TEAM (C_KOO) COUNTER-MEMORIAL FOR THE RESPONDENT
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THIRD ANNUAL FOREIGN TEAM (C_KOO)
DIRECT INVESTMENT
INTERNATIONAL MOOT
COMPETITION 2010
INTERNATIONAL CENTRE FOR
SETTLEMENT OF INVESTMENT
DISPUTES
ICSID CASE NO. ARB/X/X
BETWEEN:
TELEVATIVE INC. THE GOVERNMENT OF THE
REPUBLIC OF BERISTAN
CLAIMANT/INVESTOR RESPONDENT/STATE
MEMORIAL FOR THE RESPONDENT
____________________________________________________
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TABLE OF CONTENTS
LIST OF AUTHORITIES…………………………………………..v
LIST OF LEGAL SOURCES……...………………………………vii
STATEMENT OF FACTS………..…………………………………1
ARGUMENTS…………..………………………………………...4
PART ONE:
RESPONDENT OBJECTS TO JURISDICTION…………………………………………………………4
A. CONTRACT CLAIMS BROUGHT BY CLAIMANT ARE INADMISSIBLE
IN LIGHT OF CLAUSE 17 OF THE JV AGREEMENT…………………………………………5
I. ARTICLE 11 OF THE BIT IS A GENERAL PROVISION SUBJECT
TO MODIFICATION BY THE PARTIES TO AN UNDERLYING CONTRACT………………7
II. CONTRACTUAL CLAIMS ARISING OUT OF
THE JV AGREEMENT ARE INADMISSIBLE………………………………………….9
B. ARTICLE 10 OF THE BIT DOES NOT PERMIT ELEVATION
OF CONTRACTUAL CLAIMS TO TREATY CLAIMS…………………………………………..13
I. ARTICLE 10 OF THE BIT REQUIRES A RESTRICTIVE INTERPRETATION…………….14
II. THE OBJECT AND PURPOSE OF THE BIT IS TO PROVIDE
A LEGAL FRAMEWORK FOR INVESTMENT ACTIVITY………………………………17
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PART TWO:
BERISTAN DID NOT IMPROPERLY INVOKE THE BUYOUT CLAUSE OF THE JOINT
VENTURE AGREEMENT, NOR DID IT BREACH THE AGREEMENT BY ITS ACTIONS............................... 19
A. BERITECH IS A PRIVATE CORPORATION UNDER INTERNATIONAL LAW
AND ITS ACTIONS ARE NOT ATTRIBUTABLE TO BERISTAN....................................................19
i. BERITECH IS NOT AN ORGAN OF THE STATE ...........................................................20
ii. BERITECH HAS NOT BEEN EMPOWERED TO EXERCISE ANY ELEMENTS OF
GOVERNMENT AUTHORITY......................................................................................23
PART THREE:
BERISTAN HAS NOT EXPROPRIATED TELEVATIVE’S INVESTMENT...................................................26
A. BERITECH’S ACTIONS ARE NOT ATTRIBUTABLE TO BERISTAN, AND THEREFORE
ITS ACTIONS CANNOT CONSTITUTE EXPROPRIATION............................................................26
B. TELEVATIVE’S ALLEGATIONS OF IMPROPER BREACH OF THE JV AGREEMENT
DO NOT QUALIFY AS EXPROPRIATION UNDER INTERNATIONAL LAW....................................27
i. BERITECH EXERCISED NO SOVEREIGN AUTHORITY IN
EXECUTING THE BUYOUT CLAUSE...........................................................................28
ii. BERISTAN DID NOT DEPRIVE TELEVATIVE FROM SEEKING REMEDY OF
THE ALLEGED BREACH IN STATE COURT………......................................................29
C. IN THE ALTERNATIVE, BERITECH’S EXERCISE OF THE BUYOUT CLAUSE IS LEGALLY
JUSTIFIED UNDER THE TREATY............................................................................................31
i. BERISTAN TOOK MEASURES TO PROTECT THE PUBLIC INTEREST AND
NATIONAL SECURITY...............................................................................................32
ii. BERISTAN’S MEASURES ARE NOT DISCRIMINATORY………………………………33
iii. BERISTAN’S ACTIONS WERE IN ACCORDANCE WITH DUE PROCESS
OF LAW...................................................................................................................33
iv. BERISTAN OFFERED TELEVATIVE IMMEDIATE FULL AND EFFECTIVE
COMPENSATION.......................................................................................................34
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PART FOUR:
BERISTAN’S ACTIONS HAVE NOT VIOLATED CUSTOMARY
STANDARDS OF INTERNATIONAL LAW............................................................................................ 36
A. BERISTAN AFFORDED TELEVATIVE FAIR AND EQUITABLE TREATMENT
OF ITS INVESTMENT ........................................................................................................... 37
i. BERISTAN DID NOT DENY JUSTICE OR PROPER DUE PROCESS TO TELEVATIVE…….38
ii. BERISTAN ACTED IN A REASONABLE MANNER AND DID NOT VIOLATE TELEVATIVE’S
LEGITIMATE INVESTMENT EXPECTATIONS...............................................................40
B. BERISTAN’S ACTIONS DID NOT VIOLATE THE STANDARD OF FULL PROTECTION AND
SECURITY UNDER CUSTOMARY INTERNATIONAL LAW….................................................... 41
C. BERISTAN DID NOT SUBJECT TELEVATIVE’S INVESTMENT TO UNJUSTIFIED OR
DISCRIMINATORY MEASURES.............................................................................................. 42
PART FIVE:
BERISTAN IS ENTITLED TO RELY ON ARTICLE 9 OF THE BERISTAN-OPULENTIA
BIT AS A DEFENSE.......................................................................................................................... 44
A. ARTICLE 9 IS INHERENTLY SELF-JUDGING.......................................................................... 44
B. THE CLAUSE GRANTS BROAD DISCRETION TO BERISTAN TO PROTECT
ITS ESSENTIAL SECURITY INTERESTS................................................................................... 46
C. BERISTAN INVOKED ARTICLE 9 IN GOOD FAITH.................................................................. 48
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LIST OF AUTHORITIES
BOOKS
Ian Brownlie, PRINCIPLES OF PUBLIC INTERNATIONAL LAW, (1990) (hereinafter: Brownlie)
Rudolf Dolzer and Christoph Schreuer, PRINCIPLES OF INTERNATIONAL INVESTMENT LAW (1st
Ed. 2008) (hereinafter: Dolzer & Schreuer)
R. Jennings & A. Watts, OPPENHEIM’S INTERNATIONAL LAW, (9th Ed. 1992) (hereinafter:
Jennings & Watts)
C. McLachlan et al., INTERNATIONAL INVESTMENT ARBITRATION: SUBSTANTIVE PRINCIPLES (1st
Ed. 2007) (hereinafter: McLachlan)
M.L. Moses, THE PRINCIPLES AND PRACTICES OF INTERNATIONAL COMMERCIAL ARBITRATION
(2008) (hereinafter: Moses)
Peter Muchlinski, MULTINATIONAL ENTERPRISES AND THE LAW (1995) (hereinafter: Muchlinksi)
Andrew Newcombe & Lluis Paradell, LAW AND PRACTICE OF INVESTMENT TREATIES, (1st Ed.,
2009) (hereinafter: Newcombe & Paradell)
Jeswald W. Salacuse, THE LAW OF INVESTMENT TREATIES, (2010) (hereinafter: Salacuse)
Monique Sasson, SUBSTANTIVE LAW IN INVESTMENT TREATY ARBITRATION, (2010) (hereinafter:
Sasson)
Kenneth J. Vandevelde, BILATERAL INVESTMENT TREATIES: HISTORY, POLICY AND
INTERPRETATION (2010) (hereinafter: Vandevelde)
Katia Yannaca-Small (ed.), ARBITRATION UNDER INTERNATIONAL INVESTMENT AGREEMENTS
(1st Ed. 2010) (hereinafter: Yannaca-Small)
INTERNATIONAL TREATISES
A.H. Roth, The International Minimum Standard, (Leiden, 1949) (hereinafter: AH Roth)
UNCTAD, Most Favored Nation Treatment, UNCTAD/ITE/IIT/10 (Vol. III) (1999) (hereinafter:
Most Favored Nation Treatment)
UNCTAD, Indirect Expropriation and the Right to Regulate in International Investment Law,
2004/4 Working Papers on International Investment (2004) (hereinafter: UNCTAD
Indirect Expropriation)
UNCTAD, Bilateral Investment Treaties 1995-2006: Trends in Investment Rulemaking (2007).
(hereinafter: UNCTAD Bilateral Investment Treaties)
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JOURNALS
Dapo Akande & Sope Williams, International Adjudication on National Security Issues: What
Role for the WTO?, 43 Va. J. Int’l Law 365 (2003) (hereinafter: Akande & Williams)
William Burke-White & Andreas von Staden, International Adjudication on National Security
Issues: What Role for the WTO?, 43 Va. J. Int’l 365 (2003) (hereinafter: Burke-White &
von Staden)
Michael Hahn, Vital Interests and the Law of the GATT: An Analysis of GATT’s Security
Exception, 12 Mich. J. Int’l L. 558 (1991) (hereinafter: Hahn)
Hannes L. Schloemann & Stefan Ohlhoff, “Constitutionalization” and Dispute Settlement in the
WTO: National Security as an Issue of Competence, 93 Am. J. Int’l Law 424 (1999)
(hereinafter: Schloemann & Ohlhoff)
Yuval Shany, Towards a General Margin of Appreciation Doctrine in International Law, 16
European J. Int’l Law 907 (2005) (hereinafter: Shany)
OTHER SOURCES
Robyn Briese & Stephan Schill, “If the State Considers”: Self-Judging Clauses in International
Dispute Settlement, Australian National University (2009) (hereinafter: Briese & Schill)
ILC Second Reading Commentary, Draft Articles on Responsibility of States for Internationally
Wrongful Acts (hereinafter: ILC Second Reading Commentary)
NAFTA Free Trade Commission, Interpretation of Article 1105(1) (2001) (hereinafter: NAFTA
Free Trade Commission)
Olivier de Schutter, Globalization and Jurisdiction: Lessons from the European Convention on
Human Rights, Center for Human Rights and Global Justice Working Paper (2005)
(hereinafter: De Schutter)
Restatement Third of the Foreign Relations Laws of the United States (hereinafter: Restatement
of Foreign Relations)
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LIST OF LEGAL SOURCES
ICJ Decisions
Case Concerning Certain Questions of Mutual Assistance in Criminal Matters (Djibouti v.
France), 2008 ICJ Reports (4 June 2008) (hereinafter: Djibouti)
Case Concerning Elettronica Sicula S.p.A. (United States v. Italy), 1989 ICJ Reports (20 July
1989) (hereinafter: ELSI)
Case Concerning Military and Paramilitary Activities In and Against Nicaragua (Merits) 1984
ICJ Reports (10 May 1984) (hereinafter: Military and Paramilitary Activities)
UNCITRAL Decisions
Eastern Sugar v. Czech Republic, (Partial Award) (27 March 2007) (hereinafter: Eastern Sugar)
Ronald Lauder v. The Czech Republic, (Final Award) (3 September 2001) (hereinafter: Lauder)
Saluka Investment BV (Netherlands) v. The Czech Republic, (Partial Award) (17 March 2006)
(hereinafter: Saluka)
Himpurna California Energy Ltd. v. Republic of Indonesia, (Interim Award) (26 September
1999) (hereinafter: Himpurna California Energy)
NAFTA Decisions
Int’l Thunderbird Gaming Corp. v. United Mexican States, (Award) (26 January 2006)
(hereinafter: Thunderbird)
Metalclad Corp v. United Mexican States (Award) (30 August 2000) (hereinafter: Metalclad)
SD Myers v. Canada, (Partial Award) (21 October 2002) (hereinafter: SD Myers)
ICSID Decisions
ADC Affiliate Ltd. and ADC & ADMC Management Ltd v. Republic of Hungary, ICSID Case
No. ARB/03/16 (Award) (2 October 2006) (hereinafter: ADC Affiliate)
Alex Genin, Eastern Credit Ltd. Inc. & AS Baltoil (US) v. Republic of Estonia, ICSID Case No.
