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FOREIGN DIRECT INVESTMENT MOOT COMPETITION
Stockholm, 8-11 November 2018
MEMORIAL FOR CLAIMANT
TEAM ALFARO
FENOSCADIA LIMITED
45 Finley Road
40 TC 1011
- CLAIMANT -
vs.
REPUBLIC OF KRONOS
Suni Street 12
1090 Vasa
- RESPONDENT -
TEAM ALFARO
i
TABLE OF CONTENTS
TABLE OF ABBREVIATIONS……………………………………………………….iii
TABLE OF AUTHORITIES…………………………………………………………...iv
TABLE OF CASES…………………………………………………………………….xii
STATEMENT OF FACTS………………………………………………………………1
ARGUMENTS ON JURISDICTION…………………………………………………..3
I. CLAIMANT IS AN INVESTOR PURSUANT TO ARTICLE 1(4) OF THE
TICADIA-KRONOS BILATERAL INVESTMENT TREATY…………………...3
i. The BIT determines that the place of incorporation cumulated to the place of
head office defines the investor’s nationality……………………………………... 3
ii. The applicability of the control criteria……………………….…………………...6
a) The Contracting Parties did not intend to apply the control criteria………...6
b) Subsidiarily, CLAIMANT qualifies as an investor under the control
criteria………………………………………………………………………….....9
II. CLAIMANT’S PRESENT CLAIMS HAVE NO RELATION WITH THE
LAWSUIT FILED BEFORE RESPONDENT’S COURTS………………………10
i. The fork in the road provision was not triggered…………………..……………. 11
a) Different Parties………………………………………………………………....13
b) Different Causes of Action……………………………………………………...15
c) Different Objects………………………………………………………………...17
ii. Claimant's Motion in the State Court has a provisional basis and it is not under
the scope of the Dispute Settlement Clause………………………………………….18
III. RESPONDENT’S COUNTERCLAIM IS NOT ADMISSIBLE……………….. 20
i. The consent of the parties was to not allow counterclaims……………………… 21
ii. The counterclaim has no connection with the primary claim…………………...24
ARGUMENTS ON THE MERITS……………………………………………………26
I. THE PRESIDENTIAL DECREE No. 2424 BREACHED ARTICLES 6 AND 8
OF THE BIT…………………………………………………………………………26
TEAM ALFARO
ii
i. Respondent failed to grant fair and equitable treatment to Claimant’s
investment……………………………………………………………………………...26
a) The fair and equitable treatment interpretations as an autonomous principle
or linked to MST under international customary law are equivalent……….26
b) Claimant’s legitimate expectations towards the investment were not
respected by Respondent……………………………………………………….29
II. RESPONDENT’S ACTIONS LED TO THE INDIRECT EXPROPRIATION OF
CLAIMANT’S INVESTMENT…………………………………………………….32
i. The Presidential Decree no. 2424 did not regard public interest nor was an
urgentmatter…………………………………………………………………………..35
ii. Respondent’s conduct is discriminatory and disrespected due process………...39
iii. Respondent did not pay Claimant due compensation for its expropriatory
measures……………………………………………………………………………….41
PRAYER FOR RELIEF ...…………………………………………………………….44
TEAM ALFARO
iii
TABLE OF ABBREVIATIONS
ABBREVIATION FULL CITATION
Agreement
Concession Agreement
Arbitration Institute
of The Stockholm
Chamber of
Commerce
SSC Arbitration Institute and SCC Rules
BIT Agreement Between The Republic of Ticadia and The
Republic of Kronos for the Promotion and Reciprocal
Protection of Investments
CLAIMANT Fenoscadia Limited
Decree Presidential Decree No. 2424
Facts Statement of Uncontested Facts
Fenoscadia Fenoscadia Limited
FET Fair and Equitable Treatment
ICSID International Centre for Settlement of Investment
Disputes
IIA International Investment Agreement
Kronos Republic of Kronos
MST Minimum Standard of Treatment
para. / paras. Paragraph(s)
PO Procedural Order
RESPONDENT Republic of Kronos
Ticadia Republic of Ticadia
TEAM ALFARO
iv
TABLE OF AUTHORITIES
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Kjos Hege Elisabeth Kjos, Applicable Law in Investor-State Arbitration:
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Campbell McLachlan, ; Laurence Shore; Matthew Weiniger,
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oxford International Arbitration Series, 2017.
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Gaukrodger, D. (2017), “Addressing the balance of interests in
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Stephan W. Schill, International Investment Law and Comparative
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Schreuer
Christoph Schreuer, Consent to Arbitration, (updated 02/ 2007),
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Malcolm N. Shaw, International Law (5th ed., Cambridge, 2003).
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TEAM ALFARO
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TABLE OF CASES
CITED AS FULL CITATION
ARBITRAL AWARDS
ADF ADF Group Inc. v United States of America, ICSID Case No. ARB
(AF)/00/1, Award (9 January 2003).
Amco Asia
Corporation
Amco Asia Corporation and Others v Republic of Indonesia, ICSID
Case No. ARB/81/1, First Award (20 November 1984).
AMTO Limited Liability Company AMTO v Ukraine, SCC Case No.
080/2005, Final Award (Mar. 26, 2008).
Azurix Corp. Azurix Corp. v Argentine Republic ICSID Case No. ARB/01/12,
Award (14 July 2006).
Benvenuti Benvenuti & Bonfant SRL v. People’s Republic of the Congo, 1
ICSID Rep. 340 ICSID, 1980, Trolle P, Bystricky and
Razaindralambo, Award (1980)
Biloune Biloune and Marine Drive Complex Ltd v Ghana Investments Centre
and the Government of Ghana, Ad Hoc, UNCITRAL rules, Award
(1989).
Boyko Boyko v Ukraine, PCA Case No 2017-23, IIC 1264 , 3rd December
2017, Permanent Court of Arbitration [PCA], Procedural Order No 3
on Claimant’s Application for Emergency Relief (2017)
Chemtura Chemtura Corporation v. Government of Canada, Ad Hoc NAFTA
Arbitration under UNCITRAL Rules, Award (August 2, 2010)
TEAM ALFARO
xii
City Oriente
Ltd.
City Oriente Ltd. v The Republic of Ecuador, ICSID Case No.
ARB/06/21, Decision on Revocation of Provisional Measures and
Other Procedural Matters (13 May 2008).
CMS CMS Gas Transmission Co v Argentine Republic, ICSID Case No.
ARB/01/08, Award (12 May 2005).
Compañia del
Desarollo
Compañia del Desarrollo de Santa Elena S.A. v Republic of Costa
Rica, ICSID Case No. ARB/96/1, Award (17 February 2000).
Deutsche Bank AG Deutsche Bank AG v Democratic Socialist Republic of Sri Lanka,
Award (31 October 2012).
Eudoro
Eudoro A. Olguín v Republic of Paraguay.18 ICSID Rev. - F.I.L.J.
133 (2003). Discussion on Jurisdiction (8 August 2000).
Eureko Eureko B.V. v Republic of Poland, Ad Hoc, UNCITRAL Rules (19
August 2005).
Genin
Genin v Republic of Estonia, ICSID Case No. ARB/99/2, Award (25
June 2001), 17 ICSID Rev.-F.I.L.J. 395 (2002)
Goetz Antoine Goetz and others v Republic of Burundi - ICSID Case No.
ARB/95/3, Award (10 February 1999).
Hamester Gustav F W Hamester GmbH & Co KG v Republic of Ghana, (ICSID
Case No. ARB/07/24, Award (18 June 2010).
Hamester
Gustav F W Hamester GmbH & Co KG v Republic of Ghana, ICSID
Case No. ARB/07/24, Award (18 Jun 2010).
TEAM ALFARO
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Klöckner Klöckner Industrie-Anlagen GmbH and others v. United Republic of
Cameroon and Société Camerounaise des Engrais, ICSID Case No.
ARB/81/2 (1983).
Lauder
Lauder v Czech Republic, UNCITRAL, Award (3 September 2001).
Levy Renée Rose Levy de Levi v. Republic of Peru, ICSID Case No.
ARB/10/17, Award (26 February 2014).
LG&E
LG&E Energy Corp., LG&E Capital Corp., LG&E International Inc.
v Argentine Republic, ICSID Case Nº ARB/02/1, Decision on
Liability (3 October 2006).
Marvin Feldman Marvin Roy Feldman Karpa v United Mexican States, ICSID Case
No. ARB(AF)/99/1, Award (16 December 2002).
Metalclad Metalclad Corp v United Mexican States, ICSID Case No.
ART(AF)97/1, Award (30 August 2000).
Metal-Tech Metal-Tech Ltd v The Republic of Uzbekistan, ICSID Case No.
ARB/10/3, Award (04 October 2013).
Middle East Cement Middle East Cement v Egypt (ICSID), Award (12 April 2002).
Mondev Mondev International LTD. v United States of America, ICSID Case
No. ARB(AF)/99/2, Award (11 October 2002).
Nykomb
Synergetics
Nykomb Synergetics Technology Holding AB v The Republic of
Latvia, SCC, Award (16 December 2003).
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Occidental
Occidental Petroleum Corporation and Occidental Exploration and
Production Company v The Republic of Ecuador, ICSID Case No.
ARB/06/11 (1 July 2004).
Paushok Sergei Paushok, CJSC Golden East Company and CJSC
Vostokneftegaz Company v. The Government of Mongolia , Ad Hoc
Tribunal, UNCITRAL Rules, Order on Interim Measures (2
September 2008).
Perenco Ecuador
Perenco Ecuador Ltd v Republic of Ecuador, ICSID Case No
ARB/08/6, Interim Decision on the Environmental Counterclaim (11
August 2015).
Philip Morris v
Uruguay
Philip Morris Brands SÀRL, Philip Morris Products S.A. and Abal
Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No.
ARB/10/7, Award (July 8, 2016).
Pope & Talbot Pope & Talbot Inc. v The Government of Canada, UNCITRAL,
Interim Award (26 June 2000).
RFCC Consortium RFCC v Royaume du Maroc, ICSID Case No.
ARB/00/6, Award (22 December 2003).
Roussalis Spyridon Roussalis v Romania, ICSID Case No. ARB/06/1, Award
(7 December 2011).
Rumeli Telekom and
Telsim Mobil
Rumeli Telekom A.S. and Telsim Mobil Telekomikasyon Hizmetleri
A.S. v Republic of Kazakhstan, ICSID Case No. ARB/05/16, Award
(29 July 2008).
Rusoro Rusoro Mining Ltd. v Bolivarian Republic of Venezuela, ICSID Case
No. ARB (AF)/12/5, Award (22 August 2016).
TEAM ALFARO
xv
S.D. Myers Inc
S.D. Myers, Inc. v Government of Canada, UNCITRAL, Final Award
(30 December 2000).
