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 CLAIMANT Representing the Claimant Representing the Respondent Brownlie & Partners Wälde Associates LLP CONTENTS LIST OF AUTHORITIES.....................................................................................................iv LIST OF LEGAL SOURCES..............................................................................................xii STATEMENT OF FACTS.....................................................................................................1 JURISDICTION....................................................................................................................3 A. The Tribunal has jurisdiction over Claimant’s claims and its jurisdiction is not ousted in view of Clause 17 (Dispute Settlement) of the JV Agreement..........................3 A.1. The jurisdiction of the ICSID Tribunal was properly established under the applicable international law...............................................................................................3 A.1.(i) The dispute is of a legal nature arises directly out of the investment, between Contracting State and a national of another Contracting State to ICSID Convention4 A.1.(ii) Claimant properly formulated its claims as treaty-based................................6 A.1.(iii) Respondent consented in writing to arbitrate Claimant’s claims...................7 A.1.(iv) Jurisdiction of the ICSID Tribunal is not affected by non-compliance with the waiting period which is merely a procedural requirement.....................................9 A.2. Jurisdiction of the ICSID Tribunal, properly established under the ICSID Convention and the BIT, is not ousted or superseded by municipal agreement of the parties...............................................................................................................................10 A.2.(i) Treaty-based claims exist independently from any claims arising out of the contract.......................................................................................................................10 A.2.(ii) The JV Agreement arbitrator does not posses a competing jurisdiction, because it is not empowered to decide on the BIT claims..........................................12 B. In addition, the Tribunal has jurisdiction over Claimant’s contract-based claims arising under the JV Agreement by virtue of Article 10 of the Beristan-Opulentia BIT ..............................................................................................................................................13 B.1. The effect of the umbrella clause is to make the host state internationally responsible for the breaches of contracts.........................................................................14 B.2. Respondent is liable for breaches of obligations assumed via Beritech..................15 B.3. The scope of the umbrella clause is wide enough to encompass the breach of the JV Agreements......................................................................................................................16 MERITS...............................................................................................................................18 C. Respondent committed material breach of the JV Agreement and therefore violated its international obligations ................................................................................18 i C.1. Contract with Beritech – the JV Agreement – can be deemed as a contract with State, therefore covered by “umbrella clause”................................................................18 C.2. Respondent violated the BIT as it has unlawfully prevented Claimant from peaceful completion of his contractual duties................................................................................20 C.2.(i) Breach of State Contracts entered into with foreigners under Customary International Law.......................................................................................................21 C.2.(ii) Umbrella clause operate on the two distinct levels, beside a jurisdictional role, it provides a substantive standard......................................................................22 C.2.(iii) Respondent committed a breach of Article 10 of the BIT by assisting to Beritech with its unreasonable invocation of Article 8 of the JV Agreement.............23 C.2.(iv) Applicability of domestic law to the breach of Article 10 of the BIT in the view of Article 14 of the BIT.......................................................................................24 C.2.(v.) Analysis of the breach under the domestic law..............................................25 D. Respondent violated its obligations under the international law, especially the substantive standards of protection under the BIT.........................................................26 D.1. Respondent violated fair and equitable treatment standard ....................................26 D.1.(i) Respondent did not satisfy the prescription of the customary international law of the standard of due process....................................................................................26 D.1.(ii) Respondent´s acts amount to arbitrariness prohibited under general international law with respect to the aliens and their property.................................27 D.1.(iii) Respondent has violated Claimant´s legitimate investment-backed expectations as it had acted contrary to its contractual undertakings and its international legal obligations...................................................................................28 D.1.(iv) Breach of FET does not require impairment of the investment.....................29 D.2. Respondent violated so-called “non-impairment standard” according to Article 2(3) of the BIT ........................................................................................................................29 D.3. Respondent had unlawfully expropriated Claimant´s investment by forcible buyout which did not satisfied the due process requirement.................................................31 D.3.(i) Respondent violated its obligation under the Article 4.1 as it has subjected the Claimant´s investment to the measures which temporarily limited its joined right of ownership, control and enjoyment..........................................................................31 D.3.(ii) Scope of protected rights is defined by the Article 1(1) of the BIT and covers shareholders rights, intellectual property, know how, movables and immovables.....32 D.3.(iii) The BIT prohibits all measure tantamount to expropriation........................33 D.3.(iv) The facts amount to the expropriation of contractual rights not only to a breach of contract.......................................................................................................34 ii D.3.(v.) Respondent has violated Claimant´s legitimate investment-backed expectations as it had acted contrary to its contractual undertakings and international legal obligations...................................................................................35 E. Respondent cannot rely on the essential security defense (Article 9 of the BIT) as the allegation of leak of information was not substantiated to any extent....................36 E.1.Although Article 9 of the BIT is self-judging, it does not exclude any kind of scrutiny............................................................................................................................36 E.1.(i) Self-judging clauses are reviewable by the principle of good faith.................38 E.1.(ii) The interpretation arguing for impossibility of review is against the object and purpose of the BIT...............................................................................................40 E.1.(iii) The actual facts cannot justify an actual existence of a threat to essential security........................................................................................................................41 iii LIST OF AUTHORITIES Treatises and Books Abbreviation Full Citation Appears at page Alenfeld: Investitionsförderungsve rträge der BDR J Alenfeld, Die Investitionsförderungsverträge der Bundesrepublik Deutschland, 1971, Frankfurt am Main: Athenaum̈ 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 Lauterpacht Lauterpacht, H. (eds.). The Function of Law in the International Community. 1933. Clarendon 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 Schreuer: ICSID Commentary Schreuer, Ch. The ICSID Convention: A Commentary. 2001. Cambridge University Press Shaw: International Law Shaw, M. Intenational Law, 6th Edition, 2008, 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 Scholarly Articles Akande & Williams: International Adjudication on National Security Akande, D., Williams, S. International Adjudication on National Security Issues: What Role for the WTO?, 43 Virginia of International Law (2003), p. 365 Crawford: Treaty and Contract Crawford, J. Treaty and Contract in Investment Arbitration, 2008, 24 Arbitration International, p. 351 Fietta: Legitimate Expectations Fietta, S. Expropriation and the “Fair and Equitable” Standard The Developing Role of Investors´ “Expectations” in International Investment Arbitration, 23 Journal of International Arbitration (2006), p. 375 iv Fitzmaurice: Scholar as Judge Fitzmaurice, G. Hersch Lauterpacht – The Scholar as Judge. Part I. 37 British Yearbook of International Law (1961), p. 1 Hahn: GATT´s Security Exception Hahn, M. J. Vital Interests and the Law of the GATT: An Analysis of GATT’s Security Exception. 12 Michigan Journal of International Law (1991), p. 584 Heiskanen: Arbitrary Measures Heiskanen, V. Arbitrary and unreasonable measures (2008) In: Reinisch, A.(eds.). Standards of Investment Protection, Oxford University Press, p. 87 Mann: British Treaties Mann, F. A., British Treaties for the Promotion and Protection of Investments. 52 British Yearbook of International Law (1981), p. 241 Reinisch: Expropriation Reinisch, A. Expropriation (2008) In: Muchlinski, P., Ortino, F., Schreuer, Ch. (eds.). The Oxford Handbook of International Investment Law. Oxford University Press, p. 410 Reiterer: National Security Exception Reiterer, M. A. Article XXI GATT – Does the National Security Exception Permit “Anything Under the Sun”, 2 Australian Review of Internatioanl and European Law 2 (1997), p. 191 Schloemann & Ohlhoff: Constitutionalization and WTO Schloemann, H. L., Ohlhoff, S. “Constitutionalization” and Dispute Settlement in the WTO: National Security as an Issue of Competence, 93 American Journal of International Law (1999), p. 444 Schreuer: Travelling the BIT Route Schreuer, Ch. Travelling the BIT Route: Of Waiting Periods, Umbrella Clauses and Forks in the Road, 5 Journal of World Investment & Trade (2004), p. 231 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 Vasciannie: Fair and Equitable Treatment Vasciannie, S., The Fair and Equitable Treatment Standard in International Investment Law and Practice. British Yearbook of International Law (1999), 70, p. 99 Wälde: The Umbrella Clause Wälde, T. The Umbrella Clause in Investment Arbitration – A Comment on Original Intentions and Recent Cases, 6 Journal of World Investment and Trade (2004), p. 183 Weil: Contrats passés entre un Etat et un particullier P Weil, Problems relatifs aux contrats passés entre un Etat et un particullier, 128 Receuil des Cours III, 1969, p. 95 v Judicial and Arbitral Decisions Ambatielos Case Ambatielos case (merits: obligation to arbitrate), Judgment of May 19th, 1953: ICJ Report 1953, p.10 Autopista Autopista Concesionada de Venezuela, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/00/5, Decision on Jurisdiction, 27 September 2001 Azurix Azurix v. Argentine Republic, ICSID Case No. ARB/01/12, Award, 14 July 2006 Benvenuti & Bonfant v. Congo S.A.R.L. Benvenuti & Bonfant v. People's Republic of the Congo, ICSID Case No. ARB/77/2, Award, 8 August 1980 Canfor Corporation Case Canfor Corporation v. US and Terminal Forest Products Ltd. v. US and Tembec et al. v. US, UNCITRAL, Decision on Preliminary Question, 6 Jun. 2006 Certain German Interests Certain German Interests in Polish Upper Silesia, Judgment on Jurisdiction No. 6, 1925 PCIJ Series A, p. 3 CME CME Czech Republic B.V. v. Czech Republic, UNCITRAL, Partial Award, 13 September 2001 CMS Annulment CMS Gas Transmission Company v. The Argentine Republic, ICSID Case No. ARB/01/8, Decision on Annulment, 25 September 2007 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 Consortium L.E.S.I.- DIPENTA Consortium Groupement L.E.S.I.