Post on 30-Mar-2020
Team Mbaye
Ninth Annual
Foreign Direct Investment
Arbitration Moot Court
Buenos Aires
3-6 November 2016
Memorial for Respondent
ICC International Court of Arbitration
ICC Case 28000/AC
On behalf of
Republic of Oceania
(Respondent)
Against
Peter Explosive
(Claimant)
Memorial for Respondent Team Mbaye
ii
Table of Contents
Table of Contents ..................................................................................................................... ii
List of Abbreviations ................................................................................................................ v
List of Authorities ................................................................................................................... vii
Legal Sources ......................................................................................................................... xiii
Statement of Facts .................................................................................................................... 1
Arguments ................................................................................................................................. 4
Issue 1: Arguments on the Tribunal’s jurisdiction ............................................................... 4
A The Tribunal lacks jurisdiction under the Euroasia BIT because Peter Explosive is
not a Euroasian national ................................................................................................... 5
1 Euroasia’s discretion to grant its nationality to Claimant is subject to the limitations
imposed by international law .......................................................................................... 5
2 The Citizenship Act exceeds the limits set by international law as it is part of an
illegal aggression by Euroasia against Eastasia .............................................................. 6
2.1 Euroasia engaged in aggression when it annexed Fairyland ................................... 6
2.2 The regional authority of Fairyland could not legitimise Euroasia’s use of force .. 6
2.2.1 The referendum declaring secession from Eastasia was unlawful .............. 7
2.2.2 Fairyland does not have the right to external self-determination ................ 8
2.3 The Citizenship Act formed an integral part of the illegal annexation ................... 9
3 Claimant’s purported Euroasian nationality does not follow from the rules on
succession of states either ............................................................................................. 10
Memorial for Respondent Team Mbaye
iii
B This Tribunal lacks jurisdiction because Claimant failed to comply with Article 9
Euroasia BIT.................................................................................................................... 11
1 The pre-arbitral steps contained in Article 9 Euroasia BIT are mandatory .................. 11
1.1 The mandatory nature follows from the structure of Article 9 Euroasia BIT ....... 12
1.2 The use of the term “may” in Article 9(2) Euroasia BIT does not indicate that
Article 9(3) Euroasia BIT is optional .................................................................... 13
2 Claimant’s potential argument that the pre-arbitral steps are futile must be rejected .. 13
C Claimant cannot invoke Article 8 Eastasia BIT pursuant to Article 3 Euroasia BIT
to overcome the Tribunal’s lack of jurisdiction ........................................................... 15
1 Careful interpretation of Article 3 Euroasia BIT reveals that it does not extend to
dispute settlement provisions ....................................................................................... 16
1.1 At the time the BIT was concluded, the ordinary meaning of the term
“treatment” did not encompass dispute settlement provisions .............................. 17
1.2 The context of Article 3 Euroasia BIT shows that the term “treatment” does not
extend to dispute settlement provisions ................................................................. 18
1.3 The term “other investment matters” has no relevance for the application of the
MFN clause to dispute settlement provisions ........................................................ 19
2 Even if the MFN clause could in general cover dispute settlement provisions, its
application to the local courts requirement in particular would be inappropriate ........ 20
Issue 2: Arguments on the merits of the dispute ................................................................. 21
D Claimant did not make a protected investment because he built Rocket Bombs
upon the bribery of an Oceanian official ...................................................................... 21
1 Claimant’s BIT protection is subject to a legality requirement .................................... 21
1.1 Article 1(1) Eastasia BIT contains an explicit legality requirement ..................... 22
1.2 Article 1(1) Euroasia BIT contains an implicit legality requirement .................... 23
2 The evidence is sufficient to determine that Claimant violated Oceanian law when he
made his investment ..................................................................................................... 23
Memorial for Respondent Team Mbaye
iv
E Respondent is not liable to pay compensation for an expropriation .......................... 26
1 Respondent did not expropriate Claimant’s investment ............................................... 26
2 The sanctions were a legitimate exercise of Respondent’s police powers which does
not give rise to compensation ....................................................................................... 28
2.1 Economic sanctions are non-compensable measures in the sense of the police
powers doctrine ..................................................................................................... 29
2.2 The sanctions do not fail against a proportionality requirement ........................... 30
3 In any event, Respondent is excused by Article 10 Euroasia BIT ............................... 32
F Claimant contributed to the damages he suffered ....................................................... 33
1 Concluding the new weapons supply contract was negligent ...................................... 34
2 The negligence contributed to Claimant’s damage ...................................................... 35
G Request for Relief ............................................................................................................ 37
Memorial for Respondent Team Mbaye
v
List of Abbreviations
Abbreviation Explanation
ARfA Answer to Request for Arbitration
BIT Bilateral Investment Treaty
e.g. exempli gratia, for example
et seq./seqq. et sequens/sequential, the following
ExC1/R1/C2 Exhibit C1/R1/C2
EU European Union
GATT General Agreement on Tariffs and Trade
ICJ International Court of Justice
ICSID International Centre for Settlement of Investment Disputes
i.e. id est, that is to say
MFN Most-Favoured-Nation
NEAO National Environment Authority of Oceania
OECD Organisation for Economic Co-operation and Development
p. Page
para. Paragraph
PCIJ Permanent Court of International Justice
PO2 Procedural Order No 2
PO3 Procedural Order No 3
RfA Request for Arbitration
Memorial for Respondent Team Mbaye
vi
UN United Nations
Uncontested Facts Statement of Uncontested Facts
UNCITRAL United Nations Commission on International Trade Law
UNCTAD United Nations Conference on Trade and Development
US United States
USA United States of America
USD United States Dollar
v versus
VCLT Vienna Convention on the Law of Treaties, 1969
Memorial for Respondent Team Mbaye
vii
List of Authorities
Commentary on Draft
Articles on State
Responsibility
Draft Articles on Responsibility of States for
Internationally Wrongful Acts, with commentaries, 2001,
Yearbook of the International Law Commission, 2001,
Vol.II Part Two
Corten, The Law against
War
Oliver Corten, The Law against War – A Prohibition on
the Use of Force in Contemporary International Law,
2010
Council of the European
Union, Factsheet EU
restrictive measures
Council of the European Union, Factsheet EU restrictive
measures, 29 April 2014
Crawford, State
Responsibility
James Crawford, State Responsibility, in Max Planck
Encyclopedia of Public International Law, September
2006
Crawford, The Creation of
States in International Law
James Crawford, The Creation of States in International
Law, Second Edition, 2006
Dolzer/Schreuer, Principles
of International Investment
Law
Rudolf Dolzer/Christoph Schreuer, Principles of
International Investment Law, Oxford University Press,
2008
Douglas, The MFN Clause in
Investment Arbitration
Zachary Douglas, The MFN Clause in Investment
Arbitration: Treaty Interpretation Off the Rails, Journal of
International Dispute Settlement, Vol.2 No.1 (2011),
pp.97-113, http://jids.oxfordjournals.org/
Ellis, General Principles and
Comparative Law
Jaye Ellis, General Principles and Comparative Law, The
European Journal of International Law, Vol.22 No.4
(2011), pp.949-971
Memorial for Respondent Team Mbaye
viii
Figanmese, The Impact of
the Maffezini Decision
Inci Ataman Figanmese, The Impact of the Maffezini
Decision on the Interpretation of MFN Clauses in
Investment Treaties, Ankara Law Review, Vol.8 No.2
(Winter 2011), pp.221-237
Green, Questioning the
Peremptory Status of the
Prohibition of the Use of
Force
James Green, Questioning the Peremptory Status of the
Prohibition of the Use of Force, Michigan Journal of
International Law, Vol.32 Issue 2, 2011
Henckels, Indirect
Expropriation and the Right
to Regulate
Caroline Henckels, Indirect Expropriation and the Right
to Regulate: Revisiting Proportionality Analysis and the
Standard of Review in Investor-State Arbitration, Journal
of International Economic Law, Vol.15(1), pp.223-255
Krajewski, Völkerrecht Markus Krajewski, Völkerrecht, 2017
Kriebaum, Regulatory
Takings
Ulrike Kriebaum, Regulatory Takings: Balancing the
Interests of the Investor and the State, The Journal of
World Investment and Trade, Vol.8 Issue 5, pp.714-777
Llamzon, Corruption in
International Investment
Arbitration
Aloysius Llamzon, Corruption in International Investment
Arbitration, Oxford International Arbitration Series, First
Edition, 2014
Malek, Nonviolent Sanctions
and Incentives
Cate Malek, Nonviolent Sanctions and Incentives,
Updated May 2013 by Heidi Burgess,
http://www.crinfo.org/coreknowledge/nonviolent-
sanctions-incentives
Memorial for Respondent Team Mbaye
ix
Mann, The Right of States to
Regulate and International
Investment Law
Howard Mann, The Right of States to Regulate and
International Investment Law, Comment during Expert
Meeting on the Development Dimension of FDI: Policies
to Enhance the Role of FDI in Support of the
Competitiveness of the Enterprise Sector and the
Economic Performance of Host Economies, Taking into
Account the Trade/Investment Interface, in the National
and International Context, 2002
McLachlan/Shore/Weiniger,
International Investment
Arbitration: Substantive
Principles
Campbell McLachlan/Laurence Shore/Matthew Weiniger,
International Investment Arbitration: Substantive
Principles, Oxford International Arbitration Series, 2008
OECD, Definition of
Investor and Investment in
International Investment
Agreements
OECD, Chapter 1, Definition of Investor and Investment
in International Investment Agreements, International
Investment Law: Understanding Concepts and Tracking
Innovations, 2008
Parker, A BIT at a Time Stephanie Parker, A BIT at a Time: The Proper Extension
of the MFN Clause to Dispute Settlement Provisions in
Bilateral Investment Treaties, American University
Washington College of Law, 2012
Pellet, The Opinions of the
Badinter Arbitration
Committee
Alain Pellet, The Opinions of the Badinter Arbitration
Committee, A Second Breath for the Self-Determination of
Peoples, 3 European Journal of International Law (1992),
p.178
Pomson/Horowitz,
Humanitarian Intervention
and the Clean Hands
Doctrine in International
Law
Ori Pomson and Yonatan Horowitz, Humanitarian
Intervention and the Clean Hands Doctrine in
International Law, Israel Law Review, Vol.48 (2015),
pp.219-251
Memorial for Respondent Team Mbaye
x
Ranjan, Using Public Law
Concept of Proportionality
Prabhash Ranjan, Using Public Law Concept of
Proportionality to Balance Investment Protection with
Regulation in International Investment Law - A Critical
Appraisal, Cambridge Journal of International and
Comparative Law, Vol.3(3) (2014), pp.853-883
Restat 3rd of the Foreign
Relations Law of the US
Restatement of the Law, Third, Foreign Relations Law of
the United States, 1987, The American Law Institute,
Case Citations, Rules and Principles, Part 1 - International
Law and Its Relation to United States Law, Chapter 1 -
International Law: Character and Sources
Rodriguez, A tool for Treaty
Shopping?
Alejandro Faya Rodriguez, The Most-Favoured-Nation
Clause in International Investment Agreements: A tool for
Treaty Shopping?, Journal of International Arbitration
Vol.25(1), pp.89-102
Sayapin, Elements of an Act
of Aggression
S. Sayapin, Chapter 2, Elements of an Act of Aggression:
An Overview of Modern International Law and Practice,
The Crime of Aggression in International Criminal Law,
2014
Schrijver, The Use of Force
under the UN Charter:
Restrictions and Loopholes
Nico Schrijver, The Use of Force under the UN Charter:
Restrictions and Loopholes, The ACUNS 2003 John W.
