CONTIFICA ASSET MANAGEMENT CORP. Claimant REPUBLIC OF RURITANIA. Respondent MEMORIAL FOR CLAIMANT

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1 GERMAN INSTITUTION OF ARBITRATION UNDER THE UNCITRAL ARBITRATION RULES ADMINISTERED BY THE DIS CONTIFICA ASSET MANAGEMENT CORP. Claimant v. REPUBLIC OF RURITANIA Respondent MEMORIAL FOR CLAIMANT

2 TABLE OF CONTENTS LIST OF AUTHORITIES...iv LIST OF LEGAL SOURCES vii STATEMENT OF FACTS.11 SUMMARY OF ARGUMENTS 14 ARGUMENTS.15 PART ONE: JURISDICTION AND ADMISSIBILITY.15 I. THE TRIBUNAL HAS JURISDICTION OVER THE CLAIMS BROUGHT BEFORE IT BY THE CLAIMANT BECAUSE THE CLAIMANT IS QUALIFIED AS AN INVESTOR UNDER THE BIT...15 A. Examination of the term Investor qualifies Claimant as the Investor under the BIT 15 B. Examination of the term Investment under the BIT qualifies the Claimant s shareholding in FBI as the investment protected by the BIT 17 C. Nationality planning conducted by Claimant does not constitute an abuse of process Restructuring of the investment qualifies as a protected investment because it meets the requirement of duration Foreseeability and the Facts which gave rise to the dispute 22 II. CLAIMS BASED ON THE BREACH OF THE SHARE PURCHASE AGREEMEMNT BY THE STATE PROPERTY FUND OF RURITANIA ARE ADMISSIBLE..24 A. Examination of the observance of undertakings clause expressed in Article 6.2 of the RC-BIT...24 B. Republic of Ruritania is liable for the State Property Fund s violation of the share purchase agreement Republic of Ruritania is liable for the State Property Fund s violation of the share purchase agreement The present Tribunal is entitled to hear claims based on the breach of the share purchase agreement regardless of the existing contractual forum selection clause...28 CONCLUSION ON JURISDICTION AND ADMISSIBILITY.31 ii

3 PART TWO: MERITS OF THE CASE...32 I. RURITANIA VIOLATED BOTH ITS OBLIGATIONS UNDER THE BIT AND INTERNATIONAL LAW TO ACCORD CAM S INVESTMENTS FAIR AND EQUITABLE TREATMENT...33 A. Good faith..33 B. Unreasonable and discriminatory measures..34 C. Stability and Legitimate expectations of the Investor...35 II. THE CUMULATIVE EFFECT OF MEASURES ADOPTED BY RURITANIA HAS RESULTED IN EXPROPRIATION OF ITS INVESTMENTS A. Gradual and cumulative nature of actions taken by the government of Ruritania is tantamount to creeping expropriation Adoption of MAB Act substantially deprived FBI of the use and enjoyment of its trademarks and severely restricted FBI s ability to market and sells its products in Ruritania Release of report by HRI and as a consequence, the following adoption of an ordinance by Ministry of Health and Social Security, led FBI to the verge of bankruptcy Commencement of criminal investigation and the following arrest of Contifica Group employees were purely artificial and pointless and strove to another intention..44 (i) Access to the Claimant s documents..45 (ii) Temporal deprivation of Claimant s ability to manage and control the day- to-day operations of the FBI..45 (iii) Criminal investigation hurt FBI s commercial goodwill...46 B. The measures adopted by Ruritania do not comply with requirements for a lawful expropriation 47 III. THE RESPONDENT IS LIABLE TO PAY COMPENSATION FOR THE MORAL DAMAGES CAUSED BY THE BREACH OF ITS OBLIGATION TO PROVIDE FULL PROTECTION AND SECURITY 49 IV. THE LOSS OF SALES BY CAM S SUBSIDIARIES LOCATED OUTSIDE OF RURITANIA TO FBI CONSTITUTES A RECOVERABLE ITEM OF DAMAGES 50 CONCLUSION ON MERITS OF THE CASE 51 iii

4 LIST OF AUTHORITIES BOOKS Blackaby, Nigel Redfern and Hunter on International Arbitration Partasides, Constantine (Oxford University Press, fifth edition 2009) Redfern, Alan cited as: Blackaby et al. Hunter, Martin Born, B. Gary Crawford, James International Arbitration: Law and Practice (Kluwer Law International, 2012) cited as: Born The international law Commission s Articles on State Responsibility (Cambridge University Press, 2002) cited as: Crawford Dolzer, Rudolph Principles of International Investment Law Schreuer, Christoph (Oxford University Press, second edition 2012) cited as: Dolzer and Schreuer Douglas, Zachary The International Law of Investment Claims (Cambridge University Press, 2009) cited as: Douglas Dugan, F Christopher Investor-State Arbitration (Oxford University Press, 2011) Rubins, D. Noah cited as: Dugan et al. Wallace, Don Sabahi, Borzu McLachlan, Campbell International Investment Arbitration: Substantive Shore, Laurence Principle (Oxford University Press, 2007) Weiniger, Matthew cited as: McLachlan et al. Schreuer, Christoph The ICSID Convention: A Commentary (Cambridge University press, second edition 2009) cited as: Schreuer/Commentary iv

5 ARTICLES Schreuer, Christoph Nationality Planning, Fordham Conference, London, 27 April Revised 12 October 2012, cited as: Schreuer/Nationality Planning. Skinner, Matthew Access and advantage in investor-state arbitration: The law Miles, A. Cameron practice of treaty shopping (Journal of World Energy Law & Luttrell, Sam Business, August 2010) cited as: Skinner et al. Hunter, J. Martin Hunter, J. Martin Olmedo García Javier Investor-State Arbitration and Plain Packaging: The New Anti- Tobacco Movement Has Begun (Kluwer Arbitration Blog), 29 January, available at: cited as: Hunter Plain Packaging and Expropriation, (Kluwer Arbitration Blog), 11 July, 2012, available at: cited as: Hunter and Oimego v

6 MISCELLANEOUS 1. Articles on Responsibility of States for Internationally Wrongful Acts adopted by the International Law Commission at its 53 rd session in cited as: ILC s Articles on State Responsibility 2. Convention on Combating Bribery of Foreign Public Officials in International Business Transactions OECD (Paris, 1997) cited as: OECD Convention on Combating Bribery 3. The Organization for Economic Co-operation and Development (OECD) Model Tax Convention on Income and on Capital, 2010 cited as: OECD Model Tax Convention 4. The Organization for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, 2010 cited as: OECD Transfer Pricing Guidelines 5. Rules of the United Nations Commission on International Trade Law (UNCITRAL), 2012 cited as: UNCITRAL Rules 6. Featuring Black's Law Dictionary Free Online Legal Dictionary 2nd Ed. available at cited as: Black's Law Dictionary 7. Heavy coffee consumption increases death rates in under-55s, study suggests. Joseph Jebelli, The Guardian, Thursday 15 August 2013, available at: cited as: The Guardian I 8. Cancer risk higher among people who eat more processed meat, study finds. Denis Campbel, The Guardian, Thursday 7 March 2013, available at: cited as: The Guardian II vi

7 LIST OF LEGAL SOURCES INDEX OF ARBITRAL AWARDS ADC Banro Cargill ADC Affiliate Limited and ADC & ADMC Management Limited v. The Republic of Hungary, ICSID Case No. ARB/03/16, Award, 2 October Banro v. DR Congo, Award, 1 September Cargill, Incorporated v. United Mexican States, ICSID Case No. ARB(AF)/05/2, Award, 18 September 2009 CME CME Czech Republic B.V. v. The Czech Republic, Partial Award, 13 September 2001 Desert Line Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6 February 2008 Electricity Electricity Company of Sofia and Bulgaria (Belg. v. Bulg.), 1939 P.C.I.J. (ser. A/B) No. 77 (Order of Apr. 4) Eureko Eureko B.V. v. Republic of Poland, Partial Award, 19 August 2005 Frontier Generation HICEE L.E.S.I. Lanco LG&E Mobil Frontier Petroleum Services Ltd. v. The Czech Republic, UNCITRAL, Final Award, 12 November 2010 Generation Ukraine, Inc. v. Ukraine, ICSID Case No. ARB/00/9, Award, 16 September, 2003 HICEE B.V. v. The Slovak Republic, UNCITRAL, PCA Case No , Partial Award, 23 May 2011 L.E.S.I. S.p.A. and ASTALDI S.p.A. v. République Algérienne Démocratique et Populaire, ICSID Case No. ARB/05/3, Award, 12 November 2008 Lanco International Inc. v. The Argentine Republic, ICSID Case No. ARB/97/6, Jurisdiction of the Arbitral Tribunal, 8 December 1998 LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc.v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006 Mobil Corporation, Venezuela Holdings, B.V. et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010 vii

8 MTD Noble Ventures Pac Rim Philip Morris I MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004 Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award, 12 October 2005 Pac Rim Cayman LLC v. Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent's Jurisdictional Objections, 1 June 2012 Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7 (formerly FTR Holding SA, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay). Phosphates Phosphates in Morocco (Italy v. Fr.), 1938 P.C.I.J. (ser. A/B) No. 74 (June 14) Philip Morris II Phoenix Santa Elena Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, PCA Case No Phoenix Action, Ltd. v. The Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009 COMPAÑÍA DEL DESARROLLO DE SANTA ELENA, S.A. v. The Republic of Costa Rica, ICSID Case No. ARB/96/1, Final Award, 17 February 2000 Saluka Sempra Siemens SGS v. Pakistan SGS v. Philippines Starrett Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award, 17 March 2006 Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16, Award, 28 September 2007 Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Award, 17 January SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction, 6 August 2003 SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction, 29 January 2004 Starrett Housing Corporation, Starrett Systems, Inc., Starrett Housing International, Inc., v. The Government of the Islamic Republic of Iran, Bank Omran, Bank Mellat (Case No. 24) viii

9 Tokios Tokelés Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004 U.S. v. Germany U.S. v. Germany, November 1923, VII RIAA 32 Yukos Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. AA 227, UNCITRAL, Interim Award on Jurisdiction and Admissibility, 30 November 2009 ix

