MEMORIAL FOR RESPONDENT

Transcription

1 TO THE SECRETARIAT OF THE ARBITRATION INSTITUTE OF THE STOCKHOLM CHAMBER OF COMMERCE CASE SCC NO 00/2013 MEMORIAL FOR RESPONDENT CLAIMANT : RESPONDENT : CALRISSIAN & CO., INC FEDERAL REPUBLIC OF DAGOBAH DAGOBAH CITY, 20 SEPTEMBER 2014

2 TABLE OF CONTENTS LIST OF AUTHORITIES... III LIST OF LEGAL SOURCES... IV LIST OF ABBREVIATIONS... VIII STATEMENT OF FACTS... 1 ARGUMENTS ON JURISDICTION... 3 I. THE ARBITRAL TRIBUNAL LACKS JURISDICTION OVER THE SUBMITTED CLAIMS A. SOVEREIGN BONDS ARE NOT UNDER THE SCOPE OF ART. 1(1) OF THE BIT B. SOVEREIGN BONDS DO NOT MEET THE CRITERIA OF INVESTMENT UNDER ART. 1 OF THE BIT C. SOVEREIGN BONDS WERE NOT MADE WITHIN RESPONDENT S TERRITORY Sovereign bonds fail to be legally connected with Respondent s territory Sovereign bonds had not contributed to Respondent s economic development Sovereign bonds had not contributed to Respondent s economic development II. THE DECISION UNDER THE PCA TRIBUNAL DOES NOT AFFECT THE JURISDICTION OF THE PRESENT ARBITRAL PROCEEDING III. THE ARBITRAL TRIBUNAL SHALL NOT BE ENTITLED TO DECIDE ON THE CLAIMS ASSERTED IN VIEW OF THE FORUM SELECTION CLAUSE INCLUDED IN THE SOVEREIGN BONDS A. THE ALLEGED BREACHES WERE FUNDAMENTALLY DERIVED FROM CONTRACTUAL OBLIGATIONS B. SPECIFIC CONTRACTUAL FORUM CLAUSES PREVAILS OVER INTERNATIONAL TREATY S FORUM CLAUSES IV. RESPONDENT S ACTIONS WERE IN ADHERENCE TO THE FAIR AND EQUITABLE TREATMENT REQUIREMENT A. THE ENACTMENT OF THE SRA WAS RESPONDENT S MOST REASONABLE MEASURE The sovereign debt restructurings were not coercive in nature The Act had adhered to the legitimate expectations element B. THE INVOCATION OF THE SRA HAD COMPLIED WITH THE DUE PROCESS ELEMENT C. THE SOVEREIGN DEBT RESTRUCTURING WAS DONE TRANSPARENTLY D. THE SRA WAS ENFORCED IN GOOD FAITH i

3 V. RESPONDENT S DEBT RESTRUCTURING MEASURE WAS JUSTIFIABLE A. RESPONDENT S ACTION WAS JUSTIFIABLE UNDER CUSTOMARY INTERNATIONAL LAW The crisis has fulfilled the essential interest element The enactment of sovereign debt restructuring fulfills the element of the only way The crisis was grave and imminent PRAYER FOR RELIEF ii

4 LIST OF AUTHORITIES ARTICLES FIC & PORTERS Fic, Tatiana. Porters, Jonathan. Macroeconomic Impacts of Infrastructure Spending, Report to Trade Union Congress. SMUTNY & OSTROWSKI Smutny, Abby Cohen. Ostrowski, Stephen T. Foreign Investment and Political Risk: What You Should Know About Investment Protection Treaties.(White & Case LLP, Washington DC, 2009) UNCTAD SCOPE & UNCTAD. Scope and Definition of International Investment Agreement DEFINITION OF IIA Issues Series II. (2011) BOOKS DUGAN et. al JENNINGS & WATTS MUSTILL & BOYD SORNARAJAH REDFERN et al Dugan, C. F. Wallace, D. Rubins, N.D. Sabahi, B. Investor State Arbitration (Oxford University Press, 2008) Jennings, Robert. Watts, Arthur. Oppenheim s International Law. Vol: 1 : Peace 9 th Ed. (1996 : London) Mustill, Michel J. Boyd, Stewart C. Commercial Arbitration (LexisNexis Butterworth, 2010) Sornarajah, Muthucumaraswamy. The International Law on Foreign Investment (3 rd Ed, 2010) Blackaby, Nigel. Partasides, Constantine. Redfern, Alan. Redfern and Hunter on Internationall Arbitration (Oxford University Press, 2009) MOSCHZISKER Moschzisker, Robert Von. Stare Decisis : Res Judicata and Other Selected Essays. (1929 : C.M Dixon) SCHREUER I SCHREUER II TUDOR LOWE Schreuer, Christoph.The ICSID Convention; A Commentary (2 nd Edition,Cambridge UP, 2009) Schreuer, Christoph.Fair and Equitable Treatment in Arbitral Practice Tudor, Iona. The Fair and Equitable Treatment Standard in the International Law of Foreign Investment (2008 : Oxford University) Lowe, Vaughan. Overlapping Jurisdiction in International Tribunals. The Australian Yearbook of International Law (1999) iii

