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FDI Moot 2013: Second Highest RankedRespondent Memorialby Team Zoricic - University of Latvia

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Transnational Dispute Management www.transnational-dispute-management.com

ISSN : 1875-4120 Issue : Vol. 10, issue 6 Published : November 2013 Overall 72 teams registered for this year's competition including the Regionals in Seoul and New Delhi. 47 teams participated in the oral hearings at the FIAC in Frankfurt. On October 26th the 2013 FDI Moot concluded with Harvard Law School edging out Monash University in the final thus winning the Skadden Arps Trophy 2013. Third place was taken by the New York University School of Law ex aequo University of Warsaw.

www.fdimoot.org

German Institution of Arbitration: Arbitration Case No. **********

SIXTH ANNUAL

FOREIGN DIRECT INVESTMENT INTERNATIONAL ARBITRATION MOOT

FRANKFURT, GERMANY

24 OCTOBER – 26 OCTOBER 2013

MEMORANDUM FOR RESPONDENT

UNIVERSITY OF LATVIA

CLAIMANT RESPONDENT

CONTIFICA ASSET MANAGEMENT CORP. REPUBLIC OF RURITANIA

GUNTA BAMBANE KRISJANIS BUSS ELZA JAKOBSONE

ARTIS STRAUPENIEKS

– ii –

TABLE OF CONTENTS

List of abbreviations vi

List of authorities vii

STATEMENT OF FACTS 1

ARGUMENTS 3

I. The tribunal has no jurisdiction over CAM’s claims which are in any event inadmissible in the light of the facts surrounding CAM’s acquisition of the shares in FBI ............................................................................................................................. 3

A. CAM has made no investment under the Ruritania–Cronos BIT .................................. 3

1. CAM’s alleged investment does not comply with the inherent (objective) meaning of the term “investment” .................................................................................... 3

a. No “investment” has been made by CAM under the Ruritania–Cronos BIT since CAM has failed to make any contribution .................................................. 4

i. Acquisition of shares in FBI ............................................................................... 5

ii. Assignment of the intellectual property used by FBI ......................................... 6

2. CAM did not make investment in the territory of Ruritania under the Ruritania–Cronos BIT....................................................................................................... 6

3. CAM’s actions claimed to be an “investment” were contrary to the purpose of the Ruritania–Cronos BIT and they do not comply with the definition of the term “investment” set forth in the Ruritania–Cronos BIT ................................................ 8

4. CAM did not make an “investment” in accordance with the laws and regulations of the state of Ruritania .................................................................................. 9

5. CAM is not an “investor” under the Ruritania–Cronos BIT ........................................ 9

a. The absence of the “investment” inevitably excludes the existence of an “investor” under the Ruritania–Cronos BIT ................................................................ 9

b. CAM does not possess true ownership and control over the FBI shares and the related intellectual property rights ................................................................. 10

B. In any event, CAM’s claims are inadmissible, and the tribunal should dismiss them at the jurisdictional stage ............................................................................................ 11

1. CAM initiated the process not in good faith constituting an abuse of process (so called abusive treaty shopping) by re-packing a foreseeable dispute into a BIT claim ........................................................................................................................ 13

– iii –

a. CAM transferred the shares at the time when it was already clear that a dispute will arise ........................................................................................................ 13

i. The provisions regarding the relation of the timing of a dispute and an investment under the Ruritania–Cronos BIT ......................................................... 13

ii. The provisions regarding the timing of a dispute that follow from international investment law ................................................................................. 14

iii. The factual background regarding the timing of the acquisition of the shares ..................................................................................................................... 15

2. The true nature of the restructuring was to get protection under the Ruritania–Cronos BIT for this future dispute ................................................................. 17

a. An urgent need to gain protection ......................................................................... 17

b. Other “investment-friendly” jurisdictions carefully considered ........................... 18

C. All measures introduced by Ruritania fall under sensitive matters of public interest of any state .............................................................................................................. 18

II. The tribunal has no jurisdiction over CAM’s claims based on the alleged breach of the share purchase agreement by the State Property Fund of Ruritania, and in any event those claims are not admissible ............................................. 18

A. The CAM’s claims based on the alleged breach of the SPA by the Fund are of completely different legal nature ......................................................................................... 19

1. The essential basis of the CAM’s claims regarding the alleged breach of the SPA is an alleged breach of a contract, not a treaty ....................................................... 19

2. Different laws apply to the breach of the SPA and the breach of the BIT ................. 19

a. The SPA sets the rights and obligations to the parties who are bound by the contract, not to the states ...................................................................................... 19

b. The alleged breach of the SPA by the Fund is not attributable to Ruritania ......... 20

c. Furthermore, since CAM has been assigned all rights and obligations under the SPA in compliance with Art. 11.1 of the SPA, it acquired no more rights and obligations than the respective SPA provides for ..................................... 20

d. In any event, the Fund’s breach of the SPA is not attributable to Ruritania ......... 21

3. Accordingly, contractual claims should be solved according to the respective procedure agreed by the parties in the SPA under the Rules of Arbitration of the International Chamber of Commerce ................................................ 22

a. The SPA contains clear intent of the parties to settle all the disputes “arising out of or in connection with the present Agreement” under the Rules of Arbitration of the International Chamber of Commerce ............................. 22

– iv –

4. The dispute resolution clause can only cover contracts concluded between a state party to the BIT and a foreign investor .................................................................. 23

a. The dispute resolution clause should be read restrictively .................................... 23

b. Even following the more extensive dispute resolution clause interpretation, it cannot cover the CAM’s contractual claims ................................... 24

5. Equally, the umbrella clause in the Ruritania–Cronos BIT is insufficient to elevate the claim based on the alleged breach of the SPA by the Fund, which is a separate legal entity ...................................................................................................... 24

a. The umbrella clause should be read narrowly ....................................................... 24

b. In any event, even wide reading of the umbrella clause does not include claims in respect to the alleged breach of the SPA .................................................... 25

B. Even assuming that this tribunal has jurisdiction over the contractual claims, the claims regarding the alleged breach of the SPA by the Fund are inadmissible due to the exclusive dispute resolution clause in the SPA .................................................. 26

III. By adopting the regulation on marketing and sale of alcohol, Ruritania did not violate any of its obligations under the Ruritania–Cronos BIT or general public international law ......................................................................................................... 27

A. Ruritania did not expropriate CAM’s property ............................................................ 27

1. No indirect expropriation exists in the present case .................................................. 28

2. The regulatory actions of Ruritania shall not be treated as expropriation ................. 30

3. The MAB Act shall not be regarded as wrongful because it is a legitimate exercise of the sovereignty of Ruritania ......................................................................... 31

B. The actions of Ruritania satisfy the obligation of FET ................................................ 32

1. Ruritania treated CAM’s investment fairly and equitably and therefore did not violate Art. 2(1)(b) of the Ruritania–Cronos BIT ..................................................... 32

2. Ruritania treated CAM’s investment fairly and equitably and did not violate CAM’s legitimate expectations ...................................................................................... 34

a. Ruritania made no representations or commitments to CAM ............................... 35

b. CAM was obliged to be aware of the general regulatory environment in Ruritania ..................................................................................................................... 35

c. The obligation of FET does not prevent Ruritania from acting in public interest even if such acts adversely affect CAM’s investments ................................. 36

– v –

IV. The tribunal cannot award moral damages to CAM since no financial losses were caused to CAM by the arrest of Messrs Goodfellow and Straw ............................... 37

A. CAM’s claim for moral damages is manifestly ill-founded and therefore should be dismissed ............................................................................................................. 37

B. CAM’s claim for moral damages is exorbitant and therefore should be dismissed, or it has to be awarded on an equitable basis ..................................................... 40

V. The alleged loss of sales suffered by CAM’s subsidiaries located outside Ruritania should not constitute a recoverable item of damages ........................................ 41

A. The tribunal has no jurisdiction to award damages for the alleged loss of sales outside Ruritania .................................................................................................................. 42

B. The amount of damages claimed by CAM is grossly exaggerated and unsubstantiated .................................................................................................................... 43

– vi –

LIST OF ABBREVIATIONS

¶ / ¶¶ paragraph / paragraphs

Art. / Arts. article / articles

BIT / BITs bilateral investment treaty / bilateral investment treaties

CAM Contifica Asset Management Corp.

Cl. ex. Claimant’s exhibit

Contifica Enterprises Contifica Enterprises Plc.

Contifica Spirits Contifica Spirits S. p. A.

Corp. corporation

Cronos State of Cronos

e.g. exempli gratia (for example)

FBI Freecity Breweries Inc.

i.e. id est (that is)

ibid. ibidem (in the same place)

ICC International Chamber of Commerce

IIA International Investment Agreement

p. / pp. page / pages

Proc. ord. Procedural order

Resp. ex. Respondent’s exhibit

Ruritania The Republic of Ruritania

S. p. A. la società per azioni (joint stock company)

St. cl. Statement of claim

St. def. Statement of defence

SPA Share Purchase Agreement between The Fund and Contifica Spirits (Cl. ex. 2)

The Fund State Property Fund of Ruritania

UN United Nations

UNCITRAL United Nations Commission on International Trade Law

US United States of America

USD United States dollars

v. versus (against)

– vii –

LIST OF AUTHORITIES

TREATIES

Short reference Full reference

Ruritania–Cronos BIT Treaty of Mutual Promotion and Protection of Foreign Investment between the Republic of Ruritania and the State of Cronos (adopted 15 March 1997) (Cl. ex. 1).

Vienna Convention

Vienna Convention on the Law of Treaties (adopted 23 May 1969, entered into force 27 January 1980), UNTS, vol. 1155, p. 331.

ICSID Convention

Convention on the Settlement of Investment Disputes between States and Nationals of other States (adopted 18 March 1965, entered into force 14 October 1966), UNTS, vol. 575, p. 159.

CAFTA–DR Dominican Republic–Central America–United States Free Trade Agreement, 2004, Annex 10–C(4)(a).

ARBITRATION RULES


UNCITRAL Arbitration Rules

UNCITRAL. UNCITRAL Arbitration Rules (as revised in 2010). New York: United Nations, 2011.

LEGISLATION


MAB Act Regulation of Sale and Marketing of Alcoholic Beverages Act (Cl. ex. 3).

LITERATURE


Bellis and Hughes et al. (2005)

Bellis M., Hughes K. and Hughes S. Alcohol and Interpersonal Violence. Policy Briefing. Liverpool: World Health Organization Regional Office for Europe, 2005. <http://www.who.int/violenceprevention/publications/policy_briefing_alcohol_and_interpersonal_violence.pdf> accessed 21 September 2013.

Coffee (1970) Coffee J.C. No Soul to Damn: No Body to Kick: An Unscandalized Inquiry into the Problem of Corporate Punishment. Michigan Law Review. 1970, vol. 79, p. 386.

– viii –

Dolzer and Schreuer (2012)

Dolzer R., Schreuer C. Principles of International Investment Law. Second edn. Oxford: Oxford University Press, 2012.

Douglas (2006) Douglas Z. Nothing if not Critical for Investment Treaty Arbitration: Occidental, Eureko and Methanex. Arbitration International. 2006, vol. 22, p. 28.

Douglas (2009) Douglas Z. The International Law of Investment Claims. Cambridge: Cambridge University Press, 2009.

Dugan and Rubins et al. (2008)

Dugan C., Rubins N. D., Wallace D., Sabahi B. Investor–State Arbitration. Oxford: Oxford University Press, 2008.

Dumberry (2010) Dumberry P. Compensation for Moral Damages in Investor–State Arbitration Disputes. Journal of International Arbitration. 2010, vol. 27, p. 247.

Feit (2010) Feit M. Responsibility of the State under International Law for the Breach of Contract Committed by a State Owned Entity. Berkeley Journal of International Law. 2010, vol. 28, p. 142. <http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1379&context=bjil> accessed 1 September 2013.

Freund (1904) Freund E. The Police Powers: Public Policy and Constitutional Rights. Chicago: Callahan, 1904.

Gaillard (2005) Gaillard E. Investment Treaty Arbitration and Jurisdiction Over Contract Claims: The SGS Cases Considered. In: Weiler T. (ed.). International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law. London: Cameron May, 2005. <http://www.shearman.com/ia_040308_10/> accessed 25 August 2013.

Gallus (2010) Gallus N. An Umbrella Just for Two? BIT Obligations Observance Clauses and the Parties to a Contract. Arbitration International. 2008, vol. 24, p. 157. <http://www.kluwerlaw.com/KLI/Catalogue/titleinfo.htm?ProdID=SS09570411> accessed 1 September 2013.

Griebel (2007) Griebel J. Jurisdiction Over “Contract Claims” in Treaty-Based Investment Arbitration on the Basis of Wide Dispute Settlement Clauses in Investment Agreements. TDM. 2007, vol. 4, issue 5. <http://www.transnational-dispute-management.com/article.asp?key=1079> accessed 1 September 2013.

Jagusch and Sebastian (2013)

Jagusch S., Sebastian T. Moral Damages in Investment Arbitration: Punitive Damages in Compensatory Clothing? Arbitration International. 2013, vol. 29, p. 45.

– ix –

Kalnina (2012) Kalnina I. White Industries v. The Republic of India: A Tale of Treaty Shopping and Second Chances. TDM. 2012, vol. 9, issue 4. <http://www.transnational-dispute-management.com/article.asp?key=1861> accessed 1 September 2013.

