MEMORANDUM FOR RESPONDENT

Transcription

1 Foreign Direct Investment International Arbitration Moot 24 to 26 October 2013 MEMORANDUM FOR RESPONDENT On Behalf of: Against: REPUBLIC OF RURITANIA CONTIFICAASSET MANAGEMENT CORP. Respondent Claimant

2 Table of Contents TABLE OF CONTENTS... I BIBLIOGRAPHY... IV INDEX OF AUTHORITIES... IV INDEX OF CASES... V INDEX OF LEGAL SOURCES... V STATEMENT OF FACTS... VI ARGUMENT ON THE PROCEDURAL ISSUE... I. THE TRIBUNAL HAS NO JURISDICTION OVER THE CLAIMS SUBMITTED BY CAM AND THOSE CLAIMS ARE NOT ADMISSIBLE IN LIGHT OF THE FACTS SURROUNDING ACQUISITION OF THE SHARES IN FBI BY CAM... A. THE TRIBUNAL HAS NO JURISDICTION OVER THE CLAIMS SUBMITTED BY CAM Circumstances surrounding acquisition of shares of FBI Recognition of investment in international law The terms of investment under the BIT are not achieved Recognition of investor in international investment law The terms of investor in comparison under the BIT... B. CLAIMS SUBMITTED BY CAM ARE NOT ADMISSIBLE IN LIGHT OF THE FACTS SURROUNDING ACQUISITION OF SHARES IN FBI BY CAM Recognition of treaty shopping in international law The acquisition of shares made my CAM are not admissible as the effect of treaty shopping... a) circumstances...

3 b) price of transferred shares... c) purpose of the transfer... II. THE TRIBUNAL HAS NO JURISDICTION OVER CAM S CLAIMS BASED ON THE ALLEGED BREACH OF THE SHARE PURCHASE AGREEMENT BY THE STATE PROPERTY FUND OF RURITANIA AND THOSE CLAIMS ARE NOT ADMISSIBLE... A. IT DOES NOT HAVE JURISDICTION BECAUSE SHARE PURCHASE AGREEMENT ISAN AGREEMENT BETWEEN PRIVATE PARTIES, THE TRIBUNAL HAS JURISDICTION TO HEAR CLAIMS BASED ON BIT The acquisition of shares took place between State Fund of Ruritania and Contifica Spirits BIT cannot be used... ARGUMENT ON THE SUBSTANTIVE ISSUES... III. RURITANIA DID NOT VIOLATE ITS OBLIGATIONS UNDER THE BIT OR INTERNATIONAL LAW TOWARDS CAM BY ADOPTING THE MEASURES FOR THE REGULATION OF MARKETING AND SALE OF ALCOHOL AND IMPOSING FURTHER REQUIREMENTS FOR MARKETING AND SALE OF FREEBREW BEER... A. THE CONCEPT OF THE EXPROPRIATION... B. THE ACTIONS OF THE REPUBLIC OF RURITANIA ARE OBJECTIVE TO FET STANDARD AND HAD A NON-DISCRIMINATORY CHARACTER... C. THE STATE HAS A RIGHT TO IMPOSE REGULATING ACTIONS WITHOUT ANY COMPENSTATION... IV. MORAL DAMAGES MAY NOT BE AWARDED BY THE TRIBUNAL TO CLAIMANT FOR THE ARREST OF MESSRS GOODFELLOW AND STRAW... A. RECOGNIOTION OF MORAL DAMAGES IN INTERNATIONAL LAW...

4 B. THE TRIBUNAL DOES NOT HAVE THE JURISDICTION TO AWARD MORAL DAMAGES FOR THE ARREST OF MESSRS GOODFELLOW AND STRAW The matter of moral damages should be treated as human rights concept Alleged breach of the BIT Article 2 (1b)... C. CLAIMANT IS NOT ENTITLED TO MORAL DAMAGES Claim does not concern the rights of the Claimant but those of its employees Claimant did not suffer any injury because of the detention of Messrs Goodfellow and Straw The claim for moral damages is not based on any valid proof... V. THE LOSS OF SALES BY CAM S SUBSIDIARIES LOCATED OUTSIDE OF RURITANIA TO FBI DOES NOT CONSTITUTE A RECOVERABLE ITEM OF DAMAGES...

5 BIBLIOGRAPHY R. Dolzer, Ch. Schreuer, The Principles of International Investment Law, New York M. Jeżewski, The International Investment Law, Warsaw 2011 J. A. Huerta-Goldman, A, Romanetti, F. X. Stirnimann, WTO Litogation, Investment Arbitration, and Commercial Arbitration, The Netherlands Khawar Qureshi QC, Bilateral Investment Treaties (BITs): The Essentials B. Ehle & Martin Dawidowicz, Moral Damages in Investment Arbitration, Commercial Arbitration, Commercial Arbitration and WTO Litigation in J. A. Huerta-Goldman, A, Romanetti, F. X. Stirnimann, WTO Litogation, Investment Arbitration, and Commercial Arbitration, The Netherlands I. Schwenzer & P. Hachem, Moral Damages in International Investment Arbitration in: International Arbitration and International Commercial Law: Synergy, Convergence and Evolution, , Great Britain, M. T. Parish, A. K. Newlson, Ch. B. Rosenberg, Awarding Moral Damages to Respondent States in Investment Arbitration, Berkeley Journal of International Law, Volume 29 Issue 1 M. Rimmer, Cigarettes Wil Kill You: The High Court of Australia & plain packaging of tobacco products, WIPO Magazine, Januar P. Dumberry, Compensation for Moral Damages in Investor-State Arbitration Disputes, Journal of International Arbitration 27(3): , 2010, The Netherlands P. Dumberry, Satisfaction as a Form of Reparation for Moral Damages Suffered by Investor and Respondent States in Investor-State Arbitration Disputes, Journal of International Dispute Settlement, (2012), pp C. Blake, Moral Damages in Investment Arbitration: A Role for Human Rights?, Journal of International Dispute Settlement, Vol. 3, No. 2 (2012), pp INDEX OF AUTHORITIES 1. Conway Blake;

