TEAM PETREN

FOREIGN DIRECT INVESTMENT

INTERNATIONAL MOOT COMPETITION

24-26 OCTOBER 2013

________________________________________________________________________

GERMAN INSTITUTION OF ARBITRATION

CASE NO. XX

UNDER THE UNCITRAL ARBITRATION RULES ADMINISTERED BY THE DIS

BETWEEN:

CONTIFICA ASSET MANAGEMENT THE STATE OF

CORP. RURITANIA

CLAIMANT/INVESTOR RESPONDENT/PARTY

MEMORIAL FOR CLAIMANT

  i  

TABLE OF CONTENTS

LIST OF AUTHORITIES ............................................................................................................. IV  LIST OF LEGAL SOURCES ....................................................................................................... VI  LIST OF ABBREVIATIONS .................................................................................................... XIII  STATEMENT OF FACTS ............................................................................................................. 1  ARGUMENTS ................................................................................................................................ 5  PART ONE: JURISDICTION AND ADMISSIBILITY ................................................................ 5  

I.   THE TRIBUNAL HAS JURISDICTION UNDER THE BIT OVER THE SUBMITTED CLAIMS, AND THOSE CLAIMS ARE ADMISSIBLE. .................................................................................................. 5  

A.   Under the BIT, the Tribunal has jurisdiction over the submitted claims. ....................... 5  i.   Claimant satisfies the nationality requirement under the BIT. ..................................... 5  ii.   The submitted claims meet the jurisdictional requirement under the BIT. .................. 6  

B.   The submitted claims are admissible. ............................................................................. 7  i.   The UNCITRAL Rules permit tribunals to deliberate on questions of jurisdiction but not admissibility in the preliminary stages of arbitration proceedings. ............................. 7  ii.   Whether there was an abuse of process is a question of motive, which must be reserved for the merits phase of the proceedings. .............................................................. 8  iii.   Claimant’s acquisition of FBI shares formed part of Contifica Group’s prospective corporate planning and was not an abuse of process. ........................................................ 8  

II.   THE TRIBUNAL HAS JURISDICTION OVER THE SUBMITTED CLAIMS BASED ON RESPONDENT’S BREACH OF THE AGREEMENT, AND THOSE CLAIMS ARE ADMISSIBLE. ......................................... 10  

A.   The Tribunal has jurisdiction over the submitted claim based on the State Fund’s breach of the Agreement. ...................................................................................................... 10  

i.   BIT Article 6.2 brings Respondent’s failure to meet a contractual obligation within the ambit of the BIT. .......................................................................................................... 10  ii.   The State Fund’s actions and obligations are attributable to Respondent. .............. 13  

B.   The submitted claims based on Respondent’s breach of the Share Purchase Agreement are admissible. ....................................................................................................................... 16

 PART TWO: MERITS ................................................................................................................. 17  

III.   RESPONDENT HAS VIOLATED THE FAIR AND EQUITABLE TREATMENT STANDARD UNDER BIT ARTICLE 2.1(B). .................................................................................................................. 17  

A.   The FET clause refers to an autonomous standard broader than the customary international law minimum. .................................................................................................. 17  B.   Respondent has violated Claimant’s reasonable and legitimate expectations by dramatically changing the legal environment of the investment in breach of representations made to Claimant. ................................................................................................................. 18  

  ii  

C.   Respondent failed to provide Claimant with transparency and due process in enacting the Reyhan ordinance. ........................................................................................................... 19  D.   Respondent has treated Claimant’s investment arbitrarily. .......................................... 20  

IV.   RESPONDENT HAS TREATED CLAIMANT’S INVESTMENTS IN AN ARBITRARY AND DISCRIMINATORY MANNER IN VIOLATION OF BIT ARTICLE 3.1(C). ....................................... 21  

A.   The Reyhan ordinance arbitrarily impaired Claimant’s management, maintenance, use, enjoyment, and disposal of FREEBREW. ............................................................................ 22  B.   The MAB Act’s bottle-size restriction and the Reyhan ordinance discriminatorily impaired Claimant’s management, maintenance, use, enjoyment, and disposal of FREEBREW. ........................................................................................................................ 22  C.   Respondent cannot justify its actions under BIT Article 3.2 as taken for public security and order. .............................................................................................................................. 23  

V.   RESPONDENT HAS INDIRECTLY EXPROPRIATED CLAIMANT’S INVESTMENTS IN RURITANIA, IN VIOLATION OF BIT ARTICLE 4.1. ............................................................................................... 24  

A.   The MAB Act’s trademark and bottle-size restrictions indirectly expropriate Claimant’s Ruritania-registered trademarks. ........................................................................ 24  

i.   Respondent’s measures permanently affect Claimant. ............................................... 26  ii.   Respondent’s measures substantially deprive Claimant of control over its trademarks. ....................................................................................................................... 26  iii.   Respondent’s measures interfere with Claimant’s legitimate, investment-backed expectations. ...................................................................................................................... 27  

B.   Together, the effects of Respondent’s trademark and bottle-size restrictions and its Reyhan labeling requirement are equivalent to the expropriation of Claimant’s investment in FBI. ................................................................................................................................... 28  

i.   The cumulative effect of Respondent’s measures on Claimant is permanent. ............ 29  ii.   The cumulative effect of Respondent’s measures is to deprive Claimant of its investment. ........................................................................................................................ 29  iii.   The cumulative effect of Respondent’s measures is to interfere with Claimant’s legitimate, investment-backed expectations. ..................................................................... 30  

C.   Respondent’s measures are not justifiable under BIT Article 4.1. ................................ 31  i.   The expropriation was not for the public benefit. ....................................................... 31  ii.   The expropriation was discriminatory. ...................................................................... 32  iii.   The expropriation did not conform with due process. .............................................. 33  iv.   The expropriation was not against compensation. ................................................... 34  

VI.   RESPONDENT HAS VIOLATED BIT ARTICLE 2.1(B)’S FULL PROTECTION AND SECURITY GUARANTEE. .............................................................................................................................. 34  VII.   CLAIMANT IS ENTITLED TO RECOVER MORAL DAMAGES BECAUSE THE ARREST AND TREATMENT OF MESSRS. GOODFELLOW AND STRAW VIOLATED THE FULL PROTECTION AND SECURITY CLAUSE OF THE BIT. .................................................................................................. 35  

  iii  

A.   The treatment of Messrs. Goodfellow and Straw violates BIT Article 2(b). ................ 35  B.   Customary international law supports the award of moral damages under the full protection and security principle. .......................................................................................... 36  

i.   The executives’ detention constituted exceptional circumstances. ............................. 37  ii.   Claimant should be awarded moral damages because the executives suffered damage. ............................................................................................................................. 38  iii.   Tribunals have awarded moral damages even when the damage could not be quantified. ......................................................................................................................... 38  

VIII.   LOSS OF SALES BY CLAIMANT’S SUBSIDIARIES CONSTITUTES RECOVERABLE DAMAGES UNDER THE BIT AND CUSTOMARY INTERNATIONAL LAW. .......................................................... 39  

A.   Claimant is entitled to compensation for expropriation of its investments. .................. 39  B.   Claimant is entitled to reparation and compensation for lost profits under customary international law. ................................................................................................................... 41  C.   Claimant mitigated its losses and is entitled to full recovery. ....................................... 42

 REQUEST FOR RELIEF ............................................................................................................. 44  

  iv  

LIST OF AUTHORITIES BOOKS Crawford James Crawford, The International Law Commission’s Articles on State

Responsibility (2002).

Dolzer & Schreuer Rudolf Dolzer & Christoph Schreuer, Principles of International Investment Law (2008).

Drahozal Christopher R. Drahozal & Christopher S. Gibson, The Iran-U.S. Claims Tribunal at 25: The Cases Everyone Needs to Know for Investor-State & International Arbitration (2007).

Gilson Anne Gilson LaLonde & Jerome Gilson, 1-1 Gilson on Trademarks (2010).

Khalilian Sayyed Khalil Khalilian, The Law of International Arbitration: A Jurisprudential Study on the Iran-United States Claims Tribunal (2000).

Marboe Irmgard Marboe, Calculation of Compensation and Damages in International Investment Law (2009).

McLachlan Campbell McLachlan, Laurence Shore & Matthew Weiniger, International Investment Arbitration: Substantive Principles (2007).

Paulsson Jan Paulsson & Zachary Douglas, Indirect Expropriation in Investment Treaty Arbitration, in ARBITRATING FOREIGN INVESTMENT DISPUTES: PROCEDURAL AND SUBSTANTIVE LEGAL ASPECTS (Nobert Horn & Stefan Kroll eds., 2004).

Rosenne Shabtai Rosenne, International Courts and Tribunals, Jurisdiction and Admissibility of Inter-State Applications, in MAX PLANCK ENCYCLOPEDIA OF PUBLIC INTERNATIONAL LAW (Rüdiger Wolfrum ed., 2012 online edition).

Salacuse Jeswald Salacuse, The Law of Investment Treaties (2010).

Schill Stephan Schill & Robyn Briese, “If the State Considers”: Self-Judging Clauses in International Dispute Settlement, 13 MAX PLANCK YEARBOOK OF UNITED NATIONS LAW 61 (A. von Bogdandy and R. Wolfrum eds. 2009).

Vandevelde Kenneth J. Vandevelde, United States Investment Treaties: Policy and Practice (1992).

  v  

ARTICLES Burke-White William W. Burke-White & Andreas von Staden, Investment Protection in

Extraordinary Times: The Interpretation and Application of Non-Precluded Measures Provisions in Bilateral Investment Treaties, 48 VA. J. INT’L L. 307 (2008).

de Brabandere Eric de Brabandere, ‘Good Faith’, ‘Abuse of Process’ and the Initiation of International Treaty Claims, 3.3 J. OF INT’L DISP. SETTLEMENT, 609 (2012).

Dolzer Rudolf Dolzer, Indirect Expropriations: New Developments?, 11 N.Y.U. ENVTL. L.J. 64 (2002).

Fietta Stephen Fietta, Expropriation and the “Fair and Equitable” Standard: The Developing Role of Investor's “Expectations” in International Investment Arbitration, 23 J. OF INVESTMENT ARBITRATION 275 (2006).

Fitzmaurice Gerald Fitzmaurice, The Law and Procedure of the International Court of Justice, 1951–4: Questions of Jurisdiction, Competence and Procedure, 34 Brit. Y.B. Int'l L. 1 (1958).

Parish Matthew T. Parish, Annalise K. Newlson & Charles B. Rosenberg, Awarding Moral Damages to Respondent States in Investment Arbitration, 29 BERKELEY J. OF INT’L L. 225 (2011).

Schreuer Christoph Schreuer, Calvo’s Grandchildren: The Return of Local Remedies in Investment Arbitration, 4 LAW PRAC. INT’L CTS TRIBUNALS 1, 5 (2005).

Treise Deborah M. Treise, Ronald E. Taylor & Ludmilla G. Wells, How Recovering Alcoholics Interpret Alcoholic-Beverage Advertising, 12 HEALTH MARKETING QUARTERLY 125 (1995).

Wälde Thomas Wälde, Energy Charter Treaty-based Investment Arbitration 5 J WORLD INVEST TRADE 390–1 (2004).

Van Harten Gus Van Harten & Martin Loughlin, Investment Treaty Arbitration as a Species of Global Administrative Law, 17(1) EUR. J. INT’L L. 137 (2006).

Varaiya Nikhil P. Varaiya & Kenneth R. Ferris, Overpaying in Corporate Takeovers: The Winner's Curse, 43(3) FIN. ANALYSTS J. 64, 68 (1987).

MISCELLANEOUS Accenture Accenture, Achieving High Performance in the Alcoholic Beverages

Industry (2007).

OED Oxford English Dictionary (2d ed. 1989).

  vi  

UNCTAD UNCTAD, Bilateral Investment Treaties 1995-2006: Trends in Investment Rulemaking (2007).

LIST OF LEGAL SOURCES

ARBITRAL DECISIONS ADC ADC Affiliate Limited and ADC & ADMC Management Limited v. The

Republic of Hungary, ICSID Case No. ARB/03/16, Award (2 October 2006).

ADM Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. The United Mexican States, ICSID Case No. ARB (AF)/04/5, Award (21 November 2007).

AES AES Corporation v. The Argentine Republic, ICSID Case No. ARB/02/17, Decision on Jurisdiction (26 April 2005).

AES Summit AES Summit Generation Limited and AES-Tisza Erömü Kft v. The Republic of Hungary, ICSID Case No. ARB/07/22, Award (23 September 2010).

Aguas Aguas del Tunari, S.A., v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent's Objections to Jurisdiction (21 October 2005).

AIG AIG Capital Partners, Inc. and CJSC Tema Real Estate Company Ltd. v. The Republic of Kazakhstan, ICSID Case No. ARB/01/6, Award (7 October 2003).

Alpha Alpha Projecktholding GMBH v. Ukraine, ICSID Case No. ARB/07/16, Award (20 October 2010).

