NLIU ARBITRATION POOL SELECTIONS, 2019 | ANANYAA MAZUMDAR, SHOURYA BARI

I. INTRODUCTION: THE PARTIES AND THEIR AGREEMENT

1. “Ivory Costa Brewbakes Ltd.” (ICB) is the leading fair trade, organic coffee company

in the Republic of Cowlandia. It markets its own products, which largely comprise of

varieties of coffee, and some baked edibles. They are sold at upscale cafes popularly

called Ivory BrewCafes, and are priced higher at the margins than competing products

due to the ICB’s aggressive campaigns that have made the brand synonymous

with ethically produced consumer products.

2. “Torchwood & Co.” (TC) is a logistics and supply chain management company,

registered under the Companies Act of Exitland. ICB and TC have had a long standing

contractual arrangement. In addition to being a commercially driven contract, the parties

have enjoyed a good faith fiduciary relationship over the years. Under the contractual

arrangement, ICB has outsourced to TC, the day to day management and oversight of its

plantations and production centres (where ICB’s ingredients and products are produced,

packaged, and shipped). TC has been responsible for, and borne the risks of, supplying

the labour as well as physical capital for running the said plantations and production

centres.

3. In this conspectus, all employment contracts, whether qua blue collar or white collar

workers, are entered into between individual employees and TC. The policies governing

employees at the plantation and production centres are drafted by TC and negotiated (to

a limited extent and to varying degrees, depending on the bargaining power of individual

employees) between TC and the employees. In terms of other policy decisions such as

choice of locations of manufacturing and packaging, and shipping centres as well as

 NLIU ARBITRATION POOL SELECTIONS, 2019 | ANANYAA MAZUMDAR, SHOURYA BARI

identifying appropriate plantations to source ingredients from, TC has had significant

independence. They are best placed to gauge the cost and time efficiency, being in control

of the end to end supply and production process.

4. Pertinently TC does not have the agency to bind ICB to contractual obligations that it

assumes with further upstream suppliers; this is to say that all risks arising from TC’s

contracts with upstream contractors and suppliers are borne by TC. For instance, if TC

chooses to further outsource shipping to a transport company as it usually does (in the

instant case, Hotwheels Truckers Ltd.), and the said transport company misses a delivery

deadline consequent to which ICB suffers, TC is then liable to compensate ICB for the

same in terms of the contract between ICB and TC. The extent of liability and

apportionment of risks is strictly limited to and governed by the contract between TC and

ICB. No risks other than those expressly assumed by and consented to by TC can be

imputed to TC: in other words, the risk apportionment between TC and ICB is determined

by their contract exhaustively.

5. However, all policies governing both the production process and employment thereby

are expressly subject to the terms of TC’s obligations, contractual and fiduciary, to

ICB. This necessarily implies that none of TC’s policies can be in violation of and/or

contrary to its representations to ICB.

6. On the other hand, TC has no say, in the representations ICB can or cannot make to other

entities – whether downstream contractors who assist in running their cafes or their

customers. TC has no say or control over the narrative, that ICB may choose in terms of

branding the production process. TC assumes no risk arising from such and other
 NLIU ARBITRATION POOL SELECTIONS, 2019 | ANANYAA MAZUMDAR, SHOURYA BARI

representations ICB may make to customers and downstream contractors which it has

independent commercial dealings with.

II. THE DISPUTE

7. On 6th March, 2018, “Martin Daily”, the country’s leading news blog and morning daily,

broke a sensational story cataloguing the deplorable conditions of workers in coffee

plantations and manufacturing centres from where ICB sourced its ingredients and

products.

8. A consumer and labour rights organization namely People’s Front against Capitalism (‘P-

FAC’), claiming to represent the interest of customers defrauded by ICB filed a writ

petition before the Supreme Court of Cowlandia, seeking directives under Article 142 of

the Constitution of Cowlandia.

9. The Court found that ICB had vehemently and consistently represented to its consumers

for a substantially long period of time about its fair trade practices. The Court found

justification for the premium charged by ICB compared to its competitors on account of

their claim to being a fair trade brand, and there was consideration in lieu of the

representation.

10. Accordingly, the Court took cognizance of the Story published by Martin Daily on 6 th

March, 2018. Subsequently, the Court set up its own Inquiry Committee, headed by the

Chairman of the Food Council of Cowlandia, Prof. Bautam Ghatia.

11. The Committee found that women in districts where TC ran its coffee plantations suffered

from complications with their reproductive health after taking recourse to medical and

surgical interventions to stop their menstrual cycles. TC, in these districts ran incentive
 NLIU ARBITRATION POOL SELECTIONS, 2019 | ANANYAA MAZUMDAR, SHOURYA BARI

programs whereby women working in coffee plantations were paid lumpsum bonuses for

opting to get Intra-Uterine Contraceptive Devices fitted and an even higher bonus for

getting hysterectomies. Similarly, monthly bonuses were given

for taking hormone pills that suppress/eliminate menses. It was evident that TC

aggressively pursued programs to virtually coerce women in these districts to opt for

reproductive intervention. Women who asked for maternity leaves were either discharged

from service or faced pay-cuts; even leaves on account of menses or other health

problems, that made hard manual labour difficult to perform, were met with wage cuts

and other penalties.

