Erskine
THIRD ANNUAL
FOREIGN DIRECT INVESTMENT MOOT
22-24 OCTOBER 2010
INTERNATIONAL CENTRE FOR SETTLEMENT OF
INVESTMENT DISPUTES
In Proceeding Between
TELEVATIVE INC.
(Claimant)
vs.
THE GOVERNMENT OF THE REPUBIC OF
BERISTAN
(Respondent)
MEMORIAL FOR RESPONDENT
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TABLE OF CONTENTS
TABLE OF CONTENTS
INDEX OFAUTHORITIES
LIST OF LEGAL SOURCES
LIST OF STATUTES AND TREATIES
LIST OFABBREVIATIONS
STATEMENT OF FACTS
SUMMARY OFARGUMENTS
ARGUMENTS
PART ONE: JURISDICTION
I. BERITECH S.A. HAS SEPARATE LEGAL PERSONALITY FROM BERISTAN
A. Beritech S.A. is a Separate and Autonomous Legal Entity
B. Argument about Respondent‘s Liability as a Guarantor of the JV Agreement is
unnecessary since there is not Default at all
II. CONTRACT CLAIMS BASED ON THE JV AGREEMENT SHALL PRCLUDES ICSID
JURISDICTION
A. Breach of Treaty is Irrelevant in the Present Case
B. Umbrella Clause does not have Effect to ‗Elevate‘ Contractual Claims to Treaty Claims
C. The ―Dispute‖ described in Art. 11 of the Beristan-Opulentia BIT does not encompass
Disputes arose from the JV Agreement
III. ―FORUM SELECTION CLAUSE‖ OF THE JV AGREEMENT AND ―PARALLEL
PROCEEDINGS‖ RECOGNIZES THE JURISDICTION OF CONTRACT-BASED
TRIBUNAL
A. Exclusive ―Forum Selection Clause‖ of the JV Agreement shows the Parties‘ Intention
giving Priority to the Contract Claims
B. Requirements for Parallel Proceedings are satisfied
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1. Parties are identical
2. Causes of action are identical
IV. Cooling off period is a jurisdictional requirement rather than procedural one
V. The conclusions over jurisdiction concerning the present dispute
PART TWO: MERITS ON THE CLAIM
I. Respondent has afforded fair and equitable treatment
A. Buyout was based on Confidentiality and Buyout Clause of the JV Agreement
1. Information leak of the project conform material breach of the JV Agreement
2. Commitment of material breach entitles Bertech S.A. to buyout all of Televative‘s interests
B. Buyout was decided in Due Process
C. Respondent did not Violate the Obligation to Act in Good Faith
II. Expulsion was taken as a measure to protect essential security of Beristan
A. Sat-Connect S.A. Project is closely related to Beristan‘s Essential Security
B. Beristan‘s Measures for the Sake of National Security can be Justified by the Art. 9 of
the BIT
1. Beristan is authorized to determine threat to national security by Art.9 of the BIT
2. Art. 9 of the BIT should not be interpreted as same as the term of ―necessity‖
III. RESPONDENT HAS NOT BREACHED THE NATIONAL TREATMENT
OBLIGATIONS
IV. RESPONDENT DID NOT EXPROPRIATE CLAIMANT‘S PROPERTY
A. The Buyout of Claimant‘s Interest in the Sat-Connect Project Does not Violate
Claimant‘s Rights under Art. 4 of the Beristan-Opulentia BIT
1. Claimant‘s property is not taken by the organ of the Respondent
2. The implementation of buyout procedure is not forcible and in conformity with
provisions of the JV Agreement
3. The reliance on Clause 8 (Buyout) of the JV Agreement does not constitute an
expropriation of Claimant‘s contractual rights
B. In the Alternative, the Expropriation of Claimant‘s Property is Legally Justified under
Art. 4(2) of the Beristan-Opulentia BIT
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1. Claimant‘s removal from the Sat-Connect project was justified on national security
grounds
2. Claimant is not entitled to compensation or any other remedies
V. THE CONCLUSIONS ON THE MERITS CONCERNING THE PRESENT DISPUTE
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INDEX OFAUTHORITIES
TREATIES AND BOOKS
Sornarajah, M
The International Law on Foreign Investment, 3rd
ed.
(Cambridge: CUP, 2010)
Dolzer, Rudolf
Schreuer, Christoph
Principles of International Investment Law
(Oxford: OUP, 2008)
Newcombe, Andrew
Paradell, Lluis
Law and Practice of Investment Treaties: Standards
of Treatment
(The Netherland: Kluwer Law International, 2009)
Mclachlan, Campbell
Shore, Laurence
Weiniger, Matthew
International Investment Arbitration: Substantive
Principles
(New York: OUP, 2007)
Yannaca-Small, K.
Arbitration under International Investment
Agreements: A Guide to the Key Issues
(New York: OUP, 2010)
Crawford, James
The International Law Commission’s Articles on
State Responsibility: Introduction, Text and
Commentaries
(Cambridge: CUP, 2002)
ARTICLES
Gaillard, Emmanuel
―Treaty-Based Jurisdiction: Broad Dispute
Resolution Clauses‖
New York Law Journal Vol. 234 No. 68 (2005)
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LIST OF LEGAL SOURCES
ARBITRATION
INSTITUTE OF THE
STOCKHOLM CHAMBER
OF COMMERCE
Nykomb Synergetics Technology Holding AB v The Republic
of Latvia, The Arbitration Institute of the Stockholm
Chamber of Commerce (2003), 16 December 2003.
INTERNATIONAL
CENTRE FOR
SETTLEMENT OF
INVESTMENT DISPUTES
ADC Affiliate Ltd and ADC & ADMC Management Ltd v
Hungary, Final award on jurisdiction, merits and damages,
ICSID Case No. ARB/03/16, 27 September 2006.
Amco v Indonesia, Decision on Jurisdiction, ICSID Case No.
ARB/81/1, 25 September 1983.
Antoine Goetz and ors v Burundi, Award, ICSID Case No.
ARB/95/3, 10 February 1999.
Azurix Corp v Argentina, Award, ICSID Case No.
ARB/01/12, 23 June 2006.
Bayindir Insaat Turizm Ticaret ve Sanayi A Ş v Pakistan,
Decision on Jurisdiction, ICSID Case No. ARB/03/29, 14
November 2005.
Biwater Gauff (Tanzania) Ltd v Tanzania, Award and
Separate Opinion, ICSID Case No. ARB/05/22, 18 July
2008.
CME Czech Republic BV v Czech Republic, Final Award and
Separate Opinion, Ad hoc—UNCITRAL Arbitration Rules,
14 March 2003.
Consortium RFCC v Morocco, Award, ICSID Case No.
ARB/00/6, 22 December 2003.
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Consorzio Groupement LESI-DIPENTA v Algeria, Award,
ICSID Case No. ARB/03/08, 27 December 2004.
Compañía de Aguas del Aconquija SA and Vivendi Universal
SA v Argentina, Decision on Argentina's Request for
Annulment of the Award, ICSID Case No. ARB/97/3, 3
August 2010.
(Vivendi I) Compañía de Aguas del Aconquija SA and
Vivendi Universal SA v Argentina, Decision on jurisdiction,
ICSID Case No ARB/97/3, 14 November 2005.
Desert Line Projects LLC v Yemen, Award, ICSID Case No.
ARB05/17 6, February 2008.
Eureko BV v Republic of Poland, Partial Award and
Dissenting Opinion, Ad hoc—UNCITRAL Arbitration Rules,
19 August 2005.
Feldman Karpa v Mexico, Award and separate opinion,
ICSID Case No. ARB(AF)/99/1, 16 December 2002.
Lanco International Inc v Argentina, Preliminary Decision
on Jurisdiction, ICSID Case No. ARB/97/6; IIC 148 (1998),
8 December 1998.
LG&E Energy Corp and ors v Argentina, Decision on
Liability, ICSID Case No. ARB 02/1, 3 October 2006.
