International Commercial Arbitration Theory and Doctrine Prof. Peter Neumann Fall, 2022 TAKE-HOME FINAL EXAM DUE DATE AND TIME: THURSDAY, OCTOBER 20, 11:59PM PDT GENERAL INSTRUCTIONS This is an “open-book”, “open-notes”, take-home exam. You may consult any source in the public domain, but you cannot collaborate or consult with anyone, especially other class members. There is no limitation on the library of sources you may consult, but this is also not intended to be a research exercise. The questions are aimed to have you refer back to the text book (e.g., “Redfern, ¶1.111”) and the primary legal sources we examined in class (cite as below). For each answer, I expect you to cite to authority for each legal rule, policy, or principle you apply (regardless of the type of authority cited). This is class on theory and doctrine, and your answers will not be complete without proper theoretical and doctrinal support and analysis. This exam is intended to test your ability to identify and analyze legal issues with reference to specific legal authorities. Simple conclusory answers are insufficient. In fact, there may be no clear “correct” conclusion in various cases; you will need to present alternative or competing arguments. When you rely on a source (treaty, statute, soft-law, case, or commentator), you must cite it in a form sufficient to allow me to check it. For example, do not merely refer to the New York Convention in general, but, rather to a specific article and paragraph (e.g., “NYC II(2)”). If you do utilize outside primary or secondary sources, you must properly cite any such source, regardless of whether you quote, paraphrase, or use an idea from that source. Feel free to insert links to sources that are available on the Internet without a “paywall.” The better answers do not merely supply conclusions, but rather articulate all the steps in the reasoning that lead to the answer. Also, while you may review the slides we used in class, they are not legal sources and are not valid citation material. It is of primary importance that you identify, discuss and analyze legal issues, citing applicable legal rules and principles and applying them to relevant facts. Whether or not you reach a “correct” conclusion will have little if any impact on your grade. Because each question has a strict word limit, 1 you should practice word economy and concise writing, while also being precise in your references and in the scope of your work. Where a question comports more than one answer, I expect you to provide the most complete answer you can within the allocated word limit (e.g., if there is more than one basis for why an arbitration is international, I would expect you to discuss the two or three possible grounds). Additionally, where a question allows argument for both sides, I expect you to discuss those grounds following a Socratic approach (e.g., where the discussion is whether there is a valid arbitration agreement, I expect you to discuss why one of the parties would argue there is or there is no such agreement, and then refute those points). To save space, cite as follows: 1 With word count determined by your word processing program. ICA T&D Final Exam Fall 2022 Instrument Articles and Paragraphs UNCITRAL Model Law ICC Arbitration Rules (2021) The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, made in New York in 1958 IBA Guidelines on Conflicts of Interest in International Arbitration IBA Guidelines on Party Representation in International Arbitration IBA Rules on the Taking of Evidence in International Arbitration UNIDROIT Principles of International Commercial Contracts, 2016 Reference Art. / “¶” ML ICC Rules NYC IBA-Conflicts IBA-Representation IBA-Evidence UNIDROIT You will find below a fact pattern regarding hypothetical jurisdictions, entities, and institutions. Where information is missing and you find that information relevant for your answer, discuss what the possible gap-fillers are and why they are relevant. Interpretation of the questions and your understanding of the necessary information to resolve the issues is part of your evaluation. Various aspects of the fact pattern are deliberately ambiguous or incomplete, to reflect the uncertainty of “real life” international arbitration practice. I WILL PROVIDE UP TO 2 ZOOM SESSIONS OPEN TO THE ENTIRE CLASS (WHICH WILL BE RECORDED FOR ASYNCHRONOUS VIEWING) TO ANSWER QUESTIONS ABOUT THE FACT PATTERN AND PROVIDE ANY APPROPRIATE CLARIFICATIONS. PLEASE NOTE THAT I DO NOT ACCEPT EX PARTE QUESTIONS DURING THE EXAM PERIOD IN ORDER TO AVOID ANY UNFAIRNESS. I MAY, IN MY SOLE DISCRETION NOT LATER THAN 24 HOURS PRIOR TO THE SCHEDULED SUBMISSION DEADLINE, RESPOND TO REQUESTS FOR CLARIFICATION ON WHICH THE ENTIRE CLASS IS COPIED, AND WILL RESOND, IF AT ALL TO THE ENTIRE CLASS. IF YOU BELIEVE THERE IS AN UNRESOLVED AMBIGUITY IN THE EXAM, SIMPLY NOTE THE AMBIGUITY AND EXPLAIN YOUR ASSUMPTION OR WHAT FACTUAL INFORMATION YOU WOULD NEED IN ORDER TO PROPERLY ANALYZE THE ISSUES IN LIGHT OF THE PERCEIVED AMBIGUITY. INSTRUCTIONS: This exam must be completed by you individually, without collaboration with any other person and submitted online according to Straus Institute exam submission rules and procedures. In answering the questions below, you may refer to any source or authority you deem appropriate, bearing in mind that not all sources are equally authoritative. If you posit a rule of law or viewpoint inspired by a source, give credit to that source by in a citation (in-line or in a footnote, in your discretion). Do not use long quotes, and always indicate the exact source of any language or idea that is not your own. You will be graded on the completeness, responsiveness and sophistication of your answers. You must stay within the designated word limits (thus, avoid non-substantive Page 2 of 20 ICA T&D Final Exam Fall 2022 introductory language and practice word economy); the word totals include all footnotes and citations. I will stop reading answers at the point where they exceed the allocated work limit, should