ARB/99/2 (Award) (25 June 2001) (hereinafter: Alex Genin)
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Amco Asia Corporation, Pan American Development Ltd. and P.T. Amco Indonesia v. Republic
of Indonesia, ICSID Case No. ARB/81/1 (Merits) (10 May 1988) (hereinafter: Amco
Asia)
Asian Agricultural Products Ltd. v. Sri Lanka, ICSID Case No. ARB/87/3 (Final Award) (27
June 1990) (hereinafter: AAPL)
Azurix v. Argentine Republic, ICSID Case No. ARB/01/12 (23 June 2006) (hereinafter: Azurix)
Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22
(Award) (24 July 2008) (hereinafter: Biwater)
CMS Gas Transmission Co. v. Argentine Republic, ICSID Case No. ARB/01/8 (12 May 2005)
(hereinafter: CMS Gas)
Enron Corp. and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3
(Award) (22 May 2007) (hereinafter: Enron)
Feldman v. United Mexican States, ICSID Case No. Arb(AF)/99/1 (19 December 2002)
(hereinafter: Feldman)
Helnan Int’l Hotels A/S v. Islamic Republic of Egypt, ICSID Case No. ARB/05/19 (Jurisdiction)
(17 October 2006)
Impregilo S.p.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/3 (Jurisdiction) (22
April 2005) (hereinafter: Impregilo)
Jan de Nul NV and Dredging Int’l NV v. Egypt, ICSID Case No. ARB/04/13 (Merits) (6
November 2008) (hereinafter: Jan de Nul)
LESI, S.p.A. and Astaldi, S.p.A. v. People's Democratic Republic of Algeria, ICSID Case No.
ARB/05/3 (Merits) (12 November 2008) (hereinafter: LESI)
LG&E Energy Corp v. Argentine Republic, ICSID Case No. ARB/02/1 (Decision on Liability) (3
October 2006) (hereinafter: LG&E)
Loewen Group, Inc. & Raymond L. Loewen v. United States, ICSID Case no. ARB(AF)/98/3 (23
June 2003) (hereinafter: Loewen Group)
Mondev Int’l Ltd. v. United States, ICSID Case No. ARB(AF)/99/2 (Award) (11 October 2002)
(hereinafter: Mondev)
Occidental Petroleum Corporation and Occidental Exploration and Production Company v.
Ecuador, ICSID Case No ARB/06/11 (Jurisdiction) (29 September 2008) (hereinafter:
Occidental)
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Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8 (Merits) (11
September 2007) (hereinafter: Parkerings-Compagniet)
Saipem S.p.A. v. The People’s Republic of Bangladesh, ICSID Case No. ARB/05/7 (Jurisdiction)
(30 June 2009)
Sempra Energy Int’l v. The Argentine Republic, ICSID Case No. ARB/02/16 (Award) (28
September 2007) (hereinafter: Sempra Energy)
SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID CASE No.
ARB/01/13 (6 August 2003) (hereinafter: Pakistan)
SGS Société Générale de Surveillance S.A v. Republic of the Philippines, ICSID CASE No.
ARB/02/6 (29 January 2004) (hereinafter: Philippines)
Siemens AG v. The Argentine Republic, ICSID Case No. ARB/02/8 (Jurisdiction) (3 August
2004) (hereinafter: Siemens)
Southern Pacific Properties (Middle East) Ltd. v. Arab Republic of Egypt, ICSID Case No.
ARB/84/3 (Merits) (20 May 1992) (hereinafter: Southern Pacific)
Tecnicas Medioambientales Tecmed, SA v. United Mexican States, ICSID Case No
ARB(AF)/00/2 (Award) (29 May 2003) (hereinafter: Tecmed)
TOTO Costruzioni Generali S.p.A. v. Lebanon, ICSID Case No. ARB/07/12 (Jurisdiction) (11
September 2009) (hereinafter: TOTO Costruzioni)
Waste Management Inc. v. The United Mexican States, ICSID Case No. ARB(AF)/00/3. (30
April 2004) (hereinafter: Waste Management)
Wena Hotels v. Egypt, ICSID Case No. ARB/98/4 (Partial Award) (8 December 2000)
(hereinafter: Wena Hotels)
OTHER DECISIONS
Eureko B.V. v. Republic of Poland, Ad Hoc Proceeding (Partial Award) (19 August 2005
(hereinafter: Eureko)
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TREATIES AND LAWS
BILATERAL INVESTMENT TREATIES
Canada Model Foreign Investment Protection and Promotion Agreement (hereinafter: 2004
Canadian Model FIPA)
United States-Chile Free Trade Agreement (2004) (hereinafter: US-Chile FTA)
United States-Uruguay Free Trade Agreement (2005) (hereinafter: US-Uruguay FTA)
United States-Peru Free Trade Agreement (hereinafter: US-Peru FTA)
United States-Colombia Free Trade Agreement (hereinafter: US-Colombia FTA)
United States 2004 Model Bilateral Investment Treaty (2004) (hereinafter: US Model BIT)
MULTILATERAL TREATIES
General Agreement on Trade and Tariffs (30 October 1947) (hereinafter: GATT)
Energy Charter Treaty (17 December 1991) (hereinafter: Energy Charter Treaty)
ICSID Convention, Regulations and Rules (2006) (hereinafter: ICSID Convention)
North American Free Trade Agreement (1994) (hereinafter: NAFTA)
Dominican Republic-Central America Free Trade Agreement (2004) (hereinafter: CAFTA)
UN Convention on the Law of the Sea, 1833 UNTS 3 (10 December 1982) (hereinafter: Law of
the Sea)
ILC Draft Articles on Responsibility of States for Internationally Wrongful Acts, Annex to UN
GA Res 56/83, [2001-II-1 Y.B.I.L.C. 30] (2001) (hereinafter: Responsibility of States)
Vienna Convention on the Law of Treaties (27 January 1980) (hereinafter: Vienna Convention)
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STATEMENT OF FACTS
1. The Government of the Republic of Beristan (“Beristan” or “Respondent”) and the
Government of the United Federation of Opulentia (“Opulentia”) entered into a bilateral
investment treaty (“BIT”) on March 20, 1996.
2. The BIT was designed to improve economic cooperation between the countries aiming to
establish mutual protection of investments based on international agreements.
3. Televative Inc. (“Claimant” or “Televative”) is a multinational enterprise specializing in
satellite technology. Televative is incorporated in Opulentia. Beritech S.A. (“Beritech”) is
a government owned corporation established under the laws of Beristan. On October 18,
2007, Beritech and Televative established Sat-Connect, S.A. (“Sat-Connect”) by entering
into a joint venture agreement (“JV Agreement).
4. The purpose of Sat-Connect was to develop and deploy a satellite network to be used for
civilian and military purposes in the region encompassing Beristan.
5. Confidentiality was of importance to the Sat-Connect project, as the Beristan military
would employ the system. As a result, an extensive provision in regard to confidentiality
was inserted into the JV Agreement.
6. It was agreed between the parties that any breach of confidentiality under Clause 4 would
be deemed a material breach of the JV Agreement.
7. On August 12, 2009 an independent report stated that confidential information about SatConnect
had been relayed to the Government of Opulentia, in violation of the
confidentiality provision. This breach of confidentiality constituted a material breach of
the JV Agreement.
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8. Beritech and Televative consented to a buyout clause contained in the JV Agreement, by
which Beritech would be entitled to purchase Televative’s interest in Sat-Connect in the
event of material breach.
9. Following the information leak, the Sat-Connect board of directors discussed allegations
of breach of confidentiality at a meeting of the board of directors on August 21, 2009. All
nine board members were present at the meeting, including the four board members
elected by Televative.
10. The buyout provision of the JV Agreement was also discussed at the August 21 board of
directors meeting in the presence of all nine board members.
11. On August 27, 2009, Beritech, with the support of the majority of Sat-Connect’s board of
directors, invoked the buyout clause contained in Clause 8 of the JV Agreement.
Following acknowledgment of a quorum present for the meeting, a vote was held to
determine whether the buyout clause would be invoked.
12. Following the decision of a majority of the quorum Beritech notified Televative that they
would purchase Televative’s interest in Sat-Connect pursuant to the terms of the JV
Agreement.
13. On September 11, 2009, staff from the civil engineering section of the Beristan army
assisted Beritech in ensuring that the Sat-Connect facilities were turned over pursuant to
the buyout clause invoked in the JV Agreement.
14. The JV Agreement contained an exclusive forum selection clause, Clause 17, which was
freely consented to by the parties to the contract.
15. Clause 17 stipulates that the parties irrevocably submit to arbitration under the laws of
Beristan, and waive all objections to such arbitration, in the event of any dispute arising
out of or relating to the JV Agreement.
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16. In conformity with Clause 17 and the terms of the JV Agreement, Beritech filed a request
for arbitration on October 19, 2009.
17. On October 28, 2009, Televative requested Arbitration in accordance with ICSID’s Rules
of Procedure, and notified Beristan. Televative states that jurisdiction is established by
the BIT between Beristan and Opulentia, and because both countries are contracting
states to the ICSID Convention.
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PART I:
RESPONDENT OBJECTS TO JURISDICTION
CLAIMANT’S CLAIMS ARE INADMISSIBLE AND THE TRIBUNAL LACKS JURISDICTION
1. On October 19, 2009, Beritech filed a request for arbitration against Televative under
Clause 17 of the JV Agreement.1
Both Beritech and Televative allege breach of contract
under the JV Agreement; Beritech, alleging breach of the Clause 4 Confidentiality
Provision, and Televative, alleging breach of the Clause 8 Buyout provision.2
2. Televative’s allegations of breach of the Beristan-Opulentia BIT arise directly out of the
alleged breach of the JV Agreement Buyout provision, claiming that Respondent was
behind the decision to invoke Clause 8, and that Respondent’s actions subsequent to
buyout interfered with Televative’s contractual rights.3
3. The JV Agreement was negotiated and entered into by Beritech and Televative; the
agreement contains an exclusive forum selection provisions, Clause 17, pursuant to
which Beritech has commenced arbitration4
, and under which Televative has waived any
objections to the arbitration procedures set-forth in that Clause.5
4. Claimant’s refusal to respond to the dispute settlement terms irrevocably submitted to in
the JV Agreement constitutes breach of the Agreement, as all claims alleged by Claimant
against Respondent in these proceedings arise out of alleged improper invocation of the
Buyout provision contained the JV Agreement, and Respondent’s actions subsequent to
Beritech’s invocation of that clause. Clause 17 (Dispute Settlement) of the JV Agreement
governs all claims brought by Claimant in the present dispute, and Claimant is should
respond to the already commenced arbitration procedures initiated under the dispute
settlement clause.
1
Record, Annex 2, ¶ 16
2
Record, Minutes, ¶ 15
3
Id.
