pursuant to the TSA, for which it was to be paid a lump sum fee of ... Claimant asserts that it has only been paid [a fifth] of that amount, such that … is now due from Respondent in this arbitration …

100. Respondent argues that Claimant cannot recover the [amount] claimed because it does not reflect the harm actually suffered by Claimant at the time of the alleged breach. This amount would only include monies due for services provided under the TSA until termination plus any costs incurred in bringing its services under the TSA to a conclusion. Respondent notes that it has already offered to pay these amounts in its termination letter, but that "Claimant has failed to pursue this offer". Furthermore, Respondent asserts that the [amount] never became due because the TSA was terminated before construction of the Hotels ever started.

VII. The Tribunal's analysis and decisions

A. The facts

101. On the basis of the documentary and witness evidence submitted by the Parties, the Arbitral Tribunal has determined that the facts took place as follows.

102. [A] and [B] are two major hotel brands of the [C] group. The group was interested in having an investment in [the locality] and had looked for five years in [State X] to find the right partner (testimony of [Claimant's managing director). [D], the contact of [C] in [the locality], put the group in contact with various investors and they ended up with [E] and through them, with [Respondent].

103. [E], acting on behalf of [Respondent], which owns 15% of its shares …, acted during the project as developer. The plots of land on which the … Project was to be built was donated … to [Respondent].

104. [D] acted as Project Manager. After the signature of the HMA and the TSA, [D] installed [F], a local subsidiary, as general planner. Its role was to manage the design process and take care of all organisational issues between the participants. [F] contracted with [D] and [E].

l05. The original contractor selected by [E] was [G]. The contractual relationship was however subsequently terminated … and [G] was replaced by [H].

106. The first architects involved in the project were ... They were selected in September 2005 by [Claimant] at the issue of an internal architectural contest.

107. After selection of the architects, a Letter of Intent (LOI) was signed … between [C] and … a subsidiary of [Respondent].

108. The LOI provided in its Article 1.3 that the conceptual design (i.e., the first design, the footprint of the hotels with all the facilities, what will be included in the space programme) would be done by [D] - in reality by [the architects] on behalf of [D] - in consultation with [C].

109. Various meetings took then place with architects and engineers to ensure the viability of the Project. The process ended up with the signature between [Claimant] and [Respondent] of the HMA on 25 January 2006 and of the TSA on 10 March 2006.

110. The kick-off meeting involving all the participants in the Project took place [in] April 2006 ... [The architects] made a short presentation of the Project. [F], in reality [E], prepared a preliminary budget for the construction cost, based on information supplied by [Claimant]. It was decided that [G] would check the cost sheet. After approval, it would be sent to the architects and planners.

111. A subsequent meeting took place [in] July 2006 with [the project manager, D] and [the architects]. The latter proposed a downsized project according to the preliminary budget determined by [the investors, E]. [Claimant] did not agree with it. [Claimant] however gave its agreement to some changes in the concept design to reduce the space and size of the building. The minutes of the meeting indicate that the built-up area would exceed the budget and that the Planning Team recommended to [Claimant] … to set up a meeting with [Respondent] and [E] to straighten out the budget differences. The minutes also mention [Claimant]'s request to the design team to proceed with the existing revised concept design.

112. [The approval authority] gave its approval to the design and requested some adjustments:

We are pleased to inform you that in principle we have no objection on the basic approach and philosophy of design including the land use and basic distribution of activities, we would therefore like to bring your attention about the fact (as agreed in the meeting …) that there is a need for a thorough study of circulation and other details such as ...

113. A further meeting took place [ten days later]. The minutes of the meeting indicate that the cost estimation has to be revised, that compared with the preliminary budget, there is a huge cost overrun.

114. The next meeting was scheduled [a month later] with [Respondent], [E] and [Claimant]. The minutes reveal that [G] declined the contract, that its relationship with [E] terminated … and that [E] and [Respondent] had selected as new design-build contractor [H]. According to [E], the reason for the change was that [G] was unable to agree a guaranteed maximum price ...

115. The new design team selected by [H] was the following …

The new design team was presented to [Respondent] and [Claimant].

116. According to [Claimant's director of technical service and development], [the initial architect] was replaced by [the new architects] because [E] did not like their design and not for budget reasons as they alleged …

117. The minutes of the … August 2006 meeting further indicate that:

- The Project's design was stopped and put on hold; [E] and [H] would evaluate the construction costs;

- [E] would review the design and prepare the recommendation with [Respondent] regarding whether to go with the existing design;

- According to [F] and [Claimant], the Project could be realized within budget;

- The Project organization was changed: it is now [E] that would develop the design, review [H]'s design and forward it to [Claimant] for approval, there would be no more direct contact between [H] and [Claimant].

118. On 31st August 2006, [Claimant] wrote to [E] expressing their deep surprise ... They were informed that [H] wanted to work out completely new plans and that the [initial architect's] Project was not to be realized. [Claimant]'s surprise came from the fact that the plans had been approved by [Respondent], [E] and [the approval authority]. [Claimant] was already marketing the project. [H]'s decision would involve new delays.

119. On 5 September 2006 … [E] answered that the reason for [H]'s decision is that the existing design would not meet the budget.

120. On 4 October 2006, a new proposal of a layout for the [Claimant's] hotel was presented by [the new architects]. [Claimant] did not agree with it and formulated its recommendations ... Various meetings then took place in the following weeks with the architects. Problems remained with respect to the space programme. Criticisms were reiterated [later].

121. The contract between [Respondent] and [H] was finally signed on 31 October 2006 ... It was based on [H]'s offer …, accepted by [Respondent] … The offer provided for a lump sum of … subject to, inter alia, the following conditions :

- the total built-up area will be circa 64,000 m² to be finalized by the agreed concept drawings, which will form part of the contract documents;

- in the absence of documentation for the [hotel], the [Claimant's] guidelines shall be used as a guideline with the exception of any references to floor areas (which will be in line with those observed in [its hotel in another country]);

- finally, the project completion is scheduled for 31 July 2008 ...

122. The contract incorporates a number of documents, including the above offer and acceptance, the approved concept drawings, the space programme for both hotels, the [C] planning guidelines and room description, among others.

123. All the elements were therefore in place for the Project to be achieved, this was confirmed by [the] Development Manager at [E] in an email of 7 November to [Claimant's director of technical service and development]: "I am writing you to inform that the contract with [H] and [the architects] has been signed - point of non-return" ...

