SIAC VIRTUAL CONGRESS 2020

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VIRTUAL HEARING
DEMONSTRATION CASE MATERIALS
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Copyright Notice: The use of the materials contained in this document is for informational
purposes only. You agree not to distribute, publish, transmit, modify, display or create any
derivative works from or exploit the contents of this document in any way. Copyright of this
material remains with the SIAC.

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TABLE OF CONTENTS

1. Case Outline……………………………………………………………..….. 4

2. Witness Statement of Mr Victor Hugo……………………………….….. 6

3. Witness Statement of Mr Leo Tolstoy…………………………….……... 19

4. Joint Statement of Mr James Nicholson and Mr Iain Potter …..……… 31

5. Expert Report of Mr Fyodor Dostoevsky………………………………… 38

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CASE OUTLINE

1. The Virtual Hearing Demonstration is based on a dispute between Plumet Co., Ltd.
(Claimant), the Republic of War and Peace (First Respondent), and the Kingdom Mining
Development Corporation (Second Respondent).

2. The dispute arises out of an agreement between the parties (Iron Ore Supply Agreement),
which, amongst other things, formalised the parties’ obligations to each other with regard
to the construction of an iron refinery and smelter, and the provision of iron ore.

3. Under the Iron Ore Supply Agreement, the Respondents undertook to mine and supply iron
ore to the Claimant at a significantly reduced price. The Claimant undertook to provide the
expertise and investment to build the iron refinery and smelter, and to purchase iron ore as
produced by the Respondents for use in the iron refinery and smelter.

4. However, due to the restriction on activities, decreased workforce and supply chain
disruption during COVID-19, the Respondents could not carry out mining and failed to
supply iron ore to the Claimant. Without the iron ore, the Claimant could not commence its
operations and lost its entire investment.

5. The dispute resolution clause in the Iron Ore Supply Agreement provided for arbitration
under the SIAC Investment Arbitration Rules 2017 (Investment Rules).

6. The Claimant commenced an arbitration against the Respondents for breach of contract and
has claimed damages.

7. In response, the Respondents asserted that a pandemic was intended by parties to be

included in the scope of the ‘force majeure’ clause during the pre-contractual negotiations,
and therefore it has not breached the contract.

8. The ‘force majeure’ clause in the Iron Ore Supply Agreement reads as follows:

“Force Majeure” shall mean any event or circumstance which is beyond the reasonable
direct or indirect control of either Party (the “Affected Party”) and without the fault or
negligence of the Affected Party and which results in such Affected Party’s inability
(partially or fully) notwithstanding its best efforts to perform its obligations in whole or in
part”.

9. In the virtual hearing, the fact witnesses for the Claimant and the Second Respondent will
testify on the issue of whether a pandemic was intended by parties to be included in the
scope of the ‘force majeure’ clause during the pre-contractual negotiations.

10. In the event that the Tribunal determines that there is a breach of contract, the Respondents
have submitted that the Claimant’s claim of damages is an unreasonable assessment of its
loss from the Respondents’ failure to supply the iron ore.

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11. On the assumption that the Claimant succeeds in its claim on the issue of breach
of contract, there will be hot tubbing of the Claimant’s and Respondents’ expert witnesses
on assessment of damages.

12. Additionally, the Tribunal has also appointed an expert to determine the consequences
of the pandemic on iron ore mining operations.

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IN THE MATTER OF AN ARBITRATION UNDER THE INVESTMENT

ARBITRATION RULES OF THE SINGAPORE INTERNATIONAL
ARBITRATION CENTRE

SIAC Arbitration No. 01 of 2020

Between

PLUMET CO., LTD.

… Claimant

And

(1) REPUBLIC OF WAR AND PEACE

(2) KINGDOM MINING DEVELOPMENT CORPORATION
…Respondents

WITNESS STATEMENT OF MR VICTOR HUGO

I, Mr Victor Hugo care of 14, Fiddle Fig Road, Gorbeau Lands do solemnly and
sincerely affirm and say as follows:

1. I am the Chief Executive Officer of PLUMET CO., LTD (the “Claimant”) and I am
authorised by the Claimant to make this witness statement on its behalf.

2. The matters deposed to herein are based on my personal knowledge or on documents

in my possession or now shown to me. Insofar as they are based on my personal
knowledge, they are true. Insofar as they are based on documents within my possession,
they are true to the best of my knowledge, information and belief.

I. Introduction

3. The Claimant is a company registered under the laws of Gorbeau Lands. The Claimant
is in the iron ore smelting and refining business. Using its world-class smelting and
refining technologies developed over the years, the Claimant is committed to producing
superior quality iron to meet the world’s needs. The Claimant also seeks to promote the

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use of sustainable practices, and has various environmental initiatives to remain

accountable to its stakeholders.

4. Respondent No. 1 in the present arbitration is the Republic of War and Peace.
Respondent No. 2, Kingdom of Mining Development Corporation, is a company
incorporated under the laws of Republic of War and Peace, and is Respondent No. 1's
wholly-owned undertaking.

5. I became the Claimant’s CEO in 2014. I first joined the Claimant in 1995, having
graduated with a Bachelor’s Degree in Chemistry from Gorbeau Lands University. I was
promoted to General Manager in or around 2003. Later, I obtained an MBA from
Panache Lands University in 2007. In 2010, I became the Managing Executive Officer of
the Claimant, and in 2014, I was asked to be CEO. As such, I have experience in project
planning, management, and sales amongst other things.

6. On 2 June 2015, the Claimant and the Respondents entered into an agreement (the “Iron
Ore Supply Agreement”), which, amongst other things, formalised the parties’
obligations to each other with regard to the construction of an iron refinery and smelter,
and the provision of iron ore.

7. Under the Iron Ore Supply Agreement, Respondent No. 1 undertook to mine and
supply iron ore through its wholly-owned undertaking, Respondent No. 2 to the
Claimant monthly. The iron ore would be mined from areas spread over 5000 hectares
with probable reserves of 500 million tonnes of iron ore. The Claimant undertook to set
up and run iron refinery and smelter in Republic of War and Peace, with a capacity of 3
million tonnes and 4 million tonnes respectively per annum (the "Iron Refinery and
Smelter"), and a capital outlay of US$ 3.5 billion.

8. I understand Claimant’s claim against the Respondents to be as follows:

(a) Claimant is claiming against the Respondents for breach of contract arising out of
the Iron Ore Supply Agreement.

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(b) In breach of the Iron Ore Supply Agreement, Respondents failed to provide the
monthly iron ore to the Claimant for the months March 2020, April 2020, and May
2020, and claimed force majeure to avoid liability.
(c) As a result, the Claimant could not commence its operations, and incurred huge
losses to be quantified.

II. Background to Iron Ore Supply Agreement

9. In or around 2 February 2015, Respondent No. 1’s Mines Department issued a notice
inviting interest for setting up iron and steel industry in Republic of War and Peace(the
“Tender”).

10. As the Claimant has vast industrial experience, I directed that the Claimant approach
Respondent No. 1 to establish the Iron Refinery and Smelter.

11. Sometime on or around 20 March 2015, Respondent No. 1, represented by its Secretary
to the Government, Industries and Commerce (Mines) Department, and CEO of
Respondent No. 2, Mr Leo Tolstoy, met with me and my business development team at
Respondent No. 2’s office in Republic of War and Peace.

