GERMAN INSTITUTION OF ARBITRATION UNDER THE UNCITRAL ... · SGS v. Philippines SGS Société...

GERMAN INSTITUTION OF ARBITRATIONUNDER THE UNCITRAL ARBITRATION RULES ADMINISTERED BY THE DIS

CONTIFICA ASSET MANAGEMENT CORPCLAIMANT

V.

REPUBLIC OF RURITANIARESPONDENT

MEMORIAL FOR CLAIMANT

TABLE OF CONTENTS

LIST OF AUTHORITIES 4

LIST OF OTHER SOURCES 5

INTRODUCTION 14

STATEMENT OF FACTS 15

ARGUMENTS FOR CLAIMANT - PROCEDURAL 17

I. THE TRIBUNAL HAS JURISDICTION OVER THE CLAIMANT’S CLAIMS 17

CONSENT TO DIS JURISDICTION 17

THE CAM ADMINISTRATIVE PROCEDURE DID NOT TRIGGER A “FORK IN THE ROAD” 20

UMBRELLA CLAUSE 23

Are the acts of SPF attributable to Ruritania because the SPF is an organ of the State? 24

Are the acts of SPF attributable to Ruritania because the SPF is a public entity having exercised governmental authority functions? 24

II. THE TRIBUNAL DOES NOT HAVE JURISDICTION IN RESPECT OF THE COUNTERMEMORIAL SUBMITTED BY THE RESPONDENT 26

CAM’S SHAREHOLDING IN FBI IS NOT A BONA FIDE INVESTMENT COVERED BY BIT 26

RESPONDENT CLAIMS THAT DUE TO THE EXCLUSIVE JURISDICTION CLAUSE CONTAINED IN THE SHARE PURCHASE AGREEMENT, ANY DISPUTES ARISING OUT OF THE CONTRACT SHALL BE RESOLVED BY ARBITRATION. THE PRESENT ARBITRAL TRIBUNAL SHOULD FIND THOSE CLAIMS INADMISSIBLE. 29

MERITS 30

RESPONDENT`S ACTIONS AMOUNTED TO VIOLATION OF FAIR AND EQUITABLE TREATMENT 30

The concept of the FEF standard 30

The Respondent violated its obligation to act reasonably toward the investment and not to treat the investment arbitrary, discriminatory 33

TEAM SIMMA - MEMORIAL FOR THE CLAIMANT

2

Respondent violated its obligation to ensure enjoyment of a stable and transparent legal environment. 34

Respondent violated the FET standard, because it did not act in compliance with contractual obligations 37

EXPROPRIATION 39

THE EMERGENCY CLAUSE CONTAINED IN ARTICLE 3 (2) IS INAPPLICABLE 42

VIOLATION OF ARTICLE 6 OF THE BIT 44

FULL PROTECTION AND SECURITY 45

DAMAGES 48

OVERVIEW OF THE CLAIM FOR DAMAGES 48

THE APPLICABLE PRINCIPLES AND METHODOLOGY 48

Full compensation as the appropriate standart of compensation 48

Fair market value as compensation for expropriation 49

The Discontinued cash flow value as method to determine income compensation 50

MORAL DAMAGES 51

PRAYER FOR RELIEF 53


3

LIST OF AUTHORITIES

Vienna Convention Vienna Convention on the Law of Treaties, United Nations, 1969.

SGS v. Philippines SGS Société Générale de Surveillance S.A. v. Republic of the Philippines (ICSID Case No. ARB/ 02/6), Decision on the objections to the jurisdiction of January 29, 2004.

Schreuer Principles of International Investment Law, by Christoph Schreuer and Rudolf Dolzer, Oxford University Press, 2012.

Salini v. Jordan Salini Costruttori S.p.A. and Italstrade S.p.A. v. Hashemite Kingdom of Jordan, ICSID Case No. ARB/02/13, Award of January 31 2006.

ELSI v. Italy International Court of Justice, “Elettronica Sicula, S.p.A.” (ELSI), United States of America v. Italy (1987- 1989).

RFCC v. Morocco Consortium RFCC v. Marocco, (ISCID Case No. ARB/00/6), Award of December 22, 2003.

Lusitania Case Opinion in the Lusitania Cases, 7 R.I.A.A. 32 - 40 (1923). Reports of International Arbitral Awards - Opinion in the Lusitania Cases, published by the UN in 2006.

Wong WONG Jarrod. The compensatory nature of moral damages in investor-state arbitration. Columbia FDI Perspective, Perspectives on topical foreign direct investment issues by the Vale Columbia Center on Sustainable International Investment. No. 88, February 4, 2013


4

Treaty and Contract Treaty and Contract in Investment Arbitration by James Crawford, University of Cambridge, 2007.

Principles of International Investment Law

Principles of International Investment Law by Rudolf Dolzer and Christoph Schreuer, Oxford University Press, 2008.

Opinion of Judge Steven Schwebel

MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile (ICSID Case No. ARB/01/7), Award of May 25, 2004.

A Unified Theory of Fair and Equitable Treatment

A Unified Theory of Fair and Equitable Treatment by Kenneth J. Vandevelde, New York University Journal of International Law and Politics, Volume 43, Number 1, Fall 2010.

United Nations Conference on Trade and Development

Fair and Equitable Treatment - UNCTAD Series on Issues in International Investment Agreements II. by United Nations Conference on Trade and Development, 2012.

Tecmed v. US Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States (CASE No. ARB (AF)/00/2), Award of May 29, 2003.

North American Free Trade Agreement

North American Free Trade Agreement, 1994.

Security-Related Terms in International Investment Law and in National Security Strategies

Security-Related Terms in International Investment Law and in National Security Strategies by OECD, O.E.C.D. Publications, May 2009.

Draft Convention on the Protection of Foreign Property

Draft Convention on the Protection of Foreign Property by OECD, O.E.C.D. Publications, December 1962.


5

Treaty on the Functioning of the European Union

Treaty on the Functioning of the European Union, 2008.

LG&E v. Argentine Republic

LG&E v. Argentine Republic (ICSID Case No. ARB/02/1), Award, July 25, 2007

Siemens A.G. v. The Argentine Republic

Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8

Wena Hotels Ltd. v. Arab Republic of Egypt

Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/98/4

ILC Draft Draft Articles on Responsibility of States for Internationally Wrongful Acts, with commentaries, International Law Commision, 2001.

Gas Transmission v. Argentina

CMS Gas Transmission Company v. The Republic of Argentina (ICSID Case No. ARB/01/8), Award of 12 May 2005.

Schill International Investment Law and Comparative Public Law, by Stepha W. Schill. Oxford University Press, 2010

Sempra Energy v. Argentine

Sempra Energy International v. Argentine Republic (ICSID Case No ARB/02/16), Award of 28 September 2007.

Vivendi Universal v. Argentine

Compañía de Aguas del Aconquija S.A. and Vivendi Universal (formerly Compagnie Générale des Eaux) v. Argentine Republic (ICSID Case No. ARB/97/3), Decision on Annulment of 3 July 2002.

Duke Energy v. Ecuador Duke Energy Electroquil Partners & Electroquil S.A. v. Republic of Ecuador (ICSID Case No ARB/04/19), Award of 18 August 2008.


6

Biwater Gauff v. Tanzania Biwater Gauff Limited v. United Republic of Tanzania (ICSID Case No ARB/05/22), Award of 24 July 2008.

National Grid PLC v. Argentine

National Grid PLC v. Argentine Republic (UNCITRAL), Award of 3 November 2008.

Impregilo SpA v. Argentine Impregilo SpA v. Argentine Republic (ICSID Case No ARB/07/17), Award of 21 June 2011.

El Paso Energy v. Argentine El Paso Energy International Company v. Argentine Republic (ICSID Case No ARB/03/15), Award of 31 October 2011.

Factory at Chorzow (Germ. v. Pol.), P.C.I.J. (ser. A) No. 17, September 13 1928.

Chorzow Factory case

Azurix Corp. v. The Argentine Republic

Azurix Corp. v. The Argentine Republic (ICSID Case No. ARB/01/12),

Baladeras de Díaz Baladeras de Díaz US-Mexican General Claims Commission, Decision, 16 November 1926, 4 UNRIAA 106

The rule of law and transitional justice in conflict and post-conflict societies

The Report of the UN Security Council: The rule of law and transitional justice in conflict and post-conflict societies. 24. August 2004. No. S/2004/616

AAPL v Sri Lanka AAPL v Sri Lanka, Award, 27 June 1990, 30 ILM (1991) 577

Saipem S.p.A. v. The People’s Republic of Bangladesh

Saipem S.p.A. v. The People’s Republic of Bangladesh, ICSID Case No. ARB/05/07

Metalclad Corporation v. The United Mexican States

Metalclad Corporation v. The United Mexican States, ICSID Case No. ARB(AF)/97/1


7

Compañiá del Desarrollo de Santa Elena, S.A. v. The Republic of Costa Rica

Compañiá del Desarrollo de Santa Elena, S.A. v. The Republic of Costa Rica, Award, ICSID Case No. ARB/96/1 (United States/Costa Rica)

Burlington Resources Inc. v. Republic of Ecuador

Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5 (formerly Burlington Resources Inc. and others v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (PetroEcuador))

WIPO Intellectual Property Handbook

WIPO Intellectual Property Handbook: Policy, Law and Use - Rights Arising from Trademark Registration, WIPO publication, ISBN 978-92-805-1291-5

WIPO Understanding Industrial Property

WIPO Understanding Industrial Property,WIPO Publication No. 895(E) ISBN 978-92-805-1257-1

Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine

Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine, ICSID Case No. ARB/08/8

Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic

Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3 (formerly Compañía de Aguas del Aconquija, S.A. and Compagnie Générale des Eaux v. Argentine Republic)

TRIPS AGREEMENT ON TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS, 1994

WHO Global strategy to reduce the harmful use of alcohol.

Global strategy to reduce the harmful use of alcohol. 2010. Published by World Health Organization Press. ISBN 978 92 4 159993 1


8

WTO Agreement on Technical Barriers to Trade

World Trade Organization Agreement on Technical Barriers to Trade, 1994

PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey

PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, ICSID Case No. ARB/02/5

CMS Gas Transmission Company v. The Republic of Argentina

CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8

Factory at Chorzow Factory at Chorzow (Germany. v. Pol.), 1928

MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile

MTD Equity Sdn. Bhd. and MTD Chile

S.A. v. Republic of Chile, ICSID Case No.

