Between · World Bank, World Development Report 1985, at ix 91985; accord Deanne Julius, Foreign...

TEAM AGUILAR

German Institution for Arbitration

CASE NO. ARB/00/00

Between:

CONTIFICA ASSET MANAGEMENT CORP. [Claimant]

and

REPUBLIC OF RURITANIA [Respondent]

MEMORIAL FOR APPLICANT

WORDS: 14018

2013

ii

TABLE OF CONTENTS

Contents TABLE OF CONTENTS ................................................................................................................ ii

LIST OF ABREVIATIONS ........................................................................................................... iii

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

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

SUMMERTY OF ARGUMENTS ................................................................................................... 6

ARGUMENTS ................................................................................................................................. 8

A. The Tribunal has jurisdiction over the claims submitted by CAM and those claims are

admissible in light of the facts surrounding acquisition of the shares in FBI by CAM? .............. 8

B. The Tribunal has Jurisdiction over CAM’s claims based on the alleged breach of the share

purchase agreement by the State Property Fund of Ruritania and those claims are admissible . 14

C. Ruritania violated its obligations under the BIT towards CAM by adopting the measures for

the regulation of marketing and sale of alcohol and imposing further requirements from

marketing and sale of FREEBREW beer ................................................................................... 17

D. Moral damages may in principle be awarded by the Tribunal to Claimant for the arrest of

Messrs Goodfellow and Straw, which Respondent accepts constituted a breach of its obligation

to provide full protection and security ........................................................................................ 24

E. The loss of sales by CAM’s subsidiaries located outside ofRuritania to FBI constitutes a

recoverable item of damages ...................................................................................................... 28

PRAYER ........................................................................................................................................... i

iii

LIST OF ABRIVIATIONS

Arb Arbitration

BIT Bilateral Investment Treaty

DIS German Institution of Arbitration

EU European Union

Euronext European Electronic Stock Exchange

HKSE Hong Kong Stock Exchange

ICC International Chamber of Commerce

ICJ International Court of Justice

ICSID International Centre for Settlement of Investment Disputes

ILC International Law Commission

LCIA London Court of International Arbitration

LSE London Stock Exchange

NAFTA North Atlantic Free Trade Agreement

no. number

NYSE New York Stock Exchange

p./pp page

para paragraph

SCC Arbitration Institute of the Stockholm Chamber of Commerce

UN United Nations

UNCITRAL United Nations Commission on International Trade Law

UNCTAD United Nations Conference on Trade and Development

US The United State of America

v. versus

Vol. volume

iv

LIST OF AUTHORITIES

Cases

ADF Group Inc.v United States (NAFTA), ICSID Case No. ARB (AF)/00/1, Award, 9 january

2003 ............................................................................................................................................ 19

Antonie Biloune (Syria) & Marine Drive Complex Ltd. (Ghana) v Ghana Investment Centre &

Government of Ghana, ad hoc arbitration under the UNCITRAL arbitration Rules, Award on

Jurisdiction and Liability, 27 October, 1989 .............................................................................. 28

Azurix Corp v Argentina, Award, ICSID Case No ARB/01/12; IIC 24 (2006); 23 June 2006 .... 19,

30

Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan ICSID Case No.

ARB/03/29, Decision on Jurisdiction November 14, 2005 .................................................. 15, 16

Biwater Gauff (Tanzania) Ltd. V Tanzania, ICSID Case No. ARB/05/22, Award, July 24, 200828

Ceskoslovenska Obchodni Banka, A.S. (CSOB) v. The Slovak Republic, No. ARB/97/4, award

of May 24, 1999.......................................................................................................................... 14

Chorzow Factory Indemnity case (Germany v Poland), (1927) P.C.I.J. Se.A, No 9 ..................... 23

CMS Gas Transmission Co v Argentina, ICSID Case No ARB/01/8, Award, 12 May 2005 ....... 21

Desert Line Projects L.L.C. v Yemen, ICSID Case No. ARB/05/17, Award, 6 February 2008 .. 24,

25

Deutsche Bank AG v Democratic Socialist Republic of Sri Lanka (IVSID Case No. ARB/09/2),

Award, 31 October 2012 ............................................................................................................ 21

Electrabel S.A. v Republic of Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction,

Applicable law and Liability, 30 November 2012 ..................................................................... 20

Elettronica Sicula S.P.A. (ELSI) (United States v Italy), 1989 ICJ. Rep. 15, 28 ILM 1109, 20 July

1989 ............................................................................................................................................ 19

Emilio Agustin Maffezini v Kingdom of Spain (ICSID No. Apr/97/7), Decision on Jurisdiction of

25 January 2000 and Award of the Tribunal of 13 November 2000 ............................................ 9

Empresas Lucchetti, S.A. and Lucchetti Peru, S.A v Republic of Peru, ICSID Case

No.ARB/03/4, Decision on Jurisdiction, 7 February 2005 ......................................................... 19

Fedax N.V. v. Venezuela, Decision on Jurisdiction of 11 July 1997, ICSID Case No. ARB/96/3,

Decision on Jurisdiction ............................................................................................................. 14

v

GAMI investments, Inc. v. Mexico, NAFTA/UNCITRAL Tribunal, Final Award, 15 November

2004 ............................................................................................................................................ 19

Glamis Gold Ltd v United States, Award, Ad hoc – UNCITRAL Arbitration Rules; IIC 380

(2009), 14 May 2009 .................................................................................................................. 19

Holiday Inns S.A. and others v. Morocco ICSID Case No ARB/00/4, Decision on Jurisdiction, 23

July 2001..................................................................................................................................... 15

Jan de Nul N.V. & Dredging International N.V. v. Egypt, ICSID Case No. ARB/04/13, Decision

on Jurisdiction, 16 June 2006. .................................................................................................... 16

Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Award, 28 March 2011 .......... 24

Joy Mining machinery Limited v The Arab Republic of Egypt, ICSID Case No. ARB/03/11,

Decision on Jurisdiction of 6 August 2004 ................................................................................ 16

Joy Mining Machinery v. Egypt, ICSID Case No. ARB/03/11, Decision on Jurisdiction, 6 August

2004 ............................................................................................................................................ 16

Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, Decision on Jurisdiction, 6 July 2007.

.................................................................................................................................................... 16

L.E.S.I. - DIPENTA v. Algeria, ICSID Case No. ARB/03/8, Award, 10 January 2005 ......... 15, 16

Malaysian Historic Bayindir al Salvors Sdn, Bhd v. Malaysia, ICSID Case No. ARB/05/10,

Award, 17 May 2007 .................................................................................................................. 16

Marion Unglaube and Reinhard Unglaube v Republic of Costa Rica ICSID Case No. ARB/08/1

and ICSID No. ARB/09/20, Award, 16 May 2012 .................................................................... 18

Mondev Intrenational Ltd v United States, Award, ICSID Case No ARB (AF)/99/2; IIC 173

(2002), 11 October 2002 ............................................................................................................. 19

Mondev v United States, Case No. ARB(AF)/99/2, Award of 11 Octoben 2002 ......................... 31

MTD Equity Sdn. Bhd and MTD Chile S.A. v Republic of Chile, ICSID Case No.

ARB/01/7,Award, 25 May 2004................................................................................................. 19

Philip Morris v Uruguay, ICSID Case No. ARB/10/7, 19 February 2010, request for arbitration,

.................................................................................................................................................... 22

Phoenix Action Ltd v. Czech Republic ICSID Case No ARB/06/5, Award, 15 April 2009 ......... 15

Pope and Talbot Inc. v The Government of Canada, UNCITRAL (NAFTA), Procedural Order

No. 2, 28 October 1999; ............................................................................................................. 19

PSEG v Turkey, ICSID Case No. ARB/02/5, Award, 19 January 2007 ........................................ 20

vi

S.A.R.L. Benvenuti & Bonfant v People’s Republic of the Congo, ICSID Case No. ARB/77/2,

Award, 8 August 1980 ................................................................................................................ 27

Salini Construtorri S.p.A. and Italstrade S.p.A. v. Morocco, ICSID Case No. ARB/00/4, Decision

on Jurisdiction....................................................................................................................... 14, 16

Saluka Investments v Czech Republic, ad hoc – UNiCTRAL, Partial Award 17 March 2006 ..... 20

Sempra Energy v The Argentine Republic, ICSID Case No. ARB/02/16, Award, 28 September

2007 ............................................................................................................................................ 21

S S Soci t n rale de Surveillance S.A. v. Republic of the Philippines, Decision on

Jurisdiction, Case No. ARB/02/6 (Jan. 29, 2004) ........................................................................ 9

Siemens award and Separate Opinion of February 6, 2007; LG&E Award, supra note 8 para

123/139; CMS Award of May 12, 2005 ..................................................................................... 30

Soci t n rale In respect of DR Energy Holdings Limited and Empresa Distribuidora de

Electricidad del Este, S. A.v. The Dominican Republic, UNCITRAL, LCIA Case No. UN 7927

...................................................................................................................................................... 8

Tecnicas Medioambientales Tecmed SA v Mexico, Award, ARB (AF)/00/2; IIC 247 (2003); 10

ICSID Rep 130, 29 May 2003 .................................................................................................... 20

Tecnicas Medioambientales Tecmed SA v Mexico, Award, ARB (AF)/00/2; IIC 247 (2003); 10

ICSID Rep 130; 29 May 2003 .................................................................................................... 19

The Ambatielos case (merits:obligation to arbitrate), Judgment of 19 May 1953, ICJ, Reports

1953 .............................................................................................................................................. 9

Ulysseas, Inc. v The republic of Ecuador (UNCITRAL), Final Award, 12 June 2012 ................. 18

Utd. Parcel Serv. Of America (UPS) v Canada, NAFTA (UNCITRAL), Award on the Merits,

May 24 2007 ............................................................................................................................... 29

Victor Pey Casado & President Allende Foundation v Chile, ICSID Case No. ARB/98/2, Award,

May 8, 2008 ................................................................................................................................ 28

World Bank, World Development Report 1985, at ix 91985; accord Deanne Julius, Foreign

Direct Investment 1, 1991 .......................................................................................................... 31

Miscellanous

Case; Exhibition No.2 Extracts from the share purchase agreement 14.2 ..................................... 14

vii

Commentaries to the Draft Articles on Responsibility of States for Internationally Wrongful Acts

