ELIAS INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES In the Proceeding Between TELEVATIVE INCORPORATED (CLAIMANT) AND THE GOVERNMENT OF THE REPUBLIC OF BERISTAN (RESPONDENT) Case No. ARB/X/X * * * MEMORANDUM FOR RESPONDENT PAULINI, Maroš OSTŘANSKÝ, Josef SEIDEL, Jan Elias, Memorandum for Respondent CONTENTS LIST OF AUTHORITIES....................................................................................................iii LIST OF LEGAL SOURCES...............................................................................................ix STATEMENT OF FACTS.....................................................................................................1 JURISDICTION....................................................................................................................3 A. The ICSID Tribunal has no jurisdiction over the Claimant’s contract-based claims arising under the JV Agreement, especially in the view of Clause 17 (Dispute Settlement) of the JV Agreement........................................................................................3 A.1. Respondent’s consent to arbitrate Claimant’s contract-based claims was not given.3 A.1.(i) Claimant’s claims are to be characterized as contract-based according to objective criteria; Claimant’s characterization of his claims as treaty-based does not suffice to establish jurisdiction of the ICSID Tribunal.................................................3 A.1.(ii) Settlement of Disputes Clause in the BIT is not broad enough to encompass claims based on violation of the JV Agreement which cannot be confused with claims based on violation of the BIT........................................................................................7 A.1.(iii) Even if the ICSID Tribunal has jurisdiction ratione materiae, there is no jurisdiction ratione personae, because Respondent’s consent to arbitrate does not encompass claims vis-á-vis entities distinct from Respondent itself..........................10 A.2.(iv) Claimant is not allowed to commence ICSID arbitration before the end of the waiting period pursuant to Article 11(1) of the BIT.............................................12 A.2. Alternatively, Dispute Settlement clause in the JV Agreement ousts jurisdiction of the ICSID Tribunal and renders Claimant’s claims inadmissible....................................13 A.2.(i) Wide scope of Article 17 of the JV Agreement allows the contract tribunal to decide on violations of the BIT, because the dispute concerning violations of the BIT is a dispute relating to the JV Agreement...................................................................13 A.2.(ii) The ICSID Tribunal has to dismiss Claimant’s claims, as requires the lis pendens doctrine due to the pending proceedings before the JV Agreement Tribunal ....................................................................................................................................16 B. The ICSID Tribunal has no jurisdiction over Claimant’s contract-based claims arising under the JV Agreement by virtue of Article 10 (Umbrella Clause) of the BIT ..............................................................................................................................................16 B.1. The umbrella clause does not change a general principle of international law that the breach of contract by a state is not a breach of international law..............................17 B.2. Even if the umbrella clause would elevate the breach of the JV Agreement to a breach of international law, obligations arising from the JV Agreement are not covered by the umbrella clause in the present BIT.......................................................................18 i Elias, Memorandum for Respondent B.2.(i) The umbrella clause covers only commitment assumed by Respondent itself and cannot be extended to cover commitments assumed by an independent legal entity...........................................................................................................................18 B.2.(ii) The umbrella clause covers merely contracts which the host state concludes within its sovereign powers or where it exercises its sovereign powers to involve into the contractual relationship........................................................................................19 MERITS...............................................................................................................................21 C. Respondent did not committed alleged “material breach” of the JV Agreement...21 C.1. The acts of Beritech cannot be attributed to Respondent for the purpose of Article 10 of the BIT, so-called “umbrella clause,” to be applicable .........................................21 C.2. Umbrella clause as a separate substantive treaty-standard......................................21 C.2.(i) The Claims are inadmissible as their essential basis lies with the alleged breach of the JV Agreement........................................................................................21 C.2.(ii) No State interference violating an international standard.............................22 C.3. Umbrella clause as an instrument elevating a breach of contract to the level of a breach of treaty................................................................................................................23 C.3.(i) In the case that the Tribunal finds the Claims admissible, alleged breach must be determined by the proper law of the JV Agreement, being the law of Beristan.....24 C.3.(ii) Analysis under the applicable law.................................................................25 D. The measures of Respondent in any event had not amounted to a breach of the substantive standards of the BIT, nor had violated any other substantive rule of international law.................................................................................................................26 D.1. Respondent did not violate standard of “fair and equitable treatment”...................26 D.1.(i) Respondent has not breached a due process prescription..............................27 D.1.(ii) Respondent at any event did not unlawfully interfered with Claimant´s legitimate expectations...............................................................................................29 D.2. No Respondent´s measures were unjustified or discriminatory..............................30 D.3. The acts or omissions of Beristan are by no means in violation of Article 4 of the BIT, Nationalization and Expropriation clause...............................................................32 D.3.(i) The Claimant´s right under the contract were not expropriated, at most a mere breach of contract committed by Beritech could have taken place...................33 D.3.(ii) The Claimant´s claim is disqualified by the fact that it did not seek any redress from national authorities................................................................................35 E. Respondent can rely on the essential security defense in Article 9 of the BIT.........36 E.1. The Essential security clause in the BIT is self-judging..........................................37 E.2. Respondent invoked the essential security defense in a good faith.........................38 E.3. Respondent was allowed to eliminate the threat posed to its national security before the actual effects would take place..................................................................................39 PRAYER FOR RELIEF.......................................................................................................41 ii Elias, Memorandum for Respondent LIST OF AUTHORITIES Treatises and Books Abbreviation Full Citation Brownlie: Principles Brownlie, I. Principles of Public International Law. 5th Edition. 1999. Oxford University Press Dolzer, Schreuer Dolzer, R., Schreuer, Ch. Principles of International Investment Law. 2008. Oxford University Press Dolzer, Stevens Dolzer, R., Stevens, M. Bilateral Investment Treaties. 1995. Kluwer Law International Douglas: Investment Claims Douglas, Z. The International Law of Investment Claims, 2009, Cambridge University Press Oppenheim´s International Law Jennings, R., Watts, A. Oppenheim’s International Law, 1992, Oxford University Press McLachlan, Shore, Weiniger McLachlan, C., Shore, L., Weiniger, M. International Investment Arbitration – Substantive Principles. 2007. Oxford University Press Newcombe, Paradell Newcombe, A., Paradell, L. Law and Practice of Investment Treaties. 2009. Kluwer Law International Shaw: International Law Shaw, M. Intenational Law, 6th Edition, 2008, Cambridge University Press Schreuer: ICSID Commentary Schreuer, Ch. The ICSID Convention: A Commentary. 2001. Cambridge University Press Sornarajah Sornarajah, M. The International Law on Foreign Investment, 2nd Edition. 2004. Cambridge University Press Subedi Subedi, S. International Investment Law – Reconciling Policy and Principle. 2008. Hart Publishing Tudor: FET Tudor, I. Fair and Equitable Treatment Standard in International Law of Foreign Investment, 2008, Oxford University Press Yakemtchouk: La Bonne Foi Yakemtchouk, R. La Bonne Foi dans la conduite internationale des Etats, 2002, Paris Scholarly Articles Congyan Congyan, C. International Investment Treaties and Application, Formation and Transformation of Customary International Law rule, 2008, CJIL, Vol. 7, No. 3, p. 659-679 iii Elias, Memorandum for Respondent Crawford: Treaty and Contract Crawford, J. Treaty and Contract in Investment Arbitration, 2008, 24 Arbitration International, p. 351 Douglas: Nothing if Not Critical Douglas, Z. Nothing if Not Critical for Investment Treaty Arbitration: Occidental, Eureko and Methanex. 2006, 22 Arbitration International 27, p. 38 Fitzmaurice: Law and Procedure Fitzmaurice, G. The Law and Procedure of the International Court of Justice, 1986, p. 615 Heiskanen Heiskanen, V. Arbitrary and unreasonable measures (2008) In: Reinisch, A.(eds.). Standards of Investment Protection, Oxford University Press, p. 87 Kreindler Kreindler, R.H. The Law Applicable to International Investment Disputes (2004) In: Horn, N. (eds.) Arbitrating Foreign Investment Disputes – Procedural and Substantive Legal Aspects. Kluwer Law International, p. 401 Paulsson, Douglas Paulsson, J., Douglas, Z. Indirect expropriations in Investment Treaty Arbitration In: Horn, N. (eds.) Arbitrating Foreign Investment Disputes – Procedural and Substantive Legal Aspects. Kluwer Law International, p. 137 Reinisch: Expropri- ation Reinisch, A. Expropriation (2008) In: Muchlinski, P., Ortino, F., Schreuer, Ch. (eds.). The Oxford Handbook of International Investment Law. Oxford University Press, p. 410 Schreuer: Jurisdiction over Contract Claims Schreuer, Ch. Investment Treaty Arbitration and Jurisdiction over Contract Claims – the Vivendi I Case Considered (2003) In: Weiler, T. (eds.) International Investment Law and Arbitration: Leading cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law. Cameron May, pp. 281-324 Schwebel: On Whether the Breach Schwebel, S. On Whether the Breach by a State of a Contract with an Alien is a Breach of International law (1994) In: Justice in International Law: Selected Readings, p. 425 et seq. Judicial and Arbitral Decisions Adriano Gardella Adriano Gardella S.p.A. v. Ivory Coast, ICSID Case No. ARB/74/1, 1993, ICSID Rep. 283 Amco Amco Asia Corporation v. Republic of Indonesia, ICSID Case No. ARB/81/1, Resubmitted Case, Decision on Jurisdiction, 10 May 1988 Goetz v. Burundi Antoine Goetz and others v. Burundi, ICSID Case No. ARB/95/3, Award, 10 February 1999 Azurix Azurix v. Argentine Republic, ICSID Case No. ARB/01/12, Award, 14 July 2006 iv Elias, Memorandum for Respondent Cable Television of Nevis Cable Television of Nevis. v. Federation of St. Kitts and Nevis, ICSID Case No. ARB/95/2, Award, 13 January 1997 Certain Phosphate Lands in Nauru Case Concerning Certain Phosphate Lands in Nauru (Nauru v. Australia), 1992, ICJ Reports 240, p. 260 et seq. Genocide Convention Case Case concerning Genocide Convention (Bosnia v. Serbia), 2007, ICJ Reports Oil Platforms Case concerning Oil Platforms (Islamic Republic of Iran v. United States of America), 1996, ICJ Reports 803 Mutual Assistance in Criminal Matters Certain Questions of Mutual Assistance in Criminal Matters (Djibouti v. France), 2008, ICJ Resports 177 CME CME Czech Republic B.V. v. Czech Republic, UNCITRAL, Partial Award, 13 September 2001 CMS Award CMS Gas Transmission Company v. The Argentine Republic, ICSID Case No. ARB/01/8, Award, 12 May 2005 CMS Jurisdiction CMS Gas Transmission Company v. The Argentine Republic, ICSID Case No. ARB/01/8, Decision on Jurisdiction, 17 July 2003 CMS Annulment CMS Gas Transmission Company v. The Argentine Republic, ICSID Case No. ARB/01/8, Decision on the Annulment, 25 September 2007 Vivendi Award Compańia de aguas del aconquija S.A. and Vivendi Universal v. The Argentine Republic, ICSID Case No. ARB/97/3, Award, 21 November 2000 Vivendi Annulment Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment, 3 July 2002 Consortium RFCC Award Consortium R.F.C.C. v. Kingdom of Morocco, ICSID Case No. ARB/00/6, Award, 22 December 2003 Consortium RFCC Jurisdiction Consortium R.F.C.C. v. Kingdom of Morocco, ICSID Case No. ARB/00/6, Decision on Jurisdiction, 16 July 2001 El Paso El Paso v. Argentina, ICSID Case No. ARB/03/15, Decision on Jurisdiction, 27 April 2006 ELSI case Elettronica Sicula S.p.A. (ELSI) (US v. Italy), 1989, ICJ Reports 15 Enron Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Decision on Jurisdiction, 14 January 2004 Ethyl v. Canada Ethyl Corp. v. Canada, UNCITRAL, Decision on Jurisdiction, 24 June 1998 Eureko Eureko B.V. v. Poland, Partial Award, 19 August 2005, 12 ICSID Reports 335 v Elias, Memorandum for Respondent Generation Ukraine Generation Ukraine, Inc. v. Ukraine, ICSID Case No. ARB/00/9, Award, 16 September 2003 Genin Genin and others v. Estonia, ICSID Case No. ARB/99/2 , Award, 25 June 2001 Golder v. UK Golder v. United Kingdom, ECHR Judgment, App. No. 4451/70, 21 February 1975 Impregilo Impregilo S.p.