5 JOURNALS VANDEVELDE WAIBEL Vandevelde, Kenneth J. A Unified Theory of Fair and Equitable Treatment (2010) Waibel, Michael.Opening Pandora s Box: Sovereign Bonds in International Arbitration. MISCELLANEOUS BERNHARDT & SMITH Rudolf Bernhardt, Peter Macalister-Smith. Encylopedia of Public International Law,(North Holland : 2003) IMF (1999) IMF. Fund Policy on Lending into Arrears to Private Creditors Further Consideration of the Good Faith Criterion (1999) IMF (2001) IMF. Involving the Private Sector in the Resolution of Financial Crises - Restructuring International Sovereign Bonds.(2001) IMF (2013) IMF. Sovereign Debt Restructuring- Recent Development and Implication for the Fund s Legal and Policy Framework (2013) IMF Working Paper IMF. Working Paper, Sovereign Debt Restructurings : Literature Survey, Data, and Stylized Facts UNCTAD UNCTAD, Fair and Equitable Treatment (New York and Geneva; 2012) LIST OF LEGAL SOURCES JURISPRUDENCE Abaclat v. Argentina Abaclat et al v. Argentina Republic ICSID Case No. ARB/07/5, Decision on Jurisdiction (4 August 2011) Ambiente v. Ambiente Ufficio S.p.A. et al v. Argentina Republic, Argentina ICSID Case No.ARB/08/9, Decision on Jurisdiction, (8 Feb 2013) Bayindir v. Pakistan Bayindir v. Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction (14 Nov 2005) Bayview v. Mexico CMS v. Argentina Bayview Irrigation District et al v. The United Mexican States ICSID Case No. ARB(AF) /05/1, Award (19 June 2007) CMS Gas Transmission Co. v. The Republic of Argentina ICSID Case No. ARB /01/8, Decision on Jurisdiction (17 July 2003) CMS v. Argentina CMS Gas Transmission Co. v. The Republic of Argentina (Annulment) ICSID Case No. ARB /01/8, Decision on Annulment (25 Feb 2007) iv

6 CME v. Czech CMS Gas Transmission Co., v. The Czech Republic UNCITRAL, Partial Award 2001 Continental Shelf North Sea Continental Shelf (Federal Republic of Germany/Netherlands) Case ICJ. Judgement of 20 February 1969 CSOB v. Slovakia Ceskoslovenska Obchodni Banka, A,S v. The Slovak Republic ICSID Case No. ARB/97/4, Decision on Jurisdiction (24 May 1999) Deutsche Bank v Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka. Sri Lanka ICSID Case No. ARB/09/2, Award (31 October 2012) Dredging v. Mexico North American Dredging Company of Texas (USA) v. United Mexican States. Reports of International Arbitral Awards. 31 March 1926) EDF Limited v. EDF Limited v. Romania Romania ICSID Case No. ARB/05/13, Award (8 Oct 2009) El Paso v. Argentina. El Paso Energy International Company v. Republic of Argentina ICSID Case No. ARB/03/15, Award (31 October 2011) Enron v. Argentina Enron Creditors v. The Republic of Argentine ICSID Case No. ARB/01/3, Award (22 May 2007) Enron v. Argentina Enron Creditors v. The Republic of Argentine (Annulment) ICSID Case No. ARB/01/3,Decision on Annulment (30 July 2010) Fedax v. Venezuela Fedax N. v. The Republic of Venezuela ICSID Case No. Arb/96/3, Decision on Jurisdiction (11 July 1997) Gabcikovo- Hungary v. Slovakia. Judgement, ICJ Report (25 September 1997) Nagymaros Project Hamester v. Ghana Gustav F W Hamesster v. Ghana ICSID Case No. ARB/07/24. Award (18 June 2010) Impregillo v. Impregilo S.p.A v. Republic of Argentina Argentina ICSID Case No. ARB/07/17. Award (21 June 2011) Jan de Nul v. Egypt Jan de Nul and Dredging International N. V v. Arab Republic of Egypt ICSID Case No. ARB/04/13. Decision on Jurisdiction (16 June 2006) Joy Mining v. Egypt Joy Mining Machinery Limited v. Arab Republic of Egypt ICSID Case No. ARB/03/11, Decision on Jurisdiction (6 August 2004) Kardassopoulos v. Ioannis Kardassopolous v. Republic of Georgia Georgia ICSID Case No. ARB/05/18, Decision on Jurisdiction (6 July 2007) Klockner v. Klockner Industrie Anlagen v. Republic of Cameroon Cameeroon ICSID Case No. ARB/81/2, Decision on Jurisdiction (1 Aug 1984) LESI DIPENTA v. Consortium Groupement L.E.S.I-DIPENTA v. Republic of Algeria Algeria ICSID Case No. ARB/03/08, Award (10 January 2005) v

7 LESI & Astaldi v. LESI, S.p.A and Astaldi, S.p.A v. Republic of Algeria Algeria ICSID Case No. ARB/05/3, Decision on Jurisdiction (12 July 2006) LG&E v. Argentina Loewen v. USA LG&E et al v. Republic of Argentina. ICSID Case No. ARB/02/1, Decision on Jurisdiction (30 April 2004) Loewen Group, Inc and Raymond v. United States of America ICSID Case No. ARB(AF)/98/3, Decision on Jurisdiction (5 Jan 2001) Metalclad v. Mexico Metalclad Corporation v. Mexico ICSID Case No. ARB(AF)/97/1, Award, (30 Aug 2000) Metalpar v. Argentina Metalpar S.A and Buen Aire S.A v. Republic of Argentina ICSID Case No. ARB/03/5, Decision on Jurisdiction (27 Apr 2006) Methanex v. USA Methanex Corporation v. United States of America UNCITRAL, Final Award, (3 Aug 2005) Middle East v. Egypt Middle East Cement v. Arab Republic of Egypt ICSID Case No. ARB/99/6, Award, (12 April 2002) NML v. Argentina NML Capital v. Republic of Argentina Supreme Court of the USA. (16 Jue 2014) Occidental Occidental Expliration & Prod. Co v. Republic of Ecuador v. Ecuador LCIA Case No. UN 3467, Award (1 July 2004) Parkerings v. Parkerings Compagniet AS v. Lithuania Lithuania ICSID Case No. ARB/05/08, Award (2007) Pope et al v. Pope and Talbot & Talbot Inc., v. The Government of Canada Canada UNCITRAL Romak v. Uzbekistan Romak S. A v. The Republic of Uzbekistan UNCITRAL PCA Case No. AA280, Award (26 November 2009) RSM v. Grenada Salini v. Marocco Salini v. Jordan Saluka v. Czech SGS v. Philippines RSM Production Corporation v. Grenada ICSID Case No. ARB/05/14, Award (13 March 2009) Salini Costruttori S.P.A and Italsrade S.P.A v. Marocco ICSID Case No. ARB/00/4, Decision on Jurisdiction (23 July 2001) Salini Costruttori S.P.A and Italsrade S.P.A v. The Kingdom of Jordan ICSID Case No. ARB/02/13, Decision on Jurisdiction (9 Nov 2004) Saluka Investments v. The Czech Republic Partial Award, (17 March 2006) SGS Société Générale de Surveillance S.A v. Republic of Philippines ICSID Case No ARB/02/6, Decision on Jurisdiction (29 Jan 2004) vi