10 LIST OF TREATIES AND STATUTES 1. The Agreement on Trade Related Aspects of Intellectual Property Rights, 1994 cited as: TRIPS 2. Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1966 cited as: Washington Convention 3. The General Agreement on Tariffs and Trade, 1994 cited as: GATT 4. The International Covenant on Civil and Political Rights, 1966 cited as: International Covenant on Civil and Political Rights 5. Paris Convention for the Protection of Industrial Property, 1883 cited as: Paris Convention 6. The Statute of the International Court of Justice, 1945 cited as: ICJ Statute 7. The United Nations Model Double Taxation Convention between Developed and Developing Countries, 2011 cited as: United Nations Model Convention 8. The Universal Declaration of Human Rights (UDHR), cited as: Universal Declaration 9. The Vienna Convention on the Law of Treaties, 1969 cited as: Vienna Convention 10. The Convention for the Protection of Human Rights and Fundamental Freedoms, 1953 cited as: The European Convention on Human Rights 11. The Charter of Fundamental Rights of the European Union, 2000 cited as: EU Charter of Fundamental Rights x

11 Timeo Danaos et dona ferentis 1 Virgil, Aeneid, book II, line 49 STATEMENT OF FACTS 1. Claimant, Contifica Asset Management Corp. (hereinafter CAM ), is a company duly incorporated under the laws of the State of Cronos. CAM is wholly owned subsidiary of Contifica Spirits S.p.A., a company incorporated in Posteriana (hereinafter Contifica Spirits ). Contifica Spirits is a fully owned subsidiary of Contifica Enterprises Pls., a parent company of Contifica Group incorporated in Prosperia. Both CAM and Contifica Spirits are the members of Contifica Group. 2. Respondent, the Republic of Ruritania, conducted privatization of Freecity Breweries Inc. (hereinafter FBI ) through the State Property Fund of Ruritania, which has announced the relevant international tender. 3. As a result on 30 June 2008 Contifica Spirits was declared the winner of the tender and on the same day Contifica Spirits acquired all shares in FBI for USD 300,000,000 by means of entering into a share purchase agreement with the State Property Fund of Ruritania. 4. On 17 March 2010 the shares in FBI were transferred from Contifica Spirits to Claimant which was stipulated by intra-group restructuring. As a result Claimant acquired all rights to the principal intellectual property used by FBI. Consistent set of measures adopted by Ruritania against Claimant 5. On 20 November 2010, the Ruritanian parliament adopted the Regulation of Sale and Marketing of Alcoholic Beverages Act (hereinafter MAB Act ) with certain restrictions to market and sell alcoholic products in Ruritania. Particularly it was prohibited to market any of alcoholic beverages on television and at sporting events including serving beer at sport 1 Latin phrase from Aeneid (II, 49), written by Virgil between 29 and 19 BC. It has been paraphrased in English as the aphorism "Beware of Greeks bearing gifts". 11

12 facilities, outdoors and at any place from 9 pm till 9 am. Moreover, the act imposed new labeling requirement stipulated that trademarks of beer shall be written in the same font and colour as all the other text on a label. At last it was prohibited to sale of alcohol in containers of over To make matters worse, on 15 June 2011 the Human Health Research Institute (hereinafter HRI ) which is a government-funded institution released a report claiming that consumers of FREEBREW beer produced by FBI were exposed to a higher risk of cardiac complications due to the effects of Methyldioxidebenzovat, an active chemical ingredient found in Reyhan concentrate. This concentrate is produced from local plant Reyhan and added as flavouring during the brewing of the mentioned brand of beer. The report was made after considering the results of research based on analysis of data gathered from a control clinical study conducted by HRI. 7. On 30 June 2011, without any consultation with FBI or other affected parties the Ministry of Health and Social Security of the Republic of Ruritania adopted an ordinance with requirement to label any product containing Reyhan concentrate with an explicit warning that This product contains Reyhan concentrate, consumption of which according to the results of scientific research may lead to higher risk of cardiac complications. Afterwards all FBI s competitors used this situation for their benefit sponsoring several analytical programs on Ruritania s most popular TV channels where it was highlighted FREEWBREW as the product that contains poisonous Reyhan. Competitors have also started labeling their beer as Reyhan-free. 8. The access to the report and the underlying materials was provided to FBI in July It was discovered that in 2005 the Ministry of Health and Social Security has already received an interim report from HRI with the same conclusions. 9. On 20 August 2011, FBI requested the Ministry of Health and Social Security to lift labeling requirement pending the investigation of the matter in so far as the research conducted by HRI contained numerous flaws with respect to the analysis and the process of raw data collection. FBI also attached a report from an independent scientist, who opined that the HRI report had failed to consider other factors which could influenced on individuals involved in 12

13 clinical studies. On 25 August 2011 the FBI s request on lifting labeling requirements was denied by the Ministry. 10. The last measure adopted by Ruritania with respect to the Claimant was commencing investigation against executives of FBI and Contifica Group, Messrs Goodfellow and Straw on 1 December 2011 due to the fact of their allegedly involvement into a bribery of the officials of the State Property Fund of Ruritania in connection with the acquisition of the shares in FBI. 11. On 23 December 2011 both executives of Contifica Group were detained in a cell in the Freecity International Airport when boarding their flight to Prosperia. On 3 January 2012 they were released and the criminal investigation against them was terminated due to insufficient evidence on 20 June Trying to settle dispute amicably on 10 December 2011 Claimant wrote to the President and the Minister of Foreign Affairs of the Respondent letter with respective suggestion noting that the Republic of Ruritania breached its obligations under the BIT. The second letter from Claimant to the President of Ruritania was written on 31 May 2012, however no response was received to any of these letters. 13. On 23 September 2012 CAM submitted a statement of claim against the Republic of Ruritania to the German Institution of Arbitration (DIS) under the UNCITRAL arbitration rules. On 15 December 2012 Respondent filed a statement of defense. 13

14 SUMMARY OF ARGUMENTS 14. JURISDICTION AND ADMISSIBILITY. The Claimant submits that the tribunal has jurisdiction and CAM s claims are admissible for the following reasons. 1) Claimant is qualified as the investor under the BIT. The place of establishment is the only criteria for determining invertor s nationality under the RC-BIT. Within the ordinary meaning of the RC- BIT CAM is without any doubt an investor in Ruritania. 2) Claimant s shareholding in FBI is qualified as the investment protected by the BIT. Aapplying the approach of legal materialisation of investment and following to the ordinary meaning of an Investment stipulated in Article 1 of the RC-BIT, CAM s shareholding in FBI is covered by two illustrative categories in the BIT and matched the relevant criteria, thus qualified as the investment protected by the RC-BIT. 3) The restructuring of investment conducted by Claimant constitutes the legitimate nationality planning. Hence the real cause of the dispute appeared after the conduct of corporate restructuring. 4) The broad and plain meaning determination of the umbrella clause stipulated in Aticle 6 (2) of the RC-BIT provides transformation of contractual claims into a treaty level. 5) Applying the functional and control tests the State Property Fund is attributable to the Republic of Ruritania for the purpose of Article 6(2) of the RC-BIT. Hence Ruritania is bound to fulfil any obligations relating to the Share Purchase Agreements. 6) Respondent shall unreservedly and bindingly consent the claimant s choice towards the present arbitration proceedings despite the existence of the forum selection clause included in the agreement. 15. MIRITS. Claimant asserts that Ruritania s actions constitute a breach of fair and equitable treatment standard, as they were unreasonable and discriminatory in effect, did not correspond with the investor s legitimate expectations and violated general international principle to act in a good faith. Set of measures, taken by Ruritania has led to indirect expropriation subject to appropriate compensation. Ruritania failed to comply with requirements for a lawful expropriation insofar as actions, taken by Ruritanian authorities do not constitute a bona fide exercise of police powers and regulatory prerogatives. Ruritania has violated the full protection and security standard of the RC-BIT. Moral damages caused to the executives of the Claimant were malicious and therefore constitute a fault-based liability. The measures taken by the Respondent have resulted in substantial down-stream losses to the company, which in turn had a direct up-stream effect on the operations of its subsidiaries outside Ruritania. 14

15 ARGUMENTS PART ONE: JURISDICTION AND ADMISSIBILITY 16. According to Art. 8 of the Ruritania-Cronos BIT (RC-BIT), Claimant instituted arbitration proceedings against the Respondent in a dispute concerning the Ruritania s breach of obligations under the RC-BIT. Hence to decide whether the Tribunal has jurisdiction over the claims brought before it by CAM, Claimant will demonstrate his compliance with the requirements concerning the term Investor contemplated in Article 3 (I.A) and the term Investment stipulated in Article 1 of the RC-BIT (I.B) respectively. Thereafter Claimant will give an explanation regarding the nationality planning which the Respondent has already considered as a deplorable practice of treaty shopping. Claimant will show that intra-group restructuring conducted in Contifica Group does not constitute an abuse of process (I.C). 17. Notwithstanding the fact that the terms of admissibility and inadmissibility do appear neither in the UNCITRAL arbitration rules, nor in the ICSID Convention and the ICSID Arbitration Rules Claimant will consider the question of admissibility of the claims with respect to the breach of obligations under the share purchase agreement by means of examination of an umbrella clause stipulated in Article 6.2 of the RC-BIT (II.A). Further Claimant will manifest that the Republic of Ruritania is liable for the violation of the share purchase agreement which was made by the State Property Fund (II.B). I. THE TRIBUNAL HAS JURISDICTION OVER THE CLAIMS SUBMITTED BY THE CLAIMANT A. Examination of the term Investor qualifies Claimant as the Investor under the BIT. 18. In the first instance, pursuant to Article 31 of the Vienna Convention on the Law of Treaties: treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose. Since Ruritania and Cronos have signed and ratified the Vienna Convention, 2 the following provisions of the RC-BIT shall be interpreted in accordance with its ordinary meaning. 2 Procedural Order 2 (Clarification 10). 15

