STOCKHOLM CHAMBER OF COMMERCE · Halonen, L. On the Availability of Counterclaims in Investment...

M E M O R I A L F O R T H E R E S P O N D E N T T E A M V U K A S

ELEVENTH ANNUAL Respondent Memorial

FOREIGN DIRECT

INVESTMENT

INTERNATIONAL MOOT

COMPETITION 2018

STOCKHOLM CHAMBER OF COMMERCE

SCC Arbitration V2018/003858

BETWEEN:

FENOSCADIA LIMITED REPUBLIC OF KRONOS

CLAIMANT RESPONDENT

MEMORIAL FOR THE RESPONDENT

i

TABLE OF CONTENTS

TABLE OF CONTENTS ......................................................................................................... i

INDEX OF ABBREVIATIONS ............................................................................................. iv

INDEX OF AUTHORITIES .................................................................................................. vi

INDEX OF CASES .................................................................................................................. x

INDEX OF ARBITRAL AWARDS ...................................................................................... xii

INDEX OF LEGAL AUTHORITIES ................................................................................. xix

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

SUMMARY OF ARGUMENTS ............................................................................................. 2

ARGUMENTS ON PROCEDURE ........................................................................................ 3

I. THIS TRIBUNAL HAS NO JURISDICTION OVER THE DISPUTE BECAUSE

CLAIMANT IS NOT AN ELIGIBLE INVESTOR ......................................................... 3

A. CLAIMANT IS NOT AN ENTERPRISE OF TICADIA UNDER ARTICLE 1(4)

FOR THE OBJECT AND PURPOSE OF THE BIT ........................................................ 3

(1) It is against the object and purpose of the BIT to grant protection to an enterprise

controlled by nationals of the host State ....................................................................... 4

(2) Claimant, controlled by Kronian nationals, is not an enterprise of Ticadia ........... 5

(a) Share ownership is not conclusive proof of control .......................................... 5

(b) Claimant is de facto controlled by Kronian nationals ....................................... 5

B. UNDER OTHER TESTS OF NATIONALITY IN GENERAL INTERNATIONAL

LAW, CLAIMANT IS NOT AN ENTERPRISE OF TICADIA ....................................... 6

C. CONCLUSION .......................................................................................................... 8

II. CLAIMANT’S CLAIMS ARE INADMISSIBLE BEFORE THIS TRIBUNAL

BECAUSE THE FORK-IN-THE-ROAD CLAUSE UNDER THE BIT HAS BEEN

TRIGGERED ...................................................................................................................... 8

A. THE TRIBUNAL SHOULD APPLY THE FUNDAMENTAL BASIS TEST TO

DETERMINE WHETHER CLAIMANT HAS TRIGGERED THE

FORK-IN-THE-ROAD CLAUSE .................................................................................... 9

B. UNDER THE FUNDAMENTAL BASIS TEST, CLAIMANT’S RESORT TO

DOMESTIC COURTS HAS TRIGGERED THE FORK-IN-THE-ROAD CLAUSE ... 10

(1) Under the fundamental basis test, the dispute before the domestic courts and that

before the Tribunal are the same ................................................................................ 10

(2) The choice to resort to the domestic courts is final and irrevocable.................... 12

C. ALTERNATIVELY, UNDER THE TRIPLE IDENTITY TEST, CLAIMANT’S

CLAIMS ARE STILL INADMISSIBLE ........................................................................ 12

(1) Causes of action are the same .............................................................................. 12

ii

(2) Objects are the same ............................................................................................ 13

D. CONCLUSION ........................................................................................................ 13

III.RESPONDENT’S COUNTERCLAIMS ARE ADMISSIBLE BEFORE THE

TRIBUNAL .............................................................................................................. 14

A. THE COUNTERCLAIMS ARE WITHIN THE JURISDICTION OF THE

TRIBUNAL .................................................................................................................... 15

(1) Respondent’s counterclaims are within the parties’ consent to arbitration ......... 15

(a) Respondent’s counterclaims fall within the scope of the BIT ......................... 15

(b) Claimant consented to the submission of counterclaims in its Request for

Arbitration .............................................................................................................. 19

(2) Respondent is the proper party to raise counterclaims under the SCC Rules ...... 20

B. THE REQUIREMENT OF A CLOSE CONNECTION BETWEEN THE

COUNTERCLAMS AND THE PRIMARY CLAIMS IS MET .................................... 21

(1) Respondent’s counterclaims and the primary claims share factual connection ... 21

(2) Respondent’s counterclaims and the primary claims share legal connection ...... 22

C. THE ADMISSIBILITY OF COUNTERCLAIMS IS SUPPORTED BY POLICY

CONSIDERATIONS ...................................................................................................... 23

D. CONCLUSION ........................................................................................................ 24

ARGUMENTS ON MERITS ............................................................................................... 25

IV. THE ENACTMENT OF THE DECREE AND OTHER RELATED ACTS OF

RESPONDENT DO NOT AMOUNT TO SUBSTANTIVE VIOLATIONS OF THE

BIT .................................................................................................................................... 25

A. RESPONDENT’S MEASURES DID NOT CONSTITUTE EXPROPRIATION

UNDER ARTICLE 7 OF THE BIT ................................................................................ 25

(1) Respondent did not directly expropriate Claimant’s investments ....................... 25

(2) Respondent’s measures did not amount to an indirect expropriation .................. 26

(3) Respondent’s measures constituted a non-compensable regulatory taking under

the police powers doctrine .......................................................................................... 27

(a) Respondent is entitled to invoke the police powers doctrine under general

international law ..................................................................................................... 28

(b) Respondent’s measures were for a public purpose .......................................... 29

(c) Respondent’s measures are non-discriminatory .............................................. 31

(d) Respondent’s measures accorded with due process of law ............................. 33

(e) Respondent’s measures were non-compensable .............................................. 35

B. RESPONDENT DID NOT BREACH THE FAIR AND EQUITABLE

TREATMENT STANDARD UNDER ARTICLE 6 OF THE BIT BY FRUSTRATING

CLAIMANT’S LEGITIMATE EXPECTATIONS ......................................................... 35

iii

(1) Claimant should have reasonably expected Respondent to implement regulatory

measures ..................................................................................................................... 36

(2) Respondent did not induce Claimant’s investments by specific assurance ......... 37

C. RESPONDENT’S LIABILITIES ARE INSULATED BY VIRTUE OF THE

GENERAL EXCEPTIONS SET FORTH IN ARTICLE 10 OF THE BIT ..................... 38

(1) In applying Article 10 of the BIT, the Tribunal should take into account relevant

WTO jurisprudence .................................................................................................... 38

(2) Respondent’s measures are necessary to protect human life and health .............. 39

(a) Respondent’s measures are designed to protect human health ........................ 39

(b) Respondent’s measures are necessary health measures ................................... 40

(3) Respondent’s measures are undertaken in a manner that conforms to Article 10(2)

of the BIT ................................................................................................................... 43

(a) Respondent’s measures were not undertaken in an arbitrarily or unjustifiably

discriminative manner ............................................................................................ 43

(b) Respondent’s measures are not a disguised restriction on international trade

and investment ....................................................................................................... 44

(4) The application of Article 10 insulates Respondent from its obligation to

compensate ................................................................................................................. 45

D. CONCLUSION ........................................................................................................ 46

PRAYER FOR RELIEF ....................................................................................................... 47

iv

INDEX OF ABBREVIATIONS

Art./art. Article/article

e.g. Exempli gratia, for example

Exh. 1/2/3/4/5/6/7 Exhibit No. 1/2/3/4/5/6/7

Facts Statement of Uncontested Facts

GATT 1994 General Agreement on Tariffs and Trade 1994

Ibid. Ibidem.

ICSID

Convention

Convention on the Settlement of Investment Disputes between

States and Nationals of Other States

i.e. Id est, that is

IIA International investment agreement

ILA International Law Association

ILC International Law Commission

Kronos Republic of Kronos

MAI Multilateral Agreement on Investment

p./pp. page/pages

Para./Paras. Paragraph/Paragraphs

PO1/2/3 Procedural Order No. 1/2/3

Ticadia Republic of Ticadia

the Agreement Concession Agreement between Claimant and Respondent

concerning the extraction of lindoro

the BIT Agreement between the Republic of Ticadia and the Republic

of Kronos for the Promotion and Reciprocal Protection of

Investments

the Decree Presidential Decree No. 2424

the KEA 2015 Kronian Environmental Act

v

the Site an area of 1,071,000 m2 nestled in Respondent’s inner territory

where lindoro can be extracted from

the Study Study on Exploitation of Lindoro in Kronos Territory published

by Kronian Federal University

UNEP United Nations Environment Programme

UNCTAD United Nations Conference on Trade and Development

VCLT Vienna Convention on the Law of Treaties (1969)

WHO The World Health Organization

WTO World Trade Organization

vi

INDEX OF AUTHORITIES

Amerasinghe, C.F. Jurisdiction Ratione Personae Under the Convention on the

Settlement of Investment Disputes between States and

Nationals of Other States, in British Yearbook of International

Law, Vol. 47, 1976, pp. 227-67

[Cited as: Amerasinghe]

Atanasova, D.,

Benoit, A.,

Ostřanský, J.

The Legal Framework for Counterclaims in Investment Treaty

Arbitration, in Journal of International Arbitration, Issue 3,

2014, pp. 357-92

[Cited as: Atanasova/Benoit/Ostřanský]

Morris, J.,

Rankin, J.,

Garne, E., et al.

Prevalence of Microcephaly in Europe: Population Based

Study, BMJ 354, 2016: i4721

[Cited as: BMJ 2016]

OECD The Multilateral Agreement on Investment Commentary to the

Consolidated Text, DAFFE/MAI(98)8/REV1, 22 April 1998

[Cited as: Commentary to the MAI]

Douglas, Z. The International Law of Investment Claims, (Cambridge

University Press, 2009)

[Cited as: Douglas]

Eckardt, M. N.

The Fair and Equitable Treatment (FET) Standard in

International Investment Law, TDM, Vol. 3, 2012

[Cited as: Eckardt]

Hepburn, J.

Domestic Law in International Investment Arbitration,

(Oxford University Press, 2017)

[Cited as: Hepburn]

IFC Sustainable and Responsible Mining in Africa—A Getting

Started Guide, available at: https://www.ifc.org/wps/wcm/

connect/dfaac38043fea19b8f90bf869243d457/Sustainable+Mi

ning+in+Africa.pdf?MOD=AJPERES

[Cited as: IFC’s Guide]

ILA Study Group on Due Diligence in International Law, ‘Second

Report’, (2016)

[Cited as: ILA, Due Diligence]

vii

Kinnear, M.,

Fischer, G.,

Almeida, J.,

Torres, L.,

Bidegain, M.

Building International Investment Law: The First 50 Years of

ICSID, (Wolters Kluwer, 2016)

[Cited as: Kinnear/Fischer/Almeida/Torres/Bidegain]

Kjos, H. E., Applicable Law in Investor-State Arbitration, (Oxford


[Cited as: Kjos]

Kulick, A. Global Public Interest in International Investment Law,

(Cambridge University Press, 2014)

[Cited as: Kulick]

Lalive, P.,

Halonen, L.

On the Availability of Counterclaims in Investment Treaty

Arbitration, in Czech Yearbook of International Law, 2011,

pp. 141-56

[Cited as: Lalive/Halonen]

McLachlan, C.,

Shore, L.,

Weiniger, M.

International Investment Arbitration: Substantive Principles

(2nd ed.), (Oxford University Press, 2017)

[Cited as: McLachlan/Shore/Weiniger]

Mouyal, L. W. International Investment Law and the Right to Regulate: A

Human Rights Perspective, (Routledge, 2016)

[Cited as: Mouyal]

Muchlinski, P.,

Ortino, F.,

Schreuer, C.

The Oxford Handbook of International Investment Law,

(Oxford University Press, 2008)

[Cited as: Muchlinski/Ortino/Schreuer]

Müller, K. Investing in Private Equity Partnerships: The Role of

Monitoring and Reporting, (Springer Science & Business

Media, 2008)

[Cited as: Müller]

Newcombe, A.,

Paradell, L.

Law and Practice of Investment Treaties: Standards of

Treatment, (Kluwer Law International, 2009)

[Cited as: Newcombe/Paradell]

OECD “Indirect Expropriation” and the “Right to Regulate” in

International Investment Law, OECD Working Papers on

International Investment, 2004/04

[Cited as: OECD Working Papers]

viii

Paine, J. Bear Creek Mining Corporation v Republic of Peru: Judging

the Social License of Foreign Investments and Applying New

Style Investment Treaties, ICSID Review, siy014, 2018, pp.

1-9

[Cited as: Paine]

Reinisch, A. Expropriation, TDM, Vol. 5, 2005

[Cited as: Reinisch]

Schreuer, C. The ICSID Convention: A Commentary (2nd ed.), (Cambridge


[Cited as: Schreuer]

Schwarzenberger,

G.

International Law as Applied by International Courts and

Tribunals, Vol. I, (Stevens, 1957)

[Cited as: Schwarzenberger]

Brown, L.,

Stevenson, A.

(Ed.)

Shorter Oxford English Dictionary (6th ed.), (Oxford


[Cited as: Shorter Oxford]

Sornarajah, M. The International Law on Foreign Investment, (Cambridge


[Cited as: Sornarajah]

Sohn, L.,

Baxter, B. Draft Convention on the International Responsibility of States

for Injuries to Aliens, American Journal of International Law,

Vol. 55, 1961, pp. 548-84

[Cited as: The 1961 Harvard Draft]

Henkin, L.,

Lowenfeld, A. F.,

Sohn, L. B.,

Vagts, D. F.

Restatement of the Law, Third, Foreign Relations Law of the

United States (American Law Institute, 1987)

[Cited as: The Third Restatement (1987)]

Treves, T.,

Seatzu, F.,

Trevisanut, S.

