THE 2015 FOREIGN DIRECT INVESTMENT INTERNATIONAL … · DTC Double Taxation Convention EC European...
Transcript of THE 2015 FOREIGN DIRECT INVESTMENT INTERNATIONAL … · DTC Double Taxation Convention EC European...
Team Guerrero
THE 2015 FOREIGN DIRECT INVESTMENT INTERNATIONAL
MOOT COURT COMPETITION
VASIUKI LLC
-CLAIMANT-
v.
THE REPUBLIC OF BARANCASIA
-RESPONDENT-
Arbitration Pursuant to the Rules of Arbitration of
The London Court of International Arbitration
LCIA Case No: 00/2014
29th of October – 1st of November
Memorandum on behalf of the Claimant
19th of September 2015
Word Count: 11,944
ii
TABLE OF CONTENTS
List of Abbreviations ...................................................................................... iv
List of Authorities ............................................................................................ v
Statement of Facts ............................................................................................ 1
Summary of Pleadings ..................................................................................... 3
Pleadings for the Jurisdictional Phase ........................................................... 4
I. THE DISPUTE FALLS WITHIN THE JURISDICTION OF THE
TRIBUNAL ........................................................................................................... 4
A. Applicable Law and its Interpretation................................................ 4
B. The Tribunal has jurisdiction ratione personae. ................................ 4
C. The Tribunal has jurisdiction ratione materiae. ................................ 5
D. The Tribunal has jurisdiction ratione temporis. ................................ 6
i. The Respondent’s attempt to terminate the BIT within the initial
period of 10 years was unsuccessful. ..................................................... 6
ii. The BIT fails to be terminated on the basis of mutual consent. ..... 8
iii. EU law does not make the BIT obsolete. ....................................... 8
E. The claims are admissible to the Tribunal. ...................................... 12
i. The parties consented to the resolution of the dispute. ................ 12
ii. The jurisdiction of this tribunal does not undermine the authority
of the CJEU. ......................................................................................... 12
Pleadings for the Merits Phase ..................................................................... 13
II. THE RESPONDENT HAS BREACHED THE BIT. ................................. 13
A. The Respondent has breached the standard of FET owed to the
Claimant under Art 3 of the BIT. .................................................... 13
i. The autonomous treaty standard of FET should be adopted. ...... 13
ii. The autonomous treaty standard extends to actions which are
unfair, unreasonable or unequitable. ................................................... 14
B. The change in the feed-in tariff for the photovoltaic projects breached
the Claimant’s legitimate expectations. ........................................... 14
iii
C. The Claimant was arbitrarily denied a licence for the Alpha projec 16
D. There was a lack of transparency in the Respondent’s conduct that
breaches FET ................................................................................... 17
E. In any event the amendment to the LRE was an arbitrary measure. 19
F. The Respondent cannot rely on essential security interests under Art
11 BIT to escape its obligations. ..................................................... 20
III. THE RESPONDENT SHOULD EITHER REPEAL ART 4 OF THE LRE
OR CONTINUE TO PAY VASIUKI THE €0.44 FEED-IN TARIFF FOR 12
YEARS. ................................................... 21
A. The Respondent should be ordered to repeal Art 4 of the LRE. ...... 21
i. Restitution is the primary form of remedy in international law... 21
ii. Juridical Restitution is possible in the present circumstances. ... 21
iii. The Tribunal should order restitution on behalf of the Claimant.22
B. Or the Respondent should continue to pay the original tariff. ......... 23
C. The Respondent would not be breaching any EU anti-trust measure
by damages to the Claimant............................................................. 23
IV. IN THE ALTERNATIVE, THE CLAIMANT REQUESTS THE
TRIBUNAL TO ORDER THE RESPONDENT TO PAY DAMAGES TO
THE CLAIMANT FOR ITS LOSSES. .......................................................... 24
A. The amount of compensation should be assessed according to the fair
market value as of 1 January 2013. ................................................. 25
B. The Discounted Cash Flow (DCF) Method is the appropriate method
in the present case. ........................................................................... 26
Prayers for Relief ........................................................................................... 28
iv
List of Abbreviations
[x] Paragraph
Art (s) Article(s)
BEA Barancasia Energy Authority
BIT Bilateral Investment Treaty
CJEU Court of Justice of the European Union
Claimant Vaisuki LLC
Cogitatia The Federal Republic of Cogitatia
DCF Discounted Cash Flow
DTC Double Taxation Convention
EC European Commission
ECJ European Court of Justice
ECR European Court Reports
edn Edition
EU The European Union
FET Fair and Equitable Treatment
ibid. ibidem (again)
ICJ The International Court of Justice
ICSID International Centre for Settlement of Investment Disputes
ILC The United Nations International Law Commission
ILR International Law Reports
kWh kilowatt-hour
LCIA London Court of International Arbitration
LRE Law on Renewable Energy
No. Number
p Page
PCIJ Permanent Court of International Justice
Problem Foreign Direct Investment International Arbitration Moot 2015
Case
Q Question
Rep Report
Respondent The Republic of Barancasia
RIAA Reports of International Arbitral Awards
SCC Stockholm Chamber of Commerce
UNCITRAL United Nations Commission on International Trade Law
v. versus (against)
WACC Weighted Average Cost of Capital
WTO World Trade Organization
v
List of Authorities
CITED AS FULL CITATION
ICSID Cases
ATA Construction v.
Jordan
ATA Construction, Industrial and Trading Company v. The
Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2,
(Award, 18 May 2010)
AES v. Hungary
AES Summit Generation Limited and AES-Tisza Erömü Kft v.
The Republic of Hungary, ICSID Case No. ARB/07/22, (Award,
23 September 2010)
ADC v. Hungary
Final Award
ADC Affiliate Ltd. v. Hungary, ICSID Case No. ARB/03/16,
(Final Award, 27th September 2006)
ADC v. Hungary 2006
Award
ADC Affiliate Limited and ADC & ADMC Management Limited
v. The Republic of Hungary, ICSID Case No. ARB/03/16,
(Award, 2 October 2006)
ADF ADF Group Inc. v. United States of America, ICSID Case No.
ARB (AF)/00/1, (Award, 9 January 2003)
Azurix Corp. v.
Argentina
Azurix Corp. v. Argentina, ICSID Case No. ARB/01/12,
(Annulment Proceeding, 1st September 2009)
Biwater Gauff (Tanz.)
Ltd. v. Tanzania
Biwater Gauff (Tanz.) Ltd. v. Tanzania, ICSID Case No.
ARB/05/22, (Award, 18th July 2008)
CMS CMS Gas Transmission Company v. Argentina, ICSID Case No.
ARB/01/8, (Award, 12 May 2005)
Continental Casualty
Company
Continental Casualty Company v. Argentine Republic, ICSID
Case No. ARB/03/9, (Award, 5 September 2008)
Consortium RFCC v.
Kingdom of Morocco
Consortium RFCC v. Kingdom of Morocco, ICSID Case No.
ARB/00/6, (Award, 22 December 2003)
Desert Line LLC v.
Yemen
Desert Line LLC v. Republic of Yemen, ICSID Case No.
ARB/05/17; IIC 319 (Award, 6 February 2008)
Duke Energy v.
Ecuador
Duke Energy Electroquil Partners & Electroquil S.A. v. Republic
of Ecuador, ICSID Case No. ARB/04/19, (Award, 18 August
2008)
vi
EDF v. Romania EDF (Services) Limited v. Romania, ICSID Case No.
ARB/05/13, (Award, 8 October 2009)
El Paso v. Argentina El Paso v. Argentine Republic, ICSID Case No. ARB/03/15,
(Award, 31 October 2011)
Electrabel v. Hungary Electrabel S.A. v. Republic of Hungary, ICSID Case No.
ARB/07/19 (Decision on Jurisdiction, 30 Nov. 2012)
Enron v. Argentina
Enron Creditors Recovery Corporation (formerly Enron
Corporation) and Ponderosa Assets, LP v. Argentine Republic,
ICSID Case No. ARB/01/3, (Award, 22 May 2007)
Feldman Karpa v.
Mexico
Feldman Karpa v. Mexico, ICSID Case No. ARB(AF)/99/1;
(Award, 16 December 2002)
Genin v. Estonia
Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v. The
Republic of Estonia, ICSID Case No. ARB/99/2, (Award, 25
June 2001)
Goetz v. Burundi Antoine Goetz and others v. Republic of Burundi, ICSID Case
No. ARB/95/3; IIC 16 (Award, 10 February 1999)
Impregilo v. Argentina Impregilo S.p.A. v. Argentine Republic, ICSID Case No.
ARB/07/17, (Award, 21st June 2011)
Kardassopoulos v.
Georgia
Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18,
ARB/07/15, (Award, 28th February 2010)
LG&E
LG&E Energy Corp, LG&E Capital Corp., and LG&E
International Inc. v. Argentina, ICSID Case No. ARB/02/1,
(Decision on Jurisdiction, 30 April 2004)
LETCO v. Liberia Liberian Eastern Timber Corporation (LETCO) v. Republic of
Liberia, ICSID Case No. ARB/83/2, (Award, 31 March 1986)
Maffezini v. Spain Emilio Agustín Maffezini v. Spain, ICSID Case No. ARB/97/7,
(Award, 13 November 2000)
Metaclad Metalclad Corporation v. The United Mexican States, ICSID
Case No. ARB(AF)/97/1, (Award, 20 August 2000)
Micula v. Romania
Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C.
Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID
Case No. ARB/05/20; IIC 339 (Decision on Jurisdiction and
Admissibility, 24 September 2008)
vii
MTD v. Chile MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Chile, ICSID Case
No. ARB/01/7, (Award, 25 May 2004)
Mondev Mondev International Ltd. v. United States, ICSID Case No.
ARB(AF)/99/2, (Award, 11 October 2002)
Parkerings v.
Lithuania
Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case
No. ARB/05/8, (Award, 11 September 2007)
Phoenix v. Czech
Republic
Phoenix Action, Ltd. v. The Czech Republic, ICSID Case No.
ARB/06/5, (Award, 15 April 2009)
PSEG Global Inc.
PSEG Global Inc. and Konya Ilgin Elektrik Üretim ve Ticaret
Limited Şirketi v. Turkey, ICSID Case No. ARB/02/5, (Award,
19 January 2007)
RSM v. Grenada
RSM Production Corporation v. Grenada, ICSID Case No.
ARB/05/14, (Order Of The Committee Discontinuing The
Proceeding and Decision on, 28 April 2011)
Rumeli Telekom AS v.
Kazakstan, Award
Rumeli Telekom AS and Telsim Mobil Telekomikasyon
Hizmetleri AS v. Kazakhstan, ICSID Case No. ARB/05/16;
(2008) IIC 344, (Award, 29 July 2008)
Rumeli Telekom AS v.
Kazakstan, Annulment
Application
Rumeli Telekom, A.S. v. Kazakhstan, ICSID Case No.
ARB/05/16, (Decision on Application for Annulment, 25 March
2010)
Saipem v. Bangladesh Saipem S.p.A. v. The People’s Republic of Bangladesh, ICSID
Case No. ARB/05/7, (2009) IIC 378 (Award, 30 June 2009)
Santa Elena v. Costa
Rica
Compañía del Desarrollo de Santa Elena SA v. Costa Rica,
ICSID Case No. ARB/96/1, (2000) IIC 73, (Final Award, 17
February 2000)
Sempra Sempra Energy International v. The Argentine Republic, ICSID
Case No. ARB/02/16, (Award, 28th September 2007)
Siemens Siemens A.G. v. The Argentine Republic, ICSID Case No.
ARB/02/8, (Award, 6 February 2007)
SOABI v. Senegal Société Ouest Africa inedes Bétons Industriels (SOABI) v.
Senegal, ICSID Case No. ARB/82/1, (Award, 25 February1988)
Suez v. Argentina Suez, Sociedad General de Aguas de Barcelona S.A., and
InterAgua Servicios Integrales del Agua S.A. v. Argentina,
viii
ICSID Case No. ARB/03/17, (Decision on Jurisdiction, 16 May
2006)
Lowen v. USA
Loewen Group, Inc. and Raymond L. Loewen v. United States of
America, ICSID Case No. ARB(AF)/98/3, (Award, 26 June
2003)
Tecmed Técnicas Medioambientales Tecmed, S.A. v. The United Mexican
States, ICSID Case No. ARB(AF)/00/2, (Award, 29 May 2003)
Tokios v. Ukraine Tokios Tokelės v. Ukraine, ICSID Case No. ARB/02/18,
(Decision on Jurisdiction, 29 April 2004)
Toto v. Lebanon Toto Costruzioni Generali S.p.A. v. The Republic of Lebanon,
ICSID Case No. ARB/07/12, (Award, 7 June 2012)
Vivendi v. Argentina
Compañiá de Aguas del Aconquija S.A. and Vivendi Universal
S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, (Award,
20 August 2007)
Waste Management II Waste Management, Inc. v. Mexico, ICSID Case No.
ARB(AF)/00/3, (Award, 30 April 2004)
ECJ Cases
ACT v.
Commissioners of
Inland Revenue
Test Claimants in Class IV of the ACT Group Litigation v.
Commissioners of Inland Revenue, Case C-374/04, Judgment of
the Court (Grand Chamber) of 12 December 2006
Asteris v. Hellenic
Republic & EEC
Asteris AE and others v. Hellenic Republic and European
Economic Community, Cases C-106 to 120/87, [1988] ECR 5515
Commission v. Air
France
Commission v. Air France, Case T-358/94, [1996] ECR II-2109;
Commission v. Austria
Commission of the European Communities v. Republic of
Austria, Case C-205/06, Judgment of the Court (Grand Chamber)
of 3 March 2009
Commission v.
Belgium & Forum 187
Commission v. Belgium and Forum 187, Cases C-182 and 217/03
[2006] ECR I-5479
Commission v.
Finland
Commission of the European Communities v. Republic of
Finland, Case C-118/07, Judgment of the Court (Second
ix
Chamber) of 19 November 2009
Commission v.
Germany, Netherlands
& Belgium
Commission v. Germany, Netherlands and Belgium, Cases C-67,
68 and 69/03, Commission Decision of 16 June 2004
Commission v.
Sweden
Commission v. Sweden, Case C-249/06, [2009] I-01335
Commission v. Van
der Kooy
Commission v. Van der Kooy, Cases C-67, 68 and 70/85, [1988]
ECR 219
D v. Heerlen
D. v. Inspecteur van de
Belastingdienst/Particulieren/Ondernemingen buitenland te
Heerlen, Case C-376/03, [2005] I-05821
FENIN v. Commission FENIN v. Commission. Case C-205/03, [2006] ECR I-06295
Stardust Marine France v. Commission (‘Stardust Marine’), Case C-482/99,
[2002] ECR I-4397
ICJ Cases
Avena & Other
Mexican Nationals
Case Concerning Avena and Other Mexican Nationals (Mexico
v. United States of America), Judgment, [2004] ICJ Rep 12
Barcelona Traction Barcelona Traction, Light and Power Company,
Limited (Belgium v. Spain) [1970] ICJ Rep 1
ELSI Elettronica Sicula S.p.A. (ELSI) (USA v. Italy) [1989] ICJ Rep
15
ELSI Verbatim Record
Elettronica Sicula S.p.A. (ELSI) (USA v. Italy) [1989] ICJ Rep
15 International Court of Justice Verbatim Record, C-3/CR 89/3
(15 February 1989) at 51
Gabcikovo
Nabymaros Project
Gabcikovo Nabymaros Project (Hungary v. Slovakia), Judgment,
[1997] ICJ Rep 7
LaGrand Case LaGrand Case (Germany v. United States of America), Merits,
Judgment, [2001] ICJ Rep 466
Legality of Nuclear
Weapons Advisory
Opinion
Legality of the Use by a State of Nuclear Weapons in Armed
Conflict, Advisory Opinion, [1996] ICJ Rep 226
x
Legality of Use of
Force
Case Concerning the Legality of Use of Force (Serbia and
Montenegro v. Belgium) (Preliminary Objections) [2004] ICJ
Rep 279
Namibia
Advisory Opinion on the Legal Consequences for States of the
Continued Presence of South Africa in Namibia [1971] ICJ Rep
16
Tehran Hostages United States Diplomatic and Consular Staff in Tehran (United
States v. Iran) [1980] ICJ 1
Temple of Preah
Vihear
Temple of Preah Vihear (Merits) (Cambodia v. Thailand) [1962]
ICJ Rep 6
PCIJ Cases
Factory at Chorzów Factory at Chorzów (Indemnities, Merits) (Germany v. Poland)
[1928] PCIJ (ser. A) No. 17
Free Zones of Upper
Savoy
Free Zones of Upper Savoy and the District of Gex Case (France
v. Switzerland) (1932) PCIJ (ser. A/B) No. 46
The Peter Pázmány
University
Appeal from a Judgment of the Hungaro/Czecoslovak Mixed
Arbitral Tribunal (The Peter Pázmány University case) (1933)
PCIJ (ser. A/B) No. 61
RIAA Cases
Beaumont Case Beaumont Case (the Eilenroc II) (1965) 14 UNRIAA 174
Forests of Central
Rhodope
Forests of Central Rhodope (Greece v. Bulgaria) (1933) 3
UNRIAA 1405
Expropriated
Religious Property
Religious Property Expropriated by Portugal (Spain, France,
and Great Britain v. Portugal) (1920) 1 RIAA 7
Lebas de Courmont Heirs of Lebas de Courmont (1957) 13 RIAA 761
Neer L. F. H. Neer and Pauline Neer (USA) v. United Mexican States
(1926) 4 UNRIAA 60
Radio East Radio East Case (Levant States under French Mandate against
Egypt) (1940) 3 UNRIAA 1871
Rainbow Warrior
Affair
Case Concerning the Rainbow Warrior Affair (New Zealand v.
France) (1990) 19 RIAA 216
xi
Spanish Zone of
Morocco Claims
British Claims in the Spanish Zone of Morocco (Great Britain v.
Spain) (1924 ) 2 RIAA 615
Walter Smith case Walter Fletcher Smith case (USA v. Cuba) (1929) 2 RIAA 913
SCC Cases
Bogdanov v. Moldova
Iurii Bogdanov, Agurdino-Invest Ltd. and Agurdino-Chimia JSC
v. Republic of Moldova, SCC (Arbitral Award, 22 September
2005)
Eastern Sugar v.
