GROS
INTERNATIONAL CENTER FOR SETTLEMENT OF
INVESTMENT DISPUTES
In Proceedings between:
TELEVATIVE INC.
(Claimant)
v.
THE REPUBLIC OF BERISTAN
(Respondent)
ICSID Case No. ARB/X/X
---------------------------------------------
MEMORIAL FOR RESPONDENT
---------------------------------------------
2010
TABLE OF CONTENTS
TABLE OF CONTENTS.................................................................................................... ii
INDEX OF AUTHORITIES............................................................................................... v
LIST OF LEGAL SOURCES............................................................................................ xi
STATEMENT OF FACTS .………………………………………………………………1
ARGUMENTS.................................................................................................................... 3
I TELEVATIVE’S CLAIMS SHOULD BE DISMISSED IN THE PRELIMINARY
PHASE................................................................................................................................ 3
A. THE ICSID TRIBUNAL LACKS JURISDUCTION TO ADJUDICATE
TELEVATIVE’S CLAIMS ................................................................................................ 3
1) THERE IS NO DISPUTE BETWEEN TELEVATIVE AND BERISTAN - THE
REAL DISPUTE EXISTS BETWEEN TWO PRIVATE ENTITIES, TELEVATIVE
INC. AND BERITECH S.A. .............................................................................................. 4
a) BERITECSH’S ACTS ARE NOT ATTRIBUTABLE TO BERISTAN...................... 4
i) BERITECH IS NOT AN ORGAN OF THE BERISTIAN STATE............................. 4
ii) BERITECH IS NOT A PUBLIC ENTITY AUTHORIZED TO EXERCISE
GOVERNMENTAL AUTHORITY................................................................................... 5
iii) BERITECH DID NOT ACT ON THE INSTRUCTION NOR UNDER THE
CONTROL OF BERISTAN............................................................................................... 6
iv) CLAIMANT ITSELF CONSIDERED BERITECH A SEPARATE ENTITY NOT
ACTING ON BEHALF OF BERISTAN ........................................................................... 6
b) BERISTAN’S SIGNING OF THE JVA AS GUARANTOR DOES NOT MAKE IT
RESPONSIBLE FOR BERITECH’S ACTIONS............................................................... 7
2) ALTERNATIVELY, THERE IS NO CONSENT BY THE PARTIES TO SUBMIT
THE DISPUTE TO ICSID.................................................................................................. 8
3) CLAIMANT’S SUBMISSIONS ARE CONTRACTUAL IN NATURE AND
TELEVATIVE HAS IMPROPERLY REFORMULATED THEM AS CLAIMS
ARISING UNDER THE BERISTAN-OPULENTIA BIT................................................. 9
iii
a) THE BIT DISPUTE SETTLEMENT CLAUSE DOES NOT CONFER
JURISDICTION TO THE CENTRE REGARDING CONTRACTUAL CLAIMS .......... 9
i) TELEVATIVE’S CLAIMS ARE OF CONTRACTUAL NATURE AND CANNOT
BE REFORMULATED AS CLAIMS ARISING UNDER THE OPULENTIA-
BERISTAN
BIT.....................................................................................................................................10
b) ALTERNATIVELY, THE FORUM SELECTION CLAUSE IN THE JVA (CLAUSE
17) BARS THE TRIBUNALS JURISDICTION WITH REGARD TO CLAIMANT’S
CONTRACT CLAIMS..................................................................................................... 11
c) CLAUSE 10 OF THE OPULENTIA-BERISTAN BIT DOES NOT HAVE THE
EFFECT OF MAKING EVERY BREACH OF CONTRACT IPSO JURE A BREACH
OF THE BIT ..................................................................................................................... 13
d) THE EXCLUSSIVE FORUM SELECTION CLAUSE EXCLUDES THE
TRIBUNAL’S JURISDICTION EVEN FOR TREATY BASED CLAIMS ................... 15
e) EVEN IF THE TRIBUNAL FINDS THAT IT POSSESSES JURISDICTION OVER
ALL OR SOME OF CLAIMANT’S CLAIMS, IT SHOULD STILL STAY THE
PROCEEDINGS............................................................................................................... 16
C. TELEVATIVE’S CLAIMS ARE INADMISSABLE.................................................. 17
1) CLAIMANT FAILED TO FULFILL THE NECESSARY PRECONDITIONS FOR
ACTIVATING THE DISPUTE SETTLMENT MECHANISM...................................... 17
a) THERE WAS NO ATTEMPT BY CLAIMANT TO SETTLE THE DISPUTE
AMICABLY ..................................................................................................................... 18
b) ALTERNATIVELY, CLAIMANT HAS VIOLATED THE 6 MONTH WAITING
PERIOD SET OUT IN THE OPULENTIA-BERISTAN BIT......................................... 20
II RESPONDENT WAS ENTITLED TO RELY ON CLAUSE 8 OF THE JVA
BECAUSE CLAIMANT BREACHED THE CONFIDENTIALITY PROVISION OF
THAT AGREEMENT (CLAUSE 4)................................................................................ 22
A. TELEVATIVE COMMITTED A MATERIAL BREACH OF CONTRACT ............ 22
1) TELEVATIVE BREACHED CLAUSE 4 OF THE JVA ........................................... 22
a) TELEVATIVE UNLAWFULLY REVEALED CONFIDENTIAL INFORMATION
TO THE GOVERNMENT OF OPULENTIA.................................................................. 22
iv
b) TELEVATIVE’S RESPONSIBILITY FOR THE BREACH OF THE AGREEMENT
IS NOT PRECLUDED ..................................................................................................... 23
2) A BREACH OF CLAUSE 4 IS IPSO JURE A MATERIAL BREACH OF THE
AGREEMENT.................................................................................................................. 24
B. A MATERIAL BREACH BY TELEVATIVE ENTITLES BERITECH TO INVOKE
THE BUYOUT CLAUSE................................................................................................. 24
C. THE VALUE OF TELEVATIVE’S INTEREST IN THE AGREEMENT WAS
PROPERLY DETERMINED........................................................................................... 25
D. THE BUYOUT PROCEDURE WAS PROPERLY CONDUCTED .......................... 26
III RESPONDENT COMMITTED NEITHER A BREACH OF THE BERISTANOPULENTIA
BIT, NOR OF GENERAL INTERNATIONAL LAW............................. 28
A. There was no violation of the fair and equitable treatment......................................... 28
B. Respondent did not expropriate Claimants assets....................................................... 31
1) Respondent acted in accordance with the JVA ........................................................... 31
C. Alternatively, Respondent acted in accordance with the Beristan-Opulentia BIT ..... 33
1) The taking of the investment was done for a public purpose ...................................... 33
2) Respondent’s actions have not been taken in a discriminative manner ...................... 34
3) Claimant was fully, promptly and adequately compensated....................................... 35
IV RESPONDENT ACTED IN THE PROTECTION OF ESSENTIAL SECURITY
INTEREST OF A STATE ................................................................................................ 37
A. Respondent was entitled to protect its national security under the Beristan-Opulentia
Bilateral Investment Treaty............................................................................................... 37
1) Article 9 represents a self-judging clause.................................................................... 37
2) Beristan is entitled to safeguard its essential interest .................................................. 38
B. Respondent was entitled to safeguard its security under the customary international
law..................................................................................................................................... 42
1) Leakage of critical information resulted in Respondents state of necessity................ 43
v
LIST OF AUTHORITIES
ARTICLES:
Bjorklund
Christie
Gaillard
Manizzuriman
Bjorklund, Andrea K., Emergency
Exceptions to International Obligations
in the Realm of Foreign Investment: The
State of Necessity and Force Majeure as
Circumstances Precluding
Wrongfulness, in P. Muchlinski, F.
Ortino, C. Schreuer (ed.), The Oxford
Handbook of International Investment
Law, Oxford University Press, 2008
Christie, George, What Constitutes a
Taking of Property under International
Law?, British Yearbook of International
Law, 1962
Gaillard, Emmanuel, Investment Treaty
Arbitration and Jurisdiction Over
Contract Claims – the SGS Cases
Considered, in Weiler, Todd,
International Investment Law and
Arbitration: Leading Cases from the
ICSID, NAFTA, Bilateral Treaties and
Customary International Law(London:
Cameron May Ltd., 2003
Maniruzzaman, Munir A.F.,
Expropriation of Alien Property and the
Principle of Non-Discrimination in
International Law of Foreign
vi
Garcia-Bolivar, Special Report on ICSID
Jurisdiction
Schreuer, Denunciation of the ICSID
Convention and
Consent to Arbitration
Schreuer, Vivendi I
Investment: An Overview, 8 J. Transnat.
L. & Policy, 1998
Omar E. Garcia-Bolivar, Special Report
on ICSID Jurisdiction, 2008, p. 1, found
at
http://www.arbitration.fr/resources/speci
al+report+on+ICSID+jurisdiction-
+by+Omar+Garcia+Bolivar-
+BG+consulting-+2008.pdf
Schreuer, Christoph, Denunciation of the
ICSID Convention and Consent to
Arbitration, in: Waibel, Michael,
Kaushal, Asha, Chung, Kyo-Hwa Liz
and Balchin, Claire, The Backlash
against Investment Arbitration:
Perceptions and Reality, Kluwer Law
International, 2010
Schreuer, Christoph, Investment Treaty
Arbitration and Jurisdiction over
Contract Claims – the Vivendi I Case
Considered, in Weiler, Todd,
International Investment Law and
Arbitration: Leading Cases from the
ICSID, NAFTA, Bilateral Treaties
andCustomary International Law
(London: Cameron May Ltd., 2003)
vii
Schreuer, Travelling the BIT Route
Shany, Contract Claims vs. Treaty
Claims
Schreuer, Christoph, Travelling the BIT
Route of Waiting Periods, Umbrella
Clauses and Forks in the Road, The
Journal of World Investment and Trade,
Geneva, April 2004, Vol. 5. No. 2
Shany, Yuval, Contract Claims vs.
Treaty Claims: Mapping Conflicts
Between ICSID Decision on
Multisourced Investment Claims, The
American Journal of International Law,
Vol. 99, No. 4 (Oct., 2005)
viii
BOOKS:
Alberts, Defensive Information Warfare
Alberts, Papp
Bishop, Crawford, Reisman
Boczek
Brownlie
Burke-White, von Staden
Alberts, David S., Defensive Information
Warfare (Washington: NDU Press,
1996)
Alberts, David S., Papp, Daniel,
Information Age Anthology: National
Security Implications of the Information
Age, Vol. II, (CCRP, 2000)
Bishop, R. Doak, Crawford, James and
Reisman, William Michael, Foreign
Investment Disputes: Cases, materials
and commentary (Kluwer Law
International, 2005)
Boczek, Boleslaw A., International
Law: A Dictionary (Lanham: Scarecrow
Press, 2005)
Brownlie, Ian, Principles of Public
International Law (Oxford University
Press, 7th
ed., 2008)
Burke-White, William, von Staden
Andreas, Private Litigation in a Public
Law Sphere, The Yale Journal Of
International Law, Vol. 35, 2009
ix
Cromwell
Curtin, Nollkaemper
Dimsey
Emerson
Friedman
Hartmann, Wendzel
Hays
Cromwell, Emma Guy, A Compendium
of Parliamentary Law for Organizations
(BiblioLife, 2009)
Curtin, D. M., Nollkaemper, P.A.,
Netherlands Yearbook of International
Law (Asser Press, 2008), Vol. 37, 2006
Dimsey, Mariel, The Resolution of
International Investment Disputes:
challenges and solutions, Eleven
International Publishing, 2008
Emerson, Robert W., Business Law
(Barron's Educational Series, 2003)
Friedman, Expropriation in
International Law, London: Stevens
&Sons Ltd., 1953
Hartmann, Frederick and Wendzel,
Robert, Defending America’s Security,
2nd Edition (New York: Brassey’s,
1990)
Hays, Peter, et al., “What Is American
Defense Policy?” (The John Hoppkins
University Press, Baltimor and London,
1997)
x
Hitt
Jordan
Kraakman, Hansmann
Schreuer, The ICSID Convention
Shaw
Hitt, Michael A. R., Ireland, Duane and
Hoskisson, Robert E., Strategic
Management: competitiveness and
globalization: concepts & cases
(Cengage Learning, 2009)
Jordan, Amos, American National
Security: Policy and Process, Fifth
Edition (Baltimore: The Johns Hopkins
University Press, 1999)
Kraakman, Reinier H., Hansmann,
Henry, The Anatomy of Corporate Law:
a comparative and functional approach
(Oxford University Press, 2004)
Schreuer, Chritsoph, The ICSID
Convention: a Commentary (Cambridge
University Press, 2001)
Shaw, M.N., International Law
(Cambridge University Press, 5th
Revised ed., 2003)
xi
MISCELLANEOUS:
Declaration on Rights and Duties of
States
Interpretation of the Umbrella Clause in
Investment Agreements, OECD
Indirect Expropriation, OECD
Protocol to the Convention for the
Protection of Human Rights and
Fundamental Freedoms
Report of the Executive Directors on
ICSID
DFA (2004) Canada Model BIT
France and Uganda BIT (2002)
Draft Declaration on Rights and Duties
of States, G.A. Res. 375 (IV), U.N.