12. At this meeting, Mr Leo Tolstoy proposed the following ways for co-operation between
the Claimant and the Respondents:

(a) Proposal (a): Parties jointly own the Iron Refinery and Smelter. Parties would
establish a joint venture company. Parties’ respective ownership of the Iron Refinery
and Smelter could be later discussed and formalised in a joint venture agreement.
(b) Proposal (b): Respondent No. 1 builds and owns the Iron Refinery and Smelter.
Respondent No. 1 would purchase the relevant equipment, technology, construction
expertise and know-how from the Claimant. The Claimant would operate the Iron
Refinery and Smelter, and Respondent No. 2 would supply iron ore.
(c) Proposal (c): Claimant builds and owns the Iron Refinery and Smelter. Respondents
would then provide the Claimant with the iron ore required by the Claimant for a
long term on terms to be agreed between the parties.

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13. At the time, I considered Proposal (c) to be the most feasible. Nonetheless, I consulted
the Claimant’s Board on all three proposals. At the Board meeting on 14 April 2015, it
was decided that Proposal (b) was moot, as it was not the Claimant’s policy to retain
only management control of the Iron Refinery and Smelter without ownership control.
Between Proposals (a) and (c), the Board made a unanimous decision to proceed with
Proposal (c).

14. Given this, I e-mailed Mr Leo Tolstoy on 15 April 2015 to inform him that the Claimant
was happy to discuss the terms for Proposal (c) in detail.

III. Pre-contractual negotiations between the Parties

15. On 20 April 2015, Mr Leo Tolstoy provided a draft template agreement with commercial
terms to be agreed on for the Claimant’s consideration (the “First Draft”). This e-mail is
exhibited at “Tab 1”.

16. The commercial terms were discussed by the parties over e-mail and various telephone
conference calls from 20 April 2015 to in or around 1 June 2015.

17. I had concerns about the force majeure clause provided as it was very broadly worded,
and asked the Claimant’s lawyers to consider the issue more closely.

18. The Force Majeure clause included in the First Draft was as follows:

“Force Majeure” shall mean any event or circumstance which is beyond the reasonable
direct or indirect control of either Party (the “Affected Party”) and without the fault or
negligence of the Affected Party and which results in such Affected Party’s inability
(partially or fully) notwithstanding its best efforts to perform its obligations in whole or
in part including:
(a) Geological conditions those were not reasonably foreseeable as a result of which
construction of the mines is delayed;
(b) Disturbances caused in whole or part by agitation, civil commotion or unrest; and
which continue for a minimum period of fifteen (15) days but shall not include
strikes or lock outs;

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(c) Act of foreign enemy, war (whether declared or undeclared), revolution, coup d’état,
terrorist act, blockade, war embargo, insurrection, arson, disturbance of public
order, sabotage and act of vandalism;
(d) Ionizing radiation or contamination by radioactivity from nuclear fuel or from any
nuclear waste from the combustion of nuclear fuel, radioactive, toxic explosive or
any other hazardous properties of any explosive nuclear assembly or nuclear
component thereof;
(e) Acts of God such as lightening, storm, cyclone, hurricane, typhoon, flood, tidal
wave, earthquake, landslide, epidemic or similar cataclysmic event, quarantine, or
exceptionally adverse weather conditions which are in excess of the statistical
measures for the last hundred (100) years;
(f) Explosion or fire (which is not due to the Affected Party’s negligence or fault or to
its failure to comply with the standards of a prudent utility operator) accident or
chemical contamination;
(g) Any disturbance caused by the Governmental instrumentalities;
(h) Mine fires and inundation where either is caused due to natural causes despite
normal precautions in accordance with extant mining practices in Republic of War
and Peace; and/or
(i) Any event or circumstance of a nature analogous to the foregoing.

19. Based on Claimant’s lawyers’ proposal for amendments, I e-mailed Mr Leo Tolstoy on
11 May 2015 attaching Claimant’s amendments to the First Draft (the “Second Draft”).
This e-mail is exhibited at “Tab 2”.

20. In particular, I highlighted Claimant’s amendment to the Force Majeure clause:

”Force Majeure” shall mean any event or circumstance which is beyond the reasonable
direct or indirect control of either Part (the “Affected Party”) and without the fault or
negligence of the Affected Party and which results in such Affected Party’s inability
(partially or fully) notwithstanding its best efforts to perform its obligations in whole or
in part including:
(a) Geological conditions those were not reasonably foreseeable as a result of which
construction of the mines is delayed;

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(b) Disturbances caused in whole or part by agitation, civil commotion or unrest; and
which continue for a minimum period of fifteen (15) days but shall not include
strikes or lock outs;
(c) Act of foreign enemy, war (whether declared or undeclared), revolution, coup d’état,
terrorist act, blockade, war embargo, insurrection, arson, disturbance of public
order, sabotage and act of vandalism;
(d) Ionizing radiation or contamination by radioactivity from nuclear fuel or from any
nuclear waste from the combustion of nuclear fuel, radioactive, toxic explosive or
any other hazardous properties of any explosive nuclear assembly or nuclear
component thereof;
(e) Acts of God such as lightening, storm, cyclone, hurricane, typhoon, flood, tidal
wave, earthquake, landslide, epidemic or similar cataclysmic event, quarantine, or
exceptionally adverse weather conditions which are in excess of the statistical
measures for the last hundred (100) years;
(f) Explosion or fire (which is not due to the Affected Party’s negligence or fault or to
its failure to comply with the standards of a prudent utility operator) accident or
chemical contamination;
(g) Any disturbance caused by the Governmental instrumentalities;
(h) Mine fires and inundation where either is caused due to natural causes despite
normal precautions in accordance with extant mining practices in Republic of War
and Peace; and/or
(i) Any event or circumstance of a nature analogous to the foregoing.

21. I note that the amendment relating to the Force Majeure clause was accepted by the
Respondents in Mr Leo Tolstoy’s e-mail dated 22 May 2015. This e-mail is exhibited at
“Tab 3”.

22. While the Respondents have invoked the Force Majeure clause, I note that parties agreed
to narrow the meaning and scope of Force Majeure event.

23. The effect of Force Majeure under the Iron Ore Supply Agreement is that the obligations
of such party giving the notice of Force Majeure, be suspended or excused to the extent
affected by such event of Force Majeure.

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24. It was clearly not agreed between parties, nor intended by parties, that Force Majeure
events should include any of the events previously raised by the Respondents.

25. The key terms of the Iron Ore Supply Agreement are :
(i) The Seller [Respondents] agrees and undertakes to sell and deliver to the
Purchaser [Claimant] exclusively in a continuous and uninterrupted
manner, run of mine iron ore on a monthly basis, and the Purchaser
[Claimant] agrees and undertakes to purchase, accept and pay for, the run of
mine iron ore, commencing 1 March 2020.
(ii) The Purchaser [Claimant] shall purchase run of mine iron ore as produced
by the Seller [Respondents] for effective utilisation in the Iron Refinery and
Smelter and shall not utilise/sell the same for any other purpose or to a third
party.
(iii) The sale price of the run of mine iron ore shall consist of the cost of
production and 1.25 times of the royalty payable by the Seller [Respondents]
on iron ore to the Government.
(iv) Claimant will provide the expertise and investment to build the Iron
Refinery and Smelter. Claimant will enter into loans with the appropriate
banks as necessary in order to finance the project. The construction of the
facility is to be completed by end January 2020 for final tests to be conducted
and for the relevant safety permits to be obtained.
(v) The agreement is governed by Singapore law.
(vi) Any disputes are to be referred to SIAC under the SIAC Investment
Arbitration Rules 2017.

26. A signing ceremony was held at Respondent No.2’s offices on 2 June 2015.

IV. Construction of the Refinery and Smelting Facility

27. In reliance on the Iron Ore Supply Agreement, the Claimant proceeded to negotiate 2
loans with Gorbeau Lands Bank as follows:

(a) a loan in the sum of US$50 million for the purpose of funding the initial construction
costs of the Iron Refinery and Smelter; and

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(b) a loan in the sum of US$10 million commencing on 1 February 2020 for the purpose
of funding the initial day-to-day operational costs of the Iron Refinery and Smelter.