- DIPENTA v. Algeria, ICSID Case No. ARB/03/08, Award, 10 January 2005 Consortium RFCC Consortium R.F.C.C. v. Kingdom of Morocco, ICSID Case No. ARB/00/6, Award, 22 December 2003 Djibouti v. France Certain Questions of Mutual Assistance in Criminal Matters (Djibouti v.France), ICJ, Judgment (2008) East Timor Case East Timor Case (Portugal v. Australia), Judgment on Jurisdiction, 1995, ICJ Reports 89 El Paso El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Decision on Jurisdiction, 27 April 2006 vi ELSI Case Elettronica Sicula S.p.A. (ELSI) (US v. Italy), 1989, ICJ Rep 15 EnCana EnCana Corporation v. Republic of Ecuador, LCIA Case No. UN3481, UNCITRAL, Award, 3 February 2006 Enron Award Enron Corporation and Ponderosa Assets , L.p. v. Argentina, ICSID Case No. ARB/01/3, Award, 22 May 2007 Enron Jurisdiction 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 Fedax Fedax N.V. v. Venezuela, ICSID Case No. ARB/96/3, Award on Jurisdiction, 11 July 1997 Gabčíkovo-Nagymaros Project Gabčíkovo-Nagymaros Project (Hungary v. Slovakia) [1997] ICJ Rep 79 Genin v. Estonia Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v. Estonia, ICSID Case No. ARB/99/2, Award, 25 June 2001 Genocide Convention Case Case concerning Genocide Convention (Bosnia v. Serbia), 2007, ICJ Reports Goetz v. Burundi Antoine Goetz and others v. Burundi, ICSID Case No. ARB/95/3, Award, 10 February 1999 Impregilo Impregilo S.p.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/3, Decision on Jurisdiction, 22 April 2005 International Fisheries case International Fisheries Company case (USA v. Mexico), July 1931, RIAA, Volume IV, p. 691-746 Judge Keith in Djibouti v. France Certain Questions of Mutual Assistance in Criminal Matters (Djibouti v.France), ICJ, Separate Declaration of Judge Keith of 4 June 2008 Klökner Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Decision on Annulment, 3 May 1985, 2 ICSID Reports 162 Lanco Lanco International Inc. v. Argentina, ICSID Case No. ARB/97/6, Decision Jurisdiction, 8 December 1998 Lauder Ronald Lauder v. Czech Republic, UNCITRAL, Award, 3 September 2001 vii Lauterpacht in Norwegian Loans case Separate Opinion of Judge Sir Hersch Lauterpacht, Certain Norwegian Loans Case (France v. Norway), ICJ Reports 1957 LG&E LG&E v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006 Maffezini Award Maffezini v. Spain, ICSID Case No. ARB/97/7, Award on Merits, 13 November 2000 Maffezini Jurisdiction Maffezini v. Spain, ICSID Case No. ARB/97/7, Decision on Objections to Jurisdiction, 25 January 2000 Mavrommatis Palestine Concession The Mavrommatis Palestine Concession (Greece v. Great Britain), Judgment, 30 August 1924, PCIJ Series A, No. 2, p. 11 Metalclad Metalclad Corporation v. Mexico, ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000 Middle East Cement Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/99/6, Award, 12 April 2002 Nicaragua Case Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Jurisdiction and Admissibility, Judgment, 1984 ICJ Reports, p. 392 Noble Ventures Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award, 12 October 2005 Nuclear Tests case Nuclear Tests (Australia v. France), Judgment of 20 December 1974, I.C.J. Reports 1974, p. 268. Nykomb v. Latvia Nykomb Synergetics Technology Holding AB v. Latvia, Arbitration Institute of the Stockholm Chamber of Commerce (ECT), Award, 16 December 2003 Orinoco Case Company General of the Orinoco case (France v. Venezuela), 31 July 1905, RIAA, Volume X, p. 184- 285 Phillips Petroleum Phillips Petroleum Co v. Iran , 21 Iran-US CTR 79 (1989) Pope & Talbot Pope & Talbot Inc. v. The Government of Canada, UNCITRAL, Award on Merits, 10 April 2001 Revere Copper In the Matter of Revere Copper and Brass, Ltd. and the Overseas Private Investment Corporation, 1978, ILR, Volume 56, p. 257 et seq. Saluka Counterclaim Saluka Investments BV (The Netherlands) v. The Czech Republic, UNCITRAL, Decision on Jurisdiction over the Counterclaim, 7 May 2004 viii Saluka Partial Award Saluka Investments BV (The Netherlands) v. The Czech Republic, UNCITRAL, Partial Award, 17 May 2001 Santa Elena v. Costa Rica Compañia del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, ICSID Case No. ARB/96/1, Award, 17 February 2000 Sempra Annulment Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16, Decision on Annulment, 29 June 2010 Sempra Award Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16 , Award, 28 September 2007 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 Shufeldt Shufeldt claim (Guatemala v. USA), 24 July 1930, RIAA, Volume II, p. 1079-1102 Siemens Award Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Award, 6 February 2007 Siemens Jurisdiction Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Decision on Jurisdiction, 3 August 2004 SOABI Société Ouest Africaine des Bétons Industriels v. Senegal, ICSID Case No. ARB/82/1, Decision on Jurisdiction, 1 August 2001 Starrett Housing Starrett Housing Corporation v. Iran (1984) 23 International Law Materials 1090 SwemBalt SwemBalt AB, Sweden v. Latvia, UNCITRAL, Award, 23 October 2000 TECMED Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB (AF)/00/2, Award, 29 May 2003 Nicaragua-Colombia Territorial and Maritime Dispute Territorial and Maritime Dispute (Nicaragua v. Colombia), ICJ, Judgment of 13 December 2007 Texaco v. Libya Texaco Overseas Petroleum Co. v. Government of the Libyan Arab Republic, 11977, ILR, Volume Volume 53, p. 297 et seq. Thunderbird Gaming International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Award, 26 January 2006 ix U.S. Nationals in Morocco Case Concerning Rights of Nationals of the United States of America in Morocco, 1952, ICJ Rep 176, p. 212 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 Vivendi Award Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Award, 21 November 2000 Waste Management 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 Cuban Liberty Act WTO Dispute over Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996 §302(a) between US and EU Miscellaneous Executive Directors’ Report Report of the Executive Directors of the World Bank on the ICSID Convention, available at GA Resolution 1514 GA resolution 1514 (XV) 1960: Declaration on the Granting of Independence to Colonial Countries and Peoples GA Resolution 1904 GA resolution 1904 (XVIII) 1963: Declaration on the Elimination of All Forms of Racial Discrimination GA Resolution 31/98 General Assembly Resolution 31/98, 15 December 1976 GA Resolution 40/72 General Assembly Resolution 40/72, 11 December 1985 GA Resolution 61/33 General Assembly Resolution 61/33, 4 December 2006 Immunity of Special Rapporteur Difference Relating to Immunity from Legal Process of a Special Rapporteur, ICJ Reports, 1999 ILC Articles on Responsibility International Law Commission Articles on Responsibility of States for Internationally Wrongful Acts, GA Res 56/83, 14 December 2001 ILC Expulsion of Aliens Memorandum by the International Law Commission Secretariat, Expulsion of Aliens, 10 July 2006, A/CN.4/565 x Montreal Statement of the Assembly of Human Rights Montreal Statement of the Assembly of Human Rights 2 (June 1968). New York. reprinted in 9 Journal of the International Commission of Jurists, No. 1, p. 94 et seq. Restatement (third) Restatement of the Law Third, Foreign Relations Law of the United States, The American Law Institute, 1987 UNCTAD Series, Investment Rulemaking UNCTAD Series on issues in international investment agreements, Investor-state Dispute Settlement and Impact on Investment Rulemaking, 2007, Geneva: United Nations UNCTAD Series, State Contracts UNCTAD Series on issues in international investment agreements. State Contracts, 2004,Geneva: United Nations World Bank Guidelines World Bank. World Bank Guidelines on the Treatment of Foreign Direct Investment, 1992 US Model BIT , 2004 Canada Model BIT, 2004 xi LIST OF LEGAL SOURCES International Treaties and Covenants Abbreviation Full Citation Appears at page 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 Dutch-Polish BIT Agreement between the Kingdom of the Netherlands and the Republic of Poland on Encouragement and Reciprocal Protection of Investments, signed on 7 September 1992 ICJ Statute Statute of the International Court of Justice, annexed to the UN Charter India-Singapore CECA India-Singapore Comprehensive Economic Cooperation Agreement , 2005 Mutual Assistance Convetion Convention on Mutual Assistance in Criminal Matters between the Government of the Republic of Djibouti and the Government of the French Republic, 1986 NAFTA North American Free Trade Agreement, signed on 17 December 1992 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 UN Charter The Charter of the United Nations 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 xii STATEMENT OF FACTS 1. On October 18, 2007, Televative Inc. and Beritech S.A signed a joint venture agreement (hereinafter the “JV Agreement”) in order to establish a joint venture company – Sat-Connect S.A. – pursuant to the laws of Beristan. Televative keeps 40 % and Beritech 60 % of the shares on the Sat-Connect. 2. Televative – 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. Beritech is a state-owned company incorporated in Beristan, a single private telecommunications services provider in Beristan, which activities deal with related fields of business. Beristan owns 75 % of shares of Beritech, while the remaining stake is held by private investors, mostly Beristian nationals. Respondent, which is not a party to the JV Agreement, co-signed it as guarantor of Beritech´s obligations. 3. 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. Televative’s contribution to the project involves – in addition to monetary investment USD 47 million – intellectual property and know-how in value exceeding USD 100 million. Although the system can be used in armed forces, it will be used chiefly by civilians. 4. 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 in the moment of actual voting. Decisions are to be made by a simple majority. 5. According to the JV Agreement, the matters relating to the Sat-Connect project 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 shall be entitled to buy-out its interest in the Project, which is to be 13 valued as monetary investment from the commencement of the Project until the date of buy-out. 6. On August 12, 2009, highly placed Beristian government official raised national security concerns by revealing that the Sat-Connect project had been compromised due to leaks by Televative´s seconded personnel to government of Opulentia. No other details were published, and both Televative and Government of Opulentia have made statements to deny this published story. 7. On August 27, 2009, Beritech, with the support of five of Sat-Connect’s board of directors which it appointed, invoked Clause 8 of the JV Agreement, to compel a buyout of Televative’s interest in the Sat-Connect project. It is highly doubtful that the quorum was established for Alice Sharpeton – director appointed by Televative – refused to participate and left the meeting before the voting begun, and protested that she had no prior notice concerning the proposed agenda for the meeting. 8. Despite it, Beritech invoked a buy-out provision of the JV Agreement and provided Televative with 14 days to hand over the possession of all Project´s facilities, equipment and to remove its seconded personnel. After this period, the rest of the personnel was ordered to leave by Beristian Civil Work Forces (CWF), the civil engineering section of the Beristian army, deployed on a basis of executive order. 9. On October 19, 2009, Beritech requested for a declaratory relief from the arbitral tribunal established under the Clause 17 of the JV Agreement and paid Televative´s monetary investment of US $47 million into an escrow account, pending the decision. Televative has refused to respond to Beritech’s arbitration request or to accept this payment, as it opposes that the share on Sat-Connect was properly bought out. 10. Televative also intended not to lose its standing in ICSID arbitration which was commenced on October 28, 2009.On 1 November 2009, the ICSID Secretary General registered for arbitration this dispute brought by Televative against the Government of Beristan. 14 JURISDICTION A. The Tribunal has jurisdiction over Claimant’s claims and its jurisdiction is not ousted in view of Clause 17 (Dispute Settlement) of the JV Agreement 11. Claimant contends that the ICSID Tribunal has jurisdiction to decide on all his claims, properly formulated as claims based on violation of the BIT, notwithstanding whether their factual background lays in violation of the JV Agreement. Dispute Settlement Clause of JV Agreement does not preclude the jurisdiction of the Tribunal and cannot be regarded as a waiver of right to arbitrate before the ICSID Tribunal. A.1. The jurisdiction of the ICSID Tribunal was properly established under the applicable international law 12. The jurisdiction of the ICSID Tribunal stems from Article 25 of ICSID Convention which states that “[t]he jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State […] and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre.” This clause has to be read together with Article 11 of the BIT where Respondent offered to arbitrate any “disputes with respect to investments between a Contracting Party and an investor of the other Contracting Party that concern an obligation of the former under this Agreement in relation to an investment of the latter.” 