16 19. The most commonly used criteria to determine corporate nationality are: (i) the place of incorporation, (ii) the place of the seat ( siège sociale ) or central corporate administration, and (iii) the nationality of the controlling shareholders. Also under customary international law a legal person is generally considered a national of the country where it was incorporated. According to Art. 3(b) of the RC-BIT the term Investor means with regards to each Contracting State any entity which is established in accordance with, and recognised as a legal person by the law of that Contracting State which is the owner, possessor or shareholder of an Investment in the territory of the other Contracting State. 20. As it appears from the above mentioned article nationality of investor presupposes legal personality, otherwise unincorporated entities will not enjoy treaty protection. Following the interpretation given in Tokios Tokelės 3, [t]he ordinary meaning of entity is [a] thing that has a real existence. 4 The meaning of establish is to [s]et up on a permanent or secure basis; bring into being, found (a business). 21. The Claimant was established in Cronos as Business Holding XVII Corp in It was acquired by Contifica Enterprises PLC in 2003 and renamed Contifica Asset Menegement Corp. 5 CAM is a direct shareholder of FBI. Thus Claimant constitutes a legal entity established in accordance with, and recognised as a legal person by the laws of the Republic of Ruritania, which is the shareholder of an Investment in the territory of Ruritania. 22. In Tokios Tokelės the Tribunal held that the legal place of incorporation was the only relevant consideration to determine whether the Tribunal had jurisdiction ratione personae 6. The Tribunal also found the absence of a denial of benefits clause significant: state parties are capable of excluding from the scope of the agreement entities of the other party that are controlled by nationals of third countries or by nationals of the host country. We regard the absence of such a provision as a deliberate choice of the Contracting Parties. In our view, it is not for tribunals to impose limits on the scope of BITs not found in the text 7 3 Tokios Tokelés, The New Shorter Oxford English Dictionary 830 (Thumb Index Edition 1993). 5 Procedural Order 2, Clarification Tokios Tokelés 29, Ibid

17 23. The RC-BIT does not contain a denial of benefits clause. CAM submits that if the States had wished to prevent the investor s actions, they would have done so by including a denial of benefits clause in the BIT. Otherwise imposing any limitations on the interpreting of the BIT would violate parties intentions. 24. In Saluka 8 the Tribunal found that it cannot in effect impose upon the parties a definition of investor other than that which they themselves agreed. That agreed definition required only that the claimant-investor should be constituted under the laws of (in the present case) The Netherlands, and it is not open to the Tribunal to add other requirements which the parties could themselves have added but which they omitted to add. 9 The Tribunal in Yukos has reached the same conclusion The place of establishment is the only criteria for determining invertor s nationality under the RC-BIT. Within the ordinary meaning of the RC-BIT CAM is without any doubt an investor in Ruritania. Claimant submits that it is the responsibility of the signatory States to review the provisions of their treaty if they want a different interpretation. B. Examination of the term Investment under the BIT qualifies the Claimant s shareholding in FBI as the investment protected by the BIT. 26. There are different concepts and approaches to the determination of investment. Particularly it depends on rules under which tribunal consider a dispute. The present dispute was referred to the arbitration under the UNCITRAL Arbitration Rules. 11 The said rules in contrast to the ICSID system, requires only one level of jurisdictional determination of an investment, which mainly turns on interpretation of the term investment within the applicable investment instrument. 12 Hence the jurisdictional analysis is complete when the claimant s activity constitutes an investment within the meaning of the applicable investment instrument. In our case the applicable investment instrument is the RC-BIT. 8 Saluka 9 Ibid Yukos UNCITRAL Rules. 12 Dugan et al., pp

18 27. According to Article 1 of the RC-BIT the term Investment means every asset which is directly or indirectly invested in accordance with laws and regulations of the Contracting State in which territory the Investment is made by Investors of the other Contracting State. According to the same article the Investments include in particular, but not exclusively: shares of companies (b) and intellectual property rights such as industrial designs and trademarks (d). Conspicuously the phrase every asset stipulates a broad definition of covered investments which encompass several groups of categories contemplated in Art.1 (a) (f). Prof. Schreuer states that no special problems in interpreting such a clause will arise if the investment in question is covered by one of the illustrative categories. 13 The Claimant s investment is covered by two categories stipulated in Article 1(b) and (d) respectively. 28. According to Article 11 of the Share purchase agreement Contifica Spirits was eligible to assign all of its rights or obligations by way of substitution to the Claimant since CAM was a member of the Conifica group at the time. The State Property Fund was notified about the respective assignment by Contifica Spirits. The assignment was acknowledged by the Fund. 14 Hence, CAM acquired all shares in FBI from Contifica Spirits and was entered into FBI s register of shareholders on the date of acquisition of shares. As required by Ruritanian Law FBI disclosed the acquisition the next day Within the acquisition of shares Claimant acquired rights to the principle intellectual property used by FBI by way of assignment of the respective registrations. The said IP rights encompass trademarks corresponding to the brands of beer produced by FBI such as FREEBREW, RURILITE and HILMAGORE STOUT and trade dress registrations with respect to the designs of the beer bottles and cans such as the iconic 0.8 FREEBREW bottle. 16 The lawful possession of trademark and trade dress rights is justified by the Respondent. In the statement of defense it is stated that the Claimant remains the registered owner of the respective trademarks and trade dresses and retains the exclusive right to use them As a result Claimant demonstrated that: he has the Investment within the ordinary meaning of the RC-BIT which is covered by two categories i.e. shares of companies and intellectual 13 Dolzer and Schreuer, p Procedural Order 2 (Clarification 16). 15 Procedural Order 2 (Clarification 13) 16 Statement of Claim [9]. 17 Statement of Defense [16]. 18

19 property rights including trademarks; Investment is made in accordance with laws and regulations of the Republic of Ruritania. 31. The Respondent alleged among other things that CAM s shareholding in FBI is not a bona fide investment. However the RC-BIT does not provide any additional requirements to the investment such as the contribution to economic development of the Host State or the wellbeing of company operating within the investment. 32. In Saluka 18 case government of the Czech Republic alleged that Saluka s holding of the shares of the Czech Bank did not constitute an investment within the meaning of the BIT because it was purchased by Nomura, a parent company of the Saluka. Respondent either claimed that Saluka was a mere surrogate for Nomura and not itself a true investor. The tribunal rejected this argument relying on the definition of Investment in the BIT. It stated that nothing in the Article of the Czech Republic Dutch BIT has the effect of importing into the definition of Investment the meaning which that term might bear as an economic process, in the sense of making a substantial contribution to the local economy or to the wellbeing of company operating within it. 33. Besides the Saluka case, shares in companies as an investment category were approved by jurisdictional decisions before ICSID tribunal. 19 Hence, applying the approach of legal materialisation of investment 20 and following to the ordinary meaning of an Investment stipulated in Article 1 of the RC-BIT, Claimant argues that CAM s shareholding in FBI is covered by two illustrative in the BIT categories and matched the relevant criteria, thus qualified as the investment protected by the RC-BIT. 34. The Respondent s argument regarding the acquisition of shares by CAM for a token amount less than USD is meritless because there are no facts provided by the Respondent, which may constitute illegality of the mentioned transaction. In case the Responded relies upon the Article 9 (Associated enterprises) and/or Article 13 (Capital gains) of the United Nations Model Double Taxation Convention between Developed and Developing Countries Saluka Siag & Vecchi v. Egypt, ICSID Case No. ARB/05/15, (Decision on Jurisdiction and Partial Dissenting Opinion, April 11, 2007); Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, (Decision on Jurisdiction, July 6, 2007). 20 Douglas, p United Nations Model Convention. 19

20 and the OECD Model Tax Convention on Income and on Capital 22 respectively as well as the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 23 with reference to the Chapter 1 (Arm s Length Principle), Claimant will argue that the provisions of the mentioned sources are not themselves enforceable. Its provisions are not binding and should not be construed as formal recommendations of the United Nations. The implementation of the provisions of the said treaties into the national laws of the Republic of Ruritania as well as its recognition is an unconfirmed fact and could not be taken into consideration by the tribunal. 35. Even the Respondent decide to apply the mentioned provisions as a codification of the customary international law with reference to the Article 38 (1) of the Statute of the International Court of Justice 24 (ICJ) in any event it will be meritless because the alleged violation of an arm s length principle may in principle be attributed only to the Contifica Spirits as an income beneficiary. The circumstances of the respondent s argument regarding the acquisition of shares could not be more telling, thus Claimant does not consider going into details regarding the application of the foregoing treaties. C. Nationality planning conducted by Claimant does not constitute an abuse of process. 36. Initially Claimant challenges to the Respondent s argument that the conduct of CAM in the present case is a classic example of the deplorable practice of treaty shopping pointing out that nationality planning or treaty shopping is not illegal or unethical as such, but practice demonstrates that there are limits to it. 25 Claimant will further describe such limits and will demonstrate that he did not cross the relevant line. Continuing with the nature of nationality planning in CME the Tribunal found that: treaty-shopping is not, in principle, prohibited under international investment law, as the purpose of BITs is exactly encouragement of investment Preamble to the RC-BIT provides that the encouragement and protection of Investments are essential to the prosperity of both nations and the welfare of their nationals. Thus, 22 OECD Model Tax Convention. 23 OECD Transfer Pricing Guidelines. 24 ICJ Statute. 25 Dolzer and Schreuer, p CME

21 investors are free to choose the jurisdiction, which gives the highest protection to their investment. Prof. Shreuer therefore said: There is no reason why a prudent investor should not organize its investment in a way that affords maximum protection under existing treaties. It is neither illegal nor improper for an investor of one nationality to establish a new entity in a jurisdiction perceived to provide a beneficial regulatory and legal environment, including the availability of an investment treaty The Tribunal in HICEE v. Slovakia 28 has pointed out that structured investments are not unusual, nor is there anything in the least reprehensible about it; structured investments are commonplace. The purpose is to secure advantages from incorporation or operation in a particular jurisdiction; ( ) The advantages anticipated often include the protection of particular bilateral (or other) treaties covering foreign investment. 29 Practice confirms that it is permissible and to be expected that investors will structure their investments in order to avail themselves of treaty protection including access to international arbitration 30. For the avoidance of doubt, CAM agrees that such restructuring could be a legitimate corporate planning as well as an abuse of right. It depends on the circumstances of each particular case. 1. Restructuring of the investment qualifies as a protected investment because it meets the requirement of duration. 39. Prof. Shreuer notes that the validity of nationality planning is primarily dependent on the time of the restructuring in relation to the dispute. If the restructuring was undertaken early i.e. before the outbreak of the dispute, the newly acquired nationality will be honored. But a last minute change of nationality in the face of an existing dispute will be rejected The cases of Tokios Tokelés 32 and Phoenix 33 illustrate the difference between legitimate and abusive transfer of shares. The first case concerns restructuring which took place six years 27 Schreuer/Nationality Planning, p HICEE. 29 Ibid Schreuer/Nationality Planning p Ibid., p Tokios Tokelés. 21

