Best Memo Nlsiam 2012 Nlujc

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Team 129C

5THNATIONAL LAW SCHOOL INTERNATIONAL ARBITRATION MOOT COURT COMPETITION,2012

IN THE MATTER OF AN ARBITRATION AT,SOMALI CITY,DEMOCRATIC REPUBLIC OF CALONA

UNDER THE CALONA-NOLANIA BILATERAL INVESTMENT TREATY

Wayne Electronics.........................................................................................................Claimant

v.

Democratic Republic of Calona........................................................Respondent

(Arb/Cas/12/35)

MEMORANDUM forCLAIMANT


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TABLE OF CONTENTS

Table of Abbreviations .................................................................................................................... I

Index of Authorities ...................................................................................................................... IV

Statement of Jurisdiction............................................................................................................... XI

Statement of Facts ........................................................................................................................ XII

Questions Presented ..................................................................................................................... XV

Summary of Pleadings ............................................................................................................... XVI

Arguments Advanced...................................................................................................................... 1

I. The tribunal has jurisdiction over all the claims brought before it. .................................... 1

A. Claimants undertaking amounts to an investment. ........................................................ 1

1. The investment by the Claimant is a foreign investment in the Respondent State. .. 1

2. The undertaking has the characteristics of an investment. ....................................... 2

B. An exclusive dispute resolution clause in the contract does not affect the Tribunals

jurisdiction. ............................................................................................................................. 3

1. The exclusive dispute resolution clause does not bar the Tribunals jurisdiction

under the BIT. ..................................................................................................................... 3

2. The Tribunal may consider contractual claims to determine a violation of the BIT. 3

C. Contractual breaches of the Respondent State give rise to a violation of the BIT. ........ 4

1. There is a prima facie case of a BIT violation for the purposes of establishing

jurisdiction. ......................................................................................................................... 4

2. Article X of the BIT allows contractual breaches to be treated as treaty breaches. . 5

3. The impugned acts violate the National Treatment requirement. ............................. 6

4. The impugned acts violate the requirement for fair and equitable treatment. .......... 7

a. The Government of Calona did not maintain stability in the legal order. ............. 7

b. The Government of Calona did not comply with the contractual obligations. ..... 8


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c. The Government did not observe due process in its actions. ................................ 8

d. The Government did not adhere to the principle of good faith. ............................ 9

5. The impugned acts violate the requirement for full protection and security. ......... 10

D. The jurisdiction of the Tribunal does not get affected even if there is a multi-tier

arbitration clause. .................................................................................................................. 10

E. The Tribunal has jurisdiction even if the contract is tainted with corruption. .............. 11

I. The actions of the government of Calona including the seizure of Wayne Calonas assets,

were a violation of the BIT. ...................................................................................................... 12

A. The actions of the Government of Calona amount to expropriation. ........................... 12

1. There has been expropriation of Wayne Calonas assets........................................ 12

2. Avoidance of contract can lead to expropriation of contractual rights. .................. 12

3. The investors property has been indirectly expropriated....................................... 13

a. The measures are so severe in light of their purpose that they cannot be

reasonably viewed as having been adopted and applied in good faith. ........................ 14

b. The measure of the government was discriminatory. ......................................... 16

B. The expropriation by the Government of Calona is illegal. .......................................... 17

1. There was no payment of compensation. ................................................................ 18

2. Due process was not observed. ............................................................................... 18

II. The Respondent is not entitled to avoid the contract. ....................................................... 20

A. Respondent cannot avoid the contract on the ground of defect in alternatives provided,

as the same were in compliance of the contractual terms. .................................................... 20

1. Variation to the terms of the original Contract was mutually agreed. .................... 20

2. The doctrine of substantial performance is applicable. .......................................... 21

3. The all best endeavours obligation has been fulfilled by the Claimant. .............. 21

4. A breach of a warranty does not give rise to a right of avoidance.......................... 22

B. Claimant is not liable for the late delivery of the original consignment. ...................... 23


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1. Late delivery of the original consignment was beyond Claimants control. .......... 23

2. Mere representation does not bind Claimant for misrepresentation. ...................... 24

C. Arguendo, the contract could not be avoided fully. ...................................................... 24

1. The contract cannot be fully avoided as it is divisible in nature. ............................ 24

2. The contract cannot be avoided fully as partial performance was accepted by the

Respondent. ....................................................................................................................... 25

D. The act of the Respondent was not in good faith with respect to Claimants

Performance. ......................................................................................................................... 25

1. Respondent did not act in good faith. ..................................................................... 26

2. Evidence can be obtained from another private arbitration to prove the intention ofthe Respondent. ................................................................................................................. 26

E. Corruption cannot invalidate the contract and give rise to a right of avoidance. ......... 27

1. The Respondent cannot rely on the corrupt acts of its officials to escape

responsibility. .................................................................................................................... 27

2. The Corruption charges were mere allegations. ..................................................... 28

3. Allowing avoidance based on corruption would be against the spirit of the BIT... 28

Prayer for Relief ............................................................................................................................ 29


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[I]

TABLE OF ABBREVIATIONS

/ - Paragraph

A.C./App. Cas.Appealed Cases

A.L.R.- American Law Reporter

APP.L.R- Arbitration, Practice & Procedure Law Reports

AIR- All India Reporter

All E.R.- All England Law Reports

AM. J. Comp. L.- American Journal of Comparative Law

ARB- Arbitration

AJIL- American Journal of International Law

BCLC- Butterworths Company Law Cases

BIT- Bilateral Investment Treaty

BYIL-British Yearbook of International Law

C.A.- Court of Appeals

C.L.R.- Commonwealth Law Reports

Cal- Calcutta

Ch.- Chancery

CISG- Convention on International Sale of Goods

Co.- Company

Comm.- Commercial

Corp.- Corporation


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[II]

D.Del.- District of Delaware

E.R.- England Reports

ECR- European Court Reports

ed.,- Edition

EHRR- European Human Rights Reports

EWCA- England and Wales Court of Appeal

EWHC- England and Wales High Court

F.R.D.- Federal Rules Decisions

FILJ- Fordham International Law Journal

H.BI.- Henry Blackstone's Common Pleas Reports

I.L.M.- International Legal Materials

I.L.R.- International Law Reports

IBA- International Bar Association

ICJ- International Court of Justice

ICSID- International Centre for Settlement of Investment Disputes

ILM- International Legal Materials

Iran- U.S. C.T.R.- Iran- United States Claims Tribunal Reports

J Intl Arb- Journal of International Arbitration

KB- Kings Bench

LJQB- Law Journal Queen's Bench

Ltd.- Limited


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[III]

M & W- Meeson & Welsby's Reports

NAFTA- North American Free Trade Agreement

No.- Number

OECD- Organization for Economic Cooperation and Development

P & CTProperty and Compensation Reports

p.- Page

PCIJ Rep- Permanent Court of International Justice Reports

pp.- Pages

Q.B.- Queens Bench

R.I.A.A- Reports of International Arbitral Awards

S.A.- South Africa.

Sd/- Signed

Tex. Intl L.J.- Texas International Law Journal

UNCITRAL- United Nations Commission on International Trade Law

UNCTAD- United Nations Conference on Trade and Development

UNIDROIT- Institut International Pour L'Unification du Droit Prive

v.- Versus

Vol.- Volume


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[IV]

INDEX OF AUTHORITIES

ICSID Cases

1. ADC Affiliate Ltd. v. Hungary, ICSID (W. Bank) Case No.ARB/03/16, Award, October2, 2006................................................................................................................................. 6

2. AES Corp. v.Argentina, 12 ICSID Reports 312, Decision on Jurisdiction, 26 April 2005............................................................................................................................................ 10

3. Asian Agricultural Products Ltd. v. Republic of Sri Lanka, 30 I.L.M. 577 (1991). ......... 104. Azurix Corp. v. Argentine Republic, 43 I.L.M. 262 (2004) ................................................ 35. Bayindir v. Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction, 14

November 2005 ................................................................................................................... 4

6. Biloune v. Ghana, (1993) 95 I.L.R. 183, 207 ................................................................... 127. Ceskoslovenska Obchodni Banka, S.A. v.The Slovak Republic (CSOB), 14 ICSID

Review- FILJ (1999), .......................................................................................................... 2

8. CMS Gas Transmission Company v. Argentine Republic, 42 I.L.M. 788 (2003) .............. 49. Compania de Aguas del Aconquija S.A. and CompagnieGenerale des Eaux v. Argentine

Republic, 41 I.L.M. 1135 (2002) ........................................................................................ 3

10.Compaiadel Desarrollo de Santa Elena, S.A. v. Costa Rica, ICSID Case No. ARB/96/1,Award, 17 February 2000 ................................................................................................. 18

