FOREIGN DIRECT INVESTMENT MOOT COMPETITION

Stockholm, 8-11 November 2018

MEMORIAL FOR RESPONDENT

TEAM ALFARO

FENOSCADIA LIMITED

45 Finley Road

40 TC 1011

- CLAIMANT -

vs.

REPUBLIC OF KRONOS

Suni Street 12

1090 Vasa

- RESPONDENT -

TEAM ALFARO

i

INDEX

TABLE OF ABBREVIATIONS ......................................................................................... III

TABLE OF AUTHORITIES ................................................................................................. V

TABLE OF CASES ............................................................................................................... XI

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

ARGUMENTS ON JURISDICTION .................................................................................... 3

I. CLAIMANT IS A KRONOS’ NATIONAL. THEREFORE, IT IS NOT AN

INVESTOR UNDER THE BIT ............................................................................................. 3

i. The Ticadian private equity fund has no intention of controlling CLAIMANT’S

business ................................................................................................................................ 6

ii. The concentration of almost all of CLAIMANT’S activities and operations in

Kronos evidences the genuine connection with RESPONDENT ........................................ 8

II. CLAIMANT’S REQUESTS ARE NOT ADMISSIBLE BEFORE THE

ARBITRAL TRIBUNAL ........................................................................................................ 9

i. The motion constituted a choice under the fork in the road provision ................ 10

a. The motion and the request for arbitration are essentially the same ................... 11

b. The present claims should be discussed in RESPONDENT’S courts once it was not

a provisional measure ............................................................................................ 15

III. THE TRIBUNAL HAS JURISDICTION OVER RESPONDENT’S

COUNTERCLAIM ............................................................................................................... 17

i. The wording of the BIT indicates that the parties consented with the

counterclaim ...................................................................................................................... 17

ii. The primary claim and the counterclaim are connected ....................................... 19

iii. The benefits that comes with counterclaims highlight the reasons for this

Tribunal to accept it ......................................................................................................... 21

ARGUMENTS ON THE MERITS ...................................................................................... 23

TEAM ALFARO

ii

IV. RESPONDENT ACTED IN ACCORDANCE WITH ARTICLE 6 OF THE

BIT.......... ................................................................................................................................ 23

i. RESPONDENT did not breach the fair and equitable treatment standard ............. 23

a. The BIT defines fair and equitable treatment as the Minimum Standard of

Treatment ............................................................................................................... 23

b. CLAIMANT’s legitimate expectations were not in accordance with Kronos’

scenario .................................................................................................................. 26

V. THE PRESIDENTIAL DECREE NO 2424 IS NOT EXPROPRIATORY..... 29

i. RESPONDENT’s actions are within its police powers ............................................... 30

ii. The Presidential Decree No 2424 is a non-compensatory regulation ................... 33

iii. General exceptions are provided in article 10 of the BIT ...................................... 35

VI. CLAIMANT IS LIABLE TO PAY COMPENSATION FOR THE

ENVIRONMENTAL DAMAGES CAUSED IN RESPONDENT’S TERRITORY ....... 38

PRAYERS FOR RELIEF ..................................................................................................... 42

TEAM ALFARO

iii

TABLE OF ABBREVIATIONS

ABBREVIATION FULL CITATION

Agreement

Concession Agreement

Arbitration Institute of The

Stockholm Chamber of

Commerce

SSC Arbitration Institute and SCC Rules

BIT Agreement Between The Republic of Ticadia and The

Republic of Kronos for the Promotion and Reciprocal

Protection of Investments

CLAIMANT Fenoscadia Limited

Decree Presidential Decree No 2424

Facts Statement of Uncontested Facts

Fenoscadia Fenoscadia Limited

FET Fair and Equitable Treatment

ICSID International Centre for Settlement of Investment

Disputes

IIA International Investment Agreement

Kronos Republic of Kronos

MIGA Convention Multilateral Investment Guarantee Agency Convention

MST Minimum Standard of Treatment

para. / paras. Paragraph(s)

PO Procedural Order

RESPONDENT Republic of Kronos

TEAM ALFARO

iv

Ticadia Republic of Ticadia

TEAM ALFARO

v

TABLE OF AUTHORITIES

CITED AS FULL CITATION

TREATIES AND CONVENTIONS

Vienna Convention Vienna Convention on the Law of Treaties, 23 May 1969

ARBITRAL AWARDS

Atanasova/Benoit/Ostransky Dafina Atanasova, Carlos Adrián Martínez Benoit Josef

Ostransky, Counterclaims in Investor-state Dispute

Settlement (ISDS) under International Investment

Agreements (IIAS) (Trade and Investment Law Clinic

Papers, 2012).

Berle & Means Berle, Adolf A., Means, Gardiner C., The Modern

Corporation and Private Property (New Brunswick:

Transaction Publisher, 1991).

Bjorklund Andrea K. Bjorklund, The Role of Counterclaims in

Rebalancing Investment Law (17 Lewis & Clark L. Rev.

461, 2013).

Born Born, Gary B., International Commercial Arbitration:

International Arbitration Procedures and Proceedings, 2nd

ed., (Wolters Kluwer Law & Business, 2014).

Brownlie Ian Brownlie, Public International Law, (Oxford

University Press, 6th Edition, 2003 at 509).

Cambridge Dictionary Cambridge International Dictionary of English (Bath:

Cambridge University Press, 1995).

Castka/Balzarova Pavel Castka; Michaela A. Balzarova, A critical look on

quality through CSR lenses: Key challenges stemming

TEAM ALFARO

vi

from the development of ISO 26000 (2007), International

Journal of Quality & Reliability Management, Vol. 24

Issue: 7, pp.738-752.

Dolzer Rudolf Dolzer; Christoph Schreuer, Principles of

International Investment Law, 2nd edition (Oxford

University Press, 2012).

Donald F. Rieger Jr. Donald F. Rieger Jr, Public Policy and Negating

Discriminatory Expropriations in the Municipal Courts

(Cornell International Law Journal, 1974).

Donaldson Donaldson, Thomas, The Ethics of International Business

(Oxford University Press, 1992).

Douglas Cumming Cumming, Douglas, Private Equity: fund types, risks and

returns, and regulation (New Jersey: John Wiley & Sons

Inc. 2009).

Farmer Kelsey Brook Farmer, The Best Defence is a Good

Offense – State Counterclaims in Investment Treaty

Arbitration (LLM Research Paper, Victoria University of

Wellington, 2016).

Hamida Walid Ben Hamida, L' arbitrage transnational unilatéral:

réflexions sur une procédure réservée à l'initiative d'une

personne privée contre une personne publique (Université

Panthéon-Assas, 2003).

Hóber Hobér, K., Parallel Arbitration Proceedings—Duties of the

Arbitrators: Some Reflections and Ideas, in Cremades,

B.M. and Lew, J.D.M. (eds), Parallel State and Arbitral

Procedures in International Arbitration (Paris: ICC

Publishing, 2005).

ISO 26000 International Organization for Standardization, ISO 26000

- Social Responsibility.

TEAM ALFARO

vii

J. Marless J. Marlles, Public Purpose, Private Losses: Regulatory

Expropriation and Environmental Regulation in

International Investment Law (2007) 16 Journal of

Transnational Law & Policy 275.

Kjos Hege Elisabeth Kjos, Applicable Law in Investor-State

Arbitration: The Interplay Between National and

International Law (Oxford University Press, 2013).

Konrad von Moltke Konrad von Moltke, Discrimination and Non-

Discrimination in Foreign Direct Investment Mining

Issues (OECD Global Forum On International Investment,

2002).

Kryvoi Yaraslau Kryvoi, Counterclaims in Investor-State

Arbitration (The British Institute of International and

Comparative Law, 2011).

Lim/Ho/Paparinskis Chin Leng Lim; Jean Ho; Martins Paparinskis,

International Investment Law and Arbitration:

Commentary, Awards and other Materials. (New York:

Cambridge University Press, 2017.)

Lowe Vaughan Lowe, Regulation or Expropriation? Current

Legal Problems, Volume 55, Issue 1 (1 January 2002).

McLachlan/ Shore/

Weiniger

McLachlan, C.; Shore, L; Weiniger, M., International

Investment Arbitration: Substantive Principles (2nd ed.,

2007).

Muchlinski/Ortino/Schreuer Muchlinski,Peter T; Ortino, Federico; Schreuer, Christoph,

The Oxford Handbook of International Investment Law.

ISBN-13: 9780199231386. Oxford: Oxford Handbooks in

Law (June 2008).

Musayev Kamran Musayev, Counterclaims in Treaty-based

Investment Arbitration (Master thesis, University of Oslo,

TEAM ALFARO

viii

2017).

Newcombe/Paradell Andrew Newcombe; Lluís Paradell, Law and Practice of

Investment Treaties (Kluwer Law International, 2009).

Odumosu Ibironke T. Odumosu, The Antinomies of the (Continued)

Relevance of ICSID to the Third World (8 San Diego

International Law Journal 345, 2007).

OECD Gaukrodger, D. Addressing the balance of interests in

investment treaties: The limitation of fair and equitable

treatment provisions to the minimum standard of treatment

under customary international law (OECD Working

Papers on International Investment, 2017).

OECD Indirect

Expropriation

Indirect Expropriation and the Right to Regulate in

International Investment Law (OECD Working Papers on

International Investment, 2004).

Okawa Phoebe Okawa, Issues of Admissibility and the Law on

International Responsibility, in International Law, 4 ed.,

(New York: Oxford University Press, 2014).

Paulsson Paulsson, J., Denial of Justice in International Law. Hersch

Lauterpacht Memorial Lectures (Cambridge University

Press, 2005).

Peterson Luke Eric Peterson, Challenges Under Bilateral

Investment Treaties Give Weight to Calls for Multilateral

Rules (World Trade Agenda, 2001).

Preston Brian Preston, Sustainable Development Law in the

Courts: The Polluter Pays Principle (26 Environmental

and Planning Law Journal 257, 2009).

Schell Schell, James M., Private Equity Funds: business, structure

and operations (New York: Law Journal Press, 2004).

TEAM ALFARO

ix

Schreuer Christoph H. Schreuer, The ICSID Convention: A

Commentary (Cambridge University Press, 2001).

Schwebel Stephen M. Schwebel, In defense of Bilateral Investment

Treaties (Perspectives on topical foreign direct investment

issues No. 135, 2014).

Shaw Malcolm N. Shaw, International Law (5th ed., Cambridge,

2003).

Suarez Anzorena Suarez Anzorena, C.I., Multiplicity of Claims under BITs

and the Argentine Case 2 (2) Transnational Dispute

Management (2005).

Suzy H. Nikièma Suzy H. Nikièma, Compensation for Expropriation

(International Institute for Sustainable Development,

2013).

UNCTAD United Nations Conference on Trade and Development.

Fair and Equitable treatment (UNCTAD Series on Issues

in International Investment Agreements II, 2012).

United Nations United Nations, Glossary of Environment Statistics,

Studies in Methods, Series F, No. 67 (1997).

Van Harten Gus Van Harten, Arbitrator Behaviour in Asymmetrical

Adjudication: An Empirical Study of Investment Treaty

Arbitration (Osgoode Hall Law Journal, 2012).

Wegen/Markert Wegen, G. and Markert, L., Food For Thought on Fork-in-

the-Road—A Clause Awakens from its Hibernation, in

Klausegger, C. Klein, P. Kremslehner, F., Petsche, A.,

Pitkowitz, N., Power, J., Welser, I., and Zeiler, G. (eds),

Austrian Yearbook on International Arbitration (2010)

(Vienna: Manzsche Verlags- und

Universitätsbuchhandlung, 2010) 269–292 (G. Wegen and

L. Markert, in Aust.Y.I.A. (2010).

TEAM ALFARO

x

Wehland Wehland, Hanno, The Coordination of Multiple

Proceedings in Investment Treaty Arbitration, Oxford

International Arbitration Series (2013).