Adopted by the International Law Commission at its Fifty-Third Session, November 2001 .... 25

Report of the ILC on the work of its Fifty-third Session, Official Records of the General

Assembly, Fifty-sixth Session, Sepplemebt No. 10 ((A/56/100, Ch. IV.E.2 ....................... 25, 27

Reports of International Arbitral Awards, Opinion in the Lusitania cases, 1 November 1923 ..... 24

United Nations Conference on Trade and Development, UNCTAD, Recent Developments in

Investor-State Dispute Settlement (ICSID), Updated for the Multilateral Dialogue on

Investment, 28-29 May 2013. ..................................................................................................... 18

United Nations Conference on Trade and Development, UNCTAD; Recent development in

Investor-State Dispute Settlement (ICSID); Updated for the Multilateral Dialogue on

Investment, 28-29 May 2013 ...................................................................................................... 21

Books and Articles

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

Principles, Oxford University Press, 2007 ................................................................................. 28

Christoph Schreuer, Preliminary rulings in investment arbitration (chapter 12) ............................. 9

E. Lee, Encyclopedia of Arbitration Law, Lloyd’s of London Press LTD, London, 1984 ............ 13

Gabriel Bottini, Indirect Claims under the ICSID Convention, U. Pal, J. Int’l L, Vol 29:3, 2008 31

Ibid ........................................................................................................................................... 26, 30

Ley de Emergencia Publiva y Reforma del Regimen Cambiario No. 25.561, Approved by decree

No. 30/2002, 6 January 2002 ...................................................................................................... 30

McLachlan, Shore and Weiniger, International Investment Arbitration: Substantive Principles,

Oxford University press, 2008.................................................................................................... 21

Michael Pryles, Lost Profit and Capital Investment ...................................................................... 32

MSc of EU Business and Law, International Arbitration: the Doctrine of Separability and

Competence-Competence Principle, 2003 ........................................................................... 12, 13

R.Dolzer & C. Schreuer, Principles of International Investment Law, Oxford University Press,

2008 ............................................................................................................................................ 19

RGSL Research Paper No.2, Nationality of Investors in ICSID Arbitration, Valts Nerets, 2011 .. 7,

31

viii

Robert H. Smit, Separability and Competence-Competence in International Arbitration: Ex

Nihilo Nihil Fit? Or can Something Indeed Come from Nothing? Juris Publishing, Inc. The

American Review of International Arbitration, 2002 ................................................................. 11

Sergey Ripinsky and Kevin Williams Damages in International Investment law, British Institute

of International and Comparative Law, 2008 ....................................................................... 28, 30

Shashank P. Kumar and Manu Sanan, Trade, Law and Development, Special Issue: International

Investment Law, 2010 .......................................................................................................... 30, 31

Stephan Wittich, Non-Material Damage and Monetary Reparation in International Law, 15

Finnish Y.B. Int’L L. 329 (2004) ............................................................................................... 26

Zachary Douglas, The International Law of Investment Claims, Cambridge University Press,

2009 .............................................................................................................................................. 9

Treaties & Conventions

Harvard Draft Convention on the International Responsibility of States for Injuries to Aliens,

Apr.15, 1961 ............................................................................................................................... 25

NAFTA ..................................................................................................................................... 29, 30

The Vienna Convention on the Law of Treaties, Done at Vienna on 23 May 1969, entered into

force on 27 January 1980. United Nations, Treaty Series, vol. 1155 ........................................... 8

Titles and Texts of the Draft Articles on Responsibility of State for Internationally wrongful Acts

Adopted by the Drafting Committee on Second Reading, UN Doc. A/CN.4/L.602/Rev.1.ILC

(July 26, 2001) ............................................................................................................ 6, 23, 24, 26

1

STATEMENT OF FACTS

1. On 15 March 1997 State of Cronos and the Republic of Ruritania have signed the Treaty

for the Mutual Promotion and Protection of Foreign Investment1.

2. Contifica group is an international corporation and has operations in over 30 countries

and consists of numerous holding and operating companies incorporated in over 40

jurisdictions. It is interested in many areas including telecommunications,

pharmaceuticals and fast-moving consumer goods. The parent company of the group,

Contifica Enterprises Plc., is incorporated in Prosperia with its shares publicly traded on

all major stock exchanges (including Euronext, HKSE, LSE and NYSE).2

3. Freecity Breweries Inc. (“FBI”) is a member of the Contifica group and is Ruritania’s

oldest and largest brewery, which was founded in 1928. FBI produces a number of

different brands of beer, but its most famous and popular brand is “FREEBREW”. It has a

distinct taste, which is due to a flavouring added during the brewing. The flavouring is

produced from a local plant Reyhan, which can only be found in the region of Ruritania

and it has traditionally been added to a number of local food products. FREEBREW is

sold in 0.8 l. bottles and each bottle contains 0.03 to 0.05 grams of Reyhan concentrate.3

4. Until 2008 FBI was owned by the State Property Fund od Ruritania. During the financial

crisis in Ruritania, government decided that a number of assets should be privatized. As a

result in 2008 the State Property Fund of Ruritania decided to sell the brewery to a private

investor and an international tender was announced.4 On 30 June 2008 Contifica Spirits,

which is a fully owned subsidiary of Contifica Enterprises Plc. Declared the winner of the

tender. On the same day Contifica Spirits and the State Property Fund of Ruritania

entered into a share purchase agreement providing for the acquisition of all shares in FBI

for USD 300,000,000. 5

5. Contifica Group made significant investment in the technology and as a result the output

of the brewery increased by 30% to 130,000,000 decaliters per annum and in 2010

1 Uncontested facts, Para1

2 Uncontested facts, Para 4




2

brewery was recognized as “the safest place to work” in Ruritania. In addition, FBI was

integrated into the Contifica group’s global procurement network with various

subsidiaries of the group supplying bottles, aluminum cans, yeast, hops and barely of

FBI.6

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

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

market and sell its products in Ruritania.7

7. Pursuant to MAB Act, the marketing of any alcoholic beverages including beer on

television and at sporting events was prohibited. Also, the law made it illegal to serve

beer at sport facilities, outdoors and at any place from 9 pm till 9 am. According to the

MAB Act, trademarks/brands of beer should be written in the same font and color as all

the other text on the label. The MAB Act also prohibited sale of alcohol in containers of

over 0.5l. 8

8. The packaging requirement had a particularly severe effect on FBI because most of the

FREEBREW was sold in 0.8 l. bottles, whereas competing beer brands were marketed

mostly on 0.5 l. bottles. These measures forced FBI to implement a comprehensive

reconfiguration of tis bottling line for FREEBREW. The reconfiguration was completed

only in April 2011. 9

9. As a result of implementation of this regulations FBI’s sales dropped by approximately

60% during the first two quarters of 2011 with the company incurring loss of net income

of around 10 million USD and loss of revenue of 60%. 10

10. Human Health Research Institute (HRI), which is a government-funded institution, on 15

June 2011 released a report claiming that consumers of FREEBREW beer were exposed

to a higher risk of cardiac complications due to the effects of Methyldioxidebenzovat, an

active chemical ingredient found in Reyhan concentrate. 11

11. On 30 June 2011, the Ministry of Health and Social Security adopted an ordinance, which

requires any product containing Reyhan concentrate to be labeled with an explicit







3

warning that “This product contains Reyhan concentrate, consumption of which

according to the results of scientific research may lead to higher risk of cardiac

complications”. The decision was adopted without any consultation with FBI or other

affected parties. 12

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

numerous flaws in the analysis conducted by the HRI as well as its process of raw data

collection. The HRI conclusions were made with regards to the effects of the daily

consumption of a much higher dosage of Methyldioxidebenzovat than can be found in

FREEBREW. Moreover, the report has failed to consider the effects of

Methyldioxidebenzovat while accompanied with alcohol and other ingredients of

FREEBREW. It also attached a report from an independent scientist who opined that the

HRI report had failed to consider other factors such as smoking, diet and weight of the

individuals. On 25 August 2011 the Ministry denied this request. 13

13. In the meantime, FBI’s competitors took full advantage of the situations and they

sponsored several “analytical” programs on Ruritania’s most popular TV channels, where

it was claimed that “nation’s most respected medical institution conclusively established

that consumption of Reyhan concentrate leads to severe health risks” and highlighted

FREEBREW as the product that contains “poisonous Reyhan”. Competitors have also

started labeling their beers as “Reyhan-free”. 14

14. As a result, FBI sales fell by a further 20%, with its revenue in the last quarter of 2011

falling to 10% of the revenue for the same period of 2009. FBI was forced to implement a

large-scale redundancy program terminating employment of over half of its employees.15

15. On 15 March 2012, the Board of Directors of FBI having considered the financial

position of the company decided to partially suspend production decreasing the output to

5,000,000 decaliters per annum. 16

16. On 1 December 2011, the Prosecutor’s Office of Ruritania commenced investigation

against Messrs Goodfellow and Straw, executives of FBI and Contifica Group. The

12

Uncontested facts, Para 15 13




Uncontested facts, Para 20

4

Offices was acting on “information” that they were allegedly involved in bribery of the

officials of the State Property Fund of Ruritania in connection with the acquisition of the

FBI shares. On 19 December 2011, Messrs Goodfellow and Straw were notified of the

ongoing criminal proceedings and their lawyers were orally told that Messrs. Goodfellow

and Straw may be summoned for an interrogation after the holiday season in the

beginning of 2012. 17

17. On 23 December 2011 Messrs. Goodfellow and Straw were detained in the Freecity

International Airport, when boarding their flight to Prosperia. Although they were

expressly advised by their lawyers that under Ruritanian law they were free to leave the

country pending investigations, they were told by the police officers that they were being

detained to stop them from “fleeing justice”. 18

18. The police apparently passed a video of their detention from a security camera to Free

TV, Ruritania’s most popular TV channel, which aired it later on the same day. In an

interview with the channel a spokesman for the Prosecutor’s Office said, “the law

enforcement agencies of Ruritania will not let people responsible from corruption escape

investigation”. 19

19. Both executives of the Contifica Group were detained in a cell in the Freecity

International Airport until 3 January 2012, when they were released without any

explanation. The criminal investigation against them was terminated due to insufficient

evidence on 20 June 2012. Ruritanian authorities never apologized for the detentions or

offered any compensation. 20

20. Pursuant to Article 8 of the BIT any disputes arising out of or relating to an investment

between a foreign investor and the Contracting State shall at the request of the investor be

submitted to arbitration under the UNCITRAL Rules administered by the German

Institution for Arbitration. This provision represents an offer made by the Republic of

Ruritania to submit any dispute, such as the present one to arbitration. Claimant now

accepts this offer. 21

17






5

21. Claimant repeatedly offered to the Republic of Ruritania to settle the dispute amicably.

On 10 December 2011, Claimant wrote to the President and the Minister of Foreign

Affairs of the Respondent noting that the MAB Act and the labelling requirement with

respect to FREEBREW constituted a de facto expropriation of its interest in FBI and

breached Ruritania’s obligations under the BIT including breach of fair and equitable

treatment and full protection and security guarantees. On 31 May 2012, Claimant again

wrote to the President of Ruritania expressly invoking Article 8 of the BIT. No response

was received to any of these letters.22

Treaty of Mutual Promotion and Protection of

Foreign Investment between The Republic of Ruritania and The State of Cronos Article 8

states: 1. Disputes concerning investments between a Contracting State and an Investor of

the other Contracting State under this Treaty should as far as possible be settled amicably

between the parties to the dispute. A dispute, which cannot be settled amicably within a

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

submitted to international arbitration if the investor so wishes.

