MEMORANDUM FOR THE CLAIMANT

Transcription

1 3 RD ANNUAL FOREIGN TEAM FORSTER DIRECT INVESTMENT INTERNATIONAL ARBITRATION MOOT, 2010 INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES ICSID CASE NO. ARB/X/X TELEVATIVE INC. BETWEEN: GOVERNMENT OF BERISTAN CLAIMANT RESPONDENT MEMORANDUM FOR THE CLAIMANT I CLAIMANT S MEMO

2 TABLE OF CONTENTS Table of Authorities.....iv Books & Journal Articles vii Table of Cases. ix Synopsis of Facts Statement of Issues Jurisdictional Issues....6 Merits..17 Request for Relief II CLAIMANT S MEMO

3 ARBITRATION ISSUES I. WHETHER THE TRIBUNAL HAS VALID JURISDICTION UNDER CLAUSE 17 OF THE JV AGREEMENT. 6 (A) CLAIMANT IS NOT BOUND BY THE PRINCIPLE OF EXHAUSTION OF THE LOCAL REMEDIES 6 (B) TRIBUNAL HAS THE POWER TO DECIDE ITS OWN JURISDICTION.7 (C) TRIBUNAL HAS THE JURISDICTION UNDER ARTICLE 25(1) OF THE CONVENTION (1) There is existence of a legal dispute...7 (2) Sat-Connect is an investment.8 (3) Consent to arbitration is given by both parties expressly.. 9 II. THE TRIBUNAL HAS JURISDICTION OVER CLAIMANT S CONTRACT BASED CLAIMS ARISING UNDER THE JV AGREEMENT 11 (A) DISPUTE INVOLVES TREATY BASED CLAIMS.11 (B) ARTICLE 10 BEING AN UMBRELLA CLAUSE HAS A WIDER AMBIT.12 (a) The word any obligation in article 10 of the BIT is to be given wide interpretation (C) CONTRACTUAL CLAIMS LEAD TO FET VIOLATIONS 14 (1) Contractual breach by a government owned corporation will impose liability on the State.15 (2) Violation of contractual obligation will lead to violation of FET standards.15 III CLAIMANT S MEMO

4 MERITS III. RESPONDENT MATERIALLY BREACHED THE JV AGREEMENT BY IMPROPERLY INVOKING CLAUSE 8 OF THE AGREEMENT..22 (A) THERE IS NO MATERIAL BREACH OF CLAUSE 4 OF THE JV AGREEMENT (B) QUORUM WAS NOT FORMED..18 (a) Quorum should continue till the decision is taken (b) Even if the decision is considered valid it is affected by bias and arbitrariness...18 (a) The decision is violative of principle of Nemo iudex in causa sua 20 IV. RESPONDENT S ACTIONS AND OMMISSIONS AMOUNT TO EXPROPRIATION, DISCRMINATION, VIOLATION OF FET STANDARDS AND OR OTHERWISE VIOLATE GENERAL PRINCIPLES OF INTERNATIONAL LAW OR APPLICABLE TREATIES..20 I. THE ACTIONS OF THE RESPONDENT AMOUNT TO EXPROPRIATION The actions of the respondent amount to Indirect expropriation..21 A. There has been a substantial deprivation of the investment 21 B. The measures of the government are permanent.25 C. The measures of the Government lead to the frustration of legitimate expectations of the investor. 25 D. Respondent s alleged purpose for Expropriating the investment of the Investor is not legitimate..27 i. The Purpose is irrelevant while determining whether an expropriation has occurred...27 ii. Even if the purpose is considered to be a relevant factor, the alleged purpose for expropriating the investment is not justified The said expropriation is illega. 29 IV CLAIMANT S MEMO

5 A. The public purpose requirement laid down in the Beristan Opulentia BIT has not be fulfilled. 29 B. The Compensation paid is inadequate...30 i. The standard of compensation laid down under the JV agreement means a market value based compensation.31 ii. Alternatively, assuming that literal interpretation can be given, The standard of compensation laid down in the JV agreement is inapplicable since there had been no material breach..33 iii. Alternatively, assuming that literal interpretation can be given, the buyout clause of the JV agreement does not specify the standard of compensation for the expropriation 33 C. The actions of the Respondent are discriminatory...34 D. The actions of the respondent are not in conformity with legal provisions and procedures. 35 II. THE ACTIONS OF THE RESPONDENT LEAD TO VIOLATION OF FAIR AND EQUITABLE TREATMENT STANDARDS A. The actions of the Respondent are arbitrary 38 B. The actions of the respondent lead to the frustration of legitimate expectations of the investor 39 C. The actions of the respondent do not have the expected level of administrative transparency 41 D.The international minimum standards have not been complied with.. 42 E. The actions of the Respondent display bad faith.. 43 (B) GENERAL PRINCIPLES OF INTERNATIONAL LAW HAVE BEEN VIOLATED..44 A. The principle of good faith has been violated 44 B. The principle of audi alteram partem has been violated..44 V CLAIMANT S MEMO

6 V. RESPONDENT IS NOT ENTITLED TO RELY UPON THE ATRICLE 9 (ESSENTIAL SECURITY)OF THE BERISTAN-OPULENTIA BIT AS A DEFENCE TO THE CLAIMANT S CLAIMS 45 VI CLAIMANT S MEMO