this occur. You should use Times New Roman font, size 12, “normal” (1-inch) margins, and format the line spacing to “1.5 lines”, but the line spacing on your footnotes may be “single”. Please start your response to each numbered question (but not lettered sub-part) on a new page. Do not repeat the question on top of each page, do not use headings or titles on your answers, but begin your answer with: “QUESTION #” and begin your answer. Please include the following header on each page (which will not be counted toward the word limit): ICA-T&D Final; Exam No. [****] Page X of Y (Note: “****” refers to your personal exam number; please use the automatic page numbering function.) Some questions have multiple parts and you should address each paragraph letter (e.g., (a) …) in your answer. This is meant as guidance and not as a shopping list to your answer. Be sure to read the questions carefully and answer questions that are asked. Regardless of how a question is worded, it is important to examine both sides of the question, utilizing authorities covered or referenced in the course materials, and applying legal rules and principles to the hypothetical facts. In the case of questions inviting a “yes” or “no” answer, you should reach a conclusion, but will not be penalized for an erroneous conclusion. Finally, you should not waste space discussing issues going into the merits of the parties’ dispute, (e.g., the quality of the products, their payment obligations, or their material conduct as it pertains to their contractual obligations). The focus of this class is international commercial arbitration, and you will only gain points by discussing the relevant issues covered in our class and in the textbook. Please bear in mind that you may need to consult portions of the “optional” reading in a few cases to achieve maximum credit for a given question. Good luck! /// /// /// /// Page 3 of 20 ICA T&D Final Exam Fall 2022 International Commercial Arbitration Theory and Doctrine Prof. Peter Neumann Fall, 2022 TAKE-HOME FINAL EXAM STATEMENT OF FACTS INTRODUCTION 1. The following scenario involves a hypothetical cross-border venture capital (“VC”) investment in the bourgeoning Metaverse space. This exam assumes the following simiplified definition of “Metaverse”: [T]he metaverse is a vast network where individuals via their avatars can interact socially and professionally, invest in currency, take classes, work, and travel in 3-D virtual reality. (citations omitted) Please refer to Exhibit A hereto for a brief introduction to a simplified VC fund structure. Please assume that it also reflects the basic principles of the limited partnership law governing the hypothetical limited partnership entities described herein. Neither the VC structure and investment nor the Metaverse activities are intended to accurately reflect realworld industry practices. 2. The events unfold following a sharp decline in financial markets and an across-the-board cryptocurrency (e.g., Bitcoin, Ethereum, etc.) crash. Interest rates are rapidly rising and the U.S. dollar is rapidly appreciating against other currencies. JURISDICTIONS 3. Carribea is a small, wealthy island republic. Due to favorable tax laws, it has become a popular place of establishment for international VC Funds. Carribea investment funds generally take the form of limited partnerships. The Carribea International Arbitration Act (“CIAA”) is identical to the UNCITRAL Model Law with amendments as adopted in 2006, including Article 7 “Option I”. Because Carribea is former British colony, when applying the CIAA Carribea courts often look to English judicial precedent for guidance. 4. The Republic of Middle Earth (“MiddleEarth”) is a large, rapidly developing, middleincome country that has accumulated huge U.S. Dollar reserves from its dynamic exportdriven economy. Its government is under pressure to generate future income to care for its rapidly aging population. However, due to its fragile banking system and the government’s plan to launch its own digital currency, its Ministry of Finance has banned all transactions and investments linked in any way to cryptocurrency. The MiddleEarth Supreme Court has also held that in view of the state’s fundamental interest in maintaining a stable financial system, the cryptocurrency ban rises to the level of MiddleEarth public policy. Page 4 of 20 ICA T&D Final Exam Fall 2022 5. The Federal Republic of Lalaland (“Lalaland”) is a nation consisting of 10 original semiautonomous states representing common law, civil law, and hybrid legal traditions. They adopted the Lalaland Constitution, modeled on the U.S. Constitution, which granted specific powers to the Lalaland Federal Government, and reserved all other powers to the states. The Lalaland Arbitration Act (the “LAA”) is identical to the United States Federal Arbitration Act, and Lalaland federal courts generally follow U.S. federal court precedent in international arbitration matters. Individual states also have their own international arbitration laws, consisting of statutes and published court cases interpreting the law. State arbitration law is pre-empted by Lalaland federal arbitration law (including the LAA and related federal case precedent) to the extent it is inconsistent with federal arbitration law. 6. The Republic of Datalandia (“Datalandia”) is a small landlocked nation that is blessed with abundant hydropower resources. Following the cryptocurrency crash, its primary industry quickly pivoted from crypto “mining” to operation of large-scale data centers and server “farms” supporting the bourgeoning Metaverse sector. To protect its leading position in this area, it has enacted some of the strictest data security and privacy laws in the world. Under the Datalandia Data Protection Law (“DPL”), no cross-border transfer or other disclosure of data reasonably likely to contain any personally identifiable information (“PII”) may be made unless the data “processor” (i.e. any party handling or receiving the data) has obtained the explicit written consent of the individual owner of the subject PII. There is strict liability and draconian penalties for violators, entailing fines of up to 2% of the violator’s annual global revenues. Needless to say, this is problematic when evidence is needed for foreign legal proceedings and the relevant PII owner refuses to cooperate. Due to tax exemptions for IP royalties and license fees, it has also attracted global headquarters of many leading technology companies. Datalandia has enacted the UNCITRAL Model Law with amendments as adopted in 2006, including of Article 7 “Option II”. 