Yu-Hsin Lin Controlling Controlling-Minority Shareholders: corporate

governance and leveraged corporate control (June 20,

2017). 2017 (2) Columbia Business Law Review 453-510

(2017).

TEAM ALFARO

xi

TABLE OF CASES

CITED AS FULL CITATION

ARBITRAL AWARD

ADC v Hungary ADC Affiliate Limited and ADC & ADMC Management

Limited v The Republic of Hungary, ICSID Case No.

ARB/03/16 (2 October 2016).

Al Warraq v Republic of

Indonesia

Hesham T. M. Al Warraq v Republic of Indonesia,

UNCITRAL (15 December 2014).

Azurix Azurix Corp. v Argentine Republic ICSID Case No.

ARB/01/12, Award, (14 July 2006).

Burlington Burlington Resources Inc. v Republic of Ecuador, ICSID

Case No. ARB/08/5 (7 February 2017).

CME CME Czech Republic B.V. (The Netherlands) v The Czech

Republic, UNCITRAL, Award (14 March 2003).

CMS CMS Gas Transmission v Argentina, Decision on Objection

to Jurisdiction (17 July 2003).

Commerce Commerce Group Corp and San Sebastian Gold Mines, Inc.

v The Republic of El Salvador, ICSID Case No

ARB/09/17, Award (14 March 2011).

Desert Line Desert Line Projects LLC v The Republic of Yemen, ICSID

Case No. ARB/05/17, Award (6 February 2008).

EDF EDF (Services) Limited v Romania, ICSID Case No.

ARB/05/13, Award (8 October 2009).

Eudoro Armando Olguín v

Republic of Paraguay

Mr. Eudoro Armando Olguín v Republic of Paraguay,

ICSID Case No. ARB/98/5, Award (26 July 2001).

TEAM ALFARO

xii

GAMI Investments GAMI Investments, Inc. v The Government of the United

Mexican States, UNCITRAL, Award (15 November 2004).

Glamis Gold v USA Glamis Gold, Ltd. v United States of America,

UNCITRAL, Award (8 June 2009).

Goetz Antoine Goetz & Others and S.A. Affinage des Metaux v

Republic of Burundi, ICSID Case No. ARB/01/2, Award

(21 June 2012).

H&H H&H Enterprises Investments, Inc. v Arab Republic of

Egypt, ICSID Case No. ARB 09/15, Decision on

RESPONDENT’s Objections to Jurisdiction (5 June 2012).

Klöckner Klöckner Industrie-Anlagen GmbH and others v United

Republic of Cameroon and Société Camerounaise des

Engrais, ICSID Case No. ARB/81/2 (1983).

Lauder Ronald S Lauder v The Czech Republic, ICSID, Final

Award (3 September 2001).

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

International Inc. v Argentine Republic, ICSID Case Nº

ARB/02/1, Decision on Liability (3 October 2006).

Maffezini Emilio Agustin Maffezini v Kingdom of Spain, Award,

ICSID Case No ARB/97/7, Award (13 November 2000).

Metalclad Metalclad Corp v United Mexican States, ICSID Case No.

ART(AF)97/1, Award (30 August 2000).

Methanex v United States Methanex Corporation v United States of America,

UNCITRAL, Award (3 August 2005).

Middle Middle East Cement v Egypt (ICSID), Award (12 April

2002).

Morris Philip Morris Brands SÀRL, Philip Morris Products S.A.

TEAM ALFARO

xiii

and Abal Hermanos S.A. v Oriental Republic of Uruguay,

ICSID Case No. ARB/10/7, Award (8 July 2016)

Neer L. F. H. Neer and Pauline Neer (U.S.A.) v United Mexican

States, RIAA (15 October 1926).

Nykomb Synergetics v

Latvia

Nykomb Synergetics Technology Holding AB, Stockholm

v The Republic of Latvia, Riga, SCC, Award (16 December

2003).

Occidental Occidental v Ecuador, LCIA, UNCITRAL, Award (1 July

2004).

Pan American Pan American Energy v Argentina (ICSID), Decision on

Preliminary Objections (27 July 2006).

Parkerings-Compagniet Parkerings-Compagniet AS v Republic Lithuania, ICSID

Case No. ARB/05/8, Award (11 September 2007).

Paushok Sergei Paushok, CJSC Golden East Company, CJSC

Vostokneftegaz Company v The Government of Mongolia,

Award on Jurisdiction and Liability (28 April 2011).

Plama Plama Consortium Limited v Republic of Bulgaria, ICSID

Case No. ARB/03/24, Order on Provisional Measures (06

September 2005).

Perenco Ecuador PEcuador Ltd v Republic of Ecuador, ICSID Case No

ARB/08/6, Interim Decision on the Environmental

Counterclaim (11 August 2015).

PNG PNG Sustainable Development Program Ltd v Papua New

Guinea, ICSID Case No ARB/13/33, Decision on the

CLAIMANT’s Request for Provisional Measures (21 January

2015).

Pugachev Pugachev v Russian Federation, Interim Award, IIC 1268

(7 July 2017), United Nations General Assembly [UNGA];

TEAM ALFARO

xiv

United Nations Commission on International Trade Law

[UNCITRAL].

Quiborax Quiborax v Bolivia, ICSID Case No. ARB/06/2, Decision

on Provisional Measures (26 February 2010).

Ronald S. Lauder v The

Czech Republic

Ronald S. Lauder v The Czech Republic, UNCITRAL,

Award (3 September 2001).

Roussalis Spyridon Roussalis v Romania, ICSID Case No. ARB/06/1,

Award (7 December 2011).

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

Final Award (30 December 2000).

Saluka Saluka v Czech Republic, Partial Award, UNCITRAL (17

March 2006).

Sempra Sempra Energy International v Argentine Republic, ICSID

Case No. ARB/0/16, Award (28 September 2007).

SGS v Pakistan SGS Société Générale de Surveillance S.A v Islamic

Republic of Pakistan, ICSID Case No. ARB/01/13,

Procedural Order (16 October 2002).

SGS v Philippines SGS Société Générale de Surveillance S.A. v Republic of

the Philippines, Decision on Jurisdiction (29 January 2004).

Siemens v Argentina Siemens A.G. v The Argentine Republic, ICSID Case No.

ARB/02/8, Award (17 January 2007).

SPP SPP v Egypt (ICSID), Decision on Jurisdiction (27

November 1985).

Suez Suez, Sociedad General de Aguas de Barcelona S.A., and

Vivendi Universal S.A v The Argentine Republic, ICSID

Case No. ARB/03/19, Award (9 April 2015).

Suez InterAgua v Argentina Suez, Sociedad General de Aguas de Barcelona S.A., and

TEAM ALFARO

xv

InterAgua Servicios Integrales del Agua S.A. v The

Argentine Republic, ICSID Case No. ARB/03/17, Decision

on Liability (30 July 2010).

Tallim United States (Tallim) B.V. and Aktsiselts Tallinna Vesi v

Republic of Estonia, ICSID Case No. ARB/14/24, Decision

on RESPONDENT’s Application for Provisional Measures

(12 May 2016).

Tecmed Tecmed v Mexico, ICSID Case No. ARB (AF)/00/2,

Award (29 May 2003).

Telenor Mobile

Communications A.S. v The

Republic of Hungary

Telenor Mobile Communications A.S. v The Republic of

Hungary, ICSlD Case No. ARB/04/15, Award (13

September 2006).

Texaco Chevron Corporation and Texaco Petroleum Company v

Ecuador, UNCITRAL, PCA Case No 2009-23, Third

Interim Award on Jurisdiction and Admissibility (27th

February 2012).

Thunderbird International Thunderbird Gaming Corporation v The

United Mexican States, UNCITRAL, Award (26 January

2006).

Tokios Tokios Toheles v Ukraine, ICSID Case No. ARB/02/18,

Award (26 July 2007).

Urbaser Urbaser et al. v The Argentine Republic, ICSID Case No.

ARB/07/26, Award (8 December 2016).

Vivendi Compañía de Aguas del Aconquija SA & Compagnie

Générale des Eaux (Vivendi) v Argentine Republic, Award,

21 November 2000, 5 ICSID Reports 296.

Waste Management Waste Management, Inc. v United Mexican States, ICSID

Case No. ARB(AF)/00/3, Award (30 April 2004).

TEAM ALFARO

xvi

DOMESTIC AND INTERNATIONAL COURT DECISIONS

Banco Nacional de Cuba v

Sabbatino

Banco Nacional de Cuba v Sabbatino, 376 U.S. 398

(1964).

Chorzów Factory Chorzów Factory, Interpretation (Germany v. Poland),

No. 11 (1927), Dissenting Opinion of Judge Anzilotti,

PCIJ (Ser. A).

Mugler v Kansas Mugler v Kansas, 123 U.S. 623 (1887).

Oscar Chinn Case Britain v. Belgium, Permanent Court of International

Justice (1934), P.C.I.J. (Ser. A/B) No. 63.

Pennsylvania Coal Co v Mahon Pennsylvania Coal Company v. Mahon, 260 U.S. 393

(1922).

Sooraram Pratap Reddy & Ors.

v Distt. Collector, Ranga Reddy

Sooraram Pratap Reddy & Ors. v District Collector,

Ranga Reddy Distt. & Ors., Supreme Court of India (5

September 2008).

TEAM ALFARO

1

STATEMENT OF FACTS

1. This case concerns to Republic of Kronos (“Kronos” or “RESPONDENT”) actions to

protect its environment and the health of its population due to the damages caused by

Fenosadia Limited’s (“Fenoscadia” or “CLAIMANT”) mining operations.

2. RESPONDENT is an underdeveloped country that discovered the occurrence of lindoro, a

rare earth metal, in its Northern region (hereinafter “the Site”). Since there were no

national companies in RESPONDENT’s territory with appropriate expertise to extract it,

in November 1998, the Kronian government decided to conduct a public auction for the

concession of rights to extract the metal, which was won by CLAIMANT. The

exploitation effectively started in August 2008.

3. CLAIMANT and RESPONDENT, then, signed an Agreement in order to protect and

regulate the rights to exploit lindoro. Among the obligations settled, CLAIMANT

committed to operate sustainably, taking the due precautions with the disposal of any

waste result of the exploitation. However, CLAIMANT has not complied with such

obligations.

4. The Agreement also provided for inspections in CLAIMANT’s activities. Over the years,

the inspection reports of the Ministry for Environmental Matters have shown that the

exploitation conducted by CLAIMANT had a significant potential to cause environmental

damages, and since 2010, year that CLAIMANT concentrated its mining activities and

resources in Kronos, the volume of toxic wastes found in RESPONDENT’s river

increased.

5. In 2012, 35% of CLAIMANT’s shares were bought by Kronian nationals - who started to

exert control over the company’s matters and from that year until today, the majority of

CLAIMANT’s board of directors is comprised by Kronian national as well.

6. Moreover, given the conclusions of the Federal University Study, it came to

RESPONDENT’s attention that CLAIMANT’s activities caused the pollution of the Rhea

River and that an urgent measure should be taken by the Kronian government to avoid

further harm. The current high level of contamination of the Rhea River placed it

among the top three most polluted rivers in the world. A complete decontamination

might take five years and cost no less than USD 75 million. The Study also

TEAM ALFARO

2

demonstrated that since CLAIMANT’s activities started in RESPONDENT’s territory, it has

been verified a significant increase in cardiovascular disease and microcephaly.

7. Considering that CLAIMANT blatantly failed to fulfill its environment-related

obligations by causing severe damages to RESPONDENT’s environment and to the health

of its population, RESPONDENT had no choice but to strengthen its environmental

framework by immediately issuing the Presidential Decree No 2424 - a measure totally

within its sovereign powers and pretty much expected from a government.

8. Therefore, complying with the Kronian Environmental Act (KEA) and assuring the

welfare of the population, as required by the BIT, RESPONDENT revoked CLAIMANT’s

operating licenses and lawfully terminated the Agreement through the Decree No 2424.

