Contifica Asset Management Corp., · 2013-11-20 · Team Vereshchetin, Memorial for Respondent...

Team Vereshchetin, Memorial for Respondent

FOREIGN DIRECT INVESTMENT MOOT

24-26 OCTOBER 2013

GERMAN INSTITUTION OF ARBITRATION

UNDER THE UNCITRAL ARBITRATION RULES ADMINISTERED BY

THE DIS

In the Proceeding Between

Contifica Asset Management Corp.,

(Claimant)

and

The Republic of Ruritania

(Respondent)

MEMORIAL FOR RESPONDENT


i

TABLE OF CONTENTS

TABLE OF CONTENTS .................................................................................................................. i

LIST OF LEGAL SOURCES ....................................................................................................... xii

LIST OF STATUTES AND TREATIES ................................................................................... xxiii

LIST OF ABBREVIATIONS ..................................................................................................... xxiv

STATEMENT OF FACTS............................................................................................................... 1

SUMMARY OF ARGUMENTS ..................................................................................................... 3

PART ONE. JURISDICTION ........................................................................................................ 5

I. THE TRIBUNAL DOES NOT HAVE JURISDICTION OVER CAM´S CLAIMS. ......... 5

A. The Tribunal lacks jurisdiction over CAM‘s Treaty Claims. ........................................... 5

1. Ratione materiae ......................................................................................................... 5

a. As the Agreement is void, there is no investment. ................................................. 5

b. CAM‘s shareholding in FBI cannot be considered an investment. ........................ 7

2. Ratione personae ........................................................................................................ 8

3. Ratione voluntatis ....................................................................................................... 9

B. The Tribunal lacks jurisdiction over the Contract Claims. .............................................. 9

1. The umbrella clause contained in Article 6(2) of the BIT cannot elevate any

contract claim to a subject of international law under the scope of the BIT. ....................... 9

2. The forum selection clause stated in Clause 14.2 of the Contract must prevail over

Article 8 of the BIT. ........................................................................................................... 11

II. CLAIMS SUBMITTED BY CAM ARE NOT ADMISSIBLE. ........................................ 14

A. The non-existence of an admissibility rule within the UNCITRAL(DIS)-RULES does

not such a rule is inapplicable. ............................................................................................... 14

B. CAM did not make sufficient efforts to settle the dispute amicably. ............................. 14


ii

C. CAM violated the principle of good faith which results in the inadmissibility of the

claims. .................................................................................................................................... 15

CONCLUSION REGARDING JURISDICTION ......................................................................... 17

PART TWO. MERITS ................................................................................................................... 18

I. RURITANIA HAS NOT BREACHED TREATY STANDARDS BY ADOPTING THE

MEASURES. .............................................................................................................................. 18

A. Protection and promotion of public health constitutes an exception to Ruritania‘s

responsibility. ......................................................................................................................... 18

B. Absence of any violation under Fair and Equitable Treatment standard. ...................... 21

1. Legitimate expectations of the investor were not deprived. ..................................... 21

2. Due process was respected. ...................................................................................... 23

3. The Measures were reasonable and proportionate. .................................................. 24

C. Absence of any violation to Full Protection and Security. ............................................. 25

D. Absence of any violation under Non-Discrimination, National Treatment, Less

Favourable Treatment and Arbitrariness standards. ............................................................... 26

1. Absence of discrimination and LFT. ........................................................................ 26

2. Absence of arbitrariness ........................................................................................... 28

E. There has been no expropriation of CAM‘s assets in Ruritania as a consequence of the

Measures. ................................................................................................................................ 29

1. Ruritania has not directly or indirectly expropriated any of Cam‘s assets. .............. 29

2. There is no direct expropriation of CAM‘s IP rights. .............................................. 30

3. There is no indirect expropriation of CAM‘s IP rights. ........................................... 30

a. CAM remains in control of its IP rights. .............................................................. 30

b. Ruritania enacted general regulatory measures pursuing the objective of public

welfare, as part of its governmental powers. .................................................................. 31

4. There is no creeping expropriation of CAM‘s assets. .............................................. 32


iii

II. MORAL DAMAGES CANNOT BE AWARDED BY THE TRIBUNAL FOR THE

ARREST OF MRSS. GOODFELLOW AND STRAW. ........................................................... 34

A. Moral damages in international law. .............................................................................. 34

B. CAM does not have standing before the Tribunal to claim for injuries caused to Its

executives. .............................................................................................................................. 34

C. The Tribunal cannot award moral damages since this type of compensation has not

been included in the BIT. ....................................................................................................... 36

D. Under international investment law, compensation for moral damages is exceptional. 37

III. THE LOSS OF SALES TO FBI SUFFERED BY CAM‘S SUBSIDIARIES LOCATED

OUTSIDE OF RURITANIA DOES NOT CONSTITUTE A RECOVERABLE ITEM OF

DAMAGES. ............................................................................................................................... 40

A. The loss of sales to FBI suffered by CAM‘s subsidiaries does not constitute a unit of

investment with FBI. .............................................................................................................. 40

B. The loss of sales by CAM‘s subsidiaries to FBI is not investment, pursuant the Article

1.1 of the BIT. ........................................................................................................................ 42

1. Article 1(1) of BIT states a territorial criterion for the definition of investment that

is not complied by CAM‘s subsidiaries. ............................................................................ 42

2. CAM‘s subsidiaries do not indirectly invest in FBI, neither CAM indirectly invests

in FBI through its subsidiaries. .......................................................................................... 43

CONCLUSION ON MERITS ........................................................................................................ 45

REQUEST FOR RELIEF............................................................................................................... 46


iv

LIST OF AUTHORITIES

BOOKS

Baetens, Freya ―Discrimination on the Basis of Nationality: Determining

Likeness in Human Rights and Investment Law‖ in

International Investment Law and Comparative Public Law

(Stephan W. Schill ed., Oxford University Press, 2010).

Cited as: Baetens

Betti, Emilio

Teoría General del Negocio Jurídico. (Editorial Revista de

Derecho Privado, 2nd Ed., 1959).

Cited as: Betti

Bigliazzi, Lina Derecho Civil. Tomo I. Volumen 2.Hechos y Actos Jurídicos.

(Externado, 1995).

Cited as: Bigliazzi et al.

Dolzer, Rudolph

Schreuer, Christoph

Principles of international Investment Law. (Oxford

University Press. 2008).

Cited as: Dolzer and Schreuer

De Witte, Bruno

―Balancing of Economic Law and Human Rights by the

European Court of Justice‖ in Human Rights in International

Investment Law and Arbitration (Dupuy et al. ed., Oxford

University Press, 2008).

Cited as: De Witte

Dolzer, Rudolph

Schreuer, Christoph

Principles of international Investment Law. (Oxford


Cited as: Dolzer and Schreuer

Hinestrosa, Fernando Curso de Obligaciones (Externado, 1961).

Cited as: Hinestrosa


v

McLachlan, Campbell QC et al. International investment Arbitration, Substantive Principles.

(Oxford University Press. 2007).

Cited as: McLachlan et al.

Mairal, Hector ―Legitimate Expectztions and Informal Administrative

Representations‖ in International Investment Law and

Comparative Public Law (Stephan W. Schill ed., Oxford


Cited as: Mairal

Mutis Tellez, Felipe. Conditions and Criteria for The Protection of Legitimate

Expectation Under International Investment Law, 2012 ICSID

Review Student Writing Competition, available at:

http://icsidreview.oxfordjournals.org/content/early/

2012/10/26/icsidreview.sis018.full. Seen: September 13, 2013.

Cited as: Mutis

Nappert, Sophie

Commentary on the UNCITRAL Arbitration Rules 2010: A

Practitioner’s Guide. (Juris, 2012).

Cited as: Nappert

Ripinsky, Sergey

Williams, Kevin

Damages in International Investment Law. (British Institute of

International and Comparative Law, 2008).

Cited as: Ripinsky and Williams

Sabahi, Borzu ―Moral Damages in International Investment Law: some

Preliminary Thoughts in the Aftermath of Desert Line v.

Yemen‖ in A Liber Amicorum. (Thomas Walde ed., OGEL 1,

2013).