Holmes Memorial Lecture, 2003
Talmon, The Duty Not to
‘Recognize as Lawful’
Stefan Talmon, The Duty Not to ‘Recognize as Lawful’ a
Situation Created by the Illegal Use of Force or Other
Serious Breaches of a Jus Cogens Obligation: An
Obligation without Real Substance?, in The Fundamental
Rules of the International Legal Order, 2005
Memorial for Respondent Team Mbaye
xi
Tancredi, The Russian
Annexation of the Crimea
Antonello Tancredi, The Russian Annexation of the
Crimea: Questions Relating to the Use of Force,
Questions of International Law, Zoom out I (2014), pp.5-
34
TASS, Over 150 offices
issuing Russian passports
opened in Crimea Russia
TASS Russian News Agency, Over 150 offices issuing
Russian passports opened in Crimea Russia, 8 April 2014,
23:02 UTC+3, http://tass.ru/en/russia/727025
The Aaland Islands question
(Report on Jurisdiction)
Report of the International Committee of Jurists entrusted
by the Council of the League of Nations with the task of
giving an advisory opinion upon the legal aspects of the
Aaland Islands question, League of Nations – Official
Journal, October 1920
The Oxford Handbook of
International Investment
Law
Peter Muchlinski/Federico Ortino/Christoph Schreuer, The
Oxford Handbook of International Investment Law, 2008
Thulasidhass, Most-
Favoured-Nation Treatment
in International Investment
Law
P. R. Thulasidhass, Most-Favoured-Nation Treatment in
International Investment Law: Ascertaining the Limits
through Interpretative Principles, Amsterdam Law
Forum, Vol.7:1 (2015), pp.3-24
Tsukanova, Cheney urges
divided Ukraine to unite
against Russia 'threat'
Anya Tsukanova, Cheney urges divided Ukraine to unite
against Russia 'threat', 6 September 2008 - 3:14AM,
http://news.smh.com.au/world/cheney-urges-divided-
ukraine-to-unite-against-russia-threat-20080906-
4auh.html
UNCTAD, Expropriation: A
Sequel
UNCTAD, Expropriation: A Sequel,
UNCTAD/DIAE/IA/2011/7, 2012
UNCTAD, Most-Favoured-
Nation Treatment
UNCTAD, Most-Favoured-Nation Treatment, UNCTAD
Series on Issues in International Investment Agreements
II, 2010
Memorial for Respondent Team Mbaye
xii
Vandevelde, Bilateral
Investment Treaties
Kenneth Vandevelde, Bilateral Investment Treaties,
History, Policy, and Interpretation, Oxford University
Press, 2010
Waelde/Kolo,
Environmental Regulation
Thomas Waelde/Abba Kolo, Environmental Regulation,
Investment Protection and 'Regulatory Taking' in
International Law, The International and Comparative
Law Quarterly, Vol.50 No.4 (2001), pp.811-848
White, Equity – a general
principle of law recognised
by civilised nations
Justice Margaret White, Equity – a general principle of
law recognised by civilised nations, Queensland
University of Technology Law & Justice Journal, Vol.4
No.1 (2004), pp.103-116
Zadorozhnii, Russian
Doctrine of International
Law after the Annexation of
Crimea
Oleksandr Zadorozhnii, Russian Doctrine of International
Law after the Annexation of Crimea, Monograph, 2016
Zivkovic, Recognition of
Contracts as Investments in
International Investment
Arbitration
Velimir Zivkovic, Recognition of Contracts as
Investments in International Investment Arbitration,
European Journal of Legal Studies, Vol.5 Issue 1
(Spring/Summer 2012), pp.74-192
Memorial for Respondent Team Mbaye
xiii
Legal Sources
Court decisions
Dering v Earl of Winchelsea Dering v Earl of Winchelsea (1787)
29 Eng. Rep. pp.1184-1186
DRC v Uganda ICJ, Armed Activities on the Territory of the Congo
(Democratic Republic of the Congo v Uganda)
ICJ Reports 2005, p.168
Judgement
19 December 2005
Nicaragua v USA
ICJ, Military and Paramilitary Activities in and against
Nicaragua (Nicaragua v United States of America)
ICJ Reports 1986, p.14
Merits, Judgement
27 June 1986
PCIJ Advisory Opinion,
Tunis v Morocco
PCIJ, Nationality Decrees Issued on Tunis and Morocco
Second (extraordinary) Session, No.4
7 February 1923
Reference re Secession of
Quebec
Supreme Court of Canada
[1998] 2 S.C.R. 217
20 August 1998
Memorial for Respondent Team Mbaye
xiv
Arbitral decisions
AAP v Sri Lanka Asian Agricultural Products Ltd. v Republic of Sri Lanka
ICSID Case No. ARB/87/3
Final Award
27 June 1990
Ambiente v Argentina
Ambiente Ufficio S.P.A. and Others (Case formerly known
as Giordano Alpi and Others) v Argentine Republic
ICSID Case No. ARB/08/9
Decision on Jurisdiction and Admissibility
8 February 2013
Austrian Airlines v
Slovakia
Austrian Airlines v Slovak Republic
Final Award
9 October 2009
Chemtura v Canada Chemtura Corporation (formerly Crompton Corporation) v
Government of Canada
Award
2 August 2010
Daimler v Argentina
Daimler Financial Services AG v Argentine Republic
ICSID Case No. ARB/05/1
Award
22 August 2012
EDF v Romania EDF (Services) Limited v Romania
ICSID Case No. ARB/05/13
Award
8 October 2009
Memorial for Respondent Team Mbaye
xv
Eureko v Poland Eureko B.V. v Republic of Poland
Partial Award
19 August 2015
Feldman v Mexico Marvin Feldman v United Mexican States
ICSID Case No. ARB(AF)/99/1
Award
16 December 2002
Fraport v Philippines Fraport AG Frankfurt Airport Services Worldwide v
Republic of the Philippines
Case No. ARB/03/25
Award
16 August 2007
Fraport v Philippines II Fraport AG Frankfurt Airport Services Worldwide v
Republic of the Philippines
ICSID Case No. ARB/11/12
Award
10 December 2014
Gemplus and Talsud v
Mexico
Gemplus S.A./SLP. S.A./Gemplus Industrial S.A. de C.V.
and Talsud v United Mexican States
Two conjoined arbitrations
ICSID Cases Nos. ARB (AF)/04/3 & ARB (AF)/04/4)
Award
16 June 2010
Memorial for Respondent Team Mbaye
xvi
Giovanni Alemanni v
Argentina
Giovanni Alemanni and Others v Argentine Republic
ICSID Case No. ARB/07/8
Decision on Jurisdiction and Admissibility
17 November 2014
Global and Globex v
Ukraine
Global Trading Resource Corp. and Globex International,
Inc. v Ukraine
ICSID Case No. ARB/09/11
Award
1 December 2010
Hamester v Ghana Gustav F W Hamester GmbH & Co KG v Republic of
Ghana
ICSID Case No. ARB/07/24
Award
18 June 2010
ICS v Argentina
ICS Inspection and Control Services Limited (United
Kingdom) v Argentine Republic
PCS Case No. 2010-9
Award on Jurisdiction
10 February 2012
Impregilo v Argentina
Impregilo S.p.A v Argentine Republic
ICSID Case No. ARB/07/17
Award
21 June 2011
Memorial for Respondent Team Mbaye
xvii
Inceysa v El Salvador Inceysa Vallisoletana S.L. v Republic of El Salvador
ICSID Case No. ARB/03/26
Award
2 August 2006
Italy v Cuba Republic of Italy v Republic of Cuba
Final Award
15 January 2008
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
16 June 2006
Joy Mining v Egypt Joy Mining Machinery Limited v Arab Republic of Egypt
ICSID Case No. ARB/03/11
Award on Jurisdiction
6 August 2004
Kiliç v Turkmenistan Kılıç İnşaat İthalat İhracat Sanayi ve Ticaret Anonim
Şirketi v Turkmenistan
ICSID Case No. ARB/10/1
Award
2 July 2013
Klöckner v Cameroon Klöckner Industrie-Anlagen GmbH and Others v United
Republic of Cameroon and Société Camerounaise des
Engrais
ICSID Case No. ARB/81/2
Decision on Annulment
3 May 1985
Memorial for Respondent Team Mbaye
xviii
LG&E v Argentina LG&E Energy Corp., LG&E Capital Corp., LG&E
International Inc. v Argentine Republic
ICSID Case No. ARB/02/1
Decision on Liability
3 October 2006
Maffezini v Spain
Emilio Augustín Maffezini v Kingdom of Spain
ICSID Case No. ARB/97/7
Decision of the Tribunal on Objections to Jurisdiction
25 January 2000
Metalclad v Mexico Metalclad Corporation v United Mexican States
ICSID Case No. ARB(AF)/97/1
Award
30 August 2000
Metal-Tech v Uzbekistan
Metal-Tech Ltd. v Republic of Uzbekistan
ICSID Case No. ARB/10/3
Award
4 October 2013
Methanex v USA Methanex Corporation v United States of America
Final Award of the Tribunal on Jurisdiction and Merits
3 August 2005
Middle East Cement v
Egypt
Middle East Cement Shipping and Handling Co. S.A. v
Arab Republic of Egypt
ICSID Case No. ARB/99/6
Award
12 April 2002
Memorial for Respondent Team Mbaye
xix
MTD v Chile MTD Equity Sdn. Bhd. and MTD Chile S.A. v Republic of
Chile
ICSID Case No. ARB/01/7
Award
25 May 2004
Noble Ventures v Romania Noble Ventures, Inc. v Romania
ICSID Case No. ARB/01/11
Award
12 October 2005
Occidental v Ecuador Occidental Petroleum Corporation, Occidental Exploration
and Production Company v Republic of Ecuador
ICSID Case No. ARB/06/11
Award
5 October 2012
Olguin v Paraguay Mr. Eudoro Armando Olguín v Republic of Paraguay
ICSID Case No. ARB/98/5
Award
26 July 2001
Oostergetel v Slovakia Oostergetel v Republic of Slovakia
Final Award
23 April 2012
Petrobart v Kyrgyzstan Petrobart Limited v Republic of Kyrgyzia
Award
13 February 2003
Memorial for Respondent Team Mbaye
xx
Phoenix Action v Czech
Republic
Phoenix Action, Ltd. v Czech Republic
ICSID Case No. ARB/06/5
Award
15 April 2009
Plama v Bulgaria
Plama Consortium Limited v Republic of Bulgaria
ICSID Case No. ARB/03/24
Decision on Jurisdiction
8 February 2005
Plama v Bulgaria (Merits) Plama Consortium Limited v Republic of Bulgaria
ICSID Case No. ARB/03/24
Award
27 August 2008
Renta 4 v Russia Renta 4 S.V.S.A:, Ahorro Corporación Emergentes F.I.,
Ahorro Corporación Eurofondo F.I., Rovime Inversiones
SICAV S.A., Quasar de Valors SICAV S.A., Orgor de
Valores SICAV S.A., GBI 9000 SICAV S.A. v Russian
Federation
Award on Preliminary Objections
20 March 2009
Salini v Jordan
Salini Costruttori S.p.A. and Italstrade S.p.A. v Jordan
ICSID Case No. ARB/02/13
Award
31 January 2006
Memorial for Respondent Team Mbaye
xxi
Salini v Marocco Salini Construttori S.P.A. and Italstrade S.P.A. v Kingdom
of Morocco
ICSID Case No. ARB/00/4
Decision on Jurisdiction
23 July 2001
Saluka v Czech Republic Saluka Investments BV (The Netherlands) v Czech
Republic
Partial Award
17 March 2006
SD Myers v Canada S.D. Myers Inc. v Government of Canada
Partial Award
13 November 2000
Soufraki v United Arab
Emirates
Hussein Nuaman Soufraki v United Arab Emirates
ICSID Case No. ARB/02/7
Award
7 July 2004
ST-AD v Bulgaria ST-AD GmbH v Republic of Bulgaria
PCA Case No. 2011-06 (ST-BG)
Award on Jurisdiction
18 July 2013
SuezVivendi v Argentina Suez, Sociedad General de Aguas de Barcelona S.A., and
Vivendi Universal S.A. v Argentine Republic
ICSID Case No. ARB/03/19
Decision on Liability
30 July 2010
Memorial for Respondent Team Mbaye
xxii
Tecmed v Mexico
Tecnicas Medioambientales Tecmed S.A. v United
Mexican States
ICSID Case No. ARB (AF)/00/02
Award
29 May 2003
Telenor v Hungary Telenor Mobile Communications A.S. v Republic of
Hungary
ICSID Case No. ARB/04/15
Award
13 September 2006
Tokios v Ukraine Tokios Tokelės v Ukraine
ICSID Case No. ARB/02/18
Award
26 July 2007
Total v Argentina Total S.A. v Argentine Republic
ICSID Case No. ARB/04/1
Decision on Liability
27 December 2010
Wintershall v Argentina Wintershall Aktiengesellschaft v Argentine Republic
ICSID Case No. ARB/04/14
Award
8 December 2008
Memorial for Respondent Team Mbaye
xxiii
Yukos v Russia Yukos Universal Limited (Isle of Man) v Russian
Federation
PCA Case No. AA 227
Final Award
18 July 2014
Statutes
Articles on Nationality Nationality of Natural Persons in relation to the
Succession of States, 1999, annex to General Assembly
resolution 55/153 (A/RES/55/153 - Resolution adopted
by the UN General Assembly on the report of the Sixth
Committee (A/55/610)), 30 January 2001
Articles on State
Responsibility
Responsibility of States for Internationally Wrongful
Acts, 2001, Yearbook of the International Law
Commission, 2001, Vol.II (Part Two)
Definition of Aggression,
Annex to A/RES/3314
(XXIX)
Definition of Aggression, Annex to A/RES/3314 (XXIX),
2319th plenary meeting, 14 December 1974
Draft Articles on Nationality Draft Articles on Nationality of Natural Persons in
relation to the Succession of States, with commentaries,
1999, Yearbook of the International Law Commission,
1999, Vol.II Part Two
Draft Articles on State
Responsibility
Draft Articles on Responsibility of States for
Internationally Wrongful Acts, with commentaries, 2001,
Yearbook of the International Law Commission, 2001,
Vol.II Part Two
ICJ Statute Statute of the International Court of Justice, annexed to
the UN Charter
Memorial for Respondent Team Mbaye
xxiv
UN Charter Charter of the United Nations, 1945
Miscellaneous
Executive Order 13685 of
19 December 2014
Blocking Property of Certain Persons and Prohibiting
Certain Transactions With Respect to the Crimea Region
of Ukraine, Executive Order 13685 of 19 December 2014,
Federal Register Vol.79 No.247
General Assembly Resolutions
A/RES/20/2131 Resolution adopted by the United Nations General