9. Due to this fact, CLAIMANT filed a motion before RESPONDENT’s courts directly

questioning the Decree’s reasons and the impacts it supposedly caused on CLAIMANT’s

activities. Not satisfied with the national pronouncement, CLAIMANT now seeks relief

in arbitration through a request that has essentially the same grounds discussed in the

national court and represents a double choice under the dispute settlement clause of the

BIT, which is not admissible.

TEAM ALFARO

3

ARGUMENTS ON JURISDICTION

10. RESPONDENT contends that the Arbitral Tribunal lacks jurisdiction over the present

dispute since (I) CLAIMANT is not an investor under the 1995 Ticadia-Kronos Bilateral

Investment Treaty (therefore “BIT”); and, that (II) CLAIMANT’s requests are not

admissible in view of the lawsuit CLAIMANT filed before the domestic courts of

RESPONDENT. However, in the remote possibility of the Arbitral Tribunal understands

that it has jurisdiction over this dispute, (III) RESPONDENT’s counterclaim shall be

admitted.

I. CLAIMANT IS A KRONOS’ NATIONAL. THEREFORE, IT IS NOT AN INVESTOR UNDER

THE BIT

11. RESPONDENT will hereinafter demonstrate that Fenoscadia Limited is a Kronian

company, since it is controlled by Kronian nationals, has a substantial business in

Kronos; and, does not have an effective link with Ticadia to be considered a national of

this country. In view of these facts, CLAIMANT cannot be considered an investor under

the BIT and is not eligible to take advantages from it, since article 11(1) of the BIT

expressly states that in case of an eventual investment dispute, the parties are a

“contracting party” and an “investor of the other contracting party”1.

12. It is important to highlight that RESPONDENT does not question the fact that CLAIMANT

had, until a certain part of its history, Ticadian nationality. However, that situation

started to change over the years. The intention of commuting CLAIMANT’s nationality

from Ticadian to Kronian became latent in 2010, when the company decided to move

almost all of its operations to Kronos and effectively shut down its activities in

Ticadia.2 Then, in 2012, the nationality changing process was finally concluded, when

Kronian nationals acquired a considerable amount of CLAIMANT’s voting shares and

received from the remaining shareholders their managing power of the company,

assuming CLAIMANT’s control.3

1 BIT, p. 44

2 Facts, p. 33.

3 Ibidem.

TEAM ALFARO

4

13. The first evidence of CLAIMANT’s Kronian nationality can be demonstrated by the

analysis of the company’s controlling situation. It is a fact that CLAIMANT’S effective

control is exerted, since 2012, by a group of Kronian shareholders that acquired 35% of

CLAIMANT’s voting shares.4 By the time of the acquisition, the Ticadian private equity

fund, that owns the remaining voting shares, decided to delegate its powers of decisions

to those Kronian shareholders.5

14. In light of this, since 2012 CLAIMANT is not just partially owned but also controlled by

Kronian nationals,6 as they sum up the power of decision that arose from their own

shares and from shares of the Ticadian private equity fund. Furthermore, with the

purpose of facilitating the controlling of CLAIMANT by the Kronian nationals, they also

compose the majority of CLAIMANT’s board of directors.7

15. The second situation that demonstrates CLAIMANT’s Kronian nationality is the fact that

CLAIMANT has a genuine connection with Kronos and not with Ticadia. The intention

of dissolving CLAIMANT’s connection with Ticadia and enhancing its connection with

Kronos started a long time ago, even before the Kronian nationals had acquired

CLAIMANT’s shares and had comprised the majority of its board of directors. In 2010,

such intention became indisputable since CLAIMANT decided to shut down its activities

in Ticadia and concentrate most of its operations and resources in Kronos.8 From that

year on, the link between CLAIMANT and Ticadia started to become more and more

brittle, meanwhile its connection with Kronos grew strongly.

16. Another fact that evidences the genuine connection between Kronos and CLAIMANT is

that, even before the acquisition of CLAIMANT’s shares by the Kronian nationals, most

decisions of the board of directors were already based on CLAIMANT’s activities in

Kronos, in favor of Kronos interests and implemented in Kronos territory.9 That trend

has only increased after the acquisition of the voting shares by the Kronian nationals in

2012, those who constitute CLAIMANT’s board of directors and, consequently, exert

4 Facts, p. 32.

5 Ibidem, p. 33.

6 Ibidem.

7 Ibidem.

8 Ibidem.

9 Ibidem, p. 34.

TEAM ALFARO

5

considerable control over the company. By that time, CLAIMANT transferred all of its

activities to Kronos.10

17. Therefore, the meager links left between CLAIMANT and Ticadia are merely formal ties,

such as its documents that still refer to Republic of Ticadia as its place of incorporation

and meetings of the board of directors that occasionally take place in Ticadia, which

may configure Ticadia as the place where the siège social is located.

18. However, one situation must be observed. The adoption of the place of incorporation or

the siège social criteria, ignoring the controlling situation of a company and its genuine

connection with the country it alleges to be a national from, to define the investor’s

nationality, has proved its own failure: treaty shopping rates increase when BITs don’t

comprise any denial of benefits clause or control rule stipulating that there has to exist

at least a real economic connection between the investor and the home state in order for

it to be qualified as a national of one of the parties and an eligible investor.11

19. Treaty shopping occurs when a company that has no genuine connection with a country

declares itself as its national, intending to take advantages, benefits and protections

under a treaty that this country has signed. CLAIMANT perfectly fulfills this hypothesis:

it has no activities, operations or employees in Ticadia; it is not controlled by

Ticadians, since the Ticadian shareholders delegated their voting power to the Kronian

shareholders; the decisions are taken only envisioning Kronos’ interests; the decisions

are implemented in Kronos and none of Ticadia’s interests are taken into account.

20. The increasing in treaty shopping rates is merely an example of the many problems that

can emerge from considering just the place of incorporation or the place of the siége

social of a company. For that reason, there is a growing trend in analyzing the control

structure of companies and its effective managers to define its nationality.12 That

analysis shall be done to identify CLAIMANT’s nationality, which would lead to the

conclusion that CLAIMANT is a Kronian company, therefore not an eligible investor

according to the BIT.

10 Facts, p. 34.

11 ZHANG, p. 50.

12 UNCTAD, pp.170-181.

TEAM ALFARO

6

i. The Ticadian private equity fund has no intention of controlling CLAIMANT’s

business

21. CLAIMANT is a company incorporated in Ticadia in 1993 that had 65% of its voting

shares sold to a Ticadian private equity fund (hereinafter “PE fund”) in 1998 and the

other 35% of its shares were bought by Kronian nationals in 2012.13

22. Private equity fund is a form of investment14, an equity that originates from

partnerships of many companies and institutional investors that intent to invest in solid

private companies with growth perspective by buying their stocks to achieve a fine

profit from that business’ growth.15 If the investment is not being as profitable as

expected, the fund sells its shares and pursuit another company to invest in.16

Therefore, a private equity fund can be composed of uncountable investors (partners)

that do not aim to be the effective owners and exert control over the invested company,

since their interest is only to obtain profit from an investment. That is precisely

CLAIMANT’s situation.

23. The Ticadian PE fund that owns 65% of CLAIMANT’s voting shares has a widely held

stock owned by nationals of multiple countries17, who have the sole objective to obtain

profit from CLAIMANT’s business. The lack of interest of those investors in managing

and controlling the company was already clear when they decided to invest through a

private equity fund and became even more evident when that fund delegated18 its power

of decision over CLAIMANT’s business to the Kronian nationals, owners of the other

35% of CLAIMANT’s shares.

24. The three Kronian owners of 35% of CLAIMANT’s voting shares and members of the

company’s board of directors for the past five years19 are the ones who truly care about

CLAIMANT’s development - not just for investment purpose, different from the Ticadian

PE fund - and that exert effective control over the company. It is a known fact that

13 Facts, p. 32.

14 Douglas Cumming [eb].

15 Schell [eb].

16 Douglas Cumming [eb].

17 PO2, p. 56.

18 Facts, p. 32.

19 Ibidem, pp. 32-33.

TEAM ALFARO

7

those three Kronians have the necessary expertise to conduct and control a mining

company, given their experience in mining industry in other countries20. They have,

indeed, been managing the company successfully for already five full years.21

25. In that sense, it is unreasonable to ignore CLAIMANT’s managing situation in order to

accept that CLAIMANT is still a Ticadian company simply because it was incorporated

under Ticadia’s law 25 years ago or because 65% of CLAIMANT’s shares are owned by

that Ticadian PE fund. As stated before, PE funds are merely intermediaries between

uncountable investors from different nationalities and the companies they intend to

invest, for the sole purpose of profiting, with no intention of controlling those

companies. Thus, the nationality of a PE fund shall not interfere in the nationality of its

invested companies, especially in a situation such as CLAIMANT’s, when there exists a

small, but articulated and easily identifiable group that do dominate the affairs of the

company.

26. It is indisputable that the Kronian shareholders manage and exert substantial control

over CLAIMANT.22 Furthermore, it is important to highlight that it is perfectly possible

to a company be controlled by a group or individual that owns a minor amount of

shares.23 One of the hypothesis that enables that kind of controlling happens when a

group or individual accumulate the power that arose from their own shares and the

power that arose from the shares of others shareholders, until totalize enough stock

interest to control the company.24 Precisely CLAIMANT’s condition, since the Ticadian

PE fund delegated the power of their shares to the Kronian owners.

27. In conclusion, it is glaring that CLAIMANT has acquired Kronian nationality through the

past years, once, as demonstrated, it is fully controlled and managed by Kronian

nationals that take into account exclusively Kronos’ economic interests and has all of

its activities and operations in the country. CLAIMANT clearly has no connection with

Ticadia, since the latter’s interests are not even taken into account in the matter.

20 Facts, p. 33.

21 Ibidem.

22 Ibidem.

23 Yu-Hsin Lin, p. 456.

24 Berle & Means, p. 75.

TEAM ALFARO

8

ii. The concentration of almost all of CLAIMANT’s activities and operations in

Kronos evidences the genuine connection with RESPONDENT

28. CLAIMANT’s Kronian nationality can be verified by the fact that its effective controllers

are Kronian, as demonstrated above, as well as CLAIMANT’s economic interests, mining

activities and operations are concentrated in RESPONDENT’s territory since 2010.25 Not

just that, CLAIMANT indeed shut down its activities in Ticadia in that same year.26

29. CLAIMANT may allege, in spite of its activities and operations had been transferred to

Kronos, that the fact of CLAIMANT being incorporated in Ticadia and its head office

also remaining in Ticadia form a stronger link between CLAIMANT and Ticadia than

between CLAIMANT and RESPONDENT. However, that argument is nothing but a

desperate tentative to create a connection that does not exist between CLAIMANT and

Ticadia.

30. The incorporation neither establishes nor proves a genuine connection between the

company and the country it was incorporated, since it can be constituted under the laws

of a particular country but turn out to have foreign effective beneficial owners and lack

any real interests, especially economic, in the place the company is incorporated.27 That

is precisely CLAIMANT’s scenario, being Fenoscadia Ltd. a company incorporated in

Ticadia, which has Kronian nationals as the beneficial owners and effective managers

and controllers of the company.

31. Moreover, the fact that the head office – as the incorporation – is in Ticadia, does not

constitute a genuine link with the country, since it represents a mere formal tie. To a

genuine link be created, the company must have an economic interest in the country.

By analyzing the circumstances of the present case, it is demonstrated that CLAIMANT’s

economic interest is entirely in Kronos, and not in Ticadia.

32. As stated before, CLAIMANT’s substantial business is fully concentrated in Kronos and

nowhere else. CLAIMANT’s activities are in Kronos, CLAIMANT’s operations are in

Kronos, CLAIMANT’s 200 employees are Kronians, CLAIMANT’s manager shareholders

25 Facts, p. 33.

26 Ibidem.

27 Fillers, p. 52.

TEAM ALFARO

9

are Kronians, CLAIMANT even passes part of its revenue to Kronos. Everything related

to CLAIMANT, beyond the place of its incorporation or administrative office, is in

Kronos. To complement that, CLAIMANT has absolutely no link with Ticadia, it has no

operation or any other activity in Ticadia - since it decided to shut down its operations

in that country and transfer all to Kronos - no Ticadian employees, nothing.