Salini Construttori Salini Costruttori S.p.A. and Italstrade SpA v Kingdom of Morocco,
Decision on Jurisdiction (23 July 2001), Journal de Droit
International 196, ICSID Case No. ARB/00/4 (2002).
Saluka Saluka Investments BV v Czech Republic, UNCITRAL, Partial
Award (17 March 2006).
Saluka Saluka Investments BV v Czech Republic, UNCITRAL, Decision on
Jurisdiction over the Czech Republic’s Counterclaim (7 May 2004).
Sempra Energy
International
Sempra Energy International v The Argentine Republic, ICSID Case
No. ARB/02/16, Award (28 September 2007).
Sergei
Paushok
Sergei Paushok, CJSC Golden East Company and CJSC
Vostokneftegaz Company v Government of Mongolia, Order on
Interim Measures (2 September 2008).
TDM Infrastructure
Pvt Ltd
TDM Infrastructure Pvt Ltd v UE Development India Ltd, 14 SCC
271 (2008).
Tecmed Tecnicas 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,
ICSlD Case No. ARB/04/15, Award (13 September 2006).
Tokios Tokelés Tokios Tokelés v Ukraine, ICSID Case No. ARB/02/18, Decision on
Jurisdiction (29 April 2004).
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TSIKinvest
TSIKinvest v Republic of Moldova, SCC Emergency Arbitration No.
EA(2014/053), Emergency Decision (29 April 2014).
United States
(Tallim) B.V.
United States (Tallim) B.V. and Aktsiselts Tallinna Vesi v Republic
of Estonia, ICSID Case No. ARB/14/24, Decision on Respondents
Application for Provisional Measures (12 May 2016).
Vivendi
Compagnie Générale des Eaux/Vivendi Universal v Argentine
Republic, ICSID Case No. ARB/97/3, Decision on Annulment (3
July 2002).
Waste
Waste Mgmt., Inc. v United Mexican States, ICSID Case No.
ARB(AF)/98/2, Award (2 June 2000).
Waste Management Waste Management Inc. v United Mexican States, ICSID Case No.
ARB(AF)/00/3, Award (30 April 2004).
Yaung Chi Oo Yaung Chi Oo Trading Pte. Ltd. v Government of the Union of
Myanmar, ASEAN I.D. Case No. ARB/01/1, Final Award (31 March
2003).
Yukos Universal Ltd Yukos Universal Ltd v Russian Federation, PCA Case No. AA 226,
Interim Award on Jurisdiction and Admissibility (30 November
2009).
DOMESTIC AND INTERNATIONAL COURT DECISIONS
Case concerning the
factory at Chorzow
Case concerning the factory at Chorzow, Decision on Merits,
Judgement no. 13, Permanent Court of International Justice
(September 1928).
TEAM ALFARO
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GabCíkovo-
Nagymaros Project
Case concerning the GabCíkovo-Nagymaros Project, Reports of
Judgments, Advisory Opinions and Orders, International Court of
Justice (25 September 1997).
Starrett Housing
Corporation
Starrett Housing Corporation, Starrett Systems, Inc., Starrett
Housing International, Inc., v The Government of the Islamic
Republic of Iran, Bank Omran, Bank Mellat, Case No. 24, Iran-US
Claim Tribunal, Final Award.
TREATIES AND CONVENTIONS
ASEAN
Agreement
ASEAN Agreement for the Promotion and Protection (signed on 15
December of 1987).
ECT Energy Charter Treaty.
MIGA
Convention
Convention establishing the Multilateral Investment Guarantee
Agency (entered into force on 12 April 1988).
New York
Convention
Convention on the Recognition and Enforcement of Foreign Arbitral
Awards (entered into force 7 June 1959).
US Model BIT 2012 U.S Model Bilateral Investment Treaty.
Vienna
Convention
Vienna Convention on the Law of Treaties, 23 May 1969.
TEAM ALFARO
1
STATEMENT OF FACTS
1. The present case concerns to the extreme and targeted measures taken by Republic of
Kronos (“Kronos” or “RESPONDENT”) which led to the deprivation of rights of Fenoscadia
Limited (“Fenoscadia” or “CLAIMANT”), causing to the latter unbearable losses. CLAIMANT is
a limited liability company incorporated under the laws of Republic of Ticadia (“Ticadia”)
that has a worldwide reputation for the exploitation of rare earth metals, whose control is
exerted by a private equity fund also organized under the laws of Ticadia1.
2. On March 1997, the Kronian Federal University reported that a reserve of lindoro, a
high value rare earth metal was discovered in RESPONDENT’S territory.2 RESPONDENT then
invited foreign companies to participate in a public auction for the concession of the rights to
extract lindoro. The bidding was won by CLAIMANT, that offered the highest financial return
to RESPONDENT.3
3. On June 2000, CLAIMANT and RESPONDENT entered into a concession agreement
(“Agreement”) for regulating the exploitation of lindoro. The Agreement granted CLAIMANT
the concession to exploit The Site for eighty years. In return, CLAIMANT had to pay
RESPONDENT 22% of the monthly gross revenue relating to the extraction and
commercialization of the metal.4
4. At the time of the execution of the Agreement, RESPONDENT did not have any legal
framework regarding mining activities or environmental matters.
5. On October 2014, a candidate of the Nationalist Party won the Presidential election of
Kronos. In 12 June 2015, the Kronian House of Representative passed the “2015 Kronian
Environmental Act” (“KEA”) for regulating environmental activities in RESPONDENT’S
territory. KEA was passed quicker than the average period for the consideration of draft bills.
1 Facts, 32.
2 Ibidem.
3 Ibidem, p. 33.
4 Ibidem.
TEAM ALFARO
2
6. On September 2015, the newly created Ministry for Environmental Matters conducted
its first inspection, and as always, CLAIMANT was found in full compliance with its
environmental obligations under the Agreement.5 Less than one year later, The University of
Kronos published a study concluding that the Rhea River was contaminated with graspel, a
toxic substance released during the exploitation of lindoro. However, the study did not
conclusively establish a link between the exploitation and the rising incidence of diseases.6
7. On September 2016, based on that only Study, the President issued the Decree No.
2424. The Decree prohibited, with immediate effects, CLAIMANT’S exploitation of lindoro in
all RESPONDENT’S territory, revoking its licenses and terminating the Agreement. As an effort
to maintain their long standing relationship, CLAIMANT applied to the Kronos federal court
seeking to suspend the effects of The Decree but RESPONDENT’S Government remained
adamant.
8. Moreover, a well-known mining sector magazine leaked the information about the
creation of a new company which would be a result of a joint venture between a Kronian
state-owned company and an enterprise from the Republic of Ibi, to restart the extraction of
lindoro.
9. In sum, after years of benefiting from CLAIMANT’S activities, Kronos destroyed
CLAIMANT’S company and rendered its investment worthless. CLAIMANT is left with no option
than to seek remedy before this Tribunal claiming for its rights under the Ticadia-Kronos BIT
(“BIT”).
5 Facts, p. 35.
6 Ibidem.
TEAM ALFARO
3
ARGUMENTS ON JURISDICTION
10. CLAIMANT contends that the Arbitral Tribunal has power to decide on the merits of the
present claim. Contrary to RESPONDENT’S objections, CLAIMANT will hereinafter prove that (I)
CLAIMANT is an eligible investor under the 1995 Ticadia-Kronos Bilateral Investment Treaty
(hereinafter “BIT”) and (II) CLAIMANT’S present claims have no relation with the lawsuit filed
before RESPONDENT’S court. Lastly, (III) the counterclaim is not admissible.
I. CLAIMANT IS AN INVESTOR PURSUANT TO ARTICLE 1(4) OF THE TICADIA-KRONOS
BILATERAL INVESTMENT TREATY
11. CLAIMANT is a national of Ticadia, since the wording of the article 1(4) of the BIT
provides for the incorporation criteria. CLAIMANT was incorporated in 1993 under Ticadia’s
law and has its seat in Ticadia, where the majority of the decisions are taken by the Board of
Directors, hence it satisfies the siège social (or head office) method as well.7
12. RESPONDENT argues about the company’s control and its effects on the nationality of
CLAIMANT. However, RESPONDENT has no grounds to sustain its allegations, since the BIT
does not establish control as a method to be used in order to define the investor’s nationality.
Nevertheless, even if it is considered that the BIT adopted the control criteria, CLAIMANT
contends that it still fulfills such criteria.
13. Therefore, in any event, CLAIMANT is a national of Ticadia under the effective
nationality test, since it complies with all the requirements of the three commonly employed
methods to define an investor’s nationality: the company’s place of incorporation (established
by the BIT), siège social and control.
i. The BIT determines that the place of incorporation cumulated to the place
of head office defines the investor’s nationality
7 Facts, pp. 33-34.
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14. Article 1(4) of the BIT provides that an enterprise of a Contracting Party which has
made investments on the other Contracting Party’s territory is considered an investor.8
Therefore, the wording of this article sets forth that the place of incorporation shall be the
main criterion to ascertain the nationality of an investor.
15. According to the place of incorporation criterion, the investor is considered to be a
national of the country in which it was incorporated. It is the most used and accepted criterion
to define the investor’s nationality under the vast majority of International Investment
Agreements (hereinafter IIAs).9 CLAIMANT, thus, perfectly fulfills the nationality criteria
stipulated by the BIT, since it was incorporated in 1993 under the law of Republic of
Ticadia.10
16. Furthermore, Article 31(1) of the Vienna Convention determines that “[a] treaty shall
be interpreted in good faith in accordance with the ordinary meaning to be given to the terms
of the treaty in their context and in light of its object and purpose”.11 The International Court
of Justice interpreted Article 31(1) of the Vienna Convention holding that when an investment
treaty does not set out an specific method to establish the nationality of a company, the
wording of the BIT has to be interpreted by its ordinary meaning, always taking into
consideration which was the parties intention when they signed the treaty.12
17. In the present case, the BIT defines that an investor is an enterprise of a Contracting
Party. According to Cambridge Dictionary, the preposition “of” has the meaning of
“belonging”, “origin”.13 See for instance the US Model BIT, whose Article 1 states very
clearly that “‘the enterprise of a Party’ means an enterprise constituted or organized under
the law of a Party”.14 Hence, by the treaty writing it is glaring that the Contracting Parties had
8 BIT, p. 39.
9 Waibel/Kaushal/Chung/Balchin, p. 6; Yukos Universal Ltd. v The Russian Federation, para. 22.
10 Facts, p. 32.
11 Vienna Convention, art. 31(1).
12 Astorga, p. 46.
13 Cambridge Dictionary, p. 975, para. 75
14 US Model BIT, p. 2.
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the express will to adopt the incorporation method in order to establish the investor’s
nationality.