7 INDEX OF AUTHORITIES -Articles- Cf., B. Kunoy, DEVELOPMENTS IN INDIRECT EXPROPRIATION CASE LAW IN ICSID TRANSNATIONAL ARBITRATION, 6 Journal of World Investment and Trade (2005) Brice M. Clagett, JUST COMPENSATION IN INTERNATIONAL LAW: THE ISSUES BEFORE THE IRAN-UNITED STATES CLAIMS TRIBUNAL, IN THE VALUATION OF NATIONALIZED PROPERTY IN INTERNATIONAL LAW 31, 42 (Richard B. Lillich ed., 1987) Burke-White, William W., THE ARGENTINE FINANCIAL CRISIS: STATE LIABILITY UNDER BITS AND THE LEGITIMACY OF THE ICSID SYSTEM (January 24, 2008). U of Penn, Inst for Law & Econ Research Paper No Available at SSRN: C Schreuer, FAIR AND EQUITABLE TREATMENT IN ARBITRAL PRACTICE, 6 JWIT 357 (2005) 384 C. Schreuer, TRAVELLING THE BIT ROUTE: OF WAITING PERIODS, UMBRELLA CLAUSES AND FORKS IN THE ROAD, J. World Inv (2004) Cf., C. Schreuer, FAIR AND EQUITABLE TREATMENT IN ARBITRAL PRACTICE, 6 Journal of World Investment and Trade (2005) Christoph Schreuer, THE CONCEPT OF EXPROPRIATION UNDER THE ECT AND OTHER INVESTMENT PROTECTION TREATIES, in: Clarisse Ribeiro (Ed.), Investment Arbitration and the Energy Charter Treaty, 2006 E. Gaillard, L ARBITRAGE SUR LE FONDEMENT DES TRAITES DE PROTECTION DES INVESTISSEMENTS, Revue de l Arbitrage p.868, note 43 F.A. Mann BRITISH TREATIES FOR THE PROMOTION AND PROTECTION OF INVESTMENTS, 52 British Yearbook of International Law 241 (1981) Fotios M. Burtzos, AUTHENTICATION, 25-Sep Colo. Law. 55 H. Ruiz Fabri, THE APPROACH TAKEN BY THE EUROPEAN COURT OF HUMAN RIGHTS TO THE ASSESSMENT OF COMPENSATION FOR REGULATORY EXPROPRIATIONS OF THE PROPERTY OF FOREIGN INVESTORS, N.Y.U. Environmental Law Journal, Vol. 11, No. 1, 2002, p I. Shihata, APPLICABLE LAW IN INTERNATIONAL ARBITRATION: SPECIFIC ASPECTS IN CASE OF THE INVOLVEMENT OF STATE PARTIES, in I.F.I. Shihata and J.D. Wolfensohn (eds.), The World Bank in a Changing World: selected Essays and Lectures, Vol. II, Brill Academic Publishers, Leiden, Netherlands, 1995 INTERPRETATION OF THE UMBRELLA CLAUSE IN INVESTMENT AGREEMENTS, OECD, VII CLAIMANT S MEMO

8 Working Papers On International Investment Number 2006/3, October 2006 J.M. Wagner, INTERNATIONAL INVESTMENT, EXPROPRIATION AND ENVIRONMENTAL PROTECTION, Golden Gate University Law Review (1999), Vol. 29, No. 3, pp Jarrod Wong, UMBRELLA CLAUSES IN BILATERAL INVESTMENT TREATIES: OF BREACHES OF CONTRACT, TREATY VIOLATIONS, AND THE DIVIDE BETWEEN DEVELOPING AND DEVELOPED COUNTRIES IN FOREIGN INVESTMENT DISPUTES 14 Geo. Mason L. Rev. 135 R Dolzer NEW FOUNDATIONS ON THE LAW OF EXPROPRIATION OF ALIEN PROPERTY (1981) 75 AJIL R Dolzer, FAIR AND EQUITABLE TREATMENT: A KEY STANDARD IN INVESTMENT TREATIES, 39 Int'l Law 87 (2005) at 91 Rogerson, Sarah Hill, THE 'NECESSITY DEFENSE' AND THE EMERGING ARBITRAL CONFLICT IN ITS APPLICATION TO THE U.S.-ARGENTINA BILATERAL INVESTMENT TREATY (Summer 2007). NAFTA: Law and Business Review of the Americas, Vol. 13, No. 3, Available at SSRN: Rudolf Dolzer, INDIRECT EXPROPRIATION OF ALIEN PROPERTY, 1 ICSID Rev. Foreign Invest. L.J. 41, (1986) S Vasciannie, FAIR AND EQUITABLE TREATMENT STANDARD IN INTERNATIONAL INVESTMENT LAW AND PRACTICE (1999) 70 British Yearbook on International Law 99, S.A. Alexandrov, BREACHES OF CONTRACT AND BREACHES OF TREATY THE JURISDICTION OF TREATY- BASED ARBITRATION TRIBUNALS TO DECIDE BREACH OF CONTRACT CLAIMS IN SGS V PAKISTAN AND SGS V PHILIPPINES, 5 Journal of World Investment and Trade (2004) Sheena N. McMurtrie, THE PRINCIPLE OF NEMO IUDEX IN CAUSA SUA, Jur. Rev. 1996, 5, Tai-Heng Cheng, PRECEDENT AND CONTROL IN INVESTMENT TREATY ARBITRATION, 30 Fordham Int'l L.J WM Reisman and MH Arsanjani, THE QUESTION OF UNILATERAL GOVERNMENTAL STATEMENTS AS APPLICABLE LAW IN INVESTMENT DISPUTES (2004) 19 ICSID Review-FILJ 328 Yost, Chris, A CASE REVIEW AND ANALYSIS OF THE LEGITIMATE EXPECTATIONS PRINCIPLE AS IT APPLIES WITHIN THE FAIR AND EQUITABLE TREATMENT STANDARD (March 19, 2009). ANU College of Law Research Paper No ADC v. Hungary, Award, 2 October 2006, Arbitral and Judicial Decisions VIII CLAIMANT S MEMO