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/3, Decision on Jurisdiction, 22 April 2005 Ryan v. Rhone Poulenc Textile J.J. Ryan & Son Inc. v. Rhone Poulenc Textile S.A., 863 F.2d 315, 321 (4th Cir. 1988) Joy Mining Joy Mining Machinery Limited v. The Arab Republic of Egypt, ICSID Case No. ARB/03/11, Award, 6 August 2004 Lanco Lanco International Inc. v. Argentine Republic, ICSID Case No. ARB/97/6 Preliminary Decision on Jurisdiction, 8 December 1998 Lauder v. Czech Re- public Lauder v. Czech Republic, UNCITRAL, Award, 3 September 2001 LG&E LG&E v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006 Mihaly Mihaly International Corporation v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/00/2, Award, 15 March 2002 MTD v. Chile MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004 Nagel v. Czech Re- public Nagel v. Czech Republic, SCC Case 49/2002, Award, 10 September 2003 Occidental Occidental Exploration and Production Company v. The Republic of Ecuador, LCIA Case No. UN3467, Award, 1 July 2004 Pan American Pan American v. Argentina, ICSID Case No. ARB/03/13, Decision on Preliminary Objections, 27 July 2006 Parkering Compagniet Parkerings-Compagniet AS v. Lithuania, ICSID Case No. ARB/05/8, Award, 11 November 2007 Pennzoil Pennzoil Exploration and Production Co. v. Ramco Energy Ltd., Partial Award, ICC Case No. 7319 of 1992 Pope & Talbot Interim Pope & Talbot Inc. v. The Government of Canada, UNCITRAL, Interim Award, 26 June 2000 Azinian v. Mexico Robert Azinian, Kenneth Davitian & Ellen Baca v. The United Mexican States, ICSID Case No. ARB (AF)/97/2, Award, 1 November 1999 S.D. Myers First Par- tial S.D. Myers, Inc. v. Canada, UNCITRAL, First Partial Award, 13 November 2000 vi Elias, Memorandum for Respondent Salini v. Morocco Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, 23 July 2001 Saluka Saluka Investments BV (The Netherlands) v. The Czech Republic, UNCITRAL, Partial Award, 17 May 2001 Aramco Saudi Arabia v. Arabian American Oil Company, 27 ILR 117 Sempra Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16 , Award, 28 September 2007 Serbian Loans Serbian Loans Case, Judgment No. 14, PCIJ, Series A, No. 20 (1929) 41 SGS v. Pakistan SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision on Jurisdiction, 6 August 2003 SGS v. Philippines SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Decision on Jurisdiction, 29 January 2004 Siemens Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Decision on Jurisdiction, 3 August 2004 SPP v. Egypt Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, ICSID Case No. ARB/84/3, Decision on Jurisdiction, 14 April 1988 TECMED Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB (AF)/00/2, Award, 29 May 2003 Texaco Texaco Overseas Petroleum Company v. The Government of the Libyan Arab Republic, ILM (1978) 1 Loewen The Loewen Group, Inc. and Raymond L. Loewen v. United States of America, ICSID Case No. ARB(AF)/98/3, Decision on Jurisdiction, 26 June 2003 UPS v. Canada United Parcel Services v. Canada, UNCITRAL, Decision on Jurisdiction, 22 November 2002 Waste Management II Waste Management, Inc. v. United Mexican States (Number 2), ICSID Case No. ARB(AF)/00/3, Award, 30 April 2004 Wena Hotels Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Decision on Jurisdiction, 25 May 1999, 41 ILM (2002) p. 881 WTO EC Measures Concerning Meat WTO Appellate Body Report, EC Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R; WT/DS48/AB/R, 16 January 1998 vii Elias, Memorandum for Respondent WTO US-Gasoline WTO Appellate Body Report, US – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, 29 April 1996 Miscellaneous Immunity by Special Rapporteur Difference Relating to Immunity from Legal Process of a Special Rapporteur, ICJ Reports, 1999 GA Resolution 40/72 General Assembly Resolution 40/72, 11 December 1985 GA Resolution 61/33 General Assembly Resolution 61/33, 4 December 2006 ILC Articles on Re- sponsibility International Law Commission Articles on Responsibility of States for Internationally Wrongful Acts, GA Res 56/83, 14 December 2001 Miller, A. R. The Cryptographic Mathematics of Enigma, 2001, National Security Agency Predator UAV, Description, available at: http://www.ga- asi.com/products/aircraft/ predator.php Tovo, K. E. From the Ashes of the Phoenix: Lessons for Contemporary Counterinsurgency Operations, 18 March 2005, U.S. Army War College, available at: http://www.au.af.mil/au/ awc/awcgate/army-usawc/ksil241.pdf Canada Model BIT, 2004 US Model BIT, 2004 viii Elias, Memorandum for Respondent LIST OF LEGAL SOURCES International Treaties and Covenants Abbreviation Full Citation Argentina-France BIT Agreement between the Argentine Republic and the Republic of France for the Promotion and Reciprocal Protection of Investments, signed on 3 July 1991 Italy-Pakistan BIT Agreement between the Government of the Italian Republic and the Government of the Islamic Republic of Pakistan on the Promotion and Protection of Investments, signed 19 July 1997 Switzerland-Philippines BIT Agreement between the Swiss Confederation and the Republic of the Philippines on the Promotion and Reciprocal Protection of Investments, signed on 31 March 1997 New York Convention Convention for the Recognition and Enforcement of Foreign Arbitral Awards, 1958 Mutual Assistance Convention Convention on Mutual Assistance in Criminal Matters between the Government of the Republic of Djibouti and the Government of the French Republic, 1986 ICSID Convention Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature 18 March 1965 ECT Energy Charter Treaty, 1991 China-Chile FTA Free Trade Agreement between The Government of the People´s Republic of China and the Government of the Republic of Chile, 2005 EFTA-Lebanon FTA FTA between the European Free Trade Association States and Lebanon, 2004 GATT General Agreement on Tariffs and Trade, 1994 India-Singapore CECA India-Singapore Comprehensive Economic Cooperation Agreement , 2005 NAFTA North American Free Trade Agreement, signed on 17 December 1992 US-Uruguay BIT Treaty between the Government of the United States of America and the Oriental Republic of Ururguay Concerning the Encouragement and Reciprocal Protection of Investment, signed on November 2005 VCLT Vienna Convention of the Laws of Treaties, opened for signature on 23 May 1969 ix Elias, Memorandum for Respondent STATEMENT OF FACTS 1. In October 2007, the joint venture company – Sat-Connect S.A. – was established pursuant to the laws of Beristan. The company has two shareholders – Televative Inc. (40 %) and Beritech S.A (60 %). The former being Claimant in the present case is a multinational enterprise which specializes in developing of new technologies in satellite communication systems. Claimant is privately held and incorporated in Opulentia. The latter is a company incorporated in Beristan, a private telecommunications services provider in Beristan, which activities deal with related fields of business. Beristan owns 75 % of shares of Beritech, while the remaining shares are held by private investors, mostly Beristian nationals. Beritech does not exercise any governmental or similar functions. Respondent, which is not a party to the JV Agreement, co-signed it as guarantor of Beritech´s obligations, no other obligations under the Agreement have arisen for Respondent. 2. The Sat-Connect project was established for the purposes of developing and deploying a satellite system network accompanied by terrestrial systems and gateways for providing connectivity for users of the system within the Euphonia region. The system is to be used by the Beristian army, as well as by civilians. 3. The Sat-Connect´s board of directors is composed of nine members, five of which are appointed by Beritech and four by Televative. A quorum is obtained with the presence of 6 members. Decisions are to be made by a simple majority. 4. According to the JV Agreement, the matters relating to the Sat-Connect are to be treated as confidential, mostly because the project is dealing with the secret encryption technologies and keys. Therefore, once Televative materially breaches this provision, Beritech will be entitled to buy-out its interest in the Project, which is to be valued as monetary investment from the commencement of the Project until the date of buy-out. 5. On August 12, 2009, in The Beristan Times article, a leak of confidential information regarding a secret encryption keys to the Opulentian government committed by 1 Elias, Memorandum for Respondent Televative was indicated. This concern was shared by Beristian military officials. Opulentian government recently introduced anti-terrorist laws compelling disclosure of such information to the national security services. Televative confirmed receiving requests from Opulentian government. 6. Subsequently, the Sat-Connect´s board of directors, invoked a buy-out provision of the JV Agreement as a result of the leak of information and provided Televative with 14 days to hand over the possession of all Project´s facilities and equipment, and to remove its seconded personnel. After this period, the rest of the personnel was asked to leave by Beristian Civil Work Forces (CWF), which were deployed on a basis of executive order, to secure that no threat to the Beristian national security would materialize. The remaining personnel left voluntarily and Televative had not challenged the process. At the same time Beritech served notice of its desire to settle amicably before seeking a relief from the arbitral tribunal. Televative did not react. 7. Later on, Beritech requested for a declaratory relief from the arbitral tribunal and paid Televative´s monetary investment of US $47 million into an escrow account, pending the decision. Televative, once again, refused to respond to Beritech´s request. 8. Only afterwards, Televative commenced an arbitration proceedings before ICSID claiming a breach of JV Agreement by Respondent, in defiance of the terms of the JV Agreement. 2 Elias, Memorandum for Respondent JURISDICTION A. The ICSID Tribunal has no jurisdiction over the Claimant’s contract-based claims arising under the JV Agreement, especially in the view of Clause 17 (Dispute Settlement) of the JV Agreement 9. Respondent contends that all of the Claimant’s claims are contractual in nature, notwithstanding the manner in which these claims were formulated in the Claimant’s Case. The ICSID Tribunal is not competent to decide on such contract claims because Respondent did not express its consent in writing thereto. 