SPIROPOULOS
INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
In the Proceeding Between
VANGUARD INTERNATIONAL
(CLAIMANT)
AND
GOVERNMENT OF THE REPUBLIC OF CALPURNIA
(RESPONDENT)
MEMORANDUM FOR RESPONDENT
TABLE OF CONTENTS
LIST OF AUTHORITIES iii
LIST OF LEGAL SOURCES vi
I. STATEMENT OF FACTS 1
II. JURISDICTION 4
A. JURISDICTION UNDER THE ICSID CONVENTION 4
1. Nationality 4
2. Consent 6
3. Scope 6
B. JURISDICTION UNDER THE CALPURNIA-GAUL BIT 8
1. Definition of Investment 8
2. The Fork-in-the-Road Provision 9
3. Waiting Period 11
III. CLAIMS UNDER THE CALPURNIA-GAUL BIT 13
A. ATTRIBUTION OF ACTIONS TO THE STATE 13
B. FAIR & EQUITABLE TREATMENT 15
C. FULL PROTECTION & SECURITY 21
D. UNREASONABLE, ARBITRARY & DISCRIMINATORY 24
MEASURES
E. SYMPATHETIC CONSIDERATION 27
F. DISCRIMINATION 28
G. THE MOST FAVORED NATION PROVISION 31
H. EXPROPRIATION 34
IV. CONCLUSION 36
ii
LIST OF AUTHORITIES
1. ADF Group Inc. v. United States of America, ICSID Case No. ARB(AF)/00/1,
Award of January 9, 2003.
2. Agreement between the Government of the Republic of Calpurnia and the
Government of the State of Flatland on the Mutual Promotion and Protection of
Investments (“Calpurnia-Flatland BIT”).
3. Agreement between the Government of the Republic of Calpurnia and the
Government of the Federated Stated of Gaul on the Promotion and Protection of
Investments (“Calpurnia-Gaul BIT”).
4. AMCO Asia Corp. v. Republic of Indonesia, ICSID Case No. ARB/81/1, Decision
on Jurisdiction, September 25, 1983.
5. American Manufacturing. & Trading, Inc. v. Republic of Zaire, ICSID Case No.
ARB/93/1, Award of February 21, 1997.
6. Asian Agricultural Products Ltd. (AAPL) v. Republic of Sri Lanka, ICSID Case
No. ARB/87/3, Final Award of June 27, 1990.
7. Azinian, Davitian & Baca v United Mexican States, NAFTA, Award of November
1, 1999.
8. CAMPBELL MCLACHLAN QC, LAURENCE SHORE & MATTHEW WEINIGER,
INTERNATIONAL INVESTMENT ARBITRATION (2007).
9. Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No.
ARB/97/4, Decision on Objections to Jurisdiction of May 24, 1999.
10. Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy), Judgment of
July 20, 1989, 28 ILM 1109 (1989).
11. Emilio Augustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7,
Decision on Objections to Jurisdiction of January 25, 2000.
12. Ethyl Corp. v. Government of Canada, NAFTA/UNCITRAL, Award on
Jurisdiction, June 24, 1998, 38 ILM 708 (1999).
13. Eureko BV v. Republic of Poland, Ad-hoc Tribunal, Partial Award of August 19,
2005.
14. Fedax N.V. v. Republic of Venezuela, ICSID Case No. ARB/96/3, Decision on
Objections to Jurisdiction, July 11, 1997.
iii
15. ICSID Convention on the Settlement of Investment Disputes Between States and
Nationals of Other States (2003) (“ICSID Convention”).
16. ICSID Report of the Executive Directors on the Convention on the Settlement of
Investment Disputes Between States and Nationals of Other States, International
Bank for Reconstruction and Development, March 18, 1965 (“ICSID Report”).
17. INTERNATIONAL INVESTMENT LAW & ARBITRATION: LEADING CASES FROM THE
ICSID, NAFTA, BILATERAL TREATIES & CUSTOMARY INTERNATIONAL LAW
(Todd Weiler ed. 2005).
18. International Law Commission, Articles on State Responsibility (2001).
19. Investment Provisions in Economic Integration Agreements, UN Conference on
Trade and Development, UNCTAD/ITE/IIT/2005/10 (2006), available at
http://www.unctad.org/en/docs/iteiit200510ch4_en.pdf.
20. IOANA TUDOR, THE FAIR & EQUITABLE TREATMENT STANDARD IN
INTERNATIONAL LAW OF FOREIGN INVESTMENT (2008).
21. LG&E v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability
of October 3, 2006.
22. Metalclad Corporation v. Mexico, ICSID Case No. ARB(AF)/97/1, Award of
August 30, 2000.
23. Mondev International Ltd. v. United States of America, NAFTA, Award of
October 11, 2002.
24. Occidental Exploration and Production Company v. Republic of Ecuador,
London Court of International Arbitration Administered Case No. UN 3467, July
1, 2004.
25. Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24,
Decision on Jurisdiction, February 8, 2005.
26. Pope & Talbot, Inc. v. Government of Canada, NAFTA/UNCITRAL, Interim
Award on Merits – Phase Two, April 10, 2001.
27. Ronald S. Lauder v. The Czech Republic, UNCITRAL, Final Award of September
3, 2001.
28. Salini v. Costruttori S.p.A. and Italstrade S.p.A. v. The Hashemite Kingdom of
Jordan, ICSID Case No. ARB/02/13, Decision on Jurisdiction, November 29,
2004.
iv
29. Saluka Investments BV (The Netherlands) v. Czech Republic UNCITRAL, Partial
Award of March 17, 2006.
30. S.D. Myers, Inc. v. Government of Canada, UNCITRAL (NAFTA), Partial Award
on Liability, 13 November, 2000.
31. Tecnicas Medioambientales Tecmed S.A. v. United Mexican States, ICSID Case
No. ARB(AF)/00/2, Award of May 23, 2003.
32. Tradex Hellas S.A. v. Republic of Albania, ICSID Case No. ARB/94/2, Award of
April 29, 1999.
33. United States – In the Matter of Cross-Border Trucking Services, Panel Report,
USA-MEX-98-2008-01, 6 February 2001.
34. Waste Management, Inc. v. United Mexican States, ICSID Case No.
ARB(AF)/00/3, Award of April 30, 2004.
v
vi
LIST OF LEGAL SOURCES
1. CAMPBELL MCLACHLAN QC, LAURENCE SHORE & MATTHEW WEINIGER,
INTERNATIONAL INVESTMENT ARBITRATION (2007).
2. IOANA TUDOR, THE FAIR & EQUITABLE TREATMENT STANDARD IN INTERNATIONAL
LAW OF FOREIGN INVESTMENT (2008).
3. INTERNATIONAL INVESTMENT LAW & ARBITRATION: LEADING CASES FROM THE
ICSID, NAFTA, BILATERAL TREATIES & CUSTOMARY INTERNATIONAL LAW
(Todd Weiler ed. 2005).
4. M. SORNARAJAH, THE SETTLEMENT OF FOREIGN INVESTMENT DISPUTES (2000).
I. STATEMENT OF FACTS
The Joint Venture
1. The Respondent, Calpurnia is a contracting state of the Convention on the
Settlement of Investment Disputes between States and Nationals of other States
(ICSID Convention), as are the federated states of Gaul, of which the Claimant is a
national. Since November 2003, the majority of the Calpurnian Parliament has
consisted of members of the Conservative Conscience of Calpurnia (CCC), the
state’s conservative party. The Claimant, Vanguard International (hereinafter,
“Vanguard”), is a mobile telecommunications company with GSM operations
incorporated in the Federated States of Gaul (hereinafter, “Gaul”). Vanguard is
headquartered in Nova Parigi, the capital of Gaul.
2. In 1997, the Claimant participated in the establishment of VanCal, a joint venture
company, in Calpurnia. VanCal is incorporated and headquartered in San Inocente
de Irkoutsk, the capital of Calpurnia. VanCal provides GSM/UMTS (3GPP)
services throughout Calpurnia using the “Vanguard International” trademark.
Through separate agreements, the Claimant provided technical assistance and
trademark licensing to VanCal.
3. The Claimant initially owned a fifty percent equity interest in VanCal, which at one
point, rose to eighty-six percent. Francesca Pescara, the Claimant’s representative
and VanCal’s managing director at the time, held an additional one percent of
VanCal’s stock in trust on behalf of the Claimant. Calpurnian firms, banks,
companies, and natural persons, including farmers and workers, constitute the
remaining shareholders.
4. The State Fund for Commerce and Development in Calpurnia (“SFCDC”) serves a
custodial role, as it holds on deposit and votes on twenty-two percent of VanCal
stock that is registered in the names of several hundred individual shareholders. The
SFCDC directly holds thirty percent of VanCal’s stock.
Calpurnia’s Response to National Security Concerns
5. In late 2003, the Calpurnian Security Forces received anonymous tips from reliable
sources that the Claimant was involved in illegal data collection for Gaulois Security
Services. These reports alarmed the national security and threatened the safety of all
1
residents in Calpurnia. These allegations pertaining to the safety of Calpurnian
citizens were taken very seriously, and warranted further investigation. On
December 8, 2003, the Security Forces searched the homes of Francesca Pescara and
David Kolowenko, who were both under suspicion for unlawful data collection and
espionage.
6. The Security Forces conducted another search of the representatives’ homes as part
of the continuing counter-espionage operations on June 4, 2007, approximately six
months after the initial investigation. At this time, the prosecutors expressed that
they expected to file charges shortly. On July 17, 2004, stolen data hidden in the
homes of Ms. Pescara and Mr. Kolowenko was seized. Prosecutors were still
considering pressing charges based on investigations and the items collected and
evaluated from both individuals.
7. Between January and October of 2004, concerned independent groups and
individuals fearful and worried of the espionage activities reported, gathered to
exercise their right to free speech by protesting Ms. Pescara’s alleged illegal
activities outside her home.