Czech Republic
Eastern Sugar B.V. (Netherlands) v. The Czech Republic, SCC
Case No. 088/2004, (Partial Award, 27 March 2007)
Nykomb Synergetics v.
Latvia
Nykomb Synergetics Technology Holding AB v. The Republic of
Latvia, SCC Case No. 118/2001, IIC 182 (Arbitral Award, 16
December 2003)
Petrobart Petrobart Limited v. The Kyrgyz Republic, SCC Case No.
126/2003, (Arbitral Award, 29 March 2005)
RosInvest Ltd v.
Russian Federation
RosInvest Co. U.K. Ltd. v. Russian Federation, SCC Case No.
V079/2005, (Final Award, 12 September 2010)
UNCITRAL CASES
Alps Finance v.
Slovak Republic
Alps Finance and Trade AG v. The Slovak Republic,
UNCITRAL, Case No. IIC 489 (Award, 5 March 2011)
BG v. Argentina BG Group plc v. Argentina, UNCITRAL, (Final Award, 24
December 2007)
Canfor v. USA
Canfor Corporation v. United States and Terminal Forest
Products Ltd, UNCITRAL, (Decision on Preliminary Question, 6
Jun. 2006)
Eureko v. Slovak
Republic
Achmea B.V. v. The Slovak Republic, UNCITRAL, PCA Case No.
2008-13 (formerly Eureko B.V. v. The Slovak Republic), (Award
on Jurisdiction, Arbitrability and Suspension, 26 October 2010)
Gallo v. Canada Vito G. Gallo v. Canada, UNCITRAL, PCA Case No. 55798
(Statement of Claim, 23 June 2008)
GAMI GAMI Investments, Inc. v. Mexico, UNCITRAL (Final Award,
15 November 2004)
Glamis Gold v. USA Glamis Gold Ltd v. The United States of America, UNCITRAL,
(Award, 8 June 2009)
xii
Himpurna v.
Indonesia
Himpurna Cal. Energy Ltd v. PT (Persero) Persusahaan Listruik
Negara (Indonesia), UNCITRAL (Final Award, 4 May 1999)
International
Thunderbird
International Thunderbird Gaming Corporation v. The United
Mexican States, UNCITRAL, (Separate Opinion (of Thomas
Wälde), 1st December 2005)
Lauder v. Czech
Republic
Lauder v. Czech Republic, UNCITRAL (Final Award, 3
September 2001)
Merrill & Ring Merrill & Ring Forestry LP v. Canada, UNCITRAL, (2010) IIC
427 (Award by Ad Hoc Tribunal, 31 March 2010)
National Grid v.
Argentine
National Grid plc v. Argentine Republic, UNCITRAL, Case
1:09-cv-00248-RBW (Award, 3 November 2008)
Pope & Talbot,
Damages award
Pope & Talbot Inc v. Canada, UNCITRAL, (Award in Respect
of Damages, 31 May 2002)
Pope & Talbot, Merits
award
Pope & Talbot Inc v. Canada, UNCITRAL, (Award on the
Merits of Phase 2, 10 April 2001)
Saluka Saluka Investments BV v. Czech Republic, UNCITRAL, (Partial
Award, 17 March 2006)
UPS v. Canada United Parcel Services of America Inc v. Canada,
UNCITRAL, (Award on Jurisdiction, 22 November 2002)
WTO Cases
Argentina Textiles and
Apparel
Argentina — Measures Affecting Imports of Footwear, Textiles,
Apparel and other Items (1998) WT/DS56/AB/R
India Patent (US) India — Patent Protection for Pharmaceutical and Agricultural
Chemical Products (1997) WT/DS50/R
US Carbon Steel
United States — Countervailing Duties on Certain Corrosion-
Resistant Carbon Steel Flat Products from Germany (2002)
WT/DS213/AB/R
US Continued Zeroing United States — Continued Existence and Application of Zeroing
Methodology (2009) WT/DS350/AB/R
US Gasoline United States – Standards for Reformulated and Conventional
Gasoline (1996) WT/DS2/AB/R
Ad Hoc Tribunals
xiii
LIAMCO Libyan American Oil Company (LIAMCO) v. The Government
of the Libyan Arab Republic (1977) 62 ILR 140
Sapphire v. National
Iranian Oil Co
Sapphire International Petroleum Ltd. v. National Iranian Oil
Co, Ad hoc Tribunal, Arbitral Award (15 March 1963), 35 ILR
136, 187-88
Other CASES and awards
Amoco v. Iran Iran-US Claims Tribunal, Amoco Int‘l Finance Corp. v. Iran,
(1987) 15 CTR 112
Martini Case Italy v. Venezuela (1931) 25 AJIL 556
Pezoldova v. Czech
Republic
Pezoldova v. Czech Republic, Merits, UN Doc
CPR/C/76/D/757/1997
TOPCO Texaco Overseas Petroleum Company/California Asiatic Oil
Company (TOPCO) v. Libya, Merits (1979) 53 ILR 389
LCIA CASES
Occidental Occidental Exploration and Production Company v. Ecuador,
LCIA Case No. UN3467, (Final Award, 1 July 2004)
TREATIES
GATT
General Agreement on Tariffs and Trade, (adopted 30 October
1947, entered into force provisionally on 1 January 1948) 55
UNTS 187
ICJ Statute Statute of the International Court of Justice, (adopted 26 June
1945, entered into force 24 October 1945) 145 BSP 832
NAFTA
The North American Free Trade Agreement (adopted 17
December 1992, entered into force 1 January 1994) 32 ILM 289,
605
New York Convention
Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (adopted 10 June 1958, entered into force 7 June
1959) 330 UNTS 3
xiv
VCLT Vienna Convention on The Law Of Treaties (adopted 23 May
1969, entered into force 27 January 1980) 1155 UNTS 331
LEGISLATION
ALI Restatement of
Foreign Relations
Law
The American Law Institute's Restatement (Third) of the Foreign
Relations Law of the United States (American Law Institute
Publishers, 1987)
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Paradell, L. ‘The BIT Experience of the Fair and Equitable
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Warner (eds), Investment Treaty Law, Current Issues II (BIICL
2007)
Schreuer Schreuer, C. ‘Fair and Equitable Treatment in Arbitral Practice’
(2005) 6 JWIT 357
Thomas
Thomas, J.C. ‘Reflections on Article 1105 of NAFTA: History,
State Practice and the Influence of Commentators’ (2002) 17
ICSID Rev 21
Tietje
Tiejte, C. ‘Bilaterale Investitionsschutzvertrage zwischen EU-
Mitgliedstaaten (Intra-EU-BITs) als Herausforderung im
Mehrebenensystem des Rechts’ in Matthias Lehmann (ed),
xvii
Beiträge zum Transnationalen Wirtschaftsrecht (Transnational
Economic Law Research Center (TELC) -Institut für
Wirtschaftsrecht, Issue 104, 2011).
UNCTAD on FET
United Nations Conference on Trade and Development, ‘Fair and
Equitable Treatment: A Sequel’, UNCTAD Series on Issues in
International Investment Agreements II (2012)
WTO Working Group
WTO, Working Group on the Relationship between Trade and
Investment, ‘Transparency’, Note by Secretariat,
WT/WGTI/W/109 (27 March 2002)
1
Statement of Facts
Legal development in Barancasia
On 31 December 1998, the Republic of Barancasia (“Barancasia”) and the
Federal Republic of Cogitatia (“Cogitatia”) concluded a BIT. It entered into force on
the 1 August 2002.
On 1 May 2004, both states joined the European Union (the “EU”). After this,
Barancasia’s Government reviewed its Intra-European Union BITs and concluded that
they had become obsolete. As a result, on 29 June 2007 the Federal Republic of
Cogitatia notified Barancasia that it intended to immediately terminate the BIT, to
which the Minister of Foreign Affairs of Cogitatia replied on 28 September 2007.
After 1 August 2012, the parties were entitled to unilaterally terminate the BIT. In
an interview dated 5 May 2012, the Prime Minister of Barancasia mentioned
Barancasia’s further informal attempts to terminate the BIT.
In May 2010, Barancasia adopted the LRE, which was aimed at encouraging
the further development and introduction of renewable energy technology until the
share of electricity generated from renewable sources amounts to no less than 20
percent as compared with the country’s gross consumption of energy; a target it has yet
to reach to date.
The LRE provided that this would be encouraged by fixing general feed-in tariffs
for those who receive a license from the BEA. The tariff would be applicable for 12
years from the time of the issuance of a license. On 1 July 2010 the BEA announced
publicly the fixed feed-in tariff: 0.44 EUR/kWh.
During 2011, ground-breaking technology was developed which reduced the costs
of development. From the beginning of 2012, it became apparent to the Government of
Barancasia that the whole renewable energy support scheme was unsustainable and
maintaining it would result in exceeding its budget. In November 2012, private
hearings took place before the Barancasian Parliamentary Energy Committee, in which
only specially invited representatives of the industry and certain stakeholder groups
were called to present testimony. Subsequently, the BEA amended the LRE and
announced the new fixed feed-in tariffs, which was significantly reduced to 0.15
EUR/kWh, and retroactively applied from 1 January 2013.