Mann and von Moltke (2002)

Mann H., von Moltke K. Protecting Investor Rights and the Public Good: Assessing NAFTA’s Chapter 11. (ILSD Tri-National Policy Workshops, Mexico City, 13 March 2002) <http://www.iisd.org/trade/ilsdworkshop/pdf/background_en.pdf> accessed 21 September 2013.

Martinez A. (2010) Martinez A. Invoking State Defenses in Investment Treaty Arbitration. In: Waibel M., Kaushal A. (eds.). The Backlash against Investment Arbitration. London: Kluwer Law International, 2010, p. 315.

McGregor (2009) McGregor H. McGregor on Damages. 18th edn. London: Sweet & Maxwell, 2009.

McLachan and Shore et al. (2007)

McLachan C., Shore L., Weiniger M. International Investment Arbitration: Substantive Principles. Oxford: Oxford University Press, 2007.

Newcombe (2005) Newcombe A. The Boundaries of Regulatory Expropriation in International Law. ICSID Review. 2005, vol. 20, issue 1, p. 1.

Opinion in the Lusitania Cases (1923)

Opinion in the Lusitania Cases. Reports of International Arbitral Awards. Washington: United Nations, 1923. <http://untreaty.un.org/cod/riaa/cases/vol_VII/32-44.pdf> accessed 22 September 2013.

Parish and Newlson et al. (2011)

Parish M., Newlson A., Rosenberg C. Awarding Moral Damages to Respondent States in Investment Arbitration. Berkeley Journal of International Law. 2011, vol. 29, p. 225.

Rubins (2004) Rubins N. The Notion of ‘Investment’ in International Investment Arbitration. In: Horn N. (ed.). Arbitrating Foreign Investment Disputes. The Hague: Kluwer Law International, 2004.

Schreuer (2001) Schreuer C. H. The ICSID Convention: A Commentary. Cambridge: Cambridge University Press, 2001.

Schreuer (2012) Schreuer C. Nationality Planning. (Fordham Conference, London, 27 April 2012, revised 12 October 2012) <http://www.univie.ac.at/intlaw/wordpress/wp-content/uploads/2012/11/nationality-Planning-Fordham-revised.pdf > accessed 22 September 2013.

Sinclair (2009) Sinclair A. Bridging the Contract/Treaty Divide. In: Binder C., Kriebaum U., Reinisch A., Wittich S. (eds.). International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer. Oxford: Oxford University Press, 2009.

– x –

Suda (2006) Suda R. The Effect of Bilateral Investment Treaties on Human Rights Enforcement and Realization. In: De Schutter O. (ed.). Transnational Corporations and Human Rights. Oxford: Hart Publishing, 2006.

UNCTAD (2012) UNCTAD. Fair and Equitable Treatment. New York: United Nations, 2012.

Vadi (2013) Vadi V. Public Health in International Investment Law and Arbitration. New York: Routledge, 2012.

Voon, Mitchell, Munro (2014)

Voon T., Mitchell A., Munro J. Legal Responses to Corporate Manoeuvring in International Investment Arbitration. Journal of International Dispute Settlement. Forthcoming (2014). <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2316440> accessed 14 September 2013.

Wendlandt (2008) Wendlandt M. SGS v. Philippines and the Role of ICSID Tribunals in Investor–State Contract Disputes. <http://www.tilj.org/content/journal/43/num3/Wendlandt523.pdf> accessed 14 September 2013.

ARBITRAL AWARDS


Aguas v. Bolivia Aguas del Tunari SA v. Republic of Bolivia. Decision on Respondent’s Objections to Jurisdiction. 21 October 2005. ICSID No. ARB/02/3.

Alps Finance v. Slovakia

Alps Finance and Trade AG v. Slovakia. Award. 5 March 2011.

Aucoven v. Venezuela Autopista Concesionada de Venezuela CA (Aucoven) v. Venezuela. Decision on Jurisdiction. 27 September 2001. ICSID No. ARB/00/5.

Azurix v. Argentine Republic

Azurix Corporation v. Argentine Republic. Award. 14 July 2006. ICSID No. ARB/01/12.

Bayindir v. Pakistan Bayindir Insaat Turizm Ticaret Ve Sanayi A. (Scedil) v. Pakistan. Decision on Jurisdiction. 14 November 2005. ICSID No. ARB/03/29.

Bayview v. Mexico Bayview Irrigation District et al. v. United Mexican States. Award. 19 June 2007. ICSID No. ARB(AF)/05/1.

Benvenuti v. Congo S.A.R.L. Benvenuti & Bonfant v. People’s Republic of the Congo. Award. 8 August 1980. ICSID No. ARB/77/2.

– xi –

Biwater Gauff v. Tanzania

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

Casado v. Chile Victor Pey Casado and President Allende Foundation v. Republic of Chile. Award. 8 May 2008. ICSID No. ARB/98/2.

Cementownia v. Turkey

Cementownia “Nowa Huta” SA v. Turkey. Award. 11 September 2009. ICSID No. ARB(AF)/06/2.

CME v. Czech Republic

CME Czech Republic B.V. v. Czech Republic. Partial Award. 13 September 2001.

CMS v. Argentina CMS Gas Transmission Company v. Republic of Argentina. Award. 12 May 2005. ICSID No. ARB/01/8.

Desert Line v. Yemen Desert Line Projects LLC v. Republic of Yemen. Award. 6 February 2008. ICSID No. ARB/05/17.

Duke Energy v. Ecuador

Duke Energy Electroquil Partners & Electoquil S.A. v. Republic of Ecuador. Award. 18 August 2008. ICSID No. ARB/04.19.

El Paso v. Argentina El Paso Energy International Company v. Argentina. Decision on Jurisdiction. 27 April 2006. ICSID No. ARB/03/15.

Europe Cement v. Turkey

Europe Cement v. Turkey. Award. 13 August 2009. ICSID No. ARB(AF)/07/2.

Fraport v. Philippines Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines. Award. 16 August 2007. ICSID No. ARB/03/25.

Funnekotter v. Zimbabwe

Bernardus Henricus Funnekotter v. Republic of Zimbabwe. Award. 22 April 2009. ICSID No. ARB/05/6.

Gami v. United Mexican States

Gami Investments Inc v. United Mexican States. Final Award. 15 November 2004.

Generation Ukraine v. Ukraine

Generation Ukraine, Inc. v. Ukraine. Award. 16 September 2006. ICSID No. ARB/00/9.

Grimm v. Iran Lilian Byrdine Grimm v. The Government of the Islamic Republic of Iran. Award. 22 February 1983. Iran-US No. 25-71-1.

Impregilo v. Pakistan Impregilo SpA v. Islamic Republic of Pakistan. Decision on Jurisdiction. 22 April 2005. ICSID No. ARB/03/3.

Inceysa v. El Salvador Inceysa Vallisoletane, SL v. El Salvador. Award. 2 August 2006. ICSID No. ARB/03/26.

Lanco v. Argentina Lanco International Incorporated v. Argentina. Preliminary Decision on Jurisdiction. 8 December 1998. ICSID No. ARB/97/6.

– xii –

Lemire v. Ukraine Joseph Charles Lemire v. Ukraine. Award. 28 March 2011. ICSID No. ARB/06/18.

Libananco v. Turkey Libananco Holding Ltd v. Turkey. Award. 2 September 2011. ICSID No. ARB/06/8.

Loewen v. US Loewen v. United States of America. Award. 26 June 2003. ICSID No. ARB(AF)/98/3.

Lucchetti v. Peru Empresas Lucchetti SA and Lucchetti Peru SA v. Peru. Jurisdiction award. 7 February 2005. ICSID No. ARB/03/4.

Maffezini v. Spain Maffezini v. Spain. Award. 13 November 2000. ICSID No. ARB/97/7.

Methanex v. US Methanex Corporation v. United States of America. Final Award. 3 August 2005.

Midland v. Mexico Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. United Mexican States. Award. 21 November 2007. ICSID No. ARB(AF)/04/05.

Mitsubishi v. Soler Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. 473 U.S. 614 (1985).

Mobil v. Venezuela Mobil Corporation Venezuela Holdings BV and others v. Venezuela. Decision on Jurisdiction. 10 June 2010. ICSID No. ARB/07/27.

Nagel v. Czech Republic

Nagel v. Czech Republic. 9 September 2003. Award. SCC Case No 49/2002.

Occidental v. Ecuador Occidental Exploration and Production Company v. Republic of Ecuador. Final Award. 1 July 2004. LCIA No. UN 3467.

Pac Rim v. El Salvador

Pac Rim Cayman LLC v. El Salvador. Decision on the respondent’s jurisdictional objections. 1 June 2012. ICSID No. ARB/09/12.

Parkerings v. Lithuania

Parkerings-Compagniet AS v. Republic of Lithuania. Award. 11 September 2011. ICSID No. ARB/05/8.

Phoenix v. Czech Republic

Phoenix Action Ltd v. Czech Republic. Award. 9 April 2009. ICSID No. ARB/06/5.

PSEG Global v. Turkey

PSEG Global Inc. and Konya Ilgin Elektrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey. Award. 19 January 2007. ICSID No. ARB/02/5.

– xiii –

Quiborax v. Bolivia Quiborax S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplún v. Plurinational State of Bolivia. Decision on Jurisdiction. 27 September 2012. ICSID No. ARB/06/2.

Revere Copper v. Overseas

Revere Copper and Brass, Incorporated v. Overseas Private Investment Corporation. Award. 24 August 1978.

RFCC v. Morocco Consortium R.F.C.C. v. The Kingdom of Morocco. Award. 22 December 2003. ICSID No. ARB/00/6.

Romak v.Uzbekistan Romak S.A. v. The Republic of Uzbekistan. Award. 9 November 2009.

S. D. Myers v. Canada (1999)

S. D. Myers, Inc. v. Government of Canada. Counter–Memorial on the Merits. 5 October 1999.

Saba Fakes v. Turkey Saba Fakes v. Republic of Turkey. Award. 14 July 2010. ICSID No. ARB/07/20.

Salini v. Morocco Salini Costruttori S. p. A. and Italstrade S. p. A. v. Kingdom of Morocco. Decision on Jurisdiction. 31 July 2001. ICSID No. ARB/00/4.

Saluka v. Czech Republic

Saluka Investments BV v. Czech Republic. Partial Award. 17 March 2006.

SGS v. Pakistan SGS Société Générale de Surveillance S. A. v. Islamic Republic of Pakistan. Decision of the Tribunal on Objections to Jurisdiction. 6 August 2003. ICSID No. ARB/01/13.

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

Siemens AG v. Argentina

Siemens AG v. The Argentine Republic. Award. 6 February 2007. ICSID No. ARB/02/8.

Standard Chartered Bank v. Tanzania

Standard Chartered Bank v. Tanzania. Award. 2 November 2012. ICSID No. ARB/10/12.

Tecmed v. Mexico Tecnicas Medioambientales Tecmed S. A. v. United Mexicas States. Award. 29 May 2003. ICSID No. ARB (AF)/00/2.

Tidewater v. Venezuela

Tidewater Incorporated and others v. Venezuela. Decision on Jurisdiction. 17 December 2012. ICSID No ARB/10/5.

Tokios Tokeles v. Ukraine

Tokios Tokeles v. Ukraine. Decision on Jurisdiction. 29 April 2004. ICSID No ARB/02/18.

– xiv –

Vivendi v. Argentina Compañía de Aguas del Aconquija SA and Vivendi Universal SA v. Argentina. Decision on Annulment. 3 July 2002. ICSID Case ARB/97/3.

MISCELLANEOUS SOURCES


ILC (1966) ILC. Draft Articles on the Law of Treaties with Commentaries. Yearbook of the International Law Commission. 1966, vol. II, p. 187.

– 1 –

STATEMENT OF FACTS

1. The Claimant is Contifica Asset Management Corp. (“CAM”), a company incorporated

under the laws of the state of Cronos, with its principal place of business in the state of

Cronos.1 On 15 March 1997, the Republic of Ruritania and the state of Cronos signed a

Bilateral Investment Treaty (the “Ruritania–Cronos BIT”).2

2. CAM is a member of the Contifica group.3 The Contifica group is an international

conglomerate and consists of numerous holding and operating companies incorporated

in over 40 jurisdictions. The parent company of the group is Contifica Enterprises Plc.

which is incorporated in Prosperia.4

3. In the beginning of 2008, due to the financial crises the State Property Fund of Ruritania

(“Fund”) decided to sell Freecity Breweries Inc. (“FBI”) to a private investor.5 As a

result, an international tender was announced.6 On 30 June 2008, Contifica Spirits was

declared the winner of the tender.7 On the same day, Contifica Spirits and the Fund

entered into a share purchase agreement providing for the acquisition of all shares in

FBI for USD 300,000,000.8

4. At the same time in January 2010, the parliamentary elections in Ruritania took place

where the New Way party secured majority in Ruritanian parliament.9 One of the New

Way party’s widely publicised election manifestos was to adopt tougher regulations

against marketing and sale of alcohol beverages production in the country.10

5. Two months after the parliamentary elections in Ruritania, on 17 March 2010, Contifica

spirits transferred the shares in FBI to CAM, the Claimant in the present arbitration.11

1 St. cl., p. 2, ¶ 2. 2 St. cl., p. 2, ¶ 1. 3 St. cl., p. 2, ¶ 4. 4 Ibid. 5 St. cl., p. 3, ¶ 6. 6 Ibid. 7 St. cl., p. 3, ¶ 7. 8 Ibid. 9 St. def., p. 21, ¶ 6. 10 St. def., p. 21, ¶ 6. 11 St. cl., p. 3, ¶ 9.