4
Record, Annex 2, ¶ 13
5
Record, Annex 3, Clause 17
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5. It is acknowledged in the record that a period of nearly two years of good relations
existed between Beritech and Claimant.6
No dispute arose between the parties until the
breach of Clause 4 of the JV Agreement, which did not come to light until August 12,
2009.
6. Subsequent to that breach of contract, Beritech, independent of Respondent, invoked the
buyout clause of the JV Agreement on August 27, 2009, and on October 19, 2009,
requested arbitration pursuant to the terms of the JV Agreement.
7. All claims brought by Claimant in the present proceedings arise out of their disputed
interpretation of and allegations surrounding invocation of the buyout clause contained in
the JV Agreement, and should be settled pursuant to that agreement.
8. Claimant improperly brings these claims before the present Tribunal on the basis of
Respondent’s consent to ICSID jurisdiction found in the Beristan-Opulentia BIT.
Respondent will demonstrate that Article 11 of the BIT is not sufficient to override the
exclusive forum selection clause contracted to in the JV Agreement.
9. Respondent will further demonstrate that Article 10 of the BIT should be interpreted
restrictively, and contractual allegations arising out of the JV Agreement should not be
elevated to treaty claims purporting to allege violations of substantive standards
contained in the BIT. Furthermore, where the party to the contract is an entity distinct
from the state, the umbrella clause will not apply.7
A. CONTRACT CLAIMS BROUGHT BY CLAIMANT ARE INADMISSIBLE IN LIGHT OF CLAUSE
17 OF THE JV AGREEMENT
1. ICSID Arbitral Tribunals have confronted objections to jurisdiction in prior disputes. The
Tribunals presiding over SGS v. Pakistan (“Pakistan”) and SGS v. Philippines
(“Philippines”) dealt with similar claims regarding the introduction of contract claims to
international treaty arbitration. Respondent submits that the present dispute requires an
6
Record, Minutes, ¶ 15
7
Yannica-Small, 499
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analysis and determination consonant with the decisions reach by the Pakistan and
Philippines Tribunals.
2. SGS was the claimant in both the Philippines and Pakistan proceedings, and attempted to
bring contractual claims before ICSID Tribunals despite valid, exclusive forum selection
clauses contained in the underlying agreements at issue in those disputes. In both cases,
SGS based ICSID jurisdiction primarily on the bases of investment treaty provisions. The
first, a dispute settlement provision contained in the relevant BIT submitting the parties to
ICSID jurisdiction, and the second, an umbrella clause which SGS claimed was broad
enough to bring contract claims within the reach of ICSID jurisdiction.
3. Both the Tribunal in Pakistan and that in Philippines ultimately decided that they would
not address claims brought before them that are subject to exclusive forum selection
clauses, whether or not jurisdiction over those claims could be generally established.
4. Televative, in the present dispute, brings contractual claims before the Arbitral Tribunal
despite the freely negotiated, valid, and exclusive forum selection clause contracted to in
the underlying JV Agreement.
5. Televative, like SGS, Claimant also bases jurisdiction on the general legal framework
created by the dispute settlement and umbrella clause provisions in the BeristanOpulentia
BIT.
6. The reasoning employed in the Pakistan and Philippines decisions is helpful as
Respondent will demonstrate that the present Arbitral Tribunal is not empowered to
decide claims brought by Televative that are subject to the exclusive jurisdiction
provision in the underlying joint venture agreement.
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I. ARTICLE 11 OF THE BIT IS A GENERAL PROVISION SUBJECT TO MODIFICATION BY
PARTIES TO AN UNDERLYING CONTRACT
7. Article 25(1) of the ICSID Convention establishes jurisdiction over BIT claims derived
from consent to ICSID Arbitration provided within the BIT between the contracting
parties.8
It is clear by the language of the BIT between Beristan and Opulentia that
Respondent intended to consent to arbitration arising out of allegations of substantive
treatment violations arising from the BIT and assumed by Respondent directly. The
language of the BIT follows:
“For the purpose of resolving disputes with respect to investments between a
Contracting Party and an investor of the other Contracting Party that concern an
obligation of the former under this Agreement in relation to an investment of the
latter”9
The consent to jurisdiction established in that provision is limited in scope to
“investments… under this Agreement.”
8. There is no language in Article 11 or any other article of the Beristan-Opulentia BIT to
imply that Respondent intended to consent to ICSID Arbitration for alleged breaches of
contract governed by a dispute settlement provision containing an exclusive forum
selection clause in a separate agreement distinct from the BIT and entered into by a party
distinct from Respondent.
9. Respondent submits that such claims are inadmissible, as they arise not from the BIT but
from the JV Agreement, and are governed by the dispute settlement provision contained
in Clause 17. The Philippines Tribunal’s analysis provides guidance for analysis of
Article 11 of the Beristan-Opulentia BIT.
10. In the Philippines case, SGS contracted to carry out pre-shipment inspection services in
Respondent’s ports.10
The agreement contracted to by SGS contained an exclusive forum
selection clause, similar to that in the JV Agreement between Beritech and Televative.
8
ICSID Convention, Article 25
9
Record, Annex 1, Article 11
10
Philippines, ¶ 19
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The forum selection clause provided that the entire agreement would be governed by the
laws of the Philippines, and that all disputes in connection with either party to the
agreement be filed at the host country’s courts.11
11. Both the Beristan-Opulentia BIT and the Switzerland BIT referenced in Philippines
provided for settlement of “disputes with respect to investments”.12
In Philippines, SGS
alleged claims for unpaid monies provided for in the underlying contract.13
Televative
alleges breach of the JV Agreement for improper invocation of the buyout clause.14
12. The Tribunal in Philippines determined that jurisdiction over contract a claim is
established in broadly interpreted dispute settlement provisions in investment treaties.
While such claims may be relevant to BIT standards, they are inadmissible due to
deference to the underlying exclusive forum selection clause.15
13. The Tribunal in Philippines determined that the dispute settlement provision in the BIT is
prima facie, a “general provision” encompassing disputes arising from alleged BIT
violations as well as those allegations arising from underlying contracts.16
14. Going forward, the Philippines Tribunal relied the Tribunal in the Pakistan case, given
the similar terminology contained in the relevant provisions.17
15. The Pakistan Tribunal found that the language, “disputes with respect to investments,”
was descriptive of the factual subject matter of the dispute, but does not necessarily relate
to the legal basis or cause of action with respect to claims brought before the Tribunal
based in contract.18
11
Philippines ¶ 22
12
Philippines, ¶ 130; Record, Annex 1, Article 11
13
Philippines, ¶ 15
14
Record, Minutes, ¶ 15
15
Philippines, ¶ 177
16
Id, ¶ 131
17
Id, ¶ 133
18
Pakistan, ¶ 161
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16. While factual allegations surrounding the contractual dispute could be relative to an
analysis of breach of treaty allegations, the Tribunal held that without more specific
language, no implication arises that both BIT claims and contract claims were intended to
be encompassed by the dispute settlement provision of the BIT, nor that such language
could be construed to override otherwise valid non-ICSID forum selection clauses.19
17. In the present dispute, the language of Article 11 of the Beristan-Opulentia BIT is a
general provision, and there is no language contained in the BIT to imply that its terms
should override freely negotiated exclusive forum selection clauses entered in to by the
parties to the underlying contract.20
18. Analysis of the dispute settlement provisions above may be contrasted from that in the
Lanco v. Argentina case, where the Tribunal interpreted the dispute settlement provision
in the underlying contract to be a mere acknowledgement of administrative jurisdiction,
rather than a binding obligation of the parties.21
19. Unlike the dispute settlement provision relevant to the contract in the Lanco case, the JV
Agreement in the present case is a prima facie binding obligation on parties to the
contract, like those in Pakistan and Philippines.22
II. DESPITE GENERAL ICSID JURISDICTION ARISING OUT OF RESPONDENT’S CONSENT TO
THE BIT, CONTRACTUAL CLAIMS ARE INADMISSIBLE
20. The Tribunal in the Philippines case referred to the characterization of investment
protection agreements as framework treaties, intended by the State Parties to “support
and supplement, not to override or replace,” negotiated investment contracts.23
19
Id.
20
Record, Annex 1, Article 11
21
Philippines, ¶ 138
22
Id., ¶ 137; Pakistan ¶ 161
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21. The Beristan-Opulentia BIT was established as a framework for foreign investment, and
to supplement investment procedures where more specific agreements fail to afford
justice to the investors or where the State itself is a direct party to the contract. The JV
Agreement entered into by distinct parties, subsequent to the creation of the BIT, contains
specific and binding provision in regard to dispute settlement.24
22. Article 26 of the ICSID Convention provides in pertinent part:
“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.”25
Article 11 of the Beristan-Opulentia BIT establishes Respondent’s consent to ICSID
Arbitration; however, given the language “unless otherwise stated,” Article 26 of the
ICSID Convention does not purport to override exclusive jurisdiction clauses providing
for dispute settlement procedures otherwise agreed to by the parties to the contract.
23. While the Respondent did consented to ICSID Arbitration in general terms as far as
Respondent’s direct obligations were concerned, the parties to the underlying contract
(Beritech and Televative) negotiated alternative dispute settlement procedures pursuant to
their agreement.
24. The Tribunal in Philippines referred to the maxim generalia specialibus non derogant26
to show that general dispute resolution provisions in a BIT are not concluded with any
specific investment or contract in view, and cannot override specific provisions of
particular contracts, freely negotiated by the parties to those contracts.27
23
Id. ¶ 141
24
Record, Annex 3, Clause 17
25
ICSID Convention, Article 26
26
“General words do not derogate from special words”
27
Philippines, ¶ 141
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25. The Philippines Tribunal found the language “unless otherwise stated,” in Article 26 of
the ICSID Convention permits contrary statements or agreements by the parties to the
contract that supersede the general consent provided in a BIT.28
26. The Tribunal found that in prior arbitral decisions, BIT provisions were sufficient to
override contractual forum selection clauses only where there was a provision in the BIT
explicitly overriding forum selection clauses contained in the underlying agreement.29
27. Citing commentator Christopher Schreuer, the Tribunal stated:
“This exclusive remedy rule of Art. 26 is subject to modification by the parties.
The words ‘unless otherwise stated’ in the first sentence give the parties the
option to deviate from it by agreement… Explicit reference to domestic courts
means that the exclusive remedy rule of Art. 26 does not apply since the parties
have stated otherwise.”30
Taken together, the language of Article 26 of the ICSID Convention, the general
language contained in the BIT, and the specific language contained in the JV Agreement
evidence intent to provide for alternative dispute settlement procedures as far as disputes
arising out of the specific agreement is concerned.
28. With regard to the language of the JV Agreement between Beritech and Televative, the
exclusive dispute settlement provision compels Claimant to irrevocably submit to
arbitration procedures provided therein, and to waive any objection to said arbitration.31
Clause 17 of the JV Agreement is sufficient to fall within the “unless otherwise stated”
language in Article 26 of the ICSID Convention.
