Data
- Date:
- 17-12-2010
- Country:
- Arbitral Award
- Number:
- PCA 45863
- Court:
- Permanent Court of Arbitration
- Parties:
- POLIS FONDI IMMOBILIARI DI BANCHE POPOLARE SGR.p.A vs INTERNATIONAL FUND FOR AGRICULTURAL DEVELOPMENT (IFAD)
Keywords
LONG-TERM CONTRACTS - LEASE CONTRACT - BETWEEN THE INTERNATIONAL FUND FOR AGRICULTURAL DEVELOPMENT (IFAD) AND AN ITALIAN REAL ESTATE COMPANY - AGREEMENT TO BE INTERPRETED AND APPLIED ACCORDING TO "[...] THE RECOGNIZED PRINCIPLES OF INTERNATIONAL COMMERCIAL LAW" TO THE EXCLUSION OF ITALIAN LAW - APPLICATION BY ARBITRAL TRIBUNAL OF UNIDROIT PRINCIPLES CONSIDERED "AS INDICATIVE OF RECOGNISED PRINCIPLES OF INTERNATIONAL COMMERCIAL LAW"
LIMITATION PERIOD - "WEAK SUBSTANTIVE APPROACH" ADOPTED BY UNIDROIT PRINCIPLES (CF. ARTICLE 10.9)
Abstract
Claimant, an Italian real estate company, and Respondent, the INTERNATIONAL FUND FOR AGRICULTURAL DEVELOPMENT (IFAD), an international organisation, had entered into an agreement for the lease of a building in Rome to serve as the organisation’s headquarters. A dispute arose when Claimant insisted on the payment of the full amount of the rent indicated in the lease agreement, and Respondent objected that it owed only 80% of it as this was the amount that in the opinion of the Italian Government, which according to the headquarters agreement was bound to reimburse Respondent for the expenses it incurred for the rent of its headquarters, was the fair rent.
Claimant commenced arbitral proceedings on the basis of an arbitration agreement in the lease agreement which contained a choice of law clause according to which the lease agreement was to be interpreted and applied according to the headquarters agreement between Respondent and the Government of the Italian Republic and to “the recognized principles of international commercial law” to the exclusion of Italian law. In their submissions both Claimant and Respondent made numerous references to individual provisions of the UNIDROIT Principles 2004 in support of their arguments. Also the arbitral tribunal, though noting that the Parties had not expressly agreed on the application of the UNIDROIT Principles as the rules of law governing the substance of their dispute, concluded that “the UNIDROIT Principles may indeed be regarded as indicative of recognized principles in the field of international commercial law”. At the same time however it considered that it did not need formally to base its decision on those Principles since it could find answers to most, if not all, of the questions raised in the arbitration in a contextual interpretation of the Lease Agreement.
Only with respect to one issue did the Arbitral Tribunal expressly base its decision on the UNIDROIT Principles. Indeed, in deciding whether a counter-claim made by Respondent was time-barred as held by Claimant relying on the three-year limitation period provided for in the UNIDROIT Principles, the Arbitral Tribunal decided to base its decision on the relevant provisions of the UNIDROIT Principles. More precisely, after noting that “[t]here are two approaches with respect to the influence of the passage of time on rights. Limitation periods may be considered as a matter of procedural law in which case ‘the passage of time extinguishes rights and actions’ or as a matter of substantive law in which case ‘either the obligation is extinguished (strong effect) or the obligation continues to exist but the obligor is granted a right to refuse performance (weak effect)’ (cf. COMMENTARY ON THE UNIDROIT PRINCIPLES OF INTERNATIONAL CONTRACTS (PICC) 1085 (Stefan Vogenauer & Jan Kleinheisterkamp eds., 2009)” and that “[w]hile, in some legal systems, the invocation of a period of limitation will render a claim inadmissible (thus pre-empting the jurisdiction of the adjudicator), in other legal systems, the invocation of a period of limitation leads to the substantive extinction of a claim (thus requiring the adjudicator to reject a claim on the merits)”, concluded that “[t]he UNIDROIT Principles have adopted the weak substantive approach pursuant to Article 10.9 under which (i) the timebarred right still exists; (ii) the expiry of the limitation period must be asserted to have effect; and (iii) the time-barred right may still be relied on as a defence (cf. Michael Joachim Bonell, UNIDROIT Principles 2004 – The New Edition of the Principles of International Commercial Contracts adopted by the International Institute for the Unification of Private Law, 9 UNIF. L. REV. N.S. 5, 28-29 (2004)”. In the case at hand the Arbitral Tribunal decided that “assuming that the Claimant has properly asserted the defence of time limitation in relation to the Respondent’s Counterclaim, the question whether the Counterclaim is time-barred does not affect the admissibility of, and the Tribunal’s jurisdiction over, the Counterclaim. Rather, any time limitation that may apply is properly characterized as a substantive defence against the Counterclaim, which the Tribunal will consider only if and when it has satisfied itself that the Respondent’s Counterclaim is meritorious”.
Fulltext
AWARD
__________________________________________________________
Tribunal:
Professor August Reinisch (Presiding Arbitrator)
Avv. Filippo Canu
Professor Brigitte Stern
Secretary to the Tribunal:
Dirk Pulkowski (PCA)
[…]
III. SUMMARY OF UNDISPUTED FACTS
[…]
V. POSITIONS OF THE PARTIES
70. The Parties’ arguments, as set out in their written submissions and presented during the oral
hearing, can be summarized as follows.
A. THE CLAIMANT’S POSITION
1. The Statement of Claim
71. The Claimant argued that the Lease Agreement should be interpreted and applied according
to the Headquarters Agreement and the recognized principles of international trade law,
thereby excluding reference to Italian laws on leasing except when specific references are
made to such laws. Accordingly, the Claimant submitted that the Lease Agreement and
“international legal principles in commercial transactions shall rule the relations between
the Parties, irrespective of any [n]ational [l]aw or international convention”.59
72. According to the Claimant, although its claim refers exclusively to the period from 1
October 2007 to 31 May 2008, it is necessary to examine the Parties’ “entire contractual
relationship […] from the start of their business relations”.60 The Claimant submitted that it
shall address the periods from 31 December 1999 to 30 September 2007 and 1 October
2007 to 31 May 2008.61
73. With regard to the period from 31 December 1999 to 30 September 2007, the Claimant
averred, among others that:
(i) Neither Party ever objected to the validity of the Lease Agreement; and
(ii) The validity of the Lease Agreement was not in any manner subordinate to
authorizations by third parties, including private citizens, Italian authorities
or international authorities.62
74. The Claimant stated that, notwithstanding the Italian Government’s observations that the
rental amount stipulated in the Lease Agreement could not be considered “fair” unless it
covered renovation costs, the Respondent fully complied with its financial obligations
falling due under the Lease Agreement.63 According to the Claimant, the Respondent was,
from a legal perspective and in any event, obligated to comply with the Lease Agreement.64
75. The Claimant argued that under the Lease Agreement, the validity or enforceability of the
Respondent’s obligations were not subordinate to prior approval by the Italian Government.
Likewise, the Claimant averred that the Headquarters Agreement did not explicitly or
implicitly stipulate that the Lease Agreement’s validity or “the determination of [its]
financial aspects” were subject to the Italian Government’s prior approval. Referring to
Section 3(a) of the Headquarters Agreement, the Claimant argued that the section “simply
stat[es] that [Italy] will reimburse the [Respondent] for rent outlay” and not, as the
Respondent contended, that the Lease Agreement is subject to the Italian Government’s
prior approval.65
76. The Claimant further argued that pursuant to Section 11(b) of the Headquarters Agreement,
the Respondent had full capacity to contract independently, without the Italian
Government’s prior authorization to agreements which the Respondent was a party to.66
77. Further, the Claimant averred that the general principles of international law confirm the
validity of the Lease Agreement and the Claimant’s “grounds for complaint”. According to
the Claimant, the two “super principles” of international trade law, pacta sunt servanda and
bona fide imply that:
(i) The Lease Agreement is binding on the Parties;
(ii) The Lease Agreement is enforceable on the Parties; and
(iii) The Lease Agreement must be performed by the Parties in good faith.67
78. The Claimant argued that the Respondent fully acquiesced to the Lease Agreement by
paying the rent stipulated in the agreement for the entire rental period.68 The Claimant also
cited the Respondent’s letter to the Claimant dated 4 March 2002 in which the Respondent
stated that “[t]he option for renewal of the [Lease Agreement] is understood to be on the
same conditions, indicating as amount of annual rental the amount specified under Article 6
of the [Lease Agreement] as determined with reference to the date of handing over of the
building and as subsequently updated at the end of the six year period”.69 The Claimant
interpreted the Respondent’s statement to mean that the Respondent fully accepted the
Lease Agreement and that it expressly committed to pay a similar rental amount for the
renewal period.70
79. Citing the Respondent’s Note to File dated 25 January 2000, the Claimant argued that the
Respondent and the Italian Government both knew of the impossibility of “imposing
amendments” to the Lease Agreement.71 The Note to File dated 25 January 2000 states that
an MFA representative noted during a meeting between the MFA and UNIM on 20 January
2000, that “UTE’s opinion authori[z]ing a smaller amount than that requested by UNIM
was received very late […] and for this reason [the Respondent and the MFA] could not
negotiate any change with UNIM”.72
80. The Claimant further averred that it cannot be claimed that the Claimant’s predecessor-intitle
accepted UTE’s opinion on the fairness of the rental amount stipulated in the Lease
Agreement given that:
(i) UNIM’s representative to the meeting stated that “[…] since UNIM had been
taken over by another company and their EB was changing, he was not in a
position to revise their request (which [wa]s still 3.5 bln)”;
(ii) The Claimant objected to the applicability of UTE’s opinion on the fairness
of the rental amount stipulated in the Lease Agreement and demanded
payment for the rental amount stipulated in the Lease Agreement from the
time that the Claimant became the owner of the Via del Serafico Building;
(iii) By always paying the rental amount in compliance with the Claimant’s
requests and in accordance with the Lease Agreement, the Respondent fully
performed its obligations under the Lease Agreement irrespective of the
determinations of the MFA.73
81. With regard to the period 1 October 2007 to 30 May 2008, the Claimant noted that:
(i) The Respondent initially asked the Claimant for an extension of the Lease
Agreement for a period of six months, that is, from 2 October 2007 to 2 April
2008;
(ii) The Respondent proposed, alternatively, that either a new agreement or a
document integrating the Lease Agreement be executed;
(iii) In response to the Respondent’s proposal in (ii) above, the Claimant
submitted to the Respondent the draft of an Integrative Agreement to the
Lease Agreement stipulating a rental amount calculated with reference to the
rental amount stipulated in the Lease Agreement updated to June 2007;
(iv) Because the MFA requested that a new lease agreement be executed, the
Respondent submitted to the Claimant a draft lease agreement which neither
specified the amount of rent nor indicated that the amount of rent was subject
to a third party’s approval;
(v) The Respondent “performed the subsequent agreement” by continuing to
occupy the Via del Serafico Building and by paying “to a large extent” the
sums that the Claimant requested.74
82. According to the Claimant, the Respondent did not, in any correspondence relating to the
renewal of the Lease Agreement, implicitly or explicitly state that the new lease agreement
or the rental amount for the period 2 October 2007 to 30 May 2008 would be subject to the