13. Respondent contends that all the conditions necessary to establish jurisdiction of the Tribunal are met. Namely, (1) the present dispute is of legal nature; (2) it stems directly out of investment; (3) it occurred between a state party and a national of another state and both states are parties to the ICSID Convention; and (4) both parties to the present dispute consented in writing to submit to the Centre. This criterion includes also the scope of the jurisdictional offer in Article 11 of the BIT. 15 A.1.(i) The dispute is of a legal nature arises directly out of the investment, between Contracting State and a national of another Contracting State to ICSID Convention 14. Claimant – as it it clear from its initial pleadings1 – argues that Respondent breached its obligations under the applicable BIT. The BIT is a source of international law2 and the obligations arising under the BIT are hence obligations of legal nature. Claimant also seeks a legal remedy for the alleged breaches. A dispute can be considered as legal “if legal remedies such as restitution or damages are sought and if legal rights based on, for example, treaties or legislation are claimed;”3 or if “the existence or scope of a legal right or obligation, or the nature or extent of the reparation to be made for breach of a legal obligation, and [if the dispute] is more than a mere ‘conflict of interest.’”4 Therefore, if Claimant formulates its pretensions in legal terms and on the basis of existent law, and Respondent answers in terms of law,5 there is a dispute of legal nature.6 15. Whether the dispute arises directly out of an investment is both question of whether the Claimant made an investment covered by the BIT, and what the relationship between the investment and the dispute is.7 The joint-venture project can be qualified as an investment both under the BIT and as well under the ICSID Convention. The present dispute relates directly to the investment, mainly because the actions complained of has led to the termination of the Claimant’s investment in the SatConnect project. 1 Minutes of the First Session of the Arbitral Tribunal (ICSID Case No. ARB/X/X), held in Malibu, California, on 15 March 2010 [Minutes], § 15, Claimant, sub-paragraph 4 2 ICJ Statute, Article 38(1)(a) 3 Schreuer: ICSID Commentary, p. 105, § 42; cf. East Timor Case, § 22; Mavrommatis Palestine Concession, p. 11; Azurix, § 58 4 Executive Directors’Report, § 26 5 Minutes, § 15 6 El Paso, § 62 7 Schreuer: ICSID Commentary, p. 105, § 42 16 16. The present dispute arises directly out of an investment according to Salini test8 and the broad definition of investment in the BIT, since the right of Claimant under the JV Agreements and the subsequent Claimant’s 40 % share on Sat-Connect may be qualified as an investment. Claimant asserts that both investment test are met, hence the jurisdiction of the tribunal is established.9 17. The concept of investment is defined in Article 1(1) of the BIT as including inter alia “[b)] shares [… d)] patents, industrial designs and other intellectual and industrial property rights, know-how, trade secrets [… e)] any right of a financial nature accruing […] by contract […]”. Claimant contends that its share in Sat-Connect project, intellectual property rights provided to the project and rights arising out of the JV Agreement qualifies as an investment covered by the BIT. 18. In the terms of the ICSID Convention, four criteria determine the existence of an investment: (1) a contribution of money or other assets of economic value; (2) a certain duration; (3) an element of risk; and (4) a contribution to the host State’s development.10 Claimant asserts that all of these criteria are met, because Claimant expended at least monetary investment of § 47 million11 and established a joint-venture with unlimited duration.12 Development of Sat-Connect project can be considered as both assumption of business risks and contribution to the development of Beristan economics. Notably, Claimant transferred innovative technologies to Beristan – as a leading developer of new technologies in satellite communications technologies.13 19. Both Respondent and Opulentia which is the state, where Claimant is incorporated,14 are Parties to ICSID Convention. According to rule of incorporation, widely 8 Salini v. Morocco, § 52 – 57 9 Fedax, §§ 18 – 20 10 Salini v. Morocco, § 52 – 57 11 Annex 2 to the Minutes (Uncontested Facts), § 12 12 Ibid., § 3 13 Ibid., § 1 14 Ibid. 17 recognized as the rule determining nationality of corporations,15 Claimant is a national of Opulentia. A.1.(ii) Claimant properly formulated its claims as treaty-based 20. It is a well-settled case law which asserts that it is up to Claimant to formulate its claims,16 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 them considered on their merits”.17 Claimant does not accept a foreseeable Respondent’s contention that Claimant’s claims are to be characterized as contract-based. There is no clear-cut border line between so called treaty-based and contract-based claims.18 All of the Claimant’s claims are to be regarded as treaty claims in the sense that they are brought before the ICSID Tribunal on the basis of the BIT. There is no such thing as an improper reformulation of contractual claims as treaty-based. 21. It is necessary to ask, what the treaty claims and what the contract claims are. It seems that every claim which has its background in a breach of a contract shall be considered as contract-based. However, the distinction cannot be drawn in such a simplified manner. The same factual basis may give rise both to the breach of a contract and to the breach of a treaty, because the qualification of a conduct as unlawful in municipal and in the international law is rather independent.19 22. It is obvious from the Minutes that Claimant does not urge the ICSID Tribunal to declare that Beritech invoked the buy-out clause improperly and to adjudge compensation according to laws of Beristan as a proper law of the JV Agreement.20 Claimant seeks to prove that the complex of Respondent’s acts and omissions, 15 ELSI Case, § 70; SOABI, § 29; Autopista, § 107 16 Vivendi Award, § 53; Vivendi Annulment, § 74; Salini v. Morocco, § 62 – 63; Wena Hotels, p. 890; SGS v. Pakistan, §§ 144 – 145; Siemens Jurisdiction, § 180 17 SGS v. Pakistan, § 145 18 Siemens Award, § 206; Noble Ventures, § 82 19 Vivendi Annulment, § 95; ELSI Case, §§ 73, 124; ILC Articles on Responsibility, Article 3 20 Minutes, § 15; Annex 3 to the Minutes, Clause 17 18 including the false allegations of the highly placed Beristian government official21 and expulsion of seconded personnel by CWF,22 caused the termination of Claimant’s investment in the Sat-Connect project and led to violation of substantive standards of the BIT. 23. As Claimant argues in parts C and D of this memorial, Respondent’s acts and omissions were clearly capable to constitute uncompensated expropriation, unfair and inequitable treatment, unjustified measures and a breach of the umbrella clause. These actions also incited and supported Beritech to invoke material breach of the JV Agreement. The ICSID Tribunal is not precluded to take into account the terms of the JV Agreement, because “it is one thing to exercise contractual jurisdiction […] and another to take into account the terms of a contract in determining whether there has been a breach of a distinct standard of international law, such as that reflected in Article 3 [fair and equitable treatment] of the BIT.”23 A.1.(iii) Respondent consented in writing to arbitrate Claimant’s claims 24. Respondent gave its jurisdictional offer to arbitrate the dispute before the ICSID Tribunal in writing – which is an accepted practice24 – through Article 11(2)(a) of the BIT. Claimant did so by submitting the request for arbitration in accordance with ICSID’s Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings and by notifying the Government of Beristan.25 If state offers more options to the investors in a BIT – as Respondent did in the present BIT – the choice of particular forum is up to investor.26 25. When the existence of consent of the both parties to the dispute is recognized, it is appropriate to proceed with the second step and consider what is the scope of the established consent both ratione personae and ratione materie. Claimant recalls that 21 Annex 2 to the Minutes (Uncontested Facts), § 8 22 Ibid, § 11 23 Vivendi Annulment, § 105; cf. Argentina-France BIT, Article 3 24 Schreuer: ICSID Commentary, p. 210, § 286 25 Annex 2 to the Minutes (Uncontested facts), § 14 26 Schreuer: ICSID Commentary, p. 215, § 295 19 Respondent consented to arbitrate “disputes with respect to investments between a Contracting Party and an investor of the other Contracting Party that concern an obligation of the former under this Agreement in relation to an investment of the latter.” Regarding the personal jurisdiction, there has to be dispute between a state and a foreign investor. Regarding the subject-matter of the dispute, it has to concern (1) investment and (2) obligation of the state party arising out of the BIT. 26. Respondent might argue that most of action which led to the end of Claimant’s investment in the Sat-Connect project was committed by Beritech, a separate legal entity under the municipal law of Beristan. However, Claimant emphasizes that significant portion of action was prima facie committed by Respondent itself. Further, separate legal personality of Beritech under municipal law of Beristan does not preclude international responsibility of Respondent for actions which are attributable thereto. As it is more comprehensively argued in the part dealing with the merits, (1) actions of Beritech are attributable to the Respondent and (2) rules of attribution are operable because international obligations – particularly the umbrella clause – are allegedly breached.27 27. It might be Respondent’s contention that claims submitted by Claimant to the ICSID Tribunal are contractual in nature and therefore the jurisdictional offer in the Article 11 of the BIT is too narrow to encompass such claims. (Let us say that the keyhole is too small to enter the key.) However, claimant formulated its claims as arising out of violation of the BIT. As it was stated above, the tribunal has to accept these claims as they are and cannot subject them to a too strict scrutiny. Than the Claimant’s key gets easily to the keyhole. 28. Even if the tribunal classifies the Claimant’s claims as based on the JV Agreement, Claimant asserts that the jurisdiction of the ICSID Tribunal is not limited to the breaches of the BIT itself. The tribunal is authorized and indeed required to decide on such claims due to the BIT’s umbrella clause. The effect of the umbrella clause is, that it makes a non-performance or a breach of the contract a breach of the BIT.28 It is 27 Noble Ventures, §§ 82 – 86; Eureko, §§ 132, 134, 250 28 SGS v. Phillipines, § 128; Newcombe & Paradell, p. 436 20 Respondent’s obligation under Article 10 of the BIT to “constantly guarantee the observance of any obligation it has assumed with regard to investments”. Therefore, every obligation arising out of the JV Agreement is an “obligation […] under this Agreement [the BIT] in relation to an investment of the latter” according to Article 11 of the BIT. 29. The Eureko Tribunal based its jurisdiction on similarly narrow jurisdictional offer in the Dutch-Polish BIT as it is drafted in Article 11 of the BIT. The relevant provision of the Dutch-Polish BIT stated that an investor could subject to the arbitration “dispute […] relating to the effects of a measure taken by the [state party]with respect to the essential aspects pertaining to the conduct of its business, such as the measures mentioned in Article 5 of this Agreement […]”.29 Despite narrow drafting of the Polish jurisdictional offer, the tribunal did not agree with the responding party´s objection to jurisdiction which was based on a contractual nature of the claims30 and even accepted jurisdiction over contract-based claims through operative effect of the umbrella clause.31 Claimant urges the tribunal to follow the teachings of this tribunal. A.1.(iv) Jurisdiction of the ICSID Tribunal is not affected by non-compliance with the waiting period which is merely a procedural requirement 30. Claimant does not oppose that it was obliged to conform with requirement to settle the dispute “amicably within six months of the date of a written application” (within the so-called “waiting period”) pursuant to Article 11(1) of the BIT before it submits the dispute to the ICSID Tribunal. However, it is a well-settled case law – relying on the arguments developed by PCIJ and ICJ32 – that the waiting period is a mere procedural, and not jurisdictional requirement.33 29 Dutch-Polish BIT, Article 8 30 Eureko, § 112 31 Ibid, § 250 32 Certain German Interests, p. 14; Nicaragua Case, pp. 427 – 429 33 Ethyl v. Canada, § 74 – 88; Lauder, § 187; SGS v. Pakistan, § 184 21 31. Claimant is not obliged to wait and attempt to negotiate before submitting its case to the tribunal, where the prospect to amicable settlement is elusive.34 Respondent clearly manifested its refusal to negotiate by the use of CWF against Claimant’s seconded personnel.35 Furthermore, strict interpretation of the waiting period clause would contravene the principle of orderly and cost-effective procedure.36 Therefore, it may be concluded, that the jurisdiction of the ICSID Tribunal is not affected by noncompliance of Claimant with the waiting period. A.2. Jurisdiction of the ICSID Tribunal, properly established under the ICSID Convention and the BIT, is not ousted or superseded by municipal agreement of the parties 32. There are mainly two reasons for the conclusion that the jurisdiction of the ICSID Tribunal is not affected by the existence of Settlement of Dispute Clause 17 in the JV Agreement and the pending arbitration commenced on a basis of the JV Agreement. Firstly, the treaty cause of action is to be distinguished from contract cause of action. Secondly, the JV Agreement arbitrator is not authorized to decide on obligations arising out of the BIT. A.2.