2
The activities of the investor
Vaisuki had been engaged in the development of small scale fossil fuel and wind
turbine generation facilities in Cogitatia and elsewhere in the region. In May 2009,
Vasiuki purchased land plots in Barancasia and decided to launch an experimental solar
project Alfa which was 1 January 2010 connected to the grid.
Vasiuki applied for a license for the Alfa project, but the BEA denied this request
on 25 August 2010 because a fixed feed-in tariffs would only be available for new
projects, not for existing ones. .
On that same date, Vasiuki successfully obtained a license for 12 years with a
guaranteed 0.44 EUR/kWh tariff for its second photovoltaic project, Beta, which
became operational on 30 January 2011. Vasiuki also decided, building on its efforts
from the Alpha and Beta projects, to launch 12 more photovoltaic projects using the
new and cheaper technology. Vasiuki obtained all the necessary resources including
money, several plots of land and obtained construction permits.
On 1 July 2012, Vasiuki obtained licenses from the BEA for the development of
12 photovoltaic power plants with an approved 0.44 EUR/kWh feed-in tariff. Thus it
started the construction of photovoltaic power plants based on the new technology.
By that time Vasiuki had made considerable investments of its own.
3
Summary of Pleadings
I. The Claimant submits that the Tribunal has jurisdiction over the
dispute.
A. The Claimant is an investor for the purposes of Art 1(1) of the BIT
and their photovoltaic solar projects and licenses in respect of it
constitute investments to be protected under Art. 1(2) BIT because
they both satisfy the criteria in the BIT.
B. The investments were made while the BIT was in force because the
Respondent failed to provide valid notification to terminate and the
Lisbon Treaty did not replace the BIT.
C. The claims are admissible before the Tribunal, as there is consent to
arbitration by both parties, which cannot be struck out on the basis
of the authority of the CJEU, which lacks jurisdiction to hear
investor-state disputes.
II. The Respondent has breached the standard of FET under the Art 3
BIT.
A. The Claimant submits that a wide interpretation of FET, as an
autonomous treaty standard, is the proper construction of Article.
B. The Claimant submits that the Respondent has breached this
standard because its amendment to the LRE and feed-in tariffs were
arbitrary, opaque and breached legitimate expectations.
III. The Claimant submits that the Tribunal should order the Respondent
to repeal the amended Art 4 of the LRE.
A. The Claimant contends that restitution is the primary form of remedy
for this Tribunal as dictated by customary international law.
B. The Claimant further submits that this order would not breach any
other EU obligations due to its involuntary nature.
IV. In the alternative, the Claimant submits that the Tribunal should
require the Respondent to compensate for the Claimant’s losses.
A. The Claimant submits that the compensation should be calculated
according to the DCF method in addition to the sunk costs in starting
up the investments.
4
Pleadings for the Jurisdictional Phase
I. THE DISPUTE FALLS WITHIN THE JURISDICTION OF THE TRIBUNAL
A. Applicable Law and its Interpretation
Whilst treaty and customary obligations exist independently of each other, the
BIT must be interpreted in light of relevant rules of international law applicable
between the parties.1 Art 31 of the VCLT, which contains the general rules of treaty
interpretation, applies because it is representative of customary international law.2 Art
31(3)(c) provides that in addition to considering the context, Tribunals may look to
relevant rules of international law. Therefore, decisions of international courts and
tribunals constitute “subsidiary means”3 for determining rules of international law and
can be used to provide guidance on the interpretation of the terms within the BIT. In
addition to this, the decisions of other Arbitral Tribunals form a body of jurisprudence,
which may be considered by this Tribunal.
B. The Tribunal has jurisdiction ratione personae.
The Claimant is an investor as defined under Art 1(2)(b) of the BIT and so the
BIT applies to afford protection to their investments.4 The BIT requires incorporation
and a permanent seat in the territory of the Contracting Party. The Claimant is a Limited
Liability Company, incorporated under the laws of Cogitatia.5 The permanent seat of a
legal person is determined by the location of its main activities or management.6 The
Claimant’s correspondences were completed through it’s headquarter in Cogitatia7 thus
1 Article 31(3)(c) VCLT. 2 US Gasoline, p17 and p3 at [16]; India Patent (US), [46]; Argentina Textiles and Apparel, [42]; US
Carbon Steel, [61]–[62]; US Continued Zeroing, [268]; Villiger, Art. 31 [37-8]; Legality of Use of Force,
[100]; LaGrand Case, [99]; Legality of Nuclear Weapons Advisory Opinion, [19]. 3 Art 31(3)(c) VCLT; Art 38(1)(d) ICJ Statute. 4 Art 12 BIT. 5 Problem, Statement of Uncontested Facts, p20 [3]. 6 Tokios Tokelės v. Ukraine, p43. 7 Alps Finance v. The Slovak Republic, p88.
5
suggesting that Cogitatia is the location of its permanent seat. Therefore, the Claimant
is an investor for the purposes of the BIT.
C. The Tribunal has jurisdiction ratione materiae.
The Claimant’s photovoltaic solar projects constitute an investment, as defined
under Art 1(1) of the BIT thus the BIT applies.8 The investment must be in the territory
of the Respondent according to its laws and regulations, and in connection with
economic activities.
Art 1 of the BIT requires the investment to be made in connection with
economic activities. However, it does not provide a definition. Thus the ECT offers
guidance for what constitutes economic activity in an energy dispute that this case is.
The definition for economic activity within the energy sector in Art 5(1) of the ECT
includes the production and trade of energy9. This attributes to the activities conducted
by the Claimant and hence Claimant’s investment was done in connection with an
economic activity.
The projects were built in line with the Clean Energy targets which the
Respondent set for itself, in line with the EU, to support both economic and ecological
development of its country. Further the lack of profitability is to be attributed to the
Respondent’s actions as the Respondent did not grant the tariffs available to all the
other projects. The Tribunal in Phoenix v Czech Republic had to evaluate a situation
where there had been no commercial activity apart from the acquisition because the
Respondent had frozen assets of the Claimant in connection with legal proceedings
against it. Nonetheless, the Tribunal accepted the operations by the Claimant as an
investment for the purpose of the BIT because a denial would have misinterpreted aims
of the BIT.10
8 Art 12 BIT. 9 FENIN v. Commission, [25]. 10 Phoenix v. Czech Republic, [133].
6
The Tribunal in Phoenix v Czech Republic uses the construction and operation
of energy plants as the most undisputable example of an investment.11 As was the case
in Phoenix v Czech Republic the Tribunal in the present case should find that the
Claimant’s solar projects constitute an investment for the purposes of the BIT.
Furthermore, the guaranteed feed-in tariff for licensed projects granted under
the BEA constitute an investment under the non-exhaustive list of examples of
investments provided under Art 1(1)(e) of the BIT. This was frequently applied by other
tribunals.12 As such the right to the fixed feed-in tariff of 0.44EUR/kwH13 for the Beta
and twelve other projects constitute a protected investment under the BIT.
Therefore, all of the Claimant’s solar projects constitute an investment for the
purposes of the BIT and should be afforded protection under the BIT.
D. The Tribunal has jurisdiction ratione temporis.
The Claimant submits that all investments were made while the BIT was still in
force. The Respondent’s attempts to unilaterally terminate the BIT and the parties’
accession to the EU, does not result in a valid termination of the treaty before the
investments were made.
i. The Respondent’s attempt to terminate the BIT within
the initial period of 10 years was unsuccessful.
In considering the procedures for termination of the BIT, provisions within the
BIT are the lex specialis and the VCLT forms the lex generalis14, as Barancasia and
Cogitatia are parties to the VCLT.15 Art 13 (2) BIT prescribes a period of 10 years
before the treaty can be unilaterally terminated. Art 13(1) BIT states that the BIT enters
into force on the date of the last written notification through diplomatic channels, which
11 Phoenix v Czech Republic, [79]. 12 RMS v Grenada, p30; LG&E, p82. 13 Problem, Statement of Uncontested Facts, p22 [16-7]. 14 Amoco v Iran, p112. 15 Problem, Procedural Order No 2, p58 Q5.
7
occurred on 1 August 2002.16 As confirmed in Art 24(1) VCLT, the BIT enters into
force in the manner and on the date agreed by the parties. Therefore the BIT may be
unilaterally terminated on 1 August 2012.
The Respondent first stated its intent to terminate the treaty on 29 June 2007.17
The termination should occur on 30 June 2008 when Resolution No. 1800, enacted by
the Respondent, takes effect.18 Both dates fall within the 10 year period in which the
BIT cannot be terminated. The Respondent failed to comply with the exact procedures,
it had itself put in place for the termination of the BIT hence the Respondent’s attempt
to terminate the BIT is invalid.
In the alternative, Art 65(1) VCLT requires a procedure to be followed with
respect to the termination of a treaty.19 Art 65(1) requires notification of the reasons
and measures for termination of the treaty. 20 Neither the Respondent’s notification of
termination, nor the Resolution No.1800 that it refers to, indicate a clear reason as to
why it wishes to terminate the BIT. Therefore, the notification to terminate is invalid
for the time after the initial period and does not follow the required procedures under
the VCLT.
The Claimant further submits that all other attempts do not qualify as a valid
termination. Firstly, the notifications were made informally21 and therefore do not
constitute “written notification through diplomatic channels”, as prescribed by Art
13(2) BIT. Secondly, the notifications did not indicate the reasons for the termination
for the purposes of Art 65(1) VCLT.