28. Construction on the Iron Refinery and Smelter was completed without a hitch in
accordance with the timelines stipulated in the Iron Ore Supply Agreement.

29. By 1 March 2020, the Iron Refinery and Smelter was fully operational.

V. The Dispute

30. On 1 March 2020, the Claimant did not receive the monthly iron ore from the
Respondents. The Claimant’s Project Manager informed the Respondents of the same
by way of e-mail on 3 March 2020. The Respondents responded that they were
“experiencing delays” and would endeavour to provide the ore by 10 March 2020.

31. However, on 10 March 2020, the Claimant still did not receive any iron ore from
Respondent No. 2. By way of a second e-mail to the Respondents, the Claimant’s Project
Manager informed the Respondents that due to the failure to supply the monthly iron
ore, the Claimant would be seeking to import iron ore for the month of March 2020 from
Simba Company, in the neighbouring state, and would look to the Respondents for
damages. The Claimant then duly sent an e-mail to the Manager of Simba Company.

32. Following the steadily worsening COVID-19 situation around the world, the President
of Republic of War and Peace declared and imposed a lockdown on Republic of War
and Peace on 24 March 2020 for the period of 1 month, beginning 25 March 2020.

33. Republic of War and Peace’s Ministry of Home Affairs released “Guidelines on the
Measures to be Taken” on the same day. This stated that “Industrial Establishments will
remain closed.” However, businesses could submit an application for an exemption to
continue operations.

34. As such, on 30 March 2020, the Claimant applied to Republic of War and Peace’s
Ministry of Trade and Industry for the relevant exemption, and suspended business

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operations in the meantime. The Claimant received official approval from Republic of
War and Peace on 10 April 2020.

35. While the Claimant was awaiting for approval, the Claimant’s Project Manager wrote
to Respondents on 1 April 2020 to inform that the Claimant was happy to take receipt
of the iron ore and store the same till operations resumed. The Respondents informed
the Claimant that it was in the midst of “making arrangements” in accordance with the
COVID-19 measures put in place by Republic of War and Peace’s Government, and
would respond to the Claimant's e-mail shortly. However, the Respondents did not
proceed to update the Claimant on April’s monthly iron ore supply.

36. In the meantime, due to supply chain disruptions, the Claimant was also unable to
receive the shipment of iron ore from Simba Company. Further, on 15 April 2020, the
President of Republic of War and Peace announced an extension of the lockdown period
for another month.

37. The Claimant was able to safely re-open the Iron Refinery and Smelter for operations by
1 May 2020. The Claimant’s Project Manager then sought an update from the
Respondents on the monthly iron ore for the months of April and May by way of e-mail
dated 5 May 2020. The Respondents informed the Claimant that “given the current
situation”, the Respondents would not be able to provide the monthly iron ore for the
months of April and May 2020.

VI. Declaration of Force Majeure and Commencement of Arbitration

38. By way of e-mail dated 9 June 2020, the Respondents officially provided its Notice of
Force Majeure Event.

39. By way of e-mail in response dated 10 June 2020, the Claimant notified the Respondents
that it did not accept their claim of Force Majeure, and requested that the Respondents
continue performing its obligations under the Iron Ore Supply Agreement.

40. On 14 June 2020, the Respondents replied to the Claimant, reiterating its position.

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41. On 1 July 2020, the Claimant submitted its Notice of Arbitration to the Singapore
International Arbitration Centre under Rule 3 of the SIAC Investment Arbitration Rules
2017.

42. On 31 July 2020, a 3 member Tribunal was constituted.

VII. Conclusion

43. I trust that the Tribunal will order the appropriate declarations and relief that the
Claimant seeks.

Dated this 3rd day of August 2020

Victor Hugo
_______________________________________
Signed by Mr Victor Hugo in Gorbeau Lands

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TAB 1

From: Mr Leo Tolstoy

CC: BD Dept; Mr Secretary
Sent: Monday, 20 April 2015, 14:15
To: Mr Victor Hugo
Subject: RE: Iron Ore Supply Agreement

Dear Mr Victor Hugo

Thank you for meeting with me and Mr Secretary on 20 March 2015.

We are pleased to hear that you have received Board confirmation that you would like to go ahead
with the discussion for Proposal (c) i.e. Plumet Co., Ltd. builds and owns the Iron Refinery and
Smelter. The Republic of War and Peace, through the Kingdom Mining Development Corporation,
would then provide the Plumet Co., Ltd. with the iron ore required by the Plumet Co., Ltd. for a
long term on terms to be agreed between the parties.

As a starting point, I have instructed Kingdom Mining Development Corporation’s solicitors to

prepare a draft of the iron ore supply agreement, which I have attached to this e-mail. I would add
that the draft agreement has also been approved by the Industries and Commerce (Mines)
Department.

I would be grateful to have your comments on the draft agreement.

As the agreement involves the supply of iron ore from our end, you would appreciate that the
force majeure clause we have included in the draft agreement is broadly worded to cover all the
possible scenarios we may face as a mining corporation.

I look forward to hearing from you.

Best regards
Mr Leo Tolstoy

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TAB 2

From: Mr Victor Hugo

CC: BD Dept; Mr Secretary
Sent: Monday, 11 May 2015, 10:15am
To: Mr Leo Tolstoy
Subject: RE: Iron Ore Supply Agreement

Dear Mr Leo Tolstoy

Many thanks for your detailed draft agreement.

I have had the chance to go over the draft agreement, and broadly, here are my comments on a
few key issues:

(1) Purchase of iron ore: To be on a monthly basis, and we prefer the sale arrangement to be
exclusive.
(2) Sale price: We will be happy to purchase the iron ore at the cost of production + .05 times
of the royalty payable
(3) The force majeure clause is too specific to mining operations. Please see amended clause
as attached.
(4) Disputes should be referred to arbitration.

Please let me have your comments on the above.

Best regards
Mr Victor Hugo

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TAB 3

From: Mr Leo Tolstoy

CC: BD Dept; Mr Secretary
Sent: Friday, 22 May 2015, 16:35
To: Mr Victor Hugo
Subject: RE: Iron Ore Supply Agreement

Dear Mr Victor Hugo

I am grateful to have received your comments on the draft agreement.

I have reviewed the same with our solicitors.

In particular, with reference to the force majeure clause, I am ok to keep the force majeure clause
brief and to remove the specific examples previously listed.

As you mentioned during our call on Wednesday, the examples listed in the draft agreement could
fall under the amended Force Majeure clause without much difficulty.

Finally, on the sale price, it is non-negotiable for us to sell the iron ore at the cost of production +
1.25 times of the royalty payable.

Best regards
Mr Leo Tolstoy

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IN THE MATTER OF AN ARBITRATION UNDER THE INVESTMENT

ARBITRATION RULES OF THE SINGAPORE INTERNATIONAL
ARBITRATION CENTRE

SIAC Arbitration No. 01 of 2020

Between

PLUMET CO., LTD.

… Claimant

And

(1) REPUBLIC OF WAR AND PEACE

(2) KINGDOM MINING DEVELOPMENT CORPORATION
…Respondents

WITNESS STATEMENT OF MR LEO TOLSTOY

I, Mr Leo Tolstoy, care of 221B Bald Hills, Republic of War and Peace, do solemnly and
sincerely affirm and say as follows:

1. I am the Chief Executive Officer of KINGDOM MINING DEVELOPMENT

CORPORATION and I am authorised by Respondent No. 2 to make this witness
statement on its behalf.

2. The matters deposed to herein are based on my personal knowledge or on documents

in my possession or now shown to me. Insofar as they are based on my personal
knowledge, they are true. Insofar as they are based on documents within my possession,
they are true to the best of my knowledge, information and belief.