Foreign Investment, International Law and Common

Concerns, (Routledge, 2014)

[Cited as: Treves/Seatzu/Trevisanut]

UNCTAD UNCTAD Series on Issues in International Investment

Agreement II, Expropriation, UNCTAD/DIAE/IA/2011/7

(2012)

[Cited as: UNCTAD, Expropriation]

ix

UNEP The Role of Financial Institutions in Sustainable Mineral

Development, available at: http://www.unep.fr/shared/

publications/pdf/3124-FinancialMineral.pdf

[Cited as: UNEP Report]

Wagner, M. International Investment, Expropriation and Environmental

Protection, in Golden Gate University Law Review, Vol. 29,

1999, pp. 465-538

[Cited as: Wagner]

WHO Screening, Assessment and Management of Neonates and

Infants with Complications Associated with Zika Virus

Exposure in Utero, WHO/ZIKV/MOC/16.3/Rev3, 30 August

2016

[Cited as: WHO Guideline]

Wolf, S.,

Stanley, N.

Wolf and Stanley on Environmental Law (5th ed.), (Routledge,

2011)

[Cited as: Wolf/Stanley]

Yu, V.,

Marshal, F.

Investors’ Obligations and Host State Policy Space,

International Institute for Sustainable Development (2008)

[Cited as: Yu/Marshal]

x

INDEX OF CASES

International

Court of Justice

Case Concerning Armed Activities on the Territory of the

Congo (Democratic Republic of the Congo v Uganda) 19

December 2005

[Cited as: Case Concerning Armed Activities on the Territory

of the Congo]

WTO

Appellate Body

Brazil – Retreaded Tyres, WT/DS332/AB/R, Appellate Body

Report, 17 December 2007

[Cited as: Brazil – Retreaded Tyres (AB)]

China – Publications and Audiovisual Products,

WT/DS363/AB/R, Appellate Body Report, 19 January 2010

[Cited as: China – Publications and Audiovisual Products

(AB)]

European Communities – Asbestos, WT/DS135/AB/R,

Appellate Body Report, 5 April 2001

[Cited as: EC – Asbestos (AB)]

European Communities – Seal Products, WT/DS400,401/AB/

R, Appellate Body Report, 18 June 2014

[Cited as: EC – Seal Products (AB)]

Korea – Beef, WT/DS161,169/AB/R, Appellate Body Report,

10 January 2001

[Cited as: Korea – Beef (AB)]

United States – Gambling, WT/DS285/AB/R, Appellate Body

Report, 20 April 2005

[Cited as: US – Gambling (AB)]

United States – Gasoline, WT/DS2/AB/R, Appellate Body

Report, 20 May 1996

[Cited as: US – Gasoline (AB)]

United States – Tuna II (Mexico), Art. 21.5,

WT/DS381/AB/RW, Appellate Body Report, 3 December

2015

[Cited as: US – Tuna II (Mexico), Art. 21.5 (AB)]

xi

WTO

Panel

Brazil – Retreaded Tyres, WT/DS332/R, Panel Report, 12

June 2007

[Cited as: Brazil – Retreaded Tyres (Panel)]

European Communities – Asbestos, WT/DS135/R, Panel

Report, 18 September 2000

[Cited as: EC – Asbestos (Panel)]

Indonesia – Chicken, WT/DS484/R, Panel Report, 22

November 2017

[Cited as: Indonesia – Chicken (Panel)]

United States – Gasoline, WT/DS2/R, Panel Report, 29

January 1996

[Cited as: US – Gasoline (Panel)]

xii

INDEX OF ARBITRAL AWARDS

Ad Hoc Tribunals Alps Finance and Trade AG v The Slovak Republic,

UNCITRAL, Award, 5 March 2011

[Cited as: Alps Finance v Slovakia (Award)]

Canfor Corporation v United States of America, UNCITRAL,

Decision on Preliminary Question, 6 June 2006

[Cited as: Canfor v USA (Preliminary Question)]

Crompton (Chemtura) Corp. v Government of Canada,

UNCITRAL, Award, 2 August 2010

[Cited as: Chemtura v Canada (Award)]

GAMI Investments, Inc. v Government of the United Mexican

States, UNCITRAL, Final Award, 15 November 2004

[Cited as: GAMI v Mexico (Final Award)]

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

UNCITRAL, Award, 8 June 2009

[Cited as: Glamis Gold v USA (Award)]

Methanex Corporation v United States of America,

UNCITRAL, Final Award on Jurisdiction and Merits, 3 August

2005

[Cited as: Methanex v USA (Final Award)]

L.F.H. Neer and Pauline Neer (USA) v United Mexican States,

Reports of International Arbitral Awards Vol. IV, 15 October

1926, p. 60

[Cited as: Neer v Mexico]

Oxus Gold plc v Republic of Uzbekistan, the State Committee

of Uzbekistan for Geology & Mineral Resources, and Navoi

Mining & Metallurgical Kombinat, UNCITRAL, Final Award,

17 December 2015

[Cited as: Oxus Gold v Uzbekistan (Award)]

Sergei Paushok, CJSC Golden East Company and CJSC

Vostokneftegaz Company v The Government of Mongolia,

UNCITRAL, Award on Jurisdiction and Liability, 28 April

2011

[Cited as: Paushok v Mongolia (Jurisdiction)]

xiii

Saluka Investments BV v The Czech Republic, UNCITRAL,

Decision on Jurisdiction over the Czech Republic’s

Counterclaim, 7 May 2004

[Cited as: Saluka v Czech Republic (Counterclaims)]

Saluka Investments B.V. v The Czech Republic, UNCITRAL,

Partial Award, 17 March 2006

[Cited as: Saluka v Czech Republic (Partial Award)]

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

Partial Award, 13 November 2000

[Cited as: S.D. Myers v Canada (Partial Award)]

International Thunderbird Gaming Corporation v The United

Mexican States, UNCITRAL, Award, 26 January 2006

[Cited as: Thunderbird v Mexico (Award)]

ICSID ADC Affiliate Limited and ADC & ADMC Management

Limited v Republic of Hungary, ICSID Case No. ARB/03/16,

Award, 2 October 2006

[Cited as: ADC v Hungary (Award)]

Azurix Corp. v The Argentine Republic I, ICSID Case No.

ARB/01/12, Decision on Jurisdiction, 8 December 2003

[Cited as: Azurix v Argentina I (Jurisdiction)]

Biwater Gauff (Tanzania) Limited v United Republic of

Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008

[Cited as: Biwater v Tanzania (Award)]

Caratube International Oil Company LLP and Devincci Salah

Hourani v Republic of Kazakhstan, ICSID Case No.

ARB/13/13, Award, 27 September 2017

[Cited as: Caratube and Hourani v Kazakhstan (Award)]

CMS Gas Transmission Company v Republic of Argentina,

ICSID Case No. ARB/01/8, Award, 12 May 2005

[Cited as: CMS v Argentina (Award)]

CMS Gas Transmission Company v The Argentine Republic,

ICSID Case No. ARB/01/8, Decision on Jurisdiction, 17 July

2003

[Cited as: CMS v Argentina (Jurisdiction)]

xiv

Continental Casualty Company v Argentine Republic, ICSID

Case No. ARB/03/9, Award, 5 September 2008

[Cited as: Continental Casualty v Argentina (Award)]

Duke Energy Electroquil Partners and Electroquil S.A. v

Republic of Ecuador, ICSID Case No. ARB/04/19, Award, 18

August 2008

[Cited as: Duke Energy v Ecuador (Award)]

El Paso Energy International Company v Argentine Republic,

ICSID Case No. ARB/03/15, Award, 31 October 2011

[Cited as: El Paso v Argentina (Award)]

Enron Creditors Recovery Corporation (formerly Enron

Corporation) and Ponderosa Assets, L.P. v Argentine

Republic, ICSID Case No. ARB/01/3, Award, 22 May 2007

[Cited as: Enron v Argentina (Award)]

Generation Ukraine Inc. v Ukraine, ICSID Case No.

ARB/00/9, Award, 16 September 2003

[Cited as: Generation Ukraine v Ukraine (Award)]

Antoine Goetz and others v Republic of Burundi II, ICSID

Case No. ARB/01/2, Award, 21 June 2012

[Cited as: Goetz v Burundi II (Award)]

Guardian Fiduciary Trust, Ltd, f/k/a Capital Conservator

Savings & Loan, Ltd v Macedonia, former Yugoslav Republic

of, ICSID Case No. ARB/12/31, Award, 22 September 2015

[Cited as: Guardian Fiduciary v Macedonia (Award)]

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

ICSID Case No. ARB/09/15, Award, 6 May 2014

[Cited as: H&H v Egypt (Award)]

Impregilo S.p.A. v Argentine Republic I, ICSID Case No.

ARB/07/17, Award, 21 June 2011

[Cited as: Impregilo v Argentina I (Award)]

Ioannis Kardassopoulos and Ron Fuchs v Georgia, ICSID

Case No. ARB/05/18 & ARB/07/15, Award, 3 March 2010

[Cited as: Kardassopoulos v Georgia (Award)]

xv

Ioannis Kardassopoulos v Georgia, ICSID Case No.

ARB/05/18, Decision on Jurisdiction, 6 July 2007

[Cited as: Kardassopoulos v Georgia (Jurisdiction)]

Joseph Charles Lemire v Ukraine, Decision on Jurisdiction

and Liability, ICSID Case No. ARB/06/18, 14 January 2010

[Cited as: Lemire v Ukraine II (Jurisdiction and Liability)]

LG&E Energy Corp., LG&E Capital Corp., and LG&E

International, Inc. v Argentine Republic, ICSID Case No.

ARB/02/1, Decision on Liability, 3 October 2006

[Cited as: LG&E v Argentina (Liability)]

M.C.I. Power Group, L.C. and New Turbine, Inc. v Republic of

Ecuador, ICSID Case No. ARB/03/6, Award, 31 July 2007

[Cited as: MCI v Ecuador (Award)]

Ioan Micula and others v Romania I, ICSID Case No.

ARB/05/20, Award, 11 December 2013

[Cited as: Micula v. Romania I (Award)]

National Gas S.A.E. v Arab Republic of Egypt, ICSID Case

No. ARB/11/7, Award, 3 April 2014

[Cited as: National Gas v Egypt (Award)]

Noble Ventures, Inc. v Romania, ICSID Case No. ARB/01/11,

Award, 12 October 2005

[Cited as: Noble Ventures v Romania (Award)]

Pantechniki S.A. Contractors & Engineers v Republic of

Albania, ICSID Case No. ARB/07/21, Award, 30 July 2009

[Cited as: Pantechniki v Albania (Award)]

Parkerings-Compagniet AS v Republic of Lithuania, ICSID

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

[Cited as: Parkerings v Lithuania (Award)]

Bernhard von Pezold and others v Republic of Zimbabwe,

ICSID Case No. ARB/10/15, Award, 28 July 2015

[Cited as: Pezold v Zimbabwe (Award)]

xvi

Philip Morris Brand Sàrl (Switzerland), Philip Morris

Products S.A. (Switzerland) and Abal Hermanos S.A.

(Uruguay) v Oriental Republic of Uruguay, ICSID Case No.

ARB/10/7, Award, 8 July 2016

[Cited as: Philip Morris v Uruguay (Award)]

Quiborax S.A. and Non Metallic Minerals S.A. v Plurinational

State of Bolivia, ICSID Case No. ARB/06/2, Award, 16

September 2015

[Cited as: Quiborax v Bolivia (Award)]

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

Award, 7 December 2011

[Cited as: Roussalis v Romania (Award)]

Salini Costruttori S.p.A. and Italstrade S.p.A. v Hashemite

Kingdom of Jordan, ICSID Case No. ARB/02/13, Decision on

Jurisdiction, 9 November 2004

[Cited as: Salini v Jordan (Jurisdiction)]

Supervisión y Control S.A. v Republic of Costa Rica, ICSID

Case No. ARB/12/4, Award, 18 January 2017

[Cited as: Supervisión v Costa Rica (Award)]

Autobuses Urbanos del Sur S.A., Teinver S.A. and Transportes

de Cercanías S.A. v Argentine Republic, ICSID Case No.

ARB/09/1, Award, 21 July 2017

[Cited as: Teinver and others v Argentina (Award)]

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

Dissenting Opinion by Mr. Prosper Weil (Decision on

Jurisdiction), 29 April 2004

[Cited as: Tokios Tokelés v Ukraine (Dissenting Opinion of

Weil)]

Total S.A. v Argentine Republic, ICSID Case No. ARB/04/1,

Decision on Liability, 27 December 2010

[Cited as: Total v Argentina (Liability)]

Toto Costruzioni Generali S.p.A. v Republic of Lebanon,

ICSID Case No. ARB/07/12, Decision on Jurisdiction, 11

September 2009

[Cited as: Toto v Lebanon (Jurisdiction)]

xvii

TSA Spectrum de Argentina S.A. v Argentine Republic, ICSID

Case No. ARB/05/5, Award, 19 December 2008

[Cited as: TSA Spectrum v Argentina (Award)]

Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao

Biskaia Ur Partzuergoa v The Argentine Republic, ICSID

Case No. ARB/07/26, Award, 8 December 2016

[Cited as: Urbaser and CABB v Argentina (Award)]

Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao

Biskaia Ur Partzuergoa v The Argentine Republic, ICSID

Case No. ARB/07/26, Decision on Jurisdiction, 19 December

2012

[Cited as: Urbaser and CABB v Argentina (Jurisdiction)]

Vacuum Salt Products Ltd. v Republic of Ghana, ICSID Case

No. ARB/92/1, Award, 16 February 1994

[Cited as: Vacuum Salt v Ghana (Award)]

ICSID Additional

Facility

Abengoa, S.A. y COFIDES, S.A. v United Mexican States,

ICSID Case No. ARB(AF)/09/2, Award, 18 April 2013

[Cited as: Abengoa v Mexico (Award)]

Crystallex International Corporation v Bolivarian Republic of

Venezuela, ICSID Case No. ARB(AF)/11/2, Award, 4 April

2016

[Cited as: Crystallex v Venezuela (Award)]

Marvin Roy Feldman Karpa v United Mexican States, ICSID

Case No. ARB(AF)/99/1, Award, 16 December 2002

[Cited as: Feldman v Mexico (Award)]

Metalclad Corporation v The United Mexican States, ICSID

Case No. ARB (AF)/97/1, Award, 30 August 2000

[Cited as: Metalclad v Mexico (Award)]

Rusoro Mining Ltd. v Bolivarian Republic of Venezuela, ICSID

Case No. ARB(AF)/12/5, Award, 22 August 2016

[Cited as: Rusoro Mining v Venezuela (Award)]

Técnicas Medioambientales Tecmed, S.A. v The United

Mexican States, ICSID Case No. ARB (AF)/00/2, Award, 29

May 2003

[Cited as: Tecmed v Mexico (Award)]

xviii

London Court of

International

Arbitration

Occidental Exploration and Production Company v Republic

of Ecuador I, LCIA Case No. UN3467, Final Award, 1 July

2004

[Cited as: Occidental v Ecuador I (Final Award)]

Société Générale in respect of DR Energy Holdings Limited

and Empresa Distribuidora de Electricidad del Este, S.A. v

The Dominican Republic, LCIA Case No. UN 7927, Award on

Preliminary Objections to Jurisdiction, 19 September 2008

[Cited as: Société Générale v Dominican Republic

(Jurisdiction)]

Permanent Court

of Arbitration

Chevron Corporation and Texaco Petroleum Company v The

Republic of Ecuador II, PCA Case No. 2009-23, Third Interim

Award on Jurisdiction and Admissibility, 27 February 2012

[Cited as: Chevron and TexPet v Ecuador II (Jurisdiction and

Admissibility)]

CC/Devas (Mauritius) Ltd., Devas Employees Mauritius

Private Limited and Telcom Devas Mauritius Limited v

Republic of India, PCA Case No. 2013-09, Award on

Jurisdiction and Merits, 25 July 2016

[Cited as: Devas v India (Award)]

Stockholm

Chamber of

Commerce

Limited Liability Company Amto v Ukraine, SCC Case No.