Mondev International Ltd v United States of America, Award,
ICSID Case No. ARB(AF)/99/2, 11 October 2002.
Parkerings-Compagniet AS v Lithuania, Award on
jurisdiction and merits, ICSID Case No. ARB/05/8, 14
August 2007.
SD Myers Inc v Canada, First Partial Award and Separate
Opinion, Ad hoc—UNCITRAL Arbitration Rules, 13
November 2000.
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SGS Société Générale de Surveillance SA v Philippines,
Decision on Objections to Jurisdiction and Separate
Declaration, ICSID Case No ARB/02/6, 29 January 2004.
Técnicas Medioambientales S.A. v United Mexican States,
Award, ICSID Case No. ARB(AF)/00/2, 29 May 2003.
Tokios Tokeles v Uknraine, Decision on Jurisdiction and
Dissent, ICSID Case No. ARB/02/18, 29 April 2004.
TSA Spectrum de Argentina SA v Argentina, Award, ICSID
Case No. ARB/05/5, 19 December 2008.
Waste Management Inc v Mexico, Award and Dissent, ICSID
Case No. ARB(AF)/98/2, 26 May 2000.
IRAN-US CLAIMS
TRIBUNAL
Amoco International Finance Corp v Government of the
Islamic Republic of Iran et al, ITL 310-56-3, Award, 14 July
1987.
In : 15 Iran-USCTR 189
[Cited as : Amoco v Iran]
INA Corporation v The Government of Islamic Republic of
Iran, ITL184-161-1 , Award, 13 August 1985.
In : 8 Iran-US CTR 373, 382-383
[Cited as : INA Corp. v Iran]
Tippetts, Abbett, McCarthy, Stratton v TAMS-AFFA
Consulting Engineers of Iran, the Government of the
Islamic Republic of Iran, ITL 141-7-2, Award, 22 June
1984
In : 6 Iran-USCTR 219, 225
[Cited as : Stratton v TAMS]
LONDON COURT OF
INTERNATIONAL
ARBITRATION
Occidental Exploration and Production Company v Republic
of Ecuador, No. UN 3467, Award, 1 July 2004.
[Cited as : Occidental v Ecuador]
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UNITED NATIONS
COMMISSION ON
INTERNATIONAL TRADE
LAW
Lauder v Czech Republic, Final Award, 3 September 2001.
[Cited as : Lauder v Czech Repblic]
SwemBalt AB v The Republic of Latvia, Final Award, 23
October 2000
[Cited as : SwemBalt v Latvia]
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LIST OF STATUTES AND TREATIES
1. Harvard Draft Convention on the International Responsibility of States of Injuries to
Aliens, 1961
2. International Center for Settlement of Investment Disputes Convention, 10 April
2006
3. International Law Commission‘s Articles on Responsibility of States for
Internationally Wrongful Acts, 2001
4. Vienna Convention on the Law if Treaties, 23 May 1969, 1155 UNTS 331
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LIST OFABBREVIATIONS
[] Paragraph
Art. / Arts. Article / Articles
Beritech Beritech S.A.
BIT Bilateral Investment Treaty
CWF Civil Works Force
ed. Edition
et al. Et alia (and others)
FET Fair and Equitable Treatment
i.e. Id est (that is)
ibid Ibidem
ICSID International Centre for Settlement of Investment Disputes
ICSID
Convention
Convention on the Settlement of Investment Disputes
between States and Nationals of other States
ILC International Law Commission
JV
Agreement
Joint Venture Agreement
NAFTA North American Free Trade Agreement
p. / pp. Page / Pages
Televative Televative Inc.
v Versus
VCLT Vienna Convention of the Law of Treaties
vol. Volume
Sat-Connect Sat-Connect S.A.
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STATEMENT OF FACTS
1. On 30 January 1995, Claimant, Televative Inc. was incorporated in Opulentia.
Televative specializes in satellite communications technology and systems.1
2. On 20 March 1996, Opulentia and Beristan entered into a bilateral investment
treaty (BIT).2
3. On 1 January 1997, the BIT became effective.3
4. In March 2007, the Government of Beristan established a state owned company,
Beritech S.A.. The Beristan government owns 75% interest in Beritech and the
remaining 25% of Beritech is owned by a small group of wealthy Beristan
investors.4
5. On 18 October 2007, Beritech and Televative signed a joint venture agreement to
establish the joint-venture company, Sat-Connect S.A., under Beristan law. SatConnect
was established in order to develop and deploy a satellite network and
accompanying terrestrial systems and gateways. The system was planned to be
used for civilian and military purposes. The Government of Beristan has co-signed
the JV Agreement as a guarantor.5
6. On 12 August 2009, The Beristan Times published an article that included a
comment by a highly placed Beristan government official that raised national
security concerns by revealing that seconded Televative personnel to the project
leaked critical information to the Government of Opulentia.6
1
Annex2, [1]
2
Annex1
3
1st
Clarification, 174.
4
Annex2, [2]
5
Annex2, [3],[5],[6]
6
Annex2, [8], 1st
Clarification, 178.
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7. On 21 August 2009, board meeting of the Sat-Connect was held and the chairman
of the board made a representation to the directors about the allegations that had
appeared on the Beristan Times.7
All board members were present at this meeting.8
8. On 27 August 2009, the Sat-Connect held a board meeting and decided to buyout
all Televative‘s interests in the Sat-Connect project on the basis of Clasue 8 of the
JV Agreement, with the support of majority of the board of directors. The date of
the meeting was informed to the directors but the proposed agenda was not
provided as a formal notice to the directors. The four directors appointed by
Televative, did not participate in the voting.9
9. On 28 August 2009, Beritech noticed Televative to hand over possession of all SatConnect
site, facilities and equipment within fourteen days and to remove all
seconded personnel from the project.10
10. On 11 September 2009, Beristan sent in CWF(―Civil Works Force‖), a section of
Beristan army to secure the project sites and facilities on the basis of an executive
order. The seconded Televative personnel were instructed to leave the project sites
immediately, and were eventually evacuated from Beristan.11
11. On 12 September 2009, Televative submitted a written notice to Beristan of a
dispute under the Beristan-Opulentia BIT in which Televative notified its desire to
settle amicably. In case it fails to settle, it was supposed to proceed with arbitration
pursuant to Art. 11 of the BIT.12
7
Annex2, [9]
8
1st
Clarifiation, 127.
9
Annex2, [10], 2nd
Clarification, 229.
10
Annex2, [10]
11
Annex2, [11], 2nd
Clarification 208, 1st
Clarification 139.
12
1st
Clarification, 113.
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12. On 19 October 2009, Beritech filed a request for arbitration against Televative
under the JV Agreement and paid US $47million into an escrow account.
Televative has refused to accept the payment and to respond to Beritech‘s
arbitration request.13
13. On 28 October 2009, Claimant requested arbitration in accordance with ICSID‘s
Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings.14
14. On 1 November, the dispute brought by Televative against Beristan Government
was registered for arbitration.15
13
Annex2, [13]
14
Annex2, [14]
15
Annex2, [16]
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SUMMARY OFARGUMENTS
ARGUMENTS FOR JURISDICTION
16. Jurisdictional requirements are satisfied under Art. 25(1) ICSID Convention: the
parties‘ consent to arbitration under ICSID, and the requirements raione personae
and ratione materiae. The main arguments for jurisdiction are related with the
relations between treaty claims and contract claims. First, whether the treatybased
tribunal has jurisdiction over contractual claims by virtue of ―Umbrella
Clause‖. Second, whether the parties of the BIT intended to cover contractual
claims in the jurisdictional clause of BIT. Third, whether the forum selection
clause of Clause 17 of the JV Agreement affects the tribunal‘s jurisdiction. And
Fourth, whether the parallel proceedings are relevant in the present case.
