SIXTH ANNUAL TEAM KRYLOV FOREIGN DIRECT INVESTMENT MOOT COMPETITION, 2013
German Institute of Arbitration
Under the UNCITRAL Arbitration Rules Administered by the DIS
****
BETWEEN: Contifica Asset Management Republic of Ruritania CLAIMANT/INVESTOR RESPONDENT/PARTY
MEMORIAL FOR RESPONDENT
Team Krylov, Memorial for Respondent
ii
TABLE OF CONTENTS LIST OF AUTHORITIES .......................................................................................................... IV
LIST OF LEGAL SOURCES .................................................................................................... VI
LIST OF ABBREVIATIONS ...................................................................................................... X
STATEMENT OF FACTS ........................................................................................................... 1
SUMMARY OF ARGUMENTS .................................................................................................. 4
I. JURISDICTION & ADMISSIBILITY ................................................................................... 5
1. CLAIMANT IS NOT A BONA FIDE INVESTOR UNDER THE BIT. .................................................. 5
A. Characterising Claimant as an Investor under BIT Article 1.1 violates the object and
purpose of the BIT. ......................................................................................................... 6
B. The timing of the transfer of FBI to Claimant is best explained as a transfer in
anticipation of a claim. ................................................................................................... 6
2. THIS TRIBUNAL LACKS JURISDICTION OVER THE ALLEGED BREACH OF THE SPA. ................. 9
3. IN ANY CASE, THE PRESENT CLAIM IS INADMISSIBLE BECAUSE IT IS A CONTRACT CLAIM
GOVERNED BY THE SPA. ...................................................................................................... 11
II. MERITS .................................................................................................................................. 13
1. CLAIMANT’S INVESTMENT HAS NOT BEEN EXPROPRIATED. ................................................. 13
A. Claimant has not been substantially deprived of FBI because Claimant continues to
own and operate FBI. ................................................................................................... 13
B. Claimant has not been substantially deprived of its trademarks. .............................. 15
C. The MAB Act and Labeling Ordinance were a valid exercises of Ruritania’s police
powers. ......................................................................................................................... 15
2. RURITANIA DID NOT BREACH ITS OBLIGATION TO PROVIDE FET TO CLAIMANT. ................. 18
A. Ruritania did not breach the FET standard as provided for under customary
international law. ......................................................................................................... 18
B. Ruritania did not breach the FET standard as provided for under the BIT even if
interpreted as an autonomous standard. ...................................................................... 19
3. RURITANIA DID NOT BREACH ITS OBLIGATION TO PROVIDE FPS TO CLAIMANT. ................. 23
Team Krylov, Memorial for Respondent
iii
4. THE MAB ACT AND LABELING ORDINANCE ARE NOT ARBITRARY OR DISCRIMINATORY; NOR
HAS RURITANIA PROVIDED CLAIMANT LESS FAVOURABLE TREATMENT ON THE BASIS OF
NATIONALITY. ...................................................................................................................... 24
A. The MAB Act and Labeling Ordinance are not arbitrary because they are rationally
connected to Ruritania’s objective to protect public health. ........................................ 24
B. The MAB Act and Labeling Ordinance are not discriminatory because they apply
equally to companies causing similar risks to the public. ............................................ 26
C. Ruritania is owed deference in the determination of domestic health policy. ........... 29
D. The MAB Act and Labeling Ordinance respected Ruritania’s obligation to accord
national treatment as they apply equally to both Ruritania’s nationals and foreign
investors in like situations. ........................................................................................... 30
E. The MAB Act and Labeling Ordinance cannot be considered a breach of BIT
Article 3 because they had to be taken for reasons of public security and order. ...... 30
III. DAMAGES ........................................................................................................................... 35
1. THIS TRIBUNAL LACKS JURISDICTION TO AWARD COMPENSATION FOR LOSS OF SALES TO
CLAIMANT’S BUSINESSES OUTSIDE RURITANIA BECAUSE THEY DO NOT FORM PART OF
CLAIMANT’S INVESTMENT. .................................................................................................. 35
2. THIS TRIBUNAL CANNOT AWARD “MORAL DAMAGES” TO CLAIMANT BECAUSE CLAIMANT
FAILED TO ESTABLISH THAT IT HAS SUFFERED GRAVE DAMAGES CAUSED BY RURITANIA’S
ACTIONS. .............................................................................................................................. 36
REQUEST FOR RELIEF .......................................................................................................... 38
Team Krylov, Memorial for Respondent
iv
LIST OF AUTHORITIES
ARTICLES AND BOOKS
Alvarez-Jimenez
Alvarez-Jimenez, A., “The Interpretation of Necessity Clauses in Bilateral Investment Treaties After the Recent ICSID Annulment Decisions”, Sauvant, K. (ed), Yearbook on International Investment Law & Policy 2010-2011, Oxford University Press, 2011.
Burke-White and Van Staden
Burke-White, W. and Van Staden, A., “Investment Protection in Extraordinary Times: the Interpretation and Application of Non-Precluded Measures Provisions in Bilateral Investment Treaties”, Virginia Journal of International Law, Vol. 48, 2007, page 307.
Carreau and Juillard
Carreau, D. and Juillard, P., Droit international économique, Dalloz, 2005.
Christie Christie, G.C., “What Constitutes A Taking of Property Under International Law?” British Yearbook of International Law, Vol. 38, 1962.
Crawford Crawford, J., “Treaty and Contract in Investment Arbitration”, Arbitration International, Vol. 24, Issue 3, 2008.
de Gramont de Gramont, A., “After the Water War: the Battle for Jurisdiction in Aguas Del Tunari, S.A. v. Republic of Bolivia”, Transnational Dispute Management, Vol. 3, No. 5, 2006.
Dolzer and Schreuer
Dolzer, R. and Schreuer, C., Principles of International Law, Second Edition, Oxford University Press, 2012.
Dumberry Dumberry, P. “Compensation for Moral Damages in Investor-State Arbitration Dispute”, Journal of International Arbitration, Vol. 27, No. 3, 2010.
Foster Foster, C., “Adjudication, Arbitration and the Turn to Public Law ‘Standards of Review’: Putting the Precautionary Principle in the Crucible”, Journal of International Dispute Settlement, Vol. 3, No. 3, 2012.
Herz Herz, J., “Expropriation of Foreign Property,” American Journal of International Law, Vol. 52, No. 2, 1941, page 243.
Newcombe Newcombe, A., “The Boundaries of Regulatory Expropriation in International Law,” ICSID Review, Vol. 20, No. 1, 2005.
Newcombe and Paradell
Newcombe, A. and Paradell, L., Law and Practice of Investment Treaties: Standards of Treatment, Kluwer Law International, 2009.
Schill Schill, S., “Umbrella Clauses as Public Law Concepts in Comparative Perspective”, International Investment Law and comparative public law, Oxford University Press, 2010.
Team Krylov, Memorial for Respondent
v
Schreuer - ETC Schreuer, C., “The Concept of Expropriation under the ETC and other Investment Protection Treaties” Transnational Dispute Management, Vol. 2, No. 5, 2005.
Schreuer - The ICSID Convention
Schreuer, C., The ICSID Convention: A Commentary, Cambridge University Press, 2001.
Schreuer – BIT Route
Schreuer, C., “Travelling the BIT Route of Waiting Periods, Umbrella Clauses and Forks in the Road”, Journal of World Investment & Trade, Vol.5, 2004, page 231.
UNCTAD - FET
UNCTAD Series on Issues in International Investment Agreements II, Fair and Equitable Treatment, 2012.
Wilkinson and Room
Wilkinson, C. and Room, R., “Warnings on Alcohol Containers and Advertisements: International Experience and Evidence on Effects,” Drug and Alcohol Review, Vol. 28, No. 4, 2009.
MISCELLANEOUS
Espinosa - WIPO Trademark Rights
Octavio Espinosa, Trademark Rights; Overview of Provisions in the Paris Convention and the TRIPS Agreement, WIPO, Geneva March 15 2012.
Hutterian Brethren
Alberta v. Hutterian Brethren of Wilson Colony, 2009 SCC 37, Supreme Court of Canada Judgements.
ILC Articles International Law Commission’s Draft Articles on Responsibility of the State for Internationally Wrongful Acts, 2001.
OECD Draft Convention
OECD Draft Convention on the Protection of Foreign Property, 7 ILM 118, 1968.
WHO WHO, WHA 61.4 Resoltuion : http://www.who.int/substance_abuse/activities/globalstrategy/en/index.html
WHO - Alcohol World Health Organization, Global Strategy to Reduce Harmful Use of Alcohol, page 14-15.
Team Krylov, Memorial for Respondent
vi
LIST OF LEGAL SOURCES
ARBITRAL DECISIONS
ADF ADF Group Inc. v. United States of America, ICSID Case No. ARB (AF)/00/1, Award, 9 January 2003.
AES AES Summit Generation Limited and AES-Tisza Erömü Kft. v. Republic of Hungary, ICSID Case No. ARB/07/22, Award, 23 September 2010.
Azurix Azurix Corp. v. The Argentine Republic, ICSID Case No. ARB/01/12, Award, 14 July 2006.
Benvenuti & Bonfant
S.A.R.L. Benvenuti & Bonfant v. People's Republic of the Congo, ICSID Case No. ARB/77/2, Award, 8 August 1980.
BG BG Group Plc. v. The Republic of Argentina, UNCITRAL, Award, 24 December 2007.
Biwater Gauff Biwater Gauff v. Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008.
Cargill Cargill, Incorporated v. United Mexican States, ICSID Case No. ARB (AF)/05/2, Award, 18 September 2009.
Cementownia Cementownia "Nowa Huta" S.A. v. Republic of Turkey, ICSID Case No. ARB(AF)/06/2, Award, 17 September 2009.
Chemtura Chemtura Corporation v. Government of Canada, UNCITRAL, Award, 2 August 2010.
CMS CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Award, 12 May 2005.
CMS Annulment
CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the ad hoc Committee on the application for annulment, 25 September 2007.