124. On 22 November 2006, the concept design of the Project was approved by [C] … Reference is made [in the minutes] to design discussions in terms of net space (the fact that with respect to net space, "nearly in all areas the demanded square meter areas by [C] … are not fulfilled" …) and delays in construction. The building permit submittal was targeted for 27 January 2007.

125. According to various witnesses, the issues relating to the net-gross space (net being the carpet area (within the walls) and gross the total construction space (with the walls) or approximately 1, 2 times the net area) were easy to solve. [Claimant's managing director] testified that the Parties were very close to a solution and even if it could have delayed the completion a little more, they could have made it (Transcript …). The Project was possible to achieve, there were many options to make sure that it would meet the budget ... [It was] confirmed that even if you have only a concept design, it is easy to enter into a design and build contract with a general contractor (Transcript …). And if you see that the design does not correspond to your standards, "under normal partnerships, you would sit down and try to find a suitable solution for both parties ... [m]eaning that you would discuss overall costs ... in square meters, in overall facilities. At the end of the day, you can do a fixed budget" ...

126. [Claimant's director of technical service and development] also confirmed that the Parties were well on their way to solve the problem with the space. The [architect's] design was a completely new concept, they did not know the [Claimant] product "and we have to discuss a little bit about it. But I think we are on a good way and before Christmas, I say 'OK, we have two weeks' holiday and then we start again and we finalise the process." This was our impression" ...

127. Claimant's representatives were therefore extremely surprised when at a meeting … on 8 January 2007, [representatives] of [Respondent] (feeling very uncomfortable according to [Claimant's managing director], Transcript …) indicated that "the owner that we are representing has changed its ideas concerning the project". Following a change in the regulations, it was now possible to build apartments … and following the example of [another hotel chain] that was planning a hotel with serviced apartments, [Respondent] wanted to do the same, and build 350 to 400 apartments on the plot plus one hotel or two smaller hotels … The sale of apartments would finance the construction of the hotel(s) and this would generate more money than having only two larger hotels.

128. In its letter to [Respondent] of 16 January 2007 …, summarizing the discussions at the meeting, [Claimant] explained: "[W]e are very disappointed to hear that you will not meet your contractual obligations... We are expecting your proposal of a solution how to bring all three parts - i.e., apartments [and the two hotels] - together on the two plots. Even though we are very hesitant to believe in the success of such a development due to the limited space, we will take this proposal as a basis for any further decision. Should you be able to propose an alternative plot for [Claimant] even in a different location, we are ready to consider this option as well" being further understood that "[C] definitely would like to remain present [in the area]".

129. On 4 March 2007, [Respondent] sent [Claimant] a notice of termination of the HMA … in the following terms:

Following a re-evaluation of this Company's investment strategy and planned development programme we are obliged to inform you of the decision taken to cancel the Project. The Hotel Resorts as previously planned and which is the subject matter of the Agreement will no longer be built.

In view of this decision we must bring to a conclusion the current Agreement and the technical services being provided. Accordingly we hereby give notice of termination of the Agreement, effective forthwith and request your acknowledgment by return.

All monies which may be due to you in respect of the services provided to date and any direct costs incurred in bringing the services to a conclusion as a result of the termination shall be valued in accordance with the provisions of the Agreement and paid following handover of the documents and information referred to herein.

130. The validity of the termination was disputed by Claimant in a letter of 27 April 2007 ...

131. After the termination, [Claimant] invested a lot of effort and money to find an alternative project ... Unfortunately no alternative project was available [in the area] and nothing could replace this unique situation, the place where they wanted to be ([Claimant's managing director], Transcript …). … According to [Claimant's regional director] (Transcript … and witness statement …), there is an unwritten rule in [State X] that if one of the leading personalities takes a decision to break a contract, the other party is effectively blacklisted by other leading personalities. Finally, [Claimant] could not find anything appropriate which satisfied the same requirements as the Project [in the resort]. The Tribunal is therefore of the opinion that Claimant did all it could to mitigate its damage.

132. [Respondent] itself developed an alternative project immediately after the termination. According to [a witness], the existence of a proposal and of an original design plan submitted by [another company] on 15 March 2007 … demonstrates that [Respondent] already had contacts for the development of this alternative project before the termination of the HMA (Transcript …); although this is disputed by Respondent. The Operating and Management Agreement … between [the other company] and [Respondent] was signed on 3 June 2009 ... The contract with [the other company] was subsequently terminated. The name of the hotel was also finally changed into ... It does include very luxurious villas but no apartments ...

B. Did Respondent have an obligation to build the Hotels and in the affirmative did it breach this obligation?

1. The applicable law

133. Pursuant to Section 11.8.1 of the Management Agreement and Article XXII Section l of the Technical Service Agreement, the applicable substantive law is the law of [State X]. In their argument, the Parties and their legal experts … have invoked the following legal provisions and concepts.

a) The principles of contract interpretation

134. With respect to contract interpretation, the Parties have invoked the following provisions of [State X legislation].

135. Article …:

(1) The criterion in [the construction of] contracts is intentions and meaning and not words and form.

(2) The basic principle [presumption] is that words have their true meaning and a word may not be construed figuratively unless it is impossible to give its true meaning.

136. Article …:

There shall be no scope for implication in the face of clear words.

137. Article …:

The absolute applies absolutely unless there is evidence, whether textual or indicative, restricting it.

l38. Article …:

(1) If the wording of a contract is clear, it may not be departed from by way of interpretation to ascertain the intention of the Parties.

(2) If there is scope for interpretation of the contract, an enquiry shall be made into the mutual intentions of the parties without stopping at the literal meaning of the words, and guidance may be sought in so doing from the nature of the transaction, and the trust and confidence which should exist between the Parties in accordance with the custom current in dealings.

139. Article …:

The contract shall not be restricted to an obligation upon the contracting party to do that which is [expressly] contained in it, but shall also embrace that which is appurtenant to it by virtue of the law, custom, and the nature of the disposition.

140. Article …:

Known custom as between merchants shall have the effect of [express] conditions made between them.

b) The immediate effectiveness of a contract

141. Article …:

(1) The contract shall govern the subject matter of the contract and the consideration therefor as soon as the contract is made, and shall not depend upon receipt or any other thing unless the law provides otherwise.

(2) With regard to the rights (obligations) arising out of the contract, each of the contracting parties must perform that which the contract obliges him to do.