MERITS OF THE CLAIM
17. First, whether Respondent materially breached the JV Agreement by preventing
Claimant from completing its contractual duties and improperly invoking Clause
8 of the JV Agreement. Second, whether Respondent has breached its treaty
obligations with regard to fair and equitable treatment, national treatment, and
expropriation. Third, whether the breach cannot be justified by Respondent's
assertion on essential security. Fourth, whether Respondent‘s actions or omissions
amount to expropriation, discrimination, a violation of fair and equitable
treatment, or otherwise violate general international law or applicable treaties.
Fifth, whether Respondent breached its obligations to observe any obligations
assumed with regard to investments.
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ARGUMENTS
PART ONE: JURISDICTION
I. BERITECH S.A. HAS SEPARATE LEGAL PERSONALITY FROM
BERISTAN
18. Beritech S.A. has separate legal personality from its national state, Beristan, even
though it is a state-owned company. For this reason, Respondent contends that it is
not a proper party to be sued in relation to an alleged breach of the JV Agreement
(1), and the fact that Respondent has no responsibility it has assumed with regard to
investments as a guarantor of the JV Agreement substantiates Respondent‘s
argument (2).
A. Beritech S.A. is a Separate and Autonomous Legal Entity
19. Beritech S.A. is a state-owned company whose 75% interest is owned by the
Beristan government and the remaining 25% of Beritech is owned by a small group
of wealthy Beristan investors who have close ties to the Beristan government.16
Regardless its character, a state-owned company, Beritech S.A. is a separate and
autonomous company acting in its own name to produce profits, so it has
responsibility to observe commitments guaranteed by itself, not by its national state,
Beristan. This undermines Claimant‘s argument that Beritech S.A. is attributable to
Respondent.
20. The jurisprudence of tribunals also supports Respondent‘s argument. There are
basically two strands concerning this; one strand of cases is rules of attribution
apply to determine whether the undertakings of contract signed by an entity with tis
own personality in domestic law can be imputable to the state, and the other strand
16
Record, Annex 2, [2].
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of cases is legal personality of the state-entity is distinct from that of the state.17
Respondent contends based on the latter view of tribunals including Salini v
Morocco, RFCC v Morocco and Salini v Jordan in particular.
21. In the decision of Salini v Jordan, the tribunal discussed whether the contract with
the state can be said to bind the state as a party and answered in that questions
negative on the basis that ―the contract at issue was entered into between the
claimants and the [state-entity at issue in the case], which under the [laws of home
state at issue in the case] governing the contract, has a legal personality distinct
from that of the [home state]; accordingly, it cannot be ruled out that [home state at
issue in the case] might not be held responsible for [state-entity‘s at issue in the
case] breaches of contract.‖18
22. For these reasons, Respondent asserts that Beritech S.A. is not attributable to
Respondent because of their distinct legal personality, and the present tribunal
based on the Beristan-Opulentia BIT should stay or dismiss the treaty arbitration
since Claimant misunderstood the party concerned in the present dispute.
B. Argument about Respondent’s Liability as a Guarantor of the JV Agreement is
unnecessary since there is not Default at all
23. On 18 October 2007, Respondent has co-signed the JV Agreement as a guarantor
of Beritech‘s obligations, so when Beritech defaults its obligations against Claimant,
Beristan should assume responsibility on it as a guarantor which has legal
implication.
24. Respondent, however, will not bear any responsibility arose from the concerned
dispute because of the reasons described here: first, Beritech abide by the JV
Agreement with sincerity, so there is not any default which can create Respondent‘s
17
Katia Yannaca-Small (2010), p. 322.
18
Salini v Jordan, para. 100.
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responsibility as a guarantor of the contract. Second, the buyout procedure
conducted by the Sat-Connect board of directors was based on the reasonable
judgment to hold responsibility to Claimant for information leak.
25. Therefore, there is no evidence to argue about Respondent‘s liability as a guarantor
under the JV Agreement because there is not any default taken by Beritech. This
strengthens that Respondent does not need to be a concerned party to the contractbased
arbitration.
II. CONTRACT CLAIMS BASED ON THE JV AGREEMENT SHALL
PRCLUDES ICSID JURISDICTION
26. On October 19, 2009, Respondent filed a request for arbitration against Claimant
under Clause 17 of the JV Agreement19
and the tribunal has been constituted and
determined that the seat of the arbitration shall be Beristal, the capital of Beristan.20
Respondent has urged Claimant to respond, but it refused to participate and
submitted a written notice to Beristan of a dispute under the Beristan-Opulentia
BIT on September 12, 2009.21
27. Claimant can hesitate to bring the suit before Beristan national court suspecting its
fairness, justice and equity, however, treaty-based tribunal which was brought
before ICSID by Claimant lacks jurisdiction since there is no matter related to a
breach of treaty in the present case (1), and Art. 10 of the Beristan-Opulentia BIT
does not have effect to elevate contractual claims to treaty claims (2). Additionally,
Art. 11 of the Beristan-Opulentia BIT does not encompass disputes arose from the
contract (3).
A. Breach of Treaty is Irrelevant in the Present Case
19
Annex 2, [13].
20
1st
Clarification, [118].
21
1st
Clarification, [133].
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28. To bring the dispute to international arbitration, there should be material or
substantial breach of treaty, but there is no explicit evidence to prove Respondent
breached the Beristan-Opulentia BIT, or otherwise violated general international
law or applicable treaties as Respondent consistently stated. Also, deployment of
the CWF by executive order to secure all sites and facilities of the Sat-Connect
project and to instruct those personnel associated with Televative to leave the
project sites and facilities was for national security of Beristan, so that was justified
on that ground.22
29. In this respect, Respondent asserts that Claimant should respond to the separate
arbitration proceedings that Respondent has already commenced pursuant to the
dispute settlement clause in the JV Agreement if Claimant wants to resolve the
dispute concerned.
B. Umbrella Clause does not have Effect to “Elevate” Contractual Claims to Treaty
Claims
30. Many investment treaties include clauses so-called ―Umbrella Clause‖ demanding
the states to observe any obligations or commitments it has entered into with
investors. BIT between Beristan and Opulentia also included such provision in Art.
10 ―Observance of Commitments‖ which reads as follows:
― Each Contracting Party shall constantly guarantee the observance of any
obligation it has assumed with regard to investments in its territory by investors
of the other Contracting Party.‖23
31. In respect of the scope of umbrella clause, a number of tribunals have confronted
the question ―whether the umbrella clause ‗elevates‘ contractual breaches to the
level of treaty breaches and, therefore, confers upon treaty-based tribunal
22
Annex 1, [15].
23
Annex1, Opulentia-Beristan BIT Art. 10.
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jurisdiction to decide contractual claims.‖24
32. The first case dealt with the scope and effect of umbrella clause was SGS v
Pakistan. The tribunal held that it cannot find a convincing basis for accepting the
Claimant‘s contention that Article 11 of the BIT has had the effect to ―elevate‖ its
claims grounded solely in a contract to claims grounded on the BIT, and thus the
tribunal lacked jurisdiction over the breach of contract claims.25
33. The argument that the umbrella clause has significance was left more open in SGS
v Philippines reached the opposite conclusion. The eventual result in the award was
inconclusive on this point, however, SGS v Philippines decision cannot be decisive
because of the reasons here. First, as the award in SGS v Pakistan points out, if
such an extensive meaning was to be given to the clause, it would render the
carefully negotiated provisions of the investment treaty nugatory.26
Second, even
though the developing trend is to follow the SGS v Philippines reasoning and allow
claims for contractual obligations pursuant to an umbrella clause, not all tribunals
have followed this trend and the fact that there is no principle of precedent in the
international investment law means that Respondent‘s argument is meaningful
whether it is majority or not.
34. Even in the SGS v. Philippines case, there is no supremacy between contract claims
and treaty claims,27
so, in this respect, Respondent asserts that Claimant should
respond to the contract claim because it arose earlier than the treaty based tribunal
and the present case is substantially based on the JV Agreement not the BIT itself.