16 Problem, Procedural Order No 2, p57 Q1. 17 Problem, Statement of Uncontested Facts, p21 [9], p38. 18 Problem, Appendix to the Government Resolution, p38. 19 Art 54 VCLT. 20 Krieger, p1145. 21 Problem, Statement of Uncontested Facts, p22 [24].
8
ii. The BIT fails to be terminated on the basis of mutual
consent.
Art 54(b) VCLT allows for the immediate termination of a treaty when there is
mutual consent. The notice of delivery of receipt of the Respondent’s notification on
29 June 2007 does not demonstrate any intention by the Cogitatia to terminate the
treaty.22 Cogitatia has in any way demonstrated consent through any of its actions, such
as the exchange of instruments, ratification, accession or signing of any documents.
Furthermore, there have been no consultations between the parties regarding the
termination of the BIT.23 The lack of response to the informal notifications24 cannot be
treated as consent because the Claimant was not required to respond to communication
that is invalid under international law.25 Cogitatia has not expressed any clear consent
to termination, and therefore, the treaty cannot be terminated on the basis of mutual
consent.
iii. EU law does not make the BIT obsolete.
The accession of both states to the EU does not make the treaty obsolete as the
BIT was already in force.26 Art 59 VCLT allows for the termination of a treaty implied
by the conclusion of a latter treaty, which Respondent argues to be the Lisbon Treaty.
Respondent incorrectly applies this provision and fails to fulfil the requirements under
this provision, therefore all investments are protected under the treaty as it remains in
force.
Art 59(1) VLCT requires the later treaty to govern the same subject matter. The
Treaty of Lisbon, as an amending treaty to the Treaty on European Union and the Treaty
Establishing the European Community, does not provide for a dispute settlement
procedure for an investor or the detailed investment protections that a BIT offers.27 This
view was confirmed by the tribunal in Eureko v Slovak Republic, which discussed the
22 Problem, Statement of Uncontested Facts, p21 [10], p39. 23 Art 54 VCLT. 24 Problem, Problem, Statement of Uncontested Facts, p22 [24]. 25 Behrens, p23. 26 Problem, Procedural Order No 2, p57 Q1; Art 13(1) BIT. 27 Tiejte, pp12-5.
9
same legal issues as in the present case. 28 The Tribunal described the protection
mechanisms for investors under EU law to “narrower and more loosely defined”.29
Further, even within the EU law there is no indication that it is aimed to replace any
standards of protection within BITs.30 The key aim of EU law in this area is to protect
investment mobility, whilst BITs are designed for protecting investment security.31
The second requirement under Art 59 VCLT is that it must be clear form the
parties’ intention that the matter should be governed by the latter treaty 32 or the
provisions are so far incompatible that they cannot be applied simultaneously.33
Under Art 59(1)(a) VCLT, although the Respondent’ intent to terminate the
treaty is clear,34 the Claimant’s home state has not indicated any such intention, nor
have they indicated that they consider the BIT to be obsolete. Academic commentary
expresses the need to establish intention beyond reasonable doubt.35 There are no
precedents where the single act of accession to the EU has been recognised as
sufficiently clear intention to have their investment protection being guided solely by
EU law. Since Cogitatia has not demonstrated a clear intention for their investment
protection to be guided under EU law instead of the BIT, the BIT may not be terminated
on the basis of Art 59(1)(b).
Art 59 (1)(b) VCLT requires the latter treaty to be incompatible with the BIT.
The Claimant submits that the treaties are not so far incompatible that they may not
coexist. In the alternative, the Claimant submits that this limb of the provision is
ultimately linked to the intention of the parties and a clear lack of intention on the
parties should negate the operation of this provision36.
28 Eureko v Slovak Republic, p252. 29 ibid. 30 ibid. 31 Strik, p249. 32 Art 59(1)(a) VCLT. 33 Art 59(1)(b) VCLT. 34 Problem, Statement of Uncontested Facts, p20 [6], p36, p21 [9]&[11], p38. 35 Krieger, p1017. 36 Electrabel v. Hungary, [5.32].
10
The BIT and EU law are not incompatible as the laws on free transfer of capital,
the right to a fair treatment and the jurisdiction of the CJEU are not in conflict with the
provisions of BIT. The authority of the EU to restrict the free movement of capital37
only applies to non-member states under Art. 64, 66 and 75 TFEU. 38 In one of its
rulings against Finland, the CJEU confirmed that this EU freedom did not conflict with
the relevant BIT because the guarantee of this freedom only applies to members of the
EU. Therefore, with regard to an Intra-European BIT, such conflict would not arise. 39
Furthermore, the prohibition of discrimination under Art 18 TFEU does not
conflict with the access to arbitration for investors of a certain member state under a
BIT because this advantage cannot be conferred to other members of the EU. The CJEU
regards certain rights such as taxation privileges of DTCs as inherent to bilateral
agreements.40 These rights cannot be separated from the BIT therefore they cannot be
conferred to states who are not parties to the treaty. An investor outside of the two
contracting countries is not in a comparable situation according to the CJEU because
their home state did not sign the treaty and thus the rights cannot be conferred to him.
Similarly, the Tribunal should recognise the nature of Art 8 BIT, which allows an
investor to submit disputes before a Tribunal. This right cannot be conferred to
investors of other states under this specific BIT, therefore it does not conflict with the
prohibition of discrimination under EU laws.
Whilst Art 207 TFEU requires Member states to renegotiate their BITs with
non-Member States, Regulation No 1219/2012(15) exempts its application to intra-EU
BITs. Since the BITs are permitted to remain in force as an exemption, this suggests
that intra-EU BITs are compatible with the EU legal system. Furthermore, even extra-
EU BITs remain in force until an investment treaty between the third state and the EU
is completed according to the regulation.
In addition, Art. 351 TFEU confers the authority to its Member States to amend
treaties even after their accession to the EU to be in accordance with EU law. This
37 Steiner, p426. 38 Commission v. Finland, p38. 39 ibid. 40 D v. Heerlen, p61; ACT v. Commissioners of Inland Revenue, p91; Strik, pp224-9; and Tiejte, pp15-7.
11
proves that neither the conclusion of the Lisbon Treaty nor the accession to the
European Union can immediately terminate the BITs. This is in accordance with the
judgment in Eastern Sugar v Czech Republic when the Tribunal quoted the European
Commission Letter of January 13, 2006:
“[…] the effective prevalence of the EU acquis does not entail, at the
same time, the automatic termination of the concerned BITs... Without prejudice
to the primacy of Community law, to terminate these agreements, Member
States would have to strictly follow the relevant procedure provided for this in
regard in the agreements themselves.”41
In the alternative, the Claimant submits that the intention of the parties plays a
role in the operation of Art 59(b) VCLT and the lack of such intention means that the
treaty may not be terminated on this basis. Although this appears to be an objective
limb of the Art 59 VCLT, it “necessarily remain[s] intrinsically linked to the intention
of the parties”42 to replace the treaty.43 An incompatibility is considered to be a means
of establishing the intention to replace the previous treaty by making the latter
significantly different. A mere difference in the governance of the subject matter cannot
suffice to establish intention because it cannot be easily presumed.44 Otherwise, it
would leave a lacuna of protection for investors which cannot have been in the intention
of the parties because the stimulation of investments is a goal of the common
commercial policy of the EU.45 Therefore, Cogitatia’s lack of intention to terminate the
treaty on this basis should negate any possibility to terminate the treaty based on the
incompatibility of the provisions of the Lisbon Treaty and the BIT.
41 Eastern Sugar v. Czech Republic, p25. 42 Corten & Klein, p1341. 43 Krieger, p1019. 44 Dubuisson, p1341. 45 European Commission Communication.
12
E. The claims are admissible to the Tribunal.
i. The parties consented to the resolution of the dispute.
The consent to arbitration was given by both parties to the dispute. Art 8 BIT
manifests the Respondent’s unilateral offer to submit “any dispute which may arise
between an investor of one Contracting Party and the other Contracting Party in
connection with an investment in the territory of that other Contracting Party” before
a Tribunal if the dispute cannot be resolved by negotiations within six months.46 For
the reasons explained in (I)(A)-(C), the present case is a dispute of this nature, and the
Respondent has declined negotiations on 20 April 2014.47 The Respondent’s offer was
accepted when the Claimant submitted the Request for Arbitration.48 Therefore, the
Tribunal has jurisdiction over the dispute.
ii. The jurisdiction of this tribunal does not undermine the
authority of the CJEU.
The claim cannot be decided by the CJEU because Art 344 TFEU only allows
for disputes to be submitted by Member States and not by private individuals or entities.
The Tribunal in Eureko further explained that although provisions of EU law are
considered, this does not mean that the case should be referred to the CJEU instead
because it does not possess a monopoly over the interpretation of EU law.49 In the
present case, the Claimant asks for the Tribunal to decide on whether there is a breach
of the BIT in light of EU law, as opposed to deciding whether or not there has been a
breach of EU law itself. As such, the present claim is admissible before this Tribunal.