ARB/01/7

Lieblich Determinations by International Tribunals of the Economic Value of Expropriated Enterprises” (1990) 7 J Int'l Arb 37,38

Starrett Housing Corp. v. Government of the Islamic Republic of Iran

Starrett Housing Corp. v. Government of the Islamic Republic of Iran, (1987) 16 IUSCTR 112, Award of 14 August 1987.

LG&E v. Argentine Republic

LG&E v. Argentine Republic (ICSID Case No. ARB/02/1), Award, July 25, 2007

Siemens A.G. v. The Argentine Republic

Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8

Wena Hotels Ltd. v. Arab Republic of Egypt

Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/98/4


9

ILC Draft Draft Articles on Responsibility of States for Internationally Wrongful Acts, with commentaries, International Law Commision, 2001.

Gas Transmission v. Argentina

CMS Gas Transmission Company v. The Republic of Argentina (ICSID Case No. ARB/01/8), Award of 12 May 2005.

Schill International Investment Law and Comparative Public Law, by Stepha W. Schill. Oxford University Press, 2010

Sempra Energy v. Argentine

Sempra Energy International v. Argentine Republic (ICSID Case No ARB/02/16), Award of 28 September 2007.

Vivendi Universal v. Argentine

Compañía de Aguas del Aconquija S.A. and Vivendi Universal (formerly Compagnie Générale des Eaux) v. Argentine Republic (ICSID Case No. ARB/97/3), Decision on Annulment of 3 July 2002.

Duke Energy v. Ecuador Duke Energy Electroquil Partners & Electroquil S.A. v. Republic of Ecuador (ICSID Case No ARB/04/19), Award of 18 August 2008.

Biwater Gauff v. Tanzania Biwater Gauff Limited v. United Republic of Tanzania (ICSID Case No ARB/05/22), Award of 24 July 2008.

National Grid PLC v. Argentine

National Grid PLC v. Argentine Republic (UNCITRAL), Award of 3 November 2008.

Impregilo SpA v. Argentine Impregilo SpA v. Argentine Republic (ICSID Case No ARB/07/17), Award of 21 June 2011.


10

El Paso Energy v. Argentine El Paso Energy International Company v. Argentine Republic (ICSID Case No ARB/03/15), Award of 31 October 2011.

Factory at Chorzow (Germ. v. Pol.), P.C.I.J. (ser. A) No. 17, September 13 1928.

Chorzow Factory case

Azurix Corp. v. The Argentine Republic

Azurix Corp. v. The Argentine Republic (ICSID Case No. ARB/01/12),

Baladeras de Díaz Baladeras de Díaz US-Mexican General Claims Commission, Decision, 16 November 1926, 4 UNRIAA 106

The rule of law and transitional justice in conflict and post-conflict societies

The Report of the UN Security Council: The rule of law and transitional justice in conflict and post-conflict societies. 24. August 2004. No. S/2004/616

AAPL v Sri Lanka AAPL v Sri Lanka, Award, 27 June 1990, 30 ILM (1991) 577

Saipem S.p.A. v. The People’s Republic of Bangladesh

Saipem S.p.A. v. The People’s Republic of Bangladesh, ICSID Case No. ARB/05/07

Metalclad Corporation v. The United Mexican States

Metalclad Corporation v. The United Mexican States, ICSID Case No. ARB(AF)/97/1

Compañiá del Desarrollo de Santa Elena, S.A. v. The Republic of Costa Rica

Compañiá del Desarrollo de Santa Elena, S.A. v. The Republic of Costa Rica, Award, ICSID Case No. ARB/96/1 (United States/Costa Rica)


11

Burlington Resources Inc. v. Republic of Ecuador

Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5 (formerly Burlington Resources Inc. and others v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (PetroEcuador))

WIPO Intellectual Property Handbook

WIPO Intellectual Property Handbook: Policy, Law and Use - Rights Arising from Trademark Registration, WIPO publication, ISBN 978-92-805-1291-5

WIPO Understanding Industrial Property

WIPO Understanding Industrial Property,WIPO Publication No. 895(E) ISBN 978-92-805-1257-1

Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine

Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine, ICSID Case No. ARB/08/8

Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic

Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3 (formerly Compañía de Aguas del Aconquija, S.A. and Compagnie Générale des Eaux v. Argentine Republic)

TRIPS AGREEMENT ON TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS, 1994

WHO Global strategy to reduce the harmful use of alcohol.

Global strategy to reduce the harmful use of alcohol. 2010. Published by World Health Organization Press. ISBN 978 92 4 159993 1

WTO Agreement on Technical Barriers to Trade

World Trade Organization Agreement on Technical Barriers to Trade, 1994


12

PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey

PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, ICSID Case No. ARB/02/5

CMS Gas Transmission Company v. The Republic of Argentina

CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8

Factory at Chorzow Factory at Chorzow (Germany. v. Pol.), 1928

MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile

MTD Equity Sdn. Bhd. and MTD Chile

S.A. v. Republic of Chile, ICSID Case No.

ARB/01/7

Lieblich Determinations by International Tribunals of the Economic Value of Expropriated Enterprises” (1990) 7 J Int'l Arb 37,38

Starrett Housing Corp. v. Government of the Islamic Republic of Iran

Starrett Housing Corp. v. Government of the Islamic Republic of Iran, (1987) 16 IUSCTR 112, Award of 14 August 1987.


13

INTRODUCTION

1. The present memorial of the Republic of Ruritania (hereinafter "Ruritania", or "Respondent") responds to the statement of claim submitted by Contifica Asset Management Corporation (hereinafter as "CAM", "Contifica", or "Claimant") in a dispute concerning Ruritania's alleged breach of its obligations under the Treaty for the Mutual Promotion and Protection of Foreign Investment between the State of Cronos and the Republic of Ruritania dated 15 March 1997, enclosed to the statement of claim as an Exhibit 1 (hereinafter as the “BIT”).

2. The Claimant is represented by the Team Simma. All correspondence addressed to the Respondent shall therefore be delivered for the attention of the Team Simma.


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STATEMENT OF FACTS

3. In the beginning of 2008 the State Property Fund of Ruritania (the "The Fund")

decided to sell the Freecity Breweries Inc. (hereinafter “FBI”) to a private investor.

FBI is Ruritanian's traditional brewery, which produces number of different brands

of beer. One of them happens to be so called the "FREEBREW", differing from the

rest of the brands by its Reyhan1 flavor.

4. In a following international public tender, five companies submitted their bids,

including Contifica Spirits S.p.A. (“Contifica Spirits”), which is a fully owned

subsidiary of Contifica Enterprises Plc2.

5. Contifica Spirits was declared the winner of the tender and have consequently

entered into a share purchase agreement (further referred to as the "SP

Agreement") providing for the acquisition of all shares in the FBI for USD

300,000,000. The SP Agreement was concluded between Contifica Spirits and The

Fund.

6. In the beginning of 2010, parliament elections took place in Ruritania. The

Majority in Ruritanian parliament has been taken by the "New Way" party, well

known for its strict attitude towards alcohol, its marketing and sale.

7. Two months after the elections, during preparation of new Marketing of Alcohol

legislation, sudden restructuring took place in Contifica group. The shares in FBI as

well as all related IP rights were transferred to the Claimant (another member of

the Contifica group) for USD 5,000. Claimant, in contrast to the Contifica Spirits, is

a company incorporated in Cronos, which has entered into a bilateral agreement

protecting foreign investments with the Respondent.


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1 Reyhan is a local plant, which can be found exclusively in Ruritania's region of Hillmagore.

2 Contifica Enterprises Plc is the parent company of Contifica group. Contifica Enterprises Plc, is incorporated in Prosperia. The Claimant, as well as Contifica Spirits are members of the Contifica group.

8. After this restructuring, on November 2010, the new laws protecting citizens from

extensive alcohol marketing have been passed. The main purpose and motivation of

the Parliament to adopt the Regulation of Sale and Marketing of Alcoholic

Beverages Act (“MAB”) was to protect public health and set strict rules for

marketing competition of different alcohol beverages producers. Among other

measures, strict rules for TV spots were set, selling of alcohol beverages was

restricted to certain time and certain places and, finally, the packaging rules for all

alcohol beverages were unified.

9. On June 15 of the following year, the final report (herein as the "Report") of Human

Health Research Institute revealed that Reyhan may cause cardiac complications.

The report was based on a long-term research analyzing group of 150 people.

Although the Ministry of Health and Social security did receive an interim report

pointing to similar outcome, it decided to persist and finish the research before

jumping to hasty scientific conclusions. Right after receiving the final report with

conclusive and comprehensive results, the Ministry, as any prudent governmental

body would, warned citizens about possible health risk ordering producers to label

all their Reyhan products.

10. As the Respondent could not agree with views provided in Claimant's Statement of

Claim, he herby submits this Memorial ("The Memorial") explaining his position

towards the alleged BIT violation.


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I. THE TRIBUNAL HAS JURISDICTION OVER THE CLAIMANT’S CLAIMS

1. The Claimant’s claims fall within the jurisdiction of the DIS Tribunal under the BIT in that the parties have consented to such arbitration (A), the Claimant has made an “investment” in Ruritania (B), the Claimant is an “investor” within the meaning of the BIT (C)

2. The Claimant submitted its claims to the DIS Tribunal after the 3-month waiting period as provided in the BIT (D).

3. To submit the Investment Dispute to the DIS Tribunal, the BIT furthermore obligates an investor to not bring the dispute before an ad hoc tribunal which is established in accordance with the rules of the United Nations Commission on International Trade Law (UNCITRAL), London Court of International Arbitration (LCIA) or the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) (E).3

4. The violation of Article 6 of the BIT asserted by the Claimant shall be considered as admissible (F).

I. CONSENT TO DIS JURISDICTION

5. Both the State of Ruritania and the State of Cronos are parties of the BIT. In article 8 (2) of the BT the Contracting states declare that they unreservedly and bindingly consent that the Investor shall submit the dispute at their own choosing from the explicit selection containing inter alia the German DIS.

6. Thus the Respondent (i.e. the State of Ruritania) as Contracting Party has consented to DIS jurisdiction over Investment disputes as contained in article 11 of the BIT.

7. In their request for arbitration, the Claimant accepteds the Respondent’s offer to arbitrate and consents to the jurisdiction.

8. The subjected investment shall be considered to be an “investment” within the meaning of the BIT.


17

3 Azurix Corp. v. The Argentine Republic (Annulment Proceeding)

9. The BIT provides a wide definition of “investment” covering every asset directly or indirectly invested in accordance with the legislation of the Contracting State in which the Investment is made by the Investors.

