Data

Date:
14-01-2010
Country:
International Centre for Settlement of Investment Disputes (ICSID)
Number:
No ARB/06/18; IIC 424 (2010)
Court:
International Centre for Settlement of Investment Disputes (ICSID)
Parties:
Joseph Charles Lemire v Ukraine

Keywords

STATE CONTRACTS – SETTLEMENT AGREEMENT - BETWEEN A UNITED STATES NATIONAL AND THE UKRAINIAN GOVERNMENT - REFERRING TO ARTICLE 54 OF THE ICSID ADDITIONAL FACILITY ARBITRATION RULES RECORDED AS TO THE APPLICABLE LAW - APPLICATION BY ARBITRAL TRIBUNAL OF THE UNIDROIT PRINCIPLES AS "A PRIVATE CODIFICATION OF CIVIL LAW, APPROVED BY AN INTERGOVERNMENTAL INSTITUTION WHICH ARE NEITHER TREATY, NOR COMPILATION OF USAGES, NOR STANDARD TERMS OF CONTRACT BUT IN FACT ARE A MANIFESTATION OF TRANSNATIONAL LAW" - REFERENCE TO UNIDROIT PRINCIPLES TO INTERPRET APPLICABLE LAW (INTERNATIONAL LAW)

CONTRACT INTERPRETATION - ACCORDING TO COMMON INTENTION OF PARTIES - RELEVANCE OF PRELIMINARY NEGOTIATIONS - REFERENCE TO ARTICLES 4.1 AND 4.3 UNIDROIT PRINCIPLES

MERGER CLAUSE - REFERENCE TO ARTICLE 2.1.17 UNIDROIT PRINCIPLES

INCONSISTENT BEHAVIOUR - REFERENCE TO ARTICLE 1.8 UNIDROIT PRINCIPLES

DUTY TO USE BEST EFFORTS - REFERENCE TO ARTICLE 5.1.4 UNIDROIT PRINCIPLES

Abstract

Plaintiff, a national of the United States, and Defendant, the Government of the Ukraine, entered into an investment agreement concerning the establishment by Plaintiff of broadcasting stations in the Ukraine. When a dispute arose as to the proper performance of the agreement, the parties submitted their dispute to the International Centre for the Settlement of Disputes (ICSID). After commencement of the arbitral proceedings the parties entered into negotiations with a view to settling their dispute, which they ultimately succeeded in doing, and requested the Arbitral Tribunal to record the settlement agreement ("the Agreement") in the form of an award (see UNILEX, ICSID Award of 20 March 2000). According to Plaintiff, Defendant had breached a number of its obligations under the Agreement, and consequently Plaintiff commenced arbitral proceedings.

The Agreement provided that the applicable law was to be determined in accordance with Article 54 of the ICSID Additional Facility Arbitration Rules which states that the Arbitral Tribunal shall apply “(a) the law determined by the conflict of laws rules which it considers applicable and (b) such rules of international law as the Tribunal considers applicable”.

The Arbitral Tribunal found that such a choice of law clause amounted to an implied negative choice of any municipal legal system by the parties and concluded that the most appropriate approach was to submit the settlement agreement to the rules of international law, and within these, to have particular regard to the UNIDROIT Principles. In support of its decision the Arbitral Tribunal pointed out that when negotiating the Agreement, the parties had evidently given thought to the issue of the applicable law, but were apparently unable to reach an agreement to apply either Ukrainian or US law. Instead they incorporated extensive parts of the UNIDROIT Principles into the Agreement, and included a clause authorising the Tribunal either to select a municipal legal system or to apply the rules of law it considered appropriate. Admittedly, the UNIDROIT Principles - a private codification of civil law, approved by an intergovernmental institution — are neither treaty, nor compilation of usages, nor standard terms of contract but in fact are a manifestation of transnational law, as confirmed in the Preamble which states that the Principles “shall be applied when the parties have agreed that their contract be governed by them” and that they “may be applied when the parties have agreed that their contract be governed by ‘general principles of law’, the ‘lex mercatoria’ or the like”.