080/2005, Final Award, 26 March 2008

[Cited as: Amto v Ukraine (Final Award)]

Ivan Peter Busta and James Peter Busta v Czech Republic,

SCC Case No. V 2015/014, Final Award, 10 March 2017

[Cited as: Busta v Czech Republic (Final Award)]

xix

INDEX OF LEGAL AUTHORITIES

Convention between the Belgo-Luxemburg Economic Union and the Republic of

Burundi Concerning Reciprocal Incentives and Protection of Investments, 26

September 1995

[Cited as: BLEU-Burundi BIT]

Comprehensive and Progressive Agreement for Trans-Pacific Partnership

[Cited as: CPTPP]

Agreement on Encouragement and Reciprocal Protection of Investments between

the Kingdom of the Netherlands and the Czech and Slovak Federal Republic, 1

August 1975

[Cited as: Czech Republic-Netherlands BIT]

General Agreement on Tariffs and Trade 1994

[Cited as: GATT 1994]

Agreement between the Government of the Hellenic Republic and the Government

of Romania for the Promotion and Reciprocal Protection of Investments, 23 May

1997

[Cited as: Greece-Romania BIT]

Convention on the Settlement of Investment Disputes between States and Nationals

of Other States

[Cited as: ICSID Convention]

International Law Commission, Draft Articles on Diplomatic Protection with

Commentaries, Yearbook of the International Law Commission 2006, Vol. II, Part 2

[Cited as: ILC Articles on Diplomatic Protection]

International Law Commission, Draft articles on Responsibility of States for

Internationally Wrongful Acts, with commentaries, Yearbook of the International

Law Commission, 2001, Vol. II, Part 2

[Cited as: ILC Articles on Responsibility of States]

Free Trade Agreement between the Republic of Korea and the United States of

America

[Cited as: Korea-US FTA]

Agreement between the Government of the Russian Federation and the Government

of Mongolia on the Promotion and Mutual Investment Protection, 29 November

1995

[Cited as: Mongolia-Russian Federation BIT]

xx

Protocol on Water and Health to the 1992 Convention on the Protection and Use of

Transboundary Watercourses and International Lakes

[Cited as: Protocol on Water and Health]

The Rio Declaration on Environment and Development

[Cited as: Rio Declaration]

Arbitration Rules of The Arbitration Institute of The Stockholm Chamber of

Commerce, 1 January 2017

[Cited as: SCC Rules]

Vienna Convention on the Law of Treaties, 23 May 1969

[Cited as: VCLT]

1

STATEMENT OF FACTS

1. Claimant, Fenoscadia Limited (“Fenoscadia”), is a mining corporation with its

substantial business operations located in the Republic of Kronos (“Kronos”).

Claimant’s management is comprised of a majority of Kronian nationals.

Respondent, Kronos, is an underdeveloped country.

2. On 1 June 2000, Respondent entered into the Concession Agreement with

Claimant for regulating the rights to exploit lindoro.

3. In 2010, Claimant decided to transfer and concentrate almost all its mining

activities and resources to Kronos and effectively shut down its mining

operations in the Republic of Ticadia (“Ticadia”).

4. On 12 June 2015, the Kronian Environmental Act was passed based on an

international protocol to minimize the externalities of environmentally sensitive

activities.

5. In October 2015, the Ministry for Environmental Matters in Kronos released

data indicating a sharp increase of toxic waste in the Rhea River since 2010.

6. On 15 May 2016, the Kronian Federal University released a study concluding

that Claimant’s exploitation of lindoro had contaminated the environment and

was associated with the rising incidence of specific diseases.

7. On 7 September 2016, Respondent issued Presidential Decree No.2424 (“the

Decree”). Consequentially, all exploitation of lindoro within Kronos was

prohibited.

8. On 8 September 2016, Claimant applied to the Kronos’ domestic courts seeking

to suspend the effect of the Decree and declare it unconstitutional.

9. On 10 November 2017, Claimant filed its request for arbitration before

Arbitration Institute of the Stockholm Chamber of Commerce.

2

SUMMARY OF ARGUMENTS

1. First, the Tribunal has no jurisdiction over the dispute because Claimant is not

an eligible investor. Applying Article 31 of the VCLT, Claimant is not an enterprise

of Ticadia under Article 1(4) for the object and purpose of the BIT. In addition, under

other tests of nationality in general international law, Claimant is still not an enterprise

of Ticadia.

2. Second, Claimant’s claims are inadmissible before the Tribunal because

Claimant’s resort to the domestic courts has triggered the fork-in-the-road clause

under Article 11(2) of the BIT. Under the fundamental basis test, the dispute before

the domestic courts and that before the Tribunal are the same. In addition, regardless

of the applicability of the triple identity test, the disputes within the two proceedings

are still the same.

3. Third, Respondent’s counterclaims are admissible because the parties have

consented to the submission of counterclaims, and the counterclaims are closely

connected with the primary dispute. Claimant has accepted Respondent’s state offer

for dispute resolution under the BIT which encompasses counterclaims. Further, the

counterclaims share legal and factual connection with Claimant’s primary claims.

4. Lastly, Respondent’s measures did not breach any substantive obligations in

the BIT. Respondent’s measures did not constitute expropriation under Article 7 of

the BIT or violate the fair and equitable treatment standard under Article 6 of the BIT.

In any event, Respondent’s liabilities are exempted by virtue of Article 10 of the BIT.

3

ARGUMENTS ON PROCEDURE

I. THIS TRIBUNAL HAS NO JURISDICTION OVER THE DISPUTE

BECAUSE CLAIMANT IS NOT AN ELIGIBLE INVESTOR

1. This issue is about an entity that started as an enterprise of the Republic of Ticadia

(“Ticadia”), but over time has been taken over by nationals of the Republic of Kronos

(“Kronos”). Now Kronian nationals are attempting to use the shell of Claimant’s

original nationality to initiate what is essentially a domestic claim, which runs counter

to the object and purpose of the BIT.

2. Under Article 11(1) of the BIT, the Tribunal only has jurisdiction over an

investment dispute “between a Contracting Party and an investor of the other

Contracting Party.” Article 1(4) of the BIT defines the term “investor of a Contracting

Party” as, inter alia,

“an enterprise of a Contracting Party, that seeks to make, is making, or has made

an investment in the other Contracting Party’s territory.”

3. However, no criterion to determine the nationality of an enterprise is given. As such,

Article 1(4) shall be interpreted in accordance with the customary international law

approach codified under Article 31 of the Vienna Convention on the Law of Treaties

(1969) (“VCLT”).1

4. Applying Article 31 of the VCLT, Respondent submits that Claimant is not an

eligible investor because it is not an enterprise of Ticadia under Article 1(4) (A) for

the object and purpose of the BIT and (B) under other tests of nationality in general

international law. Accordingly, the Tribunal has no jurisdiction over this dispute.

A. CLAIMANT IS NOT AN ENTERPRISE OF TICADIA UNDER ARTICLE

1(4) FOR THE OBJECT AND PURPOSE OF THE BIT

5. Respondent submits that (1) it is against the object and purpose of the BIT to grant

1 Salini v Jordan (Jurisdiction), Para. 75

4

protection to an enterprise controlled by nationals of the host State; as such, (2)

Claimant, controlled by Kronian nationals, is not an enterprise of Ticadia.

(1) It is against the object and purpose of the BIT to grant protection to an

enterprise controlled by nationals of the host State

6. The object and purpose of the BIT, as reflected in the Preamble and Article 3 of the

BIT, is to “promote greater economic cooperation between [the Contracting Parties] ,”

as well as to encourage the creation of jobs in one Contracting Party by promoting

investments of the other.

7. Similarly to the BIT, the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (“ICSID Convention”) is silent on the

criterion of corporate nationality under Article 25, and its object and purpose also

emphasizes the protection of foreign investments.2 In Tokios Tokelés v Ukraine,

Professor Weil, as the presiding arbitrator, interpreted the ICSID Convention so as to

grant protection “only to genuinely international investments,” and not to investments

controlled by investors of host States through a foreign entity.3 That interpretation has

been endorsed by Professor Van den Berg.4

8. Further, Professor Weil reasoned that determining the nationality of the enterprise

solely based on the place of incorporation runs counter to the object and purpose of

the ICSID system. The tribunal in TSA Spectrum v Argentina also criticized “the strict

constructionist manner” that a tribunal always determines formal nationality and held

that:

“[it] may appear to go against common sense in some circumstances, especially

when the formal nationality covers a corporate entity controlled directly or

indirectly by persons of the same nationality as the host State.”5

9. Thus, in the present case, the Tribunal should apply the control test and avoid the

application of formal criteria to determine the nationality of Claimant.

2 Tokios Tokelés v Ukraine (Dissenting Opinion of Weil), Para. 8

3 Ibid., Para. 24

4 Kinnear/Fischer/Almeida/Torres/Bidegain, p. 592

5 TSA Spectrum v Argentina (Award), Para. 145

5

(2) Claimant, controlled by Kronian nationals, is not an enterprise of Ticadia

10. Further, Respondent submits that Claimant is controlled by Kronian nationals

because (a) share ownership is not conclusive proof of control; (b) Claimant is de

facto controlled by Kronian nationals.

(a) Share ownership is not conclusive proof of control

11. First, it is common practice for international corporations to control a business

entity without owning the majority of its voting rights.6 The tribunal in National Gas

v Egypt held that “share ownership is not, of course, conclusive proof of control.”7

Second, Professor Amerasinghe argues that the concept of “control” is flexible and

can be merely “a reasonable amount of control”8, which is supported by the tribunal

in Vacuum Salt v Ghana.9 Therefore, the determination of foreign control requires

examination of “any criterion based on equity participation, voting rights,

management or any other reasonable theory,” and “there is no formula based on

shareholding or votes alone,”10

which was also confirmed by Professor Schreuer.11

12. Moreover, the tribunal in Vacuum Salt v Ghana held that “the smaller is the

percentage of voting shares […], the more one must look to other elements bearing on

that issue.”12

Thus, the issue of control is ultimately a matter of evidence,13

and the

evidence of effective control is more convincing.

(b) Claimant is de facto controlled by Kronian nationals

13. The tribunal in Thunderbird v Mexico held that de facto foreign control is

established when a minority of shareholders possess the ability to exercise a

6 Thunderbird v Mexico (Award), Para. 108

7 National Gas v Egypt (Award), Para. 144

8 Amerasinghe, Para. 265

9 Vacuum Salt v Ghana (Award), Para. 43

10 Ibid., Paras. 43-44

11 Schreuer, p. 327

12 Vacuum Salt v Ghana (Award), Para. 44

13 Guardian Fiduciary v Macedonia (Award), Para. 134

6

significant influence on decision-making and, through their actions, officers,

resources, and expertise, become the consistent driving force behind the company.14

14. In the present case, Claimant’s management is in the hands of a board of directors

that has been comprised of a majority of Kronian nationals for the past five years.15

Further, Kronian shareholders exert considerable influence over Claimant’s

decision-making, especially in relation to almost all its mining activities which are

concentrated in Kronos due to their experience and expertise in the mining industry.16

15. In comparison, even though the majority of Claimant’s voting shares are held by a

Ticadian private equity fund, that fund has no influence on decision-making. First,

investors such as private equity funds are passive and realize a financial return from

their investments, hardly interfering with the day-to-day management of business

activities.17

Second, Claimant’s operations in Kronos heavily rely on “competent

persons” and require “a high level of technical expertise to assess the various degrees

of risk associated with a project.”18

However, all experts managing the investments

are Kronian nationals.19

Therefore, the Ticadian fund is not competent to make key

decisions concerning the investments. Thus, Kronian nationals effectively control

Claimant.

16. Hence, Claimant is controlled by nationals of the host State, which runs counter to

the object and purpose of the BIT. Thus, Claimant is not an eligible investor.

B. UNDER OTHER TESTS OF NATIONALITY IN GENERAL

INTERNATIONAL LAW, CLAIMANT IS NOT AN ENTERPRISE OF

TICADIA

17. Pursuant to Article 31(3)(c) of the VCLT, Article 1(4) of the BIT should be

interpreted with “any relevant rules of international law applicable to the relations

14

Thunderbird v Mexico (Award), Paras. 107-08 15

Facts, Para. 7 16

Ibid., Para. 7 17

Müller, p. 63 18

UNEP Report, p. 56 19

Facts, Para. 7

7

between the parties,” which include customary international law.20

18. The tribunal in Société Générale v Dominican Republic held that rules of

diplomatic protection, as customary international law, govern issues that are not

covered by the specific language of the investment treaty.21

Therefore, the BIT can be

interpreted by referring to Article 9 of the Draft Articles on Diplomatic Protection

with Commentaries,22

which provides three tests that normally apply in determining

corporate nationality—incorporation, the main seat of business and control.