10. Article 1 (1) Determines investments in the cases of:

- movable and immovable property as well as any other rights in rem;

- shares of companies and other kind of interest in companies;

- returns reinvested, i.e. claims to money which have been used to create economic value;

- intellectual property rights, i.e. copyrights, related rights, patents, utility-model patents, industrial designs and trademarks;

- trade-names, trade and business secret, know-how, technical processes and good will.

11. Neither of the Parties have objected the existence of an investment which consists of the acquisition of all shares in FBI, significant investments in technology, design and equipment of the brewery transforming it into a state of the art facility. Which as a result the output of the brewery has increased by 30% to 130, 000, 000 deciliters per annum. Thus, the subjected investment in its entirety shall be considered as an investment under the article 1 (1) of the BIT.

12. The main and original investment was made by SPV Contifica Spirits, the company intended to acquire all shares of FBI. Subsequently FBI was integrated into the Contifica group’s global procurement network. FBI became an important and indisputable part of the Contifica group.

13. The Claimant is an “investor” within the meaning of the BIT

14. As set out presented above, CAM is established in accordance with, and recognised as a legal person by law of the State of Cronos, having its seat in Univo, in the State of Cronos.

15. CAM owns 100% of FBI having rights to the principal intellectual property used by FBI, including Ruritanian-registered trademarks corresponding to the brands of beer produced by FBI and dress registrations with respect to the designs of beer bottles and cans.

16. Article 1 (1) defines the term “Investor” as:

(a) any natural person who is a citizen or national of, or who is permanently residing in one of the Contracting states in accordance to its laws; and,


18

(b) any entity which is established in accordance with, and recognized as a legal person by the law of that Contracting State;

17. which is an owner, possesor or shareholder of any investment in the territory of the other Contracting state.

18. Wording of article 1 (3) reveals a broad extent of the protection encompassed in the BIT. Such protection is not limited only to the original investor. On the contrary, any following investor shall be considered as equal to the original investor. For example, a shareholder of a join-stock company possessing 0,005 % of shares fulfills the requirement of “investor within the meaning of the BIT”. It would be unsustainable to claim that only the same structure of shareholders shall be viewed as the only original and only entitled investor, therefore BIT articles govern this issue separately.

19. CAM acquired above-described investment as a result of the intra-group restructuring in Contifica group. Such behaviour is in compliance with international law, and widely accepted as a vital instrument to managing a large corporations. The real motivation of the subjected intra-group restructuring was to find a reliable, transparent and safe legal environment (taking into account taxation and fiscal policy inter alia) for investment. CAM internationaly is considered to be, not only a major producer of beer but also a responsible employer. Effective protection of our CAM's, mostly Ruritanian citizens, must include a legal environment providing the most effective legal protection. The latter condition is considered to be non-negotiable.

20. The Claimant submitted its claims to the DIS Tribunal after the required 3-month waiting period as provided in the BIT

21. The Contracting Parties consented in article 8 (1) of the BIT that only “a dispute, which cannot be settled amicably within a period of three months from written notification of a claim by the Investor, shall be submitted to international arbitration if the investor so wishes.”

22. For the elapse of the waiting period to be determined, it is necessary to determine the moment in which the Investment Dispute under the BIT arose. That is not the moment in which the breach of the BIT occurred. The waiting period runs from the date that which the State was advised of the claim of breach. (lauder - guerrero - 32). In the present case, the Respondent was aware of the claim of the BIT breach since December of 2011, the Claimant wrote to the President and the Minister of Foreign Affairs of Ruritania noting that the MAB Act and the labelling requirement with respect to FREEBREW constituted a de facto expropriation of its interests in FBI and breached Ruritanian’s obligation under the BIT including breach of fair


19

and equitable treatment and full protection and security guarantees. In May 2012, the Claimant again wrote to the President of Ruritania expressly invoking Article 8 of the BIT. No response was received to any of these letters. Such behaviour shall be considered as the Respondent’s willingness to settle the dispute amicably.

23. For that reason and for the purpose of meeting the waiting requirement, the Claimant filed a request for arbitration before the DIS much longer than three month after the Claimant and CAM sent the written communication as stated above.

24. Neither of the Parties have objected to the fulfillment of the waiting requirement and the Tribunal should not find any difficulty in admitting its jurisdiction with respect to the waiting period provision.

II. THE CAM ADMINISTRATIVE PROCEDURE DID NOT TRIGGER A “FORK IN THE ROAD”

25. BIT provides in Article 8 (2) a list of forums covered by consent given by the State of Ruritania through BIT. It expressly lists the tribunal from the Claimant is free to choose. The Claimant decided to submit the dispute to the German Institute of Arbitration (DIS). Article 8 (3) provides that “the Award shall be binding and not be subject to any appeal of remedy other than those provided for in the relevant rules.” This ongoing arbitration proceeding is the only arbitration proceeding that CAM has launched.

26. None of the Parties has objected the fulfillment of the waiting requirement and the Tribunal should not find any difficulty in admitting its jurisdiction with respect to the waiting period provision.

27. The violation of Article 6 of the BIT asserted by the Claimant shall be considered to be admissible.

28. In the following articles the Claimant will provide that provision of Article 6 (2) contains an umbrella clause which transforms contractual undertakings into international law obligations.

29. Firstly the wording, object and purpose of Article 6 of the BIT regardless to other cases will be examined, secondly a well-grounded case law concerned with the issue of umbrella clauses will be submitted, and finally we will reason placing the umbrella clause into specific provisions within the framework of the BIT.

1. Regarding Article 6 (2) the Claimant bears in mind Article 31 et seq. of the Vienna Convention on the Law of Treaties which focuses on the customary international law concerning treaty interpretation. According to its General rule, every treaty has


20

to 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.4

2. Article 6 (2) reads as follows: “Each Contracting State shall fulfil any other obligations it may have entered into with an Investor or an Investment of an Investor of the other Contracting State.”

3. The actual text of Article 6 (1) clearly refers to “the legislation of either Contracting State or international obligations”. Following Article 6 (2) ends the list with “other obligations”. When reading Article 6 (2) with a knowledge of foregoing Article 6 (1), it is clear that “other obligations” mean other than international obligations of the Contracting state. In other words, each Contracting state is obliged to observe any obligations it has entered into. Such wording indicates broader character of the umbrella clause and allows its applicability also to obligations arising under national law, e. g. those arising from a contract.5

4. Umbrella clauses move the investor’s protection beyond the traditional international standards and directs it to covering investment agreements that host countries frequently conclude with foreign investors.6 It would be an empty base unless understood as referring to contracts, thus further supporting this Article to be an umbrella clause.

5. Other Tribunals7 in interpreting BIT provisions further apply the principle of effectiveness requiring international treaties to be interpreted to ensure the effects of their provisions.8 In our case a clause which would otherwise be stripped of its practical applicability and which can be interpreted as protecting investors is naturally to be understood in this way.

6. “It is a cardinal rule of the interpretation of treaties that each and every operative clause of a treaty is to be interpreted as meaningful rather than meaningless. Any other interpretation would deprive A 8 (2) of practical content, reference has necessarily to be made to the principle of effectiveness applied in SGS v Philippines, Salini v Jordan or Eureko v Poland. It is equally well-established in the


21

4 Vienna Convention, p. 12.

5 SGS v Philippines, para 11.

6 Schreuer, p. 8

7 SGS v. Philippines, para. 116 and Salini v. Jordan, para. 95.

8 Vienna Convention, p. 12.

jurisprudence of international law,, that treaties, and hence their clauses, are to be interpreted so as to render them effective rather than ineffective.9

7. The International Court of Justice in the ELSI Case stated that an important international rule should not be ignored without the exact intention and its clear wording.10 Distinction of this intention in our case is seen when Article 6 (2) is viewed side-by-side with provisions of BITs that have been relied on as umbrella clauses in other ICSID cases.

8. Salini v. Jordan included a provision creating and maintaining “a legal framework apt to guarantee the investors the continuity of legal treatment, including compliance, in good faith, of all undertakings assumed with regard to each specific investor”; in the view of interpretation the provision does not include the responsibility of each Party under international law for the breach of its contractual obligation with a private investor of the other Party.

9. SGS v. Pakistan provisions set a general obligation of the host State to facilitate foreign investment. It namely states an observance “guarantee” of the commitments it has entered into with respect to the investments of the investors meaning adoption of steps and measures under its municipal law to guard the guarantee rather than elevate municipal law obligations to the international level.

10. Finally and by contrast, in SGS v. Philippines, the provision adapted the State’s contractual obligation to its treaty obligations by saying “Each Contracting Party shall observe any obligation it has assumed”.11 Therefore without having a diversion to a completely different reasoning, the Tribunal reached an opposite conclusion from that adopted in SGS v. Pakistan and Salini v. Jordan.

11. Under the usage of the term “shall fulfil”, the only possible interpretation of the general term “any other” and its comparison to well-grounded case law the formulation of Article 6 (2) in the present BIT clearly falls within the category of direct formulations aimed at adapting contractual obligations to obligations based on a treaty.

12. Although the effect of placement of the umbrella clause within the overall framework of the BIT is uncertain12, it helps us to determine the character of the subjected umbrella clause.


22

9 Schreuer, p. 157. - Eureko v Poland at paras 246 and 248

10 ELSI v. Italy, para. 50.

11 Philippines-Switzerland BIT.

12 Schreuer, p.10.

13. There are two different approaches in structuring of a BIT which should be distinguished and which can lead to different conclusions. In the first category of BITs the umbrella is placed under provisions of “other commitments” separated from “the substantive provisions.” The second category represented in the present case places umbrella clauses within the “substantive protections”. Such structuring of the BIT indicates an intention of the Contracting Parties to provide a “substantive obligation”. As the Tribunal in SGS v. Pakistan lays down “if the Contracting Parties intended to create a substantive obligation though the umbrella clause it would logically have been placed alongside the other so-called “first order” obligations.”13

14. The Tribunal should therefore consider the claims of contract breach on the basis that any such breach constitutes a breach of the BIT.

III. UMBRELLA CLAUSE

44. For State is a legal person, there is always the question of whether acts of natural persons who are in violation of international law are attributable to a State. The BIT does not provide us with such a guidance. In case of attribution we must regard customary international law which substitutes the BIT in this respect.

