TEAM CASTRO GERMAN INSTITUTION OF ARBITRATION UNDER … · Aguas del Tunari, S.A. v. Republic of...

TEAM CASTRO

GERMAN INSTITUTION OF ARBITRATION

UNDER THE UNCITRAL ARBITRATION RULES ADMINISTERED BY THE DIS

CONTIFICA ASSET MANAGEMENT CORP.

Claimant

v.

THE REPUBLIC OF RURITANIA

Respondent

MEMORIAL FOR CLAIMANT

i

TABLE OF CONTENTS:

LIST OF AUTHORITIES ......................................................................................................... iv

LIST OF LEGAL SOURCES ................................................................................................... vii

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

ARGUMENTS

I.THE TRIBUNAL HAS JURISDICTION OVER THE PRESENT CLAIMS AND THE

CLAIMS ARE ADMISSIBLE IN THE LIGHT OF THE FACTUAL

CIRCUMSTANCES OF THE CASE ................................ 3

A.The Tribunal has ratione personae jurisdiction ........ 3

1.Control test for determining the nationality has no application here ........ 3

2.Allegations of nationality planning do not invalidate Contifica’s standing ........ 4

3.The scope of the BIT is not limited by the denial of benefits clause .......................... 5

B.The Tribunal has ratione materiae jurisdiction ........ 5

1.Contifica’s investment satisfies the BIT criteria ........ 6

2.The investment was made in accordance with the Preamble of the Treaty ........ 6

3.The timing of the investment shows that it was made in good faith ........ 7

C.The claims are admissible ........ 8

1.Contifica has fulfilled the requirement for amicable settlement ........ 8

2.There is nothing in the claim indicating that it is premature ........ 9

II.IN THE LIGHT OF THE CIRCUMSTANCES SURROUNDING THE CASE THE

PRESENT TRIBUNAL HAS JURISDICTION OVER CAM’S CLAIMS BASED ON

ii

THE BREACH OF THE SHARE PURCHASE AGREEMENT BY THE STATE

PROPERTY FUND OF RURITANIA AND THOSE CLAIMS ARE ADMISSIBLE ........ 10

A.The conduct of the Fund may be prima facie attributed to the Ruritania ........ 10

1.The Fund’s conduct may be attributed as the conduct of an organ of Ruritania.... 11

2.The Fund’s conduct is attributable, as it has exercised governmental authority .... 12

3.The Fund’s conduct is attributable since Ruritania has exercised extensive

control over its actions ........ 12

B.The umbrella clause in the Article 6.2 elevates the claims arising from SPA to the

level of treaty claims ........ 12

III.RURITANIA HAS VIOLATED ITS OBLIGATIONS TOWARDS CAM UNDER

THE BIT AND INTERNATIONAL LAW BY ADOPTING THE MEASURES FOR

THE REGULATION OF MARKETING AND SALE OF ALCOHOL AND

IMPOSIMG FURHTER REQUIREMENTS FOR MARKETING AND SALE OF

FREEBREW BEER ........ 16

A.Adoption of the MAB Act and the MHSS Ordinance by Ruritanian authorities

constituted expropriation of CAM’s investments associated with FBI ........ 16

1.The degree of Respondent’s interference into Claimant’s investment is excessive . 17

2.Respondent’s actions do not satisfy criteria to legal expropriation ........ 18

B.Respondent violated Claimant’s intellectual property rights .......... 23

C.Actions of Ruritanian authorities breached the standard of fair and equitable

treatment of foreign investments ........ 25

1.Adoption of the MAB Act violates the standard of FET ........ 26

2.The HRI Report and the Ordinance of the Ministry of Health and Social Security

violates the standard of FET ........ 27

iii

IV.MORAL DAMAGES FOR THE ARREST OF FBI’S EXECUTIVES MAY BE

AWARDED BY THIS TRIBUNAL ........ 30

A.Claimant can claim moral damages to personality rights of its executives and these

damages could be awarded ................................................................................................... 30

B.Claimant can claim moral damages to its investment caused by the arrest and

detention of the executives and these damages could be awarded .................................... 32

C.Compensation is the most appropriate form of reparation for the damages caused .. 33

V.THE LOSS OF SALES BY CAM`S SUBSIDIARIES LOCATED OUTSIDE OF

RURITANIA TO FBI CONSTITUTES A RECOVERABLE ITEM OF DAMAGES ....... 35

A.Claimant`s investments with respect to the subsidiaries are protected under the

Ruritania-Cronos BIT ........ 35

1.Claimant is entitled to pursue the claim independently before the Tribunal ........ 35

2.Claimant has the legal standing irrespective of the size of the shareholding ........ 36

B.The loss of sales by the subsidiaries equates to damage suffered by Claimant ........ 37

C.The requirement of causation link between damages suffered by the subsidiaries

and alleged state wrongful measures is satisfied ........ 39

1.Factual causality link is present in the case ................................................................. 39

2.The requirement of legal causation link is satisfied ........ 40

D.Recovery of the loss of sales is consistent with the principle of full compensation

including lost profit ............................................................................................................... 42

iv

LIST OF AUTHORITIES

Books:

1. C.Correa, Trade Related Aspects of Intellectual Property Rights: A Commentary on the

TRIPS Agreement, (Oxford University Press,2007);

2. J.Crawford, The International Law Commissions Articles on State Responsibility,

(Cambridge: Cambridge University Press, 2002);

3. R.Doak Bishop, J.Crawford , et al., Foreign Investment Disputes: Cases, Materials and

Commentary, (Kluwer Law International,2005);

4. R.Dolzer, C.Schreuer, Principles of International Investment Law, (Oxford: Oxford

University Press,2008);

5. R. Dolzer and M. Stevens, Bilateral Investment Treaties (Kluwer Law, 1995);

6. Z.Douglas, The International Law of Investment Claims, (Cambridge: Cambridge

University Press,2009);

7. K.Khan, C.Buisman, C.Gosnell, Principles of Evidence in International Criminal Justice,

(New York: Oxford University Press,2010);

8. R. Klager, ‘Fair and Equitable Treatment in international Investment Law (Cambridge:

Cambridge Studies in International and Comparative Law,2011);

9. C.McLachlan, L.Shore & M.Weiniger, International Investment Arbitration: Substantive

Principles (OUP, Oxford,2007);

10. P.Muchlinski, F. Ortino, C. Schreuer, The Oxford Handbook of International Investment

Law, (Oxford: Oxford University Press,2009);

11. Newcombe, L. Paradell, Law and Practice of Investment Treaties: Standards of

Treatment, (Kluwer Law International BV, The Netherlands, 2009);

12. A. Reinisch, Standards of Investment Protection, 1st ed., (New York: Oxford University

Press, 2008);

13. S.Ripinsky, Damages in International Investment Law, (British Institute of International

and Comparative Law, 2008);

14. B.Sabahi, Moral Damages in International Investment Law: Some Preliminary Thoughts

in the Aftermath of Desert Line v. Yemen,( A Liber Amicorum: Thomas Wälde - Law

Beyond Conventional Thought, 2009);

15. C.Schreuer, The ICSID Convention, A Commentary on the ICSID Convention, 2nd ed.

(Cambriridge: Cambridge University Press,2009);

v

16. I.Schwenzer, P.Hachem, “Moral Damages in International Investment Arbitration” (Liber

Amicorum Eric Bergsten, International Arbitration and International Commercial Law:

Synergy, Convergence and Evolution, 2011);

17. M. Shaw, International Law, 6th ed. (Cambridge: Cambridge University Press, 2008)

18. Sornarajah, ‘The International Law on Foreign Investment’ 2nd ed. (2004);

19. I.Tudor, Fair and Equitable Treatment Standard in International Law of Foreign

Investment, 1st ed.(New York: Oxford University Press, 2008.).

Law Journals:

1. R. Dolzer “Indirect expropriations: New Developments?”, 11 NYU Environmental Law

Journal, 2002);

2. A.Mitchell, ‘Australia’s Move to the Plain Packaging of Cigarettes and its WTO

Compatibility’, ((2010) 5 Asian Journal of WTO & International Health Law and Policy 405,

416);

3. T.Parish, A.K.Newlson, C.B.Rosenberg, “Awarding Moral Damages to Respondent

States in Investment Arbitration, Berkley Journal of International Law” (Volume 29|Issue 1,

2011);

4. C Schreuer, “Calvo’s Grandchildren: The Return of Local Remedies in Investment

Arbitration” (The Law and Practice of International Courts and Tribunals 1,2004);

5. Stanimir A. Alexandrov, ‘The “Baby Boom” of Treaty-Based Arbitrations and the

Jurisdiction of ICSID Tribunals: Shareholders as “Investors” and Jurisdiction Ratione

Temporis’, (The Law and Practice of International Courts and Tribunals 19 (2005);

6. W. Stoebuck, “Police Power, Takings and Due Process”, (Wash. and Lee L. Rev, 1980,

Vol. 37, Issue 4);

7. J. Valasek & Patrick Dumberry Legal Developments in the Legal Standing of

Shareholders and Holding Corporations in Investor-State Disputes (Foreign Investment Law

Journal Volume 26, Number1, Spring 2011).

Miscellaneous:

1. M. Dimsey, “The Resolution of International Investment Disputes: Challenges and

Solutions”, (Eleven International Publishing, Utrecht 2008);

vi

2. B. A. Garner, Black’s Law Dictionary, 9th ed. (Thomson Reuters, 2009);

3. P. Laive, “The first world bank arbitration (Holiday Inns v Morocco) some legal

problems” ( British year book of international law 123,1980);

4. H. Lauterpacht, “Private Law Sources and Analogies of International Law: with special

reference to international arbitration (London: Longmans Green, 1927);

5. M. Malik, “The Full Protection and Security Standard Comes of Age: Yet another

challenge for states in investment treaty arbitration?”, (Best practice series, November 2011);

6. F.A. Mann “British Treaties for the Promotion and Protection of Investments” (52 British

Yearbook of International Law 241, 1981);

7. Memorandum from Lalive to Philip Morris International Management SA, Why Plain

Packaging is in Violation of WTO Members’ International Obligations under TRIPS and the

Paris Convention (July 23rd, 2009);

8. Oxford Dictionary of English, 3rd ed. (Oxford University Press, 2010);

9. J. Padilla, “The Impact of Plain Packaging of Cigarettes in Australia: a Simulation

Exercise”,( a report for Philip Morris International, February 2010);

10. Peterson, “Moral Damages in Investment Arbitration”, (Recueil des Cours III 1969 pp.

132 et seq.);

11. Report by Daniel Gervais for Japan Tobacco International, Analysis of the Compatibility

of certain Tobacco Product Packaging Rules with the TRIPS Agreement and the Paris

Convention (November 30th

, 2010);

12. E. Roucounas, “Non-State Actors: Areas of International Responsibility in need of

further Exploration, in International responsibility today, essays in memory of Oscar

Schachter” (Ragazzi ed., 2005);

13. C. Schreuer, “Nationality Planning Fordham Conference”, (London, Revised 12 October

2012);

14. C. Schreuer, “Travelling the BIT Route: of Waiting Periods, Umbrella clauses and Forks

in The Road”, (J. World Inv, 2004);

15. J. Wong, “The compensatory nature of moral damages in investor-state arbitration,” (No.

88 Columbia FDI Perspectives, February 4, 2013).

vii

LIST OF LEGAL SOURCES

Treaties:

1. 2012 U.S. Model Bilateral Investment Treaty;

2. Agreement on Trade Related Aspects of Intellectual Property Rights, January 1st, 1996;

3. North American Free Trade Agreement, January 1st, 1994;

4. Paris Convention for the Protection of Industrial Property, September 28th

, 1979;

5. Treaty of Mutual Promotion and Protection of Foreign Investment between The Republic

of Ruritania and The State of Cronos, March 15th

, 1997;

6. Vienna Convention on the Law of Treaties, May 23th

, 1969.

Cases:

ADC v. Hungary

Aguas del Tunari v. Bolivia

ADC Affiliate Limited, ADC & ADMC

Management Limited v. The Republic of

Hungary, ICSID Case No.ARB/03/16,

Award, October 2nd

, 2006

Aguas del Tunari, S.A. v. Republic of Bolivia,

ICSID Case No. ARB/02/3, Decision on

Respondent's Objections to Jurisdiction,

October 21st, 2005

Alex Genin v. Estonia Alex Genin v. Republic of Estonia, ICSID

Case № ARB/99/2, Award, June 25th

, 2001

Amco v. Indonesia Amco Asia Corporation and others v.