22. Where the dispute was referred to international arbitration, the Contracting States declare

that they unreservedly and bindingly consent that the investor shall submit the dispute at

its choosing to either (a) an ad hoc arbitral which is established in accordance with the

rules of United Nations Commission on International Trade Law (UNCITRAL) ad in

force at the commencement of the proceedings seated in Fairyland with any of the

following institutions (at the investor’s choice) acting as the appointing authority and

providing administrative services in connections with the arbitration – London Court of

International Arbitration (LCIA), the German Institution of Arbitrationa (DIS) or the

Arbitration Institute of the Stockholm Chmaber of Commerce (SCC); or (b) any other

form of dispute settlement agreed by the parties to the dispute.

22


6

SUMMARY OF ARGUMENTS

1. Drmatic change of Ruritania’s laws and regulations were unreasonable and discriminatory

and Ruritania breached BIT’s Article 2(1). The measures were discriminatory because

they reduced competition and competitors took full advantage of the situation. Ruritania

also failed to fulfill its obligation and provide fair and equitable treatment to the investor.

The claimant also argues that its beer has been indirectly expropriated in Ruritania.

Ruritania’s measures, taken together, substantially interfere with its brand investments in

Ruritania, depriving CAM of a majority of their value. Under article 4 of the CAM –

Ruritania BIT, and expropriation or a measure having the same effect is only lawful if it

meets certain fundamental criteria, including that the measure is taken under due process

of law and that effective and adequate compensation is provided. Ruritania’s indirect

expropriation obviously fails to meet these requirements

2. Claimant argues that arresting Messrs. Goodfellow and Straw was baseless and

discriminatory. The action of police officers against Contifica Group executives resulted

harm to the mind and was stressful. It was also harmful for their reputation, because video

of the detention was aired to Ruritania’s most popular TV channel. he office was acting

on “information” that they were allegedly involved in bribery of the officials of the State

Property Fund of Ruritania in connection with the acquisition of the FBI shares. It is

unknown the source of the “ information” and if this information is reliable enough for

arresting Contifica group employees. Article 31 of the ILC’s Articles on State

Responsibility provides that a state must make full reparation from any “injury” caused to

another state by an internationally wrongful act.23

The same provision also states that the

concept of “injury” includes “any damages, whether material or moral, caused by the

internationally wrongful act of a State”.

3. FB collaborate with subsidiaries was producing beer and without those subsidiaries

FREEBREW could not produce it. Thus their functions were shared, their sales were

depended on each other and their combined operation performed chain reaction.

Subsidiaries constitute a recoverable item of damages, because not only FBI sales

23

Titles and Texts of the Draft Articles on Responsibility of State for Internationally wrongful Acts Adopted by the

Drafting Committee on Second Reading, UN Doc. A/CN.4/L.602/Rev.1.ILC (July 26, 2001) [hereinafter “ILC

Articles on State Responsibility”], Article 31

7

dropped after the dramatic change of Ruritania’s law and regulations governing sale and

marketing of beer, but sales of subsidiaries, which were supplying bottles and cans to

FREEBREW regularly.

4. Shareholders are entitled to bring claims if shares are included in the definiton of

Investment in BIT and if the host State has violated shareholder’s rights. 24

5. In Ruritania and State of Cronos BIT, Article 1(a) Investment is defined as: “The term

“Investment” means every asset which is directly or indirectly invested in accordance

with laws and regulations of the Contracting State in which territory the Investment is

made by Investors of the other Contracting State. The Investment include in particular,

but not exclusively: {…} (b) shares of companies and other kinds of interest in

companies”.

6. FBI was integrated into the Contifica group’s global procurement network with various

subsidiaries of the group supplying bottles, aluminum cans, yeasy, hops and barley to

FBI.25

FB collaborate with those subsidiaries was producing beer and without those

subsidiaries FREEBREW could not produce it. Thus their functions were shared, their

sales were depended on each other and their combined operation performed chain

reaction.

24

RGSL Research Paper No.2, Nationality of Investors in ICSID Arbitration, Valts Nerets, 2011 [Hereinater, RGSL

Research Paper] 25


8

ARGUMENTS

A. The Tribunal has jurisdiction over the claims submitted by CAM and those claims are

admissible in light of the facts surrounding acquisition of the shares in FBI by CAM?

1. According to the article 1(1) of the BIT between the State of Cronos and the Republic of

Ruritania – “The term "Investment" means every asset which is directly or indirectly

invested in accordance with laws and regulations of the Contracting State in which

territory the Investment is made by Investors of the other Contracting State.” Additionally

as it was stated in the preamble of this BIT, the desire of the contract was to intensify

economic co-operation between the two Contracting States with a view to stimulate

private enterprise, intending to create favorable conditions for Investments by Investors of

either Contracting State in the territory of the other Contracting State. In many cases, the

preamble of the treaty shows the nature of the agreement.

2. In the case between Dominican Republic and Societe Generale26

, the Tribunal in its

findings on the existence of an investment, declared, that there “…is no doubt about the

importance of the preamble in matters of treaty interpretation…” The Vienna Convention

on the Law of Treaties mandates an interpretation in good faith and in accordance with

the ordinary meaning to be given to the terms of the treaty in their context and in the light

of its object and purpose.27

In the case stated above, as well as in our case the investment

stimulated some important transfers between the contracting states in the interest of

economic development of the hosting state and the considerable profit for the investor, the

text of the Article 1 of the treaty between CAM and Republic of Rurutania, similarly to

the case presented above, broadly, but non-exhaustively defines the term investment in a

detailed manner and therefore expresses unequivocally the intent of the parties.

26

Soci t n rale In respect of DR Energy Holdings Limited and Empresa Distribuidora de Electricidad del Este,

S. A.v. The Dominican Republic, UNCITRAL, LCIA Case No. UN 7927 27

The Vienna Convention on the Law of Treaties, Done at Vienna on 23 May 1969, entered into force on 27 January

1980. United Nations, Treaty Series, vol. 1155, p. 331, Article 31.1

9

3. The object and purpose of the Treaty is to promote and protect investments. As clearly

stated by the tribunal in SGS v. Philippines: “It is legitimate to resolve uncertainties in its

[the BIT’s] interpretation so as to favor the protection of covered investments.”28

4. According to the Claimant, the object of the Treaty would be defeated by an interpretation

that excluded the application of the MFN clause to dispute resolution. The Claimant relies

on case law in support of its contention that dispute settlement provisions are related to

the treatment afforded to a foreign investor. Thus, in Ambatielos, the commission of

arbitration held that: “Protection of the rights of traders naturally finds a place among the

matters dealt with by treaties of commerce and navigation.”29

5. Also in Maffezini the arbitral tribunal concluded that dispute resolution matters in BITs

are “inextricably related to the protection of foreign investors, as they are also related to

the protection of rights of traders under treaties of commerce”.30

The same arbitral

tribunal considered that international arbitration and other dispute settlement

arrangements are “closely linked to the material aspects of the treatment accorded.”31

The

arbitral tribunal in Siemens reached a similar conclusion, recalling that the International

Court of Justice had also held, in Rights of US Nationals in Morocco that MFN clauses

may extend to provisions related to jurisdictional matters.32

6. As far as in our case both contracting parties undertook to observe obligations they may

have entered into with respect to investments, according to prof. Schreuer it could be an

umbrella clause provision and that:

“Under the regime of an umbrella clause violations of a contract between the host

State and the investor are treaty violations. It would seem to follow that a in a BIT

offering consent to arbitration for violations of the BIT extends to contract

violations covered by umbrella clause.”33

28 S S Soci t n rale de Surveillance S.A. v. Republic of the Philippines, Decision on Jurisdiction, Case No.

ARB/02/6 (Jan. 29, 2004) 29

The Ambatielos case (merits:obligation to arbitrate), Judgment of 19 May 1953, ICJ, Reports 1953, p. 10 30

Emilio Agustin Maffezini v Kingdom of Spain (ICSID No. Apr/97/7), Decision on Jurisdiction of 25 January 2000

and Award of the Tribunal of 13 November 2000, Para 56 31

Ibid 32

Zachary Douglas, The International Law of Investment Claims, Cambridge University Press, 2009, p. 350-51 33

Christoph Schreuer, Preliminary rulings in investment arbitration (chapter 12), p. 207, available at

http://www.univie.ac.at/intlaw/wordpress/pdf/90_prel_rul_article.pdf

http://www.univie.ac.at/intlaw/wordpress/pdf/90_prel_rul_article.pdf

10

7. As the dispute between the parties arose, it should be referred to the Article 8 of the BIT,

according to which as the parties decided their dispute should be regulated if arisen.