As to the merits, the Arbitral Tribunal first of all had to decide the preliminary question of how the Agreement was to be interpreted. Claimant argued that in addition to the obligations expressly indicated in the Agreement there might be other obligations which, though not stated in the Agreement, had been agreed by the parties during the negotiations leading to the Agreement, and in support of his argument referred to the clauses in the Agreement that – in conformity with Articles 4.1 and 4.3 of the UNIDROIT Principles – provided that the Agreement had to be interpreted according to the common intention of the parties and that to this effect regard was to be had, among others, to the preliminary negotiations. Respondent objected that the Agreement also contained a clause stating – in conformity with Article 2.1.17 of the UNIDROIT Principles - that the Agreement “constitutes the entire agreement between the Parties on the subject matter hereof and supersedes all prior correspondence, negotiations and understandings between them with respect to the matters covered herein”. According to the Tribunal, these clauses, read together, required that expectations raised during the negotiations of the Agreement must be reflected in the text of the Agreement. The fact that an obligation had been discussed, or even orally agreed to during the negotiations, was not enough. Only if the obligation had been recorded in the Agreement, could its scope be construed in accordance with the expectations of the parties during the negotiations.

Moreover, the Arbitral Tribunal rejected Claimant’s argument according to which Respondent had failed to perform a number of its obligations under the Agreement, such as to carry out the examination of interferences within two weeks of the signature of the Agreement, and to make its best efforts to provide Claimant with the licences for radio frequencies. With respect to the first obligation the Tribunal recalled that examinations of possible interferences had already been carried out with positive results shortly before the execution of the Agreement, and that afterwards Claimant never requested further examinations thereby causing Respondent to believe that he considered the pre-Agreement examinations as sufficient. By not carrying out any further examination Respondent reasonably acted in reliance upon such understanding, thereby preventing Claimant subsequently to act inconsistently with respect to it by arguing that Respondent had failed to perform its obligation under the Agreement, and in support of its conclusion the Tribunal expressly referred to Article 1.8 of the UNIDROIT Principles. Yet the Tribunal also rejected the other argument of Claimant that by not providing him within a certain period of time with a certain number of radio frequencies Respondent had breached its obligation under the Agreement. In so doing it pointed out that to establish a violation of Respondent’s best efforts obligation it was not sufficient to prove that by the given date the radio frequency licences had not been granted, but Claimant should have produced evidence showing that Respondent had failed to make such efforts as a reasonable Government would have made in the same circumstances, and in support of this conclusion the Arbitral Tribunal expressly referred to Article 5.1.4 of the UNIDROIT Principles.

Fulltext

Date of Decision: 14 January 2010
Jurisdiction/Arbitral Institution/Court: International Centre for Settlement of Investment Disputes
Judges/Arbitrators: Professor Juan Fernández-Armesto (President); Mr Jan Paulsson (Claimant appointment); Dr Jürgen Voss (Respondent appointment)
Procedural Stage: Decision on Jurisdiction and Liability
OUP Reference: IIC 424 (2010)

Subject(s): International investment law
Keyword(s): Admissibility – Exhaustion of local remedies – Claims – Contract claims – Investment – Investment defined in treaties – Public procurement – Jurisdiction of arbitral tribunals – Consent to jurisdiction – Subject matter of the dispute (and jurisdiction) – Standards of treatment – Arbitrary (unreasonable) & discriminatory treatment standard – Fair and equitable treatment standard – Legitimate expectations – Treaties, interpretation – Remedies and costs – Damages

[…]