19. As aforementioned, for the purposes of the BIT, incorporation as a formal test

cannot be applied in the current case and Claimant is de facto controlled by Kronian

nationals. Respondent further submits that under the main seat of business test,

Claimant is still not an enterprise of Ticadia.

20. Concerning the main seat of business, the tribunal in Alps Finance v Slovakia

listed the indicia relevant to determine the existence of an effective center of

administration, such as the place where the top management sits; the place that a

certain number of employees of the company work; and the place that certain general

expenses or overhead costs are incurred for the maintenance of the physical location

and related services.23

21. In the current case, first, over time, almost all mining operations and resources

have been moved from Ticadia to Kronos. Claimant has essentially become an

entirely Kronian focused company with scarce operations outside Kronos.24

In other

words, there is hardly any business activity, physical location, or employee

concerning mining activities remaining in Ticadia. Second, Claimant directly

employed 200 people overall in Respondent’s territory, all of whom are Kronian

citizens.25

Third, given that almost all of Claimant’s economic activities are carried

out in Kronos, the current CEO of Claimant has stayed in Kronos for long durations in

20

Philip Morris v Uruguay (Award), Para. 290; Kardassopoulos v Georgia (Jurisdiction), Para. 208;

Saluka v Czech Republic (Partial Award), Para. 254 21

Société Générale v Dominican Republic (Jurisdiction), Para. 108 22

ILC Articles on Diplomatic Protection, pp. 37-38 23

Alps Finance v Slovakia (Award), Para. 217 24

Facts, Para. 12 25

Ibid., Para. 11

8

order to manage business. Fourth, certain general expenses or overhead costs were

incurred for the usage and maintenance of the physical location in Kronos. Therefore,

Claimant’s main seat of business is in Kronos.

22. Hence, under the main seat of business test, Claimant is not an enterprise of

Ticadia and therefore not an eligible investor under the BIT.

C. CONCLUSION

23. In conclusion, Claimant is not an eligible investor because it is not an enterprise of

Ticadia under Article 1(4) (A) for the object and purpose of the BIT and (B) under

other tests of nationality in general international law. Accordingly, the Tribunal has no

jurisdiction over this dispute.

II. CLAIMANT’S CLAIMS ARE INADMISSIBLE BEFORE THIS

TRIBUNAL BECAUSE THE FORK-IN-THE-ROAD CLAUSE UNDER

THE BIT HAS BEEN TRIGGERED

24. Article 11 of the BIT provides that the investor may choose to submit the dispute

to the domestic courts of the host State or to the Stockholm Chamber of Commerce

(“SCC”). In other words, if the same dispute between the same parties has been

submitted to Kronian domestic courts, it loses access to international arbitration.26

In

the current case, Claimant, having failed to obtain relief in Kronian domestic courts, is

attempting to submit the same dispute before the SCC tribunal, and should therefore

be barred from taking a second bite of the cherry.

25. Respondent submits that even if the Tribunal has jurisdiction over the dispute,

Claimant’s claims are inadmissible before the Tribunal because Claimant’s resort to

the domestic courts has triggered the fork-in-the-road clause under Article 11(2) of the

BIT. Respondent argues that (A) the Tribunal should apply the fundamental basis test

to determine whether Claimant’s resort to domestic courts has triggered the

fork-in-the-road clause; (B) under the fundamental basis test, Claimant has triggered

26

Muchlinski/Ortino/Schreuer, p. 1715

9

the fork-in-the-road clause; and (C) alternatively, under the triple identity test,

Claimant’s claims are still inadmissible.

A. THE TRIBUNAL SHOULD APPLY THE FUNDAMENTAL BASIS TEST

TO DETERMINE WHETHER CLAIMANT HAS TRIGGERED THE

FORK-IN-THE-ROAD CLAUSE

26. To determine whether the disputes within two proceedings are the same, tribunals

mainly apply the fundamental basis test, which requires that the disputes share the

same fundamental basis,27

or the triple identity test, which requires that disputes

within the two proceedings have the same parties, cause of action and object.28

Respondent submits that the Tribunal should apply the fundamental basis test in the

current case.

27. Article 31 of the VCLT establishes as a rule that all treaty clauses must be

interpreted in respect of its purpose with an effective meaning.29

Fork-in-the-road

clauses aim to make the investor’s choice irrevocable and therefore de facto ban

parallel proceedings.30

The choice established in a fork-in-the-road clause must be

construed as being between real alternatives.31

28. However, the strict application of the triple identity test deprives the

fork-in-the-road provision of all or most of its legal effects in practice,32

which is

supported by the tribunal in Chevron and TexPet v Ecuador II.33

The tribunal in H&H

v Egypt also held that the requirement of strict compliance with that test would

“defeat the purpose of the Treaty and allow form to prevail over substance.”34

29. On the other hand, in Pantechniki v Albania, the sole arbitrator Professor

Paulsson emphasized that the mere assertion that claims based on treaty provisions

27

Pantechniki v Albania (Award), Para. 61 28

Toto v Lebanon (Jurisdiction), Para. 221; Occidental v Ecuador I (Final Award), Paras. 37(a), 38–63 29

Urbaser and CABB v Argentina (Jurisdiction), Para. 52; McLachlan/Shore/Weiniger, Para. 4.106 30

Muchlinski/Ortino/Schreuer, p. 1715; H&H v Egypt (Award), Para. 367 31

McLachlan/Shore/Weiniger, Para. 4.106 32

Muchlinski/Ortino/Schreuer, p. 1716; Douglas, p. 156 33

Chevron and TexPet v Ecuador II (Jurisdiction and Admissibility), Para. 4.76; H&H v Egypt (Award),

Para. 367 34

Ibid.

10

are inherently different from those on contract is an “argument by labelling – not by

analysis.”35

He further held that the relevant test is whether the fundamental bases of

the claims within the proceedings are autonomous.36

This approach has subsequently

been applied by tribunals in H&H v Egypt37

and Supervisión v Costa Rica.38

30. Therefore, given the acknowledged limitations of the triple identity test and the

fact that it deprives the fork-in-the-road clause of any meaning, the Tribunal should

apply the fundamental basis test in the current case to determine whether Claimant’s

resort to domestic courts has activated the fork-in-the-road clause.

B. UNDER THE FUNDAMENTAL BASIS TEST, CLAIMANT’S RESORT TO

DOMESTIC COURTS HAS TRIGGERED THE FORK-IN-THE-ROAD

CLAUSE

31. Respondent submits that Claimant’s resort to domestic courts has triggered the

fork-in-the-road clause because (1) under the fundamental basis test, the dispute

before the domestic courts and that before the Tribunal are the same; and (2) the

choice to resort to the domestic courts is final and irrevocable.

(1) Under the fundamental basis test, the dispute before the domestic courts and

that before the Tribunal are the same

32. In Pantechniki v Albania, the sole arbitrator Paulsson held that:

“[t]he relevant test is […] whether or not ‘the fundamental basis of a claim’

sought to be brought before the international forum is autonomous of claims to be

heard elsewhere.”39

33. He further illustrated that the two decisive factors are “whether the claims have

the same normative source”40

and “whether the claim truly has an autonomous

35


Ibid. 37

H&H v Egypt (Award), Paras. 369-82 38

Supervisión v Costa Rica (Award), Paras. 308-18 39


Ibid., Para. 62

11

existence outside the contract.”41

The tribunal in Supervisión v Costa Rica concurred

with this reasoning and held that to determine these two decisive factors, one can only

consider whether both disputes share a fundamental cause and pursue ultimately the

same purposes.42

34. In the instant case, first, within the domestic proceedings, Claimant sought to

suspend Presidential Decree No. 2424 (“the Decree”) which terminated Claimant’s

concession and the Concession Agreement (“the Agreement”); while within the

arbitral proceedings, Claimant’s claims concern the enactment of the Decree and other

related acts of Respondent. Thus, notwithstanding that the specific acts of Respondent

alleged in the two proceedings may be slightly different; the fundamental causes

within the two proceedings both concern the enactment of the Decree and its impacts,

including the termination of Claimant’s concession and the Agreement.43

35. Second, within the domestic proceedings, Claimant allegedly sought to suspend

the Decree in order to continue negotiating with Respondent,44

which implies that

Claimant ultimately sought to continue its operations or obtain compensation through

the negotiation. Meanwhile, Claimant sought to declare the Decree unconstitutional

on grounds of violation of legislative due process,45

which in fact was seeking to set

aside the Decree under Kronian laws46

and enable Claimant to continue its

exploitation efforts.47

Within the arbitral proceedings, Claimant seeks the

compensation for its losses due to the cessation of its exploitation of lindoro.48

Thus,

the ultimate goals of the two disputes are both to protect Claimant’s business interests

arising out of the exploitation of lindoro.

36. As such, the disputes within the two sets of proceedings share the same

fundamental cause and same ultimate goal. Therefore, the two disputes are

41

Ibid., Para. 64 42

Supervisión v Costa Rica (Award), Paras. 310, 315 43

PO2, Para. 3; Request for Arbitration, Para. 23 44

Ibid., Para. 16 45

PO2, Para. 3 46

PO3, Para. 2 47

Request for Arbitration, Para. 16 48

Ibid., Para. 23

12

fundamentally the same and the fork-in-the-road provision under Article 11(2) has

been triggered.

(2) The choice to resort to the domestic courts is final and irrevocable

37. In the presence of fork-in-the-road clause, once the choice is made by the investor,

it is final and irrevocable,49

regardless of whether a final decision has been made on

the merits by the domestic courts.50

In the present case, even if Claimant did

withdraw the lawsuit prior to a decision on its merits rendered by the domestic

courts,51

Claimant’s submission to the domestic courts on the same dispute has

triggered the fork-in-the-road clause.

C. ALTERNATIVELY, UNDER THE TRIPLE IDENTITY TEST,

CLAIMANT’S CLAIMS ARE STILL INADMISSIBLE

38. Alternatively, Respondent submits that regardless of the applicability of the triple

identity test, Claimant’s claims are still inadmissible. The requirements for the

application of fork-in-the-road provisions are the same as for res judicata and lis alibi

pendens, which require the same identity of the parties, grounds, and reliefs, since

they all aim to ban parallel proceedings.52

Given that Claimant has not disputed that

the parties of the disputes are the same, Respondent submits that within the two

proceedings, (1) causes of action and (2) objects of the disputes are the same.

(1) Causes of action are the same

39. Tribunals held that the fork-in-the-road clause had not been triggered because

“contractual claims are different from Treaty claims.”53

However, this formal

distinguishment between treaty claims and contractual claims has been criticized by

tribunals and scholars.54

As Professor Douglas stated:

49

Douglas, p. 152 50

MCI v Ecuador (Award), Para. 182 51


Muchlinski/Ortino/Schreuer, pp. 1710, 1715 53

CMS v Argentina (Jurisdiction), Para. 80; Azurix v Argentina I (Jurisdiction), Para. 89; Toto v

Lebanon (Jurisdiction), Para. 212; Occidental v Ecuador I (Final Award), Para. 51 54

Pantechniki v Albania (Award), Para. 61; H&H v Egypt (Award), Para. 367; Douglas, p. 156

13

“[i]f the preclusive effects of the [fork-in-the-road] provision can be avoided

simply by pleading different types of causes of action, then it will be interpreted

out of practical existence.”55

40. Therefore, when considering the causes of action, i.e., the grounds, of the claims,

the Tribunal should “look at the underlying nature of the dispute and not its formal

classification.”56

Pursuant to this approach, disputes would be considered as identical

when claims are all “relating to the same factual background and invoking essentially

the same legal theory.”57

In the current case, the disputes within two proceedings are

both relating to the issuance of the Decree and question the Decree’s reasoning as well

as its impacts. Thus, the causes of actions are the same.

(2) Objects are the same

41. Since “the strict requirement of the identity of relief and grounds could lead to

‘claim splitting,’”58

Respondent contends that the Tribunal should consider the

ultimate objects of the claims. Before the Kronian domestic courts, Claimant sought

to suspend the Decree and declare it unconstitutional,59

which aims to enable

Claimant to continue its exploitation or get compensation through negotiation as

alleged.60

Before the Tribunal, Claimant sought compensation for its losses due to the

cessation of its operations.61

Thus, the ultimate objects of two disputes are both to

protect its business interests arising out of the exploitation of lindoro.

D. CONCLUSION

42. In conclusion, given that (A) the Tribunal should apply the fundamental basis test

to determine whether the fork-in-the-road clause has been triggered; (B) under the

fundamental basis test, Claimant’s resort to the domestic courts has triggered the

fork-in-the-road clause; and (C) alternatively, under the triple identity test, the

55

Ibid. 56

Muchlinski/Ortino/Schreuer, p. 1705 57

Ibid. 58

Ibid. 59

PO2, Para. 3 60


Ibid., Para. 23

14

fork-in-the-road clause has still been triggered, Claimant’s claims are inadmissible

before the Tribunal.

III. RESPONDENT’S COUNTERCLAIMS ARE ADMISSIBLE BEFORE THE

TRIBUNAL

43. Respondent submits that in the event that the Tribunal finds jurisdiction over

Claimant’s submissions, the counterclaims should still be considered.

44. In the present case, Respondent has suffered severe damage resulting from

Claimant’s malpractice in lindoro mining. Respondent’s largest river, supplying water

for the vast majority of the country, is now one of the world’s most polluted rivers due

to the toxic waste released by Claimant.62

Even more threatening, Respondent’s

newborns are suffering a 4000 times higher rate of microcephaly compared with the

0.02% European average, showing abnormal head size and birth defects.63

45. In such severe circumstances, Respondent submits that Claimant must bear the

cost of pollution under Article 9(2) of the BIT, which explicitly states that “polluter

should, in principle, bear the cost of pollution.”

