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TEAM BARROS
FOREIGN DIRECT INVESTMENT ARBITRATION MOOT
Facultad de Derecho, Universidad de Buenos Aires
3-6 November 2016
International Court of Arbitration of the International Chamber of Commerce
IN THE PROCEEDING BETWEEN
Peter Explosive
(Claimant)
v.
The Republic of Oceania
(Respondent)
MEMORIAL FOR RESPONDENT
ii
TABLE OF CONTENT
TABLE OF CONTENT ........................................................................................................... ii
LIST OF AUTHORITIES ...................................................................................................... iv
LEGAL SOURCES ................................................................................................................. iv
STATEMENT OF FACTS ................................................................................................... xvi
ARGUMENTS .......................................................................................................................... 1
PART ONE: ARGUMENTS OF JURISDICTION
1. Claimant is not an “investor” under the Euroasia BIT. ................................................... 2
2. Claimant has failed to take the pre-arbitral steps under Art. 9 of the Euroasia BIT. .. 4
3. MFN clause stipulated in Art. 3 of the Euroasia BIT cannot serve as a basis for the
Tribunal’s jurisdiction. ............................................................................................................ 5
4. Claimant has not made “investments” under the Eastasia BIT. ..................................... 6
PART TWO: MERITS
5. Respondent has not expropriated Claimant’s investments. ............................................. 9
5.1. Respondent has not expropriated Claimant’s investment directly. .................... 9
5.2. Respondent has not expropriated Claimant’s investment indirectly. ................ 9
5.3. Respondent’s sanctions were within its police powers. ...................................... 11
5.3.1. The Executive Order served the public purpose of Oceania. ..................... 12
5.3.2. Introduction of sanctions by Respondent is a non-compensable measure. 14
6. No actions of Respondent can be considered as a violation of Euroasia BIT, since Art.
10 of the Euroasia BIT applies. ............................................................................................. 15
6.1. The Euroasia BIT is lex specialis to international customary law. ................... 15
6.2. Respondent introduced sanctions for maintenance of international peace and
security. ................................................................................................................................ 16
6.2.1. Eurasia annexed Fairyland illegally. ............................................................. 16
6.2.2. The annexation cannot be justified by self-determination of Fairyland
people. .............................................................................................................................. 17
6.2.3. By annexation of the Fairyland Euroasia has breached the principle of
estoppel. ............................................................................................................................ 18
6.3. Respondent is bound not to “recognize as lawful” the annexation of Fairyland
by Euroasia. ......................................................................................................................... 19
6.4. Respondent imposed sanctions to condemn the illegal act of annexation of
Fairyland by Euroasia. ..................................................................................................... 20
7. Claimant contributed to the damage he has suffered. .................................................... 22
7.1. Claimant contributed to the damage suffered by its investment by violation
“clean hands” doctrine. ...................................................................................................... 23
iii
7.2. Claimant contributed to the damage suffered by its investment by supply of
weapons for Euroasian armed forces................................................................................ 25
PRAYER FOR RELIEF ........................................................................................................ 28
iv
LIST OF AUTHORITIES
LEGAL SOURCES Books
Newcombe A.Newcombe, L. Paradell, Law and
Practice of Investment Treaties: Standards
of Treatment, (The Netherlands: Kluwer
Law International, 2009)
Cheng Bin Cheng, General Principles of Law as
Applied by International Courts and
Tribunals, (Cambridge: Cambridge
University Press, 1953)
Reinisch A. Reinisch, The Oxford Handbook of
International Investment Law, (Oxford:
Oxford University Press, 2008
Sabahi B. Sabahi, Compensation and
Restitution in Investor-State Arbitration:
Principles and Practice
Bimal N. Patel B. N.Patel, R. Nagar, H.Thakkar, Law
and Economics in India: Understanding
and practice, (Rouledge, Taylor&Francis
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Shreuer (1) C. Shreuer et al, THE ICSID
CONVENTION (2 ed., University Press,
Cambridge, 2009
v
Dugan C.F. Dugan, D.Wallace, Jr.Noah
Rubins, B.Sabani, Investor-State
Arbitration, (Oxford: Oxford International
Law Library, 2008)
Brownlie I. Brownlie, Principles of Public
International Law, (Oxford: Oxford
University Press, 2003)
Caliskan
J. Caliskan, The Development of
International Investment Law: Lessons
from the OECD MAI Negotiations and
Their Application to a Possible
Multilateral Agreement on Investment,
(Universal-Publishers, 2008)
Salacuse
J. W. Salacuse, The Law of Investment
Treaties, Second Edition, (Oxford: Oxford
International Law Library, 2015)
Sauvant
K. P. Sauvant, Yearbook on
International Investment Law & Policy
2011-2012, (Oxford, 2012)
Dawidowicz M. Dawidowicz, The Obligation Of
Non-Recognition Of An Unlawful
Situation, (Oxford: Oxfort University
Press, 2010)
vi
Blackaby N. Blackaby, C. Partasides, A. Redfern
and J.M.Hunter on International
Arbitration (Sixth Edition), (Oxford:
Oxford University Press,2015)
Dolzer (II) R. Dolzer, Christoph Schreuer,
Principles of International Investment Law,
Second Edition,(Oxford:Oxford University
Press,2012)
Redfern Redfern and Hunter on International
Arbitration (Sixth Edition), Blackaby,
Partasides, et al. (2015)
Ripinsky S. Ripinsky, K. Williams, Damages in
International Investment Law, London
2008
Banifatemi Y. Banifatemi, The Law Applicable in
Investment Treaty Arbitration, In
Arbitration Under International Investment
Agreements: A Guide to the Key Issues,
(Oxford University Press, 2010)
Douglas Z. Douglas, The International Law of
Investment Claims, (CUP, Cambridge,
2009)
Legal Journals
Ovchar A. Ovchar, Estoppel in the
vii
Jurisprudence of the ICJ A principle
promoting stability threatens to undermine
it, Bond Law Review, vol.21, (2009)
Reinisch A. Reinisch, Standards of Investment
Protection, (Oxford: Oxford University
Press,2008)
Moloo R. Moloo, A Comment on the Clean
Hands Doctrine in International Law,
(Gibson, Dunn & Crutcher LLP, 2010)
Maniruzzaman A.F.M. Maniruzzaman, Expropriation
of Alien Property and the Principle of Non-
Discrimination in International Law of
Foreign Investment: An Overview, 8 Journal
of Transnational Law and Policy (1998)
Memeti A. Memeti, B. Nuhija, The concept of
erga omnes obligations in international
law, 14 New Balkan Politics (2013)
Aaken A. van Aaken, International Investment
Law and Targeted Sanctions: An Uneasy
Relationship, (Perspectives on topical
foreign direct investment issues No. 164,
2016)
Kishoiyian B. Kishoiyian, The Utility of Bilateral
Investment Treaties in the Formulation of
Customary International Law, 14 Nw. J.
viii
Int'l L. & Bus. 327 (1993-1994)
McLachlan C. McLachlan QC, L. Shore, M.
Weininger, International Investment
Arbitration, (Oxford Arbitrational Series,
2008)
Dolzer (I) R. Dolzer, Indirect Expropriation, New
Developments?,Environmental Law Journal
11 (2002)
Report of ILC 48 session Report of the Commission to the
General Assembly on the work of its forty-
eighth session, (Vol. II)Part 2,Yearbook Of
The International Law Commission, 1996
Final Draft Articles Final Draft Articles on Most Favoured
Nation Clauses’,Year Book of International
Law Commission, Vol.2, Pt. 2, 30th
session,
1978
Hossain K. Hossain, The Concept of Jus Cogens
and the Obligation Under The U.N.
Charter, 3 Santa Clara J. Int'l L. 72 (2005)
Somarajah M. Somarajah, State Responsibility and
Bilateral Investment Treaties, (Journal of
World Trade, 2008)
S. Talmon S. Talmon, Recognition of States and
ix
governments in international law: With
Particular Reference to Governments in
Exile, (Oxford, 2008)
Talmon S. Talmon, The Duty Not to ‘Recognize
as Lawful’ a Situation Created by the
Illegal Use of Force or Other Serious
Breaches of a Jus Cogens Obligation: An
Obligation without Real Substance?