8 Territorial Dispute The Territorial Dispute Case (Libyan Arab Jamahiriya/Chad) Case ICJ. Judgement of 3 February 1994 TECMED v. Mexico Tecnicas Medioambientales TECMED S.A v. United Mexican States ICSID Case No. ARB (AF)/00/02, Award (29 May 2003) Thunderbird v. International Thunderbird Gaming v. United Mexican States Mexico UNCITRAL, Award (26 Jan 2006) Vivendi v. Argentina Compania de Aguas Aconquija, S.S. & Compagnie Générale des Eaux v. (Award 2001) Argentina ICSID Case No. ARB/97/3, Award (2 Nov 2001) Vivendi v, Argentina Compania de Aguas Aconquija, S.S. & Compagnie Générale des Eaux v. (Annulment 2002) Argentina ICSID Case No. ARB/97/3, Annulment (3 July 2002) Vivendi v. Argentina Compania de Aguas Aconquija, S.S. & Vivendi Universal S.A v. (Award 2007) Argentina ICSID Case No. ARB/97/3, Award (20 Aug 2007) Vivendi v. Argentina Compania de Aguas Aconquija, S.S. & Vivendi Universal S.A v. (Annulment 2010) Argentina ICSID Case No. ARB/97/3, Annulment (10 Aug 2010) Vivendi v, Argentina Compania de Aguas Aconquija, S.S. & Compagnie Générale des Eaux v. (Enforcement) Argentina ICSID Case No. ARB/97/3, Stay Enforcement (4 Nov 2008) Woodruf Case (1903) Woodruff Case. Reports for the International Arbitral Award MISCELLANEOUS ILC Draft 2001 ILC Commentary Draft Art.s on Responsibility of States for Internationally Wrongful Acts, Commentary on Draft Art.s on Responbility of States for Internationally Wrongful Acts, TREATIES Argentina-Italy Agreement between the Italian Republic and the Republic of Argentina BIT(2009) on the Promotion and the Protection of Investment VCLT Vienna Convention on the Law of Treaties 1969 vii

9 ABBREVIATION FULL CITATION / Paragraph/Paragraphs Answ. Req. Arb Art/Arts BIT Claimant Corellia Emph. Added et al FET Facts IMF Ibid. p./pp. Parties PCA LIST OF ABBREVIATIONS Answer for Request to Arbitration Art. / Art.s Agreement between The Corellian Republic And The Federal Republic of Dagobah For The Promotion And Protection of Investment Calrissian & Co., Inc Corellian Republic Emphasis Added and others Fair and Equitable Treatment Uncontested Facts International Monetary Fund Ibidem (Same as above) Page/Pages Calrissian and Dagobah Permanent Court of Arbitration PO.2 Procedural Order No. 1 PO.2 Procedural Order No. 2 PO.3 Procedural Order No. 3 Req. Arb. Respondent SCC Request to Arbitration The Federal Republic of Dagobah Arbitration Institute of the Stockholm Chamber of Commerce SRA Sovereign Debt Restructuring Act No. 45/12 Tribunal The SCC VCLT Vienna Convention on the Law of Treaties 1969 viii

10 STATEMENT OF FACTS INVOLVED ENTITIES 1. Calrissian & Co., Inc. ( Claimant ) is a hedge fund located in the State of Corellia that holds a number of sovereign bonds issued by the Federal Republic of Dagobah ( Respondent ). 1 Claimant was among the minority who refused to participate in the enactment of SRA 2 and also in the newly exchange bonds offer due to the drastic reduction in the bonds value Respondent, with its stable economy and its inward-oriented development policy, characterized by moderately free-markets, was deemed as an emerging market 4 attracting investors across the world, including Claimant. CHRONOLOGY OF EVENTS 3. In 1992, Respondent and Claimant s country, Corellia, entered into the Agreement between the Corellian Republic and the Federal Republic of Dagobah for the Promotion and Protection of Investment called as Corelia-Dagobah BIT ( BIT ) At the beginning of 2001, after loaning a massive amount of money to international financial markets for a decade, affiliated with high government budget deficits, in addition to being dominated by massive tax evasion, Respondent was faced with continuous debt burden and descended into a two-and-a-half year long economic crisis. 5. On 7 May 2001, Respondent s incapacity to fulfill its debt obligation after a decade of heavy borrowing on international financial markets had led Respondent to a financial crisis and forced its government to restructure its sovereign debt. 6 The restructuring measures, however, caused substantial losses to all of the bondholders In early 2010, as a result of a worldwide financial crisis in 2008, a new recession hit Respondent and caused a wide spread increase in government debt levels. Concerned 1 Facts, 2. 2 Facts, Req. Arb, 5. 4 Facts, 1. 5 Facts, 2. 6 Facts, 4. 7 Ibid. 1