10. The absence of Respondent’s consent in writing – as required by Article 25(1) ICSID Convention – is inferred from a narrow scope of the dispute settlement clause in the BIT, where Respondent consented to arbitrate exclusively such disputes “that concern an obligation of the former [Respondent] under this Agreement [the BIT] in relation to an investment of the latter [Opulentia]”. A.1. Respondent’s consent to arbitrate Claimant’s contract-based claims was not given 11. Consent of the parties to the dispute before the ICSID Tribunal is an essential precondition to establish Tribunal’s jurisdiction, however, the consent must be given within objective limits.1 Respondent asserts that the Tribunal lacks jurisdiction to the substance of the dispute as well as with regard to the parties to the dispute. A.1.(i) Claimant’s claims are to be characterized as contract-based according to objective criteria; Claimant’s characterization of his claims as treaty-based does not suffice to establish jurisdiction of the ICSID Tribunal 12. Respondent contends that Claimant’s claims are contractual in nature and that there are no independent treaty-based claims upon which Claimant could rely. If there were any claims arising under the BIT, they would be prima facie implausible, as Claimant has only improperly reformulated its contract-based claims. 1 Schreuer: ICSID Commentary, p. 90, § 6 3 Elias, Memorandum for Respondent 13. As Respondent will argue in a greater detail in the part dealing with merits, Claimant’s treaty-based claims would be prima facie implausible, particularly for the following reasons: • none of the alleged breaches of the JV Agreement ware committed by Respondent for all of the alleged breaches could have been committed at most by Beritech, a legal entity distinct from Respondent; • there was no taking of property, because the ownership of the stake in SatConnect S.A is subject to pending arbitration commenced pursuant to the JV Agreement; before the decision of the JV Agreement arbitrator, Claimant is not able to set certain that it suffered any loss; • according to the principle volenti non fit iniuria,2 Claimant’s rights could not have been infringed by invoking the terms of the JV Agreement which Claimant previously accepted; there is no unfair or inequitable treatment or expropriation where the interests of Claimant are seized with his own voluntary consent conceived in a contract, therefore there is no violation of law; • it is solely a question of interpretation and application of the JV Agreement in terms of its own proper law – being the law of Beristan – whether there was any breach of the JV Agreement; the Claimant’s allegations of facts do not exceed the presumption that the BIT was violated because the JV Agreement was violated; if there is no breach of the JV Agreement, Claimant’s hands would remain empty because Claimant cannot rise any breach of the BIT which would be independent from a breach of the JV Agreement; 14. Although a certain number of investment tribunals3 has held that it is up to Claimant to formulate its claims, and “if the facts asserted by the Claimant are capable of being regarded as alleged breaches of the BIT […], the Claimant should be able to have 2 ILC Articles on Responsibility, Article 20 3 Vivendi Award, § 53; Vivendi Annulment, § 74; Salini v. Morocco, § 62 – 63; Wena Hotels v. Egypt, p. 890; SGS v. Pakistan, §§ 144 – 145; Siemens, § 180 4 Elias, Memorandum for Respondent them considered on their merits”,4 Respondent argues that it is a well-settled case law that the tribunals are authorized and also obliged to decide whether Claimant’s claims are prima facie inadmissible according to objective criteria.5 The review of plausibility of the claims is to be employed, elsewhere the doubts regarding admissibility of Claimant’s claims would arise; and the tribunal is empowered to go into the merits of the case.6 15. Respondent also emphasizes that tribunals which were not willing to apply too strict scrutiny to Claimant’s claims in jurisdictional phase of proceedings argued by a specific nature of jurisdictional phase where claimants are not obliged to set out extensive allegations of facts.7 However, if the jurisdictional phase and the phase concerning the merits of proceedings are merged – as in the present case8 – Claimant must not hesitate to set out allegations of facts upon which the Tribunal can assess the nature of Claimant’s claims in their full extent . 16. Firstly, Respondent asserts that Claimant primarily formulated its claims as contractbased before the tribunal as may be read from Minutes of the First Session of the Arbitral Tribunal: “The Parties and the Tribunal have agreed on a procedure to the effect that at this stage the Tribunal shall only address the following: […] (b) whether the Tribunal has jurisdiction over Claimant’s contract-based claims arising under the JV Agreement […]”9 4 SGS v. Pakistan, § 145 5 SGS v. Philippines, § 157; Amco , §§ 125 – 127; Occidental, §§ 80, 92; Joy Mining, § 78; Azurix, § 76; Enron, § 67 6 Schreuer. Jurisdiction over Contract Claims In: Weiler, p. 322 7 e. g. SGS v. Pakistan, § 145, footnote 165 in fine 8 Minutes of the First Session of the Arbitral Tribunal (ICSID Case No. ARB/X/X), held in Malibu, California, on 15 March 2010 [Minutes], §§ 14, 16 9 Minutes, § 14 5 Elias, Memorandum for Respondent “Claimant also asserts that Respondent breached the JV Agreement by preventing Claimant from completing its contractual duties and improperly invoking the buyout clause in the JV Agreement.”10 17. Therefore, Claimant is estopped from reformulating its claims as contract based in a further stage of the proceedings, namely in the Claimant’s memorandum, because “in international arbitration a Claimant must state its claim in its initial application, and wholly new claims cannot thereafter be added during the pleadings.”11 18. Even if the Tribunal disregards these Claimant´s assertions and accepts that Claimant was not prevented from re-labeling its claims as based on a violation of the BIT, the tribunal ought to – as early as in the jurisdictional phase – look behind the Claimant’s claims and decide whether their characterization provided by Claimant as treaty-based is plausible.12 As the tribunal in SGS v. Philippines stated: “[…]it is not enough for the Claimant to assert the existence of a dispute as to fair treatment or expropriation. The test for jurisdiction is an objective one and its resolution may require the definitive interpretation of the treaty provision which is relied on.”13 Notably, the tribunal in the SGS v. Philippines held that claims to expropriation are inadmissible.14 19. Conclusions of the SGS v. Phillipines tribunal were then affirmed by tribunals in the Occidental, Joy Mining, Azurix and Enron cases. All these tribunals addressed the issue of prima facie sustainability of Claimant’s claims.15 Respondent emphasizes that conclusions of the aforesaid tribunals are to be preferred to the tribunals which did not address the issue of sustainability at all. Where concerns about sustainability occurred tribunals did not hesitate to employ a test based on objective criteria. 10 Minutes, § 15, Claimant, sub-paragraph 7 11 SGS v. Philippines, § 157; Certain Phosphate Lands in Nauru, §§ 64 – 70 12 UPS v. Canada, § 37; Oil Platforms, § 16 13 SGS v. Philippines, § 157 14 Ibid., § 161 15 Occidental, §§ 80; Joy Mining, § 78; Azurix, § 76; Enron, § 67 6 Elias, Memorandum for Respondent 20. Accordingly, Respondent asserts that all Claimant’s treaty-claims – including breaches of Articles 2, 4 and 10 of the BIT – are prima facie implausible and hence the tribunal lacks jurisdiction over them. 21. If the treaty-based claims are implausible, only their contractual basis remains. Respondent then relies on widely respected conclusions of ad hoc Committee in Viviendi Annulment, which stated: “In a case where the essential basis of a claim brought before an international tribunal is a breach of contract, the tribunal will give effect to any valid choice of forum clause in the contract.”16 Accordingly, the ICSID Tribunal should honor Clause 17 of the JV Agreement and dismiss all of the Claimant’s claims. A.1.(ii) Settlement of Disputes Clause in the BIT is not broad enough to encompass claims based on violation of the JV Agreement which cannot be confused with claims based on violation of the BIT 22. Claimant will probably rely on the case law where the tribunals found themselves competent to decide both on treaty-based and on contract-based claims. Respondent seeks to prove that, unlike in certain number of cases where the tribunals accepted their jurisdiction over contract-based claims,17 Claimant’s claims have to be treated differently, mainly due to the narrow Dispute Settlement Clause in the BIT. The BIT allows an investor to submit solely claims concerning a breach of the BIT as such. 23. Claimant will probably employ as its principal authority decision on jurisdiction in SGS v. Philippines where the tribunal stated that it had jurisdiction over Claimant’s contract-based claims,18 noting that the dispute resolution clause in the BIT “is an entirely general provision, allowing for submission of all investment disputes by the investor against the host State. The term “disputes with respect to investments” […] is not limited by reference to the legal classification of the claim that is made. A dispute about an alleged expropriation […] would be a 16 Vivendi Annulment, § 98 17 SGS v. Philippines, § 130 – 135; Vivendi Annulment, § 55; Salini v. Morocco, § 59 – 61 18 SGS v. Philippines, §§ 130 – 135 7 Elias, Memorandum for Respondent “dispute with respect to investments”; so too would a dispute arising from an investment contract […]”19 24. However, this conclusion was based on Article 8 of the Switzerland-Philippines BIT20 where the wording “disputes with respect to investments” allows to encompass much broader scope of disputes than the wording “disputes with respect to investments […] that concern an obligation […] under this Agreement [emphasis added]” in Article 11 of the BIT. Such a language confines arbitrability to those disputes to the disputes which concern the performance of the BIT itself, and it excludes – according to ordinary meaning of the terms used21 – any contractual dispute from the scope of the present dispute settlement clause. This exclusion applies equally to the dispute regarding performance of the JV Agreement. 25. Notably, the SGS v. Philippines tribunal argued that if the parties to the BIT intended to limit investor-State arbitration to claims concerning breaches of the substantive standards contained in the BIT they would use more specific terms in the dispute settlement clause, such as “[d]isputes […] regarding the interpretation or application of the provisions of this Agreement” used in an interstate arbitration clause in the Switzerland-Philippines BIT.22 The broad dispute settlement clause in SwitzerlandPhilippines BIT was also contrasted with Chapter 11 of NAFTA23 which allows investors to bring before the tribunal only claims for breaches of specified provisions of Chapter 11 itself.24 In NAFTA arbitral practice, this also rendered contract-based claims inadmissible; as the tribunal in Azinian v. Mexico held: “foreign investor entitled in principle to protection under NAFTA may enter into contractual relations with a public authority, and may suffer a breach by that 19 Ibid., § 131 20 Switzerland-Philippines BIT 21 VCLT, Article 31(1) 22 SGS v. Philippines, §§ 132(b) 23 NAFTA, Article 1126, 1127 24 SGS v. Philippines, §§ 132(e) 8 Elias, Memorandum for Respondent authority, and still not be in a position to state a claim under NAFTA. [emphasis in original]”25 26. Vivendi Annulment decision followed the same line of argumentation as the tribunal in SGS v. Philippines and addressed broad scope of jurisdictional offer of the host state as allowing the investor to bring purely contract-based claims before the ICSID Tribunal.26 However, these conclusions were based on the Argentina-France BIT27 which stated that “all disputes with respect to investments according to present Agreement”28 are subject to international arbitration. Therefore the Vivendi Annulment decision is inapplicable as an authority with regards to establishing jurisdiction of this tribunal which has to rely on much narrower scope of Article 11 of the BeristanOpulentia BIT. 27. The same manner of interpretation of dispute settlement clause was employed in Salini v. Morocco,29 and mutatis mutandis in other part of the Vivendi Annulment decision where the ad hoc Committee – deciding whether the investor has taken the fork in the road – stated that the dispute settlement clause in the Argentine-France BIT “does not use a narrower formulation, requiring that the investor’s claim allege a breach of the BIT itself”.30 28. According to the aforesaid case law, the conclusion must be drawn that the narrow wording of the Article 11 of the BIT gives the investor an option to claim for breaches of the BIT itself and not to bring a contract-based claim before the investment tribunal. Since all of Claimant’s claims are contractual in nature, the tribunal does not have any jurisdiction to hear any of these claims. 