(Oxford Legal Studies Research Paper No.
19, 2006)
Sobahi Sabahi, Compensation and Restitution
in Investor-State Arbitration: Principles
and Practice, Mexican Annuary
International Law Journal, (2011)
Sadowski W. Sadowski, Yukos and Contributory
Fault, Transnational Dispute Management
11 (2014)
Kryvoi Y. Kryvoi, M. Tsarova, Protecting
Foreign Investors in Crimea: Is Investment
Arbitration an Option? CIS Arbitration
Forum (2015)
Zadorozhnii O. Zadorozhnii, Russian doctrine of
international law after the annexation of
Crimea: Monograph, Kyiv, K.I.S., 2016
x
List of cases
ADC ADC Affiliate Limited and ADC &
ADMC Management Limited v. The
Republic of Hungary, ICSID Case No.
ARB/03/16,Award, 2 October 2006
AAPL Asian Agricultural Products Ltd v.
Republic of Sri Lanka, ICSID Case No.
ARB/87/3, Final Award, 27 June 1990
Amco Amco Asia Corporation v. Republic of
Indonesia, ICSID Case No. ARB/81/,
Award, 20 November 1984
Ceac Ceac Holdings Limited v. Montenegro,
ICSID Case No. AARB/14/8RB/8, Award,
14 July, 2014
Enron Enron Corporation and Ponderosa
Assets, L.P. v. Argentine Republic, ICSID
Case No. ARB/01/3, Decision on
Jurisdiction, 14 January 2004
Fireman’s Fund Fireman’s Fund Insurance Company v.
United Mexican States, ICSID Case No.
ARB(AF)/02/1, Decision on the Pleminary
Question, 17 July 2003
Gustav Gustav F W Hamester GmbH & Co KG
v. Republic of Ghana, ICSID case No.
ARB/07/24, Award dated 18 June 2010
xi
Al-Warraq Hesham Talaat M. Al-Warraq v.
Republic of Indonesia, UNCITRAL case,
Final award,15 December 2014
Hulley Hulley Enterprises Limited v. The
Russian Federation, UNCITRAL, PCA
Case No. AA 226, Final Award, 18 July
2014
Fraport Fraport AG Frankfurt Airport Services
Worldwide v. The Republic of the
Philippines, ICSID Case No. ARB/03/25,
Award,16 August 2007
Wall in the Occupied Palestinian
Territory
Legal Consequences of the
Construction of a Wall in the Occupied
Palestinian Territory, ICJ, Advisory
Opinion, 4 July 2004
Methanex Methanex Corporation v. United States
of America, UNCITRAL case, Final
Award of the Tribunal on Jurisdiction and
Merits, 3 August 2005
Nicaragua Military and Paramilitary Activities in
and Against Nicaragua (Nicaragua v. The
United States of America),ICJ, Judgment on
the Merits, 27 June 1986
Plama Plama Consortium Limited v. Republic
of Bulgaria, ICSID case No. ARB/03/24,
Award, 27 August 2008
xii
Quiborax Quiborax S.A. and Non Metallic
Minerals S.A. v. Plurinational State of
Bolivia, ICSID Case No. ARB/06/2,
Award, 16 September, 2015
Saluka Saluka Investments B.V. v. The Czech
Republic, UNCITRAL case, Partial Award,
17 March 2006
Sempra Sempra Energy International v. The
Argentine Republic, ICSID Case No
ARB/02/16, Award, 28 September 2007
SASL South American Silver Limited v.
Plurinational State of Bolivia, PCA Case
No. 2013-15 , Objections to Jurisdiction,
Admissibility and Counter-Memorial on the
merits, 30 November 2015
Starrett Starrett Housing Corp v. Government
of the Islamic Republic of Iran, 4 Iran-US -
CTR Case No. 24, 19 December 1983
Shufeldt Claim Shufeldt Claim (US v. Guatemala),
UNRIAA VOLUME II pp. 1079-1102,
Award, 24 July 1930
Tippets Tippetts, Abbett, McCarthy, Stratton v.
TAMS-AFFA Consulting Engineers of Iran,
6 Iran-US CTR Case No. 7, 29 June 1984
Yukos Yukos Universal Limited (Isle of man)
xiii
v. The Russian Federation, PCA, Case No.
AA 227, Final Award, 18 July 2014
Veteran Veteran Petroleum Limited v. The
Russian Federation, UNCITRAL, PCA
Case No. AA 228, Final Award, 18 July
2014
World Duty Free Company Limited World Duty Free Company Limited v.
Kenya, ICSID Case No ARB/00/7, Award,
4 October 2006
Treaties:
UN Charter Charter of the United Nations, 1945
DPIL Declaration on Principles of
International Law concerning Friendly
Relations and Co-operation among States
in accordance with the Charter of the
United Nations, 1970
Draft Articles on Diplomatic
Protection with commentaries
Draft Articles on Diplomatic
Protection with commentaries, 2006
Environmental Licence Environmental License containing an
approval for arms production, 23 July
1998
xiv
Executive Order Executive Order on Blocking
Property of Persons Contributing to the
Situation in the Republic of Eastasia, 1
May 2014
European Convention on Nationality,
1997
ILC Articles International Law Commission,
Articles on State Responsibility for
Internationally Wrongful Acts, 2001
ILC Articles, commentary International Law Commission,
Articles on State Responsibility for
Internationally Wrongful Acts (including
official Commentary), Yearbook of the
International Law Commission 2001,
Vol. II (Part 2)
Hague Conv. on Questions of
Nationality Laws
Hague Convention on Certain
Questions Relating to the Conflict of
Nationality Laws, 1930
Eastasia BIT The Agreement for the Promotion and
Reciprocal Protection of Investments
between the Republic of Oceania and the
Republic of Eastasia, 1 January 1992
Euroasia BIT The Agreement for the Promotion and
Reciprocal Protection of Investments
xv
between the Republic of Oceania and the
Republic of Euroasia, 1 January 1995
Rome Statute Rome Statute of the International
Criminal Court, 1998
U.S. Model BIT
United States Model Bilateral
Investment Treaty, 2012
VCLT Vienna Convention on the Law of
Treaties, 23 May 1969
Miscellaneous
1. Definition of Aggression, United Nations General Assembly Resolution 3314
(XXIX).
2. General Assembly Resolution 32/105N, 14 December 1977, (South Africa);
3. General Assembly Resolution 34/93G, 12 December 1979, (South Africa).
4. Obligations Erga Omnes in International Law, Resolution of Institut De Droit
International, 2005.
5. Report of the International Law Commission on the Work of its 48th Session,
GAOR, 51st Session, Supp. No. 10 (A/51/10), 1996.
6. Security Council Resolution 253, 29 May 1968 (Rhodesia).
xvi
STATEMENT OF FACTS 1. Claimant, Peter Explosive, recognised by the Euroasian authorities as a national
of Euroasia, invested in Oceania in February 1998 by purchasing 100% of the
shares in the company, ―Rocket Bombs Ltd, operated in the arms industry and
specialized in arms production.
2. Respondent is the Republic of Oceania.
3. Rocket Bombs had lost its environmental license containing an approval for arms
production in November 1997. In order to resume arms production, Rocket
Bombs was obliged by the environmental law of Oceania to obtain a license from
the National Environment Authority of Oceania (―NEA‖). To obtain such a
decision, Rocket Bombs was obliged to adjust its production line to the
environmental requirements contained in the Environment Act.
4. To resume arms production, Rocket Bombs was obliged by the environmental
law of Oceania to obtain an Environmental License from the National
Environment Authority of Oceania containing an environmental approval for the
commencement of arms production from the NEA (―Environmental License‖).
To obtain such a decision, Rocket Bombs was obliged to adjust its production
line to the environmental requirements contained in the Environment Act 1996.
5. To gain the necessary financial resources, Claimant needed Rocket Bombs to
resume production as soon as possible and to generate income necessary to cover
the initial expenses. He decided to turn to the Ministry of Environment of
Oceania with a request for a subsidy, which was possible, according to the
Environmental Act.
