Team NERVO ARBITRATION INSTITUTE OF THE ... CASES 1. Abaclat and Others v The Argentine Republic...

Team NERVO

ARBITRATION INSTITUTE OF THE STOCKHOLM CHAMBER OF COMMERCE

UNDER THE RULES OF ARBITRATION INSTITUTE OF THE STOCKHOLM

CHAMBER OF COMMERCE

Case SCC No. 00/2013

CALRISSIAN & CO., INC

CLAIMANT

V.

THE FEDERAL REPUBLIC OF DAGOBAH

RESPONDENT

MEMORIAL FOR RESPONDENT

20 SEPTEMBER 2014

1

TABLE OF CONTENT

INDEX OF AUTHORITIES ................................................................................................ 3

STATEMENT OF FACTS................................................................................................... 7

I. TRIBUNAL LACKS JURISDICTION OVER THE DISPUTE CONCERNING THE

SOVEREIGN BONDS OWNED BY CLAIMANT UNDER THE BIT…………………...9

A. The Sovereign Bonds lack the Characteristics of an Investment under Art. 1 of the BIT .... 9

1. The purchase of the Sovereign Bonds Has Not Committed Capital to Dagobah’s

Economic development ......................................................................................... 10

2. Claimant’s acquisition of the sovereign bonds Do Not Satisfy the Element of Risk

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

3. Investment under the Dispute Was Not Made in the Territory of Dagobah ......... 12

B. Sovereign Bonds Do Not Satisfy the Salini Criteria for Investment ................................... 13

C. Sovereign Bonds Are Not Investment under the Text of Art. 1 of the BIT ........................ 14

II. THE PCA ARBITRAL TRIBUNAL’S DECISION HAS NO EFFECT ON THE

JURISDICTION FOR THE TRIBUNAL IN THE PRESENT CASE ........................ 16

A. The Tribunal Is Ad Hoc Judicial Body, Not Restricted By Previous Decisions ................. 16

B. The Factual And Legal Circumstances Are Completely Different In The Relation To The

PCA Tribunal’s Decision .................................................................................................... 17

1. Different Litigating Parties. ................................................................................... 17

2. The PCA Arbitral Tribunal’s Decision Relates Only the Interpretation of the

Sovereign Bonds, Governed by BIT ..................................................................... 18

3. Dagobah’s And Global Financial Situation Have Fundamentally Changed For The

Last 11 Years ................................................................................................................ 19

III. TRIBUNAL SHOULD RULE ON THE CLAIMS ASSERTED IN VIEW OF THE

FORUM SELECTION CLAUSE CONTAINED IN THE SOVEREIGN BOND ...... 20

A. Dispute Relates Solely To The Contract Claims, Deriving From The Contract Of The

Sovereign Bonds Contract ................................................................................................... 21

B. Claimant And Dagobah Has Not Concluded Arbitral Agreement ...................................... 23

IV. DAGOBAH ACTIONS ARE CONSISTENT WITH THE ARTICLE 2(2) OF

DAGOBAH – CORELLIA BIT ................................................................................... 24

A. Fair and Equitable Treatment in the Article 2(2) Should be Interpreted As Minimum

Standard of Treatment and Dagobah Did Not Violate It ..................................................... 24

B. Should The Tribunal Decide Fair And Equitable Standard Of Treatment To Be More

Demanding Than Minimum Standard Of Treatment: ......................................................... 27

1. Dagobah Did Not Violate Legitimate Expectations Of The Bondholders And

Acted Consistently ................................................................................................ 27

2

2. The Debt Restructuring Process Was Reasonable And Proportional .................... 30

3. Dagobah Ensured Due Process ................................. Klaida! Žymelė neapibrėžta.

V. DAGOBAH’S RESPONSIBILITY IS PRECLUDED UNDER CUSTOMARY

INTERNATIONAL LAW ........................................................................................... 34

A. Dagobah Complies With All Cumulative Conditions of Necessity Defence Under Article

25 Of Articles On Responsibility Of States For Internationally Wrongful Acts................. 34

1. Economic survival is an essential interest of Dagobah ......................................... 35

2. Economic collapse is a grave and imminent peril ................................................. 36

3. Sovereign debt restructuring was the only way to protect essential interests ....... 37

4. Sovereign Debt Restructuring Does Not Seriously Impair An Essential Interest Of

Corellia Towards Or Of The International Community As A Whole ................... 38

5. Dagobah Has Not Contributed To The State Of Necessity ................................... 39

B. The BIT Concluded Between Corellia And Dagobah Allows Invoking Necessity ............ 39

3

INDEX OF AUTHORITIES

BOOKS

1. C. Baltag, Notion of investment and precedent under ICSID convention: award in

MHS v. Malaysia (TDM 5 2007).

2. D.D. Caron, L.M. Caplan et al., The UNCITRAL Arbitration rules A Commentary

(Oxford university press 2nd

2012).

3. G. Dufey, Corporate Debt vs. Country Debt: Distinguishing Between Liquidity and

Solvency Problems, in Private Sector Solutions to The Latin American Debt Problem

(Robert Grosse ed., 1992).

4. G.P. McGinley, Practice as a guide to treaty Interpretation (1985) The Fletcher

Forum winter.

5. Brownlie, Principles of Public International Law (Oxford, 6th

Ed. 2003).

6. C. McLachlan, L. Shore, International Investment Arbitration, Substantive Principles

(Oxford University Press, 2007).

7. K. N. Schefer, International Investment Law: Text, Cases, Materials 2013.

8. L. A. Mistelis, J. D. M. Lew, S.M Knöll, Comparative International Commercial

Arbitration (Wolters Kluwer 2003).

9. M. Sasson, Substantive law in investment treaty arbitration The unsettled relationship

between international and municipal law (Kluwer Law International 2010).

10. O. Dorr, K. Schmalenbach (edit.), Vienna Convention on the Law of Treaties A

Commentary (Springer-Verlag Berlin Heidelberg 2012).

11. Organization for Economic Cooperation and Development, International Investment

Law: A Changing Landscape. A Companion Volume to International Investment

Perspectives, 2005, Available at

http://browse.oecdbookshop.org/oecd/pdfs/product/2005141e.pdf.

12. Oxford Commentaries on International law, The Law of International Responsibility,

edited by James Crawford, Alain Pellet and Simona Olleson, Assistant Editor Kate

Parlett, 2010

13. R. Dolzer, Ch. Schreuer, Principles of international investment law (Oxford

University Press 2008).

14. R. Ago, Addendum to the Eight Report on State Responsibility, Yearbook of the

International Law Commission, 1980, Vol. II(1)

15. UNCTAD, Sovereign Debt Restructuring and International Investment Agreements,

2011, Available at http://unctad.org/en/Docs/webdiaepcb2011d3_en.pdf

16. Z. Douglas, The International Law of Investment Claims (Cambridge University Press;

1st ed. 2009).

4

CASES

1. Abaclat and Others v The Argentine Republic (2011) ICSID case no. ARB/07/5.

2. Ceskoslovenska Obchodni Banka, A.S. v. Slovak Republic (2004) ICSID case no.

ARB/97/4.

3. Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v Argentine

Republic (2007) ICSID case no. ARB/97/3 (Annulment proceeding).

4. Competence of the General Assembly for the Admission of a State to the United

Nations (Advisory Opinion) (1950) International Court of Justice, ICJ Report 4.

5. Continental Casualty Co. v. Argentine Republic, ICSID Case No.Arb/03/9, Award,

2008

6. CMS Gas Transmission Co. v. Argentine Republic, ICSID Case No.ARB/01/08,

Award, 2005

7. El Paso Energy International Co. v Argentine Republic (2006) ICSID Case No.

ARB/03/15.

8. Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic (2007), case no.

ARB/01/3.

9. Fedax N.V. v. The Republic of Venezuela (1997) case no. ARB/96/3.

10. Gabčíkovo-Nagymaros Projectm case (Hungary v. Slovakia), Judgment, ICJ Rep,

1997

11. Gas Natural SDG, S.A. v. The Argentine Republic (2005) ICSID case no. ARB/03/10.

12. Salini Costruttori S.p.A. and Italstrade S.p.A.v. Kingdom of Marocco (2001) ICSID

case no. ARB/OO/4.

13. LG&E Energy Corp. v. Argentine Republic, ICSID Case No. Arb/02/1, Decision on

Liability, 2006

14. Malaysian Historical Salvors SDN, BHD v. The Government of Malaysia (2007)

ICSID case no. ARB/05/10.

15. Occidental Exploration and Production Company v. The Republic of Ecuador (2004)

London Court of International Arbitration Administered case no. UN 3467.

16. SGS Société Générale de Surveillance S.A. v. Republic of the Philippines (2004)

ICSID case no. ARB/02/6.

ARTICLES

1. Haldane, “The Resolution of International Financial Crises: Private Finance and

Public Funds”, Bank of England, 2001, Available at

http://www.bankofengland.co.uk/publications/Documents/other/financialstability/boea

ndboc.pdf.

2. Kingsbury, S. Schill, “Investor-State Arbitration as Governance: Fair and Equitable

Treatment, Proportionality and the Emerging Global Administrative Law”, 2009.

5

3. Ch. Schreuer, “The Relevance of Public International Law in International

Commercial arbitration: Investment disputes”, Available at

www.univie.ac.at/intlaw/pdf/csunpublpaper_1.pdf

4. Ch. Schreuer; U. Kriebaum, “At What Time Must Legitimate Expectations Exist?”

(2012) , TDM 1.

5. J. R. Picherack, “The Expanding Scope of the Fair and Equitable Treatment Standard:

Have Recent Tribunals Gone Too Far?” (2008) The Journal of World Investment

&Trade.

6. K. J. Vandevelde, “A Unified Theory of Fair and Equitable Treatment” (2010). New

York University Journal of International Law and Politics (JILP), Vol. 43, No. 1.

