Lecture 4

contract analysis

Recap Lecture 3 - Equty Finance vs Debt Finance - Bretton Woods Institutions (BWI) - What are BWIs? - What is the world bank doing? - What is the difference between the IBRD and the IMF? - What are the typical actors in a hydro-electro dam project? This lecture outline - Sources of law o Investment Law o Contract Law - (Legal Actors) - (Legal Instruments) - Main clauses - Case study: Chad IMF interacts with - National governments - World bank - Private sector o Investors - Civil society o NGOs Contract analysis | sources of law - Public rule setting o International => international investment law [see reader] o Regional => regional investment law o National => national investment law = often regular private law - Private rule setting o [Contract law] o Contract drafting

Contract analysis | ex ante and ex post - Ex ante: when in the process of drafting the contract - Ex post: there already is a contract

Contract analysis | main clauses - Parties o What are the parties to the contract? o Most of the time 2 parties to a contract, find them in the first page of the contract - Considerations o Where is it all about? Is it for example a loan agreement? Look at the whereas this is where the considerations-part starts - Main obligations o In article 1, 2 and 3 - Term & Termination o What are the reasons to terminate the contract? o Accuracy in FD = accounting - Applicable law & Dispute settlement o For eample arbitration (ex post dispute settlement) o Judges of governmental court should declare themselves not competent when we have an arbitration clause o Enforcement is regulated nationally Mechanism of arbitration: - Claim - Refuse (+counterclaim) - Review evidence - Hearing - Arbitrators make an award/judgment

Case study: Chad PARTIES

CHAD PROJECT REVENUE PLAN

FINANCES 1

FINANCES 2

General conditions from the IBRD

Case study: India - Parties: Guarantor + Bank=lendor o Borrower? (Powergrid Corporation of India Ltd.) - Considerations - Main obligations o Primary obligor vs. surety o Payment of principal + interest - Time arrangements - Default arrangements - Dispute Settlement Arbitration - Alternative Dispute Settlement (Quarter-5) vs. Governmental Adjudication - Goal: ex post dispute settlement via judgment or award - Basis: party choice + contract clauses + applicable law [Quarter-5] (or ex equo et bono) - Mechanism: procedure like all litigation o Claim o Defense (+Counter claim) o Review evidence o Hearing o Judgment - Enforcement (Treaty New York 1958)

Case Tanzania - Parties - Considerations - Main obligations - Time arrangements - Default arrangements - Dispute settlement Case Egypt - Parties - Considerations - Main obligations - Time arrangements - Default arrangements - Dispute settlement Exam tips - Understand what a loan agreement is - Understand what a guarantee agreement is - Able to identify the story in contract and/or judgments Workshop 4 What is a loan agreement? Loan is money or goods given to someone with the intention/aim of being returned later. What is the purpose of these loans? You borrow money to break the vicious circle and because you have a lack of capital. The interests of the lender are to receive money+interest. What is a sales agreement? The act of exchange of money for goods/services. What are the risks of having a loan agreement and what solution might be used to obtain the money back? The risk is default situation (the money cannot be returned from the recipient to the financer). As a solution might be used expropriation (e.g. mortgage of a real estate). Another option is the establishment of a guarantee, which is a promise of a third party to pay the debt on behalf of the other debtor. If the original debtor does not pay, then the original creditor requests the money from the guarantor (an example of a guarantee is the European Fund, from which money is withdrawn in case of a crisis). How is this risk dealt with? Guarantors - If you dont pay the money back (in time) no loans in the future for you anymore

Guarantees: a promise of a 3rd party on behalf of the other party (guarantor)

If a company from the developed countries (in the role of an investor) is dealing with situations in the developing countries, they are guaranteed by a guarantor (such as the Breton Woods institutions) that the investment will be returned. However, the guarantor might also request the money from the debtor in a period of time. If the original debtor does not pay, the creditor knocks on the door of the guarantors. Then the guarantor will step in the shoes of the creditor. States + BWI = guarantor. What is the time-limit for requesting the guarantee? - If the debtor repays the periodical payment, there is no default and the guarantor has no role. - In case that there is default, the money is requested by the guarantor. Why would you want to be a guarantor? - Development - Just 1 signatore would get them more FDI (more airports, harbors etc.)

Who are the 4 acotrs in a bilateral investment treaty? - 2 states - Operating company (building x, owns the dam) - Foreign direct investors In a bilateral investment treaty the parties are two States. Some clauses that are included in it are setting the conditions between the two countries, facilitating the role of a company that is a corporate citizen in the one State to a company that is a corporate citizen of the other State. The role of a bilateral investment treat is to 1) welcome the investors (giving favorable treatment); 2) lay down the conditions for expropriation (without compensation). Maltreatments and issues against investors o By Legislative branch: making laws against the import of some goods/making laws unfavorable for the investor/discrimination against foreign investors o By Executive branch: bans on the import of some goods/not enforcing laws o Adjudicative branch: unfair judgments The two parties are the people who are going to make the project and the company, operating the building process unless the State is a contract party (then the parties to the project are only two).

Bilateral Investment Treaty - NOT the same as a loan agreement - General rule between 2 states concerning investment - Opens the door: invites investors/investors are welcome - Investors do not like expropriateion, therefore the BIT covers them against this - Access to arbitration - Protection against maltreatment (see page 32)