GAOR, 4th Sess. (Dec. 6, 1949)
Interpretation of the Umbrella Clause in
Investment Agreements, OECD, October
2006
Japan-Singapore Economic Partnership
Agreement
Note form US Secretary of State to
Mexican Government, 22th August 1938
OECD, Indirect expropriation and the
right to regulate in international
investment law, 2004/4, 2004
Protocol to the Convention for the
Protection of Human Rights and
Fundamental Freedoms 20 March 1952.
213 U.N.T.S. 262
Report of the Executive Directors on the
Convention on the Settlement of
Investment Disputes Between States and
Nationals of Other States, International
xii
UNIDROIT Principles
UN Resolution on Permanent Sovreignty
World Bank Guidelines
Bank for Reconstruction and
Development, 18th
March, 1965
UNIDROIT Principles of International
Commercial Contracts with Official
Commentary, 1994
United Nations Resolution on Permanent
Sovereignty over Natural Resources,
Resolution 1803 (XVII), 1962
US Model BIT, 2001
World Bank Guidelines on the Treatment
of FDI Washington D.C.31 ILM, 199
xiii
LIST OF LEGAL SOURCES
CASES:
Amoco case
American Manufacturing v. Zaire
Goetz v. Burundi
Petar Pazmany University
Autopista v. Veneuela
Amoco International Finance Company
v Iran, Award No. 310-56-3 (14 July
1987), 15 Iran – U.S.C.T.R.189
American Manufacturing & Trading Inc.
v Zaire, Award, 21 February 1997, 36
ILM 1531, 1545
Antoine Goetz et Consorts v. Republique
du Burundi, ICSID Case No. ARB/95/3,
Award, February 10, 1999; 15 ICSID
Review – Foreign Investment Law
journal (2000) 457
Appeal from Judgement of the HungaroCzechoslovakian
mixed arbitral
Tribunal (the Petar Pazmany
University), Ser AB, No.58, 1933
Autopista Concesionada de Venezuela,
C.A. v. Bolivarian Republic of
Venezuela, ICSID Case No. ARB/00/5,
Award, September 23, 2003
xiv
Azurix v. Argentina
Broniowski v. Poland
ELSI case
Certain German Interest
Case of Nicaragua v. USA
Oil Platforms
Arbitral Award of 31 July 1989
Azurix Corp. v. The Argentine Republic,
ICSID Case No. ARB/01/12, Award of
14 July 2006
Broniowski v. Poland, 2004-V Eur. Ct.
H.R. 1
Case Concerning Elettronica Sicula
S.P.A. (ELSI) (United States of America
v. Italy), Judgement, I.C.J. Rep. 1989,
p.15
Case concerning Certain German
interest in Polish Upper Silesia, PCIS,
The Merits, vol. A, No. 7, Maz 25th,
1926
Case concerning Military and
Paramilitary Activities in and against
Nicaragua, (Nicaragua v. United States
of America), Merits, Judgment of 27
June 1986, ICJ Reports 1984, p.14
Case concerning Oil Platforms (Islamic
Republic of Iran v. United States of
America), Judgment on Merits, 6
November 2003
Case concerning the Arbitral Award of
31 July 1989 (Guinea-Bissau v.
xv
Gabcikovo-Nagymaros case
Gulf of Maine case
Lithgow v UK
CSOB case
CMS Gas award
Asylum case
Senegal), Judgment, I.C.J. Reports 1991,
p. 53
Case Concerning the GabcikovoNagymaros
Project (Hungary v.
Slovakia), Judgment, I.C.J. Reports
1997, p.7
Case of Delimitation of the Maritime
Boundary in the Gulf of Maine Area
(Canada v USA), Judgment, I.C.J.
Reports 1984, p. 266
Case of Lithgow and Others v. United
Kingdom (Application no. 9006/80;
9262/81; 9263/81; 9265/81; 9266/81;
9313/81; 9405/81), Judgment, 8 July,
1986
Ceskoslovenska Obchodni Banka, A.S. v.
The Slovak Republic, ICSID Case No.
ARB/97/4, Decision on Objections to
Jurisdiction of May 24, 1999
CMS Gas Transmission Company v. The
Argentine Republic, ICSID Case No.
ARB/01/8, Award of 12 May 2005
Colombian-Peruvian Asylum Case
(Colombo - Peru), Judgment of
xvi
Vivendi II
Santa Elena award
Continental Casualty award
Difference Relating to Immunity
Duke v. Ecuador
East v Maurer
November 20 1950: I.C.J. Reports 1950,
p. 266
Compan˜ı´a de Aquas del Aconquija,
S.A. v. Argentine Republic, Decision on
Annulment, ICSID No. ARB/97/3, 41
ILM at 1154, (2002) (ad hoc comm. July
3, 2002)
Companio del Desarrollo de Santa
Elena v. The Republic of Costa Rica, 39
ILM, 2000
Continental Casualty v. Argentine
Republic, ICSID Case No. ARB/03/09,
Award of 5 September 2008
Difference Relating to Immunity from
Legal Process of a Special Rapporteur
of the Commission on Human Rights,
Advisory Opinion, I.C.J. Reports 1999,
p. 87
Duke Energy Electroquil Partners &
Electroquil S.A. v. Republic of Ecuador,
ICSID Case No. ARB/04/19, Award of
18 August 2008
East v Maurer, Court of Appeal of
England and Wales, 1991, 1 WLR 461
xvii
Jahn v. Germany
EDF v. Romania
El Paso case
Maffezini award
Enron award
Ethyl v. Cana
Finnish Shipowners
Glamis Gold award
ECHR, Jahn and others v. Germany,
June 30, 2005
EDF (Services) Limited v. Romania,
ICSID Case No. ARB/05/13, Award,
2009
El Paso Energy International Company
v. The Argentine Republic, ICSID Case
No. ARB/03/15, Decision on
Jurisdiction
Emilio Agustin Maffezini v. The
Kingdom of Spain, Decision on
Jurisdiction, ICSID case No. ARB/97/7
Enron Corporation, Ponderosa Assets
L.P. v. Argentine Republic, ICSID Case
No. ARB/01/3, Award of May 22, 2007
Ethyl Corp. v. Canada, UNCITRAL,
June 24 1998, reprinted in 38 ILM 708
(1999)
Finnish Shipowners (Great
Britain/Finland), UNRIIA, vol. III (Sales
No. 1949.V.2)
Glamis Gold, Ltd. v. United States of
America, ICSID Case, Award of June 8,
2009 (hereinafter: Glamis Gold award)
xviii
Thunderbird v. Mexico
Jan de Nul case
Joy Mining case
LG&E case
Metalclad v. Mexico
Methanex v. USA
International Thunderbird Gaming
Corporation v. United Mexican States,
NAFTA Arbitration (UNCITRAL
Rules), Award of 26 January 2006
(hereinafter: Thunderbird v. Mexico)
Jan de Nul N.V. & Dredging
International N.V. v. Arab Republic of
Egypt, ICSID Case No. ARB/04/13,
Award, November 6, 2008 (hereinafter:)
Joy Mining Machinery Limited v. The
Arab Republic of Egypt, ICSID Case
No. ARB/03/11, Decision on
Jurisdiction (hereinafter: v. Egypt)
LG&E Energy Corp. et al. v. Argentine
Republic, ICSID Case No. ARB/02/1,
Decision on Liability, 3 October 2006
Metalclad Corporation v. The United
Mexican States, ICSID Case No.
ARB(AF)/97/1, Award, August 30, 2000
Methanex Corporation v. United States
of America, Arbitration under Chapter
11 of the NAFTA and the UNCITRAL
Arbitration Rules, Final Award of the
Tribunal, August 7, 2005
xix
North American Dredging case
Norwegian Shipowners' Claims
Occidental v. Ecuador
Pan American Energy v. Argenitna
Pantechniki v. Albania
Phelps Dodge case
North American Dredging Company of
Texas (U.S.A.) v. United Mexican States,
31 March 1926, RIIA Volume IV
Norwegian Shipowners’ Claims
(Norway v. USA), Permanent Court of
Arbitration, Award, 13th October 1922
Occidental Exploration and Production
Company v. The Republic of Ecuador,
Final Award, London Court of
International Arbitration Administered
Case No. UN 3467, Arbitral tribunal,
July 1, 2004 at
http://ita.law.uvic.ca/documents/Oxy-
EcuadorFinalAward_001.pdf
Pan American Energy LLC, and BP
Argentina Exploration Company
Claimants v. The Argentine Republic,
ICSID Case No. ARB/04/8, Decision on
Preliminary Objections
Pantechniki S.A. Contractors &
Engineers (Greece) v. The Republic of
Albania, ICSID Case No. ARB/07/2,
Award of 30th
July 2009
Phelps Dodge International Corp. V.
The Islamic Republic of Iran, Iran-U.S.
Claims Tribunal, 10 Iran-USCTR 121
xx
Pope&Talbot case
PSEG v. Turkey case
German Settlers in Poland case
Lauder case
S.D. Myers award
Salini v. Morocco
Salini v. Jordan
Pope & Talbot Inc. v. Canada, NAFTA
Arbitration Tribunal, Interim Award
(June 26, 2000)
PSEG Global Inc. and Konya Ilgin
Elektrik Üretim ve Ticaret Limited
Şirketi v. Republic of Turkey (ICSID
Case No. ARB/02/5), Award, January
19, 2007 (hereinafter:)
Questions Relating to Settlers of German
Origin in Poland, Advisory Opinion
No.6, PCIJ, Ser.B., No. 6, 1925
Ronald S. Lauder v. The Czech Republic,
UNCITRAL, Final Award, 3 September,
2001, 9 ICSID Reports 66
S.D. Myers, Inc. v. Canada,
UNCITRAL, First Partial Award 13
November 2000, NAFTA Arbitration
Tribunal
Salini Costruttori S.p.A. and Italstrade
S.p.A. v. The Kingdom of Morocco,
ICSID Case No. ARB/00/4), Decision
on Jurisdiction, July 23, 2001
Salini Costruttori S.p.A. and Italstrade
S.p.A. v. Kingdom of Morocco (ICSID
xxi
Saluka case
Salvador Commercial Company
Sempra award
SGS v. Pakistan
SGS v. Philippines
Siemens award
Tecmed v. Mexico
Case No. ARV/00/4), Decision on
Jurisdiction of 23 July 2001
Saluka Investments B.V. v. Czech
Republic, UNCITRAL, Partial Award of
17th
May 2006
Salvador Commercial Company,
UNRIAA, vol. XV (Sales No. 66.V.3)
Sempra v Argentina, ICSID Case No.
ARB/02/16, Award of September 28,
2007
SGS Société Générale de Surveillance
S.A. v. Islamic Republic of Pakistan,
ICSID CASE No. ARB/01/13, Decision
on Jurisdiction
SGS Société Générale de Surveillance
S.A. v. Republic of the Philippines,
ICSID Case No ARB/02/6, Decision on
Jurisdiction
Siemens A. G. v. Argentine Republic,
ICSID Case No. ARB/02/8, Award of
February 6, 2007
Tecnicas Medioambientales Tecmed S.