– 2 –

The shares were transferred for USD 5,000.12 On the same day, CAM acquired rights to

the principal intellectual property used by FBI by way of assignment.13

6. Afterwards on 20 November 2010, the Ruritanian parliament adopted the Regulation of

Sale and Marketing of Alcoholic Beverages Act (“MAB Act”) with restrictions

regarding marketing and selling of alcoholic beverages.14

7. Further, on 15 June 2011, the Human Health Research Institute, a government-funded

institution, released a report regarding the negative effect of Methyldioxidebenzovat —

an active chemical ingredient found in Reyhan concentrate, according to which

consumers of FREEBREW beer were exposed to a higher risk of cardiac

complications.15 The research was based on analysis of data gathered from a controlled

clinical study lasting for a period of 10 years starting in October 1999.16

8. In the light of the above, on 30 June 2011 Ministry of Health and Social Security

adopted an ordinance that required any product containing the poisonous Reyhan

concentrate to be labelled with a special warning.17

9. Notwithstanding the special labelling being required under the ordinance as well as

certain prohibitions under the MAB Act, CAM remains the registered owner of the

respective trademarks and trade dresses and retains the exclusive rights to use them.18

10. On 23 December 2011, due to the commenced investigation against the executives,

Messrs Goodfellow and Straw, of FBI and Contifica Group, both were detained in a cell

in the Freecity International Airport.19 On 3 January 2012, they were released.

12 Proc. ord. 2, pp. 28-29, ¶ 4. 13 St. cl., p. 3, ¶ 9. 14 St. cl., p. 3, ¶ 10. 15 St. cl., p. 4, ¶ 14. 16 St. cl., p. 4, ¶ 14. 17 St. cl., p. 4, ¶ 15. 18 St. def., p. 23, ¶ 16. 19 St. cl., p. 6, ¶¶ 22-23.

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ARGUMENTS

I. THE TRIBUNAL HAS NO JURISDICTION OVER CAM’S CLAIMS

WHICH ARE IN ANY EVENT INADMISSIBLE IN THE LIGHT OF

THE FACTS SURROUNDING CAM’S ACQUISITION OF THE

SHARES IN FBI

A. CAM has made no investment under the Ruritania–Cronos BIT

11. It is widely known that the substantive law applied in treaty arbitration is the treaty

itself.20 Under Art. 8(1) of the Ruritania–Cronos BIT, the tribunal has jurisdiction over

disputes “concerning Investments” between a “Contracting State” and an “Investor” of

the other Contracting State “under this Treaty”. Hence, as a jurisdictional requirement

the Ruritania–Cronos BIT clearly indicates the existence of an investment that usually is

one of the prerequisites for jurisdiction of an arbitral tribunal.21

12. Art. 1(1) of the Ruritania–Cronos BIT defines the term “Investment” in the following

terms:

“For the purposes of this Treaty the term “Investment” means every asset which is directly or indirectly invested in accordance with laws and regulations of the Contracting State in which territory the Investment is made by Investors of the other Contracting State. The Investments include in particular, but not exclusively [..].”

13. Thus, the definition of the term “Investment” in the Ruritania–Cronos BIT is rather

general, which is “usual in this type of treaties”.22 Therefore, Ruritania invites the

tribunal to examine the scope and content of the provided definition in accordance with

principles set out in the Vienna Convention, as both state parties are signatories to the

Vienna Convention.23

1. CAM’s alleged investment does not comply with the inherent

(objective) meaning of the term “investment”

14. Art. 31(1) of Vienna Convention provides that a treaty shall be interpreted in good faith

in accordance with the “ordinary” meaning to be given to the terms of the treaty in their

20 McLachan and Shore et al. (2007), p. 66. 21 Dugan and Rubins et al. (2008), p. 247. 22 Alps Finance v. Slovakia, ¶ 230. 23 Proc. ord. 2, p. 29, ¶ 9.

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context and in the light of its object and purpose. According to most recent decisions,

the ordinary meaning of the term investment includes 3 elements: contribution, certain

duration and an element of risk.24 Thus, these three elements are the certain minimum

requirements to be examined.25

15. Moreover, in Quiborax v. Bolivia26 the tribunal expressly stated that the objective

meaning of the term “investment” is inherent, irrespective of the application of the

ICSID Convention.27 This finding was positively supported also by Romak v.

Uzbekistan, an arbitration conducted under the UNCITRAL Arbitration Rules, 28 and

most recently by Saba Fakes v. Turkey.29

16. Following the Saba Fakes v. Turkey tribunal’s conclusion, the above mentioned criteria

derive from the ordinary meaning of the word “investment”, “be it in the context of a

complex international transaction or that of the education of one’s child.”30 In both

cases, certain amount of funds or know-how must be contributed but nevertheless

investor still always holds the risk that “a project might never be completed or a child

might not be up to his parents’ hopes or expectations”.31

17. Pursuant to the aforesaid criteria of “investment”, none of them is met in the present

case.

a. No “investment” has been made by CAM under the Ruritania–

Cronos BIT since CAM has failed to make any contribution

18. While contribution may manifest itself in different ways,32 in the present case there has

been no contribution whatsoever, in particular, there has been no financial contribution.

Ruritania maintains that an acquisition of shares for a nominal price cannot be

24 See, e.g. Quiborax v. Bolivia, ¶ 215; Romak v. Uzbekistan, ¶ 237; Saba Fakes v. Turkey,

¶¶ 99-102. 25 Alps Finance v. Slovakia, ¶ 231. 26 Quiborax v. Bolivia. 27 Ibid, ¶ 215. 28 Romak v.Uzbekistan, ¶ 207. 29 Saba Fakes v. Turkey. 30 Ibid, ¶ 110. 31 Ibid. 32 See, e.g. Bayindir v. Pakistan, ¶ 131.

– 5 –

considered as a type of financial contribution envisioned under the Ruritania–Cronos

BIT.

19. A token amount of 10,000 Ruritanian pounds (i.e. less than USD 5,000) for acquiring

shares valued at over USD 300 million33 cannot be deemed as “investment”. Therefore,

the price is disproportionally low in comparison with the true value of the shares.

i. Acquisition of shares in FBI

20. On 30 June 2008, Contifica Spirits acquired all shares in FBI for USD 300,000,000.34

By 2010, the output of the brewery increased by 30%.35 Thus, on 17 March 2010 when

the shares in FBI were transferred to CAM, the true value of the FBI shares must have

increased many times compared to the initial amount of USD 300,000,000. So CAM

paid more than 60,000 times less.

21. Although Ruritania is aware that substantial contribution does not expressly mean

financial contribution, there should be no doubt that as far as the contribution is

financial it should be substantial to be considered as being an investment. This finds

support within five main basic characteristics of every investment determined by

Schreuer,36 since he notes that the commitment shall be substantial.37

22. Furthermore, this understanding complies with the purpose and object of the Ruritania–

Cronos BIT, as it is determined in its preamble: “to intensify economic co-operation

between the two Contracting States with a view to stimulate private enterprise”.38 Since

both parties of the Ruritania–Cronos BIT expressed their intention to develop economic

co-operation and welfare of both states, the contribution falling under the notion of the

Ruritania–Cronos BIT recognised by both states as being an “investment” deserves

attention and protection under the Ruritania–Cronos BIT.

23. Thus, investing under the Ruritania–Cronos BIT in the light of the ordinary meaning of

the term “investment” requires as the very minimum making certain financial

33 St. def., p. 21, ¶ 7. 34 St. cl., p. 3, ¶ 7. 35 St. cl., p. 3, ¶ 8. 36 Schreuer (2001), p. 140. 37 Rubins (2004), p.298. 38 Preamble.

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contribution by the investor in Ruritania. Therefore, the nominal payment obviously

falls outside this meaning.

24. The nominal value of less than USD 5,000 not only “raises necessarily some doubts

about the existence of an “investment””,39 but should also result in finding the whole

claim being not bona fide. A similar conclusion was made in Europe Cement v. Turkey

where the nominal purchase price “for shares valued at millions of dollars” was

recognised by the tribunal as being “economic nonsense”.40

25. With regard to the present case, it would thus constitute coarse breach of the legally

protected purpose and principles of all system of investment law to qualify CAM’s

nominal price being an “investment” under the Ruritania–Cronos BIT.

ii. Assignment of the intellectual property used by FBI

26. As regards the way in which CAM “acquired” the intellectual property used by FBI, the

facts imply that CAM acquired the respective rights only through assignment.41 In

addition, since the acquisition of the intellectual property took place on the same day as

the transfer of the shares,42 this assignment followed in “one pack” together with the

transfer of the shares.

27. Thus, the same findings, in particular the element of “no contribution”, concerning the

transfer of the shares relate to the assignment of the intellectual property rights.

Moreover, even if the latter was examined separately in the light of the possible

contribution made by CAM, the assignment itself required no action from the assignee.

Hence, in any event CAM made no contribution in respect of the intellectual property

either.

2. CAM did not make investment in the territory of Ruritania under the

Ruritania–Cronos BIT

28. Art. 1(1) of the Ruritania–Cronos BIT requires an Investment to be made by an investor

in the territory of the other contracting state. This means that under the Ruritania–

Cronos BIT CAM’s contribution must be made in Ruritania.

39 Phoenix v. Czech Republic, ¶ 119. 40 Europe Cement v. Turkey, ¶ 161. 41 St. cl., p. 3, ¶ 9. 42 St. cl., p. 3, ¶ 9.

– 7 –

29. In the light of the above mentioned, CAM’s argument that it has made an “investment”

is unsubstantiated. The only actions taken by CAM were, first, paying a strikingly cheap

price in exchange of the shares to Contifica Spirits, and, second, getting all the

respective intellectual property rights used by FBI under the way of assignment on the

same day. Furthermore, CAM did not make any contribution in Ruritania after

17 March 2010.

30. Although CAM’s subsidiaries or branches supplied materials to FBI,43 this does not

amount to contribution. This is so because CAM’s branches and subsidiaries had

produced hops, barley and aluminum cans already before FBI was acquired by Contifica

Spirits.44 Thus, producing materials for brewery was CAM’s usual business already

before 2008.

31. In addition, while most supplies commenced shortly after Contifica Spirits acquired

FBI,45 this reasonably implies that the production of these supplies already took place

before the acquisition, as it undoubtedly requires time. Nothing in the present case

implies the contrary.

32. Moreover, in case CAM contends that a new production line was put at the aluminum

can plant to serve the needs of FBI,46 it should be emphasised that the production was

put following the acquisition of FBI shares again by Contifica spirits, not CAM.47 Thus,

there is no evidence of specific contribution to the brewery after the acquisition of the

shares by CAM.

33. In addition, none of the actions mentioned above amount to investing under the scope of

Ruritania–Cronos BIT since the BIT expressly requires an investment to be made in the

territory of a contracting state. Producing aluminium cans, hops and barley in Cronos

(not Ruritania) and supplying them to another company abroad is a simple

commercial activity.

34. Therefore, all facts in the present case imply that CAM has failed to make any

“investment” in compliance with Art. 1(1) of the Ruritania–Cronos BIT.

43 St. cl., p. 3, ¶ 8; Proc. ord. 2, p. 30, ¶ 20. 44 Proc. ord. 3, p. 34, ¶ 9. 45 Ibid. 46 Ibid. 47 Ibid.

– 8 –

3. CAM’s actions claimed to be an “investment” were contrary to the

purpose of the Ruritania–Cronos BIT and they do not comply with the

definition of the term “investment” set forth in the Ruritania–Cronos

BIT

35. The true purpose of acquiring the shares in FBI, what CAM claims being “making

investment”, is stated in the memorandum produced by CAM in response to Ruritania’s

request to disclose documents relating to the acquisition of shares in FBI and other FBI

related assets made in the context of criminal investigation into actions of Messrs

Goodfellow and Straw. It is:

“[..] since we may need to implement the restructuring quite quickly and hence would prefer to use an existing group company. So essentially we need to transfer the assets to one of the Contifica group companies in a country which has an investor-friendly environment.”48

36. Hence, the purpose of what CAM claims to be investing was, in fact, a quick transfer of

the shares to an investor-friendly environment, i.e. to the most favourable jurisdiction.

Thus, following the wording of the memorandum, it is obvious that CAM did not intend

to make a real “investment” under the meaning and purpose of the Ruritania–Cronos

BIT. This, in turn, means that the indirect acquisition of shares by CAM in FBI does not

constitute an “investment” for the purpose of the Ruritania–Cronos BIT.

37. The purpose and object of the Ruritania–Cronos BIT, determined in the preamble of the

Ruritania–Cronos BIT, is “to intensify economic co-operation between the two

Contracting States with a view to stimulate private enterprise”.49 Furthermore, the term

“investment” under Art. 1 of the Ruritania–Cronos BIT is defined “for the purposes of

this Treaty”.

38. Accordingly, anything claimed to be an “investment” must comply with the notion of an

“investment” under and for the purpose of the Ruritania–Cronos BIT. Hence, as the true

purpose of the alleged investment clearly was not to contribute to the development of

the host state, it did not comply with the purpose of the Ruritania–Cronos BIT. This

consequently means that CAM’s actions shall not be deemed being an “investment”,

notwithstanding how CAM may call it.

