Arbitration and lease agreement of an undetermined asset

The lessor considered that (i) this agreement, although not specifically regulated by any law, summoned up the features of the property lease agreement and the construction agreement, and (ii) by it the lessee had guaranteed a certain recovery of the lessor’s amounts invested to construct the warehouse.

Close to the expiration of the agreement, the lessor (a) requested the lessee the readjustment of its term and price in order to recover the part of the investment that, according to the former, the latter had guaranteed, and (b) in case this request was not allowed, sought indemnification.

The lessee, on the other hand, construed the agreement as a lease of property that expired after its term lapsed, and under which no recovery of investment had been guaranteed.

The Arbitral Tribunal considered that this was a lease agreement of an undetermined asset under the terms of article 1500 of the Argentine Civil Code(1), in which the undetermined asset was the warehouse to be constructed in a clearly determined lot.

In principle, the Tribunal allowed the review of its terms as the parties had agreed that in case the parameters taken into account by either of them to enter into the agreement changed significantly, the affected party could request from the other the amendment of such terms necessary to restore the conditions existing at the moment the agreement was made.Such a change was caused by the Argentine economic crisis of 2002; being the affected parameters the lessor’s financing to construct the warehouse. Lessor’s resort to international financing had been expressly established in the agreement.

As to the terms of the agreement to be readjusted, the Tribunal considered that the term – already lapsed – might not be reviewed since the parties had agreed on a fixed term and an option at the Lessee’s sole discretion to extend it. Therefore, lesee’s decision not to extend the term should be observed under the terms of article 1197 of Argentine Civil Code,(3)

However, the Arbitral Tribunal allowed the review of the price, but deemed that a complete readjustment to meet the original economic and financial terms of the agreement could not be reached because the Argentine economic crisis had had an impact on both parties.

In addition, the Tribunal refused lessor’s subsidiary request for indemnification, as it was neither allowed under the agreement nor under the relevant legal regulations.

To summarize, the Arbitral Tribunal resolved (i) to refuse the lessor’s request for readjustment of the agreement’s term; (ii) to allow the lessor’s request to readjust the agreement’s price; (iii) to refuse the lessor’s subsidiary request for indemnification; and (iv) that each party should bear its own legal expenses.On October 24, 2005 the lessor challenged in part the award before the Argentine Commercial Court of Appeal. On November 3, 2005, the Court of Appeal refused this claim in limine.