11.Emilio Agustn Maffezini v. Kingdom of Spain, 16 ICSID Rev.FILJ 212 (2001), .......... 412.Enron v. Argentina, 11 ICSID Reports 273, 14 January 2004 ........................................... 213.Eureko B.V. v. Republic of Poland, 12 ICSID Reports 335, 19 August 2005. ................... 714.Fedax N.V. (Netherlands Antilles) v. Republic of Venezuela (Fedax), 37 I.L.M. (1998)

1378,.................................................................................................................................... 2

15.Feldman v. Mexico, 18 ICSID Review-FILJ (2003) 488, Award, 16 December 2002 ...... 516.Feldman v. United Mexican States, ICSID, 42 I.L.M. 625 (2003); .................................. 1817.GAMI v. Mexico, 44 I.L.M. 545 (2005), ............................................................................. 718.Genin v. Estonia, 17 ICSID Review FILJ (2002) 395, Award, 25 June 2001. ................... 919.Goetz and Others v. Republic of Burundi, ICSID Case No. ARB/95/3, Decision on

Liability, 2 September 1998 .............................................................................................. 16

20.Impreglio v. Pakistan, 12 ICSID Reports 245, Decision on Jurisdiction, 22 April 2005. .. 8


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21.Lauder v. Czech Republic, 9 ICSID Report 66, Award, 3 September 2001 ..................... 1022.LG & E Energy Corp and ors v. Argentina, (2007) 46 I.L.M. 3. ....................................... 723.Loewen v. United States, 42 I.L.M. 811 (2003), ................................................................. 824.Metalclad v. United Mexican States, 40 I.L.M. 36 (2001). .............................................. 1325.Methanex v. United States, 44 I.L.M. 1345 (2002)............................................................. 426.Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt, ICSID

Case No. ARB/99/6, Award, 12 April 2002. .................................................................... 15

27.MTD Equity SdnBhd and MTD Chile SA v. Republic of Chile, 44 I.L.M. 91 (2005), ........ 828.Noble Ventures v. Romania, ICSID Case No.ARB/01/11,Award, 12 October 2005 ........ 829.Pope & Talbot, Inc v. Canada, 40 I.L.M. 258 (2000) ........................................................ 630.Salini Construttori S.p.A. and ItalstradeS.p.A. v. Kingdom of Morocco, 42 I.L.M. 609

(2003) .................................................................................................................................. 2

31.Seimens v. Argentina, ICSID Case No. ARB/02/8, Decision on Jurisdiction, August 3,2004..................................................................................................................................... 7

32.SGS SocitGnrale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Rev.FILJ 301 (2003), ................................................................................................................. 4

33.SGS v. Philippines, 8 ICSID Reports (2005) 518, Decision on Jurisdiction, 29 January2004..................................................................................................................................... 5

34.Siemens A.G. v. Argentina, ICSID Case No.ARB/02/08, Award, 6 February 2007, ....... 1235.TECMED S.A. v. Mexico, (2003) 43 I.L.M. 133................................................................. 736.Tradex v. Albania, 5 ICSID Reports 70, Award, 29 April 1999......................................... 137.UPS v. Canada, UNCITRAL Arbitration Proceedings (NAFTA)Award , 24 May 2007 . 638.Waste Mgmt., Inc. v. Mexico, 43 I.L.M. 967 (2004) ........................................................... 939.Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No.ARB(AF)/98/4, Award,

8 December 2000. ............................................................................................................. 15

40.World Duty Free Company Limited v. the Republic of Kenya, ICSID Case No.ARB/00/7, Award, 4 October 2006. ................................................................................. 11

Court Cases

1. Baltic Shipping Co. v. Dhillon, (1993) 176 C.L.R. 344 .................................................... 242. Behn v. Burness, (1863) 32 LJQB 204. ............................................................................ 22


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[VI]

3. Boone v. Eyre, (1779) 1 H.Bl. 273 .................................................................................... 204. Broom v. Davis, (1794) 7 East 480 ................................................................................... 205. Carter v. Boehm, (1766) 97 ER 1162. .............................................................................. 256. Chanter v. Hopkins (1838) 4 M & W 399 ........................................................................ 227. Dick Bentley Productions v. Harold Smith Motors, (1965) 2 All ER 65......................... 238. Emmottv.Michael Wilson and Partners,(2008) EWCA (Civ) 184 (C.A.). ..................... 269. Esso Australia Resources v. Plowman, 128 A.L.R. 391 (1995). ...................................... 2610.Harling v. Eddy, (1951) 2 KB 739 .................................................................................... 2311.Hauer v. Land Rheinland-Pfalz, [1979] E.C.R 2749 ,Case no. 44/79, 13 December 1979.

........................................................................................................................................... 15

12.Heilbut, Symons and Co. v.Buckleton , (1913) A.C. 30. ................................................. 2313.James v. United Kingdom, (1986) 8 E.H.R.R. 123. .......................................................... 1714.Juggilal Kamlapat v. NV International Credit-En-Handels, Vereeldging Rotterdam,

AIR 1955 Cal 65. .............................................................................................................. 20

15.Oscar Chess v. William, (1957) 1 All ER 325 .................................................................. 2316.Pips (Leisure Production) Ltd. v. Walton, [1980] 43 P & CR 415. .................................. 2117.Press Compania Naviera S.A. & Others v. Belgium, (1997) 21 E.H.R.R. 301. ............... 1518.Rackham v. Peek Foods Limited, (1990) BCLC 895. ....................................................... 2119.Rhodia International Holdings Limitedv. Huntsman International LLC, (2007) EWHC

292 (Comm). ..................................................................................................................... 21

20.Scarf v. Jardine, (1882) 7 App Cas 345, 351.................................................................... 1921.Sim v. Rotherham Metropolitan Borough Council, (1987) Ch. 216 ................................. 2022.Steele v. Tardiani, (1946) 72 C.L.R. 386. ......................................................................... 2423.Sumpter v. Hedges, (1898) 1 QB 673. .............................................................................. 2424.United States v.Panhandle Eastern Corp., 118 F.R.D. 346 (D.Del.1998). ...................... 2625.Wallis, Son and Wells v. Pratt and Hyanes (1910) 2 K.B. 1003 ...................................... 22

Other Tribunals

1. American Bell Intl, Inc. v. Iran, 12 Iran- U.S. C.T.R. 170, 19 September 1986. ............ 122. Amoco Intl Finance Corp v. Iran,16 Iran - U.S. C.T.R. 3, 24, 14 July 1987. ................. 123. British Petroleum v. Libya, (1979) 53 ILR 297. ................................................................ 8


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[VII]

4. British Petroleum v. Libya, (1979) 53 ILR 297. ............................................................... 195. de Sabla Claim (US v. Panama), (1933) 6 RIAA 358. ..................................................... 186. Greek Government v. VulkanWerke, (1925) 3 I.L.R. 402................................................... 37. Himpurna California Energy Limited (Bermuda) v. PT. (Persero) Perusahaan Listruik

Negara, Final Award, 4 May 1999, (2000) XXV Yearbook of Commercial Arbitration. 27

8. Jalapa Jailroad and power Co, American- Mexican Claims Commission, 1948, 8Whiteman, Digest of International Law 908 (1976). ........................................................ 12

9. Libyan American Oil Company (LIAMCO) v. The Libyan Arab Republic, (1982) 62 I.L.R.14....................................................................................................................................... 12

10.Metalclad Corp. v. United Mexican States, 40 I.L.M. 36 (2001) ..................................... 1811.Mobil Oil v. Iran, 16 Iran- U.S. C.T.R. 3, July 14, I987................................................... 1212.Neer v. Mexico, 4 R.I.A.A 60, (1926). ................................................................................ 913.Phelps Dodge Corp. and Overseas Private Investment Corp. and Iran, 10 Iran U.S.

C.T.R. 157, 19 March 1986 .............................................................................................. 15

14.Phillips Petroleum Co. Iran v. Iran, 21 Iran- U.S. C.T.R. 79, 29 June 1989 ................... 1215.Pope & Talbot, Inc. (U.S.) v. Canada, 40 I.L.M. 258 (2000). .......................................... 1816.S.D. Myers, Inc. v. Canada, 40 I.L.M. 1408 (2000) ...................................................... 1517.Sea-Land Service Inc. v. Iran, 6 Iran U.S. C.T.R.149, Award, 20 June 1984; ................. 1818.Sedco, Inc. v. Natl Ir. Oil Co., 10 Iran- U.S. C.T.R. 180, 1986....................................... 1819.ShufedltClaim (U.S. v. Guatemala), (1930) 2 R.I.A.A. 1079 .......................................... 1220.Singer Sewing Machine Company Arbitration (United States v. Turkey), (1929) 4

R.I.A.A. 47. ....................................................................................................................... 13

21.Tippetts v. TAMS-AFFA Consulting Engineers of Iran, 6 Iran-U.S. C.T.R. 219, 29 June1984................................................................................................................................... 14

22.UPS v. Canada, UNCITRAL Arbitration Proceedings (NAFTA)Award, 24 May 2007 .. 423.Westacre Investments Inc v. Jugoimport SPDR Holding Co Ltd, [1999] APP.L.R. 05/12.