MFA’s approval.75
83. Because the Parties never applied the MFA’s determinations throughout the term of the
Lease Agreement, the Claimant interpreted the Respondent’s reference to the MFA’s
“approval” of the new lease agreement76 as “merely an internal procedure, of no external
significance, and not opposable to third parties”.77 According to the Claimant, the
agreements between the Respondent and the MFA are at most res inter alios acta, “which
take [no] importance [on the relations between the Parties]”.78
84. The Claimant noted that for the period 1 October 2007 to 31 March 2008, the Respondent
medio tempore paid the rental amounts due “without reserve or right to request refund of
sums paid”.79
85. The Claimant added that it would never have accepted that the validity of the Lease
Agreement or that the determination of the rental amount be submitted to the MFA’s
determination.80 Additionally, the Claimant stated that it would not have allowed the
Respondent to remain in the Via del Serafico Building if it had been aware that the rental
amount was subject to the MFA’s approval.81
86. The Claimant rejected the Respondent’s assertion that the Claimant implicitly accepted that
the Lease Agreement was subject to the MFA’s approval because the Claimant did not
object to the Respondent’s previous correspondence which referred to the need for the
MFA’s approval. According to the Claimant, it was not “required” to raise specific
objections to those correspondence because the “tenor of the letters” and the Respondent’s
behaviour did not lead the Claimant to think that the Respondent would refuse to comply
with the terms of the Lease Agreement.82 Furthermore, the Claimant sent the Respondent
invoices for the rental amount to which the Respondent made no challenges or refusals.83
87. According to the Claimant, the Respondent “acted in an illegitimate manner and not in
good faith” and, therefore, the Respondent “should be declared to be under a legal
obligation to pay the amounts requested”.84
88. The Claimant argued that after the Lease Agreement ceased to be valid, the Parties entered
into an Integrative Agreement covering the occupation of the Via del Serafico Building for
a rental amount indicated in the Claimant’s e-mail dated 30 July 2007.85 The Claimant
averred that “the execution of the contractual agreement was in th[at] instance replaced by
behaviour univocally aimed at performing the agreement, and must therefore be deemed
tacit acceptance of the agreement by performance”.86 To that end, the Claimant noted that
the Respondent remained in the Via del Serafico Building and paid “part” of the rental
amount which the Claimant requested in compliance with the terms of the Claimant’s
Integrative Agreement by facta concludentia.87
89. Alternatively, if it could not be considered that the Respondent entered into the Integrative
Agreement as a result of facta concludentia, the Claimant stated that the Respondent then
continued to occupy the building sine titulo in the absence of a valid contractual
relationship.88 In such a case, the Respondent’s obligation to pay the disputed rental amount
would not arise out of a contractual relationship. Instead, the Respondent would be liable to
pay “an indemnity [as] compensation for damages caused to the [Claimant]”.89 Because the
relations between the Parties were previously governed by a contractual agreement, the
Claimant added that the compensation for damages should be determined based on the
Lease Agreement. To that end, the Claimant argued that a lesser amount than the rental
amount stipulated in the Lease Agreement could not be considered as the proper amount for
damages, because for the duration of the Lease Agreement’s validity the Claimant
“categorically refused the [MFA]’s parameters”.90
90. The Claimant also argued that the Respondent was liable for the amount of €10,680 as the
cost for the disposal of furniture that the Respondent neglected to dispose before it handed
the Via del Serafico Building back to the Claimant.91 The Claimant also expended €1,680
for which it considers the Respondent liable because the Respondent “unforeseeably
connected the electrical wiring and the data and telephone cables to an adjacent building
[…] without having informed the [Claimant] of the same and without obtaining
authorization to do so”.92
2. The Claimant’s Reply
91. In its Reply, the Claimant argued that the Respondent’s Counterclaim was inadmissible
because Article 15 of the Lease Agreement required the Respondent with regard to its
Counterclaim to commence arbitration only “after settlement of the controversy ha[d] been
attempted”.93 The Claimant noted that “[o]nly in the Counterclaim has the Respondent
indicated its intention to request payment of the sum of €179,141.00 [as refund].”94 As a
result, the Claimant averred that the Respondent failed to comply with the procedural
prerequisite of settlement negotiations as required by the Lease Agreement.
92. Noting the Respondent’s statement in its Counterclaim that, among other things, “[t]he
[Respondent’s] administrative budget […] does not provide any amount to be used as rent”,
the Claimant submitted that the entity which may “legitimately request” for a refund of the
rental amount is the entity which paid those amounts, that is, the Italian Government and
not the Respondent.95 The Claimant argued that since the Respondent expended no funds
for the payment of the rent, the Respondent correspondingly did not have the right to
request a refund of the rent.
93. The Claimant reiterated its argument that the Headquarters Agreement did not stipulate that
the rental amount or any lease agreement is subject to the approval of the Italian
Government. More so, the Claimant added that under the Headquarters Agreement, the
Italian Government “itself may [not] refuse to reimburse [the Respondent] for the [rental
amount] […]”.96
94. The Claimant stated that the application of the UNIDROIT Principles was not self-evident,
since the Lease Agreement applicable between the Parties did not contain any express
reference to these Principles even though the UNIDROIT Principles had already been
adopted at the time of the conclusion of the Lease Agreement.97
95. Rebutting the Respondent’s argument that the Parties had reached agreement on the rental
amount based upon a serious mistake, the Claimant argued that the Respondent’s approval
of the Lease Agreement in the absence of appropriate documentation from the Italian
Government cannot be considered “excusable or [a] relevant mistake”.98 According to the
Claimant, the Respondent’s actions constituted “knowing imprudence” or “gross
negligence” because the Respondent “should have waited for the conclusion of the
procedure with the Italian Government”.99 In any event, the Claimant submitted that the
Respondent did not prove its assertion that “[the Respondent] was informally informed by
[the MFA] in December 1999 that the rental amount proposed by UNIM was
acceptable”.100
96. The Claimant also rejected the Respondent’s argument that the agreement that remained in
force between the Parties was “in a form ‘re-interpreted’ by the Italian [a]uthorities”.101 The
Claimant argued that the Italian authorities did not have the authority to re-interpret the
Lease Agreement nor did the Parties authorize them to do so. On the contrary, the Claimant
asserted that the validity of the Lease Agreement is confirmed by Article 13 of the
UNIDROIT Principles which provides that “a contract validly entered into is binding upon
the Parties [and] can only be modified or terminated in accordance with its terms or by
agreement”.102
97. The Claimant submitted that “[p]ursuant to Sections 1599 and following […] the Italian
Civil Code, which necessarily applies”, the Claimant succeeded ex lege to UNIM.103 Stating
that the Claimant succeeded exclusively to the Lease Agreement and that the Claimant only
became aware of the correspondence between UNIM and the Respondent upon reading the
Statement of Defence and Counterclaim, the Claimant argued that the correspondence
between UNIM and the Respondent may not be considered part of the Lease Agreement.
The Claimant submitted that “any understanding” that the Parties may have expressed
during the course of their pre-contractual negotiations must be deemed superseded by “a
later meeting of the minds” embodied in the Lease Agreement itself.104
98. The Claimant added that although it was aware of the content of the Lease Agreement, of
the regulations applicable to it and of the Respondent’s nature as an international
organization, those factors cannot lead to an interpretation of the Lease Agreement that is
contrary to the Agreement’s literal meaning.
99. With regard to the renewal of the lease, the Claimant reiterated its position that the Parties
entered into an Integrative Agreement, which the Respondent adhered to by facta
concludentia, behaving in a manner directed at performing the agreement. The Claimant
noted that the rental amount it requested was exactly the amount that the Respondent had
paid up to that date. The Claimant rejected the Respondent’s assertion that the Parties had
not agreed on the rental amount for the renewal of the lease because “agreement had been
concluded with respect to the rent which [the Respondent] had effectively paid […]”.105
100. The Claimant submitted that, if the Respondent had not adhered to the agreement by facta
concludentia, the Respondent occupied the Via del Serafico Building sine titulo and the
compensation to the Claimant must be determined in reference to the rental amount
stipulated in the Lease Agreement considering that “the relations between the Parties had
previously been governed by [that agreement]”.106
101. The Claimant rejected the Respondent’s request for a refund of rental amounts paid beyond
that authorized by Italian authorities because by paying the rental amount stipulated in the
Lease Agreement, the Respondent “waive[d] [its] rights” and “accept[ed] […] the
amounts”.107 The Claimant added that even if the Respondent’s staff paid the rental
amounts in contravention of internal procedures, the Respondent “should bear the
consequences of its actions”.108 The Claimant asserted that the Respondent’s “conclusive
and unequivocal behavi[o]r demonstrat[ed] acceptance” of the Lease Agreement and its
payments “did not happen by mistake”.109
102. The Claimant also submitted that since it has not been demonstrated that the Italian
Government abstained from paying the Respondent the amount of €179,141.00, it must be
assumed that the Italian Government reimbursed the Respondent for that amount. The
Claimant explained that if such were the case, a refund of that amount to the Respondent
“would become an iniusta locupletatio without any justification”.110
3. The Claimant’s Authorized Second Reply
103. The Claimant reiterated its position that the Counterclaim is inadmissible because the
Respondent did not attempt to resolve the subject matter of the Counterclaim amicably with
the Respondent as required by the Lease Agreement.
104. Regarding the argument that the Respondent was not entitled to a refund for the rental
amounts it purportedly overpaid, the Claimant stated that the Respondent exhibited in that
regard “contradictory behavio[r] which is both ambiguous and lacking in good faith”.111
The Claimant stated that the merits of the Counterclaim cannot be discussed absent any
showing by the Respondent that: (i) it requested reimbursement from the Italian
Government for the sums paid; and (ii) the Italian Government had refused to make the
reimbursement.112 According to the Claimant, if the Respondent had neglected to request
such a reimbursement, then it should not expect to remedy its own negligent conduct by
requesting payment from the Claimant.
4. Oral Arguments
105. During the oral hearing, the Claimant reiterated its arguments made in its written
submissions. The Claimant further stated that there was no direct evidence that the Italian
Government imposed a particular re-interpretation of Article 6 of the Lease Agreement on
the Parties, thus raising the question whether the Italian Government had the power to reinterpret
provisions of the Lease Agreement. Regarding the Respondent’s Counterclaim,
the Claimant explained its view that the Respondent’s Counterclaim was “technically”
inadmissible because it was not a direct consequence of the Claimant’s Claim.
