LONDON COURT OF INTERNATIONAL ARBITRATION
LCIA Case No. 142732
B E T W E E N:
Republic of Djibouti
Djibouti Ports and Free Zone Authority
Port de Djibouti SA
Claimants
v.
DP World Djibouti FZCO
Dubai (International) Djibouti FZE
Doraleh Container Terminal SA
Respondents
2 July 2018
QUINN EMANUEL URQUHART & SULLIVAN LLP
90 HIGH HOLBORN, LONDON WC1V 6LJ, UNITED KINGDOM
[Page ii]
[Page 3]
1. These submissions are filed by DP World Djibouti FZCO (DP World Djibouti) and Doraleh Container Terminal SA (DCT) (together, the Respondents) pursuant to the timetable fixed by the Tribunal, as extended by the Tribunal’s order dated 11 June 2018.1 These are the Respondents’ further submissions on their counterclaims against the Claimants, the Republic of Djibouti (Government), Djibouti Ports and Free Zone Authority (DPFZA), and Port de Djibouti S.A. (PDSA) (together, the Claimants).
2. These submissions are served on the Claimants by: (i) recognised international courier service on the offices of the President, Prime Minister, Ministry of Public Works and Transport and the DPFZA in Djibouti; (ii) recognised international courier service at the Embassy of Djibouti in Paris; and (iii) electronic mail on Mr Aboubaker Omar Hadi at the address “[email protected]”.2
3. The submissions are filed together with factual exhibits R-326 to R-340 and legal authorities RLA-14 to RLA-15 as well as an expert report by Dr. Pablo T. Spiller of Compass Lexecon dated 29 June 2018.
4. These arbitration proceedings were commenced on 8 July 2014 following a Request for Arbitration filed by the Claimants (subsequently amended on 7 August 2014), pursuant to Article 20.2 of the Concession Agreement between DCT, Dubai International (Djibouti) FZE (Dubai International) and the Government dated 30 October 2006 (the Concession Agreement),3 as amended by the Addendum between DCT, DP World Djibouti and the Government dated 22 May 2007 (Addendum),4 for the construction, ownership and operation of a highly advanced container terminal at Doraleh in Djibouti (the Terminal).
1 Dubai International (Djibouti) FZE does not advance any counterclaims in these proceedings. ↩
2 Such service complies with the notice requirements provided for under Article 22.5 of the Concession Agreement between the Republic of Djibouti, Doraleh Container Terminal SARL and Dubai International (Djibouti) FZE dated 30 Oct. 2006, C-1. ↩
3 Concession Agreement between the Republic of Djibouti, Doraleh Container Terminal SARL and Dubai International (Djibouti) FZE dated 30 Oct. 2006, C-1. ↩
4 Addendum to the Concession Agreement between the Republic of Djibouti, Doraleh Container Terminal SA and DP World Djibouti FZCO dated 22 May 2007, C-11. ↩
[Page 4]
5. The Respondents indicated they would advance certain counterclaims in their Response to the Request for Arbitration dated 21 August 2014.5 In their Statement of Defence and Counterclaims dated 22 December 2014, the Respondents advanced five counterclaims in relation to: (i) breach of DCT’s rights to exclusivity; (ii) certain unpaid royalties for container traffic handled at the old Port of Djibouti (Old Port); (iii) compensation for land expropriated by the Claimant for a railroad; (iv) a claim in relation to particular Political Force Majeure Events (as defined by the Concession Agreement); and (v) a breach of the exclusivity rights of Dubai International under a Concession Agreement between Dubai International and the Government dated 9 February 2004 (2004 Concession Agreement).6
6. In subsequent pleadings and at the oral hearing, the Respondents clarified their counterclaims and indicated their intention not to pursue the counterclaims relating to the railroad and the Political Force Majeure Event in this proceeding, while Dubai International withdrew its claim under the 2004 Concession Agreement from these proceedings.7
7. Accordingly, the Respondents’ pending counterclaims concern the Claimants’ breaches of:
(a) Articles 3.6.2 and 3.6.3 of the Concession Agreement, which confer on DCT complete and unconditional exclusivity over handling of container traffic in Djibouti (Exclusivity Counterclaim); and
(b) Articles 7.1.1 and 7.12.(i) of the Concession Agreement in relation to certain unpaid royalties for container traffic handled at the Old Port (Royalty Counterclaim).
8. In their written evidence and oral evidence made during the hearing, the Claimants’ witnesses acknowledged that the Third Claimant, PDSA, must pay DCT a royalty in respect of the containers diverted from DCT to the Old Port or the Doraleh Multipurpose
5 Respondents’ Response to the Request for Arbitration dated 21 Aug. 2014, para. 48. ↩
6 Respondents’ Statement of Defence and Counterclaims dated 22 Dec. 2014, paras 98-115. ↩
7 Respondents’ Re-Amended Defence dated 15 July 2016, deleted paragraphs 113-115; Respondents’ Amended Reply to the Defence to Counterclaims dated 16 Aug. 2016, deleted paragraphs 34-42; Transcript of Final Hearing, Day 10, 120:24 to 121:4. ↩
[Page 5]
Port (DMP).8 Mr Aboubaker Omar Hadi—Chairman of DPFZA and CEO of PDSA—testified as much, saying:
Q. I think your position has been that in principle you agree that insofar as these two lines are continuing to go to the Old Port, a fee has got to be paid?