18. In the AMCO case, CLAIMANT’S nationality was being questioned and the Tribunal
held that there is a classical concept of nationality of companies, which is based on the place
of incorporation and the place of the company’s seat.15
19. In addition to fulfilling the criteria encompassed by the BIT, CLAIMANT satisfies, as
well, the siège social criterion, which is commonly required alongside to the incorporation
method in order to establish a more intense connection between the investor and the state
party from whom it claims to be a national.
20. One of the main reasons to use the siège social criteria is for diplomatic protection
purposes.16 Therefore, the Home State has the right to protect the interest of the national that
was harmed in another State.17 To obtain the protection, the company shall have a “genuine
connection” with the Home State and such connection shall be proved by, besides the place of
incorporation, the place of the principal administrative office.
21. In the present case, the facts demonstrate that CLAIMANT has a very strong and
effective connection with the Republic of Ticadia: not only CLAIMANT was incorporated
under the laws of Ticadia, but it maintains ties with the referred country, since most of the
meetings of the board of directors and all of the other administrative matters were dealt with
in Ticadia.18 The fact that CLAIMANT’S CEO - who resides in Ticadia - frequent travels to
RESPONDENT’S territory do not disqualify Ticadia as the place of CLAIMANT’S head office,
since it is very common - and necessary - for managers of multinational companies to visit the
countries where its investments are allocated.19
15
Amco Asia Corporation v Republic of Indonesia.
16 Nerets, p. 21.
17Ibidem.
18 Facts, p. 34.
19 Facts, p. 33.
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6
22. The transference of CLAIMANT’S operations to Kronos does not interfere in its
nationality either, since CLAIMANT’S head office remained in Ticadia and its CEO resides
there, as aforementioned. Not only the head office remained in Ticadia, but all of CLAIMANT’S
business formalities and most of the board’s meetings also occurred there, which defines the
referred country as the place of CLAIMANT’S siège social and demonstrates a genuine link
with that country.20
23. Furthermore, considering that: (1) CLAIMANT is a mining enterprise;21 (2) lindoro is a
very rare, abundant, and recently discovered metal in RESPONDENT’S territory;22 and (3)
CLAIMANT had exclusive rights to exploit it,23 it is perfectly expected that CLAIMANT would
decide to concentrate its activities on the exploitation of this rare element, since it was the
only company licensed to obtain profit from lindoro in RESPONDENT’S territory.
24. Finally, as the BIT adopts the incorporation criterion to establish the investor’s
nationality and contain no provision as to investors’ control, the Tribunal shall deny
RESPONDENT's objection to the jurisdiction.
ii. The applicability of the control criteria
a) The Contracting Parties did not intend to apply the control criterion
25. As mentioned above, international law and the majority of BITs24 adopt the place of
incorporation and the siège social criteria to primarily determine the nationality of a company.
However, recently, some IIAs25 have been demanding more specific criteria, such as the
company’s management and administration.26 In addition to being more restrictive and
20
Ibidem, pp. 33-34.
21 Ibidem, p. 32.
22 Ibidem.
23 Ibidem.
24 Poland-United Kingdom BIT, US Model BIT, Czech-Netherlands BIT, Ukraine-Lithuania BIT.
25 Iran-Switzerland BIT, MIGA Convention, Egypt-United States BIT.
26 Dolzer/Schreuer (2), p. 47.
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creating more difficulties to the identification of the nationality of companies, these criteria
are not universally accepted, reason why they must be expressed in the IIAs - or agreed by the
parties - in order to be applied.27
26. When a BIT does not indicate a specific criteria to define an investor’s nationality,
such as Ticadia-Kronos BIT, it is reasonable to assume that the intention of the parties is to
apply the most common, assertive and widely accepted ones: place of incorporation and place
of head office. If the will of the parties was to apply the control criteria, they would have
expressed that intention in the BIT or manifestly agreed on the matter, since those are the only
situations that allow the applicability of the referred criteria.28 Thus, RESPONDENT’S requests
of defining CLAIMANT’S nationality through a method that is not commonly accepted and was
not expressed in the BIT, and, furthermore, that this method should prevail over place of
incorporation and siège social, is improper and senseless. Especially since CLAIMANT’S head
office is located in the same country in which it was incorporated.
27. Hence, since the Ticadia-Kronos BIT does not manifestly refer to the control of a
company as a criterion to define an investor under its scope, this point should not even be
being discussed in the present arbitration. CLAIMANT’S assertions are corroborated by
decisions of arbitral tribunals, such as in Tokios Tokelès29, Saluka30 and Yukos Universal
Ltd31.
28. In Tokios Tokelès32, a very similar case to the present one, the arbitral tribunal held
that the deficiency of a Denial of Benefits Clause in the Lithuania-Ukraine BIT was a
deliberate choice of the parties, so if they had the intention to constrain the scope of investor’s
nationality, they would have included a Control Rule or a Denial of Benefits clause. The
tribunal also decided that as the Lithuania-Ukraine BIT had no provisions on the control
27
McLachlan/Shore/Weiniger, p. 190
28 Nerets, p. 30.
29 Tokios Tokelès v Ukraine.
30 Saluka v Czech Republic.
31 Yukos Universal Ltd. v The Russian Federation.
32 Tokios Tokelès v Ukraine.
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criterion, it had no legitimacy to expand the scope of the treaty, and that even if the investor’s
control was composed in 99% by Ukrainian nationals, the incorporation method should
prevail.
29. In the Saluka33 case, the tribunal held a similar decision to the one in the sup referred
case. Saluka, investor in Czech Republic, is a company incorporated under the laws of
Netherlands and fully controlled by a company from UK. The Czech Republic stated that
once Saluka was fully controlled by a British company, it could not take advantages from the
Czech Republic-Netherlands BIT. However, the tribunal held that the BIT had no provisions
regarding the nationality of companies that were fully controlled by other companies
(nationals of a non contracting party), and, thus, the tribunal had no legitimacy to take into
consideration a criterion that was not established in the BIT.
30. In Yukos Universal Ltd34 case, the Russian Federation contended that the investors
could not benefit from the treaty since they were controlled by Russian nationals, and,
therefore, had Russian nationality. However, the award established that the treaty only
demanded that the investor was incorporated under the laws of one of the Contracting Parties,
and that no principle of international law could theorize that.
31. According to the tribunals’ decisions in the aforementioned Tokios Tokelès and
Saluka, the corporate veil could only be pierced so the control criteria could be applied
without both parties consent, when there is an indicative of fraud or abusing of rights by the
investor.35
32. Considering the decisions mentioned above, there is no reason to pierce the corporate
veil in the case. CLAIMANT has no bad faith when claiming it is a national of Ticadia, since it
is incorporated under the laws of Ticadia and its head office is placed in that same country.
Furthermore, the place of incorporation criterion is not only encompassed by the BIT, but also
the most common criterion used to define investors nationality.
33
Saluka v Czech Republic, para. 241.
34 Yukos Universal Ltd. v The Russian Federation, para. 22.
35 Tokios Tokelès v Ukraine, pp. 22-24; Saluka v Czech Republic, pp. 47-49.
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9
33. Therefore, the control structure of an investor could only affect its nationality when
expressly provided by the BIT, or agreed by the parties, and combined with one of the other
criteria - and even in that situation, the control criterion is not widely accepted.36 Hence, as
the BIT does not hold any provision regarding the control criteria, and CLAIMANT and
RESPONDENT did not manifestly agreed on its application, there is no reason to condition
CLAIMANT’S nationality to it.
b) Subsidiarily, CLAIMANT qualifies as an investor under the control criteria
34. Though the control method shall not be considered in the present case, CLAIMANT will
hereinafter demonstrate that even if this Tribunal decides to consider the control to define its
nationality, CLAIMANT’S company fulfills the criterion.
35. RESPONDENT contends that CLAIMANT’S control can be an obstruction to its Ticadian
nationality. Nonetheless, CLAIMANT still can be considered a national under the control
method, once 65% of its voting shares are owned by Ticadian nationals.37 It is important to
assert that the board of directors is elected by these shareholders, who take into account, by
the election, the candidates’ knowledge and expertise in the mining industry, and not their
nationality, as RESPONDENT sustains.38
36. Therefore, the decisions regarding the company’s management are taken by these
shareholders, albeit indirectly. In addition, the company’s CEO is a resident of Ticadia and all
of its business management formalities, such as the board of directors meetings, are held in
Ticadia. These elements are more than sufficient to evidence the fulfillment of the control
method and demonstrate a genuine link between Ticadia and CLAIMANT.
37. In the Yaung Chi Oo award, the ICSID Arbitral Tribunal found that the company YCO
was a national of a State Party. It established that the real economic connection between the
36
Benedict et. al., p.13.
37 Facts, p. 32.
38 Ibidem, p. 33.
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10
company and the Home State was duly evidenced by the facts that there was a resident
director of the enterprise in Singapore; the auditing of the company’s accounts was made
annually in Singapore and that there was a continuous address of YCO in Singapore.39
38. Therefore, since 65% of CLAIMANT’S voting shares are owned by Ticadians;
CLAIMANT’S CEO resides in Ticadia; CLAIMANT’S seat is in Ticadia; all management
formalities of CLAIMANT and most of the meetings of CLAIMANT’S board of directors are
taken in Ticadia, there is no reason to question the fulfillment of the control criteria. The fact
that CLAIMANT’S board of directors is composed by RESPONDENT’S nationals is not even
remotely sufficient to qualify the whole company as a Kronian enterprise.
II. CLAIMANT’S PRESENT CLAIMS HAVE NO RELATION WITH THE LAWSUIT FILED
BEFORE RESPONDENT’S COURTS
39. The court proceedings in Kronos do not prevent CLAIMANT from asserting claims in
arbitration. CLAIMANT has filed a motion in RESPONDENT’S courts seeking to suspend the
effects and discuss the leaglity of the Decree No. 2424, since it was not granted an
opportunity to produce evidence, analyze or contradict the Study that gave rise to the
Decree.40
40. CLAIMANT’S intentions with such motion were merely to guarantee stability to the
effects and provisions of the Decree, because the Study did not conclusively establish a causal
link between the exploitation of lindoro and the rising incidence of specific diseases.41
Breaches or damages have never been discussed.
41. After the official and final statement from RESPONDENT’S government that the Decree
would not be revoked, CLAIMANT withdrew its motion before judgment of its merits and
submitted a lawsuit under this Arbitral Tribunal in order to discuss the violation of the BIT
39
Yaung Chi Oo Trading Pte. Ltd. v Government of the Union of Myanmar, para. 52.
40 Facts, pp. 35-36.
41 Ibidem.
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11
and rule damages.42 This measure was necessary to guarantee the protection of CLAIMANT’S
assets43 and the due process of law.
42. In spite of RESPONDENT’S argumentation that Article 11, Section 2 of the BIT44 is a
fork in the road clause and the choice to submit the dispute for resolution has already been
made, the two judicial procedures have different objects, parties and causes of action and can
be pursued in this arbitration. In other words, the motion and the lawsuit do not connect in
any aspect and can be considered independent procedures.