7. Lisa Brahms, Legitimacy in Global Governance of Sovereign Default: The Role of

International Investment Agreements, 2013, Available at http://www.polsoz.fu-

berlin.de/polwiss/forschung/oekonomie/ipoe/pipe_working_papers/papers/PIPE_Wor

king_Paper_16-

13_Brahms_Legitimacy_in_Global_Governance_of_Sovereign_Default.pdf?1367710

376.

8. Li, Yanying, Policy Implication of Poštová Tribunal's Jurisdiction Over Sovereign

Bonds: Bankruptcy Cram-Down and ICSID Arbitration (February 28, 2014) Available

at: http://ssrn.com/abstract=2402643.

9. M. Malik, “The Expanding Jurisdiction of Investment-State Tribunals: Lessons for

Treaty Negotiators 2007” (2007) International Institute for Sustainable Development

Background Papers for the Developing Country Investment Negotiators’ Forum.

10. Marie Christine Hoelck Thjoernelund, State of Necessity as an Exemption from State

Responsibility for Investments, University of Heidelberg, Max Plank Institute for

Comparative Public Law and International Law and the University of Chile, 2008

11. M. Waibel, “Opening Pandora’s Box: sovereign bonds in international arbitration”

(2007) American Journal of International Law, Vol. 101.

12. R. Dolzer, Fair and Equitable Treatment: Today’s Contorous (2014), Santa Clara

Journal of International Law

13. S.J. Galvis, A.L. Saad, Sovereign Exchange Offers in 2010, Chicago Journals of

International Law, Vol. 6 No. 1

14. S. Neri, T. Ropele, “The macroeconomic effects of the sovereign debt crisis in the

euro area, 2013.

CONVENTIONS

1. Vienna Convention on the Law of Treaties (adopted 22 May 1969, entered into force

27 January 1980).

6

APPENDICES

1. Agreement between the Corellian Republic and the Federal Republic of Dagobah for

the promotion and protection of investments (1992) (Appendix 1)

2. The Corellian Republic v. the Federal Republic of Dagobah (2003), PCA Case No

000-00 (Appendix 2)

3. Dissenting opinion by professor Andreas Jager of 19 May 2003 on The Corellian

Republic v. Federal Republic of Dagobah (2003), PCA Case No. 000-00 (Appendix

3)

4. The Global Financial Herald, Dagobah’s Economic Crisis in the Context, 12

December 2011 (Appendix 4)

5. Sovereign Debt Restructuring Act No. 45/12 approved on 28 May 2012 by the

Congress of the Federal Republic of Dagobah (Appendix 5)

6. Calrissian & Co., Inc v. The Federal Republic of Dagobah (2013), Request for

Arbitration, (Appendix 6).

7. Calrissian & Co., Inc v. The Federal Republic of Dagobah (2013), Answer to the

Request for Arbitration, SCC No 00/2013, (Appendix 6).

8. Arbitration Institute of the Stockholm Chambers of Commerce, Procedural Order No.

1, 3 February 2014, (Appendix 6).

9. Arbitration Institute of the Stockholm Chambers of Commerce, Procedural Order No.

2, 23 June 2014, (Appendix 6).

LIST OF ABREVATIONS

BIT or Treaty Agreement between the Corellian Republic and the Federal

Republic of Dagobah for the Promotion and Protection of

the Investments (1992)

Calrissian or Claimant Calrissian & Co., Inc, a hedge fund located in Corellia

Dagobah or Respondent The Federal Republic of Dagobah

FET Fair and equitable treatment

FTC NAFTA Free Trade Commission

IMF The International Monetary Fund

IMS International Minimum Standard

NAFTA North American Free Trade Agreement

SRA The Sovereign Restructuring Act (2012)

Vienna Convetion Vienna Convention on the Law of Treaties (adopted 22

May 1969, entered into force 27 January 1980)

7

STATEMENT OF FACTS

1. In 1992 Corellia and Dagobah concluded the BIT. The treaty is aimed at stimulating

Dagobah‘s economic growth and fortification of bilateral investment relations.

2. In 2001 Dagobah collided with an unsustainable debt burden and descended into a

two-and-a-half year long economic crisis which resulted in an inability to meet its debt

obligations. As a consequence, it instituted a restructuring plan, according to which

state’s sovereign bonds’ face value was decreased by 43 %. The plan also contained a

possibility of cash buybacks with the assistance of the World Bank’s Debt Reduction

Facility.

3. In the same year Corellia due to the pressure of its nationals commenced negotiations

with Dagobah seeking to clarify the notion of investment under the BIT. After fruitless

negotiations Corellia instituted arbitral proceedings against Dagobah in the Permanent

Court of Arbitration.

4. On 29 April 2003, the PCA Arbitral Tribunal decided that sovereign bonds are

investments within the meaning of the BIT. Even though it was not a unanimous

decision and these bonds are not under the dispute in the present case.

5. On 7 May 2001, Dagobah offered its investors to exchange their bonds for new ones.

Despite that Corellian bondholders accepted a restructuring offer made by Dagobah,

which ultimately only represented losses of less than 20%. The investors have not

instituted any litigation proceedings against Dagobah with respect to the sovereign

debt restructuring.

6. In 2010 Dagobah faced the second financial crisis caused by the global financial

meltdown. As a consequence, Dagobah was not able not generate enough revenues for

servicing its debt and either had to restructure its debt or default.

7. On May 2012, together with International Monetary Fund, Dagobah prepared the

Sovereign Restructuring Act (“SRA”) seeking to protect its foreign investors.

Dagobah informed bondholders having Dagobah’s sovereign bonds about different

8

versions of the text of the SRA. Moreover, it consulted a committee representing the

owners of approximately 50% of the aggregate nominal value of the bonds.

8. On 29 November 2012, Dagobah’s government offered the bondholders to exchange

their sovereign bonds for new ones worth approximately 70% of the net value of the

outstanding sums under the original bonds. The exchange offer was in accordance

with the IMF’s policies regarding sovereign debt restructuring.

9. In February 2013, Dagobah exchanged the old sovereign bonds for the new ones in the

terms of the offer. The majority of bondholders accepted the exchange rates and

conditions.

10. On 30 August, 2013 Calrissian filed for arbitration in the Arbitration Institute of the

Stockholm Chamber of Commerce claiming for Dagobah’s actions concerning the

adoption of the SRA and full compensation for the losses, including interest.

9

I. TRIBUNAL LACKS JURISDICTION OVER THE DISPUTE CONCERNING THE

SOVEREIGN BONDS OWNED BY CLAIMANT UNDER THE BIT

11. The scope of arbitral tribunal’s jurisdiction is designated by ‘ratione materiae, ratione

personae and the consent to the arbitration’1. Neither of these criteria are found in the

present dispute.

12. In order for the Tribunal to have jurisdiction ratione materiae over the dispute, it is

necessary that a dispute, as defined by the terms of the claims, relate to an

investment2. Thus, the question of the concept of investment is to this extent relevant

for the stage of the jurisdiction.

13. The sovereign bonds are neither investment within the meaning of the BIT nor they

are treated generally as investment pursuant to the contemporary judicial practice.

Hence, this Tribunal lacks jurisdiction in the Calrissian–Dagobah dispute.

A. The Sovereign Bonds lack the Characteristics of an Investment under Art. 1 of

the BIT

14. According to Art. 1 of the BIT, Parties agreed that the act shall have the following

characteristics in order to be an investment under the BIT:

o the commitment of capital or other resources;

o the expectation of gain or profit;

o the assumption of risk.

All of the characteristics are cumulative, therefore an investment has to satisfy all of

them in order to be protected under the Treaty.

15. The Respondent requests the Tribunal to find that (1) the purchase of the sovereign

bonds lacks the commitment of capital in Dagobah; (2) the sovereign bonds do not

contain the element of risk; (3) the purchase of the sovereign bonds has no territorial

link with Dagobah. Consequently, the sovereign bonds are not investment under Art.1

of the BIT.

1 Z. Douglas, The international law of investment claims, Cambridge University Press 1

st ed., 2009, p. 145.

2 Abaclat and others v the Argentine Republic, Decision on Jurisdiction and Admissibility of 4 August 2011,

ICSID Case No. ARB/07/5., para. 343.

http://www.italaw.com/sites/default/files/case-documents/ita0236.pdf

10

1. The purchase of the Sovereign Bonds Has Not Committed Capital to Dagobah’s

Economic development

16. Claimant purchased the sovereign bonds on the secondary market in 20053. Therefore,

Calrissian has not committed capital to Dagobah. International arbitral practice has

established that one of the basic element of investment is the commitment of capital:

“The basic features of an investment have been described as involving

[...] a substantial commitment and significance for the host State's

economy4”.

Thus, the term “investment” should be interpreted as „an activity which promotes

some form of positive economic development for the host State“5. It relates to the

capital flow from the investor to the host state. Arbitral Tribunals interpret an

investment as an activity “which promotes some form of positive economic

development for the host state”6.

17. Since a secondary market is a virtual place where previously issued securities are

bought and sold, sovereign bonds are not situated within the issuing state and are not

subject to its laws.7 The nature of such market is that sovereign bonds are purchased

by one person to another. There is no connection between an issuer of the bonds and

the bondholder.8

18. Legal publicists agree that there is absence of the flow of even financial resources into

the country that issued sovereign bonds in case the sovereign bonds are purchased in a

secondary market. Consequently, there is no capital flow to the host state:

“Within secondary market there is typically no flow of even financial

resources into the issuing country. For that reason, investments in

sovereign bonds are highly unlikely to contribute to the host country’s

(issuer) economic development, because it does not participate in the

secondary market”.9

3 Appendix 6, para 11.

4 Fedax N.V. v. The Republic of Venezuela, Decision of the Tribunal on Objections to Jurisdiction of 11 July

1997, ICSID Case No. ARB/96/3., para. 43. 5 Malaysian Salvors v Malaysia, Award on Jurisdiction 17 May 2007, ICSID Case No. ARB/05/10., para. 67.