I. Background to the Parties

3. The Claimant is a foreign company which is in the business of iron refining and
smelting. The Claimant is a company registered under the laws of Gorbeau Lands.

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4. Respondent No. 1 is the Republic of War and Peace. Respondent No. 2 is a company
incorporated under the laws of Republic of War and Peace, and is a wholly-owned
undertaking of Republic of War and Peace. Respondent No. 2 is a leading iron ore
mining company, having been in the business for over 10 years. Amongst other things,
Respondent No. 2 produces iron ore for steel. An ethical partner for the minerals sector,
Respondent No. 2 provides transparent and unbiased support to all the companies
Respondent No. 2 works with.

5. I became the CEO of Respondent No. 2 in 2013. Since then, I have led Respondent No. 2
to continue to innovate and invest in growth and exploration through cutting-edge
technology. In 2019, Respondent No. 2 declared a record US$10 billion in earnings.
Respondent No. 2 is committed to sustainability, and under my leadership, Respondent
No. 2 joined the International Council on Mining and Metals, and has undertaken
several education partnerships to research new ways to improve our environmental
performance.

6. I understand Respondent No. 2’s defence to be as follows:

(a) Respondent No. 2 is absolved from any liability under the ire ore supply agreement
entered into by the parties dated 2 June 2015 (“Ire Ore Supply Agreement”) as a
result of Force Majeure events. It has never foreseen, and would never have foreseen
that the COVID-19 pandemic would result in its inability to supply the iron ore, and
that inability was outside Respondent No. 2’s control.
(b) By way of e-mail dated 9 June 2020, Respondent No. 2 officially provided its Notice
of Force Majeure Event. The Force Majeure events identified by Respondent No. 2
were as follows: (i) restrictions on mining activities as a result of government-
enforced COVID-19 measures; (ii) decreased workforce due to COVID-19; and (iii)
supply chain disruptions resulting in machinery breakdown. Despite Respondent
No. 2’s “due and diligent effort” to supply the iron ore to the Claimant, it was unable
to do so due to the unforeseen circumstances.

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II. Background to the Iron Ore Supply Agreement

7. In or around 2 February 2015, Respondent No. 1’s Mines Department issued a notice
inviting interest for setting up iron and steel industry in Republic of War and Peace.

8. The Claimant approached Respondent No. 1 to establish an iron refinery and smelting
facility with a capacity of 3 million tonnes and 4 million tonnes respectively per annum
(the "Iron Refinery and Smelter").

9. On or around 20 March 2015, I met with the Claimant’s CEO, Mr Victor Hugo, and his
business development team, as well as the Secretary to the Republic of War and Peace
Government, Industries and Commerce (Mines) Department at Respondent No. 2’s
offices in Republic of War and Peace.

10. At this meeting, I proposed three ways of potential co-operation between the parties as
follows:

(a) Proposal (a): Parties jointly own the Iron Refinery and Smelter. Parties would
establish a joint venture company. Parties’ respective ownership of the Iron Refinery
and Smelter could be later discussed and formalised in a joint venture agreement.
(b) Proposal (b): Respondent No. 1 builds and owns the Iron Refinery and Smelter.
Respondent No. 1 would purchase the relevant equipment, technology, construction
expertise and know-how from the Claimant. The Claimant would operate the Iron
Refinery and Smelter, and Respondent No. 2 would supply iron ore.
(c) Proposal (c): Claimant builds and owns the Iron Refinery and Smelter. Respondents
would then provide the Claimant with the iron ore required by the Claimant for a
long term on terms to be agreed between the parties.

11. The Respondents were of course most keen on Proposal (b), as this would give Republic
of War and Peace control over the Iron Refinery and Smelter, and would allow the
Respondents to continue to build more refinery and smelting facilities across Republic
of War and Peace using the technology and know-how we were to purchase from the
Claimant.

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12. On or around 15 April 2015, Mr Victor Hugo informed me that the Claimant’s Board
had given its approval for Proposal (c), and he was happy to discuss the terms for
Proposal (c) in detail.

13. Given this and upon receiving approval from Respondent No. 1, I instructed
Respondent No. 2’s solicitors to prepare a draft agreement as a starting point for
negotiations (the “Draft Agreement”). I e-mailed the same to Mr Victor Hugo on 20
April 2015. A copy of this e-mail is annexed hereto and marked “Tab 1”.

14. Respondent No. 2’s solicitors highlighted to me that the Force Majeure clause followed
a Supplier Agreement which Respondent No. 2 had entered into with a different
company earlier in the year, and I approved the inclusion of the same. This read as
follows:

“Force Majeure” shall mean any event or circumstance which is beyond the reasonable
direct or indirect control of either Party (the “Affected Party”) and without the fault or
negligence of the Affected Party and which results in such Affected Party’s inability
(partially or fully) notwithstanding its best efforts to perform its obligations in whole or
in part including:
(a) Geological conditions those were not reasonably foreseeable as a result of which
construction of the mines is delayed;
(b) Disturbances caused in whole or part by agitation, civil commotion or unrest; and
which continue for a minimum period of fifteen (15) days but shall not include
strikes or lock outs;
(c) Act of foreign enemy, war (whether declared or undeclared), revolution, coup d’état,
terrorist act, blockade, war embargo, insurrection, arson, disturbance of public
order, sabotage and act of vandalism;
(d) Ionizing radiation or contamination by radioactivity from nuclear fuel or from any
nuclear waste from the combustion of nuclear fuel, radioactive, toxic explosive or
any other hazardous properties of any explosive nuclear assembly or nuclear
component thereof;
(e) Acts of God such as lightening, storm, cyclone, hurricane, typhoon, flood, tidal
wave, earthquake, landslide, epidemic or similar cataclysmic event, quarantine, or

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exceptionally adverse weather conditions which are in excess of the statistical

measures for the last hundred (100) years;
(f) Explosion or fire (which is not due to the Affected Party’s negligence or fault or to
its failure to comply with the standards of a prudent utility operator) accident or
chemical contamination;
(g) Any disturbance caused by the Governmental instrumentalities;
(h) Mine fires and inundation where either is caused due to natural causes despite
normal precautions in accordance with extant mining practices in Republic of War
and Peace; and/or
(i) Any event or circumstance of a nature analogous to the foregoing.

15. On 11 May 2015, Mr Victor Hugo sent me an e-mail attaching amendments to the Draft
Agreement. A copy of this e-mail is annexed hereto and marked “Tab 2”.

16. Respondent No. 2’s solicitors informed me that the force majeure clause had been
amended as follows:

”Force Majeure” shall mean any event or circumstance which is beyond the reasonable
direct or indirect control of either Part (the “Affected Party”) and without the fault or
negligence of the Affected Party and which results in such Affected Party’s inability
(partially or fully) notwithstanding its best efforts to perform its obligations in whole or
in part.

17. I thought this was somewhat unusual, and decided to have a call with Mr Victor Hugo
on or around 20 May 2015. Mr Victor Hugo assured me that this clause was fair to all
parties involved. He added that in any event, the examples listed in the Draft Agreement
could fall under the amended Force Majeure clause without much difficulty.

18. As such, I agreed to have the Force Majeure clause amended as he proposed. A copy of
this e-mail is annexed hereto and marked “Tab 3".

19. While the Force Majeure clause that parties finally agreed to does not have examples of
Force Majeure events listed, it is clear that the examples which were in the Draft

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Agreement illustrate the true spirit and meaning of what parties intended when they
entered into the Iron Ore Supply Agreement.

20. It is also clear that the Force Majeure events Respondent No. 2 says has occurred are a
result of “any disturbance caused by the Governmental instrumentalities”, or in any
event, would also fall under “any event or circumstance of a nature analogous to the
foregoing”.