33. In conclusion, considering that CLAIMANT’s substantial business is in Kronos, it is duly

evidenced that CLAIMANT’s economic interest is related to Kronos and not even

remotely related to Ticadia. That situation set out a genuine link between CLAIMANT

and RESPONDENT, then, defines CLAIMANT’s nationality, since a genuine link is

required to test the nationality of a company.28 The fact that all the decisions taken by

CLAIMANT’s managers are implemented in Kronos’ territory and envisioning only

Kronos’ interests - and none of Ticadia’s - supports and reinforces the argument and

the Kronian nationality of the enterprise.29

II. CLAIMANT’S REQUESTS ARE NOT ADMISSIBLE BEFORE THE ARBITRAL TRIBUNAL

34. The present arbitral request and the motion filed by CLAIMANT are two sets of

proceedings addressing largely similar issues. Bearing that in mind, it should be taken

into consideration the fork in the road provision, which constitutes a barrier against

uncoordinated multiple proceedings and represents the intention of the signatories to

preclude investors from initiating treaty proceedings where previously only contractual

claims have been submitted.

35. In the next lines, RESPONDENT will demonstrate that the complaint CLAIMANT filed

before RESPONDENT’s courts cannot be pursued in this arbitration once it is essentially

the same as the lawsuit submitted in the Request for Arbitration. Furthermore,

CLAIMANT’s decision to seek relief before state courts is unquestionable and prevents

an Arbitral Tribunal from settling the dispute.

28 Okawa, p. 493.

29 Facts, p. 34.

TEAM ALFARO

10

i. The motion constituted a choice under the fork in the road provision

36. A fork in the road clause or electa una via is a common clause in Bilateral Investment

Treaties that serves to prevent multiple claims, once the parties’ choice to submit to

domestic courts or international arbitration is unique and irreversible30 and precludes by

treaty from bringing another set of proceedings in another forum.31 Exactly on these

grounds is the dispute settlement clause of the BIT between CLAIMANT and

RESPONDENT.

37. Article 11, Section 2 of the BIT provides that one of the parties concerned can choose

to submit the dispute for resolution to or domestic courts and administrative tribunals,

or arbitral tribunals.32 Moreover, the final choice represents the impossibility to pursue

the resolution in other court or tribunal.33

38. What occurs in the present case is that CLAIMANT clearly triggered the fork in the road

clause by filling a motion before RESPONDENT’s courts directly questioning the

Decree’s reasons and the impacts it supposedly caused on CLAIMANT’s activities.

However, not satisfied with the national pronouncement, CLAIMANT now seeks relief in

arbitration through a lawsuit that has essentially the same grounds discussed in the

national court and represents a double choice under the dispute settlement clause of the

BIT, which is not admissible.34

39. In light of this, RESPONDENT will demonstrate that the issues in respect of which

CLAIMANT seeks relief are essentially the same as the ones filed in RESPONDENT’s

courts and clearly represent an attempt to seek a second bite at the cherry.35

Consequently, CLAIMANT is precluded, by the fork in the road provision, from pursuing

his claims under the present arbitral tribunal.36

30 Emilio Agustin Maffezini v Kingdom of Spain, para 63.

31 Lim/ Ho/Paparinskis, p. 102.

32 BIT, p. 44.

33 Ibidem.

34 Ibidem, p. 37.

35 Pugachev v Russian Federation, para 28–29.

36 Ibidem, para 29.

TEAM ALFARO

11

a. The motion and the request for arbitration are essentially the same

40. In the fork in the road application, the essentiality of the actions is strictly linked to the

the identity of the disputes submitted to both domestic courts and international

arbitration37, once its main reason is to avoid multiple proceedings, preventing the

investor having numerous bites at the cherry.38

41. Under provisions of this kind, the lack of access to international arbitration applies only

if the same dispute was submitted to the domestic courts. However, it is important to

highlight that the disputes should not be necessarily identical, but in some way related

to the investment.39

42. Therefore, in order to determine whether the choice has been made, it is necessary to

verify an identity of parties, object, and cause of action40 between previous and

subsequent proceedings.41These criteria are known as triple-identity test and are

broadly used by the jurisprudence42 to verify the true application of the fork in the road

clause.43

43. Starting to analyze the mentioned criteria, RESPONDENT sustains that the two judicial

proceedings are essentially the same once the claims asserted in both of them directly

question the Decree’s reasoning and its impacts in CLAIMANT’s activities. In other

words, it is impossible to separate potential contract breaches from the BITs violations

as they are closely linked.

44. In the present case, both the BIT, more specifically in article 9, and the Agreement

signed by RESPONDENT and CLAIMANT settled environmental measures and regulations

in order to protect environment and promote health and safety of Kronos’ population.

37 Schreuer, pp.247–248.

38 Lim/ Ho/ Paparinskis, p. 102.

39 Muchlinski/Ortino/Schreuer, p. 849.

40 Wehland, pp. 86 - 93.

41 Chorzów Factory, Dissenting Opinion of Judge Anzilotti, para 23.

42 Ronald S Lauder v. The Czech Republic, paras 162–163; Occidental v Ecuador, paras 38–63; Compañía de

Aguas del Aconquija SA & Compagnie Générale des Eaux (Vivendi) v Argentine Republic, paras 40, 42, 53–

55, 81.

43 Durgan/ Rubins/ Sabahi/ Jr., p. 367.

TEAM ALFARO

12

Between the measures settled it is CLAIMANT’s obligation to operate sustainably, taking

the due precautions with the disposal of any waste of the exploitation.44

45. However, over the years, inspection reports have shown that the exploitation conducted

by CLAIMANT had a significant potential to cause environmental damages45 and since

2010, year that CLAIMANT concentrated its mining activities and resources in Kronos,46

the volumes of toxic wastes found in RESPONDENT’s river increased.47 Not just that, a

study conducted by the Kronian Federal University concluded that CLAIMANT has

failed to avoid contamination of the Rhea River48 and, consequently, blatantly failed to

fulfill its environment-related obligations, putting RESPONDENT’s environment and

population in danger.49

46. Therefore, facing the breaches of the Agreement and the BIT and the damages caused

by CLAIMANT’s misconducts, RESPONDENT unilaterally revoked CLAIMANT’s operating

licenses and terminated the Agreement through the Decree No 2424.50 In this context,

the Decree No 2424 was the basis of the discussion in the motion and it is in the present

lawsuit, once CLAIMANT sought to suspend it in order to avoid the revocations and now

discuss the damages caused by these acts.

47. Exactly in these terms, RESPONDENT sustains that this arbitral tribunal should follow

the understanding of the large majority of arbitral tribunals that define the identity of

the causes of action and object only where the claims asserted in both of them have the

same legal basis.51 That is the case of the CMS Gas Transmission v. Argentina,52

Vivendi v. Argentina,53 Middle East Cement v. Egypt,54 Occidental Exploration v.

44 Agreement, p. 47.

45 Case, p. 15.

46 Facts, p. 33.

47 Case, pp. 15 – 16.

48 Ibidem, p. 16.

49 Case, p. 52.

50 Ibidem.

51 Wehland, p. 93.

52 CMS Gas Transmission v Argentina, para 80.

53 Compañía de Aguas del Aconquija SA & Compagnie Générale des Eaux (Vivendi) v Argentine Republic,

para. 55.

54 Middle East Cement v Egypt, para. 71.

TEAM ALFARO

13

Ecuador55 and Pan American Energy v. Argentina56 where the Tribunals analyzed

claims’ fundament instruments in order to consider the difference of causes of action

and object.

48. Moreover, in the H&H v. Egypt57 case, the ICSID Tribunal, after analyzing the case

facts, concluded that the fork in the road provision was triggered once the treaty claims

had the same fundamental basis as the claims submitted before the local fora.

49. In that sense, the present discussion has essentially the same base, once the claims filed

by CLAIMANT in the national court essentially sought to avoid the end of his business

and the claims here in arbitration now seek compensation for termination of the

Agreement and the licenses and the alleged exploitation. The present lawsuit is barely

an extension of the Decree itself and cannot represent a different cause of action or

object.

50. Based on those grounds, the treaty claims are clearly based on a contractual violation,

which may trigger a fork in the road provision.58 Consequently, CLAIMANT is prevented

from bringing decree claims under the BIT’s dispute resolution clause once it had

previously relied on the Decree as a basis for its claims in RESPONDENT’s domestic

courts.

51. Following in this line, substantially the same claims are responsible from triggering a

fork in the road clause59 and prevent parties from bringing the same proceeding in order

to avoid potential conflict60 and the potential persuasive effect of a decision rendered in

the other forum.61

55 Occidental v Ecuador, paras 48–49.

56 Pan American Energy v Argentina, para. 157.

57 H&H Enterprises Investments, Inc. v Arab Republic of Egypt, para 56.

58 Chevron Corporation and Texaco Petroleum Company v Ecuador, para. 144.

59 McLachlan/ Shore/Weiniger, p. 89.

60 SPP v Egypt, paras 82, 88.

61 Hobér, p. 256.

TEAM ALFARO

14

52. Facing the identity of the instruments and the facts in the two sets of proceedings,62 it is

not possible to consider the distinction of the cause of action and object between the

proceedings brought by CLAIMANT.

53. Moreover, as CLAIMANT may sustain, the trigger of the fork in the road clause depends

on the identity of both plaintiffs and defendants in domestic and international

proceedings. Starting from this idea, RESPONDENT argues that in the present case the

parties are the same and no special denomination can change the identity of it.

Fenoscadia Limited and the Republic of Kronos are strictly the same parties in both

national and arbitration procedures and even have the same positions as CLAIMANT and

RESPONDENT.

54. However, even if this Tribunal understands that the formal party identity is not a

request under the fork in the road clause, once it would undermine the main reason of

the clause,63 CLAIMANT sustains that the attempt to distinguish parties by self-giving a

different title (investor) constitutes a desperate tentative and is not a proper tool to

prevent the triggering of the provision, characterizing a bad faith action.64

55. In that sense, RESPONDENT sustains that this arbitral tribunal should consider the

position taken in the Vivendi v. Argentina annulment decision case65 when facing

similar problems. The decisions of the ICSID Tribunal focused in the object and the

cause of action of the proceedings to determine the application of the fork in the road

provision, instead of focusing in the strict identity of the parties.66

56. For all that has been said, it is possible to understand that the two instruments are

essentially the same, once the parties requests, objects and causes of action are similar

and, consequently, do result in triggering the ‘fork in the road’ provision. However, if

the arguments about the triple-identity test do not seem sufficient to move away the

admissibility of the present arbitration, facing CLAIMANT’s choice to discuss the case in

62 Wegen/Markert, p. 554.

63 Suarez Anzorena, p. 24; Compañía de Aguas del Aconquija SA & Compagnie Générale des Eaux (Vivendi) v

Argentine Republic, para 55.

64 Commerce Group Corporation and San Sebastian Gold Mines Incorporated v El Salvador, para 137.

65 Compañía de Aguas del Aconquija SA & Compagnie Générale des Eaux (Vivendi) v Argentine Republic,

paras 55, 105 and 113.

66 Wehland, p. 91.

TEAM ALFARO

15

the national courts, the present claims should have been discussed in the State Court

once it does not constitute a provisional measure.

b. The present claims should be discussed in RESPONDENT’s courts once it

was not a provisional measure

57. RESPONDENT sustains that CLAIMANT’s possible argument that the motion filed in

RESPONDENT’s courts was an interim measure is an attempt to internationalize a

domestic dispute and, thus, the Tribunal is not the appropriate forum to decide this

request. Moreover, the motion do not fulfill the requirements for granting interim

measures.