46. For a host State’s counterclaim to be admissible, three aspects should be

considered: first, the scope of jurisdiction ratione materiae granted to the tribunal;

second, the standing granted to parties to initiate the proceedings; and third, whether

the BIT encompasses an either direct or indirect reference to counterclaims.64

47. As such, Respondent submits that all its counterclaims are admissible before the

Tribunal, because (A) the counterclaims are within the jurisdiction of the Tribunal; (B)

the counterclaims are closely connected with the primary claims; and (C) the

admissibility of counterclaims is supported by policy considerations.

62

Exh. 4, lines 1390-95 63

BMJ 2016, p. 4 64

Atanasova/Benoit/Ostřanský, p. 370

15

A. THE COUNTERCLAIMS ARE WITHIN THE JURISDICTION OF THE

TRIBUNAL

48. As established in Amto v Ukraine, Goetz v Burundi II, Saluka v Czech Republic,

and Rousalis v Romania, a tribunal’s jurisdiction over counterclaims depends on two

factors—the consent of the parties to the dispute and the connection between the

counterclaims and the “investment.”65

49. Respondent submits that its counterclaims are within the Tribunal’s jurisdiction

because (1) the parties have consented to the submission of counterclaims; (2)

Respondent is the proper party to raise counterclaims under the SCC Rules.

(1) Respondent’s counterclaims are within the parties’ consent to arbitration

50. Respondent asserts that its counterclaims are within the parties’ consent to

arbitration because (a) the counterclaims fall within the scope of the BIT; (b)

Claimant consented to arbitrate counterclaims in its Request for Arbitration.

(a) Respondent’s counterclaims fall within the scope of the BIT

51. Respondent asserts that its counterclaims are within the scope of the BIT because

(i) they concern “investment disputes” under Article 11(1) of the BIT and (ii) Article

11(5) reflects that the BIT contemplates the possibility of counterclaims.

(i) Respondent’s counterclaims concern “investment disputes” under Article

11(1) of the BIT

52. Article 11(1) of the BIT is a detailed dispute resolution clause that grants

jurisdiction over disputes relating to investment agreements, investment

authorizations or alleged breach of any rights conferred or created by the BIT

concerning investment.

65

Amto v Ukraine (Final Award), Para. 118; Goetz v Burundi II (Award), Para. 275; Saluka v Czech

Republic (Counterclaims), Paras. 60-61; Roussalis v Romania (Award), Para. 863

16

53. Under such definition, a counterclaim can be entertained if its basis coincides with

any of the bases enumerated in the provision, independently of the ground on which

jurisdiction was established over the main claim.66

This analysis is supported by the

tribunal in Goetz v Burundi II, where Article 8(1) of the BLEU-Burundi BIT employs

the same wording as Article 11(1) of the BIT. The tribunal admitted counterclaims

concerning “investment authorization,” where the primary claims concerned breach of

“rights conferred by the BIT.”67

54. Moreover, the BIT should also be distinguished from those that limit the

submission of counterclaims via restrictive definitions of “disputes.” For example, in

Roussalis v Romania, the tribunal denied Romania’s counterclaims because Article

2(6) of the Greece-Romania BIT restricts “disputes” to those “concerning an

obligation of [a Contracting Party].”68

However, no such restriction is made in this

BIT.

55. In the present case, Respondent’s counterclaims concern the compensation for the

damages arising out of Claimant’s mining activities in Kronos.69

Accordingly,

Respondent submits that its counterclaims arise out of or relate to first, the Agreement

and the concession granted; and second, a breach of right conferred or created by the

BIT.

56. First, Respondent asserts that its counterclaims arise out of “an investment

agreement” and its related concession rights.

57. In the present case, Claimant based its primary submissions on their entry into the

Agreement. Therefore, the Agreement should be regarded as an “investment

agreement” under Article 11(1)(a) of the BIT.

58. Before the 2015 Kronian Environmental Act (“KEA”), the Agreement was

virtually the only instrument regulating Claimant’s mining activities in Kronos.70

66

Atanasova/Benoit/Ostřanský, p. 373 67

Goetz v Burundi II (Award), Paras. 276-81 68

Roussalis v Romania (Award), Para. 869 69

Answer to Request for Arbitration, Para. 25 70

Ibid., Para. 10

17

Article 2 of the Agreement obligates Claimant to observe Kronian laws and good

practices for sustainable lindoro mining.71

However, as observed in the study (“the

Study”) conducted by the Kronian Federal University (“the University”), the

contamination of the Rhea River is in fact the direct consequence of Claimant’s

lindoro mining,72

which imposes a heavy burden on Respondent to decontaminate the

River and cope with severe public health issues.

59. Thus, the environmental consequences arise out of Claimant’s failure to observe

the Agreement. In other words, Respondent’s counterclaims relate to the

Agreement—an investment agreement under Article 11(1) of the BIT.

60. Further, Respondent submits that the exclusive jurisdiction clause in the

Agreement cannot bar the Tribunal’s jurisdiction over counterclaims which are not

contractually based. In the present case, the essential basis of Respondent’s

counterclaims regarding compensation is the “polluter-pays” principle in Article 9(2)

of the BIT. Therefore, the present case should be distinguished from Saluka v Czech

Republic and Oxus Gold v Uzbekistan, where the parties signed contracts with similar

dispute resolution clauses, on the basis that those counterclaims were purely

contractually based.73

61. Second, Respondent contends that its counterclaims arise out of or relate to the

breach of rights conferred by the BIT concerning an investment. Article 9(2) of the

BIT demands the polluter bear the cost of pollution. The “polluter-pays” principle can

be interpreted alternatively as enabling a State to charge the cost of rectifying

environmental damage to the relevant polluter.74

62. In the present case, as aforementioned, the Rhea River is severely contaminated

by toxic substances released by Claimant75

, which also poses a grave threat to

71

Exh. 2, lines 1301-06 72

Exh. 4, line 1394 73

Oxus Gold v Uzbekistan (Award), Para. 958; Saluka v Czech Republic (Counterclaims), Paras. 56-57 74

Wolf/Stanley, p. 17 75

Exh. 4, line 1390

18

Respondent’s national health.76

Under the KEA and the BIT, Claimant must bear the

costs of this pollution.

63. Thus, Respondent’s counterclaims fall within “investment disputes” under Article

11(1) of the BIT, since they arise out of or relate to the Agreement and the concession,

as well as the rights conferred in Article 9(2) of the BIT.

(ii) Article 11(5) reflects the possibility of the BIT to allow counterclaims

64. Article 11(5) of the BIT prohibits the assertion of certain types of counterclaims.

However, the BIT does not explicitly preclude counterclaims other than those

mentioned in Article 11(5). As such, where a relevant instrument excludes a specified

category of counterclaims, it may be presumed that other counterclaims are allowed,

at least to the extent that the connection requirement is satisfied.77

65. Moreover, according to the principle of effectiveness, interpretations that would

make specific provisions or the treaty useless should be rejected.78

If Respondent is

unable to raise any counterclaim before the Tribunal, it is then meaningless to include

a specific provision limiting certain type of counterclaims in the BIT itself. Thus, an

exclusion of Respondent as the proper party to raise counterclaims would conflict

with Article 11(5) of the BIT. This rationale was also supported by the tribunal in

Goetz v Burundi II on the ground that it was irrelevant whether a treaty contained any

express provision giving competence to a tribunal to hear counterclaims.79

66. In conclusion, as the BIT does not expressly exclude Respondent from raising

counterclaims, Article 11(5) of the BIT should be interpreted effectively as reflecting

the possibility of the BIT to allow counterclaims. Hence, Respondent’s counterclaims

are within the scope of the BIT.

76

Ibid., lines 1401-13 77

Kjos, p. 146 78

Urbaser and CABB v Argentina (Award), Para. 1190 79

Goetz v Burundi II (Award), Para. 279

19

(b) Claimant consented to the submission of counterclaims in its Request for

Arbitration

67. Respondent submits that the counterclaims fall within the scope of consent under

“written agreement” required by Article 11(4) of the BIT.

68. An agreement in writing exists between Claimant and Respondent. Claimant has

explicitly stated in its Request for Arbitration that:

“Claimant accepts the standing offer made by Respondent to arbitrate investment

disputes with Claimant’s investors enshrined in Article 11 of the BIT.”80

69. The standing offer of Respondent in Article 11(4) of the BIT refers to “any

investment dispute” as defined in Article 11(1) of the BIT.

70. Respondent submits that the term “any investment dispute” in the BIT is wide

enough to encompass counterclaims. In Saluka v Czech Republic, the tribunal

concluded that the wording “all disputes” in Article 8 of the Czech

Republic-Netherlands BIT was wide enough to include disputes giving rise to

counterclaims.81

This analysis was also supported by the tribunal in Paushok v

Mongolia, where the term “disputes” in Article 8 of the Mongolia-Russian Federation

BIT was regarded as comprising the same broad meaning as the term “all disputes” in

Saluka v Czech Republic.82

71. Furthermore, Respondent submits that Claimant cannot restrict the scope of

consent under the BIT unilaterally. As elaborated by Professor Lalive and Professor

Douglas, the offer to arbitrate under a BIT’s dispute resolution provision is based on

the investor’s acceptance of the original terms of the BIT.83

72. Thus, the consent to arbitration is perfected by the investor’s filing of a request for

arbitration, which cannot expand or limit the host State’s standing offer to arbitration

80

Request for Arbitration, line 70 81

Saluka v Czech Republic (Counterclaims), Para. 39 82

Paushok v Mongolia (Jurisdiciton), Para. 689 83

Lalive/Halonen, p. 150; Douglas, p. 258

20

in the investment treaty.84

When the investor starts arbitration proceedings based on

an offer in an investment treaty, the investor accepts that offer, nothing more and

nothing less.85

73. Hence, Respondent’s counterclaims fall within the scope of the consent for

arbitration as they (a) arise out of or relate to “investment disputes” and (b) fall within

the scope of “agreement in writing” between the parties.

(2) Respondent is the proper party to raise counterclaims under the SCC Rules

74. Respondent submits that under the BIT’s broadly worded offer to arbitrate, the

arbitral rules are sufficient to establish that counterclaims should be allowed.

75. Under the SCC Rules, which binds the parties and the tribunal according to

Article 11(3) of the BIT, Articles 9 and 29 expressly provide Respondent with the

opportunity to submit counterclaims.

76. Further, it would be too strict to discard the possibility of counterclaims where the

BIT merely limits locus standi alone.86

In Goetz v Burundi II, Article 8(3) of the

BLEU-Burundi BIT provided that disputes are submitted only upon the demand of the

investor concerned. However, despite such limitation, the tribunal considered the

broad offer to arbitration provided in Article 8(1), the same as Article 11(1) of the

BIT, and then turned to the applicable arbitration rules.87

The tribunal interpreted

from those rules a principal acceptance of the parties to have counterclaims

entertained, and concluded that:

“it matters little that the BIT does not contain any provision giving jurisdiction to

the Tribunal to rule on counterclaims.”88

77. Thus, Articles 9(1) and 29(2) of the SCC Rules are sufficient to establish

Respondent’s locus standi to submit counterclaims regarding the scope of the BIT.

84

Ibid. 85

Ibid. 86


Goetz v Burundi II (Award), Para. 278 88

Ibid., Para. 279

21

B. THE REQUIREMENT OF A CLOSE CONNECTION BETWEEN THE

COUNTERCLAMS AND THE PRIMARY CLAIMS IS MET

78. It is generally agreed that counterclaims should be connected to the investor’s

claims in order to be admissible.89

Respondent submits that its counterclaims and the

primary claims share (1) factual and (2) legal connection.

(1) Respondent’s counterclaims and the primary claims share factual connection

79. Respondent contends that the basis of its counterclaims relies on the “same factual

matrix” that occurred in the same territory during the same period as the primary

claims.

80. To determine the factual connection between counterclaims and primary claims,

the tribunal in Urbaser and CABB v Argentina held that a factual link was manifest

when “both the principal claim and the claim opposed to it are based on the same

investment,” which alone was “sufficient to adopt jurisdiction over the

counterclaim.”90

81. In the present case, Respondent’s counterclaims are based on Claimant’s

malpractice under the Agreement.91

Claimant’s claims concern alleged expropriation

of its investments, including the Agreement and licenses.92

However, it is exactly the

severe damages caused by Claimant under the Agreement that lead to the adoption

and enforcement of the Decree for the protection of the Kronian environment and

human health, thus the primary claims and counterclaims are inseparable.93

82. Hence, Respondent’s counterclaims and Claimant’s primary claims derive from

the same factual basis.

89

Kjos, p. 148 90

Urbaser and CABB v Argentina (Award), Para. 1151 91

Facts, Para. 22 92

Ibid., Para. 23 93

Exh. 5, line 1428

22

(2) Respondent’s counterclaims and the primary claims share legal connection

83. It is recognized that legal connection is satisfied when the claim and counterclaim

arise out of the same legal instrument,94

be it a contract, treaty, other norm of

international law or general domestic law.95

84. For the purpose of connectedness, it is not necessary to insist on the identity of

legal basis concerning the primary claims and the counterclaims.96

In Goetz v

Burundi II, the tribunal held that the counterclaims which implicated Burundi’s public

law admissible because the subject matter defined in the legal terms was closely

connected.97

85. In the present case, Claimant has violated its obligations in article 2 of the

Agreement to observe Kronian law and good practices for the sustainable exploitation

of lindoro.98

In 2015, the Kronian House passed the KEA,99

which imposed upon the

operators, based on the “polluter-pays” principle, the obligation to remedy and/or

compensate for environmental damage, among other penalties.100

This is also

embedded in Article 9(2) of the BIT, which forms the legal basis of Respondent’s

counterclaims. Hence, the subject matter defined in the legal terms in both the BIT

and Kronian national law are closely connected.

86. In the present case, both Claimant’s and Respondent’s submissions are based on

the BIT. Thus, a legal connection is further elaborated since both claims arise from

the same Treaty.