7. Carribea, MiddleEarth, Lalaland, and Datalandia are all members of the New York Convention and made both the commercial and reciprocity reservations. 8. MetaBeach is a state of Lalaland. Due to its liberal social values, year-round sub-tropical climate, world-class surfing beaches, proximity to leading research universities, open labor markets, and far-sighted investment in alternative energy and information technology infrastructure, MetaBeach has attracted the world’s leading innovators and entrepreneurs in the “Web 3.0” and Metaverse spaces. The MetaBeach International Arbitration Act (“MIAA”) is identical to the UNCITRAL Model Law with amendments as adopted in 2006, including of Article 7 “Option I”. PARTIES 9. CLAIMANT: MetaPalms, Ltd. (“MetaPalms”) is a promising developer of virtual luxury resort properties in the Metaverse. Although it has a substantial research and development center in MetaBeach, its corporate headquarters and place of incorporation are located in Datalandia. Page 5 of 20 ICA T&D Final Exam Fall 2022 10. FIRST RESPONDENT: FutureFund LP II (“FF-II”) is a VC Fund organized as a limited partnership registered (i.e. incorporated) in Carribea for the purpose of investing in Metaverse – related companies. 11. SECOND RESPONDENT: MiddleEarth Capital Corporation (“MECC”) is the sovereign investment fund of MiddleEarth and is financed entirely by the MiddleEarth government. 12. THIRD RESPONDENT: DeepPockets, Ltd. (“DeepPockets”) is a Carribea Corporation and is the General Partner (“GP”) of FF-II. THE ARBITRAL INSTITUTION 13. MetaBeach is home to the MetaBeach Arbitration Center (“MBAC”), an arbitral institution whose rules are identical to the ICC Arbitration Rules in effect from 1 January 2021, but with the additional section, “Metaverse Dispute Procedures” which may be applied by the parties to an arbitration on an “opt-in” basis. They are intended to utilize the latest technology to make arbitral proceedings faster, more efficient, and more cost effective. Key provisions of the Metaverse Dispute Procedures include: • Document production and initial screening shall be conducted through the MVAC Document Portal. A proprietary artificial intelligence (“AI”) “engine” conducts the initial review of the documents to screen them for relevance, then forwards an indexed electronic set of screened documents to the tribunal for review and assessment, with copies to the parties. 2 • All hearings on the merits shall be held in a virtual Metaverse hearing room, with each participant represented by an avatar of their choice. 3 • At any time up to 30 days prior to the scheduled hearing, either party may elect in writing to hold the hearing on a secure video platform, such as Zoom, in which case no portion of the hearing on the merits would be held in the Metaverse. • By opting-in to the Metaverse Dispute Procedures, the parties irrevocably waive their right to a “physical in-person” hearing. • The proceedings should be closed within one year of delivery of the Notice of Arbitration. 2 Given a typical complex dispute in the Metaverse space could easily involve tens of thousands of digital pages of evidence and provide numerous opportunities for discovery abuses, this was widely hailed as a cutting-edge cost-saving measure that enhanced the effectiveness of arbitrators by helping them avoid cognitive overload. 3 This approach was widely hailed as highly effective way to address and eliminate unconscious bias tied to skin color, gender identity, cultural differences, and personal mannerisms. Page 6 of 20 ICA T&D Final Exam Fall 2022 • Post hearing briefs must be submitted within one week of the close of the evidentiary hearing. • The award must be submitted for scrutiny by the MBAC Court within 90 days of closing of the hearing or submission of post-hearing briefs, whichever is the later to occur. • Scrutiny of awards to be conducted within 24 hours by a proprietary MVAC AI engine. (Since the primary purpose of award scrutiny in practice is correct calculation and typographical errors, this was a welcome innovation.) BACKGROUND 14. DeepPockets previously formed, as GP and manager, FutureFund I, LP (“FF-I”) during the crypto boom to invest in promising companies in the cryptocurrency space (cryptocurrency miners, brokers, payment platforms, payment apps, etc.). The FF-I limited partnership agreement required its LPs to subscribe and contribute capital in the form of cryptocurrency, but typically made portfolio investments in U.S. Dollars (“USD”). Following the cryptocurrency crash, FF-I stopped making new investments or calling capital from existing LPs, but continued to hold its investments in anticipation of a recovery in the crypto markets. 15. DeepPockets quickly changed its strategy to focus on exciting new investment opportunities in the Metaverse space (which continued to rapidly grow despite the crypto crash). It formed a new fund, FF-II, with a Metaverse investment focus. In view of the crypto crash, FF-II required all LPs to subscribe and contribute capital in the form of United States Dollars (“USD”). FF-II SUBSCRIPTION BY MECC 16. Unfortunately for DeepPockets, the FF-I investors were mainly “crypto-billionaires” and had no money to invest in the new Fund. As traditional U.S. institutional investors felt the Metaverse was too risky, DeepPockets engaged Freddy Fastbucks, a consultant with deep relationships among foreign sovereign investment funds, to seek new investors. 