58. According to Tallim v. Estonia case67, the arbitration tribunals must rely on five

requirements, recognized internationally68, for granting interim measures: (i) prima

facie jurisdiction; (ii) prima facie existence of a right susceptible of protection; (iii)

necessity of the measure; (iv) urgency; and (v) proportionality.69 These five elements

must be met to grant any interim measure70 and that is not the case.

59. Regarding the element of prima facie jurisdiction and existence, CLAIMANT’s choice to

pursue its claims in RESPONDENT’s national courts establish the prima facie jurisdiction

of the National Tribunal and the attempt to discuss it again in arbitration would

constitute a bad faith action and an attempt to give a second bite at the cherry.71 As for

prima facie existence of a right susceptible of protection, no reasonable possibility of

success on the merits of CLAIMANT’s claims are present once the expropriation was

based on CLAIMANT several misconducts and breaches of the BIT72 and the

Agreement.73

67 United States (Tallim) B.V. and Aktsiselts Tallinna Vesi v Republic of Estonia.

68 Sergei Paushok, CJSC Golden East Company, CJSC Vostokneftegaz Company v The Government of

Mongolia, para 40; Paushok and Others v Mongolia, para 40.

69 United States (Tallim) B.V. and Aktsiselts Tallinna Vesi v Republic of Estonia, para 78.

70 Pugachev v Russian Federation, para 60.

71 Ibidem, para. 68.

72 BIT, p. 43.

73 Case, p. 47.

TEAM ALFARO

16

60. Regarding the necessity of the measures, according to the Tokios Tokelés case74, the

interim measures seek to avoid an irreparable prejudice to the right involved. For

irreparable prejudice the jurisprudence75 understands as a harm or prejudice that cannot

be remedied or compensated by monetary damages.

61. In that sense, the UNCITRAL Tribunal, in Sergei Viktorovich Pugachev v The Russian

Federation76, held similar comprehension when decided that the necessity standard was

not satisfied once the harm claimed was not irreparable given it can be compensated by

monetary damages and there is no sufficient evidence to conclude that the civil

proceedings would worsen the present dispute.

62. The lack of necessity in the motion is based exactly on these grounds, once the harm

claimed is reparable since it can be compensated by monetary damages.

63. Analyzing the urgency requirement, RESPONDENT sustains that CLAIMANT’s act to

withdraw the motion77 do not express the urgency of the situation once he decided to

discuss its extension in an arbitration tribunal almost one year after the alleged

expropriation acts78. The content and prevailing circumstances suggest that there is

simply no urgency for the Provisional Measures sought.79

64. For all that has been said, it is clear that CLAIMANT has failed to establish that all the

five requirements for granting interim measures are met in the present case.80

Consequently, facing no changing circumstances from the two procedures, CLAIMANT

must be precluded from seeking a further bite of the apple.

74 Tokios Toheles v Ukraine, para 132.

75 Pugachev v Russian Federation, para 99; Plama Consortium Limited v Republic of Bulgaria, para 46;

Quiborax v Bolivia, para 156.

76 Pugachev v Russian Federation.

77 Case, p. 7.

78 Facts, pp. 36 - 37.

79 PNG Sustainable Development Program Ltd v Papua New Guinea, para 32.

80 Ibidem, para 25. Born, pp. 3787–3790.

TEAM ALFARO

17

III. THE TRIBUNAL HAS JURISDICTION OVER RESPONDENT’S COUNTERCLAIM

65. To establish jurisdiction under a counterclaim, the Tribunal has to determine (i) the

consent between the parties to assert counterclaim and (ii) the connectedness with the

primary claim and the counterclaim. Additionally, it becomes necessary for the

Tribunal to analyze (iii) the benefits that comes with a counterclaim, as it brings several

benefits to the procedure and render efficiency to the investor-state arbitration.

66. In light of this, RESPONDENT will demonstrate that the present counterclaim is in

conformity with these fundamental requirements, thus the Tribunal should admit the

counterclaim.

i. The wording of the BIT indicates that the parties consented with the

counterclaim

67. Arbitration is based on the will of the parties81 and consent represents their intentions

for the possibility, or not, to assert counterclaim.82 In the present case, the Tribunal

should assert jurisdiction since the parties’ intention was to allow counterclaims.

68. Article 11 (5) of the BIT83 established that it would not be acceptable to assert

counterclaim in certain situations. However, RESPONDENT’s counterclaim does not fall

under the exceptions of such clause. Therefore, if the parties excluded the possibility to

enter with counterclaims in specific situations, it means that the parties` intention was

to allow counterclaim in all the remained scenarios.

69. Hence, if the instrument excludes a specific category of counterclaims, it is presumed

that other counterclaims are allowed.84 Whether the parties’ intention was to prohibit

counterclaims all together, they would have inserted in the BIT.

70. Although international investment is asymmetrical, states can - and have - brought

counterclaims against the investors when its requirements are presented85. Hence, the

81 Cordero-Moss, p. 211, para. 2.

82 Musayev, p. 7.

83 BIT, p. 44.

84 Hamida, p. 224.

TEAM ALFARO

18

parties’ intention was clearly to permit counterclaims and RESPONDENT has the right to

file counterclaims.

71. The Dispute Settlement clause86 established that a dispute between the state and the

investor will include an investment agreement, an investment authorization or an

alleged breach of any right conferred or created by the Agreement. Therefore, the

Arbitration Agreement is a broader clause that includes the present counterclaim as the

environmental damage is a breach of a right conferred by the Agreement. In Sempra87

the tribunal decided to extend its jurisdiction to judge counterclaim in issues resulted in

breaches of the treaty. Moreover, a broader arbitration agreement can extend a

tribunal’s jurisdiction to judge a counterclaim.88

72. This broad dispute, with a similar language, is also present in US-Estonia BIT and

Belgium–Luxembourg–Burundi BIT, which consider to include disputes concerning

not only divergent conduct by the State, but also by the investor89. Thus, if the dispute

resolution is broad, the tribunals are more likely to allow counterclaims90, as it was held

by several tribunals91.

73. Furthermore, a broadly arbitration agreement is related to the inclusion of investor’s

obligations that allow to assert a counterclaim92. In this view, in Al Warraq v

Indonesia93, the tribunal allowed a counterclaim once the BIT imposes obligations

under the investor and this was considered as permission to the State assert

counterclaim.

85 Schwebel, p. 3.

86 BIT, p. 44.

87 Sempra Energy International v Argentine Republic, para. 289.

88 Saluka, para. 50.

89 Kjos, p. 135.

90 Kryvoi, p. 216.

91 Iran-U.S. Claims Tribunal (IUSCT), International Center for Settlement of Investment Disputes (ICSID)

tribunals, and United Nations Commission on International Trade Law (UNCITRAL) tribunals.

92 Kjos, p. 135.

93 Al Warraq v Republic of Indonesia, para. 663.

TEAM ALFARO

19

74. In the present case, the BIT contains obligations to both parties94, consequently it is

possible to RESPONDENT assert a counterclaim. Unless expressly excluded by the

Arbitration Agreement, the tribunal jurisdiction extends to counterclaims.

75. In the recent Perenco95 case, the tribunal permitted the State to assert a counterclaim

against the investor. The counterclaim was related to alleged environmental

contamination, an alleged breach of its obligations under domestic environmental law,

and was accepted by the tribunal. The exact same situation occurred in the present

dispute, since RESPONDENT asserted the counterclaim based on the compensation for

the damages caused by CLAIMANT in the environment, mainly through the

contamination of the Rhea River.96

76. Moreover, the omission in the BIT to exclude all counterclaims and the possibility to

allow counterclaims in SCC means that this Tribunal has jurisdiction. In that sense, the

Tribunal should understand that by applying rules of an arbitral institution and not

making any reservations, the parties also agree to submit counterclaims.97

77. Article 9 of the SCC Rules allows counterclaims. Since it explicitly and unambiguously

permits the filing of counterclaims, it is an indication that the parties already consented

to allow counterclaim when they chose this chamber.98

78. Therefore, the intention of the parties to allow counterclaims are present and this

Tribunal has jurisdiction.

ii. The primary claim and the counterclaim are connected

79. The connection between the counterclaim and the principal claim is an imperative

requirement to evaluate the counterclaim99, being a requirement that also defines the

94 Article 9 and 10 of the BIT, p. 43.

95 Perenco Ecuador Ltd v. Republic of Ecuador.

96 Case, p. 16.

97 Dissident opinion in Roussalis v Romania.

98 Al-Warraq v Indonesia, para. 664.

99 Farmer, p. 14

TEAM ALFARO

20

jurisdiction over such dispute100. In the present case, RESPONDENT’s counterclaim has

connection with the primary claim.

80. CLAIMANT's primary claim is that the Decree issued by RESPONDENT breached Article 7

of the BIT by expropriating its investment.101 Considering that the State’s environment

counterclaim is based on compensation for damages by a result of CLAIMANT’s

exploitation of lindoro that arose from article 9 (2) of the BIT102, the relationship

between the claim and the counterclaim is fulfilled.

81. In Saluka103, the tribunal decided that “legitimate counterclaim must have a close

connection with the primary claim to which it is a response”. Furthermore, in

Klöckner104 the decision emphasised the necessary connection with matter of the

counterclaim and the matter of the principal claim, defined as “indivisible” and

“interdependent”.

82. Moreover, in Urbaser105 the tribunal decided it had jurisdiction to judge the

counterclaim. The tribunal justified the decision by stating that a factual link between

original and ancillary claims is sufficient to give jurisdiction to the tribunal. In this

case, a merely factual link is clearly present.

83. In Desert Line106 case the tribunal identified the connection between the counterclaim,

which was based in damages for the party’s violation of its obligations, and the primary

claim, that was based in contractual breaches of road construction contract.

84. Hence, as the primary claim and the second claim are in connection with the

exploration of lindoro, this Tribunal should allow counterclaim in accordance with the

jurisprudence that recognize the connection in similar cases.107

100 Atanasova/Benoit/Ostransky, p. 26.

101 Case, p. 8.

102 Case, p. 16.

103 Saluka v Czech Republic, para. 61.

104 Klöckner v Cameroon, para. 65.

105 Urbaser et al. v The Argentine Republic, para. 1151.

106 Desert Line v Yemen.

107 SGS v Pakistan, para. 108; SGS v Philippines, para. 40.

TEAM ALFARO

21

iii. The benefits that comes with counterclaims highlight the reasons for this

Tribunal to accept it

85. The acceptance of counterclaims also brings various benefits108 to the procedure,

making the investor-State arbitration more efficient, in according with the principles of

arbitration.

86. The counterclaim brings procedural efficiency, once the complex facts developed in the

course of the arbitration in the treaty claim would be also relevant to the domestic law

claims.109 In that way, the judgement of related claims in the same agreements would

enhance the dispute time for the parties.110 A rejection to analyse the counterclaim

could result in a duplication of proceedings, inefficiency, and increased transaction

costs.111

87. Thus, CLAIMANT’s conducts to discharge the counterclaim is controversial and totally

contrary to the efficiency of this proceeding. CLAIMANT decided to withdraw the main

claim from the state courts jurisdiction to enter in the arbitral jurisdiction112, however,

now refuses to discuss the entire matter in the arbitration, arguing that the parties

should return to the state court to discuss the counterclaim. This act in controversial and

disconnected as the reasons to CLAIMANT opt to a arbitration procedure are similar to

the argues that this arbitral Tribunal has to allow the counterclaim.

88. Moreover, to consider a primary claim and a counterclaim in the same setting

guarantees a more coherent decision and better results, which would not be insured in

case of separate review of those claims.113 It would render a more clear and predictable

doctrine about the scope and application of investment rights.114 Therefore,

108 Bjorklund, p. 475.

109 Goetz v Burundi, para. 279.

110 Kryvoi, p. 220.

111 Roussalis v Romania, para. 206.

112 Facts, p. 37.

113 Musayev, p. 6.

114 Susan D. Franck, p. 5.

TEAM ALFARO

22

counterclaims avoid further appeal to litigation, seeking justice in the same fora the

investor chose in the first place.115

89. In Goetz116 the tribunal admitted its jurisdiction over counterclaims. Their reasons

relied in efficiency, centralization of inquiry, avoiding duplication, impasses from

attempted jurisdictions against parallel proceedings and the irony of forcing the State

back to local courts.