A. Yes.
Q. Right?
A. Yes.9
9. Furthermore, during the hearing, the Claimants stated that DMP is not an “additional” container handling facility, but only a replacement for the Old Port. The Claimants represented that the DMP would be used solely by Ethiopian Shipping Lines (ESL) and Messina Shipping Lines (Messina) mixed cargo vessels, and that neither DMP nor any other port in Djibouti would handle any other container traffic.10 Mr Hadi specifically stated as much at the hearing:
Q. As I understand it, you say the intention of this new multipurpose port is to handle mixed cargo vessels that are currently being handled at the Old Port?
A. Yes.
Q. The mixed cargo vessels are those just of the two shipping lines that we discussed before?
A. Yes.
Q. Ethiopia and Messina?
A. Exactly.
Q. Let's see if I understand it. Are you saying that this multipurpose port that is being built is simply to handle the shipments of those two companies and no one else?
A. In terms of containers, yes.
Q. Am I right in understanding what you are trying to say is that the new multipurpose port shouldn't concern DCT because all that is being planned for this new port is exactly what has happened at the Old Port?
A. Exactly.11
[...]
8 Transcript of the Final Hearing, Day 2, 101:5-10; Witness Statement of Aboubaker Hadi dated 22 July 2015, paras 92 & 96; Witness Statement of Aden Douale dated 22 July 2015, para. 95; Minutes of Meeting of the DCT Board dated 15 July 2012, R-90. ↩
9 Transcript of the Final Hearing, Day 2, 101:5-10. ↩
10 Transcript of the Final Hearing, Day 2, 113:1-19; 115:17 to 116:8, 117:3-19; 123:19-24; Day 8, 8:3-4. ↩
11 Transcript of the Final Hearing, Day 2, 113:1-19. ↩
[Page 6]
Q. That is a facility, it's an additional facility to that which currently exists?
A. It is not additional, it is replacement.
Q. Look at the words. You're not to operate or cause indirectly to operate or commission any existing or additional facilities. They are not existing facilities, they are additional to what is currently there.
A. No.
Q. Correct?
A. No, replacement. We are going to close down that port.
Q. When you replace something, when you close something down and you create a new facility, that is an additional facility by any normal use of the word?
A. In terms of capacity it is not additional.
Q. I see. So the question as to whether this was something that you were entitled to do, I don't need to debate with you what the contract means, but it all comes down to this part of the case, whether, if what you are doing is replacing the facilities that were already there, build a new port but it is to replace the capacity that you already had, your view is that is not caught by this, we are allowed to do that?
A. Yes.
Q. But if you are wrong about that, then you accept you shouldn't have entered into this deal?
A. Yes.12
10. Based on these representations, which had also been made on previous occasions, the Respondents had agreed a narrow exception to their exclusivity rights as regards such specific vessels (i.e. mixed cargo only, and ESL and Messina only) being serviced at the Old Port or DMP, with the Respondent, DCT, being compensated through the payment of royalties in the future (at a rate to be determined by the Tribunal, failing the parties’ agreement on such a rate or the Tribunal finding that the parties had themselves already agreed the rate).13 The parties sought time to reach a commercial agreement on the rate of royalties.14
11. By a joint representation to the Tribunal following the conclusion of the hearing, the parties agreed as follows:
This is to confirm the parties’ agreement with regard to the determination or settlement of certain of the Respondents’ counterclaims (“the Counterclaims”), namely those in respect of: (1) payment of royalties for historic container traffic on mixed cargo vessels
12 Transcript of the Final Hearing, Day 2, 115:7 – 116:8. ↩
13 Transcript of the Final Hearing, Day 11, 131:14 – 132:7. ↩
14 Transcript of the Final Hearing, Day 11, 160:24 – 161:8. ↩
[Page 7]
handled at the Old Port; and (2) payment of royalties for handling future container traffic at the Doraleh Multipurpose Port from Ethiopian Shipping Lines and Messina Shipping Lines mixed cargo vessels; and (3) breach of exclusivity (save insofar as this Counterclaim is covered by Counterclaims (1) and (2)).
The parties hereby agree:
1 The reference before the Tribunal in respect of the Respondents’ Counterclaims shall be stayed for a period of three months. If the parties are not in agreement to continue the foregoing stay beyond three months, the arbitration shall resume.
2 The parties shall negotiate in good faith with a view to reaching a mutually acceptable final and binding settlement of the Counterclaims. Such negotiations shall proceed on the basis of the following heads of terms (without prejudice to the parties’ positions should agreement not be reached):
a. The parties agree that PAID shall pay royalties to DCT in respect of Counterclaim (1) above. The level of that royalty shall be calculated by reference to (a) PAID gross revenue per TEU, less (b) verified stevedoring and storage costs per TEU, (subject to discussion of whether there are other relevant costs to be considered); and such other apportionment thereof as the parties may agree.
b. The parties agree that PAID shall pay royalties to DCT in respect of Counterclaim (2) above. The level of that royalty shall be the same as that agreed and applicable in respect of Counterclaim (1).
c. If the level of royalties is agreed, all royalties shall be paid in USD, free of deductions of any kind, to an account to be designated by DCT and upon such other terms as the parties may agree.
d. If the level of royalties is agreed, PAID shall make available all data and documents reasonably necessary for the Respondents to verify TEU throughput, revenues and relevant costs as agreed, and any such information as may reasonably be necessary to determine the royalty rate or calculate the total amount of royalties due to DCT.