6 Malaysian Salvors v Malaysia, Award on Jurisdiction 17 May 2007, ICSID Case No. ARB/05/10., para. 68.

7 Z. Douglas, The international law of investment claims, Cambridge University Press 1

st ed., 2009., p.384.

8 Abaclat and others v the Argentine Republic, Decision on Jurisdiction and Admissibility of 4 August 2011,

ICSID Case No. ARB/07/5., para. 24. 9 M. Waibel, “Opening Pandora’s Box: sovereign bonds in international arbitration”, The American Journal of

International Law, Vol. 101 (2007), p. 727.

http://www.italaw.com/sites/default/files/case-documents/ita0315_0.pdf




11

19. It is clear from the facts of this dispute that the Claimant purchased the sovereign

bonds on the secondary market.10

Thus, it acquired the securities from the other person

but not from the Respondent. Nevertheless, even the preamble of the Treaty

establishes that investment shall stimulate the flow of private capital and the economic

development of the Parties to the Treaty.

20. Consequently, the commitment of capital was not accomplished. The sovereign bonds

acquired in the secondary market are out of Dagobah’s jurisdiction and regulation.

Hence, Calrissian purchased the securities from other investor and there is absence

contribution to Dagobah.

2. Claimant’s acquisition of the sovereign bonds Do Not Satisfy the Element of Risk

21. Investment in sovereign bonds lacks the element of risk, which is commonly

contained in other types of investment. Legal publicists agree that sovereign bonds

differ from other debt instruments, because they are issued for governmental purposes:

“No commercial risk is shared among the issuing country and the

bondholder. The repayment obligation is fixed, unconditional, and not

tied to the success of a commercial undertaking or capital project”.11

Thus, investment in sovereign bonds does not contain a common commercial risk.

22. With respect to factual scenario, Dagobah’s financial situation excludes the element of

risk from Claimant’s investment as well. The following arguments support this

inference:

23. Firstly, after financial problems in 2001, Dagobah implemented sovereign’s debt

restructuring process and set up a stable economic growth. The crisis were soon

forgotten in the international financial markets12

and Dagobah’s economy was facing

recovery. Moreover, an optimistic estimate of the economic capacity made investors

believe that post – 2003 Dagobah was a safe haven for investors.13

24. Secondly, at the time of the purchase of the sovereign bonds (2005) Dagobah’s

economy was stable and no financial jeopardy was foreseeable.14

The ratings of

10

Appendix 6, para. 11. 11

M. Waibel, “Opening Pandora’s Box: sovereign bonds in international arbitration”, the American Journal of

International Law, Vol. 101 (2007), p. 726. 12

Appendix 4. 13

Appendix 4. 14

Appendix 6 para. 11.

12

Dagobah’s bonds (B+) did not suppose any risk of default and showed the state’s

financial stability15

. Because of the implementation of recommendations from the

International Monitory Fond (hereinafter – IMF)16

, the peril of state’s default was

vanished.

25. As a result, at the time of the acquisition of the sovereign bonds and since then,

Dagobah’s financial sector has been stable and firm. Therefore, the element of risk

element is exempted. With reference to the above, there is no risk in investing in

sovereign bonds and therefore Claimant’s investment does not satisfy the criteria of

risk within the definition provided in Art. 1 of the Treaty.

3. Investment under the Dispute Was Not Made in the Territory of Dagobah

4. Claimant acquired sovereign bonds on the secondary market and thus, out of

Dagobah’s territory. Consequently it lacks protection under the BIT.

5. Art. 1 of the BIT notices that: “territory means the territory of the Parties...”. This

provision expressly determines that investment is accorded pursuant the standards

provided only in the Treaty and if it is made in the territory of the Parties.

Unfortunately, the Claimant acquired the sovereign bonds on the secondary market

and the link between Calrissian and Dagobah is lacking.

6. When sovereign bonds are transferred from the issuer, such market is regarded as

“primary”. Thus, sovereign bonds are traded in the secondary market lack connection

with the issuer. As the Tribunal notes in the Abaclat case:

“the distinguishing difference between the two markets is that in the –

primary market, the money for the bonds is received by the issuer of the

bonds from an investor, in principle the underwriters, whereas in the –

secondary market, the securities are simply assets held by one investor

selling them to another investor”17

.

Thus, Claimant engaged in commercial transactions with other investors, which had

acquired the bonds under dispute prior but not with Dagobah. Accordingly, Dagobah

did not participate in the transaction of the sovereign bonds and it did not receive

capital from Claimant’s purchase on the secondary market.

15

Appendix 7. Para 31. 16

Uncontested Facts, para. 5. 17

Abaclat and others v the Argentine Republic, Decision on Jurisdiction and Admissibility of 4 August 2011,

ICSID Case No. ARB/07/5., para. 26,


13

7. Nevertheless, the preamble of the BIT establishes intentions of the Parties to fortify

economic cooperation between them with respect to investment by nationals of one

party made in the territory of the other party.18

8. The Treaty encompasses only investments in the territory of one of the states.

However, as noted above, because the bonds under dispute were transferred in the

secondary market, an there is absence of the territorial link with Dagobah.

B. Sovereign Bonds Do Not Satisfy the Salini Criteria for Investment

26. The sovereign bonds are not protected under the BIT since it fails to satisfy all of the

objective criteria provided by the Salini test.

27. The Salini test is well known19

and applied by arbitral tribunals.20

It provides such

objective21

elements of an investment: (a) a contribution of money or other assets of

economic value; (b) a certain duration; (c) an expectation of profit; (d) an element of

risk; and, (e) a contribution to the host state’s development. Criteria of Salini test are

very much supported by the prof. Ch. Schreuer.22

All these criteria are cumulative and

therefore investment is protected under the BIT if all of them are satisfied.

28. In the present case, the acquisition of the sovereign bonds does not satisfy these Salini

criteria: a) the element of the contribution to the host state’s development; b) a

contribution of money; c) the element of risk.

29. Claimant acquired the sovereign bonds on the secondary market, meaning that there is

no link between it and Dagobah. Thus, Claimant purchase the securities from other

investor which had acquired the sovereign bonds from Dagobah. Therefore,

Claimant’s investment in the sovereign bonds lacks territorial connection with

Dagobah and no contribution to Respondent’s development was made. The element of

risk is exempted in this case, as noted above, because of the nature of sovereign bonds

and Dagobah’s financial stability.

18

The Preamble of the BIT. 19

C. Baltag, “Notion of investment and precedent under ICSID convention: award in MHS v. Malaysia”, TDM 5

(2007), p. 5.; R. Dolzer, Ch. Schreuer, Principles of International Investment Law, Oxford University Press 2nd

ed., 2008., p. 39. 20

Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, Decision on Jurisdiction of 31 July

2001, ICSID Case No. ARB/00/4., para. 52; Ceskoslovenska Obchodni Banka, A.S. v. Slovak Republic, Award

29 December 2004, ICSID Case No. ARB/97/4. 21

C. Baltag, “Notion of investment and precedent under ICSID convention: award in MHS v. Malaysia”, TDM 5

(2007), p. 6. 22

M. Waibel, 723.

14

30. Thus, the investment made by the Claimant does not satisfy neither the criteria

provided in Art. 1 of the BIT, nor the objectively established criteria of the Salini Test

as well.

C. Sovereign Bonds Are Not Investment under the Text of Art. 1 of the BIT

31. The Treaty does not encompass sovereign bonds as investment. Moreover, the parties

of the BIT exclude such type of investment under Art. 1 of the BIT. The Treaty

provides typical cumulative traits of investment as the sovereign bonds fail to satisfy

them.

32. Art. 31(1) of the Vienna Convention on the Law of Treaties determines that a treaty

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

to the terms of the treaty in their context and in the light of its object and purpose. The

principle of good faith and the text of the treaty are the primary and substantial means

of interpretation. Other methods are relevant only, if the text of the treaty remains

ambiguous.23

33. International Court of Justice (hereinafter – ICJ) underlines in its jurisprudence,

interpretation must be based “above all” upon the text of the treaty.24

The ICJ holds:

‘The Court considers it necessary to say that the first duty of a tribunal which is called

upon to interpret and apply the provisions of a treaty, is to endeavour to give effect to

them in their natural and ordinary meaning in the context in which they occur25

.

Therefore, the text of the treaty is the principal source of interpretation.

34. The starting point of every interpretation is the elucidation of the meaning of the text,

rather than of any external will of the parties.26

This principle is well known and

applied among the leading publicists. 27

35. Sovereign bonds are not included expressis verbis as an investment in Art. 1 of the

BIT. It lists other types of investment such as movable property, shares and ect. which

are not related to the nature of debt instruments.

23

G.P. McGinley, „Practice as a guide to treaty Interpretation“, The Fletcher Forum winter (1985), p. 222. 24

O. Dorr, K. Schmalenbach (ed.), Vienna Convention on the Law of Treaties A Commentary, Springer-Verlag

Berlin Heidelberg 2012, p. 539. 25

Competence of the General Assembly for the Admission of a State to the United Nations, Advisory Opinion

(1950) International Court of Justice, ICJ Report 4, para. 8. 26




Berlin Heidelberg 2012, p. 527.

15

36. In consequence, the textual approach reveals that Parties to the BIT have not

considered sovereign bonds as an investment under it. The clear language used in the

Treaty does not permit an extensive interpretation as to encompass such investment

instruments as sovereign bonds.

16

II. THE PCA ARBITRAL TRIBUNAL’S DECISION HAS NO EFFECT ON THE

JURISDICTION FOR THE TRIBUNAL IN THE PRESENT CASE

37. The PCA Arbitral Tribunal’s decision has no effect on the jurisdiction in this case. It

relates to the Corellia–Dagobah dispute settlement and is irrelevant for the

interpretation of the post–Sovereign Restructuring Act (hereinafter–SRA) sovereign

bonds.