21. The effect of Force Majeure under the Iron Ore Supply Agreement is that Respondent
No. 2 is completely relieved from liability to perform its obligations under the Iron Ore
Supply Agreement. In fact, the Force Majeure events have changed the circumstances of
performance so greatly, that parties should be absolved from further performance.

22. Parties finalised the commercial terms as follows:

(i) The Seller [Respondents] agrees and undertakes to sell and deliver to the
Purchaser [Claimant] exclusively in a continuous and uninterrupted
manner, run of mine iron ore on a monthly basis, and the Purchaser
[Claimant] agrees and undertakes to purchase, accept and pay for, the run of
mine iron ore, commencing 1 March 2020.
(ii) The Purchaser [Claimant] shall purchase run of mine iron ore as produced
by the Seller [Respondents] for effective utilisation in the Iron Refinery and
Smelter and shall not utilise/sell the same for any other purpose or to a third
party.
(iii) The sale price of the run of mine iron ore shall consist of the cost of
production and 1.25 times of the royalty payable by the Seller [Respondents]
on iron ore to the Government.
(iv) Claimant will provide the expertise and investment to build the Iron
Refinery and Smelter. Claimant will enter into loans with the appropriate
banks as necessary in order to finance the project. The construction of the
facility is to be completed by end January 2020 for final tests to be conducted
and for the relevant safety permits to be obtained.
(v) The agreement is governed by Singapore law.

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(vi) Any disputes are to be referred to SIAC under the SIAC Investment
Arbitration Rules 2017.

23. A signing ceremony was held at Respondent No. 2’s offices on 2 June 2015.

III. Construction of the Refinery and Smelting Facility

24. The Claimant proceeded to construct the refinery and smelting facility from 2015 to
2020.

25. Respondent No. 2 received periodic updates from the Claimant, and was informed by
way of letter that the refinery and smelting facility was fully operation on 1 March 2020.

IV. The Force Majeure events

26. Under the Iron Ore Supply Agreement, Respondent No. 2 was to supply iron ore to the
Claimant on a monthly basis starting 1 March 2020.

27. In February 2020, Respondent No. 2 was informed by the Sevastopol Labour Union that
due to the worsening COVID-19 situation, it would be recommending that the number
of shifts be cut by half in order to impose safety measures.

28. As the Respondents negotiated the matter with Sevastopol Labour Union, Respondent
No. 2 informed the Claimant that it was “experiencing delays” and would endeavour to
provide the ore by 10 March 2020. However, Respondent No. 2 was unable to do so as
negotiations were still ongoing.

29. On 24 March 2020, the President of Republic of War and Peace declared and imposed a
lockdown on Republic of War and Peace for the period of 1 month, beginning 25 March
2020. Republic of War and Peace’s Ministry of Home Affairs released “Guidelines on
the Measures to be Taken” on the same day. This stated that “Industrial Establishments
will remain closed.” However, businesses could submit an application for an exemption
to continue operations.

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30. On 29 March 2020, Respondent No. 2 applied to Republic of War and Peace’s Ministry
of Trade and Industry for the relevant exemption to continue operations. In the
meantime, Respondent No. 2 informed the Claimant that it was the midst of “making
arrangements” in accordance with the COVID-19 measures put in place by Republic of
War and Peace’s Government.

31. Respondent No. 2’s application was denied by Sovereign State’s Ministry of Trade and
Industry, and Respondent No. 2 appealed the same on 11 April 2020.

32. On 15 April 2020, the President of Republic of War and Peace announced an extension
of the lockdown period for another month.

33. As negotiations with Sevastopol Labour Union were able to continue, parties came to a
landing as to the shifts and safety measures to be put in place in order for operations to
continue. As a result, Republic of War and Peace’s Ministry of Trade and Industry
officially approved Respondent No. 2’s application/appeal on 30 April 2020.

34. In the meantime however, due to supply chain disruptions, Respondent No. 2 was
unable to receive its shipment of new machine parts to replace some worn out pieces.
As a result, many of Respondent No. 2’s machines were rendered unsafe by Respondent
No. 2’s Safety Department, greatly reducing Respondent No. 2’s output of ore.

35. Given the above difficulties, Respondent No. 2 informed the Claimant on 5 May 2020
that it would not be able to supply iron ore for the months of April and May.

V. Declaration of Force Majeure and Commencement of Arbitration

36. On 9 June 2020, Respondent No. 2 officially provided its Notice of Force Majeure Event.

37. By way of e-mail in response dated 10 June 2020, the Claimant notified Respondent No.
2 that it did not accept Respondent No. 2’s claim of force majeure, and requested that
Respondent No. 2 continue performing its obligations under the Iron Ore Supply
Agreement.

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38. On 14 June 2020, Respondent No. 2 replied to the Claimant reiterating its position.

39. On 1 July 2020, the Claimant submitted its Notice of Arbitration to the Singapore
International Arbitration Centre under Rule 3 of the SIAC Investment Arbitration Rules
2017.

40. On 31 July 2020, a 3 member Tribunal was constituted.

VI. Conclusion

41. I trust that the Tribunal will order the appropriate declarations and relief that the
Respondents seeks.

Dated this 14th day of August 2020

Leo Tolstoy
_________________________________________________
Signed by Mr Leo Tolstoy in Republic of War and Peace

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TAB 1

From: Mr Leo Tolstoy

CC: BD Dept; Mr Secretary
Sent: Monday, 20 April 2015, 14:15
To: Mr Victor Hugo
Subject: RE: Iron Ore Supply Agreement

Dear Mr Victor Hugo

Thank you for meeting with me and Mr Secretary on 20 March 2015.

We are pleased to hear that you have received Board confirmation that you would like to go ahead
with the discussion for Proposal (c) i.e. Plumet Co., Ltd. builds and owns the Iron Refinery and
Smelter. The Republic of War and Peace, through the Kingdom Mining Development Corporation,
would then provide the Plumet Co., Ltd. with the iron ore required by the Plumet Co., Ltd. for a
long term on terms to be agreed between the parties.

As a starting point, I have instructed Kingdom Mining Development Corporation’s solicitors to

prepare a draft of the iron ore supply agreement, which I have attached to this e-mail. I would add
that the draft agreement has also been approved by the Industries and Commerce (Mines)
Department.

I would be grateful to have your comments on the draft agreement.

As the agreement involves the supply of iron ore from our end, you would appreciate that the
force majeure clause we have included in the draft agreement is broadly worded to cover all the
possible scenarios we may face as a mining corporation.

I look forward to hearing from you.

Best regards
Mr Leo Tolstoy

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TAB 2

From: Mr Victor Hugo

CC: BD Dept; Mr Secretary
Sent: Monday, 11 May 2015, 10:15am
To: Mr Leo Tolstoy
Subject: RE: Iron Ore Supply Agreement

Dear Mr Leo Tolstoy

Many thanks for your detailed draft agreement.

I have had the chance to go over the draft agreement, and broadly, here are my comments on a
few key issues:

(1) Purchase of iron ore: To be on a monthly basis, and we prefer the sale arrangement to be
exclusive.
(2) Sale price: We will be happy to purchase the iron ore at the cost of production + .05 times
of the royalty payable
(3) The force majeure clause is too specific to mining operations. Please see amended clause
as attached.
(4) Disputes should be referred to arbitration.

Please let me have your comments on the above.

Best regards
Mr Victor Hugo

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TAB 3

From: Mr Leo Tolstoy

CC: BD Dept; Mr Secretary
Sent: Friday, 22 May 2015, 16:35
To: Mr Victor Hugo
Subject: RE: Iron Ore Supply Agreement

Dear Mr Victor Hugo

I am grateful to have received your comments on the draft agreement.

I have reviewed the same with our solicitors.