5. The Claimant’s Post-Hearing Brief
106. In its Post-Hearing Brief, the Claimant argued that Ms. Antonella Favia’s Witness
Statement dated 5 October 2010 proved that the Respondent knowingly made rental
payments through individuals whose job it was to make such payments.113 Specifically, the
Claimant explained that Ms. Favia’s statement showed that “the invoices and the
subsequent payments were carefully evaluated and monitored” and that contrary to the
Respondent’s assertion, the Respondent had not paid the rental amounts in error.114 The
Claimant argued that as a result, the Respondent complied facta concludentia with the
Lease Agreement proposed by the Claimant for the renewal period.115
107. Regarding the Respondent’s Counterclaim, the Claimant reiterated its argument that, in
order for the Respondent to be legitimately entitled to the refund claimed in the
Counterclaim, the Respondent must show that: (i) it requested reimbursement from the
Italian Government for the rental amounts paid; and (ii) the Italian Government had refused
to reimburse the amounts.116 According to the Claimant, it is clear from the documentation
submitted by the Respondent, including Ms. Favia’s written statement, that the above two
conditions were not met. Therefore, the Claimant argued that the Respondent was not
entitled to claim the refund.
B. THE RESPONDENT’S POSITION
1. The Statement of Defence and Counterclaim
108. In its Statement of Defence and Counterclaim, the Respondent argued that the Lease
Agreement must be interpreted and applied in accordance with the Headquarters
Agreement and the recognized principles of international commercial law, excluding the
application of any domestic law, particularly the Italian law on leasing except for technical
provisions which, according to the Respondent, are not at issue in this case.117
109. The Respondent submitted that the best source for the recognized principles of international
commercial law is the UNIDROIT Principles of International Commercial Contracts
adopted in 2004 (the “UNIDROIT Principles”). Although not intended to provide binding
rules which must be applied by the Tribunal, the Respondent averred that any citations to
the UNIDROIT Principles serve as an indication of the recognized principles of
international commercial law.118
110. The Respondent noted that its administrative budget does not provide for any amounts to be
used as rent.119 The IFAD President was also barred by Regulation VI(2) of the
Respondent’s Financial Regulations to authorize any payment for rent.120
111. The Respondent recalled the negotiations for the rental of the Via del Serafico Building,
noting in particular:
(i) The Respondent’s letter to UNIM dated 7 May 1998 stated “a fact which was
well known to the owner […] the fact that the amount of rent paid by the
[Respondent] for any building which it occupied must, in accordance with
the Headquarters Agreement, be approved by the Italian [G]overnment”;
(ii) At each step of the negotiations for the rental of the Via del Serafico
Building, the Respondent reiterated that the rental amount was subject to
approval by the Italian authorities;
(iii) UNIM insisted that the Lease Agreement be signed before the end of 1999
and had it not been signed, the Respondent would have been obliged to pay
UNIM the cost of planning work;
(iv) Oral confirmation was received by the Respondent that the rental amount
was acceptable to the Italian authorities. The Respondent and UNIM were
convinced that the rental amount was acceptable to the Italian authorities
even absent written confirmation.121
112. The Respondent noted that it received on 11 January 2000 a letter dated 30 December 1999
in which the Italian authorities stated that the rental amount stipulated in the Lease
Agreement was “too high”. In that regard, the Respondent argued that the Parties had
reached agreement on the rental amount based on a serious mistake (UNIDROIT Principles
3.4).122 The Respondent explained that it would not have signed the Lease Agreement if it
had known that the Italian authorities had not approved the rental amount. Conversely,
UNIM also would not have signed the Lease Agreement considering that it was aware that
the Headquarters Agreement did not permit the Respondent to accept a rental amount that
had not been approved and that the Respondent was unable to pay the difference between
the approved rental amount and the rental amount in the Lease Agreement.
113. The Respondent also noted that in a letter from the Italian authorities dated 10 March 2000,
it was proposed that the rental amount stipulated in the Lease Agreement could be accepted
if it was characterized as being made up of the rental amount and an amount which
represented a yearly amortization of the cost of improving the Via del Serafico Building.
According to the Respondent, the Lease Agreement could only stand as written if the
Respondent and UNIM accepted the Italian authorities’ proposed reinterpretation of the
agreement.123 Otherwise, the Respondent averred, it was obligated to “avoid” the Lease
Agreement.124 The Respondent submitted that the parties to the Lease Agreement must
have accepted the decision of the Italian authorities since the contract continued in force
and the Respondent did not “avoid” it.125
114. The Respondent stated that when the ownership of the Via del Serafico Building was
transferred from MSMC to the Claimant, MSMC declared that the property had been leased
to the Respondent in accordance with the Lease Agreement.126 According to the
Respondent, the deed of sale did not mention that the contract “was based on a fundamental
mistake of fact and it did not refer to the subsequent communications from the Italian
authorities”.127
115. The Respondent argued that the deed of sale between MSMC and the Claimant contained
misleading covenants, particularly stating that MSMC “declares and guarantees […] that
there are no cases or proceedings of any kind underway before any judicial, administrative
or fiscal authority concerning the property or its use” and that “no appeals to the Tax
Commissions, or any determinations of value are underway”.128 The Respondent submitted
that contrary to that statement in the deed, the process for obtaining UTE’s approval was a
“proceeding before an administrative authority” involving a determination of the value of
the property for the purposes of rental.129
116. According to the Respondent, MSMC did not fully inform the Claimant of the special
circumstances governing the Lease Agreement.130 The Respondent argued that the Lease
Agreement was not the full agreement and that MSMC should have informed the Claimant
that the rental amount stipulated in the Lease Agreement was subject to the approval of the
Italian authorities. The Respondent added that because the Claimant was aware of the
Respondent’s “special status”, the Claimant should have made appropriate inquiries.131
Likewise, the Respondent stated that the Claimant should have noted that the Lease
Agreement was subject to the principles of international commercial law and that the
transfer of the Lease Agreement from MSMC to the Claimant required the Respondent’s
consent (UNIDROIT Principles, Article 9.3.3).132 The Respondent would have informed the
Claimant regarding the reinterpretation mandated by the Italian authorities, had the
Claimant sought the Respondent’s consent.
117. Assuming that the Claimant first learned that the Lease Agreement did not represent the
entire agreement between the Respondent and MSMC when the Claimant first received the
Respondent’s payment on 22 November 2001, the Respondent submitted that the Claimant
should have sought recourse from MSMC because it appeared that MSMC may have
misled the Claimant with respect to the nature of the Lease Agreement and neglected to
inform the Claimant that an administrative procedure which affected the rental amount was
still then outstanding.133
118. The Respondent further argued that the Claimant did not exercise adequate due diligence.
That the Lease Agreement was with an international organization subject to the principle of
specialty and other relevant rules of international law should have alerted the Claimant that
the Lease Agreement was unlike other contracts with ordinary parties and was therefore
likely governed by “special rules and circumstances”.134
119. Further, the Claimant should not have ignored the absence of a “merger” or “integration”
clause in the Lease Agreement because the absence of such a clause meant that extrinsic
evidence supplementing or contradicting a written contract is admissible (UNIDROIT
Principles, Article 2.1.17, comment).135 In light of the absence of such a clause, the
Claimant should have been put on notice regarding the possibility that the Lease Agreement
did not embody the whole agreement.
120. According to the Respondent, the Claimant should have also noted that the Lease
Agreement provided that it should be “interpreted and applied in accordance with the
Headquarters Agreement […]”.136 Discussing the Headquarters Agreement, the Respondent
explained that although the Italian Government agreed to reimburse the Respondent for “all
of the rental paid for the premises”, it would be unreasonable to assume that the Italian
Government would reimburse any amount paid by the Respondent for rental.137 Further,
since the Headquarters Agreement is founded on the obligations of cooperation and good
faith by the Respondent and the Italian Government, the assertion that the Respondent can
agree to a rental amount which had not been approved by the Italian Government is
contrary to the Headquarters Agreement.138
121. The Respondent disagreed with the Claimant’s argument that the Claimant stayed at the
Via del Serafico Building sine titulo after the expiration of the Lease Agreement.139
According to the Respondent, the Parties had “essential agreement on all other points”
aside from the rental amount for the rental of the Via del Serafico Building during the
renewal period. The Respondent submitted that for the renewal period, the lease was
renewed “[indefinitely] at the same terms [as the original rental period]”.140
122. The Respondent rejected the Claimant’s assertion in the Statement of Claim that the
Respondent had suggested that it could pay a rental amount for the period after the
expiration of the Lease Agreement that was greater than the amount approved by the Italian
authorities. The Respondent clarified that, when it stated that the rental amount for the
period after the expiration of the lease should be “the amount specified under Article 6 of
the [L]ease [A]greement as determined with reference to the date of handing over of the
building”, it was proposing to pay Lire 2,837,000,000 as updated by the inflationary
factor.141
123. Referring to Article 4.8 of the UNIDROIT Principles, the Respondent averred that if the
rental amount during the renewal period is an omitted term in the Parties’ contractual
agreement, the Parties’ intention was for the rent to “remain the same”. 142 Specifically, the
Respondent submitted that the rental amount should be the amount finally approved by the
Italian authorities on 17 April 2008.