8. Given the mounting suspicions of espionage and pending investigations against Ms.
Pescara, immigration authorities declined to renew her three-year business visa. The
authorities enjoy a broad discretion in granting visas, and they are responsible for
protecting the country. Despite the pending investigation relating to national
security, Ms. Pescara was orally advised that she could still continue entering
Calpurnia using the visa waiver program, which would suffice for her reduced
VanCal board functions.
SFCDC’s Efforts to Cooperate with the Claimant
9. Although investigative searches and citizen picketing had ceased in October 2004,
Ms. Pescara left her position as VanCal’s managing director in November 2004.
The Board thanked her for her efforts over the years. Incidentally, this resignation
came one month after VanCal welcomed Dr. Swift (the new Chairman of the Board)
and Mr. Kelly, two SFCDC members, to the Board of Directors in October, 2004.
After her departure, Ms. Pescara continued to remain in contact with VanCal.
2
10. Ms. Pescara’s departure did not impact the Claimant’s representation on the Board,
as Mr. Hunter and Mr. Fowler subsequently replaced the positions Ms. Pescara and
Mr. Shepherd held. Both Mr. Hunter and Mr. Fowler were elected to represent the
claimant’s at the June 7, 2006 shareholders meeting by the board of directors. The
Claimant ended its participation on the Board when it withdrew its representatives
by email and declined to replace them. The board’s effort to elect and fill the
Claimant’s positions on the board was frustrated as both individuals who were
recently elected resigned on October 23, 2006, based upon orders by the Claimant.
The representatives resigned just a month after VanCal had already credited
dividend payments to VanCal’s account. In an effort to remedy the impact the
resignation of Claimant’s representatives had on VanCal, Dr. Swift wrote an email to
the Claimant suggesting that the resignations be withdrawn and new directors be
designated. VanCal did not want the Board deficient in representation from the
company’s minority shareholder.
11. In May 2005, the Claimant sent an email requesting the amount of the dividend
payable be placed in a separate bank account in the Claimant’s name. Absent any
authorization by the board, Mr. Korchnoi responded, stating that VanCal could not
comply with the request. The email by Mr. Korchnoi was unauthorized and
consequently superseded by VanCal’s statements of its utmost willingness to make
any license fee payments and dividend payments owed to Claimant.
12. Correspondence that ensued on February 15, 2007 includes Claimant’s unfounded
accusations that Calpurnian State entities committed de facto expropriation and
demanded for compensation. Mr. Poe responded to the Claimant on February 21,
2007, declining to involve the Government in what is merely an internal shareholder
dispute, and stating that the Government has no authority in any event. Also, the
board was surprised at the expropriation claim, since the “company ha[d] in no way
been in a worse condition in the two or three recent fiscal periods” than during the
period when the Claimant controlled VanCal’s management.
13. In another effort to cooperate with the Claimant, on November 30, 2005, Dr. Swift
conveyed his desire to have information provided to shareholders and board
members by having originals available for inspection at the head office.
3
The Claimant’s Court and Arbitration Proceedings
14. Although the investigations were performed in accordance with Calpurnian law, the
Claimant sought to have the home searches declared unlawful and to demanded
compensation. The Calpurnian Constitutional Court dismissed the suit because the
Claimant lacked standing to bring causes of action relating to the private rights of
residences of its employees, namely, Ms. Pescara and Mr. Kolowenko.
15. In another action, Ms. Pescara applied to the Commercial Court of San Inocente de
Irkoutsk to transfer to her account in Gaul dividends on the one percent shareholding
she held in trust for the Claimant. However, on June 14, 2006, the Court summarily
dismissed the suit, because as a mere nominee of the stock, she lacked standing to
bring the suit.
16. Finally, despite all of the SFCDC’s efforts to work with the Claimant to resolve and
settle any existing problems, the Claimant requested arbitration proceedings at the
International Centre for Settlement of Investment Disputes (ICSID) on July 31,
2007, only a few months after communicating its grievances relating to the Board’s
decisions.
II. JURISDICTION
17. The tribunal does not have jurisdiction to hear Vanguard’s claims. Vanguard
neither meets the jurisdictional requirements of the ICSID Convention nor those of
the Calpurnia-Gaul BIT.
A. JURISDICTION UNDER THE ICSID CONVENTION
18. Article 25 of the ICSID Convention requires a tribunal find that the parties satisfy
requirements of nationality, scope and consent. The parties fail to meet the elements
of nationality, have not consented to ICSID jurisdiction, and do not have a dispute
within the scope of the ICSID Convention.
1. NATIONALITY
The parties do not meet the nationality requirement of ICSID jurisdiction since the
SFCDC is not an arm of the state.
19. Article 25 of the ICSID Convention requires that the parties be members of
contracting states in order to submit a claim to ICSID jurisdiction. Although Gaul
4
and Calpurnia are both contracting states to the ICSID Convention, the SFCDC is
not an arm of the Calpurnian state for jurisdiction purposes. As a result, the parties
do not satisfy the nationality requirements of Article 25.
20. The fact that an entity is state-created does not automatically mean that this entity is
an arm of the state for jurisdiction purposes. In Emilio Augustín Maffezini v. The
Kingdom of Spain, the tribunal devised both structural and functional tests to
determine when an organization constitutes a state entity.1
The structural test looks
at who created the entity, under what law, and the functions the entity is intended to
carry out.2
The structural test is accompanied by a functional test, which examines
the degree of state control over the entity and whether the actions of the entity are
“essentially commercial rather than governmental in nature.”3
Elements of both the
structural and functional tests must be present for an entity to be classified as an arm
of the state.4
Relying on these tests, the tribunal found that a private corporation was
in fact a regional development agency.5
21. The SFCDC fails the structural test of Maffezini since it is not established as a state
entity or controlled by the state. The intent of the state to create a state-owned entity
is not enough to raise the presumption that the entity is a state organ.6
Calpurnian
law does not designate the SFCDC as a state entity. Further, unlike in Maffezini,
where the state-created entity invested at the direction of a state ministry, the
SFCDC operates on its own command. Thus, the SFCDC does not meet the
structural test for a state entity.
22. The SFCDC also fails the functional test of Maffezini since its operations are purely
commercial in nature. As the Maffezini tribunal held, “commercial acts cannot be
attributed to the… State.”7
Unlike in Maffezini, where the state-created entity
operated to benefit the state, the SFCDC invests in the private sector on behalf of
1
Emilio Augustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Decision on Objections
to Jurisdiction of January 25, 2000.
2
Id.
3
Id. ¶ 80 (citing Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No.
ARB/97/4, Decision on Objections to Jurisdiction of May 24, 1999).
4
Id. ¶¶ 77-80.
5
Id. ¶¶ 83-86.
6
Id. ¶ 84.
7
Id. ¶ 52.
5
Calpurnian investors. The SFCDC’s role is no different than that of any other
private sector fund manager seeking to attain maximum returns on behalf of its
investors. Because its actions are purely commercial and possess no link to the
government, the SFCDC fails to meet the functional test of Maffezini and therefore
cannot be considered a state entity for the purposes of ICSID jurisdiction.
2. CONSENT
Calpurnia’s consent to ICSID does not extend to a dispute between the SFCDC and
a contracting state.
23. Article 25(1) of the ICSID Convention requires the consent of both contracting states
in order to initiate arbitration. Specifically, Article 25(1) states:
“The jurisdiction of the Centre shall extend to any legal
dispute arising directly out of an investment, between a
Contracting State (or any constituent subdivision or agency
of a Contracting State designated to the Centre by that
State) and a national of another Contracting State, which
the parties to the dispute consent in writing to submit to the
Centre. When the parties have given their consent, no party
may withdraw its consent unilaterally.”
24. The Calpurnia-Gaul BIT exists between the Government of the Federated States of
Gaul and the Government of the Republic of Calpurnia. While arbitral tribunals
have emphasized the importance of states being able to bind themselves and make
decisions, SFCDC is not an arm of the state as Claimant has alleged, and should not
be subject to ICSID jurisdiction. The fact that the SFCDC is state-owned does not
mean that it acts in the capacity of a Calpurnian constituent subdivision or agency.
As a result, the record offers insufficient evidence for Claimant to justifiably allege
that Calpurnia “irrevocably consented” to ICSID jurisdiction.
3. SCOPE
Vanguard’s investment in VanCal does not fall within the definition set forth in the
ICSID Convention.
25. Article 25(1) of the ICSID Convention creates scope requirements for a tribunal
when determining whether jurisdiction exists. Specifically, Article 25(1) states:
“The jurisdiction of the Centre shall extend to any legal
dispute arising directly out of an investment, between a
Contracting State . . . and a national of another Contracting
6
State, which the parties to the dispute consent in writing to
submit to the Centre.”8
26. The present dispute does not fall within the scope of the ICSID Convention since
there is no legal dispute between Calpurnia and the Claimant. Moreover, even if the
tribunal finds there is a legal dispute between the parties, the dispute does not arise
directly out of the investment, and therefore, the jurisdictional requirements of
ICSID are not met.
i. The Claimant has an investment in Calpurnia.
27. The basic features of an investment include
“. . . a certain duration, a certain regularity of profit and
return, assumption of risk, a substantial commitment and a
significance for the host State’s development.”9
The Calpurnian government agrees that the Claimant has an investment in Calpurnia,
as the Claimant made a substantial commitment in setting up a joint-venture in
Calpurnia, which was significant in developing the host state’s telecommunications
industry. Also, the Claimant made a long-term investment in order to generate profit
and return, and by investing, the Claimant naturally assumed risks associated with
foreign direct investment. Therefore, the joint-venture, VanCal, meets definition of
an investment has been met.
ii. There is no legal dispute between the Government of Calpurnia and the
Claimant.