43. Furthermore, it is necessary to consider that the motion filed by CLAIMANT was a
provisional measure, once it was based in a preventive claim, which does not affect the
jurisdiction of this Arbitral Tribunal.
i. The fork in the road provision was not triggered
44. RESPONDENT argues that the submission of a motion that seeks to suspend the effects
of the Decree on a provisional basis in Kronos’ National Court is a definitive dispute
resolution choice and cannot be submitted to discussion again based on the fork in the road
clause disposed in Article 11, Section 2 of the BIT. However, those allegations shall not
thrive.
45. A fork in the road clause is a clause that enforces the investor, in the event of an
investment dispute, to choose the submission of the dispute to a national court or an
international arbitration court in a definitive form.45As described by the Tribunal in the
Occidental46, the fork in the road clause presumes that the investor has chosen with no
42
RA, p. 8.
43 Facts, p. 52.
44 BIT, p. 44.
45Aymone, p. 188.
46 Occidental v Ecuador. In: Dugan/Rubins/Sabahi/Jr., p. 367.
TEAM ALFARO
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coercion between alternative fora. The choice is in a definitive form, once the investor loses
forever the right to pursue its claims in a different tribunal or court47.
46. It is important to highlight that it only applies if there is an identity of disputes
submitted to domestic courts and international arbitration48, once its main reason is to avoid
multiple proceedings, preventing the investor having numerous bites at the cherry. For
identity of disputes, the UNCITRAL Tribunal in Ronald S. Lauder49 described it as a dispute
brought by the same claimant, against the same respondent for resolution before different
tribunals or courts.
47. As we can observe, the application of this clause follows few requirements, once it is
necessary to verify an identity of parties, object, and cause of action between domestic and
international claims.50 These requirements are called triple-identity test and it is broadly used
by the jurisprudence to verify the true application of the fork in the road clause51.
48. In Genin52 the ICSID Tribunal discussed the identity of the issues extent between the
litigation in Estonia and the one raised in the arbitration by an American company (claimant).
The Tribunal considered that the litigation in Estonia was to contest the revocations of
claimant’s license in Estonia, whilst the claim in the arbitral tribunal was in pursuance of
compensation for the violation of the BIT and international law. Consequently, the lawsuits
undertaken by the company in Estonia did not constitute a choice under the BIT’S “fork in the
road provision” and did not relate to the “investment dispute” that was the subject-matter of
the ICSID proceedings.
47
Cameron, p. 40.
48 Schreuer, pp. 247-248.
49 Ronald S. Lauder v Czech Republic, para. 162.
50 Mclachlan, p. 265.
51 Durgan/Rubins/Sabahi/Jr., p. 367.
52 Genin v Republic of Estonia, para. 332-333.
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49. In Eudoro A. Olguín53 the ICSID Tribunal analyzed its lack of jurisdiction because
Olguín had submitted a judicial claim before the Paraguay domestic courts. The Tribunal
concluded that it has jurisdiction to decide the case once the claims were related to matters but
different in both procedures.
50. In the case Ronald S. Lauder54 the UNCITRAL Tribunal analyzed its jurisdiction,
once the respondent argued that the same dispute had been submitted to Czech courts and to
another arbitral tribunal. The Tribunal concluded that parties and causes of action in these
proceedings were different and, consequently, the fork in the road clause did not preclude.
51. Arbitral tribunals use the triple-identity test in order to determine whether the choice
under the fork in the road clause has been taken, establishing, consequently, if the parties and
the cause of action in the proceedings are identical. Only if the claims are identical (parties,
cause of action and object) it is possible to conclude that the fork in the road has been taken
with the consequence of excluding the arbitral tribunal jurisdiction.55
52. From here on, CLAIMANT will demonstrate that the motion filed in RESPONDENT’S
Courts did not constitute a choice under the fork in the road clause, once the parties, cause of
action and object are different.
a) Different Parties
53. The present Request for Arbitration strictly depends on CLAIMANT’S quality as an
investor once the object of the arbitration is to declare liability for utter violation of the BIT,
Article 7, and, consequently, the payment of damages.56
53
Eudoro A. Olguín v Republic of Paraguay, para. 80.
54 Ronald S. Lauder v Czech Republic, para. 162.
55 Benvenuti, para. 1.14.
56 RA, p. 8.
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54. On the other hand, the motion filed in RESPONDENT’S Courts sought to suspend the
effects of the Decree on a provisional basis57 and its legality58 and did not depend of
CLAIMANT’S quality as an investor nor as a direct impaired party.
55. Exactly in that sense, the Decree No. 2424 broadly prohibited the exploitation of
lindoro in Kronian territory, terminating immediately and irrevocably with all government
contracts, licenses and concessions59. Consequently, not just CLAIMANT but anyone who
indirectly benefit from the exploitation of lindoro was affected by it.
56. Therefore, anyone who was affected or wanted to discuss the arbitrary action of
Krono’s Government can and could pursue a court action in the domestic courts, which is
exactly what CLAIMANT did. Moreover, CLAIMANT filed the motion seeking to suspend the
effects of the Decree until negotiations with the Government took place and never argued its
position as an investor nor the BIT protection.
57. Reinforcing this argument, is the fact that there is no evidence that CLAIMANT has
discussed the BIT’s protections in RESPONDENT’S Courts nor filed it based on the BIT. The
scope of the motion was only the suspension of the Decree on a provisional basis, which is
not based on the BIT.60
58. The trigger of the fork in the road clause depends on the identity of both plaintiffs and
defendants in domestic and international proceedings.61 Consequently, once the same parties
were not established, it does not represent a definitive choice under the provision.
b) Different Causes of Action
57
Ibidem, p. 7.
58 PO3, p. 59.
59 Facts, p. 52.
60 RA, p. 7.
61 Fadlallah, p. 118.
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15
59. The fundamental difference of the judicial character of the claims at length and at their
legal foundations substantiates the basis of the different causes of action62. The attempt to
merge these two different claims into a single investment dispute would pass the limits of the
fork in the road provision.
60. Exactly in this sense, in the Vivendi Universal63, the ICSID Tribunal established the
guiding principle “essential basis of a claim”. According to this principle, the treaty cause of
action is different from the contractual cause of action, once it requires a conduct contrary to
the relevant treaty standard.
61. In that sense, the Arbitration Request sought to discuss the legality of the Decree and
the utter violation of the BIT, once it was clearly a targeted measure, disguised in the form of
a general bona fide regulation that aimed at expropriating CLAIMANT’S assets without
compensation.64 The fundamental basis of this proceeding, the BIT, protects the investor from
indirect expropriation in its Article 765 and guarantees CLAIMANT’S right, as a foreign
investor, to submit the dispute to an arbitral tribunal seeking for compensation.66
62. In other words, the judicial court claims are based in a concession contract and the
impossibility to analyze and contradict the Study conclusions. The legality of the Decree was
never discussed in this Request for Arbitration and it does not relate to this investment
dispute.
63. Additionally, in the motion there were no requests or debates by all manners to rule on
the breaches of the BIT or to review the damages caused by RESPONDENT’S actions towards
CLAIMANT’S business. Consequently, if in the judicial court the claims are based in a
concession contract (hereinafter “Agreement”), the fork in the road clause will not have
efficiency in relation to treaty claims in an Arbitral Tribunal.
62
Vivendi Universal v Argentine Republic,para 96.
63Ibidem,para. 113.
64 RA, p. 8
65 BIT, p. 42
66 Mclachlan, p. 262.
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64. Corroborating CLAIMANT’S argument regarding the difference of contractual claims
from treaty claims, the Arbitral Tribunal in the case CMS67dispose that the submission to both
local courts and ICSID Tribunal do not result in triggering the ‘fork in the road’ provision
since both parties and the causes of action under separated instruments are different.
65. Further, in Occidental68, the ICSID Tribunal emphasized that because the Occidental
claims were based on violations of the BIT and not on breaches of contract, the Tribunal
rejected the forum selection clause and declared that the jurisdiction of the arbitral tribunal
was correctly invoked. However, if the present Arbitral Tribunal understands that the motion
and the Request of Arbitration are related to subject-matter, CLAIMANT understands that it is
possible to apply the conclusion of the ICSID Tribunal in the Eudoro A. Olguín case.69
66. In the case mentioned above, the ICSID Tribunal analyzed the submission of a claim
to collect payment in fulfilment of the latter’s obligations and in an arbitration proceeding
against the Republic of Paraguay, can and do not have the same judicial effect as a claim.
Consequently, even in front of proceedings that are directed-matter related, it is not the same
claims against the same parties.
67. Therefore, in the present case, regardless of the proceedings being considered matter
related, they are not essentially the same. The claims are not res judicata in relation to the
same factual investment dispute for another.70
68. The fork in the road provision cannot prevent CLAIMANT, as an investor, from
bringing a treaty claim unrelated to a different claim previously submitted to a court, even if
67
CMS v Argentina, para.80.
68 Occidental Petroleum Corporation and Occidental Exploration and Production Company v The Republic of
Ecuador, para.57.
69 Eudoro A. Olguín v Republic of Paraguay.
70 Dugan/Rubins/Sabahi/Jr., p. 367.
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17
the complains were related to the same investment.71 Consequently, the provision will be
subject to some limitations when there are different causes of action.
c) Different Objects
69. According to the fork in the road provision, the division of the litigation in different
slices should be careful, once its grounds are to prevent duplicative dispute resolution
activity72. However, the provision will not be trigger if the issues in the litigation and in the
international arbitration were distinct.
70. Such was the interpretation of the ICSID Tribunal in the case Genin73. According to
the Tribunal, the object of the EIB’s second litigation in Estonia that contested the revocation
of its licenses in Estonia was different from the ICSID claims for compensation of the losses
they suffered as a result of violation of BIT. CLAIMANT sustains that the “factual” questions
are very similar to the present case and, consequently, it is possible to reach the same
conclusions of the ICSID Tribunal.
71. The motion filed before RESPONDENT's courts strictly followed the provisions of the
Concession Agreement, which establishes that “any dispute arising out of this Agreement,
including its termination, shall be submitted to the courts of Republic of Kronos, which hold
exclusive jurisdiction”74. Consequently, from the contract writing it is possible to understand
that CLAIMANT had no choice but to file his motion in RESPONDENT’S courts.
72. As it can be observed, the claims are based in two different objects, once one
discusses the suspension of the effects and the legality of the Decree,75 and the other
71 Vivendi, para. 81.
72 Waste Mgmt., para. 27.
73Genin v Republic of Estonia, para. 333.
74 Case, Exhibit 2, p. 48.
75 Ibidem, p. 7.
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RESPONDENT's liability for violation of the BIT76. Consequently, the fork in the road clause
also does not have efficiency in relation to the object claims in this Arbitration.