25 Azinian v. Mexico, § 83 26 Vivendi Annulment, § 55 27 Argentina-France BIT 28 Ibid. Article 8(1) 29 Salini v. Morocco, § 59 – 61 30 Vivendi Annulment, § 55 9 Elias, Memorandum for Respondent A.1.(iii) Even if the ICSID Tribunal has jurisdiction ratione materiae, there is no jurisdiction ratione personae, because Respondent’s consent to arbitrate does not encompass claims vis-á-vis entities distinct from Respondent itself 29. Respondent contends that its jurisdiction offer contained in Article 11 of the BIT does not encompass an offer to arbitrate claims arising out of the contract entered into by Beritech, a separate legal entity. Respondent relies on the case law of tribunals which have held principles of attribution inapplicable with regard to contracts,31 for there is no question of attribution concerning jurisdiction; the question is about the interpretation and scope of the jurisdiction offer.32 30. This applies since the question of attribution is indeed that of international law.33 However, the JV Agreement is governed by the law of Beristan, pursuant to the choice expressed by the parties in Clause 17 of the JV Agreement, and cannot be governed by international law in accordance with the well known principle developed by Permanent Court of International Justice that “[a]ny contract which is not a contract between States in their capacity as subjects of international law is based on municipal law of some country”.34 31. This strict difference between treaties and contracts has never been abandoned by international judicial practice, even in arbitrations concerning breaches of oil concessions contracts.35 The arbitrators recognized international responsibility stemming from the breaches of pacta sunt servanda principle, however, never applied public international law as a law governing a contract.36 31 Impregilo, § 214; Nagel v. Czech Republic, §§ 162 – 163; Salini v. Morocco, § 59 – 61; Consortium RFCC Jurisdiction, §§ 68 – 69; Consortium RFCC Award, § 32 – 35; Cable Television of Nevis, § 2.22 32 Crawford. Treaty and Contract, pp. 363, 369 33 Shaw. Intenational Law, p. 785; ILC Articles on Responsibility, Articles 4 – 9; Immunity by Special Rapporteur, §§ 62, 87; Genocide Convention Case, § 385 34 Serbian Loans, p. 41 35 e.g. Aramco, p. 168; Texaco, § 72 36 Schwebel: On Whether the Breach, p. 434 10 Elias, Memorandum for Respondent 32. Notably, the tribunal in Impregilo v. Pakistan – applying Italy-Pakistan BIT which allowed in relevant part to arbitrate “disputes arising between a Contracting Party and the investors of the other [emphasize added]“37 – stated that “the jurisdiction offer in this BIT does not extend to breaches of a contract to which an entity other than the State is a named Party.”38 33. Whether there is a separate legal personality is a question of municipal law.39 Beritech is a company incorporated pursuant to the law of Beristan with a complex shareholder’s structure, own capacity to enter into contracts, to own property and with capacity to commence proceedings,40 therefore possessing an independent legal personality. If Beritech has an independent legal personality under the law of Beristan, Respondent could not have consented to arbitrate violations of the JV Agreement upon which Claimant relies. 34. Accordingly, the ad hoc Committee in Vivendi Annulment held significantly: “whether there has been a breach of the BIT and whether there has been a breach of contract are different questions. […] For example, in the case of a claim based on a treaty, international law rules of attribution apply, with the result that the State […] is internationally responsible for the acts of its provincial authorities. By contrast, the State […] is not liable for the performance of contracts entered into by Tucumán, which possesses a separate legal personality under its own law and is responsible for the performance of its own contracts [emphasis added].”41 35. Furthermore, Respondent points out that international law principles of attribution are not operative in cases of contractual claims, and no provision in the BIT – including 37 Italy-Pakistan BIT. Article 8 38 Impregilo, § 214 39 Impregilo, § 199 – 210; Salini v. Morocco, § 60; 40 Annex 2 to the Minutes (Uncontested Facts), §§ 2 – 4, 13 41 Vivendi Annulment, § 98 11 Elias, Memorandum for Respondent the umbrella clauses – is capable to transform the municipal obligation arising out of a contract to obligation governed by international law and change parties thereto.42 36. For the above mentioned reasons, Respondent contends that its jurisdictional offer contained in Article 11 of the BIT does not encompass the offer to arbitrate claims arising out of contract entered into by Beritech, as a separate legal entity. A.2.(iv) Claimant is not allowed to commence ICSID arbitration before the end of the waiting period pursuant to Article 11(1) of the BIT 37. Pursuant to Article 11(1) of the BIT, Claimant is allowed to submit the dispute to arbitration, only if it “cannot be settled amicably within six months of the date of a written application.” Claimant has not made any attempt to settle the dispute concerning application of the Buy-out Clause in the JV Agreement by consultations or negotiations with Beritech or Respondent, after the Clause was invoked on 27 August 2009.43 Instead, on 28 October 2009, Claimant just requested arbitration before the ICSID Tribunal.44 38. Respondent recalls findings of tribunal in Enron v. Argentina which stated that “[s]uch a requirement [the waiting period] is in the view of the Tribunal very much a jurisdictional one. A failure to comply with that requirement would result in a determination of lack of jurisdiction.”45 Since there was no six months period of negotiation and, strictly speaking, there were no attempts by Claimant to settle the dispute amicably, the claims have to be dismissed on a jurisdictional basis.46 39. It could be objected that other tribunals did not consider the waiting period to be a jurisdictional condition and rather treated it as a procedural requirement. These tribunals, however, were always concerned with futility of negotiations which would 42 CMS Annulment, § 95(c); SGS v. Philippines, § 126; Crawford: Treaty and Contract, p. 370 43 Annex 2 to the Minutes (Uncontested Facts), § 10 44 Ibid., § 14 45 Enron, § 88 46 cf. Goetz v. Burundi, §§ 90 – 93 12 Elias, Memorandum for Respondent not probably lead to any settlement.47 Respondent contends that it is not the case in the present situation. If Claimant did not seek for settlement anyhow and it cannot be concluded that a settlement was impossible.48 A.2. Alternatively, Dispute Settlement clause in the JV Agreement ousts jurisdiction of the ICSID Tribunal and renders Claimant’s claims inadmissible 40. Even if the Tribunal rejects Respondent’s objections against jurisdiction of the Tribunal over the Claimant’s contract based claims and thus affirms that (a) Claimant’s claims are properly formulated as treaty-based; and/or (b) the narrow Settlement of Disputes Clause in the BIT does not bar Claimant to bring its contract-based claims before this tribunal; and (c) jurisdictional offer given by Respondent through Article 11 of the BIT can be extended to breaches of the JV Agreement allegedly committed by Beritech; the selection of forum, agreed in Clause 17 of the JV Agreement, ousts jurisdiction of the ICSID Tribunal. 41. The absence of jurisdiction of the ICSID Tribunal is inferred from the following: (1) Wide scope of Article 17 of the JV Agreement allows the contract tribunal to decide on violations of the BIT as ad hoc Arbitration Tribunal according to Article 11(2)(b) of the BIT; (2) therefore pending proceedings before the JV Agreement tribunal constitutes a lis pendens. A.2.(i) Wide scope of Article 17 of the JV Agreement allows the contract tribunal to decide on violations of the BIT, because the dispute concerning violations of the BIT is a dispute relating to the JV Agreement 42. In alternative, when the ICSID tribunal – in order to preliminary establish its jurisdiction – would conclude that Respondent’s jurisdictional offer in Article 11 of the BIT encompasses claims vis-á-vis Beritech, a separate legal entity, and thus accepting that Beritech is an entity identical with Respondent. 47 Ethyl v. Canada, § 84; Lauder v. Czech Republic, §§ 188 – 189; SGS v. Pakistan, §§ 130 – 131 48 Ethyl v. Canada, § 87 – 88 13 Elias, Memorandum for Respondent 43. Assuming that Respondent – via Beritech – entered into the JV Agreement itself, the jurisdiction of the ICSID tribunal, preliminary established on Respondent’s consent given in Article 11 of the BIT, is superseded by Clause 17 of the JV Agreement which is a lex specialis to the consent based on the BIT and subsequent Claimant’s acceptance. 44. The specific agreement takes precedence over the general agreement in the BIT.49 As the tribunal in SPP v. Egypt held “[a] specific agreement between parties to a dispute would naturally take precedence with respect to a bilateral treaty between the investor’s State and [the host State, i.e.] Egypt.”50 45. Clause 17 of the JV Agreement has closer relationship to Claimant’s investment ratione materiae than Article 11 of the BIT. The jurisdictional offer in the BIT encompasses unlimited number of investment disputes while the JV Agreement – as a basic precondition for Claimant to make an investment in the territory of Beristan51 – concerns only one specific investment, the Sat-Connect Project. The principle of generalia specialibus non derogant52 should hence apply. 46. Furthermore, the Settlement of Dispute Clause in the JV Agreement is wide enough to encompass all prospective treaty-based claims relating to the investment which was made through the JV Agreement and Sat-Connect Project. The relevant part of the JV Agreement states that the notice of intention to commence arbitration may be given “[i]n the case of any dispute arising out of or relating to this Agreement [emphasis added].”53 Clauses drafted in such a broad manner are in practice of various arbitration tribunals and courts treated as covering any and all disputes touching on the contract in 49 SGS v. Philippines, § 140 – 141; SPP v. Egypt, § 83; Lanco, §§ 27 – 28; Salini v. Morocco, § 27; Schreuer: ICSID Commentary, p. 362, § 34 50 SPP v. Egypt, § 83 51 Mihaly, §§ 59 – 61 52 SGS v. Philippines, § 141; 53 Annex 3 to the Minutes. Clause 17 14 Elias, Memorandum for Respondent question, regardless of whether they sound in contract, tort, statute or treaty, regardless of the label attached to the dispute.54 47. Respondent acknowledges that argument employed by the responding party to the dispute in SGS v. Pakistan was not accepted.55 However, the SGS v. Pakistan tribunal based it decision chiefly on two reasons: (1) the contract with dispute resolution clause was entered into by the parties before the Switzerland-Pakistan BIT was signed, therefore the parties could have not reasonably drafted the dispute resolution clause as involving claims arising out of the BIT;56 (2) because the contract arbitrator was prohibited to apply provisions of the BIT by decision o Supreme Court of Pakistan.57 48. None of these reasons is relevant to the present dispute. (1) The JV Agreement had been signed more than 10 years after the BIT became effective.58 The parties to the Clause 17 of the JV Agreement were or should have been well aware of the prospective claims arising out of the BIT. (2) The 1959 Arbitration Act of Beristan, applicable to the dispute according to Clause 17 of the BIT, was amended in February 2007 to conform to the 1985 UNCITRAL Model Law on International Commercial Arbitration, as amended in 2006.59 Article 28 of UNCITRAL Model Law states that “the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable [emphasis added].”60 Nothing therefore precludes the JV Agreement tribunal from applying the BIT. 49. Even though the JV Agreement tribunal would not be perceived by the present Tribunal as an ad hoc UNCITRAL Tribunal according to Article 11(2)(b) of the BIT, it is a tribunal established upon common consent of Claimant and Respondent. 