In particular, with reference to the force majeure clause, I am ok to keep the force majeure clause
brief and to remove the specific examples previously listed.

As you mentioned during our call on Wednesday, the examples listed in the draft agreement could
fall under the amended Force Majeure clause without much difficulty.

Finally, on the sale price, it is non-negotiable for us to sell the iron ore at the cost of production +
1.25 times of the royalty payable.

Best regards
Mr Leo Tolstoy

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IN THE MATTER OF AN ARBITRATION UNDER THE ARBITRATION RULES OF THE SINGAPORE

INTERNATIONAL ARBITRATION CENTRE 2017

SIAC ARB 01 of 2020

Between:

(1) PLUMET CO., LTD.

Claimant
-and-

(1) REPUBLIC OF WAR AND PEACE

(2) KINGDOM MINING DEVELOPMENT CORPORATION
Respondents

Joint Statement of Mr James Nicholson and Mr Iain Potter

18th Brumaire 2020
CONFIDENTIAL

1
Prepared for SIAC Congress 2020.
 32

Expert joint statement of Mr Nicholson and Mr Potter

18th Brumaire 2020
Confidential
1. Introduction

1.1 This is the joint statement of Mr James Nicholson (“Mr Nicholson”) and Mr Iain Potter (“Mr Potter”) (together, “the Experts”). Mr Nicholson is instructed by
counsel for Plumet Co. Ltd (“Plumet” or “the Claimant”). Mr Potter is instructed by counsel for Republic of War and Peace (“War and Peace” or “the First
Respondent”) and Kingdom Mining Development Corporation (“KMDC” or “the Second Respondent”) (collectively, the Respondents).

1.2 The Quantum Experts have each prepared a report dated 1 August 2020 (respectively, JN1 and IP1).

1.3 The Quantum Experts conferred in person, by telephone and by email to discuss, on a without prejudice basis, matters related to their instructions and
opinions.

1.4 In this joint statement, the matters on which the Quantum Experts agree and disagree are discussed in Section 2 and Section 3 respectively. This joint
statement is not exhaustive. The Quantum Experts have not sought to discuss every point made in their reports. The fact that they have not discussed a
point, or that one or other of them has not commented on a point, should not be taken to indicate agreement between them on that point. Where relevant,
the Quantum Experts have referenced the detail in their other reports. A short form reference is used adopting the relevant report and then the paragraph.
For example, paragraph 20 of JN1 would be referenced as “JN1: 20”.

1.5 The Quantum Experts confirm that the declarations they set out in their reports continue to apply.

James Nicholson Iain Potter

18th Brumaire 2020 18th Brumaire 2020

2
Prepared for SIAC Congress 2020.
 33

Expert joint statement of Mr Nicholson and Mr Potter

18th Brumaire 2020
Confidential
2. Areas of Agreement

2.1 In this section, the Quantum Experts summarise the areas of agreement as between them.

Table 1: Issues on which the Quantum Experts agree

No. Issue Agreement
1.1 Assessment The Quantum Experts assess the Claimant’s losses as the difference between:
Framework (i) The cash flows it has earned and is now expected to earn given the Respondent’s alleged breaches (“the Actual
Scenario”); and
(ii) The cash flows it would have earned or been expected to earn absent the Respondent’s alleged breaches (“the But
For Scenario”).
1.2 Cash flows in The Quantum Experts base their respective assessments of the Claimant’s cash flows in the But For Scenario on the
the But For projections prepared by the Claimant’s management on 31 January 2020, which project the Claimant’s performance from
Scenario 1 January 2020 to 31 December 2029.
The Quantum Experts differ as the whether and how to adjust those projections. Those disagreements are discussed at 3.2 to
3.5 below.
1.3 Discounting The Quantum Experts agree that the Claimant’s projected cash flows should be discounted to a present value as at the Date of
Breach. However, they differ in their assessments of that discount rate. That disagreement is discussed at 3.6 to 3.7 below
1.4 Calculations The Quantum Experts agree as to the mathematical accuracy of each other’s calculations.

3
Prepared for SIAC Congress 2020.
 34

Expert joint statement of Mr Nicholson and Mr Potter

18th Brumaire 2020
Confidential
3. Areas of disagreement

3.1 In this section, the Quantum Experts summarise the areas of disagreement as between them. Figure 1 sets out the Quantum Expert’s respective
assessments of the Claimant’s losses and summarises the effect of each disagreement on their assessments. Table 2 discusses those disagreements in
detail.

Figure 1: Quantum Expert's assessment of the Claimant's losses

4
Prepared for SIAC Congress 2020.

Table 2: Issues on which the Quantum Experts disagree
No. Issue Mr Nicholson’s position
3.1 Date of Mr Nicholson is instructed to assess the Claimant’s losses as at 1
assessment March 2020, i.e. the start date of the Second Respondent’s
obligations to supply iron ore.
3.2 Cash flows in Mr Nicholson is instructed that due to the Respondents’ failure to
the Actual meet its supply obligations, the Claimant has breached certain
Scenario covenants in its loan agreements with Gorbeau Lands Bank. As a
result, Gorbeau Lands Bank is entitled to seize the Claimant’s
Iron Refinery and Smelter, thereby depriving the Claimant of its
entire investment.
He therefore projects the Claimant’s cash flows in the Actual
Scenario to be nil.
3.3 Forecast steel Mr Nicholson agrees that it is necessary to adjust the projected
prices prices in the Management Projections downwards for the effects
of the COVID pandemic. However, for the following reasons, he
considers that the necessary adjustment is small and temporary:
(i) War and Peace announced a major infrastructure plan to
boost growth and help its economy recover. The
Claimant’s management expected this plan to underpin
demand for steel in War and Peace; and
(ii) the Claimant sells steel under long term supply
agreements with fixed prices. These agreements do not
allow for material price decreases.
Although no forecasts of steel price in War and Peace were
produced at or around 1 March 2020, Mr Nicholson observes that
on 28 February 2020 the IMF forecast that steel prices in
Middlemarch would return to their January 2020 level by 1 June
2020 and remain stable thereafter. He considers Middlemarch
comparable to War and Peace as:
(i) the two countries are at a similar stage of economic
development;
5
35
Expert joint statement of Mr Nicholson and Mr Potter
18th Brumaire 2020
Confidential
Mr Potter’s position
Mr Potter is instructed to assess the Claimant’s losses, taking into
account all information available up to the hearing date..
Mr Potter considers it implausible that Gorbeau Lands Bank
would seize the Claimant’s Iron Refinery and Smelter given the
apparently minor nature of the covenant breach. He considers
that such an action would jeopardise Gorbeau Lands Bank’s
ability to recover its loan to the Claimant.
He also notes that the Claimant and Gorbeau Lands Bank have
had a long commercial relationship, which would be irrevocably
damaged were Gorbeau Lands Bank to seize the Claimant’s Iron
Refinery and Smelter.
He therefore considers cash flows in the Actual Scenario to be
equal to cash flows in the But For Scenario, save for 3 months of
interrupted supply between 1 March and 1 June 2020.
A significant downward adjustment to steel price projections over
the short to medium-term is necessary, because:
(i) Actual steel prices during the period 1 March 2020 to
1 June 2020 were significantly lower than pre-pandemic
actual and projected levels;
(ii) IMF projections released in June 2020 show significant
downward adjustments from the IMF’s pre-pandemic
projections;
(iii) given the pandemic’s ongoing impact on activity, it’s unclear
when work on projects included in the infrastructure plan will
commence or the speed at which they will be able to
progress; and
(iv) the Claimant’s customers are likely to require the
renegotiation of their prices, regardless of contractual limits,
in order for their businesses to remain feasible.
Mr Potter observes that steel prices in Castalia declined 20%
between January 2020 and June 2020 and that the IMF projects
prices to decline by a further 15% by 2022.
He considers Castalia to be more comparable to War and Peace
Prepared for SIAC Congress 2020.