Assembly, Declaration on the Inadmissibility of
Intervention in the Domestic Affairs of States and the
Protection of Their Independence and Sovereignty,
21 December 1965
A/RES/25/2625 Resolution adopted by the United Nations General
Assembly on a Report from the Sixth Committee
(A/8082), Declaration on Principles of International Law
concerning Friendly Relations and Co-operation among
States in accordance with the Charter of the United
Nations, 24 October 1970
Security Council Resolutions
S/RES/497 (1981) Security Council Resolution 497 (1981), Adopted by the
Security Council at its 2319th meeting, on 17 December
1981
Memorial for Respondent Team Mbaye
xxv
UN Documents
GA/10794 GA/10794, General Assembly Adopts Broad Range of
Texts, 26 in All, On Recommendation of its Fourth
Committee, including on Decolonization, Information,
Palestine Refugees, General Assembly Plenary, 64th
Meeting (AM), 5 December 2008
UN Doc. A/51/18 (1996) Committee on the Elimination of Racial Discrimination,
General Recommendation 21, The right to self-
determination (Forty-eighth session, 1996), Document
A/51/18, annex VIII at 125, adopted on 8 March 1996
World Bank Guidelines World Bank Guidelines on the Treatment of Foreign
Direct Investment, 1992
Memorial for Respondent Team Mbaye
1
Statement of Facts
The Republic of Oceania (“Oceania”, “Respondent”) concluded a BIT with both the Republic
of Euroasia (“Euroasia”) on 1 January 1995 and the Republic of Eastasia (“Eastasia”) on
1 January 1992.1
The investment
In 1998, Peter Explosive (“Claimant”), a resident of Fairyland and Eastasian national, became
the 100% shareholder and president of the arms producer Rocket Bombs Ltd. (“Rocket
Bombs”).2 The Oceanian company had lost its environmental license containing an approval
for arms production because its production line was not in compliance with the Environment
Act 1996.3 Without the license, the company was decrepit.4
The Environmental License
In order to resume arms production, Rocket Bombs was required to obtain a new license from
the National Environment Authority of Oceania (“NEAO”).5 The Environment Act required
adjustments to the production line that Claimant was not able to afford.6
Ordinarily, the process of adjusting a production line and the administrative procedure to
obtain an environmental decision from the NEAO are very long and time consuming.7 In
order to expedite this decision, Claimant had a private meeting with the President of the
NEAO in July 1998.8
On 23 July 1998, the NEAO granted the environmental license without further explanation,9
even though Rocket Bombs did not comply with the law.10
The necessary modernisation of Rocket Bombs to comply with the Environmental Act took
Claimant fourteen years and was only completed in January 2014.11
1 Uncontested Facts, para.1. 2 Uncontested Facts, para.2. 3 Uncontested Facts, para.2. 4 Uncontested Facts, para.2. 5 Uncontested Facts, para.4. 6 Uncontested Facts, para.4. 7 Uncontested Facts, para.6. 8 Uncontested Facts, para.6. 9 Uncontested Facts, para.6.
10 Uncontested Facts, paras.11, 13. 11 Uncontested Facts, para.13.
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The Euroasian weapons contracts
Claimant concluded his first contract with Euroasia on 23 December 1998 for a period of
fifteen years.12 This contract was facilitated through a private meeting between the Minister of
National Defence in Euroasia, John Defenceless, and Claimant.13 The two men were close
friends.14 After receiving an advance payment from Euroasia, Claimant recommenced arms
production.15
On 28 February 2014, one day before Euroasia invaded Eastasia, Claimant concluded a new
weapons contract for another six years with John Defenceless, still Minister of the National
Defence of Euroasia.16
The reunification of Fairyland with Euroasia
On 1 November 2013, the authorities of Fairyland held a referendum on the secession of
Fairyland from Eastasia.17 The Eastasian Constitution does not allow such referenda.18 The
residents of Fairyland voted in favour of secession.19 The national government of Eastasia
declared the referendum unlawful.20
Despite the illegality of the referendum, the authorities of Fairyland purported to invite
Euroasia to intervene militarily.21
Euroasia sent its military into Eastasian territory and seized Fairyland on 1 March 2014.22
Prior to the invasion, the deliberations of the Euroasian Parliament on the Government’s
proposal to intervene were broadcast on Euroasian public television.23
Euroasia issued an official declaration of annexation on 23 March 2014. Eastasia declared this
annexation to be illegal and broke off diplomatic relations with Euroasia.24
12 Uncontested Facts, para.9. 13 Uncontested Facts, paras.8, 9. 14 Uncontested Facts, paras.8, 9. 15 Uncontested Facts, para.11. 16 Uncontested Facts, para.15. 17 Uncontested Facts, para.14. 18 Uncontested Facts, para.14. 19 Uncontested Facts, para.14. 20 Uncontested Facts, para.14. 21 Uncontested Facts, para.14. 22 Uncontested Facts, para.14. 23 PO2, para.3. 24 Uncontested Facts, para.14.
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The sanctions
Oceania and many other countries do not recognise the Euroasian annexation of Fairyland.25
On 1 May 2014, in order to protect essential security interests, the President of Oceania issued
the Executive Order on Blocking Property of Persons Contributing to the Situation in Eastasia
(“Executive Order”).26
The Executive Order introduced a system of sanctions directed against persons engaged in
certain sectors of the Euroasian economy, including the arms production sector.27 The
sanctions included a ban on business operations with such persons, suspending existing
contracts and making future contracts with them illegal.28 The property of sanctioned persons
was also blocked and could not be transferred or otherwise dealt in.29
Because of the second weapons contract Claimant had concluded with Euroasia, he was one
of the affected persons.
Corruption in the NEAO
Throughout 2013, the General Prosecutor’s Office of Oceania conducted an investigation
regarding the corruption and bribery in the NEAO.30 Criminal proceedings against those
officials, including the President of the authority, commenced on 21 November 2013.31
The President of the NEAO was, along with other officials, convicted of accepting bribes in
February 2015.32 He named Claimant as a person from whom he has received bribes and
against whom he is willing to testify.33 After being under investigation with regard to the
environmental license, criminal proceedings were initiated against Claimant which are
ongoing.34
25 Uncontested Facts, para.16. 26 Uncontested Facts, para.16. 27 Uncontested Facts, para.16. 28 Uncontested Facts, para.16. 29 ExC2, p.52, Section 1(a). 30 Uncontested Facts, para.18. 31 Uncontested Facts, para.18. 32 Uncontested Facts, para.19. 33 PO2, para.5. 34 Uncontested Facts, para.19.
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Arguments
Claimant is an arms producer supplying weapons to the aggressor state Euroasia which has
invaded Eastasia. Respondent imposed sanctions in response to that aggression. Claimant,
having been affected by these sanctions, now tries to claim compensation.
However, the Tribunal does not have jurisdiction to hear this dispute. While Claimant now
purports to be a national of Euroasia, the aggressor state, his purported change of nationality
was ineffective (A). Also, Claimant failed to take the mandatory pre-arbitral steps which are a
precondition for the Tribunal’s jurisdiction (B). Claimant cannot bypass the lack of
jurisdiction with the MFN clause either (C).
Even if the Tribunal had jurisdiction, the claims are without merit. From the very beginning
of Claimant’s investment a shadow was cast over it through his own conduct. Claimant only
obtained the necessary license for arms production by bribery and thus deprived himself of
the BIT’s protection (D). Respondent imposed the sanctions through a legitimate exercise of
its regulatory freedom regarding its foreign policy. Thus, the sanctions cannot be regarded as
an expropriation giving rise to compensation (E). In any event, Claimant was not an innocent
victim of restrictive measures. Rather, he contributed to his own damages. Claimant acted
negligently when he concluded a weapons supply contract with an aggressor state at a point in
time when its plans for invasion were already on the table (F).
Issue 1: Arguments on the Tribunal’s jurisdiction
Respondent respectfully submits that this Tribunal lacks jurisdiction. Claimant failed to
choose the appropriate BIT to submit his claim. As an Eastasian national, Claimant is not an
investor under the Euroasia BIT. Claimant’s purported change of nationality to Euroasian
contradicts international law and has no influence on the present proceeding (A). Moreover,
Claimant failed to submit his claim to the Oceanian courts prior to this arbitration. As this is a
mandatory requirement for the Tribunal’s jurisdiction, the claim must be dismissed (B).
Lastly, Claimant should not be permitted to bypass the lack of jurisdiction through the
operation of the MFN clause (C).
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A The Tribunal lacks jurisdiction under the Euroasia BIT because Peter Explosive is
not a Euroasian national
Claimant is not a Euroasian national and therefore not an investor under the Euroasia BIT. An
“investor” under Article 1(2) Euroasia BIT is “any natural person having the nationality of
either Contracting Party in accordance with its laws.” Claimant purports to have obtained
Euroasian nationality under the Euroasian Citizenship Act on 23 March 2014.
Claimant’s sole reliance on the Citizenship Act misses an important legal point: Euroasia’s
discretion to grant Claimant Euroasian nationality is subject to the limits imposed by
international law (1). The Citizenship Act exceeds these limits as it is part of an illegal
aggression by Euroasia against Eastasia (2). Claimant’s purported Euroasian nationality
cannot follow from the rules on succession of states either because these rules are not
applicable (3).
1 Euroasia’s discretion to grant its nationality to Claimant is subject to the
limitations imposed by international law
According to Article 9(7) Euroasia BIT, the Tribunal decides the dispute “in accordance […]
with the applicable principles of international law”. Article 9(7) Euroasia BIT only confirms
the general principle that any state’s ability to grant citizenship is confined to the boundaries
set by international law. The preamble of the Draft Articles on Nationality of Natural Persons
in Relation to the Succession of States expresses this general understanding (tracing back to
the jurisprudence of the PCIJ)35:“nationality is essentially governed by internal law within
the limits set by international law.”36
Especially the principles of non-use of force and non-intervention, codified in Article 2(4) UN
Charter and recognised as jus cogens,37 need to be observed while determining Claimant’s
nationality. As the tribunal in Methanex stated:
“[…] as a matter of international constitutional law a tribunal has an
independent duty to apply imperative principles of law or jus cogens […].”38
The Tribunal is therefore bound to respect the limits set by international law when
determining Claimant’s nationality.
35 PCIJ Advisory Opinion, Tunis v Morocco, p.24. 36 Emphasis added. 37 Krajewski, Völkerrecht, §4, para.97; Restat 3rd of the Foreign Relations Law of the US, § 102,
Comments h. and Reporters Notes 6; Nicaragua v USA, paras.108, 205, 209. 38 Methanex v United States, Part IV, Chapter C, p.11, para.24.
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2 The Citizenship Act exceeds the limits set by international law as it is part of an
illegal aggression by Euroasia against Eastasia
The Tribunal should not accept Claimant’s purported change of nationality based on an
isolated application of the Euroasian Citizenship Act. The Citizenship Act was part of
Euroasia’s aggression against Eastasia which violated jus cogens.
Euroasia’s actions qualify as an act of aggression under international law (2.1). Those
violations cannot be legitimised by the regional authorities of Fairyland (2.2). The Euroasian
Citizenship Act is an integral part of the annexation and consequently part of Euroasia’s
aggression (2.3).