94

Kjos, p. 149 95


Lalive/Halonen, p. 150 97

Goetz v Burundi II (Award), Para. 285 98

Exh. 2, lines 1301-06 99

Facts, Para. 16 100

PO2, Para. 7

23

C. THE ADMISSIBILITY OF COUNTERCLAIMS IS SUPPORTED BY

POLICY CONSIDERATIONS

87. When connection between the primary claims and the counterclaims is already

present, separate adjudications would require the examination of the same evidence,

result in delays and corresponding costs, and possibly lead to inconsistent

decisions.101

88. Accordingly, Respondent submits that the admissibility of counterclaims before

the Tribunal is supported by policy considerations of efficiency and procedural

economy, particularly those regarding the economic circumstances of Respondent.

89. As held by the International Court of Justice, when consolidation of the claim and

counterclaim could better administer justice, adjudicators may enjoy sufficient

flexibility to enable them to conclude in favor of admissibility even where juridical

connection is lacking.102

90. On the other hand, the rejection of counterclaims may lead a host State to seek

relief in its own courts or in another, contractually agreed, arbitration forum. Such

practices may be inefficient and costly, and may result in contradictory decisions.103

Meanwhile, admission of counterclaims would ensure a degree of procedural and

substantive equality between the parties, and help correct a perceived asymmetry in

the relationship between foreign investors and host States in treaty arbitration.104

91. In the present case, Respondent has presented both factual and juridical

connection between the primary claim and counterclaims. The rejection of

counterclaims may lead Kronos to seek relief in its own courts which may ultimately

result in duplication of procedures and contradictory decisions. Thus, as an

underdeveloped country105

suffering from urgent threats to its public health and

101

Kjos, p. 128 102

Case Concerning Armed Activities on the Territory of the Congo, Para. 326 103

Urbaser and CABB v Argentina (Award), Para. 1118; Kjos, p. 130 104

Ibid., p. 131 105

Facts, Para. 2

24

environment, Respondent contends that the counterclaims must be admitted given

effect to efficiency and procedural economy.

D. CONCLUSION

92. In conclusion, Respondent’s counterclaims are admissible before the Tribunal

because (A) the counterclaims are within the jurisdiction of the Tribunal; (B) the

counterclaims are closely connected with the primary claims; and (C) the

admissibility of counterclaims is supported by policy considerations.

25

ARGUMENTS ON MERITS

IV. THE ENACTMENT OF THE DECREE AND OTHER RELATED ACTS OF

RESPONDENT DO NOT AMOUNT TO SUBSTANTIVE VIOLATIONS OF

THE BIT

93. Respondent submits that Claimant’s mining activities have imperiled the

environment and health of the Kronian people. The surge of toxic waste in the Rhea

River culminated in rising incidence of serious and irreversible diseases. Faced with

such a grave situation, Respondent was forced to take all available measures to

safeguard its public interests.

94. As such, Respondent’s measures do not result in any breach of substantive

obligations in the BIT because (A) Respondent’s measures did not constitute

expropriation under Article 7 of the BIT; and (B) Respondent did not violate the fair

and equitable treatment standard under Article 6 of the BIT. Alternatively, (C)

Respondent’s liabilities are exempted by virtue of Article 10 of the BIT.

A. RESPONDENT’S MEASURES DID NOT CONSTITUTE

EXPROPRIATION UNDER ARTICLE 7 OF THE BIT

95. Claimant’s investments under the BIT are the concession right, facilities, and

lindoro extracted from the Site.106

Respondent submits that (1) it did not directly

expropriate Claimant’s investments, and (2) its measures do not amount to an indirect

expropriation. Alternatively, Respondent further argues that (3) its measures constitute

a non-compensable regulatory taking under the police powers doctrine.

(1) Respondent did not directly expropriate Claimant’s investments

96. The establishment of direct expropriation requires strictly the “transfer of the title

of ownership,” or the “transfer of proprietary rights” to a different beneficiary, in

106

the BIT, Art. 1

26

particular the State.107

However, both the termination of government contracts and

the confiscation of lindoro do not fulfill such condition.

97. First, the Decree never purported to transfer any concession rights to the State.108

The reported joint venture to resume exploitation of lindoro 2 years after issuance of

the Decree falls within the State’s commercial discretion,109

and must be

differentiated from the formal transfer of rights through “executive or administrative

government action.”110

98. Second, pursuant to the Decree, Claimant still retained legal title to its facilities

and the extracted lindoro. Tribunals in El Paso v Argentina and LG&E v Argentina

denied direct expropriation on the ground that there was no “appropriation,”111

whose

ordinary meaning refers to “making over into one’s possession or use.”112

In the

present case, the lindoro was temporarily seized with the sole purpose to secure

Claimant’s compensatory obligation for environmental contamination.113

To that end,

Claimant was not dispossessed of the lindoro, nor was Respondent profiting any

revenue from the extracted lindoro, as it would be returned if Claimant acknowledged

its duty to compensate. As such, Respondent did not directly expropriate Claimant’s

investments.

(2) Respondent’s measures did not amount to an indirect expropriation

99. Respondent contends that Claimant was not permanently deprived of the

economic benefits in its investments, thus Respondent’s measures did not amount to

an indirect expropriation.

100. As established in Tecmed v Mexico and Busta v Czech Republic, to constitute

indirect expropriation, measures adopted by the State must be irreversible and

107

Generation Ukraine v Ukraine (Award), Paras. 20-21; Metalclad v Mexico (Award), Para. 103;

Caratube and Hourani v Kazakhstan (Award), Para. 822; Enron v Argentina (Award), Para. 243 108

Exh. 5, Art. 2 109

Facts, Para. 28 110

Tecmed v Mexico (Award), Para. 113; S.D. Myers v Canada (Partial Award), Para. 280 111

El Paso v Argentina (Award), Para. 265; LG&E v Argentina (Liability), Para. 187 112

Shorter Oxford, p. 107 113

Exh. 5, Art. 4

27

permanent.114

The tribunal in Pezold v Zimbabwe also refused to declare indirect

expropriation since it was unsure whether the measure was permanent.115

Further, in

Abengoa v Mexico, the tribunal held that the host State’s explicit expression of its

willingness to renew a license under certain conditions was sufficient to demonstrate

the temporariness of the measures.116

101. In the present case, despite Claimant causing serious damage to the

environment,117

Respondent still offered Claimant the opportunity to regain its

concession.118

From the time of issuance of the Decree to the filing for arbitration,

such possibility was open to Claimant so long as it would acknowledge its

responsibility for contamination of the Rhea River.119

However, regardless of

Respondent’s bona fide proposal and willingness for negotiations, it was Claimant’s

choice to file for arbitration rather than to seize the chance.120

As established in Nobel

Ventures v Romania, the State shall not be blamed for a failure of an investor’s

company if it is the investor’s defaults that lead to the insolvency.121

The eventual

shutdown of all Claimant’s facilities resulted from Claimant’s own decisions, not

Respondent’s measures. Throughout the whole process, Respondent never definitively

rejected the project, thus the measure is not permanent and did not constitute indirect

expropriation.122

(3) Respondent’s measures constituted a non-compensable regulatory taking

under the police powers doctrine

102. It has long been accepted in international law that State acts are in principle not

subject to compensation when they are an expression of the State’s police powers.123

Respondent submits that (a) it is entitled to invoke the police powers doctrine under

general international law. Moreover, Respondent exercised regulatory powers within

114

Tecmed v Mexico (Award), Para. 116; Busta v Czech Republic (Final Award), Para. 389 115

Pezold v Zimbabwe (Award), Para. 516 116

Abengoa v Mexico (Award), Para. 584 117

Exh. 4, lines 1394-95 118

PO3, Para. 3 119

Ibid.; Exh. 4, lines 1394-95 120

Ibid. 121

Noble Ventures v Romania (Award), Paras. 211-16; Yu/Marshal, p. 12 122

Abengoa v Mexico (Award), Para. 585 123

UNCTAD, Expropriation, p. 78; Kinnear/Fischer/Almeida/Torres/Bidegain, p. 448

28

legitimate parameters since its measures were implemented (b) for a public purpose,

(c) in a non-discriminatory manner and (d) in accordance with due process. Thus, (e)

Respondent is not liable for compensation.

(a) Respondent is entitled to invoke the police powers doctrine under general

international law

103. Interpreting Article 7 of the BIT in accordance with the VCLT, Respondent

contends that it is endowed with the right to exercise regulatory powers to protect the

environment and public health.

104. First, as provided in Article 31(3)(c) of the VCLT, Article 7 of the BIT shall be

construed in light of any relevant international law. In Philip Morris v Uruguay, the

tribunal followed such an approach, and held that the expropriation clause did not

exclude the application of an exemption based on police powers of the State due to its

nature as general international law.124

The applicability of the police powers doctrine

as general international law has been widely acknowledged by tribunals125

as well as

international documents.126

Therefore, the police powers doctrine under general

international law serves as an applicable rule to exempt Respondent’s liabilities.

105. Second, according to Article 31(1) of the VCLT, Article 9 of the BIT shall be

taken into consideration as context in interpreting Article 7. Article 9 authorizes

Respondent to regulate health and environmental issues. In the present case,

Respondent prohibited the exploitation of lindoro in order to protect the environment

and public health, thus falling within the scope of Article 9 of the BIT.127

106. Additionally, tribunals in Saluka v Czech Republic, Methanex v USA, and

Chemtura v Canada established that a State’s regulatory measures do not constitute

expropriation if implemented for a public purpose, in a non-discriminatory manner

124

Philip Morris v Uruguay (Award), Para. 290 125

Ibid.; Feldman v Mexico (Award), Para. 103; Methanex v USA (Final Award), Part IV, Chapter D,

Para. 7; Chemtura v Canada (Award), Para. 247 126

The 1961 Harvard Draft, Art. 10(5); The Third Restatement (1987), Para. 712; OECD Working

Papers, p. 5, n. 10; ILC Articles on Responsibility of States, Chapter V 127

Exh. 5, lines 1426-27

29

and in accordance with due process.128

(b) Respondent’s measures were for a public purpose

107. Claimant’s activities endangered the utmost interests of Kronian people’s life.

Facing such a dire situation, Respondent had to take regulatory measures in order to

save its environment and the lives of its populace.

108. Respondent contends that its acts were implemented for the protection of

environment and human health since (i) express statements of public concerns

evidence Respondent’s intentions; and (ii) the Study sufficiently proves Respondent’s

genuine aim for public interests.

(i) Express statements of public concerns evidence Respondent’s intentions

109. Tribunals in cases such as Tecmed v Mexico have recognized that due deference

shall be afforded to the State in deciding what measures are suitable to achieve the

public purpose and what constitutes the public interests of a particular State.129

Additionally, as stated by Professor Newcombe, the State only bears a prima facie

burden of proving the pursuance of a public purpose.130

110. In Devas v India, the tribunal acknowledged the State’s intention merely based

on the State’s statement of its public concerns in its decision.131

It further held that a

public purpose requirement

“does not require the Respondent to spell out in detail what these specific public

purpose […] could come under that definition.”132

111. In the present case, Respondent clearly stated its purpose in the Decree.

According to the preamble of the Decree, prohibiting the exploitation of lindoro is for

128

Saluka v Czech Republic (Partial Award), Para. 255; Methanex v USA (Final Award), Para. IV.D.7;

Chemtura v Canada (Award), Para. 266 129

UNCTAD, Expropriation, p. 96; Tecmed v Mexico (Award), Para. 122; Rusoro Mining v Venezuela

(Award), Para. 389 130

Newcombe/Paradell, p. 366 131

Devas v India (Award), Paras. 146, 413 132

Ibid.

30

“the utmost importance of the protection of the environment, our natural resources,

and human life in Kronian territory.”133

With due deference afforded to the State, that

statement sufficiently evidences Respondent’s intentions.

(ii) The Study sufficiently proves Respondent’s genuine aim for public purposes

112. Respondent prohibited the exploitation of lindoro mainly based on the Study

which identified the detrimental impacts of Claimant’s mining activities on the public.

Respondent further contends that the Study is sufficient for Respondent to rely on.

113. First, the situation which Respondent encountered was serious and urgent. At the

time when the Study was published, the Rhea River, supplying water for the majority

of the country, was among the world’s top three polluted rivers.134

Moreover, 88% of

Kronian newborns have shown early symptoms of microcephaly,135

a condition

where an infant has abnormally smaller head associated with “developmental delay,

intellectual impairment, hearing and visual impairment and epilepsy.”136

The

astounding rate of microcephaly indicated in the Study, compared with the World

Health Organization (“WHO”) data, is 4,400 times higher than European and Latin

American averages (0.02%).137

114. Second, the Study has established a causal link between the exploitation of

lindoro and environmental pollution.138

In the present case, and to this date, Claimant

has not been able to attribute this pollution to any other reason in order to contradict

the Study.139

115. Third, the absence of causal link or the existence of scientific uncertainty does

not prevent Respondent from relying on the Study to take action. As elucidated by

Professor Wagner, in the context of environmental measures, an arbitral tribunal

should accept the legitimate environmental basis for the measure, “even if the

133

Exh. 5, lines 1426-27 134

Exh. 4, lines 1392-94; Answer to Request for Arbitration, Para. 17 135

Exh. 4, lines 1411-12 136

WHO Guideline, pp. 1-2 137

Ibid., p. 2; BMJ 2016, p. 4 138

Exh. 4, lines 1394-95 139

PO2, Para. 4

31

evidence is controversial or inconclusive.”140

Moreover, Respondent is entitled to

take precautionary measures to prevent or minimize environmental degradation under

Article 9 of the BIT. In accordance with Article 31(3)(c) of the VCLT, and in the light

of general international law, i.e., Principle 15 of the Rio Declaration on Environment

and Development, precautionary measures shall be taken “[w]here there are threats of

serious or irreversible damage,” and

“lack of full scientific certainty shall not be used as a reason for postponing

cost-effective measures to prevent environmental degradation.”141

116. As such, scientific certainty is not an impediment to precautionary measures.142

In the present case, Article 9 of the BIT explicitly authorizes Respondent to take

precautionary measures which, as aforementioned, shall not be precluded even if the

Study lacked a causal link.143

(c) Respondent’s measures are non-discriminatory

117. Respondent contends that it adopted the measures on a non-discriminatory basis.

To claim otherwise, Claimant bears the burden to prove Respondent conducted

“differentiated treatment in similar circumstances typically based on nationality, and

without reasonable justification.”144

However, in the present case, Claimant cannot

establish such cumulative conditions.