3 The foregoing is without prejudice to Counterclaim (3) and any future claims DCT may have in respect of breach of exclusivity. However, if the parties reach agreement on royalties in respect of Counterclaims (1) and (2), Counterclaim (3) will be withdrawn from the present arbitration without prejudice to it being referred to arbitration in the future should containers be handled at the multipurpose port which are not from mixed cargo vessels of Ethiopia Shipping Lines and Messina Shipping Lines and so covered by the royalty agreed in relation to Counterclaim (2). In that event, the parties shall also enter into a tolling agreement in order to suspend the limitation period in respect of Counterclaim (3).15
12. The Respondents relied on the Claimants’ representations in reaching this agreement, believing them to be true. Thereafter, the parties pursued commercial negotiations for several months, having sought extensions of the stay from the Tribunal for such purpose. However, despite the Respondents’ efforts to engage with the Claimant to reach an agreement on the quantum of royalties, the Claimants’ representatives declined to engage sufficiently on
15 Joint Letter to the Tribunal from Quinn Emanuel Urquhart & Sullivan LLP (Quinn Emanuel) and Gibson Dunn & Crutcher LLP (Gibson Dunn) dated 13 Oct. 2016, R-326. ↩
[Page 8]
a commercial level and the parties therefore were unable to reach any agreement. At a board meeting of DCT on 15 September 2017, PDSA, whose representatives were present, provided DCT with some further information in relation to container traffic volumes handled at the Old Port and the operating costs and margins thereof,16 but failed thereafter to respond to the Respondents’ attempts to reach a settlement. Meanwhile, on 18 December 2017, the Claimants’ then-counsel, Gibson Dunn & Crutcher LLP, informed the Tribunal that it no longer acted for the Claimant.17 No counsel has appeared since then.
13. In the face of the Claimants’ continuing lack of engagement, on 28 December 2017, the Respondents were compelled to request the Tribunal to resume the arbitration of the counterclaims.18 On 19 February 2018, the Tribunal, noting that the Claimants had failed to respond to the Respondents’ letter of 28 December, ordered the resumption of these proceedings to deal with the outstanding counterclaims and proposed a timetable for the procedural stages of the proceedings.19
14. On 16 March 2018, the Respondents informed the Tribunal of new circumstances affecting the scope of their counterclaims.20 The premise underlying the parties’ joint letter to the Tribunal was that the Claimants’ representations to the Respondents and the Tribunal were true. As it turned out, the Claimants’ representations proved false. For the reasons and based on the evidence set out more fully below, it is obvious that the DMP will handle: (i) container ships, as well as mixed cargo vessels; and (ii) containers from shipping lines other than ESL and Messina, in both respects in breach of the Respondents’ exclusivity rights over container traffic under Article 3.6 of the 2006 Concession Agreement. Moreover, the Claimants appear to be involved in the construction of yet another container handling facility, referred to as the Djibouti International Container Terminal (DICT), in breach of the
16 Draft Minutes of Meeting of the DCT Board dated 15 Sept. 2017, Section 10, R-327. These minutes were never signed by the parties as DCT’s practice was to have the draft minutes of a Board Meeting presented at a subsequent Board Meeting for agreement and signature by the directors. Although the representatives of the Claimants and Respondents briefly engaged with each other on the payment of royalties after this Board Meeting, no further meeting of the Board of DCT has taken place. ↩
17 Email from Mr. Cyrus Benson of Gibson Dunn to the Chairman of the Tribunal dated 18 Dec. 2017, in R-328, p. 34. ↩
18 Letter from Quinn Emanuel to the Tribunal dated 28 Dec. 2017, in R-328, pp. 30-32. ↩
19 Letter from the Tribunal to the Parties dated 19 Feb. 2018, in R-328, pp. 21-22. ↩
20 Letter from Quinn Emanuel to the Tribunal dated 16 Mar. 2018, in R-328, pp. 10-12. ↩
[Page 9]
DCT’s exclusive rights under Article 3.6 of the Concession Agreement to develop and operate additional container handling facilities within Djibouti.
15. Also on 16 March 2018, in compliance with the procedural timetable, the Respondents filed and served their Additional Requests for the Production of Documents in relation to the Counterclaims (Requests for Documents). The Claimants did not make any similar additional requests for documents from the Respondents. The Requests for Documents went unanswered by the Claimants, even after the long stop deadline in the procedural timetable of 28 May 2018.21 As such, in relation to the quantification of its losses, the Respondents and their independent experts have needed to make assumptions in relation to the information and data sought through the Requests for Documents.
16. The Respondents seek a declaration that Djibouti is in breach of Articles 3.6.2 and 3.6.3 of the Concession Agreement. DCT also seeks damages from the Claimants for the breach.
17. Article 3.6 stipulates the Respondents’ exclusivity rights over all container handling operations in Djibouti, in the following terms:
3.6 Exclusivity
3.6.1 The Grantor shall, itself or through PAID, cause the entire container traffic (including any domestic or combi vessels) at the existing container terminal at the Port to be shifted to the Doraleh Container Terminal, within 30 (thirty) days from the Date of Commercial Operations of Phase I of the Project.
3.6.2 The Grantor agrees that after the Date of Commercial Operations of Phase I of the Project and during the entire Operations Period, it shall not and shall cause the Authority and PAID not to directly or indirectly operate or commission any existing or additional facilities (including the existing container terminal at the Port) within the Republic of Djibouti for handling containers, without the prior written consent of the Concessionaire.
3.6.3 Subject to the provisions of Articles 3.6.1 and 3.6.2 above, the Grantor agrees that in the event that it or the Authority or PAID decide or propose to develop any additional container handling facilities (including at the existing container terminal at the Port, after the Date of Commercial Operations) it shall first offer the Concessionaire the right to develop such additional container handling facilities, on
21 Letter from Quinn Emanuel to the Tribunal dated 20 Apr. 2018, Email from the Tribunal to the Parties dated 20 Apr. 2018, Letter from Quinn Emanuel to the Tribunal dated 7 June 2018, in R-328. ↩
[Page 10]
such terms and conditions as may be agreed between the Parties and being no less favourable than the terms of this Agreement.