Pursuant to Article 8 of the BIT any disputes arising out of or relating to an investment

between a foreign investor and the Contracting State shall at the request of the investor be

submitted to arbitration under the UNCITRAL Rules administered by the German

Institution for Arbitration. This provision represents an offer made by the Republic of

Ruritania to submit any dispute, such as the present one to arbitration. This offer is now

accepted by Claimant.

8. According to article 8(1) Disputes concerning Investments between a Contracting State

and an Investor of the other Contracting State under this Treaty should as far as possible

be settled amicably between the parties to the dispute. A dispute, which cannot be settled

amicably within a period of three months from written notification of a claim by the

Investor, shall be submitted to international arbitration if the investor so wishes. On the

behalf of that, Claimant repeatedly offered to the Republic of Ruritania to settle the

dispute amicably. On 10 December 2011, Claimant wrote to the President and the

Minister of Foreign Affairs of the Respondent noting that the MAB Act and the labelling

requirement with respect to FREEBREW constituted a de facto expropriation of its

interest in FBI and breached Ruritania’s obligations under the BIT including breach of

fair and equitable treatment and full protection and security guarantees.

9. On 31 May 2012, Claimant again wrote to the President of Ruritania expressly invoking

Article 8 of the BIT. No response was received to any of these letters. After these the

claimant had no other choice but to use Article 8(2)(a), according which, if the dispute

was referred to international arbitration, the Contracting States declare that they

unreservedly and bindingly consent that the Investor shall submit the dispute at its

choosing to either an ad hoc arbitral tribunal which is established in accordance with the

rules of the UNCITRAL as in force at the commencement of the proceedings seated in

Fairyland with any of the following institutions (at the investor’s choice) acting as the

appointing authority and providing administrative services in connections with the

arbitration.

10. A number of BITs grant advance consent to different forms of arbitration procedures to be

selected at the choice of investor. For example, Iran-Croatia investment agreement

11

stipulates that, if these disputes cannot be settled the dispute shall be submitted, at the

“choice” of the investor and one of the possible choices is the ad hoc court of arbitration

established under UNCITRAL.

11. The UNCITRAL Model Law provides in art.16 (3): “the arbitral tribunal may rule on a

plea that the arbitral tribunal does not have jurisdiction either as preliminary question or

in an award on the merits” and that, in the event of an action to set aside a partial award

concerning jurisdiction “the arbitral tribunal may continue the arbitral proceedings and

make an award”.

12. The UNCITRAL Arbitration Rules provide:

“The arbitral tribunal shall have the power to rule on objections that it has no

jurisdiction, including any objections with respect to the existence of validity of the

arbitration clause or of the separate arbitration agreement.”

13. In any case, the language of the ISDMs in NAFTA and in the MAI both provide for the

following:

“a) broad scope and standing for alleged breach of obligations under the treaties

which caused loss or damage to an investor or its investment; b)the ability of an

investor to bring arbitration against a foreign host government, under the rules of

ICSID or UNCITRAL (the MAI also provides for International Chamber of

Commerce (ICC) rules), without clearance from its own national government.”

14. The doctrine of separability provides that an arbitration clause is "separable" from the

contract containing it and thus may survive a successful challenge to the validity of the

contract.34

The doctrine of competence-competence provides that arbitrators have

jurisdiction to decide challenges to the arbitration agreements upon which their own

jurisdiction is based.35

These two doctrines have appropriately been called the conceptual

cornerstones of international arbitration as an autonomous and effective form of

international dispute resolution. 36

The doctrines, taken together, ensure that the parties'

intent to arbitrate any disputes that arise out of their international contractual relationship

34

Robert H. Smit, Separability and Competence-Competence in International Arbitration: Ex Nihilo Nihil Fit? Or

can Something Indeed Come from Nothing? Juris Publishing, Inc. The American Review of International Arbitration,

2002 35

Ibid 36

Ibid

12

is effectuated without undue court interference, notwithstanding a party's challenge to the

validity of the parties' contract or the arbitration clause it contains.37

15. Competence-competence means giving arbitrators the power to rule on their own

jurisdiction without being under any obligation to stay proceedings if a court is

concurrently seized.38

Although the power of arbitrators to rule on the validity of the main

contract, with the possibility of declaring it to be ineffective, null and void or non-existent

presupposes acceptance of the autonomy of the arbitration agreement in relation to the

main contract, such autonomy alone is not a sufficient basis for allowing arbitrators to

rule on the validity of the arbitration agreement itself when the latter is challenged. It is

precisely competence-competence, which allows this.39

16. 1961 European Convention provides clearly in article V (3) that:

”Subject to any subsequent judicial control provided for under the lex fori, the

arbitrator whose jurisdiction is called in question shall be entitled to proceed with

the arbitration, to rule on his own jurisdiction and to decide upon the existence or

the validity of the arbitration agreement or of the contract of which the agreement

forms part.”

17. Under the autonomy doctrine of the arbitration clause, the agreement to arbitrate

contained in an arbitration clause is regarded as a separate agreement from the rest of the

contract between the parties; and so it may continue to exist when for all other purposes

the contract itself is at an end.40

Moreover, the arbitration clause may lead this separate

existence not only when the contract has come to an end by performance (that is to say,

when it has been executed) but also when it has come to an end prematurely, as a result of

a supervening event such as force majeure or illegality. 41

18. The main and traditional meaning of the autonomy of the arbitration agreement is it its

autonomy from the main contract in which it is found or to which it relates. In England

Harbour Assurance case the Court of Appeal extended the separability principle to the

37

Ibid 38

MSc of EU Business and Law, International Arbitration: the Doctrine of Separability and Competence-

Competence Principle, 2003, available at: http://pure.au.dk/portal/files/2372/000126197-126197.pdf [hereinafter,

International Arbitration] 39

Ibid 40

Ibid 41

Ibid

http://pure.au.dk/portal/files/2372/000126197-126197.pdf

13

initial illegality of the contract. In that case one party claimed that there has been a total

breach of contract by the other, this does not abrogate the contract, though it may relieve

the injured party of the duty of further fulfilling the obligations, which he has by the

contract undertaken to the repudiating party.

19. The contract is not put out of existence, though all further performance of the obligations

undertaken by each party in favor of the other may cease. It survives for the purpose of

measuring the claims arising out of the breach, and the arbitration clause survives for

determining the mode of their settlement. The purposes of the contract have failed, but the

arbitration clause is not one of the purposes of the contract.”42

20. According to this conception of autonomy, the arbitration agreement remains unaffected

by the fate of the main contract, that is the latter's nullity, resolution, termination, or even

its non-existence. Accordingly, the arbitrator has jurisdiction to rule on any complaint

relating to the existence or the validity of the main contract, provided there are no grounds

for declaring the arbitration agreement itself invalid.43

21. The ICC, which recognized the doctrine of separability of the arbitration agreement in

1955 provides that: “arbitral tribunal shall continue to have jurisdiction to determine the

respective rights of the parties and to adjudicate their claims and pleas even though the

contract itself may be nonexistent or null and void”. The UNCITRAL Arbitration Rules

also address the separability of the arbitration agreement. Article 16 (1) reads that: “an

arbitration clause which forms part of the contract and which provides for arbitration

under these Rules shall be treated as an agreement independent of the other terms of the

contract. A decision by the arbitral tribunal that the contract is null and void shall not

entail ipso jure the invalidity of the arbitration clause”.

42

E. Lee, Encyclopedia of Arbitration Law, Lloyd’s of London Press LTD, London, 1984, p.3 43

International Arbitration, Supra note 38

14

B. The Tribunal has Jurisdiction over CAM’s claims based on the alleged breach of the

share purchase agreement by the State Property Fund of Ruritania and those claims are

admissible

22. The Salini hallmarks of investment were identified on the basis of Article 31 of the

Vienna Convention on the Law of Treaties, which requires that the term investment ‘‘be

interpreted in good faith in accordance with the ordinary meaning to be given to the terms

of the treaty in their context and in the light of its object and purpose’’ and the Preamble

of the ICSID Convention.44

23. Share purchase agreement between State Property Fund of Ruritania and Contifica

Sporots S.P.S. states: ”All disputes arising out of or in connection with the present

Agreement shall be finally settled under the Rules of Arbitration of the International

Chamber of Commerce by three arbitrators appointed in accordance with the said Ruled

seated in eneva”. 45

24. The tribunal in Electrabel v. Hungary noted that “[w]hile there is incomplete unanimity

between tribunals regarding the elements of an investment, there is a general consensus

that the three objective criteria of (i) a contribution, (ii) a certain duration, and (iii) an

element of risk are necessary elements of an investment. Similarly, in the assessment of

the tribunal in Deutsche Bank v. Sri Lanka, the development of ICSID arbitral practice

suggested that the same three criteria relevant for the purpose of defining an investment.

A similar approach was also followed by the tribunal in Quiborax v. Bolivia, according to

which the commitment of resources, risk and duration are all part of the ordinary

definition of an investment. In our case, the contracting parties entered into the agreement

44

Fedax N.V. v. Venezuela, Decision on Jurisdiction of 11 July 1997, ICSID Case No. ARB/96/3, Decision on

Jurisdiction, § 43; Salini Construtorri S.p.A. and Italstrade S.p.A. v. Morocco, ICSID Case No. ARB/00/4, Decision

on Jurisdiction, 23 July 2001 45

Case; Exhibition No.2 Extracts from the share purchase agreement 14.2

15

on 30 June 2008 and the statement of claim was made in 30 September 201246

. Thus in

our case the duration of investment is enough to fulfill this requirement.

25. As for the contribution, Contifica group transferred a big amount of its shares in FBI and

which helped to extend the beer business. The risk factor always exists in investment

agreements, any kind of changes in hosting state legislation can have an effect on

investor’s activity, as it happened in our case, the Act provided by the government of

Republic of Ruritania concerning the alcohol beverages, affected the profitability of the

investor’s business.

26. In the CSOB case47

the Tribunal determined that per se a mixed economy company or

government owned corporations are not disqualified as a national of another Contracting

State unless it is acting as agent of its government or performing governmental functions.

Similarly, in our case Contifica Asset Management Corp. is a company incorporated

under the laws of the State Cronos and is a mixed economy company as well, as long as

Contifica group is a major international conglomerate with interests in many areas

including telecommunications, pharmaceuticals and fast-moving consumer goods.