124. The Respondent noted that all of the payments except for the first payment made on 8 May
2002 “were made for the full amount of the invoices” and exceeded the amount which the
Respondent actually owed under the Lease Agreement.143 According to the Respondent, it
did not waive its rights or accept the higher amounts by making those payments.144 The
Respondent explained that it made those payments because the Claimant’s invoices were
processed in the normal course of business by the Respondent’s staff and made in
contravention of Section 104 of the IFAD Manual entitled Administrative Implementation
of the Provisional Headquarters Seat.145
125. Finally, the Respondent admitted liability for costs caused to the Claimant after the
handover of the building in the amount of €12,360. The Respondent thus accepted the
Claimant’s claim for the repayment of invoice no. 137/2008 and requested that such
amount be set off against the amount of the Respondent’s Counterclaim, plus interest to be
decided by the Tribunal.146
2. The Rejoinder
126. In its Rejoinder, the Respondent noted that the Claimant did not provide any alternative
source for the recognized principles of international commercial law and even cited the
UNIDROIT Principles themselves. The Respondent stated that the Claimant’s objection to
the UNIDROIT Principles as the applicable law must therefore be disregarded.147
127. The Respondent also rebutted the Claimant’s argument that the Counterclaim was
inadmissible and argued that its Counterclaim is permissible without any requirement of
prior consultation, a practice that has been confirmed by other tribunals constituted under
the UNCITRAL Rules.148 The Respondent noted that the Counterclaim arises out of the
same issue as the Claimant’s Claim and requiring the Respondent to initiate separate
arbitration proceedings would entail relitigating the same issues involved in these
proceedings.149
128. Replying to the Claimant’s argument that the Respondent was not entitled to a refund
because the Italian Government and not the Respondent paid for the rental amounts, the
Respondent asserted that the Italian Government did not reimburse the Respondent for the
amounts for which it was requesting refunds.150 The Respondent reasoned that the Italian
Government only reimbursed the Respondent for the rental amounts it had approved and
the amount that the Respondent overpaid was therefore never reimbursed. According to the
Respondent, it had the right to reclaim amounts which it was not obligated to pay and
which the Claimant was not entitled to receive. The Respondent added that “when a party
has paid to another party by mistake what he was not bound to pay either in fact or in law,
he may recover it back by an action called condictio indebiti”.151
129. The Respondent clarified that even if the Respondent paid the rental amount stipulated in
the Lease Agreement, it did not waive its rights or acknowledge the Claimant’s position
with respect to the rental amount.152 The Respondent noted that a party dealing with an
international organization such as IFAD “must be aware that it acts in accordance with
rules and procedures, rather than the decisions of individuals”.153 According to the
Respondent, the Claimant should not expect the Italian Government to be bound by the acts
of a low-level official and should not rely, to its detriment, on the act of such an official
unless the Claimant has ascertained that the official was acting within his authority and in
conformity with the applicable rules.154 According to the Respondent, the Claimant must
show that it acted reasonably in reliance and to its detriment on the Respondent’s actions, if
the Respondent is to be estopped from “asserting its rights”.155
130. With regard to the Headquarters Agreement, the Respondent argued that by virtue of the
Lease Agreement’s reference to the Headquarters Agreement, the Lease Agreement was
subordinate to the “completion of the procedure with the Italian [G]overnment”.156
According to the Respondent, it is unreasonable to interpret the procedure involving the
Italian Government set out in the Headquarters Agreement as “merely consultative and
non-binding”.157
131. Addressing the Claimant’s argument that the Respondent did not act with due diligence
when it signed the Lease Agreement without the written approval from the Italian
authorities, the Respondent argued that no further due diligence on the Respondent’s part
was necessary. As later became manifest in the fact that the Lease Agreement continued in
force for seven years, the Parties to the Lease Agreement were prepared to accept a
decision of the Italian authorities concerning the appropriate rental amount.158
132. The Respondent explained that “[t]he purchaser of a property takes the property subject to
all of the rights and defences which may be asserted by the tenant” and “[i]f the seller does
not disclose a right or defence which might be asserted by the tenant, the purchaser has a
claim against the seller”.159 The Respondent reiterated its position that the Claimant failed
to exercise due diligence when it assumed that the contractual relationship between UNIM
and IFAD, and then MSMC and IFAD, was governed “solely and entirely” by the Lease
Agreement.160
133. Responding to the issue of how much rental amount the Respondent owed for the renewal
period, the Respondent argued that it was not obligated to pay a rental amount equivalent to
that which it paid during the validity of the Lease Agreement. Further, the Respondent
argued that if it were to accept the Claimant’s argument that the Respondent occupied the
Via del Serafico Building sine titulo during the renewal period, then the Claimant’s claim
in that regard cannot be the subject of an arbitration arising from a provision in the Lease
Agreement.161 This is because, in the Claimant’s words, the Respondent’s “obligation to
pay rent would [then] not be contractual in nature, but extra-contractual”.
3. Oral Arguments
134. During the oral hearing, the Respondent restated and provided further context to the
arguments advanced in its written submission. In addition, the Respondent argued that the
Lease Agreement did not constitute the entire contractual agreement between the Parties.
Citing the Vienna Convention on the Law of Treaties, the Respondent submitted that the
“ordinary meaning” rule codified in Article 31(1) was only applicable in cases of the
“simple kind”. According to the Respondent, the relevant rules of international law must be
taken into account in accordance with Article 31(3)(c).
4. The Respondent’s Post-Hearing Brief
135. In its Post-Hearing Brief, the Respondent submitted that it selected Rome as the seat of its
Permanent Headquarters because the Italian Government guaranteed the Respondent
suitable premises free of charge and that this condition could only be fulfilled if “any rental
contract entered into by the Respondent [wa]s subject to the approval of the Italian
Government […]”.162 According to the Respondent, the condition that any rental contract is
subject to the Italian Government’s approval is why the Lease Agreement is subject to the
Headquarters Agreement.163
136. The Respondent also reiterated the argument it expounded on during the oral hearing,
stating that the Headquarters Agreement must be interpreted in accordance with Articles 31
to 34 of the Vienna Convention on the Law of Treaties. Referring to Article 31(1) of the
Vienna Convention on the Law of Treaties, the Respondent argued that interpreting a treaty
according to the ordinary meaning given to the terms of a treaty in accordance with their
context and in light of the treaty’s object and purpose only operates “in cases of the
simplest kind”.164 The Respondent further argued that “[i]n most cases it is impossible to
decide a point of disputed interpretation by the application of the “plain meaning doctrine
[…]”.165
137. Addressing the Claimant’s argument that the Respondent had contractual capacity and
hence had the capacity to conclude the Lease Agreement on its own, the Respondent argued
that whether the Respondent had contractual capacity was a separate issue from whether the
Respondent “has complete freedom and independence of action with regard to renting
premises to serve as its headquarters”.166 To that end, the Respondent argued that according
to the chapeau of Section 3 of the Headquarters Agreement, the Italian Government had to
decide on the moneys involved in arranging the Respondent’s headquarters.167
138. In the Post-Hearing Brief, the Respondent referred to the principle that a treaty provision
must be interpreted by taking account of relevant rules of international law.168 Citing Judge
Sette-Camara’s Separate Opinion in the Egypt/WHO Case, the Respondent argued that a
“Host-State and the international organization [cannot] go about their own ways, claiming
freedom of action without taking into account each other’s interest.”169 Further, the
Respondent cited the ICJ’s decision in the Egypt/WHO Case in arguing that international
law requires a “body of mutual obligations of co-operation and good faith” in the relations
between international organizations and host States.170 In applying that principle to this
case, the Respondent argued that the “Respondent cannot simply negotiate and agree to
rental amounts with third parties, which Italy is then bound to pay, no matter what”.171
Therefore, according to the Respondent, the only reasonable interpretation of Section 3 of
the Headquarters Agreement is that the Respondent did not have the freedom to negotiate
and agree on the rental amount without either the Italian Government’s prior approval or
ex-post ratification.172
139. In light of the need for the Italian Government’s approval of the rental amount, the
Respondent averred that when it signed the Lease Agreement it was obligated to take into
consideration the Italian Government’s interests.173 The Respondent submitted that one of
the interests that it took into consideration was the concept of parere di congruita – that is,
the “process whereby before a public authority purchases or otherwise acquires a good or
service, it is necessary for a qualified authority to assess the appropriateness of the price to
be paid”.174 The Respondent then reiterated its argument that the rental amount was subject
to the UTE’s approval.
140. Regarding the choice-of-law clause in Article 14 of the Lease Agreement, the Respondent
argued that since the clause states that the Lease Agreement is to be interpreted and applied
“according to” the Headquarters Agreement, the Respondent was obligated to ensure that
the Italian Government’s role and interests were respected in the Respondent’s relations
with the landlord.175 The Respondent added that Article 14 subjects the Lease Agreement to
the Headquarters Agreement176 and that the significance of Article 14 was manifested “both
before and after the signing of the Lease Agreement”.177
141. In the Post-Hearing Brief, the Respondent also argued that MSMC should have informed
the Claimant that the rental amount was subject to the interpretation proposed by the Italian
authorities and that the Claimant should have consulted the Respondent prior to acquiring
the Via del Serafico Building.178 According to the Respondent, the Claimant should
shoulder the consequences of its failure to conduct due diligence.179
142. Regarding the Claimant’s objections to the admissibility of the Respondent’s Counterclaim,
the Respondent argued that many national legal systems allowed a party to make a
counterclaim that would be time-barred if it were made as a main claim and that the
Claimant’s Claim requires the determination of the same facts that govern the
Counterclaim.180 Therefore, according to the Respondent, the primary rationale for time
limitations that claims in which facts are too remote and too difficult to determine are
barred, does not apply in the case at hand.181
143. The Respondent also rejected the Claimant’s argument that in paying the rental amount
stipulated in the Lease Agreement for the duration of the rental period, the Respondent
waived its right to object and is estopped from claiming a refund. The Respondent argued
that “[a] waiver, to be effective, must be unambiguous”.182 According to the Respondent, it
did not make an unambiguous statement concerning its rights when it paid the full rental
amount.183 With regard to the Claimant’s argument that the Respondent was estopped from
claiming a refund, the Respondent argued that in order for that argument to succeed, the
Claimant had to show that it relied on the Respondent’s payment of the rental amount to its
own detriment.184 The Respondent added that the Claimant failed to show that it suffered
any detriment beyond the obligation to refund the excess rental amount and that if the
Claimant relied on MSMC’s representations on the Via del Serafico Building, then the
Claimant should be compensated by MSMC.
144. Finally, the Respondent gave its formal consent to publication of the final award of this
Tribunal by the PCA.185
VI. ANALYSIS OF THE TRIBUNAL
A. APPLICABLE LAW
145. Before dealing with the merits of the Claim and Counterclaim, the Tribunal will address the
issue of the applicable law in this dispute which, though largely uncontroversial, has
received slightly diverging interpretations by the Parties during the proceedings.
146. The Parties are largely in agreement that their relationship is governed by the Lease
Agreement which contained a choice of law clause pursuant to which it
will be interpreted and applied according to the headquarters agreement
between IFAD and the Government of the Italian Republic […] and the
recognized principles of international commercial law, thereby excluding
any reference to Italian laws on leasings, with the exception of specific
references made.186
147. General principles of commercial law are also applicable in order to decide the logically
preceding question whether contractual relations existed between the Parties after the
expiry of the initial Lease Agreement during the period for which rent is claimed in this
arbitration.
148. In general, all major systems of contract law recognize that a contract may be entered into
both in a formal/express way as well as in an implied fashion through behaviour that
indicates that the parties intended to be bound. In its assessment whether the “continuation”
of the lease of the premises was based on a contractual relationship between the Parties, the
Tribunal will be guided by these considerations. It will particularly take into account how
an objective third party in the situation of the Claimant or the Respondent may interpret the
behaviour of the other party.
149. Concerning the interpretation of the Lease Agreement, the Tribunal has to apply primarily
the terms of the Lease Agreement itself, which it will interpret and apply according to the
Headquarters Agreement and the “recognized principles of international commercial law”.
As to the latter, the Tribunal noted a divergence of opinion between the Parties concerning
the value of the UNIDROIT Principles. However, the Tribunal also noted that, in the course
of their submissions, both Parties extensively relied on the said UNIDROIT Principles.
150. The Tribunal further notes that the central point of controversy concerning the rental
amount owed under the Lease Agreement cannot be directly solved by having recourse to
the Headquarters Agreement, which may be relevant to the issue whether the rental fee
required approval from the host State’s authorities and, if so, whether the legal effect of this
requirement was restricted to the relationship between the host State and the Respondent or
extended in some way to the Claimant. To this Tribunal, it appears that the gist of the
controversy is governed by the Lease Agreement interpreted and applied in light of the
recognized principles of international commercial law.
151. In the Tribunal’s view, the UNIDROIT Principles may indeed be regarded as indicative of
recognized principles in the field of international commercial law. However, it considers
that it need not formally base its decision on those Principles since it may find answers to
the questions raised in this arbitration primarily in a contextual interpretation of the Lease
Agreement, focusing on the conduct of the Parties.