9 AGIP v Congo, 1 ICSID Reports 306 Award, 30 November 1979 AMCO Asia Corporation v. Republic of Indonesia, ICSID case no. ARB/81/1, award, 20 November 1984, 1 ICSID Reports 413, 466. American Manufacturing & Trading, Inc. Republic of Zaire, ICSID case no. ARB/93/1 Asian agricultural products Ltd v Sri Lanka ICSID Case No ARB/87/3. Azurix Corp v Argentina, Award, ICSID Case No ARB/01/12; IIC 24 (2006) Bill v Royal Western India Jury Club Ltd. AIR 1946 Bom 88. Biloune and Marine Drive Coamplex Ltd. V. Ghana Investments Center and the Government of Ghana, Award on Jurisdiction and liability, 27 October 1989, 95 ILR 184, at p.211. Case Concerning Certain German Interests in Polish Upper Silesia (Germany v. Poland) (1926) P.C.I.J. Series A., No. 7 at 42 CME (Netherlands) v. Czech Republic (Partial Award) (1 may 2010) Available at CMS Gas Transmission Company v Argentine Republic, (ICSID ARB/01/8), Decision on Jurisdiction, Award of 12 May 2005 Compania del desarrollo de Santa Elena S.A. v. Costa Rica, Award, 17 February 2000, 5 ICSID Reports 157 at 70 Continental Casualty Company v Argentina, Award, ICSID Case No ARB/03/9; IIC 336 (2008). Costain Ltd v Strathcyde Builders Ltd CA96/03 17 December 2003 Dimes v Grand Junction Canal [1852] 3 HLC 759 Eastern Sugar B.V. v. Czech Republic, SCC Case No. 088/2004 (Czech Republic-Netherlands BIT), Final Award, 12 April 2007 Eureko B.V. v Poland, Partial, Ad Hoc Investment Treaty Case, Partial Award on liability, 19 August 2005 Elettronica Sicula SpA (ELSI), United States v Italy, Judgment, Merits, ICJ GL No 76, [1989] ICJ Rep 15, ICGJ 95 (ICJ 1989), (1989) 28 ILM 1109, 20th July 1989, ICJ GAMI v. Mexico, Award, 15 November 2004, 44 ILM (2005), at para 93. Genin v Estonia, Award 25 June 2001, 17 ICSID Review FILJ (2002) 395, para 367; Handyside v. United Kingdom, 24 Eur. Ct. H.R. (ser.a) at 29 (1976); IX CLAIMANT S MEMO

10 INA Corp. v Iran (1985) 8 Iran-US CTR 373, section III; Lanco International Inc v The Argentina Republic ICSID case no. ARB/97/6 LG&E International Inc. v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability of 3 October 2006; CME Czech Republic B.V. v. The Czech Republic, UNCITRAL Partial Award of 13 September 2001 Loewen Group Inc and Raymons L. Loewen v. United States of America, ICSID Case No. ARB(AF)98/3, Award of 26 June 2003, para Maffezini v The kingdom of Spain ICSID case no ARB/97/7 Matos e Silva, Lda v. Portugal App. No /89, 24 Eur. Ct. H.R. rep. 573, (1996). Metalclad Corporation v. United Mexican States (Tribunal Decision 30 August 2000) Mondev v. USA, Award, 11 October 2002, 42 ILM (2003) 85 MTD Equity Sdn Bhd & MTD Chile SA v Chile (Republic of), Award, 25 May 2004 (ICSID Case No. ARB/01/7) 44 ILM 91 (2005)at para 109 Noble Ventures v. Romania (ICSID Case No. ARB/01/11). Norwegian Shipowners Claims (Norway v. US), Award, 30 June 1921, 1 UNRIAA 307; Occidental Exploration and Production Co. v. Ecuador, Award, 1 July at Opel Austria GmBH v. Council of the European Union (1997) ECR II-4239, 78 Pan American Energy LLC, and BP Argentina Exploration Co. v. Argentine Republic ICSID (W. Bank) Case No. ARB/03/13 Poiss v. Austria, 117 Eur. Ct.H.R. (ser. A)84, 108 (1987); Ronald S. Lauder v. Czech Republic, UNCITRAL, Award of 3 September 2001, para Rumeli Telekom AS and Telsim Mobil Telekomikasyon Hizmetleri AS v Kazakhstan, Award, ICSID Case No ARB/05/16; IIC 344 (2008) S D Myers v Canada, Award 13 November 2000, 40 ILM (2001) 1408, para 259; Salini v. Jordan ICSID Case no. ARB/02/13 Salini v. Morocco ICSID Case No. ARB/00/06 Saluka BV v Czech Republic UNCITRAL Rules Partial Award Permanent Court of Arbitration 17 March 2006 available at at para 303. X CLAIMANT S MEMO

11 Sempra Energy International v. Republic of Argentina, ICSID case No ARB/02/16, Decision on Objections to Jurisdiction, 11 May 2005 Siemens v Argentina ICSID Case No. ARB/02/8, Decision on jurisdiction, 3 Aug 2004 Société Général de Surveillance S. A. v Philippines, Decision of the Tribunal on Objections to Jurisdiction, ICSID (W. Bank) Case No. ARB/02/6 Société Général de Surveillance S. A. v. Pakistan, Decision of the Tribunal on Objections to Jurisdiction, ICSID (W. Bank) Case No. ARB/01/13 (2003) SPP v. Egypt, Award, 20 May 1992, 3 ICSID Reports 189, at 197 Starrett Housing Corporation v. Islamic Republic of Iran (1983) 4 Iran-U.S. C.T.R. 122 at 154 TeÂcnicas Medioambientales Tecmed, S.A. v. United Mexican States, (2004) 43 ILM 13, ICSID Case No. ARB (AF)/00/2, para Union of India vs. Tulsiram Patel, AIR 1985 SC 1416 Waste Management Inc. v. United Mexican States, ICSID Case No. ARB (AF)/00/3, Award, 30 April 2004 Waste Management, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/98/2, NAFTA Award of 25 June Books - 1. BISHOP, BISHOP, Raymond Doak; CRAWFORD, James Richard; CRAWFORD & REISMAN, William Michael, Foreign Investment Dispute: REISMAN Cases, Materials and Commentary Kluwer Law International, The Hague BROWNLIE Brownlie, Ian, Principles of Public International Law, 6th ed. (Oxford: OUP, 2003). 3. DOLZER & STEVENS R Dolzer and M Stevens, Bilateral Investments Treaties (Oxford University Press, 2008) 4. HACKWORTH G. Hackworth, DIGEST OF INTERNATIONAL LAW p. 657 (1943) XI CLAIMANT S MEMO

12 5. HORN Norbert Horn, Arbitrating Foreign Investment Disputes (Kluwer Law International, LEW, MISTELLIS & KROLL Julian D M Lew, Loukas A Mistelis and Stefan M Kroll, Comparative International Commercial Arbitration, (Kluwer Law International Publication, 2003) 7. RUDOLF & SCHREUER Rudolf Dolzer and Christoph Schreur, Principles of International Investment Law (Oxford University Press, 2008) 8. SHANBHOGUE Shanbhogue, Company resolutions, notices, meetings and notice (Bharat law house, 2008) 9. SORNARAJAH Sornarajah, The international law on foreign investment, (Cambridge University Press, 2007) 10. WALLACE Dugan C. Wallace, Jr. D. Rubins N., Investor-State Arbitration (Oxford University Press: 2008) -International Documents- 2. INTERNATIONAL CONVENTION ON THE SETTLEMENT OF INVESTMENT DISPUTES BETWEEN STATES AND NATIONALS OF OTHER STATES (ICSID), DONE MAR. 18, 1965, 17 U.S.T. 1270, T.I.A.S. NO. 6090, 575 U.N.T.S. 160 (1966) 3. VIENNA CONVENTION ON THE LAW OF TREATIES ART. 31, MAY, 23, 1969, 1155 U.N.T.S. 331, 8 I.L.M. 679 (1969) 4. NORTH AMERICAN FREE TRADE AGREEMENT, DEC. 8, 1993, U.S.-CAN.- MEX., ART. 102(1), 32 I.L.M. 289 XII CLAIMANT S MEMO