........................................................................................................................................... 11


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[VIII]

Articles/Reports

1. A Parra, Provisions on the Settlement of Investment Disputes in Modern InvestmentLaws, Bilateral Investment Treaties and Multilateral Instruments on Investment, (1997)

12ICSID RevFILJ287...................................................................................................... 5

2. A.F.M. Maniruzzaman, Expropriation of Alien Property and the Principle of Non-Discrimination in International Law of Foreign Investment: An Overview, 8 J.

Transnational Law & Policy, 57-59, 67-70. ..................................................................... 17

3. Charles S. Baldwin, Protecting Confidential and Proprietary Commercial Information inInternational Arbitration, 31 Tex. Intl L.J. 451,456 n.21 (1996). ................................... 26

4. Christoph H. Schreuer, Unjustified Enrichment in International law, 22AM. J. Comp. L.281, 1974........................................................................................................................... 18

5. F. V. Garcia Amador, Special Rapporteur Report, International Law Commission (1959)............................................................................................................................................ 16

6. FA Mann, British Treaties for the Promotion and Protection of Investments, (1981) 52BYIL 241, 245-6. ................................................................................................................. 5

7. G. C. Christie, What Constitute a Taking of Property under International Law?, BYIL,Vol. 38, 1962..................................................................................................................... 13

8. Glanville Williams, Partial Performance of the Entire Contracts, (1941) 57 LawQuarterly Review 373. ...................................................................................................... 20

9. J Karl, The Promotion and Protection of German Investment Abroad, (1996) 11 ICSIDRevFILJ1, 23. ................................................................................................................... 5

10.M Nash Leich, Contemporary Practice of the United States relating to InternationalBilateral Investment Treaties, (1990) 84AJIL 895, 898. .................................................. 5

11.Marc Blessing, State Arbitrations: Predictably Unpredictable Solutions? presentation at8th IBA International Arbitration Day Geneva, 18 March 2005, 22 J Intl Arb 435 (2005).

........................................................................................................................................... 2712.Marc Jacob, International Investment Agreements and Human Rights, INEF Research

Paper Series Human Rights, Corporate Responsibility And Sustainable Development

03/2010. .............................................................................................................................. 6


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13.Raeschke Kessler, Corruption in Foreign Investment Contracts and Dispute Settlementbetween Investors, States and Agents, Journal of World Investment and Trade, Vol. 9,

No.1 ................................................................................................................................... 28

14.Thomas Wlde & Kaj Hobr, The First Energy Charter Treaty Arbitral Award, Journalof International Arbitration, Vol. 22, 2005, p. 97. ........................................................... 13

Books

1. A. Reinisch, Legality of Expropriations, in A. Reinisch (ed. by), Standards ofInvestment Protection, Oxfrod, Oxford University Press, 2008 ....................................... 18

2. Alexander Jollies, Consequences of Multi-Tier Arbitration Clauses : Issues ofEnforcement, Reprinted from (2006) 72 Arbitration 329338 Sweet & Maxwell Limited.

........................................................................................................................................... 103. B. H. Weston, Community Regulation of Foreign-Wealth Deprivations: A Tentative

Framework for Inquiry, in R. S. Miller and R. J. Stanger (eds. by), Essays on

Expropriation, Ohio State University Press, 1967,........................................................... 17

4. Beatson and Friedmann, Good Faith and Fault in Contract Law, Clarendon Press, 1995............................................................................................................................................ 25

5. Halsburys Law of England, Fourth Edition, Butterworths Lexis Nexis, London 2002. . 226. I Shihata, Applicable Law in International Arbitration: Specific Aspects in the Case of

the Involvement of State Parties, in The World Bank in a Changing World(1995) vol. II,

595, 601............................................................................................................................... 5

7. Ian Brownlie, Principles of Public International Law, 5th Edition., Oxford UniversityPress, 1998 ........................................................................................................................ 18

8. J.Beatson,Ansons Law of Contract, 28th edition, Oxford University Press, 2002. ......... 199. JF OConnor, Good Faith in International Law, Aldershot, Dartmouth, 1991 .................. 810.JoernRimke, Force Majeure and Hardship: Application in international trade practice

with specific regard to CISG and the UNDROIT principles of international commercial

contracts Pace review on the Convention on Contracts for International sale of goods,

Kluwer, 1999-2000, 197-243. ........................................................................................... 23


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11.Paul E Comeaux and N. Stephan Kinsella, Protecting Foreign Investment underInternational Law: Legal Aspects of Political Risk, Dobbs Ferry, New York, Oceana,

1997................................................................................................................................... 27

12.Peter Mulchinski, Fedrico Ortino&Christoph Shreuer, The Oxford Handbook ofInternational Investment Law, Oxford University Press, New York, 2008........................ 6

13.R Dolzer& M Stevens,Bilateral Investment Treaties, Martinus Nijhoff Publishers, 1995 514.Rudolf Dolzer, The Impact of International Investmenton Domestic Administrative Law,

International Law and Politics, Vol. 37:953, November 2006. ......................................... 7

ICJ Cases

1. Anglo Norwegian Fisheries Case (United Kingdom v. Norway), (1951) ICJ Reports 116 92. Case Concerning Electronica SiculaSpA (ELSI), (United States of America v. Italy),

(1987) ICJ Reports 3 ........................................................................................................... 9

3. Case Concerning the Temple of PreahVihear (Cambodia v. Thailand) 1962 I.C.J.6......... 84. German Interests in Polish Upper Silesia (Germany v. Poland), PCIJ Rep. Series A. No.

7, 25 May 1926. ................................................................................................................ 16

Miscellaneous

1. OECD, Draft Convention on the Protection of Foreign Property, 1967....182. UNCTAD, Bilateral Investment Treaties in the mid-1990s (Geneva, 1998) 54-6..53. OECD, Benchmark Definition for Foreign Direct Investment, 1999..4


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[XI]

STATEMENT OF JURISDICTION

Wayne Electronics, the Claimant in the instant case, has invoked the jurisdiction of this Tribunal

flowing from Article XIII of the Treaty Concerning the Encouragement and Reciprocal

Protection of Investment September 4, 1998 which states that:

Any dispute in connection with this agreement shall be resolved by arbitration as is appropriate

for such disputes, in accordance with the Arbitration Rules prescribed herein.

Claimant has the honour to submit this Statement of Claim pursuant to Article 18 of the

International Arbitration Rules under Article XIII of the Treaty Concerning the Encouragement

and Reciprocal Protection of Investment (September 4, 1998) between the Democratic Republic

of Calona and the Kingdom of Nolania


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[XII]

STATEMENT OF FACTS

I

Democratic Republic of Calona after independence opted to constitute itself as a socialist State.

Faced with economic crisis however, Calona became a free market economy and entered into

several Bilateral Investment Treaties, one with the neighbouring country of Nolania. The new

economic policy attracted, highly profitable but risky destination for their investments, the latter

being very substantial because of the systemic failures in the justice delivery mechanism in

Calonian Supreme Court where cases have a huge backlog.

II

In 1998, Calona and Nolania entered into a BIT to encourage investments between two states. In

2008, Calona won the bid to host the 15th edition of the Global Peace Games in 2011. In order to

improve its infrastructure before the Games, the Government of Calona entered into several

contracts with leading global companies. One such contract was with Wayne Electronics which

was one of the most prominent suppliers of generators in the region in addition to other

electronic equipments.

III

The contract was for the supply of 50 high-power generators and 25000 high-power capacitors

for use in the new floodlight system at the main stadium, Champs National Stadium where the

Games where to take place. Unfortunately, customized capacitors were not produced by Wayne

Enterprises or their subsidiary, Wayne Calona. The contract contained a clause permitting

Wayne Enterprises to procure goods from another sub-supplier in case of capacitors. The

contract between the two parties came into effect on January 1, 2010. Companies The

Government indicated that the Stadium had to be completed by the December 30, 2010 and

therefore, timely delivery of both parts of the consignment was essential, Stadium by the

authorities.

IV


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Wayne decided to procure the individual capacitors required from Star Technologies Pvt. Ltd., a

company incorporated in Nolania. The Communist Party of Calona however alleged that Wayne

Enterprises had given bribes to obtain the contract, a claim that died down due to lack of public

support. Wayne Enterprises completed the first delivery of 50 high-power generators to Calona

on June 30, 2010. Conversely though, two of the generators supplied by Wayne Electronics

proved insufficient, on testing, to handle the load of providing power to a section of the stadium.

After negotiations were held between both the parties and a settlement agreement was signed, it

was stipulated that Wayne Electronics would deliver two new generators as replacements on or

before July 25, 2010. The above replacement was done on July 22, 2010 and the replacements

tested successfully. Also a dispute resolution clause was added in the agreement if further

differences were to crop up.