B. CLAIMS FOR ALLEGEDLY OUTSTANDING PAYMENTS
1. Claim for Rental Payments
152. In its Claim, the Claimant requested from the Respondent the payment of purportedly
outstanding rental amounts for the Respondent’s use of the Via del Serafico Building which
the Respondent occupied as its headquarters until the end of May 2008.187 The amount in
issue is characterized as rental payment for the months of April and May 2008 plus the
ISTAT adjustment for the preceding 6-month period from October 2007 to March 2008.
153. The Parties do not dispute that the Respondent has not paid any rent for the months of April
and May 2008. What is in dispute is the entitlement of the Claimant, the owner of the
premises, to receive such payment.
154. While the Claimant characterized the requested sum as rent payment pursuant to a
contractual obligation, or in the alternative as adequate compensation for use of the
premises sine titulo, the Respondent objected to the amount arguing that it owed only a
rental amount which was approved by the Italian authorities and that the amount requested
by the Claimant and withheld by the Respondent is equivalent to the non-approved portion
of the rent for the period from October 2007 to May 2008.
1.1 Existence of a Contractual Relationship Between the Parties After 2 October
2007
155. The Parties’ disagreement as to the rental amount due for April and May 2008 originates
from their initial disagreement concerning the rental amount due under the Lease
Agreement. Before discussing this point of controversy which was extensively addressed
by the Parties both in their written submissions and during the hearing, the Tribunal
considers it necessary to determine whether, after the termination of the Lease Agreement
in October 2007, a contractual basis existed for use of the premises by the Respondent.
156. It is clear from the established facts and also not in dispute between the Parties that no
formal contract covering the renewal period was signed. The Parties were aware of the
expiry of the Lease Agreement and, starting in July 2007, exchanged views on a
prolongation, renewal or other form of adopting a new contractual basis for the continued
use of the premises by the Respondent.188 However, those steps did not lead to the
formation of a new written contract.
157. In July 2007, the Claimant proposed an “Integrative Agreement” which envisaged the
extension of the Lease Agreement until 2 April 2008 with a rental amount calculated on the
basis of the Lease Agreement.189 In September 2007, the Respondent sent a draft lease
agreement which resembled the Lease Agreement in large part but did not indicate the
rental amount due for the renewal period.190 Neither of those documents nor any other
document was signed as a new contractual basis for the Respondent to remain on the
premises. Instead, the Respondent continued to use the premises until it finally vacated the
Via del Serafico Building in June 2008, while the Claimant invoiced IFAD for such
continued use.191
158. In the Tribunal’s view, the Parties’ behaviour during the renewal period indicated that they
accepted that a contractual relationship existed between them even after the expiry of the
Lease Agreement considering that:
(i) The Respondent requested an extension of the contractual relationship for a
period of six months;
(ii) The Claimant made the Via del Serafico Building available and invoiced the
Respondent regularly;
(iii) The Respondent used the Via del Serafico Building and paid the rental
amount due, though not immediately as invoiced for the first 6 month period
and not with regard to the last invoice which is in dispute, but in principle in
accordance with the rental amount stipulated in the Lease Agreement.
159. Since the Parties disagree on the amounts due under the Lease Agreement, they also
disagree on the rental amount due for the renewal period. Even so, that the Claimant issued
invoices and the Respondent made corresponding, albeit partial, payments, indicates that
the Parties believed they were bound by a contractual obligation, interpreted in their
diverging ways.
160. In the Parties’ written submissions, the Parties also agreed that the continued occupation of
the Via del Serafico Building during the renewal period was governed by contractual
relations.192 It is apparent that the Parties agree that the terms of the contractual relationship
they entered into for the renewal period were similar to the terms of the Lease Agreement,
particularly to the rental amount provided for in the Lease Agreement, although each Party
interprets the initial rental amount differently, and as a consequence also the rental amount
due for the last six months.
161. The Claimant issued invoice no. 119 to the Respondent on 19 September 2007 for a rental
amount of €1,016,946.90 for the 6-month period from October 2007 to March 2008.193 That
amount constituted half of the annual rent and was based on the annual rental amount
stipulated in the Lease Agreement updated through the ISTAT index as of 2 October 2007.
162. The Respondent, however, initially disputed the correctness of the rental amount stipulated
in invoice no. 119 and paid only 50% of the amount while awaiting approval from the
Italian authorities. When the Respondent finally disputed the total outstanding amounts for
April and May 2008, it clarified that it considered that only roughly 80% of the total
requested rental amounts were due since 80% of the amount stipulated in invoice no. 119
was roughly equivalent to the rental amount over the same period under the Lease
Agreement. By maintaining these arguments which were reiterated during the arbitral
proceedings, the Parties clearly demonstrated that they considered that their contractual
relationship was in essence governed by the terms of the initial Lease Agreement.
1.2 The Amount of Rent Agreed Upon by the Parties
163. Thus, the central issue to be determined by this Tribunal is how much the Respondent owed
to the Claimant for the renewal period.
164. As already mentioned, the Parties’s views originated from their initial disagreement on the
rental amount due under the Lease Agreement. Both Parties apparently considered that the
old terms continued to apply. However, they markedly differ as to the content of the rent
payment obligation under the old terms.
165. In the Claimant’s view, the rental amount due for the renewal period is the amount
stipulated in Article 6 of the initial Lease Agreement. The Respondent argued on the other
hand that the rental amount stipulated in the Lease Agreement was modified by the fact that
the Italian authorities did not approve of that amount, and instead re-characterized the rental
amount stipulated in the Lease Agreement as comprised of a reduced rental amount added
to payments for the renovation work on the Via del Serafico Building. The latter payments
should have been equally paid in periodic instalments over the lease time.
166. In the Respondent’s view, it is the reduced rental amount which continued to be owed for
the renewal period and – since the payments for renovation work had been fully paid during
the initial lease – no payments in corresponding amounts would be owed.
167. The Respondent’s view on the reduced rental amount, diverging from the sum provided for
in Article 6 of the Lease Agreement, is based on the Italian authorities’ re-interpretation of
the Lease Agreement which was purportedly accepted by the Parties according to the
Respondent.194
168. In its written submissions and during the oral hearing, the Respondent maintained that the
Lease Agreement had to be interpreted in light of the Headquarters Agreement, which
purportedly requires that any rental amount paid by the Respondent be first approved by the
Italian authorities.
169. For the reasons laid out below, the Tribunal does not share the view that the Headquarters
Agreement requires that any rental amounts paid by the Respondent must be first approved
by the Italian authorities.
170. Section 3 of the Headquarters Agreement, entitled “The Headquarters Seat”, obliges the
Government of Italy “to provide or cause to be provided to the Fund […] suitable premises
and facilities […].” It further states that, with the exception of some costs related to the
operation of the premises and their insurance against third party claims, “[s]uch premises
shall be provided free of charge.” Since Italy may either make premises directly available
or cause them “to be provided”, Section 3 further states that “[i]n implementation of this
provision: (a) The Government shall assist the Fund in the renting of the premises described
in the Annex hereto, and in particular shall reimburse to the Fund all rental paid for the
premises”.
171. A literal interpretation of Section 3 of the Headquarters Agreement does not support the
Respondent’s view that Italy would have to give its prior approval to the rental amounts
that would then have to be reimbursed by Italy. While the Tribunal accepts that prior
approval by the Italian Government may be a sensible requirement in cases when a host
State has agreed to reimburse the office rental costs of international organizations, the
ordinary meaning of the words actually chosen by the Contracting Parties and codified in
the Headquarters Agreement cannot be altered.
172. On its face, Section 3(a) of the Headquarters Agreement imposes an unlimited obligation
on Italy to reimburse the Respondent’s rental costs. Even so, the Respondent’s apparent
freedom to agree to any rental fees may be limited by the Respondent’s general duty of
good faith. Thus, Italy may object to any exorbitant rental fee agreed upon by the
Respondent when requested to reimburse such fee. But this is not in issue. The fee that was
agreed upon by the Respondent and UNIM apparently did not meet the host Government’s
expectations. However, the difference between the rental amount stipulated in the Lease
Agreement and the rental amount that the Italian authorities considered appropriate (100%
to 80%) was rather modest. Considering that the Respondent repeatedly requested the
Italian authorities’ opinion on the rental amount and that the Italian authorities’ provided
their opinion only after considerable delay, it would appear to the Tribunal that the Italian
Government is still under an obligation pursuant to Section 3(a) of the Headquarters
Agreement to reimburse the Respondent the entire rental amount that the Respondent paid
to the Claimant. More so, the MFA had apparently provided to the Respondent an oral
indication that the rental amount in the Lease Agreement would be acceptable and the
Respondent proceeded to sign the Lease Agreement, at least in part, because it relied on the
MFA’s oral representations.
173. That the IFAD Internal Manual provides that “[i]t is implicit in sub-paragraph (a) that no
reimbursement will be claimed by [sic] office premises rented without the consent of the
Italian Government” does not change the Tribunal’s assessment as stated in the preceding
paragraph.195 Sub-paragraph (a) of the IFAD Manual merely restates that under “Section 3
of the Headquarters Agreement, the Italian Government undertakes, inter alia, to provide
the Fund with suitable premises and under sub-paragraph (a) undertakes to reimburse to the
Fund rental paid for such premises.”196 This internal guideline for the administrative
implementation of the Headquarters Agreement197 stipulating that the Respondent would
seek Italy’s prior agreement to the rental of premises may be seen as a prudent internal
measure designed to promote good relations with the host Government. However, this does
not modify the clear language of the Headquarters Agreement.
174. The Headquarters Agreement does not require the Italian Government’s prior approval for
rental amounts to be paid by the Respondent for the rental of its offices. Had the
Respondent and Italy intended for any rental to require such approval, then they would
have stipulated such a requirement in the Headquarters Agreement. In the absence of an
explicit approval requirement for the rental fee for the Respondent’s premises, the
Respondent’s argument that the rental amount agreed upon in Article 6 of the Lease
Agreement was conditioned upon the Italian Government’s approval must necessarily fail.
175. Even if one accepted that an approval requirement was an inherent corollary to the
Government’s reimbursement obligation, there is no reason why this should be more than a
requirement binding on the Respondent vis-à-vis Italy. The Respondent appears to argue
that any private party contracting with the Respondent must be presumed to conclude from
the Headquarters Agreement that the Respondent’s capacity to contract pursuant to Section
11(b)(i) was limited by the implicit approval requirement under Section 3 of the
Headquarters Agreement. This interpretation of the Headquarters Agreement would impose
an exceptionally onerous burden on private parties. More importantly, such an expectation
is unreasonable because it requires private parties to have an unreasonable level of
familiarity regarding the intricacies of international organizations as subjects of private law.
Imposing such a requirement on private parties might deter private parties from contracting
with international organizations.
176. However, the Respondent did not only argue that the Claimant should have inferred from
the text of the Headquarters Agreement that the rental amount in the Lease Agreement was
subject to the Italian Government’s approval. Rather, the Respondent also argued that the
purported approval requirement had actually been communicated to the Respondent’s
predecessors-in-title in a number of communications.