90. Add to that, a counterclaim would affect the whole cost-benefit calculus of the

procedural, as it would also influence issues in relation with the third part funding. For

this reason, allowing counterclaims recalls the beneficial effects of procedural economy

and the better administration of justice.117

91. Furthermore, a joint decision from the primary claim and the counterclaim will

guarantee a consistent result for both claims, which could not be possible with a

separate review of those claims.118 In the Burlington119 case, a environmental

counterclaim was allowed by the tribunal, once the parties agreed that a counterclaim

would bring a judicial economy and consistency.

92. Hence, if it is this Tribunal understanding that CLAIMANT should be considered as an

investor under the BIT, and that the fork in the road clause was not triggered by the

lawsuit filed before RESPONDENT’s state court, it should be also held that this Tribunal

has jurisdiction to judge this counterclaim, as it fulfills the fundamental requirements of

a counterclaim, as well as brings several benefits to this procedure, since it renders

efficiency to the investor-State arbitration.

115 Guido Carducci, pp. 66/67.

116 Antoine Goetz and others v Republic of Burundi.

117 Kjos, p. 137.

118 Musayev, p.6.

119 Burlington Resources Inc. v Republic of Ecuador, para. 60.

TEAM ALFARO

23

ARGUMENTS ON THE MERITS

IV. RESPONDENT ACTED IN ACCORDANCE WITH ARTICLE 6 OF THE BIT

93. CLAIMANT may argue that RESPONDENT did not act in accordance with the fair and

equitable treatment provisions (hereinafter “FET”) contained in the BIT. However, it

will be demonstrated that RESPONDENT did act following the FET provisions to the

extent possible, taking into consideration the scope of the clause and the possible

grounds for a fair and equitable treatment breach claim.

i. RESPONDENT did not breach the fair and equitable treatment standard

a. The BIT defines fair and equitable treatment as the Minimum Standard of

Treatment

94. In order to define the scope of protection granted by the BIT, it is essential to consider

that the choice of words plays a significant role in demonstrating the intention of the

parties as well as the objectives and purposes of the treaty.120 Thus, it is indispensable

for this Tribunal to consider such choices when interpreting the BIT clauses.121

95. At the moment the Contracting Parties decided to include a FET provision in the BIT

defining the standard of treatment of aliens “in accordance with the customary

international law”122, they demonstrated their intention of restricting the scope of the

fair and equitable treatment clause.

96. Once the variations of the FET clause are crucial in the task of detecting the scope of

application and the due interpretation to be given, it is necessary now to define the

consequences of the FET clause in the BIT being bound to the customary international

law.

120 Vienna Convention on the Law of Treaties, Article 31.

121 Methanex v United States, para. 29.

122 BIT, p. 41.

TEAM ALFARO

24

97. The customary international law refers to rules and principles originated from a general

and consistent States’ practice that they follow from a sense of legal obligation.123 This

process of construction and development is slow, which means that the content of a

FET clause grounded in customary international law is unlikely to evolve rapidly.124 It

is not the same that occurs with an autonomous FET clause, which is more vague and

subjective.

98. The latter does give room for a broader debate, inviting to elaborate a series of rules

and include other principles linked to fairness, such as protection to arbitrary conduct,

legitimate expectations, and stability of the legal framework.125 However, an expansive

FET clause interpretation may result in an open-ended and unbalanced approach, which

favors investor interests and overrides legitimate regulation in the public interest126,

especially in a situation where the scope of fair and equitable treatment is well-defined,

such as in the present case.

99. As to the threshold of liability applied by arbitral tribunals, it has been generally higher:

following the Neer127 case, the State’s conduct needs to be egregious or outrageous.128

Although RESPONDENT recognizes that the understanding of what is egregious has

evolved since the 1920s, a reference to the minimum standard of treatment of aliens in

a FET clause conveys a clear message that only the very serious acts of

maladministration can be seen as violating the treaty.129

100. After recognizing the distinction between autonomous FET clauses and those linked to

customary international law, NAFTA tribunals have understood that the latter

"necessarily lead their tribunals to analyze custom"130. CLAIMANT may allege that the

MST has evolved, but it is necessary to demonstrate custom - established and repeated

123 Shaw, p. 810.

124 OECD, p. 13.

125 Ibidem, p. 14.

126 UNCTAD, p. 11.

127 L.F.H. Neer and Pauline Neer v United Mexican States.

128 UNCTAD, p. 13.

129 Ibidem,.

130 Glamis Gold v USA, para. 606.

TEAM ALFARO

25

state conducts131 - highlighting that arbitral awards do not constitute State’s practice

and cannot create customary international law.132

101. While the requirements to transform specific rules and principles into custom are not

reached and proved by CLAIMANT, the fundamentals of the Neer standard still apply

today133: to violate the customary international law minimum standard of treatment, it

is necessary to demonstrate a gross denial of justice, manifest arbitrariness, lack of due

process, evident discrimination, or a manifest lack of reasons — so as to become

inconsistent with accepted international standards.134

102. Consequently, by restricting the FET-MST clause to international customary law, this

Tribunal must make a narrow interpretation of the fair and equitable concept, such as

other tribunals did in similar cases. As defined by the S.D. Myers135 tribunal, a breach

of FET under the international customary law would only happen when the host state’s

conduct rises to a level that is unacceptable from the international perspective.

103. The Waste Management136 tribunal stated that a breach of FET under such

circumstances only happen if the host state acts in an “arbitrary, grossly unfair, unjust

or idiosyncratic” way. In the Thunderbird137 case, the understanding was that the

explicit use of MST makes the threshold of a FET violation-based claim remains high,

thereby restricting the scope of the FET standard.

104. By that, many consequences that arise from the interpretation of FET as an autonomous

standard do not exist in the present case. There are concepts, especially the legitimate

expectations, which are not referred to in actual FET provisions - they are considered

“arbitral inventions”.138 Consequently, such concepts cannot be applied in the present

dispute.

131 UNCTAD, p. 27.

132 Glamis Gold v USA, para. 605.

133 Ibidem, para. 616.

134 Ibidem.

135 S.D. Myers v Canada, para. 263.

136 Waste Management v United Mexican States, para. 98.

137 Thunderbird v United Mexican States, para. 194.

138 UNCTAD, p. 9.

TEAM ALFARO

26

b. CLAIMANT’s legitimate expectations were not in accordance with Kronos’

scenario

105. Although already demonstrated that a mere non-corresponding to expectations cannot

be sufficient to find a breach of the minimum standard of treatment139, it will also be

demonstrated that CLAIMANT’s expectations have no basis and are not reasonable or

justifiable. Even though RESPONDENT contends that a legitimate expectation claim

could not exist in the present case once this Tribunal is dealing with an MST-FET

clause, it is necessary to demonstrate why such claim could not prevail.

106. It is convenient for CLAIMANT to allege that a State's legitimate regulation in the public

interest violates its expectations. The issuance of the Decree, based on the KEA, was a

measure entirely into the sovereign powers of States. In Morris140, after the CLAIMANT

started an arbitral proceeding due to new tobacco-control legislation enacted by

Uruguay’s new president, the tribunal stated that "protecting public health has since

long been recognized as an essential manifestation of the State’s police power".

107. Being a quintessential manifestation of states’ sovereignty, any expectation raised from

this kind of regulatory measures is unfounded.

108. CLAIMANT may argue that RESPONDENT did not respect its legitimate expectations

towards the investment. To make such allegations, CLAIMANT would have to sustain

that it had a legitimate expectation that its rights would not be regulated or restricted in

any way.141

109. A level of expectations on the part of the investor is correlated with the investment

environment in the host country. The content of such expectations should always be

adapted to the level of development of the host country.142 Moreover, favorable

business conditions and goodwill are transient circumstances, subject to inevitable

change.143

139 Glamis Gold v USA, para. 620.

140 Philip Morris v Uruguay, para. 291.

141 UNCTAD, p. 149.

142 Ibidem, p. 14.

143 Oscar Chinn Case, para. 88.

TEAM ALFARO

27

110. Kronos is an underdeveloped country that, at the time the investment was made, didn’t

have any environmental legislation that could affect CLAIMANT’s business.144 However,

it must be seen that the increasing environmental awareness of many governments

around the world indicates that measures created for these purposes will only grow.145

One of the factors to be taken into consideration when arguing legitimate expectations

is the investor’s obligation to have a general awareness of the environment it was

operating.146 Not only that, but the BIT contained provisions regarding environment

protection and awareness.147

111. In Methanex v United States148 the tribunal decided that, since governmental

environmental and health protection institutions, at federal and state level, had been

continuously monitoring the impact of the chemicals used in the CLAIMANT’s business,

then it could not argue that an eventual ban would be a breach of its legitimate

expectations. RESPONDENT continuously monitored CLAIMANT’s activity; moreover, the

Nationalist Party always demonstrated its high commitment to its environmental

agenda.149

112. Although no legislation existed by the time Fenoscadia made its investment, even

though the idea of FET and legitimate expectations itself imply in a stable legal and

business framework150, it should not evolve into an overly-broad and unqualified

formulation.151 As stated by the EDF152 tribunal, FET does not mean the virtual

freezing of legal regulation of economic activities. An investor cannot rely upon a BIT

as an insurance policy against the risk of any changes in the host state’s legal

framework - such expectations would not be legitimate or reasonable.153

144 Facts, p. 33

145 J. Marlles, p. 275.

146 UNCTAD, p. 27.

147 BIT, p. 43.

148 Methanex v United States of America, para. 10.

149 Facts, p. 34.

150 UNCTAD, p. 76.

151 Saluka Investments v Czech Republic, para. 110.

152 EDF v Romania, para. 217.

153 Ibidem, para. 221-237.

TEAM ALFARO

28

113. In Parkerings-Compagniet154 it was held that, since Lithuania was an underdeveloped

country in political transition, the investor should have regarded changes in the

legislative regime as possible, and, that in such situation, no expectation that the laws

would remain unchanged would be legitimate - this is exactly the situation that

CLAIMANT was on. RESPONDENT was going through a radical government change after

another party took office after the Liberal Party ruled for almost 60 years.

114. The presidential statements that CLAIMANT relies on did not, in fact, mention that no

regulation would ever exist.155 The then president of Kronos only asserted that the

country would support the company and that Fenoscadia’s good results would benefit

the Kronian economy.156 Thus, such statements are not sufficient to create legitimate

expectations.

115. In the Saluka157 case, it was decided that the host state’s right to regulate domestic

matters should be taken into consideration as well and that a breach of FET would have

to be determined by weighing of the investor’s legitimate expectations and the state’s

legitimate regulatory interests. The tribunal then came to the conclusion that, as far as

state-implemented policies can affect the investor’s interests, if it is justified by public

policies and does not manifestly violates international customs a breach of the

legitimate expectations did not happen.

116. In the present case, what this Tribunal must consider is Kronos’ scenario. The country

saw itself in a health crisis, with the activities of a foreign company seriously affecting

its population and generating damage that is already estimated to an amount of 150

million dollars.158 Any expectation that regulatory action would not be taken in such

situation cannot be regarded as legitimate or reasonable.

117. Undoubtedly, an investor can - and will - have legitimate expectations regarding its

investment. However, arbitral tribunals cannot find a violation of FET based on

legitimate expectations without taking into consideration the actual regulatory,

154 Parkerings-Compagniet v Lithuania, para. 335-336.

155 Case, p. 53.

156 Ibidem, p. 49.

157 Saluka Investments v Czech Republic, para. 112.

158 Case, p. 17.

TEAM ALFARO

29

economic, social and political context the host stated finds itself in.159 It would be

unreasonable for this Tribunal to place CLAIMANT’s legitimate expectations above

RESPONDENT’s right to regulate in an emergency situation such as the one it saw itself

on - hence, any possible legitimate expectations claim should be dismissed by this

Tribunal.