73. Furthermore, CLAIMANT respectfully sustains that the present Arbitral Tribunal should
not decide on the legality of the Decree once it does not have competency over the matters
that involve sort of public interest.77 Those matters belong exclusively to the domain of the
national courts as protectors of the public interest involved78 and could never been discussed
in arbitration.
74. For all that has been said, it is possible to understand that the two instruments are not
essentially the same, once the parties requests and causes of action are different and do not
result in triggering the ‘fork in the road’ provision. However, if the arguments about the
triple-identity test do not seem sufficient to consider the present arbitration admissible, the
provisional nature of the motion ensures the distinction of the procedures and the
inapplicability of the fork in the road clause.
ii. Claimant's Motion in the State Court has a provisional basis and it is not
under the scope of the Dispute Settlement Clause
75. CLAIMANT filed a motion in RESPONDENT'S Courts to suspend the effects of the
Decree No. 2424 on a provisional basis, once it wanted to negotiate its rights in face of the
Agreement interruption. However, RESPONDENT'S government final statement sustained the
prohibition of exploitation and CLAIMANT withdrew its motion once it lost its object. The
motion was a measure designed to minimize loss, damage or prejudice during proceeding,
which can be considered as effects of an interim measure.79
76
Ibidem, p. 8.
77Brazier, p. 20.
78Ibidem, p. 20.
79 Burcy, In: Tucker, p. 15.
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19
76. The term interim measure is not strictly defined. The ICC Rules80 and the UNCITRAL
Rules81 define it as a provisional measure, with no specific form, for the preservation of
rights82. In City Oriente Ltd.83, the ICSID Tribunal considered the provisional measure as an
extraordinary measure, once it should be order as a last resort, after careful consideration of
the interest, weighing the harms and damages.
77. Additionally, according to the SCC Rules, provisional measures aim at preserving the
integrity of the arbitration, reduce or eliminate loss or other damages of valuable rights and
give fair protection for the preservation against inadequate conduct.84 In other words, it is
possible to understand that an interim measure is a provisional measure used as an emergency
tool to secure a claim and safeguard the applicant’s rights.
78. However, to a measure be recognized as an interim measure, it is necessary to submit
it to the analyzes of five standards: (1) prima facie jurisdiction; (2) establishment of the case;
(3) urgency; (4) imminent danger of serious prejudice or actual harm; and (5)
proportionality.85
79. Those standards are internationally recognized and broadly applied by arbitral
tribunals. Some examples of the application of this criteria are found in the decisions of
United States (Tallim) B.V. and Aktsiselts Tallinna Vesi v Republic of Estonia; Sergei
Paushok86, Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company
v Government of Mongolia87; SCC Case No 96/201188; and the SCC Emergency Arbitration
170/201189 that analyzed it in order to grant an interim measure.
80
Art. 47, ICSID.
81 Rechtsanwälte, p. 1.
82 Stuzcki, In: Boyko v Ukraine, para. 23.
83 City Oriente Ltd. v The Republic of Ecuador, para. 272.
84 TSIKinvest v Moldova, para. 48-49; SCC Rules, Article 32(1) and Article I(2) of Appendix II.
85 Paushok and ors. v Mongolia, para. 40.
86 United States (Tallim) B.V. and Aktsiselts Tallinna Vesi v Republic of Estonia, para. 78
87 Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v Government of
Mongolia, para. 40.
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20
80. The criteria are clear in the present case, once CLAIMANT filed a motion in
RESPONDENT'S courts seeking to suspend the effects of the Decree on a provisional basis,
while negotiations about the Agreement with RESPONDENT were pending, since it was not
granted any opportunity to produce evidence and to contradict the Study that gave rise to the
Decree. 90
81. Contrary to what RESPONDENT sustains, the motion and the lawsuit cannot be
considered “essentially the same”91. Both procedures are independent from each other and
have no correlation with in terms of object, parties or causes of action, consequently, the
motion did not represent a choice under the fork in the road clause.
82. Facing all those facts, it is not contested that the measure filed by CLAIMANT is a
preventive measure because all the criteria are filled. Consequently, it does not affect, in any
way, the jurisdiction of this Arbitral Tribunal.
III. RESPONDENT’S COUNTERCLAIM IS NOT ADMISSIBLE
83. RESPONDENT submitted a counterclaim purportedly arguing CLAIMANT’S caused
severe environmental damage in its territory.
84. Nonetheless, the jurisdiction of an arbitral tribunal over a State Party counterclaim
relies upon two requirements: the consent of the parties and the connection of claims.92 In
the present case the requirements are not fulfilled, once (1) the parties did not consent to the
counterclaim and (2) the counterclaim has no connection with CLAIMANT'S claims.
88
TSIKinvest v Moldova, para. 53.
89 Ibidem, para. 53.
90 Case, pp. 6-7.
91ARfA, p. 14.
92 Asteriti, p. 257; AMTO v Ukraine, para. 118.
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85. Regarding consent, there is none present in the agreement of the parties – in Article
11 of the BIT – in which lay the provisions for dispute resolutions. Allowing such
counterclaim will generate inefficient decisions and illegitimacy to the process of
arbitration.93
i. The consent of the parties was to not allow counterclaims
86. Arbitration is based on the will of the parties94 and consent plays a major role in
investment treaty arbitration.95 There is a general understanding that counterclaims are
admissible only to the extent that they fall within the jurisdiction of the arbitral tribunal and
the consent requirement is met.96 If one of these elements is missing, there is no basis for
arbitration.97
87. The host State must express its consent, developing an offer addressed to the
investors, being the arbitration agreement concluded when the investor accepts the offer by
submitting its request.98 CLAIMANT never consented to such a counterclaim.
88. The assessments of the consent as a possibility to assert a counterclaim is analyzed
by the BIT.99 In this sense, the parties are free to delimit their consent so much as in general
terms, by exclusion or by listing the conditions in which they may occur.100 However, in the
present case, it is clear the intention accorded in the BIT to prohibit counterclaims. Article 11
of the BIT101 designates provisions only to a counterclaim provided by the investor, national
or company, being the only one allowed to propose a claim.
93
Bjorklund, pp. 477-478.
94 Cordero-Moss, p. 211.
95 Musayev, p. 7.
96 Atanasova/Benoit/Ostransky, p. 359.
97 Dudas LL.M, p. 2.
98 Schreuer, p. 6.
99 Lalive/Halonen, p. 146.
100 Schreuer, p. 3.
101 BIT, p. 44.
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89. Further, although the Contracting Parties established in Article 11.5 of the BIT
situations in which the counterclaim is not admissible, the Tribunal should not interpret as if
they were willing to admit counterclaim in the remain scenarios. The intention of the clause
is only to highlight common situations where counterclaims are filed, determining that they
should not be admitted even in those cases. Moreover, provisions such this cannot overcome
a narrow offer to arbitrate,102 as the one in article 11.2, which already establishes that only
the Investor can bring a claim.
90. Moreover, in the same provision of the BIT, it is assented that the dispute imposes no
obligation on investors, only on contracting States, demonstrating the mutual consent of the
parties to assert counterclaim only by CLAIMANT. Thereafter, the possibility of asserting a
claim is restricted to the investor.103
91. In Roussalis104, the tribunal held that it did not have jurisdiction over the host-State’s
counterclaim, once the treaty do not cover obligations for the investor, the state could not
enter with a claim based on investor’s breach of the BIT. This case is a landmark in
investment arbitration, once the issue of "the consent of the parties" was brought to the
forefront in the assessment of jurisdiction.
92. The nature of the investor-state dispute resolution system is primarily tailored to
protect investor’s interests.105 This incumbency is often considered as a ‘one-way street’,
enabling foreign investors to file claims against host States.106 This structure differs from
when both parties are free to assert claims against one another, and the basic framework
arises from the terms of BIT. In this case, only CLAIMANT may assert a claim.
102
Atanasova/Benoit/Ostransky, p. 378.
103 Lalive/Halonen, p. 146.
104 Spyridon Roussalis v Romania.
105 Kryvoi (2), p. 169.
106 Born, p. 416.
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93. The vast majority of BIT's contain clauses referring to investment arbitration,107
being the jurisdiction established through the BIT, standing or falling on the parties’
arbitration agreement. In general, these BIT's do not provide for obligations on investors,108
only on the contracting states, as it is in this case.
94. Although the subjectivity of the arbiters might differ the decisions of the numerous
arbitral tribunals, in the overwhelming majority the ultimate decision is that the
counterclaims must fall within the scope of consent of the parties. In Hamester109, the
tribunal analyzed the admission of the counterclaim in this scope, considering the provisions
of the BIT. Once it was not established a possibility to assert counterclaim in an explicit
way, the tribunal rejected it.
95. Furthermore, in AMTO110, under the SCC Rules, the tribunal also decided
CLAIMANT'S jurisdiction over a state party. The counterclaim must include the terms of
dispute resolutions of the treaty, the nature of the counterclaim and the connection of the
counterclaim with the claim. The counterclaim was dismissed, once it did not fulfill the
requirements aforementioned.
96. In Metal-Tech111, the tribunal has found that the most important requirement is that
the counterclaim must be within the jurisdiction of the Centre, including the condition of
consent. Similarly, in Rusoro112 the Tribunal confirmed this approach by underlining that if
the counterclaim is not encompassed by the parties consent, then it is not arbitrable at all.113
107
Schreuer, p. 7.
108 Kryvoi, p. 226.
109 Hamester v Ghana, para. 353.
110 AMTO v Ukraine, para. 118.
111 Metal-Tech v The Republic of Uzbekistan, para. 407-408.
112 Rusoro v Venezuela, para. 628.
113 Musayev, p. 8.
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97. In Goetz114, the tribunal did not hesitate, correctly, to admit the counterclaim brought
based on solid consent asserted in their BIT. The investment authorization was given
precisely, and both the parties knew the meaning of its application. According to the BIT115,
such authorization was not given, nevertheless, CLAIMANT expressed his will to the contrary.
98. This arbitral proceeding is governed by the SCC Rules, in which regulation provides
that “consent cannot be implied from the procedural provisions referring to counterclaims in
the applicable arbitral rules”116. However, that does not mean that this Tribunal has to
accept this structure, once it does not relieve the fact that the parties did not consent to the
admissibility of the counterclaim. Consent, as such an important figure to maintain the
integrity of the arbitral process, cannot be displaced.
99. Furthermore, the fact that the rules of this Chamber were not drafted exclusively for
investment treaty arbitration117 corroborates the fact that the veritable mention of
counterclaim in its Rules is not enough to allow counterclaim, but the parties need to
demonstrate their consent.118
100. The obligations presented in the Treaty must be followed, being CLAIMANT the only
Party that has legitimacy to bring claims before a Tribunal. In addition, the inclusion of
counterclaims in the scope of the parties consent cannot be presumed only by the reference
in the arbitration agreement.119 The consent must be precise and absolute, so there is no
doubt about it veracity.
ii. The counterclaim has no connection with the primary claim
114
Goetz v. Burundi, para. 285.