Republic of Indonesia, ICSID Case

No.ARB/81/1, Decision on Application for

Annulment, May 16th

, 1986

Angola Case Angola Case, Portugal - Germany Arbitral

viii

Tribunal, Award I, July 31st, 1928

Antoine Goetz v. Burundi Antoine Goetz and others v. Republic of

Burundi, ICSID Case No.ARB/95/3, Award,

February 10th

, 1999

Azurix v. Argentina Azurix Corp. v. The Argentine Republic,

ICSID Case No.ARB/01/12, Award, July 14th

,

2006

Banro v. Congo Banro American Resources, Inc. and Société

Aurifère du Kivu et du Maniema S.A.R.L. v.

Democratic Republic of the Congo, ICSID

Case No.ARB/98/7, Award, September 1st,

2000

Bayview v. Mexico Bayview Irrigation District et al. v. The

United Mexican States, ICSID Case

No.ARB(AF)/05/1, Award, June 19th

, 2007

Benvenuti & Bonfant v. Congo Benvenuti & Bonfant v. People’s Republic of

the Congo, ICSID Case No.ARB/77/02,

Award, August 15th

, 1980

Biloune & Marine v. Ghana Investments

Centre and the Government of Ghana

Biloune & Marine Drive Complex Ltd. v.

Ghana Investments Centre and the

Government of Ghana, Award on Jurisdiction

and Liability, October 27, 1989

ix

Biwater Gauff v. Tanzania Biwater Gauff (Tanzania) Limited v. United

Republic of Tanzania, ICSID Case

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

, 2008

Canadian Cattlemen v. USA Canadian Cattlemen for Fair Trade v. The

United States of America, UNCITRAL,

Award on Jurisdiction, January 28th

, 2008

Cape Horn Pigeon Case Cape Horn Pigeon Case, November 29th

,

1902

Right of Passage over Indian Territory Case Case Concerning Right of Passage over

Indian Territory, ICJ, Judgment on Merits,

12th

, April 1960

Barcelona Traction Case

Case Concerning the Barcelona Traction,

Light and Power Company, ICJ, Judgement

on Merits, February 5th

, 1970

Factory at Chorzow Case Case Concerning the Factory at Chorzow,

Judgement on Merits, September 13th

, 1938

Gabčíkovo - Nagymaros Project Case Case Concerning the Gabčíkovo-Nagymaros

Project, ICJ, Judgement on Merits, September

25th

, 2007

Lemire v. Ukraine Charles Lemire v. Ukraine, ICSID Case

No.ARB/06/18, Award, March 28th

, 2011

x

CME v. Czech Republic CME Czech Republic B.V. v. Czech Republic,

UNCITRAL, Award, March 14th

, 2003

CMS v. Argentina CMS Gas Transmission Company v. The

Argentine Republic, ICSID Case

No.ARB/01/8, Decision of the Tribunal on

Objections to Jurisdiction, July 17th

, 2003

Colonel Case Colonel Acting as Primary Government

Official, ICC Case No. 8646

Vivendi v. Argentina, Annulment Compañiá de Aguas del Aconquija S.A. and

Vivendi Universal S.A. v. The Argentine

Republic, ICSID Case No.ARB/97/3,

Decision on Annulment, July 3rd

, 2002

Vivendi v. Argentina, Award Compañia de Aguas del Aconquija S.A. and

Vivendi Universal v. The Argentine Republic,

ICSID Case No.ARB/97/3, Award, August

20th

, 2007

Continental Casualty v. Argentina Continental Casualty Company v. The


No.ARB/03/9, Award, September 5th

, 2008

Decision No. 7 Decision No. 7, Eritrea-Ethiopia Claims

Commission, December 12th

, 2010

http://www.italaw.com/sites/default/files/case-documents/ita0183.pdf


xi

DLP v. Yemen Desert Line Projects LLC v. Yemen, ICSID

Case No.ARB/05/17, Award, February 2nd

,

2008

El Paso v. Argentina El Paso Energy International Company v.

The Argentine Republic, ICSID Case

No.ARB/03/15, Award, October 31st, 2011

Mafezzini v. Spain Emilio Augustin Mafezzini v. Kingdom of

Spain, ICSID Case No.ARB/97/7, Decision

on Jurisdiction, January 25th

, 2000

Enron v. Argentina Enron Corporation and Ponderosa Assets LP

v. Argentine Republic, ICSID Case

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

, 2007

Eureko v. Poland Eureko B. V. v. Republic of Poland, Partial

Award, August 19th

, 2005

Frontier Petroleum v. Czech Republic Frontier Petroleum Services Ltd. v. The

Czech Republic, UNCITRAL, Award,

November 12th

, 2010

F – W Oil v. Trinidad & Tobago F - W Oil Interests, Inc. v. The Republic of

Trinidad & Tobago, ICSID Case

No.ARB/01/14, Award, March 3rd

, 2006

Gami Investments v. Mexico Gami Investments, Inc. v. The United

Mexican States, UNCITRAL, Award,

xii

November 15th

, 2004

Government of Egypt Case Government of Egypt, ICC Case No. 3493,

Award

Kuwait v. American Independent Oil Government of the State of Kuwait v. The

American Independent Oil Company, Award,

March 24th

, 1982

Governor Case Governor of a Central Bank, ICC Case No.

6725

Grand River v. USA Grand River v. The United States of America,

Award, January, 11th

, 2011

HICEE v. Slovakia HICEE B.V. v. The Slovak Republic,

UNCITRAL, PCA Case No. 2009-11, Partial

Award, May 23th

, 2011

Hoffland Honey v. Iranian Oil Hoffland Honey Co v. National Iranian Oil

Company, Iran-US CTR, Award, January

26th

, 1983

Jan de Nul v. Egypt Jan de Nul N.V. and Dredging International

N.V. v. Arab Republic of Egypt, ICSID Case

No.ARB/04/13, Decision on Jurisdiction,

June 16th

, 2006

xiii

Lanco v. Argentina Lanco International Inc. v. The Argentine

Republic, ICSID Case No.ARB/97/6,

Decision on Jurisdiction, December 8th

, 1998

LG&E v. Argentina

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

and LG&E Inter-national Inc. v. The


No.ARB/02/1, Decision of the Arbitral

Tribunal on Objections to Jurisdiction, April

30th

, 2004

LAFICO v. Burundi Libyan Arab Foreign Investment Company

(LAFICO) v. Republic of Burundi, Award,

March 4th

, 1991

Loewen Group v. USA Loewen Group, Inc. and Raymond L. Loewen

v. The United States of America, ICSID Case

No.ARB(AF)/98/3, Award, June 26th

, 2003

Feldman v. Mexico Marvin Roy Feldman Karpa v. The United

Mexican States, ICSID Case

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

,

2002

M.C.I. v. Ecuador M.C.I. Power Group L.C. and New Turbine,

Inc. v. Republic of Ecuador, ICSID Case

No.ARB/03/6, Decision on Annulment,

October 19th

, 2009

xiv

Merrill & Ring v. Canada Merrill & Ring Forestry L.P. v. The

Government of Canada, UNCITRAL, ICSID

Administered Case, Award, March 31th

, 2010

Metalclad v. Mexico Metalclad Corp. v. The United Mexican

States, ICSID Case No. ARB(AF)/97/1,

Award, August 30th

, 2000

Murphy Exploration v. Ecuador Murphy Exploration and Production

Company International v. Republic of

Ecuador, ICSID Case No.ARB/08/4, Award

on Jurisdiction, December 15th

, 2010

National Grid v. Argentina National Grid plc v. The Argentine

Republic, UNCITRAL, Award, November

3rd

, 2008

Noble Energy v. Ecuador Noble Energy, Inc. and Machalapower Cia.

Ltda. v. The Republic of Ecuador and

Consejo Nacional de Electricidad, ICSID

Case No.ARB/05/12, Decision on

Jurisdiction, March 5th

, 2008

Nykomb Synergetics v. Latvia

Pac Rim v. Salvador

Nykomb Synergetics Technology Holding AB

v. The Republic of Latvia, SCC, Award,

December 16th

, 2003

Pac Rim Cayman LLC v. Republic of El

Salvador, ICSID Case No. ARB/09/12,

Decision on the Respondent's Jurisdictional


xv

Objections, June 1st, 2012

Petrobert v. Kyrgyzstan Petrobart, Ltd v. The Kyrgyz Republic, SCC,

Arbitration No. 126/2003

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

ICSID Case No.ARB/06/5, Award, April 15th

,

2009

Pope & Talbot v. Canada Pope & Talbot Inc. v. The Government of

Canada, UNCITRAL, Interim Award, June

26th

, 2000, 7 ICSID Reports 69

PSEG v. Turkey PSEG Global Inc and Konya Ilgin Elektrik

Uretim ve Ticaret Limited Sirketi v. Republic

of Turkey, ICSID Case No.ARB/02/5, Award,

January 19th

, 2007

Saipem v. Bamgladesh Saipem S.p.A. v. People's Republic of

Bangladesh, ICSID Case No.ARB/05/7,

Decision on Jurisdiction and

Recommendation on Provisional Measures,

March 21st, 2007

Salini v. Marroco Salini Costruttori S.p.A. and Italstrade S.p.A.

v. Kingdom of Morocco, ICSID Case

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

23rd

, 2001


xvi

Saluka v. Czech Republic Saluka Investments B.V. v. The Czech

Republic, UNCITRAL, Partial Award, March

17th

, 2006

S.D. Myers v. Canada S.D. Myers, Inc. v. Government of

Canada, UNCITRAL, Second Partial Award,

October 21st, 2002

SGS v. Pakistan SGS Societe Generale de Surveillance S.A. v.

Islamic Republic of Pakistan, ICSID Case No.

ARB/01/13, Decision on Objections to

Jurisdiction, August 6th

, 2003

SGS v. Phillipines SGS Societe Generale de Surveillance S.A. v.

Republic of the Philippines, ICSID Case

No.ARB/02/6, Decision on Jurisdiction and

Separate Declaration, January 29th

, 2004

Siag v. Egypt Siag and Vecchi v. The Arabic Republic of

Egypt, ICSID Case No.ARB/05/15,

Procedural Order, May 11th

, 2009

Siemens v. Argentina Siemens v. Argentine Republic, ICSID Case

No.ARB/02/8, Award, February 6th

, 2007

SG v. Dominicana 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

xvii

No. UN 7927, Award on Preliminary

Objections to Jurisdiction, September 19th

,

2008

Starrett Housing v. Iran Starrett Housing Corp. v. Government of the

Islamic Republic of Iran, Iran - US CTR,

December 19th

, 1983

Tecmed v. Mexico Técnicas Medioambientales Tecmed, S.A. v.

The United Mexican States, ICSID Case

No.ARB (AF)/00/2, Award, May 29th

, 2003

Tokios Tokeles v. Ukraine Tokios Tokeles v. Ukraine, ICSID Case

No.ARB/02/18, Decision on Jurisdiction and

Dissenting Opinion, April 29th

, 2004

Wintershall v. Argentina Wintershall Aktiengesellschaft v. The


No.ARB/04/14, Award, December 8th

, 2008

Miscellaneous:

1. Draft Articles on Responsibility of States for Internationally Wrongful Acts, December

12th

, 2001;

2. Notes and Comments to the OECD Draft Convention on the Protection of Foreign

Property, October 12th

, 1967;

3. Ordinance of Ministry of Health and Social Security of The Republic of Ruritania, June

30th

, 2011;

4. Report of the HRI of The Republic of Ruritania, June 15th

, 2011;

5. Report of the International Law Commission, August, 14th

, 1998;

6. Regulation of Sale and Marketing of Alcoholic Beverages Act, November 20th

, 2010;



xviii

7. Share Purchase Agreement between State Property Fund of Ruritania and Contifica Spirits

S.P.A;

8. UNGA Resolution No. 1803 on Permanent Sovereignty over Natural Resources, December

14th

, 1962;

9. UNGA, Resolution No. 3281, Charter of Economic Rights and Duties of States, December

12th

, 1974.

1

STATEMENT OF FACTS

1. Claimant, Contifica Asset Management Corp. (hereinafter “CAM” or “Claimant”), a company

incorporated under the laws of the State of Cronos, with its principle place of business at 47B

Framero Avenue, Univo, State of Cronos.