38. Furthermore, this Tribunal is a separate judicial body, which is not bound by other

arbitral tribunals’ jurisprudence. The effects of that award are restricted to the context

in which the latter was rendered (the first economic crisis faced by Respondent in

2001 and to the bonds affected by the SRA). However, Claimant purchased the

sovereign bonds in 2005 which were affected by global financial crisis in 2011 and

SRA.

A. The Tribunal Is Ad Hoc Judicial Body, Not Restricted By Previous Decisions

39. The Tribunal is not constrained by the PCA Tribunal’s decision because it is a

separate ad hoc arbitral tribunal.

40. Firstly, it is established in the various regulations of litigation procedures that

previous judicial decisions are binding only upon the litigating parties. For instance,

according to the Statute of ICJ, the decision of the Court has no binding force except

between the parties and in respect of that particular case28

. The same scope is

entrenched in the Arbitration rules of the Permanent Court of Arbitration: “The

decision is binding solely upon litigating parties”29

and in the UNCITRAL Arbitration

rules: “An award shall be final and binding on the parties when rendered”30

. Thus,

tribunals are not bound by previous awards and operate independently in the internal

plane of dispute settlement. Therefore, international judicial bodies may not follow the

previous judicial practice. Especially then the circumstances significantly differ.

41. Secondly, the ICSID practice notices that tribunals are not legally “bound by any

other judgments or arbitral awards”31

and that “decision of ICSID tribunals are not

28

Art. 59 of The Statute of The International Court of Justice. 29

Art. 34 of the Arbitration Rules of the Permanent Court of Arbitration 2012, para. 2. 30

Art. 34(2) of the UNCITRAL Arbitration Rules (1976) (revised in 2010). 31

Gas Natural SDG, S.A. v. The Argentine Republic, Decision of the Tribunal on the Preliminary Questions on

jurisdiction 17 June 2005, ICSID Case No. ARB/03/10., para. 36.

17

binding precedents”32

. Each tribunal remains sovereign and may retain, as it is

confirmed by ICSID practice, a different solution for resolving the same problem33

.

42. Thirdly, legal publicists emphasize that:

“Each tribunal remains sovereign and may retain, as it is confirmed by

ICSID practice, a different solution for resolving the same problem”34

and international investment tribunals are not bound by the

precedent.35

(Emphasis added)

43. This Tribunal is an independent part of the Stockholm Chamber of Commerce and

governed merely by the Arbitration rules of the Arbitration institute of the Stockholm

chamber of commerce36

. Thus, it is not constrained by the ICSID convention or other

procedural regulation.

44. Moreover, the PCA Arbitral Tribunal’s award is binding only upon Corellia–Dagobah

disagreement; it has no effect to Claimant’s rights and claims. This Tribunal shall

consider the different legal and factual circumstances. In contrast to the Corellia

Dagobah quarrel, this dispute relates to the sovereign bonds, affected by the global

economic crisis in 2010 and the enforcement of the SRA. Therefore, the PCA Arbitral

Tribunal’s award has no effect of the jurisdiction in this case.

B. The factual and legal circumstances are completely different in the relation to the

PCA Tribunal’s decision

45. The PCA Tribunal rendered the award on the Corellia and Dagobah dispute over the

interpretation of the BIT in 2003. Though the factual and legal circumstances of

Dagobah’s internal affairs and global financial situation have changed notably since

then. As a result, the current dispute contains different ratione personae and ratione

materiae.

1. Different Litigating Parties.

32

Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, Award 22 May 2007, ICSID Case No.

ARB/01/3, para. 25. 33

SGS Société Générale de Surveillance S.A. v. Republic of the Philippines Decision on the Tribunal Objections

to Jurisdiction 29 January 2004 ICSID Case No. ARB/02/6., para. 30. 34

El Paso Energy International Company v. The Argentine Republic, Award of 27 April 2011, ICSID Case No.

ARB/03/15., para. 45. 35

M. Malik, “The Expanding Jurisdiction of Investment-State Tribunals: Lessons for Treaty Negotiators 2007”

(2007) International Institute for Sustainable Development Background Papers for the Developing Country

Investment Negotiators’ Forum, p. 10. 36

Art. 1 of the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce.

18

46. According to Art. 34(2) of the Permanent Court of Arbitration Rules “all awards shall

be made in writing and shall be final and binding on the parties”. The PCA Arbitral

Tribunal rendered the decision according to the state-to-state dispute settlement

provision in 200337

. The litigation proceedings were held only between Dagobah and

Corellia.

47. Thus, the decision is binding only upon these states. In the present dispute, the

litigating parties are Calrissian and Dagobah. There are different parties (ratione

personae) and they shall not be restricted by award, concerning other actors.

2. The PCA Arbitral Tribunal’s Decision Relates Only the Interpretation of the

Sovereign Bonds, Governed by BIT

48. The PCA Arbitral Tribunal’s decision does not address the bonds that are the subject

matter (ratione materiae) of these arbitration proceedings.

49. Generally, most of bilateral investment treaties provide for two forms of dispute

resolution: treaty parties can bring arbitral claims against each other concerning the

interpretation or application of the treaty. Such an interpretation of the international

agreement shall be regarded as subsequent practice of the application of it38

. But it

depends on relevant factual circumstances concerning the interpretation.

50. The current proceedings between Dagobah and Claimant do not relate to the

interpretation of the BIT, but solely to the sovereign bonds, governed by Dagobahian

law39

. Noteworthy, these securities were severely affected by the global financial crisis

in 2010 and in face of global recession Dagobah adopted SRA in 2012 which changed

the face value of the sovereign bonds. None of these circumstances existed in the time

of the issuance of the PCA Tribunal’s decision.

51. Accordingly, the PCA Arbitral Tribunal did not analyze the sovereign bonds under the

dispute (ratione materiae) at all. Consequently, this tribunal if it finds the

jurisdictional issue in Claimant’s favour, shall consider the above mentioned changes

of the circumstances.

37

Art. 7(2) of the BIT. 38



Uncontested Facts, para. 20.

19

3. Dagobah’s And Global Financial Situation Have Fundamentally Changed For

The Last 11 Years

52. Before the PCA Arbitral Tribunal’s award Dagobah had suffered economic crisis40

and the notion of the BIT was analyzed in the face of economic situation in 2003.

However, Dagobah’s legal framework and macro–economic relations have altered

significantly as a result of global recessions since then.

53. In this case, the merits concern the sovereign bonds, governed by the Dagobah’s

national law. It is recognized in the legal practice that:

“repeating decisions taken in other cases, without making the factual and

legal distinctions, may constitute an excess of power and may affect the

integrity of the international system for the protection of investments”41

.

54. Claimant purchased Dagobah’s debt instruments only two years after that PCA

Tribunal’s decision, when Respondent’s financial situation was stable and showed

signs of recovery42

. The state issued securities seeking to attain capital for the

implementation of internal policy. Moreover, after six years it was struck by the global

financial recession43

. Thus, Dagobah’s financial circumstances have changed

substantially since 2003 and this Tribunal shall not follow the PCA Abitral Tribunal’s

award.

40


Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, Award 22 May 2007, ICSID Case No.

ARB/01/3., para. 43. 42


Uncontested Facts, para. 16.

20

III. TRIBUNAL SHOULD RULE ON THE CLAIMS ASSERTED IN VIEW OF THE

FORUM SELECTION CLAUSE CONTAINED IN THE SOVEREIGN BOND

55. An arbitration tribunal faced with the issue of its own jurisdiction must first determine

whether it is competent to deal with the specific jurisdictional question or whether it

must be referred to the court44

.

56. The Calrissian–Dagobah dispute relates only to the contractual relations and does not

concern the application of the BIT. The crux lays in the interpretation of the SRA and

the provision of the forum selection clause in the contract of the sovereign bonds. As

the Tribunal in the SGS v. Pakistant stated: “It is necessary to recount the origins of

the relationship between the parties.”45

57. It is in principle admitted that with respect to a treaty claim an arbitral tribunal has no

jurisdiction where the claim at stake is a pure contract claim. This is because a

bilateral investment treaty is not meant to correct or replace contractual remedies, and

in particular it is not meant to serve as a substitute to judicial or arbitral proceedings

arising from contract claims.

58. Forum selection clauses are clauses of a procedural nature aiming to determine the

place of settlement of a dispute relating to a contractual performance46

.The relevant

forum selection clause is entrenched in the bonds under dispute47

. It is established in

the ICSID practice that:

“where the essential basis of a claim brought before an international

tribunal is a breach of contract, the tribunal will give effect to any valid

choice of forum clause in the contract”48

.

59. Consequently, Respondent requests the Tribunal to find that the current

Claimant–Dagobah dispute derives from the contract of the sovereign bonds

44

L.A. Mistelis, J. D. M. Lew, S.M Knöll, Comparative International Commercial Arbitration Wolters Kluwer

2003, p. 330. 45

SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, Decision on Jurisdiction 6 August

2003 Case No. ARB/01/13., para.10. 46

Abaclat and Others v The Argentine Republic supra note 1, para. 379. 47


Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, Decision on

Annulment of 3 July 2002, ICSID Case No. ARB/97/3., para. 98; SGS Société Générale de Surveillance S.A. v.

Islamic Republic of Pakistan, Decision on Jurisdiction 6 August 2003 Case No. ARB/01/13., para.44.

21

and, thus the forum selection clause contained in the contract shall be

applicable.

A. Dispute Relates Solely To The Contract Claims, Deriving From The Contract Of

The Sovereign Bonds Contract

60. The merits of the present dispute emanate from the sovereign bonds’ contract. The

bonds under dispute are governed by Dagobah’s national law49

and contain a forum

selection clause (“Any dispute arising from or relating to this contract will be

exclusively resolved before the Courts of Yavin”). Thus, the core of the present dispute

emanates from the contractual claims the Tribunal shall rule on the forum selection

clause.