Cited as: Sabahi

Schill, Stephan ―Fair and Equitable Treatment: the Rule of Law and

Comparative Public Law‖ in International Investment Law

http://icsidreview.oxfordjournals.org/content/early/%202012/10/26/icsidreview.sis018.fullhttp://icsidreview.oxfordjournals.org/content/early/%202012/10/26/icsidreview.sis018.full


vi

and Comparative Public Law (Stephan W. Schill ed., Oxford


Cited as: Schill-FET

―Umbrella Clauses as Public Law Concepts in Comparative

Perspective‖ in International Investment Law and

Comparative Public Law (Stephan W. Schill ed., Oxford


Cited as: Schill-UC

Vadi, Valentina

Public Health in International Investment Law and

Arbitration. (Rouledge, 2013).

Cited as: Vadi

―Reconciling Public Health and Investor Rights: The Case of

Tobacco‖ in Human Rights in International Investment Law

and Arbitration (Dupuy et al. ed., Oxford University Press,

2008).

Cited as: Vadi, 2008

Van Harten, Gus Investment Treaty Arbitration and Public Law. (Oxford


Cited as: Van Harten

Zeitler, Helge Elisabeth ―Full Protection and Security‖ in International Investment

Law and Comparative Public Law (Stephan W. Schill ed.,

Oxford University Press, 2010).

Cited as: Zeitler

ARTICLES

Blyschak, Paul. ―Access and advantage expanded: Mobil Corporation v

Venezuela and other recent arbitration awards on treaty

shopping‖ (2011). Journal of World Energy Law & Business,

February 2011, 4:1 32–39.


vii

Cited as: Blyschak

Legum, Barton ―Defining Investment and Investor: Who is entitled to

claim?‖, Symposium co-organised by ICSID, OECD and

UNCTAD making the most of International Investment

Agreements: a common agenda, 12 December 2005, Paris.

Available at:

http://www.oecd.org/daf/inv/internationalinvestmentagreemen

ts /36370461.pdf. Seen: September 20, 2013.

Cited as: Legum

Malik, Mahnaz ―Recent Developments in the Definition of Investment in

International Investment Agreements‖. IISD, Second Annual

Forum of Developing Country Investment Negotiators, 3-4

November 2008. Available at:

http://www.iisd.org/pdf/2008/dci_recent_dev.pdf. Seen:

September 20, 2013.

Cited as: Malik

Newcombe, Andrew ―Investor misconduct: Jurisdiction, admissibility or merits?‖

In: Evolution in Investment Treaty Law and Arbitration (C.

Brown & K. Miles, Cambridge University Press, 2012).

Cited as: Newcombe

OCDE

―Indirect Expropriation and the Right to Regulate in

International Investment Law‖. WORKING PAPERS ON

INTERNATIONAL INVESTMENT. Number 2004/4.

Available at: http://www.oecd.org/daf/inv/investment-

policy/33776546.pdf. Seen: September 20, 2013.

Cited as: OCDE

Paulsson, Jon ―Jurisdiction and admissibility‖ (2005). Global Reflections on

International Law, Commerce, and Dispute Resolution. ICC

http://www.oecd.org/daf/inv/internationalinvestmentagreements%20/36370461.pdfhttp://www.oecd.org/daf/inv/internationalinvestmentagreements%20/36370461.pdfhttp://www.iisd.org/pdf/2008/dci_recent_dev.pdfhttp://www.oecd.org/daf/inv/investment-policy/33776546.pdfhttp://www.oecd.org/daf/inv/investment-policy/33776546.pdf


viii

Publishing, Publication 693.

Cited as: Paulsson

Parish, Matthew T., et al.

.

“Awarding Moral Damages to Respondent States in

Investment Arbitration”, 29 BERKELEY J. INT'L LAW. 225

(2011).

Cited as: Parish et al.

Pisillo-Mazzeschi, R. ―The Due Diligence Rule and the Nature of the International

Responsibility of States‖ in German Yearbook of International

Law, vol. 35, Berlin, 1993.

Cited as: Pisillo-Mazzeschi

Salazar, Alberto R. ―NAFTA Charter 11, Regulatory Expropriation, and Domestic

Counter Advertising Law‖ in Arizona Journal of International

and Comparative Law, Vol. 27, No. 1, 2010.

Cited as: Salazar

Schill, Stephan ―Illegal Investments in International Arbitration‖ (2012) Max

Planck Institute for International Law.

Cited as: Schill

―Umbrella Clauses as Public Law Concepts in Comparative

Perspective‖, In: International Investment Law and

Comparative Public Law (Ed. S. Shill, Oxford, 2010)

Cited as: Schill-UC

Schreuer, Cristoph ―Shareholder Protection in International Investment Law‖,

May 23 2005. Available at:

http://www.univie.ac.at/intlaw/pdf/csunpublpaper_2.pdf.

Seen: September 20, 2013.

Cited as: Schreuer- Shareholders

Valesek, Martin J. ―Developments in the Legal Standing of Shareholders and

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1992661##http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1992661##http://www.univie.ac.at/intlaw/pdf/csunpublpaper_2.pdf


ix

Dumberry, Patrick Holding Corporations in Investor-State Disputes‖, ICSID

Review, Foreign Investment Law Journal, Volume 26,

Number 1, Spring 2011.

Cited as: Valesek and Dumberry

UNCTAD

―Investor-State Dispute Settlement and Impact on Investment

Rulemaking‖ (2007) United Nations Publication.

UNCTAD/ITE/IIA/2007/3.

Cited as: UNCTAD-ISDS

―Scope and Definition. Series on Issues in International

Investment Agreements II‖ (2011) United Nations

Publication. UNCTAD/DIAE/IA/2010/2.

Cited as: UNCTAD-S&D

―Investor-State Disputes: Prevention and Alternatives to

Arbitration. Series on International Policies for

Development.‖ (2010) United Nations Publication.

UNCTAD/DIAE/IA/2009/11.

Cited as: UNCTAD-ADR

Wansink, Brian Can Package Size Accelerate Usage Volume? in Journal of

Marketing Vol. 60 (July 1996).

Cited as: Wansink

Wong, Jarrod

―Umbrella clauses in bilateral investment treaties: of breaches

of contract, treaty violations, and the divide between

developing and developed countries in foreign investment

disputes‖ (2006). George Mason Law Review, Vol. 14, 2006.

Cited as: Wong

MISCELLANOUS


x

Articles on Responsibility of States for Internationally

Wrongful acts adopted by the International Law Commission.

Cited as: ASR

International Law Comission General Assembly ―Draft

Articles in the Law of Treaties‖ (1966).

Cited as: VCLT-Draft

Freeman, B., et al. ―The Case for Plain Packaging of Tobacco Products

Addiction‖, 2008, School of Public Health, University of

Sydney, NSW, Australia.

Cited as: Freeman et al.

Koskenniemi , Martti ―Report on Fragmentation of International Law: Difficulties

Arising from the Diversification and Expansion of

International La w‖. Study Group of the International Law

Commission (A/CN.4/L.682), 13 April 2006. Available at:

http://untreaty.un.org/ilc/documentation/english/a_cn4_l682.p

df. Seen: September 15, 2013.

Cited as: Koskenniemi

American Diabetes Association

http://www.diabetes.org/food-and-fitness/food/what-can-i-

eat/alcohol.html Seen: August 5 2013.

Cited as: ADA

Merkouris, Panagiotis ―Article 31(3)(c) of the VCLT and the Principle of Systemic

Integration‖, Thesis submitted for the degree of Ph.D. Queen

Mary University of London School of Law. (January, 2010).

Cited as: Merkouris

http://untreaty.un.org/ilc/documentation/english/a_cn4_l682.pdfhttp://untreaty.un.org/ilc/documentation/english/a_cn4_l682.pdfhttp://www.diabetes.org/food-and-fitness/food/what-can-i-eat/alcohol.htmlhttp://www.diabetes.org/food-and-fitness/food/what-can-i-eat/alcohol.html


xi

The Committee of the Covenant General Comment No 14

(E/C.12/2000/4) of the Covenant for Economic, Social and

Cultural Rights.

Cited as: CESCR-Comment14

―European Food Safety Authority is governed by the

Management Board‖. Available at:

http://www.efsa.europa.eu/en/mb/role.htm. Seen: September 6

2013.

Cited as: EFSA

―Health Canada: http://www.hc-sc.gc.ca/ahc-asc/branch-

dirgen/index-eng.php. Seen: September 6 2013.

Cited as: HC

Japan Ministry of Health, Labour and Welfare-Department of

Food Safety. Available at:

http://www.mhlw.go.jp/english/topics/foodsafety/administrati

on/dl/01.pdf Seen: September 6 2013.

Cited as: JMH

UNIDROIT Principles 2010.

Cited as : Unidroit 2010

U.S. Food and Drug Administration

http://www.fda.gov/AboutFDA/Transparency/Basics/ucm194

884.htm. Seen: September 6 2013.