6 2. Gary Born; 3. Rudolf Dolzer; 4. Patrick Dumberry; 5. Pascal Hachem; 6. Marek Jeżewski; 7. Umpire Parker; 8. Jan Paulsson; 9. Christoph Schreuer; 10. Ingeborg Schwenzer INDEX OF CASES the Factory at Chorzów (Germany vs. Poland), Judgment of 13 December, 1928, P.C.I.J. at 47. P.S.E.G v. Turey, ICSID Case No. ARB/02/5 Antoine Biloune (Syria) & Marine Drive Complex Ltd. (Ghana) v. Ghana Investment Centre & Government of Ghana, ad hoc arbitration under the UNCITRAL Chamber of National and International Arbitration of Milan Cases No Biwater Gauff (Tanzania) v. Republic of Tanzania ICSID Case No. ARB/05/22 1 Saul (n 68) 558; 168. Castillo Paez case, Reparations, Judgement of 27 th of November 1998, Inter-AmCt HR S.A.R.L. Benvenuti&Bonfant v. People s Republic of the Congo, ICSID Case No ARB/77/2 INDEX OF LEGAL SOURCES Energy Charter Treaty (17 Dec. 1994), 2080 U.N.T.S. 95, 34 I.L.M. 360 (195). International Law Comission, Responsibility of a State for internationally wrongful acts, Agenda item 162, 28 January 2002.

7 Treaty of Mutual Promotion and Protection of Foreign Investment between The Republic of Ruritania and State of Crons Regulation of Sale and Marketing of Alcoholic Beverages Act The Universal Declaration of Human Rights STATEMENT OF FACTS In the beginning of 2008 the State Fund of Ruritania announced an international tender In order to sell the FBI, which was concluded on 30 th of June 2008 with the winning bid worth USD offered by Contifica Spirits S.p.A (a subsidiary company of Contifica Enterprises Plc.). As soon as the Claimant acquired shares of FBI, the company started to invest in it so that it could be modernized. The changes were applied to technology, design and equipment. In 2010 in nation-wide competition FBI was recognized as the safest place to work due to the modernization process. Later on the brewery was integrated into Contifica Group s procurement network with the subsidiary companies supplying bottles, aluminum cans, yeast, hops and barley to FBI. On the 17 th of March 2010 part of the shares of the brewery was transferred for USD to Contifica Asset Management Corp. On the same day the company acquired tights to intellectual property and trade dress used by FDI. On 20 th of November the Republic of Ruritania introduced the Regulation of Sale and Marketing of Alcoholic Beverages Act, which implemented regulations concerning distribution of alcohol beverages, including beer, labeling obligations and prohibition regarding the sale of alcoholic beverages in containers with capacity over 0.5 l. Subsequently, FBI had to introduce a reconfiguration of its bottling line due to the fact that its flag product FREEBREW was decanted in 0.8 l. bottles. On 1 st of December 2011 the Prosecutor s Office of Ruritania commenced investigation claiming that Messrs Goodfellow and Straw committed a crime of bribery concerning the acquisition of FBI shares. On 19 th of December The investigation transformed into ongoing criminal proceedings that resulted in an arrest and detention of both executives lasting from 23 rd of December 2011 till 3 rd of January In addition, on the day of the arrest Free TV broadcast the material showing the arrest at the Freecity Airport International that came from the security camera. On 15 th of June 2012 the HRI released a report claiming that the consumption of Reyhan, a substance used in production of FREEBREW, leads to higher risk of cardiac complications. On 30 th of June the Ruritanian Ministry of Health issued an ordinance containing an obligatory provision to write that the product contains Reyhan on its label. Subsequently, the Claimant wrote to the Ministry pleading to revoke the ordinance but the Ministry denied. The sales of FBI dropped firstly by 60% in first two quarters of 2011 and secondly decreased by another 20% revenue s worth of On 15 th of March 2012 FBI reduces its production from decaliters to decaliters. On 31 st of May the Claimant renews its motions to the President of Ruritania invoking Article 8 of the BIT. Finally, on 30 th of September the Statement of Claim is issued, followed by the Statement of Defence issued on 15 th of December