48 Resp. ex. 1, p. 24. 49 Preamble.

– 9 –

39. Therefore, as CAM’s actions fail to comply with the notion of an “investment” under

the Ruritania–Cronos BIT, it cannot enjoy any protection under the Ruritania–Cronos

BIT. Hence, the jurisdictional prerequisites to hear the claims are not met, and thus the

tribunal lacks jurisdiction to hear the claims.

4. CAM did not make an “investment” in accordance with the laws and

regulations of the state of Ruritania

40. Art. 1(1) of the Ruritania–Cronos BIT provides that every asset must be directly or

indirectly invested “in accordance with laws and regulations of the Contracting State.”50

Hence, the definition of the “investment” in the Ruritania–Cronos BIT determines that

if the investment is made in breach of any of the host state’s laws in any way, such

breach deprives the investment of the protection of the Ruritania–Cronos BIT.

41. The principle of “good faith” as a part of municipal law of Ruritania is applicable in the

context of international investment arbitration. This finds support in Fraport v.

Philippines and Inceysa v. El Salvador cases where the principle of “good faith” was

applied as a part of the national laws of the host states.51 As noted by the tribunal in

Inceysa v. El Salvador, investments not performed in “good faith” cannot benefit from

the international protection provided for under BITs.52

42. In light of the above mentioned, since CAM’s purported investment was not made in the

territory of Ruritania and in compliance with the purpose of the Ruritania–Cronos BIT,

CAM’s alleged investment contradicts the good faith clause. This, in turn, means that

CAM’s “investment” was illegal under the scope of Art. 1(1) of the Ruritania–Cronos

BIT. Moreover, it is generally accepted that an IIA “leaves investments made illegally

outside of its scope and benefits.”53

5. CAM is not an “investor” under the Ruritania–Cronos BIT

a. The absence of the “investment” inevitably excludes the existence

of an “investor” under the Ruritania–Cronos BIT

43. First of all, since the definition of the term “investor” requires that the investor is the

50 Cl. ex. 1, Art.1(1). 51 Fraport v. Philippines; Inceysa v. El Salvador. 52 Inceysa v. El Salvador, ¶ 208. 53 See Inceysa v. El Salvador, ¶ 206.

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owner, possessor or shareholder of an “investment” in the territory of the other

Contracting State,54 the absence of the “investment” under the Ruritania–Cronos BIT by

itself excludes the existence of an “investor”.

44. Thus, while CAM’s alleged actions do not comply with the scope and content of the

term “investment” under the Ruritania–Cronos BIT, being explicitly demonstrated

above, CAM cannot be an “investor” under the Ruritania–Cronos BIT.

b. CAM does not possess true ownership and control over the FBI

shares and the related intellectual property rights

45. Under Art. 1(3) of the Ruritania–Cronos BIT, the term “investor” requires that the

investor is the owner, possessor or shareholder of an “investment” in the territory of the

other contracting state. The textual elements present in the Ruritania–Cronos BIT

suggest the need for some form of active participation.55

46. In Standard Chartered Bank v. Tanzania,56 the tribunal regarded treaty references to an

“investment [..] by” an investor,57 “territory [..] in which the investment is made”,58 and

“shall encourage [..] companies [..] to invest”59 as suggesting an “active relationship

between investor and investment”.60 Accordingly, the tribunal found that passive

ownership in a company unless this company is not controlled by the claimant, is not a

sufficient investment.61

47. In the light of the above mentioned, in the present case the wording of the Ruritania–

Cronos BIT thus inevitably requires an existence of an active relationship between

CAM (claiming itself being an “investor”) and the brewery. This is so because the

present Ruritania–Cronos BIT uses an almost equal wording62 as described in Standard

54 Cl. ex. 1, p. 10, Art. 1(3). 55 See, e.g. Standard Chartered Bank v. Tanzania, ¶¶ 222-225; Loewen v. US, ¶¶ 225,

237-242; Libananco v. Turkey, ¶ 556. 56 Standard Chartered Bank v. Tanzania. 57 Ibid, ¶ 221. 58 Ibid, ¶ 222. 59 Ibid, ¶ 229. 60 Ibid, ¶ 221. 61 Ibid, ¶ 230. 62 Preamble, Arts. 1(1) and 1(3) of the Ruritania–Cronos BIT.

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Chartered Bank v. Tanzania mentioned above. This, in turn, indicates that the

Ruritania–Cronos BIT does not approve a passive ownership either.

48. While CAM is a registered shareholder of the FBI shares and a registered owner of the

respective trademarks and trade dresses, CAM does not, in fact, own and control the

purported investment. The true owner, possessor and shareholder is Contifica

Enterprises — the parent company of an international conglomerate Contifica Group.

Both Contifica Spirits and CAM are members of the Contifica Group. Therefore, the

alleged investment was only a change of owners within the corporate group.

49. Furthermore, not only Contifica Spirits is a fully owned subsidiary of Contifica

Enterprises,63 but CAM is indirectly 100% owned by Contifica Enterprises64 as well.

This explicitly demonstrates that the true owner and controller of the assets deemed

being an investment under the Ruritania–Cronos BIT is Contifica Enterprises.

50. In the light of the above, the sole fact of the transfer of the shares being an “intra-group

restructuring”65 makes itself evident that the whole transfer was orchestrated by the big

holding Contifica Group that therefore controls and conducts the assets of its owned

subsidiaries. Which company stays as the registered owner is thus a question of pure

formality.

51. Since CAM is the only registered shareholder of the shares and the holder of the rights

of the respective intellectual property, this constitutes a passive relationship. The factual

link to the territory of Ruritania and active participation regarding the development of

the brewery is missing. Thus, since CAM is not the factual owner, possessor,

shareholder of the investment, CAM should not be deemed to be an investor under the

Ruritania–Cronos BIT.

B. In any event, CAM’s claims are inadmissible, and the tribunal should

dismiss them at the jurisdictional stage

52. Even assuming that formally this tribunal could have jurisdiction over CAM’s claims, in

any event those claims are inadmissible. This is so because the way and the

circumstances under which the corporate restructuring, i.e. the transfer of the shares to

63 St. cl., p. 3, ¶ 6. 64 Proc. ord. 3, p. 35, ¶ 20. 65 St. cl., p. 3, ¶ 9.

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CAM, was performed amount to abuse of process, recently referred to as being an

abusive way of treaty shopping.

53. Although there is no definition of “treaty shopping” by any authoritative text,66

generally it is performed to gain maximum protection for the investment through using

the company in an investor-friendly state.67 While it is well known that, in principle,

treaty shopping is not prohibited,68 the practice demonstrates that there are limits to

permissible treaty shopping.69

54. In this context, Pac Rim v. El Salvador tribunal made it clear that a change of corporate

nationality amounts to abuse of process if it is done at the moment when a future

dispute is already foreseeable.70 Furthermore, the most recent case, Tidewater v.

Venezuela,71 emphasised that investors “could not have expected to obtain protection

for pre-existing disputes”.72 This finding was supported in Gami v. United Mexican

States case as well.73

55. The tribunal in Phoenix v. Czech Republic,74 in turn, defined four distinct considerations

relevant to the evaluation of purported treaty shopping, including (1) the timing of the

investment; (2) the timing of the claim; (3) the substance of the investment transaction;

and (4) the true nature of the investment operation.75

56. Furthermore, among other factors, considered by previous tribunals as relevant in

identifying abusive treaty shopping, are transactions by which the claimant acquired the

“investment”,76 including the ownership of the alleged investment,77 the true nature of

66 Kalnina (2012), p. 5. 67 Dolzer and Schreuer (2009), ¶ 203.6. 68 See CME v. Czech Republic, ¶ 419; Mobil v. Venezuela, ¶ 204. 69 Dolzer and Schreuer (2009), ¶ 203.6. 70 Pac Rim v El Salvador, ¶ 2.96. 71 Tidewater v. Venezuela. 72 Ibid, ¶ 143. 73 Gami v. United Mexican States, ¶ 93. 74 Phoenix v. Czech Republic. 75 Ibid, ¶¶ 135-144. 76 Ibid, ¶ 139; Mobil v. Venezuela, ¶¶ 186-205. 77 Aguas v. Bolivia.

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the claimant’s operation,78 and whether there was a commercial rationale for the

transfer.79

57. In the light of the above, the present case indicates a mixture of circumstances that make

evident an abusive treaty shopping.

1. CAM initiated the process not in good faith constituting an abuse of

process (so called abusive treaty shopping) by re-packing a foreseeable

dispute into a BIT claim

a. CAM transferred the shares at the time when it was already clear

that a dispute will arise

58. The facts surrounding the CAM’s acquisition of shares in FBI expressly indicate that at

the time of the transfer a future dispute was within a reasonable foreseeability. This, in

turn, is crucial in determining whether a corporate restructuring or acquisition of an

investment amounts to an abuse of rights.80

i. The provisions regarding the relation of the timing of a

dispute and an investment under the Ruritania–Cronos BIT

59. By a careful examination of Arts. 1(1), 1(3) and 8(1) of the Ruritania–Cronos BIT, it

should be observed that the articles indirectly entitle the “investor” to initiate a claim in

respect of the relevant investment made by him before a dispute has arisen.

60. Thus, according to Art. 8(1) such disputes (1) concerning “investments” between a

contracting state and (2) an “investor” of the other contracting state (if the “investor” so

wishes) shall be submitted to international arbitration under the Ruritania–Cronos BIT.

61. First, under Art. 1(1) an “investment” means an asset which is directly or indirectly

invested in the territory of a contracting state by “investors” of the other contracting

state. This implies that since a dispute concerns an investment, the “investment”,

according to the definition, must have already been made by an “investor” possessing

nationality of the other contracting state.

62. Second, under Art. 1(3) an investor is the owner, shareholder or possessor of an

“investment” in the territory of the other contracting state. This, in turn, implies that the

78 Phoenix v. Czech Republic, ¶ 140; Mobil v. Venezuela, ¶¶ 186-205. 79 Aucoven v. Venezuela. 80 Voon, Mitchell, Munro (2014), p. 7.

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“investor” possessing the nationality of his contracting state must be an owner,

shareholder or possessor of the same investment he has invested before the dispute.

63. Thus, returning back to Art. 8(1) of the Ruritania–Cronos BIT, two cumulative

requirements regarding the timing of a dispute exist. First, a dispute can arise only after

an investment is made by an investor who has the nationality of the other contracting

state. Second, at the time the dispute arises the investor must still have the respective

nationality. Other disputes fall outside the investor–state dispute settlement under the

Ruritania–Cronos BIT.

ii. The provisions regarding the timing of a dispute that follow

from international investment law

64. Under international investment law, unless the respective treaty provides otherwise,81 an

investor may initiate a claim in respect of a dispute arising after, but not before the

investor has made the relevant investment in the host state.82 This principle finds

approval in arbitral decisions.83

65. As regards the determination of the true date on which a dispute giving rise to an

investment claim commenced, the tribunals often have to investigate whether the

dispute already existed when the investment was made84 or whether the dispute had

crystallised by the time the claim was made.85

66. Although some tribunals have focused mainly on the date of harm or injury,86 such

approach does not take into account that the event causing the actual harm or injury

often predates the formal initiation of the claim or arbitration.87

67. Therefore, Ruritania invites to follow the approach of the tribunals88 that focused on the

81 Loewen v. US, ¶ 130. 82 Voon, Mitchell, Munro (2014), p. 7. 83 See, e.g. Tidewater v Venezuela, ¶ 143; Gami v. United Mexican States, ¶ 93. 84 See, e.g. Pac Rim v. El Salvador, ¶ 2.99. 85 Tokios Tokeles v. Ukraine, ¶¶ 105-107. 86 See, e.g. Europe Cement v. Turkey, ¶ 140; Cementownia v. Turkey, ¶¶ 116-122; Pac Rim v.

El Salvador, ¶ 2.106; Libananco v. Turkey, ¶¶ 95, 400, 492. 87 Voon, Mitchell, Munro (2014), p. 8. 88 See, e.g. Phoenix v. Czech Republic; Europe Cement v. Turkey; Cementownia v. Turkey;

Lucchetti v. Peru, ¶¶ 20, 40-42, 50; Pac Rim v. El Salvador, ¶ 2.99; Tidewater v. Venezuela, ¶ 149.

– 15 –

date of harm or injury in determining the date of the commencement of a dispute. In this

respect, Pac Rim v. El Salvador tribunal developed an approach how to examine

whether a dispute has already been afoot when the protection under the BIT is gained.

Thus, the tribunal stated:

“dividing-line occurs when the relevant party can see an actual dispute or can foresee a specific future dispute as a very high probability and not merely as a possible controversy.”89

68. Thus, if a cause of action has arisen prior to a restructuring, then a claim based on that

cause of action would clearly have to be ruled as inadmissible.90

iii. The factual background regarding the timing of the

acquisition of the shares

69. In the present case, putting the facts in chronological order:

(1) 30 June 2008: Contifica Spirits acquired all shares in FBI;

(2) before January 2010: due to the elections, parties were publicising their

election manifestos. New Way party’s one of the widely publicised

issues of its election manifesto was to adopt more rigorous regulations

against marketing and sale of alcohol beverages;91

(3) before January 2010: the New Way party was forecasted to secure

215-220 places in the parliament (according to one survey) and 190-200

places (according to another);92

(4) January 2010: the New Way party secured majority in Ruritanian

parliament,93 and the New Way party’s program was widely discussed

in the media.94

(5) 17 March 2010: Contifica Spirits transferred the shares to CAM;

(6) on 20 June 2010: the New Way party introduced to the Ruritanian

89 Pac Rim v. El Salvador, ¶ 2.99. 90 Douglas (2009), p. 465. 91 St. def., p. 21, ¶ 6. 92 Proc. ord. 3, p. 35, ¶ 19. 93 St. def., p. 21, ¶ 6. 94 Proc. ord. 2, p. 29, ¶ 9.