3.6.4 If any other port or container facility is developed in the Republic of Djibouti by the Grantor or any other third party pursuant to the provisions of this Article 3.6 receives more favourable treatment or privileges from the Grantor and/or the Authority and/or PAID than are offered or extended to the Doraleh Container Terminal and/or the Concessionaire under this Agreement, then the Grantor confirms that equivalent favourable treatment or privileges shall at the same time be offered or extended to the Doraleh Container Terminal and/or the Concessionaire.
18. By Articles 3.6.2 and 3.6.3, the Claimants agreed that they would not “directly or indirectly operate or commission” an “additional facilit[y] ... within the Republic of Djibouti for handling containers” without the prior consent of DCT. In breach of this express obligation, the Claimants commissioned and developed the DMP with China Merchants Holdings (International) Co. Ltd. and its affiliates (China Merchants) and are developing the DICT.
19. In early 2013, China Merchants and its affiliates agreed with Djibouti to develop, build and operate a new multipurpose port, bulk terminal, crude oil terminal and ship repair yard in order to transform the old port of Djibouti.22 On 16 August 2014, the President of Djibouti and the vice-president of China Merchants Group together signed an agreement for the construction of the DMP.23 The DMP’s construction was commenced in September 2014,24 and the port was inaugurated on 24 May 2017.25 DCT’s consent was never sought at any point in time prior to, or during, the construction and development phase of the DMP.
20. The Claimants’ position, conveyed through its witness at the oral hearing, Mr Aboubaker Hadi, was that the Claimants did not need to take DCT’s consent as the DMP was
22 Letter from A. Hadi to J. Kruijning dated 17 Apr. 2013, R-23; Shareholders Agreement Relating to Port de Djibouti between DPFZA Djibouti, China Merchants Holdings (Djibouti) FZE and Port de Djibouti dated 5 Feb. 2013, R-231. ↩
23 Contract Documents for Design and Build on Doraleh Multi-Purpose Port (Phase I) In Djibouti Contract No. PDSA-GHDC-01 between Port de Djibouti, China State Construction Engineering Corporation Limited and China Civil Engineering Construction Corporation dated 17 Aug. 2014, R-232. ↩
24 The Economist Intelligence Unit, New port construction contracts signed dated on 4 Sept. 2014 (available at: http://country.eiu.com/article.aspx?articleid=962241680&Country=Djibouti&topic= Economy&subtopic=Forecast&subsubtopic=Policy+trends&u=1&pid=1406387724&oid=1406387724 &uid=1), R-329. ↩
25 Program of the Ceremony & Description of the DMP, in Doraleh Multi-Purpose Port, Arrival of new equipment ceremony dated 16 Aug. 2016, R-323. ↩
[Page 11]
not an “additional” container handling facility, but a “replacement” for the Old Port.26 Mr Hadi was the Claimants’ most senior witness at the hearing, being the Chairman of DPFZA and CEO of PDSA, and was qualified to provide such confirmations. In relation to the Old Port, the Respondents had agreed to a narrow waiver of their exclusivity rights, being that mixed cargo vessels of two particular shipping lines, ESL and Messina, that included containers in their cargo, would be handled at the Old Port, subject to the payment of a royalty to DCT. Mr Hadi stated at the hearing that the DMP’s container facility would only be used by ESL and Messina and that DMP would not take any traffic from DCT.27
21. The Claimants’ position was suspect to say the least. As advertised in DMP’s marketing materials, the DMP features four separate terminals, able to handle vessels with more than 15,000 containers.28 The photographic and video promotional material for DMP evidenced that it was being built with a container handling capacity of 200,000 twenty-foot equivalent units (TEU), with targeted marketing focusing on container vessels.29 Notwithstanding, in an effort to reach an amicable settlement of the dispute, based on the Claimants’ representations at the hearing, the Respondents’ agreed to suspend the arbitration of their claim to breach of exclusivity and negotiate on a royalty rate for ESL and Messina mixed cargo vessels that would be handled at DMP in the future.30
22. The Claimants eschewed any proper engagement with the Respondents to negotiate on the royalty rate. Meanwhile, it became clear to the Respondents that Mr Hadi’s statements were a wilful and deliberate misrepresentation of the position by the Claimants.
(a) First, the DMP’s container facilities are far in excess of the limited container handling facilities that the DMP needed as a replacement for the Old Port.31
26 Transcript of the Final Hearing, Day 2, 112:22, 113:10-19, 115:17-116:8. ↩
27 Transcript of the Final Hearing, Day 2, 117:3-19; 123:19-24. ↩
28 Jeune Afrique, Le port géant de Djibouti officiellement inauguré dated 25 May 2017 (available at: http://www.jeuneafrique.com/441982/economie/nouveau-port-polyvalent-de-doraleh-djibouti-veut-devenir-shenzen-de-lafrique-de-lest/), R-330; Program of the Ceremony & Description of the DMP, in Doraleh Multi-Purpose Port, Arrival of new equipment ceremony dated 16 Aug. 2016, R-323. ↩
29 Port Technology, Must-Watch: Djibouti’s Massive Port Expansion (video still at 5:15) dated 15 June 2016, R-314. ↩
30 Transcript of the Final Hearing, Day 11, 131:12-132:7. ↩
31 Respondents’ Amended Reply to the Amended Defence to Counterclaims dated 16 Aug. 2016, paras 6D-6F; La Nation, Doraleh Multipurpose Port: The best trained operators to ensure the competitiveness of ↩
[Page 12]
(b) Secondly, recent marketing of the DMP in Ethiopia and elsewhere advertise the DMP’s container handling capabilities prominently. For example, a full page advertisement for DMP published in a leading newspaper in Ethiopia on 14 January 2018, prominently features a container ship being serviced at DMP.32
23. Given that the DMP already handles, or has a right to handle, all possible container traffic in Djibouti permitted in the light of DCT’s exclusivity rights, there was no justification for such advertisements. The only images visible in the advertisement are of container ships, containers in a yard and cranes to service such vessels. No reference is made in the advertisement to DMP’s ‘multi-purpose’ facilities whatsoever.