28. Although the Claimant has an investment in Calpurnia, there is no legal dispute
between the government and the Claimant. A legal dispute must be more than a
“mere conflict of interest”.10
Under one view, there is a conflict of interest between
these parties. While the government of Calpurnia wanted to secure the nation from
infiltration by foreign spies by investigating Ms. Pescara and Mr. Kolowenko
further, the two representatives wanted to resist the investigation by the police.
8
ICSID Convention on the Settlement of Investment Disputes Between States and Nationals of Other
States (hereinafter, “ICSID Convention”), Article 25(1).
9
Fedax N.V. v. Republic of Venezuela, ICSID Case No. ARB/96/3, Decision on Objections to Jurisdiction
of July 11, 1997, ¶ 43.
10
ICSID Report of the Executive Directors on the Convention on the Settlement of Investment Disputes
Between States and Nationals of Other States, International Bank for Reconstruction and Development
(hereinafter, “ICSID Report”), March 18, 1965, ¶ 26.
7
However, in the event the tribunal finds that the government is represented in the
actions of the SFCDC, then there is arguably a conflict of interest between SFCDC
and the Claimant. While the SFCDC wants to act in the best interest of VanCal and
its management, the Claimant seems to be largely concerned over the size of its
stock. Overall, however, any differences between these two parties constitute a mere
conflict of interest and nothing more.
iii. The dispute does not arise out of the investment.
29. Even if the tribunal finds that there is a dispute between the parties, and that it is of a
legal nature, the jurisdictional requirements are still lacking, as the dispute does not
arise directly out of the investment. Contrary to the situation in Ceskoslovenska
Obchodni Banka, AS v. the Slovak Republic, the legal dispute does not arise out of an
investment within the meaning of the Convention and, as will be discussed in the
next section, it does not relate to an investment as defined in the Calpurnia-Gaul
BIT.11
30. Under the ICSID Convention, the “legal dispute [must arise] directly out of an
investment.”12
The statutory construction makes it clear that directly modifies
investment. Calpurnia’s investigations of the Claimant’s representatives are in no
way related to the representatives’ roles in VanCal or their ownership of stock.
Also, the conflict of interests between the SFCDC and the Claimant arise over the
desire for greater control in managing the company. The dispute did not directly
stem from the investment itself; rather, it stemmed from differences in management
style and divergent goals.
B. JURISDICTION UNDER THE CALPURNIA-GAUL BIT
31. In addition to not meeting the requirements for jurisdiction under the ICSID
Convention, the Claimant does not meet the jurisdictional requirements under the
Calpurnia-Gaul BIT. The dispute does not relate to an investment as defined under
the BIT. Even if it did, the fork-in-the-road provision and eighteen-month waiting
period bar an arbitration claim.
11
Ceskoslovenska Obchodni Banka, AS v. the Slovak Republic, ICSID Case No. ARB/97/4, Decision on
Objections to Jurisdiction of May 24, 1999, ¶ 68.
12
ICSID Convention, Article 25(1).
8
1. DEFINITION OF INVESTMENT
While there may be an investment, its existence is minimal since the dispute revolves
around returns.
32. Calpurnia acknowledges that the stock the Claimant acquired in VanCal qualifies as
an investment under Article 1(1) of the BIT since it is a
“ . . . kind of asset established or acquired by an investor of
one Contracting Party in the territory of the other
Contracting Party …”13
and because this definition includes “shares, stocks, debentures or [another] form of
participation in a company.”14
However, contrary to the Claimant’s contention, the
dispute does not arise out of the investment under the Calpurnia-Gaul BIT, as it does
not relate to the market share or stocks. Instead, the current dispute centers on
returns, which are a separately defined item in the BIT. Article 1(2) distinguishes
returns from investments, defining returns as “amounts yielded by investments,”
including dividends. Thus, similar to the analysis for ICSID Convention
jurisdiction, the pertinent threshold question should be whether the Claimant was
entitled to returns, rather than whether it had an investment.
2. THE FORK-IN-THE-ROAD PROVISION
Vanguard violated the fork-in-the-road provision of Article 11 when it filed for
ICSID arbitration after pursuing remedies in the Calpurnian courts, and should be
barred from arbitration.
33. Article 11 of the Calpurnia-Gaul BIT contains a fork-in-the-road provision, which
allows the investor to select and submit a claim to one of four bodies of dispute
resolution. Under Article 11, the aggrieved investor may submit the case to local
courts, ICSID, an additional facility of ICSID, or an ad hoc arbitration tribunal.15
However, a fork-in-the-road provision precludes the pursuit of an additional dispute
resolution mechanism only when the following elements are identical in both suits:
(1) parties, (2) subject matter and (3) cause of action.16
Vanguard precluded from
pursuing ICSID arbitration since the above three elements are the same in the suit
filed by Ms. Pescara in Calpurnian courts and the present request for arbitration.
13
Calpurnia-Gaul BIT, Article 1.
14
Calpurnia-Gaul BIT, Article 1(b).
9
34. First, the parties seeking relief in both cases are the same. While the suit was
brought under Ms. Pescara’s name in the previous case, it effectively represented the
action of Gaul that is the claimant in the present case. Though Ms. Pescara was
voted off the VanCal board of directors on November 16, 2005, it is not dispositive
that she was no longer affiliated with Vanguard. In fact, the lawsuit seeking to order
VanCal to transfer to her account in Gaul dividends on the one percent shareholding
held in trust for Gaul is evidence of her continued involvement and representation of
Vanguard.
35. Article 11 of the BIT provides four options for dispute resolution. Under Article
11(a), the parties may submit a dispute to
“the competent courts of the Contracting Party in whose
territory the investment is made”
Ms. Pescara’s suit seeking the dividends on behalf of Gaul effectively constitutes a
fiduciary of Gaul bringing suit to recover the dividends that she holds in trust on
behalf of a contracting party. Therefore, Vanguard should be precluded form
electing an arbitral remedy through ICSID as the parties are the same and a
competent Calpurnian court has adjudicated the existing claims.
36. Second, the subject matter in both cases is the same. Ms. Pescara sought a
Calpurnian court order forcing VanCal to transfer dividends on the one percent
equity interest held in trust for Gaul. The lawsuit filed by Ms. Pescara as a fiduciary
of Gaul and the arbitral remedy presently sought by Gaul are both seeking to transfer
the returns of their Gaul’s investment in VanCal. As such, the claims pursued by
Ms. Pescara and Vanguard are clearly identical. As evidenced by the BIT, Gaul was
aware of the choice of remedies available for dispute resolution at the time the
lawsuit was brought in Calpurnian court. Gaul had selected the Commercial Court
of San Inocente de Irkoutsk in Calpurnia as the venue of dispute resolution as
provided in Article 11(a) of the Calpurnia-Gaul BIT. ICSID arbitral remedy should
be precluded as a remedy to Gaul as it has elected Calpurnia courts as its preferred
choice of forum of dispute resolution provided by the BIT. If Gaul is unsatisfied
with the adjudication of the Calpurnian court, it should follow the appropriate
channels to appeal the court’s decision. Allowing Gaul to pursue another form of
10
dispute resolution because their first selection failed to rule in their favor is
unequivocally unfair and inequitable to Calpurnia.
37. Third, the causes of action are identical as well. The first lawsuit by Ms. Pescara on
behalf of Gaul is similar to a breach of contract where she sought to recover the
dividends on the one percent shareholding she held in trust for Gaul. The present
claim is also seeking to transfer the returns of Gaul’s investment in VanCal under the
Calpurnia-Gaul BIT, which serves as a contract between the two contracting parties.
Though the percent of equity interest differs in the previous case from the present
claim, the nature of both causes of actions in the form of contract claims are
identical.
38. An aggrieved party may be allowed to seek remedy through the arbitral tribunal if it
was deprived of any real choice as to which legal recourse to pursue. According to
Occidental Exploration & Production Co. (OEPC) v. Republic of Ecuador, the forkin-the-road
analysis is fact-specific and requires an analysis of both the nature of the
dispute and its specific circumstances.17
The present case may be distinguished
from OEPC as the claimant knew of and had a real choice as to which of the four
remedies under Article 11 of the BIT to pursue. Calpurnia may assert that it was
impractical to invoke the ICSID arbitral remedy due to the eighteen-month waiting
period. Calpurnia was clearly aware of the eighteen-month waiting period provision,
which is meant to encourage nation-states to resolve disputes on their own if
possible, instead of bringing it to a tribunal for adjudication. Calpurnia is a
contracting party to the BIT that lays out the four legal courses of remedy as well as
the provision discussed above. Based on equitable principles, the tribunal should not
find jurisdiction in the present case, as doing so would undermine the fork-in-theroad
clause and frustrate the purpose of the eighteen-month waiting period provision.
17
Occidental Exploration & Production Company v. Republic of Ecuador, London Court of International
Arbitration Administered Case No. UN 3467, July 1, 2004, ¶ 57.
11
3. WAITING PERIOD
Vanguard violated the eighteen-month waiting period and the violation should not
be excused on policy grounds.
39. Article 11(2) of the Calpurnia-Gaul BIT establishes an eighteen-month waiting
period between the time of the dispute and the commencement of legal redress.
Specifically, Article 11(2) states:
“If the dispute cannot be settled amicably within 18 months
from the date of request for amicable settlement, the
investor concerned may submit the dispute to international
arbitration.”18
Vanguard violated this waiting period. Further, Vanguard’s violation should not be
excused on policy grounds.
40. Vanguard violated the eighteen-month waiting period when it filed for ICSID
arbitration on January 31, 2007 since the dispute crystallized well within the waiting
period. Tensions intensified but a dispute did not crystallize until Ms. Pescara filed
suit in Calpurnian court in June 2006. The next major action in the dispute was on
October 23, 2006, when Vanguard withdrew from participation on VanCal’s board.