12. What compounded the problem was lack of alternative employment options in the

districts. The Committee found that TC habitually changed the land cultivation patterns

in these districts. Land owners were paid higher premiums at the margins for growing

coffee than for any other crop. Further, TC bought large swaths of forested lands and

leased them to local inhabitants on the pre-condition that they would use the land to

cultivate coffee. Since most of these local inhabitants were indigenous communities, that

had possessed the lands for centuries, albeit without de jure property rights, and feared

displacement, they took to the coffee cultivation. They cumulative effect of the financial

incentive scheme for landowners and forced deforestation program was twofold: firstly,

these districts had no other source of employment; secondly, the uniform and unrelenting

land use pattern and deforestation had palpably deteriorated the ecological balance and

significantly depleted the bio-diversity in the region.

 NLIU ARBITRATION POOL SELECTIONS, 2019 | ANANYAA MAZUMDAR, SHOURYA BARI

13. The Committee also inspected and audited the production centres where manufacturing,

packaging, and shipping of ICB’s products took place, finding two grave circumstances:

gendered wage discrimination, and unfair termination of service of employees of a

minority religion. The remuneration paid to women, transgender, and inter-sex

employees was found to be far lower, than what was paid to men – across pay scales and

positions. So, for the same work and same designation male employees received

significantly higher remuneration. Furthermore, in 2016 TC compelled all employees to

disclose their religious affiliation; subsequently, the company served termination notices

without any explanation, en-masse, to employees who belonged to a certain religious

minority.

14. The Court considered the evidence seriously, and held that it shocked the conscience of

the Court and the Nation. It found that ICB has defrauded the innocent citizens of

Cowlandia over a decade. ICB’s products had become symbolic with trustworthiness of

a commercial entity engaged in the manufacture and sale of consumer products.

Violations committed by ICB have shaken the faith of consumers in trade practices of

mighty corporations.

15. In the interest of justice, and good conscience the Court deemed it proper to not only

direct ICB to rectify the wrongful and unfair trade practices immediately, but also

sanctioned a record amount of damages to the tune of 3 million US Dollars. This amount

was to be disbursed through a specially constituted fund to former and current employees

of TC/ICB who had been affected by the impugned practices. A certain amount was also
 NLIU ARBITRATION POOL SELECTIONS, 2019 | ANANYAA MAZUMDAR, SHOURYA BARI

asked to be deposited with the Ministry of Environment & Forests as well as the National

Consumer Disputes Redressal Forum. The judgment was rendered on 16th October, 2018.

III. RELEVANT CONTRACTUAL PROVISIONS

Clause 6: Ethical Business Practices

(1) TC shall perform its obligations under this Agreement in accordance with the

principles of fairness and good conscience, including without limitation those relating

to discrimination against employees, protection of human rights and environmental

responsibility.

(2) Notwithstanding anything contained in Clause 6(1) above, the works

undertaken to be performed under the instant Agreement shall be performed by TC to

the maximum extent possible considering the commercial viability of the business.

Clause 24: Dispute Resolution

(1) The Parties agree to settle any and every dispute or difference arising out of

this contract, through mediation first. The parties agree to mediate in accordance with

principles of the Oakie Faith. The principles to be relied upon for this purpose are

enumerated in Annexure I to the Contract.

(2) If the Parties are unable to settle their dispute through mediation, they shall

refer their dispute to arbitration. The arbitration shall be conducted in Cowlandia,

before Mr. Sali Sorryman, retired judge of the Supreme Court of Cowlandia.
 NLIU ARBITRATION POOL SELECTIONS, 2019 | ANANYAA MAZUMDAR, SHOURYA BARI

(3) If either party is in disagreement with the decision rendered by the single

arbitrator, they will have the right to appeal to a second arbitration in Lostdon,

Exitland in accordance with the Rules of Arbitration & Conciliation of the Lostdon

Court of International Arbitration (LCIA). The result of this second arbitration shall be

binding on both the parties.

Annexure I

The Oakie Faith is an indigenous method of dispute settlement prevalent since the

seventeenth century in the state of Old Cork in Cowlandia.

The following are the cardinal principles of dispute settlement in accordance with the

Oakie Faith:

• Ideally, parties must not feel the compulsion of a timeline while they set out to

mediate their disputes. Disputes are temporary, but relationships are permanent

and one can achieve anything if they are not in a hurry.

• However, one should never take the other party's patience for granted and

disputes are ideally expected to be settled in six months.

• The Parties should represent themselves in the mediation. Specifically, they

should not avail any legal services in pursuit of their dispute settlement.

• The Parties must always maintain good faith in their mediation at all times.

• The Parties are expected to take responsibility of their roles in the creation of the

dispute.
 NLIU ARBITRATION POOL SELECTIONS, 2019 | ANANYAA MAZUMDAR, SHOURYA BARI

• The Party who volunteers to take such responsibility should be provided

concession, financial or otherwise in recognition of their honesty and in the

interest of timely settlement of disputes.