2.1 Euroasia engaged in aggression when it annexed Fairyland
The annexation of Fairyland by Euroasia amounts to an aggression against Eastasia which is
forbidden by international law. An aggression by a state against another state is a violation of
jus cogens.39 An aggression is defined as
“[…] the use of armed force by a State against the sovereignty, territorial
integrity or political independence of another State […].”40
Euroasia’s invasion was an act of aggression, irrespective of the “bloodless and rather
peaceful”41 course of events. Euroasia sent troops over the border to support the secession of
Fairyland. It is irrelevant whether the armed forces meet resistance in the attacked state or
not.42 Thus, the military support of the secessionist movement in Fairyland by land forces
constitutes an illegal use of armed force against the sovereignty and territorial integrity of
Eastasia.
2.2 The regional authority of Fairyland could not legitimise Euroasia’s use of force
Euroasia may argue that the intervention was justified on the basis of the invitation sent by the
authorities of Fairyland. The Commentary on Article 20 of the Draft Articles on State
Responsibility states the generally accepted premise that
“consent by a State to particular conduct by another State precludes the
wrongfulness of that act in relation to the consenting State, provided the consent
39 Commentary on Draft Articles on State Responsibility, Article 27, para.5 and Article 40, para.4; Sayapin,
Elements of an Act of Aggression, p.102. 40 Definition of Aggression, Annex to A/RES/3314 (XXIX). 41 Uncontested Facts, para.14, emphasis added. 42 Zadorozhnii, Russian Doctrine of International Law after the Annexation of Crimea, p.47; Tancredi, The
Russian Annexation of the Crimea, p.33.
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is valid and to the extent that the conduct remains within the limits of the consent
given.”43
In the case at hand, however, the consent was not valid. Whether consent is valid has to be
determined by “the rules of international law relating to the expression of the will of the
state.”44 Principally, the consent needs to be expressed by the state’s highest authorities45 and
this is generally the internationally recognised, legitimate and effective government of the
sovereign state in charge of the territory.
The regional authority of Fairyland could thus not legitimise the sending of Euroasian troops
into the territory of Eastasia. The referendum did not vest the regional authority with the
power of a legitimate state government because it was unlawful (2.2.1). Fairyland did not
have the right to external self-determination either (2.2.2).
2.2.1 The referendum declaring secession from Eastasia was unlawful
The referendum did not lead to the regional authority of Fairyland having the power of a
legitimate state government, because the referendum was unlawful under Eastasian
constitutional law.
Fairyland did not have the right to hold a referendum on secession from Eastasia. A
referendum held on the secession of part of a state can only be legitimate as a matter of
international law, if it is allowed under the laws of the state.46 The International Committee of
Jurists, entrusted by the Council of the League of Nations with the task of giving an advisory
opinion upon the legal aspects of the Aaland Islands question, stated in its report:
“Generally speaking, the grant or refusal of the right to a portion of its
population of determining its own political fate by plebiscite or by some other
method, is, exclusively, an attribute of the sovereignty of every State which is
definitively constituted.”47
Eastasian law does not allow referenda on the secession of part of the Republic, but only
regional referenda pertaining to matters within the exclusive competence of that province.48
The right to secede is not a regional matter, but one that affects the whole state.
43 Commentary on Draft Articles on State Responsibility, Article 20, para.1, emphasis added. 44 Commentary on Draft Articles on State Responsibility, Article 20, para.5. 45 Corten, The Law Against War, p.263. 46 Reference re Secession of Quebec, Question 1, p.220; compare also the situation of the Scottish
Independence Referendum. 47 The Aaland Islands Question (Report On Jurisdiction), p.3. 48 PO2, para.2.
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As the Eastasian Constitution does not contain provisions regulating secession from the
Republic,49 the referendum in Fairyland was illegal. In fact, the government of Eastasia
declared the referendum unlawful and that it had no effect on the territorial shape of
Eastasia.50
2.2.2 Fairyland does not have the right to external self-determination
Claimant argues that the referendum was justified by a right to self-determination of the
Fairylanders.51 However, the right of the people of Fairyland to self-determination does not
extend to secession from Eastasia because “international law has not recognized a general
right of peoples to unilaterally declare secession from a state.”52
According to the widely cited opinion of the Canadian Supreme Court in its Reference re
Secession of Quebec, the right to external self-determination only occurs in very specific
circumstances:
“[...], a right to secession only arises under the principle of self-determination of
people at international law where “a people” is governed as part of a colonial
empire; where “a people” is subject to alien subjugation, domination or
international exploitation; and possibly where “a people” is denied any
meaningful exercise of its right to self-determination within the state of which it
forms a part. In other circumstances, peoples are expected to achieve self-
determination within the framework of their existing state.”53
Following its detailed analysis of international law, the Canadian Supreme Court found that
international law generally expects the right to self-determination to be exercised within the
territorial limits of a state.54 That same limitation is clearly embodied in the Eastasian
Constitution.55
The Fairylanders were neither oppressed nor politically excluded nor denied internal
democratic self-determination. To the contrary, residents of Fairyland have been treated as
other Eastasian nationals.56 Fairyland has its own authorities and it is allowed to organise
regional referenda pertaining to matters within its exclusive competence.57
49 PO2, para.2. 50 Uncontested Facts, p.34. 51 RfA, p.5. 52 UN Doc. A/51/18 (1996), para.6. 53 Reference re Secession of Quebec, emphasis added. 54 See also Pellet, The Opinions of the Badinter Arbitration Committee, p.180. 55 PO2, para.2. 56 PO3, para.9. 57 Uncontested Facts, para.14; PO2, para.2.
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Consequently, a right to external self-determination does not exist in the case at hand.
Eastasia is therefore entitled to maintain its territorial integrity under international law and
have that territorial integrity recognised by other states.58
In summary, the regional authorities of Fairyland were not entitled to invite Euroasia’s armed
forces in and their invitation cannot legitimise Euroasia’s use of force.
2.3 The Citizenship Act formed an integral part of the illegal annexation
The Citizenship Act, amended on 1 March 2014, the very day of the invasion,59 is an integral
part of the illegal annexation and thus itself illegal under international law.
In the ICJ’s DRC v Uganda decision, the ICJ affirmed that acts closely linked to an
aggression,
"will also, if they directly or indirectly involve the use of force, constitute a
breach of the principle of non-use of force in international relations.”60
The Citizenship Act is so closely linked to the invasion of Fairyland that it must be considered
to indirectly involve use of force.
Euroasia divided its illegal annexation in the acquisition of territory and the acquisition of
nationals. Euroasia’s actions in Fairyland reveal a two-step plan that has been followed before
in other instances of annexations of territory. For example, Israel annexed the Golan Heights61
and subsequently offered the residents Israeli passports and rights.62 A similar strategy has
been followed by Russia in the course of its annexation of Crimea. Russia supported the
referendum in Crimea and entered the territory after a disputed invitation. Passports and
national rights were offered to the residents after, and allegedly already prior to,63 the
annexation.64
Euroasia as a first step encouraged the referendum and annexed the territory. On the very
same day of the invasion, as a second step, it passed the amendment of the Citizenship Act
granting nationality to the residents of the annexed territory.65 The amended Citizenship Act
58 Compare Reference re Secession of Quebec, Question 2, p.222. 59 Compare PO2, para.4; Uncontested Facts, para.14. 60 DRC v Uganda, para.164, emphasis added. 61 S/RES/497 (1981). 62 GA/10794. 63 Compare Tsukanova, Cheney urges divided Ukraine to unite against Russia 'threat'. 64 TASS, Over 150 offices issuing Russian passports opened in Crimea Russia. 65 PO2, para.4.
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set the “legal” grounds for the taking-over of the Eastasian citizens residing in Fairyland.
Thus, the granting of nationality was an integral part of Euroasia’s annexation of Fairyland.
The Citizenship Act is therefore inseparable from the illegal use of force and should thus be
considered as violating the principle of non-use of force in international relations.
3 Claimant’s purported Euroasian nationality does not follow from the rules on
succession of states either
Claimant might try to rely in the alternative on the law on succession of states as embodied in
the Articles on Nationality of Natural Persons in relation to the Succession of States (“Articles
on Nationality”) to support his purported change of nationality. This argument does, however,
not convince because the Articles on Nationality are not applicable in case of an illegal
succession.
While there is a presumption in Article 5 of the Articles on Nationality that habitual residents
acquire the nationality of a successor state, that presumption does not apply to illegal
territorial acquisitions. Article 3 of this convention reads:
“The present articles apply only to the effects of a succession of States occurring
in conformity with international law and, in particular, with the principles of
international law embodied in the Charter of the United Nations.”66
It has been established that Euroasia did not act in conformity with international law when it
used force against Eastasia to annex Fairyland.67 Accordingly, the Articles on Nationality are
not applicable and neither the territorial change nor the change of nationality of the citizens is
effective.
In conclusion, this Tribunal does not have jurisdiction, because Claimant is not an investor
under the Euroasia BIT. Claimant can neither derive his Euroasian nationality from the
Citizenship Act nor from the law on succession of states. Both legal instruments are not
applicable due to the illegal use of force by Euroasia against Eastasia.
66 Emphasis added. 67 See paras.26 et seqq.
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B This Tribunal lacks jurisdiction because Claimant failed to comply with Article 9
Euroasia BIT
Even if Claimant qualified as a Euroasian investor, the Tribunal nevertheless lacks
jurisdiction. Claimant failed to submit the dispute to the Oceanian courts prior to this
arbitration as required by Article 9(3) Euroasia BIT.
Article 9(1)-(3) Euroasia BIT states:
“(1) Any dispute regarding an investment between an investor of one of the
Contracting Parties and the other Party, arising out of or relating to this
Agreement, shall, to the extent possible, be settled in an amicable consultations
[sic] between the parties to the dispute.
(2) If the dispute cannot be settled amicably, it may be submitted to the competent
judicial or administrative courts of the Contracting Party in whose territory the
investment is made.
(3) Where, after twenty four [sic] months from the date of the notice on the
commencement of proceedings before the courts mentioned in paragraph 2 above,
the dispute between an investor and one of the Contracting Parties has not been
resolved, it may be referred to international arbitration.”
The article provides a multi-tier, sequential dispute resolution system through which an
investor must run consecutively to access arbitration. Most importantly, Article 9(3) Euroasia
BIT provides that an investor must pursue his claim in the Oceanian courts for two years
before he can commence arbitration. It is uncontested that Claimant did not submit the dispute
to the Oceanian Courts.
First, the ordinary meaning of the terms used in Article 9 Euroasia BIT, in light of their
structural context, shows that the local courts requirement is mandatory (1). Second, any
argument by Claimant that compliance with the local courts requirement is futile must be
rejected (2).
1 The pre-arbitral steps contained in Article 9 Euroasia BIT are mandatory
The structure of Article 9 Euroasia BIT reflects a three-step dispute resolution mechanism.
Each preceding step must be fulfilled before the investor may proceed to the next step (1.1).
Contrary to Claimant’s arguments, the use of the term “may” in Article 9(2) Euroasia BIT
does not indicate that the provision is optional (1.2).
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1.1 The mandatory nature follows from the structure of Article 9 Euroasia BIT
The way Article 9 Euroasia BIT is structured demonstrates the mandatory nature of the pre-
arbitral steps.
In essence, Article 9 Euroasia BIT is structured as follows: the first paragraph requires
amicable settlement efforts. The second paragraph states that if this attempt fails, the investor
may submit the dispute to the local courts. Finally, the third paragraph – Article 9(3) – states
that where the dispute is not resolved by the courts within twenty-four months, the investor
may then go to arbitration.
The mandatory nature of the local courts requirement results from Article 9(3) Euroasia BIT.
Once the condition precedent occurs (the elapse of twenty-fourt months after a case is filed in
Oceanian courts), then the investor can commence arbitration.
A very similar dispute settlement clause was interpreted in the same way in the case of
Impregilo v Argentina. Article 8(2)-(3) of the Argentina-Italy BIT states:
“(2) If the dispute cannot be settled amicably, it may be submitted to the
competent judicial or administrative courts of the Party in whose territory the
investment is made.