Arif Mr. Franck Charles Arif v. Republic of Moldova, ICSID Case No. ARB/11/23, Award (8 April 2013).

Asian Ag. Products Asian Agricultural Products Ltd. v. Republic of Sri Lanka, ICSID Case No. ARB/87/3, Award (27 June 1990).

Azurix Azurix Corp. v. The Argentine Republic, ICSID Case No. ARB/01/12, Award (14 July 2006).

Banro Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v. Democratic Republic of the Congo, ICSID Case No. ARB/98/7, Award of the Tribunal (1 September 2000).

Bayindir Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009).

  vii  

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

BG Group BG Group Plc. v. The Republic of Argentina, UNCITRAL, Final Award (24 December 2007).

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

C.S.O.B. Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction (24 May 1999).

Cargill Cargill, Incorporated v. United Mexican States, ICSID Case No. ARB(AF)/05/2, Award (18 September 2009).

Cementownia Cementownia “Nowa Huta” S.A. v. Republic of Turkey, ICSID Case No. ARB(AF)/06/2, Award (17 September 2009).

Chevron Chevron Corporation (U.S.A.) and Texaco Petroleum Corporation (U.S.A.) v. Republic of Ecuador [II], PCA Case No. 2009-23, Third Interim Award on Jurisdiction and Admissibility (27 February 2012).

CME CME Czech Republic B.V. v. The Czech Republic, UNCITRAL, Partial Award (13 September 2001).

CMS CMS Gas Transmission Company v The Argentine Republic, ICSID Case No ARB/01/08, Award (12 May 2005).

Continental Casualty Continental Casualty Company v. The Argentine Republic, ICSID Case No. ARB/03/9, Award (5 September 2008).

Corn Products Corn Products International, Inc. v. United Mexican States, ICSID Case No. ARB (AF)/04/1, Decision on Responsibility (15 January 2008).

Desert Line Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award (6 February 2008).

Deutsche Bank Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/2, Award (31 October 2012).

Duke Energy Duke Energy Electroquil Partners & Electroquil S.A. v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award (18 August 2008).

EDF EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentine Republic, ICSID Case No. ARB/03/23, Award (11 June 2012).

El Paso Award El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Award (31 October 2011).

  viii  

El Paso, DJ El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Decision on Jurisdiction (27 April 2006).

EnCana EnCana Corporation v. Republic of Ecuador, LCIA Case No. UN3481, UNCITRAL, Award (3 February 2006).

Enron Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Award (22 May 2007).

Eureko Eureko B.V. v. Republic of Poland, Ad Hoc Tribunal, Partial Award (19 August 2005).

Fedax Fedax N.V. v. The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction (11 July 1997).

Feldman Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award (16 December 2002).

Gemplus Gemplus S.A., SLP S.A., Gemplus Industrial S.A. de C.V. v. The United Mexican States, ICSID Case No. ARB(AF)/04/3, Award (16 June 2010).

Generation Ukraine Generation Ukraine, Inc. v. Ukraine, ICSID Case No. ARB/00/9, Award (16 September 2003).

Glamis Gold Glamis Gold, Ltd. v. The United States of America, UNCITRAL, Award (8 June 2009).

Inmaris Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine, ICSID Case No. ARB/08/8, Excerpts of Award (1 March 2012).

Joy Mining Joy Mining Machinery Ltd v. The Arab Republic of Egypt, ICSID Case No ARB/03/11, Award on Jurisdiction (6 August 2004).

Lanco Lanco International Inc. v. The Argentine Republic, ICSID Case No. ARB/97/6, Preliminary Decision: Jurisdiction of the Tribunal (8 December 1998).

Lauder Ronald S. Lauder v. The Czech Republic, UNCITRAL, Final Award (3 September 2001).

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

Lemire, DJL Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability (14 January 2010).

LG&E Award LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Award (25 July 2007).

  ix  

LG&E, DL LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability (3 October 2006).

Link-Trading Link-Trading Joint Stock Company v. Department for Customs Control of the Republic of Moldova, UNCITRAL, Final Award (18 April 2002).

Loewen Loewen Group, Inc. and Raymond L. Loewen v. United States of America, ICSID Case No. ARB(AF)/98/3, Award (26 June 2003).

M.E. 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).

Maffezini Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Decision of the Tribunal on Objections to Jurisdiction (25 January 2000).

Metalclad Metalclad Corporation v. The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (30 August 2000).

Methanex Methanex Corp. v. United States of America, UNCITRAL, First Partial Award (7 August 2002).

Mobil Mobil Corporation, Venezuela Holdings BV, Mobil Cerro Negro Holding, Ltd, Mobil Venezolana de Petroleos Holdings, Inc, Mobil Cerro Negro, Ltd, and Mobil Venezolana de Petroleos, Inc v Bolivarian Republic of Venezuela, ICSID Case No ARB/07/27, Decision on Jurisdiction (10 June 2010).

Mondev Mondev International Ltd. v. United States of America, ICSID Case No. ARB(AF)/99/2, Award (11 October 2002).

MTD MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7, Award (25 May 2004).

National Grid National Grid plc v. The Argentine Republic, UNCITRAL, Award (3 November 2008).

Noble Ventures Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award (12 October 2005).

Nykomb Nykomb Synergetics Technology Holding AB v. The Republic of Latvia, SCC, The Arbitration Institute of the Stockholm Chamber of Commerce, Award (16 December 2003).

Occidental (2004) Occidental Exploration and Production Company v. The Republic of Ecuador, LCIA Case No. UN3467, Final Award (1 July 2004).

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Occidental (2012) Occidental Petroleum Corporation and Occidental Exploration and Production Company v. The Republic of Ecuador, ICSID Case No. ARB/06/11, Award (20 September 2012).

Oil Fields Oil Fields Of Texas, Inc. v. Iran et al., 1 Iran-U.S. C.T.R. 347 (1982).

Pac Rim Pac Rim Cayman LLC v. The Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent’s Jurisdictional Objections (1 June 2012).

Pan American Pan American Energy LLC and BP Argentina Exploration Company v. The Argentine Republic, ICSID Case No. ARB/03/13, Decision on Preliminary Objections (27 July 2006).

Paushok Sergei Paushok, CJSC Golden East Company and CJSCVostokneftegaz Company v. The Government of Mongolia, UNCITRAL, Award on Jurisdiction and Liability (28 April 2011).

Phoenix Phoenix Action Ltd v. Czech Republic, ICSID Case No. ARB/06/5, Award (15 April 2009).

Pope & Talbot Pope & Talbot Inc. v. Government of Canada, UNCITRAL, Interim Award (26 June 2000).

PSEG Award PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, ICSID Case No. ARB/02/5, Award (19 January 2007).

PSEG, DJ PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, ICSID Case No. ARB/02/5, Decision on Jurisdiction (4 June 2004).

Railroad Dev. Railroad Development Corporation v. Republic of Guatemala, ICSID Case No. ARB/07/23, Award (29 June 2012).

Rompetrol The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Decision on Jurisdiction and Admissibility (18 April 2008).

S.D. Myers S.D. Myers, Inc. v. Government of Canada, UNCITRAL, Partial Award (13 November 2000).

Saba Saba Fakes v Turkey, ICSID Case No ARB/07/20, Award (14 July 2010).

Salini v. Jordan Salini Costruttori S.p.A. and Italstrade S.p.A. v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/02/13, Decision on Jurisdiction (9 November 2004).

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

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Saluka Saluka Investments BV (The Netherlands) v. The Czech Republic, UNCITRAL/PCA, Partial Award (17 March 2006).

Santa Elena Compañiá del Desarrollo de Santa Elena, S.A. v. The Republic of Costa Rica, ICSID Case No. ARB/96/1, Final Award (17 February 2000).

Sempra Award Sempra Energy International v. Argentine Republic, ICSID Case No. ARB/02/16, Award (28 September 2007).

Sempra, DOJ Sempra Energy International v. Argentine Republic, ICSID Case No. ARB/02/16, Decision on Objections to Jurisdiction (11 May 2005).

SGS v. Pakistan SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to 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 of the Tribunal on Objections to Jurisdiction (29 January 2004).

Siemens Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Award (17 January 2007).

Sistem Sistem Mühendislik Inşaat Sanayi ve Ticaret A.Ş. v. Kyrgyz Republic, ICSID Case No. ARB(AF)/06/1, Award (9 September 2009).

Spyridon Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award (7 December 2011).

Tecmed Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2, Award (29 May 2003).

Telenor Telenor Mobile Communications A.S. v. The Republic of Hungary, ICSID Case No. ARB/04/15, Award (13 September 2006).

Tza Yap Shum Señor Tza Yap Shum v. The Republic of Peru, ICSID Case No. ARB/07/6, Award (7 July 2011).

Ulysseas Ulysseas, Inc. v. The Republic of Ecuador, UNCITRAL, Final Award (12 June 2012).

Unglaube Marion Unglaube and Reinhard Unglaube v. Republic of Costa Rica, ICSID Case Nos. ARB/08/1 and ARB/09/20, Award (16 May 2012).

Vannessa Vannessa Ventures Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)04/6, Award (16 January 2013).

Vivendi Award Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Award (27 November 2000).

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Vivendi Annulment Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment (10 August 2010).

Waste Mgmt. II Waste Management, Inc. v. United Mexican States (“Number 2”), ICSID Case No. ARB(AF)/00/3, Award (30 April 2004).

INTERNATIONAL COURT CASES Chorzow Factory Factory at Chorzow (Germ. v. Pol.), 1928 P.C.I.J. (ser. A) No. 17 (Sept.

13).

ELSI Elettronica Sicula Spa (ELSI) (U.S. v. It.), 1989, I.C.J. 15 (July 20).

Nicaragua Military and Paramilitary Activities in and Against Nicaragua (Nicar. v. U.S.), 1986 I.C.J. 14 (June 27).

Serbian Loans Payment of Various Serbian Loans Issued in France (Fr. v. Yugo.), 1929 P.C.I.J. (ser. A) No. 20 (July 12).

TREATIES Ecuador-Canada BIT Agreement on the Promotion and Reciprocal Protection of Investments,

Ecuador-Canada, 29 April 1996.

Italy-Jordan BIT Agreement on the Promotion and Protection of Investments, Jordan-Italy, 21 July 1996.

Swiss-Pakistan BIT Agreement on the Promotion and Reciprocal Protection of Investments, Swiss-Pakistan, 11 July 1995.

VCLT Vienna Convention on the Law of Treaties, opened for signature 23 May 1969 (entered into force 27 January 1980).

MISCELLANEOUS ICSID Rules ICSID Regulations and Rules (as amended effective April 10, 2006).

ILC Articles International Law Commission, Draft articles on Responsibility of States for Internationally Wrongful Acts, with commentaries (2001).

UNCITRAL Rules UNCITRAL Arbitration Rules (as revised in 2010). G.A. Res. 65/22.

U.S. 2012 Model BIT United States 2012 Model Bilateral Investment Treaty.

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LIST OF ABBREVIATIONS

¶ / ¶¶ Paragraph(s)

Art(s). Article(s)

BIT Bilateral Investment Treaty

CAM Contifica Asset Management Corp.

Cl. Clause

CQ Clarification Question

FBI Freecity Breweries Inc.

FET Fair and Equitable Treatment

FPS Full Protection and Security

HRI Human Health Research Institute

ICC International Chamber of Commerce

ICJ International Court of Justice

ICSID International Centre for Settlement of Investment Disputes

p. / pp. Page / Pages

PO Procedural Order

R Record

SC Statement of Claim

SD Statement of Defense

UNCITRAL United National Commission on International Trade Law

  1  

STATEMENT OF FACTS

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

incorporated under the laws of the State of Cronos.1 Claimant is a member of Contifica Group,

an international conglomerate.2 Contifica Group’s parent company, Contifica Enterprises Plc, is

incorporated in Prosperia.3

2. Respondent is the Republic of Ruritania (“Ruritania” or “Respondent”).4 The State

Property Fund of Ruritania (“State Fund”), a state establishment incorporated in Ruritania,

owned Freecity Breweries Inc. (“FBI”), the country’s largest brewery, until 2008. 5

“FREEBREW” is FBI’s most famous and popular beer brand.6 The beer’s unique flavor comes

from Reyhan, a local plant.7 FREEBREW is sold in iconic 0.8l bottles.8

3. Following the financial crisis, the State Fund publicly requested offers to sell FBI.9 On

30 June 2008, Contifica Spirits S.p.A. (“Contifica Spirits”), a wholly owned subsidiary of

Contifica Enterprises Plc, won the tender.10 Contifica Spirits and the State Fund entered into a

share purchase agreement (the “Agreement”) whereby Contifica Spirits acquired all shares in

FBI for US$300,000,000.11 The agreement included the guarantee that no FBI products pose

higher health risks than other alcoholic beverages.12 The agreement was completed despite the

Ministry of Health and Social Security’s (the “Ministry”) knowledge that Reyhan might pose

greater risks.13

                                                                                                               1 SC, ¶1. 2 SC, ¶4. 3 SC, ¶4. 4 SC, ¶1. 5 SC, ¶¶3, 5. 6 SC, ¶5. 7 SC, ¶5. 8 SC, ¶5. 9 SC, ¶6. 10 SC, ¶7. 11 SC, ¶7. 12 SC, ¶29. 13 SC, ¶16.