Prior to these events, Vanguard had expressed dissatisfaction with the actions of
VanCal’s board, but continued its involvement. The dispute cannot be deemed to
have commenced until Vanguard took decisive action. Both the lawsuit and
withdrawal from participation mark the actualization of the dispute, and both fall
well within the eighteen month waiting period. As a result, Vanguard committed a
procedural violation.
41. Vanguard’s violation of the eighteen-month waiting period should not be excused on
policy grounds since states must honor their commitments. The theme of
commitment runs throughout the ICSID Convention. For example, Article 72
embodies this theme by stating that denunciation does not impact prior
commitments.19
Additionally, Article 52(1) conditions annulment proceedings on
procedural violations by a tribunal.20
If a tribunal should be held liable for its
18
Calpurnia-Gaul BIT, Article 11(2).
19
ICSID Convention, Article 72.
20
ICSID Convention, Article 52(1).
12
procedural violations, then parties should also face a form of accountability for their
procedural violations. To allow Vanguard’s violation would be to undermine the
ICSID Convention, and thereby undermine a key pillar of the international
investment law framework.
42. Also, the conditions present in disputes where tribunals have excused procedural
violations are not present here. In Ethyl Corporation v. Government of Canada, the
tribunal excused the procedural violation only because the passage of the bill was
inevitable.21
By contrast, in the present fact pattern, there was no inevitability to any
of the actions taken by VanCal’s board. Major actions were subject to open debate
and a vote by the board. In fact, the decision to temporarily suspend dividends to
foreign investors occurred over a period of three months. The debate over treatment
of dividends emerged in February 17, 2005 and actions related thereto continued
through May 27, 2005, when Mr. Korchnoi reiterated that VanCal could not act on
Vanguard’s request for dividend payments.
43. Further, the decision by the Ethyl tribunal to excuse a procedural violation when the
waiting period had already passed by the time the parties reached arbitration once
again undermines the theme of commitment. This aspect of the Ethyl holding should
not be perpetuated, since it enables a party to gamble by ignoring procedural rules
and hoping that delays in the arbitral process will excuse the violation. Such action
directly undermines commitment to international obligations and creates legal
uncertainty in an already uncertain domain.
44. Vanguard violated the eighteen month waiting period of Article 11(2) when it filed
for arbitration prematurely. Excusing this violation will undermine a key principle
of the ICSID Convention and create uncertainty in international investment law. For
these reasons, Vanguard’s violation should not be excused.
III. CLAIMS UNDER THE CALPURNIA-GAUL BIT
45. Calpurnia will establish myriad of ways in which the SFCDC complied with the
Calpurnia-Gaul BIT in its efforts to accommodate the Claimant. Specifically,
Calpurnia will assert the following responses to the Claimant’s claims:
21
Ethyl Corporation v. Government of Canada, NAFTA/UNCITRAL, Award on Jurisdiction, June 24,
1998, 38 ILM 708 (1999).
13
i. Inability to attribute SFCDC actions to Calpurnia
ii. Compliance with fair and equitable treatment provision
iii. Compliance with the full protection and security provision
iv. Enactment and upholding of reasonable, unarbitrary and nondiscriminatory
measures
v. Compliance with the sympathetic consideration provision
vi. Lack of discrimination
vii. Lack of expropriation
Through these responses, Calpurnia will demonstrate that it met, and possibly
exceeded, its obligations towards the Claimant.
A. ATTRIBUTION OF ACTIONS TO THE STATE
The actions of the SFCDC are not attributable to Calpurnia.
46. Actions taken by a state cannot always be attributed to a state. The International
Law Commission’s Articles on State Responsibility (“Articles”) provide the
international law standard on when actions are attributable to a state. Under the
Articles, actions are attributable to the state only if made by a state organ.22
Since
the SFCDC is not a state organ, its actions are not attributable to Calpurnia.
47. The Articles do not define the term “state organ.” Instead, the commentary indicates
that the term
“covers all the individual or collective entities which make
up the organization of the State and act on its behalf.”23
This analysis should consist of a substance over form inquiry.24
Thus, outward signs
of state involvement, such as creation by the state, are not determinative of an
entity’s character as a state organ. The SFCDC is not part of the state infrastructure,
nor does it act on the state’s behalf. Rather, the SFCDC operates under its own
direction in the private sector, on behalf of investors rather than the state as a whole.
Thus, the SFCDC should not be considered a state organ for purposes of attribution.
48. A similar situation can be found in Tradex Hellas S.A. v. Republic of Albania, where
villagers occupied a farm owned by a joint-venture in which the foreign investor
22
International Law Commission, Articles on State Responsibility, Article 4(1) (2001).
23
Id., Article 4(1), Comment 1.
24
INTERNATIONAL INVESTMENT LAW & ARBITRATION: LEADING CASES FROM THE ICSID, NAFTA,
BILATERAL TREATIES & CUSTOMARY INTERNATIONAL LAW 30 (Todd Weiler ed. 2005).
14
participated.25
The tribunal found that the villagers’ actions could not be attributed
to the state since the villagers were not acting on the direction of the Albanian
government.26
The villagers merely acted in their own interest.27
The tribunal
further added that, even if the villagers had been encouraged by the government to
occupy the farm, this would not suffice to demonstrate that the government ordered
the occupation.28
Similarly, the SFCDC’s increased participation in the VanCal
joint venture on behalf of its investors occurred as a result of decisions by the
SFCDC, not the Calpurnian government. The SFCDC acted on its own initiative, as
its own entity, to further its goal of protecting investors’ investments. Under the
Tradex analysis, the SFCDC’s actions are not attributable to Calpurnia, even if the
Calpurnian government offered encouragement, which it did not.
49. Further, the case of AMCO Asia Corporation v. Republic of Indonesia demonstrates
much stronger set of facts for attribution than the present fact pattern, and yet the
tribunal refused to attribute the acts to the state.29
In Amco Asia, the tribunal held
that seizure of a hotel by the state army and police could not be attributable to the
Indonesian government.30
In contrast with the strong link between Indonesia and its
army and police in Amco Asia, the link between the SFCDC and Calpurnia is
virtually nonexistent. Military and police take their orders from the state, and yet the
SFCDC does not. The present fact pattern falls far below the threshold established
by the Amco Asia tribunal. Thus, under the Amco Asia standard, the SFCDC’s
actions are not attributable to Calpurnia due to the lack of link between the state and
the entity.
50. Both the Articles and past tribunal decisions demonstrate that the SFCDC’s actions
fall outside the scope of a state organ. As a result, the SFCDC’s actions should not
be attributed to Calpurnia.
25
Tradex Hellas S.A. v. Republic of Albania, ICSID Case No. ARB/94/2, Award of April 29, 1999.
26
Id. ¶¶ 158-170.
27
Id.
28
Id. ¶¶ 165, 169-170.
29
AMCO Asia Corp. v. Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on Jurisdiction,
September 25, 1983.
30
Id.
15
B. FAIR & EQUITABLE TREATMENT
Calpurnia treated Vanguard’s investment fairly and equitably, and therefore, did
not violate Article 2(2) of the Calpurnia-Gaul BIT.
51. The fair and equitable treatment clause, located in Article 2(2) of the Calpurnia-Gaul
BIT, guarantees “fair and equitable treatment” of investors’ investments “at all
times.”31
The Claimant has the burden of proof to show that Calpurnia violated
Article 2(2).
52. The burden falls on the Claimant to prove that the host state’s acts or omissions “had
a direct negative impact” on its investments, as well as establishing a clear link of
causation between the two.32
In addition, the Claimant must establish that the host
state’s actions were
“willfully wrong, actually malicious, or so far beyond the
pale that [the State] cannot be defended among reasonable
members of the international community.”33
Finally, as the host state stated in Ronald S. Lauder v. Czech Republic, there is no
exact definition of the fair and equitable treatment obligation.34
Because the
obligation is concerned with the state’s conduct rather than the result of the
investment, the fact that the investor loses money does not indicate a breach of
obligation.35
53. Applying this framework to the facts of the case, it becomes clear that the Claimant
has failed to carry its burden of proof of showing causality between the state’s action
or omission and the harm to its investment, as well as showing that the state’s
actions were unreasonable. Therefore, the tribunal should dismiss its claims under
Article 2(2) of the Calpurnia-Gaul BIT against Calpurnia.
31
Calpurnia-Gaul BIT, Article 2(2).
32
IOANA TUDOR, THE FAIR & EQUITABLE TREATMENT STANDARD IN INTERNATIONAL LAW OF FOREIGN
INVESTMENT 138 (2008).
33
Saluka Investments BV (The Netherlands) v. Czech Republic UNCITRAL, Partial Award of March 17,
2006, ¶ 290.
34
Ronald S. Lauder v. Czech Republic UNCITRAL, Award of September 3, 2001, ¶ 291.
35
Id.
16
2. The Claimant’s Contractual Claims are Inappropriate under the Calpurnia-Gaul
BIT.
54. The Claimant inappropriately manipulates the fair and equitable clause of Article
2(2) to bring its contract claims under the treaty. The fair and equitable treatment
obligation may not be interpreted as
“imposing on the State the observance, on the basis of the
treaty, of all the contractual obligations, when the
investment has a contractual nature.”36
Contractual claims are distinct from treaty claims, and Article 2(2) of the BIT should
not be manipulated as an umbrella clause to advance non-treaty claims.
55. While some tribunals have deviated from the custom by allowing use of the fair and
equitable treatment standard to bring contractual claims under the treaty,37
the
Claimant should be precluded from doing so here. A contract between the investor
and host state must exist in order to allow a claim for violation of contractual
rights.38
Calpurnia did not enter into a contract with the Claimant. Therefore, the
tribunal should dismiss the Claimant’s contractual claims against Calpurnia.
3. Government officials treated the Claimant’s investment fairly and equitably and
did not act contrary to the Claimant’s legitimate expectations.