(3) Where, after eighteen months from the date of notice of commencement of
proceedings before the courts mentioned in paragraph 2 above, the dispute
between an investor and one of the Contracting Parties has not been resolved, it
may be referred to international arbitration.”68
The similarities to the clause in the present case are striking. The Impregilo tribunal stated
that if the investor wanted to submit his claim to arbitration, Article 8(3) Argentina-Italy BIT
required him to go to the local courts first and wait for eighteen months.69 This reading
accords with the interpretation of other tribunals which also relied on the very same dispute
settlement clause.70 The Impregilo tribunal affirmed that the eighteen months local courts
requirement in that BIT was a mandatory, jurisdictional requirement before the investor could
commence ICSID arbitration.71
68 Impregilo v Argentina, p.5, emphasis added. 69 Impregilo v Argentina, paras.82b, 90. 70 Giovanni Alemanni v Argentina, para.306; Ambiente v Argentina, para.589. 71 Impregilo v Argentina, paras.91, 94; compare same conclusion in Kiliç v Turkmenistan, paras.6.2.6-6.2.9
(holding that the pre-arbitral steps in a similar dispute resolution article were mandatory preconditions to
commencing arbitration).
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Thus, Article 9(3) Euroasia BIT requires Claimant to submit his claim to Oceanian courts for
twenty-four months prior to arbitration.
1.2 The use of the term “may” in Article 9(2) Euroasia BIT does not indicate that
Article 9(3) Euroasia BIT is optional
Claimant might allege that the word “may” used in Article 9(2) Euroasia BIT provides the
investor with a choice whether or not to go to local courts first. This is incorrect. As explained
above, the mandatory local courts requirement arises from Article 9(3) Euroasia BIT, not
from Article 9(2) Euroasia BIT. Article 9(3) Euroasia BIT uses strict, non-permissive
language.
Article 9(2) Euroasia BIT simply states that the investor may file a claim with the courts as
the second step in the dispute resolution process. Respondent agrees that “may” does express
a choice. But it is the choice to either pursue the claim in front of local courts or abandon the
claim. It is not a choice to directly go to arbitration and ignore Article 9(3) Euroasia BIT.72
Notably, the Impregilo tribunal interpreted a dispute settlement clause – quoted above at
para. 60 – that used the word “may” in the exact same manner as Article 9 Euroasia BIT. It
concluded:
“The condition to be complied with is a double one: first bringing the dispute
before the domestic courts and then waiting for 18 months before proceeding to
international arbitration.”73
Therefore, Respondent submits that the use of the term “may” in Article 9(2) Euroasia BIT
does not permit a reading of Article 9(3) Euroasia BIT under which the local courts
requirement is optional. This Tribunal should thus follow the Impregilo tribunal’s conclusion
and decide that the local courts requirement is mandatory.
2 Claimant’s potential argument that the pre-arbitral steps are futile must be
rejected
In a further attempt to overcome his failure to go to local courts prior to arbitration, Claimant
might advocate a “futility exception”. He might argue that this Tribunal can completely
disregard the local courts requirement as recourse to Oceanian courts was allegedly futile.
Such argument would be flawed both on legal and factual grounds.
72 Ambiente v Argentina, para.591. 73 Impregilo v Argentina, para.90; see also Ambiente v Argentina, para.591; Giovanni Alemanni v
Argentina, para.306.
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First, as to the applicable law in this case: Article 9 Euroasia BIT does not contain a futility
exception. Article 9(3) explicitly states that a dispute must be submitted to local courts for
twenty-four months before arbitration.
The Tribunal is respectfully asked to interpret the law and not to develop it.74 The
acknowledged limits of treaty interpretation are embodied in the Vienna Convention on the
Law of Treaties (“VCLT”). Article 32 VCLT stipulates that even if an interpretation
according to Article 31 VCLT yields a “manifestly absurd or unreasonable” result, the only
recourse an adjudicator has are supplementary means of interpretation. In this case, the
wording of Article 9(3) Euroasia BIT in no way suggests a futility exception, nor did
Claimant cite to any supplementary means of interpretation in support of his argument to the
contrary.
The overwhelming majority of tribunals have rejected futility arguments.75 Respondent is
aware of only two cases in which the tribunals decided in favour of a futility exception.76
However, these tribunals are not reliable authority. In both cases the tribunals imposed a
futility exception to pre-arbitral steps primarily because the tribunals believed that a local
courts requirement did not make sense in light of selected policy considerations.77
As the tribunal in ICS v Argentina held in accord with the acknowledged limits set by the
VCLT and with regard to a futility exception:
“The Tribunal cannot therefore create exceptions to treaty rules where these are
merely based upon an assessment of the wisdom of the policy in question, having
no basis in either the treaty text or in any supplementary interpretive source,
however desirable such policy considerations might be seen to be in the
abstract.”78
The Tribunal is therefore asked to remain faithful to its task of adjudication and reject an
implied futility exception.
Second, with respect to the facts of this case, Claimant bears the burden of proving that going
to local courts would be futile.79 Claimant did not show that he could not challenge the
sanctions’ application within the twenty-four months. The only information available is that
the Constitutional Court would take three to four years to rule on setting aside the Executive
74 Compare Renta 4 v Russia, para.93; Petrobart v Kyrgyzstan, p.49. 75 Wintershall v Argentina, para.196; ICS v Argentina, para.269; Kiliç v Turkmenistan, para.8.1.21. 76 Ambiente v Argentina, para.628; Giovanni Alemanni v Argentina, para.317. 77 See Ambiente v Argentina, paras.627, 628 and Giovanni Alemanni v Argentina, paras.316, 317. 78 ICS v Argentina, para.267. 79 Compare ST-AD v Bulgaria, para.366.
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Order.80 Claimant did not provide any information that a regular motion before the
administrative courts was not possible.
Respondent submits in conformity with the tribunal in ICS v Argentina that “this is not a case
of obvious futility, where the relief sought is patently unavailable within the [respective] legal
system.”81 Consequently, this Tribunal should reject Claimant’s attempt to circumvent the
local courts requirement by way of an alleged futility.
In conclusion, the Tribunal lacks jurisdiction because Claimant failed to submit the dispute to
the Oceanian courts prior to this arbitration as required by Article 9(3) Euroasia BIT.
C Claimant cannot invoke Article 8 Eastasia BIT pursuant to Article 3 Euroasia BIT
to overcome the Tribunal’s lack of jurisdiction
Claimant cannot rely on the Most-Favoured-Nation (“MFN”) clause in the Euroasia BIT to
create jurisdiction. Claimant argues that he can use the MFN clause in the Euroasia BIT to
access Article 8 Eastasia BIT.82 In Article 8 Eastasia BIT, the Contracting Parties offer the
investor direct access to arbitration without prior submission of the dispute to the local courts.
Claimant’s submission is incorrect, because the MFN clause of the Euroasia BIT is not meant
to cover dispute settlement provisions. Traditionally and as a rule, MFN clauses do not apply
to dispute settlement provisions.83 Their origin lies in international trade law which was only
ever concerned with substantive guarantees.84 In fact, bilateral investment treaties contained
MFN clauses long before they granted investors access to dispute settlement with the state.85
Against this background, extending MFN treatment to dispute settlement must be seen as a
departure from the ordinary.
80 PO3, para.6. 81 ICS v Argentina, para.269. 82 PO1, para.4(1)(c); RfA, p.3. 83 Dissenting opinion by Laurence Boisson de Chazournes in Garanti v Turkmenistan, para.64; GATT,
Article 1. 84 GATT, Article 1. 85 Germany-Pakistan BIT (1959); Liberia-Switzerland BIT (1963); Denmark-Indonesia BIT (1968).
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Consequently, investment tribunals have found that MFN clauses extend to procedural
provisions only when the MFN clause clearly and unequivocally requires that outcome.86 As
the Plama tribunal stated:
“[…] an MFN provision in a basic treaty does not incorporate by reference
dispute settlement provisions in whole or in part set forth in another treaty,
unless the MFN provision in the basic treaty leaves no doubt that the Contracting
Parties intended to incorporate them.”87
Interpreting the treaty according to Article 31 VCLT leads to the conclusion that the
Contracting Parties intended to keep the traditional meaning of the MFN clause. There are
several indications which show that the dispute settlement is not covered (1). Even if the
MFN clause could, in principle, include dispute settlement provisions, its application to the
local courts requirement in particular would be inappropriate (2).
1 Careful interpretation of Article 3 Euroasia BIT reveals that it does not extend to
dispute settlement provisions
There are several indications that Article 3 Euroasia BIT only refers to the substantive
treatment the State Parties accord to an investment.
Article 31 VCLT provides that a treaty is to be interpreted in accordance with the ordinary
meaning of the terms in context. Any interpretation should be guided by the treaty’s object
and purpose, i.e. the state parties’ intentions as expressed in the language of the treaty.88
Article 3 Euroasia BIT states:
“Each Contracting Party shall, within its own territory, accord to investments
made by investors of the other Contracting Party, to the income and activities
related to such investments and to such other investment matters regulated by this
Agreement, a treatment that is no less favourable than that accorded to its own
investors or investors from third-party countries.”89
First, the ordinary meaning of the term “treatment” at the time the Euroasia BIT was
concluded, only referred to substantive treatment (1.1). Additionally, the context of Article 3
Euroasia BIT also shows that the term “treatment” does not extend to dispute settlement
86 Wintershall v Argentina, para.172; Plama v Bulgaria, para.204; McLachlan/Shore/Weiniger,
International Investment Arbitration: Substantive Principles, p.256. 87 Plama v Bulgaria, para.223, emphasis added. 88 VCLT, Article 3; Austrian Airlines v Slovakia, para.121; Plama v Bulgaria, para.198. 89 Emphasis added.
78
79
80
81
82
83
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provisions (1.2). Lastly, the term “other investment matters” has no relevance for the
application of the MFN clause to dispute settlement provisions (1.3).
1.1 At the time the BIT was concluded, the ordinary meaning of the term
“treatment” did not encompass dispute settlement provisions
The question of whether or not Article 3 Euroasia BIT extends to dispute settlement turns on
the interpretation of the term “treatment”. The term is not defined in the Euroasia BIT.
Respondent submits, in line with the ICS v Argentina tribunal, that the so-called “principle of
contemporaneity” in treaty interpretation should be used for interpreting the term.90 As the
tribunal in Daimler v Argentina confirmed: If there is no evidence to the contrary, the parties
are assumed to have shared the general understanding of a term at the time the treaty was
concluded.91
One indication of the generally understood scope of the term “treatment” is the use of that
term in the World Bank Guidelines92. The Guidelines were drafted in 1992, three years before
the Euroasia BIT was concluded. The Guidelines use the term “treatment” only in part III, in
the context of substantive guarantees and concrete measures by the state. Dispute settlement is
not mentioned within the discussion of “treatment” at all.
Indeed, it was uncontested at the time the Euroasia BIT was concluded, and for many years
after, that MFN clauses had no effect on the jurisdictional requirements agreed to by the
parties in dispute resolution provisions. Only in 2000 did the tribunal in Maffezini v Spain
apply an MFN provision to dispute settlement for the first time.93
Respondent submits that before the Maffezini case was published no state party to a BIT –
including Oceania – ever thought about applying the MFN clause to dispute settlement
provisions.94 Consistently negative reactions to that decision95 demonstrate that the leap taken
by the Maffezini tribunal was ill considered and should not be followed.
90 ICS v Argentina, para.289; see also Wintershall v Argentina, para.128. 91 Daimler v Argentina, para.220. 92 World Bank Guidelines on the Treatment of Foreign Direct Investment, 1992. 93 Parker, A BIT at a Time, p.37; Figanmese, The Impact of the Maffezini Decision, p.221. 94 Douglas, The MFN Clause in Investment Arbitration, p.101. 95 Salini v Jordan, para.115; Plama v Bulgaria, para.203; Telenor v Hungary, paras.89, 90.
84
85
86
87
88
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Considering this very issue, the tribunal in Daimler v Argentina observed with regard to a BIT
concluded in 1991 that
“the term “treatment” was likely meant by the two State Parties, at the time of the
conclusion of the BIT, to refer to the Host State’s direct treatment of the
investment and not to the conduct of any international arbitration arising out of
that treatment.”96
The most conclusive evidence available on this issue comes from the comparison of two
treaties entered into by Oceania within the short span of three years, the Eastasia and the
Euroasia BIT. The Eastasia BIT contained no pre-arbitral local courts requirement. The
Euroasia BIT was subsequently drafted to include such a requirement. It would undermine the
specifically negotiated provisions of the Euroasia BIT if the MFN clause could incorporate
dispute resolution mechanisms from previously concluded treaties.
In summary, it is clear that the term “treatment” was not meant to extend to dispute settlement
provisions at the time the Euroasia BIT was concluded.
1.2 The context of Article 3 Euroasia BIT shows that the term “treatment” does not
extend to dispute settlement provisions
The context of Article 3 Euroasia BIT, in particular its interplay with Article 5 Euroasia BIT,
further supports Respondent’s submission. The Euroasia BIT contains two MFN provisions.