Continental Causality
Continental Casualty Company v. The Argentine Republic, ICSID Case No. ARB/03/9, Award, 5 September 2008.
Dessert Line Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6 February 2008.
Duke Duke Energy Electroquil Partners & Electroquil S.A. v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award, 18 August 2008.
EC-Asbestos EC-Asbestos (Canada v. European Communities), WTO Apellate Body, Report, 12 March 2001.
El Paso El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Award, 31 October 2011.
Team Krylov, Memorial for Respondent
vii
ELSI Elettronica Sicula S.p.A (ELSI) (United States of America v. Italy), ICJ, Award, 20 July 1989.
Enron Enron Corporation and Ponderosa Assets, L.P. v. The Argentine Republic, ICSID Case No. ARB/01/3, Award, 22 May 2007.
Enron Annulment
Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Decision on the Application for Annulment of the Argentine Republic, 30 July 2010.
Feldman Marvin Roy Feldman v. Mexico, ICSID Case No. ARB(AF)/99/(1), Award, 16 December 2002.
Frontier Petroleum
Frontier Petroleum Services Ltd. v. The Czech Republic, UNCITRAL, Award, 12 November 2010.
Glamis Glamis Gold, Ltd. v. The United States of America, UNCITRAL, Award, 8 June 2009.
Impregilio Impregilo S.p.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/3, Jurisdiction, 22 April 2005.
Lauder Ronald S. Lauder v. The Czech Republic, UNCITRAL, Final Award, 3 September 2001.
Lemire Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability, 14 January 2010.
LG&E LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006.
Lusitania Opinion in the Lusitania Case, United States-Germany Mixed Claims Comission, 1923, VII U.N.R.I.A.A.32.
Neer L. F. H. Neer and Pauline Neer (U.S.A.) v. United Mexican States, Mexico-USA General Claims Commission,15 October 1926.
Noble Ventures
Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award, 12 October 2005.
Parkering Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8, Award, 11 September 2007.
Pope & Talbot Pope & Talbot Inc. v. Canada, UNCITRAL, Interim Award, 26 June 2000.
Salini Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, 31 July 2001.
Saluka Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award, 17 March 2006.
SD Myers S.D. Myers, Inc. v. Government of Canada, UNCITRAL, Partial award, 13 November 2000.
Team Krylov, Memorial for Respondent
viii
Sempra Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16, 29 June 2010.
Sempra Annulment
Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16, Decision on the Argentine Republic’s Application for Annulment of the Award, 29 June 2010.
SGS v. Pakistan
SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction, 6 August 2003.
SGS v. Philippines
SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Decision on Jurisdiction, 29 January 2004.
Siemens Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/08, Award, 17 January 2007.
Société Général v. Dominican Republic
Société Générale in respect of DR Energy Holdings Limited and Empresa Distribuidora de Electricidad del Este, S. A. v. The Dominican Republic, UNCITRAL, LCIA Case No. UN 7927, 19 September 2008.
Suez Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi Universal SA v. Argentina and AWG Group Ltd v Argentina, ICSID Case No ARB/03/17, Decision on Liability, 30 July 2010.
Tecmed Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2, Award, 29 May 2003.
Thunderbird International Thunderbird Gaming Corporation v. The United Mexican States, UNCITRAL, Arbitral Award, 26 January 2006.
Too Emanuel Too v. Greater Modesto Insurance Associates, 23 Iran-United States CTR, Award, 29 December 1989.
Total Total S.A. v. The Argentine Republic, ICSID Case No. ARB/04/01, Decision on Liability, 27 December 2010.
Toto Costruzioni
Toto Costruzioni Generali S.p.A. v. The Republic of Lebanon, ICSID Case No. ARB/07/12, Decision on Jurisdiction, 11 September 2009.
Vivendi I Annulment
Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment, 3 July 2002.
Team Krylov, Memorial for Respondent
ix
TREATIES AND CONVENTIONS
Canada Model FIPA
Canada Model FIPA, 2004.
German Model Treaty
German Model Treaty, 2005.
ICESCR International Covenant on Economic, Social and Cultural Rights, 1976.
Spain-Mexico BIT
Treaty for the Mutual Protection and Promotion of Investments between the Kingdom of Spain and the United Mexican State, 2006.
US Model BIT US Model BIT, 2004.
Team Krylov, Memorial for Respondent
x
LIST OF ABBREVIATIONS
¶ Paragraph
BIT Treaty of Mutual Promotion and Protection of Foreign Investment between The Republic of Ruritania and The State of Cronos, 15 March 1997
Claimant’s subsidiaries Claimant’s agricultural and bottling subsidiaries
Cronos State of Cronos CS Contifica Spirits S.P.A. FBI Freecity Breweries Inc. FET Fair and equitable treatment FPS Full protection and security Fund State Property Fund of Ruritania HRI Human Health Research Institute ICC International Chamber of Commerce ICSID International Center for Settlement of Investment Disputes IP Intellectual property
Labeling Ordinance
Ordinance adopted on 30 June 2011 by the Ministry of Health and Social Security which requires any product containing Reyhan concentrate to be labeled with an explicit warning
MAB Act Regulation of Sale and Marketing of Alcoholic Beverages Act, 20 November 2010
MDB Methyldioxidebenzovat MHSSR Ministry of Health and Social Security of Ruritania OECD Organisation for Economic Co-operation and Development PO No Procedural Order number Ruritania Republic of Ruritania (Respondent) SoC Statement of Claim
SPA Share Purchase Agreement between the State Property Fund of Ruritania and Contifica Spirits SPA
UNCITRAL United Nations Commission on International Trade Law UNCITRAL-DIS UNCITRAL Arbitration Rules Administered by the DIS
US United States USD United States Dollar WIPO World Intellectual Property Organization
Team Krylov, Memorial for Respondent
1
STATEMENT OF FACTS
1. On 30 September 2012, Contifica Asset Management (“Claimant”) brought a claim
instituting arbitration proceedings against Republic of Ruritania (“Ruritania”) based on
regulatory changes adopted by Ruritania. On 15 December 2012, Ruritania issued a
Statement of Defense, contesting the jurisdiction of the Tribunal and admissibility of the
claims submitted by Claimant and recommending the Tribunal dismiss the claims as
meritless.
2. Respondent is Ruritania. Claimant, Contifica Asset Management, is a company
incorporated under the laws of the State of Cronos (“Cronos”). Ruritania and Cronos are
parties to the Treaty of Mutual Promotion and Protection of Foreign Investment, dated 15
March 1997 (“BIT”).
3. Ruritania owned and operated Freecity Breweries Inc. (“FBI”) from 1928 until 2008. FBI
produces a number of different brands of beer. One of the brands, Freebrew, has a distinct
flavouring that comes from the ingredient Reyhan. Until 2008 FBI was owned by the
State Property Fund (“Fund”), a separate legal entity with its own legal personality.
4. In 2008, due to the financial crisis, Ruritania had a budget deficit. As a result, the
government decided to privatize a number of state assets. The Fund decided to sell FBI to
a private investor through an international tender. On 30 June 2008, FBI was purchased
by Contifica Spirits (“CS”) for USD 300,000,000.
5. In the Share Purchase Agreement (“SPA”), the Fund warranted that to its knowledge, the
brewery’s products did not pose any risks to consumers other than those ordinary for
similar alcoholic beverages. The SPA’s forum selection clause states that all disputes
arising out of the SPA should be submitted to the International Chamber of Commerce
(“ICC”).
6. In January 2010, the New Way Party secured a majority in the Ruritanian Parliament.
The New Way Party was elected on a widely publicized manifesto taking a hard stance
towards the marketing and sale of alcohol.
Team Krylov, Memorial for Respondent
2
7. On 17 March 2010, FBI’s shares and intellectual property (“IP”) were transferred from
CS to Claimant. The transfer was completed for a token amount of 10,000 Ruritanian
pounds (less than USD 5,000).
8. The purpose of this transfer is discussed in a memorandum disclosed by Claimant,1 dated
1 March 2010. In the memorandum, Contifica Group considered “various means of
achieving further protection of …[its investments] in Ruritania.” As CS is incorporated in
Posteriana, a State that does not have an investment treaty with Ruritania, the Group
considered the legal environment and speed of restructuring in choosing a jurisdiction
with greater protection.
9. On 20 November 2010, the Ruritanian Parliament enacted the Regulation of Sale and
Marketing of Alcoholic Beverages Act (“MAB Act”). The New Way Party was elected
with a mandate to enact alcohol regulation legislation. The regulation is intended to
protect the population’s health by addressing the problems of alcohol addiction and
exposure of youth to alcohol. It also includes a prohibition on the advertising and sale of
alcohol at sporting events to prevent association between alcohol, a healthy lifestyle and
athletic excellence.
10. On 15 June 2011, the Ministry of Health and Social Security (“MHSSR”) received a
report from the Human Health Research Institute (“HRI”) stating that consumers of
Freebrew were exposed to higher risk of cardiac complications due to the effects of
Methyldioxidebenzovat (“MDB”). MDB is the active chemical ingredient in Reyhan
concentrate. The research was based on a longitudinal study. In accordance with the
proper procedure to adopt an Ordinance, the MHSSR considered the evidence available,
the degree of potential risk involved and alternative measures.
11. On 30 June 2011, the MHSSR adopted the Labeling Ordinance. The label warns
consumers that “according to the result of scientific research,” products containing
Reyhan concentrate “may lead to higher risk of cardiac complications.”
1 Exhibit RX 1, Statement of Defence.
Team Krylov, Memorial for Respondent
3
12. In early December, the Prosecutor’s Office, acting on “information” that the executives
had bribed the Fund of Ruritania, began an investigation into Messrs. Goodfellow and
Straw, executives of FBI and Contifica Group. On 23 December 2011, Messrs.
Goodfellow and Straw were detained at the Freecity International Airport as they
attempted to leave the country. They were held until 3 January 2012. On 20 June 2012,
Ruritania decided to close the investigation.
13. Since the adoption of the MAB Act and the Labeling Ordinance for the public benefit,
Claimant has brought a claim for compensation under the BIT.