Cited as: FDA

http://www.efsa.europa.eu/en/mb/role.htmhttp://www.hc-sc.gc.ca/ahc-asc/branch-dirgen/index-eng.phphttp://www.hc-sc.gc.ca/ahc-asc/branch-dirgen/index-eng.phphttp://www.mhlw.go.jp/english/topics/foodsafety/administration/dl/01.pdfhttp://www.mhlw.go.jp/english/topics/foodsafety/administration/dl/01.pdfhttp://www.fda.gov/AboutFDA/Transparency/Basics/ucm194884.htmhttp://www.fda.gov/AboutFDA/Transparency/Basics/ucm194884.htm


xii

LIST OF LEGAL SOURCES

INDEX OF CASES

EUROPEAN COURT OF

JUSTICE

Bacardi France SAS v. Television Francaise 1 SA et al.,

Judgment of the Grand Chamber in Cases C-262/02 and C-

429/02 (13 July 2004).

Cited as: Bacardi France

INTERNATIONAL COURT

OF JUSTICE

Case Concerning Ahmadou Sadio Diallo (Republic of Guinea

v. Democratic Republic of the Congo), 2012 I.C.J., (June 19,

2012); Judgement on Compensation Owed by the Republic of

Congo to the Republic of New Guinea.

Cited as: Diallo

Case Concerning Ahmadou Sadio Diallo (Republic of Guinea

v. Democratic Republic of the Congo), Preliminary

Objections. Judgement of 24 May 2007.

Cited as: Diallo- Objections

Elettronica Sicula S.p.A. (ELSI) (United States of

America v. Italy) International Court of Justice, Award, 29

July 1989.

Cited as: ELSI

WORLD TRADE

ORGANIZATION

EUROPEAN COMMUNITIES –MEASURES AFFECTING

ASBESTOS AND ASBESTOS-CONTAINING PRODUCTS,

AB-2000-11, Report of the Appellate Body, 12 March 2001.

Cited as: Asbestos


xiii

INDEX OF ARBITRAL AWARDS

ICSID

AAPL Asian Agricultural Products Ltd. v. Sri Lanka, Case

No.ARB/87/3 June 77 1990 Final Award.

Cited as: AAPL

Abaclat and others v. Argentina. Case No.ARB/07/5,

Decision on Jurisdiction and Admissibility, 4 August 2011.

Cited as: Abaclat

ADF Group Inc. v. The United States, Case No.ARB(AF)00/1,

Award, 9 January 2003.

Cited as: ADF

Archer Daniels Midland Company and Tate and Lyle

Ingredients Americas inc. v. Mexico, Case No.ARB

(AF)/04/05 (NAFTA), Final Award, 21 November 2007.

Cited as: ADM

Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil. v.

Estonia, Case No.ARB/99/2, Award 25 June 2001.

Cited as: Genin

Azurix Corp v. Argentina, Case No.ARB/01/12, Award, 14

July 2006.

Cited as: Azurix

Bayindir Insaat Turizm Ticaret Ve Sanayi A.Ş. v. Pakistan.

Case No.ARB/03/29, Decision on Jurisdiction, 14 November

2005.

Cited as: Bayindir

Bayview Irrigation District, et al. v. Mexico, Case No.ARB


xiv

(AF)/05101, June 19 2007.

Cited as: Bayview

Bayview Irrigation District, et al. v. Mexico, Case No.ARB

(AF)/05101, submission of the United States.

Cited as: Bayview-Submission

Biwater Gauff Ltd v. United Republic of Tanzania, Case

No.ARB/05/22, Award, 24 July 2008.

Cited as: Biwater

Bosch International, Inc and B&P Ltd Foreign Investments

Enterprise v. Ukraine. Case No.ARB/08/11, Award, 25

October 2012.

Cited as: Bosch

Burlington Resources Inc. v. Republic of Ecuador. Case No.

ARB/08/5, Decision on Jurisdiction, 2 June 2010.

Cited as: Burlington

Cargill, Incorporated v. Mexico, Case No.ARB(AF)/05/2,

Award, August 26 2010.

Cited as: Cargill

Cementownia “Nowa Huta” S.A. v. Turkey, ICSID Case No.

ARB(AF)/06/2. Award, 17 September 2009.

Cited as: Cementownia

CMS Gas Transmission Company v. Argentina, Case

No.ARB/01/8, Award, 12 May 2005.

Cited as: CMS


xv

Compañiá de Aguas del Aconquija S.A. and Vivendi

Universal S.A. v. Argentina, Case No.ARB/97/3, Decision on

Annulment (3 July 2002).

Cited as: Vivendi

Consorzio Groupement L.E.S.I.-Dipenta v. Algeria, Case No.

ARB/03/08, Award, 10 January 2005.

Cited as: L.E.S.I.

Continental Casualty Company v. Argentina, Case No

ARB/03/9, Award (5 September2008).

Cited as: Continental

Desert Line Projects LLC v. Yemen, Case No.ARB/05/17,

Award, February 6 2008.

Cited as: Desert Line

Deutsche Bank AG v. Democratic Socialist Republic of Sri

Lanka. ICSID Case No. ARB/09/2, Award, 31 October 2012.

Cited as: Deutsche Bank

Duke Energy Electroquil Partners & Electroquil S.A. v.

Ecuador, Case No.ARB/04/19, Award, 18 August 2008.

Cited as: Duke

EDF (Services) Limited v. Romania, Case No.ARB/05/13,

Award, 8 October 2009.

Cited as: EDF

Electrabel S.A. v. The Republic of Hungary. ICSID Case No.

ARB/07/19), Decision on Jurisdiction, Applicable Law and

Liability, 30 November 2012.

Cited as: Electrabel


xvi

EI Paso Energy International Company v. The Argentine

Republic. ICSID Case No. ARB/03/15, Decision on

Jurisdiction, 27 April 2006.

Cited as: El Paso

Enron Creditors Recovery Corporation (formerly Enron

Creditors) and Ponderosa Assets, LP v. Argentina, Case

No.ARB/01/3, Award, 22 May 2007.

Cited as: Enron

Fraport AG Frankfurt Airport Services Worldwide v. Republic

of the Philippines. ICSID Case No. ARB/03/25, Award, 16

August, 2007.

Cited as: Fraport

Generation Ukraine, Inc. v. Ukraine, Case No.ARB/00/9,

Award, 16 September 2003.

Cited as: Generation Ukraine

Impregilo S.p.A. v. Pakistan, Case No.ARB/03/3, Decision on


Cited as: Impregilo-Jurisdiction

Inceysa Vallisoletana, S.L. v. Republic of El Salvador. ICSID

Case No. ARB/03/26, Award, 2 August 2006.

Cited as: Inceysa

Jan de Nul NV and Dredging International NV v. Egypt,

No.ARB/04/13 Award, 6 November 2008.

Cited as: Jan de Nul


xvii

Joseph Charles Lemire v. Ukraine. Case No.ARB/06/18,

Decision on Jurisdiction and Liability, 14 January 2010.

Cited as: Lemire

LG&E Energy Corp, LG&E Capital Corp, LG&E

International Inc v. Argentina, Case No.ARB/02/1, Decision

on Liability, 3 October 2006.

Cited as: LG&E

Marvin Roy Feldman Karpa v. Mexico, Case

No.ARB(AF)/99/1, Award, 16 December 2002.

Cited as: Feldman

Mr. Franck Charles Arif v. Moldova, Case No.ARB/11/23,

Award, April 8 2013.

Cited as: Arif

Mondev International Ltd. v. United States, Case

No.ARB(AF)/99/2, Award, October 11, 2002.

Cited as: Mondev

Noble Ventures Inc. v. Romania, Case No.ARB/01/11, Award,

12 October 2005.

Cited as: Noble Ventures

Occidental Petroleum Corporation & Occidental Exploration

and Production Company v. Ecuador, ICSID Case No.

ARB/06/11, Decision on Jurisdiction, 9 September 2008.

Cited as: Occidental

Parkerings-Compagniet AS v. Republic of Lithuania, Case

No.ARB/05/8 Award 11 September 2007.


xviii

Cited as: Parkerings

Phoenix Action, Ltd. v. The Czech Republic. Case

No.ARB/06/5, Award, 15 April 2009.

Cited as: Phoenix

Plama Consortium Limited v. Bulgaria, Case No.ARB/03/24,

Award, 27 August 2008.