II. Basic Facts

33. This dispute was submitted to ICSID by Claimant against Respondent under (1) the Treaty between the United States of America and Ukraine Concerning the Encouragement and Reciprocal Protection of Investment, done in Kyiv on October 17, 1996 (the “BIT”) and (2) an agreement between Claimant and Respondent on the settlement of a dispute, dated March 20, 2000 (the “Settlement Agreement”), which was recorded as an award on agreed terms on September 18, 2000 (ICSID No. ARB (AF) 98/1 (the “2000 Award”).
34. Article VI of the BIT entitles any national of a State party to the BIT to submit to ICSID any dispute with the other State party to the BIT relating to either “an investment agreement between that Party and such national” or “an alleged breach of any right conferred or created by this Treaty with respect to an investment”.
35. On November 14, 1997, Claimant filed with ICSID a first arbitration request (the “First Arbitration”) against Respondent, with regard to the same investments that underlie the present arbitration. This First Arbitration eventually led to the Settlement Agreement, which was then recorded in the 2000 Award. Paragraph 31 of the Settlement Agreement provides for the resolution of all disputes arising from or in connection with the Agreement by ICSID Arbitration in accordance with the ICSID Additional Facility Arbitration Rules.

III. The Parties

36. Claimant, Mr. Joseph Charles Lemire, is a national of the United States of America residing at 91 Saksagansko St., Office 8,01032 Kiev, Ukraine. Claimant is a majority shareholder, through CJSC “Mirakom Ukraina” (“Mirakom”) of CJSC “Radiocompany Gala” (“Gala”), a closed joint stock company constituted in 1995 under the laws of Ukraine with its principal office located at the same address as Mr. Lemire’s residence. Gala is a music radio station in Ukraine currently licenced to broadcast on various frequencies in Ukraine.
37. Respondent is the State of Ukraine. With respect to the events giving rise to the present arbitration, Respondent has acted through its President, Prime Minister, Parliament, Ministry of Defence, the National Council for Television and Radio Broadcasting (the “National Council”), the Ukrainian State Centre of Radio Frequencies (the “State Centre”), the State Committee on Communications and Information Technology (the “State Committee”), all of which are organs for which Ukraine is responsible under international law.

[…]

VI. Alleged Breaches of the Settlement Agreement

103. In the Settlement Agreement of March 20, 2000, Respondent assumed the following obligations:
— Clause 13(a):
“By April 15, 2000 the Commission of experts, appointed by the Respondent, shall examine the quality of broadcasting within the radio frequencies band of FM 100–108. Based on the conclusions of the Commission, the Respondent will take necessary, reasonable among others, technical measures to remove the obstacles (if any) for radio broadcasting of Gala Radio on FM 100 in Kiev by June 1, 2000”.
— Clause 13(b):
“By May 15, 2000 the Respondent in person of the State Committee on Communications and Information Technology, agrees to use its best possible efforts to consider in a positive way the application of Gala Radio to provide it with the licences for radio frequencies (provided there are free frequencies bands) in the following cities:

[…]

The Claimant can apply for the radio channels in the above cities to the National Council for TV and Radio Broadcasting (hereinafter called “the National Council”) in a due course in accordance with the current legislation after the National Council has been fully personally formed under the existing law of Ukraine. The Respondent, within the limits of its powers, will assist for the positive consideration of this issue at the National Council.
The granting of licences for radio frequencies and broadcasting channels will be made in accordance with the requirements of Ukrainian legislation upon payment of the licence fees”.
104. Claimant alleges that Respondent has defaulted on both sets of obligations. Respondent’s position, on the contrary, is that it has fully complied with these obligations.
105. Before analysing the parties’ allegation, it is necessary to establish the law applicable to the Settlement Agreement (VI.1), and the criteria to be applied in its construction (VI.2).