177. Indeed, in a letter to UNIM dated 22 June 1999, the Respondent stated that, during the
negotiations for the Lease Agreement in June 1999, it informed its co-contractor that it
would transmit the offer to the Italian authorities for their “evaluation and possible
acceptance” of the proposed lease agreement.198 However, the Respondent did not make
clear that such acceptance would be a condition for entry into force of the Lease
Agreement. Moreover, the fact that the Respondent subsequently signed the Lease
Agreement on 30 December 1999 must have been interpreted by UNIM as an indication
that the Respondent had received the necessary approval.
178. Most importantly, the Respondent refrained from including in the Lease Agreement a clear
reference to an approval requirement which would have put its contract partner on notice
that such approval was not merely an internal requirement for the Respondent but rather a
condition for the effectiveness of the rental amount agreed upon in Article 6.
179. More so, when it became apparent in January 2000 after the signing of the Lease
Agreement that the Italian authorities did not approve of the agreed rental amount, the
Respondent did not unequivocally communicate to UNIM that it considered the rental fee
partly invalid. Instead, the Respondent sought a pragmatic solution with the Italian
authorities according to which it would pay roughly 80% of the rental amount
(corresponding to what the authorities qualified as adequate rent) as rent and the remaining
roughly 20% as amortization payments for renovation work carried out by UNIM on the
premises.
180. The factual record in this case does not show that the purported re-interpretation of the
Lease Agreement was communicated to and accepted by the Claimant. In fact, the
Respondent’s own arguments in its written submission assume that the contrary was the
case. In its Statement of Defence and Counterclaim, the Respondent argued that MSMC did
not fully inform the Claimant of the special circumstances governing the Lease
Agreement.199
181. The Respondent asserted that during a meeting between the Claimant’s and the
Respondent’s representatives in February 2002, the Respondent’s representatives stated that
MSMC was fully aware of the purported re-interpretation of the Lease Agreement. In a
Witness Statement submitted to the Tribunal, the property manager of MSMC, Ms.
Giovanna Spina, stated that during the February 2002 meeting, MSMC “denied
categorically that it had agreed [to] a lower rent with [the Respondent], or that it had
accepted the determinations made by UTE […]”.200 Although the Parties have varying
versions of what transpired during the February 2002 meeting, the Tribunal does not
consider the exact contents of that meeting as central for deciding the Claim and the
Counterclaim. Although it is clear that MSMC was aware of the purported re-interpretation
of the Lease Agreement, it has not been shown that the purported re-interpretation was
communicated to and accepted by the Claimant. More importantly, the Respondent’s
subsequent behavior would lead an objective third party to conclude that the Respondent
had accepted that the entire amount that it paid constituted the rental payment subject to
ISTAT increase.
182. The Respondent protested against the first rental invoice sent by the Claimant in 2001
because in the Respondent’s view it contained a miscalculation of total outstanding fees in
that the rental amount (80%) and the amortization share (20%) were both adjusted
according to the ISTAT index. While this and the ensuing discussions with the Respondent
clearly put the Claimant on notice regarding the Respondent’s interpretation of the rental
fee obligation, it is also undisputed from the facts that the Claimant immediately rejected
this interpretation and demanded payment according to the Lease Agreement.
183. It appears significant that the Respondent not only made the outstanding payment of the
ISTAT adjustment of the amortization share it had initially withheld; the Respondent also
made all subsequent payments as requested by the Claimant which issued invoices to the
Respondent for the full rental amounts in accordance with Article 6 of the Lease
Agreement, with no comments or reservations.
184. The Tribunal thus concludes that the Parties accepted the rental amounts stipulated in
Article 6 of the Lease Agreement. The Claimant issued invoices for the full rental amount
pursuant to Article 6 and the Respondent paid them in full. Therefore, the rental amount for
the initial rental period is the rental amount stipulated in the Lease Agreement.
185. Since the Parties are basically in agreement that the rental amounts due for the renewal
period were renewed at the same rental amount due under the Lease Agreement, the
Claimant is entitled to rental payments as stipulated in Article 6 of the Lease Agreement,
i.e. the Euro equivalent of the original Lire sum plus the ISTAT valorization.
2. Claim for Invoice No. 137/2008 Relating to the Cleaning of the Via del
Serafico Building and for Electrical Work
186. In its Statement of Claim, the Claimant sought damages of €12,360 as stipulated in invoice
no. 137 dated 25 July 2008. The amount is comprised of payment for various cleaning
measures of the premises after the Respondent had left them and for electrical work done
on the building.201
187. Since the Respondent has accepted the Claimant’s request for payment of the amount of
€12,360 due under invoice no. 137,202 the Tribunal will award to the Claimant the requested
sum.
C. COUNTERCLAIM FOR RENT OVERPAYMENTS
188. In its Statement of Defence and Counterclaim, the Respondent raised a Counterclaim
relating to the amortization share of its rental payments. The Respondent argued that, since
the rental fee’s reinterpretation after the intervention of the Italian authorities permitted an
ISTAT inflation adjustment only for the rent share (80%) and not for the amortization share
(20%), IFAD was overcharged, and had in fact overpaid, when invoices were prepared by
Polis applying an ISTAT inflation adjustment to the entire rental amounts charged.
189. The Claimant challenged both the admissibility and the merit of this Counterclaim.
1. Admissibility of the Counterclaim
1.1 Purported Inadmissibility Because the Procedural Requirements of the Lease
Agreement Were Not Followed
190. In the Claimant’s view, the Counterclaim should be declared inadmissible because the
Respondent did not follow the procedure laid down in the arbitration clause of the Lease
Agreement. In its view, the Respondent should have attempted to amicably settle this claim
according to Article 15 of the Lease Agreement before raising it in this arbitration.
191. The Tribunal rejects this argument since it misinterprets the nature of a counterclaim as
commonly understood in international arbitration. Pursuant to Article 19(3) UNCITRAL
Rules, a respondent may raise a “counter-claim arising out of the same contract” on which
the claim is based in its statement of defence. To arise out of the same contract on which
the claim is based, a counter-claim “cannot be based on a contract which is not covered by
the arbitration clause or agreement […]”.203 No other requirements for the admissibility of a
counterclaim are posited in the UNCITRAL Rules, which govern the present proceedings.
Hence, the Tribunal sees no basis for requiring in addition (as the Claimant has argued) that
the counterclaim constitute “a direct consequence”204 of the claim that is the subject of
these proceedings.
192. In the case at hand, there is no doubt that the Respondent’s claim to recover alleged
overpayments arises from the Lease Agreement and results from the Respondent’s
interpretation of the Parties’ obligations under that contract. Therefore, it is a counterclaim
that was timely raised in the Respondent’s Statement of Defence.
193. Because a counterclaim may be considered as “a legal device designed to enhance judicial
efficiency by coordinating the handling of multiple claims at once”,205 the Tribunal also
considers that allowing the Respondent to file its Counterclaim in this case promotes
arbitral efficiency by allowing the same issues to be litigated and considered in the same
proceedings. Indeed, given that it is clear that the Parties disagree as to the rental amount
due under the Lease Agreement, it is reasonable to conclude that any attempt at an amicable
settlement of the Respondent’s Counterclaim would serve no effective purpose in resolving
the dispute between the Parties.
194. The Tribunal thus rejects the Claimant’s argument that the Counterclaim should be declared
inadmissible because it was not brought according to the special procedure provided for in
the Lease Agreement.
1.2 Purported Inadmissibility Because of Lack of Standing
195. The Claimant further challenged the standing of the Respondent to bring the specific
Counterclaim it had raised arguing that since the rental fees were in fact paid by the Italian
Government and not the Respondent, the latter did not have the right to request a refund of
the rent.
196. The Tribunal notes that whether or not the Respondent had in fact been reimbursed for the
allegedly overpaid portions of the rental invoices was a question addressed by the Parties at
different stages of the proceedings – in particular in the Respondent’s written
submissions,206 during the oral hearing, in documents provided by the Respondent with its
Post-Hearing Briefs, and in Ms. Antonella Favia’s Witness Statement dated 5 October
2010.
197. However, the Tribunal does not consider this issue to be determinative in the present case,
and, accordingly, the Tribunal does not find that it is required to discuss in detail the
evidence submitted by the Respondent on this point. It is undisputed between the Parties
that the rental payments – now subject to the Counterclaim – have been made by the
Respondent to the Claimant. In dispute is the question whether or not such payments were
owed according to the Lease Agreement, which is a matter concerning the two Parties to
this contract. Any right to reimbursement by a third party does not alter the fact that only
the Claimant may request payment, if such is owed under the Lease Agreement, and only
the Respondent may claim to be repaid, if it had made payments not owed under the Lease
Agreement.
198. Thus, the Tribunal decides that the Respondent has standing to make the Counterclaim
concerning alleged overpayments.
1.3 Limitation Period for the Counterclaim
199. Finally, the Claimant argues that the Counterclaim should be considered time-barred
because it was not brought within the three-year limitation period provided for in the
UNIDROIT Principles.
200. At the outset, the Tribunal wishes to note that, customarily, periods of limitation do not
automatically lead to the extinction of a claim; rather, adjudicators are bound to take
account of periods of limitation only if the debtor of an obligation invokes the alleged time
bar in a timely fashion. In the present case, it is not beyond doubt whether the Claimant has
properly raised the defence of statutory limitation in relation to the Respondent’s
Counterclaim. Conspicuously, there is no express reference in the Claimant’s Reply – the
written submission in which the Claimant first responded to the Counterclaim raised with
the Statement of Defence – to any period of limitation. The possibility that the
Counterclaim may be time-barred is expressly espoused by the Claimant207 only after the
Respondent, in its Rejoinder, presented detailed arguments in this respect.
201. Be this as it may, the Tribunal takes the view that it is not required to rule on the question
as to whether the Counterclaim is time-barred in the present case. Under Article 10.1 of the
UNIDROIT Principles, “[t]he exercise of rights governed by [the] Principles is barred by
the expiration of a period of time”208 and according to Article 10.2, “[t]he general limitation
period is three years beginning on the day after the day the obligee knows or ought to know
the facts as a result of which the obligee’s rights can be exercised.”209 Article 10.2(2) states
that “[…] the maximum limitation period is ten years beginning on the day the right is
exercised”.
202. There are two approaches with respect to the influence of the passage of time on rights.
Limitation periods may be considered as a matter of procedural law in which case “the
passage of time extinguishes rights and actions”210 or as a matter of substantive law211 in
which case “either the obligation is extinguished (strong effect)”212 or the obligation
continues to exist but the obligor is granted a right to refuse performance (weak effect)”.213
While, in some legal systems, the invocation of a period of limitation will render a claim
inadmissible (thus pre-empting the jurisdiction of the adjudicator), in other legal systems,
the invocation of a period of limitation leads to the substantive extinction of a claim (thus
requiring the adjudicator to reject a claim on the merits). The UNIDROIT Principles have
adopted the weak substantive approach pursuant to Article 10.9 under which (i) the timebarred
right still exists; (ii) the expiry of the limitation period must be asserted to have
effect; and (iii) the time-barred right may still be relied on as a defence.214
203. In view of the fact that both Parties have argued the question of time limitation on the basis
of the UNIDROIT Principles, the Tribunal considers it appropriate to follow, for purposes
of the present award, the substantive approach. Accordingly, assuming that the Claimant
has properly asserted the defence of time limitation in relation to the Respondent’s
Counterclaim, the question whether the Counterclaim is time-barred does not affect the
admissibility of, and the Tribunal’s jurisdiction over, the Counterclaim. Rather, any time
limitation that may apply is properly characterized as a substantive defence against the
Counterclaim, which the Tribunal will consider only if and when it has satisfied itself that
the Respondent’s Counterclaim is meritorious.