V

On October 15, Star Technologies intimated Wayne Enterprises, about an expected delay of

around 20 days due to unavoidable manufacturing issues which was informed immediately to the

Ministry of Sports, Calona, However Wayne Enterprises did not receive any reply to this. The

Ministry of Sports, Calona by an email dated November 13, 2010, sought an update on the status

of delivery. To Waynes reminder of the earlier intimation regarding a delay in the delivery, the

Ministry of Sports reiterated the essentiality of timely delivery and asked Wayne to find suitable

alternatives. Wayne provided the alternative option of standard capacitors generally used in

floodlights, that which did not adhere to the exact specifications of the contract, but which could

be manufactured by Waynes subsidiary in Calona and sent within 15 days. The same was

accepted by the Ministry of Sports as the capacitors would reach by early-December.

VI

Unfortunately, this arrangement proved to be a let-down for Wayne Electronics as on being

tested, there were substantial indications that the capacitors would be unable to handle the load

of the floodlights in the Stadium. The Ministry of Sports, frustrated by the abrupt change of

events, entered into talks to acquire low quality capacitors from a local manufacturer on

December 4, 2010 which were compliant with the requirement of the floodlights at the Champs

Stadium. Owing to a substantially huge effort, the stadium lighting was finally completed on


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December 30, 2010. This came as a jolt for Wayne Enterprises, as the required installation time

indicated to them was much longer. In order to take legal action, Ms. Sersee Lanning, the legal

counsel for the company, began flexing her resources to gain knowledge of all relevant

documents of the transaction

VII

One of Waynes subsidiaries, Nakamuka Lighting Solutions (NLS), was involved in providing

customized light bulbs to the Government of Calona, for the construction of the Champs

National Stadium. During the course of proceedings, on 15th November, 2010, between the

Government and NLS, the former permitted NLS to deliver late, as it did not expect the delivery

of the capacitors by Wayne Enterprises on the expected date of 28 th November, 2010. However

the government stated in reply that no such communication was made to Wayne Enterprises.

Subsequently the Government voiced their displeasure with regards to Waynes performance and

stated that the contract was terminated with immediate effect because of failure to deliver the

capacitors on time.

VIII

On 20th January, 2011, owing to the inability of Wayne to deliver the capacitors and linking it to

incompetence, CCP raised the issue of bribery again. Under public demands the Special

Prosecutor appointed by Calonas Special Bureau of Investigation (SBI), filed criminal charges

against Wayne Enterprises and its subsidiaries, under the Calonian Prevention of Corruption Act

(CPCA). The Special Prosecutor filed an application seeking an order for the freezing of

Wayne Calonas properties under the CPCA. The lower court granted the application, and the

SBI immediately seized all assets of Wayne Calona, including their factory and bank accounts,

valued approximately at $22 million and appeal against the order was dismissed by both Courts

of Appeal and the Supreme Court. Wayne Calona on 25 th January, 2011, issued a statement

condemning the actions of the Government. Owing to the seizure of its assets in Calona and the

refusal of the Government to pay the purchase price as per the contract, Wayne Enterprises has

approached this Arbitral Tribunal, validly constituted under the BIT.


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QUESTIONS PRESENTED

I. WHETHER THE TRIBUNAL HAS JURISDICTION OVER ALL THE CLAIMS BROUGHT BEFOREIT?

II. WHETHER THE ACTIONS OF THE GOVERNMENT OF CALONA INCLUDING THE SEIZUREOF WAYNE CALONAS ASSETS, WERE A VIOLATION OF THE CALONA-NOLANIA BIT?

III. WHETHER THE RESPONDENT IS ENTITLED TO AVOID THE CONTRACT?


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SUMMARY OF PLEADINGS

I. THE TRIBUNAL HAS JURISDICTION OVER ALL THE CLAIMS BROUGHT BEFORE IT.The Tribunal has complete jurisdiction over all the claims brought before it. There is an

investment on the part of the Claimant as under the BIT as it is foreign in origin and has the

characteristics of an investment as under the BIT and established arbitral practice.

An exclusive dispute resolution clause in the contract does not affect the Tribunals jurisdiction,

as it cannot operate as a bar to the application of a BIT. The Tribunals jurisdiction cannot be

subordinated by a clause in the contract. Furthermore, a Tribunal may consider issues based on

contractual performance to determine an allegation of whether there has been a violation of a

BIT.

Contractual breaches of the Respondent State give rise to a violation the BIT. There is a prima

facie case of BIT violation, which is sufficient for establishing the Tribunals jurisdiction. The

Respondent State failed to meet the standards of National Treatment as it accorded to its local

company differential treatment from that which it accorded to the Claimant. The acts also violate

the principles of fair and equitable treatment. In this regard, the government of Calona did not

maintain stability in its legal order. Although there were allegations of corruption from thebeginning the Claimant had the support of the Government in the beginning. However with

public support shifting the Government used unfair expropriation on grounds of criminal charges

as a tool. The Respondent State did not comply with contractual obligations and the reasons

adduced for the Governments failure to pay show that they acted in sovereign capacity and not

merely as an ordinary contracting party. The Government did not observe due process in its

actions as there was no fair and effective system of justice provided to the foreign investor. The

Respondent State also did not adhere to the principle of good faith based on local favouritism

and a lack of honesty and loyalty. The impugned acts violate the requirement of full protection

and security because the Government failed to provide adequate guarantee for all losses suffered

by the investor.


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Article X of the BIT allows contractual breaches to be treated as treaty breaches. It therefore has

the effect of an umbrella clause which makes it a breach of treaty, whenever there is a non-

compliance of contractual obligations by any of the parties.

The jurisdiction of the Tribunal does not get affected even if there is a Multi-Tier Arbitration

Clause between the parties. Such a clause cannot restrict the jurisdiction of a Tribunal constituted

under the BIT between the two nations.

The Tribunal has jurisdiction even if the contract is tainted with corruption because even if

expropriation by the Government is justified on the grounds of corruption on the part of the

Claimant, such an allegation does not have the effect of precluding the jurisdiction of this

Tribunal.

II. THE ACTIONS OF THE GOVERNMENT OF CALONA INCLUDING THE SEIZURE OFWAYNE CALONAS ASSETS, WERE A VIOLATION OF THE CALONA-NOLANIA BIT.

The Claimant contends that the actions of the Government of Calona violate the BIT. This is

because the actions of the Government amount to expropriation which is illegal under the BIT.

There has been an expropriation of Waynes assets including the factory, bank accounts. Further,

the avoidance of the contract has led to expropriation of the contractual rights since the State has

acted as a sovereign and expropriated their assets on charges of corruption. A contract tainted by

corruption can be declared to be invalid. Hence, this measure has been taken by the Government

mala fide in order to avoid the contract and make no payments under it.

The expropriation is an indirect expropriation because the measures were so severe in light of

their purpose that they cannot be reasonably viewed as having been adopted and applied in good

faith. This is due to the reason that the measure is not aimed at protecting bona fide public

welfare because the government has exercised their right of seizure for mostly out of political

pressure. Moreover, the intensity of the measure has led to substantial deprivation of WayneCalonas property. since, there is a systematic failure of justice in Calona, by the time the matter

would be resolved, they would suffer substantial economic loss. The seizure of assets and

freezing of properties of Wayne Calona resulted in a devastating economic effectdepriving it of

approximately $22 million. Moreover, their contractual rights were expropriated causing them a

further loss of $2 million. There must also be proportionality between the means employed and


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[XVIII]

the aim sought to be realised by any measure depriving the person of his possession. Therefore,

the measure is not proportional. Furthermore, they are discriminatory measures. Due to the fact

that the local manufacturer got benefitted, when the contract was illegally avoided by the

Government and also because the expropriation was done for purely extraneous political reasons,

the measure is arbitrary and discriminatory.

When expropriation is in breach of contractual or treaty obligations, it has to be considered

illegal. In the present case, Article VI of the BIT states that investments made by nationals of one

Contracting Party shall not be expropriated by the other Contracting Party, either directly or

indirectly, except in such circumstances where the expropriation would be legal under

international law. Under customary international law, for an expropriation to be legal, it has to be

for a public purpose, non-discriminatory, compensation must be granted, and due process must

be observed. Public purpose means general welfare, public utility, public good or anything that is

of vital public interest. Even if a regulation is enacted for a public purpose, this prong of the

expropriation test does not trump the requirement that compensation be rendered to foreign

investors where government regulation has damaged the investment. Due process has not been

observed while freezing the assets as an interim measure, as they would evidently remain frozen

for a very long time because of the huge backlog in Calonian Courts. Also, Wayne Calonas

property was seized immediately after the order passed by the lower court without any serving of

notice. Therefore, in the present instance, none of the requirements have been fulfilled so the

expropriation of the assets and property was illegal under the BIT.