  2  

4. Immediately following the acquisition, Contifica Group integrated FBI into its global

procurement network, with various group subsidiaries supplying bottles, aluminium cans, yeast,

hops, and barley to FBI.14

5. On 17 March 2010, Contifica Spirits transferred its shares in FBI to Claimant for

US$5,000.15 Contifica Spirits also assigned its Ruritania-registered trademarks—including the

FREEBREW trademark and bottle design—to Claimant.16 These measures were part of an intra-

group restructuring conducted in pursuit of the most investor-friendly environment.17

6. On 20 November 2010, the Ruritanian parliament—with the recently elected anti-

alcohol New Way party in the majority18—adopted the Regulation of Sale and Marketing of

Alcoholic Beverages Act (“MAB Act”).19 The MAB Act restricts the marketing and sale of

alcoholic beverages and requires that trademarks on beer bottles be displayed in the same color

and font as other text on the label and prohibits selling alcohol in containers larger than 0.5l.20

7. Because of the MAB Act, FBI cannot use FREEBREW and related trademarks on its

beer bottles. 21 FBI also cannot use its iconic 0.8l FREEBREW bottle and had to reconfigure its

production line to accommodate 0.5l bottles.22 As a result, FBI’s sales dropped by close to 60%

during the first half of 2011 and the company suffered net income losses of US$10,000,000.23

8. On 15 June 2011, the Human Health Research Institute (HRI), a Ruritanian

government-funded institution, released a report stating that consumers of FREEBREW have a

higher risk of cardiac complications due to the effects of Methyldioxidebenzovat found in

Reyhan concentrate.24 The Ministry knew of these results since a 2005 interim report.25 Without

                                                                                                               14 SC, ¶8. 15 SC, ¶9; SD, ¶7. 16 SC, ¶9. 17 SC, ¶9; Exhibit RX1, R.24. 18 SD, ¶6. 19 SC, ¶10. 20 SC, ¶¶11-12. 21 SC, ¶12. 22 SC, ¶12. 23 SC, ¶13. 24 SC, ¶14.

  3  

consulting the affected parties, the Ministry adopted an ordinance requiring all products

containing Reyhan to be labeled with the warning that consumption of such products “may lead

to higher risk of cardiac complications.”26

9. On 20 August 2011, FBI wrote to the Ministry, pointing out a number of serious flaws

that an independent scientist had identified in the HRI report.27 Despite these serious flaws, the

Ministry refused to suspend its labeling requirement and conduct further research.28

10. Following the Reyhan labeling ordinance, FBI’s sales fell significantly, forcing it to

terminate over half of its employees.29 FBI could no longer comply with the financial covenants

established by its lenders, who have now enforced their security rights over FBI’s shares,

tangible assets, and any damages Claimant may receive in this arbitration.30

11. On 1 December 2011, the Ruritanian Prosecutor’s Office began investigating Messrs

Goodfellow and Straw, executives of FBI and Contifica Group, on suspicion that they had bribed

State Fund officials. 31 Under Ruritanian law, the executives could travel pending

investigations.32 However, on 23 December 2011, Ruritanian police detained the executives at

the airport.33 Although the arrest violated Ruritanian law,34 the executives were held for nearly

two weeks without explanation.35

12. Ruritanian police passed a video of the detention to Free TV, Ruritania’s most popular

TV channel,36 and a spokesman for the Prosecutor’s Office declared that “[Ruritanian law

enforcement agencies] will not let people responsible for corruption escape investigation.”37

                                                                                                                                                                                                                                                                                                                                                                     25 SC, ¶16. 26 SC, ¶15. 27 SC, ¶17. 28 SC, ¶17. 29 SC, ¶17. 30 SC, ¶21. 31 SC, ¶22. 32 SC, ¶23. 33 SC, ¶23. 34 SD, ¶17. 35 SC, ¶25. 36 SC, ¶24. 37 SC, ¶24.

  4  

Despite these pronouncements, the investigation was terminated in June 2012 for want of

evidence.38 The executives did not receive an apology or compensation for their treatment.39

13. On 10 December 2011, Claimant informed Respondents that its measures violated

multiple provisions of the Treaty of Mutual Promotion and Protection of Foreign Investment

between The Republic of Ruritania and the State of Cronos (“the BIT”).40 Claimant repeatedly

tried, but failed, to amicably resolve its dispute with Respondent.41

14. On 30 September 2012, Claimant filed a request for this arbitration under the

UNCITRAL Rules before the German Institution for Arbitration, by invoking the dispute

resolution provision in BIT Article 8.42

15. Claimant submits that (1) Respondent’s actions violate the fair and equitable treatment

guarantee found in BIT Article 2.1. Claimant further submits that (2) Respondent has impaired

Claimant’s investment in an arbitrary and discriminatory manner in violation of BIT Article

3.1(c) and (3) unlawfully expropriated Claimant’s investments in Ruritania in violation of BIT

Article 4.1. Independent consultants have found that Claimants’ damages from these measures

total US$380,000,000.43

16. Claimant requests an additional US$1,000,000 in moral damages for the detention of

Messrs. Goodfellow and Straw in violation of the full protection and security principle in BIT

Article 2.1.

                                                                                                               38 SC, ¶24. 39 SC, ¶24. 40 SC, ¶27. 41 SC, ¶27. 42 SC, ¶26. 43 SC, ¶30.

  5  

ARGUMENTS

PART ONE: JURISDICTION AND ADMISSIBILITY I. THE TRIBUNAL HAS JURISDICTION UNDER THE BIT OVER THE SUBMITTED CLAIMS, AND

THOSE CLAIMS ARE ADMISSIBLE.

17. Claimant submits that (A) under the BIT, the Tribunal has jurisdiction over the

submitted claims. Furthermore, (B) these claims are admissible.

A. Under the BIT, the Tribunal has jurisdiction over the submitted claims. 18. The BIT vests jurisdiction in the Tribunal over “[d]isputes concerning Investments

between a Contracting State and an Investor of the other Contracting State under this Treaty.”44

Claimant invites the Tribunal to interpret the BIT in light of VCLT Article 31, in good faith and

in accordance with the ordinary meaning of the terms of the treaty in its context and in light of its

object and purpose. The BIT provides for the Tribunal’s jurisdiction since (i) Claimant satisfies

the BIT’s nationality requirement and (ii) its claims meet the BIT’s jurisdictional requirement.

i. Claimant satisfies the nationality requirement under the BIT. 19. The Tribunal only has jurisdiction over disputes between a Contracting State and an

Investor of the other Contracting State.45 Claimant submits that Claimant and Respondent meet

this nationality requirement. Ruritania and Cronos are both Contracting States. Claimant is an

Investor within the meaning of BIT Article 1.3, which defines the term investor as:

any entity which is established in accordance with, and recognised as a legal person by the law of that Contracting State, . . . which is the owner, possessor or shareholder of an Investment in the other Contracting State.46

An investment, under Article 1.1, is “every asset which is directly or indirectly invested in

accordance with laws and regulations” of the host state by “Investors of the other Contracting

                                                                                                               44 BIT, Art.8.1. 45 BIT, Art.8.1. 46 BIT, Art.1.3.

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State.”47 Article 1.1 specifically lists “shares of companies and other kinds of interest in

companies” and “intellectual property rights, in particular copyrights and related rights, patents,

utility-model patents, industrial designs, trademarks, plant variety rights” as asset categories, the

ownership of which will constitute an investment.48 Claimant is an Investor because (a) it was

duly incorporated under the laws of Cronos and (b) owns FBI shares and trademarks, which fall

under the BIT’s definition of an “Investment.”49 Thus, the BIT permits Claimant to submit

disputes concerning its investments in Ruritania to arbitration.

ii. The submitted claims meet the jurisdictional requirement under the BIT. 20. The BIT only confers jurisdiction over “[d]isputes concerning Investments.”50 As noted

in the previous paragraph, Claimant’s shares in FBI and its Ruritania-registered trademarks are

investments within the meaning of the BIT. Claimant requests that the Tribunal interpret the

word “concern” according to its ordinary meaning—“to relate to”—pursuant to VCLT Article

31.51 Claimant requests the Tribunal to find Respondent’s violation of multiple BIT provisions,

including Article 2.1(b) on fair and equitable treatment; Article 3.1(c) on arbitrary or

discriminatory measures; and Article 4.1 on unlawful expropriation, as they relate to Claimant’s

investments. Thus, Claimant meets the BIT’s jurisdictional requirements.

21. Respondent asserts that the consideration Claimant paid for FBI’s shares was

insufficient to characterize the purchase as a bona fide investment.52 However, the BIT’s plain

meaning supports protecting Claimant’s investment. BIT Article 1.1 states that the Investment

must be an asset that is “directly or indirectly invested in accordance with laws and regulations”

of the host state.53 Respondent has made no showing that Claimant’s investment was not made in

accordance with the laws and regulations of Ruritania. There is no requirement in the BIT that

the putative investment must qualify as “bona fide” or “substantial.” Other tribunals have

rejected the requirement that an investment be bona fide.54

                                                                                                               47 BIT, Art.1.1. 48 BIT, Art.1.1. 49 SC, ¶¶2, 9. 50 BIT, Art.8.1. 51 OED; VCLT, Art.31. 52 SD, ¶7. 53 BIT, Art.1.1. 54 Saba, ¶112.

  7  

22. Moreover, Respondent fails to show that Claimant’s investment was not bona fide. The

nominal price paid for an investment does not necessarily disprove an investment’s

authenticity.55 Acquisitions may be made for a price below the real cost for various reasons. For

example, when a large portion of the costs and benefits of an investment arise after the

transaction, the upfront purchase price typically reflects a small amount of the total value and is

accompanied by contractually obligated expenditure on the investment, as well as royalty and tax

payments.56 Contifica Spirits could have grossly overpaid the State Fund in the first instance, but

decided not to transfer the burden of overpayment to Claimant.

B. The submitted claims are admissible. 23. Claimant submits that (i) under the UNCITRAL Rules, admissibility questions belong

to the merits phase. Even if such questions could be determined during the preliminary phase, (ii)

whether there was an abuse of process, as Respondent alleges, is highly fact-dependent and

cannot be resolved at this preliminary phase. Even if the Tribunal were to prematurely opine on

the admissibility of the claims based solely on the known facts, (iii) Claimant’s FBI share

acquisition was part of prospective corporate planning by Contifica Group, and is thus

permissible.

i. The UNCITRAL Rules permit tribunals to deliberate on questions of jurisdiction but not admissibility in the preliminary stages of arbitration proceedings.

24. Under Articles 16 and 19 of the UNCITRAL Rules, Respondent’s objections to the

admissibility of the submitted claims should be treated as issues relating to the merits phase of

these proceedings.57 Article 16 states that “[t]he arbitral tribunal may rule on its own jurisdiction,

including any objections with respect to the existence or validity of the arbitration agreement.”58

25. The tribunal in Methanex concurred with this interpretation, finding that the

UNCITRAL Rules bestow on the tribunal “the express power to rule on objections that it has ‘no

                                                                                                               55 Vannessa, ¶122. 56 Vannessa, ¶122. 57 Chevron, ¶4.91. 58 UNCITRAL Rules, Art.16.

  8  

jurisdiction,’ . . . [but] confers no separate power to rule on objections to ‘admissibility.’” 59

Likewise, the tribunal in Chevron noted that determining admissibility “is an exercise belonging

to the merits phase of arbitration, to be decided by one or more awards on the merits.” 60

ii. Whether there was an abuse of process is a question of motive, which must be reserved for the merits phase of the proceedings.

26. Even if the Tribunal were to delve into admissibility at this stage, it has the authority to

dismiss a claim based only on grounds not related to the merits of the case.61 Whether there was

an abuse of process is a question of motive, which is highly fact-dependent and cannot be

resolved without delving into the merits.62

27. In Rompetrol Group, the tribunal determined that an abuse of process argument is “one

that seeks essentially to impugn the motives behind the Claimant’s request for arbitration” and

therefore could not be assessed during the preliminary stage.63 Likewise, in Pac Rim, the tribunal

stated that the answer to whether a change of nationality can become an abuse of process would

depend on the particular facts and circumstances of each case.64 In Saluka, the tribunal noted that

the allegation of the claimant’s ulterior motive could not be the basis for the tribunal’s decision

to refuse to exercise its jurisdiction.65

28. Whether the Claimant’s conduct constitutes an abuse of process, as Respondent alleges,

is a highly fact-dependent question that the Tribunal cannot assess until Claimant has the chance

to fully present its case during the merits phase.

iii. Claimant’s acquisition of FBI shares formed part of Contifica Group’s

prospective corporate planning and was not an abuse of process.