46 Schreuer, p830; Art 8(5) BIT. 47 Problem, Request for Arbitration, p3. 48 ibid, [3]. 49 ibid, [282].
13
Pleadings for the Merits Phase
II. THE RESPONDENT HAS BREACHED THE BIT.
A. The Respondent has breached the standard of FET owed to the
Claimant under Art 3 of the BIT.
The Claimant submits that it was not afforded Fair and Equitable Treatment by
the Respondent. The Respondent has taken measures that have had the effect of
systematically destroying the Claimant’s investment. The measure of particular interest
is the amendment to the LRE.50 This measure was arbitrary and instigated further
breaches of the BIT, such as the review and subsequent amendment of the feed-in tariff.
The Claimant seeks to rely on the elements of arbitrariness, transparency and the
protection of legitimate expectation to demonstrate that the Respondent has breached
the BIT.
i. The autonomous treaty standard of FET should be
adopted.
The BIT does not provide a definition of FET therefore the customary
international law rules on treaty interpretation are of use in informing the categories of
the substantive protection in question. Furthermore, the customary international law of
treaty interpretation is helpful in defining the scope of these categories. FET as an
autonomous treaty standard has found favour in numerous tribunal.51 It is generally
accepted that a minimum standard of treatment also exists in customary international
law52 and is constantly evolving.53 However, this is different from the autonomous
50 Problem, Statement of Uncontested Facts p24 [34], The Republic of Barancasia Regulaton on the
Support of Photovoltaic Sector, p34. 51 MTD v. Chile, [110-2]; Occidental, [188-90]; CMS, [282-84]; Saluka, [286-95]; LG&E, [125-31];
PSEG Global Inc, [239]; Siemens, [291-99]. 52 See: Barcelona Traction, p32; Merrill & Ring, [210]; Roth; Borchard; Brownlie, pp502-5;
Oppenheim's International Law, pp903-39; and Thomas, for a comprehensive discussion of authorities
on the minimum standard of treatment. 53 ADF, [179].
14
treaty standard54 and is not the standard that the Claimant seeks to apply in the present
case.
ii. The autonomous treaty standard extends to actions
which are unfair, unreasonable or unequitable.
The autonomous treaty standard, has evolved beyond the standard in the Neer55
case. A modern interpretation of the autonomous FET standard is broader and aligns
more with a teleological interpretation of unfairness or in-equitability.56 This includes
arbitrary conduct, discrimination, the frustration of legitimate expectations and a lack
of transparency. The claimant submits that the Respondent’s conduct was arbitrary,
opaque, and violated the Claimant’s legitimate expectations.
Although the word ‘treatment’ is not defined in the BIT, the customary
international law of treaty interpretation can be used to discern its meaning. The
meaning of treatment within the context of investment includes actions directed
towards investments which are protected under the BIT, and further obligations
imposed on such investments.57
B. The change in the feed-in tariff for the photovoltaic projects
breached the Claimant’s legitimate expectations.
FET has been interpreted to include procedural and substantive protections,
including the protection of legitimate expectations.58 This requires the host state to act
in a consistent and predictable manner, 59 especially when dealing with matters
54 UNCTAD on FET, p13. 55 Neer, pp60-6. 56 Pope & Talbot, Damages award, [57], [65]; Pope & Talbot, Merits award, [118]; ELSI, [128];
Mondev, at [114], [116] & [127]; UPS v. Canada , [96-7]; ADF, [181]; Waste Management II, [93],
[98]; GAMI, [95]; Genin v. Estonia, [289]; Saluka, [293]; ALI Restatement of Foreign Relations Law,
Section 172. 57 Suez v. Argentina, [55]. 58 El Paso v. Argentina, [348]; Tecmed, [154]; Metalclad, [89], [103]; EDF v. Romania, [216]; UNCTAD
on FET; Dolzer; Schreuer; Dolzer&Schreuer; Paradell, p117. 59 CMS [274], [275], [277]; Impregilo v. Argentina, [290], [291], [331]; Enron v. Argentina, [260].
15
concerning sovereign power.60 The review of the feed-in tariff was completed under
the sole discretion of the government.61 Since this was a unilateral modification, it
requires a high level of scrutiny.62
The Respondent’s measures were taken with the intent of attracting and
securing investments.63 The purpose for which the legislation as enacted must be
considered when determining when a legitimate expectation was created. 64 This
expectation would be reinforced if the Respondent made explicit guarantees to the
Claimant.65
The Claimant submits that the Respondent in this case should:
“be tied to the objective expectations that it creates in order to induce investment.
Such an upset of expectations thus requires something greater than mere
disappointment; it requires, as a threshold condition, the active inducement of a
quasi-contractual expectation.”66
The Respondent made representations to the Claimant in the LRE, which states
that the feed-in tariff, once agreed, will subsist for 12 years. 67 This is reinforced by the
Regulation supporting the LRE in which it specifically states that once a renewable
energy provider has obtained a licence, it “is entitled to the feed-in tariff calculated and
announced by the Barancasia Energy Authority for the duration of the period specified
by the Law on Renewable Energy”.68
In granting a licence for the Beta project, these feed-in tariff guarantees, which
were made to the public at large, became specific to the Claimant.69 The Claimant has
acted under the terms and conditions of the license for the first two years before the
60 Consortium RFCC v Kingdom of Morocco, [51]; Impregilo v. Argentina, [260]; Duke Energy v.
Ecuador, [343]; Toto v. Lebanon, [161]. 61 Problem, Statement of Uncontested Facts, p24 [34]. 62 Continental Casualty Company, [261]. 63 BIT preamble; Problem p22, Statement of Uncontested Facts [16]. 64 Sempra, [298]. 65 Parkerings v. Lithuania, [331]; El Paso v Argentina, [375–7]; International Thunderbird, [32]; ILC
First Report, [160–2]; Enron v. Argentina [265]. 66 Glamis Gold v. USA. 67 Article 4, LRE. 68 Problem, The Republic of Barancasia Law on the Amendment of Article 4 of the Law on Renewable
Energy, p35. 69 Problem, Statement of Uncontested Facts, p22 [23].
16
feed-in tariff was changed, without any issue. Furthermore, the Claimant made
substantial investments in reliance on the guaranteed tariff. 70 This reinforces the
Claimant’s expectation that the tariff would remain constant, especially as the project
commenced before the review process was implemented. 71 The Respondent also
promised that the feed-in tariff would remain until renewable energy constituted 20%
of their overall energy matrix.72 This was never reached.73 The Claimant is required to
act in reliance on the expectation74 and has done so when it made investments in the
Beta project and the strategic expansion in emulating its expertise in its clustered
windfarm projects into twelve other projects.75 This required substantial sunk costs.76
Therefore, the Respondent should be obligated to maintain the 12-year tariff at
the rate that was initially agreed upon.
C. The Claimant was arbitrarily denied a licence for the Alpha
project.
Firstly, arbitrary conduct breaches the autonomous FET standard.77 Secondly,
the Claimant submits that the Respondent’s conduct was arbitrary. Furthermore, there
is no requirement to act in bad faith, for there to be a finding of a breach of FET.78
Arbitrary conduct must be “clearly improper and discreditable, with the result
that the investment has been subjected to ‘unfair and inequitable treatment”.79 Such
conduct includes unfair and unreasonable exercises of governmental authority and
discretion.80 The Claimant’s investment must also have been treated unfairly.
70 Problem, Statement of Uncontested Facts, p24 [36]. 71 ibid [33] & [36]. 72 Problem, Statement of Uncontested Facts, p22 [15]. 73 Problem, Procedural Order No. 2, p58 Q10. 74 Metaclad [89]. 75 Problem, Statement of Uncontested Facts, p23 [27]. 76 Problem, Statement of Uncontested Facts , p24 [36]. 77 Lauder v. Czech Republic, [221]; CMS [290]; Waste Management II, [98]. 78 The Loewen v. USA. 79 Mondev, [127]. 80 ELSI (Verbatim Record), p51.
17
The Claimant recognises that the ELSI 81 case regards breaches of FET as
conduct that “shock[s] a sense of judicial propriety.”82 However, the Claimant submits
that the practice of investment arbitration has progressed since to include arbitrary and
discriminatory conduct. 83
The Regulation on the Support of Photovoltaic Sector refers to the obtaining of
a licence for the development of existing or new photovoltaic capacity. 84 This
demonstrates that the Respondent intended for licences to be available to existing
projects as well as new ones thus their reason for denying a licence to the Alpha project
was erroneous. This is exacerbated by the fact that the Respondent indicated that they
would continue to incentivise the development of renewable energy until it constituted
20% of their energy production. 85 This incentive is yet to be reached, 86 thus
exemplifying the unfair way in which the Respondent rejected granting of the license
for the Alpha project.
The combination of these two instances indicate that the treatment demonstrates
how the Respondent acted arbitrarily. This treatment is the principle basis for the harm
done to the Claimant87 and is the Respondent’s arbitrary conduct.88 Therefore, the
Respondent acted unfairly in denying a licence to the Claimant for the Alpha project
and breached Art 4 of the BIT.89
D. There was a lack of transparency in the Respondent’s conduct
that breaches FET
81 ELSI. 82 ELSI, [128]. 83 Waste Management II, [93]. 84 Problem, The Republic of Barancasia Regulation on the Support of Photovoltaic Sector, p33. 85 Problem. Statement of Uncontested Facts, p22 [15]; Art 2 LRE. 86 Problem, Procedural Order No 2, p58 Q10. 87 Occidental, [163]. 88 Metalclad, [92-3]. 89 Art 3 BIT.