• The Parties are expected to mediate 3 days a week until they are able to find

common ground.

IV. ARBITRATION PROCEEDINGS

16. On 18th October, 2018 ICB addressed an email to TC stating its intention to invoke the

dispute resolution clause. In light of the judgment of the Supreme Court of Cowlandia

rendered on 16.10.2018, consequent to which ICB had to pay 3 million US Dollars,

ICB alleged several contractual violations on TC’s part, specifically qua Clause 6 of the

Contract. ICB attributed the violations stipulated in the judgment to TC.

17. In response, through an email dated 20th October, 2018 TC rejected all the contentions

raised by ICB in its email dated 18th October, 2018. TC claimed that since it had no

privity of contract with the customers of ICB, and as such had no nexus with the

representations regarding ICB’s fair trade practices, and it could not be held

accountable for the same.

18. Pursuant to Clause 24 (1), the Parties met at Hotel Pointless Luxury on 23rd October,

2018 to mediate their dispute. Since neither party was willing to make any compromises,

the hostility had escalated to an extent where talks broke down

irreparably.

19. The next day, i.e 24th October, 2018, ICB served a notice invoking arbitration to TC as

also attaching a copy of communication sent to Mr. Sali Sorryman appointing him as the
 NLIU ARBITRATION POOL SELECTIONS, 2019 | ANANYAA MAZUMDAR, SHOURYA BARI

arbitrator for the dispute raised in the said notice. TC replied to the said notice contesting

the jurisdiction of Mr. Sorryman, and the admissibility of ICB’s claim on the ground that

the mandatory pre-arbitral requirement of mediating the party’s dispute was

not satisfied.

20. After hearing both parties in the arbitration proceedings on the preliminary issue of the

tribunal’s jurisdiction, the arbitral tribunal of Mr. Sorryman relied on the principle of

Kompetenz-Kompetenz to find that the tribunal did not in fact have jurisdiction. Mr.

Sorryman held that the requirement of the multi-tiered arbitration clause between the

parties was mandatory and not merely directive; and as such the threshold of compliance

imposed by the clause itself being sufficiently high, a cursory attempt at mediation failed

to meet the said threshold. This award was rendered on 30th November, 2018.

21. Subsequently, ICB filed an appeal before the Lostdon Court of International Arbitration

on 5th December, 2018 impugning the award rendered by Mr. Sorryman on 30th

November, 2018. Additionally, ICB as the Appellant - Claimant before the LCIA, sought

5 million US Dollars in damages on account of losses arising from the judgment rendered

by the Supreme Court of Cowlandia on 16th October, 2018. Such damages were sought

alleging multiple contractual breaches on TC’s part, consequent to which ICB had to bear

the financial burden arising from the Supreme Court judgment, along with the loss of

goodwill in its aftermath.

22. TC contested the Claims made by ICB before the LCIA on the following grounds:

(i) The Arbitration proceedings were wholly without jurisdiction because:

 NLIU ARBITRATION POOL SELECTIONS, 2019 | ANANYAA MAZUMDAR, SHOURYA BARI

(a) Firstly, the arbitration agreement was wholly unenforceable since a challenge

of an award of an arbitral tribunal ought to only be subject to scrutiny before a

court.

(b) Secondly, assuming without conceding, even if the arbitration agreement was

held to be enforceable, the pre-arbitral mediation being a mandatory

requirement, wasn’t complied with and the invocation of arbitration being

pre-mature, the arbitral tribunal could not have exercised its jurisdiction.

(ii) The Ethical Business Practices Clause was ex-facie unenforceable for want of

certainty in terms of performance obligations arising therefrom.

(iii) The damages imposed on ICB by the Supreme Court of Cowlandia were not a

transferable liability, since TC was not a party either to the proceedings before the

Supreme Court or in respect of any contractual arrangement between ICB and its

customers and/or downstream contractors.

V. CLARIFICATORY APPENDIX

23. The laws of Cowlandia are pari-materia to the laws of India. Lostdon Court of

International Arbitration Rules are pari-materia to the Rules of London Court of

International Arbitration. Laws of Exitland are pari-materia to the laws of United

Kingdom.

24. The validity of the decision of the Supreme Court of India in Centrotrade Minerals and

Metals Inc. v. Hindustan Copper Limited [(2017) 2 SCC 228] has been questioned before

a 5 judge bench of the Supreme Court. Although, the verdict is yet to be pronounced, the
 NLIU ARBITRATION POOL SELECTIONS, 2019 | ANANYAA MAZUMDAR, SHOURYA BARI

5 judge bench has stayed the operation of the Centrotrade (Supra) decision vide order

dated 1st December, 2018.

25. The Parties are presently before the Lostdon Court of Arbitration. Final hearing on Case

No. 20131155 || Ivory Costa Brewbakes Ltd. v. Torchwood & Co. || is scheduled

accordingly.