142. The party invoking the existence of an agreement to the effect that the rights and obligations arising under a contract are not due immediately bears the burden of proof according to [State X legislation].

c) Condition and term

143. Article …:

The contract may be accompanied by a condition confirming its purport or consistent with it or in accordance with custom and practice or containing an advantage to one of the contracting parties or a third party, provided that in the case of all the foregoing it is not prohibited by law or contrary to public order or morals, otherwise the condition shall be void and the contract shall be valid, unless the condition is the inducement to make the contract in which case the contract also shall be void.

l44. The difference between condition and term: a condition is a future event the occurrence of which is uncertain. A term is a future event the occurrence of which is certain.

145. The difference between a "condition simplement potestative" and "condition purement potestative" (referred to as such in French by the experts). The fulfilment of the latter depends upon the pure will of the party providing for the condition. It is void. The fulfilment of the former depends not only upon the will of the obligor but also upon an external objective factor. It is valid. There was no disagreement of the experts on these principles.

d) The scope of an entire agreement clause

146. Section 11.13 of the HMA contains an entire agreement clause to the effect that:

This Agreement, together with the other agreements referred to herein, constitutes the entire agreement and understanding of the parties with respect to the matters set forth therein, and all prior negotiations and understandings relating to the matter of this Agreement shall be superseded and cancelled by this Agreement.

l47. According to Claimant's expert, the impact of such a clause should be viewed in a restrictive manner. If any term in the final agreement is expressly in conflict with any terms appearing in prior negotiations, then definitely the term of the final agreement shall prevail. Otherwise, this clause should not prevent the Tribunal from taking into consideration the prior negotiations of the parties and their motivation in entering the contract in order to construe their mutual intention. On the other hand, for Respondent's expert, the clause confirms the parties' intention to have only the HMA govern their relationship and that nothing else should be considered. Consequently, all prior negotiations and understanding related to the matter of the HMA are to be superseded and cancelled by the latter.

148. The Tribunal is minded to accept Claimant's expert's position. It shares Claimant's interpretation of the entire agreement clause.

2. The absence of a specific opening date

149. According to Respondent, the entry into force of the HMA was subject to a condition that the Hotel be built and opened. The Arbitral Tribunal disagrees with Respondent's position.

150. According to [State X legislation], a contract becomes effective and operative from the moment it is executed, unless there is an agreement to the contrary and the party seeking to rely on such an agreement bears the burden of proving that it exists. [Respondent] has failed to satisfy its burden of proof in this respect.

151. Section 3.3.1 of the HMA is clear that "The OWNER shall be obliged to make the HOTELS available on the opening date to have them adhere to the QUALITY STANDARDS, and to maintain them in good condition suitable for the implementation of the Agreement during the whole term of this Agreement. Moreover, the OWNER has to ensure that all necessary permits required by law or by any governmental agency are issued on the opening date and remain valid during the whole term of the Agreement." Both of the above obligations became effective immediately upon the signature of the Agreement.

152. Moreover, under Section 11.16 of the HMA, "Owner is not allowed to enter into any management or operations agreement within the … district with a competitor of the MANAGER".

153. The Agreement also provided that the Operating Term of the HMA would be ten years from the Opening Date until the end of the then current tourist season, plus the residual contract term.

154. The fact that the Parties did not immediately agree on a specific opening date was due to the circumstances of the Project. The [resort] was under construction, there was no road to access it, it could only be accessed by boat and it was therefore impossible to determine exactly when the opening could take place. But subsequently, the Parties agreed on the opening date to take place in or around July 2008 ...

155. As mentioned above, when the terms of a contract are not clear, the Tribunal must determine what was the intention of the Parties and guidance may be sought from the nature of the transaction and the trust and confidence which should exist between the Parties in accordance with custom current in such dealings. The fact that the Parties are in total disagreement on the nature - conditional or not - of the contract is evidence that its terms are not clear. It therefore belongs to the Tribunal to determine what was the intention of the Parties.

156. The HMA is a typical management agreement and its basic terms conform to established international industry standards. Specifically, the owner is obliged to build hotels to conform with the standards agreed by the Parties in the HMA and to deliver the hotels to the management company in operational condition and maintain it in such condition until the end of the contract term. This is what Section 3.3.1 provides expressly.

157. Moreover, as mentioned in the factual exposé above, the Parties immediately started to cooperate after the conclusion of the HMA and the HMA [recte TSA] in order to implement all the steps necessary for the completion of the hotels. The Agreement itself imposes pre-opening obligations on Claimant and Respondent (Section 3.2 (determination of rates, purchase of food and supplies), Section 3.4.2 (Appointment of General Manager, Financial Controller and Director of Sales), Section 4.3.1 (Marketing), Section 4.4.2 (Training of personnel), Section 7.1 (Insurance)).

158. The Tribunal also agrees with Claimant that [Respondent]'s reasoning, if correct, would lead to the unattractive proposition that it would be permissible for [Claimant] to refuse to carry out its obligations to manage the hotel up until the point the first customer arrives; or that [Respondent] could escape its responsibilities at any time up to the opening date simply by refusing to build the hotels. This was definitely not the intention of the Parties and would be contrary to custom, practice and commercial good sense.

159. The Tribunal agrees with Claimant's expert that the HMA is a contract partially subject to a term, i.e., the completion of the construction of the hotels at the time anticipated by the Parties. Although the completion date of the hotel construction was uncertain, the completion of the construction under normal circumstances was definitely certain. The obligation of the Respondent to make the two hotels available for the Claimant's operation at the agreed date for the opening of the hotels is therefore an obligation subject to an uncertain term, and not subject to a condition as claimed by the Respondent.

160. In any case, even if the HMA was to be viewed as a contract subject to the condition of construction of the hotels by the Respondent, the condition would be null and void since it would depend on the pure will of the Respondent.

161. Finally, it is also the Tribunal's opinion that if the Parties had intended the effectiveness of the HMA to depend upon the condition of the hotel being built and opened, they would have expressed it in clear terms, which they did not.

3. The alleged conditions of feasibility

162. [Respondent] argues that the obligation under Section 3.3.1 of the HMA is conditional upon:

- an agreement on the design being reached, i.e., that there was an implied condition of design feasibility; and

- the profitability of its performance , i.e., that there was an implied condition of financial feasibility.

163. The Tribunal disagrees with Respondent's position.

164. A condition is either precedent or subsequent. In other words, the entry into force of the contract is subject to the condition being fulfilled (condition precedent) or the non-fulfilment of the condition will have as a consequence that the agreement will be terminated (condition subsequent).