(i) Treaty-based claims exist independently from any claims arising out of the contract 33. It is a well-settled case law, that dispute settlement clauses in contracts do not oust jurisdiction of the international investment tribunals.37 The ad hoc committee in Vivendi Annulment stated that ”where the ’fundamental basis of the claim’ is a treaty laying down an independent standard by which the conduct of the parties is to be judged, the existence of an exclusive jurisdiction clause in a contract between the claimant 34 Lauder, §§ 188 – 189 35 Annex 2 to the Minutes (Uncontested Facts), § 11 36 SGS v. Pakistan, § 184 37 Vivendi Annulment, § 95; SGS v. Pakistan, §§ 147, 154; SGS v. Philippines, § 155; Noble Ventures, § 53; Eureko, § 112 – 113 22 and the respondent state or one of its subdivisions cannot operate as a bar to the application of the treaty standard.”38 34. Furthermore, the tribunal – relying on Article 3 of ILC Articles on Responsibility – observed that the Respondent cannot rely on an exclusive jurisdiction clause in a contract to avoid the characterization of its conduct as internationally unlawful under a treaty.39 The fundamental principle is that same set of facts can give rise to different claims grounded on differing legal orders.40 35. Respondent will probably rely on conclusions of Vivendi Annulment – at the first sight opposing to the arguments presented above – that “[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.41 However, this argument has to be rejected because (1) Claimant properly formulated its claims as treaty-based and the umbrella clause has the effect of changing the breach of a contract to the breach of the BIT; and (2) the essential basis test has to be read with reference to the other parts of the Vivendi Annulment decision. 36. The essential basis test was objected by Government of Poland in Eureko. The Eureko Tribunal rejected the objections and held, that the essential basis test was a mere obiter dictum.42 Furthermore, the tribunal stated that if Claimant advances claims for breaches of the BIT “decisicion of ad hoc Committee in Vivendi […] authorizes, and indeed, requires, this Tribunal to consider whether the acts of which Eureko complains, whether or not also breaches of the SPA and the First Addendum [the relevant contracts], constitute breaches of the Treaty.”43 Claimant asserts that facts of this case require the Tribunal to refuse Respondent’s objections and recognize jurisdiction, notwithstanding Clause 17 of the JV Agreement. 38 Vivendi Annulment, § 105 39 Ibid, § 103 40 SGS v. Pakistan, § 147; ELSI Case, §§ 73, 124 41 Vivendi Annulment, § 98 42 Eureko, § 103 43 Ibid., § 112 23 A.2.(ii) The JV Agreement arbitrator does not posses a competing jurisdiction, because it is not empowered to decide on the BIT claims 37. Claimant asserts that there is no competing jurisdiction conferred to the JV Agreement arbitrator. In article 11(2) of the BIT, Respondent offered three options for settlement of investment disputes: (1) domestic courts; (2) UNCITRAL ad hoc international arbitration; and (3) ICSID arbitration. Claimant decided for the third option.44 It might be Respondent’s contention, that the JV Agreement arbitration was commenced within the second option, so that Claimant’s decision is too late to posses any legal consequences. 38. However, terms “dispute arising out of or relating to this Agreement” used in Clause 17 of the JV Agreement cannot encompass claims based on violation of the BIT, as a source of international law, because the JV Agreement is a municipal agreement. The parties to municipal agreement could not reasonably intended the dispute resolution clause as involving claims arising out of the BIT.45 39. Secondly, the investment dispute within the meaning of the BIT may be commenced merely by the investor. Article 11(1) of the BIT clearly states that “the investor in question may in writing submit the dispute;” not the state party or a national thereof. If the international investment practice significantly limits the admissibility of counterclaims,46 it could be hardy contended, that the host state is allowed to commence an investment dispute. 40. Thirdly, the JV Agreement arbitrator is not bound by Arbitration Rules of the UN Commission on International Trade Law as the BIT requires. The arbitrator is bound by 1959 Arbitration Act of Beristan which remains – albeit it incorporates 1985 UNCITRAL Model Law on International Commercial Arbitration, as amended in 200647 – a source of municipal law with its own methods of interpretation and application. Moreover, Arbitration Rules of the UN Commission on International 44 Annex 2 to the Minutes (Uncontested Facts), § 14 45 SGS v. Pakistan, § 153 46 Saluka Counterclaim, §§ 60 – 61, 76; Klökner, p. 165 47 Clarification Requests (4 June) Responses, § 130 24 Trade Law48 are not to be confused with 1985 UNCITRAL Model Law on International Commercial Arbitration, as amended in 2006.49 41. Fourthly, the waiting period in Clause 17 of the JV Agreement is of specific wording and orders party – after the notice of arbitration – to “attempt to settle the dispute amicably and, unless they agree otherwise, cannot commence arbitration until 60 days after the notice of intention to commence arbitration. [emphasis added]”. Beritech did not complied with the waiting period.50 The strict prohibition to commence arbitration differs substantially from standard of drafting the waiting period in the BIT which is not prohibitive but rather sets an additional condition to general possibility to commence arbitration. Therefore – unlike in the BIT – the JV arbitrator lacks jurisdiction if the Settlement of Dispute Clause is invoked before the waiting period expires. B. In addition, the Tribunal has jurisdiction over Claimant’s contract-based claims arising under the JV Agreement by virtue of Article 10 of the Beristan-Opulentia BIT 42. According to Article 10 of the BIT, the Respondent is obliged to observe any obligations it has assumed with regard to Claimant´s investment in its territory. This clause, in turn, renders Respondent internationally responsible for breaches of the JV Agreement gives the ICSID Tribunal jurisdiction over alleged breaches of the JV Agreement which become – by the same token – the breaches of the BIT itself. This applies even if these breaches were committed by Beritech because actions of Beritech are imputable to the Respondent. Furthermore, the scope of the umbrella clause is wide enough to encompass the breaches of the JV Agreement. 48 General Assembly resolution 31/98 (15 December 1976) 49 General Assembly resolution 40/72 (1985); General Assembly resolution 61/33 (2006) 50 Annex 2 to the Minutes (Uncontested Facts), §§ 10, 13 25 B.1. The effect of the umbrella clause is to make the host state internationally responsible for the breaches of contracts 43. The principal question of the tribunal when considering the application of the umbrella clauses was what effect should be given to such clauses. Claimant asserts that Article 10 of the BIT makes it a breach by Respondent of the BIT to fail to observe binding commitments, including contractual commitments, which it has assumed with regard to the specific investment.51 This conclusion is supported by actual wording of the terms and by the principle of effet utile which requires to interpret the treaty provisions to be rather effective than ineffective.52 44. Therefore, contractual arrangements between the investor and the host state – or any other entity act of which are attributable to the host state – are subject to the jurisdiction of the tribunal, as they become the breaches of the BIT itself.53 This conclusion can be also supported by reference to the wide definition of investment according to Article 1(1)(e) of the BIT which includes “any right of a financial nature accruing […] by contract”. 45. It is a well-known fact that this effect of the umbrella clause was not recognized by some tribunals.54 However, the arguments presented mainly in these decisions which made the umbrella clause ineffective ought to be rejected. 46. Firstly, the tribunal in SGS v. Pakistan feared the indefinite expansion of claims based on the violation of the umbrella clause.55 However, the scope of application of the umbrella clause is limited to “obligations with regard to investments” and the floodgate argument is easy to reject by the standard floodgate responses concerning the high costs.56 51 SGS v. Phillipines, § 128; Newcombe & Paradell, p. 436; Weil: Contrats passés entre un Etat et un particullier, p. 130 52 SGS v. Philippines, § 115; Noble Ventures, § 50 – 53; Salini v. Jordan, § 95 53 Eureko, § 250 54 SGS v. Pakistan, § 163 – 174; Joy Mining, §§ 80 – 81 55 SGS v. Pakistan, § 166 56 Crawford: Treaty and Contract, p. 369 26 47. Secondly, the general principle of international law that “a violation of a contract entered into by a State with an investor of another State, is not, by itself, a violation of international law”57 was used to support the restrictive mode of interpretation.58 However, it is obvious, that a rule of customary international law can be derogated from by a treaty unless the customary law rule is peremptory.59 48. Thirdly, the tribunal expressed its concern that the effect of a broad interpretation would be, inter alia, to override dispute settlement clauses negotiated in particular contracts.60 However, the purpose of the umbrella clause is not to replace the JV Arbitrator with the ICSID Tribunal; this purpose is to make the performance of the JV Agreement enforceable under the BIT.61 Claimant also recalls that the exercise of the contractual jurisdiction has to be distinguished from the application of the terms of a contract in order to determine whether there has been a breach of the BIT.62 49. Claimant urges the tribunal to prefer the interpretation which renders the umbrella clause effective as other tribunals did.63 Schreuer also considers the reasoning of SGS v. Philippines clearly preferable to the one in SGS v. Pakistan, because “[i]t does justice to a clause that is evidentdly designed to add extra protection for the investor.”64 B.2. Respondent is liable for breaches of obligations assumed via BeritechThe jurisdiction of the ICSID Tribunal is to be extended to obligations assumed by entities which act on behalf of Respondent 50. The issue of attribution is elaborated in respective parts of this memorandumial (§§ 57 – 65). However, the obligation arising out of Article 10 of the BIT is international 57 Schwebel: On Whether the Breach, pp. 434 – 435 58 SGS v. Pakistan, § 167 59 VCLT, Article 53; cf. Noble Ventures, § 55 60 SGS v. Pakistan, § 168 61 SGS v. Philippines, § 126 62 Vivendi Annulment, § 105 63 Eureko, §§ 244 – 260; Noble Ventures, §§ 46 – 62; Fedax, § 29 64 Schreuer: Travelling the BIT Route, p. 255 27 obligation, therefore, the principles of attribution are operative.65 Article 4(1) of the ILC Articles on Responsibility states that “[t]he conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions.” It is commented that “[i]t is irrelevant for the purposes of attribution that the conduct of a State organ may be classified as “commercial” or as acta iure gestionis.”66 51. Accordingly, the tribunal in Nykomb v. Latvia acknowledged as covereddeclared – by virtue of the umbrella clause in Article 10(1) of the ECT – its jurisdiction over a breach of contract between the investor and a wholly owned state enterprise.67 In Eureko, independent legal personality of Polish State Treasury did not preclude liabilitythe tribunal´s competence to adjudge of the host state responsible for the breach of the umbrella clause.68 Similarly, the tribunal in Noble Ventures stated that “this Tribunal cannot do otherwise than conclude that the respective contracts [. …] were concluded on behalf of the Respondent and are therefore attributable to the Respondent for the purposes of [the umbrella clause].”69 B.3. The scope of the umbrella clause is wide enough to encompass the breach of the JV Agreements 52. Article 10 of the BIT is imperative and Claimant asserts that the wording “any obligation with regard to investment” obliges Respondent to honor all legal commitments it has assumed with regard to investment, notwithstanding the nature they could posses. As the tribunal in SGS v. Philippines stated the term “any obligation” – used in applicable Switzerland-Philippines BIT70 as well as in the Beristan-Opulenta BIT “is capable of applying to obligations arising under national 65 Shaw: International Law, p. 785; ILC Articles on Responsibility, Articles 4 – 9; Immunity of Special Rapporteur, §§ 62, 87; Genocide Convention Case, § 385 66 ILC Articles on Responsibility, p. 41, § 7 67 Nykomb v. Latvia, p. 31, § 4.1 68 Eureko, § 260 69 Noble Ventures, § 86 70 Switzerland-Philippines BIT, Article X(2) 28 law, e.g. those arising from a contract.”71 The scope of application of the umbrella is not restricted to obligations of a specific kind,72 as the state practice also shows.73 53. Although some tribunals proposed that the scope of umbrella clause should be limited only to sovereign acts of the host state (the administrative contracts) whereas purely commercial obligations are not covered,74 or it should be limited to significant interference of government or public agencies75 , this opinion is not preferable.76 The umbrella clause may be applied both to obligations of administrate nature and to obligations of commercial nature. The BIT expressly states that the state has a duty to observe any obligation it assumed. 