22 before the entry into force of the BIT in question 34, while the second one represents downstream reorganization upon already existing dispute Another example of abusive practice is Banro 36, where the arbitration was instituted 9 days after the transfer of shares. The Tribunal found that Banro Resource was not a national of another Contracting State at the time it entered into the contract. 42. The Tribunal in Mobil supported this point of view. 37 Nevertheless, in Mobil the Tribunal found that the aim of the restructuring was to protect [the] investments against breaches of their rights by the Venezuelan authorities, and that was a perfectly legitimate goal as far as it concerned future disputes. 38 In the present case we have to determine a starting and end points of time length in order to realize whether the restructuring conducted by Claimant was successful or was made for the sole purpose of gaining access to arbitration. 43. The starting point shall be treated as the moment when investment was appeared. Indeed the investment was made on 30 June 2008 when Contifica Spirits has acquired all shares in FBI. However this investment has become a protected investment under the RC-BIT at the moment of acquiring all shares in FBI by CAM on 17 March Thus this date will be treated as a starting point. 44. The end point shall be treated as the moment when the claim was presented to the tribunal. Claimant submitted a statement of claim on 23 September Hence the restructuring had been completed more than 2 years prior after the claim was presented. In order to determine the existence of the investment Prof. Shreuer has observed that Tribunals seem to have regarded a period of two to five years as sufficient. 39 Now therefore the restructuring of investment conducted by Claimant meets the requirement of duration and constitute the legitimate nationality planning. 2. Foreseeability and the Facts which gave rise to the dispute 33 Phoenix. 34 Tokios Tokelés Phoenix Banro. 37 Mobil Ibid,, Schreuer/Commentary, pp

23 45. In case the tribunal decides to determine a fact or event, which has led to the dispute as the end point, Claimant will consider the issue of Foreseeability and the Facts which really gave rise to the present dispute. 46. The Respondent argued that allegedly at the time the transfer of shares occurred Contifica Group already anticipated that tougher regulations would be adopted in the near future. The tribunal in Pac Rim Cayman held that: [T]he dividing-line occurs when the relevant party can see an actual dispute or can foresee a specific future dispute as a very high probability and not merely as a possible controversy. In the Tribunal view, before that dividing-line is reached, there will be ordinarily no abuse of process; but after that dividing-line is passed, there ordinarily will be Contifica Group has made restructuring two months after New Way party secured the majority in Ruritanian parliament. However the issue of needed restructuring firstly arose in February 2010 as it is stated in Memorandum 41 prepared by Mr. Straw (General Counsel) dated on 1 March It has been already discussed before the party came to the Parliament. Moreover General Counsel recommended Cronos as Asset Management is already incorporated there. This Memorandum clearly demonstrates the legitimate means of achieving further protection of investment. 48. The fact that the New Way secured seats of 400 in the parliament could not fully guarantee the adoption of new regulation of alcohol in the future. This may be acknowledged by the following circumstances: i) as is unfortunately often the case most political parties hold out a numerous promises to their elective body during the electoral campaign and do fail to perform their obligations after securing sacred seats as an access to a power. It is not guaranteed; ii) despite the fact that the New Way party secured 211 places in parliament, only 207 of the 400 parliamentarians voted for the MAB Act. 43 It shows that not all of the New Way party s members voted for the act. Thus it was not guaranteed too. 49. Consequently Contifica Group could not see in the fact of securing of the majority seats by New Way in a parliament an actual dispute and could not foresee a specific future dispute as a 40 Pac Rim, Exhibit RX1 to the Statement of Defense. 42 Procedural order 3 (clarification 19) 43 Procedural order 3 (clarification 6) 23

24 very high probability. It could treat the mentioned circumstance merely as a possible controversy. 50. Despite the existence of the Foreseeability approach, the Permanent Court of International Justice has held that tribunals must look at the facts which really gave rise to the dispute. 44 In case of Belgium v. Bulgaria the Court added: A situation or fact in regard to which a dispute is said to have arisen must be the real cause of the dispute. 45 In the present case the first fact that really gave rise to the claim was the adoption of the MAB Act. However the transferring of shares to the Claimant was conducted before the act was adopted. As we may see the real cause of the dispute appeared after the corporate restructuring. 51. As noted, there is no universal rule against Treaty Shopping or nationality planning. Until such a rule emerges, the potential that these practices have to increase the security of foreign investment will continue to increase. After all, Treaty Shopping may be frowned upon by some, but many other arbitrators see it as a fact of international business life. 46 II. CLAIMS BASED ON THE BREACH OF THE SHARE PURCHASE AGREEMEMNT BY THE STATE PROPERTY FUND OF RURITANIA ARE ADMISSIBLE. 52. Claimant submits that the claims based on the breach of the share purchase agreement by State Property Fund of Ruritania are admissible to be heard by the present tribunal. For the sake of clarity Claimant will examine an umbrella clause provision stipulated in the BIT for the reason of its following application. After that Claimant will show an attribution between the State Property Fund of Ruritania and the Republic of Ruritania in order to justify States responsibility for the breach of the share purchase agreement alongside with violation of the RC-BIT. A. Article 6.2 of the RC-BIT constitutes the observance of undertakings clause. 53. The observance of undertakings clause, known also as Umbrella clause and contained in Article 6.2 of RC-BIT provides that each Contracting State shall fulfil any other obligations it 44 Phosphates, p Electricity, p Skinner et al., p

25 may have entered into with an Investor or an Investment of an Investor of the other Contracting State. 47 It generally means that an umbrella clause provision guaranties the observance of obligations assumed by the host state vis-à-vis the investor or an investment. 48 Before making some other estimates, we need to get back to the canons of interpretation laid down in Article 31 of the Vienna Convention. 49 Bearing in mind the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose we ask tribunal to reject non-textual limitations to the Article 6.2. of the RC_BIT and to apply broad and plain meaning of an umbrella clause. 54. In Eureko v Poland 50 the Tribunal considered the ordinary meaning of the umbrella clause stipulated in the BIT between Netherlands and Poland regarding the breach of contractual obligations by Poland in a privatization scheme vis-à-vis the investor. The Tribunal found the phrase shall observe (in our case shall fulfil ) as an imperative and categorical. The word any obligations (in our case any other obligations ) was meant as not only a certain type of obligations, but any, which shall encompass all obligations it may have entered into with an Investor or an Investment. Tribunal emphasized that an umbrella clause in a treaty whose object and purpose is the encouragement and reciprocal protection of investment (in our case the same) is designed especially to accomplish that end. Tribunal said: It is a cardinal rule of the interpretation of treaties that each and every operative clause of a treaty is to be interpreted as meaningful rather than meaningless In Noble Ventures v Romania 52 Tribunal applied the same broad or full scope to the umbrella clause, having statement that breach of contract constitutes a breach of the BIT. 53 Another case of applying the plain meaning approach to interpretation of umbrella clause is SGS v Philippines. 54 The Tribunal ruled that according to an umbrella clause of the Philippines- Swiss BIT, a violation of an investment agreement will lead to a violation of the investment treaty. 47 Exhibit 1 to the Statement of Claim, RC-BIT, Article Dolzer and Schreuer, p Vienna Convention, Article Eureko Ibid. 52 Noble Ventures. 53 Ibid 61, SGS v Philippines. 25

26 B. Breach of the share purchase agreement constitutes a violation of RC-BIT. 56. Applying the ordinary meaning of the umbrella clause stipulated in Article 6.2 of the RC-BIT and insisting that umbrella clause means what it says 55 we aim to transform contractual claims into treaty claims. However before elevating contractual breach to a treaty level we will demonstrate that: the Republic of Ruritania is responsible for the violation of said agreement (1); the present Tribunal is entitled to hear claims based on the breach of the share purchase agreement regardless of the existing contractual forum selection clause (2). 1. Republic of Ruritania is liable for the State Property Fund s violation of the share purchase agreement. 57. The umbrella clause contained in Article 6(2) of RC-BIT obliges each of the contracting states to fulfil any other obligations it may have entered into. However, if the obligation was not taken by the state itself, the rules of attribution can be applied to determine whose obligations are covered by an umbrella clause. Under customary international law, a state is responsible for all its organs and extends to all branches of the government. 56 The International Law Commission (ILC), the United Nations body, has set out this principle of attribution in the ILC s Articles on State Responsibility (ILC Articles) in While the Respondent submits that the Fund is a separate legal entity with its own legal personality and the Republic of Ruritania bears no liability for the debts of the Fund 58 we may assume that the State Property Fund is not an organ of the State. However Articles differentiate between conduct by organs of the state 59 and other entities which are empowered to exercise elements of governmental authority. In this regard Article 5 of the ILC Articles provides: The conduct of a person or entity which is not an organ of the State under Article 4 but which is empowered by the law of that State to exercise elements of the governmental authority shall be considered an act of the State under international law, provided the person or entity is acting in that capacity in the particular instance Ibid Dolzer and Schreuer, p ILC s Articles on State Responsibility. 58 Statement of Defense [11]. 59 ILC s Articles on State Responsibility, Article Ibid,, Article 5. 26

27 In contrast with Article 4 of ILC Articles which refers to attribution on the structural basis, analysis of the Article 5 constitutes a functional test. This terminology was reflected by ICSID jurisprudence in LESI v Algeria. 61 Functional test 59. The ILC Articles commentary explains that the conduct of an entity must accordingly concern governmental activity and not other private or commercial activity in which the entity may engage. 62 It is clear from the circumstances of the present case that the State Property Fund of Ruritania was acting in a capacity of a state organ exercising its governmental authority. 60. The shares in FBI were sold by the State Property Fund in a course of privatization. According to the meaning given in Black s Law Dictionary, as opposed to nationalization, privatization is the sale of enterprises owned by public companies to private companies. 63 The State Property Fund was responsible for the transfer of publicly owned assets to the private investor. Hence the Fund was charged with representing the state in the process of privatizing and, for that purpose, entering into the Share Purchase Agreement on behalf of Ruritania. Therefore the State Property Fund is attributable to the Republic of Ruritania for the purpose of Article 6(2) of the RC-BIT. 61. The SGS v. Pakistan tribunal relied on ILC Articles to determine whose obligations are covered by an umbrella clause. In tribunal s words the commitments subject matter of Article 11 [the umbrella clause in the BIT] may, without imposing excessive violence on the text itself, be commitments of the State itself as a legal person, or of any office, entity or subdivision (local government units) or legal representative thereof whose acts are, under the law on state responsibility, attributable to the State itself. 64 The Noble Ventures v. Romania tribunal concluded that a state enterprise s contractual obligations were Romania s obligations for the purposes of BIT. The tribunal said that Romania was responsible for any breach of contract by the state enterprise because that 61 L.E.S.I., Crawford, p Black s Law Dictionary, 64 SGS of Pakistan,