C. The “Dispute” described in Art. 11 of the Beristan-Opulentia BIT does not
encompass Disputes arose from the JV Agreement
24
Katia Yannaca-Small (2010), p. 329.
25
SGS v Pakistan, para 165.
26
Sornarajah(2010), p.304.
27
Campbell Mclachlan(2007), p. 115.
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35. Most investment treaties include dispute resolution clause which is one of the
mechanisms internationalizing contract claims. In the Beristan-Opulentia BIT, Art.
11 is such clause providing settlement of ―disputes with respect to investments
between a Contracting Party and an investor of the other Contracting Party.‖28
In
interpretation of such clause, there are mainly two approaches, restrictive and wider,
and the restrictive approach denying the dispute resolution clause encompasses
contract claims is more persuasive to adopt to the case here.
36. The Salini v Morocco tribunal restricted its jurisdiction to only such contractual
claims that arose out of a ―breach of contract that binds the State directly‖29
and
the tribunal of Impregilo v Parkistan relied on Salini which held about the scope of
the treaty‘s dispute resolution provision is ―limited to disputes between the entities
or persons concerned‖. 30
Another notable decision supporting a restrictive
approach is SGS v Pakistan. That tribunal concluded that, despite the ordinary
meaning, ―we do not see anything in Article 9 or in any other provision of the BIT
that can be read as vesting this tribunal with jurisdiction over claims resting ex
hypothesi exclusively on contract,‖ and, therefore, ―without more, we believe that
no implication necessarily arises that both BIT and purely contract claims are
intended to be covered by the Contracting Parties in Article 9.‖31
As the tribunal of
SGS v Pakistan held in its decision, a broad dispute resolution clause in a BIT does
not provide sufficient basis for a treaty-based tribunal to have jurisdiction over
purely contractual claims which was emphasized again in the decision rendered by
the arbitral tribunal in LESI-Dipenta v. Algeria.32
37. Besides the jurisprudence of tribunals supporting Respondent‘s argument, here are
28
Annex1, Beristan-Opulentia BIT Art. 11.
29
Salini v Morocco, para. 61.
30
Impregilo v Pakistan, para. 211.
31
SGS v Pakistan, para. 161.
32
LESI-Dipenta v Algeria, para. 25.
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two more logical reasoning. First, in the absence of an express provision, a phrase
such as ―all disputes‖, in and of itself, cannot provide a basis for the jurisdiction of
a treaty-based tribunal over purely contractual claims.33
Second, if the parties
intended to extend its jurisdiction to contractual claims, the language of the dispute
resolution provision would be so crafted such as Art. 24 of the U.S. Model BIT but
they didn‘t.
38. In this respect, Respondent contends that the present tribunal doesn‘t have
jurisdiction over contract claims, so Claimant should respond to the Respondent‘s
notice of arbitration of national arbitration proceedings to settle dispute concerned.
III. “FORUM SELECTION CLAUSE” OF THE JV AGREEMENT AND
“PARALLEL PROCEEDINGS” RECOGNIZES THE JURISDICTION OF
CONTRACT-BASED TRIBUNAL
39. Besides umbrella clause and jurisdictional clause, there are two other issues,
―Forum Selection Clause‖ of the JV Agreement and ―Parallel Proceedings‖, which
can affect the treaty-based tribunal‘s jurisdiction brought before ICSID by Claimant.
40. Respondent asserts that forum selection clause of the JV Agreement substantiates
the contract-based arbitration tribunal‘s jurisdiction (1), and the existence of
parallel proceedings will support Respondent‘s contention, the contract claims
tribunal is enough to resolve the present case without using any other fora, ICSID
in particular (2).
A. Exclusive “Forum Selection Clause” of the JV Agreement shows the Parties’
Intention giving Priority to the Contract Claims
41. While a number of tribunals have been concluded that a contractual ―Forum
Selection Clause‖ will not divest the treaty-based tribunals‘ jurisdiction, the effect
33
Emmanuel Gaillard
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of a contractual forum selection clause, however, may be different when the
question is whether a treaty-based tribunal has jurisdiction over contract claims.34
So, the question arose here is whether a treaty-based tribunal, which may otherwise
have jurisdiction over ―purely‖ contractual claims and claims where ―the basis of
the claim‖ is a contract, or the ―essential basis‖ for the claims is a breach of
contract, can exercise jurisdiction in the presence of an exclusive contractual forum
selection clause.
42. Most tribunals including Joy Mining v Egypt35
, Vivendi I annulment committee36
and SGS v Philippines have held that an exclusive contractual forum selection
clause deprives a treaty-based tribunal of jurisdiction over contract claims. In
particular, SGS v Philippines and Vivendi I annulment committee‘s decisions held
that the contractual forum selection clause even precludes a treaty-based tribunal‘s
jurisdiction.
―The question is whether a party should be allowed to rely on a contract as the
basis of its claim when the contract itself refers that claim exclusively to another
forum. In the Tribunal‘s view the answer is that it should not be allowed to do so,
unless there are good reasons, such as force majeure, preventing the claimant
from complying with its contract.‖37
43. As Respondent has consistently contended, the essential basis for the claim is a
breach of a contract since Respondent did not breach any terms of the BeristanOpulentia
BIT, general international law or applicable treaties, and all the conflicts
concerned between Claimant and Respondent had begun when the buyout
procedure was commenced by the Sat-Connect board of directors based on the
alleged charge of information leak. The jurisprudence of tribunals also supports
Respondent‘s argument.
34
Katia Yannaca-Small(2010), p. 345.
35
Joy Mining v Egypt, para. 89.
36
Vivendi I Annulment, para. 98.
37
SGS v Philippines, para. 154.
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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44. Even in the case of assuming the present dispute arose not only from the JV
Agreement but also the Beristan-Opulentia BIT following the Claimant‘s
arguments, there is a possible exception of the tribunals‘ consistent refusal to
abrogate treaty jurisdiction in the face of a contractual form selection clause which
reads as follows:
45. The Agreement shall be governed in all respects by the laws of the Republic of
Beristan. In the case of any dispute arising out of or relating to this Agreement,
any party may give notice to the other party of its intention to commence
arbitration…Each party waives any objection which it may have now or
hereafter to such arbitration proceedings and irrevocably submits to the
jurisdiction of the arbitral tribunal constituted for any such dispute.38
46. If a forum selection clause such as Clause 17 of the JV Agreement in this case
constitutes an explicit waiver or other specific indications of the common intention
of the parties, it would appear that an investor could waive its rights to an
international treaty-based arbitration.39
The tribunals of Aguas del Tunari and
Occidental substantiated it and held that ―assuming that parties agreed to a clear
waiver of ICSID jurisdiction, the Tribunal is of the view that such a waiver would
be effective.‖40
47. In the present case, Clause 17 of the JV Agreement describing ―waiver‖ is an
evidence which can verify the parties intended to waive any other forum including
ICSID besides arbitration under Beristan‘s national law. The fact that it is scarce to
put waiver in an investment contract a provision which is unfavourable to investor
also shows that there was a specific implication to waive its right to an international
treaty-based arbitration.
38
Annex3, JV Agreement, Clause 17.
39
Katia Yannaca-Small, (2010), p. 345.
40
See Aguas del Tunari, paras. 118~119, and Occidental Petroleum v Ecuador, paras. 71~73.
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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48.Therefore, Respondent contends that the present tribunal should stay until the
contract-based tribunal reaches an award, or the national arbitration will preclude
the international arbitration because of the forum selection clause.
B. Requirements for Parallel Proceedings are satisfied
49. Respondent urges that Claimant should respond to Beritech‘s notice of arbitration
in the separate arbitration proceedings that Respondent has already commenced
pursuant to the dispute settlement clause in the JV Agreement.41
On the part of
Respondent, parties and causes of action in the present case are identical to those of
arbitration which Beritech has already commenced.
50. Furthermore if the ICSID Tribunal is to decide that it has jurisdiction to hear this
case, the parallel proceedings could happen resulting in undermining a legal
stability and predictability. Thus respondent submits that Televative should respond
arbitration pending in Beristan.