6. Claimant decided to try to expedite the decision of the Ministry of Environment
regarding the subsidy and in July 1998, he managed to have a private meeting
with the President of NEA. On 23 July 1998, NEA issued an environmental
license approving the commencement of arms production by Rocket Bombs.
7. On 3 August 1998, the Ministry of Environment of Oceania denied the request
for subsidy. And on 8 September 1998, Claimant approached his friend, who was
now Minister of National Defence (―Minister‖) in the Republic of Euroasia
(―Euroasia‖). Minister revealed to Claimant that the contract between the
Ministry of National Defence acting on behalf of Euroasia and Super Missiles
xvii
Ltd. (―Super Missiles‖) for the arms production would soon expire. Euroasia was
still in the process of modernising the equipment. Minister promised that a new
contract for the arms production will be concluded with Rocket Bombs. On 23
December 1998, Claimant met with representatives of the Ministry of the
National Defence, including the Minister himself. On that day, they concluded a
contract for the arms production.
8. Soon Rocket Bombs received the advance, its arms production was commenced.
Claimant concluded a number of contracts with Oceanian companies for the
delivery of the materials necessary for the arms production. Later Rocket Bombs
became very prosperous company and one of the largest arms producers in
Oceania. Claimant managed to conclude, on behalf of Rocket Bombs, a great
number of contracts for arms production and opened several new factories. As
the business became profitable, Claimant modernised the production and it fully
complied with the legal requirements in Oceania by 1 January 2014.
9. After annexation of Fairyland, Oceania declared that the annexation was
unlawful and on 1 May 2014 the President of Oceania issued an Executive
Order. The Executive Order introduced a system of sanctions. The sanctions
were applied to Rocket Bombs, which was the only company designated by the
sanctions. Claimant was unable to sell the shares in the company to a third
person, he could neither conduct the business, nor sell it.
10. Throughout 2013, the General Prosecutor‘s Office of Oceania was conducting an
investigation regarding the corruption in the National Environment Authority of
Oceania.On 21 November 2013, the investigation resulted in a formal initiation
of criminal proceedings against those officials, including the President of the
National Environment Authority of Oceania. On 1 February 2015, the President
of the National Environment Authority, along with the other officials, was
convicted of accepting bribes. The scandal heavily engaged the media and the
public of Oceania.As a result there were numerous investigations by the General
Prosecutor‘s Office. Those investigations focused on people who bribed the NEA
President and other officials. On 5 May 2015, Claimant was informed that he was
under investigation with regard to the environmental license obtained on 23 July
xviii
1998 for Rocket Bombs. On 23 June 2015, the General Prosecutor‘s Office
officially initiated criminal proceedings against the Claimant.
1
ARGUMENTS
PART ONE: ARGUMENTS OF JURISDICTION
11. Under Art. 6.2 of the International Chamber of Commerce (―ICC‖) Arbitration
Rules the parties accept that the arbitration shall be administered by the Tribunal
by agreeing to arbitration under the ICC Rules.
12. Respondent has not agreed to arbitration under the ICC Rules over the present
dispute.
13. Claimant argues the Tribunal has jurisdiction based on Respondent‘s consent
expressed in the Eurasia BIT. Art. 9 of the Euroasia BIT says that to fall under
the Tribunal‘s jurisdiction (i) the dispute must be a dispute regarding investment
(jurisdiction ratione materiae), and (ii) the parties of the dispute must be a
Contracting Party and an ―investor‖ of another Contracting Party (jurisdiction
ratione personae), as they as defined in Art. 1 of the Eurasia BIT, as well as (iii)
the dispute may be referred to the Tribunal only after twenty four months from
the date of the notice on the commencement of proceedings before the competent
judicial or administrative courts of the Contracting Party in whose territory the
investment is made, i.e. of Oceania.
14. All three criteria are obligatory. However, the last two of them are not met in
case of this dispute, and therefore, the Tribunal lacks jurisdiction over it.
15. To avoid the third criteria mentioned above, the Respondent tries to invoke Art. 8
of the Eastasia BIT based on MFN clause contained in Eastasia BIT. Such
invocation fails, because (i) the Claimant may not benefit from MFN clause
contained in the Euroasia BIT, as it is not investor under the Euroasia BIT; (ii)
MFN clause may not broaden the scope of the Respondent‘s consent to
arbitration; (iii) also the rules on settlement of investment disputes from the
Eastasia BIT may not apply, because this dispute may is not a dispute concerning
―investments‖.
2
1. Claimant is not an “investor” under the Euroasia BIT. 16. To be granted protection under Euroasia BIT, i.e. Claimant must be qualified as
an ―investor‖ under Euroasia BIT. Claimant is not ―investor‖ for the purposes of
Euroasia BIT, because he acquired nationality of Euroasia as a result of an
international wrongful act of Euroasia.
17. Namely, Euroasian citizenship was granted to Peter Explosive, as to the citizen of
annexed Fairyland, already after illegal entrance of Euroasian military forces into
the territory of Fairyland on March 1, 2014 and on the same day as annexation of
Fairyland by Euroasia was officially declared1. As it will be discussed infra, the
(i) entrance of Euroasian military forces into the territory of Eastasia on March 1,
2014, as well as (ii) annexation of Euroasia with regard to the territory of
Fairyland were illegal and constituted an international wrongful act.2
18. Under Art. 1 of the Euroasia BIT, a natural person is an ―investor‖ under
Euroasia BIT, if he has the nationality of either Contracting Party in accordance
with its laws.3 Euroasian authorities recognized Peter Explosive as a national of
the Republic of Euroasia on 23 March 2014, and he was subsequently issued a
Euroasian identity card and passport.4 Recognition of a natural‘s nationality
based on the discretion of the state granting the nationality is widely accepted,
however, the right of a state, i.e. of Euroasia, to decide who are its nationals, is
not absolute.5
19. In CEAC, the tribunal reemphasized that the question of its jurisdiction is a
matter for international, and not domestic, law.6
20. Art. 4 of the Draft Articles on Diplomatic Protection, states:
―for the purposes of the diplomatic protection of a natural
person, a State of nationality means a State whose
nationality that person has acquired, in accordance with
the law of that State, by birth, naturalization, succession of
1 Section 6.2.1. of this Memorandum.
2 Ib.
3 Euroasia BIT, Art. 1
4 Procedural Order No 2, para. 4.
5 Draft Articles on Diplomatic Protection with commentaries, art. 4, para. 7.
6 CEAC, paras. 154, 155.
3
States, or in any other manner, not inconsistent with
international law‖.7
21. The commentary to this article clarifies the ILC‘s approach to definition of
―nationality‖:
[t]his definition is premised on two principles: first, that it
is for the State of nationality to determine, in accordance
with its municipal law, who is to qualify for its nationality;
secondly, that there are limits imposed by international
law on the grant of nationality‖.
22. The commentary provides examples of various other treaties, requiring states to
comply with international standards in the granting of nationality.8
23. In the case at hand, therefore, the question of Claimant‘s nationality cannot be
decided based on the fact that Eurasia recognizes him as its citizen. In contrast, it
should derive from the fact that grant of such citizenship results from an
international wrongful act and recognition of such citizenship, i.e. by
Respondent, would violate international law.
24. Recognition of Claimant‘s citizenship of Euroasia is inconsistent with the ex
iniuria ius non oritur general principle of law, and would violate the obligation
of non-recognition of unlawful situations under Art. 41(2) of the ILC Articles on
State Responsibility.