45. In accordance with customary international law the Claimant refers to the Responsibility of States for Internationally Wrongful Acts14 (“ILC Articles”) adopted by the International Law Commission (ILC) in August 2001. The ILC Articles have been embodied in Resolution A/56/83 adopted by the General Assembly of the United Nations on 28 January 2002. This resolution is considered as a statement of customary international law on the question of attribution for the purposes of asserting the responsibility of a State towards another State, which is applicable by analogy to the responsibility of States towards private parties.

46. For the purpose of attribution of an act to a State there must be a close link to the State. Such a link can result from the fact that the person performing the act is part of the State’s organic structure (Article 4 of the ILC Articles), or exercises governmental powers specific to the State in relation with this act, even if it is a separate entity (Article 5 of the ILC Articles).15


23

13 Schreuer, p. 10.

14 ILC Draft, Article 31 (1)

15 Jan de Nul v. Egypt, para 157.

Are the acts of SPF attributable to Ruritania because the SPF is an organ of the State?

47. The structural test embodied in Article 4 of the ILC Articles concerns attribution of so-called de jure organs which are expressly entitled to act for the State and has been used widely through caselaw.16

48. Since the SPF is a legal entity separate from the Respondent, it is not possible to regard it as de jure organ and therefore the conditions set by the structural test are not met.

Are the acts of SPF attributable to Ruritania because the SPF is a public entity having exercised governmental authority functions?

49. According to Article 5 of the ILC Articles:

“The conduct of a person or entity which is not an organ of the State, under article 4 but which is empowered by the law of that State to exercise elements of the governmental authority shall be considered an act of the State under international law, provided the person or entity is acting in that capacity in the particular instance.”

50. The Tribunal in the case of Salini v Marocco, which had been decided a few months before the adoption of ILC Articles, stated the fact that a State that may be acting through the medium of a company having its own legal personality is no longer unusual if one considers the extraordinary expansion of public authority activity. In order to perform its obligations, and at the same time take into account the sometimes divergent interests that the private economy protects, the State uses a varied spectrum of modes of organisation, among which are in particular semi-public companies.17

51. The Claimant adopts the approach of the Salini case and observes SPF in the view of its structure and functionality in order to establish their position on the intentions of Article 5 of the ILC Articles.

52. From a structural point of view the State property fund of Ruritania:

- is a state establishment incorporated under the laws of the Republic of Ruritania as a separate legal entity,

- its principal managing bodies of the Fund are the Board of Governors and the Director-General both appointed by the government of Ruritania.


24

16 Maffezini v. Spain, Salini v. Morocco and RFCC v. Morocco, as well as Noble Ventures v. Romania, Eureko v. Poland and EnCana v. Ecuador.

17 Salini v. Marocco.

Moreover the Fund may make periodic distributions to Ruritania and in the event of its dissolution all its assets and liabilities pass to Ruritania.

53. In virtue of what has been set out above we look at the facts from the perspective of functionality. The link between Ruritania and SPF indicates an intended empowerment of SPF to exercise specified elements of governmental authority. Authority to manage or alienate assigned assets. Omissive behaviour of the Ruritanian government after the SPA took place affirms the validity of SPF actions. Furthermore Statement of Defence brings no disproof of SPFs alienation of the governmental assets.

54. The Respondent may argue that actions of SPF were plainly commercial, or iure gestionis. The ILC Articles affirmed that the difference between acta iure imperii and acta iure gestionis is irrelevant for the purpose of attributing the act of a State organ. 18The ILC sought the views of governments on whether all conduct of an organ of a State is attributable to that State under Article 5 irrespective of the iure gestionis or iure imperii nature of conduct.19 The irrelevance of such a distinction was affirmed by all those members of the Sixth Committee who responded.20

55. If the difference between acta iure imperii and acta iure gestionis is irrelevant for the purpose of attribution of the conduct of a State organ, this difference must also be irrelevant for the conduct of the State. To suggest otherwise would mean that State responsibility would vary according to the classification of the act performed whether it is iure imperii or iure gestionis, while this difference would be irrelevant for State organs.21

56. Thus, since SPF is an entity, from a structural as well as a functional point of view, which is distinguishable from the State solely on account of its legal personality, the Tribunal must conclude that acts of SPF are attributable to Ruritania because the SPF is a public entity having exercised governmental authority functions under the Article 5 of the ILC Articles.


25

18 Sasson, p. 156.

19 Report of ILC, para. 35.

20 Crawford, p. 96.

21 Sasson, p. 156

II. THE TRIBUNAL DOES NOT HAVE JURISDICTION IN RESPECT OF THE COUNTERMEMORIAL SUBMITTED BY THE RESPONDENT

I. CAM’S SHAREHOLDING IN FBI IS NOT A BONA FIDE INVESTMENT COVERED BY BIT

57. The Respondent finds the claim to be an abuse of process and the conduct of Claimant in the present case to be a classic example of deplorable practice of “treaty shopping”. It should be emphasized that “it is neither illegal nor improper for an investor of one nationality to establish a new entity in a jurisdiction perceived to provide a beneficial regulatory and legal environment, including the availability of an investment treaty.”22

58. Article 1 (3) of the BIT defines investor as:

“any entity which is established in accordance with, and recognised as a legal person by the law of that Contracting State, irrespective of whether or not its liabilities are limited and whether or not it is a profit seeking company, agency, association or firm. “

59. There is no doubt that there are different views on setting up “shell companies” controlled by another company purely for the purpose of obtaining access to protection under an investment treaty or for taxation.

60. Nevertheless, only states are authorized to define the term “investor” and the wording of the BIT reflects only their pure will. However, in the present case States agreed not to require any economic connection to the State on whose nationality it relies,

61. The Tribunal cannot extend a definition of investor and add any other requirements which the parties could themselves have added but which they refused to do so. Such opinion is confirmed by the Tribunal in Saluka v. Czech Republic23 and identically is applicable in the present case.

62. The aforementioned concept does not exclude male fide, abusive, fraudulent structuralization of an investment. Case law has described the main characteristics of abusive treaty shopping. It is required to consider the timing of the structuralization in relation to the dispute. Prof. Schreuer states that if the restructuring was undertaken early i.e. before the outbreak of the dispute, the newly acquired nationality will be honoured. But a last minute change of nationality in the face of an existing dispute will be rejected.24


26

22 Nationality Planning, p. 4.

23 Saluka v. Czech.

24 Nationality Planning, p. 18.

63. Case law almost unequivocally follows Schreuers definition. In order to ascertain the character of an investment, tribunals take into account the following factors

a) timing of an investment,

b) timing of claim,

c) whether an investment has been made for the purpose of engaging in economic activity or for the sole purpose of bringing international litigation against a host State.

64. Timing of an investment is a first factor to be taken into account. The israeli company had acquired the investment only nine days before ICSID arbitration was instituted in the Phoenix case. At the moment of the transfer the investment was already burdened with the civil litigation, criminal investigation and investments bank accounts had been frozen.25 In the Cementownia case the claimant acquired an investment only twelve days before termination of its concession.26 In both cases an investment has a close and logical connection to either damage which already occurred or damage which is foreseeable and irreversible.

65. In the present case the Investment had been acquired 248 days before the damages occurred. At that time no damages were reasonably neither foreseeable nor irreversible.

66. Timing of a claim can reveal whether an investment was made purely in order to gain access to international arbitration. Nine days in Phoenix shows a clear intent to get international protection and to invoke it immediately. In the present case there are years of economic activities and a real contribution to the host State economy as well as the purest intent to solve the dispute amicably through an access to international arbitration.

67. The Respondent counterclaims based on foreseeability of enactment of MAB legislation should be dismissed. Firstly, politics in its principal differs from business in its mostly non-binding nature and its time limited mandate. Therefore no one can expect a person or a corporation to rely on election manifesto of every potential party at every election on such a level which would change its whole business strategy involving hundreds of people. Even if a party would enter into Parliament it is unpredictable whether such a party would be able to form a coalition and even if it does there is still a question of whether the proposed legislation would be enacted by Parliament. In addition, we do not object either every provision of the


27

25 Phoenix case, para. 136.

26 Cemetownia case, para. 16.

MAB nor the object and the purpose of such legislation, we respect that the sovereign people of Ruritania are absolutely authorized to do that, on the contrary we do object to the measures of regulation that have been adopted, and the process of its enactment. Proportionality and process of the MAB legislation objected by the Claimant were dependent on many factors unknown at the time of re-structuring of the Contifica group. The details of the MAB were, like details of any other law, 8 months before the enactment, frankly, unpredictable.

68. The true nature of the operation should be considered in order to distinguish an investment made for the purpose of engaging in economic activity and an investment made for the sole purpose of bringing international litigation against a host State. Tribunal should observe the following activity of an investment: whether there is a business plan, program or any economic objective as stated in the Phoenix Case.27 Both empirical data and the Memorandum (Exhibit RX1) shows that restructuring has been made in order to strengthen economic activities of the FBI, to boost its economical capability and to continue running a business while moving its potential further. As stated in the Memorandum (Exhibit RX1) the reasons were: “to achieve further protection of Contifica Group, considering the legal environment, the tax consequences to make Contifica group stronger, more effective and able to protect its employees and assets.”

69. The Claimant is convinced that the real evaluation of the economic transaction is not relevant in this case, because restructuralization took place within Contifica Group. It should be stressed that assignment of asset, rights and obligation within the group is a common practice and essence of any group functioning. For this reason there is the “assignment clause” embodied into Article 11 of the Share Purchase Agreement. Not in order to abuse “treaty shopping”, but simply to fulfill task of Contifica Group management in protecting their shareholders, every employee outside of Ruritania participating on this project and every citizen of Ruritania who was employed to work in the “safest place to work in Ruritania”, according to the state-wide cometition.

70. It is more than evident that CAM cannot be considered as a mere shell. CAM successfully and responsibly continue running the Contifica business. Moreover, CAM did not establish the arbitration immediately when it was allowed to do so.

71. For the reasons mentioned afore all claims on the side of the Claimant should be accepted as admissible.


28

27 Phoenix Case, para 140.

II. RESPONDENT CLAIMS THAT DUE TO THE EXCLUSIVE JURISDICTION CLAUSE CONTAINED IN THE SHARE PURCHASE AGREEMENT, ANY DISPUTES ARISING OUT OF THE CONTRACT SHALL BE RESOLVED BY ARBITRATION. THE PRESENT ARBITRAL TRIBUNAL SHOULD FIND THOSE CLAIMS INADMISSIBLE.

72. The Respondent argues that the dispute shall not be settled by DIS, because of the exclusive dispute resolution settlement clause included in the share purchase agreement. Such assertion seems to be unpersuasive.