27. In the same case The Tribunal stated that investments are usually operations composed of

various interrelated transactions. The transactions by themselves might not qualify as an

investment. However when a dispute is brought before ICSID the Tribunal needs to look

at the overall operation and not solely at the particular transaction. If the whole operation

can be qualified as an investment, even if it is not a direct investment, and the dispute

arises directly out of that operation through the particular transaction, ICSID will have

jurisdiction. The facts from our case, which I will state below, will define the fact, that

Contifica group made an important transaction, in the result of which Contifica group

acquired all the right owned by FBI.

28. In Phoenix Action Ltd v Czech Republic48

an arbitral tribunal held that an Israeli

company’s ownership of the share capital of two Czech companies did not constitute an

investment, whether under Article 25 of the International Convention for the Settlement

of Investment Disputes (the ICSID Convention) or the relevant BIT between Israel and

the Czech Republic. In reaching this conclusion the Tribunal did not apply the literal

46


Ceskoslovenska Obchodni Banka, A.S. (CSOB) v. The Slovak Republic, No. ARB/97/4, award of May 24, 1999 48

Phoenix Action Ltd v. Czech Republic ICSID Case No ARB/06/5, Award, 15 April 2009

16

words of the two treaties, but instead the body of ICSID case law which has developed

around the meaning of “investment”, which has come to be known as the “Salini test”

after the case of Salini Costruttori SpA & Anor v Kingdom of Morocco49

.

29. Salini Test identifies the following elements as indicative of an “investment” for purposes

of the ICSID Convention: (i) a contribution, (ii) a certain duration over which the project

is implemented, (iii) a sharing of operational risks, and (iv) a contribution to the host

State’s development50

, being understood that these elements may be closely interrelated,

should be examined in their totality51

and will normally depend on the circumstances of

each case. 52

30. Contifica Group made significant investments in the technology, design and equipment of

the brewery transforming it into a state of the art facility. As a result the output of the

brewery increased by 30% to 130 000 000 decaliters per annum and in a 2010 nation-

wide competition the brewery was recognized as “the safest place to work”. FBI was

integrated into the Contifica group’s global procurement network with various

subsidiaries of the group.53

31. It is obvious that investment of the subsidiaries was for the purpose to the host state’s

development. These criteria have been applied consistently by tribunals and were referred

to expressly in several decisions including Salini v. Morocco54

, Joy Mining v. Egypt55

,

Jan de Nul v. Egypt56

, Malaysian Historical Salvors v. Malaysia57

, L.E.S.I.-DIPENTA v.

Algeria58

, Bayindir v. Pakistan59

and Kardassopoulos v. Georgia60

.

49

Holiday Inns S.A. and others v. Morocco ICSID Case No ARB/00/4, Decision on Jurisdiction, 23 July 2001, para

52 50

Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan ICSID Case No. ARB/03/29,

Decision on Jurisdiction November 14, 2005, para 130 [Hereinafter Bayindir v. Pakistan] 51

L.E.S.I. - DIPENTA v. Algeria, ICSID Case No. ARB/03/8, Award, 10 January 2005 [hereinafter L.E.S.I.] 52

Joy Mining machinery Limited v The Arab Republic of Egypt, ICSID Case No. ARB/03/11, Decision on

Jurisdiction of 6 August 2004, para 53 53

Uncontested facts para 8. 54

Salini Supra Note 44 55

Joy Mining Machinery v. Egypt, ICSID Case No. ARB/03/11, Decision on Jurisdiction, 6 August 2004. 56

Jan de Nul N.V. & Dredging International N.V. v. Egypt, ICSID Case No. ARB/04/13, Decision on Jurisdiction,

16 June 2006. 57

Malaysian Historic Bayindir al Salvors Sdn, Bhd v. Malaysia, ICSID Case No. ARB/05/10, Award, 17 May 2007 58

L.E.S.I. Supra Note 51 59

Bayindir v. Pakistan Supra Note 50 60

Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, Decision on Jurisdiction, 6 July 2007.

17

C. Ruritania violated its obligations under the BIT towards CAM by adopting the measures

for the regulation of marketing and sale of alcohol and imposing further requirements from

marketing and sale of FREEBREW beer

32. The respondent has committed gross breaches of its obligations under BIT and

international law and has infringed the Claimants rights by way of the measures outlined

above.

33. More specifically, the Respondent’s acts and omissions constitute breaches of its

obligations to:

Refrain from subjecting the Claimants investments to unreasonable measures

impairing the management, maintenance, use, enjoyment or disposal of investments.

Article 3(1) of BIT states: Neither Contracting State shall in its territory (a) subject

investments or controlled by Investors of the other Contracting State to treatment less

favorable than it accords to Investments of its own Investors or to Investments of

Investors of any this State or; (b subject Investors of the other Contracting State, as

regard their activity in connection with Investments, to treatment less favorable than

it accords to its own Investors or to Investors of any third State or; (c) Impair by

arbitrary or discriminatory measures the management, maintenance, use, enjoyment

or disposal of Investments of Investors of the other Contracting State. .

Refrain from taking measures of direct or indirect expropriation or any other

measures having the same nature or same effect against Claimants investments unless

the measures are taken for the public benefit; under due process of law and against

effective and adequate compensation. Article 4 (1) of BIT states: . Investments by

Investors of either Contracting State may not directly or indirectly be expropriated,

nationalized or subjected to any other measures taken by a Contracting State or a state

agency of the Contracting State the effects of which would be equivalent to

expropriation or nationalization (hereinafter referred to as Expropriation) in the

territory of the other Contracting State except where such Expropriation is (a) for the

18

public benefit; (b) not discriminatory; (c) carried out under due process of law; and

(d) against compensation.

Provide fair and equitable treatment to the Claimants investments in Ruritania.

Article 2 (1) of BIT states: Each Contracting State shall in its territory in every case

accord Investments by Investors of the other Contracting State fair and equitable

treatment as well as full protection and security under this Treaty.

34. Article 2(1)(b) of the BIT contains a treaty standard that commonly appears in BITs. This

provision prohibits the Host State from imposing “unreasonable or discriminatory

measures”. The claimant will likely ask the tribunal to construe the term “unreasonable”

literally, in light of the object and purpose of the BIT, which is to promote and protect

investments made in the territories of the parties. Based upon this construction, claimant

would attempt to argue that limiting the use of its trademarks to 40% during the first two

quarters of 2011 and in the last quarter of 2011 sales loss by a further 20% of purchase

space and prohibiting the practice of applying branding to multiple products lines is

unreasonable because Ruritania cannot conclusively prove that such restrictions will have

any impact upon alcohol consumption.

35. On the prohibition of discriminatory and arbitrary measures61

, the tribunal in Ulysseas v

Republic of Ecuador noted that for a measure to be discriminatory it was sufficient that,

objectively, two similar situations were treated differently and there was no need to

establish that the discrimination was somehow related to the nationality of the investor(s)

concerned.62

36. Most likely, the claimant will additionally argue that these measures are discriminatory

because they reduced competition, thereby protecting the dominant brewery company in

Ruritania. Contifica Group made significant investment in the technology and as a result

the output of the brewery increased by 30% to 130,000,000 decaliters per annum and in

2010 brewery was recognized as “the safest place to work” in Ruritania. Human Health

Research Institute, which is government-funded institution released report claiming that

61

United Nations Conference on Trade and Development, UNCTAD, Recent Developments in Investor-State

Dispute Settlement (ICSID), Updated for the Multilateral Dialogue on Investment, 28-29 May 2013. 62

Ulysseas, Inc. v The republic of Ecuador (UNCITRAL), Final Award, 12 June 2012, paras 293. Marion Unglaube

and Reinhard Unglaube v Republic of Costa Rica ICSID Case No. ARB/08/1 and ICSID No. ARB/09/20, Award, 16

May 2012, para 262.

19

consumers of FREEBREW beer were exposed to a high risk of cardic complications due

to the effects of Mdethyldioxidebenzovat, an active chemical ingredient found in Reyhan

concentrate63. FBI’s competitors took full advantage of the situation and they sponsored

several “analytical programs on Ruritania;s most popular TV channels, where is was

claimed that research conducted by the “nation’s most respected medical institution

conclusively established that consumption of Reyhan concentrate leads to severe health

risks” and highlighted FREEBREW as the product that contains “poisonous Reyhan”.

Competitors have also started labelling their beers as “Reyhan-free”. 64

It is obvious that

adopted measures were discriminatory and totally unpredictable for FBI and useful for

competitors. Those measure were not only harmfull for FBI sales, but reduce competition

too, because for years FBI had been a successful and profit-generating asset. 65

37. Paris Convention for the Protection of Industrial Property Article 10bis states: “The

countries of the Union are bound to assure to nationals of such countries effective

protection against unfair competition.”

38. Vienna Convention on the Law of Treaties 1969, Article 26 states: “Pacta sunt servanda”

Every treaty in force is binding upon the parties to it and must be performed by them in

good faith. Good faith and fair dealing is a general presumption that the parties to a

contract will deal with each other honestly, fairly, and in good faith, so as to not destroy

the right of the other party or parties to receive the benefits of the contract.