61. Firstly, a contract and a treaty claim are two distinguished and separate basis for

international disputes. Judicial practice notice that:

“a state may breach a treaty without breaching a contract, and vice

versa […] whether there has been a breach of the BIT and whether there

has been a breach of contract are different questions”50

.

62. In this dispute the relevant forum selection clause is contained in the sovereign bonds.

Because the current quarrel relates only to the contract of the sovereign bonds, all

disputes shall be settled only in the Courts of Yavin.

63. Secondly, international practice establishes that the main separation between contract

and treaty claims lays in the core of the dispute. A number of tribunals required a more

objective standard already for purposes of jurisdiction referring to the “essential basis

of a claim51

or asserting that the test was an objective one”52

.

64. Thirdly, pure contract claims must be brought before the competent organ, “which

derives its jurisdiction from the contract, and such organ – be it a court or an arbitral

tribunal – can and must hear the claim in its entirety and decide thereon based on the

49

Appendix 6 para. 22. 50


Annulment of 3 July 2002, ICSID Case No. ARB/97/3., para. 95. 51


Annulment of 3 July 2002, ICSID Case No. ARB/97/3., para. 98. 52

SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, Decision on Jurisdiction, 29

January 2004, ICSID Case No. ARB/02/6., para. 156-164; Occidental Exploration and Production Company v.

The Republic of Ecuador, Decision 2004 London Court of International Arbitration Administered case no. UN

3467), para. 47, 92. 52

M. Waibel, supra note 9, 717.

22

contract only”53

. Also, legal publicists accept, that the purchase of sovereign bonds

relates solely to contractual relations:

“the bonds are principal document containing the terms of the

contractual relationship between the debtor government and the

individual lender.”54

65. Fourthly, professor Ch. Schreuer emphasizes, that “the most relevant matter

concerning the application of public international law in investment arbitration is the

law governing the substance of the dispute”55

.

In this case, Dagobah’s national law, is the law for the regulation of the sovereign

bonds. In cases where there is a jurisdiction clause in a disputed contract, a contractual

claim must be referred to the court/tribunal identified in the clause56

. Further, the

current ICSID practice establishes that such a relationship is of a private and

contractual nature, subject to the terms and conditions of the bonds57

. Thus, then the

relevant bonds provide for forum selection clauses and concerns a pure contract

claims, it prevails over an alleged violation of an international treaty.

66. The Tribunal must consider that sovereign bonds are commercial transactions that are

usually governed by the municipal law of a major financial center; immunity from

jurisdiction is waived58

.

67. It is established in legal teachings that municipal law usually governs sovereign bonds.

National courts almost invariably enjoy jurisdiction for disputes, relating to such

securities59

. When sovereign bonds are issued, the only remedies contemplated are

contractual ones in national courts60

. Modern sovereign bonds are governed by the

municipal law of a foreign financial center, not by international law61

. An investor

invoking contractual jurisdiction pursuant to an offer made by the state must itself

comply with its contractual arrangements for dispute settlement with that state.

53

Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v Argentine Republic supra note 48, para.

316. 54

E. Borchard, W. H. Wynne, State insolvency and foreign bondholders, Business Classics 1951, p. 174. 55

Ch. Schreuer, “The Relevance of Public International Law in International Commercial arbitration: Investment

disputes”, available www.univie.ac.at/intlaw/pdf/csunpublpaper_1.pdf. 56

M. Sasson, Substantive law in investment treaty arbitration The unsettled relationship between international

and municipal law, Kluwer Law International 2010, p. 171. 57

Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v Argentine Republic supra note 48, para.

319. 58

M.Waibel, supra note , p. 721. 59



M.Waibel, supra note , p. 738

23

68. The Calrissian–Dagobah dispute emanates from a pure contract claim (the purchase of

the sovereign bonds). Claimant acquired the securities on the secondary market62

.

According to it, all disputes relating to the sovereign bonds shall be settled in the

Yavin courts (forum selection clause)63

. Therefore, the sovereign bonds establish a

mechanism of contractual remedies and only the Courts of Yavon have jurisdiction to

any dispute, deriving from the sovereign bonds.

69. Consequently, the Tribunal should rule on the claims asserted in view of the forum

selection clause contained in the sovereign bond and apply it.

B. Claimant And Dagobah Has Not Concluded Arbitral Agreement

70. The consent is a cornerstone principle of arbitration64

. However, Claimant cannot

commence arbitral proceedings pursuant to art. 8(2) of the Treaty since it has not

expressed the consent for arbitral agreement and is to the Party to the BIT.

71. Firstly, the real basis for the contractual theory is the fact that the whole arbitration

process is based on contractual arrangements65

. If the parties never entered into an

arbitration agreement they also never agreed on the arbitration rules66

.

72. Secondly, in general no consent to arbitration can be assumed if third parties are

involved67

. Distinguished scholars agree that:

“The tribunal could not decide on the merits but just decline jurisdiction

with the result that disputes as to existence or validity of the main

contract would have to be referred to the state courts68

”.

73. In this case there is absence of Claimant’s consent for this arbitral litigation. As noted

above, such agreement cannot be presumed and must be clearly expressed. The current

dispute concerns the sovereign bonds, governed by Dagobahian law and having the

exclusive forum selection clause69

. Thereupon, in the absence of arbitral agreement all

disputes relating to the sovereign bonds shall be settled only in the Courts of Yavin

and this Tribunal lacks jurisdiction for this dispute consideration.

62

Appendix 6. para 11. 63


D.D. Caron, The UNCITRAL Arbitration Rules a Commentary, Oxford University Press 2nd

ed. 2012, p. 54. 65

L.A. Mistelis, J. D. M. Lew, S.M Knöll supra note 44, 77. 66

Ibid, p. 332. 67

Ibid, p. 145. 68

Ibid, p. 103. 69

Unconsted Facts, para. 20.

24

IV. DAGOBAH ACTIONS ARE CONSISTENT WITH THE ARTICLE 2(2) OF

DAGOBAH – CORELLIA BIT

A. Fair and Equitable Treatment in the Article 2(2) Should be Interpreted As

Minimum Standard of Treatment and Dagobah Did Not Violate It

61. Article 2(2) of Corellia – Dogabah BIT states that:

„Investments of each Party or of nationals of each Party shall at all

times be accorded fair and equitable treatment."

62. The discussion exists about whether FET is identical to the IMS or is it a more

demanding standard. Respondent submits that in order to avoid the Tribunal from

applying its own perceptions of FET, Article 2(2) of the BIT should be interpreted as

the IMS under customary international law. Such an objective approach is supported

by prominent scholars, state practice and case law.

63. Firstly, considering FET to be a more demanding standard than IMS may lead to

multiple interpretations and applications of the standard, raising the potential for

inconsistent and conflicting decisions and reasoning.70

Also, such an unrestricted

approach may encourage investors to bring significantly more claims against States in

dubious and unmerited circumstances. 71

64. Secondly, state practice also holds FET to be identical to the IMS. For instance,

Article 1105(1) of North American Free Trade Agreement (hereinafter – NAFTA)

including the biggest economies in the world (USA, Mexico and Canada) establishes

that the NAFTA Parties "accord to investments of investors of another Party treatment

in accordance with international law, including fair and equitable treatment and full

protection and security."

65. In 2001, the NAFTA Free Trade Commission (FTC) issued a binding Note of

Interpretation of fair and equitable treatment. It noted that concepts of “fair and

equitable treatment” and “full protection and security” do not require treatment in

addition to or beyond that which is required by that standard.72

70

J. Roman Picherack, The Expanding Scope of the Fair and Equitable Treatment Standard: Have Recent

Tribunals Gone Too Far?, The Journal of World Investment &Trade, 2008, 261. 71

Ibid, 262. 72

NAFTA Interpretation ¶ B(1) & (2).

25

66. Thirdly, judicial practice goes well in line in supporting this position. For instance, in

the Mondev case73

, the Tribunal rejected to decide on a subjective basis, what was

‘fair’ or ‘equitable’ in the circumstances of each particular case. The Tribunal warned

that it is bound by the minimum standard as established in State practice and may not

simply adopt its own standard of what is ‘fair’ or ‘equitable’ without reference to

established sources of law. The similar conclusions were reached in Occidental

Exploration and Production Company (OEPC) v. The Republic of Ecuador and CMS

Gas Transmission Company v. The Argentine Republic and ADF Group arbitrations.

67. Scholars and arbitrators who argue that FET is a more demanding standard do so

largely on the basis that the articulation of a distinct standard of fair and equitable

treatment in a treaty evidences an intention by the parties to depart from the minimum

standard of treatment. 74

68. However, tribunals reject this approach. For instance, in Azurix v. The Argentine

Republic when interpreting the BIT concluded between the USA and Argentina, the

tribunal held the FET standard of treatment as being equal to the IMS even though the

wording of the BIT implied that fair and equitable standard of treatment is a higher

standard:

"Investment shall at all times be accorded fair and equitable treatment

shall enjoy full protection and security and shall in no case be

accorded treatment less than required by international law."

69. International minimum standard is described as a moral standard for civilized States.75

Since it is a norm of customary international law which governs the treatment of

aliens, by providing for a minimum set of principles which States, regardless of their

domestic legislation must respect76

it generally has a high threshold to be met in order

to find a violation.

70. The golden rule of what amounts to a breach of international minimum standard was

established in the U.S.A. (L.F. Neer) v. United Mexican States and Harry Roberts v.

73

Mondev International LTD v. United States of America, ICSID Case No.ARB(AF)/99/2 Award, 2002, para.

119

74

J. Roman Picherack, The Expanding Scope of the Fair and Equitable Treatment Standard: Have Recent

Tribunals Gone Too Far?, The Journal of World Investment &Trade, 2008, 261. 75

I. Brownlie, “Principles of Public International Law”, Oxford, Sixth Edition, 2003, 502. 76

Organization for Economic Cooperation and Development, International Investment Law: A Changing

Landscape. A Companion Volume to International Investment Perspectives, 2005, 81.