25. Art. 41(2) of the ILC Articles on State Responsibility provides that:
―[2] No State shall recognize as lawful a situation created
by a serious breach within the meaning of article 40, nor
render aid or assistance in maintaining that situation‖.9
26. The ILC explains, that this general obligation of non-recognition reflects ―a well
established practice‖ and is thus said to embody existing customary international
law.10
27. To comply with the obligation of non-recognition of unlawful situations, the
states have, inter alia, been required to exclude any dealings with responsible
7 Draft Articles on Diplomatic Protection with commentaries, art. 4, para. 7.
8 European Convention on Nationality 1997, art. 3.2; Hague Conv. on Questions of Nationality Laws, art. 1.
9 ILC Articles, art. 41.2.
10 Report of ILC 48 session, p. 72, art. 53, para. 2.
4
states, which could imply formal recognition of an unlawful situation11
, i.e.
recognition of passports or travel documents issued by a regime.12
28. Considering otherwise would lead to international compromise with the
―annexation by passport‖ activities, being able to undermine the whole system of
international peace and security. As E. Murray precisely notes with regard to
Russia‘s policy of granting citizenship to people in other state: ―Passportisation is
dangerous for international peace and security. Russia will be able to utilize
passportisation as a window for intervention. Accordingly, Russia‘s next
intervention will seemingly follow the distribution of Russian passports‖.13
Respondent hopes that neither Russia, nor Euroasia will be encouraged by the
international community to follow this strategy.
29. Considering the above, Claimant cannot be considered as a national of Euroasia,
is not an ―investor‖, and, therefore, the Tribunal lacks jurisdiction ratione
personae.
2. Claimant has failed to take the pre-arbitral steps under Art. 9 of the
Euroasia BIT.
30. In accordance with Art. 9 of the Euroasia BIT, if a dispute has not been resolved
amicably, an investor may submit the claim to the competent court of the host
State. Such submission will also empower the investor to further refer the
dispute to international arbitration, provided that before such submission a
twenty four months‘ term from the date of the notice on the commencement of
proceedings before the competent courts of the host State has elapsed.14 Art. 9 of
the Euroasia BIT, therefore, preconditions the Tribunal‘s jurisdiction over the
dispute upon taking specific pre-arbitral steps. Claimant has failed to comply
with it.
31. According to the common practice in investment disputes resolution, the
obligation to comply with the waiting period is not subject to derogations. It
11
Dawidowicz, p. 684. 12
Security Council Resolution 253, 29 May 1968 (Rhodesia); General Assembly Resolution 32/105N, 14
December 1977 (South Africa); General Assembly Resolution 34/93G, 12 December 1979 (South Africa). 13
Zadorozhnii. 14
Euroasia BIT, art. 9.2.
5
constitutes one of the jurisdictional requirements, and a failure to fulfill it results
in rejection of the right to arbitrate.15
32. Claimant has not submitted the dispute to any courts of Oceania at all.
33. In Enron the tribunal declared:
―[T]he Tribunal wishes to note in this matter, however,
that the conclusion reached is not because the six-month
negotiation period could be a procedural and not a
jurisdictional requirement as has been argued by the
Claimants and affirmed by other tribunals. Such
requirement is in the view of the Tribunal very much a
jurisdictional one. A failure to comply with that
requirement would result in a determination of lack of
jurisdiction‖. 16
34. Considering that Claimant has failed to comply with the pre-arbitral steps
requirement stipulated in Art. 9 of the Euroasia BIT the Tribunal lacks
jurisdiction.
3. MFN clause stipulated in Art. 3 of the Euroasia BIT cannot serve as a basis
for the Tribunal’s jurisdiction.
35. Claimant alleges, that requirement of pre-arbitral steps under Art. 9 of the
Euroasia BIT can be circumvented by invocation of Art. 8 of Eastasia BIT based
on the MFN clause stipulated in the Euroasia BIT, namely:
―[E]ach Contracting Party shall, within its own territory,
accord to investments made by investors of the other
Contracting Party, to the income and activities related to
such investments and to such other investment matters
regulated by this Agreement, a treatment that is no less
favourable than that accorded to its own investors or
investors from third-party countries‖. 17
36. Art. 8 of Eastasia BIT indeed does not require prior submission of a dispute to
national courts. However, the cited MFN clause may not be invoked for its
application to the dispute at hand.
15
Blackaby, p. 480. 16
Enron, para. 88. 17
Euroasia BIT, art. 3.1.
6
37. First, as stated above18
Art. 3 of Euroasia BIT is not applicable, as Claimant is
not Euroasian national, and therefore, not an investor under the Euroasia BIT.
38. Second, the MFN clause does not invoke the provisions on pre-arbitral steps,
being the jurisdictional ones.
39. The need to distinguish between jurisdictional and substantive rights granted by
BITs was stressed, i.e. by Douglas:
―MFN clause in the basic investment treaty does not
incorporate by reference provisions relating to the
jurisdiction of the arbitral tribunal, in whole or in part, set
forth in a third investment treaty, unless there is an
unequivocal provision to that effect in the basic
investment treaty‖. 19
40. Art. 3 of the Euroasia BIT does not include any provisions on extension of MFN
regime to jurisdictional requirements.
41. Case law reflects the reasoning for MFN‘s applicability only to merits.20
42. In Anglo-Iranian Oil Company, the court dismissed the United Kingdom‘s
submission because, a priori, the MFN clauses could not extend to jurisdictional
matters:
―The Court needs only observe that the most-favoured-
nation clause in the Treaties between Iran and the United
Kingdom has no relation whatever to jurisdictional matters
between the two Governments. If Denmark is entitled
under Art. 36, para. 2, of the Statute, to bring before the
Court any dispute as to the application of its Treaty with
Iran, it is because that Treaty is subsequent to the
ratification of the Iranian Declaration. This can not give
rise to any question relating to most-favoured-nation
treatment‖.21
43. Claimant cannot refer to MFN clause as it can be referred only in questions of
merits. Then before going to the Arbitration, Claimant should apply for national
court of Oceania. As a result, the Tribunal has no jurisdiction.
4. Claimant has not made “investments” under the Eastasia BIT.
18
Section 1 of this Memorandum. 19
Douglas, para. 644. 20
Plama, para. 215. 21
Anglo-Iranian Oil Co, para. 93.
7
44. Even if Art. 8 of the Eastasia BIT could be invoked based on Art. 3 of the
Euroasia BIT, Art. 8 of Eastasia BIT does not apply to the dispute, as it does not
concern ―investments‖.
45. Art. 8 of the Eastasia BIT applies only to the ―disputes concerning
investments‖.22
46. The definition of ―investment‖ for the purposes of Eastasia BIT:
―[t]he term ―investment‖ comprises every kind of asset
directly or indirectly invested by an investor of one
Contracting Party in the territory of the other Contracting
Party in accordance with the laws and regulations of the
latter ‖.23
47. The underlined phrase of the definition reflects the Contracting Parties‘ intent to
limit the notion of ―investment‖ with the ―clean hands‖ obligation. As noted by
the Phoenix tribunal, ―the purpose of the international protection is to
protect legal and bona fide investments…‖24, however, the Claimant‘s
investments were not of this sort.
48. In February 1998 Claimant acquired shares in Rocket Bombs. In order to resume
arms production, Rocket Bombs was obliged by the environmental laws of
Oceania to obtain a license from the NEA containing an environmental approval
for the commencement of arms production. To obtain such a decision, Rocket
Bombs was obliged to adjust its production line to the environmental
requirements contained in the Environment Act 1996.25 However, Сlaimant
obtained the Environmental License and carried out more than 15 years activity
without compliance with all the requirements of the Environmental Act, thereby
breaking the law of Oceania. As Claimant did not comply with the environmental
laws‘ requirements, Respondent alleges that the process of the Environmental
License‘s obtainment must have involved corruption, which is also affirmed by
collateral facts.26
22
Eastasia BIT, art. 8.1. 23
Eastasia BIT, art. 1. 24
Phoenix, para. 100. 25
Uncontested Facts, paras. 2-4. 26
Uncontested Facts, paras. 18-19.
8
49. Claimant has, therefore, failed to invest in accordance with the laws and
regulations of Oceania, most importantly, having violated its anti-corruption
laws. The importance of anti-corruption laws‘ compliance is strengthened
widely. In World Duty Free Company Limited the tribunal stated: ―claims based
on contracts of corruption or on contracts obtained by corruption cannot be
upheld‖.27
50. The Environmental License, shares‘ cost, as well as any business relations of
Claimant are, therefore, based on illegal activity, i.e. are operated with violation
of ―clean hands‖ doctrine.
