BEFORE THE INTERNATIONAL COURT OF ARBITRATION OF THE

HONG KONG INTERNATIONAL ARBITRATION CENTRE

APPLICATION FOR EMERGENCY INTERIM RELIEF

BOLTON v. MARTEL

SEPTEMBER 24, 2016

Page | 1

STATEMENT OF FACTS
Claimant Bolton (Claimant for brevity), registered and managed in Seattle, Washington, USA,
manufactures specially designed luxury private jets for companies and wealthy tycoons.
Martel (Respondent for brevity) is a large multinational group, managed in Paris, France,
specializing in premium tours for wealthy individuals, including round the world tours by private
jet.
On December 1, 2015, Martel entered into a contract with Bolton for a custom built private jet
with special features such as a two car garage and a stable for horses (the Contract). The
Contract was for the delivery of a bespoke private jet Arya for US$100 million. The Contract
provided for construction to commence on February 1, 2016 through four construction
milestones, upon each of which a payment of US$25 million would be made, leading to the last
milestone of completion and delivery on February 1, 2017, in time for the launch date of Aryas
first Around the World by Private Jet tour scheduled for February 15, 2017.
The Contract provided that the construction was to take place in Dhaka, Bangladesh, at the
workshops of Bolton. The Contract is governed by Philippine law.
The arbitration clause provides:
Any dispute arising under this Contract shall be referred to and finally resolved by
arbitration administered by the Hong Kong International Arbitration Centre under the
HKIAC Administered Arbitration Rules before three arbitrators. The sea of arbitration
shall be Hong Kong, SAR, China.
Page | 2

The Contract provides for termination by either party for events of default, following a 30 day
cure period. The events of default include
1. Material breach,
2. Insolvency and
3. Failure to pay debts as they fall due.
The Contract also provides for provision of an on-demand payment guarantee by Martel
arranged through a specified bank, the Bravos Bank (BB) based in Manila, Philippines.
Accordingly, Martel arranged for BB to issue four on-demand bank guarantees in favor of Bolton
as guarantee of payments under the Contract.
The on-demand guarantees are governed by Philippine law. The on-demand guarantees do not
contain an arbitration clause, and Bolton is not a party to the contract between BB and Martel but
is merely a third party beneficiary.
Construction commenced. The first milestone provided for completion of the wings of Arya by
May 1, 2016. This occurred to Martels satisfaction and it duly paid Bolton the first installment
of US$ 25 million. In late June 2016, rumors reached Martel that Boltons Dhaka construction
site had been effectively closed won during much of June. When questioned by Martel, Bolton
replied that the industrial unrest had led to a walk-out of staff. Although a handful of workers
returned in mid-July 2016, Martel became concerned that Bolton will not be able to meet the
remaining three milestones set out in the construction schedule. Further, Martel is alarmed by

Page | 3

press reports of Boltons apparent failure to pay the salaries of workers and accounts due to
suppliers.
In a letter dated July 31, 2016 responding to Martels request for urgent explanations for the
decreasing work force at the Dhaka site and rumors of unpaid bills, Bolton indicates that it is
experiencing cash flow problems.
On August 1, 2016 the second milestone payment of US$ 25 million becomes due. Martel
declines to pay because it argues the requisite progress, the construction of Aryas fuselage, has
not been completed.
On September 1, 2016, Bolton announces on its website that it is negotiating an informal debt
workout with its creditors.
On September 2, 2016, Martel writes to Bolton terminating the Contract with immediate effect
on the grounds that Bolton is insolvent and generally unable to pay its debts as they fall due.
Bolton denies that an event of default has arisen and states that termination is not justified.
On September 12, 2016, Bolton serves notice on BB asserting that an event of default under the
Contract has occurred as a result of Martels wrongful termination giving rise to its right to call
upon BB to immediately pay US$ 75 million under the three remaining on-demand guarantees.
On September 13, 2016, Bolton (Claimant) sends a Notice of Arbitration under the Contract to
the HKIAC naming Martel as the Respondent.