39. Contained within a majority of BITs, the fair and equitable treatment (“FET”) standard

has been the subject of considerable attention over past decade. Consensus exists on the

proposition that FET is an absolute standard, below which no State conduct shall fall.66

It

is also generally accepted that the breach of municipal law does not necessarily prove a

breach of the FET, “without more”.67

FET is required from all branches of government

(legislative, executive and judicial) and it is not necessary for the claimant to prove the

63




R.Dolzer & C. Schreuer, Principles of International Investment Law, Oxford University Press, 2008, at 122-123 67

GAMI investments, Inc. v. Mexico, NAFTA/UNCITRAL Tribunal, Final Award, 15 November 2004 at para. 97;

Elettronica Sicula S.P.A. (ELSI) (United States v Italy), 1989 ICJ. Rep. 15, 28 ILM 1109, 20 July 1989

20

existence of bad faith to demonstrate that it has been breached.68

FET standard69

must be

applied in a manner respectful of the legitimate right of sovereigns to exercise State

authority on the public interest, balanced against the legitimate expectations of foreign

investors to own and operate investments legally established in the territory of a Host

State.70

40. The tribunal in Electrabel v Hungary noted what it considered a widely accepted view,

namely, that the “most important function” of the FET standard is the protection of the

investor’s reasonable and legitimate expectations71

and while “specific assurances my

reinforce investor’s expectations, such assurance is not always indispensable”.72

The

tribunal also noted that it was “well-established that the host State is entitled to maintain a

reasonable degree of regulatory flexibility to respond to changing circumstances in the

public interest” and that, therefore:

“the requirement of fairness must not be understood as the immutability of the legal

framework, but as implying that subsequent changes should be made fairly,

consistently and predictably”.73

41. Contifica Asset Management can be expected to adopt up to two alternatives, but

complimentary, arguments against the measures, based upon the FET standard. First, it

will essentially repeat the arguments it made about the measures being “unreasonable”, in

an effort to demonstrate that they are also unfair and inequitable in effect. Second, CAM

will argue that it was denied due process in the manner in which the measures were

68

Mondev Intrenational Ltd v United States, Award, ICSID Case No ARB (AF)/99/2; IIC 173 (2002), 11 October

2002, at para. 116; Tecnicas Medioambientales Tecmed SA v Mexico, Award, ARB (AF)/00/2; IIC 247 (2003); 10

ICSID Rep 130; 29 May 2003, at para 153; Azurix Corp v Argentina, Award, ICSID Case No ARB/01/12; IIC 24

(2006) [hereinafter Azurix]; 23 June 2006, at para’s 369-372; Glamis Gold Ltd v United States, Award, Ad hoc –

UNCITRAL Arbitration Rules; IIC 380 (2009), 14 May 2009, at para. 560 69

Pope and Talbot Inc. v The Government of Canada, UNCITRAL (NAFTA), Procedural Order No. 2, 28 October

1999; ADF Group Inc.v United States (NAFTA), ICSID Case No. ARB (AF)/00/1, Award, 9 january 2003, paras

193 . MTD Equity Sdn. Bhd and MTD Chile S.A. v Republic of Chile, ICSID Case No. ARB/01/7,Award, 25 May

2004, para. 103. Empresas Lucchetti, S.A. and Lucchetti Peru, S.A v Republic of Peru, ICSID Case No.ARB/03/4,

Decision on Jurisdiction, 7 February 2005, para.23 70

Saluka Investments v Czech Republic, ad hoc – UNiCTRAL, Partial Award 17 March 2006, at para 299-307;

Tecnicas Medioambientales Tecmed SA v Mexico, Award, ARB (AF)/00/2; IIC 247 (2003); 10 ICSID Rep 130, 29

May 2003, at para 150-160 71

Electrabel S.A. v Republic of Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable law and

Liability, 30 November 2012, para.7.75 72

Ibid, Para. 7.78 73

Ibid, para. 7.77

21

promulgated, possibly attempting to rely upon public statements to demonstrate that there

was never any legitimate chance for its concerns to be fairly considered in Ruritania.

42. The tribunal in PSEG v Turkey described that:

“The standard of fair and equitable treatment has acquired prominence in

investment arbitration as a consequence of the fact that other standards

traditionally provided by international law might not in the circumstances of each

case be entirely appropriate. This is particularly the case when the facts of the

dispute do not clearly support the claim for direct expropriation, but when there

are notwithstanding events that need to be assessed under a different standard to

provide redress in the event that the rights of the investor have been breached.” 74

43. While the tribunal in Deutsche Bank v Sri Lanka noted that the FET clause in the

Germany-Sri Lanka BIT was intended as an autonomous standard, the tribunal recognized

that:75

“the actual content of the treaty standard of fair and equitable treatment is not

materially different from the content of the minimum standard of treatment in customary

international law, as recognized by numerous arbitral tribunal and commentators.”76

44. In Waste Management II decision, the tribunal distilled the standard to include: (i)

protection of legitimate and reasonable expectations which have been relied upon by the

investor to make the investment; (ii) good faith conduct, although bad faith on the part of

the State is not required for its violation; (iii) conduct that is transparent, consistent and

not discriminatory, that it, not based on unjustifiable distinctions or arbitrary; (iv) conduct

that does not offend judicial propriety, that complies with due process and the right to be

heard.77

Having found improper motives, bad faith, lack of transparency, due process, and

excess of powers, the tribunal concluded that Sri Lanka had breached the FET standard.78

45. The international minimum standard is a part of customary international law. There are

specific areas in which one could view the international minimum standard and the

national treatment obligation as having coalesced – when discriminating on the basis for

74

PSEG v Turkey, ICSID Case No. ARB/02/5, Award, 19 January 2007. Para. 238 75

United Nations Conference on Trade and Development, UNCTAD; Recent development in Investor-State Dispute

Settlement (ICSID); Updated for the Multilateral Dialogue on Investment, 28-29 May 2013 76

Deutsche Bank AG v Democratic Socialist Republic of Sri Lanka (IVSID Case No. ARB/09/2), Award, 31

October 2012, Paras 418-419 77

Ibid, Para 420 78

Ibid, Para 491

22

nationality violates the international minimum standard, the best example of this is in the

provision of Justice. Another area of the potential overlap is in a State’s obligation to

provide “fair and equitable” treatment,79

which encompasses a non-discrimination

obligation in some instances.80

In addition, some treaties specifically prohibit States from

according “arbitrary and discriminatory” treatment a formulation that to some degree

conflates the minimum standard and national treatment obligations.81

46. The tribunal in Sempra v Argentina said: “It would be wrong to believe that fair and

equitable treatment is a kind of peripheral requirement.”82

To the contrary, it ensures that

even where there is no clear justification for making a finding of expropriation, there is

still a standard, which serves the purpose of justice and can of itself redress damage that is

unlawful, and that would otherwise pass unattended. {…} It must also be kept in mind

that on occasion the line separating the breach of the fair and equitable treatment standard

from an indirect expropriation can be very thin, particularly if the breach of the former

standard is massive and long lasting.83

47. Contifica Asset Management will allege that its beer has been indirectly expropriated in

Ruritania, without the payment of prompt, adequate and effective compensation. Under

virtually every BIT, the Host State has promised to pay full compensation, in a

convertible currency, for all measures: prohibition of any alcoholic beverages including

beer on television and at sporting events; The packaging requirements; that has the effect

of effectively depriving the investor of its use of enjoyment of the investment. The

claimant argues that Ruritania’s measures, taken together, substantially interfere with its

brand investments in Ruritania, depriving CAM of a majority of their value. As a result of

implementation of the regulations FBI’s sales dropped by approximately 60% during the

first two quarters of 2011 with the company incurring loss of net income of around 10

million USD and loss of revenue of 60%.

79

McLachlan, Shore and Weiniger, International Investment Arbitration: Substantive Principles, Oxford University

press, 2008, p. 218-221 80

Ibid, p. 239 - 240 81

CMS Gas Transmission Co v Argentina, ICSID Case No ARB/01/8, Award, 12 May 2005, para 295 82

Sempra Energy v The Argentine Republic, ICSID Case No. ARB/02/16, Award, 28 September 2007, paras 300

and 301 83

Ibid

23

48. CAM argues that the new restriction on its use of the trademark substantially interfere

with its use and enjoyment of it, but also that Ruritania’s restrictions on beer advertising

and marketing have combined with these new trademark use restrictions to dramatically

undermine the value of its brand.

49. Under article 4 of the CAM – Ruritania BIT, and expropriation or a measure having the

same effect is only lawful if it meets certain fundamental criteria, including that the

measure is taken under due process of law and that effective and adequate compensation

is provided.84

Ruritania’s indirect expropriation obviously fails to meet these

requirements. The measures were no taken under due process of law and Ruritania used

public health regulations to effect the expropriation, nor was any compensation ever

provided. The measures are therefore in breach of Ruritania’s obligation under article 4 of

the BIT.

50. Moreover, while a host State has the sovereign right to change its regulatory framework,

including for the purpose of pursuing its public health policies, such changes must be fair

and equitable in light of the investor’s legitimate expectations by issuing regulations of

prohibition of any alcoholic beverages including beer on television and at sporting events;

The packaging requirements85

the respondent failed to maintain a stable and predictable

regulatory framework consistent with CAM legitimate expectations. 86

In particular, the

measures frustrate one of the most fundamental expectations that any investor may have,

which is that a host state will comply with its own law and respect private property.

51. It is well established under international law that restitution is the primary remedy for an

internationally wrongful act committed by a state. This rule was first confirmed by the

Permanent Court of International Justice in the famous Chorzow Factory case, where the

Court held: 87

52. “The essential principle contained in the actual notice of an illegal act – a principle which

seems to be established by international practice and in particular by the decisions of

arbitral tribunals – is that reparation must, as far as possible, wipe out all the

consequences of the illegal act and re-establish the situation which would in all

84

Philip Morris v Uruguay, ICSID Case No. ARB/10/7, 19 February 2010, request for arbitration, para 83 85

Uncontested facts, Paras 11 and 12 86

Ibid 87

Ibid

24

probability have existed if that act had not ben committed. Restitution in kind or if this is

not possible payment of a sum corresponding to the value which a restitution in kind

would bear the award of damages for loss sustained which would not be covered by

restitution in kind or payment in place of it – such are the principles which should serve to

determine the amount of compensation due for an act contrary to international law.”88

53. The International Law Commission in its articles on State Responsibility confirmed the

validity of the Principle. In Philip Morris case it was pointed out: “The state responsible

for an internationally wrongful act is under an obligation to make restitution that is to re-

establish the situation which existed before a wrongful act was committed, provided and

to the extent that restitution: a) Is not materially impossible; b) Does not involve a burden

out of all proportion to the benefit deriving from restitution instead of compensation.”89

D. Moral damages may in principle be awarded by the Tribunal to Claimant for the arrest

of Messrs Goodfellow and Straw, which Respondent accepts constituted a breach of its

obligation to provide full protection and security

54. Moral damages have enjoyed a long history in public international law. In that tradition,

the venerable Lusitania decision defined moral damages as compensation “for an injury

inflicted resulting in mental suffering, injury to his feelings, humiliation, shame, and

degradation, loss of social position or injury to his credit or to his reputation”.90

Significantly, that decision emphasized that moral damages “are very real”91

despite their

intangible nature, which “affords no reason why the injured person should not be

compensated therefore as compensatory damages, but not as a penalty.”92

This is still

eminently good law, as the International Law Commission has made clear in its Draft

Articles on Responsibility of States for Internationally Wrongful Acts. The Draft Articles

clarify that states must make full reparation for injury caused, “whether material or

88

Chorzow Factory Indemnity case (Germany v Poland), (1927) P.C.I.J. Se.A, No 9. Para 152-153 89

ILC Articles on State Responsibility, Supra Note 23, Article 35 90

Reports of International Arbitral Awards, Opinion in the Lusitania cases, 1 November 1923 91

Ibid. 92

Ibid.