17. From his personal contacts at MECC, Freddy learned of their new government mandate to invest in emerging technology companies. Sensing an easy commission, Freddy set up an initial meeting between DeepPockets’ Managing Director (the “MD”) and a representative of the MECC. The meeting went well, and Freddy next proposed a “relationship building trip.” He assured the MD that he had “everything taken care of” and was confident the trip would lead to a major financial commitment. 18. The MD (a U.S. citizen) grew concerned when he learned the trip would be an all-expense paid cruise on Freddy’s private luxury yacht. Upon boarding, Freddy introduced the crew of athletic 20-something fashion models who he instructed to make his guests as comfortable as possible “in every imaginable way.” In response to the MD’s private concerns about compliance issues, Freddy assured him that this was “standard practice” in the sovereign fund world, and not to worry since they would be sailing in international waters. A conservative family man, the MD was content to relax on deck between meetings, but the Page 7 of 20 ICA T&D Final Exam Fall 2022 MECC representative seemed to be in constant need of “massage therapy” in his private cabin with young crew members. 19. In the course of the week-long cruise the MD and MECC negotiated subscription terms. Since the successful launch of FF-II depended on MECC making a substantial commitment (USD $100 million) as an “anchor” LP, the MD reluctantly agreed to several non-standard investor rights, with Freddy’s assurances that they were standard requirements of MECC, which faced close political scrutiny. The following terms were reflected in a confidential FFII side-letter between DeepPockets and MECC: a. GP to provide a company profile of each proposed PortCo 4 to MECC for approval prior to making first contact. b. An MECC representative to be present (but not identified) at all meetings with prospective PortCos. c. MECC to receive copies of all proposed PortCo due diligence materials. d. MECC legal department to review and comment on all negotiated Share Purchase Agreements (“SPAs”) for prospective PortCos e. MECC to have veto power over any proposed PortCo investments. f. MECC to have a right of first refusal to exclusively fund any particular PortCo investment, up to its remaining unutilized subscription amount of $100 million. g. MECC to have a right to co-invest directly in PortCos together with the Fund. 20. The side letter was silent on dispute resolution. The FF-II Subscription Agreement signed by MECC provided for Caribbea governing law and the non-exclusive jurisdiction of Caribbea courts. 21. As required under the Subscription Agreement, MECC paid the initial $20 million of its $100 million commitment to the FF-II bank account. With MECC on board, DeepPockets soon secured commitments to FF-II from several other LPs and investment activities commenced in earnest. PROPOSED FF-II INVESTMENT IN METAPALMS 22. The GP identified a promising target, MetaPalms, Ltd., a pioneer of virtual luxury resort development in the Metaverse. Its business model involves developing Metaverse resort properties, then selling the surrounding virtual villas to high-net worth individuals at a huge profit. It buys and sells virtual property using Bitcoin and Ethereum, but its shares are denominated and transacted in U.S. Dollars. Since MiddleEarth’s economy was largely built 4 Defined in Exhibit A Page 8 of 20 ICA T&D Final Exam Fall 2022 on real estate development, the MECC representative was very excited at the prospects of an investment that combined cutting-edge technology with a tried-and-true real estate concept. 23. For its part, MetaPalms had borrowed heavily at high interest rates to purchase and promote its Metaverse real estate portfolio, and would be facing loan defaults if it didn’t receive a large cash infusion in 30 days. Since banks would not accept Metaverse virtual properties as security, MetaPalms pledged its key patents to secure the loans. 24. After reviewing due diligence documents, the DeepPockets MD (on behalf of FF-II) and the MEEC representative – through their avatars -- conducted a virtual site visit in the Metaverse to inspect some MetaPalms properties and conduct SPA negotiations with MetaPalms management (also through their avatars). At the time, the DeepPockets MD was physically present in Caribbea and MetaPalms’ CEO was physically present at corporate headquarters in Datalandia. The MECC representative’s location was unknown. 25. Although introduced as a “consultant” by the GP, the MECC representative took charge of the meeting and explained that MECC was “the real lead investor in this deal” and there would be “lots more money on the table” if MetaPalms agreed to give FF-II a board seat and MECC board observer rights. Two hours of intense negotiations ensued (with MECC’s rep. present throughout through her avatar), resulting in verbal agreement on key business terms for a USD $100 million investment in MetaPalms by FF-II. After the MD and the CEO confirmed that that they had a deal, the MECC rep’s avatar shook the CEO avatar’s hand and said, “It was truly a pleasure meeting you. We’re really excited about this deal. Feel free to call my personal cell any time, the number is +878 (355) 9688-1275.” 26. As an afterthought, MetaPalms General Counsel (also present through her avatar) raised the subject of dispute resolution: “As a Metaverse company, the last thing we want is for disputes to wind up in front of an over-the-hill judge who doesn’t have a clue about Metaverse technology. We can be flexible on most of your standard SPA terms, but must insist on all disputes being submitted to binding arbitration administered by the MBAC under its new Metaverse Dispute Procedures. We’d like all arbitrators to be under 40, have graduate degrees in computer science, be certified as Web 3.0 Technology Law Experts by the MetaBeach Bar, and have at least 5 prior arbitrator appointments in Metaverse-related disputes.” DeepPockets’ MD replied through her avatar, “I’ll need to check with Legal on that one, just give me a minute.” After a brief call she confirmed, “not a problem.” The MECC rep’s avatar nodded approvingly. The MD promised to have the DeepPockets legal department prepare the SPA and related investment documents and send them over electronically for signature ASAP. 27. Before the parties logged off, MECC’s representative turned to the MD and stated MECC’S intent to exclusively fund the entire $100 million investment in MetaPalms. 