A. v. The United Mexican States, ICSID
xxii
Telenor Mobile case
Chorzow Factory case
Mox Plant case
TOTO case
Tradex v. Albania
Waguih v. Egypt
Case No. ARB(AF)/00/2, Award, May
29, 2003
Telenor Mobile Communications S.A. v.
The Republic of Hungary, ICSID Case
No. ARB/04/15, Award, September 13,
2006
The Factory at Chorzow Case, P.C.I.J.
Judgement, 1928, Ser.A. No.17
The MOX Plant Case (Ireland v. United
Kingdom), Order No. 3, (2003) 42 ILM
1187
TOTO Contruzioni Generali S.P.A. v.
The Republic of Lebanon, ICSID Case
No. ARB/07112, Decision on
Jurisdiction
Tradex Hellas S.A. v. Republic of
Albania, Decision on Jurisdiction,
December 24, 1996, ICSID case No.
ARB/94/2
Waguih Elie George Siag and Clorinda
Vecchi v. The Arab Republic of Egypt,
ICSID Case No.ARB/05/15
xxiii
Waste management award
Wena hotels award
Woodruff Case
Waste Management Inc. v. United
Mexican States, ICSID Case No. Arb
(AF)/00/3, Award, 2004
Wena Hotels Limited v. Arab Republic of
Egypt, ICSID Case No. ARB/98/4,
Award, December 8, 2000 (hereinafter:
Wena hotes v. Egypt)
Woodruff Case, 1903-1905, RIIA
Volume IX
xxiv
TREATIES:
ICSID Convention
Vienna Convention
Convention on the Settlement of
Investment Disputes between States and
Nationals of Other States, ICSID, 575
UNTS 159
Vienna Convention on the Law of
Treaties, 1969, UNTS vol. 1155, p. 331
xxv
UNITED NATIONS
PUBLICATIONS:
Dispute Settlement, UNCTAD
BIT 95-06, UNCTAD
Articles on State Responsibility with
commentaries
Selected Recent Developments in IIA
Taking of Property, UNCTAD
Investor-State Dispute Settlement and
Impact on Investment Rulemaking,
United Nations Conference on Trade and
Development,
UNCTAD/ITE/IIA/2007/3, New York
and Geneva, 2003
Bilateral Investment Treaties 1995-2006,
United Nations Conference on Trade and
Development,
UNCTAD/ITE/IIT/2006/5, Geneva 2007
Draft Articles on Responsibility of
States for Internationally Wrongful Acts
with commentaries, Yearbook of the
International Law Commission, 2001,
vol. II, Part Two
Selected Recent Developments in IIA
Arbitration and Human Rights, United
Nations Conference on Trade and
Development,
UNCTAD/WEB/DIAE/IA/2009/7,
Geneva 2009
Taking of Property, UNCTAD,
UNCTAD/ITE/IIT/15, New York and
Geneva, 2000
xxvi
The Protection of National Security in
IIAs
The Protection of National Security in
IIAs, UNCTAD, Series on International
Investment Policies for Development,
2009
1
STATEMENT OF FACTS
1. In 1996, the Republic of Beristan and the United Ferderation of Opulentia, two
countries situated in the region of Euphonia, concluded a Billeteral Investment
Treaty (BIT) in order to improve economic co-operation. The same year Beristan
passed a Telecommunications Act in view of privatization of telecommunications
services. In 2007, Beristan established a telecommunications services provider,
Beritech S.A., as a partially state-owned company. Half a year later, Beritech and
Televative Inc., a privately held multinational enterprise incorporated in
Opulentia, signed a Joint Venture Agreement (JVA) by which they established the
joint venture company, Sat-Connect S.A., under Beristian law. Beristan co-signed
the JVA as guarantor of Beritech’s obligations.
2. Ownership structure of Sat-Connect is comprised of a 60% Beritech share and a
40% share of Televative. Sat-Connect’s board of directors consists of 9 directors,
5 of which are appointed by Beritech, and 4 by Televative. A quorum is obtained
with the presence of 6 members. The purpose of Sat-Connect’s establishment is to
develop and deploy a satellite network and accompanying terrestrial systems that
will provide connectivity throughout the region and will be used by the Beristian
army.
3. In 2009, a Beristian government official raised national security concerns that the
Sat-Connect project had been compromised due to leaks by personnel seconded to
the project by Televative. In an article in an independent newspaper, he revealed
that critical information from the Sat-Connect project, confidential by virtue of
Clause 4 of the JVA, had been passed to the Government of Opulentia.
4. These allegations were discussed, on August 21, 2009, at the Sat-Connect board
of directors meeting. Subsequently, on August 27, 2009, the majority of SatConnect’s
board of directors supported the decision of Beritech to compel a
buyout of Televative’s interest in the Sat-Connect project through Clause 8 of the
JVA, with six board members present at the meeting and one of them leaving
before its end.
2
5. Beritech then served notice on Televative on August 28, requiring the latter to
hand over possession of all Sat-Connect site, facilities and equipment within 14
days and remove all seconded personnel from the project, who subsequently left
Beristan. On September 11, 2009, the Civil Works Force secured all facilities of
the Sat-Connect project.
6. The same day, September 11, 2009, Beritech served notice of their desire to settle
amicably, and failing that, to proceed with arbitration, pursuant to provisions on
dispute settlement from JV Agreement. The following day, Televative submitted a
written notice to Beristan of a dispute under the Beristan-Opulentia BIT, in which
it notified Beristan of their desire to settle amicably, and failing that, to proceed
with arbitration under the BIT.
7. On October 19, Beritech filed a request for arbitration against Televative under
Clause 17 of the JVA. in it sought declaratory relief that it properly exercised its
rights under the JVA and damages against Televative. Beritech paid US$47
million, Televative’s total monetary investment in the Sat-Connect project, into an
escrow account, which has been made available for Televative. Televative refused
to accept this payment and to respond to Beritech’s request. On October 28, 2009,
Televative requested arbitration under the ICSID Convention and notified
Beristan. On November 1, 2009, the ICSID Secretary General registered the
dispute brought. Both Beristan and Opulentia have ratified the ICSID Convention
and Vienna Convention on the Law of Treaties.
3
ARGUMENTS
I TELEVATIVE’S CLAIMS SHOULD BE DISMISSED IN THE PRELIMINARY
PHASE
A. THE ICSID TRIBUNAL LACKS JURISDUCTION TO ADJUDICATE
TELEVATIVE’S CLAIMS
8. When resorting to arbitration as a dispute settlement mechanism, parties entrust an
arbitration tribunal with the task of settling a dispute in accordance with the terms
agreed by the parties, who define in the agreement the jurisdiction of the tribunal
and determine its limits.1
9. In order for an ICSID Tribunal to have jurisdiction over a claim, several
cumulative conditions must be satisfied: a) the dispute needs to be of a legal
nature, b) the dispute needs to arise directly out of an investment, c) the non-State
party to the dispute needs to be a national of another Contracting State and d)
consent to submit the dispute to ICSID needs to be granted by both parties in
writing.2
It shall be proven infra by Respondent that two of these cumulative
conditions have not been fulfilled - namely that there is no legal dispute between
the parties, nor is there consent by the parties to resolve the dispute before ICSID.
Therefore, it is clear that the Tribunal does not have jurisdiction to hear
Televative’s claims.
1
Gulf of Maine case, para. 23; Arbitral Award of 31 July , para 49.
2
ICSID Convention, Art. 25 para. 1; Garcia-Bolivar, Special Report on ICSID
Jurisdiction, 2008, p. 1.
4
1) THERE IS NO DISPUTE BETWEEN TELEVATIVE AND BERISTAN THE
REAL DISPUTE EXISTS BETWEEN TWO PRIVATE ENTITIES,
TELEVATIVE INC. AND BERITECH S.A.
10. The jurisdiction of ICSID over a dispute requires existence of a legal dispute...
between a State Party to the ICSID Convention and a national of another State
Party to the Convention.3
Therefore, the Centre lacks jurisdiction to arbitrate
disputes between two private entities.4
As the present dispute pertains to the acts
carried out by Beritech S.A. and not by Beristan, and since those act are not
attributable to Beristan, it is evident that the requirements of Article 25 of the
Convention have not been met.
a) BERITECSH’S ACTS ARE NOT ATTRIBUTABLE TO BERISTAN
i) BERITECH IS NOT AN ORGAN OF THE BERISTIAN STATE
11. The conduct of any State organ shall be considered an act of that State under
international law.5
To determine whether an entity is a State organ, one must first
look to domestic law,6
as an organ includes any person or entity which has that
status in accordance with the internal law of the State7
. Since, Beritech does not
have the status of an organ of the Beristian state under Beristian law and since it
3
ICSID Convention, Art. 25 para.1; Schreuer, The Dynamic Evolution of the ICSID
System, p.4.
4
,Maffezini award, para. 74.
5
Articles on State Responsibility, Art.4; Salvador Commercial Company case, p. 477
(1902); Finnish Shipowners case, p. 1501; Difference Relating to Immunity , para. 62.
6
Jan de Nul v. Egypt, para 160.
7
Articles on State Responsibility, Art. 4.1.
5
possesses separate legal personality, it is evident that its acts cannot be attributed
to Beristan on this behalf.
ii) BERITECH IS NOT A PUBLIC ENTITY AUTHORIZED TO
EXERCISE GOVERNMENTAL AUTHORITY
12. Acts of entities which are not state organs shall be attributable to the state only if
those entities (i) are empowered to exercise elements of governmental authority
and (ii) if they performed such authority in that particular case.8
Regarding the
first part of the definition, the fact that an entity is partially state-owned is not
decisive for the attribution of its acts to the state; what is of paramount importance
is that the subject is empowered to exercise elements of governmental authority.9
There is no evidence whatsoever to suggest that Beritech was empowered to
exercise such authority.
13. When determining whether the second condition is fulfilled, the functional test set
forth by the tribunals in the Maffezini10
and CSOB11
awards should be applied.12
The functional test examines the nature and character of the entity’s acts, i.e.
whether they are commercial or governmental by nature.13
Beritech’s acts (the
exercise of its rights under Clause 8 of the JVA, in particular, its decision to
buyout Televative’s interests in the Sat-Connect project) are those of performance
of a commercial contract, which by nature do not fall within the scope of
governmental authority.14
Therefore it is evident that neither of the cumulative
8
Ibid, Art. 5; Jan de Nul v. Egypt, para 163.
9
Jan de Nul v. Egypt, para 165; CSOB case, paras 18-20; Articles on State Responsibility
with commentaries, page 43.
10
Maffezini award, para 52.
11
CSOB case, paras. 18 and 20.
12
Jan de Nul v. Egypt, para 168.
13
Maffezini award, para. 52.
14
Jan de Nul v. Egypt, para. 171.
6
conditions is fulfilled and that, for this reason, Beritech’s acts cannot be attributed
to Beristan on this basis.
iii) BERITECH DID NOT ACT ON THE INSTRUCTION NOR
UNDER THE CONTROL OF BERISTAN
14. The conduct of a person shall be considered an act of a State under international
law if the person is in fact acting on the instructions of, or under the direction or
control of that State in carrying out the conduct.15
The jurisprudence on this
matter is very demanding, as the link between the person and the State has to
satisfy the “effective control” test.16
Since there is no record of any kind of
instructions or directions having been given to Beritech, it is evident that Beritech
was not state controlled. This is a crucial distinction from cases, such as the
Maffezini award,17
where it was found that a private entity’s acts were attributable
to the state, since they were carried out under the directions of the government.
15. The fact that the Minister of Telecommunications of Beristan is a member of the
board of Beritech18
has no barring on the issue, since the appointment of a board
member is a common exercise of prerogatives by a major shareholder.19
iv) CLAIMANT ITSELF CONSIDERED BERITECH A SEPARATE
ENTITY NOT ACTING ON BEHALF OF BERISTAN
16. Finally, the fact that it was required of the Republic of Beristan to co-sign the
JVA as guarantor20
clearly illustrates that Claimant itself considered Beritech a
15
Articles on State Responsibility, Art 8.
16
Jan de Nul v. Egypt, para. 173; Case of Nicaragua v. USA, paras. 113-115.
17
Maffezini award, para. 52.
18
Clarifications 1, Question 135.
19
Hitt, p. 284; Emerson, p. 360; Kraakman, Hansmann, p. 34.