III. THE RESPONDENT IS NOT ENTITLED TO AVOID THE CONTRACT.Claimants performance of contract to provide alternatives was in pursuance of varied terms of

contract mutually agreed upon by the parties and the same was substantially, if not precisely,

performed by the Claimant. The delay in the supply of the original consignment was due the

unavoidable manufacturing issues which were beyond the control of either of the parties and therisk of such an event was not assumed by the parties at the time of entering into contract.

Moreover, the Respondent agreed to the late delivery of supply of goods by remaining silent.

The Respondent cannot avoid the contract as a whole as the same was divided into two

consignments of which the first consignment was delivered without any issues arising out of it.

The Respondent cannot claim the contract as being void because of been procured through


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[XIX]

bribery since State in general must meet its obligations as a contractual party despite the corrupt

activities of its officials. The Respondents argument for making the contract void on the ground

of corruption may impede, with serious effect, the treaty signed between both the countries as it

contradicts the host states obligation ofprotecting investments. For the above reasons, the

respondent, the Government of Calona, cannot avoid the contract and hence make the payment

as required.


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[1]

ARGUMENTS ADVANCED

I. THE TRIBUNAL HAS JURISDICTION OVER ALL THE CLAIMS BROUGHT BEFORE IT.Claimant contends that the Tribunal has jurisdiction over all the claims brought before it as there

is an investment on the part of the Claimant [A] and the tribunals jurisdiction is not affected by

the exclusive dispute resolution clause in the contract [B]. Further, contractual breaches lead to

violation of the BIT [C]. Even if, there is a Multi-Tier Arbitration Clause in the contract, the

Tribunals jurisdiction remains unaffected [D]. Finally, the Tribunal has jurisdiction even if the

contract is tainted with corruption [E].

A. Claimants undertaking amounts to an investment.Claimant asserts that there has been an investment on its part under the definition contained in

the Treaty Concerning the Encouragement and Reciprocal Protection of Investment (BIT).1

The investment in the Respondent State by the Claimant is a foreign investment [1] and it has the

characteristics of an investment [2].

1. The investment by the Claimant i s a for eign investment in the Respondent State.The Claimants investment is a foreign investment in the Respondent State as it is controlled by a

foreign investor (the Claimant), incorporated in Nolania.2 There is no additional requirement of

foreignness for the investment in terms of its origin.3 Hence the undertaking by the Claimant in

the Respondent State is a foreign undertaking. Direct investors may have direct investment

enterprises which have subsidiaries, associates and branches in one country or in several

countries.4 Hence, the Claimant which has a subsidiary, Wayne Calona, is the investor.

1 Problem File, Annexure 1.

2 Problem File, 7.

3 Tradex v. Albania, 5 ICSID Reports 70, Award, 29 April 1999, 105, 108-111.

4 OECD, Benchmark Definition for Foreign Direct Investment, 1999.


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[2]

2. The undertaking has the characteri stics of an i nvestment.The undertaking of the Claimant has the characteristics of an investment as required under the

BIT.5 It involved the commitment of capital and resources as the Claimant did commit a

substantial capital for purchasing products from Star Technologies and allocate resources for the

same to deliver the capacitors to the Government for the construction of the stadium. 6 There was

an expectation of gain and profit in the transaction as well as the assumption of risk in case of

failing to deliver the goods. Also, applying the Salini7test to determine whether an undertaking

is an investment, there was certain duration of the project, which was till the Games and a

contribution to the host states development, as the Games were to go a long way in enhancing

the image of the Respondent state.8

Even if the particular undertaking of the Claimant does not meet the traditional notion of

investment, it will nevertheless fall within this category using new, wider interpretation as has

been illustrated by the Fedax9and CSOB

10cases. The Tribunals held that an investment is often

a complex operation composed of various inter-related transactions. Each element of these,

standing alone, might not qualify to be an investment. However, if the particular transaction

forms an integral part of an overall operation when the facts are considered in totality, it qualifies

as an investment.11 Using this logic, in the present case the undertaking of the Claimant when

looked at in toto does qualify as an investment. In this case, the contract and the investment are

so intrinsically linked, that the contractual performance in procuring and delivering the

5 Problem File, Annexure 1.

6 Problem File, 11, 12.

7 Salini Construttori S.p.A. and ItalstradeS.p.A. v. Kingdom of Morocco, 42 I.L.M. 609 (2003) (Salini), Decisionon Jurisdiction, 23 July 2003.

8 Problem File, 10.

9 Fedax N.V. (Netherlands Antilles) v. Republic of Venezuela (Fedax), 37 I.L.M. (1998) 1378, Decision onJurisdiction, 11 July 1997.

10 Ceskoslovenska Obchodni Banka, S.A. v.The Slovak Republic (CSOB), 14 ICSID Review- FILJ (1999),Decision on Jurisdiction, 24 May 1999.

11Idat 72;Enron v. Argentina, 11 ICSID Reports 273, 14 January 2004, 70.


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[3]

capacitors, when considered together, makes the contract an investment. Hence there is an

investment on part of the Claimant.

B. An exclusive dispute resolution clause in the contract does not affect the Tribunalsjurisdiction.

An exclusive dispute resolution clause in a contract cannot operate as a bar to the application of

the BIT [1] and the Tribunal may consider contractual claims while determining a violation of

the BIT [2].

1. The exclusive dispute resolution clause does not bar the Tribunals jurisdiction underthe BI T.

Contractual dispute resolution clauses do not affect the jurisdiction of Tribunals constituted for

violations of the BIT.12 A State cannot rely on an exclusive jurisdictional clause in a contract to

avoid the characterization of its conduct as internationally unlawful under a treaty.13 Therefore

the forum selection clause of the Contract between the Claimant and the Respondent State14 does

not affect this Tribunals jurisdiction to hear matters which relate to the BIT. In the event of

prima facie overlap of the jurisdiction of the two forums, (contract and the BIT) the jurisdiction

of the tribunal constituted under the BIT must prevail, as its jurisdiction is wider than that of the

jurisdiction of the forum under the contract.15

2. The Tr ibunal may consider contractual claims to determine a violation of the BI T.Claimant maintains that the Tribunal may consider contractual issues in determining claims

based on a BIT despite the fact that contract claims and treaty claims have different legal bases.

A particular investment dispute may at the same time involve issues of the interpretation and

12Azurix Corp. v. Argentine Republic, 43 I.L.M. 262 (2004) (Azurix), Decision on Jurisdiction, December 8, 2003.

13Compania de Aguas del Aconquija S.A. and CompagnieGenerale des Eaux v. Argentine Republic, 41 I.L.M. 1135(2002), 95,96,101,103 (Compania), Decision on Annulment, 3 July 2002.

14 Problem File, Annexure 7, Clause 4.

15Greek Government v. VulkanWerke, (1925) 3 I.L.R. 402.


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[4]

application of BIT standards as well as questions of a contract.16 It is proper and often necessary

for a Tribunal to interpret a contract and consider issues of contractual performance in

accordance to the relevant law governing the contract. This can be in order to determine whether

there has been a violation of international law under the BIT, and its jurisdiction allows it to

resolve an underlying contractual issue for the same.17

C. Contractual breaches of the Respondent State give rise to a violation of the BIT.Claimant argues that the violation of contractual obligations by the Respondent State lead to a

violation of the BIT. The Claimant maintains that the Tribunal in this case needs only to be

satisfied that if the facts or the contentions alleged by the Claimant are ultimately proven true,

they would be capable of constituting a violation of the BIT [1]. Further, Article X of the BIT

allows contractual breaches to be treated as treaty breaches [2]. In the present case, the

governmental acts violate the provisions of the BIT regarding national treatment [3], fair and

equitable treatment [4] and full protection and security [5].

1. There is a prima facie case of a BI T violation for the purposes of establishi ngjurisdiction.

Theprima facie test applied in UPS v. Canada18

and the assumption relied upon in Methanex v.

United States19

shoes that, for the limited purpose of determining jurisdiction, the Claimants

factual contentions are prima facie deemed to be correct. The prima facie test has also been

applied in a number of ICSID cases, including Maffezini,20 CMS,21 Azurix,22 SGS v. Pakistan23

16Compania, Supra n.13, 60,72,76.

17Bayindir v. Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction, 14 November 2005, at 270.

18 UPS v. Canada, UNCITRAL Arbitration Proceedings (NAFTA)Award, 24 May 2007, 83.

19

Methanex v. United States, 44 I.L.M. 1345 (2002).

20 Emilio Agustn Maffezini v. Kingdom of Spain, 16 ICSID Rev.FILJ 212 (2001), Decision on Objections toJurisdiction, January 25, 2000.

21 CMS Gas Transmission Company v. Argentine Republic, 42 I.L.M. 788 (2003), Decision on Jurisdiction, July 17,2003.

22 Supra n.12.


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[5]

and Salini v. Morocco.24 Hence the Tribunal should prima facie accept the Claimants

contentions that the actions of the Respondent State lead to a violation of the BIT.