– 16 –

Parliament the draft MAB act and on 20 November 2010 adopted it.

70. In the light of the above, first, it is evident that Contifica Spirits was aware of the New

Way party’s election manifesto95 already before the elections in January 2010, since it

was demonstrated in public campaigns.96

71. Second, according to the pre-election survey97 already before the elections, there was a

high probability that the New Way party will win in the elections. Therefore, there was

an equally high probability that more rigorous regulations against the sale and

marketing of alcohol beverages will be adopted.

72. Third, in January 2010 the New Way party won the elections. Furthermore, the New

Way program was widely discussed in the media during the course of elections.98

Therefore, without reasonable doubts it became clear that the respective regulations will

be adopted. This, in turn, proves that January 2010, at the latest, was the “dividing-line”

of a future dispute to arise, i.e. when Contifica Spirits could reasonably anticipate that

tougher regulations will be adopted.99

73. Finally, on 17 March 2010, i.e. two months afterwards, Contifica Spirits transferred the

shares to CAM. Hence, it is evident that by the time of the transfer the dispute had

crystallised.

74. In this respect, referring to Schreuer:

“[t]he validity of nationality planning [is] primarily dependent on the time of the restructuring in relation to the dispute. If the restructuring was undertaken early, i.e. before the outbreak of the dispute, the newly acquired nationality will be honoured. But a last minute change of nationality in the face of an existing dispute will be rejected.”100

75. Thus, the circumstances under which the restructuring was made genuinely prove the

inadmissibility of the claims on the grounds of an abuse of process.

95 St. def., p. 21, ¶ 6. 96 St. def., p. 21, ¶ 6. 97 Proc. ord. 3, p. 35, ¶ 19. 98 Proc. ord. 2, p. 29, ¶ 9. 99 St. def., p. 21, ¶ 6. 100 Schreuer (2012), p. 18.

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2. The true nature of the restructuring was to get protection under the

Ruritania–Cronos BIT for this future dispute

76. Further, the amalgam of circumstances surrounding the restructuring makes evident the

sole purpose of the operation to get access to this investment arbitration.

77. Since the memorandum101 was presented by CAM to Ruritanian authorities in response

to Ruritania’s request to disclose documents relating to the acquisition of the shares in

FBI and other FBI related assets during criminal investigations,102 interesting facts arise

that identify the whole “operation”. Thus, essential remarks should be made in respect

of the memorandum.

a. An urgent need to gain protection

78. First, the memorandum makes it evident that in February, i.e. one month after the

parliamentary elections, Messrs Goodfellow and Straw103 had a meeting concerning

“further protection of Contifica Group”.104

79. Second, the memorandum clearly states that the restructuring may need to be

implemented quite quickly.105 Hence, an existing group company would be preferred

and Adam Straw “would recommend Cronos as Asset Management is incorporated

there”.106 This demonstrates that there must have been a definite reason for such

urgency.

80. Since the New Way party’s election manifesto107 transformed into anticipated measures

to be adopted in January 2010, the reason for the urgency could not be more telling.

81. In addition, the New Way program was widely discussed in the media as well as during

the course of the elections.108

82. Thus, in the light of the above circumstances CAM could not have been unaware of the

101 Resp. ex. 1, p. 24. 102 St. def., p. 22, ¶ 8. 103 St. cl., p. 6, ¶ 22; Proc. ord. 2, pp. 30-31, ¶ 21. 104 Resp. ex. 1, p. 24. 105 Resp. ex. 1, p. 24. 106 Resp. ex. 1, p. 24. 107 St. def., p. 21, ¶ 6. 108 Proc. ord. 2, p. 29, ¶ 9.

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widely publicised and discussed issues. This, in turn, implies that the cause of action for

the urgency could not be other than the fear of the anticipated change in the Ruritanian

legislation.

b. Other “investment-friendly” jurisdictions carefully considered

83. Third, a number of jurisdictions were considered before the transfer of the assets to

CAM in Cronos. The memorandum implies that two other destinations besides Cronos

that were chosen as suitable enough were Delaware and Switzerland.109 Ruritania has

bilateral investment treaties with both US and Switzerland.110

84. Therefore, the circumstances of the corporate restructuring elaborated above

demonstrate the sole purpose to bring assets under the protection of the Ruritania–

Cronos BIT. Further to the above, CAM has neither contended, nor provided any proof

that the intent to begin restructuring did exist before. Actually, if it existed, CAM would

be able in any event to present the projects of the planned restructuring, however, that is

absent in this dispute.

C. All measures introduced by Ruritania fall under sensitive matters of

public interest of any state

85. Finally, in any event the facts of which the Claimant complains, even if proven to be

true, do not amount to a breach of the Ruritania–Cronos BIT. All of the measures taken

by Ruritania are sensitive matters of public interest. That is why such issues need to be

reserved for exclusive consideration by national courts.111 Thus, this tribunal should

dispose of them at the jurisdictional stage.

II. THE TRIBUNAL HAS NO JURISDICTION OVER CAM’S CLAIMS

BASED ON THE ALLEGED BREACH OF THE SHARE PURCHASE

AGREEMENT BY THE STATE PROPERTY FUND OF RURITANIA,

AND IN ANY EVENT THOSE CLAIMS ARE NOT ADMISSIBLE

86. Regarding the alleged breach of the SPA by the Fund, Ruritania submits that this

tribunal has no jurisdiction over CAM’s claims. In any event, even if this tribunal could

have jurisdiction over the CAM’s purely contractual claims, they are inadmissible since

109 Resp. ex. 1, p. 24. 110 Proc. ord. 3, p. 34, ¶ 7. 111 See, e.g. Mitsubishi v. Soler.

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the dispute resolution clause in the SPA provides that all disputes “shall be finally

settled” under the rules of the ICC, meaning that any other decision by any other

tribunal is not binding to the parties.

A. The CAM’s claims based on the alleged breach of the SPA by the Fund are

of completely different legal nature

1. The essential basis of the CAM’s claims regarding the alleged breach

of the SPA is an alleged breach of a contract, not a treaty

87. First of all, the statement of claim makes clear that the dispute is purely contractual

since relief sought by CAM directly relates to the alleged breach of the SPA. That

follows already from the wording used by CAM in its written submission since “if the

tribunal concludes that the FREEBREW does not pose the risks described in the HRI

Report, Claimant respectfully asks the tribunal to find that Ruritania violated [this]

guarantee”.112

88. Thus, the aforesaid explicitly shows that the essential basis of the claim brought before

this international tribunal is a breach of a contract as CAM refers to the guarantee

included in the SPA. Hence, this tribunal should give effect to any valid forum selection

clause present in the respective contract.113

2. Different laws apply to the breach of the SPA and the breach of

the BIT

89. Further, as the two legal instruments are sustained by two different legal systems,

different rules apply to the issues regarding a breach of a contract and a breach of

a treaty.

a. The SPA sets the rights and obligations to the parties who are

bound by the contract, not to the states

90. The SPA concluded between the Fund and Contifica Spirits is a contract between two

private parties, and under Art. 14.1 of the SPA “[the] agreement shall be governed by

the laws of [..] Ruritania”. Whereas the Ruritania–Cronos BIT is concluded between the

state of Ruritania and the state of Cronos, so the parties to the treaty are states, and the

112 St. cl., p. 7, ¶ 29. 113 McLachan and Shore et al. (2007), p. 102, ¶ 4.72(3).

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law applicable to the legal relationship arising out of the Ruritania–Cronos BIT is

international law.

91. Only the parties to the SPA are bound by that contract. So for any alleged breach of the

SPA the responsibility is held by the relevant party to the SPA. The question of who is

bound by a contract is to be determined by the law applicable to the contract, not the

rules of attribution that derive from international law and relate to the questions of state

responsibility.114

b. The alleged breach of the SPA by the Fund is not attributable to

Ruritania

92. Under the laws of Ruritania, the Fund is a separate legal entity with its own legal

personality.115 It means that the state of Ruritania is not responsible for the contractual

liability of the Fund to perform the obligations under the SPA.

93. The Vivendi v. Argentina ad hoc committee in its decision on annulment drew clear

distinction between the rules that govern contractual liability and international law rules

of attribution applicable only in the cases of claims based on treaties.116

94. Also, the Impregilo v. Pakistan tribunal supported the aforementioned approach

pointing out that the international law rules on state responsibility and attribution do not

apply to the responsibility of a state for the conduct of an entity that breaches a

municipal law contract.117

c. Furthermore, since CAM has been assigned all rights and

obligations under the SPA in compliance with Art. 11.1 of the

SPA, it acquired no more rights and obligations than the

respective SPA provides for

95. The shares in FBI were originally acquired by Contifica Spirits that entered into the

SPA with the Fund.118 In this respect, it is important to underline that Contifica Spirits is

114 Sinclair (2009), p. 12. 115 St. def., p. 22, ¶ 11. 116 Vivendi v. Argentina, ¶ 96. 117 Impregilo v. Pakistan, ¶ 210. 118 St. cl., p. 3, ¶ 7.

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a company incorporated under the laws of Posteriana.119 Furthermore, it is a fully

owned subsidiary of Contifica Enterprises,120 the parent company of Contifica group

incorporated in Prosperia.121 Neither Posteriana, nor Prosperia have entered into a

bilateral investment treaty with the Republic of Ruriatnia.122

96. Hence, in the light of the above, the parties to the SPA, by entering into it, did not

undertake more obligations than provided under it. At the time of concluding the SPA,

there was no BIT that could grant FBI shares additional protection.

97. This, in turn, means that CAM, by being assigned the rights and obligations under the

SPA in compliance with Art. 11.1 of the SPA, did not undertake more rights than it was

provided under the SPA at the time it was concluded.

98. In addition, as the first party to enter the SPA was Contifica Spirits, not CAM, and the

transfer of the shares to CAM took place according to a special clause included in the

SPA, accordingly the disputes concerning the SPA must be equally resolved according

to the dispute settlement resolution clause included in the SPA.

99. All the above mentioned means that the Ruritania–Cronos BIT does not cover

contractual rights under the SPA concluded between Contifica Spirits and the Fund. The

scope of liabilities under the SPA and the nature of the commitment by the assignment

have not changed.

100. Taking that into account, this tribunal should leave those contractual claims to be heard

according to the respective procedure agreed by the parties, i.e. by an ICC tribunal

according to the SPA.

d. In any event, the Fund’s breach of the SPA is not attributable to

Ruritania

101. The only way how a state can be held responsible under international law for a breach

of a contract is that the breach of the contract must constitute a violation of an

international obligation.123 Since the only alleged breach of the Fund is the breach of the

119 Cl. ex. 2, p. 18. 120 St. cl., p. 3, ¶ 6. 121 St. cl., p. 2, ¶ 4. 122 St. def., p. 21, ¶ 4. 123 Feit (2010), p. 10.

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guarantee under the SPA, it is not capable of constituting a violation of an international

obligation. This is so because at the time the SPA was concluded it did not have any

link with the present BIT.

102. Even if CAM claims that a state breaches an obligations observance clause through a

sub-state entity’s failure to observe its obligations, it is necessary to apply the rules in

ILC Arts. 4, 5 and 8 to both the act of entering the obligation and the act of the

breach.124 None of the ILC articles can be applied to both matters in the present case, as

the Fund is not an entity of Ruritania, nor was it exercising elements of governmental

authority by entering into the SPA, nor is it controlled by Ruritania. In any event,

entering into the SPA is a purely contractual obligation of a separate legal entity.

103. Had the CAM invoked criteria of structure, function, and control established by the

Maffezini v. Spain125 tribunal, still they are not capable of making evident the

applicability of the Fund’s alleged breaches to Ruritania, as the Fund did not act on

behalf of Ruritania by entering the SPA. More than that, as clearly noted by Nagel v.

Czech Republic126 tribunal, even if the enterprise is a fully owned state enterprise, it

does not as such engage the responsibility of the state.127

104. Hence, in the light of the above, Ruritania invites this tribunal to dismiss the claims of

CAM based on the alleged breach of the SPA, whose obligations are binding to the

Fund, not the state of Ruritania.

3. Accordingly, contractual claims should be solved according to the

respective procedure agreed by the parties in the SPA under the Rules

of Arbitration of the International Chamber of Commerce

a. The SPA contains clear intent of the parties to settle all the

disputes “arising out of or in connection with the present

Agreement” under the Rules of Arbitration of the International

Chamber of Commerce

105. The wording used in Art. 14.2 of the SPA clearly demonstrates the will of the parties to

124 Gallus (2010), p. 168. 125 Maffezini v. Spain. 126 Nagel v. Czech Republic. 127 Nagel v. Czech Republic, ¶¶ 162-165.

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settle the disputes arising out of the SPA under the ICC.128 Hence, as this dispute

resolution forum was agreed by both parties to the SPA, all the disputes connected to

the SPA should be referred to the respective arbitration.

106. Besides, contrary to the choice of the dispute resolution forum being an administrative

tribunal agreed by the parties in Lanco v. Argentina that “cannot be considered a

previously agreed dispute-settlement procedure [..], since administrative jurisdiction

cannot be selected by mutual agreement”,129 the clause of referring all contractual

disputes to the ICC shall only be considered as being a clear previously agreed

dispute-settlement procedure.