28. The meeting was neither recorded, nor confirmed in a follow-up communication. That said, the MetaPalms virtual Metaverse properties were hosted on servers located in Datalandia; it is possible that an archival digital recording of the meeting was retained. However, this could not be confirmed without accessing data on the Datalandia servers. Page 9 of 20 ICA T&D Final Exam Fall 2022 29. Unfortunately, due a combination of labor shortages and COVID-related absences, only an inexperienced, junior lawyer was available to prepare the SPA. Under pressure to have documents ready for signature first thing in the morning he worked overnight, but in his sleep-deprived state carelessly used the wrong document template. The version he used was an un-approved working draft from which the original dispute resolution clause had been deleted pending approval by the GC of a new arbitration clause incorporating the MVAC Arbitration Rules, Multiverse Dispute Procedures (which had been issued less than one week prior). 30. Anxious to get the deal done, MECC approved the SPA. DeepPockets’ MD (on behalf of FFII), and MetaPalm’s CEO electronically signed the SPA following only a cursory review of business terms. Neither DeepPockets nor MECC was particularly concerned, since closing was “subject to satisfactory completion of due diligence” and MetaPalms didn’t want risk losing its best opportunity for a cash infusion given its dire debt situation – and the fact that it had mortgaged its key patents to the lenders. After checking in with MECC for confirmation, the DeepPockets MD, again on behalf of FF-II, gave MetaPalms a written notice confirming satisfaction or waiver of all closing conditions and confirming the closing date 30 days later. CAPITAL CALL DEFAULT; BREACH OF SHARE PURCHASE AGREEMENT 31. DeepPockets immediately sent MECC an $80 million capital call notice for its remaining unfunded subscription amount. The funds were to be paid into FF-II’s bank account within 20 days, in order to be available within the 30-day closing deadline under the MetaPalms SPA. 32. Meanwhile, all was not well at MECC. Following its signature of the FF-II subscription, the MiddleEarth Pound (“MEP”, the official currency) had depreciated 30% against the USD. Unbeknownst to DeepPockets, this meant that MECC’s commitment to FF-II had exceeded the MEP-denominated statutory limit on any single private fund investment by MECC. Moreover, the MiddleEarth Sovereign Investment Oversight Board learned that Metaverse virtual property transactions were denominated in cryptocurrency, potentially raising public policy objections to the investment. Worried about losing his job and generous benefits, the MECC representative put the internal funding request on hold. 33. The capital call deadline passed without further payments to FF-II by MECC. DeepPockets’ MD frantically called MECC’s representative, who responded, “we have to complete some special ministerial review procedures for this deal, given recent turbulence in the markets, thanks for your patience.” 34. MECC never met the $80 million capital call, and FF-II was unable to secure alternate funding sources in time for the MetaPalms investment closing deadline. Several days later, MetaPalms’ General Counsel issued a demand letter addressed to DeepPockets, FF-II, and MECC, reserving the right “pursue all of its lawful rights and remedies” if FF-II failed to perform within 5 days (which was necessary to avoid defaulting on its loan). MetaPalm refused to accept a proposed installment payment of $20 million (the initial capital contributed by MECC to FF-II), concerned this would be viewed as accepting modified payment terms. Page 10 of 20 ICA T&D Final Exam Fall 2022 COMMENCEMENT OF ARBITRATION, FORMATION OF TRIBUNAL, AND PROCEDURAL HISTORY 35. MetaPalms, on the strength of an affidavit confirming the existence of an arbitration agreement signed by its CEO, persuaded the MBAC to accept the dispute for administration. Shortly thereafter, the MBAC transmitted to FF-II, MECC, and DeepPockets MetaPalms’ Notice of Arbitration with the following key contents: a. Respondent: FF-II b. Joinder of Additional Respondents: MECC and DeepPockets 5 c. Claims and Relief Sought: i. A declaration that the legal effect of statements and conduct of avatars in the Metaverse is identical to the legal effect of statements and conduct of the natural persons they represent. ii. A declaration that ownership of virtual real property in the Metaverse is a property right. iii. $100 million in damages against FF-II and DeepPockets, jointly and severally, for breach of the SPA. iv. $80 million in damages against MECC, representing the unfunded portion of its capital call. v. $200 million in damages for tortious interference with contract against MECC, due to its reckless failure to meet its capital call in disregard of the likely consequences for MetaPalms. vi. Consequential damages against all three RESPONDENTS, jointly and severally, of $500 million flowing from MetaPalms sale of its prime Metaverse properties at a substantial loss to repay the defaulted loan that was secured by its key patents. vii. Attorneys fees and costs. d. Place of Arbitration: Datalandia 5 Assume that MetaPalms complied with procedural requirements for joinder of additional parties prior to appointment of arbitrators. Page 11 of 20 ICA T&D Final Exam Fall 2022 36. In each of their replies to the Notice of Arbitration FF-II, MECC, and DeepPockets contested jurisdiction and generally denied all claims. In addition, they proposed MetaBeach as the seat. 37. In view of the potential complexity of the legal and factual issues, the MBAC determined a 3 arbitrator tribunal was appropriate. Due to the scarcity of available qualified arbitrators, the tribunal was duly formed without objection about three months later. 