Cited as: Plama

Railroad Development Corporation (RDC) v. Guatemala,

Case No. ARB/07/23, Second Decision on Objections to

Jurisdiction, 18 May 2010.

Cited as: Railroad Development

Santa Elena v. Costa Rica, Case No.ARB/96/1, Award, 17

February 2000.

Cited as: Santa Elena

Salini Costruttori S.p.A. and Italstrade S.p.A. v Morocco. Case

No.ARB/00/4, Decision on Jurisdiction, 23 July 2001.

Cited as: Salini

Sempra Energy International v. Argentina, Case

No.ARB/02/16, Award, 28 September 2007.

Cited as: Sempra

SGS Société Générale de Surveillance S.A. v. Pakistan. Case

No.ARB/01/13, Decisions of the Tribunal on Objections to

Jurisdiction, 6 August 2003.

Cited as: SGS v. Pakistan

SGS Société Générale de Surveillance S.A. v. Philippines.

Case No.ARB/02/6, Decision of the Tribunal on Objections to


xix

Jurisdiction, 29 January 2004.

Cited as: SGS v. Philippines

Tecmed v. Mexico, Case No.ARB(AF)/00/2, Award, 29 May

2003.

Cited as: Tecmed

Telenor Mobile Communication AS v. Hungary, Case

No.ARB/04/15, Jurisdiction, 13 September 2006, 322.

Cited as: Telenor

The Rompetrol Group N.V. v. Romania, Case No.ARB/06/3,

Award, 6 May 2013.

Cited as: Rompetrol

Tokios Tokelés v. Ukraine, Case No.ARB/02/18, Decision on


Cited as: Tokios Tokelés

Tradex v. Albania, Case No.ARB/94/2, Award, 29 April 1999.

Cited as: Tradex

Tza Yap Schum v. Peru, Case No.ARB/07/6, Award, 7 July

2011.

Cited as: Tza Yap

Victor Pey Casado and Fundación Presidente Allende v. The

Republic of Chile, Case No. ARB/98/02, Award.

Cited as: Casado

Wena Hotels v. Egypt, Case No.ARB/98/4, Award, 8

December 2000.

Cited as: Wena Hotels


xx

World Duty Free Company Limited v. Kenya, Case No.ARB

00/7, Award, 4 October 2006.

Cited as: Duty Free

AD HOC

ARBITRATION

Eureko BV v. Poland, Partial Award, 19 August 2005.

Cited as: Eureko

Biloune and Marine Drive Complex Ltd. v. Ghana, Award on

Jurisdiction and Liability, 27 October 1989, 95 ILR 184.

Cited as: Biloune

UNCITRAL CME B.V. v. Czech Republic, UNCITRAL, Award on

Damages 14 March 2003.

Cited as: CME-Damages

Ronald S. Lauder v. The Czech Republic. UNCITRAL

ARBITRATION, Final Award, 3 September 2001.

Cited as: Lauder

Occidental Exploration and Production Company v. Ecuador,

UNCITRAL, LCIA Case No. UN3467, Final Award, 1 July

2004.

Cited as: Occidental

RFCC v. Morocco, Case No.ARB/00/6, Award, 22 December

2003.

Cited as: RFCC

Saluka Investments B.V. v. Czech Republic, UNCITRAL,

Partial Award 17 March 2006.

Cited as: Saluka

NAFTA/UNCITRAL International Thunderbird Gaming Corporation v.


xxi

Mexico, NAFTA/UNCITRAL, Separate Opinion (December,

2005).

Cited as: Thunderbird-Separate Opinion

Methanex Corporation v. The United States.

NAFTA/UNCITRAL, Final Award on Jurisdiction and Merits,

3 August 2005.

Cited as: Methanex

Pope & Talbot Inc. v. Canada, UNCITRAL/NAFTA, Award

on the Merits of Phase 2, 10 April 2001.

Cited as: Pope and Talbot

SD Myers Inc. v. Canada. UNCITRAL/NAFTA, First Partial

Award, 13 November 2000, 40 ILM (2001) 1408.

Cited as: SD Myers

SD Myers Inc. v. Canada. UNCITRAL/NAFTA, Counter

Memorial, 13 November 2000, 40 ILM (2001) 1408.

Cited as: SD Myers-CM

ARBITRATION INSTITUTE

OF THE STOCKHOLM

CHAMBER OF

COMMERCE

William Nagel v Czech Republic, SCC, Case No 049/2002,

Final Award (9 September 2003).

Cited as: Nagel

IRAN- US TRIBUNALS

Emmanuel Too v. Greater Modesto Insurance Associates, 23

Iran- United States Claim Tribunal, Award, 29 December

1989.

Cited as: Too


xxii

MIXED CLAIMS

COMISSION UNITED

STATES- GERMANY

Opinion in the Lusitania Cases, 7 U.N.R.I.A.A (1923).

Cited as: Lusitania

ARBITRATION INSTITUTE

OF THE STOCKHOLM

CHAMBER OF

COMMERCE

Iurii Bogdanov, Agurdino-Invest Ltd. and Agurdino-Chimia

JSC v. Republic of Moldova, SCC, Arbitral Award (22

September 2005).

Cited as: Bogdanov


xxiii

LIST OF STATUTES AND TREATIES

1. Covenant on Economic, Social and Cultural Rights.

Cited as: CESCR

2. Energy Charter Treaty.[1994]

2080 UNTS 95

Cited as: ECT

3. North American Free Trade Agreement. [1992]

32 ILM 289, 605 (1993)

Cited as: NAFTA

4. Treaty of Mutual Protection of Foreign Investment between the Republic of Ruritania and

the State of Cronos. [1997]

Cited as: BIT

5. United Nations Charter of Economic Rights and Duties of the States. [1974]

GA Res. 3281(xxix)

Cited as: UN-CERDS

6. United Nations. Framework convention on Tobacco Control- World Health Organization

[2003]

Cited as: FCTC

7. Vienna Convention for the Law of Treaties. [1969]

1155 UNTS 331

Cited as: VCLT


xxiv

LIST OF ABBREVIATIONS

CS

DIS

et al.

FET

FBI

FPS

HFCS

HRI

IIA

ICSID

ICC

ICJ

Contifica Spirits S.p.A.

German Institution of Arbitration

And others

Fair and Equitable Treatment standard.

Freecity Breweries Inc.

Full Protection and Security standard.

High Fructose Corn Syrup

Human Health Research Institute of Ruritania

International Investment Agreements

International Centre for Settlement of Investment Disputes

International Chamber of Commerce

International Court of Justice

CAM

CdM

CE

CG

Contract

Contifica Asset Management Corp.

Cargill de México

Contifica Enterprises Plc.

Contifica Group.

Share Purchase Agreement between the State Property Fund of Ruritania

and Contifica Spirits S.p.A.


xxv

IP

LFT

MABA

Measures

MFN

MHSS

NT

¶

p.

pp.

PHA

P.O.

SoD

SoC

SPF

TRIPS

Intellectual Property

Less Favorable Treatment standard.

Regulation of Sale and Marketing of Alcoholic Beverages Act.

The Ordinance and MABA.

Most Favored Nation standard.

Ministry of Health and Social Security of Ruritania

National Treatment standard.

Paragraph

Page No.

Pages No.

Public Health Act

Procedural Order

Statement of Defense

Statement of Claim

State Property Fund of Ruritania

World Trade Organization Agreement, Trade-Related Aspects of

Intellectual Property Rights

UNCITRAL(DIS)-

RULES

U.S.

USD

United Nations Commission on International Trade Law rules

administered by the German Institution of Arbitration

United States of America

US. Dollars


xxvi

v.

Versus


1

STATEMENT OF FACTS

1. On 15 March 1997 Ruritania became party to a BIT signed with Cronos. The BIT was

properly signed and ratified by both parties, and is currently in force (SoD¶2).

2. On 30 June 2008 CS acquired all shares in FBI by means of a Contract signed with the SPF

which, under the laws of Ruritania, is a legal entity with its own legal personality. CS is

incorporated under the laws of Posteriana, a country that has not signed an IIA with

Ruritania.

3. On January 2010, the ―New Way‖ political party secured the majority of the Ruritanian

Parliament. Since pre-election times, surveys of public opinion had forecasted such

upcoming mayority. Eventually, the party secured 211 out of 400 seats of the Parliament

(P.O. No. 3¶19).