28 enterprise entered into the contract under delegated governmental authority, in the sense of Article 5 of the ILC Articles To conclude, in the process of privatizing the State Property Fund was acting on behalf of Ruritania since the Fund was responsible for the purchase of public property. Hence Ruritania is bound to fulfil any obligations relating to the Share Purchase Agreements, and is responsible for non-compliance. 63. Nevertheless, in addition to structural and functional test, ILC Articles use the criterion of state control over the entity stipulated in Article The Commentary to this Article explains this situation when the State uses its ownership interest in or control of a corporation specifically in order to achieve a particular result By reference to the case materials 68 the Principal managing bodies of the State Property Fund are the Board of Governors and the Director-General both appointed by the government of Ruritania. Moreover the Fund may make periodic distributions to Ruritania and in the event of its dissolution all assets and liabilities of the Fund pass to the Republic of Ruritania. These circumstances clearly show the additional element of attribution of the Fund to the Ruritania on the basis of state control over the Fund. Claimant asks the Tribunal to find the attribution of actions of State property Fund as a state entity to the Republic of Ruritania. 3. The present Tribunal is entitled to hear claims based on the breach of the share purchase agreement regardless of the existing contractual forum selection clause. 65. The Respondent argues that CAM s claims based on the breach of the share purchase agreement inadmissible 69 by virtue of the fact that all disputes arising out of the agreement shall be resolved by arbitration under the Rules of Arbitration of the International Chamber of Commerce pursuant to the arbitration clause contained in the aforementioned agreement Noble Ventures ILC s Articles on State Responsibility, Article Crawford, pp Procedural Order 2 (Clarification 5). 69 Statement of Defense [12]. 70 Exhibit 2 to the Statement of Claim, Extracts from the share purchase agreement, Article

29 66. Claimant discounts the Respondent s argument in consequence of its meritless. First of all as noted, for those BITs that contain sweeping, mandatory umbrella clauses, a breach of a contract with a host state may ipso facto breach the BIT as well. 71 Aforementioned consideration of the BIT between Ruritania and Cronos stipulates exactly the same umbrella clause provision. 67. In this instance the Vivendi case is highly significant. The French company brought its claims to ICSID against Argentina pursuant to the bilateral investment treaty. Nevertheless tribunal dismissed the claims on the merits based inter alia on the fact that Concession agreement required to assert their rights in proceedings before the contentious administrative courts of Argentina. After that, the claimant started an ICSID annulment proceeding against this award. The Vivendi Annulment Committee ruled that an investor can elect treaty adjudication notwithstanding the seemingly exclusive contractual dispute provision. Other tribunals have reached the same conclusion including, Lanco v Argentina, Eureco v Poland, SGS v Pakistan, Salini v Morocco, Sempra Energy v Argentina, and PSEG Global Inc. v Turkey. 68. In Eureci v. Poland tribunal held that the umbrella clause in the BIT applied to Poland s contractual undertakings and violation of a contractual obligation by Poland became a treaty violation as well. 72 In Lanco v Argentina tribunal in its decision on jurisdiction equated the alleged contractual breach with a breach of the investment treaty. It held that once the foreign investor had chosen ICSID arbitration pursuant to the BIT, Argentina was obligated to comply with such arbitration proceedings despite the contrary forum selection clause stipulated in the contract In such a manner Claimant relies on the Article 8 (1) of the RC-BIT stipulated that dispute shall be submitted to international arbitration if the investor so wishes. Moreover Article 8 (2) provides that where the dispute was referred to international arbitration the Contracting States declare that they unreservedly and bindingly consent that the Investor shall submit the dispute at its choosing to an ad hoc tribunal established in accordance with UNCITRAL arbitration rules with, among others, the German Institution of Arbitration acting as the appointing authority, which the Claimant actually did. 71 Dugan et al., p Eureko Lanco, p

30 70. In so far as the breach of the share purchase agreement constitutes a breach of the Article 6 (2) of the RC-BIT and as the result, treaty breach, Respondent is obliged to accept the claimant s choice towards the present arbitration proceedings despite the existence of the forum selection clause included in the agreement. Claimant asks the present Tribunal to admit the CAM s claims based on the violation of the share purchase agreement. 30

31 CONCLUSION ON JURISDICTION AND ADMISSIBILITY 71. The Claimant respectfully requests the Tribunal to find jurisdiction over the claims submitted by CAM and adjudicate claims based on the share purchase agreement admissible. Firstly, the Claimant demonstrated that he meets the requirements stipulated in RC-BIT, thus he is an Investor and the shareholder of an Investment in the territory of Ruritania. Secondly, the Claimant has proved that its restructuring constitutes a legitimate nationality planning and could not be treated as an abuse of process. Thirdly, violation of share purchase agreement leads to the violation of Article 6 (2) of the RC-BIT. The State Property Fund is attributable to the Republic of Ruritania. Thus, Ruritania is liable for the breach of the share purchase agreement. The forum selection clause included in the agreement shall not be taken into consideration and in accordance with Article 8 (2) of the RC-BIT arbitration proceedings chosen by the Claimant shall prevail. 31

32 PART TWO: MERITS OF THE CLAIM 72. Coming back to the epigraph at the very beginning of this memorial, Timeo Danaos et dona ferentis is a Latin phrase from Aeneid (II, 49), written by Virgil between 29 and 19 BC. The usual English translation is Beware of Greeks bearing gifts, but literally it means: I fear the Greeks, even those bearing gifts. 73. As related in the Aeneid, after warring on the beaches of Troy for over nine years, Calchas induces the leaders of the Danaans (Greeks from the mainland) to offer the Trojan peoples the so-called Trojan Horse. The Trojan priest Laocoön, however, distrusts it and warns the Trojans not to accept the gift, crying, Equō nē crēdite, Teucrī! Quidquid id est, timeō Danaōs et dōna ferentīs. ( Do not trust the horse, Trojans! Whatever it is, I fear the Danaans even when bringing gifts.) When immediately afterward Laocoön and his two sons are viciously slain by enormous twin serpents, the Trojans assume the horse has been offered at Minerva s (Athena s) prompting and interpret Laocoön s death as a sign of her displeasure. Minerva did send the serpents and help to nurture the idea of building the horse, but her intentions were certainly not peaceful, as the deceived Trojans imagined them to be. The Trojans agree unanimously to place the horse atop wheels and roll it through their impenetrable walls. Festivities follow under the assumption that the war is ended. The scout who has been sent to verify the departure of the Greeks is killed after he discovers the Greek fleet hiding in an obscure harbor. This expression became a symbol of not only a treachery, but also a deceit, cunning and hypocrisy. 74. By citing this passage the Claimant wants to emphasize that sometimes a generous offer may be fraught with deception, and one should fear treacherous persons even when they appear to be friendly. Similarly, in the present dispute Ruritania attempts to hide its real intentions behind the measures that are, on the surface, legitimate and seemingly innocuous. 75. When at the end of this memorial tribunal accumulates all facts and alleged "random coincidences" in this case, the real picture will definitely be clear. The initially existence of the premeditated evil plan and cold calculus of the government of Ruritania towards the Claimant s Investment seems to be an unquestionable. Claimant will demonstrate that Ruritania failed to provide fair and equitable treatment to the investments (I). Thereafter Claimant will demonstrate that the cumulative effect of the measures adopted by the State 32

33 constitutes indirect expropriation (II). Respondent is liable to pay compensation for the moral damages caused by the breach of its obligation to provide full protection and security (III). The loss of sales by Claimant s subsidiaries constitutes a recoverable item of damages (IV). I. RURITANIA VIOLATED BOTH ITS OBLIGATIONS UNDER THE BIT AND INTERNATIONAL LAW TO ACCORD CAM S INVESTMENTS FAIR AND EQUITABLE TREATMENT. 76. Under the Article 2 (b) of the RC-BIT, the host State is obligated to ensure that investments of a foreign investor would be accorded fair and equitable treatment (FET). 74 The Treaty s Preamble emphasizes the importance of this undertaking since FET of investments plays a major role in achieving the Treaty s goal of encouraging foreign investment. Claimant therefore states that Respondent failed to grant FET on the basis of several principles which are embraced by the FET standard. A. Good faith. 77. In 2005 the Ministry of Health and Social Security received an interim report, which gave a clear view of an adverse effect of Methyldioxidebenzovat. However, Ruritania did not take any measures to stop the production of FREEBREW. The Government was not concerned by the fact that this product could be harmful to public health. Instead, Ruritania tried to get the maximum benefit from this situation. The Government decided to conceal the results of research and sell the brewery to a private investor. 78. From 2005 to 2011 the state-owned company was selling the product that was detrimental for health. Nevertheless, the Government remained silent. Having satisfied its need for money in the face of a significant budget deficit caused by the financial crisis, Ruritania is trying to force the foreign investor out of its market under the guise of public benefit. CAM submits that Ruritania s actions were in bad faith as the clear intention was to deprive the foreign investor of its investment. 79. In Frontier Petroleum v. Czech Republic Tribunal stated: 74 Article 2(b) 33