25

moral,” which are “financially assessable and may be the subject of a claim for

compensation” rather than satisfaction or restitution, or a fortiori punitive damages.93

55. In the ICSID case of Lemire v. Ukraine an investment tribunal articulated the

requirements of moral damages, concluding that moral damages are appropriate only if

the host state’s actions involve physical duress, result in mental suffering or loss of

reputation, and whose cause and effect are grave.94

56. Desert Line project LLC v Yemen, the arbitral tribunal awarded an amount of U.S. 1

million in compensation to a corporation for its officer’s psychological suffering (in this

case, the “stress and anxiety of being harassed, threatened and detained”)95

directly

resulting from physical actions, i.e. physical duress and other related measures of

coercion, interference or intimidation conducted by army/police forces.96

The tribunal

also recognized that an injury to a corporation’s credit, reputation and prestige is a form

of moral damages that can be compensated by an award.97

57. In its commentaries to its Draft Articles on State Responsibility, The ILC provides the

following illustration of the type of moral damages affecting an individual that can be

compensated: “non-material damage is generally understood to encompass loss of loved

ones, pain and suffering as well as the affront to sensibilities associated with an intrusion

on the person, home or private life.” 98

58. Under Harvard Draft Convention on the International Responsibility of States for Injuries

to Aliens, Article 5 (Arrest and detention) the arrest or detention of an alien is wrongful if

it is a clear and discriminatory violation of the law of the arresting or detaining State.

59. Also, Article 28 of Garvard Draft Convention on the International Responsibility of States

for Injuries to Aliens on Damages for personal Injury or deprivation of liberty states:

Damages for bodily or mental harm, for mistreatment during detention, or for deprivation

93

See ILC Articles on State Responsibility, Supra Note 23, Articles 31 and 34-37 94

Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Award, 28 March 2011, para. 333 95

Desert Line Projects L.L.C. v Yemen, ICSID Case No. ARB/05/17, Award, 6 February 2008, paras. 179 and 286 96

Ibid, Para 290 97

Ibid, Para 286 98

Commentaries to the Draft Articles on Responsibility of States for Internationally Wrongful Acts Adopted by the

International Law Commission at its Fifty-Third Session, November 2001, Report of the ILC on the work of its

Fifty-third Session, Official Records of the General Assembly, Fifty-sixth Session, Sepplemebt No. 10 ((A/56/100,

Ch. IV.E.2 at 252. [hereinafter, ILC Commentaries]; See also article 28 of the 1961 Harvard Draft Convention on the

International Responsibility of States for Injuries to Aliens, Apr.15, 1961, by reporters L.B. Sohn & R. Baxter, 55

A.J.I.L. 584 (1961)

26

of liberty shall include compensation for past and prospective: (a) harm to the body or

mind; (b) pain, suffering and emotional distress (c) loss of earnings and or earning

capacity (d) {..} (e) Harm to the property or business of the alien resulting directly from

such bodily or mental injury or deprivation of liberty; and (f) harm to the reputation of the

alien resulting directly from such deprivation of liberty.

60. The Prosecutor’s office of Ruritania commenced investigation against Messrs Goodfellow

and Straw. The office was acting on “information” that they were allegedly involved in

bribery of the officials of the State Property Fund of Ruritania in connection with the

acquisition of the FBI shares.99

It should be notice that it is unknown the source of the “

information” and if this information is reliable enough for arresting Contifica group

employees. Messrs. Goodfellow and Straw were detained in the Freecity Intrenationa

Airport and they were told by the police officers that they were being detained to stop

them from “fleeing justice”.100

61. After the arresting of Contifica Group employees a video of their detention from a

security camera was apparently passed by the police to Fee TV, Ruritania’s most popular

TV channel.101

Both executives of the Contifica Group were released without any

explanation.102

Claimant argues that arresting Messrs. Goodfellow and Straw was baseless

and discriminatory. The action of police officers against Contifica Group executives

resulted harm to the mind and was stressful. It was also harmful for their reputation,

because video of the detention was aired to Ruritania’s most popular TV channel.

62. Definition of moral damages was developed by Prof. Witich. According to Witich there

are four categories of moral damages. First, it includes personal injury that does not

produce loss of income or generate financial expenses.103

Secondly, it comprises the

various forms of emotional harm, such as indignity, humiliation, shame, defamation,

injury to reputation and feelings, but also harm resulting from the loss of loved ones and.

On a more general basis, from the loss of enjoyment of life.104

A third category would

99





Stephan Wittich, Non-Material Damage and Monetary Reparation in International Law, 15 Finnish Y.B. Int’L L.

329 (2004) 104

Ibid

27

embrace what could be called non-material damage of a “pathological” character, such as

mental stress, anguish, anxiety, pain, suffering, stress, nervous strain, fright, fear, threat or

shock.105

Finally, non-material damage would also cover minor consequences of a

wrongful act, e.g., the affront associated with the mere fact of a breach or, as it is

sometimes called, “legal injury.”

63. Article 31 of the ILC’s Articles on State Responsibility provides that a state must make

full reparation from any “injury” caused to another state by an internationally wrongful

act.106

The same provision also states that the concept of “injury” includes “any damages,

whether material or moral, caused by the internationally wrongful act of a State”.107

64. Article 34 of the ILC Articles indicates that there are three different methods of

reparation: restitution, compensation and satisfaction. The general rue under Article 35 is

that a “State responsible for an internationally wrongful act is under an obligation to make

restitution”, i.e. “to re-establish the situation which existed before the wrongful act was

committed” (when this is “not materially impossible”). Under the ILC Articles,

compensation is the appropriate reparation measure whenever restitution in integrum is

not possible. The only limitation to compensation as the appropriate measure of

reparation is that the damage be “financially assessable”. According to the ILC, “material

and moral damage resulting from an internationally wrongful act will normally be

financially assessable and hence covered by the remedy of compensation.”108

65. In 1973, an agreement was entered into between the overnment of the People’s Republic

of Congo and Benvenuti and Bonfant S.r.l., an Italian corporation, for the establishment

of a company to manufacture plastic bottles.109

In 1977, the Italian company commenced

ICSID proceedings against Congo alleging that it had expropriated its 40% interest in the

joint venture. The tribunal concurred and awarded compensation to the investor in the

amount of CFA 113.4 million, compensating them both for the value of their interest in

the venture and for lost profits. In addition, the investor also claimed some CFA 250

million for “moral damages” related to loss of business opportunities in Italy, loss of

105

Ibid 106

ILC Articles on State Responsibility, Supra Note 23, Article 31 107

Ibid, Article 31(2) 108

ILC Commentaries, Supra Note 98, at 264 109

S.A.R.L. Benvenuti & Bonfant v People’s Republic of the Congo, ICSID Case No. ARB/77/2, Award, 8 August

1980, English translations of French original in 21 I.L.M. 740 (1982)

28

credit with suppliers and bank, and loss of managerial and technical personnel, following

their forced departure from the investor’s operations in Congo.

66. The tribunal held that the Investor had presented insufficient proof to support these

specific allegations, which the tribunal described as mere assertions unaccompanied by

concrete evidence, or even the beginning of evidence.110

However, the tribunal

nevertheless decided to award compensation of less that 8,000 for moral damages on

the basis that: in view of the measures to which Claimant has been subject and the suit

that was the consequence thereof, which have certainly disturbed the activities of

Claimant, the Tribunal deems it equitable to award it the amount of CFA 5,000,000 for

moral damage.

67. The awards examined111

confirm the principle set out in the work of the ILC on State

responsibility that monetary compensation is the appropriate remedy for moral damages

adducting an individual or a corporation.112

It should be reiterated that the basic principle

of state responsibility is that a state must make full reparation for any injury (whether

material or moral) caused to another stated. The goal is to wipe out all the consequences

of a wrongful act and not go beyond that.

E. The loss of sales by CAM’s subsidiaries located outside ofRuritania to FBI constitutes a

recoverable item of damages

27. Conventionally, when one considers an investment, one tends to think of the underlying

business: the fixed property, equipment, contracts, intellectual property and other assets

that belong to a foreign investor and enable it to conduct and income-generating activity

in the host State.113

In practice, these assets are often held through one or more entities;

110

Ibid 111

Antonie Biloune (Syria) & Marine Drive Complex Ltd. (Ghana) v Ghana Investment Centre & Government of

Ghana, ad hoc arbitration under the UNCITRAL arbitration Rules, Award on Jurisdiction and Liability, 27 October,

1989, unpublished, extracts in Y.B. Com. Arb.11 (1994). Victor Pey Casado & President Allende Foundation v

Chile, ICSID Case No. ARB/98/2, Award, May 8, 2008. Biwater Gauff (Tanzania) Ltd. V Tanzania, ICSID Case No.

ARB/05/22, Award, July 24, 2008 112

LC Commentaries, Supra Note 98, at 252 113

Sergey Ripinsky and Kevin Williams Damages in International Investment law, British Institute of International

and Comparative Law, 2008, p. 90-111 [hereinafter, Ripinsky and Williams]

29

with the ultimate investor participating only indirectly in the underlying business unit

owned by a subsidiary company, the latter typically incorporated in the host state.114

28. Article 25(2)(b) of ICSID convention states: “national of another Contracting State”

means: any juridical person which had the nationality of a Contracting State other than the

State party to the dispute on the date on which the parties consented to submit such

dispute to conciliation or arbitration and any juridical person which had the nationality of

the Contracting state party to the dispute on that date and which, because of foreign

control, the parties have agreed should be treated as a national of another Contracting

State for the purpose of this Convention.

