818.154/214
The American Minister in Costa Rica ( Sack ) to the Costa Rican Minister for Foreign Affairs ( Gurdián )9
Excellency: I have the honor to inform Your Excellency that I have been instructed by my Government to intervene with you on behalf of the Simmons Construction Corporation with a view to obtaining compensation for damages said to have been sustained by that Corporation as a result of the violation of a highway construction contract between the Government of Costa Rica and the Corporation which was concluded on October 13, 1928.
My Government has caused a careful examination to be made of the case, and, in accordance with instructions, I respectfully set out below its understanding with respect to the factual and legal bases of the Corporation’s claim and my Government’s conclusions with respect to the matter.
It appears from available records that the contract in question grew out of the action of the Government of Costa Rica in inviting bids for [Page 465] the construction of certain highways and bids submitted by the Corporation in response to that invitation. It appears that six bids were submitted and that the bid of the Simmons Construction Corporation was accepted because it was the lowest and consequently was considered to be the most advantageous to the Costa Rican Government. The record indicates that the Corporation proceeded to execute the work awarded it by the contract, but that eventually numerous difficulties arose between it and the Government. It appears that late in the year 1929, the Costa Rican Government indicated its unwillingness to proceed with the work on a cost-percentage basis, as stipulated in the contract, and proposed that the work be done on a unit basis for a specified contract price.
It further appears that in the meantime correspondence was exchanged between the Government and the Corporation dealing with numerous matters in dispute between them, including the alleged failure of the Government to pay the Corporation certain sums said to have been long since overdue under the terms of the contract. On January 7, 1930, the Corporation addressed a communication to the appropriate official of the Government of Costa Rica with reference to the nonpayment of accounts and other matters and expressed its intention of demanding the cancellation of the contract, in accordance with the terms thereof, because of the alleged breaches on the part of the Government. The Corporation then notified the Government of its desire that the arbitral tribunal provided for in the final clause of the contract be established to pass upon its contention that the Government had violated certain provisions of the contract. In reply to this communication the Costa Rican Government expressed its willingness to join in the establishment of the arbitral tribunal with a view to obtaining the recision of the contract on account of alleged breaches thereof by the Corporation. In apparent disregard of the terms of the contract and of the rights of the Corporation, the Government, at this stage, appears to have forcibly taken possession of the offices and records of the Corporation, as well as all material, machinery, equipment, and tools, and to have assumed charge of all work theretofore awarded the Corporation by the contract. It seems that this forcible ejection was made over the protests of the Corporation which was thereby prevented from continuing operations under the contract.
Despite the agreement of the Government to join in the establishment of an arbitral tribunal as provided for by the contract, the Corporation was eventually required to institute proceedings in a Costa Rican court to compel the Government to enter into an arbitral agreement. The arbitral agreement was thereupon signed on December 16, 1930, pursuant to the court order. As a result of dilatory tactics then resorted to by the attorney for the Government and the arbitrator [Page 466] appointed by the Government, the arbitration was deadlocked for some eighteen months without the period for receiving evidence having been fixed. However, on July 13, 1932, approximately two and one half years after the Corporation had been forcibly ejected, the parties concluded a supplemental agreement for the purpose of terminating the controversy “at the earliest possible date.” This agreement definitely fixed the periods for the reception of evidence and for the rendering of a decision.
However, on December 1, 1932, the date upon which the two arbitrators were required by the terms of the supplemental arbitral agreement to render an award, the arbitrator appointed by the Government having declined to join with the other arbitrator or to render any award, the arbitrator appointed by the Corporation, who was a citizen of Costa Rica, rendered an award in favor of the Corporation in the sum of $223,541.13, with interest at the rate of eight per centum per annum.
It appears that subsequently, and after the period provided by the contract for concluding the arbitral proceedings and rendering the award, the arbitrator appointed by the Government, acting alone, received certain evidence, and on January 5, 1933, on the basis of that evidence, undertook to render an award in favor of the Government. Shortly thereafter the Government appears to have addressed a communication to the third arbitrator demanding that he assume the duty, alleged to have rested upon him under the terms of the arbitral agreements, of deciding which of the two awards should prevail. The Corporation duly challenged the authority of the third arbitrator in the circumstances, to take any action respecting the case. Pursuant to instructions from his Government, the American Minister delivered an Aide-Mémoire to the Minister for Foreign Affairs of Costa Rica on January 30, 1933, reserving the right of the Government of the United States to protest against the competency and authority of the third arbitrator. However, on February 4, 1933, the third arbitrator rendered a decision sustaining the award allegedly rendered by the arbitrator appointed by the Government.
The Corporation thereupon petitioned the Court of Cassation alleging that the arbitrator appointed by the Government and the third arbitrator were without jurisdiction to render awards. The Court decided, however, that the Corporation’s appeal was inadmissible.