2. Respondent - Republic of Ruritania (hereinafter “Ruritania” or “Respondent”).

3. In 2007 Ruritania suffered a severe financial crisis which led to the government’s decision to

privatize a number of assets. Within the framework of these events in the beginning of 2008

decided to sell Freecity Breweries Inc. (hereinafter “FBI”) to a private investor and an

international tender was announced.

4. Contifica Spirits won the tender on June 2008. On the same day Contifica Spirits and the State

Property Fund of Ruritania entered into a share purchase agreement providing the acquisition

of all shares in FBI for USD 300,000,000.

5. On March 2010 all FBI shares were transferred from Contifica Spirits to Claimant on the

basis of the intra-group restructuring as well as all the rights to the principal intellectual

property used by FBI were acquired by CAM on the same day.

6. On 20 November 2010, the Ruritanian parliament adopted the Regulation of Sale and

Marketing of Alcoholic Beverages Act (“MAB Act”), which severely restricted FBI’s ability

to market and sell its products in Ruritania.

7. In Accordance with the MAB Act it was prohibited to sell alcoholic beverages from 9 a.m. till

9 p.m. and during sporting events. Also the beer containers couldn’t include more than 0.5l.

8. After the implementation of such measures s FBI’s sales dropped by approximately 60%

during the first two quarters of 2011 and the company lost net income of around 10 million

US dollars and revenue of 60%.

9. On 15 June 2011 the Human Health Research Institute (“HRI”) released a report based on its

research of influence of FREEBREW on people’s health. The conclusion was that the

FREEBREW consumers are at higher risk of cardiac implications because of the

Methyldioxidebenzovat, an active chemical ingredient, found in Rehyan concentrate.

10. On 30 June 2011 an ordinance of the Ministry of Health and Social Security was published

which obliged every product containing Rehyan concentrate to have a label warning about the

health risks which can be brought by the consumption of such beverage.

11. In July 2011 Claimant found out that a report with similar conclusion was already sent by the

HR to the Ministry of Health and Social Security.

2

12. On 20 August 2011, FBI wrote to the Ministry of Health and Social Security pointing out

numerous flaws in the analysis conducted by the HRI, at the same time attaching its own

report from an independent scientist. On 25 August 2011 the request was denied.

13. The FBI’s competitors made use of that situation by sponsoring “analytical” programmes on

the most popular TV channels which stated that the consumption of Reyan concentrate caused

severe health problems and labeling their products as “Reyhan-free”.

14. On 15 March 2012, the board of directors decided to suspend production decreasing the

output to 5’000’000 decaliters per annum. As the result, FBI failed to comply with financial

obligations owed to its various lenders.

15. On 1 December 2011, the Prosecutor’s Office of Ruritania started investigation against FBI’s

executives Messrs Goodfellow and Straw, accusing them of bribery of the State Property

Fund of Ruritania officials connected with the acquisition of the FBI shares.

16. On 23 December 2011 Messrs Goodfellow and Straw were detached in the Freecity

International Airport when they were boarding their plane to Prosperia.

17. Both the executives were held in a a cell in the Freecity International Airport until 3 January

2012 when they were released without any explanation. The investigation was suspended due

to the lack of sufficient evidence.

3

I. THE TRIBUNAL HAS JURISDICTION OVER THE PRESENT CLAIMS AND THE

CLAIMS ARE ADMISSIBLE IN THE LIGHT OF THE FACTUAL

CIRCUMSTANCES OF THE CASE

1. Article 8 of the BIT provides that “[d]isputes concerning Investments between a Contracting

State and an Investor of the other Contracting State” shall at the request of the Investor be

submitted to arbitration under the UNCITRAL Rules administered by the DIS. Contifica

submits that the present claims put forward before the Tribunal satisfy the requirements of (A)

ratione personae, (B) ratione materiae and that the claims are (C) admissible.

A. The Tribunal has ratione personae jurisdiction

2. The jurisdiction ratione personae of the tribunal depends on the nationality of the claimant.

Article 1.3 of the Cronos-Ruritania BIT defines the Investor as: “...any entity which is

established in accordance with, and recognised as a legal person by the law of that

Contracting State.”

3. The wording of the clause implies that for the purposes of establishing of the nationality, the

criteria of the place incorporation shall be applied. In Tokios-Tokeles, Lithuania-Ukraine BIT

defined Investor as “any entity established in the Lithuanian territory in conformity with its

laws and regulations.” The Tribunal found Tokios to be Lithuanian national, since it was

incorporated under the laws of that country.1 It follows, that Contifica Asset Management

(CAM), established under the laws of Cronos, satisfies the criteria of the place of

incorporation. It is submitted that this basic presumption may not be rebutted since: (1)

control test for determining the nationality has no application here; (2) allegations of

nationality planning do not invalidate Contifica’s standing; (3) the scope of the BIT is not

limited by the denial of benefits clause.

1. Control test for determining the nationality has no application here

4. Control test is normally conducted by lifting corporate veil. However, in Barcelona Traction,

ICJ has acknowledged that the practice of lifting of the corporate veil is limited to the cases

concerning diplomatic protection.2 In Siemens the Tribunal found it unnecessary to discuss

1Tokios Tokelės v Ukraine, paras 29,38.

2 Barcelona Traction Case; Azurix v. Argentina, para 72.

4

corporate veil as the case before it concerned “not diplomatic protection under customary

international law but the rights of investors” as determined by the relevant treaty.3In Saluka v.

Czech Republic the Tribunal, despite admitting that the claimant was “a mere shell company

controlled by another company which is not constituted under the laws of that State,”4 found

in its favor, asserting that it cannot in effect “impose upon the parties a definition of ‘investor’

other than that which they themselves agreed.” It follows, that the control test has no

application in the present dispute which is based on the investor’s claim under the BIT and

has nothing to do with diplomatic protection.

5. Any allegations on the part of Ruritania that Contifica shall lose its locus standi as an investor

due to the involvement into the so-called treaty-shopping are without merit. The fact that

CAM is a subsidiary of the Prosperian company does not affect the CAM’s own standing.

Thus, in Tokios the Claimant was held to be Lithuanian despite that 99 percent of its shares

was owned by Ukrainian nationals. The Tribunal, referring to the unambiguous provisions of

the BIT defining corporate nationality,5 asserted, that the legal place of incorporation was the

only relevant consideration to determine whether the Tribunal had jurisdiction ratione

personae.

2. Allegations of nationality planning do not invalidate Contifica’s standing

6. In Aguas del Tunary the Tribunal has actually endorsed nationality planning. It asserted that

to locate one’s operations in a jurisdiction providing more favorable legal environment,

including the availability of a BIT, is neither unusual nor illegal.6 On the contrary, it is

entirely consistent with the goals of the BIT’s and intentions of the state parties concluding

them.7 Similarly, as stated in HICEE v. Slovakia there is nothing “in the least reprehensible”

3 Siemens A.G. v. Argentina, para 140.

4 Saluka v. Czech Republic, para 240.

5 Tokios Tokelės v Ukraine, para 24.

6 Aguas del Tunari v Bolivia, para 330.

7 Aguas del Tunari v Bolivia, para 332.

5

about structured investments which purpose is to secure protection of particular investment

treaties covering foreign investment from incorporation in a particular jurisdiction.8”

7. There are actually very few instances where nationality planning has been unsuccessful and

all of them are distinguishable from the facts of the present case. Thus, in Banro v Congo9 the

arbitration has been instituted mere nine days after the transfer of assets within the group

which led the Tribunal to deny ratione personae jurisdiction. By contrast, CAM has initiated

arbitration on 30 September 2012, in other words, two-and-a-half years after acquiring the

shares in FBI. Furthermore, in Banro the Tribunal concluded that the Claimant lacked

standing since it has failed to properly assign the rights to the U.S. company. That reasoning

may not be applied here as the successful assignment by Contifica Spirits its rights and

obligations under SPA with CAM has been acknowledged by the State Property Fund, which

as will be demonstrated below, is the organ of Ruritania.10

3. The scope of the BIT is not limited by the denial of benefits clause

8. It was an act of free will on the part of Ruritania to not to include the “denial of benefits”

clause into the BIT, and it is not for the Tribunal to impose limits on the scope of the BIT not

found in the text.11

In Tokios, as well as in the present case, there was nothing that prevented

the states from excluding from the scope of the agreement entities of the other party that are

controlled by nationals of third countries.

B. The Tribunal has ratione materiae jurisdiction

9. Article 1 of the BIT defines the term “investment” as:

“every asset which is directly or indirectly invested in accordance with laws and

regulations of the Contracting State in which territory the Investment is made by Investors

of the other Contracting State.”

8 HICEE v. Slovakia, para 103.

9 Banro v. Congo, para 380.

10 Procedural Order No 2, para 16.

11Tokios Tokelės v. Ukraine, para 56.

6

1. Contifica’s investment satisfies the BIT criteria

10. Contifica submits that the article has to be interpreted in good faith according to the ordinary

meaning to be given to the terms of the treaty as required by the Article 31(1) of the Vienna

Convention.12

CAM owns 100% shares of FBI and the principal intellectual property13 thus

satisfying the assets types criteria in “shares of companies and other kinds of interest in

companies” and “intellectual property rights” of the Article 1(1) of the BIT. The required

compliance with the laws of the Contracting State refers to the validity of an investment and

therefore, as held by the Tribunal in Salini v Morocco, it may not influence the definition of

an investment.14

With respect to the territory requirement, normally the physical presence of

the business in the territory of the host state has been held to be sufficient in cases where the

business is the physical business. 15

The physical presence of CAM in Ruritania is established

via the FREEBREW brewery.16

11. With respect to the duration of the investment Professor Schreuer has regarded a period of

two to five years as sufficient.17

The acquisition of all shares in FBI has taken place on 30

June 2008 and the claim was filed by Contifica on 30 September 2012 in other words after

just four years, which is within the five year limit. It follows, that the duration of the

Contifica’s financial presence in Ruritania has been more than sufficient to qualify as an

investment.

2. The investment was made in accordance with the Preamble of the Treaty

12. The tribunal in SG v. Dominicana relying on the general rules of treaty interpretation

concluded that the issue of contribution does not arise in determining the existence of an

12

Procedural Order No 2, para 10.

13 Statement of Claim, para 9.

14Salini v Morocco, para 46.

15 Candian Cattlemen v. USA, paras 113,116.

16Statement of Claim, para 5.

17 C.Schreuer, The ICSID Convention, A Commentary on the ICSID Convention, 2nd ed. (Cambriridge:

Cambridge University Press,2009).

7

investment.18

However, even if the Tribunal choses to apply this criteria it is perfectly

satisfied on the present facts.

13. In Phoenix the Tribunal held that alleged “investment” could not be protected under the

ICSID system,19

since its unique goal was to engage into international arbitration. Here, in

addition to the USD 300,000,000 that Contifica initially paid for the FBI, it has also made

significant investments in the technology, design and equipment of the brewery turning it into

exemplary facility, increasing its output by 30% and ensuring the victory in a 2010

nationwide “the safest place to work” competition.20

FBI was also integrated into the

Contifica group’s global procurement network with various subsidiaries of the group

supplying bottles, aluminum cans, yeast, hops and barley to FBI. 21

That in the opinion of the

Claimant represents that both Salini requirements of contribution and commitment are

fulfilled.

3. The timing of the investment shows that it was made in good faith

14. In all instances where the respondent states were able to successfully plead the “treaty-

shopping” argument, the issue of the legitimacy of the Claimant’s act turned on the timing of

the investment. Thus, in Phoenix v. Czech Republic the dispute was in full swing when the

Czech investor tried to acquire protection under Israel-Czech BIT nationality by transferring

the assets to the company, specifically established for that purpose.

15. Under this analysis, it cannot be maintained that the surveys22

conducted during the elections

campaign or the New Way Party’s securing the majority 23

in the Parliament in January 2010

24 are the real cause of the dispute. Only the subsequent adoption of the MAB Act has lead to

18

SG v Dominicana, para 32.