A more general one in Article 3 Euroasia BIT, as already discussed; and a more specific
clause in Article 5 Euroasia BIT, which deals with losses of the investor owing to war.
Article 5 Euroasia BIT specifically refers to more favourable “treatment as regards
restitution, indemnification, compensation or other settlement”.97 This formulation covers
settlement of disputes about the investor’s claims for compensation. It can be deduced as an
argumentum e contrario that Article 3, which only refers to “treatment”, does not.
In other words, it does not make sense to have one MFN clause (Article 5) that covers
virtually all forms of treatment, including “other settlement”, and then have a second MFN
clause (Article 3) repeating it. Such interpretation would run counter to the principle of
effectiveness. This principle is a generally accepted doctrine in international law98 stating that
96 Daimler v Argentina, para.224, emphasis added. 97 Emphasis added. 98 Noble Ventures v Romania, para.50; Decision on Annulment in Klöckner v Cameroon, para.62; compare
also Eureko v Poland, para.248.
89
90
91
92
93
94
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an interpretation must not render a treaty clause meaningless.99 This is, however, precisely
what Claimant’s interpretation would do: It would reduce the effect of Article 5 Euroasia BIT
to a mere repetition of the guarantee already contained in Article 3 Euroasia BIT.
In summary, the context of Article 3 Euroasia BIT, in particular the broad scope of Article 5
Euroasia BIT, supports a narrower reading of Article 3 Euroasia BIT.
1.3 The term “other investment matters” has no relevance for the application of the
MFN clause to dispute settlement provisions
Lastly, Claimant may assert that the term “treatment” in Article 3(1) Euroasia BIT should be
read broadly, because it not only encompasses treatment of “investments”, but also treatment
of “income and activities related to such investments and such other investment matters
regulated by this agreement”. However, this is incorrect.
“Other investment matters” cannot be read in a way that inflates the meaning of the word
“treatment”. The key to Article 3 Euroasia BIT is the term “treatment” – not the list of items
that enjoy such treatment. If the term “treatment” excludes dispute settlement, it is of no
relevance to whom or to what such treatment is accorded.
In fact, the terms “activities related to such investments” and “other investment matters” in
Article 3 Euroasia BIT, on which Claimant might rely, even support Respondent’s position.
These terms simply mirror the key substantive standards of treatment in Article 2 Euroasia
BIT. Article 2 Euroasia BIT specifies that the guaranteed (substantive) treatment standards
shall be accorded not only to investments (Article 2(2)), but also to activities of investors with
regard to investments (Article 2(3)) and moreover to returns of the investments as well as to
returns from reinvested returns (Article 2(4)). In short, the substantive treatment guaranteed
in Article 2 Euroasia BIT has a broad scope of application. Since Article 3 Euroasia BIT
mirrors Article 2 Euroasia BIT, it also mirrors its list of protected items.
Therefore, the term “other investment matters” does not inflate the meaning of “treatment”
which only refers to substantive guarantees.
99 AAP v Sri Lanka, para.40; Eureko v Poland, para.248.
95
96
97
98
99
100
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2 Even if the MFN clause could in general cover dispute settlement provisions, its
application to the local courts requirement in particular would be inappropriate
Even tribunals that have permitted investors to circumvent certain dispute settlement
provisions through the use of the MFN clause acknowledged necessary limits.100 Specifically,
certain types of dispute settlement provisions or parts thereof were categorised as immune to
circumvention because they qualified as key conditions to a contracting party’s consent to
arbitrate.101
The local courts requirement in Article 9(3) Euroasia BIT is a precondition for Respondent’s
consent. Whether a particular requirement is a condition precedent is an issue of
interpretation. An indicator is the language used and whether that provision was specifically
negotiated. As a general rule, Mr. Gary Born states:
“[P]rovisions with defined time periods and concrete pre-arbitration steps are
more likely to be categorized as conditions precedent, whose breach forecloses
access to arbitration […].”102
Article 9(3) Euroasia BIT is a concrete pre-arbitral step with a defined time period of twenty-
four months. Moreover, it appears to have been specifically negotiated by Oceania and
Euroasia when compared to the Eastasia BIT, which contains no local courts requirement.
Investment tribunals such as Wintershall, ST-AD and Kiliç have characterised requirements
using similar language as conditions precedent.103 Relating such preconditions to consent has
led these tribunals to reject the application of the MFN clause.104
In conclusion, the Tribunal should not allow Claimant to use Article 3 Euroasia BIT to
overcome Respondent’s conditional consent to arbitrate investment disputes.
100 Maffezini v Spain, paras.62, 63; National Grid v Argentina, para.92. 101 Wintershall v Argentina, para.162; Daimler v Argentina, para.194; Dissenting Opinion by Laurence
Boisson de Chazournes in Garanti v Turkmenistan, paras.62, 63. 102 Born/Scekic, p.249. 103 ST-AD v Bulgaria, para.368; Wintershall v Argentina, paras.115, 116; Kiliç v Turkmenistan, para.6.2.9. 104 Wintershall v Argentina, paras.160(1)(2), 197; Kiliç v Turkmenistan, para.7.9.1; also compare ST-AD v
Bulgaria, paras.402, 403.
101
102
103
104
105
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Issue 2: Arguments on the merits of the dispute
Respondent is not liable to compensate Claimant for losses he suffered due to the Executive
Order. First and foremost, Claimant’s investment is not protected because Claimed bribed a
public official to obtain the required license for its operation (D). Second, even if Claimant
made a protected investment, Respondent did not illegally expropriate Claimant (E). In any
event, Claimant materially contributed to the damage suffered. This contribution prevents
Claimant from being awarded compensation (F).
D Claimant did not make a protected investment because he built Rocket Bombs
upon the bribery of an Oceanian official
The key prerequisite for a BIT to grant protection is that the investor has made an investment
in accordance with the BIT.105 Only then does the investment regime apply ratione materiae.
Both the Euroasia and the Eastasia BIT require that the investment be established in
accordance with the laws of the host state. They each contain a legality requirement (1).
Claimant’s investment does not comply with the requirements of either BIT, because the
investment was made illegally. The evidence provided by Respondent is sufficient to find that
Claimant bribed an Oceanian official to gain an environmental license and establish his
investment (2).
1 Claimant’s BIT protection is subject to a legality requirement
The Tribunal’s findings on the jurisdictional issues in this case necessarily influence
Respondent’s submissions on the merits: If the Tribunal allows Claimant to use the MFN
clause to access the dispute settlement clause in the Eastasia BIT, Respondent submits that the
legality requirement explicitly follows from Article 1(1) Eastasia BIT (1.1). If the Tribunal
finds that it has jurisdiction not by virtue of the MFN clause but on the basis of the Euroasia
BIT alone, a legality requirement is still implied in Article 1(1) Euroasia BIT (1.2).
105 Dolzer/Schreuer, Principles of International Investment Law, p.60.
106
107
108
109
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1.1 Article 1(1) Eastasia BIT contains an explicit legality requirement
Claimant’s investment is subject to a legality requirement imposed by the Eastasia BIT.
Article 1(1) Eastasia BIT explicitly defines investments as such assets only that are invested
“in accordance with the laws and regulations of the [host state, i.e. Oceania]”.
If the Tribunal finds that Claimant can import the dispute settlement provisions of the Eastasia
BIT through the MFN clause, these provisions must be imported with their original meaning,
i.e. the meaning they have in the Eastasia BIT. If Claimant imports Article 8(1) and (2)
Eastasia BIT, referring to the settlement of “disputes concerning investments”, these terms
have a specific, defined meaning under the Eastasia BIT. In particular, the term “investments”
– as quoted right above – is defined as investments made in accordance with the law of the
host state. Thus, if Claimant imports direct access to arbitration of disputes concerning
investments, this should be read as an import of “direct access to arbitration of disputes
concerning legal investments”.
Consequently, if the Tribunal allowed Claimant to rely on the Eastasia BIT through the MFN
clause, Claimant’s investment is subject to the legality requirement contained in Article 1(1)
Eastasia BIT.
Claimant, however, tries to argue that he can pick the specific terms contained in the Eastasia
BIT and then interpret them according to the Euroasia BIT.106 This would allow Claimant to
create a new, hybrid dispute settlement clause. Such a clause cannot be found in either the
Euroasia BIT or the Eastasia BIT.
This approach would go far beyond the appropriate scope of an MFN clause. The purpose of
the MFN clause is to protect against discrimination.107 If the Tribunal allowed the MFN
clause to be stretched this far, Claimant would enjoy an entirely new kind of treatment that
the state never promised to any other investor.108 The MFN clause is intended only to prevent
discrimination between investors of a different nationality and not to rewrite treaties in favour
of the investor.109 Therefore, such an approach should be rejected.
106 Compare RfA, p.3. 107 UNCTAD, Most-Favoured-Nation Treatment, pp.13, 14; Vandevelde, Bilateral Investment Treaties,
p.367; Thulasidhass, Most-Favoured-Nation Treatment in International Investment Law, p.7; Rodriguez,
A tool for Treaty Shopping?, p.98. 108 Compare Thulasidhass, Most-Favoured-Nation Treatment in International Investment Law, p.7;
Rodriguez, A tool for Treaty Shopping?, p.98. 109 Thulasidhass, Most-Favoured-Nation Treatment in International Investment Law, p.7; Rodriguez, A tool
for Treaty Shopping?, p.98.
110
111
112
113
114
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In summary, if Claimant relies on Article 8 Eastasia BIT, his investment must comply with
the explicit legality requirement of the Eastasia BIT.
1.2 Article 1(1) Euroasia BIT contains an implicit legality requirement
In the alternative, if the Tribunal did not apply the Eastasia BIT but the Euroasia BIT,
Article 1(1) Euroasia BIT contains an implicit legality requirement.
It is a well-established principle in investment arbitration that even in the absence of an
explicit legality requirement, investment definitions must be interpreted to include an implied
one. In this regard, there are only two categories of awards: those which have found that there
is an implicit legality requirement110 and those where illegality was not an issue. There is not,
however, a single award where the tribunal denied an implicit legality requirement.
From a state’s point of view, there is no reason why it should grant protection to illegal
investments. Therefore, borrowing the words of the Phoenix tribunal, “[s]tates cannot be
deemed to offer access to the ICSID dispute settlement mechanism to investments made in
violation of their laws.”111
From a more general point of view,
“[i]t would also be contrary to the basic notion of international public policy –
that a contract obtained by wrongful means (fraudulent misrepresentation) should
not be enforced by a tribunal.”112
For these reasons, Article 1(1) Euroasia BIT must be read to contain an implied legality
requirement.
2 The evidence is sufficient to determine that Claimant violated Oceanian law
when he made his investment
The evidence which Respondent can submit is sufficient for the Tribunal to find that Claimant
established his investment illegally. Before addressing the facts of this case, it is necessary to
clarify two points with regard to the permissible type of evidence on the one hand and the
relevant standard of proof on the other.
110 Phoenix Action v Czech Republic, para.101; Plama v Bulgaria (Merits), para.139; Hamester v Ghana,
para.123; Yukos v Russia, para.1352; Fraport v Philippines II, para.322. 111 Phoenix Action v Czech Republic, para.101 – the same holds true for ICC arbitration. 112 Plama v Bulgaria (Merits), para.143.
115
116
117
118
119
120
121
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Circumstantial evidence is permissible and sufficient to prove bribery. The Metal-Tech
tribunal rightfully pointed out that
“corruption is by essence difficult to establish and that it is thus generally
admitted that it can be shown through circumstantial evidence.”113
As far as the standard of proof is concerned, there are two main schools of thought. One camp
advocates the usual civil law standard of proof by a “preponderance of the evidence” which
requires to proponent of an issue to show that an event was more likely than not to have
occurred.114 The other camp would require that the evidence be “clear and convincing so as
to reasonably [support the alleged facts]”.115 Respondent’s evidence satisfies even the
elevated standard.
Claimant bought the arms producer Rocket Bombs in 1998.116 At that time, Oceania had
introduced the Environmental Act 1996117 and Rocket Bombs had lost its environmental
license necessary for arms production in 1997.118 Consequently, to establish the business,
Claimant had to obtain a new environmental license.119 A new license was contingent on a
production line in compliance with the Environmental Act.120
The legal way out would have been to adjust the production line to the environmental
requirements. This is not the path Claimant chose.121 The evidence shows that he instead
opted to bribe the President of the NEAO in order to obtain the license.