29. Under Article 25(2)(b) of the ICSID Convention a local company, controlled by a foreign

owner, is given the right to sue its own state, provided that the parties had agreed that the

local company should be treated as a “national of another Contracting State” due to its

foreign control.115

Second sentence of Article 25(2)(b), is an obstacle for the existence of

a shareholder action to claim for the rights of the local company. In Barcelona Traction

case the Tribunal started by discussing whether the “ownership of shares” can be

considered an investment within the terms of Article 25(1) of the ICSID convention.116

It

concluded that it could, even if the shareholders in question do not control or own the

majority of the shares.117

30. The right of parent corporations to submit claims for damages sustained by their wholly

owned subsidiaries incorporated in the host State of the investment is also expressly

recognized in NAFTA. Its Article 1116 permits an “investor of a Party” to bring a claim

on its own behalf for loss or damage arising out of the breach of NAFTA investment

obligation by “another Party”, NAFTA Article 1117 extends a NAFTA tribunal’s

jurisdiction over claims brought by an “investor of a Party” on behalf an “enterprise of

another Party that is a juridical person that the investor owns or controls directly or

indirectly” for loss or damage arising from the breach of NAFTA investment obligation

114

C McLachlan, L Shore & M Weiniger, International Investment Arbitration: Substantive Principles, Oxford

University Press, 2007, p. 184 115

ICSID Convention, International Centre for Settlement of Investment Disputes, Entered into force on October 14,

1966, Article 25(2)(b) 116

CMS Gas Transmission Company v. The Argentine Republic, ICSID Case No. ARB/01/8 (US/Argentina BIT),

Decision on Jurisdiction, paras 49-50 117

Ibid, para 51

30

by “the other Party”.118

For example, in the NAFTA case UPS v Canada, the Tribunal

allowed United Parcel Service, the U.S. parent company, to bring claims against Canada

on behalf of its wholly owned Canadian subsidiary, UPS Cananda.119

The Tribunal held:

“UPS is the sole owned of UPS Canada. As such, it is entitled to file a claim for its losses,

including losses incurred by UPS Canada”. 120

31. NAFTA provides in addition to the right of an investor to bring claims on its own

behalf,121

that “an investor of a party, on behalf of an enterprise of another party that is a

juridical person that the investor owns or controls directly or indirectly, may submit to

arbitration under this Section a claim that the other Party has breached an obligation”

under the substantive provisions of Chapter 11.122

Thus, a foreign investor, provided it

owns or controls a host-state enterprise, may bring the claim on behalf of that enterprise

and claim the “loss or damage by reason of, or arising out of the breach”.123

In this case,

again the foreign claimant will be able to recover all damages suffered by the local

enterprise. 124

32. The overwhelming number of cases brought against Argentina after the 2002 economic

crisis, shareholders were claiming for damages produced by regulatory action, in

particular the Emergency Law No. 25.561,125

which provided, among other things, for the

‘specification”, and which affected the profitability of licenses and concessions of the

locally established subsidiaries and led to the freezing of tariffs. Claimants submitted that

the shareholder was not claiming redress for the impairment of the rights of the company

– for its licenses and other rights (derivative claims) - but for his own rights, which were

established in an investment treaty.126

Since shares and other forms of participation are

covered investments in investment treaties, they give the shareholder the substantive

118

Ibid 119

Ibid 120

Utd. Parcel Serv. Of America (UPS) v Canada, NAFTA (UNCITRAL), Award on the Merits, May 24 2007, Para

50 121

NAFTA, Article 1116 122

Ibid, Article 1117(1) 123

Ibid 124

Ripinsky and Williams, Supra Note 113, p. 155 125

Ley de Emergencia Publiva y Reforma del Regimen Cambiario No. 25.561, Approved by decree No. 30/2002, 6

January 2002, Argentina, available at” http://www.portaldeabogados.com.ar/noticias/020104.htm 126

Shashank P. Kumar and Manu Sanan, Trade, Law and Development, Special Issue: International Investment Law,

2010. p. 18 [Shashank Trade, Law and Development]

http://www.portaldeabogados.com.ar/noticias/020104.htm

31

protection contained therein. These substantive rights are different from those of the

company. Therefore, the shareholder may claim for the damage caused to his

shareholding by the measures, which were directed at the company in which the

shareholder participates.127

ICSID tribunals have identified themselves with the view of

the investors and therefore found that Argentina had violated several obligations of the

respective BIT’s, such as fair and equitable treatment128

and that the measures were

discriminatory129

vis-à-vis shareholders.

33. In Mondev v United States the Tribunal stated: “There were subsisting interests relating

to Mondev’s investment in the project as at 1 January 1994. It is true that these interests

were held by LPA (host-State subsidiary if the claimant), but LPA itself was “owned or

controlled directly or indirectly” by Mondev and these interests were an investment of an

investor of a Party ad defined in Article 1139.”130

34. An indirect claim is defined as a claim in which a shareholder requests compensation for

damages resulting from a measure that was directed exclusively against the rights of the

company in which it holds shares. 131

35. A common definition of a foreign direct investment is a financial stake taken “to acquire a

lasting interest in an enterprise operating in an economy other that that of the investor, the

investor’s purpose being to have an effective voice in the management of the

enterprise”.132

36. If an investment treaty includes in its definition investment shares and other forms of

participation and contains an invitation to settle any dispute arising out of the violation of

the treaty before an ICSID tribunal, the shareholder, as an investor, has access to the

procedural mechanisms provided for in the treaty; in particular a direct action to claim

before an ICSID tribunal. 133

127

Ibid 128

Siemens award and Separate Opinion of February 6, 2007; LG&E Award, supra note 8 para 123/139; CMS

Award of May 12, 2005, 44 I.L.M. 1205 (2005); 129

Azurix Supra Note 68 Para 393; 130

Mondev v United States, Case No. ARB(AF)/99/2, Award of 11 Octoben 2002, para 82 131

Gabriel Bottini, Indirect Claims under the ICSID Convention, U. Pal, J. Int’l L, Vol 29:3, 2008, p 565 132

World Bank, World Development Report 1985, at ix 91985; accord Deanne Julius, Foreign Direct Investment 1,

1991 133

Shashank Trade, Law and Development Supra Note 126, p. 11

32

37. Shareholders are entitled to bring claims if shares are included in the definiton of

Investment in BIT and if the host State has violated shareholder’s rights. 134

38. In Ruritania and State of Cronos BIT, Article 1(a) Investment is defined as: “The term

“Investment” means every asset which is directly or indirectly invested in accordance

with laws and regulations of the Contracting State in which territory the Investment is

made by Investors of the other Contracting State. The Investment include in particular,

but not exclusively: {…} (b) shares of companies and other kinds of interest in

companies”.


subsidiaries of the group supplying bottles, aluminum cans, yeasy, hops and barley to

FBI.135

FB collaborate with those subsidiaries was producing beer and without those

subsidiaries FREEBREW could not produce it. Thus their functions were shared, their

sales were depended on each other and their combined operation performed chain

reaction.

40. In breach of contract cases, the value of the loss will often be computed on the basis of

loss of profits or consequential liability to a third party. The alternative of capital

expenditure will not be relevant.136

Thus in the case of a sale of goods, a purchaser who

has not received the goods will be entitled to the loss of profits which he could have made

from the resale. If the purchaser had already entered into contracts to resell the goods the

measure of loss may be its liability to the sub-purchaser. 137

However in some breach of

contract cases there may be considerable capita; expenditure for failure to supply the

goods as well as its loss of profit. Take the example of an exclusive distributor of

motorcars. Such a distributor may establish facilities throughout its territory, for the

marketing, sale and servicing of vehicles.138

If the distribution agreement is wrongfully

terminated, the measure of damages could be computed on the basis of the capital

expenditure invested or the loss of profits. 139

134

RGSL Research Paper, Supra Note 24 135


Michael Pryles, Lost Profit and Capital Investment, p.5, available at http://www.arbitration-

icca.org/media/0/12223892171920/damages_in_the_intern ational_arbitration_paper.pdf 137

Ibid 138

Ibid 139

Ibid

http://www.arbitration-icca.org/media/0/12223892171920/damages_in_the_intern%20ational_arbitration_paper.pdf

http://www.arbitration-icca.org/media/0/12223892171920/damages_in_the_intern%20ational_arbitration_paper.pdf

33


subsidiaries of the group supplying bottles, aluminum cans, yeast, hops and barley to

FBI.140

Thus those subsidiaries constitute a recoverable item of damages, because not

only FBI sales dropped after the dramatic change of Ruritania’a law and regulations

governing sale and marketing of beer, but sales of subsidiaries, which were supplying

bottles and cans to FREEBREW regularly.

42. In cases Himpurna California Energy (“Himpurna”) and Patuha Powel Ltd. (“Patuha”),

both were indirect subsidiaries of US Company and entered into contracts with

Indonesian state electricity corporation, PT Persuhaan Lastruik Negara (“PLN”), to

explore and develop geothermal resources in Indonesia. The contracts entitled the project

companies to build two power plants in Indonesia and sell the power to PLN. Indonesia

was subsequently struck by an economic crisis and PLN failed to purchase the energy

generated. The disputes were submitted to arbitration, with Himpurna and Patuha seeking

damages. The same arbitral tribunal heard both cases and resulted in identical awards,

save for the amount of damages claimed and awards. The tribunal found that PLN was in

breach of contract, and that Himpurna and Patuha were entitled to damages, including for

lost profit.

140


i

PRAYER

On the basis of the arguments advanced and authorities cited, the Applicants hereby

request this tribunal to consider and declare that:

1. The Tribunal has jurisdiction over the claims submitted by CAM and those claims are

admissible in light of the facts surrounding acquisition of the shares in FBI by CAM

2. The Tribunal has Jurisdiction over CAM’s claims based on the alleged breach of the share

purchase agreement by the State Property Fund of Ruritania and those claims are

admissible

3. Ruritania violated its obligations under the BIT towards CAM by adopting the measures

for the regulation of marketing and sale of alcohol and imposing further requirements

from marketing and sale of FREEBREW beer

4. Moral damages may in principle be awarded by the Tribunal to Claimant for the arrest of

Messrs Goodfellow and Straw, which Respondent accepts constituted a breach of its

obligation to provide full protection and security

5. The loss of sales by CAM’s subsidiaries located outside of Ruritania to FBI constitutes a

recoverable item of damages.

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