26

United Mexican States cases. In the first case, the Court held that the treatment of alien

in order to constitute a violation of MST should:

“…amount to an outrage, to bad faith, to willful neglect of duty, or to

an insufficiency of governmental action so far short of international

standards that every reasonable and impartial man would readily

recognize its insufficiency.”77

71. In Harry Roberts v. United Mexican States the court took the same approach. While in

prison, Harry Roberts was subjected to rude and cruel treatment.78

The Commission

held that the test is whether aliens are treated in accordance with ordinary standards of

civilization.79

The Neer standard whether every reasonable and impartial man would

readily recognize outrage was applied.

72. Recent investment law cases also have the same approach. For instance, in the S.D.

Myers arbitration the Tribunal held that a breach of the MST occurs only:

“When it is shown that an investor has been treated in such an

unjust or arbitrary manner that the treatment rises to the level that is

unacceptable from the international perspective…".80

73. The conclusion follows that the threshold for violating a minimum standard of

treatment is high. Therefore, a violation can be found only in exceptional

circumstances when behavior demonstrated by state shows willful neglect of duty or

such insufficiency of government actions that every reasonable and impartial man

would readily recognize. Moreover, case law reflects that the existence of minimum

standard of treatment does not forbid states to regulate matters within their borders.

74. In 2010 Dagobah faced the second financial crisis in less than a decade caused by the

global financial meltdown. As a consequence, it was not able not generate enough

revenues for servicing its debt and either had to restructure its debt or default.81

Consequently, Dagobah prepared the Sovereign Restructuring Act (“SRA”) together

with International Monetary Fund with a purpose to fight economic instabilities after

the global financial meltdown.82

77

U.S.A. (L.F. Neer) v. United Mexican States, 4 R.Int’l Arb. Awards 60 (1926) para. 60. 78

K. N.Schefer, International Investment Law: Text, Cases, Materials, 2013, 7. 79

H. Roberts (USA)v. United Mexican States of 2 November 1926, 4 RIAA 77, 79 at 6. 80

S.D. Mayers v. Government of Canada, Partial Award, 2000, para. 236. 81

Appendix 6. 82

Ibid.

27

75. Respondent submits that sovereign debt restructuring cannot constitute a violation of

minimum standard of treatment and hence Art. 2(2) of the Treaty. None of the actions

performed by Dagobah show willful neglect of duty or such insufficiency of

government actions that every reasonable and impartial man would readily recognize.

On the contrary, the way Dagobah dealt with financial crisis was fully consistent with

recent practice of states.

76. According to experts in financial sector, sovereign debt crises are a prevalent feature

of the global economy83

and defaults are a natural process of the market mechanism.84

Examples of countries that experienced sovereign debt restructurings in recent years

include Russia (1998-2000), Ukraine (1998-2000), Pakistan (1999), Ecuador (2000),

Argentina (2005 and 2010)85

. According to the United Nations Conference on Trade

and Development, in cases of government debt restructuring, the standard practice in

the past two decades has been for a government to make an exchange offer86

with a

purpose of reducing the debt and strengthening financial stability of a country. It is

worth mentioning that stable economy was one of the commitments of Dagobah

government after the first sovereign debt restructuring in 2001. Therefore, Dagobah

did not breach its obligations and actually acted in accordance with them.

77. In conclusion, respondent submits that fair and equitable standard of treatment is not a

broader standard than minimum standard of treatment. The later has high threshold to

be met in order to find a violation. In this case, no such violation made by Dagobah

can be found.

B. Should The Tribunal Decide Fair And Equitable Standard Of Treatment To Be

More Demanding Than Minimum Standard Of Treatment:

1. Dagobah Did Not Violate Legitimate Expectations Of The Bondholders And

Acted Consistently

83

L. Brahms, Legitimacy in Global Governance of Sovereign Default: The Role of International Investment

Agreements, 2013,1.Availabe at: http://www.polsoz.fu-

berlin.de/polwiss/forschung/oekonomie/ipoe/pipe_working_papers/papers/PIPE_Working_Paper_16-

13_Brahms_-_Legitimacy_in_Global_Governance_of_Sovereign_Default.pdf?1367710376 84

A.Haldane, The Resolution of International Financial Crises: Private Finance and Public Funds, Bank of

Egland, 2001, 6. Availabe at:

http://www.bankofengland.co.uk/publications/Documents/other/financialstability/boeandboc.pdf 85

UNCTAD, Sovereign Debt Restructuring and International Investment Agreements, 2011, 3. Available at:

http://unctad.org/en/Docs/webdiaepcb2011d3_en.pdf 86

Ibid, 2.

http://www.polsoz.fu-berlin.de/polwiss/forschung/oekonomie/ipoe/pipe_working_papers/papers/PIPE_Working_Paper_16-13_Brahms_-_Legitimacy_in_Global_Governance_of_Sovereign_Default.pdf?1367710376



http://www.bankofengland.co.uk/publications/Documents/other/financialstability/boeandboc.pdf

http://unctad.org/en/Docs/webdiaepcb2011d3_en.pdf

28

78. Legitimate expectations are considered to be one of the elements of the fair and

equitable treatment standard.87

They rely on stability, predictability and consistency of

the host State’s legal framework.88

79. Respondent submits that claimant could not have formed any legitimate expectations

since Dagobah has not made any promises for claimant that laws of Dagobah will

remain completely unchanged. 89

Moreover, Dagobah decreased the value of bonds

during the first economic crisis in 2001. Consequently, bondholders could have

expected same regulations during the second crisis in 2010.

80. Even if claimant had expectations towards Dagobah it does not impose an obligation

on Dagobah to act consistently over time. States generally have the discretion to

change their policies.90

81. Therefore, the protection of legitimate expectations must be balanced with the need to

maintain a reasonable degree of regulatory flexibility to respond to changing

circumstances in the public interest. 91

82. Case law has also rejected a broad interpretation of the concept of legitimate

expectations92

and has set limits to which they can be protected. Therefore, not every

expectation upon which a business decision is taken is protected by international

investment law. 93

83. The tribunal in Saluka held that an investor cannot reasonably expect that the

circumstances existing at the time the investment is made remain completely

unchanged. Consequently, the tribunal warned of the danger of taking the idea of the

investor’s expectation too literally since this would impose upon host States

87

Rudolf Dolzer, Fair and Equitable Treatment: Today’s Contorous, Santa Clara Journal of International Law,

Volume 12, 2014, 17. 88

LG&E Energy Cmp., LG&E Capital Cmp., LG&E International Inc. v. Argentine Republic, ICSID Case No.

ARB/02/1, Decision on Liability of October 3, 2006, para 125; Occidental E1ploration & Production Company

v. The Republic of Ecuador, LCIA Case No. UN 3467, Final Award of July 1, 2004, para. 183. 89

Appendix 6. 90

Kenneth J. Vandevelde, A Unified Theory of Fair and Equitable Treatment. New York University Journal of

International Law and Politics (JILP), Vol. 43, No. 1, p. 43, 2010, 66. 91

International Investment Arbitration, Substantive Principles, Oxford International Arbitration Series, Oxford

University Press, 239. 92

Yanying Li, Policy Implication of Poštová Tribunal’s Jurisdiction over Sovereign Bonds: Bankruptcy Cram-

down and ICSID Arbitration, 2014, 28. 93

C.H. Schreuer; U. Kriebaum; "At What Time Must Legitimate Expectations Exist?", TDM 1, 2012, p.1

29

inappropriate and unrealistic obligations. 94

Also, in Eureko v. Poland the tribunal

noted that a breach of basic expectations may not be a violation of fair and equitable

treatment if good reasons existed why the expectations of the investor could not be

met.95

The Tribunal in El Paso Energy v. Argentina came to the same conclusion and

stated that the legitimate expectations are not solely the subjective expectations of

investors but objective expectations under particular circumstances and with due

regard to the rights of the State.96

84. Dagobah adopted SRA acting in the public interest. Dagobah is an emerging market

and hence is more vulnerable to financial instabilities. At the time SRA was

implemented it was standing on the edge of another severe economic crisis and had

two choices either to default or to restructure its debt.97

Therefore, good reasons

existed why Dagobah had to change laws governing bonds by decreasing their value

and consequently reducing the debt.

85. Furthermore, in the Duke Energy v. Ecuador the tribunal held that political and

economic circumstances of a country must be taken into account for investments to be

protected and stated:

’’ …investor’s expectations must be legitimate and reasonable at

the time when the investor makes the investment. The assessment of the

reasonableness or legitimacy must take into account all circumstances,

including not only the facts surrounding the investment, but also the

political, socioeconomic, cultural and historical conditions prevailing

in the host State.’’98

86. Respondent submits that Dagobah only had a stable economy until 1980. 99

After that it

suffered a severe economic crisis in 2001 which weakened the country. Therefore, due

to the harsh economic difficulties in the past, bondholders could not have legitimately

expected that legal framework would remain completely unchanged.

87. A State is held to have breached legitimate expectations and consistency if it

fundamentally changes the legal environment under which the investment was made.

94

Saluka (n26 above) para. 305. 95

Eureko B.V. v. Republic of Poland, paras. 232. 96

El Paso Energy International Company v. Argentina, supra note 97, para. 358. 97

Appendix 7. 98

Duke Energy Electroquil Partners & Electroquil S.A. v.Republic of Ecuador, Award, 18 August 2008, para

340, 347 99

Uncontested Facts, para.1.

30

88. For instance, In CME V Czech Republic100

the claimant complained that state’s

interference had created conditions which enabled the local partner of the investor to

terminate the contract on which the investment was dependent. The Tribunal found

that the host State failed to provide fair and equitable treatment by evisceration of the

arrangements in reliance upon which the investor decided to invest. 101

89. Also, The Tribunal in CMS v Argentina stated that the measures Argentina took

entirely transformed and changed legal environment under which the investment was

made and thus breached fair and equitable standard of treatment.