51. The assets Claimant has invested in breach of Oceanian laws are, therefore,
outside of the notion of ―investments‖, and the dispute about such assets may not
be settled based on Art. 8 of the Eastasia BIT. In Fraport the tribunal ruled: ―[a]
party who asks for redress must present himself with clean hands‖28
, still
Claimant is trying to avoid this maxima.
52. Considering that (i) Claimant is not in ―investor‖ under the Euroasia BIT, (ii) it
has not complied with pre-arbitral steps requirement under Art. 9 of the Euroasia
BIT and (iii) cannot circumvent this requirement by invocation of Art. 8 of the
Eastasia BIT, the Tribunal lacks jurisdiction over the dispute.
27
World Duty Free Company Limited, para 157. 28
Fraport, para. 328; Cheng, p. 156.
9
PART TWO: MERITS
5. Respondent has not expropriated Claimant’s investments. 53. Art. 4 of the Euroasia BIT establishes that investments shall not be directly or
indirectly expropriated, except for public purpose on conditions of due process of
law, non-discriminatory basis and prompt, adequate and effective
compensation.29
54. In the case at hand, Respondent could not expropriate any investments, since
Claimant had not made any.30
Even if the Tribunal recognizes that Claimant has
made investments in the sense of Art. 1 of the Euroasia BIT, no expropriation
occurred.
5.1. Respondent has not expropriated Claimant’s investment directly.
55. Expropriation is defined as taking or deprivation of property by the host state
―owned by private persons by means of administrative or legislative action‖.31
56. The international investment law recognizes two types of expropriation: direct
and indirect expropriation.32 A direct expropriation is the one in its traditional
meaning.33 Direct expropriation occurs when a host state deliberately seizes
property and transfers legal title to itself.34
57. Respondent did not seize any Claimant‘s property, as well as did not it transfer
any Claimant‘s legal title to itself, and therefore, no direct expropriation has
occurred in the case at hand.
5.2. Respondent has not expropriated Claimant’s investment indirectly.
58. Executive Order introduced certain sanctions, which also applied to Claimant and
his company.35 Though the sanctions have had adverse effect on Claimant‘s
business, they cannot be considered as amounting to indirect expropriation.
29
Euroasia BIT, art. 4.1. 30
Section 4 of this Memorandum. 31 McLachlan, p. 290; Tecmed, para. 113. 32
Dolzer, p. 101. 33
McLachlan, p. 290. 34
Newcombe. p. 323. 35
Uncontested Facts, paras. 16-17.
10
59. There is not consistent approach to understanding of indirect expropriation in
international investment law, and its identification depends on a case-by-case
analysis of the specific facts36, e.g. in Starrett, the tribunal concluded that an
expropriation had taken place as a result of the appointment of Iranian managers
to the housing project,37 while in Tippetts, the tribunal did not regard the
government appointment of an Iranian manager itself as an expropriation.38
60. International tribunals have identified a number of factors to be taken into
account for adjudicating indirect expropriations, including: (1) the effect of the
government measures on an investment; (2) the intent, purpose, nature or
character of the governmental act or measure, (3) the degree of reliance on the
government‘s representations, (4) the duration of the effect of the governmental
act or measure, (5) whether the investor has sought domestic remedies, (6)
whether the government act has been validated by domestic courts, and (7)
whether the government has transferred the investment to itself or to a third
party.39
61. The seventh factor, i.e. whether the government has transferred the investment to
itself or to a third party, is of particular importance.
62. So, UNCITRAL tribunal in Lauder denied existence of an indirect expropriation,
inter alia, because the measures complained of did ―not amount to an
appropriation or the equivalent—by the State, since it did not benefit the Czech
Republic or any person related thereto‖.40
63. The ICSID tribunal in Amco expressly held that it is generally accepted in
international law, that a case of expropriation exists not only when a state takes
over private property but also when the expropriating state transfers ownership to
another legal or natural person.41
64. The measures taken by Respondent concerning Claimant did not transfer any
Claimant‘s assets to itself or a third party. Notably, Respondent was not a party
to the contracts with Claimant terminated as a result of Respondent‘s sanctions.
36
Reinisch, p. 439. 37
Starrett, para. 156. 38
Tippetts. 39
Dugan, p.469. 40
Lauder, para. 203. 41
Amco.
11
In contrast, Respondent‘s economy, which used to benefit from Claimant‘s
business, will probably deteriorate.
65. Respondent contends that at least because it has not benefited from the
expropriation in any way, and the title to any assets of Claimant has not been
passed to Respondent, or any third party, no indirect expropriation has occurred
either.
5.3. Respondent’s sanctions were within its police powers.
66. In expropriation disputes it is important to recognize a state‘s legitimate right to
regulate and its police power to act in the interests of public welfare. Such
actions should not be confused with acts of expropriation.42
67. In Quiborax the Tribunal noted that:
―[i]f the Revocation Decree was the legitimate exercise of
its sovereign right to sanction violations of the law in its
territory, it would not qualify as a compensable taking.
International law has generally understood that regulatory
activity exercised under the so-called ―police powers‖ of
the State is not compensable‖.43
68. Similarly, in Saluka, the tribunal said that in its opinion, the principle that a State
does not commit an expropriation and is thus not liable to pay compensation to a
dispossessed alien investor when it adopts general regulations that are
―commonly accepted as within the police power of States‘ forms part of
customary international law today.44
69. According to the police powers doctrine, governments are traditionally entitled to
take private property in the legitimate exercise of their police powers without any
compensation.45 In Methanex, the tribunal expressly endorsed the classic police
powers doctrine, specifically applying for the three traditional criteria in the
assessment of legality: public purpose, non-discrimination and due process. If
42
Salacuse, p. 327. 43
Quiborax, para. 202. 44
Saluka, para. 262. 45
Dolzer, p.79-80; Fireman’s Fund, para. 176.
12
these criteria are met, a regulatory measure does not amount to an indirect
expropriation and consequently no compensation is due.46
5.3.1. The Executive Order served the public purpose of Oceania.
A) Respondent has the right to define its public purposes independently.
70. The public purpose is the first criterion which should be met for the
indirect expropriation to be lawful. It is necessary to understand, who has the
authority to assess actions, whether they were taken to serve public purpose or
not.
71. The legal doctrine establishes that state has the authority to decide whether
its public interest is in danger or not.47 Case-law also supports this approach.
72. In Shufeldt Claim the arbitrator stated in respect of the state expropriation act:
„[i]t was perfectly competent for the Government of
Guatemala to enact any decree they like and for any
reasons they see fit, and such reasons are no concern of
this tribunal‖.48
73. The President of the Republic of Oceania was competent to introduce the
Executive Order on the basis of the International Emergency Economic Powers
Act 1992, which authorizes her to declare the existence of an unusual and
extraordinary threat to, among others, national and/ or international security
which in whole or substantial part originates outside the Republic of Oceania.49
74. Thus, under the international law the concept of ―public purpose‖ is broad and
subjected to host state‘s discretion.50 That is essentially for the state to adjudge
what is the scope of its public interests.51 So, Respondent was authorized to issue
the Executive Order for Oceania public purpose.
B) The Executive Order served the public purpose requirements.
75. Respondent submits that he has acted to protect its national defense interest.52
46
Methanex, paras. 7, 15. 47
Reinisch, p. 179. 48
Shufeldt Claim, the Arbitrator‘s Statement. 49
Procedural Order No 2, para. 7. 50
Reinisch, p. 182; Feldman, para. 99. 51
Feldman, para. 99. 52
Procedural Order No 2, para. 7.
13
76. One group of states, among which there was Respondent, declared that the
annexation was unlawful under public international law.53 Similar sanctions to
the ones imposed by means of the Executive Order of 1 May 2014 were also
imposed by some other countries which were against the annexation of Fairyland
by Euroasia.54
77. Therefore, Respondent had significant justification grounded in the protection of
public
78. purpose considerations while issuing the Executive Order.
C) The Executive Order was not discriminatory.