8 I. THE TRIBUNAL HAS NO JURISDICTION OVER THE CLAIMS SUBMITTED BY CAM AND THOSE CLAIMS ARE NOT ADMISSIBLE IN LIGHT OF THE FACTS SURROUNDING ACQUISITION OF THE SHARES IN FBI BY CAM A. THE TRIBUNAL HAS NO JURISDICTION OVER THE CLAIMS SUBMITTED BY CAM. 1. Circumstances surrounding acquisition of shares of FBI. According to Statement of claim, in the beginning of 2008 the State Property Fund of Ruritania decided to sell the FBI to a private investor and an international tender was announced. Five companies submitted their bids, including Contifica Spirits S.p.A.. On 30 June 2008 Contifica Spirits was declared the winner of the tender. On the same day Contifica Spirits and the State Property Fund of Ruritania entered into a share purchase agreement providing for the acquisition of all shares in FBI for USD 300,000, Recognition of investment in international law. The definition investment is key to the scope of application of rights and obligations of investment agreements and to the establishment of the jurisdiction of investment treaty-based arbitral tribunals 1. There is a problem is situations when the meaning if investment is different in ICSID Convention and in BIT s. In Salini Construttori v. Morocco (July 2003) tribunal said that a two-fold test must therefore be applied in determining whether this Tribunal has the competence to consider the merits of the claim: whether the dispute arises out of an investment within the meaning of the Convention and, if so, whether the dispute relates to an investment as defined in the Parties consent to ICSID arbitration, in their reference to the BIT and the pertinent definitions contained in Article 1 of the BIT. 2 In case Malaysian Historical Salvors v. Malaysia (May 2007) the tribunal called this approach a double barreled test : under the double-barrelled test, a finding that the Contract satisfied the definition of investment under the BIT would not be sufficient for this Tribunal to assume jurisdiction, if the Contract failed to satisfy the objective criterion of an investment within the meaning of Article 25 [ICSID Convention] materia.pdf 2 Salini Construttori v. Morocco, Decision on Jurisdiction, 23 July 2003, para 68 3 Malaysian Historical Salvors v. Malaysia, Award on Jurisdiction, 17 May 2007, para 55

9 3. The terms of investment are not achieved. The case of Caratube International Oil Company LLP v. The Republic of Kazakhstan (ICSID Case No. ARB/08/12) (June 2012) held that investment understood by the tribunal as an economic arrangement requiring a contribution to make profit, and thus involving some degree of risk. (para. 455.). First of all the tribunal found no plausible economic motive to explain the US national s investment in CIOC, secondly no evidence of a contribution of any kind (the US national s personal guarantees for a loan received by the company from a Lebanese bank were not considered as constituting a sufficient contribution in this case) and finally any risk undertaken by the US national, and no capital flow between the US national and CIOC (para. 455.) 4 In Quiborax S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplún v. Plurinational State of Bolivia (ICSID Case No. ARB/06/2) (September 2012), it was held that the following are not part of the normal definition of investment: - contribution to the development of the host State - conformity with the laws of the host State and - respect of good faith are not. (para. 219.) What is more, distinction made between the objects of an investment, such as shares or concessions [...] and the action of investing and finally, while shares or other securities or title may be the legal materialization of an investment, mere ownership of a share is, in and of itself, insufficient to prove a contribution of money or assets. (para 233). 5 Another case is following this reasoning. In Daimler Financial Services AG v. Argentine Republic (ICSID Case No. ARB/05/1) (August 2012) it was held that ICSID claims were at least in principle separable from their underlying investments and thus the claimant s ICSID claims were [not] necessarily and automatically transferred along with the shares by operation of law. 6 All presented cased were examined form the ICSID Convention point of view. This sensible approach should be followed by tribunal while delivering verdict on this case. From the 4 Khawar Qureshi QC, Bilateral Investment Treaties (BITs): The Essentials 5 Khawar Qureshi QC, Bilateral Investment Treaties (BITs): The Essentials 6 Khawar Qureshi QC, Bilateral Investment Treaties (BITs): The Essentials

10 information included above it can be deducted that there appear 3 factors which are necessary to proclaim investment: - contribution to profit - duration - risk There are significant indications, that CAM s actions were not focused on fulfilling abovementioned conditions. 4. Recognition of investor in international law. Generally, there are two types of investors: natural and legal (juridical) persons. For natural persons, investment agreements generally base nationality exclusively on the law of the state of claimed nationality. Some investment agreements also introduce alternative criteria, such as a requirement of residency or domicile. The issues related to the nationality of legal persons are more complicated. Companies today operate in ways that can make it very difficult to determine nationality. Tribunals have usually adopted the test of incorporation or seat rather than control when determining the nationality of a juridical person, unless the test of control is provided for in the agreement. Accordingly, it is the general practice in investment agreements to specifically define the objective criteria which make a legal person a national, or investor, of a Party, for purposes of the agreement. When the objective criteria used may include investors to whom a Party would not wish to extend the treaty protection, some treaties include denial of benefits clauses allowing exclusion of investors in certain categories The terms of investor are not achieved. In Standard Chartered Bank v. The United Republic of Tanzania (ICSID Case No. ARB/10/12) (November 2012), it was further held that to get benefit from Article 8(1) s arbitration provision, a claimant must demonstrate: - that the investment was made at the claimant s direction, -that the claimant funded the investment or 7 -materia.pdf

11 -that the claimant controlled the investment in an active and direct manner. (para 230.) In this case the tribunal held, that an indirect chain of ownership linking the British claimant to debt owed by a Tanzanian borrower did not satisfy the requirement in the Treaty s arbitration provision. The tribunal reasoned that, despite the fact that the claimant owned a substantial equity interest in a Hong Kong company, which in turn held Tanzanian debt acquired from Malaysian financial institutions, it could not be said that those loans were the claimant s investments (paras ) 8 From the information included above it can be deducted that there appear 3 factors which are necessary to proclaim the company as an investor: - the investment have to be made at the company s direction, - the investor funded the investment or - the investor is controlling the investment in an active and direct manner Claimant did not fulfill abovementioned conditions because: a) investment was not made at the claimants direction b) claimant did not fund acquisition of shares c) claimant did not control the investment in an active and direct manner. CAM is a subsidiary company, used for achieving further protection of Contifica group s investment in Ruritania 9. This shows clearly that the only purpose of the transfer was to bring a claim under the BIT and all decisions were made in Contifica Enterprices Plc. which is a parent company. B. THOSE CLAIMS ARE NOT ADMISSIBLE IN LIGHT OF THE FACTS SURROUNDING ACQUISITION OF SHARES IN FBI BY CAM. 1. Recognition of treaty shopping in international law. The term treaty shopping means situation where an intermediate holding company is structured in a third state that has a more advantageous treaty in terms of investment 8 Khawar Qureshi QC, Bilateral Investment Treaties (BITs): The Essentials 9 Memorandum (Exhibit RX1)