118. First, discrimination arises only when the circumstances allow the comparison of

two similar situations.145

As the sole extractor of lindoro,146

Claimant is not entitled

to raise such claim, since no third parties were offered a more favorable condition.147

119. Additionally, the reported joint venture falls far from being in a similar situation

140

Wagner, p. 523 141

Rio Declaration, Principle 15 142

Kulick, p. 229 143

ILA, Due Diligence, p. 21 144

Crystallex v Venezuela (Award), Para. 715; UNCTAD, Expropriation, p. 94 145

ADC v Hungary (Award), Para. 442; Kinnear/Fischer/Almeida/Torres/Bidegain, pp. 391-92; CMS v

Argentina (Award), Para. 293 146

Facts, Para. 11 147

Lemire v Ukraine II (Jurisdiction and Liability), Para. 261

32

with Claimant.148

Ever since the enactment of the KEA, Respondent has consistently

engaged in endeavors to promote sustainable development under the Protocol on

Water and Health to the 1992 Convention on Transboundary Water Courses and

International Lakes, and in joint efforts with international organizations.149

Nonetheless, Claimant remains a company that has never adopted any corporate social

responsibility standard in practice, and who also denied any responsibility for

contamination.150

The tribunal in Crystallex v Venezuela has similarly held that the

subsequent consideration of a joint venture after termination of claimant’s mining

contract is insufficient to support discrimination.151

120. Second, expropriation targeting one foreign investor is not discriminatory per se:

the expropriation must be based on unjustifiable grounds, i.e., nationality.152

In effect,

a reasonable objective serves as justification for differentiated treatments of similar

cases.153

The tribunal in GAMI v Mexico found that expropriation toward the foreign

investor GAMI was not because of its foreign nationality, but precarious conditions,

which was “connected with a legitimate goal of policy.”154

Accordingly, the tribunal

held that Mexico did not act in a discriminatory manner.

121. In the present case, it was for the serious harms confirmed in the Study,155

rather

than Claimant’s nationality, that Respondent prohibited the exploitation of lindoro.

Any other mining industries, once identified by scientific study to pose a threat to

Kronos’s interest, would be subject to the same treatment.156

In summary, even if

there were different treatments to similar parties, such treatments shall be justified by

Respondent’s substantial public concerns.

148

Facts, Para. 28 149

Facts, line 963; Exh. 7, line 1473 150

PO2, Para. 7 151

Crystallex v Venezuela (Award), Paras. 616, 715 152

Reinisch, p. 190; UNCTAD, Expropiration, p. 34 153

Parkerings v Lithuania (Award), Para. 368 154

GAMI v Mexico (Final Award), Para. 114 155

Exh. 4, line 1390 156

Exh. 5, lines 1425-30

33

(d) Respondent’s measures accorded with due process of law

122. The due process requirement upon regulatory measures is meant to ensure that

the measures are adopted without serious procedural violations.157

It has also been

acknowledged that minor procedural irregularities do not affect the measures’

non-compensable nature.158

Due process requires first and foremost compliance with

local law.159

Moreover, international standards of due process have also been taken

into account by tribunals.160

In applying both standards, Respondent submits that its

measures were implemented (i) in observance of local law and (ii) in accordance with

international standards.

(i) Respondent’s measures complied with local law

123. Regarding compliance with local law, Claimant had sought to declare the Decree

unconstitutional before Kronos’ domestic court.161

However, Respondent contends

that the Decree was empowered by the KEA based on sufficient legislative grounds.

124. To begin with, the passing of KEA accorded to procedural requirements. It was

granted by a competent State body, and supported by the requisite number of votes.162

According to Article 59 of the Kronian Constitution, public hearings are only

mandatory when a draft bill “may directly affect the national industry of Kronos, as

defined by the Speaker […]”163

As such, the Speaker’s waiver of public hearing lies

within the constitutional discretion of Respondent.

125. Further, the Decree was enacted in compliance with domestic law. In Chemtura

v Canada, the tribunal ruled that measures held within the mandate of a relevant

environmental agency contribute to the finding of domestic legality.164

Tribunals in

Saluka v Czech Republic and Methanex v USA have accordingly reasoned that the

157

UNCTAD, Expropriation, p. 96 158

Ibid. 159

Ibid., p. 37; Newcombe/Paradell, p. 376 160

Quiborax v Bolivia (Award), Para. 221; Devas v India (Award), Paras. 416-17; Teinver and others v

Argentina (Award), Para. 1010 161

PO2, Para. 3 162

UNCTAD, Expropriation, p. 96; Facts, Paras. 16-7 163

Facts, Paras. 16-7 164

Hepburn, p. 44; Chemtura v Canada (Award), Para. 266;

34

application of pertinent legislation illustrates compliance with due process.165

In the

instant case, the Decree was conferred the right to sanction miners breaching

environmental obligations under the KEA, and was therefore legally substantiated.166

(ii) Respondent acted in accordance with international standards of due process

126. Regarding the international standard of due process, the prevalent reasoning

derives from ADC v Hungary that “some basic legal mechanisms, such as reasonable

advance notice, a fair hearing […] are expected to be readily available to the

investor.”167

However, that tribunal only found the measures in violation of due

process because “no legal procedure of such nature existed at all.”168

In the present

case, since sufficient procedures were at Claimant’s disposal, Respondent contends

that the international standard was not violated.

127. First, according to Professor Sornarajah, the absence of prior notice is not an

independent ground for the establishment of expropriation.169

The tribunal in

Crystallex v Venezuela accordingly held that the failure to provide prior

administrative procedures before the termination of claimant’s mining contract was

insufficient to support violation of due process.170

128. Second, Claimant was able to seek legal redress.171

By the second day after

issuance of the Decree, Claimant had already filed for suspension in the domestic

courts.172

In Rusoro Mining v Venezuela, where recourses were available to challenge

the expropriation toward claimant’s mining operations, the tribunal rejected Rusoro’s

argument that “the attempts to obtain justice locally would have been futile.”173

Thus,

the existence of judicial recourses is sufficient for fulfillment of the due process

requirement.

165

Saluka v Czech Republic (Partial Award), Para. 271; Methanex v USA (Final Award), Part IV,

Chapter D, Para. 7 166

Ibid. 167

ADC v Hungary (Award), Paras. 435-38; Crystallex v Venezuela (Award), Para. 714;

Kardassopoulos v Georgia (Award), Para. 396 168

Ibid.; Reinhard Unglaube v Costa Rica (Award), Para. 272 169

Sornarajah, p. 359 170

Crystallex v Venezuela (Award), Para. 714 171

Newcombe/Paradell, p. 376; Schwarzenberger, p. 206 172

Facts, Para. 25 173

Rusoro Mining v Venezuela (Award), Paras. 390-93

35

129. In conclusion, Respondent observed due process of law both domestically and

internationally.

(e) Respondent’s measures were non-compensable

130. Respondent contends that since it legitimately exercised its regulatory powers, it

does not incur the obligation to compensate.

131. In modern investment arbitration law, abundant sources support the notion that

the State’s legitimate exercise of regulatory powers will not give rise to a claim to

compensation.174

If any adversely affected investor could seek compensation, no

reasonable governmental regulation could be achieved.175

Despite the fact that

international investment agreements (“IIAs”) in cases such as Feldman v Mexico,

Methanex v USA and Saluka v Czech Republic explicitly require “compensation” for

lawful expropriation or deprivation, tribunals still used “non-compensable” to define

the meaning of regulatory takings.176

132. Therefore, it is widely-accepted that legitimate exercises of regulatory measures

give rise to no compensation. In the present case, Respondent is not obliged to

compensate since it acted for public purposes, in a non-discriminatory manner and in

accordance with due process.

B. RESPONDENT DID NOT BREACH THE FAIR AND EQUITABLE

TREATMENT STANDARD UNDER ARTICLE 6 OF THE BIT BY

FRUSTRATING CLAIMANT’S LEGITIMATE EXPECTATIONS

133. Article 6(1) of the BIT explicitly directs the fair and equitable treatment (“FET”)

to the customary international minimum standard of treatment (“MST”). Tribunals

such as those in Glamis Gold v USA and Biwater v Tanzania have held that the

174

OECD Working Papers, p. 18; Kinnear/Fischer/Almeida/Torres/Bidegain, pp. 447-62; UNCTAD,

Expropriation, pp. 78-79, 89-93 175

Feldman v Mexico (Award), Para. 83 176

Ibid.; Methanex v USA (Final Award), Para. 7; Saluka v Czech Republic (Partial Award), Para. 255

36

minimum standard remains as stringent as it was established in Neer v Mexico,177

where an act must be “sufficiently egregious and shocking” to amount to a breach.178

As aforementioned, Respondent’s measures sufficiently accorded due process and

were implemented in a bona fide non-discriminatory manner, and therefore cannot be

conceived in any way as “egregious” or “shocking.”

134. Alternatively, assuming but not conceding that MST involves legitimate

expectations, Respondent did not frustrate Claimant’s expectations, for (1) Claimant

should have reasonably expected Respondent to implement regulatory measures, and

(2) Respondent did not induce Claimant’s investments by specific assurance.

(1) Claimant should have reasonably expected Respondent to implement

regulatory measures

135. Respondent submits that Claimant’s legitimate expectations shall not in any case

preclude the State from taking regulatory measures in pursuance of public interests.179

136. First, there is no stabilization clause in the BIT. As established in Saluka v Czech

Republic, Impregilo v Argentina I and Micula v Romania I, investors must expect

evolution rather than immutability of the legal framework assumed in stabilization

clauses of BITs.180

In the instant case, the BIT itself lacks a specific stabilization

clause that restricts the enactment of new legislation. Thus, Respondent’s reaction to

circumstances through regulatory measures is not prevented by the FET standard.181

137. Second, provisions in the BIT embraced an approach which creates expectations

for Respondent to take regulatory measures.182

Not only does the Preamble refer to

“promotion of sustainable development,”183

but also Article 9 specifically dictates

Respondent not to “waive or otherwise derogate from”184

health and environmental

177

Neer v Mexico, Para. 555 178

Glamis Gold v USA (Award), Paras. 600-04; Biwater v Tanzania (Award), Para. 597 179

Eckardt, p. 27 180

Saluka v Czech Republic (Partial Award), Paras. 304-06; Impregilo v Argentina I (Award), Para.

290; Micula v Romania I (Award), Para. 529 181

Total v Argentina (Liability), Para. 164; Parkerings v Lithuania (Award), Para. 332 182

Mouyal, p. 197 183

the BIT, line 1051 184

Ibid., line 1194

37

measures to encourage investment. Additionally, the State shall “strive to take

precautionary measures to prevent or minimize environmental degradations.”185

138. Third, legislative improvements shall also be reasonably expected by Claimant in

light of the Agreement. Pursuant to article 2.1 of the Agreement, Claimant must

observe new laws and regulations throughout its performance.186

While Respondent

incurred detrimental impacts due to Claimant’s failure to comply with the

sustainability requirements established both under KEA and the Agreement, it must be

reasonably expected to take measures to safeguard its public interests.

139. Therefore, the fact that Respondent lacked comprehensive legislations regulating

environmental matters before 2015187

does not imply that Claimant could expect

Respondent’s legal framework to remain unchanged.

(2) Respondent did not induce Claimant’s investments by specific assurance

140. Respondent further contends that legitimate expectations can only arise from

specific assurance offered by the State at the time of the investment instead of

afterwards.188

The actual exploitation of lindoro started in 2008.189

However, the

presidential statements were not published until the inauguration of exploitation

activities,190

which indicates that Claimant could not have been induced by such

statements to invest in Kronos. No specific assurance from Respondent was thus

applicable in giving rise to legitimate expectations, let alone the frustration of them.

141. In conclusion, Respondent did not frustrate Claimant’s legitimate expectations

under Article 6 of the BIT.

185

Ibid. 186

Exh. 2, line 1300 187

Facts, Para. 33 188

Tecmed v Mexico (Award), Para. 154; LG&E v Argentina (Liability), Para. 130; Duke Energy v

Ecuador (Award), Para. 340 189

Facts, Para. 7 190

Exh. 3, lines 1340, 1350, 1356

38

C. RESPONDENT’S LIABILITIES ARE INSULATED BY VIRTUE OF THE

GENERAL EXCEPTIONS SET FORTH IN ARTICLE 10 OF THE BIT

142. Even if the regulatory measures are found to violate substantive obligations

under the BIT, Respondent submits that its liabilities are insulated by virtue of the

general exceptions set forth in Article 10 of the BIT because (1) in applying Article 10,

the Tribunal should take into account the relevant World Trade Organization (“WTO”)

jurisprudence; (2) Respondent’s measures are necessary health measures under Article

10(1); (3) Respondent’s measures are undertaken in a manner consistent with Article

10(2); and (4) the application of Article 10 insulates Respondent from its obligation to

compensate.

(1) In applying Article 10 of the BIT, the Tribunal should take into account

relevant WTO jurisprudence

143. Claimant submits that, in applying Article 10 of the BIT, the Tribunal should take

into account relevant WTO jurisprudence. First, Article 10 of the BIT employs similar

wording to Article XX of the General Agreement on Tariffs and Trade 1994 (“GATT

1994”), which provides that:

“[s]ubject to the requirement that such measures are not applied in a manner

which would constitute a means of arbitrary or unjustifiable discrimination

between countries where the same conditions prevail, or a disguised restriction on

international trade, nothing in this Agreement shall be construed to prevent the

adoption or enforcement by any [Member] of measures […] (b) necessary to

protect human, animal or plant life or health[.]”191

144. Second, as few cases have dealt with general exceptions provisions in the

investment arbitration regime,192

the Tribunal should interpret Article 10 of the BIT

pursuant to Article 31(3)(c) of the VCLT by referring to “any relevant rules of

international law,” e.g., relevant WTO jurisprudence. Further, tribunals in Canfor v

USA and Continental Casualty v Argentina referred to relevant GATT and WTO

jurisprudence to interpret exceptions provisions in IIAs.193

The tribunal in the latter

191

GATT 1994, Art. XX 192

Paine, p. 2 193

Canfor v USA (Preliminary Question), Para. 187

39

case further held that WTO jurisprudence:

“has extensively dealt with the concept and requirements of necessity in the

context of economic measures derogating to the obligations contained in

GATT.”194

145. Third, the WTO Appellate Body held that the purpose of Article XX is to strike a

better balance between the protection of trade values and that of non-trade values, e.g.,

sustainable development,195

which is consistent with the purposes of the BIT.