18
A lack of transparency can amount to a violation of FET.90 The process by
which the Alpha project was denied a licence lacked transparency, as the Claimant
should have been made aware of all relevant legal rules for the purpose of initiating or
completing the contract.91 In applying for a licence for the Alpha project, the Claimant
was never made aware that the feed-in tariff would only be made available to new
projects. This was also not apparent in the LRE. 92 This requirement is a crucial
condition, as it is one of the basis under which licences are issued. Thus, it should have
been explicitly stated in either the legislation itself or in the communication between
the two parties. The Respondent’s failure to do this breaches the Claimant’s right to fair
and equitable treatment enshrined in Art 3 of the BIT. The way in which the Claimant
was treated was neither transparent nor sufficiently clear. In addition to this the
Respondent has not disclosed that criteria based on which it denied the licence.93
Furthermore, the Claimant should have been invited to the private hearing held
in November 2012.94 The Barancasian Parliament had broad discretion on whom they
chose to invite and made a point to invite both national and foreign investors. 95
However, the Claimant was never made aware of this.96
The Respondent’s frustration of the Claimant’s legitimate expectations
combined with its arbitrary conduct and apparent lack of transparency unequivocally
demonstrate that the Respondent has violated the standard of Fair and Equitable
Treatment owed to the Claimant.
90 Maffezini v. Spain, [83]; Waste Management II, [98]; Pope & Talbot, Merits Award, [177-79];
Petrobart, [25]; Tecmed, [162], Petrobart, [164]. 91 Metalclad, [76]; Tecmed, [154]. 92 Problem, Statement of Uncontested Facts, p22 [22]. 93 Problem, Procedural Order No. 2, p58 Q16. 94 Problem, Statement of Uncontested Facts, p24 [34]. 95 Problem, Procedural Order No. 3, p62 Q5. 96 ibid. Q6.
19
E. In any event the amendment to the LRE was an arbitrary
measure.
In the event that the Tribunal is not minded to apply the autonomous treaty
standard of FET it is the Claimant’s position that even by the yardstick of the
international minimum standard of treatment, the Respondent’s amendment was an
arbitrary measure.
For a measure to be arbitrary under the minimum standard, it must “shock or at
least surprise a sense of judicial propriety”,97 and has been equated to measures that
are “grossly unfair”.98 The retroactive amendment was ultra vires, as there are no
legislative provisions in Barancasian laws that allow for such effect.99 Combining this
with the fact that the process for adopting this amendment was opaque only serves to
demonstrate the idiosyncratic and capricious nature of this amendment.
The Claimant was not consulted on the implication of this amendment and the
Claimant submits that it should have at the least been notified of new laws and
provisions before they are adopted 100 so that he could have plan his investment
accordingly.101 However, on the facts, it is apparent this is not that case because by the
time of the amendment the Claimant had already obtained a licence 102 and made
substantial investments based on it.103 There is nothing to suggest that the Respondent
notified investors of the pending change in legislation before it was enacted.
97 ELSI, [128]. 98 Waste Management II, [98]. 99 Problem, Procedural Order No.2, p63 Q19. 100 WTO Working Group, p4. 101 Tecmed, [154]. 102 Problem, p24 [33]. 103 ibid, [36].
20
F. The Respondent cannot rely on essential security interests under
Art 11 BIT to escape its obligations.
First and foremost, the Claimant contends that the exception to obligations
derived from international arbitration agreements should be interpreted narrowly.104
Despite the fact that essential security interests have been considered to be broad
enough to include economic emergencies,105 it is the Claimant’s contention that the
circumstances in the present case are not comparable to the most severe cases of
violence and political turmoil such as in the Argentine economic crisis, where even
then, the Tribunals have held that it was insufficient to warrant action to protect its
essential security interests or to maintain international peace and security. This suggests
that the Tribunal would only accept the application of such a provision if the country is
experiencing the highest degree of public disorder to the extent that it threatens the
collapse of the government.106
The Respondent state has experienced nothing remotely analogous to these
circumstances. First of all there are no reports of violence.107 The protests were not
directed at the state of the economy, but for increased educational funding.108 Finally,
there is no evidence that the Respondent’s economy was on the verge of collapse as
there were only concerns that the state budget could not support the approval of all
applications.109 The Respondent has not even accepted every application it has received
under the LRE110 thus the concerns as to its capacity, should they all be accepted, are
rendered moot.
Therefore it is the Claimant’s position that the Respondent does not have
essential security interests which allow it to escape its obligations under the Art 11 BIT.
104 Canfor v. USA, [187]; Enron v. Argentina, [331]. 105 CMS, [359-66]; LG&E, [238]; Enron v. Argentina, [232]. 106 LG&E, [231]. 107 Problem, Procedural Order No.2, p63 Q17. 108 Problem, Statement of Uncontested Facts, p24 [32]. 109 Problem, Statement of Uncontested Facts, p23 [29]. 110 Problem, Procedural Order No.2, p62 Q13.
21
III. THE RESPONDENT SHOULD EITHER REPEAL ART 4 OF THE LRE OR
CONTINUE TO PAY VASIUKI THE €0.44 FEED-IN TARIFF FOR 12 YEARS.
A. The Respondent should be ordered to repeal Art 4 of the LRE.
i. Restitution is the primary form of remedy in
international law.
If the Tribunal finds a breach of the BIT, the Respondent must make full
reparations. Restitution is the primary form of reparation under/in international law.111
The essence of this principle is to eliminate the consequences of the illegal act and
restore the situation that would have existed, had the infringement not occurred.112 This
principle is limited insofar as it is not materially impossible or involves a burden which
is “out of all proportion” 113 to its benefit. Compensation should only be awarded if
restitution cannot be effected.
ii. Juridical Restitution is possible in the present
circumstances.
There are numerous decisions declaring the nullity of government measures and
ordering the restoration of a previous legal situation.114 Therefore, it is possible for a
Tribunal to restore the status quo ante by ordering the modification or removal of
previously implemented legislation in addition to restoring individual rights.
111 Art 34-5, ARSIWA; Factory at Chorzów, [29]; Oppenheim's International Law, p529. 112 Metalclad, [122]; Petrobart, p77-8; Avena & Other Mexican Nationals, [138]; Tehran Hostages, p3
[95]; Temple of Preah Vihear, pp36-7; ICJ Reports 2001, p466 [125]; The Peter Pázmány University),
pp208, 249. 113 Article 35(2), ARSIWA. 114 Micula v. Romania, [166–7]: Goetz v. Burundi; Saipem v. Bangladesh; ATA v. Jordan, [133];
Pezoldova v. Czech Republic; Commission v. Austria; Commission v. Sweden; Commission v. Finland;
Martini Case; Radio East; Free Zones of Upper Savoy.
22
iii. The Tribunal should order restitution on behalf of the
Claimant.
The actions taken by the BEA as a result of the LRE and its subsequent
amendments115 caused the loss to the Claimant.116 In order to restore the status quo, the
Claimant must be placed in the position it would have been in had the amendment and
subsequent revaluation, never been implemented. The Claimant submits that the
Tribunal should uphold the primacy of restitution as a remedy. The Tribunal should
only deviate from restitution when it is materially impossible to fulfil or involves a
burden out of all proportion to the benefit derived.117 Neither of those two bars are met
in this case.
Firstly, the repeal of this legislation is possible. The subject matter of the
dispute, such as the 0.44Eu/kW feed-in tariff under the license, has not been
destroyed,118 nor has a third party acquired rights to prevent any actions.119 In addition
a state is free to modify its own laws.
Secondly, it does not involve a burden out of all proportion to the benefit gained.
It is the Claimant’s position that:
‘the [R]espondent State is not entitled to invoke the political or administrative
obstacles resulting from its internal law as justification for the failure to provide
full reparation’.120
Therefore the Respondent cannot invoke any procedural or policy requirements
attached to changing its domestic legislation to preclude itself from making reparations
to the Claimant. Therefore, the Claimant submits that the repeal of the amendment to
115 Problem, Statement of Uncontested Facts, p24 [35]. 116 See: Problem, Annexes to Experts’ Reports, p51-9. This demonstrates that while the amount of loss
is under debate both experts acknowledged that loss has occurred. 117 Art 35 ARSIWA. 118 Tecmed [110–12]; Avena & Other Mexican Nationals, p12; Rainbow Warrior Affair, pp215-84;
Beaumont Case. 119 Forests of Central Rhodope. 120 Crawford, p216.
23
Art 4 of the LRE is impossible and does not impose a disproportionate burden on the
Respondent, thus it should be awarded in this case.
B. Or the Respondent should continue to pay the original tariff.
In the spirit of restitution, if the Tribunal is minded that it is not possible to order
the outright repeal of the offending legislation, the Claimant argues that restitution
should be in the form of specific performance. This would have the same effect of
reinstating the status quo ante.
Specific performance has been ordered and deemed to be appropriate by
international tribunals.121 In the present circumstances, the payment of the previously
agreed feed-in tariff is not only possible but also restores the Claimant’s position
without hindering the Respondent’s sovereignty. This is a monetary remedy in nature,
thus akin to compensation. The situation is by no means irreversible.122 The present
circumstances should be distinguished from the Libyan nationalisation cases123 because
of the different circumstances and the impossibility of restitution in those cases.