29. Even if the Tribunal were to opine on the question of motive at this stage, there was no

abuse of process and the submitted claims are admissible. Prospective nationality planning is                                                                                                                59 Methanex, ¶107. 60 Chevron, ¶4.91. 61 Fitzmaurice, p.12; Rosenne, ¶2, reviewed by Brabandere, p.613. 62 Sempra, DOJ, ¶109. 63 Rompetrol, ¶115. 64 Pac Rim, ¶2.99. 65 Saluka, ¶236.

  9  

acceptable, but claims seeking remedies for past grievances are not.66 Prospective nationality

planning occurs when corporate re-structuring takes place before the facts leading to a dispute

occur or before a dispute arises.67 The tribunal in Pac Rim, for example, held that a change of

nationality can become an abuse of process

when the relevant party can see an actual dispute or can foresee a specific future dispute as a very high probability and not merely as a possible controversy [...]. The answer in each case will, however, depend upon its particular facts and circumstances . . . 68

30. The current dispute was not foreseeable as a specific future dispute until the draft of the

MAB Act was introduced to the parliament on 20 June 2010, three months after the FBI share

transfer.69 Even then, the passage of the act was uncertain and only when the Ruritanian

parliament adopted the MAB Act in November 2010, eight months after the FBI share transfer,

was the dispute foreseeable with a very high probability.70 While the New Way party had already

won the election before the FBI shares were transferred, the party’s tough stance towards the

marketing and sale of alcohol alone did not portend how unfairly and arbitrarily Respondent

would have acted against Claimant in a purported attempt to address those issues. Therefore,

Claimant submits that there has been no abuse of process precluding the Tribunal’s jurisdiction

to hear its claims.

31. Respondent’s assertion that the sole purpose of Claimant’s acquisition of FBI shares

and trademarks was to commence this arbitration is false. Cronos’ favorable tax environment

was another important factor behind the transfer of assets to Claimant.71 The Agreement also

shows that the sole objective of the FBI share transfer was to bring an existing dispute to

investment arbitration. The Agreement’s assignment clause, which allows the assignment of

rights or obligations arising from the purchase of FBI shares from Contifica Spirits to any

Contifica company, suggests that the group specifically contemplated that FBI shares could be

moved within the group from the moment it purchased the shares from the Fund. The tribunal in

Aguas del Tunari confirmed that strategic changes in corporate structure to obtain the protection

                                                                                                               66 Compare Mobil with Banro, Phoenix, Cementownia. 67 Dolzer & Schreuer, p.145. 68 Pac Rim, ¶2.99. 69 PO 2, CQ 26. 70 SC, ¶10. 71 SC, ¶10.

  10  

of a BIT do not amount to fraud or abuse of corporate form, acknowledging that corporations

commonly and legitimately relocate in search of more favorable “taxation or the substantive

law . . . including the availability of a BIT.”72 Therefore, the submitted claims are admissible.

II. THE TRIBUNAL HAS JURISDICTION OVER THE SUBMITTED CLAIMS BASED ON RESPONDENT’S BREACH OF THE AGREEMENT, AND THOSE CLAIMS ARE ADMISSIBLE.

32. Claimant submits that (A) the Tribunal has jurisdiction over claims arising out of the

State Fund’s breach of its 2008 Agreement with Contifica Spirits and that (B) such claims are

admissible before the Tribunal.

A. The Tribunal has jurisdiction over the submitted claim based on the State Fund’s breach of the Agreement.

33. The present claim meets the jurisdictional requirement that the dispute be under the BIT,

as (i) BIT Article 6.2 is an umbrella clause that transforms a Contracting State’s breach of a

contract with an Investor into a breach of the BIT. Additionally, (ii) the actions and obligations

of the Fund are attributable to Respondent, making the Fund’s failure to meets its obligations

under the Agreement a breach of BIT Article 6.2.

i. BIT Article 6.2 brings Respondent’s failure to meet a contractual obligation within the ambit of the BIT.

34. The BIT requires that a claim must be “under this Treaty.”73 This requirement is met

through BIT Article 6.2, in which Respondent promised to “fulfill any other obligations it may

have entered into with an Investor or an Investment of the other Contracting State.”74 This

provision of the BIT is an “umbrella clause,” which tribunals and commentators have recognized

as “imposing an international treaty obligation on host countries” to respect agreements entered

into with investors.75 Such clauses “extend the jurisdiction of tribunals to violations of contracts”

even if the BIT limits arbitration to claims arising under the treaty.”76 Claimant therefore submits

that Respondent violated BIT Article 6.2 by failing to fulfill its obligation under the Agreement.

                                                                                                               72 Aguas, ¶330. 73 BIT, Art.8.1. 74 BIT, Art.6.2. 75 Salacuse, p.275. 76 Dolzer & Schreuer, p.246.

  11  

35. Claimant invites the Tribunal to interpret the text of Article 6.2 in light of VCLT Article

31, which is the established understanding of how a tribunal should approach an umbrella

clause. 77 In Article 6.3, the language “shall fulfill” makes the provision mandatory and

unqualified. The use of “any other obligations” indicates that this provision was intended to

create substantive obligations for the Contracting States additional to those in other sections of

the BIT. Finally, “entered into” suggests obligations in the form of mutual agreements, such as

those encapsulated in a contract. The words used are explicit—the plain language of Article 6.2

states that it should encompass the Agreement. Furthermore, tribunals, such as those in Noble

Ventures, SGS v. Philippines, and Eureko, have interpreted similarly worded umbrella clauses to

encompass the contractual breaches of respondents. 78

36. Reading Article 6.2 in light of its object and purpose also supports such a conclusion.79

The BIT’s preamble states that it “intend[s] to create favorable conditions for Investments” and

“recogniz[es] that the encouragement and protection of such investments are essential.”80

Umbrella clauses play an important role in achieving this purpose, as they serve to mollify

investor concerns that a state will abandon its commitments to the investor after the investment is

made.81

37. Additionally, to read this clause as not bringing contractual breaches between a

Contracting State and an Investor under the BIT would render it meaningless, contradicting the

cardinal rule of treaty interpretation that “each and every operative clause of a treaty is to be

interpreted as meaningful.”82 If Respondent had intended Article 6.2 to have no meaning beyond

the other provisions of the BIT, it would have not included it. Only a minority of BITs—forty

percent—include umbrella clauses, and both the 2004 Model US BIT and the French Model BIT

are among the many BITs that lack such clauses.83

                                                                                                               77 VCLT, Art.31; Noble Ventures, ¶50; Dolzer & Schreuer, p.155. 78 Noble Ventures; SGS v. Philippines, ¶115; Eureko, ¶246; Fedax, ¶30. 79 Noble Ventures, ¶52; SGS v. Philippines, ¶116. 80 BIT, Preamble. 81 Salacuse, pp.272-73. 82 Eureko, ¶248. 83 UNCTAD, p.73; Dolzer & Schreuer, p.153.

  12  

38. Claimant recognizes the international law principle that “in normal circumstances per se

a breach of a contract by the State does not give rise to direct international responsibility on the

part of the State.”84 This principle, however, is not a preemptory norm, and states are free to

enter into treaties that contradict this principle.85 States are simply required to indicate an

intention to do so,86 which the Contracting States manifested through the plain language of

Article 6.2.

39. Respondent lacks a convincing reason for the Tribunal to depart from the traditional

understanding of umbrella clauses, given the BIT’s language. 87 In SGS v. Pakistan, the tribunal

made such a departure because the BIT at issue only required that contracting parties “constantly

guarantee the observance of the commitments it has entered into with respect to the investments

of the investors.”88 It can thus be contrasted with Article 6.2, which expressly provides that the

Contracting state shall fulfill its obligations. Furthermore, the tribunal’s decision in SGS v.

Pakistan has been heavily criticized for its failure to base its treaty interpretation on VCLT

Article 31.89 Claimant urges the Tribunal to use the approach of a majority of other tribunals,

which aligns with principles of treaty interpretation and enacts the will of the Contracting States.

40. Subsequent tribunals relying on SGS v. Pakistan have attempted to limit umbrella

clauses to cover only obligations entered into by the “state as a sovereign” or to obligations with

a certain level of governmental intervention.90 However, such attempts are problematic and

irrelevant to the Tribunal’s jurisdiction over this claim, given the unambiguous text of Article

6.2.91 The text of Article 6.2 makes no attempt to limit its scope to obligations entered into by the

state in its sovereign capacity or in any other manner.92 Therefore, Claimant submits that the

Tribunal should not impose any limits to the scope of Article 6.2 since doing so would be

inconsistent with the plain meaning of the text as agreed upon by the Contracting Parties.

                                                                                                               84 Noble Ventures, ¶53; Serbian Loans, ¶86. 85 Noble Ventures, ¶53. 86 ELSI, ¶50. 87 Dolzer & Schreuer, p.155; Salacuse, p.282-83; Noble Ventures, ¶58. 88 Swiss-Pakistan BIT, Art.11. 89 Dolzer & Schreuer, p.158; Drahozal, p.202-03. 90 El Paso, DJ, ¶¶72-74; Pan American, ¶¶101-03; Joy Mining, ¶81; CMS, ¶¶81, 299. 91 Siemens, ¶206; Salacuse, p.283. 92 Dolzer & Schreuer, p.161; SGS v. Philippines, ¶118.

  13  

ii. The State Fund’s actions and obligations are attributable to Respondent.

41. The State Fund’s actions and obligations are attributable to Respondent, satisfying BIT

Article 8.1’s requirement that disputes before this Tribunal be between a Contracting State and

an Investor. The BIT is silent on the question of attribution and whether its use of the term “State”

encompasses state entities. As a result, Claimant submits that the Tribunal should interpret “State”

according to its ordinary meaning supplemented by considerations of the BIT’s context and its

object and purpose, as required by VCLT Article 31.93

42. The ordinary meaning of the term “State” includes all instrumentalities controlled by

the state and should encompass bodies such as the State Property Fund of Ruritania. 94

Additionally, the Contracting Parties chose to leave “State” undefined, implicitly intending it to

have a broad interpretation. This approach can be contrasted with the one taken by the United

States in its 2012 Model BIT, where the term “state enterprise” is explicitly defined, suggesting

it has a separate meaning for the purposes of that BIT.95 Likewise, the object and purpose of the

BIT support this interpretation, given that it is necessary for all branches of the state to fulfill the

obligations of the BIT to create favorable conditions for investment.96

43. Furthermore, the ILC Articles, as an indication of customary international law on the

rules of attribution, support attributing the State Fund’s actions to Respondent.97 That the State

Fund is an entity with a separate legal personality does not end the inquiry as to whether its

actions can be attributed to the state.98 Thus Claimant submits that the State Fund’s actions are

attributable to Respondent through either ILC Article 5, which concerns the conduct of entities

exercising elements of governmental authority, or ILC Article 8, which addresses conduct

directed or controlled by a state.

                                                                                                               93 VCLT, Art.31. 94 Khalilian, p.79. 95 U.S. 2012 Model BIT, Art.1. 96 BIT, Preamble. 97 Noble Ventures, ¶69; Dolzer & Schreuer, p.199. 98 Salini v. Morocco, ¶35; C.S.O.B, ¶25.

  14  

44. To determine if an entity exercises elements of governmental authority—the test laid

out in ILC Article 5—tribunals first employ a structural test.99 The Tribunal should consider the

“content of the powers,” how the powers are “conferred on an entity,” the purpose of conferring

the power on the entity, and the entity’s accountability to the government in exercising the

power.100

45. In the Agreement, the State Fund is referred to as “a state establishment.”101 Given that

the State Fund was established by an Act adopted by the Parliament of Ruritania,102 it was

“empowered by the law of [Ruritania] to exercise elements of the governmental authority.”103

Respondent appoints the people principally responsible for managing the State Fund: the Board

of Governors and the Director-General.104 Inherent in this appointment power is some level of

accountability to Respondent for the State Fund’s activities. Finally, the State Fund makes

periodic distributions to Respondent, and all of its assets and liabilities pass to Respondent in the

event of its dissolution.105 In short, the State Fund was created in part to exercise authority over

FBI on Respondent’s behalf.

46. However, if the Tribunal finds the structural evidence inconclusive, Claimant invites it

to further consider the function of the State Fund.106 The ILC Commentary indicates that the

conduct of the entity should “concern governmental activity.”107

47. The State Fund’s conduct—privatizing FBI through the sale of shares to Contifica—

concerned governmental activity. At the time of the sale, Respondent sought to privatize a

number of assets due to a significant budget crisis.108 Thus the sale was part of a government-

enacted policy of privatization. Privatization is a process that by definition can only be carried

out by the government. Therefore, the privatization of FBI was a governmental activity carried

                                                                                                               99 Maffezini, ¶¶76-77. 100 ILC Articles, p.43, ¶6. 101 Exhibit 2, R.18. 102 PO 2, CQ 5. 103 ILC Articles, Art.5. 104 PO 2, CQ 5. 105 PO 2, CQ 5. 106 Maffezini, ¶79; see also Salini v. Morocco; C.S.O.B. 107 ILC Articles, p.43, ¶5. 108 SC, ¶6.