Team Krylov, Memorial for Respondent
4
SUMMARY OF ARGUMENTS
14. This Tribunal lacks jurisdiction because Claimant is not a bona fide Investor and
the Fund is a separate legal entity. This Tribunal lacks jurisdiction ratione personae
under the BIT. Claimant’s acquisition of FBI is an abuse of process because it is “treaty
shopping”. This Tribunal lacks jurisdiction over SPA claims because they relate to a
dispute between Claimant and the Fund, not a party to the BIT. The claim for breach of
the SPA warranty is inadmissible because the SPA’s forum selection clause directs such
contractual disputes to ICC arbitration.
15. Ruritania has not breached its obligations under the BIT by implementing the MAB
Act and Labeling Ordinance. Claimant has not been substantially deprived of its
Investment. In any case, the MAB Act and Labeling Ordinance were valid exercises of
Ruritania’s police powers. Ruritania has not breached its obligation to provide fair and
equitable treatment (“FET”). Ruritania has a right to regulate to protect the health of its
nationals. Claimant’s expectations were not legitimate considering the election of the
New Way Party. Ruritania has not breached its obligation to provide full protection and
security (“FPS”); it neither physically interfered with Claimant’s rights, nor denied access
to legal protection. Further, Ruritania did not arbitrarily impair Claimant’s Investment
because there is a rational connection between Ruritania’s objectives and the regulatory
measures adopted. Ruritania did not discriminate against Claimant because distinctions
between Investors were rationally connected to the purpose of the regulation. These
measures were taken for reasons of public security and order.
16. Ruritania does not owe damages to Claimant’s subsidiaries, nor to Claimant for the
breach of FPS. Ruritania does not owe damages to Claimant’s subsidiaries because they
are not an Investment under the BIT. This Tribunal must deny Claimant’s request for
“moral damages” because the arrest and detention of Messrs. Goodfellow and Straw were
not exceptional circumstances and did not cause damage to Claimant.
Team Krylov, Memorial for Respondent
5
I. JURISDICTION & ADMISSIBILITY
17. Respondent will demonstrate that this Tribunal lacks jurisdiction ratione personae under
BIT Article 8 because (1) Claimant is not a bona fide Investor under the BIT; and (2) this
Tribunal lacks jurisdiction over the alleged breach of the SPA because Ruritania is not a
party to the SPA. (3) In any case, the present claim is inadmissible because it is a contract
claim governed by the SPA.
1. CLAIMANT IS NOT A BONA FIDE INVESTOR UNDER THE BIT.
18. The bona fide nature of an Investment is at the heart of a good faith interpretation of the
BIT. Adherence to the principle of good faith requires that strict interpretation of an
applicable provision not be used to undermine and manipulate the commitments2 entered
into by Ruritania.
19. The BIT Preamble emphasizes a balance of interests. Ruritania has committed to
protecting and encouraging Investments and Investors under the BIT, and has consented
to arbitration for alleged BIT violations.
20. An Investment made in breach of the principle of good faith is directly relevant to
Ruritania’s consent to arbitrate and the jurisdiction of this Tribunal. Consent to
arbitration cannot extend to disputes concerning Investments that are not bona fide.
21. The transfer of an Investment, effected for the purpose of bringing a claim under the BIT,
is a manipulation of international law. This Tribunal lacks jurisdiction ratione personae
because BIT Article 8 states that disputes concerning Investments between an Investor
and a Contracting State shall be submitted to international arbitration. This abuse of
process precludes an entity from claiming protection as an Investor under the BIT.
22. Claimant is not a bona fide Investor under the BIT because (A) characterising Claimant
as an Investor under BIT Article 1.3 violates the object and purpose of the BIT; and (B)
2 Mobil, ¶169.
Team Krylov, Memorial for Respondent
6
the transfer of FBI to Claimant was done in anticipation of the need to bring a claim and
is an abuse of process.
A. Characterising Claimant as an Investor under BIT Article 1.1 violates the object and purpose of the BIT.
23. An abuse of process precludes a claim to coverage under the BIT because an entity
cannot be characterised as an Investor where their characterisation would frustrate the
object and purpose of the BIT.
24. The definition of Investor under BIT Article 1.3(b) and the BIT Preamble are coextensive.
A purposive interpretation is required by VCLT Article 31.1. Interpreting BIT Article
1.3(b) independently would undermine the basis of the relationship between the Investor
and the Contracting State. This is expressed in the BIT Preamble, which states that the
BIT was concluded out of the Contracting States’ desire “to intensify economic co-
operation…with a view to stimulate private enterprise.”
25. Where ownership of an Investment is transferred for the purpose of bringing a
foreseeable claim, the transfer is an abuse of process and the claimant’s characterisation
as an Investor under BIT Article 1.3(b) runs counter to the BIT’s object and purpose.
26. Claimant purchased FBI in the face of a foreseeable claim. The circumstance of
Claimant’s transfer is an abuse of process and precludes Claimant from coverage as an
Investor under the BIT.
B. The timing of the transfer of FBI to Claimant is best explained as a transfer in anticipation of a claim.
27. The effect of the transfer’s timing is an abuse of process. When the transfer of FBI was
made, Claimant’s claim was within the reasonable contemplation of CS. An abuse of
process exists where this Tribunal can impute from the facts that the transfer was made
for the purpose of bringing a claim.
28. Parties may not do indirectly what they cannot do directly. A dispute which could not be
brought against Ruritania because CS lacked protection under an investment treaty
Team Krylov, Memorial for Respondent
7
cannot be perfected via assignment to Claimant in order to attain jurisdiction before
UNCITRAL-DIS.
29. In Mihaly, Mihaly (Canada) lacked jurisdiction under ICSID for a dispute regarding its
investment in Sri Lanka. In attempting to secure ICSID jurisdiction over the dispute,
Mihaly (Canada) assigned the investment to Mihaly (USA). Declining jurisdiction, the
Tribunal explained that “… no one could transfer a better title than what he really has.”3
“To allow such an assignment to operate in favour of Mihaly (Canada) would defeat … the sanctity of the privity of international agreements not intended to create rights and obligations for non-Parties. Accordingly, a … claim which was not … capable of being invoked before ICSID could not have been admissible or able to be entertained under the guise of its assignment to the US Claimant.”4
30. To determine whether the purpose of Claimant’s transfer was to perfect a jurisdictional
deficiency –therefore constituting an abuse of process– the appropriate standard is:
“[w]hether it was sufficiently foreseeable [at the time of transfer] that [Claimant] might
want to assert any claims under the BIT based on events that were already in progress,
and, based on such foresight, undertook a corporate reorganization to be able to do so.”5
31. The Tribunal in Cementownia found that even a legitimate transfer in advance of the
cancellation of two electrical concession contracts with Turkey, would not have permitted
a bona fide claim under the BIT. The Tribunal held that a falsified transfer in anticipation
of active government measures that culminated in the concessions’ termination (and
breach of the BIT) could not be used to “fabricate international jurisdiction where none
should exist.”6
32. In interpreting the definition of Investor, this Tribunal must take a reasonable approach
between two extremes: not so broad that the BIT would be exploited, and not so narrowly
that bona fide Investors would not benefit from the BIT’s protection. Ruritania
acknowledges Investors may strategically seek BIT protection. However, doing so
3 Mihaly, ¶24. 4 Mihaly, ¶24. 5 de Gramont, page 28. 6 Cementownia, ¶117.
Team Krylov, Memorial for Respondent
8
contrary to the BIT’s object and purpose is an abuse of process and undermines the goal
of a beneficial relationship between Investors and Contracting States. Ruritania’s BIT is
not a BIT with the entire world.7 This Tribunal must protect the principle of good faith
central to the BIT.
33. The events that Claimant alleges affected their Investment were foreseeable. The New
Way Party’s election campaign platform –to take a hard stance against the marketing and
sale of alcohol in order to reduce consumption– was widely publicized.8 Polls indicated
that the New Way Party was very likely to claim victory and win a majority in the
Ruritanian Parliament.9 At the moment of electoral victory, having promised to introduce
legislation to the effect of the MAB Act, it was foreseeable that the government would
act on their electoral commitments.
34. CS transferred FBI less than two months after the New Way Party’s victory. The timing
of the transfer after two years of ownership without issue indicates that the transfer was
effected in anticipation of bringing a claim. The 1 March 2010 memo sent to Mr.
Goodfellow, the Chief Executive Officer of FBI,10expressing a need for further protection
for Contifica Group, evidences this.
35. The right to make a claim under the BIT is not bona fide because CS did not have the
right to transfer the option to make a claim. The transfer of FBI to Claimant triggered the
option to exercise rights under the BIT that it did not already have in relation to the
government’s foreseeable course of action.
36. Requiring that the facts leading to a dispute crystallise before the transfer occurs in order
to establish an abuse of process ignores the process by which governments make
decisions and the context in which investments are made. It cannot be held that the
7 de Gramont, page 26. 8 SoD, ¶6; PO No 2, ¶9. 9 PO No 3, ¶19. 10 PO No 2, ¶21.
Team Krylov, Memorial for Respondent
9
Contracting States, in acceding to the BIT, accepted that a protected Investor could
recover under the BIT for disputes that arose outside of the BIT’s jurisdiction.11
37. This Tribunal must impute that the transfer was effected in anticipation of the ability to
bring a foreseeable claim, and therefore inclusion of Claimant under the BIT definition of
Investor would expand the scope of the definition in a manner inconsistent with the
object and purpose of the BIT.
2. THIS TRIBUNAL LACKS JURISDICTION OVER THE ALLEGED BREACH OF THE SPA.
38. Based on BIT Article 8, this Tribunal has jurisdiction over “disputes concerning
Investments between a Contracting State and an Investor.” In this BIT, Ruritania and
Cronos are the Contracting States.
39. This Tribunal lacks jurisdiction ratione personae over Claimant’s claim because the
alleged breach of the SPA is a dispute between Claimant and the Fund.