24. Such advertising establishes the true intent behind the construction of the DMP. It is plain that the DMP is being used, or will be used, to handle containers from any shipping line and on ships carrying only container cargo, and not restricted to ESL and Messina mixed cargo vessels that were being serviced at the Old Port. There has thus been a breach of the Respondents’ exclusivity rights under Article 3.6.
25. The Claimants are also developing the DICT, another container handling facility in Djibouti. This is a further breach of the Respondents’ rights under Article 3.6.
26. The Respondents first referred to the potential breach in their Amended Reply to the Amended Defence to Counterclaims in August 2016.33 The background to that reference was that on 29 March 2016, the Claimants had notified the Respondents of their intention to build a second container terminal, the DICT, and offered DCT the right of first refusal.34 The Respondents expressed interest in the project, requesting a feasibility study for DICT (which
the new port dated 9 Aug. 2016, R-312; Port Technology, Must-Watch: Djibouti’s Massive Port Expansion dated 15 June 2016, R-313; Port Technology, Must-Watch: Djibouti’s Massive Port Expansion (video still at 5:15) dated 15 June 2016, R-314; Port Technology, Must-Watch: Djibouti’s Massive Port Expansion (video still at 5:27) dated 15 June 2016, R-315; Port Technology, Must-Watch: Djibouti’s Massive Port Expansion (video still at 5:38) dated 15 June 2016, R-316; Port Technology, Must-Watch: Djibouti’s Massive Port Expansion (video still at 5:43) dated 15 June 2016, R-317; Port Technology, Must-Watch: Djibouti’s Massive Port Expansion (video still at 5:53), R-318.
32 Advertisement in Capital Ethiopia Newspaper on 14 Jan. 2018, R-331. ↩
33 Respondents’ Amended Reply to the Amended Defence to Counterclaims dated 16 Aug. 2016, para. 6H. ↩
34 Letter from DPFZA to DCT dated 29 Mar. 2016, R-319. ↩
[Page 13]
was due to be produced by the end of June 2016), and expressly reserving DCT’s rights under the Concession Agreement to develop the project.35 However, the Government dragged its feet on sharing a copy of the feasibility study for the project with DCT.36
27. In any event, since discussions were ongoing between the Claimants and the Respondents in relation to the DICT, the Respondents did not advance a claim in respect of the project, but merely reserved their right to do so, should the development of DICT progress in breach of DCT’s exclusivity rights.37
28. On 30 April 2017, the Claimants provided the feasibility study for the DICT.38 The Respondents responded stating that DCT was willing to develop and operate DICT after completing a planned expansion of the Terminal, or, if the Claimants preferred to proceed with DICT instead of expanding the Terminal, then DCT would align its plans and invest in DICT in accordance with Djibouti’s direction.39 The Respondents also took the opportunity to remind the Claimants of their exclusivity rights under the Concession Agreement.
29. To the Respondents’ surprise, the Claimants responded by simply refusing to recognise the Respondents’ contractual rights and stating that the Claimants would not work with the Respondents. Mr Hadi stated as follows:
Djibouti government is seriously considering to give its DCT share to DP World, for free, and don't [sic] envisages to any future business development with DP World.40
30. A few days later, on the occasion of the DMP’s inauguration on 24 May 2017, Djibouti signed an agreement with China Merchants to develop the DICT.41 This was plainly a breach of the Respondents’ exclusivity rights to develop DICT. DCT had not consented to
35 Letter from DCT to DPFZA dated 6 Apr. 2016, R-320. ↩
36 Letter from DCT to DPFZA dated 10 Aug. 2016, R-321; Letter from DPFZA to DCT dated 15 Aug. 2016, R-322. ↩
37 Respondents’ Amended Reply to the Amended Defence to Counterclaims dated 16 Aug. 2016, para. 6H. ↩
38 Email from G. Mohamed to S. Albanna on 30 Apr. 2017, in Email exchange between DPFZA and DP World dated 30 Apr. to 19 May 2017, R-332; Feasibility Study on DICT, Final Report dated Jan. 2017, R-333. ↩
39 Email from S. Albanna to A. Hadi on 8 May 2017, in Email exchange between DPFZA and DP World dated 30 Apr. to 19 May 2017, R-332. ↩
40 Email from A. Hadi to S. Albanna on 19 May 2017, in Email exchange between DPFZA and DP World dated 30 Apr. to 19 May 2017, R-332. ↩
41 Mako Communication, Djibouti Embassy in Ethiopia, Djibouti – Economy: conquering the new Silk Road dated 24 Nov. 2017 (available at: http://www.ambassedjibouti-eth.net/index.php?l_nr=index. php&l_nr_c=aeb764a6a854dd20beb97ec048c4ac14&l_idpa=644&langue_id=1), R-334. ↩
[Page 14]
the DICT being constructed by China Merchants, but had expressed its intention to develop DICT itself.