73. An exclusive jurisdiction clause determines which legal system and which jurisdiction applies to a given dispute, it gives a contract its forum. It would not be true to believe that a contract without this clause has no forum.

74. Missing an exclusive jurisdiction clause does express a clear will of both parties to be ruled by provisions of international private law; such will is not explicitly expressed, but still exists and shall be treated the same for an exclusive jurisdiction has the absolute same effect as provisions of private international law. Therefore any contract contains a forum, sometimes expressed explicitly, sometimes implicitly.

75. Respondents argumentation would not only mean that a contract with jurisdiction clause is to be understood as above a contract without it, when considering admissability, but applying this approach would make Article 6(2) meaningless. Argument of an exclusive jurisdiction clause would always prevent a Tribunal established under the BIT to exercise State’s compliance with Article 6 (2), because every agreement has a forum different from Tribunal established under the BIT procedural rules.

76. Claimant is aware that no issue in the field of investment arbitration is more fundamental, or more disputed, than the distinction between treaty and contract. 28Therefore Claimant understands its duty to distinguish this case and place it in reasonable and fair context. No investor shall seek protection for any reason as well as no state shall be deprived of its obligations without reasonable substantiation.

77. Under abovementioned grounds we bear no doubt that although this case may have been raised in worrying times, it has been layed before the eligible tribunal.


29

28 Treaty and Contract, p. 1.

MERITS

I. RESPONDENT`S ACTIONS AMOUNTED TO VIOLATION OF FAIR AND EQUITABLE TREATMENT

The concept of the FEF standard

78. In relation to the concept of FET clauses it is necessary to stress that it cannot be determined by laws of a host state. Case law proves and repeatedly emphasized independence of the FET standard on national law.29

79. Therefore, it is irrelevant whether the enactment of MAB and legislation procedure regarding Rayhan was in compliance with the national law of Ruritania.

80. The FET clause is contained in Article 3 (2) of the BIT and reads:

“Each Contracting State shall in its territory in every case accord Investment of the other Contracting State fair and equitable treatment as well as full protection and security under this Treaty.”

81. It is necessary to define a scope of the aforementioned FET clause. According to Judge Schwebel, “the essential elements of the FET standard contain fundamental standards as good faith, due process, non-discrimination, and proportionality“.30 An almost analogical definition is provided by Vandevelde in his theory of fair and equitable treatment comprising four principles: reasonableness, consistency, non discrimination, transparency.31 UNCTAD sets: legitimate expectation, denial of justice and due process, manifest arbitrariness in decision making, discrimination, outright abusive treatment.32

82. The FET standard derives from both treaty (intent embodied the BIT) and from international law. This approach appears to be prevailing, as stated in Tecmed v Mexico: “Tribunal found that it had to interpret the concept of FET autonomously taking into account its text according to its ordinary meaning, international law, and the good faith principle. The intention behind the concept was to strengthen the security and trust of foreign investors thereby maximizing the use of economic resources.”33


30

29 Dolzen and Schreuer, p. 123.

30 Opinion of Judge Steven Schwebel, para. 109.

31 A Unified Theory of Fair and Equitable Treatment, p. 43.

32 United Nations Conference on Trade and Development, p. 62.

33 Tecmed v. US, p. 156.

83. Tribunals usually face the question whether the FET standard contains only the so-called minimum standard deriving from customary law (typically in NAFTA disputes) or whether the FET standards offer also autonomous standards additional to general principles of international law.

84. Regardless of an attitude we adopt, the crucial conclusion we can make is that there is a basic quality of behaviour; a line we cannot cross, the so-called minimum standard of treatment (MST). Such limitation is based on international customary law. Any other provision of the BIT should not set an exemption from applicability of this standard. On the contrary, other guarantees going beyond the MST can be limited.

85. It seems that FET in the present case allows a broader interpretation of FET offering an additional treatment of a higher quality. Such additional framework is partially specified in Article 3 which includes the most favoured nation clause and forbids in particular impairment of the management, maintenance, use, enjoyment by arbitrary and discriminatory measures.34 This specification should be considered as the additional protection provided by the BIT. Such claim is based on the following reasons:

(a)FET clause in Article 2 (1) does not refer to international customary law as NAFTA provisions.35 The wording of FET clause allows additional protection beyond the minimum standard of treatment.

(b)Article 3 which provides protection against arbitrary and discriminatory treatment would only duplicate protection already provided by FET clause in Article 2 (1).

86. In other words it is necessary to distinguish between the basic protection offered by Article 2 and additional protection offered by Article 3.

87. One could argue that above mentioned provisions are not applicable due to the emergency clause set in Article 3(2). It states:

“Measures that have to be taken for reasons of public security and order shall not be deemed treatment less favourable, arbitrary or discriminatory within the meaning of this Article.”

88. The Claimant believes that the emergency clause covers neither MAB Act nor legislation related to Rayhan regulation and should be considered as inapplicable in this case. Such conclusion is proved 1) by wording of Article 3(2) which limits its


31

34 Article 3 (1) of the BIT

35 Article 1105 of NAFTA

applicability only in case of public security or public order, 2) by structure of Article 3(2), and 3) by limitation included in Article 3(2) reading “within the meaning of this Article”.36

89. Emergency clauses are considered as a powerful instrument allowing states to enter a special regime when usually unacceptable measures are accepted primarily because of an extraordinary and unique circumstances or threats. There are broad and narrow emergency clauses deriving from number of objectives included in the clause. The present emergency clause allows states to derogate from the obligations under the present Article, but only for certain objectives, namely and exhaustively public security and public order.

90. Although “public security objective” has not been comprehensively defined, doctrine is quite consistent and derives from national definitions of public security. It usually means security of a State, its sovereignty, and ability to protect its citizens. German law defines it as “inviolability of the rule of law, of subjective rights and legal positions of the individual as well as the existence, the institutions and manifestations of the State or other bearers of sovereign power.”37 It usually deals with economic and security interests of states, divided into five main security domains: land, sea, sky, space and cyber. There is no doubt that current dispute appears to be far beyond of the scope of this objective.

91. The objective “public order”, is usually referred to as “war, hostilities or other grave national emergency due to force majeure or provided by unforeseeable circumstances or threatening its essential security interests”.38

92. The Claimant believes that the Parties did not intended to cover category “public health” by the emergency clause. Such conclusion is based on a common practice of states to add public health objective in Non-Precluded Measures clauses (NPM clauses) if they which to do so. The German Model BIT states: “Measures that have to be taken for reasons of public security and order, public health or morality shall not be deemed treatment less favourable.” The German-Russian BIT includes “Measures undertaken in the interest of law and order and security, morality or public health shall not be regarded as “discriminatory measures.” Public health is expressly mentioned in Germany-Israel BIT, New Zealand-China BIT, Romania - Egypt BIT, Russia- Hungary BIT, Sweden-Russia BIT, New Zealand - Singapore BIT, USA - Kuwait BIT, Uruguay-Switzerland BIT. European Union distinguish


32

36 Article 3 of the BIT

37 Security-Related Terms in International Investment Law and in National Security Strategies, p. 9.

38 Draft Convention on the Protection of Foreign Property, p. 56.

between public security, public policy and public health in its as well.39 In other words public order, public security and public health are clearly distinct legal categories, which is evidenced by above mentioned practice.

93. The emergency clause of Article 3 reads:

“Measures that have to taken (...) shall be deemed (...) within the meaning of this Article”.

94. Both wording and purpose of such formulation lead to the clear conclusion. The emergency clause is related only to the additional protection provided by Article 3, without prejudice to the basic protection provided by Article 2 (1). The emergency clause cannot exclude application of the FET basic protection for the following reasons:

95. FET does not encompass only discrimination and arbitrariness included in Article 3. The FET provides also standards of due process, proportionality, legitimate expectation and others.

96. As stated above, FET derives from both minimum standard of treatment of international customary law and additional standards. Only standards of additional quantity can be excluded.

97. The treaty provision cannot exclude obligation deriving from international customary law and generally acceptable principles of international investment arbitration confirmed by case law.

98. If the Parties had wanted to give the effect to exclude applicability of any other provisions, they would have placed the emergency clause within a general provisions of Article 1 and 2.

99. If the Parties had wanted to give the effect to exclude applicability of any provision contained in the BIT, they would have not used wording “within the meaning of this Article”.

The Respondent violated its obligation to act reasonably toward the investment and not to treat the investment arbitrary, discriminatory

100. The FET clause included in article 2 reads: “Each Contracting State shall in its territory in every case accord Investments by Investors of the other Contracting State fair and equitable treatment as well as full protection and security under this Treaty. This Article should be read with a knowledge of all relevant provisions contained in the BIT, in particular in the light of with the Article 3, which states: “Measures that have to be taken for reasons of public security and order shall not


33

39 Treaty on the Functioning of the European Union, Article 52.

be deemed treatment less favourable, arbitrary or discriminatory within the meaning of this Article.”

101. The MAB Act prohibited sale of alcohol in containers of over 0,5l. At first glance it appears to be a non discriminatory measure affecting equally every beverage producer. The Claimant has no doubts that the real target was the icon, flagship product and best seller of the FBI - 0,8 l FREEBREW.

102. There are various measures how to face harmful use of alcohol. It is necessary to take into account cultural circumstances in order to adopt balanced measures. The question Ruritania faced in considering its health policy was not only whether or not to reduce the harmful use of alcohol or not, but how to achieve such aim. Every nation is different and every nation needs tailor-made combination of measures to succeed. Also every market is different; and the same measures taken by different states impact these markets differently.

103. In the present case, FBI is the only brewery using 0,8 bottles, the rest of its competitors sell their products in 0,5 l bottles. Such regulation should be considered as indirect discrimination. Despite its general character, it affects in the concrete indirectly only one competitor. A formally legitimate and non discriminatory a measure amounted to measure having a discriminatory effect. Therefore, the prohibition of bottling amounts to discriminatory violation of the basic standard of treatment provided by Article 2.

Respondent violated its obligation to ensure enjoyment of a stable and transparent legal environment.

104. The FET clause included in article 2 reads: “Each Contracting State shall in its territory in every case accord Investments by Investors of the other Contracting State fair and equitable treatment as well as full protection and security under this Treaty.” This Article should be read with the knowledge of the all relevant provisions contained in the BIT, in particular in the light of with the Article 3, which states: “Measures that have to be taken for reasons of public security and order shall not be deemed treatment less favourable, arbitrary or discriminatory within the meaning of this Article.”