40. The SPA is a contractual agreement entered into by the Fund, a separate legal entity for
which Ruritania is not responsible. Claimant’s dispute regarding the alleged breach of the
SPA is not with Ruritania but with the Fund, which is not a Contracting State to the BIT.
41. The dispute based on the alleged breach of the SPA is a separate dispute over a
contractual breach. When addressing a contractual breach, a tribunal must evaluate it
within the framework of that contract to respect the contracting parties’ intentions.
42. In accordance with SPA Article 14.1, the “agreement shall be governed by the laws of the
Republic of Ruritania.” The BIT Umbrella Clause cannot be interpreted to transform or
modify the original contract.12 The BIT Umbrella Clause does not change the law
applicable to a breach of the SPA, nor change the parties bound by the SPA.
43. Under Ruritanian law –the law governing the SPA– the Fund is a separate legal entity for
which Ruritania bears no liability. The Fund’s acts and omissions are not attributable to
Ruritania.
11 Société Générale v Dominican Republic, ¶111. 12 CMS Annulment, ¶95.
Team Krylov, Memorial for Respondent
10
44. Claimant is attempting to graft contractual obligations on to Ruritania by applying the
ILC Articles. This reasoning is flawed because ILC Articles establish the responsibilities
of states for internationally wrongful acts. The scope of these rules is not meant to extend
to the attribution of mere contractual breaches governed by municipal law. Even by
applying the ILC Articles Ruritania would still not be responsible for the Fund’s actions,
as no conditions set in ILC Articles 3 through 8, the attribution section, are met.
45. Claimant’s contention that the Fund’s structure and function is effectively controlled by
Ruritania is unfounded. Even if the Fund’s Director-General and Board are appointed by
the State, the Fund is a separate legal entity with its own legal personality. No directives
were given to the Fund requiring the conclusion of the SPA. Therefore, the conclusion of
the SPA cannot be considered an exercise of governmental authority.
46. Since obligations under the SPA were entered into by the Fund, they are not Ruritania’s
obligations. As the dispute is not between Ruritania, the Contracting State, and Claimant,
the Investor, conditions of BIT Article 8 are not met and the Tribunal lacks jurisdiction.
47. In any case, BIT Article 6.2 does not grant this Tribunal jurisdiction over mere
contractual breaches. It is a well-established principle of international law that a violation
of a contract does not automatically amount to a breach of international law and a
treaty. 13 As protection under the BIT Umbrella Clause cannot be granted to all
commercial actions undertaken by a State, it must be limited to breaches of obligations
by the State as a sovereign.14 In the present case, it is evident that there was no
contractual breach caused by an exercise of sovereign power.15 Claimant is asking this
Tribunal to adopt an interpretation that would compromise international dispute
settlement. Such an interpretation would lead to a high number of commercial claims
under international arbitration and would make all the other BIT substantive protection
useless.16
13 Vivendi I Annulment, ¶95. 14 Salini, ¶155. 15 El Paso, ¶ 79, 81-82. 16 SGS v. Pakistan, ¶172; Schreuer – BIT Route, page 255.
Team Krylov, Memorial for Respondent
11
3. IN ANY CASE, THE PRESENT CLAIM IS INADMISSIBLE BECAUSE IT IS A CONTRACT CLAIM GOVERNED BY THE SPA.
48. Even if this Tribunal finds that it has jurisdiction over the alleged breach of the SPA, the
claim must be deemed inadmissible as the appropriate forum for the dispute is the ICC.
The SPA includes an exclusive forum selection clause at Article 14.2, which refers all
disputes arising from the contract to the ICC. This clause was freely negotiated, applies
specifically to this dispute and must be respected.
49. As consistently determined by tribunals, precedence should be given to a contractual
forum selection clause over an investment treaty umbrella clause as the former applies
more specifically to the contractual dispute.17 Therefore, even if this Tribunal had
jurisdiction over the contractual breach, precedence would have to be accorded to the
ICC and the claim would have to be deemed inadmissible.
50. The Tribunal’s decision in SGS v. Philippines is particularly relevant on this matter as it
specifically addresses the effect of an umbrella clause on contracts with forum selection
clauses. As stated by the Tribunal majority, made up of arbitrators Dr. El-Kosheri and
Professor Crawford:
“It is not to be presumed that such a general provision [the Umbrella Clause] has the effect of overriding specific provisions of particular contracts, freely negotiated between the parties.”18
51. This conforms with Schreuer’s interpretation of dispute settlement clauses:
“[a] document containing a dispute settlement clause which is more specific in relation to the parties and to the dispute should be given precedence over a document of more general application.”19
52. The same reasoning must be followed in the present case as the general provision in BIT
Article 6.2 cannot be seen to override the forum chosen in SPA Article 14.2. The latter
must be given precedence as it refers specifically to a breach of the SPA. A contrary
17 SGS v. Philippines, ¶141. 18 SGS v. Philippines, ¶141. 19 Schreuer – The ICSID Convention, page 362.
Team Krylov, Memorial for Respondent
12
interpretation would go against the purpose of an investment protection agreement. The
BIT is intended to support and supplement, and not to override the SPA.20
53. Further, Claimant must respect the reciprocity of contractual obligations. Claimant cannot
seek to enforce the warranty provided in the SPA while simultaneously circumventing the
forum selection clause of the same agreement. Umbrella clauses, while reinforcing the
sanctity of contracts, do not alter the legal nature of the relationship nor the governing
law.21
54. Reviewing the application of the umbrella clause, the CMS Annulment ad hoc Committee,
comprising Judge Guillaume, Judge Elaraby and Professor Crawford, held that:
‘The effect of the umbrella clause is not to transform the obligation which is relied on into something else; the content of the obligation is unaffected, as is its proper law’.22
55. Crawford elaborates on this finding in an article:
“(…) claims are still contractual and they are still governed by their own applicable law. The distinction between treaty and contract is maintained. The purpose of the umbrella clause is to allow enforcement without internalization and without transforming the character and content of the underlying obligation.”23
56. This interpretation is consistent with the ordinary meaning of BIT Article 6.2. Claimant is
invoking the contract to its advantage without respecting its own obligation under SPA
Article 14.2. The alleged breach of SPA is a contractual claim and must respect the
contract’s applicable law and forum selection clause, including the reciprocal nature of
obligations inherent to any contractual claim. Claimant cannot be allowed to circumvent
the SPA’s forum selection clause by claiming the alleged breach of the SPA’s warranty
under the BIT. This contradiction renders the claim inadmissible.
20 SGS v. Philippines, ¶141. 21 SGS v. Philippines, ¶126; Toto Construzioni, ¶202; Schill, page 320. 22 CMS Annulment, ¶95. 23 Crawford, page 370.
Team Krylov, Memorial for Respondent
13
II. MERITS
57. In this section, Respondent will demonstrate that (1) Claimant’s Investment has not been
expropriated; (2) Ruritania did not breach its obligation to provide FET to Claimant; (3)
Ruritania did not breach its obligation to provide FPS to Claimant; and (4) Ruritania has
not impaired, by arbitrary or discriminatory measures, Claimant’s rights, or provided less
favourable treatment on the basis of nationality under BIT Article 3.2.
1. CLAIMANT’S INVESTMENT HAS NOT BEEN EXPROPRIATED.
58. Claimant has not met its burden of establishing Ruritania’s actions have substantially
deprived Claimant of its Investment in FBI because (A) Claimant continues to own FBI
and to produce beer; and (B) Claimant’s has not been substantially deprived of its
trademarks.
59. In any event, (C) the MAB Act and Labeling Ordinance were valid exercises of
Ruritania’s police powers.
A. Claimant has not been substantially deprived of FBI because Claimant continues to own and operate FBI.
60. No expropriation has occurred. Claimant alleges that the MAB Act and the Labeling
Ordinance amount to an indirect expropriation of FBI and its trademark rights. However,
Claimant’s evidence does not establish that it has been substantially deprived.
61. The standard Claimant must satisfy to establish indirect expropriation, a “taking”, is
“substantial deprivation.”24 In finding that Canada had not expropriated the claimant’s
investment, the Tribunal in Pope and Talbot stated that interference must be “sufficiently
restrictive” to rise to the level of expropriation.25 The investment must “cease to exist.”26
Further, these measures must be permanent or irreversible.27
24 Pope and Talbot, ¶102. 25 Pope and Talbot, ¶102. 26 Glamis, ¶357. 27 Biwater Gauff, ¶463.
Team Krylov, Memorial for Respondent
14
62. Claimant has not satisfied this standard. First, Claimant retains title to and control of FBI.
Second, Claimant retains market access. Third, FBI’s financial losses alone are not
sufficient to constitute an expropriation.
63. First, Claimant retains title to FBI and continues to manage its day-to-day operations. A
claim of expropriation should not be found where regulatory action has not deprived
Claimant of control of the Investment, interfered directly in Claimant’s internal
operations or displaced Claimant as the controlling shareholder.28
64. Claimant’s business activities are not being supervised by Ruritania, nor is Claimant
prohibited from producing and selling its products since the implementation of the MAB
Act. Likewise, the Labeling Ordinance – adopted after scientific research demonstrated
the adverse health effects of MDB – merely allows consumers to make informed choices.
65. Second, Claimant continues to have capacity to produce beer and there is still a market
for beer in Ruritania. While the MAB Act places reasonable limits on the marketing and
sale of alcohol, consumption of alcohol is not prohibited. There is still a market for
alcohol as it can be served at catering establishments between 9:00am and 9:00pm.
Alcohol may be marketed in print and radio, so long as it is not advertised as compatible
with a healthy way of life.
66. Third, FBI’s financial losses alone are not sufficient to constitute an expropriation. The
Tribunal in CMS rejected a claim of expropriation where the claimant maintained
ownership and control of an investment though the investment’s value was severely
diminished.29
67. In this case, Claimant retains title, control, and the ability to produce beer. Claimant has
not established that Ruritania has effectively “taken” FBI.
28 Feldman, ¶152. 29 CMS, ¶263.
Team Krylov, Memorial for Respondent
15
B. Claimant has not been substantially deprived of its trademarks
68. Claimant has not been substantially deprived of its trademark rights because it has not
been substantially deprived of the right to exclude others from using its trademarks.