C. Parties are identical
51. Respondent argues that claimant has improperly reformulated them as claims
arising under the Beristan-Opulentia BIT,42
so bringing the case to the ICSID
proceedings per se is unsuitable. Disputes at issue here are against Beritech de
facto and pursuant to Clause 17 of the JV Agreement any disputes arising out of or
relating to this Agreement shall be resolved by only arbitration under the rules and
provisions of the 1959 Arbitration Act of Beristan. Beritech already commenced
arbitration according to the JV Agreement on October 19, 2009. However,
claimant did not respond and exercised its right to initiate arbitration under the BIT.
Thus, respondent asserts that parties under the JV Agreement and under the BIT is
identical in terms of substance in claim.
41
Minutes of the First Session of the Arbitral Tribunal, [15].
42
Minutes of the First Session of the Arbitral Tribunal, [15].
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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D. Causes of action are identical
52. Claimant who is respondent in previous proceedings Beritech pursued, initiated
ICSID arbitration in reliance on breaches of treaty by the respondent. However,
respondent reiterates arguments that claimant misunderstands the nature of claims
and repackages contract claims as treaty claims. Causes of action that claimant
brought to ICSID arbitration are based on contract breaches in substance and these
causes of action are also the grounds for domestic arbitration that Beritech
commenced.
53. Respondent therefore insists that both parties and causes of action in this
international investment arbitration are identical to those in pending domestic
arbitration in quality. On the basis of reasons above, identity of the parties and
causes of action in fact, respondent submits parallel proceedings will exist if the
present tribunal accept claimant claims, which may cause conflicting results.
IV. Cooling off period is a jurisdictional requirement rather than
procedural one
54. The Republic of the Opulentia also argues that Televative did not comply with the
six-month waiting period set out in the BIT before arbitration proceedings were
initiated. Respondent submits this cooling off period provision which is provided
for facilitating pre-arbitration settlement between parties is a jurisdictional
requirement and ICSID tribunal therefore lacks jurisdiction over this claims.
55. Respondent asserts that Art. 11(1) of the BIT conditions requiring 6 months
negotiation or consultation period should be observed and before elapse of
prescribed period investors cannot commence international arbitration proceedings.
Respondent contends that Televative submitted this matter to ICSID one month and
sixteen days after the written notification. Respondent submits that six months did
not pass, and ICSID tribunal therefore does not have jurisdiction over this case.
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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56. In Goets v Burundi (1999), the tribunal found that non-compliance with a waiting
period constituted a bar to part of the claim.43
The tribunal rendered that the
waiting period set out in the BIT had been satisfied with respect to the investor‘s
primary claim but not withrespect to certain supplementary claims put forward by
the Claimant. So the tribunal held that the dispute on which the tribunal is called to
give an award related exclusively to the primary claims.44
57. It deserves to note that Generation Ukraine Inc v Ukraine (2003) tribunal‘s
interpretation in this respect. The tribunal expressed reluctance to interpret cooling
off provision as a mere procedural rule, rather than as a jurisdictional requirement.
It also stated that an explicit treaty provision should not be interpreted in such a
way as to render it superfluous.45
58. As asserted in an obiter dictum of Enron Case (2004), the requirement of a waiting
period is a jurisdictional one and that failure to comply with that requirement would
result in a determination of lack jurisdiction.46
V. The conclusions over jurisdiction concerning the present dispute
59. For the reasons given above, Claimant concludes as follows:
(1) Beritech S.A. has separate legal personality from Beristan
(2) Argument about respondent‘s liability as a guarantor of the JV
Agreement is unnecessary since there is not default at all
(3) Umbrella Clause does not have effect to ‗elevate‘ contractual claims to
treaty claims
(4) The ―dispute‖ described in Art. 11 of the Beristan-Opulentia BIT does
not encompass disputes arose from the JV Agreement
43
Goetz and ors v Burundi, (1999), paras. 90-93.
44
Goetz and ors v Burundi, (1999), para. 93.
45
Generation Ukraine, Inc v Ukraine,
46
Enron Corporation and Ponderosa Assets LP v Argentina, (2004), para. 88.
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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(5) ―Forum Selection Clause‖ of the JV Agreement and ―Parallel
Proceedings‖ recognizes the jurisdiction of contract-based tribunal
(6) Cooling off period is a jurisdictional requirement rather than procedural
one
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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ARGUMENTS
PART TWO: MERITS OF THE CLAIM
Ⅰ. Respondent has afforded fair and equitable treatment
61. Art. 2(2) of the Beristan-Opulentia BIT puts Respondent under an obligation to
provide Opulentian investors fair and equitable treatment by stating that :
―Both Contracting Parties shall at all times ensure treatment in accordance with
customary international law, including fair and equitable treatment and full
protection and security of the investments of investors of the other Contracting
Party‖
62. The concept of ―fair and equitable‖ is frequently discussed in international
investment arbitration.47
One of the major issues is whether the concept of ―fair
and equitable treatment‖ should be interpreted as same as the minimum standard of
treatment in customary international law for the treatment of aliens.48
However in
the present case, it is explicitly expressed that the treatment shall be ―in accordance
with customary international law‖ and thus FET standard should be interpreted as
including the minimum standard of treatment as well.
63. The Neer v Mexico claim shows the typical content of the minimum standard of
treatment in customary international law:
― the treatment of an alien, in order to constitute an international delinquency
should amount to an outrage, to bad faith, to willful neglect of duty, or to an
insufficiency of governmental action so far short of international standards that
every reasonable and impartial man would readily recognize its insufficiency‖.49
64. Claimant asserts that Respondent breached the fair and equitable standard of the
BIT in three aspects. It argues that forcible buyout and expulsion was based on
reasons unrelated to Claimant and was a product of a conspiracy against Claimant.
47
Rudolf Dolzer et al. (2008), 119.
48
Mondev International Ltd v United States, (2002), para 125.
49
L.F.H. Neer and Pauline Neer v Mexico, (1926).
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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Claimant also argues that it was not provided necessary opportunities to respond to
the false charges. However, Respondent contends that its actions that have been
argued by Claimant as breach of ―fair and equitable‖ standards, were taken as a
lawful exercise of contractual right(A), and also in due process of law(B). In
addition, Respondent protests that all its actions were done in good faith that and in
accordance with minimum standard of treatment in customary international law(C).
A. Buyout was based on Confidentiality and Buyout Clause of the JV Agreement
1. Information leak of the project conform material breach of the JV Agreement
65. In the JV agreement between Beritech S.A. and Televative, parties agreed on a
confidentiality clause with regard to the performance of the contract and that
violation of that particular clause would be considered a material breach. In Clause
4 of the JV Agreement, it is stated that:
(1) ― All matters relating to this Agreement and the Sat-Connect project,
including all confidential Information, shall be treated by each of the parties,
including the JV company Sat-Connect as confidential, will not disclose, and
will not allow to be disclosed any said matters or Confidential Information,
directly or indirectly, to any person or entity not authorized under this agreement,
without the prior written approval of the Sat-Connect board of directors except (i)
where the information properly comes into the public domain, (ii) as required by
law, or (iii) as may be necessary to enforce the terms hereof.
(4) ―Any breach of this Clause 4 shall be deemed a material breach of the
Agreement.‖
66. Televative, as a contracting party of this agreement, has the obligation to keep
confidentiality and violation of this stipulation was to be deemed as a material
breach. However, a highly placed government official mentioned in a newspaper
article that there was leak of information by Televative seconded personnel to
Opulentian government.50
Televative argues that this was a false charge and there
was no evidence that the information was leaked. In Respondent‘s view, it is
50
Annex2, para 8; 1st
Clarification 178.
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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difficult to believe that this official‘s comment was a pure fabrication, and also that
Beristan Times printed this story if it had doubts on the authenticity.