13 5. UNCITRAL: THE UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW AT 3, U.N. SALES NO. E.86.V.8 (1986) 6. INTERNATIONAL RESPONSIBILITY OF STATES FOR INJURED ALIENS 7. THE INTERNATIONAL LAW COMMISSION S ARTICLES ON STATE RESPONSIBILITY 8. OECD DRAFT CONVENTION ON FOREIGN PROPERTY, 12 OCTOBER UNCTAD SERIES ON ISSUES IN INTERNATIONAL INVESTMENT AGREEMENTS, FAIR AND EQUITABLE TREATMENT (1999) XIII CLAIMANT S MEMO

14 SYNOPSIS OF FACTS CLAIMANT: Televative Inc. [hereinafter CLAIMANT ] is successful multinational enterprise that specializes in satellite communications technology and systems. It is a leading developer of new technologies in this field. Televative is a privately held company that was incorporated in Opulentia on 30 January RESPONDENT: Beritech S.A. [hereinafter RESPONDENT ] is a state owned company. The Beristian government owns a 75% interest in Beritech. The remaining 25% of Beritech is owned by a small group of wealthy Beristian investors, who have close ties to the Beristan government. 30 January 1995: Claimant, Televative Inc., is a successful multinational enterprise that specializes in satellite communications technology and systems. It is a leading developer of new technologies in this field. Televative is a privately held company that was incorporated in Opulentia on 2. The Government of Beristan established a state-owned company, Beritech S.A. March, 2007: The Government of Beristan established a state-owned company, Beritech S.A., in. The Beristian government owns a 75% interest in Beritech. The remaining 25% of Beritech is owned by a small group of wealthy Beristian investors, who have close ties to the Beristan government. 18 October 2007: Beritech and Televative signed a joint venture agreement (the JV Agreement ) to establish the joint venture company, Sat-Connect S.A.,under Beristian law. The 1 CLAIMANT S MEMO

15 Government of Beristan has co-signed the JV Agreement as guarantor of Beritech s obligations. Sat-Connect s corporate offices are located in Beristal, the capital city of Beristan. Televative owns a 40% minority share in Sat-Connect, while Beritech owns a 60% majority stake. Of the nine members of Sat-Connect s board of directors, Beritech has the right to appoint 5 directors, while Televative can appoint A quorum of the board of directors is obtained with the presence of 6 members. Govt. of Republic of Beristan 75% Televative Inc. 40% Beritech S.A. 60% Sat Connect S.A. Sat-Connect was established for the purpose of developing and deploying a satellite network and accompanying terrestrial systems and gateways that will provide connectivity and communications for users of this system anywhere within the vast expanses of Euphonia. Euphonia is a region encompassing almost one-fifth of the world s surface, which includes Beristan, six other countries, and the Euphonian Ocean. The satellite and communications technology that Sat-Connect will deploy can be used for civilian or military purposes. Several segments of the Beristian armed forces will use the Sat-Connect system. 12 August 2009: The Beristan Times published an article in which a highly placed Beristian government official raised national security concerns by revealing that the Sat-Connect project had been compromised due to leaks by Televative personnel who had been seconded to the project. The official indicated it was believed that critical information from the Sat-Connect project had been passed to the 2 CLAIMANT S MEMO

16 Government of Opulentia. Both Televative and the Government of Opulentia have made statements to deny this published story. 21 August 2009: The chairman of the Sat-Connect board of directors, Michael Smithworth, made a presentation to the directors in which he discussed the allegations that had appeared in the August 12th article in The Beristan Times. The content of this meeting is disputed by Claimant. 27 August 2009: Beritech, with the support of the majority of Sat-Connect s board of directors, invoked Clause 8 of the JV Agreement, to compel a buyout of Televative s interest in the Sat- Connect project. Six directors were present at this meeting and one director, Alice Sharpeton, who had been appointed by Televative, refused to participate and left the meeting before its end. She later filed a protest that she had no prior notice concerning the proposed agenda for the meeting. 28 August 2009: Served notice on Televative to hand over possession of all Sat-Connect site, facilities and equipment within 14 days and to remove all seconded personnel from the project. 11 September 2009: Staff from the Civil Works Force ( CWF ), the civil engineering section of the Beristian army, secured all sites and facilities of the Sat-Connect project. Those personnel of the project who were associated with Televative were instructed to leave the project sites and facilities immediately, and were eventually evacuated from Beristan. [Televative s total monetary investment in the Sat-Connect project stands at US $47 million.] 3 CLAIMANT S MEMO

17 19 October 2009: Beritech filed a request for arbitration against Televative under Clause 17 of the JV Agreement. Beritech has paid US$47 million into an escrow account, which has been made available for Televative and is being held pending the decision in this arbitration. Televative has refused to accept this payment and has refused to respond to Beritech s arbitration request. 28 October 2009: Claimant requested arbitration in accordance with ICSID s Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings and notified the Government of Beristan. In its request for arbitration, Claimant states that jurisdiction is established by the BIT between Beristan and Opulentia (Annex 1) and because both countries are contracting states to the ICSID Convention. Beristan and Opulentia are ICSID Contracting States and have ratified the ICSID Convention. Beristan and Opulentia have also ratified the Vienna Convention on the Law of Treaties. Beristan and Opulentia have long had polite yet tense relations. 1 November 2009: The ICSID Secretary General registered for arbitration this dispute brought by Claimant Televative against the Government of Beristan. 4 CLAIMANT S MEMO