69. For a trademark to be expropriated, the owner must be substantially deprived of the right
to exclude others from using its mark in relation to the registered goods or services.30
Trademark protection provides a right to exclusivity. Essentially, ownership of a
trademark provides recourse against those who infringe the holder’s rights.31
70. In this case, Claimant has registered trademarks relating to beer brands and bottles. Thus,
Claimant has the right to exclude others from using its marks in relation to beer products.
Claimant’s trademarks remain registered and Claimant has not been deprived of this right.
While the MAB Act prescribes requirements for the labels and bottle sizes, it does not
prohibit FBI from enforcing its right to prevent others from using its marks.
71. Further, even if use is a trademark right, Claimant has not been deprived of this right
because trademark use has not been prohibited per se. Under the MAB Act, Claimant
may still use its marks to advertise beer in a number or forums. It is only restricted from
using its trademarks on beer packaging and in a way that suggests alcohol is compatible
with a healthy way of living.
C. The MAB Act and Labeling Ordinance were a valid exercises of Ruritania’s police powers.
72. Ruritania’s implementation of the MAB Act, and the Labeling Ordinance were valid
exercises of Ruritania’s police powers.
73. States do not commit expropriation and are not liable to pay compensation when they
adopt regulations that are within their police powers.32 Christie opines,
“…the operation of a State’s tax laws, changes in the value of a State’s currency, actions in the interest of public health and morality, will all serve to
30 Espinosa – WIPO Trademark Rights. 31 Espinosa – WIPO Trademark Rights. 32 Saluka.
Team Krylov, Memorial for Respondent
16
justify actions which because of their severity would not otherwise be justifiable.”33
Thus, bona fide regulatory action undertaken for a recognised purpose, in a good
faith and in a non-discriminatory fashion is a valid exercise of police powers.34
74. The right to regulate specifically pertains to claims of expropriation of foreign property.
Herz writes,
“…interference with foreign property in the exercise of police power is not considered expropriation. The state is deemed to be free to take all necessary steps in this respect without incurring any of the obligations which generally accompany ordinary expropriation.”35
If the State’s reasons bear “some plausible relationship to the action taken”, then
there is no need to analyse the government’s motives further.36
i. Ruritania’s implementation of the MAB Act was a valid exercise of police powers.
75. The MAB Act was a valid exercise of Ruritania’s police powers because it was
undertaken for a recognised purpose, was non-discriminatory, and was enacted in good
faith.
76. The MAB Act was implemented in November 2010 to combat alcoholism and youth
exposure to alcohol. It limits the ways in which alcohol may be advertised, where and
when alcohol may be consumed, and alcohol bottling sizes.
77. In enacting the MAB Act, Ruritania acted to combat alcoholism and the risks posed by
exposure of youth to alcohol.37 According to Professor Newcombe, measures undertaken
for the protection of health are a legitimate objective within a state’s police powers.38
78. Ruritania was not only entitled but also obligated to undertake measures to protect the
health of its nationals. As a party to the International Covenant on Economic, Social and
33 Christie, page 331-332. 34 Too, ¶387; Saluka, ¶262. 35 Herz, ¶251. 36 Christie, page 338. 37 SoD, ¶14. 38 Newcombe, page 21.
Team Krylov, Memorial for Respondent
17
Cultural Rights, Ruritania recognises “the right of everyone to the enjoyment of the
highest attainable standard of physical and mental health.”39 The MAB Act is a step taken
to “achieve the full realisation of this right.”40
79. The World Health Organization has also recognised the adverse health effects of alcohol
and adopted a Global Strategy to reduce the harmful use of alcohol.41 Thus, Ruritania is
not an outlier in attempting to curb alcohol-related problems.
80. The MAB Act is not discriminatory as it has general application. The limitations apply to
all producers of alcohol, whether foreign or national, and include all types of beverages
that exceed 0.6 percent of alcohol by volume. Claimant’s Investment has not been
targeted.
81. Finally, these measures were undertaken in good faith to reduce and prevent alcoholism.
Ruritania has not received any financial benefit through this regulation. Rather, by
limiting the hours, location, and bottling sizes for consumption of alcohol, Ruritania can
achieve its goal of limiting youth exposure to alcohol and reduce the chance of alcohol
dependency. At the same time, alcohol consumption has not been criminalized.
ii. Ruritania’s implementation of the Labeling Ordinance was a valid exercise of police powers.
82. The Labeling Ordinance was a valid exercise of Ruritania’s police powers because it was
undertaken for a valid purpose, was non-discriminatory, and was enacted in good faith.
83. Ruritania implemented the Labeling Ordinance in the interest of public health. A
longitudinal study conducted by the HRI concluded that daily dosages of MDB could
cause cardiac complications.42 Cardiac complications are a serious concern and, to the
extent that they result from consumption of MDB, are preventable. Ruritania was entitled
to require products containing MDB to indicate as such.
39 ICESCR, Article 12.1. 40 ICESCR, Article 12.2. 41 WHO, WHA 61.4 Resolution. 42 SoC, ¶14.
Team Krylov, Memorial for Respondent
18
84. Like the MAB Act, this measure is applied generally and is not discriminatory. The label
is a requirement for all products containing Reyhan, including those of nationals. The
label is careful in stating that cardiac complications may result from consumption of
Reyhan. Again, Ruritania does not benefit from the Labeling Ordinance and there is no
evidence to suggest that it was implemented in bad faith.
85. Requiring Ruritania, or a state in similar circumstances, to pay compensation for
regulations undertaken for a recognised objective would reduce States’ sovereignty and
discourage actions to protect nationals.
2. RURITANIA DID NOT BREACH ITS OBLIGATION TO PROVIDE FET TO CLAIMANT.
86. BIT Article 2.1(b) obliges a Contracting State to accord FET to Investments by Investors
of the other Contracting State. (A) Ruritania has accorded FET pursuant to the minimum
standard of treatment under customary international law. In any event if the standard is
interpreted to be broader than customary international law (B) Ruritania has met the
standard of FET provided under the BIT.
A. Ruritania did not breach the FET standard as provided for under customary international law.
87. BIT Article 2.1(b) holds that: “Each Contracting State shall in its territory (…) (b) in
every case accord Investments by Investors of the other Contracting (…) fair and
equitable treatment (…) under this Treaty.”
88. BIT’s FET standard has its historical origins in the OECD Draft Convention on the
Protection of Foreign Property of 1967. The notes and comments to the Draft reveals that
the FET standard was understood as referring to the minimum standard of treatment
under customary international law.43
89. This interpretation was later confirmed in 1984 when the OECD Committee on
International Investment and Multinational Enterprises reported that all the Member
43 7 ILM 118, 120 (1968) as cited in Dolzer & Schreuer, page 135.
Team Krylov, Memorial for Respondent
19
countries that commented on this point agreed that FET introduced a substantive legal
standard referring to general principles of international law even if not explicitly stated.44
90. The Neer standard has been considered by many tribunals to establish the ‘international
minimum standard of treatment.’45 Historically, and in the present case, the appropriate
starting point when defining the content of BIT Article 2.1(b) is the Neer case.46
91. Neer establishes that a breach of the minimum standard treatment:
“should amount to an outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognise its insufficiency.”47
92. Many arbitral tribunals have recognised that the content of the minimum standard of
treatment under international law may have evolved since the Neer case.48 Importantly,
the burden rests on Claimant to prove that, at the time the BIT was concluded, the
minimum standard of treatment defined in Neer had evolved.49 It is evident that the
minimum standard of treatment, even if seen as an evolving concept, would not exclude
rational, reasonable regulatory changes, undertaken in good faith, to protect public health.
Ruritania’s legislative and regulatory measures would not breach either the customary
international law threshold set by Neer, or the evolving concept of the standard, which
remains a high threshold.50
B. Ruritania did not breach the FET standard as provided for under the BIT even if interpreted as an autonomous standard.
93. In any event, should this Tribunal interpret the BIT’s FET obligation as autonomous,
Ruritania has met the standard of FET provided under the BIT for two reasons: (i)
Claimant’s expectations were not legitimate at the time of investment; and (ii) Ruritania’s
actions were within its right to regulate to protect the health of its citizens.
44 OECD, 1984, p. 12 ¶36 as cited in Dolzer & Schreuer, page 135. 45 El Paso Award, ¶336; Glamis, ¶598. 46 Siemens, ¶291; Dolzer and Schreuer, page 139. 47 Neer, ¶556. 48 Thunderbird, ¶194; Glamis, ¶598, 616; Cargill, ¶284; ADF, ¶179. 49 Glamis, ¶601; Siemens, ¶293, 295. 50 Thunderbird, ¶194.
Team Krylov, Memorial for Respondent
20
i. Claimant’s expectations were not legitimate at the time of investment.
94. Where the FET standard is considered to protect an investor’s expectations with regard to
its investment in the host state, this Tribunal must consider whether Claimant’s
expectations at the time of investment were legitimate.51 ‘Legitimate expectations’ must
be evaluated objectively: an Investor’s expectations are legitimate where they are
reasonably based on specific representations52 made at the time of investment. FET does
not cover the subjective expectations an Investor may have had.
95. Claimant’s failure to conduct due diligence, and its subsequent ignorance of the
investment climate cannot provide a reasonable basis for a legitimate expectation that no
changes effecting their Investment would be implemented. At the time Claimant acquired
FBI, the New Way Party had just been elected as the majority government of Ruritania.
The New Way Party was elected with a mandate to take a hard stance toward the sale and
marketing of alcoholic beverages.
96. It is well established that foreign investors have an obligation to conduct due diligence at
the time of investment.53 Any diligent investor in the alcohol industry, conducting due
diligence before the acquisition of FBI, would have been aware that regulatory changes
were imminent. Further, Ruritania made no representation to the effect that there would
be no change in the regulation. In fact, the opposite is true. It was widely publicized
before Claimant’s investment that such changes would be made. Respondent cannot be
held liable, under the FET, for Claimant’s unreasonable assessment of risk at the time it
made its Investment. Consequently, this Tribunal cannot find that Claimant’s
expectations –that there would be no regulatory changes– were legitimate.