67. There might not be physical evidence of the leakage as Claimant asserts, but a
highly placed government official‘s comment can be considered as positive, verbal
evidence. The government official who mentioned the information leak did not
have any direct relationship with Beritech and being a high-ranked official, he
would not have officially spread false information. In addition to that, Beristan
Times is an independent press51
and it seems unlikely that the allegation was a
false charge under these circumstances.
68. Even if the allegation were not true, it is important the fact that Beritech had lost
faith in its partner, Televative. Opulentia and Beristan are both located within
Euphonia52
, and it was a publicly known fact that the services and licensing
technology of the developing system were about to be sold to other companies and
governments in the region.53
Therefore, even a small possibility of information
leak can be a serious threat of financial damage to Sat-Connect and Beritech and by
creating such possibility it should be considered tantamount to a breach of the
confidentiality clause.
2. Commitment of material breach entitles Bertech S.A. to buyout all of Televative’s
interests
69. Clause 8 of the JV Agreement states that :
― If at any time Televative commits a material breach of any provision of this
Agreement, Beritech shall be entitled to purchase all of Televative‘s interest in
this Agreement.‖
70. According to Clause 8 of the JV Agreement, Beritech is entitled to purchase all of
51
1st
Clarification, 168, 162.
52
1st Clarification,141
53
1st Clarification,148
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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Televative‘s interest in the Agreement in case of Televative committing a material
breach of the Agreement.
71. As previously considered, Respondent deemed that there is credible evidence on
the information leak by Televative personnel. Based on this fact, it can be
concluded that Claimant breached the confidentiality clause, and also committed
material breach of the JV Agreement according to Clause 4(4). In conclusion,
Beritech have obtained the authority to buy all of Televative‘s interests. Therefore,
the buyout of Televative‘s interests was not an arbitrary decision of Beritech, but
was clearly a rightful decision under the JV Agreement.
B. Buyout was decided in Due Process
72. Despite the different views, many investment arbitration tribunals accepted that
guarantee of due process in administrative decisions constitutes an important part
of fair and equitable treatment.54
In the present case, Claimant asserts that
Respondent had breached its obligations to provide due process in making
administrative decision to expel Televative personnel from Beristan. However,
Respondent protests that the expulsion was carried out in accordance to due process
and all necessary steps were taken.
73. First of all, Claimant asserts that there was no prior notice concerning the proposed
agenda of the board of directors meeting that took place on 27th
of August. It is true
that there wasn‘t a separate, formal notice on the agenda,55
but there was a
presentation made by the president of the board about the allegations that had
appeared on the newspaper article, at the meeting on the 21st
of August. Every
single member of the board was present at this meeting56
and it is apparent from
54
Metalclad Corp v Mexico, (2000); Middle East Cement Shipping and Handling Co SA v
Egypt(2002)
55
2nd
Clarification, 208
56
1st
Clarification, 127.
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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the records that one of the directors raised potential relevance of Clause 8 of the JV
Agreement and there was discussion among the members.57
From that meeting,
board members should have anticipated that the proposed agenda was related to the
further actions on the allegation issue, since the next meeting was held within such
a short period of time. Therefore, the previously held meeting should be considered
as prior notice of the agenda.
74. Claimant also asserts that no opportunity was given to respond to false charges
involving the allegations that Televative staff leaked information about the project.
Such claim is unreasonable in a few aspects. As previously examined, there was a
meeting of board of directors on the 21st
of August, where all members were
present and four directors appointed by Televative had a chance to clear away the
doubts. They also had a second chance to respond at the meeting on the 27th
of
August, but three of the Televative directors did not attend the meeting and one
other director, Alice Sharpeton at first attended, but left the meeting before voting.
If Televative had a strong will to clear the suspicions, the four directors should have
tried persistently to persuade other directors, rather than trying to nullify the
decision by intentionally not attending the meeting. Therefore, it seems that
Televative was given sufficient opportunities to verify its innocence but it did not
make the best use of them.
75. There could be an argument whether there was enough number of people to satisfy
the quorum at the time of the buyout decision. The quorum of the board of directors
is obtained with presence of six members and quorum is required at the moment of
voting. It is manifest that six members were present at the beginning of the
meeting58
but one of the members, Alice Sharpeton did not participate in the voting
59
and left the meeting before its end. However, it is evident that all members knew
about the date of the meeting and some directors appointed by Televative
57
1st
Clarification, 169.
58
Annex 2, [4], [10]
59
1st
Clarification, 156.
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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speculated that the buyout would be discussed and decided not to attend the
meeting in order to deprive it of the necessary quorum.60
Such deliberate abuse of
the quorum should not be admitted and therefore the validity of the board‘s
decision should not be questioned.
76. In conclusion, the buyout decision was made in due process and opportunities were
given to prove Claimant‘s innocence, but the directors appointed by Televative did
not make good effort to prevent the buyout during the process. Therefore
Claimant‘s assertion about lack of due process should be declined.
C. Respondent did not Violate the Obligation to Act in Good Faith
77. According to the Art.2(2) of the Beristan-Opulentia BIT, fair and equitable
treatment should be in accordance with customary international law and as
mentioned above, customary international law obliges the state to treat foreign
investors in good faith.
78. Claimant suspects that the expulsion and the buyout were products of conspiracy
between Beritech and Beristan but such suspicion is preposterous that not a single
evidence was put forward to support the idea. Though the expulsion and the buyout
was implemented in a hasty manner, it was not because the decisions were
prearranged but because the allegations against Claimant was closely related to
national security issues and thus prompt action was required.
79. Therefore, Respondent did not fail to act in good faith with regard to the
conspiracy issue and did not violate customary international law to afford the
minimum standard of treatment.
II. Expulsion was taken as a measure to protect essential security of
Beristan
60
2nd
Clarification, 208.
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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A. Sat-Connect S.A. Project is closely related to Beristan’s Essential Security
80. In the present case, Respondent asserts that the Sat-Connect project directly
implicates the national security of Beristan. The satellite and communications
technology system of Sat-Connect can be used for civilian or military purposes and
several segments of the Beristan armed forces were planned to use the Sat-Connect
system.61
Since the system covers the whole region of Euphonia - which includes
Opulentia, Beristan and five other countries, it would be a serious threat to national
security on the part of Beristan if Opulentia gains access to the system. Obtaining
access to the system means that there is a possibility that it can also obtain crucial
military information of Beristan. Therefore, any chance of information leak that
enables access to the system constitutes a substantial threat to Beristan‘s national
security.
81. Claimant asserts that there wasn‘t any information leak of the Sat-Connect project
and mere allegations and rumors cannot be a basis for the buyout and the expulsion
but even if its assertion is true, any small possibility can be a threat to Beristan‘s
national security. Besides, with regard to national security, a state should be
allowed to take precautionary measures since it would not be effective to take
measures once the crucial information had been revealed.
B. Beristan’s Measures for the sake of National Security can be Justified by the Art. 9 of
the BIT
82. Art. 9 of the Beristan-Opulentia BIT states that :
―Nothing in this Treaty shall be construed :
to require a Party to furnish or allow access to any information the disclosure of
which it determines to be contrary to its essential security interest; or
to preclude a Party from applying measures that it considers necessary for the
61
Annex2, [6]
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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fulfillment of its obligations with respect to the maintenance or restoration of
international peace or security, or for protection of its own essential security interests.‖
83. This article of the BIT explicitly allows the contracting state to take necessary
measures for protection of its essential security. Such articles are referred to as nonprecluded
measures(NPM) clauses due to the wording.62
In applying the NPM
clause to exempt the contracting state from the treaty obligations, it is frequently
discussed whether the national security provision is self-judging(B.1), and what the
relationship is between the security exception and necessity as a ground for
precluding responsibility under customary international law(B.2).63
1. Beristan is authorized to determine threat to national security by Art.9 of the BIT
84. According to the Art. 9(2) of the BIT, Beristan is entitled to take measures ―that it
considers necessary‖ for its own security interests. Similar clauses are found in
2003 US and 2004 Canadian Model BITs, using the subjective appreciation of
national security. From the wording the BIT adopted, the article can be classified as
a ―self-judging‖ exception clause. As long as Beristan had serious concerns on the
security issue, it can decide whether there is need for a specific measure or which
measure it should take for the sake of national security. Objectiveness of the
appreciation is not a criterion under the self-judging clause, thus the appreciation
does not have to be based on substantial evidence.