29. Article 11 of the Beristan-Opulentia BIT contains no provision that could be interpreted
as overriding exclusive forum selection clauses in underlying agreements.32
In fact,
ICSID Arbitration does not appear as recourse for dispute settlement until subsection (3),
whereas subsection (1) provides for dispute settlement within the Contracting Party’s
28
Philippines, ¶ 147
29
Id. ¶ 152
30
Philippines, ¶ 147
31
Record, Annex 3, Clause 17
32
Record, Annex 1, Article 11
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Court having territorial jurisdiction.33
This first resort to the judicial system of the
Contracting Party is in conformity with dispute settlement procedures set out in the JV
Agreement, which is also governed by the laws of Beristan.34
30. The Tribunal in Philippines found that contractual claims brought in breach of an
exclusive jurisdiction clause are inadmissible where they are not overridden by Article 26
of the ICSID Convention, and where they are not overridden by terms of the BIT.35
31. In the event the Tribunal finds jurisdiction over certain contractual claims by virtue of
their relation to treaty claims, such claims will be inadmissible in light of the underlying
contractual dispute settlement provisions, which, as a matter of international law, must be
respect by the Tribunal.36
32. Prima facie, Clause 17 is a binding obligation, incumbent on both parties to resort
exclusively to the arbitral tribunal constituted under the laws of Beristan. It is clear that
the substance of Claimant’s claims, viz., improper invocation of a provision contained in
the JV Agreement, falls within the scope of Clause 17, as do any BIT claims that arise
out of or relate to the JV Agreement.37
33. Conscious of the dispute settlement provisions in Article 11 of the BIT as applied to
Respondent, the parties to the JV Agreement would not have freely negotiated an
exclusive dispute settlement clause in the contract, entered into subsequent to the creation
of the BIT, unless it was their clear intention that disputes arising out of the provisions of
the contract, such as the buyout provision, be settled pursuant to the dispute settlement
clause contained therein.
34. The Tribunal in the Philippines case found that the Tribunal should not exercise
jurisdiction over a contract claim when the parties have agreed on how such a claim is to
be exclusively resolved by the procedure stipulated in the contract.38
33
Id.
34
Record, Annex 3, Clause 17
35
Philippines, ¶ 169
36
See Philippines, ¶ 169; Pakistan, ¶ 161
37
See Philippines, ¶ 137
38
Philippines, ¶ 155
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35. In the present dispute, a determination of whether or not Respondent failed to observe
obligations arising under the BIT depend on whether or not the buyout clause invoked
pursuant to the JV Agreement had been invoked improperly by Beritech. There is no
evidence in the record to show that Beristan controlled or elected Beritech directors or
influenced their votes with respect to the buyout provision.
36. The Tribunal in SGS v. Philippines found that parties to a contract should not be allowed
to rely on a contract as the basis for a claim “when the contract itself refers that claim
exclusively to another forum.”39
This reasoning is especially useful in the present case.
Both Beritech and Claimant allege breach of the JV Agreement, however, only Beritech
is in compliance with the recourse provided in the JV Agreement for alleged breach, as
Beritech has commenced arbitration proceedings pursuant to that agreement. The
aforementioned Tribunal concludes the subject of admissibility versus jurisdiction with
the opinion that “a party to a contract cannot claim on that contract without itself
complying with it.”40
B. ARTICLE 10 OF THE BIT DOES NOT PERMIT ICSID TO ELEVATE CLAIMS BASED ON
CONTRACTUAL OBLIGATIONS TO TREATY CLAIMS
37. Respondent again draws upon the Arbitral Tribunals’ decisions in the Philippines and
Pakistan cases in order to demonstrate that Article 10 of the BIT (“umbrella clause”)
requires a restrictive interpretation, and does not purport to provide ICSID with
jurisdiction over all possible claims arising out of contractual obligations.
38. Article 10 of the BIT requires a restrictive interpretation in light of the potential negative
consequences to international investment, which would result in the event of a broad
interpretation as proffered by Claimant.
39. A close reading of Article 10 of the BIT will show that its object and purpose should be
construed as a general legal framework to supplement, not replace, freely contracted
agreements between parties to an investment contract such as the JV Agreement.
39
Philippines, ¶ 154
40
Philippines, ¶ 158
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40. Article 10 can only apply to a dispute before the Arbitral Tribunal if the Respondent is a
direct contracting party to the underlying contract.
I. ARTICLE 10 OF THE BIT REQUIRES A RESTRICTIVE INTERPRETATION
41. The Tribunal in Pakistan established the requirement for “[c]lear and convincing
evidence” that parties to a BIT intended that the BIT to have a broad and burdensome
scope so that all contractual disputes could be elevated to treaty claims despite validly
executed, exclusive forum selection clauses.41
42. The purpose of umbrella clauses such as Article 10 in the Beristan-Opulentia BIT is not
to elevate contract claims to treaty claims, rather, they provide for an extra or
supplemental means of contract enforcement in the event remedies are unavailable or a
BIT term not covered in the underlying contract is breached.42
43. The Tribunal in Philippines referred to the characterization of investment protection
agreements (such as the present BIT) as framework treaties, “intended by the State
Parties to support and supplement, not to override or replace, the actually negotiated
investment arrangements made between the investor and the host State.”43
44. The Pakistan Tribunal discussed at length the negative consequences of an expansive
interpretation of a sparsely worded umbrella clause such as Article 10 of the JV
Agreement in the present dispute.44
45. The negative consequence discussed in the Pakistan decision of most relevance to the
present proceeding, is that under the broad interpretation encouraged by Claimant,
investors would be in a position of unjust advantage. The option to forgo dispute
settlement provisions in contract is equated to the power to nullify freely negotiated terms
41
Id. ¶ 167
42
Sasson, 194
43
Philippines, ¶ 141
44
Pakistan, ¶ 168
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unilaterally, such as Clause 17, despite the mutual assent reached as to such clauses in
negotiation of the underlying contract.45
46. The inherent unfairness in this result is logically clear: the State, and not the investor, is a
party to the BIT containing the umbrella clause, the investor would have the opportunity
to defeat invocations of dispute settlement provisions in underlying contracts by pointing
to the general consent provided in the BIT, while the State would be subject to the
dispute settlement procedure desired by the investor, whether founded in the BIT or the
contract.46
47. While the Tribunal in the Philippines case expressed equal concern for such a result,47
they were not as concerned with the issue given their ultimate treatment of contract
claims in that dispute.
48. The result in Philippines should not be misconstrued as to submit that nullification of
valid dispute settlement clauses is not a potential consequence of the broad interpretation
of umbrella clauses proposed by Claimant.
49. Rather, the Tribunal in that dispute determined that the contract claims jeopardized by
such an interpretation must still be determined by the underlying contract, and could only
be determined by reference to the terms of that contract.48
The reach proposed by SGS,
and that encouraged by Televative, was not one that the Philippines Tribunal was willing
to take, ultimately finding that ICSID proceedings should be stayed pending a decision
pursuant to the terms of the underlying contract.49
45
Id.
46
Id.
47
Philippines, ¶ 123
48
Id. ¶ 126
49
Id. ¶ 177
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50. The Philippines Tribunal continued on this matter in order to distinguish between the
scope of the commitments entered into under an umbrella clause and the performance of
those obligations referred to in the clause.50
51. That analysis is useful in the present case; the Tribunal found that the umbrella clause
“does not convert questions of contract law into questions of treaty law.”51
Rather, the
umbrella clause contained in the relevant BIT merely provided assurances to investors
with regard to obligations of the host State to secure the rule of law in relation to
investment protection.52
52. Based on the plain language of the Beristan-Opulentia BIT, and the negative
consequences that would result from an overly broad interpretation of Article 10, the
present Tribunal should apply a restrictive interpretation of the provision and defer to the
terms contracted to by the parties to the JV Agreement.
53. A restrictive interpretation does not remove Article 10’s import to international
investment, as it provides a backdrop for investment activity established between
investors who enter into contracts directly with Respondent. Based on the present facts,
the Dispute Settlement provision of the JV Agreement is more specifically worded than
Article 10, and would be robbed of all significance if superseded by the broad terms of
the BIT.
50
Id. ¶ 126
51
Id.
52
Id.
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II. THE OBJECT AND PURPOSE OF THE BIT IS TO PROVIDE A LEGAL FRAMEWORK FOR
INVESTMENT ACTIVITY
53. Article 31 of the Vienna Convention on the Law of Treaties provides in pertinent part:
“[A] treaty shall be interpreted in good faith in accordance with the ordinary
meaning to be given to the terms of the treaty in their context and in the light of
its object and purpose.”53
While the terms of the treaty hold special significance, the context surrounding the treaty
is taken into consideration in the course of interpretation. Respondent cannot be
compelled to arbitration for every breach of separate contracts alleged by foreign
investors in their territory, unless there is clear evidence of Respondent’s intention to
expose itself to such arbitration.54
There is no clear evidence of such intent anywhere in
the BIT.
54. In the present case, “context,” as referred to in the Vienna Convention, is evidenced by an
alternative and exclusive dispute settlement provision, freely contracted to in the
underlying agreement. As discussed above, Article 26 of the ICSID Convention allows
parties to otherwise state their intentions with regard to consent. Given the contextual
consideration required in interpretation of the BIT, it would be an overreach of
jurisdiction for a BIT tribunal to fail to observe the underlying contract’s dispute
resolution terms.55
55. Applying the same reasoning as affects Article 11 of the BIT, Article 10 cannot operate
to supersede freely negotiated dispute settlement provisions contained in the JV
Agreement. The Beristan-Opulentia BIT is a legal framework consented to by
53
Vienna Convention, Article 31
54
See Pakistan, ¶ 167
55
Sasson, 194
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Respondent in order to support and supplement the negotiated investment arrangements
entered into by investors directly with host State.56
56. The umbrella clause in the Pakistan case is sufficiently similar to the Article 10 in the
Beristan-Opulentia BIT for the purpose of drawing comparison. Both provisions provide
that the Contracting Party “shall constantly guarantee the observance of commitments.”57
57. The Tribunal in Pakistan found that in order to construe Article 10 as broadly as urged by
the Claimants, the Article of the BIT “would have to be considerably more specifically
worded”.58
Referring to the maxim “in dubio mitius,” the Tribunal ultimately held that
where language and intent is in doubt, a narrow interpretation is accorded.59
58. Such is the case in the present dispute, where there is no evidence in the record that the
parties to the BIT indented for an interpretation of Article 10 that is so broad, it would in
effect limit the right of parties to freely negotiate dispute settlement provisions into
contracts.
59. In the Impreglio v. Pakistan case (“Impreglio”), Impreglio pursued ICSID arbitration
based on the umbrella clause in the Switzerland-Pakistan BIT through a most favored
nation clause in Italy’s own BIT with Pakistan.60
The Tribunal held that the host State
must be a contracting party to the underlying contract as a precondition for invoking an
umbrella clause in an attempt to raise contract claims in treaty arbitration.61
56
Philippines, ¶ 141
57
Pakistan, ¶ 119
58
Pakistan, ¶ 171
59
Id. ¶ 172
60
Impreglio, ¶ 84
61
Yannica-Small, 499
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PART II:
BERISTAN DID NOT IMPROPERLY INVOKE THE BUYOUT
CLAUSE OF THE JOINT VENTURE AGREEMENT, NOR DID IT
BREACH THE AGREEMENT BY ITS ACTIONS.
1. CLAIMANT claims that BERISTAN improperly invoked Clause 8 of the JV Agreement,
which entitled Beritech to purchase all of CLAIMANT’s interest in Sat-Connect upon
breach of the JV agreement’s confidentiality provisions.
2. Clause 8 of the JV agreement states:62
“If at any time Televative commits a material breach of any provision of this
agreement, Beritech shall be entitled to purchase all of Televative’s interest in this
agreement.”
3. BERISTAN contends that Beritech’s actions of invoking the buyout clause constitute the
actions of a private corporation under customary international law. Actions of a private
corporation therefore cannot be attributed to BERISTAN under international law.
A. BERITECH IS A PRIVATE CORPORATION UNDER INTERNATIONAL LAW AND ITS ACTIONS
ARE NOT ATTRIBUTABLE TO BERISTAN.