4. New Way´s most significant campaign proposal was to seriously restrict the marketing and

sale of alcohol. CS, foreseeing that tougher regulations over any type of alcohol related

activities were about to come, transferred all of its shares in FBI to CAM on 17 March

2010. CAM is a company incorporated under the laws of Cronos. Hence, it can be inferred

that the transfer of shares had the sole purpose of attempting to protect FBI‘s shareholding

under the scope of an IIA.

5. As it was foreseeable since January 2010, on 20 June 2010 a draft of MABA became

public record (P.O. No. 2¶26). MABA was adopted on 20 November 2010, severely

restricting the marketing and sale of alcoholic beverages. On this point it is undisputed that

the parliament of a democratic republic can legitimately impose restrictions on alcoholic

beverages in order to protect its population, and most importantly, its youth.

6. On 30 June 2011, the MHSS adopted the Ordinance, a requirement imposed over any type

of Reyhan-based product, requiring it to be explicitly counter-advertised as containing such


2

plant. This requirement is based on a report made by HRI, pursuant to serious investigation

concluded that Reyhan consumption poses a higher risk of cardiac complications for the

consumers. Ruritania‘s duty to warn and protect its citizens cannot be denied. In this case,

Ruritania´s omission would have been more dangerous than its decision to act and warn

consumers, as the citizens‘ health is at stake.

7. On 25 August 2011, the MHSS denied CAM´s request to suspend the counter-

advertisement requirement imposed by the Ordinance. The MHSS followed the procedure

established in the PHA in order to enact the Ordinance, thus CAM´s request had to be

dismissed.

8. Between December 2011 and January 2012, on the ongoing criminal investigations against

Messrs. Goodfellow and Straw, Ruritania had to enforce its prosecuting authorities in order

to ensure that domestic law was not violated by CAM‘s executives.

9. On 10 December 2011 and 31 May 2012 Ruritania received two letters from CAM

invoking Article 8 of the BIT and manifesting its disagreement with MABA. Ruritania

submits that MABA was a measure adopted by the representatives of the people—

Ruritania‘s Parliament—and CAM‘s disagreement with such Act has no relation with

invoking a reference to Article 8 of the BIT as CAM did. Hence, no response was given to

those letters.

10. On 30 September 2012 CAM initiated arbitration proceedings against Ruritania, by means

of its SoC

11. On 15 December 2012 Ruritania responded to CAM´s SoC, issuing its SoD.


3

SUMMARY OF ARGUMENTS

JURISDICTION

12. The Tribunal does not have jurisdiction over CAM‘s claims that arise from Ruritania‘s

alleged BIT violations (hereinafter, ―Treaty Claims‖), as CAM‘s shareholding in FBI is not

an investment protected under the BIT, failing to comply with jurisdiction ratione materiae.

If CAM does not have an investment, it cannot be considered as an investor, thus failing to

comply with jurisdiction ratione personae. Ruritania‘s binding offer to arbitrate investment

disputes is only extended to investors. As CAM is not considered an investor, there is no

jurisdiction ratione voluntatis. In conclusion, the jurisdictional requirements set forth in

Articles 8, 1(1), 1(3)(b), are not met.

13. Furthermore, the Tribunal does not have jurisdiction over claims that arise from the alleged

breach of the Contract by the SPF (hereinafter ―Contract Claims‖) as Article 6(2) of the BIT

does not per se elevate a contract, ruled under municipal law, to an international obligation,

subject of international law. If the Tribunal decides that it has jurisdiction over the dispute,

notwithstanding the special forum selection clause of the Contract, Ruritania submits that

CAM‘s claims must be declared inadmissible as the CG‘s ―reorganization‖ is contrary to the

principle of good faith and cannot be protected under the dispute settlement mechanism

established in the BIT.

MERITS

14. Ruritania has not violated CAM´s rights under the BIT as the Measures were enacted with

the aim of protecting and promoting public health. Furthermore, both the design of the

Measures and the treatment given to FBI were respectful of Treaty protection standards to

FET, FPS and were non-discriminatory. CAM‘s claim of expropriation of its IP rights

equally lacks basis, as Ruriatania‘s Measures were adopted in accordance with due process,

they were non-discriminatory and were aimed towards the protection of public interest.

Finally, CAM has not lost control of its assets in Ruritania and continues to manage its IP

rights.


4

15. CAM cannot raise before the Tribunal claims on behalf of its employees, since the rules of

international law bar investors from raising such claims before any investment tribunal. In

the case that the Tribunal considers that CAM has standing to bring the aforementioned

claims before it, it must decline jurisdiction over claims concerning moral damages as the

BIT does not consider such type of reparation. In the alternative, Ruritania contends that

CAM does not comply with the requirements set forth by international investment law in

order to receive compensation for non-material injury.

16. The loss of sales to FBI, suffered by CAM‘s subsidiaries located outside of Ruritania, does

not constitute a recoverable item of damages. CAM´s subsidiaries do not constitute a unit of

investment with FBI. Moreover, according to Article 1(1), an investment must be made in

the territory of the other Contracting State. Finally, these losses cannot be considered as

indirect investments.


5

PART ONE. JURISDICTION

17. The Tribunal lacks jurisdiction over CAM‘s claims that arise from Ruritania‘s alleged

violation of the BIT and over claims that arise from the alleged breach of the Contract

with the SPF. In any event, such claims must be declared inadmissible by the Tribunal.

I. THE TRIBUNAL DOES NOT HAVE JURISDICTION OVER CAM´S

CLAIMS.

18. The Tribunal does not have jurisdiction over CAM‘s Treaty Claims, as the necessary

jurisdictional requirements are not met. Furthermore, Contract Claims raised by CAM

cannot be raised in this forum, as Treaty protection cannot extend over such

commitments.

A. The Tribunal lacks jurisdiction over CAM’s Treaty Claims.

19. In the case at hand there is no jurisdiction ratione materiae, as CAM does not have an

investment in Ruritania. Moreover, there is no jurisdiciton ratione personae, as CAM

cannot be considered an investor protected under the BIT. In addition, there is no

jurisdiction ratione voluntatis, as Ruritania‘s offer to arbitrate investment disputes,

according to Article 8(2) of the BIT, extends only to covered investors.

20. Consequently, jurisdiction ratione temporis will be not addressed, as although Ruritania

accepts that the BIT is currently in force (SoD¶2), this fact is irrelevant, as based upon the

abovementioned reasons, jurisdiction over Treaty Claims is not present.

1. Ratione materiae

a. As the Agreement is void, there is no investment.

21. Jurisdiction ratione materiae is a requirement that defines which type of disputes may be

referred to Treaty-based arbitration.1

Article 8(1) of the BIT states that ―Disputes

1 UNCTAD-ISDS, p. 20.


6

concerning investments‖ can be submitted to international arbitration. CAM does not

meet this requirement, as the Agreement is not a legitimate investment in Ruritania.

22. A contract must be declared void when the cause of obligations between the parties is

contrary to accepted principles of morality or when the will of the parties constitutes an

illegal behavior which cannot be protected by the law.2

23. The Tribunal lacks jurisdiction in the present proceedings, as the aim behind FBI‘s

transfer from CS to CAM was to bring a claim under the BIT (SoD¶8). Such conduct is

contrary to accepted principles of morality, as ―no legal system based on rational grounds

allows the party that committed a chain of clearly illegal acts to benefit from them‖.3

Consequently, the transfer never had effective legal consequence, thus CAM has no

investment in Ruritania.

24. In the alternative, CAM‘s ―reorganization‖ was done in mala fide, thus depriving CAM‘s

shareholding of FBI from BIT protection. Article 1(1) of the BIT defines the term

investment as every asset invested ―in accordance with laws and regulations of the

Contracting State in which territory the Investment is made‖. This provision constitutes

the so-called in accordance with the Host State law-clause, that has been understood by

tribunals as depriving treaty protection to an investment made in breach of the domestic

law of the Host State,4 or in breach of principles recognized under international law,

namely good faith.5 For instance, in Inceysa

6 the tribunal declined jurisdiction because

protection under the treaty was limited to legally acquired investments, hence, an

investment acquired by fraud was outside the scope of protection.7

2 Betti, p. 278. See generally: Bigliazzi & others, p. 899; Hinestrosa, p. 168.

3 Inceysa¶244.

4 Schill, p. 2.

5 Ibid., p. 13.

6 See also: Salini¶46; Tokios Tokelés¶84; Railroad Development¶140; Fraport ¶¶396-404.

7 Inceysa¶244.


7

25. Breaches to good faith in the contractual field refer to the absence of loyalty and truth

within the reciprocal performance of the parties.8 Through the analysis of the factual

background surrounding CAM‘s acquisition of shares in FBI, it is evident that such

shareholding in FBI is not a bona fide investment (SoD¶9).