31. Moreover, in a further breach, it was reported that CMA-CGM, a French shipping company, may participate in the development of DICT.42 At the Africa CEO Forum in Abidjan on 27 March 2018, Mr Hadi stated that the First Claimant, the Government, intends to sign a new concession in relation to the DICT in July 2018 and construction was expected to commence in September 2018. He further stated that the DICT is to be built at a cost of $660 million, by a joint venture between the Government and CMA-CGM, in an 85:15 percent split of the shareholding respectively. Mr Hadi also stated that 15 percent of the project cost will come from an equity contribution, while the remainder will be raised through project finance. He added that the new terminal will have an annual capacity of 2.4 million TEUs, but subsequent expansion phases would bring that up to 4 million TEUs.
32. The Claimants have failed to respond to the Respondents’ Requests for Documents, rendering the Respondent unable to be able to verify this information about the DICT.43 But the reports are highly credible given that these comments were made (a) by Mr Hadi, as Chairman of the DPFZA; (b) at a public interview at a significant investors forum; and (c) with such detailed particulars about the timing, cost, and capacity of the project.
33. The Respondents wrote to CMA-CGM seeking their response on the reports and informing it of the Respondents’ exclusivity rights, but received no response.44
42 Reuters, Djibouti plans new container terminal to bolster transport hub aspirations dated 27 Mar. 2018 (available at https://uk.reuters.com/article/uk-djibouti-port/djibouti-plans-new-container-terminal-to-bolster-transport-hub-aspirations-idUKKBN1H32JS), R-335; Reuters, Djibouti in talks with CMA CGM to develop new container terminal dated 27 Mar. 2018 (available at https://af.reuters.com/article/investingNews/idAFKBN1H323Q-OZABS), R-336; Maritime Executive, Dumping DP World, Djibouti Pursues Terminal Deal with CMA CGM dated 28 Mar. 2018 (available at: https://www.maritime-executive.com/article/dumping-dp-world-djibouti-pursues-terminal-deal-with-cma-cgm#gs.McQnJII), R-337; Port Technology, Djibouti Port’s Chairman Spills CMA CGM Terminal Plan dated 28 Mar. 2018 (available at https://www.porttechnology.org/news/djibouti_ports _chairman_spills_cma_cgm_terminal_plan, R-338. ↩
43 Respondents’ Requests for Documents dated 16 Mar. 2018, Request Nos. 20-30, in R-238, pp. 18-19. ↩
44 Letter from Quinn Emanuel to CMA-CGM dated 10 Apr. 2018, R-339. ↩
[Page 15]
34. The Claimants are thus in breach of DCT’s exclusivity rights over container traffic under Article 3.6 of the 2006 Concession Agreement for the development of the DMP as well as the ongoing development of the DICT. DCT is entitled to damages for the breaches.
35. English law provides that where a party sustains loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.45 In relation to damages, the Supreme Court recently summarised the approach of the Court/Tribunal in the case of Morris-Garner v. One Step (Support) Limited in the following terms:
Where damages are sought at common law for breach of contract, it is for the claimant to establish that a loss has been incurred, in the sense that he is in a less favourable situation, either economically or in some other respect, than he would have been in if the contract had been performed. [...] Where the breach of a contractual obligation has caused the claimant to suffer economic loss, that loss should be measured or estimated as accurately and reliably as the nature of the case permits. The law is tolerant of imprecision where the loss is incapable of precise measurement.46
[...]
The objective of compensating the claimant for the loss sustained as a result of non-performance (an expression used here in a broad sense, so as to encompass delayed performance and defective performance) makes it necessary to quantify the loss which he sustained as accurately as the circumstances permit. What is crucial is first to identify the loss: the difference between the claimant's actual situation and the situation in which he would have been if the primary contractual obligation had been performed. Once the loss has been identified, the court then has to quantify it in monetary terms.47
36. Specifically, in relation to the damages recoverable for breach of contract that affects the operation of a business, the Supreme Court in Morris-Garner v. One Step (Support) Limited also observed as follows:
An example relevant to the present case is the situation where a breach of contract affects the operation of a business. The court will have to select the method of measuring the loss which is the most apt in the circumstances to secure that the claimant is compensated for the loss which it has sustained. It may, for example, estimate the effect of the breach on the value of the business, or the effect on its profits, or the resultant management costs, or the loss of goodwill: see Chitty on Contracts, 32nd ed. (2015), paras 26-172 - 26-174. The assessment of damages in such
45 Robinson v. Harman, (1848) 1 Ex Rep 850, RLA-14, at 855. ↩
46 Morris-Garner v. One Step (Support) Ltd., [2018] UKSC 20, RLA-15, para. 95. ↩
47 Morris-Garner v. One Step (Support) Ltd., [2018] UKSC 20, RLA-15, para. 36. ↩
[Page 16]
circumstances often involves what Lord Shaw described in Watson, Laidlaw at pp 29-30 as “the exercise of a sound imagination and the practice of the broad axe”.48
37. But for the Claimants’ breach of DCT’s exclusivity rights under Article 3.6 of the Concession Agreement, all containers, except those on ESL and Messina mixed cargo vessels, would be handled at the Terminal. As a result of the Claimants’ unlawful development of additional container handling facilities at DMP and DICT, the container traffic will be split among the ports, causing loss of earnings and profit to DCT.
38. Thus, DCT’s claim, quantified below, is that it is entitled to damages in the amount of the lost future revenue and profit it would have otherwise received on all containers serviced at the Terminal for the remainder of the term of the Concession Agreement, but for the existence of DMP and DICT.