12 protection with the host state. Treaty shopping is a commonly used scheme for multinational corporations to provide the jurisdiction of arbitral tribunals The acquisition of shares made my CAM was the treaty shopping. There are significant indications that the conduct of Claimant in the present case is an example of the deplorable practice of treaty shopping. The following criteria have to be taken into account: a) circumstances. First of all, the transfer of shares took place two months after the New Way party secured the majority in Ruritanian parliament. This party is best known for taking a hard stance towards marketing and sale of alcohol, so it was easy to predict, that tougher regulations would be adopted in the near future. b) price of transferred shares. Secondly, the part of the shares in investment worth, according to Claimant, over USD was transferred to Contifica Asset Management for about USD c) purpose of the transfer. Finally, the purpose of the transfer is stated in a memorandum produced by Claimant in response to Ruritania s request to disclose documents relating to the acquisition of shares in FBI and other FBI-related assets made in the context of criminal investigation into actions of Messrs Goodfellow. The memorandum considers the various mechanisms of achieving further protection of Contifica group s investment in Ruritania 11 and shows without any doubt that the only purpose of the transfer was to bring a claim under the BIT. II. THE TRIBUNAL HAS NO JURISDICTION OVER CAM S CLAIMS BASED ON THE ALLEGED BREACH OF THE SHARE PURCHASE AGREEMENT BY THE STATE PROPERTY FUND OF RURITANIA AND THOSE CLAIMS ARE NOT ADMISSIBLE. 10 Xiao-Jing Zhang, Proper interpretation of corporate nationality under international investment law to prevent treaty shopping 11 Memorandum (Exhibit RX1)

13 A. IT DOES NOT HAVE JURISDICTION BECAUSE SHARE PURCHASE AGREEMENT IS AN AGREEMENT BETWEEN PRIVATE PARTIES, THE TRIBUNAL HAS JURISDICTION TO HEAR CLAIMS BASED ON BIT. FURTHERMORE CLAIMS ARE NOT ADMISSIBLE. 1. The acquisition of shares took place between State Fund of Ruritania and Contifica Spirits Under the laws of Ruritania the Fund is a separate legal entity with its own legal personality. The Republic of Ruritania bears no liability for the debts of the Fund. Hence, Ruritania is not liable for any alleged non-performance of the agreement by the Fund. Similar opinion was expressed in two verdicts: Impregilo S.p.A. v. Islamic Republic of Pakistan ICSID Case No. ARB/03/3 and Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/ BIT cannot be used. Umbrella clauses, known also as observance of undertakings clauses, are common to investment treaties. In August 2003 in case SGS v. Pakistan, concerning the meaning of umbrella clauses, [a]s a matter of textuality, the umbrella clause appears susceptible of almost indefinite expansion, the tribunal held that the claimant needed to adduce clear and convincing evidence that the parties to the investment treaty intended that the umbrella clause elevate a contract breach to the level of a treaty breach. Finding that the claimant failed to provide sufficient evidence, the tribunal rejected its proposed interpretation and denied the claim 12. In BIT there is no expressed will to elevate a contract breach to the level of a treaty breach, so CAM s claims are not admissible. III. RURITANIA VIOLATED ITS OBLIGATIONS UNDER THE BIT OR INTERNATIONAL LAW TOWARDS CAM BY ADOPTING THE MEASURES FOR THE REGULATION OF MARKETING AND SALE OF ALCOHOL AND IMPOSING FURTHER REQUIREMENTS FOR MARKETING AND SALE OF FREEBREW BEER A. THE CONCEPT OF THE EXPROPRIATION 12

14 In the light of the international investment law expropriation is the most severe form of interference with property. According to the notion of territorial sovereignty, the classical rules of international law have accepted the host state s right to expropriate alien property in principle 13. It is legally accepted that the legality of a measure of expropriation is conditioned on four requirements. These requirements which must be fulfilled cumulatively, are contained in most treaties: First of all the measure must serve a public purpose, secondly the measure must not be arbitrary and discriminatory within the general accepted meaning of the terms. Furthermore the procedure of expropriation must follow principles of due process and be always against compensation 14. In the expropriation we can single some forms out like direct or indirect expropriation. Handling the direct expropriation consists of a deprivation of a title deed which automatically obliged a party in breached to pay a compensation. Indirect expropriation occurs when actions do not deprive the title deed, but disenable the exploitation of the property. Another form of an indirect expropriation is a creeping expropriation which refers to the measures causing the equivalent effect. In this case we do not deal with neither direct nor with indirect expropriation. We have to differentiate between expropriation measures and regulating measures which every state as a sovereign entity it entitle to take. All of the Ruritania s actions were targeted o n the grounds of public health. B. THE ACTIONS OF THE REPUBLIC OF RURITANIA ARE CONSISTENT WITH FET STANDARD AND HAD A NON-DISCRIMINATORY CHARACTER The concept of fair and equitable treatment is the most frequently invoked standard in investment disputes. A reference to a just and equitable treatment standard first appeared in the Havana Charter for an International Trade Organization. Nowadays the concept of FET has found entry into a number of multilateral treaties in force. In its diverse manifestations, 13 R. Dolzer, Ch. Schreuer, Principles of International Investment Law, New York Ibidem.