19 Phoenix v. Czech Republic , para 142.



22 Procedural order No. 2, para 19.

23 Procedural order No. 2, para 19.

24 Statement of Defense, para 6, Statement of Claim, para 7.

8

the crystallization of the dispute. Since CAM acquired the FBI shares seven months before

the Ruritanian Parliament adopted the MAB Act on 17 March 201025

it was not possible for

the Claimant to foresee the possibility of the dispute. Under the Article 14 of the ILC Articles

on State Responsibility MAB Act adopted by Ruritania is a ‘continuous act’. Disputes

regarding such acts arise only after the act takes place. Hence, the restructure occurred before

the dispute arose. Thus, restructuring before the adoption is perfectly legitimate.

C. The claims are admissible

16. Contifica submits that the claim is admissible since (1) it has satisfied the requirement for the

amicable settlement and (2) there are no other obstacles preventing the Tribunal from

deciding on merits of the dispute.

1. Contifica has fulfilled the requirement for amicable settlement

17. Article 8 of the BIT provides that Investor-State disputes which cannot be settled amicably

within a period of three months from written notification of a claim by the Investor, shall be

submitted to international arbitration if the investor so wishes. The importance of this kind of

obligation has been emphasised in numerous decisions 26

found that an obligation to settle the

dispute amicably is crucial as it provides the state with an opportunity to redress the problem.

18. Two notification letters were sent to the Minister of Foreign Affairs and the President of

Ruritania expressing Contifica’s concern about the de facto expropriation and referring to

Article 8. The letters were sent on 10 December 2011 and then 31 May 2012. Although the

Respondent has received the last letter on the same day it was sent,27

no answer to Contifica’s

concerns has ever been received.28

It is therefore submitted, that Ruritania has not only failed

to redress the problem raised by Contifica, but has completely ignored its attempts to settle

amicably. It follows, that pursuant to the clear language of the Article 8 Contifica was fully

25

Statement of Claim, para 9.

26Antoine Goetz v. Burundi, paras 90– 3.


28 Statement of Claim , para 27.

9

entitled to apply before the present Tribunal on September 30, four months since the last

letter.

2. There is nothing in the claim indicating that it is premature

19. Contifica has complied with BIT’s requirement to engage in the amicable settlement and there

are no other prerequisits to bringing the claim in the BIT. There is no requirement to resort to

local courts in the BIT itself. The customary obligaton to resort ot the local courts does not

arise here as Ruritania’s wrongdoings give rise to the treaty protection, and hence, the dispute

may be submitted directly to the arbitration “without resort to local remedies.”29

Contifica

submits that the transfer of the shares to CAM has been legal, transparent, conducted in

compliance with all relevant legislation and has been acknowledged by the State Property

Fund.30

20. Overall, Article 8 represents a valid offer made by the Ruritania to submit any dispute, such

as the present one to arbitration which is now accepted by Contifica.

29

Sornarajah, The International Law on Foreign Investment, p. 255.


10

II. IN THE LIGHT OF THE CIRCUMSTANCES SURROUNDING THE CASE THE

PRESENT TRIBUNAL HAS JURISDICTION OVER CAM’S CLAIMS BASED ON

THE BREACH OF THE SHARE PURCHASE AGREEMENT BY THE STATE

PROPERTY FUND OF RURITANIA AND THOSE CLAIMS ARE ADMISSIBLE

21. Contifica submits that the Tribunal has jurisdiction over the claims arising out of the Share

Purchase Agreement between the State Property Fund of Ruritania and Contifica Spirits

S.P.A. (SPA) and that those claims are admissible. The submission is based on the following

propositions: (A) the conduct of the Fund may be prima facie attributed to the Ruritania; (B)

the umbrella clause in the Article 6.2 elevates the claims arising from SPA to the level of

treaty claims; (C) the presence of express dispute settlement clause in the SPA does not affect

admissibility of the BIT claims.

A. The conduct of the Fund may be prima facie attributed to Ruritania

22. Article 9.2.1 of the SPA contains a warranty in which the Fund represents to Contifica that:

“To the best of its knowledge the products of the Brewery do not pose any risks to

the consumers, other than those which are ordinary for similar alcoholic

beverages.”

Contifica submits that Ruritania is liable for the Fund’s non-performance under this clause

since the conduct of the Fund is attributable to Ruritania. The matters of attribution may be

decided prima facie at the jurisdictional stage of these proceedings so as to establish that

Ruritania shall bear liability for the breach of SPA. Thus, in Maffezini, the Tribunal devoted

18 paragraphs to the discussion of the attribution issues already at the jurisdictional stage.31

23. The universally accepted32

guidelines of the ILC's Articles on State Responsibility33

shall be

applied for the purpose of establishing attribution. There are several grounds which allow for

the attribution of the Fund’s conduct to Ruritania:

31

Maffezini v. Spain, paras 71-89.

32 Loewen Group v. USA, para. 149.

33 Draft Articles on Responsibility of States for Internationally Wrongful Acts, in Report of the International

Law Commission on the Work of Its Fifty-third Session, p. 43.

11

as conduct of an organ of the state (ILC Article 4);

as the conduct of an instrumentality exercising governmental authority (ILC Article 5);

or as the conduct of an entity controlled by the state (ILC Article 8).

1. The Fund’s conduct may be attributed as the conduct of an organ of Ruritania

24. ILC Article 4 provides that the conduct of any state organ, will be attributable to the State

under international law. On the present facts, there are several features which indicate that the

Fund is an organ. Firstly, Commentary to the ILC Articles explains that the scope of the

Article 4 extends to the organs “of whatever kind or classification, exercising whatever

functions, and at whatever level of hierarchy.”34

Thus, the ambit of the Article 4 is

intentionally wide and the Fund, classified according to the Ruritania’s internal law as the

state establishment, is very likely to fall within its scope.35

25. Secondly, the powers of the Fund have been conferred upon it by an Act of Parliament of

Ruritania36

and the principal managing bodies of the Fund, are both appointed by Ruritania.37

This arrangement is a strong evidence in favor of the proposition that the Fund is an organ of

Ruritania, since for the purposes of Article 4 it is not just the substance of powers that

matters, but the way they are conferred on an entity, and the extent to which the entity is

accountable to government for their exercise.38

26. Finally, it is irrelevant for the purposes of attribution whether the organ is labeled as as

“commercial” or as “acta iure gestionis” (acting by right of management)39

thus, although the

Fund was involved in commercial transactions, such as SPA, this does not mean that it loses

the status of an organ.

34

J Crawford, The International Law Commissions’s Articles on state Responsibility, p. 95.

35 Government of Egypt Case; Governor Case.

36 Procedural order No 2, para 5

37 Procedural order No 2, para 5

38 R. Doak Bishop , James Crawford , et al., Foreign Investment Disputes: Cases, Materials and Commentary, p

801

39 R. Doak Bishop , James Crawford , et al., Foreign Investment Disputes: Cases, Materials and Commentary, p

801

12

2. The Fund’s conduct is attributable, as it has exercised governmental authority

27. ILC’s Article 5 provides that whether the Fund is empowered, if only to a limited extent or in

a specific context, to exercise specified elements of governmental authority. In Jan de Nul v

Egypt the Tribunal, discussing the criteria under Article 5 held that not only the powers of the

entity in general, but also the specific act in question has to be considered.40

Here, the specific

act in question involved the sale of the shares in FBI whereby the Fund was empowered to

conduct part of the Ruritania’s new privatization policy41

on behalf of the government which

is a clear evidence that the Fund has exercised governmental authority.

3. The Fund’s conduct is attributable since Ruritania has exercised extensive

control over its actions

28. Professor Crawford asserted that under ILC Article 8, where the government uses its control

over the company specifically in order to achieve a particular result, the conduct in question

shall be attributed to the State.42

That is precisely what happened in the present case. As

mentioned above, in 2008 due to the ongoing financial crisis the Ruritania’s government

decided to privatize a number of assets should and “[a]s the result” the Fund decided to sell

the brewery to a private investor and an international tender was announced.. There is a direct

causal link between those two decisions meaning that Ruritania has exercised degree of

control over the Fund sufficient for the purposes of attribution under the Article 8.

29. Overall, Contifica submits that the conduct of the Fund may be attributed to Ruritania based

on the criteria of the ILC Articles 4,5 or 8 and the Tribunal has ratione personae jurisdiction

over the claim arising out of the breach of the SPA.

B. The umbrella clause in the Article 6.2 elevates the claims arising from SPA to the

level of treaty claims

30. Article 6.2 of the BIT provides that:

40

Jan de Nul v Egypt, para.202.


42 J Crawford, The International Law Commissions’s Articles on state Responsibility, pp. 112-113.

13

“Each Contracting State shall fulfil any other obligations it may have entered into

with an Investor or an Investment of an Investor of the other Contracting State.”

31. Article 6.2 is a typical umbrella clause. It is commonly acknowledged than an umbrella clause

may transform a mere contractual obligation between the state and investor into the

international law obligation, provided that the particular claim falls within the ambit of the

clause.43

Thus, based on the propositions below, Contifica submits that the Fund’s non-

performance under the SPA amounts to the internationally wrongful act.44

32. Firstly, both the scope and essence of the obligations undertaken depend on how the clause is

phrased. Thus, in Eureko v Poland the Tribunal interpreted the phrase “any obligations”

extensively, as meaning “not only obligations of a certain type, but ‘any’ – that is to say, all

obligations.”45

In SGS v Phillipines the tribunal held phrasing “any obligation it has assumed

with regard to specific investments in its territory” to be “clear and categorical”46

and the term

“any obligation” was held to be applicable to obligations arising under the contract.47

It

follows, that the phrase “any obligations” in the Article 6.2 BIT allows for the wide

interpretation of the clause, and hence, for the possibility to bring Contifica’s claims under

SPA within its scope.

33. Secondly, Professor Ben Hamida proposed that the words “obligations entered into” be

interpreted as obligations undertaken vis-à-vis the other party.48

Thus, the scope Article 6.2 is

narrowed down to the obligations arising between the investor and the host state. Therefore,

on the one hand, the claim for the breach of the SPA satisfies this criteria perfectly, since the

parties under the SPA are the Fund, whose conduct is attributable to Ruitania and CAM, the

investor covered by the BIT’s protection. On the other hand, as the scope of the clause is

43

R. Dolzer, M. Stevens Bilateral Investment Treaties, pp. 81-82.; C. Schreuer, “Travelling the BIT Route: of

Waiting Periods, Umbrella clauses and Forks in The Road”, pp.231-256.

44 Report of the I.L.C.1998 (A/53/10), para. 35.

45 Eureko v Poland, para. 246.

46 SGS v. Phillipines, para 119.

47 SGS v. Phillipines, para 115.

48 W. Ben Hamida, La clause relative au respect des engagements dans les traités d’investissement, Institut des

Hautes Études internationales, p.21; SGS v Pakistan.

14

narrow, there is no danger of elevating to the international level all “the municipal legislative

or administrative or other unilateral measures of a Contracting Party.”49

34. Thirdly, the object and purpose of the BIT supports an effective interpretation of Article 6.2.

The Preamble of the BIT speaks about the parties desire to “stimulate private enterprise,”

“create favourable conditions for Investments” and the recognition that “encouragement and

protection of such Investments are essential to the prosperity of both nations and the welfare

of their nationals.” In SGS v Phillipines, similar provisions in the BIT’s Preamble led the

Tribunal “to resolve uncertainties in its interpretation so as to favor the protection of covered

investments.”50

35. Fourthly, although the Tribunal in SGS v Pakistan considered the location of the umbrella

clause to be important,51

here, it is completely irrelevant. Article 6 is located right in the

middle of the BIT, which gives no additional information about how much weight the

Contracting parties were intending to give it whatsoever. Furthermore, Pakistan’s rationale

for this criteria has been heavily criticised by the Phillipines Tribunal which found it difficult

to accept that the clause “is legally inoperative merely because of its location.”52

36. Fifthly, the Vivendi’s finding that “a violation of a contract entered into by a State with an

investor of another State, is not, by itself, a violation of international law” 53

is not relevant

here. The Treaty examined in Vivendi was completely different from the umbrella clause in

Article 6.2 of the Cronos-Ruritania BIT. Moreover, this so-called “principle” is contrary the

International Law Commission’s position that a clause in a treaty requiring a State to fulfill

specific contractual obligations provides for a valid claim under BIT. 54

37. Finally, Contifica’s claims under the SPA may be transformed into the treaty claims via the

most favored nation clause. Article 6.1 of the BIT guarantees most favored nation (MFN)

49

SGS v. Pakistan, para. 166.

50 SGS v Phillipines, para 116.

51 SGS v. Pakistan, paras 169-70.

52SGS v Phillipines, para 124.