2. Art. 9 of the BIT should not be interpreted as same as the term of “necessity”
85. The meaning of ―necessary for‖ in Art. 9 of the BIT has a significant difference
from the term ―necessity‖ in customary international law. It is widely accepted that
Art. 25 of the ILC Draft articles on State Responsibility reflects the term of
necessity in customary international law.64
The article states that a state‘s action
62
Andrew Newcombe (2009), p.482.
63
Ibid., p. 491.
64
Rudolf Dolzer et al.(2008), 168.
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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can be considered ―necessary‖ if it ―is the only way to safeguard an essential
interest against a grave and imminent peril‖ and ―does not seriously impair an
essential interest of the other state‖.65
In a series of cases under ArgentinaUS(1991),
Argentina had defended its measures based on the BIT and necessity
under customary international law. The tribunals of CMS, Enron and Sempra66
declined Argentina‘s defense in terms of the customary international law principles
on necessity but this was improper as the annulment committee in CMS pointed
out.67
What matters more is how the BIT acknowledges essential security because
it is the lex specialis to customary international law. The annulment committee in
CMS decided that:
―if state of necessity in customary international law goes to the issue of
responsibility, it would be a secondary rule of international law — and this was
the position taken by the ILC.‖68
86. Therefore, Respondent does not necessarily need to satisfy all the strict criteria
stated in the ILC Draft Articles on State Responsibility if its actions can be
interpreted as a security measure under the Beristan-Opulentia BIT. In the present
case, it is not apparent that grave and imminent peril existed at the time of the
buyout and the expulsion but since Respondent decided that these measures were
necessary, its actions could be justified under Art. 9 of the BIT.
ⅡI. RESPONDENT HAS NOT BREACHED THE NATIONAL TREATMENT
OBLIGATIONS
87. Respondent opposes the National Treatment claim arguing that Claimant‘s
contentions do not amount to a National Treatment claim, and that Claimant has not
shown enough to get the tribunal across threshold to establish a breach. Respondent
65
ILC Draft Artcles, Art. 25
66
CMS v Argentina(2003); Enron v Argentina (2007) ; Sempra Energy v Argentina (2007).
67
M. Sornorajah(2010), p. 461.
68
CMS v Argentina Annulment (2007), paras 133-134.
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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asserts that Claimant breached Clause 4 (Confidentiality) of the JV agreement by
leaking information about the Sat-Connect project to the Government of Opulentia
and Claimant‘s removal from the Sat-Connect project is justified on national
security grounds.
88. Respondent submits that Claimant‘s claim under Art. 3(2) requires a showing of
intent, since Claimant alleges that its expulsion from the Project was intended to
benefit a group of local Beristan personnel, which necessarily comprises intent.
89. Claimant suspects that the expulsion was a product of intent to favour individuals
with relevant expertise in the Beristan labor market but such suspicion is
unfounded that not a single evidence was put forward to prove the intent. Though
the expulsion was implemented in a hasty manner, it was not because the decisions
were prearranged based on the intent of local favouritism but because the absence
of management could damage the Sat-Connect project enormously and thus prompt
action was required. In conclusion, Respondent has not breached the national
treatment obligations.
IV. RESPONDENT DID NOT EXPROPRIATE CLAIMANT’S PROPERTY
90. Respondent contends that the buyout of Claimant‘s interest in the Sat-Connect
project does not violate Claimant‘s rights under Art. 4 of the Beristan-Opulentia
BIT (A). Respondent asserts that Claimant‘s property is not taken by the organ of
the Respondent (A.1) and the implementation of buyout procedure is not forcible
and in conformity with provisions of the JV Agreement (A.2). Also, the reliance on
Clause 8 (Buyout) of the JV Agreement does not constitute an expropriation of
Claimant‘s contractual rights (A.3).
91. In the alternative, the expropriation of Claimant‘s property is legally justified under
Art. 4(2) of the Beristan-Opulentia BIT (B). Respondent contends that Claimant‘s
removal from the Sat-Connect project was vindicated on national security grounds
(B.1) and Claimant is not entitled to compensation or any other remedies (B.2).
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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A. The Buyout of Claimant’s Interest in the Sat-Connect Project Does not Violate
Claimant’s Rights under Art. 4 of the Beristan-Opulentia BIT
1. Claimant’s property is not taken by the organ of the Respondent
92. The international law position on whether a measure has been taken by an organ of
the State is expressed in Art. 4 of the International Law Commission‘s Articles on
the Responsibility of States for Internationally Wrongful Acts 2001:
93. The conduct of any State organ shall be considered an act of that State under
international law, whether the organ exercises legislative, executive, judicial or
any other functions, whatever position it holds in the organization of the State,
and whatever its character as an organ of the central government of a territorial
unit of the State.
94. An organ includes any person or entity which has that status in accordance
with the internal law of the State.69
95. In Eureko v Poland70
, there was a divided tribunal on the issue of whether the
disputes arising out of the contractual relations between the foreign (Dutch)
investor and the State Treasury of Poland were attributable to the State. The
majority stated that the ‗crystal clear‘ text of Art. 4 compelled the conclusion that
the State Treasury constituted an organ of the Republic of Poland. However,
Professor Rajska opined that the majority‘s conclusion was inconsistent with this
text, even broadly construed. Professor Rajska commented that the State Treasury
was exclusively liable for its obligations and was a juridical person separate from
the State (i.e. an autonomous juridical person that could not exercise any public or
regulatory functions). He further observed that under Art. 4(2), since the State
69
J.Crawford(2002), p.94.
70
Eureko v Poland (2005).
TEAM ERSKINE MEMORIAL FOR RESPONDENT
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Treasury did not have the status of a State organ in accordance with Polish law, its
conduct should not be considered an action of the State. That is, Professor Rajska
read sub-article 2 as limiting sub-paragraph 1.
96. Since Beritech did not have the status of a State organ in accordance with Beristan
law, its conduct associated with the buyout process should not be considered an
action of Respondent. Beritech is exclusively liable for its obligations and is a
juridical person separate from Respondent. Thus, Claimant‘s property is not
expropriated by the organ of the Respondent and the legal issues derived from the
buyout procedure should be dealt with by Claimant and Beritech.
2. The implementation of buyout procedure is not forcible and in conformity with
provisions of the JV Agreement
97. Respondent claims that Beritech had proper entitlement to invoke Clause 8 of the
JV Agreement because Claimant violated Clause 4 (Confidentiality) of the
Agreement, which states that:
―(1) All matters relating to this Agreement and the Sat-Connect project, including
all Confidential Information, shall be treated by each of the parties, including the
JV company Sat-Connect, as confidential. Each of the parties and Sat-Connect
agree that it will keep confidential, will not disclose, and will not allow to be
disclosed any said matters or Confidential Information, directly or indirectly, to
any person or entity not authorized under this Agreement, without the prior
written approval of the Sat-Connect board of directors except (i) where the
information properly comes into the public domain, (ii) as required by law, or (iii)
as may be necessary to enforce the terms hereof.‖
(4) Any breach of this Clause 4 shall be deemed a material breach of the
Agreement. This Clause will survive for 3 years after the expiration or
termination of this Agreement or dissolution of the Sat-Connect project.‖
98. As a contracting party of this agreement, Claimant has the obligation to keep
confidentiality and violation of this stipulation was to be deemed as a material
breach. However, a highly placed government official mentioned in a newspaper
article that there was leak of information ―including information about the
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technology, systems, intellectual property and encryption to be used and other trade
secrets―by Claimant seconded personnel to Government of Opulentia.71
A highly
placed government official‘s comment can be considered as positive, verbal
evidence. The government official who mentioned the information leak did not
have any direct relationship with Beritech and being a high-ranked official, he
would not have officially spread false information. In addition to that, Beristan
Times is an independent press72
and it seems unlikely that the allegation was a
false charge under these circumstances.