15 the standard of fair and equitable treatment may address a variety of governmental actions that affect investments. In principle, for all clauses on fair and equitable treatment, generalizations about the standard should be treated with caution. However, there is no particular standard for this clause as the variations in this area are quite significant. Indeed every type of clause has to be interpreted with the Vienna Convention on the Law of Treaties 15. Bilateral Treaty of Mutual Promotion and Protection of Foreign Investment concluded between the Republic of Ruritania and The State of Crons in article 2 b imply that in every case accord Investments by Investor of the other Contracting State fair and equitable treatment as well as full protection and security under this Treaty. In the light of international law Ruritania did not violated any laws towards CAM, concerning the bilateral treaty and general standards of international investment law. The prohibition of discriminatory treatment belongs to the classical standards contained in investments treaties. By definition, every state oriented at the rule of law will outlaw action, and foreign investors properly expect that host states will follow this standard. In treaty practice, the rule against discrimination is often combined with the prohibition of discrimination 16. A to the meaning of arbitrary and its application to a specific case, different approaches have been employed. According to the case Lauder vs. Czech Republic, the tribunal defined arbitrary measures as depending on individual discretion or refers to action founded on prejudice or preference rather than on reason of fact 17. We can define a discrimination as not equal treatment of different entities, things and similar situations. In other words it is a prohibition of any diversification of a state s conduct towards investor under any circumstances, towards similar entities, both domestic and international R. Dolzer, Ch. Schreuer, The Principles of International Investment Law, New York Lauder vs. Czech Republic, Award, 1 July 2004, 12 ICSID Reports 59, para 162

16 The non-discriminatory measures we can relate to the standard of fair and equitable treatment. The Republic of Ruritania did not violated any of its obligations guaranteed in the BIT as the actions of the government were directed to all producers of Reyhan. The Republic of Ruritania based on Human Health Research Institute which was a government-fund institution, so it had efficient grounds to believe in its veracity. As the Human Research Institute released that consumers of FREEBREW were exposed to a higher risk of cardiac complications due to effect of Methyldioxidebenzovat, The Ministry of Health and Social Security could not look idly at the risk the consumers of beer take. Therefore the adoption of an ordinance was fully circumstantiated by the protection of public health. C. THE STATE HAS A RIGHT TO IMPOSE REGULATING ACTIONS WITHOUT ANY COMPENSTATION The Republic of Ruritania as every sovereign state is able to impose regulating actions as a form of making current policy, which must be differentiated from expropriation measures. In the light of public international law any of regulating actions do not require a compensation. Similar situation had already occurred in the case Azurix v. Argentine. First of all, the arbitral tribunal implicated in that case a distinction between expropriating measures and regulating actions of a state. Secondly, the tribunal noted extra factors which need to be taken into consideration, namely INTENTION and the BONA FIDES of the state. These two factors can be an useful indicator if the Claimant (CAM) argues that the prerequisites of expropriation had taken place. When the Republic of Ruritania received a report from a government-funded institution, Human Health Research Institute which was claiming that consumers of FREEBREW beer were more likely to have cardiac complications due to effect of a chemical ingredient found in Reyhan concentrate, the deliberate and reasonable reaction of the Ministry of Health a nd Social Security was adoption of the ordinance which required any product containing Reyhan concentrate to be labeled with following warning that: This product contains Reyhan

17 concentrate, consumption of which according to the results of scientific research may lead to higher risk of cardiac complications. When one of the above mentioned prerequisites takes into consideration, it should be concluded, that the intention of the Republic of Ruritania was to protect the public health and to make the society aware of the fact that that they are probably exposed to a higher risk of cardiac diseases. It is the constitutional right in every democratic country all over the world to protect health as a principle personal good. The protection of public health ensures also a Convention for the Protection of Human Rights and Fundamental Freedoms (article 8). Thus, Ruritania was acting in good faith according to the Constitution, purposing to protect personal and social goods. Another case following this argument is Saluka vs. Czech Republic, where in the opinion of the tribunal a State does not commit an expropriation and is thus not liable to pay compensation to a dispossessed alien investor when it adopts general regulations that are commonly accepted as within the police power of States. Undeniably the issuing an ordinance by the Ministry of Health and Social Security had a character of general regulating action, thus the Republic of Ruritania is not liable for paying any compensation to the Claimant. I am persuaded that The Republic of Ruritania acted according to the public policy. In this case can be also applicable the decision of the High Court of Australia in the case concerning plain packing of tobacco products.