53 SGS v. Pakistan, paras. 147-148, Vivendi v. Argentina, Annulment, paras. 95-98, 10.

54 Commentary to Article 3, para. 7; J Crawford, The International Law Commission’s Articles on State

Responsibility., p.89.

15

treatment to Cronos’s investors, vis-à-vis certain other foreign investors provided that

obligation for favorable treatment arise under “legislation of [Ruritania] or international

obligations.”

38. There is an investment treaty between Ruritania and U.S. qualify as international obligation

which is identical to the U.S. Model BIT.55

An umbrella clause is contained in U.S. Model

BIT Article 2.1. As Professor Vandervelde asserted, under this provision of the the US Model

BIT a party’s breach of an investment agreement with an investor becomes a breach of the

BIT.56

Overall, the ‘umbrella clause’ in the article 6.2 of the BIT is designed to extend the

BIT’s protection to cover breaches of contracts between the host State and the investor.

39. The forum selection in the Article 14.2 of the SPA provides that:

“All disputes arising out of or in connection with the present Agreement shall be

finally settled under the Rules of Arbitration of the International Chamber of

Commerce...”

In accordance with Article 1.1 of DIS’s Rules, its jurisdiction is based on the agreement of the

parties to the dispute. Furthermore, DIS Rules, Article 23.1 provide that the arbitral tribunal

shall decide the dispute in accordance with such rules of law as are chosen by the parties as

applicable to the substance of the dispute. The Claimant submits that instead of confining

CAM to the jurisdiction of the ICC, Article 14.2, considered together with the umbrella clause

in the Article 6.2 of the BIT, grants CAM an option to choose between the contractual

remedies and the treaty remedies.

40. In Vivendi Annulment it was held that where the BIT forms fundamental basis of the claim

the existence of an “exclusive jurisdiction clause in a contract between the claimant and the

respondent state cannot operate as a bar to the application of the treaty standard.”57

Similarly,

the tribunal in Lanco v. Argentina, ‘denied that an exclusive jurisdiction clause could exclude

ICSID jurisdiction.’58

Thus, forum selection clauses arising from the agreements between the

55

Procedural Order No 3, para 7.

56 Kenneth J. Vandevelde, United States Investment Treaties: Policy and Practice, p. 78.

57 Vivendi v. Argentina, Annulment, para 101

58, Vivendi v. Argentina, Annulment, para. 78.

16

state and the private investor are not capable of invalidating the dispute resolution clauses

originating from international investment treaties.

41. The notion of the primacy of the BIT’s forum selection clause is further supported by the

application of the generalia specialibus non derogant principle. Professor Schreuer argued

that the forum selection clause in the BIT is merely a standing offer to investors. 59

When

investor accepts that offer he becomes a party to a specific arbitration agreement.60

While the

Article 14.2 refers to any dispute arising from the SPA, the UNCITRAL arbitration

agreement, perfected via the institution of proceedings, applies only to the specific dispute.

Therefore, the UNCITRAL arbitration agreement is the one which is more specific. Thus, the

BIT does not contain any statement indicating that the parties’ consent to UNCITRAL

jurisdiction is non-exclusive or subject to prior dispute resolution agreements.

42. Overall, since the forum selection clause provided in SPA may not exclude the possibility to

resort to other available remedies, it follows, that ultimately it is the investor who has the

right to decide whether to take the claim to ICC or UNCITRAL Tribunal. Contifica has made

the choice in favor of the arbitration under the UNCITRAL Rules.61

59

C Schreuer, “Calvo’s Grandchildren: The Return of Local Remedies in Investment Arbitration”, p 10.

60 C Schreuer, “Calvo’s Grandchildren: The Return of Local Remedies in Investment Arbitration” ,p 10.


17

III. RURITANIA HAS VIOLATED ITS OBLIGATIONS TOWARDS CAM UNDER

THE BIT AND INTERNATIONAL LAW BY ADOPTING THE MEASURES FOR

THE REGULATION OF MARKETING AND SALE OF ALCOHOL AND

IMPOSIMG FURHTER REQUIREMENTS FOR MARKETING AND SALE OF

FREEBREW BEER

43. Claimant submits that measures concerning adoption of the MAB Act and the MHSS

Ordinance by Respondent constituted (A) expropriatory taking; (B) violation of intellectual

property rights; (B) breach of fair and equitable treatment of foreign investments standard and

(C) full protection and security guarantee.

A. Adoption of the MAB Act and the MHSS Ordinance by Ruritanian authorities

constituted expropriation of CAM’s investments associated with FBI

44. Expropriation is “the most severe form of interference with property” when all expectations

of the investor are destroyed and no compensation is provided.62

It may be implemented both

directly and indirectly, i.e. through regulatory measures.63

Thus, Claimant is going to prove

that (1) the degree of Respondent’s interference into Claimant’s investment is excessive and

(2) Respondent’s actions do not satisfy criteria to legal expropriation enshrined in the BIT.

1. The degree of Respondent’s interference into Claimant’s investment is excessive

45. The degree of interference into an investment is a deceive criterion for identification of

expropriation recognized by international arbitral practice.64

Prof. Dolzer defined this

criterion as ‘sole effects doctrine’.65

Claimant emphasizes that the degree of Respondent’s

interference into Claimant’s investment is excessive.

46. In Revere Copper the ‘impact on effective control over use and operation’ of property was

62

R. Dolzer, C. Schreuer, Principles of International Investment Law, 2nd

ed. (Oxford: Oxford University Press,

2012), Kindle location 4060.

63 C. McLachlan, L. Shore, M. Weiniger, International Investment Arbitration, 1

st ed. (New York: Oxford

University Press, 2008), para. 8.68;

64 LG&E v. Argentina, para.190; Metalclad v. Mexico, para.103.

65 R. Dolzer “Indirect expropriations: New Developments?”, 11 NYU Environmental Law Journal, 2002).

18

emphasized as a key object to determine the interference’s intensity.66

In Pope & Talbot a

‘substantial deprivation’ of property rights’ requirement was emphasized.67

In Starrett a

sufficient effect of interference was recognized as that makes property rights ‘useless’.68

In

accordance with Metalclad, investor should be deprived from ‘the whole or significant part’

of its investment as well as ‘reasonably-to-be expected economic benefit of the property’.69

Thus, ‘severe, fundamental or substantial and not ephemeral’ deprivation of property is

required to constitute expropriation.70

47. In the present case Claimant was derived of opportunity to use a significant part of its

investment by adoption of the MAB Act and the MHSS ordinance. Firstly, all the

requirements established by the MAB Act concern beer and FBI is the oldest and largest

brewery in Ruritania.71

Thus, from the nature of the Act follows that the whole investment is

affected. Secondly, each measure enshrined in the MAB Act significantly limits Claimant’s

opportunities in selling and marketing of its production. With respect to the bottle’s

requirement, Claimant emphasizes fact that FREEBREW is the most famous and popular

FBI’s brand which was traditionally packed into iconic 0,8l bottles.72

Consequently,

FREEBREW bottles compose a significant part of the Claimant’s investment. The similar

situation concerns the Reyhan-warning requirement established by the MHSS ordinance as it

affects the most successful FBI’s brand.

48. Thus, Respondent’s measures have severe effect on the Claimant’s investment.

2. Respondent’s actions do not satisfy criteria to legal expropriation

66

Revere Copper v. Overseas Private Investment, para.86.

67 Pope & Talbot v. Canada, para.96.

68 Starrett Housing v. Iran, para.89.

69 Metalclad v. Mexico, para.103.

70 A. Newcombe, L. Paradell, Law and Practice of Investment Treaties: Standards of Treatment, (Kluwer Law

International BV, The Netherlands, 2009), p.341.

71 Statement of Claim, para.5.

72 Statement of Claim, paras.5, 9.

19

49. Under the BIT expropriation must accord four criteria to be deemed legal. These criteria are:

(a) orientation on public benefit, (b) non-discriminatory character, (c) compliance with a due

process of law and (d) provision of a compensation. The enumerated criteria are also a part of

international law.73

50. Claimant submits that the labeling requirements, limitations of marketing, advertisement and

bottles’ volume restrictions introduced by Respondent in the MAB Act74

and the MHSS

Ordinance75

, separately and in conjunction has resulted in an expropriatory taking of

Claimant’s investments associated with FBI.

a. The measures in question did not serve public benefit

51. Regulatory measure must serve public benefit to be deemed legal.76

Respondent in its

Statement of Defense made reference that enactment of the MAB Act was crucial for health

of Ruritanian citizens.77

Claimant disagrees with this statement and summarizes its’ position

as follows: adoption of laws aimed on the reduction of sales of alcohol, i.e. of such law as the

MAB Act, is harmful for public both from political and economic points of view.

52. The adoption of the MAB Act might lead to citizen’s disrespect of the law, creation of illegal

trade, increase of consumption of other intoxicating sedatives, such as drugs.78

That was the

case in the U.S. at the times Prohibition, when raging of criminality and common

demoralization of society appeared a result of legislative amendments missioned to tackle a

problem of alcohol consumption. As a matter of economy, measures brought by the MAB Act

shall reduce prices for commodity, thus making it more accessible for public. Thus:

73

UNGA Resolution № 1803 on Permanent Sovereignty over Natural Rescources, Art. 4.

74 Regulation of Sale and Marketing of Alcoholic Beverages Act, November 20

th, 2010.

75 Statement of Claim, para.15

76 Treaty of Mutual Promotion and Protection of Foreign Investment between The Republic of Ruritania and The

State of Cronos, Art. 4.1.(a).

77 Statement of Defense, para.14.

78 M. A. Lerner, Dry Manhattan: Prohibition in New York City, (Harvard University Press, 2007).

http://en.wikipedia.org/wiki/Harvard_University_Press

20

“Plain packaging will remove … method by which manufacturers can distinguish

their brands … it will reduce product differentiation … thereby … leading to a

reduction in prices.”79

53. Reduction in prices will, in-turn, lead to increase of consumption, which will be injurious for

Respondent’s nation health.80

54. As regards sub legislative measures introduced by Respondent, The HRI Report (hereinafter

“the Report”) released on June 15th

, 201181

by the state-funded institution82

and revealing

negative consequences of consumption of Reyhan concentrate, an essential ingredient of

FBI’s FREEBREW beer, was prepared with multitudinous errors. The Report alleges that

FREEBREW beer is extremely injurious for consumer’s health since Reyhan concentrate

constitutes Methyldioxidebenzovat, an active chemical element. However, Claimant asserts

that this Report failed to analyze how Methyldioxidebenzovat interplays with other

ingredients of FREEBREW, e.g. alcohol.83

In addition, an independent expert opined that the

Report failed to take into account such important matters as weight, diet and pernicious habits

of persons subject to tests.84

Finally, Claimant lays emphasis on the fact that measure of

Methyldioxidebenzovat applied during the tests was much higher than is contained in

FREEBREW.85

Therefore, the HRI Report’s credibleness is ambiguous.

55. On June 30th

, 2011 Ministry of Health and Social Security of Ruritania (hereinafter “the

Ministry”) decreed an ordinance (hereinafter the Ordinance) grounded on statements of the

Report and ascertaining that all products containing Reyhan concentrate shall be marked with

warning its’ injuriousness.86

However, once the Report findings relating to Reyhan

79

J. Padilla, The Impact of Plain Packaging of Cigarettes in Australia: a Simulation Exercise, February, 2010.

80 Ibid.


82 Ibid, para.14.

83 Ibid, para.17.

84 Ibid.


86 Ibid, para.15.

21

concentrate are disputable, and this element’s disutility is not proven, the obligation to warn

consumers about its’ insalubrity, imposed on producers by the Ministry through the Ordinance

does not serve public benefit.

56. As regards prohibition of bottling alcoholic beverages into containers of volume not

exceeding 0,5 l87

, there is a high degree of probability that this measure will provoke

consumers to buy and order two 0,5 l bottles of beverage instead of one 0,8 l bottle.

Therefore, a ban of 0,8 l bottles rather contradicts a purpose of preservation of nation’s health.