115 BIT, pp. 44-45.
116 Spyridon Roussalis v Romania, para. 869-877; Bjorklund, p. 473.
117 Harrison, p. 479.
118 Bjorklund, p. 473.
119 Trade and Investment Law Clinic Papers, 2012; Atanasova, p. 18.
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101. The connection between the counterclaim and the principal claim is an imperative
requirement to evaluate the counterclaim.120 The investor’s primary claim and the
counterclaim must be connected.121 However, the counterclaim in the present case has no
connection with the primary claim.
102. CLAIMANT'S primary claim is that RESPONDENT breached Article 7 of the BIT by
expropriating its investment. Meanwhile, RESPONDENT'S counterclaim is based on supposed
damages that CLAIMANT would have caused in the environment. Therefore, the counterclaim
and the principal claim do not have any connection to each other.
103. In Saluka122, the tribunal decided that “legitimate counterclaim must have a close
connection with the primary claim to which it is a response”. In Klöckner v. Cameroon123 the
decision emphasized the necessary connection with matter of the counterclaim and the matter
of the principal claim, defined as “indivisible” and “interdependent”.
104. The central goal of all investment treaties is to encourage foreign investments,
granting them considerable protections and procedural rights to facilitate investments.124 The
intent is not to take anything away from States, but to help ensure that foreigners have
assurance in their promises.125
105. Therefore, RESPONDENT'S counterclaims are inadmissible on jurisdictional and
procedural grounds, with the strictly limiting to disputes between an investor of a contracting
party and the other contracting party concerning an obligation of the latter under their
agreement and the consent between the parties.
120
Farmer, p. 14.
121 Kjos, p. 147.
122 Saluka v Czech Republic, para. 61.
123 Klöckner v Cameroon, para. 65
124 Dolzer/Schreuer, p. 20.
125 Salacuse, p. 382.
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ARGUMENTS ON THE MERITS
IV. THE PRESIDENTIAL DECREE NO. 2424 BREACHED ARTICLES 6 AND 8 OF THE BIT
106. Article 6 of the BIT provides for fair and equitable treatment. According to Article 6,
Ticadia and Kronos undertook to ensure that investments shall be treated with the “customary
international law minimum standard of treatment of aliens, including fair and equitable
treatment and full protection and security”. In addition, Article 8 sets forth that all
administrative and legal acts must be done in total transparency126.
107. Nevertheless, the Presidential Decree No. 2424 violates the BIT, since (i) the fair and
equitable treatment standard was not respected by RESPONDENT and (ii) RESPONDENT did not
regard the transparency required by the BIT.
i. Respondent failed to grant fair and equitable treatment to Claimant’s
investment
a) The fair and equitable treatment interpretations as an autonomous principle
or linked to MST under international customary law are equivalent
108. Before turning to the breach of the fair and equitable treatment (hereinafter “FET”)
itself, there is the need for this Tribunal to discuss the scope of application of the FET. This
discussion becomes crucial once the FET clause in the BIT is an MST-FET clause, and the
interpretation given to it by this Tribunal will decide whether a FET claim can exist in the
present dispute. Since 2004, many FET claims ended up in arbitral decisions addressing the
question whether the rules under what is seen as an autonomous FET provision are the same
or different from those applicable under the customary international law standard of MST-
FET127.
126
BIT, pp. 41-42.
127 Gaukrodger, p.16.
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109. Although the BIT defines FET as linked the Minimum Standard of Treatment,
multiple tribunals128 have already affirmed that the interpretation of FET as an autonomous
standard or as MST under customary international law is in essence contextually and
practically identical.129 The FET has a broad nature, and should not be cut down or over-
refined since this could affect its safety-valve characteristic as a MST.130
110. It is well known that defining the content as well as the scope of application of the fair
and equitable treatment can be a delicate task due to its imprecision.131 According to Article
31(1) of the Vienna Convention, to which both Ticadia and Kronos are signatories, treaties
must be interpreted according to good faith, taking into consideration the purpose and
intention of the terms used when drafting such treaty. Resorting to dictionary definitions to
achieve an ordinary meaning for fair and equitable treatment can be unhelpful since it would
lead to basic and vague considerations of fairness and equity.132 Thereby, it becomes
necessary to analyze the context in which the agreement was concluded as well as the
intention and objectives pursued by the Contracting Parties then.
111. In the ADF case, the arbitral tribunal found that MST and FET fall within the scope of
international customary law and both concepts are in constant evolution. As put by the arbitral
tribunal, the FET concept is not “frozen in time”133. It was also decided that the FET under
customary international law MST cannot be decided by a State’s own concept of MST, with
the State being bound upon practice and judicial or arbitration case law, along with other
sources of customary or general international law. Following that reasoning, it must be
considered if the State has acted inconsistently according to general customary international
law.
128
Deutsche Bank AG v Democratic Socialist Republic of Sri Lanka, para. 419, Rumeli Telekom and Telsim
Mobil v Republic of Kazakhstan, para. 611, Mondev v United States, para. 123, Saluka v Czech Republic, para.
291.
129 Baetens, p. 321.
130 McLachlan/Shore/Weiniger, para. 7.354.
131 Kingsbury/Schill, p. 9.
132 Baetens, p. 321.
133 ADF Group v United States of America, para. 179.
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112. In the Mondev case, the tribunal decided that what is unfair and inequitable does not
need to equate with outrageous or the egregious. In particular, “a State may treat foreign
investment unfairly and inequitably without necessarily acting in bad faith”134. This tribunal
also considered that a State cannot simply adopt its own view of what is “fair” or “equitable”,
being bound to international customs and case law.
113. Interpreted together, Mondev and ADF suggest that the MST of FET is imputable to
the State and harms the investor not only if the conduct is grossly unfair or idiosyncratic, but
also if it lacks due process or transparency on the administrative process that results in an
outcome which offends judicial property. The Waste Management135 tribunal, when analyzing
these cases, mentioned that a relevant element to be considered would be if the treatment
given to the investor was in breach of statements made by the host state in which the investor
relied on.
114. Although there is a reference to FET linked to the MST in the BIT, there must be a
broad interpretation of the standard, considering its constant evolution along with
international law and case law. By that, not only the basic meaning of the words “fair” and
“equitable” should be taken into account, but all of the conditions that arise from their
interpretation together - that being the requirement of stability, predictability and consistency,
the protection of legitimate expectations, transparency and the principle of reasonableness.136
115. Once demonstrated that the interpretation required by the MST-FET clause should be
a broad one, including other linked principles, it becomes evident that RESPONDENT’S
measures substantially violated this provision. RESPONDENT failed to promote or at least try to
guarantee the protection of CLAIMANT'S investment, frustrating CLAIMANT'S legitimate
expectations and acting in a total lack of predictability, consistency, and fairness.
134
Mondev International v United States of America, para. 116.
135 Waste Management, Inc v United Mexican States, para. 98.
136 Schill, p.160.
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b) Claimant’s legitimate expectations towards the investment were not respected
by RESPONDENT
116. After Fenoscadia won the public action by offering the highest financial return,
CLAIMANT and RESPONDENT started business in April 2000137. By that time, the Parties agreed
that CLAIMANT would have the right to explore lindoro in RESPONDENT’S territory for the next
80 years, paying 22% of the monthly gross revenue as compensation fees to Kronos138.
117. During the period in which CLAIMANT explored lindoro it has always complied with
Kronos’ regulations, that being the ones predicted in the Agreement and, furthermore, the
ones imposed by the new Kronian Environmental Act139. Notwithstanding, RESPONDENT still
isssued Presidential Decree No. 2424 prohibiting the exploitation of lindoro - a breach of the
FET standard predicted in the BIT, affecting CLAIMANT’S legitimate expectations towards its
investment.
118. The fair and equitable treatment provisions consist of a variety of specific elements,
including a State’s responsibility to act consistently, transparently, reasonably, without
ambiguity, arbitrariness or discrimination, in an even-handed manner, to ensure due process
in decision-making and respect investor’s legitimate expectations140. The Azurix141 tribunal
recognized that fair and equitable treatment is a key element to guarantee a stable framework
for the investment and maximum effective use of economic resources.
119. Legitimate expectations refer to expectations arising from the foreign investor’s
reliance on specific host state conduct, that being oral or written representations or
commitments made by the host state relating to the investment142. When discussing legitimate
137
Facts, p.32.
138 Case, Exhibit 2, p.47.
139 Facts, p. 35.
140 UNCTAD, p. 15.
141 Azurix Corp v The Republic of Argentina, para. 360.
142 Newcombe/Paradell, p.160.
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expectations, the tribunal for the case EnCana v Ecuador143 held that States must act with
reasonable consistency and without arbitrariness in its treatment of investments. It also stated
that “one arm of the State cannot finally affirm what another arm denies to the detriment of a
foreign investor”.
120. The expectations in question arise based on the conditions offered by the host State at
the time the investment was made.144 They must be legitimate – justifiable and reasonable
based on objective criteria.145
121. In the present case, the Kronian Government has always supported CLAIMANT’S
investment, as evidenced in excerpts of the past Presidents speeches and public notes, stating
that “Fenoscadia has our full support to increase the efficiency of its activities – the better
their results, the better for Kronos” and “We are glad to have Fenoscadia as one of the
pillars of Kronos' growing economy”.146
122. By the time the investment was made in 2000, RESPONDENT offered a stable,
predictable and consistent scenario.147 That led CLAIMANT to shut down its mining operations
in 2010 in Ticadia and concentrate all the activities in Kronos,148 characterizing the
expectations Fenoscadia had towards RESPONDENT’S economic and regulatory framework. All
the manifestations made by the Government always indicated that the lack of regulation
regarding the exploitation of lindoro would not constitute a risk for CLAIMANT’S enterprise.
123. RESPONDENT’S governmental and regulatory situation kept stable and clear for at least
16 years until the new party took place. It was completely reasonable for CLAIMANT to
believe that, after years of stability and maintaining a relationship of mutual interests,
143
EnCana Corporation v Republic of Ecuador, para. 158.
144 LG&E v Argentina, para. 130.
145 International Thunderbird Gaming Corp. v The United Mexican States.
146 Case, Exhibit 3, p. 49.
147 Schill, p. 60.
148 Facts, p.33.
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focusing all of its enterprise in Kronos, RESPONDENT would still offer a favorable scenario for
the development of Fenoscadia’s activities.
124. Tribunals such as inMetalclad149 have found that the stability and predictability of
legal framework is an essential element of fair and equitable treatment. When investors
develop their businesses under domestic law, the FET standard will protect their legitimate
expectations regarding the use and enjoyment of those rights150- the idea of a stable and
predictable scenario when making and developing an investment is an essential part of
FET151.