54. Distinction between obligations of administrative and commercial nature – although sometimes recognized – has no basis in the relevant texts of BITs and, as remarked the tribunal in Noble Ventures, distinction between commercial and sovereign acts of the host state is not manageable in practice, therefore should have only a little relevance.77 Also the tribunal in Siemens v. Argentina rejected distinction between different types of investment contracts since it found no basis for such a distinction in wording “any obligations” and in the definition of investment.78 55. Claimant suggests the tribunal not to restrict the scope of the umbrella clause. References to abstract concepts, such as distinction between acta iure imperii and acta iure gestionis, has no methodological power of persuasion for it has no basis in modes of interpretation according to Article 31 of VCLT.79 The jurisdiction of the tribunal to 71 SGS v. Philippines, § 115 72 SGS v. Philippines, § 118; Noble Ventures, § 51; Eureko, §§ 257 – 258 73 Note of German Government to Parliament concerning 1959 BIT between Germany and Pakistani; cited in Alenfeld: Investitionsförderungsverträge der BDRD, p. 97 74 SGS v. Pakistan, § 172; Joy Mining, §§ 78 – 79 75 CMS Award, §§ 302 – 303 76 Schreuer: Travelling the BIT Route, p. 255; Wälde: The Umbrella Clause, p. 225 77 Noble Ventures, § 82 78 Siemens Award, § 206 79 Dolzer & Schreuer, p. 161 29 decide whether the umbrella clause was violated is not affected by the nature of the breached contract or intention of the party in breach. 30 MERITS C. Respondent committed material breach of the JV Agreement and therefore violated its international obligations 56. In order to hold a State responsible for a breach of a contract on the international plane by virtue of so-called umbrella clause, there must be a contract between the foreign investor and the State. C.1. Contract with Beritech – the JV Agreement – can be deemed as a contract with State, therefore covered by “umbrella clause” 57. Although the JV Agreement was concluded between Claimant and Beritech, obligations assumed by Beritech may be attributed to Respondent by the general international rules of attribution as recognized in Articles 4 and 8 of the ILC Draft Articles on Responsibility. 58. Article 4(1) says that “[t]he conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions [emphasis added].“ From the Commentary we can read that “the term is one of extension, not limitation, as is made clear by the words ´or any other functions.´“ Commentary follows that “these functions may involve, e.g. the giving of administrative guidance to the private sector;.”80 and that “[i]t is irrelevant for the purposes of attribution that the conduct of a State organ may be classified as “commercial” or as acta iure gestionis.”81 59. Acts of Beritech are attributable to Beristan especially by virtue of Article 8 as Respondent owns 75 % of shares in Beritech which renders him a controlling entity which may determine actions of controlled Beritech independently from the fragmented minority. Commentary to Article 8, referring to the principle of effectiveness of international law, considers it “necessary to take into account […] the 80 ILC Articles on Responsibility, p. 41, § 6, fn.110 81 Ibid., p. 41, § 7 31 existence of a real link between the person or group performing the act and the State machinery.“82 In respect of corporations, it follows that when „the State was using its ownership interest in or control of a corporation specifically in order to achieve a particular result, the conduct in question has been attributed to the State.”83 It is the Claimant´s contention that Beritech was guided by Respondentthe State to achieve a buy-out of the Televative´s interest against the terms of the JV Agreement. 60. Due to the attribution rule, the tribunal in Nykomb v. Latvia84 acknowledged as covered by the umbrella clause a contract between the investor and a wholly owned state enterprise. In Eureko v. Poland, independent legal personality of Polish State Treasury did not preclude liability of the host state for the breach of the umbrella clause.85 The way in which each state chooses to divide the work between its subdivisions is without relevance, as was affirmed in SwemBalt v. Latvia.86 These tribunals interpreted the umbrella clause without any limitation. 61. Claimant encourages the Tribunal to follow the examples given in Nykomb and Eureko. Broad interpretation fits as most convenient to the object and purpose of the BIT and is simply justified by the rules of attribution relevant also to other treaty standards.87 62. Claimant may also rely on other awards which applied more restricted attitude to the issue of attribution. According to SGS v. Pakistan, “obligation may be assumed by the host state or its subdivisions or legal representatives thereof, if their acts are under the international law on state responsibility attributable to the host state.”88 82 Ibid., p. 47 83 Ibid, p. 48 84 Nykomb v. Latvia, pp. 29 -31, § 4.2 85 Eureko, §§ 115 – 134 86 SwemBalt, § 37 87 EnCana, §§ 154, 158 88 SGS v. Pakistan, § 166 32 63. As stated in Consortium L.E.S.I.-DIPENTA v. Algeria, a contract may be attributed to the host state where the government exercises important influence over the entity and was to some extent involved in the contract negotiations.89 Respondent guarantees compliance with Beritech´s obligations under the JV Agreement. It is hardly probable that respondent did not have an influence on the negotiations of the JV Agreement, as it actually co-signed the contract.90 64. The tribunal in Noble Ventures v. Romania recognized an obligation assumed by a state ownership fund as covered by umbrella clause as it had granted governmental powers.91 65. Respondent may argue that domestic rules on separate personality should apply. Claimant argues, however, that these rule may be applicable in pure contract claims based on widely formulated arbitration clause in the BIT. But only in those where an umbrella clause is absent. In umbrella clause claims “the issue is one of interpretation of the scope of a treaty obligation.”92 In the latter cases the international rules on attribution would apply.93 C.2. Respondent violated the BIT as it has unlawfully prevented Claimant from peaceful completion of his contractual duties 66. The Claimant is under the obligation not to breach the confidentiality of the matters connected with the Sat-Connect project. Respondent undertook the role of guarantor of the Beritech´s obligations. The basic purpose of the JV Agreement was to ensure the rights and obligations of the parties during the development and deployment of the Sat-Connect project. The Claimant has invested in the Project with an expectation of a large-scale profit and expected to valorize its know-how and experience. Completion of the project was of its highest interest. 89 Consortium L.E.S.I.-DIPENTA, § 19 90 Annex 2 to the Minutes (Uncontested Facts), § 3 91 Noble Ventures, § 79 – 80 92 Newcombe & Paradell, p. 465 93 Newcombe & Paradell, p. 465; further see Maffezini Jurisdiction, §§ 71 – 89; Maffezini Award, §§ 46 – 57; Consortium RFCC, §§ 34 – 40 33 67. The JV Agreement should have served, among other issues, to establish sanctions for breaches of the obligations of respective parties and to set down mechanisms for ensuring that disputes would be settled and alleged breaches would be equitably investigated and, in case of finding a violation, redressed. C.2.(i) Breach of State Contracts entered into with foreigners under Customary International Law 68. Also general international law deals with unlawful state interferences into the contracts between a State and a foreign party. Breaches of such contracts of certain quality makes the State responsibility of international wrongful act. Sir Gerald Fitzmaurice citing from the unpublished United Kingdom counter-pleading in the arbitral (third) phase of the Ambatielos case94 concluded that: “[i]t is generally accepted that, so long as it provides remedies in its Courts, a State is only directly responsible, on the international plane, for facts involving breaches of contract, where a breach is not a simple breach [.…] but involves an obviously arbitrary or tortious element, e. g. a confiscatory breach of contract – where the true basis of international claim is the confiscation, rather than the breach per se [emphasis original].”95 69. In the present case the Tribunal actually deals with a breach committed by the State which has the result of confiscation of Televative´s interest in the joint-venture. 70. A position that only certain breaches of contracts can hold a State responsible is espoused by other authorities as well. E. g. Restatement (third) on Foreign Relations Law of the United States in § 712 providesUS Foreign Relations Restatement – for instance - provides that “[a] state is responsible under international law for injury resulting from [.…] a repudiation or breach by the State of a contract with a national of another State.”96 A commentary follows that a State is responsible for a breach “if it 94 Ambatielos case 95 Fitzmaurice: Scholar as Judge, pp. 64 – 65 96 Restatement (Third), § 712 34 is discriminatory […] or if it is akin to an expropriation in that the contract is repudiated or breached for governmental rather than commercial reasons […]”97 71. To further support the argument, the issue cannot be separated from the firmly established principle of international law that a State cannot, on the international level, plead a lawfulness under its national law of the act which is wrongful under international law to defend itself.98 72. There is an extensive list of international arbitral authorities supporting the conclusion that a use of sovereign governmental powers to abrogate a contract gives rise to responsibility under international law.99 73. To conclude, even in absence of the BIT, under general international law a State is responsible “if it commits not any breach, but an arbitrary breach, of a contract between that State and an alien.”100 Beristan acted in an arbitrary way and, as argued hereinafter, has violated not only general international law, but especially its obligations under the BIT. C.2.(ii) Umbrella clause operate on the two distinct levels, beside a jurisdictional role, it provides a substantive standard 74. It is submitted that so-called umbrella clause operates on two distinct levels. First, it confers a jurisdiction upon the tribunal, as was the case in SGS v. Philippines. And secondly, it provides also a substantive standard of protection. “This is the case when state interferes by using its sovereign powers in the contract with effect of defeating the specific undertakings which were by state given to the investor.”101 75. The Tribunal in Sempra addressed the issue with utmost clarity: 97 Schwebel: On Whether the Breach, p. 429 98 ILC Articles on Responsibility, p. 36 99 Shufeldt; Orinoco Case; International Fisheries case; Texaco v. Libya; Revere Copper; Aramco 100 Schwebel: On Whether the Breach, p. 434 101 McLachlan, Shore & Weiniger, p. 117; further see El Paso, § 81; Sempra Award, § 310 35 “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 power could effect.”102 76. This interpretation is to be followed as it is applicable to the present factual background and gives a rationale to the existence of the umbrella clause in the BIT. 77. Some commentaries even suggest that umbrella clauses protect an investor´s contractual rights against “any interference which might be caused by either a simple breach of contract or by administrative or legislative acts.“103 UNCTAD Series privide that, „[s]uch a provision is included in a BIT in order to avoid the uncertainty under general international law whether such breaches of contract constitute infringements of international law.