107. Thus, the aforementioned agreed procedure must be respected and all claims regarding

the alleged breach of the SPA shall be heard under the respective procedure. Therefore,

for the reasons mentioned above this tribunal should dispense from adjudicating the

contractual claims submitted by CAM.

4. The dispute resolution clause can only cover contracts concluded

between a state party to the BIT and a foreign investor

a. The dispute resolution clause should be read restrictively

108. Art. 8(1) provides that “disputes concerning Investments between a Contracting State

and an Investor of the other Contracting State under this Treaty”, if they cannot be

settled amicably, shall be submitted to international arbitration if the investor so wishes.

Thus, only such disputes that relate to investments may be heard before this tribunal.

109. Although it is well known to Ruritania that there are divergent approaches as regards

the relationship between dispute settlement clauses within contracts and treaties, the

dispute resolution clause in the Ruritania–Cronos BIT should not be extended to

contractual claims, such as the alleged breach of the SPA.

110. Ruritania draws attention of the tribunal that the effect of a very similar dispute

resolution clause was analysed in SGS v. Pakistan.130 There the tribunal made it clear

that “disputes with respect to investments” did not cover contractual claims.131

128 Cl. ex. 2, p. 18. 129 Lanco v. Argentina, ¶ 26. 130 SGS v. Pakistan. 131 SGS v. Pakistan, ¶¶ 161-162.

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Moreover, the position against extensive dispute resolution clause finds support within

legal writings.132

111. In the light of the above, Ruritania submits that likewise as in SGS v. Pakistan

contractual claims are not covered by Art. 8(1) of the Ruritania–Cronos BIT. Thus, this

tribunal has no jurisdiction over the alleged breach of the SPA.

b. Even following the more extensive dispute resolution clause

interpretation, it cannot cover the CAM’s contractual claims

112. Two decisions — Salini v. Morocco133 and RFCC v. Morocco 134 — were the first cases

within which the opinion was expressed that dispute settlement clauses can serve as the

basis for bringing contract claims in treaty-based proceedings.135 However, although the

tribunals affirmed that the wording of the dispute resolution clause could include

contractual claims, they did not include such contractual claims that were concluded not

by Morocco itself but by a separate legal entity.136 Similar reasoning was adopted as

well in the case of Siemens AG v. Argentina.137

113. Hence, only contracts concluded between a state party to a treaty, on the one side, and a

foreign investor, on the other side, can be covered by a broad dispute resolution clause.

Therefore, since the SPA was concluded between Contifica Spirits and the Fund, that is

separate legal entity,138 even extensive reading of Art. 8(1) of the Ruritania–Cronos BIT

would not be capable of bringing the SPA claims in the Ruritania–Cronos BIT

proceedings.

5. Equally, the umbrella clause in the Ruritania–Cronos BIT is

insufficient to elevate the claim based on the alleged breach of the SPA

by the Fund, which is a separate legal entity

a. The umbrella clause should be read narrowly

114. Art. 6(2) of the Ruritania–Cronos BIT provides that “each Contracting State shall fulfil 132 Gaillard (2005), pp. 325, 336. 133 Salini v. Morocco. 134 RFCC v. Morocco. 135 Griebel (2007), p. 2. 136 Salini v. Morocco, ¶ 60; RFCC v. Morocco, ¶ 68. 137 Siemens AG v. Argentina, ¶ 205. 138 St. def., p. 22, ¶ 11; Proc. ord. 2, p. 29, ¶ 5.

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any other obligations it may have entered into with an Investor or an Investment of an

Investor of the other Contracting State”. Though CAM may refer to this clause, it does

not include purely contractual claims.

115. The El Paso v. Argentina tribunal supported Pakistan’s narrow reading of the umbrella

clause in interpreting the US–Argentina BIT concluding that a narrow reading of the

umbrella clause was necessary “to prevent a state’s minor commitments from being

transposed to international treaty obligations”.139

116. Furthermore, as stated in SGS v. Pakistan and supported by the tribunal in SGS v.

Phillipines, a broad interpretation would have a detrimental effect of overriding the

dispute settlement clauses in investor–state contracts.140

117. Not only are the aforementioned reasons in favour of reading Art. 6(2) of the Ruritania–

Cronos BIT narrowly, but Art. 6 itself suggests that the parties did not intend to bring

purely contractual claims under the protection of the BIT. This is so because Art. 6(1) of

the Ruritania–Cronos BIT refers to the MFN standard. Thus, Art. 6(2) should

accordingly be read in compliance with Art. 6(1) of the Ruritania–Cronos BIT. That

means it is additional to the MFN standard and thus obviously refers to treaty

obligations.

b. In any event, even wide reading of the umbrella clause does not

include claims in respect to the alleged breach of the SPA

118. The tribunal in CMS v. Argentina rightfully noted that “not all contract breaches result

in breaches of the Treaty”, even when there is an umbrella clause present.141 A similar

position was taken by Joy Mining v. Egypt tribunal where the umbrella clause itself was

insufficient to elevate the contractual claims.142

119. Further, Ruritania would like to draw attention of this tribunal to the findings in

Nagel v. Czech Republic143 where at the heart of the investor’s claim was the state

enterprise’s failure to grant a telecommunications licence to the investor. The tribunal

took a strong position that regardless of the enterprise being a fully owned state

139 El Paso v. Argentina, ¶ 76. 140 Wendlandt (2008), p.22. 141 CMS v. Argentina, ¶ 299. 142 Joy Mining v. Egypt, ¶¶ 81-82. 143 Nagel v. Czech Republic.

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enterprise it was a separate legal person whose legal undertakings did not as such

engage the responsibility of the state.144

120. In addition, the tribunal in Impregilo v. Pakistan emphasised that the umbrella clause

did not cover such agreements into which the state had not entered itself.145 Also,

Azurix v. Argentine Republic decision rejected the claim for the breach of the

obligations observance clause since a sub-state entity, in that case a province, and not

the state itself was the party to the contract.146

121. Therefore, even if the umbrella clause was read widely, it would only be capable to

cover such agreements where the party to the agreement is the state itself.

B. Even assuming that this tribunal has jurisdiction over the contractual

claims, the claims regarding the alleged breach of the SPA by the Fund are

inadmissible due to the exclusive dispute resolution clause in the SPA

122. Since the dispute resolution clause in the SPA provides that all disputes “shall be finally

settled” under the rules of the ICC, even if this tribunal decides it has jurisdiction under

the Ruritania–Cronos BIT to hear the contractual claims, the final decision shall be

made only by the ICC tribunal. It means that any other decision by any other tribunal is

not binding to the parties. Hence, even if this tribunal makes a decision regarding the

contractual claims, according to the SPA it is not to be final.

123. In this respect, Ruritania invites to follow the findings of the tribunal in SGS v.

Philippines. Despite the tribunal’s conclusion that the dispute resolution clause “in

principle” included contractual disputes,147 the tribunal decided to give effect to the

forum-selection clause.148

124. Hence, the tribunal in SGS v. Philippines found it inappropriate to exercise its

jurisdiction over contractual claims where the parties had agreed on another dispute

resolution forum.149 In addition, in its reasoning the tribunal referred to the ad hoc

committee in Vivendi v. Argentina case which fully supported the previously agreed

144 Nagel v. Czech Republic, ¶¶ 162-165. 145 Impregilo v. Pakistan, ¶ 223. 146 Azurix v. Argentine Republic, ¶ 384. 147 SGS v. Philippines, ¶¶ 131-135. 148 Ibid, ¶ 177. 149 Ibid, ¶ 155.

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dispute resolution clauses by the parties to the contract.150

125. In the present case, insofar as the previously agreed dispute resolution clause in the SPA

absolutely points to the ICC as being the only forum to make a “final” decision as

regards the contractual disputes, the ignoring of this clause would be impermissible as it

is clearly exclusive. Thus, this tribunal should dispense from adjudicating claims

regarding the alleged breach of the SPA.

III. BY ADOPTING THE REGULATION ON MARKETING AND SALE

OF ALCOHOL, RURITANIA DID NOT VIOLATE ANY OF ITS

OBLIGATIONS UNDER THE RURITANIA–CRONOS BIT OR

GENERAL PUBLIC INTERNATIONAL LAW

126. Ruritania is of the strong view that adoption of the MAB Act neither violates the

Ruritania–Cronos BIT, nor any of Ruritania’s obligations under general public

international law. Ruritania hereby submits that, first, it did not expropriate CAM’s

property and, second, the regulatory actions carried out by Ruritania satisfy the

obligation of FET.

A. Ruritania did not expropriate CAM’s property

127. Ruritania rejects the CAM’s claim that it has breached the obligation under Art. 4 of the

Ruritania–Cronos BIT not to deprive investors to measures having effect equivalent to

such deprivation. CAM has not, in fact, been deprived of the purported investments

Contifica Enterprises made on 30 June 2008, nor has CAM been subjected to measures

having equivalent effect.

128. Moreover, the measures under the MAB Act are non-discriminatory regulatory actions

of general application adopted by the Ruritanian parliament and further enforced by the

Ruritarian government to achieve the most fundamental public welfare objective,

namely, the protection of health of Ruritania’s residents. Such measures apply for all

manufacturers, and none of them are subjected to expropriation, nor to any equivalent to

expropriation.

129. It must be further emphasised that, according to the Ruritanian Trademarks Office,

CAM remains the registered owner of the FBI’s trademarks and trade dresses and

150 Ibid, ¶ 153; Vivendi v. Argentina, ¶ 98.

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retains the exclusive right to use them.151 Accordingly, Ruritania is not affiliated with

CAM’s property in any way.

130. Therefore, since Ruritania does not claim its ownership rights to any property which

might be in some way affiliated with CAM, whether it might be the present investments

or other, the present claim cannot give rise to any duty to pay compensation. For those

reasons Ruritania submits that, first of all, no indirect expropriation towards CAM’s

property exists in the present case and, second, the regulatory actions of Ruritania shall

not be treated as expropriation and, finally, if the tribunal were to find that there has

been an indirect expropriation of CAM’s property, no compensation is payable to CAM

because adoption of the MAB Act cannot be wrongful as it was a legitimate exercise of

the sovereignty of Ruritania.

1. No indirect expropriation exists in the present case

131. To further substantiate the above mentioned arguments, Ruritania maintains that no

indirect expropriation has taken place with regard to the present CAM’s claim. In this

context, the police powers doctrine has emerged regarding how to determine whether or

not a governmental measure constitutes an indirect expropriation.152

132. The police powers doctrine states that bona fide non-discriminatory regulation within

the police powers of the state does not require compensation at all.153 Therefore, the

government may impose restrictions on private rights for the sake of public welfare.154

133. Under international law, police powers are measures that restrict property rights in order

to prevent harm or nuisance caused by their use.155 As in this case, Ruritania adopted

the MAB Act to fulfil its obligations under the ICESCR156 to protect the public health of

the citizens of Ruritania from the adverse effects caused by the alcohol consumption

and addiction and, furthermore, to prevent the exposure of the youth to alcohol.157 The

protection of public health is not only of great importance to Ruritania and its

151 St. def., p. 23, ¶ 16. 152 Newcombe (2005), p. 1. 153 Suda (2006), p. 140. 154 Vadi (2013), p. 139. 155 Freund (1904). 156 Proc. ord. 2, p. 30, ¶ 15. 157 St. def., p. 22, ¶ 14.

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government, but it is also highly evaluated and shall be treated as a fundamental

objective to all governments.158 Indeed, the WHO has indicated its strong support for

promoting the methods to limit the consumption of alcohol.159

134. Ruritania further emphasises that “[u]nder the traditional international law concept of

the exercise of police powers, when a state acted in a non-discriminatory manner to

protect public goods such as its environment, the health of its people or other public

welfare interests, such actions were understood to fall outside the scope of what was

meant by expropriation[.] [..] Such acts were simply not covered by the concept of

expropriation, were not a taking of property, and no compensation was payable as a

matter of international law.”160

135. Ruritania is also of the firm view that indirect expropriation may take effect only if one

ensures effective control and use of the investment. However, based on the facts of the

present case it is clear that Ruritania does not have such control.161 The arbitral tribunal

in Revere v. OPIC case found an expropriation by looking at the said “impact on

effective control over use and operation”162 of an investor’s property which, however,

cannot be related in any way to regulatory actions carried out by Ruritania.

136. Another aspect which proves that Ruritania shall not be accused of indirect

expropriation is that the state of Ruritania did not benefit from the alleged expropriatory

measures. As recognized in S. D. Myers v. Canada case, “[i]n general, the term

“expropriation” carries with it the connotation of a “taking” by a governmental–type

authority of a person’s “property” with a view to transferring ownership of that property

to another person, usually the authority that exercised its de jure or de facto power to do

the “taking””.163 Since the “taking” did not happen and CAM still controls its property,

Ruritania asks the tribunal to declare that neither indirect expropriation, nor measures

having equivalent effect have been brought against CAM.

158 Tecmed v. Mexico. 159 Bellis and Hughes et al. (2005). 160 Mann and von Moltke (2002). 161 St. cl., p. 5, ¶¶ 19-21. 162 Revere v. OPIC, ¶¶ 19-21. 163 S. D. Myers v. Canada (1999), ¶ 280.