39. Accompanying this submission is an expert report of Dr Pablo T. Spiller in relation to the quantum of damages for the Respondents’ counterclaims. Dr Spiller previously submitted two expert reports in this matter that computed the damages as of 31 August 2015.49 His latest report, which encompasses new information that has come to light since his prior reports, tabulates the damages as of 30 June 2018.50
40. Dr Spiller calculates the loss to DCT as the difference between net revenues were it not for competition from additional container ports (with exclusivity) and under the current conditions created by the additional container ports (without exclusivity).51 Dr Spiller has only been able to calculate DCT’s losses based on DMP. Due to the Claimants’ failure to respond to the Requests for Documents, there is insufficient data and information with respect to DICT for Dr Spiller to quantify DCT’s loss.52 As such, at present, the Respondents seek only a declaration as regards the Claimants’ breach of their exclusivity rights in respect of the
48 Morris-Garner v. One Step (Support) Ltd., [2018] UKSC 20, RLA-15, para. 37. ↩
49 Expert Reports by Pablo T. Spiller in the matter of The Republic of Djibouti et. al. v. DP World Djibouti FZCO et. al., LCIA Arbitration Case No. 142732 dated 2 Oct. 2015 (Spiller First Report) and 10 June 2016 (Spiller Second Report). ↩
50 Expert Report by Pablo T. Spiller in the matter of The Republic of Djibouti et. al. v. DP World Djibouti FZCO et. al., LCIA Arbitration Case No. 142732 dated 29 June 2018 (Spiller Third Report). ↩
51 Spiller Third Report, para. 13. ↩
52 Respondents’ Requests for Documents dated 16 Mar. 2018, Request Nos. 20-30, in R-238, pp. 18-19. ↩
[Page 17]
Claimants’ development of DICT, reserving their rights to quantify the damages arising from such breach at a later stage or in subsequent proceedings.
41. In relation to DMP, Dr Spiller calculates the quantum of the exclusivity counterclaim as either US$177.4 million or US$391.8 million, depending on whether DCT would expand its capacity beyond expansions already planned when faced with capacity constraints.53
42. Currently, DCT’s effective capacity is 1.25 million TEU, and current expansion plans forecast that capacity to increase to 1.58 million TEU by 2020.54 Dr Spiller projects that container traffic would reach DCT’s capacity by 2023 if DCT remains the exclusive container terminal in Djibouti, but if DMP siphons off container traffic, then DCT will not reach its capacity until 2026.55
43. Without further expansion to its capacity, Dr Spiller assesses that DCT will lose profits of US$177.4 million (discounted to present value) due to container traffic that goes to DMP in future years in violation of DCT’s exclusivity rights.56
44. However, as Dr Spiller explains, the assumption that DCT would not expand after it reached full capacity is commercially unreasonable given that container traffic is projected to continue to grow in Djibouti over the coming years so DCT would be forgoing profit if it did not expand.57
45. Assuming, as is reasonable, that DCT would continue to expand before reaching capacity constraints in order to maximize its profit, and assuming that the costs and timing of these future expansions are similar to the current expansion planned for DCT between now and 2020,58 Dr Spiller projects that DCT’s lost profits due to the breach of its exclusivity rights through the expiration of the Concession Agreement’s term in 2056 would equal US$391.8 million (discounted to present value).59 As this latter damages estimate is based on the more
53 Spiller Third Report, paras 21-22. ↩
54 Spiller Third Report, fn. 19 ↩
55 Spiller Third Report, para. 15. ↩
56 Spiller Third Report, para. 21. ↩
57 Spiller Third Report, para. 16. ↩
58 Spiller Third Report, para. 16 & fn. 20. ↩
59 Spiller Third Report, para. 22. ↩
[Page 18]
commercially reasonable assumption that DCT would expand its capacity to maximize profit, it is the better measure of DCT’s damages.
46. Accordingly, the Tribunal should award DCT damages of US$391.8 million for its exclusivity counterclaim.
47. The Respondents claim for a declaration that the Claimants are in breach of Articles 7.1.1 and 7.1.2(i) of the Concession Agreement and an award of the debt reflecting royalties owed to date by the Claimants to the First Respondent.
48. Article 7.1.1 of the Concession provides as follows:
The Grantor shall and shall cause PAID to cease all container handling and related/ ancillary activities at the existing container terminal at the Port (including in relation to combi or domestic vessels) and to shift the entire container handling operations from the existing container terminal at the Port to the Project with immediate effect on the date being 30 (thirty) days after the Date of Commercial Operations.
49. Article 7.1.2(i) of the Concession provides as follows:
Without prejudice to the provisions of Article 7.1.1 above, the Grantor agrees that all the revenues earned from the handling of containers and all ancillary or related services at the existing container terminal from the Date of Commercial Operations till the date of transfer of container handling activities shall be paid to the Concessionaire at the end of the Month in which such revenues have been earned.
50. It is not disputed that ESL and Messina discharged containers at the Old Port after DCT commenced operations, despite Article 3.6.1 of the Concession Agreement conferring exclusivity over container handling on DCT.60 The Claimants have acknowledged that they must pay DCT a royalty in respect of the container revenue at the Old Port.61 However, the Claimants have so far refused to pay the royalties due.
51. Having established that a debt is due, the Respondents are entitled under English Law to an Award to enforce the contractual obligation of the Claimants to pay the agreed sum.