18 The High Court of Australia adjusted in that case that IP law is designed to serve public policy objectives not merely the private interest of rights holders 18. Public policy can be generally defined as a system of laws, regulatory measures, courses of action, and funding priorities concerning a given topic promulgated by a governmental entity or its representatives. In any society, governmental entities enact laws, make policies, and allocate resources. This is true at all levels 19. One of the indications concerning public policy on the territory of the Republic of Ruritania was the implementation of Regulating of Sale and Marketing of Alcoholic Beverages Act. Regulations from Section 8 from the MAB Act concerning the capacity of an alcohol containers and logo and trade have nothing to do with an expropriation or other equivalent effects. Similar situation took place in Australia where in 2011 the Australian Parliament passed the Tobacco Plain Packaging Act which was supposed to be an important health measure to end tobacco investments. British Tobacco and Japan Tobacco International who brought legal action against the Australian government in the High Court of Australia, claimed that the Act amounts to an acquisition of property on less than just terms under the Australian Constitution. On December 1, 2012, Australia became the first country in the world to require that tobacco products be sold in olive-colored plain packaging. Australia s Tobacco Plain Packaging Act 2011 regulated the retail packaging and appearance of tobacco products, requiring plan, olive-colored plain packaging emblazoned with public health warning and graphic images of smoking-related diseases. The aim is to improve public health by discouraging people from smoking or using tobacco products. The reaction of British American Tobacco and Japan Tobacco International was bringing the legal action against the Australian government in the 18 M. Rimmer, Cigarettes Wil Kill You: The High Court of Australia & plain packaging of tobacco products, WIPO Magazine, Januar

19 High Court of Australia. Phillip Morris LTD and Imperial Tobacco jointed the case and supported their fellow tobacco companies. The tobacco companies argued for a broad view of property under the Australian Constitution, and claimed to hold various forms of intellectual property (IP) in relation to tobacco packaging, including trademarks, patents, designs, copyright and protection against passing-of. However, the Australian High Court rejected the tobacco companies arguments that there had been an acquisition of property under the Australian Constitution. An important theme of the ruling concerned the nature a role of IP law. The judgments stressed that IP law is designed to serve public policy objectives not merely the private interests of rights holders. Basing on the judgment of the Australian High Court in the case of tobacco I tend to agree that the Republic of Ruritania acted according to the public policy and did not breach any of its obligations as imposing regulatory measures is a privilege of a state. Thus, in this case Ruritania is not liable for any redress to CAM as making a public policy has nothing to do with expropriation measures. IV. MORAL DAMAGES MAY NOT BE AWARDED BY THE TRIBUNAL TO CLAIMANT FOR THE ARREST OF MESSRS GOODFELLOW AND STRAW A.RECOGNITION OF MORAL DAMAGES IN INTERNATIONAL LAW The concept of moral damages is still vague. Although there are attempts made trying to clarify their meaning, they are still incomplete and faulty. One of the first ones was the definition given by Umpire Parker during the law proceedings concerning the sinking of the British liner Lusitania by a German Submarine during the First World War. He stated that one injured is, under the rules of international law, entitled to be compensated for an injury inflicted resulting in mental suffering, injury to his feelings, humiliation, shame, degradation, loss of social position or injury to his credit or to his reputation, there can be no doubt, and

20 such compensation should be commensurate to the injury. Such damages are very real, and the mere fact that they are difficult to measure or estimate by money standards makes them nonetheless real and affords no reason why the injury should not be compensated therefor as compensatory damages, not as a penalty 20. It points out the importance of moral damages, indicating the difficulty in defining them. It gives the list of examples rather than a clear formula. Later on Stephan Wittich again offered a definition comprising of a list of necessary circumstances surrounding an injury, which would enable to file a claim for moral damages. He concludes that moral damages include personal injury that does not produce loss of income or generate financial expenses 21. Such a depiction underlines the significance of a financial aspect of moral damages or rather lack thereof. In Commentaries to the Draft Articles on Responsibility of States for Internationally Wrongful Acts Adopted by the International Law Commission at its Fifty-Third Session in November 2011 it was agreed that damages for bodily or mental harm, for mistreatment during detention, or for deprivation of liberty shall include compensation for past and prospective: a) harm to the body or mind; b) pain, suffering and emotional distress 22. Here the time aspect plays an important role. However, the definition again appears to be a list, which proves that the term is a summary of all of the circumstances characteristic for a specific event. As shown above the exact meaning of moral damages is still not completely defined. Due to the discrepancies appearing in their various definitions, the Tribunal should carefully consider this individual case not necessarily basing on the definitions but on its own opinion. 20 Lusitania, supra note 2, at S. Wittach, Non-Material Damage and Monetarny Reparation in International Law, 15 Finnish Y.B. Int l L. 329, Art 28 of the 1961 Harvard Draft Convention on the International Responsibility of States for Injuries to Aliens, Apr. 15,1961, by reporter L. B. Sohn& R. Baxter, 55 A.J.I.L. 548 (1961)

21 B. THE TRIBUNAL DOES NOT HAVE THE JURISDICTION TO AWARD MORAL DAMAGES FOR THE ARREST OF MESSRS GOODFELLOW AND STRAW The most important question the Tribunal should consider is the fact whether it has jurisdiction over the claims for moral damages for the arrest and detention of Messrs Goodfellow and Straw. The Respondent will indicate important prerequisites that are not fulfilled as far as this case is concerned, effectively closing the door to any adjudication being delivered. 1. The matter of moral damages should be treated as human rights courts matter Human rights courts have an impressive practice in deciding cases concerning moral damages claims. These courts have articulated a number of principles that guide their assessment of damages [ ]. They have affirmed the compensatory nature of moral damages, and have rejected any punitive role for damages in this context. Human rights jurisprudence has also addressed key issues in relation to the indeterminacy of non-pecuniary harm, the factors and methods for quantification of non-pecuniary harm, and the necessary limitations on recoverable compensation 23. As presented the human rights courts have enlarged the picture of definitions of moral damages based on a much bigger practice than the one gathered in international investment arbitration. It should be clear that as such it is more appropriate to deliver verdicts on that matter. Furthermore, even tribunals that do decide cases concerning investment states disputes decline their jurisdiction on them due to the fact that the injury suffered has more to do with human rights violation. Such a situation is presented in the case of Antoine Biloune (Syria) & Marine Drive Complex Ltd. (Ghana) v. Ghana Investment Centre & Government of Ghana. The ad hoc tribunal stated that it had no jurisdiction over Mr. Biloune s claim based on the restrictive language contained in the arbitration clause. The tribunal justified its decision as follows: it does not follow that this Tribunal is competent to pass upon every type of departure from the minimum standard to which nationals are entitled, or that this Tribunal is authorized to deal with allegations of fundamental human rights. [ ] It must be concluded that, while the acts alleged to violate the international human rights of Mr. Biloune may be relevant in considering the investment dispute under arbitration, this Tribunal lacks 23 C. Blake, Moral Damages In Investment Arbitrat ion: A Role for Human Rights?,OxfordUniversity Press, 2012