26. Although CG acquired shares in FBI through its subsidiary CS (SoC¶7), it was not

entitled to receive any kind of protection under international law. Neither Posteriana

(CS‘s place of incorporation) nor Prosperia (CE‘s—CG‘s parent company‘s—place of

incorporation) have signed a BIT with Ruritania (SoD¶4). Thus, as far as Ruritania is

aware, under the CG structure only CAM enjoys BIT protection. Hence, CG seeks to

benefit, by means of illegal acts, from CAM‘s BIT protection. Access to treaty-based

arbitration must be denied ―because it is evident that its act had a fraudulent origin and, as

provided by the legal maxim, ‗nobody can benefit from his own fraud‘ [nemo auditur

propiam turpitudinem allegans]‖.9

27. In conclusion, as the Agreement is void, there is no investment in Ruritania. Thus, CAM

has failed to comply with jurisdiction ratione materiae, as the present dispute is not

investment-related. Furthermore, violations to the principle of good faith, deriving from

CAM´s illegal ―reorganization‖, deprive jurisdiction ratione materiae by failing to

comply with the definition of investment set forth by Article 1(1), as an illegal action

cannot be protected under the BIT.

b. CAM‘s shareholding in FBI cannot be considered an investment.

28. In the event that the Tribunal decides that the transfer of shares was legitimate, Ruritania

submits that CAM‘s shareholding in FBI is not an investment under the BIT. Article 1(1)

defines the term Investment as every asset invested in accordance with the laws of the

host state in which the investment is made. This is an ostensive definition that, although

wide, does not define what an investment really is, as it uses the same word to define

8 Inceysa¶231.

9Ibíd., See also: Plama¶135.


8

itself. Thus, it becomes necessary to interpret the term investment, in accord with VCLT‘s

interpretation method set forth in Article 31 therein, in order to establish the three

fundamental elements that determine the existence of an investment namely: (i) a

contribution, (ii) a certain duration and (iii) an element of risk.10

29. It cannot be understood that CAM made a contribution in order to acquire shares in FBI,

only a symbolic amount of $5,000 USD was paid for such a valuable enterprise (SoD¶7).

The element of risk of the investment is not found either, as CAM assumed no risk in

Ruritania, in reality CAM had the certainty that a dispute was about to arise, as tougher

regulations were foreseeable with New Way‘s majority in the Parliament (SoC¶¶9&10,

SoD¶6). Those foreseeable restrictions that were to be imposed over any alcohol related

asset were counteracted by CG by seeking CAM´s illegitimate protection under the BIT.

2. Ratione personae

30. Ratione personae jurisdiction refers to the premise that ―investment agreements apply

typically only to investment by investors who qualify for coverage‖.11

Under Article 8(1)

of the BIT the parties to investment dispute arbitration must be ―a Contracting State and

an Investor of the other Contracting State‖.

31. Under the terms of the BIT an investor is any natural person or entity from a Contracting

State which is owner if an investment in the territory of the other Contracting State

(Article 1-3 of the BIT). As shown supra, i) the Agreement is not a valid investment in

Ruritania and ii) CAM has not made an investment under the BIT. Thus CAM, as

shareholder of FBI, cannot be considered an investor under the BIT. Therefore,

jurisdiction ratione personae is not met.

10

Schlemmer, p. 65. See also: Electrabel¶5.43; Pey Casado¶231; L.E.S.I. Pt. II. ¶13(iv). 11

UNCTAD-S&D, p. 72.


9

3. Ratione voluntatis

32. Jurisdiction ratione voluntatis is stated in Article 8(2) of the BIT as an offer from

Ruritania to foreign investors to submit disputes concerning investments to international

arbitration.12

Said offer is not extensive to CAM, as it does not have an investment in

Ruritania, and therefore does not qualify as an investor. Such an offer from Ruritania

extends exclusively to investors; hence jurisdiction ratione voluntatis is not met.

B. The Tribunal lacks jurisdiction over the Contract Claims.

33. Article 6(2) of the BIT must not be interpreted as a provision that always grants the

investor the right to seek Treaty-based international arbitration when it allege breaches of

contract. A contract ruled by municipal law must not be elevated to a subject of

international law. In the event that the Tribunal finds that indeed the umbrella clause has

such powers, it must abstain from exercising its jurisdiction based upon the forum

selection clause established in Clause 14.2 of the Contract, which establishes the specific

forum—the ICC, in which any dispute arising from said arrangement must be settled.

Clause 14.2 is a special provision that trumps Article 8 of the BIT, the latter giving

jurisdiction to the Tribunal.

1. The umbrella clause contained in Article 6(2) of the BIT cannot elevate

any contract claim to a subject of international law under the scope of

the BIT.

34. The Tribunal lacks jurisdiction over CAM‘s Contract Claims as breaches by a Contracting

State to a contract it has entered to with an investor of the other Contracting State ―[do]

not qualify per se as a violation of an international obligation. Such a breach may simply

be treated as a […] commercial matter‖.13

12

Lemire¶45. 13

Wong, p. 145.


10

35. The distinction between Contract Claims and Treaty Claims has an important effect in

international investment law. To consider that an umbrella clause can protect the investor

by making any breach of a contract into a breach of an international treaty is not

acceptable under international law. As the tribunal in El Paso settled, an umbrella clause

cannot elevate contract claims to the status of treaty claims as it would result in the

―unavoidable consequence that all claims based on any commitment in

legislative or administrative or other unilateral acts of the State or one of

its entities or subdivisions are to be considered as treaty claims‖.14

36. Such a broad interpretation of the umbrella clause would have a disruptive effect on the

distinction between international law and municipal law as any breach of a contract would

be equated with a breach of an international treaty, ―even though the investor is not a

subject of international law‖15

and the investor‘s home state is not a party to the

contract.16

37. This point of view was also considered in SGS v. Pakistan, where the tribunal concluded

that the text of the umbrella clause does not make the breache of a contract an automatic

breach of an international treaty. 17

38. Treaty-based arbitration must function when a substantial violation to an international

investment treaty has taken place, being such a matter of international law. In any event,

the breach of Clause 9.2.1 by which the SPF warrants that to the best of its knowledge

FBI‘s the productso do not pose any risks to the consumers, other than those which are

ordinary for similar alcoholic beverages, does not signify a violation of the BIT.

39. Ruritania‘s sovereign conduct of protecting its citizens from poisonous components in

Reyhan-based products is not a breach of the Contract that would constitute a breach of

the umbrella clause. The adoption of the Ordinance, warning consumers of the risks of

14

El Paso¶72. [Brackets out of text] 15

Schill-UC, p. 323. See also: El Paso¶82. 16

Ibíd. p. 323. 17

SGS v. Pakistan¶166.


11

consuming any kind of Reyhan-based product is a contingency that does not breach the

Contract.

40. The occurrence of such contingency does not result from opportunistic behavior of

Ruritania, which only exercises its police powers to protect its population. Hence, such a

conduct does not constitute a violation of the umbrella clause because ―contingencies are

outside the contractual risk-allocation and do not as such offset the contractual

equilibrium the parties had bargained for‖.18

The materialization of such contingency

could not have been foreseen by Ruritania, thus a departure from contractual obligations

may be permitted.19

Furthermore, Ruritania‘s exercise of its police power, which is a

general principle of Law, may modify or even terminate a contract when the public

interest is at stake, making such power an exception to the scope of the umbrella clause.20

2. The forum selection clause stated in Clause 14.2 of the Contract must

prevail over Article 8 of the BIT.

41. Along with the impossibility of CAM to raise Contract Claims under Article 6(2) of the

BIT, the Tribunal lacks jurisdiction over such claims as Clause 14.2 of the Contract

establishes a specific forum where disputes arising from the Contract must be settled: the

ICC.

42. The SPF, acting in good faith, agreed that any dispute over the Contract would not be

subject to the jurisdiction of Ruritania‘s domestic courts. Indeed, it was agreed by the

parties that disputes over the Contract were to be settled in a neutral international forum.

This constitutes a guarantee that Ruritania extends to the investor, since an international

forum may be perceived as less vulnerable to unilateral variation than municipal courts

under domestic laws.21

When CS signed the Contract it univocally and clearly accepted

18

Schill-UC, p. 332. 19

Ibid., p. 334. 20

Ibid., p. 340. 21

Ibíd.


12

Ruritania´s offer tending to arbitrate contractual disputes within the jurisdiction of ICC.