99.In this respect, Beritech was entitled to rely on Clause 8 of the JV Agreement, which
states that:
100.―If at any time Televative commits a material breach of any provision of this
Agreement, Beritech shall be entitled to purchase all of Televative‘s interest in
this Agreement.‖
101.As previously considered, Respondent asserts that there is credible evidence on the
information leak by Claimant personnel. Based on this fact, it can be concluded that
Claimant breached the confidentiality clause which is material breach of the JV
Agreement according to Clause 4(4). Therefore, the buyout of Claimant‘s interests
was not an arbitrary decision of Beritech, but was clearly a rightful decision based
on the authority to buy all of Claimant‘s interest under the JV Agreement.
3. The reliance on Clause 8 (Buyout) of the JV Agreement does not constitute an
expropriation of Claimant’s contractual rights
102.Claimant argues that the enforced buyout of its interest in the Sat-Connect project
violates its rights under Article 4(2) Beristan-Opulentia BIT, which states that:
71
Annex2, [8]; 1st
Clarification 178.
72
1st
Clarification, 168, 162.
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―Investments of investors of one of the Contracting Parties shall not be directly
or indirectly nationalized, expropriated, requisitioned or subjected to any
measures having similar effects in the territory of the other Contracting Party,
except for public purposes, or national interest, against immediate full and
effective compensation, and on condition that these measures are taken on a
non-discriminatory basis and in conformity with all legal provisions and
procedures.‖
103.Respondent argues that there can be no expropriation of a party‘s contractual rights
when such party is treated in accordance with the contract. Respondent further
asserts that, even in the event of a breach of contract, such breach would not be
sufficient to establish an expropriation. It refers to Azinian v Mexico, according to
which:
―The words ‗confiscatory‘, ‗destroy contractual rights as an asset‘, or
‗repudiation‘ may serve as a way to describe breaches which are to be treated as
extraordinary, and therefore as acts of expropriation, but they certainly do not
indicate on what basis the critical distinction between expropriation and an
ordinary breach of contract is to be made. The egregiousness of any breach is in
the eye of the beholder- and that is not satisfactory for present purposes.‖73
104.Respondent also points to certain reasons in Waste Management, which read as
follows:
―The Tribunal concludes that it is one thing to expropriate a right under a
contract and another to fail to comply with the contract. Non-compliance by a
government with contractual obligations is not the same thing as, or equivalent
or tantamount to, an expropriation. In the present case the Claimant did not lose
its contractual rights, which it was free to pursue before the contractually chosen
forum. The law of breach of contract is not secreted in the interstices of Article
1110 of NAFTA. Rather it is necessary to show an effective repudiation of the
right, unredressed by any remedies available to the Claimant, which has the
effect of preventing its exercise entirely or to a substantial extent.‖
105.Respondent submits that the expulsion of Claimant pursuant to the Contract cannot
be considered expropriatory of Claimant‘s contractual rights, as such rights are
limited by the Contract itself.
73
Azinian v Mexico (1999), para 90.
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106.Moreover, even if there had been a breach of the Contract, such breach would not
amount to expropriation. In Respondent‘s view, a finding of expropriation would
require proof of an improper motive for the expulsion. It would also require a
showing of deprivation, which is not the case given the rights which Claimant
keeps under Clause 8 of the Agreement.
B. In the Alternative, the Expropriation of Claimant’s Property is Legally Justified
under Art. 4(2) of the Beristan-Opulentia BIT
107.Art. 4(2) of the Beristan-Opulentia BIT states four circumstances in which
expropriation is lawful: for public purposes or national interest, against immediate
full and effective compensation, on a non-discriminatory basis and in conformity
with all legal provisions and procedures. Claimant alleges that neither the national
interest requirement nor that of compensation has been satisfied. Respondent
disagrees with Claimant‘s view. Respondent contends that Claimant‘s removal from
the Sat-Connect project was justified on national security grounds (B.1) and
Claimant is not entitled to compensation or any other remedies (B.2).
1. Claimant’s removal from the Sat-Connect project was justified on national security
grounds
108.The forcible buyout and the expulsion from Sat-Connect project satisfy the public
purposes or national interest requirement.
109.In practice, the public purpose requirement has rarely arisen in international
expropriation cases and states have been afforded a wide margin of appreciation in
determining whether an expropriation serves a public purpose.74
Besides, IIA
tribunals have confirmed that states are accorded deference in determining what is
74
Amoco v Iran et al (1987), para. 145.
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in the public interest.75
110.As mentioned earlier, any small possibility of information leak by Claimant can be
a threat to Respondent‘s national security. Furthermore, with regard to national
security, a state should be afforded a wide margin of appreciation in taking
precautionary measures since it would not be effective to take measures once the
crucial information had been revealed.
111.According to the Art. 9(2) of the BIT, Respondent is entitled to take measures ―that
it considers necessary‖ for its own security interests. From the wording the BIT
adopted, the article can be classified as a ―self-judging‖ exception clause. As long
as Beristan had serious concerns on the security issue, it can decide whether there is
need for a specific measure or which measure it should take for the sake of national
security. Thus, Respondent‘s measures for the sake of national security can be
justified by the Art. 9 of the BIT.
112.In this perspective, Respondent asserts that the expulsion of Claimant from the SatConnect
project, the removal of its personnel by the Beristian military, and the
buyout of its interest in the project were justified on national security grounds.
2. Claimant is not entitled to compensation or any other remedies
113.Claimant asserts that, under the buyout provision, Claimant was paid significantly
less than fair market value, because the buyout provision only returns Claimant‘s
paid-in investment. Also, Claimant alleges that the just compensation shall be
equivalent to the real market value of the investment prior to the moment in which
the decision to expropriate is made public and shall be calculated based on
internationally acknowledged evaluation standards according to Art. 4(3) of the
Beristan-Opulentia BIT.
75
Goetz and ors v Burundi (1999), para. 126
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114.However, Fair market value may be determined by the investor‘s actual investment
besides by the DCF (Discounted Cash Flow) method.76
Tribunals often adopt this
method where, as in Metalclad77
, the investment did not have a profit-making
history78
, or in Wena79
, where one of the hotels had operated for eighteen months
and renovations had not been completed on the other. In Sedelmayer, the tribunal
found that actual investments included in-kind contribution of chattels to a
company‘s capital and money spent on improvements to premises.80
The tribunal
in Vivendi II considered investment value as the closest proxy to eliminate the
consequences of the IIA breaches.81
115.As in Metalclad case, the investment – the JV company, Sat-Connect S.A.-does not
have a profit-making history. Thus, actual monetary investment value – US$47
million- could be a reasonable method to calculate the fair market value.
116.On October 19, 2009, Beritech has paid US$47 million – Claimant‘s actual
investment – into an escrow account which has been made available for Claimant
and Claimant has refused to accept this payment. Therefore, Respondent contends
that Claimant is not entitled to compensation or any other remedies.
V. The conclusions on the merits concerning the present dispute
117.Respondent has afforded fair and equitable treatment to Televative, the investor, as
its actions can be justified as proper performance of the contract and necessary
measures to protect the essential security. Respondent did not fail to provide
national treatment to the investor and its actions did not amount to an expropriation.
76
Metalclad Corp v Mexico(2000), para. 122 citing Phelps Dodge Corp. v Iran, (1986)
77
Ibid., paras 124-126.
78
Ibid., paras 119-130.
79
Wena Hotels Ltd v Egypt, (2000), paras 122-125.
80
Sedelmayer v Russian Federation (1998), para. 11.
81
Vivendi (2007), para. 8.3.17.