7
distinct entity from Respondent. If Televative had considered Beritech a state
entity of Beristan exercising governmental functions it would not have been
necessary for Beristan to co-sign the Agreement since it would have been
responsible for Beritech’s acts ipso jure.
17. Therefore, it must be concluded that Beritech’s actions are not attributable to
Beristan and that therefore the true party to the dispute is Beritech S.A., a private
company, which renders the Tribunal void of jurisdiction to adjudicate
Televative’s claims.
b) BERISTAN’S SIGNING OF THE JVA AS GUARANTOR DOES NOT
MAKE IT RESPONSIBLE FOR BERITECH’S ACTIONS
18. The Government of Beristan co-signed the JVA as guarantor of Beritech’s
obligations21
and would assume responsibility for the obligations of Beritech only
upon Beritech’s default.22
Hence, in order to invoke the responsibility of Beristan
as guarantor, Beritech’s default has to be established first. As that is not the case,
it is clear that Beristan’s obligations as guarantor of the JVA cannot be invoked to
establish Beristan’s responsibility for Beritech’s acts. However, even if the
Tribunal finds that Respondent’s obligations as guarantor were activated due to
Beritech’s (supposed) default, which Respondent strongly opposes, that would not
have any effect on the nature of those obligations, which would remain
commercial in character, and therefore, could not trigger the application of the
BIT.
20
FDI Moot Problem 2010, Uncontested facts, para. 3.
21
FDI Moot Problem 2010, Uncontested facts, para. 3.
22
Clarifications 1, Question 152.
8
2) ALTERNATIVELY, THERE IS NO CONSENT BY THE PARTIES TO
SUBMIT THE DISPUTE TO ICSID
19. Reciprocal and mutual23
consent of the parties is the cornerstone of the
jurisdiction of the Centre.24
Hence, the absence of consent by one of the parties
shall render the Centre void of jurisdiction.
20. It is Respondent’s claim that Beristan has withdrawn its consent. Once the parties
to a dispute give their consent to submit the dispute to the Centre, no party may
withdraw its consent unilaterally.25
However, the irrevocability of consent
operates only after the consent has been perfected,26
i.e. upon the acceptance of
the offer to submit the dispute to ICSID.27
Consequently, consent must be
perfected through an acceptance by the investor before the date of the
denunciation in order to preserve rights and obligations under the ICSID
Convention.28
The offer to submit disputes between Beristan and the nationals of
Opulentia was made by Beristan in the BIT in 1996.29
However, Claimant made
no activity regarding the offer until it instituted the present proceeding on October
28, 2009.30
21. Therefore, Beristan had rightfully withdrawn its consent with respect to
Televative through Clause 17 of the JVA, in which it is stated that disputes
between the parties of that Agreement would be solved only by arbitration under
23
ICSID Convention, Preamble, para 6; Schreuer, Denunciation of the ICSID Convention
and Consent to Arbitration, p.357.
24
Report of the Executive Directors on ICSID, para. 23.
25
ICSID Convention, Art. 25.1.
26
Dispute Settlement, UNCTAD, p.37; Schreuer, Denunciation of the ICSID Convention
and Consent to Arbitration, p. 363.
27
Schreuer, Denunciation of the ICSID Convention and Consent to Arbitration, p.358.
28
Ibid, p. 361; UNCTAD, Dispute Settlement, p. 37.
29
FDI Moot Problem 2010, Annex 1, Art. 11.
30
FDI Moot Problem 2010, Uncontested facts, para. 14.
9
the Arbitration Act of Beristan.31
It is evident that such formulation excludes all
other dispute resolution mechanisms, including ICSID, and represents an obvious
withdrawal of consent by Respondent.
3) CLAIMANT’S SUBMISSIONS ARE CONTRACTUAL IN NATURE
AND TELEVATIVE HAS IMPROPERLY REFORMULATED THEM
AS CLAIMS ARISING UNDER THE BERISTAN-OPULENTIA BIT
a) THE BIT DISPUTE SETTLEMENT CLAUSE DOES NOT CONFER
JURISDICTION TO THE CENTRE REGARDING CONTRACTUAL
CLAIMS
22. Article 11 para. 1 of the Opulentia-Beristan BIT states that:
“For the purpose of resolving disputes... that concern an
obligation of the former under this Agreement.”32
It is obvious from the wording that it was the intention of the Parties to establish
the dispute settlement mechanism solely for the breaches of the substantive
provisions of the BIT and not for purely contractual claims.
23. Unlike the Salini v. Morocco33
and Vivendi I annulment 34
awards, the wording of
Art. 11 of the Beristan-Opulentia BIT is not broad enough to encompass contract
based claims, but refers strictly to obligations established by the Treaty itself.
31
FDI Moot Problem 2010, Annex 3, Clause 17.
32
FDI Moot Problem 2010, Annex 1, Art. 11.1.
33
Salini v. Morocco, para. 61.
34
Vivendi II, para. 55.
10
Thus, the Tribunal, much like tribunals in the SGS v. Pakistan35
and Joy Mining v.
Egypt36
cases, lacks jurisdiction.
24. The distinction between contract and treaty claims is well recognized in
investment treaty arbitration37
and is independent from Claimant’s
characterization of the claim. The test of jurisdiction is an objective one 38
and
Claimant may not formulate a claim in a way which is manifestly unsound.39
In
order for the Centre to have jurisdiction over the claim, it must satisfy the
“essential basis test” set out by the ad hoc committee in the Vivendi I annulment
award.40
25. The “essential basis test” provides that the nature of a claim should be determined
accordingly to the fact whether the “essential basis” of a claim is a breach of
contract or of independent standards set out in the treaty.41
The essential basis of
all of Televative’s claims lies solely on one factual and legal foundation –
whether Clause 8 of the JVA was properly invoked or not.
26. The crux of the matter of the whole dispute is whether a single clause in a
commercial contract was adequately executed. It is evident that such a question is
of purely contractual character and has no legal basis in the Opulentia-Beristan
BIT.
27. In any event, it is not enough to assert the existence of a dispute as to fair and
equitable treatment or expropriation;42
Claimant has to make a tenable case to that
35
SGS v. Pakistan, para. 150.
36
Joy Mining v. Egypt, para. 75.
37
Gaillard, p.328; SGS v. Pakistan, para. 148.
38
SGS v. Philippines, para 157.
39
Joy Mining v. Egypt, para. 78; Occidental v. Ecuador, para.80.
40
Vivend II , paras. 98-101.
41
Ibid.
42
SGS v. Philippines, para 157.
11
end.43
Televative’s claims are prima facie unfounded, since Claimant has based
its assertions on an alleged “conspiracy” on behalf of Respondent, without any
solid support for such claims. Additionally, it is obvious that the legal foundation
of these claims lies within the JVA and not the BIT, since the buyout is regulated
by the Agreement, and hence Televative’s claims do not have any basis in the BIT
and subsequently do not fall within the jurisdiction of ICSID.
b) ALTERNATIVELY, THE FORUM SELECTION CLAUSE IN THE
JVA (CLAUSE 17) BARS THE TRIBUNALS JURISDICTION WITH
REGARD TO CLAIMANT’S CONTRACT CLAIMS
28. Article 26 of the ICSID Convention provides that:
’’ Consent of the parties to arbitration under this Convention
shall, unless otherwise stated, be deemed consent to such
arbitration to the exclusion of any other remedy”,44
which confirms, as established in a number of awards,45
the freedom of the
parties to select a forum.46
29. It is a well established rule of international law that a valid forum selection clause
in a contract shall have the effect of excluding the Tribunal’s jurisdiction
regarding purely contractual claims.47
Where the essential basis of a claim
43
Gaillard, p.320; Telenor Mobile case, para 68.
44
ICSID Convention, Art. 26.
45
Vivendi II, paras. 98-100; SGS v. Pakistan, paras. 161-2.
46
Curtin, Nollkaemper, p. 34.
47
Vivendi II, para. 98; SGS v. Pakistan, paras. 161-2; Joy Mining v. Egypt, paras 89-99;
SGS v. Philippines, para 150; North American Dredging case, p. 26-35; Woodruff Case,
p. 213-223; Salini v. Jordan, paras. 97-101.
12
brought before an international tribunal is a breach of a contract, the tribunal will
give effect to any valid choice of forum clause in the contract.48
30. The JVA regulates dispute resolution between Televative Inc. and Beritech (and
subsequently Beristan, which co-signed the Agreement as guarantor), whereas the
Opulentia-Beristan BIT regulates the dispute resolution between Beristan and any
investor which is a national of Opulentia, which renders the JVA a lex specialis
with respect to the BIT. Furthermore, since the JVA was concluded more than 10
years after the BIT,49
it is also a lex posterior. Hence, under the universally
recognized principles of law of lex specialis derogat legi generali50
and lex
posterior derogat legi priori,51
the provisions of the JVA and not the BIT are to
be applied with respect to dispute resolution between Beristan and Televative Inc.
31. The existence of the dispute settlement mechanism of the BIT and its provisions
was well known to the parties at the time of the conclusion of the JVA and they
were fully aware of the effects Clause 17 of the Agreement would have on the
jurisdiction of the Centre. Therefore, Televative is bound, through the principle of
pacta sunt servanda,52
by the dispute resolution mechanism provided for by the
JVA.
32. The intent of the parties to exclude the Jurisdiction of ICSID is evident from the
wording of Clause 17 of the JVA which provides that in the event of a dispute
arising out of or referring to the JVA, “the dispute shall then be resolved only by
arbitration under the 1959 Arbitration Act of Beristan”.53
48
Vivendi II , para. 98; Joy Mining v. Egypt, para. 90; Shany, Contract Claims vs. Treaty
Claims, p. 839; Schreuer, Vivendi I, p. 315.
49
FDI Moot Problem 2010, Annex 1 and Annex 2, para. 3.
50
Shaw, page 116; Boczek, p. 27.
51
Boczek, page 27.
52
UNIDROIT Principles, Art. 1.3; Brownlie, p.620; Vienna Convention, Preamble and
Art. 26.
53
FDI Moot Problem 2010, Annex 3, Clause 17.
13
33. Moreover, the intent of the parties to resolve the dispute only under the
Arbitration Act of Beristan is made even more obvious by the fact that each party
waived any objections which it may have to such proceedings and irrevocably
submitted to the jurisdiction of the tribunal constituted under such rules.54
34. Respondent would hereby like to emphasize that Televative has in no way, by
renouncing its rights under Art. 11 of the BIT, exceeded its powers. Televative
did not relinquish the rights of other nationals of Opulentia or those of the State
itself arising out of the BIT; Televative only renounced its own right to activate
the mechanism set out in the BIT, which it is free to do under international law.55
c) CLAUSE 10 OF THE OPULENTIA-BERISTAN BIT DOES NOT
HAVE THE EFFECT OF MAKING EVERY BREACH OF
CONTRACT IPSO JURE A BREACH OF THE BIT
35. A mere breach of contractual obligation does not by itself constitute a breach of
treaty.56
Although an umbrella clause may have the effect of elevating a breach of
contract to the level of a treaty violation,57
the precise impact of the clause
depends on the characteristics of each particular case; mainly, on the precise (i)
wording of the clause,58
its (ii) placement within the treaty59
and the (iii) intent of
the parties.60
54
FDI Moot Problem 2010, Annex 3, Clause 17.
55
North American Dredging case, p.34.
56
TOTO case, para. 103; Bishop, Crawford, Reisman, p.1008; Schreuer, Traveling the
BIT Route,p. 250.
57
Bishop, Crawford and Reisman, p. 1008; SGS v. Philippines, para. 128.
58
Interpretation of the Umbrella Clause in Investment Agreements, OECD, October
2006, p. 22;: Dimsey, p.61; SGS v. Pakistan, para. 171.
59
SGS v. Pakistan, paras. 169-170; Joy Mining v. Egypt, para. 81; Schreuer, Traveling
the BIT Route, p. 253.
60
SGS v. Pakistan, para. 167.
14
36. Firstly, due to the diversity in which umbrella clauses are formulated in different
investment agreements, as the arbitral jurisprudence and doctrine illustrate, the
wording of each clause is crucial for its scope and effect.61
Art. 10 of the BeristanOpulentia
BIT states that:
“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.”