38. FF-II, MECC, and DeepPockets requested the tribunal to find that it lacked jurisdiction. Within a few days the tribunal notified the parties of its determination that it in fact had jurisdiction. Each RESPONDENT filed a timely petition for review by the appropriate court of the seat (which you have determined in your answer to Question 1). While court review was pending, the tribunal proceeded with the arbitration. REVELATION ABOUT AN ARBITRATOR’S PAST; FIRST CHALLENGE 39. Prior to commencing law school approximately 10 years ago, FF-II’s party-appointed arbitrator had been a vocal member of the People’s Data Alliance (“PDA”). At the time he posted in various online chat rooms deploring the exploitation of personal data by big tech firms as well as the profit-obsessed agendas of VC funds, their enablers. Throughout law school and the following 10 years of his employment at a BigLaw firm he refrained from political and activist posts. He remained, however, a member of the PDA until it was was disbanded a few years prior to the arbitration when its founder was convicted of hackingrelated crimes. 40. Although he did not disclose his PDA membership and his pre-law school posts, a Google search of his name would have revealed some clues to his history on the 5th or 6th screen of search results. 41. About six months after commencement of the arbitration, but well before the hearing on the merits, the arbitrator was profiled in the MetaBeach Business Journal feature, “Leading Metaverse Lawyers: 40 Under 40”. Appearing after the list was an excerpt of an interview with the arbitrator, including the following exchange: Q: What inspired you to pursue a cutting-edge career in Metaverse law? A: Back in my head-strong pre- law school days I joined the People’s Data Alliance and learned a lot about how social media platforms were making money from exploitation of user data – their choices, tastes, product preferences, etc. -through targeted advertising. Although I gave up on trying to change “the system”, I continued to follow the space. When I encountered a post introducing Web 3.0 and the Metaverse a lightbulb went on in my head and I instantly knew this was way of the future – and the key to future data equity in society. There would be a need for lawyers every step of the way, so I decided to focus on the Metaverse in my practice.” Page 12 of 20 ICA T&D Final Exam Fall 2022 42. A junior associate on FF-II’s legal team came across the article and after some digging found archival materials about the PDA and its anti-establishment, anti- Big Tech, and anti- VC manifesto and some of the arbitrators activist posts. Shortly after sharing these findings with her supervising partner, FF-II submitted a challenge against the arbitrator to the MBAC Secretariat. THE HEARING; COMPLAINTS ABOUT PROCEDURAL RULES 43. Assume that MECC and DeepPockets were joined as respondents. 44. Although the lawyers were uncomfortable with pre-screening of documentary submissions by MBAC’s AI engine (in effect, a robot), the parties were delighted by the very substantial cost savings. 45. At the outset the parties and counsel were all quite enthusiastic about holding evidentiary hearings on a single virtual platform in the Metaverse. It would help address the not uncommon “inequality of arms” resulting from variable quality of audio-visual equipment, physical spaces, and operating skills. By having parties, counsel, and witnesses attend as avatars, it should also be feasible to eliminate any potential negative impact of unconscious racial, ethnic, and gender bias. 46. The lawyers soon began to complain that effective cross-examination was very difficult without being able to see natural facial expressions and evaluate body language. Counsel for MetaPalms argued that, due to sparse documentary evidence relating to actions and statements of MECC’s representative, this disproportionately impaired its ability to prove its case. Accordingly, MetaPalms requested the tribunal, in the interests of procedural fairness, to permit each side to cross-examine a witness of its choosing by video. 47. After inviting comments from all parties, the presiding arbitrator denied the request, stating: “The Metaverse Dispute Procedures are clear. Your request is not timely and should have been made at least 30 days prior to the hearing. You had plenty of time to conduct a mock Metaverse hearing to assess its advantages and disadvantages, but chose not to. You made your client’s bed, now you both need to lie in it.” 48. MetaPalms’ lead counsel took this as a personal insult, and without consulting his client immediately filed a challenge against the presiding arbitrator on grounds of evident bias. After following applicable procedures, the MBAC Court denied the challenge. 49. At the end of the hearing counsel for each party confirmed they would not be submitting a post-hearing brief and the presiding arbitrator declared the proceedings closed. POST-HEARING DEVELOPMENTS 50. The uncle of the presiding arbitrator’s wife was a prominent crypto investor with an estimated net worth of $10 billion. When it became public knowledge that he contracted Page 13 of 20 ICA T&D Final Exam Fall 2022 terminal cancer, there was much speculation in the crypto community surrounding his estate and likely heirs. Based on tabloid newspaper reports, his three spoiled sons were much better known for crashing expensive sports cars and throwing wild parties than business acumen. The uncle passed away after the close of the proceedings, but before the tribunal had an opportunity to fully deliberate. 