165. It is obvious that if the Parties had wished the contract to terminate if the conditions of feasibility had not been fulfilled, they would have expressed this in clear terms. It could not be otherwise and they did not do so. The same is true for the formulation of the feasibility condition as a condition precedent. ln international transactional practice, the parties who wish to subject the entry into force of an agreement to a condition precedent express so in clear terms, usually in a specific article under the heading "Condition Precedent" . The Parties did not do so. Moreover, as we have concluded in the preceding section, Respondent's position that there was a condition precedent is in total contradiction with the Parties' intention, custom and commercial practice, the terms of the contract, and in particular the fact that a number of obligations had to be fulfilled from the moment of the entry into force of the Agreement.

166. It is also probable that such a condition, if it had existed would have been a condition "purement potestative" and therefore invalid. Indeed, Claimant's witnesses have repeatedly affirmed that an agreement on the design was nearly achieved when the notice of termination was sent by Respondent and that the contract could be performed within budget. If Respondent considers that the contract terminated because the alleged feasibility condition was not fulfilled, it means that it did consider that the conclusion of non-fulfilment of the condition could be based on its own unilateral judgment.

167. But in any case, even if the Tribunal was to follow Respondent's position that the HMA was subject to a condition precedent of feasibility in terms of design and budget, it would still decide that Respondent has not satisfied its burden of proof that the condition was not fulfilled.

168. With respect to design, the factual evidence as summarized in Section VII , A, above, confirms that at the end of December 2006, the concept design of the Project had been approved and therefore an agreement on design could easily be reached.

169. With respect to financial feasibility, the Tribunal considers that Respondent has not demonstrated that the Project would not have been financially viable.

170. [Respondent] presented itself as an experienced investor … and retained [E] as a real estate expert. [Respondent] was the only party which would fully understand its financial objectives. Once the objectives were set, it entered into the contracts based on these objectives and ultimately bore the responsibility for them.

171. Moreover, it results clearly from the provisions of the HMA that [Respondent] entered into the Agreement in full knowledge of [Claimant]'s earnings forecast and that [Respondent] had set out budgeted project costs. Section 4.2.2 itemizes the project costs to be incurred until the opening of the hotel. Section 4.3.3 shows the incentive management fees on a graduated scale with fees varying depending on the gross operating profit. [Respondent] cannot now raise as a defence that the return from the Agreement does not cover its costs or does not meet its gross operating profits expectations.

172. Respondent's allegation that the Project would not have been profitable is not supported by the evidence. The expected earnings of the hotel show the contrary and this was confirmed by [the chartered surveyor]'s expert report. In any case, the financial viability of the Project was not the genuine reason for termination. If it had been the case, [Respondent]'s letter […] would have said so. It did not. It simply stated that the Project was cancelled as a result of "a re­evaluation of this Company's investment strategy". This is in line with the message that [was] delivered to [Claimant's managing director] that [Respondent] had changed its mind.

173. The Arbitral Tribunal concludes from the above that Respondent had an obligation to build the hotels and since it did not do so, it breached its obligation.

C. Did Respondent wrongfully terminate the Agreements?

174. [Respondent]'s letter … invokes as the ground for termination of the HMA "a re-evaluation of this Company's investment strategy and planned development program". It does not make reference to the termination provisions set out in the HMA or the TSA. The grounds for termination listed in the two agreements (Article 9.1 of the HMA and Articles 20.2 and 20.3 of the TSA) are clear and none of the events listed gives scope for [Respondent] to terminate on the basis of a "re-evaluation of … investment strategy". The purported termination was not therefore in accordance with the provisions of the HMA and/or the TSA and [Respondent]'s termination is a breach of both contracts.

175. Moreover, if, as [Respondent] alleges, [Claimant] was in default, it should have identified the breach and given [Claimant] the opportunity to rectify the default according to Article 9.1.3 of the HMA. [Respondent]'s termination notice gave no such cure period.

176. [State X legislation] provides that "if the contract is valid and binding, it shall not be permissible for either of the contracting parties to resile from it, or to vary or cancel it, save by mutual consent or an order of the court or under a provision of the law". Here, the termination did not take place by mutual consent or through an order of the Court or by application of a provision of the law. Respondent decided unilaterally to terminate the HMA and the TSA without complying with their provisions. The termination is therefore wrongful.

177. It results from the above that Respondent has not provided compliant grounds for termination and has not served a valid termination notice. The Tribunal therefore decides that Respondent has wrongfully terminated the Agreements. However, the fact that the termination was wrongful does not automatically lead to the conclusion that it was done in bad faith. In this respect, the Tribunal considers that Claimant has not offered conclusive evidence of a violation by Respondent of its good faith obligation under [State X legislation].

178. The Arbitral Tribunal also dismisses Claimant's allegation that [Respondent]'s failure to properly comply with the termination requirements of [State X] law amounts to a separate breach of contract which gives [Claimant] a separate and additional right to claim damages. Claimant has not justified the validity of this claim in accordance with [State X] law.

D. The remedies

1. The principles governing compensation under [State X] law

(a) Performance by way of compensation

179. [State X legislation] provides that:

If it is impossible for an obligor to give specific performance of an obligation, he shall be ordered to pay compensation for non-performance of his obligation, unless it is proved that the impossibility of performance arose out of an external cause in which he played no part ...

180. According to [State X legislation], compensation shall not be due until after the obligor has been put on notice, unless there is a contrary provision in the law or in the contract. However, in certain cases mentioned in [State X legislation], notice is not required, for instance if the performance of the obligation becomes impossible or if the obligor expressly states in writing that he does not wish to perform his obligations.

181. The Tribunal has reached the conclusion that in this case, specific performance by the Respondent has become impossible since [Respondent] has chosen another concept for its investment, built a hotel and villas in specifications that vary from Claimant's brand specifications and entrusted the management of the hotel to another hotel operator. Furthermore, Claimant did not need to serve the notice required under [State X legislation] since Respondent, by serving its letter of termination …, has expressly declared its intention not to perform the contract.

(b) The quantification of the remedy

182. [State X legislation] reads as follows:

If the amount of compensation is not fixed by law or by the contract, the judge shall assess it in an amount equivalent to the damages in fact suffered at the time of the occurrence thereof.

183. The commentary … referred to by both experts on [the above provision] states that:

The rule in the modern laws is that if the damages are not assessed in the contract or by a provision of law, the judge shall assess them in an amount equivalent to the damages in fact suffered by the Claimant, and loss of profit provided that these damages are a natural result of non-performance or delay in performing the obligation, and the damages are considered as a natural result if the creditor could not avoid it by exerting reasonable effort.

184. The parameters provided by [the above provision] are not exclusive as the [State X] courts fundamentally rely on [another provision of State X legislation] that reads as follows:

In all cases the compensation shall be assessed according to the amount of harm suffered by the victim, together with loss of profit, provided that that is a natural result of the harmful act.