11 with a possible default by the government, Respondent s ability to meet their debt obligation has now been doubted. In seeking financial remedies, the IMF has provided numerous recommendations, including the implementation of a new sovereign debt restructuring in reducing the State s debt-to-gdp ratio. 7. On 28 May 2012, Respondent enacted the Sovereign Restructuring Act ( SRA ), which was deemed applicable to all bonds governed by Dagobah s law and provided that a qualified majority of 75% of aggregate nominal value of all outstanding bonds governed by domestic law could modify the terms of the bonds and bind all of the remaining bondholders Moreover on 29 November 2012, in addition to the imposition of a Collective Action Class (CAC) clause, Respondent had offered the bondholders the option to exchange their bonds for new ones worth approximately 70% of the net value of the original bonds. On February 2013, since more than 85% of the bondholders subjected to the SRA agreed upon the exchange offer, all Dagobah bonds were exchanged with the newly termed bonds. PCA S AWARD 9. Previously on 29 April 2003, in order to guarantee the classification of sovereign bonds under the scope of investment pursuant to Art. 1(1) of the BIT, Corellia commenced arbitral proceedings against Respondent. The PCA Arbitral Tribunal ruled in favor of Corellia enumerating that sovereign bonds constitutes as an investment under the BIT. 10. However, a dissenting opinion had been published in contrary to the Arbitral Tribunal s decision. The opinion had elaborated that the characteristics of investment were not fulfilled, thus, Article 8 of the BIT would be inapplicable. 8 Facts, 17. 2

12 ARGUMENTS ON JURISDICTION I. THE ARBITRAL TRIBUNAL LACKS JURISDICTION OVER THE SUBMITTED CLAIMS. 11. Respondent respectfully submits that the present Tribunal does not have jurisdiction rationae materiae over the dispute. Aligned with the BIT, the Tribunal may only have jurisdiction rationae materiae if it deals with a dispute that is in connection with an investment. 9 Here, Respondent asserts that the present claims - which concern sovereign bonds - fall outside the meaning of investment under the BIT. 12. It has been agreed by both parties that the term investment shall be interpreted in light of the BIT. 10 Respondent submits that the sovereign bonds are excluded from the meaning of investment as it fails to be mentioned in Art. 1(1) of the BIT [A] and it fails to fulfill the investment criteria required by the BIT [B]. Even if it is an investment, it is not an investment that has been made in Respondent s territory [C]. A. Sovereign Bonds Are Not Under the Scope of Art. 1(1) of the BIT. 13. Analyzing the concept of an investment, the alleged investment must fit into the definition of investment as provided by the BIT which reflects the limits of the State s consent. 11 Art. 1 (1) of the BIT contains a list of different types of investment falling under the protection of the BIT in which sovereign bonds are not included Sovereign bonds are excluded from the BIT s coverage due to its failure to being explicitly mentioned. 13 The tribunal in Abaclat v. Argentina was convinced that sovereign bonds fall within the scope of the Italy Argentina BIT 14 as their investment treaty, in a general manner, listed sovereign bonds as one of the protected assets under the Italy Argentina BIT The Italy Argentina BIT extends coverage to debentures, private or public bonds or any other right connected to services or performances having an economic value and 9 BIT, Art. 8(1). 10 PO. 1, 4(1). 11 Abaclat v. Argentina, BIT, Art. 1(1). 13 UNCTAD Scope & Definition, p. 113; Waibel, p Abaclat v. Argentina, Italy Argentina BIT, Art. 1(c) 3

13 capitalized income. 16 The plain text of the latter BIT, thus, indicates that the parties have consented to include sovereign bonds into its treaty coverage. 16. Contrary to the present case, neither general nor explicit inclusion of sovereign bonds could be found within any relevant provisions of the BIT. Hence, the Tribunal shall deem that in accordance with the clear language of the BIT, sovereign bonds are excluded from its coverage. B. Sovereign Bonds Do Not Meet the Criteria of Investment Under Art. 1 of the BIT. 17. The meaning of an investment shall be derived from the terms of the BIT. 17 Art. 1(1) of the BIT contemplates that, investment means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. 18. To qualify as an investment under the BIT, sovereign bonds must fulfill the cumulative aforementioned criteria. 18 Notwithstanding the wording of or which may indicate the alternative nature of the element, Respondent submits that the absence of one element will lead to the exclusion from the treaty protection, as those elements are often intertwined and interdependent Respondent concedes that the sovereign bonds satisfy the commitment of capital and expectation of profit requirement as they involve an injection of funds and entail an interest payment schedule. However, sovereign bonds are excluded from the treaty coverage due to its failure to comply with the requisite criterion of investment risk. 20. The risk accompanying any investment transaction is a widely accepted criterion. 20 It has been affirmed by numerous tribunals that the qualified risk for an investment should not 16 Ibid. 17 Bayindir v. Pakistan, Waibel, p Waibel, p. 723; Salini v. Morocco, 52(4). 20 Manciaux, p. 13 4

14 merely be commercial risk. 21 The reason for such notion seems relatively clear; the BIT held hedge against political risk, 22 thus, any project that solely present commercial risk is unworthy to be protected by the BIT. 21. The adequate risk for an investment requires the host State and investor to share the risks of success and failure over a project. 23 Thus, transactions where the risk is primarily placed on the host State shall fall outside of the ambit of the BIT. 24 By contrast, sovereign bonds as a portfolio investment - are a purely financial character, in which the bondholders remain passive and do not control the management of the investment Further, due to the fact that sovereign bonds finance the general treasury, 26 it affirms that they are isolated from the sharing of such risk because the bondholders are only to be repaid, untied to the success of a capital project. 27 Whereas Respondent bears all the risks by providing the necessary resources from the State s general budget into a project Accordingly, the only risk that Claimant assumed was a breach by Respondent of its contractual obligations i.e non-payment, which falls within the meaning of commercial risk. 29 Such risk of non-payment, in the words of Joy Mining v. Egypt, is no different from that involved in any commercial contract. 30 Claimant, consequently, positioned itself into a convenient situation where it is not vulnerable to any investment risk. C. Sovereign Bonds Were Not Made Within Respondent s Territory. 24. Sovereign bonds shall be subject to the territory requirement in order to obtain protection from the BIT. Art. 1(1) of the BIT, indeed, does not explicitly require the alleged investment to fulfill this criterion. However, the failure to comply the territorial link 21 Romak v. Uzbekistan, 231 ; Joy Mining v. Egypt, 57; Kardassopoulus v. Georgia, 117; Fedax v. Fenezuela, 40 ; Ambiente v. Argentina, 367 ; Abaclat v. Argentina, 370; Salini v. Morocco, ; L.E.S.I-DIPENTA v. Algeria, p. 22, 14(iii); CSOB v. Slovakia, 90; Sornarajah, p Smutny&Ostrowski, p Schreur,I, p. 140, 122; Waibel, p. 726; Dugan et al, p Dugan et al, p. 269; Joy Mining v. Egypt, UNCTAD Scope and Definition of IIA, p PO.3, Waibel, p Ibid. 29 Ibid. 30 Joy Mining v. Egypt, 57. 5