90. Respondent submits that it has not fundamentally altered legal system or acted in a

manner that would have negatively affected basic expectations of the bondholders.

Firstly, the adoption of SRA102

made the changes not in the whole legal environment

of Dagobah but rather addressed specific financial matters.

91. In conclusion, since legitimate expectations are not only subjective expectations of the

investor but rather objective expectations under specific circumstances, respondent

submits that the situation at hand, namely unsustainable debt burden, required changes

in the legal system to tackle internal financial problems with a purpose to avoid

harsher consequences in the future. Therefore, the Respondent submits the SRA and

all the procedures following it were at the balance of the Claimant’s legitimate and

reasonable expectations on the one hand and the Respondent’s legitimate regulatory

interests on the other.

2. The Debt Restructuring Process Was Reasonable And Proportional

92. Investment arbitration tribunals and scholars link fair and equitable treatment to the

concepts of reasonableness and proportionality.103

Both reasonableness and

proportionality are used to control the extent to which interferences of host States with

foreign investments are allowed.104

93. The tribunal in S.D. Myers v. Canada stated that its duty was to interpret the

100

CME v Czech Republic, Partial Award,9 ICSID Rep 121 101

Ibid at para 611 102

Uncontested facts, para 15. 103

Benedict Kingsbury, Stephan Schill, Investor-State Arbitration as Governance: Fair and Equitable Treatment,

Proportionality and the Emerging Global Administrative Law, 2009, .16 104

Ibid.

31

requirement of fair and equitable treatment “in light of the high measure of deference

that international [law] generally extends to domestic authorities to regulate matters

within their own borders.” This sentiment was repeated by the tribunal in Waste

Management v. Mexico. Thus, in determining whether the act of the host state is

reasonable, a tribunal is looking for acts that are irrational or arbitrary.105

94. Accordingly, in a number of cases, the tribunal has found host state conduct to be

lawful because it was undertaken for legitimate regulatory reasons. For example, in

Genin v. Estonia, a case arising under the United States-Estonia BIT, Estonia had

revoked a license held by the investor’s bank, thus forcing the bank out of business.

The tribunal observed that, to violate the fair and equitable treatment standard, state

conduct must reflect “a willful neglect of duty, an insufficiency of action falling far

below international standards, or even subjective bad faith.” The tribunal found that

the decision was a reasonable regulatory decision since the Estonian government had

legitimate concerns about the management and financial soundness of the bank.

95. Also, there should be taken into account whether actions of a State have

disproportionate impact on the foreign investor or whether they rather fall equally on

everyone in the host State. For instance, in Pope Talbot the main reason the Tribunal

decided not to admit there was a breach of fair and equitable treatment was because an

introduction of a quota regime for the export of softwood from Canada was a large

scale scheme affecting many producers.106

96. Respondent submits that the reason why it has taken restructuring measures was a

legitimate regulatory purpose to reduce its debt down to sustainable level without

compromising the basic functions of the State and also to regain access to the world’s

capital markets, as authorized by Article 6 of the BIT. As mentioned above, in cases of

government debt restructuring, the standard practice in the past two decades has been

for a government to make an exchange offer.107

97. Furthermore, the SRA did not affect specifically the Corellian bondholders but rather

everyone who acquired bonds in 2005.

105


International Law and Politics (JILP), Vol. 43, No. 1, p. 43, 2010,. 68 106

Pope & Talbot Inc. v. The Government of Canada, para. 345. 107

Sovereign Debt Restructuring and International Investment Agreements, 2011, 3.

32

98. Thirdly, what concerns a new clause in the SRA which provided that if a qualified

majority of the owners of 75% of the aggregate nominal value of all outstanding bonds

governed by domestic law agreed to modify the terms of the bonds, that decision

would bind all the remaining bondholders, does not breach due process as well.108

It

was a legitimate regulatory decision which has been accepted widely in state practice.

99. Since early 2003 almost every emerging market, for instance, Brazil, South Africa,

Chile, Venezuela, sovereign issuing international bonds has included CACs to the

terms of its bonds.109

In a recent study, the Bank of England stated that 80 percent of

sovereign bonds issued in the international bond markets in 2004 contained CACs.110

100. Absence of CAC has not been a practical alternative because amending the terms

of bonds would require the unanimous consent of thousands of holders and

consequently makes it harder to recover from severe economic difficulties.111

101. Therefore, Respondent submits that sovereign debt restructuring measures were

proportional and reasonable with respect to the situation at hand.

3. Dagobah Ensured Due Process

102. The fair and equitable treatment standard also requires due process, and thus a

prohibition of denial of justice.112

103. What amounts to a breach of due process was provided in, for instance, Azinian v.

Mexico where the Tribunal stated that:

"[a] denial of justice could be pleaded if the relevant courts refuse to

entertain a suit, if they subject it to undue delay, or if they administer

justice in a seriously inadequate way."

104. It is worth nothing that to date no claimant has been successful in raising a denial

of justice claim under BIT.113

108

Uncontested facts, para 17. 109

Sergio J. Galvis, Angel L. Saad, Sovereign Exchange Offers in 2010, Chicago Journals of International Law,

Vol. 6 No. 1, 224. 110

Ibid. 111

Ibid at 219. 112

Waste Mgmt., Inc. v. United Mexican States, ICSID Case No. ARB (AF)/00/3, Award, ¶ 98 (Apr. 30, 2004), 43 I.L.M. 967; Jan de Nul NV v. Egypt, ICSID Case No. ARB/04/13, Award, ¶ 187 (Nov. 6, 2008), AMTO LLC v. Ukraine, SCC Case No. 080/2005, Award, ¶ 75, (Mar. 26, 2008)

33

105. Respondent submits that the denial of justice does not exist since claimant has not

brought any claims before domestic courts. Moreover, even if due process is

understood in a broader sense such as a ‘failure to provide an opportunity to be

heard’, Respondent submits that the measures were implemented in accordance

with due process as claimant had the opportunity to challenge them.

106. Firstly, the bondholders were informed of the ongoing draft and the different

versions of the text were constantly published on relevant agencies’ websites.114

107. Secondly, as to the restructuring process, Dagobah consulted a committee

representing the owners of approximately 50% of the aggregate nominal value of

the bonds that would be affected before making the offer of 29 November 2012.115

108. In conclusion, respondent submits it provided bondholders with an opportunity to

be heard and address the issues important to them.

113


International Law and Politics (JILP), Vol. 43, No. 1, p. 43, 2010, 89. 114

Appendix 7 115

Appendix 6 51.

34

V. DAGOBAH’S RESPONSIBILITY IS PRECLUDED UNDER CUSTOMARY

INTERNATIONAL LAW

A. Dagobah Complies With All Cumulative Conditions of Necessity Defence

under Article 25 of Articles on Responsibility of States for Internationally

Wrongful Acts

109. Necessity is a situation where the sole mean by which a State, or possibly the international

community as a whole, can safeguard an essential interest threatened by a grave and

imminent peril is temporarily not to respect an international obligation protecting an

interest of lesser value.116

The International Court of Justice in both Israel Security Wall

Case and Gabčikovo – Nagymaros Project Case recognized the state of necessity defence

as customary international law.117

The same idea was confirmed by several recent

arbitrations, namely CMS Gas Transmission v The Argentina Republic, Enron and

Sempra.118

The purpose of invoking necessity is to avoid an overly rigid application of the

law in circumstances where there are conflict values.119

110. Case law shows that necessity defence has in principle been accepted by a growing

number of cases.120

Despite that, necessity can be invoked if a series of cumulative

conditions provided in the Article 25 of ARSIWA are met. Firstly, it has an essential

interest has to be threatened, secondly, it has to be threatened by grave and imminent

peril, thirdly, it has to be the only way to safeguard an essential interest, fourthly it does

not seriously impair an essential interest of the State or States towards which the

obligation exists, or of the international community as a whole. Necessity cannot be

invoked if the international obligation in question excludes the possibility of invoking

necessity or the State has contributed to the situation of necessity.121

111. Respondent submits that it has complied with all cumulative conditions.

116

Art 25 ARSIWA. 117

Gabčikovo – Nagymaros Project Case, para. 40 118

Oxfrod Commentaries on International Law, The Law of International Responsibility, edited by James

Crawford, Alain Pellet and Simona Olleson, Assistant Editor Kate Parlett, 2010, 491. 119

Ibid at 492. 120

The Neptune, Russian Indemnity, Gabčikovo – Nagymaros Project, the MV Saiga, the Advisory Opinion on

the Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory, CMS Gas

Transmission v Argentina 121

Article 25 of ARSIWA

35

1. Economic survival is an essential interest of Dagobah

112. Whether a particular interest is or is not essential will depend on all the

circumstances in a particular situation, in other words it will be judged on a case by

case basis.122

Therefore, the list of potential essential interests is not exhaustive.

113. International Law Commission has upheld this view by stating that the plea of

necessity has been invoked to preclude wrongfulness of acts not in conformity

with an international obligation to protect a wide variety of interests.123

It is

important to note that an essential interest does not mean that the very existence of

the state must be threatened.124

A state of necessity may be invoked to preclude

wrongfulness of a conduct that was adopted to protect an essential interest without

its existence being put at risk.125

According to legal literature and case law

economic survival and maintenance of financial stability are considered to be

essential interests of states.126

114. Also, in the CMS Gas Transmission Company v. Argentine Republic arbitration,

the Tribunal agreed that the need to avoid a major crisis, with all the social and

political consequences that it implied can constitute an essential interest of the

state. 127

In LG&E Energy Corp., LG&E Capital Corp., LG&E International Inc.v

The Argentine Republic the Tribunal stated that:

"To conclude that such a severe economic crisis could not

constitute an essential security interest is to diminish the havoc that the

economy can wreak on the lives of an entire population and the ability

of the Government to lead."