4. Rules of attribution determine whether the state can be liable for actions of entities
deemed “organs of the state” or other entities exercising elements of governmental
authority.63
Responsibility for a wrongful act arises when the act is both attributable to
the state and in breach of obligations of the state set forth in treaties or customary
international law.64
62
Record, Annex 3, Clause 17.
63
Yannaca-Small, 287-321.
64
Id. at 287.
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5. Attribution prevents states from being assigned obligations that are not its responsibility,
including a duty to ensure that any person or entity within their borders involved in
certain activities will comply with certain standards.65
International investment treaties,
such as Beristan-Opulentia BIT, contain no special obligations or standards specifically
governing attribution under the treaty.66
Instead, all applicable rules and laws pertaining
to attribution must be read in light of customary international law.67
6. In the present case, BERISTAN contends that the actions of Beritech are not attributable
to BERISTAN under international law standards, because; (i) Beritech is not an organ of
the state; and (ii) Beritech has not been empowered to exercise any elements of
governmental authority.
i. BERITECH IS NOT AN ORGAN OF THE STATE.
7. Article 4(1) of the ILC’s Responsibility of States asserts:68
“Conduct of any state organ shall be considered an act of that state under
international law, whether the state exercises legislative, judicial, executive or any
other functions, whatever position it holds in the organization of the state, and
whatever character as an organ of the central government or of a territorial unit
within the state.”
8. Article 4(2) of the Articles states that: 69
“An organ includes any person or entity which has that status according to the
internal law of the state.
9. Interpretation of international law illustrates that state organs show little institutional
separateness from the state itself: such organs are created by the state, and the functions
65
Id. at 288.
66
Id.
67
See id.
68
Responsibility of States, Art. 4(1).
69
Responsibility of States, Art. 4(2).
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assigned to the entity are those normally assigned to the state.70
While the examination is
predominantly fact-driven, some overarching principles do impact analysis, including:71
• Whether the entity’s functions are controlled by law, or possess freedom of contract;
• Whether it is subject to government oversight or judicial review;
• Whether it can exercise authority that private individuals cannot exercise; and
• Whether it is fully funded by the state.
10. In contrast, entities that maintain separate legal personalities, such as corporations
organized under private law and with a commercial purpose, should in principle be
regarded as distinct entities. These entities’ actions are not attributable to the state, so
long as the entity pursues its own interests independent of the state’s public interest.72
11. The presumption of independence and separation for corporations in this context is
rebuttable under some conditions, such as:
• If the corporation has an overwhelming government purpose, with considerable noncommercial
functions;73
• If the corporation maintains no separation under domestic law and is treated as part of
the state;74
• If the corporation’s management controls, such as the Board of Directors, are
insufficient to establish independent decision-making authority;75
• If the corporation’s primary purpose is to administer public-sector contracts approved
by the government;76
• If the corporation is under specific control of the state, is completely dependent on the
state, or if the state is in a position of legal authority to control the corporation.77
12. In the present case, the Respondent contends that Beritech maintains sufficient
institutional separateness so that Beritech’s actions are not attributable to Beristan.
Beritech was organized under Beristian private law governing corporations.78
Beritech’s
70
Yannaca-Small, 296. See also De Schutter, 5.
71
Yannaca-Small, 296.
72
Yannaca-Small, 296. See ILC 2nd Reading Commentary, Art. 8, ¶ 6. See also AMCO Asia, ¶
162-63.
73
Yannaca-Small, 297.
74
Yannaca-Small, 297; See Saipem S.p.A., ¶ 145-46.
75
Yannaca-Small, 297; See Jan de Nul, ¶ 161.
76
Yannaca-Small 297; See LESI, ¶ 107-109.
77
Yannaca-Small, 298; See Himpurna California Energy, ¶ 118.
78
Record, Annex 2, ¶ 2..
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initial funding came from both private investors and Respondent, and it is not wholly
owned by BERISTAN.79
13. Beritech’s corporate purpose is to provide telecommunication services in Beristan.80
Its
mission statement and bylaws show a broader corporate purpose than simply
participation in the JV agreement.81
Control of Beritech does not fall solely to the
Respondent, and the corporation has the freedom to contract with whomever it chooses.82
14. Beritech possesses no exclusive powers of conduct or contract unavailable to private
citizens under international law. Prior to the JV agreement, Beritech conducted business
within the telecommunications industry in Beristan, a privatized industry for over ten
years in which any private developer can offer its products and services.83
Similarly, the
project represents a private investment in technology and services to be sold throughout
an extended region, and such an investment is not restricted to investors that act as state
organs.84
15. Further, the facts do not prove any reasonable rebuttals to the presumption in
international law that corporations organized under private law and possess a clear
commercial purpose, such as Beritech, are in principle regarded as separate and
unattributable entities. The Claimant can point to no instances that establish Beritech is
under the strict control of, and completely dependent upon, the Respondent.
16. Beritech was created not with an overwhelming public purpose, but rather to deliver
services within the privatized telecommunications industry in Beristan.85
While the SatConnect
project does incorporate a military aspect crucial to the Respondent, the
79
Id.
80
Clarification Requests 161.
81
See id.
82
Record, Annex 2, ¶ 3.
83
Clarification Requests, 166.
84
Record, Annex 2, ¶ 5.
85
Clarification Request, 166.
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predominant purpose is to develop a private commercial network and infrastructure for
telecommunications within the greater Euphonia region.86
17. In addition, Beritech was incorporated under the laws governing private commercial
enterprises in Beristan, and receives no specific treatment under domestic law as part of
the state. Beristian law governing corporate actions and governance applies to Beritech.87
Beritech maintains sufficient independent controls of its management and corporate
strategy under an independent Board of Directors.88
II. BERITECH HAS NOT BEEN EMPOWERED TO EXERCISE ANY ELEMENTS OF
GOVERNMENT AUTHORITY.
18. Article 5 of the Responsibility of States maintains: 89
“The conduct of a person or entity which is not an organ of the state under article
4 but which is empowered by the law of that State to exercise elements of the
governmental authority shall be considered an act of the State under international
law, provided the person or entity is acting in that capacity in the particular
instance.
19. While this language usually implicates entities whose authority impacts “core” state
functions, such as the privatization of state-controlled assets, international law has also
recognized that such authority can encompass other non-core functions of the
government’s authority, such as telecommunications and education.90
20. For the entity’s conduct to be attributable to the state, the conduct must be specifically
authorized under internal law as the exercise of government authority.91
The focus is on
the act itself, and not the context in which the act took place.92
Parties seeking to
86
Record, Annex 2, ¶ 5.
87
Record, Annex 2, ¶ 2.
88
Record, Annex 2, ¶ 4.
89
Responsibility of States, Art. 5.
90
Yannaca-Small, 303.
91
ILC Second Reading Commentary, Art. 5, ¶ 7.
92
Yannaca-Small, 304.
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attribute conduct to a state must show that the entity’s particular act was only made
possible due to special prerogatives of power granted it by the state.93
21. The tribunal in Impregilo held that the typical threshold for such an inquiry involves
activity beyond that of an ordinary contracting party.94
This inquiry finds support in the
Jan de Nul tribunal, where the actions of the Suez Canal Authority were not attributed to
Egypt as the authority acted as any investor might in an infrastructure contract.95
Similarly, the tribunal in Biwater held that the withdrawal of a negotiated tax exemption
from a foreign investor had no reasonable foundation in Tanzanian private law rights and
therefore exceeded the normal cause of conduct for due to its political motivations.96
22. Contrary to the actions implicated in Biwater, the conduct of Beritech in this case reflects
actions that derive no special authority from a grant of power from the Respondent. The
exercise of a buyout clause in contractual proceedings requires no special public authority
granted to a private company by the government. Rather, buyout clauses are common
provisions in contracts among investing parties. The buyout clause, and the authority to
exercise it, is not activity beyond that of any ordinary contracting party to a contract.
23. The exercise of the buyout clause was predicated upon the breach of the confidentiality
clause of the JV agreement, which prohibited either party form disseminating any
confidential information related to the Sat-Connect project to third parties.97
The terms
“confidential information” in the JV agreement is sufficiently broad to incorporate any
information developed for the project as a whole, not developed solely its military
aspects.98
Beritech’s actions were motivated by the attempt of the Opulentian government
93
Yannaca-Small, 304; See Jan de Nul, ¶ 170.
94
Impregilo, ¶ 266(b).
95
Jan de Nul, ¶ 169.
96
Biwater, ¶ 460.
97
See Record, Annex 3, Clause 4(1)-(4).
98
See Record, Annex 3, Clause 4(2).
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to access civilian encryption keys associated with the Sat-Connect project, not specific
military aspects.99
24. Other tribunals have focused on the specific grant of authority from the state to the entity.
The specific grant of authority, in cases of attributable conduct, empowers the entity to
take such actions as part of its government-created functions.100
The tribunal in Helnan
attributed conduct of a private corporation to the Egyptian government because the
corporation was formed to direct the privatization of hotels within Egypt.101
The grant of
government authority exclusively authorized the corporation to undertake specific actions
related to the privatization of the industry.102
25. Unlike such cases, Beritech’s actions in both entering the JV agreement and its exercise
of the buyout clause derive themselves not from any public authority granted to it by the
Respondent, but the power conferred to it by its incorporation under Beristian private law
and the JV agreement. Private law dictated the freedom to contract to Beritech, which it
chose to exercise in entering into the JV agreement.
99
See Clarification Request 178.
100
See TOTO Costruzioni, ¶ 59.
101
See Helnan, ¶ 93.
102
See id.
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PART III:
BERISTAN HAS NOT EXPROPRIATED TELEVATIVE’S
INVESTMENT.
26. Article 4(2) of the Beristan-Opulentia BIT protects foreign investments from
expropriation by host states by stating:
“Investments of investors of one of the Contracting Parties shall not be directly or
indirectly nationalized, expropriated, requisitioned or subjected to any measures
having similar effects in the territory of the other Contracting Party, except for
public purposes, or national interest, against immediate full and effective
compensation, and on condition that these measures are taken on a nondiscriminatory
basis and in conformity with all legal provisions and procedures.”
27. The Respondent contends that its actions do not constitute expropriation because: (i)
Beritech’s actions are not attributable to the Respondent, and (ii) the Claimant’s breach of
contract claim does not qualify as expropriation. Alternatively, the Respondent also
contends that (iii) the exercise of the buyout clause constitutes lawful expropriation.
A. BERITECH’S ACTIONS ARE NOT ATTRIBUTABLE TO BERISTAN.
28. International law and international treat provisions regarding expropriations are aimed t
limiting unlawful expropriations by states.103
Such provisions do not target actions by
private persons or businesses.104
Therefore, any actions an investor claims as
expropriation must be attributable to a contracting state to the treaty.105
29. The Respondent contends that, for reasons previously stipulated, the actions of Beritech
represent those of a private corporation governed by private law. Beritech is neither an
organ of the Respondent, nor was it empowered to exercise any elements of government
103
Salacuse, 289.
104
Id.
105
Id.
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authority. Therefore, any actions of Beritech cannot be attributed to the Respondent.
Consequently, exercise of the buyout clause and subsequent impairment of Claimant’s
investment cannot amount to an expropriation.
30. Further, the Claimant’s arguments that the executive order and subsequent actions of the
CWF expropriated its investment also fail. At the time the Respondent issued the
executive order and the CWF removed the Claimant’s personnel from the facility, SatConnect’s
Board of Directors had legally severed the Claimant’s investment.106
No
investment remained to expropriate. In addition, all intellectual property and other
intangible property developed for Sat-Connect were the property of Sat-Connect, not the
Claimant.107
The JV agreement transferred all legal title and control of such investments
to Sat-Connect,108
and therefore cannot qualify as an investment for expropriation
purposes.