97. Claimant’s allegation that FET encompasses a stable legal framework does not prohibit
Ruritania from making legitimate legislative or regulatory changes. FET cannot elevate
the requirement for legal stability to mean that the host state’s laws are frozen at the time
of investment.
51 Tecmed, ¶154; Duke, ¶340; LG&E, ¶130. 52 Suez, ¶209; Parkering, ¶331. 53 UNCTAD – FET, page 70.
Team Krylov, Memorial for Respondent
21
98. An investor cannot “reasonably expect the circumstances prevailing at the time the
investment is made [will] remain totally unchanged.”54 Such an interpretation would
prevent the host state from introducing any regulatory changes for legitimate purposes.
As Crawford has explained, “In the absence of [an] express stabilization [clause],
investors take the risk that the obligations of the host state under its own law may
change."55
99. Further, it is well established that a mere breach of a contractual obligation, as alleged by
Claimant, is insufficient to constitute a breach of FET.56
100. Ruritania enacted regulatory changes for a legitimate purpose: the protection of its
citizen’s health. Claimant cannot legitimately expect that Ruritania would not enact
reasonable measures in such circumstances, specifically, when the intention to implement
such measures was publicly available in advance of Claimant’s Investment.
ii. This Tribunal must take Ruritania’s right to regulate into consideration when addressing Claimant’s legitimate expectations.
101. FET cannot be applied in a way that would preclude Ruritania from regulating in the
public interest.57 This standard cannot be interpreted as giving this Tribunal an open
mandate to review Ruritania’s exercise of its right to regulate.58As Ruritania is best suited
to enact regulations aimed at protecting the public’s health, this Tribunal must accord
deference to its legislative choices. This Tribunal need only to establish if Ruritania’s
legislation was enacted in a fair and equitable matter.
102. In the present case, regulatory changes had been launched out of legitimate regulatory
concerns due to the HRI’s finding. These changes were made in respect of Ruritania’s
responsibilities as a Sovereign and its international commitments to protect its nationals.
FET cannot be interpreted as prohibiting a State from making such changes.
54 Saluka, ¶305. 55 Crawford, page 370. 56 Impregilo, ¶268; Duke, ¶345; Dolzer and Schreuer, page 154: “ Most tribunals (…) have found that a simple breach of contract by a state would not trigger a violation of the FET standard.” 57 Saluka, ¶305-310; Total, ¶164; Parkering, ¶329-334; Lemire, ¶284-5; El Paso, ¶350-52, 355; Carreau and Juillard, page 1265. 58 SD Myers, ¶261, 263.
Team Krylov, Memorial for Respondent
22
103. The term “equitable” employed in the FET standard suggests that there must be a
balancing test between the Investor’s legitimate expectations and the State’s right to
regulate to protect its nationals.59 Therefore, when assessing a breach of FET, the
Tribunal must take into consideration the interests of both parties.60
104. Such a balancing test respects the purpose and objectives of the BIT, which is to “create
favourable conditions for Investment” but also to encourage “the prosperity of both
nations and the welfare of their nationals”. As demonstrated by the BIT Preamble, only
considering the Investor’s legitimate expectations without respecting the State’s right to
regulate domestic matters would fail to consider the bargain entered into between the two
parties at the time of investment.61
105. The factors that should be considered when assessing a FET claim have been summarized
in the Lemire case. According to the Tribunal:
“The protection of the legitimate expectations must be balanced with the need to maintain a reasonable degree of regulatory flexibility on the part of the host state in order to respond to changing circumstances in the public interest.62”
106. Ruritania respected Claimant’s legitimate expectations while exercising their right to
regulate to protect their nationals. Claimant was not entitled to expect that there would be
no regulatory changes as no representation was made to that effect. Further, the conduct
of proper due diligence would have made it clear at the time of investment that regulatory
changes would be made. This Tribunal must therefore conclude that Ruritania did not
breach Claimants legitimate expectations and accorded it FET.
59 UNCTAD – FET, page 7. 60 Saluka, ¶306; Total, ¶123, 309. 61 Saluka, ¶300. 62 Lemire, ¶284-285.
Team Krylov, Memorial for Respondent
23
3. RURITANIA DID NOT BREACH ITS OBLIGATION TO PROVIDE FPS TO CLAIMANT.
107. Under BIT Article 2.1(b), each Contracting State shall accord Investments by Investors of
the other Contracting State FPS. Contrary to Claimant’s allegation,63 the introduction of
the MAB Act and Labeling Ordinance does not breach this standard.
108. FPS cannot be breached by a state’s exercise of its right to regulate in the public interest.
Even if some tribunals have interpreted the standard as guaranteeing legal security, it
remains a standard of due diligence64 applying only to exceptional circumstances. This
standard cannot be interpreted as prohibiting Ruritania from implementing legitimate
regulatory changes. The mere fact that Claimant was affected by these changes does not
establish a breach of FPS.65
109. In AES, the Tribunal found that the FPS standard:
“(…) certainly does not protect against a state’s right to legislate or regulate in a manner which may negatively affect a claimant’s investment, provided that the state acts reasonably in the circumstances and with a view to achieving objectively rational public policy goals.”66
110. In effect, Claimant is asking this Tribunal to adopt an interpretation that would transform
FPS into a stabilization clause. The general terms used by BIT Article 2.1(b) cannot be
interpreted as having such an effect.67
111. The disputed regulations were reasonable in light of the balanced approach of the
measure. They were implemented in order to protect Ruritania’s nationals from an
imminent long-term risk and the restrictions imposed by the measures does not prohibit
Claimant from selling its product. Ruritania has accorded FPS under BIT Article 2.1(b).
63 SoC, ¶27. 64 Noble Ventures, ¶164. 65 Frontier, ¶261. 66 AES, ¶13.3.2. 67 AES, ¶13.3.5.
Team Krylov, Memorial for Respondent
24
4. THE MAB ACT AND LABELING ORDINANCE ARE NOT ARBITRARY OR DISCRIMINATORY; NOR HAS RURITANIA PROVIDED CLAIMANT LESS FAVOURABLE TREATMENT ON THE BASIS OF NATIONALITY.
112. To establish a breach of BIT Article 3, Claimant must either demonstrate that its
Investment has been impaired by an arbitrary or discriminatory measure or that it has
been accorded treatment less favourable than nationals of Ruritania or a third State.
Claimant does not demonstrate any of these requirements.
113. First, (A) The MAB Act and Labeling Ordinance are not arbitrary because they are
rationally connected to Ruritania’s objective to protect public health. Second, (B) the
MAB Act and Labeling Ordinance are not discriminatory because they apply equally to
companies causing similar risks to the public. (C) Ruritania is owed deference in the
determination of domestic health policy.
114. Further, (D) the MAB Act and Labeling Ordinance respected Ruritania’s obligation to
accord national treatment as they apply equally to both Ruritania’s nationals and foreign
Investors in like situations.
115. In any case, (E) the MAB Act and Labeling Ordinance cannot be considered a breach of
BIT Article 3 because they had to be taken for reasons of public security and order.
A. The MAB Act and Labeling Ordinance are not arbitrary because they are rationally connected to Ruritania’s objective to protect public health.
116. The MAB Act and Labeling Ordinance are not arbitrary because they are connected to
the objective of protecting health. The term “arbitrary” in BIT Article 3.1(c) is undefined.
The Azurix68 Tribunal found that a measure is ‘arbitrary’ where it depends on “individual
discretion; (…) founded on prejudice or preference rather than on reason or fact.”69 This
definition accorded with the standard of arbitrariness espoused in ELSI:
68 Azurix, ¶392. 69 Lauder, ¶221 (citing Black’s Law Dictionary 100 (7th ed. 1999)).
Team Krylov, Memorial for Respondent
25
“not so much something opposed to a rule of law, as something opposed to the rule of law … It is a wilful disregard of due process of law, an act which shocks, or at least surprises, a sense of judicial propriety.”70
117. In ELSI, a mayor exceeded the parameters of his discretion by exercising his requisition
power illegally. The US argued that an arbitrary measure included an unreasonable or
unfair exercise of government authority. The ICJ explicitly disagreed, finding that such
illegal action was not arbitrary. Tribunals have consistently followed the standard laid
down in ELSI.71
118. The resulting threshold for a finding of ‘arbitrariness’ is high. Tribunals have ruled that
governmental measures that are not “shocking” or “surprising” in their initiation,72 or that
lack “some important measure of impropriety [be] manifest,”73 will not be sufficient to
make a finding of arbitrariness.
119. To breach the standard of arbitrariness, a measure must lack any rational connection to
the objective.74 In applying the standard, this Tribunal must only determine whether it is
reasonable for Ruritania to draw the connection it did, between the legitimate objective
identified and the measure taken to achieve it.
120. In the present case, the MAB Act and the Labeling Ordinance are rationally connected to
the objective of preserving the health and welfare of the public.
121. The MAB Act’s measures are not arbitrary because they are rationally connected to the
objective of reducing consumption of alcohol to curb alcoholism and youth exposure to
alcohol. These measures are not a prohibition on alcohol consumption; rather, they
include: plain packaging, limits on where and when alcohol may be served and limits on
how alcohol may be advertised. The significant decline in alcohol sales following
adoption of the MAB Act reinforces the rational connection between the measures taken
and the objective of preventing alcoholism.
70 ELSI, ¶128. 71 Enron; Noble Ventures. 72 Noble Ventures, ¶176- 177. 73 Enron – Award, ¶281.
Team Krylov, Memorial for Respondent
26
122. Moreover, these measures align with internationally accepted strategies to combat
alcohol related health risks. For example, the MAB Act accords with the policy
framework and recommendations of the World Health Organization’s Global Strategy to
Reduce the Harmful Use of Alcohol. 75 Specifically the framework includes
recommendations for regulations and restrictions on the sale and marketing of alcohol.