18 STATEMENT OF ISSUES JURISDICTION Whether the Tribunal Has Jurisdiction in view of the JV Agreement? [Issue-I] Whether The Tribunal Has Jurisdiction under The Beristan-Opulentia BIT [Issue-II] MERITS OF THE CLAIM Whether the RESPONDENT s company has materially breached the contract? [Issue-III] Whether the actions or the omissions of the RESPONDENT amounts to expropriation, discrimination, violation of Fair and equitable treatment standards or otherwise violate general principles of international law or applicable treaties? [Issue-IV] Whether the RESPONDENT is entiled to rely upon the essential security defense under article 9 of the Opulentia-Beristan BIT? [Issue-V] 5 CLAIMANT S MEMO

19 JURISDICTION I. THE TRIBUNAL HAS VALID JURISDICTION IN VIEW CLAUSE 17 OF THE JV AGREEMENT (A) CLAIMANT IS NOT BOUND BY THE PRINCIPLE OF EXHAUSTION OF THE LOCAL REMEDIES 1. It is provided in Article 26 of the Convention that: Consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy. A Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention. 2. It may be presumed that when a State and an investor agree to have recourse to arbitration, and do not reserve the right to have recourse to other remedies or require the prior exhaustion of other remedies, the intention of the parties is to have recourse to arbitration to the exclusion of any other remedy. 1 In order to make clear that it was not intended thereby to modify the rules of international law regarding the exhaustion of local remedies, the second sentence explicitly recognizes the right of a State to require the prior exhaustion of local remedies. 2 The treaty or the contract does not acknowledge the requirement of exhaustion of this principle for the consent of the state. 3. In this case the treaty i.e. Beristan-Opluentia BIT is violated. 3 When a treaty violation arises, the dispute may be directly submitted to arbitration, without resort to local remedies is an internationally accepted principle. 4 Where a state has entered into a treaty which gives 1 Article 32 of ICSID, Ch. V Jurisdiction. 2 Article 32 of ICSID, Ch. V Jurisdiction. 3 Infra, Part II, Issue 4. 4 Sornarajah CLAIMANT S MEMO

20 automatic right to arbitration to the foreign investor in respect of violations of rights given to him by treaty, it is appropriate for the state to submit to the jurisdiction. 5 In this case, the treaty standards are violated and the State has already consented to the jurisdiction of this tribunal as proved above. Hence, international law does not put the bar of exhaustion of local remedies in this case. (B) TRIBUNAL HAS THE POWER TO DECIDE ITS OWN JURISDICTION 4. The power of an arbitral tribunal to decide on its own jurisdiction is an inherent power. The trend in modern international commercial arbitration is to expressly state the tribunal s competence to decide upon its own competence i.e. Kompetenz-Kompetenz The doctrine of Kompetenz-Kompetenz is well recognized under Arbitration Rules of ICSID, Article 41: (1) The Tribunal shall be the judge of its own competence. (2) Any objection by a party to the dispute that that dispute is not within the jurisdiction of the Centre, or for other reasons is not within the competence of the Tribunal, shall be considered by the Tribunal which shall determine whether to deal with it as a preliminary question or to join it to the merits of the dispute. 6. Under a robust competence-competence doctrine even issues of the existence and validity of the arbitration agreement may go initially to the arbitrators. This rule dictates that the arbitral tribunal has authority to determine whether it has jurisdiction to evaluate the validity of the arbitration agreement 7. Kompetenz-Kompetenz is a basic principle of international commercial arbitration. 8 5 Sornarajah p Article 41 of the Convention. 7 Lew, Mistelis & Kröll UNCITRAL Model Law Art. 16(1); UNCITRAL Arbitration Rules 15(2). 7 CLAIMANT S MEMO

21 7. Also, article 15 and 16 of the arbitration rules of the Court of International Commercial Arbitration also, expressly incorporates the competence-competence doctrine by providing that the Tribunal verifies its own authority to settle the dispute and rule[s] on the existence or validity of the arbitral agreement. Thus, the tribunal is competent to decide that it has jurisdiction and should look to the Contract to determine the procedural rules that apply to the current dispute. (C) TRIBUNAL HAS THE JURISDICTION UNDER ARTICLE 25(1) OF THE CONVENTION 8. Now, Article 25(1) 9 of the Convention provides for jurisdiction over: any legal dispute arising directly out of an investment, between a Contracting State and a national of another Contracting State, which the parties to the dispute consent to submit to the Centre. In sum, the requirements for ICSID jurisdiction are (1) a legal dispute; (2) an investment; (3) a Contracting State; (4) a national of another Contracting State; and (5) written consent. Condition (3) and (4) are satisfied evidently. The contracting state is State of Beristan, RESPONDENT in the present case and the national of another contracting state is Televative, CLAIMANT, as it is incorporated in Opluentia 10. (1) There is existence of a legal dispute 9. For having jurisdiction over a matter there has to be some legal dispute arising there from. In this case, CLAIMANT alleges violation of treaty standards and contractual obligations Any disagreement on point of law or fact, a conflict of legal views or interests between parties is termed as legal dispute. In AGIP v Congo 12, Govt. had expropriated the claimant s 9 International Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, done Mar. 18, 1965, 17 U.S.T. 1270, T.I.A.S. No. 6090, 575 U.N.T.S. 159 [hereinafter Convention]. 10 Record, Annex 2, 1 of the Uncontested Facts. 11 Infra, Part II, Issue (3) & (4). 12 Award, 30 November 1979, 1 ICSID Reports 306, at CLAIMANT S MEMO

22 assets. Before the tribunal the Govt. non existence of legal dispute as compensation was recognized, but it was not paid. Hence, it was held that there is no doubt of a legal dispute being present. A dispute becomes legal if allegations concern existence or scope of legal right or obligation. Similarly, in this case there is expropriation of CLAIMANT S assets and violation of fair and equitable standards thereby giving rise to a legal dispute. (2) Sat-Connect is an investment 11. Sat connect is a foreign direct investment in a form of Join Venture by the CLAIMANT from Opluentia in the country of Beristan BIT states that 14 : The term "investment" shall be construed to mean any kind of property invested before or after the entry into force of this Agreement by a natural or legal person being a national of one Contracting Party in the territory of the other, in conformity with the laws and regulations of the latter. 15 b) shares, debentures, equity holdings and any other negotiable instrument or document of credit, as well as Government and public securities in general; Any kind of property is to be interpreted with maximum flexibility so the rights of the investors are not violated. 16 In this case, Televative being national of Opluentia i.e. another state has invested in joint venture holding 40% shares 17 in the territory of Beristan regulated by Beristan laws 18. Hence, under the purview of the Beristan-Opluentia BIT Sat-connect is clearly an investment. 13 Record, Annex 2, 3 of the Uncontested Facts. 14 Article 1 of Beristan-Opluentia BIT. 15 Record, Annex 1, Article Dolzer & Stevens Record, Annex 2, 4 of the Uncontested Facts. 18 Record, Annex 2, 3 of the Uncontested Facts. 9 CLAIMANT S MEMO