79. A discriminatory expropriation is forbidden both under the customary
international law
80. and treaty provisions addressing the legality of expropriation.55 The Iran-US
Tribunal in Amoco stated that the expropriation of a concern cannot be held
discriminatory solely on the basis that another concern in the same economic
branch was not expropriated.56
81. In the present case with coming into force of the Executive Order all companies
that operated in the targeted sectors, in particular arms production services were
subjected to the sanctions.57 Rocket Bombs was the only company involved in
arms trade with the Republic of Euroasia.58 Rocket Bombs‘ activity was very
favorable to Respondent, because a large number of Valhalla‘s residents were
employed in this company and it was concluded a number of contracts for arms
production that benefited the local community and Valhalla itself.59
82. So, for Respondent it was unprofitable to enter discrimination measures
concerning Claimant because activity of his company rendered favorable effect
on Oceania‘s economy.
D) Respondent has met due process of law requirement.
53
Uncontested Facts. para. 16. 54
Procedural Order No 3, para. 11. 55
Maniruzzaman, p. 57. 56
Amoco, para. 142. 57
Executive Order, section 1 (a); Procedural Order No 3, para. 10. 58
Procedural Order No 2, para. 6. 59
Uncontested Facts, paras. 3, 12.
14
83. Most treaties do not define due process of law, which, of course, has deep roots
in many legal systems.60 In ADC, in which the claimants argued that Hungary had
not respected due process of law when it expropriated their investment, the
tribunal sought to define the term. It stated:
―[d]ue process of law demands an actual and substantive
legal procedure for a foreign investor to raise its claims
against the depriving actions already taken or about to be
taken against it. Some basic legal mechanisms, such as
reasonable advance notice, a fair hearing and an unbiased
and impartial adjudicator to assess the actions in dispute,
are expected to be readily available and accessible to the
investor to make such legal procedure meaningful. In
general, the legal procedure must be of a nature to grant an
affected investor a reasonable chance within a reasonable
time to claim its legitimate rights and have its claims
heard‖.61
84. According to the International Emergency Economic Powers Act 1992 the
President of Oceania was competent to introduce the Executive Order. After a
declaration, the President may block transactions and freeze assets to cope with
the threat. The Executive Order was prepared and published in accordance with
Oceanian law. The media reported on the preparation of the Executive Order
before it was actually published and entered into force.62 So Claimant was
informed with Respondent‘s intention to enter the Executive Order in force and
consequently Claimant knew about sanctions to him and his company.
85. Thus, Respondent submits that he has not violated due process of law, because
Claimant‘s rights were not violated on behalf of Respondent and Executive Order
was introduced in accordance with Oceania's law.
5.3.2. Introduction of sanctions by Respondent is a non-compensable measure.
86. Regulatory measures taken for a public purpose which are non-discriminatory
and enacted in accordance with due process are simply not expropriation and,
therefore, are not subject to compensation, wholly aside from all other arguments
advanced by Respondent here.63
60
Salacuse, p. 351. 61
ADC, para. 435. 62
Procedural Order No 2., para. 7. 63
Methanex, para. 7; Saluka, para. 255; LG&E, para. 195.
15
87. In the present case Respondent‘s actions should be recognized as the exercise of
regulatory power, adopted in full compliance with criteria which were marked
out mentioned above. Besides, if the Tribunal were to decide that Respondent‘s
actions amounted to indirect expropriation, Respondent requests the Tribunal to
find that its actions through Rocket Bombs has constituted the lawful
expropriation for the very same reasons as in case of the Executive Order.
88. Consequently, Claimant does not have any right to compensation of its damages
resulting from the sanctions.
6. No actions of Respondent can be considered as a violation of Euroasia BIT,
since Art. 10 of the Euroasia BIT applies. 89. Under Art. 10 of the Euroasia BIT:
―[N]othing in this Agreement shall be construed to
prevent either Contracting Party from taking measures to
fulfil its obligations with respect to the maintenance
of international peace or security‖.64
6.1. The Euroasia BIT is lex specialis to international customary law. 90. Each BIT is a lex specialis between parties designed to create a mutual regime of
investment protection.65
91. The AAPL66 tribunal concluded that the parties to the arbitration had agreed to the
applicability of the Sri Lanka-United Kingdom bilateral investment treaty as lex
specialis and applicability of the international or domestic legal relevant rules ―as
a supplementary source‖ by virtue of the provisions of the treaty itself.
92. A very similar reasoning was adopted by the Tribunal in Azurix67 and by the
Tribunal in LG&E68 although in the context of the absence of a choice of law
provision under the United States-Argentina bilateral investment treaty.69
93. Therefore, even if international customary law could provide otherwise, Art. 10
of the Eurasia BIT applies and authorizes Respondent to take measures to fulfil
64
Euroasia BIT, art. 10. 65
Kishoiyian, p. 329; Sornarajah, p. 79, 82; Caliskan, p. 52. 66
AAPL paras.19-20. 67
Azurix, paras. 65–67. 68
LG&E, para. 85. 69
Banifatemi.
16
its obligations with respect to the maintenance of international peace or
security.
6.2. Respondent introduced sanctions for maintenance of international peace
and security.
6.2.1. Eurasia annexed Fairyland illegally.
94. In the light of international law annexation is the act of aggression. Aggression
constitutes a crime against the peace, for which there is responsibility under international
law.70
95. Under Rome Statute:
―[A]ct of aggression‖ means the use of armed force by a
State against the sovereignty, territorial integrity or
political independence of another State, or in any other
manner inconsistent with the Charter of the United
Nations‖.71
96. Euroasia violated general principles of international law such as the principle of
non-use of force and threat of force, the principle of territorial integrity of the
state and the principle of the inviolability of state borders, when on 1 March
2014, the armed forces of Euroasia entered the territory of Fairyland.72
97. This act of annexation was illegal, as under Declaration on Principles of
International Law concerning Friendly Relations and Co-operation among States
in accordance with the Charter of the United Nation:
―[E]very State has the duty to refrain in its international
relations from the threat or use of force against the
territorial integrity or political independence of any State,
or in any other manner inconsistent with the purposes of
the United Nations. Every State has the duty to refrain
from the threat or use of force to violate the existing
international boundaries of another State‖.73
98. The principle of prohibition of illegal use of force is jus cogens74 norm and erga
omnes75 obligation.
70
DPIL; Definition of Aggression, United Nations General Assembly Resolution 3314 (XXIX)., art. 5.2; Rome
Statute, art. 8 bis. 71
Rome Statute, art. 8 bis, para. 2. 72
Uncontested Facts, para. 14. 73
DPIL. 74
UN Charter, art. 2.4.; Nicaragua, para. 190.; Hossain, p. 96. 75
ILC Articles, commentary, Chapter iii, para. 7.; Memeti.
17
99. Therefore, interference of Euroasia in the territory of Eastasia was violation of
international law, in particular, jus cogens obligation, which contributed to the
responsibility of Euroasia.
6.2.2. The annexation cannot be justified by self-determination of Fairyland
people.
100. Self-determination is closely related to the protection of the rights of the
minority and if such rights are protected in practice there is no reason and
justification for external self-determination in the form of secession.76 For a long
time there was no requests of self-determination by people living in Fairyland.
They live like citizens of Eastasia, which means that self-determination held at
the national level.
101. Annexation of Fairyland cannot be considered as self-determination of
Fairyland‘s people, since it was the occupation of Eastasia‘s territory by
Euroasia. Although under international law Fairyland is still a part of Eastasia,
the only effective power in control on the region is Euroasia. That would suggest
that Fairyland might be considered an occupied territory.
102. Declaration on Principles of International Law concerning Friendly Relations
and Co-operation among States in accordance with the Charter of the United
Nations proclaims that:
―[T]he territory of a State shall not be the object of
military occupation resulting from the use of force in
contravention of the provisions of the Charter. The
territory of a State shall not be the object of acquisition by
another State resulting from the threat or use of force. No
territorial acquisition resulting from the threat or use of
force shall be recognized as legal‖.77
103. Therefore, Euroasia violated international law and specifically erga omnes
obligation not to occupy the territory of another state.
104. Alternatively, even if there was self-determination of Fairyland people, there
was violation of estoppel by Euroasia and therefore violation of international
76
Kryvoi. 77
DPIL.