When the language of a clause is clear and gives no space for doubt, as in the present

case, such provision must be honored completely.22

43. In addition, of relevance to this case is the scope of umbrella clauses as interpreted by the

tribunals in the SGS cases. In SGS v Pakistan the tribunal that first developed a coherent

approach to the interpretation of an umbrella clause with regard to claims arising from a

contract,23

concluded that obligations that arise from investor-State contracts must be

settled in the forum stated in the contract.24

44. If, however, the Tribunal finds that it indeed has jurisdiction over purely contractual

claims, it must decline to exercise such jurisdiction on the basis that the Contract contains

an exclusive forum selection clause.25

As the tribunal in SGS v. Philippines found26

in

applying the latin maxim of interpretation generalia specialibus non derogant (the

provisions of a general statute must yield to those of a special one) a contract‘s forum

selection clause should be given precedence over the BIT since the former applied more

specifically to the dispute at hand.27

The BIT, as a general provision, cannot override

―specific provisions of particular contracts, freely negotiated between the parties‖.28

45. It is also important to highlight that in Bosh International, one of the most recent cases,

the tribunal stated that ―where a contractual claim is asserted under an umbrella clause,

the claimant in question must comply with any dispute settlement provision included in

that contract‖.29

46. Thus, the forum selection clause of the Contract prevails over the jurisdiction granted to

the Tribunal by the BIT. If CAM so wishes, it can submit ―all disputes arising out of or in

22

Occidental¶71. 23

SGS v. Pakistan¶164. 24

Wong, p. 154-155. 25

Wong, p. 158. 26

SGS v. Philippines¶¶113-128. 27

Ibid. 28

SGS v. Philippines¶141. [Brackets out of text] 29

Bosch¶¶251-252. See also: CMS¶¶296-303; Sempra¶¶305-314.


13

connection‖30

with the Contract to the ICC. Nonetheless, if the Tribunal finds that it has

jurisdiction over purely contractual claims, it must abstain from exercising it, since there

is a special provision on Clause 14.2 that the parties have to honor.

30

Clause 14.2 of the Contract.


14

II. CLAIMS SUBMITTED BY CAM ARE NOT ADMISSIBLE.

47. If the Tribunal determines that it has jurisdiction over CAM‘s claims, it must abstain from

exercising it, as such claims are inadmissible. In the first place, CAM failed to make

sufficient efforts to settle the dispute amicably before initiating arbitration proceedings.

Secondly, CAM acted in bad faith by becoming FBI‘s shareholder with the sole purpose

of obtaining benefits from the BIT. Breaches to bad faith violate important principles of

international law and constitute a limit to the admissibility of CAM‘s claims. Thus, the

Tribunal must abstain from hearing them.

A. The non-existence of an admissibility rule within the UNCITRAL(DIS)-

RULES does not such a rule is inapplicable.

48. It is true that Article 23 of the UNCITRAL(DIS)-RULES do not make reference to the

possibility of raising pleas regarding admissibility to the Tribunal, but only to the

jurisdiction of the arbitral tribunal. However, the Working Group of the UNCITRAL

Arbitration Rules 2010, in analyzing Article 23, stated that ―the general power of the

tribunal to decide upon its jurisdiction should be interpreted to include the power to

decide upon the admissibility of the parties‘ claims‖.31

B. CAM did not make sufficient efforts to settle the dispute amicably.

49. Article 8(1) of the BIT sets forth that disputes concerning investments must be, as far as

possible, settled amicably. If settlement is not reached, disputes can be redressed to

international arbitration after three months of negotiations. Such precondition to access to

31

Nappert, p. 90.


15

the Tribunal must not be ignored. Failure to comply with the time limit provided by the

Treaty in which the amicable settlement must take place, renders the claim inamissible.32

50. In the present case, there was no attempt to settle the dispute amicably. Letters submitted

by CAM on 20 August 2011 (SoC¶17), 10 December 2011, and 31 May 2012 (SoC¶27)

were solely a declaration of disagreement with Ruritania‘s measures, taken in the public

benefit. Just because there is discontent from CAM there are no reasons to infer that a

negation, conciliation, or mediation, issues comprehended under the amicable settlement

figure,33

was intended by means of those letters. As stated in Burlington, if a letter does

not articulate claimant‘s disagreement with a reasonable degree of specificity, it fails to

apprise the respondent.34

For instance, CAM‘s failure to expressly that it wanted to

initiate an amicable settlement prevents Ruritania from appraising it as such.

C. CAM violated the principle of good faith which results in the

inadmissibility of the claims.

51. CAM acted in bad faith by purporting to gain BIT protection by means of ―paper

transactions‖, being CG‘s reorganization a way to manipulate the mechanism of

international investment protection. According to Article 26 of the VCLT, ―every treaty

in force is binding upon the parties to it and must be performed by them in good faith‖. As

stated supra (A)(1)(a), violations to the principle of good faith result both in lack of

jurisdiction of the Tribunal over CAM‘s claims, and constitutes a cause for their

inadmissibility.35

52. The principle of good faith, analyzed in its procedural meaning, refers to the conduct

displayed by the parties within the arbitral proceedings. Case in point, the tribunal in

32

Paulsson, p. 609. 33

UNCTAD-ADR, p. 6. 34

Burlington¶¶308-309. 35

Newcombe, p. 189.


16

Abaclat, indicates that ―procedural good faith‖ relates to the way in which the investor

initiates its treaty claim36

.

53. In addition, the good faith principle of Article 26 of the VCLT covers the doctrine of the

abuse of the rights, according to which parties shall abstain from acts addressed to

frustrate the object and the purpose of the execution of the treaty,37

and its derivative

principle, abuse of the process.38

These two concepts imply the misuse of a right, for

purposes that do not correspond to the real intent that has been given to it, such as gaining

access to a particular form of justice39

or causing injury or harm to the party.

54. Furthermore, investor misconduct in the dispute resolution process occurs when the

investor ―engages in sham transactions in order to obtain the benefit of investment treaty

protection—a form of abusive forum shopping after a dispute has arisen‖.40

For instance,

in Phoenix the tribunal concluded that any fraud or any illegal conduct from the investor

constitutes a legitimate reason to deny substantive protection.41

55. Hence, CAM‘s ―reorganization‖, which clearly seeks to fraudulently gain BIT protection

by changing the investor‘s nationality, must be sanctioned by the Tribunal by declaring its

claims inadmissible. ―It is the duty of the Tribunal not to protect such an abusive

manipulation of the system of international investment protection‖42

when the transfer of

economic interest to a foreign company, protected under the BIT (CAM), is only a

disguise of an investment with the sole purpose of accessing the dispute settlement

mechanism established in the Treaty.43

36

Abaclat¶147(ii). 37

Abaclat¶646. See also: VCLT-Draft, p. 211(4); Unidroit 2010, Article 1.7(2). 38

Blyschak, p. 38. 39

Phoenix¶144.See also: Duty Free¶157. 40

Newcombe, pp. 190-191. 41

Phoenix¶¶135-147. 42

Phoenix¶144. 43

Ibid.


17

CONCLUSION REGARDING JURISDICTION

56. The Tribunal does not have jurisdiction over CAM‘s Treaty Claims as CAM‘s

shareholding in FBI is not an investment protected under the BIT, failing to comply with

jurisdiction ratione materiae. If CAM does not have an investment, it cannot be

considered as an investor, failing to comply with jurisdiction ratione personae.

Ruritania‘s binding offer to arbitrate investment disputes is only extended to investors. As

CAM is not considered an investor, there is no jurisdiction ratione voluntatis.

57. Nor can Contract Claims be raised in this forum, as an alleged breach of the umbrella

clause does not per se elevate a contract under municipal law to an international

obligation. In any event, jurisdiction over disputes regarding the Contract was granted to

the ICC.

58. If the Tribunal finds that it has jurisdiction over this dispute, Ruritania submits that

CAM‘s claims must be declared inadmissible as the CG‘s ―reorganization‖ is contrary to

the principle of good faith and CAM failed to make sufficient attempts to amicably settle

this matter, as required under the BIT.


18

PART TWO. MERITS

I. RURITANIA HAS NOT BREACHED TREATY STANDARDS BY

ADOPTING THE MEASURES.

59. Ruritania has not violated CAM´s rights under the BIT, as The Measures were enacted

under legitimate state objectives of protection and promotion of public health, which are

allowed under the BIT and international law. Furthermore, the design of both Measures

and the treatment given to FBI was respectful of Treaty standards to FET, as well as FPS

and Non-Discrimination. Consequently, the Measures have not resulted in an

expropriation of CAM´s IP.