185. The commentary of this Article adds:

This Article provides for the basis of assessing the damage. The [legislation of a neighbouring country] stipulates that the damages are assessed on the basis of the losses suffered by the creditor, and his loss of profit provided that it is the natural result of non-performance of the obligation, and the damages shall be considered as a natural result if the creditor could not avoid it by exerting reasonable effort. The [legislation of yet another country] adopts similar provisions ...

…

The legislature stipulated the provision of the Islamic jurisprudence in the following articles, and it was found appropriate here to stipulate the general rules in that damages shall be assessed on the basis the amount of harm suffered by the victim, together with loss of profit.

186. As explained by the Parties' legal experts, [State X] Law recognizes an entitlement to compensation for actual damages, i.e., damages that are actual and have in actual fact materialized as a direct result of a breach of contract, and for future damages, i.e., damages that have not yet occurred as a direct result of a breach of contract but that are certain to materialize in the future. On the other hand, hypothetical damages, damages where occurrence is only probable and therefore not certain, are not recoverable under [State X] law.

187. Actual damages are only recoverable to the extent that they are direct and foreseeable at the date of contracting. Direct damages are those that flow naturally from the breach. As for foreseeability, Al Sanhouri refers to the objective standard of the ordinary man. Moreover, the damage is only recoverable provided that the creditor could not avoid it by exerting reasonable efforts, a concept that can be viewed as similar to the doctrine of mitigation of losses in the civil law and the common law system.

188. Future damages are also only recoverable to the extent that they are a direct and foreseeable result of a breach of contract at the time of contracting and certain to materialize in the future. Loss of profits constitutes future damages.

189. The Parties' experts are however not in agreement with respect to Claimant's claim for loss of profits. According to Respondent's expert, the lost profits were not certain enough to give rise to compensation. Claimant's expert is of the opposite opinion.

190. Having duly considered the Parties' submissions and their legal experts' reports and the exhibits thereto, the Tribunal considers that Claimant is entitled to recover its actual, i.e., direct and foreseeable, damages as well as its future damages, i.e., direct, foreseeable and certain to materialize in the future. The Tribunal has determined that Respondent did not act in bad faith and therefore, indirect damages are not recoverable. The Tribunal notes however that no such indirect damages are claimed here.

191. The Tribunal also decides that on the basis of the [local] jurisprudence cited by Claimant's expert … Claimant's loss of profits may give rise to compensation according to [State X] law. While the loss of profits takes place in the future, the fact that there is and will be a loss is certain. If [Respondent]'s position that, because Claimant's assessment involves future projections, it cannot be certain, was correct, it would be difficult to envisage any circumstances in which future profit would be recoverable as damages. Parties could wrongfully terminate their long term agreements without being subject to any duty to compensate. This cannot be.

(c) The burden of proof

192. As confirmed by Al Sanhouri, under [State X] law, it is for the claiming party to prove its case and the cause and quantum of damages he or she is seeking. The burden of proof is therefore on Claimant.

(d) The moment at which damages should be assessed

193. According to [State X legislation], the damages have to be assessed at the time of their occurrence. In this case, the damages occurred at the time of the breach of the contract, that is the date of Respondent's notice … terminating the HMA.

(e) Discretionary power of the Tribunal

194. The Parties' experts agree that under [State X] law, the determination of the precise amount of the damages recoverable is in the discretion of the court and by the extension in the discretion of the Arbitral Tribunal. In the terms of the Commentary of [State X legislation]:

The rule in positive laws is that if compensation is not assessed in the contract or by provision of the law, then it is the judge who assesses it.

and

If the amount of the liability or the compensation is not laid down in the law or by contract, it will be assessed by the judge in an amount equal to the damage in fact caused, subject to any specific legal provision, and in that respect it is enough to rely on [the provision relating to] a harmful act.

195. The Arbitral Tribunal is therefore required to exercise its discretion in the determination of the quantum in the individual instance by reference to the damage "in fact caused". The Tribunal should however elaborate on the reasons for accommodating or rejecting each element of damages sought in a manner that could allow scrutiny by a higher court.

196. When using its discretion, the Arbitral Tribunal may rely on the report of an expert as was pointed out by the [local supreme court]:

This Court has held that the trial judge has full discretion without review, to interpret, evaluate and weigh the facts and evidence in the case and need only explain the truth of which he is convinced based on the evidence from the documents before him. The trial Court may rely on the report of the Court-appointed expert if it considers the report to be well researched and based on sound principles.

197. This is the approach that will be followed by this Arbitral Tribunal.

2. The quantum

a) The expert reports

198. The amounts claimed by Claimant have been explained by its quantum expert ... Respondent's expert … has not produced an alternative quantification. His report is mainly a critique of Claimant's expert's findings.

199. According to Claimant, the conclusions of their expert … are totally reliable. He has carried out his analysis using market data available at three different points in time: January 2006, the date the Parties entered into the HMA; March 2007, the date [Respondent] purported to terminate the contracts and March 2011, the most up-to-date assessment [the expert] could undertake. He used for the first two scenarios weighted average figures provided by the relevant competitive set of hotels and for the last scenario the average daily rate and occupancy figures from [an advisory and consulting firm's] published data.

200. The fees which [Claimant] would have earned had it operated the hotels on [the plots] are stated in the HMA to be calculated by reference to:

a) the hotels' revenue (gross revenue); and

b) the hotels' profitability (Gross Operating Profit) ("GOP").

201. [The expert] adopted the industry standard method of calculating the revenue and profitability for a planned hotel project (the Uniform System of Accounts for Hotels) and on this basis prepared Profit and Loss statements ("P&L Statements") for the Project. He chose to treat the hotels as one project and therefore the P&L Statements represent the revenue and expenses and hence the profitability for both hotels.

202. [The expert] determined the key performance indicators necessary to prepare the P&L Statements, average daily rate ("ADR'') and average occupancy rate ("AOR'') by carrying out a detailed analysis of the project hotels offering and a benchmarking exercise to find relevant existing comparable hotels with published ADRs and average occupancy .