54 SGS v. Pakistan, § 66; Pennzoil; Ryan v. Rhone Poulenc Textile 55 SGS v. Pakistan, § 155 56 Ibid, § 153 57 Ibid, § 154 58 Annex 2 to the Minutes (Uncontested Facts), § 3; Clarification Requests (4 June) Responses, § 174 59 Clarification Requests (4 June) Responses, § 130 60 GA Resolution 40/72, GA Resolution 61/33, Article 28(2) 15 Elias, Memorandum for Respondent Respondent is not barred from extending its jurisdictional offer of Article 11 of the BIT for specific investments – such as the Sat-Connect project. 50. Because the Clause 17 of the JV Agreement takes precedence over Article 11 of the BIT when (1) parties to the clauses are identical; and (2) the subject-matter consented by the parties to be dealt with by arbitrators is the same; the proper tribunal to decide on the Claimant’s claims is the tribunal constituted pursuant to the JV Agreement. A.2.(ii) The ICSID Tribunal has to dismiss Claimant’s claims, as requires the lis pendens doctrine due to the pending proceedings before the JV Agreement Tribunal 51. Respondent contends that there is an overlap between two pending proceedings.61 In order to render the doctrine of lis pendens applicable, the parties to the dispute and the cause of action has to be identical,62 for which we argued in the previous paragraphs [§§ 42-50]. 52. Subsequently, the proceeding commenced prior supersedes the proceeding commenced later on. Therefore, the ICSID Tribunal ought to dismiss all Claimant’s claims. Otherwise, all the decisions of the present tribunal may be annulled for serious departure from a fundamental rule of procedure according to Article 52(1)(d) of the ICSID Convention. B. The ICSID Tribunal has no jurisdiction over Claimant’s contract-based claims arising under the JV Agreement by virtue of Article 10 (Umbrella Clause) of the BIT 53. Article 10 of the BIT does not change contract claims into treaty claims and does not serve as an additional basis for establishing jurisdiction of the Tribunal. Claimant cannot rely on Article 10 of the BIT to elevate its contract-based claims onto the international plane and to make the performance of the JV Agreement – a municipal contract – enforceable under the international law. 61 Annex 2 to the Minutes (Uncontested Facts), §§ 13 – 14 62 Douglas: Investment Claims, pp. 308 – 309 16 Elias, Memorandum for Respondent 54. Even if umbrella clause is able to change the question of performance of the contract into a question of international responsibility, obligations arising from the JV Agreement are not covered by the umbrella clause, because these obligations were not assumed by Respondent. B.1. The umbrella clause does not change a general principle of international law that the breach of contract by a state is not a breach of international law 55. Respondent relies on conclusions of the tribunal in SGS v. Pakistan that the obligation to “constantly guarantee the observance of commitments […] with respect to investments”63 – drafted almost identically as in the Beristan-Opulentia BIT – does not convert breaches of investor-State contracts into breaches of the BIT.64 56. That Tribunal properly begun with interpreting the umbrella clause in the BIT according to its ordinary meaning in the light of the object and purpose of the BIT itself.65 Thereafter, concerned with far-reaching impact of extensive interpretation of the umbrella clause which could not have been intended by the contracting States,66 the tribunal employed interpretation according to principle in dubio mitius.67 The tribunal added that if the umbrella clause changes every breach of contract to a breach of treaty, the sense of other standards incorporated in the BIT would be blurred and this would lead to evasion of dispute settlement clauses in investor-State contracts.68 This also corresponds with rule of international law that breach of contract is not per se an internationally wrongful act.69 57. Respondent considers this interpretive approach appropriate and urges the present tribunal to follow the teaching of SGS v. Pakistan, although there was some portion of 63 Switzerland-Pakistan BIT. Article 9 64 SGS v. Pakistan, §§ 166, 173 65 VCLT, Article 31(1) 66 SGS v. Pakistan, § 163; VCLT, Article 31(3)(c) 67 SGS v. Pakistan, § 171; Loewen, §§ 160 – 164; WTO EC Measures Concerning Meat, §§ 154, 163 – 165 68 SGS v. Pakistan, § 168 69 Schwebel: On Whether the Breach, pp. 434 – 435; Oppenheim’s International Law, p. 927 17 Elias, Memorandum for Respondent criticism, particularly based on objection that the tribunal omitted to address the standard modes of treaty interpretation including the principle of effet utile.70 58. However, when the SGS v. Pakistan decision is read carefully, it addresses both the question of canons of interpretation set out by the VCLT and the question of whether the umbrella clause is not deprived of its meaning.71 It cannot be also overlooked that both decisions concerning investments of SGS, in Pakistan and Philippines – although considerably distinct in reasoning on scope and effect of the umbrella clause – led to the same conclusion: disputes arising out of investment contract shall be decided before municipal forum notwithstanding presence of the umbrella clause.72 B.2. Even if the umbrella clause would elevate the breach of the JV Agreement to a breach of international law, obligations arising from the JV Agreement are not covered by the umbrella clause in the present BIT 59. Even if the umbrella clause would have been intended by the parties to the BIT to make a breach of an investment contract – such as the JV Agreement – enforceable as an internationally wrongful act, the performance of the JV Agreement cannot be enforced in such a manner because (1) it arises no commitments which were “assumed by” Respondent; (2) there was no sovereign involvements in the contractual relationship between Claimant and Beritech; and, alternatively, (3) if there was such an involvement, it is not able to trigger the BIT protection. B.2.(i) The umbrella clause covers only commitment assumed by Respondent itself and cannot be extended to cover commitments assumed by an independent legal entity 60. Respondent once more relies on the case law of tribunals which held principles of attribution inapplicable with regard to contracts.73 It is not the effect of an umbrella 70 SGS v. Philippines, § 115; Noble Ventures, § 50 71 SGS v. Pakistan, §§ 165 – 166, 172 72 Crawford: Treaty and Contract, p. 353 73 Impregilo, § 260; Vivendi Annulment, § 96; Nagel v. Czech Republic, §§ 162 – 163; Salini v. Morocco, § 59 – 61; Consortium RFCC Jurisdiction, §§ 68 – 69; Consortium RFCC Award, § 32 – 35; Cable Television of Nevis, § 2.22 18 Elias, Memorandum for Respondent clause to change the scope or parties to the municipal agreement.74 Only Beritech and Televative remain the party to the JV Agreement. 61. Therefore, there was no assumption by Respondent of commitment vis-á-vis Claimant as it is required by the umbrella clause. The commitments arising out of the JV Agreement were assumed by its proper party, Beritech. It is true, that Respondent cosigned the JV Agreement as a guarantor of Beritech’s obligations, however it does not render Respondent to be a party to the JV Agreement. B.2.(ii) The umbrella clause covers merely contracts which the host state concludes within its sovereign powers or where it exercises its sovereign powers to involve into the contractual relationship 62. Alternatively, if the umbrella clause may be extended to obligations assumed by Beritech through the JV Agreement, Respondent urges the tribunal to restrict the scope of the umbrella clause to commitment concerning certain governmental or sovereign implications.75 It is Respondent’s contention, that the JV Agreement is the common commercial contract which could be entered into by any enterprise, conferring no special authorities to the Claimant. 63. In Joy Mining, the tribunal stated: “A basic general distinction can be made between commercial aspects of a dispute and other aspects involving the existence of some forms of State interference with the operation of the contract involved.”76 This distinction was later confirmed by both El Paso v. Argentina and Pan American v. Argentina tribunals.77 Both tribunals based their decisions on the Argentina-USA BIT with a similarly narrow dispute settlement clause as the Beristan-Opulentia BIT provides. Therefore Respondent considers these decisions appropriate as authorities for this case. 64. The El Paso Tribunal noted significantly that: 74 CMS Annulment, § 95(c); SGS v. Phillipines, § 126 75 El Paso, §§ 77 – 88; Pan American, §§ 108 – 115; Texaco, § 72 76 Joy Mining, § 72 77 El Paso, §§ 77; Pan American, § 108 19 Elias, Memorandum for Respondent “[…] the umbrella clause in Article II of the [Argentine-USA] BIT, read in conjunction with Article VII [narrow dispute settlement clause in the ArgentineUSA BIT], will not extend the Treaty protection to breaches of an ordinary commercial contract entered into by State or a State-owned entity but will cover additional investment protections […] such as stabilization clause […]”78 65. As the Beristan-Opulentia BIT also restricts the scope of the investment disputes to disputes concerning interpretation and application of the BIT itself, Respondent contends that the umbrella clause is not applicable to ordinary commercial contracts. The JV Agreement does not contain stabilization clause or any other clause which would require exercise of sovereign powers of the state. Therefore, the Article 10 does not extend the scope of Tribunal’s jurisdiction pursuant to Article 11 of the BIT. 78 El Paso, § 81 20 Elias, Memorandum for Respondent MERITS C. Respondent did not committed alleged “material breach” of the JV Agreement C.1. The acts of Beritech cannot be attributed to Respondent for the purpose of Article 10 of the BIT, so-called “umbrella clause,” to be applicable 66. For the purposes of breach of the umbrella clause, Respondent argues that international rules on attribution should not apply, as the JV Agreement is a municipal contract, the arguments were provided hereinbefore in the jurisdictional section [§§ 29- 36, 60-61]. 67. However, if the Tribunal decides otherwise, Respondent alternatively argues that international rules on attribution do not render it responsible either. Beritech does not exercise any governmental or equivalent function79 and the State´s ownership of 75% share serves for purely commercial purposes. Beritech does not make up the organization of State neither acts on its behalf.80 68. Furthermore, Respondent acted as a guarantor, which supports the conclusion, that it is a distinct entity from the State. Respondent purported to assume only a guarantor´s role, which was not called into effect at any time. According to the international rules of attribution, for the purposes of the umbrella clause, Respondent can be only held liable for an infringement with respect to its undertaken role of guarantor. Guarantor´s obligations has not been challenged, nor they has been breached. C.2. Umbrella clause as a separate substantive treaty-standard C.2.(i) The Claims are inadmissible as their essential basis lies with the alleged breach of the JV Agreement 69. In the present context it is suggested that the Tribunal holds the Claimant´s claims inadmissible, in the case it affirms jurisdiction. As stated in Vivendi Annulment 79 ILC Articles on Responsibility, Article 4 80 Ibid. Comment 1 21 Elias, Memorandum for Respondent decision, “[i]n a case where the essential basis of a claim brought before an international tribunal is a breach of contract, the tribunal will give effect to any valid choice of forum clause in the contract.“81 Respondent contents that the “essentials basis“ of the claims rests on the question whether the Sat-Connect´s decision on buyout was properly rendered. According to the SGS v. Philippines, the scope and extent of State´s contractual obligations is first to be determined by the contractual forum before the BIT tribunal can consider whether a breach of any obligations duly determined exists.82 70. In SGS v. Pakistan was forwarded an interpretation of an umbrella clause, to which Respondent adheres. In this award tribunal opined that, unless expressly stated, an umbrella clause does not derogate from the widely accepted international law principle that a contract breach is not by itself a violation of international law, particularly if such contract had a valid forum selection clause.83 C.2.