23 (3) Consent to arbitration is given by both parties expressly 14. Article 11 of the Beristan-Opluentia BIT specifically states that: Each Contracting Party hereby consents to the submission of any investment dispute for settlement by binding arbitration in accordance with the choice specified in the written submission of the investor BITs are generally of two kinds, one that expressly gives generic advance consent to arbitration in BIT itself and one where state partly expressly or impliedly reserves it consent, thereby making express consent necessary. 20 In this case, the Beristan-Opluentia BIT is one the former nature. This is because it clearly lays down that the contracting party hereby consents to submit itself. According to Clause 2 of Article 11 the contracting party i.e. Government of Beristan has already expressly consented if the investor decides on ICSID or UNCITRAL model In Asian Agricultural Products Ltd v Sri Lanka 22 and Lanco International Inc v The Argentina Republic 23 it was observed that the BIT containing a clause which specifies hereby consents means that the consent is already provided by the contracting state. In this case, contracting state is State of Beristan and hence, based on the observation of the case mentioned above it can be concluded that the Govt. of Beristan has already consented. 17. Furthermore, this advance is not sufficient, consent of the investor is also required which is normally manifested by making a request to arbitrate. 24 For the investor, this consent is open offer to arbitrate, which might be accepted as soon as investment dispute arises. When this offer is thereby accepted, an arbitration agreement has been formed, and there is mutual consent in writing by both parties Record, Annex 1, Article 11(2) of BIT. 20 Dolzer & Stevens Record, Annex I, Article 11 of the BIT. 22 Asian agricultural products Ltd v Sri Lanka ICSID Case No ARB/87/3. 23 Lanco International Inc v The Argentina Republic ICSID case no. ARB/97/6. 24 See, American Manufacturing & Trading, Inc. Republic of Zaire, ICSID case no. ARB/93/1, Horn CLAIMANT S MEMO

24 18. On October 28, 2009, Claimant requested arbitration in accordance with ICSID s Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings and notified the Government of Beristan 26, thereby giving its consent. Hence, it is submitted that both the parties to the arbitration has provided with the consent to the arbitration thereby giving the tribunal constituted under the Beristan-Opluentia BIT, jurisdiction. II. THE TRIBUNAL HAS JURISDICTION OVER CLAIMANT S CONTRACT BASED CLAIMS ARISING UNDER THE JV AGREEMENT 19. The BIT contains certain general standards of treatment. It provide protection against direct and indirect expropriation, 27 and require fair and equitable treatment 28 [Hereafter FET ] of the investor. The umbrella clause is a general promise to honour the obligations that the States entered into with the foreign investor, which are usually contractual agreements, such as licences or concession agreements. 29 The umbrella clause may elevate contractual claims to international law claims. Clause 10 of the BIT is an umbrella clause. It is submitted that the dispute extends to contractual claims because firstly, (a) Dispute involves treaty based obligations, secondly, (b) Article 10 of the BIT is an Umbrella Clause and thirdly, (c) It is the contractual claims that consequentially lead to FET violations. (A) DISPUTE INVOLVES TREATY BASED CLAIMS 26 Record, Annex II, 14 of the Uncontested Facts. 27 Cf., B. Kunoy, DEVELOPMENTS IN INDIRECT EXPROPRIATION CASE LAW IN ICSID TRANSNATIONAL ARBITRATION, 6 Journal of World Investment and Trade (2005) p Cf., C. Schreuer, FAIR AND EQUITABLE TREATMENT IN ARBITRAL PRACTICE, 6 Journal of World Investment and Trade (2005) p See S.A. Alexandrov, BREACHES OF CONTRACT AND BREACHES OF TREATY THE JURISDICTION OF TREATY- BASED ARBITRATION TRIBUNALS TO DECIDE BREACH OF CONTRACT CLAIMS IN SGS V PAKISTAN AND SGS V PHILIPPINES, 5 Journal of World Investment and Trade (2004) p CLAIMANT S MEMO

25 20. It has been held in Salini v. Morocco 30, that Arbitral tribunals retain jurisdiction over breaches of contract that also constitute a violation of the Bilateral Treaty. 31 As shall be established below, the RESPONDENT s actions have violated several obligations of the BIT. 32 In the case of Pan American Energy LLC, and BP Argentina Exploration Co. v. Argentine Republic 33 : Moreover, in the Tribunal's view, it is especially clear that the umbrella clause does not extend [its jurisdiction] to any contract claims when such claims do not rely on a violation of the standards of protection of the BIT, namely, national treatment, MFN clause, fair and equitable treatment, full protection and security, protection against arbitrary and discriminatory measures, protection against expropriation or nationalisation either directly or indirectly, unless some requirements are respected. 21. The Tribunal's argument disregards that other investors' rights--including fair and equitable treatment, indirect expropriation, and nondiscrimination--concern obligations of host States that are normally not addressed by investor-state contracts. (B) ARTICLE 10 BEING AN UMBRELLA CLAUSE HAS A WIDER AMBIT 22. Article 10 of the BIT i.e. umbrella clause has the effect of elevating contract claims 34 to international plane. 35 It was observed in SGS v Philippines that Umbrella Clause should be construed broadly so as to include contract as well as treaty claims. 36 Additionally, Article 10 of the BIT clearly lays down the obligation over both the parties to guarantee the obligations with regard to investments in its territory of other contracting party. In this case, as shall be established below, Govt. of Beristan i.e. RESPONDENT, has clearly violated the treaty obligations. Contractual claims could be brought under the purview of umbrella clause 30 ICSID case No. ARB/00/ Salini v. Morocco, at Infra, Part II, Issue ICSID (W. Bank) Case No. ARB/03/ Tai-Heng Cheng, PRECEDENT AND CONTROL IN INVESTMENT TREATY ARBITRATION, 30 Fordham Int'l L.J Société Général de Surveillance S. A. v Philippines, Decision of the Tribunal on Objections to Jurisdiction, ICSID (W. Bank) Case No. ARB/02/6 [Hereinafter referred as SGS v Philippines] 36 SGS v Philippines 12 CLAIMANT S MEMO