“104 78. Claimant submits that the facts constitute a material breach of the JV Agreement in the terms of international law, which subsequently, by virtue of the Article 10 of the BIT, constitutes a violation of the BIT. The existence of the umbrella clause (Article 10) in the BIT has a rationale of providing the investor with more security, “it is a safeguard against excesses of a host state and elevates violations of the contracts to the level of international law.”105 As stated hereinbefore, general international law provides a protection of some contracts against a certain acts of a State, umbrella clause in a treaty then resolves an uncertainty accompanying customary international law in the particular area. Therefore any other interpretation given to the umbrella clause than the one described above would deprive it of any meaningful content. 102 Sempra Award, § 310; further see Impregilo, § 260 103 Dolzer & Stevens, p. 82 104 UNCTAD Series, State Contracts, p. 19 105 Dolzer & Schreuer. p. 155 36 C.2.(iii) Respondent committed a breach of Article 10 of the BIT by assisting to Beritech with its unreasonable invocation of Article 8 of the JV Agreement 79. First of all, Beristan acting in its sovereign power used military force (“CWF”) against Claimant.106 Beritech at the time of the expulsion did not have a valid legal title which would stem from a judicial or arbitration proceedings. Thus Respondent unlawfully prevented Claimant from completion of its contractual duties under the JV Agreement connected with a substantial future profit, notwithstanding whether the Beritech´s claim under the Clause 8 of the JV Agreement was valid or not. 80. For the reasons mentioned above (existence of the undertakings of State vis-a-vis the investor) Claimant contents that the Article 10 of the BIT is applicable, and was infringed. When Claimant did not agree with the invocation of Clause 8 the matter should have been resolved by the means prescribed by the JV Agreement. Beristan was under the obligation not to act until the Beritech´s claim gained a legal basis. This did not happen and Respondent acting in its sovereign power assisted in the abuse of the Article 8 in the way contrary to its international legal obligation, because under Article 10 of the BIT Respondent “shall constantly guarantee any obligations it has assumed with respect [...]” to this investment. The cause of action is founded exclusively on the dispute settlement mechanism of the BIT, independently from whether there is another dispute concerning the JV Agreement. 81. Furthermore, the BIT has its object and purpose to “establish favourable conditions for improved economic co-operation between the two countries, and especially for investment by nationals of one Contracting Party in the territory of the other [...].”107 Specifically with respect to the umbrella clause, tribunal in SGS v. Philippines affirmed, that “[i]t is legitimate to resolve uncertainties in its interpretation so as to favour the protection of covered investments.”108 82. Moreover, with respect to the SGS cases, it is Claimant´s contention, that in the present situation we do not deal with a mere failure to pay a debt, an essential contract 106 Annex 2 to the Minutes (Uncontested facts), § 11 107 Annex 1 to the Minutes (The BIT), Preamble 108 SGS v. Phillipines, § 166 37 claim, but with a State interference by the use of its sovereign powers, namely by internationally wrongful use of military. This makes the Televative´s claims utterly treaty-based. C.2.(iv) Applicability of domestic law to the breach of Article 10 of the BIT in the view of Article 14 of the BIT 83. Claimant is aware, in the language of the Vivendi Annulment decision, that a breach of contract and a breach of treaty are two “different questions, each of which to be determined according to its own proper or applicable law law—in the case of the BIT, by international law; in the case of the […] Contract, by the proper law of the contract.“109 84. However, Claimant submits that the Article 14 of the BIT, so-called preservation of rights clause, “does not permit (a contrario) application of less favorable provisions of the host state domestic law.”110 Article 42(1) first sentence of the ICSID Convention requires the application of rules of law agreed by the parties. The Article 14 can be then deemed as such an agreement.111 Only in the absence of such an agreement the Tribunal can turn to the second sentence of Article 42(1) of the ICSID Convention. 85. Furthermore, notwithstanding the proper law of the contract, Claimant submits that the breach of Article 10 of the BIT must be assessed in the terms of international law, as the substantive standard of umbrella clause is an international legal standard which can be breached even without a violation of provisions of the proper law of the contract. C.2.(v.) Analysis of the breach under the domestic law 86. Alternatively, even when the Tribunal decides to apply the national law. Claimant must point out, that in the course of invoking the buy-out clause, the provisions of Beristian law were also violated times. 109 Vivendi Annulment 110 Middle East Cement, § 87; Goetz v. Burundi, §§ 95, 99 111 Ibid. 38 87. Beristian law requires that a decision of the board of directors of the company issued in violation of company´s bylaws is null and void.112 In the Sat-Connect´s board of directors, a quorum is obtained with the presence of 6 members.113 With respect to the requirement of quorum, it must be complied with it at the moment of voting.114 From the uncontested facts is evident that Alice Sharpeton left the meeting when informed about the invocation of buy-out clause and refused to participate.115 Therefore, the quorum was not satisfied at the time of voting and the board´s decision on buy-out shall be held null and void. D. Respondent violated its obligations under the international law, especially the substantive standards of protection under the BIT D.1. Respondent violated fair and equitable treatment standard 88. According to Article 2.(2) of the BIT respondent “shall at all times ensure treatment in accordance with customary international law, including fair and equitable treatment [hereinafter as “FET”] […] of the investments of the [Claimant].” This standard is viewed by some commentators as a substantive standard of the most general nature among investment treaty standards.116 Others agree with possible overlaps with other standards, but distinguish it from relative standards, such as e.g. national treatment.117 D.1.(i) Respondent did not satisfy the prescription of the customary international law of the standard of due process 89. Claimant submits that, without the need of resolving the debate whether FET goes beyond the minimum standard of treatment under customary international law, it is accepted, that the both standards include due process requirement,118 which was not complied with. 112 Second Clarification Requests (6 August 2010) Responses, § 200 113 Annex 2 to the Minutes (Uncotested Facts), § 4 114 Second Clarification Requests (6 August 2010) Responses, § 200 115 Annex 2 to the Minutes (Uncotested Facts), § 10 116 Mann: British Treaties, p. 241, further see 1992 World Bank Guidelines 117 Vasciannie: Fair and Equitable Treatment, p. 99 118 Sornarajah, p. 329 – 330; Newcombe & Paradell, p.... ; Dolzer; Reinisch (eds.) 39 90. Claimant did not have an opportunity to react on or defend himself against the action of CWF. Acts of military are attributable to the state. In the context of investment treaty arbitration, a violation of due process standard was found for instance when the decision was based on inappropriate considerations.119 It applies to all forms of government decision making in which host state decisions affect the rights of the investor.120 Expulsion without prior notice from state-agencies can be paralleled with the revocation of license without notice and without opportunity for the licensee to be heard121 or with the situation when government failed to notify of the seizure of property.122 In all these cases tribunals found a breach of fair and equitable treatment. 91. When the executive decision to dispatch the CWF to expel the Claimant´s personnel was made, Claimant should have been heard and should have had an opportunity to react on false charges by Beritech. Moreover, the executive order was issued as a result of an incitement of a private entity under the municipal law of Beristan – Beritech. 92. But what strikes the due process principle the most is the fact that the executive order, cannot be appealed.123 Therefore Claimant had no legal protection whatsoever under the law of Beristan. D.1.(ii) Respondent´s acts amount to arbitrariness prohibited under general international law with respect to the aliens and their property 93. Respondent´s measures based on a mere possibility of alleged material breach of the JV Agreement without any substantiation and without a legal title confirming such breach are to be viewed as arbitrary. General prohibition of arbitrariness is incorporated to the FET by virtue of Article 2.(2). of the BIT. 119 TECMED, §§ 92 – 94 120 Newcombe & Paradell, p. 244 121 Metalclad , § 91 122 Middle East Cement, § 143 123 Second Clarification Requests (6 August 2010) Responses, § 228 40 94. Arbitrariness falls within the concept of abuse of rights and this concept is an expression of the principle of good faith,124 codified in Article 26 of VCLT and accepted by many authorities.125 In connection with property it is explicitly expressed in Article 17 paragraph (2) of the Universal Declaration of Human Rights, which – being considered as a part of customary international law126 – provides that “no one shall be arbitrarily deprived of his property [emphasis added]“ (emphasis added). Universal Declaration is considered to be a part of customary international law.127 95. Widely cited definition of arbitrariness appears in the ELSI case, where the ICJ opined, that “[a]rbitrariness is not so much something opposed to a rule of law, as something opposed to the rule of law [.…]. It is wilful disregard of due process of law, an act which shocks, or at least surprises a sense of judicial propriety.”128 In connection with Iinvestment Ttreaty Aarbitration, jurisprudence to date confirmed that state conduct arbitrary under international law is a breach of FET.129 In CMS Award tribunal stated that “[t]he standard of protection against arbitrariness and discrimination is related to that of fair and equitable treatment. Any measure that might involve arbitrariness or discrimination is in itself contrary to fair and equitable treatment.“130 D.1.(iii) Respondent has violated Claimant´s legitimate investment-backed expectations as it had acted contrary to its contractual undertakings and its international legal obligations 96. Claimant submits that its legitimate investment-backed expectations were violated by the action of CWF attributable to Respondent. Bearing in mind the international 124 Newcombe & Paradell, p. 247 125 Charter of United Nations, Article 2(2); ELSI Case, § 124, 128; U.S. Nationals in Morocco, p. 212; ILC Expulsion of Aliens; Lauterpacht, p. 298; Nuclear Tests case, § 46 126 GA resolution 1514, Article 7; GA resolution 1904, Article 11; Montreal Statement of the Assembly of Human Rights, p. 95 127 GA resolution 1514, Article 7; GA resolution 1904, Article 11; Montreal Statement of the Assembly of Human Rights, p. 95 128 ELSI Case, § 128 129 Waste Management, § 98 130 CMS v. Argentina, § 290 41 obligations Beristan has assumed under the BIT and its contractual obligations as a guarantor under the JV Agreement, Claimant, as a reasonable investor, could not have expected that it would be forcibly expelled from the Project without a due process and in the absence of a timely, orderly and substantive basis for the expulsion.131 “Legitimate expectations may be created not only by explicit undertakings on the part of the host state in contracts but also by undertakings of a more general kind. In particular, the legal framework provided by the host state […].“132 97. In the present case both explicit and general undertakings took place on the part of Beristan. 98. Legitimate expectations is closely connected with the good faith principle of customary international law, enshrined among others in the Article 26 and 31(1) of the VCLT. The imperative not violate legitimate expectation form a crucial part of FET standard. “[T]he close parallels between the requirement to fulfill ´legitimate expectations´ and the requirement to accord ´treatment´ that is ´fair and equitable´ in nature are particularly evident.”133 D.1.