125. Notwithstanding the above mentioned, CLAIMANT recognizes that predictability and
stability are never absolute - States still have their sovereign powers to decide what is best for
their people and territory.152 However, there is the need to balance the investor and the host
state’s interests and power to regulate. When an investment is made based on specific
representations by the host state regarding the stability of the regulatory regime, changes on
such regime will frequently characterize a breach of the FET standard.153
126. In the scope of FET, the investor can expect that measures will be implemented in a
non-abusive manner and that public-interest arguments will not be used in an arbitrary or
discriminatory manner.154 CLAIMANT expected RESPONDENT to act in a consistent manner,
free from ambiguity and on full transparency, so it could know beforehand any and all rules
that would govern its investment.155
149
Metalclad v United Mexican States, para. 99.
150 Newcombe/Paradell, p.166.
151 CMS v Argentina para. 276.
152 Newcombe/Paradell, p. 26
153Ibidem, p.162.
154 UNCTAD, p.16.
155 Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States.
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V. RESPONDENT’S ACTIONS LED TO THE INDIRECT EXPROPRIATION OF CLAIMANT’S
INVESTMENT
127. The present dispute consists of the indirect expropriation of CLAIMANT’S investment,
which did not follow the law and BIT-provided requirements in order to be characterized as
legal. CLAIMANT contends that the Presidential Decree No. 2424 resulted in a breach of article
7 of the BIT, which contained the provision for expropriatory actions.
128. Expropriation consists on the unilateral right of the state to take possession on
national or alien property in order to protect social, economic, environmental and other
national interests. In order to be lawful, the following conditions must be met156: the property
must be taken due to public interest; the expropriation must happen in a non-discriminatory
way; it must follow due process of law; the company/individual affected by it must be
awarded fair compensation.
129. Such conditions can happen in a direct157 - mandatory legal transfer of the title to
property or its outright physical seizure - or indirect158 way - total or almost-total deprivation
of an investment but without a formal transfer of title or outright physical seizure.
130. Indirect expropriation can also be referred to as regulatory expropriation, happening
when the host state’s police powers result in the economic destruction of the foreign
investment159. Such terms refer not only to intentional or obvious expropriation, but also the
multiplicity of inappropriate regulatory acts, omissions and other conducts that undermines
the “vital normative framework” established and maintained by BITs.160
131. After years of conducting lindoro exploitation in full compliance with all of Kronos’
requirements, making everything possible in order to guarantee the best for both parties
156
UNCTAD, p. 2; Fortier/Drymer, p. 295.
157 Fortier/Drymer, p. 290.
158 Sempra Energy International v The Argentine Republic, para. 285.
159 Newcombe/Paradell, p. 5.
160 Eudoro Armando Olguín v Paraguay, para. 84.
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interests and employing 200 kronian nationals161, CLAIMANT was surprised with the passing of
the Presidential Decree No. 2424, which resulted in the total infeasibility of Fenoscadia’s
business.
132. A bona fide162 non-compensatory regulation must comply with the international
customary law, following due process on a non-discriminatory basis. It must also be in
accordance with the agreement signed with the other contracting party unless the regulation is
urgent and adjusted with the public’s interest and well being - which is not what happened in
the present case.
133. Tribunals have already concluded that indirect expropriation and non-compensatory
regulation should be understood as functionally equivalent163. Both place a similar burden on
the property owner164.
134. The usual case law understanding is that ceasing the economic value and enjoyment of
the investment constitutes indirect expropriation165, and it usually happens through regulatory
measures166. As it was stated in the Marvin Feldman v Mexico award, creeping expropriation
and non-compensatory regulation follow the same path: host states implementing regulatory
measures designed to make continued operation of a project uneconomical so it is
abandoned167.
135. The intent to expropriate does not need to be obvious. Even if RESPONDENT did not
intend to expropriate CLAIMANT’S property, its acts had the same consequence that a planned
161
Facts, p. 33.
162 UNCTAD Series on International Investment Agreements II, p. 78.
163 Malvin Roy Feldman Karpa v United Mexican States, para. 101.
164 Higgins, p. 331.
165 Telenor v Hungary, para. 65.
166 Pope & Talbot Inc. v Government of Canada, para. 99.
167 Marvin Roy Feldman Karpa v United Mexican States, para. 110.
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expropriation would have - the government proceeded with an indirect appropriation of
CLAIMANT’S previously granted rights168.
136. The S.D. Myers169 and Pope & Talbot170 tribunals suggested that the test for
characterizing indirect expropriation is to analyze whether the regulatory measures taken by
the government are “designed to make continued operation of a project uneconomical so that
it’s abandoned” or make it “impossible for the firm to operate at a profit”. In Tecmed171, the
tribunal concluded that expropriation had happened once the economic operations held by
Claimant had been fully and irrevocably destroyed.
137. In order to distinguish indirect expropriation, many tribunals have resorted to the sole
effects doctrine172. By applying such theory, the effect of the governmental action on the
investment is the only factor to be considered when determining whether an indirect
expropriation has occurred, being the reasons that led the government to take action
completely irrelevant173.
138. In the Metalclad v Mexico174 case, it was stated that “the tribunal need not decide or
consider the motivation or intent of the adoption of the Ecological Decree”. It was also added
that indirect expropriation could happen even when it was not to the obvious benefit of the
host State. The Tecmed175 tribunal decided that, when determining indirect expropriation, the
government’s intention is no less important than the effects of the measures on the owner of
the assets. The Biloune v Ghana176 case was based on the effect of the cessation of the
investment, and the tribunal decided that, even though the motivation for the Ghanaian
168
Newcombe/Paradell, p. 19.
169 S.D. Myers Inc. v Government of Canada.
170 Pope & Talbot Inc. v Government of Canada.
171 Técnicas Medioambientales Tecmed v United Mexican States, para. 119.
172 Dolzer, p. 122.
173 Nykomb Synergetics v Latvia, para. 3.
174 Metalclad v United Mexican States, para. 111.
175 Técnicas Medioambientales Tecmed v United Mexican States, para. 116.
176 Biloune v Ghana, para. 26.
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35
government acts were not clear, the tribunal did not need to establish such motives for
determining whether expropriation had happened or not.
139. In the present case, the sole effects doctrine should be applied as well. Although
RESPONDENT claims that the legislation was necessary because the lindoro exploitation could
be affecting its population and natural resources, what should be considered by this Tribunal
is not the motivation that led to the Decree, but the effect it had towards CLAIMANT - which
was the complete impossibility for Fenoscadia to continue operating.
140. Even though RESPONDENT claims that its conducts do not characterize as
expropriation, it will be demonstrated that The Presidential Decree no. 2424 culminated in the
indirect expropriation of CLAIMANT’S investment since (i) it did not regard public interest or
an urgent matter, (ii) happened in a discriminatory way, disrespecting due process and (iii)
CLAIMANT was not paid due compensation.
i. The Presidential Decree no. 2424 did not regard public interest nor was an
urgent matter
141. CLAIMANT contends for the application of the sole effects doctrine in the present case.
However, it is also important to analyze the reasons why RESPONDENT’S conducts should be
considered as expropriatory even if this Tribunal does not decide to apply said doctrine.
142. One of the main requirements for an expropriation to be considered lawful is that it is
done based on public interest and, for the expropriation to happen in the way it did in the
present dispute, without consulting the affected party before the expropriatory procedures,
such public interest must create an urgent matter. However, CLAIMANT’S investment did not
regard public interest nor created an urgent matter for the Kronian government.
143. Undoubtedly, the protection of investors against the state’s measures is not absolute,
so much so that many agreements, including the BIT in this case, foresee the possibility to
expropriate if regarding a public purpose and on payment of due compensation. However, this
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36
possibility should be analyzed in the light of the principles of proportionality and
reasonableness177.
144. Even though the BIT does not have a clear determination of what public purpose is, it
can be defined as an instrument used to assure the welfare, prosperity, and contentment of the
public178. RESPONDENT failed to substantiate the conditions of public purpose, once the
exploitation of lindoro significantly benefited the country’s economy and have no proven
correlation with the increase of specific diseases in the region. The tribunal in ADC v
Hungary stated that reason for the regulation must be proven, otherwise, the argument of
“public purpose” becomes meaningless179. After all, if there is no proof, the government can
simply justify every illegal act as a measure of public purpose.
145. The only possibility for a state to act against international law - and not be punished
for it - is under the state of necessity. The state of necessity doctrine establishes that if after
every conceivable legal means of self-preservation have failed to remedy the matter at hand, it
is justifiable for the State to execute measures that would otherwise be unlawful180. However,
the measure taken by RESPONDENT fails to meet these criteria, inasmuch as CLAIMANT was
found to be in full compliance with the terms of environmental care on the BIT.
146. Thus, even if assumed that CLAIMANT was causing harm to the environment,
RESPONDENT had to resort to other legal means in order to respond to the dangers
presented181. As RESPONDENT did not warn CLAIMANT about the alleged environmental
damage nor did it take any precautions to assure the nature’s safety on the region, the decree
becomes unjustified.
147. CLAIMANT has always been found in full compliance with all the environmental
standards required by RESPONDENT’S government, both in the Agreement-predicted
177
Azurix Corp. v The Republic of Argentina.
178 Black’s Law Dictionary.
179 ADC v Hungary, para. 430-433.
180 Bin Cheng, p. 74.
181 GabCíkovo-Nagymaros Project, para. 56.
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37
inspections, conducted by the Ministry of Agriculture, Forestry and Land and in the newly
created Ministry for Environmental Matters (hereinafter “MEM”) inspections predicted in the
KEA182. As it is also seen on the case file, the MEM was supposed to make a strict
supervision of all of CLAIMANT’S activities, to guarantee that it would follow the
environmental protection requirements predicted in the KEA.
148. It is necessary to highlight that such measures were created and imposed by
Respondent. Kronos had the responsibility to inspect and inform CLAIMANT of the regulatory
precautions necessary and any kind of non-compliance verified. Moreover, it is not
CLAIMANT’S duty to guarantee that RESPONDENT’S own measures would be, in fact, efficient,
and it can’t be blamed for such ineffectiveness.
149. RESPONDENT then passed the Presidential Decree no. 2424 based on a very recent
study of the Federal University of Kronos183, conducted between March 2015 and February
2016. In such study, it was concluded that the exploitation of lindoro was the main source of
pollution of the Rhea River and possibly responsible for the increase in cardiovascular
diseases (hereinafter “CVDs”) and microcephaly in RESPONDENT’S territory.
150. The Presidential Decree states that the exploitation of lindoro was only “potentially”
harmful; therefore RESPONDENT did not have grounds to declare the matter urgent. CLAIMANT
should have been given the right to defend itself from the measure. As it will be further
addressed, RESPONDENT’S actions go directly against what is predicted in the BIT, which in
its article 8 provides that an interested person should have “a reasonable opportunity to
comment on that proposed measure”184.