  15  

out by the State Fund, and its conduct, including the failure to fulfill a contractual obligation, can

be attributed to Respondent according to ILC Article 5.

48. The tribunal in Noble Ventures reached this same conclusion with regard to a similarly

positioned entity.109 The tribunal noted that the text of the ILC Articles does not support a

distinction between conduct concerning governmental activity and commercial activity, that

there is no reason to make such a distinction in investment arbitration, and most importantly, that

it is inherently difficult to define what constitutes a governmental act. Instead, it found sufficient

attribution since the entity at issue was acting on behalf of its mandate from Romania to

privatize.110

49. Alternatively, the actions of the State Fund can be attributed to Respondent under ILC

Article 8 as it was “acting on the instructions of, or under the direction or control of

[Respondent].”111 It is sufficient to establish either instructions, directions, or control112 so long

as “the individual operation in question was effectively controlled and that the act was a genuine

part of that operation.”113 The State Fund acted under the government instructions to privatize.

This chain of command is clear: the State Fund would not have sold the shares without

Respondent’s permission. The operation in question, the transfer of shares to Contifica, was the

transaction implementing that policy. The Iran-United States Claims Tribunal reached an

analogous conclusion when it determined that the National Iranian Oil Company was “one of the

instruments by which the Government of Iran conducted…the country’s national oil policy.”114

50. Tribunals generally disfavor efforts of states to escape responsibility by delegating

functions to a private entity or corporation.115 To allow Respondent to do so here would allow

any government embarking on a privatization scheme to create a separate legal entity as a way of

avoiding disclosure of any harmful information about the asset. Accordingly, Claimant submits

                                                                                                               109 Noble Ventures, ¶80. 110 Noble Ventures, ¶¶82, 86. 111 ILC Articles, Art.8. 112 Crawford, p.112-13. 113 Dolzer & Schreuer, p.201. 114 Oil Fields, p.356. 115 Maffezini, ¶¶77-78; Dolzer & Schreuer, p.204.

  16  

that the Tribunal should attribute the actions of the State Fund to Respondent so as not allow

different branches of the government to evade their responsibility under the BIT.

B. The submitted claims based on Respondent’s breach of the Share Purchase Agreement are admissible.

51. Claimant’s allegations regarding the State Fund’s breach of the Share Purchase

Agreement are admissible. As submitted above, the UNCITRAL Rules do not empower tribunals

to consider questions of admissibility, only questions of jurisdiction.116 Without prejudice to that

submission, even if the Tribunal can rule on admissibility, the dispute resolution provision of the

Share Purchase Agreement does not render the claim inadmissible.

52. Article 14.2 of the Agreement provides, “All disputes arising out of or in connection

with the present Agreement shall be finally settled” through an arbitration conducted under the

ICC Rules of Arbitration seated in Geneva.117

53. Claimant’s current submission, however, is rooted in a treaty claim and relates to a

breach of BIT Article 6.2, not strictly the Agreement. The principle that treaty and contract

claims are separate is “undoubtedly declaratory of international law,” as each instrument “set[s]

an independent standard.”118 However, a forum selection clause in a contract generally does not

preclude a tribunal from exercising jurisdiction over treaty claims that stem from contract

breaches.119 In the annulment proceedings regarding Vivendi, the ad hoc committee criticized the

ruling tribunal for declining jurisdiction over a contract claim that also constituted a breach of

the BIT.120 A large number of tribunals have agreed with this holding.121

54. Claimant requests that the Tribunal follow standard practice and not allow the forum

selection clause of the Agreement to render a claim that Respondent has violated Article 6.2 of

the BIT inadmissible.

                                                                                                               116 See, supra, Sec. I. B. 117 Exhibit 2, R.18, Art.14.2. 118 Vivendi Annulment, ¶¶95-96. 119 Drahozal, p.201. 120 Vivendi Annulment, ¶101. 121 SGS v. Pakistan, Lanco, Nykomb, Salini v. Morocco, Sempra, AES, Eureko, and PSEG; see also Schreuer, p.5.

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PART TWO: MERITS

III. RESPONDENT HAS VIOLATED THE FAIR AND EQUITABLE TREATMENT STANDARD UNDER BIT ARTICLE 2.1(B).

55. BIT Article 2.1(b) requires that Respondent “in every case accord Investments by

Investors of the other Contracting State fair and equitable treatment” (FET). As mandated by

VCLT Article 31, this clause should be read in light of the BIT’s object and purpose, to create

favorable conditions for investments and encourage and protect investments.122

56. Claimant submits that (A) the FET clause of the BIT is broader than, and autonomous

to, the customary international law minimum. Respondent has violated this clause by (B)

dramatically changing the legal environment it represented to Claimant, (C) failing to provide

transparency and due process in enacting its Reyhan labeling ordinance, and (D) treating

Claimant’s investments arbitrarily.

A. The FET clause refers to an autonomous standard broader than the customary international law minimum.

57. BIT Article 2.1(b) mentions neither “international law” nor a “Minimum Standard,” but

simply mentions “fair and equitable treatment.” The Tribunal should therefore interpret the

provision as an autonomous standard, as other tribunals faced with similar language have

done.123

58. The plain language of “fair and equitable treatment” means that Respondent must treat

Claimant in an even-handed, reasonable, and non-arbitrary way. Specifically, fairness requires

that Respondent provide Claimant with information and due process in its dealings with

Respondent. In addition, Respondent must not discriminate against Claimant’s investment.

                                                                                                               122 BIT, Preamble. 123 See Dolzer & Schreuer, p.126; Tecmed, ¶¶155-56; MTD, ¶¶110-13; Saluka, ¶¶286-95; Enron, ¶258; Deutsche Bank, ¶418.

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59. This interpretation of the FET clause accords with other tribunals’ interpretation of the

autonomous FET standard. The autonomous FET standard is a broad standard,124 which requires

that Respondent act in a manner that is not “arbitrary, grossly unfair, unjust, idiosyncratic, [or]

lacking in due process or procedural propriety.”125 Respondent must “provide . . . treatment that

does not affect the basic expectations that were taken into account by the foreign investor” and

must “act in a consistent manner, free from ambiguity and totally transparently in its relations

with the foreign investor.”126 Bad faith is irrelevant in determining a breach of FET.127

B. Respondent has violated Claimant’s reasonable and legitimate expectations by dramatically changing the legal environment of the investment in breach of representations made to Claimant.

60. In determining a violation of FET, the expectations to be considered are those existing

when the investor decided to invest.128 Claimant acquired the FBI shares in March 2010,129 when

beer sales in Ruritania were not subject to severe time, place, and brand restrictions. Given the

normal legal and business environment at that time, Claimant could not have reasonably

anticipated dramatic changes.

61. To find that expectations of stability were unreasonable, tribunals have required that the

investor have prior indication of changes that would affect the investment. In Duke Energy, the

tribunal found that penalties assessed against the claimant did not violate the claimant’s

legitimate or reasonable expectations because the claimant was aware of past penalties when it

invested.130 Similarly, the Ulysseas tribunal found that because of prior changes in the regulatory

framework, the claimant could not expect the immutability of the regulatory framework,131

implying that if no such history existed the claimant could have reasonably expected an

immutable regulatory framework. The claimant here had no reason to expect any change in

regulatory policy, let alone such a dramatic change.

                                                                                                               124 Opinion of Judge Schwebel, MTD, ¶109. 125 Paushok, ¶253. 126 Tecmed, ¶154. 127 Mondev, ¶116; Tecmed, ¶153; Loewen, ¶132, CMS, ¶280, Occidental (2004), ¶186, Azurix, ¶369. 128 Bayindir, ¶190–91; LG&E, ¶127. 129 SC, ¶9. 130 Duke Energy, ¶350. 131 Ulysseas, ¶256.

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62. Here, Claimant may have expected some new, even more stringent, regulations of

alcohol. Investors must anticipate some changes in a state’s regulatory scheme. But Claimant

reasonably expected to be able to sell alcohol without draconian limitations and to use its

trademarks. In strictly limiting sales and eliminating all brand value, Respondent violated

Claimant’s reasonable expectations and Respondent’s “obligation not to alter the legal and

business environment in which the investment has been made.”132

63. Claimant also reasonably expected to have no problems with Reyhan based on a

specific representation made by Respondent. To induce Claimant’s investment, Respondent

warranted that to the best of its knowledge, FBI’s products did not pose any risks to consumers

beyond those normal for beer.133 Claimant relied on this representation and reasonably expected

that FBI’s products would pose no additional risks. In misleading Claimant, Respondent violated

Claimant’s legitimate expectations.

C. Respondent failed to provide Claimant with transparency and due process in enacting the Reyhan ordinance.

64. Respondent’s failure to provide any notice or opportunity to comment prior to the

adoption of the Reyhan ordinance violates the FET standard, which requires consistency and

transparency so that the investor “may know beforehand any and all rules and regulations that

will govern its investments.”134

65. In Metalclad, the tribunal found a violation of the FET standard because the claimant

received no notice, invitation, or opportunity to appear at a meeting at which its permit was

denied.135 In Tecmed, the tribunal found a violation of the FET standard because the respondent’s

environmental regulatory authority did not notify the claimant that it intended to refuse to renew

the claimant’s permit, depriving the claimant of the opportunity to contest the non-renewal.136 In

                                                                                                               132 Occidental (2004), ¶191. 133 Exhibit 2, R.18, Cl.9.2.1. 134 Tecmed, ¶154 (emphasis added). 135 Metalclad, ¶91. 136 Tecmed, ¶162.

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Deutsche Bank AG, the tribunal found a violation of the FET standard because the claimant was

neither informed of a case against it before the state’s central bank nor given an opportunity to

respond to an investigation report.137 The tribunal also noted that the final investigation report

completely disregarded the claimant’s responses.138

66. Respondent’s adoption of the Reyhan ordinance relied on a single report from a

government-funded institution with government-appointed leadership.139 Claimant was not given

the opportunity to comment on the report or dispute the findings prior to the adoption of the

ordinance.140 Claimant did not even receive the report until after the Ministry adopted the

ordinance.141 In violation of the FET standard, Respondent acted without providing Claimant an

opportunity to challenge the Ministry’s determination, despite knowing the study’s conclusions

since a 2005 interim report.142

67. Furthermore, after Claimant challenged the study’s findings, the Ministry refused to lift

the labeling requirement and investigate the matter further. Upon receiving the study, Claimant

suggested numerous errors with the study’s analysis. Respondent’s decision not to reevaluate the

Ministry’s determination in light of new information, nor provide any reason why it would not

do so, violates the FET standard as a lack of due process.

D. Respondent has treated Claimant’s investment arbitrarily.

68. In the ELSI case, the ICJ defined arbitrariness as “a wilful [sic] disregard of due process

of law, an act which shocks, or at least surprises, a sense of juridical propriety.”143 The tribunal

in LG&E described arbitrary measures as those “that affect the investments of nationals of the

other Party without engaging in a rational decision-making process.”144 Other tribunals have

                                                                                                               137 Deutsche Bank, ¶487. 138 Deutsche Bank, ¶488. 139 SC, ¶14. 140 SC, ¶15. 141 SC, ¶16. 142 SC, ¶16. 143 ELSI, ¶128. 144 LG&E, DL, ¶158.

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cited Black’s Law Dictionary, which defines “arbitrary” as “depending on individual

discretion; . . . founded on prejudice or preference rather than on reason or fact.”145

69. The Reyhan ordinance did not result from reasoned decisionmaking. The daily dosage

of Methyldioxidebenzovat in the HRI study was three to six times the amount of Reyhan

concentrate in one 0.8l bottle of FREEBREW.146 The Ministry therefore had no rational basis for

requiring a general warning on all Reyhan products.

70. Furthermore, Respondent refused to notify Claimant of its decision and gave Claimant

no opportunity to contest the findings.147 In refusing to consider new information,148 Respondent

willfully and arbitrarily disregarded highly relevant evidence and based its final decision not on

reason, but on arbitrarily selected information. Because of these actions, FBI sales fell an

additional 20% and the company was forced to partially suspend production.149

IV. RESPONDENT HAS TREATED CLAIMANT’S INVESTMENTS IN AN ARBITRARY AND DISCRIMINATORY MANNER IN VIOLATION OF BIT ARTICLE 3.1(C).

71. BIT Article 3.1(c) requires that Respondent not “impair by arbitrary or discriminatory

measures the management, maintenance, use, enjoyment or disposal of Investments.” Any

arbitrary or discriminatory measure also necessarily violates the FET standard.150 To violate

Article 3.1(c), a measure need only be arbitrary or discriminatory, not both.151 Respondent’s

actions here, however, were both arbitrary and discriminatory.

                                                                                                               145 CMS, ¶291; Lauder, ¶221; Occidental (2004), ¶162. 146 SC, ¶¶14, 5. 147 SC, ¶¶15-16. 148 SC, ¶17. 149 SC, ¶¶19-20. 150 Lemire, DJL, ¶259, CMS, ¶290; MTD, ¶196; El Paso Award, ¶230. 151 Azurix, ¶391; Lemire, DJL, ¶260.