57. Therefore, Claimant submits that the discussed measures cannot be deemed to serve public

benefit.

b. The measures in question were discriminatory

58. Discriminatory measure takes place when actions of host State or its’ entities are targeted at

excluding investor from business in the host State.88

Regulatory measure must not be

discriminatory to be deemed legal.89

Discrimination means “differential treatment, failure to

treat all persons or entities equally”90

. Regulatory measure, which negatively singles out alien

of particular nationality, violates international law.91

0,8 l bottles were the feature of FBI

production and were increasing FREEBREW’s competitiveness.92

Provisions of the MAB Act

prohibited usage of 0,8 l containers.93

In Claimant’s view this legislative measure impairs

FBI’s competitiveness and is, in such a way, discriminatory since FBI was the only beer’s

87

Ibid, para.14.

88 Eureko v. Poland, para.242.

89 Treaty of Mutual Promotion and Protection of Foreign Investment between The Republic of Ruritania and The

State of Cronos, Art. 4.1.(b).

90 B. A. Garner, Black’s Law Dictionary, 9

th ed. (Thomson Reuters, 2009), p.534.

91 Restatement (Third) of the Foreign Relations Law of the United States, (American Law Institute, 1987), para.

712.


93 Regulation of Sale and Marketing of Alcoholic Beverages Act, November 20

th, 2010, Section 8.

22

producer in Ruritania using 0,8 l bottles.94

59. The HRI (governmental - funded institution) Report and the Ordinance (hereinafter “the

Ordinance”) of the Ministry accordingly drawn the conclusion that FBI’s FREEBREW is

more harmful for consumer’s health than other beers95

and obliged FBI to mark FREEBREW

with a warning that its’ consumption may lead to a higher risk of disease than consumption of

beer of other producers.96

Claimant, in turn, possesses evidence that the “numerous flaws”

were committed during the scientific research on which the Report is grounded.97

As regards

the Ordinance, it was adopted on the grounds of the rates which were not making

Respondent’s Government anxious in the previous years. Although Respondent had all the

information available concerning negative consequences of consumption of FREEBREW

beer as early as in the year of 200598

, it, nevertheless, was not taking any measures until 2011.

60. Claimant submits that the HRI Report is not veracious while its’ results are far-fetched due to

following reasons. Firstly, Claimant has evidence that the Report analyzes much higher daily

consumption of Methyldioxidebenzovat than FREEBREW contains.99

Secondly, Claimant

submits that the discussed detrimental effect is to be neutralized once it is mixed with other

FREEBREW ingredients.100

Therefore, consumption of FREEBREW bears no more health

hazard than other brands of beer. Thirdly, Claimant has report from an independent expert

confirming that the HRI Report did not consider such factors as smoking, weight and diet of

individuals.101

These facts emphasize that the Report is unreliable.

61. Moreover, the Ordinance was adopted without any consultations with FBI102

and therefore

94

Procedural Order No. 3, para.16.


96 Ibid, para.15.

97 Ibid, para. 17.

98 Ibid, para.16.

99 Ibid, para.17.


101 Ibid, para.17

102 Ibid, para.15.

23

FBI was precluded from expressing any objections concerning the results. Due to these facts,

Claimant asks the Tribunal to accept that Respondent measures expressed in the Report and

the Ordinance were aimed not at the protection of Ruritanians’ health but at the banishment of

FBI from the business in Ruritania and therefore were discriminatory.

c. The measures in question were not carried out in accordance with due

process of law

62. Regulatory measure must be carried out under due process of law to be deemed legal.103

Violation of due process of law happens where the host State adopts regulatory measures

detrimental to investor not in conformity with national law and procedure or where those

measures and adequate compensation are not subject to prompt review by a judicial or other

independent authority of the host State.104

63. Claimant repeatedly attempted to settle the present dispute amicably. It made two respective

requests to the President of Respondent state. Both were left without response.105

One of the

president’s powers in any state, in Claimant’s view, is to guarantee effective and fair

functioning of public authorities. Therefore, the fact that the President ignored Claimant’s

requests for amicable settlement of the problem constitutes, as Claimant believes, denial from

the principle of due process.

d. The measures in question were not accompanied by prompt, adequate and

effective compensation

64. Regulatory measure must be against compensation to be deemed legal.106

However, no

compensation for Claimant’s loses caused by the discussed measures was paid by

Respondent.107

103

Treaty of Mutual Promotion and Protection of Foreign Investment between The Republic of Ruritania and

The State of Cronos, Art. 4.1.(c).

104 A. Reinisch, Standards of Investment Protection, 1

st ed. (New York: Oxford University Press, 2008), p. 191.


106 Treaty of Mutual Promotion and Protection of Foreign Investment between The Republic of Ruritania and

The State of Cronos, Art. 4.1.d).

107 Procedural Order No. 2, para.7.

24

65. Although, Respondent may try to rely on the concept of police power and regulatory taking in

international law, Claimant submits that this concept is not applicable here since the measures

in question were arbitrary and unreasonable i.e. discriminatory as shown in section III.A.2 of

this Written Memorial.108

B. Respondent violated Claimant’s intellectual property rights

66. The introduction by Ruritania of the MAB Act gravely interfered with Contifica’s use and

enjoyment of its trademarks. Contifica was not only obliged to write all trademarks/brands of

beer in the same font and color as all the other text on the label, but it is also forced to display

the explicit “health risk” warning on each bottle.

67. Contifica submits, that the measures adopted by Ruritania under the MAB Act amount to

indirect expropriation of its investment due to the substantial deprivation of its trademark and

trade dresses rights. Those rights are protected under the The Agreement on Trade-Related

Aspects of Intellectual Property Rights (TRIPs).

68. TRIPs Article 2.1 provides that WTO ‘Members shall comply with Articles 1 through 12, and

Article 19, of the Paris Convention (1967)109

in respect of Parts II, III and IV of the TRIPS

Agreement. Article 2.2 provides that “[n]othing in Parts I to IV of [the TRIPS Agreement]

shall derogate from existing obligations that Members may have to each other under the Paris

Convention’ or certain other treaties.” Since Ruritania as a signatory to the Paris

Convention110

as well as a Member of the WTO,111

it has to comply with the Paris

Convention.112

69. There are several provisions in the TRIPS which provide for liability of the host state in cases

of the breach of the use trademarks rights by invoking plain packaging regulations.

70. Firstly, despite the fact that the primary focus of the Article 6 (B) of the Paris Convention is

108

W. Stoebuck, “Police Power, Takings and Due Process”, Wash. and Lee L. Rev, 1980, Vol. 37, Issue 4, p.

1058.

109 Paris Convention for the Protection of Industrial Property, September 28th, 1979.

110 Procedural Order No 2, para.2.

111 Ibid, para.12.

112 Agreement on Trade Related Aspects of Intellectual Property Rights, Januaty 1st, 1996, Article 2.1.

25

on the registration and validity of the trademarks,113

in the cases concerning plain packaging it

has been suggested that registration and invalidation ‘imply use’114

, and moreover, that ‘the

spirit of the Paris Convention is to permit use’.115

71. Secondly, Article 6(B)(iii) of the Paris Convention,116

provides that certain trademarks may be

denied registration or invalidated if they are contrary to morality or public order. In his report

devoted to the examination of the tobacco control measures Professor Gervais asserts that

‘this Article could not provide a justification for restricting tobacco trademarks generally’.117

It is submitted that the nature of the alcohol trademarks is similar in this respect to the tobacco

trademarks. Hence, although in a very broad sense alcohol trademarks may be contrary to the

public morality, that does not justify such broad exclusion.

72. Thirdly, TRIPS Article 17 provides that members may provide limited exceptions to the rights

conferred by a trademark. Contifica submits that plain packaging measures may not qualify as

‘limited’ since they did not take into account the interest of Contifica. On the present facts,

MAB regulations have dramatically reduced distinctiveness of FREEBREW products which

deterred consumers, affecting the economic value of the brand and resulting in the loss of

sales, significant drop in revenue,118

and, eventually, suspended production.119

73. Fourthly, Article 20 of the TRIPS Agreement provides that the use of a trademark in the

course of trade shall not be unjustifiably encumbered by special requirements. In the TRIPS

Article 8.1 it is stated that the states may adopt measures necessary to protect public health as

113

C.Correa, Trade Related Aspects of Intellectual Property Rights: A Commentary on the TRIPS Agreement,

(Oxford University Press, 2007), p.179;.

114 Memorandum from Lalive to Philip Morris International Management SA, Why Plain Packaging is in

Violation of WTO Members’ International Obligations under TRIPS and the Paris Convention (July 23rd, 2009).

115 Report by Daniel Gervais for Japan Tobacco International, Analysis of the Compatibility of certain Tobacco

Product Packaging Rules with the TRIPS Agreement and the Paris Convention

(November 30th, 2010).

116 Agreement on Trade Related Aspects of Intellectual Property Rights, January 1st, 1996, Article 2.1.

117 Report by Daniel Gervais for Japan Tobacco International, Analysis of the Compatibility of certain Tobacco

Product Packaging Rules with the TRIPS Agreement and the Paris Convention

(November 30th, 2010).



26

far as such measures are consistent with’ the TRIPS Agreement. As it shown above the MAB

Act plain packaging requirements, may not be consistent with TRIPS Agreement, hence the

encumbrance imposed by those measures is unjustifiable.

C. Actions of Ruritanian authorities breached the standard of fair and equitable

treatment of foreign investments

74. The BIT provides for fair and equitable treatment (hereinafter “FET”) of foreign

investments120

which is a standard of treatment under international law121

. Examples of

violation of this standard are lack of respect for the obligation of vigilance and protection,

non-observance of the investor’s legitimate expectations, coercion and harassment by the

organs of the host State, failure to offer stable and predictable legal framework, evidence of

bad faith, absence of transparency.122

75. These infringements taken alone or in conjunction lead to the violation of FET standard.

Claimant submits that (1) adoption of the MAB Act, publishing of the HRI Report on June

15th

, 2011 followed by (2) adoption of the Ordinance of the Ministry of Health and Social

Security on June 30th

, 2011 and (3) arrest of executives of FBI123

constitute listed

infringements and due to this reason comprise violation of FET standard.

1. Adoption of the MAB Act violates the standard of FET

76. Claimant submits that adoption of the MAB Act constitutes (a) non-observance of investor’s

legitimate expectations and (b) failure to offer stable and predictable legal framework.

a. Non-observance of investor’s legitimate expectations

77. Host State’s obligation to protect investor’s reasonable expectations is considered to be one of

120


The State of Cronos, Art. 2.1(b).

121 Merrill & Ring v. Canada, para.210.

122 I. Tudor, Fair and Equitable Treatment Standard in International Law of Foreign Investment, 1

st ed. (New

York: Oxford University Press, 2008.), pp.154 – 180.

123 Statement of Claim, paras.22 - 26.

27

the applications of the FET standard.124

It was found by tribunals that “mere political

statements were not capable of creating legal expectations.”125

Political statement is “an

official account of facts, views, or plans, especially one for release to the media”.126

78. Respondent, in its Statement of Defense, relies on the argument that Claimant should have

anticipated tough regulatory measures concerning the sales and labeling of alcohol since these

measures were part of the widely publicized election manifesto of the New Way party

securing the majority in Respondent’s parliament.127

This manifesto beyond any doubt lies

within the definition of political statement quoted above. This statement was the only

information available, concerning future amendments of law, while no bill of this Act was

publicly available at the time Claimant’s investment into FBI. Claimant acquired FBI’s shares

on March 17th

, 2010128

while the bill of the MAB Act was published only three months later

on June 20th

, 2010129

. Due to this, Claimant submits that it could not anticipate the adoption of

the amendments and by this reason its’ reasonable expectations were not protected.

b. Failure to offer stable and predictable legal framework

79. An efficient foreign investment operation depends in significant part on the stable and

predictable legal framework provided by the host State.130

It means that the host State shall

not adopt laws negatively affecting the project and must be ready to enter into negotiations

and to consult investor on the points of disagreement concerned with the investments.131

80. In the case of FBI, Respondent adopted the MAB Act which severely affected FBI’s business

124

Gami Investments v. Mexico, para.93.

125 Continental Casualty v. Argentina, para.261 (i).

126 Oxford Dictionary of English, 3

rd ed. (Oxford University Press, 2010).

127 Statement of Defense, para.6.

128 Statement of Claim, p. 3, para.9.

129 Procedural Order No. 2, para.26.

130 I. Tudor, Fair and Equitable Treatment Standard in International Law of Foreign Investment, 1

st ed. (New

York: Oxford University Press, 2008.), p. 169.