18
obligation not to change fixed borders with use of force and, consequently,
Euroasia breached international law, when annexed Fairyland.
6.2.3. By annexation of the Fairyland Euroasia has breached the principle of
estoppel.
105. Estoppel is a general principle of international law.78
106. Estoppel consists of three fundamental elements: (1) a State must make a
representation to another; (2) the representation must be unconditional and
made with proper authority; and (3) the State invoking estoppel must rely
on the representation. Once these elements are established, estoppel is
invoked.79
107. Historically, Fairyland was part of the territory of the Republic of Euroasia.
However, at the outbreak of the World War in 1914, Eastasia annexed the
territory of Fairyland. The annexation of Fairyland by Eastasia was
recognised by the international community when the World War came to an
end in 1918. The Peace Treaty of 1918, which was signed by all countries
involved in the World War, including Euroasia, confirmed the common
agreement on the border changes. Since then, the residents of Fairyland have
been treated as other Eastasian nationals by the Republic of Eastasia.80
108. Therefore, after Euroasia signed The Peace Treaty of 1918, and recognized new
borders, in particular, annexation of Fairyland by Eastasia, Euroasia accepted
circumstances of Fairyland and thereby made representation of acceptance of
these new borders. When Euroasia signed The Peace Treaty of 1918, Euroasia
made it with proper authority. So that until 2013 Eastasia has relied on the
representation of Euroasia.
109. Regardless of the above, Euroasia interfered in the territory of Eastasia -
allegedly with intention to help with self-determination of Fairyland people and
therefore – and thereby breached estoppel and committed an internationally
wrongful act.
78
Brownlie, p. 616. 79
Ovchar. 80
Procedural Order No 3, para. 9.
19
6.3. Respondent is bound not to “recognize as lawful” the annexation of
Fairyland by Euroasia.
110. ILC Articles provide in Art. 41(2) that ―no State shall recognize as lawful a
situation created by a serious breach‖ of an obligation arising under a peremptory
norm of general international law.81
111. The prohibition of illegal use of force is jus cogens82 norm and erga omnes83
obligation.
112. In the advisory opinion on the Wall in the Occupied Palestinian Territory, the
ICJ confirmed that the obligation ―not to recognize as legal‖ territorial
acquisitions resulting from the threat of use of force reflects customary
international law.84
113. This finding is supported by a long list of declarations and instruments to this
effect, starting in 1949 with the Draft Declaration on the Rights and Duties of
States which provided in Art. 11 that ―every State has the duty to refrain from
recognizing any territorial acquisition by another State‖ in violation of the
prohibition of the threat or use of force. In 1964, the Second Conference of
Heads of State and Government meeting in Cairo stated in a Declaration on
Peaceful Coexistence and the Codification of its Principles by the United Nations
that ―States must abstain from all use or threat of force directed against the
territorial integrity and political independence of other States; a situation brought
about by the threat or use of force shall not be recognized‖. 85
114. The obligation ―not to recognize as legal‖ the acquisition or occupation of
territory resulting from aggression or the threat or use of force was also included
in the 1970 Declaration on Principles of International Law Concerning Friendly
Relations and Co-operation among States in Accordance with the Charter of the
United Nations (Friendly Relations Declaration), the 1970 Declaration on the
Strengthening of International Security, the 1974 Definition of Aggression, the
1975 Helsinki Final Act of the Conference of Security and Co-operation in
81
ILC Articles, art. 41.2.; Talmon. p. 99. 82
UN Charter, art. 2.4.; Nicaragua, para. 190.; Hossain, p. 96. 83
ILC Articles, commentary, Chapter iii, para. 7.; Memeti. 84
Wall in the Occupied Palestinian Territory, para. 87. 85
Talmon. p. 102.
20
Europe, and the 1987 Declaration on the Enhancement of the Effectiveness of the
Principle of Refraining from the Threat or Use of Force in International
Relations.86
115. The obligation of non-recognition thus arises for each State as and when it forms
the view that a serious breach of a jus cogens obligation has been committed and
each State will bear responsibility for its decision.87
116. Therefore, Respondent complied with Art. 41(2) of the ILC Articles,
international customary norm not to ―recognize as lawful‖ a situation created by
the illegal use of force as erga omnes obligation.
6.4. Respondent imposed sanctions to condemn the illegal act of
annexation of Fairyland by Euroasia.
117. Under articles 22, 48(1b), 54 of the ILC Articles every State other than an
injured State is entitled to invoke the responsibility of another State if the
obligation breached is owed to the international community as a whole (erga
omnes) and to issue countermeasures with purpose to ensure cessation of the
breach and reparation in the interest of the injured State or of the beneficiaries of
the obligation breached.88
118. For instance, in October 1978, the United States Congress adopted legislation
prohibiting exports of goods and technology to, and all imports from, Uganda.
The legislation recited that ―[t]he Government of Uganda […] has
committed genocide against Ugandans‖ and that the ―United States should take
steps to dissociate itself from any foreign government which engages in the
international crime of genocide‖.89
119. In the present case, Respondent on 1 May 2014 issued an Executive Order on
Blocking Property of Persons Contributing to the Situation in the Republic
of Eastasia. The Executive Order introduced a system of sanctions. The
sanctions were introduced against the persons engaged in certain sectors of the
86
Ib., p. 103. 87
Ib., p. 122.; Report of the International Law Commission on the Work of its 48th Session, GAOR, 51st
Session, Supp. No. 10 (A/51/10), 1996, p. 73. 88
ILC Articles, art. 22, 48(1b), 54; Resolution of Institut De Droit International, Obligations Erga Omnes In
International Law, art. 2. 89
ILC Articles, commentary, art. 54, para. 3.
21
Euroasian economy, including those producing arms for Euroasia. The sanctions
also included a ban on business operations with such persons, suspending
existing contracts and making future contracts with them illegal.90 The
sanctions were applied to Rocket Bombs, as well as to Peter Explosive.91
120. Respondent impose sanctions as countermeasures according with articles 22,
48(1b) and 54 of the ILC Articles lawfully as a response to the international
wrongful act by Euroasia.
121. Such countermeasures are in principle illegal under international law but
considered legal when taken as a response to an international wrongful act.92
122. Newer BITs of the USA and Canada extend the NPM clause (non-precluded
measure clauses) to the maintenance or restoration of international peace or
security, clearly allowing for uncompensated targeted sanctions. Interestingly,
current European BITs do not contain NPM clauses93 such as Art. 10 of Euroasia
BIT.
123. So that there are possibility to impose ―smart‖ sanctions under international
customary law as countermeasures and under provision of a BIT, if the BIT
includes such provision.
124. Therefore, Respondent could invoke the responsibility of Euroasia as principle
of international law such as ―refrain in their international relations from the threat
or use of force against the territorial integrity or political independence of any
State‖94 through the form of agression had been breached. This principle of
international law is jus cogens. 95 Therefore, from the character of the prohibition
of use of force, which is widely recognized as a jus cogens norm it is
incontrovertible that the prohibition of aggression is valid erga omnes.96
125. Therefore, under international law97 and Art. 10 of Euroasia BIT Respondent
introduced sanctions against investors from Euroasia as part of an international
90
Uncontested Facts, para. 16. 91
Uncontested Facts, para. 17. 92
Aaken. 93
Ib. 94
UN Charter, art. 2.4. 95
Nicaragua, paras. 14, 190. 96
Memeti. 97
Section 6.2.1. of this Memorandum.
22
response to condemn an illegal act of annexation of Fairyland by
Euroasia.98
126. Consequently, Respondent should not pay compensation for the expropriation of
Claimant‘s investment and implementation of Executive Order, which imposed
sanctions, because Respondent took measures to fulfil its obligations with
respect to the maintenance of international peace and security under Art. 10
of Euroasia BIT.
127. Respondent‘s countermeasures would be reduced after the purpose of
countermeasures will be reached as internationally wrongful act will be
terminated.99
128. Alternatively, if Tribunal states that Art. 10 of Euroasia BIT does not apply, and
Respondent is to pay compensation for lawful expropriation under Art. 4 of
Euroasia BIT100, the amount of compensation should be reduced as Claimant
contributed to the damage he has suffered.