Page | 4

On September 14, 2016, citing Boltons financial difficulties, Martel commences proceedings
against BB in the Makati Regional Trial Court to restrain BB from making payments under the
bank guarantees.
INTRODUCTION
Claimant hereby respectfully submits this memorandum to support its Application for
Emergency Interim Relief, to restrain Martel from pursuing the court proceedings in Makati,
Philippines against Bravos Bank, in response to the request of the Honorable Tribunal.
Claimant will demonstrate before the Honorable Tribunal that it is entitled to an award for
Emergency Interim Relief under Article 23 of the Hong Kong International Arbitration Centre
(HKIAC)Rules for having satisfied the following:
a. harm not adequately reparable by an award of damages is likely to result if the measure
is not ordered, and such harm substantially outweighs the harm that is likely to result to
the party against whom the measure is directed if the measure is granted; and
b. there is a reasonable possibility that the requesting party will succeed on the merits of
the claim. The determination on this possibility shall not affect the discretion of the
arbitral tribunal in making any subsequent determination.1
It is undisputed that the Contract in this case is governed by Philippine law, accordingly,
Philippine statutes and case laws are determinative of the rights and obligations pertaining
thereto.

1 Article 23.4 Hong Kong International Arbitration Centre Administered Arbitration Rules
Page | 5

I.

THAT THERE IS A REASONABLE POSSIBILITY THAT CLAIMANT WILL

SUCCEED ON THE MERITS OF THE CLAIM.

Claimant now claims that it has the right to call upon BB to immediately pay US$ 75 million
under the three remaining on-demand guarantees there being default on the part of Respondent as
a result of Respondents wrongful termination constituting a material breach of the Contract.
a. Termination by Respondent, UNJUSTIFIED
Respondent terminated the Contract on the grounds that Claimant is insolvent and generally
unable to pay its debts as they fall due. However, Claimant is neither insolvent nor was it unable
to pay its debt as they fall due.
Under Financial Rehabilitation and Insolvency Act (FRIA) of 2010 2, an entity is considered
insolvent when it is generally unable to pay its liabilities as they fall due in the ordinary course of
business orhas liabilities that are greater than its or his assets.It is true that Claimant is currently
experiencing cash flow problems, however, the mere fact that it is temporarily spending more
money than it earnsdoes not mean that it has liabilities that are greater than its assets nor does it
mean that it is generally unable to pay its liabilities as they fall due.
On the other hand, it is the Respondent which is guilty of default, it having committed a material
breach through its unjustified and immediate termination of the Contract.

2Republic Act No. 10142

Page | 6

Breach of contract is defined as the failure without legal reason to comply with the terms of a
contract. It is also defined as the failure, without legal excuse, to perform any promise which
forms the whole or part of the contract.3
There is material breach if it will adversely affect the nature of the obligation that the obligor
promised to deliver, the benefits that the obligee expects to receive after full compliance, and the
extent that the non-performance defeated the purposes of the contract.4
The question of whether a breach of contract is substantial depends upon the attending
circumstances.5
In the case of G.G. Sportswear Mfg. Corp. v. World Class Properties, Inc., the Court held:
we observe that GG Sportswear, not World Class, substantially breached its
obligations under the Agreement when it was remiss in the timely payment of its
obligations, x xx. A substantial breach of a reciprocal obligation, like failure to pay the
price in the manner prescribed by the contract x xx. Under this contractual term, it was
World Class, not GG Sportswear, which had x xx. the prerogative to secure the forfeiture
of all the payments already made by GG Sportswear.
Moreover, in the case of International Hotel Corporation v. Joaquin, Jr:

3 Cathay Pacific Airways, Ltd. v. Vasquez, G.R. No. 150843(2003)

4 International Hotel Corporation v. Joaquin, Jr, G.R. No. 158361 (2013)
5G.G. Sportswear Mfg. Corp. v. World Class Properties, Inc., G.R. No. 182720 (2010) 614 SCRA 75
Page | 7

Conversely, the principle of substantial performance is inappropriate when the

incomplete performance constitutes a material breach of the contract. x xx. Accordingly,
for the principle (substantial compliance) to apply, the failure of Joaquin and Suarez to
comply with their commitment should not defeat the ultimate purpose of the contract (to
be not considered as material breach). x xx. Needless to say, finding the foreign financier
that DBP would guarantee was the essence of the parties contract, so that the failure to
completely satisfy such obligation could not be characterized as slight and unimportant x
xx
In the case at bar, the primary obligation of Respondent is to pay US$ 25,000,000 upon the
arrival of each of the four construction milestones. By unjustly terminating the Contract,
respondent essentially violated its primary obligation to pay US$ 75,000,000 under the three
remaining milestones and refused to perform, without legal excuse, the same, consequently, it
will also adversely affectthe benefits that the Claimant expects to receive, namely, the US$
75,000,000.Moreover, Respondent breached the Contract by immediately terminating the same
in violation of the 30-day cure period provided therein.
b. Claimant has the right over the bank guarantee
Art. 1311 par (2) of the New Civil Code provides If a contract should contain some stipulation
in favor of a third person, he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is
not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon
a third person. (1257a)