60 Witness Statement of Aboubaker Hadi dated 22 July 2015, para. 92; Witness Statement of Aden Douale dated 22 July 2015, para. 95. ↩
61 Transcript, Day 2, 101:7-10; Witness Statement of Aboubaker Hadi dated 22 July 2015, para. 96; Minutes of Meeting of the DCT Board dated 15 July 2012, R-90. ↩
[Page 19]
52. The quantum of this counterclaim has also been addressed by Dr Spiller in his latest report. He has calculated that DCT is owed damages of US$140.9 million as of 30 June 2018, representing the sum of revenue earned by the Old Port on the containers handled at the Old Port after the commencement of operations at DCT.62
53. The methodology for calculating these damages is straightforward: the volume (in TEU) of historical traffic handled at the Old Port between 2011 and 2017 multiplied by the Old Port’s projected revenue per TEU.63
54. But because the Claimants have failed to respond to the Respondents’ Requests for Documents, the Respondents have been unable to obtain documentation to verify the precise amount of container traffic in 2017 or the Old Port’s revenue per TEU. Accordingly, Dr Spiller has been forced to estimate these figures, so he has assumed, conservatively, that the Old Port’s container traffic in 2017 is equal to its container traffic in 2016,64 and that the Old Port’s revenue per TEU equals DCT’s average revenue per TEU.65 Given the Claimants’ failure to provide more accurate data, these assumptions are reasonable.66
55. Accordingly, the Tribunal should award DCT damages of US$140.9 million for its royalty counterclaim.
56. The Tribunal is empowered to award DCT interest on its recoverable damages. Section 49(1) of the Arbitration Act 1996 provides that the parties are free to agree on the powers of the Tribunal as regards the award of interest and in the present case, the parties’
62 Spiller Third Report, para. 9. ↩
63 Spiller Third Report, paras 8-9. ↩
64 Spiller Third Report, para. 7 & fn.6. ↩
65 Spiller Third Report, para. 9 & fn.10. ↩
66 Although the Draft Minutes of Meeting of the DCT Board dated 15 Sept. 2017, R-327, refer to comments of PDSA’s representative as to the total container volume handled at the Old Port until June 2017, this is unverifiable by DCT or Dr Spiller. Moreover, the Claimants failed to respond to the requests for such data in the Requests for Documents, Request Nos. 1-2. Dr Spiller has thus assumed the volume of containers for 2017. ↩
However, Dr Spiller’s assumptions are in line with the figure of total container traffic at the Old Port cited by PDSA’s representative as reflected in the Draft Minutes. Equally, since tariffs charged by DCT and the Old Port on containers are the same, the average revenue per TEU at the Old Port is likely to be the same as the average revenue per TEU at DCT.
[Page 20]
agreement is reflected in Article 20.2 of the Concession Agreement, which applies the LCIA Rules to these proceedings. The LCIA Rules stipulate as follows in Article 26.4, in relation to the Tribunal’s power to order payment of interest in the Award
Unless the parties have agreed otherwise, the Arbitral Tribunal may order that simple or compound interest shall be paid by any party on any sum awarded at such rates as the Arbitral Tribunal decides to be appropriate (without being bound by rates of interest practised by any state court or other legal authority) in respect of any period which the Arbitral Tribunal decides to be appropriate ending not later than the date upon which the award is complied with.
57. In relation to pre-Award interest, Mr Spiller has included the sums of interest that would be due on royalties for containers of ESL and Messina handled at the Old Port, in his computation of damages. This approach is reasonable because according to Article 7.1.2(i) of the Concession Agreement, the revenue generated at the Old Port on containers had to be paid to DCT “at the end of the Month in which such revenues have been earned”.
58. In relation to post-Award interest, the Respondents submit that the rate should be reasonable and take into account all relevant circumstances, in particular the interest rates prevailing in the markets for the relevant currency during the relevant period. The interest rates in Djibouti are reported to be in the range of 10–12 percent.67 This reflects the cost of borrowing for DCT. As such, the Respondents submit that a simple interest rate of 10 percent is reasonable in the circumstances to be awarded to DCT as post-Award interest until such time as the Award is paid by to DCT by the Claimants.
59. The Respondents respectfully request that the Tribunal:
(a) DECLARE that the Claimants have breached the Respondents’ exclusivity rights under Articles 3.6.2 and 3.6.3 of the Concession Agreement by the development of the DMP and are liable in damages to the First Respondent in respect of DMP in the amount of US$391.8 million;
(b) DECLARE that the Claimants have breached the Respondents’ exclusivity rights under Articles 3.6.2 and 3.6.3 of the Concession
67 African Development Bank Group, African Financial Sector Database, 2016 – Djibouti, 2016 dated 8 July 2016 (available at http://dataportal.opendataforafrica.org/AFDBFP2016/african-financial-sector-database-2016?country=1000120-djibouti), R-340. ↩
[Page 21]
Agreement by the development of the DICT, for which breach the Respondents are entitled to seek damages at such time as the Respondents are able to quantify their losses arising from the breach;
(c) DECLARE that the Claimants have breached their obligation under Articles 7.1.1 and 7.12.(i) of the Concession Agreement to pay the Respondents royalties for container traffic diverted to other ports from the Terminal and are liable to the First Respondent for such royalties in the amount of US$140.9 million;
(d) ORDER that the Claimants pay the Respondents in respect of the liability referred to at (a) and (b) above, the total amount of US$532.7 million within 30 days of the Award;
(e) ORDER under Section 49 of the Arbitration Act 1996 and Article 26.4 of the LCIA Rules that the Claimants pay the Respondent simple interest on all of the judgment debt and damages in respect of which the Award is given at the rate of 10 percent from the date of the Award, or interest from such dates, at such rates and with such rests as it considers meets the justice of the case;
(f) ORDER the Claimants to pay to the Respondents the costs they have incurred in connection with the arbitration of the counterclaims, including, without limitation, the costs of the Arbitral Tribunal and the LCIA, as well as all legal and other professional fees; and
(g) ORDER such further or other relief as the Tribunal shall deem fit.
Respectfully submitted.
2 July 2018
Signature
QUINN EMANUEL URQUHART & SULLIVAN, LLP
Counsel to the Respondents