26 under certain circumstances. 37 A violation of certain provisions of a State contract with an investor of another State might constitute violation of a treaty provision enjoining a Contracting Party constantly to guarantee the observance of contracts with investors of another Contracting Party Umbrella clause is a provision in which it protects the investor against any interference with his contractual rights, whether it results from a mere breach of contract or a legislative or administrative act, 39 and independently of the question whether or no such interference amounts to expropriation. 40 Treaties may furthermore elevate contractual undertakings into international law obligations, by stipulating that breach by one State of a contract with a private party from the other State will also constitute a breach of the treaty between the two States A historical examination of the origins of observance of undertakings clauses clauses with a mirror effect shows in the clearest manner that the intention of States negotiating and drafting such clauses is to permit a breach of contract to be effectively characterized as the breach of an international treaty obligation by the host state. 42 They add the compliance with investment contracts, or other undertakings of the host State, to the BIT s substantive standards. In this way, a violation of such a contract becomes a violation of the BIT Société Général de Surveillance S. A. v. Pakistan, Decision of the Tribunal on Objections to Jurisdiction, ICSID (W. Bank) Case No. ARB/01/13 (2003) 172 [Hereinafter referred as SGS v Pakistan]. 38 SGS v. Pakistan, Dolzer & Stevens F.A. Mann British Treaties for the Promotion and Protection of Investments, 52 British Yearbook of International Law 241 (1981), at p I. Shihata, Applicable Law in International Arbitration: Specific Aspects in Case of the Involvement of State Parties, in I.F.I. Shihata and J.D. Wolfensohn (eds.), The World Bank in a Changing World: selected Essays and Lectures, Vol. II, Brill Academic Publishers, Leiden, Netherlands, 1995, at E. Gaillard, L arbitrage sur le fondement des traités de protection des investissements, Revue de l Arbitrage p.868, note C. Schreuer, Travelling the BIT Route: of Waiting Periods, Umbrella clauses and Forks in The Road, J. World Inv (2004) pp CLAIMANT S MEMO

27 25. In Waste Management v. United Mexican States the NAFTA Tribunal, expressed its view on the umbrella clause although NAFTA Chapter 11 does not contain such a clause. It observed that: NAFTA Chapter 11 unlike many bilateral and regional investment treaties, does not provide jurisdiction in respect of breaches of investment contracts such as [the Concession Agreement]. Nor does it contain an umbrella clause committing the host state to comply with its contractual commitments 44 This clearly shows that the interpretation of umbrella clause generally includes compliance with contractual obligations. (a) The word any obligation in article 10 of the BIT is to be given wide interpretation 26. It was held in Sempra Energy International v. Republic of Argentina that the Treaty also includes the specific guarantee of a general umbrella clause, involving the obligation to observe contractual commitments concerning the investment, creates an even closer link between the contract, the context of the investment and the Treaty Article 10 of the BIT clearly states that: Each Contracting Party shall constantly guarantee the observance of any obligation it has assumed with regard to investments in its territory by investors of the other Contracting Party. 28. The phrase any obligation was given greater elucidation in the Partial Award rendered in Eureko v Poland; the Tribunal stated: Any obligations is capacious; it means not only obligations of a certain type, but any that is to say, all obligations. 46 (C) Contractual claims lead to FET violations. 44 Waste Management Inc. v. United Mexican States, ICSID Case No. ARB (AF)/00/3, Award, 30 April 2004, Sempra Energy International v. Republic of Argentina, ICSID case No ARB/02/16, Decision on Objections to Jurisdiction, 11 May Eureko B.V. v Poland, Partial Award 19 August 2005 at CLAIMANT S MEMO

28 (a) Contractual breach by a government owned corporation will impose liability on the State 29. The act of the directors of Sat-Connect to buy-out the interest of the CLAIMANT without allowing them to fulfill the contractual obligations leads to breaching of contract. Beristan has the responsibility to rectify the breach by any company on its territory. Furthermore, the chairman of the board meeting was the minister of Telecommunication, 47 which clearly shows that Govt. of Beristan was involved in decision making. In addition to this, the breach of the JV agreement is a breach of one of Beristan's obligations. When a State-owned company breaches a contract concluded with a foreign investor or when the host state breaches the contractual commitments assumed with a company in which a foreign investor has a stake, investors may have both contract and treaty claims against the host state 48 Therefore, a breach of contract by a state owned corporation, will elevate responsibility of the state, and the state may be held liable for both, breach of treaty obligations, as well as breach of contractual obligation. 49 (b) Violation of contractual obligation will lead to violation of FET standards 30. An examination of practice of Tribunals demonstrates that several principles can be identified which are embraced by the standard of fair and equitable treatment, one of which concerns compliance with contractual obligations. 50 CMS v Argentina 51 clearly demonstrated, for the first time, that a government s failure to comply with contractual undertakings could be equated to the disappointment of an investor s legitimate expectations under the FET standard, thereby including such breaches under umbrella clause. The CMS case clearly indicates that, where non-performance of a host state s contractual undertakings 47 Request 135, 1st Requests for Clarifications. 48 Interpretation of the Umbrella Clause in Investment Agreements, OECD, Working Papers On International Investment Number 2006/3, October Id. 50 Rudolf & Schreuer, CMS Gas Transmission Company v Argentine Republic, (ICSID ARB/01/8), Decision on Jurisdiction, Award of 12 May CLAIMANT S MEMO