Page | 8

In Limitless Potentials, Inc. v. Quilala, the Court laid down the requisites of a stipulation pour
autrui: (1) there is a stipulation in favor of a third person; (2) the stipulation is a part, not the
whole, of the contract; (3) the contracting parties clearly and deliberately conferred a favor to the
third person the favor is not an incidental benefit; (4) the favor is unconditional and
uncompensated; (5) the third person communicated his or her acceptance of the favor before its
revocation; and (6) the contracting parties do not represent, or are not authorized by, the third
party.
In the case at hand, the Contract provides for provision of an on-demand payment guarantee by
Respondent arranged through BB. Accordingly, Respondent arranged for BB to issue four ondemand bank guarantees in favor of Bolton as guarantee of payments under the Contract.The ondemand guarantees are governed by Philippine law.
Although the Claimant is not a party to the contract between BB and Respondent, the former has
the right over the on-demand payment guarantee the same having been constituted in its favor
and purposely for compliance with the Contract between Claimant and Respondent.
All the requisites for the application of Pour Autrui with regard the contract between BB and
Respondent are present in this case. (1) there is a stipulation in favor of Claimant; (2) the
stipulation is a part, not the whole, of the contract; (3) BB and Respondent clearly and
deliberately conferred a favor to Claimant; (4) the favor is unconditional and uncompensated; (5)
Claimant communicated its acceptance of the favor before Respondentcommenced the action to
restrain BB from making payment; and (6) BB and Respondent did not represent, and were not
authorized by, Claimant.

Page | 9

Under Art. 1159 of the New Civil Code, Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith.
In characterizing the contract as having the force of law between the parties, the law stresses the
obligatory nature of a binding and valid agreement.6
A bank guarantee is an irrevocable commitment of a bank binding itself to pay a sum of money
in the event of non-performance of a contract by a third party7
Respondent, being guilty of default and having stipulated in the Contract an on-demand payment
guarantee in favor of Claimant, cannot now restrain BB from making payment under the bank
guarantees; the Contract having the force of law between Respondent and Claimant and being
obligatory in nature.
II.

HARM NOT ADEQUATELY REPARABLE BY AN AWARD OF DAMAGES IS

LIKELY TO RESULT IF THE MEASURE IS NOT ORDERED, AND SUCH
HARM SUBSTANTIALLY OUTWEIGHS THE HARM THAT IS LIKELY TO
RESULT TO THE PARTY AGAINST WHOM THE MEASURE IS DIRECTED
IF THE MEASURE IS GRANTED

The test to be applied to determine the level of harm that justifies an interim measure varies
depending on the type of measure sought and the circumstances of the case. 8 It is not necessary

6Golangco v. Philippine Commercial International Bank, GR No. 142830 (2006)

7BSP CIRCULAR NO. 425 Series of 2004
8 International Arbitration Practice Guideline
Page | 10

that the harm will definitely occur, rather, it is sufficient that there is a significant risk that the
harm is likely to occur.
Claimant, though not insolvent, is currently experiencing cash flow problems, consequently, it is
in need of money for it to regain financial stability. Hence, a belated payment or a later award in
its favor in the arbitration might prove to be inadequate to satisfy its current needs, or worse,
nugatoryassuming the Claimant be then declared as insolvent.
The relative financial position of the parties may also be considered to ensure that a party will
not be substantially disadvantaged if the interim measure is granted 9. In the instant case, the
Respondent is neither in financial distress nor likely be in financial hardship if the interim
measure is granted.
RELIEF
In consideration of the aforesaid discussions, Claimant respectfully prays that the Application for
Emergency Interim ReliefrestrainingRespondent from pursuing the court proceedings in Makati
against BB be granted.

(Sgd.) Javed D. Fogata

(Sgd.) Aldous Francis P. Sison

9Supra
Page | 11