2. Ar ticle X of the BI T al lows contr actual breaches to be treated as treaty breaches.Claimant maintains that Article X of the BIT which is an umbrella clause, makes contractual

breaches, breaches of the BIT. Article X is a provision that guarantees the observation of

obligations assumed by the host state vis--vis the investor. This provision must be interpreted

broadly to mean that the implication of such a clause is to convert a breach of contract to a

breach of treaty. Such a broad interpretation has been supported by Joachim Karl,25 Ibrahim

Shihata,26 F.A. Mann,27 M. Nash Leich,28 Dolzer and Stevens,29 Antonio Parra30 and an

UNCTAD publication of 1998 on BIT practice.31 Such an interpretation is in consonance with

Article 31 of the Vienna Convention on the Law of Treaties, which requires an interpretation in

good faith of the particular clause of the treaty. The object and purpose rule in the Article also

supports such an interpretation.32 Here an interpretation that interprets the clause in exclusive

favour of the investors is justified. Any other interpretation would deprive Article X of practical

23 SGS Socit Gnrale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Rev. FILJ 301 (2003),Decision on Objections to Jurisdiction, August 6, 2003.

24 Supra n.8.

25J Karl, The Promotion and Protection of German Investment Abroad, (1996) 11 ICSID RevFILJ1, 23.

26I Shihata, Applicable Law in International Arbitration: Specific Aspects in the Case of the Involvement of StateParties, in The World Bank in a Changing World(1995) vol. II, 595, 601.

27FA Mann, British Treaties for the Promotion and Protection of Investments, (1981) 52 BYIL 241, 245-6.

28 M Nash Leich, Contemporary Practice of the United States relating to International Bilateral InvestmentTreaties, (1990) 84AJIL 895, 898.

29 R Dolzer& M Stevens,Bilateral Investment Treaties, Martinus Nijhoff Publishers, 1995, p. 81-2.

30A Parra, Provisions on the Settlement of Investment Disputes in Modern Investment Laws, Bilateral InvestmentTreaties and Multilateral Instruments on Investment, (1997) 12ICSID RevFILJ287.

31 UNCTAD, Bilateral Investment Treaties in the mid-1990s (Geneva, 1998) 54-6.

32 SGS v. Philippines, 8ICSID Reports (2005) 518, Decision on Jurisdiction, 29 January 2004.


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[6]

content and reference has necessarily to be made to the principle of effectiveness in interpreting

BIT provisions.33

3. The impugned acts violate the National Treatment requir ement.National treatment refers to the post-entry treatment of foreign investors.34The relative standard

of national treatment ensures that foreign investors are not treated less favourably35 than

domestic investors36 so that they are not singled out.37 Determination of the violation of this

standard is done in three stages, (1) identification of the relevant subjects for comparison; (2)

consideration of the relative treatment each comparator receives and (3) consideration of whether

any factors exist that justify any deviation in the treatment.38 The comparison should be made

between the claimant or its investment and any other domestic investors or investments operating

in the same business or economic sector.39

The relevant subjects for comparison are Wayne Calona and the local manufacturer. 40The

treatment that Wayne Calona received by the government shows that the installation date given

to them was 28th November 2010, whereas they requested for an extension till 18th December

2010. The Government however treated the local manufacturer differently by allowing them an

installation date of 18th December 2010. This was much more than that given to Wayne

Calona.41No factors justified such a difference in treatment because they did not have a better

manufacturing quality.42 Therefore, the local manufacturer was treated more favourably.

33 Feldman v. Mexico, 18 ICSID Review-FILJ (2003) 488, Award, 16 December 2002, 171.

34 Problem File, Annexure 1, Article IV; Peter Mulchinski, Fedrico Ortino&Christoph Shreuer, The OxfordHandbook of International Investment Law, Oxford University Press, New York, 2008.

35 UPS v. Canada, UNCITRAL Arbitration Proceedings (NAFTA)Award , 24 May 2007, 83.

36 Marc Jacob,International Investment Agreements and Human Rights, INEF Research Paper Series Human Rights,Corporate Responsibility And Sustainable Development 03/2010.

37ADC Affiliate Ltd. v. Hungary, ICSID (W. Bank) Case No.ARB/03/16, Award, October 2, 2006.

38Pope & Talbot, Inc v. Canada, 40 I.L.M. 258 (2000), . 96-98.

39 Id.

40 Problem File, 19.



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[7]

Moreover there was a discriminatory intent43 of the Government because the Government treated

Wayne Calona less favourably than the local manufacturer in like circumstances44 as the latter

was given a substantially greater installation time.45

4. The impugned acts violate the requirement for fai r and equi table treatment.The requirement of fair and equitable treatment46 has been defined as the good faith principle

under which foreign investors expect the host State to act in a consistent manner without

arbitrarily revoking any pre-existing decisions.47 Some of the contexts in which the standard has

been applied concern compliance with stability [a], contractual obligations [b], due process and

action in good faith [c].48

a. The Government of Calona did not maintain stability in the legal order.Stability of the legal and business framework in the State party is an essential element of fair and

equitable treatment.49 In the present matter, at the time of the signing of the BIT, the investors

had the support of the Government, even though there were allegations of corruption right from

the beginning.50 Now, with the public support shifting towards the Communist Party of Calona,

the Government thought is wise and tactical to expropriate on the pretext of seizure for criminal

charges,51 thus disturbing the stability in their legal stand and policy and disappointing the


43 Seimens v. Argentina, ICSID Case No. ARB/02/8, Decision on Jurisdiction, August 3, 2004; Eureko B.V. v.Republic of Poland, 12 ICSID Reports 335, 19 August 2005.

44 Supra n.31.


46 Problem File, Annexure 1, Article V.

47

TECMED S.A. v. Mexico, (2003) 43 I.L.M. 133, 122

48 Rudolf Dolzer, The Impact of International Investmenton Domestic Administrative Law, International Law andPolitics, Vol. 37:953, November 2006.

49 LG & E Energy Corp and ors v. Argentina, (2007) 46 I.L.M. 3.




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[8]

legitimate investor expectation.52 Where the investor has relied on the representations of the

government and taken an action based on that, the legitimate investor expectations play a crucial

factor in determining whether violation of the fair and equitable standard has taken place. 53 State

responsibility could attach where the investor has placed detrimental reliance upon legitimate

expectation.54 The statements by the Finance Ministers of both States during the signing of the

BIT about ensuring easier flow of trade;55 the statement by the Prime Minister Neer

Venkatstation about attracting foreign investment56 were relied upon by Wayne Enterprises who

invested in Calona with expectations of profit, but was let down by these acts of the Government.

b. The Government of Calona did not comply with the contractual obligations.The obligation to observe contractual obligations towards the investor is covered under this

standard because pacta sunt servanda is an obvious application of the stability standard.57 The

reasons adduced for the Governments refusal to make payment under the contract indicate that

the Government did not act puissance publique, i.e., the activity were not within that of an

ordinary contracting party.58 Therefore, the Respondents failure to perform its contractual

obligations leads to violation of this standard.59

c. The Government did not observe due process in its actions.The due process requirement imposes an obligation on States to maintain and make available to

aliens a fair and effective system of justice60 including reasonable advance notice and a fair

52 GAMI v. Mexico, 44 I.L.M. 545 (2005), Award, 16December 2004, 93.

53MTD Equity SdnBhd and MTD Chile SA v. Republic of Chile, 44 I.L.M. 91 (2005), Final Award, 25 May 2004.

54 Case Concerning the Temple of PreahVihear (Cambodia v. Thailand) 1962 I.C.J.6 (I.C.J Report (Merits); JFOConnor, Good Faith in International Law, Aldershot, Dartmouth, 1991, at 92-3.

55 Problem File, 4.

56 Problem File, 5.

57 Noble Ventures v. Romania, ICSID Case No.ARB/01/11,Award, 12 October 2005, 182.

58Impreglio v. Pakistan, 12 ICSID Reports 245, Decision on Jurisdiction, 22 April 2005.

59Infra, Arguments Advanced, II.

60Loewen v. United States, 42 I.L.M. 811 (2003),Award, 26 June 2003.


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[9]

hearing before an impartial adjudicator.61 This principle can be violated if the conduct of the host

state is outrageous and shocks the legal conscience,62 or if it is grossly unjust.63In the present

case, the independent report by a reputed consultancy firm estimated that a criminal case in

Calonian courts would take between 6 to 8 years to conclude and would involve another 3 to 4

years for appeals.64 Therefore, since the justice system available does not ensure effective

remedy, the due process requirement has been violated.

d. The Government did not adhere to the principle of good faith.The principle of good faith requires that every right be exercised with honesty and loyalty. 65 Any

fictitious exercise of right, based on local favouritism,66 for the purpose of evading either a rule

of law or a contractual obligation will constitute an abuse of the right prohibited by law. 67 First,

the Government had given additional installation time to the local manufacturer.68 Next, the

Government of Calona had made a sudden statement that they would not be making the

payment.69 Then the seizure occurred after the public support shifted towards the Communist

Party of Calona.70 Hence, all these facts go on to show that the Government had not acted bona

fide as is indicated by their sudden change in their policy.