(ii) No State interference violating an international standard 71. As to the meaning and effects of umbrella clause, it is submitted that not every breach of contract can constitute a breach of the standard. Although there is no general agreement about the effects of umbrella clauses, Respondent contends, that when the Tribunal perceives Article 10 as providing any substantive standard and when it holds acts of Beritech attributable to Respondent, its proper content shall mean that State is obliged to refrain from any interference into the contract by the use of its sovereign powers, e. g. by changes in the host State law.84 72. “The decisions dealing with the issue of the umbrella clause and the role of contracts in a Treaty context have all distinguished breaches of contract from Treaty breaches on the basis of whether the breach has arisen from the conduct of an ordinary contract party, or rather involves a kind of conduct that only a sovereign State function or 81 Vivendi Annulment, § 98 82 SGS v Philippines, § 155 83 SGS v. Pakistan, §§ 165-70 84 McLachlan, Shore, Weiniger, p. 117 22 Elias, Memorandum for Respondent power could effect.”85 This interpretation of the umbrella clause supported by other authorities86 seems more sustainable than the one equating a mere breach of contract with a breach of treaty. 73. The State´s interference reaching the threshold of a breach of umbrella clause did not take place in the present case. Respondent did not hamper the Claimant´s possibility of arbitrating its dispute.87 Rather Claimant did not opt to do so, even the Televative´s staff who still remained seconded to the Project on 11 September 2009 left without protesting after the arrival of the CWF.88 In that time, Claimant had not expressed any disagreement with the buy-out process. Respondent at all times respected the original bargain as the decision-making process of the Board of directors was contractually agreed to. 74. Furthermore, the action of the CWF cannot be deemed as an unlawful interference into the contract, as it was based on the threat to the essential State security. The argumentation is provided in more detail in the respective section of the memorandum [§§ 120-134]. C.3. Umbrella clause as an instrument elevating a breach of contract to the level of a breach of treaty 75. Some commentators suggest that umbrella clauses protect the investor´s contractual rights against “any interference which might be caused by either a simple breach of contract or by administrative or legislative acts.“89 However, Respondent suggests to the Tribunal that this conclusion should not be accepted by the reference to the other facts of the case, namely that the contract has a valid choice of forum clause. Respondent suggests to give a way to the interpretation referred to in the section C.2. 85 Sempra, § 310; further see Impregilo, § 260 86 McLachlan, Shore, Weiniger, p. 117; further see El Paso, § 81; Sempra, § 310 87 Impregilo, § 260 88 Second Clarification Requests (6 August 2010) Responses, § 248 89 Dolzer, Stevens, p. 82 23 Elias, Memorandum for Respondent C.3.(i) In the case that the Tribunal finds the Claims admissible, alleged breach must be determined by the proper law of the JV Agreement, being the law of Beristan 76. Nevertheless, if the Tribunal makes a conclusion, that the umbrella clause also covers mere breaches of contract, Respondent must point out to the law applicable to this question. 77. Respondent is well aware that the alleged breach of an international obligation must be judged in the terms of international law. It was stated in the MTD case that to establish the facts of the breach of the contract, the municipal law must be taken into account.90 There is no doubt that in international investment disputes the domestic law forms a part of the applicable law and is not to be therefore treated as a fact.91 78. Some commentators criticized various ICSID tribunals for not paying a proper attention to the relevant provisions of domestic law.92 If the present tribunal is deciding the issue of alleged breach of the umbrella clause on merits, it should not do so without a thorough analysis of the relevant provisions of the law of Beristan. 79. In Clause 17 of the JV Agreement, the parties to the contract agreed that “[t]he agreement shall be governed in all respects by the laws of the Republic of Beristan.” They waived also “any objection which [they] may have now or hereafter to such arbitration proceeding […]” commenced under the respective clause. Therefore, by virtue of the first sentence of Article 42(1) of the ICSID Convention, Claimant agreed that the dispute will be decided in accordance with these agreed rules. Respondent emphasizes, however, that this should apply only in the case when the Tribunal accepts its jurisdiction and holds the acts of Beritech attributable to Respondent in respect of the umbrella clause. 90 MTD v. Chile, § 204 91 ICSID Convention, Article 42; Newcombe, Paradell, p. 95 – 97; Douglas: Investment Claims, pp. 90 – 94; CMS Jurisdiction, § 88 92 Newcombe, Paradell, p. 96; Douglas: Nothing if Not Critical; Eureko, Dissenting opinion by arbitrator Rajski 24 Elias, Memorandum for Respondent 80. Claimant may argue, however, that the law of Beristan ought to apply within the framework and in the context of international law. This is indeed correct, but the principles as pacta sunt servanda, the principle of good faith and other commonly accepted principles of contract law are as well recognized by the law of Beristan.93 As was stated in the Adriano Gardella case, issues of breach of contract must be viewed in the light of the proper law of the contract, as general international law or the BIT can provide only little guidance on the issue of material breach of the contract or other specific questions of contract law.94 81. “This may be treated by the tribunal as an ´absence of agreement´ on the applicable law concerning that question.”95 In this case the Tribunal is called to the application of the second sentence of the ICSID Convention, and therefore apply the law of Beristan is applied anyways. This must be an inevitable step, as “[t]he Tribunal may not bring in a finding of non liquet on the ground of silence or obscurity of the law.“96 The resort to a conclusion of “absence of agreement […] is the sole or even best solution for such circumstances.”97 C.3.(ii) Analysis under the applicable law 82. As Respondent submits, there was no breach of the JV Agreement itself. First of all, contractually agreed procedure of buy-out clause was commenced as a decision of the Sat-Connect´s Board of directors. The requirement of quorum was satisfied as 6 members were present and Televative was provided with 14 days to hand over possession of all Sat-Connect site, facilities and equipment and remove its personnel. All these steps were in conformity with the Beristian law and Sat-Connect bylaws.98 93 Clarification Requests (4 June) Responses, § 136 94 Adriano Gardella, p. 287; further see Douglas: Investment Claims, p. 91 – 92 95 Schindler, p. 406., further see ELSI Case, § 62; CME, §§ 400 – 411; Schreuer: ICSID Commentary, p. 564, § 23 96 ICSID Convention, Article 42(3) 97 Kreindler, p. 406 98 Second Clarification Requests (6 August 2010) Responses, § 244 25 Elias, Memorandum for Respondent 83. Claimant did not resort to the contractually agreed arbitration within this period, although nothing prevented it from doing so. Therefore, there was no legal hindrance for Sat-Connect to request Respondent to enforce Sat-Connect´s own decision, appropriately made in accordance with its internal decision-making mechanism. There being no dispute at that very time, there was no obligation to resort to the judicial or arbitral proceedings. Televative did not impugn the board decision within the period of 14 days which it had been provided with. 84. Moreover, the acts of Beristani CWF were justified by the national security concerns, as argued hereinafter [§§ 120-134]. D. The measures of Respondent in any event had not amounted to a breach of the substantive standards of the BIT, nor had violated any other substantive rule of international law D.1. Respondent did not violate standard of “fair and equitable treatment” 85. Respondent submits that it did not breach the standard of fair and equitable treatment (“FET”) owed to the Claimant at any time. 86. As the precise content of the FET standard is not entirely clear99 and as the literal interpretation of Article 2(2) of the BIT provision suggests (“treatment in accordance with customary international law, including fair and equitable treatment”), respondent argues that only the substantive standard of treatment that is generally accepted and consistently applied for certain period of time as a legal rule100 with respect to the aliens and their property shall be considered as applicable under the present BIT. 87. Respondent therefore submits that FET comprises only of protection against destruction or violence by non-state actors, protection against denial of justice, due process of law and compensation for expropriation.101 99 Sornarajah, p. 332 – 339; Newcombe, Paradell, p. 261; Subedi, p. 63; Lauder v. Czech Republic, § 291 100 Shaw: International Law, p. 72 – 75; further see Congyan, p. 659 – 679 101 Sornarajah, p. 330; Newcombe, Paradell, pp. 258 – 262; US-Uruguay BIT, Article 5(2)(a) 26 Elias, Memorandum for Respondent D.1.(i) Respondent has not breached a due process prescription 88. Claimant may argue, that a due process was not complied with. In Genin v. Estonia the tribunal stated that FET to be violated “needs acts showing a wilful neglect of duty, an insufficiency of action falling far below international standards, or even subjective bad faith.”102 It went on and opined that “any procedural irregularities that may have been present would have to amount to bad faith, wilful disregard of due process of law or an extreme insufficiency of action.”103 Neither of these occurred in the present case. Notably, Respondent at all times acted in good faith. National security concerns cannot be confused with bad faith. 89. The standard rather scrutinizes a State´s conduct than its effect on the investment. This ought to be understood in a way, that the fact that investment was negatively affected does not mean by itself that the standard has been violated, as this can happen for various reasons.104 Claimant could have suffered a loss only by his own contribution and conduct, namely violating a confidentiality of the matters connected to SatConnect. Furthermore, it did not challenge the Beritech´s action in arbitration, although it clearly had an opportunity. 90. Claimant has the burden of proof that a violation of FET took place. He must also establish that the negative impact on investment was in a clear link of causation with the State´s acts or omissions.105 In the present case, the Claimant has not proved that there would be any sort of Respondent´s conduct which would fall short of the international standard. Particularly, Claimant failed to prove that the conduct of state “shocked a sense of judicial propriety”106 or reached a level of “extreme insufficiency.”107 Leaving the Project without a slightest objection at the time rather 102 Genin, § 367, further see Saluka, § 290; Brownlie: Principles, p. 527 – 531 103 Genin, § 371 104 Lauder v. Czech Republic, § 291 105 Tudor. FET, p. 138 106 ELSI case, § 128 107 Genin, § 371 27 Elias, Memorandum for Respondent points to the conclusion that Claimant agreed with the steps of Beritech and subsequently of the State. 91. The facts of not complaining of any of the acts of Respondent (or Beritech) which could have constituted breaches of its obligations is to be emphasized. This was held highly relevant in bringing a claim of infringement of FET in the Waste Management II case. “[T]he availability of local remedies to an investor faced with contractual breaches is nonetheless relevant to the question whether a standard such as [FET] have been complied with by the State. Were it not so, Chapter 11 would become a mechanism of equal resort for debt collection and analogous purposes in respect of all public (including municipal) contracts, which does not seem to be its purpose.”108 92. This reasoning is entirely applicable to the present case, as the claims concern contractual breaches and Article 1105(1) of NAFTA is of the virtually same wording as Article 2(2) of the BIT. 93. Alternatively, acting through State´s executive organs instead of judicial ones, which Respondent does not view as contrary to its international obligations for the reasons yet submitted, was justified by invocation of essential security defense [§§ 120-134]. When the Tribunal is not convinced by the aforementioned argumentation, Respondent will then argue that its steps where perfectly justified and reasonable in the light of the present danger to its vital security interests. D.1.