VI.1. Applicable Law

106. Clause 30 of the Settlement Agreement provides that the applicable law shall be that determined by “Article 55 of the ICSID Additional Facility Arbitration Rules”. The relevant article in the Additional Facility Rules is in fact Article 54. The mistake is an obvious typographical error, and the Tribunal has no doubt that the common intent of the parties was to refer to Article 54. In accordance with this rule the Tribunal shall apply “(a) the law determined by the conflict of laws rules which it considers applicable and (b) such rules of international law as the Tribunal considers applicable”.
107. Should the Tribunal make use of this authorization to apply not only a municipal law, determined through conflict of laws rules, but also the “rules of international law … the Tribunal considers applicable”?
108. The Settlement Agreement contains an extensive chapter called “Principles of Interpretation and Implementation of the Agreement”, which includes Clauses 20 through 26. These Clauses were reproduced, with very light linguistic adjustments, from the 1994 UNIDROIT Principles.
109. It is impossible to place the UNIDROIT Principles — a private codification of civil law, approved by an intergovernmental institution — within the traditional sources of law. The UNIDROIT Principles are neither treaty, nor compilation of usages, nor standard terms of contract. They are in fact a manifestation of transnational law.
110. As the Preamble to the Principles states, they “shall be applied when the parties have agreed that their contract be governed by them” and they “may be applied when the parties have agreed that their contract be governed by ‘general principles of law’, the ‘lex mercatoria’ or the like”.
111. When negotiating the Settlement Agreement, the parties evidently gave thought to the issue of applicable law, and were apparently unable to reach an agreement to apply either Ukrainian or US law. In this situation, what the parties did was to incorporate extensive parts of the UNIDROIT Principles into their agreement, and to include a clause which authorises the Tribunal either to select a municipal legal system, or to apply the rules of law the Tribunal considers appropriate. Given the parties’ implied negative choice of any municipal legal system, the Tribunal finds that the most appropriate decision is to submit the Settlement Agreement to the rules of international law, and within these, to have particular regard to the UNIDROIT Principles.

VI.2. Interpretation

112 . The parties have discussed the principles of interpretation to be applied to the Settlement Agreement. This issue is extensively dealt with in Clauses 20 through 26 of the Agreement.
113. Claimant has emphasized Clauses 20 (“good faith and fair dealing in international business”), 22 (“common intent of the Parties “), 23 (especially reference to “preliminary negotiations”) and 26 (non-performance to include “improper performance or late performance”) as well as Articles 1.7 and 4.1 of the 1994 UNIDROIT Principles. Respondent has referred to Clause 27 of the Settlement Agreement, pursuant to which the Settlement Agreement “constitutes the entire agreement between the Parties on the subject matter hereof and supersedes all prior correspondence, negotiations and understandings between them with respect to the matters covered herein”. Ukraine also relies on Article 5.5 of the 1994 UNIDROIT Principles (“the way in which the obligation is expressed in the contract”) as the primary factor in determining the scope of an obligation.
114. The Tribunal agrees with Claimant that the “common intent” of the parties determines the scope of contractual obligations. However, the analysis of the common intent must start from the wording of the contract; and it must be presumed that the wording, as understood by a reasonable impartial person, properly reflects the common intent. While this presumption may be rebutted, the party doing so bears the burden of proof that the common intent differs from the wording. “Good faith” and “fairness in the market place” arguments are appropriate for interpreting ambiguous wording and filling lacunae in the text, but they can scarcely prevail against the clear wording of a contractual provision.
115. In accordance with Clause 23 of the Settlement Agreement, preliminary negotiations must — among other factors — be taken into account “for interpreting this Agreement”. But Clause 27 provides that the Settlement Agreement “supersedes all prior correspondence, negotiations and understandings”. Read together, these Clauses require that expectations raised during the negotiations of the Settlement Agreement must be reflected in the text of the Agreement. The text of the Settlement Agreement is the only source of obligations. The fact that an undertaking was discussed, or even orally agreed to during the negotiation phase, is not enough. The obligation must have been recorded in the Settlement Agreement. If the Settlement Agreement does include an obligation, then the scope of the undertaking can be construed in accordance with the expectations of the parties during the negotiation. Without support in the text, expectations nurtured by Claimant do not give rise to contractual obligations of Respondent.
116. Claimant argues that Respondent has breached its obligations under the Settlement Agreement to correct interferences (VI.3.) and to award 11 FM frequencies (VI.4). Each allegation will be examined separately.