61Supra n.35; British Petroleum v. Libya, (1979) 53 ILR 297.

62Neer v. Mexico, 4 R.I.A.A 60, (1926).

63Waste Mgmt., Inc. v. Mexico, 43 I.L.M. 967 (2004) 171, 175.

64Problem File, 3.

65Genin v. Estonia, 17 ICSID Review FILJ (2002) 395, Award, 25 June 2001.

66

Supra, n.17.

67Anglo Norwegian Fisheries Case (United Kingdom v. Norway), (1951) ICJ Reports 116.

68Problem File, 19.

69Problem File, 22.

70Problem File, 24.


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[10]

5. The impugned acts violate the requirement for fu ll protection and secur ity.Full protection and security71 means that the government would provide the investor with a

guarantee against all losses suffered due to the destruction of the investment for whatever reason

and without any need to establish who the person that caused the damage was.72

It also includes

legal security which entails the duty of the host state to grant the investor access to judicial

system.73 Denial of effective means of asserting claims and enforcing rights in the Respondent

State violates the requirement of full protection and security. 74 In the present case, however, the

judicial system is such that it does not ensure the investor effective remedy.75

D. The jurisdiction of the Tribunal does not get affected even if there is a multi-tierarbitration clause.

Even if clause 4 in the Agreement signed on July 6, 2010 between Wayne Electronics and

Ministry of Sports, Government of Calona (contract)76, is a multi-tier arbitration clause, the

jurisdiction of this Tribunal does not get affected with respect to the claims involving the

contract. Failure to comply with pre-arbitral stages does not exclude the Tribunals jurisdiction.

By the arbitration agreement, the parties mutually granted this authority to a tribunal and

excluded state courts. To argue that this choice is contingent on certain pre-arbitral steps would

imply that failure to take them would allow a party to withdraw from its commitment to arbitrate,

which cannot be the case.77 It has been also held that ICSID jurisdiction would not be

subordinated by any requirement of prior exhaustion of local negotiations.78

71Case Concerning Electronica Sicula SpA (ELSI), (United States of America v. Italy), (1987) ICJ Reports 3

72Asian Agricultural Products Ltd. v. Republic of Sri Lanka, 30 I.L.M. 577 (1991).

73Lauder v. Czech Republic, 9 ICSID Report 66, Award, 3 September 2001, 314.

74White Industries Australia Limited v. Republic of India, Final Award, available athttp://ilcurry.files.wordpress.com/2012/02/white-industries-award-ilcurry.pdf, Last Visited on 14 March, 2012.

75Problem File, 3.

76 Problem File, Annexure 7, Clause 4

77 Alexander Jollies, Consequences of Multi-Tier Arbitration Clauses : Issues of Enforcement, Reprinted from(2006) 72 Arbitration 329338 Sweet & Maxwell Limited.

78AES Corp. v.Argentina, 12 ICSID Reports 312, Decision on Jurisdiction, 26 April 2005.


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[11]

E. The Tribunal has jurisdiction even if the contract is tainted with corruption.A contract tainted by corruption remains a commercial contract and is therefore referable to

arbitration.79 Previous tribunals have retained jurisdiction even when the contract had questions

of bribery.80

This is also the arbitral practice which deals with contractual cases as commercial

disputes even if corruption is involved. In this case the Claimant was charged with corruption

under the Calonian Prevention of Corruption Act by the Special Bureau of Investigation on

grounds of incompetence in delivering the capacitors on time, as under the contract.81 However,

as has been proved, the Tribunals jurisdiction does not get affected even when the contract is

tainted with corruption.82

79Supra n.15, 39-40.

80 World Duty Free Company Limited v. the Republic of Kenya, ICSID Case No. ARB/00/7, Award, 4 October 2006.

81Problem File, 24.

82Westacre Investments Inc v. Jugoimport SPDR Holding Co Ltd, [1999] APP.L.R. 05/12.


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[12]

II. THE ACTIONS OF THE GOVERNMENT OF CALONA INCLUDING THE SEIZURE OF WAYNECALONAS ASSETS, WERE A VIOLATION OF THE BIT.

The Claimant contends that the actions of the Government of Calona violate the BIT. This is

because the actions of the Government amount to expropriation [A] and the expropriation is

illegal under the BIT [B].

A. The actions of the Government of Calona amount to expropriation.The Claimant asserts that the acts of the Government of Calona amount to expropriation since

Waynes assets including the factory, bank accounts were expropriated [1]. Further, the

avoidance of the contract has led to expropriation of the contractual rights [2] leading to indirect

expropriation [3].

1. There has been expropriation of Wayne Calonas assets.Expropriation can be of tangible property such as real estate or factory, 83 or of intangible

property such as bank accounts.84 Thus, in the present case, the seizure of the assets of Wayne

Calona, including their factory and bank accounts, valued approximately $22 million, by

Calonas Special Bureau of Investigation, resulted in expropriation.85 Thus, Calona has breached

its guarantee to its investors.86

2. Avoidance of contract can lead to expropriation of contractual ri ghts.If the State has acted in its sovereign capacity exercising its governmental or public power or

authority,87 intangible property including contractual rights88 can be expropriated.89 If a

83Phillips Petroleum Co. Iran v. Iran, 21 Iran- U.S. C.T.R. 79, 29 June 1989; Mobil Oil v. Iran, 16 Iran- U.S. C.T.R.3, July 14, I987; Amoco Intl Finance Corp v. Iran,16 Iran - U.S. C.T.R. 3, 24, 14 July 1987.

84American Bell Intl, Inc. v. Iran, 12 Iran- U.S. C.T.R. 170, 19 September 1986.

85Problem File, 25.

86Problem File, 26.

87ShufedltClaim (U.S. v. Guatemala), (1930) 2 R.I.A.A. 1079; Jalapa Jailroad and power Co, American- MexicanClaims Commission, 1948, 8 Whiteman, Digest of International Law 908 (1976).

88Libyan American Oil Company (LIAMCO) v. The Libyan Arab Republic, (1982) 62 I.L.R. 14;Biloune v. Ghana,(1993) 95 I.L.R. 183, 207; Siemens A.G. v. Argentina, ICSID Case No.ARB/02/08, Award, 6 February 2007, 267.


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Government agrees to pay money for commodities and fails to make payment, then the purchase

price of the commodities would have been expropriated.90 Thus, serious underpayment91 or

failure to pay certain sums due92 could be regarded as a measure equivalent to expropriation. In

the present matter, due to their disappointment with Wayne Enterprises performance, the

Government stated that they would not be making any payment under the contract.93 This refusal

to make payments under the contract amounts to expropriation.

3. The investors property has been indirectly expropriated.Expropriation can be open, deliberate and acknowledged transfer of title in favour of the host

State, and also covert, incidental or indirectinterference with the use of property which has the

effect of depriving the owner of the expected economic benefit.94 In the present BIT, indirect or

direct expropriation through measures equivalent to expropriation is prohibited.95 The acts of the

Respondent amount to indirect expropriation because they fulfil the requirements under Article

VI of the BIT as well as other elements of indirect expropriation.96 Thus, the acts amount to

expropriation because measures are so severe in light of their purpose that they cannot be

reasonably viewed as having been adopted and applied in good faith [a] and they are

discriminatory measures [b].

89G. C. Christie, What Constitute a Taking of Property under International Law?, BYIL, Vol. 38, 1962, p. 338

90 Singer Sewing Machine Company Arbitration (United States v. Turkey), (1929) 4 R.I.A.A. 47.

91Thomas Wlde & Kaj Hobr, The First Energy Charter Treaty Arbitral Award, Journal of International

Arbitration, Vol. 22, 2005, p. 97.

92Supra n. 63, 170.

93Problem File, 22.

94Metalclad v. United Mexican States, 40 I.L.M. 36 (2001).

95Problem File, Annexure 1.

96Supra, n.34.


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a. The measures are so severe in light of their purpose that they cannot be reasonablyviewed as having been adopted and applied in good faith.

The seizure of Waynes assets was severe in light of their purpose that they cannot be

reasonably viewed as having been adopted and applied in good faith97

because the intensity of

the measure resulted in substantial deprivation [i]; the seizure was a disproportional measure as

deprivation of property was permanent [ii]; and that the measure was not intended for a bona fide

public purpose [iii].

i. The intensity of the measure has resulted in substantial deprivation.The intensity requirement has been described as the degree or extent98 to which the effect is

reflected by the measures being equivalent to that of an expropriation. 99 Thus, the effect of an

indirect expropriation should be severe enough to result in substantialdeprivation100 of property

rights to render them useless101 or destruction102 of the commercial value of the investment and

effective neutralisation of enjoyment of property.103

The properties of Wayne Calona were frozen and their assets were seized, 104 hence, financially

Wayne Calona was rendered useless, and practically they were left dysfunctional without their

assets. The seizure of assets and freezing of properties of Wayne Calona resulted in a devastating

economic effect depriving it of approximately $22 million.105 Moreover, their contractual rights

were expropriated causing them a further loss of $2 million.106 Hence, by the time this case is

97 Problem File, Annexure 1, Art. VI.

98Tippetts v. TAMS-AFFA Consulting Engineers of Iran, 6 Iran-U.S. C.T.R. 219, 29 June 1984.