(ii) Respondent at any event did not unlawfully interfered with Claimant´s legitimate expectations 94. Firstly, State is under the obligation to protect investor´s legitimate expectations, whether in the context of expropriation or in the one of FET, “based on specific undertakings or representations upon which the investor has reasonably relied.”109 108 Waste Management II, § 116 109 Paulsson, Douglas, p. 137 28 Elias, Memorandum for Respondent 95. As a specific undertaking in the present case can be seen only the Respondent´s assumed role of guarantor. This role, however, mean nothing less and nothing more than that Beristan would assume the obligations of Beritech under the JV Agreement upon Beritech´s default.110 No breach of these expectations took place as Claimant has never called upon Respondent to perform this undertaken role. Given the current factual matrix, there were no such assurances “in reliance upon which investor was induced to invest” which has been interfered with.111 96. Respondent does not challenge that legitimate expectations may arise as well of commitments of more general nature, e.g. from the State´s legal framework at the time of investment.112 Then a subsequent change in the regulatory framework relied upon may constitute a violation of legitimate expectation. In the present case Claimant does not argue that any such change took place, in comparison with the cases like Saluka113 or LG&E.114 97. FET standard requires State to act consistently, i. e. mainly with respect to the abovementioned regulatory framework.115 There was no inconsistency which would negatively affect the Claimant´s investment. 98. Claimant may argue that there were unreasonable acts towards its seconded personnel. As is clear from the facts, the staff left right after it had been asked to do to so. At any point the employees has not suffered from “fear for their safety or well being.”116 110 Clarification Requests (4 June) Responses, § 152 111 CME, § 611 112 Dolzer, Schreuer, p. 104 113 Saluka, § 306 114 LG&E, § 130 115 TECMED, § 154 116 Second Clarification Requests (6 August 2010) Responses, § 248 29 Elias, Memorandum for Respondent D.2. No Respondent´s measures were unjustified or discriminatory 99. The BIT in its Article 2(3) prohibits to subject “the management, maintenance, enjoyment, transformation, cessation and liquidation of investment” to the “unjustified or discriminatory measures.” 100. The term unjustified measures is not defined by the treaty, therefore the Tribunal must interpret it. Many arbitral tribunals have faced this task, however, in most cases they dealt with interpreting the term unreasonable or arbitrary.117 Respondent argues, that the term unjustified is a narrower one. The ordinary meaning interpretation118 suggests that to satisfy this requirement a justification of some sort must be provided. The plain meaning does subject this justification to any other criteria, e.g. the criteria of reasonableness or arbitrariness. That the two terms have a different content suggests, with respect to discrimination, e.g. Article XX of GATT, which speaks about “arbitrary or unjustifiable discrimination.” Hardly can be there any reason for putting into a treaty two terms of the same content next to each other connected by disjunction. In US-Gasoline WTO Appellate body stated that “‘[a]rbitrary discrimination’, ‘unjustifiable discrimination’ and ‘disguised restriction’ on international trade may, accordingly, be read side-by-side; they impart meaning to one another.”119 101. This proves that the terms, although related concepts, do not have the exactly same content. The BIT prohibits only unjustified measures and not unreasonable or arbitrary measures. 102. The Respondent´s acts were justified, first of all, by the fact that Sat-Connect made its internal decision and this was not challenged by anyone, and secondly by the clear and present threat to the national security. This justification, in the Respondent´s opinion, 117 Lauder v. Czech Republic, § 232; Genin, § 370 – 371 118 VCLT, Article 31(1); further see LG&E, § 156 119 WTO US - Gasoline, p. 25 30 Elias, Memorandum for Respondent even satisfies the stricter scrutiny of reasonableness, the standard not present in the applicable BIT. 103. The acts to be reasonable must have rationale or justification which has “a reasonable (or rational) relationship [to] […] a legitimate governmental policy.”120 Requirement of this link was reaffirmed by the Saluka award121 or the LG&E award.122 Such a legitimate policy is represented by the national defence policy. 104. In the Genin case was stated that an arbitrary measure even requires an element of bad faith.123 There cannot be inferred a bad faith from the Respondent´s acts as they were properly based on the facts posing a threat to the national security. 105. When the Tribunal would view the term unjustified as an equivalent to arbitrary, Respondent did not breach this standard either, as its acts fall short of such an intensity. Arbitrariness, as a term of art, was evaluated by various tribunals.124 In the Azurix case it was defined in line with the hereinbefore mentioned ELSI case as “a wilful disregard of law.”125 The tribunal in Genin concluded that license withdrawal done with some procedural irregularities in the environment of transforming economy did not violate a “sense of judicial propriety” or posed “an extreme insufficiency of action.”126 The CWF, supported by the internal decision of Sat-Connect on the buy-out and the executive order, were acting in a situation when the national security was endangered. The motivation aimed to eliminate a threat to the State´s vital security interests is perfectly reasonable and it cannot be deemed as arbitrary whatsoever. 120 Heiskanen, p. 104 121 Saluka, § 461 122 LG&E, § 156 – 158 123 Genin, § 371 124 ELSI case, § 128, Lauder v. Czech Republic, § 232 125 Azurix, § 392 126 Genin, § 371 31 Elias, Memorandum for Respondent 106. Discrimination can be by no means invoked by the Claimant, as this is a relative standard.127 In order to find that there is a discrimination, there must be a comparator identified, then there must be found a different treatment and finally, the different treatment is not able to be justified.128 107. It is impossible to deduce an appropriate comparator from the given factual background. Beritech is not such a comparator, although it is the other shareholder in Sat-Connect, as it was not suspected of the leak of sensitive information to a foreign government. Alternatively, this difference would be reasonable and justified as a basis for differential treatment. D.3. The acts or omissions of Beristan are by no means in violation of Article 4 of the BIT, Nationalization and Expropriation clause 108. Respondent views the Claimant´s expropriation claim as lacking any basis in facts whatsoever. The Tribunal ought to dismiss the claim at hand, since the facts do not satisfy the very basic principle establishing an expropriation. Expropriation is always characterized as an involuntary taking of property. Claimant agreed with the buy-out clause by concluding the JV Agreement. He was given 14 days to withdraw the personnel and hand-over the premises of Sat-Connect, the employees who remained thereafter left voluntarily when asked, no complaint was filed until Beritech sought a relief in arbitration. All of these steps took place without any explicit or implicit manifestation of disagreement. The conclusion to be made is that Claimant rather agreed with the invocation of buy-out and Respondent was not given a hint not to think so. 109. Alternatively, Respondent submits that the interpretation of the Article 4(1)(1) of the BIT, especially of the words “Courts or Tribunals having jurisdiction,” cannot be construed restrictively as including state´s Judicial bodies exclusively.129 127 Heiskanen, p. 87, Saluka, § 461 128 Pope & Talbot Interim, § 78 – 104; S. D. Myers First Partial, § 251 129 See e.g. Golder v. UK, §§ 34 – 35 32 Elias, Memorandum for Respondent 110. Executive organs are normally allowed to make a decision which can affect property rights and if they are not , the application and enforceability of the State´s law would be very limited. The crucial requirement is that administrative decisions affecting rights and duties of individuals to be reviewable by judicial organs. Claimant has had an option of resorting to the contractually agreed arbitration forum, for which it did not opt. D.3.(i) The Claimant´s right under the contract were not expropriated, at most a mere breach of contract committed by Beritech could have taken place 111. It is the Respondent´s submission that, according to the Parkerings Compangniet case, there be three cumulative conditions fulfilled for expropriation of a contract. Firstly, there must be use of sovereign powers to breach a contract. Secondly, investor has to be prevented from bringing its claim Finally, breach of contract must cause substantial decrease of investment´s value.130 The use of sovereign powers has had a lawful and reasonable basis (internal Sat-Connect decision, executive order, threat to national security). And most importantly, Respondent did not reject to entertain the Televative´s claims. It was Televative who decided not to use host State´s judicial/arbitral avenues to redress his alleged losses. In Waste Management II case the tribunal stated that “the loss of benefits or expectations is not a sufficient criterion for an expropriation, even if it is a necessary one.”131 Noteworthy finding of this tribunal lies in making a clear distinction of expropriation of a right under a contract and a mere failure to comply with the contract.132 112. Furthermore, Claimant cannot argue that the facts point to its total loss of his investment as the only actual result is that the contractually agreed amount of compensation for buy-out is held escrow, pending the decision of the contract arbitration tribunal. 130 Parkerings Compagniet, §§ 443 – 456, further see Azurix, § 314 131 Waste Management II, § 159; CMS Award, § 260 – 265 132 Waste Management II, § 176 – 177 33 Elias, Memorandum for Respondent 113. Claimant expressed his will, that in a case of breaching a confidentiality of the Project matters, Beritech would be entitled to buy-out its interest and required to pay the contractually agreed amount of money. An agreed consequence of a breach of the contract cannot be deemed as an expropriation. Additionally, the whole monetary investment will be paid back to Claimant as agreed in the JV Agreement and therefore a threshold of “effective neutralization”133 or “substantial deprivation”134 is not met. 114. As Reinisch explained: „The distinction between an (ordinary) breach of contract and an expropriatory action directed against contractual property rights is sometimes also addressed in terms of whether a contract breach may amount to a violation of international law. The ILC has referred to this issue in its Commentary to the Articles on State Responsibility confirming that: the breach by a State of a contract does not as such entail a breach of international law. Something further is required before international law becomes relevant, such as a denial of justice by the courts of the State in proceedings brought by the other contracting party. [citations omitted]“135 115. Denial of justice cannot be deemed as taking place in the current situation. Claimant at any time has not chosen for turning to the State Courts or to the contractually agreed forum. 133 TECMED, § 107. 134 Pope & Talbot Interim, § 102 135 Reinisch: Expropriation, p. 419 34 Elias, Memorandum for Respondent D.3.