51. Shortly after her uncle’s death, the presiding arbitrator’s wife learned that her uncle had left his entire fortune to a charitable trust and appointed her – his favorite niece and an accomplished lawyer – as trustee. With her husband’s encouragement, she left her position as a partner in a major law firm to serve as the full-time trustee and Executive Director of the charitable trust. As trustee, she had full management powers over the trust assets, but was only personally entitled to receive an annual inflation-adjusted salary of $300,000, as provided in the trust documents. She did have some discretion over her personal travel and entertainment expenses, provided they were incurred for trust administration purposes and were not “extravagant”. 52. A week later, an article appeared in The Crypto Lawyer, a periodical read mainly by a select group of technology lawyers, paying a glowing tribute to the uncle’s life and accomplishments as a pioneering crypto investor and philanthropist. It also mentioned that “according to sources” the uncle was the anchor LP of FF-I, and surmised that when the crypto markets recover, the value of the charitable trust assets could increase by at least $500 million. 53. The article caught the presiding arbitrator’s eye, but he did not give it much thought, since FF-I was not a party to the arbitration. Particularly given the late stage of the proceedings, he saw no point in disclosing this very remote connection. 54. The tribunal submitted the award in timely fashion. Following scrutiny by the MBAC Court, the MBAC Secretariat transmitted it to the parties. The award contained the following elements: a. A declaration that the legal effect of statements and conduct of avatars in the Metaverse is identical to the legal effect of statements and conduct of the natural persons they represent. b. A declaration that ownership of virtual real property in the Metaverse is a property right. c. $100 million in damages against FF-II and DeepPockets, jointly and severally, reduced by that portion of the award paid directly by MECC to MetaPalms. d. $ 80 million in damages against MECC, representing its outstanding share of the $ 100 million obligation of FF-II to MetaPalms under the SPA e. Denial of the $200 million claim against MECC for tortious interference with contract. Page 14 of 20 ICA T&D Final Exam Fall 2022 f. Consequential damages of $50 million against FF-II, DeepPockets, and MECC, jointly and severally. g. Attorneys fees and costs: 50% to be paid by CLAIMANT and 50% to be shared equally by RESPONDENTS. h. Compound interest at the annual rate of 8%, calculated from the scheduled closing date under the SPA on the outstanding amount of the award until the award is fully performed. i. Simple interest calculated on the outstanding amount of the award at the rate legally applicable to money judgments at the seat from the effective date of the award until performed in full. 55. In denying the $200 million tortious interference claim, the tribunal relied on a MiddleEarth Ministry of Finance Notice suspending all outbound foreign currency payments until exchange rate stabilization measures could be implemented. 56. In limiting consequential damages to $50 million, the tribunal observed that because MetaPalms’ virtual real estate was priced in cryptocurrency, any reasonable investor should expect its USD valuation to be inherently volatile and speculative. POST-AWARD DEVELOPMENTS AND ANNULMENT PROCEEDINGS 57. Within a few weeks of the award’s transmission to the parties, an article appeared in the MetaBeach Business Journal regarding risks of bias in the AI “training process”, which involves using data sets to build up the learning capabilities of AI engines. It cited as an example an overseas contractor frequently hired by e-discovery firms to develop AI document review capabilities. According to inside sources, to reduce its costs and save time, rather than utilizing original, verified foreign language data sets, the contractor frequently used Google Translate to prepare foreign language data sets from a standard English template. While accuracy was acceptable for general business documents, it lacked the precision necessary for legal documents. 58. Upon reading the article, MetaPalms’ lead counsel (who was still resentful over the presiding arbitrator’s cavalier comments at the hearing) immediately contacted his law school classmate, a Senior Counsel at MBAC, who confirmed that MBAC had used that same contractor to develop its AI document review engine. Now suspicious, he contacted local counsel in MiddleEarth to conduct further research on recent finance law developments. This soon unearthed a subsequent MiddleEarth Ministry of Finance circular, publicly available in the original MiddleEarthean language, granting an exemption to the outbound payment moratorium (see ¶ 55, above) for all contracted foreign investment commitments made prior to the moratorium. 59. Alarmed that MBAC’s AI document screening engine missed this key circular, and outraged that MECC’s counsel failed to bring this to the attention of the tribunal and parties, he Page 15 of 20 ICA T&D Final Exam Fall 2022 immediately called MetaPalms’ CEO to recommend petitioning the court at the seat to annul the award. 60. Another document missed by the MBAC AI engine was a MiddleEarth Ministry of Finance Circular prohibiting investment of MiddleEarth sovereign funds in any project violating MiddleEarth domestic public policy. 