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A. The Reyhan ordinance arbitrarily impaired Claimant’s management, maintenance, use, enjoyment, and disposal of FREEBREW.

72. As submitted in III(D) above, Respondent arbitrarily enacted the Reyhan ordinance.

Because of the Reyhan ordinance, Claimant could not produce and sell FREEBREW. Therefore,

Respondent has violated BIT Article 3.1(c).

B. The MAB Act’s bottle-size restriction and the Reyhan ordinance discriminatorily impaired Claimant’s management, maintenance, use, enjoyment, and disposal of FREEBREW.

73. Some tribunals have found that “for a measure to be discriminatory it is sufficient that,

objectively, two similar situations are treated differently.”152 Other tribunals have required that

different treatment also be “without reasonable justification”153 or “capricious, irrational, or

absurd.”154 Discriminatory impact, rather than intent, is decisive to determine discriminatory

treatment.155 The plain language of Article 3.1(c) does not limit discrimination to discrimination

on the basis of nationality and covers discriminatory measures based on other grounds.156

Articles 3.1(a) and 3.1(b) provide separate protection for discrimination on the basis of

nationality.

74. Respondent treated Claimant’s investment in a discriminatory manner. The only effect

of the MAB Act’s bottle-size restriction on beer companies is that FREEBREW alone must

change its bottles. The bottle-size restriction forced FBI to reconfigure its bottling line at a loss

of US$10 million of net income and 60% of revenue, while no other companies suffered any

injury.157 Furthermore, the MAB Act’s time and location restrictions on sales already greatly

restricted access to alcohol.158 For those few locations and hours during which people could

consume alcohol, it is absurd to think that a 0.3l difference in bottle size is reasonable.

                                                                                                               152 Ulysseas, ¶293. 153 Saluka, ¶313. 154 Enron, ¶282. 155 Siemens, ¶321; El Paso Award, ¶305. 156 National Grid, ¶198; Ulysseas, ¶293; Lemire, ¶261. 157 SC, ¶¶12-13. 158 SC, ¶11.

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75. The Reyhan ordinance was also a discriminatory measure that impaired Claimant’s

investment. Within the beer market, the measure only targeted FREEBREW.159 As discussed

above, the ordinance had no basis in reason. In treating FREEBREW differently from other beers

without a reasonable justification, Respondent violated Article 3.1(c). Respondent argues that the

ordinance is not discriminatory because it imposed the labeling requirement on all products

containing Reyhan concentrate.160 But FREEBREW is not similarly situated with food products

and other beverages. The correct comparators for discrimination are other beer companies. The

extent to which these competitors falsely disparaged FREEBREW after the labeling requirement

illustrates the discriminatory impact on FREEBREW within the beer market.161 Furthermore,

Respondent “if possible, . . . should seek to ameliorate the effects of the change of policy on the

investor.”162 Given the substantial discriminatory burden on Claimant’s investment, Respondent

should have at minimum considered Claimant’s information and delayed the ordinance.

C. Respondent cannot justify its actions under BIT Article 3.2 as taken for public security and order.

76. BIT Article 3.2 provides a defense to claims under Article 3.1, stating that measures

taken for “public security and order shall not be deemed . . . arbitrary or discriminatory within

the meaning of this Article.” Reading this term in accordance with its ordinary meaning and

context in light of the treaty’s object and purpose, as required by VCLT Article 31, “public

security and order” must be construed narrowly. Allowing the state to use a broad notion of

“public order” to impair investment through arbitrary or discriminatory measures would violate

the BIT’s core purposes of encouraging and protecting investment.163 Furthermore, coupled with

“public security,” public order must refer to issues of societal peace, safety, and stability. The

tribunal in Continental Casualty embraced this interpretation, finding that threats to public order

included “actual or potential insurrections, riots and violent disturbances of the peace.”164

                                                                                                               159 SC, ¶¶18, 5. 160 SD, ¶15. 161 SC, ¶18. 162 Arif, ¶537. 163 BIT, Preamble. 164 Continental Casualty, ¶174.

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77. Respondent argues that the MAB Act intended to address alcohol addiction and healthy

lifestyle choices,165 and that the Reyhan ordinance was a public health measure. Public health

does not fall under “public security or order.” Public health issues do not necessarily require an

urgent response to an immediate danger as security and safety measures would. Even if the

tribunal found that Respondent enacted the MAB Act to protect the public from alcohol-related

disturbances, this would not rise to the level of insurrection, riot, or violence.

78. Article 3.2 is not a self-judging clause. For a clause to be self-judging it must expressly

and clearly state that discretion for the unilateral determination of the scope and applicability of

the clause lies with the Contracting Parties.166 As the ICJ determined in the Nicaragua case,167

self-judging clauses will include language such as “if the state considers,” “in the state’s opinion,”

or “if the state determines.”168 Because Article 3.2 does not in any way reference a subjective

determination by the state, the tribunal should determine whether the state’s measures were

justified by “public security and order.”

V. RESPONDENT HAS INDIRECTLY EXPROPRIATED CLAIMANT’S INVESTMENTS IN RURITANIA, IN VIOLATION OF BIT ARTICLE 4.1.

79. Claimant submits that (A) the trademark and bottle-size restrictions imposed by

Respondent’s MAB Act indirectly expropriate Claimant’s Ruritania-registered trademarks.

Furthermore, (B) the effects of Respondent’s Reyhan labeling requirement, together with the

MAB Act’s trademark and bottle-size restrictions, are equivalent to the expropriation of

Claimant’s overall investment in FBI. (C) These instances of expropriation are not justifiable

under BIT Article 4.1.

A. The MAB Act’s trademark and bottle-size restrictions indirectly expropriate Claimant’s Ruritania-registered trademarks.

80. BIT Article 4.1 states that

                                                                                                               165 SD, ¶14. 166 CMS, ¶370; Sempra, ¶379; Schill, p.69; see also Burke-White, p.366. 167 Nicaragua, ¶222. 168 Schill, pp.69–70.

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Investments by Investors of either Contracting State may not be directly or indirectly expropriated, nationalized or subjected to any other measure taken by a Contracting State or a state agency of the Contracting State the effects of which would be equivalent to expropriation or nationalization.169

Trademarks are distinct investments under the BIT: Article 1(d) explicitly includes trademarks in

its definition of investment.170

81. Article 4.1 is clear in assessing when expropriation occurs. Interpreted in accordance

with VCLT Article 31, its ordinary meaning prohibits “any” state measure that has the “effects of

expropriation,” regardless of the intent behind the measure, unless the measure meets all of four

strict conditions, listed in the BIT and discussed below in V(C).

82. In accordance with VCLT Article 31, BIT Article 4.1 must be read in light of the BIT’s

object and purpose, indicated in its Preamble, which asserts that the “protection” of foreign

investment is “essential to the prosperity” of Ruritania and Cronos. In this context, Article 4.1

casts a broad net in defining expropriation. Respondent’s measures unmistakably fall within this

net, for they have had the “effects of expropriation” on Claimant: permanent, substantial

deprivation of investments that interfere with Claimant’s legitimate, investment-backed

expectations.

83. Previous tribunals’ pronouncements are persuasive in highlighting these “effects of

expropriation.”171 Expropriation is the deprivation of a foreign investor’s investment by a host

state.172 Tribunals and notable commentators agree that indirect expropriation occurs when a host

state adopts a measure that (i) permanently affects an investor; (ii) substantially deprives the

investor of its control of its investment; and (iii) interferes with the investor’s legitimate,

investment-backed expectations, even as the investor retains legal title over its investment.173

                                                                                                               169 BIT, Art.4.1. 170 BIT, Art.1(d). 171 Corn Products, ¶77; Metalclad, ¶108. 172 CME, ¶150; McLachlan, pp.290-98. 173 LG&E, ¶190; Metalclad, ¶103; Dolzer, pp.65-93.

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i. Respondent’s measures permanently affect Claimant.

84. The longer an investor is deprived of the rights and benefits of its investment, the more

likely it is that the state measure responsible is deemed expropriatory.174 Measures that have

permanent, as opposed to ephemeral, effects on an investor, are likely to be viewed as

expropriatory.175

85. Respondent’s MAB Act has been in place since November 2010. There is no end date

in sight for the restrictions imposed by the Act, as Respondent has not indicated the

circumstances under which it will lift these restrictions.

86. Since the MAB Act was passed, Claimant has been deprived of the use of, and

economic benefits from, its trademarks. Under Ruritanian law, the country’s Patent Court can

cancel trademarks after five years of non-use.176 Hence, Respondent’s measures have had, and

are expected to have, a permanent adverse effect on Claimant’s investment.

ii. Respondent’s measures substantially deprive Claimant of control over its trademarks.

87. A state measure amounts to indirect expropriation when it substantially deprives an

investor of a fundamental right of ownership, the right to control its investment, even as the

investor remains the owner of its investment.177 Here, Respondent has substantially deprived

Claimant of control of its trademarks.

88. Pope & Talbot first identified this “substantial deprivation” standard, and is instructive

in this regard.178 The tribunal found that a state-imposed export control did not amount to

indirect expropriation, as the investor remained in “full ownership and control” of its

                                                                                                               174 CME, ¶609; Metalclad, ¶107; M.E. Cement, ¶¶107-08. 175 Azurix, ¶285. 176 PO 2, CQ 3. 177 ADM, ¶245; Feldman, ¶152; Glamis Gold, ¶357; Pope & Talbot, ¶100; Waste Mgmt. II, ¶143. 178 Pope & Talbot, ¶102.

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investment. 179 Subsequent tribunals have adopted this approach when assessing indirect

expropriation.180

89. Here, Respondent’s trademark restriction has substantially deprived Claimant of a

fundamental right of trademark ownership: the ability to control the use of one’s trademarks on

products, so that consumers may distinguish one’s products from others’.181 Respondent’s bottle-

size restriction has substantially deprived Claimant of the right to use its trademark—the 0.8l

FREEBREW bottle—on any of its products.

90. Ruritania’s Patent Court may cancel a trademark following five years of non-use.182 By

mandating that Claimant not use its trademarks on its products, Respondent’s restriction paves

the way for the cancellation of these trademarks, at which point Claimant will lose its valuable

trademarks entirely.

iii. Respondent’s measures interfere with Claimant’s legitimate, investment-backed expectations.

91. When assessing expropriation, it is critical to understand if an investor’s legitimate,

investment-backed expectations have been violated. 183 Expectations are assessed from an

investor’s point-of-view at the time of making the investment. They need not be based on host

state representations.184

92. The Saluka tribunal observed that tribunals must assess the legitimacy of an investor’s

expectations “in light of the circumstances” of a case.185 The present circumstances, including

the nature of the alcohol industry and Ruritanian trademark law, demonstrate that Respondent

interfered with Claimant’s legitimate expectations.

                                                                                                               179 Pope & Talbot, ¶100. 180 ADM, ¶245; PSEG, ¶278; Feldman, ¶151. 181 See Gilson, §1.03. 182 PO 2, CQ 3. 183 Fietta, p.375; Saluka, ¶304; Waste Mgmt. II, ¶98. 184 Tecmed, ¶117; Paulsson, pp.148-52. 185 Saluka, ¶304.

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93. The alcohol industry is brand-driven, and the “notoriously high” cost of building a well-

regarded brand compels companies to invest heavily in the trademarks surrounding popular

existing brands.186 Although producers expect some restrictions, like prohibitions on selling to

minors, they legitimately expect to employ their trademarks on their products so as to attract

valid customers at points of purchase. Ruritanian trademark law validates this expectation: the

Patent Court may cancel a registered trademark that is not used on any products.187

94. In March 2010, Claimant acquired FBI’s trademarks expecting to use them on its

products. At this time, Ruritanian trademark law encouraged the use of trademarks on products,

and Ruritania’s parliament had not adopted the MAB Act’s restrictions. 188 Months later,

Respondent enacted its arbitrary restrictions, betraying Claimant’s legitimate, investment-backed

expectations.

B. Together, the effects of Respondent’s trademark and bottle-size restrictions and its Reyhan labeling requirement are equivalent to the expropriation of Claimant’s investment in FBI.

95. Claimant submits that the effects of trademark and bottle-size restrictions imposed by

Respondent’s MAB Act, together with Respondent’s Reyhan labeling requirement, are

equivalent to the expropriation of Claimant’s entire investment.

96. As submitted above, BIT Article 4.1 prohibits Contracting States and state agencies

from taking measures against investments, “the effects of which would be equivalent to

expropriation.”

97. In accordance with the prime object of the BIT—the protection of foreign

investment189—Article 4.1 prohibits instances where a host state circumvents its obligations

under international law by splitting a single measure amounting to indirect expropriation into

                                                                                                               186 Accenture, p.2. 187 PO 2, CQ 3. 188 SC, ¶10. 189 See BIT, Title.

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several steps, which, taken together, have the same expropriatory effect on a foreign investor.190

Tribunals have referred to this phenomenon as “creeping expropriation.”191

98. Creeping expropriation occurs when a state adopts a series of measures over a period of

time, the cumulative effect of which (i) permanently affects a foreign investor; (ii) substantially

deprives the investor of control of its investment; and (iii) interferes with the investor’s

legitimate, investment-backed expectations, even as the investor retains legal title over its

investment.192 Claimant asserts that Respondent’s measures, taken together, meet these three

characteristics.

i. The cumulative effect of Respondent’s measures on Claimant is permanent.