56. Contrary to the Claimant’s assertions, Calpurnia did not act arbitrarily, grossly
unfairly, unjustly, in a discriminatory manner, expose the Claimant “to sectional or
racial prejudice, or deny the Claimant due process.”39
Any actions involving the
Claimant’s personnel were taken in the interest of the state’s security.
The equitable treatment clause in the BIT provides
“a means by which an appropriate balance [to] be stuck
between the protection of the investor and the public
36
In the original: “comme imposant à l’Etat le respect, au titre du Traité, de l’ensemble des obligations qui
pèsent sue le cocontractant, lorsque l’investissement est de nature contractuelle. (Translation supplied by
IOANA TUDOR, THE FAIR & EQUITABLE TREATMENT STANDARD IN INTERNATIONAL LAW
OF FOREIGN INVESTMENT). Consortium RFCC v. Kingdom of Morocco, ICSID, ARB/00/6, Award of
December 22, 2003, ¶ 51.
37
TUDOR, supra note 31, at 196.
38
TUDOR, supra note 31, at 197.
39
Waste Management, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/00/3, Award of April 30,
2004, ¶ 98.
17
interest which the host state may properly seek to protect in
the light of the particular circumstances then prevailing.”40
57. As observed in the award in Saluka, this process involves balancing the investors
“legitimate and reasonable expectations” with the host state’s “legitimate regulatory
interests.”41
As for what constitutes a reasonable expectation, the Saluka tribunal
indicated that it is not reasonable to expect circumstances “prevailing at the time the
investment is made remain totally unchanged” and to not take into account the host
states’ legitimate right to regulate domestic matters.42
In addition, it is not
reasonable to ignore parameters such as risks of business or industry patterns.43
58. Applying this standard, the Calpurnian Security Forces had a legitimate regulatory
interest in searching the homes of Ms. Pescara and Mr. Kolowenko. The Calpurnian
police received reliable, anonymous tips that they were engaging in unlawful data
collection and espionage for Gaulois Security Services. Clearly, such a tip would
require a sincere effort by the government to protect the country, especially in a
time, as the Claimant frames it, of “mutual . . . allegations of political and industrial
espionage.”
59. Furthermore, the investor expects the host state to act consistently.44
Contrary to the
Claimant’s assertions, the Calpurnian government has not acted inconsistently over
the term of the investment. There had been no change in Calpurnia’s economic
policy or laws that affected the investment environment or the Claimant’s
investment. People’s attitudes toward the Claimants may have changed, but this is
unrelated to Calpurnia’s economic policy and laws. The Claimant assumed the risk
that the business environment might change when it created the joint venture in
Calpurnia. The Claimant’s expectations fall into the narrow exception to fair and
40
CAMPBELL MCLACHLAN QC, LAURENCE SHORE &MATTHEW WEINIGER,
INTERNATIONAL INVESTMENT ARBITRATION 206 (2007).
41
Saluka Investments BV (The Netherlands) v. Czech Republic UNCITRAL, Partial Award of March 17,
2006, ¶ 306.
42
Id.
43
LG&E v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability of October 3, 2006, ¶
130.
44
Tecnicas Medioambientales Tecmed S.A. v. United Mexican States (“Tecmed”), ICSID Case No.
ARB(AF)/00/2,
Award of May 29, 2003, ¶ 154.
18
equitable treatment identified by the LG&E tribunal – failure to “consider
parameters such as business risk or industry’s regular patterns.”45
60. Further, the Claimant argues that government officials harassed the Claimant’s
personnel. In Eureko BV v. Republic of Poland, the tribunal maintained that for the
harassment of investors to be sufficient to render the host state liable, it had to be
“repeated and sustained.”46
Applying the facts to this rule, it is apparent that even
under a loose standard, if there was any harassment of the investors by the police, it
was not repeated or sustained. The police only searched the homes of Ms. Pescara
and Mr. Kolowenko when necessary for the investigation, and if the SFCDC is to be
considered an organ of the state, even then, the Board Members did not harass the
Claimant’s representatives. The few differences they had with the Claimant’s
representatives can be attributed to different goals regarding the company. In fact,
Ms. Pescara resigned from her role as Managing Director voluntarily, and was later
voted off the Board of Directors in a democratic fashion. Mr. Kolowenko chose not
to return to Calpurnia, and Ms. Pescara was granted a tourist visa instead of a
business visa, as this was more appropriate given the decreased frequency of her
visits to Calpurnia for business matters.
61. Also, the Calpurnian government was not responsible for any negative attention any
members of the Claimant received as a result of the police’s investigations. The
searches were conducted routinely and lawfully. Also, the press releases issued by
the Calpurnian Security Directorate about the searches were factually accurate. The
government cannot be held liable for the public’s reaction to the press releases or
other media coverage.
62. Furthermore, the Claimant wrongly alleges that VanCal intentionally did not pay
dividends to Gaulois shareholders. VanCal declared stock dividends in 2004, 2005,
2006, and 2007, which were distributed to all shareholders, including the Claimant.
Incidentally, there was no requirement to convert the dividend payments into Gaul
Dollars. The email Mr. Korchnoi sent on May 27, 2005, which stated no further
payments could be made to foreign shareholders, was unauthorized and had been
45
LG&E, ICSID Case No. ARB/02/1, ¶ 130.
46
Eureko BV v. Republic of Poland, Ad-hoc Tribunal, Partial Award of August 19, 2005, ¶ 237.
19
superseded by statements by VanCal of its willingness to make any license fee and
dividend payments owed.
63. Also, the Claimant is mistaken regarding Dr. Swift’s supposed instruction on
December 1, 2005, to cease sending accounts, financial statements or other
information to Gaulois citizens or translating materials into Gaulois. Only a month
before this supposed instruction, in November, 2005, Dr. Swift had stated that the
main objective of the company was to protect the interests of the company and also
“preserve the industry and the interests of all shareholders including the minor
ones.” In fact, shareholders were treated alike in the dissemination of corporate
reports and notices, and the Claimant was not entitled to any special privileges in
this regard. Information was being made available to Claimant as late as September,
2006.
64. Although there may have been some changes in the policy of SFCDC in running
VanCal, these changes coupled with the investigation of the Claimant’s personnel
did not “completely [dismantle] the very legal framework constructed to attract
investors.”47
Therefore, the tribunal should find that the Claimant has not met its
burden of proof for its claim that Calpurnia’s administrative decisions have breached
the fair and equitable treatment standard.
65. Finally, Calpurnia’s actions were consistent with Article 2(1) of the BIT rather than
contrary to it. Calpurnia continues to “encourage and create favourable conditions”
for investments within its territory.48
Arguably, the searches of the homes of Ms.
Pescara and Mr. Kolowenko were done for national security reasons, thereby, in an
attempt to make the country safer for others, including foreign investors. Therefore,
for all of the reasons above, the tribunal should dismiss the Claimant’s claims
relating to the breach of the fair and equitable treatment standard based on the
government’s administrative and regulatory decisions.
47
LG&E, ICSID Case No. ARB/02/1, ¶ 139.
48
Calpurnia-Gaul BIT, Article 2(1).
20
4. The Calpurnian Court did not deny justice to the Claimant’s representative.
66. The Claimant states that a court’s refusal to entertain a suit may constitute a denial
of justice, and therefore, a violation of the fair and equitable treatment standard.49
The Claimant puts forth the test outlined in Mondev International Ltd. v. United
States of America:
“. . . the question is whether, at an international level and
having regard to generally accepted standards of the
administration of justice, a tribunal can conclude in the
light of all the available facts that the impugned decision
was clearly improper and discreditable, with the result that
the investment has been subjected to unfair and inequitable
treatment.”50
67. An examination of all the available facts quickly shows that the Court’s decision was
proper and creditable. A representative of the Claimant, Ms. Pescara, held one
percent of VanCal’s shares in trust for Vanguard. The representative brought suit in
the Commercial Court of San Inocente de Irkoutsk to demand that VanCal transfer
Gaul dividends to her account on her one per cent shareholding. Rightly so, the
court dismissed her suit because she lacked standing as a mere nominee, and thus,
had no beneficial interest in the suit.
68. Therefore, at an international level, it is a “generally accepted standard[ ] of the
administration of justice” that a case will be dismissed if the threshold jurisdictional
requirements are not met. Therefore, the Court properly dismissed the suit. The one
per cent stock was not subjected to unfair and inequitable treatment; rather, the
investment was subjected to standard laws. Moreover,
“a governmental authority surely cannot be faulted for
acting in a manner validated by its courts unless the courts
themselves are disavowed at the international level.”51
Therefore, Calpurnia did not breach Article 2(2).
69. Furthermore, the Calpurnian Constitutional Court properly dismissed the Claimant’s
application to declare the December 2003, April 2004, and July 2004 searches
unlawful and to seek compensation. The Claimant lacked standing to bring the suit.
49
Mondev International Ltd. v. United States of America, NAFTA, Award of October 11, 2002, ¶ 127.
50
Id.
51
Azinian, Davitian & Baca v. United States of Mexican States, 5 ICSID Rep 269, Award of November 1,
1999, ¶ 97.
21
Since the police searched the private residences of Ms. Pescara and Mr. Kolowenko,
only these individuals had standing to bring the lawsuit. The Claimant’s assertion
that Calpurnia breached its obligation under Article 2(2) also falls flat because the
searches were unrelated to the investments of Ms. Pescara and Mr. Kolowenko or
their roles as investors.
70. Again, the Claimant has failed to satisfy its burden of proof regarding its claim of a
supposed denial of justice. Therefore, the tribunal should find that Calpurnia did not
breach the fair and equitable treatment standard, as
“it is a fact of life everywhere that individuals may be
disappointed in their dealings with public authorities, and
disappointed yet again when national courts reject their
complaints . . . [A Treaty is] not intended to provide foreign
investors with blanket protection from this kind of
disappointment, and nothing in its terms so provides.”52
C. FULL PROTECTION & SECURITY
Calpurnia did not violate Article 2(2) of the Calpurnia-Gaul BIT as it acted
reasonably under the circumstances.