37. The wording of Art. 10 is of a very general nature and thus requires a narrow
interpretation.62
This formulation is identical to that in the SGS v. Pakistan case,
and very similar to that in the Salini v. Jordan case, in both of which the
Tribunals found that the “umbrella clause” did not have the “elevation” effect.63
Moreover, tribunals have rejected such effects of the “umbrella clause” even in
cases where the wording of the clause was much more specific and explicit than it
is in the Opulentia-Beristan BIT.64
38. Secondly, Article 10 of the BIT is placed apart from the substantive provisions of
the BIT, at the end of it. The separation of Art. 10 from the other substantive
provisions of the BIT is indicative of the fact that Art. 10 was not meant to project
a substantive obligation; had the parties intended for it do to so, they would have
logically placed it amongst the substantive provisions.65
Even tribunals which
have adopted a more broad interpretation of the “umbrella clause” have stressed
61
Dimsey, p. 61; Interpretation of the Umbrella Clause in Investment Agreements,
OECD, p. 22.
62
Interpretation of the Umbrella Clause in Investment Agreements, OECD, p. 22.
63
SGS v. Pakistan, para. 173; Salini v. Jordan, para. 130.
64
Pan American Energy v. Argentina, para. 115; El Paso case, para. 82.
65
SGS v. Pakistan, para. 170.
15
the significance of the placement of such a clause in the BIT,66
and so has the
legal doctrine.67
39. Thirdly, when interpreting an “umbrella clause”, great importance is given to the
intent of the parties. Since the “umbrella clause” is an exception from the general
rule of international law (which states that the breach of contract is not ipso jure a
breach of treaty) it should be interpreted restrictively,68
due to the far reaching
consequences the clause could have.69
Therefore, clear and convincing evidence
that it was the shared intent of the parties that the “umbrella clause” will have an
“elevating” effect is needed.70
In the present case, not only is there an absence of
such evidence, there is evidence to the contrary. Specifically, the dispute
resolution clause of the Opulentia-Beristan BIT states that the dispute resolution
mechanism of the BIT will only be open to disputes regarding “obligations under
this agreement”,71
which clearly demonstrates that it was the intent of the parties
only to allow breaches of the BIT to be brought before this tribunal.
40. Therefore, since none of the elements relevant for the interpretation of the
“umbrella clause” support the notion that Art. 10 of the BIT makes breaches of
the JVA ipso jure breaches of the BIT it must be concluded that Art. 10 of the
BIT does not have the effect of elevating mere breaches of contract to the status
of breaches of the BIT.
d) THE EXCLUSSIVE FORUM SELECTION CLAUSE EXCLUDES
THE TRIBUNAL’S JURISDICTION EVEN FOR TREATY BASED
CLAIMS
66
SGS v. Philippines, para, 124.
67
Schreuer, Traveling the BIT Route, p. 253.
68
SGS v. Pakistan, para. 167.
69
Ibid.
70
Ibid.
71
FDI Moot Problem 2010, Annex 1, Art. 11, para. 1.
16
41. Even if the Tribunal should find that Televative’s claims are treaty based, or that
they are given such an effect by virtue of Art. 10 of the BIT, the Tribunal still
lacks jurisdiction over those claims, since the exclusive forum selection clause in
the JVA is broad enough to encompass treaty based claims as well. The parties in
an investment agreement can, inter partes, decide not to submit treaty based
claims stemming from the contract to ICSID, so long as there is a clear intent to
that end on the behalf of the parties in question.72
42. It is clear that a “dispute arising out of or relating to the JVA” 73
includes also a
dispute encompassing treaty claims which pertain to the BIT, if its origins lie in
the Agreement, as is the case in the present dispute. Therefore, it was the intent of
the parties not only to exclude the jurisdiction of ICSID for contract based claims,
but for treaty based claims as well. Consequently, the present dispute is subject to
the exclusive jurisdiction of the tribunal established under the JVA, regardless of
the fact whether it includes treaty based claims or not.
e) EVEN IF THE TRIBUNAL FINDS THAT IT POSSESSES
JURISDICTION OVER ALL OR SOME OF CLAIMANT’S CLAIMS,
IT SHOULD STILL STAY THE PROCEEDINGS
43. Should the Tribunal decide that it does possess jurisdiction over Claimant’s
claims, the Tribunal should, as was done in the SGS v. Philippines case and the
MOX Plant case,74
stay the proceedings, due to the fact that the Tribunal’s
decision is subject to “the factual predicate of a determination”75
by the Tribunal
constituted in Beristal of whether the buyout clause in the JVA was properly
invoked.
72
Vivendi II, para. 76.
73
FDI Moot Problem 2010, Annex 3, Clause 17.
74
The MOX Plant Case, p. 1199 .
75
SGS v. Philippines, para. 174.
17
44. This question is of crucial importance to the issues put forward by Claimant, since
it is evident that there can be no breaches of the BIT if the buyout clause was
properly invoked. As the question of the lawfulness of those actions is a matter of
the exclusive jurisdiction of the tribunal in Beristal, and since that tribunal has
already been properly constituted76
with both parties having waived their
objections to those proceedings,77
the Tribunal in the present case should, by
ivoking Art. 44 of the Convention78
stay the proceedings until this “first order”
question is resolved by the tribunal in Beristal.
45. Furthermore, there is no room for doubt as to the competence and impartiality of
the Beristal tribunal, since the proceedings will be conducted under the
Arbitration Act of Beristan, which is in conformity with UNCITRAL Model Law
on International Commercial Arbitration.79
C. TELEVATIVE’S CLAIMS ARE INADMISSABLE
1) CLAIMANT FAILED TO FULFILL THE NECESSARY
PRECONDITIONS FOR ACTIVATING THE DISPUTE SETTLEMENT
MECHANISM
46. Even if the Tribunal should find that it does have jurisdiction under the BIT, the
claims by Televative Inc. are inadmissible, since there was no attempt by
Claimant to settle the dispute amicably, nor has the required period of time for the
amicable settlement lapsed since the crystallization of the dispute.
76
Clarifications 1, Question 118.
77
FDI Moot Problem 2010, Annex 3, Clause 17.
78
ICSID Convention, Art. 44; SGS v. Philippines, para. 173.
79
Clarifications 1, Question 130.
18
a) THERE WAS NO ATTEMPT BY CLAIMANT TO SETTLE THE
DISPUTE AMICABLY
47. It is a common condition for the institution of proceedings before ICSID that
amicable settlement has been attempted through consultations or negotiations.80
The BIT between Opulentia and Beristan contains such a requirement in Article
11.81
Therefore, Televative had an obligation to attempt to settle the dispute
amicably with Respondent before requesting arbitration.
48. This standard clause can be found in numerous BITs.82
It triggers the obligation of
the requesting party to attempt to resolve dispute directly before instituting the
arbitral proceeding. This is a good faith precondition for a valid seizure of arbitral
tribunal,83
as was confirmed by the Tribunals in the Enron v. Argentina84
and
Goetz v. Burundi85
awards. Therefore, the negotiation period represents a
necessary jurisdictional and not simply a procedural requirement and the failure to
comply with the said period results in a determination of lack of jurisdiction.86
49. In the Azurix v. Argentina case, the Tribunal was only satisfied that the good faith
attempt has been fulfilled after repeated attempts by Azurix to settle the dispute
and the denial of the Argentinean government of the existence of the dispute.87
Similarly, in Tradex v. Albania, the Tribunal concluded that five letters sent by
80
Schreuer, The ICSID Convention: a Commentary, p. 239, para.358; Dispute Settlement,
p. 32.
81
FDI Moot Problem 2010, Annex 1, Article 11.1.
82
Benin and Ghana BIT (2001), Art. 9, Chile and Netherlands BIT (1998), Art. 8,
Australia and India BIT (1999), Art. 12, found in: BIT 95-06, UNCTAD, p.106.
83
Schreuer, The ICSID Convention: A Commentary, p. 239, para. 358; BIT 95-06,
UNCTAD, p. 32.
84
Enron award, para. 88.
85
Goetz v. Burundi, paras. 91-92.
86
Enron award, para. 88.
87
Azurix v. Argentina, para. 55.
19
Tradex to the Albanian government were sufficient to satisfy this requirement88
and in AMT v. Zaire serious negotiation attempts were required by the Tribunal.89
50. Therefore, the mere notice by Televative to Respondent90
cannot be construed as
to mean a good faith attempt at resolving the dispute. Moreover, in that notice,
Claimant itself took the position that it would proceed with arbitration only after
the failure of the negotiation process.91
Respondent would like to emphasize that
the negotiations had not even begun, nor had Respondent refused to participate in
them. Therefore, Televative has failed to comply with its obligation under Article
11 of the BIT, which is a necessary precondition for instituting proceeding before
this Tribunal.
51. Moreover, the fact that Beritech has filed a request for arbitration against
Televative under the JVA92
is of no impact on Televative’s failure to fulfill the
amicable settlement precondition. Televative had an obligation to attempt to settle
the dispute amicably with Beristan and not Beritech. Therefore, Beritech’s actions
have no bearing on the negotiations between Televative and Beristan. The fact
that Beristan is the major shareholder in Beritech does not automatically shift the
responsibility for Beritech’s actions,93
nor are Beritech’s acts attributable to
Beristan. Therefore, Televative’s obligation to try and settle the dispute with
Beristan amicably is in no way precluded.
88
Tradex Hellas v. Albania, p. 184.
89
American Manufacturing v Zaire, p. 1547 (1997).
90
Clarifications 1, Question 133.
91
Ibid.
92
FDI Moot Problem 2010, Uncontested facts, para. 13.
93
Maffezini award, para. 84; CSOB case, paras. 17-18.
20
b) ALTERNATIVELY, CLAIMANT HAS VIOLATED THE 6 MONTH
WAITING PERIOD SET OUT IN THE OPULENTIA-BERISTAN BIT
52. Even if the Tribunal decides that Claimant’s actions do constitute an attempt to
resolve the dispute amicably, Respondent submits that Claimant failed to respect
the waiting period of six months established by Article 11 of the OpulentiaBeristan
BIT.94
The BIT clearly states that the negotiation period must last at least
for six months from the date of a written application aimed at settling the dispute,
which in the present case would be the date of Televative’s notice to Beristan on
September 12, 2009.95
However, Televative requested arbitration on October 28th
2009,96
a mere month and a half after its notice to Beristan. Since this period
represents only a quarter of the time necessary, envisaged by the OpulentiaBeristan
BIT, it is obvious that Televative has failed to fulfill the necessary
preconditions under Article 11 of the BIT for instituting the proceedings before an
ICSID Tribunal.
53. Furthermore, Claimant’s disregard for the amicable settlement clause of the
Opulentia-Beristan BIT should not be excused by the Tribunal. In some instances
it is possible for the Tribunal to disregard the violation of the waiting period by
Claimant.97
However, this leniency by the Tribunal can only occur when there are
exceptional circumstances which strongly indicate that the negotiations would
have been futile and without any prospect of an amicable settlement.98
In any
event, in such cases claimants were nonetheless reprimanded for initiating the
proceeding prematurely,99
which is a clear indication that the decision would have
been different, had there not been for the inevitability of the outcome of the
94
FDI Moot Problem 2010, Annex 1, Article 11.1.
95
Clarifications 1, Question 133.
96
FDI Moot Problem 2010, Uncontested facts, para. 14.
97
Ethyl Corp. v. Canada, paras. 74-88; Lauder case, paras. 188-9.
98
Ethyl Corp. v. Canada, para. 77; SGS v. Pakistan, para. 184.
99
Ethyl Corp. v. Canada, paras. 87-8.
21
negotiations.100
Hence, it is clear that that such reasoning is not applicable to the
present dispute, since there are no indications whatsoever that the parties would
not have been able to settle the dispute through peaceful means. The outcome of
the negotiations was not inevitable; it is safe to say that a solution could have
been reached without resorting to arbitration, had Televative made a sincere
attempt to settle the dispute amicably.