99. As submitted in V(A)(i) above, state measures that have permanent effects on an

investor are likely to be viewed as expropriatory.193 Since 2011, Claimant has been deprived of

the economic benefits from its investment and there is no end in sight for Respondent’s

measures. Hence, Respondent’s measures have had a permanent adverse effect on Claimant’s

investment.

ii. The cumulative effect of Respondent’s measures is to deprive Claimant of its investment.

100. A series of state measures amounts to expropriation when, taken together, they deprive

an investment, in whole or significant part, of its economic value.194 This understanding of

“substantial deprivation” is an independent alternative to the Pope & Talbot standard, described

above.195

101. Respondent’s measures, taken together, significantly deprive Claimant’s investment of

its economic value. At the outset, Claimant notes that FBI’s revenue in the last quarter of 2011,

                                                                                                               190 Biwater Gauff, ¶455; Feldman, ¶101; Link-Trading, ¶87; S.D. Myers, ¶286; Siemens, ¶263. 191 Biwater Gauff, ¶455; Feldman, ¶101; Link-Trading, ¶87; S.D. Myers, ¶286; Siemens, ¶263. 192 LG&E, ¶190; Metalclad, ¶103; Dolzer, pp.65-93. 193 CME, ¶609; Metalclad, ¶107; M.E. Cement, ¶¶107-08; Azurix, ¶285. 194 ADM, ¶242; Alpha, ¶408; S.D. Myers, ¶¶282-83; Tza Yap Shum, ¶144; Telenor, ¶¶65-66. 195 ADM, ¶242; Telenor, ¶¶65-66.

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after the enactment of the restrictions and requirements listed above, was a mere 10% of its

revenue in the last quarter of 2009, before any of Respondent’s measures were enacted.

102. A decline in revenue alone does not amount to substantial economic deprivation. To

meet that standard, the EnCana tribunal noted that state measures must render “the value to be

derived from [an investor’s] activities so marginal or unprofitable as effectively to deprive them

of their character as investments.”196 That tribunal interpreted the expropriation clause of the

Ecuador-Canada BIT, which closely resembles BIT Article 4.1 in that it prohibits contracting

party actions having “an effect equivalent to … expropriation.”197

103. Respondent’s measures have rendered the value that Claimant can derive from FBI so

marginal as to effectively deprive its stake in FBI of its character as an investment. The dramatic

decline in FBI’s revenues following these measures has pushed FBI to the brink of default,

compelling Claimant to pledge all of FBI’s tangible assets, all of its shares, and even any

recovery from this arbitration, to third party lenders. Claimant thus meets the substantial

deprivation standard established in EnCana.

iii. The cumulative effect of Respondent’s measures is to interfere with Claimant’s legitimate, investment-backed expectations.

104. As submitted in V(A)(iii) above, interference with an investor’s legitimate, investment-

backed expectations at the time of investment is vital to a finding of expropriation. 198

Respondent’s measures have interfered with Claimant’s legitimate, investment-backed

expectations.

105. Alcoholic beverage manufacturers invest heavily in the trademarks surrounding well-

regarded brands, and take care to ensure that their products are safe, to acquire and maintain the

goodwill of “increasingly health conscious” consumers.199 When Claimant acquired its shares, it

legitimately expected to (a) be able to employ FBI’s trademarks on its products, so as to attract

                                                                                                               196 EnCana, ¶174. 197 Ecuador-Canada BIT, Art.VIII. 198 Fietta, p.375; Saluka, ¶304; Waste Mgmt. II, ¶98. 199 Accenture, p.2.

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valid customers at points of purchase; and to (b) use Reyhan in FREEBREW, given

Respondent’s guarantee in the Agreement that FREEBREW posed no health effects above those

of other alcoholic beverages.

106. The MAB Act’s restrictions go far beyond limits on public advertising or sales to

minors in place around the world. The Reyhan labeling requirement, which has driven

consumers away from FREEBREW, was implemented suddenly on the basis of an inaccurate,

unsound study. Thus, Respondent’s measures have interfered with Claimant’s legitimate,

investment-backed expectations.

C. Respondent’s measures are not justifiable under BIT Article 4.1.

107. In all instances of expropriation asserted above, Respondent’s measures are not

justifiable under BIT Article 4.1.

108. Respondent may regulate foreign investment. However, the BIT circumscribes this right

in the vital interest of protecting foreign investment as a means of assuring economic

prosperity.200 Article 4.1 permits expropriation only if it is (i) for the public benefit, (ii) non-

discriminatory, (iii) carried out under due process of law, and (iv) against compensation.

Respondent fails to meet any of these conditions.

i. The expropriation was not for the public benefit.

109. While states may acquire private property for public purposes,201 not all expropriatory

measures with the public benefit in mind are justified under this BIT, or more generally under

international law.202 This Tribunal retains the right to scrutinize if Respondent’s measures

address some genuine interest of the public, 203 if they bear any relation to the issue of interest,

and if they are “proportional to the public interest presumably protected thereby.”204

                                                                                                               200 BIT, Preamble. 201 AIG, ¶10.4.1. 202 Vivendi Award, ¶7.5.21. 203 ADC, ¶432. 204 Tecmed, ¶122.

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110. Alcohol addiction and youth exposure to alcohol are issues of public interest. However,

Respondent’s measures do not genuinely address these issues, nor are they proportional to the

public interest they purportedly protect.

111. First, the display of trademarks on beer bottles does little, if anything, to expose minors

to alcohol. Minors are prevented from purchasing alcohol. They are therefore unlikely to view

trademarks on beer bottles, as opposed to in public advertisements, which the MAB Act

curiously continues to allow.

112. Second, displaying trademarks on beer bottles does little, if anything, to curb alcohol

addiction. There is no research demonstrating a strong positive correlation between exposure to

alcohol advertising and consumption among non-adolescents.205 Existing alcoholics remain free

to purchase beer. The MAB Act only limits their ability to choose one beer over another.

113. Third, the bottle-size restriction does not address the MAB Act’s purported goals.

Under the Act, it is legal to sell 12% alcohol/vol. beer in a 0.5l bottle, but illegal to sell 5%

alcohol/vol. beer like FREEBREW206 in a 0.8l bottle, despite the former having 150% the latter’s

alcohol content.

114. The Reyhan labeling requirement is a disproportionate response to the issue at hand, as

it forces Claimant to describe FREEBREW as being hazardous on the basis of a study where

subjects consumed significantly more Reyhan than is found in FREEBREW.207

ii. The expropriation was discriminatory. 115. Tribunals, alongside commentators Vandevelde and Dolzer and Schreuer, agree that

discrimination exists whenever a state accords different treatment to like parties without

                                                                                                               205 Treise, p.125. 206 PO 2, CQ 25. 207 SC, ¶14.

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justification.208 A measure is discriminatory if it has a discriminatory impact on one of several

like parties. It is not necessary to find discriminatory intent.209

116. Respondent’s bottle-size restriction unjustifiably discriminates against Claimant,

Ruritania’s sole producer of 0.8l beer bottles. Respondent could have effectively addressed its

public health concerns by restricting alcohol content in beer. Instead, Respondent’s restriction

deprives Claimant, and Claimant alone, of the use of its trademarked bottle.

iii. The expropriation did not conform with due process.

117. For expropriatory measures to conform to due process of law, a host state must provide

an aggrieved foreign investor a legal procedure, suited to the particular context, which allows the

investor to bring claims against expropriation.210

118. ADC prescribes that this procedure must provide for reasonable advance notice, a fair

hearing, and an impartial adjudicator.211 The NAFTA tribunal in Metalclad asked that states

provide a “transparent and predictable framework” for investment to meet the due process

requirement.212

119. Respondent imposed the Reyhan labeling requirement by an ordinance issued only two

weeks after a flawed, Respondent-sponsored study. Respondent provided no mechanism for

reviewing this ordinance, as prescribed in ADC.213 By issuing this ordinance while ignoring

criticism of the study, Respondent failed to “ensure a transparent and predictable” legal

framework for Claimant.214 Respondent’s expropriatory measures have thus failed to conform to

due process of law.

                                                                                                               208 AES Summit, ¶10.3.53; CMS, ¶287; LG&E, ¶146; Vandevelde, p.77; Dolzer & Schreuer, p.176. 209 LG&E, ¶146; Siemens, ¶321; El Paso Award, ¶305; Vandevelde, p.77. 210 ADC, ¶¶435, 438-39; Tza Yap Shum, ¶223. 211 ADC, ¶435; see also Tza Yap Shum, ¶223. 212 Metalclad, ¶99. 213 ADC, ¶¶438-39. 214 Metalclad, ¶99.

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120. The BIT does not require that Claimant challenge Respondent’s measures in any

national court before bringing its claims before this Tribunal. The Inmaris tribunal rejected the

argument that a claimant must exhaust local remedies, noting that “nowhere does the [Germany-

Ukraine] treaty suggest that exhaustion of local remedies is a pre-requisite.”215

iv. The expropriation was not against compensation.

121. BIT Article 4.1 requires that expropriation—even if for the public benefit, non-

discriminatory, and in accordance with due process—occur against compensation to deprived

investors. This compensation requirement is not unique: it is found in most BITs, and is “seen to

be part of customary international law.” 216 Past tribunals enforced similar requirements.217

122. Respondent has not compensated Claimant for the significant losses stemming from

Respondent’s measures. Therefore, Respondent’s measures do not count as lawful expropriation

and Respondent has violated BIT Article 4.1.

VI. RESPONDENT HAS VIOLATED BIT ARTICLE 2.1(B)’S FULL PROTECTION AND SECURITY

GUARANTEE. 123. BIT Article 2.1(b) accords Claimant’s investments “full protection and security.” The

use of the word “full” demonstrates that Claimant is guaranteed the complete suite of

protections—including legal and regulatory safeguards—that Respondent offers investors.

Notable commentators concur. Wälde has noted that:

[FPS] would . . . be breached . . . by the omission of the State to intervene where it had the power and duty to do so to protect the normal ability of the investor’s business to function.218

124. Here, Respondent imposed the Reyhan labeling ordinance on FREEBREW,

encouraging Claimant’s competitors to falsely advertise that FREEBREW was “poisonous.”219

                                                                                                               215 Inmaris, ¶302. See also Generation Ukraine, ¶20.33. 216 Dolzer & Schreuer, pp.90-91. 217 Santa Elena, ¶71; Continental Casualty, ¶¶276-77; Unglaube, ¶¶203-05. 218 Wälde, pp.390-91. 219 SC, ¶18.

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Respondent had the power and duty to protect Claimant’s reputation, by acknowledging the

shortcomings of the HRI study, but omitted to do so, thereby breaching its FPS obligations.

125. Past tribunals would concur.220 In CME, the respondent withdrew certain regulatory

protections available to the claimant, enabling the claimant’s local partner to terminate a contract

crucial to its investment.221 The tribunal accordingly held that the respondent had breached the

FPS clause, which guarantees the same “full” protection as Article 2.1(b).222

126. Claimant therefore submits that Respondent has violated the FPS guarantee of BIT

Article 2.1(b).

VII. CLAIMANT IS ENTITLED TO RECOVER MORAL DAMAGES BECAUSE THE ARREST AND TREATMENT OF MESSRS. GOODFELLOW AND STRAW VIOLATED THE FULL PROTECTION AND SECURITY CLAUSE OF THE BIT.

127. Claimant requests US$1,000,000 in moral damages for the arrest and treatment of

executives Messrs. Goodfellow and Straw. Claimant submits that (A) this treatment violated BIT

Article 2(b) and that (B) customary international law supports the award of moral damages.

A. The treatment of Messrs. Goodfellow and Straw violates BIT Article 2(b).

128. Article 2(b) provides that an investment is entitled to “full protection and security.”223

The ordinary meaning of the word “full”—“complete”224—demonstrates that an investment is

entitled to the complete suite of protections that a Contracting State can offer to prevent or

mitigate any harm that befalls the investment. At the very least, an investment is entitled to

protection from harm inflicted by the Contracting State’s own forces, in violation of the

Contracting State’s own laws, as is the case here. 225  

 

                                                                                                               220 See, e.g., Saluka ¶¶483-84. 221 CME, ¶613. 222 Id. 223 SC, ¶32. 224 OED. 225 SC, ¶23.

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129. The object and purpose of the BIT, as the title makes clear, includes the “Protection of

Investment.”226 Claimant requests that the Tribunal interpret Article 2(b) to include protecting

the investor’s employees who operate the investment. This interpretation fits the treaty’s object

and purpose, as investors would be deterred from investing if those operating the investment

could be harmed.