71. The full protection and security clause, found in Article 2(2) of the Calpurnia-Gaul
BIT expects the Calpurnian government to provide “full and constant protection and
security” for investors’ investments. The Claimant claims that
“the state must provide the degree of protection and
security that should be legitimately expected by the
investor from a host state.”53
The Claimant also asserts the full protection and security provision creates an
“obligation on the part of the host State to exercise…
reasonable care to protect foreign investment against injury,
including injury by private citizens.”54
72. Essentially, the Claimant argues that the standard for measuring whether the
government satisfied its obligation under Article 2(2) of the Calpurnia-Gaul BIT is a
52
Id. ¶ 83.
53
American Manufacturing & Trading, Inc. v. Republic of Zaire, ICSID Case No. ARB/93/1, Award of
February 21, 1997, 30.
54
Investment Provisions in Economic Integration Agreements, UN Conference on Trade and Development,
UNCTAD/ITE/IIT/2005/10 (2006), available at http://www.unctad.org/en/docs/iteiit200510ch4_en.pdf.
22
reasonable care standard and the crux of the analysis lies within the investors’
legitimate expectations. Applying this test to the facts of the case, it is clear that the
Calpurnian government has met this standard of care.
73. For one, the harm to the foreign investment is limited to the physical destruction of
property. According to Asian Agricultural Products Ltd. (AAPL) v. Republic of Sri
Lanka, the government must take measures to prevent property destruction and can
be liable for any such destruction the government caused to the investment.55
The
Claimant attempts to argue that the tribunal should extend the full protection and
security doctrine to intangible losses. However, this argument is contrary to public
policy in addition to the persuasive authority of previous arbitral awards.
74. It would be unsound to compensate the Claimant for any losses they may have
incurred as a result of circumstances out of the government’s control. First of all, it
is impossible to determine the amount of loss, if any, that is attributable to the lawful
searches of Ms. Pescara and Mr. Kolowenko’s home. Determining such an amount
would warrant a great deal of speculation, and result in an inefficient use of the
tribunal’s time. Also, it would violate due process to hold the government
accountable for loss in investment value when it had no notice that the Claimant’s
investment was being affected.
75. Furthermore, allowing such a claim for subjective losses in investment value would
create a strict liability standard for governments. The tribunal in AAPL v. Sri Lanka
declined to extend the full protection and security clause beyond the physical
destruction of property because it did not want to create a strict liability standard.
Such a standard would make the government liable for any harm to the investment
even if it occurred under circumstances beyond the state’s control.56
76. In addition, allowing the implementation of a strict liability standard would open the
flood gates to arbitration, and investors worldwide may try to impugn governments
for losses in investment value. It is a well-known principle that there are inherent
risks that the investor takes in the arena of foreign direct investment. If investors are
not pleased with the results of their risks, they may try to hold governments
55
Asian Agricultural Products Ltd. (AAPL) v. Republic of Sri Lanka, ICSID Case No. ARB/87/3, Final
Award of June 27, 1990, ¶¶ 67-69.
56
Id. ¶ 45.
23
accountable for changes in the investment environment. If governments were held
liable for losses in investment value, they would likely change their policies to deter
foreign direct investment. This could have a disastrous effect on the economies of
the host state and investors’ states. This would run counter to the goals of achieving
cooperation and peace between countries.
77. Calpurnian government exercised reasonable care in carrying out its “obligation of
vigilance.”57
When tips were received regarding espionage and unlawful data
collection, the police stepped in to investigate further. Further, the government
continued its obligation of vigilance by advancing the investigation against the
individuals until suspicions were cleared.
78. Once again, the tribunal should examine the investors’ legitimate expectations.
Given customary standards in international law, the Claimant cannot viably argue it
expected the government to step in because of decisions the joint venture’s Board of
Directors was making. That would amount to government intervention or
interference in private business affairs.
79. Also, the Claimant’s argument that the government deliberately harmed Vanguard’s
investment without any compelling causes is flawed. Given the facts, it appears that
the Claimant’s market share declined because the Claimant’s joint venture decided
to sell more shares to the public, not because of the government’s interaction with
the Claimant. Also, the government cannot be held accountable if the market price
declined as a result of negative media attention the company received.
80. Although SFCDC is owned by the state, it is not the government’s voice. It acts
independently as an investor and management, thereby, furthering commerce and
development in Calpurnia as a result. Hurting a significant shareholder such as the
Claimant would clearly run counter to this objective. Essentially, VanCal needs the
Claimant to be a part of the venture to ensure the joint venture’s success.
81. Finally, the Claimant contends that the government failed to protect its personnel.
The reasonable standard test provided above creates an obligation for the
57
American Manufacturing & Trading, Inc., ICSID Case No. ARB/93/1, 30.
24
government to protect the investment from injury by private citizens also.58
However, as stated above, persuasive authority deems that the obligation is limited
to the physical destruction of property. Therefore, when the Women’s League
picketed Ms. Pescara’s home, the police had no reason to intervene, as it was a
peaceful protest, and the picketers were exercising their freedom of speech that
Calpurnia guarantees to its citizens.
82. Thus, for all the reasons stated, the tribunal should dismiss the Claimant’s claims
alleging that Calpurnia denied it justice in court. In every aspect, the Claimant has
not met its burden of proving that Calpurnia did not provide the Claimant or its
representatives with fair and equitable treatment and full protection and security.
D. UNREASONABLE, ARBITRARY & DISCRIMINATORY MEASURES
Calpurnia did not subject Vanguard to unreasonable, arbitrary, or discriminatory
treatment.
83. Article 2(3) of the Calpurnia-Gaul BIT states that a host state
“shall not impair by unreasonable, arbitrary or
discriminatory measures the management, maintenance,
use, enjoyment, acquisition or disposal of investments in its
territory of investors of the other Contracting Party.”59
Calpurnia adhered to and met its obligations under Article 2(3) by providing
reasonable, egalitarian and non-arbitrary treatment to Gaulois investors.
84. First, the measures enacted by the SFCDC were reasonable. The BIT does not
define the term “unreasonable” or provide examples as to when it might apply, the
term should be interpreted using plain meaning. This approach has been adopted by
previous tribunals when a term has been left undefined in a treaty.60
Under a plain
meaning interpretation, the word “unreasonable” implies that a measure was taken
without sound reason or justification. By contrast, the SFCDC can demonstrate
sound policy justifications for suspending and ultimately crediting dividend
payments to foreign investors. Between the political and social climate in Calpurnia,
and the growing tensions between Calpurnia and Gaul, the Calpurnian government
58
Provisions in Economic Integration Agreements, UN Conference on Trade and Development,
UNCTAD/ITE/IIT/2005/10 (2006), available at http://www.unctad.org/en/docs/iteiit200510ch4_en.pdf.
59
Calpurnia-Gaul BIT, Article 2(3).
60
See LG&E, ICSID Case No. ARB/02/1, ¶ 156.
25
was on the verge of a state of emergency. Tribunals have recognized the necessity
of action in times of emergency and provide the state latitude in its actions. The
latitude that has been allowed to states in cases such as LG&E v. Argentine Republic,
where Argentina was not held liable for measures taken during an economic crisis, 61
should extend to private entities whose actions are inextricably linked to the success
of the economy. The SFCDC acted to protect its investors and continue activity vital
to the Calpurnian economy in a time of crisis. As a result, the SFCDC’s decision to
suspend and credit Gaulois dividends is reasonable.
85. Second, the measures passed by were not arbitrary. The term “arbitrary” is also
undefined in the BIT, leaving plain meaning and international law standards as the
best guidance available. Under international law, the term “arbitrary” has been
defined as
“a willful disregard of due process of law, an act which
shocks, or at least surprises, a sense of juridical
propriety.”62
The tribunal in Ronald S. Lauder v. The Czech Republic further expounded on the
term “arbitrary” by stating it is something
“founded on prejudice or preference rather than on reason or fact.”63
In Lauder, the tribunal found an act to be arbitrary when it forced a private investor
to change its method of participation out of fear of foreign influence in politics.64
86. The SFCDC did not enact arbitrary measures, nor did it force Vanguard to change its
method of participation. First, the SFCDC’s actions were reasonable for the reasons
discussed above. At the brink of a national emergency, the SFCDC acted to protect
investors and sustain the Calpurnian economy by altering its dividend policy.
Second, the SFCDC did not force Vanguard to change its means of participation in
VanCal. Vanguard alone chose to decrease its participation on the VanCal board
and ultimately withdraw from participation altogether. These actions were entirely
voluntary, and Vanguard’s personnel were not expelled or forced out in any manner.
61
See id.
62
Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy), Judgment of July 20, 1989, 28 ILM
1109 (1989), ¶ 128.
63
Ronald S. Lauder v. The Czech Republic, UNCITRAL, Final Award of September 3, 2001, ¶ 221.
64
Id.
26
By extension, since Vanguard’s change in participation was voluntary, no fear of
Gaulois influence in politics played any role. The SFCDC falls well below the
standard established by the Lauder tribunal and therefore did not enact arbitrary
measures.
87. Third, the measures enacted by the SFCDC are egalitarian and supported by sound
policy justifications. Like the other key terms in Article 2(3), the term
“discriminatory” is undefined in the BIT. However, decisions of past tribunals
provide a standard for what constitutes a discriminatory measure. In Elettronica
Sicula S.p.A. (ELSI), also referred to as United States of America v. Italy, the tribunal
created a framework for determining when a measure is discriminatory and in
violation of investment protection language of a BIT.65
The tribunal in LG&E v.