(ii) The Claimant´s claim is disqualified by the fact that it did not seek any redress from national authorities 116. Respondent does not intend to introduce a requirement of exhaustion of local remedies to the present international treaty arbitration at all, as it cannot be inferred from any of the BIT´s provisions. Respondent, however, calls the Tribunal to pay adequate attention to the fact that Claimant did not give any opportunity to the State to remedy any of the alleged failures whatsoever. 117. In respect of expropriation claims, this was held persuasively by the Generation Ukraine tribunal: “[A]n international tribunal may deem that the failure to seek redress from national authorities disqualifies the international claim, not because there is a requirement of exhaustion of local remedies but because the very reality of conduct tantamount to expropriation is doubtful in the absence of a reasonable not necessarily exhaustive - effort by the investor to obtain correction.“136 118. As stated earlier, Claimant was not prevented from seeking redress in the contractually agreed forum. 119. The Generation Ukraine reasoning echoes previously arbitrated case of Lauder v. Czech Republic, which opined in the following terms: „This failure [not complaining of any action of Media Council] by the Claimant to invoke the Treaty or to advance any violation of the obligations of the Czech Republic when the now disputed actions were taken, tends to show that no violations of his property rights were committed at that time.”137 136 Generation Ukraine, §§ 20.30, 20.33 137 Lauder v. Czech Republic, § 204 35 Elias, Memorandum for Respondent E. Respondent can rely on the essential security defense in Article 9 of the BIT 120. Respondent was authorized to invoke Essential security clause (Article 9 of the BIT) after receiving an information that Claimant disclosed certain classified information regarding the Sat-Connect project to the government of Opulentia. Respondent arguments are as the following: • The Essential security clause in the BIT is self-judging and therefore it is in a sole discretion of Beristan when and how to use this clause when addressing essential security issues. • The Tribunal has no power of review concerning the invocation and usage of self-judging clause and if under any circumstances the power of review exists, it is limited only to the test of good-faith. • In that case, Article 9 was invoked in good faith, measures taken were necessary and proportionate to alleviate the situation and remove potential threats to essential security and again, the choice of such measures was fully in Respondent's discretion. 121. Usage of security exemption indicates that the States who have agreed to use such clause, indented to create a sort of exit-valve so that a party can enter this obligation without a fear that a bona fidei performance of obligation and cohesion to pacta sunt servanda principle can endanger the protection of its essential security interests. Therefore a State employs this clause to protect its own essential security and not abide to the stipulations of the treaty in sake, as it was in this case. This practice is widely used, as it was in case of USA-Paraguay BIT, which use the same wording as the Opulentia-Beristan BIT does. 36 Elias, Memorandum for Respondent E.1. The Essential security clause in the BIT is self-judging 122. We can identify that self-judging clause because of characteristic usage of the wording "it considers"138 or "it determines" or "the […] State considers"139 was used and it relates to the phrase "necessary for the protection of its essential security interests.” 123. When compared to the self-judging clauses mentioned by commentators on the subject,140 Article 9 of the BIT beyond any reasonable doubt shows all the necessary characteristics and attributes to be classified as a self-judging exemption. Various ISCID tribunals141 have come to the conclusion that self-judging clauses grant a State discretion in the determination of a clause’s scope of application but these clause have to be framed explicitly. Sempra award states explicitly: "Truly exceptional and extraordinary clauses, such as a self-judging provision, must be expressly drafted to reflect that intent, as otherwise there can well be a presumption that they do not have such meaning in view of their exceptional nature."142 124. Security clause in BIT is drafted explicitly to be self-judging, as its wording clearly reflects such fact. Therefore Respondent believes that above mentioned facts establish assertions made infra. 125. Based upon the conclusion that the provision is self-judging, the State which is invoking it is a sole arbiter when it comes to the determination of a clause’s scope of 138 See Canada Model BIT, 2004, Article 10; US Model BIT, 2004, Article 18 139 See Mutual Assistance Convention, Article 2(c) 140 Newcombe, Paradell, Chapter 10; further see Canada Model BIT, 2004, Article10; US Model BIT, 2004, Article 18; New York Convention, Article V(2)(b); ECT, Article 24(3); NAFTA, Article 2102; Mutual Assistance Convention, Article 17; GATT, Article XXI; India-Singapore CECA, Article 6.12; Chile-China FTA, Article 100; EFTA-Lebanon FTA, Article 22 141 CMS Award, §§ 366 – 373, LG&E, §§ 212 – 214; Sempra, §§ 379 – 385; Enron, §§ 335 – 339 142 Sempra, § 379 37 Elias, Memorandum for Respondent application.143 Teleological base for the creation and inclusion of such clause is the reason that the State wishes to have a possibility to derogate from the treaty obligation under specified circumstances and in determining this, it wishes to be a sole arbiter. By the same token, standard of review of such action is non-existing, or very limited. As it was provided by the ICJ in Djibouti v. France, the only standard of review which applies to invocation of the self-judging clause is that of good-faith.144 E.2. Respondent invoked the essential security defense in a good faith 126. Good faith principle as one of the leading principles of international law is binding for the interpretation of all international treaties as embodied in Article 31(1) of the VCLT, which stipulates that all treaties are to be “interpreted in good faith and in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose.” VCLT also stipulates that: "every treaty in force is binding upon the parties to it and must be performed by them in good faith"145 127. When drafting the BIT, inclusion of Article 9 clearly meant that it was used to protect essential security of the State in the situation when Party's essential security interests are to trump the Party's obligation stipulated under the Treaty. 128. Respondent further asserts, that the advanced satellite and telecommunications technology of the Sat-Connect project, which included systems that are to be used by the Beristian army, directly implicates the national security of Beristan. 129. Evolution of information systems in last two centuries has made them crucial parts of every State's national security in its most essential form. Information warfare and gathering, in its own evolution from Enigma146 in the WWII, through Phoenix program147 in Vietnam to a fully automated satellite monitoring and satellite 143 Newcombe, Paradell, p. 484 144 Mutual Assistance in Criminal Matters case, §§ 145, 147 – 148 145 VCLT, Article 26 146 Miller. The Cryptographic Mathematics of Enigma, 2001, NSA 147 Tovo, K. E. From the Ashes of the Phoenix: Lessons for Contemporary Counterinsurgency Operations, 18 March 2005, U.S. Army War College 38 Elias, Memorandum for Respondent cooperation of unmanned aerial vehicle148 usage in the operation Iraqi freedom and war in Afghanistan played a crucial role in modern generation warfare. Any such advantage gained from the synergetic co-operation and information exchange between military units is lost if the opponent has an access to the information system as it was demonstrated in Enigma case in the WWII. Therefore state must protect these systems at all costs and in many examples, state institutes governmental bodies expressly designed to do so (NSA of United States of America is a good example of this trend launched in late 50s of the previous century). E.3. Respondent was allowed to eliminate the threat posed to its national security before the actual effects would take place 130. Protection does not consist only from ex post removal of threat to national security or removing the damages that such threat have done upon the national security. It also consist of protective measures taken in present time, in our case for example creating the obstacles against the break into the information system and measures for effective use and control of such information system. Protection also consists of pro futuro measures aimed to increase security of such systems and protect it from any incoming threat. 131. Even if it is argued that no specific part of satellite system was used for army, rather army has been profiting from the systems as a whole. Although the character of systems is more civilian than military, the protection of such information systems is still essential security issue and the presence of army in the whole equation only escalates the importance of such a system. 132. Televative Inc. is legally bound in its country of incorporation by legislation enacted by Opulentia. This legislation requires any Opulentia-based enterprise to share its information on whatever the subject with Opulentia government to combat terrorism. The legal mechanism can be used, and it was confirmed by Televative that it was used to file a request requiring to share information on Sat-Connect project. Even if 148 e.g. Predator UAV, Description, available at: http://www.ga-asi.com/products/aircraft/ predator.php 39 Elias, Memorandum for Respondent Televative alleges that it denied a request to provide a cryptographic codes and access, the chance of passing the essential information concerning cryptography of such system in future is also a potential threat to national security of Beristan, creating a kind of Sword of Damocles. 133. The idea of Opulentian government having an access to a satellite system which is to be used by great proportion of Beristian citizens and governmental entities, including the military ones is a frightful prospect. Relations between countries are still fragile and tense, and Opulentian attempt to use anti-terrorism law to gain information on Beristan is considered as a threat to national security and as the law was enacted after the signing of the treaty and also after the beginning of Sat-Connect project, Respondent had no other choice to protect its security after the leak then to invoke Article 9 of the BIT. 134. Beristian government acted bona fidei when taking the measures aimed to alleviate conditions endangering its own essential security. Generally in international law a State is presumed to act in good faith149 and Claimant has produced no evidence indicating that the state didn't act in good faith. Also as it was ruled in the Saluka award, state has relatively wide discretion what measure shall it use150 if the measure itself is justifiable at least on regulatory grounds. The use of CWF of Beristian army is justifiable under the bona fidei belief of Respondent that a threat to essential security was imminent. Therefore Claimant’s removal from the Sat-Connect project was justified on these grounds and the rationale behind the use of CWF via the executive order is that Respondent was in the need of a most swift and effective solution how to secure grounds of Sat-Connect project. 149 Yakemtchouk: La Bonne Foi, p. 67; Fiztmaurice: Law and Procedure, p. 615 150 Saluka, § 490 40 Elias, Memorandum for Respondent PRAYER FOR RELIEF 135. For the reasons stated above, Claimant asks the Tribunal to declare that: A The tribunal does not have jurisdiction over Claimant’s claims, as their essential basis lies with the contract and ICSID´s jurisdiction is ousted by Clause 17 of the JV Agreement. B. The tribunal does not have jurisdiction over Claimant’s claims arising under the JV Agreement by virtue of Article 10 of the BIT. C. Respondent has not breached the JV Agreement by invoking Clause 8 of the JV Agreement. D. Respondent’s actions or omissions has not amounted to violation of fair and equitable treatment standard, non-impairment standard, and neither amounted to expropriation, nor they otherwise violated general international law. E. Respondent is, alternatively, entitled to rely on Article 9 of the BIT as a defence to the Claimant’s claims. Respectfully submitted, on 19 September 2010 Wälde Associates LLP, representing the Respondent 41