105. The Claimant is of the opinion that Article 3 is inapplicable. According to most of the FET definitions and case law the FET standard encompasses following elements: reasonableness (proportionality), consistency, non discrimination, transparency.40 It is clear that FET offers much broader protection than Article 3 and some dimensions of FET remains untouched by the emergency clause, namely


34

40 Opinion of Judge Steven Schwebel, para.109.

reasonableness, consistency, transparency and due process. The Respondent violated precisely these untouched dimension of FET.

106. MAB Act adopted by Ruritania contains comprehensive regulation intended to reduce the harmful use of alcohol. Ruritanian regulation consists of a number of particular measures including :

(a) availability of alcoholic beverages,

(b) marketing of alcoholic beverages,

(c) plain packaging,

(d) prohibition of sale of alcoholic beverages in containers of over 0,5l bottles.

107. The legitimate expectation of the investor should be grounded, inter alia, in the legal order of the host state as it stands at the time when the investment is made. Such expectation has been proved by recent jurisprudence. Therefore, the host state must at all times be aware that its legal order forms the basis of legitimate expectations, which must be taken into account in future reforms.41

108. “In the light of the good faith principle established by international law, requires the Contracting Parties to provide to international investment treatment that does not affect the basic expectation that were taken into account by foreign investor to make the investment.” 42This attitude adopted by the Tecmed Tribunal (Tecmed) reflects the reasonableness and proportionality dimension as an inherent part of FET. In other words, the investor should legitimately expect a responsible legislation process taking into account the interests of investors.

109. It should be underlined that the proportionality analysis as developed by German administrative law and now employed by many international courts and tribunals allows any subject of law to require proportional approach. This is not privilege of investors protected by BIT, this is a modern perception and interpretation of international law.

110. To meet the analysis of proportionality it is necessary to adopt as least invasive as a possible of a measure in relation to the investors reasonable expectations. States should avoid adopting a trial and error method within legislative processes.


35

41 Principles of International Investment Law, page 134-135

42 Tecmed v. US, para 154

111. The proportionality analysis is the dominant technique for balancing between competing values, as it was applied in the Tecnicas case.43 The court should ask whether 1) a regulation serves the public good, whether the goal of regulation is legitimate, 2) whether adopted measures are able to achieve said goal, 3) whether the objective has been achieved with measures interfering less with the right or interests of investors, and 4) whether such legislation is proportional.

112. There is no doubt that requirement 1 and 2 are met. Reduction of harmful use of alcohol is really a praiseworthy goal which we absolutely support. The Claimant does not object the aim of the legislation, the Claimant objects the way the Respondent decided to achieve said goal.

113. The Claimant believes that requirement 3 of the proportionality analysis has not been met and therefore the MAB Act suffers from significant disproportionality. There are many other measures capable of achieving Respondents goal. It should be mentioned that in the same year when Ruritania adopted its anti-alcoholic legislation, the WHO issued a Global Strategy to Reduce Harmful Use of Alcohol. Neither plain packaging nor prohibition of sale of alcohol beverages in containers of over 0,5l bottles are included in the Global Strategy.44

114. This guideline elaborated on by experts has been ignored by Ruritania, although its provides us with plenty of measures designed to reduce harmful use of alcohol and less interference with investors rights and interests such as

(a) Drink and Driving Policies introducing and enforcing an upper limit for blood alcohol concentration and administrative suspension of driving licences

(b) Health service response - increasing capacity of health and social welfare systems to deliver prevention

(c) Ensuring broad access to information and effective education and public awareness programmes

(d) Reducing the public health impact of illicit alcohol and informally produced alcohol.45


36

43 Tecmed v.US, para 122

44 WHO Global Strategy to reduce harmful use of alcohol

45 WHO Global Strategy to reduce harmful use of alcohol, pages 9-19

Respondent violated the FET standard, because it did not act in compliance with contractual obligations

115. Legitimate expectation, stability and consistency has been repeatedly recognized as a cornerstone of the FET standard. In PSEG v Turkey, the tribunal underlined that “the changes in both the legislative environment as well as in the attitudes and policies of the administration relating to investments were contrary to the need to ensure a stable and predictable business environment for investors.”46

116. The requirement “to ensure a stable and predictable business environment” is focused on the phenomenon of “change”. This stability derives from foreseeability, necessity and reasonableness of such change as mentioned afore and it is mostly considered in this meaning. There is no doubt that the FET standards undoubtedly requires observance to its own law and its own international obligations as well. This claim is based on the premise that a state which is authorized to create legal environments shall respect law and obligations already enacted or concluded, otherwise it would destabilize the whole legal system.

117. FET requirements related to stable, consistent and predictable legal environment clearly include expectations that a host state will act in compliance with its international obligations. We discuss neither alteration of international obligations nor about terminating or entering into international obligations. States have sovereign right do that. The Claimant challenge Ruritanian violation of its international obligations.

118. The MAC legislation enacted by the Respondent leads to violation of the WTO Agreement on Technical Barriers to Trade (TBT). The effects of the MAB, in particular of the plain packaging measures, are not in compliance with the object and purpose of the TBT as stated in its Preamble: “Desiring however to ensure that technical regulations and standards, including packaging, marking and labelling requirements, and procedures for assessment of conformity with technical regulations and standards do not create unnecessary obstacles to international trade.”

119. The plain packaging legislation harms the market, because it creates a barrier leading to an isolation of the Ruritanian alcohol market. Such a consequence appears to be in clear conflict with the ideas of the WTO. Moreover, the MAC violates Article 2(2) of the TBT because measures adopted by Ruritanian Parliament creates an obstacle to international trade.47

120. Although Article A 2(2) of the TBT contains an exception, it is hard to believe that it is applicable in the present case. The TBT reads: “For this purpose technical


37

46 PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, para 240

47 WTO Agreement on Technical Barriers to Trade

regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective. As stated above, plain packaging is not the only measure able to reduce the harmful use of alcohol. The World Health Organization issued the whole guidelines full of recommendation in order to face the harmful use of alcohol.48

121. The MAB legislation enacted by the Respondent leads to violation of the WTO Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS). None of the parties objected, that subjected FBI investment includes an intellectual property of high importance. IP contains traditions, technological development, quality and experience. The IP in the most intensive and sensitive link between a producer and its consumer.

122. The Respondent act amounts to violation of the TRIPS Agreement, in particular Article 20: “The use of a trademark in the course of trade shall not be unjustifiably encumbered by special requirements, such as use with another trademark, use in a special form or use in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings.”

123. The Respondent counter-memorial is based on the assertion that, TRIPS contains only protection of a negative right.49 The Claimant strongly disagrees with such interpretation. The Trademark shall be considered as an economic value, instead of describing it as only a right. Basically the rights are always linked to values. This is the essence of rights. A right is only a tool used to obtain protection. In this light, in conjunction with purpose and objective of the TRIPS we shall read both Article 16 and Article 20. The only conclusion we can reach is that Article 20 adds a positive right dimension to the protection of trademarks.


38

48 WHO Global strategy to reduce the harmful use of alcohol.

49 Article 16 of the TRIPS

EXPROPRIATION

124. The Claimants investment is protected by the BIT; extent of such protection is specified in Article 1. BIT includes, in particular, not exclusive, movable and immovable property, other rights in rem, shares of companies, returns, and a broad range of intellectual property rights (copyrights, related rights, patents, utility model patents, industrial design, trademarks).

125. The BIT provides investors with a broad range of protection against all forms of expropriation, Article 4 reads: “indirect expropriation, nationalization, measures of the effects of which would be equivalent to expropriation or nationalization.”50 To be precise, the BIT bans aforementioned forms of expropriation and includes an emergency clause.51

126. On 20 November 2010, the Parliament of Ruritania adopted MAB Act. Measures included in the MAB Act imposed, inter alia, a requirement that trademarks/brands of beer be written in the same font and colour as all the other text on the label. It is clear that such regulation is the sole reason why the Claimant is not allowed to use trademarks at its disposal.52

127. Since 20 November 2010 beer has become a commodity, just an unknown alcoholic water. Beer products produced by FBI lost its history and its tradition. Connections between FBI and its consumers were cut. FREEBREW lost its identity. As a result of this regulation the Claimant's business suffered substantial harm.

128. The aforementioned measures led to an effective seizure of the Claimants rights to use intellectual property at its disposal protected by the BIT. Therefore, the Claimant is convinced that the measures adopted by the Respondent amounted to an indirect expropriation or to a measure having tantamount effect, which was not accompanied by any compensation.53

129. Regardless the Respondent's motivation, a public purpose is not the only condition making the expropriation lawful. The emergency clause included in Article 4 of the BIT requires expropriation to be

a) for the public benefit,


39



52 Problem, page 3, para 9. …”The principal intellectual property used by FBI, including Ruritanian-registered trademarks corresponding to the brands of beer

produced by FBI (including FREEBREW, RURILITE AND HILLMAGORE STOUT).”

53 Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine, paras. 300-305

b) not discriminatory,

c) carried out under due process of law and

d) against compensation. It should be emphasized that however praiseworthy objective state is going to achieve compensation and other requirements have to be met.

130. Aforementioned argumentation is mirrored also in case law. The tribunal in Vivendi II concluded:

“While intent will weigh in favour of showing a measure to be expropriatory, it is not a requirement, because the effect of the measure on the investor, not the state’s intent, is the critical factor. AS Professor Christies explained in his famous article in the British Yearbook of International Law more than 40 years ago, a state may expropriate property where it interferes with it even though tha state expressly disclaims such intention. Indeed, international tribunals, jurists and scholars have consistently appreciated that states may accomplish expropriation in ways other than by formal decree; often in ways that may seek to cloak expropriatory conduct with a veneer of legitimacy.”54

131. The same conclusion has been reached by the Tribunal in Inmaris Perestroika Sailing Martime Services GMBH and OTHERS v. Ukraine. It reads: “Once a measure has been found to be expropriatory, a State must pay compensation, even if the measure is taken for a public purpose. Whether a government act is taken for a public purpose does not change the fact that compensation is owed.”55

132. The Respondent may argue a negative character, “ius prohibiti”, of the industrial property rights. Such assertion should be rejected due to it’s incompleteness. It is widely accepted that protection of industrial property includes both “ius utendi” using trademark for profit-making purposes and “ius prohibiti” the possibility of preventing trademark use by third party. Such conclusion is reflected in documents issued by World Intellectual Property Organization (WIPO) as well. It emphasizes both dimensions saying: “The registered owner has the exclusive right to use the trademark. This short definition of the specific subject matter of trademark rights ecncompasses two things: the right to use the trademark and the right to exclude others from using it.”56

133. Another WIPO document Understanding Industrial Property reads: “The Owner of a registred trademark has an exclusive right in respect of his mark. It gives him the


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54 Compania de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. The Argentine Republic, at para 7.5.20, citations omitted.