B. TELEVATIVE’S ALLEGATIONS OF IMPROPER BREACH OF THE JV AGREEMENT DO NOT
QUALIFY AS EXPROPRIATION UNDER INTERNATIONAL LAW.
31. Under international law, allegations of breach of contract between state entities and
foreign investors do not usually qualify for protection under applicable investment
treaties.109
While repudiation of a contract by a host state constitutes expropriation, mere
breach of contract does not.110
A host state repudiates a contract when it effectively
declares its contractual obligations no longer exist.111
Contractual breaches arise where
the host state violates contractual obligations but offers the investor a remedy in local
courts.112
106
Record, Annex 2, ¶ 10.
107
Clarification Requests, 269.
108
Id.
109
Vandevelde, 303.
110
See id.
111
See id.
112
See id.
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32. Without prejudice to the preceding argument concerning attribution, the Respondent
argues that any allegations of a breach of contractual rights in Sat-Connect do not amount
to expropriation because: (i) Beritech exercised no sovereign authority in exercising the
buyout clause, and (ii) the Respondent did not deprive the Claimant from seeking remedy
for the alleged breach in local courts.
I. BERITECH EXERCISED NO SOVEREIGN AUTHORITY IN EXECUTING THE BUYOUT
CLAUSE.
33. General international law asserts that a state’s actions repudiation of contractual
obligations are actionable under international law. States repudiate contractual
obligations, and expropriate investments, only if the breach involves an exercise of the
state’s sovereign authority.113
Only sovereign authority grants the state power to
eliminate contractual obligations, and therefore a repudiating state acts in ways only a
state, and not a private party, can act.114
Breaches of contractual obligations by state
authorities do not constitute expropriation if it involves no exercise of sovereign
power.115
34. In contrast, breaches of contracts involve a state acting in ways that any private investor
in a contract could act.116
Actions by state authorities that involve no sovereign authority,
but an exercise of authority equal to any private party, do not constitute expropriation
under international law.117
35. The tribunal in Parkerings-Compagniet held that the city of Vilnius’ termination of a
contract based upon a material breach of the contract by the foreign investor did not
constitute expropriation.118
The tribunal reasoned that termination because of a breach
113
Vandevelde, 303. See Parkerings-Compagniet, ¶ 443.
114
Vandevelde, 303.
115
Id. See also Parkerings-Compagniet, ¶ 443.
116
Vandevelde, 303.
117
Vandevelde, 303. See Azurix, ¶ 444.
118
Parkerings-Champagniet, ¶ 447.
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did not involve the city acting under any sovereign authority; rather, the city acted no
differently than any other contracting party.119
36. The tribunal in Southern Pacific held that Egypt’s cancellation of a contract with a
private investor to build a hotel constituted expropriation because the state exercised its
sovereign authority to repudiate the contract due to political pressure, but offered no
compensation.120
Similarly, the tribunal in Siemens held that Argentina’s actions
constituted expropriation due to Argentina’s reliance on the political structure of the state
to cancel the contract.121
37. In the present case, the Respondent contends that Beritech’s exercise of the buyout clause
involved no exercise of sovereign authority, but only authority granted to any contracting
party under such a contract. Buyout clauses based upon material breaches are not
provisions given exclusively to states, and exercise of such provisions requires no
sovereign authority. Further, the confidentiality provision upon which the buyout clause
relied invoked no special authority or information available only under state contracts.
Any contracting parties developing sensitive products or services can insert similar
clauses into contract to protect a project’s privacy. Therefore, the Respondent acted only
in ways that any other party to a similar transaction would act, and as such, its actions
cannot constitute expropriation.
II. BERISTAN DID NOT DEPRIVE TELEVATIVE FROM SEEKING REMEDY OF THE ALLEGED
BREACH IN STATE COURT.
38. When a state breaches contractual obligations, but does not repudiate the contract, the
remedy for the breach lies in state courts and not pursuant to judicial remedies under the
investment treaty.122
As a general rule, investors suffering from a state’s contractual
119
Id. at ¶ 445.
120
Southern Pacific, ¶ 160-62.
121
Siemens, ¶ 248.
122
Vandevelde, 303.
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breach should seek adjudication of the claim in the appropriate forum to remedy the
breach under state law.123
39. A contract breach does not qualify as an expropriation unless the state has left the
investor no proper ways to seek redress for the breach.124
Deprivation by legal or
practical means of the investor’s right to seek remedy before the appropriate state court
does constitute expropriation under international law.125
40. The tribunal in Azinian held that, unless the claimants alleged a denial of justice from
improper access to state courts to seek a remedy, access to the tribunal under the treaty
should be denied.126
The tribunal in Encana held that challenges to contractual
obligations do not amount to a repudiation so long as the state submits its actions to
judicial review in good faith, and honor the decision of the court in performing the
review.127
The tribunal in Generation Ukraine held that the failure by the investor to
seek redress from state-level courts could disqualify an international claim, because the
investor could not allege expropriation in the absence of any reasonable efforts to obtain
redress in Ukrainian courts.128
41. In the present case, the Respondent contends it has not denied the Claimant due process
or justice. The JV agreement stipulated the forum contractually chosen for the settlement
of any disputes, including breach, under the agreement.129
The arbitral tribunal under
state law gives the Claimant the ability to raise any objections to Beritech’s action and
seek proper remedy for any breach. There is no reason to question the validity of the
arbitration tribunal under clause 17. The Claimant can point to no facts that would show
the tribunal would act unfairly or in a biased fashion. Any allegations of breach of the JV
123
Parkerings-Compagniet, ¶ 448.
124
Waste Management, ¶ 175.
125
Parkerings-Compagniet, ¶ 448.
126
Azinian, ¶ 100.
127
Encana, ¶ 192-94.
128
Generation Ukraine, ¶ 91.
129
Record, Annex 2, Clause 17.
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agreement must first be brought before the BERISTAN arbitration panel under the rules
of international law.
C. IN THE ALTERNATIVE, BERITECH’S EXERCISE OF THE BUYOUT CLAUSE IS LEGALLY
JUSTIFIED UNDER THE TREATY.
42. Under international law, states maintain the right to expropriate property of foreign
nationals for public purposes. This right is recognized under international law even with
the existence of anti-expropriation provisions in treaties.130
The fundamental purpose of
the state is to protect and preserve the public interest and security of its citizens, and the
state must be free to properly safeguard such interests, even if it results in the
expropriation of foreign investments.131
43. Article 4 of the Beristan-Opulentia BIT, reflecting customary international law,132
allows
for permissible expropriation under four conditions. It must be done:133
• For a public purpose;
• On a non-discriminatory basis;
• In accordance with all legal provisions and procedures; and
• On payment of immediate full and effective compensation.
44. Without prejudice to the preceding arguments, BERISTAN argues that the exercise of the
buyout clause by Beritech and the Sat-Connect Board were justified under Article 4(2) of
the Beristan-Opulentia BIT because: (i) the measure was taken to protect the public
interest and security; (ii) the measure was not discriminatory; (iii) the measure was taken
in accordance with all legal provisions and procedures; and (iv) Beritech offered
immediate full and effective compensation.
I. BERISTAN TOOK MEASURES TO PROTECT THE PUBLIC INTEREST AND NATIONAL
SECURITY.
130
Salacuse, 288.
131
Salacuse, 288; Dolzer & Scheuer, 89.
132
See NAFTA, Art. 1110; Restatement of Foreign Relations, § 185.
133
Beristan-Opulentia BIT, Art. 4(2).
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45. Virtually all investment treaties adopt the international law requirement that lawful
expropriation of a foreign investment must be done for a public purpose. The concept
and scope of the term “public purpose” is intentionally broad and grants states significant
power to justify any expropriatory actions.134
The nature and character of the
government’s actions in a particular case must be measured in light of the public interests
at stake.135
46. The tribunal in ADC Affiliate held that states invoking the public purpose requirement
must show some genuine interest of the public that must be protected.136
Assessment of
the public purpose falls to the state, and such assessments can justify even compulsory
transfers of investments from one party to another under international law.137
47. In the present case, the Respondent contends that the actions of both itself and Beritech
are justified to protect vital national security interests. Opulentia had requested access to
encryption keys essential to maintaining the security and integrity of the communication
system to be used by the Beristan military.138
These encryption keys and other measures
protect the system from interference and espionage of other states, and provide crucial
access to privileged communications that could implicate threats to the Respondent’s
national security and territorial sovereignty. The Respondent cannot allow such
instruments to fall into the control of other states and risk jeopardizing vital national
security interests that could threaten the its military or citizens.
134
Salacuse, 320.
135
McLachlan, 287.
136
ADC Affiliate, ¶ 432.
137
See OECD Indirect Expropriation, 14.
138
Clarification Request, 178.
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II. BERISTAN’S MEASURES ARE NOT DISCRIMINATORY.
48. BERISTAN contends that its treatment of CLAIMANT was not discriminatory. States
discriminate against foreign investments when it treats those investments less favorably
than domestic investments or others in like circumstances.139
However, international law
provides exceptions for such treatment if the state has an objective and reasonable
justification.140
49. Tribunals such as Saluka and Feldman have upheld the right of host states to provide
differential treatment between investments of foreign investors and those of domestic
companies, so long as the host states provide a reasonable basis for their actions.141
50. In the present case, the Respondent acted reasonably to protect its own national security
interests.142
In comparing the differentiated treatment given to Beritech and the Claimant,
the actions of the Opulentian government create reasonable and objective justifications
for the Respondent’s actions. The Claimant admitted that Opulentia had requested access
to the encryption keys for the Sat-Connect project, and Opulentia had received similar
access in other projects.143
Access to these keys would jeopardize the network’s security
and grant Opulentia access to classified military intelligence and communications of the
highest importance to the Respondent. This risk shows the Respondent acted reasonably
to sever any potential access Opulentia would have to the network.
III. BERISTAN’S ACTIONS WERE IN ACCORDANCE WITH DUE PROCESS OF LAW.
51. International law requires that any legal expropriation by a state must respect proper due
process of law.144
The expropriation must conform to all processes and procedures under
139
Newcombe & Paradell, 162.
140
Vandevelde, 273.
141
Saluka, ¶ 313; Feldman, ¶ 72.
142
See supra notes (insert note #s) and accompanying text).
143
Clarification Requests, 178.
144
Salacuse, 322.
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domestic internal law.145
These obligations require host states to provide foreign investors
with an adequate opportunity to challenge the expropriation under host-state law, and
denial of judicial review amounts to a denial of justice.146
52. The tribunal in ADC Affiliate defined the principle as:147
“[Demanding] an actual and substantive legal procedure for a foreign investor to
raise its claims against the depriving actions already taken or about to be taken
against it... The legal procedure must be of a nature to grant an affected investor a
reasonable chance to be heard.”
53. In the present case, the Respondent contends it followed all due process requirements in
lawfully expropriating the Claimant’s investment. The JV agreement and Beristian
corporate law provide the Claimant with unbiased and substantive legal procedures for
adjudicating its challenges to the expropriation of its investment.148
Clause 17 of the JV
agreement establishes clear legal procedures under the 1959 Arbitration Act for
adjudication of the dispute.149
The arbitration panel provides the Claimant with a fair
opportunity to have its claims heard within a reasonable period of time. Therefore, all
necessary procedural due process has been followed by BERISTAN.