203. For his benchmarking, Claimant's expert took comparable properties selected from [hotels of a similar kind elsewhere in the locality], as none existed [in the resort] in 2006/2007, while the [selected] hotels were the closest comparison to [Claimant]'s hotels due to their location, market positioning, concept and size. From this selection, Claimant's expert excluded the "upper upscale" properties …

204. Claimant's expert also explained that he took data from the stabilized year of trading, that is, the 3rd year of the hotel life; that he used the inflation rates applicable [locally] at the appropriate assessment dates (3% per annum to the ADR figures included in the P&L statements for January 2006 and 5% for the P&L statements for March 2007 and March 2011, being the average rate of inflation at the respective dates); and finally that he also used adjustment factors by reducing in the first place all his average daily rate forecast by 5% considering that [the hotel] was in a slightly lower category than the [other] hotels included in the benchmark and applying a further 20% reduction for the March 2011 assessment due to the inclusion of the "upper upscale" properties in the [consultancy firm's] data, the latter being formulated on an aggregated basis.

205. To calculate the fees allegedly due to Claimant, the expert first calculated the Gross Revenue on the basis of the room revenue (the ADR multiplied by the average occupancy multiplied by the number rooms (600) and multiplied by the number of days in the year (365)) to which were added the other departmental revenues (food and beverage, business centre, laundry, income from internet and leisure activities). This gives the Gross Revenue for the calculation of the Base Management Fees.

206. [The expert] then calculated the Base Management Fees by applying the fixed percentage (3%) as agreed by [Claimant] and [Respondent] in the HMA to the Gross Revenue.

207. The Incentive Fees are based on the Gross Operating Profits. In order to arrive at those, the expert has deducted from the Gross Revenue the cost of sales, payroll, the other direct expenses such as laundry costs and other undistributed costs such as administration, security, marketing and the Base Management Fee. After these deductions, one has the Gross Operating Profit on the basis of which the Incentive Management Fees are calculated.

208. The expert has performed the calculation for each of the ten years of the HMA and on this basis has reached the following amounts of total anticipated fees:

- for the January 2006 assessment: [amount];

- for the March 2007 assessment: [amount];

- the March 2011 assessment: [amount].

209. At the request of Respondent's Counsel, [the expert] produced Hearing Exhibit 1 using figures from his 2006 assessment. The Exhibit demonstrates that Respondent would have earned net operating profits of [amount] over a ten year period.

210. Upon the invitation of the Arbitral Tribunal, Claimant's expert has discounted the above amounts at three different rates: 8%, 9% and 10%. Following the Tribunal's remark that it was difficult to consider, as the expert had done for his calculation as detailed in paragraph 208, that the two hotels could have opened on 1 January 2008, taking into consideration that as of January 2007, the Parties had not yet agreed on a final design, the expert has also provided to the Tribunal an alternative calculation based on 1 January 2009 as an alternative date for the opening of the two hotels. He has also discounted the amounts according to three scenarios, taking into consideration a discount rate of respectively 8%, 9% and 10%. These calculations have been integrated in Hearing Exhibit 2, which is reproduced below.

……..

211. Annex B applies the same discount rates of 8, 9 and 10% to [Claimant]'s own assessment figures as of March 2007 of the management fees which it would have earned, based on the terms of the HMA and the feasibility studies. The total loss of profit applying a discount rate of 10% to the total management fees of [amount] gives a net present value for 2012 of …

212. Claimant also points out that as part of the disclosure exercise, [Respondent] disclosed [an] assessment [by P] dated June 2007 which it commissioned for [another hotel]. [This] report assesses the feasibility of a hotel and apartments development on [the plots].

213. According to Claimant, the level of agreement between [P]'s assessment and [the expert]'s report is striking:

[P]'s average occupancy of five star hotels in 2005 and 2006 was 90% while [the expert]'s weighted average was 87% for 2005 and 80% for 2006;

[P]'s average occupancy of four star hotels for 2004 to 2006 was between 80-90%. This supports [the expert]'s position that the four-five star planned … Hotel would command equally as high occupancy as the five star … Hotel;

[P] notes that achieved average five star room rates had evolved from … in 2003 to … in 2006 while [the expert]'s ADR was [very similar];

[P] also notes that four and five star hotels achieve the highest occupancy, 89% and 85% respectively, and that a constraint on five star supply had resulted in an overspill to four star hotels which had enjoyed a compound annual growth of 20%. This is in line with [the expert]'s position that the four-five star planned … Hotel would command equally as high occupancy as the five star … Hotel.

214. Claimant further points out that the [P]'s assessment also states that hotels [in the resort] could be equated with themed five star … upper upscale hotels and are anticipated to enjoy similar premiums and thereby achieve a higher than market average room rate and occupancy levels. According to [P], the premium could be as much as 80% over the five star category. Claimant emphasizes that [the expert] adopted a more conservative approach by excluding such themed five-star … Hotels from his comparison set.

215. According to Claimant, it results from the above that if [P] had been asked to undertake an assessment of the [Claimant's] hotel projects at the time it was tasked with producing the [P] report, it would have assessed higher Gross Revenues and average occupancies and therefore higher management fees than either [the expert] or [Claimant] itself proposed. Indeed, the 20% discount applied by [the expert] in his assessment would not have been applied by [P].

216. According to Claimant, [Respondent's expert]'s evidence is totally unreliable. Respondent's expert has indeed not provided his own calculation of the amounts due to Claimant. He has limited himself to a number of observations that can be summarized as follows:

- there is no evidence that the hotels would have generated revenues or profits and therefore, it is impossible to determine an amount of fees that would have been earned by Claimant. Claimant's calculations are therefore totally speculative;

- applying a discount rate of 8 to 10% is not reasonable. Given the volatility of the [local] market, the discount rate should be in a range of 12 to 14%.

217. Claimant also emphasizes that [Respondent's expert] has offered no supporting evidence for his negative comments on [Claimant]'s, [the expert]'s, [the consultancy firm]'s and [P]'s figures and assessments; that his assertion that there was a 75% difference between rates achievable by five star and four star hotels was not based on his expertise or market analysis and was simply preposterous.

218. According to Respondent, Claimant's expert's assessment of damages is flawed for a number of reasons:

- his assumption that the hotels could open on 1 January 2008 is unrealistic;

- he treats the two hotels as one project, even though [one of them] is of a lower standard than the [other];

- when using the comparable data from [the consultancy firm], he applied a discount of 20% to the entire 10 year period, even though he acknowledged that this rate would have probably changed as new hotels came into the market;

- his comparable hotels consist of nine hotels, of different standards, locations and offering of the hotels to be built;

- he has overlooked data from Respondent itself or has not given it sufficient weight;

- since the Project was aimed at German and Austrian tourists, it would be particularly vulnerable to economic crisis currently unfolding in Europe;

- he took the third year as the stabilized year but provided no evidence to support this judgment and the evidence before the Tribunal does not support it. The record contains a table of average occupancy rates for nine hotels (all of which have been opened for more than three years for the period 2003-2005 and the rates clearly fluctuate);

- he predicts that the rates would have increased by 6% between 2008 and 2009 even though it is known that rates decreased by 27%.