The licensing process is usually “very long and time consuming”122 because after the
applicant has submitted proof of compliance, the authority also “visits the arms production
site to verify compliance”.123 These steps were not fulfilled in the present case. Instead,
Claimant had a private meeting with the President of the NEAO in July 1998.124
113 Metal-Tech v Uzbekistan, para.243; Oostergetel v Slovakia, para.303 Fraport v Philippines II, para.479. 114 Tokios v Ukraine, para.124; Fraport v Philippines, para.399. 115 Fraport v Philippines II, para.479; see also EDF v Romania, para.221. 116 Uncontested Facts, para.2. 117 Uncontested Facts, para.4. 118 Uncontested Facts, paras.2, 4. 119 Uncontested Facts, paras.2, 4; PO2, para.1. 120 PO2, para.1. 121 Uncontested Facts, para.13. 122 Uncontested Facts, para.6. 123 PO3, para.1. 124 Uncontested Facts, para.6.
122
123
124
125
126
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After the private meeting, it took less than twenty-two days for Claimant to obtain the
license.125 Of course, the issuance of a license might have been legal, if Claimant in this
meeting had “provide[d] the National Environment Authority evidence that its production line
complies with the environmental requirements”.126 As a matter of fact, however, Claimant’s
production line only came into compliance with the Environmental Act in 2014 – more than
fifteen years after the meeting.127
Thus, it is not possible for Claimant to have obtained the license legally. This fact particularly
points towards bribery because the President of the NEAO has a history of corruption. He was
convicted in 2015, along with other officials from the NEAO, of having accepted bribes.128
The investigations were initiated after the General Prosecutor’s Office of Oceania in 2013 was
given an anonymous tip that officials of the NEAO had suggested “that it would be possible
to expedite the issuance of an environmental license if they received a pecuniary
gratification”.129 The convicted NEAO President named Claimant as a person from whom he
had received bribes.130 The criminal proceedings against Claimant are pending.131
There is no reasonable explanation for these events other than Claimant making use of a
corrupt individual susceptible to bribery in order to bypass Oceanian environmental law.
Respondent therefore submits that the Tribunal has clear and convincing evidence to find that
Claimant bribed the NEAO President in the course of establishing his investment.
Claimant might raise an argument in defence claiming that the bribery took place during the
life of the investment rather than in the establishment phase and should therefore not be
relevant. This argument should be rejected.
It follows from these facts that the environmental license was inextricably linked to the
operation of Claimant’s entire business. Indeed, the environmental licence was a conditio sine
qua non for the business to be operational and thus have any worth. In light of such
entanglement, it would be artificial to only qualify the payment of the purchase price as the
“making” of the investment.
125 Uncontested Facts, para.6. 126 PO2, para.1. 127 Uncontested Facts, para.13. 128 Uncontested Facts, para.19. 129 Uncontested Facts, para.18, emphasis added. 130 PO2, para.5. 131 PO2, para.5.
127
128
129
130
131
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To sum up, the circumstances satisfy even an elevated standard of proof and warrant the
determination that Claimant bribed an official to get a license. This illegality at the
establishment of Claimant’s investment takes it outside of the BIT’s scope and renders the
investment unprotected.
E Respondent is not liable to pay compensation for an expropriation
Claimant challenges the sanctions Respondent introduced against persons supporting Euroasia
in its annexation of Fairyland as being expropriatory.132 These sanctions, however, are non-
discriminatory regulatory actions designed to weaken Euroasia’s economic and military
capacity. Such measures do not amount to expropriation, are not equivalent to expropriation,
and do not give rise to a duty of compensation.
First, Claimant has not sufficiently substantiated that the sanctions had an effect equivalent to
expropriation on his investment (1). But even if the theoretical threshold for an expropriation
were met, the sanctions were introduced as a legitimate exercise of Respondent’s police
powers (2). In any event, Article 10 Euroasia BIT – a so-called “non-precluded measures
clause” – explicitly exempts Respondent from liability (3).
1 Respondent did not expropriate Claimant’s investment
Article 4 Euroasia BIT follows the established approach of investment law that an investment
can be expropriated in two ways: directly if the investor’s property is taken133 or indirectly if
measures do not formally take away property but are tantamount to such taking.134
Respondent did neither. The Executive Order did not take away Claimant’s title to the assets
owned by Rocket Bombs or his ownership of the investment as a whole. Accordingly, no
direct expropriation has occurred.
As indicated above, indirect expropriation requires an effect that is “tantamount” to
expropriation.135 Investment tribunals and scholars have developed two main criteria to assess
whether a measure is tantamount to expropriation: First, the severity of the effect on the
132 RfA, p.6. 133 Dolzer/Schreuer, Principles of International Investment Law, p.92; SuezVivendi v Argentina, para.132;
Telenor v Hungary, para.38. 134 Dolzer/Schreuer, Principles of International Investment Law, p.92; SuezVivendi v Argentina, para.132;
Telenor v Hungary, para.38; Tecmed v Mexico, para.114; Middle East Cement v Egypt, para.107. 135 Article 4(1) Euroasia BIT; compare also e.g. Tecmed v Mexico, para.114; Metalclad v Mexico, para.102;
Olguin v Paraguay, para.84.
132
133
134
135
136
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investment136 – specifically, whether it reduces the value of the investment to nearly zero.137
The second factor is the duration of the measure.138 Tribunals have found that the measure
must be permanent.139 Accordingly, a measure that only affects the investment’s value to a
lesser extent or is temporary cannot meet this standard.140
Applying these criteria to the case at hand, Respondent’s sanctions fall short of having an
effect tantamount to expropriation.
First, Claimant has not shown that the value of his investment was reduced close to zero.
While Claimant brought forward that his company suffered “a rapid decrease in the value of
its shares” due to the sanctions,141 this statement alone is insufficient. Claimant assesses the
decrease at 120,000,000 USD. However, even if that figure were correct, the information is
incomplete. It would be necessary to know the total value of the shares before the sanctions to
assess whether a decrease by 120,000,000 USD constitutes a reduction to nearly zero.
Claimant has to this date not provided the missing information.
Second, the sanctions are only temporary, not permanent. Tribunals demand that a measure
be permanent142 because only then can it be compared to the “taking of title” as required by
direct expropriation. Whether a particular measure is sufficiently permanent must be decided
on a case by case basis.143
In SD Myers v Canada, for example, a period of eighteen months was held to be of
insufficient duration. The tribunal persuasively argued that the term “tantamount to
expropriation” (which is identical to Article 4 Euroasia BIT in the case at hand) meant
“equivalent” to (direct) expropriation.144 It concluded that the mere interference with the
claimant’s investment “only for a time” was no “expropriation case”.145
136 UNCTAD, Expropriation: A Sequel, p.63; Telenor v Hungary, para.70; LG&E v Argentina, para.190;
Tecmed v Mexico, para.115; Total v Argentina, para.195. 137 UNCTAD, Expropriation: A Sequel, p.65 with various references. 138 UNCTAD, Expropriation: A Sequel, p.69; Telenor v Hungary, para.70; SD Myers v Canada, paras.284,
287; LG&E v Argentina, para.190. 139 Tecmed v Mexico, para.115; LG&E v Argentina, para.193; see also SuezVivendi v Argentina, para.140;
Total v Argentina, para.196. 140 Compare Total v Argentina, para.195; LG&E v Argentina, para.193; SD Myers v Canada, paras.284,
287. 141 RfA, p.5. 142 Tecmed v Mexico, para.115; LG&E v Argentina, para.193; see also SuezVivendi v Argentina, para.140;
Total v Argentina, para.196. 143 Compare Tecmed v Mexico, para.114; UNCTAD, Expropriation: A Sequel, p.57. 144 SD Myers v Canada, para.285. 145 SD Myers v Canada, paras.287, 288.
137
138
139
140
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In the present case, the time between the issuance of the sanctions on 1 May 2014 and today
is only twenty-eight months. By their nature, sanctions are only temporary. The very objective
of sanctions is to exert pressure so that a state changes its behaviour.146 As soon as this
objective is reached, sanctions will be lifted. The Executive Order is directed against the
“actions and policies of the Government of Euroasia”.147 There is no indication that the
sanctions would be left in place after the Fairyland incident is resolved.
What is more, Claimant himself could at any time cut ties with the aggressor Euroasia and
bring himself outside the scope of the sanctions. As the sanctions are carefully drafted to only
target persons that support Euroasia’s military readiness,148 Claimant’s new weapons supply
contract is the only reason for him to be targeted. Were Claimant to break with the aggressor,
he could use the available reconsideration proceedings149 to have the applicability of the
sanctions reassessed.
In sum, the effect of the sanctions does not meet the severity and duration requirements to
find state action “tantamount” to direct expropriation. Consequently, Respondent did not
indirectly expropriate Claimant’s business and did not violate Article 4 Euroasia BIT.
2 The sanctions were a legitimate exercise of Respondent’s police powers which
does not give rise to compensation
Even if the sanctions met the threshold requirements, they are still a non-compensable
exercise of Respondent’s police powers. Investment tribunals as well as scholarly opinions
are in accord that states can take measures which deprive an investor of the investment but do
not call for compensation.150 These measures are not an expropriation because they are an
exercise of a sovereign state’s inherent right to regulate.151 Limiting a state’s regulatory power
would have an unjustifiable chilling effect on vital state functions.152 Controversy only arises
in borderline cases where a demarcation line between such (non-compensable) “police
powers” and compensable expropriation must be drawn.153
146 Malek, Nonviolent Sanctions and Incentives. 147 ExC2, p.52, Preamble. 148 ExC2, p.52, Section 1(a)(1). 149 PO3, para.10. 150 UNCTAD, Expropriation: A Sequel, p.78; Dolzer/Schreuer, Principles of International Investment Law,
p.109; Methanex v USA, Part IV Chapter D para.7; Saluka v Czech Republic, para.255; Chemtura v
Canada, para.266; Feldman v Mexico, para.103. 151 Kriebaum, Regulatory Takings, p.721. 152 Compare Kriebaum, Regulatory Takings, p.721; Waelde/Kolo, Environmental Regulation, p.839. 153 UNCTAD, Expropriation: A Sequel, pp.78 et seqq.
141
142
143
144
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Sanctions, however, are not a borderline case but fall squarely within a state’s regulatory
freedom. This explains why there is not a single award – to Respondent’s knowledge – where
a state’s right to introduce sanctions was in question or where an investor was granted
compensation for being negatively affected by sanctions.
Such absence of precedent speaks volumes, considering the frequent occurrence of sanctions.
Today, the USA and the EU alone have sanctions in place against 44 different countries.
These modern sanctions are mostly “targeted sanctions” against persons and their property
who support and have ties to the government of the sanctioned country.154 Very recently, on
19 December 2014, the USA introduced sanctions due to the Crimea crisis that are virtually
identical to the sanctions introduced by Respondent.155 Even in the context of the Fairyland
incident, other states besides Oceania have introduced sanctions similar to Respondent’s
Executive Order.156
The legal reason for such “weight of authority by absence” is that sanctions fall within states’
non-compensable police powers (2.1). As a second and precautionary step, Respondent
anticipates that with regard to the public purpose, Claimant may raise concerns about
proportionality. However, the sanctions were proportionate to the public purpose of concern
in this case (2.2).
2.1 Economic sanctions are non-compensable measures in the sense of the police
powers doctrine
Respondent’s sanctions are non-compensable measures under the police power doctrine.
Police powers are defined as regulatory measures, enacted non-discriminatorily, with due
process and for a public purpose.157 The sanctions are contained in the Executive Order and
that Order was enacted non-discriminatorily and with due process.
154 See only the extensive consolidated lists of sanctioned persons of the US
(https://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx), the EU
(https://data.europa.eu/euodp/en/data/dataset/consolidated-list-of-persons-groups-and-entities-subject-to-
eu-financial-sanctions/resource/1e1022c4-8a0e-4b2e-ace4-7beb8208ba5c), Australia
(http://dfat.gov.au/international-relations/security/sanctions/Pages/consolidated-list.aspx). 155 Executive Order 13685 of 19 December 2014. 156 PO3, para.11. 157 See only Methanex v USA, Part IV Chapter D para.7; Saluka v Czech Republic, para.255; Chemtura v
Canada, para.266.
145
146
147
148
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The Executive Order also qualifies as a “regulatory measure”. Regulatory measures in the
sense of police powers are general measures that relate to vital aspects of state sovereignty.158
Respondent submits that the ability of a state to introduce sanctions belongs to a core domain
of state sovereignty. Sanctions are a key element of foreign policy. And as made clear by the
ICJ in the famous case of Nicaragua v USA, foreign policy is an important aspect of state
sovereignty.159
Characterising sanctions as compensable measures would lead to a chilling effect on states’
foreign policy. First, paying compensation to sanctioned individuals would in most cases
defeat the very purpose of the sanction. It makes little sense to freeze all bank accounts of a
targeted individual in order to cut off his or her support to the targeted country and then, in a
second step, pay compensation in the amount of the assets frozen. There would be no
pressure, if the loss were instantly to be compensated for.
