343 ADVENTURES INC. II Adventures Inc. (“AI”) is a privately held U.S. company, incorporated in the state of Delaware, which specializes in sending U.S. customers on exotic adventures in various countries. Al is essentially a glorified adventure travel agency. It has been in existence for ten years and has made a handsome profit each year. The President and CEO of Al is Amanda lanelli, a forty-four year-old retired Olympic level skier who makes her home in Boulder, Colorado. Al puts out glossy advertisements and sponsors a fancy interactive web site describing a broad range of adventures throughout the world. These include everything from bungee jumping to safaris to surfing to spelunking to mountain climbing, in countries on five continents. AI does not actually provide any of the guides itself, but rather forms partnerships with adventure-providers in various locales. So, after soliciting the customers and signing them up for an exorbitant fee (typically at least $10,000 per person for a trip lasting a week or so), Al arranges transportation to the site country. Once the adventurer arrives in the site country they are in the hands of the on- site adventure company. This company arranges all local travel and food, as well as equipment rentals and guides. In South Africa, Al has partnered up with Surf n Fun (“SnF”), a South African company. SnF was founded just fifteen months ago, but AI has determined that it appears to be a very solid operation. SnF is run by two twenty-eight year old twin brothers, Stefan and Freddie Vandenheuvel, who live just off the beach in Camp’s Bay, a suburb of Capetown. Stefan and Freddie can best be described as adventure nuts. While South Africans, in general, are very interested in sports, Stefan and Freddie take sports enthusiasm to another level. Stefan, the “surf guy,” loves to dive, surf, windsurf, and sail. Freddie prefers air and land, and specializes in parachuting, bungee jumping, safaris, and exotic hiking. The two brothers lead many tours themselves, but also contract with other experienced guides to lead some of the trips and adventures sponsored by SnF. They regularly schedule trips to Kruger National Park and other game reserves, frequently host surfing off the remote and dangerous Point at Jeffreys Bay, on South Africa’s southeast coast, and sponsor sailing trips around the infamous Cape of Good Hope. The companies have agreed to work together on a South Africa adventure, along the following terms. AI has agreed to continue to do the extensive advertising necessary to attract U.S. adventurers and world travelers. After subtracting the actual costs of the clients’ travel, food, and lodging, AI and SnF have agreed to split the net returns on a 30/70 basis. Al will be rewarded 30 percent of this net income for its advertising and for finding the clients, and SnF will be rewarded 70 percent of the net income for providing the local expertise and goods. SnF must pay the salary and expenses of its guides out of the 70 percent portion of the fee. The customers pay AI the full fee two weeks prior to leaving the United States. Al then forwards SnF half of its share plus estimated expenses one week prior to the client leaving the United States. The other half of SnF’s share is to be provided to SnF after the trip has been successfully completed. Adventures Inc. and Surf n Fun have also agreed to the following dispute resolution clause. It provides as follows:344 CHAPTER 11: ARBITRATION: SKILLS, PRACTICES, AND Eriics “With respect to all disputes arising out of or relating to this agreement, the parties agree that they will first try to resolve all such issues through negotiation, in good faith. In the event that such any dispute is not resolved, after five days, either party may bring an arbitration claim against the other. Such arbitration will be handled on an ad hoc basis pursuant to the then current UNCITRAL arbitration rules. (See www uncitral.org.) The parties agree that the arbitrator's decision will be binding and enforceable, and that each side is waiving any right they would have had to litigate claims against one another. If the parties cannot, within ten days of the filing of an arbitration claim, mutually agree on an arbitrator, they agree that the arbitrator will be selected by the Director of the University of Nevada-Las Vegas Saltman Center for Conflict Resolution. The parties agree that, to the extent possible, disputes should be resolved without the need of an in- person meeting.” Unfortunately, a few months into their business relationship, a dispute arose between Al and SnF with respect to a safari that took place in Kruger National Park. Fourteen clients went on the safari and were charged $12,000 apiece for a total of $168,000. The airfare cost $18,000, and was paid by Al. Al estimated additional expenses for travel, food and lodging at $10,000 and forwarded to SnF $59,000 ($10,000 in estimated costs plus 35 percent of the remaining profit). The trip was not a complete success. Seven of the clients got sick with jungle fever and had to be flown home early. These clients also complained that they had seen only giraffes (but not lions, tigers, elephants, rhino etc.) prior to being flown out, and demanded a refund. Al provided a 50 percent refund to the complaining seven clients ($42,000) and also bore the cost of the change fee for their tickets home ($1,050). SnF is now demanding the payment of its additional $49,000, as originally negotiated, plus interest. Al insists that SnF should have to bear part of the losses from the unsuecessful trip. Specifically, Amanda thinks it would be fair if SnF reduced its take by $30,135 (which is 70 percent of the refunds Al had to provide). Because the amount of payment is in dispute, Al has made no second payment to SnF. SnF is now in some serious financial trouble, as it owes money to its guides, and to the providers of the food and transportation that was afforded within South Africa. In addition, Freddie and Stefan have one or two unpaid bills that they were counting on paying with their receipts from the trip. ‘The attempts to negotiate a resolution failed. Amanda lanelli is disgusted because she felt the SnF “boys” were being totally unreasonable in refusing to share some of the costs she incurred. Stefan and Freddie are outraged that Amanda is trying to cut into their fee for something that was obviously not their fault. They thought the guests who got sick were a bunch of whiny wimps and disagreed with Al's decision to send them home early and give them a partial refund, The seven clients who remained had a great trip.EXERCISES 345 Consider the following problems You have been appointed to arbitrate this dispute, by the Director of the CSDR. The parties have agreed to split your regular fee, $500 per day, plus expenses. You have received a copy of SnF's demand for arbitration, and Al's response. How would you go about deciding when, how, and where to hold the arbitration? Is it appropriate for you to communicate directly with the disputants’ attorneys? With the disputants themselves? How will you decide what substantive law to apply? If you decide the parties would be better served by mediation than by arbitration would it be appropriate for you to suggest mediation’ To offer to serve as mediator? 2. Subsequent issues for arbitrator Assume now that you have decided to hold the arbitration by telephone conference, and that you will apply South African law to interpret the parties’ duties under the contract. What do you think are the key skills you will need to perform your job well? How would you organize the oral hearing in order to provide all sides with procedural justice? What matters would you cover in your opening statement? What if any steps would you take to counter your own possible psychological biases? 3. Representative for Al You have been retained to represent Al in this dispute. How would you define your mission? How would you go about preparing for the oral arbitration, which has been scheduled totake place in thirty days? Would you attempt to gain discovery from the other side? If so, what and how? (UNCITRAL rules allow the arbitrator to require production of documents, exhibits, or other evidence.) Would you ask the arbitrator to make any rulings in advance of the arbitration? What kind of evidence would you plan to present at the arbitration, and how? How would your preparation for this arbitration differ from your preparation of litigation of this matter? 4, Representative for SnF You have been retained to represent SnF in this dispute. How would you define your mission? How would you go about preparing for the oral arbitration, which has been scheduled to take place in thirty days? Would you attempt to gain discovery from the other side? If so, what and how? Would you ask the arbitrator to make any rulings in advance of the arbitration? What kind of evidence would you plan to present at the arbitration, and how? How would your preparation for this arbitration differ from your preparation of litigation of this matter? 5. Issuance of the award Assume that you are the arbitrator, and that you have decided to require Al to pay SnF $35,000. Must/should your decision be written? Reasoned? Published? And, assuming the award has been issued, what steps should/must SnF take to enforce this award? What steps could Al take to defeat the award or avoid having to make the payment?