No. Issue Mr Nicholson’s position
(ii) iron mining, refining and smelting contributes a similar
proportion of each countries’ GDP and exports; and
(iii) the two countries have similarly sized populations and
internal markets.
He considers Castalia to be less comparable to War and Peace
then Middlemarch because:
(i) it is significantly larger and more economically developed
than either War and Peace or Middlemarch;
(ii) iron mining, refining and smelting contributes a relatively
smaller portion of its GDP and exports.
3.4 Demand and Mr Nicholson agrees that it is necessary to make a small
sales volumes downward adjustment to the Management Projections’ assumed
sales volumes. However, for the reasons set out at 3.3, he
considers that the necessary adjustment is small and temporary.
3.5 Operating Mr Nicholson’s position is that the Claimant would have been able
capacity to maintain sufficient operating capacity to meet projected
demand, because:
(i) The Claimant’s state of the art refining and smelting
facilities required relatively few employees to function;
(ii) As at 1 March 2020, the Claimant expected that it would
receive permission to re-open its facility imminently;
(iii) Iron refining and smelting is a major industry in War and
Peace, and as a result there is a significant pool of trained
workers to draw from.
3.6 Discount Rate: Mr Nicholson’s considers that the discount rate should be
risk-free rate assessed by reference to contemporaneous market data as at the
date of breach. He does not consider it appropriate to normalise
the risk-free rate. This is consistent with the position of the
respected valuation academic, Professor Damodaran of the Stern
School of Business at New York University.
6
36
Expert joint statement of Mr Nicholson and Mr Potter
18th Brumaire 2020
Confidential
Mr Potter’s position
than Middlemarch because:
(i) COVID-19 affected Castalia and War and Peace similarly
in terms of infection rates and death rates. Middlemarch
was less affected by COVID-19 than either country; and
(ii) Castalia and War and Peace put in place travel restrictions
of a similar breadth and duration in response to COVID-
19. The restrictions in Middlemarch were less onerous.
Mr Potter also observes that since 1 March 2020, the IMF’s
projection of steel prices in Middlemarch has not been borne out,
and steel prices there have declined materially.
A significant downward adjustment to sales volumes is required for
the reasons set out at 2.3 and the following additional reason:
(i) During the period 1 March to 1 June 2020, would-be
customers of the Claimant are very likely to have suffered
interruptions to their operations, reducing the quantity of
steel required.
The lockdown and other restrictions imposed by the Republic of
War and Peace’s Ministry of Home Affairs in response to the
pandemic would have limited the Claimant’s production capacity
below projected levels.
Mr Potter’s position is that the risk-free rate as at both 1 March
2020 and a current date is artificially low due to extensive central
bank intervention in the markets for government bonds. He
therefore considers that the risk-free rate should be “normalised”
to remove this distortion. This is consistent with the approach
proposed by respected valuation practitioners, such as Messrs
Pratt and Grabowski.
Prepared for SIAC Congress 2020.
 37

Expert joint statement of Mr Nicholson and Mr Potter

18th Brumaire 2020
Confidential
No. Issue Mr Nicholson’s position Mr Potter’s position
3.7 Discount Rate: Mr Nicholson adds a 0.5% country risk premium to the Claimant’s Mr Potter applies a country risk premium of 7% to the Claimant’s
Country risk discount rate, to account for the incremental risks of operating in discount rate. In his opinion, Mr Nicholson’s discount rate
premium War and Peace. understates the risks faced by private investor when investing in
There is insufficient data relating to War and Peace’s sovereign War and Peace. In particular:
bond yields to directly calculate the appropriate country risk (i) He considers the credit ratings assigned to sovereign
premium. However, Mr Nicholson considers it reasonable that the
bonds to be an imperfect proxy for the country risks faced
country risk premium be small, given that:
by private investors;
(i) The country suffers from little or no social or political
unrest; and (ii) In his view, War and Peace’s high credit rating reflects its
relatively conservative fiscal policies and low debt burden,
(ii) The respected credit rating agency Ratings R Us,
and does not indicate a low risk environment for
assigned War and Peace a rating of AA+, only one notch
investment.
below the highest available rating and in line with the
Republic of Utopia, a country with which War and Peace is
often compared.

7
Prepared for SIAC Congress 2020.
I N TE L LI GEN CE TH AT W O RK S
38

I N TE L LI GEN CE TH AT W O RK S

Plumet Co., Ltd. vs

Republic of War and Peace and Kingdom
Mining Development Corporation
SIAC Arbitration No. 01 of 2020

Expert report of Fyodor Dostoevsky

THINKBRG.COM
 39
I N TE L LI GEN CE TH AT W O RK S

Contents
1 Qualifications and experience

2 Instructions

3 Governments which introduced restrictions on mining activity did so as temporary actions until safety measures were implemented

4 Changes to working practices may have temporarily reduced but did not stop production

5 Supply chain disruption caused delays in obtaining some specialist parts

6 Logistics of transporting iron ore are largely automated with the impact on shipping much lower than for other cargo types

7 The price of iron ore remained relatively stable since the start of the COVID-19 pandemic driven by supply and demand factors

8 Most large miners have continued producing and shipping iron ore, smaller miners have faced shortages of key specialist parts

9 Summary of impact

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I N TE L LI GEN CE TH AT W O RK S

Qualifications and experience

Fyodor Dostoevsky
– During a twenty-five-year period at a leading international investment bank, he advised governments, private companies, and joint ventures on
strategy, fundraisings, debt financings, mergers, acquisitions, disposals, and restructurings with a particular focus on mining and natural
resources.
– Instructed as expert in international arbitrations under ICC and UNCITRAL rules, and in the courts of Hong Kong and the Bahamas.
– Experience also includes matters before courts in the UK, Australia, Singapore, Ireland and Bermuda, as well as arbitrations involving the ICC,
HKIAC, DIAC and CIETAC.

Role of the expert is played by Mustafa Hadi – Leader of BRG’s Disputes and International Arbitration in Asia-Pacific (APAC) and co-leader of
BRG’s APAC region

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I N TE L LI GEN CE TH AT W O RK S

Instructions

The Tribunal has appointed me as an expert to examine the consequences of the pandemic on iron ore mining operations considering the impact
on the following:
– the workforce, including government imposed restrictions, working practices and social distancing
– supply chains and the availability of equipment and consumables
– transport and logistics
– demand and pricing
– ability of mining companies to deliver product and meet contractual obligations

4
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I N TE L LI GEN CE TH AT W O RK S

Governments which introduced restrictions on mining activity

did so as temporary actions until safety measures were
implemented
Travel restrictions between countries have impacted access to expertise and required organisational changes, particularly where expatriate
expertise has routinely been used. How governments responded in relation to mining operations varies around the world:

Country Government actions Restriction / measures employed

Production allowed to continue subject While mining in Australia has had to make a number of adaptions, the mining industry in Arendelle is operating at usual
Arendelle
to safety measures levels.

Production allowed to continue subject In Bartovia the government has stated the essential nature of mining activities. Operations allowed to continue subject
Bartovia
to safety measures to implementing safety measures.

For example, when InGen shut its mines in Zanzarim at short notice citing COVID-19, the government required them to
Production allowed to continue subject
Zanzarim re-open them and resume production and to apply to the Ministry of Mines to make any care and maintenance decision
to safety measures
on the longer prescribed timetable.

Reduced production temporary Despite strict lockdown policies and an initial 21 day lockdown, mining declared as essential service and activities
Cordinia
restrictions allowed to continue.