Argentine Republic summarized and applied the ELSI rule as requiring:
“(i) intentional treatment (ii) in favor of a national (iii)
against a foreign investor, and (iv) that is not taken under
similar circumstances against another national.”66
88. Applying the ELSI standard to the present facts, it is clear that the SFCDC did not
enact discriminatory measures against Gaulois investors. First, the decision to deny
dividends to foreign investors was not an intentional action. Instead, this action was
the result of back and forth discussions and negotiations by the VanCal board over a
period of two months. The prolonged period of deliberation demonstrates that this
decision was not taken lightly. Second, the decision did not favor Calpurnian
nationals over Gaulois investors. Each received their dividends. Gaulois investors
received their most recent dividend payment in the form of a credit. Third, the
decision did not harm Gaulois investors. Although they received their payment in an
alternative form, Gaulois investors still received a benefit. Finally, this decision did
not create disparate treatment of the two groups. Each group received a benefit,
although the form of that benefit differed in the most recent dividend payout. These
facts demonstrate that the Calpurnia did not take discriminatory measures against
Vanguard.
65
Elettronica Sicula S.p.A. (ELSI), 28 ILM 1109.
66
LG&E, ICSID Case No. ARB/02/1, ¶ 146.
27
89. Finally, dividend payments are not covered by Article 2(3). The language of the
provision does not explicitly mention returns on investments. The scope of Article
2(3) is limited to “investments.”67
Article 1 of the BIT defines investment as
“every kind of asset established or acquired by an investor”
and does not cover dividends.68
Instead, dividends are separately defined under the
term “returns.”69
Given the separate definitions in Article 1, it follows that if the
parties had wanted Article 2(3) to extend to returns, they would have explicitly
stated this.
90. Even if dividends qualified as investments under Article 2(3), Calpurnia did not
impair Gaulois investors of the use, enjoyment or disposal of their investments.
Gaulois investors received dividend payments up until the most recent dividend
payment, which they received as a credit. Gaulois investors still received the same
amount of their dividend, but in an alternative form. Similar to money, a credit is an
element which can be exchanged, traded, or used in a variety of manners. Thus,
Gaulois investors were free to use, enjoy or dispose of their dividends as they
desired. Therefore, the change in method of dividend payment did not violate
Article 2(3).
E. SYMPATHETIC CONSIDERATION
Calpurnia did not violate Article 2(5) of the Calpurnia-Gaul BIT when it declined
visa renewals to Gaulois citizens.
91. Article 2(5) of the Calpurnia-Gaul BIT requires the host state to
“give a sympathetic consideration to applications for
necessary permits in connections with the investments in its
territory, including authorizations for engaging executives,
managers, specialists and technical personnel of the
investor’s choice.”70
Calpurnia exercised its ability to make decisions as a sovereign entity, all while
meeting and possibly exceeding its obligation of sympathetic consideration under
Article 2(5).
67
Calpurnia-Gaul BIT, Article 2(3).
68
Calpurnia-Gaul BIT, Article 1(1).
69
Calpurnia-Gaul BIT, Article 1(2).
70
Calpurnia-Gaul BIT, Article 2(5).
28
92. A state must be able to maintain its right to sovereignty, especially with respect to
control of its borders. The ICSID Convention upholds the concept of state
sovereignty in an international regime. The basic unit of ICSID is the state, and the
ICSID Convention protects the rights of states to make decisions. Under Article
25(3), states must approve arbitration requests by state entities.71
Under Article
25(4), states can control what types of disputes it will submit to ICSID arbitration.72
Under Article 26, states can create conditions to arbitration, such as the exhaustion
of local remedies.73
Each of these provisions underlines the importance of state
sovereignty. By extension, Calpurnia should be allowed to control who enters and
exits its borders.
93. Article 2(5) does not create a blanket admission of all Gaulois nationals. Instead, it
only requires “sympathetic consideration,” a term which is not defined in the
Calpurnia-Gaul BIT. Calpurnia met, and possibly exceeded, the standard of
sympathetic consideration by identifying a type of visa which better suited Ms.
Pescara’s needs. Ms. Pescara was not denied the ability to enter and exit Calpurnia;
rather, she was provided with an alternative means of doing so. Since Ms. Pescara’s
time spent in Calpurnia would likely diminish due to the fact she stepped down as
managing director of VanCal, Calpurnian immigration officials determined that the
tourist visa waiver program would better suit her needs. Thus, Calpurnia met its
obligation of “sympathetic consideration” towards Ms. Pescara. To require anything
further would trample Calpurnia’s right to sovereignty, restricting the state’s
discretion to determine who enters and exits its borders.
F. DISCRIMINATION
Calpurnia did not violate Article 4 of the Calpurnia-Gaul BIT when the SFCDC
altered the procedure for dividend payments.
94. Article 4 of the Calpurnia-Gaul BIT states that both investments and investors must
be accorded the same standard of treatment as that received by the host state or
investors of a third state, “whichever is the most favourable to the investor.”74
In the
71
ICSID Convention, Article 25(3).
72
ICSID Convention, Article 25(4).
73
ICSID Convention, Article 26.
74
Calpurnia-Gaul BIT, Article 4(1)-(2).
29
present situation, since both Calpurnian and Gaulois investors received their
dividend payments, Calpurnia did not violate Article 4.
95. In Pope & Talbot, Inc. v. Government of Canada, the tribunal created a three-prong
test to identify discriminatory treatment under national treatment language of a
treaty.75
First, the tribunal identified a group of others in similar circumstances.76
Second, the tribunal considered whether the identified group of comparators
received like treatment.77
Third, the tribunal considered the existence of any factors
which might justify differences in standards of treatment between the two groups.78
The Pope & Talbot established a standard which has been mirrored by other
tribunals.79
An application of this standard demonstrates that Calpurnia did not
discriminate against Gaulois investors.
96. Calpurnia fails to meet the level of discrimination required under the Pope & Talbot
test and therefore did not discriminate against Gaulois investments in violation of
Article 4(1). First, Calpurnian and Gaulois investments do not constitute adequate
groups for comparison since each group received dividends in some form. Second,
Gaulois investments were not subject to a different standard of treatment. Each
group of investments experienced returns, demonstrating that no discrimination was
involved. Finally, even if there was disparate treatment, there are policy factors
which justify a difference in treatment. As discussed earlier, the SFCDC acted to
benefit the Calpurnian economy in a time of uncertainty and risk of national
emergency. By crediting Gaulois dividends, the SFCDC kept Calpurnian libras in
circulation within Calpurnia and minimized the risk that the currency would be
converted and put to use outside the country. Such outflow of currency would harm
the economy, a risk that the SFCDC could not take given the uncertain climate at the
time. For these reasons, Calpurnia did not violate Article 4(1).
75
Pope & Talbot, Inc. v. Government of Canada, NAFTA/UNCITRAL, Interim Award on Merits – Phase
Two, April 10, 2001, ¶¶ 78-104.
76
Id. ¶ 78.
77
Id. ¶¶ 83-104.
78
Id.
79
See S.D. Myers, Inc. v. Government of Canada, NAFTA/UNCITRAL, Award on Damages, October 21,
2002, ¶ 251; United States – In the Matter of Cross-Border Trucking Services, Panel Report, USA-MEX-
98-2008-01, February 6, 2001, ¶ 247.
30
97. Calpurnia could not have violated Article 4(2) since this provision does not apply to
returns. The language of Article 4(2) limits the scope of this provision to
“investments.”80
Article 1 of the Calpurnia-BIT defines “investments” and “returns”
as separate entities. Given the explicit reference to “returns” in Article 4(1), it
follows that if the parties had wanted Article 4(2) to apply to returns, they would
have stated so. The absence of the term “returns” in Article 4(2) renders it
inapplicable to the current fact pattern.
98. Even if Article 4(2) applied to this particular situation, Calpurnia did not violate it
since it did not discriminate against Gaulois investors. First, as in the above
analysis, Calpurnian and Gaulois investors do not constitute adequate groups for
comparison since each received dividends. Second, the effect of the measure did not
result in a loss for Gaulois investors. The Pope & Talbot test requires a loss by the
claimant. In the present fact pattern, Gaulois investors received a credit for their
dividend payments, and were therefore just as well off as Calpurnian investors. This
alternative payment method did not deprive Gaulois investors of their rights of
“management, maintenance, use, enjoyment or disposal of their investments,” Rather
than a loss, Gaulois investors merely received their dividends in a different form
than usual.
99. Recent decisions have demonstrated a trend by tribunals toward finding
discriminatory behavior only when the claimant experienced a loss. In S.D. Myers,
Inc. v. Canada, the claimant was denied access to the Canadian market for PCBs for
fourteen months.81
In US-Trucking – In the Matter of Cross-Border Trucking
Services, Mexican trucking firms were prevented from applying for permits, thereby
barring them from access to the United States markets.82
In each of these cases, the
measure resulted in loss since the firm or firms in question were unable to do
business in particular markets.
100. By contrast, tribunals have rejected claims of discrimination when there is no loss.
In ADF Group Inc. v. United States of America, the measure precluded the claimant
80
Calpurnia-Gaul BIT, Article 4(2).
81
S.D. Myers, Inc. v. Government of Canada, NAFTA/UNCITRAL, Award on Damages, October 21,
2002.
82
United States – In the Matter of Cross-Border Trucking Services, NAFTA Panel Report (2001).
31
from participating in a discrete construction project.83
The tribunal rejected the
discrimination claim since there was no clear evidence of a loss.84
ADF was barred
from one project, not all projects, and therefore was not operating at a loss.
Similarly, Gaulois investors were not denied their dividends, but were merely
provided them in the alternative form of a credit. This credit is not a loss, and
therefore Vanguard does not have a valid argument for discrimination.
101. Finally, the SFCDC’s actions fall into the “like circumstances exception” of the
Pope & Talbot test since they are backed by a justifiable policy. As discussed
above, the SFCDC acted to protect the Calpurnian economy in a time of uncertainty
and possible national emergency by preventing an outflow of Calpurnian libras.