54. The fact that the necessary six month period for negotiations has meanwhile
passed does not in any way affect the admissibility of Televative’s claims. The
parties are required to take positive steps to seek a resolution that may avert the
need for arbitration.101
Therefore, it would not suffice if Claimant was simply to
re-file the application; Televative must first complete the entire six month period
reserved for amicable settlement during which it must make a sincere effort at
reaching an amicable solution. Only after such actions for amicable settlement are
exhausted may Televative’s claim be admissible.
CONCLUSION ON JURSIDICTION
55. The Tribunal does not have jurisdiction to hear this dispute because the
jurisdictional requirements of Article 25 (1) of the ICSID Convention are not
fulfilled. Firstly, the dispute is not between a State and a national of another State,
but between two private companies. Secondly, there is no consent by the parties
to confer the dispute to the Centre. The Claimant’s claims are contractual in
nature and, as such, are not covered by the dispute settlement mechanism of the
BIT. Alternatively, the jurisdiction of the Centre regarding contractual claims is
excluded through the exclusive forum selection clause of the JVA. Finally, the
claims put forward by the Claimant are inadmissible, since the six month waiting
period envisaged by the BIT was not observed.
100
Lauder v. Czech Republic , paras. 188-9; Ethyl v. Canada, para. 84.
101
Schreuer, Traveling the BIT Route, p. 238.
22
II RESPONDENT WAS ENTITLED TO RELY ON CLAUSE 8 OF THE JVA
BECAUSE CLAIMANT BREACHED THE CONFIDENTIALITY PROVISION
OF THAT AGREEMENT (CLAUSE 4)
56. Respondent respectfully submits that it shall discuss relevant issues in the merits
without prejudice to its argument regarding admissibility and jurisdiction.
Nothing in this pleading should be understood as acceptance of any of the
allegations raised by Claimant.
A. TELEVATIVE COMMITTED A MATERIAL BREACH OF CONTRACT
1) TELEVATIVE BREACHED CLAUSE 4 OF THE JVA
a) TELEVATIVE UNLAWFULLY REVEALED CONFIDENTIAL
INFORMATION TO THE GOVERNMENT OF OPULENTIA
57. Pursuant to Clause 4 of the JVA, both parties to the Agreement had an obligation
to treat all confidential information, as defined by Clause 4, para. 2 of the
Agreement, relating to the Agreement as confidential102
and to refrain from
disclosing such information to anyone unauthorized under the Agreement without
prior written approval from the Sat-Connect board of directors. 103
58. Televative leaked information pertaining to the Sat-Connect project without such
approval to the Opulentian Government.104
The disclosed information include
encryption technology, systems, intellectual property and technology,105
all
102
FDI Moot Problem 2010, Annex3, Clause 4.1.
103
FDI Moot Problem 2010, Annex3, Clause 4.1.
104
Clarifications 1, Question 178; FDI Moot Problem 2010, Annex 2, para. 8.
105
Clarifications 1, Question 178.
23
classified as confidential through the 2nd
paragraph of Clause 4. Therefore,
Televative’s disclosure of such information represents a breach of Clause 4 of the
JVA.
b) TELEVATIVE’S RESPONSIBILITY FOR THE BREACH OF THE
AGREEMENT IS NOT PRECLUDED
59. Under Clause 4 of the Agreement, the dissemination of Confidential information
is allowed if (i) the information properly comes into the public domain, (ii) it is
required by law, or (iii) is necessary to enforce the terms hereof.106
Respondent
submits that none of the said conditions were fulfilled and that Televative is thus
not relieved of its responsibility for revealing such information.
60. Firstly, it cannot be contended that the information regarding the encryption
technology, systems and intellectual property had properly come into the public
domain. Regardless of the fact that some of the information relating to the project
had become publicly known,107
it cannot be assumed that this was the case with
all information relating to the project, even more so when it comes to confidential
information. The principal reason for classifying certain information is to prevent
such information from becoming disclosed. Therefore, it cannot be assumed that
such information came into public domain without evidence to the contrary.
61. Secondly, it cannot be argued that Televative was required by law to reveal such
information to the Government of Opulentia. The only applicable law to the JVA,
and therefore to Clause 4, is the law of Beristan108
and there is no such
requirement under Beristian law. Therefore, any similar requirement by any other
law, including that of Opulentia, is irrelevant to the lawfulness of Televative’s
actions.
106
FDI Moot Problem 2010, Annex 3, Clause 4.1.
107
Clarifications 1, Question 148.
108
FDI Moot Problem 2010, Annex3, Clause 17.
24
62. Thirdly, an argument that the disclosure of confidential information was necessary
to enforce the terms of the Agreement is inherently unsound, since such
information was made confidential in order to enable the performance of the
contract in the first place.
63. Since it is clear that none of the exceptional conditions under which the
dissemination of information would have been allowed are present, it is evident
that Televative cannot be exonerated for revealing confidential information to the
Government of Opulentia.
2) A BREACH OF CLAUSE 4 IS IPSO JURE A MATERIAL BREACH OF
THE AGREEMENT
64. A material breach of contract exists with a provision which is of essential
importance to the performance to the contract is breached. 109
It is evident that the
observance of Clause 4 of the JVA was of essential value to the parties due to the
fact that they themselves unequivocally determined that any breach of Clause 4
would be a material breach of the Agreement.110
Moreover, Clause 4 is an active
clause, since the conditions set out in contract for its termination (the passage of 3
years after the expiration or termination of the contract)111
have not been fulfilled.
Consequently, Televative’s breach of Clause 4 is ipso jure a material breach of
the JVA.
B. A MATERIAL BREACH BY TELEVATIVE ENTITLES BERITECH TO
INVOKE THE BUYOUT CLAUSE
65. Clause 8 of the JVA provides that:
109
Vienna Convention, Art. 60, para. 3(b); UNIDROIT Principles, Art. 7.3.(1).
110
FDI Moot Problem 2010, Annex3, Clause 4.4.
111
FDI Moot Problem 2010, Annex3, Clause 4.4.
25
“Beritech shall be entitled to purchase all of Televative’s interest in
the Agreement if at any time Televative commits a material breach
of any provision of the Agreement.”112
66. Since Televative materially breached Clause 4 of the Agreement by disclosing
confidential information, Beritech had the right to invoke Clause 8 and buy out all
of Televative’s interest in the Sat-Connect project. That is precisely what Beritech
did113
and it therefore properly exercised its rights under the JVA.114
C. THE VALUE OF TELEVATIVE’S INTEREST IN THE AGREEMENT WAS
PROPERLY DETERMINED
67. Under the universally accepted principle of freedom of contract,115
the parties are
free to determine the price at which one party is to purchase the interest of the
other party in a project. In the present case, Televative and Beritech explicitly
stipulated that in case Televative commits a material breach of contract its interest
in the Sat-Connect project shall be valued as its monetary investment in the
project during the period of time from the execution of the Agreement until the
date of the buyout.116
As agreed by both parties, Televative’s total monetary
investment in the project stands at US $47 million.117
The exact amount has
already been paid by Beritech into an escrow account and made available to
112
FDI Moot Problem 2010, Annex3, Clause 8.
113
FDI Moot Problem 2010, Annex 2, para. 10.
114
Autopista v. Venezuela, para. 234.
115
UNIDROIT Principles, Art. 1.1.
116
FDI Moot Problem 2010, Annex3, Clause 8.
117
FDI Moot Problem 2010, Annex 2, para 12.
26
Televative.118
Therefore, it is evident that Beritech has properly determined
Claimant’s interest in the Agreement and has already fulfilled its obligations
regarding the payment of the agreed sum.
68. On the other hand, Claimant is precluded from demanding compensation for
potential future profits and for the intellectual property, since it already agreed on
the valuation of its interest in the Agreement. As a result, Televative is bound by
such an agreement under the principle of pacta sunt servanda,119
and cannot
change its position without the consent of Beritech. The validity of a contract
provision which bars a party from claiming lost profits was confirmed in the
Autopista v. Venezuela award.120
Moreover, it was stipulated in the JVA that all
the intellectual property rights which were transferred by Televative to the project
were to belong and be exploited by Sat-Connect.121
Hence, Televative is not
entitled to any rights to the intellectual property pertaining to the project.
69. Furthermore, the provisions of the Opulentia-Beristan BIT which deem to
determine the value of an investment are irrelevant to the issued at hand. Those
provisions pertain to the cases of expropriation and nationalization, and not to a
situation of a buyout resulting from a breach of contract, as is the case here.
D. THE BUYOUT PROCEDURE WAS PROPERLY CONDUCTED
70. Clause 8 of the JVA provides that in case Televative commits a material breach of
contract Beritech would be entitled to purchase Televative’s interest in the
project.122
Therefore, the decision of whether the buyout clause would be invoked
118
FDI Moot Problem 2010, Annex 2, para 13.
119
UNIDROIT Principles, Art. 1.3; Brownlie, p.620; Gabcikovo-Nagymaros case, para.
114.
120
Autopista v. Venezuela, paras. 310-313.
121
Clarifications 2, Question 269
122
FDI Moot Problem 2010, Annex3, Clause 8.
27
was given to Beritech, subject to the consent of the SAT Connect Board of
Directors123
The buyout procedure set forth by the JVA, which is in conformity
with Beristian law,124
was properly conducted and the necessary consent was
given by the Board of Directors.
71. Claimant’s contention that the decision to buy out its interest in the project was
without prior notice and without an opportunity to respond to the charges is
unfounded.
72. Firstly, the buyout provision of the JVA did not require Beritech to make such a
notification and, therefore, Beritech was not obliged to do so. Secondly, even if
the Tribunal finds that a prior notice was required, it simply is not true that it was
not given. All nine board members (including Alice Sharpeton) were present at
the August 21 meeting125
at which the president of the board made a presentation
to the directors regarding the leak of information by Televative126
and the
question of relevance of Clause 8 was raised.127
Thus, it cannot be argued that the
proposed agenda for the August 27 meeting was not known and that Claimant did
not have an opportunity to respond, since all directors were present during the
discussion,128
and since prior notice was given a full six days before the meeting,
which is much earlier than the 24 hours required by Beristian law.129
73. The question of whether the support by the Sat Connect board was properly given
raises two issues: the issue of quorum and the issue of notification of the meeting
agenda to the directors. As it has already been proven that all directors who
participated in the August 27 meeting, including Alice Sharpeton, where given
notice about the agenda, the only remaining question is that of quorum.
123
Clarifications 2, Question 242
124
Clarifications 2, Question 244
125
Clarifications 1, Question 140 and 127.
126
FDI Moot Problem 2010, Annex 2, para. 9.
127
Clarifications 1, Question 169.
128
Ibid.
129
Clarifications 1, Question 176.
28
74. A quorum of the Sat-Connect board of directors is obtained with the presence of 6
members,130
as was the case on the meeting of August 27, when the buyout
decision was supported.131
The fact that one board member did not participate in
the voting132
is irrelevant, since the quorum refers to the number of directors
present and not the number of those who actually participate in the voting.133
Also, it is irrelevant that Ms. Sharpeton left the meeting before its end;134
what is
relevant is that the quorum was properly established. Moreover, as five of the six
present board members supported Beritech’s decision135
it is evident that the
voting majority requirement was fulfilled as well, since under Sat-Connect’s
bylaws all decisions taken by the board can be by simple majority.136
Therefore, it
must be concluded that all formal rules of procedure were observed when
invoking the buyout clause of the JVA.
III RESPONDENT COMMITTED NEITHER A BREACH OF THE BERISTANOPULENTIA
BIT, NOR OF GENERAL INTERNATIONAL LAW
A. There was no violation of the fair and equitable treatment
75. Pursuant to the Beristan-Opulentia BIT, each Party has to provide foreign
investors and investments a treatment, in accordance with customary international
law, which includes fair and equitable treatment.137
130
FDI Moot Problem 2010, Annex 2, para. 4.
131
FDI Moot Problem 2010, Annex 2, para. 4.
132
Clarifications 1, Question 156.
133
Cromwell, p. 85.
134
FDI Moot Problem 2010, Annex 2, para. 10.
135
FDI Moot Problem 2010, Annex 2, para. 10.
136
Clarifications 1, Question 149.
137
Annex I, Article 2.