With reference to the failure of the arbitrator appointed by the Government to render an award on or before December 1, 1932, my Government is of the opinion that the reasons advanced by him in support of his refusal to act within the period fixed do not constitute justification for such refusal. His main argument, that the parties had fixed too short a period for the production of evidence and rendering [Page 467] of an award, scarcely requires comment. The period was fixed by an agreement between the parties and could, therefore, be extended only by a subsequent agreement between such parties. The contention that the proceedings were suspended pending the publication of edictos under Article 157 of the Code of Civil Procedure, on the theory that Mr. Simmons was an absent party, seems wholly without foundation since it is obvious that he was never in any sense a party to the contract concluded in 1928, and since under Article XII of the first arbitral agreement the arbitral proceedings were exempted from the general provisions of law governing civil procedure. The arbitrator’s delay in rendering a decision on the ground that the attorney for the Government had not yet presented his final argument seems wholly unjustified since under Article VI of the supplemental arbitral agreement the arbitrators were obligated to render an award within the stipulated period, whether or not such final arguments were presented by either or both parties. Neither can his failure to render an award in due time be excused on the ground that the arbitral tribunal had not yet received in evidence the Effinger report. Mr. Effinger, an employee of the Government of Costa Rica, submitted his report under conditions which the arbitrators apparently had no power to meet, and on December 1, 1932, the period for receiving evidence had long since expired.
It appears, therefore, that the reasons advanced by the arbitrator appointed by the Government to support his refusal to render an award within the stipulated period are wholly unsound and constituted no justification for his failure to render a decision on or before December 1, 1932. In this situation, and in the light of express provisions of Costa Rican law, it seems clear that he was without jurisdiction to render an award subsequent to that date, and that the decision which he undertook to render on January 5, 1933, is, therefore, void and of no effect. It seems equally clear that the third arbitrator, who was authorized to act only in case there should be two conflicting decisions, was also without jurisdiction to render an award, and the so-called award rendered by him must, therefore, be regarded as a nullity and of no effect.
Reference may here be made to the contention, subsequently advanced, that under Article 15 of the first arbitral agreement both the Government arbitrator and the third arbitrator were authorized to render decisions subsequent to the expiration of the period fixed. It is obvious that the term “periods fixed” in this Article refers to the periods to be fixed by the arbitrators in conformity with the terms of that arbitral agreement. The arbitrators never fixed the periods for rendering decisions and they were deprived of their power to do so by the supplemental arbitral agreement in which the Government of [Page 468] Costa Rica and the Corporation definitely fixed the periods. In the latter agreement it is recited that its provisions were agreed upon specifically “in order that the arbitral suit in question be terminated at the earliest possible date.” Article 6 of this latter agreement reiterated the purpose of terminating the case with the least possible delay and provided definite and limited procedural periods for terminating the case, in accordance with that purpose. The purpose of this supplementary arbitral agreement, concluded on July 7, 1932 (two and one half years after the Corporation had been forcibly ejected and one and one half years after the first arbitral agreement was signed) is obvious—both parties desired “to terminate” the case “at the earliest possible date”. To accomplish that result they fixed definite and limited periods. In this respect the provisions of that agreement seem clearly to supersede any conflicting provisions of the earlier agreement, and particularly Article 15, under which the Arbitration might be prolonged indefinitely, a condition completely at variance with the intent of the parties in concluding the subsequent arbitral agreement.
It seems clear, therefore, that only one award was legally rendered by the tribunal, namely that of the arbitrator designated by the Corporation. It seems to follow that that award must be regarded as the award of a sole arbitrator and, therefore, the award of the tribunal, or that no award was legally rendered by the tribunal. If it is the award of the tribunal, as to which there would seem to be no doubt since no other award was legally rendered, then the Government of Costa Rica is obligated to make payment to the Corporation in conformity with its terms. If it is not the award of the tribunal and if, consequently, no award has been legally rendered by the tribunal, then it seems equally clear that the Government of Costa Rica must accept responsibility for the action of the arbitrator designated by it, who, by refusing to render an award within the stipulated period, frustrated the arbitration.
My Government is, therefore, constrained to request that the Government of Costa Rica make payment to the claimant Corporation in conformity with the terms of the only award legally rendered by the arbitral tribunal established pursuant to the terms of the original construction contract concluded in 1928. If the Government of Costa Rica is unwilling to make payment, then my Government, in the interests of justice, is under the necessity of requesting that the case be now submitted to an international arbitral tribunal, upon terms to be stipulated by the two Governments, to determine what sum is rightfully due the claimant Corporation.
[Page 469]In view of the fact that more than four years have already elapsed since the Government of Costa Rica forcibly terminated the services of the Corporation, my Government would greatly appreciate receiving, at any early date, an indication of your Government’s wishes concerning the alternative procedure suggested with a view to effecting a final settlement of the case.
I avail myself [etc.]
- Note delivered in accordance with Department’s instruction No. 67, July 18, 1934 (not printed). Copy transmitted to the Department by the Minister in Costa Rica in his despatch No. 375, August 6, 1934; received August 16.↩