55 Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine, para 305

56 WIPO Intellectual Property Handbook, page 84

right to use the mark and to prevent unauthorized third parties from using the mark…”57

134. The above Mentioned perception of a trademark derives from treatment of trademarks as an economic value, instead of describing it as only a right. As already mentioned, the rights are always linked to values. This is the essence of rights. Rights are only a tool in order to protect specific values.

135. The WIPO document Understanding Industrial Property points out four main functions of trademarks.58 These relate to 1) the distinction of marked goods or services, 2) their commercial origin, 3) their quality and 4) their promotion in the marketplace. It is clear that the Claimant cannot realize none of trademark functions since the MAB Act adoption. The MAB Act has made all trademarks related to the investment absolutely valueless. It clearly shows that trademarks must include right to use in order to fulfill its social function.

136. The issue is not who has trademarks at its disposal. It would be only formal consideration ignoring object and purpose of IP protection. The issue is whether the Claimant is allowed to utilize the value enshrined in trademarks.

137. Similarly NAFTA includes not only open, deliberate and acknowledged taking of property such as formal transfer of title in favour of the host State. It covers interference with use of investment which has the effect of depriving the owner of the use or reasonably-to-be expected economic benefit.59

138. An apt description of interference with use of property has been given by the Tribunal in Inmaris Perestroika Sailing Maritime Services GMBH and Others. Ukraine imposed a ban from sailing. The Investors rightě arising from a lease contract - right to use the ship in the expected way was interfered and constituted according to the Tribunal an indirect expropriation which should be accompanied by compensation.

139. The Respondents assertion that the Claimant remains the registered owner of the respective trademarks and trade dresses and retains the exclusive right to use them is irrelevant. As stated in Burlington Resources v Ecuador, the decisive criterion to assess substantial deprivation is the loss of economic value and tribunals should focus on enjoyment of property. The fundamental issue is whether the investment is capable of earning a commercial return. “After all investors make investment to


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57 WIPO Understanding Industrial Property, page 13

58 WIPO Understanding Industrial Property, page 12

59 Metalclad Corp. v Mexico, para. 103

earn a return. If they lose this possibility as a result of a State measure, then they have lost the economic use of their investment.”60

140. The ban on using trademarks considerably frustrated the value of the Claimants’ investment.

I. THE EMERGENCY CLAUSE CONTAINED IN ARTICLE 3 (2) IS INAPPLICABLE

143. The most significant criterion to determine whether an action constitutes an indirect expropriation is the impact of measures adopted by the host state. This approach is reflected by the Sole effect doctrine.61 Accordingly, tribunals have repeatedly rejected to take motivation behind measures adopted by states into consideration.62 “The purpose for which the property was taken does not alter the legal character of the taking for which adequate compensation must be paid”.63

144. Moreover, the Sole effect doctrine is followed by the BIT provisions. The wording of individual provisions supports principles of the Sole effect doctrine, rather than Police powers doctrine. Article 4 clearly states that the public benefit is only one of the requirements which has to be met in order for expropriation to be lawful. Regardless of the intent of the host state compensation has to be paid. The sole character of measures adopted by the host state can never satisfy the sole character (public benefit, public security reasons) when considering indirect expropriation.

145. The BIT includes two emergency clauses designed to determine when the host state is allowed to justify its measures by exercising police powers. As stated above, the emergency clause included in the Article 4 cannot justify expropriation not accompanied by compensation. Another emergency clause of Article 3, on the contrary not requiring compensation, will be examined in the following paragraphs.

146. The emergency clause included in Article 3 reads: “Measures that have to be taken for reasons of public security and order shall not be deemed treatment less favourable, arbitrary or discriminatory within the meaning of this Article.”


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60 Burlington Resources Inc. v. Republic of Ecuador, para. 397

61 Saipem S.p.A. v. The People’s Republic of Bangladesh paras.133 - 134

62 Metalclad Corporation v. The United Mexican States, para. 111

Compañiá del Desarrollo de Santa Elen , S.A. v. The Republic of Costa Rica, para 71, Burlington Resources Inc. v. Republic of Ecuador, para 397-398

Saipem S.p.A. v. The People’s Republic of Bangladesh, 133 -134

63 Compañiá del Desarrollo de Santa Elen , S.A. v. The Republic of Costa Rica, para 71

147. In the present case, Parties designed an emergency regime only for two objectives - public security and public order. As I have explained above64, Parties did not intend to cover objective public health by the emergency clause.

148. Moreover, Parties placed the emergency clause into Article 3 instead of placing it within general provisions applicable for all provisions of the BIT, or instead of placing it directly into Article 4.

149. The most compelling reason why the emergency clause of article 3 is not applicable in the case of indirect expropriation is based on the wording of the clause. It means what it says, it limits its applicability only within the meaning of Article 3.

150. Therefore, the emergency clause relates only to less favourable treatment, arbitrary treatment or discriminatory treatment. As a result of the above mentioned arguments it is more than clear that there is no connection between Article 3 and Article 4.


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64 paras. 60-69 of the Memorial

VIOLATION OF ARTICLE 6 OF THE BIT

151. The Article 6 (2) of the BIT includes the umbrella clause capable of elevating contractual claims to treaty claims. It contains obligation that each Contracting state shall fulfil any other obligations it may have entered into with an Investor of the other Contracting Party.

152. In the present case Ruritania through its Fund concluded with the Claimant The Share Purchase Agreement (“SPA”) concerning the sell of FBI to an Investor. SPA includes in its Appendix 7 Schedule of Warranties and Representations following warrant: “To the best of its knowledge the products of Brewery do not pose any risks to the consumers, other than those which are ordinary for similar alcoholic beverages.”65 This warrant was breached. The Claimant was provided with access to the report and materials and discovered that in 2005 an interim report, which came to the conclusions regarding the dangers of Rayhan, was sent by the HRI to the Ministry of Health and Social Security.

153. It is more than clear that Ruritanian was in 2005 fully aware of all risks posed by FBI products. Warrant included in SPA played a significant role in considering the agreement by the Claimant. It is highly probable that the Claimant would have never signed such an agreement if warrant had not been contained in said agreement.66

154. The above mentioned breach of contract would be considered as a breach of treaty, due to the wording of Article 6 (2) of the BIT. Therefore the Respondent should be responsible to pay a compensation.


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65 Problem, page 18. EXHIBIT NO.2 - EXTRACTS FROM THE SHARE PURCHASE AGREEMENT

66 Problem, page 5.para 16-17

FULL PROTECTION AND SECURITY

155. The BIT provides investors with the standard of full protection and security included in Article 2 (1) b). The precise wording of that provision is: “Each Contracting State shall in its territory in every case accord Investments by Investors of other Contracting state (...) full protection and security (“FPS”) under this Treaty.67

156. Such clause corresponds to widely accepted concept of FPS defined by prominent scholars as obligation of the host state to take active measures to protect the investment from adverse effects which may stem from actions of the host state and its organs or from a non-state actors.68

157. As approved by both case law and doctrine that it is necessary to bear in mind that FPS does not place the host state under an obligation of strict liability. In the light of AAPL v Sri Lanka Award, it is important to prove whether the damages suffered were attributable to the host state or its agents.69

158. This perception is important because as prof. Schreuer points out: “It is generally accepted that the host state will have to exercise “due diligence” and will have to take such measures protecting the foreign investment as are reasonable under the circumstances. Lack of resources to take appropriate action will not serve as a defence for the host state. Whenever state organs themselves act in violation of the standard, or significantly contribute to such action, no issues of attribution or due diligence will arise because the state will then be held directly responsible.”70

159. At this point it is necessary to separate claim related to violation of physical integrity of Mr. Goodfellow and Mr. Straw from violations of investment’s good will. Both claims are undoubtedly covered by the full protection standard as it is interpreted by the caselaw.71

160. On 23 December 2011 Messrs. Goodfellow and Straw were detained in the Freecity International Airport. Both executives of the Contifica Group were detained in a cell at the airport until 3 January 2012, when they were released without any


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67 Article 2 (1) b) of the BIT

68 Principles of International Investment Law, page 149

Schill, page 184

69 AAPL v Sri Lanka, para 53.

70 Principles of International Investment Law, page 149

71 Desert Line Projects v. Yemen, Siemens A.G. v. The Argentine Republic, Wena Hotels Ltd. v. Arab Republic of Egypt para 8

explanation. Ruritanian authorities never apologized for the detention or offered any compensation.

161. There is no doubt that Ruritania as a sovereign State has the inherent right to regulate its affairs and has the exclusive right to lead investigation and criminal proceedings. On the other hand, Ruritanian police, as an organ of state, is bound by Ruritanian’s international legal obligation. The Rule of Law principle is a fundamental principle of international law as declared in the The Report of the UN Security Council The rule of law and transitional justice in conflict and post-conflict societies issues in 2004:

162. "The rule of law is a concept at the very heart of the Organization’s mission. It refers to a principle of governance in which all persons, institutions and entities, public and private, including the State itself, are accountable to laws that are publicly promulgated, equally enforced and independently adjudicated, and which are consistent with international human rights norms and standards. It requires, as well, measures to ensure adherence to the principles of supremacy of law, equality before the law, accountability to the law, fairness in the application of the law, separation of powers, participation in decision-making, legal certainty, avoidance of arbitrariness and procedural and legal transparency."72

163. It is clear that any detention which reveals to be unfounded has to be considered shall be accompanied by compensation, otherwise it should be considered as illegal. There is no difference between illegal seizure of investors employees in Wena Hotels v. Egypt73 and illegal uncompensated detention of CAM’s employees.

164. It is widely accepted that FPS concept provides investors (in certain circumstances) protection against private actors.74 When the host state is under certain circumstances responsible to protect investment from private actors infringements, it must be directly responsible for infringement of its own organs.