123. The Labeling Ordinance is not arbitrary because it is rationally connected to the objective
of preserving the health of Ruritanians. Cardiac complications are a serious concern and
can be prevented by creating consumer awareness of the risks posed by MDB.
124. Accordingly, it does not surprise a sense of judicial propriety that Ruritania would seek to
create consumer awareness. In particular, the adoption of the Labeling Ordinance by the
MHSSR occurred in the course of the Minister’s statutory obligation to protect the health
of the public. In doing so the parties agree that due process was followed including
consideration of the available evidence, the degree of potential risk and alternative
measures.76
125. Similarly, the Tribunal in Genin recognised the State’s discretion in meeting its statutory
obligations. The Tribunal concluded that the Estonian Central Bank’s revocation of the
claimant’s license was not arbitrary and discriminatory because the Bank acted pursuant
to its mandate.
126. Measures limiting the marketing, sale and packaging of alcohol and adopting health
warning labels are rationally connected to the legitimate objectives of reducing
consumption of alcohol and warning people of health risks, and such rational connections
are reasonable.
B. The MAB Act and Labeling Ordinance are not discriminatory because they apply equally to companies causing similar risks to the public.
127. A finding of discrimination depends on whether an unjustifiable distinction has been
drawn between companies in similar situations. The Tribunal must first determine
75 WHO - Alcohol, page 14-15. 76 PO No 3, ¶10.
Team Krylov, Memorial for Respondent
27
whether the comparator group, established for the purpose of determining differential
treatment of similarly situated companies, is rational. Second, a factual assessment must
determine whether Claimant has been subject to impairment relative to other companies
in its comparator group.
128. (i) Discriminatory treatment requires an absence of rational connection between the
distinction and the objective. In the present case, (ii) the distinctions establishing the
appropriate comparator groups by the MAB Act and Labeling Ordinance are rationally
connected to their objective, and do not discriminate against similarly situated companies.
i. Discriminatory treatment requires an absence of rational connection between the distinction and the objective.
129. Most domestic regulatory frameworks depend on drawing distinctions of some kind.
Discrimination therefore involves more than a simple distinction, but rather an
illegitimate distinction.
130. A discriminatory, illegitimate distinction in breach of BIT Article 3.1(c) is one that
unjustifiably or arbitrarily distinguishes between Investors in like situations or treats
unlike Investors the same.77 Central to the illegitimacy of a distinction is whether it was
taken arbitrarily. For this reason, there is often overlap between application of the
arbitrary standard, and a finding of discrimination.
131. While improper differentiation between different sectors of the economy may amount to
discrimination, the Enron Tribunal explained that where important differences between
sectors exist, and no “capricious, irrational or absurd differentiation in the treatment is
accorded to the claimant as compared to other entities or sectors”78 then no discrimination
is present. This standard was applied against similar facts in Sempra79, CMS80 and BG81 in
relation to the Argentinian government’s discrimination against gas distribution
77 Newcombe and Paradell, page 288. 78 Enron, ¶282. 79 Sempra, ¶319. 80 CMS, ¶293. 81 BG, ¶345-359.
Team Krylov, Memorial for Respondent
28
companies, vis-à-vis other public utility companies such as water supply and electricity
companies.
132. For a distinction between investors to breach the prohibition against discriminatory
measures, it must lack almost rational justification for the differentiation. Here the
standard of discrimination aligns closely with that of arbitrary impairment. Ruritania need
only demonstrate that a distinction drawn between sectors of the economy is rational.
133. Whether the basis for discrimination is a rational line to draw in relation to the challenged
measure is based on the purpose of differentiation in relation to the objective sought.
ii. The challenged distinctions are rationally connected to their objective and do not discriminate against similarly situated investors.
134. The objective of the MAB Act is to encourage a reduction in the consumption of alcohol.
The Act makes a rational distinction in relation to this objective by drawing a line
between alcoholic beverage producers and every other Investor. In particular, the
restriction on 0.8 liter bottles as compared against 0.5 liter bottles is similarly a
distinction drawn on the basis of encouraging a reduction in the consumption of alcohol
at the individual level. As such, in respect of a determination of discrimination, the
differential treatment is rationally related to the objective, and the rational connection is
reasonable.
135. With regard to the Labeling Ordinance, Ruritania invites the Tribunal to follow the
reasoning adopted in EC-Asbestos.82 There the Appellate Body Panel interpreted the
standard of “likeness” under GATT Article III:4. The Panel found that although products
with quite different physical properties may be capable of performing similar or identical
end-uses, one basis of differentiating amongst like products would include the physical
properties of the product, and such physical properties may be relevant in determining
their “likeness”. As the Appellate Body noted in referring to the findings of the original
Panel, the “carcinogenicity, or toxicity, [of asbestos] constitutes, as we see it, a defining
aspect of the physical properties of chrysotile asbestos fibres.”83 The Appellate Body
82 EC-Asbestos. 83 EC-Asbestos, ¶114.
Team Krylov, Memorial for Respondent
29
determined that such a highly significant physical difference had to be a consideration in
a determination of the "likeness" of a product under Article III:4 of the GATT 1994.
136. In evaluating the rational basis of distinction for the implementation of the Labeling
Ordinance between products in ‘like situations’, a similar set of considerations must
prevail. The objective of the present regulatory measure is to inform consumers of health
risks. The distinction must be drawn on this basis.
137. Differentiation on the basis of a physical property of the Investment, in this case the
presence of MDB that creates a health risk, is therefore a rational basis of differentiation
and does not rise to the level of illegitimate or arbitrary discrimination. Here, the
Labeling Ordinance applies equally to all products containing Reyhan.
C. Ruritania is owed deference in the determination of domestic health policy.
138. Even if this Tribunal applies a different standard of arbitrariness, deference must be give
to a State prerogative to act in the public interest. Ruritania followed due process of law
in adopting the regulatory measures. In such a context it is not the role of this Tribunal to,
in the words of the Tribunal in Chemtura, “second-guess the correctness of the science-
based decision-making of highly specialized national regulatory agencies.”84
139. Substantive evaluation by this Tribunal of the reasonableness of evidence upon which to
differentiate investors is inappropriate. The State’s objective in protecting human health
is fundamental, and measures to achieve this end are paramount.
140. Specifically, the deference afforded to decision makers in determining the requisite
public health measures must necessarily be influenced by the Ruritania’s right to
determine measures that have to be taken for public security. As such, deference must be
accorded to Ruritania in determining whether on the basis of their objectives and
available rationale, the differentiation is reasonable.
84 Chemtura, ¶134; see also SD Myers, ¶261.
Team Krylov, Memorial for Respondent
30
141. Ruritania is acting on reliable scientific evidence. In accordance with the precautionary
principle, Ruritania must best protect the public benefit to the potential extent of the
health dangers suggested by the evidence.85
D. The MAB Act and Labeling Ordinance respected Ruritania’s obligation to accord national treatment as they apply equally to both Ruritania’s nationals and foreign investors in like situations.
142. Where different treatment is a result of factors other than nationality, Claimant cannot
claim a breach of national treatment. The MAB Act and the Labeling Ordinance do not
differentiate based on nationality. The MAB Act applies equally to all companies in the
alcohol industry. The Labeling Ordinance applies equally to all companies selling
products containing Reyhan.
143. The facts demonstrate that such differentiation was made on the rational and reasonable
grounds of protecting and increasing the awareness of citizens to the health risks of
Reyhan. Consequently, any resulting less favourable treatment, cannot be determined to
be on the basis of nationality.
E. The MAB Act and Labeling Ordinance cannot be considered a breach of BIT Article 3 because they had to be taken for reasons of public security and order.
144. BIT Article 3.2 precludes Ruritania’s liability for a breach of the prohibition against
arbitrary, discriminatory or less favourable treatment under BIT Article 3.1 where an
infringing measure “had to be taken for reasons of public security and order.” BIT Article
3.2’s preclusion of liability, interpreted in accordance with VCLT Article 31, is (i) an
autonomous standard, distinct from customary international law; and (ii) self-judging.
(iii) Public security includes measures necessary for the protection and promotion of
public health. (iv) Alternatively, Ruritania’s meets the standard of necessity under
customary international law.
85 Foster.
Team Krylov, Memorial for Respondent
31
i. BIT Article 3.2 is an autonomous standard, different from ‘necessity’ under Customary International Law.
145. BIT Article 3.2 precludes liability for a breach of Article 3.1. There are two reasons why
this provision is autonomous from the ‘necessity’ defence under customary international
law codified in ILC Article 25.
146. First, the use of the term “have to be taken” is unique to bilateral investment language,
with the exception of its use in the German Model Treaty (2005).86 The absence of the
word ‘necessary’ where such language has been used in similar exception clauses87 must
be given effect. The specific use of this language demonstrates a purposeful attempt to
distance the definition, and its interpretive scope, from the customary international law
defence of ‘necessity’.
147. Second, use of the international customary law defence of necessity as an interpretive
guide to define the substance of a non-preclusion provision is inappropriate.88 Necessity
under ILC Article 25 is concerned with exception of “the wrongfulness of an act not in
conformity with an international obligation.”89 This presupposes that a violation of the
State’s international obligations has already occurred. The provision of Article 3.2 within
the framework of the BIT means that where the provision is applicable no breach occurs
and the invocation of necessity for a wrongful act is not required. The Sempra Annulment
committee explained that ILC Article 25 could not be used as a guide to interpret the use
of the term “necessity” in US-Argentina BIT Article XI, because they operate on
different planes – primary and secondary – and therefore deal with quite different
situations.90 Article 25 cannot therefore define the conditions for operation of BIT Article
3.2.
86 German Model Treaty, Article 3. 87 Canada Model FIPA, Article 10; US Model BIT, Article 18. 88 Sempra Annulment, ¶200. 89 Sempra Annulment, ¶200. 90 CMS Annulment, ¶129; Continental Casualty, ¶166.
Team Krylov, Memorial for Respondent
32
ii. BIT Article 3.2 is self-judging.