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2. The regulatory actions of Ruritania shall not be treated as

expropriation

137. Ruritania maintains that its regulatory actions, in particular the adoption of the MAB

Act, shall not be treated as expropriation.

138. In this regard, the determination of expropriation “requires a case-by-case, fact-based

inquiry” in which the tribunal must consider:

(1) the economic impact of the government’s action, although the fact that

an action or series of actions by a party has an adverse effect on the

economic value of an investment, standing alone, does not establish that

an indirect expropriation has occurred;

(2) the extent to which the government’s action interferes with distinct,

reasonable investment-backed expectations; and

(3) the character of the government’s action.164

139. However, it is extremely important to note that under international agreements there is

an explicit exception for government’s regulatory actions. Namely, such actions

“designed and applied to protect legitimate public welfare objectives, such as public

health, safety, and the environment”165 shall not be regarded as actions equal to

expropriation.

140. In this context, the tribunal in Methanex v. US case asserted that, as a principle of

general international law, “a non-discriminatory regulation for a public purpose, which

is enacted in accordance with due process [..] is not deemed expropriatory and

compensable unless “specific commitments” had been given by the regulating

government to the then putative foreign investor contemplating investment that the

government would refrain from such regulation.”166 Taking one final jab at the

Methanex’s claim, the tribunal held that the company’s losses in customer base,

goodwill, and market share cannot stand alone as a protected property interest.167

Finding first that the regulations were non-discriminatory and that Methanex received

164 CAFTA-DR, Annex 10-C(4)(a). 165 Ibid. 166 Methanex v. US, Part IV, Chapter D, ¶ 7. 167 Ibid, ¶ 7.

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no specific commitments but rather entered a market which was widely known to be

subject to extensive government regulation, the tribunal determined that the US

complied with its obligations under Art. 1110 of NAFTA.168

141. In the light of the above, also in the present case the tribunal should declare that indirect

expropriation did not take place since the measures adopted were deemed necessary for

public health. The evidence clearly demonstrates that consumers of products containing

Reyhan are exposed to a higher risk of cardiac complications due to the effect of

Methyldioxidebenzovat, an active chemical found in Reyhan concentrate.169 Thus,

Ruritania was obliged to protect its citizens and to warn them about possible health

risks, and CAM knew about the upcoming changes in legal regulation of Ruritania.

3. The MAB Act shall not be regarded as wrongful because it is a

legitimate exercise of the sovereignty of Ruritania

142. Even if the tribunal was to find that the actions of Ruritania amounted to expropriation,

the MAB Act “[..] cannot be wrongful because [it is] a legitimate expression of

sovereignty. No compensation is payable for [such] acts.”170

143. The requirements for a legitimate exercise of a state’s authority were succinctly stated

by the tribunal in Methanex v. US on expropriation as follows:

(1) the act in question is carried out for a public purpose;

(2) the act is non-discriminatory;

(3) the act is made with due process; and

(4) the state has not committed to refrain from such act.171

144. The tribunal in Methanex v. US held that if these requirements were met, “as a matter of

general international law”, the measure “is not deemed expropriatory and

compensable”.172

145. As already stated above, the MAB Act was adopted for public purpose to protect the

health of the citizens of Ruritania from products which are exposed to a higher risk of 168 Ibid, ¶¶ 9-10. 169 St. cl., p. 4, ¶ 14. 170 Martinez (2010), pp. 315-337. 171 Methanex v. US, Part IV, Chapter D, ¶ 7. 172 Ibid, ¶ 7.

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cardiac complications;173 it was adopted in a non-discriminatory manner being binding

for all manufacturers;174 it was adopted on a basis of solid and long-term research;175

and no representations were made to CAM by the Ruritanian government which might

have indicated that it intended to refrain from passing such legislation.

146. For those reasons, the tribunal should take into account the view expressed by the

tribunal in Saluka v. Czech Republic where it highlighted that it is now established in

international law that “[s]tates are not liable to pay compensation to a foreign investor

when, in the normal exercise of their regulatory powers, they adopt in a

non-discriminatory manner bona fide regulations that are aimed at the general

welfare”.176

147. Likewise, in Parkerings v. Lithuania the tribunal held that it was each state’s undeniable

right and privilege to exercise its sovereign legislative power at its own discretion and

that “[t]here is nothing objectionable about the amendment brought to the regulatory

framework existing at the time an investor made its investment”.177

148. Therefore, Ruritania asks the tribunal to conclude that, first of all, there was no indirect

expropriation and CAM should not be awarded with compensation and, second, even if

the actions of Ruritania amounted to expropriation, such acts fall within the scope of

legitimate exercise of the sovereignty of Ruritania and thus the compensation should not

be payable to CAM by any means.

B. The actions of Ruritania satisfy the obligation of FET

1. Ruritania treated CAM’s investment fairly and equitably and

therefore did not violate Art. 2(1)(b) of the Ruritania–Cronos BIT

149. Ruritania recalls that on 17 March 2010 due to an intra-group restructuring, shares of

FBI where transferred from Contifica Spirits to CAM. Ruritania further reiterates that

CAM did that in full knowledge and with expectations that the New Way party, which

secured the majority in Ruritanian parliament, will take a hard stance towards marketing

173 St. cl., p. 4, ¶ 14. 174 St. cl., pp. 3-4, ¶¶ 10-12. 175 St. cl., p. 4, ¶ 14. 176 Saluka v. Czech Republic, ¶ 255. 177 Parkerings v. Lithuania, ¶ 332.

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and sale of alcohol and that more rigorous regulation would be adopted in the nearest

future.178

150. Since Ruritania had explicitly announced the changes in its legislation, in particular, the

the adoption of the MAB Act,179 CAM could not have any expectations other than that

Ruritania would act in accordance with its announcements. Therefore, there is no breach

of FET in the present case.

151. As the claim focuses on inter alia breach of the principle of FET, it must be emphasised

that one of the key elements of this principle is protection of the investor’s legitimate

expectations.180 Although some tribunals181 and CAM might tend to claim that the

standard of FET requires the obligation to maintain a stable legal and business

framework, however, these legitimate expectations may only be created where a number

of qualifying requirements are present.

152. Ruritania is aware of statements made in Tecmed v. Mexico where it was emphasised

that the host country authorities should act consistently, without ambiguity and

transparently, making sure the investor knows in advance the regulatory and

administrative policies and practices to which it will be subject, so that it may comply

with them.182 However, the above mentioned list is too demanding and nearly

impossible to achieve in practice, and, furthermore, “[t]he Tecmed “standard” is actually

not a standard at all; it is rather a description of perfect public regulation in a perfect

world, to which all states should aspire but very few (if any) will ever attain”.183

153. Furthermore, in cases where the international tribunals had found a breach of FET, it

was highlighted that in those circumstances the laws were changed continuously,184

which is quite opposite to the situation in the present case where no unconditional

changes of law on large scale have been adopted; it was a constant, necessary,

178 St. def., p. 21, ¶ 6. 179 Ibid. 180 UNCTAD (2012b), p. 63. 181 Occidental v. Ecuador, ¶ 183; Enron v. Argentina, ¶ 260. 182 Tecmed v. Mexico. 183 Douglas (2006), p. 28. 184 PSEG Global v. Turkey, ¶¶ 252-253.

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legitimate and well-researched change of legal regulation of sale of alcohol in

Ruritania.185

154. Taking into account the above mentioned assertions, Ruritania firmly believes that the

fact that CAM knew about the planned process towards more rigorous regulation of the

sale of alcohol is itself sufficient to conclude that in the present case there has been no

violation of the standard of FET.

2. Ruritania treated CAM’s investment fairly and equitably and did not

violate CAM’s legitimate expectations

155. Ruritania is aware that in some cases international tribunals have gone so far as to

suggest that any adverse change in the business or legal framework of the host country

may give rise to a breach of the FET in that the investors’ legitimate expectations of

predictability and stability are thereby undermined. However, as observed by several

arbitral tribunals such approach is unjustified, as it would potentially prevent the host

state from introducing any legitimate regulatory change. It ignores the fact that investors

should legitimately expect regulations to change over time as an aspect of the normal

operation of legal and policy processes of the economy they operate in.186

156. In this respect, Ruritania reiterates that in Duke Energy v. Ecuador the tribunal

emphasised that legitimate expectations of an investor must be grounded in reality,

experience and context.187

157. Therefore, Ruritania maintains that in the current situation three main qualifying

elements exist to conclude that CAM did not have any legitimate expectations other

than that Ruritania would act in accordance with its explicit announcements towards

limitation of marketing and sale of alcoholic beverages:

(1) CAM’s legitimate expectations may arise only from Ruritania’s specific

representations or commitments made to CAM;

(2) CAM must be aware of the general regulatory environment in the host

country;

(3) CAM’s legitimate expectations must be balanced against legitimate

185 St. cl., p. 4, ¶ 14. 186 Occidental v. Ecuador, ¶ 190; PSEG Global v. Turkey, ¶ 262. 187 Duke Energy v. Ecuador, ¶ 340.

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regulatory activities of Ruritania.

a. Ruritania made no representations or commitments to CAM

158. Respondent submits that CAM could not have had any legitimate expectations on stable

legal and business framework since Ruritania has not given an explicit representation or

commitment to CAM. Thus, similarly as in the present case, in Methanex v. US the

investor claimed a violation of FET arguing that the ban of production of gasoline

containing methanol-based additives was unjustified and destroyed its business

market.188

159. In Methanex v. US, the tribunal rejected the claim as the claimant had not been given

any representations by the US that it could reasonably have relied upon to conclude that

such regulatory changes would not occur.189 For those reasons, the Respondent asks the

tribunal to follow the interpretation carried out in Methanex v. US.

b. CAM was obliged to be aware of the general regulatory

environment in Ruritania

160. As already noted above, Ruritania maintains that there is no breach of FET because

CAM was informed about the upcoming changes in the legal framework regarding

marketing and sale of alcohol in Ruritania. In this context, it is noteworthy to point out

to the tribunal that if CAM fails to take into account the given information, it cannot

claim for breach of FET and legitimate expectations on stable business framework

thereof.

161. In support of this argument, Ruritania relies on the case of Parkerings v. Lithuania.190 In

that case, the tribunal noted that Lithuania, similarly as Ruritania, was a country in

political transition and therefore the investor should have regarded changes in the

legislative regime as likely. In such a situation, no expectation that the laws would

remain unchanged could be legitimate. An investor faced with this situation accepts the

business risk of instability and should protect its legitimate expectations by introducing

a contractual clause that protects against unexpected legal changes,191 which was not

present in the Ruritania–Cronos BIT.

188 Methanex v. US. 189 Methanex v. US, Part IV, Chapter D, ¶ 7. 190 Parkerings v. Lithuania. 191 Parkerings v. Lithuania, ¶¶ 335-336.

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162. For the reasons mentioned above, Ruritania asks the tribunal to conclude that CAM has

not taken into account the announcement of upcoming changes in legal framework of

Ruritania and therefore it does not have any legitimate expectations for stable legal and

business framework and thus Ruritania has not violated Art. 2(1)(b) of the Ruritania–

Cronos BIT.

c. The obligation of FET does not prevent Ruritania from acting in

public interest even if such acts adversely affect CAM’s

investments

163. Ruritania maintains that nowhere in its claim CAM contends that the measures adopted

by Ruritania are arbitrary. In fact, the further measures on warning the consumers about

the higher risk of cardiac complications while using products that contain Reyhan

concentrate are based on a broad range of clinical studies and analysis on which the

Ministry of Health and Social Security of Ruritania relied in good faith as the research

was provided by the Human Health Institute, a government-funded institution.192

164. The necessity to protect health of the host state’s citizens as well as the present issue on

balancing investor’s interests against legitimate regulatory activities of the host state

were also highlighted in the case of Saluka v. Czech Republic.193

165. Thus, the tribunal agreed that “the host state’s legitimate right subsequently to regulate

domestic matters in the public interest must be taken into consideration as well.” It also

emphasised that a breach of FET required “weighing of the Claimant’s legitimate and

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

interests on the other” and if a host state’s actions are justified by the public policy,

which is a subject of protection of the public health in the present case, “such conduct

does not manifestly violate the requirements of consistency, transparency, even-

handedness and non-discrimination”.194

166. In the light of the aforesaid, it must be stipulated that it is up to states to take individual

measures to protect the health of its citizens, and even if these measures negatively

affected the investor, namely CAM, such conduct of Ruritania does not violate the

standard of FET because the new legal framework has been adopted by the state of

192 St. cl., p. 4, ¶ 14. 193 Saluka v. Czech Republic, ¶ 255. 194 Ibid, ¶¶ 304-308.

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Ruritania in a bona fide manner, i.e. on the basis of broad range of scientific studies on

the possible negative impact of Reyhan concentrate towards the citizens.

167. Therefore, to conclude, Ruritania asks the tribunal to adjudge that its obligations under

the Ruritania–Cronos BIT, insofar as they concern FET, are fulfilled and CAM’s claim

should be rejected.

IV. THE TRIBUNAL CANNOT AWARD MORAL DAMAGES TO CAM

SINCE NO FINANCIAL LOSSES WERE CAUSED TO CAM BY THE

ARREST OF MESSRS GOODFELLOW AND STRAW

168. At the outset, Ruritania takes note of Art. 2(1)(b) of the Ruritania–Cronos BIT which,

insofar as relevant, reads as follows: “Each Contracting State shall in its territory [..] in

every case accord Investments by Investors of other Contracting State [..] full protection

and security under this Treaty”.