V. THE PRESIDENTIAL DECREE NO 2424 IS NOT EXPROPRIATORY

118. Contrary to CLAIMANT’s arguments, RESPONDENT’s actions did not result in the

indirect or direct expropriation of Fenoscadia’s investment. Not every single state

conduct that leads to economic harm to the investor or deprives it of its own investment

can be considered expropriatory.160

119. In order to determine whether expropriation happened, there are a series of factors that

must be analyzed: the impact of the measure and its duration, the extent to which the

measure breaks the investor’s legitimate expectations, and the nature, purpose and

character of the measure.161 In the present case, it will be demonstrated that

RESPONDENT’s conducts could not, at any moment, be regarded as expropriatory.

120. As previously stated, not every measure that leads to the economic loss or deprivation

can be considered as expropriatory. In the CME162 case, the tribunal held that indirect

expropriation only occurs when a State takes deliberate acts that “effectively neutralize

the benefit of property of the foreign owner”. The GAMI Investments163 tribunal held

that the affected property must be impaired to such an extent that it must be seen as

taken.

121. In the present case, this Tribunal is not dealing with a measure directed at a specific

party that intends to undoubtedly take possession of the investment, but a legislation

preventing any kind of lindoro exploitation. This means that the Decree did not aim to

undermine CLAIMANT’s business or hold control of Fenoscadia, but to regulate and

159 UNCTAD, p. 77.

160 Ibidem, p. 68.

161 Ibidem, p. 57.

162 CME v Czech Republic, para. 150.

163 GAMI Investments v United Mexican States, para. 126

TEAM ALFARO

30

temporarily stop all possible lindoro mining. RESPONDENT made it clear that the

measures were not permanent, with Kronos being open to the possibility of CLAIMANT

re-initiating its activities in the country.164 Moreover, the Kronian government does not

hold control over CLAIMANT’s facilities.

122. As stated by the Tecmed165 tribunal, measures adopted by a state cannot be considered

as an “indirect de facto expropriation” if they are reversible and temporary. A similar

conclusion was reached by the S.D. Myers166 tribunal, which decided that the orders

issued by the Canadian government did intend to curb SD’s initiative, but only for a

certain time, and thus no expropriation had happened. In the Suez167 case, it was

decided that unless measures constitute substantial and permanent deprivation, they

cannot be considered expropriatory.

123. Regarding the legitimate expectations, as already demonstrated, these were not harmed

by RESPONDENT’s acts. Therefore, another expropriation criterion has been dismissed.

124. The nature, purpose, and character of the measure will be analyzed further on,

demonstrating that it was a good faith regulatory act, based on RESPONDENT’s police

powers, done lawfully and pursuing public purpose.

i. RESPONDENT’s actions are within its police powers

125. First, it is crucial to clear out that states can make good faith use of its police powers in

order to make restrictions upon activities held on its territory168 in order to guarantee

the prevalence of public interest and the welfare of its population. Investment treaties

should not restrict a state's right to regulate.169

126. Police powers, in a narrower perspective, refer to measures that a government can take

to justify a state action that would otherwise amount to a compensable deprivation or

164 PO2, pp. 56-57.

165 Técnicas Medioambientales Tecmed v United Mexican States, para. 116.

166 S.D. Myers v Canada, paras. 287-288.

167 Suez et al. v Argentina, para. 129

168 Newcombe/Paradell, p. 15.

169 UNCTAD, p. 80.

TEAM ALFARO

31

appropriation of property.170 It allows the state to act in protection of essential public

interests from certain types of harm.

127. The regulatory conduct of states must carry a presumption of validity.171 There is

nothing within the language of BITs that purports to undermine the permanent

sovereignty of States over their own territories and economies.172 Prima facie, a lawful

exercise of powers of governments may affect foreign interests without amounting to

expropriation.173 Moreover, the BIT determines that host States must “strive to

minimize harmful environmental impacts occurring within its territory”.174

128. Although a state’s regulatory measure in order to protect the environment, health and

safety of the population will frequently impose regulatory and compliance costs at an

investment, these will normally not reach the threshold of substantial deprivation175, as

of even the non-compliance of the state with contractual obligations is not understood

as equivalent to expropriation.176

129. This is exactly what happened in the present case: CLAIMANT would have to bear the

costs of its own harm in order to keep and continue operations in Kronos, a burden that

Fenoscadia refused to accept.

130. In order to comprehend the fundamentals of the measure, it will be necessary to

examine the involved public purpose.177 As the present dispute treats about the

impugnment of a democratically elected government’s action, it becomes necessary to

analyze the context in which the measure was enacted.

131. Considered as an underdeveloped country and with little to none environmental

regulations178, Kronos turned out to be an ideal host for any mining company seeking

profit. After a few years passed, being the past administration a major supporter of

170 Newcombe/Paradell, p. 26.

171 UNCTAD, p. 80

172 Lowe, p.4.

173 Brownlie, p. 352.

174 BIT, p. 43.

175 Newcombe/Paradell, p. 357.

176 Waste Management, Inc. v United Mexican States, para. 175.

177 LG&E v Argentina, para 251.

178 Facts, p. 32-33.

TEAM ALFARO

32

lindoro exploitation, it is not straightforward to assume that the people of Kronos

noticed the sudden increase of diseases in the region179 and sought for the change of

government.

132. The claim that a recently elected administration with parliament majority would not act

in conformity with the public interest should be dismissed, as the importance of

maintaining the health of the population is far more important than the profit made with

the exploitation of lindoro, and the state must comply with this humanitarian policy in

respect with international customary law itself.180

133. Even if considered the highly unlikely possibility in which only the affected population

was against the exploitation of lindoro, the public interest can still be claimed by even a

fraction of the community.181

134. To deny the motivating public purpose would be to benefit the investor with the sole

effects doctrine unilaterally,182 that determines that the motive behind the regulation be

worthless,183 observing just the effects caused on the investor’s property.

135. This bias would allow the impunity of the investor, as it generates no side effect for the

pollution performed leading to an easy profit at the expense of the responding state.184

The prevalence of the sole effects doctrine would prevent regulation in public health

and environmental protection185 disregarding the necessity of proactive regulation and

protection of natural essential interests that surpass criteria of optionality.186

136. In the S.D. Myers187 case, it was held that, when determining whether expropriation

happened or not, it was crucial to look at the real interests involved and the purpose and

effect of the governmental measure. Along the same lines, the LG&E188 tribunal

179 Case, p. 51.

180 Methanex v USA, para. 7.

181 Sooraram Pratap Reddy & Ors. v Distt. Collector, Ranga Reddy, para. 67.

182 Dolzer, p. 122.

183 Nykomb Synergetics v Latvia.

184 Odumosu, p. 345.

185 Van Harten, pp. 91-92.

186 Suez InterAgua v Argentina, para 238.

187 S.D. Myers v Canada, para. 281-285.

188 LG&E v Argentina, para. 170.

TEAM ALFARO

33

decided that there must be a balance in the analysis of both of the causes and effects of

a measure in order to qualify it as expropriatory or not.

137. There are State measures which do not constitute expropriation under international law,

such as essential regulations aiming to secure the welfare of the community and

therefore are non-compensable - even if they reach the level of total deprivation.189

138. The Presidential Decree No 2424 was created exclusively aiming at protecting the

health of Kronian nationals and the country’s environment and natural resources.

Consequently, the enactment of the Decree is within RESPONDENT’s police powers, and

cannot be treated as expropriatory.

ii. The Presidential Decree No 2424 is a non-compensatory regulation

139. Contrary to CLAIMANT’s requests, RESPONDENT’s measures are not to be considered

expropriatory, but rather a non-compensatory regulation. The state’s right to regulate is

well recognized under the customary international law190, as it would be practically

impossible to maintain a functioning state if every legislative change lead to the

compensation of the affected.191 It has long been accepted that a state act under its

police powers is not subject to compensation.192

140. Governments do not owe compensation for a non-discriminatory bona fide

regulation.193 To be declared as discrimination it is necessary to prove different

treatments to different parties194. However, in the present case, the Presidential Decree

No 2424 prohibited lindoro exploitation from all present and future companies,

therefore not targeting CLAIMANT, as the purpose was to cease the environmental

damages caused by the exploitation.

189 UNCTAD, p.72.

190 LG&E v Argentina, para. 195; Saluka v Czech Republic, para. 306.

191 Pennsylvania Coal Co v Mahon, p. 260 U.S. 413.

192 UNCTAD, p. 78.

193 Suez InterAgua v. Argentina, para. 128.

194 ADC v Hungary, para. 442.

TEAM ALFARO

34

141. Moreover, the bona fide regulation is affirmed as for there to be an indirect

expropriation the state should have taken a teleologically driven action or have profited

from it195, not applying to this dispute, as Kronian citizens lost jobs and the state lost a

large source of profit in order to protect the environment from the consequences of

lindoro exploitation.

142. Furthermore, the measure taken by RESPONDENT did not meet the criterion of

appropriation to recognize an expropriation196 as it respected the legislation and aimed

for the public benefit.197

143. One of the factors evaluated to declare an expropriation is the duration of the

measure198, which was temporary, as RESPONDENT had agreed to negotiate the

exploitation if CLAIMANT admitted its responsibility on the damages.199 CLAIMANT

rejected the offer and fourteen months after the emission of the Decree entered with

requests to arbitrate in the SCC.200 Similarly, the tribunal in S.D. Myers201 understood

that not even eighteen months were enough to demonstrate an indirect expropriation, as

the state had not benefited.

144. Tribunals such as Methanex202 and Saluka203 have reached the conclusion that,

according to international law, non-discriminatory regulation that follows a public

purpose and is enacted in accordance with due process and ends up affecting, inter

alios, a foreign investment is not deemed to be compensatory and expropriatory unless

very specific commitments have been made by the host state and the investor can

undoubtedly rely on such commitments. Both tribunals have also agreed that general

regulations made within the state’s police powers are not compensable.

195 Eudoro Armando Olguín v Republic of Paraguay para. 84; Ronald S. Lauder v The Czech Republic para.

203.

196 OECD Indirect Expropriation, p. 3.

197 Mugler v Kansas, 123 U.S. 623 (1887).

198 Telenor Mobile Communications A.S. v The Republic of Hungary para. 70.

199 PO2, pp. 56-57.

200 Facts, p. 37.

201 S.D. Myers, Inc. v. Government of Canada, para. 287.

202 Methanex v United States of America, IV D, para. 7.

203 Saluka v Czech Republic, para. 262.

TEAM ALFARO

35

145. Even tribunals with a more rigid approach, such as Azurix204, decided that, even though

public purpose alone cannot fully justify non-compensation, such criterion aligned with

proportionality and non-discrimination would ultimately remove the state’s

responsibility to compensate the investor.

146. This Tribunal could consider that the mere fact that a measure regards the protection of

the environment does not provide a justification for non compensation, which was the

rationale followed by the tribunals in Tecmed205 and Metalclad206 - but this is not the

case at stake. None of such cases dealt with urgent matters that put human health at

risk, such as the present one. When an investment can result in the threat of the

population’s life, a ban can result in the complete destruction of the investment and still

no compensation is due.207

147. It has been generally concluded that the right to compensate does not exist when it

would arise from reasonably necessary regulations passed for the protection of public

health, safety or welfare.208 As decided by the Saluka209 tribunal, states are not liable to

pay compensation for good faith regulations aimed at general welfare.