34 Bad faith action by the host state includes the use of legal instruments for purposes other than those for which they were created. It also includes a conspiracy by state organs to inflict damage upon or to defeat the investment, the termination of the investment for reasons other than the one put forth by the government... Reliance by a government on its internal structures to excuse non-compliance with contractual obligations would also be contrary to good faith. 75 It is apparently that the government of Ruritania within the State property Fund, Ministry of Health and Social Security, HRI and the Prosecutor s Office, they all row in the same boat. And those facts that the conduct of Ruritanian authorities severely affected the Claimant are obvious too. Moreover the Respondent relies on the lack of responsibility for the State Property Fund s violation of the share purchase agreement as the Fund is purportedly a separate legal entity (as it has been previously considered in section of attribution) With respect to the use of legal instruments for other purposes than those for which they were created we exemplify the adoption of MAB Act which requires that any alcohol shall be served or sold in containers of 0.5 liter or less. 77 Actually this fact overlaps not only with bona fide principle. The Claimant besides asserts that this measures taken by Ruritania against CAM were also discriminatory. B. Unreasonable and discriminatory measures. 81. Under the RC-BIT a State shall not impair by unreasonable or discriminatory measures the management, maintenance, use, enjoyment or disposal of Investments. 78 FREEWBREW was traditionally sold in 0.8 l. bottles. This distinctive packaging has been produced since the time when the brewery was under the State control. Hence Ruritania was acknowledged that FREEBREW is probably the only one brand that would be affected by the new packaging requirements of the MAB Act. 79 The reconfiguration took five months and caused substantial losses, while competing brand complied with the new policy. In Blackaby et al. it was noted, that, in general, a measure is discriminatory in effect if it results in a treatment of an investor different from that accorded to other investors in a similar or comparable situation Frontier See paras Exhibit 3 to the Statement of Claim, Extracts from the regulation the MAB Act, Section Article 3(c) 79 Procedural Order 3 (Clarification 16). 80 Blackaby et al., para

35 82. Thus, The Claimant submits, that Ruritania has violated the international principle of good faith, which is at the heart of the concept of fair and equitable treatment, and permeates the whole approach to investor protection Moreover, Claimant challenges the reasonableness of the Minister of Health s decision and the advice given to him by ministry s civil servants 82 regarding the adoption of the ordinance which requires any product containing Reyhan concentrate to be labelled with an explicit warning. Whereas Reyhan has traditionally been purchased from independent farmers and organic growers, we may conclude that exploit of Reyhan is not a licensable type of activity in Ruritania. It seems to be more logical firstly, to make this type of activity licensed, and then, to have a consultation with all affected parties including FBI with regarding the issue of adoption of respective ordinance. C. Stability and Legitimate expectations of the Investor. 84. It was found by Tribunals that the dominant element of the fair and equitable standard was protection of investors legitimate expectations. 83 In order to determine if a State s measures violate the fair and equitable treatment standard, tribunals consider the impact of the measure on the reasonable investment-backed expectations of the investor; and whether the state is attempting to avoid the investment-backed expectations that the state created or reinforces through its own acts. 84 It was noted that legitimate expectations of Investor are based on the legal framework of the host state and on undertakings and representations made explicitly or implicitly by the host state. 85 Legal framework encompasses legislation and treaties, executive statements, as well as contractual undertakings. 85. In the present case the investment (in the meaning of BIT) occurred when CAM acquired all shares in FBI. Before that moment Contifica Spirits decided to aquire FBI s shares, among others, relying on the undertakings given by State property Fund in the form of warranties and representations provision in share purchase agreement. 86 After that Contifica Spirits assigned 81 Sempra Procedural Order 3 (Clarification 10). 83 Saluka J. Paulsson, Investment Protection Provisions in Treaties in Investment Protection/La Protection de l Investissement (ICC, 2000), at para. 19, p Dolzer and Schreuer, p Exhibit 2 to the Statement of Claim, Extracts from the share purchase agreement, Article

36 all its rights and obligations under agreement to the Claimant, including undertakings given by Fund. 87 At this moment investment (in the meaning of the BIT) has already appeared. 86. In addition to contractual undertakings, Claimant relied on a legislation of Ruritania. Particularly, there was no any harsh restriction in the sphere of marketing and sale of alcoholic beverages except the general, such as prohibition of sale the alcoholic beverages to persons under 21 as well as filing of claims regarding the positive health effects of alcohol. 88 Also, the exploit of Reyhan is still absolutely free from licensing as it always was, because nobody could suppose the alleged negative health effect of Methyldioxidebenzovat. Hence there were no any requirements similar to those in the ordinance adopted by the Ministry of Health and Social Security. Moreover, Claimant acknowleged the fact that Ruritania was a member of Paris Convention, that is why Claimant could not suppose the later adoption of MAB Act with plain packaging requirement. 87. Finally, the Claimant relied on the provisions of the RC-BIT and expected the Respondent to create favorable conditions for the business, as one of the main purposes of the Treaty is to encourage and protect the investments. Ruritania was expected to act in a good faith, free from ambiguity and totally transparently in its relations with a foreign investor. However, these expectations were not met. 88. In order to qualify for protection, the investor s expectations must conform with the following characteristics, as explained by the LG&E tribunal: they are based on the conditions offered by the host State at the time of the investment; they may not be established unilaterally by one of the parties; they must exist and be enforceable by law; in the event of infringement by the host State, a duty to compensate the investor for damages arises except for those caused in the event of state of necessity; however, the investor s fair expectations cannot fail to consider parameters such as business risk or industry s regular patterns. 89 As it has previously been mentioned investor s expectations were based on the legal framework of Ruritania, i.e. legislation, the provisions of the RC-BIT and the Share Purchase Agreement with the State Property Fund. Both agreements are bilateral, so the parties undertook those obligations voluntary. Aforesaid undertakings are enforceable by the Treaty 87 Procedural Order 3 (Clarification 11). 88 Procedural Order 3 (Clarification 3). 89 LG&E

37 itself and by general international law. And finally, the investor s losses are not concerned with ordinary business risk, as they have resulted from the actions of the State. Hence the investor must be provided with a fair compensation. 89. At conclusion, in Saluka Tribunal found a violation of FET and described the requirements of this standard in the following terms: A foreign investor whose interests are protected under the Treaty is entitled to expect that [host state] wil not act in a way that is manifestly inconsistent, non-transparent, unreasonable, or discriminatory. 90 In MTD v. Chile 91 Tribunal found that the FET standard had been violated by Chile on the following basis: Fair and equitable treatment should be understood to be treatment in an even-handed and just manner, conducive to fostering the promotion of foreign investment. Its terms are framed as a pro-active statement to promote, to create, to stimulate rather than prescriptions for a passive behavior of the State or avoidance of prejudicial conduct to the investors. 90. The Claimant therefore asserts that Ruritania s actions constitute a breach of fair and equitable treatment standard, as they were unreasonable and discriminatory in effect, did not correspond with the investor s legitimate expectations and violated general international principle to act in a good faith. II. THE CUMULATIVE EFFECT OF MEASURES ADOPTED BY RURITANIA HAS RESULTED IN EXPROPRIATION OF ITS INVESTMENTS. 91. Claimant asserts that Ruritania has conducted unlawful expropriation of the CAM s investments in FBI. Pursuant to the Article 4 of the RC-BIT Ruritania guarantees that investments shall not be directly or indirectly expropriated or subjected to any other measures equivalent to expropriation in the territory of the other Contracting State, unless such 90 Saluka MTD

38 expropriation is for the public benefit, not discriminatory, carried out under due process of law and against compensation. 92 In the following paragraphs Claimant will demonstrate that a set of measures taken by Ruritania has led to indirect expropriation subject to appropriate compensation. A. Gradual and cumulative nature of actions taken by the government of Ruritania is tantamount to creeping expropriation. 92. It is acknowledged that direct expropriation is not as prevalent now as in the past, especially with the demise of Marxist-Leninist regimes. Today direct expropriations have become rare due to the fact that an official act that takes the title of the foreign investor s property will attract negative publicity and is likely to do lasting damage to the state s reputation as a venue for foreign investments. As consequence, indirect expropriation have gained in importance as it leaves the investor s title untouched but deprives him of the possibility of utilizing the investment in a meaningful way Moreover, it has long been accepted that an expropriation may occur outright or in stages, thus it describes a taking through a series of acts. 94 In this context the term creeping expropriation describes a taking through a series of acts. A study by UNCTAD explains this phenomenon as a slow and incremental encroachment on one or more of the ownership rights of a foreign investor that diminishes the value of its investment. 95 As noted the term creeping expropriation has also occasionally been used interchangeably with the term indirect expropriation. In Generation Ukraine v. Ukraine Tribunal explained creeping expropriation as follows: Creeping expropriation is a form of indirect expropriation with a distinctive temporal quality in the sense that it encapsulates the situation whereby a series of acts attributable to the State over a period of time culminate in the expropriatory taking of such property 96 Claimant agrees with Tribunal s seeing of creeping expropriation as a form of indirect expropriation. 92 Exhibit 1 to the Statement of Claim, RC-BIT, Article Dolzer and Schreuer, p Dolzer and Schreuer, p UNCTAD, Series on Issues in International Investment Agreements: Taking of Property 2000, pp Generation

39 94. Professor Reisman pointed out that the issue of creeping expropriation must sometimes be seen in retrospect: Discrete acts, analyzed in isolation rather than in the context of the overall flow of events, may, whether legal or not in themselves. Only, in retrospect will it become evident that those acts comprised part of an accretion of deleterious acts and omissions, which in the aggregate expropriated the foreign investor s property rights 97 Hence Claimant proposes to the present Tribunal to look at the series of acts conducted by Ruritanian authorities in the same retrospective as to make a conclusion that adoption of MAB Act, release of report by HRI, adoption of Ordinance by Ministry of Health and Social Security and at the last, commencement of investigation and the following arrest of Contifica Group employees constitute creeping expropriation. 1. Adoption of MAB Act substantially deprived FBI of the use and enjoyment of its trademarks and severely restricted FBI s ability to market and sells its products in Ruritania. 95. The first step towards indirect expropriation of CAM s investment was made on 20 November 2010, when Ruritania adopted the MAB Act. This act imposed limitations on the marketing and sale of alcoholic products and the use of trademarks related to such products, introducing the plain packaging requirements. It instituted a prohibition of use of non-word trademarks (the label should be plain white and no technique should be used to highlight the brand of the beverage) and the limitation on the use of word marks (all the text on the label should be the same colour and in the same font). Moreover it was established that any alcohol shall be served or sold in containers of 0.5 liter or less. 98 Since, Claimant s trademarks composed of words, words in specific fonts and colours and designs of labels 99 include brands of beer and the iconic 0.8 FREEBREW bottle (which has been registered as trademark too) 100 CAM claims that plain packaging alongside with 97 Reisman, W. Michael and Sloane, Robert D., "Indirect Expropriation and its Valuation in the BIT Generation" (2004). Faculty Scholarship Series. Paper 1002., pp Available at: 98 Exhibit 3 to the Statement of Claim, MAB Act, Section Procedural Order 2, (Clarification 17). 100 Procedural Order 2, (Clarification 6). 39