148. The specific formulation of BIT Article 3.2 diverges from similar non-precluded
measures clauses in an important way. The absence of ‘self-judging’ language, “it
considers necessary,” is not determinative of the provision’s operation because of the
unique inclusion of the terms “arbitrary or discriminatory” within the Article.
149. By definition, arbitrary and discriminatory measures lack a rational connection between
the measure taken or the distinction drawn and the objective, respectively. Were this
Tribunal to determine that a measure lacks a rational connection to Ruritania’s objective
in breach of BIT Article 3.1, it would render it impossible to demonstrate that such a
measure had to be taken, pursuant to BIT Article 3.2. The principle of effet utile requires
that provisions be interpreted in a manner that does not deprive them of all force an effect.
The implicit logical impossibility of a Tribunal giving effect to the meaning of BIT
Article 3.2, upon a determination that a breach of BIT Article 3.1 has occurred,
emphasizes the fact that the only the Contracting State can define the scope of its
application.
iii. Public security includes measures necessary for the protection and promotion of public health.
150. Ruritania is obliged to act in good faith when invoking the self-judging BIT Article 3.2.91
That is, in assessing when a measure “has to be taken, for the purpose of public security
and order” this Tribunal must assess only whether Ruritania’s determination that a
measure had to be taken for public security, was done so in good faith.
151. At this stage, the burden of proof to demonstrate a breach of good faith in the invocation
of BIT Article 3.2 should lie with Claimant.92 The standard for proving a lack of
proportionality sufficient to demonstrate a breach of good faith should be high, and
require convincing evidence. 93 Such evidence has not been presented by Claimant.
91 LG&E, ¶214. 92 Alvarez-Jiminez, page 439. 93 Alvarez-Jiminez, page 439.
Team Krylov, Memorial for Respondent
33
152. Essential security interest provisions, embodied in the BIT term “public security and
order”, are in principle broad in scope.94 As an autonomous standard, the meaning of the
provision derives from and must be interpreted in light of the Contracting States
understanding of the definition, found in domestic law. The protection of the public
health falls within the definition of “public security”.
153. Further, as Burke-White and Von Staden have argued, Tribunals are too far from the
circumstances surrounding the invocation of such non-precluded measures clauses to
fully assess the context of government policies. Deference to a government’s
determination of a necessary response is therefore appropriate.95
154. Several legitimate responses may be at the disposal of a state to maintain public security
and order.96 They do not have to be the ‘only means’ available. Such measures would be
justified and legitimate where they are addressing a public security issue and are
appropriate, reasonable and proportional.97
155. Both the MAB Act and Labeling Ordinance had to be taken to protect public health. Both
measures could have gone further, taking more restrictive measures, toward achieving
this legitimate governmental objective. Ruritania, however, adopted a balanced approach.
Settling for restriction on the sale and marketing of alcohol and warning labels instead of
outright bans on the presence of Reyhan demonstrates that Ruritania exercised
consideration in determining what measured had to be taken to sufficiently protect the
public’s health.
iv. Alternatively, Ruritania’s meets the standard of necessity under customary international law.
156. Should this tribunal determine that BIT Article 3.2 is equivalent to, or should be
interpreted in light of ILC Article 25, the MAB Act and Labelling Ordinance meet this
standard.
94 CMS, ¶359-365; Continental Casualty, ¶174. 95 Burke-White and Von Staden, page 369-370. 96 LG&E, ¶257. 97 Continental Casualty ¶219-227.
Team Krylov, Memorial for Respondent
34
157. A literal interpretation of ILC Article 25 creates too narrow a standard. The standard of
necessity under ILC Article 25 demands that a ‘necessary’ measure be the “only means”
available to a state to achieve its legitimate objective. The existence of an alternative
measure, regardless of its viability or reasonableness, would exclude the operation of the
defence.98
158. The Enron Annulment committee’s criticized a literal interpretation of ILC Article 25.
The Committee considered that
“the relevant question for the Tribunal might be whether it was reasonably open to the State, in the circumstances as they pertained at the relevant time, to form the opinion that no relevant alternative was open.”99
159. Deferral to experts on whether there was an alternative means of achieving the State’s
objectives is to be expected. However, because there is often a range of opinions among
experts in a field, deference must be shown to States in determining whether there was an
alternative.
160. In the present case, the Ruritania was in the best position to determine that MAB Act and
Labeling Ordinance were the only measures that would fully realize the objective of
protecting public health. A least-restrictive-means interpretation of the necessity standard
would compromise the Ruritania’s legitimate objective.100 Deference to Ruritania’s
reliance on and weighing of expertise and evidence101 is appropriate.
98 CMS Award, ¶323. 99 Enron Annulment ¶372. 100 Hutterian Brethren, page 59-60. 101 PO No 3, ¶17.
Team Krylov, Memorial for Respondent
35
III. DAMAGES
161. In this section, Respondent will demonstrate that (1) this Tribunal lacks jurisdiction to
award compensation for loss of sales to Claimant’s agricultural and bottling subsidiaries
(“Claimant’s subsidiaries”) outside Ruritania because they do not form part of Claimant’s
Investment; and that (2) this Tribunal should dismiss Claimant’s request for “moral
damages” because Claimant did not suffer damages during the arrest and detention of
Messrs. Goodfellow and Straw.
1. THIS TRIBUNAL LACKS JURISDICTION TO AWARD COMPENSATION FOR LOSS OF SALES TO CLAIMANT’S BUSINESSES OUTSIDE RURITANIA BECAUSE THEY DO NOT FORM PART OF CLAIMANT’S INVESTMENT.
162. Under BIT Article 8, this Tribunal has jurisdiction over “[d]isputes concerning
Investments between a Contracting State and an Investor of the other Contracting State.”
This Tribunal lacks jurisdiction to award damages for the decrease in sales suffered by
Claimant’s subsidiaries because they are not an Investment under BIT Article 1.1.
163. Under VCLT Article 31, BIT Article 1.1 must be interpreted following an ordinary
meaning and in light of the BIT objectives as expressed in the BIT Preamble. The stated
objective of the BIT is “to create favourable conditions for Investments by Investors of
either Contracting State in the territory of the other Contracting State.”102 This objective
demonstrates that the BIT’s protections are limited to Investments made in the
Contracting State. BIT Article 1.1 cannot be interpreted as extending protection to all
subsidiaries of an Investor established in a non-contracting State.
164. Claimant is asking this Tribunal to award damages for losses suffered by companies
located outside of Ruritania. These companies are independent from FBI and are mere
suppliers of goods then exported to Ruritania. These companies cannot be considered an
Investment under the BIT because they are not directly or indirectly invested in Ruritania,
nor are they an indivisible part of FBI. Therefore, damages for the alleged decrease in
sales of these subsidiaries are not a dispute concerning Investments. This Tribunal lacks
jurisdiction under BIT Article 8 to order these damages. 102 BIT, Preamble.
Team Krylov, Memorial for Respondent
36
2. THIS TRIBUNAL CANNOT AWARD “MORAL DAMAGES” TO CLAIMANT BECAUSE CLAIMANT FAILED TO ESTABLISH THAT IT HAS SUFFERED GRAVE DAMAGES CAUSED BY RURITANIA’S ACTIONS.
165. This Tribunal should dismiss the request for “moral damages” because the arrest and
detention of Messrs. Goodfellow and Straw did not cause a grave loss to Claimant.
166. Moral damages may only be awarded in “exceptional circumstances”.103 The Tribunal in
Desert Line - the first award of moral damages for breach of a BIT- found that the
exceptional circumstances in that case warranted an award for moral damages. In Desert
Line, the Yemeni government was involved in armed altercations with the investor,
during which they “opened fire with automatic weapons”.104
167. Desert Line must be distinguished from the present case because Yemen’s actions were
exceptionally grave. To the contrary, in the present case, Claimant has failed to
demonstrate that damage was caused, far from demonstrating exceptional circumstances
warranting moral damages.
168. The Tribunal in Lemire narrowed the test for moral damages105, concluding that such
reparation is appropriate only if the host state’s actions involve physical duress, caused
mental suffering or loss of reputation, and whose cause and effect are grave.106
169. The three criteria established in Lemire are not met. First, Messrs. Goodfellow and Straw
did not suffer physical harm. Second, the evidence does not satisfy that the arrest and
detention was the cause of the alleged loss of reputation or harm. Third, the actions of
Ruritania did not have a grave cause and effect.
170. Claimant has not established Ruritania’s actions caused a “grave” loss of reputation to
FBI. An award of moral damages requires Claimant to provide “concrete evidence” of a
direct causal relationship between Ruritania’s actions and damages incurred.107 Claimant
has not provided evidence of a loss of reputation. Further, any damage was caused by
103 Lusitania. 104 Desert Line, ¶20. 105 Dumberry. 106 Lemire, ¶333. 107 Benvenuti & Bonfant, ¶4.96.
Team Krylov, Memorial for Respondent
37
Free TV, an independent media outlet, and not Ruritania. Claimant has failed to establish
a causal link between Ruritania’s actions and Claimant’s alleged damages.
171. Therefore, this Tribunal cannot award moral damages because Claimant failed to meet
the criteria established in Lemire.
Team Krylov, Memorial for Respondent
38
REQUEST FOR RELIEF
172. Respondent respectfully asks this Tribunal to find that:
1) it lacks jurisdiction over the present claim because of Claimant’s abuse of process;
2) it lacks jurisdiction over alleged breach of the SPA as it is a contractual dispute;
3) the alleged breach of the SPA is inadmissible as the appropriate forum to hear the
contractual dispute is the ICC.
4) Ruritania fulfilled all their obligations under the BIT, including BIT Articles 2.1(b),
2.1(c), 4.1 and 6.2.
5) the MAB act and Labeling Ordinance are proper exercises of Ruritania’s right to
regulate to protect the health of its nationals;
6) loss of sales suffered by Claimant’s subsidiaries are not recoverable items of damages
as they are not part of Claimant’s Investment in Ruritania; and
7) that request for “moral damages” must be dismissed.
Team Krylov On Behalf of Respondent,
Republic of Ruritania.