7. Claimant contributed to the damage he has suffered.
129. The concept of contributory fault in international law has been developed to
address the consequences of blamable conduct of a party injured by an
internationally wrongful act.101
[U]nder Art. 39 of the ILC Articles:
―[I]n the determination of reparation, account shall be
taken of the contribution to the injury by wilful or
negligent action or omission of the injured State or
any person or entity in relation to whom reparation is
sought‖.102
130. The conduct should show manifest lack of care.103
131. This concept has been applied most recently in the three awards104 rendered in
the arbitration between the majority shareholders of Yukos and the Russian
98
Answer to Request for Arbitration. 99
ILC Articles, commentary, art. 49, para. 7. 100
Euroasia BIT, art. 4.1. 101
Ripinsky, p. 315-318. 102
ILC Articles, art. 39. 103
Sabahi. 104
Veteran; Hulley and Yukos. The proceedings in the Veteran, Hulley and Yukos cases were joined and handled
by the same tribunal, which issued three virtually identical awards in all three cases on the same day.
23
Federation.105 In these awards, the tribunal reduced the damages awarded to the
claimants by 25 %, which was the figure corresponding to the tribunal‘s
assessment of the claimants‘ contribution to the injury. In nominal terms, this led
to the reduction of damages by USD 16.7 billion, from USD 66.7 billion to USD
50 billion.106
132. Under Art. 39 of the ILC Articles on State Responsibility contributory fault in
the cases on compensation of damages for existing internationally wrongful acts
is established provided that the following requirements are met: (i) blameable
conduct107 of the injured party and (ii) the causal link108 between that blameable
conduct and the injury suffered by that party.109
133. Commentary to the ILC Articles on State Responsibility, in particular, to Art. 39
proclaim that:
―[A]rticle 39 deals with the situation where damage
has been caused by an internationally wrongful act of
a State, which is accordingly responsible for the
damage in accordance with Articles 1 and 28, but where
the injured State, or the individual victim of the breach,
has materially contributed to the damage by some willful
or negligent act or omission‖.110
134. In the present case, the internationally wrongful act alleged by Claimant is
imposition of sanctions on persons contributing to the situation in the Republic of
Eastasia, which resulted in the deterioration in the Claimant‘s company‘s
financial situation111 and therefore lawful expropriation of Claimant‘s investment.
7.1. Claimant contributed to the damage suffered by its investment by violation
“clean hands” doctrine.
135. The ―clean hands‖ doctrine derives from fundamental principles of equity and
justice and is the corollary of the maxim ―Nemo Auditor Propiam Turpitudinem
105
Sadowski. 106
Ib. 107
ILC Articles, art. 39; Yukos, para. 1596. 108
ILC Articles, art. 31; Yukos, para. 1598. 109
Sadowski. 110
ILC Articles, commentary, art. 39, para. 1. 111
Answer to Request for Arbitration.
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Allegans‖ pursuant to which nobody can benefit from its own wrong or
negligence.112
136. The requirement to have ―clean hands‖ as a condition to access justice is a
general principle in international law.113 The Al-Warraq tribunal concluded that
―the doctrine of ―clean hands‖ renders the Claimant‗s claim inadmissible‖.114
137. Without expressly mentioning the ―clean hands‖ doctrine, other investments
tribunals have reached the same conclusion. For example, in Gustav Hamester,
the tribunal explained that:
―[A]n investment will not be protected if it has been
created in violation of national or international principles
of good faith; by way of corruption, fraud, or deceitful
conduct; or if its creation itself constitutes a misuse of the
system of international investment protection under the
ICSID Convention. It will also not be protected if it is
made in violation of the host State‗s law‖.115
138. In the present case, Claimant violated national legislation of Respondent.
Claimant has breached anticorruption laws of Oceania as the circumstances in
which Claimant secured an environmental license, especially his private
meeting with the President of the NEA, cast a serious shadow over the legality
of the investment.116
139. The President of the NEA has been in the office since the introduction of the
Environment Act 1996. On 1 February 2015, the President of the NEA, along
with the other officials, was convicted of accepting bribes. The scandal heavily
engaged the media and the public of Oceania. Such pressure resulted in the
commencement of numerous investigations by the General Prosecutor‘s Office.
The interest of those investigations focused on people who bribed the NEA
President and other officials. On 5 May 2015, Claimant was informed that he
was under investigation with regard to the environmental license obtained on 23
112
Inceysa Vallisoletana S.L, para. 240.; Plama, para. 143. 113
SASL. 114
Al-Warraq, para. 646. 115
Gustav, para. 123. 116
Answer to Request for Arbitration.
25
July 1998 for Rocket Bombs. On 23 Jun 2015, the General Prosecutor‘s Office
officially initiated criminal proceedings against Claimant.117
140. The convicted President of the NEA named a number of persons, including
Claimant, from whom he allegedly received bribes and against whom he is
willing to testify.118
141. Therefore, when Claimant received license, he breached anticorruption laws of
Respondent so that Claimant breached ―clean hands‖ doctrine. And therefore
Claimant contributed to the damage suffered by its investment by his willful
conduct of receiving license.
7.2. Claimant contributed to the damage suffered by its investment by supply of
weapons for Euroasian armed forces.
142. On 1 March 2014, the armed forces of Euroasia entered into the territory of
Fairyland.119 Before the Euroasian armed forces entered Fairyland, in February
2014, Peter Explosive on behalf of Rocket Bombs started negotiations with John
Defenceless, still the Minister of the National Defence, for the conclusion a new
contract for arms production, aiming at completing the modernization process of
the equipment for the Euroasian armed forces. On 28 February 2014, they
concluded a contract, effective of 1 April 2014, for a period of another six
years.120
143. Therefore, Claimant must have known about future intervention of Euroasia into
the territory of Fairyland since February 2014 and when Claimant signed contract
for a period of another six years, Claimant contributed to his damages thereby as
Claimant continued supply of weapons to Euroasia even after February 2014,
when he should have known of Euroasia‘s intention to incorporate Fairyland into
its territory by direct military intervention if necessary.121 If Claimant had not
concluded the contract, continued supply of weapons, the sanctions, which were
imposed by Executive Order on Claimant‘s business and him, would not affect
his investment. So that, Claimant contributed to the damage suffered by its
117
Uncontested Facts, para. 19. 118
Procedural Order No 2, para. 5. 119
Uncontested Facts, para. 14. 120
Uncontested Facts, para. 15. 121
Answer to Request for Arbitration.
26
investment as there was bleameble conduct(continued supply of weapons), causal
link between his conduct (production of weapons and sale) and intervention to
Eastasia.
144. Consequently, compensation for lawful expropriation should be reduced as
Claimant contributed to the damage suffered by its investment by his willful
conduct, when he violated ―clean hands‖ doctrine and continued supply weapons
to the territory of Euroasia.
27
COMPENSATION
145. Respondent should pay compensation, which should be diminished as Claimant
contributed to the damage suffered by its investment.
146. Countermeasures (sanctions) should be reduced after the purpose of
countermeasures was reached as internationally wrongful act was terminated122.
122
ILC Articles, commentary, art. 49, para. 7.
28
PRAYER FOR RELIEF 147. In the course of the submission as presented above, Respondent respectfully
requests the Tribunal to adjudge and declare:
a) that the Tribunal has no jurisdiction over this dispute under the Euroasia
BIT;
Even if the Tribunal has jurisdiction
b) b) Claimant cannot require to protect of his investment under the Euroasia
BIT since the Claimant has breached the ―clean hands‖ doctrine in
connection with its investment;
c) Respondent has not violated Art. 2 of the Euroasia BIT;
d) even if Respondent has violated the BIT, its actions are exempt under the
BIT‘s;
e) essential security provision or the customary international law defense of
necessity;
f) Respondent‘s actions have not amounted to expropriation;
g) Respondent is entitled to rely on Art. 10 of the Euroasia BIT as a defense
to Claimant‘s claim;
h) Claimant contributed to the damage suffered by its investment.