[…]

A) The State Centre as the “Commission of Experts”

124. Clause 13(a) of the Settlement Agreement entrusts the duty to examine the interferences to “the Commission of experts, appointed by the Respondent”. It does not require that the commission be constituted ad hoc.
125. Furthermore, Clause 13(a) clearly states that the Commission be appointed exclusively by Respondent, without participation of Claimant in the appointment process. The provision does not include any requirements for the composition of the commission, such as a representation of several agencies, or the inclusion of independent experts. Respondent was therefore free to entrust the tasks under Clause 13(a) to any group of experts with the technical skills to do the job.
126. Respondent chose the State Centre as the “Commission of Experts” with the duty to perform the examinations required under Clause 13(a). Claimant has not pleaded that the State Centre was unfit to examine the alleged interferences. In fact, the State Centre is the public entity which in accordance with Ukrainian legislation supervises interferences in radio frequencies, and it is adequately equipped to perform this task. To the Tribunal, the choice of the State Centre is appropriate, given the wording of the Settlement Agreement, and reasonable, given its experience and scope of activity.
127. There is one further argument: the record shows that Claimant never challenged the State Centre’s role as expert commission before instituting this arbitration, i.e. for some seven years. To the contrary, he has co-operated with the State Centre and addressed his complaints to it. He has thus acquiesced to the role of the State Centre.
128. The Tribunal can hence not find a violation of Clause 13(a) in Respondent’s assignment of the State Centre as expert commission.

B) Examination of Interferences

129. Pursuant to Clause 13(a), the examination of interferences should have taken place by April 15, 2000. In fact, such examinations were carried out between January 1999 and March 10, 2000, i.e. before execution of the Settlement Agreement on March 20, 2000. Claimant argues that these pre-agreement examinations are not sufficient to comply with the undertaking assumed by Ukraine in Clause 13(a) of the Settlement Agreement.
130. In Respondent’s opinion, the March 2000 tests proved the absence of any interference with Gala’s FM 100, so that any further tests were pointless. The Settlement Agreement had been negotiated since November 1999, and during these negotiations, and as a sign of goodwill, Respondent carried out the examinations required by Clause 13(a), even before the Settlement Agreement was signed and came into force. The Settlement Agreement signed on March 20, 2000 provided that the examination of the quality of broadcasting be performed “by April 15, 2000”. In fact, the examination had thus already been performed, before the signing of the Settlement Agreement.
131. Does this pre-agreement examination imply a default of Clause 13(a)?
132. One begins with the literal wording of the Clause, which requires that the examination be performed “by April 15, 2000”. An examination on March 10, 2000 evidently meets that requirement. But a literal interpretation is just a first approach. In accordance with Clauses 20 and 22 of the Agreement, the guiding principles of any interpretation shall be the common intent of the parties and good faith.
133. Did the common intent of the parties require that the examination be carried out after the signature of the Settlement Agreement? There is a very revealing fact: Claimant never requested that a second examination be performed after the signature of the Settlement Agreement. If he had, good faith would have precluded Respondent from refusing the request. But Mr. Lemire never did so. He accepted, at least tacitly, that the pre-agreement examination complied with the requirements of the Settlement Agreement.
134. Article 1.8 of the 2004 UNIDROIT Principles prohibits inconsistent behaviour:
“A party cannot act inconsistently with an understanding it has caused the other party to have and upon which that other party reasonably has acted in reliance to its detriment”.
135. Mr. Lemire did not require a second examination, and Ukraine reasonably understood that Claimant felt satisfied with the first examination, and consequently did not carry out a second one. Mr. Lemire cannot now reversetrack and argue that Respondent defaulted on its contractual obligations.

[…]