15 requirement will lead to the exclusion from the meaning of investor under the BIT, 31 and thus, fall outside the protection of the BIT. 25. Respondent submits that sovereign bonds are remotely connected with its territory as it lacks a legal connection with the territory of Respondent [1] and it had not contributed to Respondent s economic development [2]. 1. Sovereign bonds fail to be legally connected with Respondent s territory 26. In order to meet the territorial link requirement, it is necessary for the sovereign bonds to meet the legal connection criterion. If the alleged investment has been subjected to a choice of law and enforceable in a forum selection outside the territory of the host State, the alleged investment shall not constitute as an investment in the territory of the host State In the words of Bayview v. Mexico, when an investor [of one country] makes an investment that falls under the laws and the jurisdiction of the authorities of [a host country], it will be treated as a foreign investor [ ] By contract, Claimant shall not be deemed as an investor under the BIT due to the foreign choice of law and foreign forum selection clause contained in the sovereign bonds. In addition to being subject to Yavin s law under the jurisdiction of Yavin s court, 34 sovereign bonds were obtained through the acquisition in the secondary market in Claimant s very own country, Corellia, 35 and are payable in Yavin. 36 These aforementioned facts portray the fragility of the territorial nexus of the sovereign bonds into Respondent s territory, as it does not illustrate its legal connection with Respondent. 29. It follows from the consideration above, that as all the connecting factors the place of performance, the forum selection clauses, the location of the payment, the residence of the underwriter were located elsewhere, but not in Respondent s territory. 31 BIT, Art. 1(2). 32 Methanex v. USA, 147; Bayviewv.Mexico, Bayview v. Mexico, Facts, PO.2, PO.3, 33. 6

16 Consequently, Claimant had participated in the transaction of the sovereign bonds located outside the territory of Respondent. 2. Sovereign bonds had not contributed to Respondent s economic development. 30. Respondent, in its attempt to prove the situs of the sovereign bonds, may rely on a notion affirmed by the tribunals in Ambiente v. Argentina 37 and Abaclat v. Argentina. 38 These tribunals have reached the same conclusion that in order to assess where an investment was made, the criterion must be to whose economic development the investment has contributed, 39 or where the funds were ultimately made available at Claimant may argue that sovereign bonds have fostered Respondent s economic development due to its use of funds to finance the general treasury of Respondent. 41 Respondent, however, submits that notwithstanding such undisputed facts, sovereign bonds are still too remotely connected with Respondent s territory. 32. Sovereign bonds, in order to constitute investments under the BIT, have to be precisely traced to a particular productive project or activity in the territory of Respondent. Aligned with the tribunal in LESI DIPENTA v. Algeria, any investment may be committed as long as they are allocated to the project to be carried out in the [host State] Unlike the infrastructure of roads, 43 highways, 44 and the operation of the Suez Canal, 45 which when completed, would automatically foster the State s economic development as it serves a particular project of the State. Sovereign bonds, by contrast, were not tied to financing any specific investment project, as its funds were only used to meet Respondent s general budget. 46 Therefore, the situs of sovereign bonds, in addition to being manifested in the form of abstract financial flows, will be harder to locate due to its untraceable funds. 37 Ambitente v. Argentina, Abaclat v. Argentina, Ambitente v. Argentina, Abaclat v. Argentina, PO.3, LESI DIPENTA v. Algeria, 14(i). 43 Bayindir v. Pakistan, Salini v. Morocco, Jan de Nul v. Egypt, PO.3, 30. 7

17 34. To be noted, every available funds in the State s general budget are necessarily used to finance activities that would benefit the economic development of the State. These funds can be used to finance wars, wars of aggression or oppressive measures against restive populations Accordingly, in light of the aforementioned analysis and as the abstract flows of financial capital alone are insufficient to meet this criterion, 48 Claimant shall not rely on a mere assumption that the available funds derived from the acquisition of the sovereign bonds were being used to foster Respondent s economic development. 3. Sovereign bonds had not contributed to Respondent s economic development. 36. Respondent, in its attempt to prove the situs of the sovereign bonds, may rely on a notion affirmed by the tribunals in Ambiente v. Argentina 49 and Abaclat v. Argentina. 50 These tribunals have reached the same conclusion that in order to assess where an investment was made, the criterion must be to whose economic development the investment has contributed, 51 or where the funds were ultimately made available at Claimant may argue that sovereign bonds have fostered Respondent s economic development due to its use of funds to finance the general treasury of Respondent. 53 Respondent, however, submits that notwithstanding such undisputed facts, sovereign bonds are still too remotely connected with Respondent s territory. 38. Sovereign bonds, in order to constitute investments under the BIT, have to be precisely traced to a particular productive project or activity in the territory of Respondent. Aligned with the tribunal in LESI DIPENTA v. Algeria, any investment may be committed as long as they are allocated to the project to be carried out in the [host State] Abaclat v. Argentina ( Prof. Abi Saab), Waibel, p Ambitente v. Argentina, Abaclat v. Argentina, Ambitente v. Argentina, Abaclat v. Argentina, PO.3, LESI DIPENTA v. Algeria, 14(i). 8