131 PSEG v. Turkey, paras.246 – 256.

28

and therefore Claimant’s investments and which, as was stated above could not be reasonably

anticipated by Claimant. FBI’s sales of FREEBREW dropped by 60% during 7,5 months after

the adoption of the MAB Act as a result of introduced regulations causing 10 million USD of

lost revenue.132

Respondent’s authorities refused to enter into any negations and to conduct

any consultations with Claimant by ignoring respective requests by Claimant.133

81. In such a way, Claimant asks the Tribunal to find failure to offer stable and predictable legal

framework on the part of Respondent.

2. The HRI Report and the Ordinance of the Ministry of Health and Social

Security violates the standard of FET

82. Claimant submits that publishing of the HRI Report (hereinafter the Report) and subsequent

adoption of the Ordinance (hereinafter the Ordinance) of the Ministry of Social Health and

Security constitutes (a) evidence of bad faith and (b) absence of transparency.

a. Evidence of bad faith is present in measures in question

83. Good faith in execution of international obligations is one of the core features of international

economic and legal obligations.134

Bad faith implies inter alia neglect of duty by the host

State or its bodies and agencies135

. The Report published by HRI which is governmental –

funded institution and the Ordinance based on the results of this Report and adopted by the

Ministry of Health and Social Security comprise numerous errors and disallowances

investigated in detail above136

and leading to the lack of objectiveness and fairness these acts.

This, in Claimant’s view, constitutes neglect of duty by Respondent and thus evidence of bad

faith on the part of Respondent.

b. Transparency is absent in measures in question

132

Statement of Claim, para.13.

133 Ibid, para.27.

134 UNGA, Resolution 3281, Charter of Economic Rights and Duties of States, December 12

th, 1974.

135 Alex Genin v. Estonia, para.367.

136 Section III.A.2 of Claimant’s Written Memorial.

29

84. The idea of transparency includes the requirement that all relevant acts necessary for

completing and operating investments shall be capable of being promptly known to

investor.137

Absence of transparency was recognized, for example, where investor suffered as

a result of a law he did not observe.138

The Report and The Ordinance which affected

Claimant’s investments and imposed number of obligations on FBI with which Claimant’s

investments are associated were prepared without any consultations with FBI and therefore

could not be known to Claimant in proper time.139

Claimant asks the Tribunal to agree that the

absence of transparency in such conduct of Respondent’s state authorities is present.

85. In such a way, Claimant asks the Tribunal to find that actions of Respondent are

contemptuously to the BIT and international law and constitute expropriatory taking and

violation of standard of fair and equitable treatment of foreign investments.

137

Metalclad v. Mexico, para.76.

138 Ibid.


30

IV. MORAL DAMAGES FOR THE ARREST OF FBI’S EXECUTIVES MAY BE

AWARDED BY THIS TRIBUNAL

87. Messrs Goodfellow and Straw were arrested on December 23th

, 2011 and subsequently

detained until January 3rd

, 2012.140

Claimant submits that moral damages may be awarded by

this Tribunal as a compensation for detention and arrest of the FBI’s executives.141

88. Moral damages were awarded in international arbitration practice in the presence of

‘exceptional circumstances’.142

Thus, in the Lemire case three criteria for identification of

‘exceptional circumstances’ were emphasized:

1.) Situations of physical duress by the State;

2.) Mental suffering or loss of reputation caused by the State;

3.) Grave or substantial effect and cause.143

89. With respect to these circumstances Claimant submits that (A) moral damages to personality

rights of its executives could be claimed and awarded; (B) moral damages to its investment

caused by the arrest and detention of the executives could be claimed and awarded; (C)

compensation is the most appropriate form of reparation for the damages caused.

A. Claimant can claim moral damages to personality rights of its executives and

these damages could be awarded

90. Moral damages must be adjudged where the host State’s actions against investor’s

representatives were admitted to be violation of relevant BIT.144

Respondent does not

challenge145

that arrest of Messrs Goodfellow and Straw comprised violation of the standard

140

Statement of Claim, paras.22 - 25.

141 Ibid, p. 6, paras.22 - 25.

142 DLP v. Yemen, para.289; Benvenuti & Bonfant v. Congo, paras.4.96, 4.129.

143 Lemire v. Ukraine, para.333.

144 DLP v. Yemen, para.290.

145 Statement of Defense, p.26.

31

of full protection and security guaranteed under the BIT146

. It follows that Respondent

violated the BIT and therefore entitled Claimant to a claim of moral damages.

91. It is accepted that persons can in principle claim moral damages.147

Although, legal persons

cannot suffer damage from the infringement of personality rights148

, they can claim moral

damages on the behalf of its employees if the doctrine of ‘corporate espousal’ is applied149

.

92. The essence of the ‘corporate espousal’ doctrine applied in the Desert Line case is that

‘damage to an employee of a corporation would be considered as damage to the corporation

itself’.150

As far as Claimant is the owner of FBI, FBI’s employees are also the Claimant’s

stuff.151

Although, no physical harm was caused to Messrs Goodfellow and Straw152

, mental

suffering is an appropriate kind of damage for the compensation.153

93. Firstly, the detention and arrest of Messrs Goodfellow and Straw were unexpected. Although,

the executives knew about ongoing criminal proceedings against them, they were told that in

accordance with Ruritanian law they have right to leave the holidays for the holidays.154

Thus,

violation of the host laws by the Ruritanian police was unpleasant.

94. Secondly, denial in departure for the winter holiday season to the home country cannot have

favorable consequences for the mental state of people.

95. Finaly, moral damages can be compensated to investor in investor-state arbitration where host

State’s authorities bring accusations against investor’s employees uncorroborated by any

146


The State of Cronos, March 15th

, 1997, Art. 2.1(b).


148 B.Sabahi, Moral Damages in International Investment Law: Some Preliminary Thoughts in the Aftermath of

Desert Line v. Yemen,( A Liber Amicorum: Thomas Wälde - Law Beyond Conventional Thought, 2009), p.255.

149 Ibid, p.259.

150 Ibid.

151 Statement of Claim, p. 3, para. 9; Procedural Order No.2, para. 21.

152 Procedural Order No.2, para.22.

153 Lemire v. Ukraine, para.333.


32

evidence.155

The Prosecutor’s Office’s of Ruritania accusations of corruption against Messrs

Goodfellow and Straw were not supported by evidence either prior to or after their arrest.156

Such conduct of Respondent’s authorities breaches one of fundamental principles of criminal

justice, which states that the law-enforcement body must possess sufficient evidence to

conduct a legitimate arrest of a suspect.157

Hence, Claimant adduces another ground for this

Tribunal to award compensation of moral damages.

96. The cumulative effect of these grounds for the identification of mental suffering caused could

have influence on the further performance of Messrs Goodfellow and Straw as CAM’s

employees. They occupy important positions in the company158

and excess stress can be

critical for the outcome of company’s activities.

97. Consequently, Claimant has basis for the moral damages claim and award with respect to the

infringement of its executives’ personal rights.

B. Claimant can claim moral damages to its investment caused by the arrest and

detention of the executives and these damages could be awarded

98. Even if CAM cannot claim moral damages to the infringement of the executives’ personality

rights, under Article 2(1)(b) of the BIT it has an opportunity to claim if the personality rights’

violation affected the investment itself.159

Thus, Claimant submits that the infringement of the

executives’ personality rights as a result the detention and arrest of the Messrs Goodfellow

and Straw of affected the Claimant’s reputation. 160

155

LAFICO v. Burundi, paras. 329 – 330.

156 Statement of Claim, para. 25.

157 K. Khan, C. Buisman, C. Gosnell, Principles of Evidence in International Criminal Justice, (New York:

Oxford University Press, 2010), pp. 157 – 185.


159 Treaty of Mutual Promotion and Protection of Foreign Investment between The Republic of Ruritania and

The State of Cronos, March 15th

, 1997, Article 2(1)(b); I. Schwenzer & P. Hachem, Moral Damages in

International Investment Arbitration, (Liber Amicorum Eric Bergsten, International Arbitration and International

Commercial Law: Synergy, Convergence and Evolution, 2011), p.422.

160 Ibid, p.418.

33

99. The loss of reputation is compensable and constitutes a pecuniary loss as reputation is

included in a purchase price of a company, it should be build or re-build after damage with

spending of huge amounts of money.161

In Desert Line claimant suffered significant loss of

reputation, credit and prestige because of cumulative effect of number of factors: armed

tribes’ harassment of the claimant’s employees, respondent’s harassment, threats and

detention of the claimant’s executives.162

Significance of the loss substantiated moral

damages award.

100. In the present case, both a video record of detention of Messrs Goofellow and Straw and

subsequent commentaries of Prosecutor’s Office, comprising ungrounded accusations against

them, were broadcasted on Ruritanian TV including the most popular channel.163

Moreover,

Respondent’s authorities brought no apologies for their actions even after the lack of evidence

against Messrs Goodfellow and Straw war revealed.164

Claimant pleads those actions caused

shame, loss of reputation and credit by CAM. Therefore, Claimant asks the Tribunal to award

compensation of moral damages.

C. Compensation is the most appropriate form of reparation for the damages caused

101. In Article 34 of the Articles on Responsibility of States for internationally wrongful acts it is

stated that:

“Full reparation for the injury caused by the internationally wrongful act shall take

the form of restitution, compensation and satisfaction, either singly or in

combination, in accordance with the provisions of this chapter.”165

102. Taking into consideration the significance of the moral damage caused, Claimant submits that

a compensation is the most appropriate type of reparation in the case at hand. Moreover,

compensation as a form of reparation should be applied if there is no opportunity to remedy

161

Ibid, p. 425.




165 Draft Articles on Responsibility of States for Internationally Wrongful Acts, December 12

th, 2001, Article.34.

34

situation by restitution.166

Claimant considers it’s impossible to return the spent in the prison

holidays by the restitution. Therefore, compensation is the only way to improve the situation.

103. Respondent may argue that satisfaction167

is more appropriate form of reparation in the

present situation. However, satisfaction should be applied only if compensation cannot be

provided.168

104. Thus, Claimant insists on compensation as a type of reparation.

166

Ibid, Article.36.

167 Ibid, Article.37.

168 Ibid.

35

V. THE LOSS OF SALES BY CAM`S SUBSIDIARIES LOCATED OUTSIDE OF

RURITANIA TO FBI CONSTITUTES A RECOVERABLE ITEM OF DAMAGES

106. Claimant submits that (A) Claimant`s investments in subsidiaries are protected under the BIT;

(B) the loss of sales by the subsidiaries equates to damage of Claimant; (C) the requirement of

causation link between damages of the subsidiaries and alleged state wrongful measures is

satisfied; and (D) recovery of the loss of sales is consistent with the principle of full

compensation including lost profit.

A. Claimant`s investments in subsidiaries are protected under the BIT

107. The shareholder investor may be able to qualify as a claimant under an investment treaty but

it will need to show that it has standing to recover damages for a wrong committed to a

separate corporate entity. The question is thus weather investment arbitration practice allows

an investor to look through the corporate structure (or pierce the corporate veil) to claim

losses suffered by a separate juridical entity.169

108. Claimant will demonstrate that it has jus standi to bring the present claim.

1. Claimant is entitled to pursue the claim independently

109. It has been accepted in international law that shareholders have a right to seek protection

independent from the corporation.170

The ICJ in Barcelona Traction case noted that whenever

one of company`s rights is infringed, e.g. right to any declared dividend, the shareholder has

an independent right of action.”171

In the case at hand, Claimant suffered from the loss of

sales by its bottling and agricultural businesses172

that shall result in decrease of the

Claimant`s dividends.173

169

C. McLachlan, L. Shore & M. Weiniger, International Investment Arbitration: Substantive Principles (OUP,

Oxford, 2007), p. 184.

170P.Muchlinski, F. Ortino, C. Schreuer, The Oxford Handbook of International Investment Law, (Oxford:

Oxford University Press 2009), p.81; Stanimir A. Alexandrov, ‘The “Baby Boom” of Treaty-Based Arbitrations

and the Jurisdiction of ICSID Tribunals: Shareholders as “Investors” and Jurisdiction RationeTemporis’ (The

Law and Practice of International Courts and Tribunals 19 (2005)) at 27.

171Barcelona Traction case, para.47.