40 packaging (bottling) requirements unfairly limits its rights to use its legally protected trademarks. 96. Respondent s argument as what the Claimant remains the registered owner of the respective trademarks and trade dresses and retains the exclusive right to use them is meritless. Formally, CAM retains control over the trademarks and trade dress rights; indeed it cannot enjoy its intellectual property anymore. As it has previously been mentioned, an indirect expropriation occurs when a state deprives foreign investor from its investments without a formal taking of title or outright seizure. As explained in the Starrett Housing, in such case investor s property rights are rendered so useless that they must be deemed to have been expropriated Additionally, since the Ruritania is a member of WTO 102, the provisions of the TRIPS Agreement shall be applicable in this case in the same manner as the Paris Convention, which was signed and ratified by Ruritania. 103 Both this treaties provide protection and enforcement of all intellectual property rights including trademarks. 104 In case the Tribunal considers that the right to use trademarks is not expressly granted by the TRIPS Agreement or the Paris Convention 105, Claimant assigns, that under the Ruritanian laws registration of a trademark can be cancelled by The Patent Court of Ruritania upon application of an interested party if the trademark has not been used for five years. 106 Hence, the prohibition of usage of the trademarks has a delayed effect. Since CAM has been put in such circumstances that it cannot use its registered trademark, it is impossible for the Claimant to retain its intellectual property rights after the five-year period. The legal title would be lost in five years. With respect to the Philip Morris 107 cases it has been also suggested: The registration of a trademark provides an inherent right to use it. In this sense, under the TRIPS Agreement, WTO Members may make registrability depend on use. This argument could therefore be sustained in cases where the WTO Member in question 101 Starrett Housing Corporation, Starrett Systems, Inc., Starrett Housing International, Inc., v. The Government of the Islamic Republic of Iran, Bank Omran, Bank Mellat (Case No. 24) 102 Procedural Order 2, (Clarification 12). 103 Procedural Order 2, (Clarification 2). 104 Paris Convention, article 1 (2); TRIPS Agreement, article 15 (1). 105 Martin Hunter and Javier García Olmedo: Plain Packaging and Expropriation Available at: Procedural Order 2, (Clarification 3). 107 Philip Morris I, II. 40

41 established that the use of a trademark is a compulsory requirement for obtaining its registration Hence, it may be interpreted that Ruritanian laws made registrability depend on use of trademark. 109 Otherwise the registration of a trademark will be cancelled. Moreover Claimant states, that plain packaging prevents consumers from distinguishing FBI s products from others competitors, thereby affecting the core function of a trademark. A trademark would lose its value if it creates the likelihood of confusion with other trademarks As the result, in order to comply with new plain packaging requirements, FBI used to implement a comprehensive reconfiguration of its bottling line for FREEBREW. FBI s sales dropped by approximately 60% during the first two quarters of 2011 with the company incurring loss of net income of around 10 million US dollars and loss of revenue of 60%. 2. Release of report by HRI and as a consequence, the following adoption of an ordinance by Ministry of Health and Social Security, led FBI to the verge of bankruptcy. Scientific report released by HRI 100. The fact of numerous flaws in the analysis as well as the process of raw data collection conducted by the HRI has been already mentioned above. However Claimant aims to consider some circumstances in greater detail. It is known from the files of the case, that in 2005 the HRI sent an interim report to Ministry of Health and Social Security within the same conclusions as in the final report, released on 15 June For the time being in 2005, The Ministry had been already informed about the risk of cardiac complications due to the effects of Methyldioxidebenzovat. So, what measures did they undertake? They did nothing. Moreover FBI continued to produce dangerous beer up to 30 June 2008, when the Contifica Spirits entered into a share purchase agreement and acquired all shares in FBI. State property Fund represented and warrantied that the products of the Brewery do not pose any risks, other than those which are ordinary for similar alcoholic beverages Turning to the report, Claimant considered the following calculation: 108 Hunter 109 TRIPS Agreement, article 15 (3). 110 Hunter and Olmego. 41

42 The groups of adult males had a daily dosage of grams of Methyldioxidebenzovat added to their drinks. 111 It is estimated that each bottle of FREEBREW contains 0.03 to 0.05 grams of Reyhan concentrate. 112 In fact, 1g of Reyhan concentrate contains 0.8 grams of Methyldioxidebenzovat. 113 For the sake of clarity the data should be averaged. Thus, the average daily dosage of Methyldioxidebenzovat of adult males during the clinical study composes!.!"!!!.!"! = 0.165!. The average consumption of Reyhan concentrate in each! bottle of FREEBREW composes!.!"!!!.!"! = 0.04!. By the same token, 0.04 grams! of Reyhan concentrate contain 0.04!"0.8! = 0.032! of Methyldioxidebenzovat. Result: the average daily dosage of Methyldioxidebenzovat (from the report) during the clinical study is approximately in 5 times (0.165/0.032= ) excesses over the average dosage of Methyldioxidebenzovat contained in each bottle of FREEBREW. Summing up what has been calculated, the Tribunal may reach a conclusion, that a daily dosage consumption of Methyldioxidebenzovat by adult males during the clinical study may be comparable with consumption of 5 bottles of FREEBREW Scientific evidence shows that excessive consumption of harmless products can lead to various diseases. For instance, researchers in the US found that drinking more than 4 cups of coffee a day can increase a risk of death from all causes. 114 They analyzed medical and personal date of more than 40,000 people aged 20 to 87 between 1979 and Scientifics claim that the impact of coffee appeared to be more serious on women and young men. People under 55 years old had double the risk of dying from all diseases than those who did not drink coffee. However, the effect only became significant at around 28 cups per week Another research shows that people who ate high levels of processed meat such as ham, bacon, sausages and burgers had a 72% higher risk of death from heart disease and 11% higher risk of death from cancer. 115 The study included data from 448,568 people in 10 European countries. It was found that the biggest consumers of processed meat were 44% more likely to die prematurely from any cause than those who ate little of it. The authors estimate: if everyone ate no more than 20g a day then 3% of all premature deaths could be avoided. 111 Statement of Claim, [14]. 112 Statement of Claim, [5]. 113 Procedural Order 3, (Clarification 12). 114 The Guardian I. 115 The Guardian II. 42

43 Ordinance adopted by the Ministry of Health and Social Security 104. In addition to plain packaging requirement and prohibition to sell alcohol in containers of over 0.5l, the Ministry of Health and Social Security adopted an ordinance introducing new labeling requirements with respect to health warnings to be displayed on the package. According to this ordinance every product containing Reyhan concentrate shall be labeled: This product contains Reyhan concentrate, consumption of which according to the results of scientific research may lead to higher risk of cardiac complications. However, HRI s report contains another conclusion. HRI claimed that consumers of FREEBREW beer were exposed to a higher risk of cardiac complications due to the effects of Methyldioxidebenzovat, but not the Reyhan concentrate itself. It is estimated that different products may contain different quantity of Methyldioxidebenzovat. HRI report does not stipulate the triggering value of consumption of such an active chemical ingredient in Reyhan concentrate. Since the Ministry adopted an ordinance without any consultation with FBI, Claimant challenges reasonableness of Minister s decision and the advice given to him by civil servants. 116 Who are these civil servants and where do they come into the matter? It is obvious that such advices should be given on the basis of a detailed analysis gathered by qualified professionals in the sphere of medical science Following introduction of new labelling regulations FBI was forced to terminate employment of over half of its employees. The FBI s Board of Directors decided to partially suspend production. As the result the FBI failed to comply with financial covenants with its lenders. They agreed not to declare default of the company only for the pledge of all FBI s tangible assets, all FBI s shares and any recovery that CAM may receive in this arbitration. Apart from this, both release a report by HRI and adoption of an ordinance by Ministry had an impact on the credit of FBI s name. The results of HRI s report were widely announced in mass media by FBI s competitors. Claimant states that those takings of full advantage of the situation by competitors constitutes an unfair competition. According to Article 10bis of Paris Convention: The countries of the Union are bound to assure to nationals of such countries effective protection against unfair competition; Procedural Order 3, (Clarification 10). 117 Paris Convention, Article 10bis (1). 43

44 Any act of competition contrary to honest practices in industrial or commercial matters constitutes an act of unfair competition. 118 The following in particular shall be prohibited: 119 (ii) false allegations in the course of trade of such a nature as to discredit the establishment, the goods, or the industrial or commercial activities, of a competitor; (iii) indications or allegations the use of which in the course of trade is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose, or the quantity, of the goods Thus, Claimant argues that Ruritania did not provide any protection against unfair competition because government itself created all circumstances needed for such actions. Moreover, CAM claims, that adoption of labeling health warnings further to plain packaging requirements prevents consumers from distinguishing the FBI s products from those of its competitors, thereby affecting the economic value of the particular brand. 3. Commencement of criminal investigation and the following arrest of Contifica Group employees were purely artificial and pointless and strove to another intention According to OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions 120, investigation and prosecution of the bribery of a foreign public official shall be subject to the applicable rules and principles of each Party. However, it recognizes as well that, in order to protect the independence of prosecution, such discretion is to be exercised on the basis of professional motives and is not to be subject to improper influence by concerns of political nature. Further, they shall not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved Claimant states that the criminal investigation against Messrs Goodfellow and Straw was at the instigation of Ruritanian authorities and was influenced by concerns of economic interest. The Prosecutor s Office of Ruritania commenced the investigation shortly after the FBI s request on lifting labeling requirements was denied by the Ministry of Health and Social Security. It is obvious that the Ruritanian authorities had to put down any sign of protest from 118 Paris Convention, Article 10bis (2). 119 Paris Convention, Article 10bis (3), (ii)-(iii). 120 OECD Convention on Combating Bribery, Article 5. 44