115. Both Argentina128

and Dagobah are developing countries.129

Most often, emerging

markets have limited sources to generate revenues130

; therefore they are far more

122

Marie Christine Hoelck Thjoernelund, State of Necessity as an Exemption from State Responsibility for

Investments, University of Heidelberg, Max Plank Institute for Comparative Public Law and International Law

and the University of Chile, 2008, 445. 123

ILC, see note 2, 202 seq. 124

Marie Christine Hoelck Thjoernelund, State of Necessity as an Exemption from State Responsibility for

Investments, University of Heidelberg, Max Plank Institute for Comparative Public Law and International Law

and the University of Chile, 2008, 426. 125

R. Ago, Addendum to the Eight Report on State Responsibility, 17. 126

Oxfrod Commentaries on International law, The Law of International Responsibility, edited by James

Crawford, Alain Pellet and Simona Olleson, Assistant Editor Kate Parlett, 2010, 492. 127

CMS Gas Transmission Company v. Argentine Republic 128

The International Statistical Institute http://www.isi-web.org/component/content/article/5-root/root/81-

developing

36

vulnerable to economic instabilities. Even though Dagobah adopted austerity

measures, its public services were on the verge of being compromised.131

116. More importantly, Dagobah has already been harmed by the previous crisis which

lasted two years and a half132

which threatened the entire population.

117. The essential interest at stake here was the survival Dagobah’s public order and

the viability of the economy which are key elements to future development.

Considering the above, respondent submits that it has satisfied the first condition

under the Article 25 of ARSIWA.

2. Economic collapse is a grave and imminent peril

118. The definition of grave and imminent peril was presented by the International

Court of Justice in Gabcikovo-Nagymaros Project case. The Court stated that peril

evokes the notion of risk. 133

A right to invoke necessity thus serves as a

preventative mechanism in order to manage crisis which if not averted will lead to

grave harm.134

When explaining the word "imminent" the International Court of

Justice noted that it is not necessary for peril to happen now but rather that it can

materialize in the long term.135

International Law Commission has also supported

larger scope of the necessity defence and explained that what is required for a

successful necessity plea is that the peril is clearly established on the basis of the

evidence reasonably available at the time.136

119. Sovereign debt crises affect countries in various ways. Firstly, it may lead to the

exclusion of a country from international capital markets, with adverse effects on

investment activities.137

Secondly, they often entail a collapse in international

trade.138

This was well illustrated by recent defaults in 2010 which have led to

129

Uncontested facts para 1 130

Safia Shabbir, Does External Debt Affect Economic Growth: Evidence from Developing Countries, 2013,

p.4 131

Appendix 6, p.51 132

Uncontested facts para 3 133

Gabcikovo-Nagymaros Project (Hungary/Slovakia) ICJ Reports 1997, p 7, 41-42 (para 54) 134


Crawford, Alain Pellet and Simona Olleson, Assistant Editor Kate Parlett, 2010, p. 493 135

Gabcikovo-Nagymaros Project (Hungary/Slovakia) ICJ Reports 1997, p 7, 41-42 (para 54) 136

ARSIWA, Commentary to art 25, para. 16. 137

Stefano Neri and Tiziano Ropele, The macroeconomic effects of the sovereign debt crisis in the euro area,

2013, 2. 138

Ibid.

37

dramatic economic and social consequences when credit became more costly and

scantier, economic activity fell and unemployment increased.139

120. In CCC v Argentina the Tribunal concluded economic crisis as emergency and

rejected narrow definition of an emergency proposed by Claimant even though the

BIT did not expressly include that:

"Thus, in the Tribunal’s view, actions properly necessary by

the central government to preserve or to restore civil peace and the

normal life of society … even when due to significant economic and

social difficulties, and therefore to cope with and aim at removing these

difficulties fall within the application under Art. XI."

121. LG&E Energy Corp., LG&E Capital Corp., LG&E International Inc.v The

Argentine Republic Tribunal considered financial crisis of Argentina as a grave

and imminent peril and stated that:

“When a state’s economic foundation is under siege, the

severity of the problem can equal that of any military invasion”.

122. Considering the above, Respondent submits that the debt burden of US 400 billion

dollars which according to International Monetary Fund became no longer

sustainable140

contained enough risk of evolving into severe sovereign debt crisis

which would have serious social and economic implications. Consequently, it

would be even harder to recover from because of the already weak economic

power.

3. Sovereign debt restructuring was the only way to protect essential interests

123. Respondent submits that it does not have to prove that the sovereign debt

restructuring was the only alternative to deal with financial crisis. it should be

interpreted using reasonableness as a criterion as there will be cases in which non

– compliance, although it is not the only possibility, is the less onerous and less

damaging possibility for the state, as the difference in relation to any other

possibility will be great enough to consider it as the “only way” in the framework

of the circumstances. 141

kokia taisykle

139

Ibid. 140

Uncontested Facts, para.15 141

Supra 125, 426

38


Argentine Republic Tribunal took even broader approach and concluded it was

enough for the measures to be legitimate rather than be the only choice: pirmas

turi but. Net jei ir yra apribojimas, tada reasonableness criteria:

“A State may have several responses at its disposal to maintain public

order or protect its essential security interests. In this sense, it is

recognized that Argentina’s suspension of the calculation of tariffs in

U.S. dollars and the PPI adjustment of tariffs was a legitimate way of

protecting its social and economic system.”

125. In this case, Dagobah’s government adopted some more austerity measures, in

particular reducing investments in infrastructure. Notwithstanding, since some

public services were on the verge of being compromised, Dagobah was not able

not generate enough revenues for servicing its debt without restructuring or

defaulting.142

Also, the way Dagobah dealt with the crisis was recommended by

the IMF143

4. Sovereign Debt Restructuring Does Not Seriously Impair An Essential

Interest Of Corellia Towards Or Of The International Community As A

Whole

126. Serious impairment means that not only an essential interest must not be

impaired, but also that the interest sought to safeguard must be of greater

importance that the interest which is disregarded.144


Argentine Republic Tribunal stated:

“It cannot be said that any other State’s rights were seriously impaired

by the measures taken by Argentina during the crisis.”

128. Respondent submits that it has neither impaired interests of Corellia nor affected

interests of other states. Furthermore, slight changes in the Dagobah’s laws that

governed sovereign bonds could not constitute a greater importance than

Dagobah’s economic survival.

142

Appendix 6. 143

Uncontested Facts, para.15. 144


Crawford, Alain Pellet and Simona Olleson, Assistant Editor Kate Parlett, 2010, 494, also United Nations,

Report A/CN.4/318/ADD.5-7, 20.

39

5. Dagobah Has Not Contributed To The State Of Necessity

129. Art. 25 (2) allows to invoke necessity only in a case if a state itself has not

contributed to the situation of necessity.

130. It is recognized that at the time of adopting a particular plan in response to a

situation of necessity, the state will be the only one to decide, since it does not

have the time to submit the case to other authorities.145

131. Moreover, in CMS v Argentina, the Tribunal held that the burden to prove

whether a state has contributed to the situation of necessity falls on claimant.146

132. Respondent considers that, in the first place, Claimants have not proved that

Dagobah has contributed to cause the severe crisis faced by the country. Secondly,

the adoption of the SRA has shown a desire to slow down by all the means

available the severity of the crisis which was caused by global financial meltdown

in 2008. More importantly, IMF itself has noted that Dahobah has been following

its recommendations after the crisis in 2001. 147

133. In conclusion, respondent submits that it has not contributed to the state of

necessity but rather has attempted to reduce the consequences of economic

emergency.

B. The BIT Concluded Between Corellia And Dagobah Allows Invoking Necessity

134. Art. 6 of the BIT concluded between Corellia and Dagobah expressly states that

Parties are permitted to apply measures that are necessary for the fulfillment of its

obligations with respect to the maintenance or restoration of international peace or

security, or the protection of its own essential security interests. Although there is

no clear definition of the concept of essential security interests, Tribunals have

interpreted it broadly and have admitted they cover economic crisis.

135. Respondent submits that it is invoking necessity defence to protect its essential

security interests, namely the economic survival of the state.

145

145

M. C. H. Thjoernelund, State of Necessity as an Exemption from State Responsibility for Investments,

Max Planck Yearbook of United Nations Law, Volume 13, 2009, 439. 146

CMS v Argentina, para. 264 147

Uncontested Facts, para. 15

40

136. The BIT concluded between Argentina and the USA contains identical clause in

the Article XI. When interpreting this clause in CMS v Argentina the Tribunal

stated if the concept of essential security interests was limited only to immediate

political and national security issues and were to exclude major economic

emergencies, it could result in an unbalanced interpretation of Article XI. 148

137. As in the CMS case, the LG&E tribunal did not set forth its interpretation of

specific, relevant terms of the essential security provision, but nonetheless

similarly concluded that severe economic crises could not be excluded from the

scope of Article XI. It rejected the argument that Article XI is only applicable in

circumstances amounting to military action and war.149

138. The Tribunal reached the same conclusion in Enron v Argentina Republic by

stating that essential security interests may apply to situations of economic

difficulty 150

and also in E. Continental Casualty v. Argentine Republic. In later

case, when examining the essential security clause, the tribunal noted that the

concept of international security was intended to cover economic security of States

as well. 151

139. In conclusion, respondent submits it has complied with this condition as well.

148

CMS v Argentina, para. 88. 149

LG&E Energy Corp. v. Argentine Republic, ICSID Case No. Arb/02/1, Decision on Liability, 2006, para.

206. 150

Enron Corp. Ponderosa Asset, L.P. v. Argentine Republic, ICSID Case No.Arb/01/3, Award, 2007, para 331. 151

Continental Casualty Co. v. Argentine Republic, ICSID Case No.Arb/03/9, Award, 2008, para. 175

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