102. Calpurnia did not discriminate against Gaulois investments or investors since it
failed to meet the threshold inquiries of the Pope & Talbot test. As a result,
Calpurnia did not violate Article 4(1) or 4(2).
G. THE MOST FAVORED NATION PROVISION
The most favored nation language of Article 4 does not extend to dispute resolution
provisions, and even if they did, Flatland’s denunciation of the ICSID Convention
renders this point of comparison invalid.
1. The most favored national language of Article 4 contains no evidence
that it was intended to extend to dispute resolution provisions.
103. Article 4 of the Calpurnia-Gaul BIT contains a narrow most favored nation language
that does not extend to dispute resolution provisions. Specifically, Article 4(2)
guarantees investors
“treatment which is not less favourable than the latter
Contracting Party accords its own investors or to investors
of any third State, whichever is the most favourable to the
investor.”85
The recent trend of tribunals towards narrow interpretation of most favored nation
clauses, combined with policy reasons, advocate against the extension of this
language to dispute resolution provisions.
83
ADF Group Inc. v. United States of America, ICSID Case No. ARB(AF)/00/1, Award of January 9, 2003.
84
Id.
85
Calpurnia-Gaul BIT, Article 4(2).
32
104. Recent tribunals have initiated a trend toward a narrow interpretation of most
favored nation clauses. These cases demonstrate a move away from the broad
reading found in cases such as Maffezini. In Salini Costruttori S.p.A. and Italstrade
S.p.A. v. The Hashemite Kingdom of Jordan, the tribunal refused to extend the most
favored nation clause to dispute resolution provisions for three distinct reasons.86
First, the BIT did not expressly indicate that it should apply to dispute resolution.87
Second, the clause was narrower than in Maffezini since it did not contain explicitly
language such as “in all matters.”88
Third, there was no indication the parties
intended the clause to extend to dispute resolution.89
Finally, there was no evidence
of any domestic provision which would allow extension.90
In Plama Consortium
Limited v. Republic of Bulgaria, the tribunal also refused to extend the most favored
nation clause to dispute resolution provisions, stating that intent to incorporate a
provision must be clearly expressed.91
The Plama tribunal rejected the policy
reason for extension in Maffezini, indicating that protection of the investor is an
insufficient justification for rewriting a treaty.92
105. Both the Salini and Plama analyses, when applied to the present facts, demonstrate
that the most favored nation provision of Article 4 should not be extended to dispute
resolution provisions. Applying the Salini analysis, the BIT does not expressly
indicate that it should apply to dispute resolution. In fact, Article 4 fails to even
reference dispute resolution. Second, the clause is narrower than in Maffezini since
it does not contain broad catchall phrases such as “in all matters.” Third, there is no
indication that the parties intended Article 4 to extend to dispute resolution since no
legislative history was preserved. Finally, there is no evidence of any similar
domestic provisions, in either Calpurnian or Gaulois law, which would allow the
extension of Article 4 to dispute resolution provisions. Under the Plama analysis,
86
Salini v. Costruttori S.p.A. and Italstrade S.p.A. v. The Hashemite Kingdom of Jordan, ICSID Case No.
ARB/02/13, Decision on Jurisdiction, November 29, 2004.
87
Id.
88
Id.
89
Id.
90
Id.
91
Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on
Jurisdiction, February 8, 2005.
92
Id.
33
there is no clear expression of intent to incorporate dispute resolution provisions.
Thus, both Salini and Plama reinforce a narrow interpretation of Article 4 and
preclude its extension to dispute resolution provisions.
106. Policy reasons also advocate a narrow reading of Article 4. Expansive readings of
most favored nation clauses erode legal certainty by allowing a tribunal to extend
provisions to areas of the BIT that the parties may not have intended. This action
substitutes the judgment of the tribunal for that of the parties and diminishes the
power of the language of the BIT. In doing so, expansive readings of most favored
nation clauses enhance uncertainty in international investment law. Given that the
purpose of BITs is to add a degree of certainty to the investment framework,
expansive readings should be rejected in favor of narrow interpretations. Article 4
should be read as restrictively as possible to uphold the parties’ intentions and
enhance certainty.
2. Even if Article 4 did extend to dispute resolution provisions,
Flatland’s denunciation of the ICSID Convention bars the usage of
the Calpurnia-Flatland BIT provisions.
107.Flatland’s denunciation of the ICSID Convention bars the extension of dispute
resolution provisions in the Calpurnia-Flatland BIT to the Calpurnia-Gaul BIT.
Flatland is no longer a contracting state to ICSID as of November 2, 2003.
Therefore, any BIT provisions related to ICSID arbitration are void and cannot be
extended to the present fact pattern.
108. ICSID consent provisions should not be considered consent given prior to
denunciation under Article 72. Article 25(1) of the ICSID Convention requires
consent of both parties to establish jurisdiction and, according to the ICSID Report,
prohibits unilateral consent.93
To interpret dispute resolution provisions as consent
under Article 72 would create unilateral consent, allowing one state to force the hand
of another state. In addition to violating Article 25(1), this would render the concept
of denunciation useless. While prior commitments are important, they should not be
read into provisions in such a way that violate existing ICSID provisions, nor should
93
ICSID Convention, Article 25(1); Report of the Executive Directors on the Convention on the Settlement
of Investment Disputes between States and Nationals of Other States, ¶ 23.
34
they be allowed to override decisions made by a state with respect to its role in the
international regime. For these reasons, Flatland’s denunciation should bar the
extension of dispute resolution provisions fond in the Calpurnia-Flatland BIT to
Gaulois investors.
H. EXPROPRIATION
109. Article 6 of the Calpurnia-Gaul BIT states that investors’ investments
“shall not be expropriated, nationalized, or subjected to any
other measures having the effect, either directly or
indirectly, equivalent to expropriation or nationalization”
without “prompt, adequate and effective compensation.”94
Calpurnia has not violated Article 6 as the SFCDC is not an arm of the state and it
has not directly or indirectly expropriated Vanguard’s investment in VanCal.
110.The tribunal in Metalclad Corporation v. Mexico defined indirect expropriation as an
interference which
“has the effect of depriving the owner, in whole or in
significant part, of the use or reasonably-to-be-expected
economic benefit of property.”95
Even though the SFCDC is an entity owned by the Calpurnian government, it does
not implicitly mean that it functions as a constituent subdivision or agency of
Calpurnian government. VanCal was not government controlled and the SFCDC did
not exercise its rights as a shareholder or depository as a means to implement
government policy. Further, at least one-half of the VanCal shares which the
Claimant counts as the SFCDC’s are in fact registered in the names of individual
farmers and workers. While the SFCDC votes these VanCal shares on behalf of the
investors, the ownership and control of the shares remain in the stockholders’ hands.
Majority share ownership by individual government entities does not alter the
private character of a company and must be distinguished from expropriation.
Contrary to the Claimant’s accusations, Calpurnia has promptly and sufficiently
addressed the miscommunication made by Mr. Korchnoi regarding the distribution
of dividends, and has since declared stock dividends in 2004, 2005, 2006 and 2007,
94
Calpurnia-Gaul BIT, Article 6.
95
Metalclad Corporation v. Mexico, ICSID Case No. ARB(AF)/97/1, 40 I.L.M. 36 (2001), ¶ 103.
35
which were distributed to all shareholders, including the Claimant. VanCal has also
made statements expressing its willingness to make any license fee and dividend
payments it owed. Accordingly, the Claimant had failed to set forth sufficient
evidence showing that the SFCDC is an arm of the state and that its actions
constitute indirect expropriation by Calpurnia.
111.In LG&E v. Argentine Republic, the tribunal further defines indirect expropriation as
government measures that
“effectively neutralize[d] the benefit of property of the
foreign owner.”96
Such neutralized benefit occurs through loss of control of the investment, or inability
to direct the day-to-day control of the investment, and can occur gradually over
time.97
In considering the loss of control, the LG&E tribunal looked to the impact of
the measures on control of the investment, plus the duration of the measure.98
112.There has been no interference with Vanguard’s personnel and rights as a
shareholder. Ms. Pescara was voted off by a majority vote of the shareholders
present at the VanCal board meeting. This was a democratic process where votes of
the shareholders were cast, and there were no irregularities in the conduct of the
board meetings where this decision was made. As Ms. Pescara was no longer
serving as managing director of VanCal, her continued physical presence in
Calpurnia was no longer necessary. Her reduced board functions could still be
successfully accomplished through teleconference or the Calpurnian visa waiver
program that exists for situations including the present case. Ms. Pescara remained
in contact with VanCal after her departure in November 2004. Mr. Shepherd, Mr.
Fowler and Mr. Hunter all resigned from the board of directors on their own accord,
which further supports the position that Vanguard’s personnel were not expelled
from management, nor did VanCal compromise Gaul’s rights as a shareholder.
113.There has been no interference with Vanguard’s control of its investment.
Fluctuation in Vanguard’s equity interest in VanCal between thirty and eighty-six
percent should not be attributed to indirect expropriation, because all divestitures
96
LG&E, ICSID Case No. ARB/02/1, ¶ 188.
97
Id.
98
Id.
36
37
were voluntary and are the sole result of Vanguard’s actions and decision-making.
Even though VanCal had previously converted the dividend payments for Gaulois
investors into Gaul Dollar, there is no requirement to do so. Contrary to Claimant’s
allegations that dividends were withheld from foreign investors, VanCal had
declared stock dividends in 2004, 2005, 2006 and 2007, which were distributed to all
shareholders, including the Claimant. VanCal has also made statements expressing
its willingness to make any license fee and dividend payments it owed. As such,
Vanguard’s investment in VanCal has not been directly or indirectly expropriated by
any actions taken by Calpurnia.
IV. CONCLUSION
114.For the foregoing reasons, the Respondent requests that the tribunal deny jurisdiction
to hear these claims and, if not, find for the Respondent on the merits.
Respectfully submitted,
___________________
Spiropoulos