29 is contrary to the legitimate expectations of the investor, a violation of those undertakings can be elevated to a breach of the FET standard The tribunal in Mondev 53 found it clear that the protection of Article 1105(1) NAFTA which deals with fair and equitable treatment extended to contract claims. The Tribunal said: a governmental prerogative to violate investment contracts would appear to be inconsistent with the principles embodied in Article 1105 and with contemporary standards of national and international law concerning governmental liability for contractual performance The tribunal in SGS v. Philippines 55 also admitted the possibility that a violation of obligations under the contract may give rise to a claim for violation of the FET standard. In its decision on jurisdiction it found that an unjustified refusal to pay sums admittedly payable under an award or contract at least raises arguable issues under article IV. 56 The tribunal in Noble Ventures v. Romania 57 also considered that the FET standard covers the obligation to abide by contracts. The tribunal said with respect to FET: one can consider this to be a more general standard which finds its specific application in inter alia the duty to provide full protection and security, the prohibition of arbitrary and discriminatory measures and the obligation to observe contractual obligations towards the investor. 33. Clause 8 of the Joint Venture Agreement between the parties says that if at any time Televative commits a material breach of any provision of this Agreement, Beritech shall be entitled to purchase all of Televative s interest in this Agreement. This buyout clause was 52 Yost, Chris, A CASE REVIEW AND ANALYSIS OF THE LEGITIMATE EXPECTATIONS PRINCIPLE AS IT APPLIES WITHIN THE FAIR AND EQUITABLE TREATMENT STANDARD (March 19, 2009). ANU College of Law Research Paper No Available at SSRN: 53 Mondev v. USA, Award, 11 October 2002, 42 ILM (2003) Id., SGS v. Phillippines 56 Id. at Noble Ventures v. Romania, supra 16 CLAIMANT S MEMO

30 invoked improperly by Beritech, since no material breach of the Joint venture agreement has been committed by Televative. 58 The government of Beristan relied wholly on a newspaper article for the purpose of initiating the buyout clause. Further, the burden of proof lies upon the respondent to show that a material breach of the agreement has taken place. However, in the absence of such proof, invoking the buyout clause is improper. MERITS OF THE CLAIMS III. RESPONDENT MATERIALLY BREACHED THE JV AGREEMENT BY IMPROPERLY INVOKING CLAUSE 8 OF THE AGREEMENT 34. It is a respectful submission of the CLAIMANT that the buyout clause of the JV agreement has been improperly invoked as the basic conditions for the clause has not been fulfilled. The CLAIMANT submits the reasons as (A) Clause 4 of the JV agreement - Confidentiality has not been materially breached. (B) Required quorum for the meeting was not formed. Arguendo even if understood to be valid, then the interests of Televative has been completely ignored during that meeting therefore, implying bias (A) THERE IS NO MATERIAL BREACH OF CLAUSE 4 OF THE JV AGREEMENT 35. Clause 8 clearly says that there must be a material breach of the JV agreement for clause 8 to be invoked. Material breach means the violation of the article must be shown beyond reasonable doubt. The accusation of breach of confidentiality has been made on the basis of the newspaper Article dated August 12, 2009 published in The Beristan Times which itself imposes only allegations and proves nothing. The article clearly puts allegations on the CLAIMANT for transmission of confidential information. Newspapers and periodicals also are self-authenticating in nature. 59 The self-authenticating nature of these types of documents 58 Infra, Part II, Issue (3). 59 Fotios M. Burtzos, Authentication, 25-Sep Colo. Law CLAIMANT S MEMO

31 is important because, in certain circumstances, a court can take judicial notice of statements contained in them. 60 In this case the article puts only allegations on CLAIMANT for dissemination of information. 61 Moreover, CLAIMANT has denied the any such dissemination but has accepted the request by the Government. 62 This shows that it is not yet clear whether such a dissemination of information has happened or not. 36. Material breach is a breach of contract that is so substantial that it defeats the purpose of the parties. In this case, there is no breach of confidentiality proved. Only allegations are put against the CLAIMANT. 37. Furthermore, though a presentation was made by the chairman of Sat Connect, the content of the meeting is disputed. The Respondent has denied the accusations made in the Article in a press conference. And such accusations made by Beritech S.A and Beristan are fully based on a publication made by a newspaper and have not been proved so far. Besides the article and the rumors in the Beristan military circles there is no other evidence of the leak. 63 There is no substantial/credible evidence indicating that the Sat-Connect project had been compromised due to leaks by Televative personnel. 64 Therefore when such breach of confidentiality has not been established, it is humbly submitted that invoking clause 8 has been improper. (B) QUORUM WAS NOT FORMED 38. Beritech has the right to appoint five of Sat-connect board of directors while CLAIMANT has the right to appoint four. 65 A quorum of board of directors is obtained with the presence of six members. 66 On August 27,2009 a meeting was held where six directors were present 60 Fotios M. Burtzos, Authentication, 25-Sep Colo. Law Request 178, 1 st Request for Clarification. 62 Request 178, 1 st Request for Clarification. 63 Request 231, 2nd Request for Clarification. 64 Request 222, 2nd Request for Clarification. 65 Record, Annex 2, 16 of the Uncontested Facts. 66 Record, Annex 2, 4 of the Uncontested Facts. 18 CLAIMANT S MEMO

32 and one, Alice Sharpeton, who had been appointed by Televative, refused to participate and left the meeting before its end. She later filed a protest that she had no prior notice concerning the proposed agenda for the meeting Now, it is a generally accepted principle of company law that an act done without the availability of quorum is considered ultra vires. 68 According to Beristan law, a decision of the board of directors of a company issued in violation of the company's bylaws is null and void. 69 The quorum is required at the moment of voting 70, which was not formed. The decision becomes void ab initio i.e. its totally invalid. The decision was obtained by the RESPONDENT appointed five directors. (b) Quorum should continue till the decision is taken 40. It is a internationally accepted principle of common law that it is not enough that a quorum was present in the commencement of the business. 71 A quorum should be maintained throughout the meeting 72, otherwise the business transaction is invalid Here in this case formation of quorum in the beginning is undisputed but the moment Alice Sharpenton left the meeting the quorum stopped to be formed and hence, decision cannot be considered as valid. (c) Even if the decision is considered valid it is affected by bias and arbitrariness 42. The directors who took the decision to invoke the Buy-out clause were appointed by the RESPONDENT. Obviously, it is there duty to protect the interest of the parent company. 67 Record, Annex 2, 4 of the Uncontested Facts. 68 Shanbhogue p Request 200, 2nd Request for Clarification. 70 Request 200, 2nd Request for Clarification. 71 Iyer p Iyer p Iyer p 460, see also, Bill v Royal Western India Jury Club Ltd. AIR 1946 Bom CLAIMANT S MEMO