22 jurisdiction to address [ ]claim 24. The example shows that the circumstances are similar due to the fact that Mr. Biloune was arrested and held in custody for thirteen days and both Messrs. Goodfellow and Straw were detained from 23 rd of December 2011 until 3 rd of January 2012, twelve days in total. In both cases persons arrested played key roles within the enterprises as Mr. Biloune was a principal shareholder of the company, with which he directed his claims to the ICSID Tribunal, whereas Messrs Goodfellow and Straw are Chief Executive Officer and General Counsel respectively. In addition, official charges were pressed neither against Mr. Biloune nor Messrs Goodfellow and Straw. Therefore, the Tribunal should take the case of Biloune v. Ghana into consideration as it shows resemblance to the case of Messrs Goodfellow and Straw. What is more, the approach of the ICSID Tribunal was sensible and should be followed. Therefore, the Tribunal should also, similarly to Biloune v. Ghana, conclude that it lacks jurisdiction in that case as the claim is not a matter of international investment arbitration but that of human rights and as such should be adjudicated by the Tribunal deciding such cases. 2. Alleged breach of the BIT Article 2 (1b) The only base giving the Claimant the right to direct the dispute to the international investment arbitration is the Treaty of Mutual Promotion and Protection of Foreign Investment between The Republic of Ruritania and The State of Cronos. The Claimant argues that Article 2 (1b) was breached in form of arrest and detention of Messrs Goodfellow and Straw. Although the Respondent agrees that the applicable law was not completely complied with during the arrest, it considers the allegations of the Claimant not rightfully founded. To appropriately examine the supposed breach of the BIT, the Tribunal should have knowledge of the identities of detained persons. Furthermore, their link to the Claimant should be investigated to check if they could be seen as entities, to which the provision of the BIT providing full protection and security has any reference. Mr. Goodfellow is Chief Executive Officer of FBI and Contifica Group Enterprises while Mr. Straw is General Counsel. Both were suspected of committing the crime of bribery of the officials of the State Property Fund of Ruritania in connection with the acquisition of the FBI shares 25. After receiving an information about the crime the Prosecutor s Office of Ruritania 24 Antoine Biloune (Syria) & Marine Drive Complex Ltd. (Ghana) v. Ghana Investment Centre & Government of Ghana, ad hoc arbitration under the UNCITRAL Arbitration Rules, Award on Jurisdiction and Liability, Oct. 27, 1989, unpublished, extracts in Y.B. COM.ARB. 11 (1994) 25 Statement of Claim

23 started an investigation, which later on transformed into criminal proceedings against Messrs. Goodfellow and Straw, which ultimately led to their arrest and detention while trying to board the flight to Prosperia on 23 rd of December Secondly, Article 2 (1b) of the BIT states that each Contracting State shall in its territory in every case accord Investments by Investors of the other Contracting State [ ] full protection and security 26. It is clear that the term Investment does not pertain to both Messrs Goodfellow and Straw as it is strictly defined in the BIT. The term is described as: (a) movable and immovable property as well as any other rights in rem, such as mortgages, liens and pledges; (b) shares of companies and other kinds of interest in companies; (c) returns reinvested, claims to money which has been used to create an economic value or claims to any performance having an economic value; (d) intellectual property rights, in particular copyrights and related rights, patents, utility-model patents, industrial designs, trademarks, plant variety rights; (e) trade-names, trade and business secrets, technical processes, know-how, and good-will; and, (f) concessions under public law, including concessions to search for, extract or exploit natural resources. 27 As shown there is no link between the term itself and the executives of Contifica Group Enterprises as the full protection and security provision of the BIT require that such treatment be applied to the Investment. Moreover, even if one wanted to broaden the interpretation of this provision to Investor, it would still not be applicable to this case. According to Article 1 (3a and b) the term "Investor" means with regards to each Contracting State refers to (a) any natural person who is citizen or national of, or who is permanently residing in each Contracting State in accordance to its laws; and, 26 Exhibit No Exhibit No.1, Article 1