146. Finally, as elaborated by Mr. Jacur, relevant WTO jurisprudence would be

particularly helpful in weighing and balancing “the competing interests at stake” and

comparing “possible alternatives.”196

147. Thus, the Tribunal should take into account relevant WTO jurisprudence in

applying Article 10 of the BIT.

(2) Respondent’s measures are necessary to protect human life and health

148. In US – Gasoline, the panel has reasoned that Article XX(b) of the GATT 1994

encompasses measures that are designed, as well as necessary, to protect human,

animal or plant life or health.197

That approach is followed by panels in EC –

Asbestos and Brazil – Retreaded Tyres in identifying necessary health measures.198

149. Respondent submits that Respondent’s measures are necessary to protect human

life and health as (a) they are designed to protect human life and health; and further,

(b) they are necessary.

(a) Respondent’s measures are designed to protect human health

150. The Appellate Body has held that the wording “policies designed to protect

194

Continental Casualty v Argentina (Award), Para. 192 195

US – Gasoline (AB), pp. 30-31 196

Treves/Seatzu/Trevisanut, pp. 10-11 197

US – Gasoline (Panel), Para. 6.20 198

EC – Asbestos (Panel), Para. 8.167; Brazil – Retreaded Tyres (Panel), Para. 7.40

40

human life and health” implies the existence of “health risks.”199

Respondent

contends that its measures are precautionary measures designed to reduce health risks

incurred by Claimant’s mining activities.

151. As aforementioned, in the instant case, the Study concluded that Claimant’s

lindoro mining correlated with a rising incidence of specific diseases with a degree of

scientific certainty sufficient to trigger Article 9(2) of the BIT.200

In turn, with the

implementation of the Decree, the Rhea River, supplying water for the vast majority

of Kronos,201

was prevented from further contamination, which is the key approach

to secure the Kronian people’s right to fresh water and to prevent their health

conditions from further degradations.

152. Accordingly, the regulatory measures are precautionary measures designed to

protect human health under Article 9(2) of the BIT.

(b) Respondent’s measures are necessary health measures

153. The Appellate Body has held that the necessity requirements under Article XX of

the GATT 1994 do not require a measure to be “indispensable” but rather require

adjudicators to weigh and balance four factors—the contribution of the measures to

the realization of the policy goals, the relative importance of the protected interests

and values, their restrictive impacts on international trade, and the feasibility of other

reasonable alternatives.202

154. Respondent contends that its measures are necessary health measures as (i) they

contribute materially to the reduction of health risks which is of paramount

importance to Respondent while (ii) imposing limited impacts on international trade

and investment, while (iii) no other more reasonable alternatives are available.

199

EC – Seal Products (AB), Para. 5.197; EC – Asbestos (Panel), Para. 8.170; Brazil – Retreaded Tyres

(Panel), Para. 7.42 200

Facts, Para. 22 201

Answer to Request for Arbitration, Para. 17 202

Korea – Beef (AB), Para. 163; US – Gambling (AB), Paras. 305-07; Brazil – Retreaded Tyres (AB),

Para. 156

41

(i) Respondent’s measures contributed materially to the reduction of health

risks which is of utmost importance to Respondent

155. The Appellate Body ruled that the contribution of a measure to the objective it

pursued can be assessed either through qualitative reasoning or by resorting to

quantitative evidence.203

Moreover, the tribunal in Continental Casualty v Argentina

held that exceptions provisions involve “a margin of appreciation.”204

Respondent

contends that its measures bear a genuine link with the policy goal of reducing health

risks.

156. First, it is universal knowledge that the protection of its people’s life and health

is of utmost importance to a responsive and reasonable government.205

As

aforementioned, the Kronian people’s life and health were in grave danger imposed

by Claimant’s lindoro mining. Thus, prohibiting lindoro mining to reduce the health

risks, Respondent’s measures bear a genuine link with the object.

157. Second, Respondent’s measures are part of a comprehensive strategy under the

KEA to promote sustainable development. The KEA, based on international standards,

was introduced to fill Respondent’s legislative gap.206

One year later, the Decree was

enacted as a notice to “companies who expect to profit irresponsibly, without any

regard to the jeopardy they cause.”207

Thus, in time, Respondent’s comprehensive

strategy is “apt to induce sustainable change.”208

158. Hence, the regulatory measures are “material or decisive” to minimize the

potential risks associated with the lindoro mining.

(ii) Respondent’s measures posed moderate restrictive impacts on international

trade and investment

159. With the discovery of alternative metals in 2006, lindoro is no longer as vital to

203

Ibid., Paras. 150-51; China – Publications and Audiovisual Products (AB), Paras. 252-53 204


Brazil – Retreaded Tyres (AB), Para. 179; Indonesia – Chicken (Panel), Para. 7.225 206

Facts, Paras. 10, 16 207

Exh. 6, lines 1459-61 208

Brazil – Retreaded Tyres (AB), Para. 154

42

the high technology industry.209

Moreover, lindoro mining is reported to be reinstated

two years later.210

Thus, the restrictive impacts of the regulatory measures are

relatively moderate, especially on the high technology industry.

160. Further, in Brazil – Retreaded Tyres, the Appellate Body has held that a measure,

even with severe restrictive effects, can still be deemed necessary if it is apt to induce

a material contribution to the protection of human health.211

Thus, in any event, the

restrictive effect of the regulatory measures can be justified by their material

contribution.

(iii) No other reasonable alternatives are available

161. In Continental Casualty v Argentina, the tribunal reasoned that reasonable

alternative measures are those, less in conflict or more compliant with BIT obligations,

and with an equivalent contribution to the end.212

Further, the Appellate Body has

ruled that a reasonably alternative measure possesses two features: first, it preserves

the responding Party’s right to achieve its desired level of protection regarding the

objective pursued; second, it does not impose an undue burden on the responding

Party.213

162. Further, the Appellate Body has held that respondent does not bear the burden to

show, at the first instance, no other reasonable measures are available.214

The burden

of proving a reasonably available measure is instead on Claimant.215

163. In the instant case, Respondent’s ultimate goal is to make lindoro mining

sustainable. Respondent cannot directly achieve that goal as it does not engage in the

lindoro mining. It can merely prohibit the sources of pollution and find a miner

capable of exploiting lindoro in a sustainable manner, which were the measures

actually taken. Accordingly, no alternatives other than Respondent’s regulatory

209

Exh. 7, lines 1483-84 210

Facts, Para. 28 211

Brazil – Retreaded Tyres (AB), Para. 150 212


US – Gambling (AB), Para. 308; Korea – Beef (AB), Para. 180; EC – Asbestos (AB), Paras. 172-74 214

US – Gambling (AB), Para. 309 215

Ibid.

43

measures were reasonably available.

164. Hence, based on the three reasons elaborated above, Respondent’s measures are

necessary health measures.

(3) Respondent’s measures are undertaken in a manner that conforms to Article

10(2) of the BIT

165. Respondent submits that its measures are undertaken in a manner that conforms

to Article 10(2) of the BIT as (a) they were not undertaken in an arbitrarily or

unjustifiably discriminative manner; and (b) they were not a disguised restriction on

international trade and investment.

(a) Respondent’s measures were not undertaken in an arbitrarily or

unjustifiably discriminative manner

166. In US – Tuna II (Mexico), Art. 21.5, Brazil – Retreaded Tyres and EC – Seal

Products, the Appellate Body held that one of the key issues is “whether the

discrimination can be reconciled with, or is rationally related to, the policy

objective.”216

167. As aforesaid, Respondent’s measures are not discriminatory. However, even if

the application of the measures is found to constitute discrimination between (i)

Claimant and other open-pit miners who release graspel, or (ii) between Claimant and

the alleged joint venture, Respondent asserts that both are compatible with the policy

objective of reducing health risks associated with Claimant’s lindoro mining.

168. First, concerning the former, it is notable that the Study established specifically

the health risks of Claimant’s lindoro mining.217

The Study states it “cannot identify

any factor” other than that.218

Further, it is unreasonable to prohibit other mining

activities without any risk assessment in advance.

216

US – Tuna II (Mexico), Art. 21.5 (AB), Para. 7.316; Brazil – Retreaded Tyres (AB), Para. 225; EC –

Seal Products (AB), Para. 5.318 217

Facts, Para. 21 218

Exh. 4, lines 1408-09

44

169. Second, concerning the latter, the alleged joint venture is part of Respondent’s

efforts to honor its international obligation in sustainable mining,219

which entails a

balance between economic development and, inter alia, health protection.220

170. To honor that international obligation, Respondent has enacted the KEA,

prohibited Claimant’s hazardous mining activities, and engaged in negotiation with

Claimant to reach a more sustainable deal.221

Nonetheless, Claimant totally

disregarded its responsibility. No action was taken by Claimant to mitigate the

environmental impacts of lindoro mining, even after the publication of the Study.

171. Thus, Respondent’s measures are not applied in an arbitrarily and unjustifiably

discriminative manner because the discrimination, if any, is compatible with the

object of promoting sustainable development.

(b) Respondent’s measures are not a disguised restriction on international trade

and investment

172. In US – Gasoline, the Appellate Body ruled that a “disguised restriction”

includes disguised discrimination.222

In EC – Asbestos, the panel held that the key is

the word “disguised,” whose definition is “[d]eliberately alter the appearance of (a

thing) so as to mislead or deceive,”223

“which implies an intention.”224

In other

words, the question is whether the measure is a “disguised restriction” which

“conceals” the pursuit of restrictive objectives.225

173. As reasoned above, the regulatory measures are part of a comprehensive strategy

under the KEA to promote sustainable development. First, the Decree prohibited

lindoro mining due to health and environment concerns. Second, after the enactment

of the Decree, Respondent engaged in negotiation with Claimant concerning the

219

Exh. 7, lines 1483-84 220

IFC’s Guide, p. 8 221

PO2, Para. 6 222

US – Gasoline (AB), p. 25 223

Shorter Oxford, p. 704 224

EC – Asbestos (Panel), Para. 236 225

Ibid.

45

re-instatement conditioned only on Claimant’s recognition of its liabilities.

Nevertheless, Claimant refused such and brought the dispute before the Tribunal.

174. As such, the goal of protecting public interests is evident while any purported

concealed intent remains to be established by Claimant. Thus, the regulatory measures

are not a disguised restriction on international trade and investment.

(4) The application of Article 10 insulates Respondent from its obligation to

compensate

175. Respondent submits that the application of the general exceptions in Article 10

of the BIT insulates Respondent from its obligation to compensate.

176. First, Article 10 should be interpreted pursuant to Article 31 of the VCLT with an

effective meaning.226

The tribunal in Continental Casualty v Argentina held that

exceptions provisions in IIAs reflect the Contracting Parties’ intention to

“[p]rovide flexibility in the application of international obligations, recognizing

that necessity to protect national interests of a paramount importance may justify

setting aside or suspending an obligation, or preventing liability from its

breach.”227

177. The legitimate interests under Article 10 require it to be interpreted in its context,

i.e., Articles 7(1) and 9(1) of the BIT. Under Article 7(1), a legitimate expropriation is

“for a public purpose” and with “payment of due compensation.” However, if a

measure under Article 10, i.e., being necessary for an explicitly listed public interest,

still constitutes compensatory expropriation, Article 10 would be rendered useless.

178. Moreover, Article 9(1) provides that “it is inappropriate to relax[] health, safety

or environmental measures.” This notion conforms to the purpose of the BIT, i.e., to

reconcile the promotion of eligible investments and of sustainable development.

179. Third, the drafting history of treaties such as the Multilateral Agreement on

226

Urbaser and CABB v Argentina (Jurisdiction), Para. 52 227

Continental Casualty v Argentina (Award), Para. 168

46

Investment (“MAI”) provides further evidence. The parties to the MAI intended to

provide an absolute guarantee against expropriation and accordingly, the general

exception did not apply to expropriation.228

180. That is also reflected in the Comprehensive and Progressive Agreement for

Trans-Pacific Partnership and the Korea-US Free Trade Agreement, where the general

exceptions provisions do not apply to the investment Chapter.229

However, in the

present case, general exceptions in Article 10 apply to the entire BIT. Hence, the

application of Article 10 insulates Respondent from its obligation to compensate.

D. CONCLUSION

181. Respondent submits that it did not violate substantive obligations in the BIT,

given that Respondent (A) did not unlawfully expropriate Claimant’s investments

under Article 7 of the BIT and (B) did not breach the fair and equitable treatment

standard under Article 6 of the BIT. In any event, (D) Respondent’s measures are

justified under Article 10 of the BIT.

228

Commentary to the MAI, p. 40 229

CPTPP, Chapter 29, Art. 29.1; Korea-US FTA, Chapter 23, Art. 23.1

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PRAYER FOR RELIEF

In light of the foregoing, Respondent respectfully requests this Tribunal to:

(I) Declare it lacks jurisdiction over the dispute on the grounds that Claimant is not

an eligible investor under the BIT;

(II) Declare that Claimant’s requests are not admissible;

(III) Declare that all Respondent’s counterclaims are admissible;

(IV) Declare that Claimant’s claims be entirely rejected, especially those concerning

expropriation and fair and equitable treatment;

(V) Order Claimant to pay USD 150,000,000 for the damage arising out of its

operations in Kronos.

RESPECTFULLY SUBMITTED ON 24 SEPTEMBER 2018 BY

TEAM VUKAS

On behalf of Respondent,

The Republic of Kronos

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