Moreover, the mere prospect of having to pay millions in compensation for targeted sanctions
might discourage states from introducing sanctions in the first place. In order for sanctions to
be effective in changing another state’s behaviour, their monetary volume can and must be
significant. Thus, if states were exposed to investor claims for imposing sanctions, this might
very well have a chilling effect on the international sanctions regime. Such a chilling effect
could be devastating for the international community, since sanctions are an important tool for
international peace-keeping.160
For these reasons, Respondent’s sanctions, as an exercise of police powers, cannot be an
expropriation and do not trigger liability.
2.2 The sanctions do not fail against a proportionality requirement
In the interest of fully elaborating the police powers doctrine, the Tribunal may consider that
the Tecmed v Mexico tribunal identified a “proportionality requirement” that would limit the
acceptable scope of state regulation.161 Respondent submits that this Tribunal should not
consider the Tecmed decision persuasive authority because it is legally flawed. In any event,
Claimant cannot rely on that putative limitation in this case.
158 Mann, The Right of States to Regulate and International Investment Law, p.5. 159 Nicaragua v USA, para.205. 160 Council of the European Union, Factsheet EU restrictive measures, p.1. 161 Tecmed v Mexico, para.151.
149
150
151
152
153
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It is critical to note that the Tecmed tribunal identified a proportionality requirement without
any textual basis in the BIT. Also, the tribunal neither cited general principles of investment
law, nor did it cite to previous investment tribunals or other experts in the field.162 The only
legal authority cited is the European Court of Human Rights163 – an adjudicative body
deciding on a different set of rules in a different context. It comes as little surprise that “most
tribunals thus far have declined to follow the approach adopted by Tecmed”.164 Likewise,
scholars have expressed serious concerns regarding such methodology.165
For these reasons, the Tribunal should not follow the Tecmed decision.
But even if the Tribunal were to take a proportionality test into consideration, the Executive
Order was proportionate to the public interest it pursued. Claimant may argue that the aim of
the sanctions (to prevent weapons supplies to Euroasia) could have been achieved with less
intense measures, e.g. with an export ban to Euroasia instead of the freezing of Claimant’s
assets.
However, an export ban to Euroasia would not have been as effective as the comprehensive
sanctions Respondent introduced. An export ban targeting Euroasia could have been easily
circumvented by delivery through a third country. A more comprehensive ban to generally
forbid weapons exports could still have been circumvented by smugglers.
Respondent aimed to close the floodgates and prevent further Euroasian aggression. Any
conceivable measure less comprehensive than the one taken would not have sufficed in this
particular case. The sanctions were therefore proportional.
In summary, Respondent’s proportionate measures are covered by the police power doctrine
and thus do not give rise to a claim for compensation.
162 Tecmed v Mexico, paras. 118-151. 163 Tecmed v Mexico, para.122 with footnotes 140 and 141. 164 Vandevelde, Bilateral Investment Treaties, p.296. 165 Ranjan, pp.867 et seqq.; Henckels, Indirect Expropriation and the Right to Regulate, p.233.
154
155
156
157
158
159
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3 In any event, Respondent is excused by Article 10 Euroasia BIT
In any event, Respondent was justified in introducing the sanctions on the basis of Article 10
Euroasia BIT. This article contains the BIT’s non-precluded measures clause and provides
that:
“Nothing in this Agreement shall be construed to prevent either Contracting
Party from taking measures to fulfil its obligations with respect to the
maintenance of international peace or security.”
Respondent issued the Executive Order to fulfil its international obligations with respect to
the maintenance of international peace and security.
Claimant may point to the fact that the UN could not agree on a resolution regarding the
Fairyland incident.166 However, Respondent had an obligation within the meaning of
Article 10 Euroasia BIT under the law of state responsibility. Such obligation arises
independently from a resolution by the UN.167
The Articles on State Responsibility, which are widely accepted as a codification of
customary international law,168 contain the relevant rule. Article 41 of the Articles on State
Responsibility explains the obligations that states have when another state commits a “serious
breach of a peremptory norm”.169
Euroasia committed a serious breach of a peremptory norm. As explained above when
discussing Claimant’s nationality (para. 25), the prohibition of use of force is a peremptory
norm.170 A breach is furthermore “serious” – as defined by Article 40(2) – if it is a
“systematic” breach, which means that the violation has “to be carried out in an organized
and deliberate way”.171 Here, Euroasia invaded Eastasia in an organised manner and
deliberately violated its territorial integrity by sending troops into the territory.
166 PO2, para.3. 167 Talmon, The Duty Not to ‘Recognize as Lawful’, p.121. 168 Crawford, State Responsibility, para.31; Llamzon, Corruption in International Investment Arbitration,
para.10.12; Hobér in The Oxford Handbook on International Investment Law, p.550. 169 Articles on State Responsibility, Article 40. 170 See only Nicaragua v USA, para.190; Crawford, The Creation of States in International Law, p. 146;
Pomson/Horowitz, Humanitarian Intervention and the Clean Hands Doctrine in International Law, p.224. 171 Commentary on Draft Articles on State Responsibility, Article 40, para.8.
160
161
162
163
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Article 41 of the Articles on State Responsibility was thus triggered. In its paragraph 2 it
states:
“No State shall recognize as lawful a situation created by a serious breach within
the meaning of article 40, nor render aid or assistance in maintaining that
situation.”172
Weapons from Oceanian territory would to this day continue to fuel the dispute in Fairyland,
had Oceania not introduced the Executive Order. The contract between Claimant and the
Euroasian Ministry of Defence was aimed at the supply of weapons for the Euroasian army
for another six years.173 These weapons would be delivered to Euroasian troops annexing
Fairyland. Allowing such weapons to be exported from its territory to the aggressor Euroasia
would mean to “render aid or assistance in maintaining a situation created by a serious
breach”. Introducing the Executive Order was consequently in fulfilment of Respondent’s
obligation not to render aid to the aggressor.
Thus, Respondent is in any event exempt from liability under Article 10 Euroasia BIT.
In summary, the Executive Order issued by Respondent did not expropriate Claimant because
the threshold for expropriation was not met. If the Tribunal were to disagree on this point, the
Executive Order could still not be classified as an expropriation because it was a legitimate
exercise of Respondent’s police powers. In any event, the Executive Order is justified under
Article 10 Euroasia BIT, because Respondent was under an obligation not to render assistance
to Euroasia.
F Claimant contributed to the damages he suffered
Even if the Tribunal finds that Respondent expropriated Claimant, Respondent is not liable to
pay the full 120,000,000 USD which Claimant demands as damages. It was Claimant’s own
negligent conduct that made him a target of the sanctions.
The doctrine of “contributory negligence” is part of the law on state responsibility and is
codified in Article 39 of the Articles on State Responsibility.
172 Emphasis added. 173 Uncontested Facts, para.15.
164
165
166
167
168
169
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The article states:
“In the determination of reparation, account shall be taken of the contribution to
the injury by willful or negligent action or omission of the injured State or any
person or entity in relation to whom reparation is sought.”174
It is uncontroverted that this rule applies to investor claims for compensation against the
state.175 Consequently, the Tribunal should consider whether Claimant contributed to his
damages by a wilful or negligent action. Respondent submits that Claimant acted negligently
when he concluded a second weapons supply contract with Euroasia one day before
Euroasia’s aggression against Fairyland (1). This negligent conduct caused Claimant’s
damage (2).
1 Concluding the new weapons supply contract was negligent
Claimant negligently made himself a target of the Executive Order by concluding the second
weapons supply contract in February 2014.
Negligence is defined as behaviour “which manifest[s] a lack of due care on the part of the
victim of the breach for his or her own property or rights”.176 In this case Claimant entered
into the contract despite it being public knowledge that Euroasia would most likely invade
Fairyland in clear violation of Eastasia’s territorial integrity. It was reasonably foreseeable
that Oceania would adopt countermeasures to try and prevent an escalation in the region. A
reasonable arms producer would consequently have refrained from such a contract in “due
care […] for his or her own property and rights”.
Public knowledge of Euroasia’s invasion plans is evidenced by various factors:
First, Euroasia had long advocated for Fairyland’s right to self-determination.177 Second, the
Fairyland referendum held on 1 November 2013 specifically posed the question of “re-
unification” with Euroasia.178 After the unlawful referendum in Fairyland there was an
official letter by Fairyland to Euroasia asking for intervention, sent on 23 January 2014.179
174 Emphasis added. 175 Occidental v Ecuador, para.678; Yukos v Russia, para.1633; MTD v Chile, para.178; Gemplus and
Talsud v Mexico, para.11.12. 176 Commentary on Draft Articles on State Responsibility, Article 39, para.5. 177 PO2, para.3. 178 Uncontested Facts, para.14. 179 Uncontested Facts, para.14; PO2, para.3.
170
171
172
173
174
175
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Third,
“the deliberations of the Euroasian Parliament on the Government’s proposal to
intervene included discussion of the Fairyland letter of 23 January 2014
requesting Euroasia’s assistance and were broadcast on Euroasian public
television.”180
It was therefore public knowledge that Euroasia was well positioned to use armed force
against Eastasia. This information alone would warrant a finding that Claimant was negligent
to continue selling arms to Euroasia.
Claimant, however, even had special ties to the Euroasian military. It is uncontested that
Claimant was a close personal friend of John Defenceless, the Euroasian Minister of
Defence.181 It is further uncontested that Peter Explosive met with John Defenceless in
February to negotiate the new weapons supply contract. In fact, only one day after the
contract was concluded on 28 February 2014, Euroasia invaded Fairyland.182
It can reasonably be assumed from this timeline that Claimant knew that Euroasia was poised
to invade Eastasia. A reasonable investor in his position should have foreseen an international
condemnation of the invasion including restrictive measures in response to the aggression.
Under these specific circumstances, it was negligent to negotiate and enter into the weapons
supply contract of February 2014.
2 The negligence contributed to Claimant’s damage
Claimant’s negligence is the sole reason why he became a target of the sanctions. The
Tribunal should note that the order was carefully drafted to only target persons who supported
Euroasian military readiness. It only applies to “persons operating in such sectors of the
Euroasian economy such as [list of sectors closely related to military readiness]”.183 The list
includes “defence, in particular arms production”.184
Thus, Claimant was not affected by the sanctions merely because he was an arms producer.
He was affected because he was an arms producer “operating in the Euroasian economy”.
Claimant was “operating in the Euroasian economy” solely because of the newly formed
weapons supply contract. There was no other link; the old supply contract expired in January
180 PO2, para.3, emphasis added. 181 Uncontested Facts, para.8. 182 Uncontested Facts, paras.15, 14; PO2, para.4. 183 ExC2, p.52, Section 1(a)(i), emphasis added. 184 ExC2, p.52, Section 1(a)(i), emphasis added.
176
177
178
179
180
181
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2014 (prior to the Executive Order of 1 May 2014). Therefore, it was Claimant’s new contract
– Claimant’s negligent conduct – that made him a target of the sanctions.
Due to the fact that Claimant would not have been targeted had he not acted negligently,
Respondent submits that the proportion of contribution be assessed at 100%. If the Tribunal
were to disagree on this point then, at the very least, the value of the negligently concluded
weapons supply contract must be deducted from Claimant’s loss.
To sum up, even if the Tribunal were to find that Claimant is in principle entitled to damages,
Claimant’s award should be reduced by the percentage of his own contribution. This
contribution is in fact 100% and should therefore lead to the rejection of Claimant’s claim. In
any event, the damage claim should be reduced by the value of the most recent weapons
supply contract with Euroasia.
182
183
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G Request for Relief
For the reasons set out above, Respondent respectfully requests that the Tribunal
(1) find that it does not have jurisdiction because
(a) Claimant is not an investor pursuant to Article 1(2) Euroasia BIT;
(b) Claimant was required to comply with the pre-arbitral steps as provided in
Article 9 Euroasia BIT prior to bringing his claims before this Tribunal and
failed to do so; and
(c) Claimant may not invoke Article 8 Eastasia pursuant to Article 3 Euroasia
BIT.
(2) find that
(a) Claimant did not make a protected investment;
(b) Respondent is not liable to pay compensation for an expropriation; and
(c) Claimant contributed to the damages his investment suffered.
Respectfully submitted on 26 September 2016
/s/
Team Mbaye