45 the Claimant. Most crucial aspect is what exact purposes Ruritanian authorities pursued by commencing of the said investigation. (i) Access to the Claimant s documents The commencement of criminal investigation against Messrs Goodfellow and Straw which were allegedly involved in bribery of the officials of the State Property Fund with respect to the acquisition of shares in FBI, was mere a legal motive to gain for access to the Claimant s documents relating to the acquisition of shares in FBI and other FBI related assets. Thus, Ruritanian authorities requested Claimant to disclose all related documents. By acting in such fashion Ruritania obtained a memorandum prepared by Adam Straw to Lucas Goodfellow regarding the various means of achieving further protection of Contifica Group. This uncontested fact can be found in the Statement of Defense. 121 Relying on the strained interpretation of subject matter of memorandum, Respondent concluded that Claimant s conduct constitutes an abuse of process Thereafter, Ruritanian authorities gained access to the share purchase agreement concluded between Contifica Spirits and CAM. This agreement provided the transfer of shares to Claimant for a token amount of Ruritanian pounds. Following the same approach of interpretation Responded argued that CAM s shareholding in FBI is not a bona fide investment, thus not covered by the RC-BIT. (ii) Temporal deprivation of Claimant s ability to exercise control in CAM and manage the day-to-day operations of FBI In this regard, it is relevant to determine the role of Messrs Goodfellow and Straw in the management structure of Contifica Group. According to files of the case Mr. Goodfellow is the Chief Executive Officer of FBI, while Mr. Straw is the General Counsel of FBI and a member of the Board of Directors of CAM. 122 The management structure of CAM consists, among others, of Board of Directors, competence of which lain for example in approving the acquisition of FBI shares and commencement of the present arbitration. It is particularly remarkable that CAM has over 30 subsidiaries. Hence, all this subsidiaries including the FBI 121 Statement of Defense [8]. 122 Procedural Order 2, (Clarification 21). 45

46 need to be controlled by CAM. At the same time, the conduct of day-to-day operations in FBI, particularly in the afterlight, is of prime importance. Claimant states, that detention of Mr. Goodfellow affected the FBI s business activity, while the Chief Executive Officer is solely responsible for the day-to-day operation. Detention of Mr. Straw influenced on CAM s control of all its subsidiaries, while the Board of Directors couldn t be able to take its decisions in the absence of one of its members. (iii) Criminal investigation hurt FBI s commercial goodwill The fact, that the commencements of criminal investigation against the executives of company which are allegedly involved in bribery have an adverse effect on the company s reputation. Moreover, after the detention of Contifica Group employees, a video of their detention from security camera aired it later on the same day, because the police passed the record to the most popular TV channel in Ruritania. A spokesman for Prosecutor s Office made a misstatement in an interview with channel. He said that law enforcement agencies of Ruritania will not let people responsible for corruption escape investigation. By this statement, the one of the most important principles and fundamental rights as presumption of innocence was violated. Since Ruritania is a member of European Union, the following provisions shall have an effect: The Universal Declaration of Human Rights states: Everyone charged with a penal offence has the right to be presumed innocent until proved guilty according to law in a public trial at which he has had all the guarantees necessary for his defence. 123 The Convention for the Protection of Human Rights and Fundamental Freedoms of the Council of Europe says: Everyone charged with a criminal offence shall be presumed innocent until proved guilty according to law Universal Declaration, Article The European Convention on Human Rights, Article

47 This convention has been adopted by treaty and is binding on all Council of Europe members. This assertion is iterated verbatim in the Charter of Fundamental Rights of the European Union: Everyone who has been charged shall be presumed innocent until proved guilty according to law. Respect for the rights of the defence of anyone who has been charged shall be guaranteed. 125 It is obvious that the consequences of such actions couldn t be overstated. B. Ruritania s takings do not comply with requirements for a lawful expropriation 113. Article 4 of the RC-BIT states that the expropriation is lawful if it is for the public benefit, not discriminatory, carried out under due process of law and against compensation. While CAM argues that set of measures conducted by the Respondent, constitutes a compensatory expropriation; Claimant will demonstrate an apparent discrepancy of Ruritania s actions with the said requirements. And firstly, Ruritania failed to pay any compensation for the damages caused For avoidance of any doubt, Claimant admits, that the State has a sovereign right under international law to take property through expropriation for economic, political, social or other reasons. However, in order to be legitimate, the exercise of this right has to meet certain requirements. Respondent states that the actions taken by the government are within the scope of any state s policy and regulatory authority. Nevertheless, Claimant asserts that it is not enough to merely state that an expropriation is motivated by public purpose. In ADC v. Hungary, the tribunal noted that: a treaty requirement for public interest requires some genuine interest of the public. If mere reference to public interest can magically put such interest into existence and therefore satisfy this requirement, then this requirement would be rendered meaningless since the Tribunal can imagine no situation where this requirement would not have been met. 127 While Claimant considers an issue of creeping expropriation in retrospect, all requirements of lawful expropriation should not be examined in isolation. In Siemens v. Argentina the 125 EU Charter of Fundamental Rights, Article Procedural Order 2, (Clarification 7). 127 ADC,

48 Tribunal found, that host state s adverse measures amounted to creeping expropriation. It stated, that each step must have an adverse effect but by itself my not be significant or considered an illegal act In this regard, all actions taken by Ruritania, which constitute creeping expropriation, indeed, do not do not constitute a bona fide regulation within the accepted police powers. The balance between Ruritania s measures acted in a public interest and protection of CAM s rights was disturbed. Moreover this measures are disproportionate to the need been addressed. In Santa Elena v. Costa Rica, Tribunal said: Expropriatory measures no matter how laudable and beneficial to society as a whole are in this respect, similar to any other expropriatory measures that a state may take in order to implement its polocies: where property is expropriated, even for environmental purposes, whether domestic or international, the state s obligation to pay compensation remains. 129 Thus, Claimant states that combination of all measures shall be qualified as expropriation of CAM s foreign investment in a long, step-by-step process by Ruritania. Claimant asks the present Tribunal to bear in mind all circumstances considered above Siemens, Santa Elena, See pp supra. 48

49 III. THE RESPONDENT IS LIABLE TO PAY COMPENSATION FOR THE MORAL DAMAGES CAUSED BY THE BREACH OF ITS OBLIGATION TO PROVIDE FULL PROTECTION AND SECURITY The Claimant asserts that it has suffered moral damages as a result of the Respondent s actions. Article 2 (b) provides the guarantee of full protection and security, and Ruritania is therefore in a breach of its treaty obligation Despite the fact that Messrs. Goodfellow and Straw have not suffered any physical harm 131, the Claimant submits that the moral damages were substantial. The Claimant s executives suffered emotional distress and anxiety of being persecuted and detained by the police officers of Ruritania. Furthermore, a video of their detention was broadcasted on Free TV along with an interview of a spokesman for the Prosecutor s Office. Those groundless accusations were detrimental for the executives reputation and have casted a shadow on the whole company ILC Articles provide that full reparation is required for all material or moral damages caused by internationally wrongful acts. 132 In Lusitania moral damages were defined as compensation 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. 133 Those injuries are compensable by moral damages as mental or reputational harm. It was held that moral damages may be very real, and the mere fact that they are difficult to measure or estimate by monetary standards makes them none the less real and affords no reason why the injured person should not be compensated In Desert Line the Tribunal found that in such cases a party may, in exceptional circumstances, ask for compensation for moral damages. Despite the fact that investments treaties are aimed to protect material values, [i]t is generally accepted in most legal systems that moral damages may also be recovered besides pure economic damages. There are indeed no reasons to exclude them Procedural Order 2, response to factual question Article Opinion in the Lusitania Cases, 7 R.I.A.A 32, 40 (1923). 134 U.S. v. Germany p. 223 et seq. 135 Desert Line

50 The Claimant submits that Ruritania has violated the full protection and security standard of the RC-BIT. Moral damages caused to the executives of the Claimant were malicious and therefore constitute a fault-based liability. Therefore, the Respondent shall pay compensation for mental and reputational harm. IV. THE LOSS OF SALES BY CAM S SUBSIDIARIES LOCATED OUTSIDE OF RURITANIA TO FBI CONSTITUTES A RECOVERABLE ITEM OF DAMAGES 120. The Claimant submits that the losses of sales by CAM s subsidiaries located outside of Ruritania constitutes a recoverable item of damages. As to relations of the subsidiaries to the investment in FBI, the Claimant recalls its conclusion in paragraph 27, supra, that pursuant to Article 31 of the Vienna Convention on the Law of Treaties, [a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose The definition of investment in the RC-BIT is broad and comprises every asset which is directly or indirectly invested. Agricultural business is an integral part of the whole production process, and bottling is essential for the distribution and sale of any beverage. Hence subsidiaries constitute the Claimant s investment In Cargill the Tribunal found that Article 1139 of NAFTA provides broad and inclusive definition of investment, and thus there is no express or implied presumption that measures dealing with goods cannot ipso facto be alleged to be measures relating to investors or investments. 136 The Tribunal held that the business income, which is so closely associated with a physical asset in the host country and not mere trade in goods, is an element of a larger investment and an investment in and of itself. 137 In Cargill the lost profits claimed were divided into down-stream losses (within the host state) and up-stream losses (outside the host state). 138 The tribunal awarded over USD 77,000,000 for both damages suffered. The measures taken by the Respondent have resulted in substantial down-stream losses to the company, which in turn had a direct up-stream effect on the operations of its subsidiaries outside Ruritania, since they supply bottles, aluminium cans, yeast, hops and barley to FBI. The Claimant therefore submits that Ruritania is liable for both down-stream and up-stream losses. 136 Cargill 147, 153, Ibid Ibid

51 CONCLUSION ON MERITS OF THE CASE 123. The Claimant respectfully requests the Tribunal rule to find that Ruritania s actions constitute a breach of fair and equitable treatment standard, as they were unreasonable and discriminatory in effect, did not correspond with the CAM s legitimate expectations and violated general international principle to act in a good faith. Further, the plain packaging and labeling requirements affected the economic value of CAM s investment. The cumulative effect of measures conducted by Ruritania constitutes a compensatory expropriation. Claimant asks the Tribunal to find that actions, taken by the government of Ruritania are not a bona fide exercise of State s policy and regulatory authority. Moreover, Claimant requests the Tribunal to find Ruritania liable for moral damages caused by the detention of Claimant s employees. Finally, Claimant submits that Ruritania is liable for both down-stream and upstream losses of CAM s subsidiaries located outside of Ruritania. Respectfully submitted on 22 September 2013 by Greenwood On behalf of the Claimant COUNSEL FOR CONTIFICA ASSET MANAGEMENT CORP. 51