18 39. Unlike the infrastructure of roads, 55 highways, 56 and the operation of the Suez Canal, 57 which when completed, would automatically foster the State s economic development as it serves a particular project of the State. Sovereign bonds, by contrast, were not tied to financing any specific investment project, as its funds were only used to meet Respondent s general budget. 58 Therefore, the situs of sovereign bonds, in addition to being manifested in the form of abstract financial flows, will be harder to locate due to its untraceable funds. 40. It is worth to recall that not every available funds in the State s general budget are necessarily used to finance activities that would benefit the economic development of the State. These funds can be used to finance wars, wars of aggression or oppressive measures against restive populations Accordingly, in light of the aforementioned analysis and as the abstract flows of financial capital alone are insufficient to meet this criterion, 60 Claimant shall not rely on a mere assumption that the available funds derived from the acquisition of the sovereign bonds were being used to foster Respondent s economic development. 55 Bayindir v. Pakistan, Salini v. Morocco, Jan de Nul v. Egypt, PO.3, Abaclat v. Argentina ( Prof. Abi Saab), Waibel, p

19 II. THE DECISION UNDER THE PCA TRIBUNAL DOES NOT AFFECT THE JURISDICTION OF THE PRESENT ARBITRAL PROCEEDING. 42. By virtue of the PCA Tribunal s decision, Claimant may contend that the present dispute fall within the scope of investment dispute. 61 However, Respondent submits that the decision shall not be taken into consideration in determining the scope of investment under the present matter. 43. The Tribunal shall deem that the decision does not apply to the present dispute since the PCA Tribunal s decision cannot amend the BIT [A], and shall be restricted to the first financial crisis [B]. A. The PCA Tribunal s Decision is Incapable of Amending the BIT. 44. Respondent admits the intention of the PCA Tribunal to interpret the BIT between the parties. 62 However, under international law, the PCA Tribunal s decision shall not be capable of amending the BIT due to the lack of consent to modify the treaty. 45. Article 31(3) of the 1969 Vienna Convention on the Law of Treaties stipulates that the subsequent practice, including the PCA Tribunal s decision, shall be taken into account in treaty interpretation. However, the interpretation would neither be conclusive, legally binding nor act as an amendment of the treaty. 63 An amendment would only occur in the event that the parties have consented to a subsequent agreement Respondent contends that there was neither an intention nor agreement of the parties to amend the BIT through the PCA Tribunal s decision. Evidenced by the lack of the consent of the parties to amend the BIT, the decision had merely purposed to interpret the BIT, thus, the decision shall not apply to the present dispute as it is not legally binding to the Parties. B. The PCA Tribunal s Decision is Restricted to the First Financial Crisis. 47. Respondent submits that the PCA Tribunal s decision is only applicable within the first financial crisis. The decision was issued in order to ensure the Correlian s bondholders 61 PCA Decision, p Facts para UN Report for the ILC Commision, 4, pp VCLT, Art. 39. Article 39 of VCLT. 10

20 protection after the first financial crisis. 65 Thus, if the Tribunal would adhere the decision, there has to be similar backgrounds within the present dispute. The Tribunal shall deem that the first financial crisis obtains no connection with the second economic crisis due to the different nature of the crisis. 48. The Tribunal shall examine the PCA Tribunal s decision through its own circumstances. 66 The PCA Tribunal s decision does not constitute as a binding precedent as it indicates tendencies of contradictory results due to the decision s factual differences. 67 A similar consideration was also given by the tribunal on SGS v. Philippines in which,...there is no doctrine of precedent in international law, if by precedent is meant a rule of the binding effect of a single decision There is no hierarchy of international tribunals, and even if there were, there is no good reason for allowing the first tribunal in time to resolve issues for all later tribunals Respondent submits that the facts of the present circumstance deal with utterly different matters compared to the first economic crisis will affect the enforcement of the PCA Tribunal s decision. The first financial crisis was caused by massive borrowing and combined with heavy deficits, 69 whereas the second financial crisis was a consequence of the global financial crisis Furthermore, Claimant was not effected by the first financial crisis nor its debt restructuring 71 since the bonds had only been acquired by Claimant in The first resturcturing itself was conducted under different initiatives, as the first crisis was predominantly launced by Respondent, 73 complying with the IMF s recommendation. 74 while the second restructuring focused on 65 Facts, 6 66 ENRON v. Argentina, Vivendi v. Argentina (Annulment 2007), SGS v. Phillipinnes, Facts, Facts., PO.2, PO.2, Facts, Facts, 15 11

21 51. Respondent s crises obtain significant dissimilarities and are not interrelated. Hence, the Tribunal shall deem that the decision under the PCA Tribunal is not applicable to the present dispute. 12

22 III. THE ARBITRAL TRIBUNAL SHALL NOT BE ENTITLED TO DECIDE ON THE CLAIMS ASSERTED IN VIEW OF THE FORUM SELECTION CLAUSE INCLUDED IN THE SOVEREIGN BONDS. 52. Respondent contends that the Tribunal shall dismiss Claimant s submissions as the sovereign bonds grant exclusive jurisdiction to its national courts over the present matter. 75 The contractual forum selection clause within the bonds shall prevail over the forum clause incorporated within the BIT due to the alleged breach of obligations were contractual in nature [A] and the specificity of the contractual forum clauses prevails over the BIT s competence [B]. A. The Alleged Breaches Were Fundamentally Derived From Contractual Obligations. 53. The claims under the present case concern breaches of contractual obligations of sovereign bonds. The Tribunal shall give effect to the forum selection clause within the contract, over that of the BIT, when the essential basis of the claim is derived from a breach of the contract. 54. Breaches of contract and breaches of treaty each have its own independent standards, and therefore they must be assessed independently. 76 The contractual clause within the bonds shall act exclusively, and its effect shall not be overridden by an international treaty. 77 Since the obligations under the bonds are purely contractual in nature, then the most appropriate dispute settlement shall derive from the forum clause within the contract Affirmed within the Vivendi I case, the Tribunal denoted that exclusive jurisdiction of local courts stipulated under the contract shall result into the applicability of the contractual forum. 79 A claim fundamentally based on a contract must consider the rights 75 Answ. Req. Arb, Schreuer I, p. 372; Vivendi v. Argentine (Annulment 2002), SGS v. Phillipinnes, Salini v. Jordan, Vivendi v. Argentina (Award 2001),