153. Under Clause 13(b), paragraph 1 of the Settlement Agreement, “by May 15, 2000 the Respondent, in the person of the State [Committee] agrees to use its best possible efforts to consider in a positive way the application of Gala Radio to provide it with the licences for [11] radio frequencies […]”. In accordance with the express terms of this contractual provision, Respondent undertook only to apply its best efforts, so that the applications from Gala to the State Committee would be granted by May 15, 2000 — not to achieve that result.
154. Article 5.1.4 of the 2004 UNIDROIT Principles defines the duty of best efforts in the following terms:
“[…] To the extent that an obligation of a party involves a duty of best efforts in the performance of an activity, that party is bound to make such efforts as would be made by a reasonable person of the same kind in the same circumstances”.
155. For Claimant to establish a violation of this best efforts obligation, it is not sufficient to prove that by May 15, 2000 the 11 radio frequency licences had not been granted — the required test is that he produce evidence showing that Ukraine has failed to make such efforts as would be made by a reasonable government in the same circumstances.
156. What is the factual situation?
157. In accordance with the Settlement Agreement Ukraine had to use its best efforts to grant the frequency licences within two months of signature (signature was on March 20, and the deadline was May 15). Of the 11 licences envisaged, six were granted by the State Committee before the May 15, 2000 deadline, another four by June 13, 2000 (i.e. within one month of May 15) and the last one on September 1, 2000 (within 2 ½ months of the deadline).
158. Ukraine’s efforts to induce its State Committee to grant the licences resulted in 11 of the 12 licences being issued within one month of the deadline. One licence was then granted with 2 ½ months delay.
159. In the Tribunal’s opinion, these delays do not amount to a violation of Ukraine’s best efforts obligation. There is often a gap between political decision and bureaucratic compliance. Paragraph 3 of Clause 13(b) explicitly requires that “the granting of licences … will be made in accordance with the requirements of Ukrainian legislation”. There is no evidence that Ukraine abated its pressure on the State Committee to perform. The State Committee issued the licences within time limits which are not unreasonable in the context of Ukrainian administrative practices.

[...]

F) Allocation of Low-Powered Frequencies

194. The power of frequencies allocated to Gala ranged from 0.1 to 4kW with an average of 1,17 kW. On all its frequencies combined, Gala reaches some 22% of the population of Ukraine.
195. Claimant complains that the power of the frequencies allocated to Gala under the Settlement Agreement was far below his legitimate expectations and failed to meet his business purposes46. He alleges that in the negotiations of the Settlement Agreement as well as in pre-settlement communications with the National Council and other agencies of Respondent, much higher powers had been envisaged. In this respect, Claimant refers to correspondence between the National Council and State Inspection of Electric Communication of July 18 and October 18, 1995 which suggested the availability of much higher powered frequencies for Claimant47.
196. The Settlement Agreement, in any case, is silent on the power of frequencies sought by Claimant. Nor does it include any reference to Claimant’s business purposes — e.g. his desire to cover the whole territory of Ukraine — from which a minimum power could be inferred. While the preliminary negotiations between the parties and the purpose of the Settlement Agreement are to be taken into account in determining the common intent of the parties (per Clauses 23(a) and (d) of the Settlement Agreement), Clause 27 provides that the Settlement Agreement “constitutes the entire agreement between the Parties on the subject matter hereof and supersedes all prior correspondence, negotiations and understandings…”. This disqualifies prior correspondence and negotiations as a basis of obligations deliberately not mentioned in the Settlement Agreement. Claimant can therefore not derive a claim from pre-Settlement Agreement correspondence and negotiations.
197. Furthermore, the power of the frequencies awarded to Claimant was not abnormally low. Claimant has acknowledged that the average power of the frequencies allocated to him matched that of frequencies allocated to major competitors48. If Mr. Lemire felt that he was entitled to higher powered frequencies than his competitors, he would have had to include such entitlement in the Settlement Agreement. That has not happened.
198. Finally, Claimant learned the actual power of the frequencies allocated to him by September 1, 2000, when Gala received the licences from the State Committee. He thus knew the power of the frequencies on September 20, 2000 when the Settlement Agreement was recorded as the 2000 Award. Claimant did not seek any amendment of the Settlement Agreement, nor did he reserve his position.
199. The power of the frequencies was specified in the announcement of the tenders by the National Council. Claimant applied for these frequencies without complaining about the power. Thus, even if Claimant had been entitled to higher powered frequencies (which in the Tribunal’s opinion does not derive from the Settlement Agreement), he acquiesced with the power of the allocated frequencies. To claim now that this lack of power gives rise to a breach of the Settlement Agreement denotes inconsistent behaviour, contrary to Article 1.8 of the 2004 UNIDROIT Principles.

[...]