148. By the arguments presented RESPONDENT demands that this Tribunal recognizes the

bona fide regulation performed by the government - otherwise CLAIMANT would be

rewarded with a large compensation for jeopardizing the well being of the inhabitants.

iii. General exceptions are provided in article 10 of the BIT

149. Hereby it will be presented RESPONDENT’s full compliance with the BIT and customary

international law. Firstly, as the signed BIT materialized the undisputable principle of

the right of regulation210 in its article 10 stating the acceptable general exceptions that

204 Azurix Corp. v The Republic of Argentina, para. 310.

205 Técnicas Medioambientales Tecmed v United Mexican States.

206 Metalclad v United Mexican States.

207 Newcombe/Paradell, p. 35.

208 Ibidem, p. 23.

209 Saluka v Czech Republic, para. 147.

210 Técnicas Medioambientales Tecmed v United Mexican States, para. 119.

TEAM ALFARO

36

should be taken in consideration to protect the well being of the region or to avoid

being inconsistent with the principles of customary international law.211

150. A breach of contract can be characterized as extraordinary action adopted by a

contracting party to surpass a provision.212 As of this case, RESPONDENT utilized of its

police powers in compliance with the article 10, not going beyond the contracting

parties rights neither abusing its sovereignty.

151. The general exceptions can only be employed when the action does not rely on

arbitrary means, discrimination or the breach of an international restriction. The

concept of arbitrary measure is drawn as an optional activity that does not contain a

purpose to sustain it213, which, as previously mentioned, does not apply to the present

case.

152. Likewise, the discriminatory claim is not to be considered as the limitation fit in the

general national plan of regulation of industries, and had no punitive character directed

to particulars.214 As there are no national companies that exploit the mineral215, there

would be no benefit of the discrimination for the state.

153. Moreover, in order to determine a discriminatory measure it is necessary to observe the

causality of the action, where its non-existence would benefit both parties216 - not

applying to the present case, as the Decree No 2424 was essential to protect the citizens

of Kronos from the pollution caused by the exploitation.

154. With both parties being signatories of the Vienna Convention217, RESPONDENT had no

choice but to terminate the agreement as the circumstances presented violated the basis

of the consent of the parties.218

211 BIT, pp. 43-44.

212 Siemens v Argentina p. 248.

213 Azurix Corp. v Argentina, para. 392.

214 Donald F. Rieger Jr. p. 174.

215 Facts, p. 32.

216 Konrad von Moltke, p. 4.

217 Facts, p. 32.

218 Vienna Convention on the Law of Treaties.

TEAM ALFARO

37

155. Therefore, the usage of the article 10 was fair and necessary as otherwise RESPONDENT

would be obliged to breach either the BIT or a human rights convention, as both would

be conflicted.219

156. CLAIMANT may argue that the Decree was unconstitutional. However, as seen in the

case file, it is a responsibility of the Speaker of the House to determine whether a

public hearing is necessary or not;220 in the present case, it was decided that there was

no need to hold such hearings. This attitude can be easily understood when analyzing

the urgent situation Kronos was passing through.

157. The measure was indispensable not only to comply with customary international law

and the BIT, as prevented accusations of environmental discrimination221, in which the

state by supporting the investment would continue to assist a harmful entity against the

people in the region. Thus, a scenario where RESPONDENT could maintain the

exploitation without regulating does not exist given these extraordinary repercussions.

158. Microcephaly is a rare disease that affects one newborn each several thousands and has

no specific treatment.222 In recent years there has been a surprising growth of this

condition in the areas surrounding the Site, as a study shown that 88% of the examined

newborns have presented indications of microcephaly, even though this particularity

was practically nonexistent until 2012.223

159. As an acknowledged environmentalist-focused administration, the Nationalist Party

won the presidential elections in 2014 and had to proceed to repair the environmental

legislation that was neglected by past governments. It needed to act fast, given the

urgency of the matter, therefore not being obliged to send a formal notice to the other

party.224

219 Suez InterAgua v Argentina, para. 240.

220 Facts, p. 35.

221 Steve Lerner.

222 World Health Organization.

223 Case, p. 51.

224 UNCTAD p. 40.

TEAM ALFARO

38

160. To deny the significance of the general exceptions is to invite the leading advantage of

the investor in an arbitral dispute, as it facilitates the justification for a failed business

based on the right to regulate, freely undermining the state’s sovereignty.225

VI. CLAIMANT IS LIABLE TO PAY COMPENSATION FOR THE ENVIRONMENTAL

DAMAGES CAUSED IN RESPONDENT’S TERRITORY

161. Since already demonstrated that the counterclaim is admissible before this Tribunal, the

merits of the claim must be discussed. Not only RESPONDENT complied with all of its

prerogatives, as it becomes crucial to notice the counterpoints that lead to the present

case. Henceforth it will be demonstrated the aftermath of CLAIMANT’s violations of the

BIT leading to the justified termination of the Agreement.

162. Tribunals tend to agree that environmental stewardship is of great importance in

today’s world and, if a legal relationship between a state and an investor results in

environmental damage, the state is then entitled to receive full compensation for such

damages.226

163. It must be taken into consideration that Kronos is an underdeveloped country and the

estimated costs for cleaning the Rhea River already reach USD 75 million.227

164. It becomes disproportionate to acknowledge RESPONDENT’s intentions as oppressive,

based on the fact that when the lindoro exploitation begun there were virtually zero

regulations besides the Agreement.228 For that reason, the consequence of the

exploitation could not have been foreseen leading to a strong yet necessary regulation.

165. It is, from a while, common ground to both parties that metal exploitation and mining

are hazardous activities that inherently put the environment at risk. Accordingly,

companies that exercise such activities must guarantee a very high standard of care in

their operations, especially when operating in environmentally fragile areas.229

225 Peterson, p. 3.

226 Perenco Ecuador v Republic of Ecuador, para. 34.

227 Case, p. 51.

228 Facts, p. 33.

229 Perenco Ecuador v Republic of Ecuador, para. 37.

TEAM ALFARO

39

RESPONDENT had been monitoring CLAIMANT’s activities since 2011 and is aware that

lindoro exploitation could potentially cause environmental harm from then.230

However, RESPONDENT could not impose restrictions to CLAIMANT’s activities until the

enactment of the KEA.231 Not only that, but as it can be seen from the presidential

statements made by the former government and the background story of Fenoscadia’s

development in Kronos, it can be assumed that environmental protection was not a

worry for the previous administration.

166. It was within CLAIMANT’s responsibilities to be aware that graspel, the toxic metal

disposed in lindoro exploitation, is harmful to human health. As it is stated in the case

files, there is a recent development in a series of global studies demonstrating that such

metal can be linked to the rise of cardiovascular diseases.232 Moreover, the study

conducted by the Kronian Federal University demonstrated a connection between

lindoro exploitation and Kronos’ recent health crisis233 - therefore demonstrating the

causal nexus between CLAIMANT’s wrongful act and RESPONDENT’s damages.

167. RESPONDENT contends for the polluter pays principle234, which determines that the

responsible for the harm is also the one to bear with the reparation costs, whether it had

the intention to cause such harm or not.235 With CLAIMANT not recognizing its

responsibility, the community would have to bear the costs of the pollution, being

inconsistent with the principles of sustainable development.236

168. The polluter-pays principle is predicted in the BIT237 and, furthermore, in

RESPONDENT’s own regulation, explicitly in the KEA238. It is also predicted in the

Water Convention, which both parties are signatories239 - even though it is not applied

230 Case, p. 15.

231 Ibidem.

232 Ibidem, p. 50.

233 Ibidem, p. 51.

234 United Nations.

235 Preston.

236 Ibidem.

237 BIT, p. 43.

238 PO2, p. 57.

239 Facts, p. 32.

TEAM ALFARO

40

in the present case, since the Rhea River is not transboundary, it clearly demonstrates

that both Ticadia and Kronos adopt environmental-friendly policies.

169. Therefore, RESPONDENT’s conduct to demand payment for the environmental damage

caused by Fenoscadia is in full compliance with the BIT and Kronian regulations. It

would be unreasonable for this Tribunal to accept that CLAIMANT starts an arbitral

proceeding based on the same BIT it now demands RESPONDENT to breach.

170. Moreover, considering that CLAIMANT initiated arbitral proceedings based on supposed

BIT breaches by RESPONDENT, it can be expected that Fenoscadia was aware of the

provisions regarding the polluter-pays principle.

171. CLAIMANT was negligent with its conducts and the effects they could produce in the

environment and, consequently, in the Kronian population. As demonstrated in the case

file, Fenoscadia did not embrace any corporate social responsibility standard in its

practices and internal policies240, going against a clear international trend. The

adherence to CSR represents the company’s intention to act in an ethical and

transparent way, contributing to the health and welfare of the society.241

172. Moreover, the concept of international corporate social responsibility (hereinafter

“ICSR”) goes beyond the idea of adopting environmental-friendly policies and ethical

codes of conduct. It may be considered to rest on the obligations that companies owe to

the societies in which they operate.242 This can be furthermore based on the concept of

a “social contract” and the need of all the agents, including non-state agents, to observe

the preservation of human dignity through adherence to fundamental human rights.243

173. Investments cannot enter a country as if there was no society or community there.

Consequently, their activities will have impact whether for good or ill.244 Companies do

240 PO2, p. 57.

241 Castka/Balzarova, p. 10.

242 Muchlinski/Ortino/Schreuer, p. 640.

243 Donaldson, p. 378.

244 Muchlinski/Ortino/Schreuer, p. 638.

TEAM ALFARO

41

not operate in the vacuum - their relationship with the society and the environment they

operate on is a critical factor to measure their capacity to operate efficiently.245

174. Corporations may build in a corporate social responsibility project into their plans.

However, not doing so may cost them a change in the order of social and political

activities in which they develop their investment in.246

175. It must be pointed out that, even though RESPONDENT does not apply the strict liability

concept in its domestic legislation247, it would be nearly impossible to fully

demonstrate that CLAIMANT acted in negligence or bad faith. Moreover, by asserting an

environmental counterclaim, RESPONDENT has the burden of proving that Fenoscadia’s

activities resulted in an environmental effect that exceeded the applicable regulatory

limits.248 However, this Tribunal must consider that, until the enactment of the KEA,

RESPONDENT’s environmental regulation was virtually non-existent.

176. The Perenco Ecuador249 tribunal dealt with a similar situation: the country made a

counterclaim regarding environmental legislation breaches and the strict liability was

considered inapplicable in the case. The tribunal decided, however, that it was

unacceptable for it to allow that the company simply argued that “a spill” happened

during normal course of business and it could not be liable unless it were proved that

negligence occurred. It also came to the conclusion that regulatory exceedance can be

considered evidence of operational failure and, consequently, evidence of fault.

177. Consequently, this Tribunal should follow the same rationale - even if it considers

RESPONDENT’s regulation too strict or in exceedance, it is merely the demonstration of

CLAIMANT’s operational failures that consequently led to the necessity of drafting the

KEA.

178. Although CLAIMANT argues that it is not responsible for the pollution and the health

costs that RESPONDENT had to bear, mere allegations that it was acting in good faith and

did not have knowledge of any possible harm it was causing are not sufficient to

245 ISO 260000.

246 Muchlinski/Ortino/Schreuer, p. 641.

247 PO2, p. 57.

248 Perenco Ecuador v Republic of Ecuador, para. 45.

249Ibidem, para. 374.

TEAM ALFARO

42

exclude its liability. Once the polluter-pays principle is a clear part of Kronos and

Ticadia governmental policies and legal frameworks, this Tribunal should grant

RESPONDENT’s counterclaim requests.

PRAYERS FOR RELIEF

179. In light of the above submissions, RESPONDENT respectfully requests this Tribunal to

find that:

(i) CLAIMANT is not an eligible investor under the 1993 Ticadia-Kronos BIT;

(ii) CLAIMANT’s request is not admissible as the fork in the road clause was triggered by its

previous motion in RESPONDENT’s state court;

(iii) RESPONDENT’s counterclaim is admissible;

(iv) RESPONDENT acted in accordance with Article 6 of the BIT;

(v) The Presidential Decree n. 2424 did not expropriate CLAIMANT’s investment;

(vi) The counterclaim must be granted in the merits, considering CLAIMANT’S liability to pay

for the environmental damages it caused in Kronos.

COUNSELS FOR THE RESPONDENT

TEAM ALFARO

24 SEPTEMBER 2018.