23 and duties arising from that contract, 80 thus, the parties may not rely exclusively on another forum for contract-based claims A dispute deriving from a purely contractual obligation shall allow the forum selection clause of the bonds to be the most appropriate forum to continue its proceeding. Even if the allegations were in relation to BIT obligations (e.g. expropriation and unfair and inequitable treatment), the essential basis of the claimant s submission was nevertheless derived from the contract Within the present case, Claimant had disputed the fulfillment of Respondent s obligations within the sovereign bonds. However, these obligations to perform are merely found under its contractual responsibilities. These purely based contract claims are fundamental in basing Claimant s submission over the disputed claims 83 to determine the proper forum to settle the matter. 58. Regardless of the alleged breach of the FET standard, 84 these claims had specifically originated from the obligations found under the sovereign bonds. Thus, the local court of Respondent is the proper forum to resolve the present dispute. 85 B. Specific Contractual Forum Clauses Prevails over International Treaty s Forum Clauses 59. Forum selection clauses constitute as one of the most vital criteria determining the validity of the Arbitral Tribunal. 86 However, a clear distinction shall be made in the event of conflicting jurisdictions between contractual and treaty forum clauses General provisions within the BIT entailing various protections over investment-related issues cannot override a forum clause specifically stipulated under the sovereign bonds Woodruff Case, SGS v. Philippines, Hamester v. Ghana, Dredging v. Mexico, Req. Arb, paras Facts, Vivendiv. Argentina(Award 2000), Vivendi v. Argentina (Annulment 2002), Jennings & Watts, pp

24 61. Contractual forum selection clauses directly relate to issues on the rights and duties under a contract, thus, the specified rule of law under the contract shall apply. The conclusion was implied within Klockner v. Cameroon in which the tribunal upheld the party s contractual forum selection clause due to the disputed claims arising out of a management s contract Additionally, the tribunal in SGS v. Philippines had stipulated that, it is not to be presumed that such a general provision [the BIT] has the effect of overriding specific provisions of particular contracts. 90 The present BIT merely acts to support the negotiated investment framework initially made by the investor and host State, and not to override such agreement Likewise in the present case, the matter arises from the obligations under sovereign bonds. The forum selection clause contained in the old bonds obtains a specific statement providing that any dispute arising from or relating to this contract will be exclusively resolved before the Courts of [Dagobah]. 92 On the other hand, the dispute settlement clause found under Art. 8(2) of the BIT covers a more general scope, referring to any legal disputes between an investor of one Party and the other Party in connection with an investment The latter provision enumerates that sovereign bonds-related disputes shall enable the national courts of Respondent to settle the dispute exclusively, adhering to the original terms of the sovereign bonds. Thus, Respondent contends that since the nature of the claim concerns a commercial issue and has provided a more specific choice of law to resolve the dispute, the present Arbitral Tribunal shall not be entitled to proceed with the present claims. 89 Douglas, p. 381; Klockner v. Cameroon. pp. 13/ SGS v. Philippines, Ibid. 92 PO. 2, BIT, Art. 8(1) 15

25 IV. RESPONDENT S ACTIONS WERE IN ADHERENCE TO THE FAIR AND EQUITABLE TREATMENT REQUIREMENT. 65. Pursuant to Art. 2(2) of the BIT, Respondent contends that it has complied with the standards of Fair and Equitable Treatment ( FET ). 94 States may exercise means amounting to expropriation if it fulfills the fair and equitable treatment set under the BIT. 95 Hence, Respondent s sovereign debt restructurings do not violate FET as they constitute as the most reasonable measures taken [A], had fulfilled the due process element [B], had been conducted transparently [C], and amounts to good faith measures taken by Respondent [D]. A. The Enactment of the SRA was Respondent s Most Reasonable Measure. 66. Respondent s sovereign debt restructuring constitutes as the most reasonable measure in remediating the financial crisis as it was neither coercive [A] nor in violation of Claimant s legitimate expectations [B]. 1. The sovereign debt restructurings were not coercive in nature. 67. Coercive pressure would be inconsistent with the FET standard only when it amounts to a severe limitation of the investor s freedom to proceed with their investment. 96 Respondent asserts that no such coercive pressure is present. 68. The implementation of the Collective Action Clauses ( CACs ) during the second debt restructuring 97 adheres to FET. CACs are found to be highly common within sovereign debt restructuring mechanisms, as they address collective action problems and facilitate orderly debt restructuring. 98 The inclusion of these clauses would effectively eliminate the possibility of holdout litigation 99 rendering a more predictable, favorable and rapid 94 Schreuer II, p El Paso v. Argentina, Pope & Talbot (Award in Respect Damages), 67 69; TECMED v. Mexico, 164; Tudor, p. 169; 97 Facts, IMF (2013), p NML v. Argentina, p