2. Merits of the Counterclaim
204. The Claimant’s rejection of the substance of the Respondent’s Counterclaim is mainly
based on the Claimant’s interpretation of the Lease Agreement according to which the
rental amount stipulated in Article 6 was due and thus correctly paid by the Respondent.
205. For the following reasons, the Tribunal finds that the Counterclaim is unfounded.
206. After the re-interpretation of the rent due under the Lease Agreement in order to be
acceptable to the Italian authorities, the Respondent initially tried to integrate this reinterpretation
in its relations with the Claimant. For instance, when the Claimant issued its
first invoice, invoice no. 32/2001, in October 2001, the Respondent did not pay the amount
which corresponded to the ISTAT inflation adjustment for the amortization share (pursuant
to the re-interpreted Lease Agreement) and which is now subject to the Counterclaim.
However, upon the Claimant’s prompt request to receive payment in full as provided for in
Article 6 of the Lease Agreement in December 2001, the Respondent did not appear to
further attempt to maintain its interpretation vis-à-vis the Claimant. Instead, the Respondent
made payment of the sum outstanding on invoice no. 32/2001 in May 2002, thus paying the
full invoice according to the calculations laid down in Article 6 of the Lease Agreement.
207. Furthermore, throughout the rental period, the Respondent continued to make payments as
invoiced, which included ISTAT adjustments of the entire rental fee. The Respondent never
challenged a single invoice again nor did it reserve its legal position based on the reinterpretation
agreed upon by the Italian authorities.
208. In the Tribunal’s view, this implies that the Respondent in fact accepted the terms of the
Lease Agreement as originally formulated. Its behaviour can only be interpreted as an
implicit recognition of the original lease terms.
209. Thus, the Respondent did in fact owe the sums it had actually paid during the rental period.
It is thus not entitled to any refunds for alleged overpayments.
210. The Tribunal therefore rejects the Respondent’s Counterclaim.
D. INTEREST
211. Both the Claimant and the Respondent have applied for an award of interest on their
respective claims at a rate to be fixed by the Tribunal.
212. The Tribunal considers that its discretion to determine the appropriate interest rate is most
appropriately exercised by taking as a starting point the twelve-month London Interbank
Offered Rate (LIBOR) applicable at the end of the renewal period, as this rate is widely
accepted as a reliable indicator of the level of international interest rates and frequently
used for calculating interest in international arbitral proceedings. In May 2008, the average
LIBOR for a one-year loan was 3.0306%.215
213. Reviewing the historical LIBOR since May 2008, one notices a slight increase in interest
rates until October 2008, followed by a dramatic decline in the level of interest paid on the
capital markets – as a result of the financial crisis – to a low point of 0.7681% in October
2010. In these circumstances, the Tribunal does not consider it necessary to make any
further increases to the interest rates applicable in May 2008 for inter-bank loans.
214. In the interest of practicability, the Tribunal determines that, in the present case, interest
shall be paid at a flat rate of 3% starting from 1 June 2008 until the date of full payment.
E. COSTS
215. The Claimant requests that the Tribunal orders the Respondent to reimburse costs
associated with these proceedings, including all professional fees and disbursements.216
216. Conversely, the Respondent requests that the Tribunal orders the Claimant to reimburse
costs associated with these proceedings, including all professional fees and
disbursements.217
217. Article 38 of the UNCITRAL Rules empowers the Tribunal to fix the costs of the
arbitration and provides that “costs” include, among other things, the fees of the members
of the Tribunal and their travel and other expenses; the costs of assistance to the Tribunal;
the costs for legal representation and assistance for the successful party “if such costs were
claimed during the arbitral proceedings, and only to the extent that the arbitral tribunal
determines that the amount of such costs is reasonable” (Article 38(e) of the UNCITRAL
Rules) and the fees and expenses of the appointing authority as well as the expenses of the
PCA Secretary-General.
218. The fees incurred by the Tribunal pursuant to Article 38(a) of the UNCITRAL Rules were
as follows:
i. Professor Reinisch: €36,400.00
ii. Avv. Canu: €28,466.67
iii. Professor Stern: €27,200.00
219. The travel and other expenses incurred by the arbitrators in connection with the present
proceedings pursuant to Article 38(b) of the UNCITRAL Rules were as follows:
i. Professor Reinisch: €1,062.72
ii. Avv. Canu: €1,293.32
VAT and local taxes on fees: €7,074.18
iii. Professor Stern: €937.29
VAT on fees: €5,311.60
220. The fees and expenses of the PCA, which form part of the costs of the arbitration pursuant
to Article 38(c) of the UNCITRAL Rules, amount to €24,149.34. This amount includes the
fees incurred by the Secretary to the Tribunal for registry support (€22,125) as well as all
hearing-related expenses, communication charges and charges for courier deliveries
(€2,024.34).
221. The Parties have not, at this stage, substantiated their claims for the reimbursement of costs
of legal representation pursuant to Article 38(e) of the UNCITRAL Rules. However, in
view of the Tribunal’s decision regarding the allocation of costs below, the Tribunal finds
that further submissions on this point from the Parties are not required.
222. The Tribunal has broad discretion under the UNCITRAL Rules with respect to the
allocation of costs. Article 40(1) and (2) of the UNCITRAL Rules provides:
1. Except as provided in paragraph 2, the costs of arbitration shall in
principle be borne by the unsuccessful party. However, the arbitral tribunal
may apportion each of such costs between the parties if it determines that
apportionment is reasonable, taking into account the circumstances of the
case.
2. With respect to the costs of legal representation and assistance referred to
in article 38, paragraph (e), the arbitral tribunal, taking into account the circumstances of the case, shall be free to determine which party shall bear
such costs or may apportion such costs between the parties if it determines
that apportionment is reasonable.
223. Considering all the circumstances of the present proceedings, the Tribunal finds it
reasonable that the Parties bear an equal share of the costs of arbitration fixed by the
Tribunal. It is common practice in international arbitration that tribunals require the parties
to share the arbitration costs. Especially in the context of international commercial
arbitration, it has been noted that “the most widely used ´truly international´ arbitration
rules do not require a tribunal to award costs to the successful party”218 and that “as far as
legal costs is concerned the outcome of the merits does not serve as the prevailing
yardstick”.219 Indeed, in many commentators’ opinion, “the ´loser-pays rule´ seems to be
the exception rather than the rule”220 and “cannot be called the traditional approach in
international arbitration”.221 Rather, it is asserted that “[a]n arbitral tribunal in an
international commercial arbitration is generally reluctant to order the unsuccessful party to
pay the whole of the winning party´s legal costs”222 thus, rejecting the existence of “any
presumption of compensation for the successful party”.223
224. Other commentators have observed that, “in most cases, the tribunals simply ordered each
party to bear half of the procedural costs”,224 bearing in mind that “a party should not be
necessarily penalised for presenting claims or defences which are not ultimately
successful”.225 Therefore, in international arbitration, it is common that “where the losing
party has behaved itself properly, arbitrators are less likely to grant the winner an award of
costs of attorneys”.226
225. In the present case, both Parties have behaved professionally in presenting their claims and
defences. It is obvious that the Claimant cannot be considered the “unsuccessful party” in
these proceedings within the meaning of Article 40(1) of the UNCITRAL Rules; after all,
the Claimant ultimately succeeded both in its Claim and in its defence against the
Respondent’s Counterclaim. On the other hand, however, the Tribunal is mindful of the fact
that the Claimant prevailed on both counts – the Claim and the Counterclaim – because the
Tribunal has decided to interpret the Parties’ conduct in relation to the Lease Agreement in
a manner that supports the Claimant’s reading of the Lease Agreement, rather than the
Respondent’s. Everything in this arbitration ultimately turned on the threshold issue of the
interpretation of the Parties’ conduct, and it was not conceivable for either Party to prevail
in part on the Claim or the Counterclaim.
226. In the Tribunal’s view, the Respondent developed a plausible and coherent line of argument
in support of its contention that the Parties adjusted the rate of the rental payment by
agreement, taking particular account of the Headquarters Agreement. Having reviewed the
facts of the case, the Tribunal disagrees with the Respondent’s contention that such an
adjustment was indeed agreed between the Parties. The fact that the Respondent’s theory
did not prevail, however, does not necessarily mean that the Respondent should therefore
be penalized with the entirety of the costs of the proceedings. Instead, consistently with the
common practice in international commercial arbitration, the Tribunal finds that it is
appropriate for the Parties to share the costs of the present proceedings.
227. As an advance for the costs of the arbitration, the Parties have deposited a total amount of
€131,895.12 with the PCA (€65,947.56 per Party). This amount corresponds to the total
amount of the costs of the Tribunal and the PCA’s registry services. Accordingly, there is
no unused balance to be returned pursuant to Article 41(5) of the UNCITRAL Rules.
228. As regards the Parties’ costs of legal representation, each Party shall bear its own costs of
legal representation and assistance.
VII. DISPOSITIF
229. For the foregoing reasons, the Tribunal, having deliberated, unanimously determines that:
(a) Polis Fondi’s Claim for outstanding rent payments for the period 1 October 2007 to 30
May 2008 is upheld. Accordingly, the Respondent (the International Fund for
Agricultural Development) shall pay the amount of €265,734.47 to the Claimant (Polis
Fondi Immobiliari Di Banche Popolari SGR.p.A.).
(b) In addition, in accordance with invoice No. 137/2008 and following the Respondent’s
recognition of its liability in this respect during the present proceedings, the Respondent
(the International Fund for Agricultural Development) shall pay the amount of
€12,360.00 to the Claimant (Polis Fondi Immobiliari Di Banche Popolari SGR.p.A.).
(c) The Respondent is further liable to pay interest at a rate of 3% starting on 1 June 2008
and until full payment of the amounts indicated under (a) and (b).
(d) The Respondent’s Counterclaim, while admissible, is dismissed as unfounded.
(e) The Parties shall bear equally the total costs of fees and expenses of the Tribunal and the
PCA, which the Tribunal has fixed at €131,895.12. Thus, each Party’s share of those
costs is €65,947.56.
(f) Each Party shall bear its own costs of legal representation and assistance.