165. Illegal detention, unfounded acquisition and enforced detention seriously harmed reputation of CAM executives.

166. As it was stated above it is necessary to separate the claim related to violation of physical integrity of CAM executives from violation of investors good will. It should be considered that “full protection and security” covers not only physical security of


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72 The rule of law and transitional justice in conflict and post-conflict societies, para. 6

73 Wena Hotels Ltd. v. Arab Republic of Egypt, para. 15-64.

74 Schill, page 192

Desert Line Projects LLC v. The Republic of Yemen, para 286

Baladeras de Díaz, para. 106, 107

the investment. It would make no sense to limit the extent of FPS clause to protection of tangible assets. Such interpretation would ignore development of investment law, which puts the accent primarily on intangible assets. FPS included in Article 2 reads “in every case accord Investment”. 33% of asset included in the investment definition in Article 1 has intangible character (intellectual property rights, trade-names, business secrets, know-how and good-will).

167. Such conclusion was approved in Siemens v Argentina:

“As a general matter and based on the definition of investment, which includes tangible and intangible assets, the Tribunal considers that the obligation obligation to provided full protection and security is wider than “physical”protection and security. It is difficult to understand how the physical security of an intangible asset would be achieved.”75

168. On the same day when CAM executives were detained and the video of their detention from a security camera was passed by the police to Free TV, Ruritanian most popular TV channel. Moreover, the Prosecutor’s Office said that “the law enforcement agencies of Ruritania will not let people responsible for corruption escape investigation.” It should be emphasized that the only authorized organ to decide about guilt and punishment is an independent court. The prosecutor jeopardized the independence of trial, the independence of due process.

169. It should be underlined that it was a State official who passed information to the television. This behaviour is undoubtedly attributable to the State, because Police was the only organ having access to these materials. Such leaking of information to the TV significantly harmed Claimant’s good will.

170. The Prosecutor's biased proclamation significantly harmed Claimant's reputation. The Claimant recalls for that the Ei incumbit probatio qui dicit, non qui negat which has been violated by the Prosecutor.


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75 Siemens A.G. v. The Argentine Republic, para 303

DAMAGES

I. OVERVIEW OF THE CLAIM FOR DAMAGES

170. To the extent that the Tribunal determines that Ruritania has breached its BIT obligations, CAM is entitled to compensation for the harm caused by the wrongful conduct to their investments and investors by the aforestated acts. The further objective is to decide the appropriate standard and measure of compensation and the method to quantify it.

171. Under international law, a state that carries out an internationally wrongful act is obliged to make full reparation for the harm caused thereby.76 Ruritania violated the BIT provisions prohibiting uncompensated indirect expropriation, requiring fair and equitable treatment as well as full protection and security. These Treaty breaches caused direct and substantial harm to Contifica investments.

172. The total amount of financial harm to the Claimant is no less than USD 1,000,000 as set to be moral damages and USD 380,000,000 as estimated in the report released by experts within Value Consultants, appointed by Contifica in order to dissolve any vague estimations as soon as possible and to enable the Tribunal to see transparently constructed compensation.

II. THE APPLICABLE PRINCIPLES AND METHODOLOGY

Full compensation as the appropriate standart of compensation

173. Any state responsible for an internationally wrongful act has to make “full reparation for the injury caused by [its] internationally wrongful act.” This “reparation” may take different forms such as restitution, compensation or combination of these.77 In this case restitution is neither practical nor possible.

174. The BIT in Article 4 (3) specifies a particular legal regime in terms of compensation:

“The compensation must be:

(a) equivalent to the value of the expropriated Investment immediately before the date on which the actual or threatened expropriation, nationalization or other measure became publicly known;

(b) paid without delay and shall carry the usual bank interest until the time of payment; and,

(c) effectively realizable and freely transferable.“


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76 ILC Draft, Article 29 (2)

77 ILC Draft, Article 34

175. Wording “without delay” and “effectively realizable” bear no doubt about their meaning and are to be self explanatory. “Equivalent” is throughout every field interchangeable with the adjective “equal.” Meaning a reasonably expectable amount that is in the same amount as the harm that was done.

176. The landmark Chorzów Factory decision of the Permanent Court of International Justice, frequently cited by investment treaty tribunals78, reads as follows:

177. “Reparation must, as far as possible, wipe out all the consequences of the illegal act and re-establish the situation which would, in. all probability, have existed if that act had not been committed.”79

178. International Law Commission’s Articles on State Responsibility then follows with: “an obligation to compensate for the damage caused”, which “shall cover any financially assessable damage including loss of profits insofar as it is established”.

179. Both the Award and the Articles are accepted as standard of compensation under customary international law.80 This standard has been applied by many tribunals in investment arbitrations81 and therefore is, in the view of the Claimant, adequate to this case.

Fair market value as compensation for expropriation

180. Claimant, according to the Article 4 (3) a), believes the compensation should be deemed equivalent if it is based on the fair market value (“FMV”)82 of the taken asset as such value is determined immediately before the date on which the actual or threatened expropriation, nationalization or other measure became publicly known.

181. Because the BIT does not provide us with definition or explanation of FMV, the Claimant follows Iran-US Claims Tribunal opinion of “a willing buyer who would buy given goods at and the price at which a willing seller would sell it at on condition that none of the two parties [is] under any kind of duress and that both


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78 CMS Gas Transmission Company v. The Republic of Argentina

79 Chorzow Factory case

80 Chorzów Factory case,p. 47

81 Siemens A.G. v. The Argentine Republic, para 352-353;

Metalclad Corporation v. The United Mexican States, para 122

MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, para 238;

82 Crawford,p. 225

parties have good information about all relevant circumstances involved in the purchase.”83

The Discontinued cash flow value as method to determine income compensation

182. Ruritania constituted de facto expropriation of CAM interest in FBI through the MAB Act. No compensation was provided. In accordance with the Treaties and with customary international law, Ruritania is therefore obliged to compensate CAM on the basis of the fair market value of FBI before the date on which the actual or threatened indirect expropriation and violation of FET. The fair market value assessment of FBI must include an assessment of future profit-making potential, given that it was an enterprise with income-producing assets84 and thus a “going concern”.

183. We may find various methods leading to assessing the value of the taken property. For FBI, in the face of years of active market production, is to be understood as a going concern, we may appropriately use the well-grounded Discontinued cash flow method (further referred to as “The DCF method”).85 The DCF method is almost universally used and accepted by both the business and academic community in valuing income producing assets. The value of an income-producing capital asset can only be ascertained by valuing the cash the asset is expected to generate in the future. It is thus appropriate also in this case because it is designed to calculate the value on one specified date of cash flows that are to be received at different times.

184. In order to fully reflect the Chorzów Factory “full compensation” principle, the valuer creates two DCF models, one projecting future cash flows assuming the offending measures are in place (the “actual” scenario), and second one assuming that the government had never breached the treaty (the “but-for” scenario). The difference in the value of the claimant’s equity interest in company in the “but-for” and “actual” scenarios then provides the primary measure of damages.86

185. In the present case, there are 2 “waves” of measurements that affected the value of Claimants Investment and were directly affected only by the Respondent. First being the adoption of MAB Act on 20 November 2010, the second, the arrest of FBI and Contifica Group executives. The market value of FBI as of 30 June 2011


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83 Starrett Housing Corp. v. Government of the Islamic Republic of Iran, para18, 27, and 274.

84 Lieblich

85 CMS Gas Transmission Company v. The Republic of Argentina, paras. 411-417;

Joseph Charles Lemire v. Ukraine, para 254

86 LG&E v. Argentine Republic,

therefore was already reduced by Respondents wrongful measures, and must be separately calculated based on the Claimants’ losses.

186. On these basis the Value Consultants conducted the report to be precise and fair in the most appropriate way and Claimant accordingly requests the tribunal to find that Ruritania violated its obligations under the BIT and order Ruritania to pay USD 380,000,000 as compensation for the damages caused.

III. MORAL DAMAGES

187. Moral damages were recognized long ago in 1923 in the famous decision Lusitania. Tribunal defined moral damages as compensation “for an injury inflicted resulting in mental suffering, injury to his feelings, humiliation, shame, degradation, loss of social position or injury to his credit or to his reputation”.87

188. The Claimant claims the amount of USD 1,000,000 for moral damages for loss of reputation. The Respondent breached its obligations under the BIT - to provide full protection and security according to the Article 2 (1) b). As the consequence of this treaty breach the Claimant suffered extensive reputational harm: The Claimant executives were illegally detained for 11 days, during the most intimate time of Christmas. At the same time executives were called criminals, those who try to bypass law, those who do not respect Ruritanian law. It substantially impaired their personal reputation both as high executives of a supranational corporation and primarily as human beings. They suffered feelings of helplessness, insecurity, they were isolated from their families and friends, familiarized with biased declaration of Prosecutor. All declarations connected behaviour of CAM executive directly with CAM. The Claimant has suffered a significant injury to its credit and reputation and lost its prestige.

189. The concept of moral damages as compensation should be considered as a classic instrument. Almost 90 years ago Lusitania Tribunal concluded that the moral damages “are very real” despite their intangible nature, which “affords no reason why the injured person should not be compensated therefor as compensatory damages, but not as a penalty.”88

190. According to most of the legal systems, damages include both damnum emergens and lucrum cessans as well as moral damages.89 Tribunal in Lemire v Ukraine followed conclusions reached in Desert Line Projects v. Yemen:


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87 Lusitania Case para 32-40

88 Wong

89 Joseph Charles Lemire v. Ukraine, para 476

“Even if investment treaties primarily aim at protecting property and economic values, they do not excluded, as such, that a party may, in exceptional circumstances. ask for compensation for moral damages.”90

191. On the basis of above mentioned facts The Claimant requests the tribunal to find that Ruritania violated its obligations under the BIT and order Ruritania to pay USD 1,000,000 as compensation for the moral damages caused.


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90 Desert Line Projects LLC v. The Republic of Yemen, para 289.

PRAYER FOR RELIEF

193. For the reasons stated above, Claimant respectfully requests Tribunal to find that:

(a) This Tribunal has jurisdiction over Claimant’s claims, properly formulated as claims based on violation of the BIT,

(b) State Property Fund’s actions are attributable to the Respondent,

(c) Respondent breached its obligations arising from SPA,

(d) Respondent’s actions or omissions amounted to violation of Article 4 of the BIT,

(e) Respondent’s actions amounted to the violation of Article 2 (1) b), in particular fair and equitable treatment, breach of Claimant’s legitimate expectation; and violated international law and applicable treaties

(f) Respondent’s actions amounted to violation of Article 2 (1) a), in particular full protection and security clause

and order to Respondent to pay:

1.damages in total amount of 380, 000, 000 USD;

2.moral damages in total amount of 1, 000, 000 USD.


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