Reduced production temporary Mining is permitted but with minimum personnel and transportation of related goods continues to be allowed. The
Panem
restrictions mining regulator has issued protocols for operators to follow to protect health at mine sites.

Reduced production temporary Initially implemented one of the most restrictive lockdown regimes in the world, but relaxed to allow all mining activities
Samavia
restrictions to resume provided mines produce at only 50% of capacity.

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I N TE L LI GEN CE TH AT W O RK S

Changes to working practices may have temporarily reduced but

did not stop production
– The nature of many jobs on large iron ore mines involves lone-working and naturally reduces social contact while on shift, although clearly
arrangements at start and end of shifts needed to be changed.
– Unions have generally sought to work with employers to agree changes to working practices, even where they have documented longer-term
concerns about increases in automation and technologies which reduce labour intensity.
– I am not aware of any locations where negotiations with unions were protracted and themselves caused disruption to production, as appears to
have been the case between February and March in War and Peace. Clearly, a number of such negotiations resulted in changes in shift
patterns which led to subsequent variation in employees on shift and production – however I am not aware of any strikes or lock-outs arising
from COVID-19 discussions or any lost production arising from such disputes.

Arendelle
– No COVID-19 outbreaks at mine sites at the end of April
– Administrative and head office working practices have been
changed in line with other office roles, with many staff worldwide
working from home. However, I am not aware that this has
impacted continuity of mine site production at any iron ore
company.
Samavia
– The government required companies to take steps including “de-
densification” and Oscorp’s mines continued to operate but with
a c.50% level of workforce. The rail and port logistics
infrastructure to support the export of iron ore continued to
operate.
– This lead LexCorp to report a ~20% reduction in production for
the quarter, but by end June production was back at “a 100%
run rate”.

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I N TE L LI GEN CE TH AT W O RK S

Supply chain disruption caused delays in obtaining some

specialist parts
– Mining companies have sought to reduce their inventories of consumables and spare parts and instead to develop optimised supply chains,
leaving miners exposed to the global shocks that COVID-19 delivered.
– With iron ore mines attempting to maintain production, the reduction in demand elsewhere in the economy for consumables like fuel eased
supply concerns, limiting miners’ concerns to specialist spares – and to PPE, which experienced vastly increased global demand.
– With many large iron ore mines located in remote locations, critical spares are usually retained in on-site inventory to address ordinary-course
operational risk. However, by April Stark Industries was reporting that in Arendelle “lag times for orders of essential mining consumables
such as tyres, reagents and other consumables are emerging and will likely have further impact over the next several months.” This
led the Arendellian Competition and Consumer Commission to provide on 24 April an authorisation for mining companies to cooperate to
ensure that they could source vital consumables and spares.
– Without government mandated cooperation between mining companies. miners in War and Peace may well have suffered from a lack of
access to required specialist parts.

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I N TE L LI GEN CE TH AT W O RK S

Logistics of transporting iron ore are largely automated with the

impact on shipping much lower than for other cargo types
– Iron ore supply is effectively a logistical business where a low-value bulk commodity is transported to the point of iron and steel production,
often involving both land and sea transport.
– With an increase in automation in Arendelle and a later (but subsequently very large) transmission of COVID-19 in Bartovia, transportation by
rail continued largely uninterrupted in these two large production areas.
– Iron ore ports are largely dedicated operations with automated loading of ships and the degree of disruption at port operations appear to have
been lower than for other cargos (including imported industrial spares being sought by the mining companies).
– In Cordinia, however, the 21-day lock-down did cause port closures and a shortage of labour which caused some iron ore producers to declare
FM on export ore shipments. Similarly the Nemo Bay Coal Terminal was closed for a period in Samavia and iron ore exports were interrupted.
– Global shipping was generally heavily impacted by COVID-19 but primarily in terms of the reduction in demand for raw materials going to
China and exports from China. The drop in volumes of bulk cargos was significantly lower than other cargo types (as construction within China
started to recover before the rest of the world was past their COVID-19 peaks) and volumes of metals and mined commodities were expected
to drop by 10% in 2020 before recovering.

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I N TE L LI GEN CE TH AT W O RK S

The price of iron ore remained relatively stable since the start of
the COVID-19 pandemic driven by supply and demand factors
– For a number of commodities, disruption in supply Recent movement of the price of iron concentrate (62% Fe, CFR Qingdao)
was broadly balanced by reduction in industrial
demand and commodity price fluctuations appear
to have been driven by market sentiment as Close of 2019 25 March 2020
WHO informed of One month lock down
industry sectors worried about their own long-term pneumonia of unknown begins in Republic of
supply chains. cause in Wuhan, China War and Peace

– At the end of May, the price of 62% Fe iron ore

was trading at just above USD 100/dmt, which
was higher than the level it was trading at before
the onset of the COVID-19 pandemic.
– Both supply and demand factors impacted the
price of iron ore:
– Supply: affected by the spread of COVID-19 in February 2020
Bartovia and fears that this will impact the Sevastopol Labour Union
exports of iron ore recommends Kingdom Mining
Development Corporation halve
– Demand: resumption of industrial operations in the number of shifts
China has fuelled a downstream recovery with
the steel mills continuing to increase their
output

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Most large miners have continued producing and shipping iron

ore, smaller miners have faced shortages of key specialist parts
– Given continued operation of iron ore mines and the functioning transport infrastructure, most large miners were able to produce and ship
products, whether lump ore, fines or concentrate. Smaller miners have faced delays in obtaining key specialist parts, which has caused them
to reduce production.
– Even in countries where the governments have allowed mining to continue, some such as Samavia have been restricted to only producing
50% of their usual output.
– Despite reports that the Chinese government was willing from 30 January 2020 to issue certificates to companies who were unable to fulfil
international contractual obligations and wished to declare Force Majeure, surveys by Stark Industries to mid-March did not identify steel
buyers doing this.
– Examples of Force Majeure declared by iron ore miners include Cordinian mines during the 21-day lock-down (citing port closures as above).
– It should be considered whether Kingdom Mining Development Corporation were able to supply other customers, or whether War and Peace
was their only customer.

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Summary of impact
Impact of
Aspect of mining industry Comment
COVID-19

Governments which introduced restrictions on mining activity did so as temporary actions until safety
The workforce and
measures were implemented. Changes to working practices may have temporarily reduced but did
government restrictions not stop production

Supply chains Supply chain disruption caused delays in obtaining some specialist parts

Logistics of transporting iron ore are largely automated with the impact on shipping much lower than
Transport and logistics for other cargo types

The price of iron ore remained relatively stable since the start of the COVID-19 pandemic driven by
Demand and pricing supply and demand factors

Ability to deliver and meet Most large miners have continued producing and shipping iron ore, smaller miners have faced
contractual obligations shortages of key specialist parts

Low impact Some impact Big impact

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Disclaimer

– These slides have been prepared by Berkeley Research Group (Hong Kong) Limited.
– They are confidential and not for reproduction without prior written approval of Berkeley Research Group (Hong Kong) Limited.
– They have been prepared solely for the purposes of a demonstrative mock hearing and therefore some material and views set out within has
been fabricated for illustrative purposes. They may not reflect the views of Berkeley Research Group (Hong Kong) Limited.

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North America Latin America EMEA Asia-Pacific

Atlanta Houston Phoenix Bogotá London Beijing
Baltimore Las Vegas Pittsburgh Buenos Aires Dubai Hong Kong
Boston Los Angeles Salt Lake City Mexico City Johannesburg Mumbai
Calgary Nashville San Diego Miami Kuwait City Singapore
Chicago New Jersey San Francisco Panama City Saudi Arabia Sydney
College Station New York Tallahassee São Paulo Tokyo
Dallas Orange County Tampa
Denver Pensacola Toronto
Detroit Philadelphia Washington

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