130. Respondent’s illegal arrest and detention of the executives, the airing of the arrest on

television, and Respondent’s Prosecutor’s Office’s statement that the executives were criminals

evading justice, in the absence of any evidence, violate BIT Article 2(b).

131. Respondent has not made a claim to void the request for moral damages because the

executives claimed them in their individual capacity. In Desert Line, the respondent similarly did

not make such a claim, and the tribunal awarded moral damages to the claimant under the FPS

clause.227

B. Customary international law supports the award of moral damages under the full protection and security principle.

132. BIT Article 2(b) is congruent with the principle of full reparation under customary

international law, which has been the basis for awards of moral damages.228

133. Article 31 of the ILC Articles provides that a responsible State should “make full

reparation for the injury caused by the internationally wrongful act.”229 The article defines injury

as “any damage, whether material or moral, caused by the internationally wrongful act of a

State.”230 In light of Article 31, the BIT’s FPS principle should be interpreted to cover moral

damages.

                                                                                                               226 BIT, Title. 227 Desert Line, ¶289. 228 See generally Desert Line. 229 ILC Articles, Art.31(a). 230 ILC Articles, Art.31(b).

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134. Tribunals have awarded moral damages based on both the above standard and the FPS

principle. In both situations, they have looked at two factors: (i) whether the circumstances of the

case were exceptional, and (ii) whether there was damage. Further, (iii) moral damages have

been awarded even when the extent of the damage could not be quantified.

i. The executives’ detention constituted exceptional circumstances. 135. The executives’ unlawful arrest, aired on Ruritanian television, created exceptional

circumstances under which moral damages should be awarded.

136. When the tribunal in Desert Line awarded moral damages under the FPS principle, it

noted that moral damages could be awarded “in exceptional circumstances.”231 The tribunal did

not define “exceptional circumstances.” However, international tribunals have interpreted the

term broadly in accordance with the ILC Articles, which prescribe that damages should be

"inclusive, covering both material and moral damage broadly understood."232

137. Several tribunals have considered unlawful arrests and detention to be exceptional

circumstances.233 The tribunal in Lemire concluded that exceptional circumstances include those

that:

imply physical threat, illegal detention or other analogous situations in which the ill-treatment contravenes the norms according to which civilized nations are expected to act.234

138. The executives were unlawfully detained for nearly two weeks and released with no

explanation or apology.235 This prevented them from being with their families over New Year’s

Eve and the holidays. Further, despite the absence of evidence, Ruritanian authorities publicly

portrayed the executives as criminals evading justice, even handing a video of the arrest to Free

                                                                                                               231 Cementownia, ¶169. 232 Biwater Gauff, ¶25. 233 See generally Desert Line; Lemire; Spyridon. 234 Lemire, ¶333. 235 SC, ¶¶23-25.

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TV, Ruritania’s most popular TV channel. 236 This was intended to damage Claimant’s

reputation, as executives are the face of a business.

ii. Claimant should be awarded moral damages because the executives suffered damage.

139. For moral damages to be awarded, a claimant’s employees must have suffered some

damage. In Lemire, the tribunal clarified that there need not be clear proof of damage as long as

the State’s actions caused “a deterioration of health, stress, anxiety, other mental suffering,” such

as “humiliation, shame and degradation” or “loss of reputation, credit and social position.”237

Subsequent tribunals have followed this interpretation; the tribunal in Franck commented that it

left “an element of discretion” to tribunals.238

140. The executives suffered emotional distress and anxiety because they were unexpectedly

detained over the holidays. Ruritanian authorities damaged their reputation by portraying them as

criminals on television.239 Respondent’s Prosecutor’s Office even went so far as to say of the

detention: “[the law enforcement agencies of Ruritania] will not let people responsible for

corruption escape investigation,” stating in the absence of evidence, let alone any trial, that the

executives “were responsible for corruption” and evading justice.240

iii. Tribunals have awarded moral damages even when the damage could not be quantified.

141. Respondent contends that moral damages should not be awarded because the executives

did not suffer any measurable damage.241 However, most legal systems allow moral damages to

be awarded alongside economic damages, even if the former are not easily measurable.242 The

tribunal in Desert Line agreed, determine that “in exceptional circumstances” it was acceptable

to award moral damages because they are

                                                                                                               236 SC, ¶24. 237 Lemire, ¶333. 238 Arif, ¶591. 239 SC, ¶24. 240 SC, ¶24. 241 SD, ¶17. 242 Desert Line, ¶289.

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very real, and the mere fact that they are difficult to measure or estimate by monetary standards makes them none the less real and affords no reason why the injured person should not be compensated.243

Likewise, the tribunal in Benvenuti confirmed that moral damages may be awarded even when

estimated speculatively.244 Even though the tribunal noted that the claimant “limit[ed] itself to

simple statements, unsupported by any concrete evidence,” it nevertheless awarded moral

damages because of the exceptional circumstances of the case.245

142. Because the arrest and treatment of the executives created exceptional circumstances

and Respondent’s actions caused the executives to suffer substantial emotional and reputational

harm, Claimant requests that moral damages be awarded.

VIII. LOSS OF SALES BY CLAIMANT’S SUBSIDIARIES CONSTITUTES RECOVERABLE DAMAGES

UNDER THE BIT AND CUSTOMARY INTERNATIONAL LAW.

143. Claimant submits that (A) since Respondent has breached its obligations under the BIT,

Respondent has a duty to compensate Claimant for lost sales, including lost sales of its

subsidiaries. (B) Claimant is entitled to reparation for financially assessable lost profits under

general principles of international law. Moreover, (C) since Claimant has satisfied its duty to

mitigate its losses, Respondent is not precluded from providing full compensation. Accordingly,

Claimant requests that the Tribunal require Respondent to pay US$380,000,000 as full and fair

compensation for damages caused.246

A. Claimant is entitled to compensation for expropriation of its investments.

144. Claimant submits that Respondent expropriated its Ruritanian investments, and BIT

Article 4.3(a) guarantees it the right to receive compensation equivalent to the value of the

expropriated investments immediately before the date on which the expropriation became

                                                                                                               243 Desert Line, ¶289. 244 Parish, p.231. 245 Parish, p.231. 246 SC, ¶31.

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publicly known.247 Full compensation for the expropriation includes lost profits suffered by

Claimant’s subsidiaries even though they were not located within Ruritania’s borders, because

they were an “inextricable part of [Claimant’s] investment.”248

145. Once FBI was acquired, it was integrated into the Contifica Group’s global procurement

network and Claimant’s subsidiaries started supplying crucial components, such as bottles, cans,

yeast and barley, to FBI for its operation, which contributed to its profitability.249 These inputs

were assets directly invested into FBI’s operation and were part of Claimant’s general

investment. They thus represent recoverable damages for which payment is due under BIT

Article 4.

146. The NAFTA tribunal in Cargill established that the claimant could recover lost profits

for up-stream transactions between a parent company and its subsidiary, not taking place within

the host state’s territory, given NAFTA’s broad definition of investment and that the lost profits

were part of the business’ income and were “closely associated with the physical asset in the host

country.”250 Like NAFTA’s definition of investment, the BIT’s definition encompasses “every

asset which is directly or indirectly invested” in the host state.251

147. The Cargill tribunal adopted a holistic view of Claimant’s investment, under which

sales lost because Claimant’s subsidiaries are no longer allowed to sell components for FBI’s

operations are recoverable damages, by virtue of their being part of the income that should have

been generated by the investment in Ruritania.252

148. Like Cargill, the instant case is distinguishable from ADM, where the tribunal rejected

awarding damages for lost profits attributed to sale of a product not located within the host

state’s territory,253 since the sales in ADM were through a joint venture, and not reliant on up-

                                                                                                               247 BIT, Art.4.3(a). 248 Cargill, ¶523. 249 SC, ¶8 250 Cargill, ¶522. 251 BIT, Art.1.1. 252 Cargill, ¶525; SC, ¶¶12-13. 253 ADM, ¶273-74; Cargill, ¶¶521, 524

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stream producers.254 By contrast, FBI relies on its out-of-State suppliers. Consequently, losses

suffered by Claimant’s subsidiaries are directly related to FBI and are hence recoverable.255

B. Claimant is entitled to reparation and compensation for lost profits under

customary international law. 149. Even if Claimant cannot recover losses sustained by its subsidiaries under the BIT,

Claimant submits that it is entitled to reparation for financially assessable lost profits under

general principles of international law. When a BIT only provides compensation for

expropriation, customary international law as reflected in the ILC Articles prescribes

compensation for other violations of the BIT.256

150. Respondent’s measures against Claimant’s investments violate the BIT, making these

internationally wrongful acts under ILC Article 2.257 ILC Article 31 states that the “Responsible

State [Respondent] is under an obligation to make full reparation for the injury caused by the

internationally wrongful act.”258 To the extent that restitution does not wholly cover damages, a

responsible state must provide monetary compensation for all “financially assessable damage[s]

including loss of profits.”259

151. Several tribunals have followed this approach. 260 The oft-cited Chorzow Factory

clarifies that full reparation should,

wipe out all the consequences of the illegal act and reestablish the situation which would, in all probability, have existed if that act had not been committed.261

Applying this principle here requires that Claimant be compensated for losses sustained by its

subsidiaries, since but for Respondent’s change in policies, those companies would have made

sales to FBI.                                                                                                                254 ADM, ¶¶8, 53; Cargill, ¶524. 255 Cargill, ¶524. 256 Siemens, ¶349-50. 257 ILC Articles, Art.2. 258 ILC Articles, Art.3. See also McLachlan, p.334; Marboe, ¶3.114. 259 ILC Articles, Art.36. 260 Siemens, ¶352; Gemplus, ¶13-81; Lemire, ¶149; Sistem, ¶158. 261 Chorzow Factory, p.47 (emphasis added). See also Siemens, ¶351; Lemire, ¶149; CME, ¶617; S.D. Myers, ¶311; Duke Energy, ¶468; National Grid, ¶270; MTD, ¶238; Sempra, ¶400; ADC, ¶484; Biwater Gauff, ¶776; Occidental (2012), ¶792.

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152. Some tribunals have limited damages if they were unforeseeable or only tenuously

linked to the responsible state’s policies.262 However, the causal link between Respondent’s

measures and Claimant’s subsidiaries’ losses is sufficiently direct and foreseeable to require full

compensation as they are based on historical data from 2008-2011, when FBI was integrated into

Contifica group’s procurement network.263 Post-integration, it was foreseeable that measures

taken against FBI would also directly impact Claimant’s suppliers.

153. The present case is distinct from cases such as LG&E or Railroad Development, where

tribunals rejected awarding compensation for lost sales or profits because claimants requested

compensation for lost future or anticipated profits based on projections and not actual historical

data, as here.264

154. Customary international law obliges Respondent to compensate for (a) material

damages suffered that are financially assessable,265 and for (b) all foreseeable losses flowing

from its wrongful acts. Consequently, Respondent owes Claimant compensation for sales not

only lost by Claimant but also by its subsidiaries. These damages are financially assessable:

third-party consultants have calculated them to be US$380,000,000.266

C. Claimant mitigated its losses and is entitled to full recovery.

155. Claimant submits that it is entitled to full recovery since it took sufficient measures to

satisfy its duty under customary international law to mitigate losses. Customary international law

limits potential recovery for claimants when they fail to take reasonable measures that could

have mitigated their losses.267

156. Here, FBI mitigated losses by reconfiguring its bottling line to ensure that a limited

production of its 0.5l bottles and cans could continue despite suspension of its sales of 0.8l

                                                                                                               262 See, e.g., Metalclad, ¶115; LG&E, ¶89; Biwater Gauff, ¶785; BG Group PLC, ¶427-28. 263 SC, ¶¶7-13. 264 LG&E, ¶¶88-89; Railroad Dev., ¶269; see also Asian Ag. Products, ¶104. 265 ILC Articles, p.91, ¶5. 266 SC, ¶30. 267 ILC Articles, p.93, ¶11. See also EDF, ¶¶1301-03; M.E. Cement, ¶167; AIG, ¶10.6.4.

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beverages. 268 Further, FBI implemented a “large-scale redundancy program” to minimize

losses.269 Claimant also attempted to resolve this dispute amicably.270 Given Claimant’s efforts,

Respondent is precluded from arguing that Claimant failed to meet its duty to mitigate. Claimant

should therefore receive full recovery.

 

                                                                                                               268 SC, ¶12. 269 SC, ¶19. 270 SC, ¶¶17, 27.

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REQUEST FOR RELIEF

157. For the aforementioned reasons, Claimant respectfully asks this Tribunal to find that:

(1) it has jurisdiction over this dispute;

(2) the submitted claims are admissible;

(3) Respondent has breached its FET and FPS obligations under the BIT, has

impaired Claimant’s investment in an arbitrary and discriminatory manner,

and has expropriated Claimant’s investment;

(4) Respondent may not justify its acts under the BIT;

(5) Respondent should be awarded moral and consequential damages; and

(6) this Arbitration should proceed to the second stage.

Respectfully submitted on 22 September 2013

PETREN

On behalf of Claimant

Contifica Asset Management Corp.