57 Statement of Claim, p. 5.
58 Statement of Defence and Counterclaim, p. 4.
59 Statement of Claim, p. 12.
60 Id. at p. 13.
61 Id.
62 Statement of Claim, p. 12.
63 Id., p. 14.
64 Id.
65 Section 3(a) of the Headquarters Agreement provides that: “The Government shall assist the
[Respondent] in the renting of the premises described in the Annex thereto, and in particular shall
reimburse to the [Respondent] all rental paid for the premises”.
66 Section 11(b) of the Headquarters Agreement provides that: “The Government recognizes the juridical
personality of the [Respondent], and in particular, its capacity: (i) to contract […]”.
67 Statement of Claim, p. 15.
68 Id.
69 Id. (citing Respondent’s Letter to the Claimant dated 4 March 2002, [C13 ]).
70 Id.
71 Id.
72 Note to File dated 25 January 2000 [C8].
73 Statement of Claim, p. 16.
74 Id.
75 Id. at p. 18.
76 The Claimant quoted the Respondent’s letters to the Claimant dated 16 November 2007 and 28 January
2009 wherein the Respondent referred to the approval of the MFA.
77 Statement of Claim, p. 18.
78 Id. at p. 19.
79 Id.
80 Id.
81 Id.
82 Id. at p. 20.
83 Id.
84 Id.
85 Statement of Claim, p. 21.
86 Id.
87 Id.
88 Id.
89 Id.
90 Id. at p. 22.
91 Id.
92 Id.
93 Claimant’s Reply, p. 3.
94 Id. at p. 4.
95 Id. at pp. 4-5.
96 Id. at p. 5.
97 Id. at pp. 8-9.
98 Id.
99 Id.
100 Claimant’s Reply, p. 9.
101 Id.
102 Article 13, UNIDROIT Principles of International Commercial Contracts 2004.
103 Claimant’s Reply, p. 11.
104 Id. at p. 12.
105 Claimant’s Reply, p. 14.
106 Id.
107 Id. at p. 15.
108 Id.
109 Id. at p. 16.
110 Id. at p. 17.
111 Claimant’s Authorized Second Reply, p. 5.
112 Id.
113 Claimant’s Post-Hearing Brief, p. 2.
114 Id.
115 Id.
116 Id. at 3.
117 Statement of Defence and Counterclaim, p. 5.
118 Id. at p. 7.
119 Id. at p. 8.
120 Id.
121 Statement of Defence and Counterclaim pp. 8-9.
122 Id. at p. 9.
123 Id. at p. 10.
124 Id.
125 Id.
126 Id.
127 Id.
128 Statement of Defence and Counterclaim, p. 11.
129 Id.
130 Id.
131 Id.
132 Id.
133 Id. at p. 12.
134 Statement of Defence and Counterclaim, p. 12.
135 Id.
136 Id. at p. 13 (quoting the Headquarters Agreement).
137 Id.
138 Id.
139 Id. at p. 14.
140 Id.
141 Statement of Defence and Counterclaim, p. 15.
142 Id.
143 Id. at p. 16.
144 Id.
145 Id. at p. 17.
146 Statement of Defense and Counterclaim, pp. 17 and 18.
147 Rejoinder, p. 2.
148 Id. at pp. 2-3.
149 Rejoinder, p. 4.
150 Id. at p. 5.
151 Id.
152 Id. at p. 6.
153 Id.
154 Id.
155 Id.
156 Id. at p. 7.
157 Rejoinder, p. 7.
158 Id., at p. 10.
159 Id. at p. 11.
160 Id.
161 Id. at p. 12.
162 Respondent’s Post-Hearing Brief, para. 11.
163 Id.
164 Respondent’s Post Hearing Brief, para. 14.
165 Id.
166 Respondent’s Post-Hearing Brief, para. 18.
167 Id. at para. 19.
168 Id. at para. 23.
169 Respondent’s Post-Hearing Brief, para. 23. The Respondent quoted Judge Sette-Camara’s Separate
Opinion in the Egypt/WHO Case in which Judge Sette-Camara stated: “The relationship between the host
country and the international organization should always be one of full understanding and Co-operation, in
order to create that climate of stability and security which is indispensable to the steady enhancement of the
important role of multilateral diplomacy”. Id.
170 Id. at para. 25.
171 Id. at para. 26.
172 Id. at para. 27.
173 Id. at para. 28.
174 Id.
175 Id. at para. 38.
176 Id.
177 Id. at para. 40.
178 Respondent’s Post-Hearing Brief, paras. 73-74.
179 Id. at para. 77.
180 Id. at para. 89.
181 Id.
182 Id. at para. 94.
183 Id.
184 Id. at para. 95.
185 Id. at para. 111.
186 Article 14, Lease Agreement.
187 Statement of Claim, p. 23.
188 Letter to the Respondent from the Claimant dated 4 March 2002 (translated from Italian to English)
[C14].
189 Integrative Agreement proposed by the Respondent (translated from Italian to English) [C15].
190 Draft Lease Agreement for Renewal Period [C16].
191 The Parties agree that the Respondent stayed in the Via del Serafico Building until June 2008. The
Claimant however has only issued invoices for the Respondent’s occupation of the Building until May
2008.
192 Statement of Claim, p. 21 and Statement of Defence and Counterclaim, p. 14.
193 Invoice no. 119 dated 19 September 2007 issued by the Claimant to the Respondent [C40].
194 Statement of Defence and Counterclaim, p. 10.
195 Para. 1.2.1, IFAD Manual, Section 104, Administrative Implementation of the Provisional Headquarters
Seat [R11].
196 IFAD Manual, Section 104 Administrative Implementation of the Provisional Headquarters Seat, 1.2 a)
[R 11].
197 Indeed, para. 1.1 of the IFAD Manual states that “[the] Manual Section sets out the policies and
procedures governing the administrative implementation of Article III, Section 3 of the Headquarters
Agreement […]”.
198 Letter to UNIM from the Respondent dated 22 June 1999 (translated from Italian to English) [R4].
199 Statement of Defence and Counterclaim, p. 11.
200 Witness Statement of Giovanna Spina, 5 July 2010.
201 Statement of Claim, p. 9.
202 Statement of Defence and Counterclaim, p. 18.
203 D. CARON ET AL., THE UNCITRAL ARBITRATION RULES: A COMMENTARY 414 (2006). A counterclaim
that falls within the scope of an arbitration agreement may be heard since “[t]he only disputes that are
meant to be heard [in a particular arbitration] are those that fall within the scope of the arbitration
agreement”. Michael Jones et al., Cognisable Counterclaims: UNCITRAL Article 19(3) and the UNCITRAL
Model Arbitration Clause, p. 1. See Alison Dundes Renteln, Encountering Counterclaims, 15 DENV. J.
INT’L L. & POLY. 379 390 (1986-1987) (arguing that the counterclaim must be directly related to the
original claim and that both must be related to the contract in dispute).
204 Claimant’s opening statement on the Counterclaim at the oral hearing of 20 September 2010.
205 Renteln, Encountering Counterclaims, supra note 203 at 380.
206 Rejoinder, p. 5.
207 Claimant’s Authorized Second Reply, p. 5.
208 Article 10.1, UNIDROIT Principles.
209 Article 10.2, UNIDROIT Principles.
210 Comment to Article 10.13, UNIDROIT Principles. See William Tetley, Q.C., Mixed jurisdictions:
common law vs civil law (codified and uncodified) Part II), UNIF. L. REV. 877, 878 (1999-4).
211 Foreign limitation periods are being treated more as substantive rather than procedural matters in
common law jurisdictions. Tetley, supra note 200 at 878. The Supreme Court of Canada has held that
limitation periods are to be treated as substantive law in Canadian common law conflict of laws. See also
William. Tetley, New Development in Private International Law: Tolofson v Jensen and Lucas v Gagnon,
44 AM. J. COMP. L. 647 (1996).
212 COMMENTARY ON THE UNIDROIT PRINCIPLES OF INTERNATIONAL CONTRACTS (PICC) 1085 (Stefan
Vogenauer & Jan Kleinheisterkamp eds., 2009).
213 Id.
214 Id. at 1085-86. See Michael Joachim Bonell, UNIDROIT Principles 2004 – The New Edition of the
Principles of International Commercial Contracts adopted by the International Institute for the Unification
of Private Law, 9 UNIF. L. REV. N.S. 5, 28-29 (2004).
215 Data available on LIBOR Rates History: Historical LIBOR Rate Information,
http://www.wsjprimerate.us/libor/libor_rates_history.htm.
216 Statement of Claim, p. 23.
217 Rejoinder, para. 64.
218 Michael Bühler, Awarding Costs in International Commercial Arbitration: An Overview, 22 ASA
BULLETIN 249, 260 (2004).
219 Id.
220 Id., p. 261.
221 Id.
222 REDFERN AND HUNTER ON INTERNATIONAL ARBITRATION 547 (2009). Also, as Born points out, in a
number of international commercial arbitrations, “where claimants were largely successful, they were
awarded a substantial portion of the arbitration costs in most cases (i.e., in 39 of 48 cases) and [were
awarded] a substantial portion of their legal costs in about half of all cases (i.e., in 24 of 38 cases)”; GARY
BORN, INTERNATIONAL COMMERCIAL ARBITRATION 2499 (2009); see also ICC Case no. 9466, NAI Case
no. 1930.
223 D. CARON ET AL., THE UNCITRAL ARBITRATION RULES: A COMMENTARY 949 (2006). Also, as Redfern
and Hunter point out, “the practice under which the unsuccessful party is expected to pay towards the other
party’s legal costs is by no means universal practice”; REDFERN AND HUNTER ON INTERNATIONAL
ARBITRATION 547 (2009). As Michael Bühler points out, “[…] costs follow the event, this principle is by
no means made absolute”; Bühler, Awarding Costs, supra note 218, at 265.
224 Bühler, Awarding Costs, supra note 218, at 261.
225 Murray L. Smith, Costs in International Commercial Arbitration, in HANDBOOK OF INTERNATIONAL
COMMERCIAL ARBITRATION 127, 132 (Thomas E. Carbonneau ed., 2006).
226 Noah D. Rubins, The Allocation of Costs and Attorney’s Fees in Investor-State Arbitration, 18 ICSID
REV. FOREIGN INVESTMENT L. J. 111, 112 (2003). Also, as Michael Bühler points out “[i]n ICC Case No.
8332, the tribunal held that since the dispute arose out of the unclear terms of the parties agreement, each
party should ´bear a share of the responsibility for this uncertainty and the resulting costs´, even though the
claimant prevailed on all material issues”; Bühler, Awarding Costs, supra note 218, at, 267 (quoting ICC
Case no 8332). Conversely, arbitral tribunals have ordered the unsuccessful party to bear the costs of the
arbitration in cases where the misconduct and wrongdoing of that party during the proceedings is patent and
when its claims can be considered frivolous and a waste of the tribunal’s time; see MURRAY L. SMITH, The
Costs in International Commercial Arbitration, in Handbook of International Commercial Arbitration
(2006) p. 131; Jenny W.T. Power & Christian W. Konrad, Costs in International Commercial Arbitration –
A Comparative Overview of Civil and Common Law Doctrines, in AUSTRIAN ARBITRATION YEARBOOK
262, 266 (2007).}}
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