61. MECC, for its part, continues to maintain that it was never a party to the purported arbitration agreement and in any event should have been legally excused from funding the $80 million balance of its capital call. 62. At roughly the same time both MECC and MetaPalms filed petitions to annul the award in the courts at the seat. QUESTIONS QUESTION 1: Determination of Seat (250 Words) Assuming that the parties never agreed on the seat: (a) Who determines the seat of arbitration? (b) Of the various countries described in the fact pattern, which is the most appropriate seat and why? (Discuss each country.) QUESTION 2: Joinder (500 Words) (a) Should MBAC grant MetaPalms’ request to join MECC and DeepPockets to the Arbitration? (b) If the MBAC denies the request, what are MetaPalms’ options? (c) (d) If the MBAC grants the request, what are MECC’s and DeepPockets’ options? How do the requirements and considerations differ for joinder before or after appointment of arbitrators? QUESTION 3: Jurisdiction (750 Words) How should the court decide each of the following issues? (Evaluate for each possible seat of arbitration under the hypothetical.) (a) Does an arbitration agreement exist? (b) Is the arbitration agreement valid and enforceable? Page 16 of 20 ICA T&D Final Exam Fall 2022 (c) Does the tribunal have jurisdiction over MECC? (d) Does the tribunal have jurisdiction over DeepPockets, notwithstanding the fact that it signed all documents on behalf of FF-II in the capacity of General Partner of FF-II? QUESTION 4: First Challenge (500 Words) (a) Did the arbitrator commit an ethical violation by failing to disclose his PDA membership and pre- law school posts? (b) Should the arbitrator resign from the tribunal? (c) How should the MBAC Court decide the challenge? (d) If the MCAB does not support the challenge and FF-II petitions the relevant court for review, how should the court decide? (e) Apart from universally applicable standards and considerations, what rules and principles are more likely to be considered depending on whether the arbitration is seated in MetaBeach, Datalandia, or Caribbea? QUESTION 5: Arbitrator Disclosure and Second Challenge (500 Words) Recalling that FutureFund I and FutureFund II have the same general partner: (a) Did the presiding arbitrator have a duty to disclose this situation? (b) Assuming he did, what are the consequences of his failure to do so? (c) Should he recuse himself and resign from the tribunal? (d) How might his duties vary depending on the seat of the arbitration? (Again, comparing Datalandia, MetaBeach, and Caribbea?) (e) How should the MBAC decide a challenge brought against the presiding arbitrator? QUESTION 6: Alleged Defects in MBAC Metaverse Dispute Procedures (500 Words) (a) Does alleged defect in the MBAC AI engine used for screening of documentary evidence rise to the level of a public policy violation? Page 17 of 20 ICA T&D Final Exam Fall 2022 (b) Do the alleged shortcomings in the Metaverse virtual hearing platform rise to the level of a public policy violation? (b) Assuming the parties validly chose to apply the MBAC Rules, Metaverse Dispute Procedures to their dispute, does this have any implications for the arbitration agreement? QUESTION 7: MECC Petition to Annul the Award (500 Words) (a) Should the court grant MECC’s Petition to Annul the award? (b) Would your conclusion be different if the seat of arbitration was in DataLandia, rather than in MetaBeach? (c) Even if MECC’s annulment petition is likely to be granted, should it still proceed? (d) If MECC’s petition to annul the award is denied, what are its options? QUESTION 8: MetaPalms Petition to Annul the Award (500 Words) (a) Should the court grant the MetaPalms Petition to Annul the award? (b) Would your conclusion be different if the seat of arbitration was in DataLandia, rather than in MetaBeach? (c) Even if MetaPalms’ annulment petition is likely to be granted, should it still proceed with the annulment? ______________________________________ *************** GOOD LUCK! *************** Page 18 of 20 ICA T&D Final Exam Fall 2022 EXHIBIT A Simplified Venture Capital (“VC”) Fund Structure and Limited Partnership Principles For purposes of this exam, assume the following: (1) A typical VC fund (“Fund”) is structured as a limited partnership based on a limited partnership agreement. The limited partnership is a legal entity consisting of a general partner (GP) and one or more limited partners (LP). Please see Diagram 1 – Basic Fund Structure, below. The light blue arrows in the diagram below refer to the limited partnership agreement. (2) The LPs make a commitment contribute money (known as a “subscription”) to the Fund up to a maximum amount stated in the Limited Partnership Agreement. When the GP identifies a new investment opportunity for the Fund, it issues a “capital call” to the LPs, requiring them to pay money into the Fund within a certain period of time to finance the new investment. Each LP’s liability is limited to its subscription amount. The GP typically contributes some money to the Fund, but has unlimited liability for the debts of the Fund to the extent they are not covered by LP contributions. (3) The GP has full power to manage act for the Fund. In principle, the LPs have no right to participate in the management of the Fund, including investment decisions. The GP typically receives an annual management fee equal to 2% of the called capital of the LPs. (4) In addition to signing the Limited Partnership Agreement, depending on its bargaining power (some LPs may be large and influential institutional funds, such as pension funds), an LP typically negotiates a separate “side letter” with the GP giving it additional rights that are not contained in the Limited Partnership Agreement. The orange arrows in the diagram refer to side letters. (5) The GP’s team identifies and evaluates early and growth-stage companies in which to make minority investments, typically in the form of common share purchases pursuant to a share purchase agreement (“SPA”). A company in which the Fund has invested is known as a portfolio company (“PortCo”). (6) When the Fund exits or sells an investment in a PortCo (typically through a sale of shares in an initial public offering or sale of the portfolio company), it first returns to the LPs the capital they invested. The sale proceeds received by the Fund above and beyond the capital invested in the PortCo is shared in the following ratio: 20% to the GP and 80% to the LPs. The GP’s 20% share is referred to as a “carried interest”. Page 19 of 20 ICA T&D Final Exam Fall 2022 Diagram 1 – Basic Fund Structure GP LP LP Fund PortCo PortCo PortCo Page 20 of 20 PortCo 
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