(iv) Breach of FET does not require impairment of the investment 99. Last but not least, Claimant submits that for a breach of FET to be found no requirement of impairment exists.134 As stated in Pope & Talbot award, “lack of forthrightness in communication or other arbitrary conduct towards the investor constitutes breach of fair and equitable treatment.”135 131 Metalclad, § 107 132 Dolzer & Schreuer, p. 104 133 Fietta: Legitimate Expectations 134 Newcombe & Paradell, p. 262 135 Pope & Talbot, § 181 42 D.2. Respondent violated so-called “non-impairment standard” according to Article 2(3) of the BIT 100. The Claimant further contents that its personnel was subjected to “unjustified or discriminatory measures.” prohibited by Article 2(3) of the BIT. It is submitted that Televative´s seconded employees were unreasonably expelled from the country, without any justifiable reason. Although Respondent may rebut this claim invoking national security defencedefense, for the arguments provided later in the memorial, Claimant contests that there was no ground for such an invocation. 101. The wording of the BIT suggests, by the use of disjunction, that it is entirely sufficient that the protected investment was impaired either by “unjustified” or “discriminatory” measures.136 The management, maintenance and enjoyment of the Claimant´s investment was unreasonably impaired without objective justification by the acts of CWF and the subsequent expulsion of the personnel. “Unjustified measures” shall be interpreted as equivalent to “unreasonable” as they both point to the measures which are “not founded on reason or fact, nor on the law.”137 It is further argued, that the term is in close relation with the general concept of arbitrariness referred to hereinbefore. (Black´s Law Dictionary to support the definition!). According to Veijo Heiskanen, unjustified or unreasonable measure are those for which “a justification or a rationale has in fact been provided [.], but there is no reasonable (or rational) relationship between the purported justification and a legitimate governmental policy.”138 An information from a project for civilian purposes, used partly by a military, can be hardly a threat to a national security. Furthermore, there are still doubts about the suitability of the system for military purposes.139 Notwithstanding, that a leak of information was a mere unsubstantiated allegation. 102. As to the relation of the standard of the non-impairment standard to FET standard, it is submitted that they do not “differ substantially.”140 “The non-impairment requirement 136 Heiskanen: Arbitrary Measures, p. 99; further see Lauder, § 219 137 Lauder, § 232 138 Heiskanen: Arbitrary Measures, p. 104; cf. Saluka Partial Award, § 461; LG&E, § 158 139 Clarification Requests (4 June) Responses, § 178 140 Saluka Partial Award, § 461 43 merely identifies more specific effects of any such violation, namely with regard to the operation, management, maintenance, use, enjoyment or disposal of the investment by the investor.”141 In the similar vein, CMS tribunal concluded any breach of the nonimpairment standard “is in itself contrary to fair and equitable treatment.”142 103. However, it is the Claimant´s contention that the main difference between FET and the non-impairment requirement is that for a breach of the former no impairment of the investment is needed to be found, contrary to the latter. D.3. Respondent had unlawfully expropriated Claimant´s investment by forcible buy-out which did not satisfied the due process requirement D.3.(i) Respondent violated its obligation under the Article 4.1 as it has subjected the Claimant´s investment to the measures which temporarily limited its joined right of ownership, control and enjoyment. 104. Respondent assumed the international legal obligation under the Article 4.(1)(1) of the BIT. According to this article “investments […] shall not be subject to any measures which might limited permanently or temporarily its joined rights of ownership, control and enjoyment, save where specifically provided by law and by judgments or orders issued by Courts or Tribunals having jurisdiction.” 105. VCLT, by which Beristan is bound, sets in its Articles 31 and 32 rules for interpretation of international treaties. According the paragraph 1) of the to Article 31(1), which must be “the point of reference,”143 “([a]) treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose [emphasis added].“ 106. It is evident from the ordinary meaning rule, that both conditions prescribed in the Article 4(1)(1) of the BIT must be satisfied cumulatively, meaning that measures applied must be prescribed by law and by judgments or orders issued by Courts or Tribunals having jurisdiction. 141 Ibid. 142 CMS Award, § 290 143 Sempra Annulment, § 188 44 107. The context in which the terms are used in the BIT points also to such interpretation, the term courts/tribunals having jurisdiction beside the Article 4 only appears in the Article 11.1.(a), & (b), referring to the dispute settlement mechanism. In the latter context they can hardly refer to an executive or administrative organ. 108. Finally, the object and purpose of the BIT can be extracted from the preamble, as was already noted. Investment protection shall then be deemed as a basic purpose. The primary rule for interpretation set out in Article 31(1) of the VCLT seems entirely sufficient in this context because it gives an unequivocal content to the term courts/tribunals having jurisdiction. 109. The executive order144 does not by any mean satisfy the prescribed conditions, however, without any doubt caused a harsh limitation of the protected rights under the BIT. The protected rights under the Article 4.(1).(1) were effectively neutralized and Claimant has no control over them anymore. 110. This argument is even more convincing when the executive order could not be appealed.145 Therefore the requirement in Article 4.(1).(1) was not satisfied even if the Tribunal espouses the interpretation that courts/tribunals having jurisdiction includes executive or administrative organs of State as well with requirement of judicial review to be available. 111. Last but not least, Beritech in its request for arbitration from 19 October 2009 “sought a declaratory relief that it properly exercised its rights under the JV Agreement.”146 Therefore the sequence of steps of Beritech and Respondent seems entirely arbitrary, as the execution took the first place and declaratory legal title was sought afterwards. 144 Clarification Requests (4 June) Responses, § 155 145 Second Clarification Requests (6 August 2010) Responses, § 228 146 Clarification Requests (4 June) Responses, § 170 45 D.3.(ii) Scope of protected rights is defined by the Article 1(1) of the BIT and covers shareholders rights, intellectual property, know how, movables and immovables 112. The definition of investment is wide enough to cover all rights which were negatively affected by the acts of Respondent. Shareholding is defined as an investment and therefore is protected. This protection extents as well to the know how or managerial skills.147 Shareholders are protected no matter if they are majority or minority.148 113. By the buy-out of the Televative´s interest the right to its shareholding was neutralized. By now Claimant cannot control, maintain or manage its investment at all. 114. Art.1.(1).(d) refers to various kinds of protected intellectual property rights. Claimant, who is a global leading enterprise in developing of new satellite communication technologies, invested in the Project a great deal of know how, goodwill and other kinds of intellectual property rights. “The Claimant alleges that the value of the intellectual property over the life of the technology would be in excess of US$ 100 million.“149 D.3.(iii) The BIT prohibits all measures tantamount to expropriation 115. Articles 4(1)(2) and 4(1)(3) of the BIT prohibit all measures having similar effects as expropriation, nationalization or requisition unless they satisfy the conditions there stated. It is evident that the compensation provided was not according the rule prescribed in Article 4(1)(3). 116. Furthermore, it is highly dubious whether the measure were taken in conformity with all legal provisions and procedures, especially for the reasons stated above (absence of due process, preservation of rights clause, seizure of assets not based on judgment or order of Court or Tribunal having jurisdiction). 147 Genin, § 324; Eureko, § 145 148 Enron Jurisdiction, § 39; CMS Jurisdiction, § 51 149 Clarification Requests (4 June) Responses, § 165 46 117. Due to the acts attributable to the government of Beristan it is evident, that the result is a total loss of the Claimant´s investment. There was a taking of the Claimant´s possession, as he was forced to hand over all the facilities of the Project, and there was an “interference with the shareholder´s rights [and] with the management´s control over or running of the enterprise.”150 118. For the expropriation to be found, the effect of the State measure are more important than the intent behind those measures.151 This view is supported by the ordinary meaning of the term “measures having similar effect,” used in Article 4(1)(2) of the BIT. The Siemens tribunal opined that “[t]he treaty refers to measures that have the effect of an expropriation; it does not refer to the intent of the State to expropriate.”152 119. The tribunal in Starret Housing stated: “It is recognized under international law that measure taken by a State can interfere with property rights to such an extent that these rights are rendered so useless that they must be deemed as have been expropriated, even though the State does not purport to have expropriated them [.…].”153 120. In the Metalclad award was held that not only an outright seizure, “but also covert or incidental interference with the use of property which has the effect of depriving the owner, in whole or in significant part, of the use or reasonably-to-be-expected economic benefit of property even if not necessarily to the obvious benefit of the host State [emphasis added].”154 121. The existence of buy-out clause in the JV Agreement does not mean that the final decision on buy-out would rest on Beritech itself, nor on the Sat-Connect board of directors, where Beritech appoints a majority of them. When a measure having the 150 Nykomb, § 120 151 Subedi, p. 121; TECMED; Azurix; Siemens; Santa Elena v. Costa Rica 152 Siemens, § 270 153 Starrett Housing, cited from Subedi, p. 123 154 Metalclad, § 103 47 effect of a complete neutralization of the Claimant´s investment is in question, Respondent was not allowed to leave it up to the private entity such is Beritech. This measure could have only been adopted by the court or tribunal having jurisdiction, only in this case the contractually agreed amount would be sufficient to fulfil Respondent´s international obligations. Otherwise, full and immediate compensation should have been paid. D.3.(iv) The facts amount to the expropriation of contractual rights not only to a breach of contract 122. As to the possibility of contractual rights to be expropriated, Reinisch opines: “If intangible assets, including contract rights, are protected property rights, then they may be subject to expropriation which, in turn, may lead to an obligation to compensate. […] The guiding principle in locating an expropriation appears to be whether a state has acted in its sovereign capacity, exercising its governmental or public power or authority.”155 123. This conclusion is supported by various arbitral awards rendered to date.156 124. In this vein, it is important to note, that expropriation is always an “inherently governmental act”157 and it must be distinguished from a mere failure to pay a debt or a breach of a contractual obligation. 125. In the current case, Claimant argues that it was expropriated by the acts of CWF, the acts of Respondent. Without this governmental assistance in dubious invocation of the buy-out clause by Beritech, which was furthermore motivated by excluding the Claimant from the Project right before its finalization for the reasons unrelated to his performance, no expropriation would take place. 126. The cumulative effect of the Government´s acts (actions of CWS) and omissions (failure of properly investigate the Beritech´s buy-out claim and to hear Claimant in 155 Reinish: Expropriation, p. 418 156 Shufeldt; Phillips v. Iran, § 75; Waste Management, §§ 160, 174; Azurix, § 315 157 Waste Management, § 168 48 accordance with due process) “de facto expropriated corporate shares in the [.] company.”158 D.3.