208 . For the reasons explained above, the Tribunal concludes that, although Claimant encountered difficulties and delays in the obtaining of the frequencies expected under the Settlement Agreement, and although the end result may not have satisfied all the expectations harboured by Claimant, Respondent did not breach any of the obligations it had assumed in that Agreement.

[...]

VIII . Decision

513. In view of the foregoing reasons, the Tribunal unanimously as regards Sections I trough VI, and by majority as regards some aspects and conclusions of Section VII, decides as follows:
1. to dismiss Respondent’s objections to the jurisdiction of the Centre and the competence of the Tribunal;
2. to declare that Respondent has not breached any obligations assumed in the Settlement Agreement;
3. to declare that Respondent, in the manner in which it dealt with the award of radio frequencies as described in paragraph 422 of this Decision, breached Article II.3 of the BIT; and
4. to dismiss all other claims regarding the merits submitted by Claimant.
514. The question of the appropriate redress of the breach, including questions of quantum, will be addressed in a second phase of this arbitration, for which the Tribunal retains jurisdiction. The Tribunal will issue a Procedural Order for the continuation of the procedure. The question of costs is reserved until the Award.

Pursuant to Clause 13(a), the examination of interferences should have taken place by April 15, 2000. In fact, such examinations were carried out between January 1999 and March 10, 2000, i.e. before execution of the Settlement Agreement on March 20, 2000. Claimant argues that these pre-agreement examinations are not sufficient to comply with the undertaking assumed by Ukraine in Clause 13(a) of the Settlement Agreement.
130. In Respondent’s opinion, the March 2000 tests proved the absence of any interference with Gala’s FM 100, so that any further tests were pointless. The Settlement Agreement had been negotiated since November 1999, and during these negotiations, and as a sign of goodwill, Respondent carried out the examinations required by Clause 13(a), even before the Settlement Agreement was signed and came into force. The Settlement Agreement signed on March 20, 2000 provided that the examination of the quality of broadcasting be performed “by April 15, 2000”. In fact, the examination had thus already been performed, before the signing of the Settlement Agreement.
131. Does this pre-agreement examination imply a default of Clause 13(a)?
132. One begins with the literal wording of the Clause, which requires that the examination be performed “by April 15, 2000”. An examination on March 10, 2000 evidently meets that requirement. But a literal interpretation is just a first approach. In accordance with Clauses 20 and 22 of the Agreement, the guiding principles of any interpretation shall be the common intent of the parties and good faith.
133. Did the common intent of the parties require that the examination be carried out after the signature of the Settlement Agreement? There is a very revealing fact: Claimant never requested that a second examination be performed after the signature of the Settlement Agreement. If he had, good faith would have precluded Respondent from refusing the request. But Mr. Lemire never did so. He accepted, at least tacitly, that the pre-agreement examination complied with the requirements of the Settlement Agreement.
134. Article 1.8 of the 2004 UNIDROIT Principles prohibits inconsistent behaviour:
“A party cannot act inconsistently with an understanding it has caused the other party to have and upon which that other party reasonably has acted in reliance to its detriment”.
135. Mr. Lemire did not require a second examination, and Ukraine reasonably understood that Claimant felt satisfied with the first examination, and consequently did not carry out a second one. Mr. Lemire cannot now reversetrack and argue that Respondent defaulted on its contractual obligations.

[…]