151. Moreover, according to recent data, cardiovascular diseases have increased 41% from
1990 to 2013 globally, and the number keeps increasing. Analyzing more specific data from
the same period, CVDs had an increase of 97% in South Asia and India185, and a rise of
182
Facts, p. 35.
183 Case, Exhibit 4, p.50.
184 BIT, p. 42.
185 IHME, Roth/Forounzafar/Moran.
TEAM ALFARO
38
almost 50% in the Middle East, Africa and East Asia. Just like RESPONDENT, these are all
regions with mostly underdeveloped countries, and, just like RESPONDENT, they all had a
significant rise in CVDs in a small amount of time. In fact, according to the World Health
Organization186, 75% of all CVD deaths happen in developing countries.
152. Microcephaly problems were also on rising since 2016, when it became a global-scale
problem with zika virus187. However, the WHO was already monitoring the origins of
microcephaly since 2005188. The main diagnosis is made through head measuring in the
newborn; still, less than 40 countries adopt such conducts as a pattern protocol189. In Brazil
and other underdeveloped countries affected by the zika outbreak, microcephaly data started
rising with the adoption of the emergency protocol that included head measuring. In fact, it
was discovered that a lot of cases were not caused by the zika virus itself, but from a syphilis
outbreak that was yet unknown, and was discovered due to the adoption of the zika
emergency protocol190.
153. Observational studies can be done in three ways: cohort, cross-sectional and case-
control. Cohort studies use two groups - one exposed to the agent of interest and one not - in
order to analyze the incidence of a condition. Cross section is used to determine prevalence: it
equals the number of cases in a population at a given point in time. Lastly, case-control
studies analyze cases retrospectively in order to study what agents the control group has been
exposed to.
154. In order to discover what is a disease’s cause, the NCBI191 and WHO192
recommendation is to conduct all three kinds of observational studies. However, the Federal
University of Kronos has only analyzed data from people living in the surroundings of the
186
WHO, Global Heart Initiative.
187 Orioli/Dolk.
188 WHO Work on Zika Virus.
189 Harris, p. 2.
190 Vargas/Estima.
191 NCBI, 2015.
192 WHO, 2006.
TEAM ALFARO
39
Rhea River for a certain period of time; also, not all data used was collected with the intent to
analyze the rise of CVDs and microcephaly. In fact, one of the main requirements of all three
kinds of studies was not met: the affected group must be compared to another one, not
exposed to the studied agent. A study that does meet any of the three above mentioned kinds
is only descriptive, and cannot make links between exposure and effect193.
155. In order to conduct an effective study to discover the cause of such diseases, there
should have been the analysis of data not only from the population that lives in the
surroundings of the Rhea River but also from groups not affected by the agent studied. The
conclusion that can be reached from analyzing the way the study was conducted is the same
as the study itself194 mentions: it is not possible, from the single study realized by the Federal
University, to conclude if the lindoro exploitation has any kind of causal link between the rise
of CVDs and microcephaly in Kronos.
156. Even though the highly-risky rise on CVDs and microcephaly is, indeed, a public
matter interest that can be considered urgent, there is little to no evidence that it was related to
CLAIMANT’S investment. By analyzing the above-mentioned data, this Tribunal should reach
the conclusion that there is no indication Kronos is not merely suffering from problems that
are arising in a global scale, and CLAIMANT cannot be held liable for such scenario.
157. By not being sure that CLAIMANT’S activities are the origin of Kronos’ health and
environmental problems, it may have happened that RESPONDENT expropriated CLAIMANT’S
investment without bringing any kind of advantage for the kronian population. The only party
that benefited from this situation was RESPONDENT itself, that retained all of CLAIMANT’S
stock of lindoro and is possibly taking over the lindoro market in 2019.
ii. Respondent’s conduct is discriminatory and disrespected due process
193
Bonita/Beaglehole/Kjellstrom, p.10.
194 Case, Exhibit 4, p.51.
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40
158. For the expropriation to be legal, the State’s conduct must be characterized as non-
discriminatory, with that meaning that such conduct cannot be targeted at one direct
person/company and done only to impair such target’s business.
159. CLAIMANT was the only company exploring lindoro in Kronos. By passing the Decree,
RESPONDENT directly targeted CLAIMANT’S investment, leading to the complete shut down of
all of Fenoscadia’s activities. In addition, Global Mining, a leading publication in the field of
mining, has announced that by the beginning of 2019 lindoro will be back in the markets, now
commercialized by Kronos itself195. It further informs that rare metal will be explored by a
joint venture made between Kronos and the Republic of Ibi, a nearby country with the same
political ideology, with revenues expected to 2019.
160. RESPONDENT argues that the Decree was an urgent matter that needed intervention,
and states that it “aimed exclusively at preserving human life and health in Respondent’s
territory against Claimant’s intolerable activity”196. Notwithstanding, RESPONDENT now aims
to explore the same kind of “intolerable” activity by nationalizing the company that will do
so, in accordance with the new government’s ideology. Arbitral tribunals have already held
that legislation created with the intent to guarantee that some kind of economic activity
remains under total or near-total governmental/nationalist control can be characterized as
indirect expropriation197.
161. Such conduct can be characterized as a discriminatory measure: RESPONDENT not only
directly aimed - and affected - CLAIMANT’S investment through its new domestic legislation,
but has also benefited from it, by possibly taking over control of the lindoro exploitation and
market.
162. The principle of the due process of law198 was dismantled by the Presidential Decree
no. 2424. CLAIMANT was not given a chance for a fair hearing or even a reasonable advance
195
Case, Exhibit 7, p. 54.
196 ARfA, p. 16.
197 Eureko v Poland, para. 242.
198 ADC v Hungary, para. 435
TEAM ALFARO
41
notice. With the denial of RESPONDENT to review the interim measure requested or negotiate
with CLAIMANT, the violation of the article 8 of the BIT became obvious. As it was already
mentioned, such article grants any interested party an opportunity to comment on a measure
that could affect it.
163. In the Middle East Cement199 tribunal, it was decided that, in case of an indirect or
direct expropriation that does not rise from an urgent public matter, the part affected by it
must be notified through direct communication. The tribunal for the case ADC v Hungary200
also analyzed a breach of due process and stated that reasonable advance notice, a fair hearing
and an impartial adjudicator and a “reasonable chance within a reasonable time” to claim its
legitimate rights and have its claims heard are basic legal mechanisms and would be
necessary in order to respect the principle of due process when dealing with expropriations.
164. In the present case, by targeting exclusively CLAIMANT’S business and not giving
Fenoscadia a fair hearing or prior notice, another requirement for expropriation to be lawful
was not followed.
iii. Respondent did not pay CLAIMANT due compensation for its expropriatory
measures
165. When dealing with indirect expropriation, compensation is considered to be prompt if
paid without delay; adequate, if it has a reasonable relationship with the market value of the
investment concerned201. In the present case, CLAIMANT demands payment of the
compensation owed by RESPONDENT due to the expropriatory measures that led to the total
shut down of Fenoscadia’s operations in Kronos.
166. In Compañia del Desarollo de Santa Elena202, the arbitral tribunal concluded that
expropriatory environmental measures - no matter how laudable and beneficial to society as a
199
Middle East Cement v Egypt, para. 143
200 ADC v Hungary, para. 435
201 Isakoff, p. 204
202 Compañia del Desarollo de Santa Elena S.A v Republic of Costa Rica, para. 72
TEAM ALFARO
42
whole - are in this respect, similar to any other expropriatory measures that a state may take in
order to implement its policies: where property is expropriated, even for environmental
purposes, the state’s obligation to pay compensation remains.
167. Moreover, case law tends to agree that, when the expropriation has an irreversible
nature, such as in the present case, the permanent losses resulted from the expropriatory
measures must be compensated203. The damage that happened with CLAIMANT is not merely
ephemeral, causing substantial consequences equivalent to a permanent loss. In the present
case, the recovery of the property right or access to it does not replace ownership in the
investment’s initial situation204.
168. RESPONDENT not only caused the economic destruction of CLAIMANT’S business, but it
also confiscated all lindoro stored in Fenoscadia’s site. The Case Concerning Certain German
Interests in Polish Upper Silesia dealt with seizing of machinery, and the Permanent Court of
International Justice held that Poland had also expropriated contractual rights205. It also
decided that Poland’s actions resulted in the indirect appropriation of the property by the
country.
169. The advantage the state took of the situation and the teleological driven action by the
state206 are to be understood as expropriatory. It is a fact that lindoro is a rare and highly
valued metal and RESPONDENT took possession of all available lindoro in CLAIMANT’S
company at no cost. Therefore, RESPONDENT gained a large financial benefit proportionally
related to CLAIMANT’S losses.
170. Not only did CLAIMANT had its property taken, as thereupon was unable to comply
with contractual obligations with its customers, suffering huge losses. The precedent of the
Factory at Chorzów207 case establishes that acts contrary to the international law must re-
203
LG&E v Argentina, para. 193.
204 RFCC v Morocco, para. 68.
205 Case Concerning German Interests in Polish Upper Silesia, para. 125.
206 Eudoro Armando Olguín v. Republic of Paraguay award, para. 84
207 Case Concerning the Factory in Chorzow, para. 47
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43
establish the financial situation as if the act never occurred. Consequently, RESPONDENT is
accountable for compensating CLAIMANT due to the fortuitous breach of contract with its
purchasers and suppliers.
171. Even if this Tribunal understands that the expropriation happened in a lawful way,
resulted from public interest and followed due process, compensation would still be owed to
CLAIMANT. The reason why compensation must be paid in expropriatory processes based on
public interest is the idea that the state and its population must not benefit unduly at the
expense of private individuals208.
172. As previously stated, non-compensatory regulations and indirect expropriation tend to
have the same casuistic effects. Due to the Decree, Fenoscadia lost its right to continue an
activity that had been done for years, always doing its best to comply with the government’s
strict supervision. By that, CLAIMANT is still entitled to receive compensation for the losses
resulted from the Presidential Decree No. 2424.
208
García-Amador, p. 5.
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44
PRAYER FOR RELIEF
173. In light of the above submissions, CLAIMANT respectfully requests this Tribunal to find
that:
(i) CLAIMANT is an eligible investor under the 1995 Ticadia-Kronos BIT;
(ii) CLAIMANT’S present claims have no relation with the lawsuit filed before
RESPONDENT’S courts;
(iii) RESPONDENT’S counterclaim is not admissible;
(iv) The fair and equitable treatment standard was not respected by RESPONDENT,
breaching article 6 of the BIT;
(v) RESPONDENT’S actions led to the indirect expropriation of CLAIMANT’S
investment, breaching article 7 of the BIT.
COUNSELS FOR THE CLAIMANT
TEAM ALFARO
17 SEPTEMBER 2018.