219. Respondent further submits that [the expert]'s analysis lacks transparency and contains numerous arbitrary assessments. When challenged on why he had chosen to deduct 5% from the rates of comparable hotels, he conceded that "there is no science behind that. It was just a deduction that I felt was appropriate" (Transcript …). The same applied to the 20% discount. Although Claimant's expert claimed it was based on previous figures he had seen, none were provided. More fundamentally, the main problem with [the expert]'s analysis is that at almost every step, he is compelled to rely on assumptions and speculations: with respect to the opening date, the data he uses for comparable hotels, the weighted average occupancy, the weighted ADR, etc.

b) The Arbitral Tribunal's decision

220. Claimant is entitled to its lost profits according to the HMA and to the amount which remains unpaid under the TSA, amounting to … (see above, no. 99). Indeed, like the HMA, the TSA was wrongfully terminated. Claimant is therefore entitled to the unpaid part of the contractual fee it would have received, had the TSA not been terminated

221. The Arbitral Tribunal considers that Claimant's calculation of the lost profits according to the HMA is based on sound principles and well researched.

222. Claimant has based its calculation of the lost profits on the duration of the HMA, i.e., 10 years as of the opening of the hotels, which has finally been fixed at 1 January 2009, an assumption that, on the basis of the evidence before it, the Arbitral Tribunal judges reasonable. The calculation is further based on the fee scale foreseen in the HMA which provides for two variables, the Basic Management Fee and the Incentive Fee.

223. In order to calculate the Gross Revenue and/or the Gross Operating Profit, Claimant has based its analysis on the room revenue, that is the average daily rate multiplied by the average occupancy multiplied by 600 rooms and multiplied by the number of days (365), to which it has added the other departmental revenues. This was indeed the right methodology to follow.

224. The Tribunal also considers that the single hotel assumption, i.e., that both proposed hotels … are to be treated as a single project, is sound. It is true that both hotels would not have been equal. [One] was planned to be a five star property and the [other] a four-five star property according to [the local] Hotel Classification. Accordingly, it was correct to conclude that the Project could be said to be a five star hotel for 300 rooms … and a four-five star hotel for the other 300 rooms ... However, running the two hotels on the same plots (i.e., at the same location) and using the same facilities produces economies of scale and synergy effects. The single hotel assumption is also in line with the Parties' will. The HMA treats both hotels as a single project (in particular in relation to GOP and Gross Revenue). It was therefore reasonable to treat both hotels as a single project as long as the differences in relation to the two hotels were sufficiently accounted for in the ADR and the Average Occupancy Rate.

225. The adjustment factor of 5% to the Average Daily Rate for all assessment periods has been judged much too low by Respondent's expert. [Respondent's expert] has suggested a deduction of 75%. This last figure appears rather speculative. The Tribunal notes that the deduction of 5% from the ADR figures amounts to a 10% deduction for [one of the hotels] (Transcript …). Whether this percentage is sufficient or not and whether it should be increased, is difficult to determine. The Tribunal considers in any case that it is not unreasonable.

226. Another issue on which the two experts disagree is at what point in time the hotel stabilizes its operating performance. The concept of stabilized year of trading means that when a hotel first opens, it does not run during the first years at its market peak performance. Instead, it takes some time to attain this level. It is for this reason that deductions from the annual average occupancy rate have to be made for the first years. This assumption can hardly be contested. It is also reflected in the HMA. According to clause 9.1.1(4), "OWNER shall have the right to terminate this Agreement in the event the GOP for 2 consecutive years is less than …" but only "for those two years starting from the fourth full fiscal year onwards". This demonstrates that the Parties agreed that stabilized performance of the hotel will only be achieved after a certain period of time which, according to [Claimant's expert], will depend upon, amongst other things, the hotel's location, its pre­marketing activities, its facilities, its size and its brand perception (second report …).

227. Claimant's expert has based his calculation on the assumption that the stabilized year of trading was the third year of the hotel (second expert report …). Respondent has submitted that there was no evidence for that but has not made another proposal. If one takes into consideration clause 9.1. 1(4) of the HMA, it implies that performance is stabilized at the latest starting from the fourth full fiscal year onwards. This is also the conclusion found in the [P] report ... It is possible therefore that the Claimant's expert conclusion is somehow optimistic.

228. As to the question whether the calculations are well researched, the Tribunal has examined whether the data used by the experts was recent and sufficiently accurate (well researched as to time) and was suited to draw the necessary conclusions (well researched as to content). The Tribunal has reached the conclusion that it was the case.

229. As we have noted, Claimant has carried out its analysis using market data available at three points of time: January 2006, the date when the Parties entered into the HMA; March 2007, the date Respondent terminated the contracts; and March 2011, the most up-to-date assessment that Claimant's expert could undertake. Notwithstanding the fact that the damage must be calculated at the time of the breach of the contract, i.e., March 2007, this does not mean that information that has been available only after that point of time is useless. The March 2011 perspective is useful to assess how the assets of Claimant would have evolved without the breach after March 2007. The other assessments, and the Feasibility Study containing the financial projections agreed upon by the Parties at the time of the initial negotiations, are also useful to detect trends in the market and verify the 2011 perspective.

230. With respect to the reference material, [Claimant's expert] has used for the January 2006 and March 2007 assessments, weighted average figures provided by the relevant competitive set of hotels and for the March 2011 scenario the average daily rate and occupancy figures from [the consultancy firm's] published data. The use of the latter is sound. [The consultancy firm] are experts in the field. Their report contains data for AOR and ADR from 2008 to March 2011. … Since the reference data included in [their] Report contain data relating to "upper upscale" hotels that should not be included, [Claimant's expert] had deducted 20% from the ADR and as we have seen above, an additional 5% taking into consideration that [one of the hotels] is a four-five star hotel.

231. The use of the [hotels chosen for comparison] as a reference is reasonable. Indeed, at the time of signing the HMA, there were no hotels [in the resort]. The [hotels used for the comparison] were definitely the only appropriate reference in terms of location …, size and market positioning.

232. Respondent has criticized the 20% deduction derived by [Claimant's expert], considering that it was not based on a calculation but was rather an estimation. Again, this percentage does not appear unreasonable, even if it is difficult to determine whether it should eventually be increased. A calculation per hotel was only possible if one would have at its disposal the complete AOR and ADR data for all individual … hotels. This data is not available (Transcript …). Consequently, [Claimant's expert] could only make an estimation based upon his personal experience.