IV. BERISTAN OFFERED TELEVATIVE IMMEDIATE FULL AND EFFECTIVE
COMPENSATION.
54. Article 4(2) of the Beristan-Opulentia BIT requires either Contracting Party must pay
immediate full and effective compensation for the expropriated investment protected by
the treaty.
55. The Respondent contends that the two parties previously agreed upon the value of full
compensation in the terms of the JV agreement. Clause 8 states that the Claimant’s
145
Vandevelde, 273.
146
Id. See also Austria-Georgia BIT, Art. 5(3).
147
ADC Affiliate, 435.
148
See Record, Annex 3, Clause 17.
149
Id.
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investment in Sat-Connect was valued as the monetary investment in Sat-Connect made
during the time between signing the agreement and the exercise of the buyout clause.150
The Claimant agrees that $48 million, the amount Beritech has placed in escrow,
represents the Claimant’s total paid-in investment at the time of the buyout. The
Claimant’s requests regarding intellectual property developed for the project are null and
void, as the Claimant retains no legal title or control over such investments, and therefore
the value of the investments cannot be included in a determination of fair
compensation.151
150
Record, Annex 3, Clause 8.
151
See id.
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PART IV:
BERISTAN HAS PROVIDED TREATMENT IN ACCORDANCE WITH
CUSTOMARY INTERNATIONAL LAW.
56. Article 2(2) of the Beristan-Opulentia BIT guarantees both contracting parties will treat
investors pursuant to standards of customary international law by stating:
“Both Contracting Parties shall at all times ensure in accordance with customary
international law, including fair and equitable treatment and full protection and
security of the investments of investors of the other Contracting Party.”
57. Article 2(3) of the Beristan-Opulentia BIT requires that both Contracting Parties must
ensure that each investment made within its respective territory by investors of the other
Contracting Party not be subjected to unjustified or discriminatory measures.
58. Many international treaties,152
bilateral treaties,153
arbitral decisions,154
and
commentary155
generally concur that a state’s obligations to foreign investments under
customary international law includes certain inviolable standards of treatment. These
include fair and equitable treatment, full protection and security, and nondiscriminatory
behavior. Past arbitral tribunals have held that such standards of treatment are not
freestanding obligations due each investor, but rather are obligations to the extent the
standards are recognized under customary international law.156
59. In the present case, the Respondent contends that its actions do not amount to a violation
of its obligations under Article 2(2) of the Beristan-Opulentia BIT because it never failed
to provide treatment to the Claimant that was inconsistent with its obligations pursuant to
152
NAFTA, Art. 1105(1); CAFTA, Art. 10(5)(1); Transnational Corporations, Art. 48.
153
US Model BIT, Art. 5; US-Chile BIT, Art. 10.
154
Mondev, ¶ 125; Alex Genin, ¶ 144.
155
See Newcombe & Paradell, 234-35; Yannaca-Small, 394-410; UNCTAD Bilateral Investment
Treaties, 28-33.
156
Loewen Group, ¶ 128.
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customary international legal standards of: (A) fair and equitable treatment of the
Claimant’s investment; (B) full protection and security of the Claimant’s investment; and
(C) nondiscriminatory treatment of the Claimant.
A. BERISTAN’S ACTIONS DID NOT VIOLATE THE STANDARD OF FAIR AND EQUITABLE
TREATMENT.
60. Article 2(2) of the Beristan-Opulentia BIT guarantees fair and equitable treatment of
investors by stating:
“Both Contracting Parties shall at all times ensure in accordance with customary
international law, including fair and equitable treatment... of the investments of
investors of the other Contracting Party.”
61. In the present case, the Respondent contends that its action to remove the Claimant’s
personnel from the Sat-Connect facilities is not in breach of Article 2(2) of the BeristanOpulentia
BIT because the Respondent did not offer unfair or inequitable treatment to the
Claimant.
62. Fair and equitable treatment indicates a state’s willingness to accommodate foreign
capital on terms that account for foreign investors’ interest in fairness and equity157
As
such, a state must provide a reasonably stable investment environment for foreign
investors consistent with investors’ expectations.158
63. General consensus among arbitral tribunals159
and international instruments160
shows that
the interpretation of the fair and equitable treatment standard equates requisite state
guarantees with the minimum standard required by customary international law.161
These
tribunals and instruments have generally rejected any interpretation of fair and equitable
157
Salacuse, 218.
158
Moses, 230.
159
See Alex Genin, ¶ 367; Occidental, ¶ 188, 190; Saluka, ¶ 291;
160
See NAFTA Free Trade Commission, Interpretation of Article 1105(1); 2004 Canadian
Model FIPA, Art. 1, Notes and Comments, 13-15 (1967).
161
See Brownlie, 502-505; Jennings & Watts, 903-39; Muchlinski, 625; Newcombe & Paradell,
234; Roth, 127;
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treatment that mandates greater substantive protections for investors than those included
under customary international law.162
64. While a tribunal’s determination of possible violations of fair and equitable treatment
depends on the facts presented in a particular case,163
some general principles have
emerged among arbitral awards regarding how tribunals determine violations of the
standard. In determining whether a host state’s actions constitute a denial of due process
or justice, and whether a host state violated an investor’s legitimate expectations.164
65. The Respondent contends that there can be no finding of a violation of the fair and
equitable treatment standard because: (i) it did not deny justice or proper due process to
the Claimant; and (ii) it acted in a reasonable manner and did not violate the Claimant’s
legitimate investment expectations.
i. BERISTAN DID NOT DENY JUSTICE OR PROPER DUE PROCESS TO TELEVATIVE.
66. Procedural fairness is a basic requirement of customary international law and a
fundamental element of fair and equitable treatment.165
Failure to respect procedural
fairness is deemed a denial of justice under treaty obligations.166
The Restatement of
Foreign Relations defines “denial of justice” as:
“An injury consisting of or resulting from denial of access to courts, or denial of
procedural fairness and due process in relation to judicial proceedings, whether
criminal or civil.”167
67. Many international instruments clarify that the fair and equitable treatment standard
protects against denials of justice and guarantees procedural due process for all foreign
investors.168
162
U.S. Model BIT, Article 5(2).
163
Mondev, ¶ 118; Dugan, 506.
164
Dugan, 507-531; Salacuse, 228-231;Vandevelde, 202-203.
165
Salacuse, 241.
166
See id.
167
Restatement of Foreign Relations, §711, comm. a.
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68. In Alex Genin, the tribunal held that violations of this minimum standard would constitute
willful neglect of duty and not meet international standards of justice and due process.169
Such acts must lead to an outcome that offends a sense of judicial propriety stemming
from a manifest failure of justice in a state’s judicial proceedings.170
69. Similarly, the tribunal in ELSI held that arbitrary conduct of the host state would violate
the fair and equitable treatment standard if the conduct displayed
a willful disregard of due process of the law that “shocks, or at least surprises, a sense of
judicial propriety.”171
The procedural irregularities in the state judicial decisions must be
so arbitrary in nature that they represent a willful disregard of due process by the host
state.172
70. In the present case, courts of local jurisdiction within Beristan have yet to take any
actions subsequent to the dispute between Beritech and The Claimant. The Claimant
therefore can claim no denial of justice or breach of procedural due process for Beritech’s
actions, as Beritech has presented it with the opportunity to arbitrate this contractual
dispute pursuant to the jurisdiction established in the JV agreement.173
At no point did
the Respondent deny the Claimant access to the courts of jurisdiction over this dispute or
adequate procedures to challenge the exercise of the buyout clause.
168
See U.S. Model BIT, Article 5(2)(a); U.S.-Chile FTA, art. 10.4(2)(a).
169
Alex Genin, ¶ 367.
170
Loewen Group, ¶ 132; Waste Management, ¶ 98.
171
ELSI, ¶ 128.
172
Alex Genin, ¶ 371.
173
Record, Annex 3, Clause 17.
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ii. BERISTAN ACTED IN A REASONABLE MANNER AND DID NOT VIOLATE TELEVATIVE’S
LEGITIMATE INVESTMENT EXPECTATIONS.
71. The fair and equitable treatment standard requires host states to provide a transparent and
predictable framework for foreign investment.174
This obligation requires states to take
necessary measures to ensure investors’ expectations that they will be able to enjoy their
investments.175
72. In assessing fair and equitable treatment, tribunals examine whether a host state or
agency made representations, gave assurances, or took some other actions upon which the
foreign investor materially relied in making the investment.176
Violation of the standard
occurs when the host state changes its position in a way that frustrates the investor’s
resulting expectations from the state’s initial representation.177
73. When host state actions are based upon legitimate policy concerns and not other arbitrary
or discriminatory measures, tribunals tend to find the conduct reasonable under the
circumstances.178
The tribunal in Saluka held that the determination of a breach of fair
and equitable treatment requires balancing the investor’s legitimate and reasonable
expectations against the state’s legitimate and reasonable interests in furthering some
aspect of public policy.179
A measure of the reasonableness of the state’s actions requires
that the host state’s conduct bear a reasonable relationship to some rational policy.180
74. Conversely, tribunals in Eureko181
and Biwater182
deemed state actions to be violations of
the fair and equitable treatment standard when the actions were motivated by political
174
Metalclad, ¶ 185.
175
Id.
176
Dugan, 510.
177
Id. at 510-11.
178
Vandevelde, 204.
179
Saluka, ¶ 306.
180
Id. at ¶ 307.
181
Eureko, ¶ 233.
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and nationalistic considerations instead of legitimate public purposes. Such behavior
failed to constitute reasonable actions and inherently interfered with investors’
expectations subsequent to the applicable treaty.
75. In the present case, the Respondent has not interfered with the Claimant’s legitimate
expectations as the Respondent’s actions were reasonably related to protecting vital
national security interests. The respondent acted reasonably to prevent possible acces to
the encrypted military communications network and future leaks of confidential
information regarding the network. Allowing Opulentia access would jeopardize the
Respondent’s national security interests, and it is reasonable for a state to take actions to
limit such threats.
B. BERISTAN’S ACTIONS DID NOT VIOLATE THE STANDARD OF FULL PROTECTION AND
SECURITY UNDER CUSTOMARY INTERNATIONAL LAW.
76. Article 2(2) of the Beristan-Opulentia BIT guarantees fair and equitable treatment of
investors by stating:
“Both Contracting Parties shall at all times ensure in accordance with customary
international law, including . . . full protection and security of the investments of
investors of the other Contracting Party.”
77. The standard of full protection and security requires host countries to utilize due
diligence to protect foreign investors from physical injury to their persons or property,
whether by government bodies or independent third parties.183
Evaluation of the due
diligence standard lacks rigid principles and instead relies upon the facts in individual
cases for determination.184
Any notion that the full protection and security standard
confers strict liability upon states for any impacts upon investments has been summarily
rejected.185
182
Biwater, ¶ 500.
183
See Salacuse, 209; United States-Uruguay BIT, Art. 5(2)(B) (2005).
184
See Brownlie, 454.
185
See AAPL, ¶ 53; Tecmed, ¶ 177; ELSI, ¶ 108.
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78. In Saluka, the tribunal held that the full protection and security standard applied in cases
where civil strife and physical violence in a host state impacted foreign investment.186
The tribunal explained that the standard exists to protect the physical integrity of
investments against interference by use of force.187
In Eastern Sugar, the tribunal
interpreted the standard in the Czech-Netherlands BIT to obligate states to ensure
protection of foreign investment from physical violence perpetuated by mobs, insurgents,
thugs and others.188
79. In the present case, the Respondent has not failed to provide full protection and security
for the Claimant’s investment because there were no threats of physical violence or
violations of the physical integrity of the investment. At the time the CWF removed the
Claimant’s personnel, its investment had been legally severed by the Board of Directors.