172 Statement of Claim,30.

173 LG&E v. Argentina, Award, para.48.

36

110. In addition, as it was emphasized by Z. Douglas “the investment treaty regime recognizes for

the shareholders in the company a separate and independent right or interest in respect of

damage done to the company by a foreign government to any extent and in all

circumstances.”174

This approach is also endorsed by arbitral practice. For example, in CMS

case the Tribunal stated that “there is no bar in current international law to the concept of

allowing claims by shareholders independently from those of the corporation concerned.175

111. Referring to the above-mentioned CMS v. Argentina, the Tribunal noted that “it is not

necessary for claims connected to damage suffered by the corporate entity to demonstrate that

wrongful state measures result in expropriation of the shares or interference with the political

and economic rights tied to those shares, i.e. affecting them as such directly.”176

112. Thus, there is no doubt that currently in ICSID-related investment arbitrations the shareholder

can bring an action against the host state.177

113. Under Article 1 (b) of the BIT shares of companies and other kinds of interest in companies

are protected as investments.178

In the present case the investment of Claimant consists of

ownership interest in a form of shares of the subsidiaries. Thus, an investment in shares is

indeed a protected investment under the BIT.179

114. Consequently, Claimant is entitled to advance the claim independently from the subsidiaries.

2. Claimant has the legal standing irrespective of the size of the shareholding

174

Z. Douglas The International Law of Investment Claims ( Cambridge:Cambridge University Press, 2009 )

p.402.

175CMS v. Argentina, para.48; Noble v. Ecuador, para.74.

176CMS v. Argentina, para. 59.

177 P.Muchlinski, F. Ortino, C. Schreuer, The Oxford Handbook of International Investment Law, (Oxford:

Oxford University Press 2009) , p.83, Suez v. Argentina, para.56.

178The Ruritania-Cronos BIT, Art.1 (b).

179CMS v. Argentina, para.59.

37

115. ICSID decisions show that there is no material distinction between majority and minority

shareholders for jurisdictional purposes.180

For example, the Annulment Committee in

Vivendi stated that

“whatever the extent of its [the shareholder`s] investment…, it was entitled to

invoke the BIT in respect of conduct alleged to constitute a breach of substantive

protection under the BIT.”181

116. Similar conclusion was reached by other arbitral tribunals.182

117. This approach is also accepted by prominent scholars in the field of international investment

law, e.g. E. Schlemmer noted that “there is no requirement that an investor(shareholder) must

be a majority shareholder. The percentage of shareholding is never an issue; the mere fact that

an investment was made, suffices.183

118. Like a number of other multilateral and bilateral investment treaties184

, in the BIT there is

indeed no requirement that an investment, in order to qualify, must necessarily be made by

shareholders controlling a company or owning the majority of its shares.

119. Consequently, Claimant is entitled to prosecute the present claim separately from the

subsidiaries regardless of the size of its shareholding.185

B. The loss of sales by the subsidiaries equates to damage suffered by Claimant

180

Valasek&Duberry, Developments in the legal standing of shareholders, Foreign (Investment Law Journal), p.

47.

181CMS v. Argentina, para.50, P.Muchlinski, F. Ortino, C. Schreuer, The Oxford Handbook of International

Investment Law, (Oxford: Oxford University Press 2009), p.84.

182 Enron v. Argentina, Decision on Jurisdiction (Ancillary claim), para.39. 49;CMS v. Argentina, para.

48.;Lanco v. Argentina, Decision on Jurisdiction, para.10.

183P.Muchlinski, F. Ortino, C. Schreuer, The Oxford Handbook of International Investment Law, (Oxford:

Oxford University Press 2009) , p.83.

184Belgo-Luxembourg-Argentina BIT, NAFTA, Argentina-U.S. BIT, United States of America Model

BIT(2004).

185E. Schlemmer Investment, investor, shareholders in P. Mouchlinski et al., The Oxford Handbook of

International Investment Law, p.84.

38

120. The ICJ in Barcelona Traction case noted that notwithstanding the separate corporate

personality, a wrong done to the company frequently causes prejudice to its shareholders.186

It

also held that:

“…in reality, company and shareholders are so closely interconnected that

prejudicial acts committed against the former necessarily wrong the latter; hence

any acts directed against a company can be conceived as directed against its

shareholders, because both can be considered in substance, i.e., from the

economic viewpoint, identical.”187

121. This statement can also be confirmed by arbitral practice. For example, the Tribunal in

Nykomb v. Latvia stated that “there can be no doubt that the non-payment of the double tariff

to Windau has caused a substantial reduction of the economic value and security of the

Claimant`s investments in the Windau enterprise”188

( i.e., Nykomb`s shares in Windau)189

.

The Tribunal awarded the parent company investor full payment of the double co-generation

tariff owed to the domestic subsidiary for the future.190

122. Therefore, considering all aspects, it seems correct to apply rather a standardized approach to

‘economic identity’ and to presume, without detailed counter-proof, that the subsidiary`s

harm economically equivalent to the harm suffered, and to be compensated, by the foreign

owner pro rata commensurate with its share ownership.191

123. Therefore, in the instant case the loss of sales by the CAM`s subsidiaries amounts to damages

incurred by Claimant itself.

186

Barcelona Traction case, para. 44.

187Barcelona Tractiona case, para. 45.

188Nykomb Synergetics v. Latvia, p.39.

189S. Ripinsky Damages in International Investment Law (British Institute of International and Comparative

Law, London, 2008), p.153.

190; Nykomb Synergetics v.Latvia, para. 40.

191 P.Muchlinski, F. Ortino, C. Schreuer, The Oxford Handbook of International Investment Law, (Oxford:

Oxford University Press 2009) , p.1103.

39

124. Finally, the fact that Claimant`s damages were suffered outside Ruritania shall not preclude

the Tribunal to award compensation for them since the Tribunal in S.D. Myers case held that:

“there is no provision that requires that all the investor`s losses must be sustained

within the host state in order to be recoverable.”192

С. The requirement of causation link between damages suffered by the subsidiaries and

alleged state wrongful measures is satisfied

125. Claimant submits that (1) factual causation link is present in the instant case; (2) the

requirement of legal causation link is satisfied.

1. Factual causality link is present in the case

126. Arbitral practice recognizes causation link between the damages caused and wrongdoing by

Respondent as a necessary condition of compensation for loss of sales.193

127. The criteria of causality can be satisfied by applying its factual test establishing that the issue

is whether the wrongful conduct played some part in bringing about the harm was irrelevant

to its occurrence.194

It is also known as but-for test, i.e. would the harm have occurred but for

the unlawful conduct?195

128. The Tribunal in LG&E v. Argentina stated that actual damage inflicted by the measures is the

amount of dividends that could have been received but for the adoption of the measures196

(

i.e, factual causation was established). The same approach was reached by other arbitral

practice.197

192

S.D. Myers v. Canada, para.118.

193 Cape Horn Pigeon case, 65; Amco v. Indonesia, para.175

194 S. Ripinsky Damages in International Investment Law (British Institute of International and Comparative

Law, London, 2008), p.153.

195 S. Ripinsky Damages in International Investment Law (British Institute of International and Comparative

Law, London, 2008), p.153.

196 LG&E v.Argentina, Award, para.48.

197 Feldman v. Mexico, Award, 56; Hoffland Honey v. Iranian Oil, para.135;, Cape Horn Pigeon case ,para.65.

40

129. In the case at hand the loss of sales would not have been incurred by the subsidiaries but for

Respondent`s wrongful measures breaching the BIT. Therefore, factual causality link between

damages sustained by the subsidiaries and alleged state wrongful measures is satisfied in

present in the case.

2. The requirement of legal causation link is satisfied

130. Claimant alleges that Respondent should have foreseen that Claimant`s subsidiaries would be

damaged by its infringement of obligations. Arbitral tribunal has determined foreseeability

test as an independent identification of causation link.198

Notably, the principle of

foreseeability does not require that the party causing the loss is at that moment of time able to

foresee the precise quantum of the loss actually sustained.199

131. The Eritrea - Ethiopia Claims Commission has developed the proximity test to an important

extent, especially in regards to foreseeability. In order to assess whether this test is met and

whether the chain of causation is sufficiently close in a particular situation, the Commission

will give weight to whether particular damage reasonably should have been foreseeable to an

actor committing the international delict in question. The element of foreseeability, although

not without its own difficulties, provides some discipline and predictability in assessing

proximity.200

132. Consequence, causation means “proximate cause”, which is decided by foreseeability. In the

case at hand Respondent must have foreseen that CAM`s subsidiaries would have sustained

the loss of sales for the following reasons. Firstly, the damages of the subsidiaries are closely

connected with the bottling and agricultural business of CAM.201

Secondly, all the suppliers

are either direct subsidiaries or branches of CAM.202

133. Therefore, Respondent must have understood the foreseeable consequence of its wrongdoings

resulted not only in FBI`s cessation of production but also in the loss of sales by the

subsidiaries. It was foreseeable that the Claimant`s bottle making and agricultural business

would be damaged if its main buyer, FBI`s operation was stopped. 198

Amco v.Indonesia, para.86; CME v. Czech Republic.145.

199 Amco v. Indonesia, para.87.

200 Eritrea-Ethiopia Claims Commission, Decision No. 7, para. 13.

201 Statement of claim, para.8.


41

134. In any event, Respondent`s submission that the damage suffered by the subsidiaries was

indirect is unreasonable since the Portugo-German Arbitral Tribunal found that the directness

test of causation produced the inequitable result whereby ‘the injured party would bear those

losses which the author of the initial illegal act has foreseen and perhaps even intended, for

the sole reason that, in the chain of causation, there are some intermediate links.203

Thus,

nevertheless the loss sustained by the subsidiaries were not directly resulted from state

wrongful measures, the criteria of legal causality link between the damages and the alleged

actions made by Ruritania is satisfied.

D. Recovery of the loss of sales is consistent with the principle of full compensation

including lost profit

135. Principles of calculation of compensation established under Article 4 of the BIT are only

applicable in the case of lawful expropriation.204

Thus, the Tribunal should apply customary

international law to evaluate the compensation since the BIT does not contain any lex

specialis rules that govern the issue of the standard for assessing damages only in the case of

unlawful taking.205

136. One of the earliest decision in support of awarding for lost profits is the judgment of the PCIJ

in the Case Concerning the Factory at Chorzów.206

This judgment reflects the principle that

compensation of such loss must amount to an integral compensation for the damage suffered,

including lost profits.207

The Tribunal in Siemens v. Argentina case noted that without

inclusion of future profit in recovery compensation would not cover all the consequences of

the illegal act.208

203

Portugo-German Arbitral Tribunal, Award.89.

204 ADC v. Hungary, para. 48; Siemens v.Argentina, para.349-351; Vivendi v. Argentina, para. 8.2.3.-8.2.5; S.

Ripinsky Damages in International Investment Law (British Institute of International and Comparative Law,

London,2008), p.83

205 ADC v. Hungary, 483; Siemens v. Argentina, para. 349.

206 C. McLachlan, L. Shore & M. Weiniger, International Investment Arbitration: Substantive Principles (OUP,

Oxford, 2007), p. 323; Factory at Chorzow Case, para.30.

207 Factory at Chorzow Case p. 29, 47, Tecmed v. Mexico, para.195.

208 Siemens v. Argentina, para.353.

42

137. Under customary international law, which has been affirmed and applied by numerous

international tribunals as well as the PCIJ’s successor, the International Court of Justice.209

138. In addition, ILC Articles on State Responsibility as a reflection of international customary

rules establish the same principle of full reparation.210

Finally, This approach is also accepted

in international private law. Professor Sir Hersch Lauterpacht described it as a well-

recognized principle of private law whereby loss of prospective profits (lucrum cessans) can

be awarded as damages.211

Therefore, taking into account that the loss of sales constitutes

future profit of CAM, Claimant submits that such damages are recoverable.

209

Vivendi v.Argentina, para. 8.2.5;S.D. Myers v. Canada, para. 311;CMS v. Argentina, Award,para.400;

Petrobart v.Kyrgyztan, para. 77 ,78; Gabčíkovo-Nagymaros Project, para.223; Biloune &Marine v. Ghana

Investments Centre and the Government of Ghana, para. 89; Metalclad v. Mexico,para.122; Siemens v.

Argentina, para.352; Amco v Indonesia, Award, para.183-185.

210 Articles on Responsibility of States, Article 36(2); James Crawford: The International Law Commission’s

Articles on State Responsibility, 2002, at 225, para. 21.

211 Sir H. Lauterpacht, Private Law Sources and Analogies of International Law, at 219, 220.

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