169. In this respect, Ruritania maintains that CAM’s claim invoking the alleged violation of

the guaranty of full protection and security under Art. 2(1)(b) of the Ruritania–Cronos

BIT and claiming compensation in the amount of USD 1,000,000 in respect of moral

damages is manifestly ill-founded and therefore should be rejected or, alternatively,

exorbitant for the reasons set out below.

A. CAM’s claim for moral damages is manifestly ill-founded and therefore

should be dismissed

170. Ruritania requests the tribunal to dismiss any of the CAM’s claims regarding the arrest

of Messrs Goodfellow and Straw as manifestly ill-founded because CAM has failed to

submit any proof of financial loss sustained by the arrest of Messrs Goodfellow and

Straw. Furthermore, even if CAM tends to claim the presence of such damages,

Ruritania submits that no causal link exists between the said arrest and damages claimed

thereof.

171. While Ruritania acknowledges that moral damages have enjoyed a long history in

public international law195 and recently international tribunals have awarded corporate

investors with moral damages,196 the present case significantly differs from the Desert

Line v. Yemen and Benvenuti v. Congo cases, and, furthermore, besides those two

195 Opinion in the Lusitania Cases (1923). 196 Desert Line v. Yemen; Benvenuti v. Congo.

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example there are numerous other investment arbitrations, similar to the present one,

where investors have unsuccessfully raised moral damage arguments.197

172. Contrary to those cases, the conduct of Ruritania was not as egregious for the tribunal to

have sympathy for a claim for moral damages. In this context, Ruritania maintains that

moral damages must be assessed globally and with a reference to proven financial

loss.198

173. In the light of the above mentioned and with regard to the facts and circumstances of the

present case, Ruritania recalls that the arrest of Messrs Goodfellow and Straw took

place on the grounds of alleged bribery of the officials of the State Property Fund of

Ruritania in connection with the acquisition of FBI shares, as a result of which they

were detained for 12 days.199 Due to the international practice, such detention shall be

recognized as legitimate, and it cannot be compared with the facts arising from both the

Benvenuti v. Congo and Desert Line v. Yemen cases where, for instance, measures

included a siege with heavy artillery and death threats against the chairman of Desert

Line Projects.200 Moreover, in Desert Line v. Yemen the tribunal found the actions of

Yemen “malicious [..] [and] therefore constitutive of fault-based liability”201 which

cannot be a valid argument in the present case because of the legitimate investigation of

the crime allegedly committed by Messrs Goodfellow and Straw. In this respect, CAM

has again failed to submit any proof of malicious action of Ruritania.

174. Ruritania further maintains that moral damages can be awarded only in truly exceptional

circumstances, and to do so the tribunal should take into account the requirements

enshrined in the case of Lemire v. Ukraine,202 namely:

(1) whether actions of Ruritania imply physical threat, illegal detention or

other analogous situations in which the ill-treatment contravenes the

norms according to which civilized nations are expected to act;

197 Funnekotter v. Zimbabwe; Biwater Gauff v. Tanzania; Casado v. Chile; Generation

Ukraine v. Ukraine; Tecmed v. Mexico. 198 Parish, Newlson et al. (2011), p. 225. 199 St. cl., p. 6, ¶¶ 22-25. 200 Desert Line v. Yemen, ¶ 185. 201 Desert Line v. Yemen, ¶ 290. 202 Lemire v. Ukraine, ¶ 333.

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(2) whether actions of Ruritania cause deterioration of health, stress,

anxiety, other mental suffering, such as humiliation, shame and

degradation, or loss of reputation, credit and social position; and

(3) whether both cause and effect of the actions of Ruritania are grave or

substantial.

175. Ruritania observes that neither of those criteria can be attributed to the present case.

Ruritania once more recalls that Messrs Goodfellow and Straw were detained on the

grounds of legitimate investigation carried out by domestic authorities, and, in this

respect, no physical threat or other analogous situation to ill-treatment were caused to

them. Similarly, Ruritania argues that no deterioration of health, stress, anxiety or even

loss of reputation was caused.203 Ruritania admits that its officials explicitly announced

that people responsible for corruption would not escape the investigation.204 However,

such an announcement cannot cause loss of reputation because, first of all, Messrs

Goodfellow and Straw were duly informed of the on-going criminal proceedings prior

to their detention and, second, the present announcement was related particularly to the

“investigation” not, for instance, “punishment”. Therefore, the Prosecutor’s Office acted

in its capacity, and after the investigation was completed Messrs Goodfellow and Straw

were released.

176. Moreover, Ruritania does not find the arrest of Messrs Goodfellow and Straw as

causing grave and substantial effect to CAM thus causing any financial damages. In this

respect, Ruritania once again recalls that CAM has not proved any damages sustained

by the present arrest. Furthermore, there is a significant difference between measures

which affect only individuals, namely Messrs Goodfellow and Straw, and those

measures affecting investments. Thus, in Grimm v. Iran case the tribunal held that it had

no jurisdiction to address failures to protect the life and safety of an individual because

these failures could not be treated as measures “affecting property rights”.205 Therefore,

as in the present case Art. 2(1)(b) of the Ruritania–Cronos BIT protects only property

rights, it may not give rise to liability in respect of measures which only affect Messrs

203 St. cl., p. 6, ¶¶ 22-25. 204 St. cl., p. 6, ¶ 24. 205 Grimm v. Iran.

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Goodfellow and Straw personally, i.e. without affecting CAM’s property rights.206

177. With regard to the above mentioned, Ruritania submits that the Ruritania–Cronos BIT

protects only investment not individuals, and therefore non-pecuniary harm sustained by

individuals, such as Messrs Goodfellow and Straw, is not by itself compensable.207 To

conclude, Ruritania is of the firm view that corporations, in particular CAM, could not

suffer mental distress from the arrest of their executives in any meaningful sense. As an

English judge once remarked, corporations have “no soul to be damned and nobody to

be kicked”.208

178. Consequently, Ruritania invites the tribunal to adjudge that CAM’s claim for moral

damages raised under Art. 2(1)(b) of the Ruritania–Cronos BIT is manifestly

ill-founded and thus it should be dismissed.

B. CAM’s claim for moral damages is exorbitant and therefore should be

dismissed, or it has to be awarded on an equitable basis

179. Alternatively, Ruritania submits that the present claim concerning the alleged violation

of the guarantees of full protection and security provided in Art. 2(1)(b) of the

Ruritania–Cronos BIT should be dismissed as the claimed compensation in the amount

of USD 1,000,000 is exorbitant. If, however, the tribunal should award the

compensation, it has to be done on an equitable basis, taking into account the severity of

the violation and similar cases examined by international arbitral tribunals.

180. At the outset, Ruritania draws the tribunal’s attention that CAM has failed to prove a

causal link between moral damages and arrest of Messrs Goodfellow and Straw.

Ruritania also maintains that the tribunal should award moral damages only where such

damages “entail a financial or economic loss”.209 At the same time Ruritania notes that

CAM has failed to submit any documents or other evidence attesting the presence of the

said causal link and moral damages. Consequently, Ruritania asks the tribunal to

dismiss the CAM’s claim as manifestly ill-founded.

181. Should the tribunal, however, establish a causal link between the moral damages and the

alleged violation of the guarantees of full protection and security and decide to award

206 Jagusch and Sebastian (2013), pp. 45-62. 207 McGregor (2009), pp. 64, 68. 208 Coffee (1970), p. 386. 209 Dumberry (2010), pp. 247-276.

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compensation for moral damages, Ruritania recalls that such compensation should be

awarded on an equitable basis, taking into account the severity of the violation and

similar cases examined by international arbitral tribunals.

182. Ruritania is of the firm view that the present claim of USD 1,000,000 is exorbitant and

CAM has failed to submit any evidence to support such an amount. In this regard,

Ruritania takes note of similar cases examined by international arbitral tribunals and

conclusions concerning compensation for moral damages therein.

183. Thus, for example in the case of Desert Lines v. Yemen the tribunal awarded the

claimant with USD 1,000,000 after it sought to receive 40,000,000 Omani rials

(approximately USD 104,000,000; exchange rate as of 16 September 2013: 1 Omani

rial = USD 2.59727).210 Therefore, if the tribunal were to award CAM with moral

damages, the compensation should be calculated on equitable basis, namely, it should

be 104 times less than the amount of compensation claimed by CAM. Accordingly, the

amount of compensation should not exceed USD 10,000.

184. In the light of the above mentioned, Ruritania asks the tribunal to dismiss the CAM’s

claim for moral damages or, alternatively, if the tribunal should award moral damages,

it should be done on equitable basis.

V. THE ALLEGED LOSS OF SALES SUFFERED BY CAM’S

SUBSIDIARIES LOCATED OUTSIDE RURITANIA SHOULD NOT

CONSTITUTE A RECOVERABLE ITEM OF DAMAGES

185. Ruritania submits that the alleged loss of sales item of damages, which is said to arise

out of the decrease in sales by various CAM’s subsidiaries to FBI, is not part of the

CAM’s purported “investment” in Ruritania and therefore should not be recoverable.

186. Ruritania hereby recalls that pursuant to Art. 1(1) of the Ruritania–Cronos BIT ,“[t]he

term “investment” means every asset which is directly or indirectly invested in

accordance with laws and regulations of the Contracting State in which territory the

Investment is made by Investors of the other Contracting State [..]”. In this context,

Ruritania is of the firm view that any alleged loss of sales by CAM’s subsidiaries

located outside Ruritania cannot be attributed to the Ruritanian authorities as the

claimed losses fall outside the scope of the purported “investment” made by CAM.

210 Desert Line v. Yemen, ¶ 286.

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187. While examining the present claim concerning the alleged loss of sales, the tribunal

should follow the notion set out in the case of Midland v. Mexico.211 In other words,

Ruritania asks the tribunal not to accept the claims of CAM for the profits they claim to

have lost on the sales by CAM’s subsidiaries outside the territory of Ruritania.

A. The tribunal has no jurisdiction to award damages for the alleged loss of

sales outside Ruritania

188. In this regard, Ruritania maintains that when an investor files a claim for direct losses

suffered by it, only those losses sustained by an investor in its capacity as an investor

are recoverable.212 Therefore, losses sustained by CAM’s subsidiaries located outside

Ruritania would be normally suffered in their capacity as importers of goods and not in

their capacity as investors.213

189. Notwithstanding CAM’s arguments, Ruritania shares the same position as Mexico and

Canada in the Bayview v. Mexico and S. D. Myers v. Canada cases. Namely, taking into

account that Art. 1(1) of the Ruritania–Cronos BIT explicitly refers to “investment” as

every asset invested in the territory of the contracting state, all protection afforded by

the Ruritania–Cronos BIT extends only to the investments that are made specifically by

CAM in Ruritania,214 not its subsidiaries outside Ruritania. Therefore, CAM is not

entitled to raise any complaints on behalf of its subsidiaries located outside Ruritania

because such protection of CAM’s subsidiaries would fall outside the scope of

Ruritania’s obligations under the Ruritania–Cronos BIT.

190. Ruritania further submits that Art. 1(1) of the Ruritania–Cronos BIT sufficiently clearly

limits the scope of “investment” thus concerning only the territory of Ruritania. This

interpretation leads to conclusion that protection afforded by the Ruritania–Cronos BIT

does not apply to investments located outside Ruritania and “indeed, any other

conclusion would be absurd”.215

191. Accordingly, the tribunal has jurisdiction only to award compensation concerning the

alleged loss of sales in Ruritania. Therefore, CAM is not entitled to recover loss of sales

211 Midland v. Mexico. 212 S. D. Myers v. Canada (1999), ¶ 302. 213 Midland v. Mexico, ¶ 256. 214 S. D. Myers v. Canada (1999), ¶ 218. 215 Bayview v. Mexico, ¶ 8.

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by CAM’s subsidiaries located outside Ruritania as these losses were not suffered in the

capacity of CAM’s subsidiaries as investors in Ruritania.

B. The amount of damages claimed by CAM is grossly exaggerated and

unsubstantiated

192. Alternatively, Ruritania maintains that the amount of damages claimed by CAM is

grossly exaggerated and unsubstantiated and therefore the present claim should not

constitute a recoverable item of damages.

193. Ruritania reiterates that the total amount of claimed damages by CAM is

USD 380,000,000.216 However, nowhere in its claim CAM provides any proof of

reasonable calculation of the amount of the given claim, and, furthermore, no causal

link between the said amount and the alleged loss of sales of CAM’s subsidiaries

outside Ruritania is provided.

194. Ruritania would like to draw the tribunal’s attention to the fact that although the sales of

FBI have dropped by approximately 60%,217 CAM has failed to submit any sufficient

evidence to reflect that those losses had affected CAM’s subsidiaries outside Ruritania.

195. Moreover, even if CAM could prove the mere fact that its subsidiaries located outside

Ruritania have suffered from the loss of sales, nowhere in its claim CAM has referred to

any documents or other reliable evidence regarding the exact percentage or amount of

the damages suffered by CAM’s subsidiaries located outside Ruritania.

196. In the light of the above mentioned and, in particular the fact that CAM has failed to

prove the exact amount of loss of damages suffered by its subsidiaries located outside

Ruritania, the tribunal should conclude that the alleged loss of sales is not recoverable

and therefore the present claim should be rejected.

Respectfully submitted,

Agents for the government of Ruritania

216 St. cl., pp. 7-8, ¶¶ 30-31. 217 St. cl., p. 4, ¶ 13.

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