(v.) Respondent has violated Claimant´s legitimate investment-backed expectations as it had acted contrary to its contractual undertakings and international legal obligations 127. According to the UNCTAD Series from 2007, “investment-backed expectations of the investor constitute another factor in considering whether the degree of interference with rights of ownership is substantial enough to amount to an indirect expropriation.”159 128. Legitimate expectations plays a crucial role as a guiding principle in recognizing expropriation cases. This was held by several investment awards.160 Claimant does not content that violation of investment-backed expectation shall be a sole basis for finding of expropriation, however, when accompanied by effective neutralization of the investment it should lead the Tribunal to such finding.161 129. Investor´s legitimate expectation, in respect of expropriation, were breached by a complete lack of foreseeability of the acts of State and by the unlawful assistance to the State-controlled entity, which was arguably used as an instrument to expropriate Claimant´s interest. E. Respondent cannot rely on the essential security defense (Article 9 of the BIT) as the allegation of leak of information was not substantiated to any extent 130. Essential security exception, as a subgroup of general exceptions is used increasingly among treaties and serves as a way for a state to protect its own essential security issues.162 158 Benvenuti and Bonfant v. Congo, § 758 159 UNCTAD Series, Investment Rulemaking, p. 58 160 Thunderbird Gaming, § 147; Azurix, §§ 316-322, CME, § 601, Metaldclad, §§ 103, 107 161 TECMED, §§ 149 – 150; Metalclad, §§ 103, 107 162 Newcombe & Paradell, pp. 488 – 499 49 E.1.Although Article 9 of the BIT is self-judging, it does not exclude any kind of scrutiny 131. From the formulation of Article 9 of the BIT, we can establish that this is a selfjudging type of exception clause. Wording of Article 9 uses the same language and exactly same formulation as 2005 USA-Uruguay BIT163 which stipulates that: „Nothing in this Treaty shall be construed: 1. to require a Party to furnish or allow access to any information the disclosure of which it determines to be contrary to its essential security interests; or 2. to preclude a Party from applying measures that it considers necessary for the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.” 132. In type of language used, it also resembles to an Article XXI of GATT, specifically Article XXIb which states: „Nothing in this Agreement shall be construed: (a) to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests [.]” 133. The crucial identification sign of self-judging clause is a use of wording "it considers"164 or "it determines" or "the . State considers"165 relating to the phrase "necessary for the protection of its essential security interests". 134. The discourse whether the self-judging clause is a valid legal instrument can be traced back to 1959 to the Norwegian Loans Case in which Judge Hersch Lauterpacht considered that a self-judging exception to a declaration under Article 36(2) ICJ Statute (the so-called Optional Declaration) was in his words: 163 US-Uruguay BIT, Article 18 164 Compare to Canada Model BIT, Article 10; US Model BIT Treaty , Article 18 165 Compare to Mutual Assistence Convention, Article 2(c) 50 “invalid as lacking in an essential condition of validity of a legal instrument. This is so for the reason that it leaves to the party making the Declaration the right to determine the extent and the very existence of its obligation. [.] It is not a legal instrument. It is a declaration of a political principle and purpose.”166 135. But since the consent is the fundamental basis for the binding nature of international law, we can hardly view self-judging clauses as invalid, and this BIT, both parties displayed consent with the wording of treaty. 136. It could be argued that an interpretation of Article 9 having regard only to the ordinary meaning of the phrase “it considers” would seem to reserve to the State invoking the exception the whole discretion to decide whether the criteria of it are met. However, when taking into account the object and purpose of the BIT it is obvious that any interpretation of this exception must also take into account the effect that an exception such as Article 9 has on investor and his rights guaranteed by the BIT. E.1.(i) Self-judging clauses are reviewable by the principle of good faith 137. Also Article 31(1) of the VCLT, 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"167 138. Therefore even the self-judging clause is reviewable under the principle of good faith. To date there is no case that stood before ICSID regarding the self-judging clauses. Claimant argues, that CMS Annulment decision, nor Sempra Annulment cannot be applied here, as they reflect the entirely different essential security clause, which lacks the “it considers” language, although the responding State made submissions regarding self-judging nature of the Article XI of the US-Argentine BIT.168 At the same time, we can infer from the cases concerning Argentine crisis, that self-judging clauses 166 Lauterpacht in Norwegian Loans case, pp. 44, 48 167 VCLT, Article 26 168 CMS Annulment, § 112 51 are at least reviewable by the good faith test.169 There is a wide consent that a selfjudging clause itself is not a bar to a jurisdiction, rather it limits the standard of review.170 139. Among commentators several types of standard by the principle of good faith exist. Hahn considers that the principle of good faith “requires parties who are in a special legal relationship to refrain from dishonesty, unfairness and conduct that takes undue advantage of another”.171 He considers the principle to be closely related to the principle of abuse of rights, which provides that the exercise of a right for the sole purpose of evading an obligation or of causing injury is unlawful. 140. Schloemann & Ohlehoff take the view that: “A requirement of a minimum degree of proportionality between the threatened individual security interest and the impact of the measure taken on the common interest in the functioning of the multilateral system can be deduced from both the term ‘essential’ and, more generally, the function of Article XXI in the WTO system as a remedy for serious hardships emanating from outside the WTO’s immediate regulatory realm.”172 141. In realm of ICJ, similar test as that of Hahn is being proposed in a separate declaration in Djibouti vs France173 The majority judgment found that the appropriate standard of review to apply to self-judging clauses was that of good faith.174 In his declaration, Judge Keith found the appropriate standard of review to be based on the related concepts of good faith, abuse of rights and misuse of power. Claimant also points out 169 CMS Annulment, §§ 122 – 123; Sempra Annulment, § 168 – 170; LG&E, § 214; Enron, § 339 170 Hahn: GATT´s Security Exception; Schloemann, Ohlhoff: Constitutionalization and WTO; Akande, Williams: International Adjudication on National Security, pp. 399 - 402; Reiterer: National Security Exception, pp. 201 – 202; WTO Cuban Liberty Act; Nicaragua-Colombia Territorial and Maritime Dispute 171 Hahn: GATT´s Security Exception, p. 558 172 Schloemann & Ohlhoff: Constitutionalization and WTO, p. 424 173 Judge Keith in Djibouti v. France 174 See Djibouti v. France, § 205 52 that in Gabčíkovo-Nagymaros Project was opined that the good faith obligation in Article 26 of the VCLT "obliges the parties [to a treaty] to apply it in a reasonable way and in such a manner that its purpose can be realized.”175 E.1.(ii) The interpretation arguing for impossibility of review is against the object and purpose of the BIT 142. Claimant believes that the self-judging clause itself is an object of cognizance of Tribunal. The interpretation of self-judging clause that it cannot be reviewed would create a legal mechanism of extreme uncertainty between parties and potential investors, therefore defeating the purpose and object of treaty regime. This can be compared to a vehicle which breaks are so big, that they impede the movement of such vehicle, or a ship which lifeboats that are so heavy, that they make the ship sink to the ocean floor. 143. Opulentia-Beristan BIT does contain a self-judging language, but it does not contain an additional formulation use for example in India-Singapore CECA which provides that any such security measure taken on the discretion on Party is non-justiciable.176 Therefore even if this provision of treaty is self-judging, the Party invoking the Article 9 must still act in good faith and this good faith is subject to cognizance of tribunal. 144. In LG&E, suggested that good faith review would not differ significantly from the substantive review undertaken by the Tribunal in the context of the non-self judging clause in Article XI of the United States-Argentine BIT.177 145. Self-judging clause is not a sort of escape tunnel, opt-out, exit-valve or break. It exist so that a Party to a treaty have an option to not to fulfil its obligations that would (potentially) harm its essential interests, in our case the protection of its own essential security interests. 146. It does not make sense to believe that under wide interpretation this clause would not frustrate the object and purpose of investment treaty, which is to 175 Gabčíkovo-Nagymaros Project, § 142 176 India-Singapore CECA, Annex 5 177 LG&E, § 214 53 “establish favourable conditions for improved economic co-operation between the two countries, and especially for investment by nationals of one Contracting Party in the territory of the other Contracting Party; and acknowledging that offering encouragement and mutual protection to such investments based on international agreements will contribute towards stimulating business ventures that will foster the prosperity of both Contracting Parties.178 147. Wide and extended interpretation of self-judging clause will have detrimental effects on motivation of state to fulfil its duties under any BIT. Exceptions to investment treaty obligations shall be interpreted narrowly and this is consistent with their object and purpose. This opinion was upheld by tribunals in Canfor Corporation et al. case, referring to the GATT,179 and especially in Enron case, where was taught, that “any interpretation resulting in an escape route from the obligations defined cannot be easily reconciled with that object and purpose. Accordingly, a restrictive interpretation of any such alternative is mandatory.”180 E.1.(iii) The actual facts cannot justify an actual existence of a threat to essential security 148. In our case, we can hardly consider a newspaper interview with Beristian governmental official to be a fully-potent stimuli capable of launching invocation of essential security treaty exception. 149. Claimant agrees the state has the discretion to determine the measures to be taken to combat or alleviate the conditions endangering its own essential security. However this discretion is subject to some limitations. Firstly and most importantly the State must act in good faith.181 178 Annex 1 to the Minutes (The BIT), Preamble 179 Canfor Corporation Case, § 187 180 Enron Award, § 331 181 VCLT, Article 26 54 150. In this case, Claimant holds belief that the act of invoking Article 9 of the BIT was unjustified and Respondent acted in bad faith and commit abuse of rights chiefly because of these reasons: 151. Leak of information was not substantiated to any extent, no ther evidence beside the newspaper article, and moreover the source for this information was that of Beristian origin. This puts the whole authority and verity of such information into question. 152. Involvement of the CWF182 rather than police forces in the process of the expropriation and the clearing of the premises of the Sat-Connect project which was based on executive order which cannot be appealed, raises suspicion that Respondent did so to evade a due process of law. Also, there is question whether the sole removal of personal was adequate measure to counter alleged threat to essential security. By compelling the buy-out (via controlling share in Beritech) Respondent seems to let its economic motives trump the essential security of Beristan. 153. Last but not least, suitability of the system for the military purposes is still doubtful.183 The system shall be used mainly for civilian purposes184 and no particular portion is designed to be used exclusively for army.185 Therefore it is difficult to reasonably infer any threat to national security, even if the alleged leak had taken place. Notwithstanding the existence of the confidentiality clause in the JV Agreement. This clause has an economic rationale, common to regular commercial contracts, it has not a national security purpose. not Also Respondent didn't even try to carry out investigation into matter and abide with and acted on the sole newspaper Article 182 Annex 2 to the Minutes (Uncontested facts), § 11 183 Clarification Requests (4 June) Responses, § 178 184 Ibid. 185 Clarification Requests (4 June) Responses, § 121 55 MERITS 154. For the reasons stated above, Claimant asks the Tribunal to adjudge and declare that: A The tribunal has jurisdiction over Claimant’s claims, properly formulated as claims based on violation of the BIT, and that jurisdiction is not ousted by Clause 17 of the JV Agreement. B. The tribunal has jurisdiction over Claimant’s claims arising under the JV Agreement by virtue of Article 10 of the BIT. C. Respondent materially breached the JV Agreement by preventing Claimant from completing its contractual duties and improperly invoking Clause 8 of the JV Agreement. D. Respondent’s actions or omissions amounted to violation of fair and equitable treatment standard and non-impairment standard, and as well amounted to expropriation and breach of Claimant’s legitimate expectations. E. Respondent is not entitled to rely on Article 9 of the BIT as a defence to Claimant’s claims. Respectfully submitted, on September 19, 2010 Brownlie & Partners, representing the Claimant 56