C. BERISTAN DID NOT SUBJECT TELEVATIVE’S INVESTMENT TO UNJUSTIFIED OR
DISCRIMINATORY MEASURES.
80. Article 2(3) of the Beristan-Opulentia BIT obligates both Contracting Parties to ensure
that each investment made within its territory by investors of the other Contracting Party
must not be subjected to unjustified or discriminatory measures.
81. Under such a formulation in similar treaties, most tribunals have concluded that there is a
separate national treatment provision that prohibits nationality-based discrimination
against foreign investments.189
82. Article 3(1) and 3(2) of the Beristan-Opulentia BIT provides that contracting parties shall
offer investments and activities connected with those investments treatment that is no less
favorable than that accorded to domestic investments and activities, or those of a third
186
Saluka, ¶ 484-84.
187
Id.
188
Eastern Sugar, ¶ 203.
189
Yannaca-Small, 434; LG&E, ¶ 147; Lauder, 219-20.
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country.190
Commentators however have stipulated that some degree of discrimination in
the treatment of foreign investors as compared with nationals is generally permissible as
a matter of customary international law.191
83. Generally, the claimant must show that its investment has been treated less favorably than
that of a domestic or third country comparator in like circumstances, and must also show
that the host state had no legitimate reasons for structuring such differential treatment.192
Tribunals such as Saluka193
and Feldman194
have held that host states can provide
differential treatment between investments and activities of foreign states and those of
domestic companies so long as host states provide a rational basis for their actions.
84. In the present case, the Respondent did not discriminate against the Claimant’s
investment because it acted rationally in according differential treatment to the
investments of Beritech and the Claimant. The action of Beritech’s Board of Directors
extinguished the Claimant’s rights in the Sat-Connect project, and therefore the
Respondent had a reasonable basis to remove the Claimant’s personnel from a sensitive
military project with vital national security implications. The Respondent acted swiftly to
preserve the future confidentiality of the project and fortify its own security interests.
190
Beristan-Opulentia BIT, Art. 3(1), (2).
191
Jennings & Watts, 932.
192
Newcombe & Paradell, 162;
193
Saluka, ¶ 313.
194
Feldman, ¶ 72.
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PART V:
BERISTAN IS ENTITLED TO RELY ON ARTICLE 9 OF THE
BERISTAN-OPULENTIA BIT AS A DEFENSE.
85. CLAIMANT claims that BERISTAN is not entitled to rely on Article 9 of the BeristanOpulentia
BIT, which grants broad discretion to contracting parties to take measures
necessary to protect its own essential security interests, even if those measures conflict
with the state’s obligations under the Beristan-Opulentia BIT.
86. Article 9 of the Beristan-Opulentia BIT states:
“Nothing in this treaty shall be construed: [...]
2. to preclude a Party from applying measures that it considers necessary for ...
the protection of its own essential security interests.”
87. Without prejudice to the preceding arguments, the Respondent contends that it is entitled
to rely on Article 9 as a defense to the Claimant’s breach of treaty obligations claims
because: (i) the clause is inherently a self-judging exception to the treaty obligations; (ii)
the clause grants broad discretion to the Respondent to protect its essential security
interests; and (iii) the Respondent acted in good faith in invoking the exception.
A. ARTICLE 9 IS INHERENTLY SELF-JUDGING.
88. Self-judging clauses in international treaties allow states to reserve the right to breach
their duty of compliance with international legal obligations in certain circumstances,
such as when compliance with the obligations could threaten its sovereignty, security or
essential interests.195
Such clauses permit states to undertake unilateral actions to protect
such interests in breach of its bilateral or multilateral obligations.
195
See Briese & Schill, 1-2; Schloemann & Ohlhoff, 426.
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89. The existence of a self-judging clause in an international treaty cannot be presumed.
Article 31(1) of the Vienna Convention requires treaties be interpreted according to its
plain language meaning.196
Interpretation of the language must be objective and not
skewed by a state’s subjective intentions.197
All international treaties and obligations
presuppose cooperation between states rather than unilateral actions, and such exceptions
for unilateral actions must be expressly written into the language.198
90. Recent ICSID decisions have adopted the position that self-judging clauses must be
framed explicitly in order to grant the state invoking the clause broad discretion to
determine the scope of its application.199
Other international tribunals have upheld the
requirement of explicit language necessary to create a self-judging exception to
international obligations.200
91. International instruments including essential security exceptions interpreted as selfjudging
follow similar construction. For example, Article XXI of GATT states:
“Nothing in this agreement shall be construed...
B) to prevent any contracting party from taking any action which it considers
necessary for the protection of its essential security interests.”201
92. Article 2102(1) of NAFTA provides that:
“Nothing in the agreement shall be construed...
B) to prevent any party from taking any actions that it considers necessary for the
protection of its essential security interests.202
196
Vienna Convention, Art. 31(1) (“treaty shall be interpreted in good faith in accordance with
the ordinary meaning to be given to the terms of the treaty in their context and in the light of its
object and purpose”)
197
Briese & Schill, 6.
198
Id.
199
See CMS Gas, ¶ 366 et seq.; LG&E Energy, ¶212 et seq.; Sempra Energy, ¶ 374-85; Enron, ¶
335-39.
200
See Paramilitary Activities, ¶ 221-22.
201
GATT, Art. XXI (emphasis added)
202
NAFTA, Art. 2102(1) (emphasis added)
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93. In contrast, the ICJ held in Paramilitary Activities that the essential security exception in
the 1956 treaty between the United States and Nicaragua was not self-judging because its
language was different than Art. XXI of GATT.203
The treaty’s language provided:
“The present treaty shall not preclude the application of measures necessary to
protect (a party’s) essential security interests.”204
94. From these examples, international law requires that the self-judging nature of the clause
be apparent from its reading.205
Simple references to “measures necessary for the
protection of essential security interests” differ greatly from “measures that the state
considers to be necessary for the protection of its essential security interests.” Any
exceptions clause with language similar to “it considers necessary” can be clearly
interpreted under the Vienna Convention to be self-judging and creating discretion for
unilateral consideration of the scope and applicability of the provision.
95. In the present case, the Respondent contends that a plain meaning interpretation of
Article 9 of the Beristan-Opulentia BIT shows that the invocation of the clause is selfjudging.
Similar to the language in GATT’s Art. XXI and NAFTA’s Art. 2102(1), Article
9 states that either party can take measures “that it considers necessary” to protect its
own essential security interests. The phrase “it considers necessary” confers unilateral
power upon either contracting party to invoke the exception and breach its treaty
obligations. Therefore, this language is specific as to the self-judging nature of the
exceptions clause in the Beristan-Opulentia BIT.
B. THE CLAUSE GRANTS BROAD DISCRETION TO BERISTAN TO PROTECT ITS ESSENTIAL
SECURITY INTERESTS.
96. Self-judging exceptions grant a state broad discretion in the determination of the scope of
application allowable under international law. The nature of this authority entitles the
state to determine, within certain limits, the content of the exception, and any interference
203
Paramilitary Activities, ¶ 222.
204
Id. (emphasis added).
205
Briese & Schill, 9.
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with this determination by a third party is unlawful.206
International courts and tribunals
have traditionally exercised self-restraint regarding their legitimacy and capacity to
adjudicate disputes in areas such as “security” and “essential interests,” as these are
considered fundamental to state sovereignty and unsuitable for judicial review.207
97. While such exception provisions have rarely been subject to judicial review, most
commentators and international authorities agree that these exceptions clearly assign
authority to determine and interpret the scope of the exception to the state concerned, and
not the international tribunal.208
While dicta in earlier cases such as Paramilitary
Activities seemed to state that self-judging exception clauses could act as a complete bar
to jurisdiction by tribunals,209
recent decisions have not followed this.210
98. Some international treaties have outlined certain criteria that limit the invocation of the
exceptions clause. For example, NAFTA’s Art. 2102(1) limits actions taken to protect
essential interests in time of war or other emergency, as related to the non-proliferation of
nuclear weapons, and relating to military and weapons sales.211
Similar provisions apply
under GATT Art. XXI. These provisions function as objective standards of satisfaction
reviewable by international tribunals.212
Tribunals can review the actions of states
invoking the exception to ensure that the threat faced by the state fell within one of the
exceptions.
99. In contrast, the Respondent argues that such objective review of its actions is
impermissible under the plain meaning interpretation of Article 9 of the BeristanOpulentia
BIT. Both parties to the Beristan-Opulentia BIT knew of the broad scope
created by self-judging clauses, and could have inserted language or mechanisms to
restrict its operation. As the parties chose not to do this, the tribunal must interpret the
206
Salacuse, 344.
207
Shany, 907-15.
208
See New York Convention, Art. V(2)(B); Schloemann & Ohlhoff, 446.
209
Paramilitary Activities, ¶
210
Djibouti, ¶ 135.
211
See NAFTA, Art. 2102(1)(b)(i-iii).
212
Schloemann & Ohlhoff, 444-46; Hahn, 584-88.
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clause to allow for a broad scope of activity as permissible, even if the tribunal deems
such actions as adverse to international cooperation.
C. BERISTAN INVOKED ARTICLE 9 IN GOOD FAITH.
100. Under the current interpretation in international law of broad essential security
exceptions, the actions of a state are subject to judicial review to determine whether the
state acted in good faith.213
The good faith review protects the object and purpose of the
treaty against acts intending to deprive it of its use.214
101. Recent ICSID tribunals have stated that the appropriate standard of review for selfjudging
clauses is one of good faith.215
Other tribunals have upheld the right to conduct a
very limited good faith review of a state’s actions in such situations.216
Although GATT’s
Art. XXI has yet to be reviewed under a tribunal, commentators agree that any state
invoking the exception must be subject to a good faith review of its actions.217
102. The good faith obligation in Article 26 of the Vienna Convention obliges parties to a
treaty to apply the terms in a reasonable way and in such a manner that its purpose can be
realized. The U.N. Convention on the Law of the Sea defines good faith as requiring
“fairness, reasonableness, integrity, and honest in international behavior,”
218
Commentators, while disagreeing on the exact degree of review for good faith,
generally agree that the state must have a reasonable basis for invocation of the
exception, and that the state’s actions must be minimally proportional to the threat it
faces.219
213
Burke-White & von Staden, 376.
214
Briese & Schill, 24-50.
215
See LG&E, ¶ 214; Sempra Energy, ¶ 388; Enron, ¶ 339.
216
See Djibouti, ¶ 147.
217
See Hahn, 599-601; Schloemann & Ohlhoff, 445.
218
Law of the Sea, Art. 300
219
See Hahn, 599-601; Schloemann & Ohlhoff, 445; Akande & Williams, 392; Burke-White &
von Staden, 376-382.
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103. In the present case, the Respondent invoked Article 9 in good faith. As previously stated,
Opulentia had attempted to gain access to encryption keys essential to the security and
protection of the Sat-Connect communications system.220
The access these keys would
give Opulentia to the Respondent’s military communications system would jeopardize
vital national security interests and privileged communication that the Respondent must
protect. As Opulentia had received similar access from other Opulentian
telecommunications companies, and because foreign laws could compel the Claimant to
disclose its encryption keys and ciphers to Opulentia, execution of the buyout clause is
the only way the Respondent could ensure that Opulentia had no access to the military
communications network. Therefore, the Respondent’s actions were both reasonable in
light of the circumstances and proportional to the threat facing its national security.
220