24 (b) any entity which is established in accordance with, and recognized as a legal person by the law of that Contracting State, irrespective of whether or not its liabilities are limited and whether or not it is a profit seeking company, agency, association or firm; which is the owner, possessor or shareholder of an Investment in the territory of the other Contracting State 28. Neither part of the definition fits to Messrs Goodfellow and Straw. Especially when one compares point 3a of Article 1 of the BIT. Both Messrs Goodfellow and Straw did not permanently reside in the Republic of Ruritania. The fact that they tried to board a flight to Prosperia is a clear indication of that, especially when one thinks of the circumstances surrounding their attempted departure. Both Messrs Goodfellow and Straw wanted to leave the territory of Ruritania due to fast-approaching Christmas holidays, which they desired to spend with their families at their respective homes in Prosperia, where they reside. It cannot be denied that the provisions of the BIT concerning the full protection and security do not apply in case of Messrs. Goodfellow and Straw. They can be neither seen as an embodiment of the term Investment nor do they fit the definition of the Investor and only under such circumstances could they be protected under the BIT. What is more, it is clear that the Tribunal has no jurisdiction over the claims of moral damages in this case because the provisions of the BIT were not broken. C. CLAIMANT IS NOT ENTITLED TO MORAL DAMAGES There appear a lot of doubts whether the Claimant can seek compensation for moral damages, especially if the company claims it suffered because of the arrest and detention of Messrs Goodfellow and Straw. 1. Claim does not concern the rights of the Claimant but those of its employees First of all the Claimant Contifica Asset Management Corp. is a legal entity and not a natural person. That is why it is hardly possible for them to suffer an injury that is intangible 28 Exhibit No.1, Article 1 (3a and b)

25 and presents a non-material loss. Clearly, there exists a very remote link between moral damages and economic loss of a company because moral damages are constituted by mental as well as non-economic harm. Furthermore, Chamber of National and International Arbitration in Milan delivering a decision in a case brought by US company against Italian company stated that a claim for moral damages should be dismissed due to the fact that the claimant was not a physical person but a company and as such could not claim moral damages 29.This sensible approach should be followed by the Tribunal as it proves that legal entities e.g. companies or corporations should not be allowed to direct its claims concerning moral damages to investment arbitration disputes as they are not entitled to do so. It cannot be denied that the case adjudicated by the Chamber of National and International Arbitration in Milan sheds some light onto the one being decided. The arrested and detained Messrs Goodfellow and Straw can only be described as natural persons even if they are employees of the Claimant, who in turn is a legal entity and as such should not be allowed to search compensation. Moreover, it has been already pointed out in international arbitration doctrine that one should distinguish injuries suffered by a company and company s officers as they are not identical. Desert Line Projects L.L.C v. Yemen is here an excellent example. Although the ICSID Tribunal did award moral damages compensation to the company for the injury of its executives being harassed, threatened and detained, which were causes of their stress and anxiety, it is highlighted that the Tribunal should have distinguished the injury suffered by the employees and the company itself. It is explained by underlining that the host state s mistreatment of the company s officers does not cause any direct damage to this legal entity. In fact, the moral injury is suffered only by those physical persons and not by the company 30. As presented above, the Tribunal should dismiss the claims of the company trying to redress grievances that does not pertain to it as it is a legal entity and suffered no injury by the arrest and imprisonment of its executives. 2. Claimant did not suffer any injury because of the detention of Messrs Goodfellow and Straw 29 Chamber of National and International Arbitration of Milan Cases No. 1795,Award (1996), 24 (a), Y.B.C.A 1996, (199) 30 P Dumberry, Compensation for Moral Damages in Investor-State Arbitration Disputes, Kluwers Law International, 2010, p. 267

26 The Claimant further argues that it suffered an injury due to the absence of its employees as the detention lasted from 23 rd of December 2011 until 3 rd of January 2011, giving a total of twelve days. The company s liquidity was supposedly endangered and its managing process was disrupted. If those were to be the bases for the moral damages claim, it should be dismissed as those constitute a ground for loss of profit claim. Therefore, making the claim for moral damages effectively inadmissible. In BiwaterGauff (Tanzania) v. Republic of Tanzania the ICSID Tribunal adjudicated that given that none of the Republic s violations of the BIT caused the loss and damage for which BGT now claims compensation, it follows that each of BGT s claims for damages must be dismissed 31. Firstly, as mentioned above, the Respondent is not responsible for any breach of the BIT. Secondly, the case completely supports the argument of the Respondent confirming that when there is no causal link between the claim and the injury suffered, the Tribunal should not deliver any arbitrational award concerning the moral damages claim. Moreover, the test of remoteness should be used to determine whether there exists any link between the arrest of Messrs Goodfellow and Straw and the supposed injury of the company. Conway Blake explains the idea behind it by quoting the commentaries to ILC Articles, which state as follows: causality is in fact is a necessary but not sufficient condition for reparation. There is a further element, associated with the exclusion of injury that is too remote or consequential to be the subject reparation 32. The concept was primarily formulated by the Inter-American Court, which was brought to life in order to safeguard the essential rights of man in American continent with competence to observe human rights violations 33 in The Court stated that one must look upon affective relationship between the claimant and the actual party, which suffered a moral damage. It further explained that the proximity of the relationship is relevant to the determination of compensation 34. The difference between a legal entity and a natural person again resurfaces to indicate that the injury suffered by the company s employees has little if not nothing to do with the demand of the company to achieve compensation. Accordingly, when proving that the causal link between the harm suffered by the Claimant and the action of the Respondent is non-existent the tribunal adjudicated in Lauder v. Czech Republic that the action of the state was too remote to qualify 31 BiwaterGauff (Tanzania) v. Republic of Tanzania ICSID Case No. ARB/05/22, Award 24 th July 2008, para Commentaries to ILC Articles, Saul (n 68) 558; 168. Castillo Paez case, Reparations, Judgement of 27 th of November 1998, Inter-AmCt HR (Ser C) No 43, para 89 (1998)