153. Under Clause 13(b), paragraph 1 of the Settlement Agreement, “by May 15, 2000 the Respondent, in the person of the State [Committee] agrees to use its best possible efforts to consider in a positive way the application of Gala Radio to provide it with the licences for [11] radio frequencies […]”. In accordance with the express terms of this contractual provision, Respondent undertook only to apply its best efforts, so that the applications from Gala to the State Committee would be granted by May 15, 2000 — not to achieve that result.
154. Article 5.1.4 of the 2004 UNIDROIT Principles defines the duty of best efforts in the following terms:
“[…] To the extent that an obligation of a party involves a duty of best efforts in the performance of an activity, that party is bound to make such efforts as would be made by a reasonable person of the same kind in the same circumstances”.
155. For Claimant to establish a violation of this best efforts obligation, it is not sufficient to prove that by May 15, 2000 the 11 radio frequency licences had not been granted — the required test is that he produce evidence showing that Ukraine has failed to make such efforts as would be made by a reasonable government in the same circumstances.
156. What is the factual situation?
157. In accordance with the Settlement Agreement Ukraine had to use its best efforts to grant the frequency licences within two months of signature (signature was on March 20, and the deadline was May 15). Of the 11 licences envisaged, six were granted by the State Committee before the May 15, 2000 deadline, another four by June 13, 2000 (i.e. within one month of May 15) and the last one on September 1, 2000 (within 2 ½ months of the deadline).
158. Ukraine’s efforts to induce its State Committee to grant the licences resulted in 11 of the 12 licences being issued within one month of the deadline. One licence was then granted with 2 ½ months delay.
159. In the Tribunal’s opinion, these delays do not amount to a violation of Ukraine’s best efforts obligation. There is often a gap between political decision and bureaucratic compliance. Paragraph 3 of Clause 13(b) explicitly requires that “the granting of licences … will be made in accordance with the requirements of Ukrainian legislation”. There is no evidence that Ukraine abated its pressure on the State Committee to perform. The State Committee issued the licences within time limits which are not unreasonable in the context of Ukrainian administrative practices.

[...]

F) Allocation of Low-Powered Frequencies

194. The power of frequencies allocated to Gala ranged from 0.1 to 4kW with an average of 1,17 kW. On all its frequencies combined, Gala reaches some 22% of the population of Ukraine.
195. Claimant complains that the power of the frequencies allocated to Gala under the Settlement Agreement was far below his legitimate expectations and failed to meet his business purposes46. He alleges that in the negotiations of the Settlement Agreement as well as in pre-settlement communications with the National Council and other agencies of Respondent, much higher powers had been envisaged. In this respect, Claimant refers to correspondence between the National Council and State Inspection of Electric Communication of July 18 and October 18, 1995 which suggested the availability of much higher powered frequencies for Claimant47.
196. The Settlement Agreement, in any case, is silent on the power of frequencies sought by Claimant. Nor does it include any reference to Claimant’s business purposes — e.g. his desire to cover the whole territory of Ukraine — from which a minimum power could be inferred. While the preliminary negotiations between the parties and the purpose of the Settlement Agreement are to be taken into account in determining the common intent of the parties (per Clauses 23(a) and (d) of the Settlement Agreement), Clause 27 provides that the Settlement Agreement “constitutes the entire agreement between the Parties on the subject matter hereof and supersedes all prior correspondence, negotiations and understandings…”. This disqualifies prior correspondence and negotiations as a basis of obligations deliberately not mentioned in the Settlement Agreement. Claimant can therefore not derive a claim from pre-Settlement Agreement correspondence and negotiations.
197. Furthermore, the power of the frequencies awarded to Claimant was not abnormally low. Claimant has acknowledged that the average power of the frequencies allocated to him matched that of frequencies allocated to major competitors48. If Mr. Lemire felt that he was entitled to higher powered frequencies than his competitors, he would have had to include such entitlement in the Settlement Agreement. That has not happened.
198. Finally, Claimant learned the actual power of the frequencies allocated to him by September 1, 2000, when Gala received the licences from the State Committee. He thus knew the power of the frequencies on September 20, 2000 when the Settlement Agreement was recorded as the 2000 Award. Claimant did not seek any amendment of the Settlement Agreement, nor did he reserve his position.
199. The power of the frequencies was specified in the announcement of the tenders by the National Council. Claimant applied for these frequencies without complaining about the power. Thus, even if Claimant had been entitled to higher powered frequencies (which in the Tribunal’s opinion does not derive from the Settlement Agreement), he acquiesced with the power of the allocated frequencies. To claim now that this lack of power gives rise to a breach of the Settlement Agreement denotes inconsistent behaviour, contrary to Article 1.8 of the 2004 UNIDROIT Principles.}}

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