A. Protection and promotion of public health constitutes an exception to

Ruritania’s responsibility.

60. Ruritania is not responsible under international law for the Measures it has adopted, as it

has a sovereign right and obligation to protect and promote health. Article 3(2) of the BIT

recognizes that Ruritania may take measures for public security, including the right to

protect public health. Hence, the Treaty does not overlook consumers‘ health protection

as one of the ways in which public security can be protected.44

61. Economic relations among States are governed by the principle of respect for human

rights and international obligations,45

such as health.46

Investment law and international

public health are not two separate branches of law, but are indeed fields of international

public law;47

hence, both fields of law should be considered not independently and,

should be measured among themselves. As tribunals decide matters concerning public

law, this Tribunal is asked to settle disputes in conformity with international law, as well

44

VCLT, Article 31(1) 45

UN-CERDS, Fundamentals(...): k; CESCR Preamble. 46

Vadi, p.27. 47

Vadi, p.9; Sempra¶332.


19

to safeguard vital community interests.48

Under Article 31(3)(c) of the VCLT,49

―international obligations are interpreted by reference to their normative environment‖50

and international law.51

Accordingly, this Tribunal should consider other international

obligations52

relating to health and not only BIT obligations when resolving CAM‘s

lawsuit.

62. UnderCESCR (P.O. No.2¶15), which states in Article 12 the right of the highest

attainable standard of health. The current normative extent of measures said Article

encompass ―campaigns regarding the adverse consequences‖ of some substances,53

particularly, ―discouraging the abuse of alcohol.‖54

Thus, authorities do not require

tangible diseases in order to take positive actions55

or preventive measures,56

it is also

necessary address the health determinants.57

63. By failing to reduce the consumption of harmful products, Ruritania could be found liable

under the CESCR.58

Thus, there must be a balance between Ruritania‘s obligations in the

investment and the human rights realms of the Law, and accomplishment of these

obligations must not mean sacrifices for the other.59

64. The Measures are modeled after obligations such as the ones deriving from the FCTC,

which seek to diminish tobacco consumption, accepted internationally by consensus.60

Analogically,61

FCTC guidelines constitute useful means to achieve the same goals

regarding alcohol and Reyhan consumption. The FCTC provides for measures reducing

demand, measures relative to packaging and labeling counter-advertisements

48

Vadi, p.58. 49

Merkouris, p. iv. 50

Koskenniemy¶413. 51

VCLT, Article 31(3) (c). 52

AAPL¶56. 53

Vadi 2008, p.454. 54

CESCR-Comment14¶15. 55

Vadi 2008, p. 454 56

Vadi, p.27. 57

Vadi, p.29. 58

Vadi 2008, p.455 59

CME¶¶75-78. 60

FCTC. 61

VCLT, Article 31 (3)(c); Vadi, p.10.


20

requirements and, restrictions on advertisements.62

These are exactly the same provisions

as the ones contained in the Measures.

65. It has been proved that reducing bottling volumes discourage the consumers‘ will to

acquire the product, as psychologically the price is perceived as higher,63

thus

discouraging its purchase. Regarding MABA, as the bottle size was reduced, the goal of

protecting health is fully achieved as consumers are discouraged to consume alcoholic

beverages. Furthermore, MABA‘s plain packaging requirement makes alcoholic

beverages less attractive,64

while restrictions on sales during the day reduce alcohol

consumption overall. Regarding the Ordinance, counter-advertisement requirements

educate consumers65

of Reyhan‘s secondary effects.

66. It is noteworthy that pursuant to the FCTC, no nation has compensated any company for

the consequences arising from the measures therein.66

As Ruritania enacted the Measures

in compliance with the CESCR, Ruritania should not be found liable for any consequence

borne by CAM.

67. By their traditional application67 and bona fides of the Measures aimed at protecting

human health, as the yardstick used by Tribunals,68

this Tribunal must declare Ruritania

not responsible for the consequences that the Measures may have brought to CAM, as

envisaged in Article 3(2) of the BIT.

62

Vadi 2008, p.457. 63

Wansink, p. 2-4. 64

Vadi, p.100. 65

Vadi, p.108; Salazar, pp.53,100. 66

Freeman et al., pp.580-590. 67

Vadi, p.26. 68

Genin¶¶241&367; Vadi 2008, p.474; Feldman¶98; Saluka¶¶253-265; Van Harten, p.87; Dolzer and Schreuer,

p.122.


21

B. Absence of any violation under Fair and Equitable Treatment

standard.

68. Article 2(1)(b) of the BIT establishes that Ruritania shall accord investments FET, which

consists of its duty to respect CAM‘s legitimate expectations, due process, and to adopt

reasonable and proportionate measures.69

FET was not affected by the enactment of the

Measures.

1. Legitimate expectations of the investor were not deprived.

69. FET involves stability, predictability of the legal framework, 70 and a transparent

behavior.71

Nevertheless, FET cannot undermine Ruritania‘s sovereignty to adopt

regulations.72

70. CAM‘s disagreement with the Measures (SoC¶10-12&14-15) is an invitation for the

Tribunal to withdraw Ruritania‘s regulatory powers.73

When pondering legitimate

expectations with public interests, such as public health, the latter should not suffer undue

damage.74

71. MABA was not unexpectedly enacted. Since 1992 Ruritania has been enacting

regulations relating to alcohol consumption. It was public knowledge that the ―New Way‖

Party would have significant participation in Parliament (P.O. No.3¶19) and that it

adopted a hard stance towards marketing and sale of alcohol75

(SoD¶6).

69

Schill-FET, pp.159-160. 70

Occidental¶¶189-190. 71

Tecmed¶154; Saluka¶309 ; Thunderbird¶50 (separate opinion). 72

UN-CERDS, Article 2 (2) a. 73

Vadi, p.50. 74

Mairal, p. 422. 75

Arif¶532.


22

72. CAM argues that the Contract guarantees the absence of risks on FBI‘s products, 76

disregarding that this warranty cannot be addressed by this Tribunal, given that FET ―as a

public law concept […] is not used […] to judge the adequateness of contractual

arrangements‖.77

The guarantee given to CAM is a consequence of the principle of party

autonomy,78

a concept not capable of a breaching FET standard.79

FBI mistakenly relies

on the assurance that the actions of the SPF fully bind Ruritania‘s government‘s policing

powers80

and constrains its governance.81

CAM cannot expect that Ruritania fictitiously

maintain Reyhan consumption as healthy when it is not, relying on a Contract that was

signed with the SPF.

73. Furthermore, the wording of the Contract‘s guarantee says ―to the best of its knowledge‖

the products of FBI do not pose any risks to the consumers,82

thus recognizing that the

situation would not remain completely unchanged. By the time of FBI‘s sale, Ruritania

only had an interim report based on scientific findings that were not final. Acknowledging

the fact that ―as scientific knowledge develops, new areas of state intervention may

become necessary‖,83

Ruritania adopted the Ordinance based on HRI‘s final report on the

matter (SoD¶15).

74. CAM‘s stance that the Measures were an unexpected change of the legal framework is

unfounded, as legitimate expectations have to be taken into account within its appropriate

context, including ―the goals of the relevant policies‖.84

75. The enterprise of FDI needs contrary to other kinds of foreign capital,85 that the investor

must be diligent in order to develop a full study of the background, context, and probable

future of the investment. Therefore, the protection of the investor‘s legitimate

expectations is preceded of a careful examination of the economic and legal context of

76

Clause 9.2.1. 77

Schill-FET, p.159. 78

Van Harten p.126. 79

RFCC¶¶33-34; Impregilo-jurisdiction¶¶266-270.

80

Mutis; Saluka¶351. 81

UN-CERDS, Article 2(a)(b) . 82

Clause 9.2.1. 83

Vadi, p.30. 84

Bayindir¶240. 85

Cox, p. 22, 37, 38, 39, 198, 203.


23

Ruritania. CAM was investing in a brewery, a regulated sector of the economy given that

the goods produced are known to have negative effects on health.86

The solely subjective

expectations of CAM should be rejected,87

given that CAM was not a prudent investor,88

rather, was and is acting recklessly. As health protection is one of the relevant policies of

Ruritania, it cannot be held liable for breaching CAM‘s purported legitimate expectations.

2. Due process was respected.

76. Due process is an underlying requirement of FET during the adoption of regulations.89

FET, ―as an embodiment of the concept of the rule of law‖,90

warrants protection from the

discretional power of State‘s authori

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