Therefore there the Tribunal should consider ordering specific performance if
it is not minded to grant restitution.
C. The Respondent would not be breaching any EU anti-trust
measure by damages to the Claimant.
Should the Tribunal find that the Respondent has breached the BIT, the
Claimant submits that the continued payment of the feed-in tariff constitutes
compensatory damages for the harm that the Respondent has caused.
121 Desert Line LLC v. Yemen, [205]; Nykomb Synergetics v. Latvia, [154]; Gabcikovo Nabymaros
Project. 122 See infra submission II(a)ii; TOPCO, p509. 123 LIAMCO; TOPCO.
24
The Claimant submits that only voluntary measures, which are imputable to the
state, are capable of qualifying as state aid and thus breaching Art 107 TFEU.124 The
nature of damages is intrinsically different from state aid.125 This is because they are
ordered by a Tribunal and the affected party has no discretion to pay, thus barring
exceptional circumstances. Thus the award of damages has no selective advantage as
long as its purpose is to compensate for loss.126
The Claimants’ position is that the payment of the feed-in tariff is merely to
rectify the harm that was caused by the Respondent. There is nothing to suggest that
this payment would have an anti-competitive effect as no complaints have been lodged
with the EC with regard to illegal state aid.127
IV. IN THE ALTERNATIVE, THE CLAIMANT REQUESTS THE TRIBUNAL TO
ORDER THE RESPONDENT TO PAY DAMAGES TO THE CLAIMANT FOR
ITS LOSSES.
Firstly, the valuation of damages is inherently uncertain and necessitates a case-
by-case analysis.128 However, the damages should eliminate the repercussions of the
illegal act. 129 The Claimant submits that this would cover “any damage, whether
material or moral, caused by the internationally wrongful act of a State”.130 Therefore,
any damage that resulted from the revaluation of the feed-in tariff should be paid. This
includes the potential profits that the Claimant has lost.131
With regard to the Claimant’s legitimate expectations, that compensation
124 Commission v. Van der Kooy; Commission v. Air France; Stardust Marine; Commission v. Belgium
& Forum 187; Bacon, p67–70. 125 Asteris v. Hellenic Republic & EEC, [22-3]. 126 Commission v. Germany, Netherlands & Belgium, [9]. 127 Problem, Procedural Order No.2, p63 Q 18. 128 Vivendi v. Argentina, [8.3.16]; Azurix Corp. v. Argentina, [351]; ADC v. Hungary Final Award, [521];
Himpurna v. Indonesia; Sapphire v. National Iranian Oil Co, pp136, 187-88; Rumeli Telekom v.
Kazakhstan, Annulment Application, [142]. 129 Article 31(1), ARSIWA; Factory at Chorzów, p47: “The Chorzów Factory decision is the authority
most frequently cited by international tribunals in investor-state disputes involving matters of
compensation”; Ripinsky&Williams; Bienvenu&Valasek, p231-37. 130 Article 31(2), ARSIWA. 131 SOABI v. Senegal, [7.01–7.18]; LETCO v. Liberia, p373–7.
25
should cover the expenditures made in reliance on the assurances made by the
Respondent. 132 This includes the purchase of land, hiring of personnel and other
equipment133 which amounts to a total of €690,056.134
If the Respondent is not in a position to pay the full amount, then it is within the
Tribunal’s power to award partial compensation for the damage.135 However, this does
not change the fact that compensation is owed and the specific amount owed is at the
discretion of the Tribunal.136
A. The amount of compensation should be assessed according
to the fair market value as of 1 January 2013.
The starting point for calculating the amount of compensation due is the fair
market value of the investment on the relevant date.137 The Claimant’s position is that
the relevant date is the 1 January 2013, when the Respondent adopted the amendment
to the LRE.138 All harm to the Claimant can be traced to this date.
In assessing the fair market value of the losses the Claimant contends that the
investments are a going concern with future projects of profitability. The Claimant has
been acting within the energy sector of the Respondent since 2009139 and has shown
consistent signs of growth.140 The Claimant submits that this valuation should be made
in line with the principle of highest and best use, which requires an assessment of the
value of the investment if it were put to its most valuable use.141 For example, in the
case of Gallo v Canada142, a location with excellent rail and road access was ideally
suited to be a high-volume waste-by-rail landfill therefore its value was assessed on
132 Gabcikovo Nagymaros Project, p55 [80]; Bogdanov v. Moldova, [19]. 133 Problem, Statement of Uncontested Facts, p24 [35]. 134 ibid; Problem, Expert’s Report, p54. 135 Petrobart, [84]; RosInvest Ltd v. Russian Federation; Biwater Gauff (Tanz.) Ltd. v. Tanzania. 136 ADC v. Hungary 2006 Award; Kardassopoulos v. Georgia; BG v. Argentina; and Rumeli Telekom
A.S. v. Kazakhstan, Annulment Application. 137 MTD Equity v. Chile, [238]; Feldman Karpa v. Mexico, [195]; CMS, [409]; Enron v. Argentina, [360];
LG&E, [30]; Sempra, [403]; BG v. Argentina, [419–29]; and National Grid v. Argentine, [269–70]. 138 Problem, Statement of Uncontested Facts, p24 [34]. 139 Problem, Statement of Uncontested Facts, p21 [12]. 140 Problem, Annex 1(A) of Kovic Expert Report, p51; Problem, Statement of Uncontested Facts, p21-2
[23], [27]. 141 Dukes, Article 7; and Santa Elena SA v. Costa Rica, [94]. 142 Gallo v. Canada [124].
26
this basis. The Claimant’s land is perfect for use with solar panels 143 and thus a
photovoltaic cell project on the land is the best use of the Claimants investment.
Therefore it is erroneous to determine the value of the land itself. The fact that it may
be used for other purposes should not discounts its value.
B. The Discounted Cash Flow (DCF) Method is the appropriate
method in the present case.
A DCF method of valuation extrapolates expected net cash flows whilst using
a discounted rate.144 The Claimant submits that the appropriate time for projection is
12 years as that was the time that the tariff was guaranteed to the Claimant. In the CMS
case, the Tribunal accepted 30 years as the appropriate forecast model for a license of
that duration.145 This approach has been applied by other tribunals.146 Professor Kovic
was accurate in forecasting for the duration of the license that was afforded to the
Claimant as that was the outstanding duration of the licence147
Due to the inherent difficulty with determining future growth/profit models, it
is appropriate for the valuator to make the assumption that cash flows will remain
steady in the future.148 The continuing value of the investment for the Alpha project
should be based on the growth rate of 2.2%.149 This can be extrapolated to calculate
the operating capacity of the Alfa Project during the term of the licence and further used
to calculate its continuing value and totalling €120,621.150 For the Beta Project, this
should be based on the most recent operating capacity, which is recorded as 21.8% in
2011 thus adding to €123,261.151 For the other 12 projects, the continuing value should
be based on the projected operating capacity and its projected revenue because there is
143 Problem, Procedural Order No.2, p60 Q29. 144 AICPA International Glossary of Business Valuation, p43. 145 CMS, [199]. 146 Rumeli Telekom AS v. Kazakhstan, Award, [766]; and Occidental [779]. 147 Problem, Annex 1(B) of Kovic Expert Report, p51. 148 CMS, [466]. 149 Problem, Annex No.9 Annual Projected Revenue from Vasiuki Projects, p44. 150 Problem, Annex 1(A) of Kovic Expert Report, p51. 151 Problem, Annex 1(B) of Kovic Expert Report, p51.
27
nothing to suggest that the projects will not operate as expected thus it should amount
to a total of €1,427,500.
Finally, WACC is a perfectly accepted method of discounting future cash flow
within investment arbitration.152 In the course of operating a business, there will be
debt, especially when this is the primary methodology for financing expensive projects.
This must be offset against projected revenue in order to determine a realistic projected
net return, as the debt will persist throughout the operation of the project. Therefore,
Professor Kovic was correct in applying WACC because the projected equitable return
is not the sole concern when determining future net cash flow. Projects debts must also
be taken into consideration.
In conclusion if the Tribunal does not find awarding specific performance or
restitution palatable, then the Claimant submits damages is the most suitable remedy,
and a DCF methodology is the most logical way to achieve that. In any event the
Respondent must make reparations to the Claimant in one form or another.
152 CMS, [432]; ADC, [510]; Enron v. Argentina, [411–3]; Sempra, [430].
28
Prayers for Relief
The Claimant respectfully requests the Arbitral Tribunal to find:
1. The tribunal has jurisdiction to hear the claim
2. Declare that Respondent is liable for violations of the BIT, including failure
to accord Vasiuki fair equitable treatment.
3. Order Respondent a) to repeal the amendment to Article 4 of the LRE or b)
to continue to pay Vasiuki the €0.44 feed-in tariff for 12 years.
4. In the alternative to its second claim, order Respondent to pay damages to
Vasiuki for its losses, which Vasiuki calculates would equal approximately
€2.1 million over the 12 years during which the tariff should have remained
unchanged.
5. To find that Claimant is entitled to restitution by Respondent of all costs
related to these proceedings.