29
76. Firstly, it is necessary to determine the scope of the fair and equitable standard, as
it, “vague as can be”,138
has no universally accepted definition.139
The FET
standard, however, cannot vary among states and nations, as though the protection
guaranteed would have no minimum.140
The minimum standard of treatment is
meant to serve as a floor, an absolute bottom, below which conduct is not
accepted by the international community.141
Hence, a breach must be based upon
objective criteria that apply equally among States and between investors.
77. According to the Methanex v. US Award, in order to breach the FET standard, the
investment state would have to engage in a conduct considered “grossly
unfair.”142
This consequently means that, in international case law, the threshold
for a breach of fair and equitable treatment remains a high one.143
78. By analyzing the excessive state practice regarding the said treatment, it can be
deduced that it includes transparency, protection of legitimate expectations, due
process, freedom from discrimination and freedom from coercion and
harassment.144
79. Respondent respectfully firstly submits that the necessary transparency was
present, since all signatories of the JVA, including the guarantor, i.e. Beristan,
were aware of the consequences of the material breach.
80. Respondent further claims that Televative cannot maintain that Beristan violated
FET by not protecting its legitimate expectations.145
As was stated by the Tribunal
in the Thunderbird Gaming v. Mexico Award, the concept of legitimate
expectations relates to the situation where the conduct of the host state creates
138
Saluka case, para 284.
139
BIT 1995-2006, p.28.
140
Glamis Gold, award, para 616.
141
Ibid, para 619.
142
Methanex v. USA, para 98.
143
Thunderbird v. Mexico, para. 194.
144
Dolzer, Schreuer, p. 133-147.
145
Tecmed v. Mexico, para. 154.
30
“reasonable expectations on the behalf of the investor to act in reliance to the said
conduct”,146
which causes him to suffer damage in case of failure of honoring said
expectations. In order to receive protection, legitimate expectations need to be a
result of a promise made by the host government at the time of the investment.147
Except where specific assurances or representations are made by the state to the
investor, the latter may not rely on a bilateral investment treaty as a kind of
insurance policy.148
This is precisely why the threshold for violation of this aspect
of FET principle may vary – it is dependant on the nature of breach and
circumstances of each case.149
81. In the present case, Claimant was fully aware of the possible consequences in the
event of a material breach of the JVA, as these consequences were embedded in
Clause 8 of the said Agreement. Since Claimant received no guarantees,150
and
since it was familiar with the consequences of the potential breach, there was no
room for the creation of legitimate expectations.
82. Furthermore, the actions taken by Respondent were not done in a discriminative
manner. In order to breach the FET principle, the conduct of a state needs to be
discriminatory and expose Claimant to “sectional or racial prejudice.”151
The
basis of making the decision of invoking Clause 8 of the JVA was not founded on
Televative’s nationality, but on Televative’s violation of Clause 4 of the same
Agreement. Therefore, when applying the definition set forth in the Saluka152
decision – that a conduct is discriminatory if similar cases are treated differently,
146
Thunderbird v. Mexico, para. 147.
147
Duke v. Ecuador, para.340; Tecmed v. Mexico, para. 154; Occidental v. Ecuador,
para.185; LG&E. v. Argentina, para. 127.
148
EDF v. Romania, para. 217; Waste Management award, para. 98; Methanex v. USA,
Part IV, Chapter D, para. 8; PSEG v. Turkey, para. 241.
149
Thunderbird v. Mexico, para.148.
150
Clarification 2, Question 253
151
Waste managemen award, para. 98; Methanex v. USA, para. 26.
152
Saluka case, para 313.
31
without reasonable justification – it is clear that consequences of material breach
of the JVA are objective ones, leaving no room for discriminatory judgments.
83. In connection to the previously argued, Respondent would like to point out that
the buyout was not arbitrary,153
and thus, not a breach of Article 2.2 of the BIT.
Arbitrariness is regarded as opposition to the rule of law,154
and it appalls the
sense of juridical propriety.155
The buyout, on the other hand, was envisaged in
the provisions of the JVA, and thus is governed by law’s of Beristan.
84. The concept of the FET is necessarily connected with the principle of good
faith.156
Because good faith has long been a core principle of international law,157
it can also serve as a standard for reviewing states’ behavior.
85. That being said, it can clearly be deduced that actions undertaken by the Republic
of Bersitan do not constitute a violation of the fair and equitable treatment.
B. Respondent did not expropriate Claimants assets
86. It is Respondent’s standpoint that all steps taken in connection to the Sat-Connect
joint venture company are legitimate and lawful, since they are in compliance
with the special agreements between Claimant and Respondent as well as
international law.
1) Respondent acted in accordance with the JVA
87. As argued above, Respondent acted in accordance with Clause 8 of the JVA, and
thus, by no means breached the Beristan-Opulentia BIT. Due to the relevance of
153
Pantechniki v. Albania, para 87.
154
Asylum Case, p. 284.
155
ELSI case, para. 128.
156
Waguih v. Egypt, para. 450.
157
Draft Declaration on Rights and Duties of States, Annex Art. 13.
32
confidential data envisaged in Clause 4, to the strategic relevance of the Sat
Connect project and to the seriousness of leaking of the information, Clause 8
states that if at any time Televative should commit a material breach of the JVA,
Beritech shall be entitled to purchase all of Televative’s interests in the said
agreement.158
88. Taking into consideration everything stated above, the buyout cannot be viewed
as a measure tantamount to expropriation.
89. In order to claim that expropriation has taken place, Claimant would have to
illustrate the seizure of the property by authorities of the Republic of Beristan, as
it is necessarily a governmental taking or modification of an individual's property
rights, especially by eminent domain.159
Taking of property is generally connected
to transferring ownership of that property to another person, usually the authority
that exercised its de jure or de facto power to do the taking.160
Since the decision
to buy out Televative’s shares was made by Beritech,161
and bearing in mind that
it was of a purely commercial character and without any element of govermental
authority, as elaborated supra, Claimant cannot maintain that Respondent
expropriated its property.
90. Claimant can argue neither direct nor creeping expropriation, for it would have to
prove a significant degree of deprivation of fundamental rights of ownership.162
Restrictions imposed by the state, “in a manner that effectively freezes or blights
the possibility” for the owner reasonably to use the economic potential of the
property, can be identified as the actual act of taking.163
91. Since Beritech lawfully invoked the buyout clause, Claimant cannot assert that the
Respondent state expropriated its property.
158
FDI Moot Court Problem 2010, Annex 3, Clause 8.
159
Black's Law Dictionary.
160
S. D. Myers v. Canada, para. 280.
161
Clarifications 1, question 138.
162
Pope & Talbot case, paras. 96-98.
163
Santa Elena case, para. 76.
33
C. Alternatively, Respondent acted in accordance with the Beristan-Opulentia
BIT
92. If the Tribunal rejects the previous Respondent’s argument and decides that the
said buyout can be equated with taking in the context of indirect expropriation, it
is Respondent’s claim that such expropriation is legal.
93. Pursuant to the BIT, expropriation will be rendered lawful, if the following
elements are present: (i) taking of the investment must be done for a public
purpose, (ii), in a non-discriminatory manner and (iii) followed by prompt,
adequate and effective compensation.164
94. The said provision sets forth conditions for the condoning of the parties in terms
of legal expropriation. In order to show that the actions taken are in compliance
with the Beristan-Opulentia BIT, Respondent will analyze the above definition.
1) The taking of the investment was done for a public purpose
95. In the event of the expropriation of a foreign investor’s assets, the seizure must be
done for a public purpose.165
Since there is no definition of public interest in
international law,166
it is upon upon the state to determine it.167
The existence of
margin of appreciation168
allows states’ greater freedom in determining whether
164
FDI Moot Problem 2010Annex 1, Article 4; OECD, Indirect expropriation, p.7;
UNCTAD, Taking of property, p.24.
165
Protocol to the Convention for the Protection of Human Rights and Fundamental
Freedoms, Art.1.
166
Amoco v Iran, p.189.
167
Lithgow v. UK, para. 122.
168
Burke-White, von Staden, p.305.
34
or not a measure is taken in a public interest,169
providing it is followed by an
immediate, full and effective compensation.170
96. Respondent behaved in accordance with public interest, since the disclosure of
confidential information regarding encryption technology could have a disastrous
outcome.
2) Respondent’s actions have not been taken in a discriminative manner
97. The nationality or affiliation of Televative did not in any way play a role in the
subsequent decision of the buyout itself; it was the threat of a possible and rather
devastating information leak. Rule on the prohibition of discrimination is
significant171
and can be considered a part of customary international law.172
The
evaluation whether or not the intent to discriminate is present, in the
government’s decision to expropriate, is a key factor in proving unlawful
expropriation. The intent of the government to discriminate a particular person or
group is alone relevant173
and not the subjects that the expropriation effects.
98. Respondent’s actions did not contain a discriminative factor. Beristan was in need
to protect its national interests, considering the seriousness of the potential results
of the breach of confidentiality provisions, as stated above.
169
Christie, p. 307-33.
170
Goetz v. Burundi, para. 126; Broniowski v. Poland, para. 149.
171
Bishop, Crawford, Reisman,.1089.
172
Maniruzzaman, р. 57.
173
Brownlie, р. 521.
35
3) Claimant was fully, promptly and adequately compensated
99. It has been contended that a lawful expropriation dictates that a full compensation
sums to be equivalent to the real market value of the investment.174
The
compensation is one of the cumulative conditions for the legality of the
expropriation,175
and it is a well recognized rule of international law that property
of an alien cannot be seized without adequate compensation.176
It is most often
determined by the rules of the Hull formula,177
i.e. the payment has to be prompt,
adequate and effective. Considering that Respondent’s actions are in line with the
above stated criteria, Respondent claims that the immediate, full and effective
compensation has been paid in the form of US$47 million which has been
transfered into an escrow account. This amount represents the total investment of
Televative in the Sat-Connect project in the moment of the decision of the buyout.
This account has been made available to Televative, however the said company
has for unknown reason refused to accept it. Respondent argues that the adequate
compensation would in this case be best expressed through the actual investment
value178
of Claimants assets in the Sat-Connect project.
100.In the event of Claimant seeking compensation for lost profit on the basis of
legitimate expectation, Respondent would like to point out that it has been
contended that the remedy of damages compensates only the value of the party’s
174
FDI Moot Problem 2010, Annex 1, Art. 4.3.
175
Certain GermanInterest case, p.46-47.
176
UN Resolution on Permanent , para 4; Charter of Economic Rights and Duties of
States, 12. December 1974, (XXIX), A/RES/29/3281, Article 2.(c); Lithgow v. UK, paras.
121-2; Norwegian Shipowners’ Claims , p.28; Chorzow Factory, p. 47; German Settlers
in Poland case, p.38; the Petar Pazmany University, p. 243; Phelps Dodge case, para. 22.
177
Note form US Secretary of State to Mexican Government, 22th August 1938; Taking
of property, UNCTAD, p.28; Indirect Expropriation, OECD, p.2.
178
Metalclad v. Mexico, para. 121; Wena Hotels case, paras. 124-125.
36
reliance and not his failed expectation from the contract itself.179
In addition, the
frequent method of calculating the amount of the future profit is the Discounted
Cash Flow, i.e. the DFC method. However, this method cannot be applied in the
present case since the investment lasted for merely two years. The tribunal in the
Tecmed v. Mexico case, in which the investment lasted for exactly that period of
time, determined “the non-relevance of the brief history of operation”180
and has
disregarded the DFC method. Similarly, the Tribunal rejected this method in the
Metalcald v. Mexico Award181
since the company had not operated for a
sufficiently long time in order to establish a performance record.182
101.Respondent denies that it expropriated assets of Televative. However if the
Tribunal should come to a conclusion that the buyout could amount to
expropriation, Respondent submits that it has proven that even in the said event,
its actions were lawful on the basis that all of the criteria for a legal expropriation
were fulfilled in the present case.
102.In conclusion, Respondent argues that there has been no violation of the
Opulentia-Beristan BIT, nor was there a breach of general international law.
Consequently, Claimant is not entitled to compensation of any kind, and
Respondent respectfully urges the Tribunal to deny any request for damages by
Claimant.
179
East v Maurer
180
Tecmed v. Mexico, para. 186.
181
Metalcald v. Mexico, para 121.
182
Ibid, para 120.