233. The Tribunal also notes in this respect that Respondent has not proposed the use of any other figure. Moreover, when comparing the 20% discounted AOR/ADR for 2010 with the estimates in the 2007 assessments for the year 2010, the figures do not appear unreasonable. The data demonstrates a significantly lower value for the ADR … but this can be attributed to the economic downturn that hit [the area] in 2008/2009. The [P] report's conclusion that "upper upscale" hotels enjoy up to a 75% premium on five star hotels is purely speculative and impossible to verify. Indeed, the figure contained in the [consultancy firm's] report is a weighted one for all [reference] hotels. One has also to take into consideration the fact, pointed out by [Claimant's expert], that the location of the Project was very exclusive, that the [area] was undoubtedly at the top end of [the local] Hotels location spectrum (Transcript …).

234. Respondent has made further objections to Claimant's calculations. In the first place, it has mentioned that the calculations did not take into account the downturn in 2008/2009. This is not correct. In the 2011 perspective, the downturn is taken into consideration since it is reflected in the [consultancy firm's] data. On the other hand, the 2006 and 2007 assessments could not take into consideration a downtown in 2009 since that information could not have been available in 2006 or 2007.

235. Respondent's remark that Claimant's expert predicts that the rates would have increased by 6% between 2008 and 2009 even though they have decreased by 27%, is irrelevant from the moment the opening date used for the calculation has been changed from 1 January 2008 to 1 January 2009. For the ADR, the expert has also explained that the sharp drop was mainly due to the "upper upscale'' hotels being excluded from the reference material.

236. Respondent's criticism that [Claimant's expert] did not take into account [the hotels'] historical trading figures for 2008 to 2010 is also incorrect. These figures were taken into consideration in the 2011 assessment. They could not be included in the 2006 and 2007 assessments since they were still future events.

237. Finally, the two experts make quite different evaluations of the discount rate to be applied. [Claimant's expert] suggests a discount rate between 8 and 10% and [Respondent's expert] between 12 and 14%.

238. [Respondent's expert] bases his figure by reference to what the minimum return on investment would have to be for someone to invest in the hotel project rather than buying bonds with an interest rate of 4.5 / 5 %. According to him, the return of investment would have to be at a minimum of 13.8%. This is not however the problem that is discussed. No investment decision is at stake here. What is required is the discount rate to apply to account for an accelerated receipt of money that would otherwise have been received in a time frame of ten years.

239. The calculation of the discount rate has to take into account the following factors:

- the inflation rate which Claimant's expert has estimated to be 5% and

- a premium that reflects the fact that the money paid today is not submitted to the volatility of the [local] hotel market.

240. The Tribunal considers that the discount rate should be fixed at 10% (which is also the rate used in the [P] report).

241. On the basis of the above, the Tribunal considers that [Claimant's expert]'s figures are the most reliable. The Tribunal therefore decides that the amounts to be taken into consideration as a basis for the calculation of Claimant's damages are those as of March 2007, the date of termination of the contracts. They result in an amount of management fees - applying a discount rate of 10% - of [amount].

242. As we have seen above, the Tribunal has a broad discretionary power to fix the amount of the compensation payable to Claimant. The Tribunal notes that, as pointed out by Respondent and his expert, [Claimant's expert]'s calculations contain a certain number of uncertainties, in particular with respect to the stabilized year of trading, the adjustments factors of 5% and 20%, if and how many new hotels will enter the relevant market and, thus, affect it and if and to what extent the economic crisis in Europe may affect average occupancy rates for the hotels in question. The Tribunal is of the view that these uncertainties must be taken into account when fixing the amount of the compensation in order to rule out any danger of enrichment by the Claimant. The Tribunal therefore finds appropriate to order a deduction of risk, the amount of which is to be estimated by the Tribunal using its broad discretionary powers. In view of the uncertainties mentioned above, the Tribunal decides that the above amount of [amount] should be reduced by 25%. Respondent is therefore required to pay Claimant an amount of [amount].

243. Claimant also requests an award of interest on the above sums from the date of the Award at such rate as may be considered appropriate by the Arbitral Tribunal. Respondent has not expressed any opinion on this. According to [State X] law, the maximum interest is 12% .... The rate which is actually usually applied in most court cases is 5%. Respondent is therefore condemned to pay interest on the amount of [amount] at the simple rate of 5% from the date of the award until full payment.

VIII. The costs

244. Pursuant to Article 31.1 of the Rules: "The costs of the arbitration shall include the fees and expenses of the arbitrators and the ICC administrative expenses fixed by the Court, in accordance with the scale in force at the time of the commencement of the arbitral proceedings, as well as the fees and expenses of any experts appointed by the Arbitral Tribunal and the reasonable legal and other costs incurred by the parties for the arbitration."

245. Article 31.3 provides that "The final Award shall fix the costs of the arbitration and decide which of the parties shall bear them or in what proportion they shall be borne by the parties."

246. The full advance on costs … has been paid by Claimant.

247. Claimant submitted its Statement on Costs … and [later], at the request of the Tribunal, a revised calculation excluding the advance on costs paid to the ICC. Its Statement on Costs amounts to [amount]. Claimant has also requested payment of mediation costs in the amount of [amount]. Respondent submitted its Statement on Costs ... It amounts to [amount].

248. The Tribunal has determined that Respondent had wrongfully terminated the HMA and the TSA. Although Claimant has not prevailed in totality, the Tribunal considers, given the circumstances of the termination, as explained above, that Respondent should bear all the costs of the arbitration, that is, the fees and expenses of the arbitrators and the ICC's administrative fees fixed by the ICC Court … and the fees and expenses incurred by Claimant for its defence … The Tribunal finds these costs reasonable. The Tribunal considers that the costs claimed by Claimant in relation to the ICC mediation that took place in October 2008, prior to the initiation of this arbitration, cannot be recovered in this procedure.

For these reasons, The Arbitral Tribunal,

Orders Respondent to pay Claimant [amount] in respect of losses suffered arising from the HMA and [amount] in respect of the unpaid lump-sum fees due pursuant to the terms of the TSA;

Orders Respondent to pay interest on the above sums from the date of the Award at the simple rate of 5 per cent per annum until full payment;

Orders Respondent to pay Claimant the costs of the arbitration in the amounts of …;

Dismisses all other claims.'

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1
The Parties subsequently confirmed that Article 11.9.5 did not apply in this matter as no accounting or financial matters were in dispute. …

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2
Editor's note: references are to the 1998 ICC Rules of Arbitration.

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