26 framework towards debt problems. 100 CACs do not amount to a coercive restructuring as they rely upon the consent of the sovereign debtor and its creditors A main consideration in determining whether the government had issued a coercive measure or not relies upon the negotiation and acceptance of the new clause prior to the policy s enactment. 102 However, negotiation and consent does not require the full participation of all bondholders, as requiring so would be costly and time consuming. Instead, a voluntary debt exchange suffices in the event that the majority bondholders participate in the negotiation. 70. Respondent s 2012 sovereign debt restructuring 103 was not imposed coercively towards Claimant but instead, amounts to a voluntary bond swap. The present requirement has been met as bondholders representing more than 75% of the aggregate nominal value have decided to participate in the exchange offer. 71. Additionally, Claimant had been constantly notified on the progress of the restructuring process through the agency s websites. 104 Nevertheless, it had failed to express its intent to join the restructuring committee within the specified period, thus, had willfully waived its right to participate in the discussion The Act had adhered to the legitimate expectations element. 72. Respondent contends that the SRA fulfills the Claimant s legitimate expectations. The concept of legitimate expectations illustrates the situation in which the host State s conduct must create reasonable expectations in which the investor would have relied upon. 106 The violation of FET only occurs in the event that a policy enacted violates a specific commitment towards the investor IMF (2001), p Barroso, p IMF (1999), p Facts, PO.2, PO.3, Thunderbird v. Mexico, ; Opinion of Prof. Thomas Walde, El Paso v. Argentina,

27 73. In determining the scope of legitimate expectations, the legal and business environment of the State and its financial risks must be taken into account. 108 Investors cannot expect that the circumstances of their investment would be completely unaltered, especially at times of financial crisis. The Metalpar v. Argentina case had taken into account that Argentina s worsening economic state had not breach the investor s legitimate expectations as its investments would be subject to the ups and downs of the economic condition While assurances were made by Respondent after the 2001 sovereign debt restructuring [to commit] to a more stable economy and financial sector, there were no explicit representations that the sovereign bonds would not suffer another restructuring in the future The Tribunal in Parkerings v. Lithuania determined that if the host State had not given any specified assurances and did not act in any other way, it has not created a reasonable expectation that the law would remain unchanged. 111 Bearing in mind Lithuania s situation, a clear intention of a legislative change manifests a foreseeable course of action Significant change of circumstances, such as political, socioeconomic, cultural and historical conditions, must be taken into account at the time of the investment s conclusion. 113 Claimant should have reasonably understood the circumstances surrounding Respondent s economic crisis. The acquisition of the bonds by Claimant was conducted four years after Respondent s first financial crisis. 114 Claimant would have reasonably known that the depression had not been fully recovered and were subject to certain modification of the State s laws. 77. In addition to the lack of a stabilization clause within the bonds, Respondent had not suggested any representation that the legal framework governing the bonds would not be 108 EDF Limited v. Romania, 219; LG&E v. Argentina (Decision on Liability), Metalpar v. Argentina, PO.2, Parkerings v. Lithuania, Ibid. 113 Ibid, PO.2,

28 modified. 115 A lack of indication that a State would commit itself not to change its regulations cannot establish an expectation that the regulations would remain unchanged. 78. The only clear representation made by Respondent is through the pari passu clause found under the sovereign bonds. 116 These clauses ensure that the obligation of the State to repay its debts shall be ranked equally with all of the borrower s other subordinated debts Furthermore, the retroactive effect of the CAC clause towards the newly exchanged bonds does not amount to a breach of the standard. Similarly found within Greece s sovereign debt restructuring, the parliament had retroactively introduced CAC clauses towards 90% of the outstanding bonds governed in Greek law of which did not contain such clause. 118 Scholars have agreed that the retroactive introduction of these clauses were possible as they attract the needed level of creditor support and ensures a nearuniversal participation Respondent s SRA was reasonably implemented and does not amount to a breach of the legitimate expectations element. The application of the CAC clause binds all outstanding bonds governed by domestic law, thus, its enactment was neither arbitrary nor discriminatory towards Claimant s bonds. B. The Invocation of the SRA Had Complied With the Due Process Element. 81. Respondent s conformity towards its own administrative measures complies with the due process element under FET. In adhering to this element, a host States regulatory framework must avoid situations resulting to a denial of justice Due process has been constantly linked to the right to be heard in providing a fair procedure to prevent any serious procedural shortcomings at the time of the enactment of the host State s policy. 121 In Metalclad v. Mexico, the municipality s refusal to grant a 115 PO.3, PO.2, Buchneit & Pam, p Buchneit & Gulati, p Boudreau, p. 173; IMF Report No. 11/351; Executive Director for Greece 120 UNCTAD, p Schreuer II, p

29 construction permit deterring the claimant from continuing its investment 122 constituted as a breach of the FET standard. However, such hindrance to continue the bondholder s investment was not found under the present dispute. 83. Proper administrative procedures prior to the enactment of the SRA have been adhered to as the measures were implemented under the national laws and regulations of Respondent. 123 The SRA was deemed constitutional in a review evincing Respondent s compliance with its legal order Additionally, measuring due process depends on the proper notification and opportunity of the investor to appear within meetings prior to the enactment of the policy. 125 Participatory procedure of the investors amount to the adherence of the due process element 126 as it provides protection over the investor s judicial rights. 127 Notwithstanding Claimant s absence in the restructuring process, Respondent had consulted a committee of eligible bondholders at the time of the restructuring process. 128 These events have cumulatively shown the compliance of Respondent towards the due process element. C. The Sovereign Debt Restructuring was Done Transparently. 85. The element of transparency under the FET standard requires the government to disclose its policy prior to its adoption. 129 This principle acts as an obligation of the State before invoking measures which might have a detrimental impact towards the investments. 86. Tribunals have required host States to act in a manner of which is transparent and consistent towards the host State s expectations. 130 Respondent would only be in violation of the transparency standard if it has failed to disclose the intentions and appropriate objectives prior to modifying a regulation. These administrative decisions must be accompanied with adequate and rational reasoning prior to its imposition Metalclad v. Mexico, UNCTAD, p PO.2, Middle East v. Egypt, 143; Metalclad v. Mexico, AMTO v. Ukraine, Mondev v. USA, PO.2, 21; PO.3, Vandevelde, p TECMED v. Mexico, 154; Metalclad v. Mexico, TECMED v. Mexico, 123,