37
IV RESPONDENT ACTED IN PROTECTION OF ESSENTIAL SECURITY
INTEREST OF THE STATE
A. Respondent was entitled to protect its national security under the BeristanOpulentia
BIT
103.Even if the Tribunal establishes a breach of either the fair and equitable treatment
clause or Article 4 of the BIT, without prejudice to the previously claimed,
Respondent argues that Beristan is exculpated for adopting any measures that may
be considered a violation of the BIT provisions, under Article 9 of the said Treaty.
1) Article 9 represents a self-judging clause
104.Article 9 of the Beristan-Opulentia BIT states that nothing precludes a party of the
treaty from applying measures that it considers necessary for the protection of its
own essential security interests. Such a formulation is not rare in international law
and is referred to as the self-judging clause.183
105.This kind of clause represents an exception from applicability of treaty provisions.
It is included in a large number of BITs184
in order to protect states’ national
security, thus showing that in fact public interest of a state overrides the
contractual obligations, should it find that it is necessary to react to a threat. It is
the first and foremost for the national authorities to make the initial assessment of
the reality of the pressing social need implied by the notion of ‘necessity’ in such
contexts.185
183
The Protection of National Security in IIAs, p.39.
184
BIT 95-06, UNCTAD, p.83.
185
Burke-White, von Staden , p.305; Friedman, p.141; Goetz v. Burundi, para. 126.
38
106.Under the self-judging clause, it is an exclusive prerogative of the host country
authorities to assess whether the intended investment poses a threat to national
security, and how to react to this threat.186
Because of their knowledge of their
society and of its needs, the national authorities are in principle better positioned
than the international judge to appreciate what is “in the public interest”, therefore
national authorities, accordingly, enjoy a certain margin of appreciation.187
A
State acting in good faith may impose restrictions which incidentally lead to nonenforceability
of certain contractual rights; therefore it would be difficult to treat
such actions as illegal on international plane.188
2) Beristan is entitled to safeguard its essential interest
107.Regardless whether Article 9 is a self-judging clause, and subsequently whether
Beristan’s assessment is subject to good faith review, Beristan was entitled to
invoke Article 9 in order to protect its essential interests.
108. While the wording of the clause may vary, substantive meaning remains
unchanged: the protection of essential security interests applies in situations
where a state needs to safeguard itself.189
As stated by the CMS annulment
committee, this treaty provision covers measures “necessary for the maintenance
of public order or the protection of each Party's own essential security
interests”,190
without qualifying such measures.
109.While there may not be a consensus on what essential interest specifically
enumerates, it is more than clear that disclosure of confidential information that
could pose a threat to the military due to its strategic role, represent a peril to
186
The Protection of National Security in IIAs, p.39.
187
Jahn v. Germany.
188
Brownlie, p. 547.
189
BIT 95-06, p.84.
190
CMS Gas v. Argentina, para. 130; Bjorklund, p.463.
39
national interest, even more so, since tribunals have found that essential interest
encompasses even the cases of economic crises.191
110.Respondent submits that, in the present case, there was a justified concern that
Claimant leaked the information from the Sat-Connect Project, which grossly
endangered the national security of Respondent due to the fact that the said
project included systems and encription keys to be used by the Beristan army.
Therefore, it is considered a “strategic” enterprise by Respondent inasmuch that in
the absence of an international consensus on the meaning and scope of this term,
every country defines on its own what it understands by “strategic” enterprises or
industries.192
111.The wording of Article 9 of the Beristan-Opulentia BIT, which reads that nothing
in the Treaty shall be construed to:
„to preclude a Party from applying measures that it considers
necessary for the fulfillment of its obligations with respect to the
maintenance or restoration of international peace or security, or
for the protection of its own essential security interests“,193
allows a Party to invoke a general exception in situations where compliance with
the agreement would impede maintenance of state’s security.194
This construction
can also be found in the 2004 Canadian Model BIT,195
in Article 18 of the US
Model BIT,196
and consequently in almost every BIT that United States of
America have concluded,197
as well as in the TRIPS Agreement.198
191
LG&E v Argentina, para. 226; Sempra award, para. 374.
192
TheProtection of National Security in IIAs, p. 15.
193
FDI Moot Problem 2010, Annex I, Art. 9.
194
BIT 95-06, UNCTAD, p.85.
195
DFA (2004) Canada Model BIT, Article 10 (4); Japan-Singapore Economic
Partnership Agreement, Article 4.
196
US Model BIT, Article 18.
197
BIT 95-06, UNCTAD, p.85.
198
TRIPS Agreement, Art 73 (b).
40
112.The critical information was disclosed in The Beristan Times of the 12th
of August
2009 edition. The article quoted that there a growing number of foreign laws
compelling disclosure of encryption ciphers, keys, and pads to national security
services and indicated that
“there have been leaks not only involving encryption
technology, but also concerning the technology, systems, and
intellectual property of the Sat-Connect project”.199
Considering that, earlier this year, Televative was one of three Opulentian
technology firms from which the Opulentian government authorities are alleged to
have received access to civilian encryption keys it was no surprise that the said
article subsequently led to a discussion in the board of directors of Sat-Connect
started by its chairman, Mr. Michael Smithworth.
113.According to Clause 4 of the JVA, all data relating to the said Agreement shall be
confidential and parties are bound to keep them secret.200
Therefore, as argued
above, due to the material breach of the JVA and subsequently, to the
endangerment of the state’s national security, Respondent had the right to engage
in subsequent actions including the buyout and the dislocation of Televative
personnel from the Sat-Connect facilities.
114.Should Claimant contend that there have been no evidence provided to support the
allegations of the said leak, Respondent argues that even a doubt of such crucial
information leaking to another state could do irreparable damage to the national
security of Beristan. Even a possibility of a leak constitutes a threat to the national
interest of Respondent inasmuch that it would, should the threat prove itself
credible, allow for a foreign state integration in confidential military
communication information.
115.National security concerns can be assumed to generally override the interests of
foreign investors as regards receiving investment protection in international
199
Clarifications I, question 178.
200
FDI Moot Problem 2010, Annex3, Clause 4.
41
investment agreements.201
Bearing in mind that the transfer of data, and other
forms of information opens opportunities for electronic theft, and in the worst
case scenario, system disruption via electronic assault upon the economic,
political, and social stability and well-being of a state,202
it could have been
clearly concluded that action had to be taken in order to prevent Opulentia from
gaining a possible military leverage.
116.As the actions taken by Respondent were required for protection of the public
interest, they do not amount to a violation of Respondent’s obligations under the
Beristan-Opulentia BIT, since exactly this Treaty gave the right to the Parties to
enforce measures necessary to protect their respective national interests. Military
involvement in the dislocation of the staff from the Sat-Connect project that were
associated with Televative was a necessity to ensure that the said company would
act in accordance with the notice of eviction that was served on the 28th
of August
2009. Such action was required in the sense of the national security question of
Beristan and was not based on mala fides. Whether or not such an objective
assessment must contain a significant margin of appreciation for the State
applying the particular measure was best expressed in the decision of the ICSID
Tribunal in the Continental Casualty v. Argentina case:
“a time of grave crisis is not the time for nice judgments,
particularly when examined by others with the disadvantage of
hindsight”.203
117.Considering everything stated supra, Respondent argues that Article 9 of the BIT
was properly and lawfully invoked, and that, consequently, the Tribunal should
find no breach of the BIT.204
201
Th Protection of National Security in IIAs, p. 25.
202
Alberts, Defensive Information Warfare, p. 23-32.
203
Continental Casualty award, para. 181.
204
Oil Platforms case, para 34; CMS Gas award, para. 133.
42
B. Respondent was entitled to safeguard its security under the customary
international law
118.Even in the absence of the exception clause in the bilateral investment treaty, the
host country can nevertheless justify its measure under the rules of customary
international law.205
119.National security or moreover essential security interest is deemed as a key
objective of every state, perhaps even the primary raison d’être.206
National
security refers to the protection of a state, its territories, and its peoples from
physical assault by an external force, as well as the protection of important state
economic, political, military, social, cultural interests from attacks emanating
from foreign or domestic sources which may undermine, erode, or eliminate these
interests, thereby threatening the survival of the state. Such protection may be
pursued by military or nonmilitary means.207
Therefore, it cannot be doubted that
national security interests have “the right of way” to the contractual obligations of
a state208
in the event of a threat to its national security, and therefore it has the
right to act in protection of its essential interest or more specifically to protect
itself from threats to its security in the effort to maintain a peaceful domestic
order.209
205
The Protection of National Security in IIAs, p.34
206
Alberts, Papp, p. 6.
207
Hays, p. 8-16; Jordan, p.3-23; Hartmann, Frederick and Wendzel, p. 3-25.
208
The Protection of National Security in IIAs, UNCTAD, p. 25.
209
Continental Casualty award, paras. 175-176.
43
1) Leakage of critical information resulted in Respondents state of necessity
120.In case the Tribunal finds that Respondent cannot rely on Article 9 of the
Beristan-Opulentia BIT, Beristan argues that its measures were in conformity
with customary international law.
121.According to the ILC’s Draft Articles on State Responsibility, which reflects have
arguably achieved the status of customary international law,210
there are certain
circumstances under which states may not be held responsible for breaching their
international obligations.211
These circumstances which justify an otherwise
wrongful act by the state include consent, self-defense, countermeasures, force
majeure, distress and state of necessity.
122.Although it has been contended that necessity may only be invoked to safeguard
an essential interest from a grave and imminent peril,212
a broader interpretation
of the term has found its way into recent arbitral decisions.213
The Continental
Casualty214
arbitration implemented a less constrictive test by whether or not
necessity excluded illegality of the actions taken by Argentina. Firstly, as it was
stated, it must be shown that the measures taken by a state contributed to a
legitimate aim and, secondly, the tribunal must determine whether there were
reasonably available alternatives.
123.In the present case, Respondent claims that the actions taken were in fact done in
a national security interest, and have certainly been effective to a degree where
the said national security peril does not exist any more. Thus, Respondent feels
that any other course of action would have not been sufficiently effective to
resolve such a pressing matter. It has been stated by the International Court of
Justice that such a limitation does not exclude that a ‘peril’ appearing in the long
210
Bjorklund, p.488.
211
Articles on State Responsibility, Articles 20-25.
212
Essential Security Interests Under International Investment Law, OECD, p.100.
213
Burke-White, von Staden , p. 324.
214
Continental Casualty. award, para. 160.
44
term might be held to be ‘imminent’ only when it is established because the
realization of the peril, however far off it might be, is not any less certain and
inevitable.215
Therefore, in the present case it is clear that the actions taken by
Respondent are done purely out of necessity and as such cannot be viewed as a
breach of the treaty. Military viability is by all means an important aspect of a
country and a leak of crucial information about its infrastructure can be viewed as
a grave peril, thus automatically triggering necessity as a reason for Respondent
to deny fulfilling its contractual obligations.
124.As for the impairment of the interest of the State towards which the obligation
exist, Respondent feels that it had already adequately compensated Claimant.
125.Respondent rests upon the point that international law, as well as the BIT and the
JVA, support the supremacy of national interest over the contractual obligations
in the event that Respondent feels that a serious threat has been made to the said
interest, which undoubtedly occurred in the present case.
CONCLUSION ON THE MERITS OF THE CLAIM
126.Respondent has properly invoked the buyout clause since Claimant committed a
material breach of the JV Agreement. Respondent has not breached its
international obligations arising from the BIT since it did not expropriate
Claimant’s assets, nor did it act in an arbitrary and discriminatory manner, breach
fair and equitable treatment, full protection and security, and transparency.
215
Gabcikovo-Nagymaros case, para 54.
45
PRAYER FOR RELIEF
127.In light of all previously mentioned, the Respondent respectfully requests that the
Tribunal adjudge and declare that:
(1) it lacks jurisdiction to adjudicate on Televative’s claims and/or that the claims
are inadmissible;
Or, in the alternative, that:
(2) Beritech properly invoked Clause 8 of the JV Agreement (buyout);
(3) Respondent committed neither a breach of the Beristan-Opulentia BIT, nor of
general international law;
(4) Claimant’s removal from the Sat-Connect project was justified on national
security grounds.
Respectfully submitted on 19 September, 2010 by
GROS
On behalf of Respondent
THE REPUBLIC OF BERISTAN