99Supra n. 58.

100Supra n. 38, 102.

101Supra n.47.

102Supra n.12, 322.

103Supra n.21,259.

104Problem File, 25,26.

105Problem File, 25.

106Problem File, Annexure 2,1.


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resolved, Wayne Calona would lose millions107 keeping in mind the huge backlog in the

Calonian Courts.108

ii. The seizure was a disproportional measure as deprivation of propertywas permanent.

Expropriation occurs where there is permanent economic deprivation.109 However, even

temporary measures for e.g. the seizure of two hotels for one year, 110 suspension of an export

license for four months111 was found to be a permanent measure, thus amounting to

expropriation. Likewise, in the present case, even if the property is returned within a matter of

time, it would still amount to expropriation due to the substantial loss during the period. In any

case, the justice delivery system is slow with backlogs so it is uncertain as to how long the

proceedings would be pending before the court.112

There must also be proportionality between the means employed and the aim sought to be

realised by any measure depriving the person of his possession.113 The freezing of properties and

seizing of assets was meant to be a temporary measure as it was passed as an interim order by the

lower court.114 But, in light of the long-drawn legal proceedings in Calona,115 the seizure may not

continue to remain temporary. Hence it would be a disproportional measure.



109 Supra n. 47; S.D. Myers, Inc. v. Canada, 40 I.L.M. 1408 (2000);Phelps Dodge Corp. and Overseas PrivateInvestment Corp. and Iran, 10 Iran U.S. C.T.R. 157, 19 March 1986;Hauer v. Land Rheinland-Pfalz, [1979] E.C.R2749 ,Case no. 44/79, 13 December 1979.

110Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No.ARB(AF)/98/4, Award, 8 December 2000.

111Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/99/6,

Award, 12 April 2002.

112Problem File, 3.

113Press Compania Naviera S.A. & Others v. Belgium, (1997) 21 E.H.R.R. 301.




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iii. The measure was not intended for a bona fide public purpose.Although the effect of the governmental action rather than its purpose or intent is the major

factor in determining whether or not expropriation has occurred,116 the measures must still be for

a bona fide public purpose.117

Public purpose means general welfare, public utility, public good

or anything that is of vital public interest.118 In cases where measures cannot be justified on the

grounds of genuine public interest,119 the arbitrary nature of the act would be evident.120

It is thus submitted, that the measure in the instant case cannot be justified on the grounds of

bona fide public purpose because the State has purposely expropriated the property on the

ground of corruption, even though previously they had not paid any heed to the allegations of

bribery.121 Now, with the public support122 on the side of the Communist Party of Calona, the

Government has sought to expropriate property. Levelling charges of corruption was also to

further avoid paying the sum agreed upon by the contract, 123 thereby indirectly benefitting the

government.

b. The measure of the government was discriminatory.The intentionally124 discriminatory nature of the State measures aimed at excluding foreign

control from the host state market would result in establishing expropriation. 125 Thus, the

expropriation, having been made forpurely extraneous political reasons was arbitrary and

116 German Interests in Polish Upper Silesia (Germany v. Poland), PCIJ Rep. Series A. No. 7, 25 May 1926.

117 Goetz and Others v. Republic of Burundi, ICSID Case No. ARB/95/3, Decision on Liability, 2 September 1998.

118Norwegian Shipowners' Claims (Norway v. United States), (1992) 1 R.I.A.A. 307.

119Supra,n.117 126.

120F. V. Garcia Amador, Special Rapporteur Report, International Law Commission (1959).

121

Problem File, 9.


123Infra, Arguments Advanced, III, E.

124Supra n.19, 7.

125Supra, n.43.


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discriminatory in character126 since like persons were treated in an unequal manner.127 It was

done for purely political reasons as can be seen from the previous nonchalance of the

Government to allegations of bribery, and their quick action after public support shifted to the

Communist Party of Calona.128 However, expropriation may take place even where the benefit of

deprivation does not accrue to the host State129 but to third parties,130 which in this case was the

local manufacturer. This was because tainting Waynes contract with corruption131 could adduce

legitimacy to the Governments act of subsequently contracting with the local manufacturer.132

This was done in violation of the requirement of non-discrimination in Article VI of the BIT and

therefore has let down the expectation of the investor to be treated equally with the domestic

enterprises.133

Therefore, the seizure of assets including the factory and bank accounts and freezing of

properties resulted in indirect expropriation.

B. The expropriation by the Government of Calona is illegal.When expropriation is in breach of contractual or treaty obligations, it has to be considered

illegal.134 Article VI of the BIT states that investments made by nationals of one Contracting

Party shall not be expropriated by the other Contracting Party, either directly or indirectly, except

in such circumstances where the expropriation would be legal under international law. For an

expropriation to be lawful the customary requirements have been identified and which have been

126Supra n.37,p. 329.

127A.F.M. Maniruzzaman, Expropriation of Alien Property and the Principle of Non-Discrimination in InternationalLaw of Foreign Investment: An Overview, 8 J. Transnational Law & Policy, 57-59, 67-70.


129Supra n.94, 103.

130James v. United Kingdom, (1986) 8 E.H.R.R. 123.

131Supra, Arguments Advanced, III, E.


133Infra, Arguments Advanced, II, A, 3, b.

134B. H. Weston, Community Regulation of Foreign-Wealth Deprivations: A Tentative Framework for Inquiry, inR. S. Miller and R. J. Stanger (eds. by),Essays on Expropriation, Ohio State University Press, 1967, p. 119.


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violated in the present case are public purpose135, non-discrimination136, compensation [1] and

due process [2].137

1. There was no payment of compensation.The government had unjustly enriched itself at the expense of Wayne Enterprises and hence,

adequate compensation must be paid.138 Further, even if a regulation is enacted for a public

purpose, this prong of the expropriation test does not trump the requirement that compensation

be rendered to foreign investors where government regulation has damaged or totally destroyed

the value of their investments.139 Hence, fair market value should be paid for the expropriated

assets of Wayne Calona.140

2. Due process was not observed.The requirement of due process mandates provision of effective remedy, sufficient notice and

fair hearing before an impartial adjudicator.141

The remedy in the present case is not effective as a criminal case in Calonian courts would take

between 6 to 8 years to conclude and would involve another 3 to 4 years for appeals.142 Hence,

due process has not been observed while freezing the assets as an interim measure, as they would

135Supra, Arguments Advanced, II, A, 3, b.

136Supra, Arguments Advanced, II, A, 2.

137 Ian Brownlie,Principles of Public International Law, 5th Edition., Oxford University Press, 1998; CompaiadelDesarrollo de Santa Elena, S.A. v. Costa Rica , ICSID Case No. ARB/96/1, Award, 17 February 2000; Sedco, Inc. v.Natl Ir. Oil Co., 10 Iran- U.S. C.T.R. 180, 1986; OECD, Draft Convention on the Protection of Foreign Property,1967; A. Reinisch, Legality of Expropriations, in A. Reinisch (ed. by), Standards of Investment Protection,Oxfrod, Oxford University Press, 2008, p. 174.; de Sabla Claim (US v. Panama), (1933) 6 RIAA 358.

138Sea-Land Service Inc. v. Iran, 6 Iran U.S. C.T.R.149, Award, 20 June 1984; Christoph H. Schreuer, Unjustified

Enrichment in International law, 22AM. J. Comp. L. 281, 1974.

139 Feldman v. United Mexican States, ICSID, 42 I.L.M. 625 (2003);Metalclad Corp. v. United Mexican States, 40I.L.M. 36 (2001);Pope & Talbot, Inc. (U.S.) v. Canada , 40 I.L.M. 258 (2000).

140UNCTAD, Taking of Property, 2000.

141Supra, Arguments Advanced, I, C, 4, c.

142Problem File, 3.


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evidently remain frozen for a very long time.143 Also, Wayne Calonas property was seized

immediately144 after the order passed by the lower court without any serving of notice145, hence,

it is against due process.

143Problem File, 3.


145British Petroleum v. Libya, (1979) 53 ILR 297.


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III. THE RESPONDENT IS NOT ENTITLED TO AVOID THE CONTRACT.The Claimant contends that Respondent cannot avoid the contract as the alternatives provided

were in conformity with the contract [A]. Claimant is also not liable for the late delivery of the

original consignment [B]. Arguendo, the contract cannot be fully avoided [C]. The act of

Respondent was not in good faith

Best Memo Nlsiam 2012 Nlujc

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